Getting on with the neighbours

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The head of a major representative group for Hong Kong corporate counsel gives her perspective on two inhouse legal communities

The Hong Kong Corporate Counsel Association (HKCCA) is the premier body that acts as the voice of the in-house counsel community in Hong Kong. Having been in-house for more than a decade, and in my capacity as president of the HKCCA, I have come across a range of issues, particularly when dealing with neighbours in our own backyard – mainland China. A couple of such issues are discussed below.

First is the relative infancy of the in-house profession in China. While one can see a greater shift of “bigger” in-house legal roles being based out of Shanghai (judging from the numerous recruitment efforts by various agencies in Hong Kong), the vast majority appear to be still in the development stages. Many corporates in China still look at the in-house legal function merely from a technical and operational perspective, as opposed to including that function as part of strategic and management functions. For most, the in-house counsel role in many Chinese companies is a lower-tier document review and technical function. Many Chinese corporates still enter into deals without involving in-house legal counsel. Only key management from various parties partake in the negotiations based on connections, or guanxi, and the paperwork is often, although not always, seen as a mere back-end formality, as opposed to having counsel as part of the deal-making team.

Jasmine Karimi
Jasmine Karimi

Often, what appears in the written document does not fully reflect the “handshake” deals that take place. These only come to light when things go sour, which is when the failure to involve counsel at the outset comes to light. Additionally, even when counsel gets involved, there is still a tendency to stick to the literal interpretation/analysis versus a more commercial approach. While frustrating at times, this is by and large no different from the early days of the in-house profession in the now more mature markets such as North America and Hong Kong, Singapore, Australia and New Zealand. So the progression is bound to happen with time.

Given these challenges, it remains to be seen how the vast majority of Chinese companies, especially those with inhouse counsel, will react to a number of new regulations that have come into force, or are potentially being implemented in Hong Kong. These include the competition law regime (which was published in the official gazette on 22 June, bringing with it a new regulator and armed with extensive enforcement powers including the ability to conduct raids and levy significant fines for anti-competitive conduct once the changes come into force). It could well be that the current level of playing field will be significantly impacted, along with the inflow of Chinese investment.

Another potential regulation is the recent proposal by the Securities and Futures Commission (SFC) in Hong Kong that sponsors should be made liable for untrue statements (including material omissions) in a prospectus. This has resulted in a mixed response from various involved parties in Hong Kong, and may well result in banks becoming wary of which deals they accept. As has been observed, particularly in the recent past, the vast majority of companies now listed in Hong Kong are incorporated outside Hong Kong and have all or almost all of their assets overseas, while few of their directors or members of senior management are resident in Hong Kong. Many (but by no means all) of these companies are based in mainland China, along with their directors and management.

This fact has highlighted the difficulties faced by the SFC and other law enforcement bodies in obtaining evidence from mainland China for use in civil or criminal proceedings in Hong Kong, be that in documentary form or from witnesses. To date, there is no agreement between Hong Kong and the central government for the exchange or surrender of fugitives, so it is possible for directors and members of senior management of listed companies to potentially evade SFC investigations, prosecutions and remedial actions by hiding in mainland China and elsewhere. There is also no predictable or seamless process for the service of Hong Kong court orders in mainland China, or vice versa. Finally, the recognition and enforcement of judgments between Hong Kong and mainland China remains fraught with difficulty.

Until such time that the Hong Kong and central governments have addressed and resolved the jurisdictional and enforcement issues identified above, directors and officers cannot be pursued successfully in mainland China and brought before the courts in Hong Kong.

Jasmine Karimi is president of the Hong Kong Corporate Counsel Association