Hong Kong is an international business hub. Foreign investors and businesses from all over the world are active there, and accordingly contractual arrangements, business and client agreements and employment agreements form a critically important part of business life. Yet Contract Law in Hong Kong is as individual as the city itself. So what does your business need to know?*
Contract Law in Hong Kong comprises all the rules, regulations and legal provisions which govern the conclusion of agreements, regardless of their purpose.
The general rule, in Hong Kong as in England, is that contracts can be made in any form. Despite a common misapprehension, there is no general requirement in Hong Kong that contracts be made in writing, although this is of course advisable in cases of dispute.
Though contract law in Hong Kong covers a wide range of agreements, some areas are regulated differently in keeping with the particular field in which they are concluded. Employment contracts for example have their own particularities compared to the common law, in accordance with the City’s employment law.
Why is Contract Law in Hong Kong different from other places in Asia?
The Hong Kong contract law, like the common law, has been influenced historically by the common law of England. The legal background that influences any written agreement between two parties in Hong Kong is usually the Basic Law or the common law. Hence a contract can include elements of civil law, commercial law, local law or other legislation related to the field in which the contract will be enforced.
Can anyone draw up a contract in Hong Kong?
While any individual or corporation is entitled to conclude a contract, the law restricts this in case of minors, mentally ill individuals and corporations. The latter must also pay attention to the Company Law when drawing up any economic or business agreements.
What are the basic elements required for a contractual agreement in Hong Kong?
There are a number of elements that must be included in every contract in order for it to be considered valid:
- Offer: the intention to enter into a legal relation expressed through the offer made by one of the parties
- Acceptance: the other party’s acceptance of the aforementioned offer according to the specific terms
- Consideration: benefits awarded to the party accepting the offer must be sufficient
- Certainty: the terms of the agreement must be valid and the parties must have the legal ability to enter into an agreement; in addition the terms used in drafting the document must not be ambiguous or meaningless.
Failure to draft a comprehensive and correct document may result in a court declaring the agreement void because of uncertainty.
Are there any clauses or specific issues that need to be included?
Some of the issues that can be covered by the clauses defined in the document are the following:
- Terms: those that are expressly agreed upon and that both parties wish to include in the agreement
- Representations: the statements that are made during the contract negotiation phase; these do not have a promissory nature
- Warranties: the terms that are secondary to the main ones expressed in the agreement; a breach of warranty can allow the harmed party to claim damages for breach of contact, however, it is not grounds for the cessation of the agreement
- Force majeure: a clause that excepts one or both parties from their contractual duties during the course of uncontrollable events, such as natural disasters; the situation in which an event makes the performance of the contract impossible or illegal as opposed to how the parties originally conceived of it at the time the contract was executed
- Termination: The contract can stipulate the manner in which it can be terminated and how damages and remedies can be awarded to one of the parties if the other has failed to meet its duties and responsibilities under the agreement
Do all these still apply if you are a foreigner? And not a Hong Kong citizen?
In many situations when drawing up a contract in Hong Kong, the agreement will be between legal entities or individuals who are not based in Hong Kong, foreign companies or foreign investors, or subsidiaries/branches of foreign companies in the Special Administrative Region. Therefore an international contract will need to include a governing law clause, one that expressly stipulates the chosen applicable law.
For international agreements it is recommended that you seek legal advice about the manner in which the contract will be enforced in other jurisdictions, as well as how foreign judgments will influence the contractual matters.
A foreign judgment can be enforced under The Foreign Judgments Ordinance of the Laws of Hong Kong and a prior registration must be made. This registration is required in order to facilitate reciprocal recognition and enforcement.
How are disputes resolved in Hong Kong?
Along with a governing clause, contracts should include the manner in which the parties choose to resolve the disputes that can derive from the arrangements made under the agreement. The governing law will also indicate to a certain extent the manner in which the disputes will be solved.
In case of legal disputes, a lawyer will be able to help you find the best way to solve the case, either through litigation, arbitration or mediation.
Are corporate marketing materials considered contracts in Hong Kong?
Generally, advertisements, brochures, catalogues, price lists, and menus constitute invitations to treat instead of offers and therefore do not come under contract law.
One of the particulars of Contract Law in Hong Kong is the concept of Third Partry Rights Ordinance or Cap 623. What exactly is this?
The Contracts (Rights of Third Parties) Ordinance (Cap. 623) (the “Ordinance”) reforms the long-standing common law doctrine of privity of contract by enabling persons who are not parties to a contract to enforce rights under that contract. The Ordinance came into force on 1 January 2016 and applies to all Hong Kong law-governed contracts entered into on or after that date (but it does not apply to contracts entered into before that date).
The Ordinance provides that a third party may assign to another person its right to enforce a term of a contract unless the contract expressly provides otherwise or, on a proper construction of the contract, the right is personal to the third party and is therefore not assignable.
Thinking about establishing a business in Hong Kong and need advice about Contract Law or other business-related matters? Then don’t hesitate to contact CXC for assistance !
