PACIFIC ELECTRIC WIRE & CABLE COMPANY LTD v. TEXAN MANAGEMENT LTD AND OTHERS

CACV 93/2012, CACV 94/2012,

CACV 95/2012 AND CACV 96 /2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 93, 94, 95 AND 96 OF 2012

(ON APPEAL FROM HCCL NOS. 16, 17 AND 18 OF 2009)

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HCCL 16/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 16 OF 2009

(TRANSFERRED FROM HIGH COURT ACTION NO. 2203 OF 2004)

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Heard together

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

1.  We are concerned with two applications for leave to appeal to the Court of Final Appeal from a judgment of this court on 17 September 2013 (“the Judgment”). We will adopt the abbreviations as used in the Judgment.

2.  The applications are made by Top Selection and Hu.  Top Selection seeks leave on the basis that its intended appeal is as of right pursuant to the second limb of section 22(1)(a) of the Hong Kong Court of Final Appeal Ordinance, Cap 484.  Alternatively, it seeks leave on the discretionary basis pursuant to section 22(1)(b) in that questions of law of great general and public importance are raised in the appeal.  Hu seeks leave to appeal on the discretionary basis only, contending that there are questions of great general or public importance involved in his intended appeal.  Alternatively, it is contended that leave should be granted on the “or otherwise” limb.  Hu also argues that even though he does not contend that his appeal is as of right, if it should be held in favour of Top Selection that the latter is entitled to appeal as of right, he should also have leave to appeal as a matter of discretion.

TOP SELECTION’S APPLICATION

If the appeal is as of right

3.  Top Selection relies on the second limb of section 22(1)(a) which provides that an appeal from any final judgment of the Court of Appeal in any civil matter shall lie to the Court of Final Appeal as of right “where the appeal involves, directly or indirectly, some claim or question to or respecting property or some civil right amounting to or of the value of $1,000,000 or more”.

4.  The proper approach to an application for leave to appeal based on the second limb in section 22(1)(a) has been summarised by Ribeiro PJ in Chinachem Charitable Foundation Ltd v Chan Chun Chuen (2011) 14 HKCFAR 798 at 811 to 812, §20 and the relevant parts read as follows:

“(i) A further appeal to the Court is in principle oppressive to the party who has won in the Court of Appeal where the appeal is without substance. Unless it involves a point of law of public importance or unless grievous injustice would be done if the final court does not intervene, a successful litigant should not be dragged before a third tier of court. Appeals as of right deprive the Court of this beneficial discretion and are exceptional in courts of final appeal.

(ii) Section 22(1)(a) should therefore receive a narrow construction. It is well-established that the first limb must be narrowly construed, limiting it to liquidated claims which exceed the threshold amount. The second limb should be consistently interpreted and must not undermine the established construction of the first limb.

…

(iv) To come within the words “some claim or question to or respecting property or some civil right”, the claim must be a claim to some particular property or to a proprietary right of the requisite value. …

(v) In considering the threshold amount, the Court focuses on the value of the claim which is the subject-matter of the appeal and not on the value of any property or proprietary right which merely has some connection with the claim.

(vi) The value of the claim must be clearly quantifiable in the sum of $1 million or more.

(vii) The order which the Court would make in disposing of the proposed appeal must have the immediate effect of conferring or imposing on the relevant parties a financial benefit or detriment in the quantified amount. It is not enough to show that such a financial impact is a likely eventual result of the appeal.

(viii) The words “directly or indirectly” describe the nature of the claim asserted and do not affect the requirement for immediacy of the economic consequences of the Court’s order.”

5.  And by way of elaboration regarding the “immediacy requirement” in point (vii) of his summary, Ribeiro PJ said this at §31:

“…the immediacy requirement means that the order sought in the proposed appeal, if granted, would have the effect of conferring the quantified financial benefit without need for any further adjudicatory process to determine any question of fact or law, including any process of assessment, quantification or apportionment.”

6.  Top Selection’s argument that its appeal falls within the above provision is as follows.  The judgment of Reyes J which is the subject of the appeal to the Court of Appeal was made in respect of three actions (HCCL 16/2009, 17/2009 and 18/2009) brought by PEWC to recover assets which it claimed were acquired with its funds, namely the PacMOS shares, the Shouson Hill Property and the South Horizon Properties.  PEWC’s claim was in respect of the three assets or proprietary rights over the assets and the claims are proprietary in nature.  It cannot be disputed that the value of the assets is over $1,000,000.  The judgments in the courts below had the effect of immediately conferring on PEWC a financial benefit of over $1,000,000 with a corresponding detriment on the relevant parties.

7.  It is submitted by PEWC that its claim as against Top Selection is not the underlying assets being the PacMOS shares, the Shouson Hill Property and the South Horizon Properties but the shares held by Top Selection in Blinco BVI (two shares at the par value of US$1 per share) and Patagonia (one share at the par value of US$1).  The orders made by Reyes J against Top Selection are (1) a declaration that Top Selection held and still holds all the shares in Blinco BVI and Patagonia on constructive trust for PEWC; and (2) an order that Top Selection do transfer all the shares in Blinco BVI and Patagonia to PEWC.  The underlying assets are held by a number of entities at the bottom of a chain of companies ultimately held by Blinco BVI and Patagonia.  There is no evidence of the value of the shares of Blinco BVI and Patagonia beyond their par value.

8.  Adopting the approach that section 22(1)(a) should receive a narrow construction, PEWC submitted that it is wrong to conflate the value of the underlying assets with the value of the shares of Blinco BVI and Patagonia.  A complex exercise is required before one can arrive at the proper value of these shares.  This would entail a valuation of the underlying assets, and the accounts showing the assets and liabilities of Blinco BVI and Patagonia, as well as the accounts of the companies down the chain, would need to be analysed.  In any case, there is no evidence of the value of the underlying assets, the extent of any encumbrance on them, so there is nothing to support the contention that the value of the assets must exceed the threshold amount.

9.  PEWC pointed out that the words “directly or indirectly” in section 22(1)(a) apply to the nature of the claim asserted and do not affect the “immediacy requirement”.  That requirement is not satisfied as by the order which the court made against Top Selection (which it seeks to set aside in the proposed appeal), the immediate effect is that Top Selection will be deprived of the shares it held in Blinco BVI and Patagonia, not of the underlying assets held by the companies at the bottom of the chain.  It is not possible to say that the value of the shares in Blinco BVI and Patagonia is of a quantified amount which would exceed the threshold requirement, without a further adjudicatory process including any process of assessment, quantification or apportionment.

10.  In reply, Top Selection submitted it is unrealistic in the extreme to suggest that the subject matter of the claim of PEWC concerns shares in Blinco BVI and Patagonia.  Similar to the submission rejected by the Appeal Committee in Chinachem Charitable Foundation Ltd v Chan Chun Chuen at §30 (that the plaintiff’s claim was no more than a claim for proof of the will in solemn form or for rejection of its validity, without regard to the reality of the situation that the appeal involved an indirect claim to the property constituting the estate of the deceased), this would be a “blinkered” and “unduly artificial” approach.  It was further submitted that the “immediacy requirement” is met in that obtaining the orders in the courts below resulted in the immediate benefit to PEWC of the beneficial interest in the underlying assets, and as there is no outstanding issue as to the value of the liabilities of Blinco BVI or Patagonia, quantification of the value of the shares would be a matter of mere accounting not adjudication.

11.  We do not accept the submissions of Top Selection.  A narrow construction is to be adopted in approaching this application based on the second limb.  We cannot ignore the elaborate network of companies through which the underlying assets are held.  We do not think the immediacy requirement would be satisfied.  The immediate effect of the orders made in favour of PEWC is to confer on it the shares held by Top Selection in Blinco BVI and Patagonia and correspondingly deprives Top Selection of the same.  And the value of these shares is not quantifiable without a process of assessment or quantification.

12.  We reject the contention that Top Selection is entitled to appeal as of right.  We turn to the discretionary basis for granting leave.

Questions (a) and (b) – dishonesty

13.  The questions are:

“(a) where a trial judge has found that a company’s board of directors had expressly authorised certain actions, can the company, in law, nonetheless maintain it did not know about them?

(b) Having made positive findings against a party as to its corporate knowledge, is a court bound to find that the party had been dishonest in pursuing a case based on a lack of knowledge contrary to the court’s finding?”

14.  It was contended by Top Selection that fundamental principles surrounding attribution of knowledge to a company would arise from questions (a) and (b) and that it is a matter of great general and public importance to consider the rules of attribution of knowledge of a company and the permissible acts of a company when conducting litigation.

15.  We are not minded to grant leave in respect of questions (a) and (b).  We do not think they raise questions of great general or public importance.  They concern the application of well established principles to the specific fact situation.  Besides, we do not think they are reasonably arguable.  The arguments on these matters were addressed in the Judgment at §§42 to 55.

Questions (c) and (d) – burden of proof

16.  The questions are:

“(c) Where a plaintiff maintains that it is entitled to assets which are held in the hands of another party, does the burden of proof as to the plaintiff’s entitlement to recover those assets remain on the plaintiff throughout?

(d) And, if the defendant, the possessor of those assets, maintains its entitlement to those assets by raising a positive defence, does the burden to prove entitlement to those assets shift to the defendant?”

17.  Top Selection submitted that in requiring it and Hu to prove the existence of the Takeover Arrangement (Judgment, §60) and thereby approaching the issue from the wrong perspective, this raises a fundamental issue in respect of the burden of proof in cases involving proprietary claims and is a matter of great general and public importance.

18.  We do not agree with this.  The legal principles on burden of proof are well established.  Further, questions (c) and (d) are academic as Reyes J found the evidence was “overwhelming” and pointed to a clear conclusion there was no Takeover Arrangement (Judgment, §64).  The arguments raised on the burden of proof were addressed in the Judgment at §§57 to 64.  We do not find the arguments advanced in the proposed appeal reasonably arguable.

Questions (e) and (f) – pleading

19.  The questions are:

“(e) Where a plaintiff seeks to recover assets acquired and handled with its board’s express authority and now held in another’s hands, does the plaintiff have to plead the particulars of the circumstances under which it claims it remained entitled to those assets?

(f) Is a court entitled to infer that those assets have been disposed of improperly in circumstances which are in departure from the plaintiff’s pleaded case?”

20.  The complaint sought to be raised is that Reyes J drew conclusions on a factual scenario that had never been pleaded by PEWC, namely, that although the acquisition of the assets had been authorised and known to it, the disposal of the assets was not authorised and not known.  It was contended that issues as to the nature of the pleading required and whether the finding of fraud can be made by the court on the pleading of PEWC is a matter of great general and public importance.

21.  We reject the submissions of Top Selection.  The legal principles regarding pleadings are well established.  The questions sought to be raised are entirely fact-sensitive.  We are not persuaded they are reasonably arguable.  We dealt with the pleading objections in the Judgment at §§114 to 117.

Question (g) – interpretation of correspondence

22.  The question is:

“(g) Is a court entitled to disbelieve the testimony of the authors of correspondence (as opposed to contractual documents) because that testimony differed from its own interpretation of the correspondence?”

23.  The complaint is that the judge considered the Swissfirst Papers in a vacuum and entirely out of context and made his own interpretation contrary to the testimony of the authors of the correspondence.  Top Selection sought to argue there is a “fundamental difference” between contractual documents and an informal exchange of correspondence in that in the latter situation the authors’ evidence should be taken into account.

24.  This question is wholly fact-sensitive, not reasonably arguable on the facts as found, and plainly not a matter of great general or public importance.

25.  As none of the questions raised by Top Selection are proper questions of great general or public importance, we refuse to give leave to Top Selection to appeal.

HU’S APPLICATION

Question (1) – pleading of fraud

26.  The question is:

“Where fraud has not been pleaded or particularised by the plaintiff, has not been included in the list of agreed issues between the parties, has not been dealt with in the witness statements of the parties and has not been put in cross-examination, is it nevertheless open to the Court to come to such a conclusion of fraud on the basis that it is the “logical and natural” result which followed the rejection of the case advanced by the defendant?”

27.  In gist, the contention is that the findings of fraud of the judge were new and distinct from what PEWC had pleaded and that the Court of Appeal was wrong to hold that “there is no need to plead the logical and natural result which followed from the finding that there was no Takeover Arrangement” (Judgment, §116).

28.  We are not inclined to exercise our discretion to grant leave to appeal for question (1), as this is concerned with the application of the well established legal principles relating to pleadings to a particular fact situation, not to mention that we are not persuaded of the merits of the contention.

Question (2) – burden of proof

29.  The question is:

“Upon a plaintiff making allegation in the pleadings that documents (other than a will) pleaded and produced by a defendant are forgeries, does the defendant bear the legal burden (as the Court of Appeal found) of proving that such documents are genuine?”

30.  The question arose out of three letters produced by Hu and Top Selection as evidencing the Takeover Arrangement and it was held that the onus was on them to prove the letters were genuine (Judgment, §§60 and 61).  The contention is that as PEWC had pleaded these letters were forgeries, PEWC should bear the legal burden of proving that and Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 (referred to in the Judgment, §63) is not applicable.

31.  We are also not prepared to grant leave to appeal on this question, as it is fact sensitive and in any event academic.

“Or otherwise” ground

32.  Hu urged the court to grant leave to appeal on the “or otherwise” ground, contending that a substantial miscarriage of justice has occurred, as the judge had found fraud on an unpleaded theory and he was deprived of the opportunity of responding properly to the unpleaded findings of fraud.  Similar complaints were made in the hearing of the appeal before this court (Judgment, §115).

33.  We do not think exceptional circumstances are made out for this court to grant leave to appeal on the “or otherwise” ground.  In any event, it is the usual practice for this court not to grant leave on this ground but leave the question for the Appeal Committee (Lau Cho Kun v Lau Siang Kok Lionel, CACV 212/2012, 16 October 2013, §17).

34.  We dismiss Hu’s application for leave to appeal for the above reasons.

Costs

35.  We make an order nisi that Top Selection and Hu should pay PEWC’s costs of these applications.  We are not inclined to order costs on an indemnity basis as sought by PEWC.  We would award costs on a party and party basis, with a certificate for two counsel.