Unrest bolsters demand for corporate rescue services

Despite headwinds, demand for regulatory practice and advisory on cross-border issues may still grow.

Hong Kong’s legal sector is expected to see heightened competition as the Big Four accounting firms attempt to enter the industry, international and local firms continue to grow its in-house teams, and magic circle firms look to expand in the region, HFW’s office head in Hong Kong, Patrick Yeung, said.

In recent years, the Big 4 accounting firms—namely Deloitte, EY, KPMG and PwC—have been expanding to the legal sector, particularly in Asia Pacific, Tony Williams, Principal at Jomati Consultants, wrote in The Law Society of Hong Kong Journal. Earlier this year, Deloitte launched a law firm, called J. E. Jamison & Co., in the city.

A separate article from the journal stated that the number of junior and more senior level lawyers transitioning to in-house is growing, as more companies expanded their legal teams to effectively manage costs instead of seeking external legal counsel.

Working under in-house legal teams are said to have become highly attractive to many Hong Kong-based lawyers. Such positions are perceived to offer a better work-life balance and greater opportunity to become a key stakeholder, Lewis Sanders Legal Recruitment’s Camilla Worthington and Chris Chu found. This is despite Robert Walter’s survey findings that associates under private practices are more likely to have higher salaries ($500,000 to $1m) than those working in in-house teams ($500,000 to $1.6m).

As it is, the survey revealed that although two in three, or 67%, of legal and compliance professionals feel optimistic about job opportunities in 2020, most of them do not feel too hyped about their earnings. Almost half (49%) expect a salary increment of just 1-6%, whereas 27% expect 7-15%. Only 22% are anticipating anything more than that. 

Market uncertainties aren’t helping—the economy abruptly contracted 2.9% in Q3 2019 right after a modest 0.4% growth in the previous quarter. Still, the demand for some legal services could withstand the headwinds, or in some cases even thrive from it.

A boon for regulatory practices
Michael Page expects regulatory practices and corporate rescue services in insolvency and restructuring to become increasingly popular amidst such uncertainties. In a separate report by Robert Walters, the annual salary for regulatory advising officers in banking are tipped to rise to $400,000 to $650,000 in 2020, compared to $350,000 to $450,000 in 2019. Yeung also believes that law firms will see greater demand for complex advice on either transactional or contentious cross-border issues coming into 2020. “Despite an unpredictable global economic outlook, the confidence in cross-border opportunities remains high. Global trade and development opportunities and issues will primarily drive this demand,” he said.

Advisory on data protection governance and data privacy policies are expected to maintain popular as well, especially with the European Union General Data Protection Regulation (GDPR) coming into force since 2018.

“This is particularly because the EU is the second largest trading partner for Hong Kong but also because the multinational businesses in Hong Kong are compliant and would rather adhere to a stricter standard,” Michael Page director Serena Tang explained.

Lawyers who advise on IPOs may be excited over the bullish outlook for the market, but Michael Page isn’t too hyped about its effect on the legal sector. “In the last three years, many firms have expanded their corporate teams, they have the capacity to take on the deals without having to increase headcount significantly,” said Brian Chan, Michael Page Hong Kong’s senior consultant.

A report by Deloitte reveals that Hong Kong is tipped to record 160 new listings in 2020, as more overseas-listed Chinese tech firms are expected to come back to Hong Kong following Alibaba’s secondary listing. “We remain hopeful in the Hong Kong IPO market as the city remains a competitive and strategic platform particularly for New Economy and international listings,” Tang said.

Another major change in Hong Kong’s legal sector is when the Hong Kong government and the Supreme People’s Court of China signed an arrangement in April that would allow any party involved in arbitration proceedings in Hong Kong to apply for interim measures in Mainland Chinese courts before or after the arbitral institution accepts a Notice of Arbitration, and vice-versa. Measures include preservation of assets, evidence and conduct.

Boosting dispute resolution status
According to a news release by the Hong Kong International Arbitration Centre (HKIAC), the interim measures available in Hong Kong include maintaining or restoring the status quo whilst waiting for the resolution of the dispute, preventing actions that may cause harm or prejudice to the arbitral process, as well as preserving assets and relevant evidence to the dispute resolution.

HKIAC also stated that the arrangement is bound to create a new source of work for law firms: as it compels more parties to pick Hong Kong as a seat of arbitrations involving parties in the Mainland, it will bring more work to law firms that participate in Hong Kong seated arbitrations. The arbitration centre noted that all of the 11 applications related to the interim measures they have received as of 13 December came from law firms on behalf of parties.
Michael Page’s Chan also expects regional arbitration to become in demand. “The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the HKSAR will enhance the attractiveness of choosing Hong Kong as a seat of arbitration where there is a possibility that interim measures may be required in Mainland China,” he said.

Cross-border dispute resolution has been a fast growing area of law in Hong Kong. According to data from the Hong Kong Trade Development Council (HKTDC), 521 cases have been carried out in the HKIAC, including 265 arbitration cases and 21 mediation disputes in 2018. The total amount in dispute for the cases that have been administered has hit about $52.2b.

Amongst these arbitration cases, majority or 190 are international in scope, with Mainland Chinese parties amongst the most frequent users of their service. The most involved sectors in HKIAC seated arbitrations were from international trade, which took up 29.6% of the total. It is followed by the corporate sector with 18.6%, and maritime holding 15.1% of the total.

However, growing unrest has put a dent on Hong Kong’s appeal as a seat of arbitration. A report by Reuters revealed that some firms have shifted arbitration hearings out of the city to Singapore out of fear for their safety.