Legislative Council

LC Paper No. CB(1)555/98-99

Ref : CB1/BC/4/98

Purpose

1 This paper reports on the deliberations of the Bills Committee on Introduction of the Euro Bill (the Bill).

Background

2. The Euro will be introduced on 1 January 1999 to replace the national currencies of the eleven participating countries in European Monetary Union. There will however be a transitional period of three years, during which each of the national currencies of the participating Member States will continue to be valid and of legal tender as a non-decimal sub-division of the Euro. There are already European Council Regulations which will provide certainty for continuity of legal obligations denominated in European Currency Unit (ECU) and the participating national currencies in European Union (EU) countries. The Regulation also provides that as from 1 January 1999 every reference in a legal instrument to ECU is replaced by a reference to the Euro at a rate of one Euro to one ECU.

3. In Hong Kong, as in other common law jurisdictions, the law of currency or the lex monetae principle applies, which means that the definition of a contractual obligation governed by Hong Kong law, expressed in a foreign currency, is determined by the law of the relevant foreign country. Accordingly, performance of a legal obligation governed by Hong Kong law which provides for payment in a currency replaced by the Euro should continue to be possible as payment must be made in the Euro at the conversion rate between the replaced currency and the Euro determined by the European Council. Hence it may not be necessary for Hong Kong to legislate in this respect. However, the Administration believes that it would be desirable to enact specific legislation to remove any concern that parties to contracts might be able to argue that the advent of the Euro is a fundamental change of circumstances bringing a given legal obligation to an end. Since EU has also seen fit to introduce legislation to deal with this problem notwithstanding that the lex monetae principle is applied in a number of its jurisdictions and given the status of Hong Kong as an international financial centre, it is desirable not to leave any doubt in this respect. Similar to the legislation on the subject in the State of New York and EU, it is proposed that there should be legislation to deal with the ECU/Euro conversion and to remove any doubt about the general continuity of legal obligations arising from the introduction of the Euro.

The Bill

4.The main provisions of the Bill are:

1. to provide for references in any legal obligation to the ECU to be replaced by references to the Euro at the rate of one Euro to one ECU;

2. to provide for continuity of legal obligations, i.e. subject to any express agreement or provision to the contrary, the introduction of the Euro and the changes consequential upon its introduction should not discharge or excuse any performance under a legal obligation nor give the obligor or obligee to the obligation the right to unilaterally alter or terminate the obligation; and

3. to put it beyond doubt that the new legislation should not be taken to affect the operation of the law relating to the validity or enforceability of a legal obligation in future cases of currency alteration.

The Bills Committee

5. At the meeting of the House Committee on 6 November 1998, Members decided to form a Bills Committee to study the Bill. With Hon Howard YOUNG elected as Chairman, the Bills Committee held a meeting with the Administration. The membership list of the Bills Committee is at Appendix I.

Deliberations of the Bills Committee

6. While supporting the principles of the Bill, members of the Bills Committee noticed some differences in the major provisions between the Bill and the corresponding legislation of the State of New York and EU, particularly with respect to the conversion rules and price references. Members therefore sought clarification from the Administration on the reasons for and effect of such differences.

7. On conversion rules, the Bill provides for the conversion of ECU obligations at the rate of one to one, but unlike the State of New York and EU legislation, it does not provide for the conversion rates between the participating national currencies and the Euro. According to the Administration, since ECU is not a currency, it is necessary to legislate for conversion of the ECU into Euro. The conversion of legacy currency obligations into Euro obligations, however, should follow automatically from the lex monetae principle and specific legislative provision in this respect is unnecessary.

8. The Bill differs from the State of New York's legislation but is in line with EU's in not covering the specific issue of disappearance of price references. The State of New York's legislation specifically provides that replacement of interest rate or other basis for determining the value of a payment under a contract due to the introduction of the Euro will not be a reason for frustration of contract. The Administration considers it sufficient to have in the Bill a provision that there shall be continuity of legal obligations despite the "introduction of the Euro" and "its consequential changes". This general provision has catered for the general issue of disappearance or substitution of price references that are consequential upon the introduction of the Euro.

9. Members have also questioned the basis for adopting as the Chinese translation of "Euro", as it would be more appropriate to adopt a term which is commonly used in other Chinese speaking communities such as the Mainland and Singapore. According to the Administration's research, although there are references to "Euro" as in the Mainland and Singapore, there is no official or unified Chinese translation for "Euro" in either place. The present translation is based on the principle that whenever the word 'dollar' exists in a currency name, the character will be used, else the currency name will just be translated phonetically as in the case of Following the Administration's explanation, members have no further query on the translation of "Euro".

10. Noting that the Administration has received support from the local banking community, the Hong Kong Capital Markets Association and the Law Society of Hong Kong on the Bill, members consider it desirable for the Administration to also draw the attention of major business associations to the provisions in the Bill. The Administration has undertaken to do so accordingly.

Recommendation

11. The Bills Committee supports the Bill and recommends resumption of the Second Reading debate of the Bill on 16 December 1998.

Advice Sought

12. Members are invited to note the deliberations of the Bills Committee and support the recommendation at paragraph 11 above.

Legislative Council Secretariat
1 December 1998

Appendix I

合共： 13位議員
Total: 13 Members

日期: 1998年11月17日
Date: 17 November 1998