On September 5 2023, the Court of Final Appeal (“CFA“) held by a majority of 3:2 that the Hong Kong Government is in violation of its positive obligation under Article 14 of the Hong Kong Bill of Rights Ordinance (“BORO“) to establish an alternative framework for the legal recognition of same-sex partnerships. This is the first time a court in a common law jurisdiction has decided that Article 17 of the International Covenant on Civil and Political Rights (“ICCPR“) (from which Article 14 of the BORO is derived) imposes a positive obligation on a State to ensure that the rights protected by it are effective.

The appellant Sham Tsz Kit, was married to his same-sex partner in New York in 2013. In the absence of any Hong Kong law providing for such marriage to be recognised, he brought proceedings which culminated in him seeking a determination by the CFA of the following 3 questions:

1. Whether he has a constitutional right to same-sex marriage under Article 25 of the Basic Law (“BL“) and Article 22 of the BORO;
2. Alternatively, whether the absence of any alternative means of legal recognition of same-sex relationships constitutes a violation of Article 14 of the BORO and/or Article 25 of the BL and Article 22 of the BORO; and
3. Whether the non-recognition of foreign same-sex marriage constitutes a violation of Article 25 of the BL and Article 22 of the BORO.

Questions 1 and 3 – Lex Specialis

The CFA unanimously dismissed questions 1 and 3 by operation of the common law principle lex specialis (that a general provision that might apply to any case must give way to a specific provision which applies to the case at hand). Regarding question 1, Article 19(2) of the BORO is the lex specialis in relation to the right to marry and takes precedence over the equality rights under Article 25 of the BL and Article 22 of the BORO. Since Article 19(2) of the BORO is confined to heterosexual marriage, it is not permissible to interpret the equality rights under Article 25 of the BL and Article 22 of the BORO as conferring a constitutional right to same-sex marriage. Similarly regarding question 3, given that the appellant lacked capacity to enter into a same-sex marriage as concluded under question 1, compelling recognition of the appellant’s foreign same-sex marriage would amount to an “incongruent” situation (see paragraph [76]). Thus, questions 1 and 3 fall together on the basis of lex specialis.

Question 2 – Positive or Negative Obligations?

Albeit agreeing that Article 14 of the BORO involves different considerations, Chief Justice Cheung (“CJ“) and Justice Lam PJ differed from Justices Ribeiro PJ, Fok PJ and Keane NPJ in saying that Article 14 of the BORO does not impose a positive obligation on the Hong Kong government to ensure legal recognition of same-sex relationships.

The gist of the CJ’s judgment was that there was a distinction between the prevention of interferences under Article 14 of the BORO and a positive duty to enact laws to ensure “effective respect” for those rights absent interferences (as required under Article 8 of the European Convention on Human Rights (“ECHR“)) (see paragraph [25]). He further emphasised that the CFA must be cautious in applying Strasbourg jurisprudence as Article 14 of the BORO is derived from Article 17 of the ICCPR, rather than Article 8 of the ECHR –  and since Strasbourg jurisprudence was influenced by developments on the European continent, reliance on the interpretation of Article 8 of the ECHR was misplaced (see paragraphs [41] and [54]). Focusing on a textual analysis and relying on the drafting history and commentary on Article 17 of the ICCPR, the CJ concluded that the Hong Kong government only has a duty to prevent and prohibit interferences to the constitutional right enjoyed under Article 14 of the BORO. It followed that the non-recognition of same-sex partnership in Hong Kong does not constitute a violation of Article 14 of the BORO.

On the other hand, Justices Ribeiro PJ and Fok PJ adopted a different interpretation. They began by saying that whilst Article 14 of the BORO speaks of “privacy” and Article 8 of the ECHR refers to “private life“, the “two concepts are to be treated as indistinguishable” – and accordingly, Strasbourg jurisprudence provided persuasive guidance (see paragraph [138]).

Secondly, because the lack of means to acquire the legal recognition available to heterosexual couples is potentially demeaning of same-sex couples and “privacy is a concept inherently linked to a person’s dignity“, they held that Article 14 of the BORO is engaged (see paragraphs [142]-[143]),

“To say this is not to insist upon aligning same-sex unions with marriage.  Rather, it is to make the point that absence of legal recognition of same-sex unions as committed, loving, stable and long-term relationships between individuals who are mutually dependent on each other can be an occasion of arbitrary interference in the ordinary conduct of the private lives of those individuals.” (see paragraph [145])

Thirdly, following the line of authorities applying Article 8 of the ECHR (which was said to impose both positive and negative obligations), they considered that the focus must be on what needs to be done to make the rights contained in Article 14 of the BORO effective, rather than any narrow textual analysis (see paragraph [160]).

Fourthly, having decided that effective protection of the relevant rights require recognition of a positive obligation, they held that the CFA was required to go on to consider whether the proposed obligation strikes a fair balance between the competing interests of the individual and the community as whole (see paragraph [162]).

Finally, as regards Article 17 of the ICCPR, they were of the view that, inter alia, the word “guarantee” in the same commentary to which the CJ referred may entail a positive obligation on the State to adopt legislative measures to give effect to the substantive rights involved.

Implications

It was repeatedly stated in the judgment that the CFA was not addressing the question of whether in terms of social policy for Hong Kong same-sex unions should be recognised and afforded rights and obligations similar to those presently enjoyed by heterosexual couples (see, for example, paragraph [220]). In this regard, the Hong Kong government enjoys a flexible margin of discretion in deciding the content of the rights and obligations to be associated with the scheme of legal recognition. The Hong Kong government has been given 2 years to formulate the relevant framework.

See the full judgment here: legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=154774&currpage=T

On 11 February 2022, we published an article discussing the Court of First Instance’s (CFI) judgment in Tam Sze Leung & Ors v Commissioner of Police [2021] HKCFI 3118, in which the No Consent Regime as operated by the Commissioner of Police was held to be unconstitutional.  Our article published on 14 April 2022 provided an update on the relief granted by the CFI ([2022] HKCFI 772).

As a refresher, the No Consent Regime serves a crucial role in assisting victims of fraud to preserve the stolen funds in question, as it provides a quick and cost-effective way for the Police to “informally freeze bank accounts” which received the victims’ money before legal recourse can be pursued.

In April 2023, on appeal by the Commissioner of Police from the CFI’s decision, the Court of Appeal (CA) overturned the CFI ruling in its decision [2023] HKCA 537 for the following reasons:-

1. First and at the outset, it was not clear from the CFI judgment as to what the “No Consent Regime as operated by the Commissioner of Police” entails, and this leaves one in doubt as to what precisely is unlawful, and what systematic effect this ruling has on the No Consent Regime as a whole.
2. Second, the CA dismissed the “ultra vires” ground relied upon by the CFI. Based on the CA’s analysis, a bank account is “frozen” not because of any enforceable order by the Police, but because the bank chooses to withhold the funds due to its potential criminal liability for money laundering under section 25(1) of the Organised and Serious Crimes Ordinance (Cap 455) (OSCO).  The issuance of Letters of No Consent (LNCs) merely means that the banks do not have the Police’s consent to deal with the funds, but the Police do not have any power to compel the banks to freeze the account, just as the issue of consent does not compel the banks to release the funds.
3. The CA went further to say that even by alerting the banks to potential money laundering offences and subsequently issuing LNCs, as the Police did in this case, the Police were not acting beyond their powers (i.e. ultra vires). Indeed, it is part of the duties of the Police to take all steps necessary to prevent crime, and the Police’s power to give consent under the OSCO necessarily implies a power to withhold or refuse consent.
4. Third, the CA rejected the CFI’s view that the LNCs in this case were issued for the improper purpose of securing an informal and unregulated asset freeze. Upon receiving an LNC, whether or not to deal with the property is ultimately a decision for the bank to make.  In this case, the CA acknowledged that the purpose of the Police issuing the LNCs was to prevent dissipation of the funds, and accepted that this was consistent with the recognised purpose of OSCO to deprive offenders of proceeds from their criminal acts.  Further, the power of the Police to withhold consent can be exercised not only where they are satisfied in fact, but also where there is reasonable suspicion that the proceeds were derived from criminal conduct.  As such, the CA disagreed with the CFI that the LNCs were issued for an improper purpose.
5. Fourth, the CA disagreed with the CFI’s conclusion that (a) there was no clarity or certainty as to the scope of power in relation to LNCs and the manner of its exercise in the OSCO or the guidelines published by the Police, or that (b) the law did not provide adequate effective safeguards against abuse. The CA took the view that there were sufficient published guidelines which were accessible by the public to anticipate how the Police would exercise their power.  In addition, various challenges and remedies such as judicial review against the Police’s decision, civil action against the bank, the court’s power to award compensation to the account holder under the OSCO, and remedies in private law for infringement of property or contractual rights, are also available to guard the account holders against any arbitrary or capricious exercise of power by the Police.
6. Finally, the CA upheld its earlier judgment in Interush Limited v Commissioner of Police [2019] HKCA 70 that the object of the relevant provisions under OSCO was to deter criminal activity by restricting access to the proceeds of crime and that this was a legitimate societal aim. The CA clarified that the Interush judgment was still binding, and it failed to see how it could be distinguished by the CFI in this particular case in saying that the No Consent Regime was inherently disproportionate in interfering with the account holders’ fundamental rights.

The CA decision means that it remains constitutional for the Police to issue LNCs to banks where it has the requisite reasonable suspicion.

As an update, in light of the general or public importance of the decision, the CA had on 15 August 2023 ([2023] HKCA 959) granted leave to the applicants to appeal to the Court of Final Appeal (CFA).

We await to see how our highest court decides the matter once and for all.  Regardless, the CFA’s ruling will have a significant impact on how victims of fraud can preserve their stolen funds and recover their losses, as well as the banks’ compliance obligations when faced with funds suspected of representing proceeds of crime.

As the matter presently stands, the effect of an LNC informally freezes the account in question.  Victims would nevertheless have to resort civil proceedings themselves to apply to the court for a formal injunction order to prevent dissipation of their money, as there is a limit as to how long the Police will maintain the validity of its LNC, and to recover the stolen money from the fraudsters.  Our dispute resolution team has assisted numerous victims of such cases.

The Claimant asserted that China Travel (Cargo) Logistics Centre Limited (the “Company“) engaged in direct discrimination against her as a pregnant woman, treating her less favourably due to her pregnancy and/or maternity leave.  This discrimination was manifested through the Company’s refusal to (i) renew her employment contract and (ii) pay her the yearly bonus she had been receiving, contrary to sections 8(a) and 11(2)(c) of the Sex Discrimination Ordinance (Cap. 480).

For discrimination claims, the burden is on the claimants to prove discrimination on the balance of probabilities.  Since direct evidence is rare, the claimants may rely on inferences from primary facts. If employers can provide genuine, albeit unjustified reasons without showing discrimination, the inference of unlawful discrimination is usually not made.

The Court determined that the Company’s claims of “organizational restructuring” and “business downsizing” to justify denying the Claimant’s contract renewal in November 2017 lacked evidence. Documents revealed the Company urgently hired a new employee in April 2017, after the Claimant informed them of her pregnancy in March 2017, potentially to replace the already pregnant Claimant. Additionally, while the Company did experience a decline in profits, they failed to demonstrate that this decline was a result of the Claimant’s poor performance. These factors indicated that the non-renewal of the contract was due to the Claimant’s pregnancy, constituting discrimination. The Court also ruled that refusing the year-end bonus was further pregnancy discrimination.

The Court ordered the Company to pay the Claimant a total of HK$306,680 for lost income and HK$498,500 for the year-end bonus, along with interest and legal fees. Additionally, damages for injury to feelings were assessed at HK$130,000, and if the Company fails to issue a written apology or reference letter to the Claimant, the Court may impose exemplary damages.

The Claimant also requested that the Company establish an internal anti-discrimination policy and to handle complaints. However, the Court acknowledged the complexity of the matter and instructed both parties to negotiate and report back to the Court on whether a consensus could be reached.

In conclusion, this case emphasizes the importance of eliminating pregnancy discrimination in employment and urges employers to promote inclusive workplaces.

For further details, the full judgement can be found here.

Harris J’s judgment in Re Shandong Chenming Paper Holdings Limited gives a new perspective on a line of cases regarding the effect of exclusive jurisdiction clauses and arbitration clauses in the context of bankruptcy or winding-up proceedings.

For background, please refer to the decision of Re Guy Kwok-Hung Lam [2023] HKCFA 9 (“Guy Lam“) (see our news update), where the Court of Final Appeal (the “CFA“) affirmed the Court of Appeal (the “CA“)’s decision to dismiss a bankruptcy petition in light of an exclusive jurisdiction clause. After the CFA decision, in Re Simplicity & Vogue Retailing (HK) Co., Limited [2023] HKCFI 1443 (see our news update), the Court of First Instance remarked (obiter) that the ratio of Guy Lam applies only to exclusive jurisdiction clauses, but not to arbitration clauses.

In Re Shandong Chenming Paper Holdings, the subject company sought a dismissal or adjournment of the winding-up petition which relied on the ground of insolvency for non-payment of an arbitral award. The company then commenced another arbitration against the petitioner, which was a cross-claim in excess of the first arbitral award. The substantive hearing of the arbitration was fixed to take place soon in less than one year.  This was its basis for seeking a dismissal or adjournment of the winding-up petition.

The issue before the Court of First Instance was whether Guy Lam would apply where the debtor relies on a cross-claim and not a disputed debt. If it did apply, the debtor would not have to show that the cross-claim was based on substantial grounds, and that it exceeds the debt. If Guy Lam did not apply, then to dismiss the winding-up petition, the company would have to rely on the ground that there is a bona fide dispute of the debt on substantial grounds. In that case, the company would have to show that the cross-claim is genuine, serious, and of substance.

Harris J held that the Guy Lam approach would apply to arbitrable cross-claims . The Judge stated in his judgment that it was clear from the reasoning of both the CA and CFA in Guy Lam that in bankruptcy and winding-up proceedings, the existence of exclusive jurisdiction clauses and arbitration clauses would be a reason to dismiss such applications, unless there were countervailing factors such as risk of insolvency affecting third parties and a dispute that borders on the frivolous or abuse of process.. It was further interpreted that in the application of Guy Lam, there is no difference between disputed debts and cross-claims when considering whether there is a defence to a winding-up petition – in other words, the court would dismiss a petition for bankruptcy or winding-up subject to an arbitration based on either a disputed debt, or a cross-claim.

Given the long history of the matter, instead of dismissing the winding-up petition, the Judge stayed the petition.

For further details, the full judgement can be found here.

Following PRC regulation amendments announced by the China Securities Regulatory Commission (the “CSRC”) in February 2023, the Stock Exchange of Hong Kong Limited (the “Exchange“)  has issued consultation paper in February 2023.

On 21 July 2023, the Exchange published consultation conclusions on Listing Rules amendments following PRC regulation updates and other proposed rules amendments for PRC issuers. The Exchange has adopted all the proposals outlined in the consultation paper with minor modifications.

The Exchange amended the Listing Rules following the consultation conclusions. Such amendments took effect on 1 August 2023, and have the following effect:

I. Rule amendments in response to the PRC regulation updates

1. Remove the class meeting requirements for the issuance and repurchase of shares by PRC issuers;
2. Remove the requirements of using arbitration to resolve H shareholders disputes;
3. Remove the requirements for PRC issuers’ articles of association to include the Mandatory Provisions and other ancillary provisions (which require PRC issuers to (i) deem holders of domestic shares and H shares as different classes of shareholders; and (ii) use arbitration to resolve disputes involving H shareholders); and
4. Amend the documentary requirements for new listing applications to reflect the PRC’s new filing regime for all direct and indirect overseas listings by Mainland-based companies.

II. Other rule amendments

1. Set the limits on (a) general mandate for issuance of new shares at 20% of the total issued shares of a PRC issuer; and (b) scheme mandate for share schemes in each case, at 10% of the total issued shares of a PRC issuer (instead of referencing to each of domestic shares and H shares);
2. Remove the requirements for directors, officers and supervisors of PRC issuers to provide undertakings to the issuers and their shareholders to comply with the PRC Company Law and the articles of association;
3. Align minor requirements on compliance advisers under Chapter 19A (for PRC issuers) with those in Chapter 3A (for all issuers); and
4. Remove certain requirements in Chapter 19A relating to (a) online display or physical inspection of documents and (b) disclosure in listing documents of new applicants.

Please note that a PRC issuer must still comply with its existing articles of association until the amendments to such articles of association (reflecting the above) become effective. In this regard, PRC issuers should still obtain approvals from domestic shareholders and H shareholders at separate class meetings to amend their articles of association.