The shape of things to come What to expect in the Year of the Ox The shape of things to come What to expect in the Year of the Ox

Contents

2 The shape of things to come What to expect in the Year of the Ox

Foreword 4

The new world order 6 Sanctions and export controls: newest and the most popular tools of warfare of our times 7 National Security Law: review and predictions 10 COVID-19: a year on and the year ahead 13

Competition 14 Enforcement of the Competition Ordinance 15

Regulatory 18 ’s Individual Accountability and Conduct Guidelines 19 Is Hong Kong on its way to a mandatory data breach notification regime? 20 Hong Kong’s proposed licensing regime for virtual asset service providers 21 Growth in green and sustainable lending 22

Arbitration 24 Hong Kong’s public consultation on outcome related fee structures in arbitration 25 Arbitration highlights in the Year of the Ox 26

Litigation and cross-border dispute resolution 30 Update on the reciprocal recognition and enforcement of judgments between the Mainland and Hong Kong 31 Are keepwell deeds valid in the eyes of PRC courts? 32 Court of Final Appeal cases to look out for in the Year of the Ox 33 New appointments to the Court of Final Appeal 35

Employment 36 Hong Kong extends statutory maternity leave from 10 weeks to 14 weeks 37

Global reach: glossary of Eversheds Sutherland’s guides 40

Contacts 42

3 The shape of things to come What to expect in the Year of the Ox

Foreword

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When I took over my current leadership role in our team last May, it was already clear that the Year of the Rat was going to be an extraordinary year. The rapid spread of the coronavirus was fundamentally changing expectations about the workplace and business relationships that seem likely now to outlast even its profound economic and financial impacts. Working from home, lockdown and “you’re still on mute” had become part of the vernacular. Yet, as we take stock of the last year and look climate change and the environment, forward, we may speculate whether history diversity and social responsibility, and will remember a once-in-a-century pandemic good governance. or geopolitical events that helped define the course of the next century: trade tensions Despite all these challenges, our clients have between China and the United States, the remained resilient, resourceful and versatile. outcome of a closely contested U.S. So has our firm. We have had an eventful year presidential election (and events that followed working on exciting mandates, delivering in the U.S. capital), and, even closer to home, innovative solutions in keeping with our the introduction of the National Security Law clients’ changing needs. We also believe there here in Hong Kong and the response to it. are good reasons to be optimistic about the future of Hong Kong as a jurisdiction and seat, Certainly our clients have faced not least our collective commitment as a legal unprecedented challenges. Tracking those community to the many features of its challenges in the issues and matters that they unique status. have raised with us, we saw first concerns about disruption in trade and supply lines as, As the world hopefully shrugs off the for example, force majeure clauses, often depressive effects of COVID-19, we expect treated as mere boilerplate, suddenly rose to the pace of change and development to the top of their legal risk agenda. The fierce accelerate in the Year of the Ox. This is as true global competition for access to PPE led to in our contentious practice areas as across all rapid deal-making and a consequent subset sectors. From this perspective, we have of disputes. Further travel restrictions and reflected in this brochure on many of the social distancing requirements inhibited events referred to above and highlighted normal business activities which in turn led to some of the developments to watch out for. defaults. More recently still, broader questions have been asked about Hong Kong’s future as An ox in the Chinese zodiac represents a jurisdiction and the durability of the rule of diligence and perseverance, while a bull, its law here. sister species, represents wealth in western culture. May I draw on these auspicious signs Nor should we forget the issues that existed from east and west, and wish you all a before the pandemic and which are successful, peaceful and happy Year of the Ox. increasingly defining the corporate agenda:

Mark Hughes Head of Litigation and Dispute Management, Asia

T: +852 2186 3402 M: +852 6056 6300 [email protected]

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The new world order

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Sanctions and export controls: newest and the most popular tools of warfare of our times

Sanctions and export controls are measures as introducing changes to its export control put in place by governments and policy regarding Hong Kong. In particular, intergovernmental organisations which following the enactment in June 2020 of the restrict the transfer of products, technology or National Security Law in Hong Kong (see our financial resources to or from specified next article), on 14 July 2020, the Hong Kong countries, entities or individuals. They are Autonomy Act was signed into law in the U.S., typically designed to address concerns about which paved the way for the imposition of national security, foreign policy, international blocking sanctions against designated legal obligations or concerns about human persons, as well as more extensive sanctions rights violations, internal repression or against non-U.S. “foreign financial institutions” terrorism. determined to have knowingly conducted a “significant transaction” with the designated Hong Kong implements sanctions imposed by persons. On the same day, the U.S. President the United Nations Security Council and issued the Executive Order no. 13936 export controls which reflect requirements (“Executive Order”), providing for the basis for under applicable international conventions. designating individuals and entities as As one of the top three international financial “specially designated nationals” (“SDNs”), who hubs, businesses in Hong Kong typically, as a would be subject to U.S. blocking sanctions, matter of good practice, also comply with and suspending Hong Kong’s special those restrictions applicable in the key treatment with regards to export controls, jurisdictions where their parent or affiliated imports to the U.S. and immigration under U.S. companies operate. laws.

Businesses in Hong Kong found themselves To date, 35 individuals have been designated caught between a rock and a hard place in as SDNs under the Executive Order. Ten 2020 as tensions in U.S.-China relations individuals were designated in the report heightened and the U.S. Government submitted by the U.S. Secretary of State to the implemented sanctions under its Hong U.S. Congress, as individuals who would be Kong-related sanctions programme, as well subject to blocking sanctions under the

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Hong Kong Autonomy Act. No “foreign How will the change of administration affect financial institution” has been designated yet, the U.S. sanctions policy in relation to China although this is subject to further review. and Hong Kong? While the U.S. Office of Foreign Assets Control (“OFAC”) of the U.S. Treasury has issued This is something we will all have to wait and further guidance and regulations on the see. One thing we can be sure of, however, is implementation of these sanctions, that albeit inherently broad in its application, businesses continue to struggle with there is a great deal of consistency in the use uncertainties around their application, of this highly technical area of law by the U.S. including: Government as a foreign policy tool. In the “new normal”, the sanctions and export – to what extent are businesses required control measures are here to stay. to comply with U.S. sanctions? – what are the risks of non-compliance for a non-U.S. business? – what types of transactions are affected? – what does it mean for a bank’s obligation under a contract to clear transactions with a SDN in U.S. dollars? – is there an obligation to terminate contractual relationships with these SDNs? – what about the so-called “Communist Chinese Military Companies” under Executive Order no. 13959 – can we still invest in them? – how do these sanctions sit with the “counter-sanctions” measures introduced by China?

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National Security Law: review and predictions

At 23:00 on 30 June 2020, the Hong Kong Review National Security Law (“NSL”) came into To date, the handful of reported judgments of effect. Ever since, there have been numerous the Hong Kong courts which consider the NSL questions about how it may be implemented mainly relate to its constitutionality and the and interpreted. This is because: availability of bail for those alleged to have committed NSL offences. However, they – it is a piece of PRC legislation drafted provide indicators as to how the NSL may be according to civil law principles which interpreted when we start to see full trials for has been implemented without offences under the NSL. In summary: adaptation in Hong Kong’s common law system. It is substantially different in its What type of conduct could amount to an style and wording from other Hong offence? Kong ordinances – the ultimate power of interpretation is – there has so far only been limited vested in the PRC with the Standing guidance on this Committee of the National People’s – the case of Ma Chun Man, who has been Congress (“NPCSC”) (Article 65 of the charged with inciting secession for NSL) chanting slogans and displaying placards – the NSL is to prevail over local laws of advocating , Hong Kong (article 62). However article suggests that the use of force may not be 4 of the NSL recognises that the a necessary element of the offence of fundamental rights enshrined in the secession Basic Law (Hong Kong’s mini – in the case of Jimmy Lai, the founder of a constitution) shall be protected. Thus a daily newspaper, Apple Daily, he is focus of challenges in the Hong Kong alleged to have colluded with a foreign courts is likely to be on the compatability country or with external elements to of provisions of the NSL with these Basic endanger national security by his Law rights comments in interviews in newspapers – it creates four entirely new and broadly and other media, including Twitter. The drafted categories of offence (namely, prosecution claims that his comments secession, subversion, terrorist activities are in effect a request to foreign and collusion with a foreign country or countries or institutions to take action with external elements to endanger which is categorised as illegal in article national security) which have no 29, such as imposing sanctions on Hong equivalents in Hong Kong law Kong officials. Its case is that it does not matter whether the request was successful or there was a prior arrangement between the offender and 10 the foreign institution The shape of things to come What to expect in the Year of the Ox

– whether or not the conduct being What is the relationship between the NSL and considered in these two cases would Hong Kong’s mini constitution? amount to an offence will ultimately be decided by the Hong Kong courts (with – in its judgment handed down on 9 or without a jury) February 2021 in relation to Jimmy Lai’s entitlement to bail, the Court of Final How is the NSL to be interpreted? Appeal (“CFA”) makes clear that both the legislative acts of the NPC and the – the NSL should be interpreted by the NPCSC leading to the promulgation of Hong Kong courts using the the NSL as a as well as conventional common law approach; the provisions of the NSL cannot be the Basic Law is also interpreted in challenged as unconstitutional for this way incompatibility with the Basic Law – when interpreting a provision of the NSL, – nevertheless, when interpreting and the court will look at the matrix in which applying a provision of the NSL, the court the provision exists. This consists of the should as far as possible give it a meaning applicable human rights and rule of law which is compatible with the rights, principles and the existing rules under freedoms and values enshrined in the Hong Kong law which overlap with the Basic Law which are specifically provision acknowledged in article 4 (Basic Law rights and freedoms protected) and article 5 (adherence to the rule of law) of Will the Hong Kong courts look to sources in the NSL. The CFA emphasised that those the PRC for support in interpreting the NSL? two articles are “centrally important to the interpretation of the NSL”, and – Hong Kong courts have been prepared interestingly the CFA noted that this had to look to PRC documents evidencing been explained to the NPC and NPCSC the context in which the NSL was introduced, such as the National People’s Congress’s (“NPC”) decision to enact the Is the NSL retrospective? NSL, to determine the legislative intention behind particular provisions of – although the NSL is expressed not to the NSL have any retrospective effect, a person’s words and conduct before the NSL came into effect can be relevant in interpreting, and drawing inferences from, his subsequent conduct and state of mind

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Predictions – the Department of Justice is likely to In the Year of the Ox, we are likely to see an appoint local prosecutors for NSL cases, increasing number of ongoing NSL cases given the withdrawal of a leading English being considered by the courts which should QC from his appointment as a provide further guidance on what may and prosecutor of criminal charges, albeit not may not amount to an offence under the NSL. under the NSL, against Jimmy Lai Other things to watch out for in the New Year: following political pressure in the UK and – as a result of the implementation of the his concerns about exemption of NSL, the UK Foreign Minister sought to quarantine encourage UK , who form the – Paul Harris, new Chairman of the Bar majority of overseas non-permanent Association, has pledged to advocate judges in the CFA, to withdraw from the amendments to the NSL CFA. Given the dominance of UK judges in the CFA, any resignations could trigger resignations from other foreign judges. We may see further demands from the UK for its judges to withdraw from the CFA

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COVID-19: a year on and the year ahead

As of 1 February 2021, there have been 103 The Hong Kong judiciary is not immune from million confirmed cases of COVID-19, needing to adapt to COVID-19 related according to the World Health Organisation. challenges. Although the Courts opted to While our Year of the Rat brochure discussed close in the early days of COVID-19, it has the potential impact of COVID-19, few could since become clear that a complete have predicted the extent of its impact over shutdown of the judiciary is not the most the past year. appropriate response. Since April 2020, the courts have instead increasingly conducted International travel has been brought almost short, procedural hearings either by telephone to a halt and across the globe employees have or through the use of video-conferencing found themselves working from home for an facilities. This trend will continue in the Year of extended period of time. Businesses have the Ox, with a “browser-based” video- reduced face-to-face meetings. Information conferencing facilities option introduced to technology and systems adopted by the Hong Kong courts on 2 January 2021. businesses have been deployed to ensure that corporations continue to function. However, The judiciary has also announced that pilot with work being done at multiple locations, runs for its integrated court case management maintaining data security and privacy are system are expected to take place between more challenging than ever, and the risks of the second and third quarters of 2021. The cyber fraud have become even more pilot runs would first be in District Court civil prominent. proceedings, with testing being conducted in personal injuries actions from April 2021 and Issues relating to alleged force majeure and other civil actions from around June 2021. frustration events have arisen regularly in the The pilot runs would pave the way for bringing context of international trade since the the Court Proceedings (Electronic beginning of COVID-19. We published a force Technology) Ordinance into effect, which was majeure guide to the world’s key jurisdictions passed in July 2020 to allow, among others, in April 2019. A copy of the guide can be electronic filing to the Courts (see our found at https://ezine.eversheds-sutherland. e-briefing athttps://www.eversheds- com/force-majeure-global-guide/home/. sutherland.com/global/en/what/articles/ While the legal issues which have arisen as a index.page?ArticleID=en/global/Hong-Kong/ result of COVID-19 might not be as novel as Putting_paperless_court_proceedings_into_ they were a year ago, we anticipate that legal action). arguments concerning force majeure and frustration will continue to develop during the course of the Year of the Ox.

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Competition

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Enforcement of the Hong Kong Competition Ordinance

To adopt the metaphor used by the Hong the cartel conduct and give a commitment to Kong Competition Commission adopt and implement an effective compliance (“Commission”) in its latest Annual Report programme. The Commission subsequently 2019/2020, many seeds were sown in the brought proceedings against another enforcement of Hong Kong competition law participant in the arrangements, Quantr in 2020, its fifth year of full operation, with the Limited and one of its directors who was not Commission achieving a significant number of prepared to admit its participation in the “firsts”. alleged contravention.

The Commission’s first Infringement Notice A new leniency framework On 22 January 2020, the Commission issued On 16 April 2020, the Commission published a its first Infringement Notice in respect of an new Leniency Policy for Individuals Involved in alleged contravention of the Competition Cartel Conduct, together with a revised Ordinance (“Ordinance”). Under the Leniency Policy for Undertakings Engaged in Infringement Notice procedure, the Cartel Conduct. As the Commission stated, Commission may offer not to bring court the leniency framework was formulated with a proceedings against a person on condition view to strengthening the framework’s that the person makes a commitment to efficacy and comprehensiveness and to comply with the requirements of the Notice, provide stronger and clearer incentives for a which typically include: (a) admitting to a cartel member to stop the cartel conduct and contravention of the relevant conduct rule; report it to the Commission. The new leniency and (b) ceasing the conduct amounting to the framework carries a few new features which alleged contravention. The Infringement are expected to be key to encouraging Notice in question was issued to Nintex cartelists to come forward, including Proprietary Limited, in respect of its complete protection from prosecution by the involvement in facilitating the exchange of Commission (and from the issuance of an competitively sensitive information relating to Infringement Notice for the first member of a bids for an IT procurement being run by cartel to come forward prior to the Ocean Park. The Commission agreed not to commencement of an investigation by the issue proceedings against Ninetex, on the Commission). condition that it admitted its participation in

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Competition Tribunal’s first judgment of the seaport operators in Kwai Tsing on penalty Container Terminals. The commitments On 29 April 2020, the Commission obtained accepted include imposition of a cap on its first judgment from the Competition gateway cargo handling charges and on other Tribunal (“Tribunal”) on the imposition of counterparty charges, maintaining service pecuniary penalties on 10 respondent levels for gateway cargo and maintaining construction and engineering contractors in overflow arrangements, which aimed to its second enforcement action, a market address the Commission’s concerns arising sharing and price fixing case. The Tribunal from its investigation into the Alliance. endorsed the Commission’s recommended structured approach to the determination of First in-court settlement pecuniary penalties, which is expected to On 17 July 2020, the Commission obtained its create stronger deterrence and create greater first judgment from the Tribunal approving a legal certainty in future. The Commission has joint application by the Commission and the since issued its first Policy on Recommended First, Second and Fourth Respondents for Pecuniary Penalties for Anti-competitive orders to dispose of these Respondents’ Conduct. liabilities to the underlying contravention by way of consent. In this case, Competition First investigations to be closed with Commission v Kam Kwong Engineering commitments Company Ltd and others, the Commission On 13 May 2020, the Commission announced alleged that the Respondents had engaged or that it had accepted voluntary commitments involved in market allocation and price fixing, offered by three major online travel agents in contravention of the First Conduct Rule. (“OTAs”), namely Booking.com, Expedia and The Tribunal agreed with the Commission’s Trip.com. The commitments were aimed to proposal to adopt the “Carecraft” procedure, address the Commission’s concerns about whereby the parties could limit the facts on so-called “most favoured nation” clauses in which the Tribunal should base its judgment contracts between the OTAs and as to the order that should be made and the accommodation providers in Hong Kong. decision as to whether an order should be Those clauses required accommodation made would remain for the Tribunal. The providers to always give the OTA the same or Tribunal found that the agreed facts provided better terms as those they offer in all other by the parties established contraventions by sales channels, as regards room prices, room the First and Second Respondents of the First conditions and/or room availability. The Conduct Rule and involvement of the Fourth acceptance of the commitments has resulted Respondent in the contravention. The issue in the complete removal of these clauses, regarding the appropriate penalties to be thereby addressing the Commission’s imposed was dealt with separately based on concerns raised in its investigation. the parties’ respective submissions in a later hearing. The Tribunal dealt with the issue of Subsequently, on 30 October 2020, the liability in the subsequent case of Competition Commission announced its acceptance of Commission v Fungs E & M Engineering Co voluntary commitments offered by Hong Ltd and others by way of a similar procedure. Kong Seaport Alliance, comprising all but one

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Further, on 3 November 2020, following a Chan, Chairman of the Commission, said in similar procedure, the Commission obtained the Commission’s press release, the filing of its first judgment resolving both the the city’s first abuse of substantial market Respondents’ liability and the appropriate power case in the Tribunal marks a “pivotal relief by way of consent. Following the joint milestone” for the Hong Kong competition application, the Tribunal made a declaration regime. that the Respondents contravened the First Conduct Rule by engaging in the exchange of Going forward – what will enforcement look future pricing information in a bidding like in 2021? exercise, ordered one of the Respondents to It is likely that the Commission’s enforcement pay a pecuniary penalty and both focus in 2021 will remain on cartels, other Respondents to pay the Commission’s costs serious anti-competitive agreements causing of proceedings. This is the first case in which significant harm to competition in Hong Kong an enforcement action is disposed of fully by and abuse of substantial degree of market consent. power involving exclusionary conduct. According to the Commission’s Annual Report Finally, the Commission’s first prosecution 2019/2020, the Commission had investigated under the Second Conduct Rule conduct in a variety of sectors across the On 22 December 2020, the Commission Hong Kong economy during the year, formally commenced its first enforcement including but not limited to the transport, action under the Second Conduct Rule. The logistics and storage, information technology, case in question relates to an alleged abuse by machinery and equipment, beauty and industrial gases supplier, Linde. The personal care products and services, Commission alleges Linde abused its construction and infrastructure, food and substantial degree of market power in the groceries, automotive and health and fitness supply of medical gases to the detriment of sectors. competition in a vertically related downstream market for the supply of medical gas pipeline As these many “firsts” from last year show, the system (“MGPS”) maintenance services. Commission has started to use the full range According to the Commission, Linde engaged of tools available under the Ordinance, in various exclusionary acts, from unjustified including the infringement notice procedure, denial of supply of medical gases necessary commitments, as well as leniency agreements for carrying out MGPS maintenance services, and in-court settlements, to reach an to the imposition of various arbitrary and/or enforcement outcome which it considers to unreasonable trading terms, so that a be appropriate and proportionate to the competitor of Linde in the downstream circumstances of the case in question. It is market could not compete for, and/or expected that the Commission will continue perform, MGPS maintenance services to make use of a this range of enforcement contracts. The Commission is also tools to enable it to find solutions that are prosecuting an individual, who it alleges was proportionate to likely harm, in addition to actively involved in formulating and executing initiating proceedings in the Tribunal. the various exclusionary acts. As Mr. Samuel

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Regulatory

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Singapore’s Individual Accountability and Conduct Guidelines

Although outside of Hong Kong, the – outcome 4: “Material Risk Personnel” reverberations of the implementation of the must be fit and proper for their roles, and Individual Accountability and Conduct subject to effective risk governance, and Guidelines (“Guidelines”) by the Monetary appropriate incentive structures and Authority of Singapore (“MAS”) with effect standards of conduct from 10 September 2021 are likely to be felt – outcome 5: The financial institution around the region. The introduction of the should have a framework that promotes Guidelines follows two public consultation and sustains among all employees the exercises in Singapore and brings Singapore desired conduct into line with accountability regimes established in other jurisdictions, including the UK’s Senior Managers and Certification The introduction of the Guidelines Regime and Hong Kong’s Manager-In- underscores the importance of culture and Charge regime. conduct to not only financial institutions but also to senior management within those With limited exceptions, the Guidelines apply institutions. The Managers-In-Charge regime to all financial institutions regulated by the in Hong Kong allowed the Securities and MAS, including insurers, brokers and banks. Futures Commission to more easily identify The Guidelines set out five accountability and the senior manager responsible in the event of conduct outcomes that financial institutions a regulatory investigation. We anticipate that should achieve: this will also soon be the case in Singapore following the introduction of the Guidelines. – outcome 1: Senior managers responsible for managing and conducting the While there is still time available to financial institution’s core functions must successfully implement the Guidelines in your be clearly identified organisation, time is now of the essence. Experience in the UK and Hong Kong has – outcome 2: Senior managers must be fit shown that the implementation process is and proper for their roles, and held likely to be more challenging and time responsible for the actions of their consuming than you might anticipate. It is employees and the conduct of the therefore important to begin work now to business under their purview ensure that you can hit the ground running as – outcome 3: The financial institution’s soon as the Guidelines are implemented later governance framework should support this year. senior managers’ performance of their roles and responsibilities, with a clear and transparent management structure and reporting relationships

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Is Hong Kong on its way to a mandatory data breach notification regime?

A number of recent major personal data the impacted individuals within a specified breach incidents inside and outside of Hong period. A “personal data beach” would include Kong have raised public concerns about the data security breach leading to unlawful or adequacy of the Personal Data (Privacy) accidental destruction, alteration, loss, Ordinance (“PDPO”). The lack of a mandatory unauthorised disclosure of, or access to data breach notification regime has been personal data. The PCPD would be recognised as a possible shortcoming of the empowered to direct the data user to notify PDPO by comparison to international best the impacted individuals. practice. In the Year of the Ox, it is expected that the At present, it is not mandatory under the Bureau and the PCPD will publish more details PDPO for data users to notify authorities or about the proposed regime including: data subjects of data breaches. A voluntary notification system is in place, which is based – notification thresholds: whether on the Guidance on Data Breach Handling notifications to the PCPD and to and the Giving of Breach Notifications impacted individuals will be subject to (“Guidance”). The Guidance recommends the same threshold, and what factors prudential notification as a matter of good should be taken into account in practice, in situations when a real risk of harm determining whether the threshold is reasonably foreseeable in a data breach. is met – notification timeframe: whether a data In January 2020, the Constitutional and user should be allowed time to Mainland Affairs Bureau (“Bureau”), in investigate the suspected data breach collaboration with the Privacy Commissioner before making the notification for Personal Data (“PCPD”), proposed amendments to the PDPO, including the – templates and guidelines concerning introduction of a mandatory data breach notification content notification mechanism.

Under the proposed regime, data users would be required to report a data breach having “a real risk of significant harm” to the PCPD and

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Hong Kong’s proposed licensing regime for virtual asset service providers

On 3 November 2020, the Hong Kong The consultation closed on 31 January 2021. Government launched a public consultation The Government intends to introduce a bill on legislative amendments to the Anti-Money in the Legislative Council in 2021. Upon Laundering and Counter-Terrorist Financing commencement of the licensing regime, Ordinance (“AMLO”) with a view to: the current proposal is to provide for an 180-day transitional period to apply for – introducing a licensing regime under a VASP license. the purview of the Securities and Futures Commission (“SFC”) for virtual asset Hong Kong has a fast-developing market for service providers (“VASPs”), which will virtual assets and there are already several be applicable to any person seeking to local virtual asset exchanges operating that conduct the regulated business of will be directly impacted by the proposed operating “virtual asset trading platforms” amendments. The new licensing regime (“VATPs”) proposes to empower the SFC to impose – subjecting VASPs to AML/CTF certain licensing conditions on the VASP, requirements relating to customer including requiring that VASP services should due diligence be provided to professional investors initially. It is crucial that market participants keep this development under review and start Hong Kong currently operates an “opt-in considering how the proposed regulatory regime” for VATPs, which is voluntary and only regime will impact their business and the applies to those platforms which enable steps they will need to take to be compliant. clients to trade virtual assets that fall within the definition of “securities” under the Securities and Futures Ordinance. The proposed regime will apply to platforms that trade any type of virtual assets, even if none of them is classified as securities. In determining the parameters of the proposed VASP regime under the AMLO, reference will be made to the opt-in regime.

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Growth in green and sustainable lending

The Year of the Ox is likely to bring growth in In the loan markets, three of the leading loan green and sustainable lending. market associations, the Asia Pacific Loan Market Association, the Loan Market In recent years, Hong Kong has positioned Association and the Loan Syndications and itself as a leading regional green and Trading Association, have recently published sustainable financing hub. It is therefore likely guidance papers on the Green Loan Principles to benefit from this growth, with an increase and the Sustainability Linked Loan Principles. in the use of green and sustainable finance These papers aim to address some of the products, including green bonds and green most frequently asked questions in relation to loans. the Green Loan Principles and the Sustainability Linked Loan Principles. A number of initiatives in Hong Kong have recently sought to encourage green and It is likely that the Year of the Ox will see an sustainable lending. Green and sustainable increase in the number of bonds subscribing finance has also been receiving growing to the Green Bond Principles, and in the emphasis in the policy agenda of the number of loans subscribing to the Green Hong Kong Government. In addition, Loan Principles and the Sustainability Linked organisations such as the Hong Kong Loan Principles. Monetary Authority and the Securities and Futures Commission are seeking to encourage the use of green and sustainable lending.

In the bond markets, the Green Bond Principles have been established for some time. These principles, which are administered by the International Capital Markets Association, are intended to encourage transparency and disclosure in the green bond market and to facilitate its development. They are also designed to provide issuers with guidance on the key components involved in the issuance of green bonds.

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Arbitration

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Hong Kong’s public consultation on outcome related fee structures in arbitration

Outcome related fee structures (“ORFSs”) are – hybrid damages-based agreements: unlawful for litigation and arbitration agreements under which a lawyer proceedings in Hong Kong. However, other receives both fees for legal services major arbitral seats permit some form of rendered and a DBA Payment ORFSs and there is a significant demand from clients for such arrangement. The LRC also recommended that:

On 17 December 2020, Hong Kong’s Law – a cap be placed on the Success Fee and Reform Commission (“LRC”) published a DBA Payment consultation paper (“Consultation”), proposing that lawyers be permitted to use – the ORFSs specify whether and in what ORFSs for arbitration taking place in and circumstances a lawyer or client is outside Hong Kong. entitled to terminate the fee agreement prior to the conclusion of an arbitration, and Unlike the LRC’s unsuccessful attempt in 2005 any alternative payment arrangement in to introduce conditional fee arrangements in the event of such termination both ligation and arbitration, the Consultation focuses solely on arbitration. The LRC has The public will have until 16 March 2021 to recommended three types of ORFSs be respond to the Consultation. If approved and permitted in arbitration: implemented, the ORFSs, together with the third party funding scheme introduced in – conditional fee agreements: agreements 2019, will bring Hong Kong in line with other under which a lawyer receives a success major arbitration seats, preserving and fee (“Success Fee”) in the event of the promoting Hong Kong’s competitiveness as a client’s claim succeeding on the basis of, leading centre for arbitration services. for example, “no win, no fee” or “no win, low fee” – damages-based agreements: agreements under which a lawyer receives payment only if the client is successful, and where the payment is calculated by reference to the outcome of the proceedings (“DBA Payment”), for example as a percentage of the sum awarded or recovered

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Arbitration highlights in the Year of the Ox

In the Year of the Ox, we anticipate seeing On the same day, the Supplemental these exciting developments in arbitration in Arrangement took effect in Mainland China, Hong Kong, Greater China and Asia. while Hong Kong implemented the first two amendments. The remaining amendments Supplemental Arrangement Concerning will take effect pending the necessary Mutual Enforcement of Arbitral Awards amendments to the Arbitration Ordinance, between the Mainland and the HKSAR which, according to the Department of (“Supplemental Arrangement”) Justice, will take place as soon as possible. Hong Kong and Mainland China entered into the Supplemental Arrangement PRC court upheld “SIAC in Shanghai” clause on 27 November 2020. The Supplemental Court decisions in the PRC have shown the Arrangement seeks to amend the country’s efforts to open up its arbitral market Arrangement Concerning Mutual and to follow international arbitration Enforcement of Arbitral Awards between practices. It is expected this trend will the Mainland and the HKSAR signed in 1999 continue in the Year of the Ox. (“Arrangement”) by: Back in 2013, in Anhui Longlide Packaging Co. – clarifying that the Arrangement covers Ltd. v. BP Agnati S.R.L. (2013), the PRC’s not only the “enforcement” but also the Supreme People’s Court made a legally “recognition” of an award binding judicial interpretation confirming the – empowering the enforcing court to grant validity of an arbitration agreement which conservatory measures in accordance provided for ICC arbitration seated in China. In with the applicable law before or after Daesung Industrial Gases Co Ltd v Praxair enforcement of an award (China) Investment Co Ltd (2020), the Shanghai No. 1 Intermediate People’s Court – specifying that all awards rendered under followed this judicial interpretation and the Arbitration Ordinance, whether upheld an arbitration clause which provided administered by an institution or ad hoc, for SIAC arbitration in Shanghai. The Daesung can be enforced in Mainland China decision confirms and clarifies that: pursuant to the Supplemental Arrangement – allowing for enforcement of an award in both Mainland China and Hong Kong simultaneously

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– foreign arbitral institutions are not In Xiamen Xinjingdi Group Co Ltd v Eton prohibited from administering Properties Ltd and Others [2020] HKCFA 32, arbitrations seated in Mainland China the underlying transaction concerned an – arbitration is a dispute resolution agreement where the Plaintiff agreed to mechanism which is based on the purchase a development project and rights in parties’ consent and that question of a piece of land in the PRC by acquiring the whether the PRC arbitration market is shares in a land-holding company from the “open” or not is irrelevant Defendants. The CIETAC award which the Plaintiff sought to enforce in Hong Kong – while the PRC had included a reservation required the Defendants to “continue to to ad hoc arbitrations under the New perform the Agreement” by transferring York Convention, that reservation does shares in the land-holding company to not extend to awards rendered by Plaintiff. However the Defendants were non-Chinese arbitration institutions unable to do so because they no longer held the relevant shares following a restructuring Hong Kong Court of Final Appeal (“CFA”) within the Defendants’ group. Instead of confirms remedial flexibility enjoyed by utilising the summary procedure pursuant to Hong Kong courts in enforcing arbitral section 2GG of the then applicable Arbitration awards Ordinance (Cap. 341) (now repealed), the Hong Kong is known to be an arbitration- Plaintiff brought an enforcement application friendly jurisdiction in terms of its readiness to under common law. The CFA held that in such defer to arbitration agreements and to circumstances the Hong Kong court, as the enforce arbitral awards. A recent case has enforcing court, is entitled to award damages shown that Hong Kong courts are prepared to the Plaintiff instead. not only to enforce an award mechanically, but also to go beyond the award and fashion an appropriate remedy to give effect to the award. This remedial flexibility will likely strengthen Hong Kong’s position as a preferred seat of international arbitration in the Year of the Ox, and the years to come.

27 The shape of things to come What to expect in the Year of the Ox

Singapore’s amendments to its International – Singapore has already recognised a duty Arbitration Act (“SIAA”) of confidentiality under common law. On 5 October 2020, the Singapore parliament Express confidentiality obligations also passed the International Arbitration exist in many institutional arbitration (Amendment) Bill (“Bill”) to introduce two key rules such as those of the SIAC and the amendments to the SIAA, namely: HKIAC. In addition, Hong Kong has a confidentiality protection mechanism in – providing for default procedures for the place, although with a different appointment of arbitrators in multi-party approach. While the Hong Kong arbitrations Arbitration Ordinance does not expressly – empowering the arbitral tribunal, the empower tribunals to make , and judges to make orders or confidentiality orders, it codifies and give directions to enforce parties’ imposes an express obligation of obligation of confidentiality confidentiality on parties to arbitral proceedings. Injunctions have been widely used as a means to prevent the These amendments came into effect on disclosure of confidential information 1 December 2020. relating to arbitrations Although welcomed, the amendments are unlikely to have a significant impact on The two amendments under the Bill followed arbitrations in the region because: a public consultation on the SIAA in 2019. The consultation contains other amendments – the default procedures under the SIAA which are still being considered by the are applicable only when parties have not Singapore Ministry of Law, including the adopted their own appointment proposals to: procedures. In cases where the parties have already adopted the SIAC or HKIAC – allow parties to, by agreement, request arbitration rules, the appointment the arbitrator or arbitrators to decide on procedures of which mirror the default jurisdiction at the preliminary stage procedures introduced by the Bill, the – allow a party to the arbitral proceedings amendment under the SIAA will have to appeal to the High Court on a little impact question of law arising out of an award made in the proceedings, provided parties have agreed to opt in to this mechanism

When the remaining proposals will come into effect and their details will be items to watch out for in the Year of the Ox.

28 The shape of things to come What to expect in the Year of the Ox

29 The shape of things to come What to expect in the Year of the Ox

Litigation and cross-border dispute resolution

30 The shape of things to come What to expect in the Year of the Ox

Update on the reciprocal recognition and enforcement of judgments between the Mainland and Hong Kong

In the Year of the Rat brochure, we discussed The Bill is modelled on an existing mechanism the Arrangement on Reciprocal Recognition under the Mainland Judgments (Reciprocal and Enforcement of Judgments in Civil and Enforcement) Ordinance, and provides for Commercial Matters by the Courts of the the following: Mainland and of the HKSAR, entered into on 18 January 2019. As of today, this is yet to be – the registration of specified court orders implemented. No timetable for its in an effective Mainland judgment given implementation has been announced but is in a matrimonial or family case something to watch out for in the Year of – the recognition of Mainland divorce the Ox. certificates

However, the legislative process for another – the application for a certified copy of and reciprocal arrangement is underway, which certificate for a Hong Kong judgment demonstrates that the importance of given in a matrimonial or family case, so reciprocal arrangements remains at the as to facilitate a party in seeking forefront of the legislative agenda. recognition and enforcement of the Hong Kong judgment in the Mainland On 27 November 2020, the Mainland Judgments in Matrimonial and Family Cases Based on the Hong Kong judiciary’s statistics, (Reciprocal Recognition and Enforcement) Bill a total of 68,374 divorce cases were filed in (“Bill”) was gazetted to kickstart the process to the Family Court in the period from 2017 to implement the Arrangement on Reciprocal 2019, Amongst those cases, around 18% were Recognition and Enforcement of Civil related to marriages in the Mainland, Judgments in Matrimonial and Family Cases averaging at over 4000 cases every year. The by the Courts of the Mainland and of the implementation of the Matrimonial and Family HKSAR (“Matrimonial and Family Arrangement will likely facilitate the Arrangement”). On 2 December 2020, the Bill settlement of divorce cases with a cross- was introduced to the Legislative Council for border element, and will be a welcomed first reading. A bill committee has been legislative update to watch out for in the Year formed, which had its first meeting on 11 of the Ox. January 2021. In Mainland China, the Matrimonial and Family Arrangement will be implemented by way of a judicial interpretation.

31 The shape of things to come What to expect in the Year of the Ox

Are keepwell deeds valid in the eyes of PRC courts?

In PRC cross-border financing transactions in to the noteholder was handed down by the the last decade, offshore investors investing in Hong Kong Court of First Instance debts issued by offshore subsidiaries of PRC (“HK Judgment”). parent companies have been relying on keepwell deeds provided by the PRC parent Relying on the Arrangement on Reciprocal companies. Particularly prior to 2014, Recognition and Enforcement of Judgments keepwell deeds were used as an alternative to in Civil and Commercial Matters by the Courts traditional guarantees to circumvent PRC of the Mainland and of the HKSAR pursuant to exchange control approval requirements. the Choice of Court Agreements between Parties Concerned, the noteholder A keepwell deed is usually executed by a PRC successfully sought recognition of the HK company (as keepwell provider) in favour of a Judgment from the Shanghai Financial Court trustee (of bonds or debt). The keepwell deed in November 2020 and had it enforced typically explicitly states that it is not a against CEFC in the PRC. However, it is worth guarantee, and that there are no direct noting that CEFC did not contest the payment obligations from a keepwell provider enforceability of the keepwell deed. to noteholders in the event that the primary obligor of the debt (i.e. the offshore Peking University Founder Group subsidiary) fails to perform its payment In August 2020, the PRC bankruptcy obligations. For the purpose of increasing administrator of the Peking University legal certainty, a keepwell deed is usually Founder Group (“PUG”) rejected claims under governed by Hong Kong law or English law, the keepwell deeds provided by PUG. It was and is usually subject to the exclusive reported that the basis of the decision was jurisdiction of the Hong Kong courts or that the effectiveness of keepwell English courts. arrangements had not been established in the PRC. Recently, there have been two test cases regarding the enforceability of keepwell deeds This was the first time a PRC bankruptcy under PRC law. administrator decided on issues relating to the validity and enforceability of keepwell CEFC Shanghai International Group arrangements. At the time of writing, this case In July 2018, a noteholder commenced remains subject to appeal before the No. 1 proceedings in Hong Kong against CEFC Intermediate People’s Court of the Beijing Shanghai International Group (“CEFC”) based Municipality. The result of this appeal could on a keepwell deed provided by CEFC. In have a significant impact on the use of August 2018, a default judgment ordering keepwell deeds, and should be monitored in CEFC to pay the principal, interest and costs the Year of the Ox.

32 The shape of things to come What to expect in the Year of the Ox

Court of Final Appeal cases to look out for in the Year of the Ox

A number of interesting cases will come In a joint venture agreement between Hsin before the Court of Final Appeal (“CFA”) Chong Construction Company Limited (in in the Year of the Ox. Some to look out liquidation) (“Company”) and Build King for include: Construction Limited (“BK”), a clause confers an innocent party a right to (i) exclude the Hsin Chong Construction Company Limited defaulting party from the joint venture upon, (in liquidation) v. Build King Construction amongst other specified events, the defaulting Limited (FACV 11/2020) (on appeal from party’s insolvency (“Clause”) and take over the CACV321/2019) benefits of the defaulting party in the joint This case concerns the application of the venture (without releasing the defaulting party anti-avoidance provision for corporate from its obligations to bear its proportionate insolvency under section 182 of the share of any loss); or (ii) wind up the affairs of Companies (Winding Up and Miscellaneous the joint venture. The Court of Appeal upheld Provisions) Ordinance, which provides that in the ruling of the Court of First Instance, a winding up by the court, any disposition of confirming that BK’s exercise of its right under the property of the company made after the the Clause, after a winding-up petition was commencement of the winding up shall be filed against the Company, was not a void, unless the court orders otherwise. The “disposition” under section 182 and that the purpose of section 182 is to preserve the Clause is valid. The Company sought leave to status quo of the company and prevent any appeal, which was granted by the CFA, improper “disposition” of the company’s exceptionally, on the “or otherwise” basis that property, which may otherwise be available it is reasonably arguable that the courts below, for pari passu distribution to the company’s in validating the Clause, misapplied section creditors. 182. According to the court records available, the appeal will be heard on 22 April 2021.

33 The shape of things to come What to expect in the Year of the Ox

Maeda Corporation and Another v Bauer On appeal, the Court of Appeal rejected the Hong Kong Limited (FAMV 237/2020 & FAMV sub-contractor’s argument, holding that by 238/2020) (on appeal from CACV 113/2019 & applying the relevant principles of CACV 122/2019) interpretation, the clear language of the MRs This case concerns the contractual did not provide any room for rewriting of interpretation of specific terms of those MRs, and that commercial common measurement rules (“MRs”) in the sub- sense should not be invoked retrospectively. contracts in respect of the construction of Nevertheless, the Court of Appeal did tunnels for the Hong Kong to Guangzhou specifically recognise the principle that a Express Rail Link (“XRL”), i.e. the “High Speed court dealing with an appeal against an Rail”. It originated from an appeal from an arbitrator’s decision should approach the arbitration between the main contractors and matter with care and have full regard to the the sub-contractor (namely, Bauer) on two views the experienced tribunal felt able to XRL contracts regarding the excavation of reach on matters of business or commercial diaphragm walls (“D-walls”). In the arbitration, sense that form an important dimension of the arbitrator accepted the sub-contractor’s the context within which a decision of law is argument that the strict construction of the reached on the true interpretation of the wording of the MRs was not consonant with contract. According to the court records commercial sense, particularly as that would available, the subcontractor applied for leave bring about practical difficulties and negative to appeal to the CFA in October 2020. commercial consequences to the subcontractor.

34 The shape of things to come What to expect in the Year of the Ox

New appointments to the Court of Final Appeal

At the beginning of 2021, Hong Kong New permanent welcomed its third Chief Justice. It will also The CFA must have no less than three see a new permanent judge joining the Court permanent judges. Chief Justice ’s of Final Appeal (“CFA”), although his/her promotion has created a vacant spot on the identity has not been disclosed yet. bench. The Chief Executive is required to appoint another permanent judge as soon as New Chief Justice reasonably possible acting in accordance with On 11 January 2021, became the recommendation of the Judicial Officers the third Chief Justice of the CFA, succeeding Recommendation Commission. Maria Yuen, . He is the first Hong Kong law who is a judge of the Court of Appeal and graduate to rise to the top post of Hong happens to be the wife of the former Chief Kong’s judiciary. Justice Ma, is one of the candidates for this position. Chief Justice Cheung was appointed as a judge of the Court of First Instance in 2003, where he has served as the Probate Judge and the Judge in charge of the Constitutional and Administrative Law List. He subsequently became the Chief Judge of the High Court and the President of the Court of Appeal. In 2018, he was appointed a permanent judge of the CFA.

On the same day Chief Justice Cheung took office, he delivered a speech at the Ceremonial Opening of the Legal Year, in which he outlined the “three fundaments” of the judiciary, namely that it:

– must be and must remain an independent and impartial judiciary – must comprise upright judges who are prepared to uphold rights – must remain a professional and efficient judiciary that moves with the times

35 The shape of things to come What to expect in the Year of the Ox

Employment

36 The shape of things to come What to expect in the Year of the Ox

Hong Kong extends statutory maternity leave from 10 weeks to 14 weeks

Near the end of 2020, the Hong Kong FAQs Government birthed new laws on maternity The Labour Department has published a set of leave, extending the statutory maternity leave FAQs on the new laws. The key points include: from 10 weeks to 14 weeks. – the additional four weeks’ statutory New ordinance maternity leave under the Amendment On 11 December 2020, the Employment Ordinance is applicable to an eligible (Amendment) Ordinance 2020 (“Amendment female employee whose confinement Ordinance”) came into effect, amending the (delivery) occurs on or after 11 December Employment Ordinance to provide for: 2020. Whether an employee is entitled to 10 weeks’ or 14 weeks’ statutory – the extension of statutory maternity maternity leave depends on the actual leave from 10 weeks to 14 weeks date of confinement of the employee, – government reimbursement for regardless of the expected due date or maternity leave payments for an whether the employee had already additional four weeks, subject to a commenced her maternity leave before HK$80,000 statutory cap under the 11 December 2020 Reimbursement of Maternity Leave Pay – the updated definition of “miscarriage” is Scheme (“RMLP Scheme”) applicable to a female employee who – a change to the definition of suffers a miscarriage on or after 11 “miscarriage” in the Employment December 2020 Ordinance from a pregnancy lost “before – both medical certificates and certificates 28 weeks of pregnancy” to “before 24 of attendance are accepted as weeks of pregnancy”, and employees documentary proof for entitling an suffering from a miscarriage will be eligible employee to sickness allowance entitled to maternity leave for any day on which the employee has – a relaxation of the documentation attended a medical examination in requirement for pregnant employees to relation to her pregnancy. The claim sickness allowance for attending acceptance of a certificate of attendance medical examinations in relation to as a proof is applicable to medical pregnancy examinations conducted on or after 11 December 2020 – a male employee may take paternity leave at any time during the period from four weeks before the expected date of delivery of the child to 14 weeks after the actual date of delivery of the child, if his child is born on or after 11 December 2020 37 The shape of things to come What to expect in the Year of the Ox

Implementation of the RMLP Scheme in 2021 In preparation for births in the Year of the Ox, The Labour Department is preparing for the employers and employees alike should launch of the RMLP Scheme (including a familiarise themselves with the new laws on one-stop online portal to facilitate electronic maternity leave. In particular, employers who submission of applications by employers) and wish to apply for reimbursement should is expecting to implement the RMLP Scheme update their procedures to collect relevant as soon as practicable in the first half of 2021. employment records and other related documents of pregnant employees for their applications.

38 The shape of things to come What to expect in the Year of the Ox

39 The shape of things to come What to expect in the Year of the Ox

Global reach: glossary of Eversheds Sutherland’s guides

Global Guide to Force Majeure Global Sanctions Guide https://ezine.eversheds-sutherland.com/ https://ezine.eversheds-sutherland.com/ force-majeure-global-guide/home/ global-sanctions-guide/home/

Asia Pacific Guide to Force Majeure Global Privilege Guide https://ezine.eversheds-sutherland.com/ https://www.eversheds-sutherland.com/ asia-guide/home/ documents/services/litigation/Global%20 Privilege%20Guide.pdf

40 The shape of things to come What to expect in the Year of the Ox

Global Employment and Pensions Guide Global Guide to Tax Tribunals https://www.eversheds-sutherland.com/ https://www.eversheds-sutherland.com/ global/en/what/practices/labour- global/en/what/practices/tax-law/tax- employment-law/employment-app/ tribunals-guide/global-tax-tribunal-guide. interactive-guides.page page?

Global Discrimination Guide https://www.eversheds-sutherland.com/ global/en/what/practices/labour- employment-law/global-discrimination- guide-zmag.page

41 The shape of things to come What to expect in the Year of the Ox

Contacts

42 The shape of things to come What to expect in the Year of the Ox

Litigation and Dispute Management Mark Hughes Head of Litigation and Uday Kumar Dispute Management, Asia Senior Associate T: +852 3918 3402 T: +852 2186 4965 M: +852 6056 6300 M: +852 9734 8180 markhughes@ udaykumar@ eversheds-sutherland.com eversheds-sutherland.com

Mark Yeadon Jocelyn Chow Partner Senior Associate T: +852 2186 3225 T: +852 2186 4933 M: +852 9464 6937 M: +852 6391 0269 markyeadon@ jocelynchow@ eversheds-sutherland.com eversheds-sutherland.com

Adam Ferguson Jason Tam Partner Senior Associate T: +852 2186 3248 T: +852 2186 3231 M: +852 9734 8178 M: +852 6391 0266 adamferguson@ jasontam@ eversheds-sutherland.com eversheds-sutherland.com

John Siu Jennifer Lau Partner Associate T: +852 2186 4954 T: +852 2186 4956 M: +852 9033 1561 M: +852 6414 9174 johnsiu@ jenniferlau@ eversheds-sutherland.com eversheds-sutherland.com Wesley Pang Registered Foreign Lawyer Manwa Yip (New York, USA) Associate T: +852 3918 3408 T: +852 2186 4922 M: +852 6295 8110 M: +852 9570 0610 wesleypang@ manwayip@ eversheds-sutherland.com eversheds-sutherland.com

Duncan Watt Steven Yuen Of Counsel Associate T: +852 2186 3286 T: +852 2186 4948 M: +852 6392 8672 M: +852 6056 3669 duncanwatt@ stevenyuen@ eversheds-sutherland.com eversheds-sutherland.com

Chi Chung Chan Legal Manager T: +852 2186 3244 M: +852 6056 1568 chichungchan@ eversheds-sutherland.com

43 The shape of things to come What to expect in the Year of the Ox

Employment

Jennifer Van Dale Yonah Leung Partner Senior Associate T: +852 2186 4945 T: +852 2186 4952 M: +852 9021 5236 M: +852 9217 8350 jennifervandale@ yonahleung@ eversheds-sutherland.com eversheds-sutherland.com

Structured Finance, Debt Capital Markets, Restructuring Simon Barrell Kingsley Ong Registered Foreign Lawyer Partner ( & Wales) T: +852 2186 3239 T: +852 2186 4926 M: +852 6629 1868 M: +852 9782 7720 kingsleyong@ simonbarrell@ eversheds-sutherland.com eversheds-sutherland.com

Polly Chiu Associate T: +852 2186 3217 M: +852 9093 2790 pollychiu@ eversheds-sutherland.com

44 The shape of things to come What to expect in the Year of the Ox

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