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Introduction to legal system essay

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Introduction to Business Law (AF2504) Lecture 1 : Introduction to Hong Kong Legal System (I & II) __________________________________________________________ Outcomes: 1. To understand the historical origins and development of the legal system of the Hong Kong Special Administrative Region (‘ HKSAR’). 2. To identify the roles and functions of the various institutions which make up the legal system of the HKSAR. 3. To recognize the legal foundation on which the commercial environment of the HKSAR is based. Essential Reading: V. Stott, An Introduction to Hong Kong Business Law, 4th ed. 2010, Ch 1 pp. 10 – 42. K. Arjunan & A. Majid, Business Law In Hong Kong, 2009, ch 1 – 6, pp. 1 – 63. ____________________________________________________________ _________ Introduction In Hong Kong, many ‘ new’ constitutional and political changes have taken place since 1 July 1997. Nevertheless, before studying these changes, understanding the relevant legal terms and the legal system as a whole is the first step towards understanding the implications and meanings of the law and rules imposed on each area of business activity by civil and criminal law.

Origins of Hong Kong’s Legal System The Chinese Government formally ceded the island of Hong Kong to Great Britain by the Treaty of Nanking in 1842. The British wanted to control Hong Kong as a base for trade with China and as a base for its Royal Navy and a garrison. Kowloon was added to the territory ceded to the British in 1860, and the New Territories in 1898. The British introduced the English legal system to Hong Kong.

The approach of the British in relation to the establishment of the appropriate legal system followed the same approach as in the case of other colonies, that is, to import the English legal system, especially English commercial law and practices, into Hong Kong. Section 3 of the Supreme Court Ordinance provided that such English laws as existed when the colony obtained a local legislature were to have effect in the colony, except where they were inapplicable to local circumstances or inhabitants, subject to any modification by the local legislature.

Later, section 3(1) of the Application of English Law Ordinance provided that English common law and rules of equity should be in force in Hong Kong insofar as they were applicable to the circumstances of Hong Kong or its inhabitants. Hence, insofar as commercial law was concerned, nothing less than English commercial law was acceptable, although the legislation specifically made provisions for the preservation of local customs, including Chinese customs and law. In reality however, local commercial customs and practices never gained much ground in the development of Hong Kong commercial law.

This is because the commercial law and practice previously existing in China differed from province to province and hence, lacked consistency. In addition, diversity of language, culture and needs resulted in Chinese commercial customs and practice never attaining the same status as English commercial customs and practice. However, Chinese customary law continued to play an important role in the colony’s Chinese community, for example: customs in respect of marriage, divorce, adoption, inheritance and land settlement. The HKSAR Government

Prior to 1 July 1997, the Governor was the symbolic representative of the Queen’s sovereignty over Hong Kong and exercised the Queen’s powers by her authority. However, on 1 July 1997, the United Kingdom ceased to have sovereignty over the territory and Hong Kong was reunited with China under the “ One Country Two Systems” concept. Since 1 July 1997, the Chief Executive of the HKSAR has replaced the governor as the head of the HKSAR and is accountable to and appointed by the Central People’s Government. He makes appointments of councils, committees and the Civil Service. He may suspend, dismiss or discipline any public officer.

He may also preside at the Executive and Legislative Council and his assent is required in order for Hong Kong legislation to come into effect. The Basic Law A document known as the Basic Law has become Hong Kong’s mini-constitution since 1 July 1997. The Basic Law preserves the existence of laws previously in force and the continuation of the capitalist system and way of life for 50 years. Article 5 of the Basic Law states: ‘ The socialist system and policies shall not be practised in the Hong Kong Special Administrative Region, and the previous capitalist system and way of life shall remain unchanged for 50 years. ’

Article 8 of the Basic Law states: ‘ The laws previously in force in Hong Kong, that is, the common law, rules of equity, ordinances, subordinate legislation and customary law shall be maintained, except for any that contravene this Law, and subject to any amendment by the legislature of the Hong Kong Special Administrative Region. ’ Sources of Hong Kong Law The Hong Kong legal system is based on the English legal system – also known as the common law system. The main sources of Hong Kong law are as follows:- I. common law and rules of equity; II. legislation; and III. Chinese law and custom. I. Common Law and Rules of Equity

As mentioned earlier, Hong Kong law, especially Hong Kong commercial law, is based on English law. There are two important sets of law in England – common law and the rules of equity. Common Law Before 1066, England was very much like China before it was unified under Qin Shi Huang Di. There was no single ruler: no single law that applied throughout the entire British Island. Each county had its own lord and courts to enforce its own peculiar custom. However, in 1066, William I conquered England and established a strong central government to administer a centralised legal system that was common to the whole country.

The King of England had overall authority over his Royal Courts. Through his courts he identified customs that were most reasonable and applied them throughout his entire kingdom. The result was the judicial establishment of a set of laws that was common to all inhabitants. This was how the English law was termed the “ common law”. Therefore, historically, the common law did not originate from legislation but from the King’s judicial recognition of certain customs. The consistency in the application of the common law was achieved through the doctrine of binding precedent or stare decisis.

This doctrine means that where the facts of a present case before the court is similar to the facts of a previous decided case, the present court must apply the legal rule laid down in that previous case to resolve the case before him. However, if there was no pre-existing customary or common law principle, the judge would make a ruling which would subsequently have to be followed by all other judges. The common law gradually became predictable and could be applied throughout the land with a degree of certainty.

The common law of England has been applied in Hong Kong prior to 1 July 1997. Today, the Basic Law states the laws previously in force will continue to apply to the SAR (Article 8). Section 7(1) of the Hong Kong Reunification Ordinance 1997 provides: “ The Laws previously in force in Hong Kong, that is the common law, rules of equity, Ordinances, subsidiary legislation and customary law, which have been adopted as the laws of the Hong Kong Special Administrative Region, shall continue to apply. ” Today, common law continues to be an important source of Hong Kong law.

Where legislation does not make explicit provision, the body of common law existing in Hong Kong continues to grow and influence the outcome of cases in court. Rules of Equity Common law in England was found to be inflexible, slow and expensive in certain situations. The inflexibility of the common law and the harshness of some of the rules led to people in England petitioning the King directly for justice. The King passed these cases to the Church for hearing according to ‘ conscience’ and ‘ morality’. These cases were the basis for establishing the rules of equity.

Later, the Court of Chancery was set up in England to hear these petitions. When determining a petition, the Court of Chancery was not bound by the doctrine of binding precedent, at least at the beginning. It was simply concerned with whether or not their decision was fair. Proceedings in the courts of equity were not bound by any formality. In the 17th century, the King established that when there is a conflict between the common law and the rules of equity, the rules of equity should prevail. In Hong Kong, section 16 of the High Court Ordinance (Cap. 4) provides: “…

Wherever there is any conflict or variance between the rules of equity and the rules of the common law with reference to the same matter, the rules of equity shall prevail. ” As such, equity remains today as a flexible, adaptable system of rules, able to remedy new situations of injustice. The concept of ‘ trust’ and the device of the ‘ mortgage’ are examples of inventions of equity. There are other equitable remedies such as injunctions, specific performance, rescission of contract and rectification. II. Legislation An ordinance originates in a ‘ bill’ which is drafted by the Department of Justice.

There are two types of bills, namely, public bills and private bills. A public bill is a proposed legislation which affects the interests of the community at large. A private bill only deals with the interests of the parties named in it. The Bank of East Asia Limited (Merger) Bill 2001 which provides for the merger of the First Pacific Bank with the Bank of East Asia is an example of a private bill. Ordinances passed by the Legislative Council together with rules, regulations and other subsidiary legislation form an important source of Hong Kong law.

They are often known as statute law. When a conflict arises between common law and statute law, statute law prevails. Law Making Process The process of passing legislation (i. e. the process before a proposed legislation becomes an ordinance) or the law-making process may be summarised as follows:- 1. Proposal for Legislation – The whole legislative process starts from a proposal for a new legislation or changes to the existing law. Such a proposal may originate from the government departments or from LegCo members or the community.

It may also come from the Law Reform Commission, an independent advisory body which considers proposals for reform in areas of law referred to it by the Secretary for Justice or the Chief Justice of the Court of Final Appeal. It makes recommendations on law reforms to the government after consultation with the public. 2. Law Drafting – After a proposal is accepted, the relevant Policy Bureau of the government instructs the Drafting Division of the Department of Justice to draft a bill by issuing to it Drafting Instructions setting out the objects to be achieved.

Following the drafting instructions, law draftsmen convert the legislative proposal into a draft bill. 3. Public Consultations – Sometimes, the government sends the draft bill to interested parties for comment before it is finalised. Occasionally, the government also solicits public opinion on the draft bill by issuing Government Consultation Papers which outline the legislation proposal and encourage the public to submit their views within a specified period of time. Views and comments received on any proposed bill may result in amendment of the bill. After that the bill is submitted to the Executive Council. . Publication of the bill in the Government Gazette – At the first stage of any proposed legislation, the legislation is called a ‘ bill’. After approval by the Executive Council, a Notice of the First Reading will be sent to the Clerk of the Legislative Council. The Clerk will have the bill and an explanatory memorandum stating its contents and objects published in the Government Gazette. Copies of the bill are also sent to every member of LegCo. 5. First Reading – The short title of the bill is read by the Clerk at a specified LegCo sitting, mainly for notifying LegCo’s members of its existence and purpose.

The date for the second reading of the bill is then fixed. 6. Second Reading – The Legislative Councillor in charge of the bill explains the contents of the bill in the LegCo. There is then an adjournment during which committees may consider the bill; there may also be public discussion on the proposed legislation. Following the adjournment, the bill’s merits and defects are debated in the LegCo. If the bill is generally disapproved of, the LegCo rejects the proposal to have a second reading. If the LegCo agrees to a second reading, the bill proceeds to the committee stage.

If the proposal to have the second reading is carried, then the bill is ‘ committed’ to a committee to discuss it in detail. The committee considering the aims and principles of the bill will then made a detailed report for submission to the LegCo. There may be some public debate on the contents of the bill during the committee stage. . 7. Third Reading – After the committee stage, the bill is tabled for a third reading. No amendment of a material character is proposed at this stage. For a bill to pass, it must be supported by at least a majority of LegCo members present and voting. . The Chief Executive’s Signature – The bill is then passed to the Chief Executive for obtaining his consent and signature. It is rare for the Chief Executive not give his assent to the bill. 9. Publication in the Government Gazette and announcement of Ordinance – The bill becomes an ordinance after the Chief Executive signs it. All the laws enacted by the Hong Kong SAR legislature must be reported to the Standing Committee of the National People’s Congress for record. This process does not affect the entry into force of such laws, but if the

Committee considers that any law is not in conformity with the Basic Law or legal procedures it may return the law to be reconsidered, or revoke it; it cannot make any amendments. A law which is returned for reconsideration or revoked immediately ceases to have force (BL Art. 16). Delegated/Subsidiary Legislation Delegated legislation is sometimes described as subsidiary legislation. It is created in many different forms, including regulations, bye-laws, orders, and rules. The power to delegate is usually contained in a ‘ parent’ ordinance, and the regulations, etc. which are enacted, must be within the authority of that ‘ parent’. Delegated legislation which is not authorized by the parent ordinance is described as ultra vires, meaning that it is beyond the power of its parent and will not be upheld by the courts. Delegated legislation tends to be technical, and is best dealt with by delegated bodies that are advised by experts familiar with the technical aspects of the subject-matter rather than by members of Legco, who may be inexpert and unfamiliar with the technicalities involved. For example, s. 4(1A) of the Business Registration Ordinance (cap 310) provides, among other things, that the Secretary for Financial Services may by regulation provide for the manner in which application for registration of a business and its branches shall be made. Statutory Interpretation Statutes can be difficult to understand because of their complex sentences and the use of legal terms. If there is a dispute as to the meaning of a statute, arising from ambiguity or confusion, it is the task of the judges to interpret it according to certain guidelines known as the rules of interpretation. Intrinsic Aids The judge may employ ‘ intrinsic aids’ i. . material found within the statute itself to clarify the meaning of statutes. These include: • The interpretation section – This section is found in most statutes and sets out the special meaning given to words used within the statute; • The long title – This introduces the detailed provisions of an Ordinance by describing the objectives of the statute. • The preamble to a statute – The preamble, if any, explains the operation of a statute. These have virtually disappeared and when included, are not as detailed as they used to be. Extrinsic Aids The judge may also refer to ‘ extrinsic aids’, i. e. aterials which are not part of the statute to obtain guidelines to clarify terms or words used in an Ordinance. If there is no definition section, or if the definition does not clarify the use of a word, the judge may refer to the Interpretation and General Clauses Ordinance (IGCO) which contains over 100 specific definitions and, unless a different meaning can be found from the legislation, those definitions apply to all Hong Kong ordinances. The IGCO also provides that words and expressions which refer to the male gender include the female and that words and expressions in the singular include the plural, and vice versa (s. ). General Rules of Interpretation Evolved by Judges At common law, there are four main rules of interpretation of statutes:- ? The Literal Rule – the words used in an ordinance must, in the first place, be given their ordinary and usual meaning. In addition, the same word must normally be interpreted throughout the ordinance in the same way. The literal approach is usually justified on the grounds that it is the function of the legislature to make statutes and of the courts to interpret the law thus made. Courts should not presume to legislate on matters regarding which the legislature has kept silent.

The problem with the application of the literal approach is that it works well when there is no ambiguity in the language of a statute. The use of this approach can result in injustice as can been seen in the following case: IRC v. Hinchy [1960] 1 ALL ER 505; [1960] AC 784 Section 25 of the Income Tax Act 1925 (UK) provides that any tax avoided should pay a fine of ? 20 and ‘ treble the tax which be ought to be charged under this Act’. Hinchy’s tax liability should have been ? 146 but he avoided the sum of ? 14 by paying only ? 132.

Hinchy’s lawyers argued that under section 25 of the Income Tax Act, he should have to pay a fine of ? 20 and three times the tax he had avoided, i. e. ? 42. Held: The House of Lords decided that the literal meaning of the ‘ treble the tax which he ought to be charged under this Act’ was that Hinchy had to pay a fine of ? 20 and three times his whole tax bill for the year or ? 438. ? The Golden Rule – the literal rule is not helpful if the words used are capable of two or more meanings. When this occurs, the court is allowed to adopt the interpretation that avoids an absurd outcome.

It is used by the courts where a statutory provision is capable of more than one literal meaning and leads the judge to select the one which avoids absurdity, or where a study of the statute as a whole reveals that the conclusion reached by applying the literal rule is contrary to the intention of Parliament. Thus, in Re Sigsworth [1935] Ch 89 the court decided that the Administration of Estates Act 1925, which provides for the distribution of the property of an intestate amongst his next of kin, did not confer a benefit up the person (a son) who had murdered the intestate (his mother), ven though the murderer was the intestate’s next of kin, for it is a general principle of law that no one can profit from his own wrong. ? The Mischief Rule – The mischief rule presumes that the legislature intends to remedy a particular mischief (wrong). According to Heydon’s case (1584) 3 Co Rep 7a; 76 ER 637, the judge will look at the Act, i. e. the Ordinance in Hong Kong, to see what was its purpose and what mischief in the common law it was designed to prevent.

Broadly speaking, the rule means that where a statute has been passed to remedy a weakness in the law the interpretation which will correct that weakness is the one to be adopted. An illustration is provided by the case of Smith v. Hughes [1960] 1 WLR 830 furnishes an excellent example of the application of this rule. -There the English Street Offences Act 1959 made it an offence for prostitutes to solicit ‘ in a street’. The question was whether a prostitute who solicited customers from a window or balcony could be prosecuted for violating the act.

The court held that here the mischief that the legislature intended to cure was ‘ to clean up the streets’ and the fact that the prostitute was not physically in the street but only solicited customers from a window or balcony was irrelevant. The effect of their conduct was to promote sexual activities, which the legislature intended to forbid. ? The ‘ Ejusdem Generis’ Rule – Where general follow specific words, the general words must be construed as applying to the persons or things of the same class (ejusdem generis) as those already mentioned.

Thus ‘ other person’, ‘ other animals’ are vague and a reference in an Ordinance to ‘ dogs, cats, and other animals’ was held not to include lions and tigers, for ‘ other animals’ meant those ejusdem generis with dogs and cats, i. e. domestic animals. Situation Now In the past the literal rule was the first rule of interpretation. The golden rule was the second and the mischief rule was only used if the other two rules did not produce a reasonable result. S. 19 of the IGCO now provides a mixture of all the rules.

The aim is to ensure an ordinance will have a fair, large and liberal interpretation and to best ensure the attainment of its object according to its true intent, meaning and spirit. III. Chinese Custom Chinese customary law refers to the Qing law and customs of 1843, with such modifications as have taken place in Hong Kong since 1843. The New Territories Ordinance passed in 1910 provided communities in the New Territories with certain exemptions from Hong Kong laws where those laws contradicted prevailing Chinese custom.

Chinese customary law still plays a part in the area of laws of marriage, land, wills, probate and succession. Classification of Law The two most important distinctions are public law and private law; criminal law and civil law. However, these classifications are not necessarily exclusive. For instance, laws may also be categorized as substantive and procedural laws. Public and Private Law Public law is concerned with matters that affect the government and the community, as a whole, while private law deals with matters relating to individuals or groups within the community.

Public law can be further divided into: – • Criminal law – primarily concerned with ensuring the security and safety of individuals and property. It thus defines conduct and behaviour which the State regards as harmful to the public. It also defines the punishments for the criminal conduct of the wrongdoer. • Constitutional law – concerned with the establishment and operation of the organs of the central government of Hong Kong, namely the legislature, the executive and the judiciary. The main source of the constitutional law is the Basic Law and the Bill of Rights.

The constitutional law also deals with the fundamental rights of individuals, such as freedom of speech, freedom of assembly and association; and • Administrative law – one aspect of constitutional law. It deals in greater detail with the operation of the government machinery, such as the civil service, public bodies and local authorities. Private law is concerned with the rights and obligations among individuals. The term ‘ individuals’ includes corporations and partnerships. Private law can be classified according to the nature of the relationship between the individuals.

The four categories are:- • law of contract – concerned with agreements between two or more individuals. law of tort – concerned with the rights and obligations, which are not based on any agreement, between individuals. They are imposed by the general law. The tort of negligence is one aspect of the law of tort. • law of trusts – concerned with circumstances where the law regards property in the name of one person be held or used for the benefit of a third person; and • law of property – defines the nature of property and the individual’s rights and obligations over property.

Criminal and Civil Law • Criminal law has the objective of punishing the person guilty of an offence. The state must prove beyond a reasonable doubt that the person committed the offence. • Civil law (which encompasses both private and public branches of law, except for criminal law) provides a remedy or relief for an injured party. Civil proceedings are brought in the name of the plaintiff against the defendant in the civil courts. The plaintiff should prove his case on a balance of probability. | | | | | | | Judiciary The judiciary refers to the court system and the judges and other officers who carry out functions within the system. The Chief Justice, the Justices of the Court of Appeal and the Judges of the High Court are appointed by the Chief Executive under the provisions of the Supreme Court Ordinance and the Basic Law. The Court System

The court system in Hong Kong comprises various types of courts that have a hierarchy. Before 1 July 1997, the Privy Council was the final court of appeal in Hong Kong. Ranking below the Privy Council was the Supreme Court that included the Court of Appeal and High Court. Thereafter came the District Courts, Magistracy and Tribunals. After 1 July 1997, the Court of Final Appeal is now the final court of appeal in the HKSAR. Ranking below is the High Court that includes the Court of Appeal of the High Court and the Court of First Instance of the High Court. Thereafter are the District Court, Magistracy and Tribunals.

Today the court structure in Hong Kong is as follows: | | | Court of | | Final Appeal | | | | Lands | | Tribunal | | | | Court of Appeal | | Of the High Court | | | | District | | Court | | | | Court of First Instance | | Of the High Court | | Magistrates’ | | Court | | Labour | | Tribunal | Coroners’ | | Court | | Small Claims | | Tribunal | Route of Appeal It should be noted that there are other special forums called tribunals in Hong Kong today that determine disputes between litigants. They are the Administrative Tribunals, Labour Tribunal, Lands Tribunal, and the Small Claims Tribunal. The functions and jurisdictions of the traditional courts and the tribunals will not be further explained as they are very well described and explained in simple terms in the textbook as well as the Government information sheets. The Judiciary’s Fact Sheets

You should go to the website http://www. gov. hk/en/about/abouthk/factsheets/docs/judiciary. pdf to download the Fact Sheets of the Judiciary, which give you a detailed and updated explanation on the jurisdiction of the courts and tribunals of Hong Kong. (The Fact Sheets should be attached to the notes of this Lecture. ) Options to Resolve Business Disputes Business Disputes In the event of a dispute over a business matter, the ultimate solution is to resort to the courts. However, this can be both costly and time consuming and often, parties wish to avoid it, if at all possible.

There are a number of alternative ways of resolving business disputes: Negotiation – The parties to a dispute may negotiate with each other and reach a settlement without the help of a third party. Mediation – Failure of the parties to a dispute to settle the matter amongst themselves may lead them to seek the assistance of an impartial third party – a mediator who may meet the parties privately and develop a mutually acceptable settlement. Conciliation – Conciliation is a relatively new concept and is an informal type of arbitration.

If an arbitration agreement provides for the appointment of a conciliator and the conciliation proceedings fail to produce a settlement within three months of the appointment, the proceedings will terminate – s. 2A(3) of the Arbitration Ordinance. The dispute will then go to arbitration. Arbitration – It is a process where disputing parties agree to take their dispute to an independent person – who will carry out a process (almost like a court proceeding) called arbitration. Parties to an agreement often agree at the outset that disputes will be settled by arbitration.

In signing a contract with an arbitration clause, the parties are agreeing that their dispute will not be heard by a court but by a private individual or a panel of several private individuals. Arbitration is a process that results in an award being issued by the arbitrator or arbitrators. Arbitration awards are final and binding on the parties and can only be challenged in very limited circumstances e. g. where there is an error of law in the award. (For details on options to resolve business disputes, see Stott, V. , An Introduction to Hong Kong Law, 4th ed. , Longman, pp. 37 – 41. )

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