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

HCA 642/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 642 OF 2011

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D E C I S I O N

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Introduction

1.  This decision is concerned with:

(1)   the appeal of the 1^st defendant (“D1”); and

(2)   the application to extend time to appeal of the 2^nd defendant (“D2”),

against the master’s order dated 30 November 2012.  In short, the master’s order gave leave to amend the statement of claim (albeit not as entirely proposed by the plaintiff).

2.  The original statement of claim was based on a simple contract (called the “Collateral Loan Agreement” and dated 4 March 2004).  It alleged that a debt was due from and payable by the defendants; it also sought an order for D2 (as the chargor under the Collateral Loan Agreement) to transfer (to the plaintiff) company shares allegedly provided by D2, pursuant to the Collateral Loan Agreement, as security for the said debt (“the security asset”).

3.  The amended statement of claim (amended pursuant to master’s order) is to the following effect:

(1)   despite the debt advanced pursuant to the Collateral Loan Agreement having fallen due on 3 March 2005, D1 has defaulted in repayment; and

(2)   D2 was obliged under the Collateral Loan Agreement to transfer the security asset to the plaintiff who, upon default in repayment by D1, was entitled to dispose of it.

4.  However, when giving leave to amend the statement of claim, the master disallowed the plaintiff’s proposed claims:

(1)   that D2 specifically performs the Collateral Loan Agreement by transferring the security asset to the plaintiff;

(2)   for fraudulent misrepresentation;

(3)   for conspiracy concerning the sale of the security asset; and

(4)   for the joinder of the purchaser of the security asset as the 3^rd defendant.

Consequently, the plaintiff’s present claim is for the sum of RMB 8 million against both D1 and D2. There is no appeal against this order.

5.  As will be explained below, that the plaintiff’s relief is limited to a monetary claim is important to the determination of D2’s application to appeal out of time.

The amendment relating to D1

6.  D1’s objection to the master’s order is premised almost entirely on the plaintiff’s claim having been time‑barred.  In this connection, reliance is placed on s 4(1)(a), Limitation Ordinance (Cap 347):

“The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say. . . actions founded on simple contract. . . ”

7.  As stated above, it is the plaintiff’s pleaded case the debt became due and payable on 3 March 2005 (para 7(iii) and 14, amended statement of claim).  This action was, however, only commenced on 12 April 2011 (about 6 years and 1 month after 3 March 2005).  It thus follows that this action was commenced after the expiration of the limitation period under Cap 347.  Any suggestion by the plaintiff that the action only accrued later (such as accrual since the date of demand for repayment) is unmeritorious.

8.  The defence in fact contends that the Collateral Loan Agreement should be governed by Mainland law (which prescribes a limitation period of 2 years).  However, for present purpose, the issue concerning limitation is whether the defendants have subsequently acknowledged the debt in writing (as the plaintiff contends they have).

9.  It is common ground written acknowledgement of a debt (or other liquidated sums) is recognized both under Hong Kong law (ss 23 and 24, Cap 347) and Mainland law as a good answer to a limitation defence.  That being the issue for present purpose, I shall approach the issue assuming the applicable limitation period is 6 years (for the sake of simplicity of discussion).

10.  The written acknowledge pleaded by the plaintiff are:

(1)   a letter dated 29 December 2010 from the defendants to the People’s Court, Sanshui District, Foshan City; and

(2)   a letter dated 29 December 2010 (pleaded as “notice of shareholders’ meeting”) of D1.

(para 36, 39 and 40, amended statement of claim)

11.  However, those documents do not meet with the legal requirements of what can constitute a “written acknowledgement” for the purpose of s 23(3), Cap 347; namely, an “[acknowledgement] of the claim”.  This is because a perusal of the documents set out in para 10(1) and (2) above shows that they were about:

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

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

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

12.  The plaintiff, relying on the observation in New World Development Co Ltd and Others v Sun Hung Kai Securities Ltd and Another (2006) 9 HKCFAR 403, para 91 (to the effect the “connected” documents can be looked at to ascertain a document’s true meaning), argues that one can look at other documents together with the above documents.

13.  However, the plaintiff has not specified what the “connected” document(s) is/are, or how it/they can be said to be “connected” to the above documents.  “Connection” cannot be without limit.  Here, the only “connection” contended for seems to be that the parties involved were the same, and that the dispute in the Mainland proceeding arose out of a golf course which is also a matter related to the Collateral Loan Agreement.   But that kind of “connection” is insufficient.

14.  By reason of the above matters (especially para 11 and 13 above), the averments in the amended statement of claim concerning the defendants’ alleged written acknowledgement (para 36, 39 and 40 thereof) are bad pleas.

15.  The master’s order giving leave to amend to incorporate such pleas should be set aside for this reason.  Further, because the plaintiff’s claim is time‑barred, leave to amend the statement of claim which provides no valid answer to the limitation defence is useless.  Leave to do so should also be set aside on that ground.

16.  Having so concluded, I note that the plaintiff’s skeleton arguments have referred to a letter dated 24 June 2011 from D1’s solicitors to the plaintiff (albeit not expressly as a written acknowledgement for the purpose of s 23(3), Cap 347 (but an admission of liability to repay)) (“the said letter”).  But it should also be noted this was written:

(1)   after the commencement of this action (12 April 2011); and

(2)   subsequent to an order dated 17 June 2011 ordering the defendants to pay the debt with interest (“the June 2011 order”).

17.  The relevant part of the said letter reads:

“We are instructed that our client shall repay the Loan of RMB 8,000,000.00 within 60 days from the date hereof. . . ”

18.  D1 argues that:

(1)   the above wording merely follows the wording of the June 2011 order, and should not be given its natural and ordinary meaning;

(2)   the said letter was part of the “without prejudice” correspondence; and

(3)   in any event, the defendants’ former solicitors did not have authority to admit liability to repay,

and therefore cannot properly be regarded as an acknowledgement.  These arguments are disputed by the plaintiff.

19.  It is inappropriate in the context of this appeal/application to determine the correctness of the above argument.  In particular (and whenever it should become necessary to do so), the said letter may have to be considered together with the following averment of the defence filed herein:

“The 1^st and 2^nd Defendants were arranging to repay the RMB 8,000,000.00 principal to the Plaintiff with 10 % interest as per the Collateral Loan Agreement” (emphasis supplied) (para 23 thereof).

20.  Even assuming the said letter does constitute an acknowledgement within the meaning of s 23(3), Cap 347, it is trite law a cause of action must be complete at the time of commencement of action: see, for example, Banque Worms v The Owners of the Ship or Vessel “Maule” (Cyprus Flag) (formerly known as “Amer Deep”) CACV 187/1994 (24 February 1995), para 25 and 45.

21.  It follows that, because the said letter did not come into existence until after the commencement of this action, it cannot be relied upon herein as an acknowledgement for the purpose of s 23(3), Cap 347.

22.  It may well be that the said letter can be so relied upon in a fresh action, but that is not a matter for consideration in the context of this action.

23.  The same reasoning as that set out in para 17 and 20 above can apply to para 23 of the defence.

24.  In view of the above matters, this is not a proper case for fresh leave to be given to the plaintiff to amend the statement of claim.

The amendment relating to D2

25.  Similar consideration as that under the preceding heading is also applicable to D2.

26.  Further, because D2’s contractual obligation under the Collateral Loan Agreement was not to repay the debt, but to transfer the security asset to the plaintiff, the plaintiff’s claim for a monetary sum against him must be a claim for damages, rather than a claim for a debt or other liquidated pecuniary claims.

27.  The plaintiff relies on passages in:

(1)   Andrews & Millett: Law of Guarantees (2011) 6^th Ed; and

(2)   O’Donovan & Phillips: The Modern Contract of Guarantee (2010),

and contends that D2 has a “concurrent” obligation (with D1) to repay the debt.

28.  Those passages cannot assist the plaintiff because they are discussion of the general law and where the surety’s obligation is, similar to the principal debtor’s, to repay the debt.  Under the Collateral Loan Agreement, however, D2 was under no such obligation (see also para 3(2) above).

29.  Such being the case, s 23(3), Cap 347 cannot be invoked in aid of the plaintiff’s claim against D2.

30.  For the above reasons, leave to amend the statement of claim against D2 should also be set aside.

Conclusion

31.  D1’s appeal is allowed.

32.  It is trite law that (among other factors) merits are an important factor when the court decides how to exercise its discretion to extend time to appeal.

33.  In view of para 25 to 30 above, D2’s application for time extension to appeal is granted.  The hearing being also treated as the hearing of the appeal, D2’s appeal is also allowed.

Other matters

34.  The plaintiff also argues that, in the absence of a positive plea raising the limitation defence, the defendants are not entitled to put forth such an argument.

35.  The defendants rely on Ronex Properties Ltd v John Laing Construction Ltd and Others [1983] 1 QB 398:

“There are many cases in which the expiry of the limitation period makes it a waste of time and money to let a plaintiff go on with his action. But in those cases it may be impossible to say that he has no reasonable cause of action. The right course is therefore for a defendant to apply to strike out the plaintiffs’ claim as frivolous and vexatious and an abuse of the process of the court, on the ground that it is statute‑barred. Then the plaintiff and the court know that the Statute of Limitations will be pleaded; the defendant can, if necessary, file evidence to that effect. . . ” (p 408)

36.  I agree with the above‑quoted passage and find the plaintiff’s technical objection to have no substance.

37.  Because the appeal/application to extend time to appeal do not concern the master’s order to strike out, the question of whether this action should be dismissed is not presently a matter for consideration.

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

Costs order

39.  The parties agree to adopt the usual rule that costs should follow the event.  There will accordingly be a costs order that the costs of D1’s appeal and D2’s application for time extension to appeal (including the costs of the applications before the master, and any related reserved costs) be paid by the plaintiff to the respective defendant to be taxed if not agreed.