assignment of judgment debt hong kong

Litigation & Dispute Resolution Laws and Regulations Hong Kong 2024

ICLG - Litigation & Dispute Resolution Laws and Regulations - Hong Kong Chapter covers key topics including efficiency and integrity, injunctions, cross-border issues, disclosure and privilege, costs and funding, settlement and mediation, and arbitration and expert determination.

Chapter Content Free Access

1. litigation – preliminaries, 2. before commencing proceedings, 3. commencing proceedings, 4. defending a claim, 5. joinder & consolidation, 6. duties & powers of the courts, 7. disclosure, 8. evidence, 9. judgments & orders, 10. settlement, 11. alternative dispute resolution.

1.1        What type of legal system does your jurisdiction have? Are there any rules that govern civil procedure in your jurisdiction?

The legal system in Hong Kong is the common law system.

The rules governing civil procedure in Hong Kong are:

• The Rules of the High Court (Cap. 4A, “ RHC ”) and the Rules of the District Court (Cap. 336H, “ RDC ”).
• Rules applying to specific types of proceedings, such as the Bankruptcy Rules (Cap. 6A), Companies (Winding-Up) Rules (Cap. 32H) and the Family Procedure Ordinance (Cap. 646).
• Other rules governing tribunal proceedings, including the Competition Tribunal Rules (Cap. 619D), the Labour Tribunal (General) Rules (Cap. 25A), the Lands Tribunal Rules (Cap. 17A) and the Small Claims Tribunal (General) Rules (Cap. 338A), as well as the Securities and Futures Ordinance (Cap. 571) in relation to the Market Misconduct Tribunal.
• Practice Directions (“ PD s”) issued by the judiciary in Hong Kong which set out detailed rules of procedure, which liti-
• gants and their legal representatives are expected to follow.

1.2        How is the civil court system in your jurisdiction structured? What are the various levels of appeal and are there any specialist courts?

The civil court system in Hong Kong is composed of the following courts:

• Court of Final Appeal: Highest appellant court which hears civil appeals from the Court of Appeal.
• High Court, which comprises the Court of Appeal and Court of First Instance:
• Court of Appeal: Hears appeals from the Court of First Instance, the District Court, the Competition Tribunal and the Lands Tribunal.
• Court of First Instance: Has unlimited jurisdiction in civil matters, with specialist lists presided over by designated judges (e.g. construction and arbitration, and intellectual property lists).  It hears appeals from the Labour Tribunal and the Small Claims Tribunal.
• District Court (which includes the Family Court): Hears claims of over HK$75,000 but not exceeding HK$3 million; and for recovery of land, where the annual rent, rateable value or annual value of the land does not exceed HK$320,000.

Additionally, there are also specialist tribunals, including the Competition Tribunal, Lands Tribunal, Labour Tribunal and the Small Claims Tribunal.  Besides the above courts and tribunals under the judiciary system, there is the Market Misconduct Tribu- nal which conducts disciplinary proceedings of a civil nature.

1.3        What are the main stages in civil proceedings in your jurisdiction? What is their underlying timeframe (please include a brief description of any expedited trial procedures)?

The main stages in civil proceedings in Hong Kong are as follows:

• Issuance and service of originating process (see answer to question 3.1 below).
• Issuance and service of pleadings (see answers to questions 3.3, 4.1 and 4.2 below).
• General (and/or specific) discovery (see answer to question 7.1 below).
• Interlocutory applications to the Court (see answer to question 6.2 below).
• Exchange of factual witness statements (see answer to question 8.3 below).
• Exchange of expert reports (see answer to question 8.4 below).
• Case management conference, pre-trial review and setting down for trial.
• Leave to appeal/appeal (see answer to question 9.5 below).

The underlying timeframe varies, depending on the nature and complexity of the case, and number of interlocutory applications (if any) made.  Typically, it takes at least two years from commencement of proceedings until a judgment (including a judgment that is reserved after the court hearing) is delivered after a full trial by the first instance court.  To ensure that reserved judgments are handed down as expeditiously as is reasonably practicable, PD 36 sets out the estimated timeframes for the delivery of judgments, which offer some degree of certainty to the parties.

PD 5.3 permits a judge to make directions for a “speedy trial”, if he considers that the trial of the matter should be expedited.

1.4        What is your jurisdiction’s local judiciary’s approach to exclusive jurisdiction clauses?

The Hong Kong courts generally enforce exclusive jurisdiction clauses, as the parties are generally held to what they have contractually agreed.  A party contesting an exclusive jurisdiction clause has a heavy burden to discharge.  There are conflicting judicial authorities in the case of a petition for winding up and for unfair prejudice relief in company proceedings.

1.5        What are the costs of civil court proceedings in your jurisdiction? Who bears these costs? Are there any rules on costs budgeting?

The costs of civil court proceedings in Hong Kong include solicitors’ fees and those of barristers, mediators and experts instructed, plus other miscellaneous expenses such as court fees.

Parties may agree who is to bear the legal costs and on what basis.  If there is no such agreement, the court has absolute discretion to make an appropriate costs order.  Generally, costs will follow the event (i.e. the losing party will be ordered to pay the successful party’s costs).  For interlocutory applications, it is common for the court not to decide on costs at that stage and to order “costs in the cause”, which means that the successful party in the action will recover the costs, along with the costs of the action, after the trial.  The amount of costs recoverable remains to be agreed or adjudicated in taxation proceedings, unless the judge or master dealing with the case (and, in particular, in inter- locutory applications) makes a gross sum assessment at the end of the hearing.

There are no rules on costs budgeting in Hong Kong.

1.6        Are there any particular rules about funding litigation in your jurisdiction? Are claimants and defendants permitted to enter into contingency fee arrangements and conditional fee arrangements?

The common law doctrines of champerty and maintenance apply in Hong Kong.  Accordingly, a person will be subject to civil and criminal liability if they enter into litigation funding arrangements.  There are three limited exceptions, namely:

• The third-party funder has a legitimate common interest in the outcome of the litigation.
• Access to justice considerations apply.
• A miscellaneous category of proceedings, including insolvency litigation.

Contingency fee and conditional fee arrangements are not permitted for litigation in Hong Kong.  However, a Hong Kong solicitor when instructing a foreign lawyer in a foreign jurisdiction may agree to pay the foreign lawyer’s fees on a contingency basis, provided that contingency fees are permitted in that jurisdiction.  Since 1 February 2019, third-party funding has been permitted for arbitration proceedings and related court and mediation proceedings under the Arbitration Ordinance (Cap. 609) and the Code of Practice for Third-Party Funding of Arbitration.  Further, lawyers and clients may now enter outcome-related fee structure agreements for arbitration proceedings including arrangements for a (i) success fee, (ii) percentage of the outcome, or (iii) a combination of both.

1.7        Are there any constraints to assigning a claim or cause of action in your jurisdiction? Is it permissible for a non-party to litigation proceedings to finance those proceedings?

The assignment of a claim or cause of action that is the subject of a dispute undergoes scrutiny by the Hong Kong court, which considers the overall circumstances surrounding the transaction.  If the assignment lacks commercial rationale, the court may find such arrangement champertous and rule that the assignee has no right to pursue the claim.  The assignment of a judgment debt (like a chose in action) is less open to objection.

A non-party is generally prohibited from financing litigation proceedings, subject to limited exceptions for arbitration pro- ceedings and liquidators’ actions funded by creditor(s) upon a com- pany liquidation (see answer to question 1.6 above).

1.8        Can a party obtain security for/a guarantee over its legal costs?

A defendant may apply to the Court for the plaintiff to provide security for his legal costs that may be incurred in the proceedings, by payment of a sum into court or provision of a bank guarantee.  The same will also apply to a plaintiff in respect of a defendant’s counterclaim.  An order for security for costs is commonly made where the plaintiff is a foreign plaintiff who may not have sufficient assets in Hong Kong to meet any potential costs order made against them.  In deciding whether to order security for costs, the court considers a number of factors, including the plaintiff’s prospects of success, impecuniosity of the plaintiff and any delay in making the application.

2.1        Is there any particular formality with which you must comply before you initiate proceedings?

In general, there are no particular formalities to be complied with before initiating proceedings in Hong Kong.  Typically, however, parties will issue a letter before action to the intended defendant(s) as a preliminary step.

Specific types of proceedings may have distinct requirements.  For instance:

• In bankruptcy and winding-up proceedings, a statutory demand must be served on the debtor(s) before commencement of proceedings, if the ground is based on the debtor’s inability to pay the debt (PD 3.1).
• In personal injury cases, the solicitors acting for the plaintiff must file in court a Mediation Certificate at the same time as issuing the writ (PD 18.1).
• In actions for libel (defamation in writing), a writ must be indorsed with a statement giving sufficient particulars of the publications before it is issued (Order 82 rule 2 of RHC/RDC).

2.2        What limitation periods apply to different classes of claim for the bringing of proceedings before your civil courts? How are they calculated? Are time limits treated as a substantive or procedural law issue?

Statutory regimes in Hong Kong governing the limitation periods for different classes of claim can primarily be found in the Limitation Ordinance (Cap. 347) and in other legislation, as the case may be.  Generally, the limitation period begins when a cause of action accrues and expires at the end of the period on that same date.  Here are some examples:

• Action based on a simple contract: six years from the date on which the cause of action accrued.
• Action based on a deed: 12 years from the date on which the cause of action accrued.
• Action based on tort (excluding personal injury): six years from the date on which the cause of action accrued.
• Personal injury (or fatal accident) action: three years from the date on which the cause of action accrued (or date of death).
• Employees’ compensation action: 24 months from the date of the accident that caused the injury or death (or prior to determination of the Commissioner for Labour for compensation in fatal cases, whichever is earlier).
• Action for recovery of land: 12 years from the date the right of action accrued, or 60 years if the claim is brought by the Hong Kong Government.

The limitation periods may be extended in certain circum- stances, such as when there is disability, acknowledgment or part payment of debts, or in cases involving fraud, concealment and mistake.  The court has the discretion to override the statutory time limits if it is deemed equitable to do so, except in cases of personal injury or fatal accident.

There are judicial authorities stating that the expiry of the limitation serves only to bar the plaintiff’s remedy, rather than to extinguish his right.  Where an action for claims known to be statute barred is brought, it is an abuse of process and is liable to be struck out.  The limitation periods are therefore treated more as a procedural (as opposed to substantive) law issue.

3.1        How are civil proceedings commenced (issued and served) in your jurisdiction? What various means of service are there? What is the deemed date of service? How is service effected outside your jurisdiction? Is there a preferred method of service of foreign proceedings in your jurisdiction?

Generally, civil proceedings in Hong Kong are commenced by either a writ of summons (where they involve a mix of issues of law and fact) or by originating summons (where the primary issues are issues of law).  Certain actions must be commenced by petition (e.g. unfair prejudice claims, bankruptcy and winding-up proceedings), or by originating motion (e.g. proceedings for apportionment of salvage for an ascertained aggregate amount).

The service of originating processes can be effected as follows:

• Service on individuals: (i) personal service; or (ii) by registered post or insertion into the letter box at the individual’s usual or last known address.
• Companies incorporated in Hong Kong: (i) leaving at or sending by post to the registered office; (ii) personal service on the chairman/president/other officers; or (iii) by registered post or insertion into the letter box at the registered or principal office.
• Companies incorporated elsewhere but registered in Hong Kong: (i) leaving at or sending by post to the last known address of the authorised representative (where their details are shown in the Companies Register); or (ii) leaving at or sending by post to any place of business in Hong Kong (where the authorised representative’s details are not shown in the Companies Register, or where they have refused to accept service or cannot be served).

When serving a writ by registered post or insertion into a letter box, the date of service is generally presumed to be the seventh day after posting or insertion.  The key requirement is that the defendant must have actual knowledge of the writ and be physically within Hong Kong at the time of the service.

If the defendant is outside Hong Kong, leave from the court is required to serve the writ outside the jurisdiction of Hong Kong.  The applicant must satisfy one of the statutory gateways under Order 11 of RHC/RDC.  For example, the relief is sought against a person domiciled or ordinarily resident within Hong Kong, or the claim is for a breach of contract where the breach was committed in Hong Kong, or the action is founded in tort and the damage was sustained or resulted from an act committed in Hong Kong.  The court also considers whether Hong Kong is clearly the appropriate forum for the trial of the action.

If leave for service out is granted, the plaintiff typically instructs a process server or lawyers in that foreign jurisdiction to effect service.  The relevant rules of the Convention on the service abroad of judicial and extra-judicial documents in civil or commercial matters (commonly known as the Hague Convention), and the Arrangement for Mutual Service of Judicial Documents in Civil and Commercial Proceedings between the Mainland and Hong Kong Courts also apply in appropriate cases.  Changes are in the pipeline to improve the latter Arrangement, for example, by increasing the modes of service for Hong Kong parties serving judicial documents on Mainland recipients.  There is no preferred method of service as long as it complies with the law of the country or place where service is being effected.

3.2        Are any pre-action interim remedies available in your jurisdiction? How do you apply for them? What are the main criteria for obtaining these?

In Hong Kong, there are several interim remedies available to parties before their respective cases are fully heard, including:

• Mandatory and prohibitory injunction: to require a party to either do or refrain from doing a specific act.
• Mareva injunction: to prohibit a party from disposing of and/or removing his assets, whether local or worldwide.
• Anti-suit injunction: to restrain a party from commencing or pursuing legal proceedings within Hong Kong, in order to prevent duplication of litigation.
• Anton Piller order: to allow a party to enter the other party’s premises to inspect or preserve specified property.

Given the need for secrecy and urgency, these pre-action interim remedies are often initially obtained on an ex parte basis (i.e. without notice to the opposite party) and will remain in effect until an inter partes hearing (i.e. with notice given to the other side), where both parties have the opportunity to appear and make submissions for continuation, discharge or variation of the order.  If the order is granted on an inter partes basis, it will normally continue until after trial.

When considering the grant of these interim remedies, the court generally takes into account (i) whether there is a serious question to be tried, (ii) the adequacy of monetary damages to the applicant and respondent, and (iii) the balance of convenience (e.g. relative strengths of the parties’ cases and any delay in making the application).

3.3        What are the main elements of the claimant’s pleadings?

The Statement of Claim of the claimant (or the plaintiff) typi- cally includes the following main elements:

• Background and relevance of the parties.
• Circumstances of the dispute.
• Summary of material facts.
• Pleadings of legal positions.
• Causes of action of the plaintiff(s).
• Legal liability of the defendant(s).
• Relief and/or remedy sought by the plaintiff(s).

It is crucial for the pleading to provide sufficient particulars of the claim, failing which the plaintiff may be debarred from relying on those relevant issue(s) in the proceedings.  Some matters must be specifically pleaded.  For example, if an allegation of fraud is made, it must be pleaded with full particulars.

3.4        Can the pleadings be amended? If so, are there any restrictions?

Pleadings may be amended without seeking the court’s leave by (i) parties’ written agreement at any stage of an action, or (ii) once by any party before the close of pleadings (i.e. 28 days after service of defence or 14 days after service of reply (or defence to counterclaim) (if any)).  However, an amendment cannot be made for the purpose of joinder of parties, addition of a new cause of action or other stipulated circumstances in which there are special rules governing the matter.

If the applicant must seek leave from the court for amendment, the applicant must also submit the draft amended pleading for the court’s consideration.  The court will look at the overall justice to determine whether to grant the order for amendment and will usually make a costs order against the applicant.

3.5        Can the pleadings be withdrawn? If so, at what stage and are there any consequences?

Pleadings may be withdrawn (and the claim may be discontinued) without seeking the court’s leave as follows:

• The plaintiff in the main action or counterclaim serves a notice of discontinuance or withdrawal on the relevant party at any time no later than 14 days after the service of the defence.
• The defendant may withdraw a defence (and the plaintiff may subsequently be able to enter judgment in default of a defence, see answer to question 4.4 below) at any time.  The opponent will be automatically entitled to his costs.

Alternatively, parties may apply for the court’s leave for discontinuance or withdrawal.  The discontinuance or withdrawal does not by itself prohibit the parties from commencing a new action on the same claim(s), subject to the limitation periods (see answer to question 2.2 above).

4.1        What are the main elements of a statement of defence? Can the defendant bring a counterclaim(s) or defence of set-off?

In the defence, the defendant must respond to the allegations made by the plaintiff in the statement of claim, by way of admission, non-admission (i.e. the plaintiff to prove) and/or denial.  Any allegations in the statement of claim not traversed in the defence are deemed to be admitted.  However, if the defendant fails to deal with an allegation, but has set out in the defence the nature of his case in relation to the issue to which the allegation relates, he is taken to require that allegation to be proved.  To avoid being deemed to have admitted any allegations not specifically addressed, the defendant typically includes an express joinder of issue and/or general traverse in the defence, which operates as general non-admission to the allegations.  Where an allegation in the statement of claim is denied, the reasons for denying must be stated and therefore expressly pleaded.

The defendant may bring a counterclaim, which will be filed and served in one pleading called a defence and counterclaim.  The defendant may also raise a defence of set-off, if specifically pleaded in the counterclaim.

4.2        What is the time limit within which the statement of defence has to be served?

The defendant must serve on the plaintiff his defence within 28 days after service of the writ of summons where the statement of claim was endorsed on the writ, or after service of the statement of claim.  The time limit may be extended by parties’ consent or by court order.

4.3        Is there a mechanism in your civil justice system whereby a defendant can pass on or share liability by bringing an action against a third party?

A defendant may pass on or share liability in Hong Kong by bringing the following proceedings against a third party:

• Third-party proceedings seeking: (i) a contribution or indemnity; (ii) relief or remedy relating to or connected with the original subject matter of the action and substantially the same as the relief or remedy claimed by the plaintiff; or (iii) that a question or issue relating to or connected with the original subject matter of the action to be determined by the court not only as between the plaintiff and defendant, but also as between either or both of them and a third party (see answer to question 5.1 below).
• Proceedings under the Civil Liability (Contribution) Ordi-

nance (Cap. 377): against any person liable in respect of the same damage for which the defendant is liable, in the amount that the court considers just and equitable, having regard to the extent of that person’s responsibility for the damage.

4.4        What happens if the defendant does not defend the claim?

If the defendant does not defend the claim, the plaintiff may apply to enter default judgment against the defendant.

In actions for a specific sum or liquidated damages (i.e. damages of a certain or ascertainable amount), final judgment for that amount and costs will be entered.  In actions for unliquidated damages, interlocutory judgment on liability will be entered and a hearing will be fixed for the assessment of the amount of damages and costs.  In certain circumstances, the court may set aside a default judgment.

4.5        Can the defendant dispute the court’s jurisdiction?

There are different ways in which the court’s jurisdiction may be challenged.

A defendant may dispute the Hong Kong court’s jurisdiction to hear the case within the time limited for service of the defence (see answer to question 4.2 above).  Pending resolution of the jurisdictional issue, the defendant must not take any step in the action, such as making an interlocutory application in the Hong Kong court, or else he may be deemed to have submitted to the jurisdiction of the Hong Kong court.  Even where the Hong Kong court has jurisdiction, the defendant may argue that another jurisdiction is a more appropriate forum for the trial of the action.

Where parties have agreed and are bound by an exclusive jurisdiction clause which does not refer to Hong Kong courts, parties may dispute the Hong Kong courts’ jurisdiction (see answer to question 1.4 above).

Certain specific matters can only be commenced in a desig- nated court/tribunal.  For instance, the District Court has exclusive jurisdiction over discrimination cases and the Labour Tribunal has exclusive jurisdiction over certain employment-related matters under the Employment Ordinance.

5.1        Is there a mechanism in your civil justice system whereby a third party can be joined into ongoing proceedings in appropriate circumstances? If so, what are those circumstances?

A third party can be joined into ongoing proceedings:

• By a defendant upon giving notice of intention to defend, for any (i) contribution or indemnity, (ii) relief or remedy relating to or connected with the original subject matter of the action, which is substantially the same as the relief or remedy claimed by the plaintiff, and (iii) question or issue relating to or connected with the original subject matter of the action to be determined by the court, not only as between the plaintiff and the defendant, but also as between either or both of them and that third party (Order 16 rule 1 of RHC/RDC).
• On a party’s application or of the court’s own motion, the court may order any person to be added as a party if (i) it is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or (ii) it would be just and convenient to determine a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter between the relevant parties (Order 15 rule 6 of RHC/RDC).

5.2        Does your civil justice system allow for the consolidation of two sets of proceedings in appropriate circumstances? If so, what are those circumstances?

The Hong Kong court may order consolidation of two (or more) sets of proceedings, where (i) some common question of law or fact arises in both or all of them, (ii) the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or (iii) there are some other reasons that make it desirable to make such order (Order 4 rule 9 of RHC/RDC).

5.3        Do you have split trials/bifurcation of proceedings?

The Hong Kong court has power to order split trials for different questions or issues to be tried at different times (Order 33 rule 4 of RHC/RDC).  To warrant departure from the general principle that all issues in the case are to be tried at the same time, the court will consider whether it is just and convenient to order a split trial, for example where the question of liability and quantum are distinct issues.  The applicant may need to provide the court with an estimate of how much time and costs will be saved by having a split trial.

6.1        Is there any particular case allocation system before the civil courts in your jurisdiction? How are cases allocated?

Cases must be commenced in the appropriate court/tribunal, depending on the nature of the case, and value of the claim, as detailed in answer to question 1.2 above.  Within each court/tribunal, cases are primarily allocated based on the availability of the masters and judges.  In the High Court, Court of First Instance, there are specialists lists for certain types of cases to be allocated to e.g. the construction and arbitration list, the personal injury list and the commercial list.

6.2        Do the courts in your jurisdiction have any particular case management powers? What interim applications can the parties make? What are the cost consequences?

Hong Kong courts have wide case management powers.  The RHC and RDC specifically provide that the courts shall further the underlying objectives of those rules by actively managing cases and list out what active case management includes, for example:

• Identifying issues at an early stage and deciding the order in which they are to be decided.
• Where appropriate, encouraging the parties to use an alternative dispute resolution procedure and facilitating the use of such a procedure (see also section 11 below).
• Fixing timetables or otherwise controlling the progress of the case.
• Giving directions to ensure that the trial of a case proceeds quickly and efficiently.

The RHC and RDC also list out the court’s case management powers, which include, for example:

• Extending or shortening the time for compliance with any rule, court order or PD.
• Adjourning or bringing forward a hearing.
• Staying the whole or part of any proceedings or judgment.
• Consolidating or separating proceedings (see answer to question 5.2 above).
• Striking out part of or the whole pleading (see answer to question 6.5 below).

The parties can make interim applications prior to trial, including:

• Further and better particulars of the pleadings.
• Specific discovery and/or preservation of evidence.
• Joinder of parties (see answer to question 5.1 above).
• Consolidation of actions (see answer to question 5.2 above).
• Split trial (see answer to question 5.3 above).
• Security for costs (see answer to question 1.8 above).
• Interlocutory injunctions (see answer to question 3.2 above).
• Summary judgment (see answer to question 6.6 below).
• Determination of questions of law.

A party that fails to comply with the courts’ case management directions may be ordered to pay all costs incurred by the other side due to the non-compliance.

6.3        In what circumstances (if any) do the civil courts in your jurisdiction allow hearings or trials to be conducted fully or partially remotely by telephone or video conferencing, and what protocols apply? For example, does the court – and/or may parties – record and/or live-stream the hearings and may transcriptions be taken? May participants attend hearings remotely when they are physically located outside of the jurisdiction? Are electronic or hard-copy bundles used for remote hearings?

The judiciary in Hong Kong has been conducting remote hearings for civils proceedings at different levels of the court, where appropriate, since April 2020, by use of video conferencing facilities (“ VCF ”) and telephone.  The judiciary has issued four Guidance Notes setting out the relevant arrangements and Technical Specifications of the Judiciary’s VCF facilities for remote hearings.  The High Court Building has a Technology Court which offers the facilities, including a video conferencing system, that permits evidence to be taken from witnesses outside the court room.  A Courts (Remote Hearing) Bill has been proposed, to provide a comprehensive legal framework for the courts to order remote hearings where appropriate.

In general, remote hearings may be suitable for all interlocutory applications or appeals, and some trials or parts of trials.  When deciding whether a hearing or part of it is to be conducted remotely, the court considers several factors, including (i) parties’ views, (ii) availability of VCF equipment, (iii) subject matter of the proceedings, and (iv) fair and efficient disposal of proceedings.

With respect to the giving of evidence, the giving of evidence by VCF is an exception and the starting point is that proceedings are conducted in court, which is all the more important when it comes to the trial.  Sound reason is required to justify a departure from this starting point, since the solemnity of the court proceedings and its atmosphere are highly important in taking evidence.  The court will take into account the following:

• The court may be more inclined to permit evidence by VCF in respect of technical or purely factual evidence, which involves no serious issue on credibility, or where it is relatively unimportant evidence.
• Costs and convenience.
• Whether the witness is capable of attending the proceedings.

Currently, court proceedings in Hong Kong are audio recorded by the court, but not live-streamed.  However, the judiciary intends to start such for some types of proceedings in the near future.  In January 2024, the judiciary carried out a trial run of live broadcasting of court proceedings through video webcasting on two appellate proceedings in the Court of Final Appeal, in order to test the technical feasibility of the live broadcast arrangements.  Parties are not permitted to record court hearings, but may obtain the court’s permission to engage a transcriber to transcribe the hearing or subsequently to ask for certified transcripts.

Submission of electronic hearing bundles including parties’ submissions may be directed by the court.

6.4        What sanctions are the courts in your jurisdiction empowered to impose on a party that disobeys the court’s orders or directions?

Hong Kong courts have power to impose a wide range of sanctions on a party that disobeys the court’s orders or directions:

• Adverse costs order: A party that fails to comply with the court’s orders or directions may be ordered to pay all costs incurred by the other side due to the non-compliance.
• Debarring from actions: For less severe breaches, the courts may debar the defaulting parties from taking further steps, for instance filing further documentary evidence.
• Dismissal or striking out: The courts may order the defaulting party to comply with a previous order, failing which their case may be dismissed or struck out with costs consequences.
• Contempt of court: The party disobeying the court’s orders or directions may attract criminal consequences for contempt of court, with sanctions including committal to prison, a fine and/or a bond for good behaviour.

6.5        Do the courts in your jurisdiction have the power to strike out part of a statement of case or dismiss a case entirely? If so, at what stage and in what circumstances?

Hong Kong courts may strike out part (or the whole) of a statement of claim, or dismiss the entire case, where the statement of claim: (i) discloses no reasonable cause of action; (ii) is scandalous, frivolous or vexatious; (iii) may prejudice, embarrass or delay the fair trial of the action; or (iv) is otherwise an abuse of the process of the court (Order 18 rule 19 of RHC/RDC).

The application may be made at any stage, but the court will be reluctant to make such order if the application is not made at an early stage in the action and it may impose sanctions (see answer to question 6.4 above).

6.6        Can the civil courts in your jurisdiction enter summary judgment?

Hong Kong courts can enter a summary judgment where: (i) the Statement of Claim has been served on the defendant; (ii) the defendant has given notice of intention to defend; and (iii) the plaintiff shows that the defendant has no defence to a claim or part of any claim included in the writ (Order 14 rule 1(1) of RHC/RDC).

However, summary judgment cannot be entered in certain actions, for example, an action which includes a claim by the plaintiff for libel or slander (Order 14 rule 1(2) of RHC/RDC) and proceedings against the Hong Kong Government (Order 77 rule 7(1) of RHC/RDC).

6.7        Do the courts in your jurisdiction have any powers to discontinue or stay the proceedings? If so, in what circumstances?

Hong Kong courts have wide case management powers, including the power to discontinue or stay the proceedings, see answers to questions 3.5 and 6.2 above.  The court may make a Tomlin Order to stay the proceedings to accommodate the parties’ settlement, see answer to question 11.5 below.

7.1        What are the basic rules of disclosure in civil proceedings in your jurisdiction? Is it possible to obtain disclosure pre-action? Are there any classes of documents that do not require disclosure? Are there any special rules concerning the disclosure of electronic documents or acceptable practices for conducting e-disclosure, such as predictive coding?

In Hong Kong, parties are required to make mutual discovery after the close of pleadings.  This involves exchanging lists of the documents that are or have been in their possession, custody or power and which are relevant to any matter in question between the parties in the action (Order 24 rule 2 of RHC/RDC).  Parties then arrange to inspect the disclosed documents and obtain copies of them.  A party may also apply for specific discovery, i.e. an order that the other party make an affidavit stating whether any specified documents or class of documents is or have at any time been in their possession, custody or power.  Parties may also request copies of documents referred to in the other party’s pleadings, affidavits, witness statement or experts’ reports.

Pre-action discovery may be made against a person who app- ears likely to be a party to subsequent proceedings and who is likely to have or to have had in their possession, custody or power any documents directly relevant to an issue arising or likely to arise out of the claim (s.41 of the High Court Ordinance (Cap. 4, “ HCO ”) and s.47A of the District Court Ordinance (Cap. 336, “ DCO ”)).  An order will be made only if it is necessary for fairly disposing of the cause or matter or for saving costs.

Privileged documents are not required to be disclosed, see answer to question 7.2 below.

PD SL1.2 provides a framework for reasonable, proportionate and economical discovery and supply of electronically stored documents in cases in the Commercial List of the High Court, where: (i) the claim or counterclaim exceeds HK$8 million and there are at least 10,000 documents to be searched for the purpose of discovery; (ii) the parties agree to be governed by this PD; or (iii) the court directs the parties to follow this PD.  The PD refers to possible practices for conducting e-disclosure and requires the parties and their legal representatives to discuss the discovery of electronic documents, including the use of software tools and advanced technologies, such as technology-assisted review.

7.2        What are the rules on privilege in civil proceedings in your jurisdiction?

Legal Professional Privilege protects certain communications between lawyers, clients and third parties, so that they do not have to be disclosed to the other party or court during the discovery process, although the class of documents over which privilege is claimed must be stated in the parties’ lists of documents.  The main types of privileged communications in civil proceedings are:

• Legal advice privilege: Protects confidential communications between clients and their lawyers made for the dominant purpose of seeking or giving advice.
• Litigation privilege: Protects confidential communications between clients and their lawyers and those between the clients or lawyers with third parties (such as experts) where the communications came into existence for the dominant purpose of use in connection with actual, pending or contemplated litigation.  Communications from clients include those produced by employees of a company for the purpose of such litigation.
• Without Prejudice: Protects communications consisting of genuine settlement negotiations between the parties.  If such communications are marked “Without Prejudice, save as to costs”, it means that they may be disclosed to the court at the appropriate time in relation to the question of costs.

Privilege may be waived expressly or impliedly by conduct.  The court will not lightly infer such waiver, but only upon considering all the circumstances including (i) the communication between the sending and receiving parties, (ii) the documents in question, and (iii) what the parties must or ought reasonably to have understood.

7.3        What are the rules in your jurisdiction with respect to disclosure by third parties?

The rules with respect to third-party discovery are similar to those applicable to parties in the proceedings in Hong Kong, i.e. where the third party appears likely to have, or to have had, in their possession, custody or power any documents that are relevant to an issue arising out of the claim.  Such discovery may be made before (s.41 of HCO and s.47A of DCO) or after (s.42 of HCO and s.47B of DCO) a writ has been issued.  A common form of third-party disclosure order is a Norwich Pharmacal order whereby a third party who has information, is ordered to disclose that information.  Norwich Pharmacal orders are often obtained against banks ordering them to disclose information about bank accounts into which defrauded sums have been transferred.

7.4        What is the court’s role in disclosure in civil proceedings in your jurisdiction?

The Hong Kong court possesses a wide range of powers to make directions for disclosure in civil proceedings.  Pursuant to its case management powers, the court may limit the discovery to be made or order that it be made in a specified manner.  If a party fails to comply with the discovery order or rules, the court may order that the action be dismissed or the defence be struck out and judgment be entered accordingly.

7.5        Are there any restrictions on the use of documents obtained by disclosure in your jurisdiction?

Parties obtaining documents by disclosure in Hong Kong are bound by an implied undertaking to the court that they will not use the documents for a collateral or ulterior purpose without leave of the court or consent of the party providing such documents.  Any breach of such undertaking may amount to contempt of court with criminal consequences, see answer to question 6.4 above.

8.1        What are the basic rules of evidence in your jurisdiction?

Parties to the proceedings in Hong Kong are required to disclose and allow the other party to inspect or take copies of their documents relied on in the proceedings by way of discovery, see answer to question 7.1 above.

Parties may rely on witness statement(s) for facts to support their cases (see answer to question 8.3 below), and on expert evidence on technical issues (see answer to question 8.4 below).

In general, hearsay evidence is admissible.  The party intending to adduce hearsay evidence must serve notice of such on the other party.  When assessing the weight of the hearsay evidence, the court will consider any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence.

8.2        What types of evidence are admissible, and which ones are not? What about expert evidence in particular?

The types of evidence that are admissible include: (i) factual evidence from witnesses; (ii) expert evidence; and (iii) hearsay evidence, see answer to question 8.1 above.  In addition, judges may take judicial notice by accepting the truth of certain facts, even in the absence of evidence.

8.3        Are there any particular rules regarding the calling of witnesses of fact, and the making of witness statements or depositions?

For civil cases in the High Court and District Court, after the close of pleadings, the parties must file and serve a timetabling questionnaire in which they must state, amongst other things, whether they intend to call any witnesses of fact, including themselves and, if so, how long they need to file/serve/exchange the same or stating that they have already done so.  If not already exchanged, the court will give directions for exchange of witnesses’ statements.  The maker of the witness statement must sign it and verify its contents by a statement of truth.

While witnesses are not obliged to give oral evidence at trial, failure to do so would prevent the party from relying on their witness statements during the trial.  Witnesses attending the trial will have their witness statements stand as their evidence in chief, and they will be subject to cross-examination by the other party’s legal representative.  They may orally amplify their witness statements and give evidence in relation to new matters during the trial, if permitted by the court.

As regards depositions, the court can, where it appears necessary for the purpose of justice, make an order that a person (witness) be deposed, i.e. examined on oath before a judge, an officer or examiner of the court.  The grounds for such include, for example, that the witness is too old to attend trial, might die before trial or is so ill that there is no prospect of his being able to attend trial.

8.4        Are there any particular rules regarding instructing expert witnesses, preparing expert reports and giving expert evidence in court? Are there any particular rules regarding concurrent expert evidence? Does the expert owe his/her duties to the client or to the court? 

The parties must obtain leave to adduce expert evidence.  The court will allow expert evidence to be adduced, where it is relevant, necessary and of probative value.  The RHC and RDC contain rules regarding the instruction of experts, preparation, form and content of expert reports and the giving of expert evidence in court.  A party instructing an expert must provide them with a copy of the Code of Conduct for Expert Witnesses, appended to the court rules.  Expert reports must be verified by a statement of truth and contain a declaration by the experts that they have read the Code, understand their duty to the court and will comply with and continue to comply with that duty.  The court may direct expert witnesses to attend a meeting on a “Without Prejudice” basis before or after the exchange of expert reports, and to prepare a joint statement identifying which parts of their evidence are in dispute.

In appropriate cases, the parties may agree, or the court may direct, that a single joint expert be appointed, rather than a separate expert for each party.

An expert witness has an overriding duty to assist the court impartially and independently on matters relevant to their area of expertise.  An expert witness owes the paramount duty to the court and not to the party from whom the expert has received instructions or by whom the expert is paid.

9.1        What different types of judgments and orders are the civil courts in your jurisdiction empowered to issue and in what circumstances?

The court may grant a wide range of judgments and/or relief to the parties, depending on the nature of the dispute, including:

• Judgment for a specific sum.
• Declarations.
• Injunctions.
• Specific performance.
• Restitution.
• Account of profit.

Prior to trial, the court may also make interim orders upon parties’ applications on an inter partes or ex parte basis, see answer to question 6.2 above.

9.2        Are the civil courts in your jurisdiction empowered to issue binding declarations as to (i) parties’ contractual or other civil law rights or obligations, (ii) the proper interpretation of wording in contracts, statutes or other documents, (iii) the existence of facts, or (iv) a principle of law? If so, when may such relief be sought and what factors are relevant to whether such relief is granted? In particular, may such relief be granted where the party seeking the declaration has no subsisting cause of action, and/or no party has suffered loss, and/or there has been no breach of contract/duty?

The Hong Kong courts have extensive powers to make decla- rations regarding various matters, including:

• the parties’ legal rights or obligations;
• the correct interpretation of contracts, statutes or other documents; and
• the existence of facts or a principle of law.

However, in determining whether to grant declaratory relief, the courts will have in mind the following: (i) a person who is not a party to the contract at issue would have no standing to apply for a declaration of rights; (ii) the courts will not generally decide academic or hypothetical questions; and (iii) whether any useful purpose would be served by granting declaratory relief.  The absence of subsisting cause(s) of action or loss(es) is not fatal to an application for declaratory relief.

9.3        What powers do your local courts have to make rulings on damages/interests/costs of the litigation?

The Hong Kong courts have power to award damages, interest and costs.

Contractually agreed interest will be readily enforced by the courts, as long as it is not considered penal.  The default interest rates of loans or credit cards can be high; however, such rates are subject to regulation under the Money Lenders Ordinance (Cap. 163).  Apart from contractually agreed interest, the court can order both pre-judgment interest (from the date the cause of action arose to the date of judgment, the starting point being that interest be awarded at prime plus 1% for that period) and post-judgment interest from the date of judgment until payment (at such rate as the court may order or at such rate as may be determined by the Chief Justice (8.875% per annum as at January 2024)).

The courts have full power to determine by whom and to what extent the costs are to be paid.  Generally, the courts will order the costs to follow the event (i.e. the losing party pays the successful party’s costs), except when it appears to the court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.  However, in relation to interlocutory proceedings, a more general discretion as to the type of costs order to be made can be exercised by the court, see answer to question 1.5 above.

9.4        How can a domestic/foreign judgment be recognised and enforced?

A domestic judgment can be enforced by various means, including:

• Writ of Fieri Facias : to seize and sell the judgment debtor’s movable assets.
• Garnishee Order: to order a third party who owes a debt to the judgment debtor to pay the debt directly to the judgment creditor.
• Charging Order: to impose a charge over the interests in land and securities, etc. of the judgment debtor.
• Writ of possession: to enforce a judgment for possession of land.
• Writ of delivery: to enforce judgment for delivery up of goods.
• Committal and the writ of sequestration: to punish a party for disobeying a court order.
• Examination of judgment debtor: for examination of a judgment debtor’s assets and debts.
• Winding-up and bankruptcy proceedings: to wind up or bankrupt the judgment debtor.

A foreign judgment, which is final and conclusive on the merits, may be enforced in Hong Kong either under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319) (which cover judgments given in the superior courts of most commonwealth countries including Australia and Bermuda, and other stipulated jurisdictions including France and Italy) or under common law, depending on the country in which judgment was obtained.  The statutory regime provides a more straightforward procedure for registration of the foreign judgment by the judgment creditor in Hong Kong.

The Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance, effective from 29 January 2024, provides for reciprocal recognition and enforcement of judgments in civil and commercial matters between the courts of Mainland China and Hong Kong.  A similar statutory regime for the reciprocal recognition and enforcement of civil judgments in matrimonial cases between Mainland China and Hong Kong has been in effect since February 2022.

9.5        What are the rules of appeal against a judgment of a civil court of your jurisdiction?

Appeals from a decision made by a judge, whether of the District Court, High Court, or Court of First Instance, generally go to the Court of Appeal (see answer to question 1.2 above).  Leave to appeal against first instance decisions on interlocutory matters is required, except in limited circumstances, for example appeals against summary judgment or summary determination of a point of law, in which the court finally disposed of the matter in respect of the parties’ dispute.

Leave to appeal should first be sought from the judge whose decision is being appealed.  The time limit is within 14 days for interlocutory decisions, or within 28 days for final decisions (or interlocutory decisions determining a party’s substantive rights).  Where leave is refused by the judge, the appellant may further seek leave from the Court of Appeal within 14 days of the refusal.

Where leave to appeal is required, the appellant must satisfy the court that the appeal has reasonable prospects of success, i.e. it is not fanciful.  Generally, the Court of Appeal defers to the opinion of the trial judge on findings of facts and appeals will only be permitted on points of law.

Since an appeal is not a re-trial of the case, parties are normally not permitted to adduce fresh evidence unless leave is granted upon satisfaction of the following conditions:

• the evidence could not have been obtained with reasonable diligence for use at the trial;
• the evidence would probably have an important influence on the result of the case; and
• the evidence is presumably to be believed.

10.1      Are there any formal mechanisms in your jurisdiction by which parties are encouraged to settle claims or which facilitate the settlement process?

The RHC and RDC provide for the parties to make settlement offers during the proceedings by way of “sanctioned offers” and “sanctioned payments”, the aim being to encourage the parties to settle.  There are cost consequences where a party does not accept a sanctioned offer or sanctioned payment and fails to achieve a better result after conclusion of the case at trial.

PD 31 sets out the procedural requirements for parties to attempt mediation and settlement.  Parties who unreasonably refuse to participate in the process may attract adverse costs consequences, see answers to questions 11.1–11.3 below.

11.1      What methods of alternative dispute resolution are available and frequently used in your jurisdiction? Arbitration/Mediation/Expert Determination/Tribunals (or other specialist courts)/Ombudsman? (Please provide a brief overview of each available method.)

Arbitration is a common alternative dispute resolution method in Hong Kong, particularly due to the established arrangement for mutual enforcement of arbitral awards between the Mainland and Hong Kong.

Mediation is also frequently employed in Hong Kong, and the courts actively encourage parties to engage in mediation during legal proceedings.

Expert determination is a contractual mechanism to resolve the parties dispute, such as rent review in a tenancy agreement, without the need to resort to litigation.

There are various specialist tribunals in Hong Kong – see answer to question 1.2 above.  Additionally, there are admin- istrative tribunals that conduct hearings closely resembling court proceedings, such as the Securities and Futures Appeal Tribunal and Market Misconduct Tribunal.

For complaints regarding public administration, individuals may approach the Office of the Ombudsman.  As an independent watchdog of public administration, it investigates complaints of maladministration, identifies administrative deficiencies, and provides recommendations for remedial measures to rectify grievances and enhance public administration.  Other specialised authorities with similar functions include the Equal Opportunities Commission, the Office of the Privacy Commissioner for Personal Data, and the Competition Commission.

11.2      What are the laws or rules governing the different methods of alternative dispute resolution?

Arbitration in Hong Kong is primarily governed by the Arbi- tration Ordinance (Cap. 609), which adopts the UNCITRAL Model Law on International Commercial Arbitration, with some exceptions and supplementary provisions.  Under this framework, arbitrations are agreement-based, allowing parties to determine the procedural rules.

Since the civil justice reform in 2009, the courts have become more proactive in promoting alternative dispute resolution, particularly through mediation.  The Mediation Ordinance (Cap. 620) governs the conduct of mediation.  Additionally, PD 31 outlines the procedural requirements for mediation in Hong Kong.

11.3      Are there any areas of law in your jurisdiction that cannot use Arbitration/Mediation/Expert Determination/Tribunals/Ombudsman as a means of alternative dispute resolution?

In Hong Kong, almost all commercial matters can be resolved through arbitration.  However, parties would not be able to use arbitration to obtain bankruptcy and winding-up orders and unfair prejudice relief under the Companies Ordinance (Cap. 622), or in relation to enforcement proceedings by entities like the Competition Commission and the Securities and Futures Commission.

It is important to note that the services provided by the Ombudsman primarily focus on addressing complaints against public administration bodies, rather than private entities or organisations.

11.4      Can local courts provide any assistance to parties that wish to invoke the available methods of alternative dispute resolution? For example, will a court – pre or post the constitution of an arbitral tribunal – issue interim or provisional measures of protection (i.e. holding orders pending the final outcome) in support of arbitration proceedings, force parties to arbitrate when they have so agreed, or order parties to mediate or seek expert determination? Is there anything that is particular to your jurisdiction in this context?

The courts must stay any action commenced in breach of an arbitration agreement, unless such agreement is determined to be null and void, inoperative or incapable of being performed.  The courts have powers to grant interim measures, including the power to grant an anti-suit injunction in connection with an actual or intended arbitration.  Hong Kong courts will ordinarily grant an injunction to restrain the pursuit of foreign proceedings brought in breach of an agreement for Hong Kong arbitration, where the injunction has been sought without delay and the foreign proceedings are not too far advanced, unless the defendant can demonstrate strong reasons to the contrary.

The courts encourage parties to attempt mediation pursuant to PD 31.  The counterparty refusing mediation may attract an adverse costs order, unless they have a reasonable explanation, or if they have engaged in a minimum level of participation.

11.5      How binding are the available methods of alternative dispute resolution in nature? For example, are there any rights of appeal from arbitration awards and expert determination decisions, are there any sanctions for refusing to mediate, and do settlement agreements reached at mediation need to be sanctioned by the court? Is there anything that is particular to your jurisdiction in this context?

Hong Kong courts adopt a pro-enforcement approach to arbitral awards.  In general, the Hong Kong courts will enforce an arbitral award unless one or more of the following is established under the Arbitration Ordinance (Cap. 609): (i) invalidity; (ii) incapacity; (iii) no opportunity to present the case; (iv) lack of jurisdiction; (v) compositional or procedural non-compliance; (vi) award is not binding, has been set aside or suspended; (vii) non-arbitrability; or (viii) public policy.

Generally, settlement agreements reached at mediation need not be sanctioned by the court if there are no formal proceedings commenced.  However, where formal proceedings have been commenced, a consent order is required to finally dispose of the matter.  This is usually done by way of a Tomlin Order, i.e. a stay of proceedings upon performance of the terms agreed by the parties that are scheduled to the order.  On a party’s default under the settlement agreement, the innocent party may apply to court to enforce the agreed terms without commencing a new action.

11.6      What are the major alternative dispute resolution institutions in your jurisdiction?

The major arbitration institutions in Hong Kong include:

• Hong Kong International Arbitration Centre.
• China International Economic and Trade Arbitration Commission, Hong Kong Arbitration Centre.

The major institutions that promote alternative dispute reso- lution in Hong Kong include:

• Hong Kong Institute of Arbitrators.
• Chartered Institute of Arbitrators (East Asia Branch).

Mediation in Hong Kong is not administered by institutions.  The Hong Kong Mediation Centre is an organisation working on providing mediation services, promoting the development of mediation, as well as providing professional training, professionalisation, public education and external collaboration.

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Interest on Judgment Debts: Keep It Simple

Section 49 (“Interest on judgments”) of the High Court Ordinance (Cap. 4)

“(1) Judgment debts shall carry simple interest –

(a) at such rate as the Court of First Instance may order; or

(b) in the absence of such order, at such rate as may be determined from time to time by the Chief Justice by order…”

In some difficult trading conditions and an active disputes resolution market, at present, it is (perhaps) no surprise to see parties become involved in disputes concerning entitlement to pre- and post-judgment interest, following judgments in certain high value claims.

Some of these developments are summarised in  Industry Insights  for August (“ Pre-judgment Interest Rate ”) and November 2016 (“ Post-judgment Interest ”).

In the more recent case of  Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd  [2016] HKEC 2909, HCA 409/2005, besides claims for enhanced costs and pre-judgment interest pursuant to the regime for sanctioned offers, the successful plaintiff also sought a higher rate of post-judgment interest than the 8 percent per annum as determined by order of the Chief Justice (which has not changed since 2009)*.

Given that the defendant paid the judgment debt soon after judgment was handed down, the amount of the extra post-judgment interest claimed by the plaintiff does not appear to have been that significant; particularly, when compared with the plaintiff’s claim for pre-judgment interest. However, the court still recognised the practical importance of the issue generally – in particular, the express power of the court to order post-judgment interest at a different rate.

The court went out its way to clarify that this power (s. 49(1)(a) of the Ordinance) should not be exercised in the absence of “special circumstances” and that the convention is to award post-judgment interest at the rate set down by the Chief Justice from time to time. As the court notes, this is justified on the basis of a need for consistency and certainty. Furthermore, the “normal” post-judgment interest rate should be justification enough for a judgment debtor who can pay to do so.

At the time of writing, it appears that the certain appeal points arising from the case are headed to the Court of Appeal (CACV 47/2017). In recent years, the Court of Appeal has shown a strong disposition for keeping things simple when it comes to determining issues relating to pre- and post-judgment interest rates.

In the absence of any contractual entitlement, the default rate for pre-judgment interest is prime rate (“best lending rate”) plus 1 percent; in order to compensate the plaintiff on the basis of having notionally had to borrow to fund a shortfall pending judgment. Absent special circumstances (which would appear to be exceptional), post-judgment interest is based on the rate as determined by the Chief Justice and does not look like it is going to change anytime soon.

* See  http://www.judiciary.hk/en/crt_services/interest_rate.htm .

Jingtian & Gongcheng, Partner in Commercial Disputes

Ben Yates is a litigation and arbitration solicitor at Jingtian & Gongcheng specialising in technology-related matters. He regularly handles data breaches and other cybersecurity incidents, along with disputes and investigations involving cryptocurrencies. He also advises on the complex legal and regulatory framework surrounding digital tokens and blockchain technology.

Ben is the author of a new chapter on “cyber law” in Chitty on Contracts (Hong Kong Specific Contracts), covering data protection, cloud computing, cybersecurity, blockchain technology, smart contracts, artificial intelligence and related subjects.

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• 1. How can I know if the judgment debtor has the financial resources to satisfy the court judgment and to pay the debt?

If you are the judgment creditor, it may be that you know little about the judgment debtor's assets. Without further information, you will not be able to make the best choice regarding the available methods of enforcement.

By virtue of the provisions of  Order 48  or  Order 49B  of the  Rules of the High Court  (see also  Order 48  or  Order 49B  of the  Rules of the District Court  as appropriate), a judgment debtor can be called to the court to answer questions about his assets.

One significant difference between Order 48 and Order 49B is that while the former specifically allows the examination of a corporation's officers, there is no corresponding provision in the latter.

However, the Order 49B procedure has two advantages: (i) the judgment debtor can be arrested before the examination to secure his attendance in court; and (ii) the court has wider powers to order disclosure of assets by the judgment debtor.

Examination of the judgment debtor under Order 48

The court may, on your ex parte application (without giving notice to the debtor) with a supporting  affidavit or affirmation , order the judgment debtor to attend before the Registrar or such officer as the court may appoint and be orally examined on the following questions:

• whether any and, if so, what debts are owing to the judgment debtor by other persons; and
• whether the judgment debtor has any and, if so, what other property or financial resources that could be used for satisfying the judgment or order in your favour.

(If the judgment debtor is a limited company, the order can be made against a senior officer of the company.)

The court may also order the judgment debtor or officer to produce any documents in the judgment debtor's possession relevant to the questions mentioned above at the time and place appointed for the examination.

The order for examination must be delivered by hand to the judgment debtor and to any senior officer of a body corporate ordered to attend for examination. The judgment debtor's failure to attend the examination may lead to an order for imprisonment.

Examination of the judgment debtor under Order 49B

Where a judgment for the payment of a specified sum of money is unsatisfied (either wholly or partly), the court, on your ex parte application, may order the examination of the judgment debtor on his assets, liabilities, income and expenditure and of the disposal of any assets or income.

For the purpose of securing the attendance of the judgment debtor at the examination, the court may order the judgment debtor to appear before the court at a time appointed by it, with such documents or records as it may specify. Such an order must be delivered to the judgment debtor by hand.

If, from all the circumstances of the case (including the judgment debtor's conduct), it appears to the court that there is reasonable cause to believe that an order to appear before the court for examination may be ineffective to secure the judgment debtor’s attendance, the court may order that the judgment debtor be arrested and be brought before the court on the day following the day of arrest.

It should be noted that, on an application for the above examination by the judgment creditor, the court has the power to make an order prohibiting the judgment debtor from leaving Hong Kong.

Where a judgment debtor fails to appear as ordered, the court may order that he be arrested and brought before the court for examination on the day following the day of arrest.

The power of the court after examining the judgment debtor

Following the examination conducted under either Order 48 or Order 49B,

(NB If the judgment debtor fails to comply with such an order, you may apply to the court, on not less than 2 clear days notice to the judgment debtor, for an order for the imprisonment of the judgment debtor. Unless the judgment debtor shows good reason to object, the court may order the imprisonment of the judgment debtor for a period not exceeding 3 months.)

• is able to satisfy the judgment, wholly or partly, but did not do so; or
• has disposed of assets with a view to avoiding satisfaction of the judgment or the liability which is the subject of the judgment, wholly or partly; or

it may, in its discretion, order the imprisonment of the judgment debtor for a period not exceeding 3 months.

• if the court is satisfied that the judgment debtor is able or will be able to satisfy the judgment, wholly or partly, by instalments or otherwise, it may order him to satisfy the judgment in such manner as it thinks fit.

Choosing a subtopic

• What is a civil case?
• 1. Can I settle the dispute without going to court?
• 2. Do I have sufficient legal basis to start a civil action? Will it be possible for my opponent to sue me back in respect of the same case?
• 3. How and where can I get legal advice or representation (including free or subsidised legal assistance)?
• 4. Can I obtain what I want if I win the case?
• 1. Why may my legal fees not be fully reimbursed even though I have won the case and the court has ordered the other side to pay me the legal cost?
• 2. Does the court necessarily order the losing party to fully pay the legal cost of the winning party? What are the possible causes that make the court orders differently?
• 6. Can I afford the time?
• 7. Is there any deadline for starting a civil action?
• 8. What risks will I face if I start a civil action? Am I prepared to bear these risks?
• 9. If I do not mind affording time and money at all, can I start a civil action just to make trouble for the defendant, even though my case is weak?
• 10. What can be claimed in a general civil action? What are the examples of claims on an unliquidated sum? Apart from a sum of money (liquidated or not), are there any other possible claims that can be made in a civil action?
• 11. What information about a civil case can be disclosed to the public? Are all the evidence, documents, or witness statements available for public inspection?
• 1. What is the authority and what types of civil cases can be handled by the Labour Tribunal?
• 2. What is the authority and what types of civil cases can be handled by the Small Claims Tribunal?
• 3. What is the authority and what types of civil cases can be handled by the District Court?
• 4. What is the authority and what types of civil cases can be handled by the Court of First Instance of the High Court?
• 1. Would judges take into consideration that the litigants in person are disadvantaged in understanding court procedures and give legal advice to them?
• 2. Can I ask a friend to speak and represent me in court?
• 6. What happens if a mentally incapacitated person or an infant/minor wants to start a legal action?
• 7. How can I start a civil action against another party in the District Court or the High Court?
• 8. If I want to start a civil action against somebody through the District Court or the High Court, should I commence the action by filing a writ of summons or by filing an originating summons?
• 9. How do I start a civil action by issuing a writ of summons?
• 10. How do I start a civil action by issuing an originating summons?
• 11. Can I start a civil action against someone: (a) without a permanent address? (b) ordinarily resides outside Hong Kong? (c) who is missing? (d) whose name is unknown?
• 12. What is pleading? What documents do the plaintiff and defendant need to serve in the pleading stage?
• 13. What are the general principles of drafting a good pleading?
• 14. What would be the consequence if the plaintiff exaggerates the amount to be claimed and expects the defendant to make offers at a cut?
• 15. When should I hand in my evidence? Should I attach them to the Statement of Claim or Originating Summons?
• 1. How do I (as the defendant) calculate the period of 14 days allowed for filing the acknowledgment of service form?
• 2. Should I defend a claim that is started against me?
• 3. What should I do if I decide NOT to defend the case?
• 4. What should I do if I decide to defend the case?
• 5. What happens if the defendant does not file an acknowledgment of service form or a defence?
• 6. What happens if the defendant files a defence (and counterclaim)?
• 7. If the defendant considers that he does in fact owe the plaintiff some money, what action can be taken by the defendant?
• 8. I am the defendant of a civil action but I believe another party should be responsible for the plaintiff’s claim instead. What should I do?
• 1. What is a discovery (disclosure) of documents?
• 2. What is an exchange of witness statements?
• 3. What should be noted about expert witnesses? Should I call them to give evidence for my case?
• 4. How will the Court give directions for the management of a case before the commencement of a trial?
• 5. What are the other general matters that I should pay attention to concerning the conduct of civil actions in court?
• 1. Application
• 2. Making an admission
• 3. Procedures subsequent to an admission
• B. Sanctioned offers and sanctioned payments
• C. Settling disputes out of the court
• 1. As a defendant of a claim for a liquidated sum of money, if I partially admit the liability of a plaintiff's claim, what are the differences between (1) admitting the partial amount via Form 16 at the pleading stage (in pursuant of order 13A), and (2) offering that partial amount as a sanctioned payment to the plaintiff via Form 23 (in pursuant of order 22)?
• 2. If a defendant would like to make a sanctioned payment to the plaintiff at the pleading stage (after receiving the writ and statement of claim), does he still need to admit the offered amount by filling in Form 16 or 16C?
• 1. If a party believes that some of the core pieces of evidence held by the opposite party are falsified (e.g., a false lease document in a trial on land), should he raise it out by an interlocutory application?
• 2. Are there any examples of interlocutory proceedings that might be regarded by the Court as abuse of process? What are the consequences of initiating such proceedings?
• 2. How to prepare an affidavit or affirmation?
• 3. What documents do the parties need to prepare for the hearing of the interlocutory application?
• 4. How is the hearing of an interlocutory application conducted?
• 5. Can the plaintiff or the defendant appeal against an order made on an interlocutory application?
• 6. If the defendant filed a defence, but it does not contain any reasonable points, can the plaintiff apply for a "fast judgment" without going through a trial?
• 7. The trial has not yet commenced but the defendant's wrongdoing has already caused some damage to the plaintiff. What can the plaintiff do to stop the defendant's wrongdoing in the meantime?
• 8. What can the plaintiff do if the defendant is likely to dispose of his assets improperly before the case proceeds to trial?
• 9. What can the plaintiff do if he wants to enter the defendant’s premises to search for and seize certain documents or property before the case proceeds to trial?
• 10. What can the plaintiff do to reduce financial hardship during the period from the commencement of legal action up to the date of trial? Is it possible for the plaintiff to obtain some compensation from the defendant before the conclusion of the case?
• 11. If the defendant wins the case, his legal costs may be recovered from the plaintiff. What can the defendant do if he is worried that, in the event of defeating the plaintiff's claim, the plaintiff would be unable to meet any order for legal costs made at the trial?
• 1. How can the parties prepare the bundle of documents before going to the trial (copies of the documents that will be placed before the judge and the relevant parties at the trial)?
• 2. If I am a party to the case and have called witnesses to give evidence for me, should I meet with my witnesses before attending the trial?
• 3. If a witness is unwilling to attend the court to give evidence, can a party force him to do so?
• 4. Can the party pay his witnesses to attend the court to give evidence?
• 5. What may happen during a civil trial? What is the usual procedure that the plaintiff and the defendant need to follow at the trial?
• 6. What are opening and closing submissions (including list of authorities)?
• 1. Does the Court of First Instance of the High Court (not the Court of Appeal) also have the authority to hear appeal cases?
• 2. What types of civil matters can be heard by the Court of Final Appeal?
• 3. Can the parties adduce fresh evidence in the appeal? If so, how?
• 1. What is taxation of legal costs?
• 2. Further to question 1, if I have appointed a lawyer to handle my lawsuit, can I apply for taxation if I am not satisfied with my own lawyer's bill?
• 3. How to commence the taxation of costs?
• 4. Is there a reasonable range of hourly legal fees and work hours charged for certain work (e.g., preparing a witness statement)? How to make sure that the fees demanded from the lawyer of the other party are reasonable?
• 5. At earlier stages, what can I do to evaluate the tentative costs I might need to pay for the other party if I lose the case? Do the parties need to tell each other about their legal costs from time to time?
• 6. Under what circumstances does a taxing master tax down the cost?
• 2. How can I prevent the judgment debtor from leaving Hong Kong as a way to escape liability for paying the judgment debt?
• 3. How can the Bailiff's Office assist me to recover my debt/compensation/premises from the judgment debtor/defendant?
• 4. If I (as a judgment creditor) realise that someone owes money to the judgment debtor, can I get my money directly from that third party?
• 5. If the judgment debtor does not have any cash but owns a property/flat, can I (as the judgment creditor) take legal action against the debtor's flat?
• 6. As a judgment creditor, can I enforce the judgment if the judgment debtor has lodged an application for permission to appeal?
• 7. If I am the judgment debtor and will launch an appeal to the Court of Appeal, what steps have to be taken if I want to have a stay of execution (suspend the execution) of the judgment or order against me?
• 8. If the court orders an injunction against the defendant but the defendant fails to comply with it, how can the plaintiff enforce the order?
• 9. Can I enforce my judgment in civil and commercial matters from other jurisdictions in Hong Kong?
• Remote hearing
• 1. What are the other important matters that I should know about judicial review?

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Pursuant to section 4(4) of the Limitation Ordinance (Chapter 347) (“the Ordinance”), there is a time limit of 12 years for creditors to bring an action on a judgment debt from the date on which the judgment became enforceable. After expiration of the 12 years, no such action can be taken.

Furthermore, in cases where a writ of execution (e.g. a writ of fieri facias, a writ of possession, a writ of delivery, a writ of sequestration) is required to enforce a judgment, such writ may not be issued without the leave of the Court when 6 years or more have elapsed since the date of the judgment. It would be in the discretion of the Court whether leave should be granted to enforce the judgment after 6 years.

Interpretation of the word “action” in section 4(4) of the Ordinance

In two recent Hong Kong cases, the meaning of the word “action” in section 4(4) of the Ordinance was extensively discussed. If it has a restrictive meaning like in England i.e. “action” means a new set of proceedings brought for the purpose of re-establishing the judgment debt to obtain a second judgment, then the limitation period would not apply to other execution proceedings e.g. bankruptcy or winding up. If it has a wide meaning, then “action” would cover all kinds of legal proceedings (including any form of enforcement or execution proceedings, bankruptcy and winding up proceedings) based on a judgment debt and none of these proceedings can be brought after the 12 years limitation period.

The Court of Appeal in Re Li Man Hoo (A Debtor) confirms that the meaning of the word “action” in section 4(4) above is the wide one. It refused to follow the restrictive meaning applied in England. In that case, bankruptcy petitions were presented in September 2011 based on a judgment debt obtained in February 1999 (i.e. the bankruptcy petitions were presented more than 12 years after the date of the judgment). The debtors opposed the petitions on the ground that each of the bankruptcy petitions was an “action” brought upon a judgment and by virtue of section 4(4), the petitions were time-barred.

The Court of Appeal overturned the lower court’s decision and held that the word “action” in section 4(4) of the Ordinance would include “any proceeding in a court of law” and encompasses bankruptcy petitions. Hence, the bankruptcy proceedings based upon the judgment debt which was entered more than 12 years prior to the presentation of the petitions were time-barred under the Ordinance.

Section 4(4) of the Ordinance would also apply to winding up proceedings. In Re Man Po International Holdings Ltd where the petitioner petitioned for the winding up of a company in January 2012 based on a judgment obtained in July 1998, enforcement of the judgment was held to be time-barred after 12 years under the Ordinance.

Impact on interest caused by undue delay

Judgment creditors should also note that no arrears of interest in respect of a judgment debt may be recovered after the expiration of 6 years from the date on which the interest became due, according to section 4(4) of the Ordinance.

Where a plaintiff delays in taking enforcement legal action on interest without any good explanation, the court may exercise its discretion to deprive the plaintiff of pre-judgment statutory interest on a debt or damages (under section 48 of the High Court Ordinance or section 49 of the District Court Ordinance).

Further, the court also has the discretion to deprive the plaintiff of pre-judgment contractual interest during the period of delay even if the plaintiff is entitled to pre-judgment contractual interest. The matter was considered in Bank of China (Hong Kong) Ltd v China International Business Investigation Co Ltd. In that case, the Court was of the view that there was nothing to tie the Court’s hands in depriving a plaintiff’s relief for contractual interest if it was just and equitable to do so as a result of the plaintiff’s conduct (e.g. a long period of delay).

The Court in that case decided to adopt a “notional” date of judgment (i.e. 7 November 2002), the date on which final judgment could have been obtained by the plaintiff had the plaintiff pursued the matter with reasonable diligence, and deprived the plaintiff of the contractual interests from the “notional” date of judgment. The Court also exercised its discretion under section 48 of the High Court Ordinance in denying the plaintiff statutory interest during the period of delay (i.e. from the “notional” date of judgment up to the “actual” date of judgment).

In view of the above cases, creditors should not only be aware of the 12 years limitation period under section 4(4) of the Ordinance but also that the court has the discretion to refuse to award contractual interest and statutory interest to the judgment creditor if it finds that there has been undue delay by the creditor to proceed with the legal action. Arrears of interest in respect of a judgment debt may also not be recoverable after 6 years. It is therefore important that enforcement action on a judgment debt be taken with reasonable diligence and no undue delay.

If you have any queries regarding the above eNews or cases, experienced lawyers in our Litigation Practice will be happy to assist you.

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REALWorld Law

Real estate finance, hong kong, sar.

• Types of security
• Real estate as security

Trading of debt

Is secured debt traded between lenders? If so, how is a transfer of the debt to another lender effected?

The most common forms of security over real estate are:

• Legal mortgage
• Equitable mortgage, and
• Floating charge.

A legal mortgage and an equitable mortgage are fixed charges and both create a similar type of security. The mortgagor is allowed to remain in possession of the asset though the ownership right passes to the mortgagee. In addition, the mortgagor retains an 'equity of redemption' which is a right to have the asset transferred back to it upon repayment. If there is a default in making mortgage payments, both legal and equitable mortgages entitle the mortgagee to take possession of the asset and dispose of it with priority over unsecured creditors.

Most borrowing is secured by a legal mortgage. The difference between a legal mortgage and an equitable mortgage lies largely in the extent to which the mortgage is perfected by registration at the Land Registry, and legal and equitable mortgages are treated differently in terms of the rules of priority as against other creditors. A legal mortgage created subsequent to an equitable mortgage has priority if it is acquired without notice of the pre-existing security.

It is also common for security to be granted over the rental income from a property. This usually takes the form of an assignment whereby the tenants are directed to pay the rental income to the lender (usually via a managing agent) so that the rental income does not pass through the hands of the borrower. This assignment can be created by a separate security document but it is more usually contained within the mortgage (or a debenture if one is granted).

A corporate borrower can also create a floating charge. This is a charge over a class of assets which in the course of the borrower's business changes from time to time and which may be disposed of without consent of the lender. This type of charge is sometimes taken with very large and complicated property portfolios where the borrower requires maximum flexibility and the lender is not too concerned over control. While a floating charge allows greater flexibility, it has lower priority than a fixed charge because in the event of insolvency where assets are insufficient to satisfy all claims, the claim of a floating charge holder will be postponed to that of the preferential creditors (eg employees). However, it is more normal for a lender to take both a floating charge and a legal or equitable mortgage.

A fixed charge over property can be granted by anyone, including companies, limited liability partnerships, traditional partnerships and individuals. A floating charge cannot be granted by an individual.

Last modified 19 Jul 2023

Real estate includes the land, buildings erected on it and fixtures which form part of those buildings.

It is also possible to take security over fittings, furniture and moveable objects.

Yes. The key characteristic of a trust is that it allows legal ownership and beneficial interest to be separated. The trustees become the legal owners of the trust property as far as third parties are concerned and they are legally entitled to contract on behalf of the trust. On the other hand, the beneficiaries can expect the trustees to manage the trust property for their sole benefit. This is well recognised under Hong Kong law.

Debt is commonly traded between lenders. Syndicated lending documentation is becoming standardized on the terms of the Asia Pacific Loan Market Association and this allows for free transferability of debt between lenders with the security being held on their behalf by a security trustee and the debt being administered by an agent.

In addition, there are several ways of transferring debt being:

• Novation; the whole of the loan and the lender's obligations are transferred to the transferee
• Assignment; the loan is assigned to the transferee but this cannot be used to transfer an undrawn commitment (which would have to be dealt with by way of novation)
• Sub-participation; the economic benefit of the loan is transferred to the transferee but this does not affect the original loan contract between the original lender and the borrower. The original lender remains the lender of record and the buyer of the debt takes the credit risk not only on the borrower but the original lender
• Synthetic arrangements; economic risks can also be traded using derivatives and insurance policies.
• Restrictions on foreign lenders
• Taxes and fees
• Corporate governance
• Restrictions on payments to foreign lenders
• Priority of security

There are no restrictions on granting security to foreign lenders.

There are no taxes in creating a security interest. The fee for registration of mortgage or legal charge at Companies Registry is HK$340.

A legal charge over real estate may be perfected by registration at the Land Registry. There is a fee payable depending on the amount or value of the consideration. For consideration below HK$750,000, the fee charged is HK$230 while it is HK$450 for consideration above HK$750,000.

Yes, there are both financial assistance rules and corporate benefit rules which must be complied with.

Financial assistance rules

Pursuant to section 275 of the Companies Ordinance (Cap. 622 of the Laws of Hong Kong), subject to certain exceptions, it is unlawful for a company to provide financial assistance for the purpose of acquiring its own shares, but a company can provide financial assistance for the purpose of acquiring shares in its holding company if the holding company is incorporated outside Hong Kong.

Corporate benefit rules

Directors must comply with both common law rules and provisions under the Companies Ordinance (Cap. 622 of the Laws of Hong Kong). To summarize, a director of a company must only act in a way that he considers, in good faith, is most likely to promote the success of the company for the benefit of its members as a whole. Further, a director must exercise independent judgment and reasonable skill, care and diligence and act in accordance with the company ’ s memorandum and articles of association.

Other rules

There are other corporate law issues which include rules relating to capital maintenance, restrictions on transactions between a company and connected parties and provisions relating to transactions which take place within certain periods before the company entering into an insolvency process. 

There are no restrictions on payments made to foreign lenders under a security document or loan agreement.

A creditor can contractually agree to subordinate its security interest to that of another creditor by a priority agreement, being a Deed of Priority or an Intercreditor Deed. The agreement will regulate the priority of the competing securities and will cover matters such as rights of enforcement.

• Jurisdiction
• Imperfect security
• Environmental liability

If a choice of law is a sensible choice (ie not chosen to deliberately avoid a national law or policy), the Hong Kong courts will give effect to it. It would probably not be sensible to choose a law other than Hong Kong law to govern a security document under which a Hong Kong company creates security over a Hong Kong asset.

Where the asset that is the subject of the mortgage or charge is situated in another jurisdiction, a security document governed by the law of that jurisdiction will often be appropriate, and the choice of that law will be recognized by the local courts.

Generally, a security interest created by a company has to be registered at Companies Registry within one month after the date of creation of the security interest. If it is not so registered, it is void against a liquidator and any creditor of the company.

Mortgages of real property, if registered in the Land Registry within one month of the date of its creation, have priority from the date of creation. If a mortgage is registered outside this one-month period, it shall have priority from the date of registration with the Land Registry.

A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.

Great care must be taken if the security is enforced because owners of land can be liable for environmental damage on that land or coming from it, even if it did not cause such damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability. 

• Enforcement of security
• Non-insolvency procedures
• Effect of borrower's insolvency
• Order of payment

If the facility is on demand, all the lender needs to do is demand repayment.

More commonly, a term loan agreement will describe events of default which must have occurred before the lender can enforce its security. Typical events of default include non-payment of interest or principal, breach of representation, breach of covenant, material adverse change and insolvency.

Once the security is enforceable, the lender can enforce its security immediately. Depending on the nature of the security, enforcement could be by way of appointment of a receiver or by way of foreclosure or taking possession.

The security assets can be disposed of by way of private agreement and there is no requirement for public auction, although the lender does have certain duties to obtain a proper price for the assets.

The Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32 of the Laws of Hong Kong) enables a company to compromise or make arrangements with its creditors but requires the sanction of the court.

Where a compromise or arrangement is proposed between a company and its creditors or any class of them, the court may order a meeting of the creditors to be summoned in such manner as the court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors present and voting either in person or by proxy at the meeting agree to any compromise or arrangement, the compromise or arrangement is, if sanctioned by the court, binding on all the creditors or the class of creditors and also on the company.

Generally, the onset of a borrower's insolvency does not affect security interests.

Security can be set aside in certain circumstances including where it constitutes an unfair preference or a transaction at an undervalue. Generally, for this to happen, a court order is required and the security must have been created within a certain time period (which can be up to two years depending on the circumstances) before the commencement of the insolvency process.

A floating charge granted by a company within 12 months of commencement of winding-up is invalid unless it is proved that the company was solvent immediately after the creation of the charge or except to the amount of any cash paid to the company in consideration for the charge.

The priority of security interests is determined by a complex set of rules that provide that the order of priorities is largely based upon the date of creation of the security. A summary of the priority order in respect of the key real estate security instruments is as follows:

Fixed charge versus floating charge?

• A fixed charge (a charge over a specific asset or assets) will have priority over a floating charge even if it is created after the floating charge where notice of the existence of the floating charge has been given in an appropriate legal way.
• Even if a floating charge (a charge over a class of assets which in the course of the borrower's business changes from time to time and which may be disposed of without consent of the lender) is crystalized into a fixed charge upon the occurrence of certain events stipulated in the agreement (eg insolvency/creation of second security) if the fixed charge has been acquired without notice of the specific crystallization clause, it still enjoys priority.

Fixed charge versus fixed charge?

• Fixed charges rank in priority according to the date of their creation and registration (although where the charge is over land, the Land Registry rules take precedence and generally provide that, subject to certain exceptions, priority is determined by the order of registration at the Land Registry.)

Floating charge versus floating charge?

• Floating charges rank in priority according to the date of their creation and registration.

The holder of a fixed charge is entitled to the whole of the proceeds of sale of that asset less the cost of realization.

There are certain prior claims which apply to proceeds of realization of a floating charge. These include:

• The costs of preserving and realising the assets
• The receiver's remuneration and the proper costs and expenses of the receivership
• The debts which are preferential in receivership

Unsecured creditors rank behind secured creditors and rank equally between themselves. However, preferential creditors, which are a special group of unsecured creditors such as employees and governmental departments, rank ahead of floating charge holders where the assets are insufficient to satisfy their claims (eg unpaid wages).

The order for distribution can be summarized as follows:

Assets subject to fixed charges (or mortgages)

• The cost of preserving and realising the assets; and receiver's remuneration and the costs and expenses of the receivership
• The chargee

If there is a surplus after payment of the amounts due as above, the surplus forms part of the free assets available for the general creditors.

Assets available to unsecured (general) creditors ('free assets')

• Costs and expenses of the liquidation (including the remuneration of the liquidator as allowed under section 196 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance).
• Amounts owing to employees
• Statutory debts due to the government (eg rates and taxes)
• If the company is a bank, then persons holding deposits (up to the amount of HK$500,000 per depositor)
• If the company is an insurer, then amounts owing to insured persons claiming under an insurance contract against the insurer
• A landlord who sought to take control of the debtor's goods in settlement of unpaid rent within three months before the date of the winding up order (to the extent of such goods)
• Ordinary creditors
• Return of capital to contributories entitled thereto
• Payment of surplus to contributories entitled thereto

Assets subject to a floating charge

Prima facie, such assets are not available to the general creditors, however if the free assets available to the general creditors are not enough to satisfy the claims of the preferential creditors under section 265(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), then the assets subject to a floating charge would be available to meet those claims of preferential creditors in priority to the charge.

• Costs of preserving and realising the assets; and receiver's remuneration and costs and expenses of the receivership, including costs and expenses of discharging statutory duty to pay the preferential creditors
• Claims of preferential creditors referred to under points 2-5 above (in relation to the order for distribution of 'free assets'), in the statutory order noted above
• Floating Chargee

If there is a surplus after payment of the amounts due to the charge, the surplus forms part of the free assets available for the general creditors.

Susheela Rivers

• Practical Law

Enforcement of Judgments in Hong Kong: Overview

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Conventus Law

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Hong Kong – Assignment, Novation Or Sub-Participation Of Loans.

April 28, 2022 by Balaram Adhikari

TRANSFERABILITY OF LOANS

The legal analysis regarding the transferability of loans can be complex.  The loan agreement should be examined with a view to identifying any restrictions on transferability of the loan between lenders, such as prior consent of the debtor and, in some cases, whether such consent may be withheld.  Other general restrictions may apply given that most banks have internal confidentiality rules and data protection requirements, the latter of which may also be subject to governmental regulations.  Certain jurisdictions may restrict the transfer of loans relating to specific types of receivables – mortgage or consumer loans being prime examples.  It is imperative to conduct proper due diligence on the documentation and underlying assets in order to be satisfied with the transferability of the relevant loans.  This may be complicated further if there are multiple projects, facility lines or debtors.  It is indeed common to see a partial transfer of loans to an incoming lender or groups of lenders.

METHODS OF TRANSFER

The transfer of loans may be carried out in different ways and often involves assignment, novation or sub-participation.

A typical assignment amounts to the transfer of the rights of the lender (assignor) under the loan documentation to another lender (assignee), whereby the assignee takes on the assignor’s rights, such as the right to receive payment of principal and interest on the loan.  The assignor is still required to perform any obligations under the loan documentation.  Therefore, there is no need to terminate the loan documentation and, unless the loan documentation stipulates otherwise, there is no need to obtain the debtor’s consent, but notice of the assignment must be served on the debtor.  However, many debtors are in fact involved in the negotiation stage, where the parties would also take the opportunity to vary the terms of the facility and security arrangement.

Novation of a loan requires that the debtor, the existing lender (transferor) and the incoming lender (transferee) enter into new documentation which provides that the rights and obligations of the transferor will be novated to the transferee.  The transferee replaces the transferor in the loan facility and the transferor is completely discharged from all of its rights and obligations.  This method of transfer does require the prior consent of the relevant debtor.

Sub-participation is often used where a lender, whilst wishing to share the risks of certain loans, nonetheless prefers to maintain the status quo.  There is no change to the loan documentation – the lender simply sells all or part of the loan portfolio to another lender or lenders.  From the debtor’s perspective, nothing has changed and, in principle, there is no need to obtain the debtor’s consent or serve notice on the debtor.  This method of transfer is sometimes preferred if the existing lender is keen to maintain a business relationship with the debtor, or where seeking consent from the debtor or notifying the debtor of any transfer is not feasible or desirable.  In any case, there would be no change to the balance sheet treatment of the existing lender.

OFFSHORE SECURITY ARRANGEMENTS

The transfer of a loan in a cross-border transaction often involves an offshore security package.  A potential purchaser will need to conduct due diligence on the risks relating to such security.  From a legal perspective, the security documents require close scrutiny to confirm their legality, validity and enforceability, including the nature and status of the assets involved.  Apart from transferability generally, the documents would reveal whether any consent is required.  A lender should seek full analysis on the risks relating to enforcement of security, which may well be complicated by the involvement of various jurisdictions for potential enforcement actions.

A key aspect to the enforcement consideration is whether a particular jurisdiction requires that any particular steps be taken to perfect a security interest relating to the loan portfolio (if the concept of perfection applies at all) and, if so, whether any applicable filing or registration has been made to perfect the security interest and, more importantly, whether there exists any prior or subsequent competing security interest over all or part of the same assets.  For example, security interests may be registered in public records of the security provider maintained by the companies registry in Bermuda or the British Virgin Islands for the purpose of obtaining priority over competing interests under the applicable law.  The internal register of charges of the security provider registered in the Cayman Islands, Bermuda or the British Virgin Islands should also be examined as part of the due diligence process.  Particular care should be taken where the relevant assets require additional filings under the laws of the relevant jurisdictions, notable examples of such assets being real property, vessels and aircraft.  Suites of documents held in escrow pending a potential default under the loan documentation should also be checked as they would be used by the lender or security agent to facilitate enforcement of security when the debtor defaults on the loan.

DUE DILIGENCE AND BEYOND

Legal due diligence on the loan documentation and security package is an integral part of the assessment undertaken by a lender of the risks of purchasing certain loan portfolios, regardless of whether the transfer is to be made by way of an assignment, novation or sub-participation.  Whilst the choice of method of transfer is often a commercial decision, enforceability of security interests over underlying assets is the primary consideration in reviewing sufficiency of the security package in any proposed loan transfer.

For further information, please contact:

Fiona Chan , Partner, Appleby

[email protected]

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English law assignments of part of a debt: Practical considerations

United Kingdom |  Publication |  December 2019

Enforcing partially assigned debts against the debtor

The increase of supply chain finance has driven an increased interest in parties considering the sale and purchase of parts of debts (as opposed to purchasing debts in their entirety).

While under English law part of a debt can be assigned, there is a general requirement that the relevant assignee joins the assignor to any proceedings against the debtor, which potentially impedes the assignee’s ability to enforce against the debtor efficiently.

This note considers whether this requirement may be dispensed with in certain circumstances.

Can you assign part of a debt?

Under English law, the beneficial ownership of part of a debt can be assigned, although the legal ownership cannot. 1  This means that an assignment of part of a debt will take effect as an equitable assignment instead of a legal assignment.

Joining the assignor to proceedings against the debtor

While both equitable and legal assignments are capable of removing the assigned asset from the insolvency estate of the assignor, failure to obtain a legal assignment and relying solely on an equitable assignment may require the assignee to join the relevant assignor as a party to any enforcement action against the debtor.

An assignee of part of a debt will want to be able to sue a debtor in its own name and, if it is required to join the assignor to proceedings against the debtor, this could add additional costs and delays if the assignor was unwilling to cooperate. 2

Kapoor v National Westminster Bank plc

English courts have, in recent years, been pragmatic in allowing an assignee of part of a debt to sue the debtor in its own name without the cooperation of the assignor.

In Charnesh Kapoor v National Westminster Bank plc, Kian Seng Tan 3 the court held that an equitable assignee of part of a debt is entitled in its own right and name to bring proceedings for the assigned debt. The equitable assignee will usually be required to join the assignor to the proceedings in order to ensure that the debtor is not exposed to double recovery, but the requirement is a procedural one that can be dispensed with by the court.

The reason for the requirement that an equitable assignee joins the assignor to proceedings against the debtor is not that the assignee has no right which it can assert independently, but that the debtor ought to be protected from the possibility of any further claim by the assignor who should therefore be bound by the judgment.

Application of Kapoor

It is a common feature of supply chain finance transactions that the assigned debt (or part of the debt) is supported by an independent payment undertaking. Such independent payment undertaking makes it clear that the debtor cannot raise defences and that it is required to pay the relevant debt (or part of a debt) without set-off or counterclaim. In respect of an assignee of part of an independent payment undertaking which is not disputed and has itself been equitably assigned to the assignee, we believe that there are good grounds that an English court would accept that the assignee is allowed to pursue an action directly against the debtor without needing the assignor to be joined, as this is likely to be a matter of procedure only, not substance.

This analysis is limited to English law and does not consider the laws of any other jurisdiction.

Notwithstanding the helpful clarifications summarised in Kapoor, as many receivables financing transactions involve a number of cross-border elements, assignees should continue to consider the effect of the laws (and, potentially court procedures) of any other relevant jurisdictions on the assignment of part of a debt even where the sale of such partial debt is completed under English law.

Legal title cannot be assigned in respect of part of a debt. A partial assignment would not satisfy the requirements for a legal assignment of section 136 of the Law of Property Act 1925.

If an assignor does not consent to being joined as a plaintiff in proceedings against the debtor it would be necessary to join the assignor as a co-defendant. However, where an assignor has gone into administration or liquidation, there may be a statutory prohibition on joining such assignor as a co-defendant (without the leave of the court or in certain circumstances the consent of the administrator).

[2011] EWCA Civ 1083

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Factoring and Set off Rights – Some Practical Tips

Factoring is a widely used mechanism in the business world. This article discusses the law in relation to factoring and practical tips to be adopted by companies when it comes to factoring and set off rights.

What is factoring?

Factoring is a form of financing by which a company sells debts that are due to be collected from a customer to a third party (the Factor) at a discounted price, and in turn assigns its rights to collect the debts from the customer or customers to the Factor.

After the factoring arrangement is entered into between the company and the Factor, it is the usual practice for the Factor to send out to the relevant customers a letter giving notice that from the date of the letter and until further notice, all debts owed by the customers to the company are automatically assigned and become payable to the Factor. This letter is usually known as an introductory letter.

Law on factoring and its effect on set off rights

Under Hong Kong law, the assignment of debts is governed by both statute and common law principles. Section 9 of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23) (the Ordinance) provides that:-

“ Any absolute assignment, by writing under the hand of the assignor (not purporting to be by way of charge only), of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim such debt or chose in action, shall be and be deemed to have been effectual in law (subject to all equities which would have been entitled to priority over the right of the assignee…) to pass and transfer the legal right to such debt or chose in action from the date of such notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor .”

This means that when a customer receives (and/or acknowledges) a written notice of assignment (including an introductory letter) from the Factor, the assignment of debt to the Factor becomes effective in law.

Section 9 of the Ordinance provides that the Factor takes the assignment of debt subject to all equities which would have been entitled to priority over the rights of the Factor.  Cases have interpreted this wording to mean that:-

(a)        the Factor takes subject to the customer’s right of set off against the assignor; but

(b)        if the set off does not arise out of or is not closely connected with the same contract or the subject-matter of the assignment, the customer can only claim a set off against the Factor if the right of set off arose before the notice of assignment is given.

Where there is a prior contractual set off agreement in place between the company and the customer, the law is not as clear cut when it comes to deciding whether such an agreement will also be effective against the Factor where the transaction out of which the cross-claim sought to be set off arose was entered into after the notice of assignment is given. There are two competing views arising from the case law on this issue:-

(a)        One view is that the assignee (i.e. the Factor) takes the same interest and is subject to the same liabilities as the assignor (i.e. the company) at the date of the notice of assignment, and the prior agreement will allow the debtor (i.e. the customer) to set off cross-claims, both present and future, including claims which arise out of new transactions.

(b)        The competing view is that when the debtor receives notice, the debtor should regulate its conduct accordingly and should not rely on debts arising out of new transactions to diminish the rights of the assignee as they stood at the time of notice: in other words, set off is not available in respect of new transactions.

A set-off agreement entered into by the company and customer after the customer has notice of the assignment will not ordinarily be effective as against the Factor.

In summary, set off rights will continue to apply after assignment where:

(a)      the relevant cross-claim arose before the assignment;

(b)      the relevant cross-claim arose out of the same contract or is closely connected with it;

(c)      the factor expressly (or, depending on the facts, by implication) agrees to the continuation of a contractual set off right.

Practical Tips

Below are various measures which can be taken by a company to strengthen its position when it comes to factoring and set off rights:-

• It is prudent for a company to include a clause in their terms and conditions with the supplier providing that the set off rights which the company has under the contract will continue to be enforceable against the supplier and their assignees regardless of (a) any existing or future agreements entered into between the supplier and a third party assigning the right to the third party to collect its receivables or (b) any future notice of assignment of debt which may be received by the company in relation to the supplier’s debt.  Again, it is also prudent to get an acknowledgement from the Factor and the supplier that they will adhere to these terms.
• Set up measures to ensure that Factors are kept up to date with the set off arrangements which the company has in place with their customers e.g. by periodically sending letters to Factors (especially if the Factor is involved in a long term trading relationship) reminding them that the company’s set off rights against the customer and Factor will continue to apply to future assigned debts of the customer; and
• In the event the company’s right to set off crystallises (e.g. default by the supplier), the company should put the supplier and Factor on immediate notice that the company will exercise their set off rights against any assigned debts which are the subject of any existing or future invoices which may be issued by the supplier.

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Newsletter No. 149 (EN)

Securing and assigning claims in hong kong.

• Last updated:
• 31 January, 2023

I. Introduction

Security in the form of a charge over certain assets, such as receivables or “book debt” for instance, is of signifi­cant importance for international trade and loan transactions. In order for a creditor to minimize the risk of default by the debtor and obtain assurance that only secured rather than unsecured debts are held, the creditor must take several steps to reserve a preferential rank over other creditors.

This newsletter will discuss the assign­ment of receivables, in German called “Zession”, and what is required for a registration in Hong Kong to reserve a preferential rank in case of insolvency of the debtor. First, the relevant terms will be defined and then described in further detail in context of Hong Kong legisla­tion. The final part of the newsletter will explain what is required to register a blanket assignment of receivables in Hong Kong.

II. Definitions

1.       Assignment of receivables

Assignments of receivables are regulated in Germany in § 398 of the Civil Law Code ( B ürgerliche G esetz b uch, BGB ). The assignment of receivables is a common security for loans. The legal re­lationship usually consists of a party granting security, the grantor (e.g. per­son or entity taking a loan) who assigns receivables (e.g. receivables for goods supplied) to a secured party (e.g. entity or person giving a loan). The assignment of receivables makes the se­cured party the creditor of the receiva­bles.

2.      Types of assignment of receivables

Assignments generally can be distin­guished into single assignment (“Einzel­zession”), overall assignment (“Mantel­zession”) and blanket assignment (“Globalzession”). The blanket assign­ment is also sometimes re­ferred to as global assignment. The blanket assign­ment is differentiated from the single as­signment and overall assign­ment insofar, as the blanket assign­ment assigns all cur­rent and future receivables in favour of the secured person or entity. In contrast, a single assign­ment only assigns a specif­ic receivable while an overall assignment usually assigns only receivables that ex­isted at a certain point in time. Some­times, overall assignments are accompa­nied with an arrangement that all future receivables will be assigned through ad­ditional overall assignments. However, since such arrangement is very similar to the blanket assignment, usually in such circumstances the parties agree to pro­ceed with a blanket assignment.

3.      Absolute and undisclosed assign­ments

Independent of whether current or fu­ture receivables are assigned, or whether one specific receivable or a group of re­ceivables are assigned, the assign­ment can be either absolute or undisclosed. With an undisclosed assign­ment the se­cured party decides not to disclose the assign­ment to the third-party debtor, who continues to settle the receivables by payment to the grantor. With an absolute assignment, the assign­ment is disclosed to the third-party debtor and the debtor is only able to set­tle the receivables with discharging ef­fect by payment to the secured party, not the grantor.

In Hong Kong, no requirement exists that for an absolute assignment the third-party debtor has to only settle the receivables with discharging effect by payment to the secured party. It is how­ever common, if the secured party is a bank, that a special account is opened, which is used by the third-party debtor to settle the receivables. The money held in these accounts can only be accessed or transferred with the permission of the secured party (usually the bank).

III. Assignment of receivables in Hong Kong

Assignments of receivables such as the blanket assignment are generally possi­ble and are regulated under the broader term “charges”. In Hong Kong and many other common law jurisdictions a distinction is made between “fixed” and “floating” charges.

A fixed charge is a charge over assets which are specified (e.g. a machine or a specific receivable). With the effect of the assignment that the grantor (“char­gor”) is no longer free to deal with those assets. In contrast, a floating charge is an assignment of a type or group of assets (e.g. inventory, goods in a warehouse, undefined number of receivables, or the general under­taking or property of the company) which are not specifically identifiable and the chargor is able to continue to use the assets (processing and selling goods, collect receivables, etc.) while the secured person (“chargee”) retains certain rights in case of insolvency.

Charges are generally available to sole-traders as security instrument in business transactions while in practice “floating charges“ are primarily only granted by companies. The C ompanies O rdinance Chap. 622 ( CO ) does not define fixed and floating charges and so its definition is based on case law in alignment with common law principles. Assignments of receivables have generally been catego­rised as fixed charges. However, the conditions of what constitutes a fixed charge have changed significantly after the decisions in Agnew v IRC [2001] UKPC 28 and National Westminster Bank Ltd v Spectrum Plus Ltd [2004] 3 WLR 503.

A blanket assignment has the character­istic that the underlying assets, the re­ceiv­ables, constantly change (old receiv­ables are settled, and new ones are add­ed). Therefore, it is generally accept­ed that the blanket assignment is not treat­ed like a fixed charge, but as a float­ing charge. The classification is not up to the involved parties, but is determined by the relevant judge on a case by case basis (common law).

In case the grantor would like to classify the blanket assignment as a fixed charge, it would be necessary to open a bank ac­count, which is used for all settlement payments of the relevant receivables, and the grantor is unable to access or transfer any amounts from this account without the prior permission of the se­cured party. Since such arrangement is rather unpractical, it can be noted that the blanket assignment will most likely be characterised as a floating charge. With a floating charge, the secured party has only access to the charged receiva­bles, when they “concretise”. A floating charge will concretises if:

• the company winds-up;
• commences insolvency proceedings;
• ceases its business;
• any agreed terms of the charge.

The disadvantage of a floating charge is that the secured party is ranked after creditors that are in the possession of a fixed charge.

IV. Registration

To ensure that a party providing a loan becomes a secured creditor in compari­son to an unsecured creditor, it is neces­sary that the charge is valid and regis­tered. If an assignment of receiv­ables is not registered, it is invalid towards the liquidator and other creditors of the company. The registration of charges is regulated in Section 333 ff of the CO.

1.       Registration

Section 334 of the CO includes a list of charges that must be registered (inde­pendent whether they are considered fixed or floating charges). Among the listed charges are receivables.

2.      Registration period

Section 335 of the CO requires that a charge is registered within a month af­ter its creation.

3.      Registry keeping

Pursuant to Section 352 of the CO, a company must keep a registry at its reg­istered office. In case that the registry is not kept at the registered office, the Registrar of Companies must be in­formed. The registry must be kept in Hong Kong.

4.      Registration by the company or its creditors

In theory it is the duty of the company to register the charge. However, it is common that the registration is done by the creditor.

A blanket assignment of receivables is possible in Hong Kong and must be registered at the Companies Registry as charge. A registration is also possible (recommended) by the creditor. A blan­ket assignment of receivables is most likely categorised as a floating charge, which has the disadvantage that in case of insolvency, the secured party’s set­tlement of claims will be ranked after the creditors of fixed charges.

We hope that we have been able to assist you with this information. If you have any further questions, please contact us:

Lorenz & Partners Co., Ltd.

27th Floor, Bangkok City Tower, 179, S Sathorn Rd,

Thung Maha Mek, Sathon, Bangkok 10120

Email:  [email protected] www.lorenz-partners.com +66 (0) 2 287 1882

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Assignment of Contract Rights

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• Moral Obligation
• Under the UCC
• International Contracts KEY TAKEAWAY EXERCISES
• Consideration for an Option CASE QUESTIONS
• Consideration: Preexisting Obligation CASE QUESTIONS
• Consideration: Required for Contract Modification CASE QUESTIONS
• General Perspectives on Illegality LEARNING OBJECTIVES KEY TAKEAWAY EXERCISES
• Gambling Contracts
• Sunday Contracts
• Licensing Statutes KEY TAKEAWAY EXERCISES
• Common-Law Restraint of Trade
• Sale of a Business
• Employment Noncompete Agreements
• Unconscionable Contracts
• Exculpatory Clauses
• Obstructing the Administration of Justice or Violating a Public Duty
• Family Relations KEY TAKEAWAY EXERCISES
• Effect of Illegality
• Party Withdrawing before Performance
• Party Protected by Statute
• Party Not Equally at Fault
• Excusable Ignorance
• Partial Illegality KEY TAKEAWAY EXERCISES
• Extension of Statutory Illegality Based on Public Policy CASE QUESTIONS
• Unlicensed Practitioner Cannot Collect Fee CASE QUESTIONS
• Unconscionability CASE QUESTIONS
• Overview of the Statute of Frauds
• Promises to Pay the Debt of Another
• Agreements of Executor or Administrator
• The Marriage Provision
• Contracts Affecting an Interest in Real Estate
• The One-Year Rule
• Other Writing Requirements
• Exceptions under the UCC
• The Ten-Day-Reply Doctrine
• “Specially Manufactured Goods”
• The “Admission” Exception
• The “Payment or Delivery and Acceptance” Exception
• At Common Law
• Full Performance
• Detrimental Reliance
• Oral Rescission
• Contract Modification KEY TAKEAWAY EXERCISES
• The Purpose of the Rule
• Not an Integrated Contract
• Void or Voidable Contracts
• Contracts Subject to a Condition Precedent
• Untrue Recital or Errors
• Postcontract Modification
• The UCC Approach KEY TAKEAWAY EXERCISES
• The General Problem
• The Basic Rule of Interpretation
• Tools of Interpretation KEY TAKEAWAY EXERCISES
• The Statute of Frauds’ Main Purpose Doctrine CASE QUESTIONS
• The Statute of Frauds’ One-Year Rule CASE QUESTIONS
• The Parol Evidence Rule: Postcontract Modification CASE QUESTIONS
• Manifesting Assent
• Acceptance and Revocation
• General Rule
• Material Change in Duties of the Obligor
• Assignment of Personal Rights
• Assignment Forbidden by Statute or Public Policy
• Contracts That Prohibit Assignment
• Future Contracts
• Assignor’s Warranties KEY TAKEAWAY EXERCISES
• Effect on Obligor
• Personal Services
• Public Policy
• Delegations Barred by Contract KEY TAKEAWAY EXERCISES
• Creditor Beneficiary
• Donee Beneficiary
• Modification of the Beneficiary’s Rights
• Government Contracts KEY TAKEAWAY EXERCISES
• Nonassignable Rights CASE QUESTIONS
• Assignment Includes Delegation CASE QUESTIONS
• Third party Beneficiaries and Foreseeable Damages CASE QUESTIONS
• Nonperformance, Material Breach
• Substantial Performance
• Anticipatory Breach and Demand for Reasonable Assurances KEY TAKEAWAY EXERCISES
• Conditions Classified Based on How They Are Created
• Conditions Classified Based on Their Effect on Duty to Perform
• Condition of Timeliness
• Condition That a Party Must Be Satisfied KEY TAKEAWAY EXERCISES
• Mutual Rescission
• Substituted Agreement
• Accord and Satisfaction KEY TAKEAWAY EXERCISES
• Death or Incapacity of a Personal Services Contractor
• Destruction or Deterioration of a Thing Necessary for Performance
• Performance Prohibited by Government Regulation or Order
• Impracticability
• Common-Law Impracticability
• Commercial Impracticability
• Frustration of Purpose KEY TAKEAWAY EXERCISES
• Cancellation, Destruction, or Surrender
• Power of Avoidance
• Statute of Limitations
• Bankruptcy KEY TAKEAWAY
• Substantial Performance; Conditions Precedent CASE QUESTIONS
• Waiver of Contract Rights; Nonwaiver Provisions CASE QUESTIONS
• Impossibility as a Defense CASE QUESTIONS
• Purpose of Remedies
• Parties Have the Power—but Not the Right—to Breach KEY TAKEAWAY EXERCISES
• Promisee’s Interests Protected by Contract LEARNING OBJECTIVE KEY TAKEAWAY EXERCISE
• Compensatory Damages
• Incidental Damages
• Consequential Damages
• Nominal Damages
• Liquidated Damages
• Punitive Damages KEY TAKEAWAY EXERCISES
• Specific Performance
• Restitution
• Total Nonperformance by Breaching Party
• Part Performance and Then Breach
• Restitution in Other Cases KEY TAKEAWAY EXERCISES
• Foreseeability
• Mitigation of Damages
• Certaintymages
• Affirmation
• Rights of Third Parties
• Agreement of the Parties Limiting Remedies
• Tort versus Contract
• Legal versus Extralegal Remedies KEY TAKEAWAY EXERCISES
• Consequential Damages CASE QUESTIONS
• Liquidated Damages CASE QUESTIONS
• Injunctions and Negative Covenants CASE QUESTIONS
• Limitation on Damages: Mitigation of Damages CASE QUESTIONS
• Summary and Exercises Summary EXERCISES  SELF-TEST QUESTIONS  SELF-TEST ANSWERS 
• History of Products-Liability Law
• Current State of the Law KEY TAKEAWAY EXERCISES
• Express Warranties
• Implied Warranties
• Implied Warranty of Merchantability
• Fitness for a Particular Purpose
• Other Warranties
• Exclusion or Modification of Warranties
• Exclusion of Express Warranties
• Exclusion of Implied Warranties in General
• Implied Warranty of Fitness
• Conflict between Express and Implied Warranties
• The Magnuson-Moss Act and Phantom Warranties
• Horizontal Privity
• Vertical Privity
• Contributory Negligence, Comparative Negligence, and Assumption of Risk KEY TAKEAWAY EXERCISES
• Design Defects
• Warning Defects
• Common-Law Defenses against Negligence
• Preemption KEY TAKEAWAY EXERCISES
• Strict Liability Defined
• Product in a Defective Condition
• Unreasonably Dangerous
• Engaged in the Business of Selling
• Reaches the User without Change in Condition
• Liability Despite Exercise of All Due Care
• Liability without Contractual Relation
• Disclaimers
• Plaintiff’s Conduct
• Misuse or Abuse of the Product
• Limited Remedy
• The Third Restatement KEY TAKEAWAY EXERCISES
• The Cry for Reform
• Statutes of Repose
• State-of-the-Art Defense
• Failure to Warn
• Comparative Fault for Consumer Misuse
• Criminal Penalties
• Federal Reform KEY TAKEAWAY EXERCISES
• Implied Warranty of Merchantability and the Requirement of a “Sale” CASE QUESTIONS
• Strict Liability and Bystanders
• Failure to Warn CASE QUESTIONS
• Patents LEARNING OBJECTIVES
• What May Be Patented
• What May Not Be Patented
• Tests for Patentability
• Procedures for Obtaining a Patent
• Patent Ownership
• Infringement and Invalidity Suits
• Patent Misuse KEY TAKEAWAY EXERCISES
• Definition of Trade Secrets
• Originality
• Economic Espionage Act
• Right of Employees to Use Trade Secrets KEY TAKEAWAY EXERCISES
• Definition and Duration
• Protected Expression
• Preventing Copying
• Infringement
• Copyrightability Standards
• Who May Obtain a Copyright?
• Obtaining a Copyright
• Computer Downloads and the Digital Millennium Copyright Act KEY TAKEAWAY EXERCISES
• Definitions of Trademarks
• Kinds of Marks
• Limitations on Marks
• Dilution, Tarnishment, and Blurring
• Acquiring Trademark Rights
• Loss of Rights KEY TAKEAWAY EXERCISES
• Fair Use in Copyright CASE QUESTIONS
• Trademark Infringement and Dilution CASE QUESTIONS
• Public and Private Insurance
• Life Insurance
• Health Insurance
• Disability Insurance
• Homeowner’s Insurance
• Automobile Insurance
• Other Liability Insurance
• Workers’ Compensation
• Property Insurance
• Malpractice Insurance
• Business Interruption Insurance
• Liability Insurance KEY TAKEAWAY EXERCISES
• Insurable Interest in Property
• Subrogation
• Intentional Losses
• Coinsurance Clause
• Liability Insurance
• No-Fault Trends
• Insurable Interest
• Change of Beneficiary and Assignment
• Murder KEY TAKEAWAY EXERCISES
• Representation
• Incontestable Clause
• Requirement of Insurer’s Good Faith KEY TAKEAWAY EXERCISES
• Misrepresentation to Insurer CASE QUESTIONS
• Why Is Agency Law Important, and What Is an Agent?
• Recurring Issues in Agency Law
• Recurring Issues in Agency
• General Agent
• Special Agent
• Agency Coupled with an Interest
• Independent Contractor
• Agency Created by Agreement
• Consideration
• Formalities
• Agency Created by Operation of Law
• Implied Agency
• Apparent Agency KEY TAKEAWAY EXERCISES
• Fiduciary Duty
• Duty to Avoid Self-Dealing
• Duty to Preserve Confidential Information
• Other Duties
• Duty of Skill and Care
• Duty of Good Conduct
• Duty to Keep and Render Accounts
• Duty to Act Only as Authorized
• Duty Not to Attempt the Impossible or Impracticable
• Duty to Obey
• Duty to Give Information
• “Shop Rights” Doctrine
• Contract Duties
• General Contract Duties
• Employment at Will
• Duty to Indemnify
• Tort and Workers’ Compensation Duties
• Background to Workers’ Compensation
• The System in General Kansas Workers’ Compensation Benefits for Specific Injuries
• Paying for Workers’ Compensation
• Recurring Legal Issues KEY TAKEAWAY EXERCISES
• Creation of Agency: Liability of Parent for Contracts Made by “Agent” Child CASE QUESTIONS
• Employee versus Independent Contractor CASE QUESTIONS
• Breach of Fiduciary Duty CASE QUESTIONS
• Workers’ Compensation: What “Injuries” Are Compensable? CASE QUESTIONS
• Principal’s Contract Liability Requires That Agent Had Authority
• Express Authority
• Implied Authority
• Apparent Authority
• Ratification KEY TAKEAWAY EXERCISES
• The Distinction between Direct and Vicarious Liability
• Direct Liability
• Vicarious Liability
• Agents for Whom Principals Are Vicariously Liable
• Liability for Agent’s Intentional Torts
• Deviations from Employment
• The “Scope of Employment” Problem
• The Zone of Risk Test
• Special Cases of Vicarious Liability
• Use of Automobiles
• Torts of Family Members
• Other Torts Governed by Statute or Regulation
• Principal’s Criminal Liability KEY TAKEAWAY EXERCISES
• Tort Liability
• Contract Liability
• Agent for Undisclosed or Partially Disclosed Principal
• Lack of Authority in Agent
• Agent Acting on Own Account
• By Act of the Parties
• Express Termination
• Implied Termination
• By Operation of Law KEY TAKEAWAY EXERCISES
• Implied Authority CASE QUESTIONS
• Employer’s Liability for Employee’s Intentional Torts: Scope of Employment CASE QUESTIONS
• Facts and Proceedings in the Trial Court
• Importance of Partnership Law
• Through the Twentieth Century
• The Current State of Partnership Law
• Meaning of “Legal Entity”
• Entity Characteristics of a Partnership
• For Accounting Purposes
• For Purposes of Taxation
• For Purposes of Litigation
• For Purposes of Owning Real Estate
• For Purposes of Bankruptcy KEY TAKEAWAY EXERCISES
• Creation in General
• Specific Issues of Concern
• Who Can Be a Partner?
• Written versus Oral Agreements
• Validity of the Partnership Name
• Creation of Implied Partnership
• Association of Persons
• Co-owners of a Business
• Sharing of Profits
• Business for Profit
• Sharing the Profit
• Other Factors
• Creation of Partnership by Estoppel KEY TAKEAWAY EXERCISES
• Tests of Partnership Existence CASE QUESTIONS
• Background Facts
• Suit against Whitehead
• The Faxed Credit References
• The Fax Cover Sheet
• The Epsco Personnel Credit Application
• The Checks to Epsco
• The Business Card
• The Dealership Application CASE QUESTIONS
• Duty to Serve
• Duty of Loyalty
• Application of the Fiduciary Standard to Partnership Law
• Limits on the Reach of the Fiduciary Duty
• Activities Affected by the Duty of Loyalty
• Duty of Care
• Duty of Obedience
• Duty to Inform Copartners
• Duty to Account
• Rights to Distributions
• Right to Profits (and Losses)
• Right to Indemnification
• Right to Return of Capital Contribution
• Right to Compensation
• Right to Management
• Right to Choose Partners
• Right to Property of the Partnership
• Rights in Specific Partnership Property: UPA Approach
• Rights in Specific Property: RUPA Approach
• Right to Assign Partnership Interest
• Voluntary Assignment
• Involuntary Assignment
• Right to Enforce Partnership Rights
• Right to Information and Inspection of Books KEY TAKEAWAY EXERCISES
• Liability of the Partnership
• Partnership “Statements”
• Personal Liability of Partners, in General
• Liability of Existing Partners
• Liability of Incoming Partners
• Partnership Liability for Torts
• Partners’ Personal Liability for Torts
• Liability for Crimes
• Liability for Taxes KEY TAKEAWAY EXERCISES
• Meaning of Dissolution under UPA
• Causes of Dissolution
• In Accordance with the Agreement
• In Violation of the Agreement
• By Operation of Law
• By Court Order
• Effect of Dissolution on Authority
• After Dissolution
• Forming a New Partnership
• Winding Up and Termination
• Dissociation
• Causes of Dissociation
• Effect of Dissociation
• Dissolution
• Effect of Dissolution
• Continuing after Dissociation
• Who Can Participate in Winding Up
• Settlement of Accounts among Partners KEY TAKEAWAY EXERCISES
• Breach of Partnership Fiduciary Duty CASE QUESTIONS
• Partnership Authority, Express or Apparent CASE QUESTIONS
• Winding Up the Partnership
• Lopez’s Liability for the IKON Debt
• Attorneys’ Fees
• Conclusion CASE QUESTIONS
• Dissolution under RUPA CASE QUESTIONS
• Governing Law
• Capitalization
• General Partners
• Limited Partners
• Assignment of Partnership Rights
• Inspection of Books
• Addition of New Partners
• Compensation
• Winding Up KEY TAKEAWAY EXERCISES
• History of the Limited Liability Company
• Creation of the LLC
• Liability to Outsiders
• Internal Liabilities
• Continuity of Life
• Dissolution and Winding Up
• Free Transferability of Interest KEY TAKEAWAY EXERCISES
• Creation and Capitalization
• Transferability of Ownership
• Limited Liability Limited Partnerships
• Ethical Concerns KEY TAKEAWAY EXERCISES
• Limited Partnerships: Limited Partners’ Liability for Managing Limited Partnership CASE QUESTIONS
• Liability Issues in LLCs CASE QUESTIONS
• Defective Registration as a Limited Liability Partnership CASE QUESTIONS
• A Fixture of Every Major Legal System
• US Corporation Formation
• Corporate Law Today KEY TAKEAWAY EXERCISES
• Ease of Formation
• Ownership and Control
• Transferability of Interests
• Taxation KEY TAKEAWAY EXERCISES
• The Basic Rights of the Corporate “Person”
• Absence of Rights
• Failure to Act as a Corporation
• Other Types of Personal Liability KEY TAKEAWAY EXERCISES
• Nonprofit Corporations
• Public Corporations
• Professional Corporations
• The Two Types KEY TAKEAWAY EXERCISES
• Function of the Charter
• Charter as a Contract
• Where to Charter
• Why Choose Delaware?
• Preincorporation Stock Subscriptions
• Execution and Filing of the Articles of Incorporation
• Organizational Meeting of Directors KEY TAKEAWAY EXERCISES
• De Jure and De Facto Corporations
• Corporation by Estoppel KEY TAKEAWAY EXERCISES
• Limiting a Corporation’s First Amendment Rights CASE QUESTIONS
• Piercing the Corporate Veil CASE QUESTIONS
• Corporate Promoter CASE QUESTIONS
• De Jure and De Facto Corporations CASE QUESTIONS
• Learning Objectives LEARNING FAKE OBJECTIVES
• Debt Securities
• Equity Securities
• Other Forms of Finance KEY TAKEAWAY EXERCISES
• Basics of Corporate Bonds
• Advantages and Disadvantages of Bonds KEY TAKEAWAY EXERCISES
• Authorized, Issued, and Outstanding Stock
• Par Value and No-Par Stock
• Preference to Dividends
• Liquidation Preference
• Convertible Shares
• Redeemable Shares
• Voting Rights
• Common Stock
• Stocks and Bonds and Bears, Oh My! KEY TAKEAWAY EXERCISES
• Nature of the Consideration
• Evaluating the Consideration: Watered Stock KEY TAKEAWAY EXERCISES
• Cash Dividend
• Stock Dividend
• Property Dividend
• Stock Split
• Distribution from Capital Surplus
• Record Date, Payment Date, Rights of Stockholders
• When Directors Are Too Stingy
• When Directors Are Too Generous KEY TAKEAWAY EXERCISES
• Changes in the Revised Model Business Corporation Act
• Introduction to Article 8 of the Uniform Commercial Code
• The UCC and the 1933 and 1934 Securities Acts KEY TAKEAWAY EXERCISES
• Consideration in Exchange for Stock CASE QUESTIONS
• Payment of Dividends CASE QUESTIONS
• Express Powers
• Implied Powers
• The Ultra Vires Doctrine
• Criminal, Tortious, and Other Illegal Acts KEY TAKEAWAY EXERCISES
• General Management Functions
• Who Has the Right to Vote?
• Cumulative Voting
• Voting Arrangements to Concentrate Power
• Voting Agreements
• Voting Trusts
• Inspection of Books and Records
• Preemptive Rights
• Derivative Actions KEY TAKEAWAY EXERCISES
• Delegation to Committees
• Delegation to Officers
• Number and Election of Directors
• Directors’ Qualifications and Characteristics
• Removal of Directors and Officers
• Compensation KEY TAKEAWAY EXERCISES
• Nature of the Problem
• Contracts with the Corporation
• Corporate Opportunity
• Constituency Statutes and Corporate Social Responsibility
• Sarbanes-Oxley and Other Modern Trends
• Liability Prevention and Insurance KEY TAKEAWAY EXERCISES
• Ultra Vires Acts CASE QUESTIONS
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• What Is a Security?
• Fundamental Mission
• Registration
• Companies Covered
• Reporting Proxy Solicitation
• Blue Sky Laws
• Dodd-Frank Wall Street Reform and Consumer Protection Act KEY TAKEAWAY EXERCISES
• The Foreign Corrupt Practices Act
• Recapture of Short-Swing Profits: Section 16(b)
• Insider Trading: Section 10(b) and Rule 10b-5
• Secondary Actor
• Sarbanes-Oxley Act KEY TAKEAWAYAWAY EXERCISES
• What Is a Security? CASE QUESTIONS
• Tippee Liability CASE QUESTIONS
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• Successor Liability
• Consolidation
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• State versus Federal Regulation of Takeovers
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• Appraisal Rights KEY TAKEAWAY EXERCISES
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• Penalties for Failure to Comply with a Statute
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• Taxing Authority KEY TAKEAWAY EXERCISES
• Voluntary Dissolution
• Involuntary Dissolution
• Action by Shareholder
• Claims against a Dissolved Corporation
• Bankruptcy KEY TAKEAWAY EXERCISES
• Successor Liability CASE QUESTIONS
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• Discrimination Based on Religion
• Sex Discrimination
• Discrimination Based on Race, Color, and National Origin
• Bona Fide Occupational Qualification (BFOQ)
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• Affirmative Action
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• Equal Pay Act KEY TAKEAWAY EXERCISES
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• Good Faith and Fair Dealing Standard KEY TAKEAWAY EXERCISES
• The Federal Plant-Closing Act
• The Employee Polygraph Protection Act
• Occupational Safety and Health Act
• Employee Retirement Income Security Act
• Fair Labor Standards Act
• Workers’ Compensation Laws
• Other State Laws KEY TAKEAWAY EXERCISES
• Factual Background
• From the Opinion of FEINBERG, CIRCUIT JUDGE CASE QUESTIONS
• Title VII and Hostile Work Environment CASE QUESTIONS
• Age Discrimination: Burden of Persuasion CASE QUESTIONS
• Factual Background CASE QUESTIONS
• Labor and the Common Law in the Nineteenth Century
• Labor under the Antitrust Laws
• The Norris–La Guardia Act
• The National Labor Relations Act (the Wagner Act)
• The Taft-Hartley Act (Labor-Management Relations Act)
• The Landrum-Griffin Act KEY TAKEAWAY EXERCISES
• Unfair Labor Practice Cases
• Representation Cases KEY TAKEAWAY EXERCISES
• Determining the Appropriate Union
• Interfering with Employee Communication
• Regulating Campaign Statements
• Exclusivity
• The Duty to Bargain in Good Faith
• Mandatory Subjects of Bargaining
• The Board’s Power to Compel an Agreement
• Union Activity on Company Property
• “Runaway Shop”
• Other Types of Interference
• Discrimination against Union Members
• The Right to Strike
• Secondary Boycotts
• Hot Cargo Agreement
• Discrimination by Unions
• Jurisdictional Disputes
• Bankruptcy and the Collective Bargaining Agreement KEY TAKEAWAY EXERCISES
• Exclusivity CASE QUESTIONS
• The Cost of Credit
• The Truth in Lending Act
• Consumer Leasing Act of 1988
• Fair Credit and Charge Card Disclosure
• Credit Card Accountability, Responsibility, and Disclosure Act of 2009
• State Credit Disclosure Laws
• Equal Credit Opportunity Act
• Fair Credit Reporting Act of 1970: Checking the Applicant’s Credit Record KEY TAKEAWAY EXERCISES
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• Disputes about the Quality of Goods or Services Purchased
• Garnishment
• Wage Assignment
• Confession of Judgment
• Fair Debt Collection Practices Act of 1977 KEY TAKEAWAY EXERCISES
• Usury CASE QUESTIONS
• Discrimination under the ECOA CASE QUESTIONS
• A. Permissible Purpose under the FCRA
• B. Willful Failure to Comply with the FCRA
• C. Obtaining a Consumer Report under False Pretenses or Knowingly without a Permissible Purpose CASE QUESTIONS
• By Agreement with the Debtor
• Basics of Secured Transactions
• Source of Law
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• Consumer Goods
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• Perfection by Filing
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• Debtor Moves out of State
• Where to File the Financing Statement
• Temporary Perfection
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• Automatic Perfection KEY TAKEAWAY EXERCISES
• Application of the Rule
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• Lien Creditors
• Bankruptcy Trustee KEY TAKEAWAY EXERCISES
• Resort to Judicial Process
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• Types of Suretyship
• Creation of the Suretyship
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• Defenses of the Surety KEY TAKEAWAY EXERCISES
• Preliminary Statement and Issues
• Findings of Fact
• Conclusion of Law, Decision, and Order CASE QUESTIONS
• Uniform Commercial Code Section 2A-525(3)
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• Per Curium*: CASE QUESTIONS
• The Uses of Mortgages
• Short History of Mortgage Law
• Statutory Regulation
• Consumer Credit Statutes Apply
• Real Estate Settlement Procedures Act
• The Note and the Mortgage Documents
• The Mortgage KEY TAKEAWAY EXERCISES
• Priorities in Real Property Security
• The General Rule of Priorities
• Fixture Filing
• Future Advances
• Foreclosure
• Deed of Trust
• Installment or Land Contract KEY TAKEAWAY EXERCISES
• Attachment Lien
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• Procedure for Obtaining a Mechanic’s Lien
• Mechanic’s Liens Priorities
• Possessory Lien
• Tax Lien KEY TAKEAWAY EXERCISES
• Denial of Mortgagee’s Right to Foreclose; Erroneous Filings; Lost Instruments CASE QUESTIONS
• Law/Analysis
• A. Who Must Receive the Consent.
• B. What Kind of Consent Is Necessary.
• C. Evidence There Was No Consent
• D. Evidence There Was Consent
• Duty to Re-Open Sale
• Chilled Bidding
• Adequacy of the Sale Price
• Duty to a Junior Lienholder
• Attorney Fees CASE QUESTIONS
• The Purpose of Bankruptcy Law
• Constitutional Basis
• Bankruptcy Statutes
• Bankruptcy Courts, Judges, and Costs
• Overview of Bankruptcy Provisions KEY TAKEAWAY EXERCISES
• Commencement
• Voluntary and Involuntary Petitions
• The Automatic Stay
• First Meeting of Creditors
• Trustee’s Powers and Duties
• Claims and Creditors
• Proof of Claims
• Claims with Priority
• Debtor's Duties and Exemptions
• Debtor’s Duties
• Debtor’s Exemptions
• Secured Property
• Dischargeable and Nondischargeable Debts
• Dischargeable Debts
• Nondischargeable Debts
• Reaffirmation
• Property Included in the Estate KEY TAKEAWAY EXERCISES
• Trustee’s Duties
• Distribution of the Estate
• Discharge KEY TAKEAWAY EXERCISES
• How It Works
• Eligibility
• Operation of Business
• Creditors’ Committee
• The Reorganization Plan
• Acceptance of the Plan
• Confirmation of the Plan
• Discharge, Conversion
• Confirmation
• Alternatives to Bankruptcy: Overview
• Assignment for Benefit of Creditors
• Composition
• Receivership KEY TAKEAWAY EXERCISES
• Dischargeability of Student Loans under Chapter 7 CASE QUESTIONS
• Chapter 11 Bankruptcy CASE QUESTIONS
• Chapter 13: What Debts Are Dischargeable? CASE QUESTIONS
• Definition of Property
• The Economist’s View
• Classification of Property
• Importance of the Distinction between Real and Personal Property KEY TAKEAWAY EXERCISES
• Lost or Misplaced Property
• Requirements
• Gifts Causa Mortis
• Gifts to Minors
• Confusion KEY TAKEAWAY EXERCISES
• Transfer of Real Estate
• Tenant’s Fixtures KEY TAKEAWAY EXERCISES
• Lost or Misplaced Property CASE QUESTIONS
•  Back Matter

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Hong Kong bankers get welcome lift from convertible bond frenzy

• A clutch of global banks in Hong Kong help a trio of Chinese tech heavyweights raise a combined US$9 billion via convertible bond sales, bringing in some much-needed fees
• Bankers expect the rush to continue and extend through the Asia Pacific region as convertible bonds help drive down interest costs

When one door closes, another one sometimes opens. For bankers in Hong Kong, where big mergers and acquisitions and initial public offerings have largely stalled, convertible bond issues are very much in vogue.

Major players - Bank of America, Barclays, Citigroup, Goldman Sachs, HSBC, JPMorgan Chase and Morgan Stanley - have been busy helping a trio of Chinese tech heavyweights raise a combined US$9 billion through convertible bond sales, bringing in some much-needed fees.

JD.com kicked things off with a US$2 billion offering last week, a figure matched by Lenovo Group, which just announced it would sell zero-coupon convertible bonds to a unit of Saudi Arabia's sovereign wealth fund. Step aside for Alibaba Group, which broke records with a US$5 billion issue too.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge , our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

Bankers expect the rush to continue and extend through the Asia Pacific region.

"The resurgence in convertible bond sales is encouraging for bankers after a slow 2023," said Avinash Thakur, head of APAC capital markets financing at Barclays in Hong Kong. "While the fee wallet for convertibles may not be as big as for IPOs, it definitely helps."

"It's encouraging," he said, noting that convertible bonds enable companies to use a different source of financing while driving down interest costs. "We're poised to see more capital markets activity over the coming months."

Convertible bonds are particularly attractive when the primary equity market is challenging, according to Jonathan Stone, a partner at law firm Skadden, Arps, Slate, Meagher & Flom in Hong Kong. They allow companies to raise money at a premium to the current share price and at a lower coupon than traditional debt, and they're also less dilutive for shareholders than equity issuances, he said.

The increase in activity could help jump start dealmaking more broadly, said Stone, who focuses on M&A and capital markets in the APAC region.

"Convertibles and other equity linked products often serve as a launchpad for equity deals," he said. "There's pent up demand from companies to pursue IPOs and follow-on offerings, but there remains a question mark on when those deals will be able to be successfully marketed."

On top of a weak IPO market, M&A volume for companies in APAC this year is about 17 per cent lower than the same stretch in 2023, whereas in Europe and the US it has soared 48 per cent and 38 per cent, respectively, data compiled by Bloomberg show.

While IPOs and M&A in Asia are subdued, not least because China action is limited, there are some signs of activity, and more private equity-led business is likely given their lineups and finite investment periods, Stone said.

That brighter outlook is shared by others.

"The pipeline across strategic mergers and acquisitions and financing is the fullest it has been for several quarters, and if markets remain stable, expect more headlines," said Jan Metzger, Citi's investment banking head for Asia.

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Hong Kong 47: Beijing hits out at countries attacking guilty verdict in national security trial

This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

Copyright (c) 2024. South China Morning Post Publishers Ltd. All rights reserved.

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Hong Kong court convicts 14 pro-democracy activists, acquits 2

HONG KONG — A Hong Kong court Thursday convicted 14 pro-democracy activists in the city’s biggest national security case under a law imposed by Beijing that has all but wiped out public dissent.

Those found guilty of conspiracy to commit subversion included former lawmakers Leung Kwok-hung, Lam Cheuk-ting, Helena Wong and Raymond Chan, and they could face up to life in prison when sentenced later. The two defendants acquitted were former district councilors Lee Yue-shun and Lawrence Lau.

They were among 47 democracy advocates who were prosecuted in 2021 for their involvement in an unofficial primary election. Prosecutors had accused them of attempting to paralyze Hong Kong’s government and topple the city’s leader by securing the legislative majority necessary to indiscriminately veto budgets.

In a summary of the verdict distributed to media, the court said the election participants had declared they would “either actively use or use the power conferred on the (Legislative Council) by the (Basic Law) to veto the budgets.”

Under the Basic Law, the chief executive can dissolve the legislature if a budget cannot be passed but the leader would have to step down if the budget is again vetoed in the newly formed legislature.

In the full, 319-page verdict, the court also said if the plan to veto bills would lead to the dissolution of the legislature, it meant “the implementation of any new government policies would be seriously hampered and essentially put to a halt.”

“The power and authority of both the Government and the Chief Executive would be greatly undermined,” the court said in the verdict. “In our view ... that would create a constitutional crisis for Hong Kong.”

The judges concluded that “unlawful means” are not limited only to criminal acts, and that it was not necessary for the prosecution to prove the accused knew that the means to be used were “unlawful."

The court was adjourned until later Thursday, and Judge Andrew Chan did not give further details on the court's reasoning.

Lau, who was acquitted, told reporters that he should not be the focus at the moment as other defendants in the case warrant the public’s concern and love.

He said if there’s any “star” in the case, the judgment should be “the star” because it set out the logic and perspectives of the judges. “This is part of our rule of law,” he said.

The court acquitted Lau after it found he had not mentioned vetoing the budget in his election campaign and the court was unable to conclude he had intended to subvert state power.

Lee, the other defendant found not guilty, thanked the public for caring about the case over the past few years. He said he could not say more about the verdict because the prosecution might appeal against his acquittal.

“I feel calm, as I have always been,” he said. In an earlier Facebook post, he said Thursday was like a special graduation ceremony for him, though graduation is usually about sharing happiness with families and friends.

“This perhaps best reflects the common helplessness of our generation,” he had said in his post Wednesday.

Lee, like Lau, was acquitted after the court found no evidence he mentioned vetoing in an election forum, nor had he personally expressed his stance on using veto power to force the government to accede to protester demands.

While Lee — then a member of the now-defunct Civic Party — had adopted a similar political platform as other party members, the court took into account that he was a latecomer to the party's campaign for the primary and that he would have had little choice but to adopt the platform used by others. Thus, the court said in the verdict it could not be sure he had intended to subvert state power.

Observers said the subversion case illustrated how the security law is being used to crush the political opposition following huge anti-government protests in 2019. But the Beijing and Hong Kong governments insisted the law has helped bring back stability to the city and that judicial independence was being protected.

When Britain handed Hong Kong back to China in 1997, Beijing promised to retain the city's Western-style civil liberties for 50 years. However, since the introduction of the 2020 law, Hong Kong authorities have severely limited free speech and assembly under the rubric of maintaining national security. Many activists were arrested, silenced or forced into self-exile. Dozens of civil society groups disbanded.

The activists prosecuted in the main case included legal scholar Benny Tai, former student leader Joshua Wong and a dozen former lawmakers including Leung Kwok-hung and Claudia Mo.

Thirty-one of them, including Tai, Wong and Mo, pleaded guilty to the charge of conspiracy to commit subversion. They have a better chance at shorter jail terms and will be sentenced at a later date.

Sixteen others, including Leung, pleaded not guilty and underwent a non-jury trial. After Thursday's verdicts, mitigation hearings will be scheduled to determine the sentences of those convicted.

On Thursday, prior to the court hearing, Chan Po-ying, leader of pro-democracy political party League of Social Democrats, as well as three other LSD members, were arrested at court, according to a Facebook post by party member Figo Chan. Chan Po-ying is also the wife of former lawmaker Leung Kwok-hung, one of the defendants convicted Thursday.

Reports by local media such as the South China Morning Post said those arrested had attempted to raise a yellow banner in protest as they walked onto court grounds but were stopped by police and escorted away.

Diplomats from the United States, Australia and Britain, along with dozens of residents had waited outside the police-guarded court building to secure seats to hear the verdicts.

Former chairperson of the Democratic Party Emily Lau was among those who turned up in support. She told reporters she was sad that so many had been locked up for over three years, but declined to comment on the verdict.

Social worker Stanley Chang, a friend of one of the 16 defendants, said he arrived the site at 4 a.m. because he feared he could not get a seat. Chang said there were very few things supporters could do for them and that attending the hearing is a kind of company.

“I want to give some support for my friend and the faces I saw in news reports,” he said.

Maya Wang, acting China director at Human Rights Watch, said the convictions of 14 people “for their peaceful activism (show) utter contempt for both democratic political processes and the rule of law."

"All Hong Kong people wanted was a chance to freely elect their government. Democracy is not a crime, regardless of what the Chinese government and its handpicked Hong Kong court may say,” Wang added.

Sarah Brooks of rights group Amnesty International described the mass convictions as “unprecedented” and said it was the “most ruthless illustration yet of how Hong Kong’s National Security Law is weaponized to silence dissent.”

“These convictions also send a chilling message to anyone else in Hong Kong who opposes the actions of the government, namely: stay quiet, or face jail,” she said.

The unofficial primary in June 2020 was meant to shortlist pro-democracy candidates who would then run in the official election. It drew an unexpectedly high turnout of 610,000 voters, over 13% of the city’s registered electorate.

The pro-democracy camp at that time hoped they could secure a legislative majority, which would allow them to press for the 2019 protest demands, including greater police accountability and democratic elections for the city leader.

But the government postponed the legislative election that would have followed the primary, citing public health risks during the coronavirus pandemic. The electoral laws were later overhauled, drastically reducing the public’s ability to vote and increasing the number of pro-Beijing lawmakers in the legislature.

Beijing also had criticized the vote as a challenge to the security law, which criminalizes secession, subversion and collusion with foreign forces to intervene in the city’s affairs as well as terrorism.

Copyright 2024 NPR

Non-Rating Action Commentary

惠誉：中国政府多措并举积极推动城投企业化债

浏览惠誉中国网页   Thu 30 May, 2024 - 5:10 AM ET

Related Content: 中国地方公共部门债务化解 Fitch Ratings-Hong Kong-30 May 2024: 本文章英文原文最初于2024年5月16日发布于： China's Proactive Measures and Multilateral Solutions Drive Debt Resolution in LGFVs 惠誉评级认为，中国目前采取的化解地方公共部门债务的措施在短期内能够积极有效地防范系统性风险。长期来看，财政收入的韧性、地方金融资源和经营性资产的可用性将是解决地方债务问题的关键。 政府措施包括发行超过 1.4 万亿元人民币特殊再融资债券，置换主要由城投公司举借的 “隐性债务 ”，并继续增加国债发行，加大中央政府对基础设施支出的承担责任。政府还对城投企业的债务增长实施了更加严格的控制。 尽管如此，惠誉认为，由于土地出让收入下降，地方政府为其下属城投企业提供支持的能力仍将受到制约。得益于雄厚的国有资产和充足的财政资源，经济发达地区抵御风险的韧性更强。 敬请访问www.fitchratings.com 或点击文首链接阅读完整中文报告《中国地方公共部门债务化解》。 联系人: 赵雨晴 国际公共融资评级高级董事 +852 2263 9964 [email protected] 惠誉国际评级有限公司 香港中环德辅道中68号万宜大厦19楼 杨佳 国际公共融资评级高级分析师 +852 2263 9613 [email protected] 媒体咨询，请联络： 李林 北京 +86 10 5957 0964 [email protected] 甘泳恩 香港 +852 2263 9612 [email protected] 详情参见 www.fitchratings.com 注意：本新闻稿为中文译本。如有疑问，请以英文版本为准。 Media Relations: Jack Li, Beijing, Tel: +86 10 5957 0964, Email: [email protected] Vivian Kam, Hong Kong, Tel: +852 2263 9612, Email: [email protected] Additional information is available on www.fitchratings.com All Fitch Ratings (Fitch) credit ratings are subject to certain limitations and disclaimers. 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