DELCO PARTICIPATION B.V. v. HWH HOLDINGS LTD

HCA 2943/2015

[2020] HKCFI 608

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2943 OF 2015

________________________

________________________

AND

HCA 3040/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3040 OF 2015

________________________

________________________

AND

HCA 2939/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2939 OF 2016

________________________

________________________

(Heard together)

________________________

D E C I S I O N

(Leave to Appeal)

________________________

Introduction

1.  The current applications arise from my Judgment dated 31 December 2019 [2019] HKCFI 3136 – the definitions and abbreviations in which I adopt in this Decision.

2.  By the Judgment (and except as regards those amendments which were not controversial), I dismissed three summonses dated 11 October 2019, by which HWH Holdings Limited (“HWH”) – the defendant in HCA 2943/2015 (“A2943”) and the 3^rd defendant in HCA 2939/2016 (“A2939”) – and Fang Ankong (“Fang”) – the 2^nd defendant in HCA 3040/2015 (“A3040”) and the 4^th defendant in A2939 – applied to amend their Defences and, where applicable, Counterclaims.  HWH is a BVI incorporated vehicle controlled by Fang.

3.  The proposed amendments concerned what is defined in the pleadings as the “Chern Debt”.  Delco Participation BV (“Delco”) – the plaintiff in each of the actions – opposed the amendment applications primarily on the basis that those amendments asserted claims or counterclaims which are time-barred under section 35 of the Limitation Ordinance Cap 347 (“LO”).

4.  Fang/HWH argued that the proposed amendments pertaining to the Chern Debt do not constitute a “claim” of set-off to which section 35 of the LO applies, alternatively that the “new claim” of the Chern Debt is permissible under Order 20 rule 5 on the basis that it arises out of the same or substantially the same facts as the existing claims in respect of the Fang Debt and the HKM Debt (as defined in the pleadings).

5.  The context for the applications – and the proposed amendments – can be seen in my Judgment (at §§6-16).  Having set out the governing legal principles, I found (at §§41-51) that section 35 of the LO was engaged by the making of a “claim”, and that Delco had a reasonably arguable case on limitation of which it would be deprived if the opposed amendments were to be permitted.  I also found (at §§52-58) that the facts said to give rise to the Chern Debt did not arise out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the actions by Fang and HWH.

6.  By summonses dated 14 January 2020, Fang/HWH apply for leave to appeal against the Judgment.  But by letter dated 24 January 2020, Delco invited Fang/HWH to withdraw the summonses on the basis that no leave is required to appeal against the Judgment.  Fang/HWH maintain that leave to appeal is required, but have proposed amending the summonses to seek a direction as to whether or not the Judgment is one referred to in Order 59 rule 21(1)(a).

7.  The summonses and the amendment summonses were due to be heard by me on 24 February 2020, but that date fell within the General Adjournment of Proceedings (“GAP”), so the applications were automatically adjourned.

8.  At my invitation, the parties agreed for the matter to be determined on the papers.

Whether Leave is Required

9.  The argument gives rise to the slightly odd position that the party who might face an appeal suggests that no leave to appeal is required, whereas the parties wishing to appeal suggests they must first surmount the hurdle of obtaining leave to appeal.

10.  Under Order 59 rule 21(1)(a), leave to appeal is not required for an interlocutory judgment or order “determining in a summary way the substantive rights of a party to an action”.  Order 59 rule 21(2)(i) provides that “an order refusing to allow an amendment of a pleading to introduce a new claim or defence or any other new issue” is a judgment or order determining in a summary way the substantive rights of a party.  Delco refers me to authorities which make clear, if the wording of the sub-rule is not clear enough, that the sub-rule applies to refusal to allow an amendment introducing any “new issue”.

11.  Delco submits that I rightly concluded that the proposed amendments seek to introduce a new “claim” (see Judgment §51).  Whilst noting that Fang/HWH’s proposed appeal challenges that conclusion, Delco says that even if there is merit in that challenge, the proposed pleading of the Chern Debt at least gives rise to new “issues”.  Accordingly, Delco says, leave to appeal is not required, and I do not have any power or jurisdiction to grant leave.

12.  Fang/HWH assert, as they did in the amendment argument, that the case on the Chern Debt is simply part of the accounting exercise under the Convention, and there is nothing new about it.  Fang/HWH say these are not “new” claims or issues as such.

13.  Fang/HWH also point out that the proposed appeal would determine the question of whether the amendment introduces a new “claim” or new “issues”.  On that basis, it is said it is not clear that leave to appeal is not required.  It is suggested the argument can be tested in the following way.  If Fang/HWH were to invoke the rule and appeal as of right, the appeal would be predicated upon the proposed pleading of the Chern Debt as introducing a new “claim” or new “issues”.  As that is directly contrary to the intended case on appeal, it could not be the right course for them to adopt. To put it another way, as the question whether or not the proposed amendments introduce a new “claim” or new “issues” is at the heart of the proposed appeal, it would be illogical to invoke a rule which in effect concedes the very point of the appeal.

14.  I agree.  Though, on my findings in the Judgment, no leave to appeal would be required, the essence of the proposed appeal is to challenge those very findings.  It might be thought that this gives rise to the potential problem of approbation and reprobation; it would not seem right or proper for Fang/HWH to take advantage of my findings for the purposes of avoiding the hurdle of obtaining necessary leave to appeal, then challenging those very findings as the essence of the appeal.

15.  In the circumstances, as a matter of principle and even if only as a matter of prudence, I think leave to appeal should be obtained if the appeal is to go forward.

Whether Leave to Appeal

16.  The principles applicable on applications for leave to appeal are well-known and need not be rehearsed at any great length.  The applicant has to demonstrate a reasonable prospect of success in the appeal – meaning more than “not fanciful” without having to be “probable” – or some other reason why leave to appeal should be granted.

17.  The key issue on the proposed appeal, as already identified above, is whether I was wrong to hold that the proposed amendments concerning the Chern Debt constitute “a claim of set-off” within the meaning of section 35 of the LO.

18.  Fang/HWH say that, cutting to the core, the issue is simply this: should Fang/HWH be deprived of the chance to put forward a case – and should the trial judge be deprived of the chance to determine it – that the Chern Debt (where Chern was a nominee of Fang/HWH) should be taken into consideration in the running account between Delco and Fang/HWH?  Though in their written submissions, Fang/HWH suggested the answer was “a clear yes”, obviously they mean “no”, as in “no, they should not be deprived of that chance”.

19.  But I am not sure that asks and answers the correct question.  In the circumstances of a proposed amendment which might, if allowed, deprive the other party of a limitation defence, the correct approach is to refuse leave to amend unless the amending party can show the other does not have a reasonably arguable case on limitation, or that the new claim arises out of the same or substantially the same facts as a cause of action for which relief has already been claimed in the existing action (see Judgment §23).

20.  Therefore, the real question seems to me to be: should Delco be deprived of an arguable limitation defence?  It is that question which provides the proper ‘frame’ for the current consideration of the grant or refusal of leave to appeal.  I proceed on that basis.

21.  Fang/HWH suggest that I was “led into the arena of the wrong legal proposition advanced by Delco, namely, estoppel by convention only applies in respect of statements of fact or law, and does not apply in relation to promises or representations as to future conduct” (see Judgment §45).  But Fang/HWH say not only should that question not have been posed, the legal proposition advanced is inaccurate, because an estoppel by convention is not a wholly discrete category from other forms of reliance-based estoppels, so there can be an estoppel as to rights of the parties in relation to their future conduct.  In support of that, reference is made to Spencer Bower ‘Reliance-Based Estoppel’ 5th Ed at §§1.27-1.28, 2.23-2.27, 8.1-8.3 and 8.48-8.55, as well as Unruh v Seeberger (2007) 10 HKCFAR 31 at §§127-128.

22.  Fang/HWH say that the estoppel by convention is an existing plea, even if currently pleaded only in relation to the Fang Debt and the HKM Debt, so that in rejecting the proposed amendments concerning the Chern Debt, I was misled into unnecessarily overstepping into determining the merits of the existing defence of set-off without a proper trial.  The merit of the existing plea of estoppel by convention is a triable issue, and Delco should not have invited me to make any determination as to whether the Convention was bound to fail at trial.

23.  Fang/HWH further argues that the proposed pleading in A2943 was in the nature of a defence rather than a self-standing “claim”, where the proposed amendments merely particularise or correct the amount of the Debts, that is to no more than provide further particulars of the existing defence.  Alternatively, the proposed amendments plead a substantive defence satisfying the requirements of an “equitable set-off”.  Further, the proposed pleading of the Chern Debt in A3040 and A2939 makes no “claim” at all.  Rather, the Judgment prevents Fang/HWH from pleading its case in response to the Scheme put forward by Delco.  In any event, Fang/HWH assert, the proposed amendments arise out of the same or substantially the same facts as the existing “claims”, sharing a common background and where it has already been held that there is a good arguable case on the Debts (including the Chern Debt).  The genuineness of those Debts is directly relevant to Fang/HWH’s case on how and why the mutual debts between the parties were later recorded as a running account instead of being set off against each other pursuant to the 2010 Agreement and the Convention.

24.  In response, Delco submits that any reliance on estoppel by convention is misplaced.  The pleaded Convention is the conventional practice adopted by Delco’s Group and Fang’s Group (the latter defined as including Fang and the companies beneficially owned by him) on their mutual receivables and payables as recorded in the accounts.  But Mr Chern is not within Fang’s Group, so any conventional practice adopted could not concern the Chern Debt, the assignment of which was only taken in March 2017 in any event.

25.  Delco refers to the context of the decision leading to the Judgment, namely whether Delco has an arguable limitation defence on the matters the subject of the proposed pleading.  Delco says it was clearly open for me to decide whether Fang/HWH can rely on the Convention in relation to the Chern Debt.  Delco also says that the suggestion the pleading of the Chern Debt merely particularises the Debts is misconceived.  Anyway, the 2010 Agreement as pleaded is not a set-off agreement, and neither HWH nor Delco were parties to the 2010 Agreement (see Judgment §42).  As to the argument on equitable set-off, Delco suggests the analysis in Judgment §47 is unassailable.

26.  As to the position now put forward by Fang/HWH on A3040 and A2939, Delco point out these grounds of appeal are not in the draft Notice of Appeal (though Fang/HWH disagree).  Further, there is a plea in relation to the matter in each action.  Delco also says I was right to reject the argument based on “same or substantially the same facts”, and that it is not easy to see how the matters mentioned in the draft Notice of Appeal can assist.

27.  In reply, Fang/HWH repeat that there is no basis prematurely to determine that the Chern Debt is not subject to the Convention. Further, on the law, even Delco does not rule out without full argument at trial that estoppel by convention can be an estoppel as to the rights of the parties in relation to their future conduct.  How the estoppel operates in this case is properly a matter of trial.  Fang/HWH also urge upon me the relevance of the 2010 Agreement as an acknowledgement by Delco of the Debts, and that the Convention came later, it being the Convention which renders it inequitable for Delco to enforce its claims without giving credit for the Debts.

28.  Fang/HWH also emphasised the importance of courts giving a broad and liberal interpretation to the words in Order 20 rule 5 in order to attain its objective.  On that basis, Fang/HWH say there is sufficient merits in its argument that the court cannot determine one way or the other whether the Chern Debt is not genuine without investigating how the Chern Debt came to be recorded as a payable in the books of Delco Asia.  The proposed amendments concerning the Chern Debt are simply setting out Fang/HWH’s case as to how the Chern Debt was in fact accounted for, and why it is not fake as Delco now claims.

29.  Looking at the matter overall, I can see that it is “not fanciful” that the Court of Appeal might take a view different from my own (to which, incidentally, I adhere).  On that basis, I think leave to appeal should be granted.

30.  But in any event, where Delco asserts that Fang/HWH do not need leave to appeal, it seems to me that there is some other reason why leave to appeal should be granted in this case.  That is not least to avoid the procedural conundrum of somehow tying the hands of Fang/HWH to my findings, which are at the heart of the proposed points of appeal.

31.  This also seems to me to deal with any question about the timing of raising the intended appeal.  The original application made by the summonses, seeking leave to appeal, were brought in time.  But against the chronology of matters, even had I taken the view that leave to appeal was not required, I would have permitted the amendments to the summonses to allow the question to be debated.  I would also, in the exercise of my discretion, have been minded to extend any time for launching an appeal as of right (though I accept that that question might not actually be for me to decide).

Result

32.  Therefore, I do grant leave to appeal on each of the summonses.  The Notices of Appeal should be served within seven days, and filed with the Court as soon as is reasonably practicable within seven days of the reopening of the Court of Appeal Registry after the end of GAP.

33.  It seems to me the costs of the summonses should be in the appeal, and I so order.