Update: terminating or exiting a cross-border commercial relationship

Exiting a cross-border commercial relationship is not simply a matter of serving notice. The governing-law clause, the forum clause, and the enforcement position across the jurisdictions actually engaged determine whether the exit is clean, contested, or stalled. For groups with commercial arrangements running through or into Hong Kong, the sequence of steps – and the documents underpinning each one – is the difference between an orderly wind-down and a protracted dispute.

In our cross-border practice, we see the same pattern repeatedly. A relationship deteriorates. The commercial team serves notice. Then the counterparty, operating under a different legal system's expectations, disputes both the basis and the forum. The governing-law clause was drafted years earlier and the forum clause was never tested. The exit becomes a dispute before the separation is even complete.

What is driving the current pressure on exit clauses?

Cross-border commercial relationships – whether distribution arrangements, supply contracts, joint-venture frameworks, or agency agreements – are stress-tested when economic conditions shift or counterparty risk rises. The governing-law and forum clause, often negotiated quickly during the deal phase, becomes load-bearing the moment an exit is contemplated.

Hong Kong's position as a common-law hub for Greater China arrangements has sharpened this pressure. Since the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) came into force on 29 January 2024, the recognition and enforcement corridor between the Mainland and Hong Kong has materially widened. A judgment or award obtained in one jurisdiction now travels to the other under a connection-based test, not the old exclusive-jurisdiction requirement.

That matters for exits. A counterparty that once relied on a structural gap – the idea that a Hong Kong judgment would not reach Mainland assets, or vice versa – can no longer do so in the same way. The enforcement reality has changed. Exit strategy must be calibrated against it.

Groups with counterparties in the BVI, the Cayman Islands, or Cyprus face a parallel question. Offshore-held entities introduce a second layer: where does the contract actually sit, and which courts or tribunals have jurisdiction over the operating entity rather than the holdco? The answer is almost never obvious from the face of the agreement.

Who is affected across the Hong Kong corridor?

The trigger is not sector-specific. Any principal operating a commercial arrangement with a cross-border element – supply chain, distribution, agency, licensing, joint-venture framework (a contractual or equity-based arrangement for shared commercial activity across jurisdictions) – should review the exit mechanics before they are needed, not after notice is served.

Specifically affected are groups where:

• the governing-law clause selects Hong Kong law or English law, but the counterparty is domiciled in or has principal assets in the Mainland, Singapore, or an offshore centre;
• the forum clause designates arbitration but the arbitration agreement (the clause or separate agreement submitting disputes to arbitration) was drafted without reference to interim-relief mechanics;
• the exit trigger – material breach, change of control, insolvency – has never been tested against the counterparty's home-jurisdiction insolvency or regulatory regime;
• post-termination obligations (non-compete, restraint of trade (a contractual obligation limiting a party's commercial activity after separation), data transfer, IP return) involve assets or employees in multiple jurisdictions.

The Companies Ordinance (Cap. 622) governs corporate-level steps for Hong Kong-incorporated entities, including change-of-control notifications and the treatment of corporate authorities after a relationship ends. Where the counterparty is incorporated elsewhere, the equivalent local-law step must be identified and sequenced.

The Arbitration Ordinance (Cap. 609) – modelled on the UNCITRAL Model Law (the United Nations Commission on International Trade Law's Model Law on International Commercial Arbitration, widely adopted globally) – governs arbitration seated in Hong Kong. Where the exit is contested and the forum clause designates HKIAC arbitration, interim-measures relief via the Mainland courts has been available since 1 October 2019 under the interim-measures Arrangement. That window should be factored into day-one planning, not considered after the other side has moved assets.

The immediate action: three steps before notice is served

The sequence matters more than the documentation alone. Before any notice of termination or exit is served in a cross-border arrangement, three steps should be completed.

First, map the governing instruments. Identify the governing-law clause, the forum clause, and any jurisdiction agreement (a written agreement designating the court or tribunal with authority to determine disputes) across the contract and any associated side letters or ancillary agreements. If the governing law is Hong Kong law and the forum is arbitration, confirm the seat. If the seat is Hong Kong, the Arbitration Ordinance (Cap. 609) applies and the HKIAC Administered Arbitration Rules – the 2024 Rules effective 1 June 2024 – govern administered proceedings.

Second, assess the enforcement position. Before notice is served, identify where the counterparty's material assets sit. If assets are on the Mainland and the forum is the Hong Kong courts or a Hong Kong-seated arbitration, the post-January 2024 enforcement regime and the interim-measures Arrangement together provide real enforcement reach. If assets sit offshore, the relevant offshore-jurisdiction position must be assessed separately. This step is frequently skipped. It should not be.

Third, prepare the exit package in advance. The notice of termination, any required cure period, the demand for return of IP and data, post-termination payment obligations, and the statement of the sums claimed should be prepared as a single coordinated package. Serving notice without the surrounding documents gives the counterparty time to respond strategically before the claiming party has its position in order.

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 exit is won or lost. To discuss the governing-law and enforcement position on your specific arrangement before notice is served, write to us at info@lockhartyip.com.

Further guidance on supply and manufacturing contract structures with offshore parties is available at our supply and manufacturing contract page. For analysis of cross-border distribution and agency arrangements across Asia, see our distribution and agency analysis. Our full corporate counsel practice is outlined at lockhartyip.com/practices/corporate-counsel/.

Related practices

• Disputes & Arbitration – enforcement route mapping and interim-relief strategy across the Mainland–HK corridor
• Holding Structures – entity-level review and restructuring when the exit involves offshore or BVI-held counterparties

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