Contract law, law of tort, companies law and intellectual property law in Hong Kong

Contract law | Law of tort | Companies law | Intellectual property law

Contract law

Hong Kong contract law had its origins in the English law of contract but has evolved as a result of local court decisions and legislation.

The main items of Hong Kong legislation that affect contractual relations include:

  • Sale of Goods Ordinance (Cap 26);
  • Control of Exemption Clauses Ordinance (Cap 71);
  • Misrepresentation Ordinance (Cap 284);
  • Supply of Services (Implied Terms) Ordinance (Cap 457);
  • Unconscionable Contracts Ordinance (Cap 458);
  • Law Amendment and Reform (Consolidation) Ordinance (Cap 23) (sections 11 - 18, 21, 23);
  • Electronic Transactions Ordinance (Cap 553) (sections 17 - 19).

A contract in Hong Kong is legally binding when four major elements are present, namely:

  • offer;
  • acceptance;
  • consideration; and
  • intention to create legal relations.

The intention to create a legal relationship is assessed objectively from a bystander's point of view rather than the subjective intent of the offeror or the offeree.

The terms of a contract are the agreed conditions by which the parties are to be bound. A contract can be oral, in writing or inferred from the conduct of the contracting parties. A term can be expressed or implied by legislation or the courts of Hong Kong.

The parol evidence rule and contra proferentem rule are relevant when interpreting contract terms. The parol evidence rule states that the court will presume that the parties have set out all of their agreed terms within the written contract; the court will not generally allow further terms to be added to the contracts.

Subject to restrictions in the Control of Exemption Clauses Ordinance (Cap 71), contracting parties are free to agree on terms which restrict their potential liabilities to each other (exclusion or limitation clauses), but not to third parties.

A contract may be discharged by way of:

  • performance (the contract has been fully performed);
  • mutual consent of the parties;
  • the term of the contract which stipulates the incident of discharge;
  • breach of contract which repudiation is accepted by the innocent party; or
  • frustration (that is, it cannot be performed without fault of and intervention by the contracting parties);
  • law.

There are also three bases at common law (as distinct from express contractual termination rights) on which a party can terminate a contract:

for breach of a condition;

for fundamental breach – this refers to a breach of an intermediate term which deprives the promisee of substantially the whole of the benefit which, as expressed in the contract, it was intended to receive in return for performance of its promises; or

for repudiation.

Remedies for breach of contract include:

  • agreed damages;
  • general damages;
  • specific performance; and
  • damages in lieu of specific performance or injunction.

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Law of tort

The law of tort in Hong Kong, like most other common law systems, is concerned with claims outside a contract arising from breaches of a duty of care owed by one individual to another.

Tort law in Hong Kong has its origins in the English law of tort but has moved away from the English model in areas such as work-related injury, defamation, damages for personal injuries and death, and occupiers' liability. For example, Hong Kong law provides statutory remedies for work-related injury.

Areas of tort law in Hong Kong include: vicarious liability, negligence, anti-discrimination torts, trespass to the person, wrongful interference of goods, product liability, trespass to land / dispossession, occupiers' liability, nuisance,
Rylands v Fletcher, liability, environmental torts, economic torts, statutory intellectual property rights, passing off, defamation, breach of fiduciary duty, deceit, professional liability, defences, damages.

A large number of English cases still have authority in Hong Kong. Although Hong Kong has followed the English approach in many areas of tort law, Hong Kong courts can look to other common law courts for inspiration (eg Australia and Canada).

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Companies law

The Companies Ordinance (Cap 32) establishes the legal framework of companies law in Hong Kong including:

  • principles and standards of corporate governance;
  • the role and duties of company directors;
  • the regulation of insider dealing in Hong Kong;
  • minority shareholder protection (including both judicial and statutory protection and reform of shareholders' remedies); and
  • shares, capital and dividends.

The principal forms of business entity in Hong Kong are limited-liability companies (both public and private), branches, partnership and sole proprietorship.

Most foreign investors form limited-liability companies, but in some cases they opt to form branches. A private limited-liability company is one that restricts the right to transfer its shares, limits the number of shareholders to 50 and prohibits any offers to the public of its shares or debentures. Public companies do not have these restrictions.

A partnership is formed where a person joins with other people to conduct business for profit. A partnership can be either a general partnership or a limited partnership. The liability of the partners for the debts of a general partnership business is unlimited.

The establishment and operation of a business in the form of a sole proprietorship are relatively simple. The owner of a sole proprietorship is personally entitled to all the profits and is responsible for all the liabilities arising from the business. Sole proprietorships are required to be registered under the provisions of the Business Registration Ordinance.

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Intellectual property law in Hong Kong

Intellectual property law in Hong Kong relates mainly to copyright and patents.

Copyright is the intangible property embraced in a work as distinct from the tangible property in the materials containing the work. Copyright law is territorial. Copyright does not need to be registered in Hong Kong. The Copyright Ordinance (Cap 528) requires three criteria to be satisfied before something can qualify for copyright protection:

  • the subject matter must be a 'work' (there is no statutory definition of work but the courts have insisted there must be a certain bare minimum of skill, judgment and labour);
  • it must fall within one of the nine categories of work specified in s2(1); and
  • if the subject matter is a literary, dramatic, musical or artistic work, it must satisfy the requirement of being original.

Copyright in a work is infringed by any person who, without the licence of the copyright owner, does, or authorises another to do, any of the acts restricted by the copyright. Section 22(1) of the Copyright Ordinance lists the restricted acts which include:

  • copying the work;
  • issuing copies to the public;
  • renting copies to the public; and
  • making available copies to the public.

There are two enforcement mechanisms used to protect a copyright owner’s rights, being primary infringement and secondary infringement.

A patent is a form of property which gives to its owner a monopoly right to prevent others from exploiting an invention without the owner's consent. The legal framework of patents in Hong Kong is built upon the Patents Ordinance (Cap 514).

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