The "rule of law" refers to some of the fundamental principles of law that govern the way in which power is exercised in the HKSAR. The rule of law has several different meanings and corollaries. Its principal meaning is that the power of the government and all of its servants shall be derived from law as expressed in legislation and the judicial decisions made by independent courts. At the heart of the HKSAR's system of government lies the principle that no one, including the Chief Executive can do an act which would otherwise constitute a legal wrong or affect a person's liberty unless he or she can point to a legal justification for that action. If he or she cannot do so, the affected person can according to the law resort to a court which may rule that the act is invalid and of no legal effect. Compensation may be ordered in the affected person's favour. This aspect of the rule of law is referred to as the principle of legality.

One corollary of the principle of legality can be summarised as equality before the law. It is fundamental that all persons, regardless of race, rank, politics or religion, are subject to the laws of the land. Further, the rule of law requires that the courts are independent of the executive. This independence is crucial if impartial rulings are to be given when the legality of acts of government falls to be decided.

Legality and equality before the law are two fundamental facets of the rule of law. But the principle demands something more, otherwise the rule of law would be satisfied even when the government is given unrestricted discretionary powers. A further meaning of the rule of law, therefore, is to be found in a system of rules which restrict discretionary power. To this end the courts have developed a set of guidelines aimed at ensuring that statutory powers are not used in ways which the legislature did not intend. These guidelines relate to both the substance and the procedures relating to the exercise of executive power. An example of the former is where a court concludes that a decision which purports to be authorised by a statutory power is plainly unreasonable and cannot have been envisaged by the legislature. An example of the latter is where a decision has been made without according the party affected the opportunity of being heard in circumstances where the legislature must have envisaged that such an opportunity would have been given. In both cases a court would hold that the decisions were legally invalid. The government, businesses, as well as individuals, are bound to obey the law, and a court decision on the law in a particular case is binding unless overturned or set aside by a higher court.

The Basic Law, enacted by the National People’s Congress of the People’s Republic of China (PRC) in accordance with Article 31 of the Constitution of the PRC, ensures that the legal system in the HKSAR will continue to give effect to the rule of law, by providing that the laws previously in force in Hong Kong (that is, the common law, rules of equity, ordinances, subordinate legislation and customary law) shall be maintained, save for any that contravene the Basic Law, and subject to subsequent amendment by the HKSAR legislature.