Update: a cross-border distribution or agency agreement in Asia
A cross-border distribution or agency agreement in Asia. What changed and the action it calls for. The Hong Kong angle in focus. Write to info@lockhartyip.com.
A distribution or agency agreement that crosses a border in Asia is rarely a single legal event. It is a sequence of commercial decisions about territory, exclusivity, termination, and enforcement – each of which plays out differently depending on which side of the border the assets, the counterparty, and the courts sit.
A cross-border distribution or agency agreement in Asia requires careful selection of governing law and a forum clause, because the choice determines whether the agreement can be enforced at all. Under Hong Kong's common-law system, a well-drafted contract with a Hong Kong governing-law clause and a submission to the jurisdiction of the Court of First Instance, or an arbitration clause designating Hong Kong as the seat, gives a principal a tested, neutral enforcement route across the region.
This briefing sets out the current trigger, who it affects across the Hong Kong–Mainland corridor and adjacent corridors, and the immediate step that matters.
What has changed – and what the recurring trigger is
The structural trigger is persistent, not new. A significant number of distribution and agency agreements in Asia are still drafted on the governing-law and forum assumptions of a different commercial era – or, more precisely, on the assumptions of the jurisdiction where the principal is incorporated rather than where enforcement is needed.
The development that sharpens this concern is the entry into force of the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) on 29 January 2024. That ordinance replaced the older choice-of-court regime and extended reciprocal enforcement between Hong Kong and the Mainland to a broader class of money and non-money judgments. For distribution and agency principals with Mainland distributors or agents, the enforcement path for a judgment obtained in Hong Kong now runs more directly to Mainland courts – but only if the underlying agreement and the judgment meet the connection-based test under the new regime.
Agreements executed before the new regime came into effect – and agreements that pre-date the 2020 Supplemental Arrangement on arbitral awards – may not sit comfortably inside either mechanism. A clause that pointed to Hong Kong courts under the old exclusive-jurisdiction test, or a bare governing-law clause with no forum election, can leave a principal with a contractual right but no clear enforcement route. In our cross-border practice, we see this gap most often when a relationship has run for several years and the parties have never refreshed the agreement to account for the changed legal environment.
Who this affects across the corridor
The issue affects any group that has a distribution or agency arrangement crossing at least one of the following corridors: Hong Kong to the Mainland, Hong Kong to a Southeast Asian market, or an offshore holding structure above a Hong Kong entity that itself contracts with a regional distributor or agent.
For principals structuring through a Hong Kong entity, the practical position is that the agreement should name Hong Kong law as the governing law and should either submit to the jurisdiction of the Hong Kong courts or contain an arbitration clause with Hong Kong as the seat under the Arbitration Ordinance (Cap. 609). Either route, properly documented, allows the principal to use the enforcement mechanism under Cap. 645 or the 1999 Arrangement and its 2020 Supplemental Arrangement for arbitral awards, depending on the outcome selected.
The agency question carries an additional layer. Agency relationships under most civil-law systems in Asia – including those applicable in certain Mainland commercial contexts – treat the agent's right to indemnity or compensation on termination differently from the common-law position. A contract that is silent on this point, or that applies a governing law without considering mandatory local provisions, may produce an unexpected liability on termination regardless of what the contract says.
Where a BVI or Cayman entity sits above the Hong Kong operating company, the governing-law clause at the contracting entity level is what matters for enforcement. The offshore holding structure does not change the forum analysis; it is the entity actually signing the distribution or agency agreement that determines which court or tribunal has jurisdiction.
The immediate action
The first step is a review of the forum and governing-law clause in every live agreement. That review should confirm three things: whether the clause is consistent with the enforcement mechanism the principal intends to use; whether it meets the connection test under Cap. 645 for judgment enforcement or the requirements of the arbitral-award Arrangements; and whether the termination provisions account for any mandatory agency-protection regime in the distributor or agent's home jurisdiction.
If the agreement was drafted before January 2024, or if it has not been reviewed since the group's holding structure changed, a re-papering exercise is likely warranted. The re-papering need not be extensive – in many cases, an addendum is sufficient – but the governing-law and forum clause must be unambiguous. A clause that says "the courts of Hong Kong" without specifying the Court of First Instance, or that designates Hong Kong law without an exclusive-jurisdiction or arbitration election, creates an argument the counterparty will use at the moment it matters least for the principal.
The sequence above describes the standard position. Your matter turns on the specific jurisdictions involved, the identity of the contracting entity, and the termination and exclusivity provisions already in the agreement – which is where the enforcement question is decided.
To discuss the governing-law and forum position in your distribution or agency agreement across the relevant corridors, write to us at info@lockhartyip.com.
For a broader view of how the enforcement and corporate-maintenance position fits the Hong Kong operating entity, see our Corporate Counsel practice, our guide to annual compliance and corporate maintenance in Hong Kong, and our analysis of annual compliance and corporate maintenance in Hong Kong.
Frequently asked questions
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Related
- Corporate Counsel
- Annual Compliance Corporate Maintenance Hong Kong Guide
- Annual Compliance Corporate Maintenance Hong Kong Analysis
This publication is general information and does not constitute legal advice. For advice on your situation, contact info@lockhartyip.com.