Getting the Deal Through – Dispute Resolution 2022

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In May 2022, our Hong Kong commercial and insolvency disputes resolution team, led by Bryan O’Hare, authored the Hong Kong section of the 2022 edition of ‘Getting the Deal Through – Dispute Resolution’. This publication provides succinct international expert analysis in key areas of law, practice, and regulation for corporate counsel, cross-border legal practitioners and company directors and officers. The dispute resolution edition covers a full range of dispute resolution topics in multiple jurisdictions across the globe in a ‘Q&A’ format.

The Hong Kong section covers a range of topics including:

  • Procedures and practical considerations of conducting litigation in Hong Kong, including limitation issues, case management, timetables, evidence, remedies (including interim remedies), appeals and enforcement of local and foreign judgments and third party funding
  • The arbitration regime in Hong Kong, including formal requirements for an enforceable arbitration agreement, grounds for court intervention and enforcement of arbitral awards
  • Recent legal developments in Hong Kong

If you have any questions arising from any of the topics in the article, please contact one of our authors.

Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology GTDT – Dispute Resolution 2022. For further information, please visit: https://www.lexology.com/gtdt

Lexology Getting the Deal Through – Dispute Resolution 2022 – Hong Kong

1. Litigation
1.1. Court system

1.1.1. What is the structure of the civil court system?

The Hong Kong civil court system comprises the following major courts and tribunals:

  • Small Claims Tribunal: to hear and decide low-value monetary claims involving HK$75,000 or less. The main types of claims handled by the tribunal are debt, service charges, damage to property, goods sold and consumer claims. Hearings are conducted informally, and no legal representation is allowed.
  • Labour Tribunal: to hear and decide employment-related disputes. Hearings are conducted informally, and no legal representation is allowed.
  • Lands Tribunal: to hear and decide cases relating to possession of premises, building management, land and tenancy disputes.
  • Competition Tribunal: to hear and decide cases relating to competition law. The tribunal has all the same powers, rights and privileges as the Court of First Instance.
  • Market Misconduct Tribunal: to hear and decide cases relating to market misconduct matters including insider dealing, false trading, price rigging, stock market manipulation, disclosure of information about prohibited transactions and disclosure of false or misleading information inducing transactions in securities and futures contracts.
  • District Court: to hear and decide monetary claims for an amount over HK$75,000 but not exceeding HK$3 million. The Family Court in the District Court handles matrimonial cases, for example, divorce, maintenance, custody and adoption of children. There are currently 41 judges in the District Court.
  • Court of First Instance: unlimited civil jurisdiction and hears appeals from various tribunals, such as the Labour Tribunal and the Small Claims Tribunal. There are currently 26 judges in the Court of First Instance.
  • Court of Appeal: jurisdiction to hear appeals from the Court of First Instance, the District Court and various tribunals and statutory bodies, such as the Lands Tribunals and the Competition Tribunal. There is currently one chief judge and 13 justices of appeal.
  • The Court of Final Appeal: the highest appellate court with jurisdiction to hear appeals from the Court of Appeal and the Court of First Instance. There is one chief justice, three permanent judges and sixteen non-permanent judges. The court when sitting will comprise five judges, which usually comprise the chief justice, three permanent judges and one non-permanent judge from another common law jurisdiction.

Certain types of cases are classified according to specialist court lists to aid proper and efficient case management, for example, the Commercial List, the Construction and Arbitration List, the Personal Injuries List, the Intellectual Property List and the Admiralty List.

1.2. Judges and juries
1.2.1. What is the role of the judge and the jury in civil proceedings?

Judges

Hong Kong courts adopt the common law adversarial system. Parties to litigation present their evidence and arguments to the judge, who will then assess the strengths of the arguments and evidence presented by each side, decide whether the evidential factual and legal standards have been met and, ultimately, determine the dispute.

Judges are appointed by the Chief Executive (head of the Hong Kong government) on the recommendation of the Judicial Officers Recommendation Commission. The commission is an independent statutory body composed of judges, persons from the legal profession and eminent persons from other sectors.

To retain experienced senior judges and attract qualified private practitioners to join the judiciary, some changes were made to the retirement age on 6 December 2019:

  • the normal retirement age for judges of the Court of Final Appeal as well as the Court of Appeal and the Court of First Instance was extended from 65 to 70;
  • the normal retirement age for members of the Lands Tribunal, magistrates and other judicial officers at the magistrate level was extended from 60 to 65; and
  • the normal retirement age for judges of the District Court was maintained at 65.

Jury

Trial by jury in civil cases is very rare. A party may apply to the court for a trial by jury if there is at issue a claim in respect of libel, slander, malicious prosecution, false imprisonment or seduction, or as prescribed under the Rules of the High Court (Chapter 4A). However, there will be no trial by jury where the court considers that the trial requires any prolonged examination of documents or any scientific or local investigation that cannot conveniently be made with a jury.

1.3. Limitation issues
1.3.1. What are the time limits for bringing civil claims?

Subject to certain exceptions (see below), the broad time limits for bringing various civil claims are:

  • contractual claims: six years from the date of breach of contract;
  • tortious claims: six years from the date when damage was suffered;
  • personal injuries claims: three years from the date of the accident or the date of knowledge (whichever is later) for common law negligence claim, or two years from the date of the accident for claim under the Employees’ Compensation Ordinance (Chapter 282);
  • recovery of land: 12 years from the date when the right accrued or 60 years if the claim is brought by the government;
  • deeds: 12 years from the date of breach;
  • cargo claims: one year from the date of damage or loss if subject to Hague-Visby Rules; otherwise, the six-year time limit for contract and tort claims applies; and
  • salvage claims: two years from the date on which the salvage operations are terminated; and
  • collision of vessels claims: two years from the date of damage, loss or injury.

The Limitation Ordinance (Chapter 347) does not prohibit parties from varying the statutory time limits. It also provides that the time limits can be extended under certain exceptional circumstances, for example:

  • where the plaintiff was under a disability, the time limit begins to run from the date the plaintiff ceases to be under a disability or dies (whichever is earlier); and
  • where the action is based upon the defendant’s fraud, a relevant fact has been deliberately concealed by the defendant or the action is for relief from consequences of mistake, the time limit begins to run when the plaintiff discovered the fraud, concealment or mistake or could with reasonable diligence have discovered it.

1.4. Pre-action behaviour
1.4.1. Are there any pre-action considerations the parties should take into account?

Before commencing proceedings, it is good practice for a plaintiff to send a pre-action demand letter to the defendant setting out the factual and legal basis of the claim and the relief or remedies being claimed against the defendant.

For personal injuries claims, it is mandatory for a plaintiff to issue a pre-action demand letter to the defendant (and copied to the defendant’s insurer, if known) four months before commencing proceedings.

The parties should also make every reasonable effort to settle their dispute through ‘without prejudice’ settlement negotiations or mediation (which is now compulsory under the court rules unless a party has cogent reasons for not wishing to mediate the dispute). The court may make an adverse costs order against any party that fails to engage in mediation without good reasons.

The court can also, upon application, order pre-action discovery of ‘relevant’ and ‘necessary’ documents to enable the plaintiff to formulate the case properly.

1.5. Starting proceedings
1.5.1. How are civil proceedings commenced? How and when are the parties to the proceedings notified of their commencement? Do the courts have the capacity to handle their caseload?

Civil proceedings are usually commenced in the Court of First Instance and the District Court (depending on the quantum of claim) by issuing a writ of summons. Certain types of proceedings can also be commenced by originating summons, originating motion and petition. Generally, there are three methods to serve the writ on a local defendant, namely, by personal service, by registered mail or by ‘insertion through letter box’. If the defendant is a limited company, the plaintiff can serve the writ by posting it to, or leaving it at, its registered office. If the defendant is located overseas, the plaintiff is required to obtain the court’s permission to serve proceedings on a defendant not in Hong Kong.

The judiciary’s figures show that the Court of First Instance alone received 17,906 civil cases in 2020, and 15,008 civil cases in 2021. The average waiting time (Civil Fixture List), from application to fix date to hearing, increased from 166 days in 2020 to 176 days in 2021.

1.6. Timetable
1.6.1. What is the typical procedure and timetable for a civil claim?

Civil proceedings are typically commenced by a writ of summons being issued by the plaintiff together with a statement of claim (which the plaintiff can also elect to serve at a later date). After the writ has been issued, it must be served on the defendant within 12 months unless the court has agreed to extend the validity of the writ beyond 12 months. The subsequent steps and deadlines are as follows:

Action Deadline
1.  Defendant to acknowledge service of the writ Within 14 days from the service of the writ (including the day of service)
2.  Defendant to file and serve a defence (and counterclaim, if any) Within 28 days from (1)
3.  Plaintiff to file and serve a reply (and defence to counterclaim, if any) Within 28 days from (2)
4.  Close of pleadings Within 14 days from (3)
5.  Discovery (disclosure of documents related to the case) Within 14 days from (4)
6.  Parties to file a timetabling questionnaire Within 28 days from (4)

Thereafter, the parties are required to exchange factual witness statements and expert reports (if necessary). The parties may then apply to set the case down for trial. The time frame for a civil claim from the date of commencement of the action to a trial can be approximately 24 months and potentially longer, depending on the complexity of the case, the number of days to be reserved for the trial and the availability of judges (which depends on the volume of cases in the court diary).

1.7. Case management
1.7.1. Can the parties control the procedure and the timetable?

The court rules give the parties an element of control over the case procedure and timetable. The courts are also vested with active case management powers to increase cost effectiveness and ensure that cases are dealt with as expeditiously as is reasonably practicable.

After ‘pleadings are closed’, the parties are required to exchange and file with the court a timetabling questionnaire setting out their proposed case management directions and timetable. Afterwards, if the parties can reach an agreement on the case management directions and timetable, they should seek the approval of the court. Otherwise, the plaintiff is required to take out a case management summons for a case management hearing. At the case management hearing, the court will give case management directions and set a timetable for the parties to comply with those directions.

The case management directions typically specify the timetable for the parties to complete discovery, exchange witness statements and expert evidence (if any), and complete a case management conference, a pretrial review (PTR) and the trial. Parties may by consent or upon application to the court vary the non-milestone events (eg discovery, exchange of witness statements and expert evidence). Milestone dates (eg case management conference, PTR and trial) may only be postponed by the court under exceptional circumstances.

A PTR usually takes place around eight weeks before the trial to ensure that the case is ready to proceed to trial on the allocated dates. At the PTR, the court will typically give directions and deadlines for the plaintiff to file and serve the trial bundles and the parties to file their respective opening submissions.

1.8. Evidence – documents
1.8.1. Is there a duty to preserve documents and other evidence pending trial? Must parties share relevant documents (including those unhelpful to their case)?

The process of preserving and disclosing relevant documents and evidence pending trial is called ‘discovery’. It is a continuing process that begins when litigation is contemplated and continues until the end of the trial. The scope of discovery covers all documents that are relevant to the issues in the action and, therefore, includes documents that both support and are detrimental to a party’s case.

There are three main stages of discovery:

  • Automatic discovery: after the close of pleadings, each party is required to disclose, by way of a ‘list of documents’, all documents that he or she has or has had in his or her possession, custody or power relating to matters in question between the parties in the action. If a party fails to make automatic discovery, the court may, upon application, make an order for general discovery.
  • Specific discovery: the court may, upon the application of a party, order the other party to disclose specific documents that are in the possession, custody or power of the other party; relate to the issues in the action and are necessary to dispose fairly of the cause or matter; or for saving costs.
  • Inspection: a party serving a list of documents is obliged to produce the documents referred to in the list for inspection by the other party, except where the documents are privileged.

Interrogatories are another form of discovery, whereby a party may serve written questions on another party for the purpose of obtaining admissions or evidence of material facts within his or her knowledge and relevant to the dispute. Answers to interrogatories are normally given on affidavit and the other party may rely on the answers as evidence at trial.

1.9. Evidence – privilege
1.9.1. Are any documents privileged? Would advice from an in-house lawyer (whether local or foreign) also be privileged?

Documents that are ‘privileged’ are protected from disclosure in litigation. The parties only need to disclose their existence (but not the contents) during discovery. The main bases for claiming privilege are:

  • Legal professional privilege (LPP): includes litigation privilege and legal advice privilege. Litigation privilege protects confidential communications made between either the client or his or her legal adviser and a third party (eg, factual or expert witness), where those communications have come into existence for the dominant purpose of being used in connection with actual, pending or contemplated litigation. Legal advice privilege protects confidential communications between a client and his or her legal adviser for seeking or giving legal advice. Where an in-house lawyer provides advice to his or her employer in the capacity of legal adviser, that advice is protected by legal professional privilege.
  • Without prejudice communications: communications relating to good-faith settlement negotiations are privileged and protected from disclosure.
  • Privilege against self or spousal incrimination: no person is compelled to disclose documents if doing so will expose that person or his or her spouse to proceedings for a criminal offence or for recovery of penalty.
  • Public interest immunity: disclosure of documents may be withheld if to do so would be prejudicial to public interest.

1.10. Evidence – pre-trial
1.10.1. Do parties exchange written evidence from witnesses and experts prior to trial?

The parties exchange factual witness statements before trial in accordance with the court’s case management directions. Normally the court directs that the witness statements served by the parties shall stand as the evidence-in-chief of the witnesses at trial. Under special circumstances and with the permission of the court, evidence may also be given by affidavit or deposition.

Expert evidence may be allowed upon the agreement of the parties or with the court’s permission. If a party seeks to adduce expert evidence, the court gives expert directions requiring the expert witnesses to exchange and submit to the court written expert reports, attend a joint expert meeting and submit a joint expert report to the court. The court may also direct the parties to appoint a single joint expert where appropriate.

1.11. Evidence – trial
1.11.1. How is evidence presented at trial? Do witnesses and experts give oral evidence?

Generally, witnesses (factual and expert) are examined orally at trial in open court. The party serving the witness statements decides whether to call the witness to attend the trial. If a witness is not called to give evidence at the trial, no other party may rely on the witness statement of that witness as evidence at the trial. A witness who is called is first examined-in-chief by the party who calls him or her. The other party or parties may then cross-examine him or her. Afterwards, the witness may be re-examined by the party who calls him or her. The scope for re-examining a witness is limited to only those matters raised during cross-examination. It is not another opportunity to go through the evidence provided by the witness.

In special circumstances, and with the court’s permission, a witness may be permitted to give evidence and be cross-examined by video link. The court recognised in a recent case – Au Yeung Pui Chun-v-Cheng Wing Sang [2020] HKCFI 2101 – that there are grounds, in view of the covid-19 pandemic, ‘for real concern for a person who is being asked to travel a very long distance including taking a flight to attend trial in an unfamiliar place at this time in the midst of the coronavirus outbreak’.

In addition to Practice Direction 29 – Use of The Technology Court, the judiciary has also published a number of guidance notes regarding the use of remote hearings for civil business in civil courts in 2020.

1.12. Interim remedies
1.12.1. What interim remedies are available?

Available interim remedies are as follows:

  • Injunctions: court orders requiring a party to do something or refrain from doing something, such as:
    • Mareva injunctions (which is now the same as a freezing injunction) to prevent a party from disposing of its assets or removing those assets from Hong Kong. The court can also grant a worldwide Mareva injunction that covers assets both in and outside Hong Kong;
    • Anton Piller orders permitting the applicant to enter the respondent’s premises and inspect or preserve specified property; and
    • quia timet (‘because he fears’) injunctions to prevent an anticipated infringement of the applicant’s legal rights.
  • Interim payment: where a plaintiff can show that if the case proceeds to trial, he or she will recover a substantial award of damages from the defendant, the court may order the defendant to make an interim payment into court on account of any damages, debt or other sums that he or she may be held liable to pay to the plaintiff.
  • Appointment of receivers: where it appears to the court to be just and convenient to do so, it may appoint a receiver to receive, manage or protect property pending the trial.
  • Appointment of provisional liquidators: to safeguard the assets of a company prior to the hearing of a winding-up petition.

The Court of First Instance may also grant free-standing interim relief in relation to proceedings that have been or are about to be commenced outside of Hong Kong and are capable of giving rise to a judgment that may be enforced in Hong Kong.

1.13. Remedies
1.13.1. What substantive remedies are available?

Common substantive remedies include:

  • damages: monetary compensation for the innocent party. Damages may also be awarded for prospective losses, inconvenience and injured feelings or as punishment in the form of punitive and exemplary damages;
  • specific performance: requiring a party to perform the contractual obligations he or she undertook to discharge;
  • restitution: restoring the innocent party to the position they were in before the injury occurred;
  • rescission: setting aside a contract and putting the parties back into the position that they were in before entering into the contract;
  • quantum meruit: reasonable remuneration for the value of work done or goods supplied;
  • injunctions: requiring a party to do or cease to do something;
  • declarations: where the court declares the legal position of the parties;
  • account of profits: recovery of profits attributable to a breach of a fiduciary relationship; and
  • interest: simple interest is usually awarded on the judgment debt from the date of the judgment until its satisfaction at a rate as the court thinks fit (the court may award compound interest in certain cases, such as claims in equity).

1.14. Enforcement
1.14.1. What means of enforcement are available?

Even if a plaintiff successfully obtains judgment against a defendant, it does not necessarily follow that the judgment debt will be paid. There are various ways for the plaintiff (the judgment creditor) to enforce a judgment against the defendant (the judgment debtor):

  • writs of execution, whereby the court bailiffs can seize property belonging to the judgment debtor;
  • garnishee proceedings, whereby debts owed may be enforced by seizure and attachment to debts owed to the judgment debtor;
  • charging orders on property, whereby the judgment creditor becomes a secured creditor;
  • stop notices or stop orders that prevent dealing in securities in a manner contrary to the interest of the judgment creditor;
  • prohibition order to restrain the judgment debtor from leaving Hong Kong (often an effective tool to procure payment of a judgment debt if the individual needs to travel outside Hong Kong)
  • committal proceedings to hold the judgment debtor in contempt of court, which can result in a fine or ultimately imprisonment;
  • oral examination of the judgment debtor as to his or her assets available to satisfy the judgment; and
  • bankruptcy or winding-up proceedings against the judgment debtor.

1.15. Public access
1.15.1. Are court hearings held in public? Are court documents available to the public?

The legal system in Hong Kong is based on the principle of open justice, which promotes openness and transparency such that justice should not only be done but be seen to be done. As such, hearings are generally heard in open court. In exceptional cases, hearings are held in closed courts, such as where the subject matter of the proceedings would otherwise be destroyed or for moral, public policy or national security reasons, or where parties’ private lives so require.

The only court documents available to the public are the writs filed to commence civil proceedings and court judgments. The substantive case documents (such as pleadings, witness statements, expert reports and court orders) are not available to the public.

1.16. Costs
1.16.1. Does the court have power to order costs?

The courts have broad discretion to make costs orders. The general rule is that ‘costs follow the event’; that is, the unsuccessful party pays the successful party’s costs.

Other cost orders include ‘no order as to costs’ (where the parties are responsible for their own respective costs), and other more ‘bespoke’ costs orders depending on the circumstances (eg the successful party is ordered to pay part of the unsuccessful party’s costs where the plaintiff has not succeeded on all of his or her claims or where there is a finding of procedural misconduct by both sides).

In exercising its discretion, the court will generally take into account various factors, such as the parties’ conduct during the proceedings, including whether a party had failed to accept a written settlement offer and eventually does not ‘beat’ the settlement offer in the judgment.

The court is also mandated to exercise its case management powers to encourage and facilitate the use of alternative dispute resolution (ADR) procedures. Notwithstanding that the court can only encourage, but not compel, the parties to use ADR procedures, the court can consider the refusal of any party to undertake mediation or another ADR procedure (without a reasonable explanation) when awarding costs (eg, to deprive a party of an entitlement to costs).

If the parties are unable to agree on the amount of costs, the receiving party may apply to the court for a taxation of his or her costs (a process for the court to assess the amount of costs payable by the paying party). Effective from 1 December 2018, the Court of First Instance and the District Court substantially increased solicitors’ recoverable hourly rates (by more than 40 per cent), which means that a winning party can recover a much higher sum towards payment of his or her actual legal costs from the losing party. In practice, the winning party can usually expect to recover about 60-70% of his or her actual costs.

A defendant can apply for an order that the plaintiff provide security for costs at any time before the judgment is final in the following situations (it is preferable to apply early in the proceedings):

  • the plaintiff is ordinarily resident out of Hong Kong;
  • the plaintiff is suing for the benefit of a third party and there is reason to believe that he or she will be unable to pay the costs of the defendant if required;
  • the plaintiff has changed his or her address during the proceedings to evade the consequences of litigation; and
  • the plaintiff is a company (whether incorporated in or outside Hong Kong) and there is reason to believe that it will be unable to pay the defendant’s costs from assets within Hong Kong if the defendant succeeds in its defence.

1.17. Funding arrangements
1.17.1.  Are ‘no win, no fee’ agreements, or other types of contingency or conditional fee arrangements between lawyers and their clients, available to parties? May parties bring proceedings using third-party funding? If so, may the third party take a share of any proceeds of the claim? May a party to litigation share its risk with a third party?

Contingency or conditional fee arrangement
In Hong Kong, solicitors are not allowed to enter into a conditional or contingency fee arrangement to act in contentious business. Barristers are also not allowed to accept instructions on a contingency fee basis.

Third-party funding

Third-party funding is generally not permitted for litigation in Hong Kong courts. It amounts to criminal offences of champerty and maintenance. There are, however, the following exceptions:

  • ‘common interest’ cases, involving third parties with a legitimate common interest in the outcome of the litigation to justify support in the litigation;
  • cases involving ‘access to justice’ considerations (eg the Supplementary Legal Aid Scheme); and
  • other accepted lawful practices, such as insolvency proceedings (where a liquidator can assign a cause of action to a third party) and the doctrine of subrogation as applied to contracts of insurance.

1.18. Insurance
1.18.1. Is insurance available to cover all or part of a party’s legal costs?

Although insurance companies often participate in litigation (via the doctrine of subrogation), legal expense insurance schemes or ‘after-the-event insurance’ are not prevalent in Hong Kong, in particular where lawyers are not allowed to charge on a contingency fee basis. There are certain types of insurance that may cover the parties’ legal costs (eg professional indemnity insurance and management liability insurance).

1.19. Class action
1.19.1. May litigants with similar claims bring a form of collective redress? In what circumstances is this permitted?

There is currently no specific procedure for class actions in Hong Kong. The only type of collective proceedings permitted under the Rules of the High Court is ‘representative proceedings’, which enable numerous persons who have the ‘same interest’ in any proceedings to begin or continue the proceedings by or against any one or more of them representing all or as representing all except one or more of them. A judgment or order made in representative proceedings is binding on all the persons so represented but shall not be enforced against any person who is not a party to the proceedings, except with the leave of the court.

1.20. Appeal
1.20.1. On what grounds and in what circumstances can the parties appeal? Is there a right of further appeal?

Parties to proceedings may appeal on questions of law or fact, or against the court’s exercise of its discretion. Higher courts are generally reluctant to interfere with the lower court’s exercise of discretion and finding of facts, especially where they are based on the credibility of the witnesses or the preference of one witness’ evidence over another, as the lower court has had the advantage of hearing the live evidence at first hand and the judge is in the best position to form a view on the credibility of the witness, having observed the witness giving evidence.

Parties may appeal judgments or orders made by the District Court or the Court of First Instance to the Court of Appeal. For final judgments or orders made by the Court of First Instance, appeal lies ‘as of right’ (ie no leave is required) to the Court of Appeal. Leave is required to appeal against interlocutory decisions made by the Court of First Instance or decisions made by the District Court.

A party may also seek leave from the Court of Appeal or the Court of Final Appeal to appeal to the Court of Final Appeal for judgments handed down by the Court of Appeal (whether final or interlocutory). Leave will be granted if, in the opinion of either court, the question involved in the appeal is one that, because of its general or public importance or otherwise, ought to be submitted to the Court of Final Appeal for decision. The Court of Appeal or the Court of Final Appeal may grant leave subject to conditions as it considers necessary.

1.21. Foreign judgments
1.21.1. What procedures exist for recognition and enforcement of foreign judgments?

A foreign judgment (other than a Chinese judgment) may be recognised and enforced in Hong Kong under two different regimes:

  • the statutory regime under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Chapter 319): judgments from certain specified countries under the Foreign Judgments (Reciprocal Enforcement) Order (Chapter 319A) may be registered and enforced in Hong Kong provided that the specified statutory conditions are satisfied – once the court grants leave for the judgment to be registered, the foreign judgment can be enforced in the same manner as a Hong Kong judgment; or
  • the common law regime: foreign judgments from non-specified countries may be enforced by commencing a writ action relying on the foreign judgment as evidence of a debt between the parties. To be enforceable at common law, there are a number of requirements, such as:
    • the foreign judgment must be final and conclusive on the merits of the claim;
    • the foreign judgment must be for a debt or definite sum of money;
    • the defendant must have submitted to the jurisdiction of the foreign court; and
    • the foreign judgment was not contrary to Hong Kong rules of public policy or notions of natural justice.

The enforcement of Chinese judgments in Hong Kong is subject to a separate regime under the Mainland Judgments (Reciprocal Enforcement) Ordinance (Chapter 597). This ordinance gives effect to the ‘Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the HKSAR Pursuant to the Choice of Court Agreements between Parties Concerned’, which was signed on 14 July 2006 (the 2006 Arrangement).

A judgment creditor under a Chinese judgment that satisfies the specified statutory conditions can apply to the Court of First Instance to register the judgment under the ordinance. The conditions include:

  • the judgment relates to a commercial contract and was given after 1 August 2008;
  • the parties to the commercial contract had a written agreement made after 1 August 2008 specifying that the courts in mainland China have exclusive jurisdiction over the dispute;
  • the judgment was given by the Supreme People’s Court, a higher or intermediate people’s court or certain recognised primary people’s courts;
  • the judgment is enforceable in mainland China;
  • the judgment is final and conclusive; and
  • the judgment is for a definite sum of money (not being a sum payable in respect of taxes or similar charges or in respect of a fine or other penalty).

On 18 January 2019, Hong Kong and mainland China signed a further Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the HKSAR (the 2019 Arrangement), to establish a more comprehensive mechanism for mutual recognition and enforcement of judgments in a wider range of civil and commercial matters. The 2019 Arrangement will be implemented by local legislation and the effective date is yet to be announced. The Department of Justice conducted a consultation exercise on a legislative proposal to implement the 2019 Arrangement that ended on 31 January 2022. The 2019 Arrangement, once effective, will supersede the 2006 Arrangement, unless otherwise agreed by the parties before the effective date of the 2019 Arrangement.

The 2019 Arrangement includes the following significant changes:

  • an applicant will need to show the connection between the dispute and the requested place to prove that the original court has jurisdiction over the action (the Jurisdiction Requirement);
  • the parties are no longer required to agree on an exclusive jurisdiction clause when signing the contract. A judgment will be enforceable in Hong Kong so long as it meets the Jurisdiction Requirement;
  • a judgment of second instance (or a judgment of first instance from which there is no appeal within the statutory time limit) issued by a Primary People’s Court in mainland China will be covered by the 2019 Arrangement;
  • the 2019 Arrangement adopts an ‘excluded matters’ approach and covers most civil and commercial cases. Excluded matters mainly include those relating to succession, administration or distribution of estate, corporate insolvency, personal bankruptcy, certain maritime matters and certain matrimonial and family matters; and
  • both monetary and non-monetary judgment will be enforceable. In the case of mainland China, any judgment, ruling, conciliatory statement and order of payment are included, but a ruling concerning preservation measures will not be covered by the 2019 Arrangement.

1.22. Foreign proceedings
1.22.1. Are there any procedures for obtaining oral or documentary evidence for use in civil proceedings in other jurisdictions?

There are no restrictions on taking evidence from a witness in Hong Kong for use in existing foreign proceedings if the witness is willing to give evidence voluntarily. Otherwise, the foreign court must issue a letter of request to the Court of First Instance requiring the witness to give evidence in Hong Kong for civil proceedings instituted or to be instituted before the foreign court. The Court of First Instance has power, on application, to make provision for obtaining evidence in Hong Kong as far as it considers appropriate for the purpose of giving effect to the request.

On 1 March 2017, the Arrangement on Mutual Taking of Evidence in Civil and Commercial Matters between the Courts of the Mainland and the HKSAR came into force. This arrangement provides that parties must make any request for the taking of evidence through their respective designated liaison authorities.

2.  Arbitration
2.1. UNCITRAL Model Law

2.1.1. Is the arbitration law based on the UNCITRAL Model Law?

Yes, the Arbitration Ordinance (Chapter 609) (AO) adopts the UNCITRAL Model Law, with supplemental or modified provisions that are specific to Hong Kong.

2.2. Arbitration agreements
2.2.1. What are the formal requirements for an enforceable arbitration agreement?

An arbitration agreement must be in writing to be enforceable in Hong Kong (AO, section 19). That requirement is met if:

  • the content of the arbitration agreement is recorded in any form, irrespective of how the agreement was concluded;
  • the content of the arbitration agreement is recorded in electronic communication; or
  • reference is made in a contract to any document containing an arbitration clause, which makes the arbitration clause part of the contract.

2.3. Choice of arbitrator
2.3.1. If the arbitration agreement and any relevant rules are silent on the matter, how many arbitrators will be appointed and how will they be appointed? Are there restrictions on the right to challenge the appointment of an arbitrator?

The parties are at liberty to determine the number of arbitrators or authorise a third party to make the decision. Otherwise, the Hong Kong International Arbitration Centre (HKIAC) will determine whether one or three arbitrators should be appointed (AO, section 23).

The parties are free to agree on the procedure for challenging an arbitrator. Otherwise, the AO prescribes the procedure for making that challenge, which includes provisions for the challenging party to submit written reasons to the arbitral tribunal and, if unsuccessful, to further request the court or HKIAC to decide on the challenge.

An arbitrator can only be challenged if there are justifiable doubts about his or her impartiality or independence, or if he or she does not possess the qualifications agreed to by the parties.

2.4. Arbitrator options
2.4.1. What are the options when choosing an arbitrator or arbitrators?

Arbitrators can be chosen from an extensive pool of local and foreign professionals in Hong Kong, who are multilingual and possess expertise in different industries (eg international trade, construction, maritime and intellectual property). Various arbitral institutions and professional associations (eg HKIAC, the Hong Kong Bar Association and the Law Society of Hong Kong) maintain arbitration committees or lists to assist parties in choosing suitable arbitrators. The parties are free to appoint arbitrators from abroad if necessary.

2.5. Arbitral procedure
2.5.1. Does the domestic law contain substantive requirements for the procedure to be followed?

Under the AO, the parties may agree on the procedure to be followed by the arbitral tribunal in conducting the arbitration. In the absence of agreement, the arbitral tribunal may conduct the arbitration in the manner it considers appropriate and in compliance with the following overriding principles (AO, section 46):

  • parties’ right to equal treatment and the right to be heard;
  • the arbitral tribunal must conduct the arbitration independently, fairly and impartially; and
  • the arbitral tribunal must use appropriate procedures to avoid unnecessary delay or expense, to provide a fair means for resolving the dispute.

2.6. Court intervention
2.6.1. On what grounds can the court intervene during an arbitration?

The court may only intervene in arbitral proceedings in limited circumstances prescribed under the AO, including:

  • staying court proceedings for arbitration where the matter is the subject of an arbitration agreement;
  • determining challenges to arbitrator appointment;
  • granting interim measures (eg injunctions, asset or evidence preservation orders);
  • granting orders to inspect, preserve or sell property being the subject of arbitral proceedings; and
  • setting aside and enforcing arbitral awards.

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, which came into effect on 1 October 2019, allows a party to arbitral proceedings administered by a Chinese arbitral institution to apply to the Court of First Instance for interim measures. Similarly, a party to arbitral proceedings in Hong Kong may apply to the intermediate people’s court of the place of residence of the other party for interim measures. Hong Kong is the first and only jurisdiction that can seek mutual assistance from China in interim measures in aid of arbitral proceedings.

2.7. Interim relief
2.7.1. Do arbitrators have powers to grant interim relief?

Yes, the AO empowers arbitrators to grant interim measures, including injunctions, asset or evidence preservation orders.

2.8. Award
2.8.1. When and in what form must the award be delivered?

The AO does not prescribe any time limit for the arbitral tribunal to make and deliver an award. Nonetheless, the arbitral tribunal has an overriding duty to render an award in a conscientious, reasonable and timely manner, and not unduly delay in rendering the award.

The parties may also agree on a specified time limit for the arbitral tribunal to render the award.

An award must be in writing, signed by the arbitrators, dated and stated with the seat of arbitration, and shall provide reasons upon which the award is based unless agreed otherwise. After the award is made, a copy signed by the arbitrators shall be delivered to each party.

2.9. Appeal
2.9.1. On what grounds can an award be appealed to the court?

An arbitral award cannot generally be appealed to the court on the merits. Parties may agree to include the opt-in provisions in Schedule 2 of the AO in the arbitration agreement, which allow a party to challenge an award on the ground of serious irregularity or appeal to the court on questions of law.

2.10. Enforcement
2.10.1. What procedures exist for enforcement of foreign and domestic awards?

With leave of the court, an award (domestic or foreign) is enforceable in the same way as a Hong Kong court judgment. If leave is not granted, an award can still be enforced under common law by bringing an action based on the award (section 84, AO).

Specificaly, a Convention award (an award made in a country that is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards) can be enforced in Hong Kong following the general procedures in section 84 of the AO (section 87, AO).

After the return of Hong Kong’s sovereignty to China in 1997, and with the implementation of the Arrangement Concerning Mutual Enforcement of Arbitral Awards Between the Mainland and the HKSAR in June 1999 (the 1999 Arbitration Arrangement), Chinese arbitral awards made pursuant to the Chinese Arbitration Law can be enforced in Hong Kong like a convention award. A similar reciprocal arrangement is in place between Macao and Hong Kong.

On 27 November 2020, the Hong Kong Department of Justice and the Supreme People’s Court of the People’s Republic of China signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the HKSAR and the Mainland (Supplemental Arbitration Arrangement). Following the enactment of the Arbitration (Amendment) Ordinance 2021 on 19 May 2021, the Supplemental Arbitration Arrangement is now in full effect.

Important amendments made under the Supplemental Arbitration Arrangement:

  • Article 1 of the Supplemental Arbitration Arrangement includes the term ‘recognition’ when referring to enforcement of arbitral awards under the 1999 Arbitration Arrangement, in line with the two-stage approach (ie the recognition stage and the execution stage) under the New York Convention.
  • Article 2 of the Supplemental Arbitration Arrangement clarifies the scope of the arbitral awards that may be mutually recognised and enforced in mainland China and Hong Kong. It removes the condition of ‘recognised Mainland arbitral authorities’, and hence all awards issued in mainland China pursuant to its Arbitration Law can be enforced in Hong Kong. Also, all arbitral awards (ie both ad hoc and institutional) rendered in Hong Kong pursuant to the AO can be enforced in mainland China.
  • Article 3 of the Supplemental Arbitration Arrangement enables parties to make simultaneous applications to enforce the arbitral award in both Hong Kong courts and mainland Chinese courts. Previously, parallel enforcement of an arbitral award was not permitted under the 1999 Arbitration Arrangement.
  • Article 4 of the Supplemental Arbitration Arrangement clarifies that the enforcing courts can impose interim measures before or after the court’s acceptance of an application to enforce an arbitral award.

2.11. Costs
2.11.1. Can a successful party recover its costs?

An arbitral tribunal has discretion to give directions on costs in an award. The general practice of ‘costs follow the event’ is usually adopted. Only reasonable costs are allowed, which may include costs in the preparation of the arbitral proceedings prior to commencing arbitration. A tribunal may also direct a specified limit to the recoverable costs.

Under section 74 of the AO, a provision of an arbitration agreement to the effect that the parties, or any of the parties, must pay their own costs in respect of arbitral proceedings arising under the agreement is void, unless the provision is part of an agreement to submit to arbitration a dispute that had arisen before the agreement was made.

Furthermore, under section 56(1)(a) of the AO, unless otherwise agreed by the parties, when conducting arbitral proceedings, an arbitral tribunal may require a claimant to give security for costs of the arbitration.

The AO does not specify a list of factors that an arbitral tribunal will consider when determining whether or not to order security for costs. However, section 56(2) of the AO expressly excludes the following grounds for seeking an order for security for costs:

  • a natural person ordinarily resident outside Hong Kong; or
  • a body corporate or association incorporated or formed under the law of a place outside Hong Kong, or whose central management and control is exercised outside Hong Kong.

Through the enactment of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (which came into effect on 1 February 2019), third-party funding of arbitration is allowed in Hong Kong. Such funding can cover arbitral proceedings and any related court proceedings. Funding can be in the form of money or any other financial assistance in relation to any costs of the arbitration. The funding agreement must be in writing and must be disclosed to the parties to the arbitration and the arbitral tribunal. A Code of Practice was further issued on 7 December 2018, setting out the practices and standards with which third-party funders are ordinarily expected to comply in carrying on activities in connection with third-party funding of arbitration in Hong Kong.

3. Alternative dispute resolution
3.1. Types of ADR

3.1.1. What types of ADR process are commonly used? Is a particular ADR process popular?

Common forms of ADR in Hong Kong are conciliation, mediation, adjudication and arbitration. Arbitration and mediation are the most popular types of ADR in Hong Kong for reasons of confidentiality and availability of experienced arbitrators and mediators in the jurisdiction.

The Hong Kong courts strongly encourage the parties to attempt to resolve their disputes by mediation. Unreasonable refusal to participate in mediation before trial may attract adverse costs consequences in subsequent court proceedings.

Arbitration is commonly used to resolve disputes involving international parties, such as disputes arising out of the international sale of goods. Specialist arbitrations are also well established in Hong Kong, such as intellectual property arbitration, domain name arbitration, maritime arbitration, construction arbitration and investment arbitration.

Lastly, adjudications are commonly used to determine construction disputes.

3.2. Requirements for ADR
3.2.1. Is there a requirement for the parties to litigation or arbitration to consider ADR before or during proceedings? Can the court or tribunal compel the parties to participate in an ADR process?

ADR is a voluntary process. The courts usually do not compel the parties to participate in an ADR process. However, one of the underlying objectives of the Rules of the High Court is to facilitate the settlement of disputes by encouraging the parties to use an ADR procedure. Parties to litigation are encouraged to attempt mediation (Practice Direction 31). The court also has broad case management powers to impose adverse costs consequences on parties who unreasonably refuse to attempt mediation.

4. Miscellaneous
4.1. Interesting features

4.1.1. Are there any particularly interesting features of the dispute resolution system not addressed in any of the previous questions?

Hong Kong’s dispute resolution system aims to facilitate resolution and settlement in a cost-efficient manner. Some interesting features are highlighted below:

  • Sanctioned offers and sanctioned payments under the court rules: these are designed to encourage the parties to actively consider settlement and avoid prolonging litigation. They involve procedures allowing one party to make offers or payments into court to settle a dispute. If the other party does not accept the sanctioned offer or payment, he or she bears the risk of costs and interest sanctions if he or she subsequently fails at the trial to do better than the sanctioned offer or payment, even if he or she wins at trial.
  • Apology Ordinance (Chapter 631): Hong Kong was the first Asian jurisdiction to enact an apology legislation (effective from 1 December 2017). Its objective is to prevent the escalation of disputes and facilitate their amicable resolution. Under the Apology Ordinance, an apology does not constitute an express or implied admission of a person’s fault or liability in connection with the matter and must not be taken into account in determining fault, liability or any other issue in connection with the matter to the prejudice of the person making the apology. The Apology Ordinance applies to various civil proceedings, including judicial, arbitral, administrative, disciplinary and regulatory proceedings, but not criminal proceedings.
  • Hong Kong continues to be a renowned international dispute resolution hub: Hong Kong has an international and diverse pool of legal and dispute resolution talent with over 11,500 practising solicitors and barristers, together with more than 85 foreign law firms and 1,500 registered foreign lawyers from 33 jurisdictions. Several reputable international legal and dispute resolution institutions have set up offices in Hong Kong, such as:
    ​​​- the Hong Kong International Arbitration Centre (HKIAC);
    – the International Court of Arbitration of the International Chamber of Commerce;
    – the China International Economic and Trade Arbitration Commission;
    – the China Maritime Arbitration Commission;
    – the Permanent Court of Arbitration;
    – the Hong Kong Maritime Arbitration Group; and
    – eBRAM International Online Dispute Resolution Centre.
  • On 21 September 2020, the Baltic and International Maritime Council (BIMCO) announced the adoption of the BIMCO Law and Arbitration Clause 2020. The Law and Arbitration Clause 2020 replaces the Dispute Resolution Clause 2017. Hong Kong is named under the new Arbitration Clause as one of the four designated arbitration venues, alongside London, New York and Singapore, evidencing Hong Kong’s strength as a reputable maritime arbitration centre.
  • Referring to HKIAC’s statistics in 2021, a total of 514 matters were submitted to the HKIAC in 2021, where 277 were arbitrations (183 of those were administered by the HKIAC), 225 were domain name disputes and 12 were mediations. The total amount in dispute across all arbitrations was HK$54.6 billion. The average amount in dispute in administered arbitrations was HK$193.8 million. Arbitrations filed in 2021 continued to be predominantly international, featuring parties from 41 jurisdictions. Eighty-two percent of all arbitrations and 93% of administered arbitrations were international (a 10% and 7% increase from 2020 respectively). The vast majority of the arbitrations were seated in Hong Kong, while other seats included Moscow, Singapore, and England and Wales. Disputes were subject to 13 different governing laws.

5. Update and trends
5.1. Recent developments

5.1.1. What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key policy and legislative developments

On 14 May 2021, the Supreme People’s Court of the PRC (SPC) and the Hong Kong SAR government signed the ‘Record of Meeting on Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region’ (the Record), providing the framework for mutual recognition and assistance to corporate insolvency proceedings between Hong Kong and mainland China. The SPC and the Hong Kong SAR government have each issued an opinion and practical guide to give further guidance on the matter. Under the opinion issued by the SPC, the Shanghai Municipality, the Xiamen Municipality and the Shenzhen Municipality are designated as ‘pilot’ areas given their close trade ties to Hong Kong, and the Intermediate People’s Courts of these areas may recognise and assist insolvency proceedings in Hong Kong. This is an evolving area of jurisprudence in Hong Kong and mainland China.

On 20 August 2021, China enacted the Personal Information Protection Law of the PRC 2021 (PIPL 2021), which became effective on 1 November 2021 and forms part of the Chinese fast-evolving regulatory regime on data privacy, together with the Cybersecurity Law of the PRC 2016 (CSL 2016) and the Data Security Law of the PRC (DSL 2021), which became effective on 1 September 2021. Notably, these laws contain provisions that have extraterritorial effect, including in Hong Kong. The PIPL 2021 establishes the framework to regulate online data, regulate cross-border data transfer and protect personal information. The DSL 2021 focuses on the processing of data and data security. The Chinese data protection framework has a profound impact on the business environment in China, as non-compliance with these data privacy rules will be subject to a wide range of civil liability, administrative penalties and criminal sanctions. Foreign institutions that process the personal information of individuals in mainland China for the purposes of offering products or services to them, or analysing and assessing their behaviours, are subject to the PIPL 2021. These foreign institutions are required to establish designated agencies or appoint representatives onshore in mainland China.

On 29 September 2021, the United Nations Convention on Contracts for the International Sale of Goods (CISG) was implemented in Hong Kong through the Sale of Goods (United Nations Convention) Ordinance (Chapter 641). To give time for legal and business sectors to familiarise themselves with the CISG, the date of commencement of the Ordinance has yet to be announced by the Secretary for Justice and is anticipated to be in mid-2022. Notably, the CISG differs from the Sale of Goods Ordinance (Chapter 26) and the common law in some aspects, such as in oral evidence of the formation of contracts and acceptance, and will not apply to transactions between Hong Kong and mainland Chinese parties.

On 8 October 2021, section 64 of the Personal Data (Privacy) Ordinance (PDPO) was amended to introduce doxxing-related criminal offences. The Privacy Commissioner for Personal Data (PCPD), who enforces the PDPO, was also granted the power to carry out criminal investigation and institute prosecution in doxxing cases, conferred statutory powers to demand cessation or restriction of doxxing content, and may also apply for injunctions if the PCPD is satisfied that there may be large-scale or repeated offences. Furthermore, the PCPD has also been given extraterritorial powers to demand cessation and restriction on online platforms and service providers both in Hong Kong and overseas. Notably, the new doxxing offences include the protection of a victim’s immediate family members, and the amendment allows for the PCPD to request an internet service provider to block access to relevant platforms from Hong Kong in extreme cases.

On 29 November 2021, the Asian-African Legal Consultative Organisation (AALCO) Hong Kong Regional Arbitration was officially established, with the objective of promoting international commercial arbitration in the Asian-African regions and providing for the conducting of international arbitrations. Adding to the five existing regional arbitration centres of the AALCO (in Cairo, Kuala Lumpur, Lagos, Tehran and Nairobi), the Hong Kong regional centre will seek to integrate itself in the AALCO dispute settlement system and perform a variety of tasks, including providing facilities for alternative dispute resolution services and assisting in the enforcement of arbitral awards, and to also promote the growth and effective functioning of arbitration and other dispute resolution services, including online dispute resolution services.

On 15 December 2021, the Law Reform Commission published a report titled ‘Outcome Related Fee Structures for Arbitration’, recommending the lifting of prohibitions that would prevent lawyers from entering into outcome-related fee structures (ORFSs) for arbitration. The recommendations are limited to arbitration and related court proceedings, such as applications to the Hong Kong courts to set side or enforce an arbitral award. The proposed reform does not extend to any other Hong Kong court proceedings. The report recommends permitting conditional fee agreements (CFAs) (where parties agreed to pay a success fee when clients succeed in a case), damages-based agreements (DBAs) (where the lawyers receives payments with reference to the financial benefit obtained in the matter involved), and hybrid DBAs (which combine elements of CFAs and DBAs) with appropriate safeguards. The report further suggests amendments should be made to the Arbitration Ordinance, the Legal Practitioners Ordinance, the Hong Kong Solicitors’ Guide to Professional Conduct, and the Hong Kong Bar Association’s Code of Conduct, to enable lawyers to use ORFSs. As other major arbitral seats permit some forms of ORFSs, the proposed reforms would allow Hong Kong to offer what its competitors offer to uphold Hong Kong’s competitiveness as a leading arbitral seat. The Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022 was gazetted on 25 March 2022 and introduced to the Legislative Council on 30 March 2022.

On 1 December 2021, the Rules of the High Court and the Rules of the District Court (Chapter 336H) were amended to abolish the fraud exception rule (Rule 1(2)(b)) to summary judgment, in which summary judgment proceedings were originally unavailable for a claim based on an allegation of fraud.

The Hong Kong courts have introduced various measures to address the challenges created by travel and other restrictions owing to the covid-19 pandemic and to enhance the efficiency of civil litigation, including:

  • the use of remote hearings: since April 2020, remote hearings via telephone or videoconferencing facilities have been progressively adopted in all levels of civil courts and tribunals. The ‘browser-based’ videoconferencing facility was also introduced in January 2021; and
  • e-court: the Court Proceedings (Electronic Technology) Ordinance (Chapter 638), while passed but not yet in force, is expected to implement an integrated court case management system to allow for the creation, submission and use of electronic documents in court proceedings.

Key cases

Among the many mutual arrangements between Hong Kong and mainland China for the purposes of judicial assistance, on 3 September 2021, the District Court in Hong Kong in the recent fraud case Su Xin & another-v-Qian Xiaochun [2021] HKDC 1056 granted leave for the plaintiffs to serve the defendant by ‘substituted service’ by way of public announcement in mainland China. This judgment helpfully affirms that when a mainland-resident defendant to proceedings is unable to be located, public announcement is a permitted mode of substituted service of the writ on the defendant.

Several developments in cross-border insolvency include Re China All Access (Holdings) Limited [2021] HKCFI 1842 and Li Yiqing-v-Lamtex Holdings Ltd [2021] HKCFI 622, where the Hong Kong court allowed the appointment of Hong Kong liquidators of a foreign company to seize control over subsidiary assets in mainland China, and the adoption of a more flexible approach in considering a company’s centre of main interest (COMI) where recognition of insolvency proceedings is contested between a company’s COMI and place of incorporation.

On 20 July 2021, the Court of First Instance handed down its decision in Re Samson Paper Company Limited (in Creditors’ Voluntary Liquidation) [2021] HKCFI 2151, approving the first application for a letter of request to be issued by the Hong Kong Court for judicial assistance to facilitate the liquidators to be recognised by the Shenzhen Bankruptcy Court under the Record. On 15 December 2021, the Shenzhen Bankruptcy Court formally recognised the liquidators.

On 16 September 2021, the Court of First Instance recognised in Re HNA Group Co Limited [2021] HKCFI 2897, for the first time, reorganisation proceedings commenced in mainland China under the mainland Enterprise Bankruptcy Law. The Court of First Instance (Mr Justice Harris) emphasised that, unlike mainland China, the Hong Kong common law recognition regime does not require reciprocity, and the fact that Hainan (where the company was headquartered) was not one of the pilot areas under the Record would not prevent the proceedings from being recognised in Hong Kong.

On 17 December 2021, the Court of First Instance handed down its decision in Nuoxi Capital-v-Peking University Founder Group Company Limited [2021] HKCFI 3817, addressing for the first time the interplay and potential conflict between the issue of recognising foreign insolvency proceedings and the contractual rights of creditors who sought to enforce exclusive jurisdiction clauses in favour of Hong Kong under certain Keepwell Deeds (a common form of credit enhancement used by Chinese companies to facilitate the issuance of offshore bonds by subsidiaries). This case has been described as a landmark decision, enshrining the principle of ‘one country, two systems.’ As Justice Harris remarked in his judgment, ‘the applications give rise to issues of some importance’, as this subject is an increasingly common feature of the financing arrangements entered into by mainland Chinese business groups and foreign lenders. While the Hong Kong court recognised the reorganisation proceedings in respect of the debtor before the Beijing No. 1 Intermediate People’s Court, the Hong Kong court refused to stay the Hong Kong proceedings to determine the rights of the plaintiffs under the Keepwell Deeds, which are governed by English law and contained Hong Kong exclusive jurisdiction clauses.

The reasonings were threefold:

  • The Hong Kong court would not deprive a party of its contractual right to rely on an exclusive jurisdiction clause unless a compelling reason was demonstrated.
  • The administrators could not demonstrate a compelling reason for the Hong Kong court to depart from the exclusive jurisdiction clause. Mr Justice Harris dismissed the administrators’ submission that the Hong Kong proceedings should be stayed because the plaintiffs had submitted proofs of debt in mainland China reorganisation proceedings. There was a distinction between legal proceedings to adjudicate contractual rights and proceedings to recover a debt from a debtor subject to foreign insolvency proceedings, and the submission of a proof of debt in foreign insolvency proceedings did not create an absolute bar to a creditor seeking adjudication of the claim that was not the insolvency jurisdiction.
  • The Hong Kong court would be better placed than the Beijing court to determine issues of English law.

At [70], Mr Justice Harris suggested that the court would welcome a coordination with the Beijing court as ‘it may be possible for the courts to agree the way in which the issues are to be determined, with the Hong Kong court dealing with issues of construction of the Keepwell Deeds, and directed the administrators to provide a copy of this decision to the Beijing court.

On 30 December 2021, the Court of First Instance in Tam Sze Leung & Ors-v-Commissioner of Police [2021] HKCFI 3118 held in the context of an application to apply for judicial review that the ‘letter of no consent’ regime used by the Hong Kong Police Force to effectively freeze bank accounts holding suspected proceeds of crime (commonly known as the ‘no consent regime’) was, among other things, ultra vires, unlawful and interfered with rights protected by the Basic Law. Prior to this, the ‘no consent regime’ was a quick and effective procedure to preserve funds held by banks so that the victim of the fraud has ‘breathing space’ to take steps in civil proceedings to recover the funds. However, the court is still to give its decision following further submissions by the parties to the court on the issue of appropriate relief.

On 6 April 2022, the Court of First Instance in Re Hong Kong Fresh Water International Group Ltd [2022] HKCFI 924 granted the first application pursuant to the cross-border insolvency mechanisms for mutual recognition and assistance between the Hong Kong courts and the mainland China courts for a letter of request to be issued by the Hong Kong court to the Shanghai Court. The Shanghai Municipality is one of the three designated ‘pilot’ areas under the Mutual Recognition of Insolvency Proceedings Framework. With reference to his earlier decision in Re Samson Paper Co Ltd [2021] HKCFI 2151, Mr Justice Harris held that issuing a letter of request in this case would be consistent with the already established principles and that it was desirable that the liquidators’ appointment should be recognised and assisted in Shanghai.

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