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Conclusions on Proposed Amendments to Listing Rules Relating to Treasury Shares

On 12 April 2024, The Stock Exchange of Hong Kong Limited (the “Exchange“) published the consultation conclusions on Proposed Amendments to Listing Rules Relating to Treasury Shares (“Consultation Paper“). Receiving support from the market, the proposals set out in the Consultation Paper will be implemented with only minor modifications. Please see below for a summary of the major changes to The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules“).

  1. Removal of the requirement to cancel repurchased shares

The requirement to cancel repurchased shares will be removed and issuers may hold these shares in treasury, subject to the laws of their places of incorporation and their constitutional documents.

The Exchange further clarifies that whether treasury shares may be held by an issuer’s subsidiary or an agent or nominee on behalf of the issuer or its subsidiary would also be subject to the laws of the issuer’s place of incorporation and its constitutional documents. For example, shares repurchased by an issuer incorporated in Bermuda and the Cayman Islands have to be held in its own name to be classified as treasury shares under the relevant laws, while there is no similar requirement in the PRC laws for treasury H shares.

  1. Application of the current requirements for issue of new shares to resale of treasury shares

The Listing Rules will be amended such that certain requirements that currently apply to issue of new shares will apply to resale of treasury shares as well, for example:-

(i). similar pre-emption requirement under Rule 13.36, where a resale of treasury shares shall be offered to all shareholders on a pro-rata basis, or alternatively, approved by shareholders under a specific mandate or a general mandate;

(ii). requirements under Chapter 17 in relation to share schemes funded by treasury shares to be treated as the same funded by new shares;

(iii). connected transaction requirements under Chapter 14A;

(iv). disclosure requirements for resale of treasury shares and movement in the number of treasury shares under Chapters 11 and 13 and Appendix D2; and

(v). documentary requirements under Chapter 9.

  1. Imposition of moratorium period

A 30-day moratorium period will be imposed on:-

(i). a resale of treasury shares (whether on-market or off-market) after a share repurchase; and

(ii). any share repurchase on the Exchange subsequent to a resale of treasury shares on the Exchange.

Note, however, that in relation to (i) above, the moratorium period does not apply to (a) capitalisation issues and (b) grants of share awards or options under a share scheme that complies with Chapter 17 or a new issue of shares or a transfer of treasury shares upon vesting or exercise of share awards or options under the share scheme.

  1. Dealing restrictions for resale of treasury shares on the Exchange

Resale of treasury shares on the Exchange is prohibited in the following circumstances:-

(i) where there exists undisclosed inside information;

(ii) during the 30-day period preceding any results announcement; and

(iii) where it is knowingly made with a core connected person (but note that on-market resale of treasury shares to a connected person without knowledge is fully exempt).

The amendments to the Listing Rules will come into effect on 11 June 2024. Issuers are advised to review these amendments in detail, seek legal advice and amend their constitutional documents where necessary.

19 April 2024
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Scope of an Arbitral Tribunal’s Jurisdiction: Navigating between Different Dispute Resolution Clauses in Multiple Related Contracts

In the recent judgment of AAA, BBB, CCC v DDD [2024] HKCFI 513, the Court of First Instance (‘CFI’) has handed down important guidance on determining the scope of an arbitral tribunal’s jurisdiction, particularly when disputes have arisen out of multiple related contracts, each containing a distinct dispute resolution clause.

  1. Facts of the Case

The facts are as follows. To help a borrower acquire shares in a company, the lender, borrower and his guarantors entered into a set of interrelated agreements. This included a Loan Agreement and a Promissory Note (which acted as security for the loan).

Upon default of the borrower, the lender commenced arbitration against the borrower and his guarantors pursuant to the arbitration clause contained in the Loan Agreement. In the Notice of Arbitration and the Statement of Claim, the claim and relief for the loan amount was essentially phrased as one under the Loan Agreement. Little reference was made to the Promissory Note at all, although the lender reserved its ‘full rights to add to, expand or modify the claims and relief set out herein’ in the Notice of Arbitration.

The lender later purported to seek relief under the Promissory Note as well, and the tribunal ruled that it has jurisdiction to hear the disputes. By an application made pursuant to section 34 of the Arbitration Ordinance (Cap 609), the CFI is now asked to consider whether the tribunal’s decision regarding its own jurisdiction was correctly determined.

  1. Approaches to Different Conflicting Dispute Resolution Clauses Situations

From the outset, Deputy High Court Judge Reyes SC contemplated three broad paradigms where conflicting dispute resolution clauses can feature (but emphasised that the paradigms are not meant to be exhaustive). In particular, certain presumptions may or may not apply depending on the paradigm the court is dealing with, although the end goal should always be to objectively interpret the parties’ intentions in each case.

B1. The Basic Paradigm (Applying the ‘Fiona Trust Presumption’)

The first situation, known as the ‘Basic Paradigm’, occurs when there is a single contract containing more than one conflicting dispute resolution clauses.

In this situation, unless there is evidence to the contrary, the convenient starting point is to apply the ‘Fiona Trust presumption’ (coined after Lord Hoffmann’s dictum in Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40), which provides that ‘parties, as rational businessman, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal‘.

Hence, if one clause of an agreement provides that disputes should be resolved by the courts, but another clause enables parties to refer disputes to arbitration if they wish, if the parties have elected to commence arbitration, the court will presume that all disputes which may subsequently arise would be determined by the same tribunal.

B2. The Intermediate Paradigm (Applying the ‘Extended Fiona Trust Principle’)

The second situation, known as the ‘Intermediate Paradigm’, occurs where there are multiple related contracts, but only one of the contracts contains a dispute resolution clause (while the others are silent on this).

Here, ‘multiple related contracts’ refers to ‘agreements that appear to form a package aimed at achieving some objective‘, which ‘typically will have been executed at about the same time and the parties to the contracts will be the same or nearly the same’.

Unless there is evidence to the contrary, the applicable starting point here is the ‘extended Fiona Trust principle’ (Where the application of the Fiona Trust presumption was stretched in Terre Neuve SARL & Others v Yewdale Limited & others [2020] EWHC 772 (Comm), which provides that a ‘jurisdiction agreement contained in one contract may, on its proper construction, extend to a claim that is made under another contract’.

Hence, where multiple related contracts were entered into but only one of the contracts contains a dispute resolution clause, there would be a common-sense presumption that the parties must have intended for all disputes arising out of their commercial package to be resolved under the same dispute resolution clause.

B3. The Generalised Paradigm (Applying the ‘centre of gravity’ approach)

The current dispute concerns the last situation, known as the ‘Generalised Paradigm’. This involves multiple related contracts, where each of them contained a separate dispute resolution clause.

The distinguishing feature of this paradigm is that it involves multiple and often inconsistent dispute resolution clauses. The difficulty in applying the ‘extended Fiona Trust principle in this paradigm is that it would be difficult to presume (as a matter of ascertaining parties intention) which of the dispute resolution clauses is intended to subsume or take precedent over the others in a given situation. Hence, the ‘extended Fiona Trust principle’ is not applicable here.

Instead, DHCJ Reyes SC applied what is known as the ‘centre of gravity’ approach, which was adopted from an earlier English decision. The exercise is essentially to locate the ‘centre of gravity’ of the particular dispute to assess which of the resolution clauses come ‘closer to that dispute’. It follows that the resolution clause ‘closer’ to the dispute will be the relevant arbitration clause which the tribunal must be convened under, for it to have the requisite jurisdiction.

That said, DHCJ Reyes SC acknowledged that expressions such as ‘centre of gravity’ and ‘closer to an issue or dispute’ are more of an art than science, but went on to opine that a useful test might be to look at the ultimate relief sought in connection with that issue. Hence, if granting the ultimate relief being sought falls within the scope of the arbitration agreement under which a tribunal was appointed, the issue could be regarded as coming within the tribunals jurisdiction.

Applying the ‘centre of gravityapproach to the present case, the court concluded that claims under the Promissory Note would properly fall within the ‘centre of gravity’ of the dispute resolution provision under the Promissory Note. Hence, the tribunal’s decision that it has the requisite jurisdiction was set aside. 

  1. The Problem of Contradictory Outcomes and Fragmentation

The troubling feature of this case is that, the Loan Agreement and the Promissory Note are intertwined documents. Particularly, the Loan Agreement contains important references to the Promissory Note. Hence, when determining issues arising out of the Loan Agreement, the tribunal might touch upon issues that properly concerns the Promissory Note. If any peripheral issues on the Promissory Note arises during the determination of the claim under the Loan Agreement, DHCJ Reyes SC was of the opinion that the Tribunal convened under the Loan Agreement would be competent in deciding such issues as well.

The practical implication is that, following the decision, issues concerning the Promissory Note and the Loan Agreement might now be determined in separate forums, potentially resulting in contradictory outcomes and fragmentation.

To address the problem of contradictory outcomes, practical solutions were suggested by DHCJ Reyes SC moving forward:

  • The parties may consider invoking an issue estoppel arising from findings already determined by the previous arbitration tribunal;
  • The parties might invite the HKIAC to appoint the same tribunal in the two related arbitrations;
  • A party may apply for consolidation of the two arbitrations;
  • A party may apply for stay of proceedings in one of the arbitrations pending the outcome of the other.
  1. Takeaways

The problem of conflicting dispute resolution clauses is not uncommon in the commercial world today. This is particularly relevant to the construction field where multiple contractual documents governing a myriad of parties are often involved, occasionally incorporating inconsistent dispute resolution clauses.

This is exactly what has happened in H v G [2022] HKCFI 1327, where a Building Contract (entered into between the property developer and the main contractor) and the Warranty in respect of a waterproofing system (jointly executed by main contractor and its sub-contractors) contained different dispute resolution clauses, and the arbitral tribunal’s jurisdiction was whereby challenged. In fact, back then the court in H v G has already applied the ‘centre of gravity’ approach propounded by the English authorities in resolving the disputes.

Parties faced with similar situations should therefore be reminded to carefully review all applicable dispute resolution clauses, as well as to consider all practical solutions to minimise the risk of contradictory outcomes and fragmentation, before considering commencing any legal proceedings against the relevant parties.

The full judgment of AAA, BBB, CCC v DDD [2024] HKCFI 513 can be viewed here.

19 April 2024
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Case Update – Application dismissed for leave to appeal a statutory appeal against a construction industry levy

On 28 March 2024, the District Court dismissed an application (the ‘Application‘) by KONE Elevator (HK) Ltd for leave to appeal the Court’s previous decision on KONE’s Statutory Appeal (as defined below) against a levy imposed by the Construction Industry Council (‘CIC‘).

The previous decision

Under the Construction Industry Council Ordinance (Cap. 587) (‘CICO‘), a ‘Construction Industry Levy’ has to be paid by contractors to the CIC in respect of construction operations with a value exceeding $3 million.  The levy is calculated as a percentage of the value of the construction operations in question.

KONE, a prominent player in the lift and escalator industry, objected to a levy imposed on them regarding certain lift and escalator maintenance works.  This objection was referred to the Objections Board established under the CICO, which affirmed the levy.

Dissatisfied with the Objections Board’s decision, KONE appealed further to the Court, which was the first-ever statutory appeal against a levy decision made by the CIC pursuant to section 57 of the CICO (the ‘Statutory Appeal‘).

In the Statutory Appeal, KONE had 3 broad complaints – (1) allegations of bias and procedural unfairness against the Objections Board, (2) challenge to the constitutionality of the Objections Board’s proceedings, and (3) claims that the CIC did not have power or jurisdiction to issue the levy payment notice as the works performed by KONE were not ‘construction operations‘ within the meaning of the CICO.

Previously, the Court dismissed KONE’s Statutory Appeal in a decision dated 30 November 2023.  KONE subsequently applied for leave to appeal on the below 4 grounds, as well as on the ‘some other reason in the interests of justice‘ ground pursuant to section 63A(2)(b) of the District Court Ordinance (Cap. 336).

The Application

The grounds pursued by KONE and the Court’s reasoning are set out as follows:

  1. Ground 1: KONE criticised the Court’s approach in determining whether the lift and escalator maintenance operations covered by the levy payment notice qualified as ‘construction operations‘ under the CICO. KONE considered that the Court should have taken a more strict approach to interpreting Schedule 1 of the CICO, which lists the types of work included in the definition of ‘construction operations‘. The Court rejected this ground, holding that it had taken a correct approach by construing the CICO purposively, and realistically analysing the particular facts and circumstances.  KONE also claimed that the Court failed to take into account industry practice or expert evidence, but the Court held that whether lift and escalator maintenance operations were ‘construction operations‘ was a matter of statutory interpretation based on a faithful construction of the relevant provisions, not of industry practice or expert evidence.
  2. Ground 2: KONE claimed that ‘construction operations‘ were limited to works requiring the appointment of an ‘authorized person‘ pursuant to the Buildings Ordinance (Cap. 123), and that as no authorized person had been appointed, the relevant works were not construction operations. The Court held that KONE’s contention was based on a misreading of the definition of ‘authorized person‘ at section 2(1) of the CICO, which was not limited to only authorized persons appointed under the Buildings Ordinance.  The Court also expressly rejected KONE’s proposed definition of ‘construction operations’ as confined to work requiring the appointment of an authorized person.
  3. Ground 3: KONE criticised the Court’s rejection of its expert evidence on the industry meaning of the terms ‘stage‘ or ‘part‘. KONE’s expert had not been cross-examined in the earlier Statutory Appeal and the CIC had not adduced contrary expert evidence.  The Court held this complaint without merit, as it had already held in its previous decision that the relevant point was a matter of law for which expert evidence was inadmissible.  KONE also complained that it should have been notified that the Court did not accept KONE’s expert evidence and given a chance to respond, but the Court found that this had been addressed during the oral closing.
  4. Ground 4: Regarding whether certain identified items fell within the definition of ‘construction operations‘, KONE argued that the Court erred by placing the burden of proof on KONE to demonstrate why the works were not ‘construction operations‘, instead of on the CIC to justify charging a levy. The Court referred to its previous decision on this issue, in which it held that the CIC did bear the burden of justifying the levy, but that there was sufficient evidence before the Court to make a finding one way or another without having to refer to burden of proof.  KONE also argued that it had given sufficient factual evidence whether certain items did not amount to ‘construction operations‘.  The Court referred to numerous deficiencies in the witness statement that had been identified in its previous decision, and rejected this argument.

The Court overall found no merit in KONE’s arguments, considering them a rehash of their previous trial positions.  It further concluded that there was no justifiable reason to hear the appeal on the ‘some other reason in the interests of justice‘ ground, despite KONE’s assertion that the case may be ‘the first of its kind‘ and could have ‘far-reaching consequences for other contractors or property owners‘.

The Court’s dismissal of the Application and its previous decision may nonetheless provide useful judicial guidance as to various aspects of the construction regulatory regime in Hong Kong, particularly as CICO cases seldom come before the courts.  The definition of ‘construction operations‘ is often a contested issue in matters under the Construction Workers Registration Ordinance (Cap. 583), which is also administered by the CIC.  The CIC’s regulatory role and the practices of the Objections Board were also discussed at some length in the previous decision, which may have implications on various similarly-structured appeal procedures for other CIC-run schemes.

The full judgment can be accessed here.

19 April 2024

Sequel to Re China Properties Group Limited: Holdco Liquidators appointed as Provisional Liquidators of Subsidiaries

Update on the liquidation of China Properties Group Limited (“CPG“):  Further to our previous article where the former director of CPG, Mr Wong, was ordered by the Hong Kong court to pass written resolutions to facilitate the winding up of CPG, the Hong Kong court once again stood fast in lending its assistance to the liquidators in face of the extensive obstructions by Mr Wong and his associates (“Former Director’s Camp“).

In Summit Prestige Enterprises Ltd v Peak No 1 Holdings Ltd [2024] HKCFI 999, the Honourable Madam Justice Linda Chan dismissed the discharge summonses issued by the Former Director’s Camp (to discharge / set aside the appointment of the holdco’s (CPG) liquidators as provisional liquidators of its Hong Kong subsidiaries (“Appointment Order“) and ordered that the Appointment Order to continue pending determination of the appeal of the CPG winding-up order (“Appeal“).

The Court summarised the events since the making of the CPG winding-up order and the obstructive acts conducted by the Former Director’s Camp:

  • Mr Wong caused legal proceedings to be commenced in the name of CPG to enjoin the liquidators from accessing or inspecting documents of CPG and its subsidiaries ([25]);
  • Mr Wong caused the BVI subsidiaries to commence BVI proceedings in restraining the liquidators from taking control of the BVI subsidiaries until an order for recognition and assistance had been obtained from the BVI court[1] ([37]);
  • Despite the Hong Kong court’s order for Mr Wong to pass the relevant written resolutions, the Former Director’s Camp purportedly approved the removal of Mr Wong as director of the BVI subsidiaries, and under this pretence, passed further resolutions to purportedly resolve that the written resolutions were invalid ([43]-[45], [70(1)]);
  • The Former Director’s Camp took steps to change the legal representatives of the 4 wholly owned subsidiaries of the Hong Kong subsidiaries (which hold the Group’s main real estate project in Chongqing) from persons who are subject to the in personam jurisdiction of the Hong Kong court, to persons residing outside of the jurisdiction ([59]); and
  • After persuading the Court (through his counsel) that it was not “impracticable” for the Hong Kong subsidiaries to hold EGMs as requisitioned by the BVI subsidiaries (i.e. the Petitioners in these actions), Mr Wong procured his associates to frustrate / vote against the resolutions in appointing the holdco’s liquidators as additional directors of the Hong Kong subsidiaries ([55], [70(3)].

Against these obstructions posed by the Former Director’s Camp to prevent the liquidators from taking over the Hong Kong subsidiaries, the liquidators considered that there was an “overwhelming need” to immediately appoint themselves as provisional liquidators over the Hong Kong subsidiaries. For the following reasons, Chan J was satisfied that there were good grounds to make / continue the Appointment Order.

First, upon the making of the CPG winding-up order, the former directors (including Mr Wong) ceased to have any power to act in the name or on behalf of CPG (e.g. to commence proceedings, to pass resolutions) other than for the limited purpose of pursuing the Appeal, or to seek a discharge of the appointment of the liquidators ([9]). Vice versa the liquidators were the only persons entitled to take control over the BVI and Hong Kong subsidiaries ([69]).

However, the Hong Kong subsidiaries remained under the control of the Former Director’s Camp as a result of their abovementioned actions ([69]). In particular, “it was abusive for Mr Wong to flout the 15 Sept Order by signing the Resolutions on one hand and procuring his associates to pass… Resolutions for the purpose of invaliding the very Resolutions he signed” ([70(1)]). Unless and until the Former Director’s Camp is displaced, the liquidators had no means to ensure that the assets of the Hong Kong subsidiaries were being safeguarded ([69]).

Secondly, although there was no basis for the Former Director’s Camp to deny the liquidators to represent the BVI subsidiaries (i.e. the Petitioners in these actions), or to change the constitution of the board of the Hong Kong subsidiaries, the constant change of the boards of the Hong Kong subsidiaries would only leave much uncertainty in their states. If this is allowed to continue, it would only result in more disputes and litigations between the Former Director’s Camp and the liquidators – the Appointment Order thus put such uncertainty to an end. ([70]-[72])

Thirdly, in response to the allegation of material non-disclosure on part of the BVI subsidiaries (i.e. the Petitioners in these actions) that the Appointment Order was “unprecedented”, Chan J emphasised that the Court can and will appoint liquidators of the holding company as provisional liquidators of the subsidiaries, where the circumstances warranted the appointment ([79(1)]).


The Hong Kong Court once again made clear that the making of a winding-up order brings into operation a statutory scheme for dealing with the assets of the company that is ordered to be wound up, and all powers of dealing with the company’s assets, including the power to carry on its business, are exercisable by the liquidator for the benefit for those persons who are entitled to share in the proceeds of realisation of assets under the statutory scheme. Thus, the former directors ceased to have any power to act in the name of the company other than for the limited purposes of pursuing the appeal against the winding up order, or to seek a discharge of the appointment of the liquidators.

In that vein, the Court would be prepared to lend assistance to liquidators to carry out their duties, which, in this case, includes appointing them as provisional liquidators of the subsidiaries, if it is appropriate to do so.

See full judgement here.

[1] This culminated into the subject matter of our previous article where Mr Wong was ordered by the Hong Kong court to pass written resolutions to ratify the appointment of one of the holdco liquidators as sole director of the BVI subsidiaries. It also appears to be in line with BVI court’s position as Wallbank J observed that the liquidators were entitled to procure CPG to exercise its right as shareholder of the BVI subsidiaries without first seeking an order for recognition or assistance ([48]).
19 April 2024
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Hong Kong’s Whistleblowing Laws

The Hong Kong market has in recent years seen a number of listed companies having to go through the painful process of prolonged suspension of trading as a result of failure to publish their financial statements to the public in accordance with the timeframe prescribed in the Listing Rules.  A portion of these suspensions arose as a result of whistleblowing or anonymous complaints pertaining to potential irregularities in the listed companies’ financial statements, misconduct of senior management or other corporate misfeasance.  As a result of such complaints, the affected listed companies may be required to conduct internal investigations to address the issues arising from the complaints and undertake remedial measures before trading of the shares can be resumed.

How one handles whistleblowing or anonymous complaints will potentially have significant implications on the listed companies.  While it is debatable whether a prolonged suspension is a proportionate result of whistleblowing which may or may not be substantiated after an internal investigation, it is clear that potential misconduct or irregularities which affect the interests of public shareholders are often uncovered by whistleblowing.

Looking at things from a broader angle, whistleblowing is also one of the key ways for management to find out about potential wrongdoing or misconduct within an organisation, so that appropriate measures can taken to manage the risks arising before it is too late.

It goes without saying that in order to encourage a whistleblower who intends to make a report of suspected wrongdoing, one may need to give sufficient assurances and protection to a whistleblower (most notably, confidentiality and safeguards against retaliation).

An organisation may have its own whistleblowing policy offering protection to whistleblowers and establishing a process to handle whistleblowing or anonymous complaints.  In addition to such internal policies and procedures, one may also see if a whistleblower is offered any statutory protection, especially when whistleblowing takes place outside a specific organisation.

Compared to other jurisdictions, Hong Kong does not currently have a composite piece of legislation which is designed to provide a comprehensive scheme for whistleblower protection. Instead, the whistleblower protection in Hong Kong is scattered around various ordinances.

It can be foreseen that a reform to introduce a composite piece of legislation for whistleblower protection (whether or not this will happen) will not be an easy task, as any such legislation should balance between protecting whistleblowers from retaliation and blindly offering wide protection such that it invites frivolous and plainly unsubstantiated complaints. In addition to that, the legislation will have to take into account all the other existing protections that are offered to whistleblowers under various legislations.

Please see our article that sets out some examples that are relevant to Hong Kong’s regime on whistleblowing for more details.

22 March 2024
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