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The Hong Kong Legislative Council (“LegCo“) recently passed two amendment bills that will bring about considerable changes to the current employment law landscape in Hong Kong. Below is a brief summary of what employers and employees should be mindful of:
Further to our news article published on 6 April 2022, the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 was passed by LegCo on 9 June 2022. This means that, starting from 2025 at the earliest, employers will not be allowed to offset statutory severance payments (“SP“) or long service payments (“LSP“) against the accrued benefits derived from the employers’ mandatory contributions under the Mandatory Provident Fund (“MPF“) Scheme (the “Offsetting Arrangement“).
The abolition of the existing Offsetting Arrangement will take effect on a date to be determined by the Government (the “Transition Date“) after the eMPF Platform being developed by the Mandatory Provident Fund Schemes Authority has become fully operational – likely in 2025. You may refer to our previous news article for the respective treatment of SP/LSP entitlement of employees who commence their employment before and after the Transition Date. Employers should note that, after the Transition Date, they can continue to offset SP/LSP against (a) the accrued benefits derived from employers’ voluntary contributions under the MPF Scheme and (b) gratuities payable based on employees’ length of service, irrespective of whether they are used to offset the pre-transition or post-transition portion of SP/LSP.
Corresponding amendments will also be made to the Employment Ordinance (Cap. 57, the “EO“), Protection of Wages on Insolvency Ordinance (Cap. 380), Mandatory Provident Fund Schemes Ordinance (Cap. 485), Occupational Retirement Schemes Ordinance (Cap. 426) and Inland Revenue Ordinance (Cap. 112, the “IRO“). Notably, the IRO will be amended to provide that SP/LSP paid in accordance with the EO is not chargeable to salaries tax.
Apart from introducing a 25-year subsidy scheme which aims to lessen the financial burden on micro-, small- and medium-sized enterprises, the Government will also enact a new piece of legislation to launch a Designated Savings Accounts (the “DSAs“) Scheme under which employers will be required to save up to meet their future SP/SLP liabilities by contributing 1% of their employees’ monthly income to the DSAs until reaching 15% of their annual income. The relevant bill is expected to be introduced in the next legislative session.
In another news article published on 20 April 2022, we provided a summary of the Employment (Amendment) Bill 2022 (the “Bill“) which seeks to, among other things, clarify the statutory definition of “sickness day” and what constitutes a valid reason for dismissal or variation of contract for the purpose of addressing COVID-19-related employment issues.
The Bill was passed by the LegCo on 15 June 2022 and came into operation on 17 June 2022. To recap, the major amendments to the EO, which do not have retrospective effect, are as follows:
Employers are encouraged to seek legal advice to ensure that their existing policies and practices are in compliance with the aforesaid abolition and amendments.
A Hong Kong court could exercise jurisdiction to wind up a foreign company pursuant to section 327(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, if the 3 core requirements are satisfied. As explained in Kam Leung Sui Kwan v Kam Kwan Lai (2015) 18 HKCFAR 501 (“Yung Kee Case”), the 3 core requirements are as follows:
(“3 Core Requirements“).
In a recent Court of Final Appeal (CFA) case Shandong Chenming Paper Holdings Limited v Arjowiggins HKK 2 Limited [2022] HKCFA 11 (“Shangdong Case“), the CFA provided clarifications on the second limb (“Second Limb“) of the 3 Core Requirements – in particular, the nature of the benefit that will satisfy the Second Limb.
The background facts are as follows. In October 2016, the Respondent served a statutory demand on the Appellant (a Mainland Chinese company listed in Shenzhen and Hong Kong) in respect of the amounts due under an arbitral award (“Award“), but the amounts remained outstanding. Subsequently, the Respondent presented a winding-up petition to the Court.
The Appellant accepted that the first and third requirements were met in the courts below. The issue in the Shandong Case at the CFA level was limited to the nature of the benefit that will satisfy the Second Limb. The Court, taking into account that the rationale behind the Second Limb is to ensure the winding-up process will serve some useful purpose to the petitioner, held that applying commercial pressure on the Appellant to seek repayment of the undisputed debt which could be brought by presenting a winding-up petition is an entirely proper and relevant benefit. The Court explained that the benefit is not confined to a narrow scope of tangible or monetary benefits upon the actual making of the winding-up order; instead, the ‘leverage’ created by the prospect of a winding-up (as opposed to the making of a winding-up order) is a legitimate form of ‘benefit’ under the Second Limb. In response to the Appellant’s contention that according to the Yung Kee Case, the benefit must flow from the making of a winding-up order and must be sufficient and tangible and that there is no justification for departing from that, the Court responded that the 3 Core Requirements are self-imposed restraints on the Court’s exercise of jurisdiction and should not be approached as if it were an exercise of statutory construction, and is subject to the Court’s discretion.
In fact, the Second Limb has been discussed in some previous cases as well. In Re China Huiyuan Juice Group Ltd [2020] HKCFI 2940 (“Huiyuan Case“), Re China Greenfresh Group Co Ltd (“the Company”) [2021] HKCFI 1182 (“Greenfresh Case“) and Re Grand Peace Group Holdings Ltd [2021] HKCFI 2361 (“Grand Peace Case“), Harris J held that the winding-up petition did not meet the Second Limb, and that it is necessary for a petitioner to demonstrate by evidence that there is a real possibility of a tangible and sufficient benefit to creditors which would derive from the making of a winding-up order. Although it seems to be inconsistent with the Shandong Case in that the latter suggested that “benefit” is not limited to one arising from the making of a winding-up order and needs not be monetary or tangible, perhaps these cases could still be reconciled in the following way:
Firstly, the case facts are distinguishable. The Shandong Case differs in that the Appellant was solvent and operating profitably, the only reason for non-payment was recalcitrance. Also, the debt was undisputed. As noted in paragraph 39 of the judgment, there is a crucial distinction between undisputed and disputed debts and previous case laws demonstrated a winding-up petition presented in order to bring pressure on a company to pay an undisputed debt is perfectly proper. Further, given that the Appellant was solvent and operating profitably, the likelihood of the Appellant repaying the undisputed debt upon being applied commercial pressure would perhaps be a strong enough reason to constitute a real benefit to the petitioner. In contrast, in the 3 other cases, there may not be much leverage created by the prospect of a winding-up petition given that it was relatively less certain that the company in question could repay the petitioner even upon winding-up. The fact that these cases did not appear to include “leverage” as a benefit could mean that the relevance of commercial pressure or leverage created by the prospect of a winding-up petition was minimal or non-existent. Accordingly, the fact that these cases recognised a benefit arising from the making of a winding-up order and did not explicitly recognise other benefit such as “leverage” should not be interpreted as ruling out any other benefit not arising from the making of a winding-up order.
Secondly, on reading the judgments of the Huiyuan Case, Greenfresh Case and Grand Peace Case closely, it appears that when Harris J stated the need for “real possibility of a tangible benefit”, it was stated as opposed to hypothetical or theoretical benefits that potentially arise, which would be different from the benefits in the Shandong Case, which were beyond theoretical or hypothetical. In addition, in a recent case of Re Up Energy Development Group Ltd [2022] HKCFI 1329 in which it was held that the Second Limb was satisfied, the Judge noted that the Second Limb is not a high threshold to discharge and the petitioner is only required to demonstrate a real possibility of benefit, and that the nature or extent of the likely benefit to be shown under the Second Limb is to be given flexibility. Therefore, it seems that the Shandong Case and those previous cases are not necessarily in conflict, perhaps only with different focuses.
Taking into account all of the above factors, it appears that on top of the existing requirements that the benefit required to be shown under the Second Limb ought to be discernible and real as opposed to hypothetical or theoretical, the Shandong Case has clarified the scope by also expressly including intangible benefits such as leverage created by the prospect of a winding-up petition.
On 12 May 2022, the Office of the Privacy Commissioner for Personal Data (“Commissioner“) issued the new “Guidance on Recommended Model Contractual Clauses for Cross-border Transfer of Personal Data” (“Guidance Note“). The Guidance Note provides two sets of Recommended Model Contractual Clauses (“RMCs“) in its Schedule to assist local small and medium-sized enterprises in drafting contractual clauses to ensure that personal data will be protected to the same extent as provided under the Personal Data (Privacy) Ordinance (Cap. 486) (“PDPO“) when they are transferred abroad.
The two new sets of RMCs supplement those issued by the Commissioner in December 2014 in its “Guidance on Personal Data Protection in Cross-border Data Transfer” and are designed to cater for two cross-border data transfer scenarios as follows:
The general terms and conditions set out in the RMCs are applicable to transfer of personal data from a Hong Kong entity to another entity outside of Hong Kong, or between two entities both of which are outside Hong Kong when the data transfer process is controlled by a Hong Kong data user.
Please note that the RMCs are only recommended best practices for adoption by data users as part of their data governance responsibility to protect and respect the personal data privacy of data subjects. They may be adapted and modified so long as they are consistent with the requirements of the PDPO. In addition to the RCMs, data users should also consider the necessity of incorporating additional contractual assurances, rights and obligations before transferring data abroad in the specific context. As at the date of this news update, section 33 of the PDPO (which imposes restrictions on cross-border data transfers) is not yet in operation.
For further details, the full media statement and Guidance Note can be found here.
Further to our news update on 31 March 2022, the District Court handed down its decision on costs in Francis William Haden v Leighton Contractors (Asia) Limited [2022] HKDC 152 on 11 May 2022. Previously on 11 February 2022, the District Court dismissed the claimant’s race discrimination claim (where, among others, the use of the term “gweilo” in the work place was alleged to be contributing to race discrimination) and made a costs order nisi that there be no order as to the costs of the action.
It is worth noting that the normal rule of “costs follow the event” does not automatically apply in discrimination claims. The rationale is that if the Court makes an adverse costs order against unsuccessful claimants too readily, it may discourage those who may have legitimate grievances in enforcing their civil rights. Pursuant to section 73E(3) of the District Court Ordinance (Cap.336), the default costs position in race discrimination claims is that each party should bear its own costs unless the Court otherwise orders on the ground that:
The provision is in place to strike a balance between the legislative objectives to eliminate discrimination and change prejudicial attitudes that may exist in society on the one hand, and the concern that over-leniency will encourage the lodging of unmeritorious discrimination claims on the other.
In this case, the Court varied the order nisi that there be no order as to costs and instead ordered the claimant to bear the respondent’s costs of the action (including all costs reserved). The Court held that the proceedings had been brought frivolously when considered objectively. After an evaluation of the evidence relied on by the claimant, the Court was of the view that the action should not have been commenced in the first place. There are also special circumstances in that the claimant unreasonably turned down a previous offer by the respondent to withdraw or discontinue his claim with no order as to costs.
This decision illustrates the importance to conduct an early evaluation of the merits of a claim and to consider offers made by the other side seriously and realistically. Notwithstanding the statutory provision on costs, prospective claimants should still be mindful of potential costs consequences in deciding whether to bring a discrimination claim.
MinterEllison LLP acted for the respondent in successfully defending the discrimination claim and now varying the costs order nisi such that the claimant pays the respondent’s costs.
On 16 May 2022, the Judiciary published the 2022 Guide to Judicial Conduct (“the 2022 Guide“), which was an update to the 2004 edition (“the 2004 Guide“).
The 2022 Guide is largely similar to the 2004 Guide – both are led by the same Guiding Principles, i.e. Independence, Impartiality, Integrity and Propriety. There are, however, several new additions in the 2022 Guide. For example, some of the additions which are not included in the 2004 Guide are as follows:
According to the 2022 Guide, unnecessary, irrelevant or unjustified criticism should be avoided in exercising the judicial function, and the legitimate privacy interests of litigants and third parties as well as the harm which may be done to a person criticised in public judicial remarks should be borne in mind. Remarks which are of a derogatory or discriminatory nature must be avoided as well.
According to the 2022 Guide, a judge must not reveal or use the information acquired in the course of performing judicial functions for personal gain or for any purpose not related to judicial duties.
The apparent bias test was in the 2004 Guide – in gist, whether there is apparent bias depends on the view of a “reasonable, fair-minded and well-informed observer” in the specific circumstances. The 2022 Guide provides guidance on what counts as a “fair-minded and informed observer” – for example, he or she is neither complacent nor unduly sensitive or suspicious, and is not an insider in the judicial system.
The 2022 Guide provides guidance regarding the grounds for recusal. For example, the 2022 Guide explains that just because a judge has publicly expressed views before appointment regarding an issue which he or she is now required to determine, is not necessarily a ground for recusal and would depend on the particular circumstances, citing ZN v Secretary for Justice & others [2016] 1 HKLRD 174, which concerns an application seeking a judge’s recusal from this case. Although the case involves a judicial review on the issue of human trafficking and that the judge has previously taken an active role in addressing the problem of human trafficking as the Director of Public Prosecutions, what the judge was being asked to decide in this case was essentially a question of law concerning a determination of the duties and obligations of the government under Article 4 of the Hong Kong Bill of Rights and whether there has been any failure to fulfil such duties and obligations, and yet he has never previously expressed any views in relation to such question. The application was subsequently dismissed.
The 2022 Guide provides guidance on the judges’ use of social media. For example, judges should avoid commenting on cases on social media, having their private information enter the public domain unnecessarily, or having any social media association with any person, group or entity which may undermine the perception of their impartiality in a particular case.
The 2022 Guide provides that judges should not use equipment (including IT equipment) provided by the Judiciary for official use for other purposes which could bring them or the Judiciary in general into disrepute.
The changes shown in the 2022 Guide reflect how the legal field may often need to catch up with the development of information technology. Such changes also seem to provide more protection and fairness for litigants and third parties.
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