PACIFIC ELECTRIC WIRE & CABLE CO LTD AND ANOTHER v. HU HUNG CHIU AND OTHERS

HCA 1299/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1299 OF 2005

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J U D G M E N T

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I. INTRODUCTION

1.  The Writ in this action was issued on 7 July 2005.  Its validity has then been extended a number of times upon ex parte applications by the Plaintiffs: first on 3 July 2006 for 1 year; second on 28 May 2007 for 1 year; third on 3 July 2008 for 9 months; fourth on 9 April 2009 for 9 months; and fifth on 5 January 2010 for 1 year.  Hu, the 1^st Defendant, now applies to set aside the third, fourth and fifth extensions of the Writ.  If he succeeds, that will have the effect that the present action cannot be maintained against him.

2.  When the Writ was first extended on 3 July 2006, the Master also gave leave for the Writ to be served on Hu in Taiwan.  Hu also applies to set aside that first extension and the leave granted to serve outside Hong Kong.  Hu alleges material non-disclosure as the basis for this further application.

3.  The Writ was finally served on Hu in Taiwan on 16 January 2010 within the validity of the fifth extension granted by this Court.

II.      BACKGROUND

4.  In September and December 2004 Pacific Electric commenced 3 Main Actions in Hong Kong against Hu and numerous other defendants.  At around the same time, in November 2004, Hu was indicted in Taiwan for criminal offences against Pacific Electric.  On 22 April 2005 Pacific Electric commenced an Ancillary Action in Taiwan against Hu and others.

5.  The Writ in this action claims that Hu misappropriated US$61.5 million of Pacific Electric’s funds in February 1997.  The Writ also alleges that since November 1996 Hu conspired with others to injure Pacific Electric.

6.  On 27 July 2005 Hu challenged this Court's jurisdiction to hear the Main Actions.  He applied to set aside the leave granted to serve the Main Action Writs on him in Taiwan.

7.  In late 2005 and early 2006 Pacific Electric applied for summary judgment in the Main Actions against specific defendants.  But Hu was not among those specific defendants.

8.  The jurisdictional challenge to the Main Actions was heard by Recorder Anthony Chan SC in August and September 2006.  The Recorder held that the failure to disclose the Ancillary Action to the Court amounted to material non-disclosure.  He consequently set aside the ex parte leave granted for service of the Main Action Writs on Hu in Taiwan.  He refused to re-grant leave to serve out.

9.  Pacific Electric appealed against the Recorder's decision.  The Court of Appeal heard the matter on 17 July 2007.  On 31 July 2007 it affirmed the Recorder’s decision to set aside leave.  But the Court of Appeal reversed the Recorder on the question whether leave to serve out should be re-granted. 

10.  Hu then applied for leave to appeal against the Court of Appeal's decision.  But his application for leave was finally refused by the Court of Final Appeal on 13 March 2008.

11.  On 18 June 2008 the Writs in the Main Action were served on Hu in Taiwan.

12.  Meanwhile, Pacific Electric obtained summary judgment in the Main Actions on 18 January 2008 against the specific defendants from Saunders J. On 18 October 2008 Pacific Electric further obtained an order that Hu (among other persons) pay the costs of the summary judgment proceedings personally, even though Hu was not a party to such proceedings.

13.  The specific defendants appealed against the judgment of Saunders J.  In light of the costs order against him, Hu participated as intervener in that appeal.  On 3 March 2009 the Court of Appeal reversed Saunders J and set aside the summary judgments in the Main Actions.  The personal costs order against Hu was discharged.

14.  Pacific Electric applied for leave to appeal against the Court of Appeal’s setting aside of the summary judgments in the Main Actions.  On 5 June 2009 the Court of Appeal, and on 14 September 2009 the Court of Final Appeal, refused leave to appeal.

III.     DISCUSSION

A.      Should the third, fourth and fifth extensions of the Writ be set aside?

A.1    Law

15.  Order 6 Rule 8 empowers the Court to extend the validity of a writ where there is “good reason” to do so.  See Kleinwort Benson Ltd. (also known as The MYRTO) [1987] AC 597 (622G-623D) (Lord Brandon).

16.  The Court first asks whether “the failure to serve a writ within its normal validity period is the result of a choice” and (if so) “whether the choice was made for a good reason”. This means that “no discretion to extend the writ would arise unless the choice [deliberately not to serve the writ within its validity period] was made for a reason which is at least capable of amounting to a good reason”.  See Chow Ching Man v. Sun Wah Ornament Manufactory Ltd. [1996] 2 HKLR 338 (CA), at 344C (Bokhary JA).

17.  Extending the validity of a writ therefore entails a two-stage process.  At stage one, a plaintiff must show “matters which could, potentially at least, constitute good reason for extension”.  At stage two, the Court weighs all relevant factors (including the “good reason” established at stage one and the relative hardships to the parties involved) so as to determine whether the writ should be extended as a matter of discretion.  See Yip Kam v. Zhongshan Foodstuffs & Aquatic Import & Export Group Company Ltd. of Guangzhou [2010] 2 HKLRD 914 (at para. 39) (Le Pichon JA).

18.  In Kleinwort Lord Brandon distinguished 3 categories of situation.  In Category 1 were cases in which a plaintiff applied for extension of a writ within the period of its validity and before the expiry of the limitation period for the causes of action pleaded.  In Category 2 were cases in which a plaintiff applied for an extension after expiry of a writ’s validity but before expiry of the operative limitation period of the causes of action pleaded.  In Category 3 were cases in which a plaintiff applied for an extension after expiry of the writ and the operative limitation period.  The point of Lord Brandon’s distinction was to stress that it would be unlikely for there to be good reason for extension in Category 2 cases and even less likely for there to be so in Category 3 cases.

19.  There is a dispute here as to whether the present case falls within Category 1 or 2. 

20.  Mr. Robert Whitehead SC (appearing for Hu) argues that this is a Category 2 situation.  This is because the causes of action against Hu are said to have arisen in February 1997 (misappropriation) and November 1996 (conspiracy).  By the time the Writ was issued in July 2005, the 6 year limitations for both causes of action (Mr. Whitehead argues) had expired.

21.  Mr. Anthony Neoh SC (appearing for Pacific Electric) says that, as a director and Chief Financial Officer of Pacific Electric at the time of the relevant matters, Hu was liable as a fiduciary and constructive trustee to account for monies which he misappropriated (and conspired to misappropriate) from the time when such monies came into the hands of Hu or his agents.  Consequently, relying on Limitation Ordinance (Cap.347) (LO) ss.20(1)(a) and (b), Mr. Neoh submits that there was no applicable period of limitation. 

22.  In the alternative Mr. Neoh argues that LO s.26(1) is applicable.  That provides that, where there has been fraud or deliberate concealment, a limitation period “shall not begin to run until the plaintiff has discovered the fraud ... or could with reasonable diligence have discovered it”.  Mr. Neoh says that, on the evidence, Hu’s alleged fraud was not discovered until “sometime early in 2004”. This would mean (Mr. Neoh reasons) that the Writ was issued and extended within the 6 year limitation period.

23.  Mr. Whitehead counters that any constructive trust over the monies claimed by Pacific Electric could only be the result of the Court’s imposition of such a trust by way of remedial relief against wrongdoing by Hu.  Until such wrongdoing is established at trial and a constructive trust imposed on monies in Hu’s hands by declaration of the Court, Hu (Mr. Whitehead says) cannot be treated as a trustee within the terms of LO s.20.  Therefore, a limitation period is applicable.

24.  As for LO s.26, Mr. Whitehead submits that it was incumbent on Pacific Electric, in the course of its ex parte applications for extension of the Writ and service out of the jurisdiction, to give full particulars as to why Hu’s alleged fraud could not have been discovered earlier than it was.  There are (Mr. Whitehead points out) no such particulars given in the various affirmations filed in support of Pacific Electric’s applications to extend the Writ or obtain service out.

25.  For the purposes of these proceedings, I am not prepared to decide summarily that the claim against Hu was or was not time-barred when the Writ was issued or successively extended.  As a matter of first impression, depending on what the specific facts eventually turn out to be, it may be arguable that either LO ss.20 or 26 applies.  For now, I shall assume, in relation to the limited question of setting aside the Writ, that Pacific Electric’s causes of action were not barred at any relevant time.  I stress that my assumption is without prejudice to the Court dealing (to the extent appropriate) with the issue of limitation at a later time.  I add that it is my understanding of the case law on the extension of writs that good reason needs to be shown regardless of which of Lord Brandon’s categories is involved.

26.  Consequently, in the remainder of this discussion, I shall treat the present situation as falling within Lord Brandon’s Category 1.

A.2    Third extension

27.  On 5 August 2005 Hu’s then solicitors (Paul Hastings Janofsky & Walker) invited Pacific Electric’s solicitors not to serve the Writ in the present action “until the outcome of our client’s application [the jurisdictional challenge] in respect of the other proceedings [the Main Actions] is known”.

28.  Such invitation by Paul Hastings could possibly furnish good reason for the first and second extensions.  Normally, it is “not a good reason [for renewing a writ] that a plaintiff desires to hold up ... proceedings while some other case is tried or to await some future development” (Osborne v. Distillers Co. Ltd. (1967) 112 SJ 50 (CA) (Lord Denning MR)).  But here the parties essentially agreed to a delay in the service of the Writ pending the outcome of the jurisdictional challenge in the Main Actions.

29.  However, by the time of the third extension on 3 July 2008, the jurisdictional challenge to the Main Actions had been concluded.  This is because the Court of Final Appeal had on 13 March 2008 refused leave to appeal against the dismissal by the Court of Appeal of Hu’s jurisdictional challenge to the Main Actions.  Thus, the August 2005 letter from Paul Hastings could no longer serve as an effective reason for extending the Writ.  Whatever express or tacit consent there had been in relation to a delay in the service of the Writ was plainly only relevant up to the final disposal of the jurisdictional challenges in the Main Actions.

30.  When applying for the third extension, Pacific Electric suggested that there was uncertainty over the formalities required by Taiwanese law for due service of the Writ on Hu.  It would therefore be more cost-effective (Pacific Electric’s argument ran) to see whether the Main Action writs could be successfully served on Hu under Taiwanese law before attempting to serve the Writ on Hu in Taiwan.

31.  But this could not constitute good reason.  As I have noted, the Court does not ordinarily treat a plaintiff’s desire to see through some parallel set of proceedings as good reason for holding up service in other proceedings.  There is authority (for example, Kleinwort Benson, at 620B-C) which suggests that it may be good reason for a delay in service that the resultant hiatus might save costs which will undoubtedly fall on a defendant.  However, there is a “world of difference” where a plaintiff delays service in order to save the plaintiff itself from incurring extra expense (see Kleinwort Benson at 620B-C). 

32.  It cannot therefore be good reason for extending a writ that a plaintiff needs to experiment in order to learn how a writ might most efficiently and cost-effectively be served outside the jurisdiction.

33.  In fact the writs in the Main Actions had been served on Hu by 18 June 2008, some 10 days before Pacific Electric applied for the third extension.  So it is far from clear what more there was to learn about serving a writ on Hu under Taiwanese law such as to justify the third extension, much less the fourth and fifth extensions.

34.  In support of its application for a third extension, Pacific Electric argued that Hu could not be prejudiced by an extension.  However, even if it is assumed that there could be no prejudice to Hu, that would beg the preliminary hurdle of having to establish good reason. 

35.  The absence of prejudice cannot by itself be a good reason.  The presence or absence of prejudice to a party goes towards the exercise of the discretion in the second stage of the process of determining whether a writ is to be extended.  It is only at that second stage where the Court attempts (among other matters) to balance a plaintiff’s potentially good reason against possible hardship to a defendant.  See, for example, The AL TABITH [1995] 2 Lloyds Rep 336 (at 339) where Sheen J stated: “It cannot be a good reason for extending the time limit that the defendants are unable to show that there would be any specific prejudice to them in conducting their defence.”

36.  Mr. Neoh blames Hu’s solicitors for making life difficult for Pacific Electric.  Following the Court of Final Appeal's refusal of Hu’s proposed appeal in relation to the jurisdictional challenge, Pacific Electric’s solicitors invited Hu’s solicitors to accept service of the writs in the Main Actions.  Hu’s solicitors (Mr. Neoh complains) instead “chose to put the Plaintiffs to a convoluted process of service unfamiliar to practitioners in Hong Kong and who had no experience as to how long it might take”.

37.  In my view, there was no obligation on Hu’s part to submit to this jurisdiction and instruct his solicitors to accept service.  As noted above, the mere convenience of a plaintiff will not normally be regarded as a good reason for the extension of a writ.

38.  It follows from the foregoing that there was no good reason for the third extension of the Writ.

A.3    Fourth extension

39.  At the time of the fourth extension on 2 April 2009, Pacific Electric relied on its then intended appeal against the Court of Appeal’s reversal of Saunders J’s summary judgment as a good reason.  But I am unable to see how the prospective appeal could be such a reason. 

40.  The Main Actions and the present proceedings are undoubtedly related in a loose sense.  However, save on the question of the incidence of costs, the summary judgment in the Main Actions did not actually involve Hu.  Summary judgment was never sought against Hu in the Main Actions.  Further, the subject matter of the present action (namely, the recovery of the US$61.5 million which Hu is alleged to have misappropriated) has never been the subject of the Main Actions. 

41.  Consequently, it is unclear how the outcome of the then prospective appeal against summary judgment could have had any bearing on the present action.  There is the additional basis for rejecting Pacific Electric’s alleged good reason that (as already discussed) cost-saving on the part of a plaintiff or a plaintiff’s convenience cannot constitute good reason for the extension of a writ.

42.  Mr. Neoh submits that the Main Actions and this action are related “because the essential issue ... is the recovery of the suit properties and accounting of the use of [Pacific Electric’s] funds which came under Hu’s control”.  He asserts that it was “in the interest of all if [this] Action did not proceed until at least [the] outcome of the appeal in the Main Actions were known”.  He suggests there would be benefit (presumably to Pacific Electric) “if the Summary Judgments were ordered to stand, allowing [Pacific Electric] through the orders in the judgments, to complete the picture on the channelling of its funds by Hu”.

43.  I am unable to accept this submission.  It is not apparent how the summary judgments (the substance of which did not involve Hu) could constitute res judicata (for instance) against Hu in the present action, especially in relation to an alleged misappropriation which is not the subject matter of the Main Actions. 

44.  It follows that there was no good reason for the fourth extension.

A.4    Fifth extension  

45.  By the time of the fifth extension on 5 January 2010, the Court of Final Appeal had refused leave to Pacific Electric in relation to the reversal of Saunders J. Leave had been refused on 14 September 2009.  But Hu had not yet been served in Taiwan as at the time of the fifth extension.

46.  There is simply no explanation for the delay in service on Pacific Electric’s part.  Indeed, on Pacific Electric’s own case, nothing seems to have been done towards serving Hu until December 2009. 

47.  It appears that a “spate of activity” in the Main Actions consequent upon my case management directions in those proceedings is raised by Pacific Electric as some excuse for delay in getting on with the present action.  But activity in the Main Actions cannot be a good reason for delaying service in this action. 

48.  I can see no justification for the fifth extension.

A.5    Conclusion on third, fourth and fifth extensions

49.  There was no good reason for the third, fourth and fifth extensions.  They should accordingly be set aside.

B.    Should the first extension and leave to serve out be set aside?

50.  In light of my conclusions on the third, fourth and fifth extensions, it is unnecessary to deal with this second issue.  I shall only briefly state my views on the arguments advanced.

51.  Mr. Whitehead says that the first extension and leave to serve out should be set aside for material non-disclosure.  He submits that this is because Pacific Electric failed to disclose the existence of the Ancillary Action in Taiwan.  That Ancillary Action (among other matters) covers the US$61.5 million claimed here.

52.  Mr. Whitehead also complains that, in the Affirmations supporting the application for a first extension and service out, no mention was made of the potential limitation problem faced by Pacific Electric.

53.  On the first alleged non-disclosure, I think that, read in context, paragraphs 6 to 8 of the 1^st Affirmation of Jennifer Tse (which supported the application for service out) imply that ancillary proceedings covering (among other matters) the claims in the present action had been instituted in Taiwan.  The suggestion could have been more clearly spelled out.  But I am not persuaded that there has been material non-disclosure in relation to the parallel proceedings in Taiwan.

54.  In relation to limitation, there is (I think) at least an arguable case that Pacific Electric’s causes of action are not time-barred.  I am not persuaded that it would have been blatantly evident to Pacific Electric at the time of its application for service out that there could be a serious problem with time bar.

55.  I would consequently not have found the first extension and the grant of leave for service out to be invalid on the basis of material non-disclosure.

IV.     CONCLUSION

56.  The third, fourth and fifth extensions of the Writ in this action are set aside. 

57.  In oral argument, Mr. Neoh suggested that the consequence of setting aside the Writ may simply be that a new writ is taken out.  This would be on the basis that by LO s.20 there is no time limit for one or other or both of Pacific Electric’s causes of action. However, even on the assumption that this is a Category 1 case, I should not be taken as accepting that, the Writ having been set aside, it would remain open to Pacific Electric to take out fresh proceedings alleging more or less the same things.  There may, for instance, be questions of abuse of process which arise, since one should not without good reason normally warehouse a case and do nothing once a writ has been taken out.  In any event, whether Pacific Electric can or cannot do as Mr. Neoh suggested, is something which I do not have to determine today.  We can cross that bridge later, should we ever come to it, in light of submissions and authorities from counsel specifically focused on that point.

58.  I shall now hear the parties on costs and consequential matters.