DELCO PARTICIPATION B.V. v. HWH HOLDINGS LTD

CACV 108 & 109/2020

( Heard together)

[2021] HKCA 1889

CACV 108/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 108 OF 2020

(ON APPEAL FROM HCA NO 2943 OF 2015)

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AND

CACV 109/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 109 OF 2020

(ON APPEAL FROM HCA NO 3040 OF 2015)

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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.  This is the plaintiff’s application for leave to appeal to the Court of Final Appeal against the judgment of this court handed down on 20 November 2020 (“CA Judgment”; [2020] 5 HKLRD 712) allowing the appeals of the defendants in three actions^[1] and reversing the judgment of Coleman J on 31 December 2019 (“CFI Judgment”). Save otherwise stated, we will adopt the same terms and expressions of the CA Judgment in this judgment.

2.  By the CA Judgment, we allowed the defendants’ amendments to the pleadings refused in the CFI Judgment in relation to the Chern Debt.  For the background of the application to amend pleadings, see the headnote in the law report and §§4 to 27 of the CA Judgment.  We held that the proposed amendments do not raise a “new claim” in the course of an action outside the limitation period and hence section 35 of the Limitation Ordinance, Cap 347 (“the LO”) is not engaged.

3.  The plaintiff put forth the following question of great general or public importance in §3 of the Notice of Motion filed on 18 December 2020:

“Having regard to the nature of equitable set-off and its relationship with counterclaim, if a defendant properly raises equitable set-off by relying on a debt which is time-barred, is he precluded by section 35 of the Limitation Ordinance (Cap. 347) (“LO”) to add a counterclaim (not being an original counterclaim) for the same debt?”

4.  The plaintiff has also placed reliance on the “or otherwise” limb, which, as acknowledged by the written submissions of the parties, is usually dealt with by the Appeal Committee as a matter of practice.

5.  This application for leave to appeal to the Court of Final Appeal is from an interlocutory order of the Court of Appeal.  Mr Nip SC for the defendants cited the decision of the Appeal Committee of the Court of Final Appeal in CSAV (Hong Kong) Group v Jamshed Safdar (2007) 10 HKCFAR 629 at §1.  We have borne in mind that leave should generally be refused unless it could be clearly seen that (i) the proposed appeal raises a question of law of great general or public importance; (ii) the result of the appeal would turn on how that question is answered; and (iii) such result is likely to make a significant contribution to the just disposal of the litigation. 

6.  For the plaintiff, Mr Dawes SC argued that the Chern Debt is a “new claim” (by way of a counterclaim) which activates the provision in section 35 of the LO.  He sought to emphasise that the definition of a “new claim” also includes a claim by way of counterclaim under the provisions of the LO^[2].

7.  Mr Dawes had argued on appeal that even if the proposed amendments to add the Chern Debt were allowed for the purpose of raising a defence of equitable set-off and estoppel by convention, the defendants should not be allowed to raise a counterclaim on the basis of the Chern Debt that would be over and above the claims of the plaintiff.  We rejected this contention in §§48 to 49 of the CA Judgment as this would be to diminish or emasculate the effect of an equitable set-off that is properly raised, for the reasons as explained in §§32 to 34, 37 to 40, 47 and 49 of the CA Judgment.

8.  In the present application for leave to appeal, the plaintiff no longer disputes the defendants’ proposed amendments on the Chern Debt for the purpose of the equitable set-off.  But the plaintiff maintains the mere fact that the defendants are entitled to raise a defence of equitable set-off does not mean they can counterclaim for the same.

9.  Mr Dawes drew a distinction between two scenarios: (i) allowing the Chern Debt amendments only for the purpose of a defence of equitable set-off; and (ii) allowing the amendments for both a defence of equitable set-off and a counterclaim. In the event that the plaintiff failed to prove any claim against the defendants, under scenario (i), equitable set-off would not arise, but under scenario (ii) the plaintiff would be liable to pay the Chern Debt (if established) as this is an independent claim.  He gave another illustration where the defendants fail to establish close connection between the plaintiff’s claim and the Chern Debt (if established), under scenario (i) there would be no equitable set-off, but under scenario (ii) the plaintiff would be liable to pay as there is an independent claim.

10.  Mr Dawes submitted that insofar as the defendants rely on the Chern Debt above and beyond the defence of equitable set-off, the defendants have raised a “new claim” for the purpose of section 35(2) of the LO.

11.  The issue raised in the proposed appeal is not case specific and fact sensitive and may arise in similar circumstances where a defendant seeks to rely on a defence of equitable set-off and at the same time brings a counterclaim which is prima facie time barred. We do not agree with Mr Nip’s submission to the contrary.  The issue appears to be reasonably arguable.  We think the criteria in CSAV Group (Hong Kong) Ltd v Jamshed Safdar are met and it would be appropriate in the circumstances to grant leave to appeal to the Court of Final Appeal on the question of law stated in the Notice of Motion.

12.  We make an order nisi that costs of this application are to be in the cause of the appeal.