SUN FOCUS INVESTMENT LTD v. TANG SHING BOR AND ANOTHER

HCMP 2290 /2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2290 OF 2010

(ON AN INTENDED APPEAL FROM HCA NO. 538 OF 2007)

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Hon Le Pichon JA:

1.  This was a renewed application by the defendants for leave to appeal a decision of 10 September 2010 of Chung J granting the plaintiff leave to file and serve a fresh statement of claim. At the conclusion of the hearing judgment was reserved which we now give.

The background facts

2.  On 16 March 2007, the plaintiff issued a writ endorsed with a statement of claim.  The plaintiff’s claim arose out of the development of a piece of real property in Shanghai.  According to the amended statement of claim, the plaintiff had contributed $3.6 million or approximately 15% of the funds for the project.  The project has been completed and sold but the plaintiff had received no more approximately $1.6 million from the defendants.  The plaintiff claimed loss and damage of some RMB 16.8 million arising out of secret payments alleged to have been made by the first and second defendants.

3.  On 5 October 2009, Recorder Shieh SC struck out the plaintiff’s amended statement of claim in its entirety but gave the plaintiff another chance to cure the defect in its pleadings and refused to strike out the action altogether.

4.  The plaintiff’s summons for leave to file a fresh statement of claim was taken out on 15 October 2009.  Leave to file the fresh statement of claim was granted on 10 September 2010.

5.  The fresh statement of claim which the judge allowed pleaded an oral agreement made in July 1993 between the parties.  In February 2003, the plaintiff was provided with accounting reports and on 17 March 2003, it was paid $1.6 million as its share of the profits.

6.  The plaintiff’s fresh claim is based on two breaches of contract and/or fiduciary duties relating to: (1) the overcharging of management fees by the defendants and (2) the abandonment by the defendants of a loan advanced to a company controlled by them.  The total claim is for a little over RMB 3 million.

7.  It was alleged that the overcharging took place in February 2003, alternatively, December 2003 and the abandonment of the loan in February 2004.  For overcharging, it is the defendants’ case that the cause of action arose on 17 March 2003 rather than in February or December 2003.

8.  The possible dates for the expiry of the limitation period in respect of the overcharging claim are therefore (1) February 2009, (2) 17 March 2009, or (3) December 2009, and for the abandonment claim, February 2010.

9.  It is the plaintiff’s case that there had been deliberate concealment of the breaches which did not come to its knowledge until June 2004.  On that scenario, the limitation period for both breaches would not have expired until June 2010, which is after the date of the plaintiff’s application but before the date leave to amend was actually granted.

Whether leave to appeal should be granted

10.  In granting leave to file and serve the fresh statement of claim, the judge took the view that the question whether the plaintiff could properly invoke section 26 of the Limitation Ordinance (which postpones the limitation period for fraud, concealment and mistake) would be resolved at trial.  On that reasoning, the defendants would not suffer any prejudice because limitation would be a live issue at trial.

11.  Mr Manzoni who (together with Mr Calvin Cheuk) appeared for the defendants submitted that the effect of the judge’s order granting leave is to allow the amendments introduced by the fresh statement of claim, thus triggering the application of the “relation back” rule contained in section 35(1)(b) of the Limitation Ordinance.  The new claims would be deemed to have commenced as at the date of the writ and that would deprive the defendants of their limitation defence.

12.  The limitation period for both claims expired after the date of the writ (16 March 2007) but before the date leave to amend was granted (10 September 2010).  But for the relation back rule, the defendants would be entitled to raise a limitation defence in relation to both claims if, for limitation purposes, the new causes of action are added on the date leave to amend was granted.  Even if the relevant date were the date of application (15 October 2009), a limitation defence could still be raised in relation to the overcharging claim, depending on which of the possible dates the cause of action arose.

13.  Very arguably, the premise upon which the judge granted leave to file the fresh statement of claim would appear to be incorrect: if the new causes of action are deemed to have commenced as at the date of writ, section 26 of the Limitation Ordinance will not be engaged at all and will not be a live issue at trial.

14.  Mr Manzoni contends that where section 35(1) of the Limitation Ordinance gives the plaintiff an advantage (by depriving the defendant of potential limitation defences), the correct approach is that leave to amend by adding a new claim should not be given unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation which will be prejudiced by the new claim.

15.  Suffice it to say that as a matter of law that plainly is arguable: see Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 W.L.R. 1409, 1425G-H.  It would not be appropriate to say more at this stage save that I consider that leave to appeal should be granted.

16.  I would propose that there be an order nisi that costs be in the cause of the appeal.

Hon Kwan JA:

17.  I agree.

Hon Le Pichon JA:

18.  Accordingly, leave to appeal is granted.  There is to be an order nisi that costs of the application for leave to appeal be costs in the cause of the appeal.