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10 Reasons Why a Mental Health Committee Should be Appointed for a Mentally Incapacitated Person

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It is quite disheartening to see our loved ones suffering from conditions like strokes, dementia or Alzheimer’s disease that affect their memory and other cognitive abilities. As such conditions progress to later stages, it is apparent that the persons concerned have become mentally incapable of conducting their own affairs, including financial affairs. Such persons are usually referred to in the legal setting as mentally incapacitated, or an MIP for short.

Where an MIP has not previously appointed an attorney by way of an Enduring Power of Attorney to deal with their financial affairs when he/ she had a clear mind, their family members, relatives or caretakers may have various practical reasons in wanting someone to legitimately step into their shoes to act on their behalf on those matters:-

  • In law, where a party to a contract is an MIP, and the other party knows or ought to have known of his/ her lack of mental capacity, the contract is voidable: Imperial Loan Co Ltd v Stone [1892] 1 QB 599. This may affect the MIP in a material manner. For example. they may be denied access to basic financial services (e.g. withdrawal of funds from their own bank accounts, selling of unpromising stocks, renting out of properties to generate income, etc.), which further impacts on their financial well-being;
  • Following from the above, where an MIP is entitled to certain sums under pre-existing contracts or arrangements (be it rental payments from a tenant, distributions from a trust, or proceeds paid out from an insurance policy), the payors who are aware of the situation of the MIP may, sensibly, refuse to make payments to that MIP as they are unsure whether he/ she can give valid receipt and may have concerns that he/she is subject to financial abuse or other kinds of influence. There is also the legal question of whether payments made to the MIP directly (or other persons claiming to represent him/ her without a valid order) would constitute a good discharge of obligation;
  • On the other hand, since mental incapacity is not something immediately obvious to others, people who possess such knowledge may financially abuse the MIP in different ways. For example, an abuser may persuade an MIP to sell properties to third parties and subsequently take the money. An abuser may also ask an MIP to directly transfer money to the abuser’s accounts, and coach them to confirm the transactions with the staff of the financial services companies;  
  • Furthermore, these conditions may have taken a huge financial toll on the family/ caretakers of the MIP, leaving them with no choice but to use the money of the MIP for his/ her care, medical treatment and accommodation. There needs to be a legitimate and unchallengeable way of disposing of the assets of the MIP so that proper care can be given, in particular when there is mistrust or even hostility among the family members; and
  • Where an MIP has family members dependent on them financially, the dependents may be concerned about whether their reliance on the assets/ income of the MIP for their benefits remain legitimate. 

Appointment of a Mental Health Committee

The above problems are likely resolved by the appointment of a Mental Health Committee (or simply a Committee) for the MIP pursuant to the statutory scheme of protection contained in Part II of the Mental Health Ordinance, Cap 136 (MHO). Under the regime, the Committee so appointed would “step into the shoes” of the MIP to manage the finances, property and sometimes businesses of the MIP. The relevant application has to be made to the High Court and is usually done through lawyers. Upon receiving evidence, the Court would consider whether the MIP is really incapable of managing his/ her own property and affairs (which can usually be easily satisfied by medical certificates signed by doctors), whether it is then in the interests of the MIP for a Committee to be formed, the constitution of the Committee and the specific orders to be granted. In most cases, after the basic enquiry of the Court being done on paper, there would be a private hearing where the Committee Order is announced. The whole process usually takes a few months.

From our experience, the utilization of the Committee regime is underappreciated and here we set out ten reasons why a Committee should be formed for an MIP.

#1. Accessibility

Since the case of Re Madam A HCMP 44/2004, a number of costs-saving measures have been introduced to further reduce the costs for an application for a Committee Order:-

  • The proceedings are considered ex parte in nature and there is no need to join any other parties (including the MIP). This can reduce legal costs caused by service of documents and the number of physical hearings can also be reduced. There is usually one court hearing (the Inquiry Hearing) where the Committee Order will be announced;
  • At the Inquiry Hearing, where no other party attends the Court to raise any objection, the Court would declare its satisfaction about the mentally incapacitated status of the person concerned, appoint the Committee for the MIP, and make the relevant orders concerning the property and finances of the MIP. The hearing can be completed in less than 15 minutes; and
  • Normally, the doctors are not required to attend the Inquiry Hearing. The MIP is also not required to attend the Inquiry Hearing.

It is therefore fair to say that costs of Committee proceedings can generally be kept low.  Part of the Applicant’s costs can be recovered from the estate of the MIP as a matter of general principle. 

#2. Flexibility

The word “Committee” is somewhat a misnomer because one person (usually the applicant) can already constitute the Committee, and this is also usually the case. Where the Committee comprises more than one person, usually they are expected to act jointly meaning that they cannot make decisions alone.

Here a distinction needs to be drawn between the applicant (the person who makes the application) and the proposed members of the Committee. The Committee can also be the applicant but this may not necessarily be the case. Though the applicant is usually expected to be a family member/ relative of the MIP, the proposed members of the Committee are not so restricted. In practice, friends and caretakers of MIP who have some bookkeeping knowledge can also become members of the Committee. Where the asset size of the estate of the MIP is substantial or there are ongoing disputes among the family members, professional candidates (like accountants and solicitors) may also be appointed.

There is no requirement that the Committee members must be residing in Hong Kong although it is preferable that one of them is and can facilitate execution of documents on the MIP’s behalf.

Likewise, if necessary, a Committee can also be set up for an MIP not residing in Hong Kong: Re LYO, HCMP 961 of 2004. While in such situation the requirements of certificates signed by two local doctors cannot be waived, the Court indicated it is possible for an MIP to be examined through video-link by local doctors to complete the certificates: Re EDWA [2020] 3 HKLRD 452.

#3. Accountability

With powers come responsibilities. A Committee formed under the MHO is a statutory agent appointed by the Court, and owes a legal duty to the Court (see Re P, HCMP 136 of 1981). After the initial application to the Court, the Committee has to record monthly income and expenditures of the MIP and submit accounts of the estate of the MIP to the Court on an annual basis. Such accounts are vetted by judicial officers of High Court and if necessary, matters will be referred to the Official Solicitor’s Office (OSO) for further investigation (see SPLP v Guardianship Board [2019] 3 HKLRD 670, para 35).

The OSO acts as a last resort as Committee for MIPs from time to time. The OSO also vets all Mental Health applications.  The OSO therefore has the knowledge, expertise and resources to protect the estate of the MIP.

As the policy is to encourage laypersons to take up the role as Committee so as to reduce the strain on public resources, where the wrongdoings are not serious, the Court may simply require the Committee to take the corresponding remedial actions without further penalties. In case of serious mismanagement or misconduct, the Committee is subject to replacement by further order of the Court (s. 26B of the MHO).

#4. Anonymity

The Court is very careful not to disclose the identity of the MIP. The default position is that the Court would not disclose their full names in public domain and the MIPs would be represented by their initials in public documents. This measure is not merely a formality as the Court will take other measures with the ultimate aim to ensure the privacy of the MIP is preserved. Furthermore, by default, hearings of mental health proceedings are not open to the public to further preserve the confidentiality of the relevant parties.

It is thought that there are many good reasons why the anonymity of the MIP should be preserved in Committee proceedings. For example, such proceedings would inevitably include sensitive matters like the MIP’s health records and details of his private life. It would also be unethical to disclose the identity of the MIP when he/ she was unable to give any meaningful consent.

#5. Adaptability

As a measure to reduce legal costs, the Court has published a set of standard court directions (Annex F of Practice Direction 30.1) that an applicant could expect the Court to make at the Inquiry Hearing.

The Court is not bound by the standard directions when exercising its underlying powers pursuant to s.10A(1) which are in the “widest possible” terms: see Re Madam L [2004] 4 HKC 115, para 15. The Court is therefore prepared to make orders for all such things as appear necessary or expedient: (a) for the maintenance or other benefit of a MIP; (b) for the maintenance or other benefit of the MIP’s family; (c) for making provision for any other person or purposes for whom or for which the MIP might be expected to provide if he were not mentally incapacitated; and (d) for administrating the MIP’s property and affairs.

Other than the usual orders allowing the Committee to use/ receive money for the MIP and to allow the Committee to resort to the capital of the MIP for his/ her maintenance and general well-being, depending on the unique situation of the MIP, the applicant (or subsequently the Committee) may also seek orders for:

  • Financial provisions for persons other than the MIP
  • Acquisition and sale of property
  • Setting up trusts
  • Executing a statutory will
  • Conducting legal proceedings
  • Letting of land property for a term less than 3 years
#6. Emergency

The whole process of applying for a Committee Order would take a few months. What if the MIP or his/ her family members have other emergent needs during this period?

In case of emergency, pending the determination of the mental capacity of the person concerned, the applicant may ask the Court to exercise its emergency powers pursuant to s. 10D of the MHO. Since these orders are made before the formal Inquiry Hearing, the applicant cannot expect the Court to make extensive orders, and has to be specific in his/ her requests. For example, the applicant may show to the Court that there are some medical bills that have to be immediately settled and cannot be paid by other family members, and ask for a specified sum to be paid out from the account of the MIP to settle those bills. This approach also applies to children’s educational fees, household expenses, etc.

#7. Recognisability

When a full Committee Order is made, it would cover the whole estate of the MIP. A Committee is therefore regarded as a court-appointed agent and would usually encounter no difficulty in entering into transactions (or terminating transactions) on behalf of the MIP. When in doubt, a third party can always ask for a sealed copy of the Committee Order to ascertain the authority of the Committee in a specific transaction.

The recognisability of a Committee Order is also shown by the fact that major banks in Hong Kong are often willing to open a special bank account for a Committee such that the bank accounts will be in the name of the Committee (XXX as committee for YYY) to cater for the special needs of the Committee. Assets belonging to the MIP can then be segregated for better management.

A Committee is also expressly empowered by statute to execute documents on behalf of the MIP pursuant to s. 17 of the MHO.

#8. Continuity

Unlike a Guardianship Order which has an initial period of 1 year only (and up to 3 years for each subsequent term), once made, a Committee Order remains valid for an indefinite period and shall take effect until the passing away of the MIP, or until further order.

When the Committee Order remains valid, the relevant Committee can also apply from time to time for addition and variation of powers to suit the change of circumstances of the MIP, pursuant to s. 26B(1)(a) of the MHO. 

#9. Advantages over Guardianship proceedings

Due to historical reason, the Guardianship regime is contained in the same Ordinance (i.e. the MHO) as the Committee regime. However, applications for a Guardianship Order are made to an independent statutory institution called the Guardianship Board, instead of the Court. The person appointed to represent the MIP in a Guardianship proceedings is called the Guardian. If necessary, one can take on both the roles of Committee and Guardian by initiating two sets of proceedings in two different fora. This is however not recommended due to time and costs concerns. 

We understand it may not be an apple-to-apple comparison to start with because Guardianship proceedings are mainly concerned about the health and specific welfare matters (like residence and access) of the MIP. Still, to provide a full picture to the reader, we draw the comparison as follows:-

  • As said above, a Guardianship Order is for an initial period of 1 year only and is thereafter subject to review from time to time, whereas a Committee Order once granted is for an indefinite period. Before the expiry of the Order, the Guardian has to apply for a review of the Order and to seek extension and variations if necessary. Updated social reports have to be read and considered;
  • In both Committee and Guardianship proceedings, two medical opinions by two local doctors are necessary to confirm the mental incapacity of the MIP. In Committee proceedings this will be in the form of certificates; while in Guardianship proceedings this will be in the form of medical reports;
  • In Guardianship proceedings, a social enquiry report is mandatory and a social worker of the Social Welfare Department will then be assigned to work on the case by visiting the MIP and interviewing the relevant parties. The applicant is expected to cooperate with the social worker. There is no such requirement for Committee proceedings;
  • Hearings before the Guardianship Board are open to public by default (s. 59X(4) of the MHO). Confidentiality of the MIP may therefore not be able to be preserved;
  • After a Guardianship Order is made, the assigned social worker will have to follow up on the case and visit the MIP regularly. Updated social reports will have to be prepared and submitted. The Guardian is expected to cooperate with the social worker from time to time;
  • A Guardianship Board can only go so far as to order the Guardian to receive and pay a specified sum (currently HK$20,000, subject to price index) for the MIP per month. Third parties may refuse to pay to the Guardian even if the sum is lesser than that specified sum, because they may claim to have no knowledge about the previous sums received by the Guardian that month; and
  • A Guardianship Order can in no way cover other assets like land property and stocks.
#10. Extended Application

In the 2019 case of SPLP v Guardianship Board, Lok J lamented the fact that Hong Kong is not adopting a “one-stop” model such that guardianship and financial matters are heard at the same forum, since the issues are often inter-related.

Since then, there is a tendency for the Mental Health Court to make orders that are traditionally made in Guardianship proceedings, by resorting to the “rediscovered” inherent jurisdiction of the Court.

In Re TBS, HCMH 51/2019, the Court made interim access orders in Committee proceedings pending application for a Guardianship order.

In 2020, in Re CML, HCMH 20/2018, the Court directly made access orders after the Court had recommended the applicant to apply for a Guardianship order but the applicant failed to do so.

In 2021, in Re HVD, HCMH 48/2021, a case that our firm handled, the Court granted an ex parte injunction to compel a family member, who had taken advantage of the MIP’s vulnerable state and removed the MIP to Singapore, to return the MIP to Hong Kong.  The injunction was upheld even when presented with a statutory declaration signed by the MIP a month prior to the removal that the MIP was content with living with that family member.

In the recent case of Re LYM [2023] 2 HKLRD 329, most exceptionally, B Chu J directly made a Guardianship order to appoint a Guardian in a Committee proceedings where for some reason no one is eligible to make a Guardianship application to the Guardianship Board.

As Lok J pointed out in Re CML, multiplicity of proceedings may result in delay and misunderstanding, and may cause additional costs and stress to the family members. It is most welcome if the Court is now more willing to grant some orders that are traditionally regarded as orders that can only be granted before the Guardianship Board, provided that the relevant parties have presented all the relevant materials before the Court.

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.

Our Consultant Mr Nicky Tse is appointed as a China-Appointed Attesting Officer by the Ministry of Justice, PRC

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Our Consultant Mr Nicky Tse was examined and formally appointed as a China-Appointed Attesting Officer (CAAO) by the Ministry of Justice, People’s Republic of China.

The appointment ceremony was officiated by Madam He Rong (贺荣), the Minister of Justice, in person at the Ministry of Justice in Beijing on 15 May 2023.

Nicky Tse China-Appointed Attesting Officer CAAO
What is CAAO?

CAAO is an official title from the China Ministry of Justice and recognized by the Law Society of Hong Kong. Its functions are similar to a Notary Public.  It is also the only profession in Hong Kong licenced to handle and issue notarial (attestation) documentation for use in Mainland China.

CAAOs serve Hong Kong corporations that have businesses in China, as well as private clients for matters including marriage, transactions, succession and immigration.

Since year 1981, 568 CAAO appointments were made and as of today, 419 of them are in active practice.

Please see the website of the Association of CAAO for more information.

2023 CAAO examination

Amongst 130 candidates who took part in the examination this year, the Ministry of Justice appointed 36 as CAAOs.

How CAAO contributes to our Notary practice?

Having this licence means that Oldham, Li & Nie now perfects its notarization practice by conducting CAAO attestation work.

Nicky is undergoing the post-qualification CAAO practice course, and Oldham, Li & Nie will commence its CAAO practice in December 2023.

Please contact us if you wish to know more about our CAAO attestation work.

Benchmark Litigation Once Again Recognises Oldham, Li & Nie

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We are delighted to share that three of our practice areas have been recognised in the recently released Benchmark Litigation 2023 rankings. Oldham, Li & Nie is once again among the top Family & Matrimonial, Commercial & Transactions and Private Client law firms in Hong Kong.

Our three practice areas are ranked as follows:

  • Commercial and Transactions (domestic firms) – Tier 3
  • Family and Matrimonial – Tier 3
  • Private Client (domestic firms) – Recommended

As one of our referees mentioned, Oldham, Li & Nie is “concise, prompt, honest and provides accurate information for a client to make a decision”

In its analysis, Benchmark Litigation notes “Oldham Li & Nie is active in commercial and transaction-related disputes. The firm is also known for its work in IP and family and probate disputes. The firm frequently acts for ultra-high-net-worth individuals, serial entrepreneurs and corporates. Key names in the firm include commercial litigation partner Richard Healy and family and probate specialist Stephen Peaker.

Commercial dispute cases include representing Natural Seasoning International (HK) in a shareholder dispute for breach of agreement; acting for a prominent Hong Kong distressed asset fund in committal proceedings brought by a claimant in relation to an injunction in aid of the arbitration and a receivership order; and representing two minority shareholders in seeking and rectification of an agreed shareholding in a group of companies located in Hong Kong, PRC and the US”.

Oldham, Li & Nie’s ranking on Benchmark Litigation website.

About Benchmark Litigation

Benchmark Litigation, the definitive guide to the world’s leading litigation firms and lawyers, is the only publication on the market to focus exclusively on dispute resolution.

Since its inception in 2008, the Benchmark brand has grown dramatically and garnered industry-wide accolades as the definitive hub for in-depth analysis of the players shaping the dynamic practice of litigation.

The Asia-Pacific guide officially launched in 2018, with a dedicated team located in Hong Kong and actively researching the market on the ground.

Oldham, Li & Nie Recognised Once Again as an “Employer of Choice” by Asian Legal Business (ALB)

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Oldham, Li & Nie has been recognised as an “Employer of Choice” for the 6th time. The award, based on a staff survey conducted by Asian Legal Business (ALB), recognises our commitment to creating a positive and supportive workplace culture that values our employees.

The survey measured various aspects of law firms’ workplace culture, including job satisfaction, work-life balance, opportunities for professional development, and overall job performance. Our employees’ high satisfaction with the firm’s culture and leadership is evident in the survey results, and we are honored to receive this award once again.

This recognition is a significant achievement for Oldham, Li & Nie, reflecting that our investment into human capital pays off. Our commitment to our employees has also been recognised in other ways, including our high employee retention.

The Employer of Choice list is featured in April 2023 issue of ALB. Click here to read the publication.

ALB Employer of Choice 2023

Making Sense of Jurisdiction-Admissibility Distinction: When Day Becomes Night

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(This article was published in the April 2023 Issue of the Hong Kong Lawyer)

Introduction

Multi-tiered arbitration agreements, which typically require contract parties to go through good faith negotiation or mediation before commencing arbitration, are not uncommon. Whilst parties may perhaps reasonably expect no arbitration at all unless and until such pre-arbitral requirements (PAR) are complied with, the reality may actually surprise everyone.

In C v D [2021] 3 HKLRD 1 (HKCFI); [2022] 3 HKLRD 116 (HKCA), the Hong Kong Courts considered the issue whether a challenge on the basis of non-compliance with PAR constituted a jurisdictional challenge to an arbitral tribunal. Both the HKCFI and the HKCA drew on the distinction between the concepts of jurisdiction of a tribunal and admissibility of a claim, and held that non-compliance with PAR went to “admissibility rather than jurisdiction” unless the parties expressly stated otherwise. Since the challenge was held non-jurisdictional in nature, the Courts cannot review the correctness of the decision. Hence, as in C v D, regardless of compliance with PAR, the tribunal still has jurisdiction and arbitration can actually be proceeded with, apparently contradicting the reasonable expectation of the parties.

This article will critically examine the distinction between jurisdiction and admissibility, and the reasoning in C v D. For the purpose of this article, it will be assumed that there is no difference between “no arbitration shall be brought unless X” and “in the event of X the parties may arbitrate” (Republic of Sierra Leone v SL Mining Ltd [2021] EWHC 286 (Comm)). It will be argued that the ultimate question is whether the challenge at issue goes to jurisdiction or not. It is respectfully submitted that a challenge on the basis of non-compliance with PAR should be properly characterised as jurisdictional in nature.

C v D

In C v D, C commenced proceedings against D to set aside a partial award obtained allegedly without complying with the PAR in the arbitration clause which required the parties to attempt good faith negotiation for 60 business days before referring any unresolved dispute to arbitration in Hong Kong.

The HKCFI held, and the HKCA subsequently upheld, that the objection went to admissibility of the claim rather than jurisdiction of the tribunal and hence the Courts will not review the correctness of the award in question, on the following reasoning:

  1. There was a distinction between jurisdiction of the tribunal and admissibility of the claim.
  2. As explained by the SGCA in BBA v BAZ [2020] SGCA 53 (concerning an objection based on time bar) and BTN v BTP [2020] SGCA 105 (concerning an objection based on res judicata), the test of distinction is essentially the “tribunal versus claim” test, which asks whether the challenge is targeted at the tribunal (in the sense that the claim should not be arbitrated due to a defect in or omission to consent to arbitration) or at the claim (in that the claim itself is defective and should not be raised at all). In both cases, the SGCA held that the objections based on time bar and res judicata were directed at the claim only and are not jurisdictional in nature.
  3. The distinction between jurisdiction and admissibility may be blurry, and on occasion it may be difficult to know where one ends and the other begins, yet that is no different from being able to know when day becomes night. There is always going to be a twilight twixt the two (Robert Merkin and Louis Flannery, Merkin and Flannery on the Arbitration Act 1996 (6th edn, Rotledge 2019), [30.3]).
  4. There was no indication in the arbitration agreement that the parties intended compliance with PAR to be a matter of jurisdiction, and it seems unlikely that the parties intended to re-open their case in litigation after a full hearing before and a decision by the arbitral tribunal.
Jurisdiction and Admissibility: Distinction or Dichotomy?

As a preliminary observation, when considering whether the challenge was a jurisdictional one, both HKCFI and HKCA held that non-compliance with PAR went to “admissibility rather than jurisdiction”. With respect, the use of such a phrase is unfortunate as it suggests that there is a dichotomy between admissibility and jurisdiction.

Although there may be a distinction between admissibility and jurisdiction, the two concepts may not necessarily be mutually exclusive, such that a single event may indeed give rise to a challenge on both admissibility and jurisdiction. This point may be illustrated by reference to an example given by the House of Lords in Fiona Trust and Holding Corporation v Privalov [2007] UKHL 40, [17]: if the main agreement and the arbitration agreement are contained in the same document and one of the parties claims that he never agreed to anything in the document and that his signature was forged, that will be an attack on the validity of the main agreement and the arbitration agreement.

Therefore, it is respectfully submitted that, in considering whether a challenge is jurisdictional in nature, it is less helpful to make reference to the concept of admissibility. The ultimate question should be to ask whether the challenge is jurisdictional (i.e. directed against the tribunal).

Challenge on the Basis of PAR Jurisdictional in Nature

The starting point is that PAR have been characterised as jurisdictional, an issue of admissibility, or procedural in different case authorities (Gary Born, International Commercial Arbitration (3rd edn, Kluwer Law International 2021), 988-989, 997-999). It is fair to say that there is no uniform approach among different legal systems.

In light of the diverse opinions, it has been argued that the intention of the parties should be taken into account in interpreting PAR, as the HKCFI and HKCA claimed to have done in C v D. Regrettably, instead of examining the underlying facts to ascertain the parties’ true intention, the Courts did no more than pronouncing the judicial policy on arbitration (e.g. speed, finality, etc) and the corresponding legal presumption on parties’ intention – that the parties are presumed to have intended PAR to go to admissibility which shall be dealt with exclusively by the arbitral tribunal. Such application of judicial policy and legal presumption is apparently circular: the jurisdictional challenge mechanism is well within the arbitration regime, and it cannot be argued that by submitting to arbitration, the parties somehow intend to regard an otherwise properly characterised jurisdictional challenge as non-jurisdictional for the sake of speed and finality. The Courts’ approach begs the question of the proper characterisation of PAR.

It should be noted that issues of time bar (as in BBA v BAZ) and res judicata (as in BTN v BTP) are classic examples of issues of admissibility. They attack “the claim” (a particular claim in question but not any other potential claims) and are not directed at the tribunal in any way. In other words, leaving aside the challenge, the tribunal has general jurisdiction to rule on any other claims not subject to time bar or res judicata.

Yet non-compliance with PAR raises challenge of a very different nature. PAR do not attack “the claim” in the same way as issues of time bar or res judicata – indeed PAR do not attack “the claim” in particular but generally apply to any and all claims within the scope of the arbitration agreement, such that apart from those claims subject to PAR, there can be nothing at all for the tribunal to rule on. This, in our respectful submission, crosses the fine line of the distinction to demonstrate that the tribunal actually has no general jurisdiction whatsoever. To further the day-and-night analogy in Merkin and Flannery at [30.3], day does not become night if one light ray is removed, but it is definitively night when there is no light ray at all. In any case, PAR as a jurisdictional issue is also consistent with parties’ intention, since it provides double safeguard (i.e. at the tribunal level and at the court level) to the intention to have no arbitration at all before compliance with PAR.

The Real Concern

It appears that the Courts’ real concern was that if arbitration is contingent upon certain pre-arbitral steps, a party’s failure to take them would allow the other party to withdraw from its commitment to arbitrate (Alexander Jolles, “Consequences of Multi-tier Arbitration Clauses: Issues of Enforcement” (2006) 72 Arbitration: The International Journal of Arbitration, Mediation and Dispute Management 329, 335). This concern is misconceived.

The failure to comply with PAR does not automatically entitle the innocent party to withdraw from the arbitration agreement (Hugh Beale, Chitty on Contracts (1st supp, 34th edn, Sweet & Maxwell 2022), [4-197] – [4-203]). The defaulting party may still comply with PAR later in order to commence arbitration. Since the arbitration agreement is still valid, operative or capable of being performed, section 20 of the Arbitration Ordinance (Cap. 609) applies to prevent litigation in the interim, pending compliance with PAR.

Of course the multi-tiered arbitration agreement may be repudiated on the defaulting party’s unequivocal statement of non-performance of PAR constituting anticipatory breach. In that case, it is up to the innocent party to accept the repudiation, or not if it still prefers arbitration. If the innocent party decides the former, the dispute shall be resolved by court litigation and the defaulting party must take the consequence of its own repudiation.

Some might argue that “this hardly corresponds with the parties’ intention” (Jolles, “Consequences of Multi-tier Arbitration Clauses”, 335), but it must be borne in mind that as a matter of law, the default dispute resolution mechanism is court litigation. As an exception to default court litigation, the parties may by consent agree to arbitration within certain parameters. Nevertheless, where arbitration for whatever reason cannot be held within all fours of the parameters set by the parties originally, the inescapable reversion back to court litigation is by operation of law and parties’ intention in that regard is irrelevant.

The Proper Approach

Arbitration is a consensual dispute resolution process. Parties’ consent to arbitration can be found in the arbitration agreement. It is respectfully submitted that the proper approach to determine whether a challenge is jurisdictional is to consider (a) whether the challenge attacks the arbitration agreement which forms the basis of the jurisdiction of the tribunal, and (b) whether there could be any claim (other than those subject to the challenge) that the tribunal could rule on.

Applying this approach, the challenge in C v D was plainly jurisdictional in nature: the challenge attacked the arbitration agreement in the sense that the PAR in the arbitration agreement were allegedly not complied with; there could be no claims whatsoever that the tribunal could rule on apart from those subject to the challenge.

Conclusion

Given the significance of arbitration as a popular dispute resolution mechanism, and the prevalence of multi-tiered arbitration agreements, it is without doubt a question of general importance whether a challenge on non-compliance with PAR is jurisdictional in nature and subject to review by the court. C v D is currently subject to appeal to the HKCFA. It is hoped that the top court of Hong Kong will give ultimate guidance to arbitration parties on the proper characterisation of PAR. 

ChatGPT and What It Means for You

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In what seems to have occurred overnight, ChatGPT has become one of the hottest topics of discussions around the world. In its own words, ChatGPT is “an AI-powered chatbot developed by OpenAI, based on the GPT (Generative Pretrained Transformer) language model. It uses deep learning techniques to generate human-like responses to text inputs in a conversational manner.” Open AI was co-founded in 2015 by Elon Musk and Sam Altman and is backed by investors such as Microsoft.

Interest in ChatGPT and its ability to produce human-like responses is what makes ChatGPT so interesting and impressive, not to mention the vast knowledge available to ChatGPT providing users with informed and detailed responses. A quick review of viral stories, you will soon see that many individuals are using ChatGPT to assist in writing messages, writing code, writing academic papers, translating text or speech, researching information and even assisting individuals with day-to-day tasks such as scheduling appointments/meetings, creating a nutrition plan and finding recipes, travel itineraries and even creating content for social media.

Whilst ChatGPT is not currently accessible in Hong Kong, but easily overcome, it is still an important topic to discuss. Thus, whilst ChatGPT is still in its infancy, there is much to be learned as this technology continues to develop. We at OLN believe it is important that both our team and our trusted clients are aware of this developing technology as it becomes an increasingly and widely used AI tool both outside and within the workplace.

1. Will ChatGPT result in redundancy?

One of the most important questions asked is whether the introduction and use of ChatGPT will result in redundancy, with human-held jobs being replaced by ChatGPT. There is no doubt that ChatGPT will replace certain components of human-held jobs, however, what is more likely to occur is that ChatGPT will enhance a lawyer’s skillset and allow him/her to thrive by working alongside ChatGPT. The poignant question to ask is not whether ChatGPT will replace humans and result in redundancy, but rather how can humans use ChatGPT to his/her advantage in the workplace? One of the key advantages of ChatGPT is that it will result in time-saving which in the workforce results in costs-savings. When using ChatGPT, a key takeaway is that the user understands the importance of the question prompt. Asking the correct question will get you the response you want and need and failure to ask the correct question with the key prompts could take ChatGPT down another path.

A quick question directed to ChatGPT about whether redundancy is a risk, ChatGPT will acknowledge its limitations. Whilst efficiency and speed may be gained, human touch and the need for soft skills cannot be replicated by an AI bot. To quote ChatGPT, “this therefore brings forth unprecedented opportunities for lawyers to optimize their skills and service offerings to clients.” Perhaps then, this is an opportune time for lawyers to nurture and embrace the need for soft skills in the workplace and with clients. This can easily be accomplished through regular check-ins, face-to-face meetings and human-to-human telephone calls.

2. What risks should we be aware of?

ChatGPT is an emerging technology and essentially is still in its infancy. Reports in the media state that even Elon Musk, one of the co-founders of OpenAI is saying we must slow down the process as it is still developing and there is much to be learned about this technology. Some countries are even banning ChatGPT so does that mean other countries will follow suit?

One of the key reasons why there is such hesitation with ChatGPT is the issues surrounding privacy. In order for ChatGPT to work properly, users are required to place question prompts into the AI bot. A well-crafted query will result in a more enhanced and detailed response by the ChatGPT. However, many human users may also add in detailed queries which could essentially invade privacy and result in private data being collected, used and accessed by ChatGPT. We have already seen privacy issues come forth with other apps and software such as Tik Tok and the cloud. It is almost guaranteed the same privacy queries and concerns will arise with the growing use of ChatGPT. At OLN, we are committed to privacy and ensuring the privacy of our clients and have created parameters for our staff and colleagues when using ChatGPT such that client information and details are never input into the AI bot.

In addition to privacy concerns, there is also the question of adaptability. At this time, the most recent and up-to-date ChatGPT is ChatGPT 4.0 and can now connect to the worldwide web and therefore has full access to up-to-date information that is currently on the internet. However ChatGPT 4.0 is a paid service, and not generally used yet by the public. ChatGPT version 3.5 is the most widely used version and is not connected to the worldwide web and is only trained with data up to the year 2021. OpenAI claims that the newest version of ChatGPT has “more advanced reasoning skills” but it is still not fully reliable and may “hallucinate” by inventing facts or making reasoning errors. Again, ChatGPT’s experience and adaptability is limited to the internet and cannot be replicated by human experiences. As humans, our brains have the ability to adapt to experiences and senses around us, which AI bots cannot. Thus, this again emphasizes the limitations of ChatGPT as it is not a human brain and cannot adapt as easily as a human.

Finally, whilst ChatGPT’s response to queries may be fast and detailed due to its vast access to knowledge, is it reliable? The responses provided by the AI bot must be verified and checked by readers. It may be tempting for users to trust the information without question, but to do so could be catastrophic if the information is improperly used. This is when human knowledge and expertise will come into play to ensure that the information is certainly not trusted simply because it was provided by ChatGPT. Similar to any information on the web, everything must be checked and verified with the critical thinking of the human mind.

So, what does ChatGPT mean for OLN and our clients? First and foremost, OLN will stay up-to-date on the ever-evolving world of ChatGPT. We are also committed to having continuous discussions about the evolution of ChatGPT. At this time, ChatGPT is simply an evolving technology that we are keeping a close eye on, but have not implemented using at OLN as our services to clients cannot be replicated by AI technology and only through the work and experience offered by our lawyers and support staff. This is not to say that ChatGPT may become an integral part of any law practice, however, at this time the use of ChatGPT is premature at OLN.

Your Call To Action: Now that you have an overview of ChatGPT and some of the key points and risks to consider with this AI technology, it is time for you to take action in your own business and practice. Do not let this pass you by as this is now an opportunity to head up a roundtable discussion with your staff and colleagues on technology that will soon become an integral part of your business. It is important to remain up-to-date on this evolving technology and you now need to consider challenging your staff and colleagues about ChatGPT. Ask your staff why they should not be concerned about being made redundant and seek information from staff on how they will continue to play an invaluable role in your business despite ChatGPT. Most importantly, consider how ChatGPT can be implemented into your business to save time and costs, thus enhancing your overall business and business practice. If you wish to discuss this further with us at OLN, as have several of our other clients, we are happy to discuss this with you as an objective sounding board.