Manufacture and distribution

Manufacture and supply chain

What legal framework governs the development, manufacture and supply chain for fashion goods? What are the usual contractual arrangements for these relationships?

The development, manufacture and supply chain for fashion goods are governed by general contract law in Hong Kong. The usual contractual arrangements for the development and manufacture of fashion goods are the development agreement and the manufacturing agreement, respectively. The usual contractual arrangements for the supply chain for fashion goods include the distribution agreement, sale of goods agreement, sales representative agreement and franchise agreement.

Distribution and agency agreements

What legal framework governs distribution and agency agreements for fashion goods?

Distribution and agency agreements are governed by common law principles of equity and contract.

Distribution agreements are also governed by the competition law in Hong Kong and especially the Competition Ordinance (HKCO) (Cap 619). Selective distribution agreements are often beneficial for competition but there is a higher risk of harming competition and breaching the HKCO. Agency agreements are not generally subject to competition rules.

Agency agreements are governed by the agency principles, which are general rules deriving principally from the law of contract. The common law also governs the rights and liabilities of principal and agent. Besides, the Factor Ordinance (Cap 48) governs the rights and obligations of mercantile agents.

What are the most commonly used distribution and agency structures for fashion goods, and what contractual terms and provisions usually apply?

Distributors are usually appointed on an exclusive or non-exclusive basis. There is also selective distribution agreement where a supplier, in appointing a distributor as part of a selective distribution system, agrees to appoint additional distributors only if they meet certain criteria. This is designed to maintain the brand and image and is commonly utilised by luxury brands.

The usual contractual terms and provisions include territories, channels, reserved channels, product classifications, exclusivity, trademarks licensed, ownership of intellectual property, duration of the agreement, terms of the sale of products, payment terms, delivery terms, obligations of the distribution, termination, etc.

Import and export

Do any special import and export rules and restrictions apply to fashion goods?

There are no specific importing and exporting rules and regulations for fashion goods in Hong Kong.

Usually, all cargo imported into or exported from Hong Kong via air, land and sea is subject to customs control. Hong Kong Customs and Excise Department (Hong Kong Customs) is responsible for monitoring the imports and exports of goods and has the power to inspect the documentation (eg, manifests) and examine the goods.

For imports of goods, the importers are required to complete customs clearance and declaration formalities with Hong Kong Customs. Charges are based on the value and nature of goods imported, except for articles exempted from declaration charge.

Certain goods, such as food, pharmaceuticals and vehicles, are subject to more strict control by the Trade and Industry Department (TID); for example, the ‘prohibited articles’ or ‘reserved commodities’ under the Import and Export Ordinance (Cap 60) and the Reserved Commodities (Control of Imports, Exports and Reserve Stocks) Regulations (Cap 296A). In which case, shipping companies, airlines and transportation companies must, within 14 days of import or export, deliver the relevant manifests and licences to the TID for manifest checking.

Corporate social responsibility and sustainability

What are the requirements and disclosure obligations in relation to corporate social responsibility and sustainability for fashion and luxury brands in your jurisdiction? What due diligence in this regard is advised or required?

There is no specific requirement in relation to corporate social responsibility and sustainability for fashion and luxury brands. The Companies Ordinance (Cap 622) requires public companies and the larger private companies (ie, companies that do not qualify for simplified reporting) and guarantee companies to prepare a more comprehensive directors’ report that includes an analytical and forward-looking ‘business review’, while allowing private companies to opt out by special resolution. The business review will provide useful information for shareholders. In particular, the requirement to include information relating to environmental and employee matters that have a significant effect on the company is in line with international trends to promote corporate social responsibility.

Generally, the contracts are advised to contain corporate social responsibility representations and warranties where the seller represents and warrants to the buyer that it has implemented and conducts its business in accordance with corporate social responsibility values and policies. In addition, the seller represents and warrants that it complies with, and has required its subcontractors and suppliers to comply with, corporate social responsibility laws, rules and regulations.

Besides reporting their sustainability efforts if and as required by the law, luxury and fashion companies should work on creating corporate social responsibility awareness, integrating sustainability into business models and increasing transparency in respect of environmental, employee and other corporate social responsibility related matters.

What occupational health and safety laws should fashion companies be aware of across their supply chains?

The occupational health and safety laws in Hong Kong are comprised of the Occupational Safety and Health Ordinance (OSHO) (Cap 509) and the Occupational Safety and Health Regulation (OSHR) (Cap 509A).

The OSHO requires the employers, including fashion companies, to contribute to safety and health in the workplaces by:

  • providing and maintaining plant and work systems that do not endanger safety or health;
  • making arrangements for ensuring safety and health in connection with the use, handling, storage or transport of plant or substances;
  • providing all necessary information, instruction, training and supervision for ensuring safety and health;
  • providing and maintaining safe access to and egress from the workplaces; and
  • providing and maintaining a safe and healthy work environment.

The OSHR sets down some basic requirements for accident prevention, fire precaution, workplace environment control, hygiene at workplaces, first aid, as well as what employers and employees are expected to do in manual handling operations.