Hong Kong Litigation Forecast: What to Expect in 2025

2024 has been a dynamic year for commercial litigation in Hong Kong, with significant developments in insolvency proceedings, crypto-assets disputes and cross-border enforcement of judgments.  Key highlights include:

• Landmark ruling on insolvency vs arbitration: Herbert Smith Freehills successfully acted for the petitioner in Simplicity & Vogue Retailing (HK) Co Limited [2024] HKCA 299 in which the Court of Appeal upheld the discretion to wind up a company despite an arbitration clause, clarifying the circumstances under which a debtor should be prevented from using an arbitration clause to obstruct a winding up petition (read more here). 

• Pragmatic approach to crypto disputes: The Courts have shown willingness to apply established principles to novel issues in crypto disputes.  In one case, the Court compelled disclosure of financial records relating to a Decentralised Autonomous Organisation in order to uphold transparency (read more here).  In another case, the Court ordered the recovery and return of USDT to a claimant seeking default judgment (read more here).

• Streamlined mechanism for Mainland-Hong Kong REJ: The new regime for the reciprocal enforcement of judgments between Hong Kong and Mainland for civil and commercial matters came into effect, marking the end of the previous regime and the start of new case law developments (read more here).  The Courts have received a number of applications since the effective date and have already been granting orders for registration under the new regime.

As 2025 begins, we identify key trends and issues that are expected to shape the commercial litigation landscape in Hong Kong this year.  Keeping up to date with these developments will be crucial for organisations and their legal teams. 

1. Another wave of bond default disputes: Following previous defaults in the industrial and real estate sectors, a new wave of bond defaults in China is expected.  This is driven by the substantial number of bonds maturing in 2025, coupled with slowing economic growth and tighter policies and financing.  As a result, we anticipate an increase in related disputes, including mis-selling claims against the investment manager and intermediary banks/financial institutions which have on-sold the bonds to customers, conflicts over the exercise of put options, and winding up petitions and/or litigations against issuers.

2. Shareholder disputes on the rise: Due to continuing geopolitical and financial tensions, many offshore investors are re-evaluating their investments and demanding more liquidity, resulting in tougher stances on exit strategies.  As shareholders and investors seek to maximise returns while minimising losses, disputes may arise over valuation, exit terms and mechanisms, and the distribution of proceeds.  We also expect to see an increase in the enforcement of statutory rights by the Courts under the Companies Ordinance, including the right to seek remedies for unfair prejudice, commence derivative actions against misconduct, and inspect company records.         

3. Hong Kong cementing its position as restructuring hub: With continued willingness by the Hong Kong Courts to recognise and assist foreign liquidators, as well as the well-established Mainland-Hong Kong cooperation mechanism, we expect to see more complex and cross-border insolvency proceedings before the Hong Kong Courts, as well as continued objections to schemes of arrangement by unhappy creditors.  The enhanced cooperation and increasing sophistication will further solidify Hong Kong's role as a key jurisdiction for insolvency matters in the region.

4. Alternative Dispute Resolution: Recent changes in England's rules empower civil courts not only to encourage parties to engage in ADR but to order them to do so.  Currently, Hong Kong Courts only have power to encourage parties to engage in mediation, but it is perhaps only a matter of time until similar measures are adopted.  On the mediation front, the announcement that Hong Kong will host the headquarters of the International Organisation for Mediation, along with the Department of Justice's plan to form a panel of Greater Bay Area mediators, positions Hong Kong as the leading international dispute resolution hub in the Asia Pacific region.  These initiatives aim to promote the use of mediation in disputes and create a favourable business and investment environment.  This shift is also expected to alleviate the burden on the Hong Kong Courts and shorten the waiting times in proceedings.

For more information, please contact Jojo Fan, Managing Partner, Rachael Shek, Partner, Sara Troughton, Professional Support Lawyer or your usual Herbert Smith Freehills contact.