Ravenscroft and Schmierer: Pioneering the first NFT service in Hong Kong

The popularity of cryptocurrency has led to an increase in crypto scams, but with the anonymity provided by the crypto world, it can be difficult to identify the perpetrators. To combat this, courts are finding new ways to serve legal notices, including using crypto products against those who have caused harm. One such innovative method is the use of service NFTs. This was recently granted in Hong Kong for the first time in Wang Chichen v FeCommerce deals Co., Limited and 20 others to ADWA member Ravenscroft and Schmierer.

What is an alternative service, and how does an NFT service work?

When an individual is formally notified of legal proceedings, it is called service. Personal service, which involves leaving a copy of the document with the person to be served, is often not possible in cases where the defendant’s identity is unknown. In such cases, alternative service is usually permitted by the court. This can involve posting court documents to a last known address, sending emails to known email addresses, or any other form of service that does not involve direct interaction with the individual to be served.

An NFT, or non-fungible token, is a digital token that can represent ownership of tangible assets such as art or music. Ownership is recorded on a blockchain, which functions as a public digital ledger, recording transactions across various computers. Ownership over NFTs can be easily verified by checking transaction records. The English court approved alternative service by NFT in D’Aloia v (1) Persons Unknown (2) Binance Holdings Limited & Others [2022] EWHC 1723 (Ch) through airdropping an NFT into the crypto wallets to which the claimant had previously transferred cryptocurrency.

The Case

Ravenscroft and Schmierer secured the first grant for a service NFT in Hong Kong in Wang Chichen v FeCommerce deals Co., Limited and 20 others. The law firm successfully secured injunctions to freeze their client’s assets as well as self-identification orders against unknown defendants following a cryptocurrency investment scam. The court granted alternative service via an NFT containing a link to the court documents, which was airdropped into the unknown defendants’ crypto wallet addresses.

The impacts of NFT service

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While alternative service via NFTs is a novel and innovative method, its practical effects remain to be seen. Recovery of lost assets can be difficult if the defendant remains unidentified, and it is unlikely for a defendant to reveal themselves if they are truly anonymous. However, with technology advancing and courts becoming more familiar with the virtual world, more efficient and certain methods of serving court documents will likely be created.

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Your point of contact in Hong Kong: Stefan Schmierer

Ravenscroft & Schmierer

22nd Floor, Bupa Centre
141 Connaught Road West
Hong Kong, SAR

CELL    +852 9229 6603
TEL      +852 2388 3899
FAX      +852 2385 2696

www.rs-lawyers.com.hk
sschmierer@rs-lawyers.com.hk

Latest Development: Arbitration in Hong Kong

In the case of Li Wenjun v Chen Chunhui [2023] HKCFI 405, the court dealt with a request made by the 1st Defendant to halt the proceedings and refer the dispute to arbitration. Ultimately, the court rejected the application, stating that the dispute was not covered by the arbitration clause in question, and that the 1st Defendant had relinquished his right to arbitrate.

Background

The case stemmed from an investment arrangement between the Plaintiff and the 1st Defendant, where the Plaintiff agreed to transfer her shares to a company controlled by the 1st Defendant, with the understanding that he would manage them on her behalf. The Plaintiff signed several documents related to the share transfer, including a Share Transfer Agreement that contained an arbitration clause in Chinese.

Subsequently, the Plaintiff discovered that her shares were not actually transferred to a company under the 1st Defendant’s control, but to a company in which he had no control or interest. As a result, the Plaintiff initiated legal proceedings against the 1st Defendant, alleging deceit and conspiracy.

Issues Adresssed by the Court

The arbitration clause in question, as stated in the Share Transfer Agreement, outlined the following:

“因履行本协议所发生的争议，各方应友好协商解决：协商解决不能的，任一方均有权向香港国际仲裁中心按照其在本协议签署时现行有效的仲裁规则提起仲裁解决”.

In addressing the stay application, the court had to consider the following aspects:

• Whether the clause in question constituted an arbitration agreement (“Question 1”)
• Whether the arbitration agreement was null and void or impossible to perform (“Question 2”);
• Whether there was a genuine dispute between the parties (“Question 3”);
• Whether the dispute fell within the scope of the arbitration agreement (“Question 4”).

Based on the facts, the court determined that Questions 4 and 2 were crucial in favor of the Plaintiff’s resistance against the stay application.

Question 4: Whether the dispute falls within the scope of the arbitration agreement

Regarding the first part of the arbitration agreement clause, "因履行本协议所发生的争议" (disputes arising from the performance of this agreement), it was mutually agreed that the disputes in question were of a tortious nature. The interpretation of the clause depended on the proper understanding of its construction under PRC law. In this regard, both the Plaintiff and the 1st Defendant presented expert evidence on foreign law.

Expert Evidence

The court approached the expert evidence on foreign law by assessing the basis of legal reasoning, determining the weight it should carry, if any. When the litigants' expert evidence was deemed unhelpful, the court resorted to a linguistic and common-sense interpretation.

The court found that the Plaintiff's expert evidence, suggesting that tortious disputes were not covered by the clause ("因履行本协议所发生的争议"), aligned with a similar case decided by the Supreme People's Court. Conversely, the court concluded that the Defendant's expert evidence lacked sufficient foundation for its reasoning. Consequently, the court ruled that the arbitration clause did not encompass tortious disputes.

Question 2: Whether the arbitration agreement was null and void or impossible to perform

If a party waives their right to arbitrate, the arbitration agreement becomes inoperative. Waiver occurs when: (1) a party possesses the right under a contract or by law; (2) the party is aware of the right's existence or the facts that give rise to it; and (3) the party clearly and unequivocally abandons the right or indicates that they will not exercise it.

The court adopted a comprehensive approach to assess the conduct of the 1st Defendant and determine whether it constituted an abandonment of the right to arbitrate. It was evident from the Plaintiff's statement of claim that the 1st Defendant was aware of the circumstances surrounding the Share Transfer Agreement. However, the 1st Defendant chose to defend the action by claiming no involvement in the Plaintiff's share transfer, which was inconsistent with the Share Transfer Agreement. Additionally, when the Plaintiff sought permission to amend her statement of claim, the 1st Defendant did not object. The court reiterated the principle that if an amendment introduces issues that the defendant believes should be resolved through arbitration, they should object to the amendment on that basis when the application is made. As the 1st Defendant did not object during the amendment application, the court concluded that he had waived his right to arbitration.

Key takeaways

This case serves as a warning that while Hong Kong courts generally support arbitration, when determining whether a dispute falls within the scope of an arbitration clause, the courts will carefully examine the language and interpretation of the clause.

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Your point of contact in Hong Kong: Stefan Schmierer

Ravenscroft & Schmierer

22nd Floor, Bupa Centre
141 Connaught Road West
Hong Kong, SAR

CELL    +852 9229 6603
TEL      +852 2388 3899
FAX      +852 2385 2696

www.rs-lawyers.com.hk
sschmierer@rs-lawyers.com.hk

Foreigners Admitted to Indian Online Payment Platform

The Reserve Bank of India permitted foreigners, incl. tourists, access to the Indian online payment system UPI (“United Payments Interface”). They may, beginning at the major airports, purchase credit at UPI against prepayment (PPI “Prepaid Payment Instruments”) and then use it, via smartphone app, for payments in shops etc. This is extremely helpful since UPI is widely used in India, down to the vegetable cart on the street, while in turn international credit cards are often not accepted. Thus, it becomes much easier to master daily life. Another step into a cashless India.

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Your point of contact in India: Dr. Jörg Schendel

Suman Khaitan & Co.

W-13, West Wing, Greater Kailash Part-II
Delhi 110048, Indien

www.sumankhaitanco.in
germandesk@sumankhaitanco.in
schendel@adwa-law.com

Opportunities and challenges for companies from the D-A-CH region as a result of the economic recovery in Malaysia

As a result of the economic recovery in Malaysia, more companies from the D-A-CH region explore opportunities in Malaysia. However, they are often surprised by the fast-track legal procedure called "adjudication" in construction-related projects. Adjudication requires caution and local expertise:

While Germany has entered a recession, Malaysia has recovered reasonably well from the Coronavirus crisis. This is among others the result of infrastructure projects; currently, there are even discussions to revive the KL-Singapore high speed rail project. Opportunities including for companies from Austria, Germany and Switzerland are plentiful.

When it comes to construction and construction-related projects in Malaysia, however, unpaid (sub-)contractors may also resort to statutory adjudication. This fast-track process under Malaysian statutory law exists irrespective of the dispute-resolution mechanism agreed upon in the underlying contract. Foreign companies which get dragged into an adjudication are advised to immediately contact a local lawyer or else, they risk immediately falling behind in the adjudication process.

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Your point of contact in Malaysia: Dr. Harald Sippel

Skrine

Level 8, Wisma UOA Damansara
50 Jalan Dungun, Damansara Heights
Kuala Lumpur, Malaysia

TEL        +60 1 8211 4958
FAX       +60 3 2081 3999

www.skrine.com

Opportunities in the Upturn: The Philippine retail sector opens its doors to foreign investors.

The Philippine retail business sector has been liberalized recently by amending the Republic Act No. 8762 or the Retail Trade Liberalization Act of 2000. The amendments aim to boost foreign investments in the Philippine retail industry towards greater access to diverse consumer products, more competitive local players, further technology and skills transfer, and additional jobs for Filipinos.

Through the amendments the minimum paid-up capital requirement of USD 2.5 million for foreign retailers entering the Philippine market has been eliminated. For foreign retailers engaged in high-end or luxury products the minimum paid-up capital has been reduced from USD 250,000 to USD200,000 per store. The “minimum investment per store” covers the gross assets, tangible or intangible, including but not limited to buildings, leaseholds, furniture, equipment, inventory, and common use investments and facilities such as administrative offices, warehouses, preparation or storage facilities. Now enterprises engaged in categories like those with a paid-up capital of less than USD2.5 million and those engaged in high-end or luxury products can have 100% foreign ownership. It also is no requirement any longer for foreign retailers to come from countries that allow entry of Filipino retailers. Finally, the requirement for Certificate of Prequalification issued by the Board of Investments, which was only issued foreign applicants being worth at least USD 200 million, has been removed. It is also noteworthy to mention, that retail enterprises with foreign ownership of more than eighty percent are no longer required to offer a minimum of thirty percent of their equity to the public through any stock exchange in the Philippines within eight years from start of operations.

These reforms are expected to make the Philippine retail sector more attractive and competitive in the ASEAN region, which has seen a significant increase in foreign direct investments (FDI) in wholesale and retail trade in recent years.

Foreign retailers who are planning to engage in retail trade in the Philippines will see more favorable condition for entering the market the local market.

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Your point of contact in the Philippines: Lutz Kaiser

Villanueva Gabionza & Dy Law Offices

20th/F Corporate Center
139 Valero St., Salcedo Village
Makati City 1227, Philippines

CELL      +63 995 985 4957
TEL        +63 2 8813 3351
FAX       +63 2 8816 6741

www.vgdlaw.ph
manila@adwa-law.com

Singapore amends Companies Act: Opportunities for Companies to Conduct Virtual General Meetings

Singapore is promoting a more business-friendly environment with the enactment of the Companies, Business Trusts, and Other Bodies (Miscellaneous Amendments) Bill ("the Bill") on 9 May 2023, which amended the Companies Act 1967 ("CA") to, among other things, allow companies to now hold virtual general meetings.

The Bill facilitates digitization as companies are now able to hold fully virtual and hybrid meetings such as annual general meetings or board meetings, while still being able to hold physical meetings. Similarly, companies can send statutory notices electronically via email, fax or other electronic communication methods. Companies are now required to accept proxy instructions given electronically, rather than stipulating this in the company's articles of association. This provides companies with clarity and flexibility, particularly in meeting the CA's deadlines, and ensures that shareholders' rights are preserved.

In line with the CA amendments, the Bill also amends the Business Trusts Act 2004, the Variable Capital Companies Act 2018 and the Singapore Labour Foundation Act 1977 to permanently allow business trusts, variable capital companies and the Singapore Labour Foundation to hold virtual or hybrid meetings.

As an incentive to strengthen the regulatory framework, the Bill provides greater protection for minority shareholders by exempting shares held by persons connected to the offeror from the calculation of the 90% threshold for compulsory acquisition under section 215 CA. On the other hand, the Bill increases the maximum penalty for offences relating to financial statements/profit and loss accounts of companies/foreign companies that do not give a true and fair view and do not comply with accounting standards to a fine not exceeding SGD 250,000 (where there is no intent to defraud) and a fine not exceeding SGD 250,000 and/or imprisonment for up to three years (where there is intent to defraud) to reflect the seriousness of the offence and to deter wrongdoing.

The Bill demonstrates Singapore's commitment to creating an environment that is conducive to innovation and business. This measure is in line with Singapore's ongoing initiatives to maintain its leadership role in digital transformation and adapt to the changing needs of businesses in a fast-changing world.

The provisions relating to virtual company meetings will come into force on 1 July 2023. The other amendments will come into force on such date as the Minister may specify by notice in the Gazette.

The full text of the Bill can be found here: https://sso.agc.gov.sg/Bills-Supp/14-2023/Published/20230418?DocDate=20230418

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Your point of contact in Singapore: Dr. Andreas Respondek

Respondek & Fan Pte Ltd

1 North Bridge Road
#16-03 High Street Centre
Singapore 179094

CELL      +65 9751 0757
TEL        +65 6324 0060
FAX        +65 6324 0223

www.rflegal.com
respondek@rflegal.com

Investigation of shareholder structures at companies with foreign investment - stay up to date!

In recent months, Taiwan has stepped up its investigation of shareholder structures at companies with foreign investment, particularly in the semiconductor sector, in relation to involvement of Chinese investment. In May, eight companies were raided, accused of violating the Law Governing Relations between the People of Taiwan and the Mainland (臺灣地區與大陸地區人民關係條例) and committing poaching of skilled workers and industrial espionage.

What do foreign investors need to be aware of in order to stay in compliance with the law when making changes to the shareholder structure?

The most important thing is to keep the information about the shareholders up to date including on the ultimate beneficial owner. Before Chinese investors participate within the shareholder chain, it must be checked, whether this results in a direct or indirect participation of Chinese investors of more than 30% in the entity registered in Taiwan. If so, then the entity must be registered as a Chinese investment and can no longer be listed as a foreign investment. Violations can be punished with fines of up to TWD 250 million. Further penalties may be added if other laws are violated by the non-registration.

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Your point of contact in Taiwan: Michael Werner

Eiger Law

Bldg. A, 2F, 25-2 Ren Ai Rd, Sec. 4
Taipei 10685
Taiwan

CELL      +886 9 8726 1326
TEL        +886 2 2771 0086
FAX       +886 2 2771 0186

www.eiger.law
info@eiger. law