China Medical Technologies, Inc. (in Liquidation) v. Bank of China (Hong Kong) Ltd

CACV 320/2018

[2019] HKCA 402

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 320 OF 2018

(ON APPEAL FROM HCA NO 2448 OF 2014)

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REASONS FOR JUDGMENT

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Hon Lam VP:

1.I respectfully agree with the reasons given by Kwan JA for the dismissal of the appeal. Notwithstanding the direction of Au‑Yeung J given on 13 July 2018 that no leave is required, we granted leave to appeal pursuant to Section 14AA of the High Court Ordinance at the beginning of the hearing. To understand the grant of leave, I need to set out briefly the relevant chronology concerning the question of leave.

2.Shortly after the decision of Au‑Yeung J of 20 June 2018, the Plaintiff decided to appeal against the same.  On 29 June 2018, solicitors for the Plaintiff wrote to the judge informing her that they regarded the case as falling within Order 59 Rule 21(3) and thus leave to appeal was not needed.  For the avoidance of doubt, they sought a direction from the judge to confirm that position.

3.As the judge did not give any direction before the expiration of the prescribed period for application for leave, the solicitors took out a summons seeking leave on 4 July 2018 returnable on 31 August 2018.

4.On 4 July 2018, the judge replied by indicating that subject to arguments from the Defendant it appeared that no leave to appeal was required.

5.The judge was also mindful that if no leave was required the appeal period would expire on 18 July 2018, the judge gave directions on 12 July 2018 to expedite the processing of the summons of 4 July 2018 prescribing that the Defendant to lodge their submissions by noon on 13 July 2018.

6.On 13 July 2018, solicitors for the Defendant wrote to inform the judge as follows,

“We confirm on behalf of the Defendant that it does not take any issue in respect of whether leave is required for the Plaintiff to appeal against the Judgment, and has no objection to an order that the Plaintiff shall have leave to withdraw the Leave Summons with no order as to costs.”

7.In light of the stance adopted by the Defendant, the judge directed on 13 July 2018,

“No leave to appeal is required. Leave to the Plaintiff to withdraw the Leave Summons with no order as to costs.”

8.The Plaintiff brought the appeal by serving the notice of appeal on 18 July 2018.

9.Since the directions of 13 July 2018 and the history leading to the making of such directions were included in the appeal court file, the question of leave was brought up again by Lam V‑P on 20 February 2019.  Parties were invited to include submissions on the requirement of leave under Section 14AA of the High Court Ordinance in their submissions in the appeal.

10.In a letter of 27 February 2019, solicitors for the Defendant advanced the submission that leave was required and it was a matter which went to the jurisdiction to entertain the appeal.  They indicated that they were prepared to address the question of leave in advance of the hearing of the appeal and invited the Court to rule on the issue on the papers. There was however, no reference to the directions of 13 July 2018 in that letter.

11.The Plaintiff was silent on the question of leave and did not bring to the Court’s attention of the directions of 13 July 2018.  Lam V‑P therefore gave direction on 1 March 2019 requiring the Plaintiff to indicate its position on Section 14AA leave by 5 March 2019.  References were also made to some recent cases.

12.On 5 March 2019, solicitors for the Plaintiff wrote a 3‑page letter setting out their position regarding Section 14AA leave.  Their primary position was that leave was not required and the case fell within Order 59 Rule 21(1)(a).  They also alluded to the history leading to the directions of 13 July 2018 and the absence of challenge to those directions by the Defendant.  The solicitor also submitted that the recent cases were distinguishable.

13.After reading these correspondence, the Court made a direction on 7 March 2019 that in light of the directions of 13 July 2018, the Plaintiff was not required to seek leave to appeal.

14.On 8 March 2019, solicitors for the Defendant wrote to the Court attaching a substantive set of submissions on jurisdiction signed by Mr Huggins SC, Mr Khaw SC and Ms Cheng (which addressed the question of leave).  They informed the Court that the Plaintiff had actually issued and served a fresh writ in a new action including the same substantive claims.  They invited the Court to reconsider the question of leave as it is a matter of general importance and counsel felt duty‑bound to draw the Court’s attention to some authorities and material facts on the issue.

15.On 15 March 2019, the Court received a set of reply submissions from Ms Chan SC and Mr Tang, counsel for the Plaintiff.  Paragraphs 1 to 5 of that set of submissions replied to the submissions on jurisdiction.

16.Having considered the submissions of counsel, we accepted that there are issues of general importance which should be addressed in connection with the question of leave.  For this reason, we should and did reconsider this question in the context of this appeal before we decided, as announced at the hearing, to grant leave to appeal.  We are grateful for the assistance of counsel in this respect.

17.We agree with Mr Huggins that the directions of the judge of 13 July 2018 cannot bind this Court.  The requirement of leave, being a matter which goes to the jurisdiction of this Court in entertaining an appeal, has to be addressed by us if we have doubts notwithstanding that a direction had already been given and the parties did not take step to challenge the direction, see Ho Kang Yau v Ho Chun Wing [2011] 3 HKLRD 491; Kwan Chui Kwok Ying v Tao Wai Chun [2008] 2 HKLRD 63; White v Brunton [1984] 2 All ER 606.

18.In the present appeal, the issue of leave requirement was raised by the Court on 20 February 2019.  It is a point of jurisdiction which must be addressed notwithstanding the directions of the judge.

19.Thus, we reject Ms Chan’s submissions that the Court should not entertain Mr Huggins’ submissions on leave in view of the lack of challenge brought by the Defendant against the directions of 13 July 2018.  However, as explained below, such lack of challenge is relevant in this Court’s consideration if leave should be granted after deciding leave is necessary.

20.We respectfully differ from the judge on the need to seek leave.  We note that the judge did not have the benefit of the assistance of counsel and the recent authorities on the question when she gave the directions o 13 July 2018.  The proper approach for deciding if leave is required has recently been discussed by another division of this Court in Bright Shipping Ltd v Changhong Group (HK) Ltd [2019] HKCA 246.  In that case, it was held that the proper approach to determine if an appeal is final or interlocutory is the application approach explained in B + B Construction Ltd v Sun Alliance & London Insurance (2000) 3 HKCFAR 503 and Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd (2003) 6 HKCFAR 222.  An appeal brought against a judgment which did not finally determine an issue on the substantive rights between the parties is an interlocutory appeal, for which Section 14AA leave is required.

21.In that judgment, references were made to some cases where it was decided that decisions on service outside jurisdiction and stay of action on the ground of forum non conveniens were interlocutory decisions.  This was so notwithstanding that such decisions had the practical effect of debarring further proceedings in the actions.

22.Another instance of decision having similar effect is a decision to refuse to extend time.  Kwok Cheuk Kin v Leung Chun Ying [2018] 4 HKC 440 concerned a refusal to extend time for an application for judicial review and the application was dismissed as a result.  The Court of Appeal held in that case that the decision was interlocutory and Section 14AA leave had to be obtained before an appeal could be entertained.  At [38] to [39] of that judgment, the Court held that Order 59 Rule 21(1)(a) did not apply to such decision because it did not determine the substantive right of an applicant though it has the collateral effect of preventing an applicant from proceeding further with the application.

23.The same analysis is applicable to the subject decision in the present appeal.  The setting aside of an order extending the validity of writ by the judge did not determine finally any issue on the substantive rights between the parties.  Order 59 Rule 21(1)(a) is not applicable to this decision and on the application approach it is an interlocutory decision.  Thus, notwithstanding the collateral effect of such decision is that the action had to be dismissed (as in the case of Kwok Cheuk Kin), the Plaintiff should obtain leave under Section 14AA before the appeal can be entertained.

24.It was therefore necessary for us to consider if leave should be granted in the present context.

25.I have set out the developments since the decision of 20 June 2018 leading to our consideration of Section 14AA leave.  In light of the directions of 13 July 2018, the stances adopted by the parties since then and the imminence of the hearing of the substantive appeal when the question was considered, we were of the view that the question of leave should be addressed on the second limb of section 14AA(4), viz under sub‑para (b) asking if leave should be granted in the interest of justice instead of assessing if the appeal has a reasonable prospect of success under sub‑para (a).

26.We did not find the appeal to be plainly unarguable.  There were good reasons for the withdrawal of the summons seeking leave in light of the directions of 13 July 2018 and the stance of the Defendants set out in the letter of 13 July 2018.  Parties had proceeded in the meantime on the basis that the appeal had been properly brought.  The Defendant lodged a respondent notice on 7 August 2018.  It should be borne in mind that the leave requirement is set up as a filtering process to save litigation costs and to promote efficient deployment of judicial resources.  By the time the question of leave was brought up by the Court in February 2019, most of the costs of the appeal had been committed or incurred and the date of the appeal hearing had been fixed.  By that stage, it would not serve any good to direct a separate leave application before the substantive appeal or to spend costs and time on examining if the appeal has any reasonable prospect of success.

27.In these circumstances, we took the view that leave ought to be granted in the interest of justice.  We therefore announced at the beginning of the hearing the leave to appeal was granted.

28.There is disagreement between the parties if the costs relating to the issue of Section 14AA leave should be in the cause of the appeal.  In light of the analysis above, as the issue was raised by this Court as it goes to our jurisdiction, the costs have been properly incurred notwithstanding the directions of 13 July 2018.  We therefore order that costs relating to arguments on Section 14AA leave be costs in the cause of the appeal. In other words, the Plaintiff has to pay the Defendant’s costs in this respect.

Hon Cheung JA:

29.I agree with the Reasons for Judgment of Lam VP on the leave issue and of Kwan JA on the merits of the appeal.

Hon Kwan JA:

30.This is the plaintiff’s appeal against the decision of Au‑Yeung J on 20 June 2018.  By the decision, the judge set aside the ex parte order of Master J Wong on 7 December 2015 (“the Extension Order”) granting an extension of the validity of the protective writ of summons filed on 2 December 2014 (“the Writ”) until 1 December 2016 and the service of the Writ and she dismissed the plaintiff’s action.

31.The judge held that there were no good reasons to extend the Writ on the date the Extension Order was made.  That was sufficient to set aside the Writ and the service of the Writ.

32.The judge also made holdings on other matters in contention.  She held that the plaintiff’s liquidators had breached the continuing duty of disclosure by failing to inform the master of the decision of Harris J in the liquidators’ application for production of documents and oral examination under section 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“the s 221 Application”), which was handed down on 15 December 2015 after the Extension Order was made.  Further, there was material non-disclosure and misrepresentation in that the liquidators failed to properly inform the master of the limitation defences, and on this ground alone the judge would set aside the Extension Order without a re‑grant.  She held that the Writ was not validly served before 1 December 2016 and refused to cure the irregularity in service.

33.The plaintiff sought to challenge all of the above holdings in this appeal.

34.The defendant, the Bank of China (Hong Kong) Limited (“BOC”), sought to affirm the decision on additional grounds.  In respect of the non-disclosure of Harris J’s decision, the defendant contended that the judge should also have set aside the Extension Order on this ground without a re‑grant.

35.After considering the written submissions of the parties and the oral submissions of the plaintiff (the defendant was not called upon), we dismissed the appeal at the conclusion of the hearing with costs to the defendant, with a certificate for two counsel.  These are the reasons of the court for dismissing the appeal.

Background

36.I take the relevant background matters from the introductory part of the decision, supplemented by an agreed chronology submitted by the parties.  They may be stated as follows.

“2. The Plaintiff was wound up in the Cayman Islands in 2012. An ancillary winding-up order was made in Hong Kong on 1 September 2014. Mr Borrelli has been one of the Liquidators appointed by the Cayman Islands court and the Hong Kong Court respectively.

3. The Plaintiff was hopelessly insolvent, with provable claims in excess of US$400 million. Ongoing investigations showed that the Plaintiff’s management perpetrated a fraudulent scheme to misappropriate US$355.5 million of the Plaintiff’s assets by purportedly acquiring worthless medical technology known as the FISH Technology and SPR Technology (collectively “the Technologies”).

4. There were transfers of funds made between November 2006 and December 2009 (“the Transfers”) from the Plaintiff’s account with BOC to accounts held by one Supreme Well Investments Limited (“Supreme Well”) with BOC and Bank of East Asia.

5.   Supreme Well and its bank accounts were controlled by the Plaintiff’s former management.  Supreme Well did not have any business operations and was struck off the Register of Companies in the BVI after receiving US$355.5 million from the Plaintiff.  The Liquidators do not know the ultimate recipients of the Plaintiff’s cash.”

37.I pause here to mention that documents concerning Supreme Well’s bank accounts with the defendant showing that the sole account signatory was a director of the plaintiff and its chief financial officer were provided by the Hong Kong police to the liquidators on 20 February 2014.  As noted by the judge:

“37. It was only 3 months before the issue of the Writ that Harris J had determined to re-open the petition to wind up the Plaintiff in Hong Kong and to grant the petition in Hong Kong. At that stage there were good reasons to be suspicious of fraudulent conduct which required investigation.

38. The liquidation was complex but the Liquidators had limited books and records of the Plaintiff available to them.  The Liquidators had to gather documents in the United States and Hong Kong, some through court proceedings.  There were 5 writs issued in Hong Kong and 1 in the Cayman Islands, against a total of 18 defendants.  None had been served pending further investigations by the Liquidators.  The Liquidators’ attempt to seek disclosure of information from the Plaintiff’s former management and other individual or entities have met with opposition.”

38.I continue with the narrative in chronological sequence:

“6.   The Plaintiff issued a protective writ of summons with a general indorsement of claim on 2 December 2014 (“the Writ”).  The Liquidators asserted that the Transfers were made by the Plaintiff’s management for which BOC was liable for at least US$303.75 million for breach of contract, dishonest assistance, knowing receipt, breaches of duty and of trust, conspiracy, negligence and/or unjust enrichment.

7.   The Indorsement of Claim (“the Indorsement”) expressly stated as follows:

“THIS WRIT is issued solely for the purpose of preserving the claims identified above in light of the pending expiry of possible limitation periods” and the Plaintiff “has made no decision as to whether or not it will pursue the claims” which will be subject to “further and on-going investigations” by the Liquidators and the outcome of those investigations.

“To the extent that any prima facie limitation periods relating to the claims might have expired, and in circumstances where the Plaintiff only obtained knowledge of the claims in February 2014, the Plaintiff intends to rely on provisions of the Limitation Ordinance (Cap 347) either directly or by analogy to extend the relevant limitation period.”

8.   On 30 November 2015, ie one day before the expiry date, the Liquidators made an ex parte application to extend the validity of the Writ for 12 months (“the Extension Application”).

9.   The reasons advanced by the Liquidators were that despite all reasonable efforts, they required further information before they could make an informed decision as to whether to proceed with any of the potential claims against BOC.  The Liquidators referred, in particular, to its application against BOC (and BEA [Bank of East Asia]) for production of documents and oral examination of certain employees of the banks pursuant to s.221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“the s.221 Application”), for which judgment was then pending.

10.   On 7 December 2015, a Master made an order extending the validity of the Writ “for 12 months from the date of its expiry” (“the Extension Order”), ie up to 1 December 2016.

11.   Eight days later, on 15 December 2015, Harris J handed down his decision (“Harris J’s Judgment”) largely dismissing the Plaintiff’s s.221 Application but ordering interrogatories to be served on BOC’s employees and ordering examination.  The material findings were that:

(a)   The documents sought, save for one narrow category, were not documents “relating to the company”within the meaning of section 221(3) of Cap 32 and hence the court had no jurisdiction to order their production. (§16)

(b)   Whilst Harris J accepted “that the Liquidators would prefer to obtain further information if possible before deciding how to proceed”, he did not consider it necessary. The Liquidators had been provided with considerable information and “had sufficient information to make an informed assessment, sufficient for the purposes of deciding whether or not to proceed, of the prospects of the banks being able to assert credibly that they took reasonable steps to comply with the HKMA Guidelines and their own internal protocols intended to ensure that so far as possible the banks are not used as a conduit for unlawful money transfers … The Liquidators do not need any more information in order to decide whether or not they have a viable claim” and therefore it would be oppressive to order the production and examination sought. (§§29‑32).

12.   The Plaintiff obtained, from Harris J, leave to appeal on the construction of section 221(3) and his holding thereunder but not on other grounds.

13.   On 3 November 2016, the Court of Appeal declined to give leave on further grounds that failed before Harris J. The Court of Appeal held (§§16, 17 & 22), amongst others, that

“… The judge gave careful consideration to the material that the liquidators already had, and formed a view as to whether or not such material should suffice to enable them whether or not to pursue their proposed claims against the bank.”

14.   On 4 November 2016, BOC’s solicitors informed the Liquidators that BOC’s employees would not be answering the interrogatories served on them pursuant to Harris J’s Judgment.

15.   Shortly before the expiry date, the Plaintiff purported to serve the Writ by leaving and by ordinary post on 29 November 2016.  There is dispute as to the date of service.

16.   BOC submits that the Extension Order should be set aside because:

(a)   There were no good reasons or matters capable of being good reasons advanced for the extension.  What were advanced turned out to be bad reasons, as was subsequently determined, inter partes, by Harris J and the Court of Appeal; and

(b)   The Liquidators were guilty of material non-disclosure in failing to inform the Master of Harris J’s Judgment which destroyed the basis for seeking the Extension Order.

(c)   The Liquidators were guilty of material non-disclosure in failing to inform the Master that some causes of action have expired before filing of the Writ and that some causes would expire if the Writ was not renewed.

17.   BOC also submits that service of the Writ ought to be set aside because:

(a)   The Writ was not left at the registered office of BOC on 14^th floor, Bank of China Tower, 1 Garden Road, Hong Kong (“the Registered Office”) but on the ground floor of the BOC Tower and the receptionist was not an employee of BOC; and

(b)   The deemed date of service by ordinary post was after expiry of the validity of the Writ.

18.   Logically, if the Extension Order is discharged and no re‑grant is made, BOC submits that it must follow that the Writ was not served during the period of validity and the action should stand dismissed.

19.   The Liquidators oppose both applications [to set aside the Extension Order and the service of the Writ]. They say that the grounds for seeking the extension was the Liquidators’ genuine views that they needed investigation.  That extended beyond pursuit of the s.221 Application, including the appeal, to using all reasonable means by which they might obtain information as to BOC’s knowledge (or otherwise) of breaches of duty by the Plaintiff’s management.  They needed to do so before pursuing serious allegations against BOC in costly and risky litigation.

20.   Whether there were matters capable of amounting to good reason was to be determined by reference to the circumstances prevailing at the time the Extension Application was made and not by reference to a subsequent event, in this case, a decision by a different court applying a different legal test.

21.   The Liquidators also submit that Harris J’s Judgment was of limited scope.  There is a possibility that the Liquidators might get more information if they are successful in the pending appeal to the Court of Appeal.

22.   Further, BOC has been provided with a copy the Writ since March 2015 [exhibited to the liquidators’ affidavit for the s 221 Application].  BOC relied on it in the s.221 Application as the source of the oppression said to arise if an order for production of documents were made.

23.   The Liquidators deny that failure to bring Harris J’s Judgment to the attention of the Master amounted to material non-disclosure.  If it did, the non-disclosure was innocent.

24.   Mr Manzoni SC, counsel for the plaintiff, conceded that Mr Borrelli made a “mistake” in his affidavit about possible limitation defences but BOC was not denied any of its right to run limitation defences.

25.   If there was material non-disclosure, the Liquidators request the court to affirm or regrant the Extension Order.

26.   As to service of the Writ, the Liquidators contend that service had been validly effected by leaving with the receptionist who received the Writ on behalf of BOC.  Ordinary post was effected 2 clear days after 29 November 2016.  Service was effected by either mode before expiry of the extended validity period.”

Whether there were good reasons for the Extension Order

39.This is the main issue that needs to be resolved in this appeal.

40.Under Order 6 rule 8(2) of the Rules of the High Court, the court has power to extend the validity of a writ.  The legal principles regarding the exercise of this power are not in dispute and were canvassed by the judge at §§28 to 36 of the decision.  This power should only be exercised for good reason, and whether there was good reason depended on all the circumstances of the particular case and the question whether an extension should be allowed was one for the discretion of the judge (Kleinwort Benson Ltd v Barbak Ltd [1987] AC 597 at 622G to 623A).  Where the failure to serve a writ within its normal validity period is the result of a choice, it is necessary to decide whether the choice was made for a good reason, and no discretion to extend the writ would arise unless the choice was made for a reason which is capable of amounting to a good reason (Chow Ching Man & Ors v Sun Wah Ornament Manufactory Ltd & Ors [1996] 2 HKLR 338 at 344C to D).

41.Further, it is not disputed that when considering whether there was good reason, the court should have regard to the situation as it obtained when the extension order was made, albeit with the benefit of further evidence at the inter partes stage (National Commercial Bank v Hague [1994] CLC 230 at 241 to 242).  So in this instance, the judge can and did take into account Harris J’s decision and Mr Borrelli’s 3^rd affidavit, notwithstanding they were post the Extension Order.

42.The reason for the liquidators in choosing not to serve the Writ within its normal validity period was that “despite all reasonable efforts, they required further information before they could make an informed decision as to whether to proceed with any of the potential claims against BOC.” (§9 of the decision) See also §40 of the decision:

“The Liquidators’ basis for the Extension Application was that there was not enough information to make an informed decision on whether the Plaintiff had a viable claim against BOC which they should pursue. Borrelli‑1^st (placed before the Master) was replete with examples of such concerns of the Liquidators.”

43.The judge did not spell out the examples of such concerns in her decision, but there is no reason to think that she had not considered them. She went on to state in §41 that the liquidators “needed to carry out further investigations, not limited to the s 221 Application”, and noted the liquidators’ belief that after those investigations they “would be in a better position to make an informed decision as to whether it was in the best interest of the Plaintiff to serve the Writ.”  She made specific reference to a number of relevant paragraphs in Borrelli 1^st (§§20 to 24, 56-60, 63 to 73, 77 to 81, 82 to 86).

44.Miss Linda Chan, SC[1] submitted for the liquidators that of the three reasons advanced as good reasons for extension of the Writ summarised in Borrelli 1^st at §25 (potential claims do not become time barred while the liquidators carry out necessary further investigations; potential claims available to the plaintiff are pursued as effectively and efficiently as possible; unnecessary, unsustainable or improperly formulated claims are not advanced), the judge had only considered the first but not the other two reasons.

45.This is not a valid criticism.  As mentioned earlier, the judge had made specific reference to a number of relevant paragraphs in Borrelli 1^st and the gravamen of those paragraphs was to address in detail the “sufficient and good reasons” as summarised in §25 of that affidavit.  Moreover, the three separate reasons are all encompassed in the central point which pertains to the adequacy of information for the liquidators to make an informed decision whether to proceed with the claims against the defendant.

46.The judge held that contrary to the liquidators’ belief, they did have sufficient information at the time of the Extension Order to decide whether to proceed with the claims in the Writ against the defendant. Miss Chan acknowledged that the subjective belief of the liquidators is not decisive (I would say the liquidators’ subjective belief is quite immaterial), and accepted that it is for the court as the gatekeeper to decide on an objective basis whether the liquidators did or did not have sufficient information to make an informed decision in that regard.

47.In making this holding, the judge had full regard to Harris J’s decision in the s 221 Application and the decision of the Court of Appeal in refusing leave to appeal on the proposed ground that Harris J erred in concluding that the potential oppression to the defendant outweighed the liquidators’ reasonable need for the documents sought.  Whilst accepting that it was not wrong for the judge to take into consideration Harris J’s decision, Miss Chan argued the judge was wrong to treat his decision as “determinative”.

48.What the judge said in conclusion in §64 of the decision was as follows:

“In summary, Harris J’s judgment answered the purpose of the Liquidators’ investigations – to decide the viability of the claim against BOC. The “other investigations”, even if genuinely believed in and conducted, could not undermine that answer. There were thus no good reasons to extend the Writ on the date the Extension Order was made.”

49.It is unnecessary to enter into the debate whether the above could fairly be regarded as treating Harris J’s decision as “determinative”.  The judge had undoubtedly attached great importance and given considerable weight to Harris J’s decision.  The question is whether she had fallen into error in so doing.

50.The hearing of the s 221 Application before Harris J took three days and the evidence adduced before him was much more than the evidence placed before the master in the Extension Application or the judge, as Mr Borrelli had removed the “voluminous” exhibits to his affidavits in support of the s 221 Application.[2]  And although Mr Borrelli indicated that he was able to produce them on request, neither the master nor the judge was asked to look at the “voluminous” exhibits placed before Harris J.

51.It is correct that Harris J was not concerned to find whether there was good reason to extend the Writ (a point repeatedly emphasised by Miss Chan).  In the s 221 Application, he was required to carry out a balancing exercise, balancing the reasonable need of the liquidators for the information sought against the potential oppression that might be caused to the defendant by making the orders applied for.  In assessing the element of oppression in requiring a person to provide information or documents that may expose him to liability, a relevant consideration is “the existence of litigation, or its contemplation, and the prospects of liquidators obtaining an advantage that the company would not otherwise have in prosecuting a claim”[3].  He reasoned that “seeking information that goes to a possible defence is more likely to be oppressive than information reasonably required to assess whether or not a company has a viable cause of action”, and “if a liquidator has in the view of the court enough information to decide to proceed with an action it is more likely that the court will take the view that it is oppressive to require a prospective defendant to provide more information about the claim”[4].

52.Having considered the evidence before him, Harris J came to the view that the considerable information obtained by the liquidators was sufficient to enable them to make an informed assessment whether to proceed against BOC and they “do not need any more information in order to decide whether or not they have a viable claim”[5].  To make the orders sought would be to enable the liquidators “to assess in a very direct way the strength of any defence and potentially put the banks at a considerable disadvantage that they would not otherwise be under in defending the claims”[6].  He therefore concluded that the potential oppression to BOC outweighed the liquidators’ need for the further documents and information they sought.

53.The Court of Appeal declined to grant leave to the liquidators to appeal on the proposed ground as mentioned earlier, saying that “it does not seem … to be possible to say that the judge was clearly wrong in his assessment of the position in this respect.”[7]  The court stated emphatically that Harris J “gave careful consideration to the material that the liquidators already had, and formed a view as to whether or not such material should suffice to enable them whether or not to pursue their proposed claims against the bank”[8].

54.The judge was keenly aware that Harris J and the master in the Extension Application “dealt with different statutory provisions, different tests and different balancing exercises”.  But what is important is that “the subject matter of Harris J’s Judgment substantially overlapped the basis of the Extension Application”[9].

55.Whether there is more than one right answer to the question if the liquidators had sufficient information to determine the viability of the claim against the defendant, as Miss Chan has contended, is quite beside the point.  The fact remains that Harris J after careful consideration of a considerably more amount of evidence came to the firm view that the liquidators “do not need any more information in order to decide whether or not they have a viable claim”, and it was said by the Court of Appeal “it does not seem … to be possible to say that the judge was clearly wrong in his assessment of the position in this respect”.  The judge is fully entitled to give great weight to the view formed by Harris J.  She made no error in law in giving great weight to the view arrived at carefully by Harris J.

56.In light of the above analysis, the distinctions Miss Chan sought to draw between the s 221 Application and the Extension Application are not to the point, nor is the sui generis nature of the process in a s 221 Application that she sought to emphasise.  The requirements for determining whether there is any issue estoppel in the cases cited by Miss Chan are not relevant to the present situation.

57.Miss Chan contended that for the liquidator to decide whether to proceed against the defendant, it is relevant to consider not just whether the claim was viable but also matters relevant to any possible defence to the claim, harking back to the three reasons advanced as good reasons for extension of the Writ summarised in Borrelli 1^st at §25.  She referred to the investigation in response to an anonymous complaint that was conducted by a law firm Paul Weiss engaged by the plaintiff’s audit committee, which had purportedly cleared the management of any wrongdoing, and submitted that the liquidators would need to consider the documents of Paul Weiss (which were first produced to the liquidators in November 2015, with further tranches in April to August 2016) to assess the possible strength of any defence that might be raised.

58.These matters have been considered by the judge, who did not think much of the relevance of the Paul Weiss documents to the liquidators’ decision in assessing the viability of the claim against the defendant.  As noted by the judge, Borrelli 1^st “did not mention how the Paul Weiss documents would have let the Liquidators learn more about BOC’s knowledge of the fraud, the information the Liquidators expected to obtain, the volume of the documents, how long it would take to review them and why this would justify the grant of a 12‑month extension”[10].  I would add that in Borrelli 3^rd, which was filed 18 months after Borrelli 1^st, it is still not apparent how the Paul Weiss documents could have let the liquidators learn more about the defendant’s knowledge of the fraud.  As the judge further noted, it turned out that the Paul Weiss documents caused the liquidators to serve proceedings on this law firm and a valuation firm.  It is doubtful that the investigations carried out by the liquidators with regard to such documents could have much bearing on the viability of the claim as against the defendant.

59.Much was made of the further investigations carried out after the Writ was extended which enabled the liquidators to develop a greater understanding of the FISH and SPR Technologies and to ascertain that they had no significant commercial value (which was why the liquidators served proceedings on a valuation firm).  Reliance was also placed on the investigations of the plaintiff’s former auditors and the further evidence and documents obtained that would reveal more information on the ultimate recipients of the plaintiff’s assets.  It was said by the liquidators that there are factual matters which the plaintiff may not expect to learn in discovery from the defendant after the commencement of proceedings[11].

60.Again, all these matters have been taken into consideration by the judge who did not think they would amount to good reasons to justify an extension of the Writ[12].  She is clearly right.  As rightly submitted by Mr Huggins SC for the defendant[13], an extension would not have been justified to increase the liquidators’ knowledge in relation to the participation of the former management or other individuals in the fraud, nor in relation to the propriety of the acquisition of the technologies by the plaintiff, nor in relation to the location of misappropriated assets.

61.Whilst these further investigations and information might have some impact on other claims the liquidators might wish to pursue against other parties, they could hardly affect the decision whether or not to proceed with the claims against the defendant.  The court does not ordinarily treat a plaintiff’s desire to see through some parallel set of proceedings as good reason for holding up service in other proceedings (Pacific Electric Wire & Cable Co Ltd v Hu Hung Chiu [2011] 1 HKLRD 1000 at §31).  Where a plaintiff has sufficient evidence to make an informed decision that he has a viable claim, the underlying policy of the law (finality to litigation, the protection of the defendant from having a claim hanging over his head indefinitely) would require him to bring and serve proceedings within the prescribed period (Sealegend Holdings Ltd v China Taiping Insurance (HK) Co Ltd & Ors [2013] 4 HKLRD 508 at §29).  It could not be a good reason for extending the validity of a writ to enable a plaintiff in that situation to obtain further information which he may not expect to learn in discovery from the defendant after the commencement of proceedings.

62.Miss Chan stressed that after the decision of Harris J, the liquidators remained firmly of the view that they did not have sufficient information to determine whether they should bring a claim against the defendant and hence they sought leave from the Court of Appeal to appeal against that decision including the oppression issue, having been granted leave by Harris J to appeal on an issue relating to construction of the statutory provision.  Miss Chan contended it was reasonable for the liquidators to persist in that view and that constituted good reason for the Extension Order.  This cannot be right.  Whether the liquidators’ genuinely held belief with regard to the adequacy of information to sue the defendant was reasonable is to be determined objectively by the court as gatekeeper, and that has been determined against the liquidators.

63.For all the above reasons, there is no basis to interfere with the judge’s holding that in all the circumstances there were no good reasons for extending the Writ at the time of the Extension Order.  As no good reasons were made out, the exercise of discretion to extend the Writ under Order 6 rule 8(2) would not arise.  For this reason alone, the appeal should be dismissed.

64.It is not strictly necessary to deal with the other issues of contention.  But in view of the importance of some of them, it would be appropriate to address the arguments made to us to clarify the position and give guidance in future cases.

Continuing duty of disclosure in an extension application

65.As in the court below[14], the liquidators do not dispute there is a continuing duty to make full and frank disclosure after an ex parte order in situations where the claimant discovers the ex parte order was obtained on a basis he knows that he could no longer support, or where the court has been misinformed, or has been given materially incomplete information.  It was held that those facts should have been notified to the court, by way of the party returning to court to obtain clarification as to whether, in light of the new or altered facts, the ex parte order should be discharged or continued on a new basis.  See Commercial Bank of the Near East Plc v A, B, C and D [1989] 2 Lloyd’s Rep 319 at 322 to 323; Network Telecom (Europe) Ltd v Telephone Systems International Inc [2004] 1 All ER (Comm) 418 at §§68 to 69, 76, 83 to 86; Gee on Commercial Injunctions (6^th ed) at §§9-026 to 9-027.

66.Three matters are in dispute here.  First, if this continuing duty of disclosure applies to an ex parte application for extension of the writ.  Second, if the non-disclosure of Harris J’s decision was material.  Third, if it had been necessary to set aside the Extension Order for material non-disclosure (this did not arise because the Extension Order was set aside as there were no good reasons for extending the Writ), whether the court should exercise its discretion to re-grant the order.

67.Miss Chan emphasised that the only applications in which the continuing duty of disclosure in ex parte orders has been recognised are the “nuclear weapon” cases of Mareva injunctions and Anton Piller orders, and in respect of service of proceedings out of the jurisdiction.  There is no decided authority which has expressly extended this continuing duty to an ex parte application for extension of a writ.  She submitted it is impracticable and unworkable to require a liquidator to “update” the court on subsequent events which might have a bearing on whether one or more of the good reasons advanced earlier for extending the writ persists.

68.Miss Chan further contended there was no basis to impose a continuing duty of disclosure on the plaintiff in this situation, as the basis of a continuity duty was that the granting of ex parte relief provides an exception to the basic rule of natural justice that both parties should be heard (Commercial Bank of the Near East Plc v A, B, C and D at 323).  Here, the defendant could have availed itself of a panoply of rights under the Rules of the High Court and it was the defendant’s own choice not to avail itself of those rights.  She pointed to the fact that the defendant had a copy of the Writ since March 2015, as a copy was exhibited to the liquidators’ supporting affidavit in the s 221 Application.  With that knowledge, the defendant could have exercised the right to inspect the court file as a party and obtain copies of the documents filed (Order 63 rule 4(1)), it could have required service of the Writ (Order 12 rule 8A), and it could have applied to set aside the Extension Order made ex parte (Order 32 rule 6).

69.Submissions to similar effect were made by the former counsel of the liquidators before the judge, who rejected them and saw no reason for not applying the continuing duty of disclosure to an extension application[15]. I agree with the judge.  The continuing duty is to update the court on matters material to the granting and continuing of the ex parte order.  In this instance, the ex parte order is for extension of the Writ.  There should be no difference in principle from other kinds of orders or relief obtained ex parte, when the court entrusts the applicant with its order so that justice can be done.  The need to continue to make full and frank disclosure while the proceedings remain on an ex parte basis should apply in the extension of a writ just as in any other situation where ex parte relief is granted.  It is not for the applicant to act as judge in his own cause and decide what effect if any the new developments are to have on the ex parte relief.

70.It is incumbent on the applicant to make full and frank disclosure whilst the proceedings remain on an ex parte basis. It is not for the party on the receiving end to take a vigilant and proactive approach, for until the other party is fully and properly apprised of what had occurred on the ex parte application[16], it is under a continuing disability as it could not have taken meaningful measure to protect its own interests.

71.The judge held that the non-disclosure of Harris J’s decision was plainly material[17].  Miss Chan did not appear to have argued or strongly argued to the contrary, although she did contend that the plaintiff was not in breach of the continuing duty to disclose.  I agree with the judge it is plainly material to disclose Harris J’s decision, as the liquidators had placed great reliance on the s 221 Application to contend that this constituted good reason for extending the Writ.  This is also relevant to the length of any extension that might be granted by the master.

72.The judge took the view that the non-disclosure was innocent and would have exercised her discretion to order a re‑grant on setting aside the Extension Order for material non-disclosure[18].  Whilst Mr Huggins did not disagree with the characterisation that the non-disclosure was innocent – in the sense that it was not deliberate or dishonest – he submitted that the non-disclosure was still highly culpable and careless if not downright reckless, and the judge should not have indicated a reluctance to set aside the Extension Order without re‑grant.  It does not appear to me the circumstances here are sufficiently cogent to warrant interference with the discretion that the judge would have exercised to re‑grant the Extension Order, if it had been necessary to do so.

73.Submissions were made on behalf of the liquidators before the judge and on appeal that there was uncertainty about the law whether the continuing duty of disclosure should apply to an ex parte application to extend a writ, and citing that as a reason why the court should exercise its discretion to re‑grant the order even if it were set aside for material non-disclosure.  With the above clarification of the law, this should not be relied upon in future by applicants who have obtained ex parte relief.

Non-disclosure of the limitation defence

74.At issue is whether there was material non-disclosure in failing to inform the master of the possible defences in limitation.  As submitted by the liquidators before the judge, the plaintiff had ten claims against the defendant in the total amount of US$355.5 million and they fall into four categories[19].  Claims 1 to 6 totalling US$203.25 million are claims where the Writ was issued after the limitation period had expired (known as category (4) in the decision); claims 7 to 9 totalling US$132.25 million are claims where the Extension Application was made when the Writ was still valid but the limitation period had expired (known as category (2) in the decision, adopting the categorisation in Kleinwort Benson Ltd v Barbak Ltd at 615G to 616C); and claim 10 in the amount of US$20 million is where the Extension Application was made when the Writ was still valid and before the limitation period had expired (category (1) in Kleinwort Benson)[20].

75.The judge set out the relevant paragraphs in Borrelli 1^st in which the liquidators dealt with the limitation issues[21]. I do not propose to quote them in full save for §89 which read as follows:

“Some of the potential claims in the BOCHK Protective Writ are founded on events that date back more than six years. Because there is a prima facie limitation period in the Limitation Ordinance (Cap 347) of six years for bringing actions in tort and contract, the Plaintiff issued the BOCHK Protective Writ prior to the expiry of any prima facie limitation periods to prevent the Defendant from advancing any argument that potential claims founded on events occurring more than six years ago are statute barred. If the validity of the BOCHK Protective Writ is not extended and if the writ is not served by 1 December 2015, the Defendant may be able to argue that a prima facie limitation period has expired in respect of potential claims in the BOCHK Protective Writ which are founded on events occurring more than six years ago.” (emphasis added)

76.The judge had this to say in the decision:

“97. These paragraphs in Borrelli-1^st gave the impression that the limitation period had not yet expired when the Writ was issued. This contradicted the Indorsement which implied the opposite, which was why the Plaintiff intended to rely on the provisions of the Limitation Ordinance to directly or by analogy extend the limitation period. Paragraph 89 of Borrelli‑1^st made no attempt to distinguish claims that dated back more than 6 years and those that did not.”

“100. It is no answer to say that there were materials in the exhibits (eg the Fund Flow Diagram exhibited to Borrelli‑1^st) from which the Master could compare with the Indorsement and work out for himself when any claim would prima facie have expired. The Liquidators had to ensure that all relevant points were presented clearly and distinctly to the Master in the affidavit: Gee, at 9-005.”

77.The judge cited Binning Bros Ltd (in liquidation) v Verrall Bowles (a firm) [1998] 1 All ER 409, in which the general indorsement on the writ mentioned no dates and the supporting affidavit of the plaintiff’s solicitor did not disclose that 8 out of 49 heads of claim were already statute-barred on the date the order extending the writ was made and the rest would be barred in less than eight weeks’ time.  The English Court of Appeal held that to be a “very serious omission” (at 415g to j), quoting Lord Brandon in Waddon v Whitecroft Scovell Ltd [1988] 1 WLR 309 at 312G to H:

“I feel bound to observe that this affidavit was seriously defective in that it made no mention whatever of the fact that the primary period of limitation applicable to the appellant’s claim would expire shortly. It is the duty of solicitors acting for a party on an ex parte application to the court to make a full and frank disclosure of all matters relevant to such application. The fact to which I have referred was, having regard to long-established authority on the extension of the validity of writs where questions of limitation are involved, not just a relevant matter but a crucial one.”

78.The judge concluded that the evidence of the liquidators on the limitation issues was “not simply a mistake but in fact constituted misrepresentation” and the defects were “serious and egregious”[22].  The master was misled into believing that the plaintiff would be denied an unexpired claim as large as US$355.5 million if the Writ was not extended[23]. The liquidators did not segregate the category (1) claim from the others and did not alert the master that the extension granted in the period after 4 December 2015 would deprive the defendant of a limitation defence[24].  Of the three category (2) claims, although Borrelli 1^st in §62 stated that the plaintiff would be affected to the extent of US$100.5 million (claim 7), the master was not informed that but for the extension, the other two claims totalling US$31.75 million (claims 8 and 9) would be time‑barred[25]. The judge considered the relevant legal principles and would have declined to exercise her discretion to order a re‑grant if the Extension Order had not been set aside on the basis that no good reasons for extension were made out[26].

79.Miss Chan accepted that there was a “misstatement” in the second sentence in §89 of Borrelli 1^st, which might have given the impression that all ten claims were category (2) claims.  She contended that this incorrect impression would have been to the disadvantage of the plaintiff as in actual fact only three claims were in category (2).  As the master was prepared to grant the Extension Order on the basis that all ten claims were in category (2), he would have no difficulty in extending the Writ for the three category (2) claims, and a fortiori the one category (1) claim which was not then subject to any limitation concern.  She acknowledged that the presentation in Borrelli 1^st might be unsatisfactory in failing to identify there were six category (4) claims and one category (1) claim, but that would not constitute serious non-disclosure.

80.Miss Chan argued that if the master had been informed six of the claims were in category (4), this would not have prompted him to refuse the Extension Order, as the extension of the Writ could not extend the limitation period which had already expired when the Writ was issued.

81.She further made the point that the indorsement of claim on the Writ had stated that postponement or extension provisions in the limitation statute would be relied on, and contended that the judge had erroneously proceeded on the basis that such postponement would not be available, when the plaintiff has at least an arguable case on postponement by invoking the fraud exception (for the dishonest assistance claim), the deliberate concealment exception (for all claims), and section 31 of the Limitation Ordinance, Cap 347 (for the negligence claim).

82.As for the exercise of discretion to refuse a re‑grant, Miss Chan submitted that the judge had failed to have regard to the disproportionate consequences of a refusal.

83.Most of the arguments of Miss Chan had been raised before the judge.  I agree with the judge’s reasons for rejecting them.  Limitation issues are of crucial importance to the exercise of discretion whether to extend the writ and for how long.  The rationale for informing the court which category the claims fall under is to differentiate the claims in which a defendant who has not been served has an accrued right of limitation (categories (3) and (4)) from those that he has not (categories (1) and (2)).  Further, as stated by Reyes J in Pacific Electric Wire & Cable Co Ltd v Hu Hung Chiu [2011] 1 HKLRD 1000 at §18, it would be unlikely for there to be good reason for extension in category (2) cases and even less likely in category (3) cases.

84.It is therefore incumbent on the liquidators to present the relevant limitation points clearly, unequivocally and comprehensibly.  That was not done in Borrelli 1^st. Whether the master would have exercised his discretion less favourably or in the same way if he had been correctly informed is beside the point.  Nor is it an answer to say that the extension of the Writ would have no effect on the category (4) claims as the defendant would still be able to run a limitation defence which had accrued before the Writ was issued.  The fact remains that the defendant would have to deal with the category (4) claims, which it would not have to deal with without an extension.

85.The judge had not made an assessment of the merits of the plaintiff’s case whether the plaintiff could have invoked the various statutory provisions to postpone the limitation period.  As rightly pointed out by Mr Huggins, in §§108 and 109 the judge was merely making the point that before there could be any such postponement, the plaintiff would need to establish the defendant’s knowledge of the fraud and it was a significant factor in deciding whether to grant an extension that the plaintiff’s affidavits could point to no direct evidence of actual knowledge, but sought to rely solely on inference.  In pointing out the evidential difficulties, the judge had not proceeded on the basis that postponement would not be available, as contended by Miss Chan.

86.I agree with the judge there was material non-disclosure and misrepresentation of the limitation issues.  The judge had regard to the legal principles on the exercise of discretion whether to re‑grant the order on setting aside for material non-disclosure, citing Yau Chiu Wah v Gold Chief Investment Ltd [2003] 3 HKLRD 553 at pages 22 to 25[27].  I am not persuaded that she was in error in applying the legal principles, nor was there any valid ground for interfering with the exercise of her discretion.

Service of the Writ

87.The dispute relating to service of the Writ is largely factual and the judge’s refusal to cure the irregularity in service is an exercise of her discretion.  I do not propose to deal with them as they do not require to be resolved in light of the conclusion reached that there were no good reasons for extending the Writ.

Ms Linda Chan SC and Mr Danny Tang, instructed by Lipman Karas, for the Plaintiff (Appellant)

Mr Adrian Huggins SC, Mr Richard Khaw SC and Ms Bonnie Y K Cheng, instructed by K W Ng & Co, for the Defendant (Respondent)