BGA HOLDINGS LTD (IN LIQUIDATION) (formerly known as BEIBU GULF OCEAN SHIPPING (GROUP) LTD AND OTHERS v. CHU KONG AND OTHERS

HCA 631/2022

[2024] HKCFI 2711

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 631 OF 2022

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DECISION

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Applications

1.  This is a claim by the plaintiffs (“Ps”) against their former director (de jure, de facto or shadow), Chu Kong (“Chu”) and his associates for misappropriation of assets and businesses from BGA Holdings Ltd. (“P1”) and its subsidiaries for their own personal benefit.

2.  There are 3 summonses before the court:

(1)  summons dated 5 December 2023 issued by Ps seeking leave to join Hope BBG Shipping Ltd. (“Hope BBG Shipping”), Glory BBG Shipping Ltd (“Glory BBG Shipping”) and Chu’s son, Chu Tin Hang (“TH Chu”), as additional defendants to these proceedings; and to make consequential amendments to the Amended Wit of Summons and Statement of Claim to reflect the joinder (the “Joinder Summons”).

(2)  Summons dated 12 July 2024 issued by Ps to amend the Joinder Summons to reflect amendments having been made to the Amended Statement of Claim, such that the draft annexed to the Joinder Summons would become a draft Re-Amended Writ of Summons and Re-Amended Statement of Claim (the “Amendment Summons”).

(3)  Summons dated 4 September 2024 by TH Chu to file evidence for the Joinder Summons (the “Evidence Summons”).

3.  There is evidence before the court that Hope BBG Shipping and Glory BBG Shipping have been properly served with the Joinder Summons and the Amendment Summons. Ps do not have any claims directly against Hope BBG Shipping and Glory BBG Shipping; they are simply joined as nominal defendants to ensure that judgments are binding on them. It is perhaps for this reason that neither of Hope BBG Shipping and Glory BBG Shipping was represented or present at the hearing. As such, the hearing proceeded in their absence.

4.  I see no reason (and parties did not seriously contend otherwise) why the Amendment Summons should not be allowed with fixed costs of HK$1,040 be to TH Chu and I so order. Parties agreed that the Evidence Summons be allowed with costs in the cause of the Joinder Summons and I so order.

Background

5.  The relevant background as set out in the skeleton submissions of Mr Victor Joffe SC, Mr Justin Ho and Mr Jonathan Ng, counsel for Ps and Mr John Hui and Mr Adrian Lee (written submissions only), counsel for TH Chu is as follows:

(1)  Lau Wing Yan (“Lau”) and Chu were ex-business partners who used to run shipping and logistics businesses together. Ocean Sino Ltd (“OSL”) is a BVI company set up by Lau and Chu in 2009, in which they each held a 50% shareholding. PBM Asset Management Ltd (“PBM”) is a wholly-owned subsidiary of OSL.

(2)  PBM and Beibu Gulf Holding (Hong Kong) Co., Ltd are respectively the 49% and 51% shareholders of Beibu Gulf Ocean Shipping (Group) Limited (later renamed as P1).

(3)  P1 and its subsidiaries’ businesses included:

(a)  Dry bulk chartering business, carried on by Beibu Gulf Shipping Ltd (“BBG Shipping”), which was wholly owned by P1;

(b)  Dry bulk trading business, carried on by Beibu Gulf Resources Ltd (“BBG Resources”), which was wholly owned by P1;

(c)  Investments in dry bulk carriers. Two of these carriers were known as MV BBG Hope and MV BBG Glory.

(d)  MV BBG Hope was held by Hope BBG Shipping, which was wholly owned by The Palace Ltd (“P2”), which is in turn wholly owned by P1. MV BBG Glory was held by Glory BBG Shipping, which was wholly owned by Shining Centre Ltd (now in liquidation) (“P3”), which is also wholly owned by P1.

(4)  Lau and Chu fell out. Lau petitioned for OSL to be would up in the BVI Commercial Court in May 2015. A long line of litigation ensued.

(5)  On 31 May 2016, P1 (represented by Chu) transferred BBG Shipping and BBG Resources to Cosmic Glory Ltd (also known as Ausca Group Limited and represented by TH Chu) (the “Ausca Group”) at the consideration of US$5.1 million (the “Ausca Transaction”). It is alleged by Ps that the Ausca Transaction was to divest P1’s interests in BBG Shipping and BBR Resources for the benefit of Chu. Of the many allegations raised by Ps in the present action, of relevance to the present application is only the Ausca Transaction.

(6)  OSL was wound up in June 2017, a decision which was upheld by the Privy Council in October 2020.

(7)  Following the winding-up order, the joint liquidators of OSL (“OSL JLs”) took control of PBM and carried out investigations into P1’s affairs. In August 2019, upon taking legal advice, PBM issued a petition (HCCW 251/2019) (“P1 Petition”) to wind up P1 on insolvency grounds, as well as just and equitable grounds, which included pleas relating to the Ausca Transaction.

(8)  Whilst the appointment of P1’s liquidators was pending, an urgent application was made in May 2022 for leave to issue the Writ in this action. The application was allowed on 19 May 2022, and the Writ was issued by the Official Receiver on 27 May 2022. The timing of the filing of the Writ was such that the complaints in relation to the Ausca Transaction against the original defendants (including Chu) were made within the limitation period of 6 years from the transfer on 31 May 2016.

(9)  However, TH Chu, Hope BBG Shipping and Glory BBG Shipping were not defendants when the Writ was issued on 27 May 2022.

Basis of Claim against TH Chu

6.  In the draft amendments to the Amended Statement of Claim, Ps’ case against TH Chu can be summarised as follows:

(1)  TH Chu was the shareholder and director of the Ausca Group at all material times.

(2)  TH Chu, being Chu’s son, acted as Chu’s nominee and agent.

(3)  TH Chu held shares in the Ausca Group for and on behalf of Chu and procured the Ausca Group to enter into the Ausca Transaction.

(4)  In view of TH Chu’s involvement in the Ausca Transaction (including the execution of various documents), Ps seek to join him as an additional defendant and claim against him for dishonest assistance and unlawful means conspiracy.

Issues

7.  As the involvement and act on the part of TH Chu in relation to the Ausca Transaction occurred on (or arguably before) 31 May 2016, on the face of it, the limitation period for bringing a claim of dishonest assistance and unlawful means conspiracy against him is 6 years and would have expired on 30 May 2022[1]. Not surprisingly therefore, TH Chu is raising a limitation defence to Ps’ application to join him as a defendant.

8.  Mr Joffe submitted that Ps could rely on section 26(1) of the Limitation Ordinance (Cap. 347) (the “LO”) to postpone the accrual of the limitation period as (1) the action is based upon the fraud of TH Chu, and/or (2) any fact relevant to the Ps’ right of action has been deliberately concealed by TH Chu. As such, time would only start to run when Ps had discovered the fraud or concealment, or when Ps could with reasonable diligence have discovered it.

9.  Ps’ primary position is thus that the relevant limitation period has not expired. However, instead of commencing a fresh action, Ps, “for purposes of saving costs and time”, have chosen to apply for joinder of TH Chu into the present proceedings instead. It was submitted that as Ps are prepared to proceed on the basis that TH Chu may have an arguable limitation defence, this does not prejudice TH Chu’s position. As a result, Mr Joffe characterizes the question of whether TH Chu should be joined when the court cannot come to a conclusive view on the availability of a limitation defence as a case management issue.

10.  Mr Hui did not agree that the limitation period in the present case could be postponed under section 26 of LO. Mr Hui also criticized the approach advocated by Mr Joffe (to permit joinder and amendments on terms that it does not benefit Ps of “relation-back”) to be directly contradictory to the statute and Hong Kong case law.

11.  There are thus two issues before the court:

(1)  Can Ps rely on section 26 of LO and postpone the running of the limitation period?

(2)  Can (or should) the court allow an amendment and joinder of a party on the basis that there will be no benefit of “relation-back”?

Postponement of Accrual of Limitation Period

12.  Section 26 of LO provides:

“26. Postponement of limitation period in case 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 —

(a) the action is based upon the fraud of the defendant;

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

(c) …

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.

…”

13.  Mr Joffe submitted that based on the following, Ps are entitled to have the accrual of the limitation period postponed based on section 26 of LO:

(1)  The claims for dishonest assistance and unlawful means conspiracy are claims based upon fraud for the purpose of section 26(1)(a) of LO.

(2)  The deliberate breach of duties by P1’s directors was unlikely to be discovered for some time, given that P1 was controlled by the wrongdoing directors before P1’s liquidation. As such, there was a deliberate concealment of the facts involved in that breach of duty under sections 26(1)(b) and 26(3) of LO.

(3)  Chu and his associates, as opposed to Lau and/or the OSL JLs, were in control of P1 at the material times of the Ausca Transaction.

(4)  The knowledge of Chu and/or his associates should not be attributable to P1, as P1 is pursuing a claim against the wrongdoing directors and their accomplice.

(5)  Accordingly, the 6-year limitation period should not begin to run until Ps discovered the fraud and concealment – i.e. when the P1’s joint liquidators were appointed on 13 January 2023, or alternatively on 6 December 2021 when the Official Receiver was appointed as P1’s provisional liquidator.

14.  Mr Hui submitted that the relevant question to ask when determining if section 26 applies is: whether Ps have discovered or could with reasonable diligence have discovered the alleged fraud or deliberate concealment by Chu or TH Chu.

15.  Before embarking on an analysis on the applicability of section 26 of LO to the present circumstances, it should be noted that both Mr Joffe and Mr Hui agreed that the court need not come to a definitive view on the limitation issue, albeit for different reasons:

(1)  Ps: whether Ps could have discovered the fraud or deliberate concealment is a fact-sensitive issue, which should not be determined at this stage when the relevant evidence is not before the court.

(2)  TH Chu: all that needs to be shown at this stage is that he has a reasonably arguable case on limitation and if so, leave to join him as a party should be refused.

16.  This means that parties agreed that my view expressed herein would not preclude parties from arguing on the limitation issue substantively in future, if there is a need to do so.

17.  The meaning of “could with reasonable diligence have discovered” is explained in Law Society v Sephton & Co (a firm)[2]:

(1)  The question is whether the plaintiff could (not should) have discovered the fraud, concealment or mistake with reasonable diligence.

(2)  The plaintiff must prove that it could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take.

(3)  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.

(4)  The concept of “reasonable diligence” carries with it a notion of a desire to know and to investigate on the part of the plaintiff.

18.  There is no dispute that the burden is on Ps to show that P1 could not have discovered the alleged fraud or deliberate concealment.

19.  Mr Joffe submitted that the starting point for determining when P1 would have discovered the alleged fraud or deliberate concealment is to consider whose act or knowledge would be attributable to it. In this context, it was submitted that any knowledge derived from a fraudulent director should not be attributed to the company, when the intended action is commenced against the fraudulent director or his accomplices[3].

20.  Mr Hui on the other hand, contended that there is no basis for Ps to rely on section 26 of LO:

(1)  It is undesirable to determine if the proposed causes of action against TH Chu was based on fraud for the purposes of section 26 of LO as there is no evidential basis to support the bare allegations in the pleading.

(2)  A reasonable person in the position of Ps must have been able to discover the facts and dispute concerning the Ausca Transaction by June 2017 as the dispute between Chu and Lau over the propriety of the Ausca Transaction was public knowledge by June 2017.

(3)  Where the matters complained has become public knowledge, Ps should have been able to discover the alleged fraud with reasonable diligence[4].

(4)  Time must therefore have begun accruing from June 2017.

(5)  The board of directors of P1 approved the Ausca Transaction on 23 May 2016. The shareholders of P1 were all aware of the Ausca Transaction as it was discussed at the AGM/EGM of P1 on 23 December 2016.

(6)  Chu and Lau each filed affirmations concerning the Ausca Transaction in the BVI proceedings (Lau’s petition to wind up OSL).

21.  It is useful to bear in mind at this juncture that:

“[section 26 of LO] was enacted to reflect the equitable principle that a statute should not be used as an engine of fraud and ‘deliberate concealment’ was merely a species of fraud. This section was construed strictly against plaintiffs; it is for a plaintiff to establish ‘he falls strictly and literally within the exception the benefit of which is given to him by the statute… In the case of a corporate plaintiff, the special rule of attribution should be applied to the substantive rule in this section to give effect to the legislative policy to ensure that a plaintiff is not prejudiced by any period of delay created by fraud, deliberate concealment or mistake, and which the plaintiff had not discovered or could not with reasonable diligence have discovered.”[5]

22.  Parties differed on the issue of whether Chu’s (and his associates’) knowledge should be attributed to P1. Mr Hui contended that no special rule of attribution should be applied in the present case. Mr Joffe contended that the knowledge of Chu and his associates (the alleged rogue directors) should not be attributable to Ps, as the fraud by Chu and his associates is precisely what that Ps now complain about.

23.  There is no dispute that the general rules of attribution is that directors’ knowledge is by virtue of the principles of agency attributed to the company[6]. There are cases where special rules of attribution apply such that the directors’ knowledge is not attributed to the company in “redress cases”[7]. In such cases where a company is seeking to make its own delinquent director or employee or an accomplice of such a person accountable for the loss that the company has suffered, it was held in Moulin Global that it would be absurd and unjust to permit a fraudulent director or employee to be able to use his own serious breach of duty to his corporate employer as a defence.

24.  On the issue of attribution of knowledge, I agree with Mr Joffe’s submission that the knowledge of Chu and his associates should not be attributed to P1 for the purposes of section 26 of LO in its claim against TH Chu. The proposed claim by Ps against TH Chu is a “redress case” and as such a fraudulent director (alleged to be Chu and his associates) should not be allowed to use their own knowledge to defeat a claim.

25.  Despite that, for the following reasons, I am of the view that Ps have failed to show that it could not have discovered the fraud without exceptional measures which they could not reasonably have been expected to take:

(1)  First of all, I reject Mr Joffe’s submission that the question on whether P1 could have discovered the fraud is a “fact-sensitive issue” which cannot or should not be decided by the court at this stage. Whilst there may be situations where such an issue may require a more in-depth investigation by the court, in my view, this is not one of those cases.

(2)  Lau, being the petitioner to wind up OSL, was keenly aware of the Ausca Transaction since P1’s AGM/EGM on 23 December 2016. As such, the shareholders and directors of P1 would have been aware of the transaction by that time. Lau was at all material times a director as well as shareholder of P1. Even if it were true that Lau was kept out of all knowledge in his capacity as a director, it is artificial to suggest the knowledge Lau subsequently acquired was only in his capacity as a shareholder and is thus not attributable to P1.

(3)  Lau would also have been aware of the fact that Ausca Group was owned by TH Chu by 18 April 2017 when Chu filed his 4^th affidavit in the BVI winding up proceedings of OSL.

(4)  With Lau’s knowledge (in his capacity as an innocent director), it is unrealistic to suggest that P1 could not have discovered the fraud of TH Chu without exceptional measures, when P1 was in the centre of a full-fledged dispute between Lau and Chu.

(5)  Leaving aside the imputation of Lau’s knowledge as a director on P1, the requisite knowledge would also have been available to Ps by reason of the Judgment by the BVI Commercial Court dated 29 June 2017 (the “BVI Judgment”), which had set out in paragraph 79:

“… no doubt in an effort to frustrate any order that this court might make, BGAL eventually sold the ship chartering business (supposedly now only consisting of BBG Shipping and BBG Resources) to a company, Ausca Shipping Ltd (“Ausca”) for, so far as I can tell or understood, no discernible commercial benefit or even any kind of proper or cogent due diligence or full and proper knowledge and approval of, or even explanation to, [Lau]. Ausca was seemingly operated by [Chu’s] son and a company of which [Chu] was and is a director …”

In paragraph 81 thereof:

“[Chu] had managed to engineer, in my judgment, a situation whereby he, or associates of his, seized effective overall control [P1] by BGAL and Polyrise in order to exclude [Lau] from any participation in management … of PBM’s 49% interest in [P1] and, thereby in its subsidiaries. All this was done or engineered by [Chu] (in breach, it might well be said, of his fiduciary obligations to his partner in OSL, [Lau]) without properly or fully informing [Lau] despite his personal interest via PBM’s 49% share and his own 50% shares in OSL. He removed, or secured the removal of [Lau] as director of [P1] and its subsidiaries, and diverted the two operating subsidiaries (BBG Shipping and BBG Resources) to a company, Ausca, which he now accepts is owned by his son and of which he is a director and moreover without any cogent due diligence or any approach or explanation to [Lau]. [Chu] failed to explain or justify the commercial reasons for this (by which he had effectively engineered a situation whereby [P1] was stripped of its apparently potentially valuable operating assets, thereby reducing the value of PBM’s interest), but I infer and find it was done directly or indirectly to exclude [Lau] from any benefit.”

(6)  The details of the proposed claim against TH Chu as set out in Annex 2 of the Amended Statement of Claim, which was filed on 11 July 2024, in relation to the Ausca Transaction, were all available or readily inferable latest by the time the BVI Judgment was handed down. In such circumstances, it is unclear what had inhibited a claim to also have been made against TH Chu when the Protective Writ was issued.

(7)  Whether knowledge was attributable from Chu or his associates to P1 is thus irrelevant for present purposes, as Lau clearly had knowledge of TH Chu’s involvement as early as April 2017 and such knowledge had in any event been disseminated by way of a publicly available BVI Judgment in June 2017.

(8)  In such circumstances, I do not accept the submission that the Ausca Transaction was concealed and not discoverable until after the Official Receiver or the provisional liquidators of P1 had been appointed.

(9)  I also do not accept the submission that even if knowledge was available, no action could have been instituted against Chu or TH Chu until liquidators were appointed, as Chu and his associates were in control of P1. A derivative action could have been brought on behalf of P1 by any shareholder. Lau, being a shareholder of P1 could have brought an action on behalf of P1 against Chu and TH Chu.

26.  I am thus of the view that Ps cannot rely on section 26 of LO. As such, I am of the view that Ps have not shown that TH Chu has no reasonably arguable case on limitation.

Amendment or joinder where an issue of limitation arises

27.  When considering an application to amend and/or join a party where a party raises a limitation defence, section 35 of LO comes into play:

“35. New claims in pending actions: rules of court

(1) For the purposes of this Ordinance, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced —

(a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and

(b) in the case of any other new claim, on the same date as the original action.

(2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either —

(a) the addition or substitution of a new cause of action; or

(b) the addition or substitution of a new party,

…

(3) Except as provided by section 30 or by rules of court, the court shall not allow a new claim within subsection (1)(b), other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Ordinance which would affect a new action to enforce that claim.

(4) …

(5) Rules of court may provide for allowing a new claim to which subsection (3) applies to be made as there mentioned, but only if the conditions specified in subsection (6) are satisfied, and subject to any further restrictions the rules may impose.

(6) The conditions referred to in subsection (5) are —

(a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment; and

(b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.

(7) The addition or substitution of a new party shall not be regarded for the purposes of subsection (6)(b) as necessary for the determination of the original action unless either —

(a) the new party is substituted for a party whose name was given in any claim made in the original action in mistake for the new party’s name; or

(b) any claim already made in the original action cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant in that action.

…”

28.  Section 35(1)(b) is the relevant section and is known as the “relation-back” rule. The rule can operate to the prejudice of a defendant so as to deprive him of an accrued limitation defence if a new claim is permitted to be added by amendment after the expiry of the relevant limitation period. It is for this reason that the power of the court to allow such an amendment is circumscribed by subsections (3), (5) and (6)[8]: Akai Holdings Ltd (in compulsory liq) v Everwin Dynasty Ltd & Ors [2012] 3 HKC 485, [2012] 4 HKLRD 248.

29.  Mr Hui submitted that as the condition set out in subsection (6)(b) of “if the addition or substitution of the new party is necessary for the determination of the original action” is not satisfied, leave to add TH Chu as a party to the proceedings should be refused.

30.  Mr Joffe did not seem to have expressly disputed that the condition in subsection (6)(b) is not satisfied, although his primary position is that section 35 is wholly irrelevant since Ps rely on section 26 and as such no issue of limitation arises. However, such primary position lacked conviction as Mr Joffe submitted that for the purposes of the Joinder Summons, Ps would adopt the fall-back position that TH Chu may have a reasonably arguable limitation defence. Hence, Ps would accept (for the purposes of the Joinder Application alone) that if TH Chu is joined to these proceedings, he may have a reasonably arguable case that he would be deprived of a limitation defence as a result of the strict operation of the relation-back doctrine.

31.  On this basis, Mr Joffe invited the court to adopt the following proposals:

(1)  to join TH Chu on the basis that for limitation purposes, Ps’ claim against TH Chu only relates back to the date of the Joinder Summons, or the date of the order to be made, as opposed to the date of the Writ.

(2)  alternatively, to join TH Chu on the basis of Ps’ proposed undertaking not to pursue any claims against TH Chu if the Court finds at trial that the claim against TH Chu has become time-barred as at the date of the Joinder Summons or the date of the determination of the Amended Joinder Summons.

32.  First of all, I consider the proposed undertaking offered by Ps “not to pursue any claims against [TH] Chu if the Court finds at trial that the claim against [TH] Chu has become time-barred as at the date of the Joinder Summons or the date of the determination of the Amended Joinder Summons” to be an empty one: if TH Chu’s limitation defence prevails, Ps would not be entitled to pursue any claims against him anyway.

33.  Essentially, Mr Joffe was suggesting that it is open for the court to “permit an amendment on terms that it does not have benefit of ‘relation-back’”.

34.  Mr Hui submitted that section 35(1) of LO is mandatory and it is not open for parties to override the express provision by way of agreement:

“1) For the purposes of this Ordinance, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced—

(b) in the case of any other new claim[9], on the same date as the original action.” (emphasis added)

35.  Accordingly, it was submitted by Mr Hui that once a new defendant is joined into the existing proceedings, the new claim relates back to the date of commencement of the original action, and the defendant would lose the time-bar defence forever by the operation of section 35(1)(b).

Hong Kong Authorities

36.  Mr Hui further submitted that Ps’ proposal to join TH Chu despite the existence of a reasonably arguable limitation defence is contrary to stablished authorities in Hong Kong and must be rejected. The relevant Hong Kong authorities are as follows:

(1)  In 1996, in the case of Wong Kam Lee v Shimizu Corp & Ors[10], Woo J (as he then was), upheld a Master’s decision to join a defendant when the court had not reached a conclusion on the issue of limitation due to conflicting evidence, despite the operation of section 35(1). This decision, however, seems to be in conflict with subsequent Court of Appeal decisions as discussed below.

(2)  In 2012, the Court of Appeal has twice held that where the defendant had a reasonably arguable case on limitation, it was wrong to grant leave for joinder and amendment and leave the limitation issue to be determined at trial:

(a)  In Sun Focus Investment Ltd v Tang Shing Bor & Anor[11], the Judge granted leave to the plaintiff to amend to add new claims by filing a fresh statement of claim (after the original statement of claim was struck out previously), despite the defendants’ objection that the claims in the fresh statement of claim were out of time and they had a limitation defence. The Judge held that the plaintiff’s reliance on section 26(1)(b) of LO, which extended the limitation period in cases of deliberate concealment would be a live issue to be resolved at trial. The Judge’s approach was that any potential prejudice to the defendants by reason of the operation of the relation-back rule, notwithstanding the amendment pursuant to the leave granted by him, would be avoided by the fact that limitation would be a live issue at trial. On appeal, Fok JA (as His Lordship then was) held that:

“15. In my opinion, the Judge’s view that limitation would be a live issue at trial notwithstanding the grant of leave to amend was, with respect to the Judge, not correct since, by reason of the relation back rule, the new claims by amendment in the fresh statement of claim would be deemed to have been made on … the date of the original writ. On that basis, the new claims in the fresh statement of claim would have been made within six years of the accrual of the relevant causes of action and so there would be no limitation defence available to the defendants at the trial. The amendment would automatically deprive them of the advantage of the limitation defence and this would be unfair.

16. It follows that the Judge’s exercise of discretion to grant leave to amend was vitiated by this error.”

Fok JA’s analysis seems to support Mr Hui’s contention that the relation-back rule is mandatory and it is not open for the court to derogate from the automatic effect by providing expressly that the limitation issue would be live at trial. The Judge’s rationale, which is similar to that of the one that is being advocated by Ps now, was rejected as erroneous.

(b)  In Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd.[12], the Judge found that the plaintiffs had an arguable case on the new claim not having been time-barred pursuant to section 26 of LO and granted leave to amend on the basis that the dispute as to the time of discovery of fraud would be live at trial. On appeal, Kwan JA (as the vice president then was) held that:

“21. … The approach in Welsh Development Agency and Sun Focus Investment gives effect to and accords with s.35(1)(b) and 35(3). Leave to amend should not be given if the effect of this would be to deprive the defendant of an accrued limitation defence, which would be lost as a result of the operation of the relation-back rule in s.35(1)(b). In that situation, the correct approach is to refuse leave to amend, unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation …By this means the injustice to the defendant of depriving him of an arguable limitation defence is avoided without denying the plaintiff the right to bring a fresh action to which, if he is correct, there is no limitation defence.

22. For the above reasons, I am satisfied that the approach in Extramoney Ltd v Chan, Lai, Pang & Co (a firm), which is to give leave to amend where there is a triable issue on limitation and leaving this issue to be resolved at trial, is incorrect…

…

24. … Whether the limitation period of six years should run from the date on which the cause of action accrued as provided in s.4(1) or from the date of discovery of the fraud or concealment as provided in s.26(1) is immaterial. What matters is whether the plaintiffs here can show that the defendant has no reasonably arguable defence of limitation to the new claim and so would not be prejudiced by the relation-back rule, irrespective of whether the limitation period is to run from the time provided under s.4(1) or s.26(1)…

…

26. The plaintiffs have not been able to establish that the defendant has no reasonably arguable limitation defence. For the reasons given above, the Judge was in error in the exercise of his discretion in granting leave to amend and his order must be set aside.”

(3)  In 2018, in the case of Sun Tian Gang v Changchun High & New Technology Industries Development Parent Co[13], Deputy High Court Judge Le Pichon, whilst recognizing the effect of the relation-back rule, held that as the plaintiff had an arguable case on deliberate concealment, the court should determine that issue as fairly and justly as circumstances would allow. As it was impossible to decide on the issue simply on affirmation evidence, the Judge held that it would be fairer to direct a trial on the preliminary issue.

(4)  The course adopted by the learned Judge seems to have been against the principles set down by the Court of Appeal that unless the plaintiffs can show that the defendant has no reasonably arguable defence of limitation to the new claim, leave to amend should not be given. In any event, the present case is distinguishable as I am of the opinion that from the available evidence Ps ought to have discovered the alleged fraud latest by June 2017.

(5)  In 2020, in the Court of Appeal Judgment of Delco Participation BV v Chiho Environmental Group Ltd[14], Kwan VP endorsed the approach set out in Global Bridge Assets Ltd to be the correct approach.

(6)  In 2022, the same principles in Sun Focus and Global Bridge Assets Ltd were repeated by G Lam JA in Securities and Futures Commission v Lu Ruifeng & Ors[15] that:

“34. … an amendment that adds a claim based on a new cause of action or against a new defendant in the face of an objection that the applicable limitation period has expired stands on a different footing. Section 35(1)(b) LO means that, once added, the new claim relates back to the date of commencement of the original action. If the limitation period for the new claim had not expired by that earlier date, the time-bar defence would be lost to the defendant forever. This is why before such an amendment is to be permitted, the court has to be satisfied that the limitation defence is not reasonably arguable anyway… As stated in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409 at 1425G-H: ‘In such a case, 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, or can bring himself within R.S.C. Ord. 20 r. 5.’”

37.  As such, I agree with Mr Hui’s submission that the position in Hong Kong is reasonably clear that where a plaintiff has failed to show that a defendant does not have a reasonably arguable case on limitation which will be prejudiced by a new claim, leave to amend and join a new defendant should not be given.

English Authorities

38.  However, Mr Joffe advocated that his proposals are in line with development in the U.K. and the English case law clearly shows that sections 35(1) and (3) are not mandatory and parties are free to agree to proceed differently. It was submitted that it is also open to the Court to permit an amendment on terms that it does not have the benefit of “relation-back”, e.g. for limitation purposes it should not date back to the date of issue of the writ, but only to the date of the application to amend. It was submitted that this would be a useful practice which avoids the need to issue a fresh action with resultant waste of costs.

39.  The relevant English case law began with Welsh Development Agency v Redpath Dorman Long Ltd[16] where the Judge at first instance refused leave to amend due to the limitation period for the proposed new claims had expired. The plaintiff’s appeal was dismissed and it was held 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, or can bring himself within R.S.C., Ord. 20, r. 5”. It should be noted at this juncture that the judgment of and the test set out by Purchas L.J. in Grimsby Cold Stores Ltd. v. Jenkins & Potter[17] was expressly approved by Glidewell L.J.:

“Leave to add a new party should not be given unless it can be shown that the defendant did not have a reasonably arguable case on limitation which would be prejudiced by the additional new claim. I agree with Watkins L.J. that, as a result of the new evidence in the form of the report attached to the affidavit, the appellants have at least a strong arguable case that the damage was suffered more than six years before the date of the application to amend and that, therefore, this application should not be granted. Any prejudice to the applicant plaintiff can to a large extent be mitigated, if it exists, by having recourse to the ordinary process of issuing a fresh writ.”

40.  Here it can be seen that the court did not determine the issue of limitation, but simply determined on whether there was a reasonably arguable case on limitation for the defendant. Once that was established, the application to amend should not be granted. It was therefore irrelevant that the court may not be able to arrive at a definitive conclusion on the issue of limitation. The English Court of Appeal therefore did not consider that where a limitation issue is undecided, the issue should be determined at trial. It was also expressed that any prejudice to the applicant plaintiff can to a large extent be mitigated, by adopting the usual curse of issuing a fresh writ.

41.  The cases heavily relied upon by Mr Joffe to be in support of the feasibility and appropriateness of his proposals are WM Morrison Supermarkets plc v MasterCard Incorporated[18], MasterCard Inc v Deutsche Bahn AG[19], and IBM United Kingdom Ltd v LzLabs GmbH[20]:

(1)  WM Morrison Supermarkets plc v MasterCard Incorporated is an English Commercial Court Judgment by Field J in 2013.

(a)  The original claim was issued on 23 May 2012. The existing claims advanced against the defendants were based on concerted practice in breach of competition law from 18 November 2004 onwards. 18 November 2004 was more than 6 years ago from the date that leave to amend was sought (8 October 2013). The new claim consisted of partly claims which were within the limitation period (those from 8 October 2013) and partly claims that were outside the limitation period. The claimants thus submitted that as such the whole claim was not made after the expiry of the limitation period and did not fall foul of section 35(5) and leave to amend should be allowed.

(b)  This submission was rejected by Field J and as a result, the part of the claims for the time period from 23 May 2006 to 8 October 2007 were held to be time-barred. However, since the claim concerns a (i) continuing infringement of a right over a long period, and (ii) there remains infringement concerning a time period which is not time-barred (i.e. infringement since 8 October 2007, 6 years prior to the date of the amendment application), the Court allowed the plaintiff to amend the claim to limit its claims to the infringement to the period that is not time-barred.

(c)  It can thus be seen that the issue of limitation had been decided and no live issue of limitation remained when leave to amend to allow claims within the limitation period to be added. It was on that basis that it was held that the claims within the limitation period could be introduced by way of amendment instead of a fresh action to save costs.

(d)  Even though the wording adopted may be the similar: to “permit an amendment on terms that it does not have benefit of ‘relation back”, the circumstances in WM Morrison Supermarkets are markedly different from the present case where the limitation issue is contested and is still at large. I do not agree that WM Morrison Supermarkets supports the proposition that Mr Joffe advanced, which is unlimited and general in nature for case management for costs savings purposes.

(2)  MasterCard Inc v Deutsche Bahn AG is an English Court of Appeal Judgment where the issue concerned an alleged continuing breach of EU competition law by the legal entities that operated the MasterCard credit schemes in relation to Mastercard’s interchange fee arrangements.

(a)  The decision under challenge on appeal was a decision by the judge to give claimants permission to amend their claim form to introduce a new claim which was to be deemed for limitation purposes to have been commenced on the dates when the proceedings were commenced (being December 2012 and February 2013) under the principle of relation-back set out in section 35(1)((b) of the Limitation Act 1980. The judge did this on the basis that the new claim arose out of the same facts or substantially the same facts as claims that had already been commenced. The defendants submitted that he was wrong to have so held.

(b)  The defendants had agreed that new claim can be introduced by way of amendment to the existing proceedings which related back to 7 August 2015, as it was accepted that those claims would have been within the limitation period. As such, the situation is similar to that in WM Morrison Supermarkets as the defendant had agreed to new claim to be added which was within the limitation period and no issue of limitation remained. This was endorsed by the Court of Appeal to be the proper approach:

“This was the approach adopted by Field J in William Morrison v Mastercard [2013] EWHC 3271 (Comm) to avoid the necessity of the claimants there having to commence a new claim with resultant waste of costs, where he had found that the new claim did not arise out of the same or substantially the same facts. This result can be achieved either by the court refusing permission for an amendment unless the new pleaded claim itself in terms pleads the new cause of action only from that date or by the court making an order stipulating the relevant date for limitation purposes, which is what both sides invited the judge to do and again invite us to do…” (emphasis added)

(c)  As such, if read in its proper context, I do not consider the above obiter in MasterCard Inc v Deutsche Bahn AG to be in support of Mr Joffe’s assertion that it is (without more) open for the court to accede to parties’ agreement to postpone the issue of limitation and allow amendment on that basis as a matter of “case management” in order to save costs. The courts in MasterCard Inc v Deutsche Bahn AG and WM Morrison Supermarkets clearly acceded to the application to amend only when the relevant limitation period had been agreed and no possibility of deprivation of a defendant’s limitation defence remained.

(3)  In IBM United Kingdom Ltd v LzLabs GmbH, a decision of the English Technology and Construction Court, the claimant applied to join a new defendant and to amend its particulars of claim. The new defendant objected on the basis that the joinder was precluded by section 35 of the Limitation Act 1980. The learned Judge held[21] that:

“71. Thus, the court does not have discretion to allow an amendment to introduce a new claim or add a new party after the expiry of the limitation period unless the express exceptions set out in CPR 17.4 and/or CPR 19.6 above apply in accordance with the provisions of section 35.

72. Where the merits of a limitation defence are obvious from the pleaded case, or the court is in a position to determine a disputed limitation defence on submissions or following a preliminary issue trial, the court can ascertain whether the proposed amendment is caught by section 35(3). If the proposed amendment is caught by section 35(3), there is no power to allow it; if it is not so caught, the court must consider the application to amend by reference to the general principles summarised above.

73. Difficulty arises where the court is not in a position to determine the issue of limitation at the date of the application to amend. If the proposed amendment were to be permitted, so as to allow ventilation of the arguments on full evidence at trial, this could have the effect of depriving the other party of an arguable limitation defence by reason of the provision in section 35(1), whereby the amendment would be deemed to have been made when the claim was issued (‘the relation back rule’).

74. One option, where it is arguable that a new claim is statute-barred, is for the court to refuse permission to amend, leaving the claimant to start fresh proceedings: Chandra v Brooke North [2013] EWCA Civ 1559 per Jackson LJ at [66]-[68]. That enables the claimant to pursue its new claim without gaining the benefit of relation back under section 35(1) so as to deprive the defendant of its arguable limitation defence. However, it has the disadvantage of producing a multiplicity of proceedings that are likely to be consolidated, with the attendant wasted costs.

75. The alternative approach, which is proposed by the claimant in this case, is to restrict its new claims against Mr Moores to such claims which are not statute- barred under the Limitation Act 1980 so as to ensure that the claimant will gain no advantage from the relation back rule. This practice has been endorsed by the Court of Appeal in MasterCard Inc v Deutsche Bahn AG [2017] EWCA Civ 272 per Sales LJ (as he was then) at [4] and Libyan Investment Authority v King [2020] EWCA Civ 1690 per Nugee LJ at [22].

…

82. It is clear from the technical particulars that the allegations of breach of the ICA span a period of time of at least between 2013 and 2021. Equally, the pleaded case against Mr Moores is based on actions and documents identified as continuing through to 2020. It would not be appropriate for the court to carry out a detailed analysis of each and every claim in order to determine whether it has a real prospect of success. Indeed, the parties have not suggested that the court should embark on such a mini trial. It follows that, even if the court refused permission for the amendments in respect of which it is arguable that the claims are statute-barred, there would remain other allegations to which such arguments could not apply.

83. This is a paradigm case in which the sensible solution is to allow the proposed new claims against Mr Moores but expressly limited to claims which are not statute-barred under the Limitation Act 1980, as pleaded in paragraph 11A of the draft. Further, the undertaking proffered by Ms Vernon in respect of the contractual time bar should be incorporated into the pleading for the avoidance of any doubt.”

(a)  First of all, I am of the view that the present case falls within the scenario described in paragraph 72: the merits of a limitation defence are obvious from the pleaded case, or the court is in a position to determine a disputed limitation defence on submissions such that the defendants cannot be said to not have an arguable limitation defence. As such, the proper course should be to refuse leave to amend.

(b)  Further, even if the ultimate merit of a limitation defence is unclear or cannot be decided, based on the Hong Kong Court of Appeal case law as analysed above and the principles as set out in WM Morrison Supermarkets, I respectfully decline to follow the solution proposed in paragraph 83 by the learned Judge. I am of the view that the learned Judge might not have appreciated the difference in IBM United Kingdom Ltd v LzLabs GmbH that there was no agreement between parties as to the limitation issue and in those circumstances the proper course would be to refuse leave to joinder/amendment and let the plaintiff commence fresh proceedings.

(c)  On the same bases, I would also respectfully decline to follow the course taken by the learned judges in Libyan Investment Authority v King[22] and Advanced Control Systems Inc v Efacec Engenharia e Sistemas S.A.[23]

42.  I am of the view that in cases where the limitation issue has been determined or agreed by parties (in the sense that the new cause of action will not be defeated by a limitation defence), it is of course open to the court and indeed it would be advisable for the court to exercise its case management powers to limit any costs to be wasted by not insisting separate proceedings to be commenced, only for them to be consolidated afterwards. However, in the absence of any determination by the judge or agreement between the parties on a limitation issue, I am of the view that the court has no discretion in adopting the proposals by Ps in the present case.

43.  I note that the prejudice envisaged to be caused to the plaintiffs in Sun Tian Gang, Wong Kam Lee and IBM United Kingdom Ltd in refusing leave to joinder/amendment can at most be said to be due to costs wasted in commencing fresh proceedings. As mentioned in the above cases, the plaintiff would still be entitled to commence fresh proceedings – it is not the case that in refusing leave to a joinder or amendment application the plaintiff would have lost their right to commence separate proceedings and to object to a defendant’s limitation defence.

44.  Conversely, the prejudice caused by joining a defendant who has a reasonable limitation defence is real. This is particularly the case where Ps here have rejected to TH Chu’s fall-back or alternative position that the issue of limitation be tried as a preliminary issue in the joinder and amendment application. It is not necessary to go into the reasons put forward by Ps in rejecting such preliminary issue to be tried. Even if I were to agree that such were valid reasons (which I do not), it would mean that TH Chu would not be able to raise his limitation defence and have it determined until the main trial and would need to participate in the whole trial with all other defendants and together with other issues, incurring what would no doubt be very substantial legal costs, if the previous legal battles between Lau and Chu were anything to go by. This would clearly be an absurd result when I have come to the view (and Ps were prepared to accept for the purposes of the present application) that TH Chu has a reasonable limitation defence.

Conclusion

45.  Based on the above, the Joinder Summons is dismissed.

46.  I order on a nisi basis that the costs of and occasioned by the Joinder Summons be paid forthwith by Ps to the intended 12^th defendant, with certificate for counsel for the hearing and certificate for 2 counsel for the preparation of written submissions. Such costs to be summarily assessed if not agreed. The intended 12^th defendant do lodge and serve his statement of costs within 14 days hereof. Ps do lodge and serve their list of objections, if any, within 14 days thereafter.

47.  The above costs order nisi shall become absolute in the absence of any application within 14 days to vary the same.

48.  I am grateful to counsel for their able assistance in this matter.