The Dispute Resolution Review: Hong Kong
Introduction to the dispute resolution framework
Although Hong Kong is a special administrative region of the People's Republic of China (PRC), its legal system operates independently. Despite increasing political control by the PRC over Hong Kong, currently there are very few similarities between PRC law and Hong Kong law. Hong Kong law is based on principles of common law, similar to those that apply in England, Australia and other Commonwealth jurisdictions, and this is formally acknowledged by the Basic Law (Hong Kong's mini Constitution). The policy of 'one country, two systems' is constitutionally guaranteed until 2047.2
There are two levels of court dealing with civil claims of substance3 at first instance: the District Court, which has jurisdiction over claims of up to HK$3 million,4 and the Court of First Instance (CFI), which has unlimited jurisdiction.
The Court of Appeal (CA) hears appeals from the CFI, the District Court and the Lands Tribunal as well as other statutory bodies. The Court of Final Appeal (CFA) is the highest court in Hong Kong and is made up of local permanent judges and distinguished judges from (currently) England and Australia who serve as non-permanent judges. It hears appeals from the CA and the CFI.
There are a range of specialist tribunals established under statute, such as the Lands Tribunal, the Labour Tribunal and the Competition Tribunal.
Hong Kong is a major centre for international arbitration. There is a sophisticated statutory regime in place to support arbitration (see Section VI). Mediation is also widely accepted in Hong Kong (see Section VI).
The year in review
The economic impact of the covid-19 pandemic, US–China trade tensions and, more locally, the PRC's increased political and economic influence over Hong Kong have impacted individuals and businesses across all sectors over the past two years, giving rise to uncertainties and opportunities. The legal sector has not been immune to this. From questions around the role and desirability of e-hearings, the role and duties of the legal profession and the constitutional status of the judiciary, the past two years have seen fundamental questions asked about Hong Kong's current legal system.
Meanwhile, tight quarantine restrictions on the PRC and the rest of the world have meant that Hong Kong has had very few cases of covid-19 in the local community in the past six months. The Hong Kong government recently announced plans to gradually open up its boundary with the PRC starting from December 2021. This will hopefully expand to other areas of the world and see a resumption of the volume of trade and exchanges between Hong Kong and the PRC.
Headlines in and about Hong Kong have continued to refer to constitutional law issues. The Law of the People's Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region (National Security Law) took effect in Hong Kong on 30 June 2020. The National Security Law has six chapters:
- general principles;
- the duties and the government bodies of the Hong Kong Special Administrative Region of the People's Republic of China (HKSAR) for safeguarding national security;
- offences and penalties;
- jurisdiction, applicable law and procedure;
- Office for Safeguarding National Security of the Central People's Government in the HKSAR; and
- supplementary provisions.
In a circular published on 30 June 2020, the government stated that 'the purposes of the National Security Law are to prevent, curb and punish crimes, namely acts of secession, subversion of state power, terrorist activities, and collusion with foreign or external forces to endanger national security; maintain prosperity and stability of the HKSAR; and protect the lawful rights and interests of HKSAR residents'.
One year on, the Hong Kong authorities have arrested 117 people under the National Security Law, and charged more than 60 people, including politicians, activists, journalists and students.
Looking at Hong Kong through a more regional lens, the rapid development of the Guangdong–Hong Kong-Macao Greater Bay Area (Greater Bay Area) is garnering growing attention and commitment from businesses in Hong Kong and investment through Hong Kong into the PRC. The Greater Bay Area has a total population of over 86 million, and comprises Hong Kong, Macao and the nine municipalities in the Guangdong Province. On 1 July 2017, the National Development and Reform Commission and the governments of Guangdong, Hong Kong and Macao signed the Framework Agreement on Deepening Guangdong–Hong Kong–Macao Cooperation in the Development of the Greater Bay Area, which sets out goals, key areas and principles of cooperation. On 18 February 2019, the outline development plan for the Guangdong–Hong Kong–Macao Greater Bay Area was promulgated, which sets out topics including the overall requirements for the Greater Bay Area, development of an international innovation and technology hub, expedition of infrastructural connectivity, development of joint cooperation platforms and the implementation of the plan.
i Regulatory enforcement
On 30 November 2021, the Securities and Futures Commission (SFC), the independent statutory body responsible for regulating the securities and futures markets in Hong Kong, announced that its executive director of enforcement, Mr Thomas Atkinson, will leave in May 2022. Atkinson joined the SFC in 2016 from the Ontario Securities Commission in Canada, and since then has pursued a series of enforcement campaigns against targeted conduct issues in the market, ranging from initial public offering sponsor failures to 'ramp and dump' frauds and other market manipulation schemes. The SFC will commence a global recruitment exercise for a new executive director of enforcement before Atkinson's departure.
Enforcement by the SFC has been affected by the covid-19 pandemic in a variety of ways, as it tried to maintain business as usual and keep Hong Kong's markets open for business activity. The SFC's quarterly reports in 2020 and 2021 show that it continues to adopt a front-loaded regulatory approach with a focus on high impact cases. The SFC has also demonstrated a continued commitment to taking a proactive approach in cooperating with other regulatory authorities in Hong Kong such as the Hong Kong Monetary Authority, Insurance Authority and Independent Commission Against Corruption.
ii Competition Commission
The Competition Ordinance5 was passed in June 2012 and came into full effect at the beginning of December 2015. The Competition Commission (Commission) was established under the Ordinance to promote a competitive environment conducive to the free flow of trade, efficiency and innovation, and to prohibit conduct that prevents, restricts or distorts competition.
On 17 May 2019, the Competition Tribunal handed down its judgment in the first competition case, Competition Commission v. Nutanix Hong Kong Ltd and Others,6 related to alleged breaches of the First Conduct Rule under the Competition Ordinance. In 2021, the Commission obtained its first appeal judgment in Competition Commission v. W Hing Construction Company & Others,7 another First Conduct Rule case.
It is understood that the Competition Commission has a number of ongoing investigations and continuing proceedings. Those proceedings include the first proceedings, filed in 2021, against parties for alleged breaches of the Second Conduct Rule (which prohibits businesses with a substantial degree of market power from abusing that power by engaging in conduct that has the object or effect of harming competition in Hong Kong).
iii Mutual recognition of insolvency proceedings
The Secretary for Justice for Hong Kong and the Vice-President of the PRC's Supreme People's Court (SPC) signed the record of meeting concerning mutual recognition of and assistance to insolvency proceedings between the courts of the Mainland and the Hong Kong Special Administrative Region in May 2021 (record of meeting).
The record of meeting was stated to signify a consensus between Hong Kong and the Shenzhen authorities on the mutual recognition of and assistance in insolvency proceedings between the two places. Liquidators from Hong Kong may now apply to PRC courts for recognition of insolvency proceedings in Hong Kong. Likewise, bankruptcy administrators from the PRC may apply to the High Court in Hong Kong for recognition of bankruptcy proceedings in the PRC. The new framework expressly covers bankruptcy compromise and reorganisation in the PRC as well as debt restructuring in Hong Kong, thereby encouraging the use of restructuring of debts to revive businesses with a view to reaching consensus among creditors from both places and abroad. The SPC has initially designated Shanghai, Xiamen and Shenzhen as pilot cities where the relevant intermediate people's courts and Hong Kong courts will commence the work on mutual recognition of and assistance in insolvency proceedings.
On 8 July 2021, the first application was made (successfully) for a letter of request to be issued by the High Court of Hong Kong to the Bankruptcy Court of the Shenzhen Intermediate People's Court in Re Samson Paper Company Limited (in Creditors' Voluntary Liquidation).8
iv Environmental, social and corporate governance
The influence of environmental, social and corporate governance (ESG) issues has grown exponentially across all industries in the past few years. The SFC has assumed a leading role in Hong Kong in promoting the importance of ESG issues to and for investors since late 2019 with multiple consultations, most recently publishing its Consultation Conclusions on the Management and Disclosure of Climate-related Risks by Fund Managers in August 2021. This consultation paper focuses on proposed amendments to the Fund Manager Code of Conduct that would require fund managers to consider climate-related risks in their investment and risk management processes, and to make appropriate disclosures to meet investors' growing demands for climate risk information.
Civil procedure in Hong Kong is governed by the Rules of the High Court and the accompanying Practice Directions issued by the Chief Justice. These Rules were substantially revised by the enactment of the Civil Justice Reforms (CJR), which came into effect on 2 April 2009.
i Overview of court procedure
Ordinary commercial court proceedings
Reducing the cost of delay associated with litigation proceedings and proper case management are the declared cornerstones of the CJR. The reforms were introduced to counter a trend of multiple interlocutory applications, excessive discovery and unfocused proceedings that led to delay and unnecessary expense. Parties that do not follow the revised procedures as set out in the CJR can expect adverse cost orders9 or, in severe cases of non-compliance, to have their claims struck out by the court.10 Costs will no longer be necessarily awarded to the successful party and the court can now have regard to whether the costs that were incurred were in proportion to the amounts at stake in the claim.
There are a number of different procedures by which court proceedings can be commenced in Hong Kong. In particular, certain types of actions (such as judicial review) have their own specialised procedures. Nevertheless, most commercial actions are commenced by a writ of summons. A typical set of court proceedings will consist of the following steps.
The plaintiff (claimant) issues in the CFI a writ of summons endorsed with a statement of claim. In a typical claim for breach of contract, it will recite which provisions of the contract have been breached, the key facts supporting it and the remedy sought.
The defendant files its acknowledgement of service indicating whether it intends to defend the proceedings.
At this point, the plaintiff can apply for summary judgment if it considers that there is no defence to the claim. This application will be decided quickly by the court on affidavit evidence from both parties. Judgment may be given for the whole or part of the claim if the court is satisfied there is no real defence. If otherwise, the matter goes to a full trial, the stages of which are as follows:
- the defendant files its defence, which must answer each of the matters raised in the statement of claim, and any counterclaim;
- the plaintiff files its reply and defence to counterclaim;
- the parties are then expected to proceed to disclose to each other documents relevant to the issues in dispute without the need to wait for an order of the court (this process, which is called discovery, is described in detail below);
- the parties file and serve a timetabling questionnaire indicating their readiness for the trial;
- the parties agree directions for trial and attend a case management conference where directions relating to the management of the case are made by the court;
- there is the exchange of witness statements and any expert evidence (if required); and
It is difficult to generalise the time frame for a piece of civil litigation. This will depend on a variety of factors, including the extent of discovery, the availability of witnesses and the complexity of the issues in dispute. Nevertheless, one can usually expect a judgment at first instance within two years of the commencement of proceedings; a summary judgment application may be determined within as little as three, but usually within six, months of proceedings being initiated.
ii Procedures and time frames
Urgent or interim relief
The Hong Kong courts will hear urgent or interim applications in relation to a wide range of matters.
Among the most common interim applications are those for summary or default judgment. As mentioned above, the plaintiff may apply for summary judgment on the grounds that the defendant has no defence to its claim, or no defence to a claim for liability, but possibly a defence to the amount of damages claimed.11 A plaintiff may enter default judgment against a defendant who has failed either to give notice of intention to defend or to serve a defence within the times prescribed in the rules.12
A recent amendment to the Rules of High Court and Rules of District Court means that a plaintiff that has alleged fraud against a defendant may now bring a summary judgment application against that defendant. Previously under the Rules, a plaintiff to any action begun by writ that included a claim based on an allegation of fraud could not apply for summary judgment (the fraud exception). On 20 August 2021, the government published an amendment rule abolishing the fraud exception in relation to applications for summary judgment in the High Court and District Court on or after 1 December 2021.
There is sometimes a risk that an unscrupulous defendant may remove its assets from the jurisdiction or otherwise dissipate them when it learns that proceedings have been commenced against it. This is a particular concern given the ease with which funds can now be transferred electronically across borders. A Mareva injunction can be obtained at the outset of proceedings to restrain the defendant from disposing of assets that may be held in Hong Kong and, in certain circumstances, outside Hong Kong. The injunction is ancillary to the main proceedings and is made after the court has considered affidavit evidence from the plaintiff. Typically, the injunction order is served on banks that hold funds of the defendant and the banks must comply with the order. There are very strict requirements for full and frank disclosure in the evidence filed, and the plaintiff must give an undertaking to compensate the defendant and other parties affected by the injunction if it is subsequently held that the injunction should not have been granted.
Anton Piller relief
A party to litigation in Hong Kong can apply to court for an order permitting it to enter the premises of another party to inspect and preserve property belonging to that party that may, for instance, be needed as evidence in proceedings. The difficulty with following this procedure is that the other party will be alerted to what may happen if the order is granted and may take advantage of the delay to destroy the property concerned. To address this possibility, in exceptional circumstances, the court may grant an Anton Piller order, without prior notice to the defendant, which directs the defendant to allow the people specified in the order to enter its premises and take away and preserve evidence. Given the draconian nature of the order, which is almost akin to a criminal search warrant, it has been described as a 'nuclear weapon' in the law's armoury.13 Accordingly, the courts are very concerned to ensure that the process is not abused.
As with a Mareva injunction, if an Anton Piller order is later found by the court to have been wrongfully obtained, the party who obtained the order is liable to compensate the other party and other affected third parties for losses suffered as a consequence of the order.
Interim measures in relation to arbitral proceedings
On 2 April 2019, the government signed the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (Arrangement). After signing the Arrangement, Hong Kong has become the first and only jurisdiction outside the Mainland where parties to arbitral proceedings, seated in Hong Kong and administered by a list of arbitral institutions established or set up in Hong Kong, can apply to the courts of the PRC for interim measures. Currently, the list of eligible institutions include the Hong Kong International Arbitration Centre (HKIAC), the China International Economic and Trade Arbitration Commission Hong Kong Arbitration Centre and the International Court of Arbitration of the International Chamber of Commerce (ICC).
Interim measures available in the PRC include property preservation, evidence preservation and conduct preservation. Interim measures available in Hong Kong include injunctions and other interim measures for the purpose of maintaining or restoring the status quo pending determination of the dispute; taking action that would prevent, or refraining from taking action that is likely to cause current or imminent harm or prejudice to the arbitral proceedings; preserving assets; and preserving evidence that may be relevant and material to the resolution of the dispute.
The Arrangement came into force on 1 October 2019. The HKIAC announced that as of the end of 2020, 34 applications for interim relief were filed before the PRC courts in support of HKIAC-administered arbitrations, out of which almost all have sought to preserve assets in the PRC, and the HKIAC is aware of 20 decisions by various PRC courts subsequently granting applications for preservation of assets totalling approximately US$1.47 billion.
On 27 November 2020, the government and SPC signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and HKSAR (Supplemental Arrangement) to improve the 20-year old Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong. The Supplemental Arrangement clarifies that a party seeking recognition and enforcement of a Hong Kong award is entitled to apply to the relevant PRC court for interim relief before or after its application for recognition and enforcement. This should mitigate the applicant's concern that the respondent may dissipate its assets while the award is in the process of being recognised and enforced.
iii Class actions
Unlike many other jurisdictions, Hong Kong does not currently have specific provisions for dealing with multiparty litigation. The only alternative is a more restrictively interpreted representative procedure. A slight variation of facts or a possibility of a different defence to a claim brought by one member of the 'class' may be sufficient to deny the entire class the same interest in the proceedings.
iv Representation in proceedings
Currently (and generally), companies may not begin or carry on proceedings without being represented by a solicitor. Previously, only barristers (instructed by a firm of solicitors) could appear in the higher courts on behalf of parties; however, this restriction was removed by the Legal Practitioners (Amendment) Ordinance 2010 (LPAO). The Higher Rights of Audience Rules (HRA Rules) came into operation in June 2012. According to the HRA Rules and the Legal Practitioners Ordinance, as amended by the LPAO, to be eligible, the applicant must hold a current practising certificate, have practised for at least five years aggregate in the seven years preceding the application and have the necessary professional competence, which, as elaborated in an explanatory document published by the Higher Rights Assessment Board (HRAB),14 is equivalent to the level of competence expected of a barrister appearing in higher courts in the areas of ethics, evidence and procedure, general advocacy, trial advocacy and appellate advocacy. To date, a total of 78 practitioners have been appointed as solicitor advocates.
Solicitors' higher rights of audience
A notable exception to the audience rule is in hearings before the Labour Tribunal where neither barristers nor solicitors have rights of audience unless they are appearing on their own behalf as a party in proceedings.15 If a company is a defendant in proceedings, it is expressly empowered to give notice of its intention to defend by any person duly authorised to act on its behalf. Generally, litigants in person may represent themselves in proceedings except where the litigant is a minor or under a disability pursuant to the Mental Health Ordinance.
v Service out of the jurisdiction
A party who intends to serve documents initiating proceedings on a person outside of Hong Kong must, except in certain limited circumstances, obtain the prior leave of the court in order to do so.16 There are a number of different grounds under which leave to serve out may be obtained. These include, for instance, actions commenced in respect of contracts where the Hong Kong courts have explicitly been granted jurisdiction and contracts governed by Hong Kong law. However, in addition to a valid ground, applicants seeking the court's leave to serve out of the jurisdiction need to satisfy the court that there is a serious issue to be tried on the merits of the claim and that Hong Kong is the most convenient forum for the trial of the case.
vi Enforcement of foreign judgments
At common law, an action may be brought in Hong Kong to enforce a foreign judgment debt (without the need to relitigate the underlying cause of action).
Under the Foreign Judgments (Reciprocal Enforcement) Ordinance, the judgments of certain countries (including Australia, Belgium, Brunei, France, Germany, India, Israel, Italy, Malaysia, New Zealand and Singapore) are capable of more direct enforcement by registration. Once registered, the foreign judgment may be enforced in the same way as a judgment obtained in a court in Hong Kong.
The Mainland Judgments (Reciprocal Enforcement) Ordinance, which provides a mechanism by which certain judgments made in the PRC may be enforced in Hong Kong and Hong Kong judgments in the PRC, came into operation on 1 August 2008. The effectiveness of this Ordinance has always been seen as quite limited since it applies only to judgments for damage arising from commercial agreements where the relevant agreement provides for exclusive jurisdiction of the chosen (Hong Kong or PRC) court (choice of court agreement). Although the Hong Kong government and the Supreme People's Court of the PRC had since concluded the Choice of Court Arrangement (in 2008) and the Arrangement for Enforcement of Civil Judgments in Matrimonial Home and Family Cases (in 2017), both arrangements have limited effect on alleviating the constraints stipulated by the Ordinance.
However, in January 2019, the Hong Kong government announced that it had concluded the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters (Reciprocal Arrangement). The Reciprocal Arrangement has a significantly expanded scope of application compared with the existing Ordinance and arrangements. It provides specific guidance on recognition and enforcement of judgments arising from IP infringements, civil disputes over acts of unfair competition and awards of property. It will cover judgments in relation to civil damages awarded in criminal cases, and allow the enforcement of both monetary and non-monetary relief. The choice of court agreement requirement has been replaced by a jurisdictional test that can be met without the parties having to agree to exclusive jurisdiction of the chosen court at the time of contract. The Reciprocal Arrangement is a welcome development in terms of providing clarity to existing arrangements. The Department of Justice is currently conducting a consultation on a legislative proposal to implement it, which is due to complete on 31 January 2022.
vii Assistance to foreign courts
International cooperation in taking of evidence for civil proceedings through letters of request has been facilitated by the Convention on the Taking of Evidence Abroad in Civil and Commercial Matters (Hague Evidence Convention). Although the Hague Evidence Convention applies to Hong Kong, as an inter-state international convention, it does not apply as between the PRC and Hong Kong because they are one country. In the absence of a protocol to facilitate mutual assistance, letters of request to and from the PRC had to be transmitted through intermediary governmental bodies, which was very slow and unreliable. The Arrangement on Mutual Taking of Evidence in Civil and Commercial Matters between the Courts of the Mainland and Hong Kong, which came into force in March 2017, is intended to resolve this issue and facilitate the obtaining of evidence by parties to civil and commercial proceedings in the PRC and Hong Kong.
viii Access to court files
As a general rule, the full court file cannot be inspected by members of the public; in exceptional cases the public may be granted leave from the High Court Registrar to inspect affidavits, pleadings and other evidentiary court documents if there are very cogent reasons for them to do so. However, the public may inspect and obtain copies of writs or other documents by which proceedings are commenced. Final and interlocutory court judgments are filed in the High Court library and are also freely accessible by the public on the judiciary website.
ix Litigation funding
Generally, third-party funding of litigation is prohibited under Hong Kong law. There are, however, three limited exceptions. First, a person may have a legitimate common interest in the outcome of the litigation sufficient to justify him or her supporting the litigation. Second, an individual may be permitted to fund litigation of a claimant who would otherwise be unable to pursue litigation owing to a lack of funds. This is because of the public interest in promoting access to justice.19 Finally, third-party funding may be permitted by the courts to allow a liquidator to pursue litigation that may improve the return to creditors.20 However, outside these situations, the Hong Kong courts take a firm approach towards third parties who aid litigation in return for a share of the profits.21
Although third-party funding of litigation is prohibited, the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance No. 6 of 2017 (Amendment Ordinance), which came into effect in 2017, has abolished the application of the doctrines of maintenance and champerty to, and thereby legalising, third-party funding of arbitration proceedings and mediation.
The most recent version of the HKIAC Administered Arbitration Rules published in 2018 provides further guidance for arbitral tribunals, arbitration parties and third-party funders in this respect. Third-party funding is defined under the Amendment Ordinance as the 'provision of arbitration funding for an arbitration (i) under a funding agreement; (ii) to a funded party; (iii) by a third-party funder; and (iv) in return for the third-party receiving a financial benefit only if the arbitration is successful within the meaning of the funding agreement'.
x State immunity
The doctrine of state immunity applies in Hong Kong.22 State immunity only applies to foreign states, and therefore does not apply to the PRC or Hong Kong. On the other hand, the common law doctrine of crown immunity applies to the central people's government of the PRC and its state organs.23 Crown immunity in Hong Kong is also absolute, meaning that there is no exception for commercial acts of a state organ. Separately, the government and its entities can still be sued under the Crown Proceedings Ordinance.24
i Conflicts of interest and Chinese walls
Solicitors in Hong Kong are subject to rules of the Law Society of Hong Kong (Law Society), which imposes strict duties to:
- hold in strict confidence all information concerning the business and affairs of the client that the solicitor acquires through acting for the client;25
- pass on to a client all information relevant to the subject matter in relation to which the solicitor has been instructed regardless of the source of the information;26 and
- not to accept instructions from a new client where it is likely that the solicitor would be duty-bound to disclose to that new client, or use for its benefit, relevant confidential knowledge where this would be in breach of the solicitor's duty of confidentiality owed to an existing or former client.27
The effect of these duties is that a solicitor who is in possession of confidential information concerning one client that is, or might be, relevant to another client is put in an impossible position because he or she owes duties to both clients that conflict; he or she must keep the information confidential but at the same time must pass it on to the other client. Thus, managing conflicts of interest in Hong Kong can be a difficult process compared with, say, England, where the rules make allowances for this type of situation.
ii Money laundering, proceeds of crime and funds related to terrorism
Lawyers in Hong Kong, as elsewhere in the world, are vulnerable to being used unwittingly to launder the proceeds of crime or to fund terrorism. The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance28 came into force in April 2012, imposing stricter statutory requirements on financial institutions relating to customer due diligence and record keeping, and an obligation to report suspicious transactions to the authorities.
The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance 2018 (AML Amendment Ordinance) subsequently came into effect on 1 March 2018. The AML Amendment Ordinance extends the previous statutory customer due diligence and record-keeping requirements to cover designated non-financial businesses and professions, including legal professionals, accounting professionals, estate agents, and trust or company service providers. The regulatory body for legal professionals is the Law Society of Hong Kong.
iii Data protection
The protection of personal data in Hong Kong is governed by the Personal Data (Privacy) Ordinance (as amended) (PDPO). One of the principles provided in the PDPO is that personal data may not be used for any purpose except with the prescribed consent of the data subject.29 Two exceptions to this rule are:
- the use of personal data that is:
- required or authorised by or under any enactment, by any rule of law or by an order of a court in Hong Kong;
- required in connection with any legal proceedings in Hong Kong; or
- required for establishing, exercising or defending legal rights in Hong Kong;30 and
- personal data transferred or disclosed by a data user for the purpose of a due diligence exercise to be conducted in connection with a proposed business transaction that involves a transfer of the business or property of, or any shares in, the data user; a change in the shareholdings of the data user; or an amalgamation of the data user with another body, provided that:
- the personal data transferred or disclosed is not more than necessary for the purpose of the due diligence exercise;
- goods, facilities or services that are the same as or similar to those provided by the data user to the data subject are to be provided to the data subject, on completion of the proposed business transaction, by a party to the transaction or a new body formed as a result of the transaction; and
- it is not practicable to obtain the prescribed consent of the data subject for the transfer or disclosure.31
Although Section 33 of the PDPO prohibits a data user from transferring personal data to a place outside Hong Kong except in certain specified circumstances, this Section has yet to come into operation.
On 8 October 2021, Hong Kong introduced doxxing-related offences under the Personal Data (Privacy) (Amendment) Ordinance 2021 (Privacy Amendment Ordinance). Doxxing is the publication of private or identifying information about a particular individual on the internet, typically with malicious intent. The Privacy Amendment Ordinance was introduced as a response to what was perceived to be a sharp surge in doxxing during the anti-extradition bill protests in 2019, particularly towards police officers, journalists and their family members.
Under these amendments, the Privacy Commissioner for Personal Data (PCPD) has the power to carry out criminal investigations, institute prosecutions for doxxing-related offences and order the removal of doxxing messages. The legislation also has extraterritorial effect to the extent that the PCPD may serve a notice to internet service providers based outside Hong Kong to take down information deemed as doxxing.
As regards the wider region, the PRC recently introduced two new data privacy laws, which will have a profound impact on how organisations should process PRC residents' data, including in Hong Kong. The Data Security Law (DSL) became effective on 1 September 2021, and the Personal Information Protection Law (PIPL) became effective on 1 November 2021. The DSL focuses on the protection of data security and introduces a categorical system of data protection that requires classification and protection of data according to the degree of its importance on economic and social development; and the degree of harm imposed on the national security or public interest of citizens and entities in the event of its distortion, leakage or illegal utilisation. It also imposes specific obligations on data processors, including those who transfer data overseas. The PIPL governs the processing of personal data, which refers to any kind of information relating to an identified or identifiable natural person. Both laws have extraterritorial effect.
iv Other areas of interest
Dual legal qualifications
In November 2020, the Ministry of Justice in the PRC issued a notice setting out the details of the 2021 GBA Legal Professional Examination. Hong Kong legal practitioners, including solicitors and barristers with accumulated legal practice experience of five years or more, are allowed to provide legal services in all of the municipalities in the Greater Bay Area on specified civil and commercial matters (including litigious and non-litigious matters) to which Mainland laws apply upon passing the examination. The GBA Legal Professional Examination will provide opportunities for the Hong Kong legal services sector to provide Mainland legal services as well as diversified legal services to clients in the Greater Bay Area, including wholly owned Hong Kong enterprises. The first examination was held on 31 July 2021, with Hong Kong being one of the locations to take the examination.
Documents and the protection of privilege
The two main forms of legal professional privilege (LPP) – legal advice privilege and litigation privilege – that apply in Hong Kong are essentially the same as those recognised under English law.
Confidential communications between a lawyer and his or her client for the purpose of giving or receiving legal advice are protected from disclosure by legal advice privilege. This privilege is unlikely to extend to legal advice that may be given by other professionals such as accountants and surveyors, with the Hong Kong courts expected to follow the approach of the United Kingdom Supreme Court in its decision in R (on the application of Prudential plc and another) v. Special Commissioner of Income Tax and another.32
Where there is litigation or it is reasonably contemplated that it will occur, not only will communications between the solicitor and a client be privileged but also communications they have with third parties, if it can properly be said that their sole or dominant purpose is preparing for the litigation.
In both cases, the privilege belongs to the clients and only the clients can properly choose to waive it. They can also lose it if, for example, legal advice is disclosed to third parties where there is no litigation or it is not reasonably contemplated.
In 2015, the CA, in CITIC Pacific Limited v. Secretary for Justice and Commissioner of Police,33 set down a broader definition of client where legal advice is being provided to a corporation. The key question is which employees are or should be regarded as authorised to act on behalf of the company in obtaining legal advice. The CA also confirmed that legal advice privilege should protect internal confidential documents in a client organisation that have been produced for the dominant purpose of obtaining legal advice. The court recognised that the definition of client has to be broad enough to take into account the fact that various members of a corporation, not simply those in the legal team, may be required to obtain legal advice for the corporation. The CA in the CITIC decision declined to follow the approach of the English Court of Appeal in Three Rivers No 5.34 In the Three Rivers case, the court defined client more narrowly to refer only to those employees who had been authorised by the company to give instructions to legal advisers. Both the CITIC and Three Rivers cases were Court of Appeal decisions in Hong Kong and in the United Kingdom respectively. The issue of who is capable of constituting the client for the purposes of legal advice privilege has yet to be considered by the CFA in Hong Kong or United Kingdom Supreme Court.
ii Privilege and regulators
As a general rule, a lawyer or client cannot be compelled to disclose legally privileged communications in the context of a regulatory inquiry. Some statutes setting out the powers of the regulator expressly recognise this; for example, the Securities and Futures Ordinance, which provides that persons being investigated by the SFC can rely on LPP in the same way as they could in the context of court proceedings. While this is the strict statutory position, the SFC has adopted a policy35 of effectively rewarding those under investigation (by discounting any penalty to be imposed) for voluntarily disclosing material relevant to an issue under investigation that otherwise would be protected by legal privilege.
Sometimes there is no real practical alternative to disclosing privileged material to demonstrate to the regulator what happened in a transaction that is under investigation. There is, however, a potential danger in doing this, in that the SFC is a party to numerous cooperation arrangements with other regulators in Hong Kong and overseas, as a consequence of which the SFC may be obliged to produce to other regulators the disclosed privileged material.
Three cases, Rockefeller & Co Inc v. Secretary for Justice,36 James Daniel O'Donnell v. Lehman Brothers Asia Ltd (In Liq)37 and CITIC Pacific Ltd v. Secretary for Justice and Commissioner of Police,38 have explored the concept of partial waiver of LPP in the context of SFC regulatory investigations.
In the Rockefeller case, the plaintiff disclosed documents protected by LPP to the SFC subject to an express agreement not to waive any confidentiality or privilege in the documents. The documents were eventually passed on to a third party, against whom the plaintiff sought an injunction from using the documents. The plaintiff argued that the relevant documents were only disclosed to the SFC for a limited purpose. The CFI held that the waiver given was limited for a particular purpose but an injunction was not appropriate in the circumstances,39 which was affirmed on appeal.
In the Lehman case, the SFC sought from the liquidators documents that were relevant to the offering of the Lehman minibonds. The liquidators declined to disclose the minibond documents to the SFC on the grounds that the documents contained legal advice or were created for the purpose of obtaining legal advice. Instead, the liquidators disclosed redacted versions of the documents. The CFI held that the redacted portions indeed constituted a record of legal advice or were created for the purpose of obtaining legal advice. Accordingly, most of the documents should remain to some extent redacted. This decision confirms that the partial waiver of LPP for limited purposes could be achieved by tailoring the evidence to fulfil only the stated purposes.
The principles in the Rockefeller case were further discussed in the CITIC case in 2012. In this case, certain documents were surrendered to the SFC pursuant to an authority to require production of and a direction to produce records and documents. The CA unanimously held in favour of CITIC, overturning the lower court's ruling that CITIC's waiver was absolute and finding instead that it was partial and solely for the purpose of the SFC investigation.
While the CA's decision in the CITIC case is very helpful, the CFA has not yet given a definitive judgment in this area. Therefore, any partial waiver should be considered with great care. Where the company has made the commercial judgment that the benefits of partial waiver outweigh the risks of prejudice, it should mitigate its risk by putting the specific terms in writing at the outset when the documents are handed over, making clear the precise purpose and scope of investigation for which the partial waiver is made (e.g., for the purposes of the SFC's investigation only).
iii In-house lawyers
As a general rule, in-house lawyers are treated like external lawyers, and thus communications to and from in-house lawyers conveying or seeking legal advice will be treated as covered by legal advice privilege. The main qualification to this is where the in-house lawyer has both a business and a legal role in an organisation. Requests for legal advice and pure legal advice given will still be privileged. However, where there is a mix of legal and business advice, for example, if the in-house lawyer in an internal memorandum proposes a course of action having regard to legal advice and other factors, it becomes more difficult to properly assert that the document is protected by legal privilege.
iv Legal privilege and foreign lawyers
Hong Kong law recognises legal privilege whether the lawyer involved in giving the legal advice is admitted in Hong Kong or elsewhere. Thus legal advice given by, say, a French lawyer on issues of French law will be protected by legal privilege in the same way as legal advice on Hong Kong law given by a Hong Kong lawyer. This principle applies equally to legal advice given by an in-house lawyer. Thus legal advice on an issue of New York law given by an in-house lawyer admitted in New York working in a Hong Kong branch of a US bank will be protected.
v Production of documents
A party to proceedings before the Hong Kong courts is under a strict duty to preserve and disclose to the other parties to the proceedings all documents in its possession, custody or control that are relevant to the matters in question in the proceedings. This disclosure of documents is an automatic consequence of proceedings and generally must be given shortly after the parties have formally pleaded their respective cases. The reforms under the CJR allow for orders to be given to limit discovery in appropriate cases and ways; and the availability of pre-action and third-party discovery has been extended to all cases (previously these were only available in personal injury actions). The issues that have been pleaded provide the yardstick for determining what documents are relevant. The parties do not have to make a request for disclosure of particular documents. It is for the lawyers on each side to decide which documents are properly relevant to the pleaded issues and should therefore be disclosed. In doing this, the lawyers are deemed to act as officers of the court and not simply on the instructions of their clients. Parties are required to disclose the existence of all relevant documents. It is irrelevant that a document is prejudicial to a party's case: it must still be disclosed if it is relevant and a party cannot choose which documents to disclose. A document is relevant if it may assist one or other of the parties to advance its case or damage its opponent's in relation to any issue, or if it may lead to a train of enquiry that may (indirectly) have that result. Such a result need not be inevitable: if disclosure of the document may potentially have that result, disclosure must be made. This rule applies equally to documents stored overseas, which must be brought into the jurisdiction for the purpose of litigation.
This obligation covers both documents in existence and those produced at any time after a dispute has occurred. A party will have to account for documents that are lost or destroyed and unfavourable inferences may be drawn if it is apparent that documents have been destroyed. The parties and their lawyers must preserve documents relevant to a dispute and thus destruction of unhelpful documents is not an option. The exception to this obligation is that a party may claim legal privilege as an objection to production of documents.
Documents, for these purposes, are widely defined and they include anything on which information or evidence is recorded in a manner that is intelligible to the senses or capable of being made intelligible by the use of equipment. Thus computer records, tape recordings, emails and manuscript notes are all potentially disclosable to the other side in proceedings. Information on a computer database that is capable of being retrieved and converted into readable form is treated as a document.
The test of whether documents held by a third party are in the power of a party to proceedings is whether the party has a currently enforceable legal right to obtain the documents from the third party. Merely because a party is the majority shareholder of a subsidiary does not mean that it is deemed to have control over relevant documents that are held by the subsidiary. If a professional adviser holds relevant documents that are the property of the party, and the party has the immediate right to demand their return, they will be treated as being in the party's control. However, the internal working papers of the adviser will generally not be treated as belonging to and thus under the control of a party.
The burden of disclosing documents may fall disproportionately on one party compared with another. Sometimes, because of the nature of the dispute and the degree of its involvement, a party may have a great deal more documents to disclose than the other parties. That is a risk of litigation and a factor to be taken into account when embarking on litigation (a plaintiff may quite possibly have a heavier discovery burden than the defendant in a case). The CJR requires parties and the judiciary to have regard to proportion and procedural economy in the conduct of proceedings.40 In particular, Practice Direction 5.2 requires parties 'to try to agree directions for modifying discovery obligations . . . with a view to achieving economies in respect of discovery'. This may be of particular relevance, for example, with respect to disclosure of electronic records. The courts may not, for example, necessarily require parties to expend disproportionate resources on retrieving electronic documents that have been 'deleted' from a computer system.
The parties will usually agree on a date by which they will exchange lists of documents, accompanied by a notice that the other party may inspect and take copies of documents (although parties are now encouraged to dispense with formal lists if this would be more economical).
In response to concerns regarding the increasing burden on parties of providing their electronic documents for discovery, a new Practice Direction, SL 1.2 – Pilot Scheme for Discovery and Provision of Electronically Stored Documents for Commercial List Cases, came into effect on 1 September 2014. It is mandatory in all actions commenced on, or transferred into the Commercial List on or after, 1 September 2014 in which the claim or counterclaim exceeds HK$8 million and there are at least 10,000 documents to be searched for the purposes of discovery.
Alternatives to litigation
i Overview of alternatives to litigation
Arbitration and mediation are both available in the Hong Kong jurisdiction.
The 2021 International Arbitration Survey, prepared by Queen Mary University of London's School of International Arbitration, listed Hong Kong as one of the top three jurisdictions that organisations have preferred and selected to use as the seat of arbitration in their contracts. There are a number of reasons for Hong Kong's popularity as a seat and venue for arbitration. Hong Kong has a wealth of lawyers experienced in arbitration and enjoys a reliable independent court system to support the use of arbitration.
A new Arbitration Ordinance came into operation in 2011 (replacing the former Arbitration Ordinance in force since 1963). The Arbitration Ordinance simplified arbitration law in Hong Kong to make it more user-friendly by following the UNCITRAL Model Law structure from the arbitration agreement through to the recognition and enforcement of awards. The Arbitration (Amendment) Ordinance 2017 became effective in 2018, clarifying the law to allow disputes over intellectual property rights to be resolved by arbitration and that enforcing arbitral awards involving intellectual property rights is not contrary to Hong Kong public policy.
Hong Kong, through the PRC, is a party to the New York Convention. As referred to above, there are mutual arrangements in place between Hong Kong and the PRC for reciprocal enforcement of final (and more recently) interim arbitration awards. Hong Kong also entered into a reciprocal enforcement arrangement with Macao in 2013.
There are no restrictions on the arbitration rules that parties may choose to resolve disputes in Hong Kong. Equally, there are no restrictions on the laws governing a contract that can be applied when determining a dispute by arbitration.
Hong Kong has a highly regarded arbitration centre, the HKIAC. The latest available figures published on the HKIAC website indicate that in 2020, the HKIAC handled 318 arbitrations, of which 72.3 per cent were international in nature and featured parties from 45 jurisdictions.
Since the end of 2008, Hong Kong has hosted the Asian branch of the ICC Court Secretariat. In 2012, Hong Kong also became the first jurisdiction outside the PRC to host a China International Economic and Trade Arbitration Commission (CIETAC) arbitration sub-commission. In January 2015, the Permanent Court of Arbitration (PCA) also signed a host country agreement with the PRC government and a related memorandum of administrative arrangement with the Hong Kong government to facilitate the conduct of PCA-administered arbitration in Hong Kong, including investor–state arbitration. In December 2017, the Hong Kong government and the National Development and Reform Commission of the PRC government signed an agreement aiming to advance Hong Kong's full participation in and contribution to the Belt and Road Initiative.
On 29 November 2021, the Asian-African Legal Consultative Organisation (AALCO) was officially established. The AALCO and PRC government have agreed on the establishment of a regional arbitration centre in Hong Kong, which would serve as an international institution with the aim of promoting and facilitating international commercial arbitration in the Asian–African regions.
The Hong Kong court, meanwhile, has generally adopted a pro-arbitration policy and a hands off approach to cases involving arbitration. In August 2021, for example, the CFI ordered a stay of litigation proceedings in favour of arbitration,41 having concluded that the starting point for the construction of an arbitration agreement is the presumption in favour of arbitrability.
Mediation has been achieving increased prominence since the implementation of the CJR. Practice Direction 31, which came into force in 2010, requires parties to have made genuine attempts to resolve disputes by mediation. Any party that resists this could face a potential costs penalty if at the conclusion of the proceedings the court determines the party has unreasonably failed to engage in mediation. The HKIAC has its own mediation rules and maintains a list of accredited mediators.
The Mediation Ordinance (MO)42 subsequently came into force in 2013 to support the confidentiality of mediation communications. The MO specifies situations where a disclosure may be made, for instance, where both parties and the mediator consent to the disclosure or where required by law.
The Financial Dispute Resolution Centre (FDRC) came into operation on 19 June 2012. The FDRC's primary function is to allow retail investors alleging mis-selling by banks and other financial intermediaries the opportunity to make claims for compensation not exceeding HK$1 million43 under a framework of 'mediation first, arbitration next'. Prior to the establishment of the FDRC, an aggrieved customer's only way of recovering financial losses was to go through the court system, which was considered often too costly and time-consuming for relatively low value claims.
The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 also amended the Mediation Ordinance, allowing third-party funding in mediation.
Outlook and conclusions
The implementation of the National Security Law created legal and political uncertainty on its implementation in Hong Kong. Its consequences, if not yet fully realised, are now better understood. Looking ahead, more important factors are likely to be China's economic performance, the effect of slowdowns in specific sectors (such as the property sector) and the continuing political and economic tensions between the US and China. On a government and regulatory level, China–Hong Kong relations are ever-strengthening, and the promulgation of the Greater Bay Area plan is expected to encourage significant investment in and from Hong Kong across all sectors.
The number of investigations and enforcement actions brought by the key regulators is expected to pick up again in 2022. The anticipated change of the SFC's Executive Director of Enforcement in 2022 will be closely watched for any significant change in direction for SFC enforcement policy.
Hong Kong meanwhile continues to consolidate its position as an arbitration hub. The more flexible funding arrangements for arbitrations now available in Hong Kong and the means to enforce interim awards from Hong Kong in the PRC should further enhance Hong Kong's competitiveness as a seat of choice for international arbitrations, particularly involving PRC parties.
1Mark Hughes is a partner and Catherine Wang is a trainee solicitor at Eversheds Sutherland, Hong Kong.
2Article 5 of the Basic Law of the Hong Kong Special Administrative Region.
3Claims involving monetary values of over HK$75,000.
4The amendment came into effect on 3 December 2018.
5Chapter 619 of the Laws of Hong Kong.
6 HKCT 2 (CTEA 1/2017).
7 HKCA 877.
8 HKCFI 2151.
9See, for example, Cheung Man Kwong Thomas v. Mok Chun Bor  HKEC 1636.
10Worldwide Chinese Business Investment Foundation Ltd v. Shine Rainbow Marketing Ltd  HKEC 223.
11Hong Kong Civil Procedure, Rules of the High Court, O.14.
12Hong Kong Civil Procedure, Rules of the High Court, O.19.
13For instance, by Sakhrani J in Overholt v. Overholt  2 HKLRD 445.
14HRAB, 'Standards of Professional Competence'.
15Section 23(2) of the Labour Tribunal Ordinance (Chapter 25).
16Hong Kong Civil Procedure, Rules of the High Court, O.11 r.1.
17Hong Kong Civil Procedure, Rules of the High Court, O.69.
18Hong Kong Civil Procedure, Rules of the High Court, O.70; see also Section 75 Evidence Ordinance.
19Siegfried Adalbert Unruh v. Hans-Joerg Seeberger and Another  unreported, FACV 9A/2006 on 9 March 2007.
20See paragraphs 4 to 11 of the judgment of Harris J on 4 May 2010, In Re Cyberworks Audio Video Technology Limited (HCCW 1113/2002).
21Akai Holdings Limited (in Compulsory Liquidation) v. Christopher Ho Wing On (HCCL 37/2005 and HCCL 40/2005). See also Law Society Circular 09-674(PA) dated 31 August 2009.
22Democratic Republic of Congo v. FG Hemisphere Associates  HKCFA 41.
23Hua Tian Long  3 HKC 557.
24Chapter 300 of the Laws of Hong Kong.
28Chapter 615 of the Laws of Hong Kong.
29 Schedule 1 (Principle 3) of the Personal Data (Privacy) Ordinance (Chapter 486).
30 ibid, Section 60B.
31 ibid, Section 63B.
32  UKSC 1.
33  4 HKLRD 20.
34  EWCA Civ 474.
35See the Guideline of March 2006 – Cooperation with the SFC.
36  3 HKC 48 (CA).
37 HCMP 1081/2009 (unreported).
38  2 HKLRD 701.
39  HKCU 352 (CFI).
40Order 1A, Rule 1.
41Kinli Civil Engineering Ltd v. Geotech Engineering Ltd  HKCFI 2503.
42 Chapter 620 of the Laws of Hong Kong.
43 FDRC's Term of Reference 2018 – the revised limit applies to claims where the date of first knowledge of loss by the claimant falls on or after 1 January 2018.