The Joint & Several Liquidators of China Medical Technologies, Inc. v. The Bank of China (Hong Kong) Ltd and Others

CACV 46/2016

[2021] HKCA 1504

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 46 OF 2016

(ON APPEAL FROM HCCW NO 435/2012)

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Before : Hon Yuen JA, Barma JA and McWalters JA in Court

Dates of Written Submissions : 23, 26 and 30 March 2020

Date of Decision : 15 October 2021

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D E C I S I O N

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Hon Barma JA (giving the Decision of the Court):

1.These were interlocutory applications by the Bank of China (Hong Kong) Limited (“the Bank”), the 1^st respondent to the appeal, made by summons dated 18 March 2020 seeking leave for two matters: (a) to file a respondent’s notice out of time, and (b) to adduce fresh evidence. The summons was returnable on 31 March 2020, the date on which the appeal proper was to be heard. The appeal itself was adjourned and the hearing vacated due to the then public health situation, and on 23 March 2020 the court directed that the applications be dealt with on paper, on the basis of submissions to be lodged by the parties. The delay in handing down this Decision is regretted.

2.The underlying appeal was brought by the appellants, the Joint and Several Liquidators of China Medical Technologies Inc (“the Liquidators” and “the Company” respectively), against the order of Harris J dated 15 December 2015, dismissing the Liquidators’ application pursuant to section 221 of the old Companies Ordinance (Cap 32) insofar as it sought production of an extensive range of documents from the Bank for the purposes of the liquidation, principally with a view to investigating what had become of, and seeking to recover, some US$355 million of the company’s assets of which the company had allegedly been defrauded by its former controlling shareholder (Mr Wu Xiaodong) and by its former Chief Financial Officer (Mr Samson Tsang Tak Yung (“Mr Tsang”)).

3.Although the judge granted orders for oral examination against officers of the Bank, he refused to make orders for production of the documents sought, because he took the view that section 221(3) of the old Companies Ordinance (dealing with the production of documents) was materially narrower in scope than section 221(2) (which deals with oral examination).  The judge had previously expressed the same view in section 221 proceedings brought by the Liquidators against Mr Tsang and his wife.  In consequence, the judge refused to make any order for production of documents.  However, in his judgment (see in particular [18] of his judgment) and in his subsequent decision of 26 February 2016 by which he granted leave to appeal to the Liquidators, limited to certain categories of documents (referred to in [2.5], [2.6] and [2.9(b)] of that decision), he expressed the view that (had he considered that the documents sought were susceptible to production at all), he would have been minded to make an order for production of the categories of the [2.5], [2.6] and [2.9(b)] documents in respect of which leave to appeal was granted, as he did not consider that to require production of them would be oppressive, whereas in relation to other categories of document, for which leave to appeal was not granted, production of those documents would have been refused in any event on grounds of oppression.

4.Based on the leave to appeal granted by the judge, the Liquidators filed a notice of appeal on 4 March 2016, limited to the [2.5], [2.6] and [2.9(b)] documents, by which they sought to set aside the judge’s order refusing production, and obtain in its place an order for production of those documents.  The [2.5] documents consisted of account opening and closing documents and operating mandates as specified, the [2.6] documents related to account statements, bank vouchers, forms, instructions, transaction advices, cheques and correspondence relating to specified bank accounts, and the [2.9(b)] documents consisted of transaction documents for certain bank accounts notified by the Liquidators to the Bank. The grounds of appeal were that:

(1)  the judge erred in construing section 221(3) as being narrower in scope than section 221(2); and

(2)  the judge also erred in finding that the documents sought were not documents “relating to the Company” and thus not within the scope of section 221(3).

5.As the notice of appeal was filed on 4 March 2016, the last date for the Bank to file and serve a respondents’ notice was 18 March 2016.  No respondents’ notice was filed or served by that date.  Pursuant to standard directions given by the Registrar on 4 October 2019, leave was required to file any document after that date, or after the lodging of the Liquidator’s skeleton submissions (which took place on 3 March 2020).

6.Meanwhile, the Liquidators also appealed against the judge’s earlier decision in respect of the section 221(3) applications against Mr Tsang. The grounds for that appeal were the same as the grounds put forward by the Liquidators here.  On 3 May 2018, this court handed down its judgment on that appeal (CACV 46/2015), reversing the judge’s decision in that case, holding that sections 221(2) and (3) were at least coextensive.  Subsequent applications by Mr Tsang to this court and to the Court of Final Appeal for leave to appeal to the Court of Final Appeal were unsuccessful.

7.In the light of the decision of this court in CACV 46/2015, and the refusal of leave to appeal to the Court of Final Appeal, the Bank now accepts that the present appeal by the Liquidators will succeed, if it proceeds solely on the basis of the notice of appeal.  Faced with that prospect, the Bank mentioned in its skeleton argument for the appeal proper an intention to seek leave to serve a respondent’s notice out of time.  This indication was followed by the taking out on 18 March 2020, of the applications now under consideration.

8.So far as the application for leave to file a respondent’s notice is concerned, by its draft respondent’s notice, the Bank seeks to contend:

(1)  In relation to the [2.5] documents, that it would be oppressive to order their disclosure, as the judge had wrongly mischaracterised the documents as being merely transaction documents, when they were in fact materially relevant to the Liquidators’ claim against the Bank, and were heavily relied upon by the Liquidators in that claim.

(2)  In relation to the [2.6] and [2.9(b)] documents, that the judge erred in failing to consider issues of third-party privacy in relation to these documents, and that even if such documents should be disclosed, disclosure should be restricted in terms of the relevant time period to documents falling within a period of 3 months after the date of the receipts relied upon, in order to minimise the intrusion on the account-holders’ privacy.

9.The point on oppression was touched on in the proceedings below.  However, the privacy point is a new point, which was not raised previously.

10.As to the application for leave to adduce fresh evidence, the evidence sought to be admitted consists of the Liquidators’ Statement of Claim in their action against the Bank (HCA 1742/2018), filed on 28 November 2018.  It is contended by the Bank that this evidence is clearly relevant to the oppression point sought to be raised in relation to the [2.5] documents, by seeking to establish the importance of such documents to the claim against the Bank.

11.For the Bank, Mr Shieh SC submitted that the proposed respondent’s notice was a notice to affirm, in that it did not seek a different order from that made by the judge, but simply sought to uphold the judge’s order on a different basis (or bases) from that relied upon by the judge.  Mr Shieh went on to submit that in respect of a respondent’s notice to affirm, leave to file out of time should normally be granted unless it could be shown that an extension of time would cause significant prejudice to the Liquidators (Hong Kong Civil Procedure 2021, at para 59/6/10; VCS Ltd v Magmasters Ltd [1984] 1 WLR 1208).  It was submitted that the rationale for this was that unlike a respondent’s notice to cross-appeal or vary, which seeks to re-open the judgment below, a respondent’s notice to affirm on different grounds does no more than add further arguments to an already existing appeal.  Mr Shieh therefore suggested that notwithstanding the very substantial delay (of some 4 years) for which there was no explanation or excuse given, leave to file out of time should be granted.  So far as the application to adduce fresh evidence was concerned, Mr Shieh submitted that it satisfied the Ladd v Marshall criteria, in that the Statement of Claim in HCA 1742/2018 came into existence well after the decision below, and so could not have been deployed at the hearing below, even with the exercise of due diligence, that it was highly relevant to the proposed argument on oppression in respect of the [2.5] documents, and that being the Liquidators’ own document, it was clearly of credible provenance.

12.Both applications were opposed by the Liquidators.  Mr Manzoni SC, who appeared for them, submitted that the proposed respondent’s notice was in fact a notice to vary, or a notice of cross appeal, as it sought to vary the order which the judge would have made had he adopted the correct approach to construction of section 221(3) (it now being common ground that his construction was erroneous, such that the appeal should be allowed on that basis).  He went on to submit that even if regarded as a respondent’s notice to affirm, it remained relevant to have regard to factors such as the extent of the delay, the reasons for the delay, and the impact that the granting of leave would have on the appeal in case management terms, as well as the prejudice that would be caused to the Liquidators.

13.As to such prejudice, Mr Manzoni submitted that to permit the filing of the proposed respondent’s notice would cause serious prejudice to the Liquidators, in that:

(1)  Significant wasted time and costs would have been incurred in the conduct of the appeal over some four years, throughout which it was understood to be confined to the issues of construction raised by the Notice of Appeal.  To allow the respondent’s notice to be filed would require the appeal to be adjourned and effectively started afresh.

(2)  This would also cause significant further delay, which would be prejudicial to the Liquidators in that it would further hamper their attempts to investigate and seek to recover the funds of which the Company had been defrauded.

(3)  To allow the oppression ground to be run by the Bank so as to reopen it in relation to the [2.5] documents would be unfair to the Liquidators, in that the Liquidators had already been refused leave to appeal against the judge’s order on the ground that the judge had erred in his views as to oppression in respect of other categories of documents.

(4)  The new issues sought to be raised would also require the Liquidators to file further evidence (as described in Mr Borelli’s 1^st Affidavit filed in connection with these applications) to explain the importance and critical role of the [2.5] documents for the tracing exercises and claims against the former management of the Company (as well as against the Bank), and also to deal with the privacy issues sought to be raised in respect of the [2.6] and [2.9(b)] documents.

14.Dealing first with the nature of the draft respondent’s notice, we are of the view that it is properly to be regarded as a notice to affirm.  Although Mr Manzoni may be justified in saying that it is an attempt to vary the order which the judge would have made had he not adopted the erroneous construction of section 221(3) which he did, the fact remains that the judge did not make that order.  The order that he did make (albeit for reasons which are now accepted to be incorrect) was to dismiss the Liquidators’ application for production of documents.  The draft respondent’s notice does not seek to vary or reverse that order – on the contrary, it seeks to uphold it for reasons other than those relied upon by the judge.  In these circumstances, we have difficulty in seeing how it can be regarded as anything other than a respondent’s notice to affirm.

15.That said, however, we cannot agree with Mr Shieh that the consequence is that leave to file it out of time must be given unless the appellant can demonstrate serious prejudice.  It seems to us that the modern approach to case management of appeals requires that in all cases where a late application is made, all relevant factors should be taken into account.  In the present case, the application is for leave to file a respondent’s notice out of time.  Even where the respondent’s notice is a notice to affirm, it seems to us that the court is entitled to have regard to the nature of the new grounds sought to be advanced, in particular whether they relate to grounds advanced previously on material previously deployed, so that it can truly be said that they will not take the appellant unawares, and will not impose an undue burden on him in responding to them.  Factors such as the extent of the delay, and the closeness to the date fixed for the hearing of the appeal will also be relevant, as will consideration of prejudice to the appellant, and the strength of the arguments sought to be introduced.

16.Adopting that approach in the present case, there can be little doubt that the delay has been extremely substantial, as the application is some four years out of time, and was made barely two weeks before the date fixed for the hearing of the appeal, with no explanation or justification sought to be put forward for the delay.  Set against that, we are satisfied that there would be real, and serious prejudice to the Liquidators (as submitted by Mr Manzoni) if the application to file the respondent’s notice out of time were allowed, in particular in terms of delay in the handling of the appeal, and the consequences for the liquidation more generally.  Balancing these factors, we are firmly of the view that it would not be appropriate for leave to file the proposed respondent’s notice out of time to be granted.  We have also considered the merits of the arguments proposed to be raised and do not think that these are so strong as to require us to come to a different conclusion.

17.We therefore decline to grant leave to file the draft respondent’s notice out of time.  So far as the application for leave to adduce fresh evidence is concerned, given our decision in relation to the respondent’s notice, there is no purpose to be served in allowing such evidence to be adduced, and we therefore dismiss that application also.

18.For the foregoing reasons, we dismiss the summons of 18 March 2020, with costs to the Liquidators.  Having considered the statement of costs lodged by the Liquidators, we assess such costs on a gross sum basis in the amount of HK$190,000.

Written submissions by Mr Charles Manzoni SC and Mr Jason Karas, instructed by Lipman Karas, for the applicants

Written submissions by Mr Paul Shieh SC and Ms Julina Lam, instructed by KW Ng & Co, for the 1^st respondent