HOTUNG INVESTMENT (CHINA) LTD v. ERNST & YOUNG (A FIRM) AND OTHERS

CACV 271/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 271 OF 2011

(ON APPEAL FROM HCA NO. 2376 OF 2009)

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J U D G M E N T

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Hon Kwan JA (giving the Judgment of the Court):

1. On 1 November 2012, this court (Kwan and Lam JJA) handed down judgment allowing the defendants’ appeal against Yam J’s refusal to strike out the plaintiff’s claim on the ground it is time-barred. This is the plaintiff’s application for leave to appeal from our judgment to the Court of Final Appeal. The plaintiff contends that the intended appeal involves questions of great general and public importance. It also prays in aid the “or otherwise” limb under section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap 484.

2. I take the questions posed by the plaintiff as questions of great general and public importance from the written submission of Ms Audrey Eu, SC and Mr Gregory Leung, who appear for the plaintiff in this application but not in the appeal before us:

“(a) whether upon the true construction of section 20 of the Limitation Ordinance and in the light of the no reflective loss principle, there is no period of limitation in respect of a claim by a company for fraudulent breach of fiduciary duties against its directors or fiduciaries, particularly when shares in the company were held by those privy to the fraudsters and no derivative action could have been brought on behalf of the company;

(b) whether upon the true construction of section 26(1)(a) and (3) of the Limitation Ordinance and in the light of the no reflective loss principle, the period of limitation in respect of a claim by a company for fraudulent breach of fiduciary duties against its directors or fiduciaries shall not begin to run until the company is no longer in control by the directors or their privies who committed the fraud, particularly when shares in the company were held by those privy to the fraudsters and no derivative claim could have been brought on behalf of the company;

(c) whether upon the true construction of section 26(1)(b) and (3) of the Limitation Ordinance, a deliberate commission of a breach of duty by directors or their privies whilst in control of a company amounts to deliberate concealment of the facts involved in that breach of duty such that the limitation period does not run until the company is no longer under control by such directors or their privies;

(d) whether upon the true construction of section 26, the knowledge of non agents of a company, such as in this case the knowledge of the beneficiaries who were neither shareholders nor directors, should be attributed to the company for the purpose of barring the claim by the company.”

3. We have considered Ms Eu’s arguments in respect of the questions in (b), (c) and (d).  They are essentially the same arguments advanced by the former counsel of the plaintiff before us and were rejected for the reasons given in our judgment, which will not be repeated.  We decline to give leave to appeal on these questions, as we are not satisfied they are reasonably arguable.  Further, whether a particular person’s knowledge should be attributable to a company is context specific.

4. As for the question in (a), this is a new argument not raised before Yam J or in the appeal we heard.  We agree with the defendants’ counsel, Mr Benjamin Yu, SC and Mr Bernard Man, that this is a plainly bad argument.  This action is not an action by a beneficiary against trustees in respect of any fraud or fraudulent breach of trust.  The 2^nd defendant is only a trustee of the Hillhead Trust, and the plaintiff is not a beneficiary of this trust.  The defendants have never been directors of the plaintiff and could not have been trustees for the plaintiff on that basis.  The only pleaded cause of action is dishonest assistance.  A dishonest assister, for the purpose of the Limitation Ordinance, is a non-fiduciary and is not caught by section 20 (Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139, paras 19 to 25).

5. In any event, when a completely new point is sought to be raised before the Court of Final Appeal, it would be more appropriate for the Court of Final Appeal to grant leave if it sees fit (Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd & Anr, CACV 227/2005, 26 June 2007, para 4).

6. Leave would only be granted on the “or otherwise” limb where this is justified as an exceptional course.  We do not think that is the situation here.

7. For the above reasons, we dismiss this application with costs to the defendants.