CHINA METAL RECYCLING (HOLDINGS) LTD (IN LIQUIDATION) AND ANOTHER v. UBS AG AND ANOTHER

CACV 384/2022, [2023] HKCA 738

On Appeal From [2023] HKCA 409

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 384 OF 2022

(ON APPEAL FROM HCA NO 1348 OF 2019)

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J U D G M E N T

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Hon G Lam JA (giving the Judgment of the Court):

1.  At the end of the hearing of the appeal, we allowed the plaintiffs’ appeal and dismissed the strike-out summons of the 1^st defendant (UBS)  for the reasons handed down in writing subsequently on 17 March 2023: [2023] HKCA 409 (“Reasons”). UBS now applies to this court for leave to appeal from our judgment to the Court of Final Appeal. This is our judgment on the application, which should be read in conjunction with the Reasons.

2.  The questions said to be questions of great general or public importance for the purposes of section 22(1)(b)  of the Hong Kong Court of Final Appeal Ordinance (Cap 484)  are set out in UBS’s notice of motion as follows:

  Question 1

  Whether a purported claim for fraudulent trading pursuant to s.275 of the Companies (Winding Up and Miscellaneous Provisions)  Ordinance, Cap 32 (“Ordinance”)  brought by writ of summons in deliberate and knowing breach of rule 58(1)  of the Companies (Winding Up)  Rules, Cap 32H (“WU Rules”)  is or can be regarded as “proceedings under the Ordinance” within the meaning of rule 209 of the WU Rules (Judgment §22), or is it a nullity by reason of the breach of the mandatory provision of rule 58(1)  (i.e., the position adopted by Anthony Chan J in the CFI Judgment dated 20.7.2022)?

  Question 2

  Does rule 209, being a provision in subsidiary legislation, empower the Court to deprive a defendant of an accrued substantive right to rely on a valid limitation defence under the Limitation Ordinance, Cap 347?

  Question 3

  In the alternative to Question 2, does “substantial injustice” within rule 209 include the deprivation of a valid limitation defence?

3.  Insofar as Question 1 seeks to contend that rule 209 does not apply because the section 275 claim as brought by writ is a nullity, this was not an argument raised before.  At first instance, UBS’s argument was that the defect could not be cured because the claim was time-barred, not because the claim as brought by writ was a nullity.[1]  The judge held that the defect could not be cured by rule 209 because the plaintiffs had relied upon the inapplicable regime under the RHC to make the section 275 claim.[2]  The judge did at the end state that the section 275 claim was a “nullity” by reason of the breach of rule 58,[3] but as Mr Manzoni SC submits on behalf of the plaintiffs, this was a conclusion after the judge’s ruling that no remedial mechanisms applied in respect of the non-compliance with rule 58, not a reason why no remedial mechanisms applied.  No respondent’s notice was filed by UBS, and no submission was made on appeal in this court that rule 209 does not avail the plaintiffs because the claim is a “nullity”.[4]  None of the cases of In re Euromaster Ltd [2013] Bus LR 466, Ma Wing Michael v Fong Sze-ming [1988] 1 HKLR 354, and In re Pritchard (deceased) [1963] Ch 502, relied upon by UBS in the present application, was cited to the judge or to this court. 

4.  This circumstance militates against granting UBS leave to appeal to the Court of Final Appeal in relation to this question: Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd (CACV 227/2005, 26 June 2007), §4; The Law Society of Hong Kong v A Solicitor (CACV 78/2014, 10 July 2015), at §6; see also Pillai v Comptroller of Income Tax [1970] AC 1124, 1130F.

5.  In any event, the plaintiffs do not dispute that rule 209 draws a distinction between a defect that renders the proceedings a nullity even though no substantial and irremediable injustice has been caused and a “formal defect or irregularity”: Pillai, p 1135E.  It is clear from our Reasons that we took the view that the defect in this case is nothing more than a “formal defect or irregularity” and not a matter of “substance” that takes the claim outside the scope of proceedings under the Ordinance: see §§21-23 of the Reasons.  In particular, as stated in §21:

“ China Metal is being wound up by the court under the Ordinance, as pleaded in the statement of claim. The fraudulent trading claim is one by which the power under section 275 of the Ordinance – available only in the winding up of a company – is expressly invoked to make UBS liable. The claim is brought in the correct court, i.e. the Court of First Instance, which is the ‘court’ within the meaning of section 275. The liquidators who have standing to apply for an order under section 275 have from the outset been joined as the 2^nd plaintiffs, apparently solely for the purpose of this claim. There is no suggestion that any essential averment is missing. The relevant remedy sought is a declaration that UBS is liable for the specified debts or other liabilities of China Metal – a distinctive remedy available only under section 275. There is no apparent defect other than that the claim is made by writ rather than by summons under rule 58.”

This demonstrates that we took the view that the section 275 claim brought by writ was not so fundamentally and substantively defective that the court, with its various powers including those conferred by rule 209, could not treat it as having any validity: c.f. Stone v Ace-IRM Insurance Broking Pty Ltd [2004] 1 QdR 173, §26.

6.  Re Osea Road Camp Sites Ltd [2005] 1 WLR 760 does not assist UBS as explained in our Reasons at §25.  In particular, although there was a submission that the proceedings begun were a nullity,[5] the reasoning of the court was that the power to remedy “an error of procedure such as a failure to comply with a rule or practice direction” in CPR rule 3.10 did not extend to requirements imposed by statute,[6] and that accordingly the failure to commence unfair prejudice proceedings by petition as required by section 459 of the Companies Act 1985 was not an error of procedure that could be cured under rule 3.10.[7]  In contrast, the requirement for a fraudulent trading claim to be begun by summons is not imposed by statute but by rule 58, and rule 209 is framed in terms of “any formal defect” and “any irregularity” rather than in language similar to CPR rule 3.10.

7.  In any event, whether a particular remedial mechanism applies to a particular non-compliance depends on the scope of the provision and the nature of the non-compliance.  Whether the particular defect in the present case falls within the scope of rule 209 is in our view not a question of great general or public importance.  There is no basis to think that the same non-compliance is likely to recur to make the specific scenario here one of general significance.  Nor is there any conflict in the authorities requiring resolution by the Court of Final Appeal on the question whether rule 209 can apply to non-compliance with rule 58.

8.  Accordingly, we do not think leave should be granted in respect of Question 1.

9.  As to Question 2, the implications from the point of view of limitation of action have been explained in our Reasons at §§28-29.  From that discussion, it can be seen that it is not accurate to refer to UBS having an “accrued substantive right” arising from its limitation defence.  Likewise, UBS’s reliance on Mohan v McElney [1983] HKLR 308 is misplaced.  That case concerned the introduction by amendment of a new cause of action that was already time-barred.  In the present case, the section 275 claim as brought by writ already exists, having been brought within time on either party’s case.  It is UBS who is seeking to strike out that claim, not on limitation grounds, but based on non-compliance with rule 58.  UBS’s limitation defence was instead raised against the section 275 claim as brought by the rule 58 summons, and is not affected as such by the court’s ruling that the claim brought by writ was valid by virtue of rule 209.  To say that permitting the claim by writ to stand would deprive UBS of an “accrued substantive right” is circular.  As such, Question 2 does not arise on the facts of the present case.

10.  Question 3 again refers to the deprivation of a limitation defence, but the focus is on the phrase “substantial injustice … caused by the defect or irregularity”.  Three new authorities, not cited to the judge below or on appeal to this court, are relied on in UBS’s notice of motion and submissions, but they are in our opinion wholly distinguishable.  In Allen v Mittal [2022] EWHC 762 (Ch), the application by the trustee in bankruptcy for an order to suspend discharge of the bankruptcy had not been served within the required time, and a limitation defence arose as a consequence.  The trustee’s application for post validation service fell to be considered accordingly.[8] In Re SMU Investments Ltd [2020] EWHC 875 (Ch), permission to serve proceedings on the respondent out of the jurisdiction was set aside.  A new application notice would be time-barred.  Whether to re-grant permission to serve out for the original application therefore raised the question whether the respondent would be deprived of its limitation defence.[9]  In Re Baillies Ltd (in liq) [2012] BCC 554, proceedings raising claims relating to transactions at an undervalue, fraudulent trading and transactions defrauding creditors were commenced on the eve of the expiry of the limitation period, but they were not validly served on the respondent out of the jurisdiction, contrary to the requirements of an EU regulation.  The court refused to waive the defect or extend the period of validity of the application as to do so would deprive the respondent of a limitation defence.[10]  In each of these cases, therefore, service of the originating process was defective which itself gave rise to a limitation defence in favour of the respondent.  Service is of course the act that engages the court’s jurisdiction over the recipient and has significant implications for the operation of limitation periods.[11]  These authorities have no application to the present case, where the section 275 claim issued by writ had been properly served within time on either party’s case.  The answer to Question 3 is, therefore, that it depends on the facts of the case.  It is not a question of great general or public importance.

11.  As to the “or otherwise” limb of section 22(1)(b), it is this court’s practice to leave this to the Appeal Committee of the Court of Final Appeal.  We do not see any ground in this case that warrants departure from this established practice.

12.  For the above reasons, UBS’s application is dismissed.  There will be an order nisi that UBS is to pay the plaintiffs’ costs, summarily assessed in the sum of $265,000.