Sale and Storage of Goods in Hong Kong: Overview | Practical Law

Sale and Storage of Goods in Hong Kong: Overview | Practical Law

A Q&A guide to the sale and storage of goods in Hong Kong.

Sale and Storage of Goods in Hong Kong: Overview

Practical Law Country Q&A 4-626-3149 (Approx. 16 pages)

Sale and Storage of Goods in Hong Kong: Overview

by Peter Murphy, Edward Beeley, Philip Kelleher and Siân Knight, Holman Fenwick Willan
Law stated as at 01 Nov 2021 • Hong Kong - PRC
A Q&A guide to the sale and storage of goods in Hong Kong.
This Q&A covers key matters relating to sale of goods contracts, including legislative framework, rules on formation, price and payment, delivery, passing of title and risk, enforcement and remedies, exclusion of liability, choice of law and jurisdiction, and arbitration. It also provides an overview of the rules governing storage of goods.

Contracts for the Sale of Goods

Legislative Framework

1. What domestic legislation and international rules apply to a sale of goods contract in your jurisdiction? Are standard international contractual terms commonly used?

Domestic Legislation

The main piece of domestic legislation that applies to contracts for the sale of goods is the Sale of Goods Ordinance (Cap 26) (SGO), which is based on the UK Sale of Goods Act 1893 (as amended).
Other relevant legislation includes the:
  • Contracts (Rights of Third Parties) Ordinance (Cap 623), which gives a third party a right to enforce or rely on a term of a contract where the contract expressly states that the party can do so, or the term purports to confer a benefit on the third party.
  • Unconscionable Contracts Ordinance (Cap 458), which ensures that goods and services supplied are offered on fair terms.
  • Control of Exemption Clauses Ordinance (Cap 71) (CECO), which controls the use of exemption clauses.
  • Trade Descriptions Ordinance (Cap 362), which prohibits the use of false trade descriptions.
  • Misrepresentation Ordinance (Cap 284), which imposes a statutory liability for misrepresentation (pre-contract) and controls the use of provisions excluding liability for misrepresentation in contracts for the sale of goods.
  • Money Lenders Ordinance (Cap 163), which limits the rates of interest in certain circumstances.
  • Consumer Goods Safety Ordinance (Cap 456) (CGSO), which regulates consumer safety in relation to limited types of consumer goods. Other specific goods are regulated under separate ordinances, such as the Dangerous Goods Ordinance (Cap 51).
  • Electronic Transactions Ordinance (Cap 553), which provides a framework for the conduct of e-business in Hong Kong, including the use of electronic signatures and records.
  • Competition Ordinance (Cap 619), which prohibits anti-competitive agreements and the unilateral abuse of market power. It also provides for a merger control regime applicable to telecommunications carrier licences.
  • Trade Mark Ordinance (Cap 559), which provides for the protection of trade marks.

International Rules

The following international conventions apply in Hong Kong:
  • Convention for the Unification of Certain Rules for International Carriage by Air 1999 (Montreal Convention).
  • International Convention for the Unification of certain Rules of Law relating to Bills of Lading 1924, as amended by the Protocol signed in Brussels on 23 February 1968 and by the Protocol signed in Brussels on 21 December 1979.
The Hong Kong Legislative Council passed the Sale of Goods (United Nations Convention) Ordinance (Cap 641) on 29 September 2021 with the objective of implementing the UN Convention on Contracts for the International Sale of Goods 1980 (CISG) in Hong Kong, without China's reservation under Article 95. The law is not yet in operation.
The Customs Convention on the International Transport of Goods under Cover of TIR Carnets is not applicable in Hong Kong.

Standard Contractual Terms

The application of the following standard contractual terms is not uncommon:
  • International Chamber of Commerce international commercial terms (Incoterms®) 2020.
  • UNIDROIT Principles of International Commercial Contracts.
  • Uniform Customs and Practice for Documentary Credits.
  • Uniform Rules for Demand Guarantees.
The incorporation of these terms is a matter left to the discretion of the contracting parties, and none of these terms apply automatically or compulsorily.

Formation

2. What are the essential requirements to create a legally enforceable contract for the sale of goods?

Substantive Requirements

For a contract to be legally enforceable, the following elements must be present:
  • Agreement (that is, an offer is made by one party which is accepted by another).
  • Certainty as to the main terms of the contract.
  • An intention by the parties to create legal relations.
  • Consideration (that is, something of value is given to support the promises made).

Formal Requirements

Generally, no formalities are required to create a legally enforceable contract. A contract of sale can be made orally or in writing, or can be implied from the conduct of the parties (section 5, SGO). Certain contexts, specified by law, require formalities, such as contracts for the sale of land.
A contract can be in any language.
With some exceptions, electronic signatures and digital contracts are valid in Hong Kong, provided that the requirements of the Electronic Transactions Ordinance are met.

Price and Payment

3. If price provisions are not agreed by the parties, does local law impose requirements in relation to price (for example, the time, method and place of payment)?
Unless otherwise agreed, payment is due on delivery of the goods. There is no prescribed currency of payment applicable to contracts governed by Hong Kong law. Payment terms are a matter for commercial negotiation, and interest can be claimed in court proceedings to recover debt and damages (section 48, High Court Ordinance (Cap 4)).
If the contract does not fix a price, and it is not possible to identify a price from a previous course of dealing between the parties, the buyer must pay a reasonable price for the goods. What is a reasonable price is a question of fact dependent on the circumstances of each particular case, including packaging requirements.
A seller can require payment by confirmed letter of credit, or a bank guarantee, as security for payment. Other forms of security, including consensual security, are available. Trade credit insurance is also available in the market. The defence of set-off is available, and may extend to third parties unless the Contracts (Rights of Third Parties) Ordinance is excluded.
If no payment method is stated in the contract, the court will examine the previous course of dealing between the parties (if any) or the trade usage to determine the parties' intentions. If the parties agree, payment can be made by any method, at any place, including by a letter of credit, bill of exchange or other negotiable instrument.
The parties are free to rely on Incoterms® to allocate risk and certain expenses, such as transportation and insurance, to either the buyer or seller. Absent other agreement between the parties, the importer of record must make the necessary import declaration and pay any import duty.

Delivery

4. If delivery provisions are not agreed by the parties, does local law impose requirements in relation to delivery (for example, the time, method and place of delivery)?
The seller has a duty to deliver the goods and the buyer has a corresponding duty to accept and pay for them in accordance with the terms of the contract (section 29, SGO). Unless otherwise agreed, delivery and payment are concurrent conditions.
The parties to a contract usually agree the time and place of delivery. Under Hong Kong law, the parties' agreement on these points will be respected. In the absence of agreement, express or implied, the default rules set out in section 31 of the SGO apply as follows:
  • Place of delivery. The default place of delivery is the seller's place of business, or if no such place exists, their place of residence. There is an exception for "specific goods" (that is, goods specifically identified in the contract). If the parties know that specific goods are in a place other than the seller's place of business or residence, then this other place is the place of delivery.
  • Time of delivery. If the contract provides for the seller to deliver the goods but no time of delivery is fixed, the seller must send them to the buyer within a reasonable time. In addition, delivery may be ineffective if it is not made at a reasonable hour. "Reasonableness" in this context depends on the circumstances of the case.
  • Warehouses and other third parties. If a third party holds the goods at the time of sale, there is no delivery until that third party acknowledges to the buyer that they hold the goods on the buyer's behalf (attornment). Attornment is not required if a bill of lading has been issued because, as a document of title, it confers on the buyer constructive possession of the goods in question. The same is generally not true in the case of warehouse receipts and other similar documents, so that attornment remains necessary.
  • Delivery expenses. The seller must bear the costs of putting the goods into a deliverable state. This is subject to any express agreement to the contrary (for example, under certain Incoterms®). The seller is not responsible for costs that the buyer may incur in receiving delivery.
Following delivery, the buyer is deemed to have accepted the goods when they:
  • Intimate acceptance to the seller.
  • Do anything inconsistent with the seller's ownership of the goods.
  • Keep the goods and do not intimate rejection within a reasonable time.
(Section 37, SGO.)
In 2008, Hong Kong enacted the Product Eco-responsibility Ordinance (Cap 603) to provide a framework for producer responsibility schemes. Mandatory schemes are currently in place for waste electrical and electronic equipment and plastic shopping bags. Further voluntary schemes are also ongoing in relation to recycling.

Passing of Title and Risk

5. If not agreed by the parties, when does title to the goods pass to the buyer?
The basic rule is that title to goods passes to the buyer when the parties to the contract intend it to pass (sections 18 to 21, SGO).
For specific and ascertained goods, it is necessary to consider the terms of the contract, the conduct of the parties and the circumstances of the case when determining the parties' intention.
There is an exception to this rule in the case of unascertained goods, where property will not pass unless and until the goods are ascertained. This is the case even where the buyer has paid for the relevant goods.
In the absence of any express intention, section 20 of the SGO sets out five presumptions (rules) that apply to ascertain the parties' intention as to when title is transferred. The contract will determine when each rule is relevant, with particular regard to the category of goods sold:
  • Where there is an unconditional contract for the sale of specific goods in a deliverable state, property in the goods passes when the contract is made. This applies regardless of whether the time for payment or delivery (or both) is later.
  • Where there is a contract for the sale of specific goods and the seller must do something to put them into a deliverable state (that is, where the seller must take action to prepare the goods for delivery), property passes when that thing has been done and the buyer has notice that it has been done.
  • Where there is a contract for the sale of specific goods in a deliverable state and the seller must take some step to calculate the price of the goods (for example, weigh, measure or test them), property passes when this step has been taken and the buyer has notice that it has been done.
  • When the goods are delivered to the buyer on approval or "on sale or return" or similar terms (that is, where the buyer has the option to accept or reject the goods following delivery), property passes when:
    • the buyer signifies their approval or acceptance to the seller (expressly or by conduct);
    • a contractual deadline for the buyer to accept or reject the goods has been agreed and the buyer has let it pass without giving notice of rejection; or
    • if no such time has been agreed, after a reasonable time.
  • Where there is a contract for the sale of unascertained or future goods by description, property passes when goods of that description are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller.
Where a seller retains documents against payment of the price (for example, under a cost, insurance and freight contract), appropriation is not unconditional and property will not pass (section 21, SGO). By contrast, where a seller delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer (without retaining a right of disposal), the seller is deemed to have unconditionally appropriated (or allocated) the goods to the contract.
6. Are retention of title clauses enforceable in your jurisdiction? If so, what are the requirements to create a legally enforceable retention of title clause?
Under the SGO, the parties can provide that, although the buyer is entitled to possession of the goods, the seller maintains a right to dispose of the goods until the price is paid or some other condition is satisfied. Retention of title clauses (otherwise known as Romalpa clauses) are in principle enforceable in Hong Kong.
An effective retention of title clause must be appropriately drafted and validly incorporated into the contract.
There are practical limitations to the enforcement of these clauses, and not all clauses are effective on insolvency. Retention of title will fail when the goods are:
  • Sold to a third party bona fide purchaser for value without notice of the clause.
  • Incorporated into other products so as to lose their identity.
  • Consumables that the seller has consented to the buyer using during a credit period. This situation falls outside the statutory sale of goods provisions.
There are various ways to address these practical difficulties, including proceeds of sale clauses, all monies clauses, and mixed goods clauses. However, depending on the identity of the parties and the location of the goods in question, more elaborate or far-reaching clauses may constitute charges that require registration under section 335 of the CO and/or under the legislation of the country where the buyer is incorporated. Failure to register the charge when required to do so can render the charge void and/or expose the individuals responsible for registering the charge (which could include the seller) to a fine.
An action for the price under section 51(1) of the SGO cannot be brought if property in the goods has not passed to the buyer (the seller can however look to section 51(2) or may have a common law claim for the price when property has not passed) (see Question 11).
Further, a seller may require the buyer to provide security by other means (for example, by requiring the buyer to provide a bank guarantee, payment by letter of credit, or reducing the credit period offered). Various practical steps, such as requiring the goods to be labelled and stored separately, can assist, and the sale contract should include a right for the unpaid seller to access the buyer's premises to repossess goods.
Aside from retention of title clauses, an unpaid seller in possession of the goods may have recourse to statutory remedies under the SGO, including the:
  • Unpaid seller's lien (sections 41(a) and 43, SGO).
  • Right to stop the goods in transit, in the event of the buyer's bankruptcy (section 41(b), SGO).
  • Right of resale (section 41(c), SGO).
See Question 11 for information on the seller's remedies for non-payment or late payment.
7. If not agreed by the parties, when does risk in relation to the goods pass to the buyer?
Unless otherwise agreed, risk in relation to the goods passes to the buyer when property passes (section 22, SGO) (see Question 5). Goods are at the buyers' risk once property has passed whether or not delivery has taken place. Parties often include appropriate Incoterms® to provide for the passing of risk.

Enforcement and Remedies

8. What are the seller's obligations in relation to the description and quality of the goods?
Parties can agree on express terms relating to the description and quality of the goods. In addition, the SGO sets out several implied terms:
  • Implied term that goods sold by description will correspond to that description (section 15, SGO).
  • Implied undertaking as to merchantable (satisfactory) quality or fitness for purpose of the goods (section 16, SGO). Implied terms dealing with merchantable quality also apply to sales of second-hand goods to require a reasonable standard in the circumstances. The seller must deal in the "course of a business" for the implied condition as to quality or fitness to apply.
  • Implied term that the bulk of goods sold by sample will correspond to the sample (section 17, SGO).
The implied terms as to quality and fitness for purpose do not apply in respect of defects that:
  • Were specifically drawn to the buyers' attention before the contract was made.
  • Would have been apparent on a reasonable examination of the goods, when the buyer examined the goods before the contract was made.
(section 16, SGO.)
The implied undertaking as to quality extends to the packaging of the goods.
If the parties wish to exclude or limit any of these implied terms, they must comply with the following restrictions under the CECO:
  • Where one party is a consumer, the implied terms in sections 15, 16 and 17 of the SGO cannot be excluded or restricted.
  • Parties dealing otherwise than as consumers can limit or exclude liability under those sections, provided that the limitations or exclusions are reasonable.
  • Liability for breach of the implied undertaking that the seller has the right to sell the goods cannot be excluded. This prohibition applies to both consumer and non-consumer contracts.
See Question 12 for further information on exclusion clauses.
A product liability claim arises under contract, tort and/or for breach of statutory duty. There is no strict liability regime.
In addition to the SGO and CECO, the CGSO imposes a duty on sellers and manufacturers to make sure that their goods are "reasonably safe having regard to all the circumstances." Specific legislation also applies to certain goods, such as the Toys and Children's Product Safety Ordinance (Cap 424).
The supply of defective products is subject to criminal sanctions, including fines or imprisonment or both (section 28, CGSO).
Product recall rules are set out in the CGSO and administered by the Customs and Excise authority. There are specific rules for (among others):
  • Recalls of pharmaceutical products, which are supervised by the Department of Health.
  • Recalls of electrical products, which are supervised by the Electrical and Mechanical Services Department (Electricity Ordinance (Cap 406)).
  • Recalls of food products, which are supervised by the Centre for Food Safety of the Food and Environmental Hygiene Department (section 30, Food Safety Ordinance (Cap 612)).
9. What are the main remedies and rules for losses and damages for breach of a sale of goods contract?
Generally, where either party is in breach of a contract for the sale of goods, one or more of the following remedies will be available:
  • Damages. A breach of contract entitles the innocent party to claim damages as compensation for loss arising directly and naturally, in the ordinary course of events, from the breach. In the case of non-acceptance of goods or non-delivery of goods, where there is an available market for the goods in question, the prima facie measure of damages is the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted or delivered. Damages outside the reasonable contemplation of the parties at the time of entering into the contract are generally not recoverable. Further, an innocent party must take reasonable steps to mitigate any loss it incurs. If loss is in fact avoided, the innocent party cannot recover damages for any avoided loss.
  • Rectification. Where there is a mistake in the language used in the written form of the contract, a court can order an alteration of the written contract to properly reflect the true intention of the parties. This is an equitable remedy, which is usually only relevant in circumstances where there is a common mistake. It is often granted together with specific performance.
  • Rescission. Rescission is when a contract is set aside and the parties are put back to their pre-contractual position. It is an equitable remedy and a court can set aside a contract by reason of misrepresentation, mistake, duress, or undue influence.
  • Specific performance. An innocent party can apply to court for an order for specific performance of the contract by the defaulting party. A court will only award specific performance where damages are not held to be an adequate remedy. In addition, in deciding whether to order specific performance, the court will take into account whether:
    • the contractual terms to be enforced are sufficiently clear;
    • the interests of third parties will be adversely affected by the order;
    • the innocent party comes to court "with clean hands"; and
    • there will be severe hardship on the defaulting party as a result of an order.
    In practice, orders for specific performance are rarely granted.
  • Injunction. A court or an arbitral tribunal can order a party to perform acts that are required under a contract or restrain a party from breaching a contract. As an equitable remedy, an injunction order is generally only granted when damages are not an adequate remedy.
  • Restitution. This is a further remedy (both legal and equitable) that permits an injured party to bring a claim for restitution if the party in breach has been unjustly enriched at the injured party's expense.
See Question 10 and Question 11 for information on specific actions and remedies of the buyer and seller.
10. What are the buyer's remedies for breach of a sale of goods contract?

Non-Delivery

The buyer can sue for damages for non-delivery if the seller fails to deliver the goods. The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller's breach of contract. If already paid, the buyer has a right to recover the price paid.

Late Delivery

If the goods are not delivered on time, the buyer can sue the seller for damages for late delivery. When time is of the essence, the buyer may also have a right to recover the price if already paid.

Other Breaches

When the goods delivered do not meet the contractual requirements, the buyer can claim damages for the breach and may have a right to reject the goods and recover the price paid.
If the goods delivered are not as described, are not fit for purpose, or are not of satisfactory quality, the buyer has the right to elect to either:
  • Rescind the contract, reject the goods, and claim damages for non-performance.
  • Claim damages for the breach and affirm the contract.
The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach.
A buyer can lose the right to reject the goods if their conduct or inaction constitutes acceptance of the goods (section 37, SGO). In this case, the buyer may still be able to claim damages for non-performance (section 13(3), SGO).
11. What are the seller's remedies for non-payment or late payment?
The general remedies outlined in Question 9 apply to all breaches of contract. The SGO sets out the following remedies for the seller:
  • Action for the price (section 51, SGO). If the buyer fails to pay the price in accordance with the contract, the seller can claim the price of the goods.
  • Damages for non-acceptance (section 52, SGO). A seller can claim damages for loss arising due to the buyer's wrongful failure to accept and pay for the goods.
  • Unpaid seller's lien (sections 41 and 43, SGO). An unpaid seller has a lien over the goods or a right to retain possession of the goods until the price is paid.
  • Withholding delivery. In addition to other remedies, an unpaid seller can withhold delivery of the goods when property in the goods has not yet passed to the buyer (section 42, SGO). Additionally, when a buyer is insolvent, the unpaid seller, who no longer has possession of the goods, has the right to stop the goods in transit and to retain possession until paid (sections 41 and 46, SGO).
  • Right of resale (section 41, SGO). An unpaid seller has a right to resell the goods.
There is no automatic entitlement to interest on late payment of commercial debts. Express contractual terms may provide for interest in specific circumstances. Interest can be claimed on judgment debts in accordance with the prevailing rate.

Exclusion of Liability

12. Are exclusion clauses enforceable in your jurisdiction? If so, what are the requirements to create a legally enforceable exclusion clause?
In principle, exclusion clauses, either excluding implied terms or limiting the remedies available to one party on the occurrence of a breach, are enforceable.
When construing an exclusion clause, a court will apply the following principles:
  • The party seeking to rely on the exclusion clause must show that it was incorporated as a term of the contract, which usually involves the taking of reasonable steps to bring it to the notice of the other party.
  • In the event of ambiguity, an exclusion clause will be construed strictly against the party seeking to rely on it (contra proferentem principle).
It is important for an exclusion clause to be precisely drafted to include the type of liability or the implied term that it seeks to exclude. For example, a clause purporting to exclude/limit liability for negligence will not be effective unless it refers expressly to negligence.
In addition, the CECO limits the extent to which a party can avoid liability for breach of contract, negligence, or other breaches of duty. Under the CECO, clauses excluding or restricting liability for the following events are void:
  • Death or personal injury resulting from negligence.
  • Loss or damage caused by defects in goods supplied for private use or consumption resulting from the negligence of a person concerned with the manufacture or distribution of those goods.
  • In consumer contracts, breach of implied terms as to the quality of the goods, their fitness for purpose, or conformity with description or sample.
  • Breach of the seller's implied undertakings as to title or possession of the goods.
The CECO does not apply to exempted supply contracts or international sale of goods contracts (section, 16 CECO). Common law rules are still relevant to contracts not covered by the CECO. In this context, while section 57 of the SGO allows a party to vary or exclude implied terms, such provisions will be narrowly construed.
Further, the following clauses will only be valid if they satisfy the requirement of reasonableness:
  • A clause excluding liability for negligence, but not for death or personal injury resulting from negligence.
  • As against a consumer or a person dealing on the other party's written standard terms of business, a clause restricting liability for the consequences of breach of contract or entitling a party to render substantially different performance from that reasonably expected of them, or to render no performance at all.
  • As against a consumer, a clause requiring that consumer to indemnify the other party for liability that may be incurred by the other party in negligence or breach of contract.
  • As against a non-consumer, a clause that restricts or excludes the seller's implied undertakings as to the quality of the goods, their fitness for purpose, or conformity with description or sample.
Whether or not a clause is reasonable is a matter for the courts to decide, considering the circumstances of the case. One key factor raised by the CECO is the extent to which the clause is expressed in a language understood by the person against whom it is invoked. Other factors taken into account are the strength of the parties' bargaining position, the customer's knowledge of the clause, and the reality of the customer's consent to the clause.
A clause purporting to limit or exclude liability for fraud or fraudulent misrepresentation is not enforceable.
Clauses excluding consequential or special loss (that is, liability for indirect damages and loss of profits) are not uncommon. As with any contract clause, if the clause is ambiguous, the court will look to identify and uphold the parties' intentions.

Choice of Law

13. Will local courts recognise a choice of foreign law in a sale of goods contract? Are there any mandatory local rules that apply, despite a choice of foreign law?
The Hong Kong courts will generally recognise a choice of foreign law in a sale of goods contract, except where it is contrary to Hong Kong public policy or a mandatory rule of law. It is not usually necessary to show that the law chosen has anything to do with the underlying transaction. The SGO only applies to contracts subject to Hong Kong law. The conflict of law rules will apply to any other contract.
Hong Kong public policy only plays a minimal role. However, mandatory rules of law have a potentially wider impact in the context of sale of goods contracts. In this regard, the CECO and the Unconscionable Contracts Ordinance apply regardless of the express choice of law, to deny legal effect to specific contractual clauses. Therefore, it is not possible to circumvent either Ordinance by selecting a foreign law.
Regardless of the choice of governing law, the proprietary consequences of a contract are in all cases governed by the law of the place in which the goods are located at the relevant time.
14. If the parties do not make a choice of law, what rules determine the law applicable to a sale of goods contract?
In the absence of an express or implied choice of law, the governing law of the contract will be the law with which the transactions has its "closest and most real connection." In determining this, the Hong Kong courts will consider various factors, including the:
  • Location of the goods in question.
  • Dispute resolution provisions of the contract.
  • Place of intended performance.
  • Place of making or negotiating the contract.
  • Domicile or residence of the parties.
  • Use of particular legal terminology.
  • Language of the contract.
  • Other related transactions between the parties (if any).

Choice of Jurisdiction

15. Will local courts recognise a choice of foreign jurisdiction in a sale of goods contract? Are there any mandatory local rules that apply, despite a choice of foreign jurisdiction?
The Hong Kong courts will generally recognise and enforce a choice of foreign jurisdiction in a sale of goods contract. The principle of comity applies.
16. If the parties do not make a choice of jurisdiction, what rules determine the jurisdiction applicable to a sale of goods contract?
If the parties do not make a choice of jurisdiction, the claimant will have to establish that the court before which it brings its claim has jurisdiction to determine it. Whether the court has jurisdiction to determine that claim will depend on the procedural rules of the jurisdiction in question.
Broadly, the jurisdiction of the Hong Kong courts can be established by either:
  • Serving the defendant with originating process within Hong Kong.
  • Obtaining prior leave of a Hong Kong court to serve originating process on the defendant outside Hong Kong.
To obtain prior leave to serve out of Hong Kong, the claimant must demonstrate (among other things) that the Hong Kong court is the appropriate forum to try the case. However, the defendant can subsequently apply to set aside the leave to serve out of the jurisdiction on the ground that the Hong Kong court is not the most appropriate forum. In determining whether Hong Kong is the appropriate forum, the court will consider various factors, including the:
  • Location of witnesses.
  • Governing law of the contract.
  • Predominant language of documents and witnesses.
  • Location of relevant assets.
  • Location of the parties.

Arbitration

17. Are arbitration clauses commonly included in sale of goods contracts in your jurisdiction?
The Arbitration Ordinance (Cap 609), which came into effect on 1 June 2011, governs the arbitration regime in Hong Kong. Arbitration clauses are routinely included in sale of goods contracts in Hong Kong. Even if a contract does not include an arbitration clause, once a dispute has arisen, the parties can agree to refer the dispute to arbitration by entering into a separate arbitration agreement (sometimes referred to as a submission agreement).
The UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) applies to Hong Kong, as China is a contracting state to this Convention. Therefore, arbitral awards made in Hong Kong can be enforced in other New York Convention states.
The New York Convention does not apply to the enforcement of Hong Kong awards in mainland China, and vice versa, as Hong Kong awards are not considered by mainland China to be awards made in the territory of another New York Convention state.
However, reciprocity with mainland China is covered by the Arrangement Concerning Mutual Enforcement of Arbitral Awards between the Mainland and the Hong Kong Special Administrative Region, which was signed on 21 June 1999, and recently amended on 27 November 2020 with a supplemental arrangement. The Arrangement provides that Hong Kong awards are enforceable in mainland China and vice versa, on similar terms as under the New York Convention. Further, the Supreme Court of the People's Republic of China has expressly recognised the enforceability in mainland China of ad hoc awards rendered in Hong Kong. This is not the case for New York Convention awards.
The Arbitration Ordinance also allows the enforcement of awards from non-New York Convention states and territories. These awards can be summarily enforced in Hong Kong through a common law action.

Storage of Goods

18. How is title to goods in storage protected and evidenced? Are warehouse receipts recognised as documents of title in your jurisdiction?
There is no registration system for the ownership of goods in Hong Kong.
Title to goods in storage can be evidenced by warehouse receipts, which, unlike in certain jurisdictions, are not recognised as documents of title in Hong Kong. A warehouse receipt can contain or evidence a contract between the warehouse and the party on whose behalf the goods are stored, but it is not in itself a negotiable document of title. It is a document that describes the goods and acts as a receipt for the goods stored, the possession of which gives the holder the right to possession of the goods (subject to attornment by the warehouse if third parties acquire the warehouse receipt).
19. What conditions and formalities must warehouse receipts comply with?
Under Hong Kong law, warehouse receipts are not subject to any particular conditions, registration requirements or general formalities.
20. Are other interests over goods in storage recognised?
The types of security that are recognised in Hong Kong are outlined below.

Pledge

At common law, a pledge is created by delivery of the goods to the pledgee, either actual or constructive. If the pledgor has actual possession of the goods, it can effect the pledge by actual delivery. In other cases, the pledgor can give constructive possession by, for example, handing over the keys of the store in which the goods are held.
However, goods in storage are often held in the custody of a third party (such as a warehouse). If this is the case, the pledge can be effected by the warehouse "attorning" to the pledge (that is, acknowledging that it holds the goods for the pledgee, thereby giving the pledgee constructive possession).
In practice, the buyer will deliver to the financing bank certain documents relating to the goods, such as a warehouse receipt or cargo receipt, along with an acknowledgement from the buyer (if the buyer has possession of the goods) or from a third party (if a third party has possession of the goods) that the buyer or the third party (as the case may be) is holding the goods on behalf of the bank.
A pledge gives the pledgee the right of sale on default by the pledgor, and does not require any form of registration.

Charge

A charge is a security over an asset which gives the creditor the right to the proceeds of sale from the charged assets to discharge the debt in question. A charge does not transfer ownership, but is merely an encumbrance on the asset. There are two types of charge:
  • Fixed charge. A fixed charge is generally only used in respect of movable or fixed assets. To create a fixed charge, the security document usually prohibits dealing with any interest in the movable property or moving the charged assets without the lender's prior consent.
  • Floating charge. A floating charge can be taken over present, future and changeable assets, which can continue to be used in the ordinary course of the chargor's business until the occurrence of a specified event. A floating charge will "crystallise" over the assets subject to it on the occurrence of a specified event, such as an event of default in a lending transaction.

Lien

A lien is a right to retain possession of the goods until the underlying obligations are discharged. This can arise, for example, if a warehouse that is in possession of the goods is left unpaid for storage services rendered. In practice, liens can prevent the owner from disposing of the goods or any financing bank realising the value of the goods, where they are used as collateral for a loan.
Liens do not need to be registered.

Registration Requirements

Specified charges created by Hong Kong incorporated companies (or foreign companies registered in Hong Kong as a non-Hong Kong company) must be registered with the Companies Registry (sections 334 to 347, CO). These charges include a charge on land, floating charges, and charges over a ship or aircraft. In addition, it is necessary to register the security at the applicable registry (for example, the Hong Kong Shipping Register).

Reform

21. Are there impending developments or proposals for reform of national legislation affecting sale of goods contracts and/or storage of goods in your jurisdiction?
Recent developments affecting sale of goods contract include the following:
  • The Personal Data (Privacy) (Amendment) Bill 2021 was passed on 29 September 2021 and took effect on 8 October 2021. It includes amendments to the Personal Data (Privacy) Ordinance (Cap 486) intended to combat doxing.
  • The Commerce and Economic Development Bureau continues to examine legislative developments in contracts for the supply of goods in Australia, New Zealand and the UK with a view to formulating legislative proposals to extend implied undertakings for contracts for the sale of goods to all types of contracts for the supply of goods.
  • Building on the improvements to the insolvency regime effected by the Companies (Winding-up and Miscellaneous Provisions) (Amendment) Ordinance 2016, the drafting of another bill is now at an advanced stage to introduce a statutory corporate rescue procedure and insolvent trading provisions. This is expected to be introduced to the Legislative Council during 2021.
  • The commencement of certain provisions of the Arbitration and Mediation Legislation (Third Party Funding) (Amendment) Ordinance 2017 (Amendment Ordinance) relating to the Mediation Ordinance (Cap 620) is currently deferred to a future date. The use of third-party funding for arbitration is now permitted under new Part 10A of the Amendment Ordinance in force from 1 February 2019. Another amendment to the Arbitration Ordinance in 2017 permits IP disputes to be referred to arbitration under Hong Kong law. In December 2020, the Hong Kong Law Reform Commission published a report recommending that outcome-related fee structures for arbitration should be permitted for Hong Kong arbitration.
  • Amendments to the Arbitration Ordinance (Cap 609) to fully implement the Supplemental Arrangement Concerning the Mutual Enforcement of Arbitral Awards between the Mainland and Hong Kong signed on 27 November 2020 came into force in Hong Kong on 19 May 2021. The amendments update the mutual enforcement arrangement in force since 1 February 2000 to bring the provisions more closely in line with current international arbitration practice. See also Question 17.
  • In force from 1 October 2019, Hong Kong and mainland China implemented the Arrangement Concerning Mutual Assistance in Court-ordered Interim Measures in Aid of Arbitral Proceedings by the Courts of the Mainland and of the Hong Kong Special Administrative Region (Interim Measures Arrangement). Parties to Hong Kong arbitration administered by certain prescribed arbitral institutions can now apply to the mainland courts for interim measures. This is a significant development for Hong Kong.
  • Positive steps are underway to implement the Hong Kong Judiciary's Information Technology Strategy Plan. The Court Proceedings (Electronic Technology) Bill, which will provide for the electronic filing of documents to the court, was enacted in July 2020 and came into operation on 1 October 2021. It is expected to be implemented for personal injury cases in December 2021.
  • On 18 January 2019, to widen the scope of the existing recognition provisions, Hong Kong and mainland China signed the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region, which will be implemented by local legislation and supersede the choice of court arrangement made in July 2006. The Arrangement was not yet in force at the time of writing.
  • On 2 March 2020, the Hong Kong Government issued a consultation paper on the proposed application of the CISG to Hong Kong. The consultation period closed on 30 September 2020. Further to this, the Hong Kong Legislative Council passed the Sale of Goods (United Nations Convention) Ordinance (Cap 641) on 29 September 2021 to apply the CISG to Hong Kong. The law is expected to come into operation during 2022.

Contributor Profiles

Peter Murphy, Partner

Holman Fenwick Willan

T +8 523 983 7700
F +85 239 837 766
E [email protected] 
W www.hfw.com
Professional qualifications. England and Wales, 1995; Hong Kong, Solicitor, 1997
Areas of practice. International trade and commodities; commercial litigation; commodities and shipping litigation and arbitration.

Edward Beeley, Senior Associate

Holman Fenwick Willan

T +8 523 983 7737
F +8 523 983 7766
E [email protected] 
W www.hfw.com
Professional qualifications. England and Wales, 2014; Hong Kong, Solicitor, 2019
Areas of practice. International trade; commodities and shipping; logistics; litigation and international arbitration.

Philip Kelleher, Associate

Holman Fenwick Willan

T +8 523 983 7739
F +8 523 983 7766
E [email protected] 
W www.hfw.com
Professional qualifications. England and Wales, 2015; Hong Kong, 2020
Areas of practice. International trade; banking; commodities and shipping; litigation and international arbitration.

Siân Knight, Professional Support Lawyer

Holman Fenwick Willan

T +8 523 983 7675 
F +8 523 983 7766
E [email protected] 
W www.hfw.com
Professional qualifications. England and Wales, 2006; Hong Kong, 2012
Areas of practice. International trade; commodities; shipping litigation and arbitration.