Jurisdiction (Hong Kong law)

This guide is based on Hong Kong law. There is an equivalent UK guide.

Overview

The internet has transformed the way in which we do business. There is of course nothing new about neither international trade nor the legal issues raised by it. However, in the past, these issues have largely arisen in business to business transactions, and then, only between businesses experienced in foreign trade. The internet changes all that. Anyone using the web to sell their goods or services may enter into transactions with people overseas. It can be as easy for a consumer to buy goods from a web site of a business based in France as it is from a Hong Kong business.

The internet is not lawless. Quite apart from the flurry of new legislation worldwide, the simple fact is that the internet, being global in its nature, is governed by the laws of each state in which it can be accessed. If a dispute arises in an electronic transaction, the problem is to decide which laws apply and which courts have jurisdiction.

Importance

The question of which laws apply is very important. National laws differ considerably and this can affect terms in the contract or may mean the contract is simply not enforceable. It's also expensive and inconvenient to sue abroad. Some examples:

It may be a requirement that all contracts must be in the local language failing which the contract will be void. For instance, Canada requires that web sites must be in French as well as English.

In a number of European and other jurisdictions, contracts may need to be in writing in order to be enforceable, and on-line contracts may not meet this requirement. This is one of the issues that the EU Commission is hoping to address in its proposed directive on certain legal aspects of electronic commerce in the Internal Market.

Local advertising laws may prohibit certain activities or impose penalties for out of date information. Certain businesses are heavily regulated. The most obvious example is the Financial Services industry. It may not be lawful for a company authorised to conduct investment business in Hong Kong to sell its products to citizens of the US. Similarly, gambling will either be prohibited or, if permitted, will be subject to varying degrees of regulation in different countries.

Jurisdiction

We need to look at domestic laws to answer the jurisdiction problem. In Hong Kong, the starting point is easy. Hong Kong courts can claim jurisdiction if a writ can be served on a person, even if Hong Kong law does not apply. If an individual is served with a writ personally in Hong Kong then however temporary his or her visit may be, that will be sufficient to enable the courts to claim jurisdiction.

However, the Hong Kong courts will need to be satisfied that Hong Kong is the best place to hear the dispute to maximise the interests of justice for both parties.

Where was the contract made?

The jurisdiction in which a contract is made can be very important. A contract is only made when an unconditional offer has been unconditionally accepted. Therefore, in any contract the time and place of acceptance will be critical. This is particularly true in an on-line environment where the parties may well be in different jurisdictions which, depending on where the contract is made, may impose totally different rules of law which may affect the terms on which a contract is made and even the enforceability of that contract.

For a discussion on when acceptance is effected under an electronic contract see our business guide, On-line Contract Formation.

Jurisdiction in the United States

The court considered that there were three different types of web site. First, there was an active web-site that was transactional in nature. This enabled the people accessing the web site to enter into binding contracts with the web site owner. The courts considered that this was sufficient to establish a place of business and, as such, would give the court jurisdiction.

The second form of active web site was limited to the exchange of information between the parties. Such a web site, although interactive and providing a means of communication between the parties did not seek to create any binding contracts and so should not be treated as creating a place of business and in the court's opinion would not give rise to the courts being able to seize jurisdiction.

The court then considered that there is a third type of web site, namely one which is passive and which is used solely to provide information to the parties and as such could not give rise to any suggestion that a place of business was established in the US and, as such, the courts could not seize jurisdiction.

Which laws apply?

The question of forum should not be confused with the question of applicable law. The starting point is to look at the law chosen by the parties to govern the contract. This choice may either be express or implied.

Express

On the whole, courts are reluctant to interfere with an express choice of law agreed between the parties in business to business transactions.

Implied

Normally, an express term that specifies the choice of laws is preferable. However, it is worth considering the ways in which a law may be implied into a contract.

If there have been previous dealings between the parties, then this may enable the laws of a particular country to be implied.

Similarly, if there is a standard contract which is commonly used within the industry or sector which is based on the law of a particular country then that may enable the law of that country to be implied.

If the parties have chosen a particular forum in which any disputes would be held, then, in the absence of any other choice, it would be logical to imply that the chosen law is the law of that jurisdiction.

If no forum has been chosen, but the contract refers to specific legislation, then that may also enable a particular country's law to be implied. For example, if the Companies Ordinance is used for definitional purposes, this may be sufficient to imply Hong Kong law.

Characteristics of the contract

What then if there is no express choice and it is not possible to imply a choice? The courts will look at the country most closely connected to the party, who is due to effect performance under the contract which is the "characteristic of the contract", at the time of the conclusion of the contract. The characteristic of the contract is the delivery of the goods or services, rather than the mere payment of them, which clearly gives the advantage to the seller rather than the customer.

Conclusions

In light of the complex rules used to determine the relevant jurisdiction, it is probably wiser to seek to agree contractually as to which jurisdiction applies and also which law you wish to apply. If parties agree to submit to a particular jurisdiction, then in most cases, the courts will not interfere unless the agreement is with a consumer. A simple jurisdiction clause to the effect that a contract will be governed by and construed in accordance with the laws of Hong Kong and that the parties agree to submit to the exclusive jurisdiction of the courts of Hong Kong will probably suffice.

However, this is not the end of the problem so far as on-line contracts are concerned. There may be a number of jurisdictions that are either undesirable because of their local laws or, because of the nature of the on-line merchant's business it is unlawful for the merchant to trade in. In such circumstances, the on-line vendor may wish to seek to protect himself by the use of disclaimers and provisions limiting the countries with whose nationals or residents he is prepared to conduct business. In order to ensure that any such disclaimer, or terms are valid, it is essential that such terms are adequately brought to the attention of the customer and/or properly incorporated into the contract and an appropriate mechanism put in place to ensure compliance.

For a discussion on the incorporation of terms and conditions see our guide, On-Line Contract Formation.

Any questions? Please contact peter.bullock@pinsentmasons.com / +852 2521 5621 or one of our other contacts.