LIU HSIAO CHENG v. WONG SHU WAI AND OTHERS

CACV 92/2017

[2018] HKCA 58

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 92 OF 2017

(ON APPEAL FROM HCA NO 1278 OF 2013)

_______________________

(by original action)

_______________________

(by counterclaim)

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_______________________

JUDGMENT

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

1.  By an order of 17 March 2017, Chow J struck out the Re-amended Counterclaim at paragraph 125 of the Re-amended Counterclaim to the extent that it relates to remittances made on or before 12 July 2007. The striking out was made on the basis that the claim related to remittances prior to 12 July 2007 was time-barred. The date of 12 July 2007 is based on a reckoning of the 6-year limitation period by reference to the date of the writ which was filed on 12 July 2013.

2.  The Re-amended Counterclaim was brought by Mr Wong Shu Wai, the 1^st Defendant in the original action (and the Plaintiff in the Counterclaim) [“Mr Wong”].  The counterclaim was first advanced in the Defence and Counterclaim (though dated 9 November 2013) and it was actually filed and served on 11 November 2013.  However, by virtue of Section 35(1)(b) and (3) of the Limitation Ordinance, the counterclaim being an original counterclaim within the meaning of Section 35(4), could take benefit from the relation back effect under Section 35(1)(b) to the commencement date of the original action.  Thus, the relevant date is the date of the writ.

3.  The issue in this appeal can succinctly be summarized as follows: whether a limitation period of 6 years is applicable in respect of the claim pleaded at paragraph 125 of the Re-amended Counterclaim.  The learned judge held that such a limitation period is applicable by analogy with the limitation period in Section 4(2) of the Limitation Ordinance.  He also held that Section 20(1)(b) has no application to this claim.  Mr Wong sought to overturn that decision in this appeal.  He is represented by Mr Lam SC together with Mr Lung.  The appeal is opposed by the Plaintiff in the Original Action and the Defendant in the Counterclaim, Mr Liu Hsiao Cheng [“Mr Liu”], who is represented by Mr Wou.

4.  To understand the arguments involved in this appeal, it is necessary to set out the case of Mr Wong as pleaded in the Re-amended Counterclaim.  Paragraph 125 is in these terms:

“ As pleaded above, Liu has, in breach of his fiduciary duties to GDIL, refused and/or failed to produce any financial information in relation to the Tobacco Business and the Zimbabwe Businesses in Zimbabwe. In the premises, Liu is liable to give an account of the funds remitted to Zimbabwe in the total sum of HK$447,636,928.67. Insofar as such an account may reveal that he has misappropriated any part of this sum, he is liable to repay the same and account for the profits made out of the same.”

5.  One has to go back to the earlier parts of the Re-amended Defence and Counterclaim to identify the nature of Mr Wong’s case on this sum of $447,636,928.67.  Paragraphs 5 to 12 pleaded the co-operation between Mr Wong and Mr Liu in the Zimbabwe Businesses and the Tobacco Business which were carried out through various corporate vehicles.  I should set out paragraphs 13 to 16 below:

“ 13. Ultimately, no profits were ever split from the Zimbabwe Businesses as any revenue generated were subsequently remitted to Zimbabwe pursuant to Liu's funding requests.

14. GDIL has become the financial hub of the Tobacco Business and the Zimbabwe Businesses through its funding of the said companies' expenditures in Zimbabwe and receipt of sale proceeds from the Tobacco Business and Zimbabwe Businesses in Hong Kong in the manner explained below.

15. In respect of the Tobacco Business and the Zimbabwe Businesses:

(a) From time to time, Liu would make requests for funds in writing (such as by email or written requisition signed by Liu or Shen) or orally through the telephone. In most cases, Liu would provide specific bank accounts for WSW to transfer the funds, many of which were unknown to WSW. Insofar as written requests are concerned, they are evidenced by emails or written requisition forms. The remaining transfers of funds were made pursuant to Liu's oral requests made over the telephone. The particulars of funds transferred to Zimbabwe pursuant to Liu's requests for funds are set out in "Appendix A"hereto.

(b) To meet Liu's requests, WSW would arrange the funds to be transferred to the accounts specifically provided by Liu. Although most of the accounts provided by Liu were unknown to WSW, WSW did not question Liu as, at that material time, he trusted Liu.

(c) The funds were transferred through GDIL, FH, FHI or WSW's personal accounts. In certain occasions and for reasons only known to Liu, Liu would specifically request the funds to be transferred from FH or FHI. The total sums remitted to Zimbabwe and expenses paid by FH and FHI for GDIL during the Relevant Period are particularized in "Appendix D"hereto.

16. From 25 July 2003 (the date of GDIL's incorporation) to 31 March 2013 ("the Relevant Period"):

(a) A total sum of HK$447,636,928.67 was remitted by WSW (through GDIL, FH, FHI or WSW's personal accounts) to Zimbabwe for the Tobacco Business and the Zimbabwe Businesses.

(b) Out of the said sum remitted to Zimbabwe, HK$367,533,244.16 were telegraphic transfers made pursuant to Liu's said written requests and HK$80,103,684.51 pursuant to Liu's verbal requests as particularised in Appendix A hereto.

(c) The said funds remitted to Zimbabwe came from 4 sources.”

6.  It is not necessary to set out Appendix A in this judgment.  For present purposes, it suffices to note, as observed by the judge at [3] of the judgment below:

“ Particulars of the alleged remittances, totalling HK$447,636,928.67, are given in Appendices A to A-11 to the Re‑Amended Defence and Counterclaim. As one can see from those Appendices, some of the remittances were made prior to 12 July 2007, being the date which was 6 years prior to the date of commencement of this action.”

7.  Further, paragraph 32 of the Re-amended Defence and Counterclaim is relevant, in particular sub-paragraphs (e) and (f):

“ (e) As pleaded above, Liu made requests for funds from time to time and he had full control of the funds remitted to Zimbabwe.

(f)    He relied on Liu to manage the said funds in Zimbabwe. Until disputes arose between him and Liu, he believed that Liu would use the funds honestly and for proper purposes, and had never asked Liu to provide any accounts.”

8.  Mr Lam submitted that the judge erred in holding that Section 4(2) is applicable by analogy.  Counsel referred us to several authorities and advanced the submission that there is no limitation period in a case where an account is sought from a fiduciary without alleging any breach of duty on the part of the accounting party.  He derived support for this submission from A-G v Cocke [1988] Ch 414 and Lee Kwok Wing v Chung Chuen Hei [2012] 4 HKLRD 917.  In the former case, Harman J had made this statement at p.421:

“ … a claim to an account simpliciter based upon a fiduciary relationship and nothing more is not barred by any period of limitation.”

9.  In Lee Kwok Wing v Chung Chuen Hei, supra, Deputy Judge Lisa Wong SC (as she then was) said at [56]:

“ … a claim to an account based upon equitable rights, such as those flowing from a trust or otherwise fiduciary relationship, and nothing more is not subject to any statutory limitation period, whether by direct or analogous application of the limitation legislation.” (original emphasis)

10.  But Her Ladyship continued at [57]:

“ On the other hand, where a claim to an account is based upon the assertion of legal rights alone, or concurrent legal and equitable rights, the statutory limitation period would be applied. This principle is established in a long line of cases beginning with Knox v Gye (1871-72) LR 5 HL 656.”

11.  After referring to Knox v Gye, supra, Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 and P&O Nedlloyd BV v Arab Metals Co (No 2) [2007] 1 WLR 2288, Her Ladyship expressed her conclusion on the facts of that case, at [62]:

“ Therefore, in my judgment, even though the plaintiff’s present claim for an account falls within the phrase “any claim … for other equitable relief” in s.4(7), the Court shall apply a 6-year limitation period pursuant to the Proviso.  That is because, as I have repeatedly noted, the plaintiff’s present claim against the defendant for an account is based purely on contract. Therefore, applying the words of Millett LJ in Paragon Finance plc v DB Thakerar & Co as cited above (A claim for an account in equity, absent any trust, has no equitable element; it is based on legal, not equitable rights … Where the agent’s liability to account was contractual, equity acted in obedience to the statute …), this Court should apply in this case the statutory limitation period of six years applicable to claims in contract.”

12.  On the facts, Lee Kwok Wing v Chung Chuen Hei, supra, concerned a claim by a party to a joint venture seeking account for profit of the business which were held by the defendant.  The claim was held to be contractual in nature because the defendant was at liberty to mix the profit received with his own money and use it for his cash flow. 

13.  Lee Kwok Wing v Chung Chuen Hei, supra, was not cited to the judge at the court below. 

14.  The judge took the view that the counterclaim under paragraph 125 in the present case was a claim (using the expression of Harman J) for an account simpliciter.  Chow J said at [31] and [32] of the judgment below:

“ 31. [The approach of the English Court of Appeal in Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) [2004] 1 BCLC 131] does not, however, provide an answer to the applicability of the statute of limitations by analogy in a situation where the action for an account is not dependent on proof of any breach of substantive duty, or is not ancillary to another equitable claim. For example, a fiduciary is under a general duty to account without the need to prove any breach of fiduciary duty. This general duty of a fiduciary to account, and its relationship to remedies which may flow from the account rendered by the fiduciary, were explained by Lord Millet NPJ in Libertarian Investments Ltd v Thomas Alexej Hall (2013) 16 HKCFAR 681 ...

32. Wong’s claim against Liu for an account, as I understand it, is based on the simple fact that (i) Liu is a fiduciary vis-à-vis GDIL, and (ii) assets belonging to GDIL have (allegedly) come under his control.  I have not been referred to any authority by counsel on whether the limitation period of 6 years prescribed by Section 4(2) can be applied, by reliance upon the Analogy Exception, to a bare claim by a company against its director/de facto director for an account of the properties or assets belonging to the company which have come into the hands or under the control of its director/de facto director.”

15.  The judge held that as a matter of principle, section 4(2) is applicable by analogy and he came to that conclusion principally by adopting the reasoning of Lord Westbury in Knox v Gye, supra, at p.673 to 675, cited at [34] of the judgment below:

“ That a Court of Equity will not, after the lapse of six years without acknowledgment, decree an account between a surviving partner and the estate of a deceased partner has been long settled by various decisions … The general principle was laid down as early as the case of Lockey v. Lockey, where it was held that where a Court of Equity assumes a concurrent jurisdiction with Courts of Law no account will be given after the legal limit of six years, if the statute be pleaded … because a Court of Equity, in affording such a remedy and giving such an account, would act by analogy to the Statute of Limitations. For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation. This is the meaning of the common phrase, that a Court of Equity acts by analogy to the Statute of Limitations, the meaning being, that where the suit in Equity corresponds with an action at Law which is included in the words of the statute, a Court of Equity adopts the enactment of the statute as its own rule of procedure. But if any proceeding in Equity be included within the words of the statute, there a Court of Equity, like a Court of Law, acts in obedience to the statute. I have no doubt, therefore, of the Statute of Limitations being a bar to the whole of the relief sought by the Appellant as executor of Thistlethwayte.

Your Lordships will no doubt recollect that in the observations I have made with regard to the adoption of the statute by a Court of Equity, I refer to those well-known expressions of Lord Redesdale, in which he distinguishes between the cases where a Court of Equity acts in analogy to the statute, and where it acts in obedience to the statute.  Where a Court of Equity frames its remedy upon the basis of the Common Law, and supplements the Common Law by extending the remedy to parties who cannot have an action at Common Law, there the Court of Equity acts in analogy to the statute; that is, it adopts the statute as the rule of procedure regulating the remedy it affords.”

16.  His Lordship also drew support from the judgment of Mummery LJ in Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) supra, at [81], holding that the effect of the English equivalent of our section 4(7) was to preserve the application of the statutory limitation periods by analogy as decided in Knox v Gye, supra. 

17.  In our judgment, having regard to the submissions and the authorities to which our attention have been drawn, the following is the crucial issue in the present appeal: whether the counterclaim under paragraph 125 is a claim which is based upon the assertion of legal rights alone, or concurrent legal and equitable rights.  If it is a claim falling within such description, the principle of Knox v Gye is applicable and the judge was correct in holding that the statute of limitation, in particular the limitation period in an action for account prescribed under Section 4(2) of the Limitation Ordinance, is applicable by analogy by virtue of the proviso in Section 4(7). On the other hand, if the claim is based on a pure equitable right (as in the case of a claim by a beneficiary against a trustee for an account), there is no scope for the application of the proviso and as such no limitation period is applicable. 

18.  We do not understand counsel to advance anything against the above analysis.  Mr Lam’s submission was that the claim under paragraph 125 is purely equitable in nature.  On the other hand, Mr Wou submitted that the claim is not a claim for an account simpliciter.

19.  The rationale for the rule that statutory limitation periods would not be applied, even by analogy, to claims by a beneficiary against a trustee (subject to the modification by section 20 of the Limitation Ordinance, the equivalent of the Trustee Act 1888), was explained by Lord Sumption in Williams v Central Bank of Nigeria [2014] 2 All ER 489 at [13]:

“ It is important to understand why equity adopted this rule … The reason was that the trust assets were lawfully vested in the trustee. Because of his fiduciary position, his possession of them was the beneficiary’s possession and was entirely consistent with the beneficiary’s interest. If the trustee misapplied the assets, equity would ignore the misapplication and simply hold him to account for the assets as if he had acted in accordance with his trust. There was nothing to make time start running against the beneficiary. It will be apparent that this reasoning can apply only to those who, at the time of the misapplication of the assets have assumed the responsibilities of a trustee, whether expressly or de facto …”

20.  Millett LJ (as he then was) made similar observations in Paragon Finance v Thakerar & Co [1991] 1 All ER 400, at p.408g to j:

“ The explanation for the rule was that the possession of an express trustee is never in virtue of any right of his own but is taken from the first for and on behalf of the beneficiaries. His possession was consequently treated as possession of the beneficiaries, with the result that time did not run in his favour against them …

The rule did not depend upon the nature of the trustee’s appointment, and it was applied to trustees de son tort and to directors and other fiduciaries who, though not strictly trustees, were in an analogous position and who abused the trust and confidence reposed in them to obtain their principal’s property for themselves.  Such persons are properly described as constructive trustees.”

21.  Whilst the actual decision in Soar v Ashwell [1893] 2 QB 390 in respect of a party knowingly assisted in breach of trust was subsequently disapproved by Lord Sumption in Williams v Central Bank of Nigeria, supra at [19], the earlier part of Lord Esher MR’s judgment on the distinction between the two types of constructive trustees was not doubted.  To the contrary, Lord Sumption regarded such analysis as impeccable.  Lord Esher MR said at p.394 in Soar v Ashwell, supra:

“ The cases seem to me to decide that, where a person has assumed, either with or without consent, to act as a trustee of money or other property, i.e., to act in a fiduciary relation with regard to it, and has in consequence been in possession of or has exercised command or control over such money or property, a Court of Equity will impose upon him all the liabilities of an express trustee, and will class him with and will call him an express trustee of an express trust. The principal liability of such a trustee is that he must discharge himself by accounting to his cestui que trusts for all such money or property without regard to lapse of time.”

22.  In respect of the position of the liability of a director as a fiduciary regarding the company’s assets, we were referred to two English Court of Appeal authorities: JJ Harrison (Properties) Ltd v Harrison [2002] 1 BCLC 162 and Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) supra.  Lord Sumption alluded to these two authorities in Williams v Central Bank of Nigeria, supra at [28] with the following comment:

“ It was held in both cases that no period of limitation applied, but only because the defendant was a director and as such to be treated as a true trustee.”

23.  On its facts, JJ Harrison (Properties) Ltd v Harrison supra was a case concerning the disposal of the company’s asset in favour of a director.  However, Chadwick LJ explained the rationale for holding a director as analogous to the position of a trustee at [29] in wider terms:

“ … The reason is that a director, on appointment to that office, assumes the duties of a trustee in relation to the company’s property. If, thereafter, he takes possession of that property, his possession ‘is coloured from the first by the trust and confidence by means of which he obtained it’. His obligations as a trustee in relation to that property do not arise out of the transaction by which he obtained it for himself. The true analysis is that his obligations as a trustee in relation to property predate the transaction by which it was conveyed to him. The conveyance of the property to himself by the exercise of his powers in breach of trust does not release him from those obligations. He is trustee of the property because it has become vested in him; but his obligations to deal with the property as a trustee arise out of his pre-existing duties as a director; not out of the circumstances in which the property was conveyed.”

24.  These authorities suggested that the duty of a director as trustee in relation to the property could arise from the control over the property even without having such property transferred to or vested in him.  But in none of these cases was an account actually ordered in respect of properties which had not been held by a director.

25.  Before us, Mr Wou submitted that Liu could not be a trustee when there was no plea that the monies in question had been transferred to him or his nominee, thus no scope for holding that Liu was in possession of the monies as trustee.

26.  In a recent authority (which counsel did not refer us to) David Richards J (as he then was) stated the law as follows in Barnett v Creggy [2015] PNLR 13 at [82]:

“ Section 23 would not appear to apply to a beneficiary's claim against a trustee for an account in equity, as it is a free-standing remedy which is not based on any other claim: see Attorney-General v Cocke [1988] Ch 414, [1988] 2 All ER 391, [1988] 2 WLR 542; Lewin on Trusts (18th edition, 2008) at 44-41; Underhill & Hayton: Law of Trusts and Trustees (18th edition, 2010) at 94.32. Nonetheless, as observed in Lewin, a trustee cannot be deprived of a limitation defence otherwise available to him merely because the beneficiary seeks an account. If it is clear that all claims against the trustee would be time-barred, and an account would serve no other useful purpose, the court will not order an account: see How v Earl Winterton [1896] 2 Ch 626, 65 LJ Ch 832, 45 WR 103.”

27.  Though the case went on appeal and was reversed on another point, see [2017] Ch 433, this part of the judgment was undisturbed.

28.  Assuming that it represents good law, in the present case, at this stage, one cannot be sure if the order for an account would serve no other useful purpose. 

29.  At [73] to [75] of Barnett v Creggy, supra, David Richards J also came to the view that no account could be sought against a director for funds of a company which had not been held by that party personally notwithstanding he had the power to control its disbursement.  

30.  Mr Lam submitted that that part of the decision was inconsistent with earlier English authorities: In re Lands Allotment Co [1894] 1 Ch 616 at 631; Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555 at 1577G; In re Duckwari Plc [1998] Ch 253 at 262B-C. These authorities provide support for the proposition that directors are to be treated as trustees of assets which are in their hands or under their control. In Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2012] Ch 453 at [34], Lord Neuberger MR (as he then was) also adopted a similar view, citing In re Duckwari Plc. A similar proposition appears at Snell’s Equity 33^rd Edn para 20-012, an authority relied upon by Mr Wou (though he also referred to para 20-015 to contend that receipt of property by the defendant is necessary). 

31.  In our judgment, this proposition is also consistent with the dicta of Lord Esher MR in Soar v Ashwell, supra, cited above. For present purposes, we shall take it as good law.

32.  Further, the present claim is materially different from a claim for an account by a principal against an agent under a management and agency agreement as in Coulthard v Disco Mix Club Ltd [1999] 2 All ER 457 and Nelson v Rye [1996] 1 WLR 1378 or a claim between joint venture parties as in Lee Kwok Wing v Chung Chuen Hei, supra.  The distinction was explained by Millett LJ in Paragon Finance v Thakerar & Co, supra at p.415 to 416 and Deputy High Court Judge Lisa Wong at [62] of Lee Kwok Wing v Chung Chuen Hei, supra.

33.  In the present case, the claim in paragraph 125 of the Re-amended Defence and Counterclaim was a claim arising from the allegations that Liu was a de facto director exercising control over the company’s assets.  Seen in that light, it is a claim based on a pure equitable right as in the case of a claim by a beneficiary against a trustee for an account.  For this reason, assuming it is possible to advance a claim of an account simpliciter on the basis as pleaded, there is no scope for the application of the limitation period in Section 4(2) by analogy. In this connection, we respectfully disagree with the judge’s conclusion to the contrary.

34.  Mr Wou submitted that the claim was not a claim for an account simpliciter because the pleader also asserted as follows at the end of paragraph 125:

“ Insofar as such an account may reveal that he has misappropriated any part of this sum, he is liable to repay the same and account for the profits made out of the same.”

35.  The prayer for relief relevant to the claim under paragraph 125 is in these terms,

(i) an account and inquiry in respect of the total sum of HK$447,636,928.67; and

(ii) further orders as the Court see fit upon the taking of such an account and inquiry.

36.  Whilst we have reservation if it is appropriate to include that sentence at the end of paragraph 125, we agree with Mr Lam that as the pleadings stand there is no properly advanced claim based on misappropriation of any part of such sum and an account of profit.  The prayer does not seek such relief and the further orders that the court may give should be confined to the usual orders to be made upon the taking of an account like directions for falsifying the accounts or surcharges. 

37.  Relying on Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) supra, Mr Wou further submitted that unless the claim comes within section 20(1)(a) or (b) of the Limitation Ordinance, it would be subject to a 6-year time bar under Section 20(2).   

38.  Section 20 of the Ordinance reads:

“ (1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property, until the interest fell into possession.

(3) No beneficiary as against whom there would be a good defence under this Ordinance shall derive any greater or other benefit from a judgment or order obtained by any other beneficiary than he could have obtained if he had brought the action and this Ordinance had been pleaded in defence.”

39.  This section is modelled upon section 19 of the Limitation Act 1939.  A similar provision is to be found in Section 21 of the Limitation Act 1980 (which contained an additional subsection (2) that has no bearing in the present context).  In Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) supra, Mummery LJ reviewed the English authorities and summarized the position under the Limitation Act 1980 at [111]:

“ In the light of those cases, in our view, it is possible to simplify the court’s task when considering the application of the 1980 Act to claims against fiduciaries. The starting assumption should be that a six-year limitation period will apply – under one or other provision of the Act, applied directly or by analogy – unless it is specifically excluded by the Act or established case law. Personal claims against fiduciaries will normally be subject to limits by analogy with claims in tort or contract (1980 Act, ss 2, 5; see the Seguros case [2000] 2 All ER (Comm) 787, [2001] 1 WLR 112). By contrast, claims for breach of fiduciary duty, in the special sense explained in Mothew’s case, will normally be covered by s 21. The six-year time limit under s 21(3), will apply, directly or by analogy, unless excluded by s 21(1)(a) (fraud) or (b) (class 1 trust).”

40.  The equivalent to Section 21(3) of the Limitation Act 1980 is Section 20(2) of our Limitation Ordinance.  The precursor of these statutory provisions is section 8 of the Trustee Act 1888.

41.  A similar view as that of Mummery LJ was expressed by Chadwick LJ in JJ Harrison (Properties) Ltd v Harrison supra at [34], after citing the judgment of Millett LJ in Paragon Finance v Thakerar & Co:

“ The position, therefore is that, since the coming into operation of s8 of the Trustee Act 1888, express trustees and constructive trustees within Millett LJ’s first category have been able to rely upon the limitation period now prescribed by s21(3) of the 1980 Act, subject to the saving provisions now contained in s 21(1) of that Act.”

42.  To the same effect is the judgment of Lord Sumption in Williams v Central Bank of Nigeria, supra at [25].  His Lordship referred to the repeal of the 1888 Act and its replacement by section 19(1) and (2) of the Limitation Act 1939 and later by section 21(1) and (3) of the Limitation Act 1980.  The effect of these provisions was described as follows:

“ Instead of creating a right on the part of trustees to raise limitation by analogy with statute, subject to the exceptions for cases of fraud by the trustee or actions to recover trust property in the possession of the trustee or previously converted to his use, it reversed the order of ideas. It provided that no limitation period prescribed by the Act should apply in those two cases, and then that the limitation period in other cases should be six years.”

43.  Mr Lam submitted that the analysis is only confined to a claim against a trustee for breach of trust and as such has no application to a claim for an account simpliciter.  But Section 20(2) of the Limitation Ordinance actually applies to “an action by a beneficiary to recover trust property or in respect of any breach of trust”.  Granted that there is no claim for breach of trust in the present action, it is still necessary to consider if there is a claim to recover trust property.

44.  Relying on Pole v Pattenden [1920] 1 Ch 423, Mr Wou submitted that Section 20(2) is applicable on the basis that the claim of Wong is a claim tantamount in nature to a claim for recovery of trust property.  

45.  On the other hand, Mr Lam relied onAttorney-General v Cocke, supra as applied in Barnett v Creggy, supra, at [82] and submitted that there is no limitation period for a free-standing claim for an account in equity. Counsel further reminded us that this appeal only concerns whether there is any limitation period (by direct application or by analogy) to bar the claim without prejudice to the question of laches or other equitable defences. At this stage, it cannot be said if there had been any breach of trust or if a case of section 20(1)(a) or (b) could be made out after taking of account. Hence, it cannot be said that taking of account is plainly futile. If one were to follow the approach of David Richards J in Barnett v Creggy, supra, the claim should not be struck out.     

46.  Notwithstanding that the example cited in Attorney-General v Cocke[1] (In re Richardson [1919] 2 Ch 50) had been doubted on appeal by the English Court of Appeal in Pole v Pattenden, supra, Harman J’s decisionwas cited as good law in Lewin on Trusts 19^th Edn paragraph 44-043 and Underhill & Hayton, Law of Trusts and Trustees 19^th Edn paragraph 94.34 and applied by David Richards J in Barnett v Creggy, supra, at [82].

47.  We note that Pole v Pattenden, supra was decided under the Trustee Act 1888 and in the context of an administration action. In the modern setting and in the context of Section 20(2), we are bound by the following observation of Lord Millett NPJ in Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at [167], [168] and [172] in determining if this is an action to recover trust property,

“167 …In the first place an account is not a remedy for wrong. Trustees and most fiduciaries are accounting parties, and their beneficiaries or principals do not have to prove that there has been a breach of trust or fiduciary duty in order to obtain an order for account. Once the trust or fiduciary relationship is established or conceded the beneficiary is entitled to an account as of right. Although like all equitable remedies an order for an account is discretionary, in making the order the court is not granting a remedy for wrong but enforcing performance of an obligation.

168. In the second place an order for an account does not in itself provide the plaintiff with a remedy; it is merely the first step in a process which enables him to identify and quantify any deficit in the trust fund and seek the appropriate means by which it may be made good…

172. At every stage the plaintiff can elect whether or not to seek a further account or inquiry...”

48.  It follows that a plaintiff can choose if he would proceed further (and if he does, the means to proceed further) after an account has been produced by the fiduciary.

49.  The practice endorsed by David Richards J in Barnett v Creggy, supra is, based on the submissions we have heard in this appeal, in line with the above analysis of Lord Millett as to the nature of an order for an account. We respectfully prefer this approach to the construction of “action to recover trust property” in Section 20(2) advocated by Mr Wou.   

50.  The judge struck out part of the claim on the basis of the application of a limitation period by analogy with Section 4(2) of the Limitation Ordinance.  With respect, we have come to the clear view that there is no basis for application of limitation period by analogy if the claim for an account simpliciter is sustainable in law.

51.  Further, we are of the view that there is no other provision in the Limitation Ordinance which bars the claim of Mr Wong in this action. Therefore, no part of the claim should be struck out on account of time bar.        

52.  For the above reasons, we allow the appeal and set aside the order of the judge.  We will also make a costs order nisi that the Plaintiff shall pay the Defendant’s costs of this appeal and the application below.