Court ruling a boost for Hong Kong's common law
David Donald says decision that will protect small investors will shape our common law
This month, the Court of Appeal affirmed a decision that could be very important for Hong Kong's future as an international financial centre - its ruling in Luck Continent vs Cheng Chee Tock Theodore will facilitate the protection of small investors in Hong Kong-listed companies against the technically legal but unfair actions of controlling shareholders.
The court's decision made clear that statutory relief for "unfair prejudice" can be provided for listed companies. Hong Kong should be pleased with this decision, which will help shape a common law.
Common law arises when a court is presented with a dispute and makes a decision based on the local understanding of what is just, in accordance with earlier decisions of the same or higher court that are not clearly wrong. Because common law meets local needs with norms, it strikes local people as just and fair.
Once upon a time, Hong Kong was legally plugged into the greatest lawmaking machine the world has ever seen. This "Privy Council" in London homogenised the law of the British empire, while (often) also taking local needs into account.
At the handover in 1997, the Privy Council's jurisdiction over Hong Kong ceased. Hong Kong was free to make its own common law.
Perhaps nowhere was common law more needed than in addressing questions of fairness in Hong Kong companies. In the UK, companies listed on the stock exchange did not have a controlling family or the government as a dominant shareholder, so the UK courts were not faced with disputes regarding powerful shareholders legally but unfairly exploiting weak shareholders.
With no disputes about large abusing small shareholders in listed companies, the English common law could not create a solution to pass on to Hong Kong. Either the city would have to develop its own common law to deal with the problem, or just have no remedy at all for legal, but unfair behaviour.
The Luck Continent decision is not only doctrinally sound in connection with English common law and useful for orderly financial markets, but I suspect it also corresponds to what the people of Hong Kong consider fair and just. When in 2008, the controlling shareholders of PCCW used (legal) sophisticated techniques to circumvent a minority protection provision, public opinion condemned the action.
Hong Kong has become a regulatory haven for everything from trademarked handbags to patented baby milk because its people see real value in good law. Hong Kong's home-grown solution to unfair prejudice in the companies on its stock exchange is a good one, and reflects a readiness to address real local problems with Hong Kong common law.
David C. Donald is professor at the Chinese University's Faculty of Law