JOE ZHIXIONG ZHOU v. SAIF PARTNERS II L.P. AND ANOTHER

CACV 62/2018

[2019] HKCA 1132

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 62 OF 2018

(ON APPEAL FROM HCCL NO 16 OF 2016)

________________________

________________________

________________________

J U D G M E N T

________________________

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

1.  On 12 July 2019, we handed down our judgment (“the CA judgment”) dismissing the appeal of the plaintiff against the judgment of Deputy High Court Judge Field of 14 February 2018. The subject of the plaintiff’s appeal before us was the judgment entered in favour of the 1^st defendant on one of the heads of the counterclaim. This is the plaintiff’s application for leave to appeal to the Court of Final Appeal.

2.  We adopt the terms as defined in the CA judgment.

3.  The proposed appeal seeks to challenge the holdings in the CA judgment in relation to: (1) fiduciary duties^[1]; (2) proper plaintiff and jurisdiction^[2]; and (3) reflective loss^[3].

4.  The questions in the notice of motion said to be of great general or public importance are as follows:

“(1)  Do our courts have jurisdiction (in either the literal sense or the broader sense), following the trial of an Action, to grant substantive remedies to a counterclaiming defendant, as a “trustee” for non-parties whom the defendant has neither joined in the Action nor shown any specific authority to represent therein?

(2)  Does the principle barring recovery for reflective loss go to the jurisdiction of the court or is it a matter of judicial discretion?

(3)  Where parties enter into a written partnership agreement, which, except in respect of the managing and controlling partner, imposes no partners’ fiduciary duties inter se, can such duties nonetheless be inferred from the partners’ post-contractual mutual “good conduct” expectations?”

5.  The plaintiff also relies on the “or otherwise” limb in seeking leave to appeal but reserves his position on this for possible later argument.

Question (1)

6.  The submissions of Mr Barlow, SC regarding this question are a repetition of the points he argued on appeal concerning “proper plaintiff and jurisdiction”, which we have rejected.  For the reasons set out in the CA judgment, which Mr Manzoni, SC has accurately summarised in §3 of his submissions, we do not think the plaintiff’s contention in relation to this question is reasonably arguable.  For this reason, we decline to grant leave to appeal for this question.

7.  We would add these comments.

8.  Mr Barlow repeatedly emphasised that Fund II (an exempted limited partnership registered under the ELP Law of the Cayman Islands)^[4] is a separate legal entity from the limited partners in Fund II who are the investors.  He asserted that a “statutory limited partnership” is not co‑terminus with either all its co-partners or with one class of its partners but is a “wholly separate legal entity”.  Hence, it is insufficient to plead in the defence that the plaintiff owed fiduciary duties to the 1^st and 2^nd defendants and Fund II,^[5] there was no plea in respect of the limited partners in Fund II. And there was no authorisation in the Fund II LPA for the Fund General Partner to sue on behalf of the Fund II limited partners, in contradistinction to Fund II^[6].

9.  This point was not taken by Mr Barlow before the judge, nor was this raised before us properly on appeal[7]. It would not be right to ask the Court of Final Appeal to entertain new points not considered in the Court of First Instance or in the Court of Appeal in the absence of exceptional circumstances. We do not consider there are exceptional circumstances to justify this course.

10.  In any event, it does not appear to us that Mr Barlow’s proposition, for which he has cited no authority, that an exempted limited partnership registered under the ELP Law of the Cayman Islands is a wholly separate legal entity, is correct.

11.  The Limited Liability Partnerships Act 2000 in the UK introduced an entirely new entity being the limited liability partnership or LLP.  Despite its name, an LLP is a body corporate which enjoys both separate legal personality and unlimited capacity and, by definition, will not constitute a partnership within the meaning of the Partnership Act 1890. Its members act as agents of the LLP and not of each other.  See Lindley & Banks on Partnership (20^th ed), §2-38.

12.  The joint expert report on Cayman Islands law did not discuss whether an exempted limited partnership under the ELP Law is a separate legal entity, akin to the position of an LLP under the UK statute.  But we have been provided with relevant statutes in the Cayman Islands, including the Partnership Law (1995 Revision), Partnership Law (2002 Revision), Partnership Law (2013 Revision) and the ELP Law.  An exempted limited partnership is a limited partnership registered under section 9 of the ELP Law.

13.  Unlike the UK legislation, it does not appear from these statutes that a limited partnership constitutes a separate legal entity.  See Part VI of the Partnership Law, which governs limited partnerships. Section 45 provides that subject to Part VI, the preceding parts of the statute shall apply to a limited partnership. Section 5 provides that persons who have entered into partnership with one another are for the purposes of this Law called collectively a firm, and the name under which their business is carried on is called the firm-name^[8]. This expression of “the firm” highlights a feature which is a refusal to recognise the firm as an entity separate and distinct from the partners who compose it (Lindley & Banks on Partnership, §1-10).

14.  We do not think the plaintiff’s new contention is of merit.

Question (2)

15.  We agree with Mr Manzoni that this question does not arise on the facts, as we have dismissed the reflective loss argument on the basis that this point was not properly taken at first instance, based on the Flywin principles. We decline to grant leave to appeal for this question.

16.  Mr Barlow’s reliance on Lehman & Co Management Ltd v Effiscient Ltd & Anr, CACV 272/2011, 13 March 2013, at §§38 to 47 is misplaced.  The holding there must be looked at against the statutory framework (the former Companies Ordinance, section 168A(2C)), which curtails the jurisdiction of the court to grant damages for reflective loss in unfair prejudice petitions.  In the present situation, there is no basis to suggest that the court’s jurisdiction to grant remedies is curtailed.  Hence, the starting point is that the court has jurisdiction to grant the remedies sought, subject to reflective loss being “an exclusionary rule denying a claimant what otherwise would be his right to sue”, and “the onus must be on the defendants to establish its applicability” (Shaker v Al-Bedrawi [2003] Ch 350 at §83).  As the plaintiff bore the burden of establishing the applicability of the principle on reflective loss, and as he had failed or chose not to run this argument before the judge, he should not be allowed to run it on appeal.

Question (3)

17.  This is a re-run of the arguments raised before the judge and repeated before us as to whether fiduciary duties were owed by the plaintiff.  We are not persuaded that the plaintiff’s contentions are reasonably arguable.  We refuse to give leave to appeal on this question as well.

Conclusion and costs

18.  We dismiss the application for leave to appeal to the Court of Final Appeal.  As costs should follow the event, we order the plaintiff to pay the costs of the 1^st and 2^nd defendants. Having considered the statement of costs submitted by the defendants’ solicitors for summary assessment, we award costs to the defendants in the amount of $261,812.