GREAT STRATEGY PROPERTIES LTD AND ANOTHER v. WONG WEI GEORGE AND OTHERS

CAMP 57/2020

[2020] HKCA 730

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 57 OF 2020

(ON AN INTENDED APPEAL FROM HCA NO. 962 OF 2015)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

I. Introduction

1.1  Deputy High Court Judge Simon Leung dismissed the defendants’ application for a trial of preliminary issue on whether the plaintiffs’ claim in HCA 962/2015 is statute-barred or whether the plaintiff may invoke the secondary limitation period pursuant to section 31 of the Limitation Ordinance (Cap. 347) (‘LO’). Specifically the defendants sought a trial on the following issues :

(1)  What matters constitute the ‘knowledge required for bringing an action for damages in respect of the relevant damage’ in relation to each of the 2^nd to 6^th defendants (‘the Relevant Knowledge’)?

(2)  At what point in time did each of the plaintiffs acquire:

i)  the Relevant Knowledge and

ii) the right to bring the action, in relation to each of the 2^nd to 6^th defendants?

(3)  Whether and when the defendant(s) acquired the Relevant Knowledge?

(4)  Whether, in construing and applying section 31, Cap. 347 the knowledge of the defendant(s) of the Relevant Knowledge (if established as a matter of fact) is attributable to the plaintiff? 

1.2  The 2^nd to 6^th defendants’ application for leave to appeal against the decision was refused by the Judge.  They now renew before us their application for leave to appeal against the Judge’s decision.  We will deal with the application on paper.

II.  Background

2.1  The Judge summarised the background as follows. 

2.2  Wah Nam Group Limited (‘Wah Nam’) was a public company listed on the Hong Kong Stock Exchange.  Wah Nam wholly owned the plaintiffs.  The plaintiffs acquired all shares of a company called Summit Mass Limited (‘Summit Mass’) by paying HK$45 million, which effectively granted the plaintiffs ownership in a piece of land in Guangdong in the Mainland (‘Land’).

2.3  The trading of shares for Wah Nam were suspended since July 2000 following the presentation of a winding up petition against it. In January 2001, Mr Desmond Chiong and Mr John Robert Lees (the 4^th and 5^th defendants) of Ferrier Hodgson Limited (now the 6^th defendant) were appointed joint and several liquidators of Wah Nam.

2.4  In April 2001, Mr Desmond Chiong and Mr John Robert Lees appointed two corporate vehicles (2^nd and 3^rd defendants) which exercised control over the plaintiffs including Summit Mass and the Land.

2.5  In November 2003, Mr John Robert Lees was replaced by Mr Roderick John Sutton.  Since then and until May 2012, Mr Desmond Chiong and Mr Roderick John Sutton were joint and several liquidators of Wah Nam (‘Former Liquidators’).

2.6  In June 2006, the shares in Summit Mass (hence effectively the Land) were misappropriated by the 1^st defendant, who was an employee of Ferrier Hodgson.  The shares were first transferred to one Shung Tung (‘Shung’), then they were further transferred to one Chen Shunqiang (‘Chen’).  Wah Nam and the plaintiffs did not receive any consideration for these transfers.

2.7  The Former Liquidators were only aware of these misappropriations sometime in November 2007.  [According to the Amended Defence, 22 November 2007 is said to be the date of their knowledge.]

2.8  In February 2008, the Former Liquidators commenced legal action in the plaintiffs’ name against Chen.

2.9  In August 2011, all relevant parties made a settlement agreement whereby the plaintiffs gave up their shares in Summit Mass for a consideration which was less than 10% of the acquisition cost of the Land.  Barma J (as he then was) having considered the state of affairs that was presented to him at the time, sanctioned the settlement.

2.10  In May 2012, on the application of one creditor of Wah Nam, Harris J sanctioned an order by consent that the Former Liquidators be removed and released as joint and several liquidators of Wah Nam under section 200(5) of the then Companies Ordinance (Cap. 32). [The date of the order is 22 May 2012.]

2.11  Mr Osman Arab and Mr Stephen Wong were appointed as joint and several liquidators of Wah Nam (‘Current Liquidators’) after the Former Liquidators were removed.

2.12  The Current Liquidators take issue on how the Former Liquidators controlled and supervised the plaintiffs including Summit Mass.

2.13  The Current Liquidators took out HCA 960/2015 and HCA 962/2015 (i.e. the present action).

2.14  HCA 960/2015 was struck out by DHCJ William Wong SC on the ground that Wah Nam was claiming the same loss as the plaintiffs, and such is reflective loss and double recovery.

2.15  The present action was also struck out by DHCJ William Wong SC, save and except the claim of negligence, as the other claims were time-barred under the LO.  DHCJ William Wong SC found that the plaintiffs may be able to rely on the secondary limitation period under section 31 of the LO.

III.  The dispute

3.1  Very briefly, the plaintiffs’ claim against the 2^nd to 6^th defendants is for negligence based on, inter alia, a failure to supervise the 1^st defendant. They claimed, inter alia, that the Former Liquidators were the shadow and de facto directors of the plaintiffs and the liquidators of Nam Wah and they were in control of the affairs of the Nam Wah group of companies.  The plaintiffs complained that the affairs of Summit Mass had been negligently handed by the defendants (other than Wong) in that they :

1)  negligently and wrongfully exposed the Land to the risk of forfeiture by the Mainland authorities;

2)  negligently failed to take remedial actions when the Land had been classified as idle land;

3)  negligently failed to put in place control and safeguard to protect the plaintiffs’ assets from misappropriation;

4)  negligently failed to manage and monitor the plaintiffs’ affairs and the whereabouts of the assets; and

5)  negligently procured the plaintiffs to fail to accept the alternative offer of acquisition instead of the Settlement.

3.2  For the wrong committed by Wong, the plaintiffs also hold Ferrier Hodgson, together with the other defendants, vicariously liable.

3.3  The 2^nd to 6^th defendants denied negligence.  They pleaded that the plaintiffs’ claims are in any event time-barred. 

3.4  With respect to the limitation issue, the plaintiffs contended that they did not have the requisite knowledge until the Former Liquidators were removed or replaced in May 2012, while the 2^nd to 6^th defendants contended that the plaintiffs’ knowledge was acquired earlier in or about November 2007 when the Former Liquidators acquired the relevant knowledge, which is in turn attributable to the plaintiffs.

IV.  The defendants’ position on the preliminary issue

4.  The defendants accepted that the determination of the preliminary issue would not dispose of the entire claim of the plaintiffs.  It is only when the issue is resolved in favour of the defendants would that also decide the outcome of the action.  But there is a real possibility that the issue would be determined in the defendants’ favour so that the claim could be dismissed in its entirety.  A trial of the preliminary issue would save time and costs by avoiding the trial of what would become unnecessary issues.  The unnecessary issues would include the defendants’ substantive defence to the claim, such as their alleged failure to make sufficient effort to sell the Land, to take steps to protect the Land from the exposure of forfeiture after the Land had been classified as idle land, and to supervise Wong, etc. and negligence.  Quantum will not be an issue if the plaintiffs fail on liability.

V.  The Judge’s decision

5.1  The Judge refused the application because he was of the view that the determination of the preliminary issue would not save time and costs which would have had to be incurred for the resolution of the balance of the disputes between the parties.

5.2  The Judge took into account the special feature of this case as follows :

‘ 38. Prior to their removal, the Former Liquidators are the only natural persons in control of the corporate directors and the plaintiffs who could have knowledge about the facts surrounding the relevant dealings. Ms Lam submits that it is indisputable that the Former Liquidators acquired the requisite knowledge at the latest in November 2007, when they also started taking legal steps against Wong for misappropriation of the shareholdings of Great Strategy in Summit Mass. Such knowledge of the Formal Liquidators was attributed to the plaintiffs. That, she argues, would be the factual context of the consideration of the limitation issues at the preliminary trial.

39.  However, it appears to me that the claim, and thus the limitation issue, is not limited to that against Wong personally or against the defendants on the basis of vicarious liability for the acts of Wong.  The plaintiffs also claim against, amongst the other defendants, the Former Liquidators on the basis that through the corporate directors of the plaintiffs appointed by the Former Liquidators as well as Ferrier Hodgson, the employer of Wong, which was also under the control of the Former Liquidators, the Former Liquidators owed the plaintiffs duties as de facto or shadow directors of these corporate bodies. For the purpose of section 31(5), the damage, the plaintiffs contend, is attributable to the breach of such duties on the part of the defendants including the Former Liquidators.

40.  At the time of the striking out application before DHCJ William Wong, SC, the defendants (2^nd to 6^th) had yet to file their defence. However, the learned DHCJ noted that the Former Liquidators’ case was that no act or omission had been committed by them that could be said to constitute negligence.  Their defence filed since then has indeed made clear such denial of any act or omission on their part that caused the alleged damage.  The peculiar situation of the present purpose that Mr Lai describes thus arises.

41.  It is difficult to see how the defendants could possibly attribute to the plaintiffs their own alleged knowledge either of the fact that the damage was sufficiently serious to justify the plaintiffs’ instituting proceedings against them or the fact that the damage was attributable to their act or omission that is alleged to constitute negligence, when the defendants deny such very facts. Practically, the attribution of the knowledge on the part of the defendants to the plaintiffs has to be premised on the plaintiffs’ establishing by evidence at the preliminary trial that the damage was in fact attributable to the acts and omissions of the defendants that are said to constitute negligence.  That would be a bulk part of the dispute in respect of liability raised by the defendants in the present action.

42.  In the circumstances, contrary to Ms Lam’s projection, the substantive defence will not realistically be isolated from the trial of the limitation issues.  As a trial of the limitation issue would involve the finding of attribution of the requisite knowledge of the Former Liquidators to the plaintiffs, which in turn depends on the resolution of the factual dispute as to the acts and omissions on the part of the Former Liquidators, those would not be unnecessary matters for the trial of the limitation issues, as Ms Lam describes, either.’  (emphasis added)

VI.  The defendants’ grounds of appeal

6.1  The 2^nd to 6^th defendants first argued that the Judge misunderstood Kensland Realty v Tai Tang Chong (2008) 11 HKCFAR 237 where Ribeiro PJ made it clear that if there is a section 31 issue, it is usually preferrable for there to be a preliminary trial.  If it is shown that the plaintiff’s claim is time barred, that is definitely saving the Court’s time and cost.

6.2  The 2^nd to 6^th defendants further argued that the Judge erred in finding that a preliminary trial of the section 31 issue would require a resolution of the factual dispute as to the acts and omissions on the part of the Former Liquidators.  They submitted that :

1)  The key questions to be determined at the preliminary trial of the section 31 issue are whether the knowledge of the facts on the part of the Former Liquidators constitutes the requisite knowledge for the purposes of section 31, LO and if so, whether such knowledge can be attributed to the plaintiffs, based on the test of whether the Former Liquidators were the plaintiffs’ agents acting within the scope of their authority.

2)  The Former Liquidators clearly had knowledge of the fact of their own acts and/or omissions, which is sufficient for the purposes of establishing the requisite knowledge under section 31(5)-(7) of the LO.

3)  The requisite knowledge does not require knowledge that those acts or omissions amount to negligence as a matter of law or a breach of any rule, whether of law or some other code of behaviour: section 31(6) of the LO; paragraphs 73 to 74, 86 to 87 of Kensland.

4)  Therefore, there is no need to resolve at a preliminary trial of the section 31 issue relating to the acts and omissions on the part of the Former Liquidators or whether damage was in fact attributable to such acts and omission.

5)  Further and in any event, the facts to be explored at the preliminary trial of the section 31 issue are limited to the Former Liquidators’ knowledge of the events leading up to November 2007, given that the relevant knowledge means ‘knowing 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’: Kensland at paragraphs 16 and 19.  There cannot be any dispute that the Former Liquidators acquired the requisite knowledge at the latest in November 2007, when they started taking steps against the 1^st defendant, including filing of a complaint with the Companies Registry.

6)  The Judge therefore ought to have found that a preliminary trial of the section 31 issue would not require a resolution of the factual dispute as to the acts and omissions on the part of the Former Liquidators, hence saving costs and avoiding delay.  This is an error that is fundamental, and not a mere case management decision and/or exercise of discretion.

VII.  Our view

7.1  The Judge held that Ribeiro PJ’s view on preliminary trial was in the context of being confronted with a striking out application.  He went on to say that it did not mean that whenever there is a section 31 LO issue, a preliminary trial should follow.  Preliminary trial should be pursued when it would dispose of the case so that costs is saved.

7.2  We do not consider the defendants’ criticism to be justified.  The Judge did not distinguish Kensland on the sole basis that the case there was a striking out application.  It cannot be gainsaid that the starting point must be whether the trial of a preliminary issue will save costs and time.  Absent other factors, a trial of preliminary issue in respect of section 31 limitation is clearly the preferred mode.  But in this case the Judge held that there are other issues involved which render a trial of preliminary issue not suitable.  In our view this approach could not be faulted.

7.3  The 2^nd to 6^th defendants are of course correct when they said that the requisite knowledge is not concerned with knowledge of legal liability.  This is made clear by Ribeiro PJ in Kensland :

‘87. As noted in Section D.3c above, s.31 does not concern itself with any knowledge on the plaintiff’s part concerning the defendant’s liability. The courts have emphasised that the words “knowledge that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence” do not invite any such discussion. As Hoffmann LJ stated in Dobbie v Medway Health Authority:

... the words “which is alleged to constitute negligence, nuisance or breach of duty” implying that he should know that they constitute a breach of a rule, whether of law or some other code of behaviour.

88. Those words indicate the method of approach discussed in Section D.3A above, pointing the court in the direction of the plaintiff’s pleaded case regarding the acts or omissions alleged to constitute the defendant’s negligence.’

7.4  Ribeiro PJ summarised the four aspects of knowledge required by section 31(5) as follows :

‘ 66. ....knowledge about the seriousness of the damage incurred (section 31(5)(a)); the linkage between that damage and the acts or omissions alleged to constitute negligence (section 31(5)(b)); and the identity of the defendant (section 31(5)(c) and 31(5)(d).’

7.5  We disagree that the Judge had misunderstood the law thereby committing a fundamental error which vitiates his exercise of discretion or case management power.  This is made clear by the Judge himself as follows :

‘ 43. I should also point out that contrary to what Ms Lam submits, Mr Lai for the plaintiffs never suggests that the Former Liquidators’ requisite knowledge must encompass an awareness of their legal liability. Indeed, section 31(5)(b) (above) says that clearly. What Mr Lai submits, and so does this court say above, is that the fact that the damage was attributable to the acts and omissions on the part of the Former Liquidators (and the other defendants) that is alleged to constitute negligence, which the Former Liquidators deny, would need to be established. Only then could there be factual premise for considering whether a reasonable person would consider it sufficiently serious to justify instituting proceedings for such damage against the Former Liquidators.’

7.6  The example cited by Ribeiro PJ at [89] by reference to what Sir Thomas Bingham MR said in Dobbie v Medway Health Authority [1994] 1 WLR 1234, [1994] 4 All ER 450 illustrates the point that the Judge wished to convey in the above paragraph.

‘ Time starts to run against the claimant when he knows that the personal injury on which he founds his claim is capable of being attributed to something done or not done by the defendant whom he wishes to sue. This condition is not satisfied where a man knows that he has a disabling cough or shortness of breath but does not know that his injured condition has anything to do with his working conditions. It is satisfied when he knows that his injured condition is capable of being attributed to his working conditions, even though he has no inkling that his employer may have been at fault.’ (emphasis added)

7.7  Accordingly the Former Liquidators must not only know that there was damage but must also know that the damage was capable of being attributed to their acts and omissions before section 31 can be invoked.  This means there must be a determination on the linkage between the damage and the acts and omissions. Hence the 2^nd to 6^th defendants are not correct in saying that there is no need to resolve the acts and omissions of the Former Liquidators or whether the damage was in fact attributable to such acts and omissions.

7.8  The paradoxical nature of the 2^nd to 6^th defendants’ case is this.  On the one hand, they denied that they were in any way negligent and yet on the other hand, in order to establish the limitation defence, they have to show that there were indeed acts and omissions on their part, namely, that of the Former Liquidators, which caused the damage sustained by the plaintiffs. They also have to show that the Former Liquidators had the requisite knowledge which in turn is attributed to the plaintiffs.  This is mental gymnastics in the extreme.  In addition the issue of attribution is not a straightforward topic.

7.9  The Judge was concerned with the costs and time involved with the trial of the preliminary issue and the consequential impact on resolving the balance of the dispute.  The balance of the dispute must include, inter alia, whether the Former Liquidators were negligent which is the cause of action relied upon by the plaintiffs.  Faced with this situation, the Judge took the view that the trial of preliminary issue would not save costs and time and decided that the issue of limitation should be tried together in one single trial.  We do not see how the Judge could be faulted by taking such an approach.  The decision is not plainly wrong or unjust which would require appellate intervention.  In fact, when one steps back and takes an overview of the dispute, it is clearly more expedient to deal in a single trial with the facts which are said to constitute the ‘acts and omissions’ that caused the damage and determine whether on such facts as found, negligence is established.

VII.  Conclusion

8.1  The intended appeal is not reasonably arguable and we will dismiss the application for leave to appeal with costs to the plaintiffs.  We will further order that, pursuant to Order 59 rule 2A(8) of the Rules of the High Court (Cap. 4), no party may request this determination to be reconsidered at an oral hearing inter partes.

8.2  Following the approach in Choy Po Chun v Au Wing Lun (HCMP 2440/2015) the plaintiffs are to have indemnity costs of the application which we will summarily assess at HK$56,000.