In our previous news article dated 25 November 2021, we reported that the new Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“New Code Provisions“) will come into effect on 5 August 2022, following Consultation Conclusion by the Securities and Futures Commission on (i) the Proposed Code of Conduct on Bookbuilding and Placing Activities in Equity Capital Market and Debt Capital Market Transactions and (ii) the “Sponsor Coupling” Proposal.

On 22 April 2022, The Stock Exchange of Hong Kong Limited published an information paper (“Information Paper“) outlining the consequential amendments (“Rule Amendments“) to the Hong Kong Main Board and GEM Listing Rules which will complement the New Code Provisions. The Rule Amendments will reflect the “sponsor coupling” requirement (for Main Board IPOs only) and certain other requirements for issuers and parties involved in specified activities with a view to facilitating the discharge of obligations under the New Code Provisions by intermediaries.

The Rule Amendments will apply to new applicants and listed issuers submitting (or re-filing) their listing applications for IPOs or other specified types of placings on or after 5 August 2022. No specific amendments will be made to the Listing Rules relating to the placing of debt securities. Intermediaries should abide by the New Code Provisions for the standards of conduct expected of them in debt capital market transactions where applicable.

The full text of the Information Paper is available here.

The Competition Commission (“Commission“) is probing into potential anti-competitive conduct in the online food delivery platform and car repair / maintenance markets.

Investigation into Foodpanda and Deliveroo

The focus of the Commission’s investigation of two online delivery platforms, namely Foodpanda and Deliveroo, is to ascertain whether they have contravened the Competition Ordinance (Cap 619) by imposing certain contractual requirements on their partner restaurants. According to the Commission’s press release published on 27 January 2022, these include requiring exclusivity arrangements with partner restaurants, requiring partner restaurants to offer their menu items on the delivery platform at prices that are equal to or lower than those offered on the restaurants’ own menu and on other online delivery platforms, as well as requiring partner restaurants that wish to procure online food delivery services to also procure pick up or other services from the delivery platform.

Investigation into passenger car warranty terms and conditions

On 3 March 2022, the Commission invited passenger car owners, independent car repair workshops and other interested parties to provide information and share their views on restrictive passenger car warranty terms and conditions via an online questionnaire.

According to the latest issue of the Commission’s e-newsletter, the Commission is looking specifically into whether agreements between certain manufacturers of passenger cars and their distributors in Hong Kong mandate the use of restrictive warranty terms and conditions upon passenger car owners under which the continued validity of passenger car warranties is conditional upon the exclusive performance of maintenance and/or repair services at authorised repair centres, regardless of whether the maintenance or repair item is covered by the warranty.

The Commission considers that both the above requirements by Foodpanda and Deliveroo and the warranty terms and conditions by car manufacturers and distributors may lessen competition in their respective markets, hinder entry and expansion by new or smaller market competitors, and ultimately lead to fewer choices of and higher prices for online food delivery and car maintenance and repair services for consumers.

Both investigations are still ongoing and the Commission stressed that the existence of the investigations does not prejudge their outcome.

Following our previous article in August 2020 (Is an arbitration clause a trump card against winding-up petitions?), the Court of First Instance recently had another chance to determine the legal effect of an arbitration agreement governing the underlying debt on a winding-up petition in Re Hongkong Bai Yuan International Business Co., Limited (HCCW 219/2021).

The petitioner in Re Hongkong Bai Yuan International Business Co., Limited sought a winding up against Hongkong Bai Yuan International Business Co., Limited (the “Company“) on the ground of insolvency by reason of the Company’s failure to comply with a statutory demand regarding outstanding cargo price payable by the Company to the petitioner under a sales contract concluded between the parties. The Sales Contract provided, amongst other terms, that all disputes under the contract were to be referred to CIETAC for arbitration. One of the grounds under which the Company sought dismissal of the petition is that there is a “prima facie” dispute on the debt that the case shall be referred to arbitration.

Rather than urging the court to adopt either the traditional approach (i.e. debtor company may only apply to dismiss or stay a winding-up petition if it can show there is a bona fide dispute on substantial grounds) or the Lasmos approach (i.e. winding-up petition should generally be dismissed if (a) the debtor disputes the debt, (b) the dispute is covered by the arbitration clause, and (c) the debtor company has taken step to commence arbitration), counsel for the Company submitted that the court should instead adopt the Singapore approach expounded in AnAn Group (Singapore) Pte Ltd v VTB Bank (Public Joint Stock Company) [2020] SGCA 33, §§60-74 and the English approach in Salford Estates (No.2) v Altomart Ltd (No.2) [2015] 1 Ch 589, such that the court should dismiss a petition if the court finds there is a “prima facie” dispute on the debt.

Linda Chan J held that it serves no purpose to distinguish the linguistic difference between a prima facie standard (adopted by Singapore and English courts) and a bona fide dispute on substantial grounds standard (adopted by Hong Kong court) as the real test is whether the debtor could demonstrate that there is “a genuine dispute on the debt which requires determination of a tribunal“. In addition to approving the traditional approach, the judge further provided that the courts in exercising its discretion to wind up a company should “give considerable weight to the fact that there is an arbitration agreement between the parties and other relevant circumstances“.

While the debate between the advocates of the traditional approach and the Lasmos approach will continue until decisions from appellate courts are handed down, it is now becoming clearer that the Court of First Instance is generally in favour of Kwan VP’s obiter comments in But Ka Chon v Interactive Brokers LLC [2019] 4 HKLRD 85 and the traditional approach is to be preferred. Although arbitration agreements are not to be treated as a “trump card” under the traditional approach, the existence of an arbitration agreement is now expected to be an important factor weighing against winding-up.

For details, the full judgment can be found here.

The Arbitration and Legal Practitioners Legislation (Outcome Related Fee Structures for Arbitration) (Amendment) Bill 2022 (the “Bill“) was gazetted on 25 March 2022. The Bill seeks to allow the use of outcome related fee structures (“ORFS“) for arbitration by lawyers in the following three forms of agreements:

• conditional fee agreement (“CFA“), which refers to an agreement under which the lawyer agrees to be paid a success fee for the matter only in the event of a successful outcome for the client in the matter;
• damages-based agreement (“DBA“), which refers to an agreement under which the lawyer agrees to be paid only in the event the client obtains a financial benefit in the matter (“DBA payment“). The DBA payment is calculated by reference to the financial benefit that is obtained by the client in the matter; or
• hybrid damages-based agreement (“Hybrid DBA“), which refers to an agreement under which the lawyer agrees to be paid (a) the DBA payment in the event the client obtains a financial benefit in the matter, and (b) in any event a fee (usually calculated at a discount) for the legal services rendered by the lawyer for the client during the course of the matter.

The Bill proposes to introduce a new Part 10B into the Arbitration Ordinance (Cap. 609) to remove the prohibition on ORFS for arbitration. It is also proposed that section 64 of the Legal Practitioners Ordinance (Cap. 159) be amended to enable the validity of ORFS agreements for arbitration. The legislation will bring Hong Kong’s legal fees position into line with other major arbitral seats.

The full text of the Bill is available here.

In light of the 5^th wave of the COVID-19 pandemic in Hong Kong, the Government has recently gazetted the Employment (Amendment) Bill 2022 (the “Bill“), which seeks to amend the Employment Ordinance (Cap. 57, the “EO“) to prevent potential employment disputes which may arise when COVID-19 control measures are implemented.

One of the key objectives of the Bill is to clarify the definition of a statutory sickness day.  The amended definition of “sickness day” includes a day on which an employee is absent from work by reason of his/her compliance of a requirement under the Prevention and Control of Disease Ordinance (Cap. 599) which restricts his/her movement, namely a compulsory testing, isolation or quarantine order (a “Cap. 599 Order“; an employee subject to the Cap. 599 Orders is referred to as an “Affected Employee“).  Accordingly, section 33 of the EO is amended to provide that any Affected Employee is entitled to sickness allowance where the Affected Employee:

1. is able to present a hard copy or electronic document issued by a Government officer that shows the name of the Affected Employee, the type of the Cap. 599 Order imposed on the Affected Employee, and the commencement and expiry dates of the period for the Cap. 599 Order;
2. is absent from work for 4 or more consecutive days due to the Cap. 599 Order imposed on the Affected Employee; and
3. is not subject to the Cap. 599 Order due to his/her own serious and wilful misconduct.

Further, the proposed section 32KA of the EO provides that an Affected Employee’s absence from work due to his/her compliance with a Cap. 599 Order will not be a valid reason for dismissal or variation of the terms of his/her employment contract.  However, under the new section 32KB, an employee who fails to comply with a legitimate vaccination request by the employer (which must fulfil all the requirements set out in the proposed Schedule 12) will be regarded as being incapable of performing work for the purpose of his/her employment, which does constitute a valid reason for the employer to dismiss the employee or vary the terms of his/her employment contract.

The Bill, which can be accessed here, was tabled to the Legislative Council on 16 March 2022.  It is worth noting that there is a sunset clause which provides for the repeal of the above proposed amendments when the COVID-19 pandemic is under control and is no longer a matter of public health concern.