Hong Kong Student Law Gazette Spring 2014 Issue by Hong Kong Student Law Gazette

Hong Kong Student Law Gazette Spring 2014 · Issue 4

Feature Interview with The Honourable Mr Justice Ribeiro PJ

Articles Lessons From Abroad: The Future of Same-Sex Unions in Hong Kong Bitcoins in Hong Kong: Yea or Nay? Burying the Hatchet: Can Sharia Law and Women’s Rights Coexist? The Future of Climate Migrants

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TABLE OF CONTENTS

Hong Kong

P4. The Importance of Providing All Material Facts for Life Insurance Applications P5. The Future of Parody in Hong Kong P6. Lessons From Abroad: The Future of Same-Sex Unions in Hong Kong P8. Bitcoins in Hong Kong: Yea or Nay? P10. The Effectiveness of the Competition Ordinance in Hong Kong P11. Hong Kong Foreign Financial Institutions: Compliance with FATCA P12. Can Excepted Offences Justify Prison Sentences for Young Offenders? P14. Protecting Hong Kong’s Vulnerable Migrant Domestic Workers P16. Chan Pak Ting v Chan Chi Kuen and Another (No.2): Implications of the New Discount Rates for Personal Injury Awards P18. Third-Party Funding for Arbitration in Hong Kong P20. The Need to Criminalise Stalking in Hong Kong

Feature

P22. Interview with The Honourable Mr Justice Roberto Alexandre Vieira Ribeiro PJ

China

P27. Online Shopping with Greater Consumer Protection P28. Development of the Term ‘Beneficial Owner’ in Chinese Tax Treaties P30. The Importance of Preliminary Injunctions in Chinese Trade Secret Cases

International

P32. Burying the Hatchet: Can Sharia Law and Women’s Rights Co-exist? P33. Volcker Rule: The Panacea for a Risky Financial System? P34. The Lawfulness of Humanitarian Intervention P36. The Future of Climate Migrants P38. The US Senate Filibuster Rule Change: Majority Rules, Minority Rights

HKSLG · SPRING 2014 · ISSUE 4

LETTER FROM THE EDITOR

ask him for his thoughts regarding the case. We also heard his views about other public law and private law developments, as well as his views on the relationship between ‘One Country, Two Systems’ and Hong Kong’s legal system. Prior to the interview, Mr Justice Ribeiro gave us a tour of the Court of Final Appeal, even allowing us to view the courtroom from the bench. We truly appreciate Mr Justice Ribeiro giving us his valuable time and for this wonderful opportunity.

This term, we continued our efforts at encouraging our undergraduate counterparts to participate in contributing to the Gazette. We are delighted to see the increasing numbers of our undergraduate colleagues joining our publication and hope that this will continue in future issues.

It is an intriguing time to be a law student in Hong Kong. With the on-going debate about universal suffrage, the freedom of speech, and the balance between socio-economic rights with the sustainability of Hong Kong’s social welfare system, it will be interesting to see how these unfolding events will impact Hong Kong’s legal system.

The end of this academic term also marks the end of this Editorial Board’s work. We wish to thank all of those who have supported the Gazette this year. We are grateful to the CUHK Law Faculty and staff members who have given us their wholehearted support and assistance, in particular, Ms Jeannie Kow and our Faculty Advisors. We would also like to thank Clifford Chance LLP for their continued support, without which we would not be able to publish the Gazette in print and on our online platform, hongkongstudentlawgazette.com. We would like to thank all of the writers who have worked tirelessly and contributed to the success of the Gazette.

ooking back on the work of my predecessors, it gives me a great sense of pride to see how far the Gazette has come. Though this issue marks only our fourth as the Hong Kong Student Law Gazette, we have continued to see remarkable growth and success as Hong Kong’s leading student-run, academic law publication.

The tension between socio-economic rights and the sustainability of Hong Kong’s social welfare system was one of the controversial points of the recent Court of Final Appeal case, Kong Yunming v The Director of Social Welfare [2013] HKEC 1995. We were honoured to have the opportunity to interview one of the permanent judges, Mr Justice Roberto Alexandre Vieira Ribeiro, to

I would also like to personally thank my team— my fellow editors—for their hard work, enthusiasm, and belief in the Gazette. It has truly been a pleasure to work with you all.

Mercedes Chien Editor-in-Chief HKSLG · SPRING 2014 · ISSUE 4

EDITORIAL BOARD

Editorial Board

Mercedes Chien

James Ng

Lisette Chan

Crystal Yeung

James Muirhead

Suzy Su

Louisa Wong

Keith Cheung

Layout Team

Cynthia Or

Suzy Su

Michael Ramsden

Steven Gallagher

Faculty Advisors

Additional Thanks (in alphabetical order) Professor Chan Wai Sum Clifford Chance LLP

CUHK Faculty of Law Dr Cui Can Professor Michael Ramsden

Mr Justice Roberto Alexandre Vieira Ribeiro PJ Mr Steven Brian Gallagher Professor Xu Yan HKSLG 路 SPRING 2014 路 ISSUE 4

HONG KONG

Pui Hing Choi

nsurance contracts are the most common private contracts entered into after employment contracts and mobile plan contracts. In reality, however, policyholders seldom know the details of their policies, thus, complaints often result when claims are rejected for various reasons. Among these complaint categories, non-disclosure is the third largest category of claim disputes according to the statistics from the Insurance Claims Complaints Bureau. Full disclosure of all material facts In the UK case of Dawsons v Bonnin [1921] S.C. S11, it was held that an insurance policy was void because the answer to the question in the proposal form contained ‘a material misstatement of a circumstance by the insured material to the assessing of the premium under the policy.’ For life insurance contracts, residential address, smoking habits, personal medicial conditions, and family medical conditions are all material facts that require full disclosure to the insurer. HKSLG · SPRING 2014 · ISSUE 4

The Importance of Providing All Material Facts for Life Insurance Applications

Most commonly, issues of nondisclosure lies in a person’s medical information. Application forms explicitly request the signatory to disclose whether the applicant and the proposed insured have suffered from or received treatment for a list of diseases. If they mark ‘NO’ on such an enquiry list, the insurer will usually approve the policy quickly and will not request a further check-up under the principle of utmost good faith. However, the insurer will realise a non-disclosure when he or she receives the hospital report during a claim. It is important to note that the insurer can still validly decline a claim even if the claim in issue (for example, lung cancer) does not have a direct relationship with the non-disclosure (for example, Hepatitis B). What matters is that the insurer would not have accepted the application or would have altered the premium if all material facts had been made available to him or her. For instance, in the case of Leung Yuet Ping v Manulife [2009] HKEC 793, although there was no cancer diagnosis, the insured had mentioned to his doctor

that he had ‘an episode of shortness of breath and palpitations of the heart’. Manulife, the insurance company, refused a claim he subsequently made, as the insured had never declared any breathing and heart problems in his insurance application. Deputy Judge Carlson ruled in favour of Manulife stating that in this case, ‘all that needs to be shown is an effective inducement which need not have been the sole inducement.’ Relationship between insurer, agent, and the insured Although a major role of an agent is to act as the insured’s facilitator to the insurer and to help the insured understand the details of the insurance policy, the fact remains that the insurer makes the underwriting decision. As agents have no authority over the underwriter, even with the use of an agency an insured can only prevent an undesirable claim denial through full disclosure. Concluding remarks The above points are only the tip of the iceberg regarding the insurance application process. Since the insurer cannot know the details of each of their potential clients, they rely solely on the information provided on application forms. The principle of utmost good faith applies and it is the responsibility of the insured to disclose as much information as possible in an application. Doing so will protect the insured when a claim is made, which is the purpose of insurance.

HONG KONG

The Future of Parody in Hong Kong Vivian Lau

odifying movie posters, altering lyrics, or editing television drama clips to criticise current affairs have become popular channels for Hong Kongers to express their views. In light of this, there is a need to strike a balance between the legitimate interests of copyright owners and the public’s freedom of expression. In July 2013, the Government proposed three options in a consultation paper to address the issue of parody under the copyright regime. However, none of these options have received support from the majority of parody makers. The Government should instead consider a fourth option which has been put forward by web-users– the user-generated content (UGC) exception.

may be enough of a deterrent to curb the public from expressing their views through parody. The third option provides an exemption for parody makers from civil and criminal liabilities, as long as they meet the ‘fair dealing’ requirement. A non-exhaustive list of guiding factors, such as the parody’s degree of similarity with the original and its non-profit nature, are taken into consideration when fairness is assessed. However, this option has limited applications, as an artist would not be protected from printing and selling a T-shirt containing parody to sponsor a protest march, for example.

Three options under the copyright regime consultation The first option clarifies the meaning of ‘prejudicial distribution’ in the existing criminal sanction provisions. The second option exempts criminal liability entirely for the genres of parody, satire, caricature, and pastiche. Both options are based on whether the parody would cause ‘more than trivial economic prejudice’ to copyright owners. However, neither option is effective in protecting the use of parody. First, the definition of ‘trivial economic prejudice’ is ambiguous. Copyright owners may abuse this unclear definition by exaggerating their potential economic loss. Second, these options do not remove the threat of civil liability, which

A new solution: exception

the

UGC

Instead, to protect free speech, policy-makers should consider the UGC exception. Modelled after the Canadian Copyright Modernization Act, the UGC exception requires four conditions to be satisfied for the content-maker to avoid copyright infringement: 1.)the work is not made for profit; 2.)the maker has reasonable grounds to believe that the new work does not infringe copyright; 3.)the new work does not have a substantial adverse financial effect on the original work; and

4.)the new work does not substitute the original. The UGC proposal is more desirable than the first two options as it removes civil and criminal liability. This proposal is also superior to the third option because it covers not only parody makers, but also UGC creations such as remixed music. This greatly reduces the fears of producers whose artistic or satirical work involves modification of existing copyright work. Under the third option, a student may be prosecuted for uploading a recording of a performance of a parody song to YouTube where the backing track is identical to the original copyrighted work. Under the UGC exception, however, the same student would not be prosecuted so long as he or she is not seeking to make a profit from this recording. In other words, the UGC proposal will encourage creativity and development of social discourse in the long run. Conclusion Although the 2012 Canadian UGC exception has not been tested in any cases, this should not exclude its feasibility in Hong Kong. The Government should not delay recognising the UGC exception and amending Hong Kong’s copyright law, which has lagged behind international standards for years. Instead, the Government should take a proactive approach to discuss the possibility of incorporating the UGC exception into the current copyright regime. HKSLG · SPRING 2014 · ISSUE 4

HONG KONG

Lessons from Abroad: The Future of Same-Sex Unions in Hong Kong Charles Lo

he issue of lesbian, gay, bisexual, and transgender (LGBT) rights, in particular the right to marry, is a divisive issue in the developed world today. While each person is entitled to an individual opinion on the matter, recent decisions from the Supreme Court of India and the High Court of Australia to invalidate legislations that decriminalise or recognise samesex marriages have sparked intense debates. Although these foreign decisions are merely persuasive in Hong Kong courts, they are nonetheless valuable to analyse. An Australian comparison Australia is composed of several states and territories, each possessing its own laws regarding LGBT rights. Recently, the Australian Capital Territory (ACT) enacted the Marriage Equality (Same Sex) Act 2013 (ACT Act), which allows for same-sex marriage. This legislation was challenged by the apex court of Australia and deemed to contravene the nation’s Marriage Act, which defines marriage as ‘the union of a man and a woman to the exclusion of all others’. As a result, the ACT Act was struck down pursuant to the Australian Constitution, which declares that if a legal inconsistency is found, federal laws would override state laws. The High Court of Australia also stated that whether same-sex individuals can marry legally should be left to the federal legislature to decide because, under the Australian Constitution, the power to legislate marriage is granted solely to the HKSLG · SPRING 2014 · ISSUE 4

federal Parliament. Twice a samesex marriage law has failed to pass in Parliament, first in February 2010 and later in September 2012. However, the margins of defeat are becoming slimmer. It is important to note the differences between Australia and Hong Kong’s systems of law. The Australian Constitution does not possess a section on fundamental rights and, unlike Hong Kong, Australia has not incorporated the International Covenant on Civil and Political Rights (ICCPR) into a domestic law. This is an argument for the dualist theory, which places power in elected politicians instead of unelected judges. Still, while same-sex marriage is not recognised in Australia,

discrimination against LGBT individuals is illegal. The Sex Discrimination Amendment (Sexual Orientation, Gender Identity and Intersex Status) Bill 2013 passed smoothly in both houses last year. However, a similar bill has not been passed in Hong Kong. Moreover, in contrast to Hong Kong, the Australian legislature enjoys democratic legitimacy. Although the decision by the High Court of Australia may be disheartening for the LGBT community, it appears to be one of democratic procedure rather than conservative policy. Yet, changing social attitudes towards same-sex marriages suggest that a same-sex marriage bill may pass in the near future.

HONG KONG An Indian comparison Unlike Australia which merely fails to recognise same-sex marriage, in India, consensual same-sex activities are illegal and subject to imprisonment. In Naz Foundation v Government of NCT of Delhi [160 Delhi Law Times 277], the Delhi High Court found section 377 of the Indian Penal Code (IPC), which criminalises homosexual activities which are ‘against the order of nature’, to violate the Constitution. Subsequently, the Court had the offending sections of the IPC severed. This judgment effectively decriminalised consensual homosexual activities, but in Suresh Kumar Koushal and Another v Naz Foundation and Others [Civil Appeal No.10972 of 2013], the Supreme Court of India found no inconsistencies and set aside the previous decision. Although the Supreme Court agreed that the power of ‘judicial review over legislations is plenary’, the judges reiterated the importance of the separation of powers, deference, and the presumption of constitutionality granted to enactments by the legislature. The jurisprudence of India is quite similar to that of Hong Kong. India enshrines fundamental rights in its constitution and judicial review is a well-entrenched mechanism. However, the Hong Kong Court of Appeal has addressed the issue of legislative deference very differently. The Court of Appeal has stated that it will scrutinise a provision intensely when it concerns a restriction on fundamental rights because the Courts have a duty to protect minorities. On the point of arbitrary distinctions in the penalties for intercourse between same-sex individuals and heterosexuals, the Supreme Court of India and the Hong Kong Court of Appeal also came to drastically different conclusions. The former found section 377 of the

IPC not to be an arbitrary distinction, but simply a provision setting out different penalties for different infractions. Conversely, the latter found, in Leung TC William Roy v Secretary for Justice [2006] 4 HKLRD 211, that the difference in age limits for male homosexual intercourse and heterosexual intercourse was, in fact, disguised discrimination and had the inconsistent laws struck down. India’s decision is an example of legislative deference at its finest and illustrates a failure by the courts to protect vulnerable minorities.

The future of same-sex unions in Hong Kong As it stands today, homosexuality is not criminalised in Hong Kong, although same-sex marriage and civil unions are not legally recognised. Having said that, Hong Kong has constitutional protections which may render challenges to the constitutional definition of marriage, as being only between a man and woman, hard to defend.

Provisions in the Hong Kong Basic Law and the Bill of Rights Ordinance (BORO) suggest that it would be very difficult for the courts to ignore any challenges in this respect. The recent decision in W v Registrar of Marriages [2013] 3 HKLRD 90 will likely form the foundation for future challenges on the definition of marriage for Hong Kong’s LGBT community. In W, barring a transgendered woman to marry was deemed unconstitutional. This significance of the case comes from the Court of Final Appeal’s declarations that the ability to found a family is not a prerequisite for the right to marry, that the Corbett [1970] 2 W.L.R. 1306 criterion (procreation is an essential part of marriage) is no longer adequate to define marriage, that while marriage is not an absolute right, it is a strong right and may not be interfered with without good reason, and that a lack of general public consensus is not a reason for denying recognition of minority rights. However, in W, the Court only defined the applicant as a woman for the purpose of marriage and left the overall problem of gender identification to the legislature. This is controversial because while it is important to defer to the lawmaking power of the legislature in accordance to the separation of powers doctrine, it is arguably more important for courts to serve as a protector of minority rights. Unless the Government can determine a reasonable justification for limiting same-sex marriage or civil unions, it would be difficult to continue to bar these acts. From the perspective of a humble observer, a judgment on an inevitable challenge to same-sex marriage will demonstrate whether the Courts of Hong Kong truly intend to ‘protect minorities from the excesses of the majority.’ HKSLG · SPRING 2014 · ISSUE 4

HONG KONG

Bitcoins in Hong Kong: Yea or Nay? Alan Lee

s a virtual currency, bitcoins are now accepted as a form of payment by many retailers in the United States. Indeed, this phenomenon seems to be spreading to Asia: as of this year, Hong Kong is home to Asia’s first bitcoin ATM. Bitcoins, like every other form of currency, facilitate the payment of goods and services. The appeal behind bitcoins arises from its transparent nature, as every transaction is recorded on a public ledger, and its ability to reduce transaction costs by excluding financial intermediaries such as Visa or MasterCard. However, as a decentralised currency, bitcoins are extremely volatile and susceptible to speculation because it is not pegged to gold nor does it have intrinsic value. This begs the question: with Hong Kong’s role as an international financial centre, how should be regulated bitcoins?

could become an acceptable alternative means of conducting transactions. The rationale may lie in the currency’s potential economic benefits. By providing an environment where virtual currencies can thrive, the US could encourage the establishment of bitcoins-related businesses and cryptocurrency innovation unattainable in other jurisdictions.

Regulatory efforts in other jurisdictions One country that favours the use of bitcoins is the United States and its approach is one worth considering. The US to date has not imposed any specific regulations governing the use of bitcoins. The Department of Justice also announced that it does not intend to regulate the electronic currency in the near future and may not have the authority to do so. Even in light of the recent bitcoins’ scandals in relation to the shutdown of Silk Road, the online black market, officials hold that virtual currencies, whether centralised or decentralised, can offer legitimate financial services and HKSLG · SPRING 2014 · ISSUE 4

Conversely, other jurisdictions such as Mainland China have banned bitcoins. On 5 December 2013, the People’s Bank of China (PBOC) prohibited companies and financial institutions from handling the virtual currency, citing that bitcoins are hard to monitor and do not enjoy a legal status in Mainland China. Part of the PBOC’s fears may be due to an alarming tendency to use bitcoins to finance illegal drug trafficking, evade taxes, and launder money. A more fundamental reason but

unspoken reason, perhaps, is to maintain financial stability and deter speculation against the yuan. With the potential bitcoins have for abuse by criminals, there is no doubt that something needs to be done to regulate its use. From one standpoint, imposing a complete ban on bitcoins could hinder the development of business, which goes against the spirit of chapter V, section 1 of the Basic Law of Hong Kong. However, it is also important to consider a primary reason of regulation: to protect the unsophisticated investor from risky financial instruments. Faced with this balancing act, it is questionable whether the different approaches taken by the US and Mainland China are suitable for Hong Kong. Between the two extremes of noninterference and complete prohibition, however, is another possible solution. Singapore, Hong Kong’s regional competitor, opted to tax bitcoins. Under the recent guidelines issued by the Inland Revenue Authority of Singapore, profits arising from the dealing of bitcoins as trading assets are taxable while profits arising from trading bitcoins as investment assets are not. Additionally, Singapore has levied a Goods and Services Tax on the virtual currency, creating a tax liability for Singaporeanbased companies that participate in the use of bitcoins as a method of payment. Singapore’s approach implies that its regulatory authority will support bitcoins as a legitimate means of payment so long as it is controlled. Such a vote of

HONG KONG

confidence may very well be what is needed to remove the stigma behind the virtual currency and encourage other regulatory bodies to help foster bitcoins’ growth.

a single economic event. Therefore, efforts beyond regulation would be needed to make bitcoins a viable method of payment in Hong Kong.

about the dangers of money laundering and terrorist-financing activities relating to bitcoins appears to indicate that the SFC acknowledges this duty.

The path ahead

One other issue to be addressed, which the US has alluded to, is determining the correct authority to supervise bitcoins. After all, the Inland Revenue Department’s jurisdiction allows it to impose tax liability, but it does not have the power to prevent financial crime. Even the Hong Kong Monetary Authority recently stated that it does not regulate bitcoins. As no other regulatory body was claimed responsibility, the task appears to fall on the Securities and Futures Commission. This belief is supported by Securities and Exchange Commission v Shavers [2013] WL 4028182 (E.D. Tex.) where a US magistrate ruled that bitcoins are considered to be securities. Additionally, the recent circular sent to corporations reminding them

Conclusion

While some may say that Hong Kong should take note of its regional competitor, a tax-based approach is not without problems either. Suppose that earnings from bitcoins dealings were assessable profits and therefore taxable. This would likely discourage the dealing of bitcoins and by extension, any criminal abuse accompanying it. However, it would also put Hong Kong-based bitcoin traders at a competitive disadvantage compared to their global peers, which is inconsistent with the region’s role as an international financial centre. Indeed, even Britain abandoned its policy of levying its Value Added Tax on bitcoins after receiving complaints that it was forcing businesses to look at relocating to other jurisdictions.

Bitcoins have an immense potential to become a very popular financial instrument. In fact, some investors in Cyprus have used it to hedge against the possibility of the State’s bankruptcy–a role traditionally occupied by gold. Hong Kong should prepare for this financial innovation as bitcoins could be an outstanding opportunity for economic development. However, some form of regulatory supervision is necessary, the wound from the minibond scandal is still fresh, and it serves as a stark reminder of what could happen when laissez-faire economics is taken too literally.

On the other hand, a viable regulatory method to prevent bitcoins’ use in crime and taxing would not affect Hong Kong’s status as a global financial centre; there would still be the issue of volatility. In 2013 the value of bitcoins increased 78fold. However, when the PBOC later prohibited the use of bitcoins, the average value dropped by 20%. This volatility stems from the fact that no government, save perhaps Germany, has explicitly declared bitcoins to be legal tender, and thus no government is obliged to accept it as a form of payment. It seems that what drives the value of bitcoins, then, is speculation. Speculation places huge risks on individuals and financial institutions holding the virtual currency since a substantial portion of its value could easily be decimated by HKSLG · SPRING 2014 · ISSUE 4

HONG KONG

The Effectiveness of the Competition Ordinance in Hong Kong Catherine Leung

he implementation of the Competition Ordinance (CO) (Cap 619) in Hong Kong has been in dispute for years. Previously, sector-specific legislation in broadcasting and telecommunications was used to combat anti-competitive strategies, lessening the need for the CO. Before the enactment of the CO, price-fixing activities outside sector-specific legislation were only regulated by the offence of ‘dishonestly forming a cartel to avoid competition in a closed market’ based on precedents. Despite scepticism of the CO’s necessity, the lack of a cross-sector regulatory scheme in combating manipulative market acts, such as entering into cartel agreements, demanded an effective regulation regime. Accordingly, the CO was enacted in June 2012, with the aim of prohibiting anti-competition agreements, restraining the abuse of market power, and establishing an antitrust merger control regime. However, two years after its enactment, on-going issues have demonstrated that the newly enacted CO is ineffective at combating loopholes under the current legal framework. Provisions and loopholes The CO’s weakness stems from the fact that only provisions regarding the establishment, functions, and powers of the CO are enforceable as of January 2013; other substantial provisions, such as the First Conduct Rule prohibiting agreements, practices or decisions between undertakings, so as to restrict HKSLG · SPRING 2014 · ISSUE 4

or distort competition, have yet to come into force. The incomplete CO remains ineffective in dealing with the market distortion caused by dominant companies, which forces smaller companies within the business out of the market and passes the economic burden onto the consumers in the form of unaffordable prices. The lack of a clear guideline also creates uncertainty as to how courts should approach this issue, thereby causing inefficiency in the judicial context. The recent discussion of China Resource Enterprise’s bid to acquire PARKnSHOP, one of Hong Kong’s largest supermarket chains, exemplifies such loophole in the CO. Given the current market structure, China Resources Enterprise would have become the dominant participant in this sector, allowing it to fix prices without fear of competition, thereby distorting the market. Apart from this, the CO also encounters drawbacks where certain types of legal action could bypass its provisions. The current CO only regulates intentional market distortions; unintentional market

distortions fall outside of the CO’s jurisdiction. An example of such unintentional market distortion is illustrated by smartphone patent litigation in the United States, where Apple filed lawsuits against Samsung for infringing its patents. By doing so, Apple also unintentionally turned the smartphone market into a near-monopoly, driving out its biggest competitor. Conclusion When the CO is fully enacted, market dominance with regards to price-fixing and cartels would undeniably be curbed. However, as it stands, the CO fails to adequately address the issue of mergers and acquisitions for dominant market shares. As provisions of the CO, such as those pertaining to the domination of market shares, may be bypassed through other legal action, the CO alone cannot effectively combat market distortion. The CO as a whole would be strengthened by expanding its provisions to prevent market distortions to fully combat the distorted market structure and reveal the effectiveness of this legislation.

HONG KONG

Hong Kong Foreign Financial Institutions: Compliance with FATCA Esther Leung

he US Foreign Account Tax Compliance Act (FATCA) was enacted in March 2010 to assist the US Government in combatting offshore tax evasions of up to USD 100 billion annually. Under FATCA, Foreign Financial Institutions (FFIs) in Hong Kong are obligated to report information regarding their American financial account holders to the US Internal Revenue Service (IRS). Absence of timely compliance by the effective date of 1 July 2014, these FFIs will likely be subjected to a 30% withholding tax on payments from US source income and proceeds of sale. As the situation stands today, FFIs in Hong Kong face many issues in lawfully meeting FATCA’s regulations in time.

partment of the Treasury to form an inter-governmental agreement (IGA). The IGA sets forth terms such as due diligence requirements for documentation and identification of account holders which will mollify some compliance difficulties. However, until the IGA is finalised, FFIs can only rely on FFI Agreements with the US Government. These FFI Agreements are made with the IRS and specifies conditions such as protection of information and possibly jurisdiction and arbitration clauses in face of disputes. Despite these FFI Agreements, without enactment of local legislations to facilitate FATCA implementation, compliance difficulties are almost certain to remain.

Compliance difficulties When FATCA comes into effect, FFIs in Hong Kong may risk breaching domestic laws concerning customer privacy, particularly in relation to the protection of personal data. The Personal Data (Privacy) Ordinance (Cap 486) states that a ‘data user shall not transfer personal data to a place outside Hong Kong unless the data subject has consented in writing’. Although the Inland Revenue Ordinance (Cap 112) provides an exception to this rule, arrangements with the Chief Executive are required in order to transfer data for purposes of assessment or collection of tax outside Hong Kong and to affording relief from double taxation. Accordingly, the Hong Kong Government has entered into discussions with the US De-

Preparations for compliance The Hong Kong Monetary Authority is encouraging FFIs to thoroughly consider the legal and operational implications of FATCA. In preparing for compliance, FFIs are recommended to revise their Personal Information Collection Statements, internal policies, and IT systems. They are also advised

to obtain particulars to identify their US clients and monitor the appropriate data disclosure measures. Furthermore, FFIs should acquire the consent of their investors before sharing client information with the IRS. This entails notifying their clients of the potential implications of information disclosure. Also, international FFIs are encouraged to ensure compatibility in their approaches to FATCA in all their operating jurisdictions. Finally, to prepare for unexpected results from regulatory requirements and other inherent risks, budgetary control and a long-term management plan are essential. Over 100 banks in Switzerland were subjected to tax penalties with respect to trillions of dollars in assets held by Americans for offshore tax evasion. In January 2014, some of these banks sought tax amnesty from the US. While the full extent of challenges faced by FFIs in Hong Kong as a result of FATCA remains uncertain, it is nonetheless important that compliance commitments are met to avoid similar consequences. Currently, FFIs are encouraged to seek both legal and auditing assistance for ensuring FATCA compliance and to properly manage information disclosure under domestic and international laws.

HKSLG · SPRING 2014 · ISSUE 4

HONG KONG

Can Excepted Offences Justify Prison Sentences for Young Offenders? Icarus Chan

he deprivation of freedom has long been perceived as both a punishment and cure to serious crimes, and courts pass down sentences to that effect. Within that general frame, Hong Kong’s sentencing practice has evolved with the city’s values, e.g. the abolishment of death penalties. However, sentencing practises may also be jeopardised by instantaneous public pressure, as exemplified by a very specific part of the law on youth criminal justice, s109A of the Criminal Procedure Ordinance (Cap 221) (CPO). The law Currently, a wide spectrum of options is open to the court upon the conviction of a young offender. It ranges from non-custodial sentences like Probation Orders and Community Service Orders to custodial ones such as Detention Centre Orders, Training Centre Orders, and of course, imprisonment. In order to prevent young prisoners from mixing with adult prisoners, they are separately placed. Even so, imprisonment is often deemed to be the most extreme measure for young offenders. This is evidenced by s109A of the CPO, which mandates that young offenders between 16 and 21 years old shall not be imprisoned unless no other method is ‘appropriate’ (s109A(1)) provided that the crime in question is not an ‘excepted offence’ (s109A(1A)). HKSLG · SPRING 2014 · ISSUE 4

Under CPO Schedule 3, excepted offences currently include manslaughter, dealing with dangerous drugs, rape, robbery, illegal possession of arms and other offences of similar gravity. Origins Four years after the enactment of s109A(1) in 1967, Hong Kong saw an elevating crime wave. Illegal firearms, for example, were so popular that even civilian shops began to use them to guard against thugs. Against that backdrop, some members of the Legislative Council turned to s109A(1) which, they alleged, was the hotbed of the ‘increase in juvenile crimes of violence.’ Albeit ‘with considerable regret,’ the colonial government acquiesced. Hence, s109A(1A) and the excepted offences regime, at first thought to be a temporary measure, have lasted for 40-odd years.

Should s109A(1A) be abolished? The excepted offences regime will be examined from three aspects: its function as a deterrent, the possibility of injustice, and the necessity of reform. Deterrence The recurring argument for the excepted offences regime is to deter youth crimes. However, deterrence is an innately elusive concept, because its efficacy cannot be traced accurately: how does one measure how many crimes—if any—have been prevented because of the deterrent? A central principle in sentencing practice is proportionality, which means the punishment must reflect the gravity of the offence, but no more. However, a sentence aimed at deterring potential offenders is by definition one more than that particular offence alone would have otherwise warranted.

Per-Capita Rate of Reported Violent Crimes

Fig 1:The per-capita rate of reported violent crimes has decreased from 0.479% in 1975 to 0.204% in 2005.

HONG KONG Coupled with the uncertainties mentioned above, a deterrent sentencing policy may risk offending proportionality. While that risk might be justified by the prevalence of crimes, Hong Kong has become safer over time. The per-capita rate of violent crimes has recorded a 57% drop from 1975 to 2005 (Fig 1), while both the proportion and incidence of young offenders have decreased remarkably (Fig 2). In any event, the option of imprisonment itself remains available to effect deterrence where necessary, because the s109A(1) restriction is no more than cautionary, as the following paragraphs illustrate. Injustice If one scrutinises the s109A(1A) proviso, one might be puzzled: does it mean that young offenders may be jailed even if there are other appropriate options? According to local precedents, this is not the position taken by the courts of Hong Kong, which have repeatedly and rightly echoed the very rationale behind s109A(1): that imprisonment must only be the last resort (see: A-G v Suen Yuen Ming [1989] HKCA 46). Indeed, the s109A(1) restriction has often been considered even for excepted offences such as trafficking in dangerous drugs (see e.g. HKSAR v Mo Jincong [2013] HKDC 1196; HKSAR v Ip Chun Tung [2013] HKDC 4).

tences lightly, the excepted offences regime may cause a young prisoner to feel he was subjected to arbitrariness and injustice. If so, would that work against his reintegration into society? It is submitted that, while the excepted offences regime might have expressed society’s abhorrence for youth crimes, it did so only at the expense of the young offender and the public interest. Reform Despite its problems, it is perfectly natural to ask: why bother reform? Every system has its shortcomings, so why must a reform now be included in Hong Kong’s crowded agenda now? It is simply because now is the finest time. In hindsight, the imperfections of the regime should not be surprising: they are the necessary by-products of hastily drafted legislation procured by public discontent. By the same token, there is no finer time to correct the mistake than now, before the legislature is yet again swept away by public sentiment. However, simply amending s109A of CPO would not address the issue behind excepted offences.

Compared to other developed countries, Hong Kong has a relatively high rate of incarcerating young offenders. Whereas custodial sentences are sometimes inevitable and even preferable, local scholars and organisations have for long canvassed support for reforming the sentencing system. Instead of simply locking up offenders, proper focus should be placed on a more rehabilitative enterprise through the expansion of community-based sentences and restorative justice programmes. There will be many practical obstacles, such as providing adequate community service opportunities, working to prevent recidivism, and so on. However, abolishing the pro-imprisonment s109A(1A) should be the first step amongst many. Jesus, it is said, rescued the life of an adulterer by daring the crowd: ‘let him who is without sin cast the first stone.’ As youth criminal justice continues to evolve, Hong Kong must not lose sight of the fine line between finger-pointing alienation and genuine correction. After all, would your answer to the title question differ if it were you standing in the dock for that crime, awaiting your sentence to be delivered?

Number and Percentage of Young Prisoners

Furthermore, there are many unjustified irregularities in the list of excepted offences. For instance, while attempted indecent assault is an excepted offence, more appalling sexual offences like nonconsensual buggery and bestiality are not. As a result, even though the courts will not pass down custodial sen-

Fig. 2: The number of prisoners under 21 has dropped from 1,143 (10.90% of total prison population of 10,455) in 1993 to 372 (3.14% of 11,851) in 2012. HKSLG · SPRING 2014 · ISSUE 4

HONG KONG

Protecting Hong Kong’s Vulnerable Migrant Domestic Workers Silvia Leung

ast year, many in Hong Kong were shocked as Kartika, an Indonesian Migrant Domestic Worker (MDW), revealed in court that her employers ill-treated her by tying her to a chair and forcing her to wear a diaper before they left for vacation. A few months later, the uncovering of an MDW named Erwiana’s brutal mistreatment further highlighted Hong Kong’s failure to protect domestic workers. The Government, however, has underestimated the problem by suggesting that a low prosecution rate of MDW abuse cases reflected the rarity of the problem. Howerver due to punitive immigration policies, many abuse cases are possibly hidden and unreported. Firstly, the ‘live-in’ policy, which requires workers to reside with their employers, increases the risks of physical and sexual abuse and makes it difficult to prosecute as there are usually no witnesses apart from the employer’s family. Secondly, if the ill-treated MDWs wish to work for a new employer within the two-year period under the contract, they must return to their place of origin and apply for a new visa. The fear of having to pay another set of exorbitant recruitment fees to recruiting agencies compel MDWs to tolerate abuse. Indonesian maids are particularly vulnerable in this situation, as they can only secure employment through government-licensed, profit-seeking agencies, while Filipino maids are sometimes directly employed. Thirdly, the ‘two-weeks’ policy requiring HKSLG · SPRING 2014 · ISSUE 4

workers to leave Hong Kong within two weeks after termination of contract by either party’s further discourages MDWs from filing complaints or standing as witnesses. MDWs are also vulnerable to exploitative working conditions which include: restrictions of freedom of movement or confinement, denial of rest days and statutory holidays, excessive work hours, illegal work, non-payment or underpayment of salary, and illegal deductions for debt bondage arrangements etc. It is because atrocious practices such

as deception of contract terms, use of coercion to procure signing of contracts and loan documents, denial of rights to access contract documents, and confiscation of passport and identification documents are routinely used by recruitment agencies and employers

to extract illegal benefits. A law paper published by the University of Hong Kong in 2006 found that the use of deceptive and coercive practices, coupled with illegal deductions for debt bondage arrangements and other exploitative working conditions, which are commonly faced by MWDs in Hong Kong, could meet the definition of ‘forced labour’ under international law. MDWs are often deceived about employment terms and compelled to pay placement fees ranging from HKD 6,000 to HKD 21,000. As these fees exceed the legal maximum, employment agencies often disguise them as loans and then instruct employers to divert most of the monthly salaries to a finance company. MDWs are thus forced to tolerate exploitative or abusive working conditions and receive little or no salary during the debt-bonded period. The International Labour Organization (ILO) Convention on Forced Labour (1930) No. 29, which is in force in Hong Kong is intended to end the above forced labour situation. Article 23(1) states that ‘to give effect to the provisions of this Convention the competent authority shall issue complete and precise regulations governing the use of forced or compulsory labour.’ Article 25 further requires that the illegal exaction of such labour shall be a penal offence, and any Member ratifying this Convention is obliged to ensure that the penalties imposed

HONG KONG by law are adequate and strictly enforced. Unfortunately, the Convention has not been given full effect due to the lack of comprehensive and precise regulations. In a brief on the ILO, the Labour Department simply takes the view that current administrative measures and social practices are sufficient to safeguard against forced or compulsory labour. The Labour Department’s passive attitude also permits abusive employers to further violate labour rights without repercussions. According to the Labour Department’s Practical Guide for Employment of Foreign Domestic Helpers, claims on labour disputes will only be referred to adjudication if no mutually acceptable settlement is reached through conciliation service. The lengthy process is likely to continue over two weeks, thus forcing workers to accept settlements that are less favourable than their statutory entitlements. Often when MDWs raise complaints during their employment, the Labour Department responds by issuing a standard letter to their employers and enclosing department publications. Rarely were there any on-site visits made by investigators to inspect labour conditions and initiate prosecutions.

3.)proactively investigate and prosecute violations of labour rights; 4.)criminalise acts of confiscating passport and identification documents; 5.)enact legislation forbidding forced labour and debt bondage through learning from relevant legislation in the UK and the US; and 6.)endorse international obligations on preventing forced labour with the MDWs’ home countries. This may include suspension of work visa applications until conditions of forced labour are removed in the MDWs’ home countries. Finally, an even more proactive option Hong Kong should consider is to enforce, through local legislation and regulations, the ILO Domestic Workers Convention (2011) No.189 (Domestic Workers Convention). Unlike some developed countries, Hong Kong lacks specific regulations on MDW’s employment. In Singapore, to protect domestic workers from abuse, harassment and violence, the Employment of Foreign Manpower (Work Passes) Regulations 2012 provides that the employer shall not subject the employee to physical or sexual abuse, or to criminal intimidation. Also, under section 72 of the Penal

Code of Singapore, penalties imposed on employers or other household members for crimes committed on domestic workers, such as causing hurt or grievous hurt, wrongful confinement, assault or using criminal force, can be one and a half times as severe as the penalties imposed on similar offences committed against an ordinary person. The Domestic Workers Convention governs various aspects of employment relationships such as written employment contracts, fundamental principles and rights at work, protection against abuse, harassment and violence, living conditions of workers, working hours and remuneration, regulation of employment agencies, and compliance mechanisms. As such, the Domestic Workers Convention serves as an excellent foundation for designing comprehensive and specific local laws for effective MDW protection. By enforcing this convention, Hong Kong would not only demonstrate its commitment to protect MDWs by setting a role model for other countries, but also send out positive signals to all prospective domestic workers wishing to work in Hong Kong.

The Labour Department is considering improvement measures by educating newly arrived workers on their legal rights. However, various studies and reports from NGOs have frequently advocated for more effective protection on MDWs through recommended measures such as to: 1.)abolish the ‘two-week’ rule and issue MDWs a fixed-term employment visa that is not tied to any particular employment; 2.)abolish the obligatory ‘live-in’ requirement and enact laws on maximum hours; HKSLG · SPRING 2014 · ISSUE 4

HONG KONG

Chan Pak Ting v Chan Chi Kuen and Another (No. 2): Implications of the New Discount Rates for Personal Injury Awards

n 7 February 2013, Justice Bharwaney handed down a judgment in Chan Pak Ting v Chan Chi Kuen and Another (No.2) [2013] 2 HKLRD 1 in what would prove to be a landmark decision with respect to the practices used in the calculation of personal injury damages. Until the decision of Chan Pak Ting, Hong Kong courts applied the conventional discount rate of 4.5% on damage awards to personal injury victims in order to arrive at a lump sum payment; this rate was established over 16 years ago. Chan Pak Ting is significant in three regards: (1) the Court admitted expert evidence in its decision on the discount rate; (2) it decided to use rates significantly lower than the conventional rate of 4.5%; and (3) it arrived at three step rates for victims with various prospective needs. Table 1

Victims’ year(s) of prospective needs <5 years 5 to <10 years ≥10 years

Discount rate -0.5% 1.0% 2.5%

The conventional method in Hong Kong The conventional method for deciding the discount rate in Hong Kong has its roots in the English common law. The rate in the UK, up until 1998, was set between 4% HKSLG · SPRING 2014 · ISSUE 4

and 5% as per Cookson v Knowles [1979] AC 556, and Hong Kong’s rate was borne out of this precedent. While the UK’s approach was challenged in the revolutionary House of Lords decision in Wells v Wells [1999] 1 AC 345 and the rate was officially reduced to 2.5% under the Damages (Personal Injury) Order 2001, Hong Kong did not undergo similar changes. Prior to Chan Pak Ting, the only notable challenge to the conventional method was in Chan Pui Ki (an infant) v Leung On and The Kowloon Motor Bus Company [1996] 2 HKLRD 401. In Chan Pui Ki, the Court of First Instance admitted actuarial and financial evidence for consideration in determining the discount rate for a personal injury award. The Court decided on a discount rate of 2.7% based on Hong Kong’s economic environment at the time. However, the Court of Appeal ruled against the lower court’s

Nikki Chan

judgment and restored the conventional discount rate of 4.5%. Until Chan Pak Ting, the courts have consistently implemented the established rate of 4.5%. Importance of the discount rate and problems with the conventional method The purpose of damage awards is to fairly compensate the victims for their losses and suffering. In order to do so under the lump sum method of payment, a suitable discount rate must be selected to convert future liability expectations into damage awards for the victims. Furthermore, victims need to be able to safely achieve this discount rate in their return on investments, net of inflation, to fully recoup the awards’ intended value. Since the mechanism for calculating the discount rate dictates that higher

HONG KONG

discount rates result in lower awards and vice versa, any deviation in the realisation of investment returns from the assumed discount rate will lead to an unfair outcome. Under the conventional method, the discount rate entirely disregards current economic and investment conditions, which almost certainly guarantees a divergence between the discount rate and the investment return rate. Chan Pak Ting as a solution The novelty of Chan Pak Ting arises from the Court’s consideration of economic, financial, and actuarial evidence in determining an updated return rate from which discount rates for different investment portfolios are ultimately benchmarked. Under this new approach, while a difference between the return on investments and the assumed discount rate may still exist, as it is difficult to lock in a precise rate given the specific cash outflows of an award throughout its liability period, the gap between the investment reality and the assumed rate is reduced. This is because the new rates determined in Chan Pak Ting reflect the low interest rates of the current economic environment and the fact that investment returns such as the conventional rate of 4.5% would be difficult to achieve with low risk securities. The Court further tailored the newly assigned rate by differentiating between various compensation periods (see Table 1). In recognising the differences in investment profiles, the courts have assigned discount rates according to an award’s liability period rather than applying a single indiscriminate rate for all ranges of liability periods. To illustrate the impact of the judgment, consider Table 2. Assuming an award for annual

payments of HKD 500,000, the discount rates determined in Chan Pak Ting would result in a 10% to 15% increase in compensation from the conventional method depending on the length of the award period. Ancillary consequences of the judgment will become more evident over time. It is worthwhile to consider Chan Pak Ting’s potential impact on insurance liability premiums given the newly elevated compensations and different award periods. When personal injury awards go up, insurance companies may pass a portion of the costs to the public by way of increased premiums. However, the public is unlikely to bear a significant increase since personal injury only represents one type of liability covered by liability insurance plans. Furthermore, the price of liability insurance includes various operating costs which further reduces the impact from any increases in personal injury award coverage. The judgment also affects how parties choose to argue the length of their compensation periods, especially since the rates increase abruptly at the five and 10 year points. For instance,

an award for a compensation period of four years and 11 months award for a compensation period of five years and one week. At these pivot points, the victim would argue for a shorter compensation period and the defendant would argue for a longer compensation period. Conclusion The conventional approach for determining the discount rate has not seen any significant changes over the course of its implementation in Hong Kong. However, this method was finally challenged and the system revised following the landmark case of Chan Pak Ting. As the issue of a discount rate that is both unreflective of the current economic reality and unfair to all parties has been partially addressed, awards in the personal injury field will see drastic increases and hopefully victims will be in a better position to fully recoup the intended value of their compensation. Looking forward, victims still bear some, albeit reduced, investment risk. Nevertheless, this decision represents a positive step in the field of personal injury law.

Table 2

Award Period (years) 3 7 15

Conventional Method (HKD) 1,374,482 2,946,350 5,369,773

Post-Chan Pak % Difference Ting (HKD) 1,515,126 3,364,097 6,190,689

+10.2% +14.2% +15.3%

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HONG KONG

Third-Party Funding for Arbitration in Hong Kong James Ng

riding itself as an international commercial centre and responding to the popularity of arbitration as a means of dispute resolution, lawmakers and arbitrators of Hong Kong have made a valiant effort to develop a refined arbitration regime. By enacting a new Arbitration Ordinance (Cap 609) and revamping the Hong Kong International Arbitration Centre Rules to ensure its conformity to current international arbitration practice, Hong Kong stands as a favoured arena for dispute resolution in the Asia-Pacific region. Despite the improvements provided by the reform of the law of arbitration, an important area of arbitration has been neglected. Given the lack of a legal aid regime in arbitration and possible requirements to submit disputes to arbitration, a party with financial difficulty may be barred from commencing legal action. The lack of means to seek redress is a prevailing and realistic issue, as mandatory arbitration clauses are frequently employed in

various employment and commercial contracts. In many jurisdictions, this funding issue is adequately addressed under the much-favoured mechanism of third-party funding (TPF). TPF operates by way of a funding agreement, which allows a nonparty entity to finance a party’s legal fees. As it facilitates access to justice, TPF is endorsed and welcomed by the international community: the use of contingency fee arrangements has been adopted by the United States for more than a century, and other countries such as Italy and England have also recognised and regulated conditional and pure contingency fee arrangements. While TPF has obvious advantages, its legality under Hong Kong’s arbitration regime remains unclear as champerty and maintenance are currently prohibited under Hong Kong law. These common law offences preclude the undue profiting of a third-party from the proceeds of a lawsuit. It is thus likely

that any type of dispute resolution funding—including TPF—is not permitted under the Hong Kong legal regime. However, in light of TPF’s advantages and the international trend of abolishing the offences of champerty and maintenance, Hong Kong should allow TPF for arbitration in order to preserve its position as a leading arbitration venue. TPF’s status quo in Hong Kong and its criticisms Although there is no express provision prohibiting the use of TPF for arbitration in Hong Kong, such use has been implicitly ruled out under the rules against maintenance and champerty. ‘Maintenance’ refers to the general assistance or support given by a disinterested party, while ‘champerty’ concerns the maintenance of proceedings in return for a share in the proceeds. These doctrines were developed to preclude mischievous litigation and interference by powerful parties to oppress individuals. However, through the passage of time, the doctrines’ uses became obsolete and have been abandoned in many jurisdictions. For instance, under the English Criminal Law Act 1967, maintenance and champerty were described as a ‘dead letter in our law’ and were abolished. Similarly, maintenance and champerty have been abolished as a crime under New Zealand law, and as either a crime or a tort in Australia. Notwithstanding the international trend of allowing the use of TPF,

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HONG KONG Hong Kong has not enacted any legislation to abolish the common law offences. On the contrary, in Siegfried Adalbert Unruh v Hans-Joerg Seeberger Eganagoldpfeil (Holdings) Limited [2007] HKEC 275 the Court of Final Appeal affirmed the view that in legal proceedings maintenance and champerty would still breach the law. However, the Court was silent on TPF in the context of arbitration. Thus, without any legislation abolishing the common law offences or excluding their application to arbitration, TPF for arbitration is currently a fantasy at its best. Even if the proponents of TPF for arbitration were to successfully advocate for the abolishment of maintenance and champerty, there remains several concerns commonly recognised for the use of TPF. Firstly, TPF raises the issue of impartiality, as a funder may be funding a counsel who then acts as an arbitrator in another unrelated case, giving rise to the possibility of rendering a more favourable award due to the arbitrator’s past dealings with the funder. Secondly, TPF may hinder any settlement attempts, as the funder would most likely reject a settlement offer yielding an amount less than the expected return on his investment. Finally, the freedom to choose one’s arbitrator may be undermined by the use of TPF, as one would perceive the danger of choosing an arbitrator contrary to the funder’s wish and risk having the funder ceases its support for the arbitrating party.

Domestic legislative support is first needed to enable the general use of TPF. The legislature should either follow the footsteps of common law jurisdictions in abolishing champerty and maintenance, or simply pass a legislation that allows TPF under exceptional circumstances. For example, adopting the obiter dictum of Unruh, TPF should be allowed where the funding party has a genuine and common interest in the arbitration proceeding. The latter option seems more feasible than a systemic abolishment, as it preserves the aim of preventing frivolous litigants while allowing TPF in genuine cases. With the support given by the domestic legislation, the arbitration laws of Hong Kong should then be amended to address the general concerns of TPF. For instance, to address the fear of conflicts of interest, the arbitration laws should mandate the disclosure of a funder’s presence to the arbitral tribunal. Under the Arbitration Ordinance, parties have a duty to act bona fide with regards to their proceedings. It follows that the non-disclosure of a funder’s presence should be construed as a bad faith conduct, which may amount to an unenforceable and nullified arbitral award. In addition,

constraints should also be placed on the funding party’s degree of influence, so as to alleviate the funder’s leverage on the arbitration party. As arbitration is founded on the parties’ consensus, a third-party’s excessive involvement may lead to the nullity of an award on the ground that the arbitral procedure was not in accordance with the agreement of the parties. TPF’s future in Hong Kong for arbitration Without a doubt, TPF has no place in Hong Kong without a major revamp of both the common law prohibition of champerty and maintenance and the arbitration laws of Hong Kong. While the concerns for TPF are not untenable, such a risk should not outweigh the much-needed advantage for those in need. Fortunately, the use of TPF for arbitration has captured the judiciary’s attention, as the laws prohibiting TPF are currently under review by the Law Reform Commission of Hong Kong. In light of Hong Kong’s status as a premier choice of forum for arbitration, a regulation—rather than a prohibition—on the use of TPF for arbitration is vital to both promote Hong Kong as a preferred venue and, more generally, the use of arbitration itself.

Suggested reform for TPF in Hong Kong To enable the use of TPF for arbitration in Hong Kong, a two-tier approach must be taken to effectively regulate such funding regime. HKSLG · SPRING 2014 · ISSUE 4

HONG KONG

The Need to Criminalise Stalking in Hong Kong Mavis Lam

ver been flooded with unwarranted SMS messages, anonymous letters, silent phone calls, or even followed? If so, you may have been a victim of stalking. A stalker may be a complete stranger or someone you know, for example, your ex-spouse, a rejected suitor, or a disgruntled colleague. Stalking describes a situation where an individual (the Victim) repeatedly receives disturbing and unwelcomed attention from another (the Perpetrator) which cumulatively causes the Victim to feel harassed,

alarmed, or distressed. Despite recommendations from the Law Reform Commission of Hong Kong to criminalise stalking, no concrete action has been taken by the Legislative Council to reprove such repugnant behaviour. Hong Kong needs to criminalise stalking as an independent offence as soon as possible for two reasons: firstly, existing criminal laws are inadequate to protect victims from stalking behaviour and secondly, the use of civil remedies against stalkers is counter-productive and may expose victims to undeserved financial costs.

Inadequacies of existing criminal laws Existing laws are inadequate to protect victims from continuous stalking behaviour. Under Hong Kong laws, a police officer can only arrest an individual when they suspect that an offence for a sentence fixed by law has been committed. Accordingly, unless anti-stalking legislation is enacted, the police would be unable to directly intervene and protect victims of stalking. The examples below illustrate how arrest and prosecution powers under the

If the May be charged for… To be found guilty of this offence… stalker is...

Limitations to finding the stalker guilty…

watching the Victim’s home

disorderly conduct in public places under s17B of the Public Order Ordinance (Cap 245).

sufficient evidence must be present to prove that the accused, in any public place, behaved in a noisy or disorderly manner or used, distributed or displayed any writing containing threatening, abusive or insulting words, with the intent to provoke a breach of the peace or where a breach of the peace is likely to be caused.

the perpetrator may only be watching the Victim’s home from afar without any noisy or disorderly behaviour, threats or use of writing.

making unwarranted silent phone calls to the Victim

offensive phone calls or messages contrary to s20 of the Summary Offences Ordinance (Cap 228).

sufficient evidence is required to prove that the accused sent a message which was grossly offensive or of an indecent, obscene, or menacing character, or sent a false message for the purpose of causing annoyance, inconvenience, or needless anxiety to another person, or persistently made telephone calls without reasonable cause for such purpose.

it is difficult to prosecute perpetrators with this offence when only silent phone calls are made. Although the repetitive nature of the calls may entail anxiety, annoyance, and inconvenience for the Victim, the absence of a false or indecent message may fail the contextual element of this crime.

causing the Victim to feel fear and distress

assault occasioning actual bodily harm contrary to s39 of the Offences Against the Person Ordinance (Cap 212) or wounding or inflicting grievous bodily harm under s19 of the same ordinance.

the provisions in Cap 212 are generally limited to physical harm. Emotions such as fear or distress are therefore insufficient for charges under this legislation. However, the courts have accepted recognisable psychiatric illness to be an exception to the general rule.

until the Victim is diagnosed with a recognisable psychiatric illness, this provision will be inapplicable. By then, however, the Victim may have already suffered irreversible mental damage.

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HONG KONG current laws are limited and may not be appropriate in countering repetitive stalking behaviour. As observed above, our current system treats stalking in a piecemeal manner and fails to consider the continuous nature of the behaviour. Existing legislation merely covers some aspects of stalking and its definition is often restricted to situations where distant stalking behaviour is involved. A Victim may have difficulty seeking police assistance due to the absence of stalking as an independent offence. Resort to civil remedies? In Lau Tat Wai v Yip Lai Kuen Joey [2013] 2 HKLRD 1197, Lau sued his ex-girlfriend for stalking him for over six years. He claimed that his ex-girlfriend used extreme methods, such as making threats and unwelcomed phone calls, and even installing a CCTV outside his apartment to disturb him and his family after their four-month relationship ended. The Court granted an injunction order, forbidding the ex-girlfriend from disturbing him and his family and was awarded HKD 946,673 in damages with interest based on the torts of harassment and intimidation.

Association, have expressed concerns that the enactment of antistalking laws would diminish freedom of the press and restrict the contents of media reports, which are often founded upon behaviours that might be considered stalking. While a detailed analysis would go beyond the scope of this article, two counter arguments may be presented here. First, if a journalist’s action makes the Victim feel harassed, distressed, or alarmed, such action may be in excess of what journalism entails and contradicts professional integrity. Freedom of the press is paramount but not absolute: it is therefore essential for the freedom to be subjected to reasonable restraints. Second, public concerns against anti-stalking laws can be readily resolved through statutory defences. For example, the Law Reform Commission has put forth suggestions in its Stalking Report to ensure that reasonable conduct with a legitimate purpose in the circumstances would be excluded from penalties. In summary, the need for

anti-stalking legislation outweighs the potentially adverse consequences, which can be avoided through meticulous legislative drafting. Conclusion The existing legal framework cannot effectively prosecute stalkers and protect victims of stalking. When a situation involves distant but continuous stalking behaviour that is not in itself violent, the police are not only reluctant but may also be unable to interfere. While an injunction order may be granted by the courts, potential costs brought by a dismissed claim and the delayed redress of wrongful behaviour will add unjustified burdens on the victims. Anti-stalking legislation has already been adopted by other jurisdictions such as Australia, Canada, Singapore, and the United States. Hong Kong clearly needs to live up to international standards and enact antistalking laws for the safety of the populace.

Following Lau’s successful claim, victims of stalking have become more inclined to take civil action. However, this is not always practical, especially when the Victim lacks financial means and does not qualify for Legal Aid. If the Victim initiates an injunction or files for damages, he or she risks bearing the costs of proceedings he or she should not bear fault for. Concerns for anti-stalking laws Opposing groups, such as the Hong Kong Human Rights Monitor and the Hong Kong Journalists HKSLG · SPRING 2014 · ISSUE 4

FEATURE

Interview with The Honourable Mr Justice Ribeiro PJ Lisette Chan

Keith Cheung

r Justice Roberto Alexandre Vieira Ribeiro is one of the three permanent judges who currently sits on the Court of Final Appeal. Prior to his judicial career, he taught at the University of Hong Kong and was involved in private practice. On the day of the interview, Justice Ribeiro gave us a tour of the Court of Final Appeal before he shared with us his views on some current issues in the areas of both private and public law.

Do you think that maintaining ‘One Country, Two Systems’ creates tension between the two systems? ‘One Country, Two Systems’ is an interesting and innovative solution to a historical problem. Hong Kong’s common law system, which has been in place for 150 years, returned to the exercise of sovereignty by the People’s Republic of China, which comprises a totally different system. There has to be a certain tension between the two systems, but it is really a matter of management and allocation of spheres of responsibility. Unfortunately, some Hong Kong people often misunderstand the relationship

between the two systems. Plainly, Hong Kong has not only one of the two systems, but it is also part of the one country. We have a high degree of autonomy under the Basic Law but Hong Kong is not completely separate from the Mainland so you must have an interface. Article 158 of the Basic Law is where things will pivot. The Court of Final Appeal (CFA) had to deal with this issue in the Congo case [2011] HKEC 747. Two of our colleagues did not agree with us but the majority thought it was a clear-cut case. The relationship between Hong Kong and the Mainland is determined by the Basic Law. It is a short answer providing the basis for resolving

what are potentially complex issues in a case like Congo. The goal is to try to apply the Basic Law in a practical and fair way and to be mindful of the interrelationship between the two systems. I. Private law developments How do you see Hong Kong’s tort system developing? One of the interesting tort cases that I remember was a case about public nuisance. This poor woman was a hawker on the street and a piece of concrete fell from a badly maintained old building, killing her. So this was a case of public nuisance with private damage and we had to take the law further because it had not been very much looked at or developed in other common law jurisdictions. In Hong Kong we tend to look quite widely at what other people have done in similar situations but sometimes it happens that we have to take the lead. We had the Oriental Press Group [2013] HKEC 1025, the internet libel case, before the relevant point reached other jurisdictions, so we had to decide it. Defamatory posts were put up on

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FEATURE the Golden Forum. The question was: if you provide a forum with maybe five thousand posts per hour, how do you deal with somebody who posts nasty things on the internet? Does that make the forum provider liable? And what is the right balance there? You do not want to shut down these forums, as it is a matter of free speech and possibly important free speech, although not in this case. A currently pending case involves a young man who said ‘we should learn from the Jews and bomb the liaison office.’ And they found him and prosecuted him for outraging public decency. So the question is: can this kind of conduct amount to outraging public decency? Where points reach Hong Kong first, we have to decide them and see if other jurisdictions will go the same way or whether they will not agree with us. It is quite interesting to have this indirect dialogue with other courts. In contract, estoppel has seen some disparate developments with England retaining the difference between promissory and proprietary estoppel and Australia unifying the two into equitable estoppel (Walton Stores v Maher [1988] 164 CLR 387). Do you feel Hong Kong is more receptive of a more liberal approach to innovating estoppel such as the Australian courts have done?

subject as one involving technicalities. After all, if you are dealing with somebody who has been behaving in an unconscionable way, you do not want to get tied up with a lot of technical distinctions between different types of estoppels. You look to see if you can interfere in a way that is just without leaving the rule of law and without leaving it merely to the court’s discretion. Many private law doctrines have property roots, but nowadays the principles may no longer have to be tied to property. And therefore I think it is a fluid and developing situation. To say analytically there is a difference between promissory estoppel and proprietary estoppel is right. Yet there is an increasing convergence of the concepts. In Siegfried Adalbert Unruh v HansJoerg Seeberger v Eganagoldfeil (Holdings) Limited [2007] HKEC 275 we had to look at estoppel by convention and looked closely at its origins. But taking estoppel as a whole, each branch is starting to look more like the others. Privacy is another example. It used to be a property concept. You cannot come into my property and interfere with my privacy. But now privacy is no longer just a property right. It has to do with situations giving rise to proper expectations of privacy. You might, for instance, have certain rights to privacy in your employment. Your boss should not spy on you in unfair ways.

As a CFA judge, you have wide discretion in which common law jurisdictions’ jurisprudence to refer to. Why are the Courts more receptive to some and not to others? You are certainly right to say that we look to, perhaps more than many other courts, at other common law jurisdictions. We ask whether they had the same problem. How did they deal with it? Can we learn from that? But we also have to recognise that there are dangers in looking at other courts’ jurisprudence because we might not be sufficiently familiar with the background. One cannot simply assume that their case law can be adopted. There may be a very different explanation for the way they have come to their position. We are most familiar with the UK because we have 150 years of working with English precedents and we have judges from there sitting as Non-Permanent Judges of the CFA. We also have judges from Australia and New Zealand so we can usefully check with our colleagues if we properly understand the issues being dealt with in their reported cases. I remember a case where an Australian NPJ said to us, ‘actually this decision flows from a particular constitutional debate and you should not take it to be relevant’. That is the kind of trap that we have to avoid.

This is a difficult question. I think estoppel is undoubtedly in a state of development. Its foundation is that of unconscionability. You cannot say one thing and then do something else to damage somebody else if they relied on what you said. I think that there is, not just in Hong Kong, a tendency to try and get down to the fundamentals of estoppel rather than treat the HKSLG · SPRING 2014 · ISSUE 4

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II. Public law developments Kong Yunming v The Director of Social Welfare [2013] HKEC 1995 continued to emphasise the adoption of a broad margin of appreciation and intervening only ‘where the impugned measure is “manifestly without justification”’ (para 41). How do we reconcile the question of judicial deference and fundamental rights? How do you see Hong Kong’s jurisprudence developing in order to reconcile these tensions? This idea of judicial deference should not be misunderstood. ‘Deference’ is a term we try to avoid. What we are really talking about here is the separation of powers. I like to say ‘margin of discretion’ because discretion recognises mutual roles. In some areas of the law the court gives a wide area of discretion to the legislature as that is their constitutional role. The courts’ role is to ensure that their actions conform to constitutional requirements and the law. The margin of discretion or appreciation differs depending on what one is concerned with. For example, there is no ‘margin of appreciation’ in torture or cruel, inhuman or degrading treatment or punishment as we have said in the Ubamaka case [2012] HKEC 1757. It is an absolute right not to be subjected to such treatment. In Fok Chun Wah [2012] HKEC 471 and Kong Yunming, we were concerned with the allocation of public resources which are always limited. The executive has to make the policy decisions, sometimes hard decisions. The Court does not and is not equipped to make such decisions. So when we had to consider safety net social security payments for new arrivals to Hong Kong, we were faced with what is HKSLG · SPRING 2014 · ISSUE 4

fundamentally a socio-economic decision. However, it also involves Article 36 of the Basic Law which the Court has a duty to interpret. That is what we had to do in dealing with the Kong Yunming case. What is the meaning of Article 36? How does it apply when in 2004 the qualifying period went from one year to seven years? Does that engage this Article 36 right? If so, what standards should the Court adopt? In this area there is a wide margin of discretion for the Government as to how to allocate resources, and we were not there to tell them how to do that. But we were there to exercise constitutional review. We had to decide how to read Article 36 together with Article 145 and see how they operate together. The Basic Law gives the Government power to develop and form social welfare policies, but equally it gives Hong Kong residents a constitutional right to social welfare in accordance with law.

Now, a lot of people did not seem to realise that we were dealing with Hong Kong residents. Some of them thought we were talking about Mainlanders that they considered unwelcome. In fact, we were mainly concerned with the mothers of children who have the right of abode and who have come to Hong Kong to be reunited withtheir families. This is under the one way permit policy and in accordance with the Government’s policy of increasing the number of younger people in Hong Kong to counteract the effects of our aging population. In deciding the Kong Yunming case, we asked what was the objective of going from one to seven year? The Government said it was to achieve sustainability of the social welfare system. We then asked whether the seven years requirement is connected rationally to achieving sustainability. If the requirement is rationally connected to sustainability, the

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Court would ask whether the restriction was proportional. We decided that, because of the wide margin of discretion given to the Government in making socioeconomic resource decisions, the low standard of ‘manifestly without reasonable foundation’ should be adopted. The Court would only interfere if it was ‘manifestly without reasonable foundation’ to introduce this seven year requirement. That way, we give a meaning to Article 36 and protect the rule of law while respecting the separation of powers. To look at sustainability we had to look closely into the details and the figures, which is a little unusual. In W v Registrar of Marriages [2013] HKEC 1097, the CFA declined to comment on same sex marriage and deferred its decision to remedially interpret the Marriage Ordinance. What is your opinion in light of the Legislative Council (LegCo)’s decision not to discuss this question? We did not discuss same-sex marriage because it had nothing to do with this case. The only question was whether this male-to-female transsexual qualifies as a woman for the purposes of marrying a man. We said ‘yes’ and decided that it would be irrational to say ‘no’. The old law decided otherwise in Corbett v Corbett [1970] 2 W.L.R. 1306. We concluded that the time had come to reject that decision. Same-sex marriage is a controversial topic in many jurisdictions, but in Hong Kong it has not yet arisen. It usually arises when someone tries to pass legislation permitting such marriages, such as France and in some American states. What do I think of LegCo’s decision to not deal with this issue? Well, it is up to them to decide whether they should take this

up as a legislative project. In many countries, they first enact legislation permitting civil partnerships. That is much easier to understand, as it aims at permitting partners (of the same or different sexes) in a relationship to regulate their mutual rights without entering into a controversy over whether partners of the same sex can marry each other. A couple may have been together for years without making a will and when one of them dies, their property might go to someone who hates them, perhaps their next of kin who they have not seen in years. That is obviously not very fair. In Vallejos v Commissioner of Registration [2013] HKEC 429 the CFA recapitulated that context and purpose should be adopted as an interpretative approach. While such an approach found favour for W by giving rights a generous interpretation (para 115) and observing that ‘marriage’ is changing, it has not found favour in Vallejos. What is your view on this?

This is a question that makes certain assumptions about the Court reaching a ‘generous interpretation’ as a value. There are political implications which I tend to reject. Thus, I do not agree with classifying a judge as a ‘liberal judge’ or a ‘conservative judge’. To me, it is not a compliment to be called either. I think you should not think of yourself as liberal or conservative, you should just try to be true to your duty as a judge. Sometimes if the Government wins a human rights case, some people say ‘the court must be conservative’ and when the Government loses, ‘the court has given a generous interpretation and is a good liberal court’. But it should not be like this. Constitutional and legal principles should determine the result. We denied foreign domestic helpers (FDHs) permanent residency not because we do not like FDHs or because we do not want to help them. They are a very important part of our economy and our courts have often stressed that they deserve the court’s protection, recognising that they may be HKSLG · SPRING 2014 · ISSUE 4

FEATURE the temperament to be at the Bar. They may get too worried or nervous about the case, or they may not like the atmosphere of conflict with the other side, or they may not be prepared to put in the hard work. Such persons should not go to the Bar. They would be better off doing something else. What is your most memorable moment as a judge?

vulnerable and isolated from their families, and that they may not understand the language. The issue in Vallejos was whether they are capable of being ‘ordinary residents’ as a matter of law. This is not an easy concept. What people think amounts to ‘ordinary residence’ might differ. So we had to look at the case law and decide the question as a matter of principle. The question you have asked is therefore a bit loaded. I don’t think it’s right to think that W winning and Vallejos losing should be seen in terms of the CFA being more or less ‘generous’ in its interpretation of the applicable law. III. Other insights What advice can you give to law students aspiring for a life at the Bar? People have different temperaments. If you have an interest in the law and you do not mind working really long hours, joining the Bar might be the best job you HKSLG · SPRING 2014 · ISSUE 4

can have. I did it for twenty years and thought it was great. It is never the same, that is, if you are lucky enough to be getting lots of work. You have to keep working hard as you are only as good as your last case. Your professional reputation is easy to lose but hard to build up. So what I would say to someone who is thinking about a life at the Bar is ‘yes, go ahead, but you must have the commitment’. It is a creative job. You enjoy putting together an argument, shaping the case. Very often by the time it gets to the court, it has gone through a process of refinement. And by the time it gets to the CFA, ten of the original points will no longer be relevant. At the Bar, when you first get a case, you do not know what facts the court will find. You only know what your client tells you. You must be very alert to the details to build up a convincing and legally sound case for your client. But when you manage to do so, it is very rewarding intellectually, and of course—one hopes—financially. Some people however, do not have

I would not say there is a most memorable moment. I would rather think in terms of a process, the process of learning to be a judge. You never stop learning. The law is vast and always changing. I think it is a privilege to be allowed to do this job, to enjoy doing it and to feel that being part of the judiciary is to be part of the important enterprise of contributing to the rule of law in Hong Kong.

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Lisette Chan

hina’s online business is growing at a rapid pace amidst the liberalisation of its economy. Nonetheless, its current legislative framework is still too underdeveloped to address the specific problems of cyber trading in order to safeguard consumers’ interests. Existing measures Currently, there is no Chinese law that deals exclusively with consumer protection in e-commerce. The Law on Protection of Rights and Interests of Consumers (the Consumer Code) applies to all sales transactions but contains no provisions relating specifically to online trading. The Interim Measures for the Administration of Online Commodities Trading and Relevant Services (the Measures), in place since 1 July 2010, currently oversees e-commerce activities in China. However, they act merely as guidelines and lack real disciplinary effects. The Measures require sellers to register using a ‘real-name system’ and to display their business license information as well as detailed descriptions of their commodities online. However, the Measures depend heavily on self-enforcement: third-party platforms put in place unregulated transaction rules to control the seller’s conduct and a monitoring system to review and report violations to local government agency. Yet third-party platforms often prioritise sales increase as opposed to enforcing regulations. The provi-

Online Shopping with Greater Consumer Protection sions from the Measures are often, therefore, unenforced. Proposed new measures On 11 September 2013, China’s State Administration of Industry and Commerce (SAIC) issued a draft of the revised Measures (Draft Measures). It authorised the SAIC to investigate, seize products, and shut down businesses based on alleged illegal online transactions. Additionally, it has increased penalties from RMB 10,000 to a maximum fine of RMB 30,000 for a list of related crimes. It is likely that these harsh penalties will deter sellers from violating consumer rights. Subsequently, the Ministry of Commerce (MOFCOM) released a draft of the Administrative Measures for Transaction Rules of Online Retailing Conducted on Third-Party Platform (Draft Transactional Rules Measures) to regulate, for the first time, the transaction rules provided by third-party platforms to online sellers. Third-party platforms must specify the legal requirements of the ‘real-name system’ and IP and consumer rights protection, while any modification to the transaction rules must be displayed online for at least 15 days to solicit public opinions. Although external opinions do not necessarily have to be adopted, they will need to be registered and filed together with the revisions to MOFCOM within 30 days of their implementation. This requirement reinforces the importance of consumers’ opinions and

confers upon MOFCOM a supervisory role over the self-regulated transaction rules. Most importantly, the National People’s Congress has passed amendments to the Consumer Code, addressing online consumer protections for the first time at the national level. The new code, effective since 15 March 2014, gives unconditional refund right to consumers within seven days from date of receipt of the goods as a way to combat online fraud, and improves personal data protection for online consumers. In addition, it also requires third-party platforms to establish a credit file to record and publicise irregular activities to all consumers. Concluding remarks The new measures all work towards safeguarding consumer protection in e-commerce. One criticism would be the low monetary deterrent even after the proposed amendments. However, they should be viewed with the wider regulations such as the Product Quality Act, the Trade Mark Law, and Anti-Unfair Competition Law which impose higher penalties for illegal activities covered by the new measures. The Draft Measures and the Draft Transactional Measures will provide a better system for detection of illegal activities and enforcement of regulations. Together with the revised Consumer Code, the new measures will give buyers more confidence in using online services. HKSLG · SPRING 2014 · ISSUE 4

CHINA

Development of the Term ‘Beneficial Owner’ in Chinese Tax Treaties

he term ‘Beneficial Owner’ is adopted in all double tax treaties and arrangements signed by the Chinese Government; nevertheless, its meaning is hard to define accurately. In this article, the important concept of Beneficial Owner and the impact of three major legal documents issued by the China’s State Administration of Taxation (SAT), which was designed to clarify the meaning of the term Beneficial Owner in the past five years, namely Guoshuihan [2009] No. 601 (Circular 601); SAT [2012] Bulletin 30 (Bulletin 30) and Shuizonghan [2013] No. 165 (Circular 165), will be addressed and examined. ‘Beneficial Owner’ The term ‘Beneficial Owner’ is one of the most important concepts adopted in various bilateral tax treaties to eliminate the abuse of tax treaties. This term limits the benefit of treaty-reduced withholding taxes on dividends, interest, and/or royalties (the income) given to recipients who are the Beneficial Owners of such income. Where a taxpayer fails to qualify as a Beneficial Owner of income, the amount will not be entitled to the preferential withholding tax rate. The reduced tax rate is normally between 0% to 10% as compared with the statutory tax rate of 20% in China. The Beneficial Owner concept was introduced to the OrganisaHKSLG · SPRING 2014 · ISSUE 4

tion for Economic Co-operation and Development (OECD) Model Tax Convention as early as 1977. However, its exact meaning has not been defined in either the OECD model nor its commentary. Internationally, the courts and tax administrations under their respective domestic laws have given the term different interpretations. Even domestially, and inconsistences occur very often within the same tax jurisdiction. Therefore, taxpayers face significant uncertainty when interpreting the term Beneficial Owner. Given the risks of double taxation and tax avoidance arising from vague and inconsistent interpretations, the international community, including China, is attempting to work out a practical solution to this issue.

The development of the meaning of Beneficial Owner in China The meaning of Beneficial Owner in the Chinese tax treaties is mainly interpreted by the following legal documents issued by the SAT: Circular 601, Bulletin 30, and Circular 165.

Michael Yu

Circular 601 Circular 601, issued in 2009, provides China’s first official definition of Beneficial Owner. Under this definition, a Beneficial Owner is a person who has the right of ownership and control over the item of income, or the right over the property from which that item of income is derived. Generally, a Beneficial Owner should be engaged in substantive business activities. An agent and/or conduit company cannot be recognised as a Beneficial Owner entitled to relevant treaty benefits. Article 2 of Circular 601 lists out seven specific factors that would prevent a recipient of income (the taxpayer) from being recognised as a Beneficial Owner (negative factors). The following factors are of particular interest: 1.)The recipient is obliged to distribute most of his or her income to a resident of a third country within a prescribed time period; 2.)The recipient does not have minimal business activities; 3.)The scale of assets and personnel are not commensurate with the income received; 4.)The recipient has no control of decision-making rights over, and bears any risk arising out of the received income;and 5.)The income received is non-taxable or is subject to a low effective tax rate.

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Circular 601 was a significant step taken by the SAT to define Beneficial Owner. As a civil law jurisdiction, China intends to codify the Beneficial Owner rule by providing a list of factors to local tax authorities in their determination of Beneficial Owner status. This method does have merits, but problems are also obvious. For instance, how should negative factors be weighed? Is it possible to exhaust all the factors needed to be considered in the determination of Beneficial Ownership? The circular leaves too much discretion to local tax authorities, giving rise to much uncertainty for taxpayers. Bulletin 30 In 2012, the SAT issued Bulletin 30 stressing China’s position in deciding a Beneficial Owner. Tax authorities are required to make a comprehensive analysis and should not deny the Beneficial Owner status of a taxpayer simply because of the existence of one or a few negative factors. Nor should Beneficial Owner status be denied solely because a company is set up ‘for the purpose of evading or reducing taxes, or transferring or accumulating profits.’ China’s approach in deciding the meaning of a Beneficial Owner is in line with the OECD’s doctrine of ‘substance-over-form’. The OECD describes a Beneficial Owner as a person who has ‘the right to use and enjoy’ the income unconstrained by a contractual or legal obligation to pass on the payment received to another person. The point lies in that a recipient should have a certain degree of power over the income and possess economic risk (i.e. having a certain degree of economic ownership) so as to be recognised as a Beneficial Owner. Therefore, the negative factors set out

by the SAT are actually only benchmarks to assess the economic ownership of a taxpayer. In short, Bulletin 30 emphasises that local tax authorities should not mechanically apply the negative factors in evaluating Beneficial Owner status. A ‘totality of facts’ approach on a case-by-case basis should be taken to examine whether the taxpayer is in substance the Beneficial Owner of the dividend, interest, and/or royalties received. Circular 165 Based on the implementation of Circular 601 and Bulletin 30, Circular 165 was issued in 2013. Its purpose is to deal with the vagueness and practical difficulties of determining the Beneficial Owner status in the context of China’s tax arrangement with Hong Kong. Circular 165 further clarifies five of the seven ‘negative factors’ listed in Circular 601. For instance, Circular 601 requires that a taxpayer have ‘minimal business activities’ to be recognised as a Beneficial Owner. However, Circular 165 provides that ‘investment activities’ is considered ‘business activities’ and therefore tax authorities should not make decisions solely on the basis that the taxpayer only

invests as its major business. The principles and guidelines set out in Circular 165, though specifically applicable to China’s tax arrangement with Hong Kong, could be an important reference for other similar tax treaties. It is another significant effort by the Chinese tax authorities have made to realise more certainty and consistency in their taxation practice. Conclusion In recent years, China has increasingly clarified the meaning of Beneficial Owner to reduce uncertainty and ensure consistency in the administrative practices of local tax authorities. SAT’s approach to determinating Beneficial Owner status is consistent with the explanation provided by the OECD Committee on Fiscal Affairs. Local tax authorities should not apply negative factors mechanically, but use a ‘totality of facts’ approach, favouring substance over form. As deciding Beneficial Ownership is complicated in practice, more clarifications and explanations may be expected from the SAT in the foreseeable future.

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CHINA

The Importance of Preliminary Injunctions in Chinese Trade Secret Cases Charles Balvin

rade secrets are a unique form of intellectual property. This has led to the reluctance of Chinese courts in granting preliminary injunctions in these types of cases. Unlike patents, trademarks, and copyrights, trade secrets are unknown to the public at large, as the technical information of the secret has not been disclosed through registration with the Chinese Government. Since the components of trade secrets are not divulged to the Government, the Chinese courts will not protect them if the secret is uncovered through legitimate means. For example, Chinese courts will not grant relief if a competitor uses reverse engineering to analyse the function or structure of an invention to obtain the secret. As such, the owner of the trade secret must employ measures to ensure that the secret remains hidden. By contrast, Chinese courts will protect the owners of trade secrets if the information is derived from illegitimate means and subsequently infringed upon. A trade secret can be learned through illegitimate means if the competitor obtains the technical and/or business knowledge through stealing, intimidation, or the breach of a confidentiality agreement. Although Chinese courts have taken measures to protect trade secrets from being infringed upon, until recently they have failed to grant one remedy: preliminary injunctions.

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Absence of preliminary injunctions in trade secret cases

tion at the conclusion of the litigation.

A preliminary injunction is an interim order that prohibits the potential infringer from using and/or disclosing a trade secret to benefit himself or others until a final trial verdict is given. As years may pass before is reached in trials, a final verdict, a preliminary injunction can preclude the infringer from using the trade secret, thereby minimising the damage suffered by the

Amendment to the Chinese Civil Procedure Law

owner. The length of the preliminary injunction is at the discretion of the judge, and may be imposed for a period of time encompassing the pre-trial stage. The PRC Patent Law, Copyright Law, and Trademark Law all allow for preliminary injunction. However, the Anti-Unfair Competition Law of the People’s Republic of China (AUCL), which governs trade secrets, does not contain such a remedy. Previously, trade secret owners could only receive a permanent injunc-

This allows the courts to prohibit a party from committing an action before or during litigation, regardless of the nature of the dispute. Further, Article 104 CPL indicates that a surety or bond can be ordered by the court to compensate the defendant if the plaintiff’s claim is without merit. As such, this new measure allows the plaintiff easier access to court intervention to prevent continuing infringement of a trade secret.

In 2013, the Chinese Civil Procedure Law (CPL) was amended to include Article 100. The provision allows the courts to order a party to conduct a specific action (責令作出一定行為), and/or to prohibit a party from conducting a specific action (禁止作出一定行為).

CHINA

Eli Lilly and Company and Lilly (China) R & D Co., Ltd. v Huang Eli Lilly and Company and Lilly (China) R & D Co., Ltd. v Huang (Lilly v Huang) is hailed as a breakthrough trade secret protection case. This is the first trade secret case in China where a court granted a preliminary injunction against a former employee who allegedly stole trade secrets from his employer. The Plaintiff, Eli Lilly and Co. (Lilly), is a pharmaceutical company in the United States. Lilly has a Chinese subsidiary, Lilly (China) R & D Co. (Lilly’s Subsidiary), through which it conducts its research in the Mainland. The Defendant, Huang, was the chief chemistry researcher of Lilly’s China branch. Huang began his employment on 3 May 2012, wherein he signed a confidentiality agreement prohibiting him from disclosing Lilly’s trade secrets. This agreement included the protection of trade secrets related to Lilly’s marketing strategies. Lilly’s Subsidiary discovered that Huang downloaded 21 files containing Lilly’s business secrets for his own benefit in violation of the agreement. Lilly fired Huang and demanded that he return all downloaded files that he improperly took from the company. Huang refused to delete or return the documents. Lilly sued Huang for trade secret misappropriation under the AUCL and sought injunctive relief and damages of RMB 20 million. On 2 August 2013, the Shanghai No 1 Intermediate Court granted Lilly’s application for a preliminary injunction pursuant to Article 100 CPL. The injunction prohibited Huang from disclosing, using, or allowing others to use the trade secrets

contained in the 21 confidential documents Huang allegedly downloaded in violation of the agreement. As a condition of the preliminary injunction, Lilly deposited RMB 100,000 with the court as a bond for the order pursuant to Article 104 CPL. The impact of Lilly v Huang What effect will Lilly v Huang have in the field of trade secret protection? The Shanghai court found that the CPL now governs the use of preliminary injunctions in trade secret cases, as the AUCL does not contain a provision for this relief. As such, it is presumed that courts will apply this standard in the future. Trade secret owners can now cut off would be infringers from using trade secrets from the moment that the alleged infringement is discovered. Rather than waiting for a permanent injunction at the conclusion of the trial, an application can be made before the case is commenced to stop the infringer from using the trade secret. Irregardless of the length of the trial, the trade secret owner can prevent further abuse of the purported illegally obtained secrets while the trial proceeds. This measure can potentially save the trade secret

owner profits that would have been lost had the infringer used the trade secret during litigation. An injunction may also prevent the owner from having to claim damages from an infringer without adequate assets to cover a potential judgment. Further, a preliminary injunction can be used to force a settlement, as the infringer will be precluded from using his ill-gotten gains. Conversely, a benefit is also bestowed upon the defendant who has not committed infringement. If the courts determine that the preliminary injunction had been issued erroneously, the defendant may seek damages from the bond posted by the trade secret owner. As such, the intervention of this amendment to existing legislation will undoubtedly promote the security of trade secrets and discourage infringement. Conclusion The amendment to Article 100 CPL will undoubtedly be used in the future to protect trade secret owners. As such, trade secrets will receive greater protection, and their owners now have a new avenue to protect their trade secrets from potential infringers. HKSLG · SPRING 2014 · ISSUE 4

INTERNATIONAL

Burying the Hatchet: Can Sharia Law and Women’s Rights Coexist? Bertilla Chow

or most, Islam does not conjure an image of respect for human rights law. However, the majority of Muslim scholars agree that, when read in context, the Quran actually champions human rights. Much-publicised atrocities committed against women, such as ‘honour killings’, are acceptable only to the most extreme sects of Islam. Since the Quran stipulates gender equality, violations of women’s rights in Islamic states is less a factor of religion and more a consequence of social construct. In Islam and the Secular State, Abdullahi An-Na’im propose stripping Islam of all its influence on politics and law through constitutionalism. Indeed, theoretically, complete church-state separation would promote greater adherence to international human rights law, particularly women’s rights. However, since religion is deeply entrenched in many Islamic states, a diplomatic proposal to reconcile Islam with human rights law would be more realistic than an ambitious and Western-centric proposal for complete secularisation. Saudi Arabia is a prime example of reconciling Sharia law with human rights law. Although Saudi Arabia has ratified the Convention on the Eliminate of all forms of Discrimination Against Women (CEDAW), the treaty was entered into with the reservation that, should any terms contradict ‘the norms of Islamic Law’, the kingdom would not be obligated to observe them. This broad-brush reservation sets HKSLG · SPRING 2014 · ISSUE 4

a harmful legal precedent and contravenes Article 19(b) of the Vienna Conventions on the Law of Treaties by suggesting that signatories can opt out of treaty provisions on a discretionary basis, even where a reservation goes to the object and purpose of the treaty itself.

pressures on the King to advance women’s rights. Already, the King has passed revolutionary legislation to ensure that at least 20% of the Shura Council, the formal advisory body of Saudi Arabia, must be female, as well as extended the right to vote to females.

In terms of Saudi Arabia’s women’s rights record, progress is lethargic at best: only 15% of the workforce is female, and the country continues to practice ‘guardianship laws’, which require females to seek male permission before performing basic tasks. Nonetheless, change is under way: 57% of university graduates are females, and this educated and assertive generation of successful women composes Saudi Arabia’s women’s rights lobby. The royal

From the case study of Saudi Arabia, four factors can be extrapolated in predicting success in reconciling Sharia and human rights law: 1.)the use of politics as a vehicle to promote human rights; 2.)continuous international collaboration and scrutiny; 3.)education, especially of women; 4.)peaceful dialogue between leaders of fundamentalist and moderate sects of Islam. That being said, greater respect for the rule of law and international law must also be cultivated for any progress to gain full momentum. Concluding thoughts

family is also involved in the women’s rights movement. King Abdullah’s daughter and niece serve as powerful voices for Saudi women. They have founded NGOs which both provide vocational training for women and exert international

Change in the area of human rights is admittedly easier in Saudi Arabia, an absolute monarchy where the King can push laws through despite clerical dissent, than in Islamic republics. Nevertheless, change under an Islamic context is evidently possible. Ultimately, promulgating and enforcing domestic laws which are both consistent with international human rights obligations and mindful of Sharia law, will prove to be the most sustainable and effective means of reconciling the seemingly different spheres of Islam and human rights law.

INTERNATIONAL

Volcker Rule: The Panacea for a Risky Financial System? George Lau

n 2012, JP Morgan was in the headlines again. Instead of complimenting its record breaking quarterly earning, news reports revealed that the trader Bruno Iksil, nicknamed the ‘London Whale’ lost HKD 6.2 billion in trading. The trader incurred this massive loss as a result of accumulating oversized positions in the derivatives market. Although Chief Executive Officer Jamie Dimon called it a ‘complete tempest in a teapot’ and ensured the public that only shareholders’ money was appropriated, it is suspected that depositors’ money was also involved. Volcker Rule: a ban on proprietary trading While using clients’ money to invest is a day-to-day practice, known as proprietary trading, investing this money in volatile securities and complex derivatives, involves far too much risk. Following the 2008 financial crisis, the Obama administration passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, of which section 619 is the Volcker Rule (the Rule), with a view to ‘promote financial stability of the United States by improving accountability and transparency’. Named after its creator, former Federal Reserve Chairman Paul Volcker, the Rule prohibits federally insured depository institutions from engaging in proprietary trading and from investing in or sponsoring hedge funds or private equity funds, while permitting certain

market-making and risk-mitigating hedging to avoid over-control of market activities. In short, the Rule separates bank activities that support economic growth from speculative trades. Banks have to fully comply with the Rule by 21 July 2015.

in which the American Bankers Association sought an immediate injunction against a portion of the Rule in December 2013. The Association complained that the classification of some collateralised debt obligations (CDOs) as prohibited assets under the Rule would cost small community banks USD 600 million to divest. As regulators have recently agreed to revise the Rule and allow these small banks to retain ownership of the CDOs acquired before the completion date of the Rule to avoid unnecessary write-downs, the Association is considering dropping the suit. A belated but necessary decision

Opposition from the banks Such extensive regulatory reform inevitably triggers opposition, especially from the largest banks with income derived mainly from proprietary trading. They argued that sufficient protection for depositors is already provided by the existing Federal Reserve Act under sections 23A and 23B, which impose collateral requirements, prohibit acceptance of low-quality assets, and limit the extent to which commercial banks may engage in risky investments. The banks also argued that the line between a bank’s legitimate functions and proprietary trading is impossible to draw. What seems like a hedging strategy, which is permitted under the Rule, may turn out to be a proprietary trade. This concern escalated to a lawsuit,

While these are appropriate debates, although certainly not the only ones, we should not forget the lessons from the 2008 financial crisis. Although efforts have been made to minimise the risk looming over the too-big-to-fail financial institutions, the five largest US banks, ironically, are even bigger than they were before the financial crisis. Only by creating stricter laws can we end public bailouts and safeguard depositor interests. Taxpayers should not be responsible for bailing out another distressed financial institution as a result of a ‘swing for the fences’ investment strategy. Although there is no foolproof way to prevent another global economic meltdown, the Rule surely reduces unjustified risk in the financial system, reinforces supervision, and assures the healthy development of banking services. HKSLG · SPRING 2014 · ISSUE 4

INTERNATIONAL

The Lawfulness of Humanitarian Intervention Crystal Yeung

Lest we forget why the United Nations came into existence

he United Nations (UN) was established at the end of the Second World War. Despite its inadequacies as a global humanitarian safeguard, the UN has brought together different states to collaborate in fostering the development of a peaceful international community with unprecedented success. Since its inception, the central tenet of the UN’s has been to ‘save succeeding generations from the scourge of war’. It is thus unsurprising that one of the principal provisions of the UN Charter, Article 2(4), codifies the customary prohibition on the ‘threat or use of force’ by one state against another. As Ernest Hemingway once said, ‘never think that war, no matter how necessary, nor how justified, is not a crime.’

Charter. By exploring pertinent international developments in the realm of peace and war, this article critiques the inadequacy of the second exception to use armed force on humanitarian grounds. Respect for sovereignty Chapter VII of the Charter empowers the UNSC to authorise collective use of armed force to maintain or restore international peace or security. Violation of a peremtory norm such as genocide may constitute a ground for exercising that power. However, in reality, the Council infrequently employs this right. One reason is the partiality for state sovereignty that is inherent within the Charter.

Pragmatic exceptions In order to uphold the internal coherence of the Charter, the UN remains resolute on the illegality of the use of force. At the same time, strict adherence to Article 2(4) could jeopardise international peace and at certain junctures of discord, any absolutist view would only serve to label the UN as an ivory tower. Consequently, the Charter presents two exceptions to the prohibition on use of force. The first exception to the use of force (self-defence) is found in Article 51 while the second exception, grounded in Security Council (UNSC) authorisation, is addressed in Chapter VII of the UN HKSLG · SPRING 2014 · ISSUE 4

Notwithstanding instances of state consent, this structural predisposition critically impedes the UNSC’s readiness to approve the use of armed force in relieving humanitarian crises. China and Russia, two of the five permanent members of the UNSC with veto pow-

ers, are also generally advocates of non-intervention; each has vetoed proposals for use of armed force on humanitarian grounds in the past. Their justifications range from preference for peaceful solutions to accusations that the ‘guise’ of humanitarian intervention is simply an excuse to bring about regime change. ‘Illegal but legitimate’ During the Kosovo War (1998 – 1999), Serbian troops persecuted the Albanian population in ‘a systematic campaign of terror, including murders, rapes, arsons, and severe maltreatments’. The UNSC resolution to intervene on the pretext of human rights protection was, however, vetoed by Russia and China. Despite this, the North Atlantic Treaty Organisation (NATO) provided air support to the Albanian rebel group, and ultimately helped to end the war. On the whole, the international community considered NATO’s intervention ‘illegal but legitimate.’ Illegal because it did not have UNSC authorisation, but legitimate because, in exhaustion of all diplomatic avenues, the air strikes were proportionate responses to the oppression of the Albanian population. This disjointed and illogical conclusion on the co-existence of illegality and legitimacy sparked a debate on humanitarian intervention. In due course, a new perspective known as the Responsibility to Protect (R2P) principle was coined by the International Commission on Intervention and State Sovereignty.

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Responsibility to protect The R2P principle, conceived in 2001, circumvents the problem of illegality in existing humanitarian intervention doctrines by shifting the focus from state-centred motivations (sovereignty) to the rights of the victims. There are three founding pillars behind R2P: first, sovereignty entails a state’s responsibility to protect its citizens. Second, other states have a responsibility to assist the state to fulfil its responsibility under the first pillar. Third, if a state fails to protect its citizens from mass atrocities and, following failure of peaceful solutions, other states have a responsibility to intervene. Although R2P effectively sidesteps the sovereignty principle’s limitation in theory, it does not challenge the Security UNSC’s authority to give consent to force in law. R2P therefore does not override the fundamental prohibition of the ‘threat or use of force’ embedded in Article 2(4) of the UN Charter. R2P may not be legally binding but President of the International Crisis Group, Louise Arbour contends that the principle is entrenched in international law as it reflects the heart of international customary norms and treaties. Confirmation of R2P’s applicability was delivered at the UN World Summit in 2005, where a resolution supporting the principle was unanimously accepted by all Member States. By the same token, when Libya engaged in systematic attacks on its civilian population in 2011, the UNSC made explicit reference to R2P in its call to the Libyan authorities to protect its citizens. As the conflict escalated, the UNSC authorised Member States to take ‘all necessary measures’ to protect Libyan civilians. NATO responded with air strikes, which eventually helped to depose the Libyan leader Muammar Gaddafi. Yet, in the face

of these achievements, R2P is still controversial and its mandate today remains tenuous. For instance, though circumstantially appropriate, R2P was not adopted in the resistance against the Assad government’s brutality in Syria. All the same, recent illustrations of R2P indicate cautious optimism for the principle’s future. R2P’s success is evident in the Côte d’Ivoire crisis in 2011, where the UN Operation in Côte d’Ivoire, with the authority of the UNSC, applied armed force to end post-election human rights violations. ‘It has too often been too easy for rulers and governments to incite man to war’– Lester B. Persson In considering the use of armed force for humanitarian intervention, it has never been contended that peace is underserved or unwarranted. The real question is whether the use of force is the best option for achieving peace. This answer depends, inter alia, on the sacrifices the world is prepared

to make to defend humanity. In his Nobel Peace Prize Lecture on the ‘Four Faces of Peace’, Pearson voiced that war arises too easily too often. It is true that humanitarian intervention inevitably risks abuses of the UN’s objectives. Yet there are times where armed force is the only effective way to expediently terminate atrocities. Let the lessons learned from the Rwandan genocide be a reminder that international inaction can lead to devastating consequences. Sometimes, controlled force is the soundest means to achieve peace. On these occasions, humanitarian intervention should be affirmed by international law. Meanwhile, the danger of proxy wars or ulterior motives is a burden that must be shouldered by the vigilance of the international community.

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INTERNATIONAL

The Future of Climate Migrants Tiffany Cheng

limate change has already arrived. According to a prediction made by the Intergovernmental Panel of Climate Change, rising sea levels will leave many low-lying islands inhabitable or underwater this century. In 2008, 1,500 residents on the Carteret Islands in Papua New Guinea were forced to leave their homes as seawater inundated their homeland and salinised their farmland, putting their food security and hygiene at risk. The fate of these people will be shared by thousands of others living in low-lying areas in decades to come. Fortunately for the displaced residents on the Carteret Islands, most of them were able to relocate to other parts of the country. However, nations like the Maldives and Kiribati do not have high grounds to enable internal relocation. What lies in the future for these people? How will their rights be protected once they leave their countries?

protect climate migrants’ rights. Under the Convention, a claimant has to satisfy all four requirements in order to establish refugee status. He must establish: 1.)a well-founded fear of being persecuted when there is a real chance of it occurring; 2.)the alleged persecution is a sustained or systemic violation of basic human rights demonstrative of a failure of state protection; 3.)the persecution is based on reasons of race, religion, nationality, or membership of a particular social group or political opinion; and finally 4.)he is outside the country of his nationality and is unwilling to return.

An unsuccessful claim under the Refugee Convention Unable to foresee any prospects in his homeland due to the rising sea level, Mr Teitiota of Kiribati made the world’s first climate refugee application under the 1951 Refugee Convention (the Convention) (see Teitiota v Chief Executive, Ministry of Business Innovation and Employment [2013] NZHC 3125). However, his claim was ultimately rejected by the High Court of New Zealand (the Court) in November 2013. This landmark case highlights the limited scope of the Convention and demonstrates a necessity to develop legal tools to HKSLG · SPRING 2014 · ISSUE 4

ibati. Therefore, since persecution could not be proved, neither could a ‘well-founded fear’ of it be established. As a result, the Court ruled that Mr Teitiota’s claim failed to meet the first three requirements of the Convention. Furthermore, the Court said even if his claim of ‘passive persecution’ is allowed, threats of climate change are indiscriminate and do not meet any of the five grounds that define persecution under the third requirement. Options for climate migrants Since climate migrants are not recognised as refugees under the Convention, other legal options must be sought. However, there is currently no international agreement that adequately addresses the legal rights of climate migrants. Although alternative legal proposals have been explored, solid conclusions have not been reached. I. Negotiating a new treaty

The Court rejected his claim that the failure of the Kiribati government to cope with climate change amounted to ‘passive prosecution’, and ruled that the results of climate change did not amount to persecution as it is not ‘a sustained or systemic violation of basic human rights’. Moreover, there are no substantial grounds to show that Mr Teitiota’s basic human rights would be violated upon his return to Kir-

A new treaty that directly targets climate migrants may be the most effective way to deal with the legal vacuum on this issue. However, it is difficult to categorise climate change-displaced persons as climate change is often a slow-onset process and its effects vary depending on a country’s adaptive capacities. Therefore, it is challenging to define these persons when drafting an appropriate legal instrument. Also, it would be difficult for states to reach a consensus and ratify any potential treaties because they may have agendas that are inconsistent with assisting foreign climate migrants.

INTERNATIONAL II. The non-refoulement principle International human rights law has expanded the obligations of states to safeguard certain groups of people who fall outside the traditional refugee definition. The principle of non-refoulement provides that those at risk of arbitrary deprivation of life, torture, or cruel, inhuman or degrading treatment or punishment (CIDTP) are also to be protected. Climate migrants could submit that climate change has rendered their living environment in inhabitable. Thus, returning them to their country of origin would violate their right to life and amount to subjecting them to CIDTP. However, the law in this area varies among different jurisdictions and courts often apply severely stringent thresholds to these two rights. An examination of relevant judicial decisions indicates that to trigger an obligation of non-refoulement, the claimants must show, upon a high standard of proof, that their suffering is also life threatening. For example, extreme situations like saltwater intrusion into freshwater supplies due to rising sea levels may be interpreted as a threat to right to life. Since climate impacts must be crit-

ically adverse for claimants to succeed on this ground, the principle of non-refoulement would not be very useful for cases of pre-emptive movements in response to slowonset climate change impacts. III. Non-binding international agreements It may be more constructive to agree on non-binding agreements at this stage, since states are more likely to enter into such agreements than to binding treaties. As mentioned, different legal proposals have already been put forward. The Global Guiding Framework by University of New South Wales Law Professor Jane McAdam suggests integrating existing human rights obligations under the Convention as well as the non-refoulement principle and applying them to climate migrants. She is hopeful that this framework will eventually become legal norms and adopted into domestic laws. Another proposal is The Nansen Principles, developed by the Norwegian government as a result of a series of regional and sub-regional consultations. The Principles, which were agreed upon by all involved stakeholders, dictate that climate mi-

grants should be aided by national governments, regional agreements, and international agreements. They also recognise a deficiency in the current international legal framework for protecting cross-border displaced persons by sudden or slow-onset climate disasters. These two legal proposals will serve as a strong beginning for future international negotiations. It now falls on the international community to consider the proposals and the United Nations to produce a set of comprehensive guiding principles or non-binding international agreements by which various states may be encouraged to follow. Conclusion The sea level is rising: three islands in Kiribati have already vanished under water within the last century. It is predicted that by the end of the century, the population of Kiribati will become stateless as the entire island submerges. The creation of legal protection for climate migrants is therefore a pressing need and should no longer be neglected. The international community should take immediate action to make concrete progress to safeguard the rights of those affected.

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INTERNATIONAL

The US Senate Filibuster Rule Change: Majority Rules, Minority Rights

arack Obama promised to bring hope and change to America at a tumultuous time. However, during his second term, Obama and the Democrats encountered obstructions when implementing policies. The President blamed filibusters in the US Senate targeting presidential nominations for preventing ‘too much of the American people’s business from getting done.’ By invoking the ‘nuclear option’, the proposal of overcoming filibusters of presidential nominations by a simple majority is passed. Consequently, the ready approval of presidential nominations to the judiciary will likely infringe the separation of powers through weakened judicial reviews, and sacrifice minority rights on a wider scope. Filibusters and the ‘nuclear option’ The term filibuster refers to any delaying or obstructive actions taken to block or delay action on a bill. It is a right neither guaranteed nor rejected by the US Constitution. A senator is thus constitutionally permitted, for instance, to speak indefinitely or initiate a quorum call that may lead to adjournment of a session. The Constitution confers each legislative chamber the power to determine its own rules of proceedings. In recognition of the potential abuse of filibusters by politicians, Rule XXII of the Senate Rules allows a vote of 60 to overcome a filibuster by limiting the remainHKSLG · SPRING 2014 · ISSUE 4

ing time for the consideration of a bill or other matter to 30 hours. This process for ending filibusters is known as ‘cloture’. In addition to the cloture rule, the nuclear option may be used to oblige the presiding officer of the Senate to declare a Senate precedent or rule a constitutional question. Changes to the cloture could then be decided by a simple majority vote. This nuclear option effectively puts an end to filibuster by a majority vote. In November 2013, Harry Reid, Democratic Majority leader, invoked the nuclear option for the first time in the history of the Senate. Reid successfully passed a rule change with a 52-vote majority, helping the party in control of the Senate to overcome filibusters of presidential nominations to the US Court of Appeals for the District of Columbia Circuit (DC Circuit) and key administrative agencies.

Louisa Wong

The rule change allows the majority to invoke cloture in this situation with a simple majority instead of the 60 votes previously required. As the current Senate majority, the Democratic caucus can thus more readily approve filibustered presidential nominations, preventing political obstruction. Presidential judicial nominations and judicial review Judicial review in the DC Circuit is likely to be affected following this rule change with the removal of filibustering for presidential nominations. The US Senate approves presidential nominations to the DC Circuit. Before the filibuster rule change, there was an equal number of Democratic and Republican judges in the DC Circuit. However, within a month of the amendment, the Senate approved a Democratic nomination to the DC circuit, which was previously blocked.

INTERNATIONAL The DC Circuit is important because it mainly hears appeals of agency decisions or civil cases that concern the federal government. The DC Circuit’s rulings therefore help determine the performance of Obama’s second presidential term. With almost all facets of daily life covered by agency regulations, a Democrat-dominated DC Circuit could prevent judicial challenges to Obama’s policies. Obama’s more ambitious proposals, including greenhouse gas restrictions and financial reform, would therefore be more likely to come into force. The DC Circuit, should it turn pro-administration in its composition, will likely imperil judicial review and the envisioned checks and balances between the executive and the judiciary. Even without actual bias in the judicial process, the appearance of bias due to political composition of the DC Circuit will weaken public trust in this court. As famously noted by Lord Hewart CJ in R v Sussex Justices, ex parte McCarthy [1924] 1 KB 256, ‘…justice should not only be done, but should manifestly and undoubtedly be seen to be done.’ Any cases ruled in favour of the administration, even if adjudicated impartially, will be seen as biased judgments. With diminished trust and confidence, reluctance by the public to instigate judicial challenges to administrative policies de facto incapacitates the DC Circuit’s role in upholding the separation of powers. The filibuster rule change not only sacrifices public trust and confidence in the judicial system, but also in the federal government as a whole. On minority rights Apart from specific issues relating to the judicial reviews, Reid’s historic act leads to wider impact on the protection of minority rights. Although the protection of

minority rights may seem antithetical to democracy, it is necessary owing to the conundrum of majoritarianism. Alexis de Tocqueville asked in his work Democracy in America, ‘If it be admitted that a man possessing absolute power may misuse that power by wronging his adversaries, why should not a majority be liable to the same reproach?’ If the minority is deprived of the possibility to become the majority or to compete fairly in assembly, the majority may turn the administration into an oligarchy. With the rule change, the minority’s already limited bargaining power has been further diminished. While Obama emphasised efficiency in Congress and blamed filibusters for delaying progress, passing bills should not be rushed for the sake of efficiency whilst sacrificing minority rights. As a delaying tactic, filibusters serve as more than just a mere obstruction: they have come to represent a safeguard for minority rights against the tyranny of the majority. This process allows the minority to take a stance and helps reach a conclusion that may

enjoy wider acceptance by various sectors. Insight from the Framers James Madison, one of the Framers of the American Constitution, wrote in Federalist 51 that ‘ambition must be made to counteract ambition’, or such ambition may be abused against its own genius. He also noted that the Constitution was designed to place a difficult path for the administration before it could take any action. Madison recognised the potential abuse of power driven by human nature, and considered the separation of powers as a necessary precaution. By paving a smoother path for the administration, the filibuster rule change may appeal to contemporary society, but it neglects the potential usurpation of constitutional guarantees to the American people in the future.

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