The coronavirus pandemic first hit Hong Kong in late January 2020. In the five months since the city’s first confirmed case, institutions have made unprecedented adjustments to reduce the spread of the virus, such as: the Education Bureau’s suspension of classes; implementation of work-from-home arrangements; and government-imposed restrictions on public gatherings.
With that in mind, what kind of impacts can be expected in the upcoming 6 to 12 months?
The impact on business
The World Economic Forum (WEF) predicted that globally, 500 million people are at risk of falling into poverty, there is expected to be a 13-32% drop in global trade and a 30-40% drop in FDI. It can be easy to get bogged down with such depressing statistics and it is not a surprise that the WEF has also estimated that 34% of adults are feeling adverse effects on their mental health during lockdown. However, it is not all doom and gloom and there are also innovations and opportunities that have come from the crisis.
Many potential trends have been predicted to emerge from the pandemic. Of huge concern is the inability for industries or sectors to recover. Notable industries in Hong Kong and worldwide, include retail, tourism and hospitality. Analysts have predicted a surge in M&As, particularly in the retail industry and a shift to online digital purchasing. Struggling businesses that may find themselves at risk of being targeted by their competitors should investigate potential lifelines and structure current practices to suit demand. Calculating and managing risk – from each and every element of what makes a business successful – becomes even more important now in order to move out forward and rebuild a healthy business.
The impact on commercial contracts has been explored in detail in our article “Commercial Contacts and the Importance of the Force Majeure Clause”. Greater strategic thinking will need to be given to potential contract-halting events and since a pandemic has occurred, such consequences may now be deemed as foreseeable. This could have significant impacts on the enforceability of force majeure clauses if they require “unforeseeable events” to occur for them to be triggered.
There is going to be a much-needed focus on increased and improved IT infrastructure and investment. It is important for organisations to adopt digitalization strategies, but they should not be too hasty in doing so. Time and care should be taken to properly implement these structures. Data privacy protection, cyberattacks and potential for fraud should be of number one concern for organisations that deal with “big data” and sensitive information. Such threats may present themselves in many different forms, so competent and reputable IT practices within your business are paramount.
SMEs, tech-companies, aviation, construction, retail, tourism and other private sectors should also take into consideration various governmental subsidy schemes, grants or loans they can take advantage of to help with their financial and structural needs.
The future of the workplace and HR
Businesses across the world have been forced to implement Work-From-Home (“WFH”) strategies and some of the benefits of implementing such strategies are starting to receive wide-spread appreciation. It seems that WFH arrangements are here to stay.
WFH could be a significant cost saver for employers. Requests for rent reductions are commonplace and the value of having WFH employees could help create long-term savings on this often-crippling expense. While long established companies may take time to adjust, start-ups and more nimble companies should be able to advantage the potential cost savings that can be achieved by structuring their businesses in line with the times.
In addition to WFH, many employers have implemented strategies to reduce their payroll overhead. One widely used strategy has been for employees to reduce their working hours by 20% (the equivalent to a four-day working week) with a commensurate reduction to pay. Employees, especially the younger generations, are likely to appreciate the shorter working hours and three-day weekend and trying to revert to a five- day working week might not be well received!
Personal and family impact
The pandemic has certainly highlighted the importance of Estate Planning, and steps that individuals should consider to safeguard assets and provide security for loved ones. Private Client practitioners have reported a dramatic increase in Estate Planning instruction and this trend is likely to continue in the near future.
Most countries around the world have implemented lockdown measures to slow the spread of coronavirus. It has been reported that these countries – notably the U.S. and the U.K. – anticipate a surge of divorce proceedings. Relentless confinement is, of course, the major reason for an increase in marriages reaching their breaking point. In addition, the increasing unemployment rate, has created financial stresses that have exacerbated the increase in divorce rates. Forbes reported that nearly 40 million Americans have lost their job; the Hong Kong Government has announced an unemployment rate of 5.2% between February to April 2020, experiencing a 1% increase from January to March 2020. While Hong Kong did not have such strict stay-at-home measures, it is likely that COVID-19 will still impact on marriages.
How have Court proceedings been impacted?
Undoubtedly, the legal sector also felt the effects of the pandemic, particularly with the Hong Kong Judiciary adjourning all but the most essential Court proceedings from 29 January 2020, known as the General Adjournment Period (“GAP”). Only “urgent and essential hearings and/or matters” were dealt with during the GAP, which ended 4 May 2020. Due to the volume of cases that are dealt with by the Courts, the GAP resulted in a tremendous backlog.
The Courts have taken the initiative to implement new ways of working including the enhanced use of “paper hearings” and video hearings to avoid the need for personal attendance. The Courts have also put in place strict social distancing requirements including limiting attendances in the public galleries and requirement for everyone to wear face masks (much to the dismay of counsel who find themselves shouting at the judge and unable to properly cross examine masked witnesses).
We discussed in our previous article the Online Dispute Resolution (“ODR”) Scheme introduced by the government in April 2020 and coming into effect thereafter, the ODR scheme creates a multi-tier method of resolving claims for sums up to HK$500,000.
What will the future hold?
While the newly appointed Hon. Coleman J. took the initiative for telephone directions during February 2020, much of the Hong Kong Judiciary lags behind in electronic filing and technology. The pandemic and the resulting ODR scheme has created an opportunity for the justice system to advance with the greater use and development of e-filing and technology, which could promote more cost and time efficient case management, aligning Hong Kong with other jurisdictions where such systems have been in place for decades.
There is light at the end of the tunnel!
The overwhelming takeaways from the crisis are flexibility and hope – keeping in mind that recovery will happen. Hong Kong is lucky: the virus is well controlled and it is regarded as one of the most mobile and resilient cities in the world (see the Visual Capitalist infographic below). In fact, Hong Kong – together with other Asia Pacific economies like Vietnam, Taiwan, South Korea and New Zealand – has shown high mobility and high recovery.
We believe it essential to remain positive, flexible and consider all opportunities, but without forgetting future threats that COVID-19 may present.
Our team of solicitors has extensive experience in dealing with the above mentioned practice areas – so kindly click on our law firm’s contact section to find out how we can help.
This article is for information purposes only. Its contents do not constitute legal advice and readers should not regard this article as a substitute for detailed advice in individual instances.