Since Hong Kong implemented its Civil Justice Reform in April 2009, a great effort has been made to encourage a wider application of mediation in dispute resolution. Legislations were enacted, e.g. Mediation Ordinance (Cap.620) and Apology Ordinance (Cap.631), and campaigns were launched, e.g. ‘Mediation First Pledge’, to promote the use of mediation. This city never hides its ambition of becoming a mediation center of Asia-Pacific region or even the world, and it has come a step closer to its goal with the promulgation of Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area (“Outline Plan”) in February 2019.
According to the Outline Plan, the Greater Bay Area is to be promoted to be a private wealth management (“PWM”) hub where millionaires from mainland China could move their money across borders under Wealth Management Connect (“WMC”) scheme, which was jointly launched on 29 June 2020 by the Hong Kong Monetary Authority, the People’s Bank of China, and the Monetary Authority of Macau. Undoubtedly, the Outline Plan and the WMC will significantly benefit Hong Kong which already has a regulated and developed PWM industry. However, the city must not ignore the corresponding opportunity for its mediation industry and should explore its great potential in widely providing mediation service to PWM disputes.
Hong Kong – A Booming PWM Market
Hong Kong has been a leading PWM hub in Asia-Pacific region. In 2018, around US$1.3 trillion in cross-border wealth has been booked in Hong Kong. According to Sector Survey Paper titled “Hong Kong as the Regional Wealth Management Hub” issued by the Hong Kong Financial Services Development Council in February 2020 (“FSDC Report”), the city has a strong high net worth clients base, that the number of high net worth individuals has increased 23% across the five years between 2013 and 2018, reaching 153,310 from 124,200. Besides serving local clients, over half of the assets managed in Hong Kong are from non-local investors, including those from North America (21%), Asia-Pacific (ex-China) (14%), Mainland China (11%), and Europe (9%).
After promulgation of the Outline Plan, the clients base would be further expanded. First, because of Hong Kong’s geographical proximity to mainland China, it is especially appealing to the mainland clients who prefer the ‘feel and touch’ of the money and appreciate the convenience of meeting the PWM professionals in-person. Secondly, as per the FSDC Report, an increasing demand for more sophisticated financial products can be observed in mainland, especially Greater Bay Area, where the wealth accumulation has reached certain maturity. Thirdly, various measures and policies are launched to link up the capital markets in the mainland and Hong Kong, especially the WMC that facilitates cross-boundary wealth management within the Greater Bay Area.
In addition, with around 1,800 asset management firms presenting in Hong Kong, PWM products and solution offerings available in the market are diverse, including efficient banking and lending support, offerings of closed- and open-ended funds, fixed income products, as well as more sophisticated and tailored structured product solutions. A wide range of assets classes can be managed by these firms, such as public and private equities, collective investment schemes, fixed income products, derivatives, therefore the needs of clients’ existing portfolios and future investment plans can be matched.
Apart from the advantages of having strong clients base and capacity of providing diverse services, Hong Kong is also famous for its transparent regulatory regime and tech-friendly environment, as well as the availability of professional talents. All these strengths contribute to the city’s prosperity as a PWM hub.
Mediation in PWM Disputes – Huge Opportunities?
Experiencing a boom of PWM industry, Hong Kong would inevitably observe an increase of disputes arising from PWM affairs. These disputes may happen within wealthy family members, e.g. between siblings, heirs, or even between parents and children, when they have different ideas as to the succession, distribution, investment and management of family properties and business. However, given the family context, the root of disputes sometimes is more concerned with anger and grievances that cannot be effectively resolved by litigation before the court. In this regard, mediation would be a better choice.
As an important kind of alternative dispute resolution, mediation has a number of advantages that makes it a useful and cost-effective mean of resolving PWM disputes within family members. First, unlike litigation and arbitration, mediation is non-adjudicative in nature, so the involved mediator does not decide who is right and wrong, nor does the mediator “decide” any of the issues in the dispute. Instead, the main task of a mediator is to facilitate the discussion and negotiation, bring the parties together and help them identify their key considerations and interests. Through the assistance of a mediator, each party would be able to understand their disputed issues and reach common agreement. Secondly, there is no ‘loser’ in a mediation. Mediation is consensual in the sense that parties actively control the mediation process and the outcome of mediation settlement is based on their consensus. Thirdly, mediation is confidential and conducted on a “without prejudice” basis. Under Section 9 of Mediation Ordinance (Cap.620), a mediation communication is not admitted as evidence in any proceedings except with leave of the court or tribunal. Lastly, compared with litigation and arbitration, mediation is relatively time saving and cost-effective. It is quick to arrange and the process is informal and flexible, as parties mutually decide the time and venue of mediation, and the documentation required is usually much less than what is needed in the litigation. Once the settlement is signed, it serves as a legally binding contract.
Because of the aforesaid advantages, mediation is a good choice for resolving PWM disputes in Hong Kong. Family members who are in dispute tend to keep their personal lives, family fights and assets value from the public eye, as the light of publicity often makes compromise more difficult. Besides, although in the face of it parties may fight over family assets, what they try to sort out in the disputes may remain those old issues such as sibling rivalry and dominance, conflicting feelings, misunderstandings of intent, divergent expectations, and resistance to change or unspoken fears. In this aspect, mediation offers parties a good chance to express their emotion and come up with creative solutions in a less intimidating process, so that in the best case the disputes are resolved while the family relationship is maintained, unlike litigation which rarely heals differences or promotes understanding, not to mention that the available remedies is limited in the court. Therefore, mediation is an effective way to address PWM disputes and avoid the long-term adverse consequences of litigating family assets, succession and trusts disputes.
Mediation and PWM – A Formidable Combination?
Given the boom of PWM market in Hong Kong and the advantages of mediation in resolving PWM disputes, Hong Kong mediation industry, while promoting the wider use of mediation generally, should not ignore the untapped potential in PWM market. This would also benefit the city in its progress of building a legal and financial center. After high net worth individuals set up their family offices in Hong Kong to manage family assets, they naturally look to obtain effective and efficient means to solve any possible PWM dispute once it happens.
In these circumstances, Hong Kong legal professionals would be able to meet clients’ needs by providing their outstanding services thanks to their long-term practice of mediation and negotiation. What’s more, the city has a reputable and respected legal system under the principle of rule of law and the framework of ‘One Country, Two System’, which has already made it a legal hub for international litigations and arbitrations. Nevertheless, such position would be strengthened if the relatively new and innovative dispute resolution method, i.e. mediation, could take advantage of the welcoming legal system to engage more PWM disputes. Together with the wide confidence in local legal system and the advantages of regulated mediation process, more PWM clients would be attracted to Hong Kong, boosting the PWM and mediation industries as well as pushing the city towards its goal of becoming a financial and legal hub of the world.