CHEN PEI XIONG v. CONVOY GLOBAL HOLDINGS LTD AND ANOTHER

HCMP 211/2024

[2024] HKCFI 819

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 211 OF 2024

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R U L I N G

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A.  Introduction

1.  By originating summons dated 6 February 2024 (“OS”), the plaintiff seeks leave to commence a statutory derivative action on behalf of the 2^nd defendant company (“FIL”) against Mr Ng Wing Fai (“Mr Ng”). The application is made pursuant to section 733 of the Companies Ordinance Cap 622 (“Ordinance”), and the proposed statutory derivative action is to make the claims set out in the draft Statement of Claim filed with the OS (“Claims”).

2.  The matter came on for a first call-over/directions hearing on 18 March 2024. That date was fixed by me to cater for the fact that it is said on behalf of the plaintiff that a limitation period within which the claim against Mr Ng must be brought would expire on 27 March 2024.

3.  As part of the opposition to the OS, the defendants contest the jurisdiction of the Court on the basis that (1) the OS was not duly served on FIL, and that (2) FIL is not a “company” for the purposes of sections 732 and 733 of the Ordinance. Though it may not have been strictly necessary, the defendants have issued a summons dated 5 March 2024 (“Jurisdiction Summons”) raising that contest as to jurisdiction.

4.  The Jurisdiction Summons also came on for a first call-over/directions hearing on 18 March 2024.

5.  At the hearing, I declined to deal with the Jurisdiction Summons separately in advance of potentially dealing with the OS. As a matter of case management, it seemed to me sensible and appropriate for the OS and the Jurisdiction Summons to be dealt with together. To that end I gave directions for the filing of evidence on the two matters respectively, as will be summarised at the end of this Ruling. However, I would add that, because the jurisdiction issue arises in the context of the OS, I do not think it necessary to have two separate timetables for the filing of evidence on each of the OS and the Jurisdiction Summons. Ultimately, of course, the burden is on the plaintiff to establish that he is entitled to the grant of leave to commence the proposed statutory derivative action.

6.  I also set the date of 12 June 2024 for the substantive hearing of the OS and the Jurisdiction Summons together. That date was fixed in consultation with both leading Counsel’s diaries.

7.  The remaining matter for consideration – on which I reserved my decision – related to what steps if any should be taken in the interim period until the substantive hearing as would best preserve all parties’ interests pending that hearing.

8.  This Ruling is primarily to decide that matter.

B.  The Contest

9.  At paragraph 2 of the OS, the plaintiff sought an order in the following terms (“Interim Order”):

Insofar as necessary, an interim order under s.737(2) of the [Ordinance] that pending the determination of this application, leave be granted to the Plaintiff to issue a protective writ on behalf of [FIL] on the Claims on the condition that the Plaintiff shall not cause such writ to be served on [Mr Ng].

10.  In his submissions, Mr Paul Shieh SC (leading Mr James Man), explained the reason why the Interim Order is necessary, as follows:

(1)  The proposed statutory derivative action arises out of loan agreements which were entered into in 2016. As such, the limitation period of six years may have expired in relation to the Claims.

(2)  But, on the evidence, the plaintiff only became aware of the alleged misconduct of Mr Ng following the publication of certain news articles on 27 March 2018.

(3)  On the basis of the provisions in section 26(1) and (3) – relating to deliberate concealment of the commission of a breach of duty in circumstances where it is unlikely that the relevant facts of the breach would be discovered for some time – the limitation period would only expire on 27 March 2024.

(4)  It is, therefore, appropriate to permit a protective writ to be issued – to protect the plaintiff against the expiry of that limitation period (if it is ultimately found to be applicable).

(5)  Permitting the protective writ to be issued can cause no prejudice to the defendants because it is purely protective in nature.

(6)  If, on the substantive hearing of the OS, it is determined by the Court that leave to bring the statutory derivative action should not be granted, that will be the end of the proceedings notwithstanding the issue of the protective writ, which would simply expire.

11.  On behalf of the defendants – and indirectly the putative defendant to the statutory derivative action, Mr Ng – Mr William Wong SC (leading Mr Lai Chun Ho and Mr Han Sheng Lim) submitted as follows:

(1)  The practical effect of granting the Interim Order would be that the defendants, and Mr Ng, would be deprived of the benefit of a limitation period defence which would otherwise have been available to the defendants (for the purpose of resisting the grant of leave sought by the OS) and Mr Ng (for the purpose of resisting the proposed Claims if leave to bring them is granted).

(2)  Recognising that the arguments surrounding the grant or refusal of the Interim Order cannot properly be ventilated at the call-over/directions hearing, appropriate protection can be provided in a different way than granting the Interim Order.

(3)  That way would include:

(a)  the adjournment of the OS for substantive argument so that the parties can can canvass all grounds, including whether the Interim Order should have been granted at the first hearing on 18 March 2024 if the Court had had the benefit of full argument at that hearing; and

(b)  for the defendants and Mr Ng to undertake not to rely on the lapse of time between the first hearing and the Court’s decision on the grant or refusal of the Interim Order in mounting any limitation defence, so long as the Court decides that the Interim Order should have been granted at the first hearing.

(4)  The combined effect of the above would be that the interests of the plaintiff (in not having his proposed claim time-barred) and the defendants/Mr Ng (in not being deprived of a potential limitation defence) may both be considered and determined on a later occasion with the benefit of full argument.

12.  Obviously, acting directly for the defendants, Mr Wong was able to offer the undertaking from the defendants themselves. Further, since the hearing on 18 March 2024, I have been provided with an affirmation of Mr Ng in which he also formally offers an undertaking to the Court in the terms of that described above.

13.  In passing, I should record that, for the avoidance of doubt, Mr Wong emphasised that in making submissions along these lines FIL was not submitting to the jurisdiction of the Court, which question of jurisdiction will be dealt with on the Jurisdiction Summons or the OS.

C.  My Ruling

14.  Having considered the competing arguments, I am persuaded that the correct course of action is to grant the Interim Order, so as to permit the issue of the protective writ on a conditional basis.

15.  My broad reasoning is as follows:

(1)  In an ideal world, where both the Court and the parties’ Counsel have sufficiently empty court diaries, it would have been possible to have the substantive argument and a decision made on it on 18 March 2024.

(2)  In such a situation, if leave to bring the statutory derivative action were to have been granted, the writ would have been issued within what is said to be the extended limitation period.

(3)  Nevertheless, it would still be open to Mr Ng to plead a limitation defence in that action, on the basis that not only had the primary limitation period expired but there was no extended limitation period, or that any extended limitation period had also expired.

(4)  On the other hand, if leave to bring the statutory derivative action were to have been refused, the writ would not have been issued and no question of limitation would arise at all.

(5)  It seems to me to be appropriately equivalent for the protective writ to be issued, if no further step is taken on that writ if it is ultimately determined that leave to bring the statutory derivative action should not be granted – and would have been refused had it been possible to have the full argument and a decision prior to 27 March 2024.

(6)  If it is determined that leave should not be granted, the protective writ will never be served on Mr Ng and will simply expire at the end of its validity period. In essence, without there ever being a defendant to that action, the action would never really have started and can be ignored.

(7)  Indeed, it may even be possible – if it is determined that leave should not be granted – that the issue of the writ can be set aside in some appropriate way.

(8)  The defendants, and in so far as necessary directly or indirectly Mr Ng, can nevertheless still argue on the OS that leave should be refused for reasons including that the plaintiff has left it to almost the last moment before the expiry of what he says is the extended limitation period before seeking that relief. That point can go into the discretionary mix, when I hear the substantive argument on 12 June 2024.

D.  Orders/directions

16.  In the circumstances outlined above, and in the exercise of my case management discretion, I have made the following orders and directions:

(1)  The OS and the Jurisdiction Summons are both adjourned for substantive argument fixed to be heard before me at 10am on 12 June 2024 (one day reserved).

(2)  The defendants shall file affirmation evidence in opposition to the OS on or before 19 April 2024.

(3)  The plaintiff shall file affirmation evidence in reply, if any, on or before 17 May 2024.

(4)  No further affirmations shall be filed without leave of the Court.

(5)  There shall be an interim order pending the determination of the OS (and, if relevant, the Jurisdiction Summons) that leave be granted to the plaintiff to issue a protective writ on behalf of the 2^nd defendant company, FIL, on the Claims set out in the draft Statement of Claim exhibited to the supporting affirmation of the plaintiff filed together with the OS, on the condition that the plaintiff shall not cause that writ to be served on the proposed defendant unless with the further leave granted by the order of the Court.

(6)  All questions of costs are reserved to the substantive hearing.

17.  For the avoidance of doubt: (1) the evidence which may be filed by the defendants in opposition to the OS in accordance with the above timetable may include any further evidence which the defendants seek to rely on in support of the point taken on jurisdiction; and (2) the evidence which may be filed by the plaintiff as reply evidence for the OS in accordance with the above timetable may also address matters of evidence relevant to the Jurisdiction Summons.