Hong Kong: The Credit Crunch And Increasing Disputes

There is a marked rise in contractual disputes involving parties from Mainland China. As a law firm that focuses on Hong Kong and Greater China, we have been asked to review many contracts to determine whether legal proceedings should be commenced in Hong Kong or in the Mainland. There are procedural and strategic considerations which may have significant impact on the conduct of the litigation and subsequent enforcement of judgments depending on the seat of the legal proceedings. With effect from 1 August 2008, the Mainland (Reciprocal Enforcement) Ordinance (Cap. 597) provides for a reciprocal enforcement of money judgments in disputes arising out of commercial contracts (excluding matrimonial and employment contracts as well as Sino-foreign joint venture disputes which fall within the exclusive jurisdiction of the Mainland Courts). Money judgments from any Court in Hong Kong would be recognized in the Mainland whilst Mainland judgments from certain designated courts (namely, the Supreme People's Court, a Higher People's Court, an Intermediate People's Court or a recognized Basic People's Court) would be recognized in Hong Kong. Apart from the requirement that the judgment must be final and conclusive and given after 1 August 2008, the underlying contract must also contain an "express choice of court agreement" made after the commencement of the Ordinance. If the statutory requirements are not satisfied, money judgments given by a Mainland court can only be enforced in Hong Kong by commencing an action in debt under common law. Some clients prefer Hong Kong as the seat of litigation or arbitration as they prefer to have their disputes adjudicated under a common law system.

I nvestments which might appear attractive before the financial crisis are now being re-examined. We have come across venture capitalists failing to honour financial commitment to inject funds into ventures in China notwithstanding express contractual undertaking. We are also advising clients who have made an equity investment in a company but are now seeking to unravel their investment on the basis of breach of the warranty and representation clauses.

Parties are examining their contractual terms to find a way to avoid performance of their contractual obligations. For example, we are advising a manufacturer of a particular product in an exclusive supply arrangement with a US buyer in which the US buyer has refused to accept delivery of manufactured goods on the basis of an alleged breach of a term of the contract by the manufacturer.

The volatility of the private equity market and currency fluctuations have also generated allegations of mismanagement of investments by managers in financial institutions. We have advised a high net worth individual whose asset value have been wiped out in the recent stock market crash and who is accusing the manager of his investment portfolio of mis-selling and/or mismanaging his account. Such matters require an examination of the relationship between the financial institution and the customer, including the customer's mandate for a buy or sell and the right of the financial institution to make a margin call.

We have also begun to see disputes in real estate transactions. We are advising a landlord in respect of a default by an expatriate tenant who has been retrenched by his employer and who wishes to terminate the tenancy agreement prematurely. If the financial crisis persists, we expect default by purchasers in failing to complete their real estate purchase. We act for property developers and sellers and expect a rise in allegations by purchasers of breach in providing satisfactory answers to property requisitions and/or breach of other conditions entitling the purchaser to exit the contract and recover his deposit.