Friday, September 18, 2020

Syren Johnstone and Frederick Long on Environment and Governance: HKEX Guidance and Consultation (HK Lawyer)

Syren Johnstone and Frederick J. Long
September 2020
On 24 July 2020, HKEX announced two important initiatives. The first moves toward resolving a shortcoming in the regime for new listing applicants. The second aspires to improve Hong Kong’s environmental practices via a paperless listing regime. Both reflect a continuation of the environmental global leadership HKEX has shown, the most recent initiative being HKEX’s Sustainable and Green Exchange - STAGE. While both proposals set a directionally positive tone, there are some devils in the details.

Updated Guidance for New Listing Applicants
To date, it has been an anomaly that a listing applicant is not required to make disclosures in their listing documents as to their practices or standards regarding corporate governance (CG) or environmental, social and governance (ESG) (save in relation to certain conflicts of interests). This anomaly was the subject of recommendation C4.7.1 of the HKICPA’s Report on Improving Corporate 
     Governance in Hong Kong (December 2017). It proposed the listing applicant be required to make a statement about its CG practices in the prospectus in view of the listing rule (LR) provisions it will be subject to upon being listed. There is a strong argument that CG and ESG standards would be fostered, and investors better informed, by requiring a listing applicant to consider and disclose its practices prior to listing being granted. 
     Updated Guidance Letter HKEX-GL86-16 now requires applicants to have in place mechanisms that put them in compliance with CG and ESG “requirements” upon listing. Given that many provisions in LR Appendices 14 (re CG) and 27 (re ESG) are merely “comply or explain” not mandatory requirements, the guidance falls short of the more comprehensive progress envisaged by recommendation C4.7.1. In particular, it does not appear to procure “explain” disclosures that would deliver more meaningful information increasingly expected by responsible investors. More remains to be done.

A Paperless Listing Document and Subscription Regime
Despite international acceptance among regulators that electronic access equals delivery, Hong Kong’s penchant for printed prospectuses is environmentally wasteful and unnecessary. The present authors suggested in an earlier edition of this journal that Hong Kong already has a paperless prospectus regime that nevertheless needs modernising to properly accommodate electronic public offering and application processes (Hong Kong’s Paperless Prospectus Law, January 2020).
     One key hurdle is the Companies (Winding-up and Miscellaneous Provisions) Ordinance (Cap. 32) (CWUMPO), which prohibits a form of  application being issued otherwise than being “issued with a prospectus”. Per the SFC/HKEX 2010 Joint Consultation Conclusions, this is “commonly interpreted” as requiring a paper-based application form to be accompanied by a printed prospectus. An avenue for electronic prospectuses and printed application forms was subsequently provided by the Mixed Media Offering (MMO) introduced in 2010. Although a wholly paperless offering is possible under CWUMPO, Alibaba’s secondary listing in November 2019 took place subject to waivers from LR that posed uncertainties regarding printing requirements (see Hong Kong’s Paperless Prospectus Law, January 2020). 
     The HKEX Consultation Paper seeks to facilitate electronic-only offerings by proposing (i) the LR require listing documents to be published "solely in an online environment and cease printed form", and (ii) new listing subscriptions are “to be made through electronic channels only” (except MMOs). Item (i) envisages the LR being amended to recognise only electronic listing documents. HKEX expects CWUMPO’s prohibitions will deliver item (ii) – while the Exchange is statutorily empowered to make rules covering applications for the listing of securities, that does not appear to extend to matters concerning the offering of and application for securities. However, the proposal synchronises poorly with the law. Public offers are regulated by CWUMPO, which is silent, ie permissive save for the prohibition already noted, as to the medium of a prospectus or application form. Since the proposed changes to the LR have no bearing on the provisions of CWUMPO, listing applicants would in theory remain free to bulk-print a CWUMPO-compliant IPO prospectus and submit an online listing document cum prospectus to the Exchange. Futther, the CWUMPO prohibition applies to the issue of application forms, not vice versa, suggesting electronic subscription may also remain possible. 
     While such an outcome may seem absurd, and frustrates the intent of the proposal, the failure of the MMO to cause a shift away from bulk-printing prospectuses could be prognostic: will the proposed LR changes be sufficient to alter a cultural preference for printed prospectuses? Listing applicants and underwriters may be reluctant to tamper with customary IPO practices that have proven successful if they still have a choice when, commercially, environmental responsibility is typically a secondary consideration.
     To the extent the proposed changes to the LR, which are non-statutory and operate by way of contract, seek to remove the printed medium (albeit falling short of guaranteeing that outcome) they could be construed as an improper attempt to in practice negate what is legally permitted under CWUMPO. If so, it might cause difficulties for the SFC to approve the rule change having regard to its statutory responsibilities.
    For these reasons, the Consultation Paper may have overshot the mark by seeking to “outlaw” a printed option and going beyond international standards that enable, not restrict. Why not undertake a less ambitious clarification of the LR that simply removes the need for waivers? Absent a change in the permissive and media-neutral laws currently enjoyed by Hong Kong, re-aligning endemic practices and preferences with environmental aspirations may rely on regulators providing stronger incentives. A little pushing at the envelope of regulation may nevertheless be necessary to help practices modernise, and to lead. 

A fuller discussion of the above and other issues is provided in our Submission to the Consultation, which can be found at the author’s page at abstract=3670542.
Joint Submission to HKEX's July 2020 Consultation Paper on Paperless ListingSyren JohnstoneFaculty of Law, University of Hong Kong; Asian Institute of International Financial Law
Frederick J. LongOlympus Capital Asia, Hong Kong
Date Written: September 1, 2020 
AbstractOn 24 July 2020, HKEX announced two important initiatives. The first moves toward resolving a shortcoming in the regime for new listing applicants. The second aspires to improve Hong Kong’s environmental practices via a paperless listing regime. While both proposals set a directionally positive tone, there are some devils in the details. The first represents a small step with more to be done to implement recommendations made in a report by the HKICPA in December 2017. The second synchronises poorly with the law, may not bring about the desired outcome and may have overshot the mark as to what could have been more simply done.

Tuesday, August 18, 2020

Eric Ip on the Constitutional Economics of the WHO (Health Economics, Policy and Law)

"The constitutional economics of the World Health Organization"
Eric Ip
Health Economics, Policy and Law Published online in August 2020
Abstract: This paper brings a constitutional economics perspective to bear on the World Health Organization (WHO), the flagship United Nations intergovernmental health organisation, which is obligated by its Constitution to achieve ‘the highest possible level of health’ for the world's peoples. The WHO has in the seven decades of its existence used its formidable legislative powers only sparingly. It has been widely chided for being weak in regional coordination and unresponsive to transnational emergencies like the West African Ebola outbreak of 2014–2016. In 2020, it found itself at the centre of the COVID-19 pandemic and in the middle of the Sino-American geopolitical tug-of-war. This paper traces the discordance between the Constitution's stated purposes and the actual track record of the WHO not back to its organisational culture nor to weak leadership but to the design of the Constitution itself. It analytically distinguishes the Constitution's expressive from its instrumental halves, and shows that, whilst the former embodies a ‘constitutional moment’ of international health solidarity right after the Second World War, the latter embodies a reserved and limited delegation from member-states that are jealous of their sovereignty.

Eric Ip on Hong Kong's COVID-19 Health Regulations (Public Law)

"Hong Kong - the unprecedented promulgation of public health emergency regulations against the COVID-19 outbreak" 
July 2020, pp.580-582
Abstract: Examines the public health emergency regulations passed by Hong Kong in response to the COVID-19 pandemic under the Prevention and Control of Disease Ordinance s.8. Details the scope of the powers, their key features, such as a compulsory quarantine period for new arrivals, and the context in which they were made. Reviews the constitutional principles available to prevent such measures from violating the rule of law, including proportionality.​

Sunday, August 16, 2020

Gu Weixia on A Conflict of Laws Study in Hong Kong–China Judgment Regionalism: Legal Challenges and Renewed Momentum (Cornell Law School Journal)

Winter 2020, Volume 52, Issue 4, pp 591-642
Abstract: With the intensifying economic and social dynamics between Hong Kong and Mainland China since the handover in 1997, a comprehensive and effective cross-border judgment recognition and enforcement mechanism is imperative in order for Hong Kong to reinforce its role as a dispute resolution center in the perspective of judgments, in the context of the Belt and Road Initiative, and in the Greater Bay Area. This Article examines in detail the achievements and inadequacies in the current Hong Kong statutory and common law regimes, particularly the Mainland Judgment (Reciprocal Enforcement) Ordinance (Cap. 597), and reveals their tensions and inconsistencies with Mainland regimes and the 2005 Hague Convention on Choice of Court Agreements. Then, the Article provides an exhaustive statistical analysis on cases involving the MJO and explains the evolution to a more pro-enforcement judicial approach towards Mainland judgments in Hong Kong recently. It concludes by looking at the breakthroughs and outstanding issues of the new 2019 Arrangement between Hong Kong and the Mainland, as well as the prospects of Hong Kong in acceding to the 2005 and 2019 Hague Conventions and developing an interregional judgment recognition and enforcement framework. Click here to download the full article.

Saturday, August 15, 2020

Jose Duke Bagulaya on a People’s Reading of the ASEAN Charter (Asian J of Law & Society)

Jose Duke Bagulaya (PhD candidate)
Asian Journal of Law and Society
June 2020, Volume 6, Issue 2, pp.229-247
Abstract: While the Association of Southeast Asian Nations (ASEAN) Charter has been read by commentators as a constitutional document, its use of the peoples of Southeast Asia as fictional authors of the text has not been fully explored. A people’s reading of the ASEAN Charter provides a critical perspective that uncovers the elitist and statist nature of this document. A close textual analysis of the preamble reveals that these purported authors are displaced by the Heads of State as the speaking subject and creators of the new legal entity. This textual displacement transforms the constituent treaty into a state monologue as it imposes a utopian vision of capitalism on the geopolitical body of the region. Contrary to its democratic claims, the Charter has only constitutionalised reification, class structures, and the exclusion of the peoples from power. The ASEAN constitution silences its own authors.

Friday, August 14, 2020

Amanda Whitfort on Giving Wildlife a Voice in Hong Kong’s Courts (China Dialogue)

China Dialogue
Pavel Toropov
17 July 2020
Hong Kong is an international hub for the illegal trade in wild species, which is estimated to be worth up to US$23 billion a year globally. It is also a major buyer of these species, which include protected animals and plants, as well as their parts and products...
     Amanda Whitfort, associate professor in the Faculty of Law at Hong Kong University and a specialist in criminal and environmental law, is working on bridging this knowledge gap to enable the Hong Kong judiciary to make better sentencing decisions. Whitfort is also a barrister and prosecutes for Hong Kong’s Department of Justice.
     Working together with scientists and experts from Hong Kong University and the Kadoorie Farm and Botanic Garden, one of the things Whitfort has done is introduce to Hong Kong courts victim impact statements for trafficked species.
     A victim impact statement gives the victim of a crime the chance to make a judge aware of how they’ve been affected. Animals and plants are obviously unable to speak in court, and wildlife crime is often seen by legal professionals as “victimless”.
      Whitfort’s victim statements seek to change this by speaking on behalf of the trafficked species. They explain not only the suffering an animal endures when caught and shipped, but also the impact on the species as a whole, detailing for example the significance of a particular seizure in relation to the total population of a species left in the wild. 
      These statements are already improving the quality of sentencing in Hong Kong, and Whitfort is now working on extending the practice elsewhere in Asia... Click here to read the full interview with Amanda Whitfort.

Haochen Sun Interviewed on National Security Law Implications for Facebook, Twitter, Google in Hong Kong (WSJ)

"Facebook, Twitter, Google Face Free-Speech Test in Hong Kong: New national-security law means authorities can ask companies to delete users or their content"
Newley Purnell and Eva Xiao
HONG KONG—U.S. technology titans face a looming test of their free-speech credentials in Hong Kong as China’s new national-security law for the city demands local authorities take measures to supervise and regulate its uncensored internet.
     Facebook Inc. and its Instagram service, Twitter Inc. and YouTube, a unit of Alphabet Inc.’s Google, operate freely in the city even as they have been shut out or opted out of the mainland’s tightly controlled internet, which uses the “Great Firewall” to censor information....
     “Tech companies will absolutely receive more requests to remove information that is allegedly harmful to national security from the relevant authorities,” said Haochen Sun, a law professor at the University of Hong Kong. He said companies will face difficulties especially with borderline cases, such as potential requests to remove songs, for instance, that protesters have used in antigovernment demonstrations... Click here to access the online article.

Wednesday, August 12, 2020

Hualing Fu on the Relationship Between Hong Kong's Basic Law and the National Security Law

A Note on the Basic Law and the National Security Law
12 August 2020

Is the National Security Law (NSL) a second Basic Law standing on its own in its relationship with the Basic Law or is it part of the Basic Law structure and subject to its control? This is a difficult question. This note considers the arguments in favour of both positions and inclines towards the latter view as the better understanding of the relationship between the NSL and the Basic Law.

Legislative Hierarchy and Principles
The constitutional rules and principles in relation to the legislature of the mainland are most clearly stated in the Legislation Law. Article 7 of this Law provides that the National People’s Congress (NPC) and its Standing Committee (NPCSC) have the exclusive power to make laws.
     The NPC makes and amends criminal law, civil law, laws relating to state organs and other “basic laws”, which remains an undefined and controversial concept in Chinese law.
     The NPCSC makes and amends laws other than the basic laws. The NPCSC also has the power to make laws to partially supplement and amend the NPC laws (e.g. basic laws) when the NPC is not in session, but any addition and amendment shall not contravene the “basic principles” of the “basic laws”. [1]
     According to Article 97(1) of the same law, the NPC has the power to change or rescind laws made by the NPCSC that are “inappropriate.” [2]
     Notwithstanding these legislative rules, the Chinese Constitution does not provide a functional mechanism for constitutional review. The NPCSC occupies the commanding heights of the legislature and has the power both to make law and interpret law, rendering meaningless the possibility of post-enactment constitutional review of law.

The Basic Law
The Basic Law is a basic law in the Chinese hierarchy because it was enacted by the NPC and enjoys a higher constitutional status, albeit in a limited sense. Nevertheless, the Basic Law has a higher constitutional status among all laws in China because of its special function in creating a SAR in the implementation of Article 31 of the Constitution. As a result, the Basic Law is often regarded in Chinese constitutional scholarship as quasi-constitutional or a constitutional document and has been given a privileged constitutional status higher than ordinary NPC laws.
     The April 1990 Decision by the NPC is of special significance in signaling the special constitutional status of the Basic Law. On the same day it promulgated the Basic Law, the NPC made a Decision to affirm and to declare the constitutionality of the Basic Law. The Decision also establishes the supremacy of the Basic Law in the SAR by stating: “The systems, policies and laws to be instituted after the establishment of the Hong Kong Special Administrative Region shall be based on the Basic Law of the Hong Kong Special Administrative Region.”[3] The Basic Law constitutes the SAR, and therefore it is Hong Kong’s Constitution, mini or otherwise. Any other law, as long as it is implemented in Hong Kong, would have to be “based on”, subordinate to, and comply with the Basic Law. The NSL, as a NPCSC law, is no exception.

The NSL is a unique law, however, which follows an extraordinary law-making path. The NPC itself triggered the legislative process for the NSL through a Decision on 28 May 2020. The Decision relies directly on Article 31 and Article 62 (2) (12) (14) of the Constitution in authorising and mandating the NPCSC to make a NSL within the scope of the Decision. 
     Both the Basic Law and the Decision derive their authority from Article 31. This is also the first time that the NPC has invoked Article 62 (2) to exercise its power in extending a national law to Hong Kong. Article 62 sets out the different functions and powers of the NPC and paragraph (2) refers to the power to “supervise the enforcement of the Constitution”. The making of the NSL relied upon the Constitution for its application to Hong Kong outside of the framework of the Basic Law. This is a significant development in Basic Law jurisprudence and will have long-term consequences. Although the Basic Law is also relied on and referred to in the Decision, no reference is made to any specific articles of the Basic Law, leading to the argument that the NPC has indeed bypassed the Basic Law in making the NSL.
     According to the relevant clauses in Article 62 of the Constitution, the NPC can supervise the implementation of the Constitution (62 (2)); decide on establishment of a SAR and the system to be implemented there (62(14)); and exercise other powers that shall be exercised by the highest organ of state power (62(16)). In acting according to these functions and powers, the NPC is stating, as the sovereign power, it can enact any law for Hong Kong as circumstances demand and as it sees fit.
     On 30 June 2020, the NPCSC promulgated the NSL. Article 3 of the NSL provides that “The Central People’s Government has an overarching responsibility for national security affairs relating to the Hong Kong Special Administrative Region.” By this article, according to my reading of the Basic Law and the NSL, the NPCSC has effectively replaced Article 23 of the Basic Law with the NSL. Or one might say it is giving effect to what has always been implicit in Article 23.
     Article 7 of the NSL provides: “The Hong Kong Special Administrative Region shall complete, as early as possible, legislation for safeguarding national security as stipulated in the Basic Law of the Hong Kong Special Administrative Region and shall refine relevant laws”. This is a technical article used to preempt the challenge that the NSL violates the “on its own” clause in Article 23 of the Basic Law. Given the substantial overlapping between the NSL and Article 23, in form and substance, and common legislative objectives of both laws, a more honest approach is to admit that the NPC has authorised its NPCSC to make an Article 23 law for Hong Kong to fix a potential or real serious national security crisis. The operative word in Article 7 is “complete” suggesting the NPCSC has started the Article 23 work project for Hong Kong to finish.

So what is the constitutional status of the NSL? It has been argued that the NSL is the second Basic Law for Hong Kong because of (A) its direct reliance on, and invocation of Article 31 and Article 62 (2) (12) and (14), and (B) the special authorisation of the NPC to make the NSL through its May Decision. According to this view, the NSL is a national law that exits in parallel to the Basic Law, supplementing and amending the Basic Law but not bound by it. That view, which accepts the creation of a separate source of law and an independent national security regime in Hong Kong outside the Basic Law, would have caused a fundamental change to ‘one country, two systems’. After a careful reading of the NPC Decision, the NSL, and the explanatory notes to both the Decision and the NSL, I cannot find any evidence that such a fundamental change is intended.
     A better view is that the NSL is an ordinary piece of NPCSC legislation, subordinate in status and force to the Basic Law. It is self-evident the NSL, according to the NSL itself (Article 1), was made “in accordance with” the Basic Law. The Basic Law remains a superior law to the NSL and the supreme law in Hong Kong.[4] This is so not merely because the Basic Law is a basic law enacted by the NPC – the NPC can make other basic laws. Rather it is due to the Basic Law’s quasi-constitutional status. The Basic Law remains Hong Kong’s constitution by its nature.
     The NSL is a NPCSC law that has been inserted into Annex III of the Basic Law to fill a gap left by Article 23, as contentious as the matter may be. As such, the NSL has to be consistent with, and accountable to, other provisions of the Basic Law so as to maintain the integrity of the Basic
     Law in accordance with Article 11.[5] The NSL may have replaced the explicit understanding of Article 23 to create a novel national security regime, but it is not immune from the control of the Basic Law.
     From the Chinese law perspective, as stated above, since the NPCSC both made the NSL and interprets both the NSL (Article 65) and the Basic Law (Article 158), a constitutional review of the NSL against the Basic Law by the NPCSC is unlikely to prove a meaningful exercise. However, the Chinese law position does not prohibit Hong Kong courts from developing a common law jurisprudence in interpreting the NSL in accordance with the standards of the Basic Law, that is to say to reconcile any potential conflict between the two laws through judicial interpretation, subject to the interpretative power of the NPCSC. [6]

[1] Article 7, Legislation Law.
[2] Article 97, Legislation Law.
[3] Decision of the National People’s Congress on the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China (Adopted at the Third Session of the Seventh National People’s Congress on 4 April 1990)
[4] Article 62 of the NSL states that “This Law shall prevail where provisions of the local laws of the Hong Kong Special Administrative Region are inconsistent with this Law.” “Local laws” Article 62 does not include the Basic Law.
[5] In the case of HKSAR v. Ng Kung Siu and another [1999] HKCFA 10, the CFA considered the constitutionality of the National Flag Ordinance, which was enacted through art 18(2) and Annex III, thereby further confirming that national laws enacted in this way must be consistent with the Basic Law.
[6] Article 65 of the NSL provides “The power of interpretation of this Law shall be vested in the Standing Committee of the National People’s Congress”. Given that the application of the NSL would necessarily involve judicial interpretation by Hong Kong courts, Article 65 must be referring to “ultimate or final power of interpretation”.

Simon Young on Interpreting Hong Kong's National Security Law (SCMP)

"Why Beijing must respect Hong Kong courts' interpretation of national security law"
Simon Young
South China Morning Post
8 July 2020
Like a signal No 8 typhoon, the national security law directly hit Hong Kong just before midnight on July 1, leaving us to pick up the pieces. One of those pieces is its interpretation.
     Some have asked why bother as it is like other Chinese laws – vague and open to manipulation through interpretation by the authorities. Only the National People’s Congress Standing Committee appears to have the power to interpret the law. Let the political struggle continue, they say.
     As a law professor and practitioner, I find such a defeatist attitude unhelpful. Cases under the new law have commenced. Lawyers need to advise on it and courts must apply it in adjudicating cases. The law is upon us and we cannot sit idle in fear, waiting for some authority to tell us what it means. In affirming our autonomy, questions of interpretation should be carefully considered on our own in accordance with existing legal practices and principles. 
     The national security law has been added to Annex III of the Basic Law by the NPC Standing Committee. Annex III national laws are to be “applied locally” – that is, by reference to local circumstances and standards. Hong Kong judges and practitioners work in a common law legal system, having been educated and trained in the common law tradition... Click here to read the full article.

New Issue of Hong Kong Law Journal (Vol. 50 - Celebrating 50 Years of Legal Scholarship, Part 1 of 2020)

Vol. 50, Part 1 of 2020

Editor-in-Chief: Professor Rick Glofcheski
Associate Editor: Professor Albert Chen
Publisher: Sweet & Maxwell


HKLJ Turns 50     Rick Glofcheski…1
Birth of the Hong Kong Law Journal     Henry Litton CBE, GBM…5

A Strained Interpretation of Art 22 of the Basic Law     Johannes Chan…7
In a highly controversial statement, the Liaison Office of the Central People's Government in Hong Kong claimed that it is not "a department of the Central People's Government" within the meaning of art 22 of the Basic Law and hence not subject to the constitutional restraint of non-interference with the internal affairs of Hong Kong. The statement has received support from the Hong Kong and Macau Affairs Office and the Chief Executive of the Hong Kong Special Administrative Region, but has aroused widespread concern on the extent of the autonomy of Hong Kong under the Basic Law. This article argues that the view of the Liaison Office is untenable, and may represent a change of policy towards Hong Kong.

The Logical Foundations of Judicial Review of Legislation in the Hong Kong Special Administrative Region     Eric C Ip…19
This Analysis demonstrates in the simplest manner that the Basic Law of the Hong Kong Special Administrative Region could not have authorised the courts it established to enforce non-applicable laws that violate itself. This lack of judicial authority to enforce laws inconsistent with the Basic Law cannot in itself be curtailed, even by a Standing Committee Interpretation without contradiction. Nor can the courts' obligation to ascertain the consistency of primary and subsidiary legislation with the Basic Law be prohibited by such an Interpretation without reducing the Basic Law into a non-justiciable paper tiger. Judicial enforcement of the Basic Law does not imperil Chinese sovereignty; if anything, it enhances the reputation and credibility of the Basic Law, the centre-piece of "One Country, Two Systems".

A Response to Infinger v Hong Kong Housing Authority — Same-sex Couples' Unequal Access to Public Housing in Hong Kong     Elizabeth Lui…35

Passenger Injuries in International Air Law: Case Law Development and Upcoming Questions for Hong Kong Courts     Jae Woon Lee…49

Judicial Striking-Down of Unconstitutional Legislation     Hon Mr Justice Kemal Bokhary GBM, NPJ…77


Human Arbitrators (the Undisputed Champion) v Robots (the Challenger)     Dan Wei and Gustavo Moser…215

50th Anniversary Feature Articles
Chinese Law and Legal Reform: Where to from Here?     Jianfu Chen…243 

China Law 

Book Review
Transparency Challenges Facing China     Michael Dowdle…343

Tuesday, August 11, 2020

Lusina Ho on Unjust Enrichment and Equity (new book chapter)

"Unjust Enrichment and Equity"
in  Elise Bant, Kit Barker, Simone Degeling (eds), Research Handbook on Unjust Enrichment and Restitution (Edward Elgar, July 2020), Chapter 7
Summary: The proper relationship between unjust enrichment and equity has long been the subject of spirited debates. At the theoretical level, there is debate as to whether the idea of conscience is better than unjust enrichment in explaining and categorising instances of restitutionary liability previously available under quasi-contract. At the doctrinal level, it has been argued that the equitable doctrines of knowing receipt and undue influence are better classified as claims to reverse unjust enrichment. Furthermore, where both common law and equitable rules are applicable to a claim in unjust enrichment, there are calls to assimilate the rules to achieve coherence and consistency. The present chapter explores all these issues.

Sunday, August 9, 2020

Syren Johnstone on Secondary Markets in Digital Assets: Rethinking Regulatory Policy in Centralized and Decentralized Environments (Stanford J of Blockchain Law & Policy)

Syren Johnstone
Stanford Journal of Blockchain Law & Policy,  
June 2020, Vol. 3 No. 2, pp. 146-188
Abstract: This paper considers the pathway options for the development of a regulated secondary market in digital assets. It explores the conditions necessary to develop a regulatory framework that serves to facilitate the possibilities offered by cryptographic consensus technologies such as blockchain and distributed ledger technology. While centrality has been a useful and hitherto inevitable nexus point for regulatory agencies, the prospect of alternative decentralized environments signals a need to reconsider how regulatory oversight can work to service its intended functions. Existing market integrity controls are also presented with novel challenges in the context of multiple market places for the same digital asset.
     The structural forms of centralized and decentralized cryptoexchange models and the functions served are considered in the context of historical development of exchanges in traditional markets. The different operational concerns, and how regulatory accountability can be established in decentralized contexts, are explored. The non-exchange-like activities that may be undertaken by exchange operators and the challenges arising in relation to intermediary services are reviewed.
     The analysis suggests the development of regulatory policy should be model-neutral, form-independent and focused on functions and outcomes. It should not be imposed in a manner that may inhibit the ability of private markets to develop effective outcomes that align with public policy concerns, or which may cause industry development to cycle back toward extant models rather than evolving more optimal models of commercial and financial activity. Addressing intermediary services, whether provided by a cryptoexchange, intermediaries from traditional markets, or specialized cryptointermediaries, will be part and parcel of effective secondary market regulation. While the different nature of digital assets compared to traditional securities presents difficulties in applying existing regulations, it may also present opportunities for regulatory approaches that utilize their unique digital characteristics. Regulatory agencies must engage the concept of attraction regulation by playing a formative role in directing the industry toward shared goals.

Giuliano Castellano Contributes to World Bank Group's Guidance Notes on Distributed Ledger Technology & Secured Transactions

Dr Giuliano G. Castellano's immense expertise on the use of digital assets as collateral has helped to shape and inform three substantial guidance notes published in May 2020 by the World Bank Group. The guidance notes are part of new series on Distributed Ledger Technology (DLT) & Secured Transactions: Legal, Regulatory and Technology Perspectives. A DLT system is defined as a "distributed computerized system that enables participants (nodes) to submit, validate, and store information into a database (distributed ledger) that is disseminated, synchronized, and maintained fully or partially across nodes, without the need for intermediaries". 
     The first note is titled "Collateral Registry, Secured Transactions Law and Practice". It "examines the potential of DLT within the context of the UNCITRAL Model Law on Secured Transactions" (p 7). The second note considers the regulatory implications of integrating digital assets and distributed ledgers in credit ecosystems. Dr Castellano developed the primary technical content for this note. The third note provides a "primer on [DLT] and highlights the junctures at which this new technology meaningfully impacts secured transactions frameworks" (p 7). DLT is described as a "new paradigm" with the following facets: a "novel database technology", a "novel form of pure intangibles" and "transactional automation" (p 10).
     Dr Castellano was recently appointed by UNIDROIT to be a member of its Working Group on the Model Law on Factoring. Factoring is an important type of financing that is increasinly being used around the world.  "In 2019, global factoring volume reached 2.9 trillion euros." (UNIDROIT website).  Dr Castellano will share his knowledge on teh regulatory aspects that might affect the development of this international instrument.    

Friday, August 7, 2020

New Book: Authoritarian Legality in Asia Formation, Development and Transition (CUP)

Authoritarian Legality in Asia: Formation, Development and Transition
Edited by Weitseng Chen and Hualing Fu
July 2020, 500 pages
Description: A cluster of Asian states are well-known for their authoritarian legality while having been able to achieve remarkable economic growth. Why would an authoritarian regime seek or tolerate a significant degree of legality and how has such type of legality been made possible in Asia? Would a transition towards a liberal, democratic system eventually take place and, if so, what kind of post-transition struggles are likely to be experienced? This book compares the past and current experiences of China, Hong Kong, South Korea, Japan, Taiwan, Singapore, and Vietnam and offers a comparative framework for readers to conduct a theoretical dialogue with the orthodox conception of liberal democracy and the rule of law.
  • Provides a comparative perspective of authoritarian legality to enrich the understanding of legality and liberal rule of law and democracy
  • Introduces an intra-Asia comparison approach that provides a new set of metrics for evaluating legal reforms in authoritarian countries such as China
  • Explores various phases of authoritarian legality development and discusses not only the transition of authoritarian legality but also the post-transition struggles in various countries
Weitseng Chen is Associate Professor at the National University of Singapore (NUS) Faculty of Law and Deputy Director at the NUS Center for Asian Legal Studies. He specializes in comparative Chinese law within greater China as well as law and development in East Asia. Before joining NUS Faculty of Law, he was Hewlett Fellow of the Center on Democracy, Development and the Rule of Law at Stanford University and also practiced as a corporate lawyer at Davis Polk & Wardwell.
     Hualing Fu holds the Warren Chan Professorship in Human Rights and Responsibilities at The University of Hong Kong, Faculty of Law and is Interim Dean of The University of Hong Kong Faculty of Law. He specializes in constitutional law and human rights with a particular focus on the Chinese criminal justice system, Chinese media law and land law. Other areas of research include the constitutional status of Hong Kong and its legal relations with China. He has previously taught at the City University of Hong Kong, University of Washington, New York University and University of Pennsylvania.

Weitseng Chen, Hualing Fu, Jacques deLisle, Michael Dowdle, Eva Pils, Thomas E. Kellogg, Richard Cullen, David Campbell, Michael C. Davis, Kevin Y. L. Tan, Tom Ginsburg, Do Hai Ha, Pip Nicholson, Jianlin Chen, Yen-Tu Su, Koichi Nakano, Erik Mobrand

Thursday, August 6, 2020

Marco Wan on Same-sex Marriage in the Context of Hong Kong (JP Morgan Webinar)

Marco Wan spoke on the timely and important issue of same-sex marriage at a recent webinar at the Hong Kong office of the US investment bank JP Morgan on 24 June 2020. His presentation gave an update of the recent cases in Hong Kong, including QT, Leung Chun KwongInfinger, and MK, and also explored international developments. The talk further explored Hong Kong's marriage history as a way of thinking about the twenty-first century debate about marriage equality; this part of the talk drew on his forthcoming article entitled "The Invention of Tradition: Same-sex Marriage and its Discontents in Hong Kong". The talk concluded by noting the need not only to focus on marriage, but on other issues central to sexual minority rights such as employment discrimination. 

Patricia Ho Recognised in Trafficking in Persons Report 2020

Congratulations to Patricia Ho who was recognised by the United States Department of State as one of ten 2020 Trafficking in Persons Report Heroes from around the world.  In the award ceremony, Patricia was awarded the honour, 
'In recognition of her dynamic leadership in defending the rights of human trafficking victims and marginalized groups by challenging government policies and laws and her relentless work to promote the better treatment of victims through elevation of survivor voices and a trauma-informed approach'.
  Patricia has been advocating for the rights of persons from margialised groups through her work as a public law solicitor and founder of the non-governmental organisation, Hong Kong Dignity Institute. In the Faculty of Law, Patricia is a principal lecturer who teaches in the Clinical Education Programme (both General and Refugee Streams) and Administrative Law in the LLB programme.  HKU law students gain valuable knowledge and experience in working with Patricia who has been instrumental in bringing important human rights issues before the Hong Kong courts.

Wednesday, August 5, 2020

Congratulations to HKU Law Scholars Awarded Tenure in 2020

Congratulations to Kelvin Kwok, Dr Peter Chau and Dr Shitong Qiao on being awarded tenure and the title of Associate Professor at HKU's Faculty of Law.
     The Faculty of Law is the longest established law school in Hong Kong. It adopts a rigorous process of external review for all tenure and promotion applications. The award of tenure is a recognition of the all-round excellence in research, teaching, service and knowledge exchange demonstrated by these individuals in their years as tenure-track assistant professors.
     Kelvin Kwok researches in the areas of competition law and consumer protection. He has been the principal investigator of two General Research Fund (GRF) grants awarded by the Hong Kong Research Grants Council. He was awarded the Faculty Research Output Prize 2015 and the King’s/HKU Fellowship Award 2018-19. He has served as an editor of the Oxford University Commonwealth Law Journal, Hong Kong Law Journal, and China Antitrust Law Journal
     Dr Peter Chau researches in the area of legal theory, initially on the topic of criminal punishment and now increasingly on private law areas such as tort law. He  received two GRF grants. From 2015 to 2017, his funded project was on “Proportionality in Criminal Punishment”. In 2018, he obtained a grant on “Examining Non-Instrumental Justifications for Tort Compensation”.
      Dr Shitong Qiao is well-known for doing research in  Chinese property law and theory.  He was the Ken Young-Gak Yun & Jinah Park Yun Visiting Assistant Professor of Law at Duke University in Spring 2019 and the inaugural Jerome A. Cohen Visiting Professor of Law at NYU in Spring 2020. His monograph, Chinese Small Property: The Co-Evolution of Law and Social Norms, was published in 2017 by Cambridge University Press and won the inaugural Masahiko Aoki Award for Economic Paper from Tsinghua University. In dissertation form, it won the Judge Ralph K. Winter Prize (awarded annually to the best student paper written in law and economics at Yale Law School).  All the very best to our three colleagues as they move on to the next phase of their academic careers.

Tuesday, August 4, 2020

Daisy Cheung: Magistrates Must Improve Approach to Mental Disability in the Courtroom (HKFP)

"Magistrates must improve approach to mental disability in the courtroom"
June 22 2020
I have read with great disappointment and concern reports of two recent magistrate cases dealing with the topic of mental disability.
    The first involved a schoolteacher who was found guilty of assault on June 12 at the Fanling Magistrates’ Court. It was reported that the magistrate had questioned the mental state of the defendant on the basis that his testimony was full of lies, that he showed no remorse, and that his testimony about the police wanting to throw him off a bridge was so outlandish that she suspected he had both mental and personality disorder.
     She further commented that she did not think his mental state was such that he could continue to teach. The defendant was remanded to Siu Lam Psychiatric Centre until June 26, where two psychiatric reports would be obtained.There are clearly many concerns with the magistrate’s cavalier usage of technical medical terminology (in an area in which she has no apparent expertise) and perhaps with her decision to remand the defendant to Siu Lam Psychiatric Centre on the basis of his testimony in court, but I would like to focus in particular on the unnecessarily stigmatising effect of the magistrate’s words.
    First of all, anyone with courtroom experience will know that lack of remorse and testimony that appears untruthful or difficult to understand can be shared by many defendants, and that by itself, these behaviours are not indicative of mental or personality disorder.
    What the magistrate is doing here is equating undesirable human behaviour with mental illness, which is incredibly stigmatising for individuals with mental disability, already one of the most vulnerable and stigmatised groups in society. ... Click here to read the full text. 

Chinese version: 
June 25 2020
     裁判官進一步質疑被告的精神狀態是否足以使他繼續教書,並將案件押至6 月26 日判刑,以索取兩份精神科報告、心理及背景報告。期間被告還押小欖精神病治療中心。
    裁判官將不良行為與精神疾病等同起來,這種做法嚴重污名化患有精神障礙的人士——況且他們已是社會上最弱勢和最被污名化的群體之一。 ... Click here to read the full text. 

Friday, July 31, 2020

Liability for Imposing Sanctions under Hong Kong's National Security Law (Albert Chen and Simon Young)

Liability for Imposing Sanctions under Hong Kong’s National Security Law
 Albert H.Y. Chen* and Simon N.M. Young**
31 July 2020

1. Introduction
Under Article 29(4) of Hong Kong’s National Security Law (NSL), a person who “receives instructions”(接受外國的指使)from a foreign country to commit (實施)the act (行爲) of “imposing sanctions against the Hong Kong Special Administrative Region (HKSAR) or the People’s Republic of China” (PRC) (對香港特別行政區或者中華人民共和國進行制裁) commits a criminal offence.[1] Recently, some foreign countries have taken steps towards imposing sanctions against the HKSAR, PRC and their officials. International banks and financial institutions in Hong Kong are worried that they may be in breach of Article 29(4) if as a result of their regulatory obligations they must give effect to these sanctions in their ordinary business operations.[2] Prima facie it may appear arguable that such institutions are “receiving instructions” from a foreign country to “impose a sanction on the HKSAR and PRC” and thus appear to be in breach of Article 29(4).
     This commentary examines the scope of Article 29(4) and considers the possible liability risks for banks and financial institutions who must give effect to external sanctions or other measures directed at the HKSAR or PRC. It argues that the scope of Article 29(4) consists of acts which are only capable of being performed by a state, head of state or international organisation, and thus a financial institution, giving effect to sanctions against Hong Kong, cannot be regarded as receiving instructions to “impose sanctions”, which have already been imposed by a foreign state. It cannot be guilty of a criminal offence under Article 29(4) merely by participating in the implementation of the sanctions concerned to comply with a foreign law applicable to it. However, in certain exceptional and special circumstances to be discussed below, it is possible for banks and financial institutions to become liable (as a non-principal offender) for providing financial services to a foreign head of State or political leader who (as a principal offender under Article 29(4)) has received funding or other support from a third party for the purpose of the State concerned imposing a sanction on the HKSAR or the PRC.

2. The Structure of Article 29
Discerning liability under Article 29 is made difficult by its clumsy drafting, block structure, and absence of clear subsections and paragraphs. Inserting numbering for subsections/paragraphs and other formatting can improve readability without altering the meaning of the article. Consider the following Chinese and unofficial English versions of Article 29 with new section numbering in red and other formatting inserted for clarity:

[A] 為外國或者境外機構、組織、人員竊取、刺探、收買、非法提供涉及國家安全的國家秘密或者情報的;
[a] 請求外國或者境外機構、組織、人員
[b] 與外國或者境外機構、組織、人員串謀
[c] 直接或者間接接受外國或者境外機構、組織、人員的指使、控制、資助或者其他形式的支援

Article 29[3] 
[A] A person who steals, spies, obtains with payment, or unlawfully provides State secrets or intelligence concerning national security for a foreign country or an institution, organisation or individual outside the mainland, Hong Kong and Macao of the People’s Republic of China shall be guilty of an offence;
[B] a person who
[a] requests a foreign country or an institution, organisation or individual outside the mainland, Hong Kong and Macao of the People’s Republic of China, or
[b] conspires with a foreign country or an institution, organisation or individual outside the mainland, Hong Kong and Macao of the People’s Republic of China, or
[c] directly or indirectly receives instructions, control, funding or other kinds of support from a foreign country or an institution, organisation or individual outside the mainland, Hong Kong and Macao of the People’s Republic of China,
to commit any of the following acts shall be guilty of an offence:
(1) waging a war against the People’s Republic of China, or using or threatening to use force to seriously undermine the sovereignty, unification and territorial integrity of the People’s Republic of China;
(2) seriously disrupting the formulation and implementation of laws or policies by the Government of the Hong Kong Special Administrative Region or by the Central People’s Government, which is likely to cause serious consequences;
(3) rigging or undermining an election in the Hong Kong Special Administrative Region, which is likely to cause serious consequences;
(4) imposing sanctions or blockade, or engaging in other hostile activities against the Hong Kong Special Administrative Region or the People’s Republic of China; or
(5) provoking by unlawful means hatred among Hong Kong residents towards the Central People’s Government or the Government of the Region, which is likely to cause serious consequences.

3. Discussion
Hong Kong’s criminal laws are to be interpreted with reference to the words used in the law, the purpose of the law, and the context in which the law is found. Article 29 is found in Part 4 of the NSL which is titled “Collusion with a Foreign Country or with External Elements to Endanger National Security”. Its purpose is to criminalise a person’s acts of collusion with an ‘outsider’ for the commission of specific acts that endanger national security. An ‘outsider’ means a “foreign country or an institution, organisation or individual outside the mainland, Hong Kong and Macao of the [PRC]”. While the offenders are likely to be insiders (i.e. a Hong Kong resident), they need not be and can also include bodies such as companies. 
     For present purposes, we are focusing only on section [B] of Article 29. Section [B] has three limbs, each of which constitutes wholly or partly the actus reus of a criminal offence under Article 29[B]: [a], [b] and [c], corresponding to the three forms of collusion proscribed by Article 29. They are acts of “requesting”, “conspiring with” or “receiving instructions, … funding, etc” that the person must commit with the outsider. But to commit the offence, those acts must be done to achieve certain objectives, as specified in paragraphs (1) to (5). The prohibited acts referred to in these paragraphs (e.g. waging a war, etc) do not need to materialise for the offence to be committed.[4] The relevant acts specified in paragraphs (1) to (5) represent the intended objects of the collusion, while the collusion itself lies at the heart of the offence. The essence of the offence targets the acts of “requesting”, “conspiring with”, or “receiving instructions, … funding, etc from” an outsider in order for one or more of the five prohibited acts to be committed. 
     While the accused person must commit an act of “requesting”, “conspiring” or “receiving …”, questions will arise as to the scope of each of the five intended objects. For example, must the accused or outsider also be an intended party to the collusion object? Who is capable of committing the collusion object? The answer to these and other questions concerning the scope of the intended object will depend on two main considerations: (1) the logical connection between the relevant actus reus limb and the specific collusion object; and (2) nature of the specific collusion object.
     Limb [a] involves the person requesting an outsider “to commit” one or more of the collusion objects (1) to (5). This clearly contemplates the outsider committing the prohibited act in (1) to (5), e.g. if A requests State B to wage a war against the PRC it is State B who will wage the war, not A. Limb [b] involves the person conspiring with an outsider “to commit” one or more of the collusion objects. The law of conspiracy in Hong Kong requires an agreement between two or more person to commit an offence by at least one of those party to the agreement.[5] Applying this law of conspiracy implies that under limb [b] any party to the conspiracy (including the person and outsider) may commit the intended collusion object, e.g. if A conspires with State B to rig or undermine an election in the HKSAR (paragraph (3)), it is intended that anyone party to this conspiracy, including A or State B, will be actually rigging or undermining the election. Finally, limb [c] involves the person receiving instructions or other kinds of support from an outsider “to commit” the collusion object. The natural and logical meaning of these words suggests that it is the person (though perhaps jointly with others) who will commit one or more of the prohibited acts in (1) to (5). For example, if A receives instructions or funding from State B to rig or undermine an election in the HKSAR, this suggests at least A will be the person performing the act of rigging or undermining the election. 
     Once one appreciates the significance of the logical connection between the actus reus limb and collusion object, it is necessary to consider the text and nature of the collusion object to fully appreciate its scope. 
     Collusion object (4) concerning sanctions reads as follows in the original Chinese (with translated English terms inserted):

對香港特別行政區或者中華人民共和國進行(impose)制裁(sanctions)、封鎖(blockade)或者採取(engage in)其他敵對行動(other hostile activities)”

The ‘imposition’ of ‘sanctions’ and ‘blockade’ are acts which can only be performed by one State as against another State. If the ejusdem generis rule of interpretation is applied, then in this provision, ‘採取其他敵對行動’ (‘engaging in other hostile activities’) should be interpreted to mean acts of a similar nature as ‘imposing sanctions and blockade’ (進行制裁、封鎖), so the acts must also be acts performed by a State against another State. This is confirmed by our research into the use of the term didui xingdong (敵對行動) (‘hostilities’ or ‘hostile activities’) in works on public international law and legal documents in China, which shows that didui xingdong (敵對行動) is usually an action taken by a State (including its military forces) against another State (and may also include military conflicts in circumstances of civil war), although individual human beings may participate in (參與) didui xingdong (敵對行動).[6]
     It follows that in Article 29(4), the subject (or actor) performing the acts of ‘imposition of sanctions or blockade’ (進行制裁、封鎖) or ‘engaging in other hostile activities’ (採取其他敵對行動) was intended to be a State (including the government of the State), a person with authority to act on behalf of a State (eg the Head of State), or an international organisation whose membership consists of States. In other words, where the first paragraph of article 29 (immediately following limb [c] and immediately before object (1))refers to “…實施以下行為之一的” (“to commit any of the following acts”), the relevant 行為 (“act”) in object (4) may only be committed by a State, a person with authority to act on behalf of a State, or an international organisation and cannot be committed by any other person or entity such as a bank or financial institution.
     If one accepts this State-centred approach to the understanding of paragraph (4), there is still the question of liability from the perspective of the three actus reus limbs. Limb [a] involves persons requesting an outsider (which is a State) to impose sanctions, etc, on the HKSAR or PRC. This (i.e. Article 29[B][a](4)) is the most logical combination between any of limbs [a], [b] and [c] with the object in paragraph (4). The prohibition of such “requesting” (the latter actually occurred in 2019 during the anti-extradition movement in Hong Kong[7]) falls directly within “the mischief” or purpose of Article 29(4). Similarly, under limb [b], those who conspire with an outsider (being a State) for the State concerned to impose sanctions on the HKSAR or PRC would also be caught (i.e. Article 29[B][b](4)).
     Banks and other financial institutions will not be caught by limbs [a] or [b] as combined with paragraph (4) so long as they abstain from any “requesting” of the imposition of sanctions against the HKSAR or PRC and from any conspiracy with a State for this purpose. The critical question for our present purpose is whether they might be caught by limb [c] if, for example, they are required by the law of a foreign State to perform any act (in their business activities) that would form part of the implementation of a sanction imposed by the foreign State on the HKSAR or the PRC, and they comply with such a legal requirement. Would they be “receiving instructions …” from an outsider, including a foreign State, to impose sanctions on the HKSAR or PRC? 
     In our view, a bank or financial institution acting in compliance with a foreign law which requires it to participate in the implementation of such a sanction cannot be guilty (as a principal offender) of any offence created by the combination of limb [c] with paragraph (4). This is because the relevant act (行為) in the expression “…實施以下行為之一的” (to commit (or perform) any of the following acts) (in the first paragraph of article 29 immediately following limb [c] and immediately before paragraph (1)) cannot, as far as paragraph or object (4) is concerned, be committed by a bank or financial institution. A bank or financial institution (complying with a foreign law imposing a sanction on the PRC or the HKSAR, or on individual persons or corporate entities in the PRC or the HKSAR) may participate in the implementation of a sanction imposed by a foreign State against the PRC or the HKSAR, but it cannot “impose a sanction” against the PRC or HKSAR. Such a bank or financial institution would only be liable if the wording of object (4) were amended to include not only “imposing a sanction … on the PRC or the HKSAR” (對香港特別行政區或者中華人民共和國進行制裁) but also “participating in the implementation of a sanction imposed by a State against the PRC or the HKSAR” (參與外國對香港特別行政區或者中華人民共和國進行的制裁的實施).
     In our opinion, the act described in object (4) as “imposing a sanction, …” against the HKSAR or PRC (which in our view is an act (行為) that can only be performed or committed (實施) by a State, a person acting on behalf of a State (such as a head of State or the president, premier or prime minister of a State), or an international organisation composed of States) is different and distinct from any act of ‘participating in the implementation of a sanction imposed by a State against the PRC or the HKSAR’. The latter act is an act that can be performed by individuals or corporate entities, but it is not covered by object (4). The act (行為) covered by object (4) can be committed or performed (實施) in the context of Article 29[B][a](4) (i.e. a person requesting a foreign State to impose sanctions on the PRC or the HKSAR), or in the context of Article 29[B][b](4) (i.e. a person conspiring with a State so that the State would impose a sanction on the PRC or the HKSAR). But the combination of limb [c] and object (4) (i.e. the operation of Article 29[B][c](4)) will only be possible in rare and exceptional circumstances as discussed below.
     Conceivably, there is possible liability under limb [c] for a bank or financial institution where the head of State A (or its president, premier or prime minister) receives “funding” from an outsider for the purpose of State A imposing sanctions on the HKSAR or PRC. If the outsider is a bank or financial institution outside of the mainland, Hong Kong and Macau, then it could be liable under the last paragraph of Article 29 (on accomplice liability).[8] Given the severity and stigma of the offence, it is likely it would need to be proven the outside bank or financial institution acted with full knowledge of the relevant circumstances constituting the collusion offence for the head of State A. 
     Another example of possible liability under limb [c] for a bank or financial institution is through the vehicle of the common law principles of accessorial liability, assuming they apply to extend the net of liability of NSL offences. Take the same example of the head of State A receiving funding (e.g. in the nature of a political donation or bribe) from an outsider for the purpose of State A imposing sanctions on the HKSAR or PRC. If a bank or financial institution provides the services to enable the head of State A to receive those funds from the outsider, again with full knowledge of the circumstances of the facts that constitute the collusion offence, it could be argued that the financial institution aided and abetted the receipt of those funds. Under the common law principles of accessorial liability, if the institution acts with knowledge of the essential matters constituting the offence and with the intention of assisting or encouraging the principal offender (in this example the head of State A) to do the things which constitute the offence, then the institution will also be liable for that offence as a secondary party.[9]
     In these two examples of possible liability for assisting or encouraging a State official to impose sanctions on the HKSAR or PRC, the liability can be prevented most likely by existing compliance and due diligence procedures and systems. In both examples, liability is based on the financial institution enabling the transfer of funds to a State official, who has the authority to impose sanctions on another State and decides to authorise such sanctions because of the receipt of those funds. In such situations, existing anti-money laundering systems will flag such transactions as they relate to a politically exposed person (PEP) and call for enhanced due diligence screening. Compliance officers will know to inquire into the origins of the funds and its intended purpose and use. But in addition to inquiring into the usual forms of crime-tainted property, e.g. proceeds of crime, bribe, instrument of crime, etc, compliance officers will now also need to ask if the PEP is receiving the funds on account of a decision to impose a sanction or blockade on or to engage in another form of hostile activity against the HKSAR or PRC.

4. Conclusion
In our view, banks and financial institutions, which may be required by the law of a foreign state to implement sanctions against the HKSAR, PRC or their officials who are their customers, will not commit an offence under limb [c] of Article 29(4) as they are not capable of performing the act of imposing a sanction or blockade or engaging in other hostile activities. Such an act may only be performed by a State, an individual acting on behalf of a State (such as a head of State or political leader), or an international organisation. However, this does not mean that a bank or financial institution may never be liable as a result of the operation of Article 29[B][c](4) of the NSL. In the exceptional and special circumstances discussed in this article, liability may still be possible under limb [c] either as an outsider or secondary party who has knowingly facilitated a head of State or political leader in receiving funding or support to impose sanctions against the HKSAR or PRC.

Appendix I
The use of the term“敵對行動”(hostile actions or hostilities)
The Agreement on the Cessation of Hostilities in Cambodia (which, together with the Agreement on the Cessation of Hostilities in Vietnam and the Agreement on the Cessation of Hostilities in Laos, formed the Geneva Agreement of 1954), is called in Chinese 關於在柬埔寨停止敵對行動的協定. Thus敵對行動 is the Chinese term for “hostilities”.
     On-line Searches reveal the following contexts of the use of the Chinese term 敵對行動:

河北法学, 2014, Vol.32 (11), p.98-105

南京理工大学学报:社会科学版, 2013, Vol.26 (6), p.36-43

阅读, 2013 (21), p.33-33

法治研究, 2013 (5), p.100-109

晏明 李超碧
瞭望, 1993 (21), p.39-39

世界知识, 1995 (10), p.18-19

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* Cheng Chan Lan Yue Professor in Constitutional Law, Faculty of Law, University of Hong Kong; member, Hong Kong Basic Law Committee of the National People’s Congress Standing Committee.
** Professor and Associate Dean, Faculty of Law, University of Hong Kong; Barrister, Parkside Chambers, Hong Kong.
[1] The offence is punishable up to life imprisonment in grave cases for individuals (Article 29) and by unlimited fine for companies (Article 31). If a company is punished under the NSL, its operations may be suspended and business licences and permits may be revoked (Article 31).
[2] See, eg, “Businesses in Hong Kong fear collateral damage from security law”, Financial Times, 2 July 2020; “Banks in Hong Kong audit clients for exposure to US sanctions”, Financial Times, 10 July 2020.
[3] Unofficial English translation published by the Xinhua News Agency on 30 June 2020 (see and re-published in the HKSAR Government Gazette.
[4] There is another view that some of the acts in these paragraphs, such as that in paragraphs (2), (3) or (5), may actually need to materialise and thus form part of the actus reus of an offence, say, under Article 29[B][c]. But in the case of the operation of Article 29[B][a](4), the act of the imposition of a sanction against the HKSAR or PRC may also materialise, though it will not form part of the actus reus of the offence under Article [B][a](4), as the actus reus in this case is confined to the “requesting”.
[5] See Crimes Ordinance (Cap 200), s 159(1)(a).
[6] See Appendix I of this commentary.
[7] See, e.g., “Hong Kong pro-democracy lawmakers in US to discuss city’s crisis with politicians and business leaders”, South China Morning Post, 16 Aug 2019,; “Hong Kong activist seeks U.S. support for pro-democracy protests”; Reuters, 15 Sept 2019,
[8] This last paragraph may be translated as follows: “The institution, organisation and individual outside the mainland, Hong Kong and Macao of the People’s Republic of China referred to in the first paragraph of this Article shall be convicted and punished for jointly committing the offence with the principal offender”. We consider the above a more accurate translation than the following version in the English translation of the NSL published by the Xinhua News Agency and reproduced in the HKSAR Government Gazette: “The institution, organisation and individual outside the mainland, Hong Kong and Macao of the People’s Republic of China referred to in the first paragraph of this Article shall be convicted and punished for the same offence. The Chinese original is as follows: “本條第一款規定涉及的境外機構、組織、人員,按共同犯罪定罪處刑。”
[9] HKSAR v Chan Kam Shing (2016) 19 HKCFAR 640, [11].