The Application of Hong Kong Laws by Hong Kong Mediators for Mediating Hong Kong Commercial Cases to Strengthen the Confidence in the Rule of Law of Hong Kong and Foreign Businessman to Invest in Qianhai — Bank D v. Company L, a case of dispute over an agreement For financial leasing

Basic Facts

On May 2014, Company L filed a trade application for the financing leasing of equipment to Bank D, and they signed a Leasing Agreement in which the bank will purchase 3 FANUC injection molding machines from a designated equipment supplier and both parties agreed to apply Hong Kong laws to resolve potential disputes. Bank D fulfilled all the obligations under the financing leasing agreement while Company L paid the rent for the early period under the leasing agreement but failed to pay the rent for the latter period, thus disputes arose and were presented to the court. During the trial, through the mediation hosted by Hong Kong mediators of the Qianhai Court, both parties reached a mediation agreement in accordance with Hong Kong laws, and the Qianhai Court affirmed the agreement.   

 

Judgement

The court held that the investigation focus of this case lies in whether the cross-border guaranty in legal relationships of Hong Kong for financing leasing and whether the cross-border payment in the mediation agreement violated the mandatory provisions for the financial security of China. The mediation agreement reached by the parties under the auspices of Hong Kong mediators is a reconciliation agreement between parties to a commercial contract against the other party after negotiating a breach of contract. It belonged to the category of the free agreement of foreign commercial agreements, and the mediation agreement violated no laws or rules of Chinese mainland and hampered no public interests of Chinese mainland, therefore, the Qianhai Court affirmed the mediation agreement.     

Significance

According to the survey conducted by the Shenzhen Investigation Team of National Bureau of Statistics, about 76% of surveyed enterprises agreed to sign a contract applicable to Hong Kong laws with Hong Kong enterprises registered in the Qianhai Court. As a case of agreement dispute over Hong Kong financing leasing, this case was the first to be trialed by applying Hong Kong laws in Qianhai Court. By introducing Hong Kong mediators to participate in mediations and taking the advantages of Hong Kong mediators, the court won the trust of both parties and successfully mediated the case. This case showed that the Qianhai Free Trade Zone can trial cross-border disputes over financing leasing by applying Hong Kong laws and extraterritorial laws and guarantee the liberty of the parties to choose applicable extraterritorial laws in accordance with the law, which is of great help in building an international and law-based commercial environment for the Free Trade Zone and strengthening the confidence of rule of law of Hong Kong and Foreign Businessman to Invest in Qianhai. This case was recommended as “a small step for the rule of law of Qianhai but a great step in the confidence in the rule of law”.