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Oldham, Li & Nie to Host “Arbitration and Justice: the Compromise on Insolvency, Illegality and Conflicting Arbitration Clauses?” Panel During the 2024 Hong Kong Arbitration Week

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Oldham, Li & Nie (OLN) is pleased to announce its participation in the 2024 Hong Kong Arbitration Week, organised by the Hong Kong International Arbitration Centre (HKIAC), taking place on 21-25 October 2024.

The firm will host a panel session titled “Arbitration and Justice: the Compromise on Insolvency, Illegality and Conflicting Arbitration Clauses?” on 22 October 2024 from 5:00 to 6:30 pm.

This debate session will critically examine the compatibility between arbitration and substantive/procedural justice in light of the latest case authorities, including:

  1. Sian Participation Corp (In Liquidation) v Halimeda International Ltd [2024] UKPC 16, Re Simplicity & Vogue Retailing (HK) Co., Limited [2024] HKCA 299, and Arjowiggins HKK 2 Limited v Shandong Chenming Paper Holdings Limited [2024] HKCA 352: The availability of bankruptcy / winding-up tools for arbitration-governed debts
  2. AAA v DDD [2024] HKCFI 513: The complication of incompatible arbitration clauses in multi-contract transactions
  3. G v N [2023] HKCFI 3366: The interplay between arbitration and illegality

The session promises to deliver a thorough examination of these critical issues from various expert perspectives.

The distinguished panel will feature:

  • Prof. Anselmo Reyes, International Judge at Singapore International Commercial Court (SICC)
  • William Wong SC, Barrister at Des Voeux Chambers
  • Frances Lok SC, Barrister at Des Voeux Chambers
  • Sarah Thomas, Associate General Counsel of McKinsey & Company

They will be joined by OLN’s lawyers, Partners Dantes Leung and Jonathan Lam, with Associate Davis Hui serving as the moderator. Each panelist will offer unique insights, contributing to a robust and enlightening debate.

For more information about the 2024 Hong Kong Arbitration Week, please visit https://hkaweek.hkiac.org/event/f3e694d2-39ac-451c-aa66-cb9d9af52bc2/summary. 

To register, please visit https://hkaweek.hkiac.org/event/f3e694d2-39ac-451c-aa66-cb9d9af52bc2/regProcessStep1.

Winding-up Without a Debt: Should the Hong Kong Courts Run Around in Circles with The Privy Council?

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(This article was published in the August 2024 Issue of the Hong Kong Lawyer)

In Sian Participation Corp v Halimeda International Ltd [2024] UKPC 16, Ltd the Privy Council made a U-turn on the interplay between arbitration and insolvency by re-affirming the “Traditional Approach” as a matter of law of the British Virgin Islands: notwithstanding any arbitration agreement that governs a winding-up petition debt, the petition should only be stayed or dismissed if the company demonstrates that there is a bona fide dispute on substantial grounds. The Privy Council considered it serious enough to kill two more birds with the same stone by (1) overruling as a matter of English law Salford Estates (No 2) Ltd v Altomart Ltd (No 2) [2015] Ch 589 that where an unadmitted underlying debt of a winding-up petition is subject to an arbitration agreement, a winding-up petition shall be dismissed or stayed save in wholly exceptional circumstances (“Salford Estates Approach”), and (2) adopting the same underlying policy in relation to arbitration clauses and exclusive foreign jurisdiction clauses.

Sian no doubt came as a bolt from the blue, leaving the common law arbitration community in complete shock, not only because for nearly a decade the Salford Estates Approach has not received any major negative treatment by English courts, but also because the Salford Estates Approach has been essentially adopted (albeit with modifications) by the highest courts in other common law jurisdictions, such as Singapore Court of Appeal in AnAn Group (Singapore) PTE Ltd v VTB Bank [2020] SGCA 33 and the Hong Kong Court of Final Appeal in Guy Kwok-Hung Lam v Tor Asia Credit Master Fund LP [2023] HKCFA 9 (“Guy Lam CFA”)(delivered by French NPJ, the former Chief Justice of Australia). Now that the English courts have made a sharp turn, should Hong Kong courts follow suit?

This article seeks to critically examine the reasoning in Sian. With respect, it will be argued that the Privy Council merely defeated a straw man but failed to answer the fundamental question – whether there is a qualifying debt to trigger the winding-up regime for the court to exercise any discretion in the first place. It will be respectfully submitted that the court does not have any final say when the petition debt is governed by an arbitration clause (at least insofar as any factual dispute is concerned) or an exclusive foreign jurisdiction clause, and
so the court cannot determine whether there is indeed a qualifying debt. As a sequel of our article “Lasmos and Beyond: Have the Cake and Eat It Too?” in the May 2020 issue, it is suggested that the Salford Estates Approach is the only irresistible logical approach for the Hong Kong courts to adopt.

Extremity of Sian: Hard Facts Make Bad Law?

Sian was a typical loan recovery case where the respondent applied for liquidation of the appellant for the appellant’s failure to repay the facility, whereas the appellant claimed that it
had a cross-claim against the respondent.

At the outset, it must be pointed out that Sian is extremely extraordinary in the sense that the appellant accepted that the petition debt was not disputed on genuine or substantial grounds given that the appellant did not appeal against such facet of the first instance decision. It was on that basis that the Privy Council took the practical view that to require the creditor to go through an arbitration in that case may just add delay, trouble and expense for no good purpose (Sian, [92]).

In practice, this kind of open acknowledgment of no genuine or substantial dispute on the debt is extremely rare. The more common scenario is that the debtor raises certain disputes
on the debt which the court deems non-genuine and non-substantial. If the petition debt is governed by an arbitration clause, could the court be so confident that any arbitral tribunal
must necessarily reach the very same conclusion as the court would, such that there must be a qualifying debt to trigger the winding-up regime?

Winding-up Without a Debt?

Clearly the courts have no power to wind up companies at their whim. In the insolvency statutes around the common law jurisdictions, there are specific gateways under which a company may be wound up. For example, under section 177 of the Hong Kong Companies
(Winding-up and Miscellaneous Provisions) Ordinance (“HK Winding-up Ordinance”), a company in Hong Kong may be wound up for being unable to pay debts. If a creditor wishes to prove the inability to pay a particular debt, he may either rely on the deeming provision
under section 178 of the HK Winding-up Ordinance by a statutory demand of a liquidated debt of HK$10,000 or more, or fall back on strict proof of the debt (Cornhill Insurance plc v Improvement Services Ltd [1986] 1 WLR 114). Therefore, if the ground to wind up a company is solely on its inability to pay the petition debt, then logically the making of a winding-up order must necessarily involve the determination of the existence of the “debt”.

Hence in Guy Kwok-Hung Lam v Tor Asia Credit Master Fund LP [2022] 4 HKLRD 793 (“Guy Lam CA”), the Hong Kong Court of Appeal held that firstly, there is indeed judicial determination of a company’s indebtedness in the bankruptcy proceedings ([68]); secondly, until the creditor is established as “a creditor”, he simply has no locus standi present any petition ([77]). In the same vein, in Guy Lam CFA, French NPJ did not rule out the possibility of a mandatory stay of the bankruptcy proceedings in favour of arbitration ([91]).

The Privy Council attempted to dispel this clear logic by explaining that to make a winding-up order is “only a provisional assumption that the company is insolvent, which may turn out to be untrue, without that invalidating the liquidation process”. With all due respect, such a contention is only a straw man – when the winding- up petition is concerned with the petition debt in particular, the real question is not whether the company is or is not “insolvent” overall (which position may fluctuate until all assets are realised), but whether there is or is not a qualifying debt that triggers the winding-up regime. The “most spectacular recent example” of the substantial net surplus of the Lehman Brothers International Europe Ltd is neither here nor there. The Privy Council did not cite any case authority whatsoever to support the proposition that the non-existence of the petition debt does not invalidate the liquidation process. Likewise, none of the pre- Salford case authorities cited by the Privy Council actually supports that illogical proposition.

In Re Vitoria [1894] 2 QB 387, the English Court of Appeal was concerned with whether a creditor can petition to bankruptcy on the strength of a judgment debt again if its first petition on the very same judgment debt had been dismissed on procedural grounds. Obviously the first bankruptcy petition proceedings should not be conflated as an appeal of the underlying judgment debt, so it was on that basis that the English CA granted the bankruptcy order on the second occasion. What the English CA did not say, however, is that the court has power to bankrupt someone even if there is no qualifying debt at all; on the very contrary, there was a clear unreversed judgment debt in that case to justify the bankruptcy order.

In Tanning Research Laboratories Inc v O’Brien [1990] HCA 8, the High Court of Australia held that any disputed debt by the liquidator may be referred to the court or to arbitration. That is uncontroversial. However, that case did not concern a petition debt governed by an arbitration clause. In any event, the High Court of Australia also did not suggest that the non-existence of a petition debt would not invalidate the liquidation process.

In Re Menastar Finance Ltd [2003] BCC 404, the English High Court considered a challenge by one creditor against the liquidator’s acceptance of the proof of a judgment debt upon which the winding up petition was originally based. Since the challenge was dismissed in the end, that case certainly does not support in any way the proposition that a company may be wound up without a qualifying debt. Whilst it is true that the liquidator and ultimately the Companies Court may look behind a judgment debt, they may do so only if there is evidence of fraud or collusion or miscarriage of justice. Thus, investigating a judgment debt is the exception rather than the general rule. More importantly, there is no reason why the application of the principle “fraud unravels all” should stop at the judgment debt without invalidating the liquidation process.

Which Institution Has the Final Say?

One might ask: if the court may wind up a company without a judgment where the court has jurisdiction over the petition debt, why could it not do so where the petition debt is governed by an arbitration clause or an exclusive foreign jurisdiction clause? Obviously, where the court has jurisdiction over the petition debt, and holds that the debtor has no genuine or substantial dispute over the debt, one can safely presume that the court would be consistent in reaching exactly the same conclusion that there is indeed a debt even if disputed by the liquidator in the end, save in wholly exceptional circumstances as set out in Re Menastar.
This presumption is not safe anymore in the case of an arbitration clause or an exclusive foreign jurisdiction clause.

It is respectfully submitted that the ultimate test to determine whether the court may make a winding-up order without a judgment or an arbitral award is this: Which institution – the local court, the arbitral tribunal, or the foreign court – has the final say on the substantive merits of the petition debt? Whilst the Privy Council appears to equate arbitration clauses with exclusive foreign jurisdiction clauses on this issue, in which case the arbitral tribunal or the foreign court would have exclusive jurisdiction (Sian, [66]), it is respectfully suggested that there is one critical nuance.

In the arbitration statutes around the common law jurisdictions, a substantive appeal mechanism is usually preserved under limited circumstances unless the parties agree otherwise. For example, under paragraphs 5 and 6 of Schedule 2 to the HK Arbitration Ordinance, a party to a Hong Kong arbitration may appeal to the court against an arbitral award on a point of law where the award is “obviously wrong”. Therefore, if the existence of the petition debt involves a pure question of law, arguably the court has the final say, for the court could take the extreme view that any contradictory arbitral award would be “obviously wrong” on the pure question of law. However, this appeal mechanism does not apply to questions of fact, and in any event, does not exist for foreign judgments, in which cases the court has no final say on the existence of the petition debt.

Where the court has no final say on the substantive merits of the petition debt, it follows that the court cannot determine the existence of the petition debt, the pre-requisite for granting a winding-up order on the basis of the petition debt. No wonder no English court has yet found circumstances so “exceptional” to justify a winding-up order (Shaun Matos, “Arbitration Agreements and the Winding-Up Process: Reconciling Competing Values” (2023) 72 ICLQ 309, 313), even though the Salford Estates Approach reserves that mere possibility.

Balancing Public Policies

The Privy Council took pains to stress that to require the creditor to go through an arbitration where there is no genuine or substantial dispute on the debt just adds delay, trouble and expense for no good purpose (Sian, [92]). Yet, it begs the question as to which institution – the local court, the arbitral tribunal or the foreign court – shall have the final say as to whether there is a genuine or substantial dispute, or not. Although liquidation is an important statutory process to bring about an efficient realisation of the company’s assets and their fair distribution among all its stakeholders (Sian, [32]), it is also a draconian process that causes serious disruptions to the business and irreversible damage to the company. Balancing against the legitimate interest of the company and its effect on the economy as a whole, the liquidation class remedy should not be lightly invoked except under clear and uncontroversial circumstances that fall squarely within the black letter law.

Even if one is not entirely convinced that the mandatory stay provision in the arbitration statutes (e.g. section 20 of the HK Arbitration Ordinance) is engaged, it would constitute a “denying the antecedent” fallacy (i.e. If A then B; not A therefore not B.) to say that the court may not or should not adopt a default position to stay or dismiss a winding- up petition when the debt is governed by an arbitration clause or an exclusive foreign jurisdiction clause (Sian, [75]). With respect, the proper question is not whether the court’s exercise of discretion is “fettered” (Sian, [82], citing Re Asia Master Logistics Ltd [2020] 2 HKLRD 423) or “curtailed” (Sian, [83], citing But Ka Chon v Interactive Brokers LLC [2019] HKCA 873), but whether it makes sense for the court to adopt such a default position, having regard the company’s ability to pay its “debts”. In our respectful submission, it does make perfect logical sense for the court to adopt a default position to stay or dismiss the petition when it cannot possibly have the final say on the existence of the petition debt, so as to achieve consistency and to balance the legitimate business interest of the company and the interest of the economy as a whole.

Hong Kong Approach: For Better or Worse?

The Salford Estates Approach could be said to be first “localised” in Hong Kong in Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 (“Lasmos Approach”), albeit with modifications. One major difference between the two approaches is that the Lasmos Approach adds an additional requirement that the debtor company takes steps to commence the contractually mandated dispute resolution process. So far the Lasmos Approach has not been officially endorsed, whether in Guy Lam CA or Guy Lam CFA or otherwise. In Re Simplicity & Vogue Retailing (HK) Co., Limited [2024] HKCA 299, the Court of Appeal took the view that the additional requirement in the Lasmos Approach is not onerous for the debtor to demonstrate that there is a genuine intention to arbitrate.

As argued in our previous article, it is difficult to justify the additional requirement in the Lasmos Approach. The lack of onerousness plainly does not justify the imposition of a legal requirement. Besides the concerns already raised, whether the debtor company has or has not taken the contractually agreed steps does not change the fact that the local court has no final say on the substantive merits of the petition debt if it is governed by an arbitration clause or an exclusive foreign jurisdiction clause. Similar concerns are shared by, for example, Shaun Matos, who exposed the absurdity in attaching deference to the arbitral tribunal instead of the arbitration agreement (“Reconciling Competing Values”, 330).

In Guy Lam CFA, the top court in Hong Kong adopted the “multi-factorial” approach, attempting to balance the “strong cause” of arbitration clause or exclusive foreign jurisdiction clause in favour of a stay or dismissal of a petition against other “countervailing factors” such as disputes bordering on the frivolous or abuse of process. With respect, such a formulation is dangerous and open to manipulation and should be avoided, for it breeds a tendency to be seen as “old wine in a new bottle” – see Sun Entertainment Culture Limited v Inversion Productions Limited [2023] HKCFI 2400 for example, where DHCJ Le Pichon ordered the winding-up on the basis of the “frivolous nature of the defence”, thereby judging the substantive merits of the defence though Her Ladyship may not have the final say due to the applicable arbitration clause.

Conclusion

Undoubtedly this issue of interplay between arbitration and insolvency is a vital one. As the Privy Council acknowledged, the overwhelming majority of winding-up petitions concern debts (Sian, [27]). It is unfortunate that the Privy Council ran away from the logical Salford Estates Approach and returned to the Traditional Approach, in total disregard of the statutory requirement of a qualifying debt before any possible winding-up, when the court does not and cannot have any final say on the substantive merits of the petition debt. It is understandable that the court wishes to preserve the winding-up regime for debts governed by an arbitration clause (Sian, [93]), yet let us not forget that there are other gateways in the insolvency statutes that the court can wind up a company in a more natural and logical way, for example, by reference to balance sheet insolvency, or justice and equity. The court need not twist the logic to do the impossible. It is hoped that the English courts will turn around again in time, and the HK courts will make logical contribution to the development of this area of the common law.

On Death and Taxes Around the World

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“Nothing can be said as certain except death and taxes” is the phrase attributed to Benjamin Franklin, US Founding Father and polymath. To avoid adding insult to injury, we would recommend trying to avoid taxes after death.

The US Treasury reported on 28 February 2023 that an amount of US$7 billion for “estate and gift taxes” was collected on that day, the highest amount collected since at least 2005. Privacy rules prohibited the disclosure of further details but speculation was rife about the identity of the person(s) who may have had to make this payment, either as a deposit as part of advance estate planning (to avoid having to pay an even higher amount in the future) or a delayed payment by a late billionaire, possibly due to an enforcement action.

Hong Kong abolished estate duty on 11 February 2006. Thereafter, no estate duty affidavits and accounts have been required and no estate duty clearance papers have been needed for the application for a grant of representation in respect of deaths in Hong Kong.

However, in the United Kingdom, inheritance tax (IHT) is still applicable. IHT is charged at 40% on the value of an estate above the nil-rate band, which is currently set at £325,000 per person. Any unused nil-rate band can be transferred to a surviving spouse or civil partner, effectively giving one person a £650,000 nil-rate band. There are various useful exemptions and reliefs available to reduce the IHT liability. For example, if everything is bequeathed to a surviving spouse or civil partner, a charity or a community amateur sports club, then IHT would not be payable.

For citizens and residents of the United States, the federal estate tax exemption for 2023 is US$12.92 million per individual (US$25.84 million per married couple). The highest federal estate tax rate is 40%. Many US states also impose their own estate or inheritance taxes, with exemption levels and rates at varying rates. There are no state estate taxes payable in 33 of the 50 statues, such as Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware or Florida, just to name a few.

In Canada, there is no federal estate tax or inheritance tax. However, upon death, there is a deemed disposition of all capital property, which can trigger capital gains taxes payable by the estate of the deceased. The deceased’s final tax return must report all capital gains and losses, as well as regular income. The top marginal tax rate in Canada can reach a whopping 54% depending on the province.

In the European Union, estate and inheritance tax rules differ significantly across member states. 19 of 27 EU countries still levy some form of death tax. 8 EU countries (Austria, Cyprus, Estonia, Latvia, Malta, Romania, Slovakia and Sweden) have abolished inheritance taxes. The applicable rules and exemptions vary widely depending on the specific country, the relationship between the deceased and the beneficiary and the size of the estate. Tax rates also vary widely, from 0-20% in Poland to 7.65-87.6% in Spain.

Taiwan has a progressive inheritance tax from 10-20% on assets exceeding a certain threshold, currently set at NTD13.3 million, with exemptions and deductions available for heirs and funeral expenses.

Singapore has no estate, inheritance or capital gains tax but stamp duty may be payable upon the transfer of company shares in a Singapore company.

Macau, a special administrative region of the People’s Republic of China like Hong Kong, also has no inheritance tax.

Mainland China once issued a draft rule on inheritance tax in 2002 but a statute has never been passed. There are currently no estate, gift or inheritance taxes.

By contrast, it was reported in 2021 that the estate of Samsung Electronics chairman Lee Kun-hee will have paid more than 12 trillion won (US$10.78 billion) in inheritance taxes as South Korea has one of the highest rates of inheritance tax in the world. A premium can be added to a deceased’s ownership of shares that comprise a controlling interest in a company, potentially topping the standard 50% inheritance tax. It was reported that Mr Lee’s collection of fine art including works by Chagall, Gaugin, Miro, Monet and Picasso will be donated to the National Museum of Korea to help relieve some of the tax burden.

The taxation of estates and inheritances varies widely around the world, with some jurisdictions like Hong Kong abolishing them altogether while others maintain complex systems of deduction, exemptions and increasing marginal rates. As individuals plan their financial affairs and legacies, it is important to stay up-to-date with the estate and inheritance tax landscape in relevant jurisdictions. Careful estate planning can help to eliminate or at least minimise the tax burden on heirs and ensure a smooth transition of wealth across generations. Whilst death and taxes may be a certainty, taxes after death can be skilfully avoided with professional guidance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as legal advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Succession of Chinese Nationals of the HKSAR Estate in the United Kingdom (UK)

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Hong Kong permanent residents may have assets in various other jurisdictions.  One of the most common emigration destinations in recent years is the UK. 

There are many common characteristics between the succession law of deceased’ estate in the UK and in Hong Kong.  

The deceased has a Will governing estate in the UK

If the deceased has a Will governing estate in UK, the executor appointed with his/her named in the last Will of the testator usually applies for probate through the local Probate Registry in the UK to deal with the deceased’s estate. The executor will then follow the Will and distribute the estate of the deceased.

The deceased does not have a Will governing estate in the UK

If the deceased does not have a Will governing his or her immovable estate, the succession of the estate is usually governed by statutory law and the person(s) who inherit your property is governed by the statutory rules of intestacy. In general, the successors will be your closest surviving relatives in accordance to the classes listed out in the legislation, depending on the nature of marriage of the deceased and whether the deceased has any children. Please see the table below for details:

ClassDetails
Has spouse but no children, parent(s) or sibling(s)The spouse (or civil partner) will inherit all of the estate
Has both spouse and childrenThe surviving spouse (or civil partner) will inherit:
  • all personal belongings
  • first £250,000 of the estate (£125,000 if the death was before 1/2/2009)
  • a life interest in half of the remainder

The children will inherit the remaining half of the estate. If the children of the deceased have died, their share of the inheritance go to their children equally.  
Has spouse, no children but has parent(s) or sibling(s)The spouse (or civil partner) will inherit:
  • all personal belongings
  • £450,000, and
  • half of the residue

The remaining half goes to surviving parents or to the siblings (if the deceased has no parents or parents were dead).
Has no surviving spouseThe surviving relatives will inherit in priority order as follows:
  1. Children, grandchildren, great-grandchildren
  2. Parents
  3. Full-blood siblings or their descendants
  4. Half-blood siblings or their descendants
  5. Nieces and nephews
  6. Grandparents
  7. Full-blood uncles and aunts or their descendants
  8. Half-blood uncles and aunts or their descendants
  9. The Crown
Note: The right of inheritance of subsequent categories do not begin until those in a prior class is exhausted.
Has no relativesIf there are no surviving relatives, the estate is classed as ownerless property (‘Bona Vacantia’) and goes to the Crown.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

The Three Instruments of Peace Simplified

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Similar to other major advanced metropolitan areas, Hong Kong is facing an aging population. As of 2021, the median age of Hong Kong’s population was 46.31. According to the Census and Statistics Department’s population projection, the percentage of elderly persons aged 65 and above in the population will gradually increase from 20.8% in mid-2022 to 25.3% in 2028, and then to 35.1% in 20692. The continued rise in the number of seniors therefore increases the demand for various elderly and healthcare services.

In light of this, the Government has been proposing more extensive life and end-of-life education to members of public, hoping to break the taboo surrounding discussions about death, helping people to view death in a positive light and raising awareness about the “three instruments of peace”, i.e., wills, Enduring Power of Attorneys (EPOAs), and Advance Directives (ADs).

Three instruments of peace are viz.:-

  • Will (also known as “平安紙”): the execution of a will is governed by the Wills Ordinance (Cap. 30). A will provides instructions on the distribution of the estate of the testator after he/she passes away.
  • Enduring Power of Attorney (EPOA): the execution, registration, powers and scope of EPOAs is governed by the Enduring Powers of Attorney Ordinance (Cap. 501). An EPOA seeks to appoint one or more attorney(s) to manage the financial affairs of a person when he/she becomes mentally incapacitated.
  • Advance Directive (AD): there is no specific statute addressing the execution and the power of scope of ADs. However, the Hospital Authority has published a recommended form of AD, and has also published guidelines for Hospital Authority clinicians. An AD seeks to address a patient’s desires about whether to receive life-sustaining treatments.

To promote the use of the “three instruments of peace”, the Government has already been subsidising and organising talks on life and end-of-life education every year. The Hong Kong Public Libraries collaborate with organisations to organise talks on life and end-of-life education every year, including talks on the “three instruments of peace”3. The Social Innovation and Entrepreneurship Development Fund (SIE Fund) also subsidises ventures related to life and death, education and the “three instruments of peace”4. It is hoped that if planning in different areas can be done in advance, better preparations can be made for the elderly and their families.

Although the concept of the three “instruments of peace” has been widely circulated among the community, it must be noted that in practical and precise terms, the execution, registration requirement, and the scope of the affairs to be covered vary for each of the three instruments of peace. Pitfalls could arise if they are not understood correctly. It is therefore hoped that the table below has summarised the requirements in order to assist members of the public:

 Will (also known as “平安紙”)  Enduring Power of Attorney (EPOA)  Advance Directive (AD)
FormNo prescribed form, but wills drafted by lawyers will take into account important details, e.g., more contingency plans in place for alternate executor(s) and/or beneficiaries  Must be made using the prescribed form  Not applicable
When does it take effect?  When the testator passes awayOn the date stipulated in the EPOA (usually when the attorney has reasons to believe the donor is becoming mentally incapable)When 2 doctors (the patient’s attending doctor and another doctor) confirm or certify that the patient is: terminally ill; in a persistent vegetative state or a state of irreversible coma; or in other end-stage irreversible life limiting condition  
Property and financial affairsExecutor can distribute the testator’s  estate according to the willAttorney may apply assets of the donor to: maintain the donor; prevent loss to the estate; maintain the attorney or other persons (e.g., where the donor is expected to provide for the needs of such persons); and make limited seasonal gifts to persons related or connected to the donor  Not applicable
Scope and restrictionsTestator may also express his/her wishes towards funeral arrangementsDonor may include any restrictions he/she likes on the attorney’s authority unrelated to health and welfare of the donor  Patient may decide whether to receive life-sustaining treatments.  
NOTE: Medical practitioners cannot perform euthanasia or carry out illegal instructions.  
Mental state at signing1. Of sound mind
2. Having mental capacity
3. Making the instructions voluntarily
4. Knowing the nature of the instrument and its consequences
Execution requirements  Execution before 2 independent witnesses, who do not have to be lawyers.  Execution before a registered medical practitioner and a solicitor (At the same time, or first before a registered medical practitioner and within 28 days before a solicitor).
Registered medical practitioner must certify that he/she was satisfied that the donor at the time of signing was mentally capable.
Solicitor must certify that the donor appeared to be mentally capable. 		Execution before 2 independent witnesses: First witness must be a registered medical practitioner, who could be a doctor treating or has treated the patient. Second witness must be 18 years of age. Confirm that the first witness has explained to the patient the nature and implications of the directive.
Independence of witnesses  A witness should not be a beneficiary under the will, otherwise the gift to that beneficiary will be voidWitnessing registered medical practitioner and solicitor must not be: the attorney; the spouse of the attorney; a relative (whether by blood or marriage) of the donor; ora relative (whether by blood or marriage) of the attorney  The 2 witnesses must not be beneficiaries under – the will of the patient; orany insurance policy held by the patient; orany other instrument made by or on behalf of the patient.
Requirement regarding execution by executor/attorney  An executor need not sign to confirm his/her appointment. Therefore, it is recommended that the testator discusses and informs the proposed executor of his/her appointment in advance.  Attorney must sign the EPOA before a witnessInapplicable
Requirement of registration  After the testator passes away, the executor shall arrange for applying for the grant of probate, and shall file the original will with the Court.  An attorney must bring the EPOA to the High Court for registration once he/she has reason to believe the donor is or is becoming mentally incapable. As a safeguard against abuse, the donor may decide whether he/she wants to receive or have other person(s) receive notifications of registration. One of the factors to consider before registration is that once an EPOA is registered, the record that an EPOA is created by a donor and the name of the attorney becomes public information.  No requirement of registration. The patient is recommended to provide family or close friends with a copy of the AD and inform them where the original is stored.
RevocationA will is generally not revoked unless: the testator enters into a marriage subsequent to the execution of the will; the testator executes another will to revoke the previous will; by written revocation executed in the same manner as the testator could validly execute a will; or the testator intends to revoke the will and he/she personally destroys or causes others to destroy the will in his/her presence and by his/her direction  When the donor is mentally capable, or after his/her recovery from mental incapacity, he/she may revoke the EPOA.   Otherwise, an EPOA is revoked in limited situations, for example- bankruptcy of the attorney; death of the attorney or donor; by an order or direction of the Court.By written revocation    

If you have any questions on the above, please contact the Co-head of our Elder Law practice Ms Helena Hu or our Associate Mr Dexter Yuen.

1 Census and Statistics Department. “Demographic Trends in Hong Kong 1991-2021” published [29 Dec 2022]. The Government of the Hong Kong Special Administrative Region. 29 Dec. 2022, https://www.censtatd.gov.hk/en/press_release_detail.html?id=5338. Accessed 24 Jun 2024.

2 Press Releases. LCQ6: Measures to cope with an ageing population. The Government of the Hong Kong Special Administrative Region. 22 Mar 2023, https://www.info.gov.hk/gia/general/202303/22/P2023032200177.htm. Accessed 24 Jun 2024.

3 Press Releases. LCQ6: Making the “Three Instruments of Peace”. The Government of the Hong Kong Special Administrative Region. 28 Jun 2023, https://www.info.gov.hk/gia/general/202306/28/P2023062800356.htm. Accessed 24 Jun 2024.

4 Press Releases. LCQ6: Making the “Three Instruments of Peace”. The Government of the Hong Kong Special Administrative Region. 28 Jun 2023, https://www.info.gov.hk/gia/general/202306/28/P2023062800356.htm. Accessed 24 Jun 2024.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Ten Common Handwritten Will Mistakes

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Handwritten wills i.e., holographic wills are valid in Hong Kong and in most jurisdictions around the world. Perhaps the most famous holographic will was that of Napoleon Bonaparte, who seemingly had plenty of time on his hands while exiled on the island of St Helena in 1821. He wrote a whopping five long pages and numerous codicils by hand, which was the requirement under French law for a valid will, in the absence of a notary. After praising his loved ones and lashing out at each of his political enemies, he bequeathed to over 7,500 beneficiaries the contents of his entire estate, down to a pair of slippers. The beneficiaries were not only his immediate family members but everyone from his General Montholon (2 million francs) to regular soldiers (100 francs each) in his army. It took the executors of his will 40 years to complete their tasks. 

Handwriting your own will is likely to be easier than the task that Napoleon undertook, but here are some of the more common (but not all of the) pitfalls to avoid:

1. Not appointing a willing executor

There will be no one to execute your wishes in this instance and this will lead to administrative delays. The beneficiary entitled to your residuary estate has first priority to apply to be your executor by virtue of rule 19 of the Non Contentious Probate Rules in Hong Kong where there is no named executor willing to take on this role. Your residuary estate is the whole sum of your estate after deduction of your debts, taxes, funeral, legal and administrative expenses and distribution of your cash and specific gifts to your beneficiaries.

2. Being too specific or not being specific enough

You may bequeath your Rolex Explorer II watch to your son but you own two Rolex watches at the time of your death, none of which is the Explorer II. You may state clearly “I bequeath my grand piano to my cousin.” but it transpires that you have three cousins (who coincidentally all play the piano up to grade 8 level) at the time of your death. These are examples of gifts that are too specific or not specific enough.

3. Not updating your will 

If you marry, divorce, enter into a committed relationship or any combination thereof, there may be significant impacts on the validity of parts of your will. Some committed relationships that may be recognised under overseas laws are not recognised in Hong Kong. It is important to review your will at regular intervals in order to take stock of significant changes in your relationships and assets.

4. Writing only one will when you have substantial assets in another jurisdiction

The legal concept of domicile may be different from your birthplace, nationality and/or jurisdiction where you have permanent residency. Your domicile at the time of death affects your will. You may write a will in Hong Kong that can be overridden due to laws in another jurisdiction that do not allow you to leave out certain beneficiaries, for instance. It is important to consider the laws of the countries where your substantial assets are located.

5. Writing wills in every jurisdiction you have assets in but inadvertently revoking some of the wills

You may have carefully considered all your worldly assets and handwritten your wills in accordance with where your assets are located. One common pitfall is not making reference to your other international wills, such that your last will and testament referring to your assets in Canada may inadvertently revoke your prior last will and testament referring to the distribution of your assets in Hong Kong.

6. Improper execution of the will

In Hong Kong, two witnesses are required when you sign your will. They and their spouses may not be your beneficiaries. Your executor may be a witness to your will but again, this executor should not be a beneficiary if such executor is to be a witness to your will. In the absence of proper execution, the court must be satisfied that there is no reasonable doubt your purported will satisfies your testamentary wishes.    

7. Forgetting to appoint guardians including temporary guardians for your minor children

If both parents pass away, minor children without appointed guardians will become wards of the Social Welfare Department. It is important to consider appointing temporary guardians who reside in Hong Kong in the event that permanent guardians are overseas, again to avoid having children becoming wards of the Social Welfare Department during the time it takes permanent guardians to arrive in Hong Kong.

8. Forgetting to include back up beneficiaries, executors and guardians

No one knows with certainty when their time will come. It is entirely possible to outlive one’s beneficiaries, executors and/or appointed guardians, especially the longer that one lives. Some care needs to be taken to think through some possible alternatives in the event that these persons predecease you or refuse to act as your executor or as guardians of your children.

9. Keeping the will in your own safety deposit box at the bank

This is a very safe place to keep your will but is it too safe? In Hong Kong, singly and jointly held safety deposit boxes require a “Certificate for Necessity of Inspection of Bank Deposit Box”  issued by the Home Affairs Department before a deceased’s safety deposit box may be inspected. A bank official and two public officers authorised by the Secretary for Home Affairs must be present during the inspection. Keeping one’s will in one’s own bank safety deposit box (even jointly held) leads to administrative delay and this should be weighed against the security afforded by a bank safekeeping your will.

10. Not signing your will

Many people take the time to carefully put together a will and then trip up on the final step – they omit to sign the will properly or put off signing the will. This may be due to any number of reasons – not prioritising this important final step (life often gets in the way) or even due to an inability to find witnesses for the will. Unfortunately, an unsigned will is an invalid will.

The legal requirements for a validly written will are both easy and difficult to fulfill – easy in the sense that a handwritten will showing intention and capacity signed by an adult which is properly witnessed is a legal document in Hong Kong, yet difficult because there are some common pitfalls that many a do-it-yourselfer has failed to avoid.

Beat Napoleon Bonaparte and have your will professionally drafted. To celebrate the inauguration of our groundbreaking Elder Law Practice (the first of its kind in Hong Kong), we are proud to relaunch our hugely popular FreeWill initiative, an opportunity for Hong Kongers to have their wills prepared for a nominal donation to a registered charity. To find out more, visit our FreeWill campaign page.

Disclaimer: This article is for reference only. Nothing herein shall be construed as legal advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.