On 14 January 2022, the Hong Kong Court of Appeal dismissed the appeal by China Merchants Port Holdings Company Limited (the “Defendant“) against the decision of Mimmie Chan J, by which the judge dismissed the Defendant’s application to stay the action in Hong Kong on grounds of forum non conveniens in favour of the Civil Chamber of the Court of First Instance in the Republic of Djibouti. The action in Hong Kong was brought by companies associated with DP World Limited (the “Plaintiffs“) against the Defendant on 20 August 2018, alleging the latter intended to, and did, induce or procure the Djibouti Government to breach its agreements with the Plaintiffs which grant the Plaintiffs exclusive right to develop and operate the Djibouti Doraleh Port.
Despite having obtained an indemnity from the Djibouti Government whereby the Government warrants that its partnership agreement with the Defendant, pursuant to which the Defendant participated in the development of the Doraleh Multipurpose Port, was not in breach of the Government’s agreements with the Plaintiffs, the Defendant nonetheless found itself in legal troubles 10 years after signing the partnership agreement. China Merchants Port will now face a legal battle in Hong Kong that is likely to be prolonged, expensive and fiercely fought.
It is advised that Chinese companies considering to invest in overseas infrastructure to partner with Hong Kong law firms with expertise in construction law and dispute resolution to avoid finding themselves in the unfortunate situation that China Merchants Port is now in.
On 4 January 2022 the Stock Exchange of Hong Kong Limited (“Exchange“) issued a Statement of Disciplinary Action against China Properties Investment Holdings Limited (the “Company“) and five of its current and former directors (the “Directors“).
The Company’s wholly owned subsidiary made two disposals of listed shares on the Company’s behalf in 2019 (the “Two Disposals“). Each of the Two Disposals constituted a disclosable transaction, but the Company failed to announce the Two Disposals within the required time. Thus, the Listing Committee found that the Company had breached Listing Rule 14.34. This was, in fact, a repeated breach – in 2018, the Company had already been warned by the Exchange after a similar incident. The Listing Committee also found that the Directors had failed to discharge their duties to ensure that the Company had adequate and effective internal controls for the purpose of complying with the notifiable transaction requirements. As a result, the Exchange directed the Company to conduct an internal control review for procuring compliance with Chapter 14 of the Listing Rules and each of the Directors to undergo training on regulatory and legal topics and Listing Rule compliance.
The Exchange is more likely to take disciplinary actions and impose public sanctions on those responsible where the breach is a repeated one after a warning or guidance has been given by the Exchange, as in this case. To avoid disciplinary actions of this nature, directors should provide timely responses when breaches or deficiencies have been discovered.
The Insurance Authority (IA) appointed managers to take full control of the affairs and property of Target Insurance Company Limited (Target) on 7 January 2022. Pursuant to the IA’s press release, the IA took this action to maintain market stability and protect policy holders’ interests, on the grounds of (1) Target’s potential breaches of statutory requirements relating to its investment activities and asset allocation and (2) potential deficiencies in Target’s corporate governance. The management of Target denies these allegations, according to news reports.
The IA’s power to appoint managers is provided under section 35(2)(b) of the Insurance Ordinance (Cap.41) (IO). Under the IO, the IA may only invoke such powers when, among others:
The IA’s regulatory powers over insurers under the IO also include:
It is the first time that the IA exercises its power to appoint managers since its establishment in 2015. Insurers should pay close attention to developments in this case as this may set a precedent for IA’s approach to exercise such powers in future.
On 1 January 2022, the proposed amendments to the Hong Kong Listing Rules relating to the new listing regime for special purpose acquisition companies (SPAC) have become effective. The Stock Exchange of Hong Kong Limited (SEHK) also issued a guidance letter on SPACs to assist applicants and issuers to understand and comply with the amended Listing Rules.
The new SPAC listing regime reflects the SEHK’s commitment to make Hong Kong’s capital-raising markets internationally attractive, competitive and diversified.
The Court of First Instance (“CFI“) has recently reaffirmed an employer’s right to terminate a contract of employment and agency without cause in the cases of Lam Siu Wai v Equal Opportunities Commission [2021] HKCFI 3092 and Cheung Li On v Sun Life Hong Kong Limited [2021] HKCFI 3784.
In Lam Siu Wai, the dismissed employee claimed wrongful dismissal in breach of the employer’s implied duty of mutual trust and confidence. The CFI ruled that such duty involves the maintenance of the employer-employee relationship, but is not applicable in the context of termination. Further, the employer’s contractual or statutory termination right can be exercised unreasonably or capriciously, so long as it is exercised in accordance with contractual and statutory rights.
In Cheung Li On, where a breach of the implied duty of good faith in the exercise of the contractual right was argued, the CFI similarly ruled that the very nature of the power to terminate a contract without cause is that its exercise does not have to be justified, and it cannot be overridden by the implied duty of good faith. A duty of good faith is implied to restrict an unqualified discretion only if the termination power may prevent a proper exercise of contractual discretion, but not to limit a right to terminate.
To avoid a dispute, employers must pay attention when deciding whether to give or stay silent on the reasons for termination.
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