A.  Jurisdiction

1.    Hong Kong and Mainland China belong to different jurisdictions. The question on whether Hong Kong is the forum coveniens with jurisdiction over the subject matter of dispute must be considered prior to commencing proceedings in Hong Kong.

2.    When considering whether Hong Kong has jurisdiction over a matter, there are several factors to be considered. Factors such as the residency of the plaintiff and the Defendant, the place where the dispute happened and whether they had agreed prior to the event that they would resolve such dispute in accordance with Hong Kong law. The issue of jurisdiction is decided by the court on a case by case basis depending on the nature and the details of the case, especially for cross-border cases where the evidence and litigants may not be concentrated in one place.

3.    Generally speaking, it will be presumed that Hong Kong has the jurisdiction over such case if the Defendant has an address for service in Hong Kong, subject to no objection raised by the Defendant (by way of an application for stay/striking out on the ground of forum non-conveniens). If there exists no address for service in Hong Kong, the plaintiff must persuade the Court that Hong Kong has jurisdiction over such case and apply for service out of jurisdiction.

4.    When deciding whether Hong Kong is the appropriate forum, Hong Kong courts will determine whether there exists a more suitable forum in handling such dispute. As mentioned, factors such as residency of the Plaintiff and the Defendant, the place where the dispute happened and where the evidence are located at are all being considered by the court when deciding whether an action should be litigated in Hong Kong. Courts will also consider whether such decision may substantially prejudice the plaintiff. All factors would be considered before making the decision.

5.    If it is decided that Hong Kong has no jurisdiction over the case after commencement of the proceedings, the Plaintiff would not only be unable to recover the claimed amount, but also may need to bear defendant’s costs for handling the proceedings.


B.  Service

6.    After commencement of the proceeding, the Writ of Summons must be served on the Defendant. In civil and commercial litigations, the plaintiff may serve by registered post or in person on the Defendant company’s registered address (in accordance with the record on Companies Registry). If the Defendant is an individual resided in Hong Kong, the same modes of service are also allowed on his last known address. It must be noted that certain pleadings such as divorce and bankruptcy petitions must be served in person as prescribed by law.

7.    For cross-border cases while it is common that the Defendant’s last known or registered address is located in mainland China, the court would normally specify the mode of service and the service address when granting the order to serve out of jurisdiction. The applicant has the responsibility to provide proof of service once the documents had been duly served on the specified address using the specified mode.

8.    Under the “Arrangement for Mutual Service of Judicial Documents in Civil and Commercial Proceedings between the Mainland and Hong Kong Courts” (“Arrangement for Mutual Service”), the High Court in Hong Kong could now be entrusted for the service of judicial documents in China if such application is approved by Hong Kong courts.  

9.    Attention should also be drawn to how the judicially acceptable modes of service differ between mainland China and Hong Kong. For example, service by advertisement on newspaper is an acceptable mode of service in Hong Kong when the exact address of the Defendant is not known. On the other hand, the same is not accepted by the Higher People’s Court in the Mainland. Such differences may potentially create practical obstacles and delay the progress of the case.

10.  Where there is an outstanding judgment debt yet to be satisfied and the judgment creditor files a bankruptcy petition in Hong Kong against the judgment debtor, the petition must be delivered by way of personal service and the judgment debtor must be served within Hong Kong. Substitute service will only be considered where the applicant has proved to the satisfaction of the Court that repeated attempts of service has been made but to no avail. Difficulties in service may therefore delay or practically stay the progress of a case.


C.  Pre-trial injunction

11.  In some jurisdictions, it is relatively easy to obtain a pre-action injunction to preserve properties for subsequent enforcement. Hong Kong on the other hand, following the tradition of UK, attaches great importance to personal property rights as enshrined in the Basic Law. It is therefore only in rare circumstances will Hong Kong courts interfere with such rights of the Defendant.

12.  The applicant (Plaintiff) bears the burden of proof when commencing application for injunction. The court will only grant such order if it is persuaded that there is a real risk of dissipation of assets on the part of the Defendant and there is a good arguable case against the Defendant.

13.  The application is generally made unilaterally by the plaintiff and will subsequently be heard by all parties on the return date. Depending on the nature of the case and the real risk of dissipation of assets on the part of the Defendant, the court may issue a provisional injunction order prior to the return-date hearing and will further review the injunction during the hearing.  

14.  It is important to bear in mind that even if the Plaintiff successfully obtains an injunction order against a defendant, it does not confer any property right to the Plaintiff in relation to the Defendant’s asset. The injunction operates personally against the Defendant but not as a lien or any incumbrance on his/her assets. If the Defendant company goes bankrupt during the proceedings, creditors of the Defendant could obtain the injuncted assets irrespective of the order. Violation of which may be held as contempt of court.


D.  Security for costs

15.    In some cases, the Plaintiff will be ordered by the court to pay a specified sum of money into the court before he may continue with the proceedings. The Defendant could apply for such order in the following circumstances:
i.  The Plaintiff is ordinarily resident out of Hong Kong;
ii. The Plaintiff is a nominal plaintiff suing on some other person’s behalf and there is reason to believe that the said person will be unable to pay the costs of the Defendant (if ordered so);
iii.  There is reason to believe the Plaintiff will be unable to pay the costs of the Defendant (if ordered so);
iv. The Plaintiff’s address is not stated in the writ or other judicial documents;
v.  The Plaintiff has changed his address during the proceedings and has not notify the court with such change.

16.    Where any of the abovementioned events occur, the court has the absolute discretion in deciding the application with consideration of the nature of the dispute and whether such application may impair justice. Other factors of consideration include:
i.  Whether the Plaintiff has a good and arguable case;
ii. Whether the Defendant has reasonable and triable defence;
iii.  Whether the Defendant has sufficient financial resources to sustain the cost of proceedings;
iv. Would the issuance of order creates obstacles for the Plaintiff to continue the proceedings;
v.  Whether the Defendant make such application in a timely manner.

17.    If the court order security of costs for the Plaintiff, the court has absolute discretion over the sum of money given to the court. The sum of money could be used to settle the litigation costs incurred later, as well as those incurred on the hearing for this application. The Defendant must disclose the litigation costs to the court when making such application to ensure the Plaintiff to pay all the costs incurred, as well as the costs for this application.

18.    Aside from the consideration of jurisdiction, security for costs is therefore also a main consideration factor for cross-border cases regardless of the Defendant being a natural person or a legal entity from China. It is therefore recommended to review one’s financial affordability before commencing proceedings in Hong Kong, as cases may be delayed or dismissed if one is unable to deposit the amount as ordered.


E.  Costs

Party and Party Rates

19.    Costs will generally include the costs of litigation, the fee for solicitor and barrister for the both parties, court costs and disbursement. In some cases, it may also include the fee for experts and expert’s reports.

20.    If one wins the case, the general principle under common law is “Costs follow the event”, which means the losing party will be required to pay for the costs of both parties. Practically speaking, the court could also make order as to calculate the costs on a “Party and Party Basis”, which will allow one to recover 70% of his/her actual expenditure in this case. If it is not agreeable by both parties, the court will make assessment to the costs accordingly.


Other basis

21.    In some cases where the court believes that certain party has acted unreasonably during the proceedings, leading to the waste of court’s resources and litigation costs, the court may deviate from the “Party and Party Basis” mentioned in order to penalize the party at fault.

22.    The court has absolute discretion as to whether certain acts should be considered as unreasonable, examples of which include:
i.  Failure to pursue mediation before commencing proceedings;
ii. The claim is trivial;
iii.  The party is deliberately using the litigation as a means to threaten the other party to achieve certain intention;
iv. Refuse to mediate without a legitimate reason;
v.  Failure to disclose all relevant materials during the start of the proceedings leading to a waste of court’s time;
vi. Failure to comply with the Practice Direction and Case Management Schedule.

23.  If the court determines that one party must pay the cost of his opposing party on the basis of “Indemnity Basis”, that party has the right to claim for all the expenses incurred throughout the proceedings. The court could also make an assessment if the exact amount is not agreeable to both parties.


"Sanctioned Offer" and "Sanctioned Payment"
24.   In accordance with the “The Rules of the District Court” and Order 22 of “The Rules of the High Court”, both parties are entitled to propose sanctioned offer and/or sanctioned payment in order to reach a settlement partially or in whole. The amount must be paid into court if sanctioned payment is issued.

25.   Once sanctioned offer and/ or sanctioned payment is being proposed, the other party has 28 days to accept the offer without further approval from the court (14 days for the settlement of costs).

26.   If the sanctioned offer or sanctioned payment is accepted after the period given, it must obtain the approval of the court for taxation of costs.

27.   Hong Kong courts recommend parties to resolve its conflicts with mediation and settlement to save court’s resources. It is for this reason that if one rejected the sanctioned offer/sanctioned payment, while the damages ruled by the court later is lower than that amount offered, the party would need to bear all the costs of proceedings incurred after the offer was made.

28.   For example, if one makes a claim of HK$1 million against the Defendant. The Defendant makes a sanctioned offer of HK$700,000 but the Plaintiff rejected. If the damages awarded by the court later is HK$500,000, which is lower than that proposed in the sanctioned offer, even if one wins the proceeding, he/she would only be able to claim the costs incurred before the offer was given. On top of that, the Plaintiff would need to pay the Defendant all the costs after the offer was made to him. (including the fee for solicitor and barrister for the Defendant in the hearing)

29.   Another example is that if one makes a claim for HK$1 million, the Defendant made a sanctioned payment of HK$700,000 during the litigation, but the plaintiff refused. If the damages awarded by the court is HK$900,000, as the amount is higher than that was originally offered, the Plaintiff is therefore entitled for the costs incurred for the whole proceedings.

30.   It is thus important to assess the risk when the opposing party propose a “sanctioned offer/ sanctioned payment” during the litigation, to avoid losing out even if you have won the case.


F.  Date of order/judgment
31. An order/judgment made by a Hong Kong court comes into effect on the date the order/judgment is made, but not the date where the order/judgment is sealed. In other words, if the court makes a verbal judgment after the hearing, the judgment comes into effect on the date the judgment is made. If the court postpones the judgment and issues a written judgment afterwards, the judgment comes into effect on the date the judgment is filed.

32. Generally speaking, lawyers from one party is responsible for drafting order for the court’s approval and sealing as per the court’s instructions. It usually takes at least 2 weeks to complete the sealing procedure. The sealing procedure is not completed or the lawyer from the opposite party has not received the sealed order are not legitimate defence for not obeying the order.


G.  Enforcement

33. In addition to legal issues, the strength of the evidence and one’s financial situation, one should also take into consideration the enforceability and difficulty in executing the judgment before proceeding with litigation in Hong Kong.


Limited company registered in Hong Kong
34. If the Defendant is a limited company registered in Hong Kong, its liability is usually limited by the company’s assets.

35. Even if the lawsuit is won, the court treat the debt as an unsecured one. In case of liquidation, unsecured debts rank lower than secured debts and employees’ outstanding salaries when it comes to compensation. Even if the court has awarded compensation, if the company is a shell company without any asset, one will not receive any properties as compensation in case of liquidation.

36. If the company has sufficient assets but refuses to pay the compensation, one may apply for a Garnishee Order to obtain the equivalent amount of compensation. One may also apply for a charging order on the judgment debtor’s properties or stocks and if the judgment debtor still fails to pay, one can obtain a takeover order and publicly auction the properties in order to receive the amount for compensation.

37. Since the company is treated as a separate legal entity, the directors/shareholders are separate from the company itself. Therefore, Hong Kong court orders cannot be directly executed on the directors/shareholders of the company.

38. Under the system of “lifting the corporate veil”, the shareholders and the company will be treated as a single legal entity. Shareholders are required to bear unlimited liabilities for the company’s debts with their personal properties. This is highly effective in avoiding the abuse of the shareholders’ limited liability and the company’s status as a separate legal entity.

39. However, piercing the corporate veil is normally used where a fraudulent and dishonest use is made of the legal entity, the individuals concerned, i.e. the shareholders or the directors, will not be allowed to take shelter behind the corporate personality. The court will disregard the corporate personality and look into the persons who are in control of the company. The court will require the directors/shareholders to bear unlimited liability on the company’s debts using their personal properties. However, if there is no solid evidence proving that the company is a mere sham or façade, the court will not lift the corporate veil.


People habitually residing in Hong Kong or Unlimited companies/Partnership registered in Hong Kong

40. If the Defendant is a natural person in Hong Kong, he must personally bear the court ordered debt and there is no limit to the amount of debt. Since unlimited company/partnership are not regarded as legal entities, the registrant/partner have to bear unlimited liabilities to the companies’ debts.

41.   If the Defendant has limited assets in Hong Kong, it is not likely that the proceeds of sale could settle the damages and costs incurred even if a winding-up application is filed against him.

42.   The court could summon the judgment debtor and order him to disclose detailed information of his assets, such as bank account number and record. Providing false information at court would be regarded as contempt of court and can be sentenced to imprisonment for up to 3 months. If the judgment debtor does not attend the hearing, the court could make an order to arrest the judgment debtor and bring him to the hearing.

43.   Injunction application to restrain the judgment debtor from leaving Hong Kong is possible if it is reasonable to believe that he/ she is trying to evade the liability by leaving Hong Kong. The injunction will expire in a month. Upon expiry, the court could renew the order for no more than 2 times. If the judgment debtor tries to leave Hong Kong with the order issued, any immigration officer, police or bailee could arrest him.


Overseas company/natural person and overseas assets of Hong Kong companies and individuals

44.   Hong Kong court orders must be executed in accordance with the law overseas. It is recommended to obtain professional advice from legal experts overseas for detailed advice on execution of order.

45.   If the majority of the Defendant’s assets are located overseas, it is recommended to first obtain advice from the legal experts there before commencing proceedings in Hong Kong to lower the risk of failing to execute the Hong Kong judgment in overseas.

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