Hui Chun Ping v. Hui Kau Mo

HCA 2653/2018

[2022] HKCFI 2451

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2653 OF 2018

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Before:  Deputy High Court Judge H. Au-Yeung (Paper Disposal)

Dates of Submissions: 7, 21 & 28 June 2022

Date of Decision: 16 August 2022

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DECISION

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A.    THE APPEAL

1.This is the defendant’s appeal against the order made by Master Kenneth Lee dated 17 December 2021 pursuant to which leave was granted for the plaintiff to amend his Re-Amended Writ of Summons and his Re-Amended Statement of Claim. 

B.    PROCEDURAL HISTORY

2.The procedural history of the present case may be set out briefly as follows.

3.The Writ of Summons herein was filed on 13 November 2018 which was endorsed with a Statement of Claim.

4.The Statement of Claim was subsequently amended twice.  In his Re-Amended Statement of Claim filed on 24 December 2019, the plaintiff had made three claims by pleading the following matters:

The outstanding consultancy fees claim

(1)  In around May 2004, the plaintiff, at the introduction of the defendant, came to be involved in providing consultancy services to Hutchison Whampoa Limited (“HWL”), in respect of an intended investment in a construction project in Qingdao, PRC (“the Project”);

(2)  A company known as 和記黃埔地產(青島)有限公司 (“HWQD”) was set up by HWL for the purpose of the Project;

(3)  It was agreed between the plaintiff and representatives of HWL and/or HWQD that the plaintiff and his team would provide consultancy services to HWL for the purpose of obtaining the relevant approvals from various authorities for the Project;

(4)  The defendant offered to act as the plaintiff’s agent in the dealings with HWL and/or HWQD at a fee to be agreed later;

(5)  In early 2006, the defendant represented to the plaintiff that upon all the relevant approvals from the authorities being obtained, HWL and/or HWQD would pay the followings to the plaintiff for the said consultancy services (“the Initial Payment Agreement”):

(a)  RMB33.9 million; and

(b)  10% dry shares of the Project’s profit[1] (“10% Dry Shares”);

(6)  The said representatives of HWL and/or HWQD together with the defendant later on suggested to the plaintiff, as to which the plaintiff agreed, that the 10% Dry Shares should be converted into and be paid as a lump sum payment of RMB40 million as the calculation of such profit would be complicated;

(7)  For the purpose of entering into a formal consultancy agreement with Braintech Limited (“Braintech”) (the corporate vehicle used by HWL and/or HWQD), the defendant suggested to the plaintiff that he should use the defendant’s BVI company known as Pacific Harvest International Limited (“Pacific Harvest”).  The plaintiff agreed on the condition that the shares of Pacific Harvest would be transferred to him, which the defendant agreed;

(8)  On 14 June 2006, two written consultancy contracts (“the Consultancy Contracts”) were executed by Braintech and Pacific Harvest, which provided that Pacific Harvest would provide consultancy services to Braintech and its related company at the consultancy fees of RMB33.9 million and RMB40 million respectively;

(9)  At all material times, the defendant acted as the agent for the plaintiff in his dealing with Braintech and/or HWQD and/or HWL regarding the Project, and it was agreed, among other things, that (“the Agency Agreement”):

(a)  The defendant would be paid a total sum of RMB10 million out of the consultancy fees under the Consultancy Contracts;

(b)  The defendant would handle all the dealings between Pacific Harvest and Braintech and/or HWQD and/or HWL in relation to the Project, including any additional consultancy services to be provided by the plaintiff;

(c)  The defendant remained to be the plaintiff’s agent until the completion of the Project and settlement of all payments payable by Braintech and/or HWQD and/or HWL to the plaintiff under the Consultancy Contracts or any additional consultancy service agreements;

(10)  Pursuant to the Agency Agreement, the defendant was responsible for handling the payments made by Braintech.  Up to February 2007, Braintech had paid Pacific Harvest a total sum of RMB44.34 million. However, there was a delay on the payment of the balance of the consultancy fees;

(11)  On 24 January 2014, Braintech informed the plaintiff that it had paid the outstanding consultancy fees in the total sum of RMB22,946,900 to Pacific Harvest under the Consultancy Contracts.  Taking into account the agency fee which the defendant was entitled to deduct therefrom, the defendant should hand over RMB19,846,900 to the plaintiff, but the defendant had failed to do so.

The additional consultancy fee claim

(12)  In the latter part of 2009, Braintech intended to increase the construction area in the Project and engaged the plaintiff’s consultancy service accordingly.  The defendant continued to act as the plaintiff’s agent for this purpose;

(13)  It was agreed in about May 2013 that the additional consultancy fee would be RMB6,570,000 (“the Additional Consultancy Fee”);

(14)  It was made a condition that Braintech would pay the additional consultancy fee only if it would be treated as an extended contract under the Consultancy Contracts between Braintech and Pacific Harvest (“the Extended Contract”);

(15)  The plaintiff duly provided the additional consultancy service.  Braintech was ready and willing to pay the Additional Consultancy Fee on the condition that the Extended Contract be executed jointly by the plaintiff and the defendant;

(16)  In breach of his duty owed to the plaintiff, the defendant failed or refused to execute the said Extended Contract.  As a result, Braintech refused to pay the Additional Consultancy Fee.

The secret profit claim

(17)  In late 2013 or early 2014, it came to the knowledge of the plaintiff that:

(a)  The defendant had, without the knowledge and consent of the plaintiff, secretly obtained 10% Dry Shares;

(b)  On a date unknown to the plaintiff, 10% Dry Shares were paid over to the defendant by HWL and/or HWQD and/or Braintech;

(18)  It was a breach of the defendant’s duty in secretly obtaining the 10% Dry Shares.  The defendant is liable to account to the plaintiff for the said 10% Dry Shares and the dividends received therefrom[2];

(19)  The plaintiff sought an order that the defendant do account to the plaintiff for 10% Dry Shares, and the dividends received therefrom, and/or damages to be assessed[3].

5.On 12 November 2020, Master Martin Wong struck out paragraph 20 and Prayer (2) of the Re-Amended Statement of Claim (see paragraphs 4(18) and (19) above).

6.On 24 November 2020, the plaintiff filed a Notice of Appeal to Judge in Chambers to appeal against the learned Master’s order.

7.After 1 February 2021, the plaintiff decided to apply for leave to amend the Re-Amended Statement of Claim.

8.On 10 March 2021, the plaintiff sent his draft Re-Re-Amended Statement of Claim to the defendant and asked for his consent to the intended amendment application.  

9.On 12 March 2021, the plaintiff formally withdrew his appeal against Master Martin Wong’s order of striking out.

10.As the defendant refused to consent to the plaintiff’s proposed amendment application, the plaintiff filed a summons on 12 April 2021 (“the Amendment Summons”).

11.As aforesaid, Master Kenneth Lee granted leave pursuant to the Amendment Summons on 17 December 2021.  The Re-Re-Amended Statement of Claim was filed accordingly pursuant to such leave on 21 December 2021.

C.    THE RE-RE-AMENDED STATEMENT OF CLAIM

12.The amendments in the Re-Re-Amended Statement of Claim comprise, inter alia, the followings:

(1)  The identities of the parties;

(2)  The relationship among the plaintiff, the defendant, Braintech and HWQD;

(3)  The plaintiff’s consultancy service provided in relation to the Project;

(4)  Explanation of the meaning of “10% dry shares of the Project”;

(5)  The circumstances in which the plaintiff was led to believe that the shares in Pacific Harvest had been transferred (“the Pacific Harvest Share Transfer”) to him, and how he came to realise that no such transfer had taken place;

(6)  The representations made by the defendant and the representatives of HWL and/or HWQD which led to the plaintiff’s agreement to accept RMB40 million lump sum payment in place of 10% Dry Shares;

(7)  The circumstances under which a bank account in the name of Pacific Harvest with Wing Hang Bank was opened in Macau (“the Bank Account”), the plaintiff’s belief as to his control of this bank account and his agreement of adding the defendant as an authorised signatory;

(8)  The agreement between the parties on the defendant’s responsibilities as the plaintiff’s agent regarding the Project;

(9)  The fiduciary duties and common law duties owed by the defendant to the plaintiff;

(10)  The manner in which the defendant acquired 10% Dry Shares through his company;

(11)  Various legal claims.

D.   THE DEFENDANT’S OBJECTIONS

13.The defendant opposed against the amendments to the Re-Amended Statement of Claim relating to:

(1)  the defendant’s alleged failure to transfer the Pacific Harvest shares under the Agency Agreement[4];

(2)  the defendant’s alleged breach of trust and/or fiduciary duties[5];

(3)  the plaintiff’s claim for the defendant’s alleged breach of fiduciary duties in that he has obtained secret profit in relation to the 10% Dry Shares[6].

14.It was contended by the defendant that the above re-amendments introduced new causes of action which were time-barred as at the date of the Writ or at least arguably time-barred by the date of the Amendment Summons, such that the grant of leave would prejudice the defendant and deprive him of a limitation defence by reason of the operation of the relation-back principle. 

15.I will consider the above amendments in turn below, but before I do that, it may be helpful to set out the applicable legal principles even though they are trite.

E.    THE LEGAL PRINCIPLES

16.The applicable legal principles on amendment of pleadings have been set out by the House of Lords in Ketteman & Others v Hansel Properties Limited [1987] AC 189, at 212 as follows:

“First, all such amendments should be made as are necessary to enable the real questions in controversy between the parties to be decided. Secondly, amendments should not be refused solely because they have been made necessary by the honest fault or mistake of the party applying for leave to make them: it is not the function of the court to punish parties for mistakes which they have made in the conduct of their cases by deciding otherwise than in accordance with their rights. Thirdly, however blameworthy (short of bad faith) may have been a party’s failure to plead the subject matter of a proposed amendment earlier, and however late the application for leave to make such amendment may have been, the application should, in general, be allowed, provided that allowing it will not prejudice the other party. Fourthly, there is no injustice to the other party if he can be compensated by appropriate orders as to costs.”

17.These are still the guiding principles which are applicable after the implementation of the Civil Justice Reform.  As explained by Kwan JA (as she then was) in Topwell Corporation Limited v Kwan Kam Kee & Another [2014] 5 HKLRD 1:

“39. The principles in Ketteman v Hansel Properties Ltd [1987] 1 AC 189 at 212F to H on the exercise of discretion to allow or refuse an amendment of pleadings remain good law after the CJR, see Li Shiu To v Li Shiu Tsang, HCA 416/2003, 14 August 2012, Deputy Judge Lok, paras 14 to 16. Having said that, in the exercise of discretion, the court must of course have regard to the underlying objectives in Order 1A of the RHC or of the RDC, so it cannot be assumed that once the principles in Ketteman are satisfied, the amendment would be allowed. The court would need to balance all relevant factors to decide how its discretion should be exercised, if the application is made in circumstances offending one or more of the underlying objectives. In this particular case, a pertinent consideration in giving effect to the underlying objectives is that the court “shall always recognise that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties” (Order 1A rule 2(2) of the RDC).”

18.In a case where the objection to amendments is based on the assertion that the newly added claim is time-barred, this Court shall follow the guidance given in Global Bridge Assets Limited & Others v Sun Hung Kai Securities Limited [2012] 4 HKLRD 474, in which Kwan JA (as she then was) had the following to say:

“21. Leave to amend should not be given if the effect of this would be to deprive the defendant of an accrued limitation defence, which would be lost as a result of the operation of the relation-back rule in s 35(1)(b). In that situation, the correct approach is to refuse leave to amend, unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation, or that the new claim arises out of the same or substantially the same facts as a cause of action in respect of which relief has already been claimed in the existing action. ‘By this means the injustice to the defendant of depriving him of an arguable limitation defence is avoided without denying the plaintiff the right to bring a fresh action to which, if he is correct, there is no limitation defence.’ ” (emphasis added)

19.This was further explained by G Lam JA in paragraph 34 of Securities and Futures Commission v Lu Ruifeng [2022] 1 HKLRD 1349, [2022] HKCA 326:

“It is plain that, ordinarily, an order giving leave to the plaintiff to join a defendant and amend the statement of claim is not one that determines any substantive rights. What it decides, usually, is merely that the plaintiff has an arguable case against the defendant. But an amendment that adds a claim based on a new cause of action or against a new defendant in the face of an objection that the applicable limitation period has expired stands on a different footing. Section 35(1)(b) LO means that, once added, the new claim relates back to the date of commencement of the original action. If the limitation period for the new claim had not expired by that earlier date, the time-bar defence would be lost to the defendant forever. This is why before such an amendment is to be permitted, the court has to be satisfied that the limitation defence is not reasonably arguable anyway: Sun Focus Investment Ltd v Tang Shing Bor [2012] 1 HKLRD 738, §§11-15; Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474, §§14-26. As stated in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409 at 1425G-H: ‘In such a case, leave to amend by adding a new claim should not be given unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation which will be prejudiced by the new claim, or can bring himself within R.S.C. Ord. 20 r. 5.” It follows that a decision giving leave to amend in such a case necessarily determines that the defendant does not have a limitation defence.’ ”

20.Both parties have referred this Court to the case of Shenzhen Futaihong Precision Industry Co Ltd & Others v BYD Company Limited [2019] 2 HKC 175, [2018] HKCA 408 in which the well-established three-stage test was applied:

“(1) Stage 1: Is it reasonably arguable that the opposed amendments are outside the applicable limitation period? If not, then the amendments fall to be considered in accordance with the general principles governing amendment applications.

(2) Stage 2: If the answer to (1) is yes, do the proposed amendments seek to add or substitute a “new cause of action”? If not, then again the amendments fall to be considered in accordance with general principles.

(3) Stage 3: If the answer to (2) is yes, does the new cause of action arise out of the same or substantially the same facts as are already in issue in the existing claim? If not, the amendments cannot be allowed.  If yes, then the court retains a discretion to allow or refuse the amendments in accordance with general principles.”

21.In relation to an appeal brought against Master’s decision, it is well established that such an appeal is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time.  The judge will give the weight it deserves to the previous decision of the Master, but he is in no way bound by it.  The judge in chambers is in no way fettered by the previous exercise of the Master’s decision.

F.    DISCUSSION

F1. The claim on the Pacific Harvest Share Transfer

F1.1     The limitation defence

22.The defendant objected to the plaintiff’s amendment concerning the defendant’s alleged failure to effect the Pacific Harvest Share Transfer on the ground that this cause of action would have accrued in 2006, which was more than 6 years (the limitation period applicable to an action founded on simple contract) before the Writ herein was issued on 13 November 2018.

23.I will consider this matter by following the 3-stage test explained in Shenzhen Futaihong Precision Industry Co Ltd (supra).

F1.1.1     Stage 1

24.The plaintiff relied on section 26 of the Limitation Ordinance (Cap.347, Laws of Hong Kong) and argued that the pleas do not fall outside the applicable limitation period in the first place because of the postponement of the limitation period due to the defendant’s deliberate concealment of the matter.  The relevant part of the said section 26 provides that:

“(1) Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either—

(a) […];

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) […],

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.” (emphasis added)

25.The issue here is whether the plaintiff could with reasonable diligence have discovered that he was not the sole shareholder of Pacific Harvest.  The burden of showing that he could not with reasonable diligence have discovered about the concealed matter is on the plaintiff.

26.In my view, the plaintiff had failed to satisfy such a burden:

(1)  I agree with the defendant’s argument that the plaintiff, as a businessman who had also used corporate vehicle in his business, must have understood that as a shareholder of a company, he would have received documents such as annual reports, audited financial statements, annual resolutions and notices of general meetings.  The fact that he had never received any of these would have put him on notice that he was not a shareholder of Pacific Harvest;

(2)  The plaintiff, in his affirmation, stated that according to his understanding, Pacific Harvest had never convened any shareholders’ meeting.  This argument is misconceived.  Whether the company had as a matter of fact convened any shareholders’ meeting is irrelevant.  The fact that he had not received any notice would have caused him to make enquiries as to why.

27.Furthermore, according to the letter dated 4 May 2013 issued by Braintech (“Braintech’s 4 May 2013 Letter”), the plaintiff had written to Mr Li Ka Shing in the name of Giant Sea Investment Limited and chased for payment of consultancy fees.  Given the fact that the Consultancy Contracts were entered into under the name of Pacific Harvest, if the plaintiff really believed that he was the sole shareholder thereof at the material time, it is difficult to understand why he did not chase for the payment of consultancy fees under the name of Pacific Harvest. 

28.In Braintech’s 4 May 2013 Letter, Braintech explained that the payment of consultancy fee had been withheld at the request of the defendant as representative of Pacific Harvest.  If the plaintiff was indeed of the belief that he was the sole shareholder of Pacific Harvest, one would expect that he would write back and state that fact, and made his request for payment again under the name of Pacific Harvest.  However, there is no evidence that he had done so.

29.As the defendant’s counsel pointed out, when Braintech invited Pacific Harvest to give clear payment instruction for the outstanding consultancy fees by letter dated 20 December 2013, there was no suggestion that the plaintiff had ever replied as the sole shareholder of Pacific Harvest and issued payment instructions accordingly.

30.All these show that it is reasonably arguable that the plaintiff either knew before 11 April 2015 (6 years before the Amendment Summons was taken out) that he was not a shareholder of Pacific Harvest, or he could have with reasonable diligence discovered that before the said date.

31.It is therefore my conclusion that the defendant has a reasonably arguable limitation defence as far as the plaintiff’s claim on the Pacific Harvest Share Transfer is concerned.  

F1.1.2     Stage 2

32.At this stage, the question is whether the proposed amendments seek to add or substitute a new cause of action.

33.As to what amounts to “new cause of action”, guidance may be obtained from the Court of Appeal’s Judgment in Shenzhen Futaihong Precision Industry Co Ltd (supra):

“81.  For the definition of a “cause of action”, one has regard to various dicta in the following cases:

‘A cause of action is simply a factual situation the existence of which entitles one person to obtain from the court a remedy against another person.’

(Letang v Cooper [1965] 1 QB 232 at 242 to 243)

‘A cause of action is that combination of facts which gives rise to a legal right.’

(Berezovsky v Abramovich [2011] 1 WLR 2290 at §59)

‘ ‘Cause of action’ has been held from the earliest time to mean every fact which is material to be proved to entitle the plaintiff to succeed, every fact which the defendant would have a right to traverse.’

(Cooke v Gill (1873) LR 8 CP 107 at 116)

‘Every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court. It does not comprise every piece of evidence which is necessary to prove each fact, but every fact which is necessary to be proved.’

(Read v Brown (1888) 22 QBD 128 at 131)

‘The language I used obviously means this: the plaintiff in order to make out a cause of action must assert certain facts which, if traversed, he would be put to prove. … In former times, if he failed to assert any of those facts, his declaration was demurrable as shewing no cause of action.’

(Coburn v Colledge [1897] 1 QB 702 at 706 to 707)

82.  One should bear in mind that a cause of action in this context is ‘not so much the label attaching to a claimant’s claim (for example ‘breach of statutory duty’ or ‘money paid under a mistake of law’)’, but it is the set of facts which entitles the plaintiff to relief (Hoescht UK Ltd v Inland Revenue Commissioners [2004] STC 1486 at §24; Sorata Ltd v Gardex Ltd [1984] RPC 317 at 326).  ‘The assessment is objective and the consideration must be of the substance of what is pleaded, rather than the form.’ (ISP Consulting Engineers Ltd v Body Corporate 89408 [2017] NZCA 160 at §22)

83.  As to how one should approach the question whether the proposed amendment constitutes a new cause of action, Tomlinson LJ gave useful guidance in Co‑operative Group Ltd v Birse Developments Ltd (2013) 148 Con LR 264:

‘[20] In the quest for what constitutes a ‘new’ cause of action, ie a cause of action different from that already asserted, it is the essential factual allegations upon which the original and the proposed new or different claims are reliant which must be compared. Thus ‘[t]he pleading of unnecessary allegations or the addition of further instances or better particulars do not amount to a distinct cause of action’: see Paragon Finance plc v Thakerar & Co, Paragon Finance plc v Thimbleby & Co (a firm) [1999] 1 All ER 400 at 405 per Millett LJ. ‘So in identifying a new cause of action the bare minimum of essential facts abstracted from the original pleading is to be compared with the minimum as it would be constituted under the amended pleading’: see per Robert Walker LJ in Smith v Henniker-Major & Co [2002] EWCA Civ 762 at [96], [2002] 2 BCLC 655 at [96], [2003] Ch 182.

[21] The court is therefore concerned with the comparison of ‘the essential factual elements in a cause of action already pleaded with the essential factual elements in the cause of action as proposed’: see per David Richards J in Revenue and Customs Comrs v Begum [2010] EWHC 1799 (Ch) at [32], [2011] BPIR 59 at [32]. ‘A change in the essential features of the factual basis (rather than, say, giving further particulars of existing allegations) will introduce a new cause of action’: [2011] BPIR 59 at [30].

[22] Where an amendment pleads a duty which differs from that pleaded in the original action, it will usually assert a new cause of action: see per Sir Iain Glidewell in Darlington Building Society v O’Rourke James Scourfield & McCarthy [1999] PNLR 365 at 370. However as Sir Iain went on to observe, where different facts are alleged to constitute a breach of an already pleaded duty, the courts have had more difficulty in deciding whether a new cause of action is pleaded. … In the former case [Steamship Mutual Underwriting Association Ltd v Trollope & Colls Ltd (1986) 6 Con LR 11] May LJ offered the guidance that one must look not only to the duty, but also to the nature and extent of the breach relied upon, as well as to the nature and extent of the damage complained of in deciding whether, as a matter of degree, a new cause of action is sought to be relied upon. The question to be resolved is therefore one of fact and degree. For my part I am not convinced that one needs to look further than for a change in the essential features of the factual basis relied upon, bearing in mind that the factual basis will include the facts out of which the duty is to be spelled as well as those which allegedly give rise to breach and damage. …’

84.  In PJSC Tatneft v Bogolyubov [2017] 1 All ER (Comm) 833, after quoting the above extracts in Co-operative Group Ltd v Birse Developments Ltd, Picken J summed up the position in this way in §92:

‘Accordingly, in order to determine whether a proposed amended claim is a new claim involves comparing ‘the essential factual elements in a cause of action already pleaded with the essential factual elements in the cause of action as proposed’. The amendment will introduce a new cause of action if there is a ‘change in the essential features of the factual basis’ relied upon. This will include consideration of whether the amendment introduces a duty which was not previously pleaded, or relies on a new distinct act said to have caused a loss at a different time from the loss originally pleaded. …’ ”

34.In the present case, it is undeniable that the plaintiff did plead in the Re-Amended Statement of Claim that when the defendant suggested to him that he should use Pacific Harvest to enter into the Consultancy Contracts with Braintech, the plaintiff agreed on the condition that the shares of Pacific Harvest would be transferred to him, to which the defendant agreed.

35.However, the plaintiff’s problem here is that he did not go on to plead that the Pacific Harvest Share Transfer was not effected at the end of the day in his original pleading, and this material fact (which, in my view, is an essential factual element of his claim) was only added in the Re-Re-Amended Statement of Claim. 

36.That being the case, I would answer “Yes” for the stage 2 test – the proposed amendments did seek to add a new cause of action.

F1.1.3     Stage 3

37.The question here is whether the new cause of action arises out of the same or substantially the same facts as are already in issue in the existing claim.

38.This question comes from the provision of Order 20 rule 5 of the Rules of the High Court which provides that:

“(1) […]

(2) Where an application to the Court for leave to make the amendment mentioned in paragraph (3), (4) or (5) is made after any relevant period of limitation current at the date of issue of the writ has expired, the Court may nevertheless grant such leave in the circumstances mentioned in that paragraph if it thinks it just to do so.

(3) – (4) […]

(5) An amendment may be allowed under paragraph (2) notwithstanding that the effect of the amendment will be to add or substitute a new cause of action if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment.”

39.As to how the stage 3 test should be approached, the Court of Appeal in Shenzhen Futaihong Precision Industry Co Ltd (supra) had adopted the following propositions which were summarised in Diamandis v Wills [2015] EWHC 312 (Ch) at paragraph 49:

“(1) ‘Same or substantially the same’ is not synonymous with ‘similar’.

(2) Whilst in borderline cases, the answer to this question is or may be substantially a ‘matter of impression’, in others, it must be a question of analysis: Ballinger v Mercer Ltd [2014] 1 WLR 3597 at§§35 and 36.

(3) The purpose of the requirement at Stage 3 is to avoid placing the defendant in a position where he will be obliged, after the expiration of the limitation period, to investigate facts and obtain evidence of matters completely outside the ambit of and unrelated to the facts which he could reasonably be assumed to have investigated for the purpose of defending the unamended claim.

(4) It is thus necessary to consider the extent to which the defendants would be required to embark upon an investigation of facts which they would not have been concerned to investigate: Ballinger §38. At Stage 3 the court is concerned at a much less abstract level than Stage 2; it is a matter of considering the whole range of facts which are likely to be adduced at trial: Finlan v Eyton Morris Winfield [2007] 4 All ER 143 at §§56 and 57 citing Smith v Henniker-Major at §96.

(5) Finally, in considering what the relevant facts are in the original pleading a material consideration are the factual matters raised in the defence: see Berezovsky v Abramovich §73 and Goode v Martin [2002] 1 WLR 1828 where the Court of Appeal interpreted CPR 17.4(2) so as to produce a just result where an amendment involved the introduction of no new facts. There the facts in question had been raised in the defence, though not in the original statement of claim.”

40.Following the above approach, I am of the view that the answer to the stage 3 test is “yes”:

(1)  As aforesaid, the plaintiff clearly pleaded the defendant’s agreement to effect the Pacific Harvest Share Transfer in the Re-Amended Statement of Claim.  While he was preparing his Defence, the defendant must have investigated into this alleged agreement already;

(2)  I accept the plaintiff’s argument that the defendant’s alleged agreement to effect the Pacific Harvest Share Transfer was the basis upon which the Consultancy Contracts were entered into, which in turn gave rise to the Agency Agreement.  Such an alleged agreement was therefore already in issue in the existing claim;

(3)  Even if the proposed amendments are allowed to be made, the defendant would not be obliged to investigate into matters which are completely outside the ambit of, and unrelated to, those facts which he could reasonably be assumed to have investigated for the purpose of defending the claim made in the Re-Amended Statement of Claim.  This may be demonstrated by the fact that the defendant had, by virtue of his Request for Further and Better Particulars of the Statement of Claim, made the following requests for particulars in relation to paragraph 4(3) of the Statement of Claim[7]:

“(1) Please state when the Defendant suggested to use Pacific Harvest to enter into formal agreement with Braintech.

(2) Please state the reason why Pacific Harvest should be used for the purpose of entering into formal agreement with Braintech.

In particular, please specify:-

(i) Whether Pacific Harvest was a company wholly-owned and controlled by the Defendant in around early 2006; and

(ii) Whether Pacific Harvest was used due to the alleged agency relationship between the Plaintiff and the Defendant.

(3) Where the Plaintiff pleaded that the Defendant agreed for the shares of Pacific Harvest to be transferred to the Plaintiff, please state (i) when; (ii) where; (iii) how (oral or written) the agreement was reached; (iv) how many shares of Pacific Harvest were to be transferred to the Plaintiff and on what terms; and (v) whether any shares of Pacific Harvest were transferred from the Defendant to the Plaintiff and whether the Plaintiff paid any consideration for such shares.”

In other words, the defendant had already investigated into those matters.

F1.2     The exercise of discretion

41.Given the conclusion reached above, the amendments shall fall to be considered in accordance with the general principles which I have set out in the earlier part of this Decision.

42.In this regard, the only point made by the defendant was that the plaintiff’s claim is fundamentally defective because there is no prayer of relief that the defendant should transfer the Pacific Harvest shares to the plaintiff.

43.It is true that the plaintiff has not claimed for an order for transfer.  However, the plaintiff has pleaded in paragraphs 33 to 48 of the Re-Re-Amended Statement of Claim that:

(1)  Braintech had informed the plaintiff that the outstanding consultancy fees had been fully paid to Pacific Harvest;

(2)  The defendant had failed to pay the net outstanding consultancy fees to the plaintiff;

(3)  The defendant was in breach of the Agency Agreement in, among other things, transferring the shareholdings of Pacific Harvest to the plaintiff;

(4)  By reason of the defendant’s breaches, the plaintiff has suffered loss and damage including the net outstanding consultancy fees;

(5)  To the extent the defendant had collected the Additional Consultancy Fee by causing Pacific Harvest to receive the same, the defendant was in breach of the Agency Agreement by failing to transfer the shareholdings of Pacific Harvest to the plaintiff;

(6)  By reason of the defendant’s breaches, the plaintiff has suffered loss and damage including the Additional Consultancy Fee;

(7)  He would claim under prayer (1) for the said net outstanding consultancy fees and the Additional Consultancy Fee.

44.Hence, it is the plaintiff’s pleaded case that the defendant’s failure to effect the Pacific Harvest Share Transfer has led to the plaintiff’s loss of the outstanding consultancy fees and the Additional Consultancy Fee.

45.As a result, I do not accept the defendant’s argument that the plaintiff’s claim is defective.

46.I will therefore exercise my discretion in allowing the amendments sought in relation to the plaintiff’s claim in relation to the Pacific Harvest Share Transfer.

F2.         Breach of trust and/or fiduciary duties

47.The plaintiff’s claim based on breach of trust and/or breach of fiduciary duties is founded on the following allegations[8]:

(1)  The defendant’s removal of the plaintiff as a signatory of the Bank Account without the plaintiff’s consent;

(2)  The defendant had requested Braintech to defer payment of the outstanding consultancy fees contrary to the plaintiff’s instructions;

(3)  The defendant’s failure to transfer the shareholdings of Pacific Harvest to the plaintiff;

(4)  The defendant’s failure to transfer or procure the transfer of the net outstanding consultancy fees to the plaintiff even though the defendant has collected the same through Pacific Harvest;

(5)  The defendant’s refusal to account for the net outstanding consultancy fees notwithstanding that Braintech had paid the same to Pacific Harvest;

(6)  The defendant’s refusal to cooperate and/or to otherwise enable the plaintiff to receive the Additional Consultancy Fee;

(7)  The defendant’s failure to transfer or procure the transfer of the Additional Consultancy Fee to the plaintiff even though the defendant has collected the same by himself;

(8)  The defendant’s refusal to account to the plaintiff for the Additional Consultancy Fee.

48.The defendant only objected to the amendments which added claims of breach of fiduciary duties on the part of the defendant for:

(1)  removing the plaintiff as a signatory of the Bank Account without the plaintiff’s consent; and

(2)  failing to transfer the shareholdings of Pacific Harvest to the plaintiff.

49.It was contended that these amendments should not be allowed because the grant of leave to amend would deprive the defendant of a limitation defence.

50.I will therefore go through the 3-stage test in respect of the above allegations one by one.

F2.1     Removal of the plaintiff as signatory of the Bank Account

F2.1.1         Stage 1

51.The first question which this Court has to decide is whether this claim is subject to any limitation period. 

52.In this regard, arguments had been made by the parties on the applicability of section 20 of the Limitation Ordinance.  This section provides that:

“(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property, until the interest fell into possession.

(3) […]”

53.While Mr Man SC and Mr Leung accepted that a claim based on breaches of the duty to act bona fide in the best interest of the plaintiff would attract a 6-year limitation period, they argued that as far as the no-conflict and no-profit duties are concerned, no statutory limitation period is applicable either directly or analogously to claims based on breaches of such duties. 

54.Pausing here, if the defendant had indeed removed the plaintiff as signatory of the Bank Account, on the plaintiff’s case, it must have been done in breach of his duty to act bona fide in the best interest of the plaintiff.  The six-year limitation must therefore be applicable to such a situation.

55.Coming back to counsel’s argument referred to above, they cited Virgo’s The Principles of Equity and Trusts (4^th Edition) Ch.17 at page 517, in which Professor Virgo discussed different limitation periods applicable to different types of breach of fiduciary duties as follows:

“(1) If the fiduciary holds property as a trustee, the limitation periods relating to trustees will apply in the normal way, regardless of whether they are an express or constructive trustee. So, for example, a fiduciary who takes the principal’s property for [himself] will hold that property on constructive trust for the principal, so that any claim to recover that property or the proceeds of that property will not be subject to a statutory limitation period.

(2) The liability of the fiduciary may relate to breach of a non-fiduciary duty that constitutes a distinct cause of action, such as breach of contract or tort, and so the limitation period relating to that cause of action will apply.

(3) If the fiduciary is liable for deliberate and dishonest breach of fiduciary duty, this is a true breach of fiduciary duty, since this is a breach of the fundamental obligation of loyalty, but the six-year statutory limitation period will apply by analogy to the limitation period that applies to Common Law claims for deceit.

(4) Similarly, where the relief sought is equitable compensation for a fiduciary’s failure to act in the best interests of the principal, it has been held that the six-year statutory limitation period that applies to tort claims will apply by analogy. In fact, breach of the duty to act in the principal’s best interests is preferably treated as a non-fiduciary duty, so that the contractual or tortious limitation periods should apply automatically rather than by analogy.

(5) We are left with the core liability for breach of fiduciary duty relating to innocent infringement of the no-conflict and no-profit rules where no property is held on trust for the principal.  It seems that no statutory limitation period applies to such claims, either directly or by analogy, since breach of these duties has no equivalent at Common Law, but the doctrine of laches will be applicable.”

56.While the view expressed under (5) above was supported by Megarry V-C’s Judgment in Tito v Waddell (No 2) [1977] Ch. 106 (which was relied upon by Professor Virgo), such an approach had been disapproved in Gwembe Valley Development Co Ltd (in receivership) & Another v. Koshy & Others (No.3) [2004] 1 BCLC 131 in which Mummery LJ had the following to say:

“[104] […] Under the classification expounded by Sir Robert Megarry V.-C in Tito v. Waddell [1977] 1 Ch 107 at 248–251 the liability to account for profits on breach of the self-dealing rule and the fair-dealing rule does not arise from a breach of duty at all. In his judgment such liability is the consequence of an equitable disability rather than of a breach of duty, such as a breach of trust by a trustee or, it appears, a breach of an analogous duty, such as the fiduciary obligations of a company director to his company. The claim for an account of profits is a claim for unjust enrichment, which may succeed, even in the absence of the commission of any wrong, such as a breach of trust or of fiduciary duty or the misuse or misapplication of any of the assets of the beneficiary of the duty.

[105] One factor which he took into account was that the fair-dealing rule was not confined to trustees, but ‘to many others, such as agents, solicitors and company directors’. He thought it would be anomalous if the limitation applied to trustees, but not to others subject to the same rule. He said:

‘A possible line of escape from the anomaly would be to treat agents, solicitors and the rest as constructive trustees for this purpose, so that all would be subject to the six years period: but I should be reluctant to resort to such artificiality unless driven to it.’ (para 249B)

[106] The result of that classification was that, on the facts of Tito v. Waddell, the breach of the self-dealing and fair-dealing rules were not subject to the six year limitation period laid down by section 19(2) of the Limitation Act 1939. That was the predecessor of section 21(3) of the 1980 Act[9]. If the classification in Tito v. Waddell is applied, GVDC's claim for an account of profits against Mr Koshy is not barred by section 21(3) or by any other period of limitation prescribed by the 1980 Act. The Act simply does not apply.

[107] However, before us the Tito v. Waddell approach was not supported by GVDC on the appeal. Indeed, it was submitted that an unsound distinction was drawn in that case between being afflicted with a disability from making a profit and a breach of a core fiduciary duty of loyalty, of which the duty not to make an unauthorised profit was an aspect. Their differing treatments for limitation purposes could not be justified. There was no reason for treating the ‘no profit’ rule as falling outside a statutory scheme, which draws a distinction between, on the one hand, the treatment in s 21(1) of dishonest breaches of duty and proprietary claims, which are not subject to a limitation period, and, on the other hand, the treatment of other breaches of trust under s 21(3), which are subject to a six year period.

[108] With respect to Sir Robert Megarry, but in the light of the subsequent authorities to which we have referred, we agree with GVDC in not seeking to uphold this distinction. We note that in Harrison Chadwick LJ commented on the issue, but reached no conclusion (p 176g). In our view, however, such a distinction is an unnecessary complication, and is inconsistent with Millett LJ’s exposition of the nature of fiduciary duties, to which we have referred. Whether viewed as duties or disabilities, all such incidents are aspects of the fiduciary’s primary obligation of loyalty. Contrary to the Vice-Chancellor’s concern, this does not lead to any anomalous distinction between trustees and others subject to the fair-dealing rule. They are all subject, directly or by analogy, to section 21. On the contrary, the Tito v. Waddell distinction would itself lead to anomaly. Across the wide spectrum of conduct which may give rise to fiduciary liability, the six year limitation would apply except at the two extremes. At one end, fraud would be excepted by section 21(1)(a); at the other, innocent breach of the no-profit rule would be excepted because it relates to a disability rather than a duty. The former exception is defensible in legal policy terms; the latter is not.

[109] We should note that, in one of the twists which has characterised this case, Mr Page (for Mr Koshy) has sought to uphold the Tito v. Waddell distinction, but with the same result. He submits that a claim for simple breach of the no-profit rule is outside the scope of section 21, but that a 6-year limitation period should still apply. This would be by analogy with a claim for restitution or unjust enrichment, to which, he says, the time-limit for a contract (1980 Act s 5) is applied (also by analogy – see Goff & Jones, Restitution 5^th Ed p847. This approach appealed to the judge, although he rejected it on the facts (para 293). In our view, however, the submission merely reinforces the view that the Tito v. Waddell distinction is a needless complication.”

57.On the other hand, Mr Yu SC, Ms Cheng and Mr Hui for the defendant had drawn this Court’s attention to the following authorities which support their submission that the 6-year limitation period should apply:

(1)  Snell’s Equity (34^th Ed., 2019) at paragraph 7-063:

“For the purposes of determining appropriate limitation periods, a breach of fiduciary duty is treated as equivalent or analogous to a breach of trust. In general, therefore, a six-year limitation period applies to claims against fiduciaries for breach of fiduciary duty, either by direct application of the Limitation Act 1980 or by analogy with that statute. Where a claim for breach of fiduciary duty is based on the same facts as a claim for breach of contract or a claim in tort, and there is ‘correspondence’ between the remedies available, the six-year limitation period is applied by analogy.”

(2)  Burrow, Remedies for Torts, Breach of Contract and Equitable Wrongs (4^th Ed., 2019), at pages 543 – 544:

“[…] What emerges from those leading (and other) cases is as follows.

(i) Section 21(1) of the Limitation Act[10] is an exclusionary provision. It provides that no limitation period laid down by the Act shall apply in an action for breach of trust (or breach of fiduciary duty) against a trustee where there has been fraud or the beneficiary is seeking to recover trust property. The Paragon and Williams cases have established that this subsection is to be given a narrow interpretation so that the exclusion applies only where the claim is being brought against a true trustee (which includes a director holding the company’s property). […]

(ii) Assuming the exclusion in s 21(1) does not apply, there is a six-year limitation period, running from the date when the right of action accrued, for monetary remedies for breach of trust or for any other breach of fiduciary duty or for dishonest assistance (or for knowing receipt or to recover trust property).  Although there was no discussion of the precise explanation for this by the Supreme Court in Williams, where it was common ground that there was a six-year limitation period unless the exclusion in s 21(1) applied, a six-year limitation period applies either directly by reason of s 21(3) (which is expressed as applying to actions by a beneficiary ‘to recover trust property or in respect  of any breach of trust’) or by analogy (applying s 36(1) of the Limitation Act 1980) to either the six-year period for breach of trust in s 21(3) or for breach of contract in s 5 (the latter analogy applies, for example, where there is a breach of fiduciary duty in a contractual context).”

(3)  Pearce & Stevens’ Trusts and Equitable Obligations (7^th Ed., 2018) at pages 664 – 665:

“There has been some uncertainty about the limitation periods (if any) applicable to claims for breach of a fiduciary duty since such claims are not expressly mentioned in the Limitation Act 1980. However, applying the principle that all actions are subject to a six-year limitation period unless there is an express provision to the contrary, it has now become clear that actions based on breach of fiduciary duty must normally be brought within six years of the breach. In Coulthard v Disco Mix Club Ltd, this conclusion was reached by analogy with the limitation period applying to a common law action for damages. Where the claim against the fiduciary is for a liability which falls within the description of a Class 1 constructive trustee, the exceptions for fraud and the retention of trust property will apply. […]”

(4)  Lewin on Trusts (Vol.2) (20^th Ed., 2020) at paragraph 46-062:

“The general rule is that section 21 of the Limitation Act 1980 applies to self-dealing transactions, whether directly or by analogy, so that a six-year limitation period applies unless the transaction comes within section 21(1)(b). If the transaction comes within section 21(1)(b) no limitation period applies under the 1980 Act […]”

(5)  Lewin on Trusts (Vol.2) (20^th Ed., 2020) at paragraph 50-083:

“If a trustee or other fiduciary purchases trust property, any beneficiary may have the sale set aside as of right, however fair the transaction (the self-dealing rule); if a trustee or other fiduciary purchases a beneficial interest the beneficiary may have the sale set aside unless the trustee shows that the transaction was scrupulously fair (the fair-dealing rule). It has now been held that those rules are part of the trustee’s primary duty of loyalty as a fiduciary, so that infractions of them are breaches of fiduciary duty and hence are covered by the 1980 Act; and in any event, for the purposes of limitation, there was no justification for distinguishing between breach of fiduciary duty and the imposition of disabilities on a trustee. At one time it had been said that those rules constituted merely disabilities of a trustee or fiduciary, with the consequence that what is now section 21(3) of the 1980 Act had no application and no time-limit applied. That view has been disapproved. It is now clear that section 21 of the 1980 Act does apply to breaches of the self-dealing and fair-dealing rules by trustees and any distinction between breach of duty and imposition of disabilities is for the purposes of limitation irrelevant.”

58.I accept their submissions and agree that the six-year limitation period is applicable to the claim regarding the removal of the plaintiff as signatory of the Bank Account. 

59.As recognised by the defendant’s counsel, the plaintiff was still a signatory of the Bank Account on 16 April 2014[11].  On the other hand, it is the plaintiff’s case that he was only informed by the Macau authorities on 14 December 2016 that the defendant had removed him as a signatory of the Bank Account. 

60.The defendant therefore submitted that the plaintiff’s cause of action, if existed, must have accrued during the said period.

61.The plaintiff then argued that section 26 of the Limitation Ordinance is engaged such that there was a postponement of the limitation period due to the defendant’s deliberate concealment, and as a result, the cause of action did not accrue until 14 December 2016.

62.As aforesaid, the burden is on the plaintiff to show that he could not have, with reasonable diligence, discovered the alleged concealment more than 6 years before the amendment application (i.e. 12 April 2021).

63.In this regard, I accept the plaintiff’s argument that there was nothing which happened between 16 April 2014 and 14 December 2016 which would have prompted a reasonable person in the plaintiff’s position to suspect that the defendant had removed him as a signatory or to make enquiry with the bank about his status as a signatory of the Bank Account.  The fact that the plaintiff would have found it out if he had made such an enquiry with the bank is irrelevant, because, as the plaintiff’s counsel submitted, there was simply no reason why the plaintiff should have made such an enquiry with Wing Hang Bank out of the blue.

64.It is therefore my view that it is not reasonably arguable that the claim is outside the applicable limitation period. Hence, the amendments should be considered in accordance with the general principles set out in Ketteman.

F2.1.2         Stages 2 and 3

65.In case I am wrong in my conclusion in stage 1 above, I will proceed to the other stages of the consideration.

66.However, as far as the claim in relation to the removal of plaintiff as a signatory of the Bank Account is concerned, the plaintiff’s counsel has not made any submission on stages 2 and 3 at all.

67.I would therefore have refused to allow the proposed amendment but for my view expressed under stage 1 above.

F2.2    Failing to transfer the shareholdings of Pacific Harvest

68.I refer to my discussions in Section F1.1 above which should be applicable also to the plaintiff’s claim for breach of fiduciary duty based on the defendant’s alleged failure to transfer the Pacific Harvest shareholdings to the plaintiff.  Hence, subject to the discussions under Section F2.3 below, leave to amend should be granted.

69.Insofar as it was argued by the plaintiff that section 20(1) is engaged herein as it is “at least arguable that the shares of Pacific Harvest were to be held by the defendant on behalf of the plaintiff”, I reject such an argument.  As pointed out by the defendant’s counsel, this action is plainly not for recovery from the trustee the alleged trust property (i.e. the Pacific Harvest shares).  Neither is there any claim for declaratory relief that the defendant (whether through his company or otherwise) held the Pacific Harvest shares on trust for the plaintiff.  

F2.3    The exercise of discretion

70.Given the conclusions reached above, the amendments relating to the defendant’s breach of fiduciary duties shall be considered in accordance with the general principles on amendments of pleadings.

71.The only argument in this regard made by the defendant is that the new claim in respect of the alleged removal of the plaintiff as a signatory of the Bank Account is defective because the plaintiff has not shown how such removal had caused him any loss.

72.I accept the plaintiff’s argument that it is arguable that the said removal would prevent the plaintiff from withdrawing funds from the Bank Account or at least blocking the withdrawal of funds therefrom. 

73.I will therefore exercise my discretion in allowing the amendments sought in relation to the plaintiff’s claim on breach of trust and/or fiduciary duties.

F3.         Secret profit of the 10% Dry Shares

F3.1    Abuse of process

74.It may be recalled that, on 12 November 2020, Master Martin Wong struck out paragraph 20 and Prayer (2) of the Re-Amended Statement of Claim.  By the said paragraph 20, the plaintiff claimed that the defendant had, in breach of his duty, secretly obtained 10% Dry Shares and that the defendant is liable to account to the plaintiff for the said 10% Dry Shares and the dividends received therefrom.  Prayer (2) sought an order that the defendant shall account to the plaintiff for the 10% Dry Shares and the dividends received therefrom, and/or damages to be assessed.

75.In the proposed amendments before this Court, the plaintiff is seeking to reintroduce his claim on secret profit in relation to the 10% Dry Shares.

76.The defendant therefore submitted that it is an abuse of the process of the Court if the plaintiff is permitted to do.

77.My attention has been drawn by the defendant’s counsel to the Court of Appeal case of Pei Zheng Middle School & Another v China Pui Ching Educational Foundation Limited & Others (CACV 2/2007, unreported, 6 August 2007), in which Rogers VP had the following to say:

“12. This court’s attention was drawn to the case of Pocklington Foods Inc. v The Queen in right of Alberta (1995) 123 DLR 141 which was referred by this court in Chu Hung Ching v Chu Kam Ming & others [2001] 1 HKC 396. It was said in the Canadian decision and approved in this court that if an issue has been distinctly raised and decided in one proceeding where both parties were represented, it would be unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them. There would be exceptions for example if the matter had not been decided on merits or there was a change of circumstances or new evidence […]”

78.In the Chu Hung Ching case referred to by Rogers VP, Mayo VP quoted the following part of the Alberta Court of Appeal’s Judgment in Pocklington Foods Inc v The Queen in right of Alberta (1995) 123 DLR (4th) 141 at 144:

“ … Res judicata and issue estoppel do not apply to procedural interlocutory motions. While in the judgment of Clement J.A. in Talbot, there is considerable discussion of the position where a decision is made on the adequacy of the material rather than on the merits of the application, when read as a whole the decision supports the position taken by McDonald J. in this case.

However, the court is not powerless to deal with attempts to re-litigate issues already decided by it. In Talbot, after refusing to apply res judicata to an interlocutory procedural application, Clement J.A. stated at p. 112:

… I am of the opinion that the principle does not apply to an interlocutory application of the nature now before us; rather, the second application is subject to control by the exercise of judicial discretion in determining whether it is frivolous or vexatious in all the circumstances then appearing.

McDonald J. went on to consider the reasoning which should apply in controlling abuse of process. He cited from the decision of Lord Maugham L.C. in New Brunswick Ry. Co. v. British & French Trust Corp., Ltd, [1939] A.C. 1 (H.L.) at p. 20 (cited with approval in Talbot) as follows [at p. 282]:

If an issue has been distinctly raised and decided in an action, in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them.

He continued:

Thus the raison d’etre of the principle of res judicata or issue estoppel lies in what is just and reasonable. Applying that notion to an assertion that a ruling on an interlocutory application is res judicata when the same issue is raised in a subsequent interlocutory application in the same action, it will not be unjust or unreasonable to allow the second application to be heard, for what is involved is not relitigation of an identical issue of law or fact:

(a) if the ruling on the first application was not based on the merits of the issue but on a technical objection …

(b) if upon the first application the applicant had failed to prove essential facts from mistake or inadvertence …

(c) if there is new evidence that seriously justifies reconsideration of the issue;

(d) if there is a material change of circumstances of a non-evidentiary nature.”

79.His Lordship then concluded:

“It is apparent from this that the rules relating to res judicata in interlocutory matters are less stringent than those generally applicable. […]”

80.On the other hand, the plaintiff referred this Court to the case of Lau Sin v Wong Mary & Others [2018] HKLRD 202, in which Deputy High Court Judge Paul Lam SC, having considered various authorities, summarised the following general principles applicable to the situation where the same interlocutory application was made again[12]:

“(a) The doctrine of res judicata, properly-so-called, does not apply to interlocutory orders.

(b) If a party seeks to re-litigate a matter which has been determined in a previous interlocutory decision by taking out a second application, the second application is liable to be dismissed by the court, either of its own motion or on application, pursuant (sic) its inherent jurisdiction or Order 18, rule 19, on the ground that it constitutes an abuse of process.

(c) It will not be an abuse of process if there are express statutory provisions permitting the re-litigation of the matter. There are many express provisions allowing the respondent to an application to apply to set aside an order made in its absence or as a result of its failure to comply with certain procedural steps (eg Order 13, rule 9; Order 14, rule 11; Order 19, rule 9; Order 24, rule 17; Order 26, rule 8). Another useful example is that directions on evidence (including expert evidence) may also be revoked and varied by a subsequent direction (Order 38, rule 44).

(d) In the absence of any such express statutory provision, whether the second application constitutes an abuse of process must depend on the particular circumstances of each case. Generally speaking, the court should consider what is just and reasonable.

(e) It is inappropriate and impossible to set out exhaustively what the relevant considerations will be. Naturally, the court will need to consider the nature of the interlocutory application; whether the applicant had, or could and should have, challenged the first interlocutory decision by other means; and why a second application on the same matter has been made. Examples of situation where the court may conclude that there is no abuse of process include: the ruling on the first application was not based on merits but on a technical objection, the applicant failed to prove essential facts from mistake or inadvertence at the first application, there is new evidence that seriously justifies reconsideration of the issue; or there is a material change of circumstances.

(f) Nevertheless, the court should adopt a holistic, rather than a dogmatic or mechanistic, approach.  At the end of the day, the court shall whether it is in the interests of justice to allow the second application to proceed having regard to all relevant circumstances of the particular case.  And in considering how its discretion should be exercised, Order 1A, rule 2 requires the court to give effect to the underlying objectives of the RHC as set out in Order 1A, rule 1.”

81.I am of the view that the approach explained by the learned Deputy Judge is consistent with that adopted by the Court of Appeal in both Pei Zheng Middle School & Another and Chu Hung Ching: The principle of res judicata is not applied to interlocutory applications strictly; whether there is any abuse of the process of the Court in raising the same issue in another interlocutory application should be considered on a case-by-case basis.

82.In the present case, the chronology of the relevant matters is as follows:

(1)  On 24 November 2020, the plaintiff filed a Notice of Appeal to Judge in Chambers to appeal against Master Martin Wong’s order.  The appeal hearing was originally scheduled to take place on 24 March 2021;

(2)  Tong Wai Oi Wanda, in her Affidavit filed on 27 April 2021, confirmed that her solicitors’ firm had taken over the conduct of the present proceedings on behalf of the plaintiff on 1 February 2021, and that it was intended that further amendments would be made to the Re-Amended Statement of Claim.  It was further decided not to proceed with the aforesaid appeal against Master Martin Wong’s decision;

(3)  By letter dated 2 March 2021, the plaintiff’s solicitors informed the defendant’s solicitors that:

(a)   the plaintiff maintained his view that Master Martin Wong’s decision was erroneous;

(b)   the plaintiff intended to apply for leave to further amend the Re-Amended Statement of Claim, and the draft Re-Re-Amended Statement of Claim would be sent to the defendant for consideration in due course;

(4)  By letter dated 10 March 2021, the defendant’s solicitors stated, among other things, that:

(a)  the defendant could not agree to any proposed amendments without sight of the draft Re-Re-Amended Statement of Claim;

(b)  unless the appeal against Master Martin Wong’s decision was withdrawn by 1pm on 12 March 2021, briefs to senior counsel and counsel would be delivered;

(5)  Under the covering letter dated 10 March 2021, the plaintiff’s solicitors sent a draft Re-Re-Amended Statement of Claim to the defendant’s solicitors for consideration;

(6)  By letter dated 11 March 2021, the plaintiff’s stated that, in the light of the proposed further amendments to the pleadings, the plaintiff no longer wished to proceed with the appeal.  It was proposed that leave to withdraw the appeal be sought by consent with the costs thereof to the defendant;

(7)  On 12 March 2021, the plaintiff formally withdrew his appeal against Master Martin Wong’s order of striking out;

(8)  After a series of correspondence between the parties’ respective solicitors, the defendant’s solicitors eventually informed the plaintiff’s solicitors by letter dated 7 April 2021 that the proposed amendments would be opposed;

(9)  The Amendment Summons was then taken out on 12 April 2021.

83.Having considered the particular circumstances of the present case, I hold the view that it is an abuse of the process of the Court for the plaintiff to seek to reintroduce his claim on 10% Dry Shares by way of the Re-Re-Amended Statement of Claim:

84.Firstly, I do not accept the plaintiff’s argument that Master Martin Wong “did not intend to categorically preclude the plaintiff from pursuing a case concerning the 10% Dry Shares”[13]. To me, it is crystal clear that the striking out application in relation to the claim on 10% Dry Shares was made by the defendant on the ground that such a claim was time-barred[14]. The fact that the learned Master had struck out paragraph 20 and Prayer (2) of the Re-Amended Statement of Claim speaks volume on the matter. 

85.On the other hand, the plaintiff’s reliance of the learned Master’s decision not to strike out paragraph 19 of the Re-Amended Statement of Claim[15] is misconceived, because the complaint in relation thereto was its inconsistency with the plaintiff’s evidence in terms of the timing of the plaintiff’s knowledge, and this matter was resolved upon the plaintiff’s undertaking to amend the pleading accordingly. 

86.Hence, the issue of limitation in respect of the claim of 10% Dry Shares had been raised and decided on the merits by Master Martin Wong.

87.Secondly, although it is true that even if the plaintiff had proceeded with the appeal originally scheduled to be heard on 24 March 2021, it would have been open to him to apply for amendments in the appeal hearing anyway, the fact is that, by making a fresh application for amendments by summons with a new draft Re-Re-Amended Statement, he has earned an advantage of having the chance to argue the case twice (firstly before a Master, and then before a Judge if he failed before the Master again, which he did) before the matter is brought before the Court of Appeal. 

88.Thirdly, the fact that the plaintiff has now included more details in his pleaded case on the 10% Dry Shares is not a “change in circumstances” because such added details do not have bearing at all as to when time should start to run[16].

89.I have not lost sight of the contemporaneous letters sent by the plaintiff’s solicitors which show that the plaintiff had approached the matter in the way it did for the sake of saving time and resources.  Be that as it may, I do not agree that the plaintiff is entitled to have exactly the same matter argued once again before another Master, after the issue had been decided by Master Martin Wong. 

90.The application to add the claim back should therefore be refused on this ground alone.

F3.2    Limitation defence

91.Despite the conclusion above, I proceed to consider whether the plaintiff’s claim in relation to the 10% Dry Shares is time-barred in case I am wrong in my ruling on abuse of court process.

92.The plaintiff argued that since the defendant’s liability for making secret profits relates to his infringement of the pure no-conflict and no-profit duty, no limitation period is therefore applicable. For reasons which I explained in Section F2.1.1 above, this argument is rejected.

93.The plaintiff then relied on section 20(1)(b) of the Limitation Ordinance.  To recap, section 20(1) and (2) of the Limitation Ordinance read:

“(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Ordinance, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property, until the interest fell into possession.”

94.It is trite that, for the purposes of limitation period, there are two categories of constructive trusts:

(1)  The first category comprises cases in which a defendant has assumed the duties of a trustee or fiduciary in respect of the property which was independent of the wrong or breach of trust complained of;

(2)  The second category comprises cases in which the so-called trust obligations arise as a direct consequence of an unlawful transaction which the claimant impugns.

95.It is now also well-established that section 20(1)(b) of the Limitation Ordinance does not apply to constructive trustees of the second category but only to “real trust” (first category).

96.Relying on the case of Secretary for Justice v Hon Kam Wing [2003] 1 HKLRD 524, the plaintiff submitted that the secret profit in the present case should be considered “real trust” such that section 20(1) of the Limitation Ordinance applies. 

97.However, in Gwembe (supra), in which the director of a company had made secret profits by making use of information which he did not disclose to the company, it had been held by the English Court of Appeal that the wrongful director was a constructive trustee of the second category in relation to the secret profits that he had made, and section 21(1)(b) of the English Act (i.e. section 20(1)(b) of the Limitation Ordinance) did not apply.  In his Judgment, Mummery LJ had the following to say:

“119. […] Mr Koshy’s liability to account for undisclosed profits, and any constructive trust imposed on those profits, do not depend on any pre-existing responsibility for any property of the company. They arose directly out of the transaction which gave rise to those profits, and the circumstances in which it was made. The fact that Mr Koshy was in a pre-existing fiduciary relationship with the company was not enough, by itself, to bring the case within class 1 […]

120. Accordingly, in our view, GVDC’s case cannot be bought (sic) within s 21(1)(b) […]” 

98.While Mr Man SC and Mr Leung submitted that Gwembe is a controversial and highly difficult decision, it appears that it is still good law in England and Wales:

(1)  In Energenics Holdings Pte. Ltd. & Another v Ronendra Nath Hazarika [2014] EWHC 1845 (Ch), it was held by HH Judge Pelling QC that:

“80. Where a company director wrongfully transfers to him or herself or a third party assets of the company of which he or she will be liable to the company as a constructive trustee in the first sense because by becoming a director of the company the director had assumed in effect the duties of trustee in relation to the company’s assets. On the other hand, where, for example, a company director makes a secret profit at the expense of the company of which he is a director, he is constructive trustee for the company of the secret profit only in the second sense.” (emphasis added)

(2)  In First Subsea Ltd (formerly BSW Ltd) v Balltec Ltd & Others [2017] EWCA Civ 186, Patten LJ held that Gwembe was rightly decided[17].  His Lordship explained further:

“The provisions of section 21(1)(b) in respect of the property of the company have no application to cases like the Gwembe case where there is no misappropriation or receipt of pre-existing company property but only a breach of duty which gives rise to a constructive trust over (for example) the secret profit. This is because in such cases the director is not a trustee vittute officii in respect of the profit. He has no proprietary relationship with what he acquires other than as the recipient of the proceeds of his breach of duty. He is not therefore in the terms of section 21(1)(b) in possession of trust property. But he is at all times a class 1 fiduciary and trustee in respect of the company and its assets so that a breach of his duty towards the company remains a breach of trust within the meaning of section 21 even if it does not involve the misappropriation of company property. He is not in the same position as a stranger to the company or the trust (as in the Paragon case) who only becomes a trustee in the limited sense of being required to account for the profits of his fraud on a proprietary basis through the medium of a class 2 constructive trust.”

99.In the present case, the 10% Dry Shares did not belong to the plaintiff before they were transferred to the defendant or his company.  The defendant had never, before his acquisition of those Dry Shares, assumed the position of trustee in relation to those shares.  The defendant’s alleged liability only arose as a direct consequence of his acquisition of those Dry Shares.  Hence, the constructive trust in relation to the secret profit of 10% Dry Shares should be regarded as category 2 trust, and therefore the 6-year limitation period is applicable.

100.It follows that the plaintiff’s claim for account under prayer (4) should likewise be subject to a limitation period of 6 years because such a claim was based on the defendant’s alleged breach of fiduciary duties.  The account sought by the plaintiff is not an account simpliciter as alleged by the plaintiff.  The case of Liu Hsiao Cheng v Wong Shu Wai [2018] 1 HKLRD 1087 relied on by the plaintiff is clearly distinguishable.

101.The plaintiff pleaded in the Re-Re-Amended Statement of Claim that the defendant acquired the 10% Dry Shares by 29 June 2006.  Therefore, the relevant limitation period should have expired on 30 June 2012.  By the time the Writ of Summons herein was issued, the claim was already time-barred.

102.As far as this claim is concerned, the plaintiff’s counsel did not rely on “deliberate concealment” at all.  But even if they did, they could not be assisted by this at all, because it is evident[18] that the plaintiff had knowledge about the defendant’s acquisition of the 10% Dry Shares no later than 6 November 2012.  By the time this action was commenced on 13 November 2018, the claim on 10% Dry Shares was time-barred already.

103.That being the case, I am not prepared to exercise my discretion in allowing the proposed amendments in relation to such a claim in any event.

G.   CONCLUSION

104.For the reasons aforesaid, I take the view that the Court should exercise its discretion in allowing the proposed amendments, except paragraphs 49 to 53 and prayers (3) and (4) of the Re-Re-Amended Statement of Claim, which relate to the claim on 10% Dry Shares.

H.   ORDER

105.I therefore make the following orders:

(1)  The order made by Master Kenneth Lee on 17 December 2021 be set aside;

(2)  The plaintiff do have leave to amend the Re-Amended Statement of Claim as per the draft Re-Re-Amended Statement of Claim annexed to the Summons filed on 5 July 2021, save that paragraphs 49 to 53 and prayers (3) and (4) shall not be included;

(3)  The Re-Re-Amended Statement of Claim filed on 21 December 2021 be expunged;

(4)  The plaintiff do have leave to file and serve his fresh Re-Re-Amended Statement of Claim within 7 days hereof;

(5)  Leave be granted to the defendant to file and serve his Re-Amended Defence within 28 days thereafter for the purpose of making consequential amendments to his Amended Defence;

(6)  Leave be granted to the plaintiff to file and serve his Reply within 28 days thereafter.

I.      COSTS

106.It is trite that there are two sets of costs in an application for leave to amend, namely:

(1)  the costs of and occasioned by the amendments; and

(2)  the costs of the hearing.

107.I do not think there can be any dispute that the plaintiff should bear the costs of and occasioned by the amendments.

108.As far as the costs of the appeal is concerned, the defendant has been successful in setting aside part of the learned Master’s order.  However, on the other hand, the plaintiff has been successful in defending the leave to amend in respect of two out of his three claims.

109.Having considered the above matters in the round, I make the following costs order nisi:

(1)  The plaintiff do bear the defendant’s costs of and occasioned by the amendments to the Re-Amended Statement of Claim in any event, to be taxed if not agreed;

(2)  Costs of the appeal (including the costs reserved) and of the Amendment Summons (subject to paragraph (1) above) be in the cause, with certificate for two counsel for both the appeal and the hearing before the learned Master.

110.The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on papers) within 14 days hereof.

Mr Bernard Man SC leading Mr John Leung, instructed by Wanda Tong & Company, for the plaintiff

Mr Benjamin Yu SC leading Ms Bonnie Y. K. Cheng and Mr Frederick Hui (Solicitor Advocate), instructed by Zhong Lun Law Firm LLP, for the defendant