Allson Classic Hotel (HK) Ltd v. Harvest Star International Ltd
Read the full judgment text of CACV 6/1996 on BabelCite. This Court of Appeal judgment was delivered on 9 July 1996.
2. Harvest now appeals against both decisions save that Mr Kwok QC, who appears for Harvest, has not pursued his alternative contention that certain parts of the claim should be struck out.
|
Civil Appeal Nos. 6 and 26 of 1996 Headnote The Transfer of Businesses (Protection of Creditors) Ordinance, Cap. 49. Is the literal interpretation of the words "(for the purposes of such proceedings only)" in s.4(5) the true and only arguable interpretation? Joinder of assignee of a contract as co-plaintiff with assignor after the expiry of the limitation period under O15(6)(2)(b). The Aiolos [1983]2 Lloyd's Rep 25 considered. IN THE COURT OF APPEAL 1996, Nos. 6 and 26
------------------------------------- Coram: Mortimer, Godfrey and Mayo, JJ.A. Date of delivery of judgment: 9 July 1996 ---------------------- J U D G M E N T ---------------------- Mortimer, J.A.: On 11 January 1996 Seagroatt, J. dismissed the defendants' (Harvest's) application to strike out the plaintiffs' (Allson's) amended claim in Action 1995, No CL106 on the grounds that the amended points of claim disclosed no reasonable cause of action. The judge also refused Harvest's alternative contention to strike out parts of the amended points of claim. On the same day following separate proceedings he allowed Allson's application to add Sun Asia as a plaintiff. 2. Harvest now appeals against both decisions save that Mr Kwok QC, who appears for Harvest, has not pursued his alternative contention that certain parts of the claim should be struck out. The facts 3. The dispute between the parties arises out of a management agreement between the owners on the one hand and the managers on the other of the Ramada/Hong Kong Renaissance Hotel. 4. On 3 September 1990 the owners, Sunyou, and the managers, Sun Asia, entered into a management agreement for the hotel. The parties in the present action are successors in title to those original owners and managers. Sun Asia assigned the management contract to Sutton Wick Ltd which later changed its name to Allson Classic (7). Sunyou, the original owner, assigned the hotel and business to Abundance who later sold it to Harvest. 5. The relevant dates in both appeals are as follows:
Harvest's appeal against the judge's refusal to strike out CL106 6. If Allson has a claim against Harvest, it is only under the Transfer of Businesses (Protection of Creditors) Ordinance, Cap. 49 as the transferee of the business from Abundance. The true interpretation of the Ordinance is therefore central to this appeal. I turn briefly to consider its scope. 7. Where a business is transferred, the Ordinance provides in limited circumstances some protection to the creditor of the transferor by giving him a right to recover against the transferee the debts and obligations of the transferor arising out of the carrying on of the business. 8. The general provision is that the transferee is liable for such debts:
However, this liability ceases in certain circumstances:
Such a notice becomes complete (and the transferee's liability under the Ordinance ceases), one month after the last day of publication of the notice (s.4(4)). 9. However, the creditor may keep the notice alive (and question keeps alive the liability of the transferee?) in circumstances specified in s.4(5)(a):
10. Finally, where proceedings have been instituted, a notice is not deemed incomplete unless within 1 month of the proceedings the proceedings are served on - or a written notice of them is sent to - the person against whom they were issued. 11. In CL106 Allson seeks to recover from Harvest (the transferee) that which it claims against Abundance in the Hawaiian proceedings and in Action CL108. The issue 12. The main issue before the judge and in this appeal is whether it is arguable that on a true interpretation of s.4(5)(a) of the Ordinance the proceedings taken by Allson (the creditor) against Abundance (the transferor) on 17 June 1994 - before the transfer and before the notice of transfer given on 20 May 1994 had become complete - resulted in the notice being deemed incomplete que Harvest (the transferee) to preserve a right of action under the Ordinance by Allson against Harvest. This concerns the true meaning of the words "for the purposes of such proceedings only". The judge held that it was arguable that these words were not literally limited to the proceedings against the transferor but could include proceedings to make a similar claim against the transferee. Harvest's appeal in CL106 13. Harvest submits that the judge was wrong to find that Allson has an arguable claim. I hope I do no disservice to Mr Kwok's submissions if I summarise them as follows:
14. He submits that even if the result is to deprive the creditor of protection and s.4(1) and 5(a) would be absurd, otiose and self-defeating, the simple English words "for the purposes of such proceedings only" are so obvious and clear that it is not open to the court to hold that they are in any way ambiguous. Nor is it open to the Court to apply a purposive construction which would give the sections effect. Therefore, he concludes his argument, the judge was plainly wrong in deciding that it is arguable that Allson has a claim against Harvest and the appeal should be allowed and the proceedings struck out. Allson's case in CL106 15. Mr Robert Tang QC, for Allson, submits that the interpretation contended for by Harvest leads to absurdity. The Ordinance does not affect the rights of a creditor against the transferor. It provides liability against the transferee, but this liability is extinguished upon a notice of transfer becoming complete. Section 4(5)(a) deems such notice to be incomplete in certain circumstances. A notice is deemed incomplete to preserve a creditor's rights against the transferee. If therefore the words "for the purposes of such proceedings only" refer to proceedings against the transferor and are thus limited, the result would not only be absurd but self-contradictory. The notice is deemed incomplete to preserve the rights of the transferee (the only rights under the Ordinance) and then it would remove any right of action against the transferee once proceedings were instituted against the transferor. Possibly (as in this case) at a time when there was no transferee to sue - there was only an intended transferee. 16. Mr Tang therefore argues that the purpose and intention of s.5(a) must have been to preserve rights against the transferee in respect of the subject matter of the action taken against the transferor. He submits that the words are not so clear that an absurd meaning has to be given to them and it is arguable that on its true interpretation s.5(a) deems that a subsection (1) notice is incomplete as regards the transferee in respect of the same liability alleged in the proceedings against the transferor. Conclusion 17. Mr Kwok QC urges the court not to take the easy way out and to defer any decision upon the true interpretation of the section if, albeit absurd, the clear meaning of the words is in his favour. This I accept. If the proceedings are doomed to failure an end must be put to them at once. 18. The difficulty in interpreting subsection 5 becomes clear when the whole subsection is read:
By normal construction the words "such proceedings" would refer back to the nearer expression "proceedings against the transferee" in sub-subsection (b). But if they were thus limited it could lead to the almost equally unacceptable interpretation in sub-subsection (a) that once proceedings were instituted against a transferor, the notice would be deemed incomplete for all purposes. It would appear, therefore, that the words "such proceedings" refer back to both the proceedings against the transferor under sub-subsection (a) and against the transferee under sub-subsection (b). 19. I am satisfied that it is arguable that in interpreting the true meaning of the words "for the purposes of such proceedings only" in subsection (5)(4) a purposive approach is permissible and that the notice is deemed incomplete for the purposes only of enforcing against the transferee the debts and obligations alleged in the proceedings against the transferor. 20. I reach this conclusion having considered the helpful submissions of counsel upon this and other parts of the Ordinance. When s.4(5) is considered as a whole, the words "for the purposes of such proceedings only" refer to both proceedings against the transferor in subsection (5)(a) and against the transferee in subsection (5)(b). To give the words a literal meaning results in absurdity and arguably defeats the purpose of the subsection. In the end, it is largely a question of impression, but for my part, I am satisfied that consequent upon the draftsman's excessive economy of language the words are ambiguous. It is arguable that on their true construction they have a meaning consistent with the intention of the legislation to preserve a right of action by the creditor against the transferee having earlier taken appropriate proceedings against the transferor. 21. For these reasons, I would hold that the amended points of claim do disclose a reasonable cause of action against Harvest and that this appeal should be dismissed. The respondent's notice 22. Towards the end of Mr Tang's submissions for Allson, we gave leave for him to put in a respondent's notice, alleging that the judge was wrong to find that the notice of transfer of 20 May 1994 was valid. Having reached the conclusion that the appeal should be dismissed on other grounds, it is not necessary to decide this point and I would leave this for consideration at trial. Harvest's appeal against the granting of leave to Allson to join Sun Asia Pacific Hotels Ltd (Sun Asia) as a co-plaintiff in Action CL106 23. Allson is the assignee of the management contract, the subject matter of the Action. Sun Asia is the assignor. Allson contends that this was a legal assignment. If so, it is unnecessary to join the assignor but there is a dispute whether the assignment was legal or only equitable. If in due course the court decides that the assignment was equitable, Sun Asia ought to be a party so as to be bound by the result. Sun Asia consents to be joined. It was on this basis that it was joined as a co-plaintiff. In the absence of consent, it would have been joined as a defendant. 24. Mr Kwok submits that the judge was wrong to permit the joinder as plaintiff because this may defeat Harvest's accrued limitation rights under s.9 of the Ordinance which provides:
25. The application to join Sun Asia was made on 12 December 1995. This was on any view more than 12 months after the transfer of the business. Further, Mr Kwok points to the terms in which the consequential amendments to the pleadings were allowed. In respect of each allegation by Allson, the amendment reads "and/or Sun Asia". 26. It is to be noted that this application is made not under O20 r5 but under O15 r6(2)(b)(i) which reads:
27. Rule 6(5) provides that a person will not be added or substituted after the expiry of any relevant period of limitation so as to preserve the other party's accrued rights under limitation provisions. 28. We heard submissions from both sides as to the effect of the Aiolos [1983] 2 Lloyd's Rep 25. Mr Kwok submits that the judge was wrong to rely upon the principles in that case, whereas Mr Tang submits that it is on all fours with the present case and the judge was right to follow it. 29. However this may be, the answer to this appeal may be approached from a consideration of a few relevant principles on the assumption that this was an equitable assignment:
30. In the Aiolos (above) Oliver, L.J. (as he then was) considered these principles and concluded that the insurer plaintiff ought not to be allowed to join its insured as co-plaintiffs after the relevant limitation period had expired. The insured had wrongly sued in its own name only claiming subrogation rights. Including the insured as co-plaintiffs would therefore defeat the defendants' accrued limitation rights. However, on the disputed question whether the insured had assigned their rights to the insurer, the insured were necessary and proper parties so as to be bound by the result of the proceedings. In these circumstances the insured were permitted to be joined as defendants but not plaintiffs. 31. In this case, Sun Asia is joined simply in the capacity of equitable assignor without being able to assert on its own behalf any additional right or cause of action. There are no accrued rights under s.9 of the Ordinance as the action was brought by Allson within the limitation period. Further, I am satisfied that it is desirable that Sun Asia, as an equitable assignor, is joined so as to be bound by the result of the proceedings. 32. If there had been an issue as to whether Sun Asia had assigned its rights under the contract it would have been permitted to join only as defendant so as to preserve for Harvest any accrued limitation rights. However, the issue is limited to the nature of the assignment and Sun Asia has consented to be joined as a plaintiff (see O15 r6(4)), I can discern no reason for not permitting its joinder as plaintiff. This is in spite of the "and/or" amended pleading which in the end is a matter of form and not substance. If Allson's claim fails the whole action will fail. 33. I am unable to fault the judge's exercise of his discretion. He rightly permitted Allson to amend the proceedings and to join Sun Asia as co-plaintiff. 34. I would dismiss this appeal also. Godfrey, J.A.: 35. I agree. Mayo, J.A.: With respect, I agee with my brothers Mortimer and Godfrey. 36. It is, however, pertinent to observe that a further compelling reason for not acceding to the strike out application is that a consequence which would flow from this is that Allson would be precluded from presenting a case that the admitted change in the date of the actual transfer of the business invalidated the notice given under the Ordinance. 37. Although Seagroatt J held that the notice was valid he did so in the course of interlocutory proceedings and this would not be binding upon the trial judge. Clearly, this is an issue which has to be ventilated.
Representation: Mr Kenneth Kwok QC and Miss Susan Kwan (M/s Wilkinson & Grist) for Appellant/Defendant Mr Robert Tang QC and Mr R. Faulkner (M/s Hampton, Winter & Glynn for Respondent/Plaintiff IN THE COURT OF APPEAL 1996, No. 6 and 26
------------------------------------- Coram: Mortimer, Godfrey and Mayo, JJ.A. Date of delivery of judgment: 9 July 1996 ------------------------------------- Order Nisi on Costs of Appeal ------------------------------------- 38. We make an order nisi that the respondent's costs of and incidental to both appeals shall be paid by the appellant to be taxed if not agreed.
Representation: Mr Kenneth Kwok QC and Miss Susan Kwan (M/s Wilkinson & Grist) for Appellant/Defendant Mr Robert Tang QC and Mr R. Faulkner (M/s Hampton, Winter & Glynn for Respondent/Plaintiff |