One of the topics clients ask questions about most frequently is deceptively simple and yet critical to get right: the execution of documents. This was only exacerbated during the COVID-19 pandemic times with travel restrictions triggering uncertainty. In this alert, we outline the law in Hong Kong on execution of documents by a company.
How does a Hong Kong company execute a document?
A Hong Kong incorporated company (Hong Kong company) can execute a document (whether it is a simple contract or a deed) with or without its common seal affixed. Where a Hong Kong company executes a document with its common seal, it must be affixed in accordance with the provisions of its articles of association.[1]
Where a Hong Kong company executes a document without a common seal, the document will have the same effect as if the document had been executed under common seal where:
- it is expressed (in whatever words) to be executed by the Hong Kong company, and
- it is signed by the sole director (in case of a Hong Kong company with only 1 director) on the company’s behalf or by 2 directors, or any of the directors and the company secretary (in case of a Hong Kong company with 2 or more directors) on the company’s behalf.[2]
Further, where a contract is required by law to be in writing and to be signed, the contract may be made on behalf of a Hong Kong company in writing signed by any person acting with the Hong Kong company’s authority (whether express or implied).[3]
Typically, a Hong Kong company can, by passing a board resolution, expressly authorise any director or other persons to execute a document under hand (ie without affixing a common seal) on the Hong Kong company’s behalf, if that document is a simple contract. This is also the most common way of executing a simple contract.
How does a Hong Kong company execute a Hong Kong law deed?
Where a document is a Hong Kong law deed, additional formalities are required. A Hong Kong company should execute such deed by:
- executing it in accordance with section 127 of the CO as mentioned above
- having it expressed (in whatever words) to be executed by that Hong Kong company as a deed, and
- delivering it as a deed.[4]
A document is presumed, unless the contrary is proved, to be delivered as a deed on its being executed in accordance with section 127 of the CO.
Therefore, a Hong Kong company can now choose to execute a deed with or without affixing its common seal, provided that the formalities are complied with.
Is witnessing necessary when a Hong Kong company executes a Hong Kong law deed?
Unless otherwise stated or required under the articles of association of a Hong Kong company, witnessing is not required to execute a Hong Kong law deed.
However, when dealing with conveyancing related documents it is good practice to have a witness attest, following guidance from the Law Society of Hong Kong. For example, an agreement for sale and purchase, an assignment, a charge or a receipt on discharge of a charge, in each case, in respect of immovable property in Hong Kong.
This is unless the circumstances do not allow it. During the COVID-19 pandemic when there is a lock down, it is still preferrable and market practice to have a Hong Kong law deed relating to interest in immovable property witnessed for evidential purposes, and parties involved usually exhaust all reasonable measures and other alternative means of witnessing/attestation.
If a deed is governed by laws of any place outside Hong Kong, the parties are advised to consult legal counsel from that jurisdiction regarding the witnessing requirements.
How should a non-Hong Kong incorporated company execute a Hong Kong law deed?
The legal provision for Hong Kong companies executing a document as a deed[5] is silent on non-Hong Kong incorporated companies (Foreign Corporation). Unlike English law, Hong Kong law does not expressly state that a Foreign Corporation can validly execute a deed in any manner permitted by the laws of its place of incorporation provided the document is expressed to be executed as a deed and is delivered as a deed.
There are statutory presumptions that a deed is deemed to have been duly executed by a corporation (which could also include a Foreign Corporation) in the following circumstances: [6]
- if the deed purports to bear the seal of the corporation affixed in the presence of and attested by its secretary or other permanent officer of the corporation and a member of the corporation’s board of directors or other governing body or by two members of that board or body
- where a person is empowered to execute a deed by the corporation, he may execute it as agent by signing the name of the corporation or his own name and by affixing his own seal, or
- where a corporation aggregate is empowered to execute a deed by another person, an officer appointed for that purpose by the board of directors or governing body of the corporation may execute the deed in the name of such other person; and where a deed purports to be so executed then the deed shall, in favour of a person dealing with the corporation in good faith, be deemed to have been executed by an officer duly authorised.
Notwithstanding the above, the law on execution of a Hong Kong law deed by a Foreign Corporation remains unclear. Our recommended approach is to comply with the execution requirements of Hong Kong law, the law of place of incorporation of the Foreign Corporation, and the place where the deed is being executed (if that is neither Hong Kong nor the place of incorporation).
Virtual signings and closings
Where a transaction involves multiple parties and signatories in different locations, it would be difficult to require all relevant signatories to be physically present in one place to attend a physical closing meeting to execute transaction documents. It is common practice in Hong Kong to execute transaction documents by way of virtual signing.
The usual practice applied in the Hong Kong market, which we also recommend, is the prudent approach of returning by email the entire simple contract or deed and the signed signature page. Each party should print and sign the signature page. Then the signed signature page should be returned together with the execution version of that document, both in pdf format and as attachments to a single email, to the lawyers arranging the closing, followed with original signature pages in the mail for the lawyers to collate complete documents containing all parties’ original signature pages. This method was suggested as one of the options for virtual signings and closings in a practice note published by the English Law Society in 2010 based on the English court decision in the Mercury case.[7]
Application of electronic signatures under Hong Kong law
In Hong Kong, it remains uncertain as to whether a deed could be signed by an electronic signature (where common seal may need to be affixed, or a wet-ink signature on a hard copy is required for registration or filing with the governmental authorities), and whether a deed can be witnessed electronically (eg over Zoom or Webex).
Most financial institutions still do not accept a deed to be signed by electronic signatures. Hence, the use of a e-signing platform is not yet widely adopted in Hong Kong.
Nonetheless, the ETO regulates electronic signatures in Hong Kong and aims to facilitate the use of electronic transactions for commercial and other purposes.
An “electronic signature” is defined[8] as any letters, characters, numbers or other symbols in digital form attached to or logically associated with an electronic record, and executed or adopted for the purpose of authenticating or approving the electronic record.
Electronic signatures are generally recognised[9] where certain requirements are met:
- the electronic signature is attached or associated with an electronic record to identify the signatory and indicate the signatory’s approval of the information in the electronic record
- having regard to all the relevant circumstances, the method used is reliable, and is appropriate, for the purpose for which the information contained in the document is communicated, and
- the recipient consents to the use of the method by the signatory.
This is provided that the signing party is not, or is not acting on behalf of, a government entity.
If the signing party is, or acts on behalf of any government entity, then a digital signature supported by a recognised digital certificate issued by a recognised certification authority is required.[10]
Certain types of documents are expressly excluded from the use of e-signatures.[11] They include, among others, conveyancing documents relating to immovable property, trust, testamentary document such as a will, power of attorney, oath and affidavits and statutory declarations.
Some parties may choose to use a cloud-based third-party e-signing platform (eg DocuSign) to facilitate the signing of transaction documents by electronic signatures. For instance, in DocuSign the parties will be sent an email with a link to open, review and sign the subject documents through that platform. The parties will need to agree that the original signed documents will be created in DocuSign and that the parties will only receive copies (not originals or wet-ink signatures version) of those documents, and those documents will be permanently deleted from DocuSign within certain period after the DocuSign envelope containing those documents are completed.
For capitalized terms which are not defined in this alert, please refer to 'Sidebar - The Words We Use' in our foreword here.
Disclaimer: This alert is provided for general information purposes only and does not constitute legal advice.
References
[1] Section 127(2) of the CO
[2] Section 127(3) of the CO
[3] Section 121(3) of the CO
[4] Section 128 of the CO
[5] Section 128 of the CO
[6] Section 20 of the Conveyancing and Property Ordinance (Cap. 219 of the Laws of Hong Kong)
[7] R (on the application of Mercury Tax Group and another) v HMRC [2008] EWHC 2721
[8] Section 2(1) of the ETO
[9] Section 6(1) of the ETO
[10] Section 6(1A) of the ETO
[11] Set out under Schedule 1 of the ETO
