HONG KONG COURT INTERPRETS PRC-LAW GOVERNED JURISDICTION CLAUSES

In天津市裕豐隆資產管理有限公司 v Ho Kin Wa and Another, HCA 2405/2014 (unrep., 8 March 2019), the Hong Kong Court of First Instance exercised its discretion to stay the Plaintiff’s claim against the 1st Defendant (D1). In arriving at its conclusion, the Court considered (i) whether D1 had waived the right to dispute the jurisdiction of the Hong Kong courts; (ii) the proper construction of the jurisdiction clauses concerned in the present case; and (iii) whether there was strong cause for not granting a stay. This blog post focuses on the second issue. Continue reading

HONG KONG: UNLAWFUL DISMISSAL REINSTATEMENT RIGHTS FROM OCTOBER

Amendments to the Employment Ordinance (“EO“) which strengthen the Labour Tribunal’s (“LT“) powers to make an order for reinstatement or re-engagement where an employee has been unreasonably and unlawfully dismissed have been passed and are to take effect from 19 October 2018. This represents a move away from the current position where both the employer and employee must agree to reinstatement or re-engagement. We anticipate that applications for reinstatement will increase; including as a strategy by employees seeking to leverage greater settlement payments from employers unwilling to take them back.

Strengthening the power of the LT

Previously, the LT was only able to make an order for reinstatement or re-engagement with the consent of both the employer and the employee. From October, where the employee has been found to have been unreasonably and unlawfully dismissed under section 32A(1)(c) of the EO (“Unlawful Dismissal”), the LT can order reinstatement or re-engagement without the employer’s agreement. Unlawful Dismissal will occur where an employee is dismissed without a valid reason and one or more of the following is present:

  • the employee is pregnant or on statutory maternity leave;
  • the employee is on statutory sick leave or is suffering from a work-related illness or injury where an assessment of compensation due under the Employees’ Compensation Ordinance is pending;
  • the dismissal is due to the employee being a member or officer of a trade union or having engaged in lawful trade union activities; or
  • the dismissal is due to the employee having given or agreed to give evidence in relation to:
    • an alleged breach of the EO, the Factories and Industrial Undertakings Ordinance or any work safety obligations; or
    • a workplace accident.

In all other cases, an order for reinstatement or re-engagement will still require the consent of both parties.

Additional financial compensation and criminal liability

In the event the employer fails to comply with an order for reinstatement or re-engagement, they must pay compensation to the employee of the lesser of HK$72,500 or three times the employee’s average monthly wages.

If it later becomes no longer ‘reasonably practicable’ for an employer to re-instate or re-engage the individual, it can apply for relief against the payment of compensation provided that it can show that the circumstances making compliance ‘no longer reasonably practicable’ are ‘attributable to the employee’, or due to a ‘change in circumstances beyond the employer’s control’. This application for relief must be made within seven days from when the reinstatement or reengagement was to occur.

Non-compliance with an order for reinstatement or re-engagement is not itself an offence, however, if the employer then fails to pay the compensation due wilfully and without reasonable excuse, they will be guilty of a criminal offence and may be subject to fine of up to HK$350,000 and three years’ imprisonment.

Retrospective effect

The amendments to the EO will not have retrospective effect and will only apply to dismissals (or notice of dismissals) where the employee was informed of the dismissal after 19 October 2018.

Key takeaways

As noted above, the ability for the LT to order reinstatement without the consent of the parties is limited to Unlawful Dismissal cases. However, it may be that, where the relationship between the employer and employee has broken down, former employees may pursue applications for reinstatement as leverage in settlement discussions. Accordingly, to avoid increased risks of claims and the time and costs associated with responding to them, employers must take additional care when dismissing employees to ensure that they have a valid reason for doing so and the termination cannot be argue to be an Unlawful Dismissal.

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

HONG KONG COURT GRANTS ANTI-SUIT INJUNCTION TO RESTRAIN CONTINUATION OF PRC PROCEEDINGS

In Chen Hongqing v Persons whose names are set out in the second column of the Schedule Hereto, HCA 2648/2017 (unrep., 29 May 2018), the Hong Kong Court of First Instance granted an anti-suit injunction in favour of the Plaintiff, an intended purchaser of a Hong Kong company, to restrain the continuation of certain PRC proceedings commenced by the Defendants. Considerations such as non-exclusive jurisdiction clause, a real risk of deprivation of a fair trial in the foreign court and coercion exerted by senior management to cooperate with the local government were all relevant to the Court’s decision. Continue reading

UK SUPREME COURT CLARIFIES LEGAL POSITION ON “NO ORAL MODIFICATION” CONTRACTUAL CLAUSES

Parties to commercial contracts often insert a “no oral modification” (or NOM) clause to prevent attempts to undermine written agreements by informal means. Such clauses are intended to prevent contracting parties being bound by subsequent variations unless the specified formalities (for example, it is fairly typical in commercial contracts that a variation must be recorded in writing and signed by the parties) are complied with.

In the recent decision of Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24, the UK Supreme Court unanimously held that an agreed oral amendment to revise the terms of a payment schedule to a lease contract, which contained a NOM clause, was ineffective. The majority of the UK Supreme Court based its reasoning on the broad proposition that the law should give effect to contractual provisions which required specified formalities to be observed to recognise a variation. Lord Sumption (who gave the judgment for the majority) disagreed with the Court of Appeal’s view that recognising the oral variation, despite the NOM, promoted party autonomy. On the contrary, he found that the effect of the Court of Appeal’s ruling was to override the contracting parties’ intentions such that they would be unable validly to bind themselves as to the manner in which future changes in their legal relations were to be achieved, however clearly they originally expressed their intentions in that regard.

While the UK Supreme Court was aware that its decision may cause injustice to a party who had relied on the orally varied contract to its detriment, it pointed out that various doctrines of estoppel would provide a safeguard in appropriate cases.

The Court also commented, by way of obiter dictum, on the rule in Foakes v Beer (which provides that part payment of a debt is not good consideration for the release of the whole) to the effect that to depart from the rule would require a re-examination of the decision in Foakes v Beer and while “it is probably ripe for re-examination“, it should be a matter for an enlarged panel of the Court.

For more details, please see our blog post on the Supreme Court judgment here.

 

Gareth Thomas
Gareth Thomas
Partner, Head of commercial litigation, Hong Kong
+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
Jojo Fan
Jojo Fan
Senior Associate, Hong Kong
+852 2101 4254

Podcast: How Arbitration and ADR can be used together

In this short podcast Professional Support Consultants Hannah Ambrose and Vanessa Naish look at how Arbitration and Alternative Dispute Resolution (or “ADR”) can work together. The podcast considers how parties can agree to an ADR process in addition to, or alongside arbitration, looking at approaches in different jurisdictions and under different arbitral institutional rules, before turning to the complexities of drafting escalation clauses in contracts. Finally it looks at how a successful settlement should be formalised to be most effective and enforceable. Continue reading

Supreme Court decision clarifies basis for the award of Wrotham Park damages

We discussed aspects of “Wrotham Park damages” (also called “license fee damages” or “negotiating damages”) in Herbert Smith Freehills Hong Kong office’s recent Contract Disputes Seminar “Getting your just deserts: remedies for breach of contract”.

To recap, in some cases where there has been a breach of contract, instead of awarding damages calculated on the conventional causation basis, the court may instead award negotiating damages. Such damages are calculated on a hypothetical basis, as the sum which might reasonably have been negotiated between the plaintiff and the defendant had the defendant sought the plaintiff’s permission to do what it did (in breach of contract). The Wrotham Park principle has been applied by the Hong Kong courts.

In the recent decision of Morris-Garner and another v One Step (Support) Ltd [2018] UKSC 20, the UK Supreme Court considered the basis for awarding negotiating damages, and narrowed down the circumstances in which such damages may be claimed. In particular, the Supreme Court rejected the idea that negotiating damages would be available whenever the court considers them to be the “just” response to a contractual breach.

For more details, please see our blog post on the Supreme Court judgment here.

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
Rachel Yu
Rachel Yu
Senior Associate, Hong Kong
+852 2101 4220

 

Hong Kong Court of Appeal addresses the enforceability of English anti-suit injunction

In the recent case of Compania Sud Americana de Vapores S.A. v Hin-Pro International Logistics Limited (CACV 243/2014), the Court of Appeal (CA) held that an English anti-suit injunction with respect to legal proceedings in another jurisdiction (China) could not be enforced in Hong Kong.

This decision serves as a useful reminder that care is required when drafting contractual jurisdiction clauses. .The Hong Kong courts may not recognise interim relief granted by foreign courts where Hong Kong is not the primary forum. This was so in Compania even though substantial assets were located in Hong Kong. Continue reading

ADR Practical Guide launched on the use of Mediation with Arbitration

Our London ADR team has launched the sixth guide in their series of ADR Practical Guides, designed to provide clients with essential practical guidance on various processes falling under the banner of alternative dispute resolution (ADR), with a particular focus on mediation.

Guide No. 6: ‘Use of Mediation with Arbitration’ provides a brief description of how mediation and other ADR processes can be used with arbitration, including some key points to consider at the stage of drafting dispute resolution clauses and during the arbitration process.

This guide should be read alongside our recent ADR in Asia Guide. There, we summarised the use of MedArb/ArbMed in Asia. Continue reading

Privy Council deals with Jurisdictional Clauses in Trusts

Crociani & O’rs v Crociani & O’rs & Camilla de Bourbon des deux Siciles [2014] UKPC 40

Background

The case arose from proceedings commenced in Jersey in January 2013 concerning alleged breaches of a trust which was created in 1987 (the “Grand Trust”).  The claims were made to recover funds and assets believed to be worth in excess of USD$100 million. It was generally accepted that, at the time of the alleged breaches, the Grand Trust was governed by Jersey law and administered by the First to Third Appellants. By a deed made in 2012, the First to Third Appellants purported to retire as trustees of the Grand Trust in favour of the Fourth Appellant and change the proper law of the trust to Mauritius.

The Appellants sought to have the Jersey proceedings stayed on the basis that proceedings relating to the trust should be heard in Mauritius and not Jersey.  The relevant clause on which the Appellants relied for this contention was Clause 12 which provided (in terms):

The trustees shall have power to appoint new trustees in another jurisdiction and to declare that the trusts shall be read and take effect according to the laws of the country of the residence or incorporation of the new trustees. If this power were exercised, “…thereafter the rights of all persons and the construction and effect of each and every provision hereof shall be subject to the exclusive jurisdiction of and construed only according to the law of the said country which shall become the forum for the administration of the trusts hereunder.

The Royal Court in Jersey and the Court of Appeal refused the stay application and the Appellants appealed to the Privy Council.

The Issues

  1. Did clause 12 confer exclusive jurisdiction to the Mauritius courts?

The Appellants contended that clause 12 confered an exclusive jurisdiction on the courts of the country in which any trustee who replaced the original trustees for the time being is resident or incorporated (here, since the execution of the 2012 deed, Mauritius). Based on this, the Appellants made the following two further contentions:

  • forum for the administration of the trusts”

The Appellants first contention was that “the forum for the administration of the trusts” was a reference to the courts which had jurisdiction to decide and order how the Grand Trust’s affairs were to be conducted i.e. the courts which would resolve disputes and give directions in relation to the Grand Trust. The Respondents, on the other hand, argued that the words simply referred to the place where the affairs of the trust were run.

The Decision

The Privy Council decided that “forum” can be a reference to a court, or it could equally well be used to refer to a place for any purpose, including the place where the trust was to be administered (and there may, for example, be tax reasons why it is important to make this stipulation). The Privy Council therefore agreed with the Respondent’s interpretation.

  •  “subject to the exclusive jurisdiction”

The Appellants second contention was that the clause should be read as concerned with jurisdiction on the basis that it provided that the Grand Trust’s affairs were to be “subject to the exclusive jurisdiction of… the said country“. The Respondents argued that this was a misreading of the clause and that it should be a proper law provision: “subject to the exclusive jurisdiction of…the law of the said country” (emphasis added).

 The Decision

The Privy Council was of the view that the reference to “exclusive jurisdiction” did not make the courts of Mauritius the only jurisdiction in which disputes from the time of the 2012 deed could be resolved. Rather it meant that the governing law applied to all aspects of the Grand Trust.

  1. If Clause 12 conferred exclusive jurisdiction in favour of Mauritius, should the proceedings in Jersey be stayed?

The Privy Council noted that, in the context of contractual exclusive jurisdiction clauses, where a claim is brought in a court in breach of a contractual exclusive jurisdiction clause the burden is on the claimant to justify the claim continuing. To discharge this burden, the claimant must normally establish ‘strong reasons’ for doing so (Donohue v Armco Ltd [2001] UKHL 64). However, the Privy Council was of the view that, while it is right to confirm that a trustee is prima facie entitled to insist on and enforce an exclusive jurisdiction clause in a trust deed, the weight to be given to an exclusive jurisdiction clause is less than the weight to be given to such a clause in a contract.  Whilst a beneficiary who wishes to take advantage of a trust should be expected to be bound by the terms of the trust, it is not a commitment of the same order as a contracting party being bound by the terms of a commercial contract.

The Decision

The Privy Council concluded that, even if clause 12 conferred exclusive jurisdiction on the courts of Mauritius in relation to the claims raised by the Respondents, no stay should be granted in respect of the proceedings in Jersey because (amongst other things) (i) a number of trust law issues raised by the Proceedings would be governed by Jersey law; and (ii) it was a reasonable assumption that the documentation and many of the witnesses would be situate in Jersey.

The issue of jurisdiction clauses in trust deeds has been unclear for some time in light of various previous Court decisions which could be seen as conflicting.  Although this judgment provides some clarity, it was very much an issue of construction in relation to the specific wording used in the trust deed in question.  However, the case undoubtedly emphasises the need to draft very clear jurisdiction clauses if they are to have the desired effect.

We will be looking at this decision in more detail at our breakfast briefing at 8.30am on Tuesday 13 January 2015.

 

Singapore International Mediation Centre is launched, offering parties an “Arb-Med-Arb” process in partnership with SIAC

The Singapore International Mediation Centre (SIMC) was officially launched on 5 November 2014. Set up following the recommendations of a Working Group chaired by Edwin Glasgow CBE QC and George Lim SC, the SIMC will supplement the array of international dispute resolution options available in Singapore. In particular, the SIMC will work closely with the Singapore International Arbitration Centre (SIAC) to promote mediation within international arbitration through a new ‘Arb-Med-Arb’ protocol (“AMA Protocol“). Please click here to learn more abut the AMA protocol.