Hong Kong firm begins arbitration proceedings over ruling against its Panama Canal port contract

HONG KONG — Hong Kong's CK Hutchison Holdings said Wednesday its subsidiary started arbitration proceedings against Panama after that country's Supreme Court ruled a concession for the subsidiary to operate Panama Canal ports was unconstitutional.

Hutchison said it strongly disagreed with last week's ruling, and China warned Panama would pay ''a heavy price" if it persisted. Panama's president has moved to assure the public that the ports would operate without interruption after the ruling, which advanced a U.S. aim to block any influence by China over the canal linking the Atlantic and Pacific oceans.

Hutchison's subsidiary, Panama Ports Company, began arbitration proceedings Tuesday under the rules of the Paris-based International Chamber of Commerce, the company said in a statement.

The rules are overseen by the chamber's International Court of Arbitration, an independent body, and it's unclear what the impact of the proceedings would be. The Panamanian president's office and commerce ministry did not immediately respond to requests for comment late Tuesday.

A process that may take years

Analysts believe the company is likely to buy time with legal proceedings, such as the latest arbitration move, while looking for alternatives for the broader port deal.

Yueming Yan, a Chinese University of Hong Kong law professor, said if an arbitral tribunal is constituted, future hearings may be held outside Paris or New York, although the agreement specified the arbitration board should be in New York. The timing is difficult to predict, but arbitration involving investment-related concession contracts may extend over several years.

"The approach that domestic courts in Panama may take in any recognition or enforcement proceedings cannot be assessed with certainty at this stage,'' she said.

Robbert van Trooijen, founder of Panama-based consultancy Inception Partners, said there is little CK Hutchison can do to directly override Panama's Supreme Court ruling.

Ruling draws Chinese backlash

The court ruling has drawn backlash from China, and the tensions may complicate Hutchison's plan to sell its port assets in dozens of countries to a group that includes the U.S. investment firm BlackRock Inc.

The planned sale has already been caught up in tensions between Beijing and Washington. U.S. President Donald Trump, who has alleged that China interferes with the canal, initially welcomed that plan. However, it apparently angered Beijing and drew a review by Chinese anti-monopoly authorities.

In a statement shared on social media platform WeChat, the office said that China will never bow to hegemonism and has sufficient means and tools, as well as capability, to uphold justice in the international economic and trade order.

''Panama's authorities should recognize the situation and correct their course," it said. ''If they persist in their own way and refuse to see reason, they will pay a heavy price both politically and economically!''

The Panama Ports Company said in a separate statement Wednesday that the arbitration followed its efforts to consult and avoid disputes, but the Panamanian state routinely disregarded communications and clarification requests. The company said it seeks damages based on data and necessary relief and reiterated its invitation to Panama for clarity and consultations.

The company said that while the court ruling has yet to become effective, the state conducted unexpected site visits and instructed it to provide unrestricted access to physical, commercial and intellectual property, information and employees.

China Foreign Ministry spokesperson Lin Jian doubled down on China's stance Wednesday, saying China will ''firmly protect the legitimate and lawful rights and interests'' of Chinese companies.

Company is caught in U.S.-China tensions

The Hutchison subsidiary has operated ports at both ends of the Panama Canal since 1997. The awkward position Hutchison found itself in highlights the challenges Hong Kong business elites face in navigating Beijing's expectations of national loyalty, especially during U.S-China tension. CK Hutchison is owned by the family of Hong Kong's richest man, Li Ka-shing.

The company said last July that it was considering seeking a Chinese investor to join as a significant member of the consortium under its sale plan, a move that some interpreted as way to please Beijing, but CK Hutchison hasn't said more since.

The consortium also includes BlackRock subsidiary Global Infrastructure Partners and Terminal Investment Limited, which is chaired by Italian shipping scion Diego Aponte, whose family reportedly has a longstanding relationship with Li's.

Last May, Hutchinson co-managing director, Dominic Lai told shareholders that Terminal Investment was the main investor.

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