SIBERIAN MINING GROUP CO LTD v. CHEUNG KENG CHING AND OTHERS

HCA 706/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 706 OF 2010

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R U L I N G

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Introduction

1.  This is the application of the 1^st and the 2^nd defendants (“D1 & D2”) for leave to appeal against my ruling handed down on 10 February 2017 (“the Ruling”) allowing the plaintiff (“P”) to amend its Indorsement of Claim (“IC”) and Statement of Claim (“SC”) against the defendants.  The background of the case, the details of the amendments and the reasons for my ruling can be found in the Ruling which I am not going to repeat. 

2.  Written and oral submissions for the present application have been received from both sides, for all of which I am grateful.

3.  Shortly stated, the proposed grounds of appeal put forward by Mr Hui, counsel for the defendants, boil down to the following complaints:

i) As regards the amendments relating to the allegation of fraud/fraudulent breach of trust:

(1) this court erred in allowing the amendments in circumstances where (i) no sufficient particulars are pleaded in the original SC in support of P’s plea of fraud or dishonesty and (ii) the pleaded facts are consistent with innocence;

(2) this court failed to have regard to the requirement that P has to set forth separately the acts complained of in respect of each of the defendants and not simply clump them together in vague allegations;

(3) this court, in exercising the discretion to allow the amendments, erred in finding that the lack of particulars could be remedied by the defendants seeking further and better particulars;

(4) as the allegation of fraud/dishonesty had not been sufficiently particularised in SC, this court erred in holding that the corresponding amendments to IC are merely to regularise the claim already made in SC;

ii) As regards the new cause of action of “fraudulent concealment” allowed to be added:

(5) this court erred in applying s 20(1)(a), the Limitation Ordinance (Cap 347) to the new cause of action which does not contain sufficient particulars to amount to an allegation of fraud/fraudulent breach of trust;  

(6) further or alternatively, the new cause of action is tantamount to an allegation of deceit rather than a fraudulent breach of trust and as such it is still subject to a time limitation of six years;

(7) further or alternatively, this court erred in holding that the new cause of action arises out of the same or substantially the same facts of the allegation of fraud/fraudulent breach of trust;

(8) as the new cause of action does not arise from the same or substantially the same set of facts, this court also erred in allowing the corresponding amendments to IC.

TEST FOR GRANTING LEAVE

4.  The test for granting leave to appeal is well settled and not in dispute.  Leave to appeal shall not be granted unless (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard: s 14AA(4), the High Court Ordinance (Cap 4).   It is well‑established that reasonable prospect for this purpose involves the notion that the prospects of succeeding must be reasonable, and therefore more than fanciful, without having to be probable: Wynn Resorts (Macau) SA v Mong Henry.[1]  

5.  In case a ground of appeal is levelled at the exercise of the court’s discretion, the well‑known principles in Hadmor Productions Ltd v Hamilton[2] would apply.  See also Wong Luen Hang & Anor v Chan Yuk Lung & Ors.[3] 

6.  Even if the court takes the view that there is a reasonable prospect of success, it still retains a discretion as to whether to grant leave, although the fact that there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion: see Ho Yuen Ki Winnie & Anor v Ho Hung Sun Stanley & Ors.[4]          

7.  Further, in deciding whether or not, as a matter of discretion, leave should be granted for an interlocutory appeal, one relevant consideration would be whether allowing the interlocutory appeal would only serve to increase costs and delay the adjudication of the litigation.  It is relevant to bear in mind that the leave requirement was introduced largely to address satellite litigation on interlocutory issues which almost invariably gives rise to major delay and expense: Ho Yuen Ki Winnie & Anor v Ho Hung Sun Stanley & Ors (CA).[5]

CONSIDERATION

As to Ground (1): Sufficient of particulars for fraud

8.  With respect, this ground is a re‑run of the argument which had already been advanced on behalf of D1 and D2 when they opposed P’s application for amendments. 

9.  As regards the pleading of fraud/fraudulent breach of trust, the relevant legal principles are summarised at §§13‑20 of the Ruling.  I note that the case authorities relied upon by Mr Hui now, as well as then, including Three Rivers District Council & Ors v Bank of England (No 3),[6] Peconic Industrial Development Ltd v Lau Kwok Fai[7] and ADS v Wheelock Marden & Co Ltd[8] have already been duly considered in the Ruling. 

10.  In my humble view, the present complaint does not involve any question of law at all but is really about how the relevant legal principles are applied in the present case.  As regards whether P’s original case as pleaded in the unamended SC had already included or implied in it a distinctly alleged cause of action based on fraud or fraudulent breach of trust, the court adopted the approach taken in Darlington Building Society & Anor v O’Rourke James Scourfield & McCarthy,[9] applied in Bank of China (Hong Kong) Ltd v Leong Mei Yong,[10] by looking at and comparing CS in its original form and the relevant amendments.  Mr Hui does not complain that that is not the correct approach.

11.  At §22 of the Ruling, detailed reasons have already been given as to why this court came to the view that SC in its originally form had already included or implied in it a distinct case of fraud or fraudulent breach of trust against the defendants and that sufficient particulars had been provided.  At §22(b) of the Ruling, this court commented that “what constitute sufficient particulars is a matter of degree and must necessarily be case-specific”.  Mr Hui does not gainsay this.  

12.  As regards the mental elements of the tort, this court pointed out at §17 of the Ruling that whether a person’s conduct was accompanied by a certain state of mind (eg dishonesty) is essentially a question of fact.  In the absence of an admission from the person concerned, that fact is usually proved inferentially by circumstantial evidence including what he said and done prior to and after the conduct in question.  Mr Hui does not seem to disagree with that proposition.  Specifically, the court pointed out at §22(f) of the Ruling that P had explicitly pleaded (in the original SC) that the defendants “either knew … or did not honestly believe … or were recklessly indifferent as to whether” it was contrary to P’s interests to acquire the Grandtop shares.  That assertion follows closely the formulation of mental element of “fraud” approved by Millett LJ in Armitage v Nurse.[11]

13.  With respect, I can see no reasonable prospect of success in this ground.

As to Ground (2): Acts of each defendant

14.  As pointed out by the written submission of Mr Kong (and with him, Ms Chan), this ground has not taken into account the fact that P’s case against the defendants is that they had acted collectively in the tort.  In other words, P is asking the court to infer from the pleaded facts that there existed a common design between the defendants.  The nature of a “common design” was explained by Mustill LJ in his oft‑quoted judgment in Unilever v Gillette,[12] which is recently affirmed by the UK Supreme Court in Sea Shepherd UK v Fish & Fish Ltd[13], as follows:

“I use the words ‘common design’ because they are readily to hand, but there are other expressions in the cases, such ‘concerted action’ or ‘agreed on common action’ which will serve just as well. The words are not to be construed as if they formed part of a statute. They all convey the same idea. This idea does not, as it seems to me, call for any finding that the secondary party has explicitly mapped out a plan with the primary offender. Their tacit agreement will be sufficient. Nor, as it seems to me, is there any need for a common design to infringe. Itis enough if the parties combine to secure the doing of which in the event prove to be infringements.” (Emphasis supplied]

15.  In the present case, the basic facts pleaded and relied upon by P for the inference of a “common design” are set out at §12 of the Ruling. In my view those facts are capable of giving rise to an inference of “common design”.  Whether that inference should be drawn, however, is a matter for the trial judge to decide after considering all the evidence adduced.

16.  With respect, this ground is not reasonably arguable.  

As to Ground (3): Further and better particulars

17.  As pointed out by Mr Kong in his written submissions, there was no finding by this court that “the lack of particulars can be remedied by the defendants seeking further and better particulars”.  As aforesaid, it was the ruling of this court, at §22 of the Ruling, that P had already pleaded a distinct case of fraud or fraudulent breach of trust by the defendants. What this court said at §44 of the Ruling is as follows:

“However, if D1 and D2 consider that there is a need for further and better particulars, it is a matter for them to consider making the relevant application.”

18.  With respect, this ground is misconceived.

As to Ground (4): Corresponding amendment to IC relating to fraud

19.  This ground stands or falls with (i) above.  This court has adequately dealt with the point raised at §§38‑42 of the Ruling. 

As to Grounds (5) & (6): limitation defence re “fraudulent concealment”

20.  These grounds, which can be conveniently dealt with together, are about items (i) and (ii) listed at §23 of the Ruling, which this court ruled at §31 that they raise a new cause of action of “fraudulent concealment” which is an aspect of “breach of fiduciary duty” not covered by P’s original cause of action about the defendants’ misappropriation of P’s fund in the acquisition of the Grandtop shares.

21.  Ground 5 is based on the premise that the new claim does not contain adequate particulars to constitute an allegation of “fraud/fraudulent breach of trust” and therefore s 20(1)(a), Limitation Ordinance is not applicable.  However, the premise is false.  Mr Hui has not identified in what ways the new cause of action, which is one of omission rather than commission, is inadequately pleaded. 

22.  As regards Ground 6, it is important to pay attention to the reasons given by this court as to why the alleged concealment is actionable, instead of taking what was said at §30 of the Ruling out of context.  Firstly, based on the alleged facts, the defendants as directors owed a “trustee‑like responsibilities” to P and therefore it is trite law (which needs not be pleaded) that they owed the duty to make full and frank disclosure to P in relation with their dealings with P’s property.  Secondly, this court was saying that the alleged breach duty of fiduciary duty was not innocent but fraudulent in that it is “tantamount to a deceit”.  It was for this limited purpose that reference was made to Conlon & Anor v Simms,[14] which, I note, was not about breach of fiduciary duty by a trustee.  It was not the ruling of this court that the new cause of action forms “only” a personal claim for damages, as Mr Hui seems to suggest.  Thirdly, the concealment in question was about the defendants’ alleged misappropriation of P’s funds in the acquisition of the Grandtop shares contrary to P’s interest.  As such, the new cause is also a claim of “fraud/fraudulent breach of trust” in respect of P’s property (company funds) which falls square within s 20(1)(a), the Limitation Ordinance.  Fourthly, this court held that this cause of action based on “fraudulent concealment” is a new one because that is an aspect of fraud/fraudulent breach of trust different from the original allegation based only on misappropriation of company funds.  It is in the above context that this court distinguished Cia de Seguros Imperios v Heath (REBX) Ltd[15] and said, at §20 of the Ruling,

“I note that in Cia de Seguros Imperios v Heath (REBX) Ltd, a case relied upon by Mr Hui, it was held that a claim for damages against a dishonest breach of fiduciary duty is still subject to time limitation by analogy with a claim of damages for breach of contract or a breach of duty in tort. I note, however, that that case is not about trustee or directors and is not a case on the English equivalent of s 20(1) of the Limitation Ordinance.”

Lastly, based on the above and relying on Akai Holdings Ltd (in comp liq) v Everwin Dynasty Ltd,[16] this court ruled that even though the relevant parts of the amendments in question raise a new cause of action, it would not involve any risk of depriving the defendants of an arguable accrued limitation defence.

23.  Therefore, these grounds are based on a misreading of the relevant parts of the Ruling and are not reasonably arguable.

24.  For the sake of argument, if it were reasonably arguable that the new cause of action does not amount to “fraud/fraudulent breach of trust”, in my humble view there would be reasons why, as a matter of discretion, leave to apply should not be granted in the circumstances of the present case:

(i) At the hearing of P’s application for amendment, the foci of the submissions of the parties were on whether the amendments in question were just “particulars added to the original pleaded case of fraud on the basis of the available evidence that makes P’s case more complete”; if they did raise a new claim, whether they could still be allowed pursuant to O 20 r 5(5), RHC; and whether the new claim was “self‑contradictory” and “bound to fail”: see §§6‑7 of the Ruling.  Very little, if any, was then argued on behalf of the parties specifically as to whether the new claim would have been time-barred even at the time when the writ was issued.

(ii) The effect of the Ruling is to allow the new claim (“fraudulent concealment”) to be added to SC pursuant to s 35(5), the Limitation Ordinance and O 20 r 5(5), RHC, so that it would be deemed to have been commenced on the day the writ was issued: see §§33, 37 & 47.  This is a ruling in an interlocutory proceeding rather than a final determination of an issue giving rise to a res judicata: Chu Hung Ching v Chan Kam Ming & Ors.[17] If the new claim of “fraudulent concealment” is, as D1 & D2 now contend, not a “fraud by trustees” or a “fraudulent breach of trust”, then there is nothing to prevent them from pleading time limitation vis-à-vis the new claim in their amended defence, which is yet to be filed.  The doctrine of “relation back” would not cause any injustice to the defence because of the addition of the new cause of action, as the defendants would not be deprived of any accrued limitation defence.  On this basis, Global Bridge Assets Ltd v Sun Hung Kai Securities Ltd[18] is distinguishable.

(iii) The original claim based on misappropriation and the new claim based on fraudulent concealment are two closely related facets of the same share transaction.  As such, they would not result in P being compensated twice for the same transaction. 

(iv) Whether or not the new cause of action is to be included in SC, the evidence of the concealment would still be relevant and admissible to show the state of mind of the defendants at the time when they caused P to acquire the Grandtop shares.

(v) The incidents which are the subject matters of the action happened between 2003 and 2005 and the writ was taken out in 2010. In my view, the granting of leave for an interlocutory appeal would only cause further delay to the adjudication of the litigation.

Based on the above, even if it were reasonably arguable that the new cause of action is not covered s 20(1)(a), the Limitation Ordinance, I would exercise my discretion not to grant leave for the interlocutory appeal on this ground.

As to Ground (7): Same or substantially the same facts

25.  The relevant part of the Ruling is at §§34‑37.  Mr Hui has not identified in what ways, if any, this court has erred in the law or its application.  With respect, the allegations about defendants’ misappropriation of P’s money in the acquisition of Grandtop shares and the subsequent “fraudulent concealment” of their own wrongdoings are plainly based on the same or substantially the same facts.

As to Ground (8): Corresponding amendments to IC re “fraudulent concealment”

26.  This ground stands or falls with Grounds (5)–(7) above.  I note that Mr Hui does not take issue with the legal principles stated at §§41-42 of the Ruling.

27.  Based on the discussion above, this ground is also not reasonably arguable.

CONCLUSION

28.  Having considered submissions of the parties, with respect, the proposed grounds of appeal, whether taken individually or collectively, have no merits and are not reasonable arguable.  As such, D1 and D2’s application for leave to appeal is dismissed. 

29.  I make an order nisi that D1 and D2 pay P’s costs of this application, to be taxed if not agreed.