Introduction
Under Part 16 of the Companies Ordinance (Cap. 622) (“CO”), a foreign company operating business in Hong Kong may have to apply for registration with the Companies Registry as a non-Hong Kong company, and the definition of such a “non-Hong Kong company” requiring registration can be found in section 2 of CO, which is, “a company incorporated outside Hong Kong that establishes a place of business in Hong Kong”.

In practice, such definition has not been easy to interpret and questions have been raised as to how a company has to carry on its “business”, in order to fall within the definition of having “established” a “place of business” in Hong Kong. As a result such ambiguity, various attempts have been made by the Courts to clarify the meaning of such definition over the past decades.

Recently in the case of Re Yung Kee Holdings Limited FACV 4/2015(the “Yung Yee Case”), the Court of Final Appeal (“CFA”) had a chance to shed light on the interpretation of such phrase when ruling on the appellant’s unfair prejudice application under s.168A of the predecessor Companies Ordinance (Cap. 32). This is because in that case, whether the court has jurisdiction to make an order under s.168A would depend on whether the BVI holding company of the famous Yung Kee restaurant in question could be regarded as having “established a place of business” in Hong Kong.

Meaning of “establishing a place of business”
Consolidating the CFA’s decision in the Yung Kee Case and some earlier cases in the United Kingdom (U.K.) and in Hong Kong, a summary of the list of factors to be considered when interpreting the meaning of “establishing a place of business” in Hong Kong is set out below:

1.     Whether the company is carrying on “business” in Hong Kong
To start with, the CFA in the Yung Kee Case held that a place of business connotes “a place where or from which the company either carries on or possibly intends to carry on business”.

It also affirmed the lower courts that the word “business” in such context should not be confined to commercial transactions or transactions which create legal obligations, but should instead be interpreted in the general sense to mean activities, including both activities which create legal obligations and activities which do not.

Besides, such “business” activities must be connected with the company’s paramount or subsidiary objects and it simply does not cover purely internal activities, such as changes to the composition of the board or payment of dividends which do not affect outsiders or require the establishment of a particular place where they may be effected.

Nevertheless, special care must be taken as to where to draw the line between activities that are “purely internal” and activities that might constitute “business” activities for the purpose of “establishing a place of business”. This is because it was held in the UK Case of South India Shipping Corpn Ltd v Export-Import Bank of Korea (1985) 2 All ER 219(“SouthIndia”) that activities incidental to the main business of the company, despite not being substantial, may still be sufficient to constitute “business” activities in this context. In that case, although the bank in question did not conclude any banking transactions within the jurisdiction, the Court held that the preliminary work done by it in relation to granting and obtaining loans were sufficient to constitute “business” activities. 

2.     Whether acts of the company have been done at some fixed place of business
The CFA in the Yung Kee case also accepted the CFI judge’s statement that the word “establish” indicates that some degree of regularity and permanence as being a location of the company’s business is required. Therefore, the location of the foreign company in Hong Kong should at least be associated with the company and from which the company conduct business with some degree of regularity.

3.     Whether there is a person carrying on business for the company within the jurisdiction
Although the Yung Kee case did not elaborate on this factor, it was held in the UK case of South India and Okura & Co Ltd v Forsbacka Jernverks Aktieolag (1914) that simply having an agent or representative in the jurisdiction is not sufficient to “establish a place of business” within the jurisdiction.

In determining whether a company has established a place of business by the conduct of persons who are agents, a relevant factor is whether the agent is entitled to conclude contracts or merely passed on orders from customers to the foreign company (Rakusens Ltd v Baser Ambalaj Plastik Sanayi Ticaret AS(2002) UK).

In determining whether a company has established a place of business by the conduct of persons who are representatives, a number of factors concerning all aspects of the relationship between them and the foreign company have to be considered, and such factors had been listed out in the case of Adams v Cape Industries plc (1990):

1.         whether or not the fixed place of business from which the representative operates was originally acquired for the purpose of enabling him to act on behalf of the foreign company;

2.         whether the overseas corporation has directly reimbursed him for (i) the cost of his accommodation at the fixed place of business; (ii) the cost of his staff;

3.         what other contributions, if any, the foreign company makes to the financing of the business carried on by the representative;

4.         whether the representative is remunerated by reference to transactions, e.g. by commission, or by fixed regular payments or in some other way;

5.         what degree of control the foreign company exercises over the running of the business conducted by the representative;

6.         whether the representative reserves (i) part of his accommodation, (ii) part of his staff for conducting business related to the foreign company;

7.         whether the representative displays the foreign company’s name at his premises or on his stationery, and if so, whether he does so in such a way as to indicate that he is a representative of the foreign company;

8.         what business, if any, the representative transacts as principal exclusively on his own behalf;

9.         whether the representative makes contracts with customers or other third parties in the name of the foreign company, or otherwise in such manner as to bind it; and

10.     if so, whether the representative requires specific authority in advance before binding the foreign company to contractual obligations.

Application of the factors in the Yung Kee Case
Taking into account the above factors, the CFA in the Yung Kee Case concluded that the BVI holding company of Yung Kee restaurant in Hong Kong (the “Company”) had not established a “place of business” within the jurisdiction. In particular, the CFA relied on the following facts:

1.         There was no evidence that the Company had or needed an office in the building or kept its books and records there;

2.         The Company kept no accounts and its register of members was kept in the BVI with a copy kept by the Company’s agent at its office elsewhere in Hong Kong;

3.         The Company did not keep a share transfer or share registration office in Hong Kong;

4.         There were only eight resolutions of the Company which were all concerned with internal matters;  

5.         Many of the resolutions in question were paper resolutions which could have been signed anywhere; and

6.         The fact that the sole signatory of the Company signed a resolution three times at a place does not make that place the Company’s place of business.

Accordingly, the court concluded on the evidence that the Company had not established a place of business in Hong Kong and therefore affirmed the decision of the courts below that the Hong Kong courts have no jurisdiction to make an order under s168A of the predecessor Companies Ordinance (Cap. 32).

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.