CHINA MEDICAL TECHNOLOGIES, INC. (IN LIQUIDATION) v. BANK OF CHINA (HONG KONG) LTD

CACV 320/2018

[2019] HKCA 735

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 320 OF 2018

(ON APPEAL FROM HCA NO 2448 OF 2014)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  On 22 March 2019, we dismissed the plaintiff’s appeal against the decision of Au-Yeung J on 20 June 2018 (“Decision”) at the conclusion of the hearing. We handed down the reasons for our judgment on 2 April 2019 (“CA Reasons”). This is the plaintiff’s application for leave to appeal to the Court of Final Appeal.

2.  By the decision of Au-Yeung J, she set aside the ex parte order of Master J Wong on 7 December 2015 (“the Extension Order”) granting an extension of the validity of the protective writ of summons filed on 2 December 2014 (“the Writ”) until 1 December 2016 and the service of the Writ and she dismissed the plaintiff’s action.  The judge held that there were no good reasons to extend the Writ on the date the Extension Order was made, and that was sufficient to set aside the Writ and the service of the Writ.

3.  The judge also made holdings on other matters in contention.  She held that the plaintiff’s liquidators had breached the continuing duty of disclosure by failing to inform the master of the decision of Harris J in the liquidators’ application for production of documents and oral examination under section 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“the s 221 Application”), which was handed down on 15 December 2015 after the Extension Order was made.  Further, there was material non-disclosure and misrepresentation in that the liquidators failed to properly inform the master of the limitation defences, and on this ground alone the judge would set aside the Extension Order without a re-grant.

4.  We agreed with the judge there were no good reasons to extend the Writ on the date the Extension Order was made, and for this reason alone we dismissed the appeal^[1]. We did not find it strictly necessary to deal with the other matters of contention.  Nevertheless, we addressed some of the other issues and agreed with the judge that the plaintiff’s liquidators had breached the continuing duty of disclosure by failing to inform the master of the decision of Harris J in the s 221 Application^[2] and that there was material non-disclosure and misrepresentation of the limitation issues such that the Extension Order should be set aside without a re-grant if it had been necessary to consider a re-grant.

5.  The plaintiff sought leave to appeal to the Court of Final Appeal in respect of our holdings on no good reasons for the Extension Order and the material non-disclosure and misrepresentation of the limitation issues.  This is an interlocutory appeal and interlocutory appeals to the Court of Final Appeal on procedural issues are rare and exceptional and must raise a question of law of great general or public importance (CSAV Group (Hong Kong) Ltd v Jamshed Safdar (2007) 10 HKCFAR 629 at §1).

6.  The questions for determination in the intended appeal were framed in the notice of motion filed on 23 April 2019.  There is no reliance on the “or otherwise” limb.

Question 1A

“On an inter partes application to set aside an ex parte order, in this case where the Court has found there existed matters capable of amounting to good reason for the extension of a Writ (at the time the extension order was made), is the Court:

a. To consider the facts as they obtained at the time the ex parte order was made (National Commercial Bank v Haque [1994] CLC 230; ISC Technologies Ltd v Guerin [1992] Lloyd’s Rep 430), including the reasonably held subjective belief of the applicant; or

b. Is the Court entitled to take into account a subsequent factual development which was not known and which had not occurred at the time the writ was extended, such that the matters capable of amounting to good reason were “wiped out” by a subsequent event (in this case the Reasons of Harris J on the s. 221 application which were not published until after the Writ extension) (Au-Yeung J; CA)?

In other words, is the good reason which existed at the date of the ex parte order capable of being vitiated by a subsequent factual development?”

7.  The plaintiff’s arguments are along the following lines.  The judge had agreed with the master that as at the time of the Extension Order, there were matters “capable of” being good reasons to extend the Writ^[3]. However, the judge went on to hold that by virtue of Harris J’s decision, which was handed down after the Extension Order, the good reasons for extension of the Writ were “wiped out”^[4]. The effect of the Decision is that a subsequent event can retrospectively invalidate a good reason.  This is contrary to the test that “the court should have regard to the situation as it obtained when the extension order was made, albeit with the benefit of further evidence at the inter partes stage”^[5]. Harris J’s decision was just a statement of opinion that the liquidators had sufficient information to decide whether to pursue the writs and was a subsequent event or subsequent factual development.  It is wrong to have regard to it.  His decision did not throw light on the circumstances as they obtained at the date of the Extension Order and cannot change the circumstances that obtained at an earlier date, namely that the liquidators had reasonably held a belief which the judge held was “capable of” being a good reason to extend the Writ.

8.  We agree with Mr Huggins SC for the defendant^[6] that question 1A is based on distorted premises and the argument in support of the plaintiff’s position is not reasonably arguable.

9.  The question of law framed in that question whether the court is “to consider the facts as they obtained at the time the ex parte order was made” is not contentious.  The principle in National Commercial Bank v Haque quoted in the CA Reasons is not in dispute and ISC Technologies Ltd v Guerin at 434 reiterates the same principle.  It is not reasonably arguable that the court was not entitled to have regard to Harris J’s decision when determining the question whether there was a good reason to extend the Writ.

10.  The liquidators had asserted before the master that the plaintiff had insufficient information to decide whether or not it had viable claims against the defendant and whether it was in the plaintiff’s interest to pursue them.  The master accepted that assertion and granted the Extension Order.  Au-Yeung J was simply saying if the circumstances had been as the liquidators believed them to be, then the matters advanced by the liquidators were “capable of” amounting to a good reason for extending the Writ. But in truth those circumstances did not exist at the time the Extension Order was made, and therefore there was no good reason for making that order.  Harris J’s decision was an objective assessment and determination in relation to those facts material to the s 221 Application and the plaintiff’s application for an Extension Order.  It was highly relevant in that it shed light on the state of affairs as they obtained at the date of the ex parte order.  There was no suggestion that the facts had changed in any way between the date of the hearing before Harris J and the making of the Extension Order by the master.  The fact that the plaintiff did have sufficient information at the time of the Extension Order was a fact which existed at the time that order was made and was not a subsequent event or subsequent factual development.

11.  We refuse to give leave to appeal on question 1A.

Question 1B

“Where the reason for seeking an extension of the writ is to obtain additional information or documentation (“additional materials”) prior to making a decision whether to proceed with the writ, is the question for the court whether the plaintiff had “good reason”:

a. a binary question, namely whether or not the court considers the plaintiff had an objective need for additional materials (as held by the Court of Appeal); or

b. a question whether the plaintiff had (i) a legitimate basis for seeking additional materials before taking a decision whether to proceed; and/or (ii) legitimate grounds for believing that he would or might be able to obtain additional materials.”

12.  The plaintiff’s argument is that the court should not have treated the question as purely objective, as different people may legitimately answer the question differently, and this raises a matter of public importance as to the proper approach.

13.  We agree with Mr Huggins that the consideration framed in question 1B(b)(i) is defective, as it begs the question whether this requires an objective assessment of the “legitimate basis for seeking additional materials” or whether the court simply accepts the liquidators’ subjective belief that the basis advanced was “legitimate”.  And it makes no sense to hold that even though the court had decided objectively that the reason advanced by the liquidators for the extension was not a good reason, nevertheless the court should abdicate its role as gatekeeper by deferring to the liquidators’ subjective view they had a “legitimate basis” for seeking additional materials.  We do not see any arguable basis to treat the presence or absence of good reason as “a binary question”.

14.  As for the consideration in question 1B(b)(ii), this was never advanced by the plaintiff before the master, the judge or in the Court of Appeal as a good reason in itself for an Extension Order.  And we do not think this is reasonably arguable as the court has objectively decided that the plaintiff did have sufficient information to decide whether or not to proceed with its claims against the defendant.

15.  We decline to grant leave to appeal on question 1B. 

Question 2

“Whether a plaintiff seeking an extension of the validity of a Writ of Summons pursuant to O. 6 rule 8(2) is required to state specifically the status of each potential claim in the Writ of Summons under the categories under Kleinwort Benson v Barbrak [1987] AC 597, such that failure to do so in relation to all claims, amounts to a breach of the duty to make full and frank disclosure sufficient to set aside an extension order for all claims.

In particular, is a non-disclosure/misrepresentation material so as to result in an order setting aside service of a writ where the effect of the non-disclosure/misrepresentation was to set a higher hurdle for the applicant for an extension order that would arise were it not for the non-disclosure/misrepresentation?”

16.  Since we have refused to grant leave to appeal for question 1, there is no basis for allowing the plaintiff to appeal on the basis of question 2, as we had dismissed the appeal on the basis there were no good reasons to extend the Writ on the date the Extension Order was made and the holdings on material non-disclosure were not strictly necessary to our decision.

17.  In any event, question 2 involves a fact-sensitive exercise of discretion.  The relevant law is clear and the plaintiff’s complaint is really about the application of the law to the particular facts of this case.  There is no question of law of great general or public importance arising in question 2.

18.  We refuse to grant leave to appeal for this question as well.

19.  The other points raised at the end of the plaintiff’s submission (that the Court of Appeal did not disturb the holding that the judge would have exercised her discretion to order a re-grant notwithstanding the liquidators had breached the continuing duty of disclosure by failing to inform the master of the decision of Harris J; and the contention that the judge was plainly wrong in holding that the Writ was not validly served before 1 December 2016) are irrelevant to questions 1 and 2.

20.  We dismiss the application for leave to appeal to the Court of Final Appeal.  We order the plaintiff to pay the defendant’s costs of this application.  Having considered the statement of costs for summary assessment, we assess the reasonable costs of the defendant at $427,134. Of the deductions made, $154,666 is in respect of solicitors’ costs and $50,000 is in respect of counsel’s fees.