TAIBAO INVESTMENT AND MANAGEMENT (HONG KONG) CO LTD v. KARY ENTERPRISES (HOLDINGS) LTD AND ANOTHER

HCA 642/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 642 OF 2011

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D E C I S I O N

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Introduction

1.  There are before me:

(a)   the plaintiff’s summon taken out on 11 June 2013 seeking leave to appeal against my order dated 28 May 2013 (with a draft notice of appeal attached) (“the May 2013 order”);

(b)   a summons taken out on 7 August 2013 by the 1^st defendant (“D1”) for (i) leave to amend its defence, and (ii) the statement of claim as against D1 to be struck out (“D1’s summons”);

(c)   a summons taken out on 26 November 2013 by the 2^nd defendant (“D2”) for the statement of claim as against D2 to be struck out (“D2’s summons”).

2.  In short, the May 2013 order allowed the defendants’ appeal against Master S Kwang’s order (where the master gave leave to amend the statement of claim).

3.  The main issues in the master’s appeal were, and the application for leave to appeal against the May 2013 order are, it being undisputed the plaintiff’s claim in debt has accrued more than 6 years before this action, whether:

(1)   the two documents (both dated 29 December 2010) (collectively “the Dec 2010 documents”) constituted written acknowledgements within the meaning of ss 23 and 24, Limitation Ordinance (Cap 347) (“sufficientacknowledgements” and its singular where appropriate);

(2)   the letter dated 24 June 2011 from D1’s solicitors, and para 23, joint defence filed herein by both defendants (collectively “the two post-writ documents”), can be used as sufficient acknowledgements for the purpose of this action;

(3)   leave to amend the statement of claim should nonetheless be given, even if the answers to sub-para (1) and (2) above are in the negative;

(4)   (in relation to sub-para (3) above) the absence of an express plea of limitation in the defence filed should result in the court’s discretion being exercised in favour of giving leave to amend.

4.  In a written decision handed down on 28 May 2013 (“the challenged decision”), the above were decided against the plaintiff, and in the defendants’ favour.  The proposed grounds of appeal set out in the draft notice of appeal (“proposed appeal grounds”) contend that I erred in so concluding.

5.  However, at the hearing, the plaintiff no longer pursued the part of the proposed appeal grounds relating to para 3(2) above in relation to D1 solicitors’ letter: para 20, plaintiff’s skeleton submissions.  But whether the part of the challenged decision relating to para 23, defence filed herein (also para 3(2) above) is unclear: para 21, plaintiff’s skeleton submissions (which appears to be a question than a statement)).  It would appear that little logical difference can be made between the two post-writ documents (both referred to in para 3(2) above).

6.  The plaintiff nonetheless appears to contend that (when deciding whether the Dec 2010 documents are sufficient acknowledgements) the two post-writ documents can be used as “connected” documents, as that phrase was used in New World Development Co Ltd and Others v Sun Hung Kai Securities Ltd and Another (2006) 9 HKCFAR 403 (the New World case was relied on at the earlier hearings, and referred to at para 12, the challenged decision): para 10 to 16, plaintiff’s skeleton submissions.

7.  In short, I find none of the proposed appeal grounds to have any reasonable prospect of success.

8.  Whatever “connected” documents and/or parties’ conduct are said to be relevant (para 12(2) and (3), 13 to 14, 15.1 and 16.2 to 16.3 plaintiff’s skeleton submissions), the ultimate issue remains this: whether the document(s) relied on as a written acknowledgement can in fact constitute a sufficient acknowledgement.  This is a question of construction: the New World case, para 91 (as the plaintiff so accepts: para 10.1(1), plaintiff’s skeleton submissions).

9.  As has been famously observed in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at 912H-913F (and in effect reiterated in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, at 296D-I):

“Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”;

“The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean … ” (emphasis supplied).

A similar summary has also been given in BCCI v Ali [2002] 1 AC 251:

“To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties … ” (emphasis supplied) (para 8 thereof, quoted in Marble Holding Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222).

10.  Thus, irrespective of whatever “extraneous” matters one can properly take into account, following the guidance given in the above authorities, the only crucial subject-matter for construction is the document(s) to be construed itself/themselves.  In the present context, they are the Dec 2010 documents: para 3(1) above.

11.  A summary has already been given in the challenged decision as to what the Dec 2010 documents were:

“they were about:

(1) the claims lodged with the Mainland court for wage arrears, construction expenses and tax payments;

(2) the Mainland judgment creditors’ application to enforce the judgment; and

(3) D1 asking for the Mainland court’s indulgence to allow time for it to call for a general meeting to deal with the judgment debts” (para 11 thereof).

12.  More specifically, the relevant parts of the letter addressed to the People’s Court state:

“為了解決俱樂部面臨的問題，包括欠付工資、工程款、稅金等問題，我方多次提議召開股東會 … 商討解決方案。 …如在2007年4月和6月，我方提出將我方持有的俱樂部90%的股份(投資額)分別轉讓50%給 [plaintiff] 和轉讓10%給台企 [name of enterprise] 等，… 但在2007年6月1日召開的會議上因種種原因，上述問題均未得到解決 …

直接導致貴院受理的柤關執行案件的產生。…

…

為解決俱樂部的債務及其他問題，我方擬提議召開俱樂部股東會 … 研究先由股東以現金的形式 …

… 提供足額擔保或由股東出資代償的問題。… 特懇請貴院暫緩 … 進行評估、拍賣。”.

13.  Thus, so far as it is relevant to this application (and to the May 2013 order), the said letter represented to the People’s Court that steps had earlier been taken by D1 to attempt to avoid the enforcement proceeding.  It can be inferred “steps” here should mean obtaining funds for payment.  Judged in such context, the reference to transfers of shares could only mean they were an attempt to obtain fresh funds for paying the judgment sum(s) (rather than a reference to transfers of shares to comply with the terms of an existing loan agreement).

14.  The other of the Dec 2010 documents (the shareholders’ letter (para 10(2), the challenged decision)) was written in the same context, for the same purpose, and, on a fair reading, should carry the same meaning.

15.  The plaintiff cannot point to any “connected” documents, or adduce evidence, to show that, at least arguably, the Dec 2010 documents can be construed as sufficient acknowledgements of an existing debt.

16.  Having concluded there is no reasonable prospect of success in an appeal based on para 3(1), I now consider the proposed appeal grounds summed up in para 3(3) and (4) above.

17.  As should be obvious from the challenged decision, I was aware that there was no positive plea raising the limitation defence (para 34 thereof), but nevertheless exercised my discretion to refuse giving leave to amend.  Reliance has been placed on Ronex Properties Ltd v John Laing Construction Ltd and Others [1983] 1 QB 398, 408 (para 35, the challenged decision).  Among other things, the Ronex case observed that the limitation defence can be raised by the defendant:

(a)   applying to strike out the plaintiff’s claim as frivolous and vexatious and an abuse of process of the court on the ground that it is statute-barred;

(b)   filing evidence to that effect.

This was what was done earlier in this action.

18.  I am thus not at all convinced that my discretion has been wrongly exercised.  Insofar as there may be any need, the post-Civil Justice Reform provisions of the Rules of the High Court (Cap 4A) in fact support such an approach: Ord 1A rr 1(a), 2(1)(a), 4(2)(h) and (i) and Ord 1B r 1(2)(l).

D1’s summons

19.  This has been referred to in para 1(b) above. There is a dispute as to whether D1’s summons falls within the doctrine of res judicata (as the plaintiff contends); it is undisputed D1 had taken out an earlier summons to strike out, and which the master dismissed on 31 October 2012 (“D1’s earlier striking out summons”).

20.  On D1’s part, it is contended the master dismissed D1’s earlier striking out summons, not on the merits, but based on grounds which have by now been overtaken.  First:

“[D1’s earlier striking out summons] was premised upon Order 18 rule 19(1)(a), that the plaintiff’s statement of claim disclosed no reasonable cause of action and that is the only ground relied upon by the 1^st defendant to strike out the plaintiff’s statement of claim” (transcript for master’s hearing on 31 October 2012).

On the contrary, D1’s summons is now premised on the other limbs of Ord 18 r 19(1).  Secondly, the master took into account the limitation defence (whether according to Hong Kong or Mainland law) had not been specifically raised.  However, D1’s summons now also seeks leave to raise that defence.

21.  It is apparent from the 31 October 2012 hearing transcript the master also determined D1’s earlier striking out summons on another ground:

“… it seems from what I have read from the defendants’ affirmation, they wish to argue that the limitation defence would be a matter of PRC law. For this particular purpose and for this hearing, I do not have admissible evidence on PRC law … ”.

He also said:

“I must say it is premature for the court to rule on this particular part [probably referring to the limitation defence, whether according to Mainland law or Hong Kong law] when the pleading is not clear … it is a matter for the parties to plead a proper case before the court can see on what basis the court will adjudicate on this limitation defence, if there was any … ”.

The subsequent remarks made by the master during the later part of the hearing will have to be understood in the light of what he said above.  They are therefore obiter dicta in nature.  This conclusion is reinforced by the following observations of the master:

(1)   one must see the contents of the Dec 2010 documents to decide if they amounted to sufficient acknowledgements;

(2)   whether the Dec 2010 documents were addressed to the plaintiff was an open question (he observed that they were copied to the plaintiff);

(3)   one of the Dec 2010 documents (the shareholders’ letter) was not included in the hearing bundles placed before him so he had no opportunity to consider it.

The master then concluded:

“… I would [be more inclined] to exercise my discretion to allow the plaintiff to plead this part of the case in a proper way, … and then let the defendants to raise whether they would eventually raise a limitation defence … ”.

22.  Taking into account the above, I disagree with the plaintiff’s argument that the matter is now res judicata.

23.  D1’s summons was taken out after the challenged decision was pronounced in May 2013.  The plaintiff has not argued that D1 had been guilty of delay, or that any real prejudice would be suffered as a result.  In these circumstances, I consider it appropriate to give leave for D1’s defence to be amended.

24.  The plaintiff argues that the “new” defence (limitation) is inconsistent with the existing defence (that the loan agreement was a sham), relying on Ord 20 r 13(1) (verification by statement of truth). The argument has no merit.  What D1 now seeks to introduce is a defence afforded to him by statute, that is, the Limitation Ordinance (Cap 347).  There is no valid reason why the statement of truth should be a hurdle for raising such a defence.

25.  Further, because I have in effect decided that the plaintiff’s claim has been time-barred, it is also appropriate to strike it out, as against D1, as an abuse of the court’s process.

26.  The position as regards D2’s summons is not as clear.  D2 has earlier taken out a striking out summons (“D2’s earlier striking out summons”), which was heard by the master on 30 November 2012. But the perfected order of 30 November 2012 made no reference to the disposal of D2’s earlier striking out summons except that there be no order as to its costs.

27.  The transcript of the 30 November 2012 hearing cannot help either.  The exchange between the master and counsel for D2 was as below.  The master said:

“I think that what, [name of D2’s counsel], you have indicated that you are content to just strike out the prayers [for relief], leaving out of the allegation of facts there.”

To which D2’s counsel replied:

“Master, if we are given a chance to sort [out with or] talk to the plaintiff, then I think it’s more convenient to me that we work out the contents … ”.

The master then turned to deal with costs after the above exchange.

28.  As should be obvious from the subsequent dispute between the plaintiff and D2 (which lasted up to the present hearing), the matter was not “sorted out” between them (as D2’s counsel (and probably also the master) had anticipated).

29.  Such being the case, there is a need for D2 to seek clarification from the master as to whether D2’s striking out summons has been disposed of after a consideration of its substantive merits.

Conclusion

30.  Accordingly:

(a)   there be leave to amend its defence in terms of D1’s summons;

(b)   the plaintiff’s claim against D1 be struck out;

(c)   D2’s summons is adjourned sine die with liberty to restore.

Other matters

31.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

32.  In relation to the plaintiff’s application for leave to appeal, and D1’s summons, the usual rule that costs should follow the event is accepted.  There will accordingly be a costs order that those costs should be paid:

(1)   in relation to the former, by the plaintiff to both defendants;

(2)   in relation to the latter, by the plaintiff to D1.

The costs of D2’s summons are reserved.

33.  I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(a)   the receiving parties be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b)   the paying party be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.