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OLN Supports Action Asia Kayak Event

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It was all smiles on Saturday at the annual Action Asia Kayak ‘n’ Run event with many children from Hong Chi Winifred Mary Cheung Morninghope School being excited to be taken out on a kayak course with experienced instructors for short little races around Deep Water Bay. They all thoroughly enjoyed the outdoor experience and the rare taste of nature, before enjoying lunch at a nearby restaurant. OLN has supported Action Asia for many years and thank you to those that volunteered on the day.

Too Big To Fail, Too Big To Be A Pyramid Scheme?

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In 2012, Bill Ackman, founder and CEO of U.S. hedge fund, Pershing Square, made a US$1 billion trade “against” Herbalife, a global multi-level marketing (“MLM”) company, listed on the New York Stock Exchange, by “shorting” its shares. 


He also alleged that Herbalife’s market practices effectively made it a global pyramid scheme, where distributors were misled by illusions of great returns, but where the reality was a product that would not sell on the open market and distributors who regularly lost money.


Herbalife’s response was to restate the fact that they offered healthy products and an opportunity to “change one’s life” by becoming a distributor.


Herbalife’s “distribution” structure had already attracted investigation by many entities, most recently by the U.S. Federal Trade Commission (“FTC”). That resulted in a 2016 settlement, with Herbalife being fined US$200 million and agreeing to change its business model.


After the “short” on Herbalife, several other investors, notably Carl Icahn went “long” on Herbalife stock, attacking Ackman’s short position, showing that Herbalife had much support, not only from its investors, but also self-servingly from its own distributors.


MLMs tend to do well where there are minority communities, with people within a community selling to each other and trying to recruit each other.


It seems that in an MLM structure, it is only the top-level that gets huge profits, and such a structure disturbs “normal” economic order and affects social stability. This is the rationale from the Chinese government as to why MLMs were banned in China, in 2005.


The visible enforcement of this prohibition in China is shown by the fact that only recently have there been large-scale coordinated raids by Chinese police and local government officials, where over 1200 people have been arrested on suspicion of having links to a pyramid scheme in southern China, involving over US$50 million.

In Hong Kong, MLMs do legally exist and conduct business, but consumer protection comes from the Pyramid Schemes Prohibition Ordinance (Cap. 617) (the “Ordinance”). The Ordinance provides a legal definition of a “pyramid scheme”, such a scheme requiring the following characteristics:


i) New participants must make a payment to existing participants or promoters of the scheme;
ii) New participants are being represented regarding the prospects of receiving payment once they join the scheme (the “recruitment payment”); and
iii) The “recruitment payment”, as its name suggests, is entirely or substantially derived from the new participants finding further new participants to join the scheme.


Typically, the practical difficulty will be in deciding whether a “legitimate” MLM actually has “pyramid” scheme elements.


Section 5(2)(a) of the Ordinance provides the offence of “participating” in a pyramid scheme, so the risk is to identify whether each MLM business model is actually legitimate.


In various common law jurisdictions, there have been investigations and prosecutions for involvement in pyramid schemes, but as yet no one has targeted any listed MLM claiming that it is a pyramid scheme, although self-servingly people who lose money in those MLMs often make such claims.


Caution needs to be exercised when making any investment, and when deciding to participate in any marketing scheme.

S50B of the Personal Data (Privacy) Ordinance being implemented

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You might not have paid recent attention to the privacy rules in Hong Kong. That is unless of course you have been served with an enforcement notice by the Hong Kong Privacy Commissioner for Personal Data (the “Commissioner”), or you have failed to comply with such an enforcement notice. Section 50B of the Personal Data (Privacy) Ordinance (“PDPO”) came into force on 1 October 2012, but it seems that the Hong Kong Police and Courts have only recently started to take this section seriously.


The PDPO came into force in 1996, but it was only in 2014, the first individual received a jail sentence for breach of section 50B(1)(c)(i) of PDPO. That was as a result of making a false statement to the Commissioner.


30th June 2017, was the first time that a company director was convicted his offence being the failure to comply with a lawful requirement of the Commissioner in breaching section 50B(1)(b) of PDPO.


In that case, a complaint was lodged with the Commissioner’s office against an employment agency in which had allegedly transferred personal data to a third party, without consent, while the employment agency was assisting the complainant in recruiting a foreign domestic helper.


Despite repeated written and telephone requests for the information needed to enable there to a proper investigation of the complaint, the employment agency failed to respond.


The sole director of the employment agency even ignored a Summons issued by the Commissioner under section 44 of PDPO requiring him to attend at a specified date and time for examination. The case was then referred by the Commissioner’s office to the Hong Kong Police, which then led to the prosecution.

Both those decisions show that the Commissioner is recommending more cases for prosecution.


Indeed, the Commissioner has recently stated ‘The conviction serves as a strong deterrent to remind all organisations and individuals to abide by the law and treat personal data privacy seriously.’


Apart from noting the importance of compliance with lawful requirement of the Commissioner, one should also be reminded that full co-operation is crucial, as any obstruction, hinderance or resistance, without lawful excuse, to the Commissioner or a prescribed officer in performing their functions may also result in a conviction, and in imprisonment (section 50B(1)(a) of PDPO).

The Global Legal Insights: Litigation & Dispute Resolution

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OLN Partners Richard Healy & Stephen Chan are the Hong Kong Chapter Authors for the 2017 Global Legal Insights to: Litigation & Dispute Resolution available online now. The Litigation & Dispute Resolution 2017 publication covers key topics including efficiency and integrity, injunctions, cross-border issues, disclosure and privilege, costs and funding, settlement and mediation, and arbitration and expert determination in 31 jurisdictions.

Read more here

Making an Apology

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Parties in conflict and disputes rarely apologize to one another. No one wants to admit liability, and saying sorry is often seen as an admission of liability.

On 13 July 2017, the Legislative Council of Hong Kong passed the Apology Bill (soon to be the Apology Ordinance) to enable parties to apologize without fear of legal implications.

Background

Historically, an apology is seen to be an implied admission of fault and/or liability. Such apology, whether written or oral, may constitute evidence of liability in civil proceedings.

Parties in dispute are therefore constantly advised by lawyers not to apologize for their actions, even if the party is in the wrong. The fear of legal implications overrode morality and common decency.
 

The Apology Ordinance
Under the Apology Ordinance, an apology is defined as an expression of regret, sympathy or benevolence. The apology need not be in writing. It can be oral or by conduct.

If a party has apologized, the Apology Ordinance provides that the fact of that apology will not constitute an express or implied admission of the person’s fault or liability and must not be taken into account in determining fault, liability or any other issue in connection with the matter to the prejudice of the person.
 

Exception
While evidence of an apology made by a person is not normally admissible as evidence for determining fault, the Apology Ordinance makes an exception. The exception is this:

If there is no other evidence available for determining an issue, it is possible for statements of fact contained in an apology to be admitted as evidence in the proceedings, provided that it is just and equitable to do so.

The following example may trigger the exception. One party may say to another:

“I am sorry about what has happened”

The above would not normally be admissible as evidence on liability. However, the situation may be different if the party apologizing goes on to say the following:

“The goods were not delivered to you because we had inadequate staff on that day.”

The above might be admissible as evidence even if the apology itself is not, particularly if the fact of adequate or inadequate staff became a relevant issue in civil proceedings and this was the only piece of evidence available in the proceedings. Clearly, this exception means that parties should take great care in how they apologize and what they should include in their apology.
 

Insurance Coverage
The Apology Ordinance also has potential impact upon insurance coverage.

Section 10 of the Apology Ordinance provides that an apology does not render void or affect any insurance cover, compensation or other form of benefit for any person in connection with the matter. There is also an express prohibition against attempting to “contract out” of this section by, for example, a disclaimer or waiver of rights. This section also takes effect whether or not the contract of insurance was entered into before or after the commencement date of the Apology Ordinance.

Liability insurance policies typically contain conditions that an insured party shall not make any admissions of liability or prejudice the claim without the insurer’s prior consent. While Section 10 may avoid an admission of liability, potential problems may arise if the insured prejudices the claim by making an apology which contains facts that are later ruled as admissible by the Court for the reasons set out above. In such circumstances, there may be argument as to whether the additional facts appended to the apology can properly be regarded as being part and parcel of the apology itself.
 

When Will It Take Effect?
It is currently unclear as to the commencement date of the Apology Ordinance although it is expected to come into effect later this year (2017) or early next year (2018).
 

Conclusion
With the implementation of the Apology Ordinance, being the first jurisdiction in Asia to do so, Hong Kong is leading and consolidating its position as one of the foremost centers in the Asia region for mediation and dispute resolution.

Although similar legislations have been passed in the United States, Canada, Australia and the United Kingdom, only time will tell whether the Apology Ordinance will influence parties in Hong Kong to more readily apologise to each other for wrongful conduct.

What should be quite clear however is that making an apology is not all without its risks and parties should continue to take proper legal advice before doing so.