LC Paper No. CB(1)1827/98-99
(These minutes have been seen by the Administration)
Ref.: CB1/ BC/4/98/2
Bills Committee on
Members present :
Introduction of the Euro Bill
Minutes of meeting held on
Tuesday, 17 November 1998, at 10:45 am
in Conference Room B of the Legislative Council Building
Hon Howard YOUNG, JP (Chairman)
Hon Kenneth TING Woo-shou, JP
Hon Cyd HO Sau-lan
Hon Albert HO Chun-yan
Hon NG Leung-sing
Hon Jasper TSANG Yok-sing, JP
Hon YEUNG Yiu-chung
Hon Ambrose LAU Hon-chuen, JP
Hon FUNG Chi-kin
Members absent :
Hon James TIEN Pei-chun, JP
Hon Ronald ARCULLI, JP
Hon Christine LOH
Hon SIN Chung-kai
Public officers attending :
Clerk in attendance :
- Mr David CARSE
- Deputy Chief Executive
Hong Kong Monetary Authority
- Mr Edmond LAU
- Head (Banking Development)
Hong Kong Monetary Authority
- Miss C TANG
- Principal Assistant Secretary for Financial Services
- Mr Geoffrey FOX
- Senior Assistant Law Draftsman
Staff in attendance :
- Ms Estella CHAN
- Chief Assistant Secretary (1)4
- Mr KAU Kin-wah
- Assistant Legal Advisor 6
- Ms Connie SZETO
- Senior Assistant Secretary (1)1
I Election of Chairman
Proposed by Mr YEUNG Yiu-chung and seconded by Mr Kenneth TING, Mr Howard YOUNG was elected Chairman of the Bills Committee.
II Meeting with the Administration
(LC Paper No. CB(1)487/98-99; LegCo Brief ref: G4/47C(98) of 30 September 1998.)
2. The Deputy Chief Executive, Hong Kong Monetary Authority (DCE/HKMA) briefed members on the background to the Introduction of the Euro Bill (the Bill). He said that the Euro would be introduced on 1 January 1999 as the single currency of the eleven participating countries of the European Monetary Unit (EMU) to replace the existing national currencies being circulated. On the need to legislate for the introduction of the Euro, DCE/HKMA explained that in Hong Kong, as in other common law jurisdictions, the law of currency or the "lex monetae" principle applied, which meant that the definition of a contractual obligation governed by Hong Kong law, expressed in a foreign currency, was determined by the law of the relevant foreign country. Accordingly, performance of a legal obligation governed by Hong Kong law which provided for payment in a currency replaced by the Euro should continue to be possible as payment had to be made in the Euro at the conversion rate determined by the European Council (EC). Hence it might not be necessary for Hong Kong to legislate in this respect. However, the Administration believed that it would be desirable to enact specific legislation to remove any concern that parties to contracts might be able to argue that the advent of the Euro was a fundamental change of circumstances bringing a given legal obligation to an end. Moreover, European Currency Unit (ECU) was not a currency as such and there was no equivalent legislation in Hong Kong on ECU, hence a substitution of ECU by the Euro would not automatically take place. Therefore, specific legislation was needed to provide that references in any legal obligation to ECU be replaced by references to the Euro.
3. Responding to members' enquiries, DCE/HKMA said that the local banking community, the Hong Kong Capital Markets Association and the Law Society of Hong Kong had been consulted and they strongly supported the proposal to introduce specific legislation to provide for the general continuity of legal obligations in relation to the introduction of the Euro having regard to the status of Hong Kong as an international financial centre and an important foreign exchange trading centre, as well as the sizeable amount of transactions in European currencies and ECU deposits and lending. For instance, the current ECU deposits and lending were equivalent to over $4 billion and over $8 billion Hong Kong dollars respectively. As regards consultation with the business sector, the Principal Assistant Secretary for Financial Services advised that the Administration had consulted the Trade Advisory Committee, which comprised representatives of the trading and commercial sectors. Upon members' suggestion, the Administration undertook to draw the attention of major business associations, including the Hong Kong General Chamber of Commerce and the Chinese General Chamber of Commerce, and the Equipment Leasing Association to the provisions in the Bill.
4. In reply to the enquiry about comparable legislation of other jurisdictions, DCE/HKMA remarked that individual countries would base their consideration of the need for specific legislation for the introduction of the Euro on their own circumstances and assessment of the risk of the continuity issue. While it was envisaged that Japan would not legislate in this area, there was already EU legislation dealing with the issue of continuity of contracts and ECU/Euro conversion, which provided that every reference in a legal instrument to ECU was replaced by a reference to the Euro at a rate of one Euro to one ECU. The State of New York and two other states in the U.S.A. had enacted legislation with similar provisions. Singapore had legislated based on the State of New York legislation. Moreover, India and New Zealand had indicated intention to introduce specific legislation in this area.
|5. Some Members questioned the basis for adoptingas the Chinese translation of "Euro". Noting that there were references to "Euro" as in the Mainland, Singapore and Taiwan, they opined that it would be more appropriate to adopt a term which was commonly used in other Chinese speaking communities. The Head (Banking Development)/ HKMA remarked that the termwas recommended by the Law Draftsman after conducting research in this respect. Whilewas widely used by the media and the press in the Mainland and Singapore, there appeared to be no official or unified Chinese translation for "Euro" in these places. Nevertheless, he undertook to provide further information regarding the basis for adopting the term.
(Post-meeting note: The information was circulated vide LC Paper No. CB(1)532/98-99 dated 25 November 1998. According to the Law Draftsman, the present translation ofwas based on the principle that whenever the word "dollar" existed in a currency name, the characterwould be used, else the currency name would just be translated phonetically as in the case of "Euro".)
6. Regarding the enquiry on the reason for not expressly stating in the Bill its binding effect on the SAR Government and States organs, the Senior Assistant Law Draftsman (SALD) explained that the essential issue in the Bill was the definition of "legal obligation". The term, as defined in clause 2, had been cast extremely widely to cover any legal obligation, no matter whether it had been entered into by any individual, public body, public authority, private body, organ or any other person. Hence, if the SAR Government and State organs had entered into a "legal obligation" which fell within the legal definition, they would be bound by the Bill.
7. As regards the situation under which a dispute regarding the continuity of legal obligation arose between Hong Kong and a jurisdiction which had not legislated for the introduction of the Euro, DCE/HKMA advised that the legal outcome would depend on the law which governed the contractual obligation. If provisions in the contract stated that the Hong Kong law should apply, the continuity of legal obligations would be ensured.
8. On the detailed arrangements for the introduction of the Euro, DCE/HKMA advised that there would be a three-year transitional period, during which each of the national currencies of the 11 participating members states of EMU would continue to be valid and of legal tender as a non-decimal sub-division of the Euro. Under the "no-compulsion/no-prohibition" principle provided under EU legislation, the market was not compelled to use the Euro during the transitional period until the final changeover on 1 January 2002. As far as conversion of currencies was concerned, while EU legislation stipulated that ECU-Euro conversion would be at the rate of one ECU to one Euro and that the conversion between the Euro and other currencies of the participating members states would be made through ECU-Euro conversion mechanism at fixed rates, the external exchange rate of the Euro with other national currencies outside EMU would be variable depending on the demand and supply of the currency. On the other hand, there might be dual pricing for goods in both the Euro and local currencies to facilitate daily transactions in the markets during the transitional period.
Clause-by-clause examination on the Bill
9. Members observed that the Bill differed from the EU and State of New York legislation in some aspects. They requested the Administration to make a comparison between the Bill and the legislation of the two jurisdictions.
|10. DCE/HKMA responded that notwithstanding the differences in some drafting aspects between the Bill and the legislation of the two jurisdictions, two major issues, namely the provisions for the general continuity of legal obligations arising from the introduction of the Euro and the ECU/Euro conversion were common. He also advised that the Administration had considered the differences pointed out by the Assistant Legal Adviser (ALA) and it was a deliberate decision to make the Bill as simple as possible. Upon Members' request, he undertook to provide information on the comparison amongst the provisions under the EU and the State of New York legislation and those under the Bill for members' reference after the meeting.
(Post-meeting note: The information was circulated to Members vide LC Paper No. 520/98-99 dated 24 November 1998.)
11. DCE/HKMA pointed out that the Bill used the term "legal obligation" rather than "legal instrument" as in EU legislation as the former term was considered a broader concept encompassing all obligations whether contained in an instrument (which had to be in writing) or not.
12. On the concern about the validity of the new legislation in the event of new member states joining EMU or existing members breaking away from the Union, DCE/HKMA said that the definition of "introduction of the Euro" in clause 2 had been drafted to allow for the flexibility of new member states adopting the Euro. Nevertheless, the Bill had not provided for the contingency regarding the withdrawal of member states, nor had the Maastricht Treaty had such provisions. Notwithstanding that the situation was highly unlikely, in the circumstances that it did happen, it would be a major upheaval needed to be resolved by the European Union countries.
13. Mr Ambrose LAU Hon-chuen proposed to add the words "or act" in (b). The Bills Committee agreed that ALA and the Law Draftsman should follow up this drafting point with Mr LAU after the meeting.
14. DCE/HKMA explained that the effect of this clause was that any reference in a legal obligation to ECU should be deemed to be a reference to the Euro at the rate of one Euro to one ECU, unless it was expressly agreed or provided otherwise. The clause had reflected the respect for the freedom of contracts by presuming the continuity of legal obligations, unless it was expressly agreed or provided on the contrary between the contracting parties.
15. Regarding the absence of provisions in the Bill covering conversion rules between the participating national currencies and the Euro as they were provided in the EU and State of New York legislation, DCE/HKMA explained that as ECU was not a currency and there was no equivalent legislation in Hong Kong which provided for the official definition of ECU, it was necessary to legislate for conversion of ECU into the Euro. The conversion of legacy currency obligations into Euro obligations, however, should follow automatically from the lex monetae principle and specific legislative provision was therefore unnecessary.
16. Members noted that the State of New York legislation had specifically provided that replacement of interest rate or other basis for determining the value of a payment under a contract due to the introduction of the Euro would not be a reason for frustration of contract. But the Bill did not cover the specific issue of disappearance of price sources.
17. DCE/HKMA remarked that EU legislation was silent on the changes in price sources upon the introduction of the Euro. The Administration was of the view that the issue of market conventions on price references was complicated and was better left to the market to find a consistent contractual approach. It was therefore considered sufficient to have in the Bill a provision that there should be continuity of legal obligations despite the "introduction of the Euro" and "its consequential changes". This general provision had catered for the general issue of disappearance or substitution of price reference that were consequential upon the introduction of the Euro.
18. Members agreed that the Bill should not go into specific details which could be counterproductive to the target of achieving the minimum necessary in the new legislation and that it would be impossible to list out exhaustively changes consequential upon the introduction of the Euro.
19. Mr Albert HO Chun-yan suggested to recast clause 4 in order to reflect its intention more clearly. As the suggestion involved technical drafting issues, the Bills Committee agreed that ALA and the Law Draftsman should discuss the suggestion with Mr HO after the meeting.
20. Members noted that this was a saving provision to put it beyond doubt that the new legislation should not be taken to affect the operation of the law relating to the validity or enforceability of a legal obligation, i.e. mainly the application of the lex monetae principle, in future cases of currency alteration.
II Any other business
21. The Bills Committee tentatively reserved the time slots on 26 November and 1 December 1998, both at 10:45 am, to discuss outstanding issues on the Bill if necessary.
22. The meeting ended at 12:45 pm.
(Post-meeting note: As Members did not raise queries on the Administration's responses vide LC paper Nos. CB(1)520 and 532/98-99, no further meeting was held. The Chairman reported to the House Committee at its meeting on 14 December 1998 to recommend resumption of Second Reading debate on the Bill on 16 December 1998.)
Legislative Council Secretariat
25 August 1999