Hong Kong: Proposed changes to Laws impacting employers

In the 2018 Policy Address on 10 October 2018, the Chief Executive of the HKSAR Carrie Lam announced several key proposals in respect of benefits available to employees under Hong Kong law.

Changes to the mandatory provident fund scheme in Hong Kong

Carrie Lam proposed to abolish by 2024 the much debated offsetting arrangement under the Mandatory Provident Fund Scheme.

Under the current statutory framework, an employer’s liability to make a severance or long service payment can be (in many cases significantly) reduced/offset by the amount of payment which represents the employer’s contributions to the mandatory provident fund scheme. This offset has been criticised from many quarters and its abolition will be greeted with approval from Hong Kong employees.

The Government targets to secure the passage of the enabling legislation by 2022 and will implement the arrangement two years after the amendments have been passed by the Legislative Council. In order to soften the financial burden on micro, small and medium enterprises, the Government will subsidise this new arrangement for a period of 25 years to the tune of HK$29.3 billion.

This move by the Government will enhance retirement protection for Hong Kong employees. Severance pay and long service pay will continue to be calculated at two-thirds of the employees’ monthly wages per year of service, subject to a cap.

Increasing maternity leave and paternity leave

Carrie Lam has announced that the Government intends to secure Legislative Council’s support to speed up the enactment of the Employment (Amendment) Bill 2018 (Bill), which if enacted will increase statutory paternity leave from three to five days, with pay and other features of the paternity leave framework remaining the same. The Bill was gazetted on 15 June 2018, shortly before Father’s Day. The Bill seeks to increase statutory paternity leave from the existing three days to five days under the Employment Ordinance.

As for statutory maternity leave with pay, Carrie Lam has proposed to extend the period from the current 10 weeks to 14 weeks, in order to bring Hong Kong in line with International Labour Organisation standards. The rate of pay is proposed to remain the same at four-fifths of the employee’s average daily wages and be subject to a cap of HK$36,822 per month, which is equivalent to four-fifths of the wages of an employee with a monthly wage of HK$50,000. Employers may apply to the Government for reimbursement of the additional four weeks’ statutory maternity leave pay, meaning that additional statutory leave pay will be covered by the Government. The Government plans to seek views of the Labour Advisory Board before the end of this year.

Key takeaways

Employers should monitor the progress of these proposed changes through the Legislative Counsel to ensure that they can amend their practices and policies as needed well in advance of the changes coming into effect.

 

Gareth Thomas
Gareth Thomas
Partner, Head of commercial litigation, Hong Kong
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+852 2101 4025
Tess Lumsdaine
Tess Lumsdaine
Registered Foreign Lawyer (New South Wales), Hong Kong
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+852 2101 4122
Susan Leung
Susan Leung
Consultant, Hong Kong
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+852 2101 4136

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Hong Kong Court Refuses Recognition of Mainland Award on Public Policy Grounds

On 18 October 2018, the Hong Kong Court of First Instance (Court) in Z v Y [2018] HKCFI 2342 refused to recognise an Award of the China Guangzhou Arbitration Commission by reason of public policy. Mimmie Chan J presided and considered the several grounds raised for a set aside order under the Arbitration Ordinance.

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HONG KONG COURT CONFIRMS THAT A THIRD PARTY SECURITY HOLDER CAN EXCERISE ITS POWERS OF SALE OVER ASSETS DESPITE A MAREVA INJUNCTION PROHIBITING THE DISPOSAL OF THOSE ASSETS

In the recent case of China Merchants Bank Co Ltd, Taiyuan Branch v Cai Sui Xin (HCMP 2911/2016), the Hong Kong Court of First Instance (CFI) has confirmed that a security holder is entitled to exercise its power of sale over a defendant’s assets after the grant of a Mareva injunction and is, strictly speaking, not required to make any application to vary the injunction order although the court agreed that it would nevertheless be sensible to do so.

Background

The Defendant directly and indirectly holds shares in General Nice Development (GND). In support of the Defendant’s commercial projects, charged assets were granted as security by GND to Prosper Talent Limited (Prosper Talent).

GND defaulted under the security. Prosper Talent subsequently exercised its powers of sale pursuant to the security agreement. As a result, part of the charged assets were sold in the open market.

However, the sale was effected notwithstanding that the Plaintiff had, prior to that, obtained a Mareva injunction against the Defendant, restraining him from disposing his assets up to RMB 150 million.

Prosper Talent, as a third party affected by the Mareva injunction, applied to the court to vary the Mareva injunction order so as to allow itself to exercise its rights to sell certain charged assets.

Issues

The key issue in this case was whether the CFI should refuse to entertain the variation application because Prosper Talent had already disposed of some of the charged assets after the granting of the Mareva injunction.

The Plaintiff contended that Prosper Talent should have sought the approval of the court before exercising its security rights and disposing the charged assets. As Prosper Talent had not done so, it was guilty of contempt. Until Prosper Talent purged its contempt, the court should not entertain its variation application.

Prosper Talent argued that it is under no duty to obtain the court’s permission to exercise its powers of sale. In particular, a power of sale exercised by a third party to dispose of the property is to be distinguished from a disposal by the defendant, which is caught by the Mareva injunction.

The defendant adopted a neutral stance in these proceedings but denied any allegations of collusion with Prosper Talent in disposing of the charged assets.

Outcome

The CFI upheld Prosper Talent’s variation application and dismissed the Plaintiff’s arguments.

The judge considered that Prosper Talent has all along enjoyed an unchallenged security right over the charged assets which would take priority over any judgment debt owed by the Defendant to the Plaintiff. There was also no basis of collusion between the Defendant and Prosper Talent in the disposal of the charged assets. As such, Prosper Talent was not under a duty to make the variation application before disposing of the charged assets.

Practical considerations

Strictly speaking, a security holder is entitled to exercise its powers of sale even after the grant of a Mareva injunction, without the need to seek permission from the court. The court, however, reminded all third parties in a similar situation (as Prosper Talent in this case) that there is some good sense for making a variation application. Such an application will help protect a security holder from potential challenges to its security interests over a property. It also defeats, at the outset, any allegation of collusion between the defendant and the security holder.

Given a contempt of court allegation carries serious consequences, it is advisable for a security holder to obtain permission and an approval from the court to vary the injunction order well before exercising its powers of sale.

For more information, please contact Dominic Geiser, Jojo Fan or your usual Herbert Smith Freehills contact.

 

Dominic Geiser
Dominic Geiser
Partner, Hong Kong
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+852 2101 4629
Jojo Fan
Jojo Fan
Senior Associate, Hong Kong
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+852 2101 4254

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Hong Kong Court of First Instance upholds rule against litigation funding agreements

The Court of First Instance upheld the well-established common law rule against maintenance and champerty in the recent test case of Raafat Imam v Life (China) Co Ltd [2018] HKEC 2237. The decision confirms that litigation funding agreements will not be blessed by Hong Kong courts at this moment and that such a significant change of the law is a matter for the legislature rather than the courts.

Hong Kong has though taken a step towards liberalisation in this area by passing the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (Ordinance). This legislation is intended to amend the arbitration and mediation statutes to permit third party funding of arbitration and related court and mediation proceedings, both in and outside Hong Kong (see our earlier blog post).

Not all the provisions of the Ordinance are in force yet. The Department of Justice recently consulted the public on a draft Code of Practice. Following the close of the consultation process on 30 October 2018, it is hoped that the remaining provisions in the Ordinance will be brought into force as soon as possible. This significant change to the disputes landscape in Hong Kong will hopefully pave the way to the expansion of third party funding to Hong Kong court proceedings. In an evolving market where clients are constantly demanding innovative approaches to both pricing and funding, a step towards relaxing the law to allow third party funding in the context of litigation will certainly be more than welcome, provided checks remain to protect the most vulnerable litigants from exploitation. Continue reading

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Indian Government launches international research project on the impact of Bilateral Investment Treaties on investment flows from/to the country

India entered into its first bilateral investment treaty (BIT), with the United Kingdom, in 1994, as part of a strategy to attract inbound foreign direct investment (FDI).  Having begun to open its economy in the 1990s, India today is a major investment destination.  The Modi government has been keen to attract further investment, including with its “Make in India” campaign.

However, in recent years, a variety of events has led to India being the recipient of a large number of claims by investors under BITs. By 2016, India was one of the most frequently-named respondent states in BIT proceedings.  Following its first loss in a BIT arbitration in 2011 (the White Industries case, discussed here.  Note: India has recently won its first BIT case, discussed here), the stance of the Indian government towards BIT protections for inbound investors appeared to harden, leading it to send notices in 2016 to terminate BITs with 58 countries, including 22 EU countries (discussed here).  This followed its publication of a new 2015 Model BIT (discussed here).  For the remaining BITs not cancelled in 2016/2017 (seemingly because they were within their initial terms), India has circulated a proposed joint interpretative statement to the counterparties to these BITs seeking to align the ongoing treaties with its 2015 Model BIT.

There are no known instances of states agreeing to a new treaty based on India’s 2015 Model BIT, although it was reported last year that the Indian government had approved a joint interpretative note to apply to India’s BIT with Bangladesh

In the meantime, the Indian government, through the Centre for Trade and Investment Law (CTIL), a think-tank established in 2016 by the Ministry of Commerce and Industry, in collaboration with Dr. Rishab Gupta, Partner, of Shardul Amarchand Mangaldas & Co., has instituted a survey on experiences and attitudes towards BIT protections, and their importance to FDI flows into and out of India.  This outbound element is an important aspect of the analysis as Indian businesses are increasingly involved in FDI outside India, and may wish to take advantage of BIT protections over their investments.

A link to the survey can be found below, which we understand will remain active until the end of October 2018. The survey contains 10-12 questions which vary depending on the initial answers regarding the location and type of entity responding.

http://survey.sogosurvey.com/r/r1ocQs

The outcome of the questionnaire together with the rest of the study results are scheduled to be publicly released by the end of 2018. All stakeholders with experience of or insight into the BIT regime applicable to India are encouraged to participate.

For further information, please contact Nicholas Peacock, Head of the India Disputes Practice, or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
Partner
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+44 20 7466 2803

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Be on time to preserve your right to Active Remedies – the Singapore High Court considers a party’s duty to apply promptly when challenging the jurisdiction of an arbitral tribunal

In Rakna Arakshaka Lanka Ltd (“RALL“) v Avant Garde Maritime Services (Private) Limited (“AGMS“) [2018] SGHC 78, the Singapore High Court dismissed an application to set aside an award on jurisdiction, on the basis that the applicant had failed to challenge the tribunal’s preliminary ruling on jurisdiction within the deadline stipulated under section 10(3) of the International Arbitration Act (“IAA“) and Article 16(3) of the UNCITRAL Model Law. The decision provides guidance on the distinction between active and passive remedies in the context of applicable deadlines when seeking to set aside an award on grounds of jurisdiction, and resisting enforcement on the same basis. Continue reading

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Recent developments in the Hong Kong Competition Regime

In this update, we discuss two recent developments in the Hong Kong competition regime: first, the third cartel case prosecuted by the Hong Kong Competition Commission (Commission) since the coming into force of the Competition Ordinance (Ordinance) in December 2015; and second the transfer of two contractual claims from the High Court to the Hong Kong Competition Tribunal (Tribunal), which raises the possibility of private enforcement actions.

Third case prosecuted by the Commission

On 6 September 2018, the Commission started prosecuting its third case in the Tribunal, alleging infringement of the First Conduct Rule (which prohibits anticompetitive agreements between competitors). The Commission is alleging that three construction companies and two individuals allocated customers and coordinated pricing, from June to November 2017, in relation to the provision of interior renovation services at the King Tai Court housing estate, in Kowloon. The case reportedly arose from a complaint by a member of the public to the Commission, following the widespread reporting of the Commission’s second case which alleges similar practices by different companies at a different housing estate.

Importantly, this is the first time the Commission has brought direct enforcement action against individuals. Under the Ordinance, the Commission can apply for director disqualification orders (DDOs) for up to 5 years. In explaining its decision to apply for DDOs, the Commission commented that “to deter a company from engaging in cartel conduct, it is also necessary to deter the individuals through which the company acts”. It remains to be seen whether the Commission will more readily pursue directors and senior management in the future. The third case brought by the Commission also highlights its continued focus on cartel conduct.

Private actions

The Ordinance does not set out a right for private claimants to bring stand-alone antitrust actions. Currently, only so-called follow-on actions can be brought by private parties. This means that private enforcement action can only be taken where there has been a prior determination of a contravention of a conduct rule set out in the Ordinance (such as in an action brought by the Commission in the Tribunal).

However, the recent transfer of two related cases from the High Court to the Tribunal has raised the question of whether the Competition Ordinance may be used in private actions in Hong Kong. The cases involve contractual claims by Taching Petroleum and Shell, which both allege that Meyer Aluminium failed to pay for a supply of industrial diesel. Meyer’s defence in both actions is that Taching Petroleum and Shell have engaged in price fixing in breach of the First Conduct Rule under the Ordinance. The competition law defence aspects of the two cases were transferred by the High Court to the Tribunal in July and September 2018 respectively. On 12 September 2018, it was decided by the Tribunal that the cases should be listed and heard together for directions until further order.

Note that the transfer of these cases merely gives Meyer the right to defend itself by raising competition law grounds: it does not set out a right to found a cause of action. According to public sources, the CEO of the Commission said in September 2018 that the lack of standalone actions for damages in the current regime may mean the Commission has to bring more cases to the Tribunal in order to ensure that victims have a means of recovery.

If you have any questions regarding this update, please contact one of the following members of the Herbert Smith Freehills competition team for more information:

Mark Jephcott
Mark Jephcott
Head of competition - Asia, Hong Kong
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+852 2101 4027
Adelaide Luke
Adelaide Luke
Senior associate, Hong Kong
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+852 2101 4135
Ajit Kainth
Ajit Kainth
Registered foreign lawyer (England& Wales), Hong Kong
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+852 2101 4263
Howard Chan
Howard Chan
Associate, Hong Kong
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+852 2101 4265

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Recent Developments in India-related International Arbitration

Herbert Smith Freehills has issued the latest edition of its Indian international arbitration e-bulletin.

In this issue we consider various court decisions, which cover issues such as the applicability of the Arbitration Amendment Act 2015, binding non-signatories to an award, enforcement of an award before the National Company Law Tribunal, and the continued pro-arbitration approach of the Indian courts. In other news, we consider the continued rise of institutional arbitration in India, a detailed analysis of the proposed amendments to the Arbitration Act, as well as India-related bilateral investment treaty news (and other developments). Continue reading

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Recent Developments in India-related International Arbitration

Herbert Smith Freehills has issued the latest edition of its Indian international arbitration e-bulletin.

In this issue we consider various court decisions, which cover issues such as the applicability of the Arbitration Amendment Act 2015, binding non-signatories to an award, enforcement of an award before the National Company Law Tribunal, and the continued pro-arbitration approach of the Indian courts. In other news, we consider the continued rise of institutional arbitration in India, a detailed analysis of the proposed amendments to the Arbitration Act, as well as India-related bilateral investment treaty news (and other developments).

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Herbert Smith Freehills edits and contributes chapters to Getting the Deal Through – Financial Services Litigation 2018

There has been a significant rate of global growth of litigation in the financial services sector following the 2008 global financial crisis. While the existence of financial services litigation is truly a global phenomenon, it has become apparent that the law and procedures in relation to such disputes have evolved in different ways across the jurisdictions.

The recently published third edition of Getting the Deal Through – Financial Service Litigation, edited by Damien Byrne Hill and Ceri Morgan, compiles chapters dedicated to financial services litigation from jurisdictions across the globe, including those contributed by a number of our offices.

The text charts the growth of litigation in the financial sector worldwide, with expert authors answering key questions in major jurisdictions. Topics include: common causes of action; powers of regulatory authorities; alternative dispute resolution; specialist courts and procedures; disclosure requirements; data governance issues; remedies and enforcement; and changes in the regulatory landscape since the financial crisis.

Please find attached a copy of the publication, also available on the Getting the Deal Through website.

Contributing offices

AustraliaAndrew Eastwood, Tania Gray and Simone Fletcher

FranceClément Dupoirier and Antoine Juaristi

GermanyMatthias Wittinghofer and Tilmann Hertel

Hong KongGareth Thomas, William Hallatt, Hannah Cassidy, Dominic GeiserJojo Fan and Valerie Tao

IndonesiaAlastair Henderson and Emmanuel Chua

South AfricaPeter Leon and Jonathan Ripley-Evans

United Arab EmiratesStuart Paterson, Natasha Mir and Sanam Khan

United KingdomDamien Byrne Hill, Karen Anderson, Ceri Morgan, Ajay Malhotra, Sarah Thomas and Ian Thomas

United StatesScott Balber, Jonathan Cross and Michael R Kelly

Accreditation: Reproduced with permission from Law Business Research Ltd. Getting the Deal Through – Financial Services Litigation 2018 was first published in August 2018. For further information please visit www.gettingthedealthrough.com.

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