SUN TIAN GANG v. CHANGCHUN HIGH & NEW TECHNOLOGY INDUSTRIES DEVELOPMENT PARENT CO AND OTHERS

HCA 179/2015

[2018] HKCFI 2499

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 179 OF 2015

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D E C I S I O N

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1.  This was an application by the plaintiff Sun Tian Gang (“Mr Sun” or “the plaintiff”) by summons dated 5 March 2018 (“the leave summons”) for leave (1) to join GeoMaxima Holdings Company Limited (“GH”) as the 2^nd plaintiff in the action; (2) to amend the Amended Writ of Summons together with the Amended Statement of Claim as shown in the draft annexed to the summons and, if leave were granted, for further consequential relief. At the conclusion of the hearing, the decision was reserved which I now give.

2.  As is apparent from the pleadings, there are numerous defendants who are interrelated through the positions they hold in various companies.  There are also numerous transactions to which one or more of the defendants and/or their companies are parties but a number of which are alleged to be forgeries.  This factor complicates the presentation of the factual background.  While Mr Sun has limited his complaints to a narrower set of events, the defendants invoke a much broader spectrum.

I.   BACKGROUND

A.   Parties

(a)   Mr Sun

3.  Mr Sun commenced this action on 21 January 2015 making various claims in relation to (1) GeoMaxima Energy Holdings Limited (“GEHL”) a Bermudan company listed on the Hong Kong Stock Exchange; and (2) China GeoMaxima Company Limited (“CG”), a BVI company wholly owned by the plaintiff.

4.  Mr Sun was arrested on 11 August 2005 in China and incarcerated in Jilin Province.  His assets in Hong Kong and China were confiscated.  Despite two sets of criminal charges brought against him (in December 2007 and June 2009 respectively) and two criminal trials (the first of which was held in March and December 2008 and the second in June 2009), Mr Sun was never convicted of any offence.  He was granted bail and put under house arrest in November 2010.  He only regained his freedom on 6 March 2012 when the PRC court allowed all remaining charges against him to be withdrawn.

5.  Prior to his arrest, Mr Sun had extensive business interests.  He was the chairman and executive director of GEHL and owned and/or controlled the following:

(1) he held 999/1000 issued shares of CG (“the CG Shares”), a company he wholly beneficially owned which in turn held a 54.8% interest in GEHL with the latter having an 80% interest in Xinjiang XingMei Oil Pipeline Company Limited (“XM”) a Sino-foreign joint venture operating an oil pipeline;

(2) he was the 100% beneficial owner of GeoMaxima Holdings Company Limited (“GH”) (a Hong Kong company) which was a management company servicing other companies controlled by Mr Sun; and

(3) he was the 100% beneficial owner of Sino Champion Limited (“Sino Champion”) (a BVI company) which owned a 90% interest in Ningxia Geomaxima Fengyou Chemical Company Limited (a PRC company) (“NingXia”).

(b)   The defendants to the action

6.  There are four groups of the defendants to the action. Changchun High & New Technology Industries Development Parent Company (“D1”) is a PRC state-owned enterprise, headquartered in Jilin Province.  Zhang Xiao Min (“D4”) is its director and general manager and Ma Ji (“D8”) its deputy general manager (collectively “the D1 Group”).

7.  Hong Chang Group Limited (“D2”) is a BVI company on record wholly owned by Xing Xiao Jing (“D3”) its sole director and shareholder, who was also chairman and executive director of GEHL from late 2005 to March 2009. D3 is the wife of Cheung Yu Ping (“D11”), the deputy general manager of GH. 

8.  Wan Tze Fan Terence (“D9”) was the financial controller and company secretary of GEHL prior to 22 August 2005 when he became its director and Kong Siu Tim (“D10”) who held various positions within GEHL in 2002 and then from August 2005 to September 2011. The defendants mentioned in §§7-8 collectively constitute “the D2 Group”.

9.  Lau Yu Fung Wilson (“D5”) a partner of a Hong Kong solicitors and Lai Ka Mun (“D6”) a trainee at the same firm are implicated in relation to a debenture dated 28 July 2004 whereby Mr Sun allegedly charged his CG Shares to secure certain indebtedness and which Mr Sun claims is a forgery.  Kingston Securities Limited (“D7”) is the chargee under a 2^nd Share Charge dated 16 July 2003 signed by Mr Sun on behalf of CG charging its beneficial interests in the GEHL shares to D7 to secure a loan of HK$30 million.

10.  D5 to D7 are not involved in this application.

11.  The leave summons to amend the amended writ and amended statement of claim was opposed by the D1 Group and the D2 Group defendants respectively represented by Mr Y L Wong SC and Mr A Wong SC.  However, only some of the members of those Groups, namely, D1, D2, D3 and D11 (for the purposes of this application collectively referred to “the defendants”) are affected by the proposed amendments.

B.   Chronology of events

12.  The events (in chronological order) to the extent relevant to this application gleaned from the pleadings and affirmations are summarised below.  They are intended to provide the framework for understanding this application and the parties’ respective positions rather than a comprehensive chronology.  As will become apparent, the facts are involved and complex and give rise to many factual disputes that have to be resolved at trial. 

(a) The RMB120m debt

(i) By 31 December 2001 GH had obtained an advance of RMB120m from either D1 or its parent (the state enterprise) for assisting in the acquisition[1] of a listed company for D1.  It was supported by a guarantee “the GH Guarantee” bearing the date “31 December 2001” but which Mr Sun maintains was only executed in early 2003 and backdated at D1’s request.

(ii) Mr Sun does not accept as genuine, inter alia,[2]instruments the defendants referred to as “the 6/5/02 CG Guarantee” and “the 9/12/02 CG Refund Agreement” and on which they rely, said to have been given by CG to guarantee repayment of the RMB120m by 20 January 2003. 

(iii) It is Mr Sun’s case that partial repayments of the RMB120m in the sums of RMB5m and RMB19m were made on 7 January 2002 and in August 2003 respectively.

(iv) Subject to (iii), the sum/balance (as the case may be) of the RMB120m remained due.  It is Mr Sun’s position that this was fully secured by the ‘backdated’ GH Guarantee.

(b) The ICBC RMB190m loan to XM

(i) On 21 March 2003 XM obtained a loan of RMB190m from ICBC (“the XM loan”) for the period from 21 March 2003 to 18 March 2011 supported by (i) a Guarantee by D1 to ICBC dated 18 March 2003 (“the XM Guarantee”) guaranteeing repayment of the XM loan; and (ii) a counter guarantee from GH dated 22 April 2003 (“the 22/4/03 GH Counter-Guarantee”) under which GH agreed to use assets up to RMB380m to provide a counter guarantee to D1 for its liability under the XM Guarantee.

(ii) However, the validity and/or effect of the provision in the 22/4/03 GH Counter-Guarantee for repayment within 2 months of the XM loan drawdown of the RMB120m is disputed.

(iii) On 2 July 2003 D1, Mr Sun (on behalf of GH) and XM entered into “the 2/7/03 Three-Party Agreement” under which GH and XM undertook to use at least 70% of each drawdown of the XM loan towards repaying the RMB120m to D1, but again the validity/‌effect of the provision for repayment within 2 months is disputed.

(iv) It is the defendant’s case that on the same day (2 July 2003) D1 and Mr Sun (on behalf of CG) signed “the 2/7/03 CG Counter-Guarantee” whereby, inter alia, CG used the CG Shares as counter-guarantee in favour of D1 against its liability under the XM Guarantee. Mr Sun contends it was a forgery.

(c) The 2^nd Share Charge

Unbeknownst to D1, on 16 July 2003 well before Mr Sun was arrested he had caused CG to charge the CG Shares as security for a HK$30 million loan from D7.

(d) The Sino Champion Guarantee

It is alleged that on 22 April 2004 Sino Champion executed a guarantee (“the Sino Champion Guarantee”) undertaking to transfer its shares in NingXia[3] to D1 in the event that the RMB120m owed by GH was not repaid by 30 July 2004.  Mr Sun’s case is that the Sino Champion Guarantee was a forgery.

(e) The Debenture dated 28 July 2004

(i) The defendants rely on the alleged impending deadline of 30 July 2004 under the Sino Champion Guarantee for repayment of the RMB120m as the reason that caused Mr Sun to offer to execute the Debenture.

(ii) It is alleged that under this Debenture Mr Sun charged the CG Shares in favour of D1 to secure indebtedness under the “Debenture Instruments”[4].  It is to be noted that apart from the Debenture itself the authenticity of a large number of the Debenture Instruments[5] is also in issue.

(f) Mr Sun’s arrest and detention in the PRC

(i) On 11 August 2005, Mr Sun was arrested in Shenzhen and detained in custody in Jilin.  He was also stripped of his assets in Hong Kong and the PRC.

(ii) The defendants became aware of Mr Sun’s arrest in mid-August 2005 and that it put in jeopardy Mr Sun’s assets including the CG Shares as “charged assets”.

(g) Enforcement of the Debenture

(i) The basis for D1 to enforce the debenture was said to be the occurrence of “Events of Default” specifically, alleged breaches of obligations under the Sino Champion Guarantee (the authenticity of which is itself in issue).

(ii) In mid-August, D1 found out for the first time that HK$18m remained owing to D7 under the 2^nd Share Charge over the CG Shares. D1 considered that it adversely affected the value of the underlying GEHL shares.

(iii) D1 reached an agreement with D7 in mid or late August 2005 that in return for D1 procuring repayment of the outstanding amount and interest, D7 would refrain from enforcing the 2^nd Share Charge.

(iv) D1 relied on instruments referred to as “the 6/5/02 CG Guarantee” and “9/12/02 CG Refund Agreement” (in respect of the RMB120m) and “the 2/7/03 CG Counter-Guarantee” (in respect of contingent liability of the XM loan), to show that CG was heavily indebted to D1 in August 2005 and that it caused D1 to take steps to safeguard its position.  However, the authenticity of all of those instruments is in issue: Mr Sun maintains that they were forgeries.

(v) By late August, apparently being unable to locate any purchaser willing to pay a substantial price, D1 negotiated with D11 who was prepared to acquire the CG Shares upon certain conditions.  That culminated in an agreement to sell the CG Shares to D2 (a company owned by D3, the wife of D11) for approximately RMB42m[6] (“the purchase price”).

(vi) That was to be financed by a loan from D1 in that amount to D2 (who undertook to discharge CG’s indebtedness to D7), with D11 and D2 undertaking to procure the repayment of the RMB120m and the discharge of D1’s liability under the XM Guarantee being liabilities arising under the instruments referred to in (iv) above that Mr Sun contends were forged.

(vii) On 29 August 2005, within 18 days of Mr Sun’s arrest, D1 as pledgee sold the CG Shares to D2 for the purchase price. D1 also signed an instrument of transfer in favour of D2 but the purchase price was never paid: it took the form of a loan in that amount from D1 to D2.

(viii) It appears from the “Partially Executed Draft Agreement” [7] that on 29 August 2005 D2 entered into a trust agreement with D1 to hold the CG Shares as nominee on trust for D1.  Logically, it would mean that the real purchaser was D1.

(h) 8 September 2005

(i) The board of GEHL announced the sale of the CG Shares to D2.

(ii) D2 executed an undertaking in favour of D1 (“the Undertaking”) to use its best endeavours to procure the repayment of the RMB120m debt with interest and the discharge of D1’s liability under the XM Guarantee.  It provided that should D2 default, D1 would be entitled to have recourse to D2’s shares in GEHL (ie the CG Shares).

(i) 21 September 2005—Enforcement of the Sino Champion Guarantee[8]

(i) On 21 September 2005 D1 commenced proceedings to enforce the Sino Champion Guarantee and 2 days later obtained a court order freezing Sino Champion’s shares in NingXia (“the NingXia Shares”) being 90% of NingXia’s issued capital.

(ii) According to Mr Sun, he never participated in those proceedings as he was imprisoned and lawyers appearing on record as representing Sino Champion did so without his instructions.

(iii) Under a Settlement Agreement dated 22 June 2006 (“the Settlement Agreement”) which Mr Sun maintains he signed under coercion and duress[9] whilst imprisoned, Sino Champion agreed to repay the RMB120m together with interest and costs out of the sale proceeds should the then anticipated sale of NingXia to Sichuan Hutianhua Co Ltd materialise.

(iv) The Settlement Agreement was approved by the Jilin Court on 23 June 2006.

(v) Subsequent instruments and/or agreements concerning the sale of the NingXia Shares for a sum in excess of RMB212m[10] and enforcement of the Settlement Agreement in which Mr Sun is alleged to have participated (but which he denies) resulted in a court order dated 22 May 2007.  This confirmed the payment of approximately RMB162.5m of the proceeds of sale of NingXia to D1 for repayment of the RMB120m debt and interest of RMB35m odd. 

(vi) It is Mr Sun’s case that the balance of the NingXia proceeds of almost RMB50m was retained by the PSB and never paid to either Sino Champion or Mr Sun.

(j) The Partially Executed Draft Agreement—August 2006

(i) Mr Sun contends that in August 2006, XM’s lawyer by the name of Chai (acting on instructions from D1) brought a draft agreement to the prison for Mr Sun to sign representing that as GEHL was not under proper management, D1 agreed to manage GEHL in his absence for a fee of RMB19m and GEHL would be handed back to Mr Sun after his release.  Mr Sun[11] refused to sign the Settlement Agreement without D1 first signing it.

(ii) Chai subsequently returned with the draft having been signed by D4 with the corporate seal of D1 (“the Partially Executed Draft Agreement”)[12] and left it with Mr Sun for signature.

(iii) Mr Sun secretly retained that document and when asked by a PSB officer about it, he replied that he had disposed of the same.  He subsequently discovered that, as mentioned in (g)(viii) above, it evidenced a trust agreement between D1 and D2 entered into on 29 August 2005 whereby D2 agreed to hold the CG Shares for and on behalf D1 as trustee.

(k) The XM Guarantee

(i) Following XM’s bankruptcy, in July 2009, ICBC commenced enforcement proceedings under the XM Guarantee.  Apart from CG, D2 and D11 were also liable under the 2/7/03 CG Counter-Guarantee and the Undertaking[13].

(ii) D2 and D11 (through Honour Luck Investment Limited a Hong Kong company controlled by D11) entered into a debt restructuring agreement with ICBC in March 2011, the effect of which was the release of D1 from its liability under the XM Guarantee upon payment by Honour Luck of RMB170m to ICBC.  Such payment was effected as to RMB150m by March 2012 and the balance in October 2013.[14]

II.   THE PROPOSED AMENDMENTS

13.  They relate to the addition of GH as the 2^nd plaintiff and amendments to add 4 new claims set out in the draft Re-Amended Statement of Claim (“draft RASOC”), namely:

(a) a claim against D1 for breach of his duties as chargee under the debenture in selling the CG Shares to D2 (a nominee of D1) at a substantial undervalue (“the chargee duty claim”);

(b) a claim against D2, D3 & D11 for dishonestly procuring, participating or otherwise assisting in D1’s breach (“the dishonest assistance claim”);

(c) a claim against D1 for failing to give credit for partial repayments of RMB5m and RMB19m made in reduction of GH’s indebtedness to D1 (“the partial repayment claim”); and  

(d) a claim against D1 for failing to give credit for the purchase price since D1 had been repaid in full (the RMB120m and interest) out of the NingXia proceeds (“the double recovery claim”).

14.  GH is the proposed 2^nd plaintiff.  For convenience, Mr Sun and GH will be referred to collectively as “the plaintiffs” where appropriate. 

III.   THE DEFENDANTS’ GROUNDS OF OBJECTION

A.   The inconsistency ground

15.  At the forefront of the defendants’ submissions are 3 related provisions in the Rules of the High Court, namely, Order 18, rules 12A and 20A(1); and Order 41A, rule 2(2) which provide as follows:

Order 18, rule 12A:

“ A party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading if—

(a) the party has reasonable grounds for so doing; and

(b) the allegations are made in the alternative.”

Order 18, rule 20A(1):

“ A pleading and the particulars of a pleading … must be verified by a statement of truth in accordance with Order 41A.”

Order 41A, rule 2(2):

“ A pleading must be verified by a statement of truth in accordance with this Order notwithstanding that the party has in the pleading made an allegation of fact in accordance with Order 18, rule 12A, which is inconsistent with another allegation of fact in the same pleading.”

16.  D1 submitted that those provisions have the effect of restricting the ability of the party from pleading an allegation of fact which is inconsistent with another allegation of fact in the same pleading unless there are reasonable grounds for so doing and allegations are made in the alternative.  The gravamen of its submissions is that the new claims are based on a factual premise (of the debenture being genuine and valid) that is fundamentally contradictory to the original claim which is based on the debenture being a forgery.

17.  The court was referred to a number of Hong Kong authorities which are said to support the following propositions:

(a) if the matters pleaded are matters which are plainly within that party’s knowledge, so that he must know which of the inconsistent alternatives is the correct one, then the pleading of inconsistent alternative cases is not permissible: Yiu Ka Fung v Info-Vantage Ltd CACV 96/2014 (3 July 2015, unreported) at §63; see also Hui Yin Sang v Tsoi Ping Kwan [2010] 1 HKC 585 at §25(10)[15].

(b) there is a distinction between advancing mutually inconsistent allegations of fact and advancing alternative positions based on the same underlying facts: Yiu Ka Fung at §65; and

(c) the verification requirement is intended to eliminate as far as possible claims in which the party had no honest belief and reasonable grounds must be shown for making inconsistent claims: Great Harvest Property Ltd v Ho Chi Man Freeman [2012] 2 HKLRD 129 at §§10 and 13.  

18.  Mr Hollander counsel for the plaintiffs explained that it is the plaintiffs’ primary position that the debenture was forged but the alternative case is pleaded to cater for the possibility that the court for some reason does not accept the plaintiffs’ primary case.  It was said that the plaintiffs are doing no more than ‘feeding off’ the pleaded defence, the classic “if which is denied” formula frequently deployed in pleadings.  All the plaintiffs are saying is that if the defendants succeed in showing that the debenture is valid and genuine, nonetheless, the plaintiffs are entitled to claim certain relief resulting from such a finding by the court.  In other words, it is the defendants’ own evidence that gives rise to a basis of liability. Hence the plaintiffs are not themselves seeking to establish the defendants’ case.  Therefore, there is no inconsistency in the plaintiffs’ case.

19.  Mr Hollander cited the English Court of Appeal’s decision in Binks v Securicor Omega Express Ltd [2003] 1 WLR 2557 in support.  It concerned a personal injuries claim.  At the conclusion of all the evidence the plaintiff’s counsel in Binks made a submission that even if the plaintiff’s evidence were to be disbelieved, the court ought to consider the case on an alternative basis based in part on the evidence of an independent witness at the trial.  The judge refused to entertain the alternative case on that basis because the plaintiff was not position to sign a statement of truth in relation to the alternative case.

20.  The Court of Appeal disagreed with the judge and noted that CPR Part 22.1(2) enables the court to dispense with verification by a statement of truth when a statement of case is amended[16].  Maurice Kay J (at §8) took the view that amendment to plead in the alternative a case derived from an opponent’s documents, pleadings or evidence is capable of being such a case and he did not accept that “the purpose or effect of Part 22 is to exclude the possibility of pleading inconsistent factual alternatives.”

21.  He went on to consider possible scenarios opining that the rule:

“ does not in all cases prevent a party from submitting or amending a pleading which includes an allegation which he is not putting forward as the truth, provided that there is an evidential basis for it. If it is in the form of an amendment then … it may be appropriate for the court to permit it without requiring a statement of truth. Moreover, I do not consider it objectionable in principle for a claimant to advance an alternative case based on material put forward by his opponent. In such circumstances it may be possible for him to append a statement of truth, suitably drafted, making it clear that whilst his primary case is not an assertion of the truth of his opponent’s account, if the court finds that to be the truth, he will seek to rely upon it as an alternative basis for liability.”

22.  It is worth noting that Maurice Kay J (at §9) refused to accept that the purpose of Part 22 extends to the possibility of relieving of liability a defendant whose own evidence may establish a cause of action against him.  He considered that that would not be consistent with the overriding objective of dealing with the case justly as required by CPR r 1.1(1).

23.  Carnwath LJ stated (at §18) that one purpose of the rule is to deter or discourage claimants from advancing a case that is inherently untrue or wholly speculative.  He considered that nothing in Lord Woolf’s report indicated an intention to exclude altogether the possibility of pleading factual alternatives particularly where the alternative is raised by the defendant’s own case.  So long as the pleading makes clear that the alternative is disputed facts, there is nothing untruthful or dishonest in the claimant advancing the contention that, if it is upheld, the defendant is none the less liable.  

24.  The defendants drew attention to the fact that there is no parallel UK provision for Order 18, rule 12A.  It was submitted it is simply not possible for Mr Sun to make a verification required for the proposed amendments that would be compliant with Order 41A, rule 2(2).  Implicit in the submission is that Hong Kong parted ways with the UK when the new rules came into effect during the Civil Justice Reform exercise.

25.  Binks is the English authority for the proposition that as a matter of principle such an amendment is permissible and would not be contrary to the verification requirement under the rules provided the verification is suitably drafted and the claims are made in the alternative.  The issue that arises present case is whether the position in Hong Kong is any different.

26.  The Working Party’s Final Report on Civil Justice Reform (“the Report”) made reference in §263 to the principles underpinning the English CPR 22, namely, that it is “aimed at excluding dishonest or opportunistic and speculative claims.”  Then at §264, it concluded that “a similar approach should be adopted in Hong Kong and set out in a rule” culminating in Recommendation 32.  What the Working Party had in mind was explained in §264:

“ Each case would have to be examined separately. If the matter pleaded is plainly within a party’s knowledge so that there could be no justification for him putting forward inconsistent factual alternatives, the pleading is embarrassing and cannot properly be put forward or verified. The same is true of inconsistent and mutually destructive allegations advanced, not as alternatives, but as part of a unified case.”

27.  If it had been the intention of the Working Party to depart from the English approach, one would have expected §264 to have stated it explicitly.  Instead, it is clear that Hong Kong followed the English approach.

28.  The defendants submitted that whether Mr Sun himself signed the Debenture is something within his knowledge and there could be no doubt about it and that the original claim and the alternative claim are mutually destructive.  Herostar Properties Limited v Cheung Yu Ping [2018] HKCFI 1112 was distinguished on the basis that the case (adopting Mr Y L Wong’s nomenclature) was “the revolving door” situation on the evidence, where it was possible for two alternatives to coexist.  It was also said that when the action commenced, Mr Sun knew and was well aware that the defendants relied on the Debenture as genuine and valid and that the CG Shares were sold for RMB42m.  It was said that those matters were nothing new and were not disclosed by the defence for the first time.

29.  But, in my view, what Mr Sun knew[17] is neither here nor there.  What he is seeking to do (should he fail in his primary case that the debenture was a forgery and the court were to find on the evidence adduced at trial that it was genuine,) is to claim that the defendants nevertheless remain liable on the facts as found by the court on an alternative basis.  Mr Sun is not himself seeking to set up or establish the defendants’ case as being the true facts.  Rather, that on the facts as found (if in the defendants’ favour), they establish an alternative basis for holding the defendants’ liable. I accept Mr Hollander’s analysis as correct. 

30.  So far as the authorities[18] the defendants relied on are concerned, they are not inconsistent with that analysis.  When reading the Court of Appeal’s decision in the Yiu case, it is imperative to bear in mind that the proposition at §63 of the judgment has to be read with the distinction highlighted in §65 in mind, namely, whether a party was advancing inconsistent allegations of fact or whether it was simply advancing a fall-back position in law.  The proposed amendments (relating to the D1’s breach of its duties as chargee in selling the CG Shares to D2 at an undervalue and dishonest assistance rendered by D2, D3 and D11 in that breach) all fall within the latter category, viz that of advancing a fall-back position in law.

31.  Insofar as Great Harvest is concerned, it was a case involving the plaintiff having to advance two mutually inconsistent factual alternatives which is not the present case and so is distinguishable.

32.  As is clear from Binks, advancing a fall-back position in law should not pose insuperable difficulties in complying with the verification requirement if suitably drafted.  In any event, the court has a discretion to dispense with such verification under Order 41A, rule 2(3).  Moreover, to disallow the amendment would not be consistent with the overriding objective of the CJR to deal with the case justly.

B.   Deliberate concealment

33.  As a preliminary matter, it is to be noted that as GH is a proposed new party, it is accepted that in respect of the 4 proposed claims it will be necessary for GH to succeed on establishing deliberate concealment for the amendments to be allowed.  Separately, as regards GH, there is point arising under Order 15, rule 6 (as to which see §§83 – 86 below).

34.  As to the issue of deliberate concealment the court has to consider whether the plaintiff has an arguable case in that regard and, if so, the general approach of the courts in the determination of such an issue.

35.  The deliberate concealment issue arises because of the relation back doctrine: an amendment that is allowed takes effect from the date of the original writ.  So if leave to amend is granted for amendments on an interlocutory basis that are potentially time-barred, that would be depriving the defendants of a potential defence and that is not permissible if the potential defence is arguable.  The flipside of that is that the plaintiffs would be irrevocably prejudiced if the amendments were disallowed when upon an examination of detailed facts, the ability to bring a claim would be shown not to be time barred.

36.  The court was referred to two recent Court of Appeal cases (considered in §§53 – 61 below) which accepted that circumstances may require that the issue of deliberate concealment should be determined as a preliminary issue or an issue in the amendment application.  It was suggested that if the court were to consider the plaintiff’s case arguable, as a matter of case management, there should be such an order so as to do justice to the parties.

37.  Deliberate concealment is relevant to the first two proposed amendments (the chargee duty claim and the dishonest assistance claim) as well as to the partial repayment claim.

38.  It is relevant to the double recovery claim only if neither section 35(6)(a) of the Limitation Ordinance and Order 20, rule 5(5) of the Rules of the High Court (which permit an amendment pleading a new cause of action that is time-barred where it “arises out of the same facts or substantially the same facts” as the cause of action in respect of which relief has already been claimed in the existing action) nor section 20(1)(b) of the same ordinance (which provides that no limitation period applies to claims to trust property or the proceeds thereof) applies.

(i)   whether the plaintiffs have an arguable case on deliberate concealment

39.  The defendants submitted that it is not sufficient for the plaintiff to establish deliberate concealment of the relevant facts and the time it actually discovered those facts.  The plaintiff must show that it could not have discovered those facts earlier by the exercise of reasonable diligence.  Further, the plaintiff must prove that there was a conscious decision to conceal or withhold the relevant information: see Lee Tsan Sum v Wong Pui Hong [2010] 5 HKC 363 at §71.

40.  It was submitted that the plaintiff cannot possibly succeed in establishing deliberate concealment given that the acts relevant to the chargee duty claim and the dishonest assistance claim were done openly and the relevant facts were publicly disclosed.

41.  The defendants rely on:

(i) public announcements made in Hong Kong, inter alia, concerning the sale of CG Shares to D2 and the mandatory offer that it triggered in the form of the Composite Document published in September 2005;

(ii) a large number of instruments which allegedly Mr Sun signed as justifying the sale of the CG Shares and the enforcement of the Sino Champion Guarantee; and

(iii) affirmations filed on behalf of the defendants relating to the execution of the Debenture and, further, to the effect that Mr Sun was able to instruct lawyers to represent him despite being in prison, receive visits from family members and others, participate in the Sino Champion settlement negotiations via lawyers he had instructed[19] and sign the Settlement Agreement.

42.  In summary, the defendants have portrayed Mr Sun as if he had free and full access to public information[20] at a time when he was incarcerated/under house arrest in the PRC.  Mr Sun gives a totally different account as to persons he was allowed to see and for what purpose, and what communication he was allowed to have, all of which could only take place under the supervision and in the presence of PSB officials or otherwise monitored by CCTV.   

43.  As to the evidence, Mr Sun relies on the fact that from 11 August 2005 until his release on 6 March 2012, he was imprisoned in China and, as such, had virtually no access to the outside world other than such limited contact as he was allowed by the authorities to have which did not amount to much.  Mr Sun’s 4^th affirmation dated 12 September 2018 provides a detailed account of contacts he had with third parties during his incarceration, when under house arrest and after he regained his freedom.

44.  In brief,

(a) prior to November 2010, he was in custody at a detention centre, deprived of contact with the outside world and was subject to degrading and brutal treatment.  He had limited contact with other people and could not reasonably have been expected to find out what had happened to CG or the CG’s Shares;

(b) although he was put under house arrest in November 2010, his freedom to meet and communicate with others was severely restricted, with the PSB observing his every move and being present whenever he had met with anyone or monitoring such contact through CCTV;

(c) Mr Sun set out the enquiries he did make directly or indirectly with various people when he was under house arrest.  However, he was not given the relevant information: D11 said he knew nothing; D9 terminated the meeting with Mr Sun’s lawyer when the latter started to talk about GEHL; Guo Ting[21] who visited Mr Sun in the presence of PSB officers was unclear about the status of GEHL having resigned his position there in November 2005 and suggested that he (Guo) could contact Mr Sun’s former secretary (Pei) and ask her to visit Mr Sun; finally, in late January 2012, Pei visited Mr Sun and told him that GEHL had been sold and that D5 was involved but there was no mention of the details as to how the sale was effected or of the purchase price; and

(d) after his release on 6 March 2012, Mr Sun met with D10 in April 2012.  It was only then that he was provided with a copy of the Debenture (without the annexure)[22]. At a subsequent meeting later that month, D10 passed a copy of the annexure to Mr Sun.  Details then came to light after lawyers were engaged to look into the matter.

45.  According to Mr Sun’s account, not only did the defendants not take any steps to inform Mr Sun of the sale of the CG Shares and, specifically, the purchase price, they sent emissaries who positively misrepresented the situation.  His account of his meeting with XM’s lawyer, Chai, (referred to in §12(j) above) is telling if found to be true.  It would mean that instead of informing Mr Sun about the enforcement of the debenture and the sale of the CG Shares to D2, when D1 sent Chai to see Mr Sun in prison in 2006, D1 set out to mislead Mr Sun by Chai positively misrepresenting the nature of the document (namely the Partially Executed Draft Agreement) Mr Sun was requested to sign.

46.  As to instruments/documents Mr Sun is alleged to have signed, it is Mr Sun’s evidence that he had been coerced into signing the Settlement Agreement and was never told its contents[23] other than that the consequence of signing would be to sell the NingXia Shares to repay the RMB120m debt owed by GH.  He was only able to obtain a copy of the signature page in 2016.  There were other instruments mentioned in the chronology above that Mr Sun claims were forgeries because he had never signed them.

47.  In assessing whether a defendant had acted unconscionably and the wrongful act committed surreptitiously, it has been said that regard must be had to the nature and character of the act.  A wrongdoer who ‘chooses his opportunity so wisely and acts so warily’ that he can safely calculate on not being found out for many ‘a long day’, cannot claim the advantage of the limitation period: see per Somervell LJ in Beaman v ARTS Ltd [1949] 1 KB 550 at 570.

48.  In the present case, within 18 days of Mr Sun’s arrest in China and incarceration, D1 as chargee succeeded in arranging the sale of the CG Shares to D2 (as nominee) while, at the same time, making no effort to inform Mr Sun of the sale and its terms.  Those matters resulted in removing both CG and GEHL from Mr Sun’s control at one fell swoop.

49.  Viewed against that backdrop, the plaintiffs’ case that the defendants took advantage of Mr Sun’s arrest and detention to seize control of the listed company (in effect taking a calculated risk that whilst incarcerated Mr Sun would not be in a position to find out about the sale of the CG Shares), cannot be dismissed as fanciful and unarguable.

50.  In any event, I do not consider that it necessarily follows from the fact of the mandatory offer was made openly and was public information in Hong Kong that a person imprisoned in the PRC could with reasonable diligence have discovered that fact.  Whether Mr Sun knew what the purchase price was prior to his regaining his liberty is very much in issue.  I take the view that the plaintiffs do have an arguable case on deliberate concealment and it would be wrong to dismiss the leave summons given the number of key facts that are seriously contested.

(ii)   How the issue of deliberate concealment is to be determined

51.  The defendants submitted that the court must decide on the basis of the affirmation evidence presented.  Mr Sun, on the other hand, suggested that the circumstances of this case render it appropriate for the court to consider, as a matter of case management, whether there should be a trial of the following preliminary issues under the Limitation Ordinance, namely:

“ (1) whether the fact of the sale of the CG Shares at a consideration of HK$41,999,992.20 on 29 August 2005 has been deliberately concealed by D1, D2, D3 and D11 or any of them from the plaintiffs or either of them and whether the plaintiffs or either of them discovered the fact or could with reasonable diligence have discovered it prior to 6 March 2012; and

(2) whether the fact of the sale of the 90% shares in NingXia (as approved by the Jilin Court on 12 January 2007) and payment of RMB162,539,920.35 out of such proceeds to D1 for repayment of the debt of RMB120m plus interest without giving credit for the payments previously made by GH in the sums of RMB5m and RMB19m, has been deliberately concealed by D1, D2, D3 and D11 or any of them from the plaintiffs or either of them and whether the plaintiffs or either of them discovered the fact or could with reasonable diligence have discovered it prior to 6 March 2012.”

52.  The evidence presented by both parties is such that the court is not in a position to dismiss the evidence of either party out of hand as unbelievable or unarguable.  Equally, without the benefit of viva voce evidence and cross-examination of the deponents, it would be impossible for the court to come to any informed and fair determination as to whose evidence is to be believed.  While the defendants criticized Mr Sun’s case as consisting of nothing but bare assertions, the facts are also singularly unique, involving what a person incarcerated in a prison in China for more than 5 years followed by house arrest of 16 months could reasonably have known about his assets that had been confiscated upon his arrest.  In those circumstances, it is necessary to consider whether the procedure Mr Hollander proposed is viable and supported by the two authorities he cited.

53.  They are both Court of Appeal cases.  The first is Sun Focus Investment Ltd v Tang Shing Bor [2012] 1 HKLRD 738.  In that case, the Court of Appeal held that the judge’s view that limitation would be a live issue at trial notwithstanding the grant of leave to amend was incorrect because of the relation back doctrine that resulted in the defendants being deprived of a limitation defence at trial which would be unfair.

54.  Fok JA (as he then was) went on to consider the three options open to the Court of Appeal when the exercise of discretion below is set aside: (i) to refuse leave to amend on the basis that the plaintiff could issue a fresh writ (“the default position[24] ”); (ii) to exercise the discretion afresh to grant or refuse leave to amend; (iii) to decline to exercise the fresh discretion but instead remit the application to amend to the judge to be determined as an issue in the amendment application since it was a matter on evidence.

55.  D1 objected to a trial on a preliminary issue being directed.  Mr Y L Wong explained that why a preliminary issue was directed in Sun Focus was not because a fresh action was too late but because of the nature of the judge’s error: no relevant evidence had been filed to enable the Court of Appeal to exercise its discretion afresh.  The options considered were thus confined to the special facts of that case and not of general application.  In other words, Sun Focus does not support the suggested procedure.  That was the nub of the defendants’ objection.

56.  Sun Focus was considered in Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474 [25] the second of the authorities cited by the plaintiffs.  In that case, the judge below granted leave to amend on the basis that the issue on limitation was to be resolved at trial which was incorrect.  As a matter of law he could not have done so as the defendant had a reasonably arguable case on limitation.  His decision was thus vitiated. 

57.  At §§27 – 30 of her judgment, Kwan JA went on to consider the options open to the Court of Appeal with Sun Focus in mind.  It is instructive that she observed (at §27) that:

“ The discussion of various options demonstrated that in dealing with the situation in which a limitation defence is raised, this must be managed with great care and flexibility, and the Court must always be sensitive to the demands of a particular fact situation. So long as these considerations are borne firmly in mind by the Judge in the exercise of case management powers[26] whether to order limitation to be tried as a preliminary issue in the amendment summons or in the main proceedings, the practical difficulties and undesirable consequences … could be overcome.”

In my view, that passage lends support to the plaintiffs’ submissions as to the options available. 

58.  It is to be noted that at §21 of his judgment in Sun Focus, when considering the first option, Fok JA took into consideration the fact that it would not be fair to the plaintiff if leave to amend were refused, leaving the plaintiff to issue a fresh writ.  That was because as the amendments sought to be made were to replace the original writ completely with a fresh statement of claim, the original action would be struck out with nothing left of the original writ.  That would effectively deprive the plaintiff of the opportunity to take advantage of the relation back so that the new claims would be deemed to commence on the same date as the original action.

59.  The Court of Appeal in Global Bridge endorsed that approach: that is clear from §28 [27] of Kwan JA’s judgment.  Notably, upon deciding that the judge’s decision was vitiated by error, the Court of Appeal did not conclude that, as a necessary consequence, it must dismiss the amendment application or that it was unnecessary to review the available options.

60.  While in Global Bridge, the Court of Appeal did not themselves exercise its discretion afresh, nor did it remit any issue for determination to the court below, that was because, on the facts of the case before it, the new claim was based on new facts.  Although the plaintiffs again relied on section 26 for extension of the limitation period, they did so on different grounds, namely, that the fraud was discovered and could reasonably have been discovered only in September 2008, rendering the earlier discovery made in May 2003 relevant only to the original action but irrelevant to the new claim.  For that reason, the court was of the view that no prejudice would be caused to the plaintiffs as they would be well within time if they were to issue a fresh writ in 2012.

61.  What clearly emerges from those authorities is that the element of prejudice in relation to the availability of the limitation defence has to be considered not only from the perspective of the defendants but also that of the plaintiffs.  The court should strive to arrive at a means of determining the issue of deliberate concealment as fairly and justly as circumstances will allow.

62.  I have alluded earlier (§52 above) to the impossible task of deciding the issue of deliberate concealment simply on the affirmation evidence given that this case is replete with disputed facts.  In my view, there being authority for the procedure advocated by Mr Hollander that I consider will produce a fairer outcome, whilst unusual, it is a course I propose to adopt as a matter of case management.  I will return to the directions that should be given to take the matter forward at the end of this Decision.

(iii)   The partial repayment claim

63.  Deliberate concealment in this context concerns the concealment of the sale of the NingXia Shares.  Mr Sun’s case as regards the Sino Champion Guarantee, the enforcement proceedings and the Settlement Agreement has been set out in §12(i) above.  If his account is true, he could not reasonably have found out about the sale[28] of the NingXia Shares until he regained his freedom.  Although his signature appears on the Settlement Agreement it would not mean that he knew what had happened if his account is accepted as true at the end of the day.

64.  The claim is made on the basis that by the time of the sale of the CG Shares, the RMB120m debt had been reduced by the partial repayments totaling RMB24m[29], leaving outstanding an amount of RMB96m plus interest.  Yet, D1 recovered the entire amount of RMB120m plus interest out of the NingXia proceeds without giving credit for the prior payments of RMB24m and interest.

(iv)   The double recovery claim

65.  As is apparent from §38 above, deliberate concealment is relevant to this claim only as a backstop.  Since apart from the possible relevance of deliberate concealment, a number of other issues arise in relation to the double recovery claim, it would be convenient to address all the issues relating to it next.

(a)   Whether limitation applies

66.  A claim is within section 35(6)(a) of the Limitation Ordinance and Order 20, rule 5(5) if it arises out of “the same facts or substantially the same facts” as the original cause of action in respect of which relief was already claimed.  Such an amendment permits pleading a new cause of action that is time-barred.  It has been held that Order 20, rule 5(5) should be given a broad and liberal interpretation in order to attain the objective of the rules: see Leung Kin Fook v Eastern Worldwide Co Ltd [1997] 1 HKC 524 at 528.

67.  As I understand it, the defendants’ objection stems from their contention that if (as is the present case) the plaintiff is unable to show that the defendants do not have an arguable case on limitation, then the court must refuse leave.  Reliance was placed on the observations of Kwan JA in Global Bridge at §25.

68.  I do not agree with the defendants’ reading of Global Bridge.  In that passage, Kwan JA was simply describing the position from the perspective of the defendant but it is clear that in both Global Bridge and Sun Focus the Court of Appeal considered that the question of prejudice must also be viewed from the perspective of the plaintiff.  

69.  In so far as whether substantially the same facts are involved, in Diamandis v Wills [2015] EWHC 312 (Ch) at §49, it was held that “same or substantially the same” is not synonymous with “similar”.  In considering what the relevant facts are in the original pleading a material consideration are the factual matters raised in the defence.  In other words, the facts are not limited to those raised by the plaintiff: they also extend to those raised by the defendants.  In my view, section 35 of the Limitation Ordinance is applicable with the consequence of rendering deliberate concealment an unnecessary matter as regards this claim.

70.  Alternatively, the plaintiffs submitted that a constructive trust claim would have arisen in respect of this sum as it should have been credited to Mr Sun.

71.  D1 drew attention to the fact that when the CG Shares were sold, the purchase price was insufficient to discharge the RMB120m and hence no surplus arose on 29 August 2005.  It was argued that because that debt was eventually discharged out of the sale proceeds of NingXia, any surplus would have been at the free disposal of D1 at the time of receipt/accrual.  Since a chargee would be free to choose how to apply or appropriate the sale proceeds, it was said that there would be no identifiable trust fund.  In any event, it was said that any claim for surplus should be made by Sino Champion on the basis that an undervaluation of a charged asset would reduce the liability of the guarantor.

72.  However, as a matter of fact, there was never any appropriation made of the purchase price towards repayment of the debt: the money remained where it was—with D2.  D1 has been repaid in full for the RMB120m debt and so it must now account for the purchase price received to which it was entitled under the sale to D2.

73.  In so far as Mr Sun is concerned, I am of the view that the double recovery claim is a claim that also comes within section 20(1)(b) of the Limitation Ordinance.  Consequently, no limitation period is applicable.

74.  In conclusion, section 35 and/or section 20 apply. Accordingly, no limitation period applies to a claim for double recovery by Mr Sun.  

(b)   Whether D1 would be prejudiced

75.  The defendants submitted that the court ought not exercise its discretion to allow the amendment as regards the double recovery claim because D1 would be prejudiced in that it will have lost its right to claim against D2.  In other words, D1’s claim against D2 is now time-barred as a result of the plaintiffs’ delay in making the double recovery claim.

76.  However, such a conclusion cannot be correct: D1’s claim against D2 arose in 2005 and would have been time-barred 6 years thereafter ie in 2011.  The delay in the making of the present application from 21 January 2015 to 5 March 2018 therefore has no relevance.

(c)   Whether any surplus arises

77.  A major plank of the defence relates to the RMB190m debt under the XM loan.  Mr Hollander was taken to task by the defendants for not referring to it when presenting the court with the relevant background.  It is the defendants’ case that in addition to the RMB120m due to D1, there was a further amount of RMB190m due.  Mr Sun’s liability was said to arise under the 2/7/03 CG Counter-Guarantee (see §12(b)(iv) above) which is one of the Debenture Instruments.

78.  Pausing there, it has already been noted that the alternative case depends on the genuineness of the Debenture.  However, it does not follow that as a consequence, all the Debenture Instruments[30] would automatically be valid. In Mr Sun’s Reply to the Defence of the D1 Group at §3.11, Mr Sun referred to the 2 versions of the 2/7/03 CG Counter-Guarantee, stating that neither version was genuine and neither was signed by Mr Sun, whether or not on behalf of CG.

79.  The issue whether Mr Sun/CG is liable at all for the RMB190m is highly contentious.  Further, it is clear from the matters pleaded in §§76 and 77 of the Defence of the D1 Group that D1’s indebtedness to ICBC was reduced to RMB170m under a debt restructuring agreement reached between ICBC, Honour Luck[31] and D1 in March 2011 and that D1’s liability as guarantor under the XM Guarantee had been discharged in full by October 2013 [32].  In those circumstances, it is somewhat disingenuous to contend that the sum of RMB42m had to be applied towards discharging the XM loan.

C.   Miscellaneous objections

(i)   Lack of particularity

80.  The defendants raised the objection that there is no basis for the allegation that the sale was at an undervalue given the financial opinion from an independent financial adviser who opined that the price offered by D2 was fair and reasonable.  That report formed part of the Composite Document dated 28 September 2005.  It was said to be “compelling” evidence that the sale was at a fair value.  Further, it was also said that the chargee duty claim lacked particularity and the defendants would be prejudiced in having to obtain evidence relating to events (fairness of the offer) that occurred as long ago as September 2005.

81.  The value of the CG Shares on which the double recovery claim is based was calculated in accordance with the closing price on “the last trading day” which was 24 August 2005 [33].  That value did not include any premium normally attributable to a controlling interest.  Even allowing for the discharge of the HK$18m outstanding on the 2^nd Share Charge, there remains a significant difference of some 30%.

82.  It would appear from the Board’s letter that the share price was based on what the Offeror (D2) made for its acquisition of the CG Shares, US$1 for the remaining CG Share held by Mr Sun’s nominee and the assumption of CG’s outstanding debt under the 2^nd Share Charge as at 28 August 2005.  In my view, the fact that there is an independent financial report is not necessarily dispositive of the question whether the price was fair and reasonable.

(ii)   Order 15, rule 6

83.  This concerns the question whether it is now too late for GH to be joined as a party.  D1 submitted that the legal requirements governing joinder of the new party under section 35(6) – (7) of the Limitation Ordinance and Order 15, rule 6 cannot be met.  Subparagraph (5) prohibits the joining of a new party after the expiry of any relevant period of limitation unless the relevant period was current at the date when proceedings were commenced and it is necessary for the determination of the action that the new party should be added.

84.  That prohibition will prevent GH from being joined as a party unless Mr Sun succeeds in his contention that section 26 of the Limitation Ordinance applies on the basis that relevant facts were deliberately concealed and he could not reasonably have discovered them before 6 March 2012.

85.  If Mr Sun were to succeed on the deliberate concealment issue, limitation will not have accrued and the prohibition in Order 15, rule 6(5) would not be applicable.  In those circumstances, the provisions of Order 15, rule 6(2)(b)(ii) would be relevant.  In pertinent part, they provide as follows:

“ (2) Subject to the provision of this role, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on an application—

(b) order any of the following persons to be added as a party, namely—

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

86.  Whether the extension under section 26 of the Limitation Ordinance is found to be applicable would depend on the determination of the deliberate concealment issue.  If the court were to find deliberate concealment, it would be within the court’s power to add GH as a new party but not otherwise.

IV.   CONCLUSION

87.  For the reasons stated above, I propose to make an order that reflects the following:

(1) there be a trial of preliminary issues under the Limitation Ordinance as currently formulated in §51 above subject to any amendments as may be considered appropriate by the Judge assigned to conduct the trial;

(2) in the event of the trial judge finding that:

(a) there was no deliberate concealment of any of the facts identified in the preliminary issues, leave be refused for such of the proposed amendments as relate thereto; or

(b) there was deliberate concealment of any of the facts identified in the preliminary issues, leave be granted for such of the proposed amendments as relate thereto and such consequential relief sought in the leave summons as may be appropriate;

(3) the plaintiff in the original action[34] be given leave to amend §§78, 80(2), 84, 90(2) and (3) and 91 of the amendments proposed in the draft Re-Amended Statement of Claim;

(4) the parties do attend before the Listing Judge (Civil) for a directions hearing of the preliminary issues; and

(5) costs be reserved.

88.  In view of the various permutations that could result depending on the outcome of the preliminary issues, the parties are directed to submit an agreed draft order for approval.