Articles by Practice Area
Making an Apology
Parties in conflict and disputes rarely apologize to one another. No one wants to admit liability, and saying sorry is often seen as an admission of liability.
On 13 July 2017, the Legislative Council of Hong Kong passed the Apology Bill (soon to be the Apology Ordinance) to enable parties to apologize without fear of legal implications.
Historically, an apology is seen to be an implied admission of fault and/or liability. Such apology, whether written or oral, may constitute evidence of liability in civil proceedings.
Parties in dispute are therefore constantly advised by lawyers not to apologize for their actions, even if the party is in the wrong. The fear of legal implications overrode morality and common decency.
The Apology Ordinance
Under the Apology Ordinance, an apology is defined as an expression of regret, sympathy or benevolence. The apology need not be in writing. It can be oral or by conduct.
If a party has apologized, the Apology Ordinance provides that the fact of that apology will not constitute an express or implied admission of the person’s fault or liability 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.
While evidence of an apology made by a person is not normally admissible as evidence for determining fault, the Apology Ordinance makes an exception. The exception is this:
If there is no other evidence available for determining an issue, it is possible for statements of fact contained in an apology to be admitted as evidence in the proceedings, provided that it is just and equitable to do so.
The following example may trigger the exception. One party may say to another:
“I am sorry about what has happened”
The above would not normally be admissible as evidence on liability. However, the situation may be different if the party apologizing goes on to say the following:
“The goods were not delivered to you because we had inadequate staff on that day.”
The above might be admissible as evidence even if the apology itself is not, particularly if the fact of adequate or inadequate staff became a relevant issue in civil proceedings and this was the only piece of evidence available in the proceedings. Clearly, this exception means that parties should take great care in how they apologize and what they should include in their apology.
The Apology Ordinance also has potential impact upon insurance coverage.
Section 10 of the Apology Ordinance provides that an apology does not render void or affect any insurance cover, compensation or other form of benefit for any person in connection with the matter. There is also an express prohibition against attempting to “contract out” of this section by, for example, a disclaimer or waiver of rights. This section also takes effect whether or not the contract of insurance was entered into before or after the commencement date of the Apology Ordinance.
Liability insurance policies typically contain conditions that an insured party shall not make any admissions of liability or prejudice the claim without the insurer’s prior consent. While Section 10 may avoid an admission of liability, potential problems may arise if the insured prejudices the claim by making an apology which contains facts that are later ruled as admissible by the Court for the reasons set out above. In such circumstances, there may be argument as to whether the additional facts appended to the apology can properly be regarded as being part and parcel of the apology itself.
When Will It Take Effect?
It is currently unclear as to the commencement date of the Apology Ordinance although it is expected to come into effect later this year (2017) or early next year (2018).
With the implementation of the Apology Ordinance, being the first jurisdiction in Asia to do so, Hong Kong is leading and consolidating its position as one of the foremost centers in the Asia region for mediation and dispute resolution.
Although similar legislations have been passed in the United States, Canada, Australia and the United Kingdom, only time will tell whether the Apology Ordinance will influence parties in Hong Kong to more readily apologise to each other for wrongful conduct.
What should be quite clear however is that making an apology is not all without its risks and parties should continue to take proper legal advice before doing so.
By Stephen Chan
On 14th June 2017 the Hong Kong Legislative Council passed the third reading of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance. Whilst the Ordinance has not yet come into effect, it is expected to be gazetted and become effective later this year.
This legislation will permit the legalization of the third party funding in relation to arbitration and mediation proceedings in Hong Kong and is expected to provide a considerable boost to Hong Kong's position as an international arbitration centre.
Hong Kong has been careful to ensure that the legislative change is accompanied by relevant safeguards to protect the system from potential abuse and we believe it is a welcome development and will help Hong Kong to maintain its status as one of the world's leading dispute resolution centres.
Clients should now be considering the use of dispute resolution clauses adopting Hong Kong arbitration in commercial contracts, given the prospect of litigation funding being available for the resolution of such disputes by arbitration as opposed to proceeding through the court system.
If you would like further information regarding this legislation or any of the issues referred to in this article, please feel free to contact our Richard Healy.
By Anna Chan, Partner
When is a validation order required?
When a company is subject to winding up proceedings, the company’s properties including its bank account would be frozen and could not be dispensed with. To gain access to the company’s bank account in the meantime would require a validation order from the Court.
A mere procedural requirement for Solvent Companies?
The Court’s decision in Cheng Eric Tak Kwong v Emagist Group Limited & Others  ruled that in cases where the winding up proceedings is derived from shareholders’ dispute, the Court would usually grant validation order for the company’s expenses made in the ordinary course of business to enable the proper functioning of the company “once the court is satisfied of the solvency of the company and the fact that it has an active and ongoing business.”
The Court is also has the view that the petitioner’s suspicion on how his fellow director ran the company and conducted its affair is not justification to turn an application for validation order more adversarial and complicated than is necessary. Such concerns of the petitioner can be alleviated in the validation order itself by conditions such as the company’s undertaking to provide a regular summary of expenses.
Unreasonable resistance to validation order. Non-sensible decision in case of Solvent Companies can be costly
In a more recent decision, Marrakesh Investments Ltd v Tangiers Holdings Ltd & Others  (Unreported), the Court has further indicated that litigants should give a pragmatic and sensible approach in dealing with validation orders for solvent companies in order to avoid unnecessary urgent applications made to the Companies Court. In the future, the Court will be more inclined to make punitive costs order on indemnity basis if the petitioner does not sensibly consent to validation order.
What OLN can do for you
OLN has abundance of experience in advising and handling shareholders’ dispute and companies’ winding up matters. For a better understanding of how OLN can assist you, please feel free to contact our partner, Anna Chan.
By Stephen Chan, Partner
Since the case of Cyberworks1 in 2010, the Courts in Hong Kong have viewed third party litigation funding arrangements to be lawful in the context of certain insolvency matters.
Usually, after granting leave for a liquidator or trustee to enter into a third party litigation funding arrangement, the Court will also make a further order for the affidavit exhibiting the terms of the funding agreement to be sealed and not to be disclosed without leave of the Court. This has been done on the basis that the terms of funding are generally private and confidential between the funder and the funded party, and should be of no concern to any third party including a party in litigation with the funded party. As long as the Court did not make any further orders, the funding agreement would remain safe from disclosure to any third parties.
It would therefore be of significant concern if at a later date, despite the contents of the funding agreement being sealed, the Court made a discovery order for a party to disclose their funding agreement to the other party in proceedings. This is precisely what happened in Enrich Future2. The facts of the case can be briefly summarized as follows:
- The liquidators of Sunlink International Holdings Limited (“Sunlink”) issued proceedings against Deloitte Touche Tohmatsu, the Defendant for alleged negligence.
- The writ was extended on 4 occasions (the “Extensions”). The Court found the number of Extensions to be quite exceptional.
- Each of the writ extensions were supported by affidavits (the “Affidavits”) with an accompanying order that the same be kept confidential. Some of the Affidavits exhibited a litigation funding agreement with a third party.
- The writ eventually came to be served on the Defendant some 4 years after the initial issue of the writ.
- The Defendant applied to set aside the orders for the Extensions and sought production of the Affidavits, which the Plaintiff produced but with redactions relating to the funding arrangements.
In considering whether to order disclosure of the redactions (i.e. the terms of the funding arrangement), the Court considered:
- That the funding arrangement was already a matter in the public domain by way of documents accessible in a different set of proceedings which were not sealed.
- While normally non-adversarial, the funding arrangement in the present case became an adversarial issue as it formed the basis of the Extensions.
In light of these circumstances, the Court considered the Defendant was entitled to see all of the evidence and ordered that the Affidavits be fully disclosed, including the litigation funding agreements exhibited.
While we do not consider Enrich Future to stand for the proposition that litigation funding arrangements are generally discoverable in proceedings, we do consider that litigants should take care to (1) keep the litigation funding arrangements away from the public domain and (2) avoid situations where funding arrangements could be made to be a relevant issue in the material proceedings.
  2 HKLRD 1137
 Enrich Future Limited & Ors v Deloitte Touche Tohmatsu (HCCL 10/2011) 22 June 2016
Stephen Chan regularly acts for parties in matters involving third party litigation funding and has successfully applied for Court sanction of a number of third party litigation funding agreements with insolvency practitioners.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual matters.
In an arbitration, it is arguable that the most important actor is the arbitrator, for it is he who handles the dispute through the dispute resolution process till a final settlement or the dispensing of an award. With such a central role, the parties to the dispute have a legitimate expectation that their arbitrator will be independent from any party with an interested outcome in the dispute, and be impartial in determining the issues of the case, without which, there can be no fair trial. As the English court in ASM Shipping Ltd of India v TTMI Ltd of England put it, “[t]here can be no more serious or substantial injustice than having a tribunal which was not, ex hypothesis, impartial, determine parties’ rights.”
Duty to treat the parties equally, and be independent and impartial
It is because the arbitrator plays such a crucial role in ensuring the proceedings and its outcome are fair, they are, by law, duty bound to be fair, independent and impartial.
Section 46 of the Arbitration Ordinance (Cap. 609) and Article 18 of the UNCITRAL Model Law provides inter alia that (1) the parties must be treated with equality, and (2) the arbitral tribunal is required (a) to be independent, and (b) to act fairly and impartially as between the parties.
The duty to treat the parties with equality is usually connected with the arbitrator’s discretion in controlling the opportunities and manner in which the parties may present their case. Arbitrators are not bound to give the parties strictly equal opportunities to present their cases, for example in Brunswick Bowling & Billiards Corp v Shanghai Zhonglu Industrial Co Ltd, the parties had agreed to a chess-clock method of allocating hearing time, but the tribunal granted extra time to the claimant. In a challenge against tribunal for treating the respondent unequally, the court found no inequity, holding that “where arbitrators discern a potential problem with the opportunity to a party presenting his case fairly arising from a procedure agreed by the parties, they are obliged to raise it with the parties instead of following blindly what has been agreed… they should take steps to conduct the arbitration in such a manner that could redress the problem instead of being constrained by an unworkable agreement of the parties.”
However, albeit strict equality in governing the arbitration is not mandated, the parties must be given reasonable opportunity to present their case and to deal with the case of their opponents. In Pacific China Holdings Ltd v Grand Pacific Holdings Ltd, it was held that “the denial of an opportunity to make a submission in reply on a matter of law will invariably constitute a serious violation. It is a matter of basic fairness.”
Independence and Impartiality
The duty of arbitrator independence has been defined in AT & T Corp v Saudi Cable Co as “connot[ing] an absence of connection with either of the parties in the sense of an absence of any interest in, or of any present or prospective business or other connection with, one of the parties, which might lead the arbitrator to favour the party concerned.” This definition, is however rather too narrow, as aside from commercial and business interests, professional and social links can also affect the independence of an arbitrator. For example, in Chan Man Yiu v Kiu Nam Investment Corp Ltd, an arbitrator was removed because he had been a close friend of the authorized representative and expert witness for the respondents for 25 years.
In Hebei Import & Export Corp v Polytek Engineering Co Ltd, Bokhary J saw the impartiality required of arbitrators and judges to be the lack of bias. Lord Woolf MR of the English Court of Appeal in AT&T Corp v Saudi Cable stated that if there is any justification for different standards to apply between judges and arbitrators, the court would expect a higher threshold to apply to judges, as arbitrators are selected by the parties.
In the Hebei case, a distinction was made between actual bias and apparent bias. It was found that two standards arose in dealing with domestic and international arbitration, where in the domestic context, public policy would dictate that the apparent bias of the arbitrator cannot be accepted, but in international arbitration, under the principle of comity and pro-enforcement policy, it would take something more which will violate the most basic notions of morality and justice, for the Hong Kong courts to refuse to recognize an award; the court also pointed out that if the apparent bias was strong enough, usually actual bias could be inferred, or other bases of challenge could be relied upon.
The Bias Threshold: Real Possibility or Real Danger
The test of whether bias exists has traditionally been the “real danger of bias test”, which is passed when there is a real danger that the arbitrator might unfairly regard of have unfairly regarded with favour, or disfavor the case of a party or the issue under consideration by him.
However, the House of Lords in Porter v Magill modified the real danger test to adhere more closely with the “reasonable suspicion or possibility test” which has been adopted in other common law jurisdictions such as Australia and South Africa. In the case of Deacons v White & Case LLP, the Court of Final Appeal seems to have found the new modified approach in Porter v Magill as authoritative.
If at any time after the arbitral tribunal has been constituted, the parties doubt the impartiality or independence of an arbitrator, a challenge may be commenced under section 26 of the Arbitration Ordinance, unless arbitration rules which contain arbitrator challenge provisions have been adopted for the arbitration, in which case the arbitration rule’s procedures should be followed instead.
Any challenge under s.26 of the Arbitration Ordinance must be instituted within 15 days of the latter of either (1) the constitution of the tribunal, or (2) the discovery of relevant circumstances leading to the doubt of the arbitrator’s impartiality or independence.
The challenge must first be made to the tribunal itself. If the challenge is rejected by the tribunal, the challenging party may then opt to institute a further challenge at the Court of First Instance within 30 days of the rejection by the tribunal.
Due to the time limits of making challenges, parties must pay attention to any information they receive about their arbitrators, especially disclosure documentation, so that they will not be time barred from raising a challenge.
On the other side of the coin, arbitrators will want to make all relevant disclosures to the parties which could lead to a challenge of apparent bias, even if he is subjectively confident in his own independence or impartiality. A good standard of disclosure to adhere to is the Guidelines on Conflicts of Interest in International Arbitration published by the International Bar Association.
When appointing arbitrators, parties may feel more assured by having an arbitration institution such as the Hong Kong International Arbitration Centre (“HKIAC”) appoint an arbitrator from their panel of professional arbitrators.
But while it is true that there is some extra degree of comfort in relying on a competent arbitration institution to appoint an independent and impartial arbitrator, it is no substitution for the party’s own judgment.
This is because according to Section 105 of the Arbitration Ordinance, any person, who appoints an arbitral tribunal or performs any administrative function in connection to the arbitral proceedings, are liable in law, only if it is proved that his act or omission is dishonest. In the recent case of Gong Benhai v Hong Kong International Arbitration Centre, a challenge against the HKIAC in the High Court for allegedly appointing an impartial arbitrator was struck out partly due to such lack of legal liability by the HKIAC, since in the challenge, no dishonesty was pleaded.
If you are interested in protecting your business through arbitration clauses, instituting or defending arbitrations, need help in choosing independent and impartial arbitrators or need advice on challenging possibly biased arbitrators, please do not hesitate to give us a call.