Q&A - Commercial Disputes in Hong Kong

Updated: Jul 19













Q1. Are there any major changes in Hong Kong’s commercial litigation landscape since the days before the pandemic and during the pandemic?


As with many other jurisdictions around the world, the first notable change is the incremental use of technology and remote hearings by the Hong Kong courts. Before the pandemic, most court filings and court hearings in Hong Kong were attended in person. With the intermittent closure of the courts and generally reduced capacity of the judiciary (particularly during the height of the pandemic in 2020), the Hong Kong courts have substantially expanded the use of remote hearings by telephone or video-conferencing facilities in civil cases. Other measures adopted by the judiciary to facilitate court business during the pandemic include the increased use of ‘paper disposals’ and the introduction of the e-Lodgement Platform which allows lodging of documents with the court by electronic means. These are welcome changes which should enhance the overall efficiency and accessibility of the Hong Kong judicial system, and bring it in line with the court systems of other advanced jurisdictions such as the United Kingdom, the United States, Singapore, and Australia.


Secondly, we have seen an increased openness among litigants to consider alternative dispute resolution (ADR), which commonly takes the form of arbitration or mediation. Through ADR, parties can enjoy a higher degree of flexibility by agreeing to matters such as the date and mode of meetings/hearings, procedural timelines and logistics, and choice of arbitrator/mediator etc. Parties who do not wish to litigate in open court proceedings could also benefit from the confidential nature of most ADR processes.


In terms of the pandemic’s impact on the areas and activities of commercial disputes in Hong Kong, there has been a sharp increase in Covid-related contractual disputes which drove commercial parties either into insolvency or to the brink of insolvency. Compared to 2019, the number of creditors’ voluntary winding up cases commenced in Hong Kong increased by 66% in 2020. Many businesses are struggling to stay afloat, and have defaulted on their debts and/or contractual obligations. Our team has received a notable rise in enquiries in insolvency-related matters and enforcement of loan and security instruments.


Q2. Are there any changes to court procedures in the last 24 months?


The judiciary has introduced several key changes to address the reduced capacity of court services caused by the pandemic and to enhance the overall efficiency of the judicial process:


  1. Remote hearings – The use of remote hearings in civil cases started in the High Court in April 2020, which has gradually been extended to all levels of civil courts and tribunals, and led to wide adoption of remote hearings conducted via telephone or video conferencing facilities.

  2. Reducing the number of judges in Court of Appeal cases – In January 2021, legislative amendments were made to streamline court procedures and facilitate the processing of cases at the Court of Appeal. These include the extension of the use of a two-Judge bench to determine (i) applications for leave to appeal to the Court of Final Appeal, and (ii) appeals against the Court of First Instance’s decisions in judicial review cases.

  3. E-Court – To enhance the efficiency of court services and enable the use of electronic technology in court proceedings, the Court Proceedings (Electronic Technology) Bill was passed in July 2020. Major changes are introduced as an alternative to the traditional paper-based methods that are currently in use, including e-filing of court documents, electronic service of documents on the other parties, and authentication of court documents by digital and electronic signatures. The legislation will come into force on a day to be appointed by the Chief Justice.

Q3. Arbitration cases have increased in Singapore but remained relatively flat in Hong Kong. What is the cause of this and what can be done regarding it?


One needs to be very careful when comparing arbitration statistics. For example, the number of non-administered (i.e. ad hoc) arbitrations may not be captured by published statistics.


Hong Kong recently gained 3rd place in a poll conducted by Queen Mary University (London) of the world’s most preferred arbitration jurisdictions.


We anticipate that the following will further increase the adoption of Hong Kong as the preferred seat of arbitration:


1 - Increase promotion of Hong Kong as an alternative dispute resolution centre


Marketing campaigns and seminars organised by the Hong Kong government and the arbitration sector, such as the “Why Arbitrate in Hong Kong?” series organised by the Hong Kong Department of Justice in 2021, would serve to educate and to remind local and international businesses alike that Hong Kong remains a top commercial hub in the APAC region. The mutual assistance and recognition arrangements between Hong Kong and Mainland China sets Hong Kong apart in disputes involving Mainland Chinese parties


2 - Maintain neutrality through diverse appointments in decision-making bodies


The Hong Kong International Arbitration Centre (the “HKIAC”)’s decision-making bodies, such as its Proceedings and Appointments Committees, comprise dispute resolution and industry experts from all around the world and are subject to transparent governance structures. Maintaining a diverse nationality and professional background at the decision-making level is important to preserving independence, integrity or transparency of arbitration institutions in Hong Kong.


3 - Online dispute resolution platform


To keep pace with innovations and to benefit from the use of technology assisted tools, stakeholders of the legal industry should be encouraged to support technological initiatives, such as the LawTech Initiative introduced in 2020, which promotes the development of an online deal-making and dispute resolution platform by the private sector.


Q4. Hong Kong and Mainland China have enacted new laws on mutual enforcement of arbitral awards. What does it mean for businesses?


In November 2020, the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards (the “Supplemental Arrangement”) was signed to refine the existing Arrangement Concerning Mutual Enforcement of Arbitral Awards between Mainland China and Hong Kong (the “Enforcement Arrangement”) which has been in force since 2000. Major changes include clarification that the arrangement covers both recognition and enforcement of arbitral awards, the possibility of applying to the courts for interim measures before and after the making of arbitral awards, and the permission of concurrent enforcement applications in the Hong Kong and Mainland courts.


Given the prominence of Hong Kong as an arbitration hub in the Greater Bay Area and internationally, the Supplemental Arrangement is a welcome development for businesses:


  1. On the technical level, through making various express provisions, the Supplemental Arrangement cures some of the deficiencies that have come to light over the years under the Enforcement Arrangement. This gives businesses increased legal certainty and protection for the recognition and effective enforcement of arbitral awards in both jurisdictions;

  2. Notwithstanding recent controversial political developments in the region, businesses can be reassured of Hong Kong’s neutrality and effectiveness as a seat of arbitration, as the Supplemental Agreement brings the Enforcement Arrangement in line with the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (ie. the New York Convention); and

  3. The Supplemental Arrangement took into account two decades of implementation experience and feedback from the arbitration sector. It is clear that Hong Kong and Mainland China (including their governments and arbitration communities) are proactively assessing and taking steps to enhance the quality and efficiency of arbitral proceedings, as maintaining the region as a favoured international arbitration hub in the long term is clearly a top priority. As such, businesses can be confident when naming Hong Kong as the seat of arbitration in their contracts.


The Supplemental Arrangement has been fully implemented by the Arbitration (Amendment) Ordinance 2021, which came into effect on 19 May 2021.


Q5. How will the Greater Bay Area economic zone affect Dispute Resolution in Hong Kong?


Under the Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, Hong Kong has a unique opportunity to play a pivotal role as the dispute resolution hub for economic and trade activities in the Greater Bay Area.


As the only common law jurisdiction in China and an English-Chinese bilingual legal system, Hong Kong is well-positioned to act as a bridge to handle cross-border disputes involving international businesses and Chinese parties. Hong Kong’s judiciary is renowned for its independence, integrity and respect for the rule of law, and has built well-established commercial case law that is highly regarded by the international legal and business community. Further, the Hong Kong Arbitration Ordinance adopts the UNCITRAL Model Law, which aligns Hong Kong’s arbitration regime with international practice, and provides a user-friendly framework to domestic and international arbitration users. Hong Kong law has also been recently reformed to allow third party funding of arbitration.


In addition to the Enforcement Arrangement and the Supplemental Arrangement (see Q.4 above), Hong Kong and Mainland China also recently concluded the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of Hong Kong (the “Interim Measures Arrangement”) in October 2019. Hong Kong is currently the only seat of arbitration outside Mainland China where parties to arbitral proceedings administered by designated arbitral institutions may apply to the Mainland courts for interim measures. Our team was among the first in Hong Kong to successfully obtain an asset preservation order in Mainland China in aid of a Hong Kong arbitration under the Interim Measures Arrangement.


As the Greater Bay Area economic zone continues to develop, we anticipate a steady growth in Hong Kong’s dispute resolution caseload, particularly in relation to trade, maritime, construction, intellectual property rights and investment.


Q6. Do you expect future changes to accommodate this?


Yes, we expect further changes to accommodate the Greater Bay Area development.


1 - Further liberalisation of legal sector


Since June 2020, Hong Kong and Mainland law firms are permitted to set up partnership associations. This means that businesses are now able to instruct law firms and lawyers who are practising in the Mainland and also familiar with common law.


Further, Hong Kong has already had its first batch of lawyers who passed the Greater Bay Area Legal Professional Exam and are now qualified to practise Mainland law and provide legal services on specified civil and commercial matters (including litigation and non-litigation matters) in the nine Mainland municipalities of the Greater Bay Area.


2 - Mutual recognition of and assistance to insolvency proceedings between Hong Kong and Mainland China


Another recent development is the signing of the record of meeting concerning mutual recognition of and assistance to insolvency proceedings between the courts of the Mainland and Hong Kong in May 2021. It signifies the consensus between the two jurisdictions and aims to facilitate closer cross-border judicial cooperation on insolvency matters.


Under this new arrangement, liquidators or provisional liquidators from Hong Kong may apply to Mainland courts for recognition of Hong Kong insolvency proceedings. Likewise, bankruptcy administrators from the Mainland may apply to the Hong Kong High Court for recognition of Mainland bankruptcy proceedings. The mechanism aims to promote an orderly insolvency regime between the two jurisdictions, provide better protection of the assets in liquidation/administration and the interests of the creditors, and encourage debt restructuring efforts to revive businesses among creditors and investors from both places and abroad. In the long run, the mechanism is expected to provide additional assurance to investors and further improve the business environment in the Mainland and Hong Kong.


As a first step, the Supreme People’s Court have designated Shanghai, Xiamen and Shenzhen as the pilot areas given their close trade ties with Hong Kong. The arrangement is expected to gradually extend beyond the pilot areas in the future.


Q7. How has litigation work been sourced in the last few months? (for example Bank AML obligations, insolvency related litigation etc …)


Our Hong Kong team continues to source work through our international network, business connections and strong relationships with clients.


In the last few months, we have seen an uptick in litigation and disputes instructions in restructuring and insolvency related issues, international trade and supply chains, online and investment fraud, cross-border enforcement, data privacy risks, and loan and security enforcement.

Q8. What sectors do you expect to see the most growth in for Dispute Resolution?


While the Hong Kong economy is recovering with a strong rebound in GDP in the first quarter of 2021, mixed signs suggest that the unprecedented impact of the pandemic on the global economy as a whole will continue to linger for some time.


Sectors that were hit hardest may only begin to feel the effects of delayed resolution of existing disputes as the world emerges from lockdown. Widespread movement restrictions have led to a soar in internet traffic and global digitalisation, which has spawned a record number of frauds, online scams and other cybercrimes. We expect the demand for dispute resolution in the following sectors will see the most growth: airline and shipping, travel and hospitality, insurance, banking and fintech.


Q9. Are there any recent significant cases that businesses should be aware of?


1 - Re China All Access (Holdings) Limited [2021] HKCFI 1842


Recognising the recent cooperation mechanism for mutual recognition of insolvency processes between Hong Kong and Mainland China (see Q.6 above), the court held that it is reasonably likely that the Hong Kong liquidators appointed over the Cayman incorporated debtor company can be recognised in Shenzhen, enabling the liquidators to take steps to take control of the majority of the company’s assets held by Mainland subsidiaries, which were in turn held by BVI subsidiaries. The court held that there was a real possibility of the petitioner benefiting from the winding up of a foreign company in Hong Kong. The case overcomes the traditional difficulties for Hong Kong liquidators of a foreign holding company to seize control of operating subsidiaries in the Mainland, especially if the group structure includes intermediate foreign incorporated subsidiaries.


2 - Li Yiqing v Lamtex Holdings Ltd [2021] HKCFI 622


The court adopted a flexible approach in recognising that while the place of incorporation should generally be the jurisdiction in which a company should be liquidated, if the company’s centre of main interest (“COMI”) lies elsewhere, other factors should be considered:


  1. the views of the creditors,

  2. whether the company is a holding company, and if so, does the group structure require the place of incorporation to be the primary jurisdiction in order effectively to liquidate or restructure the group, and

  3. the extent to which giving primacy to the place of incorporation is artificial having regard to the strength of the COMI’s connection with its location.


3 - A1 and Another v. R1 and Others [2021] HKCFI 650


The case involves suspected large-scale investment fraud in multiple jurisdictions. The applicants traced certain payments arising from the alleged fraud to bank accounts in Hong Kong and Macau. The Hong Kong court granted a Norwich Pharmacal order to compel the Hong Kong banks and their Macau branches to disclose information relating to the relevant bank accounts. The case demonstrates the court’s willingness to extend disclosure orders to overseas branches of a Hong Kong bank to assist a victim’s recovery efforts in cross-border fraud cases.

4 - New Castle Investments Ltd v. Foo Wai Lok and Others [2021] HKCFA 5, [2020] HKCA 931 and [2020] HKCA 755


By dismissing the application for leave to appeal, the Court of Final Appeal confirmed the Court of Appeal’s decision that the treatment of rental deposit is primarily a matter of private agreement between the landlord and tenant. On the facts, the true purpose of the rental deposit was to secure the due observance and performance by the tenant of its contractual obligations throughout the term of the tenancy. Once paid, the deposit became the landlord’s money legally and beneficially. No automatic or implied set-off towards the arrears of rent was required before the landlord could commence proceedings to terminate the tenancy and recover possession.


Q10. Will you see a rise in disputes relating to fintech and cryptocurrencies as interest in Fintech grows in Hong Kong?


The tremendous growth in Fintech and cryptocurrencies have not only garnered interest from investors, but also the regulators. Both the Securities and Futures Commission (“SFC”) and the Hong Kong Monetary Authority have issued public warnings that cryptocurrencies (a form of virtual asset) pose significant risks to investors, as they are generally not backed by physical assets and are volatile in nature. This makes investors in cryptocurrencies particularly vulnerable to the malpractices of unregulated virtual asset service providers (“VASP”) and other forms of fraudulent schemes.

We have seen cases in Hong Kong where investors brought claims and obtained interim injunctive relief to freeze assets and recover investments in cryptocurrencies. Our team also has experience in representing clients in recovering Bitcoins stolen by fraudsters.


The Hong Kong government is currently in the consultation process on legislative proposals to enhance anti-money laundering and counter-terrorist financing (“AML/CTF”) regulations, which includes a proposal to introduce a licensing regime for VASPs.


Under the proposed licensing regime, any person seeking to operate a virtual asset exchange in Hong Kong would be required to apply a license from the SFC to become a licensed VASP. Applicants must pass a fit-and-proper test by satisfying the necessary requirements of experience and qualifications, good standing and financial integrity. Licensed VASPs will be subject to AML/CTF and other prescribed requirements in relation to customer due diligence, risk management, segregation of client assets, financial reporting and disclosure etc. The government aims to introduce the bill into the 2021-22 legislative session of the Hong Kong Legislative Council.


With the above developments in mind, we anticipate that disputes relating to fintech and cryptocurrencies will continue to rise in Hong Kong.






For further information, please contact:


Yvette Yu

Partner, Hill Dickinson

+852 2525 7238

yvette.yu@hilldickinson.com

Yvette is a partner in our Dispute Resolution team in Hong Kong. Her practice focuses on commercial litigation, regulatory investigations and enforcement actions.


Yvette is a litigator with extensive experience in advising and representing international clients on a broad range of disputes, including multi-jurisdictional corporate and commercial litigation, regulatory investigations and enforcement actions, media lawhttps://www.hilldickinson.com/people/nicole-wong issues and judicial review. She also has experience in handling consumer protection and employment claims.

As a solicitor advocate, Yvette has full rights of audience to appear before all levels of Hong Kong courts as an advocate in civil proceedings.

Before joining the firm, Yvette was with the dispute resolution practice of another international law firm, having spent time in both the Hong Kong and London offices.



Nicole Wong

Associate, Hill Dickinson

nicole.wong@hilldickinson.com

Nicole is a full-service lawyer with broad expertise in dispute resolution and corporate and commercial transactions.


Nicole was admitted as a solicitor in Hong Kong in 2018. Prior to joining the firm, Nicole was an associate at a leading international law firm after she completed postgraduate studies at the University of Oxford.


Nicole has a wide spectrum of expertise which enables her to serve both international and local clients across multiple practice areas.


As a litigator, Nicole specialises in commercial disputes with experience in high stakes litigation including shareholders’ disputes, breach of contract, sale of goods disputes, injunctive relief and defamation. Nicole has also dealt with regulatory investigations by the SFC, HKMA and HKSE, insolvency matters and white collar crime defence, including successfully defending a HK$690 million money laundering prosecution.


Nicole further has abilities as a full-service corporate lawyer who has handled large scale cross-border mergers and acquisitions, corporate finance, corporate governance, regulatory and compliance, and debt capital markets work.

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