Hong Kong Forum 2002

1. Hong Kong Forum 2002 Putting Deals Together – Trusting the Deals Raymond C.K. Ho LL.B.(HK), M.Soc.Sc. (HK), LL.M. (London), F.C.I.Arb. Chairman, Mainland Legal Affairs Committee, The Law Society of Hong Kong Partner, Fred Kan & Co., Solicitors & Notaries E-mail: raymondho@fredkan.com 12 November 2002

2. Ten Reasons why your deals can be trusted if done in Hong Kong

3. Ten reasons why Hong Kong can be trusted • “Hong Kong Co., Ltd.” is a widely accepted corporate vehicle in doing business in HK, across the border in Mainland China and throughout the world • Commercial law and practice in HK are commonly regarded as comprehensive, predictable and enforceable in Courts • The HK Judiciary is independent and is the impartial arbiter of the rule of law

4. Ten reasons why Hong Kong can be trusted • Domestic and international commercial arbitration in HK is an accepted alternative mode of dispute resolution • HK lawyers are not merely legal advisers but professional intermediaries to their clients in the business community • The Government is efficient and its policy of positive non-intervention to the market promotes free trade and free market economy

5. Ten reasons why Hong Kong can be trusted • HK’s infrastructures and services facilitate regional business operation in Asia • HK has a world class banking and financial industries • Opportunities of partnering with entrepreneurs possessing the requisite knowledge and experience of doing business in the region and world-wide are ample in HK • Geographically and culturally, HK is close to the market in Mainland China

6. “Hong Kong Co., Ltd.” • Over 500,000 HK companies on register • Simple incorporation procedures and minimal requirements – no approval, no residence requirement, corporate directors permissible • HK company law is similar to the Anglo-American model : separate corporate entity, “a company = a natural person”, limited liability, management by board of directors, indoor management rule, minority protection, order for buy out in case of deadlock, accounts to be audited, only listed companies required to publish accounts in the public records

7. “Hong Kong Co., Ltd.” • Hong Kong Co. is regarded as a foreign entity in Mainland China – HK is the major source of foreign direct investments (FDI) in the Mainland • Hong Kong Co. may be used to set up representative office (RO), wholly foreign-owned enterprise (WFOE), equity joint venture (EJV) and cooperative joint venture (CJV) or to undertake processing trade/manufacturing in the Mainland

8. “Hong Kong Co., Ltd.” • Overseas companies may use wholly owned HK subsidiaries or registering a branch in HK as their regional offices or headquarters • HK tax rates are low – 16% profits tax for corporations on profits “located” in HK – no tax on dividend – salaries tax at progressive rate but subject to a maximum rate of 15%

9. Hong Kong Commercial law and practice • The root of HK commercial law and practice is the English common law and rules of equity – generally known to, and accepted by the business and financial communities • The Basic Law preserves HK’s common law system and rules of equity beyond 1997 • Only Mainland laws under Annex III of the Basic Law apply to HK such as laws on National Anthem and National Flag, nationality law, diplomatic privileges and immunities, garrisoning of HKSAR and consular privileges and immunities

10. Hong Kong Commercial Law and Practice • Comprehensive – HK laws regulate all commercial deals, banking and finance transactions, dealings in movable and immovable properties, intellectual property rights, insurance, trade, sales of goods and services, shipping, transportation and carriages, etc. • Predictable – certainty of the law ensures commercial deals can be trusted. HK courts have been consistently upholding the importance of certainty and predictability in business transactions.

11. Hong Kong Commercial Law and Practice As illustrations there are two recent examples : • (1) the rule that part payment of a debt is not consideration for a discharge of the entire debt: the Pinnel’s Case (1604) 5 Co Rep 117 was recently applied in a 2000 HK case of Ng Shing Nam t/a Artland Decoration Co.[2000] HKCFI 753 • (2) the rule that a carrier's claim for freight is to be paid in full on delivery of the cargo and cannot be subject to any deduction established in Dakin v Oxley (1864) 15 CB (NS) 949was recently applied in a 1998 HK case of RAF Forwarding (H.K.) Ltd. [1998] HKCFI 838

12. Hong Kong Commercial Law and Practice • Availability of judicial remedies such as monetary compensation, damages, specific performance, injunctive reliefs such as Anton Pillar Order (Inspection Order), Mareva Injunction (World-wide freezing order)

13. Independent Judiciary • Judges have security of tenure and are of the highest degree of integrity • HK judiciary is separate from the Mainland judiciary under “One Country Two Systems” • The power of final adjudication is in the Court of Final Appeal in HK composing of local judges and judges from other common law jurisdictions

14. Independent Judiciary • HK Courts exercise judicial power independently (separation of powers) Two recent illustrations of HK’s judicial independency :- • (1) Taiwan bankruptcy court order is enforceable in HK not withstanding that such court in Taiwan is a “non-recognised court” under the sovereignty of the People’s Republic of China as ruled by the HK Court of Final Appeal in 2000 in the case of Chen Li Hung [2000] 1 HKLRD 252

15. Independent Judiciary • (2) civil judgment from the Supreme People's Court is not enforceable in HK courts because it is not final and conclusive under the laws of the PRC since it is subject to the scrutiny or retrial by the Supreme People's Procuratorate as decided in the 1998 HK case of Wuhan Zhong Shuo Hong Real Estate HCA 14325 of 1998 • Foreign judgments are enforceable in HK under the common law if such judgment is final and conclusive; or under the provisions of the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap.319)

16. Independent Judiciary • Interface between HK Judiciary & the Standing Committee of the National People’s Congress (NPCSC): Basic Law Article 158 (BL 158) • Power of interpretation of the Basic Law (BL) vested in NPCSC. • NPCSC authorizes the courts of the HK to interpret on their own, in adjudicating cases, (1) provisions of the BL which are within the limits of the autonomy of HK; and (2) provisions of the BL concerning affairs which are the responsibility of the Central People's Government (CPG), or concerning the relationship between the Central Authorities and HK (collectively, “CPG Provisions”)

17. Independent Judiciary • If the interpretation of the CPG Provisions affects the judgments on the cases, the HK courts shall, before making their final nonappealable judgments, seek an interpretation of the relevant CPG Provisions from NPCSC through the Court of Final Appeal. • NPCSC shall consult its Committee for the Basic Law before giving an interpretation on the Basic Law provisions • The interpretation of the NPCSC on the CPC provisions shall be binding on HK courts (but judgments previous rendered shall not be affected)

18. Independent Judiciary • The new constitutional order of HK after 1997 is manifested in BL 158 • BL 158 is modelled on “uniformity of interpretation of EU Community law in its application by the national courts in the EU (Article 177 of the ECC Treaty, now article 234 of the EC Treaty) • Occasion for interpretation by NPCSC shall be exceedingly rare - The only case that has given rise to such interpretation is the “right of abode case”

19. Domestic and International Commercial Arbitration • HK International Arbitration Centre – an established centre in Asia that supports arbitration services in HK • HK arbitration laws adopt the United Nations Commission on International Trade Law (UNCITRAL) Model Law on international commercial arbitration • Under the New York Convention, HK arbitral awards are enforceable in all the Convention States all over the world

20. Domestic and International Commercial Arbitration • Under the arrangement for the Mutual Enforcement of Arbitral Awards between HKSAR and Mainland China, HK arbitral awards are enforceable in most provinces in the Mainland • With the choice of arbitration in a deal for dispute resolution, proceedings in court will be stayed • HK arbitrators possess expertises in handling domestic and cross-border commercial disputes, shipping, building and construction contract disputes

21. Hong Kong Lawyers • HK lawyers follow the British tradition of the divided branches of solicitors (5235 practising; and 438 non practising) and barristers (786 practising) • HK solicitors are direct providers of professional legal services and advice to their local and international clients. Barristers must be briefed by solicitors when circumstances of a case requires • HK lawyers must act in the best interest of their clients

22. Hong Kong Lawyers • Each solicitors firm in HK provides their clients with a professional indemnity cover to the extent of HK$10 million per transaction. In exceptional cases, some firms may offer top-up professional indemnity covers for some of their clients or for specific transactions • Solicitors and barristers are subject to strict professional rules of ethics and conduct, such as client confidentiality and the maintenance of separate clients’ accounts

23. Hong Kong Lawyers • Given the wide-ranging exposure of the work entrusted to HK lawyers generally, they are able to effectively meet the specific needs of their clients • Solicitors in HK often assist their clients by making referrals to potential financiers, investors, business partners as well as other advisers for their clients

24. Hong Kong Lawyers • HK solicitors have adopted the open door policy to their counterparts outside HK. Foreign legal firms from countries such as the U.S., U.K., Canada, Singapore, Japan, Philippines, Australia, France and Germany (711 registered foreign lawyers and 37 registered foreign law firms) • HK solicitors are well connected with the legal profession throughout Mainland China and are able to team up with their professional counterparts in Mainland China to provide cross-border legal services to their clients in HK

25. Efficient civil service, open and transparent Government Policy of positive non-intervention to the market creating an investment friendly and free trade environment for businesses in HK Simple and low tax system Low crime rate Government decisions are amendable to judicial review Institutional checks on the administration and civil service – the Ombudsman and ICAC Hong Kong Government

26. Hong Kong’s Infrastructures and Services • Advance telecommunication system, information technology, efficient and well-maintained infrastructure facilities and effective services • Transportation, airport and port facilities serving as the centre of the regional hub in Asia • Logistics infrastructure for international trade

27. Banking & Finance • Virtually all major banks in the world have operations in HK • World class stock exchange market and venture capital market facilitate corporate finance and fund-raising for established as well as emerging businesses • The policy of linked exchange rate (at HK$7.80=US$1) since 1983 provides stability in the monetary market

28. Banking & Finance • No foreign exchange control allows free flow of investments to and from HK • Funding to SMEs by commercial providers and by the government available

29. Partnering with Entrepreneurs • 3 elements that are pre-requisites for success in investing in China • Knowledge and understanding of the country of China • Familiarisation with China’s internal operation and business practices • Having the best personnel to run investments in China

30. Partnering with Entrepreneurs • Certainly HK has the biggest pool of entrepreneurs and joint-venture partners who do not only possess knowledge in the market in Mainland China but also in the markets in the region and world-wide • They could be your ideal partners in your business ventures

31. Proximity with Mainland China • The Pearl River Delta (PRD) across HK’s border in the north already has a population of 70 million • PRD alone is the world’s largest manufacturing base • HK is your gateway to Mainland China • Positioning your operation in HK could offer you the benefits of both risks minimization in your investment deals and access to the abundant business opportunities in this region of the world

32. Thank You !