SUN TIAN GANG AND ANOTHER v. CHANGCHUN HIGH & NEW TECHNOLOGY INDUSTRIES DEVELOPMENT PARENT COMPANY AND OTHERS

CACV 475 & 476/2022, [2025] HKCA 188

On appeal from [2022] HKCFI 3348

(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 475 AND 476 OF 2022

(ON APPEAL FROM HCA NO 179 OF 2015)

________________________

________________________

(Heard together)

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J U D G M E N T

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

1.  These two appeals are against the judgment of Anthony Chan J on 9 November 2022 (“Judgment”)[1] given after a twelve-day hearing in a trial of preliminary issues (“TPI”). CACV 475/2022 was brought by the 2^nd, 3^rd and 11^th defendants (“HC defendants” collectively). CACV 476/2022 was brought by the 1^st, 4^th and 8^th defendants (“CHNT defendants” collectively). The other defendants (5^th to 7^th, 9^th and 10^th defendants) did not take part in the TPI. References to the defendants collectively in this judgment are to those who took part in the TPI.

2.  The preliminary issue directed to be tried related to deliberate concealment raised by the plaintiff, Sun Tian Gang (“Sun”)[2], pursuant to section 26 of the Limitation Ordinance, Cap 347, in order to postpone the running of time for the new claims which are prima facie time-barred. The issues in the TPI are primarily factual. The judge was required to determine (i) whether there was deliberate concealment of facts relevant to the new causes of action; and (ii) if so, when the concealed facts were discovered or could with reasonable diligence have been discovered by Sun in respect of two transactions, called “CG Transaction” and “NXG Transaction”.

3.  On appeal, Mr Ambrose Ho, SC and Mr James Man appeared for Sun and GH, Mr Wong Yan Lung, SC and Mr Kerby Lau appeared for the CHNT defendants, and Mr Anson Wong, SC and Mr Kwan Ping Kan appeared for the HC defendants.

Background

4.  The background facts have been set out in the Judgment at §§6 to 65 and are as follows.

(1)  The parties and entities

5.  Prior to August 2005, Sun owned 999/1000 issued shares in a BVI company, China Geomaxima Co Ltd (“CG” and “CG Shares”). The remaining one share in CG was held on trust for Sun. CG held a 54.85% interest (1,662,795,650 shares) in GeoMaxima Energy Holdings Ltd (“GEHL”), a Bermudan company listed on the Hong Kong Stock Exchange. GEHL in turn held an 80% interest in Xinjiang XingMei Oil Pipeline Co Ltd (“XM”), a Sino-foreign joint venture operating an oil pipeline in Xinjiang Province.

6.  In August 2005, Sun was the chairman and an executive director of GEHL. Guo Ting (“Guo”), a witness of Sun in the TPI, was the vice-chairman and an executive director of GEHL.

7.  GH provided management service to GEHL and other companies controlled by Sun in Hong Kong, Mainland China and overseas (“Geomax Group”). Guo and the 11^th defendant Cheung Yu Ping (“Cheung”) were amongst the deputy general managers of GH.

8.  Sun was also the sole beneficial owner of a BVI company, Sino Champion Ltd (“SCL”), which owned a 90% interest in NingXia Geomaxima Fengyou Chemical Co Ltd (“NXG”), a Mainland company operating a chemical fertilizer factory.

9.  The 1^st defendant, Changchun High & New Technology Industries Development Parent Company (“CHNT”), is a state-owned enterprise in the Mainland, with headquarters in Jilin Province. The 4^th defendant, Zhang Xiao Ming (“Zhang”), was at all material times until around July 2010 CHNT’s director, general manager and legal representative. The 8^th defendant, Ma Ji (“Ma”), joined CHNT in October 2003, and became its deputy general manager since April 2005. From around June 2010 to 2014, Ma was CHNT’s general manager and legal representative. He was a non-executive director of GEHL from November 2004, and was re-designated as an executor director of GEHL on 22 August 2005.

10.  The 2^nd defendant, Hong Chang Group Ltd (“Hong Chang”), is a BVI company. At all material times, the 3^rd defendant, Xing Xiao Jing (“Xing”), was the sole director and shareholder of Hong Chang. Xing was also the chairman and executive director of GEHL from late 2005 to March 2009. She was married to Cheung. According to Cheung, his role as a deputy general manager in GH became defunct following Sun’s arrest in the Mainland on 11 August 2005. It is Sun’s case that Cheung was at all material times a shadow director of Hong Chang.

11.  The 9^th defendant, Wan Tze Fan Terence (“Wan”), was the financial controller and company secretary of GEHL prior to 22 August 2005. He was appointed an executive director of GEHL on 22 August 2005. The 10^th defendant, Kong Siu Tim (“Kong”), was a director of GEHL from August to December 2002. He was appointed as a non-executive director of GEHL on 22 August 2005. In March 2009, he became the chairman of GEHL. In September 2011, he resigned as chairman and executive director and assumed the position of a non-executive director of GEHL.

(2)  The transactions

(a)  RMB 120 million debt

12.  In December 2001, GH and CHNT’s parent company entered into an agreement by which GH agreed to assist the latter to acquire a Hong Kong listed company. By 31 December 2001, GH had obtained from CHNT or its parent an advance of RMB 120 million (“the Debt”). By a guarantee dated 31 December 2001 (“GH Guarantee”), GH agreed to pledge 250,000,000 GEHL shares to CHNT to guarantee the Debt.

13.  It is the case of the CHNT defendants that the Debt was further secured by two other instruments, (i) a guarantee dated 6 May 2002 and executed by CG (“CG Guarantee”) and (ii) a repayment agreement dated 9 December 2002 (“CG Repayment Agreement”). Under these documents, CG agreed to pledge its GEHL shares to CHNT for the repayment of the Debt by 20 January 2003. Sun disputes the authenticity of these documents.

14.  Sun’s case is that partial repayments of the Debt in the sums of RMB 5 million and RMB 19 million were made on 7 January 2002 and in August 2003 respectively. The balance in the amount of RMB 96 million remained due before he was arrested in the Mainland on 11 August 2005. The repayments are disputed by the defendants.

(b)  ICBC RMB 190 million loan to XM

15.  On 21 March 2003, XM obtained a loan of RMB 190 million from ICBC (“XM Loan”) for the period of 21 March 2003 to 18 March 2011. The XM Loan was guaranteed by CHNT pursuant to an instrument dated 18 March 2003 (“CHNT Guarantee”). It might be the case that the XM Loan was obtained, at least in part, for the purpose of repaying the Debt.

16.  By a counter-guarantee dated 22 April 2003 (“GH Counter-Guarantee”), GH agreed to use assets up to RMB 380 million to counter-guarantee CHNT’s liability under the CHNT Guarantee. By a tripartite agreement dated 2 July 2003 (“Tripartite Agreement”), GH and XM undertook to CHNT to use at least 70% of each drawdown of the XM Loan towards repayment of the Debt.

17.  It is the case of the CHNT defendants that CHNT’s liability under the CHNT Guarantee was further secured by another counter-guarantee dated 2 July 2003 (“CG Counter-Guarantee”), under which CG agreed to pledge its GEHL shares as security. Sun disputes the authenticity of the CG Counter-Guarantee.

(c)  CG’s loan from Kingston Securities and the Share Charge

18.  On 16 July 2003, CG charged all its GEHL Shares in favour of the 7^th defendant, Kingston Securities Ltd (“Kingston Securities”), to secure a loan of HK$30 million (“Share Charge”).

19.  Prior to 15 August 2005, the outstanding sum owed by CG to Kingston Securities was HK$18,229,315, and two post-dated cheques dated 15 August 2005 had been issued by Sun to the latter in the amount of HK$229,315 and HK$18,000,000 respectively for the repayment of such outstanding sum. This part of the evidence was controversial, but not relevant to the TPI save for the defendants’ challenge to the credibility of Guo.

(d)  SCL Guarantee

20.  It is the case of the CHNT defendants that: (i) the Debt was further secured by the “SCL Guarantee” dated 22 April 2004, under which SCL undertook to transfer its 90% shares in NXG to CHNT in the event that the Debt was not repaid by 30 July 2004; (ii) by the “GH Undertaking” dated 24 April 2004, GH undertook to partly repay the Debt with any proceeds recovered from its proceedings against 中國吉林國際經濟技術合作公司 in which GH was claiming a sum of US$5 million; and (iii) SCL executed an agreement with CHNT dated 15 July 2004 confirming the SCL Guarantee.

21.  Sun disputes the authenticity of all three documents mentioned above.

(e)  Debenture

22.  According to the CHNT defendants, by a debenture dated 28 July 2004 signed by Sun (“Debenture”), Sun charged his 999 shares in CG to CHNT to secure the indebtedness under nine instruments listed in the annex to the Debenture, which included the GH Guarantee, the CG Guarantee, the CG Repayment Agreement, the Tripartite Agreement, the CG Counter-Guarantee, the SCL Guarantee, and the GH Undertaking.

23.  Sun disputes the authenticity of the Debenture. However, for the purpose of the TPI and with the agreement of the parties, the Debenture is assumed to be genuine because the new causes of action are advanced by Sun (and GH) as an alternative case in the event that the court should find against them on the authenticity of the Debenture.

24.  As regards the instruments listed in the Debenture, as mentioned Sun disputes the authenticity of the CG Guarantee, the CG Repayment Agreement, the CG Counter-Guarantee, the SCL Guarantee and the GH Undertaking.

(3)  Sun’s arrest

25.  On 11 August 2005, Sun was arrested at the border crossing in Shenzhen. He was sent to be detained in custody in Jilin on 13 August 2005. On 16 September 2005, he was formally arrested and detained in Jilin Detention Centre.

26.  Two sets of serious criminal charges had been brought against Sun (in December 2007 and June 2009 respectively) followed by two criminal trials (the first of which was held in March and December 2008 and the second in June 2009) in the Mainland. Sun was not convicted of any offence.

27.  On 8 November 2010, Sun was granted bail and put under house arrest in Beijing.

28.  On 6 March 2012, Sun regained his freedom when the Jilin Court allowed all remaining charges against him to be withdrawn.

29.  Apart from Sun, the second-in-command of the Geomax Group, Shi Lin Hua, was detained in the Mainland on 19 November 2005. He was formally arrested on 27 January 2006 and charged with contract fraud allegedly committed under Sun’s instructions. He was never released and died during incarceration. The defendants dispute the position of Shi Lin Hua in the Geomax Group. According to them, Guo was the most senior person of GEHL in the absence of Sun.

30.  Following Sun’s arrest, efforts were made by CHNT to enforce the Debenture. These events lie at the heart of the controversies between the parties in this action. As found by the judge, it is unnecessary to resolve these controversies for the purpose of the TPI.

(4)  Enforcement of the Debenture: the CG Transaction

31.  According to the case of the CHNT Defendants, SCL had breached its obligation under the SCL Guarantee to repay the Debt by 30 July 2004. The SCL Guarantee was one of the Debenture instruments the breach of which would render the Debenture enforceable.

32.  No enforcement action was taken by CHNT over the Debenture until after Sun was arrested. Shortly after Sun’s arrest, the CG Shares were disposed of on 29 August 2005 as follows.

33.  According to the CHNT Defendants, they learned about the arrest of Sun by the Jilin Public Security Bureau (“PSB”) in mid-August 2005. They decided to enforce the Debenture out of, inter alia, the concern that the Mainland law enforcement authorities would take or might have already taken steps to seize control or possession of Sun’s assets and companies in Hong Kong.

34.  With the arrangement of Kong, Zhang and Ma met with Kingston Securities. It was orally agreed that Kingston Securities would refrain from enforcing the Share Charge in exchange for CHNT’s promise to procure the repayment of the outstanding sum of HK$18 million owed by CG to Kingston Securities. This was to enable CHNT to sell the CG Shares without fear of diminution of value by any enforcement of the Share Charge. It appears that on 19 August 2005, Kingston Securities returned the post-dated cheque of HK$18 million previously issued by Sun.

35.  By a public announcement on 22 August 2005, GEHL announced that: (i) Sun had resigned as GEHL’s chairman and executive director; (ii) Guo was re-designated as the chairman of GEHL; (iii) Ma was re-designated as an executive director of GEHL; (iv) Wan was appointed as an executive director of GEHL; and (v) Kong was appointed as a non-executive director of GEHL.

36.  According to the CHNT defendants, at about the same time, Xing and Cheung expressed an interest to acquire the CG Shares. An oral agreement was reached between Zhang on CHNT’s behalf and Cheung on Hong Chang’s behalf for the acquisition of the CG Shares at the consideration of HK$41,999,992.20.

37.  By an agreement for sale and purchase dated 29 August 2005 between CHNT and Hong Chang, CHNT as pledgee agreed to sell the CG Shares to Hong Chang at a stated consideration of HK$41,999,992.20, which would be paid at the time of completion (“CG Transaction”). On the same date, an instrument of transfer (signed by Zhang on behalf of CHNT as the “lawful attorney of [Sun]” and by Xing on behalf of Hong Chang) was executed to transfer the CG Shares from Sun to Hong Chang. Also on the same date, another instrument of transfer was executed to transfer the remaining one share in CG (held on trust for Sun and not subject to the Debenture) to Hong Chang. The authenticity of the signature of the transferor is disputed by Sun.

38.  In respect of the consideration under the CG Transaction, as of 24 August 2005, the trading price of GEHL shares was HK$0.055. The 1,662,795,650 GEHL Shares belonging to CG were accordingly worth about HK$91,453,760.75 in the market. If the HK$18 million owed by CG to Kingston Securities under the Share Charge was taken into account, the CG Shares would be worth HK$71 million (they were sold at about HK$42 million). By this simplistic analysis, the element of control premium, which might be attached to the block of GEHL shares, would appear to have been ignored.

39.  The case of the CHNT defendants is that the consideration of HK$42 million was determined by an independent valuer, based on the prevailing trading price and applying suitable discount, and taking into account the HK$18 million loan due to Kingston Securities.

40.  However, there is no dispute that the HK$42 million was never paid by Hong Chang. The CHNT defendants said that Cheung was unable to pay immediately and requested CHNT (and it agreed) to lend Hong Chang a sum equivalent to the purchase price repayable in one year. There was a Loan Memorandum dated 8 September 2005 to that effect. Further, Hong Chang undertook with CHNT (i) to discharge the HK$18 million loan due to Kingston Securities; (ii) to use its best endeavours to assist CHNT to procure the repayment of the Debt and to discharge the CHNT Guarantee; and (iii) to use the GEHL shares held by CG to secure/guarantee the repayment of the loan of HK$42 million. Hong Chang provided an undertaking to CHNT dated 8 September 2005.

41.  By a joint announcement on 8 September 2005, GEHL and Hong Chang jointly announced the acquisition on 29 August 2005 of (i) the CG Shares by Hong Chang from CHNT at a consideration of HK$41,999,992.20; and (ii) the one CG share by Hong Chang from Sun at a consideration of US$1. As these transactions resulted in the change of controlling shareholder of GEHL, Hong Chang was required to make an unconditional mandatory cash offer to acquire all the issued shares of GEHL not already owned by it. The joint announcement referred to the Debenture, by which the Debt was secured. No reference was made to any other liabilities under the Debenture instruments.

42.  On 28 September 2005, a composite offer document (made by public announcement) relating to Hong Chang’s general offer was issued. The offer closed on 19 October 2005, with valid acceptance of the offer in respect of 1.92% shareholding in GEHL having been received. The composite offer document contained a letter from the board of GEHL to its shareholders and option holders, which was issued in the name of Ma for the board. The composite offer document also contained a letter of advice from Baron Capital Ltd to the independent board committee dated 28 September 2005 as to whether the terms of the share offer were fair and reasonable as far as the independent shareholders and option holders were concerned. The CHNT defendants placed considerable emphasis on this advice for their contention that the HK$42 million consideration under the CG Transaction was appropriate.

43.  Kingston Securities was Hong Chang’s financial adviser responsible for the conduct of the general offer. It extended a HK$50 million loan to Hong Chang for making the general offer.

(5)  Enforcement of the SCL Guarantee: the NXG Transaction

44.  On 21 September 2005, CHNT commenced proceedings in the Mainland against SCL and NXG to enforce the SCL Guarantee. On about 23 September 2005, the Jilin Court made an asset preservation order which, inter alia, froze the NXG shares held by SCL.

45.  By a settlement agreement dated 22 June 2006 signed by Sun on behalf of SCL, SCL agreed to repay the Debt with interest and costs out of the sale proceeds of an anticipated sale of the NXG shares to Sichuan Lutianhua Co Ltd (“Lutianhua”), a listed company in the Mainland. Sun disputes the validity of the settlement agreement on the ground that it was signed by him under coercion and duress whilst imprisoned.

46.  The settlement agreement provided, inter alia, that (i) SCL should repay the Debt to CHNT after the agreement took effect; and (ii) SCL should repay the Debt together with interest by using the sale proceeds of the NXG shares in the event of a sale to Lutianhua.

47.  The settlement agreement was approved by a mediation agreement dated 23 June 2006 recognised by the Jilin Court.

48.  On 26 August 2006, SCL (represented by Sun and Shi Wei Cheng (“WC Shi”)) and Lutianhua executed a share transfer agreement whereby SCL agreed to sell the NXG shares to Lutianhua for RMB 212,394,256.60 (“NXG Transaction”). Sun disputes the authenticity of this share transfer agreement on the ground that he could not possibly have been in 四川瀘洲市 (the stated place of execution of the document in Sichuan Province) to sign it when he was incarcerated in Jilin.

49.  On 28 September 2006, Lutianhua, WC Shi on behalf of SCL, and Ma on behalf of CHNT entered into an agreement for the enforcement of the settlement agreement.

50.  On 12 January 2007, the sale of the NXG shares to Lutianhua at the consideration of RMB 212,394,256.60 was approved by the Jilin Court, and the sale proceeds were paid into court. On 11 May 2007, the Jilin Court ordered the discharge of the freezing Order on the NXG shares for the purpose of transferring those shares to Lutianhua.

51.  On 22 May 2007, the Jilin Court ordered and confirmed that RMB 162,539,920.35 out of the proceeds of sale of the NXG shares was paid to CHNT for repayment of the Debt, interest of RMB 35,159,910.35 and overdue payment of RMB 6,770,000. The remaining sum of RMB 49,854,336.25 would be handled in accordance with the law.

(6)  Enforcement of the CHNT Guarantee by ICBC

52.  On 29 April 2009, XM was declared bankrupt. As a result of the bankruptcy, the XM Loan became repayable, and ICBC commenced proceedings in July 2009 against CHNT pursuant to the CHNT Guarantee.

53.  Hong Chang and Cheung (through Honour Luck Investment Ltd, a Hong Kong company controlled by Cheung) entered into a debt restructuring agreement with ICBC in March 2011, the effect of which was the release of CHNT from its liability under the CHNT Guarantee upon payment by Honour Luck Investment Ltd of RMB 170 million to ICBC. Such payment was effected as to RMB 150 million by March 2012 and the balance in October 2013.

The new causes of action

54.  By a summons dated 5 March 2018, Sun sought leave to amend the writ in this action by adding GH as the 2^nd plaintiff and to further amend the amended statement of claim. Four new claims were advanced in the draft re-amended statement of claim (“RASOC”):

(1)  a claim by Sun (and GH) against CHNT for breaches of its duties as chargee under the Debenture in selling the CG Shares to Hong Chang, its nominee, at a substantial undervalue, i.e. the CG Transaction (“Chargee Duty Claim”);

(2)  a claim by Sun (and GH) against Hong Chang, Xing and Cheung for dishonestly procuring, participating or otherwise assisting in CHNT’s breach (“Dishonest Assistance Claim”);

(3)  a claim by Sun (and GH) against CHNT for failing to give credit for the sale price of the CG Shares in the sum of HK$41,999,992.20, when the Debt was repaid in full out of the proceeds of sale of the NXG shares by SCL to Lutianhua in the enforcement of the SCL Guarantee (“Double Recovery Claim”); and

(4)  a claim by GH against CHNT for failing to give credit for the partial repayments of RMB 5 million and RMB 19 million made in reduction of the Debt when the sale proceeds of the NXG shares were paid to CHNT (“Partial Repayment Claim”).

55.  The summons was heard by Deputy High Court Judge Le Pichon, who handed down her decision on 8 November 2018 (“Decision”)[3]. The Double Recovery Claim amendment by Sun was allowed. It was held that (i) this claim arose out of the same or substantially the same facts as the original causes of action already pleaded, and hence the exception under Order 20 rule 5(5) in the Rules of the High Court applied; and (ii) it was a claim to recover trust property to which no limitation period applied[4]. In light of the permitted amendment, GH did not subsequently pursue the amendment relating to its own claim on double recovery.

56.  The only new cause of action which concerned the HC defendants was the Dishonest Assistance Claim. They were not involved in the NXG Transaction.

The preliminary issues and directions for TPI

57.  DHCJ Le Pichon held it was not possible to decide on affidavit the deliberate concealment issue, which is relevant to the Chargee Duty Claim, the Dishonest Assistance Claim and the Partial Repayment Claim. Allowing the proposed amendments would deprive the defendants of a potential limitation defence due to the relation back principle. Refusing the amendments would prejudice Sun (and GH) as there was an arguable case on deliberate concealment. In the circumstances, it was held that the best course of action, whilst unusual, would be to order a TPI in the amendment summons to determine the question of deliberate concealment, with the benefit of oral evidence and cross-examination. The parts of the amendment summons not disposed of in the Decision were adjourned to the TPI for determination in light of and reflecting the Decision.

58.  The two preliminary issues formulated on behalf of Sun were adopted in the Decision, “subject to any amendments as may be considered appropriate by the Judge assigned to conduct the [TPI]”[5]:

“(1) Whether the fact of the sale of the [CG Shares] at a consideration of HK$41,999,992.20 on 29 August 2005 has been deliberately concealed by [CHNT, Hong Chang, Xing and Cheung] or any of them from [Sun and GH] or either of them and whether [Sun and GH] or either of them discovered the fact or could with reasonable diligence have discovered it prior to 6 March 2012, and

(2) Whether the fact of the sale of the [NXG shares] (as approved by the Jilin Court on 12 January 2007) and the payment of RMB 162,539,920.35 out of such sale proceeds to [CHNT] for repayment of [the Debt] plus interest without giving credit for the partial repayments previously made by [GH] in the sums of RMB 5 million and RMB 19 million (without prejudice to [the case of CHNT, Zhang and Ma] that these sums were never received by [CHNT])[6], has been deliberately concealed by [CHNT, Hong Chang, Xing and Cheung] or any of them from [Sun and GH] or either of them, and whether [Sun and GH] or either of them discovered the fact or could with reasonable diligence have discovered it prior to 6 March 2012.”

59.  In the event of the trial judge finding that there was no deliberate concealment of any of the facts identified in the preliminary issues, leave would be refused for such of the proposed amendments as relate thereto. If it should transpire that deliberate concealment was found of any of the facts identified in the preliminary issues, leave would be granted for such of the proposed amendments as relate thereto, with such consequential relief sought in the amendment summons as may be appropriate[7].

60.  On 5 September 2019, the parties attended before the judge on a summons issued by Sun concerning inter alia the TPI as directed by DHCJ Le Pichon. The judge made these directions in his order dated 5 September 2019 (“5.9.2019 Order”):

“3. On or before 12 September 2019, [Sun] to write to the Defendants identifying the parts of his evidence which had already been filed in this action on which he will be relying upon for his case on the preliminary issues set out in Schedule A of the Order of Deputy High Court Judge Le Pichon dated 8 November 2018 (the ‘Preliminary Issues’);

4. [Sun], [the CHNT defendants], [the HC defendants], 9^th, 10^th Defendants (the ‘Parties’) do exchange witness statements confined to the Preliminary Issues on or before 17 October 2019[8];

5. The Parties do exchange witness statements in reply within 28 days thereafter. Reply evidence is to be strictly confined to matters raised in the first round of witness statements.

6. The Parties do agree an agreed list of issues for the trial of Preliminary Issues. Where there is no complete agreement, the issues which are not agreed are to be listed after those which are. The agreed list of issues be lodged with the Court not less than 14 days before the next directions hearing;

7. The Parties are to be bound by the agreed list of issues;

8. The Parties be at liberty to fix further directions hearing in respect of the trial of Preliminary Issues to take place not before 15 December 2019 …”.

61.  As a result, a list of issues was lodged with the court on 19 December 2019. Subsequently, the list was re-lodged as a Joint List of Agreed Issues (the two documents were substantially identical). In it, the two Preliminary Issues ordered under the Decision were divided into four and there were rival formulations over the Sub-Issues. In particular, there were rival formulations over the application of section 26(3) of the Limitation Ordinance.

The issues in the TPI

62.  As mentioned, the judge was required to determine (i) whether there was deliberate concealment of facts relevant to the new causes of action; and (ii) if so, when the concealed facts were discovered or could with reasonable diligence have been discovered by Sun (and GH) in respect of the CG Transaction and the NXG Transaction.

63.  In respect of the “relevant facts”, for the purpose of the Chargee Duty Claim and Dishonest Assistance Claim, Sun (and GH) contended that the following facts (or any one of them) relevant to their causes of action were deliberately concealed, and were not discovered or could not with reasonable diligence have been discovered by them prior to 6 March 2012: (i) the sale of the CG Shares by CHNT to Hong Chang; (ii) the consideration of the sale was HK$41,999,992.20; and (iii) it was a sale by CHNT to its nominee.

64.  For the purpose of the Partial Repayment Claim, GH contended that the following facts (or either of them) relevant to its cause of action were deliberately concealed, and were not discovered or could not with reasonable diligence have been discovered by it prior to 6 March 2012: (i) the sale of the NXG shares by SCL to Lutianhua; and (ii) out of the sale proceeds, RMB 162,539,920.35 was paid to CHNT for repayment of the Debt plus interest without giving credit for the partial repayments of RMB 5 million and RMB 19 million previously made by GH.

65.  Notwithstanding the Joint List of Agreed Issues, the defendants argued that Sun and GH are not entitled to rely upon a statutory alternative in section 26(3) of the Limitation Ordinance by which the deliberate concealment of facts may be proved. Further, they argued that the judge should not assume any facts in determining the Preliminary Issues, in particular, the breach of duty which is an element of section 26(3). These arguments, which affect the proper parameters of the TPI, are raised again on appeal.

The statutory provisions and legal principles

66.  It is best to set out the relevant provisions in section 26 of the Limitation Ordinance and the applicable legal principles before turning to the judge’s findings in the TPI.

67.  Sections 26(1)(b), (2) and (3) provide as follows :

“26. Postponement of limitation period in cases of fraud, concealment or mistake

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

…

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

…

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.

(2) References in subsection (1) to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.

(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.” (Emphasis added)

68.  The applicable legal principles are largely uncontroversial and have been set out in the Judgment. They may be summarised as follows:

(1)  Concealment under section 26(1)(b) means a deliberate concealment of any relevant fact and the limitation period would start to run from the date on which the concealment is discovered or could with reasonable diligence have discovered. The section requires only that any fact relevant to the right of action is concealed and does not require that all facts relevant to the right of action are concealed[9].

(2)  The burden of proof rests on the plaintiff to establish that: (i) there has been a relevant concealment; and (ii) he could not have discovered the concealed facts without exceptional measures which he could not reasonably have been expected to take[10].

(3)  The words “any fact relevant to the plaintiff’s right of action” are given a narrow interpretation. It is a fact without which the cause of action would be incomplete. It is not relevant that a defendant may have concealed a fact which, if known, would merely go to strengthen an existing case. It is not enough that evidence that might improve the claim is concealed, provided that the claim can be properly pleaded without it[11].

(4)  For the most part, the “statement of claim” test in (3) on the state of knowledge, which a claimant must have for time to run, has been applied. Where the issue was from what point of time it can be said that the claimant has discovered a mistake of law, it was held that limitation period is postponed until the claimant knows, or could with reasonable diligence know, the essential facts on which the cause of action is based, “with sufficient confidence to justify embarking on the preliminaries to the issue of a writ, such as submitting a claim to the proposed defendant, taking advice and collecting evidence”. This may mean that time begins to run earlier than under the “statement of claim” test[12].

(5)  Although in most cases where section 26 applies the defendant will have known the fact that he concealed was relevant, it is not essential to show the defendant must have known that the fact was relevant to the right of action[13].

(6)  Section 26(1)(b) applies to two situations: (i) active concealment of a fact relevant to the right of action; and (ii) a defendant who had failed to disclose such a fact while being under a duty to do so[14]. In respect of a failure to disclose where the defendant has a duty, the duty does not have to be a free-standing contractual, tortious or fiduciary duty. The existence of such duty is a matter of common sense and needs only be one arising from “a combination of utility and morality”[15].

(7)  Section 26(3) is intended to extend the scope of section 26(1)(b) to provide an alternative and in some cases easier means of establishing the facts necessary to bring the case within section 26(1)(b)[16]. The plaintiff needs not concentrate on the concealed facts but can instead concentrate on the commission of the breach of duty. If the circumstances are such that the plaintiff is unlikely to discover for some time that the breach of duty has been committed, the facts involved in that breach of duty are taken to have been deliberately concealed for section 26(1)(b) purposes[17].

(8)  Section 26(3) has three elements: (i) commission of a breach of duty; (ii) the breach was committed deliberately; and (iii) the breach was committed in circumstances in which it was unlikely to be discovered for some time[18].

(9)  The term “breach of duty” within section 26(3) applies to any legal wrongdoing and is not restricted to breaches of contractual, tortious or fiduciary duties[19].

(10)  On the meaning of “deliberate” under both section 26(1)(b) and section 26(3), it is not sufficient to show that the defendant deliberately or consciously carried out the act in question, the concealment of facts or breach of duty must be an intended result[20].

(11)  The test for whether a breach of duty under section 26(3) is “unlikely to be discovered for some time” is an objective one in that it does not matter whether the defendant thinks that the breach of duty is unlikely to be discovered for some time, but whether in fact that was unlikely[21].

(12)  On the meaning of “reasonable diligence”, the test is “how a person carrying on a business of the relevant kind would act if he had adequate but not unlimited staff and resources and were motivated by a reasonable but not excessive sense of urgency”[22].

(13)   Under the issue whether the claimant could with “reasonable diligence” have discovered the concealment, the question what “reasonable diligence” requires may have to be asked at two distinct stages: (i) whether there is anything to put the claimant on notice of a need to investigate; and (ii) what a reasonably diligent investigation would then reveal. At the first stage, the claimant must be reasonably attentive so that he becomes aware (or is treated as becoming aware) of the things which a reasonably attentive person in his position would learn. At the second stage, he is taken to know those things which a reasonably diligent investigation would then reveal[23].

(14)  “Reasonable” denotes an objective standard. There is an argument of the extent to which the personal characteristics of the plaintiff are to be taken into account in deciding what diligence he could reasonably have been expected to have shown[24].

Holdings in the Judgment

69.  On the ambit of the TPI, the judge held that Sun and GH are entitled to rely on section 26(3) by which the “deliberate concealment” of relevant facts can be proved[25].

70.  On the question whether any facts should be assumed in determining if there was “deliberate commission” of a breach of duty under section 26(3)[26], the judge held that in the TPI he should proceed on the assumption breaches of duty were committed for the purpose of section 26(3), leaving it to be tried at the main trial if the defendants had indeed committed the alleged breaches[27]. He went on to hold on the evidence that the assumed breaches of duty were committed deliberately[28].

71.  As to discoverability under section 26(3), the judge concluded that in respect of the CG Transaction, he was satisfied on the evidence that the breaches were committed “in circumstances in which it is unlikely to be discovered for some time”[29]. He reached the same conclusion for the NXG Transaction and made the same holding on the evidence[30].

72.  Regarding whether the concealment of relevant facts in respect of the CG Transaction and the NXG Transaction was actually discovered by Sun prior to 6 March 2012, the judge found that Sun did not know about the concealments in question, with the exception of the sale of NXG shares by SCL to Lutianhua[31].

73.  As to discoverability under section 26(1)(b) – whether the concealment of relevant facts could with “reasonable diligence” have been discovered prior to 6 March 2012 – the judge resolved the question of how the personal characteristics of Sun ought to be taken into account by applying the test of what a claimant in the position of Sun (including his house arrest and lack of funds), free of his personal traits, could have discovered with reasonable diligence[32].

74.  Applying that test, the judge found in respect of the CG Transaction and the NXG Transaction, there were matters which put Sun on inquiry during his period of house arrest, and answered the first stage question (whether there was anything to put the claimant on notice of a need to investigate) in the affirmative[33].

75.  As to the second stage question (what a reasonably diligent investigation would then reveal), the judge found that a reasonably diligent investigation would have found out from the public domain information about GEHL and such information would have revealed the CG Transaction. Thus, Sun (and GH) had failed to make out his case concerning the concealment of the sale of CG Shares and the consideration thereof[34]. However, a reasonably diligent investigation would not have revealed that the sale of CG Shares was by CHNT to its nominee Hong Chang. The judge therefore upheld the case of Sun (and GH) on deliberate concealment in respect of the nominee sale[35].

76.  For the NXG Transaction, the judge found that a reasonably diligent investigation would have revealed that credit had not been given for the partial repayments totalling RMB 24 million when the sale proceeds of the NXG shares were paid to CHNT. He therefore found against Sun (and GH) on the concealment over the NXG Transaction[36].

77.  For completeness, the judge found on the evidence that CHNT had deliberately and actively concealed the fact that the sale of CG Shares to Hong Chang was, in truth, to itself via a nominee, with the use of a draft agreement signed by Zhang with the company chop of CHNT (“Incomplete Agreement”) to mislead Sun[37]. He further found there was deliberate active concealment by Cheung (whose act was attributable to Hong Chang and Xing) from Sun of the nominee sale[38]. Had it been necessary, the judge would have found in favour of Sun (and GH) on the nominee sale based on section 26(1)(b) without reliance on section 26(3)[39].

78.  The judge therefore allowed the re-amendments sought in respect of the nominee sale (being part of the Chargee Duty Claim and the Dishonest Assistance Claim) as well as the joinder of GH as the 2^nd plaintiff[40]. He made a costs order nisi that the costs of the TPI be in the cause.

The appeals and cross-appeals

79.  Virtually all the salient holdings in the Judgment are the subject of the two appeals and the cross-appeals. A major complaint of the CHNT defendants and the HC defendants is that Sun should not have been permitted to expand the scope of the Preliminary Issues at the TPI and the judge had wrongly and unfairly allowed Sun to raise new issues and himself to make assumptions in the determination of such issues. The judge rejected these arguments as technical and without merit and dismissed them in just six paragraphs. Almost half of the written submissions of the defendants on appeal are devoted to these arguments.

80.  For the CHNT defendants, they advanced these five broad grounds of appeal in CACV 476/2022:

(1)  The judge erred to hold that the alleged fact that the CG Transaction was in truth a nominee sale was identified in the 1^st Preliminary Issue as a “relevant fact” which fell to be tried in the TPI, and to proceed to hold that Sun could not have discovered the said relevant fact with reasonable diligence before 6 March 2012. (“Scope Issue”)

(2)  The judge held that the alleged fact that the CG Transaction was in truth a nominee sale was a concealed relevant fact not discoverable with “reasonable diligence” for the purpose of the second limb of section 26(1)(b). He erred by obfuscating and conflating (i) “any fact relevant to the plaintiff’s right of action [which] has been deliberately concealed from [the plaintiff]” for the purpose of section 26(1)(b), and (ii) “the facts involved in [the] breach of duty” deliberately committed “in circumstances in which it is unlikely to be discovered for some time” for the purpose of section 26(3). (“Section 26(1)(b) 2^nd Limb Issue”)

(3)  Even if the alleged fact that the CG Transaction was in truth a nominee sale were included in the 1^st Preliminary Issue (which is denied), the judge erred by omitting to analyse or identify what specific facts relevant or leading to the conclusion or inference that the sale of the CG Shares was in truth a nominee sale could not have been reasonably discovered by Sun. (“Discoverability Issue”)

(4)  The judge erred in law to hold that for the purpose of proving “deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time” under section 26(3), the commission of the breach of duty can be assumed in the TPI. (“Assumption Issue”)

(5)  The judge erred in holding that, had it been necessary, pursuant to section 26(1)(b) without reliance on section 26(3), the CHNT defendants had deliberately concealed the fact that the sale to Hong Chang was in truth a nominee sale and had used the Incomplete Agreement to mislead Sun. (“Pre-determination Issue”)

81.  The HC defendants advanced these seven grounds of appeal in CACV 475/2022:

(1)  The judge erred in permitting Sun to digress from the Preliminary Issues in the 8.11.2018 Order and to advance a case at the TPI based on the alternative route in section 26(3). It is a serious procedural irregularity for the judge to make findings beyond the scope of the issues for the TPI. (“Scope Issue in respect of Section 26(3)”)

(2)  The judge erred in holding that the commission of a breach of duty (element (i) in section 26(3)) should be assumed in the TPI and his error is compounded by making a finding that the breach was committed deliberately (element (ii) in section 26(3)) based on the assumed facts. (“Assumption Issue”)

(3)  The judge was wrong to find that the breach of duty was committed in circumstances in which it was unlikely to be discovered for some time (element (iii) in section 26(3)). (“Element (iii) in Section 26(3) Issue”)

(4)  The judge erred in treating the alleged nominee sale as a “relevant fact” included in the 1^st Preliminary Issue, and, without making any finding on such relevant fact, ruled that Sun (and GH) also succeeded in establishing there was deliberate concealment of the alleged nominee sale under section 26(1)(b). (“Scope Issue in respect of Section 26(1)(b)”)

(5)  The judge was plainly wrong to find that the HC defendants were guilty of concealment of the alleged nominee sale under section 26(1)(b). (“Deliberate Concealment Issue in respect of Section 26(1)(b)”)

(6)  The judge was plainly wrong in failing to hold that Sun (and GH) knew of the alleged nominee sale or could have discovered it with reasonable diligence. (“Discovery with Reasonable Diligence Issue”)

(7)  The judge erred in making findings unnecessary for the disposal of the issues at the TPI. (“Unnecessary Findings Issue”)

82.  The plaintiffs (Sun and GH) filed respondents’ notices in CACV 475/2022 and CACV 476/2022 by way of cross-appeal, seeking to reverse the judge’s decision in refusing the amendments in respect of (i) the sale of the CG Shares at an undervalue, being part of the Chargee Duty Claim and the Dishonest Assistance Claim; and (ii) the Partial Repayment Claim. They advanced three broad grounds in the cross-appeals:

(1)  The judge applied the wrong legal test for “reasonable diligence” under section 26(1)(b). (“Test for Reasonable Diligence Issue”)

(2)  The judge misapplied the test for reasonable diligence. (“Misapplication of Reasonable Diligence Test Issue”)

(3)  The judge erred in finding that a reasonably diligent investigation would have revealed that credit had not been given for the partial repayments totalling RMB 24 million. (“Erroneous Finding on Partial Repayments Issue”)

83.  We will consider the various issues relating to scope and assumption raised by the CHNT defendants and HC defendants, followed by the issues raised by the defendants in their respective appeals and then those raised by the plaintiffs in their cross-appeals.

84.  Before we turn to the issues on appeal, we will deal with the costs of the plaintiffs’ application to amend their respondents’ notice in CACV 476/2022 by a summons issued on 9 April 2024 (about two weeks before the hearing of the appeal), which was vigorously opposed by Mr YL Wong.

The application to amend the respondents’ notice in CACV 476/2022

85.  At the outset of the hearing of the appeal, we granted leave to the plaintiffs to amend their respondents’ notice in CACV 476/2022 and reserved the costs of this application to be dealt with in this judgment.

86.  The amendments to the respondents’ notice in CACV 476/2022 are to add a new ground in §4 (“New Ground”) on why the judge’s decision to allow the amendments in RRASOC in respect of the nominee sale under the Chargee Duty Claim should be affirmed. This paragraph reads as follows:

“The nominee sale claim is a legal conclusion on the existing pleaded facts

4. The proposed re-amendments on the nominee sale claim[41] do no more than repeating the existing pleas in the original Statement of Claim[42], which have already alleged the sale of the CG Shares being a nominee sale by CHNT to Hong Chang on the assumption that the Debenture is genuine. Even without the proposed re-amendments, there can be no valid objection for the Plaintiffs to advance the Chargee Duty Claim at the main trial in respect of the nominee sale, given that CHNT’s breach of duty as chargee is nothing but a legal conclusion on the existing pleaded facts and the proposed amendments only serve the purpose of clarifying the issue in dispute. Accordingly, allowing the re-amendments in respect of the nominee sale under the Chargee Duty Claim would not deprive the CHNT Defendants of a limitation defence due to the relation back principles, as the relevant claim could be made without the amendments. The Judge’s decision to allow the amendments should be upheld on this basis alone.”

87.  The New Ground was advanced as an additional argument to deal with the Scope Issue raised by the CHNT defendants. The plaintiffs’ arguments on the New Ground have been made in §§3 to 7 of their skeleton arguments in response in CACV 476/2022 lodged also on 9 April 2024. With leave granted to amend the respondents’ notice, the merits of the New Ground will be addressed when we consider the Scope Issue in the appeal.

88.  By letter dated 10 April 2024, the CHNT defendants indicated their objection to the application to amend the respondents’ notice on these grounds: (i) the application was inexplicably late; (ii) the application disrupted the disposal of the appeal and prejudiced their preparation of the appeal; and (iii) the proposed amendments are unarguable in that the assertion that the amendments are purely a legal argument is wrong and they also amount to a collateral attack on the Decision that leave to amend was required for the Chargee Duty Claim.

89.  In Mr YL Wong’s submissions to oppose this application, apart from contending that the New Ground is unarguable, he argued that the plaintiffs should not be allowed to pursue the New Ground by reason of issue estoppel (res judicata in the strict sense) and/or abuse of process (res judicata in the wider sense).

90.  We do not think the application to amend the respondents’ notice should have been opposed and the grounds of opposition are without merit. Our reasons are as follows.

91.  First, on issue estoppel, Mr YL Wong pointed out it was argued before DHCJ Le Pichon that the nominee sale (which was part of the Chargee Duty Claim) arose out of the same facts already pleaded in respect of which relief has been claimed in the existing action, and hence an amendment pleading a new cause of action that is time-barred is permissible under section 35(6)(a) of the Limitation Ordinance (“Section 35(6)(a) Argument”). This is borne out by the skeleton argument of Sun and GH before DHCJ Le Pichon.

92.  Of the four new causes of action that are the subject of the application to further amend the statement of claim (Chargee Duty Claim, Dishonest Assistance Claim, Partial Repayment Claim and Double Recovery Claim), DHCJ Le Pichon only upheld the Section 35(6)(a) Argument in respect of the Double Recovery Claim. She stated that as GH is a proposed new party, it will be necessary to establish deliberate concealment for the amendments on all four claims to be allowed for GH[43]. She also stated that deliberate concealment is relevant to the Chargee Duty Claim, Dishonest Assistance Claim, Partial Repayment Claim, and relevant to the Double Recovery Claim only if the Section 35(6)(a) Argument fails[44].

93.  From the above, Mr YL Wong in effect asked us to deduce that in the Decision, DHCJ Le Pichon had rejected the Section 35(6)(a) Argument with regard to the nominee sale which was part of the Chargee Duty Claim. We decline to make any such deduction.

94.  For issue estoppel to apply, there must be an actual determination of the issue in the earlier proceedings. We do not think DHCJ Le Pichon had actually determined the issue. It is not apparent in the Decision that she had considered the Section 35(6)(a) Argument with regard to the Chargee Duty Claim. Nor could any reasons be found for rejecting the argument with regard to the Chargee Duty Claim, if she had indeed rejected it. There is no need to speculate why the argument was not dealt with in the Decision. What is certain is that there was no determination.

95.  Second, we do not think abuse of process is made out in this instance. Sun and GH had raised the Section 35(6)(a) Argument with regard to the Chargee Duty Claim before DHCJ Le Pichon, and they accepted that the argument does not apply with regard to GH’s claims. We do not agree with the contention that the New Ground is a collateral attack on the Decision.

96.  Third, the threshold of arguability for allowing an argument to be run by amending the respondent’s notice is not high. We are satisfied that the threshold is reached and will address the merits of the arguments for and against the New Ground in the appeal.

97.  As the CHNT defendants have not succeeded in opposing this application, they should not have the costs incurred for opposing the application. Since some of the arguments made will be considered in the appeal and the work done could not be said to be entirely unnecessary, it would be fair to make no order as to costs regarding the work done for arguing the summons.

98.  We make an order nisi that the costs of and incidental to this application be to the CHNT defendants in any event, save that there be no order as to the costs incurred in relation to the work for arguing the summons.

Scope Issue (CHNT defendants and HC defendants)

(1)  The arguments of the CHNT defendants

99.  As mentioned, this is a focal point in the appeals, notwithstanding that substantially the same arguments have been made by the defendants before the judge.

100.  Mr YL Wong’s contention that the nominee sale was outside the scope of the 1^st Preliminary Issue may be summarised as follows.

101.  First, this is apparent from the plain reading of the 1^st Preliminary Issue and the genesis of the TPI.

102.  The relevant fact identified in the 1^st Preliminary Issue in the 8.11.2018 Order is just a neutral fact, namely, “the fact of the sale of the [CG Shares] at a consideration of HK$41,999,992.20 on 29 August 2005”. The TPI was to determine if this relevant fact was “deliberately concealed by [CHNT, Hong Chang, Xing and Cheung] or any of them from [Sun and GH] or either of them, and whether [Sun and GH] or either of them discovered the fact or could with reasonable diligence have discovered it prior to 6 March 2012”.

103.  The above neutral fact was the “relevant fact” considered by DHCJ Le Pichon. There is no mention of section 26(3) in the 1^st Preliminary Issue.

104.  Second, in the 5.9.2019 Order of the judge, Sun was required to identify the parts of his evidence, which had already been filed, on which he would be relying for his case on the Preliminary Issues. In lieu of pleadings, the parties were ordered to exchange witness statements confined to the Preliminary Issues.

105.  In compliance with the 5.9.2019 Order, the plaintiffs’ solicitors wrote to the other parties on 11 September 2019 identifying the parts of his evidence already filed and which he would be relying on[45].

106.  In Sun’s 4^th affirmation[46], he made no mention that the CG Transaction was in truth a nominee sale, see §§25(4), 26 and 27[47]. Likewise, in Sun’s 1^st witness statement[48], he alleged concealment of the neutral fact without referring to the sale being in truth a nominee sale, see §§98 to 99. In the plaintiffs’ opening submissions at the TPI, it was stated in §3 that for the Chargee Duty Claim, the Dishonest Assistance Claim and GH’s Double Recovery Claim, the “relevant facts” for the purpose of deliberate concealment were “(1) the fact of the sale of the CG Shares by [CHNT] to [Hong Chang]; and (2) the fact that the consideration of the sale was HK$41,999,992.20”.

107.  The CHNT defendants formulated the Sub-Issues in the Joint List of Agreed Issues on the basis of and after the evidence admissible to the TPI had been identified by Sun.

108.  Third, that the nominee sale was outside the scope of the 1^st Preliminary Issue is also apparent from the Joint List of Agreed Issues and Sun’s formulation in the disagreed Sub-Issues.

109.  In the Agreed Issues, §1[49] addressed “deliberate concealment” in the first limb of section 26(1)(b) and §2[50] addressed discoverability in the second limb of section 26(1)(b). This confirmed that the “relevant fact” for both limbs of section 26(1)(b) is only the neutral fact of the sale of the CG Shares.

110.  In Sun’s version of the disagreed Sub-Issue §(1)[51] on §1 of the Agreed Issues, this paragraph did not include “nominee sale” as a relevant issue for the TPI.

111.  In Sun’s version of the disagreed Sub-Issue §(2)[52] on §1 of the Agreed Issues, the alternative route in section 26(3) was invoked to prove “deliberate concealment” under section 26(1)(b). However, §§1 and 2 of the Agreed Issues remained unchanged. Further, Sun deliberately skipped element (i) of section 26(3) (commission of breach of duty) and merely raised elements (ii) (breach of duty committed deliberately) and (iii) (breach committed in circumstances unlikely to be discovered for some time) as issues for the TPI and asked the judge to assume element (i) at the TPI.

112.  In Sun’s formulation in disagreed Sub-Issue §(3) on §1 of the Agreed Issues, he referred to §§69 to 76 of Zhang’s witness statement, but these paragraphs have nothing to do with the alleged fact of the sale of the CG Shares being in truth a nominee sale.

113.  In Sun’s formulation in the disagreed Sub-Issues on §2 of the Agreed Issues, there was no reference to “nominee sale” or to §§87 to 89 of the draft RASOC.

114.  The judge wrongly held[53] that the defendants should have adduced evidence at the TPI to address the alleged “nominee sale” by reason of the parties’ disagreement over the applicability of section 26(3) as recorded in Sun’s version and the defendants’ version of the Sub-Issues.

115.  Although the CHNT defendants accepted that the applicability of section 26(3) was an issue for trial at the TPI, they disagreed with Sun’s formulation of the Sub-Issues. In the defendants’ version of the disagreed Sub-Issue §(3) on §1 of the Agreed Issues[54], the question to be determined is “in entering into the [CG Transaction], whether there was a ‘deliberate commission’ of a breach of duty … ‘in circumstances in which it is unlikely to be discovered for some time’ by [Sun] and/or [GH]”. The relevant facts as formulated by the CHNT defendants did not include “nominee sale” as part of the issue for the TPI and was just the neutral fact of sale, the same as in §1 of the Agreed Facts.

116.  Fourth, the alleged fact of the sale being “in truth a nominee sale” is not a direct primary fact but a legal inference, as made clear in ASOC at §§43 and 44, which pleaded averments that “in fact [Hong Chang] was merely acting as a nominee or agent for [CHNT] in the acquisition of the shares in [CG]” and that “one of the purposes of having the 29 August 2005 Agreement was to hide the identity of [CHNT] as being the real purchaser of the 999 shares in that under the forged Debenture, [CHNT] could not sell them to itself and hence [Hong Chang] was used as a nominee for acquiring such shares to hide the true identity of the ‘purchaser’ from the public”.

117.  As the limitation period is not prevented from running where the plaintiff knew the facts even though he was not able to draw the proper legal inference from the facts[55], the legal inference mentioned above is not a “relevant fact” for the purpose of section 26. And by advancing the New Ground in the amended respondents’ notice with the heading “The nominee sale claim is a legal conclusion on the existing pleaded facts”, the plaintiffs no longer maintain the allegation that the sale was a nominee sale is a “relevant fact”, as it is a “legal conclusion” based on primary facts.

118.  Fifth, in formulating the 1^st Preliminary Issue, Sun deliberately refrained from including the alleged fact of the sale being “in truth a nominee sale” as a “relevant fact”, when it was already alleged in ASOC and the draft RASOC that Hong Chang was CHNT’s nominee in the sale of the CG Shares. The only “relevant fact” in the 1^st Preliminary Issue allegedly concealed from Sun deliberately and not reasonably discoverable was the neutral fact of the sale of the CG Shares at a consideration of HK$41,999,992.20 on 29 August 2005. The precise identification of the “relevant fact” by a plaintiff as deliberately concealed goes to the balance to be struck in section 26 as a matter of legislative intent[56]. “If the claimant can plead a claim without needing to know the fact in question” (in this instance this would be the alleged fact of the sale being “in truth a nominee sale”), “there would appear to be no good reason why the limitation period should not run”[57]. The precise scope of “relevant facts” is a crucial matter and not a technical argument as the judge had thought[58].

119.  The judge wrongly expanded the “relevant facts” ex post facto, without amending the Preliminary Issues[59]. This error has resulted in gross injustice and unfairness to the CHNT defendants, who had prepared their case for the TPI on the basis of the Preliminary Issues as formulated and ordered. They were deprived of a limitation defence when the judge allowed the amendments in respect of the nominee sale. His finding of fact that the sale of the CG Shares was “in truth” a nominee sale which was deliberately and actively concealed by CHNT[60], may give rise to an issue estoppel against the CHNT defendants regarding the alleged breach of duty as chargee in the main trial. CHNT was deprived of the opportunity to properly refute the allegations relating to “nominee sale” by pleadings, witness statements, documentary evidence and cross-examination. In particular, the full evidence relating to the repayment of liabilities of CG, GEHL and/or XM by Hong Chang using its own funds (via Honour Luck Investment Ltd upon payment of RMB 170 million to ICBC) subsequent to the CG Transaction was mentioned in the Judgment (at §65) but not considered. Further, the evidence of an essential party, Kingston Securities, was not before the judge in the TPI.

120.  The above prejudice to the CHNT defendants cannot be saved by their answering questions on the nominee sale during cross-examination in the TPI[61]. Mr YL Wong had protested to the judge that he was in difficulty before Zhang was called to testify and he was not acquiescing to cross-examination on issues outside the scope, but the judge did not heed his objections.

(2)  The arguments of the HC defendants

121.  Mr A Wong made submissions on the Scope Issue in respect of section 26(3) and section 26(1)(b). He adopted Mr YL Wong’s submissions insofar as they overlap with his. It is not necessary to repeat his submissions that are identical or similar, and we will only mention his different or additional submissions, which may be summarised as follows.

122.  First, section 26(3) was never raised before DHCJ Le Pichon and was only raised in the disagreed Sub-Issues pursuant to §6 of the 5.9.2019 Order, after the close of the parties’ evidence. Unless the plaintiffs had applied to the court in good time before the TPI to broaden the issues and the court had granted such an application, it is unfair and wrong to hold that the defendants knew that section 26(3) was in issue at the TPI and should be prepared to contest the case on such new basis[62].

123.  Second, it is unfair and wrong to hold that the defendants could not complain about not putting in evidence to address the issues in section 26(3) when the evidence and the conduct of the TPI had been prepared on the basis that they would be confined to the Preliminary Issues set out in Schedule A to the 8.11.2018 Order, and to criticise the complaint as “self-inflicted”[63].

124.  Third, had section 26(3) been raised before DHCJ Le Pichon, her ladyship might not have acceded to the plaintiffs’ suggestion for a TPI, since the issues involved in section 26(3) cannot be realistically isolated from the issues to be resolved at the main trial[64].

125.  Fourth, the action had not proceeded beyond discovery, which had been made before the new claims were sought to be introduced by the proposed amendments. The HC defendants did not have adequate opportunity to prepare their case on the alternative route of section 26(3), in particular elements (i) (commission of breach of duty) and (ii) (breach of duty committed deliberately), for which discovery has not been made. It is unfair and procedurally irregular for the judge to rule in the plaintiffs’ favour on section 26(3).

126.  Fifth, the plaintiffs only sought to expand their case on the alleged nominee sale as a “relevant fact” under section 26(1)(b) by suggesting that the HC defendants had deliberately concealed the same in cross-examination and at the closing submissions of the TPI (at §115).

127.  Sixth, the judge was wrong to brush aside such procedural irregularity as “technical argument”. As the alleged nominee sale was not raised before DHCJ Le Pichon, there was no argument whether this would qualify as a “relevant fact” within section 26(1)(b) (as the alleged nominee sale is an inference to be drawn from primary facts), and no argument whether it would be appropriate to direct a TPI to resolve the issue if such relevant fact was deliberately concealed or discoverable with reasonable diligence.

128.  Seventh, the judge cannot justify his wrong approach by relying on the fact that the alleged nominee sale was pleaded, in that §88(1) of the draft RASOC repeated §§43, 44, 80(1) and (2) of the original statement of claim[65]. The issues to be resolved at the TPI are defined by the terms of the order directing the TPI and cannot be extended by reference to the pleadings. And the HC defendants were not aware of the plaintiffs’ intention why certain documents were inserted into the trial bundles of the TPI.

(3)  Discussion

129.  We will first deal with the New Ground advanced by the plaintiffs in the amended respondents’ notice in CACV 476/2022, namely, that there can be no valid objection to advance the Chargee Duty Claim at the main trial in respect of the nominee sale, even without the proposed amendments in §§87 and 88(1) of the draft RASOC. This contention was not raised before the judge. If this contention were upheld, insofar as Sun is concerned, the appeal of the CHNT defendants should be dismissed and there would be no need to consider any of the five broad grounds of appeal raised by those defendants. The New Ground is applicable only to Sun’s Chargee Duty Claim against CHNT in respect of the nominee sale. Mr Ho accepted it remains necessary for GH to show deliberate concealment in relation to all new claims (including the Chargee Duty Claim) for the amendments to be allowed, as GH is a proposed new party.

130.  The submission of Mr Ho on the New Ground is a simple one and is based on the premise that the nominee sale was fully and squarely pleaded in the original statement of claim. §88(1) of the draft RASOC does no more than repeating §§43[66], 44[67] and 80[68] of the original statement of claim, and these paragraphs have squarely alleged that the sale of the CG Shares to Hong Chang was as the nominee of CHNT with the latter as the real purchaser. The claims sought to be introduced by way of amendments to the draft RASOC are on the assumption that the Debenture was genuine, contrary to the plaintiffs’ primary case[69]. Mr Ho drew attention to the fact that in this connection, §§80(1) and (2) of the original statement of claim are also on the assumption that the Debenture was genuine.

131.  Mr Ho referred to well-established principles that it is sufficient for the pleader to state the material facts and not the legal result, and if for convenience he does state the legal result, he is not bound by or limited to his pleading and can present in argument any legal consequence of which the facts permit[70]. CHNT’s breach of duty as chargee is nothing but a legal conclusion on the existing pleaded facts, the allegations in §88(1) of the draft RASOC are the same material facts pleaded in the original statement of claim and the proposed amendments only serve the purpose of clarifying the issue in dispute. The upshot is that allowing the proposed amendments in §§87 and 88(1) of the draft RASOC would not deprive the CHNT defendants of a limitation defence due to the doctrine of relation back, as the relevant claim could be made without the amendments. The New Ground does not engage the Flywin[71] objections as this is a pure point of law. The judge’s decision should be upheld for this reason alone.

132.  Mr YL Wong submitted that the New Ground is plainly unarguable. We have already rejected his contentions based on issue estoppel and abuse of process when we dealt with the plaintiffs’ application to amend the respondents’ notice. He pointed out further that in the original statement of claim, the allegation of nominee sale was used to support two causes of action against CHNT and Hong Chang, namely, conversion by a fraudulent scheme (at §§35 to 45) and constructive trust as a result of the conversion of the CG Shares (at §§79 to 83), both on the basis of the Debenture being forged. In §§87 and 88(1) of the draft RASOC, the allegation of nominee sale is used to support an alternative cause of action, namely, the Chargee Duty Claim, on the inconsistent basis of the Debenture being genuine and valid.

133.  We do not accept Mr YL Wong’s submission. Under Order 18 rule 12A, it is permissible to plead in the alternative an allegation of fact (that the Debenture was genuine) which is inconsistent with another allegation of fact in the same pleading (that the Debenture was forged). Nominee sale as a material fact has been pleaded in the original statement of claim in respect of two causes of action as mentioned above, on the allegation of fact that the Debenture was forged. There is no reason why this existing material fact of nominee sale cannot be used to support another cause of action on an inconsistent but alternative allegation of fact that the Debenture was genuine. We are inclined to agree with Mr Ho that allowing the proposed amendments in §§87 and 88(1) of the draft RASOC would not deprive the CHNT defendants of a limitation defence due to the doctrine of relation back, as Sun can raise in argument the legal consequence of which the existing pleaded facts permit, even without the amendments.

134.  The result is that insofar as Sun’s Chargee Duty Claim against the CHNT defendants in relation to the nominee sale is concerned, the judge’s decision in allowing the re-amendments sought in respect of the nominee sale is affirmed on the New Ground, the appeal of the CHNT defendants in CACV 476/2022 is dismissed, and there is no need to consider any of the grounds of appeal pertaining to this decision of the judge.

135.  The New Ground does not apply to other new causes of action and to claims involving a proposed new party. Thus, it is still necessary to deal with all the grounds of appeal affecting the HC defendants (for the Dishonest Assistance Claim in respect of the nominee sale) and the new party GH (for the Chargee Duty Claim, the Dishonest Assistance Claim and the Partial Repayment Claim).

136.  We are in agreement with the judge that the arguments of Mr YL Wong and Mr A Wong on the Scope Issue, which have been advanced before him substantially, should be rejected. Our reasons are as follows.

137.  First, we reject the defendants’ approach that the Scope Issue should be akin to a pleading point in construing strictly the preliminary issues as framed in the 8.11.2018 Order and the subsequent Joint List of Agreed Issues and disagreed Sub-Issues. The focus of the hearing before DHCJ Le Pichon was not on the formulation of the preliminary issues to be tried. Hence, flexibility was given to the judge who had the conduct of the TPI on the formulation of the preliminary issues. Pursuant to §1 of the 8.11.2018 Order, the preliminary issues to be tried as formulated in Schedule A annexed thereto were “subject to any amendments as may be considered appropriate by the Judge assigned to conduct the [TPI]”. The judge had the ultimate power to determine the formulation of the preliminary issues. It must be plain to the parties that the TPI would proceed on the list of issues ordered by the judge.

138.  The directions hearing in respect of the TPI came before the judge on 5 September 2019. By §§6 and 7 of the 5.9.2019 Order, the parties were to agree a list of issues and be bound by the agreed issues. The issues were intended to feature as if they were identified in pleadings. The list of issues was not meant to supersede the pleadings. There is no justification to take an unduly narrow view that the deliberately concealed “relevant fact” identified in the preliminary issues should be confined to the fact of the sale of the CG Shares and its consideration. The relevant fact deliberately concealed referred to in §1 of the 8.11.2018 Order must be understood in light of the existing pleading, of which §§43, 44 and 80 had pleaded the sale of the CG Shares was to Hong Chang as the nominee of CHNT. In other words, the alleged nominee sale is a feature of the sale of the CG Shares and the entire sale, on the plaintiffs’ case, was deliberately concealed by the defendants.

139.  Second, we do not agree with Mr YL Wong’s contention that the alleged nominee sale is not a fact but a legal inference based on primary facts and does not qualify as a “relevant fact”, in that limitation is not prevented from running where a plaintiff knew the facts but was unable to draw the legal inference. The correct way of looking at this is that the conclusion of a nominee sale was arrived at by inference drawn from direct evidence of primary facts and this conclusion or finding remains a fact (Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 WLR 577 at §14); it is not a legal inference in the sense as explained in the FII Group case at §206.

140.  Third, section 26(3) is an alternative route for establishing deliberate concealment under section 26(1)(b). The fact that there was no express reference to section 26(3) in the 8.11.2018 Order or that this provision was not canvassed before DHCJ Le Pichon is immaterial.

141.  Besides, section 26(3) is mentioned in both the plaintiffs’ version and the CHNT defendants’ version of the Sub-Issues. The HC defendants had indicated their agreement to the proposed list of issues of the CHNT defendants[72].

142.  In the plaintiffs’ version of the Sub-Issues relating to section 26(3), the breach of duty complained of included CHNT’s breach of duty as chargee for selling the CG Shares to its nominee, as reference was made to §§87 to 89 of the draft RASOC which included §88(1). That it was a nominee sale was clearly a significant fact involved in that breach of duty. In the plaintiffs’ formulation, the court was invited to assume there was commission of a breach of duty (element (i)), and then to determine whether the breach as pleaded in §§87 to 89 of the draft RASOC was committed deliberately and in circumstances in which it was unlikely to be discovered for some time (elements (ii) and (iii)).

143.  We do not agree with Mr YL Wong’s contention that the CHNT defendants’ version of the Sub-Issues relating to section 26(3) did not involve the nominee sale. The relevant part read: “In entering into the [CG Transaction], whether there was a deliberate commission of a breach of duty” by CHNT, Hong Chang, Xing and Cheung or any of them “in circumstances in which it is unlikely to be discovered for some time”. Although “breach of duty” was not defined in this formulation, we agree with Mr Ho it would be sensible to understand this in the context of the plaintiffs’ pleaded breach of duty in §§87 to 89 of the draft RASOC including §88(1) which pleaded CHNT’s breach of duty by selling to its nominee.

144.  In the CHNT defendants’ formulation, they asked the court to determine all three elements for the purpose of the section 26(3) issue[73]. In the written opening submissions of the HC defendants at the TPI, they contended there should be determination of whether there were breaches of duty, as this is an element of section 26(3), and the applicability of section 26(3) was one of the issues[74].

145.  As rightly found by the judge[75], section 26(3) was plainly an issue in the TPI, even though the parties could not agree on the formulation of the Sub-Issues for section 26(3).

146.  Fourth, the defendants could not have suffered any possible prejudice and there was no injustice or unfairness to them.

147.  Before the TPI, the parties went through the process of agreeing the trial bundle index to include discovered documents. The plaintiffs relied on some of the discovered documents to prove the nominee sale, such as the interview records of Zhang[76] and Ma[77] with the Jilin PSB, in that they would appear to contain admissions that the sale of the CG Shares was to Hong Chang as CHNT’s nominee. These documents, which are apparently relevant to the issue of nominee sale and breach of duty, were included in the trial bundle of the TPI without any objection taken by the CHNT defendants or the HC defendants.

148.  The Joint List of Agreed Issues was filed in January 2020. For more than two years, the parties proceeded on the basis of those issues in preparing for the TPI.

149.  In light of the Agreed Issues and disagreed Sub-Issues, whether CHNT breached its duty as chargee by selling the CG Shares to its nominee Hong Chang, whether such breach was deliberate and whether the nominee sale was conducted in circumstances in which it was unlikely to be discovered for some time, were all issues for trial in the TPI. Cross-examination of the defendants’ witnesses had been conducted on that basis.

150.  The defendants could have applied to file further evidence in the two-year period before the hearing of the TPI. We agree with Mr Ho that the subsequent protestations of the defendants they had prepared evidence and made disclosure on the basis that the section 26(3) issue would not be tried are contrived. Their protestations are inconsistent with their respective positions as mentioned earlier, namely, that the judge in the TPI should determine all three elements for the purpose of the section 26(3) issue, or that there should be determination of whether there were breaches of duty.

151.  The defendants were not deprived of a limitation defence when amendments were allowed in respect of the nominee sale. The judge did not make a positive finding in §197 that CHNT had breached its duty as chargee by selling to its nominee and this does not give rise to an issue estoppel against the CHNT defendants in the main trial regarding the alleged breach of duty as chargee. Rather, he made a finding that CHNT had deliberately and actively concealed the fact of the sale being a nominee sale with the use of the Incomplete Agreement, on the assumption that there had been a breach of duty as chargee to exercise the power of sale in good faith by selling to its nominee. The defendants were not deprived of the opportunity to refute the allegation of breach of duty by adducing such evidence as appropriate in the main trial.

152.  For the above reasons, we reject the grounds of appeal of the CHNT defendants and the HC defendants on the Scope Issue.

Assumption Issue (CHNT defendants and HC defendants)

153.  The Assumption Issue was vigorously argued before the judge. The arguments before us have been made to the judge to a large extent.

(1)  The arguments of the CHNT defendants

154.  Mr YL Wong contended that the judge erred in law in holding[78] that for the purpose of proving deliberate concealment under section 26(3), the commission of the breach of duty (element (i)) can be assumed in the TPI. The plaintiffs must prove all three elements in section 26(3) at the TPI. There is no room for any assumption for a plaintiff wishing to rely on the alternative route in section 26(3) to prove the first limb of section 26(1)(b) (any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant). The judge erred by holding[79] that elements (ii) and (iii) could be proved and were proved in this instance on the assumption that the alleged breach of duty had taken place. He also erred in rejecting the proposal of the HC defendants and CHNT defendants that leave to amend should only be granted on condition that elements (i) and (ii) be proved at the main trial[80].

155.  The judge’s approach of making an assumption of commission of the breach of duty is unsupported by authority, notwithstanding his reliance[81] on Brown v Bird & Lovibond [2002] EWHC 719 and Julien & Ors v Evolving Tecknologies and Enterprise Development Co Ltd [2018] UKPC 2 for the proposition that it is not unusual for assumptions to be made for the purposes of a TPI. The TPIs in those cases did not concern the relation-back doctrine. His approach goes against the plain wording and legislative intent of section 26 and the purpose of the TPI.

156.  Mr YL Wong argued that if commission of the breach of duty is assumed, in determining whether elements (ii) and (iii) are proved (breach was committed deliberately and in circumstances in which it was unlikely to be discovered for some time), the court will find elements (ii) and (iii) established, as a matter of “automatic inference” from the very nature of the breach alleged in element (i). In opposing the assumption of element (i), the defendants had complained to the judge that if the breaches of duty were assumed, the deliberateness element would be a walkover[82].

157.  Section 26(3) applies only in situations where the defendant was “guilty of deliberate wrongdoing”[83], so plainly deliberate wrongdoing must be proved, not assumed. “Reckless” will not suffice for this provision[84]; “deliberate” requires the plaintiff to prove that the defendant knows that his acts were actually wrong[85]. Hence, knowledge that one’s acts were wrong presupposes that such acts were in fact wrong by proving the facts surrounding the wrong.

158.  The judge was wrong to hold[86] that the CHNT defendants would not be prejudiced if the amendments were allowed and ultimately they were not found to be in breach of duty. A limitation defence is distinct from the merits of the claim. His assumption approach deprives the CHNT defendants of the opportunity to argue that the plaintiffs have failed to prove each of the three elements in section 26(3) by reference to the facts as found, so that the limitation defence prevails. Instead, the CHNT defendants are left with the option to defend the new claim as a matter of merits in the main trial.

(2)  The arguments of the HC defendants

159.  Mr A Wong likewise contended that the judge erred in holding that element (i) of section 26(3) should be assumed and the judge compounded his error by making a finding on element (ii) on assumed facts. His arguments are similar to Mr YL Wong and will not be repeated where there is similarity.

160.  Mr A Wong submitted that the judge has no jurisdiction to apply section 26(3) based on his assumption of facts, as section 26 is construed strictly against plaintiffs and a plaintiff who proposes to invoke section 26(1)(b) to defeat a limitation defence must prove the facts necessary to bring the case within that provision[87].

161.  As the judge has accepted[88], elements (i) and (ii) in section 26(3) are intertwined or closely related. Given that the breach complained of against the HC defendants (dishonest assistance) involves dishonesty, once it is assumed such breach did happen, it would be inevitable to find that the breach was committed deliberately, which was what the judge did[89]. Hence, it is grossly unfair and plainly wrong for the judge to find element (ii) satisfied when he merely made an assumption in relation to element (i).

162.  As for Brown v Bird & Lovibond (at §3) and Julien & Ors v Evolving Tecknologies (at §11), these cases do not concern limitation issues in the context of amendment applications. They only demonstrate that where a limitation defence is invoked, the courts may exercise its case management powers to direct certain limitation issues be resolved as preliminary issues in a TPI. However, where a limitation issue is raised in an amendment application to introduce a new claim, the court cannot give leave to amend and leave certain elements of the limitation issue to be resolved at the trial because once the amendment is granted, the defendant would be automatically deprived of the limitation defence by reason of the relation-back doctrine[90].

163.  The cases cited by the judge[91] do not support his approach. In Global Bridge Assets Ltd v Sun Hung Kai Finance Ltd at §§19 to 24, it was emphasised that it is incorrect to give leave to amend to add new claims where there is a triable issue on limitation. In Roberts v Gill at §96, it was stated that the court acted on the principle it would not be just to deprive the defendant of a vested right of defence and amendment would be allowed only on terms that it was not to prejudice the defence.

(3)  Discussion

164.  The judge’s reasoning for proceeding on the basis of an assumption for element (i) for the purpose of section 26(3) is straightforward[92]. In an amendment application to include new claims in respect of which the limitation period has prima facie expired, the starting point is that the court should not make any definitive finding in the TPI unless strictly necessary to do so. Logically, if the plaintiffs are unable to establish the breaches of duty alleged in §§87 to 90 of the draft RASOC at the main trial, the new claims would fail and the defendants would not have to rely on any limitation defence. Thus, leaving element (i) to be tried at the main trial (and it is an issue of the main trial in any event) would not prejudice the limitation defence. Put another way, the court should only be required to make definitive findings of fact so as to ensure that allowing the amendments would not occasion any injustice to the defendants. Allowing an amendment (and correspondingly depriving the defendants of a limitation defence) will not result in injustice if ultimately the defendants are not found to be in breach of duty. The converse is that if they are ultimately found to be in breach of duty, the assumption of element (i) would have been rightly made. Thus, the judge proceeded on the assumption as mentioned having been satisfied that the amendments would not subvert a limitation defence[93].

165.  He rejected the defendants’ proposal of granting leave to amend on condition that elements (i) and (ii) be proved at the main trial as he regarded this as “tactical cherry-picking”. The defendants are not entitled to insist on the determination of selected issues in the TPI which, if determined in their favour, would defeat the amendments, and defer all other issues to the main trial[94].

166.  The judge was mindful of the relationship between elements (i) and (ii) and the defendants’ contention of inevitable inference for element (ii), in considering whether both elements should be left to trial or whether element (ii) should be determined on the assumption of element (i). He found that the latter course presented no difficulty, having regard to the nature of the breaches as well as the evidence of Zhang, Ma and Cheung, which supported the finding that the assumed breaches of duty must be intended results and were deliberate[95].

167.  The judge’s decision to proceed on the assumption of element (i) is an exercise of his case management powers. The exercise of his discretion should not be disturbed unless it is shown that he has erred in principle, or has taken irrelevant matters into account, or failed to take into account relevant matters, or is plainly wrong. We are not persuaded there is any valid basis to interfere with his case management powers. The defendants would not be unjustifiably deprived of a limitation defence by reason of the relation-back doctrine, as there would be no subversion of any limitation defence if breach of duty is not proved at the main trial. They would have full opportunity to argue at the main trial whether there was commission of a breach of duty.

168.  In the exercise of the court’s case management powers, appropriate assumptions may be made for the purpose of the preliminary issue to be determined in a TPI. In Cave v Robinson Jarvis & Rolf, the breach of duty of the defendants was assumed and the judge in the TPI went on to determine whether the assumed breach would have been unlikely to be discovered for some time such that section 32(2) of the Limitation Act 1980 (equivalent to our section 26(3)) should apply[96]. The determination in the TPI was appealed all the way to the House of Lords and no objection was taken to the assumption made.

169.  In Julien & Ors v Evolving Tecknologies[97], the Court of Appeal of the Republic of Trinidad and Tobago ordered a TPI to determine discoverability for the purpose of section 14(2) of the Limitation of Certain Actions Act (equivalent to our section 26(3)) and rejected the contention that a finding of deliberate breach of duty must be made. It was held that it would be sufficient to assume such a breach and to proceed to the question of discoverability in a TPI, in that a decision on discoverability required no initial finding of an actual breach[98]. If the alleged breach was discoverable in the sense of section 14(2), the defendants would have an unanswerable limitation defence, regardless of whether the breach was or was not deliberate, and they ought not to be put to a full trial for the determination of that question, since to do so would deprive them of a main intended benefit of the limitation statute, namely not to be vexed with stale claims[99]. The preliminary issue as framed was determined in the TPI and the determination was challenged on appeal to the Court of Appeal and the Privy Council, without any objection to the assumptions made.

170.  It is immaterial that the courts in those cases were not concerned with the relation-back doctrine in the context of an amendment of pleadings to add new claims. The court clearly has jurisdiction to determine elements (ii) and (iii) for the purpose of section 26(3) in a TPI on the assumption of element (i). The extracts in the cases cited by the defendants to support a proposition to the contrary are taken out of context. As mentioned, the court is concerned with the exercise of case management powers. What matters is whether there is unfairness or injustice in the way the TPI had proceeded. For the reasons given in the Judgment, we do not think any unfairness or injustice was occasioned to the defendants. We reject their arguments on the Assumption Issue.

Section 26(1)(b) 2^nd Limb Issue (CHNT defendants)

171.  The second limb in section 26(1)(b) relates to whether the concealment of relevant facts could with reasonable diligence have been discovered before the relevant date of 6 March 2012. In respect of the nominee sale, the judge found in favour of the plaintiffs as he was unable to see a realistic suggestion that Sun could have found out that the sale was by CHNT to its nominee Hong Chang and he upheld the plaintiffs’ case on deliberate concealment for the nominee sale[100].

172.  Mr YL Wong submitted that the judge had erred in that he had obfuscated and conflated (i) “any fact relevant to the plaintiff’s right of action [which] has been deliberately concealed from [the plaintiff]” being the first limb in section 26(1)(b), and (ii) “the facts involved in [the] breach of duty” deliberately committed “in circumstances in which it is unlikely to be discovered for some time” in section 26(3). His arguments ran as follows:

(1)  Section 26(3) is an alternative route to prove the facts necessary to bring the case within section 26(1)(b), not by proving the intention to conceal but by proving the deliberate breach of duty which was not discoverable for some time. Its effect is limited to proving the first limb in section 26(1)(b). Proving the three elements in section 26(3) does not mean that the second limb in section 26(1)(b) is proved. The “relevant facts” for the purpose of the second limb in section 26(1)(b) are not necessarily the same as the facts involved in the breach of duty for the purpose of section 26(3).

(2)  Hence, even if a plaintiff can establish a breach of duty satisfying section 26(3), it remains necessary for him to identify which of the facts involved in the breach of duty are the “relevant facts” falling within the ambit of section 26(1)(b)[101].

(3)  Even if the plaintiffs had succeeded in proving that the sale was a nominee sale and there was a deliberate breach of duty in respect of the nominee sale not discoverable for some time (satisfying section 26(3)), this does not convert the fact relating to nominee sale into a “relevant fact” for the purpose of the second limb in section 26(1)(b), because the alleged fact of the sale being in truth a nominee sale was not identified as a “relevant fact” concealed from the plaintiffs in the 1^st Preliminary Issue formulated in the 8.11.2018 Order and the Agreed Issues under the 5.9.2019 Order.

(4)  Although the judge correctly observed the limited effect of section 26(3)[102], he erred by holding the sale was in truth a nominee sale as a “relevant fact” for the purpose of the second limb in section 26(1)(b) on the erroneous basis that nominee sale was mentioned in connection with section 26(3) in the disagreed Sub-Issues under the 5.9.2019 Order[103].

173.  The submissions of Mr YL Wong are of no merit.

174.  We have no problem with Mr YL Wong’s proposition in (1), save that we would qualify the third sentence to read: “Proving the three elements in section 26(3) does not necessarily mean that the second limb in section 26(1)(b) is proved”. Plainly, “relevant facts” for the purpose of the second limb in section 26(1)(b) may overlap with the facts involved in section 26(3) in establishing deliberate breach of duty committed in circumstances in which it is unlikely to be discovered for some time. The judge is clearly mindful of the possible difference when he made his opening remarks at §158 before he went on to analyse the evidence on discoverability in the second limb of section 26(1)(b). The alleged nominee sale must feature as a relevant fact in both exercises, namely, in considering discoverability under section 26(3)[104] and discoverability under section 26(1)(b)[105].

175.  Insofar as Mr YL Wong’s arguments in (3) and (4) are premised on the scope of the 1^st Preliminary Issue, we reject them for the reasons given earlier in the Scope Issue.

Element (iii) in section 26(3) Issue (HC defendants)

176.  Mr A Wong argued that the judge was plainly wrong to find element (iii) satisfied in respect of the CG Transaction. He contended that in focusing on the evidence of Sun’s incarceration to determine whether the assumed breaches of duty were “objectively, not discoverable by [Sun] for some time”[106], the judge was plainly in error for these reasons:

(1)  Element (iii) requires the court to decide whether the breach of duty was committed “in circumstances in which it is unlikely to be discovered for some time”. The focus of the inquiry should be whether the circumstances of the breach rendered it unlikely to be discovered for some time, not whether the breach was objectively not discoverable by the plaintiff for some time. The judge had failed to ask the right question.

(2)  Had the judge asked the right question, he should have concluded that the HC defendants could not have safely calculated on the CG Transaction not being found out, because (i) at the time, no one had any idea how long Sun would be detained and the extent to which he could meet others (including Guo who remained the chairman of GEHL) to discuss, receive public information or make inquiries; and (ii) the CG Transaction was carried out openly in the public domain and no one could control the flow of public information to Sun or inquiries he could make in relation thereto.

(3)  Mr A Wong repeated his argument in the Assumption Issue that elements (i) and (ii) are intertwined or closely related and it cannot be right to assume a breach of duty and proceed to find the assumed breach was committed deliberately in circumstances unlikely to be discovered.

177.  We do not accept his submissions.

178.  We agree with Mr Ho there is no real distinction in the two questions posed by Mr A Wong in (1) above, as both refer to an objective test. Insofar as Mr A Wong sought to apply a test in (2) that the HC defendants could not have safely calculated on the CG Transaction not being found out, this would appear to be a subjective test whether the HC defendants would think their actions might not be discovered for some time. It is irrelevant whether the HC defendants could safely calculate on the CG Transaction not being found out for one reason or other.

179.  The judge considered the objective circumstances on Sun’s detention in Jilin at the time the assumed breaches of duty were committed, and concluded that the circumstances were such that Sun was unlikely to discover for some time the alleged breaches[107]. In any event, even with the public announcements (to which Sun had no access during his detention), the fact that Hong Chang was CHNT’s nominee (if true) was concealed from the entire world[108]. We see no basis to interfere with the judge’s finding that element (iii) is satisfied in respect of the CG Transaction.

Deliberate Concealment in respect of Section 26(1)(b) Issue (HC defendants)

180.  The judge found deliberate concealment by Cheung (whose act was attributable to Hong Chang and his wife Xing) who accepted in cross-examination that when Sun asked him about GEHL at their meeting in March 2011, he only told Sun that GEHL “seemed” to have been sold and asked Sun to enquire with CHNT for more details. The more relevant thing for Cheung to say would be that Xing had obtained the CG Shares and was thus in control of GEHL. The judge found this misleading and that Cheung had deliberately concealed the nominee sale from Sun[109].

181.  Mr A Wong submitted that this finding was plainly wrong and cannot be justified for these reasons:

(1)  There is no dispute it was Cheung who asked to meet Sun in March 2011. Had Cheung intended to conceal anything, the logical course would have been for him to avoid direct contact with Sun instead of proactively arranging to meet Sun.

(2)  By March 2011, the sale of the CG Shares at HK$41,999,992.20 had been in the public domain for a number of years. Had Cheung intended to conceal anything, it would have been completely futile to say that the CG Shares “seemed” to have been sold. Without analysing these matters, the judge had no proper basis to conclude that the concealment was the intended result of Cheung and erred in finding there was “deliberate concealment”.

(3)  If Sun had already known of the “relevant fact” before the March 2011 meeting, the alleged conduct of Cheung at that meeting would be irrelevant and cannot be relied on to establish “deliberate concealment” of the HC defendants[110]. By reason of the Incomplete Agreement, the judge should have concluded that Sun knew of the alleged nominee sale, and was wrong in failing to hold that the events at the March 2011 meeting were irrelevant.

(4)  Insofar as Xing is concerned, there is no basis to conclude that Cheung’s knowledge and acts were attributable to her and she is not guilty of deliberate concealment. It is plainly wrong to deprive her of her limitation defence.

182.  The contentions of the HC defendants under this ground similarly sought to challenge the judge’s finding of fact on deliberate concealment. Mr A Wong’s submissions in (1) and (2) are of little moment. Further, the judge was entitled to treat Cheung’s acts and intention as Xing’s as they are husband and wife at all times and had acted together in the purported acquisition of the CG Shares in August 2005. As for his submissions in (3) regarding knowledge by reason of the Incomplete Agreement, we will deal with this in the next issue on discovery with reasonable diligence.

183.  We reject this ground of appeal of the HC defendants.

Discovery with Reasonable Diligence Issue (CHNT defendants and HC defendants)

(1)  The arguments of the CHNT defendants

184.  Mr YL Wong contended that even if the alleged nominee sale were included as a relevant fact in the 1^st Preliminary Issue, the judge erred by omitting to analyse or identify what specific facts relevant or leading to the conclusion or legal inference that the sale of the CG Shares was a nominee sale could not have been reasonably discovered by the plaintiffs.

185.  He further submitted that having held that the plaintiffs could have discovered the CG Transaction and the NXG Transaction with reasonable diligence before the relevant dates[111], the judge plainly erred in finding that the plaintiff could not have found out that the sale of the CG Shares was by CHNT to its nominee because of Sun’s house arrest and impecuniosity[112]. In support he referred to the Incomplete Agreement[113] which was in Sun’s possession since 2006, and was read and understood by him by early 2011 at the latest. It was accepted by the plaintiffs before the judge that the Incomplete Agreement was part of the trigger that had put Sun on inquiry regarding the CG Transaction during his house arrest[114]. In §27(2) of Sun’s 4^th affirmation, it was stated that Hong Chang, acting through Xing and Cheung, was nominee for CHNT in relation to the sale of the CG shares “as evident from” the Incomplete Agreement[115]. Moreover, since Sun could have discovered the fact of the sale of the CG Shares at HK$41,999,992.20 with reasonable diligence, as the judge had found, such knowledge would provide further information or context to the contents of the Incomplete Agreement, and heighten the need for Sun to make further inquiries.

186.  Mr YL Wong submitted that contrary to the judge’s thinking, neither the house arrest nor impecuniosity could pose any inhibition to Sun. The plaintiffs have wholly failed to discharge the legal burden to prove that they could not have discovered the relevant facts with reasonable diligence. They must be assumed to have a desire to know and to investigate[116].

(2)  The arguments of the HC defendants

187.  Mr A Wong contended the judge was plainly wrong in failing to hold that Sun knew of the alleged nominee sale or could have discovered it with reasonable diligence, by reason of the Incomplete Agreement, which was in his possession since 2006. He contended that by the statement in that document (irrespective of why it was so stated) that CHNT had signed a trust agreement with Hong Chang on 29 August 2005 pursuant to which Hong Chang would hold the GEHL Shares on trust for CHNT, Sun plainly acquired knowledge of the alleged nominee sale. At the very least, this statement should have put Sun on inquiry so that he could have discovered the alleged nominee sale with reasonable diligence during his period of house arrest as from November 2010.

188.  Mr A Wong also drew attention to the plaintiffs’ reliance on the Incomplete Agreement in support of the alleged nominee sale in their opening submissions in the TPI.

189.  He further criticised the judge of illogical findings. In §196, the judge found in favour of the plaintiffs that the Incomplete Agreement was prepared by CHNT and not on Sun’s instructions and initiative as alleged by the CHNT defendants. In §197, he held that the alleged nominee sale was deliberately concealed by CHNT with the use of the Incomplete Agreement to mislead Sun. Mr A Wong submitted that the conclusion in §197 does not follow from the finding in §196. If the CHNT defendants had drafted the Incomplete Agreement, it would not be open to conclude that they intended to conceal the alleged nominee sale as this was alluded to in the Incomplete Agreement.

(3)  Discussion

190.  The judge considered discoverability under section 26(1)(b) with regard to various aspects of the CG Transaction – the disposal of the CG Shares with a controlling stake in GEHL, how the CG Transaction was effected and the amount of the consideration, and the sale by CHNT of the shares to Hong Chang as its nominee. He considered the first two aspects in some detail, taking into account Sun’s circumstances of house arrest, health problems and impecuniosity[117], and the information that could be found out from the public domain concerning the CG Transaction including the sale to Hong Chang and the consideration[118]. He arrived at the conclusion that Sun had failed to make out his case that he could not with reasonable diligence have discovered before the relevant date the concealment on the sale of the CG Shares to Hong Chang and the consideration[119]. When he came to consider the aspect of nominee sale, the judge was relatively brief, putting his reasons succinctly in one paragraph in §188.

191.  We do not however agree with Mr YL Wong that the judge made his finding without analysis. He was right to differentiate between the alleged nominee sale and the other aspects of the CG Transaction in considering discoverability, and entitled to take the view that it could not realistically be suggested that Sun could have found out from the available information that the sale was by CHNT to its nominee Hong Chang.

192.  The judge did not mention the Incomplete Agreement in this part of the Judgment, but we do not think this agreement would have undermined his conclusion. He had referred to the Incomplete Agreement at §201 and remarked that in that agreement, CHNT made no reference to the CG Transaction and the nominee sale was concealed from the world in the public announcements. Although the Incomplete Agreement mentioned a trust agreement signed by CHNT with Hong Chang on 29 August 2005 pursuant to which Hong Chang would hold the GEHL Shares on trust for CHNT, it did not make any reference to the Debenture or the CG Shares or set out the sale of these shares by CHNT to Hong Chang as its nominee. Instead, it referred to the acquisition of the GEHL Shares by CHNT from CG under a different instrument (the CG Counter-Guarantee) and mentioned a different arrangement by which Hong Chang was to hold the GEHL Shares on trust for CHNT. We do not agree with Mr A Wong the alleged nominee sale was alluded to in the Incomplete Agreement. There is no illogicality in the finding at §196 and the conclusion at §197.

193.  Even if the Incomplete Agreement had been taken into account (and we think the judge had), it does not provide cogent support that Sun could have reasonably discovered from this document that CHNT had sold the CG Shares to Hong Chang as its nominee and breached its duty as chargee under the Debenture, despite the assertion in §27(2) of Sun’s 4^th affirmation and the reliance on this document as supportive of the plaintiffs’ case of nominee sale in its opening submissions at the TPI. The judge was entitled to take the view that the Incomplete Agreement was misleading to Sun and he could not have discovered the alleged nominee sale with reasonable diligence.

194.  There is no adequate basis to interfere with the judge’s finding of fact. We reject this ground of appeal of the CHNT defendants and the HC defendants.

Pre-determination and Unnecessary Findings Issue (CHNT defendants and HC defendants)

(1)  The arguments of the CHNT defendants

195.  Mr YL Wong submitted that the judge erred in that he should not have made the findings in §§196 to 202. The judge found in favour of the plaintiffs in respect of the nominee sale there was failure to disclose while the CHNT defendants were under a duty to do so[120]. For completeness, he further found there was deliberate active concealment of the CHNT defendants of the nominee sale with the use of the Incomplete Agreement and Cheung’s meeting with Sun in March 2011[121]. Had it been necessary to do so, the judge would have found in favour of the plaintiffs on the nominee sale based on section 26(1)(b) without reliance on section 26(3).

196.  Mr YL Wong complained that by these findings, the judge had in effect pre-judged the issue of breach of duty which he had assumed for the purpose of the TPI. He repeated his submission in the Scope Issue that the alleged nominee sale is not a “relevant fact” identified in the 1^st Preliminary Issue and in the Assumption Issue that the existence of any “relevant fact” must be proved and not assumed. These findings are not consistent with the judge’s position in proceeding on the assumption that there was a breach of duty and making only limited factual findings in the TPI to avoid trespassing on the main trial and creating inadvertent issue estoppel. They are unsustainable as the judge had expressly declined to consider the defendants’ evidence to the contrary, stating that it was unnecessary to dwell on the credibility of the defendants’ witnesses in relation to the breaches of duty[122].

197.  Mr YL Wong also submitted that in any event the finding that CHNT had deliberately and actively concealed the sale to Hong Chang was a nominee sale with the use of the Incomplete Agreement was plainly wrong on these grounds:

(1)  If the CHNT defendants were attempting to deliberately conceal the nominee sale from Sun, they would not have spelled out the nominee arrangement in the Incomplete Agreement and provided this document to him.

(2)  The finding that the CHNT defendants had used the Incomplete Agreement to mislead Sun and to conceal the nominee sale is inconsistent with Sun’s assertion in §27(2) of his 4^th affirmation as mentioned above.

(3)  The finding that CHNT acted through a Mainland lawyer Chai Guan Hong (“Chai”) to mislead Sun with the Incomplete Agreement is without evidential basis. Chai was acting for Sun on this occasion, and he had previously represented XM in litigation. There is no evidence that Chai was even known to the CHNT defendants.

(2)  The arguments of the HC defendants

198.  Mr A Wong submitted that the judge should not have made the findings in §§203 to 213. In these paragraphs, the judge set out his views on the credibility of the plaintiffs’ witnesses (Guo and Sun’s elder sister, Sun Xiang Ming), who had been repeatedly attacked as liars in the witness box and whose evidence was heavily challenged. The judge rejected the criticisms and found both truthful and reliable witnesses.

199.  Mr A Wong submitted that these findings went beyond what is necessary for the disposal of the issues at the TPI and it is inappropriate and wrong for the judge to make such findings which may have implications on the main trial.

(3)  Discussion

200.  The findings in §§196 to 202 on non-disclosure and active concealment were made on the assumption there had been breach of duty of CHNT as chargee to exercise the power of sale by selling to its nominee. We do not agree with Mr YL Wong that the judge had pre-determined the issue of breach of duty with these findings.

201.  Nor do we agree with him that the judge’s finding that CHNT had acted through Chai to mislead Sun with the Incomplete Agreement was plainly wrong. It is Sun’s evidence that Chai was acting on CHNT’s instructions when Chai visited him at the detention centre with WC Shi in August 2006. Sun gave evidence that Chai presented to him the Incomplete Agreement when he did not have his presbyopia glasses to read the document and represented that GEHL was not under proper management after his detention and hence CHNT agreed to manage GEHL in his absence for a fee of RMB 19 million, and that GEHL would be handed back to him after his release[123]. The terms of the Incomplete Agreement were at variance with what Chai said to Sun. For the reasons given in §196, the judge was entitled to prefer this over the evidence of CHNT[124] that Sun came up with the terms of the Incomplete Agreement and asked WC Shi to put this document to Zhang, and Zhang signed it knowing the contents were untrue.

202.  As for the findings in §§203 to 213, Mr A Wong did not attack the correctness of these findings in themselves. His complaint was that these findings were unnecessary for the TPI. The evidence of the plaintiffs’ witnesses was germane and relevant to some of the issues at the TPI. Guo’s evidence was relevant to one of the Sub-Issues formulated by the defendants whether Guo had authority to act on behalf of Sun and/or GH from 11 August 2005 to 1 November 2005. Zhang had alleged in his witness statement[125] that Guo was closely involved in the enforcement process of the Debenture and contended therefore there was no concealment of the CG Transaction from Sun. Ms Sun’s evidence refuted the allegation in Cheung’s witness statement[126] that Sun was able to give instructions to a particular firm of solicitors in Hong Kong during his house arrest in Beijing and thus had not been completely deprived of his rights during that period. It is clearly wrong to suggest that it was unnecessary for the judge to assess the credibility of their evidence in the TPI.

Conclusion on the appeals

203.  We reject all the grounds of appeal raised by the CHNT defendants and the HC defendants in their respective appeals. We dismiss the two appeals in CACV 475/2022 and CACV 476/2022.

204.  We make an order nisi that these defendants should pay the plaintiffs’ costs in these two appeals.

The plaintiffs’ cross-appeals

205.  By the cross-appeals, the plaintiffs sought to reverse the decision in refusing the re-amendments in respect of (i) the sale of the CG Shares at an undervalue, being part of the Chargee Duty Claim and the Dishonest Assistance Claim; and (ii) the Partial Repayment Claim in relation to the NXG Transaction.

206.  We turn to the three broad issues in the plaintiffs’ cross-appeals.

Test for Reasonable Diligence Issue

207.  How the personal characteristics of Sun (being subjective elements) may or may not be taken into account in applying the test if the concealment could be discovered with reasonable diligence (which imports an objective standard) is the focus of the cross-appeals. The plaintiffs’ contention is that the judge applied the wrong legal test for “reasonable diligence” under section 26(1)(b).

208.  On the question whether Sun “could with reasonable diligence” have discovered the concealment under section 26(1), although the judge found that Sun had no way of discovering the nominee sale, he held that a claimant in Sun’s position, with about five years’ experience at the helm of a Hong Kong listed company – who did not share his “personal traits” – could have asked Gao Jun Jie (a Mainland lawyer who represented Sun in his criminal case; “Gao”) or Pei Xiao Xin (Sun’s former secretary; “Pei”) to find out information about GEHL from the public domain and such information would have revealed the CG Transaction and the consideration[127]. On the NXG Transaction, the judge found that a claimant in Sun’s position could have contacted WC Shi (who was authorised by Sun to represent SCL in the sale of the NXG Shares) to find out whether credit had been given for partial repayments of RMB 5 million and RMB 19 million towards the Debt of RMB 120 million when the proceeds of sale of the NXG Shares were paid to CHNT[128].

209.  The judge accepted that Sun was genuinely ignorant about the public announcements in Hong Kong in respect of the CG Transaction although such information was available from the internet or public domain, because his business was in the Mainland and acquiring the majority shareholding in GEHL was his first experience with a Hong Kong listed company. Further, Sun had entrusted compliance matters to GEHL’s financial controller and company secretary and its legal adviser[129]. The judge however held these were “personal traits” that should be ignored in applying the reasonable diligence test under section 26(1)[130].

210.  The judge referred to Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139[131], in which the Court of Final Appeal left open the question the extent to which the personal characteristics of the plaintiff are to be taken into account in deciding what diligence he could reasonably have been expected to have shown. Lord Hoffmann NPJ said at §30: “It does not follow that because an objective standard is applied, he must be assumed to have been someone else. The extent to which the characteristics of the actual plaintiff are ignored depends upon the reason for invoking an objective standard.”[132]

211.  Lord Hoffmann made a similar statement in the previous case of Adams v Bracknell Forest Borough Council [2005] 1 AC 76 at §33, in the context of the postponement of the running of the limitation period for a personal injury action[133]:

“Section 14(3)[134] uses the word ‘reasonable’ three times. The word is generally used in the law to import an objective standard, as in ‘the reasonable man’. But the degree of objectivity may vary according to the assumptions which are made about the person whose conduct is in question. Thus reasonable behaviour on the part someone who is assumed simply to be a normal adult will be different from the reasonable behaviour which can be expected when the person is assumed to be a normal young child or a person with a more specific set of personal characteristics. The breadth of the appropriate assumptions and the degree to which they reflect the actual situation and characteristics of the person in question will depend upon the reasons why the law imports an objective standard.”

212.  Having considered[135] OT Computers Ltd v Infineon Technologies AG (at §§38, 48 and 59, per Males LJ who gave the only reasoned judgment) and Adams v Bracknell Forest Borough Council, the judge adopted these statements in OT Computers at §59 as the rationale for importing an objective standard:

“… The section [i.e. section 32(1) of the Limitation Act 1980] requires an objective standard (what the claimant could have discovered with the exercise of reasonable diligence) but what assumptions are appropriate in the case of a claimant from whom wrongdoing has been deliberately concealed and the degree to which they reflect the actual situation of that claimant will depend upon why the law imports an objective standard. Here, the purpose of the section is to ensure that the claimant – the actual claimant and not a hypothetical claimant – is not disadvantaged by the concealment. In achieving that purpose it is appropriate to set an objective standard because it is not the purpose of the law to put a claimant which does not exercise reasonable diligence in a more favourable position than other claimants in a similar position who can reasonably be expected to look out for their own interests. Rather, claimants in a similar position should be treated consistently. However, a claimant in administration or liquidation which is no longer carrying on business is not in a similar position to claimants which do continue actively in business and it is unrealistic to suggest otherwise.”

213.  Applying the above rationale – that the law protects those who exercise reasonable diligence and there should be consistency in treating claimants in a similar position – the judge decided that Sun’s circumstances (that he was under house arrest with considerably curtailed freedom, and his lack of funds and health problems which were inseparable with the prolonged detention that he suffered) were clearly not “personal traits” and could be taken into account[136]. However, Sun’s ignorance about public announcements and the availability of such information from the internet or public domain was his “personal traits” or characteristics (such as whether the claimant is slothful, indolent, naïve, shy, nervous, uncurious, ill-informed, ignorant, inexperienced in financial matters[137]) and should be ignored in applying the test of what a claimant in his position could have discovered with reasonable diligence[138].

214.  Mr Ho submitted that a distinction should be drawn between characteristics which affect the ability to investigate (which should be taken into account) and those which affect the desire to investigate (which should be ignored) and contended that Sun’s ignorance should belong to the former category. He argued that this distinction is sound in principle and is supported by authority.

215.  He relied on §91 in the judgment of Baroness Hale of Richmond (who took a slightly different view on the test for imputed or constructive knowledge in section 14(3) of the Limitation Act, while reaching the same conclusion on the facts as the other Law Lords) in Adams v Bracknell Forest Borough Council:

“In my view, all the cases to which we have been referred are explicable on the basis that the law expects people to make such inquiries or seek such professional advice as they reasonably can when they have good reason to do so. Their motive for not doing so will generally be irrelevant. But I would not want to rule out that their personal characteristics may be relevant to what knowledge can be imputed to them under section 14(3). There is a distinction between those personal characteristics which affect the ability to acquire information and those which affect one’s reaction to what one does know. A blind man cannot be expected to observe things around him, but he may sometimes be expected to ask questions. It will all depend upon the circumstances in which he finds himself. As McGee and Scanlan have suggested, in an attempt to reconcile the authorities, a factor or attribute which is connected with the ability of a claimant to discover facts which are relevant to an action should be taken into account; but a factor in his make-up which has no discernible effect upon his ability to discover relevant facts should be disregarded: see ‘Constructive knowledge within the Limitation Act’ (2003) 22 Civil Justice Quarterly 248, 260. They go on to suggest that qualifications, training and experience may have such an effect, while intelligence may not. It will all depend upon the facts of the case.” (Emphasis supplied)

216.  Thus, in Adams v Bracknell Forest Borough Council, it was held by the House of Lords that aspects of character or intelligence peculiar to the claimant, who was suffering from dyslexia, were to be disregarded, as he clearly had good reason to seek further advice on his learning difficulties but he “did not want to go there” (at §§47, 51, 58, 71, 78 and 90). The correct test is neither wholly subjective nor wholly objective. As stated by Lord Walker of Gestingthorpe at §77: “The distinction between circumstances and personal characteristics is intelligible and helpful in many cases, but there are bound to be some in which the distinction is elided.” He observed that Baroness Hale’s distinction (between personal characteristics which affect a person’s ability to acquire information and those which affect a person’s reaction to the information once acquired) “will be useful in some cases”. But characteristics such as shyness, embarrassment and lack of assertiveness may be relevant both to the acquisition of information and to acting (or failing to act) on it. Lord Walker would be cautious about any simple formula to cover every case which might occur (at §78).

217.  Mr Ho made the point that Lord Hoffmann did not discuss whether there could be a distinction among different aspects of character or intelligence. He submitted that Lord Hoffmann’s interpretation of section 14(3)[139] was influenced by the fact that the court retains a discretion to extend the limitation period in personal injury cases under section 33[140] (see §§44 and 45). By reason of this discretion, there is no clear requirement to construe the knowledge provisions in section 14 narrowly or in favour of individual plaintiffs and hence the provisions should be interpreted neutrally so that in respect of constructive knowledge under section 14(3) an objective standard applies[141]. As the postponement of the commencement of the limitation period by reference to the date of knowledge is no longer the sole mechanism for avoiding injustice to a plaintiff who could not reasonably be expected to have known that he had a cause of action, it is possible to interpret section 14(3) with a greater regard to the potential injustice to defendants if the limitation period should be indefinitely extended. In contrast, the court has no such discretion to extend the limitation period in non-personal injury cases.

218.  Mr Ho referred to the subsequent article by McGee and Scanlan in “Judicial attitudes to limitation” (2005) 24 Civil Justice Quarterly 460 at 464 and 465 criticising Lord Hoffmann’s “middle way” approach in Adams (in which the reasonable man is imbued with certain of the characteristics of the claimant in attributing constructive knowledge of any action) for failing to prescribe with some precision guidelines as to what attributes of a claimant are to be ascribed to the reasonable person, and under what circumstances or conditions, and for failing to have regard to balancing the need for certainty in the application of the law of limitation with that of the interest of the claimant in not being prematurely deprived of his right of action unless the law regards his lack of knowledge as being unreasonable. The authors commended Baroness Hale’s approach[142] as “precise in its application” and “consistent with the principles of a rational law of limitation” (at 466).

219.  Mr Ho drew attention to Various Claimants v MGN Limited[143] at §71 in which Fancourt J said:

“… the objective test in s 32(1) requires both a standard of reasonable general awareness and self-interest to be attributed to a claimant, when considering the question of whether a claimant was on notice of the need to investigate, and an objective assessment of the inquiries that a reasonable person in the position of the claimant would carry out, exercising reasonable but not exceptional diligence. Further, the objective standard must be applied to the claimant themselves – in other words, a person circumstanced as the claimant actually was at the relevant time(s), but that individual character traits that may have affected the nature of the claimant’s response, or desire to investigate, should be disregarded, to ensure that like cases are treated alike, rather than careless or inattentive claimants being favoured by the law. …” (Emphasis supplied)

220.  Mr Ho submitted that Fancourt J in effect drew the same distinction as Baroness Hale in Adams.

221.  He put forward the following as the analysis for the correct legal test:

(1)  From the defendants’ perspective, the rationale of the law of limitation is that potential defendants should not have to live with the risk of legal action indefinitely, and that parties should be able to predict when they can regard a potential action in which they could be defendants as stale and expired.

(2)  From the plaintiffs’ perspective, the law of limitation encourages them not to sleep on their rights, but to start proceedings as soon as it is reasonably practicable for them to do so.

(3)  Section 26 ensures that the actual (not hypothetical) claimant is not disadvantaged by reason of being unaware of the circumstances giving rise to his cause of action as a result of concealment.

(4)  In formulating the test, it is unnecessary to be too sympathetic to defendants who have deliberately concealed wrongdoing, and who, if they wish to ensure that the limitation period begins to run, can always make a clean breast of their wrongdoing by contacting their victims[144].

(5)  In the operation of section 26, there should be a fair and just balance between the rights of the claimant and the defendant. Where the failure to find out the relevant fact is not unreasonable, for example, because the actual claimant lacks the relevant ability to discern the fact, the lack of ability should be taken into account. It is unrealistic to suggest that a claimant having professional training in areas of activities related to the relevant facts governing the action should be treated in a similar position as a claimant without such training[145]. However, if the character of the actual claimant is such that would not affect his ability to discern the fact, but would only affect his desire to investigate, it cannot be said that he has exercised reasonable effort and this character should be ignored.

222.  Mr Ho contended that Sun’s ignorance – which arose from the fact that he was a Mainland businessman who had entrusted Hong Kong compliance matters for a listed company to others – affected his ability to investigate, in that it never occurred to him he could have asked Gao or Pei to find out information from the public domain. There was nothing unreasonable in his failure to do so. The judge had found that all along, Sun was desirous to find out what had happened to GEHL[146].

223.  Lord Phillips made this discerning remark in Adams at §57, it will be a rare case where the result turns on the precise legal test for constructive knowledge in section 14(3) of the Limitation Act and the true construction of that provision[147]. It seems to us the same applies to the legal test for what the plaintiff “could with reasonable diligence” have discovered in section 26(1)(b). In any event, we do not think the judge had applied the wrong legal test.

224.  The test as regards constructive knowledge of concealed facts is as explained by Males LJ in OT Computers at §§38, 47 to 49, which the judge applied. In gist, the legal test is what would a reasonably attentive person in the plaintiff’s circumstances (disregarding his personal characteristics) have been on notice of. The statutory criterion of reasonable diligence, which comprehends attentiveness to the need to investigate as well as the nature of the investigations conducted applies throughout the two stages of the inquiry (whether there is anything to put the plaintiff on notice of a need to investigate, and what a reasonably diligent investigation would reveal)[148]. It is inherent in section 26(1)(b) there must be an assumption that the plaintiff desires to discover what was deliberately concealed, as the concept of reasonable diligence carries with it the notion of a desire to know and to investigate[149].

225.  Quite clearly, Sun’s ignorance about public announcements and the availability of information from the internet or public domain, which might be due to his inattentiveness having entrusted compliance matters to GEHL’s officers and legal adviser, falls within epithets which may be regarded as his personal characteristics or traits – ill-informed, ignorant, inexperienced in financial matters, uncurious, slothful, indolent. Were these personal characteristics or traits taken into account in the test of reasonable diligence, this would largely remove constructive knowledge (what a plaintiff could with reasonable diligence have discovered) from the test[150]. It would not be right that a plaintiff would not be required to pursue reasonable investigations on the internet because he asserted it was reasonable for him to be ill-informed or inattentive about the availability of information of a listed company in the public domain.

226.  There is no basis for treating Sun differently from another in a similar position who has been the chairman and executive director of a publicly listed company in Hong Kong for five years[151]. It is not the purpose of the law to put a plaintiff who does not exercise reasonable diligence in a more favourable position than other plaintiffs in a similar position who can reasonably be expected to look out for their own interests. Individual character traits should be disregarded, to ensure that like cases are treated alike. “It is the norms of behaviour of persons in the situation of the claimant that should be the test.”[152] There are instances where ignorance about media coverage was regarded as particular characteristics of the individual and held not relevant in applying the test of reasonable diligence[153].

227.  The distinction drawn by Mr Ho between characteristics which affect the ability to investigate and those which affect the desire to investigate, which drew on the judgment of Baroness Hale in §91 in Adams, does not appear to be sound or supported by authority. The actual words in §91 are characteristics “which affect one’s reaction to what one does know”, see also Lord Walker at §77 (characteristics “which affect a person’s reaction to the information once acquired”). As mentioned above, in applying the test of reasonable diligence, unless proved otherwise it is generally assumed that the plaintiff has a reasonable desire to investigate what had happened. If the test proposed by Mr Ho were applied to the cases of the two claimants whose claims were dismissed in The Duke of Sussex & Ors v MGN Limited, the outcome might well have been different. The lack of curiosity and lack of time might be said to affect the ability to investigate, but that was not how the court ruled on constructive knowledge.

228.  The approach of the majority in Adams was adopted by the English Court of Appeal in OT Computers and applied without incident or difficulty in Various Claimants v MGN Limited and The Duke of Sussex & Ors v MGN Limited. We do not find it helpful to devise a different test, in light of Lord Walker’s caution at §78 about adopting a simple formula to cover every case which might occur.

229.  We reject this ground of appeal of the plaintiffs.

Misapplication of Reasonable Diligence Test Issue

230.  Mr Ho submitted that without prejudice to his contention that the judge had applied the wrong legal test for “reasonable diligence”, the judge had misapplied the legal test he propounded in that the conclusions he drew were based on no evidence. His arguments were as follows:

(1)  Gao was a criminal lawyer from the Mainland. It is more likely than not that he did not have the ability to locate the public domain information about the CG Transaction (which took place in 2005) from the internet during Sun’s house arrest between November 2010 and March 2012.

(2)  The judge was wrong to find that Gao was familiar with the use of the internet merely because Gao had published his submissions made on behalf of Sun to the Mainland Criminal Court on his or his firm’s website[154]. There is no evidence that Gao did so by himself, or that the publication was during Sun’s house arrest. In any event, there is no basis to find that any ability of Gao to publish his submissions on the website would mean that he could have located information about a Hong Kong listed company from an earlier period.

(3)  Pei no longer worked for Sun during his period of house arrest. The judge overlooked the evidence of Sun and Guo that she was still working in GEHL at the time (then under the control of the wrongdoers). So even if Sun had asked Pei to help him to find out about the CG Transaction from the public domain, it is more likely than not Pei would not have agreed to help.

231.  This is a challenge against the judge’s findings of fact that Gao and Pei would have been in the position to assist Sun in finding out from the public domain information about the CG Transaction.

232.  The burden is on the plaintiffs to show that they could not with reasonable diligence have discovered the relevant facts deliberately concealed. The plaintiffs did not call Gao or Pei to give evidence. They adduced no evidence to support the suggestions now made that Gao was not familiar with internet search and that Pei would not have agreed to help Sun if requested.

233.  Gao was instructed by Sun to make a trip to Hong Kong to inquire about what had happened to GEHL[155]. The judge was entitled to infer from Gao’s publication of submissions on his or his firm’s website that he was familiar with the use of the internet.

234.  Pei, who worked as Sun’s secretary for more than ten years, voluntarily told Sun in early 2012 that his shares in GEHL were taken by CHNT, but did not give details[156]. The judge was entitled to find that Sun could have followed up with Pei and asked her to find out how it happened as she was still working in GEHL at the time.

235.  It is unnecessary to deal with the contentions of Mr YL Wong (which were rejected by the judge)[157] that Sun could have found out about the CG Transaction from his family members, other lawyers and associates.

236.  There is no valid basis to disturb the judge’s factual findings that the plaintiffs had failed to discharge their burden of proof of showing that they could not with reasonable diligence have discovered the CG Transaction and the consideration[158].

Erroneous Finding on Partial Repayments Issue

237.  The plaintiffs contended that the judge erred in holding that Sun could have sought assistance from WC Shi to obtain information whether credit was given for the RMB 5 million and RMB 19 million, notwithstanding that this possibility was not explored by the defendants in evidence and was only raised by the judge during closing submissions[159]. Even though the burden of proof rested on the plaintiffs to show that the relevant fact could not have been discovered by Sun with reasonable diligence, it was still incumbent on the defendants to raise the point regarding possible assistance by WC Shi and to explore this with Sun in cross-examination.

238.  Mr Ho further submitted there is no evidence that WC Shi was contactable by Sun or that he was willing to assist Sun during his period of house arrest.

239.  This is again a challenge against the judge’s finding of fact. The judge found that in all probabilities WC Shi would know or at least could find out if credit was given for the partial repayments of RMB 24 million. But the plaintiffs adduced no evidence whether any contact was made with WC Shi and if not, why not.

240.  On the evidence, there is clear support for the judge’s finding that WC Shi was the more relevant person to seek assistance. He was appointed by Sun to conduct the SCL proceedings (commenced by CHNT in the Mainland to enforce the SCL Guarantee) and the NXG Transaction until the conclusion of the execution. He executed the share transfer agreement of the NXG Transaction, as well as other agreements and court documents including the agreement for enforcement of the settlement agreement for SCL to repay the Debt to CHNT from the sale proceeds of the NXG shares[160].

241.  Mr YL Wong correctly pointed out that the CHNT defendants had in fact raised in evidence that the plaintiffs could have sought assistance from WC Shi to obtain information regarding the partial repayments of RMB 24 million[161]. So the point was not raised for the first time by the judge in closing submissions, as the judge had thought. This was not a point which would have taken the plaintiffs by surprise. The plaintiffs, who had the burden of proof, adduced no evidence to deal with this.

242.  It is not necessary to deal with other matters raised by the CHNT defendants in their respondents’ notice.

243.  There is no merit in this ground of appeal.

Conclusion on the cross-appeals

244.  We dismiss the cross-appeals of the plaintiffs in CACV 475/2022 and CACV 476/2022. We make an order nisi that the plaintiffs should pay the costs of the HC defendants and CHNT defendants in the cross-appeals.