HCA 1348/2019
[2021] HKCFI 1657
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1348 OF 2019
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BETWEEN
CHINA METAL RECYCLING (HOLDINGS) LIMITED
1st Plaintiff
COSIMO BORRELLI AND CHI LAI MAN JOCELYN
2nd Plaintiff
and
UBS AG
1st Defendant
UBS EUROPE SE
2nd Defendant
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Before: Deputy High Court Judge Le Pichon in Chambers
Date of Hearing: 28 May 2021
Date of Decision: 8 June 2021
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DECISION
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1. This is the 2nd defendant’s application for leave to appeal from this Court’s Decision dated 8 April 2021 (“the Main Decision”) dismissing its summons to set aside leave to serve out, to discharge the order for renewal of the Writ and to set aside service. At the conclusion of the hearing, this Decision was reserved which I now give.
2. This Decision adopts the nomenclature used in the Main Decision.
3. Reference should be made to the Main Decision for the relevant background to this application and the reasoning for the holdings that
(i) the plaintiffs have shown an arguable case in knowing receipt (“the Criterion point”) and that the applicable standard for the merits of the plaintiffs’ claim is “serious issue to be tried”;
(ii) the plaintiffs have shown a sufficient framework that could support a special rule of attribution which cannot be satisfactorily determined at the interlocutory stage and their claim on attribution should not be struck out; and
(iii) there is a serious question to be tried that the meaning of fraud in section 26 of the Limitation Ordinance is not limited to common law fraud.
4. Limited’s proposed grounds relate to all 3 issues which are addressed below.
The Criterion point
5. Limited considers Criterion to be dispositive of the plaintiffs’ claim in knowing receipt.
6. Shortly after the Main Decision, the Court of Appeal handed down its judgment in Galleria (Hong Kong) Limited (in compulsory liquidation) & Or v DBS Bank Limited, Hong Kong Branch [2021] HKCA 611 where the same arguments relating to knowing receipt and the application of the Criterion principle were considered. Mr Jat SC and Mr Manzoni SC were also counsel in that case.
7. It is clear from the Galleria judgment (at §197) that the plaintiff’s case (premised on DBSHK’s knowledge that the transfers in question were effected in breach of the transferor’s duty) was not made out on the facts and the plaintiff’s appeal was dismissed for that reason.
8. It was unnecessary for the merits of the plaintiffs’ submissions relating to the Criterion principle and the basis upon which the plaintiff sought to distinguish Criterion to be considered. The observations of Kwan VP’s judgment in Galleria (at §§198-202) to which Limited attached considerable significance concerning were thus obiter .
9. Limited also relied on the recent decision of Mimmie Chan J in Hing Yip Holdings (Hong Kong) Ltd (In Compulsory Liquidation) v Cellmark China Limited (In Voluntary Liquidation) (formerly known as Pechiney Far East Limited) & Ano [2021] HKCFI 1396 at §§228-229 for the proposition that where the transactions are valid and authorised, a plaintiff has no claim in knowing receipt. However, Hing Yip is a want of authority case and takes the matter no further.
10. It should be mentioned that the plaintiffs referred to 2 authorities[1] said to support the distinction between entering into the contract and a breach of fiduciary duty occurring at the time of payment while Limited sought to distinguish them on the ground that they involved genuine trading companies and the payments were made when the companies were unquestionably insolvent. As will become apparent, it is unnecessary for this conflict to be resolved at this juncture.
11. The question before this Court was whether it is arguable that the Criterion principle has any application to a case not based on want of authority but on an agent’s or director’s breach of fiduciary duty occurring after the contract date and prior to the transfer of the company’s assets to the recipient who had knowledge of the breach.
12. I considered the matter an open given the absence of authority and that the knowing receipt claim should not be struck out.
13. Service out applications under Order 11 have become unduly complex and lengthy. Increasingly, Order 11 hearings have become the arena for battling out difficult questions of law when, in my view, such questions are usually best suited for resolution and determination after trial in light of all the facts.
14. For the reasons stated, I remain of the view that the plaintiffs have shown an arguable case which should go to trial and I decline to grant leave to appeal on the Criterion point.
15. A related aspect arising from the Criterion ground is Limited’s submission that the applicable standard for the merits of the plaintiffs’ claim is not (as the Court held) “serious issue to be tried” but “good arguable case”.
16. The state of the authorities remains as set out in the Main Decision. Having reviewed the reasons given and Limited’s submissions for leave, I remain unpersuaded that leave should be granted on this issue.
Attribution
17. Neither party made any oral submissions on attribution.
18. It is clear from the authorities cited in the Main Decision that a special rule of attribution is necessarily sensitive to the legal and factual context. Where the circumstances of the particular case are such that they may give rise to a special rule of attribution, it is entirely inappropriate and unsatisfactory for the Court to attempt to formulate a special of attribution in an interlocutory context.
19. By its nature, a special rule of attribution can be complex and may raise difficult issues of law with ramifications beyond the immediate issues. Such cases merit mature consideration and full argument. Order 11 applications are ill suited for such matters to be aired and determined.
20. Accordingly, leave to appeal on this ground is refused.
Limitation
21. This ground of appeal was raised by a second summons dated 21 May 2021, issued only a week before this hearing. It transpires from Limited’s oral explanation at the hearing that it would not have been raised but for the Hing Yip decision which was handed down on 17 May 2021.
22. In considering the meaning of fraud within section 26 (1) of the Limitation Ordinance, the judge reviewed a number (but not all) of the authorities considered in the Main Decision.
23. In that case, in view of her finding that the defendants were not liable for either dishonest assistance, knowing receipt or want of authority, limitation was not an issue that required determination. Hence, the observations made in §§231-236 on whether those claims would be time-barred were obiter .
24. Limited submitted that it would be desirable for the meaning of “fraud” to be clarified. In my view, that decision is best left to the Court of Appeal.
25. For my part, I do not regard the recent decision as sufficient justification for leave to be granted on this ground.
Conclusion
26. For the reasons set out, Limited’s summonses dated 22 April 2021 and 21 May 2021 fall to be dismissed.
27. There is to be an order nisi of costs in favour of the plaintiffs with certificate for counsel such costs to be summarily assessed and payable forthwith. Directions will be given separately for summary assessment.
( Doreen Le Pichon )
Deputy High Court Judge
Mr Charles Manzoni SC, instructed by Lipman Karas and Mr Jason Karas and Mr Kevin Kee (solicitor advocates), of Lipman Karas, for the Plaintiffs
Mr Jat Sew Tong SC, instructed by Herbert Smith Freehills, for the 2nd Defendant
[1] Byers v Chen Ningning [2021] UKPC 4 (at [6], [8] and [93]) shows that a director may act in breach of fiduciary duty by permitting the repayment of an enforceable loan obligation where no want of authority was engaged and Global Eyecare Holdings Limited v Olivia Lee Sin Mei (2014) 17 HKCFAR 466 at [57(4)].