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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: Use of Mediation

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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.

When parties are in a dispute actively considering for settlement, mediation stands out as a viable and pragmatic process to resolve conflicts while reducing the burdens of prolonged litigation.

Mediation

Mediation is a structured process in which one or more impartial individuals, without adjudicating a dispute or any aspect of it, assist the parties in identifying the issues in dispute, exploring and generating options, communicating with one another and reaching an agreement regarding the resolution of the dispute[1].

Benefits of Mediation

  1. Without prejudice privilege

As codified under section 9 of the Mediation Ordinance (Cap. 620), a mediation communication may be admitted in evidence in any proceedings (including judicial, arbitral, administrative or disciplinary proceedings) only with leave of the Court or tribunal.

The without prejudice privilege allows parties to negotiate freely without fear that their discussions can be used against them in court, encouraging open and honest dialogue. 

  1. Confidentiality

The process of mediation is strictly confidential.

As provided under section 8 of the Mediation Ordinance (Cap. 620), a person must not disclose a mediation communication, except for limited exceptions (e.g. consent of all relevant parties, content of mediation communication is already in the public domain, or disclosure is required by law).

The confidential nature of the mediation ensures that sensitive details remain private, protects the emotional well-being and prevent the public exposure often seen in trials. Confidentiality also affords parties a safety net to frankly disclose their concerns and objectives of the settlement proposal.

  1. Impartiality of the mediator 

The mediator must be impartial and conflict-free. The impartiality of the mediator ensures that all parties would be treated fairly, thereby encouraging honest and open dialogue in the process. The mediator will also actively manage the process, such that the more vulnerable party would not be undermined by the stronger party.

  1. Expertise of the mediator

As parties have the flexibility to decide who to appoint as mediator, mediation offers a distinct advantage by allowing parties to select an industry expert as the mediator, ensuring the facilitator has specialized knowledge relevant to the dispute. 

This expertise enables the mediator to better understand the technical or sector-specific issues at play, fostering more informed discussions and credible solutions that resonate with both sides. For instance, in a construction dispute, a mediator with engineering experience can grasp the nuances of project delays or defects, helping parties navigate complex claims more effectively. By choosing a mediator with the required industry insight, parties can achieve a more tailored and efficient resolution, making mediation a highly beneficial option for settlement.

  1. Costs and time involved 

Costs involved in the mediation process are significantly lower than litigation, addressing financial strain and opportunity costs of scarce resources, making mediation a practical choice halfway through a costly legal battle. Uncertainties and risks of litigation could also be managed.

Conclusion

Mediation should be seriously considered for dispute resolution due to its compelling advantages, including the without prejudice privilege that encourages open negotiation without legal repercussions, confidentiality that safeguards sensitive information from public exposure, the impartiality of the mediator that ensures a fair process, the expertise of the mediator that brings specialized insight to complex issues, and the reduced costs that alleviate financial strain. These benefits collectively provide a practical and humane alternative to litigation, making mediation an effective pathway to settlement that preserves relationships, optimizes resources, and promotes fair outcomes.

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.

[1] Department of Justice. “Mediate First for a Win-Win Solution” 

How to Settle Civil Dispute: Human Cost at Stake

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

After years of advising and settling civil disputes, it is hoped that this series can shield light on the dos and don’ts for parties when they enter into settlement negotiation, and when they eventually sign and execute the settlement agreement.

However, what are the relevant factors in play in deciding whether settling is the right move?

One crucial, but often overlooked, factor is the human costs involved.

  1. Opportunity costs of scarce resources and time invested in the litigation

Aside from financial resources, litigation demands time, emotional energy, and focus, often pulling one away from family, work, or health. Especially for private clients, it is no exaggeration that litigation is like their “second job”.

The energy, finances, and focus devoted to a prolonged legal battle may detract from other personal or professional opportunities, making settlement a strategic choice to reclaim those resources and redirect them more productively.

Settling a civil dispute could therefore provide peace of mind to one, allowing you to reclaim your life sooner and to prioritize over other aspects of life.

  1. Interest of family members and loved ones

In deciding whether to settle a case, one important factor to consider is the interest of family members and loved ones, who may be deeply affected by the litigation’s demands. The emotional strain, time commitment, and financial pressures of continuing the case could place a heavy burden on relationships, often making settlement a more compassionate option to prioritize their well-being and restore balance.

For instance, a parent with a young child requiring funds to study abroad may be willing to accept a lesser but immediate settlement sum, in the hope of improving the financial situation of one’s household for upcoming needs. 

  1. Harmony among family members or business partners

It is essential to acknowledge that litigation severely damages the harmony and trust once built among family members or business partners.

The litigation process often unearths painful accusations, long-term grudges, and divides loyalties, leaving behind a legacy of resentment and fractured bonds. Testifying against one another in Open Court marks a point of no return, as parties are usually destined to part ways forever.

Settlement could therefore serve a viable path to prioritize reconciliation and preserve the relationship over the adversarial toll of litigation.

  1. Prevention of emotional turmoil

The uncertainties and risks of litigation bring huge amount of stress to the litigants, especially the case of private client. It is not uncommon to see litigants suffering from insomnia in the nights leading up to trial or even being diagnosed with mental disorder thereby warranting therapy and medication.

Moreover, bringing up sensitive details and trauma into open trial may heighten the emotional turmoil for the litigant involved. The public exposure of personal struggles and traumatic experiences could intensify distress. It would be difficult for a litigant to move on to the next stage of his/her life if he/she is required to testify in open Court the past trauma and be exposed to intimating cross-examination from the opponent’s counsel. 

The stress and anxiety may make settlement a preferable option to alleviate this burden and promote mental well-being.

Conclusion

In deciding whether to settle a case, the human costs of litigation, encompassing the opportunity costs of scarce resources and time invested, the interests of family members and loved ones, the potential disruption of harmony among family members or business partners, and the need to prevent emotional turmoil must be carefully weighed. These factors highlight the profound personal toll of continuing a legal battle, often making settlement a more humane and practical option to mitigate these impacts and foster a healthier resolution for all involved.

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.

Navigating Legal Minefields: Directors’ Dilemmas in Relying on Legal Advice Given to his Company

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  1. BUSINESS PRACTICE OF SEEKING LEGAL ADVICE

In the ever-evolving business world, legal issues are an inevitable challenge that organizations must navigate to ensure compliance, mitigate risks, and safeguard their interests. Since directors can be held personally liable for companies’ conduct in some cases, out of prudence, it is not uncommon for the directors to seek advice either from external legal advisors or internal legal advisors or both.

It is trite under common law that advice by external legal advisors (i.e. law firms or barristers in private practice) would be covered by legal professional privilege (LPP). LPP is a fundamental right that protects confidential communication between a lawyer and their client from being disclosed without the client’s consent, ensuring that the client can seek and receive legal advice in confidence. Unlike other communication with non-lawyer (such as an accountant), even a law-enforcer empowered to demand for information cannot compile disclosure of material covered by LPP. The case Citic Pacific Ltd v Secretary for Justice (No 2) [2015] 4 HKLRD 20 confirms that such LPP can also be enjoyed for communication with in-house counsel.

A company has to act through individuals. Usually a company’s conduct is directed and done through its directors. In process of seeking legal advice and receiving legal advice, the role of directors is indispensable. Not only directors act on behalf of the company, but also by actively engaging with legal counsel, by signing a retainer with lawyer, giving debriefing on issues at hand, providing instructions to lawyer and corresponding with lawyer on behalf of the company. There is therefore no surprise if directors have the confusion that the advice from the lawyer is given to himself and he could rely thereon for certain personal act.

As a matter of law and the principle of separate legal personality. The legal advice addressed to a company does not belong to the directors. Ownership of LPP is with the company but not the directors. This can potentially cause problems. Imagine a director sought legal advice on behalf of a company and rely on such advice to act in a certain way. Such act by the director was later found to be illegal and the director faced criminal charge. When the director wished to rely on the legal advice as a defence, such evidence was not available because the advice was covered by LPP but only the company, as the owner, could waive the same.

In such hypothetical case, the crucial legal questions would be:-

  • Who owns the LPP over the communications with legal counsel (external and internal)? The company (legal person) or the director (natural person), or jointly?
  • Who can waive such LPP in litigation to further one’s claim and/or defence?
  • Is there any exception to LPP such that LPP can be compelled to be disclosed?

  1. HONG KONG POSITION

Ownership of LPP

When a company’s employee, on behalf of company (but not in his/her personal capacity), seeks and receives legal advice from duly qualified legal advisor (external or internal), it is the company who owns the LPP over the communications and documents which are created for the dominant purpose of obtaining legal advice, but not the employee himself/herself, as the Court of Appeal held in Citic Pacific Ltd v Secretary for Justice (No 2) [2015] 4 HKLRD 20 at §59:-

“…It can, we think, be said that the client is simply the corporation, and that the question is really one of which of its employees should be regarded as being authorised to act for it in the process of obtaining legal advice. As we have suggested earlier, there are good reasons why such employees should not be restricted to select members of the corporate legal department and we see no good reason why such restriction is required….”[1]

Provided that a director is authorised to act for the company in obtaining legal advice, it is the company who owns the LPP over the communications and documents.

Absolute nature of LPP and Waiver of LPP under HK law

LPP is a constitutional right entrenched in Article 35 of the Basic Law, which stipulates that “Hong Kong residents shall have the right to confidential legal advice, access to the courts”. The absolute nature of LPP is discussed by Ribeiro PJ in Secretary for Justice v Florence Tsang Chiu Wing (2014) 17 HKCFAR 739, whereby His Lordship stated at §29 that:-

“While an exercise of balancing competing interests is required in deciding whether some should be released from implied undertaking, it is well established that “LPP does not involve such a balancing of interests. It is absolute and is based not merely upon the general right to privacy but also upon the right of access to justice”

As such, LPP entails the right to resist the compulsory disclosure of those communications. Unless the privilege is waived by the client, “once privileged, always privileged”[2]. As privilege of the client, it can be waived, expressly or impliedly, by the client. For example, there is a waiver when the client brings proceedings for professional negligence against the solicitor, or where the client applies for an order of wasted costs against the solicitor[3].

The absolute nature of LP is strict, such that even athird party who has come into possession of a privileged writtencommunication, whether through inadvertence, mistake or even surreptitiousconduct, should not be allowed to give evidence of it unless the client waivesthe privilege[4].

  1. CRIME/FRAUD EXCEPTION TO LPP

Although the nature of LPP is absolute, it is settled that privilege does not attach to communications between lawyer and client if the purpose of the client in seeking legal advice is to facilitate criminal or fraudulent conduct[5].

  1. PRACTICAL DIFFICULTIES FACED BY A LITIGANT IN WHITE-COLLAR LITIGATION

By reason of the absolute nature of LPP and that the LPP is owned by the company, if a defendant (e.g. director/employee), who is privy to these LPP communications/documents and who wishes to disclose these LPP communications/documents for his defence at criminal trial, he must first seek waiver from the company. As it is the company who owns the LPP and LPP is a constitutional right entrenched in Article 35 of the Basic Law, he must not disclose or refer to these communications/documents without prior waiver from the company, no matter how useful and exculpatory these LPP communications/documents are.

As it is the company who owns the LPP, and that the company and the director/employee are separate legal entities, the company may well elect not to waive its LPP claim over these communications/documents, even though this may be at the expense of the director/employee.

In the event the company refuses to waive its LPP claim over these communications/documents, not only this creates insurmountable difficulties to a defendant’s defence at trial, this, arguably, even renders a trial unfair to a defendant, for he is effectively prevented to refer and rely on relevant and pertinent defence evidence though there is no fault on his own part (assuming crime/fraud exception does not apply). Arguably, the predicament he is caught in is akin to the prejudicial situation where there is a key defence witness absent for the trial.

  1. CONCLUSION

The situation where in a criminal trial, a director/employee is unable to refer or disclose communications/documents subject to LPP owned by the company is unsatisfactory, which warrants reform. The position in other common law jurisdictions is different (to be discussed in another article) and Hong Kong may draw reference therefrom. This is more pertinent in the current business landscape than before as regulatory frameworks continue to evolve and expand, the need for ongoing legal guidance has become not just a precautionary measure, but an essential component of sustainable and compliant business operations.

At the same time, legislative reform should be considered to establish a balanced approach that respects the company’s privilege while ensuring director/employee is not unduly hindered in their roles. Such reforms could include statutory exceptions or protocols for accessing privileged documents under specific circumstances, subject to judicial safeguard. By providing clearer legal pathways and updating the legislative framework, the interests of both companies and their director/employee can simultaneously be safeguarded, promoting fairness and efficiency in corporate governance and legal proceedings.

[1] Citic Pacific Ltd v Secretary for Justice (No 2) [2015] 4 HKLRD 20 at §59
[2] CITIC Pacific Ltd v Secretary for Justice [2012] 2 HKLRD 701 at §§23-24
[3] Johannes Chan SC (Hon) LEGAL PROFESSIONAL PRIVILEGE: IS IT ABSOLUTE? P.465
[4] CITIC Pacific Ltd v Secretary for Justice [2012] 2 HKLRD 701 at §§40-51
[5] CITIC Pacific Ltd v Secretary for Justice [2012] 2 HKLRD 701 at §77

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: Is the Case Worth Pursuing?

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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. 

However, what are the relevant factors in play in deciding whether settling is the right move?

Two key factors are costs and financial affordability.

Parties may face significant financial strain as legal costs accumulate rapidly. It becomes critical to evaluate expected future legal expenses against available financial resources to determine whether continuing the case is sustainable or if settlement options should be explored.

1. Incurred and Expected Future Legal Costs: counting the Price of Persistence

Litigation could be costly. By the time the litigation has already progressed to the mid-stage, it is certain that parties may have already spent nonnegligible sums for legal costs, filing fees, and fees for expert reports.

The next pertinent question then becomes: how much more legal costs and disbursements will be incurred?  

Whilst it must be acknowledged that the length of the litigation process itself is uncertain and unpredictable (as it also depends on the actions taken by the opposing party), it is appropriate to consult your solicitor to give an estimate of the costs exposure going forward, based on certain reasonable assumptions.

For instance, in the midway of the litigation, when the witness statements have already been exchanged and parties have also indicated their estimated length of cross-examining the opponent’s witnesses, it is possible to arrive at the number of trial dates to be set down should leave be given. Based on the number of trial dates, it is possible for the legal costs to be estimated in so far as the trial is concerned. 

Armed with the estimated legal costs for the trial, the party could then have a better estimate of the costs that lie ahead. High legal costs could erode the recovery of damages. Weighing incurred and estimated legal costs ensures you’re not throwing good money after bad.

2. Financial Resources: can one afford the fight

Based on the estimated legal costs to be incurred, one could then assess whether one’s financial resources suffice to sustain the upcoming legal costs.

For private clients, draining personal funds may jeopardize daily living expenses or long-term goals like retirement. For businesses, prolonged legal battles could divert valuable financial resources from investment or other more productive activities.

Settlement therefore offers certainty and finality to the dispute, albeit at a lower payout.

Conclusion

In deciding whether to settle a case, incurred and expected costs as well as financial affordability are indispensable considerations to factor. The mounting legal expenses incurred through the process, combined with the litigant’s financial resources, often necessitate a pragmatic evaluation of whether continuing litigation is viable or if settlement offers a more sustainable resolution.

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.

APAC Perspectives on Data Privacy Laws: A Globalaw Roundtable Discussion Recap

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On 25 April 2025, at the Globalaw Asia Pacific Regional Meeting in Osaka, Japan, our Partner and Head of Tax and Private Client, Anna Chan, joined Uday Singh Ahlawat of Ahlawat & Associates (India), Han Sung Kang of DLG Law Corporation (South Korea), Ariel Hung of Stellex Law Firm (Taiwan) and Yusaku Akasaki of Chuo Sogo LPC (Japan) for an insightful roundtable discussion on the evolving landscape of data privacy laws across key APAC jurisdictions.

Globalaw Asia Pacific Roundtable on Data Protection
Globalaw Asia Pacific Roundtable on Data Protection

The recent decade has seen an increase of phishing attacks and data breaches. With the introduction of the new cybersecurity law in Hong Kong which will come into effect next year, there is heightened concerns over data security and rights of data subjects. The roundtable discussion therefore offered a timely forum to visit topics such as obtaining consent from data subjects, protecting the rights of data subjects and data breaches reporting practices, as well as on recent legislative developments in in Hong Kong, India, Japan, South Korea, and Taiwan. This article summarises each of the participants’ inputs in the roundtable discussion, each speaking from their respective jurisdictions, on these topics.

Obtaining consent from data subjects
  • In Hong Kong, a data user must expressly inform the data subject the purpose for which the data is to be used on or before collection of the data. Provision of personal data pursuant to such information by the data subject shall be deemed sufficient consent which is implied. However, new consent from the data subject is required if such personal data shall be used for a new purpose. So far as cross-border transfer is concerned, the Personal Data (Privacy) Ordinance (“PDPO”) provides, among others, that data subject should also consent in writing specifically but this requirement has not come into effect yet.
  • In India, when seeking consent from data principals, it is crucial to sufficiently disclose that their personal information will be transferred to another entity. The details of such third-party entity (to which the data will be transferred) as well as the purpose of such transfer also needs to be disclosed. In the case of cross-border transfer of personal information, the manner of seeking consent from data principals remains the same.
  • In Japan, business operators must clearly outline the purpose of data collection and obtain specific consent for the cross-border transfer of personal information with certain exceptions.
  • In South Korea, informed and voluntary consent is essential for collecting and using personal data, unless a legal exception applies. Also, consent for collection, third-party provision, and cross-border transfers must be clearly distinguished and obtained separately.
  • In Taiwan, organizations must expressly inform data subjects when collecting personal data, detailing the collection purposes, data types, usage scope (duration, geography, territory, and methods), data subject rights, and consequences of non-disclosure, unless exempt by law. When collection involves planning for cross-border transfers, intended overseas jurisdictions should also be specified.

Is there a “right to be forgotten”?
  • In Hong Kong, while there is no express “right to be forgotten”, under the PDPO, data users must ensure personal data is retained only as long as necessary, and generally must take practicable steps to erase the personal data held by them where it is no longer required unless the statutory exemptions apply.
  • In India, there is no clear statutory provision for the “right to be forgotten” but the Indian courts have recognized the “right to be forgotten” in some judicial pronouncements. The Indian judiciary has also attempted to clarify the distinction between “right to be forgotten” and the “right to erasure” in their judicial pronouncements. Further, the forthcoming Digital Personal Data Protection Act (“DPDPA”) will provide for a statutory “right to erasure” (unless the statutory exemptions apply).
  • In Japan, while there is no express “right to be forgotten”, the Act on the Protection of Personal Information (“APPI”) recognises the right of data subjects to correct, add, or delete their personal data only on the ground that the retained personal data is contrary to the fact.
  • In South Korea, data subjects have the rights to access, correct, delete, and suspend the processing of their data, as well as to withdraw consent. While there is no express “right to be forgotten”, it is being increasingly recognised in practice as a separate right from the general deletion right. In common practice, business operators in South Korea often establish a defined retention period and periodically re-request consent.
  • In Taiwan, while there is no explicit “right to be forgotten”, similar protections exist under the Personal Data Protection Act (“PDPA”) through various data subject rights, including rights to access, correct, delete data and demand cessation of data processing and use. In practice, certain Taiwan courts have interpreted constitutional principles of informational self-determination and privacy to support this right, balancing individual rights against public interest when assessing removal requests, thus adapting to emerging digital privacy challenges.

Data breaches reporting practices
  • In Hong Kong, business operators are encouraged to voluntarily report data breaches in accordance with the best practices published by the Office of the Privacy Commissioner for Personal Data. For now, there are no specific criminal penalties for data breaches while civil liabilities may arise from breaches of contract, confidentiality, and negligence. That said, the newly enacted Protection of Critical Infrastructures (Computer Systems) Ordinance, expecting to take effect on 1 January 2026, will require the operators of crucial infrastructures in Hong Kong in the eight industries including energy, information technology, banking and financial services, transportation, telecommunications and broadcasting services and healthcare services to, among others, implement security plans and protocols, and report on security incidents. Failure to comply will result in fines ranging from HK$500,000 to HK$5 million.
  • In India, the forthcoming DPDPA prescribes that data breaches shall be reported to both the Data Protection Board of India and the data principal without delay. Failure on the part of data fiduciaries in providing such a notice could result in severe criminal penalties (as prescribed under the DPDPA).
  • In Japan, in the event of serious data security breaches, business operators are required to notify both the Personal Information Protection Commission (“JPIPC”) and data subjects. The APPI imposes criminal penalties for various improper handling of personal data as well as failure to comply with the JPIPC rectification requests and orders.
  • In South Korea, in the event of any leak involving sensitive personal data, business operators should notify the Korean Personal Information Protection Commission and data subjects within 24 hours of identifying such leak. Criminal penalties are imposed for intentional or severe negligence (e.g. illegal data sales or leaks), alongside with administrative fines, corrective orders, potential suspension of processing and public disclosure.
  • In Taiwan, the PDPA currently mandates that organisations are required to notify affected individuals of data breaches only after the relevant facts have been clarified. Criminal penalties apply for intentional misconduct, with a tiered system of administrative fines for other non-compliance. Notably, proposed amendments to the PDPA announced in March 2025 include heightened reporting requirements, and business operators should monitor these upcoming developments closely.

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 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.