Transparency of the Regulatory System
Hong Kong's body of law and regulation recognizes the value of competition in economic activity. Regulations and policies typically strive to avoid distortions or impediments to the efficient mobilization and allocation of capital. Bureaucratic procedures and "red tape" are held to a minimum and are equally transparent to local and foreign investors.
In amending or making any legislation, including investment laws, the HKG will conduct a three-month public consultation on the issue concerned and write up a draft bill based on the results of the public consultation. The lawmakers will discuss the draft bill and finally give it a vote. Hong Kong’s legal, regulatory, and accounting systems are transparent and consistent with international norms. For instance, Hong Kong adopts the International Financial Reporting Standards, issued by the International Accounting Standards Board.
International Regulatory Considerations
Hong Kong is a member of WTO and APEC, adopting international norms. The HKG notified all draft technical regulations to the WTO Committee on Technical Barriers to Trade.
Legal System and Judicial Independence
Hong Kong's legal system is firmly based on the rule of law and the independence of the judiciary. Courts of justice in Hong Kong include the Court of Final Appeal, the High Court (composed of the Court of Appeal and the Court of First Instance), the District Court, the Magistrate's Courts, the Coroner's Court, and the Juvenile Court. Tribunals include the Lands Tribunal, Labor Tribunal, Small Claims Tribunal, Market Misconduct Tribunal, Competition Tribunal, Copyright Tribunal, and other statutory tribunals.
Hong Kong’s commercial law covers a wide range of issues related to doing business, such as the rights and relations of business people and businesses involved in commerce, trade, sale, and merchandise. Most of Hong Kong’s contract law is found not in legislation, but in the reported decisions of the courts in Hong Kong, as well as other common law jurisdictions.
Laws and Regulations on Foreign Direct Investment
Hong Kong's extensive body of commercial and company law generally follows that of the United Kingdom, including the common law and rules of equity. Most statutory law is made locally. The local court system, which is independent of the government, provides for effective enforcement of contracts, dispute settlement, and protection of rights. Formalities are minimal in company incorporation and business registration. Foreign and domestic companies register under the same rules and are subject to the same set of business regulations.
The Hong Kong Code on Takeovers and Mergers (1981) sets out general principles for acceptable standards of commercial behavior.
The Companies Ordinance (Chapter 622) applies to Hong Kong-incorporated companies and contains the statutory provisions governing compulsory acquisitions. For companies incorporated in jurisdictions other than Hong Kong, the relevant local company laws will apply.
The Securities and Futures Ordinance (Chapter 571) contains provisions requiring shareholders to disclose interests in securities in listed companies and provides listed companies with the power to investigate ownership of interests in its shares. It also regulates the disclosure of inside information by listed companies and restricts insider dealing and other market misconduct offences.
Competition and Anti-Trust Laws
The Competition Commission (CC), an independent statutory body which was set up in January 2013 under the competition law, investigates anti-competitive conduct that prevents, restricts, or distorts competition in Hong Kong. The competition law has been in effect since December 2015. In March 2016, 12 trade and professional associations indicated publicly that they had revised their conduct or were in the process of doing so to remove one or more price restrictions or fee scales. In addition, the CC has identified over 20 trade and professional associations whose public practices such as price recommendations appeared to place them at high risk of contravening the competition law.
The CC issued in September 2016 its proposed five-year block exemption order (BEO) for vessel sharing agreements (VSAs, agreements between shipping lines on certain operational arrangements, including consortia, slot exchange agreements, joint service agreements, and alliances), in consideration of the economic efficiencies generated by such agreements. The CC, however, indicated that it did not propose to issue a BEO for voluntary discussion agreements, which relate to particular shipping routes, on the grounds that such agreements do not enhance overall economic efficiency like VSAs do. The CC is reviewing the suggestions on the proposed BEO for VSAs after a public consultation period ended in December 2016.
By October 2016, the CC had begun in-depth probes into 10 cases, without disclosing which industry sectors the investigations concern. In March 2017, the CC brought its first case before the Competition Tribunal (CT) for alleged bid-rigging by five information technology companies. The CT has scheduled a trial of the case for May 2018.
Expropriation and Compensation
The U.S. Consulate General is not aware of any expropriations (direct or indirect) in the recent past. Expropriation of private property may occur if it is clearly in the public interest, but only for well-defined purposes such as implementation of public works projects. If this is the case, expropriations are to be conducted through negotiations, in a non-discriminatory manner in accordance with established principles of international law. Due process and transparency are to be observed. Investors in and lenders to expropriated entities are to receive prompt, adequate, and effective compensation. Property may be acquired under the State Land Resumption Ordinance, the Land Acquisition Ordinance, the Mass Transit Railway (Land Resumption and Related Provisions) Ordinance, or the Roads Ordinance. These ordinances provide for payment of compensation. If agreement cannot be reached on the amount payable, either party can refer the claim to the Land Tribunal.
ICSID Convention and New York Convention
Both the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) apply, by extension, to Hong Kong now that it has reverted to Chinese sovereignty. (China is a signatory to both.)
Investor-State Dispute Settlement
The U.S. Consulate General is not aware of any investor-state disputes in recent years involving U.S. or other foreign investors or contractors and the HKG. The Hong Kong Department of Justice is also not aware of any such disputes. Private investment disputes are normally handled in the courts or via private mediation. Alternatively, disputes may be referred to the Hong Kong International Arbitration Center.
International Commercial Arbitration and Foreign Courts
The HKG accepts international arbitration of investment disputes between itself and investors. Hong Kong has also adopted the United Nations Commission on International Trade Law (UNCITRAL) model law for domestic and international commercial arbitration. Since 1999, Hong Kong and Mainland China have maintained a Memorandum of Understanding on an arrangement parallel to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), for the reciprocal enforcement of arbitral awards.
Under Hong Kong’s Arbitration Ordinance, any emergency relief granted by an emergency arbitrator before the establishment of an arbitral tribunal, whether in or outside Hong Kong, is enforceable. The HKG is planning to amend the Arbitration Ordinance in 2017 to attract more parties to resolve their intellectual property (IP) disputes by arbitration in Hong Kong.
Another option to resolve disputes is by mediation. The Mediation Ordinance, which fortifies Hong Kong’s status as an international dispute resolution center, deals with the rights and obligations of participants in mediation, especially in relation to confidentiality and admissibility of mediation communications in evidence.
The HKG will amend the Arbitration Ordinance and the Mediation Ordinance in 2017 to make it clear that third party funding for arbitration and mediation, respectively, is permitted under Hong Kong law.
Foreign judgments in civil and commercial matters may be enforced in Hong Kong at common law or under the Foreign Judgments (Reciprocal Enforcement) Ordinance, which facilitates reciprocal recognition and enforcement of judgments on the basis of reciprocity. A judgment originating from a jurisdiction which does not recognize a Hong Kong judgment may still be recognized and enforced by the Hong Kong courts, provided that all the relevant requirements at common law are met. However, a judgment will not be enforced in Hong Kong if it can be shown that either the judgment or its enforcement is contrary to Hong Kong’s public policy.
Hong Kong’s Bankruptcy Ordinance provides the legal framework to enable i) a creditor to file a bankruptcy petition with the court against an individual, a firm, or a partner of a firm who owes him/her money; and ii) a debtor who is unable to repay his/her debts to file a bankruptcy petition against himself/herself with the court. Bankruptcy offences are subject to criminal liability.
In May 2016, LegCo passed the Companies (Winding Up and Miscellaneous Provisions) (Amendment) Bill. The bill, which was enacted into law in February 2017, aims to improve and modernize the corporate winding-up regime by increasing creditor protection and further enhancing the integrity of the winding-up process.
Hong Kong's average duration of bankruptcy proceedings is 0.8 year, ranking 28th in the world for resolving insolvency, according to the World Bank’s Doing Business 2017 rankings.