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Justice Delayed is Justice Denied

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This ‘Letter to the Hong Kong Lawyer’ by Gordon Oldham was originally published in April 2021. Please click here for the original article. 

According to the recent Financial Times article ominously titled ‘Companies consider writing Hong Kong out of legal contracts,’ multinationals are reviewing whether or not to exclude Hong Kong from their legal contracts over anxieties around Beijing’s expanding influence on the territory’s rule of law. International media commentary like this is fuelling increasingly negative perceptions of Hong Kong’s legal system.

In response, I suggest that now more than ever is the time for us, the local legal community, to come together and focus on fixing our actual, real-world problem. That is our broken court system.

Our courts resemble an inspiring but vintage Rolls Royce which still very much leads with ‘the Flying Lady’- the Rule of Law, but unfortunately, the seats are threadbare, the paintwork faded, the engine requires replacing and the electronics are non-existent.

This current state of affairs has nothing to do with our excellent Judges. Our Judiciary continues to deliver above and beyond and they have the full support of Hong Kong’s legal practitioners. The problems with our court systems are operational. The system exudes a delegation of responsibility mindset, a blanket resistance to all matters digital, an all-the-time-in-the-world attitude coupled with inefficiencies which viewed from a modern corporate setting are laughable – having someone sit and wait three hours for a piece of paper to be chopped is lamentable in this day and age. On top of this, there is insufficient numbers of support staff members, as well as Judges, and limited focus on how to help the Hong Kong public.

We legal practitioners know how embarrassing it is to say to a client that they have a great case but it will probably be 18 months before it is heard. A recent survey of 69 jurisdictions around the world, carried out by OLN, showed that overall, Hong Kong not only ranks in the top five for the most expensive court proceedings but also in the top 20% for the length of time it takes to actually get to court. We are expensive and slow.

On top of all this, those of us in the Hong Kong legal community know our local courts have been chronically ill-equipped to cope with Covid-19, especially compared to Singapore and other jurisdictions. The very jurisdictions that are looking to profit from the negative perceptions pronounced by the Financial Times.

However, we cannot simply blame the backlogs on Covid-19 or the judiciaries’ techno-phobia. These operational problems run deeper and point to a more ingrained malaise. It is, in fact, our collective acceptance that enables this antiquated and dysfunctional system to exist and persist. We have to actively be part of the change instead of tolerating it as some endearing, antiquated throwback together with horsehair wigs. As practitioners, we all laugh at the story of Jarndyce and Jarndyce, described so perceptively by Dickens, but in Hong Kong, those days still exist.

However, given the Hong Kong legal community lives in the increasingly competitive and globalised twenty first century, not in Charles Dickens’ times, we urgently need to take on a solution-minded commitment to revamp our courts and double down on our efforts to undertake the repairs necessary to renovate the infrastructure of our legal system, from top to bottom. Consider the following:

  • Compulsory annual legal technology CPD: this has been introduced years ago in certain US states. Solicitors do not need to learn to code, but let’s stopped being frightened by terms such as legal design, robotic process automation and natural language processing.
  • Ask our Law Society to establish collaboration with third parties/digital designers and lawyers: We should focus on how we want the courts to look with processes that lead to a user-friendly and above all faster and more efficient system.
  • Online/video trials: Permit trials to be conducted online and in person, as we have seen in other jurisdictions.
  • Digitalization of transcripts: Judges – please put down your pens – and allow the parties to have a written transcript produced at the end of every day. There are voice recognition programs and transcription technologies that can help.
  • More Funding: There should be more financial resources available for the courts to shorten the waiting time for court hearings. These could fund for example:
    • more judges on the panel
    • transcribers to take notes and other clerks to handle note taking instead of the judge doing his/her own during trials
    • non-practicing lawyers to help write judgements to free up time for the Judges to review the draft instead of writing his/her own judgement
    • a restructuring of the legal department with more people, more KPIs, more commitment to service, and the delivery of a fast, reliable, efficient court service

In response to the Financial Times article, Teresa Cheng wrote ‘We continuously strive to meet market demands to ensure Hong Kong remains one of the world’s leading international legal hubs [….] for dispute resolution services.” However, the reality of cases taking 18 months to get to court does not make Hong Kong a leading global hub for dispute resolution services.

Now is the time for our legal community to come together and take action. We need to refocus and rebuild the Hong Kong court system, installing a modern, forward-thinking approach that serves the local community. That is if we want to continue to be proud of a Hong Kong legal system that stands head and shoulders above its international rivals.

ALB Asia Employer of Choice 2021 – For the Third Consecutive Year

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In the April 2021 edition of Asian Legal Business, OLN has once again been awarded ‘ALB Employer of Choice,’ one of the best law firms to work for in Asia. This is the third consecutive year that OLN has succeeded in achieving this accomplishment, winning the award for a total of four years. The firm would like to thank our staff for the tremendous effort over the last year, disrupted by COVID-19, as well as in previous years, ensuring the firm is consistently ranked as an ALB Employer of Choice. 

The ALB Employer of Choice 2021 survey was open to all employees, from managing partners to paralegals to non-legal staff. There were over 1800 respondents from eight Asian jurisdictions, and the winners were selected based on the number and quality of respondents. For more details, please read the Asian Legal Business report by clicking here.

Recovering in Arbitration Costs of Ancillary Court Proceedings Revisited

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(This article was published in the April 2021 Issue of Hong Kong Lawyer: http://www.hk-lawyer.org/sites/default/files/e-magazines/HKL-APR-2021/viewer/desktop/index.html?doc=05D3B64F4883E4B7B372AA907090C1D6#page/36)

The Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (the “Arrangement”) is a major breakthrough for parties to Hong Kong seated arbitration, in the sense that it allows parties to apply to Mainland courts for interim measures in support of arbitration. No similar arrangements have been made between Mainland China and any other jurisdictions. Therefore, the Arrangement, dubbed by some as the game changer, gives unparallel benefit to choose Hong Kong as the neutral seat of arbitration for China-related disputes.

It should be noted that Mainland courts do not practise “loser pays costs” generally. An interesting question therefore arises as to whether the parties to Hong Kong arbitration may recover in arbitration, costs of obtaining interim measures in Mainland courts under the Arrangement. In fact, Mainland China is not the only jurisdiction where parties to court proceedings bear their own costs by default. The wider issue may be whether, generally, parties may recover in arbitration costs of obtaining interim measures in related court proceedings where the default costs rule is “parties to bear their own costs”.

This article will critically examine this costs recovery issue. Whilst arbitration parties from the common law world may welcome such costs recovery, it will be argued that the arbitral tribunal should be slow to exercise any jurisdiction to allow such costs recovery. Any arbitral award allowing such costs recovery may be liable to be set aside or otherwise unenforceable for contravening public policy. It will be respectfully submitted that the simplest solution is to insert an appropriate costs indemnity in the contract.

THE ISSUE

In Costs of the Arbitration and Costs of Obtaining Interim Measures (Hong Kong Lawyer, September 2020), the issue of recovering in arbitration costs of obtaining interim measures in Mainland courts was examined in the context of the Arrangement. Contrasting against the UK Arbitration Act 1996 (the “AA”), where the reference to “other costs” in the “costs of the arbitration” might be interpreted widely to cover costs in ancillary court proceedings, it was argued that the Arbitration Ordinance (the “AO”) is “silent on whether the costs incurred in court proceedings for seeking interim measures are recoverable as part of the costs of the arbitral proceedings”. It was suggested that amendments to the Arrangement should be made to allow such costs recovery in arbitration.

JURISDICTION OF ARBITRAL TRIBUNAL

Insofar as Hong Kong arbitration is concerned, the AO is actually not completely silent on the issue of recovering in arbitration costs of ancillary court proceedings. Section 74(3) of the AO provides that “[t]he arbitral tribunal may also, in its discretion, order costs (including the fees and expenses of the tribunal) to be paid by a party in respect of a request made by any of the parties for an order or direction (including an interim measure).” (emphasis added) Whilst section 74(3) does not specifically state to cover costs in respect of court applications related to arbitration, it would be redundant to interpret it otherwise, for the arbitral tribunal’s power to award costs of the arbitral proceedings generally has been dealt with under section 74(1) of the AO. Given its broad language, section 74(3) arguably covers a request for interim measures made to a court.

In the context of the Arrangement, Article 3 envisages the involvement of the arbitration institution in the application to Mainland courts for interim measures. For example, where an application for interim measure is made after the arbitration institution has accepted the arbitration case, the party’s application shall be passed on by the arbitration institution. Hence, coupled with the abovementioned sections 74(1) and 74(3), the arbitral tribunal should have jurisdiction to award costs of the parties’ requests for interim measures (with such costs of the applications to Mainland courts subsumed under the abovementioned Article 3).

In any event, “other costs” are included in the “costs of the arbitration” in the majority of the institutional and ad hoc arbitration rules (e.g. Article 34.1 of the 2018 HKIAC Administered Arbitration Rules; Article 38 of the ICC Arbitration Rules (2021); Article 40(2) of the UNCITRAL Arbitration Rules (2013)). To the extent that the term “other costs” in the AA could be interpreted widely to cover costs in ancillary court proceedings, by virtue of the arbitration rules, the arbitral tribunal should have jurisdiction to allow the recovery of such costs.

EXERCISE OF JURISDICTION

Even though a Hong Kong-seated arbitral tribunal may have jurisdiction to allow the recovery of costs in ancillary court proceedings by virtue of section 74 of the AO and/or the arbitration rules, it does not necessarily follow that it should, always or otherwise, exercise such jurisdiction. Indeed, it appears that such jurisdiction should be extremely rarely exercised, especially where the default costs rule in the court proceedings cannot be contracted out.

It should be borne in mind that the arbitral tribunal derives jurisdiction from the arbitration agreement. Where the parties may not contract out the default costs rules, the arbitral tribunal deriving powers from the parties should be slow to exercise such costs jurisdiction to the same effect. Otherwise, any such arbitral award may be liable to be set aside under section 81 of the AO or otherwise unenforceable for contravening public policy (Ralli Brothers v Compañia Naviera Sota Y Aznar [1920] 2 K.B. 287; Ryder Industries Ltd v Chan Shui Woo [2016] 1 HKC 323).

COST INDEMNITY AS THE SOLUTION

In the absence of any legislative change to the default costs rule of the court proceedings, without fettering the exercise of judicial discretion on costs in court proceedings and without contracting out the default costs rule, the simplest way to recover in full legal costs whether incurred in arbitration or court proceedings may be to insert a costs indemnity in the contract to reflect the parties’ bargain on costs position. A costs indemnity, giving a contractual right to costs, stands independently of the curial power to award costs, and parties may still enforce the costs indemnity unless precluded by estoppel or res judicata (Cervo v Kingsleys Pty Ltd [2018] ACTSC 179).

In Abigroup Limited v Sandtara Pty Limited [2002] NSWCA 45, the New South Wales Court of Appeal upheld the District Court judgment, and affirmed the plaintiff’s contractual right to claim the difference between “solicitor and client” costs and party and party costs pursuant to a contractual indemnity in a fresh action, even though it was only awarded party and party costs in the main proceedings. The Court of Appeal held that there was no estoppel preventing the subsequent proceeding in the District Court nor any abuse of process.

Generally, any judicial exercise of discretion on costs that does not address a separate costs indemnity does not give rise to a res judicata, or otherwise preclude enforcement of such costs indemnity. A contractual stipulation as to how costs of future litigation are to be borne as between the parties is also not vitiated by an inconsistent order for costs in that litigation (Vertzayias v King & Ors [2011] NSWCA 215).

That said, whether a party is precluded from enforcing a costs indemnity in subsequent proceedings requires careful examination of the circumstances of each case. In particular, it depends on various factors such as the language of the indemnity, whether it was pleaded or considered in the earlier litigation (including the submissions made to the judge), why a party refrained from litigating the issue in the earlier proceedings, and the terms of the orders made in the previous proceedings (Cervo v Kingsleys Pty Ltd [2018] ACTSC 179).

CONCLUSION

It is understandable that the arbitration community from the common law world is used to the “costs follow the event” rule, and prefers a “full recovery” of costs related to the cause of the arbitration, even though such costs are incurred in court proceedings where the default costs rule is for parties to bear their own costs. Whilst an arbitral tribunal may have jurisdiction to award costs of ancillary court proceedings, it should be slow to exercise any costs jurisdiction to allow the parties to contract out the mandatory application of the default costs rule in effect. Without fettering the court’s power to award costs, parties should consider inserting a suitable costs indemnity to fix their costs position bargained at arm’s length.

ACKNOWLEDGMENT

The authors would like to acknowledge the research assistance of Alex Dai (Trainee Solicitor of Oldham, Li & Nie).

April 2021

Holding an AGM in Hong Kong During the COVID-19 Era

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During this age of COVID-19, some standard business practices that used to be easily dealt with have become difficult to execute including the holding of an Annual General Meeting (the “AGM”). In Hong Kong, companies have to make sure the AGM is in compliance not only with the Companies Ordinance (Cap. 622 of the Laws of Hong Kong) (“CO”) but also the public health regulations.

In light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation (Cap. 599G of the Laws of Hong Kong) (the “Prevention Regulation”), which became effective on 29 March 2020, group gatherings in any “public place” in Hong Kong are prohibited. However, an exemption applies for “any group gatherings at a meeting of a body that must be held within a specified period in order to comply with any ordinance or other regulatory instrument that governs the operation of the body or its business”. This exemption covers company AGMs. In this article, we discuss how the AGM will be held in both listed companies and private companies in light of the Prevention Regulation and also the CO. 

Private companies

Physical meeting 

For the sake of public health, companies are encouraged to limit the physical attendance of shareholders at their AGMs as much as possible and to implement precautionary measures in order to achieve social distancing.

As stated in paragraph 11 of Schedule 1 of the Prevention Regulation, if there are more than 20 persons attending the AGM, companies must ensure that there are measures in place to separate the shareholders in different rooms or partitioned areas and each accommodating not more than 20 persons.

In order to better manage the number of shareholders who can attend the meeting, companies may consider requesting shareholders to pre-register if they wish to attend in person. Companies may also encourage shareholders to submit their questions to the management in writing before the meeting.

Virtual meeting/Hybrid meeting

With the advancement of technology, the CO has introduced a provision that allows the use of technology in shareholders’ meetings. Section 584(1) of the CO stipulates that “A company may hold a general meeting at two or more places using any technology that enables the shareholders of the company who are not together at the same place to listen, speak and vote at the meeting.” This can enable shareholders who are not at the same place to listen, speak and vote. 

Pursuant to section 576 of the CO, if a meeting is to be held at two or more places, the principal place of the AGM and the other place or places of the meeting must be specified in the notice of the meeting.

Still, a quorum and other such requirements must be followed for the meeting to be properly convened and for the decisions arising out of the meeting to be valid.

In addition, the shareholders must be able to cast their vote in the virtual AGM. The company should set up a mechanism to allow shareholders to cast a vote. It could be something as simple as a show of hands via video conferencing or an oral response via a phone call. These will be sufficient to count as a vote. 

Alternatively, some companies hold the AGM by way of a hybrid meeting i.e. the meeting is held both at a physical location and electronically. Shareholders have the option to attend the meeting either in person or virtually.

Please be aware that if the company intends to hold virtual meeting/hybrid meeting, the company should check with the company’s articles of association or any shareholders’ agreement to see if there are any provisions which require the physical presence of shareholders in the AGM. 

Written resolution 

Furthermore, instead of holding physical meetings, one could consider the use of written resolutions. Subject to the exceptions for removal of auditor or director(s) before the end of their term of office, section 548 of the CO provides that the company can circulate written resolutions for the shareholders. According to section 556 of the CO, the resolution is passed when all shareholders eligible to vote on the resolution have signed to it. The strategy of adopting written resolutions instead of physical meetings would only be possible if there are a limited number of shareholders or directors and it is foreseeable that there are no dissenting views.

Listed companies

Physical Meeting

On 1 April 2020, the Securities and Futures Commission (“SFC”) and The Stock Exchange of Hong Kong Limited (“HKEX”) issued the “Joint statement in relation to general meetings in light of the Prevention and Control of Disease (Prohibition on Group Gathering) Regulation” (“Joint Statement”) to clarify listed companies’ obligations to hold general meetings in light of the Prevention Regulation. 

Under the Joint Statement, all shareholders’ meetings, including (i) the AGMs as required under the Companies Ordinance and/or the Main Board Listing Rules or the GEM Listing Rules; and (ii) extraordinary general meetings and special general meetings of Hong Kong-listed companies generally fall under the exception of the Prevention Regulation.

Practical tips in holding AGM online 

(1)    Communication with shareholders: The company should remind shareholders to check the arrangement of the AGM on the company’s website. 

(2)    Sufficient time for shareholders to return their proxy forms: If shareholders do not attend in person, the shareholders can vote by proxy forms prior to the meeting.

(3)    Questions from shareholders: The company should provide channels for shareholders to raise questions to the management prior to the meeting, either in writing or electronically, so that shareholders who are not attending still have the opportunity to raise questions. 

(4)    Arrangements for physical meetings: If a company decides to hold a physical AGM, the company should shorten the presentations or publish them on the company website. In the event that an adjournment is required, a company should prepare a script for their meetings and plan in advance the period of their adjournment, as well serving a shareholders notice of adjournment or postponement if needed. In addition, refreshments should not be available. The company should ensure that sanitization and other arrangements are in place at the AGM venues.  

(5)    Prepare guidelines on virtual meetings: In order to facilitate a smooth virtual meeting, the company should prepare guidelines for the shareholders in relation to some practical problems they might face in a virtual meetings such as how shareholders can rejoin the meeting if they have lost connection or how votes can be cast e.g. by clicking a button or a physical show of hand etc. and prepare any contingency plans in case there are any technical difficulties. 

Virtual meetings are predicted to remain in the post-COVID-19 era. It is recommended that companies should plan carefully as to what measures to be undertaken in relation to holding an AGM in order to comply with the Companies Ordinance and the Prevention Regulation.

Enforcing a French Court Judgment in Hong Kong

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If you have obtained a decision in your favour in an overseas jurisdiction against a Hong Kong company or individual, the key question for you would be whether or not this judgment can be enforced in Hong Kong.

A court decision cannot be enforced overseas without first being recognised by the relevant countries concerned, and Hong Kong is no exception to this principle.

French courts are issuing an increasing number of decisions against non-French companies, including many registered in Hong Kong. According to French law, to enforce a judgment by a French court in an overseas jurisdiction, there is an obligation to comply with the ‘Exequatur procedure,’ and this procedure may vary depending on the overseas jurisdictions involved.

Enforcement in Hong Kong 

The enforcement of French or other foreign judgments can be obtained in two ways: either registering the decision with the Court of First Instance or bringing a new legal action.

As far as France is concerned, the exequatur procedure that must be followed is the former – registering the decision with the Court of First Instance. There is no need to bring new legal action and start the whole process from the beginning again.

When you have obtained a conviction against a Hong Kong company, the core considerations before moving forward are the following:

1.    Is the defendant solvent in Hong Kong?
2.    Is the judgment final?
3.    Does the decision order payment of monetary damages?

If the answers to these three questions are affirmative, you can then consider the next steps to take.

Once the defendant’s solvency in Hong Kong is established, it is possible to proceed with the registration procedure, which is provided for in the Foreign Judgments (Reciprocal Enforcement) Act Cap 319. This text enables the enforcement of foreign judgments by registering decisions from superior courts in designated countries with reciprocal arrangements with Hong Kong. These designated countries include Australia, Bermuda, Brunei, India, Malaysia, New Zealand, Singapore, Sri Lanka, Belgium, France, Germany, Italy, Austria, the Netherlands, and Israel. 

Under these provisions, the beneficiary of a French court’s decision may apply to the Court of First Instance in Hong Kong for registration.

Here are some of the conditions to be met (this list is not exhaustive):

•    the decision must relate to the payment of a sum of money;
•    the decision must be final and not subject to appeal;
•    the decision must be issued by a civil or commercial court; and
•    the application must be filed within six years of the final decision from the foreign jurisdiction.

Once the decision is registered in Hong Kong, a notification will be served to the defendant, and the decision can be enforced in the same way as the decisions by local courts.

Security for Costs

A critical specificity in Hong Kong, is that the local court can ask the plaintiff seeking enforcement for security in the form of a deposit. It is well-established in Hong Kong that a foreign plaintiff may be ordered to deposit a sum in court, known as the ‘Security for costs’ when starting legal proceedings.

The security for costs aims to cover part of the defendant’s estimated litigation costs in defending an action brought by a foreign plaintiff. When the defendant successfully defends the action, the amount of its legal costs that normally would be payable by the foreign plaintiff, would be secured by the security for costs. 

Therefore, depending on the amounts involved, this can act as a deterrent for overseas plaintiffs as they may not want to have a significant financial sum locked up in Hong Kong.

As mentioned above, this procedure of registration at the Court of First Instance is only available for a specific list of countries (including France). Therefore, for other jurisdictions you should always check if the jurisdiction issuing the decision to be enforced in Hong Kong is also on this list. If not, the possibility of bringing a new legal action based on the foreign judgment remains open. 

No Requirement for Reciprocity

This procedure is possible even if the decision does not emanate from a common-law jurisdiction as there is no requirement for reciprocity. A decision rendered by a court in a jurisdiction that does not recognize a judgment made by a Hong Kong court may still be enforced in Hong Kong if all the conditions are met.

Should you wish to enforce a foreign decision in Hong Kong, and more specifically a decision issued by a French judge, it is highly recommended to contact a Hong Kong lawyer to discuss the best way forward.

Trade Mark Reviews in China – Some Encouraging Successes

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The general principles in determining whether a trade mark can be registered in China are to a large extent the same as in most other countries, considering China is also one of many jurisdictions in the WIPO Madrid International Registration system. Indistinctive or descriptive marks which fail to achieve registration in the European Union will probably have no chance of registration in China. Yet it does not mean that trade marks which are clearly distinctive and registered in most places around the world will naturally be accepted for registration in China because certain technical or special grounds can withhold registration, putting aside the relative ground due to existence of prior similar marks.

For example, a mark will likely have its registration declined in China if it comprises a country name or any foreign geographical name widely known to the public. During the course of substantive examination, the Examiner may not look at every aspect to find out if the relevant name has any other meanings or references in the whole context of the mark. Upon refusal, the Applicant will have to resort to the review process to explain and justify that the mark in its entirety can satisfy the requirements for registration.  

There are 3 scenarios where a mark comprising a geographical name may be registered: –

  1. the name has another meaning
  2. the name forms part of a collective or certification trade mark
  3. the name is not a dominant element of the mark and it only serves to indicate the corresponding place of origin of the applicant    

Marie France Van Damme

Fashion designer Marie France Van Damme uses her own personal name for branding purposes and has been trading under the mark  . However, this was initially declined for registration in Class 25 for “clothing” in China because of the word “FRANCE” within the trade mark. Ms Van Damme succeeded in the review by convincing the review adjudicator that the word “France” is generally perceived by consumers, in the context of her brand, as the name of a living person instead of referring to the country of France.  

URAL

The mark  was initially declined for registration in Class 9 for “loudspeakers” in China because of the word “URAL” in the mark being associated with the Ural Mountains located along the East European and West Siberian plains. The applicant succeeded in the review by convincing the review adjudicator that the word “URAL” can also be a surname and a specie of owl. The evidence of pre-application use of the mark by the extensive sales of the goods in China might have supported this case. However, as it is not expressly entered as a condition of registration in China whether or not a mark has been granted based on acquired distinctiveness through use, such unreported precedent gives us a useful hint or guidance that this approach can work in some cases.    

Car And Driver

Suggestive marks are often just categorically seen as descriptive marks in China. The application for   was initially declined registration in Class 4 for ‘fuels’ as the words ‘CAR’ and “DRIVER” seem closely associated with the products of “fuels” for automobiles but if we look at these words more carefully, they are not directly connected to the essential characteristics and functions of the goods. The Applicant succeeded in the review by convincing the review adjudicator that the mark as a whole is not directly descriptive of the goods sought to be registered and it is capable of functioning as a trade mark to indicate the source of origin of the goods.  

China has a tremendously high number of trade mark applications filed on a daily basis. We just need to bear with a reasonable degree of discrepancy, fluctuation and inconsistency between different examiners in assessing the inherent registrability of a trade mark. The good news is we can always rely on the review mechanism to share our views and analysis with the more senior examiners to reassess whether a mark, which is usually unique on its own, can satisfy the requirements for registration as laid down in the Trade Mark Law. We are seeing good progress as China becomes more aligned with rest of the world in the administration of the trade mark regime.