Topic One The Legal System of the Hong Kong SAR

[A] What is the meaning of law?

A framework of legal rules, made by persons with the authority(judges and legislators) to
make legal rules, which regulate legal relations between legal persons (natural persons and
companies) to resolve legal disputes between legal persons.

[B] Sources of law

It means the legal sources of law (what is regarded as law).
According to Article 18(1) of the Basic Law, sources of law mainly include:
a. The Basic Law
b. Legislation
c. Common law; and
d. Equity

[C] The Basic Law

The Basic Law is Hong Kong’s written constitutional document.

It was passed by the National People’s Congress ( 全 國 人 民 代 表 大 會 - China’s
legislature)

The Basic Law is supreme over other legal sources (legislation, common law and equity)
Article 11(2): No law enacted by the legislature of the Hong Kong Special Administrative
Region shall contravene this Law.

Some legislations have been invalidated (declared to be invalid) under this article since
1997.
Example: A minor provision in the Securities (Insider Trading) Ordinance (Cap 395) was
invalidated by the Court of Final Appeal in Koon Wing Yee v Insider Dealing Tribunal
(2008) 11 HKCFAR 170

The Basic Law has more impact on human rights (in particular right of abode) and
political system of HKSAR. However, it has very little conflict with business law of
HKSAR.

[D] Legislation 立法

What is legislation?
Legislation is the law passed by the legislature 立法机关(the Legislative Council in Hong
Kong).
Legislation is in contrast with judge made law（the law made by judge 和中国的不同之
处，在中国 judge 只 apply the law） (common law and equity)

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（电子版香港法例 HK e-legislation <elegislation.gov.hk>）The process of legislation is
as follows:
1. Drafting bills
2. Notice of intention to present a bill
3. Presentation and publication of bills
4. Passage of a bill through the Legislative Council
a. First reading
b. Second reading
c. Third reading
5. Chief Executive’s signature and promulgation
6. Commencement
7. Reporting to the Standing Committee of the National People’ Congress 人 大 常 委
(NPCSC)

Two types of legislation:

i) The main body is called an Ordinance e.g. Companies Ordinance (Cap 622)
ii) Under the Ordinance, there is the delegated legislation 授 權 立 法 . Power to
make
law is delegated to the policy bureau, government departments, public bodies) It is
also called “subsidiary legislation” or “subordinate legislation” 附屬立法
They have different names: rule, regulation, by-law 附例,

Sometimes, legislation has to be interpreted by the court because of:

i) ambiguity (a word has more than one possible meaning); and
ii) uncertainty ( whether the legislation can be applied in the current situation)

Legislation can be interpreted in the following ways:

i) Literal approach – looks at the literal meaning of the words when there is no
ambiguity
ii) Purposive approach – looks at the purpose of making the legislation

In some branches of law, common law dominates e.g. Contract Law, Tort Law, Agency
Law. In other branches of law, legislation dominates e.g. Company Law.

Examples of legislations that we are going to learn in this course include: -

Contract Law
Control of Exemption Clauses Ordinance (cap.71)
Supply of Services (Implied Terms) Ordinance (cap.457)
Misrepresentation Ordinance (cap.284)
Unconscionable Contracts Ordinance (cap.458)
Sale of Goods
Sale of Goods Ordinance (cap.26)
Tort Law
Occupiers’ Liability Ordinance (cap.314)
Employment Law
Employment Ordinance (cap.57)

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Company Law
Companies (Winding Up and Miscellaneous Provisions) Ordinance (cap.32)
Companies Ordinance (cap.622)

How to find the Basic Law?

1. Go to www.elegislation.gov.hk/eng/index.htm
2. Go to the box “Enter Cap No” and insert the number A101 and click enter
3. Then you can find the Basic Law.

How to find the legislations?

1. Go to www.elegislation.gov.hk/eng/index.htm
2. Go to the box “Enter Cap No” and insert the number 622 and click enter
3. Then you can find the Companies Ordinance (Cap 622)

[E] Rules of Common Law and rules of equity

William the Conqueror unified England in 1066 extracted the law common to the whole
country. It is the reason why it is called common law.
Common law are simply rules made by the judges in the common law courts and
developed over many centuries.

Equity means that body of law developed in courts of equity (Court of Chancery was the
most important one) in the 12th century in response to the defects of common law as a
supplement to the Common Law.

Equity is mainly civil law. Equity rules are similar to common law as both of them are
legal principles made by the judges. When compared with common law, equity rules are
fairer and more flexible.

The impact of equity is mainly on contract law, land law and trust law.

In contract law, equity provides more remedy which is called equitable remedies (common
law only provides the remedy of damages:
i) Recission 撤銷合約(cancellation of the contract)
ii) Injunction 禁制令(to stop the breach of the contract)
iii) Specific performance 強制履行令(to order a party to the contract to perform
the contract)

In case of conflict between common law and equity, equity prevails.

In 1873, all the courts were directed to apply the principles of both the common law and
the law of equity.

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Precedent- a previous judicial decision- a previous case
Principle of law – “ratio decidendi” of the case (or ratio)- the principle underlying the
decision in the case or the reason for the decision

The principles of law under common law and equity are applied by the courts in all
subsequent cases through the doctrine of precedent. In general, lower courts are bound by
the decision of the higher courts. All the courts will usually follow their own previous
cases.

Ranking of Law
Basic Law (a constitutional document)
Legislation
Equity
Common Law
Examples:
When basic law and legislation are in conflict, basic law prevails.
When legislation and equity are in conflict, legislation prevails.

How the parties in court cases are called?

Plaintiff (原告), Defendant (被告),

Example:
In Ito Technology (HK) Co., Limited v Hong Kong Hing Wo Trading Limited (2019)
HKDC 157, Ito Technology (HK) Co., Limited is the Plaintiff and Hong Kong Hing Wo
Trading Limited is the defendant.

Appellant (上訴人) and Respondent (答辯人).

Example:
In Yeung Siu Keung v HKSAR (2006) 1 HKLRD 895, Yeung Siu Keung is the appellant
and HKSAR is the respondent.

How can I find the Hong Kong court cases?

a. Enter the website of the judiciary (courts) https://www.judiciary.hk/en/home/index.html

b. Click the Judgments and Reference icon (then Judgments and Rulings and then
Judgements) on the left hand side
c. Click the Advanced Search icon on the top / right
d. Enter the parties’ names, etc., that will lead you to the relevant court case.

How can I find the English court cases?

a. Enter the website of CUHK’s University Library System

b. Click the ‘database by title’ on the screen
c. Click ‘w’ on the screen

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d. Click the Westlaw Asia (you can also find the HK cases in this website)
e. Enter the parties’ names, etc., that will lead you to the relevant court case.

[F] The courts and tribunals in Hong Kong

The judiciary consists of the courts and the tribunals ( 審 裁 處 ). Tribunals are informal
courts using informal procedures and are usually specializing in certain types of cases.
We have to know the jurisdiction of the courts. Jurisdiction to hear a case
審判權 means the authority to hear and determine matters in legal proceedings brought
before a court or tribunal.
Jurisdiction is divided into original 原訟 and appellate 上訴 jurisdiction.

Court Jurisdiction
The Court of Final Appeal (CFA)( 終 審 法 Unlimited appellate jurisdiction to hear
院) appeal from CA and CFI
The Court of Appeal (CA)(上訴法庭) Unlimited appellate jurisdiction to hear
appeal from CFI and DC
The Court of First Instance (CFI)( 原 訟 法 Unlimited Appellate jurisdiction to hear
庭) appeal from CFI and DC
unlimited original jurisdiction
The District Court (DC)(區域法院) Original jurisdiction in civil case- 3 million
dollars
Original jurisdiction in criminal case-
maximum penalty of 7 years imprisonment

The Magistrate Courts (裁判法院) Original jurisdiction in criminal case

Maximum penalty:
2 years imprisonment for single offence
3 years imprisonment for consecutive
offences
The tribunals limited original jurisdiction

Students are encouraged to check with textbooks (pg.40 D.K.) and references to
understand the jurisdiction of the courts and route of appeal.

Parties may also resolve their disputes by alternative dispute resolution (ADR).The most
typical examples are arbitration 仲 裁 and mediation 調 解 . The advantages of ADR
alternative include:
i) lower cost;
ii) more efficient
iii) more flexible
iv) confidential

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[G] The legal profession

The legal profession has two separate branches:

a) solicitors 事務律師 (mainly handle legal work other than advocacy work 出庭辯
論工作 (mainly conveyancing 土地轉讓 and preparing legal documents but with
limited right of audience 出庭發言權) and
b) barristers 大律師 (lawyers who mainly do advocacy work).

[H] Different legal systems in the world

Two major legal systems:
Common law vs Civil law

Common law Civil law

All those legal systems which have adopted
the historic English legal system
Britain plus the United States and many
other Commonwealth and former
Commonwealth countries retain a common
law system
Those other jurisdictions which have
adopted the European continental system of
law derived essentially from ancient Roman
law, but owing much to the Germanic
tradition

Tend to be case centred and hence judge Tend to be a codified body of general
centred, allowing scope for a discretionary abstract principles which control the
pragmatic approach to the particular exercise of judicial discretion.
problems

Case law is an independent source of law Judges apply the law in a code (Criminal
Code and Civil Code)
Judges are bound by precedents Judges are not bound by precedents

[I] Money Laundering

What is money laundering?
Money laundering covers all procedures which change the identity of illegally obtained
money so that it appears to have originated from a legitimated source
There are 3 stages of money laundering
i)Placement: physical disposal of dirty cash
ii)Layering: series of transfers of funds to disguise the origin
iii)Integration: use layered funds to purchase clean legitimate assets

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Money laundering refers to the carrying out of transactions involving funds or property
that are owned or controlled by terrorists or transactions that are linked to terrorist
activities

Legislation on money laundering

Drug Trafficking (Recovery of Proceeds) Ordinance (“DTROP”) Cap 405
Organized and Serious Crimes Ordinance (“OSCO”) Cap 455

DTROP Cap 405

• 3 major offenses created under the Ordinances in respect of
1. Dealing with property (s25)
2. Failing to report on suspicious transaction (s25A)
3. Tipped off to suspect(s.26)
• The Maximum penalty of the offense
1. Conviction upon indictment: HKD 5 million fine and imprisonment
for 14 years
2. Summary conviction: HKD 500000 and imprisonment for 3 years

• DTROP Cap 405

• s25A(1) imposes an obligation on a person who knows/suspects that any
property presents proceeds from drug trafficking to disclose such
knowledge/suspicion to an “authorized officer” e.g. police officer, any
member of the Custom & Exercise department and the Joint Financial
Intelligence Unit (“JFIU”)
The JFIU is jointly established and operated by the Police and Customs &
Exercise Department
It functions as the local and international advisor on money laundering
matters generally

• OSCO Cap 455

• Extends the money laundering offence to cover the proceeds of all
indictable offenses(serious offences) in addition to dangerous drugs (s25)
• An authorized officer may apply to court for order requiring information
material to be produced/search warrant to be granted (s3 to s5)

There is also an Anti-Money Laundering and Counter-Terrorist Financing (Financial

Institutions) Ordinance (cap.615 of the Laws of Hong Kong) in Hong Kong. Schedule
two of the Ordinance requires financial institutions to carry out customer due diligence
requirements as well as to keep records, etc.
i) whenever a financial institution has to establish business relationship with a
client,
ii) whenever there is a risk of money laundering and terrorist financing after the
establishment of the business relationship
iii) whenever the transaction involves an amount of $120,000 or more; and
iv) whenever there is a need to wire transfer an amount of $8,000 or more,
v) when the financial institution suspects that the customer or the customer’s account is
involved in money laundering or terrorist financing;

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 vi) when the financial institution doubts the veracity or adequacy of any information
previously obtained for the purpose of identifying the customer or for the purpose of
verifying the customer’s identity.

Such requirements include verifying the customer’s identity on the basis of documents, data or
information and verifying the identity of the beneficial owner, which is defined to be
anyone owns or controls, directly or indirectly, including through a trust or bearer share holding,
more than 25% of the issued share capital of the client .

(J) Anti-Corruption Law

Prevention of Bribery Ordinance (POBO) Cap 201 防止賄賂條例
Public sector
Section 3: No prescribed officer is allowed to solicit or accept any advantage without
the general or special permission of the Chief Executive.

Section 4: Any public servant who solicits or accepts any advantage as an inducement to
or reward for performing duties shall be guilty of an offence; the offeror of the
advantage shall also be guilty of an offence.

Section 5: Any public servant who solicits or accepts any advantage as an inducement
to or reward for giving assistance or using influence in matters relating to
a contract shall be guilty of an offence; the offeror of the advantage shall
also be guilty of an offence.

Section 10: Any prescribed officer who maintains a standard of living or has assets not
commensurate with his official emoluments shall be guilty of an offence.

Private sector
Section 9: No agent (usually an employee) shall solicit or accept any advantage
without the permission of his principal when conducting his principal’s
affairs or business.

No agent (usually an employee) shall solicit or accept any advantage without the
permission of his principal (usually the employer) when conducting his principal's affairs
or business; the offeror of the advantage is also guilty of an offence.

In the Ordinance:

"Advantage" includes money, gifts, loans, commissions, offices, contracts, services,

favours and discharge of liability in whole or in part, but does not include entertainment.

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"Entertainment" means the provision of food or drink, for consumption on the occasion
when it is provided, and of any other entertainment provided at the same time, for example
singing and dancing. Although the acceptance of entertainment does not breach the
POBO, individual departments will still stipulate the conditions for staff’s acceptance of
entertainment.

Public servants are those who work for the Hong Kong SAR government and specified
public bodies (公共機構) in Hong Kong, including the Legislative Council, the Executive
Council, the District Board., various boards / commissions / committees, etc. established
by the government, the government-funded universities, the government-funded
companies like Kowloon-Canton Railway Corporation, the public utilities like China
Light and Power Company, and for the purpose of the ordinance, some important non-
government institutions like the Stock Exchange of Hong Kong Limited (section 2 and
schedules 1-2), etc., as well as certain prescribed officers (訂明人員) like, in addition to
the civil servants, the principal officials (政府主要官員) and judges (section 2).

Prescribed officers are subject to Sections 3, 4, 5 and 10 of the POBO while employees of
public bodies (e.g. power company, bus company, hospital, etc) are subject to Sections 4
and 5

The Chief Executive has published a Notice on Acceptance of Advantages (Chief

Executive’sPermission)in2010https://www.csb.gov.hk/english/rcim/central/files/aan_e.pdf
The notice allows a prescribed officer
i)to accept gifts and loan from relations like spouses and parents (section 3),
ii)to solicit or accept discounts given by shop owners when the officer buys the goods or
services in his private capacity and the discounts are applicable to other customers (section
4),
iii)to solicit or accept a loan of not exceeding $3000 from a close friend provided the sum
is repaid within 30 days and the close friend cannot be his / her subordinate (section 5),
iv)to accept(but not solicit) a gift of not exceeding $3000 in value on special occasions
like birthday or wedding from a close friend as defined above and to accept a gift of not
exceeding $500 in value on other occasions from a close friend as defined above (section
5),
v)to solicit or accept a loan of not exceeding $1,500 from any other person provided the
sum is repaid within 30 days and that person cannot be his subordinate (section 6), etc..

Readings

D.K. Srivastava, cap.1 (2017 version)

Acknowledgment

The writing of this topic is mainly based on the following materials: -

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Arthur McInnis and Stephen Chan, “Legal System of Hong Kong”, D.K. Srivastava, ed.,
Business Law in Hong Kong (Hong Kong: Sweet & Maxwell Asia, 5th ed., 2017)
Anne Carver, Hong Kong Business Law (Hong Kong: Longman, 6th ed., 2004)
Danny Gittings, Introduction to the Hong Kong Basic Law (Hong Kong: Hong Kong
University Press, 1st ed., 2013)
Slapper & Kelly, The English Legal System (Cavenish 8th ed 2006)
Peter Wesley-smith, An Introduction to the Legal System of Hong Kong (Hong Kong:
Oxford University Press, 2nd ed., 1993).
Website of the Hong Kong judiciary (www.judiciary.gov.hk)
Website of the ICAC (www.icac.gov.hk)

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