Where a services and licensing agreement governed by Hong Kong law stands now

A cross-border services and licensing agreement looks straightforward on paper. One party provides technology, know-how, or a defined suite of services. The other pays. Hong Kong law governs. Disputes go to arbitration or the courts. In our cross-border practice, the actual pressure arrives later – when one party is in the Mainland and the other is operating through a BVI or Cayman holdco, and the day-two operating reality diverges from what the contract assumed.

A services and licensing agreement governed by Hong Kong law is enforceable across the principal Greater China and offshore corridors, provided the governing-law clause is properly drafted, the forum mechanism is consistent with the enforcement route, and the contractual structure reflects the actual flow of services and rights. The governing instruments are the common law of Hong Kong, the Arbitration Ordinance (Cap. 609) where arbitration is chosen, and – since 29 January 2024 – the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) for court-based enforcement into the Mainland. The gap between a well-drafted agreement and a defensible one is wider than most foreign principals expect.

This analysis covers the commercial stakes, the governing instruments, the cross-border interface between Hong Kong and the Mainland and offshore centres, the comparative read on risk, and where our desk sees the live pressure points now.

What is actually at stake commercially when both parties operate across borders?

The commercial weight in a cross-border services and licensing agreement sits in three places: the scope of the licensed rights, the payment mechanics, and the termination and post-term protection clause. Get any one of those wrong under Hong Kong law and the commercial position unravels faster than the legal position.

In our cross-border practice, we regularly advise groups where the licensed rights are defined by reference to a territory – typically "the PRC" or "Greater China" – but the operating entity holding the licence is incorporated offshore. That structure creates an immediate tension. The licence runs to a BVI or Cayman entity. The operational reality sits in a Mainland wholly foreign-owned enterprise (WFOE – a wholly foreign-owned company registered under PRC corporate law and operating inside the Mainland). The royalty payment flows from the WFOE to the offshore holdco. Each of those steps engages a different regulatory position: the licence grant, the sub-licensing or pass-through, and the cross-border payment.

Why does this matter under a Hong Kong-governed agreement? Because the governing law determines the validity and interpretation of the licence grant. It does not determine whether the Mainland counterparty or regulator treats the arrangement as a valid sub-licence, or whether the cross-border royalty payment complies with Mainland foreign exchange rules. A contract that is impeccable under Hong Kong law can still be commercially inoperable if it has not accounted for the regulatory layer in the jurisdiction where the performance actually happens.

The payment mechanics are equally exposed. Services fees and royalties payable from a Mainland entity to a foreign licensor require compliance with applicable foreign exchange and tax registration requirements in the Mainland. Hong Kong law governs the contractual obligation to pay. It does not create the mechanism to execute that payment across the border. Where the contract is silent on the party responsible for obtaining the necessary registrations, disputes arise before the first payment is made.

What governing instruments apply, and how does the Hong Kong framework operate?

Hong Kong contract law is common law, augmented by statute where the legislature has intervened. For a services and licensing agreement, the core instruments are the general law of contract (offer, acceptance, consideration, certainty of terms), the law of implied terms and good faith (which operates more narrowly under Hong Kong common law than under many civil-law systems), and – where intellectual property is being licensed – the relevant IP statutes that determine what can be licensed and to whom.

The common law system means that the court will give effect to the express terms of the agreement. It will not readily imply obligations that are not there. For foreign principals from civil-law jurisdictions – Mainland China, most of Europe, the UAE – this is the most significant adjustment. A French or German commercial lawyer expects a degree of good-faith overlay. A Hong Kong court will enforce what the parties wrote, and the absence of an express term is not automatically cured by reference to what is reasonable.

Where dispute resolution is by arbitration, the Arbitration Ordinance (Cap. 609) governs the seat. The Ordinance is modelled on the UNCITRAL Model Law, which means the supervisory role of the Hong Kong courts is defined and proportionate. The HKIAC Administered Arbitration Rules (in the 2024 version, effective 1 June 2024) apply where the parties have designated HKIAC. Emergency relief, if needed before a tribunal is constituted, is ordinarily completed within 14 days of file transmission under those Rules.

The Arbitration Ordinance does not, on its own, address cross-border enforcement. That step is governed by separate instruments – the Mainland–HK Arrangements for arbitral awards, and Cap. 645 for court judgments – which we address in the next section.

The sequence above describes the standard position. Your matter turns on the documents, the jurisdictions actually engaged, and the order of steps – which is where the route is won or lost. To discuss the governing-law position in your specific agreement, write to us at info@lockhartyip.com.

How does the cross-border interface bite between Hong Kong, the Mainland, and offshore centres?

The cross-border interface is where most Hong Kong-governed services and licensing agreements face their real test. The agreement sits at the intersection of three systems: Hong Kong common law (governing interpretation and enforcement of the contract), Mainland PRC law (governing the operational entity, the IP registration, and the payment route), and BVI or Cayman law (governing the corporate existence of the offshore licensor). Each system has a view on the same arrangement. They do not always converge.

On the enforcement side, the position changed materially when the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) came into force on 29 January 2024. Before that date, a Hong Kong court judgment against a Mainland counterparty required either a reciprocal-enforcement application under the 2008 regime (which required an exclusive-jurisdiction clause in favour of the Hong Kong courts) or reliance on common law. Cap. 645 removes the exclusive-jurisdiction requirement and replaces it with a connection-based test. It applies to judgments made on or after 29 January 2024 – which means it is now the operative instrument for any agreement concluded or litigated after that date.

For arbitration, the relevant instruments are the 1999 Arrangement between the Mainland and Hong Kong for the mutual enforcement of arbitral awards, as supplemented in 2020, and the Arrangement on Interim Measures that has been in effect since 1 October 2019. The 2019 interim-measures Arrangement means that a party to a Hong Kong-seated arbitration can apply to a Mainland court for interim relief before an award is issued. In a services or licensing dispute where the respondent's assets are on the Mainland, this is a significant practical tool.

The offshore dimension is often underweighted. Where the licensor is a BVI or Cayman entity, the Hong Kong-governed agreement is the commercial instrument, but the BVI Business Companies Act or the Cayman Islands Companies Act governs the licensor's corporate capacity, its ability to enter into the agreement, and – critically – what happens to the licence on a corporate restructuring or insolvency of the licensor. A licensee on the Mainland has limited visibility into those events. The agreement needs express provisions addressing change of control, assignment, and what the licensee's rights are if the licensor is wound up offshore.

Economic-substance regimes in BVI and Cayman now require that entities claiming a tax benefit in respect of IP income or services income demonstrate meaningful substance in the jurisdiction. Where the licensor is a pure holding entity with no local activity, the substance position needs to be assessed before the licensing structure is finalised. This is not a Hong Kong law question; it is a question that the Hong Kong-governed agreement feeds into.

What does the comparative read look like across the two systems?

In our cross-border practice, the sharpest divergence between Hong Kong and Mainland approaches to services and licensing agreements appears in three areas: the treatment of implied terms, the approach to penalty clauses, and the position on IP ownership and registration.

On implied terms, as noted above, Hong Kong common law implies terms sparingly. PRC contract law, by contrast, contains express good-faith obligations and permits a greater degree of judicial gap-filling. A Mainland-incorporated counterparty that negotiates a Hong Kong-governed agreement in the expectation that the Hong Kong courts will apply a similar approach will be disappointed. The express terms of the agreement carry everything.

On liquidated damages and penalty clauses, Hong Kong law applies the common-law rule against penalties, but the modern position – developed through the courts – is that a clause is only unenforceable if it is out of all proportion to the legitimate interest of the innocent party. That is a relatively permissive standard. PRC contract law also permits liquidated damages, but the Mainland courts have historically been more willing to adjust agreed damages where they consider them excessive. A licensor seeking to rely on a high liquidated-damages clause in a dispute with a Mainland licensee may find that the Hong Kong award is for the full contractual sum, but that enforcement into the Mainland involves a review that the award creditor had not anticipated.

This is not a reason to avoid Hong Kong law. It is a reason to calibrate the liquidated-damages clause with enforcement in mind, and to consider whether the arbitration route – which operates under a more deferential standard of review at the enforcement stage – is preferable to litigation for this class of dispute.

On IP ownership, the position is that Hong Kong law governs the validity and assignment of the contractual licence. It does not determine whether the licensed IP is validly registered in the Mainland. A Hong Kong-law licence of a trade mark or patent that has not been registered in the PRC is a licence of rights that cannot, as a practical matter, be enforced against infringers in the Mainland. The registration step is a PRC administrative matter, entirely separate from the contractual position. In our desk's experience, this is the single most common structural gap in cross-border licensing arrangements.

If an earlier filing, structure or enforcement attempt produced an adverse or stalled result, a second read can identify the strategic error and the routes still open. Write to us at info@lockhartyip.com to discuss.

What are the day-two operating risks, and where does the risk sit now?

The day-two operating reality of a Hong Kong-governed services and licensing agreement is where structural complexity turns into live exposure. The contract has been signed. Performance has started. The question now is whether the operational flow – payments, reports, audit rights, sublicensing, renewal – actually works within the multi-jurisdictional structure.

Consider a European technology group licensing its software to a Mainland distributor through a Hong Kong intermediate entity, with the HK entity holding the IP rights. The agreement is governed by Hong Kong law and provides for HKIAC arbitration in Hong Kong. The royalty payment runs from the Mainland WFOE to the HK entity. Three months in, the WFOE raises a contractual dispute about the scope of the licensed rights. The European licensor instructs the HK entity to issue a notice of breach. The Mainland licensee asserts a set-off for alleged defects in the software.

Several things happen at once. The arbitration clause is engaged. The interim-measures Arrangement becomes relevant if the HK entity wants to freeze the WFOE's assets before an award. The Mainland foreign exchange register becomes relevant if the royalty payments have stopped, because the licensee's stop-payment decision may itself require documentation under applicable Mainland rules. The question of whether the software licence was validly sub-licensed from the HK entity to the WFOE – as opposed to being licensed directly from the European parent – has become important because it determines who the proper respondent in the arbitration is.

None of these issues are exotic. They arise in a relatively standard cross-border licensing arrangement. They are, however, issues that a contract drafted without a full cross-border analysis will not have addressed. The governing-law clause does not resolve them. It is the starting point, not the end.

A second scenario: a Hong Kong-based professional services firm enters a services agreement with a Gulf-region client, governed by Hong Kong law, with the Courts of First Instance having non-exclusive jurisdiction. The client stops paying after the third monthly invoice, disputing the quality of the deliverables. The HK firm obtains a judgment in the Court of First Instance. Enforcement against the client's assets is now a question of the law of the client's home jurisdiction – not Hong Kong law, and not Cap. 645 (which addresses Mainland judgments, not Gulf judgments). The firm's cross-border enforcement position depends on whether there is a treaty between Hong Kong and the relevant Gulf jurisdiction, or whether common-law recognition applies. That analysis was not in the services agreement. It needed to be.

What are the risk points in the governing-law and forum clause specifically?

The governing-law clause in a cross-border services and licensing agreement is not a boilerplate item. The choice of Hong Kong law has specific consequences that every party to the agreement should understand before signature.

First, Hong Kong law will apply to determine the validity of the agreement. If there is a defect in formation – an unsigned counterpart, an ambiguity in the scope of the licence, a missing consideration leg – Hong Kong law governs. It does not matter that both parties are incorporated offshore and the performance happens in the Mainland.

Second, the governing-law clause does not override mandatory rules of the jurisdiction of performance. Mandatory rules of Mainland PRC law – including those governing IP registration, foreign exchange, and the treatment of technology-transfer agreements – apply to the Mainland aspects of the transaction regardless of the Hong Kong governing-law clause. A Hong Kong-law choice does not immunise the parties from PRC regulatory requirements.

Third, the forum clause and the governing-law clause need to be consistent with the enforcement route. If the contract provides for Hong Kong courts but the counterparty's assets are on the Mainland, Cap. 645 is the enforcement instrument. Cap. 645 covers monetary and certain non-monetary judgments; it excludes insolvency matters and certain IP and arbitration-related decisions. If the dispute is likely to involve IP-validity questions, arbitration is the more adaptable route.

Fourth, a non-exclusive jurisdiction clause creates ambiguity in a way that an arbitration clause does not. Where the contract provides for the non-exclusive jurisdiction of the Hong Kong courts, the counterparty is not precluded from commencing proceedings elsewhere. In a cross-border licensing dispute with a Mainland counterparty, parallel proceedings in Hong Kong and the Mainland – each conducted under different rules, with different discovery mechanisms, and potentially inconsistent results – are a real risk.

What foreign counsel consistently get wrong in this context is treating the governing-law clause as a choice of forum. They are different. Governing law determines the substantive rules that apply to the contract. The forum clause – whether litigation or arbitration, exclusive or non-exclusive – determines where disputes are heard. The two choices interact, but they are independent decisions. An agreement that selects Hong Kong law and HKIAC arbitration is well-positioned for enforcement across the Greater China corridors. An agreement that selects Hong Kong law but a non-exclusive court clause, without considering the enforcement route, has left the most important practical question unanswered.

What is the current enforcement position, and where are the open questions?

The enforcement position for Hong Kong-governed agreements involving Mainland counterparties is materially stronger than it was before 29 January 2024. Cap. 645 has removed the exclusive-jurisdiction requirement that had constrained the 2008 regime. The connection-based test under Cap. 645 is more flexible and more aligned with how modern cross-border commercial agreements are actually structured. A Hong Kong judgment against a Mainland counterparty can now be registered with the Court of First Instance and enforced across the boundary without the agreement needing to have contained an exclusive Hong Kong jurisdiction clause.

That is a significant structural improvement. It does not eliminate the enforcement analysis; it changes the inputs. The question now is whether the judgment falls within the scope of Cap. 645, whether the connection test is met, and whether any of the exclusions apply. For services and licensing disputes, the most relevant exclusion to review is the treatment of IP-related decisions – Cap. 645 contains exclusions for certain categories of intellectual-property matter, and the precise contours of those exclusions matter where the dispute involves questions of IP ownership or validity alongside the contractual breach.

For arbitration, the enforcement position is well-established and has been stable. The 1999 Arrangement, as supplemented in 2020, provides for mutual enforcement of arbitral awards between the Mainland and Hong Kong. The 2021 amendment permits simultaneous enforcement applications in both jurisdictions – a significant practical tool where the award creditor needs to move quickly against assets on both sides. The arbitration route remains the preferred instrument for cross-border services and licensing disputes where assets are on the Mainland, because the grounds for resisting enforcement of an arbitral award are more limited than the grounds for resisting recognition of a foreign judgment.

The open question on enforcement is what happens at the edges. Where the dispute involves both contractual claims (suitable for Cap. 645 or arbitration) and regulatory claims (which may need to be pursued in Mainland administrative or specialist courts), the sequencing of proceedings requires careful planning. The Hong Kong-governed agreement creates the contractual position. The Mainland regulatory environment creates a parallel set of obligations. The enforcement strategy needs to address both.

What should a principal or in-house team do with this analysis?

The structural complexity trigger for a services and licensing agreement governed by Hong Kong law is not the choice of law itself. It is the combination of that choice with a multi-jurisdictional operating structure, a Mainland or offshore counterparty, and a performance obligation that crosses the boundary. That combination is very common. The question is whether the agreement reflects it.

In our cross-border practice, we approach a review of an existing or proposed services and licensing agreement in a defined sequence. First, we assess whether the governing-law and forum clause is consistent with the enforcement route – specifically, whether the forum choice supports enforcement under Cap. 645 or under the Mainland–HK Arrangements, as appropriate. Second, we review the scope of the licensed rights against the operational structure – who holds the licence, where performance happens, and whether the sub-licensing or pass-through position is addressed. Third, we review the payment mechanics against the cross-border regulatory position – whether the royalty or services fee payment route is viable under applicable Mainland and offshore rules. Fourth, we assess the IP registration position – whether the licensed rights are validly registered in each jurisdiction where they need to be enforced.

A decision matrix in practical terms runs as follows. Where the counterparty is a Mainland entity and the dispute is likely to be monetary in nature, the arbitration route with HKIAC and a Hong Kong seat gives the strongest enforcement position across both jurisdictions simultaneously. Where the counterparty is an offshore entity (BVI or Cayman) and the assets are offshore, the arbitration route is equally well-placed, and enforcement under the New York Convention applies to Mainland-seated awards against parties in the BVI or Cayman. Where the counterparty is in the Gulf or elsewhere outside the Mainland, Cap. 645 does not apply, and the enforcement analysis is jurisdiction-specific – a non-exclusive court clause is generally weaker than an arbitration clause for this purpose.

The governance and compliance interaction also needs attention. A Hong Kong-incorporated intermediate entity holding IP rights or providing services is subject to the Companies Ordinance (Cap. 622). The Significant Controllers Register requirement has been in force since 1 March 2018. A Mainland-linked or offshore-linked structure that routes payments or IP rights through a Hong Kong entity needs to reflect the full disclosure and substance position.

For a structured assessment of your services and licensing agreement across the relevant jurisdictions, write to us at info@lockhartyip.com.

Related practices

• Disputes & Arbitration – cross-border enforcement, arbitration strategy, and interim-measures applications
• Holding Structures – offshore and Hong Kong intermediate entity design and IP holding arrangements

Speak with Lockhart & Yip

For a scoped view of your matter, contact info@lockhartyip.com. Discuss your matter →

Related

• Corporate Counsel
• Corporate Restructuring Across Hong Kong Singapore Singapore Briefing
• Corporate Restructuring Across Hong Kong Uae Uae Matter

This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.