Hong Kong’s CK Hutchison (0001.HK), said on Wednesday its Panama Ports Company unit has started international arbitration proceedings against Panama after the country’s top court annulled its licences to operate two Panama Canal ports, in a case that could take years to resolve.
Panama’s Supreme Court last week ruled the contracts violated Panama’s constitution by giving the company exclusive privileges and tax exemptions.
It is unclear how long the arbitration proceedings could take, although given the political sensitivities involving the U.S. and China and the complexity of the deal, it could drag on for a number of years, some analysts said.
“This is an example of the increasing interconnection between international trade, geopolitics and law,” said Jason Karas, international disputes specialist and managing partner of Karas So LLP in association with Mishcon de Reya.
The decision and move to seek arbitration casts further doubt on the future ownership of the two ports, which CK Hutchison has operated for nearly three decades, and the company’s planned $23 billion deal to sell its port businesses.
“The board strongly disagrees with the determination and corresponding actions in Panama,” CK Hutchison said in a statement to the Hong Kong Stock Exchange.
“The group continues to consult with its legal counsel and reserves all rights, including recourse to additional national and international legal proceedings in the matter.”
The Panamanian government did not immediately respond to a request for comment.
Ja Ian Chong, an associate professor of political science at the National University of Singapore, said international arbitration proceedings usually take a few years, and it is voluntary for a state to honour the decision.
“Panama can just ignore CK Hutchison … I think that’s apparent to CK Hutch. They probably want to show to shareholders that they are doing all they legally can,” he said.
The conglomerate may also want to show the Beijing and Hong Kong governments it is doing all it can to “avoid blame” amid China and U.S. tension, he added.
CK Hutchison’s shares were up 2% on Wednesday in early trade, while the Hang Seng Index (.HSI), was down 0.4%.
‘SHAMEFUL AND PATHETIC’ COURT RULING
China on Tuesday warned Panama there would be “heavy prices” to pay for the court ruling which it called “absurd” and “shameful and pathetic”.
The two Panama Canal ports are at the heart of a $23 billion buyout bid led by BlackRock (BLK.N), and Mediterranean Shipping Company of CK Hutchison’s 43 ports in 23 countries. BlackRock and MSC did not immediately respond to a request for comment from Reuters.
After Beijing criticised the deal, the conglomerate said in July it was in talks to include a Chinese “major strategic investor” in the consortium.
Sources have said the Chinese investor is COSCO (1199.HK), and it was seeking a large stake, while the others were keen for it to be a minority shareholder, a position that became a sticking point in talks.
The court ruling has made the future of the deal unclear, but some analysts think a transaction can be finalised without the two Panama Canal ports included in the portfolio of assets.
“The deal may continue with the remaining ports. The twist is that with the two key ports’ situation crystallized by the Panama Supreme Court, actually the ports deal may have a clearer path to completion, from the legal perspective,” said Winston Ma, New York University School of Law adjunct professor.
He said CK Hutchison could use the arbitration process to seek damages and compensation for having the contracts annulled.
The deal opened a new front in contention between the United States and China, as they grapple for control of the world’s most important trade routes.
CK Hutchison’s Balboa and Cristobal ports are considered strategic assets in the Panama Canal, the main seaborne trading route into the United States. Balboa is at the canal’s Pacific entrance while Cristobal is at the Atlantic entrance.
