Wah Nam Group Ltd v. Roderick John Sutton and Another

CACV 215/2017
CACV 217/2017

(Heard Together)

[2020] HKCA 30

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 215 OF 2017

(ON APPEAL FROM HCA NO 960 OF 2015)

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 217 OF 2017

(ON APPEAL FROM HCCW NO 166 OF 2000)

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(Heard Together)

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J U D G M E N T

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Hon Poon CJHC:

1.I agree with the judgment of Yuen JA.

Hon Kwan VP:

2.I agree with the judgment of Yuen JA.

Hon Yuen JA:

Leave to appeal to the CFA

3.This is an application in CACV215/2017 by the plaintiff in HCA960/2015 (“WN”) for leave to appeal to the Court of Final Appeal (“CFA”) from a Judgment of this court given on 10 October 2018 (“the Judgment”) upholding a Decision of William Wong DHCJ (“the judge”) given on 5 September 2017 striking out its action against its former liquidators¹.  

4.1The relevant background has been set out in our Judgment.  Essentially, WN’s case in HCA960/2015 was that by reason of the former liquidators’ acts or omissions, two of its subsidiaries GSP and CS have suffered loss in respect of the disposal of a company (owned by GSP and CS) which held property on the mainland. 

4.2At the same time, GSP and CS themselves have also sued the former liquidators (and others) in HCA962/2015 in relation to the same matter.  So there were parallel proceedings by the companies GSP and CS and by their shareholder WN.

5.The former liquidators applied to the judge to strike out both WN’s action (HCA960/2015) and the action by GSP and CS (HCA962/2015).  The judge struck out the former but not the latter. 

6.On appeal, this court upheld the Decision as we considered that the shareholder WN’s action (HCA960/2015) offended the “no reflective loss” principle.  For a detailed discussion, see §§16-21 of the Judgment.

7.WN now seeks leave to appeal to the Court of Final Appeal from our Judgment, and has suggested that the following questions are ones which, by reason of their great general or public importance, or otherwise, ought to be submitted to the Court of Final Appeal:

“1) Whether the shareholder’s [WN’s] claim against a defendant shall be struck out as a matter of principle on the ground that it contravened the ‘no reflective loss’ principle when the existence of the cause of action underlying the company’s [GSP’s and CS’s] claim (potential or actual) remains in dispute.

2) If the answer to Question 1 is negative, how should the court dispose of an application to strike out the shareholder’s claim when the existence of the cause of action underlying the company’s claim (potential or actual) remains in dispute.

3) Whether the ‘no reflective loss’ principle does not apply where the defendant against whom the company may have claim is different from that of the shareholder’s claim (or the same defendant but in different capacities)”.

8.1I do not consider Question 1 has reasonable prospects of success.  As noted above, GSP’s and CS’s proceedings have not been struck out.  In other words, the court has found that they have valid, existing causes of action.  At the hearing of the appeal, leading counsel for WN accepted that as a matter of law², the fact that WN and GSP and CS have different causes of action against the former liquidators is irrelevant to the applicability of the ‘no reflective loss’ principle³.      

8.2Insofar as WN argues that “the existence of the cause of action underlying the company’s claim (potential or actual) remains in dispute”, of course there is the possibility that these companies’ witnesses may not come up to proof at trial, but that does not affect the applicability of the ‘no reflective loss’ principle.  As discussed in our Judgment, what underpins this principle is not the strength or weakness of the companies’ case⁴, but the nature of the plaintiff’s loss.  The nature of WN’s loss is clear from the pleadings.  It has not been suggested that WN has suffered any loss other than as shareholder of GSP and CS⁵.

9.Question 2 falls with Question 1.

10.As for Question 3, the former liquidators are the defendants in both proceedings. The fact that they may be sued in different capacities is irrelevant, just as the fact that there may be different causes of action against them is irrelevant.  The ‘no reflective loss’ principle is activated by the nature of the loss.

11.Finally, in relation to the “or otherwise” limb of the application, it is the normal practice of this court not to grant leave on this ground, but to leave it to the CFA to decide if leave should be granted.

Security for costs

12.1After WN’s application for leave to appeal was filed, the former liquidators issued a summons for security for costs of that application, on the basis that there were no reasonable prospects of success. 

12.2An issue was raised by WN as to whether this court (in contrast with the CFA) has jurisdiction to order security for costs in light of s.46(2) Hong Kong Court of Final Appeal Ordinance Cap.484.  

13.As the question of prospects of success was common to both applications, we did not consider it appropriate to deal with the security summons separately.  In view of the result of the application for leave to appeal, the application for security has fallen by the wayside and we would make no order on it⁶.

Order

14.The application for leave to appeal to the CFA should be dismissed with costs, summarily assessed at $102,216.      

Mr Adrian Lai, instructed by D.S. Cheung & Co., for the Plaintiff

Ms Rachel Lam and Ms Jasmine Cheung, instructed by Stephenson Harwood, for the 1^st and 2^nd Defendants