Hong Kong: Litigation

In Hong Kong, the main methods of resolving commercial disputes are litigation and arbitration. In addition, mediation has become the recommended alternative dispute resolution by the court in Hong Kong since the Civil Justice Reform came into effect in 2009.

Civil procedure in Hong Kong is governed by the Rules of the High Court (Cap. 4A), the Rules of the District Court (Cap. 336H) and the accompanying Practice Directions issued by the Chief Justice (collectively, the “Rules”). These Rules were substantially revised by the enactment of the Civil Justice Reform.

There are two levels of court dealing with civil claims of substance at first instance: the District Court (which has jurisdiction over claims of up to HK$1 million) and the Court of First Instance (“CFI”), which has unlimited jurisdiction. Large-scale commercial disputes are typically adjudicated in the CFI.

The Court of Appeal (“CA”) hears appeals from both the CFI and the District Court. The Court of Final Appeal (“CFA”) is the highest court in Hong Kong and is made up of local permanent judges and distinguished judges from England, Australia and New Zealand who serve as non-permanent judges. It hears appeals from the CA and the CFI.

The period between commencement of proceedings and trial depends on each case. After a writ of summons is served and before the pleadings are closed, the plaintiff and defendant are required by the Rules to meet various deadlines for filing their acknowledgement of service of writ, giving notice of intention to defend, serving a statement of claim (if not endorsed on the writ), filing and serving a defence or defence and counterclaim, filing and serving a reply to the defence and/or a defence to the counterclaim. Thereafter, the first case management conference held shortly after the close of pleadings will fix the procedural timetable for subsequent phases of the proceedings, including discovery and exchange of witness statements and/or filing of experts’ reports. Then, after the court’s direction for setting down, the parties will apply to fix a hearing date. The target waiting time in the CFI for a hearing date for the civil fixture list is 180 days from application to fix date, which may fluctuate according to the year’s workload.

Hearings in Hong Kong are generally open to the public and press, which is guaranteed by Article 10 of the Bill of Rights Ordinance (Cap.383). However, Practice Direction 25.1 provides the following exceptions:

1. certain chambers hearings where statute requires that the public and press are excluded (e.g. patent application);
2. proceedings identified in Schedule 2 of Practice Direction 25.1 including matters relating to: a) disability; b) ex parte applications for injunctions or orders of a restraining or compulsory nature; c) companies winding-up and bankruptcy; d) intellectual property; e) arbitration; f) representation in legal proceedings; g) trustees; and h) obtaining evidence for a foreign court;
3. where the court is of the view that one or more of the reasons in Article 10 of Cap 383 are satisfied, i.e. for reasons of morals, public order or national security in a democratic society, or when the interests of the parties’ private lives so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice and proceedings concern matrimonial disputes or the guardianship of children.

The only document filed at court and automatically made available to the public is the writ of summons. However, other documents used in the proceedings may also be disclosed to the public if they are referred to in open court. In addition, the court judgment is also publicly available.

The Limitation Ordinance (Cap. 347) sets out limitation periods depending on the cause of action. The limitation periods more relevant to commercial proceedings include:

1. 6 years from the date of breach of a contract for contractual claims;
2. 6 years from the date on which a claim in tort accrued (subject to limited exceptions for certain torts, including negligence actions where relevant facts are not known at the date of accrual and negligence actions involving personal injury);
3. 12 years from the date of breach of a deed for a claim under a deed; and
4. no limitation period for fraudulent breach of trust.

Unlike personal injury proceedings, which require a letter of claim from the plaintiff to the defendant prior to the commencement of proceedings, there are no pre-action conduct requirements for commercial proceedings. However, parties in commercial proceedings may consider seeking mediation before litigation begins. Though the mediation process is voluntary, the court has discretion to order costs on an indemnity basis if it considers a party has unreasonably refused to take part in mediation.

There are typically three ways to commence commercial proceedings:

1. by a writ of summons (used when the facts are disputed);
2. by an originating summons or motion (used for cases with no (or few) factual disputes, such that the proceedings focus on legal issues or interpretation of legal documents); or
3. by a petition or motion (only used for resolving particular matters, such as a winding-up petition for compulsory liquidation).

Generally speaking, most commercial actions in Hong Kong are commenced by writ of summons. Service by the plaintiff (or its agent) is required on each of the defendants.

If a commercial contract contains an express choice of jurisdiction clause, the Hong Kong courts will usually honour such clause. In the absence of such choice, the Hong Kong courts have discretion to decide whether Hong Kong is the most appropriate jurisdiction for trial (i.e. whether the contract has a substantial connection to Hong Kong as a jurisdiction). The factors which the courts will consider include:

1. the place of domicile or residence of the defendant;
2. where the contract was entered into;
3. the governing law of the contract;
4. where the contract was performed;
5. where the contract was breached; and
6. where the assets (especially immovable assets or intellectual property) are located or registered.

With respect to tortious disputes, in general Hong Kong will be the appropriate forum for torts committed in Hong Kong. For torts committed outside of Hong Kong, the court will select the forum which has the most “real and substantial connection” to the action. To determine this, the courts may consider factors such as:

1. the place of residence of the parties;
2. the parties’ place of business;
3. where loss was sustained;
4. whether the relevant act is actionable in Hong Kong; and
5. the availability of witnesses.

A Hong Kong court may of course decline jurisdiction when it decides an overseas court is more appropriate to hear the case.

Generally in commercial disputes arising from contract, the parties will have agreed on the governing law in their contract, and the courts in Hong Kong will respect the parties’ choice as long as it is bona fide, legal and is not against public policy.

The choice of law will not be given effect if the choice is against public policy (e.g. gambling) or mandatory governing law in certain areas (e.g. employment, sale of goods and supply of services, real estate, insolvency and bankruptcy, financial services regulation) which are codified by Hong Kong statutes, or if the performance of the agreement is illegal under the laws of the place of performance.

In the absence of choice, the court will decide the governing law by identifying the legal system which has the most “real and substantial connection” to the contract. Factors that may be taken into account include the place of intended performance, the domicile or residence of the parties, the currency of payment and choice of governing law in other related contracts.

In respect of tortious claims, Hong Kong will generally be the governing law applicable to torts committed locally. For torts committed outside of Hong Kong, the court will generally apply the “double actionability” rule: that the wrong must be actionable both under Hong Kong law and under the law of the jurisdiction in which the relevant acts took place. In cases where the “double actionability” rule would give rise to injustice, the court may determine that the governing law shall be the law of the jurisdiction which has the most significant relationship with the parties and the relevant acts committed.

Claims may be disposed of without going through a full trial in various circumstances.

First, either party may apply for a summary judgment under Order 14 of the Rules of the High Court (Cap. 4A). In proceedings commenced by a writ, after the plaintiff serves its statement of claim and the defendant provides notice of its intention to defend, the plaintiff may apply for summary judgment by summons supported by an affidavit arguing that the defendant has no real defence (except as to the amount of damages) to the claim or part of the claim. To oppose the application, the defendant should file an affidavit to show cause. On hearing the plaintiff’s application, the court may either:

1. dismiss the application;
2. grant a summary judgment if the issues raised by the defendant are ‘inherently unbelievable’ or ‘practically moonshine’; or
3. grant the defendant a leave to defend, with or without conditions, if the defendant is able to satisfy the court that there is a triable issue, or that for some other reason there ought to be a trial.

Second, the court may, by its own initiative or on a party’s application, strike out the pleading if it:

1. discloses no reasonable cause of action or defence;
2. is scandalous, frivolous or vexatious;
3. may prejudice, embarrass or delay the fair trial of the action; or
4. is otherwise an abuse of the process of the court.

If a party is to apply for a strike out, it must do so before the close of the pleadings. Accordingly, the proceedings may be suspended or dismissed, and judgment is entered on that basis.

Third, Order 14A of Cap. 4A provides a mechanism to dispose of a case on a point of law or construction of any document upon the court’s own motion or a party’s application, if such determination will finally determine the entire cause. Upon such determination the court may dismiss the cause or make such order or judgment as it thinks just.

Fourth, a default judgment may be granted at an early stage of the proceedings if the defendant fails to give notice of its intention to defend or fails to serve a defence within the prescribed time limit.

Finally, an action may be dismissed due to a party’s failure to comply with the rules or order of the court or a party’s conduct that amounts to an abuse of process or makes a fair trial impossible.

The main types of interim remedies in Hong Kong are injunctions, whether mandatory (ordering the other party to do a specific act) or prohibitory (ordering the other party to refrain from a specific act).

An example of a mandatory injunction would be an Anton Piller order, whereby a defendant is required to allow the plaintiff to enter the defendant’s premises in order to obtain evidence for the plaintiff’s case. An example of a prohibitory injunction would be a Mareva injunction (freezing order), which seeks to prevent the defendant from dealing in or otherwise disposing of its assets, pending determination of the plaintiff’s claim.

A claim is commenced when the plaintiff has filed a writ of summons and statement of claim (outlining his case in detail). The plaintiff must serve the writ and statement of claim on the defendant, who then has 14 days to file an acknowledgement of service providing notice that he intends to defend the claim. If the plaintiff has not already endorsed a statement of claim on the writ of summons, he must serve a statement of claim separately on the defendant within 14 days after the defendant has acknowledged service. To defend the claim, the defendant must file a defence (and, if applicable, a counterclaim) within 28 days of acknowledgment of service or service of the statement of claim (whichever is later). The reply must then be served within 28 days after service of the defence.

Each party is subject to a strict duty throughout the proceedings to disclose all documents in its possession, custody or power that are relevant to the proceedings. The procedures for documentary disclosure (also known as “discovery”) can be divided into two categories: automatic discovery and specific discovery. Under automatic discovery, the parties each provide a list of all documents relevant to the issues in dispute which are in the party’s possession, custody or power (this includes privileged documents). Non-privileged documents are to be provided on request. A party may also apply for specific discovery, where the court may order the other party to disclose a specific document if it is relevant and necessary to do so.

Privileged documents need not be provided. Types of privilege include legal professional privilege, without prejudice correspondence, documents privileged on public policy grounds, privilege against self-incrimination and common interest privilege.

The general rule is that the CFI will direct that the witness statement shall stand as the witness’s evidence in chief, and all facts must be proved by a witness giving oral evidence at a trial. Parties exchange witness statements simultaneously prior to trial. A witness may only give evidence at trial where a witness statement has been served (unless the court has granted leave). The court may, on such terms as it thinks fit, permit the witness to amplify his witness statement and give evidence in relation to new matters which have arisen since the witness statement was served on the other party.

Each party has the right to cross-examine the opposing party’s witness at trial. The trial judge may assist in the cross-examination process by rephrasing questions such that they can be more easily understood by the witness (without assuming the role of an advocate). After cross-examination, the party calling the witness may re-examine him in relation to material elicited from the cross-examination process.

Depositions are permitted, provided the deposition is taken pursuant to an order of the court and the party against whom the evidence is offered consents. A party intending to use any deposition in evidence at trial must give notice to the other party of his intention to do so at a reasonable time before the trial.

Expert evidence is permitted. Such evidence takes the form of a written report prepared prior to trial for cases involving technically complex issues or matters of foreign law and, at trial, experts may give evidence orally and be subject to cross-examination. Where a party calls as a witness an expert whose report has been disclosed in the proceedings, the report may be put in evidence at the commencement of the examination in chief of that expert or at such other time as the court may direct.

A party would typically appoint its own experts, subject to leave of the court. A single joint expert may be appointed by agreement between the parties, or by the court.

Experts owe an overriding duty of independence and impartiality to the court. They do not owe a duty to the party paying them or by whom they are instructed.

Parties may appeal judgments of the CFI to the CA. Final and interlocutory decisions of the CFI may be appealed, although leave is generally needed in respect of appeals against interlocutory CFI decisions. Parties have 28 days from the date of judgment to file a notice of appeal against a final CFI decision, while the timescale for appealing against interlocutory decisions of the CFI is generally 14 days. Permission to appeal may be required before lodging an appeal to the CA (subject to certain exemptions from the leave requirement). The High Court Ordinance (Cap. 4) provides that, except as provided by rules of court, no appeal lies to the CA from an interlocutory judgment or order of the CFI in any civil claim unless leave to appeal has been granted by the CFI or the CA.

Similarly, for CA decisions, parties may no longer appeal CA decisions as of right but may request leave to appeal to the Court of Final Appeal (“CFA”). The timescale is within 28 days from the date of the judgment to be appealed from.

There is also a “leap frog” procedure whereby civil appeals from the CFI can be made to the CFA – subject to leave of the CFA following the grant of a certificate by a CFI judge within 14 days from the date of judgment. Where a certificate has been granted, any party may apply to the CFA for leave within 28 days from the date of grant.

Under the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319), the judgments of certain countries (including Australia, Belgium, Bermuda, Brunei, France, Germany, India, Israel, Italy, Malaysia, The Netherlands, New Zealand, Singapore and Sri Lanka) are capable of direct enforcement by registration. Once registered, the foreign judgment may be enforced in the same way as a judgment obtained in a court in Hong Kong.

The Mainland Judgments (Reciprocal Enforcement) Ordinance (Cap. 597), which provides a mechanism by which certain judgments made in Mainland China may be enforced in Hong Kong and Hong Kong judgments in Mainland China, came into operation on 1 August 2008. However, the scope of this legislation is quite limited. It only applies to judgments ordering money payments from certain PRC courts (Intermediate People’s Courts and higher or a recognised Basic People’s Court) that must arise from a ‘commercial agreement’ and must also be final and conclusive. The requirement for the agreement to be a commercial agreement prevents, for example, judgments arising from tortious acts, intellectual property infringements and product liability disputes from being registered. Furthermore, the underlying contract must give the relevant Mainland court exclusive jurisdiction to resolve disputes that may arise. As it is relatively rare for non-PRC corporations to provide in their contracts for exclusive jurisdiction of the PRC courts, the underlying arrangement between Hong Kong and Mainland China may be more important in facilitating the enforcement of Hong Kong judgments against assets in the Mainland rather than vice versa.

Judgments from most other jurisdictions, including the UK and the US, must be enforced at common law, by way of an action brought in Hong Kong to enforce a foreign judgment debt (without the need to re-litigate the underlying cause of action).

The court has available to it a range of costs orders following any interlocutory or substantive hearing. In general, however, the successful party is awarded its costs of any hearing or at trial, on a standard basis. The award of costs cannot exceed the costs which the client has incurred with its solicitors; however, this does not mean that the winning party will end up paying no costs at all. In practice, the party awarded costs may still need to pay a significant portion of its costs.

The CFI may in certain cases award costs on an indemnity basis, where all costs are awarded to the extent they are of a reasonable amount and have been not been unreasonably incurred.

Unlike many other jurisdictions, Hong Kong does not currently have specific provisions for dealing with multiparty litigation. In May 2012, the Law Reform Commission (“LRC”) published a report, following a three-month consultation period in February 2010, recommending the introduction of a comprehensive regime for multiparty litigation. However, the LRC’s recommendations have not been implemented. Until they are, the only alternative is a “representative proceedings” (Order 15, rule 12 of Cap. 4A) which allows one or more litigants to represent all the persons where numerous persons have the same interest in any proceedings.

The mechanisms for joining third parties to ongoing proceedings and/or consolidating two sets of proceedings are governed by the Rules of the High Court (Cap. 4A).

With respect to joining third parties to ongoing proceedings, two or more persons may be joined together in one action as plaintiffs or as defendants with the leave of the court or where:

1. some common question of law or fact would arise in all the actions (if separate actions were brought by or against each of them); and
2. all rights to relief claimed in the action (whether they are joint, several or alternative) are in respect of (or arise out of) the same transaction (or series of transactions).

Similar principles apply under the court’s consolidation mechanism. The court may, on such terms as it thinks just, order two or more proceedings to be consolidated where:

1. some common question of law or fact arises in both or all of the proceedings;
2. the rights to relief claimed in such proceedings are in respect of (or arise out of) the same transaction (or series of transactions); or
3. for some other reason it is desirable to consolidate the proceedings.

Generally, third-party funding of litigation is prohibited under Hong Kong law. There are, however, three limited exceptions:

1. where a person may have a legitimate common interest in the outcome of the litigation sufficient to justify him or her supporting the litigation;
2. an individual may be permitted to fund litigation of a claimant who would otherwise be unable to pursue litigation owing to a lack of funds (this is because of the public interest in promoting access to justice); and
3. third-party funding may be permitted by the courts in order to allow a liquidator to pursue litigation that may improve the return to creditors (as recently confirmed by a decision of in the CFI).

However, outside these situations, the Hong Kong courts take a firm approach against third parties who aid litigation in return for a share of the profits.

In terms of alternative forms of dispute resolution, it is noted that the Arbitration Ordinance (Cap. 609) was recently amended to provide that the doctrines of maintenance and champerty no longer prohibit third-party funding of parties in arbitration or mediation in Hong Kong.

The main advantages of litigating international commercial disputes under the Hong Kong court system are the wealth of its jurisprudence combined with an independent judiciary and sophisticated legal infrastructure which upholds the rule of law. Perceived disadvantages for commercial parties may include the lack of confidentiality of the proceedings as well as inflexibility in terms of selecting an adjudicator for the relevant dispute, compared to alternative forms of dispute resolution such as arbitration. Costs of litigation in Hong Kong may be perceived to be relatively high compared to other local jurisdictions.

According to statistics published by the Hong Kong International Arbitration Centre (“HKIAC”), the disputes heard by HKIAC during the period of 2010 to 2017 mainly arose from the following areas: construction, maritime, international trade and commercial, corporate and M&A and banking and finance. Notably, international trade disputes accounted for nearly one third of its cases in 2017, evidence perhaps of the recognition of Hong Kong as an international dispute resolution centre by parties involved in international trade. With the Belt and Road initiative being carried forward, it is a foreseeable trend that there will be a growing need to resolve international trade disputes which may arise between parties in China and the Belt and Road countries. Hong Kong, with its depth of jurisprudence, high quality legal infrastructure and bilingual legal system, seems to be well placed as a forum to resolve such international trade disputes.

One of the key cost areas in commercial litigation tends to be discovery. The courts in Hong Kong introduced the Pilot Scheme for Discovery and Provision of Electronically Stored Documents in Cases in the Commercial List (Practice Direction SL1.2) in September 2014. With the development of computer technologies, there will be scope for development of e-discovery programs. For example, in February 2016, the English courts for the first time approved the use of predictive coding technology in electronic discovery in Pyrrho Investments Ltd & Anor v MWB Property Ltd & Ors. Predictive coding refers to the review of electronically stored documents by computer software using specifically designed algorithms, where the software grades and prioritises the documents for human review according to their relevance to the issues of a case. The Pyrrho decision acknowledged that predictive coding could significantly reduce inconsistencies and costs to legal proceedings, and it is anticipated that the English case may prompt the Hong Kong judiciary to more readily accept the use of technology in electronic discovery going forward.