How to approach a services and licensing agreement governed by Hong Kong law

A services and licensing agreement that spans more than one jurisdiction raises a question before the commercial terms are finalised: which law governs, and which court or tribunal handles it when performance breaks down. For cross-border groups operating through or into Greater China, the answer is rarely neutral. Choosing Hong Kong law as the governing law is a structural decision with day-two consequences – for enforcement, for liability exposure, and for how a dispute is framed if one arises.

A services and licensing agreement governed by Hong Kong law is construed under a well-developed common-law system, with a functioning court hierarchy and a territorial profits-tax position that makes Hong Kong a commercially rational contracting hub. The Companies Ordinance (Cap. 622) and the general law of contract supply the corporate and enforcement backbone. Where the agreement includes intellectual-property licensing, the governing-law and forum clauses become the pivot on which cross-border enforceability turns.

This guide sets out the steps in sequence, identifies the gate at each step, and flags the single most common error in-house counsel make when contracting across the Mainland–Hong Kong interface.

What decision does the contracting principal actually face?

The first question is not how to draft the agreement. It is whether Hong Kong law and forum are the right choice for this transaction at this moment.

That decision depends on where the services will be delivered, where the licensed rights will be exercised, where the counterparty's assets sit, and where a judgment or award would need to be enforced. Getting the answer wrong at this stage costs more than the drafting fee. A governing-law clause that looks sensible in a term sheet can produce an unenforceable judgment if the counterparty's assets are entirely in a jurisdiction that does not recognise the chosen forum's decisions.

For cross-border groups, three scenarios recur. First, a Hong Kong entity contracting with a Mainland China entity for services delivered in the Mainland, with licensed rights exercised there. Second, a BVI or Cayman holding entity sub-licensing down to a Hong Kong operating entity, with end-user services directed at the Greater Bay Area. Third, an international group licensing technology into a Hong Kong entity that then sub-licenses into the Mainland. Each scenario has a different enforcement profile.

The governing-law decision is not purely legal. Commercial factors – the counterparty's own preference, the governing law of the master agreement, the bank's requirements – all bear on it. Our cross-border practice regularly sees agreements where the governing-law clause was inherited from a template without analysis of the enforcement route.

How does the cross-border element change the analysis?

Hong Kong law and forum provide a stable, predictable base. The common-law system, English as an official language of the courts, and the Court of First Instance's well-developed commercial jurisprudence all support this choice. But the cross-border element introduces two complications that a purely domestic analysis misses.

The first is enforcement against a Mainland counterparty. Since the Mainland Judgments in Civil and Commercial Matters (Reciprocal Enforcement) Ordinance (Cap. 645) took effect on 29 January 2024, a Hong Kong court judgment in a civil and commercial matter can be registered with, and enforced by, the Mainland's people's courts – and vice versa. This replaced the older, narrower regime that required an exclusive-jurisdiction clause. The connection-based test under Cap. 645 is broader, and in-house counsel who relied on the old regime should re-read their standard governing-law and forum clauses against the new requirements.

The second complication is intellectual-property licensing. Where licensed rights are registered or exercised in the Mainland, the validity, scope, and termination of those rights are determined by Mainland law regardless of the governing-law clause in the commercial agreement. Hong Kong law governs the contract between the parties; it does not override the lex situs of the intellectual-property rights themselves.

What foreign counsel often get wrong here is treating the governing-law clause as solving the enforcement problem. It does not. It determines which court interprets the contract. Whether that court's judgment can be taken and executed against the counterparty's assets is a separate question, answered by the enforcement regime at the asset location.

For matters at the intersection of dispute management and cross-border enforcement, our colleagues in the Corporate Counsel practice can assist with structuring the contractual framework from the outset.

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 how the enforcement and governing-law position applies to your cross-border agreement, contact info@lockhartyip.com.

What is the step-by-step sequence for structuring the agreement?

Each step below carries a gate: the condition that must be satisfied before moving to the next. Skipping a gate is the most common cause of late-stage renegotiation or unenforceable terms.

Step 1: Map the transaction. Identify the services to be provided, the licensed rights to be granted, the jurisdictions of performance, the seat of each party, and the location of assets against which a judgment might need to be enforced. This is a factual exercise, not a legal one. Its output is a one-page transaction map that drives every subsequent drafting choice.

Gate: all jurisdictions of performance and asset location are identified before the term sheet is signed.

Step 2: Confirm the governing-law and forum structure. With the transaction map in hand, decide on governing law (Hong Kong law, or a combination of Hong Kong law with a Mainland or offshore element), the dispute-resolution mechanism (litigation before the Court of First Instance, HKIAC arbitration, or a two-tier mechanism), and the language of the agreement. If HKIAC arbitration is chosen, the seat defaults to Hong Kong absent express agreement under the HKIAC Administered Arbitration Rules.

Gate: governing law and forum clause are confirmed by both parties' counsel before the services-description and payment provisions are finalised. Reversing this sequence – agreeing commercial terms first, then fitting a governing-law clause around them – is the most common structural error we see.

Step 3: Define the licensed rights with jurisdictional precision. The licence grant must identify the licensed rights, the territory, the field of use, and whether sub-licensing is permitted. For rights registered in the Mainland, the grant must be consistent with the registration scope. A licence over a broader territory than the registration covers is enforceable as a contract between the parties but will not bind third parties in the over-broad territory.

Gate: the licensed-rights schedule is reviewed against registration records in each jurisdiction of exercise before execution.

Step 4: Draft the services description and performance standards. The services description is the element that generates the most disputes. Vague performance obligations survive execution but produce litigation. In a cross-border agreement, the services description must also address which law governs the quality or compliance standard where that standard is set by local regulation in the jurisdiction of delivery.

Gate: the services description is specific enough to allow a Hong Kong court or tribunal to determine, on the face of the document, whether performance has occurred. If it is not, the agreement is enforceable in form but unenforceably vague in substance.

Step 5: Address the payment and withholding mechanics. Hong Kong levies no withholding tax on dividends, interest, or royalties as a general position. However, where the payer is a Mainland entity, Mainland withholding tax may apply to royalty payments under the agreement. The governing-law clause does not displace the tax regime at the payer's location. Gross-up clauses, where used, must be drafted against the actual withholding position.

Gate: the payment mechanics are reviewed by tax-position counsel before the payment clause is finalised, especially where royalty flows cross the Mainland–Hong Kong boundary. Our colleagues in the previous instalment of this guide set out the tax-position considerations in more detail.

Step 6: Negotiate the termination and post-termination provisions. Termination triggers should be aligned with the enforcement mechanism. An agreement terminated for breach under Hong Kong law generates a damages claim heard in Hong Kong. But where the licensed rights revert on termination, the mechanism for cancelling the licence registration in the Mainland requires local-law steps outside the agreement itself. The agreement should record what post-termination steps each party is required to take in each jurisdiction.

Gate: the termination clause is reviewed against the deregistration or cancellation procedure for licensed rights in each jurisdiction of exercise.

Step 7: Execute and maintain the document trail. Execution must comply with the formalities of both the governing law and, where required, the jurisdiction of performance. In-house counsel should confirm whether notarisation or legalisation is required for the agreement or any annexed schedule in the jurisdiction of performance. Companies incorporated in Hong Kong execute under the Companies Ordinance (Cap. 622). Legalisation (authentication of a document's origin and the signatory's authority for use abroad) requirements vary by jurisdiction and should be confirmed before execution is arranged.

Gate: executed originals are retained, and a record of the execution formalities is maintained. Loss of the executed original is a material risk in any subsequent enforcement proceeding.

What is the most common mistake, and how does this sequence avoid it?

The most common mistake is agreeing the commercial terms before the governing-law and forum clause is fixed. This happens for a simple reason: the commercial team wants to close the term sheet, and the governing-law clause looks like a legal detail to be added later. By the time the full agreement is drafted, the counterparty has negotiated leverage on the commercial terms and is unwilling to accept a forum or governing law they did not expect.

The sequence above places the governing-law and forum decision at Step 2, before the services description, the payment mechanics, or the licence grant are finalised. This is not formalism. It is because the governing-law clause determines how every other clause in the agreement will be interpreted and enforced. A royalty payment clause drafted under Hong Kong law looks different from the same clause drafted with a Mainland court in mind as the adjudicator.

A second mistake is treating the HKIAC arbitration clause as a default choice without analysing the counterparty's enforcement position. Arbitration under the HKIAC Administered Arbitration Rules produces an award that is enforceable in over 170 jurisdictions under the New York Convention. For a counterparty with assets entirely in the Mainland, the applicable route is the 1999 Mainland–Hong Kong Arrangement and the 2020 Supplemental Arrangement, not the Convention. Simultaneous enforcement applications have been permitted since the 2021 amendment to that regime. This is a distinct procedural track, and the drafting of the arbitration clause – particularly the seat and the scope – should reflect it.

In our cross-border practice, we regularly advise on agreements where the arbitration clause was copied from a different transaction without checking whether the counterparty's asset location made arbitration the better route over court litigation under Cap. 645.

For groups managing cross-border restructuring alongside their contracting strategy, the structural considerations are developed further in our guide on corporate restructuring across Hong Kong and Singapore.

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 info@lockhartyip.com to discuss.

What should the decision checklist cover before execution?

A short pre-execution checklist reduces the risk of post-execution renegotiation or unenforceable provisions. The checklist below is not exhaustive. It is the minimum standard for a cross-border services and licensing agreement with a Hong Kong governing-law clause.

• Has the transaction been mapped across all jurisdictions of performance and asset location?
• Is the governing-law clause confirmed, and is the forum clause consistent with the counterparty's asset location and the enforcement regime?
• Is the dispute-resolution mechanism – court or arbitration – chosen on the basis of the enforcement route, not default preference?
• Has the licensed-rights schedule been checked against registration records in each jurisdiction of exercise?
• Is the services description specific enough to allow a court or tribunal to determine, on the face of the document, whether performance has occurred?
• Have the payment and royalty mechanics been reviewed for withholding-tax exposure at the payer's location?
• Does the termination clause address post-termination deregistration steps for licensed rights in each jurisdiction?
• Have execution formalities – including notarisation or legalisation requirements – been confirmed for each jurisdiction?
• Are executed originals retained in a secure, traceable record?

Each item on this list corresponds to a gate in the sequence above. A "no" at any item is a known risk that the parties are carrying into the agreement. That is a choice some principals make deliberately. Our role is to ensure the choice is made with full visibility of the downstream consequences, not by oversight.

How does the Significant Controllers Register requirement interact with the agreement structure?

Where the contracting entity is a Hong Kong-incorporated company, it is required under the Companies Ordinance (Cap. 622) to maintain a Significant Controllers Register (a statutory record of individuals and legal entities that exercise significant control over the company). This requirement has been in force since 1 March 2018.

The interaction with a services and licensing agreement arises where the agreement grants the counterparty rights that amount to control over the company's business – for example, an exclusive services mandate, a right of first refusal over the company's outputs, or a licensing arrangement under which the licensor can terminate the company's ability to operate. Whether such rights constitute "significant control" for SCR purposes is a fact-specific analysis under the Companies Ordinance, but in-house counsel should flag the question before execution.

This is not a barrier to the agreement. It is an administrative compliance step that, if missed, carries a continuing obligation under Hong Kong company law. Where the contracting structure involves a BVI or Cayman holding entity above the Hong Kong operating company, the SCR position for the Hong Kong entity should be confirmed as part of the entity-level compliance review rather than left to the post-execution phase.

What are the practical limits of what a governing-law clause can achieve?

A governing-law clause does four things. It tells the interpreter which law determines the meaning of the contractual terms. It directs a court or tribunal to apply that law's rules on formation, interpretation, and breach. It may – depending on the jurisdiction's choice-of-law (private international law) rules – determine which law governs assignment, novation, and set-off. And it provides a common reference point for both parties' counsel when advising on performance risk.

It does not displace mandatory rules of the place of performance. Where the services are delivered in the Mainland, Mainland mandatory rules – including those on service-industry licensing, data localisation, and employment of local staff – apply regardless of the governing-law clause. This is the point at which the contractual framework meets the operating reality, and where many international groups discover that their agreement, well-drafted under Hong Kong law, created obligations that are unlawful in the jurisdiction of delivery.

It does not determine tax treatment. As noted above, the governing-law clause does not affect the withholding-tax position of the payer, the stamp-duty analysis, or the profits-tax (Hong Kong's tax on profits arising in or derived from Hong Kong) treatment of the licensee's income.

And it does not resolve conflicts between the licensed rights and third-party claims in the jurisdiction of registration. Those are matters of the lex situs, not the governing law of the agreement.

Understanding these limits is, in our experience, what separates an agreement that holds up through the life of the transaction from one that requires renegotiation when the operating reality becomes apparent.

Addressing the myth: is Hong Kong law only for Hong Kong entities?

A common objection from international in-house counsel is that choosing Hong Kong law makes sense only if at least one party is a Hong Kong entity. This is not correct, and it is worth addressing directly.

Hong Kong law is a choice-of-law option available to any commercial contracting parties who select it, subject to the requirement that the choice has a reasonable connection to the transaction or is otherwise not contrary to the mandatory rules of the relevant jurisdictions. International groups frequently choose Hong Kong law for agreements between a Cayman holding entity and a Singapore operating entity, or between a European licensor and a Mainland sub-licensee, precisely because Hong Kong's common-law system provides a neutral, well-developed reference point that neither party's home jurisdiction supplies.

The enforceability of that choice depends on the recognition of foreign governing-law clauses by the courts of the relevant jurisdictions – an analysis that is jurisdiction-specific and should be confirmed by counsel in each enforcement jurisdiction before the clause is finalised. But the starting premise – that Hong Kong law is only for Hong Kong entities – is a template-driven assumption, not a legal principle.

Related practices

• Corporate Counsel – cross-border contracts, governance, and entity maintenance across Greater China
• Disputes & Arbitration – HKIAC arbitration, Mainland–Hong Kong enforcement, and interim measures

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Related

• Corporate Counsel
• Services Licensing Agreement Governed By Hong Kong Law 2
• Corporate Restructuring Across Hong Kong Singapore Singapore Guide

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