Litigation

Court system

What is the structure of the civil court system?

In Hong Kong, the major courts and tribunals that deal with civil proceedings are:

  • Small Claims Tribunal – to hear and decide low-value monetary claims involving HK$75,000 or less. The main types of claims handled by the Tribunal are debt, service charges, damage to property, goods sold and consumer claims. Hearings are conducted informally and no legal representation is allowed.
  • Labour Tribunal – to hear and decide employment-related disputes. Hearings are conducted informally and no legal representation is allowed.
  • Lands Tribunal – to hear and decide cases relating to possession of premises, building management, land and tenancy disputes.
  • Competition Tribunal – to hear and decide cases relating to competition law. The tribunal has all the powers, rights and privileges of the Court of First Instance.
  • Market Misconduct Tribunal – to hear and decide cases relating to market misconduct matters including insider dealing, false trading, price rigging, stock market manipulation, disclosure of information about prohibited transactions and disclosure of false or misleading information inducing transactions in securities and futures contracts.
  • District Court – to hear and decide monetary claims for an amount over HK$75,000 but do not exceed HK$3 million. The Family Court in the District Court handles matrimonial cases, for example, divorce, maintenance, custody and adoption of children. There are currently 45 judges in the District Court.
  • Court of First Instance – unlimited civil jurisdiction and hears appeals from various tribunals, such as the Labour Tribunal and the Small Claims Tribunal. There are currently 27 judges in the Court of First Instance.
  • Court of Appeal – jurisdiction to hear appeals from the Court of First Instance, the District Court and various tribunals and statutory bodies, such as the Lands Tribunals and the Competition Tribunal. There is currently one Chief Judge and 11 Justices of Appeal.
  • The Court of Final Appeal – the highest appellate court with jurisdiction to hear appeals from the Court of Appeal and the Court of First Instance. There is one Chief Justice, two permanent judges and 18 non-permanent judges. The court when sitting will comprise five judges, which usually comprise the Chief Justice, three permanent judges and one non-permanent judge from another common law jurisdiction.

 

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

Judges and juries

What is the role of the judge and the jury in civil proceedings?

Judges

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

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

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

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

 

Jury

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

Limitation issues

What are the time limits for bringing civil claims?

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

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

 

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

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

Are there any pre-action considerations the parties should take into account?

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

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

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

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

Starting proceedings

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

Civil proceedings are usually commenced in the Court of First Instance and the District Court (depending on the quantum of claim) by issuing a writ of summons. Other methods of commencing proceedings are by originating summons, originating motion and petition. Generally, there are three methods to serve the writ on a local defendant, namely, by personal service, by registered mail or by ‘insertion through letter box’. If the defendant is a limited company, the plaintiff can serve the writ by posting it to, or leaving it at, its registered office. If the defendant is located overseas, the plaintiff is required to obtain the court’s permission to serve proceedings on the defendant abroad.

The judiciary’s figures show that the Court of First Instance alone received 17,906 civil cases in 2020. The average waiting time (Civil Fixture List), from application to fix date to hearing, reduced from 173 days in 2019 to 166 days in 2020.

Timetable

What is the typical procedure and timetable for a civil claim?

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

 ActionDeadline
(a)Defendant to acknowledge service of the writWithin 14 days from the service of the writ (including the day of service)
(b)Defendant to file and serve a defence (and counterclaim, if any)Within 28 days from (a) above
(c)Plaintiff to file and serve a reply (and defence to counterclaim, if any)Within 28 days from (b) above
(d)Close of pleadingsWithin 14 days from (c) above
(e)Discovery (disclosure of documents related to the case)Within 14 days from (d) above
(f)Parties to file a timetabling questionnaireWithin 28 days from (d) above

 

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

Case management

Can the parties control the procedure and the timetable?

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

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

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

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

Evidence - documents

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

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

There are three main stages of discovery:

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

 

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

Evidence - privilege

Are any documents privileged? Would advice from an in-house lawyer (whether local or foreign) also be privileged?

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

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

Do parties exchange written evidence from witnesses and experts prior to trial?

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

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

Evidence - trial

How is evidence presented at trial? Do witnesses and experts give oral evidence?

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

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

Interim remedies

What interim remedies are available?

Available interim remedies are as follows:

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

 

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

Remedies

What substantive remedies are available?

Common substantive remedies include:

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

What means of enforcement are available?

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

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

Are court hearings held in public? Are court documents available to the public?

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

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

Costs

Does the court have power to order costs?

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

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

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

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

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

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

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

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

Contingency or conditional fee arrangement

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

 

Third-party funding

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

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

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

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

Class action

May litigants with similar claims bring a form of collective redress? In what circumstances is this permitted?

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

Appeal

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

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

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

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

Foreign judgments

What procedures exist for recognition and enforcement of foreign judgments?

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

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

 

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

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

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

 

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

The 2019 Arrangement has the following significant changes:

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

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

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

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

Arbitration

UNCITRAL Model Law

Is the arbitration law based on the UNCITRAL Model Law?

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

Arbitration agreements

What are the formal requirements for an enforceable arbitration agreement?

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

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

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

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

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

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

Arbitrator options

What are the options when choosing an arbitrator or arbitrators?

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

Arbitral procedure

Does the domestic law contain substantive requirements for the procedure to be followed?

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

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

On what grounds can the court intervene during an arbitration?

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

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

 

The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the HKSAR, which came into effect on 1 October 2019, allows a party to arbitral proceedings administered by a Chinese arbitral institution to apply to the Court of First Instance for interim measures. Similarly, a party to arbitral proceedings in Hong Kong may apply to the intermediate people’s court of the place of residence of the other party for interim measures. Hong Kong is the first and only jurisdiction that can seek mutual assistance from China in interim measures in aid of arbitral proceedings.

Interim relief

Do arbitrators have powers to grant interim relief?

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

Award

When and in what form must the award be delivered?

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

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

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

Appeal

On what grounds can an award be appealed to the court?

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

Enforcement

What procedures exist for enforcement of foreign and domestic awards?

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

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

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

On 27 November 2020, the Hong Kong Department of Justice and the Supreme People’s Court of the People’s Republic of China signed the Supplemental Arrangement Concerning Mutual Enforcement of Arbitral Awards between the HKSAR and the Mainland (Supplemental Arbitration Arrangement).

 

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

 

Note that articles 1 and 4 of the Supplemental Arbitration Arrangement came into force on 27 November 2020, while articles 2 and 3 will only take effect after the completion of relevant legislative amendments in Hong Kong.

Costs

Can a successful party recover its costs?

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

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

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

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

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

 

Through the enactment of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (which came into effect on 1 February 2019), third-party funding of arbitration is allowed in Hong Kong. Such funding can cover arbitral proceedings and any related court proceedings. Funding can be in the form of money or any other financial assistance in relation to any costs of the arbitration. The funding agreement must be in writing and must be disclosed to the parties to the arbitration and the arbitral tribunal.

Alternative dispute resolution

Types of ADR

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

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

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

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

Lastly, adjudications are commonly used to determine construction disputes.

Requirements for ADR

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

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

Miscellaneous

Interesting features

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

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

  • Sanctioned offers and sanctioned payments under the court rules – these are designed to encourage the parties to actively consider settlement and avoid prolonging litigation. They involve procedures allowing one party to make offers or payments into court to settle a dispute. If the other party does not accept the sanctioned offer or payment, he or she bears the risk of costs and interest sanctions if he or she subsequently fails at the trial to do better than the sanctioned offer or payment, even if he or she wins at trial.
  • Apology Ordinance (Chapter 631) – Hong Kong was the first Asian jurisdiction to enact an apology legislation (effective from 1 December 2017). Its objective is to prevent the escalation of disputes and facilitate their amicable resolution. Under the Apology Ordinance, an apology does not constitute an express or implied admission of a person’s fault or liability in connection with the matter and must not be taken into account in determining fault, liability or any other issue in connection with the matter to the prejudice of the person making the apology. The Apology Ordinance applies to various civil proceedings, including judicial, arbitral, administrative, disciplinary and regulatory proceedings, but not criminal proceedings.
  • Hong Kong continues to be a renowned international dispute resolution hub. On 21 September 2020, the Baltic and International Maritime Council (BIMCO) has announced the adoption of the BIMCO Law and Arbitration Clause 2020. The Law and Arbitration Clause 2020 replaces the Dispute Resolution Clause 2017. Hong Kong is named under the new Arbitration Clause as one of the four designated arbitration venues, alongside London, New York and Singapore.

Update and trends

Recent developments

Are there any proposals for dispute resolution reform? When will any reforms take effect?

Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region

On 14 May 2021, the Supreme People’s Court (SPC) and the Hong Kong SAR Government have signed the 'Record of Meeting on Mutual Recognition of and Assistance to Bankruptcy (Insolvency) Proceedings between the Courts of the Mainland and of the Hong Kong Special Administrative Region' (Record).

The signing of the Record represents that the two jurisdictions have reached a consensus for liquidators from Hong Kong to apply to Mainland courts for recognition of insolvency proceedings in Hong Kong. Likewise, bankruptcy administrators from the Mainland may apply to the High Court in Hong Kong for recognition of bankruptcy proceedings in the Mainland.

A set of opinion and a practical guide has been issued by the SPC and the Hong Kong SAR Government to give further guidance on the matter.

According to the latest 'The Supreme People’s Court’s Opinion on Taking Forward a Pilot Measure in relation to the Recognition of and Assistance to Insolvency Proceedings in the Hong Kong Special Administrative Region' (SPC Opinion), the main features of the SPC Opinion are:

  • Shanghai Municipality, Xiamen Municipality and Shenzhen Municipality are designated as ‘pilot’ areas given their close trade ties to Hong Kong, and the Intermediate People’s Courts of these areas may recognise and assist ‘Hong Kong Insolvency Proceedings’;
  • ‘Hong Kong Insolvency Proceedings’ include compulsory winding-up proceedings and creditors’ voluntary winding-up proceedings commenced in accordance with the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32) and scheme of arrangement promoted by a liquidator or provisional liquidator and sanctioned by the Hong Kong SAR Court in accordance with the Companies Ordinance (Chapter 622);
  • the recognition applies to both provisional liquidator and liquidator in the Hong Kong Insolvency Proceedings (Hong Kong Administrator);
  • the SPC Opinion will only apply to Hong Kong Insolvency Proceedings where the Centre of Main Interests (COMI) of the insolvent company is in Hong Kong. COMI will generally be determined by the place of incorporation of the insolvent company. However, the People’s Court will also take account of other factors, such as the place of principal office, the principal place of business and the place of principal assets of the insolvent company;
  • the insolvent company must have a place of business or a representative office in one of the pilot areas;
  • after the People’s Court recognises the Hong Kong Insolvency Proceedings, payment of debts made by the insolvent company to individual creditors shall be invalid;
  • after the People’s Court recognises the Hong Kong Insolvency Proceedings, any civil action or arbitration involving the insolvent company that has started but has not yet been concluded shall be suspended. However, such action or arbitration can proceed after the Hong Kong Administrator takes over the insolvent company’s property; and
  • after the People's Court recognises the Hong Kong Insolvency Proceedings, it may, upon application from the Hong Kong Administrator, decide to allow him or her to perform the following duties in the Mainland:
    • taking over the property, seals, account books, documents and other data of the insolvent company;
    • investigating the financial position of the insolvent company and preparing a report on such position;
    • deciding on the matters of the insolvent company’s internal management;
    • deciding on day-to-day expenses and other necessary expenditures;
    • before the holding of the first creditors’ meeting, deciding whether to continue or suspend the business of the insolvent company;
    • managing and disposing of the insolvent company's property;
    • participating in legal actions, arbitrations or any other legal proceedings on behalf of the insolvent company;
    • accepting declaration of claims by creditors in the Mainland and examining them; and
    • performing other duties that the People's Court considers that he or she may be so allowed.

 

If the Hong Kong Administrator performs any of the abovementioned duties that involves waiver of property rights, creation of security on property, loan, transfer of property out of the Mainland and other acts for disposing of the property that has a major impact on the creditors’ interest, they require separate approval by the People’s Court. The Hong Kong Administrator shall not perform his or her duties beyond the scope provided by the Enterprise Bankruptcy Law of the People’s Republic of China and by the law of the Hong Kong Special Administrative Region.

The Hong Kong SAR Government has also issued a practical guide setting out the procedures for a Mainland Administrator to apply to the Hong Kong SAR Court for recognition and assistance.

 

Corporate rescue regime and insolvency trading regime

The government was planning to submit a bill to the Legislative Council in the first quarter of 2021 for introducing statutory corporate rescue procedures (CRP) and an insolvency trading regime. At the time of writing, the bill has yet to be submitted to the Legislative Council. Based on the latest proposal, the proposed CRP will likely to have the following essential features:

  • It will introduce a process called ‘provisional supervision’ that will initially last for 45 business days. The process can be extended for up to six months by way of creditors’ resolution, or for an even longer period with leave of the court.
  • Major secured creditor(s) (ie, a person who holds charge(s) on the whole or substantially the whole of the company’s property) will have veto power for initiating the provisional supervision.
  • During the provisional supervision, the relevant company will be managed by a ‘provisional supervisor’, who must be an independent professional third party (ie, a certified public accountant or a solicitor).
  • The court will supervise the provisional supervision to avoid abuse of process.
  • A moratorium on civil proceedings and actions (including petition to wind up) against the company and its property will be imposed to give the necessary breathing space to the company.
  • A phased payments scheme will be introduced to protect the outstanding entitlements of employees. Certain employees’ actions and claims will be exempted from the moratorium.
  • The provisional supervisor will be personally liable for two categories of contract: any contract entered into by the provisional supervisor and any existing contract of the company adopted by the provisional supervisor.
  • The provisional supervisor will be required to make a recommendation as to whether the company should enter into a ‘voluntary arrangement’ which is a rescue plan prepared by the provisional supervisor; the company should be wound up; or the company’s provisional supervision should end.
  • If the voluntary arrangement is approved by the creditors, it will generally be binding on the creditors and there will be a moratorium on commencement of winding up proceedings.

 

As part of the CRP, the bill will also introduce an insolvency trading regime with some statutory protections for directors of distressed companies, who engage in insolvent trading.

  • The bill proposes that a director should be responsible for insolvent trading if he or she knew or ought to have known that the company was insolvent when the debt was incurred or would become insolvent by incurring the debt.
  • The court can order the responsible director to contribute to the company’s assets.
  • The responsible director will have a statutory defence if he or she:
    • takes all reasonable steps to prevent the company from incurring the debt; or
    • believes in good faith that incurring the debt is for returning the company to a state of solvency within a reasonable period and there are reasonable grounds to believe that the incurring of debt will benefit the company and the company will likely to return to a state of solvency within a reasonable period.

 

Class actions

In 2012, the Law Reform Commission of Hong Kong released its Report on Class Actions. A cross-sector working group (Working Group) was established by the Department of Justice that continues to research and review the wide-ranging, complex and interrelated issues covering not only technical legal issues but also policy considerations.

Since then, the Working Group has held 31 meetings between 2013 and 2020. On 31 December 2020, the Working Group announced that it intended to commission a consultancy study on the potential and likely economic and other related impacts if a class action regime is to be introduced. The scheme will be restricted to consumer class actions only.

The consultancy study is expected to commence by the second quarter of 2021 and will complete in 10 months.

It remains to be seen whether (and how) the class action procedure recommended in the Report on Class Actions will be implemented in Hong Kong.