PATRICK JAMES JOSEPH O'MARA v. CHIN SHAU TONG

HCA 1253/2019

[2022] HKCFI 3457

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1253 OF 2019

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BETWEEN

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D E C I S I O N

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1.  This is the application by Chin Shau Tong (“the Defendant”) by summons dated 14 April 2022 to strike out the writ and statement of claim in, and to dismiss, the action brought against him by Patrick James Joseph O’Mara (“the Plaintiff”) on the ground that the Plaintiff’s claim is time-barred; alternatively, for an order that the question of whether the Plaintiff’s action is time-barred be tried as a preliminary issue. At the conclusion of the hearing, this Decision was reserved which I now give.

Background facts

2.  The action concerns a claim by the Plaintiff for the repayment of a loan of US$15 million under a loan agreement dated 15 July 2009 made between the Plaintiff and the Defendant “in connection with the Sabah Tailings Project, Malaysia” (“the Project”). The Project was a gold and copper mining project in which the Plaintiff and the Defendant invested.

3.  At the same time as the loan agreement, the parties also entered into a joint venture agreement of even date.

4.  Under clause 4 of the loan agreement, the loan was repayable on 6 July 2010 and under clause 8, the governing law of the loan agreement is the law of Switzerland which has a 10-year limitation period.

5.  The Plaintiff seeks repayment of the US $15 million and, alternatively, the same amount by way of restitutionary damages for unjust enrichment.

6.  It is the Defendant’s case that the US $15 million were lobbyists’ fees paid by the investors to secure meetings with powerful individuals in Malaysia in connection with the Project. As the US $15 million originated from Kazakhstan, it had to be routed through a reputable country (e.g. England, where the Defendant resided) and the purpose of the loan agreement was to provide an explanation for the Defendant’s receipt of the US $15 million so that he would not be subject to any tax liability.

7.  On 8 February 2018 the Plaintiff sent an email to the Defendant demanding repayment of the loan[1] and caused the writ to be issued on 12 July 2019. The Plaintiff claimed in the alternative US $15 million of restitutionary damages for the Defendant’s unjust enrichment at the Plaintiff’s expense.

Applicable principles

(1) Striking out

8.  The principles governing a strike-out application are well-established: the jurisdiction to strike out applies only to plain and obvious cases.

9.  Where the strikeout application is based on a limitation defence, “the right course is therefore for a defendant to apply to strike out the plaintiffs’ claim as frivolous and vexatious and an abuse of the process of the court”: see per Stephenson LJ in Ronex Properties Ltd v John Laing Construction Limited [1983] 1 QB 398 at 408C, cited with approval in The New China Hong Kong Group Ltd (In Creditors’ Voluntary Liquidation) v Ernst & Young (A Firm), HCCL 41/2004, unrep., 29 August 2008 at §49.

10.  As Godfrey J explained in Lam Kee On v Lam Hing [1992] 2 HKC 317 at 320 B-C,

“the issue … is not whether the limitation point is good or bad. It is whether the point is so plainly and obviously a good point that it can be seen at the hearing of the application that it is manifestly and immediately destructive of the plaintiff’s case”.

(2) Limitation — conflict of laws

11.  As noted in Dicey, Morris & Collins on The Conflict of Laws: (15^th ed) at §7-056, the lex causae and the lex fori might differ not only in their periods of limitation but also in the nature of their limitation provisions. In considering foreign rules as to limitation English courts traditionally apply their own classification based on the distinction between barring a right and extinguishing a remedy.

12.  Classification of limitation as procedural means that in proceedings in an English court, English law, as the lex fori, will apply its domestic law as to limitation and will not apply foreign limitation provisions even if foreign law is the proper law unless, at least, they extinguish the right: per Lord Wilberforce in Black-Clawson International Limited v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591 at 630F.

13.  Dicey illustrated the position resulting from this approach by reference to the different situations which can arise (at §7-056):

“(i) if the statutes of limitation of the lex causae and of the lex fori were both procedural, an action would fail if it were brought after the period of limitation of the lex fori had expired although that of the lex causae had not yet expired; but would succeed if the period of limitation of the lexi fori had not yet expired although that of the lex causae has expired …

(ii) If the statute of limitation of the lex causae was substantive but that of the lexi fori was procedural, the lex fori would probably apply if its period of limitation was shorter than that of the lex causae on the ground that it was inconvenient for the forum to hear what it considered to be stale claims. But once a substantive period of limitation of the lex causae had expired, no action could be maintained even though a procedural period of limitation imposed by the lex fori had not yet expired: in such a case there was simply no right left to be enforced.

(iii) If the statutes of limitation of the lex causae and of the lex fori were both substantive, it is probable that the same results would have followed as in the case just considered.

(iv) If the statute of the lex causae was procedural and that of the lex fori substantive, strict logic might suggest that neither applied, so that the claim remained perpetually enforceable.”

14.  Thus, the recognised common law position is that, in terms of Hong Kong conflict of laws characterisation, statutes of limitation are regarded as matters of procedure and are governed by the law of the forum[2]: see per Stone J in Peregrine Fixed Income Limited v JP Morgan Chase Bank [2005] 3 HKLRD 1 at §31. See also Graeme Johnston on The Conflict of Laws in Hong Kong, 3^rd edition, at 2.012[3].

15.  The Hong Kong courts have consistently applied the English rule. A recent example is China Agri-Products Exchange Ltd v Wang Xiu Qun [2021] HKCFI 137 (“the China Agri-Products” case) at §§516-517[4].

16.  Although the Plaintiff noted that Lok J’s remarks in the China Agri-Products case were obiter, those remarks were based on the authorities set out in §§11-14 above which the Plaintiff did not seek to challenge.

The Defendant’s strikeout application

17.  Two issues arise: (1) the date of accrual of the Plaintiff’s cause of action for the purposes of the Limitation Ordinance (“the Ordinance”); and (2) the applicable limitation period under the conflict of laws rules.

(1) accrual of the Plaintiff’s right to recover the loan

18.  The first issue involves the proper construction of the loan agreement. In pertinent part, the loan agreement provides as follows:

“4. The loan will be repayable on or before 6th July 2010. The loan may, at any time and from time to time, be paid or prepaid in whole or in part.” (Emphasis added)

19.  Mr Colin Wright who appeared for the Plaintiff submitted that “the earliest date when the Plaintiff can possibly demand repayment is 6 July 2010”[5] and, further, that properly construed a “demand” is required to trigger the obligation to repay.

20.  It was said that the consequence is that the Plaintiff’s cause of action does not accrue until a demand is made. As the demand for repayment was made on 8 February 2018, it was within the applicable limitation period under Swiss law which is 10 years.

21.  What is remarkable about the submissions made in §§19-20 is that the word “demand” does not feature at all in clause 4 or, for that matter, anywhere in the loan agreement. No case law was cited to support the proposition that to trigger the repayment obligation a “demand” must first be made.

22.  Before the court is an expert report dated 2 September 2022 (“the report”) of Andreas Hauenstein on Swiss law (“the expert”) filed by the Plaintiff. Upon considering the effect of clause 4 of the loan agreement opined (at §23 of the report) that it could be interpreted in 2 ways[6]. The notion of a “demand” being required to trigger the obligation to repay was not even canvassed.

23.  Also, SOC §5 does not plead that a demand is required before any obligation to repay is triggered. It reads:

“5. Pursuant to the Loan Agreement, the loan shall be repayable on or before 6 July 2010. Up to date, the Defendant has not made any repayment of the loan to sum of USD 15 million either in whole or in part. Therefore, the Defendant was in default and in breach of clause 4 of the Loan Agreement.”

24.  It should be noted that the last sentence of SOC §5 also contradicts the Plaintiff’s case that a demand is required to trigger the repayment obligation. The allegation that the Defendant was in default as alleged is necessarily premised on an obligation to make repayment by 6 July 2010 without a demand since none is alleged to have been made.

25.  The Defendant submitted that where a date is specified in an agreement for repayment, in the absence of any condition precedent that must be satisfied before repayment could be made, the limitation statute starts running from the specified date: see Lim Ban Thoon v Chintung Securities Limited [1991] 2 HKC 204 at 210H-I citing a passage from 28 Halsbury’s Laws of England, 4^th ed at §663[7].

26.  The current edition (5^th edition) of 22 Halsbury’s Laws of England at §328 is to the same effect:

“328. Demand for performance

Generally, no request or demand for performance of a contract is necessary in order to create a right of action for breach, as where there is a promise to pay a sum of money on a specified day. Exceptionally, such a request or demand may be necessary because it is expressly made a condition precedent or the nature of the contract requires such a condition to be implied, as where the amount of the debt is uncertain.”

27.  The interpretation that the Plaintiff sought to advance is contrary to authority as well as to all cannons of construction. In my view, it is unsustainable.

28.  The Plaintiff sought to advance a further reason why it is not open to the Defendant to argue that the date upon which the loan became repayable was 6 July 2010. It was said that he could not do so because his pleaded case is that the payment was not in fact a loan and that it was never intended that the payment would be repaid as it is the Defendant’s case that the payment was intended to be used for lobbyists’ fees. To argue that the loan became repayable on 6 July 2010 is to advance inconsistent pleas.

29.  But all the Defendant is saying is that if the Plaintiff succeeds in showing that the payment is in fact a loan (which is denied), nonetheless, the Defendant is entitled to succeed on the limitation point.

30.  A similar point arose in Sun Tian Gang v Changchun High & New Technology Industries Development Parent Co [2018] 5 HKLRD 485. At §§18 and 29, I explained that the plaintiff in that case was not himself seeking to establish the defendant’s case as being the true facts. He was doing no more than ‘feeding off’ the defendant’s pleaded case, the classic “if which is denied” formula frequently deployed in pleadings. The same reasoning applies here. No question of inconsistency arises.

31.  In the circumstances, the Plaintiff’s cause of action accrued on 6 July 2010.

(2) The applicable limitation period under the conflict of laws rules

32.  The present case is one where the limitation periods in Switzerland and Hong Kong differ: it is 10 years under Swiss law (the lex causae) and 6 years under Hong Kong law (the lex fori).

33.  Under the Hong Kong conflict of laws rules, statutes of limitation are regarded as matters of procedure and are governed by lex fori. The English rule applies and the Swiss limitation period is classified as procedural: see §§11-16 above.

34.  In the Peregrine case, Stone J declined to adopt the position, specifically achieved by statute in England and Australia, that defences of limitation are substantive defences and are governed by the proper law of the transaction.

35.  In §8 of his written submissions, Mr David Chen, counsel for the Defendant, put forward the following propositions based on the authorities set out above:

“(1) If the statutes of limitation of the lex causae and of the lex fori are both procedural, an action would fail if it were brought after the period of limitation of the lex fori had expired although that of the lex causae had not yet expired; but would succeed if the period of limitation of the lex fori had not yet expired although that of the lex causae has expired;

(2) If the statute of limitation of the lex causae was substantive but that of the lex fori was procedural, the lex fori would probably apply if its period of limitation was shorter than that of the lex causae on the ground that it was inconvenient for the forum to hear what it considered to be stale claims. But once a substantive period of limitation of the lex causae had expired, no action could be maintained even though a procedural period of limitation imposed by the lex fori had not yet expired: in such a case there was simply no right left to be enforced.”

36.  Mr Wright did not accept those propositions and put forward 4 different possibilities in relation to the way in which the limitation period might arise, namely:

(i) the 1^st situation: where the limitation period has not expired in either the jurisdiction the laws of which govern the contract;

(ii) the 2^nd situation: where the limitation period has expired according to the proper law of the contract but the limitation period has not expired according to the law of the forum;

(iii) the 3^rd situation: where the limitation period has not expired in the lex causae but has expired in the lex fori; and

(iv) the 4^th situation: where the limitation has expired in both the lex causae and the lex fori.

37.  The Plaintiff did not agree with the concluding sentence in §8 (1)[8]. Instead, the Plaintiff invited the court to examine which of the 4 possibilities set out in §36 the present case falls within and not to simply apply cases which have developed in relation to the different situations. No authority was cited to support that approach.

38.  It was submitted that the concluding sentence to which exception was taken reflects the 2^nd of the 4 situations and it was said that the courts of the lex fori may well wish to consider whether the claim should be allowed to go forward. He gave, as an example, Mainland China which has a very short limitation period. In those circumstances, it was said that the Hong Kong courts with the six-year limitation period may want to consider whether the case should be allowed to go forward because “it would be just to do so”.

39.  No authority was cited for that proposition and it seems that what is being advocated is a case-by-case approach which can only lead to uncertainty and confusion.

40.  It will be seen that the Plaintiff, confusingly, did not adopt the Dicey categorisation[9] which poses the all-important question of whether the statute of limitation in either the lex causae or the lex fori is substantive or procedural.

41.  Because of the way the Plaintiff characterised the 4 situations, he did not deal with the situation where both statutes under Swiss law and Hong Kong law were procedural.

42.  The Plaintiff does not dispute the principle that if both statutes of limitation of the lex causae and the lex fori were procedural, the statute in the lex fori should apply. Despite the Plaintiff’s comment that the remarks earlier referred to in the China Agri-Products case were obiter, he did not say that they were wrong and did not challenge the principle as stated in Black-Clawson, Peregrine, Dicey and Johnston.

43.  It is the Defendant’s primary submission that the Swiss limitation period is procedural in terms of Hong Kong conflict of laws characterisation. The Hong Kong limitation period is also procedural with the result that the Hong Kong limitation period applies. The concluding sentence in §8 (1) of the Defendant’s written submissions is but an application of the English rule[10] that is recognised and well-established.

44.  As Stone J noted in Peregrine (at §31), a departure from the recognised common law position and the adoption of the position that defences of limitation are substantive defences governed by the proper law of the transaction was specifically achieved by statute in England and Australia. That is not the case in Hong Kong: no such legislative change has been made.

45.  It is the 3^rd situation postulated by the Plaintiff that we are concerned with in the present case. It is premised on the limitation period under Swiss law being substantive and relies on the expert’s conclusion at §18 of his report.

46.  It would be convenient at this stage to set out the material parts of the report:

“2. The limitation period for the claim of the Plaintiff for

the repayment of the loan out of the Loan Agreement

a) Preliminary remarks

18 According to the established case law of the Swiss Federal Tribunal and pursuant to Swiss leading doctrine, the issue of the statute of limitations is an issue of substantive law rather than procedural law.¹⁰

19 The legal institution of limitation¹¹ in Swiss law has the effect of weakening rights through the passage of time.¹² This means that, while a time-barred claim does not expire, but continues to exist beyond the limitation period, the enforceability of a time-barred claim is restricted in that a time-barred claim can no longer be enforced against the will of the debtor.¹³ Rather, if the limitation period has elapsed, the debtor can successfully invoke the objection that the claim is time-barred and, thus, refuse performance.¹⁴”

47.  Although footnote 10 to that report cited Swiss case law and publications in support of the expert’s conclusion, they were not attached to his report and are not before the court. The fact that there is an expert opinion on foreign law does not mean that the court is bound to accept it: see Full Wisdom Holdings Limited & Others v Traffic Stream Infrastructure Co Limited & Others [2004] 2 HKLRD 1016 at §23E-F[11]

48.  The classification of the nature of the statute of limitation under Swiss law is an exercise for the Hong Kong court: see Dicey at §7-056, Black-Clawson, Peregrine and China Agri-Products. Statutes of limitation are regarded as a procedural matter in Hong Kong. It is therefore necessary to ascertain whether the relevant Swiss statute of limitation bars a remedy (in which case it is procedural) or extinguishes a right (in which case it is substantive).

49.  The relevant provision under Swiss law is Article 127 of the Swiss Code of Obligations[12]. §19 of the report contains an explanation of the nature of the legal institution of limitation in Swiss law: it has the effect of “weakening rights through the passage of time”. Time-barred claims do not “expire” but continue to exist beyond the limitation period. Accordingly, there is no extinction of rights following the expiration of a limitation period.

50.  Section 4 of the Ordinance prohibits an action founded on simple contract after the expiration of 6 years from the date on which the cause of action accrued. This form of limitation which is procedural in nature is to be contrasted with the provisions concerning conversion (section 5 (2)) and adverse possession (section 17) which extinguish the title of the former owner. The latter are likely to be considered substantive: see Dicey at §7-055.

51.  In my view, when thus analysed, both the Hong Kong and Swiss statutes of limitation are procedural. Accordingly, the lex fori limitation period applies.

52.  Even if the Swiss statute of limitation were substantive, the Defendant submitted that the shorter of the limitation periods still applies. This is supported by the majority in the High Court of Australia: see John Pfeiffer Pty Ltd v Rogerson (2000) 203 CLR 503 at §99[13], Dicey (at §7-056) set out in §13(ii) above which cites British Linen Co v Drummond (1830) B & C 903.

53.  Further, both the UK Law Commission Report (at §2.5) and the Singapore Law Reform Commission Report (at §11) state that in practice the shorter of the 2 periods will apply.

54.  The Plaintiff submitted that “as a matter of principle”, there is no reason why the claim should not go forward since the parties expressly agreed that their rights will be governed by the lex causae. It was said that the lex fori should ordinarily give effect to that agreement. However, that submission was not unqualified: the Plaintiff acknowledged that “as a matter of principle” the Hong Kong courts as the lex fori might be entitled to apply the Ordinance if there was a good reason to do so.

55.  Mr Wright downplayed the decision in British Linen as it was not a decision reached following a full trial. He also criticised Lord Tenterden CJ’s judgment because it did not contain an analysis of the principles that apply. Nevertheless, British Linen was cited with approval by Lord Cottenham LC in Fergusson v Fyffe and another [1835-1842] All ER Rep 48 at 50-51.

56.  Despite Mr Wright’s frequent resort to “matters of principle”, the absence of authority in support is telling.

Conclusion

57.  On the authorities and as the law stands, it is my view that the Plaintiff’s claim for repayment of the loan is time-barred and is bound to fail. Although there is also a claim in unjust enrichment, the amount claimed corresponds exactly to the amount of the loan and adds nothing to the claim in respect of the loan.

58.  Accordingly, there is to be an order in terms of paragraph 1 of the summons dated 14 April 2022 with an order of costs nisi with certificate for counsel of and incidental to the summons in favour of the Defendant, such costs to be summarily assessed and payable forthwith.

59.  It is further directed that the Defendant do lodge his statement of costs within 7 days of this Decision, the Plaintiff his objections within 14 days thereafter and the Defendant his reply (if any) within 7 days thereafter.

60.  Summary assessment will take place in Chambers.