Highfit Development Co Ltd (in Liquidation) v. Koo Siu Ying and Others

CAMP 10/2018

[2018] HKCA 238

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 10 OF 2018

(ON AN INTENDED APPEAL FROM HCA NO 494 OF 2015)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.This is the renewed application of the 1^st and 2^nd defendants for leave to appeal to the Court of Appeal against the Decision of Anthony Chan J on 9 August 2017 (“the Decision”). The Decision arose from an appeal against a master’s decision which concerned the plaintiff’s joinder of a third defendant and the amendments of the statement of claim. Other than disallowing two of the averments in §§24C(1)(iv) and (vi) of the draft statement of claim, the judge affirmed the master’s decision in permitting the joinder and giving leave to amend the pleading.

2.The defendants sought leave to appeal the interlocutory orders.  This was refused by the judge on 23 January 2018 (“the Leave Decision”).  The present summons renewing the application before the Court of Appeal was issued on 6 February 2018.

3.Having considered the papers, we think it appropriate to exercise the power under Order 59 rule 2A(5)(a) of the Rules of the High Court to determine this application without an oral hearing on the basis of the written submissions before us.

4.We do not propose to set out the background matters, which have been stated in the Decision at §§2 to 14.

5.For leave to appeal to be granted under section 14AA(4) of the High Court Ordinance, Cap 4, the court must be satisfied that the appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal should be heard.  No reliance was placed on the second limb in the leave application heard by the judge, or in the application to this court.  The judge refused leave to appeal on the basis that the grounds of appeal do not have a reasonable prospect of success.

6.The same grounds of appeal are advanced in this renewed application.  Broadly speaking, they are as follows: (1) the judge erred in holding that it was appropriate to join Highfit Holdings Limited (“Holdings”) as the 3^rd defendant by reason that Holdings is free to argue its limitation defence despite the relation-back rule in section 35(1)(b) of the Limitation Ordinance, Cap 347 (“Ground 1”); and (2) the judge erred in failing to take into account that the plaintiff’s plea that Holdings is to be treated as the alter ego of the 1^st and 2^nd defendants and/or that the corporate veil of Holdings should be pierced is inadequate and defective for want of particularity (“Ground 2”).

Ground 1: joinder of Holdings

7.At the hearing of the appeal before the judge, it was contended on behalf of the defendants that by reason of the relation-back rule in section 35(1)(b), if joinder was permitted, Holdings would be deprived of an accrued limitation defence which is reasonably arguable.

8.The judge rejected that contention.  He held that the relation-back rule is not engaged in this instance[1], for the simple fact that this action was brought against the existing defendants more than 14 years after the impugned transaction (which took place in August to September 2000), and, prima facie, the action is time-barred.

9.Whether Holdings was sued on the date of the writ (10 March 2015) or 2 June 2016 (the date the amendment summons was filed), the plaintiff would need to rely on section 20(1) of the Limitation Ordinance (which deals with limitation period in respect of trust property) to overcome the limitation period prescribed by statute.

10.Hence, the judge held that permitting the joinder would not prejudice Holdings in depriving it of an accrued limitation defence.  In this connection, he cited the decision of the Court of Appeal in Siberian Mining Group Co Ltd v Cheung Keng Ching & Ors, HCMP 726/2017, 14 June 2017, §§4 and 6, and Leicester Wholesale Fruit Market Ltd v Grundy [1990] 1 WLR 107 at 111E and 113G to H.  Holdings is free to apply to strike out the action which is prima facie time-barred, or if it accepts whether section 20(1) may be relied on by the plaintiff is a matter for trial, raise the counter arguments at trial.  For this reason, Ground 1 has no reasonable prospect of success.

11.Mr Richard Khaw, SC, who appeared with Ms Kay Seto for the defendants, accepted that in this instance the relation-back rule would not cause “any direct prejudice to the Defendants in the sense that they would not be deprived of a limitation defence”.  Notwithstanding this, they submitted that as the joinder of Holdings fails to satisfy section 35(3) of the Limitation Ordinance, it ought not to be allowed.

12.Their submission is that section 35(3) does not apply only when the relation-back rule is engaged, or only if the defendant has been prejudiced by the relation-back rule.  Their position is that section 35(3) should be applied regardless of whether the relation-back rule is engaged. They contended an anomalous situation would be created if section 35(3) does not apply regardless of whether the relation-back rule is engaged, as a plaintiff who has chosen to commence the original action after the expiry of limitation period would be in a more advantageous position than a plaintiff who has commenced the original action within time, when it comes to an application for amendment to bring in new claims.

13.They pointed out that the general rule in section 35(3) is that “a new claim within subsection (1)(b)” shall not be allowed to be made in the course of any action after the expiry of any time limit under the Limitation Ordinance.  And this general rule is subject to two exceptions, first, as provided by section 30 of the Ordinance (which deals with personal injuries claims and plainly does not apply here), and secondly by the rules of court.  They argued that the exceptions do not apply and so the general rule governs the present situation.  Hence, the joinder of Holdings should not be permitted as it falls foul of section 35(3).  For good measure, they cited a statement in Hassan Khan & Co v Al-Rawas [2017] 1 WLR 2301 at §35, in which Sharp LJ agreed that there is a “syntactical ambiguity” in the wording of section 35(3) of the Limitation Act 1980 (which is the equivalent of section 35(3) of the Hong Kong legislation).

14.The judge rejected the submission on section 35(3), taking the view that it is reasonably clear from the wording of the provision it applies where the relation-back principle is engaged: “… the court shall not allow a new claim within subsection (1)(b), …”[2].  Under section 35(1), any new claim made in the course of an action is deemed to have commenced on the same date as the original action.  We agree with the judge.  This construction is consonant with the legislative history and purpose of the provision as reviewed in Roberts v Gill & Co [2011] AC 240 at §§28, 29 and 38.  See also Hassan Khan at §§28, 29 and 32, citing Bellinger v Mercer Ltd [2014] 1 WLR 3597 at §25.  Sharp LJ summed up the position in this way at §32 of Hassan Khan:

“Section 35(3) thus achieves two objectives: it provides for the restriction of the circumstances in which amendments permitting time-expired claims may be made (through the “rules” route), whilst preserving the protection of the doctrine of relation back for a defendant, where the claimant commences proceedings very close to the limitation period.”

15.The syntactical ambiguity referred to in Hassan Khan §35 does not advance the defendants’ arguments, as the court there was concerned with the phrase “other than an original set‑off or counterclaim” in section 35(3).  Nor do we think the application of section 35(3) only where the relation-back principle is engaged would give rise to anomaly as contended.  As submitted by Mr John Hui for the plaintiff, the correct comparison is the position of the defendant before and after the amendment, not whether the original action was commenced within or out of time.  The correct test is as stated by Glidewell LJ in Leicester Wholesale Fruit Market Ltd v Grundy at 113G to H:

“In my judgment, the proper approach in circumstances such as these is for the court to ask itself: if at the time when the writ was amended the plaintiff had instead issued a fresh writ against the same defendant, could that defendant have successfully applied to strike out the action on the ground that the limitation period had expired and the action was thus an abuse of the process of the court? If the answer to that question is “No,” then I can see no reason why exactly the same result should not be achieved by amending the writ to add the defendant as a defendant instead of issuing a new piece of paper.”

16.Mr Hui took a fallback position that if, contrary to his primary position, section 35(3) were engaged, the plaintiff would come within the exception through the “rules” exception in that section 35(7)(b) would be satisfied, as the original prayer included a relief for the return of trust property concerning primarily the shares in Shanghai Huifa Property Co Ltd and those shares have been transferred to Holdings, so the “claim already made in the original action” – the original claim against the 1^st and 2^nd defendants  – “cannot be maintained by or against an existing party unless the new party is joined”.  We are inclined to think this reasonably arguable and it cannot be said it is plain and obvious that the “rules” exception in section 35(3) would not apply in this instance, as submitted by the defendants.

17.For all the above reasons, we do not think Ground 1 has reasonable prospects of success.

Ground 2: amendments for piercing the corporate veil

18.This ground may be dealt with shortly.  It is essentially a re‑run of the arguments before the judge at the leave application, which the judge dealt with adequately in §§9 to 20 of the Leave Decision.

19.Suffice it to say we are entirely in agreement with the judge.  The averments in §§20D and 24C(2) of the draft statement of claim should be read in conjunction with the plaintiff’s case as pleaded against the 1^st and 2^nd defendants.  It cannot be said at this stage that the plaintiff’s pleaded case on piercing the corporate veil is untenable so that the amendments should not be allowed.

Conclusion and costs

20.For the above reasons, we dismiss the defendants’ application for leave to appeal.  As the application is wholly without merit, we make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be considered at an oral hearing inter partes.

21.There is no reason to depart from the usual rule that costs should follow the event.  We order the 1^st and 2^nd defendants to pay the plaintiff’s costs of this application.  We have considered the plaintiff’s statement of costs for summary assessment.  We note that the total amount of costs incurred is just over 10% of the costs incurred by the defendant.  We reduce the hourly rates of the fee earners of the plaintiff’s solicitors from $6,000 and $3,500 to $5,800 and $3,200 respectively.  Otherwise, we make no deduction for the time spent and counsel’s fees.  We assess the reasonable costs recoverable by the plaintiff at $56,250.

22.The costs order nisi and gross sum assessment will be made absolute within 14 days of the handing down of this judgment, if no application is made by any party to vary the orders nisi in the interim.

Written submissions by Mr John Hui, instructed by Cheung Tong & Rosa, for the Plaintiff (Respondent)

Written submissions by Mr Richard Khaw and Ms Kay Seto, instructed by Lo, Wong & Tsui, for the 1^st and 2^nd Defendants (Applicants)