Q: We've recently entered into an exclusive relationship with a firm for the People's Republic of China. We are considering a different firm for Hong Kong. Is this legally a conflict of territory?

A: Both Hong Kong and Macau are part of the People's Republic of China; however, each is a Special Administrative Region (SAR). As such, they have the ability to have slightly different rules that apply to their conduct. For instance, Hong Kong and Macau have different passport and visa requirements from those of the mainland. While gambling is against the law on the mainland, Hong Kong has horse racetracks with parimutuel wagering while Macau for years has been a mecca of casino gaming and is busily building new world-class casinos (two by Las Vegas operators, two local). With these different rules in place, many relationships formed with mainland firms may specifically exclude the SARs from the agreement. Even if your agreement does not spell this out, unless Hong Kong and Macau are specifically listed as part of the "territory," many would interpret it to only cover the mainland.

If your agreement does not specifically define "the People's Republic of China," you have some considerations to make before signing another "exclusive" agreement. First, you need to weigh the pluses and minuses of having your mainland firm represent you in Hong Kong. If they have a successful track record of doing business in Hong Kong, it may be best to support them with the specific inclusion of Hong Kong as part of the defined territory covered by the agreement. This would be the honorable approach and by offering them the "expanded territory" in the agreement to include the SARs, it should enhance the trust built in your relationship. If they do not have a track record in Hong Kong, or one that you believe to be insufficient, you may be better served by having a local (Hong Kong) representative. With this second approach, you should first consult your local attorney to see if there is any precedent for a legal claim by your partner based on the specific wording of your agreement. If you feel comfortable with the advice of counsel about the legality of creating another "exclusive" agreement, you still need to be clear with your current partner on your interpretation of the exclusive rights they have versus the new agreement you intend to create for Hong Kong. Without specifically informing your mainland partner that you interpret your agreement with them to only cover the mainland, your Hong Kong alliance may be surprised to find they have competition in Hong Kong from your partner on the mainland. And soon you may have two annoyed ex-partners.

Thanks to Randolph W. Tucker, P.E., who is executive vice president of The RJA Group Inc., a global fire protection and security consulting firm that has worked on construction projects in more than 60 countries. The RJA Group's Rolf Jensen & Associates Inc. subsidiary has established a representative office in Shanghai and plans to open a second location in Beijing by mid-2004. He can be reached at rtucker@rjagroup.com.

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