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Insight from the Recent CFA decision in Commissioner of Inland Revenue v Poon Cho Ming, John – Whether Benefits Received on Termination of Employment are Taxable or Not

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Employee termination is not uncommon during economic downturn or group restructuring. The termination payments or the compensation packages, especially for top executives or senior employees, often consist of many components such as salaries, gratuities, discretionary bonuses, golden handshakes, settlement sum for the employment dispute. Given the diversified nature of the compensation components, it might not be easy to identify which part of entire package is taxable and which is not under the definition of section 8(1) of the Inland Revenue Ordinance, Cap. 112 (“IRO”).

As a starting point, the IRO provides that only income earned in the course of employment is chargeable to salaries tax. It is however not always easy to determine which compensation component has direct corelation to the employment and which is not. The precedent case, Fuchs v Commissioner of Inland Revenue [2011] 14 HKCFAR 74, offers some guidance on this issue. The Court ruled in Fuchs that what an employee received in satisfaction of his rights under his contract of service was taxable, while what he received in abrogation of his rights under the contract was not taxable.

The Court of Final Appeal has reaffirmed such position in its recent decision in Commissioner of Inland Revenue v Poon Cho Ming, John [2019] HKCFA 38 whereby it was held that rewards for past services and inducements to enter into employment and providing future services are chargeable under the said provision, whereas payment which were for something else were not chargeable. This article seeks to discuss the legal principles concerning the subject matter and how unnecessary dispute could be avoided.

A. Brief facts in Poon Cho-Ming case

The Respondent Taxpayer (‘Respondent’) was employed as a director of the Company pursuant to a written employment contract dated 20 October 1999 (‘Service Agreement’). In July 2008, his employment was abruptly terminated without cause. The Respondent and the Company entered into negotiations, with legal representatives on both sides, which resulted in a separation agreement dated 20 July 2008 (‘Separation Agreement’) to terminate the employment on the same day.

During the employment, the Respondent was eligible to be considered for a discretionary bonus and for the grant of unvested share options under an employee’s shares option scheme. Under the scheme, Options granted in one year would vest, provided the Respondent was still employed by the company, in annual tranches over the following 5 years.

After the termination of his employment, the Respondent received payments and benefits from the Company and were taxed by the Commissioner of Inland Revenue. The items that were in disputes are as follows.

  1. EUR500,000 provided for under the Separation Agreement, labelled as a ‘payment in lieu of a discretionary bonus’ (‘Sum D’); and
  2. the amount derived from the exercise of the Respondent’s share options which the Company agreed under the Separation Agreement to vest on an accelerated basis (‘Share Option Gain’).

The Commissioner of Inland Revenue, the Board of Review and the Court of First Instance considered and ruled that the above sums constituted income ‘from’ the Respondent’s employment and were therefore chargeable to Salaries Tax under section 8(1) of the IRO.

The Respondent appealed to the Court of Appeal which overturned the CFI’s decision. The Court of Final Appeal upheld the decision of the Court of Appeal and unanimously decided that the above sums were ‘for something else’ and were not therefore taxable under section 8(1) of the IRO.

B. The relevant legal principles

The ‘operative test’ is succinctly summarized by Ribeiro PJ in Fuchs (at para 22).

In short, the question that needs to be asked is: ‘in the light of the terms on which the taxpayer was employed and the circumstance of the termination, what, in substance not form, the sum and benefits is for?’

If the purpose or nature of the payment constitutes income from employment, the payment is taxable under s.8(1) IRO, as illustrated in the table below.

 Purpose or nature of the paymentIncome from employment
(s. 8(1) IRO)		Taxability
1‘acting as or being an employee’YesYes
2 ‘as a reward for past service’ Yes Yes
3 ‘as an inducement to enter employment or for future services’ Yes Yes
4‘for something else’NoNo
C. Application of the test to the facts of Poon Cho-Ming Case

In Poon Cho-Ming case, the IRD was of the view that both Sum D (i.e. the payment in lieu of discretionary bonus) and Share Option Gain were employment income because “discretionary bonus” was employment performance-linked and Share Option Gain was derived from employee benefit scheme. 

The Court, however, was of the view that both Sum D and Share Option Gain were not Respondent’s entitlement under the terms of the Service Agreement, nor had he any accrued rights on his termination which he could enforce at law in relation to them.

Although Sum D was described as a substitution of the discretionary bonus, the Court preferred substance over form. The Court analysed the facts and found that Sum D is, in substance, materially different from the discretionary bonus, in term of their purpose and nature. The amount of Sum D was arrived arbitrarily by way of negotiation between the Respondent and the CEO of the company, without reference to the performance of the Respondent and other considerations or procedure which would have been relevant in determining discretionary bonus in the Company.

The Court also found that the accelerated vesting of the share options under the Separation Agreement constituted a new right. With regard to the terms of the Grant Letters, the Court found that the original right was plainly not exercisable on the separation date and would have lapsed if the Respondent was no longer an employee of the Company. The new right under the Separation Agreement replaced the original right under the Service Agreement, allowing the Respondent to exercise the share options within 3 months from the separation date when he was no longer an employee of the Company.

The Court of Appeal concluded (and the CFA agreed) that the purpose of Sum D and Share Option Gain were for something else. The aforesaid benefits were found to be the consideration for the Respondent Taxpayer agreeing to:-

  1. ‘go quietly’ with a joint announcement that he had ‘resigned’ to mitigate adverse market reaction;
  2. additional post-employment covenants in the Separation Agreement which created new obligations on him; and
  3. settle or abrogate any and all claims which he might have against the Company arising from the termination of his employment.
D. Insight from Poon Cho-Ming case

The CFA’s decision in Poon Cho-Ming has reaffirmed the orthodox position as set down in precedents. However, the application of the legal principles is not a straightforward exercise. Detailed analysis of the facts in each case is required. How the termination letter or the separation agreement is crafted and the wordings therein could lead to unnecessary confusion and debate.

To avoid the hassle of litigation, the employers and/or taxpayers should involve legal representatives in the early stage of termination process. A well-structured termination package, careful drafting of agreements as well as appropriate responses to the Authorities will help reflect the true intent and nature of the termination payment and save taxpayers from unnecessary tax exposure.

Our firm has extensive experience in advising on employment-related matters and on tax advisory matters. If you have any question regarding the topic discussed above, please contact our partner Anna Chan at anna.chan@oln-law.com for further assistance.

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.

CEDB Released a Public Consultation Paper on Updating Hong Kong’s Copyright Regime on 24 November

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The Commerce and Economic Development Bureau of the Government of Hong Kong just released on 24 November 2021 a public consultation paper on updating Hong Kong’s copyright regime. 

This is brilliant news to copyright owners and fingers crossed with the passage of the new legislation! If you may wonder the meaning behind, the current Copyright Ordinance enacted in 1997 is considered badly obsolete and can barely cope with the rapid advancements and innovations in technology. Despite the Government’s deliberation to update the legislation initiated since 2006 with public consultations conducted,  two serious attempts to amend the Ordinance (The Copyright (Amendment) Bill 2011 and The Copyright (Amendment) Bill 2014) did not succeed due to filibustering by some members asserting the view that freedom of creativity or expression could possibly be compromised under the proposed legislative provisions.

The consultation paper described the legislative proposals in the 2014 Bill to be the result of years of deliberations of the Government, Legislative Council, copyright owners, online service providers and copyright users, representing the consensus and balance of interests of different stakeholders to enhance protection for copyright in the digital environment and combat large scale online piracy – which should be materialized without further delay.  

Key legislative proposals based on the 2014 Bill

A. Communication right – introduction of technology-neutral exclusive communication right for copyright owners to communicate their works to the public through any mode of electronic transmission in line with the international practice

B. Criminal liability – criminal sanctions introduced against infringers making unauthorised communication of copyright works to the public for profit or reward and with prejudice caused to the copyright owners

C. New copyright exceptions – for the education sector, libraries, museums, archives, temporary reproduction of copyright works by OSPs, and media shifting; and new fair dealing exceptions for the purposes of parody, satire, caricature and pastiche, commenting on current events, and use of quotation to facilitate expression of opinions or discussions in the online and traditional environment

D. Safe harbour provisions – limiting OSP’s liability for copyright infringements on their service platforms caused by subscribers as an incentive for OSPs to cooperate with copyright owners to combat online piracy

E. Additional damages in civil cases – empowering the court to award additional damages according to the circumstances with additional factors to assess including the unreasonable conduct of an infringer and likelihood of widespread circulation of infringing copies

Issues inviting public views

1. Should Hong Kong continue to maintain the current exhaustive approach by setting out all copyright exceptions based on specific purposes or circumstances?

2. Should Hong Kong introduce provisions to restrict the use of contracts to exclude or limit the application of statutory copyright exceptions? (currently is non-interference approach to contractual arrangements between owners and users)

3. Should Hong Kong introduce specific provisions to govern illicit streaming devices used for accessing unauthorized contents on the Internet, including set-top boxes and Apps? (Government’s current position is not to)

4. Should Hong Kong introduce a copyright-specific judicial site blocking mechanism? (Government’s current position is not to)

Issues to be considered for future legislative amendments
  • Extension of copyright term of protection
  • Introduction of specific copyright exceptions for text and data mining
  • AI and copyright

The consultation period is 3 months from 24 November 2021. We are more than happy to convey your thoughts to the Bureau or share our thoughts on issues you may have on copyright protection or circumstances that may put you at the risk of infringing someone else’s copyright.

How to Settle Civil Disputes: Importance of Tomlin Order

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Something must have gone wrong before parties commence civil litigation, whether the problem arises from breach of contract, unpaid invoices, or differing interpretations of terms of the contract. As civil litigation is costly, time-consuming, unpredictable, and at times excruciating for the parties’ peace of mind, it is not uncommon for parties to compromise and settle the civil dispute midway in the litigation proceedings. 

After years of advising and settling civil disputes, this series hope to shed light on the dos and don’ts for parties when they enter into settlement negotiations, and when they eventually sign and execute the settlement agreement. 

An important piece of consideration is to consider settling the civil action in Hong Kong by way of Tomlin Order. 

The nature of Tomlin Order 

In Hong Kong, Tomlin Orders are governed by the Rules of the High Court (Cap. 4A) and the Rules of the District Court (Cap. 336H). 

Provided under O.42 r.5A(2)(b)(iii) of the Rules of the High Court (Cap. 4A) and O.42 r.5A(2)(b)(iii) of the Rules of the District Court (Cap. 336H), Tomlin Order is a form of consent order which allows the parties to stay the proceedings upon the mutually agreed settlement terms which are scheduled to the Order but the terms of which do not otherwise form of the Order itself. 

Accordingly, Tomlin Order enables the parties to stay the proceedings, preserving the option to return to Court to enforce the settlement terms if one party fails to comply. This avoids the need for new legal action, making it an attractive option for settling a civil dispute. 

Further, the schedule, being a separate contractual agreement, can include terms that go beyond the ordinary terms typically ordered by the Court, and even go beyond the scope of the original dispute in the proceedings. 

In the Hong Kong case Shum Ho Seung v. Shum Foo Hang (As the Administrator of the Estate of Shum Kwok Hang, Deceased (18/12/2017, HCMP 3134/2016) [2018] 1 HKLRD 434, the Court clarified that it lacks general power to vary the terms in the schedule unless specific provisions for variation are included in the Order itself, or contractual law justifies it. In practice, the standard wording of a Tomlin Order in Hong Kong may include phrases like “all further proceedings be stayed except for the purpose of carrying into effect the terms of settlement,” with liberty to apply for enforcement. 

Here are the key benefits of settling a case via a Tomlin Order in Hong Kong: 

1. Enforceability without separate legal action 

If one party breaches the settlement terms in the schedule, the other can apply to the court to enforce the terms scheduled to the Tomlin Order directly, without starting a new legal action. 
 
For example, if a Defendant fails to pay an agreed sum as provided under the schedule to the Tomlin Order, the Plaintiff can seek enforcement by applying to a Judge/Master as appropriate. 
 
This is a way a more efficient and costs-saving route than settling the civil dispute by way of a separate settlement agreement, whereby generally, if a party breaches the terms of the settlement agreement, the other party will have to bring a fresh claim.

2. Flexibility in Settlement Terms 

The schedule can include terms which go beyond what the Court would typically impose in a judgment, e.g. ceasing certain actions not directly related to the original proceedings. In contrast, the terms which parties could enter by way of Consent Judgment (without Court’s leave) would be more limited under the straight statutory rules.
 
3. Preservation of Finality with Flexibility 

The stay of proceedings means the case is “paused”, but not dismissed. If the terms are fulfilled, the dispute ends without a full trial. On the other hand, if the settlement terms are breached, the innocent party can either enforce the scheduled terms or, in some cases, lift the stay to resume litigation (depending on how the Order is drafted). This balances closure with a safety net as opposed to a full withdrawal/dismissal, which may leave a party vulnerable if the other reneges. 

Conclusion 

The Tomlin Order must be carefully drafted to ensure enforceability and to prevent any pitfall compromising a party’s rights and interest. In summary, a Tomlin Order in civil litigation offers enforceability without separate legal action, flexibility, and preservation of finality with flexibility, making it ideal for parties seeking a practical binding settlement. For specific advice, as each case depends on its own facts, please consult a solicitor. 

Should you have any enquiries regarding civil litigation and commercial agreements, please contact our firm. 

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.

How to Settle Civil Dispute: Importance of Payment by Instalment Clause

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Something must have gone wrong before parties commence civil litigation, whether the problem arises from breach of contract, unpaid invoices, or differing interpretations of terms of the contract. As civil litigation is costly, time-consuming, unpredictable, and at times excruciating for the parties’ peace of mind, it is not uncommon for parties to compromise and settle the civil dispute midway in the litigation proceedings.

After years of advising and settling civil disputes, this series hope to shed light on the dos and don’ts for parties when they enter into settlement negotiations, and when they eventually sign and execute the settlement agreement.

An important consideration is to consider having payment of settlement sum by instalments. In our experiences, this option has proven to be a game-changer, enabling parties to reach amicable resolutions more effectively. The practical benefits of having payment by instalment clauses in your settlement agreement are listed below:-

1. Alleviating Financial Flexibility for the Paying Party

When a party is required to pay a large settlement amount upfront, it can strain its cash flow, potentially forcing them to reject the settlement entirely.

By having payment by installment clauses in the agreement, the paying party gains room to better manage its finances. This flexibility can make the difference between a stalled negotiation and a signed deal, as it allows the debtor to commit to a resolution without jeopardizing their operational stability.

For instance, a small business facing a HK$1,200,000 settlement sum might struggle to pay it all at once. Spreading that amount over 12 monthly installments of HK$100,000, however, transforms an overwhelming burden into a manageable expense. This practicality often encourages parties to agree rather than prolong the dispute through litigation.

2. Ensuring enforceability of the Settlement Agreement

In cases involving a one-off payment, the settlement agreement carries a heightened risk of being contested down the line, as the paying party may later claim they were misled, poorly advised, or coerced into accepting the terms under economic duress—arguments that could potentially unravel the deal in court. A lump-sum payment, often made under pressure to resolve a dispute quickly, can leave the payor feeling cornered, especially if their financial situation deteriorates shortly after, prompting them to challenge the agreement’s validity by asserting they had no real choice but to comply at the time.

In contrast, a payment-by-instalment clause significantly mitigates this risk by spreading the financial obligation across multiple, manageable payments over an extended period, creating a built-in mechanism that strengthens the agreement’s practicality.

As long as the paying party adheres to some of the instalment schedule (i.e. making certain payment instalments), it is arguable that it effectively elects to affirm to the terms. This repeated compliance undermines any later attempt to overturn the agreement, as it creates a hurdle for the payor to convincingly argue misrepresentation or economic duress when their actions over months or years have indicated voluntary commitment.

By reducing the immediacy of the financial burden and providing a track record of commitment, such clause discourages post hoc legal challenges, offering both parties greater certainty in the resolution process.

3. Building Trust between Parties

Incorporating instalment payments into a settlement agreement can help build trust between parties. The paying party’s commitment to making regular payments reflects reliability and good faith, while the receiving party can appreciate the structured approach to fulfilling the agreement. The continued fulfillment of payment instalments can serve as a positive spiral for both parties to develop trust and positive interactions moving forward.

4. Preserving Business Relationships

Many business disputes occur between parties with ongoing or potential future dealings—suppliers and clients, partners, or vendors. A lump-sum demand can sour these relationships irreparably, whereas an installment plan demonstrates mutual accommodation. By agreeing to terms that work for both sides, the parties signal a willingness to maintain civility and cooperation, which can pave the way for future collaboration once the dispute is resolved.

Conclusion

Incorporating payment by installment into settlement agreements is more than a financial workaround—it’s a strategic tool that bridges gaps, builds trust, and expedites resolutions. For the paying party, it offers a lifeline to meet obligations without crippling their operations. For the receiving party, it ensures compensation with manageable risk. This approach transforms disputes from adversarial standoffs into opportunities for mutually agreeable solution.

Should you have any enquiries regarding civil litigation and commercial agreements, please contact our firm.

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.

Recent updates on IP practices in Hong Kong

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1. IPD new forms

The Intellectual Property Department (“IPD”) of Hong Kong has announced that a new set of Trade Marks Forms, Patents Forms and Designs Forms (“the new forms”) will be effective from 16 May 2025.

A key feature of all the new forms is the inclusion of a declaration requiring agents to confirm their local physical presence and residency or their engagement in business activities at the specified address in Hong Kong.

Additionally, the forms include a warning that providing false information or declarations constitutes an offence. The primary purpose of this requirement is to mitigate the risk of missed communications or deadlines if an agent lacks a physical presence in Hong Kong.

Therefore, IP owners should ensure they engage an agent with an actual physical presence in Hong Kong, rather than one that merely maintains a mailing address without conducting business activities.

Another notable feature of some of the new forms—specifically T8, T10, T11, P9, P10, P19, D5, and D11 – is the addition of data fields to capture the type and place of incorporation of IP owners, grantees, licensees/sub-licensees, mortgagees, and other relevant parties. This enhancement is designed to facilitate due diligence processes in relation to IP transactions.

IPD has provided the draft versions of the new forms for information purpose, see https://www.ipd.gov.hk/en/home/whats-new/index_id_628.html.

2. Absolute Grounds for Refusal of Trade Marks

IPD has revised the Chapter on “Absolute Grounds for Refusal of Trade Marks” with the aim to elaborating the Registry’s examination practice primarily focus on Sections 11(4)(a), 11(4)(b) and Section 11(5)(a) of Trade Marks Ordinance, summarize as follows:

Section 11(4)(a) –

marks contrary to accepted principles of morality, if the marks are: –

  • Offensive or vulgar
  • Threatening national security
  • Containing offensive or hateful content
  • Imitating official symbols
  • Containing references to tragedies or disturbing events

Section 11(4)(b) –

marks that are likely to deceive, if they: –

  • contain words “made/made in/imported from” or “exported from” a geographical place but in fact the goods are imported/exported from or made elsewhere; or
  • suggested official approval but without any actual endorsement.

Section 11(5)(a) –

use prohibited in Hong Kong by virtue of any law, if:

  • the use of the trade mark constitutes an offence under the PRC Law on Safeguarding National Security in the HKSAR and/or the Safeguarding National Security Ordinance.

Our firm could assist clients to assess the chance of refusal of the intended trade mark on the above grounds as well as other grounds before filing to avoid potential refusal of the marks.

3. Shortening the time of issuing hearing notice

Previously, IPD often took a year or more to schedule a hearing after the close of pleadings. However, in recent trends, IPD has significantly reduced the time required to issue a hearing notice, often scheduling hearings in less than a year. In some cases, hearing notices are issued within just one or two months.

This improvement is beneficial, as it allows parties involved in proceedings to anticipate a faster resolution of their cases, ensuring a more efficient legal process.

How We Can Help

As a Hong Kong law firm, we can serve as the client’s authorized agent in handling the registration of their IP rights, including the preparation and submission of the necessary IP forms to the IPD.  Additionally, we provide expert assistance in assessing the risk of trade mark refusal based on various legal grounds. By conducting this evaluation before filing, we help minimize the likelihood of rejection and ensure full compliance with applicable laws and regulations.

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.

Beyond Superstition: The Real Impact of Dying Without a Will in Hong Kong

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In many parts of Asia, discussing death and preparing a Will is still considered a taboo subject, with some even believing that writing a Will invites bad luck or misfortune. This reluctance to plan for the inevitable means that many individuals never fully consider what will happen to their assets when they pass away without a Will. In such cases, their estate is subject to the ‘laws of intestacy’ (Intestates’ Estates Ordinance (Cap. 73) and the Non-contentious Probate Rules (Cap. 10A)), which may not align with their personal wishes.

Before a person is able to handle the deceased’s estate, a Grant of Letters of Administration must be obtained from the Probate Court. The individuals eligible to apply for this grant are ranked by priority, as follows:

1. A surviving spouse

2. Children

3. Parents

4. Siblings

5. Grandparents

6. Uncles and aunts

Those granted Letters of Administration by the Court become the administrators, responsible for handling the estate in compliance with the law. Administrators must identify and gather the deceased’s assets, settle outstanding debts and expenses, and then distribute the estate in accordance with the law. Generally speaking, in intestacy, the law only allows your spouse to take half and your children to take the other half.

Besides the ability to ensure that your wishes are followed, there are two additional major reasons for having a Will:

(1) The process of obtaining probate or letters of administration from the Court is much faster (by months or even years) when there is a Will.

(2) Avoid estate litigation amongst your family members or close partners after you pass away. A good Wills/Probate lawyer will be able to draft the Will such that those who feel they have ever been financially supported by you have a much smaller chance of applying to the Court for sharing in your estate based on their once-close relations with you. Hong Kong law allows for those who have been financially supported by you to apply to Court to share in your estate.

If you would like to explore your options in this regard, please contact our Partner, Eunice Chiu (+852 2186 1885 / +852 9169 4356).

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 Legalities of Surrogacy: Complex Conceptions

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(This article was published in the March 2025 Issue of the Hong Kong Lawyer)

Surrogacy is generally known as the act wherein an individual agrees to become pregnant and give birth on behalf of another person or persons who will become the child’s legal parent(s) after birth. It is controversial because of various reasons, including the potential exploitation of vulnerable surrogates, lack of clarity with respect to child rights and the fact that it may be contrary to societal and/or religious values in certain societies. Questions which often arise include whether a woman has a right to make autonomous decisions about her own body and whether surrogacy would lead to the further objectification of children and/or women’s bodies, countered by the principle that reproduction is a basic human right.

Altruistic surrogacy is defined as surrogacy without monetary compensation (other than the payment of medical expenses), most likely done out of the goodness of the surrogate’s heart. On the other hand commercial surrogacy is defined as a surrogacy arrangement that involves the payment of money for services rendered as a surrogate.

Possible Parental Rights

When a child is born via surrogacy, it is entirely conceivable that the child has up to five types of individuals with varying and sometimes conflicting claims to parental rights – the sperm donor, the egg donor, the surrogate, the intended parents (if they were not the sperm donor and/or egg donor) and where divorce occurs, the step parents. The legal issues which arise with each type of individual and their parental rights are complex and often fraught with uncertainty.

Emotional and Psychological Factors

The surrogacy journey can be emotionally taxing for all parties involved. Intended parents may experience a range of emotions, from excitement to anxiety about the process and perhaps even a change of heart in extreme circumstances. Surrogates also face significant physical and emotional hurdles, including potential health complications during or after pregnancy, as well as the risk of forming an emotional bond with the child they are carrying. Awareness, open communication, counseling and robust institutional support systems are essential for societies to accommodate surrogacy arrangements from pre pregnancy to post birth.

Financial Considerations

The financial implications of surrogacy can be considerable, often ranging from tens of thousands to well over a few hundred thousand US dollars. Costs can include medical procedures, legal fees, agency fees and compensation for the surrogate. Many intended parents find themselves traversing a landscape where insurance coverage is limited, and financial planning becomes essential.

The Ethics of Surrogacy

There are many divergent points of view that highlight the complexities of this reproductive arrangement. Central to the discussion are the power dynamics which may emerge between wealthy intended parents and economically disadvantaged surrogates, raising concerns about exploitation and informed consent in commercial surrogacy agreements. The roles of surrogacy agencies and other brokers may create potential conflicts of interest, prioritising profit over the well-being of surrogates and even children. More recently, the ethical implications of genetic enhancement and selection further complicate the landscape, as they challenge notions of fairness and equity in reproduction. Moreover, medical practitioners must uphold their professional responsibilities to ensure that all parties are fully informed and supported, emphasising the need for ethical guidelines that prioritise the health and rights of surrogates and children while respecting the intentions of intended parents.

Legal Environment and Considerations

The legalities surrounding surrogacy can be complex and vary significantly by jurisdiction. In some countries, surrogacy is fully supported by the law, while in others, it remains highly regulated or even prohibited. Understanding these legal frameworks (which are often reflective of different societal values), is crucial for legal practitioners, would-be surrogates, intending parents and relevant health care providers.

In many jurisdictions, complex legalities beyond the actual surrogacy may not have been legislated as yet, such as rights of the child vis-a-vis immigration and citizenship when born abroad, their access to genetic/biological information, right to maintain a relationship with their surrogate mother as well as rights to other disclosure requirements.

Well drafted surrogacy agreements may provide for unforeseen circumstances such as prenatal testing decisions and potential conflicts, medical emergencies or even the termination of a pregnancy, but in many jurisdictions, surrogacy agreements are not enforceable. The results may be unpredictable in many surrogacy arrangements.

Australia

All Australian states prohibit commercial surrogacy, citing concerns about the exploitation of surrogates as well as parental rights and best interest of the child. Altruistic surrogacy is allowed, with some states being more restrictive than others. Reimbursement for verifiable, out-of-pocket expenses may be made where the expenses are directly associated with the surrogacy procedure, pregnancy or birth.

Pursuant to the  Ethical guidelines on the use of assisted reproductive technology in clinical practice and research 2017 (updated 2023), expenses which are allowed include the following:

  • medical and counselling costs, before, during, and after the pregnancy or birth;
  • travel and accommodation costs within Australia;
  • loss of earnings from unpaid leave;
  • insurance;
  • child care costs when needed to allow for attendance at appointments and procedures related to the surrogacy arrangement; and
  • legal advice.

The legal recognition of intended parents depends on the state where the surrogacy arrangement takes place. In the state of New South Wales, the Surrogacy Act 2010 stipulates that at birth, the surrogate is recognised as the birth mother of the child and if she is married or has a partner, that person is recognised as the other parent. The intended parents must then apply to the Supreme Court for a Parentage Order before they can be recognised as the legal parents.

Surrogacy arrangements made in New South Wales are not legally enforceable.

Canada

The federal Assisted Human Reproduction Act (“AHRA”) governs surrogacy in Canada, where only altruistic surrogacy is permitted. Compensation for expenses is permitted but commercial surrogacy is strictly prohibited. The AHRA does not affect the legality of any surrogacy agreement that has been signed in Canada, which must follow the law of the province where the agreement was signed.

Legally reimbursable items include:

  • ravel expenditures;
  • expenditures for the care of dependants or pets;
  • expenditures for counselling services;
  • expenditures for legal services and disbursements;
  • expenditures for obtaining any drug or device as defined in section 2 of the Food and Drugs Act;
  • expenditures for obtaining products/services that are provided or recommended in writing (and the cost of such recommendation) by an authorised person to assess, monitor and provide health and postpartum care to a pregnant woman;
  • expenditures for the services of a midwife/doula;
  • expenditures for groceries, excluding non-food items;
  • expenditures for maternity clothes;
  • expenditures for telecommunications;
  • expenditures for prenatal exercise classes;
  • expenditures related to the delivery;
  • expenditures for health, disability, travel, or life insurance coverage; and
  • expenditures for obtaining or confirming medical or other records.

The legal process through which intended parents obtain legal parental status varies by province. Pursuant to the Children’s Law Reform Act in the province of Ontario for example, intended parents establish parentage through a simple administrative process provided the surrogacy agreement was entered into prior to conception, each party received independent legal advice, there are no more than four intended parents and conception was achieved via assisted reproductive technology.

Hong Kong SAR

Pursuant to section 17 of the H (Cap. 561), Hong Kong prohibits commercial surrogacy arrangements. In altruistic arrangements, bona fide medical expenses arising from the pregnancy and the delivery of the child born via surrogacy are legally reimbursable.

To establish legal parentage, the intended parents may obtain a parental order under section 12 of the Parent and Child Ordinance (Cap. 429). Unfortunately only legally married heterosexual couples can apply. When considering the application, the court will retrospectively authorise and approve surrogacy expenses.

Where the intended parent or parents are not legally married heterosexual couples, the only option may be to seek judicial approval for the child to be privately adopted outside the Social Welfare Department. This limitation arises from Hong Kong’s current lack of recognition for same sex marriages.

Hong Kong’s regime is one where an altruistic arrangement with intended parents who are legally married to each other is the only legal pathway for surrogacy. Furthermore, surrogacy agreements are not enforceable in Hong Kong, making it a challenging jurisdiction for surrogacy arrangements.

United Kingdom

In the UK, surrogacy is regulated under the Surrogacy Arrangements Act 1985. Surrogates can be compensated for reasonable expenses, but surrogacy agreements cannot be enforced. Commercial surrogacy is prohibited.

There is no definition of what constitutes reasonable expenses – this has led to generous interpretations by the courts for allowable expenses, yet commercial surrogacy is strictly prohibited. The Law Reform Commission of England and Wales published a joint report with the Scottish Law Commission in 2023 that recommended clarifying categories of payments that intended parents will be permitted to make and conditions for intended parents to become legal parents upon the birth of a child born via surrogate.

At present, the surrogate is the child’s legal parent at birth in the UK. If the surrogate is married or has a partner, the spouse/partner will be the child’s other legal parent, unless they did not give their consent. Intended parents may apply for a parental order at the family court after the child’s birth to gain legal recognition as the parents but only if one of the intended parents is genetically related (i.e., the egg or sperm donor) to the child. If not, the only route to becoming legal parent(s) is adoption.

United States

In the U.S., surrogacy laws differ from state to state. States like California and Illinois have permissive regulations that support both altruistic and commercial surrogacy arrangements, often providing legal recognition of the intended parents as the child’s legal guardians. Conversely, Arizona’s Revised Statute § 25-218 prohibits surrogacy. In many other states, their legislatures have not yet legislated for or against surrogacy.

New York’s Family Court Act Chapter 686 Article 5-C allows for reimbursement and compensation for surrogates, enforceable surrogacy agreements and judgement of parentage prior to the child’s birth, which becomes effective upon the child’s birth.

This patchwork of laws often leads intended parents to “venue shop,” opting for states or regimes with more favorable legal conditions for surrogacy. But arranging for surrogacy in one venue and then taking the child to live in another venue may lead to a more complex route when the intended parent(s) seek to become legal parent(s) of the child.

Other Jurisdictions

Countries like India, Russia and Ukraine have become popular destinations for international commercial surrogacy due to their more permissive laws. However, intended parents must make themselves aware of the legal challenges they may face when they wish to return to their home country with a child born via surrogacy.

Conclusion

Both altruistic and commercial surrogacy offer a viable pathway for many individuals and couples hoping to create a family despite their financial, legal, physical and/or psychological obstacles. Navigating these complex landscapes requires careful consideration, maturity and professional planning. Understanding the specific laws and regulations governing surrogacy in various jurisdictions, alongside their associated costs and support systems, is essential for the intended parent(s).  

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.

Entering Senior Citizens’ Homes in Hong Kong: Legal and Contractual Considerations You Can’t Overlook

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On the 15th of April 2024, the Consumer Council published a critical report examining the standards, costs, and transparency of care homes in Hong Kong. While the findings highlighted several concerns such as hidden fees and inconsistent care standards, they also brought to light one of the issues underlying such concerns: vague contractual terms and families’ lack of awareness of the legal and financial complexities tied to choosing a residential care home.

Entering an care home, whether government-subsidized or private, is a significant decision that involves more than just evaluating sufficiency of facilities, staffing and services. The contractual terms of the agreement signed with the care home dictate everything from fees to care provisions and a resident’s rights. This is especially true for private care homes, where families often take on greater financial responsibility and need to be extra vigilant about what they’re agreeing to.

In this article, we will explore the key legal and contractual considerations that everyone should be aware of when selecting an care home in Hong Kong.

Licensing and Accreditation

Whether you’re considering a private or subsidized care home, the first step is to ensure that the facility is properly licensed. In Hong Kong, all Residential Care Homes for the Elderly (RCHEs) are regulated under the Residential Care Homes (Elderly Persons) Ordinance (Cap. 459), which establishes minimum standards for accommodation, staffing, and care.

Beyond licensing, consider whether the home is accredited by recognized bodies like the Hong Kong Accreditation Service (HKAS). Accreditation signifies adherence to stricter standards, which may translate to better care and safer environments.  As the Consumer Council noted, homes with accreditation are more likely to invest in continuous improvements.

Fees: Transparency Is Key

The report revealed that fees in private care homes could range dramatically, from $6,000 to over $80,000 per month. Yet, these figures often exclude additional costs for consumables, medical care, or even basics like air-conditioning.  It’s vital to scrutinize the contract for clarity on:

  • Base fees: Understand exactly what is covered in the monthly charges.
  • Additional charges: Common extras include medical escorts, special dietary needs, or incontinence supplies like diapers. These costs can add up quickly, so be sure to ask for a detailed list.
  • Refund and deposit policies: If a resident is hospitalized or chooses to leave the home early, will unused fees be refunded? Many contracts have strict rules—or none at all—around refunds, so this deserves close attention.
  • Fee increases: Look for clauses that permit fee adjustments. While cost of living increases are common, contracts should specify the notice period and the percentage increase allowed.

In private homes, families shoulder the full financial burden, making transparency on fees even more critical.

Care Services: Will the Home Meet Evolving Needs?

One of the Consumer Council’s key concerns was the limited flexibility in care homes to accommodate changes in residents’ health. Whether the home provides basic care, nursing care, or specialized dementia care, the contract should clearly outline the services available and what happens if care needs change over time.

For example:

  • Does the facility provide 24/7 nursing care?
  • What happens if the resident develops mobility issues or requires end-of-life care?
  • Will the home help arrange transfers to a higher-care facility if needed?

Private homes may offer more personalized care packages, but they often come at a significant cost. It’s essential to know in advance whether the care home can continue to meet your loved one’s needs or if they may require relocation later.

Termination Policies

Termination clauses vary widely between care homes, and the Council’s findings revealed a lack of consistency in how homes handle contract cancellations. Look for specifics on:

  • Voluntary termination: If you decide to leave the facility, how much notice is required? What are the refund policies?
  • Facility-initiated termination: Under what conditions can the home discharge a resident (e.g., inability to pay or health issues they can’t manage)?
  • Eviction procedures: These should align with consumer protection laws to prevent unfair or abrupt evictions.

Private homes, in particular, may have stricter terms that favor the facility, making it critical to review these clauses with care.

Dispute Resolution: What Are Your Options?

Many contracts include clauses that require disputes to be settled through arbitration or mediation rather than court proceedings. While these processes can be faster, they are also more expensive and may limit your ability to pursue legal action if necessary. Ensure the contract outlines a clear, fair, and transparent resolution process, and familiarize yourself with resources like the Hong Kong Consumer Council, which can mediate disputes and offer advice.

Resident Rights: Legal Protections to Look For

Under the Residential Care Homes (Elderly Persons) Ordinance, residents are entitled to basic rights such as privacy, dignity, and involvement in care decisions. Private care homes often market themselves as offering “premium” services, but these rights should never be compromised. When reviewing a contract, ensure it reflects commitments to:

  • Healthcare provision: The availability of on-site medical staff and emergency response systems.
  • Safety and hygiene: Policies for infection control, cleanliness, and regular health checks.

The Consumer Council also encouraged families to inquire about staff-to-resident ratios, as lower ratios often result in better care.

Data Privacy and Legal Guardianship

The Consumer Council emphasized the importance of safeguarding residents’ personal and medical information, particularly in private facilities where external services may be involved. Ensure the contract complies with the Personal Data (Privacy) Ordinance (Cap. 486) and includes clear guidelines on how data will be shared or used.

If the resident has a legal guardian or power of attorney, verify that the care home recognizes these arrangements and respects the decision-making authority of the appointed representative.

Conclusion: Be Informed, Be Protected

The Consumer Council’s report serves as a powerful reminder that entering an care home in Hong Kong is a decision with significant legal and financial implications.

If you would like to explore your options in this regard, please contact our Partner, Eunice Chiu （+852 2186 1885 / +852 9169 4356）.

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.