A BOLD NEW COLLECTIVE

Rede Chambers is pleased to announce that its members have received 22 accolades across 7 practice areas in this year’s the Legal 500 Asia Pacific: Greater China guide for the Hong Kong Bar, namely: Commercial disputes, Regulatory, investigations and crime, Construction and property, Family and private client, Competition, Intellectual Property and Labour and employment.

We thank the Legal 500, our clients and our peers for their recognition and continued support.

View our members’ Legal 500 accolades here. 

We are delighted to announce that Samantha Lau has joined as our newest member.

Samantha was called to the Hong Kong Bar in 2020 and has a wide civil practice with an emphasis on commercial litigation. She also has an international arbitration practice, having experience in handling arbitral proceedings administered by the HKIAC, LCIA and SIAC. Previously, she served as a judicial assistant of the Court of Final Appeal before being awarded the Bar Scholarship.

In addition to being qualified in Hong Kong, Samantha is also a member of the New York Bar.

Her arrival is a welcome addition to the diverse litigation and arbitration capabilities that chambers has to offer.

Read Samantha’s full profile here.

Construction projects involve an array of components – including construction work, consultancy services, and materials/plant supplies – linked through a supply chain. An obvious risk is that it only takes one party to delay payment to cause a ripple effect of financial pressure down the chain. Especially affected are small enterprises where cash flow is critical.

But there is now hope for Hong Kong’s buoyant construction industry. After ongoing discussions between the relevant stakeholders going back over two decades, the government has recently introduced the Security of Payment (SOP) Bill. The intention is to speed up the flow of cash down the various tiers of the supply chain, in line with similar legislation in the United Kingdom, Australia, Singapore and Malaysia. The bill is currently being shepherded through the legislative process and is expected to be enacted into law in late 2024.

One key element of the bill is that parties to a construction contract will be statutorily entitled to refer disputes over payment claims to adjudication, a process where a third-party adjudicator makes a binding interim decision without the delays and formalities of litigation or arbitration. That said, unlike the approach in some jurisdictions, litigation or arbitration before an adjudication decision is not prohibited. Subject to being set aside, an unpaid adjudication decision may be enforced by the Court of First Instance as if it were a judgment.

The bill has already attracted much scrutiny. In the insolvency context in particular, some potentially thorny issues arising out of the enforcement of adjudication decisions are worth noting, as informed by overseas case law.

First, the enforcement of payment claim debts underlying a winding-up petition may raise questions on the interplay between the statutory regime and parties’ agreement, the proper forum for resolving payment claims, and related policy issues.

For instance, the English court in Breyer Group Plc v RBK Engineering Ltd (2017) had struck out a winding-up petition as an abuse of process by reason that, inter alia, the proper avenue for the dispute between the parties is adjudication under the terms of their agreement.

Useful analogies may also be drawn from the topical arbitration stay-versus-winding up debate in the common law world: contrast the recent decisions of Re Simplicity & Vogue Retailing (HK) Co Ltd (2024) and Sian Participation Corp v Halimeda International (2024).  In Simplicity, the Hong Kong Court of Appeal essentially decided that the parties’ agreement to refer disputes to arbitration trumps the court’s jurisdiction in insolvency proceedings. By contrast, in Sian Participation, the Privy Council decided to the opposite effect.

A related issue is whether an adjudicated amount, given its interim nature, is a right due and payable to a claimant which could constitute a petitioning debt or genuine cross-claim for the purpose of winding up. In the Australian case of Diploma Construction (WA) Pty Ltd v KPA Architects Pty Ltd (2014), the Court of Appeal of the Western Australia Supreme Court held that a judgment entered in terms of certain adjudication determinations gave rise to debts that are due and payable according to the relevant statute, and in turn could form the basis of a statutory demand, against which there was no genuine dispute to justify setting aside.

Finally, there is the question of the enforceability of adjudication decisions by or against insolvent companies in the winding-up process. This hinges on whether the liquidation regime can be reconciled with enforcing temporarily binding decisions. The English Court of Appeal has recently examined this issue in John Doyle Construction Ltd v Erith Contractors Ltd (2021), reiterating (in obiter) that an interim adjudication decision does not resolve (cross)claims in an insolvency context, and so should not be summarily enforced in that process.

It will be interesting to see how the Hong Kong courts will grapple with these issues in the unique local context as and when they arise for determination after the SOP Bill is passed.

In Re Centre Rise Trading Ltd [2024] HKCFI 2315, the court granted a ‘Lazarus’ order to revive a company out of time so that the applicant qua creditor could make substantial claims against the company that had not been previously made.

The company (Centre Rise) is the 80% shareholder of the applicant (Yuetan), which owns valuable properties in Beijing.  For the past 20 years, Centre Rise was embroiled in a long-standing dispute over a bank loan for which Yuetan provided security, resulting in Centre Rise being wound up in Hong Kong as well as a series of litigation on the Mainland ending up in the Supreme People’s Court.  Centre Rise was eventually dissolved by the Hong Kong Court in 2018 following the liquidators’ application for release and dissolution.

Yuetan and its director later brought an application seeking revival of Centre Rise outside the statutory 2-year period and reappointment of the former liquidators.  Ng J allowed the application on the basis, inter alia, that the prospect of Yuetan enforcing Centre Rise’s undertaking to transfer its 80% shareholding in Yuetan to its board for disposal upon performance of certain obligations under a court-sanctioned settlement cannot be dismissed as shadowy.  There are a few interesting takeaways from the Court’s decision:

(1) First, while not necessary to his decision, Ng J recognised that s. 290 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) is apt to cover the situation where a liquidator was aware of an asset but unaware that it has realisable value.

(2) Secondly, although the emergence of potentially recoverable assets previously unknown to the liquidators may be a sufficient reason for extending the statutory 2-year period, if the application is brought on the further or alternative ground of enabling a creditor to make a claim, positive justifications as to why it did not act promptly and file a proof of debt during the company’s liquidation may be required.

(3) Thirdly, where the applicants were not at fault in the dissolution of the company but joined the former liquidators who rendered assistance to the court, a balance would be struck in protecting the parties’ costs exposure. In the event, Ng J ordered that the liquidators’ costs should be payable by the applicants in any event, and the applicants be entitled to recover such costs out of the company’s assets.

Adrian TY Wong, instructed by Withersworldwide, acted for the successful applicants.

The full judgment is available here.

In Durkin v DSG Retail Ltd [2014] 1 WLR 1148, the UK Supreme Court implied a term at common law into the credit agreement that it would be rescinded upon the rescission of the underlying supply agreement when the sole purpose of such credit agreement is to finance a specific supply contract of goods and services (“Term”).

By contrast, in 黃偉成 v 交通銀行股份有限公司 [2024] HKCFI 1902, DHCJ Phoebe Man rejected the implication of the Term in a similar factual matrix due to different policy considerations applicable in the UK and Hong Kong respectively. In particular, the degree of consumer protection in the two jurisdictions are not comparable, e.g. in Hong Kong, there is no legislation equivalent to the UK Consumer Credit Act 1974, which essentially codified how the type of credit agreement in question should be regulated. As such, judicial legislation by the courts should be avoided.

This is another example showing that Hong Kong courts are not bound by the development of common law in other jurisdictions and local courts are entitled to determine how our common law should be developed, taking into account unique legal and societal circumstances.

Norman Nip SC and Brian Chok, instructed by Zhong Lun Law Firm, acted for the Defendant bank in successfully resisting the appeal by the Claimant.

The full judgment is available here.