GURDAS SABHAGCHAND CHOITHRAMANI v. THE OFFICIAL RECEIVER AND TRUSTEE IN BANKRUPTCY OF GURDAS SABHAGCHAND CHOITHRAMANI (A DISCHARGED BANKRUPT)

HCA 1548/2020

[2024] HKCFI 356

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1548 OF 2020

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D E C I S I O N

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A. INTRODUCTION

1.  By a Notice of Appeal filed on 10^th May 2023, the Plaintiff appeals against the decision of Master Lai of 27^th April 2023, ordering that the Plaintiff’s Amended Statement of Claim be struck out on the grounds as stated in the Defendant’s summons of 16^th December 2022, and that the Plaintiff’s action be dismissed, with 90% of the costs of the action to be paid by the Plaintiff to the Defendant (“the Appeal”).

B.  THE BACKGROUND

2.  The Plaintiff issued his writ in these proceedings on 11th September 2020.

3.  The background to the claim pleaded in the Amended Statement of Claim (“the ASOC”)  is as follows.  The Plaintiff was formally a director and shareholder of Esquire (Electronics)  Limited (“Esquire Electronics”), the principal company in the Esquire group of companies (“Esquire Group”), which carried on business relating to consumer electronics products.  The Esquire Group encountered financial difficulties and underwent restructuring.  The Plaintiff provided personal guarantees to the Hong Kong and Shanghai Banking Corporation (“HSBC”)  dated 14^th July 1983 in respect of liabilities owed by Esquire Electronics for $20m (“the $20m Electronics Guarantee”)  and dated 8^th October 1992 in respect of liabilities owed by Esquire Ltd (“EL”)  for an unlimited amount (“the Unlimited EL Guarantee”).  Esquire Electronics went into liquidation.  The Plaintiff was bankrupted.  The Defendant became the trustee-in-bankruptcy in respect of the Plaintiff’s property.  The Plaintiff was subsequently discharged from bankruptcy on 24^th September 2003, although the date of discharge was subsequently changed to 30th December 2000. The Defendant administered the estate of the Plaintiff in bankruptcy (“the Estate”)  between 30th October 1996 and 24^th September 2003.

4.  The Plaintiff pleads that the Defendant was guilty of misconduct in the course of administering the Estate.

4.1  On 21^st May 1997, HSBC presented its first Proof of Debt in the amount of some $258m (“the 1^st POD”), referring to the Unlimited EL Guarantee but saying that it provided for the Plaintiff’s liability as guarantor in respect of Esquire Electronics’ indebtedness in the amount of some $253m and EL’s indebtedness in the amount of some $5m.

4.2  Upon the Plaintiff’s reference to his personal guarantees, the Defendant wrote to HSBC and made enquiries.

4.3  On 16^th February 2000, HSBC apologised for its error.  On 28^th May 2000, the Defendant informed HSBC that it needed to withdraw its proof of debt and file a new one.

4.4  On 8^th June 2000, HSBC sent to the Defendant its revised proof of debt for the amount of some $25m (“the 2^nd POD”).

4.5  The Plaintiff complains of various failures in the Defendant’s handling of the 1^st POD and 2^nd POD.

5.  The Plaintiff claims against the Defendant for:

5.1  negligently breaching of its duty of care to the Defendant;

5.2  breaching its statutory duty to the Defendant under the Bankruptcy Ordinance (Cap.6)  (“the BO”)  and the Proof of Debt Rules (Cap.6E)  (“the POD Rules”);

5.3  breaching its fiduciary duty arising out of s.84(1)  BO to the Defendant.

6.  The loss and damage complained of comprises essentially (1)  losses resulting from the Defendants wrongful sale of the Plaintiff’s shares, and (2)  losses associated with the loss of a chance to apply for an earlier discharge from bankruptcy.  In respect of the former, the wrongful sale is alleged to have taken place in September 1985, and the latter must have occurred by 24^th September 2003 at the latest, when the Plaintiff was actually discharged from bankruptcy.

7.  The Defendant says that the pleading of these three causes of action should be struck out on the grounds that they are all time-barred, and furthermore they disclose no reasonable cause of action.

C.  THE PRINCIPLES APPLICABLE TO A STRIKE OUT

8.  There is no dispute that striking-out is for plain and obvious cases only, as set out in Hong Kong Civil Procedure 2023, notes 18/19/4 and 18/19/5.  The Plaintiff particularly emphasised that the mere fact that a case is weak is not a ground for striking out.

9.  Whilst an application should be made promptly, and in the present case there has been some delay, Mr Pierrepont of Messrs Hart Giles, appearing for the Plaintiff, readily acknowledged that if a claim was unsustainable, the court should not allow it to continue just because there has been some delay in applying for a strike-out.

D.  LIMITATION

10.  Mr Pierrepont acknowledged that the causes of action relied upon are time-barred.[1]  The Plaintiff’s argument is that he can bring himself within the exceptions under ss.26 and 31 of the Limitation Ordinance (Cap.347)  (“the LO”).  ASOC paragraph 39 pleads that “the Plaintiff was only made aware of the constituent elements of the aforesaid causes of action as a result of documents obtained by the Plaintiff on or about 14 September 2014 through his Data Access Request.”

D1.  The applicable principles

11.  There is no dispute as to the applicable principles.

12.  A claim that is time-barred may be struck out as being vexatious and an abuse of process: Yanfull Investments Ltd v Datuk Ooi Lee Liang [2017] 5 HKC 42 at [41].

13.  It is to be remembered that an order striking out a statement of claim based on a limitation defence can only be sustained if that defence is manifestly and immediately destructive of the plaintiff’s claim; however, once a limitation defence is raised, the onus is on the plaintiff to prove that the cause of action relied upon accrued within the limitation period.  See Kensland Realty Ltd v Tai, Tang & Chong (2008)  11 HKCFAR 237 at [153].

14.  Section 26 LO provides that:

(1)  Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either —

(a)  the action is based upon the fraud of the defendant;

(b)  any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c)  the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be)  or could with reasonable diligence have discovered it.

…

(3)  For the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.

…

15.  Section 31 LO provides that:

(1)  This section applies to any action for damages for negligence, other than one to which section 27 applies, where the earliest date on which the plaintiff or any person in whom the cause of action was vested before him first had both —

(a)  the knowledge required for bringing an action for damages in respect of the relevant damage; and

(b)  a right to bring such an action,

(referred to in this section as the date of knowledge)  falls after the date on which the cause of action accrued.

(2)  The period of limitation prescribed by section 4(1)  in respect of actions founded on tort shall not apply to an action to which this section applies.

(3)  An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4).

(4)  That period is either —

(a)  6 years from the date on which the cause of action accrued; or

(b)  3 years from the date of knowledge, if that period expires later than the period mentioned in paragraph (a).

…

16.  In order to postpone time under s.26(1)  LO, it is not enough that a plaintiff did not know or could not, even with reasonable diligence, have discovered the essential facts for pleading a cause of action.  He must show the additional element of fraud, deliberate concealment or mistake referred to in s.26(1).  See Hotung Investment (China)  Ltd v Ernst & Young (a firm) [2012] 5 HKLRD 421 at [29] (Kwan JA, as she then was).

17.  Section 26 is construed strictly against plaintiffs.  It is for a plaintiff to establish that he falls strictly and literally within the exception: Hotung Investment (China)  Ltd at [35].

18.  Where, as here,[2] a plaintiff alleges that there has been deliberate concealment under s.26(1)(b):

18.1  he must prove a deliberate concealment of relevant facts.  The six-year limitation period starts to run from the date on which the concealment was discovered;

18.2  he bears the burden of establishing that there has been a relevant concealment, and that he could not have discovered the concealed facts without exceptional measures which he could not reasonably have been expected to take;

18.3  In this regard, a fact relevant to a plaintiff’s cause of action is an act without which the cause of action is incomplete.  It is not relevant that a defendant may have concealed a fact which, if known, would merely go to strengthen an existing case.

See Frank Lee and another v The Hongkong and Shanghai Banking Corporation Limited [2022] HKCFI 3680 at [76] (Au-Yeung J).

19.  In the context of s.32 of the English Limitation Act 1980, which is identical to the relevant parts of s.26 LO, Lord Millett in Cave v Robinson Jarvis & Rolf (a firm) [2003] 1 AC 384 at [25] said that:

“In my opinion, section 32 deprives a defendant of a limitation defence in two situations: (i)  where he takes active steps to conceal his own breach of duty after he has become aware of it; and (ii)  where he is guilty of deliberate wrongdoing and conceals or fails to disclose it in circumstances where it is unlikely to be discovered for some time. But it does not deprive a defendant of a limitation defence where he is charged with negligence if, being unaware of his error or that he has failed to take proper care, there has been nothing for him to disclose.”

D2.  Failure to establish applicability of s.26 LO

20.  The Plaintiff has not pleaded a case to bring himself within s.26 LO.  In oral submissions, Mr Pierrepont acknowledged that no specific reference had been made in the ASOC to concealment, but he submitted that one could infer concealment from the fact that documents were not handed over to the Plaintiff until 14^th September 2014. In ASOC paragraph 39, it is pleaded that the Plaintiff only learnt of the constituent elements of the causes of action on or about 14^th September 2014, although Mr Pierrepont submitted that it was not from this paragraph that one should infer concealment; rather it was ASOC paragraphs 7 to 14.

21.  ASOC paragraphs 7 to 14 set out the Plaintiff’s case as follows.

21.1  Paragraphs 7 to 10 plead that on 13th October 1999, the Plaintiff attended an interview with the Defendant, during which the Plaintiff mentioned that liability to the Defendant was limited to the amount of his two personal guarantees, the particulars of which he could not recall; the Defendant thereupon reviewed the 1^st POD, and made enquiries with HSBC; in the absence of a satisfactory response from HSBC, the Defendant told HSBC that it would need to withdraw its proof of debt and file a new one; HSBC then sent the 2^nd POD to the Defendant on 8^th June 2000.

21.2  Paragraph 11 complains that the Defendant did not take any steps to examine the 2^nd POD and/or the grounds of the debt stated therein.

21.3  Paragraph 12 complains that the Defendant failed to reject the 1^st POD or follow up with the demand that HSBC should withdraw it, giving rise to a misrepresentation to the court that the 1^st POD and the 2^nd POD were separate but concurrently valid claims against the Estate.

21.4  Paragraph 13 complains that the Defendant’s failure to examine the 2^nd POD  resulted in a misrepresentation to the Plaintiff, his creditors and the court as to the Plaintiff’s outstanding liabilities, overstating them by some $257m.

21.5  Paragraph 14 pleads “Moreover, the Defendant failed and/or refused to inform [the Plaintiff] of the matters set out in paragraphs 7.3, 8 to 13 above, including in particular the fact that HSBC filed the 2^nd POD in place of the 1^st POD and that the 1^st POD ought to be rejected.”

21.6  Paragraph 15 pleads “The failure to inform [the Plaintiff] and/or the omission of such information in its representations to [the Plaintiff] (as pleaded in paragraph 14 above)  amounted to a misrepresentation to [the Plaintiff] and his creditors as to the precise extent of [the Plaintiff’s] liabilities.”

22.  Mr Pierrepont submitted that paragraph 14 in particular contained the necessary plea of concealment on the part of the Defendant. I do not agree.

22.1  There is no identification of what (if any)  are said to be the active steps taken by the Defendant to conceal his breach of duty, or the deliberate wrongdoing of the Defendant coupled with a concealment or failure to disclose in circumstances where the wrongdoing is unlikely to be discovered for some time.

22.2  The Plaintiff does not suggest that he could not reasonably have discovered the relevant facts.  There is no plea as to what it is that it could not have discovered without the taking of exceptional measures.

D3.  Failure to establish applicability of s.31 LO

23.  The Plaintiff relies on s.31 LO as an alternative in respect of his claim in negligence.  However, this would not avail him in the circumstances of the present case.  The section merely extends the limitation period for an action for damages for negligence by a period of three years from the date on which a plaintiff acquires the knowledge required for bringing the action.

24.  ASOC paragraph 39 pleads that “The Plaintiff was only made aware of the constituent elements of the aforesaid causes of action as a result of documents obtained by the plaintiff on or about 14 September 2014 through his Data Access Request.”  On this plea, the limitation period would at most be extended to 14^th September 2017.  The Plaintiff did not issue his writ until 11th September 2020.

25.  In his oral submissions, Mr Pierrepont submitted that ASOC paragraph 39 did not actually admit that the Plaintiff had all relevant knowledge by the date of 14^th September 2014; all that was pleaded was that the documents were obtained at that date; the Plaintiff would have needed time to go through the documents.  However, ASOC paragraph 39 also pleads that the Plaintiff was made aware of the elements of the causes of action; in any event, no other date is pleaded as to when the Plaintiff supposedly had all the relevant knowledge enabling him to bring his action in negligence.

26.  In the circumstances, I do not agree with the submission that there should be a trial of a preliminary issue as to whether Plaintiff is entitled to rely on s.31 LO.  No such issue arises on the pleadings.

D4.  Plaintiff’s claims time-barred

27.  The Plaintiff’s claims are therefore clearly time-barred.

28.  Before leaving the topic of limitation, I would observe that it is not as if the Plaintiff has not had sufficient opportunity to set out his case on the extension of a limitation period in the pleadings.  The Defendant had, in its Defence of March 2021, pleaded that the Plaintiff’s claims in respect of all three causes of action were time-barred.  The Plaintiff’s Reply of July 2021 had merely denied the relevant paragraphs and repeated paragraph 39 of the Statement of Claim,[3] which as analysed above does not assist the Plaintiff.  Furthermore, the Plaintiff amended its Statement of Claim in September 2022, but nothing was added in support of the Plaintiff’s claim that he came within the exceptions under ss.26 and 31 LO.

E.  NO REASONABLE CAUSE OF ACTION

29.  Strictly speaking, it is not necessary for me to go further.  I will however set out my brief observations in relation to the second ground on which the ASOC was struck out by the Master, namely, that it discloses no reasonable cause of action.  In my view, it is indeed the case that no reasonable cause of action has been pleaded in respect of any of the Plaintiff’s three claims.

E1.  Claim for breach of statutory duty

30.  In ASOC paragraphs 21 to 25, the Plaintiff pleads that the Defendant acted in breach of her duties:

30.1  under r.22 of the POD Rules to examine every proof of debt and the grounds of the debt, and to admit or reject it, and

30.2  under s.84 BO to act in a fiduciary capacity and deal with property under her control honestly, in good faith, with proper skill and competence and in a reasonable manner.

31.  However, on a proper construction of the BO, a bankrupt has no right of civil action for breach of statutory duty by a trustee in bankruptcy; claims for damage in respect of such breach must be brought under s.83 BO.  See Li Ngan Shui v Official Receiver [1995] 2 HKLRD 248 at 253 (Nazareth VP); Lam Ching Sheung v Official Receiver [2009] 5 HKLRD 278 at [62] to [64] (Chu J, as she then was).

32.  The Plaintiff relies on Chung Sun Kwan v Official Receiver [2021] 2 HKLRD 292, in which Ng J said at [35] that there was nothing in ss.83 or 84 BO which excluded common law liability on the part of a trustee to a bankrupt.  However, in [36] to [38], Ng J made it clear that he was not suggesting that civil claims for breach of statutory duty could be made in spite of ss.83 and 84 BO.

33.  In oral submissions, Mr Pierrepont submitted that the claim for breach of r.22 of the POD Rules was independent of claim for breach of s.84 BO.  However, the POD Rules are subsidiary legislation to the BO. The Court of Appeal in Li Ngan Shui was of the view that there was no right of civil action in respect of any part of the Bankruptcy Ordinance.  Mr Pierrepont has not sought to explain the basis for treating the POD Rules as being independent of the BO in this regard.

E2.  Claim for breach of duty of care

34.  In ASOC paragraphs 16 to 20, the Plaintiff pleads that there was a special relationship created between the Defendant and the Plaintiff by reason of the appointment of the Plaintiff as trustee of the Estate, and the Defendant’s Administration of the Estate.

35.  However, the mere fact that the Defendant was appointed as a trustee in bankruptcy and has discharged duties as such does not in itself give rise to a duty of case on the part of the Defendant.  Normally, there would have to be positive acts done on the part of a defendant before it could be said that he voluntarily assumed responsibility towards the plaintiff, or that a special relationship arose.  See Lam Ching Sheung at [43], [83]; Chung Sun Kwan at [83] to [84].

36.  Here, the ASOC pleads complaints that the Defendant failed to examine the 1^st POD and to reject or require further evidence of the debt alleged against the Plaintiff (see paragraphs 6, 11 to 15A).  They are pleas that the Defendant failed to act, not pleas that the Defendant carried out certain positive acts which gave rise to a duty of care.  The only pleas of positive acts are those in paragraphs 7 and 9, relating to the Defendant’s interview of the Plaintiff and corresponding with HSBC, but as counsel for the Defendant, Mr Christopher Chain SC (appearing with Ms Sakinah Sat)  pointed out, these are merely typical duties of a trustee in bankruptcy.  I do not agree with Mr Pierrepont that it would be necessary to go to trial to determine whether or not it could be said, on the basis of such pleas, that a duty of care arose on the part of the Defendant towards to the Plaintiff.

E3.  Claim for breach of fiduciary duty

37.  In ASOC paragraphs 26 to 30, the Plaintiff pleads that the Defendant acted in breach of her fiduciary duty to the Plaintiff, citing s.84 BO.

38.  Mr Chain cited In re Leadbitter (1878)  10 ChD 388 at 391-392 and Bird v Philpott [1900] 1 Ch 822 at 828 for the proposition that a trustee in bankruptcy does not owe any fiduciary or equitable duty to the bankrupt unless and until a surplus has actually been ascertained, and there would be no surplus until all the debts had been paid in full; not even the possibility of a surplus would suffice.  See In re Leadbitter (1878)  10 ChD 388 at 391-392; Bird v Philpott [1900] 1 Ch 822 at 828.

39.  Mr Pierrepont did not seek to argue with this, but submitted that as they were old English cases and not binding on the court, they should be departed from in the present case, as the very reason why there was no surplus in the present case was because there had not been any adjudication precisely because of the Defendant’s breach of duty in failing to examine the alleged debts.  There should therefore be “full discovery” to enable the Plaintiff to argue as to why a surplus should not be required before a fiduciary or equitable duty could be found on the part of the Defendant.

40.  However, if it is alleged that a trustee in bankruptcy has failed to act, the bankrupt’s remedy is to apply to the court under s.83 BO. Cf. James v Rutherford-Hodge [2006] BPIR 973 at [12] to [14], where Chadwick LJ observed that in a case where a trustee in bankruptcy declined to pursue litigation to recover an asset for the benefit of the bankrupt’s estate, the bankrupt’s remedy was to seek an order from the court under s.303(1)  of the Insolvency Act 1986[4] directing the trustee to do so; on such an application, the court would have regard to the interests of the creditors generally and not just the bankrupt’s.

41.  The Plaintiff has not pleaded the basis on which the alleged fiduciary or equitable duty arises despite s.83 BO.  Mr Pierrepont submitted that Chung Sun Kwan supported the proposition that a duty could arise independently of s.83 BO.  That may be so in principle, but it is not clear why there is such a fiduciary or equitable duty in the circumstances of the present case.  It cannot be enough to say that there should be no strike-out at this stage because the Plaintiff should be given a further opportunity to present legal arguments as to the extent to which general authorities regarding the assumption and imposition of fiduciary duties (Libertarian Investments Ltd v Hall (2013)  16 HKCFAR 681)  apply in bankruptcy cases.

F.  DISPOSITION

42.  I therefore dismiss the Appeal.

43.  I further make a costs order nisi that the Plaintiff should pay the costs of the Appeal to the Defendant, to be summarily assessed on the papers.  The Defendant has already lodged and served her statement of costs. The Plaintiff should lodge and serve a list of objections, if any, in bullet point form limited to two pages, within 7 days; the Defendant has leave to lodge and serve a reply, in bullet form limited to one page, within 5 days thereafter.