What’s on the horizon? A focus on dispute resolution in the Year of the Rooster What's on the horizon? A focus on dispute resolution in the Year of the Rooster 1 What to expect in the Year of the Rooster In this bulletin we examine some of the key dispute resolution and regulatory challenges facing business managers, financial controllers, and in-house counsel in the Year of the Rooster. 1. Third Party Funding The common law criminal offences and torts of champerty and maintenance generally prohibit third parties from providing financial assistance to a party in litigation (including legal advisors – thus prohibiting ‘no win no fee’ arrangements). Various exceptions to this general position have been developed, but in October 2016, the Law Reform Commission published the report on “Third Party Funding for Arbitration”. The report recommended reform of Hong Kong law to make clear that third party funding of arbitration and arbitration-related court proceedings was permitted for arbitrations seated in Hong Kong (or services provided in Hong Kong in relation to foreign arbitrations). The Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Bill 2016 is currently before the Legislative Council and proposes amendments to both the Arbitration Ordinance and the Mediation Ordinance to allow third party funding. Most major multi-national third party funders are already in Hong Kong and the Year of the Rooster should open the door to greater risk sharing in the costs of arbitration in Hong Kong. 2. Apology Bill The general position in Hong Kong currently is that if one party makes an apology in open correspondence (which may contain an express or implied admission of the person’s fault or liability), that apology may be used in civil proceedings as evidence to help establish liability. This is likely to change in the Year of Rooster. On 27 January 2017, the Government gazetted the Apology Bill. If passed, it will make evidence of a person’s apology generally inadmissible in civil proceedings (including regulatory and disciplinary proceedings) for the purpose of determining fault, liability or other issues to the prejudice of the apology maker. Hong Kong will also become the first jurisdiction in Asia to have apology legislation enacted, following in the footsteps of Australia, Canada, the United States and others. For further details about the Apology Bill, please see our article here. 3. Enforcement of Judgments Hong Kong currently lacks a wide ranging and reciprocal procedure for registering and recognising foreign judgments. Therefore, it is often necessary to go through the inefficient process of pursuing a common law claim on the debt created by the foreign judgment. This process applies for judgments from many major jurisdictions, including the USA, Japan and the UK. This may change in the Year of the Rooster, as Hong Kong has been included as part of the Chinese delegation in discussions on a Draft Convention on the Recognition and Enforcement of Foreign Judgments, published by the Special Commission set up by the Hague Conference on Private International Law. If adopted and then applied by Hong Kong, the Convention will provide foreign judgment creditors and Hong Kong judgment creditors with a more streamlined mechanism for enforcing their judgments in Hong Kong and abroad. Dispute resolution and regulatory update What's on the horizon? A focus on dispute resolution in the Year of the Rooster 2 4. Banking Litigation: Misselling and Suitability In the Year of the Monkey, the Hong Kong court released a number of judgments which suggested it was becoming increasingly sceptical of clauses in client documentation which prevent (or ‘estop’) customers from relying on any advice or representation made by financial institutions in the sales process. In Li Kwok Heem John v Standard Chartered International (USA) Ltd  1 HKC 535, the disclaimers were interpreted narrowly to exclude their application to a low-risk hedge fund sold by the bank (although the customer’s claim ultimately failed on other grounds). However, in Chang Pui Yin v Bank of Singapore Limited  HKEC 1721 customers secured a significant breakthrough in Hong Kong. In particular, the Court had regard to the bank’s marketing brochures when determining that an advisory duty was owed to the customers. This will be a key case to watch in the Year of Rooster, with the appeal due to be heard in June 2017. Irrespective of the outcome of the appeal in Chang Pui Yin, financial institutions will be encountering changes in their selling process brought about by the SFC’s new mandatory requirement to introduce a “suitability clause” in client documentation. From 7 June 2017, such institutions will not only have a regulatory obligation to ensure that products sold to its customers are suitable for them, but also a contractual duty. For further details about the Chang Pui Yin decision and the incoming SFC requirements, please see our article here. 5. Competition Ordinance – anticipated developments in 2017 On 19 October 2016, the Competition Commission published its fourth Annual Report (the first since the Hong Kong Competition Ordinance came into force on 14 December 2015). The Report provides an insight into Commission’s progress since implementation. The Report shows that the Commission’s enforcement activity to date has been focused primarily on suspected infringements of the First Conduct Rule, which prohibits anti-competitive agreements between competitors, and in particular cartel conduct, resale price maintenance and information sharing. The Commission has reportedly referred around 97 complaints to the initial assessment phase, and undertaken six dawn raids. In its press release of 14 December 2016, the Commission also indicated that it has made substantial use of its compulsory evidence gathering powers and several cases are progressing towards a range of potential enforcement outcomes, including the possibility of commencing proceedings in the Competition Tribunal. It is clear therefore that “hard enforcement” is well under way and we may very well see proceedings issued in a small number of cases this year. If they have not already done so, companies should ensure that they have already audited their businesses for compliance and that they have adequate dawn raid procedures and robust competition law compliance policies at the heart of their internal controls. For further details about the Commission’s Report, please see our article here. 6. SFC “Manager in Charge” Regime The SFC published a circular on 16 December 2016 introducing a regime to enhance the accountability of the senior management of licensed corporations. The SFC has identified eight “Core Functions” for which licensed corporations must appoint at least one fit and proper person to be a “manager-in-charge” or “MIC”. The new regime will be implemented in the Year of the Rooster, and licensed corporations will have until 17 July 2017 to submit the particulars of each MIC and organisational charts to the SFC. Further, the SFC expects that on or before 16 October 2017, MICs of certain Core Functions, who are not already “responsible officers” or “ROs”, will have applied for approval to become ROs. In conjunction with these mandatory steps it would be prudent for licensed corporations to use this regulatory change as an opportunity to review and re-align their management structure where necessary in light of the new regime. In addition, we suggest that all incoming MICs are provided with sufficient training with regard to the regulatory obligations that flow from this status. What's on the horizon? A focus on dispute resolution in the Year of the Rooster 3 7. Cyber Security The possibility of cyber-attack remains a key operational risk for businesses in Hong Kong. Hong Kong regulators have recently stepped up efforts in combating such threats. In December 2016, the HKMA launched the “Cybersecurity Fortification Initiative” or “CFI” which aims to enhance the cybersecurity resilience of authorised institutions under a three-pronged approach consisting of a cyberresilience assessment framework; professional development programme; and a cyber-intelligence sharing platform. The HKMA has made it a supervisory requirement for the banks to implement the CFI. In light of the ever present risk of cyberattack and heightened regulatory expectations, all corporates, including financial institutions, should be prepared for a dynamic year in 2017 in strengthening their cyber-security resilience. 8. Electronic Discovery It is over two years since the Hong Kong judiciary launched a pilot scheme setting out a modern and progressive framework for handling the discovery of electronic documents in civil litigation (Practice Direction SL1.2). The Practice Direction has had limited impact to date, but whether or not the Practice Direction applies to a case, parties have broad obligations to disclose documents, including electronic documents. With businesses in Hong Kong routinely using electronic communications to conduct business, particularly instant chat applications, almost all evidence relevant to a dispute (including the elusive ‘smoking gun’) will be held in an electronic format. The Year of the Rooster should be the year that organisations, and their legal practitioners, get to grips with ‘e discovery tools’ to properly collect, process and review documents relevant to their disputes. 9. Arbitrating Intellectual Property Disputes Currently in Hong Kong, there is some uncertainty as to whether disputes over intellectual property rights are capable of being resolved by arbitration. This is likely to change in the Year of the Rooster, following the introduction in December 2016 of the Arbitration Ordinance (Amendment) Bill. If passed, this will amend the Arbitration Ordinance to make clear that disputes regarding intellectual property rights are capable of resolution by arbitration. The Bill adopts a broad definition of intellectual property rights and covers disputes over: ■ the enforceability, infringement, subsistence, validity, ownership, scope, duration or any other aspect of intellectual property; ■ a transaction in respect of intellectual property; and ■ any compensation payable for intellectual property. These amendments, if passed, will come into effect on 1 October 2017. 10. Updates to Hong Kong Insolvency Regime The Companies (Winding Up and Miscellaneous Provisions) (Amendment) Ordinance came into effect on 13 February 2017. We expect this legislation to result in increased creditor protection in the context of a streamlined winding-up process. In terms of increasing creditor protection, the changes: ■ expand the scope for liquidators to avoid unfair preference and undervalue transactions; ■ require directors and members to contribute to the assets of the company in connection with a share buy-back or redemption out of capital for companies wound up within one year of making a relevant payment; ■ tighten the procedural requirements in cases of voluntary winding-up; and ■ limit the powers of liquidators appointed by members and directors before the first creditors’ meeting is held. As regards the winding up process, the changes: ■ modernise the operation of the committee of inspection by allowing the use of electronic communication and reducing the court’s involvement in its decision making process; ■ facilitate the appointment of solicitors by liquidators and the approval of expenses incurred by the liquidators; ■ ensure the impartiality of liquidators; and ■ improve procedures for liquidators to exercise their powers of examination. The above changes have been long awaited and are welcomed by creditors and insolvency practitioners. What's on the horizon? A focus on dispute resolution in the Year of the Rooster 4 11. Introduction of Independent Insurance Authority In December 2015, the Provisional Insurance Authority (“PIA”) was established to carry out preparatory work for the transition to a unified insurance regulatory regime. The PIA will eventually be renamed the Independent Insurance Authority (“IIA”) – most likely in Q2 2017 – and will at that time take over the duties of the Office of the Commissioner of Insurance (“OCI”). In 2016, the PIA had a budget to hire around 180 staff members by 31 March 2017 as part of its preparation work to establish the IIA. All persons carrying out “regulated activities”, which includes giving advice on insurance and providing sale and after-sale services in relation to insurance policies, will be licensed and regulated by the IIA, which will be armed with powerful tools to investigate, inspect and impose sanctions similar to those of other financial regulators in Hong Kong. As such, the Year of the Rooster is likely to see the introduction of the most important regulatory reform in the insurance sector since the enactment of the Insurance Companies Ordinance. What's on the horizon? A focus on dispute resolution in the Year of the Rooster 5 Contact Our Dispute Resolution and Litigation group acts for a variety of domestic and multi-national clients in a broad range of industries, including regulators. They can draw on the firm’s wealth of experience in successfully handling disputes and regulatory issues. Our practitioners are particularly skilled in managing large and complex cases in a strategic and commercial manner. Our close relationship with our international offices ensures that our clients benefit from our seamless service. For further information, please contact: Mark Yeadon Head of Litigation and Dispute Management, Asia +852 2186 3225 +852 9464 6937 firstname.lastname@example.org Veronique Marquis Head of Financial Services Disputes and Investigations, Asia +852 2186 3288 +852 9734 8167 email@example.com Adam Ferguson Head of Competition, Asia +852 2186 3248 +852 9734 8178 firstname.lastname@example.org Rachael Shek Partner +852 2186 3205 +852 6085 9081 email@example.com Duncan Watt Consultant +852 2186 3286 +852 6392 8672 firstname.lastname@example.org Tim Browning Consultant +852 2186 3272 +852 9736 3189 email@example.com Leonie Tear Registered Foreign Lawyer (England & Wales) +852 2186 3271 +852 9500 6563 firstname.lastname@example.org eversheds.com © Eversheds LLP 2017 © Eversheds International 2017. All rights are reserved to their respective owners. Eversheds International is an international legal practice, the members of which are separate and distinct legal entities. hkg_lib1\999952\3
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