Spring 2016

Hong Kong Student Law Gazette Spring 2016 · Issue 8

Feature Interview with Ms Winnie Tam SC

Articles The Law’s Reception of Shakespeare Reform of Hong Kong’s OTC Derivatives Market The Rising Trend of Back-door Listings

TABLE OF CONTENTS

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HONG KONG

How Lenient is Hong Kong’s Leniency Policy Towards Cartel Whistleblowing?

Reform of Hong Kong’s OTC Derivatives Market The Rising Trend of Back-door Listings Fair Dealing v Fair Use: Balancing the Interests of Copyright Owners and Users The Law’s Reception of Shakespeare: Commemorating Shakespeare 400 Short of Funds? Crowdfunding in Hong Kong The Duty of Directors to Safeguard Creditors’ Interests upon Corporate Insolvency High Concentration Shareholdings in Securities Law Re Ryder Industries Ltd: Compass or Rumpus to the Illegality Defence?

Diplomatic Protection of Dual Nationals in Hong Kong

4-5 6-7 8-9 10-11 12-13 14-15 16-17 18-19 20-21 22

INTERNATIONAL

Sexual Violence and Virtual Reality: the Criminalisation of ‘Revenge Pornography’ Mother or Monster Environmental War Crimes for the Modern World Trans-Pacific Partnership: Unfolding the Future of Trade Law Register of Persons Having Significant Control (UK): Balancing Shareholders’ Privacy and Corporate Transparency?

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FEATURE

Interview with Ms Winnie Tam SC

31-39

DEBATE

The Invisible Crime of Human Trafficking in Hong Kong An Invisible “Crime”? Yes. A Duty to Legislate? No.

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LETTER FROM THE EDITOR

The year 2016 marks our Faculty’s ten-year anniversary and our eighth publication. With each passing issue, the Gazette has maintained its objective in fostering ‘legal scholarship with integrity’. Each publication is also a testament to student interest in legal issues.

I first contributed to the Fall 2013 publication of the Gazette as a writer and a first-year Juris Doctor student. I did not know then that my initial interest in the publication would become an ongoing commitment that has lasted until today. When I took on the role of Editor-in-Chief in Fall 2015 as a student on the Postgraduate Certificate of Laws, I asked myself: what do law students bring to legal education and what role, if any, the Gazette performs. I believe the Gazette was founded to promote legal knowledge and functions as a platform for students to foster legal interests while developing sound legal reasoning. Students at the Faculty bring with them their diverse backgrounds, beliefs, and opinions on pertinent legal matters. Whether we as readers or editors agree with these views, we share in a respectful and intellectual conversation on the chosen topic. In so doing, each of us gains a better understanding on the issue. This is reflective of the rule of law as we understand it in Hong Kong: inclusive, respectful, and deeply appreciative of diversity. The development of this mindset as a student is key, be it in legal education or otherwise as citizens in a civilised community.

For this issue we spoke with Ms Winnie Tam SC, current Chairman of the Bar Association. Ms Tam SC welcomed us warmly and offered us an invaluable insight into her views on legal education and the legal profession.

I am confident our readers will find Ms Tam SC’s message interesting, informative, and invaluable for further reflection on what it means to be a lifelong student of the law.

One of the greatest challenges we face these days is in handling multiple commitments and maintaining a high standard for each task undertaken. I am therefore grateful for the editors and layout editors who have worked tirelessly on this publication. Apart from interacting with writers, I will miss the invaluable insights this team has so readily and frequently offered for both my benefit as well as for the Gazette’s benefit. This publication is a testament to the team’s efforts.

The Spring Issue is always uniquely placed in that while it will be the last issue for graduating students, it would also be the first publication to greet incoming and returning students in September. I hope you will continue to read the Gazette, as I would, even after leaving the Faculty and to carry the inclusive and intellectual spirit of the Gazette to the next stage in our lives.

I wish you all success, good health, and much happiness in the year ahead.

Keith Cheung Editor-in-Chief

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THE BOARD

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Editorial Board

Keith Cheung

Edki Sek

Bryan Lam

Noel Chan

Crystal Yeung

Andrea Cheung

Kyung-Ah Lee

Chester Kwan

Charlotte Lin

Winky Lee

Layout Team

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HONG KONG

How Lenient is Hong Kong’s Leniency Policy Towards Cartel Whistleblowing?

Andrew Lau

T

he Hong Kong Competition Commission (the Commission), which has the power to investigate and prosecute cartels under the Competition Ordinance (Cap. 619), published its Leniency Policy (the Policy) on 19 November 2015. Under the Policy, the Commission undertakes not to bring proceedings for a fine against the first cartel member that comes forward and agrees to cooperate with the Commission.

This article explains the role of the Policy in cartel enforcement and highlights issues that may undermine its effectiveness, namely a lack of certainty regarding the outcomes of subsequent informers and the rules on disclosure of leniency documents to third parties seeking damages.

The need for a leniency policy A cartel is a collection of economic entities that act together as a single producer by agreeing to fix prices, limit production or share markets.

Instead of competing with each other, cartel members rely on an agreed course of action. This can reduce their incentive to provide new or better goods and services at competitive prices. As a result, consumers end up paying more for poorer quality. Cartels are illegal in many jurisdictions including Hong Kong due to their anticompetitive nature.

Cartel enforcement centres on proving the existence of collusive agreements. The best method is by HKSLG · SPRING 2016 · ISSUE 8

obtaining direct evidence, such as meeting records or written statements that describe the substance of the agreement. However, such evidence is hard to come by, because illegal cartel activity is often conducted in secret. As competition law professor Mark Furse observes, for every cartel detected in the European Union, at least another nine go undetected.

An alternative method to prove cartel existence would be market analysis: the Commission would have to show divergence between conduct observed and conduct that would be predicted under competitive conditions. It would have to show that the only explanation for such a divergence is collusion. In practice, it is difficult to distinguish between coordination arising through intelligent adaption to the conduct of others, and coordination arising through illicit

communication.

This evidential hurdle can be overcome by a leniency policy. As Prof.

Mark Williams observes, the inherent moral objection to providing immunity to otherwise culpable parties is countered by potential increases in the rate of detection.

This may lead to the speedy resolution of complex cases and substantial reductions in the use of enforcement resources. Furthermore, a leniency policy may have the added effect of instilling suspicion among cartel participants, potentially destabilising existing cartels and deterring the creation of new ones.

Scope of the Policy First, the Policy only applies to cartel conduct in breach of the First Conduct Rule under the Competition Ordinance. Such conduct refers to

HONG KONG agreements and concerted practices that involve price fixing, output restriction, market sharing or bid rigging and has the object or effect of preventing, restricting or distorting competition in Hong Kong.

Second, if the leniency conditions are met, the leniency agreement will require the applicant to provide a signed statement of agreed facts admitting cartel participation.

In exchange, the Commission will not commence proceedings in the Competition Tribunal (the Tribunal) for pecuniary penalty against the leniency applicant, provided it continues to co-operate with the Commission.

Third, full immunity from fines will only be offered to the first cartel member that blows the whistle.

Therefore, the Policy only provides a strong incentive for the first applicant to come forward. The Commission operates a ‘marker’ system to establish a queue in order of the date and time that cartel members apply for leniency. To obtain a place in the leniency queue, the cartel member must contact the Commission through a ‘leniency hotline’. If the first marker fails or is terminated, the second marker may take its place.

While the Policy is largely similar to other leniency regimes, certain aspects may undermine its effectiveness. They are addressed below.

‘Winner takes all’ approach As mentioned above, the Policy adopts a ‘winner takes all’ approach, whereby only the first cartel member to come forward is offered full immunity from fines.

There is little certainty regarding outcomes for subsequent informers, other than the vague promise that they may receive ‘a lower level

of enforcement action’.

It is important to provide those subsequent informers with clear and predictable incentives, because they can often corroborate the information provided by the first informer and provide additional evidence. For instance, the European Commission’s leniency policy provides a sliding scale of available leniency in fines, whereby subsequent participants who come forth with ‘evidence of significant value’ are given fine reductions according to their position in the leniency queue. Up to 50 percent leniency is given to the second-in applicant, 20 to 30 percent to the third, and up to 20 percent to others. In the United States, the Antitrust Division of the Department of Justice offers rewards to second-in companies for their cooperation, such as substantially reducing fines, spreading fine payments over a series of installments, or treating the culpable executives more favourably.

The Commission and the Tribunal operate independently of each other. Even if the Commission clarifies the outcomes for subsequent applicants, there is no guarantee that the Tribunal will take into account the Commission’s recommendation, as the Tribunal has sole discretion in imposing pecuniary penalty. That being said, given their shared interests in enforcing competition rules, the Tribunal should in principle follow the Commission’s recommendations.

Interaction of the Policy and private damages actions The rules on disclosure of leniency documents to third parties seeking damages are not fully developed.

This may pave the way for a large number of follow-on damages actions brought by third parties, such as cartel victims. While leniency

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policies and damages actions serve the same purpose of increasing compliance with the competition rules, the risk of exposure to substantial payouts in damages may discourage potential leniency applicants from coming forward.

To ensure the successful co-existence of the Policy and damages actions, the law should interfere by explicitly providing the circumstances under which it will resist disclosure. The Commission’s clear position on this matter is welcomed, as it expressly states that requests for disclosure will be declined unless the Commission is compelled by the courts or by legislation.

However, potential informers still lack certainty on how the courts will treat requests for access and protect their leniency confessions from disclosure. Since such requests have yet to come before the courts, the Commission should articulate the steps it plans to take to resist disclosure of such material to ensure leniency incentives are maintained.

Conclusion When considering whether to come forward, a leniency applicant is likely to undertake a cost-benefit analysis to determine its optimal position. Under the current Policy, a leniency applicant is unable to predict with a high degree of certainty how it will be treated if it reports anticompetitive conduct. It is important for the Commission to consider not only whether the Policy has the right incentives, but also whether the Policy contains any disincentives discouraging cartel members from reporting their conduct. The Commission should take immediate steps to address the existing uncertainties in order to establish the trust of leniency applicants, which is required for an effective leniency regime.

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HONG KONG

Reform of Hong Kong’s OTC Derivatives Market Hans-Peter Alphart

Introduction

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n Francis Galton’s parable of the ox, visitors to a country fair would compete to guess the weight of an ox. Over the years, the fair organisers discovered that the average of all estimations was extremely close to the actual weight of the ox. As scales became less reliable and repairs too costly, the organisers decided to simply rely on the ‘wisdom of the crowd’ as the actual weight of the ox. Subsequently, participants started to guess other people’s estimations.

The popularity of ox weighing contests increased and as a result strict regulatory rules had to be introduced to defeat attempts of cheating. Otherwise, people became discouraged from entering the contests causing the reliability of the estimates to fall. Additionally, where there were too few or no guesses, international standards HKSLG · SPRING 2016 · ISSUE 8

and mathematical models had to be established to provide an estimate of what the guesses would be.

Then the ox died. Amidst all the regulatory activities, nobody remembered to feed it. Currently, the global over-the-counter (OTC) derivatives market is undergoing a significant shift as well, from its traditional bilateral trading structure to a regulated clearing and settlement system. However, this reform is still highly contested. It is unclear how it will affect the market and its participants, particularly various OTC derivatives instruments such as credit default swaps (CDS).

Aftermath of the global financial crisis OTC derivatives may not have been the root cause of the 2008 global financial crisis, but they facilitated a tremendous risk transfer and exacerbated the overall prob-

lem, particularly through CDS. In response to the crisis and bailout of major financial institutions, the G-20 proposed the implementation of a comprehensive clearing and settlement system for OTC derivatives transactions. The objective of this policy is to report all transactions to a trade repository (TR) and clear them at a central counterparty (CCP), which is concomitantly backed by its clearing members. This approach combines the traditional dealer market with a modern electronic brokering platform and transfers the inherent risks to the CCP. Major international financial centres have already followed this recommendation and implemented working CCP infrastructures.

Hong Kong’s OTC derivatives market Hong Kong, as the largest RMB offshore market and direct competitor

HONG KONG with other major financial centres, was ranked as the fifth largest market for OTC foreign exchange transactions and sixth for interest rate derivatives globally in 2013.

In order to maintain Hong Kong’s position, the Hong Kong Monetary Authority (HKMA) has established a TR and created a link to the Hong Kong Exchanges and Clearing Limited (HKEx) to allow certain transactions to be passed to the CCP for central clearing.

Hong Kong’s CCP, OTC Clearing Hong Kong Limited (OTC Clear), is 75% owned by HKEx, with 12 financial institutions holding the remaining 25% as founding shareholders. At the initial stage, OTC Clear provides for the clearing of inter-dealer interest rate swaps and non-deliverable currency forwards.

Accordingly, ss.101B-101D of the Securities and Futures Ordinance (Cap. 571) (SFO) introduced in 2015 mandatory reporting, trading, and clearing obligations for OTC derivatives transactions. The SFO requires specified OTC transactions to be traded on a designated platform and cleared and settled through a designated CCP. The CCP operates the OTC Clearing and Settlement System (OCASS) in order to relay trading data to the accounts in the OCASS environment. All transactions accepted by OCASS will then be novated into two contracts, with the CCP as counterparty to each party of the original bilateral transaction.

To meet international standards and enhance transparency, this new infrastructure divides regulatory responsibilities between two bodies. HKMA is responsible for overseeing the mandatory reporting of OTC derivatives transactions to the TR and OTC Clear’s services complement the TR; the SFC is responsible for overseeing

the mandatory clearing of standardised OTC derivatives transactions through OTC Clear.

Big fish vs. small fish & risk shifting Nevertheless, the introduction of this system may affect market participants’ operations on a local and cross-border level, as well as their market shares in OTC derivatives instruments. As analysed in a global survey, G-14 dealers held 82% of interest rate derivatives, 90% of CDS, and 86% of equity derivatives in 2010. In other words, major financial institutions from the US and Europe dominate the OTC derivatives market. Even Hong Kong’s OTC derivatives market is substantially held in foreign hands. In 2013, the contribution of overseas-incorporated authorised institutions in the FX and OTC interest rate market amounted to 52.3% and 27.8%, respectively.

Additionally, OTC Clear’s structure and clearing member requirements appear to reflect the principle of ‘maker’s material benefit’, in which formal rules are created to serve the interests of those with the bargaining power to implement new rules to shut out weaker competitors. Depending on the clearing member’s type of entity, Part II of the OTC Clear Rates and FX Derivatives Clearing Rules and Chapter 2 of the OTC Clear Clearing Procedures set out corresponding capital, legal, and operational requirements for membership. It appears that only large financial institutions with sufficient capital, operational, and technological resources meet these requirements. Currently, OTC Clear has ten clearing members, but only BEA and Hang Seng Bank have their headquarters in Hong Kong. The other clearing members are either branches or

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subsidiaries of foreign banks from the US, Europe or PRC. In addition to the issue of foreign dominance in the HK OTC Derivatives market and the large amount of cross-border transactions, another problem may arise.

Shifting trades onto an organised exchange that guarantees contract performance may benefit the stability of the overall economy, however as analysed by Prof. David C. Donald in ‘Risk-Shifting under the G-20 OTC Derivatives Initiatives: Danger for international financial centres with small economies?’, the new infrastructure may shift the inherent risks away from the country where the market participants are headquartered to the country where the CCP is located.

Therefore, in the case that OTC Clear’s default protection is not sufficient, the local economy, thus the Hong Kong taxpayers, may be the last resort to bail out OTC Clear if it is ‘too big to fail’. In other words, countries with large economies where the defaulting financial institutions are situated may benefit from this structural change.

Conclusion Hong Kong must seek to find a balance and allow a market with a diverse and stable environment that operates in a just and fair manner. The system should provide flexible access for smaller market participants, both local and foreign. These changes can further stimulate the market, encourage new market entrants and avoid opaque pricing by its major participants. Additionally, a sufficient default mechanism including cross-border transparency and information linkage with other major financial centres may be required to keep OTC Clear safe from the risks involved in foreign market movements.

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HONG KONG

The Rising Trend of Back-door Listings Carmen Mak

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n December 2015, the Hong Kong Exchanges and Clearing (HKEx) issued a new guidance letter HKEx-GL84-15. This was in response to the recent increase in proposals by listed companies to engage in large scale-fundraisings which involves investors injecting substantial amounts of cash into companies. This past year, Hong Kong has seen a surge in back-door listings. This phenomenon is partly due to the suspension of IPOs in China. A number of high-profile attempts at back-door listings have been rejected, including a proposed investment of Meike International Holdings Limited by Chinese media mogul Li Ruigang and Tencent Holdings Ltd and Television Broadcasts Ltd by Chairman Charles Chan Kwok-keung.

What is a back-door listing?

closure of information in the listing documents.

The bright line test According to the RTO rules, the HKEx applies two tests to determine whether an acquisition should be regarded as a RTO. According to the first test, namely the Bright Line test, if an acquisition falls within any of the following two situations, it will be regarded as a RTO: (1) the acquisitions (or series of acquisitions) constitute a very substantial acquisition involving a change of control of the listed company; or (2) the acquisition (or series of acquisitions) from the incoming shareholder or his associates within 24 months of the incoming shareholder gaining control, either individually or together constitute a very substantial acquisition.

A back-door listing is sometimes referred to as a reverse takeover (RTO) which is defined in the Main Board Rule 14.06(6) and Growth Enterprise Market Rule 19.06(6) as an acquisition (or a series of acquisitions) of assets by a listed issuer which, in the opinion of the Exchange, attempts to achieve a listing of the acquired assets while circumventing the requirements for the Listing Rules.

The RTO rules The aim of the RTO rules is to protect investors by applying the new listing requirements to such as conducting full due diligence and disHKSLG · SPRING 2016 · ISSUE 8

The principle based test The bright line test sets out two specific forms of RTOs that involve a change in control of the issuer.

However, when an acquisition does not involve a change in control and therefore falls outside the Bright Line test, the HKEx will apply the second test which is the Principle Based test. According to the Principle Based test, an acquisition will be regarded as a RTO only if it is considered as an ‘extreme’ case. The HKEx will take into account several factors including whether there is any fundamental change in the issuer’s principal business. In previous listing decisions, this factor has been of particular concern to the HKEx where an issuer acquires a business completely different from its existing principal business. In such a case, it is less likely that the purpose of the transaction is to expand existing business and more likely to be motivated by an attempt to the assets to be acquired.

The HKEx states that its policy on RTO policy aims to strike a balance between allowing legitimate business expansions through acquisitions, and safeguarding market quality which would be adversely affected by the back-door listings of inferior assets. The following listing decisions illustrate the extent to which the HKEx is able to maintain this balance. In the Listing Decision LD29-2012, Company A (the listed issuer) proposed to acquire the Target company from its controlling shareholder, Company B. Company A was engaged in property business and Company B was engaged in several different business activities including certain property projects held through the Target

HONG KONG

company. The transaction was a reorganisation of the property business within Company B’s group. However, the HKEx found that the transaction constituted a RTO for Company A under Rule 14.06(6)(b) because it was a very substantial acquisition and the Target company would be acquired within 24 months after Company B gained control of Company A. This clearly demonstrates how the HKEx applies the Bright Line test and that if it finds a transaction to fall within the test, it will consider the acquisition as a RTO and treat it as a new listing.

However, in certain circumstances, the HKEx have granted a waiver to acquisition that fell within the Bright Line test because the listed company was able to sufficiently satisfy the HKEX that circumvention of the Listing Rules was not of a material concern. In the listing decision LD-59-2013, a listed company (Company C) attempted to acquire patents in an overseas market from an individual (Mr. X) who was a director and a substantial shareholder of Company C. Company C argued that the rea-

son for acquiring the patents was to enable the company to expand its existing gaming business overseas and the existing business was profitable and already operating on a substantive scale.

In assessing the waiver application, HKEx was satisfied with Company C’s arguments that the transaction was related to Company C’s existing principal business and its purpose was to enable an expansion of its business into the overseas market but not to circumvent the Listing Rule requirements. HKEx therefore waived Rule 14.06(6)(a) and classified the acquisition as a very substantial acquisition instead of a RTO. In the above two Listing Decisions, although both acquisitions fell within the Bright Line test, LD-292012 was classified as a RTO and LD-59-2013 was granted a waiver and classified as a very substantial acquisition. The difference in these two decisions demonstrates how the HKEx makes assessments on a case-by-case basis by considering the criteria set out in the bright line test and the principle based

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test to assess whether, considered as a whole, the proposed acquisition is a proposal to circumvent the new listing requirements and an attempt to achieve a listing of the acquired assets. Further, it has been shown that even in an acquisition where the target business and existing business were engaged in the same line of business, the HKEx may not necessarily consider the acquisition to be a legitimate development of the company’s business. The listed issuer must further demonstrate satisfactorily to the HKEx that the motivation of the proposed acquisition is to expand its existing business into, for instance, an overseas market.

Nevertheless, the above examples illustrate that HKEx does not aim to interfere and prevent businesses from being expanding or developing their existing businesses in every single case. The real-life application of the two tests demonstrates clearly how the HKEx strikes a balance between allowing legitimate business activities and providing sufficient protection to investors by maintaining market quality.

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HONG KONG

Fair Dealing v Fair Use: Balancing the Interests of Copyright Owners and Users Nanret Senok

The Bill proposed adding further exceptions for: (1) parody, satire, caricature, and pastiche; (2) commentary on current events; and (3) quotation.

The fair use regime

C

opyrights are essential to protect creators’ works from unauthorised use. Hong Kong’s Copyright Ordinance (Cap. 528) grants owners economic rights such as the exclusive right to reproduce and distribute their own works and moral rights such as the right to be identified as the author of their works. This limits how others can interact with the copyrighted works. At the same time, there is a public interest in allowing others to reasonably use or modify the copyrighted works because such activities promote creative or intellectual flourishing.

Ultimately, copyright law exists to promote the progress of knowledge and this requires balancing the interests of owners and users.

Hong Kong’s existing law on copyright lags behind technological developments and provides inadequate digital copyright protection.

In fact, the Copyright (Amendment) Bill 2014 (“the Bill”) was debated extensively at the Legislative Council recently. Copyright owners want more protection for their works and copyright users want a wider scope of exceptions to copyright protection. While the Bill sought to introduce measures that balance both interests, it failed HKSLG · SPRING 2016 · ISSUE 8

to pass in the end due to heavy criticisms from both sides.

Other jurisdictions follow either a ‘Fair Dealing’ model or the principle of ‘Fair Use’. It has been a matter of contention which system Hong Kong’s reform should lean towards. This article examines the benefits and disadvantages of the two regimes.

Fair dealing in Hong Kong’s Copyright Law A feature of both the current law and the Bill is the inclusion of ‘Fair Dealing’ exceptions to copyright infringement. The concept of ‘Fair Dealing’ was transplanted from the UK. Essentially, it allows a user reasonable and free use of a copyrighted work.

Under the ‘Fair Dealing’ model, a user will not be liable for copyright infringement if the use of the copyrighted work falls under certain excepted categories outlined in statute. The current Copyright Ordinance includes exceptions such as: (1) research and private study; (2) criticism, review, and news reporting; (3) education; and (4) public administration.

Those that seek even broader exceptions have campaigned to replace the ‘Fair Dealing’ model with the US ‘Fair Use’ principle.

‘Fair Use’ analyses the replicated work according to multiple ‘fairness’ factors to determine whether copyright infringement has taken place. Instead of fixing the categories of acceptable purposes for which the copyrighted work is reproduced, regard is given to nonexhaustive factors such as: (1) the purpose and character of the use, including whether such use is of a commercial nature or for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.

Critical comparison of the two regimes The two regimes are substantially different in their approach towards excluding a copyright owner’s exclusive rights in favour of public interest. Therefore, they have different impacts on copyright owners and users.

HONG KONG I. Certainty Hong Kong’s current ‘Fair Dealing’ regime has a strong element of certainty due to the exhaustive nature of the list of exceptions. If a use or modification of the original work does not fall under any of the exceptions, reproduction of a substantial amount of that work is not allowed without the copyright owner’s permission.

The exceptions provide clarity and predictability as both copyright owners and users know the circumstances where it would be permissible to reproduce a work without consent.

This degree of certainty is not found in the ‘Fair Use’ regime which takes into account the holistic nature of the reproduced work instead of just its end user purpose. Consequently, copyright owners and users cannot be certain whether the reproduced work qualifies as ‘Fair Use’, especially in cases of new types of works where there is no existing precedent.

While the open-endedness of the ‘Fair Use’ regime seems to imply wider exceptions in favour of the copyright user, the courts could manipulate this malleable feature of ‘Fair Use’ to strengthen copyright protection for the copyright owner. Uncertainties in the system will likely dissuade users from using copyrighted works which would be contrary to the public interest element of copyright law.

II. Creativity and freedom of expression A strong criticism of the ‘Fair Dealing’ principle is the risk it poses to the freedom of expression and speech. The exhaustive nature of the exceptions means that there is a potential for the law to fail in protecting users who can express

a certain creative or intellectual value through using copyrighted works. In this sense, the limited scope of ‘Fair Dealing’ would unfairly restrict users creating publicly or socially valuable work that nevertheless falls outside of the specific exceptions.

The Bill’s Legislative Brief notes examples of activities that fall outside of its proposed enlarged scope: ‘the online posting of earnest performance of copyright works, for example, song singing with or without rewriting the lyrics based on the original melodies’ and ‘unauthorised posting of translation and adaptation works.’

If these activities do not contain any parodic elements or quotation purposes, or are not related to current events, the authors will have infringed copyright regardless of the original or transformative elements in the activities.

The broad nature of the ‘Fair Use’ regime is why some view it as better equipped to allow the flow of creativity. However, according to Bar Chairwoman Winnie Tam SC, who specialises in intellectual property law, the exceptions proposed by the government are actually wider than those under the ‘Fair Use’ regime. For example, satire is not usually regarded as ‘Fair Use’ in the US, but is proposed under the Bill. The counter-argument to this is that the exceptions still restrict creative spirit by rigidly proscribing the extent to which users can replicate copyrighted works. Chris Ng of the Progressive Lawyers Group describes the exceptions as ‘setting the boundaries, confining creative minds in a bird cage.’

III. Flexibility Notwithstanding the aforementioned concerns, some of the ex-

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ceptions under the current law and all of the exceptions under the Bill are to be interpreted according to a non-exhaustive list of relevant factors. These factors are almost identical to the four ‘Fair Use’ fairness factors. This means that despite the fixed exceptions in the ‘Fair Dealing’ regime, there remains some flexibility in the assessment of each case. In Hubbard v Vosper [1972] 2 Q.B. 84, Lord Denning noted that ‘it is impossible to define what is “Fair Dealing.” It must be a question of degree.’ In this way, the courts can respond to new technological and innovative practices within the allowed exceptions without legislative intervention.

Nevertheless, the ‘Fair Use’ regime is more flexible in its application as it has a more subjective nature.

As technology and society develop, there are no guarantees they will change in a way that fits into the current ‘Fair Dealing’ exceptions. Technology has aided the creation of a new type of work: User Generated Content. However, this term currently lacks a widely accepted definition at an international level, so the government is hesitant to include this type of work in legislation. While the malleability of the ‘Fair Use’ regime can accommodate this new type of work, the relatively rigid ‘Fair Dealing’ regime may fail to do so.

Conclusion There is no clear-cut answer as to which model best meets the needs of both owners and users. There needs to be more debate and discussion between the government, lawmakers and interest groups on what aspects of each regime best suit the needs of Hong Kong and the current digital age.

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HONG KONG

The Law’s Reception of Shakespeare: Commemorating Shakespeare 400 Keith Cheung

Introduction

W

e commemorate the 400th year of Shakespeare’s death in 2016. The Bard’s enduring and ubiquitous influence places him at the heart of the English canon, yet his influence far surpasses the study and writing of literature. Even in his lifetime, his plays were received as more than mere entertainment.

In our time, Shakespeare’s reception by our legal system has not been the focus of wide study. Instead, the existing literature has focused on the use of law in his plays.

This article seeks to highlight the use of Shakespeare in our legal system.

History, politics, and imagination Through the centuries, the popularity of Shakespeare’s plays has driven interest groups to deploy HKSLG · SPRING 2016 · ISSUE 8

the plays as ways of voicing political interests or dissatisfactions. On the eve of the Earl of Essex’s revolt in February 1601, his men commissioned a staging of Richard II. After the revolt, Queen Elizabeth I acknowledged this reference by saying to her archivist: ‘I am Richard II, know ye not that? He that will forget God will also forget his benefactors; this tragedy was played forty [meaning many] times in open streets and houses’. Prof.

Orgel observes that the Queen and the Earl’s behaviour towards Shakespeare demonstrate their shared assumptions of the play: ‘the relationship between the Renaissance stage and the crown was a complex mixture of intimacy and danger’.

This mixture of intimacy and anxiety holds true centuries away from 17th century England. In Hong Kong, Shakespeare has been quoted at key moments of political uncertainty. In May 1986, Deng Xiaoping ended rumours that a liberation army would not be placed in Hong Kong after the handover. When asked if the name of Hong Kong could at least be changed to ease the anxieties of the Hong Kong people, then Head of the Hong Kong and Macau Affairs of the State Council of the People’s Republic of China Lu Ping replied, in Chinese, with Juliet’s famous line: ‘What’s in a name? that which we call a rose | By any other name would smell as sweet’.

While it is arguable whether this

dispelled anxieties, in that moment of exchange a question motivated by suspicion and concern was answered with something familiar and reassuring. In contrast, in May 2012 former Director of Office of the Chief Executive Gabriel Matthew Leung responded to the filibustering with a line from Henry V: ‘Turn him to any cause of policy, | The Gordian knot of it he will unloose’. This confidence, however, was misplaced as filibustering persists today.

What one sees from these examples is an acute awareness of the complex mixture of intimacy and danger manifesting in Shakespeare’s language. The line from Romeo and Juliet taken in its narrowest construction was an answer to concern that Capulet and Montague are merely names that cannot be of much importance. Taken at its broadest sense, it compels the mind to see what is essential in the greater scheme of things.

Judges, Shakespeare, and the community The function of the courts is not merely to determine disputes for the immediate parties, but also to explain legal principles for the community. Hong Kong courts have returned to Shakespeare’s rose time and again in deciding the true essence of a dispute. In Suen Toi Lee v Yau Yee Ping (2001) 4 HKCFAR 474 the Court had to decide the true construction of ‘concubine’ in

HONG KONG the Intestates’ Estates Ordinance (Cap. 73). The appellants sought to argue that the expression ‘union of concubination’ also covers relationships having the same legal incidents as concubinage. Justice Bokhary PJ acknowledged this argument to mean ‘like Shakespeare’s rose, concubination by any other name would be as sweet’ [78].

Similarly, Yam J began with Juliet’s line in Wing Hang Bank Limited v Kwok Lai Sim and Ors, unreported, HCMP4362/2003, 28 February 2008 and pondered: ‘the problem is: if you call dung by the name of roses and before one can smell its real substance, will one be mislead?’.

Because Shakespeare’s plays reflect life, the courts have also found them useful as illustration of commercial dealings. In Kono Insurance Ltd v Tins; Industrial Co Ltd [1987] 3 HKC 71, Hunter JA described simple demand bonds as ‘oppressive documents’ and noted [12]: ‘perhaps the most notorious…was that given by Antonio, the “Merchant of Venice”, to Shylock.…

Shakespeare got it right. He wrote of “Your single bond”. We all know what happened to that. Perhaps that may account for the fact that they fell into disuse over the years.’

Shakespeare also underlies key legal principles. In tracing the his-

tory of the right to confrontation, the late Justice Antonin Scalia of the US Supreme Court argued that the right to confront is a ‘face-toface encounter’ and cited Richard II (Coy v Iowa 487 US 1012, 1016 (1988)). The titular king explained: ‘Then call them to our presence— face to face, and frowning brow to brow, ourselves will hear the accuser and the accused freely speak.’

Ironically, in Richard II, the right to confrontation failed to resolve the dispute at hand. What transpired was a duel which ended with both parties banished so ‘our kingdom’s earth should not be soil’d with that dear blood which it hath fostered.’

This unsatisfactory resolution led to the deposal of the king and perhaps functions as a reminder that fair adjudication of disputes is key.

This principle is endorsed in the idea that a trial judge must step in decisively to undo unfairness from counsel against an accused as soon as possible. Bokhary NPJ explained – citing King Henry VI, Part III – because ‘a little fire is quickly trodden out’; Which, being suffer’d, rivers cannot quench’ (Nancy Ann Kissel v HKSAR [2010] 2 HKLRD 435 [225]).

Conclusion

13

tice Scalia, Prof. Bryan Gardner, and Mr. Justice Bokhary NPJ on 1 February 2016, I asked the judges why they cited Shakespeare in their judgments. Justice Scalia explained that he cites many writers in his dissents to make them more interesting. This is certainly true.

However, judges have demonstrated that Shakespeare can also be an accessible means to explain key legal concepts in addition to providing colour for dissents. Quoting Hamlet, Lord Bingham explained that the European Convention for the Protection of Human Rights and Fundamental Freedoms ‘is concerned with rights and freedoms which are of real importance in a modern democracy… it does not…offer relief from “the heart-ache and the thousand natural shocks That flesh is heir to”’ (Brown v Stott [2003] 1 AC 681 [p.25]). Likewise, the Court of Justice of the European Union (Fifth Chamber) said ‘‘brevity is the soul of wit…but unlimited jurisdiction requires more than wit!’ (Telefónica SA v European Commission [2014] 5 CMLR 18). Shakespeare’s capaciousness of mind has enhanced the law by providing useful illustrations and justifications for key legal principles and long may it continue to do so.

In a seminar featuring the late Jus-

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HONG KONG

Short of Funds?

Crowdfunding in Hong Kong George Lau

Introduction

I

n recent years, crowdfunding has become a global phenomenon enabling individuals to invest in smaller businesses and projects. It was estimated that USD 34.4 billion was raised through crowdfunding in 2015 around the world, doubling the figure in 2014. Despite the strong growth globally, crowdfunding is still a new concept to many Hong Kong people and the relevant laws are underdeveloped.

This article will first look into the current legal framework relating to crowdfunding in Hong Kong and then examine how laws in other jurisdictions have evolved.

Given that the latter two modes of crowdfunding generally do not provide any financial return in the form of a yield or return on investment, this article will focus on the first two forms where investors expect financial return.

The basics of crowdfunding The term crowdfunding has been broadly defined as the use of a small amount of money, obtained from a large number of individuals or organisations, to fund a project or a business through an online webbased platform. There are mainly four types of crowdfunding: 1. Peer-to-peer lending: lenders are matched with borrowers to provide unsecured loans; 2. Equity crowdfunding: investors invest in a business and gain an interest in shares of that business; 3. Donation crowdfunding: funds are raised for charitable causes; and 4.Reward crowdfunding: customers pre-pay for a product which the business will deliver in the future.

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Legal framework in Hong Kong Currently there is no specific regulation in Hong Kong regarding either peer-to-peer lending or equity crowdfunding. They are still subject to the laws of conventional capital raising, including the Money Lenders Ordinance (Cap. 163) (MLO), the Companies Ordinance (Cap. 622) (CO), Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO) and the Securities and Futures Ordinance (Cap. 571) (SFO).

Individual or corporate lenders en-

gaging in peer-to-peer lending may breach the MLO as s.7 states that every person carrying on a business of a money lender must be licenced. ‘Money lender’ is defined in s.2 as ‘every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business’.

To avoid the breach, peer-to-peer lenders may rely on certain exceptions specified in Part 2 of Schedule 1 to the MLO. The most relevant exception is ‘(5) A loan made by a company or a firm or individual whose ordinary business does not primarily or mainly involve the lending of money, in the ordinary course of that business.’ Whether one’s ordinary business primarily or mainly involves the lending of money is a matter of degree, and whether such loan is in the ordinary course of that business a matter of evidence.

On the other hand, companies raising funds from equity crowdfunding also have to abide by other relevant laws. If the fundraising company is a private company, it cannot invite the public to subscribe for its shares or debentures under s.11(1)(a)(iii) CO. However, s.6(5) CO states that an offer is not public if it is confined to persons receiving the offer to subscribe, but not any other third party. Thus, a company can remain private if the offer is extended only made to the recipient and is not transferrable.

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the US adopted the Regulation Crowdfunding rules to permit investors regardless of accreditation or sophistication to participate in crowdfunding. There are clear requirements that must be satisfied before a US company is eligible to raise funds through registered Internet intermediaries. At the same time, investors may only invest up to 10 percent of their annual income or net worth in crowdfunding.

If the fundraising company is a public company, and intends to offer shares or debentures to the public to benefit from a wider range of investors, it must follow the requirements in CWUMPO and SFO. Under s.2(1) and s.38 CWUMPO, the company must issue a prospectus and must comply with the detailed requirements listed in Schedule 3. S.103(1) SFO also prohibits the issue of an advertisement or invitation to the public to acquire securities or participate in a collective investment scheme unless the issue is authorised by the Securities and Futures Commission (SFC).

Therefore the fundraising company must seek prior approval from the SFC to offer shares or debentures to the public.

Compliance with these regulations in a public offer may be costly and time consuming. As an investment in a small public company may not attract sufficient public interest, the cost of a public offer would be disproportionate to the amount of money raised. The company can instead place its shares privately or, alternatively, rely on certain exemptions.

To be exempt from the prospectus requirements under the CWUMPO

and the approval requirement under the SFO, the offer has to satisfy one of the criteria under Schedule 17 CWUMPO, which include, among others, an offer to professional investors, made to not more than 50 persons, where the total consideration payable for the shares or the debentures does not exceed HKD 5 million, or where the minimum investment amount payable by an investor is not less than HKD 500,000. If an offer satisfies the criteria under Schedule 17 CWUMPO, it is also automatically exempted from the approval under the SFO. However, since crowdfunding is usually conducted on the internet, it may not be feasible to limit the offer to exactly 50 persons, or to professional investors only.

Laws in other jurisdictions The lack of specific crowdfunding legislation in Hong Kong means more complex compliance procedures and increased risk for inexperienced investors. Looking at overseas examples may provide a useful guideline for adopting similar laws in our territory.

In October 2015, the Securities and Exchange Commission of

Similar provisions have been adopted in UK. The Financial Conduct Authority crowdfunding rules, updated in April 2014, regulate both loan-based and investment-based crowdfunding.

Platforms engaging in such activities must be authorised, and must meet certain capital and marketing requirements. Customers who are neither high net worth investors nor sophisticated must certify that they will not invest more than 10 percent of their portfolio in crowdfunding securities.

Closer to home, the Monetary Authority of Singapore issued a consultation paper in February 2015 in relation to securitiesbased crowdfunding. The release of the consultation paper has been praised as a significant step that will benefit startups and small and medium enterprises.

Conclusion The current legislation in Hong Kong for raising capital is inadequate to meet the increasing appetite for crowdfunding. Many countries have already made a head start to formulate relevant laws to cultivate the healthy development of crowdfunding whilst offering protections to individual investors.

Hong Kong as an international financial centre must modernise its laws to embrace this new trend.

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HONG KONG

The Duty of Directors to Safeguard Creditors’ Interests upon Corporate Insolvency

I

t is well settled that directors generally owe duties to the company as a whole. In certain circumstances, directors are also accountable to the company’s creditors.

For example, a director must ensure that the company is capable of repaying debts owed to its creditors (the Duty). Despite this rule, there is a lack of judicial consensus regarding the precise nature and scope of directors’ duties to creditors upon corporate insolvency.

This article analyses the rationale, conditions as well as implications of the Duty.

all of their investment in the event of insolvency, shareholders want the company to make decisions that focus exclusively on getting the company out of insolvency, no matter how unrealistic the success rate of those decisions may be.

Therefore, in order to protect creditors who may be adversely impacted by a company’s risky decisions, the law imposes on directors of insolvent companies a duty of care owed to corporate creditors.

The rationale behind the Duty

It is clear that the Duty exists when the company is insolvent.

This is because, at that point, the interests of the company are in reality the interests of the existing creditors alone. It also appears that the Duty arises before insolvency as well. In the recent case of Tradepower (Holdings) Ltd v Tradepower (Hong Kong) Ltd [2010] 1 HKLRD 674, Ribeiro PJ endorsed the common law position that directors owe the Duty where the company is ‘doubtfully solvent,’

Prof. Andrew Keay categorises the Duty as a ‘form of creditor protection, that inhibit[s] companies to externalis[e] the cost of their debts at [a] time of financial distress’.

The Duty derives from the limited liability of shareholders. When a company becomes insolvent shareholders lose all of their investment and thus the creditors become the party with the most interest in the company. Therefore, where there is a risk of insolvency, a competing tension between the interests of shareholders and creditors may arise.

Prof. Paul Davies notes that when a company is near insolvency, the limited liability of shareholders provides a strong incentive for shareholders to pressure directors to act solely in the shareholders’ interest, which could mean taking on excessively risky projects.

Given that shareholders will lose HKSLG · SPRING 2016 · ISSUE 8

What conditions trigger the Duty?

‘on the verge of insolvency,’ or

Michael Chau

where there is ‘a real risk of insolvency’. Despite this framework, it is difficult to pinpoint when a company is actually in these prescribed stages of pre-insolvency.

This is particularly because the concept of ‘insolvency’ is in itself a debatable notion. For example, while a company may be insolvent when its accounts are calculated through a cash-flow analysis, the opposite position may be reflected by the balance sheet. Ultimately, the answer to whether a company is in a state of corporate pre-insolvency seems to turn on whether the company has reached a stage of financial instability that the proposed conduct might put the creditors’ money at risk. Yet, this question still fails to pinpoint the precise time at which the Duty should be triggered.

Further, it is unclear whether the interests of the creditors should be considered on its own or alongside those of the shareholders. If the latter, a balancing exercise would be required. To properly observe the Duty where the company is

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only at risk of insolvency, Prof.

Keay suggests that directors can take an ‘entity maximisation approach’ to balance the contrasting interests of shareholders and creditors. This approach focuses on maximising the general wealth of the company, so that the worth of the company would be enhanced and in turn benefit both creditors and shareholders. As such, a director’s fiduciary duties to the shareholders and the creditors would not be breached.

Given these complexities, some might argue for the abandonment of the Duty altogether, especially where a company is only at the stage of pre-insolvency rather than actual insolvency. However, it should be recognised that each company’s situation is unique and the assessment of whether the Duty exists will always be a factsensitive exercise. For this reason, any suggestion to completely abolish the Duty would seem unwise.

Restriction on shareholders’ ratification power When a company is solvent, its shareholders are, in most cases, capable of ratifying the wrongful conduct of directors if they so wish. This covers conduct which constitutes a breach of directors’ fiduciary duties. Shareholders are allowed to ratify these breaches because the interest in a solvent company belongs entirely to the shareholders. In contrast, when a company is insolvent or at the risk of insolvency, shareholders as whole become a disinterested party and therefore are not in a position to ratify directors’ breach. Building on this legal principle, when a company is insolvent or near insolvency the Duty is one of the most significant restrictions on the power of shareholders to ratify a director’s breach of duty.

Minimising the vulnerabilities of unsecured creditors Under loan agreements, most unsecured creditors are in a weak bargaining position and unable to demand terms or securities that would compensate their risk. In addition, these loan agreements often provide limited protections to creditors due to the difficulty in drafting contractual provisions that would cover all the possible means by which the company borrower could increase creditors’ risks. Even the most detailed loan agreement cannot encapsulate all risks on an ex-ante basis.

A remedy against the director personally The remedy conferred by the Duty can be extremely advantageous in certain situations. As illustrated in Liquidator of West Mercia Safetywear Ltd v Dodd (1988) 4 BCC 30, it is possible that where a company becomes insolvent, the director is the only person who is not impecunious. There the director of the company in liquidation breached his Duty by giving a preference to the company’s

parent, which was also insolvent, before the company’s winding-up.

Although the transfer was set aside on the basis of fraudulent preference, the significance of the case was that the liquidator was allowed to claim against the director who gave the preference personally.

This remedy is capable of acting as a deterrent for reckless and unscrupulous directors, and will urge directors to think twice before taking any actions that may adversely affect creditors’ interests.

Conclusion Creditors are in a vulnerable position when entering loan agreements, therefore in the event of insolvency or near insolvency the Duty rightly provides these creditors some degree of protection.

However, in the course of promoting the Duty, it is crucial to strike an appropriate balance between reducing the risk of non-repayment to creditors and encouraging directors to make decisions which may help a failing company in overcoming the prospects of insolvency.

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HONG KONG

High Concentration Shareholdings in Securities Law Martin Hui

ers’ investments. This potentially endangers the fairness and integrity of Hong Kong’s financial markets and weakens its role as a leading international financial centre.

Issue of High Shareholding Concentration

A

s one of Asia’s biggest financial centres, Hong Kong has an integrated network of institutions providing financial services to investors worldwide. With the dynamic growth of Asian economies, the number of corporations seeking to list on the Hong Kong Stock Exchange has increased exponentially.

As of 30 November 2015, there are 1,842 Hong Kong listed companies.

Securities Law has therefore become an increasingly relevant branch of law for upholding the fairness and integrity of the securities market; and in particular, protecting unsophisticated investors from the general public.

Recently, an issue of ‘High Shareholding Concentration’ (HSC) arose in certain Hong Kong listed companies. HSC is a problem where a small number of shareholders have majority control over the company’s performance, which affects minority shareholdHKSLG · SPRING 2016 · ISSUE 8

From 2009, the Securities and Future Commission (SFC) has started publishing notices to listed companies having HSC. SFC defines HSC as a situation where a small number of shareholders hold the majority of the shares issued by a publicly listed company. The SFC observes the share prices of companies fluctuate substantially even from a small number of shares traded, so it warns the public to exercise extreme caution.

Three examples of companies that have received SFC’s HSC notices are KPM Holding Limited (KPM) (Table 1), China New City Commercial Development Limited (China New City) (Table 2) and Imperial Pacific International Holdings Limited (Imperial Pacific) (Table 3), announced by SFC in 2016, 2015 and 2014 respectively.

Table 1: Shareholding Structure of KPM on 3 February 2016 Number of % of Total Shares Held Number of Issued Shares 300,000,000 75.00%

Absolute Truth Investments Limited Group of 9 81,670,000 Shareholders Other Share- 18,330,000 holders

20.42% 4.58%

Table 2: Shareholding Structure of China New City on 18 September 2015

Whole Good Management Limited Group of 14 Shareholders Other Shareholders

Number of % of Total Shares Held Number of Issued Shares 1,301,303,594

74.87%

418,374,384

24.07%

18,322,022

1.06%

Table 3: Shareholding Structure of Imperial Pacific on 15 July 2014

Inventive Star Limited Group of 18 Shareholders Other Shareholders

Number of % of Total Shares Held Number of Issued Shares 6,003,643,080

75.00%

1,409,620,000

17.61%

591,662,400

7.39%

From Table 1, it is observable that 95.42% (75.00%+20.42%) of KPM’s issued shares are held by a total of 10 majority shareholders, including Absolute Truth Investments Limited and a group of 9 shareholders. Similarly, from Table 2, 98.94% of China New City’s issued shares are held by a total of 15 shareholders. Likewise, from Table 3, 92.61% of Imperial Pacific’s issued shares are held by a total of 19 shareholders. With reference to these companies, it can be inferred that the SFC categorises a listed company as having HSC when more than 90% of the company’s shares are held by less than 20 individuals.

HONG KONG Although some listed companies took remedial actions in response to SFC notices, such as Imperial Pacific which enacted placing agreements to reallocate its shares amongst a more diverse group of shareholders, uncertainty as to whether they have done enough to address SFC’s concerns on HSC. In December 2015, Morgan Stanley Capital International (MSCI), the most widely used set of international equity indices, proposed to remove from its indices all listed companies on its indices, which received HSC notices from the SFC. In February 2016, MSCI stated that it would remove from its equity indices 18 Hong Kong-listed stocks of companies with HSC unless these companies could prove an increased free float.

Risks and consequences of High Shareholding Concentration The consequence of a company having HSC is that it may lead to abnormally large fluctuations in its share price; for example, Goldin Financial Holdings Limited (Goldin), which was first categorized by SFC as having HSC in 2009.

On 20 May 2015, the share price of Goldin was $30.85, but it dropped drastically to $17.46 the very next day. This dynamic trend continued for two months until 27 July 2015, with the share price hitting its lowest point of $5.79.

According to normal market supply and demand, such dramatic changes within just two months would be considered highly unusual. Therefore, the main danger of HSC is the ability of large investors to expropriate smaller stakeholders for maximising their own profits. Expropriation means using one’s control powers to maximise personal welfare by redistributing wealth from minority shareholders. Such expropriation compro-

mises the overall performance of the company.

Hong Kong is unique among the top financial centres in the world because its markets are dominated by companies with controlling shareholders. Given the large number of companies with controlling shareholders in Hong Kong, minority shareholders investing in these listed companies must be adequately protected.

The way forward SFC first noticed the problem of listed companies having HSC on 8 July 2009 with respect to Sam Woo Holdings. The example of Goldin above was also first notified in 2009. In 2015, however, Goldin received another notice of its continued and exacerbated HSC. Despite the passing of 7 years, SFC has yet to consolidate more concrete measures beyond issuing notices of HSC. Furthermore, there is currently no formal or informal benchmark to measure HSC. Among the listed companies notified by SFC, generally around 90% of the company’s issued shares are held by a small group of majority shareholders.

However, this inferred benchmark is not fixed because companies with varying percentages ranging from 85% to 98% of shares being held by a small group of majority shareholders have also received SFC’s notices. Thus, how SFC arrives at the decision that a certain listed company has HSC is highly uncertain.

There is therefore an immediate need for a formal and uniform benchmark of HSC especially in light MSCI’s decision to remove companies with HSC from its indices. There is clear evidence of an impact on returns and trading volumes after addition or deletion from the MSCI Index. Stocks ex-

19

perience a sharp rise in prices after the announcement of becoming part of MSCI. Stocks deleted, in contrast, witness a steady and marked decline in their prices.

Therefore, it is crucial to have a standardised mechanism for listed companies themselves to monitor their shareholding ratio and to alter it if necessary. This would prevent removal from the MSCI index, which could hamper the company’s reputation and performance substantially, negatively impacting shareholders, including minority investors.

Also, in view of the effective actions taken by MSCI, it may be useful for SFC to cooperate with financial institutions like MSCI to deter listed companies from having HSC. The deterrence effect from losing recognition from international equity indices like MSCI would be greater than receiving unenforced warnings from SFC. Although, there may be some reservations towards expanding the role of financial institutions in market regulation and enforcement. However, the appropriate extent of such a cooperation can always be adjusted to achieve the core objectives of Securities Law, which is to protect investors and maintain a fair, efficient and transparent market.

Conclusion With the growth of other jurisdictions, a robust legal and regulatory framework for activities in the Hong Kong securities market is crucial in order to compete with international counterparts. Building a comprehensive framework on HSC is challenging for striking a balance between the interests of different market players. But it will be worth the time and effort, in order to secure Hong Kong’s position as the world’s best international financial centre.

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HONG KONG

Re Ryder Industries Ltd: Compass or Rumpus to the Illegality Defence?

Carlos Chan

T

he illegality defence, based upon the doctrine of ‘ex turpi causa non oritur’ (no action arises from a disgraceful cause), is an absolute defence which absolves a defendant’s liability. It can be used under different regimes such as contract, tort, property, trust, and criminal law. In contract law, public policy serves as the justification for rejecting the plaintiff’s claim on the ground of illegality.

For a defendant to rely on the domestic illegality defence, there must be illegal or immoral conduct by the plaintiff. In arriving at that determination, the courts will apply ‘evidential tests’ to determine whether the plaintiff’s wrongdoings are sufficient to support the defence. The first evidential test, the reliance test, looks at whether the plaintiff has to plead the illegality in order to succeed in its claim. If so, the defence may not be established to avoid repayment. This principle is set out in Tinsley v Miligan [1994] 1 AC 340. Essentially, if the plaintiff’s right to a remedy is not dependent on his illegal conduct, the court will not generally bar recovery. Another evidential test is the proportionality test which aims to achieve a balance between upholding ex turpi causa non oritur and the importance of protecting the aggrieved party.

Under the proportionality test, the defence could be denied to the defendant where the plaintiff’s loss is disproportionate to the unlawfulness of the plaintiff’s conduct.

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While the illegality defence bars a plaintiff from recovering from the defendant, there is a divergence of views on the consequences of the defence. The issue is whether the courts should put the parties back to their original positions before the contract was entered into. This essay discusses the implications of a recent Hong Kong Court of Final Appeal (CFA) case, Ryder Industries Ltd (formerly Saitek Ltd) v Timely Electronics Company Ltd [2016] 1 HKC 323 (Re Ryder Industries), on the illegality defence.

Problem with the application of current Law There has been criticism that judges reject the illegality defence by rigidly applying the two evidential tests. This judicial behaviour has served to complicate the illegality defence. Advocates of the illegality defence do not favour discretionary jurisdictions, as they tend to diminish the predictability and certainty of the illegality defence through inconsistent applications of the evidential tests. Indeed, it was observed by the Chancery Bar of the United Kingdom that, in this regard, ‘judges are distasteful towards applying their own rules.’

While jurisdictions such as New Zealand have established its own approach towards the illegality defence through legislation, Hong Kong has not followed suit.

Re Ryder Industries Re Ryder Industries is a case concerning the enforcement of cooperation and supplementary agreements made between Ryder Industries (Ryder) and Timely Electronics (Timely). While the agreement was to be governed by Hong Kong law, it required performance in the PRC. The Court of First Instance (CFI) found that Timely was unable to rely on the illegality defence based on four alleged illegalities and had to pay damages accrued to the plaintiff.

The fourth illegality was the only one the defendant managed to establish, which was that the plaintiff had breached Art. 23 of the Measures of the Customs of the People’s Republic of China for the Supervision of Goods for Processing Trade by outsourcing duty-free products of bonded materials from one of its operations to another. However, the CFI rejected the illegality defence by reasoning that the illegality was not substantial and iniquitous but only an administrative contravention.

The CFI also applied the reliance test to conclude that the plaintiff did not need to rely on its own illegalities to support its claim. Further, under the proportionality test, the CFI held that it would be disproportionate to dismiss the enforcement of the payment obligation under the agreement because the agreement was not formulated

HONG KONG with illegal or immoral intentions.

Upon appeal, the Court of Appeal (CA) affirmed the CFI decision with similar reasoning. The CFA also dismissed the appeal unanimously, but with different reasoning.

Reasoning of the CFA and its significance Re Ryder Industries laid down three important principles. Firstly, Ma CJ stressed that although the PRC and Hong Kong are two parts of one country, they should be viewed as separate law districts. As such, conflict of laws principles should be incorporated to deal with this dispute which concerns the foreign defence of illegality. The CFI and CA were mistaken in not applying the conflict of laws principles.

Secondly, the CFA affirmed that a contract tainted by illegality will not be rendered unenforceable immediately, but is subject to the court’s discretionary power. In delivering the main judgment, Lord Collins

NPJ found that even though the fourth illegality might appear illegal under the PRC’s administrative law, Hong Kong courts should consider other factors to determine the origin and nature of such illegality.

These considerations included the fact that the agreement between the plaintiff and the defendant was not made with illegal intent. Thus, it was concluded that the breach was not a very serious contravention of law nor gave rise to conduct which could be described as iniquitous or actual criminal behaviour. This seems to indicate that an insubstantial wrongdoing would not give rise to the illegality defence so as to defeat contractual expectations, notwithstanding the doctrine of public policy.

Finally, Ma CJ mentioned in obiter that the proportionality test should not be exercised with an abundance of judicial discretion as in Parking Eye Ltd v Somerfield Stores Ltd [2013] QB 840 but based on firmer principle and policy.

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Where are we headed?

From Re Ryder Industries we can deduce three principles. First, that the illegality defence in Hong Kong is based on public policy, namely ‘ex dolo malo non oritur actio’ (no action arises from deceit). Second, that conflict of laws principles must be incorporated into disputes involving foreign illegality. Third, Hong Kong courts appear to tend towards upholding the spirit of contracts where appropriate.

Unfortunately, Re Ryder Industries did not give the CFA a chance to clarify the law on the illegality defence in Hong Kong. It did not specify the extent of judicial discretion to be exercised in applying the evidential tests on the domestic defence of illegality. It did not consider employing firmer principles in substitution for evidential tests.

Nevertheless, the case offers guidance on how the judiciary may address the issue of foreign illegality in the future.

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HONG KONG

Diplomatic Protection of Dual Nationals in Hong Kong Brian Ho

A

fter the 1997 handover, all Hong Kong residents of Chinese descent born in Hong Kong automatically acquired Chinese nationality under the Nationality Law of the People’s Republic of China, and those who continued to hold valid British passports became de facto dual nationals. While dual nationals retain the immigration benefits on travel, the new status limited the scope of diplomatic protection previously offered.

Limits of diplomatic protection Diplomatic protection is a mechanism employed by states to protect their nationals from the wrongful acts by other states and to obtain reparations for such wrongful acts.

According to Prof. Dugard, while the purpose of diplomatic protection is to protect the interests of nationals, the exercise of diplomatic protection is a discretionary right of the state. There is no obligation on the state to exercise such right; by the same token, there is no right of the individual to demand the state to provide diplomatic protection.

Where an individual possesses dual or multiple nationalities, any of the states to which he or she belongs may exercise diplomatic protection on his or her behalf. The position is more complex where a state tries to bring a claim in respect of a dual national against another state of nationality. Traditionally, the authority has been that this is not permitted. Such practise, also known as the Master Nationality HKSLG · SPRING 2016 · ISSUE 8

Rule, is endorsed by Article 4 of the Convention on Certain Questions Relating to The Conflict of Nationality Laws. More recent decisions have shown a relaxation in the application of the rule to the effect that diplomatic protection may be exercised if the claimant state is the ‘predominant’ state of the nationality. This proposition has been affirmed by the International Law Commission in its 2006 Draft Articles on Diplomatic Protection, but has yet to be included in an official treaty.

American so that the US government would be entitled to present a claim against the Italian Government on the dual national’s behalf.

In reaching its decision, the Commission identified habitual residence, family ties, and economic interests as relevant factors to the determination. In other cases, factors such as education, employment, and participation in social life have also been taken into account. However, the weight attributed to each factor varies according to the circumstances of each case.

The case of Hong Kong

Predominant nationality While international courts have accepted the wider notion of predominant nationality in assessing a state’s right to exercise diplomatic protection, there is no clear guideline on how predominant nationality should be defined. In the landmark case of Mergé Claim (1955) 22 ILR 443 which gave rise to this principle, the Italian-United States Conciliation Commission was called upon to decide whether the dual national was predominantly

Under the Master Nationality Rule, the British government cannot exercise diplomatic protection against China on behalf of her nationals in Hong Kong who are predominantly Chinese. For most ordinary Hong Kong residents, habitual residence and family ties will point strongly towards a predominant Chinese nationality.

This means they would not be entitled to protection from the UK. One exception is where a national can show a substantial connection with foreign states so that the connection overweighs contrary factors. Another exception is where a national loses his or her Chinese nationality through renunciation or through settling abroad and voluntarily acquiring foreign citizenship after the handover. For the remaining majority of Hong Kong citizens who acquired dual nationality after the handover, they will have lost their privilege of diplomatic protection against China.

INTERNATIONAL

Sexual Violence and Virtual Reality: the Criminalisation of ‘Revenge Pornography’

T

he prevalent use of smartphones and social media has made the sharing of intimate images or films much easier, prompting the rise of what Henry and Powell observe as ‘technology-facilitated sexual violence’ in the form of ‘revenge pornography’.

The legislation Revenge pornography was criminalised under s.33 of the Criminal Justice and Courts Act 2015 (CJCA) which came into effect in England and Wales on 13 April 2015. The term ‘revenge pornography’ is a misnomer as perpetrators’ motives may not be for revenge and the image is not necessarily pornographic. S.33(1) CJCA criminalises a broader scope of behaviour.

It is an offence to ‘disclose a private sexual photograph or film if the disclosure is made without the consent of an individual who appears in the photograph or film and with the intention of causing that individual distress.’ Such material may have been created with the victim’s consent but made public without it. Victims become the subject of humiliation and often suffer serious emotional distress and psychological trauma with some losing their employment altogether. If charged, offenders can face a maximum of two years imprisonment.

The effect of the law Criminalising revenge pornography reflects society’s changing attitude towards recognising virtual spaces as an actual location for

violating an individual’s rights to sexual expression, privacy, and dignity. It helps stigmatise the behaviour and shift the blame from the victim to the perpetrators. Other justifications for criminalisation of the act include breach of consent and right to control one’s own (sexual) identity.

Expanding the reach of the law The new law closes some of the loopholes of previous legislation.

Prior to the CJCA, acts of this nature were dealt with under s.127 of the Communications Act 2003, s.1 of the Malicious Communications Act 1988 or the Harassment Act 1997. Prosecution was limited only to distribution via electronic communications or ‘grossly offensive’ images or required a course of conduct in the case of harassment offences. Furthermore, the courts now have greater sentencing powers compared with the previous maximum of six months imprisonment.

The new law broadens the scope of prosecution by defining ‘sexual’ under s. 35 as not only the display of ‘exposed genitals or pubic area’ but also content that a ‘reasonable person’ would ‘consider sexual because of its nature’ or ‘taken as a whole…sexual.’ ‘Disclosure’ embraces online sharing and any display of the material. Since criminal intent is required, disclosure for law enforcement and journalistic purposes are defences available for the purposes of revenge pornography. Therefore, the new law seeks to distinguish criminal activity

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Brigitte Kiu

from permissible free speech.

A significant limitation?

The difficulty of proving an intention to cause distress may limit the effectiveness of the offence. The new law does not cover acts committed for the purpose of simple amusement or financial gain. It is suggested that the focus should be on the intentional act of distributing without consent instead.

Conclusion Criminalising the abusive use of an individual’s private images or films is necessary for it expressly acknowledges this specific form of technology-facilitated sexual violence. Once private images or films are disclosed however, the new provisions alone cannot adequately address the problem of such materials being widely disseminated in the digital space. The efforts of search engines including Google and Microsoft to remove materials posted without consent offers a practical solution and demonstrates societal recognition of the need to combat such forms of often gender-based violence.

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INTERNATIONAL

Mother or Monster Andrea Cheung

Introduction

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his article examines the threshold for terminating parental rights on the grounds of disability.

In Buck v Bell, 274 U.S. 200 (1927), a well-known U.S. Supreme Court case permitting compulsory sterilisation of the ‘mentally unfit’, Oliver Wendell Holmes infamously said, ‘Three generations of imbeciles are enough’. Much has changed since 1927. With the enactment of the Rehabilitation Act of 1973 and the Americans with Disabilities Act (ADA) of 1990, the U.S. is seeing a trend towards broader federal protection of parental rights.

Title II of the ADA protects qualified individuals with disabilities from discrimination on the basis of disability in services, programs, and activities provided by State and local government entities. It was enacted to broaden the coverage of s.504 of the Rehabilitation Act to all state and local governments regardless of whether they receive federal financial assistance.

This article argues that any exception to the right to custody, as protected in several Supreme Court cases, must be very narrowly construed, and the relevant decision held to a high evidentiary standard.

Currently, Massachusetts can terminate parental rights on the basis of disability if the parent is unlikely to provide ‘minimally acceptable care’ for the child. This article arHKSLG · SPRING 2016 · ISSUE 8

gues that the ‘minimally acceptable care’ test should be replaced by a more stringent and clear ‘actual risk’ test. Furthermore, state authorities should have a positive obligation to avoid discrimination on the basis of disability. This obligation includes making reasonable modifications to policies and providing individualised support where necessary.

The Sara Gordon case In 2013, the Massachusetts Department of Children and Families (DCF) assessed that a 19-year-old with an intellectual disability and an IQ of 70 was an unfit mother, and took away her two-day-old baby to be placed in foster care.

Then, without the mother’s consent, the DCF changed the initial parenting goal of reunification with the mother to adoption by a third party, and sought to terminate parental rights. The mother, Sara Gordon, filed a complaint under Title II of the ADA and s.504 of the Rehabilitation Act. In June 2014, the U.S. Departments of Justice and Health and Human Services opened a joint investigation into the matter. The strongly worded Letter of Findings, published on 29 January 2015, found that the DCF had illegally acted on ‘discriminatory assumptions and stereotypes about [Gordon’s] disability, without consideration of implementing appropriate family-based support services’, vio-

lating Title II and s.504. The federal authorities ordered the DCF to immediately provide Ms. Gordon a full and equal opportunity to pursue reunification with her child.

They threatened legal action should DCF refuse to comply.

The proposed ‘actual risk’ test would hold the DCF to a much higher standard than the current ‘minimally acceptable care’ test.

The DCF would have a higher burden of proof to justify their decision. The argument being put forward here is not that under the ‘minimally acceptable care’ test the DCF could easily, legally remove a newborn from her mother and place her for adoption, but that such mistakes are more prevalent and easily justifiable under the looser ‘minimally acceptable care’ test.

Test for termination In 2012, the National Council on Disability (NCD) published a research report named “Rocking the Cradle: Ensuring the Rights of Parents with Disabilities and Their Children” (NCD Report). It strongly recommended that states eliminate disability from their statutes as grounds for terminating parental rights, and enact legislation that ensures the rights of parents with disabilities. The Sara Gordon case is a notable step towards the NCD’s ultimate goal.

INTERNATIONAL

Currently, the test for terminating parental rights, the threshold for intellectual disability, and the level of evidentiary proof vary from state to state. Massachusetts is one of 37 states that allow the termination of parental rights based on intellectual disability. The test is whether the disability renders the parent ‘unlikely to provide minimally acceptable care of the child.’

A practical, attainable goal lies in between the current state of affairs in Massachusetts and the ambitious ideals in the NCD Report.

The test for termination should be more stringent, namely, whether the parent’s disability would cause actual risk to the child. ‘Minimally acceptable care’ is too vaguely defined and leaves room for arbitrary interpretation and application by the authorities. In contrast, ‘actual risk’ is a more clearly defined test, especially to the layperson. It is also a much stricter test, where the state must show that the parent’s intellectual disability is so debilitating as to cause an actual risk to the child. This causal link between disability and risk could be established through ongoing behavioral assessments and medical reports.

Actual risk in this case would mean the risk of abuse or violence. In the Sara Gordon case, had the DCF followed these procedures before making their decision, they would have acted legally.

The threshold of intellectual disability also varies between states.

Massachusetts’ threshold, in particular, appears arbitrary. The Code of Massachusetts Regulations states that intellectual disability consists of two components: ‘significantly sub-average intellectual functioning’ and ‘significant limitations in adaptive functioning.’ The former is defined as ‘an IQ score of approximately 70 or below.’ This definition, if it must exist, may be

considered evidence to supplement the state’s case for termination of parental rights. However, a low IQ score alone is insufficient to prove actual risk. It must be viewed in conjunction with the aforementioned assessments and reports.

Best interests argument The DCF could defend their decision by saying that it was in the ‘best interests of the child’ for her to be removed from her intellectually disabled mother and placed in a foster home. Even though the US legal system is based on the principle that it is better to let a guilty man go free than imprisoning an innocent man, this principle is arguably reversed when dealing with vulnerable children. The DCF could argue that they would rather keep children safe than having a child potentially endure abuse.

They could certainly also say that the rights of the disabled parent should not be viewed as more important than the rights of the child.

After all, the DCF’s objective is to protect children from abuse and neglect and to strengthen families.

In response, this article argues that this line of ‘best interests’ argument is legally invalid for terminating parental rights on the basis of disability. It also enables systemic discrimination. In this case, the DCF had no legal basis for the termination of Ms. Gordon’s right to custody.

It was a case of blatant discrimination. The DCF’s presumption of Ms. Gordon’s inadequacy shifted the burden of proof to her. She had to prove her competence in the face of bias in order to preserve her right to custody. If the State seeks to sever the connection between a mother and her child, they must have a compelling legal argument.

The ‘best interests’ argument fails because the DCF has no guarantee

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that the child will enjoy a better life in a foster home. In this particular case, Ms. Gordon’s mother was fully able and willing to help take care of the child, yet the DCF failed to take this source of support into account. The toddler, who was in foster care for two years, often had unexplained bruises and burns. The DCF made a mistake when they reversed the usual presumption that a child’s best interests rest in remaining with their biological parents. As argued above, this type of mistake would occur with far less frequency under the stringent ‘actual risk’ test.

In achieving its objective of protecting children, the DCF bears a positive obligation to take steps to accommodate disabled parents. As these state authorities are uniquely qualified to provide parenting support and other services, they have the duty to help every family to the fullest extent possible. Their job is not to police the disabled and presume their incompetence. As stated in the Letter of Findings, they must reasonably ‘modify policies, practices, and procedures where necessary to avoid discrimination on the basis of disability.’

Fundamental rights The Sara Gordon case sets an important and encouraging precedent. Exceptions to the right to custody must be narrow, certain, and predictable. Ideally, states’ statutes should standardise the test for terminating parental rights, the threshold for intellectual disability, and the level of proof. The biological mother’s vital connection to her child cannot be severed unless her disability poses an actual risk to the child. In order to uphold the objective of strengthening familial bonds, state authorities must take active steps to accommodate the disabled.

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INTERNATIONAL

Environmental War Crimes for the Modern World Jason Nung

Introduction

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ince the days of Ancient Greece, the fact that damage to the environment can be a collateral of armed conflict and that the environment can be attacked as a military strategy has always been recognised. However, attempts to limit environmental impacts during armed conflicts did not take place until the late 19th century.

Further, attempts to hold individuals criminally liable for environmental destruction during armed conflicts was only first considered when two senior German military officials were prosecuted at the conclusion of the Second World War. In the intervening years between the Second World War and the present day, there has been increasing interest in the protection of the environment, and much progress has been made in the field of International Environmental Law. However, prosecution of environmental destruction in the context of International Criminal Law (ICC) has stalled, despite the infliction of massive environmental destruction during armed conflict such as the burning of Kuwaiti oil fields during the Gulf War and the intentional drainage of salt marshes in Southern Iraq following the Shi’a Rebellion of 1991. Since the Second World War, no individuals have been charged or convicted for environmental war crimes. This article seeks to examine the reason why this is so despite the changes in attitudes in the international community.

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Existing instruments and their applicability Although numerous international instruments have been enacted outlawing the use of specific weapons deemed to cause unnecessary suffering or disproportionate damage, their purpose is more towards regulating the evolving technologies of war than protecting the environment. As such, this article shall focus on three instruments with provisions dealing directly with the environmental destruction during wartime, namely the 1977 Convention on the Prohibition of Military or any Hostile Use of Environmental Modification Techniques (ENMOD), Additional Protocol I of the Geneva Conventions (API), and the Rome Statute (RS) of the International Criminal Court (ICC).

The operative elements of ENMOD are stated in Art.1 which prohibits the hostile use of ‘environmental modification techniques’ with ‘widespread, long-lasting or severe effects’ which causes damage or injury to a state party. This prohibition also extends to a state’s attempt to assist or encourage another state to use these techniques. However, the applicability of ENMOD to furthering International Criminal Law for regulating environmental crimes is limited. ENMOD only creates state responsibility, meaning that it cannot be relied on by prosecutors when prosecuting individuals under International Criminal Law.

Additionally, despite the application of ENMOD to many aspects of the environment, ENMOD only covers techniques that actually manipulate natural processes or forces (for example diverting river or floodwater onto enemy territory), and not those that involve damaging or targeting the natural environment with conventional weapons. Furthermore, ENMOD only applies to international armed conflicts, meaning that civil wars or insurgencies will not be covered. Finally, there is also a lack of enforcement mechanisms in ENMOD. Under ENMOD, the only recourse should a breach be found is a referral to the United Nations Security Council (UNSC). Upon investigations into allegations of a breach of ENMOD by a state, the UNSC may also find certain individuals to be responsible. In that case, it may, proprio motu, refer the situation to the ICC. Prosecutions would in any case have to rely on the Rome Statute or the Geneva Conventions and not ENMOD. Similar problems of applicability can also be found with API and RS. API is the only part of the Geneva Conventions to contain any express provisions aimed at the protection of the environment. As API only applies to international armed conflicts, the duty of individuals to protect the environment during armed conflicts under International Criminal Law will not extend to civil wars or insurgencies. Similarly, Art. 8(2)(b) RS, which governs the activities that constitute war crimes

INTERNATIONAL states that the sub-provisions covering environmental destruction apply only to international armed conflicts. This further curtails the ability of international criminal tribunals to prosecute environmental war crimes in situations of internal armed conflicts such as civil war.

High threshold to constitute a war crime The difficulty with applying the existing instruments to prosecute environmental destruction under ICL is increased by the high evidential threshold for finding the existence of the crime. Art. 35(3) and 55(1) API, which are the provisions expressly governing environmental destruction, both require that the environmental damage be caused by an armed attack or in the course of an armed conflict to be widespread, long-term and severe. An almost identical construction is found in the text of RS, for instance, Art. 8(2)(b)(iv) prohibits launching an attack knowing that it will cause environmental damage that is ‘widespread, long-term and severe’. The requirements in API and RS, unlike those in ENMOD, are cumulative, meaning that any environmental damage brought by an attack must fulfil all three requirements.

Measuring whether the effects of an attack fulfil all three requirements poses considerable difficulty. First, the terms are not defined in either API or RS. Commentary from different international bodies has provided divergent interpretations as to what constitutes ‘widespread, longterm and severe’ . Second, accurately measuring long-term damage on a subject that often consists of interconnected ecosystems is difficult, particularly where damage may impact environments far away from the immediate location of conflict.

Finally, both API and RS require

proof of mental elements. While many international crimes impose similar mental elements of intent and/or knowledge, combining such mental elements with the aforementioned evidential requirements means that prosecutions under both API or RS often becomes a practical impossibility. This issue has been recognised by the Office of the Prosecutor for the International Criminal Tribunal for the Former Yugoslavia. The Office declined to prosecute NATO personnel for the environmental damage caused by their aerial bombing campaigns due to the immense difficulty of reaching the threshold of culpability.

Conceptual challenges in fitting environmental war crimes into conventional international criminal law Aside from applicability and evidential challenges, an additional reason for the lack of prosecutions for environmental war crimes under API and RS is due to the humancentred general spirit of ICL. This contradicts the relevant provisions under API and RS which seek to protect the environment as an independent victim of armed conflict.

Traditional war crimes, such as the destruction of civilian objects or the pillaging of a town or settlement, are often based upon the principle of ownership, and the harm done to persons or their property. As a result, the elements, and subsequently the evidential requirements for war crimes are generally centred on humans and any impacts on them.

In contrast, both Art. 8(2)(b)(iv) RS and Art. 35(3) API are noted for their radical departures not only from the other provisions of API and RS, but also from the traditional formulations of International

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Humanitarian Law (IHL) and ICL. Both provisions apply even where no human suffering has resulted from the environmental damage. However, neither instrument is conducive to finding individual criminal liability for environmental damage when the elements and evidential requirements of the statutes as a whole are geared towards an act’s impact on humans. This contradiction increases the difficulty of both finding and proving environmental war crimes, diminishes the prospects of successful prosecution and drives prosecutors to prosecute defendants under a different charge.

This is an unsettling state of affairs. The continual constriction of environmental war crimes under traditional IHL and ICL formulations increasingly conflicts with the international community. Modern attitudes see the environment not as collateral damage or destruction to property, but as a victim of warfare. Traditional formulations also impede changing conceptions of the environment from being a sovereign territory’s resources to a global commons which the international community has a collective responsibility to safeguard. Failure to resolve these conceptual contradictions will only lead to continued paralysis of ICL in prosecuting environmental war crimes.

Conclusion Owing to the aforementioned, it is unlikely that in its current form environmental war crimes will be a major part of international criminal prosecutions in the near future.

However, as environmental issues become increasingly important in international discourse, it is suggested that it is high time for the international community to consider effective prosecution of environmental war crimes and to adapt them to modern age.

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INTERNATIONAL

Trans-Pacific Partnership: Unfolding the Future of Trade Law

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n October 2015, twelve countries completed the negotiations for the Trans-Pacific Partnership (TPP) and the regional trade pact was subsequently signed in February 2016. The signatories were Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Together, they make up 40 percent of the world’s GDP. The trade deal not only cuts tariffs on imported products, for instance by cutting 18,000 taxes placed by other countries on US products, it also governs a wide range of protectionist measures.

This could result in changes in prices of goods such as pharmaceuticals and agricultural products.

Therefore, the TPP will have a significant impact once all signatories ratify it within two years. This article analyses how the TPP embodies the current development of trade law and discusses the potential implications of incorporating into the law a chapter regulating StateOwned Enterprises (SOEs) for the first time.

Bypassing the limitations of the WTO The World Trade Organisation (WTO) has long been the institution governing international trade law. The Marrakesh Agreement that established the WTO dictates that each WTO member must agree to and ratify any amendments of current WTO agreements or any new agreements. Although HKSLG · SPRING 2016 · ISSUE 8

this requirement aligns with the consensual nature of international treaties in that countries are bound by their own will, it also means that the WTO cannot produce a new trade agreement unless every WTO member accepts and ratifies it. This has led to a gridlock.

Reaching consensus on an agreement has become harder for the WTO as the number of member countries increased from 128 in 1994, the founding year of WTO, to 162 in 2015. A successful negotiation requires compromises among countries which, in turn, have to balance the risks and benefits of different domestic stakeholders. The size of the WTO has paradoxically stalled its progress. The WTO has failed to advance new agreements since the Doha Round more than 14 years ago. As such, the WTO’s functions have mainly been limited to enforcing and governing existing WTO agreements.

To circumvent the impasse and further liberalise global market trade, countries of diverging economic strengths have begun signing up to bilateral or multilateral agreements on free trade and commerce of a much smaller latitude than the WTO, such as the Regional Comprehensive Economic Partnership (RCEP) for the AsiaPacific region and the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) for the US-Central America region. These agreements, which

Leo Chan

Jack Wong

are formed by a select few countries, pose less risk of stalemate.

The TPP, one of these many multilateral trade agreements, develops international trade law in a way that can bypass the WTO’s ‘deadlock’. The 30 Chapters of the TPP delve deeper than the WTO’s General Agreement on Tariffs and Trade (GATT) in regulating tariffs and other protectionist measures.

In particular, Chapter 17 covers a wide range of policies governing competition law and SOEs. The implications of including Chapter 17 in the TPP Chapter 17 governs the behaviour of state owned enterprises (SOEs) engaging in commercial activities.

It is an example of how the TPP broadens the scope of international trade regulation. The TPP is the first trade agreement that explicitly sets out how SOEs should conduct themselves to prevent procurement of any unfair advantages over nonSOEs. Unlike the GATT which did not attempt an actual definition, the TPP provides a strict definition of SOEs in Art. 17.1: An ‘SOE is an enterprise: (a) that is principally engaged in commercial activities; and (b) in which a Party: i. directly owns more than 50 percent of the share capital; ii. controls, through ownership interests, the exercise of more than 50 percent of the voting rights; or

INTERNATIONAL iii. holds the power to appoint a majority of members of the board of directors or any other equivalent management body.’

This concrete definition signifies that the TPP requires from member countries strict adherence to the provisions. The inclusion of governance measures for SOEs will have a significant impact on countries like Vietnam, where SOEs represent a third of the country’s GDP. For example, an SOE called Vinatex is responsible for 40 percent of Vietnamese apparel and 60 percent of all national textiles production. Therefore, it is necessary to have complex reforms for Vietnam and countries with similar GDP compositions to fulfil the new obligations under Chapter 17.

New regulations on SOEs Chapter 17 can be condensed into four main groups of obligations imposed on SOEs, save for some exceptions specified in the Annex of the chapter. They are: 1. to ensure that SOEs, in making commercial decisions on sales and purchases, only take into account

commercial considerations and will operate in a non-discriminatory manner (Art. 17.4); 2. to provide courts with jurisdiction over claims involving the commercial activities of SOEs and ensure that any administrative bodies governing SOEs provide impartial regulation (Art. 17.5); 3. to ensure that states shall not cause adverse effects to the interests of other member state through providing non-commercial assistance (Art. 17.6); and 4. to impose rules that will provide transparency to SOEs in respect of government control and support over SOEs (Art. 17.10).

It is common that countries will seek to manipulate trade and commerce through the effective control over SOEs. The new rules under Chapter 17 seek to further liberalise markets by preventing countries from intervening in the commercial decisions of SOEs which harm the interests of other member states. Save for some exceptions set out in Article 17.13 and the Annex, it is expected that SOEs can

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be more independent and operate more like private companies.

Although the Chapter 17 rules are stringent, they lay out comprehensive country-specific exceptions as well as operational guidelines for SOEs. These rules will have major impacts on domestic economies and the political landscapes of member countries, especially countries whose economies are heavily dependent on SOEs. Some countries may therefore be unwilling to come on board with the regulations. Even interested countries like Indonesia must make efforts to reform its economic structure in order to comply with Chapter 17. It would be extremely difficult for a similar provision to achieve consensus at the WTO. Forming smaller treaties between states seems to be an efficient alternative to formalise consensus.

The country-specific exemptions provided in the Annex may well render Chapter 17 a ‘paper tiger’, and therefore create a risk that the provisions will only regulate industries that do not need regulating.

The effect of Chapter 17 remains to be seen.

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INTERNATIONAL

Register of Persons Having Significant Control (UK): Balancing Shareholders’ Privacy and Corporate Transparency?

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n recent years, the UK government has taken various steps to increase corporate transparency.

One major legislative change is the requirement for UK-incorporated companies to maintain a public register of persons having significant control (the Register) under Part 21A of the Companies Act 2006 (the Act) which will come into effect in April 2016. Before the Act, non-listed companies have enjoyed a higher level of privacy on corporate ownership when compared to listed companies, as the former is not subject to the stringent UK Listing Authority Disclosure and Transparency Rules (DTR). This article discusses whether the arguably onerous disclosure requirement under the Register balances shareholders’ right to privacy and the public interest of transparent corporate governance.

Who are PSCs? Under Part 21A and sch. 1A of the Act, which is amended by inserting sch. 3 of the Small Business, Enterprise and Employment Act 2015 , non-listed UK-incorporated companies must identify and register those persons or legal entities which have significant control over them.

Paras 1 to 9, sch. 1A of the Act specify the conditions that qualify an individual as a person having significant control (PSC). For example, when a person owns more than 25 percent of the shares or has 25 percent of the voting rights in a company, he is regarded as a PSC.

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Does the PSC regime impose an onerous responsibility?

If a company fails to take reasonable steps to identify its PSCs, the company and any officer in default will be criminally liable. At first glance, this change in law appears to impose an excessively onerous responsibility on companies to identify their ultimate control. In particular, the new regime may disproportionately affect companies with a long chain of ownership.

However, the legislation in effect only targets those UK-incorporated companies ultimately owned by offshore holding companies. If every company in the chain of ownership is incorporated in the UK, the ‘registrable relevant legal entity’ would be the UK holding company and no further tracking down is necessary. The responsibility imposed is reasonable because it aims to scrutinise suspicious corporate structures that often take the form of a chain of holding companies incorporated outside the UK. Greater corporate transparency under the PSC regime Given that the PSC register is available to the public, it provides better

Candice Lau

protection to those who intend to trade with the company. The public will have greater certainty about the individuals or entities that have de facto control of the company.

This protection to third parties is desirable even if there is no concern regarding illicit activities such as money laundering.

It may be argued that the legislation defeats shareholders’ right to privacy achieved by the holding company arrangement. However, under the newly added Part 21 of the Act, the thresholds of 25 percent shareholding in terms of the control by an individual and ‘majority stake’ in terms of controlling through a legal entity (i.e. a holding company) are reasonable.

It balances privacy and transparency. The legislation does not result in revealing the identity of every single shareholder in the holding company ultimately controlling a UK-incorporated company. For example, Mr. A has 30 percent shares in a Holding Company which fully owns Company B. Provided that Mr. A has no other influence over the Holding Company, he will not be treated as a PSC of Company B because he does not hold a ‘majority stake’ in Company B as defined in para 18(3), sch 1A of the Act.

FEATURE

31

Interview with Ms Winnie Tam SC Winky Lee

Ms Winnie Tam SC

M

s Winnie Tam SC is the current Chairman of the Bar Association.

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Called to the Hong Kong Bar (1984) and to Middle Temple (1988) Pursued specialised training in intellectual property at UCL and Chambers of Thomas Blanco-White QC (now 8 New Square) between 1987 to 1988 Began her specialised practice in Hong Kong on numerous major cases involving intellectual property rights Involved in Improver Corporation v Remington Industrial [1990] 1 HKLR 251 in what came to be known as the first patent trial in Hong Kong Appointed Senior Counsel in 2006 Received accreditation as a mediator in 2010

Interesting fact: wanted to start her career as a law draftsman to help with the translation of the law before the 1997 handover.

The Law Society has proposed to introduce a new common exam in 2021 whereby the PCLL will be an attendance requirement. The Bar Association has issued a statement on it. Could you share with us your views on these measures and what you think will happen?

It is difficult to speculate what is going to happen as we all wait for the Law Society to come up with a more concrete announcement of the framework and I don’t think it has come yet. As I see it, the initial announcement that broke out gave everybody the impression that it would be a full exam on all PCLL

subjects. And then now it has been represented in media interviews that it is nothing more than a few subjects the Law Society felt they ought to be in the exclusive position to put together. These are very different concept. In my view they cannot be presented in a way that can encompass under the term ‘common entrance examination’ so we are still waiting for them to come up with a more descriptive framework.

Our objection was very much in the way they had to make this announcement without prior consultation. The Special Committee on

Andrea Cheung

Chester Kwan

Legal Education is actually undertaking a consultation and recently in only November we give our views in a lengthy paper and all of us were asked to do that so the very subject of entrance examination is under intense study by this specialist commission. Now the argument presented by the Law Society was that they want to put students on notice from next year that there will be a common entrance examination if they want to join the solicitor profession. But we ask the rhetorical question if you do not tell people what the examination is about and what structure it is – is it just about compulsory questions on few paper or about a full examination for students who wish to join the profession – what good is it to give people advance notice?

People are just as lost without that information, it only creates more worries and question marks than answers.

For the Bar, we feel that we are as much as the stakeholder as the solicitor profession. This sort of thing will definitely affect students who wish to join the Bar. For that reason we believe consultation is a must. The fact that they have raised it a number of times in the past is neither here nor there: even in the past they had never for once told anybody what they exactly meant.

If they had said back in 2012 that they wanted to set compulsory questions on five papers, I think the reaction would have been “yes, HKSLG · SPRING 2016 · ISSUE 8

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FEATURE

by all means. Let us talk about it”. Why don’t we have uniform exam questions for all three law schools? The PCLL examination board oversees the exam paper to ensure they are all at an acceptable standard but the Law Society has never at any of these board meetings questioned the function of these checking mechanism, they never raised any issue, never criticised any paper being too easy or too difficult, never raised any issues that improvements are needed with regard to making the standard more uniform and acceptable to the Law Society. So we query what they are really after. If they are after uniformity of standard, then it is something which should have been raised at the examination board level and it could have been dealt with and no one would disagree that we all want the standard to be uniformly acceptable. As I understand that it is also the view of the universities, because they will only welcome input on exam questions, they would not possibly say I refuse to have those questions. So I hope this will be sorted out. At the moment the Bar is playing a wait and see kind of attitude and three universities are putting their heads together and no doubt they will form some more uniform views and have more discussion with the Law Society and hopefully the consultation report will be taken into account.

Could you tell us a bit more about your work as Chairman of the Bar Association?

I take care of the Bar affairs which are very diverse. We have a great number of special committees under the Bar taking care of all sorts of matter. The most important aspect is the disciplinary aspect. We also have an education function in taking care of incoming members.

There are also community members who want to learn more about HKSLG · SPRING 2016 · ISSUE 8

the rule of law and issues in the profession need to be taken care of.

So we see a large number of visitors both from Hong Kong and from aboard.

“...we have to extend the scope of barrister practice.

We must not stick with the same scope of practice conducted over the past 50 years.

It is very important for us to be more global-looking and to be more open in our own view...”

For overseas, there are lots of international bodies interested in Hong Kong. For example I have a meeting with the British ambassador from China who wishes to learn more about the rule of law in Hong Kong. We constantly have these visitors. We also communicate with international bodies on all sorts of issues of mutual interest including the development of the law and professional development.

As I started my term in January last year, I made it a matter of fairly high priority that we have to extend the scope of barristers’ practice. We must not stick with the same scope of practice conducted over the past 50 years. It is very important for us to be more global-looking and to be more open in our own view of what we could and could not do under the existing code of conduct. Traditionally, we have been only doing work we are directly instructed to do by solicitors and not a lot of us have been doing arbitration work.

Arbitration and ADR have become a very strong developing area of the law. And there are less civil disputes in courts and more exercise of ADR methods. Some of us have gone into that type of practice much earlier because of the area of law they have been practising such as construction law or shipping law. They will be familiar with this mode of dispute resolution.

In the old days, commercial disputes were not generally liable to be arbitrated because it was not as fashionable as it is now for arbitration clauses to be inserted into every commercial contract. So barristers of other areas of practice really have to wake up and embrace it.

At the moment we are not as ready as our London counterparts who have a much larger body of barristers and generally much hungrier for work, they have been travelling everywhere to get arbitration work, they set up chambers in Hong Kong to get arbitration work. They have teams of clerks everywhere to market their arbitration services.

Basically the law said anybody can do arbitration. So it is not an area of law which is restricted and reserved, although one should think barristers do have the necessary skills for this kind of work because basically you are either acting in the function of a judge or an advocate just like in litigation.

FEATURE Also, we must wake up to the effect of globalisation and that is the fact that firms are becoming globalised. They join forces and make themselves bigger. They are much more capable in many ways, they have a team of junior lawyers doing research. The only thing they can’t do is go to the High Court and fight a trial. For that reason, barrister should now wake up to this fact and not sit and depend on work from solicitors to fall on their laps. Because firms, being larger and mightier than ever, are well capable in handling all sorts of work which medium-sized local firm or even large local firm were very happily leaving to barristers. In the old days, when we were junior barristers we did lots of drafting, endorsement of claim, affidavits or even summons because firms were busy with conveyancing work.

It was not profitable for them to draft an affidavit when they can be earning millions of dollars. It is no longer like that, conveyancing practice died and solicitor practice became more diverse. They are

more capable now as their team is growing and they have the connection and help from their sister firms globally.

In the old days, one of the advantages of a barrister was that they were generally people who spoke better English while a lot of local solicitors might not have been as well spoken or they considered themselves less well spoken as barristers who were trained to stand up and speak. So they would happily leave minor court applications to barristers these days, the bigger firms hire graduates who are very well spoken and more ready to be an advocate. They may not need the services of younger barristers as much as before. So we must expand our scope of practice.

In Hong Kong, many foreign lawyers do not hold local practice certificates so cannot render legal advice directly by signing letter of advices. However, they are well able to instruct barristers directly if they need legal advice on anything.

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Hong Kong barristers can take up instructions to advise mainland lawyers as long as the matter is not litigation in the Hong Kong Courts. So we are going to do more of that because I found out that these services are very much in demand. The edge of a barrister is in our independence. These foreign lawyers find it useful because from their point of view the last thing they want is a chance for another firm to take away the client. There is a big market in China and we signed an agreement with the Shanghai Bar Association. For them it is a kind of marketing value. Even without the official relationship we can still do work for their members. For their client to see there is a Hong Kong barrister as legal consultant, the client finds that maybe they have this important connection from whom they can get ready advice. We might expand to other cities who express interest, such as Shenzhen, Tianjin, and other cities in Guangdong.

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FEATURE

This is a rather significant market we opened up and it does not take us out of what we traditionally expected to do and that is to give legal advice. We are still dealing with professionals. For junior barristers this becomes revenue generating work which is very good. The most happy thing I realised is only after signing the agreement, they are not just eyeing very senior barristers for face value and reputation but they actually have work waiting to be done by junior barrister as they are cheaper, more user friendly and responsive in general. That is what I am trying to do for the junior members.

Lady Hale has said that from time to time, one’s individual approach to justice and fairness comes into adjudication as well as one’s personal background.

Do you think the courts’ makeup (or our legal practitioners) are reflective of Hong Kong society?

I definitely think so. In the colonial days, the magistracies were generally staffed by expat magistrates.

Most of them were from Australia, some from England, and some from New Zealand. The courts in those days were not reflective of Hong Kong society. After sitting for a number of years they would have a better understanding but in those days they were still quite removed and felt higher than the people in terms of status. Now, magistrates are picked from a local pool of lawyers. There is no reason to think they are not representative of Hong Kong society from across the board. Judges are also not allowed to be affiliated with any political bodies. You can’t stop people from having those views but they are still a fair specimen of any member of society.

As for women getting to high places in the law, it has to do with traditional values and division of HKSLG · SPRING 2016 · ISSUE 8

labour. Hong Kong already enjoys an advantage with the availability of domestic helpers. The very senior lawyers in England are men because they have been allowed to have the breathing space to focus on their career whereas a woman is expected to care for the home. There is a very important personal observation which I think is correct. If you are female and you hit a certain age, say mid40s, unless you tell the world with a career move that you intend to carry on practicing and take steps to advance your career, people will naturally think you are going into semi-retirement. This is because a woman is not generally seen as a bread winner. Unless you are married to someone with no earning capacity, you are expected to slow down. Of course there are exceptions but generally if you are the client paying million of dollars, if everything else is equal would you pick the man or woman? That’s the acid test. There’s also the solicitor in between. The solicitor would not want to make a bold recommendation that he could be blamed for.

A lot of times the solicitor would have the safe choice that would ostensibly give better security. As a woman I see it, unless you take silk, people will generally think you are slowing down in your midforty. You see a lot of men not taking silk for various reasons and still can maintain a fairly strong practice into their sixties. This is rarely so for women barristers.

This has an impact on these diversity issues as well. A woman generally feel more inhibited at times. If they are married they have to consider their partner but for a man he can always just charge ahead and does not need to apologise to anyone. No one would apologise for taking silk, he would perhaps have to do so if he intends to retire.

As the graph hits the higher end

for seniority at the Bar, there are only about 7-9% women at the top. I don’t think we need a remedy, however, because there are many more girls than boys at the junior end of the Bar. With a larger body of females, naturally more will make it to a higher level. It is important for girls not to try to be someone else but at the same time do not always think of themselves as girls. I have heard of sexual harassment complaints but these are precisely attempts by a few individuals who want you to be overly conscious of your gender. In my days it was much worse. It was scandalous the way people wanted to make you feel about yourself.

If you have earned praises from the bench it was because of your looks, you would be told. They make you feel like you are nothing, an intrusion into their world.

Nowadays happily we have antidiscrimination law that stops it.

But it is important for girls to stop using their feminine charms in any

FEATURE situation to gain any head way. This is also something I would strongly advise against because that would only make people look down upon you.

In our knowledge, there is currently no female mentorship program in place at the Bar unlike the Law Society. Would you consider implementing a support system for young female barristers?

I’ve done talks with women lawyers group, and a few men enrolled!

They were pretty senior members as well. I wanted to understand a little more about how female barristers feel about the Bar. We haven’t institutionalised it, but if I were not so torn between so many projects that I’ve brought upon my own head, I would have done it more often. But I can use the help of other female barristers. That is something I find very helpful.

We had a cosy gathering with about 50 people in the judicial restaurant at the back of the High Court, where we talked about all these issues which were pertinent to women surviving and going through life at the Bar. And if you think that this is something that should be extended to the student level, we will also consider it. I’m full of admiration for the International Federation of Women Lawyers (FIDA) initiatives because they are very energetic people and organise all kinds of activities. Recently, there was a flower arrangement activity. I just couldn’t find time for. For barristers, I think we should have our own style. But I’m all for young members joining them because there’s a limited number of barristers. You also get the chance of mingling with barristers because sometimes they would have some judges and barristers as guests.

I’m too busy right now but I have an aspiration to start a more serious form of women lawyers’ association

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with barristers as the core, rather than FIDA, which has corporate lawyers and solicitors driving the initiative. I think I could start something that would cater for barristers and judges across the different levels of the judiciary. That is what I intend to do. It’s early days yet. It’s not a promise but it’s something that I’d consult people of my profession and in the judiciary and see if there is sufficient interest.

Judges need this kind of inclusion as well. As judges, it can be a lonely kind of life! As barristers, we have juniors and colleagues.

We have social activities within chambers. Of course judges do that too but they don’t have that sort of premises they could call their own. Their interaction with the Bar is actually quite limited. If we include them as guests and members, and I don’t see why not, and it gives our members greater confidence to know that these are just ordinary humans to interact with.

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FEATURE

That doesn’t mean that it would create any perceived bias or favouritism.

That’s what I hope I will find time to do when I step down in a year’s time.

How would you compare the conditions young aspiring barristers face today with those you faced when you just entered the Bar? Sheer numbers. And globalisation has also had an effect. As I said, the shape of the solicitor’s profession has been evolving and with the dwindling of conveyancing practice and other money-spinners for solicitors, solicitors’ attention would be on how to make the best income HKSLG · SPRING 2016 · ISSUE 8

for themselves ahead of nurturing the young Bar. So it’s down to us to nurture our own young ones, and my strategy is to extend the scope of practice. It’s to stop being self-restricting in the way we view what our own practice should be like. When we first held a seminar to explain how our code of conduct did permit other mode of receiving instructions, it was disheartening to see that only a few dozens signed up, because most barristers still didn’t realise how important it was.

If you say China Practice, they think, ‘what does that have to do with me’? But if you run a seminar on ‘How to make an application for interlocutory injunction’, then the room is packed. But they don’t

get the work. I’m not saying that they shouldn’t equip themselves with those tools. What I’m saying is that they should make every opportunity to equip themselves, and the tools they need are not just the technical knowledge which they can see as being useful this moment.

I can see that it would give them the comfort of knowing how to do certain types of applications, but they must equip themselves by being forward-looking, by seeing where their practice could be, what it could be in the future, and be prepared to embrace it. That’s the only way for young people to survive: to not be self-restricting, and to be more and more adaptable. But in order to do so, you need to go out and see the world. I realise that I can say that very easily because in my position, I have to go on all these trips and see all sorts of different people on behalf of the Bar. But my responsibility, as I see it, is to come back and to tell them that there is opportunity out there. There are opportunities here and there, and they must grab them. And I think young barristers really need to be open-minded about these opportunities. I mean they must not restrict themselves to what they see on TV dramas: the idea that barristers go and fight interesting cases and go for drinks afterwards with your pupil-master.

The reality is very far from that at the Bar. They really must open their eyes to these opportunities out there which are not the sort of opportunities you see in TV drama.

In your speech at the Ceremonial Opening of the Legal Year, you urged the Bar to wake up to fundamental changes in the profession.

In particular, you mentioned that clients are increasingly demanding specialised, high-value knowledge instead of general advice. Do you see an emerging strategy for barristers to choose a specialisation early on?

FEATURE Definitely, but to do so earlier on is very difficult. Specialisation is something that has to be fortified with the necessary learning plus experience. You don’t claim to be a specialist with no experience. So you can’t wake up one day and say you’re a specialist.

Take Competition Law for instance.

At the moment nobody has experience in Hong Kong, so nobody can claim to be a specialist. But you can head that way eventually, if you start equipping yourself with the knowledge. We are going to start a scheme for Hong Kong barristers to be placed in London for a short period of time to shadow competition barristers who have much more experience in that area. That way, they will accumulate experience vicariously, or even by participating in the work such as drafting, helping with research, etc. That way, hopefully we can eventually build that specialisation. Specialisation has to be built over time. But for a young member to make it possible for them to eventually specialise, they need to look ahead. So now, you need to look ahead to see what is likely to be useful, and ask “what am I interested in”? People only do things well in a sustained manner if they are passionate about what they do.

If it’s an interesting area and if you can see an emerging trend, like even for judicial review for example. Public Law is an emerging area. Even after we have another Chief Executive, it will probably still be trendy to file judicial reviews. Competition Law is an emerging area. Criminal Law never goes out of fashion, but for financial reasons, people are not interested in criminal law, because it earns less. But I think one shouldn’t think of it that way. Even if it’s an area of practice which doesn’t have a reputation to be a money-spinner, it’s nevertheless interesting because if you have the confidence of be-

ing the best, of coming out at the top, you will be the one who commands the top fees. Imagine the Kwok Brothers, or Dream Bear, or whatever. When they get into trouble, who do they go to? They go to the most expensive one, or the one most sought-after. They don’t go to the cheapest one! So if you’re right at the top of the game, you’ll fare well, whichever area it is, even if the area does not have the reputation of being a money-spinner.

Your view on the Copyright (Amendment) Bill is that the exemptions are sufficiently broad to safeguard the freedom of expression. S. 161 of the Crimes Ordinance (Cap. 200) prohibits ‘access to computer with criminal or dishonest intent’ and has been said to be a ‘catch-all’ provision used

by Prosecutors to secure convictions on vague grounds. If S. 161 is applicable to the infringement of copyright laws, do you think the concerns of the Bill’s opponents hold more ground?

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In order for it to be a copyright offence, it’s not a civil infringement issue. What will have to be proven is that you intend to commit an act which would amount to an offence under the criminal provisions of the copyright law. That actually goes back to how high the burden of proof is under the copyright law.

Now, the present bill merely adds the communication right, but its existing form, which is the Copyright Ordinance (Cap. 528), already has criminal provisions which have to do with the traditional forms of infringement, that is, copying, distribution, etc. When the traditional form of dissemination of infringing copies was to disseminate the physical object. The communication right adds to it the modern manner of dissemination, which is without the physical object, which is without even a digital copy in full sitting there waiting to be distributed digitally. The amendment targets acts such as streaming.

“[Young barristers] must equip themselves by being forward-looking, by seeing where their practice could be, what it could be in the future, and be prepared to embrace it. That’s the only way for young people to survive: to not be self-restricting, and to be more and more adaptable”.

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FEATURE

The “infringing copy” concept can never catch streaming. That’s why the law needed changing. The offence has always been there in its original form. And then, of course, even in its original form, because a digital copy is still a copy, it was able to work with the Crimes Ordinance s.161. It has always been able to. The Keyboard Frontline said that there was a 2005 case, and that was the single case they could find where the Copyright Ordinance was used as an alternative charge to s.161. That was one case in the entire history of the law.

What I was saying was that “yes, I can see your concern, but I’m afraid the fear is completely exaggerated”.

Under copyright law, even with the communication right, you still have to prove that the dissemination will have a prejudicial effect on the owner of the copyright work. And you have to prove it beyond a reasonable doubt. There is a ‘no knowledge’ defence as well. The intention will also go to the prejudicial effect. If you have no idea that it would have that effect, then the proof will likely fail.

So, to say that people may accidentally commit a copyright criminal offence is wholly unconvincing, but if you degenerate into an argument that the Government will prosecute you anyway, even if you didn’t do it, then there’s no sensible answer. It’s not for me to answer the question.

I’m a lawyer, I look at the law. But I do not see any wanton prosecution taking place either.

For the Crimes Ordinance s.161, whether that section itself needs reform, I would say yes by all means, it should be looked into. It could become more modernised. But as regards what its effect would be if the Bill is passed, as I see it, because it will not make convictions any easier. If you have to prove an intent, you still have to prove that the thing with that intended effect is about to happen. It does not make it easier if the two sections are put together and made alternative charges. Alternative charges are alternative charges, they do not make the offence twice as serious. It’s still the same conduct, the same wrong-

doing. The new Bill is not an easier way of getting people convicted, and neither does the combined effect make the proof easier.

You acted recently in the Tsit Wing (Hong Kong) Co Ltd v TWG Tea Co Pte Ltd [2016] HKEC 68 involving a dispute of passing-off.

How do you see this area of law developing? And how is it to work with overseas counsels in general in local disputes?

It’s an interesting development.

European law and English law have very significant impact on the development of Hong Kong law in passing-off and trademark infringement, although we are not signatory to the EU. But because our trademark law was derived and developed from the English Acts, the principles as the CFA has held, are not any different. Although the wording is slightly different, it doesn’t mean a different test. So the TWG case, shows that Hong Kong law will continue to follow the trend of the UK and EU. That

“...all the time, the best position to hold yourself in is to quietly know that you know nothing, even when you are onto the thirtieth year of your practice.

Because the law changes all the time, and you learn, all the time. You must have that mindset of humility to continue to thrive, whichever branch of the profession you’re in.

Times change, client expectations change, the law changes, circumstances change, technology changes”.

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FEATURE

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is comforting because otherwise it’s very difficult to advise clients as to which way it will go.

Working with London counsel was a great pleasure this time because we had one leader who was one of my pupil masters in London.

In fact he was the first barrister I did pupillage with in England. So it was great to be working with him in a proper case because in pupillage you’re not counsel in the case. It is of course of great benefit, particularly to myself, because I had the comfort that I had the benefit of the wisdom of a leader there who was very close to me.

Is there any advice you would like to give to our readers or comment you might have for our readers to consider in their studies?

I think as a practitioner, you really have to come into the profession thinking that this is the start of a learning process. You need to come into the profession feeling that you know nothing, and every day you live, you feel you know nothing. I’ve been talking about the Copyright Bill recently, and people consider me an expert. I wouldn’t hold myself out as that all the time, except for this kind of situation. If you’re not speaking as someone who has some understanding of the law in this particular aspect, you’re not really helping the public. I was trying to help the public. Otherwise, all the time, the best position to hold yourself in is to quietly know that you know nothing, even when you are onto the thirtieth year of your practice. Because the law changes all the time, and you learn, all the time. You must have that mindset of humility to continue to thrive, whichever branch of the profession you’re in. Times change, client expectations change, the law changes, circumstances change, technology changes.

Every time, everyday we’re learning something new. Those who fall out and become less prominent and less successful than they once were, were those who couldn’t get out of that mindset. They keep thinking that they know more than they did five years ago. No, they actually know less because things around you change faster than you can learn them. So you always know even less than yesterday. That’s why I feel that it’s really a lifetime of learning and I don’t see any ground at all for people resisting continuous professional development. This is another huge topic that I am trying my best to tackle and I’m trying to convince people that it will make us look good to submit ourselves happily

and willingly in all sorts of roles, in regulated continuous professional development regime as teachers, learners, and organisers.

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DEBATE

The Invisible Crime of Human Trafficking in Hong Kong Crystal Yeung

H

uman trafficking conjures images of kidnapped children working in brick kilns in Pakistan, debt-ridden farmhands trapped in banana plantations in Ecuador, or teenage girls sold as sex slaves in Romania. In reality, there are many faces to human trafficking which can take the form of forced labour, child labour, debt bondage, sex trafficking, involuntary domestic servitude and even child soldiering. Experts agree that trafficking happens where need meets greed.

However, that is not the only common denominator – as a criminal enterprise, human trafficking thrives wherever the law permits it.

Traffickers find opportunities in Hong Kong because of the lacuna in the Region’s legal framework where save for limited instances of prostitution, human trafficking is not in and of itself a crime. In 2015, the Trafficking in Persons Report by the U.S. Department of State (the Report) described Hong Kong as ‘a destination, transit and source territory… for sex trafficking and forced labour’. Like all international criminal syndicates, human trafficking operates on a supply and demand configuration, and Hong Kong’s affluence calls especially for unskilled and low-status foreign labourers. From 2008 to 2014, the demand for foreign domestic helpers (FDHs) in Hong Kong saw a rise of 32 percent. Likewise, migrants from Thailand, the Philippines, Mainland China, and Russia make up a growing percentHKSLG · SPRING 2016 · ISSUE 8

age of Hong Kong’s sex trade. The lack of legal protection for these migrant workers has manifested into instances of forced labour.

Hong Kong has state responsibility to prohibit human trafficking The Protocol to Prevent, Suppress and Punish Trafficking in Persons Especially Women and Children (the Palermo Protocol) was adopted by the United Nations in 2000 due to concern that in the absence of a unified law targeting human trafficking ‘persons who are vulnerable to trafficking will not be sufficiently protected… despite the existence of a variety of international instruments to combat the exploitation of persons’. The Palermo Protocol prescribes three features: (1) the act must be one of ‘recruiting, transporting, transferring, harbouring, or receiving persons’; (2) the means to carry out the act must be through ‘the threat or use of force, coercion, abduction, fraud, deception, abuse of power, abuse of a vulnerable position, or exchange of benefits to achieve the consent of a person having control over another person’; and (3) the purpose of the act must be ‘to exploit’.

Although China reserved the Palermo Protocol from applying to Hong Kong, as an international human rights standard, the Palermo Protocol remains instructive as a starting point for dealing with human trafficking

cases. Hong Kong also has a duty to protect victims of human trafficking through the ‘prohibition of slavery’. Slavery, which can encompass human trafficking, has been held by international tribunals to be against customary international law and therefore impermissible in all countries. Further, Hong Kong has a positive obligation to investigate and protect victims of ‘slavery, servitude and forced labour’ under Art. 4 of the Hong Kong Bill of Rights Ordinance (Cap. 383).

In January 2016, a judicial review case challenging the Government’s failure to uphold its Art. 4 duty was heard for the first time at the Court of First Instance. There, the applicant ZN claimed to be subject to human trafficking and a victim of forced labour. ZN has the potential to echo the landmark case of Rantsev v. Cyprus and Russia (Application No. 25965/04) where Ms. Rantsev was trafficked from Russia into Cyprus for sexual exploitation and the Strasbourg Court held Cyprus liable for failing to have proper mechanisms in

DEBATE 41

place to identify her as a trafficking victim and protect her in accordance with the European Convention on Human Rights.

Traffickers act with impunity because existing laws are impractical and ineffective In response to a question by the Hon. Dennis Kwok in the Legislative Council on Hong Kong’s capacity for catching human trafficking, the Government said that anti-trafficking legislation is unnecessary since the region’s criminal and labour laws already provide a formal framework to tackle the issue. It maintained that s.129 of the Crimes Ordinance (Cap. 200) capturing ‘the exploitation of other persons for sexual purposes’ sufficiently criminalises sex trafficking and s.17 of the Employment Ordinance (Cap. 57) recognising ‘public holidays as rest days’ safeguards against exploitative labour.

In truth, the effect of these practices remains invisible on the ground. The fact is that human trafficking is multi-faceted in nature. Fragmented laws and vague prosecutorial guidelines simply do not control the complex issue. In C.N. v the United Kingdom 4239/08 HEJUD [2012] ECHR 1911, the Strasbourg Court lamented the UK.’s (former) laws

on criminalising forced labour and servitude by stating: ‘[under the existent legislation] the authorities were limited to investigating and penalising criminal offences which often – but do not necessarily – accompany the offences of slavery, servitude and forced or compulsory labour’. Hong Kong’s current retrograde policies, which rely on existing criminal and labour laws to catch human trafficking incidents, fall short in the same way as the English situation. As a result, even in suspicious circumstances where indicia of trafficking such as long-term unpaid wages are present, the authorities are unlikely or unable to recognise, investigate, or prosecute the crime.

A case that has brought forced labour under scrutiny is HKSAR v.

Law Wan Tung [2015] HKDC 210 (Erwiana). In Erwiana, a 21-yearold foreign domestic helper from Indonesia suffered physical abuse, death threats, sleep and food deprivation, and withholding of wages at the hands of her employer for seven months. The central issue revolved around Erwiana’s credibility as a witness – why did she fail to ‘complain to anyone, fight back, just leave the premises or go to the police’ if she was subject to the alleged abuse? Judge Woodcock ultimately found that because Erwiana was a young village girl who was working in an unfamiliar country with a different culture and new language, it was entirely plausible that she failed to seek help. Erwiana’s employer was consequently charged with various assault offenses.

Erwiana, which was not expressly recognised as a human trafficking situation, is significant as it demonstrates that migrant workers have particular vulnerabilities. In general, they are more susceptible

to oppression. Many are reluctant to approach the authorities when they believe their rights are infringed – some fear reprisal from their employers while others fear prosecution for immigration offences such as breach of conditions of stay. Still others are unaware of their rights or how to pursue remedies. These apprehensions are not unwarranted. For instance, even if a trafficked sex worker successfully reaches out to the authorities, there is no policy to treat that person as a victim and not subject to criminalisation for the unlawful prostitution-related activities in which he or she may have unwittingly or unwillingly engaged.

It is time to shine a light on human-trafficking The 2015 Report named Hong Kong a Tier 2 Country in terms of the Government’s efforts to combat human trafficking. In the midst of such overwhelming evidence, it is bizarre that Hong Kong fails to even acknowledge this transnational crime. Whether the Government’s inaction is the result of a genuine misunderstanding of the facts or more ominous political and economic considerations is open for speculation.

Neighbouring jurisdictions such as Taiwan, Malaysia, and Thailand have adopted anti-trafficking legislation. Even Singapore, who has not implemented the Palermo Protocol, enacted anti-trafficking legislation in March 2015, recognising that human trafficking is a nuanced crime which requires targeted enforcement and international cooperation. There is a tapestry of options available to the Government in addressing human trafficking. The discourse going forward should not be whether, but rather how, trafficking should be legislated.

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DEBATE

An Invisible “Crime”? Yes. A Duty to Legislate? No. Alan Lee

U

ndoubtedly, human trafficking is a problem in Hong Kong. While there are no available figures on the precise number of human trafficking cases in Hong Kong, it is a prevalent issue that will require a concerted effort to extinguish. However, it cannot be said, under law, that the Hong Kong Government (the Government) has a positive obligation to protect victims of human trafficking.

Even if the Government has such an obligation, legislation is not the ideal way to tackle this problem.

of the statute. This purposive interpretation is problematic because it presupposes that the general public will consider extraneous materials such as drafts and reports in addition to a statute’s plain meaning.

However, when a layperson reads a statute, he is likely to absorb the natural meaning of the words: he is unlikely to conduct extensive research into the legislature’s intentions. An approach that does not accord with the general public’s understanding is neither clear nor predictable.

No duty to be a humanitarian

Statutory interpretation should be understandable and useable by a person without legal training. To achieve this goal, textualism should be preferred. Textualism focuses on how an ordinary person would reasonably understand the meaning of the words in a statute . Ascertaining the textual meaning is desirable because it is the statute that governs, and not the intention of the drafters. Indeed, a court must always have regard to the particular words used by the legislature in expressing its will: HKSAR v Fugro Geotechnical Services Ltd (2014) 17 HKCFAR 755 (Fok PJ)[22].

While it is humanitarian for the Government to protect victims of human trafficking, it does not have a positive obligation under international law. Art. 4 of the Hong Kong Bill of Rights Ordinance (Cap. 383) (BORO) prohibits slavery, servitude, and forced labour. Modern decisions rely on the notion that human trafficking is equivalent to modern slavery, and thus necessarily prohibited by international human rights treaties.

However, this insistence that the Government has a duty to protect victims of human trafficking is based on a problematic interpretive approach.

As the law governs all of society, it follows that laws should be clear and predictable so that everyone knows with certainty what is permissible conduct. The modern approach to statutory interpretation considers the context and purpose HKSLG · SPRING 2016 · ISSUE 8

Applying this approach to Art. 4 BORO, one finds that human trafficking does not seem to come within the meaning of the statute.

To come to this conclusion, one would need to consider the reasonable interpretation of the BORO’s wording. Art. 4(1) BORO reads that “no one shall be held in slavery; slavery and the slave-trade in

all their forms shall be prohibited.”

Slavery is the exercise of ownership over a human being. Conversely, human trafficking can take the less oppressive form of the transportation of a victim for future exploitation. Accordingly, the textual meaning of slavery cannot support the inclusion of human trafficking.

Contrary to what was argued, the Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children (the Palermo Protocol) is the incorrect starting point for dealing with human trafficking in Hong Kong .

Applying the Palermo Protocol to ascertain the Government’s obligations would be inappropriate as it blatantly disregards the reservation of its application in Hong Kong.

For this reason, C.N. v United Kingdom and Rantsev v Cyprus and Russia, which relied on the Palermo Protocol, have limited value in determining the scope of Art. 4 BORO. The BORO is entrenched via Art. 39 of the Basic Law. Entrenchment imposes additional requirements before a law can be changed. Using the Palermo Protocol to expand the interpretation of slavery to include human trafficking would be circumventing these additional requirements and violating the BORO’s entrenchment. While entrenchment is usually invoked in the context of the removal of rights, the principle should be universally applied and not merely when convenient.

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The inadequacy of legislation Even if the Government has a duty to protect victims of human trafficking, legislation is not the most effective method to achieve this goal. It was argued that Hong Kong’s current laws fail to contain human trafficking because the authorities are unlikely or unable to recognise, investigate, or prosecute the crime . Further, the European Court of Human Rights in C.N. opined that the lack of specific offences meant that the authorities are limited to investigating and penalising offences which often, although not necessarily, accompany human trafficking . The resulting lacuna meant that some traffickers could be immune from prosecution.

Creating a specific legislation for human trafficking offences is not necessary to address the issue. Creating additional offences tailored for human trafficking is unlikely to deter criminals. This is because components of human trafficking, such as assault , blackmail , nonpayment of wages and false imprisonment, are already criminalised in Hong Kong. Even though these components are criminalised, Hong Kong still remains a destination, transit and source territory

for human trafficking. Individuals who engage in human trafficking are likely to be in criminal syndicates, and the mere addition of another offence will not deter them.

The additional deterrent value of a general trafficking offence is also questionable. Currently, Hong Kong does criminalise human trafficking, but only where persons are trafficked for the purpose of prostitution. This crime carries a maximum penalty of 10 years in prison , and one could reasonably assume that a general human trafficking crime would confer the courts with the same sentencing power. However, present offences that outlaw components of human trafficking already impose similar, and possibly higher, terms of imprisonment. Even if the new legislation imposed a higher maximum sentence, it remains unlikely that a sufficiently heavy sentence will be imposed to deter offenders. In recent years, there has been no case of human trafficking for the purposes of prostitution where the term of imprisonment exceeded 5 years . Since there is no evidence supporting the effectiveness of a general trafficking offence, efforts should be devoted elsewhere.

Going forward: how should human trafficking be addressed?

The current legal framework is sufficient to address human trafficking. The problem lies not in the legislature, but in enforcement. As HKSAR v Law Wan-tung [2015] HKDC 103 shows, combatting human trafficking action requires more than just action from the Government. Public education on human trafficking and the rights afforded to victims under law is far more effective. Raising public awareness on the issue of human trafficking means that members of the public would be more likely to report instances of human trafficking to the authorities. Authorities could then prosecute the criminals more effectively.

Admittedly, individuals may be reluctant to seek assistance from the authorities out of fear or because they are illegal immigrants. However, that is precisely why the general public must be trained to recognise human trafficking. Public education will allow people other than the victim to discern human trafficking and report it on the victim’s behalf, thereby discouraging human trafficking and its component activities.

HKSLG · SPRING 2016 · ISSUE 8

ADDITIONAL THANKS (in alphabetical order)

LEGAL COMMUNITY Allen & Overy Chinese University of Hong Kong, Faculty of Law Clifford Chance LLP Denis Chang’s Chambers Des Voeux Chambers Freshfields Bruckhaus Deringer Parkside Chambers Plowman Chambers Skadden, Arps, Slate, Meagher & Flom LLP INDIVIDUALS Mr Alan Gibb Ms Jay Wong Ms Jeannie Kow Ms Joyce Wong Prof. Stuart Hargreaves Ms Winnie Tam SC LIBRARIES Court of Final Appeal Library High Court Library Legal Resources Centre

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