TRINITY CONCEPT LTD (IN LIQUIDATION) v. WONG KUNG SANG AND ANOTHER

HCA 2334/2019

[2022] HKCFI 1846

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2334 OF 2019

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BETWEEN

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D E C I S I O N

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Introduction

1.  On 28 February 2022, I handed down the decision in this action. I dismissed the 1^st and 2^nd defendants’ striking out application and Order 14A application. I directed that they should file their defence within 28 days from the date of handing down. See paras 200 and 201 of the decision at [2022] 1 HKLRD 1388, [2022] HKCFI 547.

2.  By summons dated 11 March 2022, the defendants apply for leave to appeal against my decision refusing to strike out the statement of claim. I shall adopt below the defined terms and the paragraph numbers used in the decision.

3.  Following the guidance laid down by the Court of Appeal in Tsang Wing Kwai v Tsang Wing Fai [2018] 5 HKLRD 350, [2018] HKCA 759 at para 24, I gave directions for the lodging of written submissions. Having read the submissions, I am satisfied that an oral hearing is not necessary and the summons is suitable for disposal on paper only.

4.  In the draft notice of appeal, the defendants put forward five proposed grounds of appeal.

5.  On their face, they appear to be distinct or separate grounds of appeal. However, in his written submissions, Mr Frederick HF Chan, together with Mr Dexter Leung acting for the defendants, while addressing the first proposed ground on its own, addresses the second to fifth proposed grounds together without making any distinction between them.

6.  I have some difficulty with this approach. This is not a case where in the event that I agree with part, but not all of, Mr Chan’s submissions, it will automatically follow that the second to fifth proposed grounds will all succeed. The successful submission may only go to support one or more, but not all, of those four proposed grounds. In that event, I will have to work out myself what those grounds are. This is undesirable.

7.  The application for leave to appeal is made by way of the summons, which incorporates the draft notice of appeal. For that reason, I consider that it is more appropriate for me to structure my discussion below by reference to the proposed grounds as they are enumerated in the draft notice of appeal.

Legal principles

8.  The principles governing the threshold for granting leave to appeal are well-established. The applicant needs to show that the appeal has a “reasonable prospect of success” or there is some other reason in the interests of justice why the appeal should be heard: section 14AA(4) of the High Court Ordinance, Cap 4. A “reasonable prospect of success” means an appeal with prospects that are more than “fanciful”, without having to be “probable”: SMSE v KL [2009] 4 HKLRD 125 at para 7.

The first ground

9.  Under the first ground, the defendants contend that I erred in conducting my own legal research into the combined effect and impact of sections 4(2), 4(7), 20(1) and 20(2) of the Limitation Ordinance, Cap 347, subsequent to the hearing of the summons, without inviting the parties to make further submissions on the same prior to handing down the decision. Paras 70 to 71 and 179 of the decision are cited.

10.  Mr Chan submits that the first ground “sets the scene” of the leave to appeal application, and that my independent post-hearing legal research revealed authorities that had significant bearings on Issues (3) and (4), as set out in para 13 of the decision. I ought to have invited further submissions from the parties before ruling on those two issues.

11.  This ground raises the question of whether it is appropriate for a court to refer to or rely on an authority not cited by either party in reaching its decision, without inviting them to address the authority first. In what circumstances would it amount to a ground of appeal which would succeed?

12.  On this issue, Mr Chan refers me to the following authorities: R v Barlow, Augustine and Augustine [1984] CanLII 4306 (NB QB); Sheridan v Stanley Cole (Wainfleet) Ltd [2003] ICR 1449; and Clark v Clark Construction Initiatives Ltd [2009] ICR 718. The latter two are decisions of the English Court of Appeal and concern appeal from the Employment Appeal Tribunal. However, the discussion in both cases are of general application to proceedings in courts and tribunals.

13.  As deduced from these cases, the general principles are as follows.

14.  Our system of justice is based on an adversarial system. Each side is entitled and expected to present the facts justifying its position and to argue the appropriate law. The judge is an arbiter, not a participant. Before he can judge, he must hear both sides: Barlow at paras 14 and 15.

15.  No to be afforded a fair hearing would be an obvious serious procedural irregularity sufficient to allow an appeal. In the present context, the real question is whether a failure to invite the parties to make submissions on a case law which was not cited by them but relied on in a decision is seriously irregular and unfair, or amounts to a denial of a party’s right to a fair hearing: Sheridan at paras 28 and 44.

16.  It is recognised that it cannot be the case that there is a serious irregularity simply because a judge cites in his judgment decided cases which had not been referred to in the course of the hearing. Judicial research would be stultified if that were so and if the parties had to be given the opportunity to address each and every case eventually set out in the judgment: Sheridan at para 29.

17.  On the other hand, where a court considers that an authority is relevant, significant and material to its decision but has not been referred to by the parties, it should refer that authority to them and invite their submissions before concluding its decision. This is not merely good practice. Failure to do so may amount to a breach of natural justice and of the right to a fair hearing. In this regard, the authority must be shown to be central to the decision and not peripheral to it. It must play an influential part in shaping the judgment. If it is of little or no importance and serves only to underline, amplify or give greater emphasis to a point that was explicitly or implicitly addressed in the course of the hearing, then no complaint can be made. If the point of the authority was so clear that a party could not make any useful comment in explanation, then it matters not that the authority was not mentioned. See Sheridan at paras 30 to 31.

18.  The authority must alter or affect the way the issues have been addressed to a significant extent so that it truly can be said by a fair-minded observer that the case was decided in a way which could not have been anticipated by a party fixed with such knowledge of the law and procedure as it would be reasonable to attribute to him in all the circumstances: Sheridan at para 32.

19.  It has been emphasised that the above statements do not amount to an all-encompassing test. It is impossible to lay down any rigid rule as to the where the boundaries of procedural irregularity lie, or where the principles of natural justice are to apply, or what makes a hearing unfair. Everything depends on the facts and circumstances of each case: Sheridan at para 33.

20.  The above “centrality” issue is only the first stage of the inquiry. It is important to remember that a failure to give a party the chance to address a relevant, material and significant authority may, not must, amount to a breach of natural justice. The hearing will not have been unfair if it has caused no substantial prejudice to the party claiming to be aggrieved. It must be shown that a material injustice has resulted: Sheridan at paras 33 and 34.

21.  The above principles stated in Sheridan were applied in Hong Kong by A Cheung J (as the Chief Justice then was) in Kwong Ka Yin, Phyllis v The Solicitors Disciplinary Tribunal HCAL 93/2004, 12 July 2006 at paras 47 to 50. (This decision has not been cited by either party. I have included it here solely to underline the point that the Sheridan principles are equally applicable in Hong Kong.)

22.  In Clark, Sedley LJ summed up Sheridan, at para 11:

“The nub of the decision is that, while there is no universal test of procedural irregularity, a tribunal’s determination is not vitiated by reference to uncanvassed authorities if these have not been central to and influential in the eventual decision.”

23.  In the context of an application for leave to appeal, on the basis of the above general principles, I would consider that leave ought to be granted if it is reasonably arguable that (1) an uncanvassed authority was central to the decision and played an influential part in shaping the judgment, and (2) substantial prejudice has been caused to the applicant by the court’s omission to invite submissions on that authority, and a material injustice has resulted.

24.  In the decision, I cited, at paras 70 and 71, two academic articles written by Lord Millett on the primary obligation of a trustee to account for his stewardship of trust assets and the general restorative nature of the primary remedy for a beneficiary in the form of an account. I had not invited the parties to make submissions on these two articles before I handed down the decision.

25.  In my view, such omission does not meet the threshold of the first stage of the inquiry, as explained in Sheridan. This is because the reference to the two articles only served to give emphasis to the point which was made by Lord Millett NPJ in Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at paras 167 to 168. See paras 65 and 92 of the decision. His lordship’s judgment in Libertarian was of course addressed at length by both sides in the hearing of the summons. The two articles plainly do not have the effect of playing an influential part in shaping my judgment.

26.  Accordingly, it is futile for the defendants to now place any reliance on my citation of the two articles in this leave to appeal application.

27.  Mr Chan’s submission that this ground “sets the scene” of the present application is not understood at all. In his submissions, he has failed to spell out what the parties would have done which could have the effect of altering or adding to the submissions which they had already made on Libertarian if they had been invited to make further submissions. Nor has he pointed to any prejudice suffered by the defendants as a result.

28.  This proposed ground has no reasonable prospect of success.

The second ground

29.  Under the second ground, the defendants contend that “the further orders” sought by the plaintiff, ie the second and third groups of relief as identified in para 42, were in substance claims for restitution and unjust enrichment and thus constituted “an action by a beneficiary under a trust to recover trust property or in respect of any breach of trust” that were all time-barred. The draft notice of appeal refers to paras 174 to 176.

30.  In para 176, I ruled that the statement of claim disclosed a claim or a potential claim for breach of trust.

31.  Prima facie that brings the claim within section 20(2) of the Limitation Ordinance. However, that is not the end of the matter as section 20(2) is expressly subject to section 20(1) (“Subject as aforesaid”): see para 122. Hence, by merely saying that the claim is a claim for breach of trust, it does not then become open to the defendants to conclude definitively that the claim is time-barred.

32.  There is still a second question to be answered, as I stated in para 175:

“The crucial question in this application is whether I am in a position to decide now whether the further orders sought by the plaintiff, ie the second and third groups of relief, are bound to be time-barred under section 20(2) of the Limitation Ordinance. This depends on whether, first of all, there is any plea of breach of trust, and secondly, if so, whether the alleged breach falls within section 20(1) or (2). In the former case, no limitation period applies. In the latter case, a six-year limitation period applies, which will have the effect of barring any claim brought in relation to the Suspicious Transactions.” (original emphasis)

33.  In this proposed ground, the defendants have not raised any matter which will serve to show that I adopted the wrong approach in my decision. This ground is not reasonably arguable.

The third ground

34.  Under the third ground, on the basis that I held that the plaintiff’s pleas in the statement of claim are in substance “a claim for breach of trust”, I erred in law in holding that (1) the primary six-year limitation period under section 4(2), (2) the analogous time-bar under section 4(7), and (3) the six-year limitation period under section 20(2) were inapplicable to the same.

35.  In the decision, I discussed at length the nature of the trustee’s duty to account and the nature of the further orders sought by the plaintiff as beneficiary. Based on that discussion, I analysed the applicable statutory limitation periods in general in claims by beneficiaries: see paras 106 to 126. I also arrived at my specific conclusion in respect of the plaintiff’s claim: see paras 166 to 178.

36.  The ground is a restatement of the defendants’ position on the claim. And I dealt with it in the decision. The ground does not have a reasonable prospect of success.

The fourth ground

37.  Under the fourth ground, the defendants argue that I erred in law by failing to hold that the plaintiff’s claims, when read as a whole, were not for an account (in equity) simpliciter and that, absent any pleas on section 20(1) in the statement of claim, they are time-barred under sections 4(2) and 20(2) respectively.

38.  This ground is a reiteration of the main theme which ran through the defendants’ submissions at the hearing: see paras 48(4), (6) and (7), 105, 180, 188.

39.  In his present submissions, Mr Chan contends that I adopted the wrong approach when I postulated at para 194 that it could not be ruled out that the plaintiff may in the future, upon the taking of the account, change its case to allege fraud or conversion and thus may bring itself within the fraud or possession exception under section 20(1). I should have taken the plaintiff’s case as it stood instead of so postulating.

40.  I dealt with the defendants’ submissions in this regard at length in paras 180 to 195.

41.  I sought to state the true ratio of the Court of Appeal’s decision in Liu Hsiao Cheng v Wong Shu Wai [2018] 1 HKLRD 1087 (at paras 184 to 186). I highlighted the fundamental entitlement of a beneficiary to obtain information from the trustee about the trust assets and concluded that the entitlement would become a meaningless one if the defendants’ submission on the fraud or possession exception were correct (at para 190). I further sought to demonstrate that the defendants’ submissions were incorrect when analysed as a matter of burden of proof (at paras 191 to 194).

42.  Mr Chan now relies on Re Page [1893] 1 Ch 304 to make good his point that the court should simply take the pleaded case as it stands, rather than postulating that the plaintiff may in the future, after the taking of the account, allege fraud or conversion by the defendants.

43.  In my view, Re Page does not support Mr Chan’s point. It was a judgment reached after the hearing of an originating summons. As recorded in the reported judgment, there was no evidence or allegation of any fraud or conversion on the part of the trustees (see 308). More importantly, one of the trustees gave an account of what he had done with the trust fund, which might amount to an innocent breach of trust and which evidence was “practically uncontradicted” (see 309). On that evidential basis, it was held that the trustees were entitled to the benefit of the protection of the six-year limitation period prescribed in section 8 of the Trustee Act 1888.

44.  Mr Chan submits that I should not have postulated but should have followed Re Page and held that the six-year limitation period applied here. I do not agree with his interpretation of the authority. Re Page was not a case where the court refused to postulate. It was a case where the court was presented with sufficient evidence for it to come to a definitive view that the fraud or conversation exception did not apply.

45.  Plainly, the circumstances of Re Page are different from the present case. It resembles the situation in How v Earl Winterton [1896] 2 Ch 626, which was discussed in paras 148 and 149 of the decision. In fact, Re Page serves as another illustration that at what stage the court can definitively determine the issue of limitation must depend on the circumstances of each case.

46.  There is also a separate point raised by the defendants to the effect that the court should take into account the explanation of the defendants given in their supporting affirmation. That was set out in para 44 of the decision. Mr Chan now submits that if the court considers that explanation and the information provided by the defendants are insufficient, there could only be a finding of an innocent breach of trust and such evidential lacuna could not constitute a fraudulent breach of trust.

47.  I do not agree with the submission. I stated in para 45 that the truth of the defendants’ allegations was not something which I could decide at the interlocutory stage. Mr Jonathan Chang, SC, together with Ms Crystal Lai acting for the plaintiff, submits that the defendants’ allegations stand to be tested at trial. That must be right.

48.  In the circumstances, I consider that this ground is not reasonably arguable.

The fifth ground

49.  Under the fifth ground, the defendants contend that I erred in failing to hold that the plaintiff’s claims and, insofar as they relate to an account simpliciter, should be struck out, either in whole or in part, and dismissed as a matter of discretion as any order for an account to be taken in relation to the Suspicious Transactions will serve no useful purpose as any consequential remedies would have been time-barred under section 20(2) in any event.

50.  In the decision, I dealt with the issue of discretion and the utility of an account in paras 127, 147 to 162, discussing the first instance decision in Barnett v Creggy [2015] PNLR 13 and the ratio of Liu. Further, in paras 175 to 178, I decided that I could not say at this stage whether the claim for the further orders were bound to be time-barred.

51.  This ground is premised on the basis that the further orders would be time-barred under section 20(2). For the reasons already set out in the decision, I consider that that premise is not reasonably arguable. Hence this ground enjoys no reasonable prospect of success.

Some other reason why the appeal should be heard?

52.  The defendants argue that leave to appeal should be granted in any event so that the Court of Appeal can consider the novel question of law, namely whether the claim, including both an action for account simpliciter in equity and payment orders as remedies, is time-barred.

53.  In support, Mr Chan cites the following passage from Breach of Trust, Edited by Peter Birks and Arianna Pretto (2002), at p344:

“The current limitation regime for breach of trust is a mess. The statutory enactments are impossible to understand unless each provision is traced all the way back to its origins. Once that is done, it can be seen that, somewhat surprisingly, the 1980 Act applies to only one species of claim in this area, viz the claim against an express trustee for innocent breach of trust generating a personal claim to compensation”.

54.  While I share the observation that limitation issues are often not straightforward issues, I do not agree that the present case raises any novel point of law. As I remarked in the early part of the decision (para 14), the answers to the issues in dispute can primarily be found in Liu and Libertarian. In this regard, I agree with Mr Chang’s submission that this case is not about establishing any new legal principles, but is about applying the legal principles already laid down in existing authorities to the present facts.

55.  Application of the law to the facts is the task of the first instance court. On the whole, the gist of the proposed grounds of appeal is that I did not properly or correctly perform that task. I have come to the view that the proposed grounds are not reasonably arguable. In the circumstances, there is no point which has properly arisen for determination or clarification by the Court of Appeal.

56.  I am therefore not satisfied that leave should be granted under the “some other reason” limb.

Conclusion

57.  None of the proposed grounds of appeal enjoy any reasonable prospect of success. There is no other reason why the appeal should be heard. I therefore dismiss the defendants’ leave to appeal application.

58.  In the summons, the defendants also ask for a time extension for the filing of their defence to 28 days from the date of determination of (1) the present leave to appeal application, (2) any renewed application to the Court of Appeal, or (3) the substantive appeal, whichever is later.

59.  The reason is that if the defendants succeed in their intended appeal, the need to file a defence would be obviated.

60.  The plaintiff has so far not indicated its stance on the time extension application.

61.  For my part, I have concluded that none of the proposed grounds of appeal have any reasonable prospect of success. I am therefore of the view that the action should proceed in the normal way without further delay. I decline the defendants’ time extension application.

62.  I further order that the plaintiff do have costs of the summons, with certificate for two counsel, summarily assessed at $120,000.

63.  I am prepared to allow more costs than what is usually ordered in a leave to appeal application. Mr Chan has cited over 15 “new” authorities, which were not cited in the original hearing. The plaintiff should be taken to have spent more time than usual to review them.