Yes, you can take legal action against a customer for non-payment even though there is no written contract. But in absence of a written contract, the challenge is to prove that a legally binding contract existed between the parties. A contract is an agreement between two or more parties. It is formed when offer, acceptance, consideration, and an intention to be legally bound with legal capacity are present. While a written contract is common, a contract can also be oral or implied. The requirements of a valid oral contract are exactly the same as any other written contract. Here is a summary of the requirements and how they may apply to your business transaction. Offer Firstly, there has to be an offer. An offer may be in the form of contacting you to place an order for goods provided by your business or to organise your business to perform a service for the consumer. Or, it could be something as simple as clicking the ‘add to basket’ on your website. Acceptance Next, there needs to be acceptance of the offer. This could be the customer agreeing to your quote for the delivery of goods/services by your business. Consideration There needs to be a consideration. In this context, it is usually in monetary form (payment). The promise to make a payment in exchange for goods/services delivered is sufficient. Intention If both parties (customer and business) understand what the ‘contract’ means, they intend to be legally bound by the contract. While this is harder to show without a written contract, in the context of commercial or business relations, there is a presumption that there is an intention to be legally bound. Legal Capacity The customer has to be legally capable of making a contract. For instance, usually, if they are under 18 or have mental health issues, they may be deemed to not have the legal capacity to enter into a legally binding contract. Conclusion While it is more difficult to show there is

When you are running a business, you are likely to encounter a situation where the customer fails to pay the invoices for the services rendered/for goods already delivered within the prescribed period of time. Therefore, it is important to understand your rights to take legal action against such a customer for non-payment of invoices.  This article will help you understand the steps you can take to recover unpaid invoices: (a) Send a demand letter for payment (b) Commence legal action for non-payment However, before taking any action to recover the outstanding payment, review your contract to see if you stated any preferred method for debt collection between you and the customer.  Demand Letter The first step should be to send a demand letter to collect the overdue amount from the customer before initiating legal action in court. You may choose to send a demand letter multiple times before you send the final reminder. Generally, a demand letter includes: The overdue amount Unpaid invoice number and date Payment due date Description of the goods delivered/services rendered Late payment charge (if any) Request full payment by a certain date If it’s a final reminder, you should state that it is the final reminder and if the outstanding amount isn’t paid by the deadline, you will initiate legal proceedings against the customer without any further warning.  Commence legal action for non-payment After sending a demand letter, if the customer still has not paid the outstanding amount past the set due date, then you should take legal action against the customer. You can use the letter of demand as evidence in the proceedings.  When can I make a claim in the Small Claims Tribunal? Usually, the Small Claims Tribunal will handle claims regarding unpaid debts from customers, service charges, damage to property and goods sold. If the amount your customer has not paid you is at or below $75,000, then you are able to directly

Money laundering is when someone transfers money to hide illegally obtained money (e.g. received from criminal sources), in order to conceal where the money came from by making it seem as if it was taken from a legitimate source. While there are several different methods that can be used to launder money, one possible way is by placing the laundered money to pay for a legitimate service/good in the economy. Why is this important for my business? Hong Kong, as one of the major financial centres in the world, has very strict rules on money laundering and terrorist financing. This is why it should be emphasized to take productive steps to avoid unintentionally participating in a money-laundering scheme. While it is true that money laundering is more prevalent than others in certain industries such as Real Estate and investment, it is still a good idea to be aware.  Moreover, money laundering becomes a criminal offence under the Organised and Serious Crimes Ordinance (Cap 455), where an individual commits the offence of money laundering if they deal with any property (i.e. money) which they know or has reasonable grounds to believe to be proceeds of crime.  Thus, you don’t have to be committing the money laundering, but if you strongly suspect you are receiving payment that was from an illegal source, you could be liable for this crime. Therefore, you cannot afford to simply turn a blind eye, if there are reasons to be suspicious. Examples of What to Look Out For Customers who transfer counterfeit notes Customers who are transferring a large amount of money from overseas for cash payments Sudden large cash deposits made by individuals for business purposes are usually paid in cash or cheques (or other normal instruments used) Customers depositing cash through numerous credit slips, making the total of each deposit unremarkable (but a total of all credits is significant)  Three Stages Signalling Criminal Activity Placement;

When accepting payment methods at either your physical retail store or online, it is important for businesses to be wary of the regulations you need to follow, to ensure compliance with the law. With the rise of contactless payments and the increasing risks of cyberattacks, here is what you need to know when accepting payments.  For accepting online payments, most online businesses use Retail Payment Systems and Stored Value Facilities. Retail Payment System vs Stored Value Facilities A retail payment system (RPS) handles transfers and/or settlements for retail purchases, such as credit cards like UnionPay, American Express and Mastercard. Whereas stored value facilities have a prepaid amount of value that is used to purchase goods or services. There are 3 types of Stored Value Facilities that are subject to regulatory requirements Single-purpose, where it can be used to make purchases from one merchant only, such as gift cards. Or, it can be multi-purpose, such as an Octopus card Device-based is when a physical device contains a value, and a non-device based is where a physical device has stored value. Examples include electronic chips on cards and watches.  Network-based is when value is stored using a communication system or network facility. This includes internet payment systems, mobile payment systems and prepaid cards.  Regulatory Requirements If your business accepts multi-purpose, device and non-device based stored value facilities, then you should ensure that the operator has a license from the Hong Kong Monetary Authority (HKMA), though it does not apply to operators of single-purpose SVFs In relation to RPS operators, the HKMA has the power to designate RPSs, subject to their oversight if the RPS is operated in HK or processes HK dollars or any other currencies prescribed by the HKMA Protection of Data The Personal Data (Privacy) Ordinance applies when accepting payment. SVFs and RPS should only collect data

A Memorandum of Understanding (MOU) document sets out the preliminary terms of a commercial transaction agreed by the parties in the course of negotiations. This is often used to ensure both parties are on the same page as regards the major aspects of the transaction and prevent misunderstandings. It is also known as a head of term agreement, letter of intent or head of agreement. It can be used in a variety of transactions, such as for mergers and acquisitions, private equity transactions, agreements with suppliers etc. Key elements Names of the parties; including contact numbers, companies involved etc Purpose of the agreement; goals and intentions of the parties; state if parties intend for the MoU to not be legally binding and is subject to a final agreement Responsibilities and roles of the parties; the framework of the negotiations, e.g. stages of negotiation and meeting times Details of the project; other parties involved, deadlines, a summary of the transaction, key issues Duration of the agreement; state the beginning and end date of the MoU, details of termination, notice periods Non-disclosure, confidentiality clauses Why is it important? Having a mutual agreement on the major aspects of the deal prevents the likelihood of any misunderstandings and allows for effective communication.  Thus, MOU is particularly important if you are negotiating a complex deal or are engaged in a matter for a long period of time as it will further reduce disagreements when drafting the final contract. When do you need it? They are used in the beginning stages of negotiations, to agree upon preliminary terms before detailed formal and binding agreements are made. Parties can enter into more than one MOU during negotiations, especially if they are lengthy. Main reasons why people use an MoU: To have a written confirmation and record of the main agreed objectives and terms in a transaction before entering into a legally

What is an indemnification clause? An indemnification clause provides that a party agrees to compensate an individual if they suffer a loss as a result of a specific event such as breach of contract etc. It is an important clause to have in a business contract because it allocates the risks associated with the contract by shifting the liability, to pay for the losses, to the indemnifying party. For this reason, it is one of the most negotiated clauses and you should definitely consider negotiating for one. It is strongly recommended to have your lawyer draft an indemnification clause that fits your business. Example: If you sell your business to another business owner, the indemnification clause can require the seller to indemnify for losses arising out of employee’s lawsuits within 12 months. This protects the new owner from suffering losses before taking over the business. The essential elements of an indemnification clause An obligation to indemnify; this is the obligation to pay for the losses incurredThe Indemnitor; the person who has the obligation to indemnify (pay for losses) The Indemnitee; the person receiving the benefits from the indemnification obligation Why it is important Parties can determine and allocate risks associated with the contract They protect you from lawsuit actions as it is guaranteed that the indemnifier (person paying the losses and providing the indemnity) bears the legal and financial consequences Protects your business from risks involved in the transaction and reduces your liability for unforeseen damages/losses that may arise in future Provides certainty to your exposure to liability and allows you to run your business accordingly, without constantly worrying about repaying financial losses It is a precautionary measure for the indemnifier to understand their potential liability Reasons to not include an indemnification clause It is difficult to predict future events as many

A referral agreement is entered between a supplier/service provider and another company that refers potential clients to the supplier/service provider. It is used primarily when people have business contacts in a certain industry and receive a “Referral Fee’ for making a successful introduction to others. It is also referred to as a business introduction agreement. Once successfully referred, the company receives a commission or referral fee from the supplier/service provider. Most businesses will utilise referrals to gain more consumers/clients, therefore, it is important to formalise this process to reduce issues that may come up in the future. The parties may also enter into a Mutual Referral Agreement whereby each party refers potential clients to the other in exchange for a commission/referral fee. What to include in a Referral Agreement? Relationship between the parties It is important to define the relationship between the parties as an agreement between independent contractors i.e. where you’re the principal and the referral is an agent. Referral Process The parties must agree on the procedure for making a referral. For instance, the parties may decide that the details of the referral must be provided by e-mail. Also, you can define what constitutes a valid referral as every business lead might not generate revenue. Example: Allen runs an online membership service and offers a referral program for members if they successfully refer another potential member to sign up. For Allen, the referral may be valid once the potential member signs up and pays the membership fee. If there is a trial period, Allen may then pay the referral fee to the referral party after the period is over. Whether the referral will be qualified or unqualified? A qualified referral is where the referrer evaluates and investigates the business leaders before they refer them to you. This ensures that the referral is valid and viable. While an

More and more entrepreneurs are ditching the traditional business model and moving their business ideas online. As easy as that may be, you need to be aware of the legal requirements when setting up an online business. Register your business Before running an online business, the first thing to do is set up a company. No matter the type of business you are starting, you will need to register with the government and obtain a license (if required) to run your business in Hong Kong. Besides filing required documents, choosing your business name and completing forms on your business plan, the requirements for business registration vary depending on the business structure (sole proprietorship, partnership, private limited company etc). For more information on the required forms in Hong Kong for all types of businesses, check the Inland Revenue Department website. You need to register your business within 30 days of commencing operations. Once you have registered, you will receive a Business Registration Certificate. The certificate is only valid for one year, meaning you need to renew it every year if you continue to run your online business in Hong Kong To find out more about registering your business, click here. Register the Domain Name A domain name is your online website address (e.g. hire.legal.com). To obtain one, you need to register your domain name by making an application to the domain name registrar in Hong Kong. To find a list of all the domain registrars in Hong Kong, click here. When applying for the domain name, you must show evidence of entitlement to the name, such as the Business Registration Certificate. Your domain name needs to be unique and available. Hence, it should not violate any existing trademarks. It is recommended that when you are choosing a domain name to: Search the company name on the Cyber Search Centre or Company Search Mobile Service under the Companies Registry of the Government of the

Agency refers to a type of relationship involving two parties: an agent and a principal. The principal can be an individual person or a company. In an agency relationship, the agent is granted the authority, to act on behalf of the principal. This includes the ability of the agent to create binding contractual relationships between the principal and third parties. So, for instance, if you proceed to sell goods through an agent, you (the principal) are liable under these contracts entered into by your agent on your behalf and you can be sued on such contracts. When an agent creates contractual relationships between their principal and a third party, the agent is not a party to the contract. Thereby, they are not liable to the third party to perform any obligations stated therein. An agent may be liable to perform obligations under a contract, in some cases, if they act outside of the scope of their authority. What duties does an agent owe to a principal? In an agency relationship, an agent owes many duties to their principal: 1) Duty to act in the best interests of the principal In essence, this is a duty imposed on the agent such that when the agent is acting on behalf of the principal, the agent must act in the principal’s best interests. In a commercial context, this would mean that if an agent is negotiating an agreement for his/her principal, the agent must use their skill and knowledge to obtain the most favourable terms for the principal. 2) Duty to avoid conflicts of interest In practical terms, this means, an agent should not act for another principal if the interests of that other principal conflict or may conflict with the former principal. This is unless the agent makes a disclosure of the conflict of interest to both principals and obtains both of their consent. 3) Duty not to make any secret profits The agent should not make a profit or obtain any benefit in the course of acting as an agent, without obtaining the

What is an NDA? An NDA, which stands for a non-disclosure agreement, is a legally binding contract in which a business or individual promises to keep certain information received from another party confidential. There are generally two parties to an NDA: discloser and disclosee. The discloser is the party who is disclosing the confidential information subject to the terms of an NDA. The disclosee is the party to whom the confidential information is being disclosed, subject to the terms of an NDA. There are different forms of a non-disclosure agreement, depending on whether only one or all of the parties to the agreement owe obligations to maintain confidentiality: Unilateral NDA: This is used where only one party is disclosing confidential information. The party who receives the confidential information is the only party who owes obligations to maintain confidentiality. Mutual NDA: Both parties share and receive confidential information with the other. Both parties owe obligations to maintain confidentiality with each other.Three-Way: Three parties all agree to share confidential information with each other and keep confidential the information received from the other two. What counts as confidential information? Non-disclosure agreements often have very comprehensive definitions of what constitutes confidential information. Non-disclosure agreements usually define confidential information to include any and all non-public information disclosed by one party to the other. The information might be in written form or oral. It may include ideas, concepts, designs, techniques, plans or any other form of information. When should you use an NDA for your business? As a general rule, whenever your business is disclosing information that is considered confidential or proprietary, your business should enter into an NDA with the party you are disclosing that information. Here are some common examples of situations where your business will likely

A misrepresentation is a false statement of law or fact made by one party (party A) to another party (party B) which induces that other party (party B) to enter into a contract. The three elements that must be present for misrepresentation are: (i) Someone has made a statement of fact or law; (ii) That statement is false; (iii) That false statement has induced the innocent party to enter into the contract It is important to distinguish between a “statement of fact” and a “statement of opinion”. A statement of opinion, if false, as a rule, does not constitute a misrepresentation. On the other hand, a statement of fact, if false, can constitute a misrepresentation. Example: For instance, the seller of a motorcycle would only be making a statement of opinion if he stated that the motorcycle might be able to transport 500 kg of goods and requested that you test it before purchasing it. Let’s say, on the other hand, the seller, knowing that a motorcycle was actually 5 years old, stated to a buyer that it was only 5 months old. If the buyer purchased the bike in reliance on this statement, this would be a misrepresentation. In Hong Kong, if a party is found to have made a misrepresentation, under the Misrepresentation Ordinance (Cap. 284 of the Laws of Hong Kong), the innocent party can apply for an order to rescind the contract (whereby the contract will be cancelled, and the parties will be restored to their position before the contract was made) and to claim compensation.

An exemption or exclusion clause is a term in a contract which seeks to exclude or limit the liability of one of its parties. For example, it may state that a party has no liability if the contract is breached or, alternatively, seek to limit the range of remedies available to one party for a breach by the other party. The Control of Exemption Clauses Ordinance (Cap. 71 of the Laws of Hong Kong) regulates the efficacy of exemption clauses. Generally, this ordinance renders exemption clauses which seek to exclude liability for personal injury or death ineffective. Other exclusion clauses, that restrict or exclude liability for damage or loss caused to the other party, are valid so long as they satisfy a test of “reasonableness”. Guidance on the type of clause that will be considered “reasonable” is provided in Schedule 2 of the Control of Exemption Clauses Ordinance. In accordance with Schedule 2 of the Control of Exemption Clauses Ordinance, whether a clause is considered reasonable will depend on a number of factors including: The strength of the bargaining positions of the parties relative to each other;Whether the customer received a benefit in exchange for agreeing to the particular term;Whether the customer was aware of or ought reasonably to have been aware of the existence and extent of the term;If a term excludes liability should a specified condition not be fulfilled, whether it was reasonable at the time of entering into the contract to expect compliance with that condition;Whether the goods were manufactured, adapted or processed to the special order of the customer; For more details regarding the reasonableness test, please refer to Schedule 2 of the Control of Exemption Clause Ordinance (Cap.72 of the Laws of Hong Kong).

when the parties have breached the obligations they have agreed to in the contract. Obligations are those responsibilities or commitments that a party is legally bound to fulfil in an agreement. Example: Let’s say two parties have entered a contract for the sale of certain goods. One of the most important obligations for the buyer will be to pay for the goods by a certain date. The seller’s obligations will include the obligation to deliver the goods being purchased by a particular date and an obligation to ensure the goods meet certain requirements regarding quality. Should the seller or buyer fail to meet any of these obligations, they will commit a breach of contract. What happens after a breach of contract? Depending upon the severity of the breach and how much you value your commercial relationship with the other party, you may attempt to deal with the breach informally or formally In order to deal with a breach informally, you may have an informal conversation with the breaching party. Through this conversation, you may ask the breaching party to continue performing their obligations under the contract and agree to an informal settlement with them to compensate you for any losses caused by the breach. If your informal attempts fail, you may decide to institute formal legal proceedings. The first step, as part of such formal legal proceedings, is normally for the innocent party to prepare and send a document called a “Letter Before Action” to the defaulting party. A letter before action is a document which will describe the breach committed by the defaulting party and offers an opportunity for the breaching party to rectify the breach by a certain stated deadline. If the issue remains unresolved by the deadline stated in the letter of action, then the innocent party may institute formal legal proceedings. These formal legal proceedings would involve filing a lawsuit against the guilty party. If formal legal

Most assume that once one party has made an offer and the other party has accepted, a contract has been formed. In reality, however, there are six elements that must be fulfilled for a valid, legally binding contract to exist. A contract is valid and legally binding if the following six key elements are present: (i) Offer (ii) Acceptance (iii) Intention to create legal relations (iv) Consideration (v) Capacity (vi) Certainty Each will be explored in turn below. (i) Offer An offer is a specific proposal by one party, which if unconditionally accepted by the other party, can result in a valid, legally binding contract. For example, if a company tells you that they are willing to sell you 10 bags of rice in exchange for $1,000, the company is making an offer to you. An offer can be made orally or in writing. It is important to distinguish between an offer and an invitation to treat. An invitation to treat is an invitation made by one party to another for the latter party to make an offer. The former party can then elect either to accept or reject this offer. An invitation to treat does not constitute an offer. In order to create a valid contract, an offer must be made, which is then subsequently accepted. Accepting an invitation to treat will not lead to the creation of a valid contract. Invitations to make tender offers, advertisements of goods in newspapers and displaying goods in shops are all examples of invitations to treat and not offers. (ii) Acceptance Acceptance is an agreement to the terms of an offer. Until the person to whom the offer is made accepts the offer, there is no valid, legally binding contract. Normally, acceptance must be communicated to the offeror. Ordinarily, contracts are accepted orally or in writing. Generally, silence cannot be treated as an acceptance. In some cases, acceptance can be by conduct. Example: Let’s say you draft a