Hui Chun Ping v. Hui Kau Mo

Read the full judgment text of CACV 377/2022 on BabelCite. This Court of Appeal judgment was delivered on 28 February 2024.

1. This is the plaintiff’s appeal against the decision of Deputy High Court Judge H Au-Yeung handed down on 16 August 2022 (“ Decision ”) [1] . By the Decision, the judge set aside the order made by Master Kenneth Lee on 17 December 2021 and made an order granting leave to the plaintiff to amend the re-amended statement of claim (“ RASOC ”) as per the draft re-re-amended statement of claim (“ RRASOC ”) [2] annexed to the summons filed on 5 July 2021, save that §§49 to 53 and prayers (3) and (4)

Cited by 2 cases · Cites 11 cases

Case No.CACV 377/2022[2024] HKCA 194
Court
Court of Appeal
Date28 Feb 2024
Judge
Case Document
100%Judiciary

CACV 377/2022, [2024] HKCA 194

On appeal from [2022] HKCFI 2451

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 377 OF 2022

(ON APPEAL FROM HCA NO 2653 OF 2018)

________________________

BETWEEN

  HUI CHUN PING (許遵平) Plaintiff
  and  
  HUI KAU MO (許教武) Defendant

________________________

Before: Hon Kwan VP, Au JA and Chow JA in Court
Date of Hearing: 9 May 2023
Date of Judgment: 28 February 2024

________________________

J U D G M E N T

________________________

Hon Kwan VP:

A.  Introduction

1.This is the plaintiff’s appeal against the decision of Deputy High Court Judge H Au-Yeung handed down on 16 August 2022 (“Decision”)[1]. By the Decision, the judge set aside the order made by Master Kenneth Lee on 17 December 2021 and made an order granting leave to the plaintiff to amend the re-amended statement of claim (“RASOC”) as per the draft re-re-amended statement of claim (“RRASOC”)[2] annexed to the summons filed on 5 July 2021, save that §§49 to 53 and prayers (3) and (4) (“Impugned Pleas”) shall not be included. In this appeal, the plaintiff seeks leave to amend for the Impugned Pleas, which relate to claims against the defendant in respect of his alleged acquisition of secret profits whilst acting as the plaintiff’s fiduciary.

A.1  The plaintiff’s case on the secret profits claim as pleaded

2.The writ of summons, endorsed with a statement of claim, was issued on 13 November 2018. For present purpose, the relevant parts of the pleading would be taken from RRASOC. Only the claim relating to the defendant’s unauthorised acquisition of secret profits is relevant to this appeal.

3.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 known as 青島小港灣項目 (“the Project”). A subsidiary of HWL, Hutchison Whampoa Qingdao Limited (“HWQD”), manages and holds the profits of the Project. The holding company of HWQD is Braintech Limited (“Braintech”)[3].

4.At around the same time, 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 and the plaintiff accepted the defendant’s proposal[4].

5.In early 2006, the defendant, with others, represented to the plaintiff that in return for the plaintiff’s consultancy services, HWL and/or HWQD would pay the plaintiff, inter alia, 10% of the net profits of the Project without the need for the plaintiff to make any capital investment in the Project (“10% Dry Shares”)[5].

6.In June 2006, the defendant, with others, dissuaded the plaintiff from requiring the 10% Dry Shares to be part of the consideration for the provision of consultancy services by representing to the plaintiff that the calculation involved in determining the value of the 10% Dry Shares would be complicated and payment to be made in stages would drag on for a long period, and that the 10% Dry Shares could be converted into and paid as a lump sum of RMB 40 million instead. In reliance on the representations, the plaintiff agreed to the proposed lump sum payment of RMB 40 million in lieu of the 10% Dry Shares as part of the consideration for the provision of consultancy services[6].

7.The plaintiff and his team duly provided the consultancy services in the application for relevant approvals from Mainland authorities and Braintech and/or HWQD successfully obtained the Project in late June or early July 2006[7].

8.At all material times, the defendant acted as the plaintiff’s agent in his dealings with Braintech and/or HWQD and/or HWL regarding the Project and would collect payments in respect of the consultancy services from Braintech on the plaintiff’s behalf as they fell due, subject to the defendant’s right to deduct agency fees[8].

9.There existed a relationship of trust and confidence between the defendant and the plaintiff and the defendant owed fiduciary duties to the plaintiff including a duty not to put himself into a position in which his personal interest conflicts with the interest of the plaintiff, a duty not to make any secret profit or receive any secret payment from any third party with whom he was dealing in his capacity as the plaintiff’s agent or otherwise, a duty to account for any such secret profit or secret payment, a duty not to act for his own benefit or for that of a third person without the informed consent of his principal[9].

10.In late 2012, the plaintiff came to realise that unbeknownst to him, by 29 June 2006, the defendant had secretly acquired the 10% Dry Shares (ie a 10% shareholding in Braintech, thereby indirectly holding 10% of the net profits of the Project) through the defendant’s wholly owned company, Billion Merit Limited (“BML”)[10]. The unauthorised acquisition was in the course of and/or by reason of and/or by use of the defendant’s fiduciary position vis-à-vis the plaintiff without the plaintiff’s knowledge or consent, and was in breach of his fiduciary duties to the plaintiff. Further, the defendant placed himself in a clear position of conflict with the plaintiff’s interests, preferred his own interest in obtaining the 10% Dry Shares without the plaintiff’s consent, and made an unauthorised profit. In the premises, the defendant holds the 10% Dry Shares and their traceable proceeds on constructive trust for the plaintiff and is liable to account to the plaintiff for the same and to pay equitable compensation[11].

A.2  Procedural history

11.On 6 May 2020, the defendant applied to strike out these parts of RASOC:

“19. Further, in late 2013 or early 2014, it came to the knowledge of the Plaintiff that:-

(1) The Defendant had, without the knowledge and consent of the Plaintiff, secretly obtained 10% dry shares of the Project.

(2) Subject to discovery, it is averred that on a date unknown to the Plaintiff the said 10% dry share of the Project was paid over to the Defendant by HWL and/or HWQD and/or Braintech.

20. The Defendant had, in breach of his duty, secretly obtained the 10% dry share of the Project. By reason of the matters aforesaid, the Defendant is liable to account to the Plaintiff for the 10% of the dry share of the Project and the dividends received therefrom.”

“AND THE PLAINTIFF CLAIMS AGAINST THE DEFENDANT FOR:

(2) An order that the Defendant account to the Plaintiff for the 10% dry share of the Project, and the dividends received therefrom, and/or damages to be assessed;”.

12.The application was heard by Master Martin Wong, who made an order on 12 November 2020 that §20 and prayer (2) of RASOC be struck out. The master did not strike out §19, upon the undertaking of the plaintiff through counsel to “amend the time period reference in paragraph 19 of [RASOC][12] in line with Plaintiff’s affirmation evidence[13] for the Summons”[14].

13.On 24 November 2020, the plaintiff lodged an appeal against the order of Master Martin Wong. The hearing of the appeal was scheduled to be heard before a judge on 24 March 2021.

14.On 1 February 2021, the plaintiff’s present solicitors took over the conduct of the proceedings with a change of counsel. The new legal team decided to amend RASOC in the manner set out in the draft RRASOC to explain in greater details the background and to clarify the issues. The Impugned Pleas in RRASOC replaced §19 and the parts of RASOC ordered to be struck out by the master (§20 and prayer (2)). As the plaintiff no longer wished to rely on RASOC, it was decided not to proceed with the appeal against the decision of Master Martin Wong.

15.On 2 March 2021, the plaintiff’s solicitors wrote to the defendant’s solicitors stating that they maintained their stance that the order of the master was erroneous in law and, without prejudice to their position, they wished to seek leave to amend RASOC to include three specific pleas which would substantively determine the appeal. They would invite the defendant to consider whether he would consent to the proposed amendments in the draft RRASOC to be provided, failing which the plaintiff would apply to court. The draft RRASOC was provided to the defendant’s solicitors on 10 March 2021.

16.The defendant’s solicitors responded by letter dated 10 March 2021 stating inter alia that unless the appeal against Master Martin Wong’s decision was withdrawn by 1 pm on 12 March 2021, they would deliver briefs to senior counsel and counsel.

17.By letter to the defendant’s solicitors dated 11 March 2021, the plaintiff’s solicitors stated that as the plaintiff no longer wished to rely on RASOC, they considered it a waste of time and resources to proceed with the appeal scheduled for 24 March 2021 even though they maintained that the master should not have struck out the relevant parts of RASOC. On that basis, the plaintiff agreed to withdraw the appeal with costs to the defendant. The defendant’s solicitors were requested to inform the plaintiff’s solicitors whether they would consent to the amendments in RRASOC by 19 March 2021, failing which the plaintiff would make an application to the court.

18.On 12 March 2021, the plaintiff formally withdrew his appeal against the decision of Master Martin Wong.

19.After further letters between the solicitors, the defendant’s solicitors eventually informed the plaintiff’s solicitors on 7 April 2021 that the proposed amendments in RRASOC would be opposed.

20.The plaintiff filed a summons on 12 April 2021 for leave to amend RASOC as per the draft RRASOC. On 17 December 2021, Master Kenneth Lee granted leave to amend as sought by the plaintiff. It would appear no point was taken by the defendant that the plaintiff’s summons for leave to amend RASOC was an abuse of process of the court in light of the plaintiff’s withdrawal of his appeal against the decision of Master Martin Wong.

21.The defendant lodged an appeal against the decision of Master Kenneth Lee, which was dealt with by the judge on paper. One of the defendant’s grounds for opposing the amendment in respect of the Impugned Pleas was abuse of process. By the Decision, the judge allowed the proposed amendments in RRASOC save for the Impugned Pleas.

A.3  This appeal

22.In refusing leave to amend for the Impugned Pleas, the judge held that (1) it was an abuse of process for the plaintiff to seek to reintroduce his claim on the 10% Dry Shares by way of RRASOC, as Master Martin Wong had struck out §20 and prayer (2) of RASOC on the ground that the claim on the 10% Dry Shares is time-barred and the plaintiff had withdrawn his appeal against the decision of the master[15]; and (2) in any event, the plaintiff’s claim regarding the secret profit of the 10% Dry Shares is time-barred[16]. Both holdings are challenged by the plaintiff in this appeal.

23.The defendant raised an additional issue in the respondent’s notice that the assertion that the defendant is a constructive trustee of the 10% Dry Shares is plainly bad as, on the plaintiff’s pleading, the 10% Dry Shares is alleged to be held by BML, not by the defendant.

B.  Abuse of process

24.The judge quoted from §33 of the judgment of Deputy High Court Judge Paul Lam, SC in Lau Sin v Wong Mary & Ors [2018] 3 HKLRD 202, which contained a helpful summary of the general principles applicable to the situation where another interlocutory application is made after an earlier application of the same nature was dismissed:

“(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 (e.g. 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 [sic] 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 lA, rule 2 requires the court to give effect to the underlying objectives of the RHC as set out in Order lA, rule l.”

25.As rightly observed in §81 of the Decision, the doctrine of res judicata does not strictly apply to interlocutory applications, and 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.

26.Mr Paul Shieh, SC, who appeared for the plaintiff on appeal[17], took issue with the judge’s holding that the limitation issue in respect of the claim of 10% Dry Shares had been raised and decided on the merits by Master Martin Wong when he ordered §20 and prayer (2) of RASOC to be struck out[18]. His arguments were as follows:

(1)  The reasons for the master’s decision in ordering those parts of RASOC to be struck out are unknown, because neither party has obtained or been able to obtain the hearing transcript.

(2)  RASOC §20 and prayer (2), which were ordered to be struck out, were only in respect of the plaintiff’s personal claim for an account, with no reference to any property belonging to the plaintiff. They did not refer or relate to any proprietary claim based on constructive trust as subsequently pleaded in RRASOC §53(1) and prayer (3).

(3)  It must be clear that the master did not intend to preclude the plaintiff from running a case in respect of the 10% Dry Shares. He did not strike out §19 of RASOC but accepted the plaintiff’s undertaking to amend a time reference in that paragraph to bring it in line with the plaintiff’s affirmation, thereby allowing the plaintiff to proceed with the plea in the action. Further, if the master had regarded any claim concerning the 10% Dry Shares as time-barred, it would have made no difference whether the time of discovery pleaded in §19 of RASOC had been “late 2013 or early 2014” (as originally pleaded) or “late 2012” (as subsequently pleaded).

27.I am inclined to agree with Mr Benjamin Yu, SC for the defendant[19] that the judge was correct to find that Master Martin Wong struck out RASOC §20 and prayer (2) as time-barred, for this was the basis of the defendant’s striking out application as stated in his supporting affirmation[20]. As rightly pointed out by Mr Yu, the same factual assertions are relied on in support of the personal claim for an account in RASOC §20 and prayer (2) and the proprietary claim based on constructive trust in RRASOC §53(1) and prayer (3). Merely because the plaintiff seeks to present a different legal argument on the same or substantially the same facts is no justification to allow him to have a second bite of the cherry when the first case has been struck out.

28.As for the master’s decision not to strike out RASOC §19 but to allow the plaintiff to amend this paragraph to correct the reference to the date, I do not think this should be regarded as implicitly allowing the plaintiff to proceed with a claim concerning the 10% Dry Shares. The amendment was to address another complaint raised in the defendant’s supporting affirmation that RASOC §19 was false owing to an error in the date pleaded[21]. RASOC §19 with the date corrected is merely a plea that it had come to the knowledge of the plaintiff that the defendant had secretly obtained the 10% Dry Shares without his knowledge and consent, and cannot stand on its own without RASOC §20, which was ordered to be struck out. Other than giving an undertaking to amend the date in RASOC §19, the plaintiff has not suggested that his former counsel had indicated at the hearing before Master Martin Wong he would reformulate his claim regarding the 10% Dry Shares on some other legal basis. It cannot be inferred, as Mr Shieh has contended, that the master wished to give the plaintiff another opportunity to further amend the pleadings based on the bare plea in RASOC §19.

29.Even though the issue of limitation has been raised and decided on the merits by the master, as the doctrine of res judicata does not strictly apply to interlocutory applications, the court still needs to consider whether it would be an abuse of process and what is just and reasonable in the particular circumstances. This should not be approached in a mechanistic or dogmatic manner.

30.Mr Yu sought to support the judge’s view that it was an abuse of process of the Court for the plaintiff to seek to reintroduce his claim concerning the 10% Dry Shares with the submission that the appeal mechanism, which brings certainty and finality in litigation, must be followed by those seeking to overturn an order and a party is not at liberty to sidestep the appellate route and reargue a matter before the same court. Having failed before Master Martin Wong, the proper course for the plaintiff was to appeal against his order to a judge (which the plaintiff withdrew on legal advice), instead of attempting a second bite of the cherry by taking out a fresh amendment application to be heard before a master. In so doing, as found by the judge, the plaintiff has earned an unwarranted advantage of having the chance to argue the case twice (first before a master, and then before a judge if he failed before the master) before the matter is brought before the Court of Appeal[22]. Further, the judge was right to hold the fact that the plaintiff has included more details in RRASOC on the 10% Dry Shares claim is not a “change in circumstances” to justify his taking out a fresh amendment application after the issue had been decided by Master Martin Wong[23].

31.There is no suggestion that the draft amendments in RRASOC were made in bad faith. The circumstances were fully explained in the affidavit of the plaintiff’s solicitor[24] and the correspondence exhibited. The amendments came about as a result of the change of the plaintiff’s legal team, and were introduced in order to explain the background of the case in greater detail and to clarify the issues in dispute. A decision was made by the legal team in early March 2021 not to rely on RASOC and instead to pursue the draft amendments in RRASOC. It cannot be right to require a party to pursue an appeal the objective of which is to reinstate parts of a pleading that he no longer wishes to rely upon. Nor can it be just to visit upon a party the dire consequence of shutting him out from further pursuit of amendments to a pleading when he abandoned his appeal against a decision to strike out similar averments. As rightly submitted by Mr Shieh, it would have been more abusive and wasteful of both the court’s and parties’ resources for the plaintiff to have pursued the appeal only to then take out an application before the same judge to amend RASOC which would have the effect of rendering the appeal academic.

32.I do not consider there is abuse of process in the circumstances. The judge is in error in refusing to grant leave to amend for the Impugned Pleas on the ground of abuse of process.

C.  Failure to plead shares were held by the defendant

33.The defendant’s argument is that the plaintiff’s assertion that the defendant is a constructive trustee of the 10% Dry Shares is plainly bad in any event, as on the plaintiff’s pleading, the 10% Dry Shares is alleged to be held by BML and not the defendant, and there are no factual averments that the property of the 10% Dry Shares or its traceable proceeds have been transferred to the defendant personally, or that the corporate veil of BML should be pierced. Hence, if anyone was a constructive trustee holding the 10% Dry Shares, it could only have been BML, which is neither a party to this action nor alleged to owe any fiduciary duty to the plaintiff. It follows that the plaintiff’s claim that the defendant held the 10% Dry Shares on constructive trust for the plaintiff discloses no reasonable cause of action and/or is fundamentally defective.

34.The plaintiff’s pleaded case is that “the Defendant acquired the said 10% Dry Shares through his company BML”[25], of which the defendant “has at all material times since 29 April 2006 been the sole shareholder”[26]. Although the legal title in the shares is held by BML, it is the defendant who acquired the shares through the medium of BML, and BML was the conduit or intermediary or agent of the defendant. Mr Shieh submitted that as a matter of language, a plea that the acquisition was “through” BML is plainly one that BML – which is subject to the defendant’s ownership and control – did so as the defendant’s agent. It is not necessary to resort to piercing the corporate veil. It is possible to assert a constructive trust on assets held by someone through an intermediary.

35.Mr Shieh further submitted that properly understood, the plaintiff’s pleaded case asserts a constructive trust over the defendant’s right to the Dry Shares vis-à-vis his company BML, and the defendant can be a constructive trustee of the 10% Dry Shares (or the right to the Dry Shares) whose legal title is vested in BML. In support of his contention that the court need not be troubled by the interposing of a company in this situation, Mr Shieh cited the English Court of Appeal decision in Burnden Holdings (UK) Ltd v Fielding [2017] 1 WLR 39.

36.The issue in that case was whether section 21(1)(b) of the Limitation Act 1980[27] applied in relation to trust property which had never been “in the possession of” the defendants nor “received” by them. It was held at §§33 to 37 that the statutory provision applied not only to cases where the trustee directly and personally acquired the trust property but also included cases where trust property was transferred to a company directly or indirectly controlled by the trustee. Hence, no limitation period applied by virtue of the provision. David Richards LJ said at §37:

“If section 21(1)(b) were construed to apply only to those cases where the trustee directly and personally acquires the trust property, its evident purpose would be much constrained and easily avoided. In my judgment, a construction which includes within its terms a transfer to a company directly or indirectly controlled by the trustee is within the meaning of this provision.”

37.Whilst the UK Supreme Court did not expressly disapprove of the reasoning of the Court of Appeal, it affirmed the outcome by different reasoning[28] and allowed the claim against the directors to proceed on the basis that the directors had “converted” to their own use trust property which they had previously “received”, the “receipt” arising because they had been fiduciary stewards of the company’s property from the outset.

38.Burnden Holdings (UK) Ltd is not directly on the point, as Mr Shieh recognized when he mentioned that he relied on it by analogy. Nevertheless, for the purpose of the defendant’s challenge on merits whether leave to amend pleadings should be refused in that the proposed amendment is plainly bad, I do not think this high threshold is reached. I would not have affirmed the judge’s decision on this additional ground as contended by the defendant.

D.  Limitation defence

D.1  The grounds of appeal

39.The key issue in this appeal is whether the amendments to include the Impugned Pleas in RRASOC should be refused on limitation grounds. The plaintiff advanced four broad grounds why the judge erred in holding that the plaintiff’s claim in relation to the 10% Dry Shares is time-barred:

(1)  No limitation period is applicable since the defendant’s liability for making secret profits relates to his infringement of the pure no-conflict and no-profit duty.

(2)  No limitation period is applicable by virtue of section 20(1)(b) of the Limitation Ordinance.

(3)  The claim for an account is not subject to a limitation period of six years in that the Impugned Pleas at §§51 to 53 of RRASOC are capable of sustaining a claim for an account simpliciter.

(4)  Further or alternatively, the amendments in relation to the 10% Dry Shares arise out of the same or substantially the same facts as an existing cause of action in respect of which relief has already been claimed.

40.Mr Shieh analysed the claim in relation to the 10% Dry Shares with regard to the limitation defence under three different kinds of remedies: (1) proprietary claim based on constructive trust; (2) claim for equitable compensation under the no-conflict/no-profit rule; and (3) claim for equitable reliefs including an account.

D.2  The salient holdings in the Decision

41.The plaintiff contended before the judge that no limitation period is applicable, since the defendant’s liability for making secret profits relates to his infringement of the no-conflict and no-profit rules where no property is held on trust for the principal[29]. The judge rejected this contention[30].

42.Next, the plaintiff relied on section 20(1)(b) of the Limitation Ordinance and contended that this provision should apply, as the constructive trust in relation to the secret profit of the 10% Dry Shares should be regarded as a “category 1” trust and not a “category 2” trust. The result of this characterisation is that by virtue of section 20(1)(b) there would be no limitation period for the claim on the 10% Dry Shares.

43.Sections 20(1) and (2) of the Limitation Ordinance provide as follows:

20. Limitation of actions in respect of trust property

(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.”

44.The terms “trust” and “trustee” in section 20 are defined to extend to constructive trusts[31]. For the purposes of limitation, there are broadly two categories of constructive trusts[32]. Category 1 comprises those cases in which a defendant has assumed the duties of a trustee or other fiduciary, doing so by a transaction which was independent of and preceded the breach of trust complained of. Category 2 comprises those cases in which the so-called trust obligation arises as a direct consequence of an unlawful transaction which the claimant impugns and in which the defendant is no more than a wrongdoer. A category 1 trust is a true trust, for the defendant has assumed a fiduciary duty in relation to the trust property by a lawful transaction, though not expressly appointed as a trustee. He is treated in the same way as an express trustee. A category 2 trust is not a true trust, for the defendant has not assumed any prior fiduciary duty. It is purely remedial and is described as constructive trust merely as “a formula for equitable relief”[33].

45.Different considerations apply on questions of limitation depending on whether the case is a category 1 trust or category 2 trust. A category 1 trust arising from the breach of a pre-existing duty is, or is treated by analogy as, an action by a beneficiary for breach of trust falling within section 20(1). Hence, there is no limitation period for the cases falling within section 20(1)(a) or (b), but there is a six-year limitation period for cases falling within section 20(2).

46.In respect of a category 2 trust, section 20(1) would not apply, but a limitation defence to a claim might be available by analogy with common law claims, such as tort or breach of contract, even though the liability is exclusively equitable.

47.The judge rejected the plaintiff’s contention that the constructive trust in relation to the secret profit of the 10% Dry Shares ought to be considered a real trust such that section 20(1) applies. He reasoned that the 10% Dry Shares did not belong to the plaintiff before they were transferred to the defendant or his company. Before his acquisition of the 10% Dry Shares, the defendant had never assumed the position of trustee in relation to those shares. His alleged liability only arose as a direct consequence of his acquisition of those shares. Hence the constructive trust in relation to the secret profit of those shares should be regarded as a category 2 trust, a six-year limitation period is applicable and this had expired on 30 June 2012, well before the writ herein was issued[34].

48.In support of the contention that the constructive trust in relation to the secret profit should be considered a real trust, the plaintiff relied on the decision of Deputy Judge Barma SC (as Barma JA then was) in Secretary for Justice v Hon Kam Wing [2003] 1 HKLRD 524.

49.In Hon Kam Wing, it was decided on a preliminary issue that section 20(1) applied to the government’s claim against the estate of a former police officer and his relatives and the claim was not time-barred. The action was to recover assets acquired by the defendants using bribes received by the police officer, relying on the principle in Attorney General of Hong Kong v Reid [1994] 1 AC 324 that where a public officer who stood in a fiduciary relationship to the government received a bribe, this was held on constructive trust for the government. Deputy Judge Barma took the view that a Reid trust, which arose upon receipt of the bribe, was a real trust. This was because equity regarded the bribe as a legitimate payment intended for the principal and the officer’s obligation was to hand over to the principal at once the very property received in specie. This gave rise to the constructive trust imposed over the property for the benefit of the principal. The claim of the government was to recover its own property rather than equitable compensation for the officer’s wrongdoing.

50.The judge declined to follow Hon Kam Wing. He adopted instead the reasoning of the English Court of Appeal in Gwembe Valley at §119. In that case, the managing director was found liable to the company for the profits made by him from loan transactions he procured the company to enter into, by dishonestly using his position as managing director whilst deliberately not disclosing material information and the massive profit made from currency transactions when investing in the company. The six-year limitation period under section 21(3) of the Limitation Act 1980[35] would apply to claims for breach of fiduciary duty, directly or by analogy, unless excluded by section 21(1)(a) or (b) of the Act[36]. Mummery LJ held that the claim could not be brought within section 21(1)(b)[37], stating as follows in §119:

“… it is clear in our view that any trust imposed on Mr Koshy is a class 2 trust, within Millett LJ’s classification. … 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 …”

51.The judge also had regard to the English Court of Appeal decision in First Subsea Ltd (formerly BSW Ltd) v Balltec Ltd & Ors [2018] Ch 25, which held that Gwembe Valley was rightly decided. Patten LJ said this at §59[38]:

“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 virtute 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 trustee.”

52.Lastly, the judge distinguished Liu Hsiao Cheng v Wong Shu Wai [2018] 1 HKLRD 1087, holding that the account sought by the plaintiff is not an account simpliciter as alleged. It follows that the plaintiff’s claim for an account under prayer (4) should likewise be subject to a limitation period of six years because the claim was based on the defendant’s alleged breach of fiduciary duties[39].

D.3  The proprietary claim based on constructive trust

D.3.1  The plaintiff’s arguments

53.Mr Shieh submitted that the judge had taken an erroneous view of the law and of the legal characterization of the facts.

54.First, the judge failed to appreciate the rationale and nature of a constructive trust over unauthorised profits bearing in mind the distinction between a category 1 trust and a category 2 trust.

55.As to its rationale, the imposition of constructive trusts over unauthorised profits rests on two techniques of equity: (1) since the fiduciary receiving unauthorised profits must pay and account to the person to whom his duty is owed, equity considers as done that which ought to be done; and (2) equity does not permit an agent to rely on his own wrong to justify retaining the benefit, but insists on treating him “as having acted in accordance with his duty” and “as having obtained it for his principal”, with the result that the unauthorised profits are regarded as “legitimate payment intended for the benefit of the principal” (Hon Kam Wing at §§23 to 27 and 62; Attorney General of Hong Kong v Reid at 331B to E, 337F to H; FHR European Ventures LLP v Cedar Capital Partners LLC [2015] AC 250 at §§6 and 30; Snell’s Equity at §7-051). For this purpose, it makes no difference whether the receipt by the fiduciary is (i) a bribe or a secret profit or commission, or (ii) a benefit which came to his notice or pursuant to an opportunity as a result of his fiduciary position (FHR at §§7 to 12, 46).

56.As to its nature, such a trust is a real trust over real trust property giving rise to real property rights. The trustee holds the legal title of the asset constituting the profit for the beneficiary, and the beneficiary may seek proprietary remedies to vindicate his beneficial interest (Hon Kam Wing at §§27, 29; FHR at §7; Crown Prosecution Service v Aquila Advisory Ltd [2021] UKSC 49 at §§48 to 50; Lewin on Trusts, vol 2 at §§45-040 to 45-042).

57.Applying the above legal principles, it follows that the constructive trust imposed over the defendant’s 10% Dry Shares is necessarily a category 1 constructive trust for limitation purposes:

(1)  On the plaintiff’s pleaded case, there was a pre-existing and lawfully created fiduciary relationship between the plaintiff and the defendant prior to the defendant’s receipt of the secret profit. The defendant was an agent to the plaintiff and owed the plaintiff a continuous duty to account for consultancy service payments received on the plaintiff’s behalf.

(2)  When the defendant received the 10% Dry Shares in connection with his existing fiduciary position to the plaintiff, equity regards the secret profit as a legitimate payment intended for the plaintiff. The constructive trust is imposed to vindicate the plaintiff’s entitlement to the secret profit by reason of the defendant’s pre-existing fiduciary position and the principal’s entitlement to “the entire benefit of the agent’s acts in the course of his agency” and the agent’s corresponding duty to “deliver up to his principal the benefit which he has obtained” (FHR at §33; Crown Prosecution Service v Aquila Advisory Ltd at §49), not as an ex-post response to the defendant’s unlawful act in the absence of pre-existing fiduciary relationship. The defendant’s liability is entirely without reference to wrongdoing. The proprietary consequence does not depend on any label or plea of “unlawfulness” attached to the act leading to the receipt of secret profits or the receipt itself. Those acts or the receipt are not being “impeached” or “impugned” (Hon Kam Wing at §63).

(3)  The trust is in every sense “real” in that the plaintiff has proprietary remedies in respect of the secret profits and is not limited to a personal remedy of account against the defendant as if the defendant were a constructive trustee.

58.Second, the judge asked the wrong question whether the defendant had prior to his acquiring the 10% Dry Shares additionally assumed the position of a trustee specifically “in relation to” those secret profits[40]. In particular, he should not have applied Gwembe Valley which additionally enquires whether the fiduciary has assumed pre-existing trustee-like responsibility for the property. Such a qualification is an unjustified gloss not found in and is at odds with the basic category distinctions drawn in Paragon Finance.

59.The law took a wrong turn in Gwembe Valley. It proceeded on the false assumption that a fiduciary’s liability for unauthorised gain depends on his “wrong” instead of his mere duty to account (at §§118 to 119), contrary to the reason why constructive trusts of this sort are imposed as submitted earlier. As a matter of principle, regardless of whether the defendant’s pre-existing fiduciary relationship to the plaintiff was coupled with any control over property and regardless of whether the secret profits consist of or are derived from assets previously owned by the plaintiff beneficially, the contents of the defendant’s ongoing duty to account to the plaintiff are identical and are rooted in the defendant’s receipt of property. This alone justifies treating the defendant as analogous to an express trustee for limitation purpose (Trusts, Limitation Periods and Unauthorised Gains by Andreas Televantos, (2020) Issue 4, The Conveyancer & Property Lawyer 329 at 331, 334, 337 to 344).

60.There is a sharp divergence in the reasoning between Hon Kam Wing and Gwembe Valley (and the English cases that followed it). The judge followed the English cases without attempting to deal with Hon Kam Wing. In the absence of binding precedents, the appeal court should opt for the clear and simple answer of preferring the approach in Hon Kam Wing, coupled with the holding in FHR, which firmly places the constructive trust in the present case as a category 1 trust. A claim against a fiduciary for gains made while acting as a fiduciary does not depend on the principal establishing anything more than the fact of a pre-existing fiduciary relationship and receipt.

61.There can be no principled rationale for drawing a distinction between a fiduciary who makes a secret profit through direct misappropriation of the principal’s property (with no limitation defence) and a fiduciary who makes a secret profit from third parties (with limitation defence), when both have acted contrary to the duty of undivided loyalty to the principal. Irrespective of whether the fiduciary initially acknowledges to the principal he is holding the collected asset for the principal, and whether the fiduciary intended to conceal the receipt as a secret profit, any claim against the fiduciary should not be subject to limitation period.

62.The proprietary consequence of the constructive trust following FHR is not a red herring to the category 1/category 2 distinction for the purpose of limitation. A category 2 constructive trust is not a real trust and offers no proprietary remedies. If the FHR constructive trust is a real trust, it cannot be in category 2. The defendant’s submission involves the proposition there can be trusts which are real trusts for the purpose of FHR and yet are within category 2 for limitation purposes. Such creation of sub-divisions in the law is not conducive to clarity and simplicity, which are values the law should strive towards (FHR at §35).

63.Third, even if section 20(1)(b) does not apply on the basis that the constructive trust is a category 2 trust, it does not follow there is a limitation period of six years to capture the plaintiff’s claim “by default”. It is trite that the same words used within the same provision in a statute should be given a consistent interpretation. The word “trust” in section 20(2) must bear the same meaning as the word “trust” in section 20(1)(b). Once a person is a “trustee”, he must be for the entirety of section 20. Conversely, if the trust in question is not a “trust” within section 20(1)(b) (if it is regarded as a category 2 trust), it cannot be a trust within section 20(2) either. As stated by Patten LJ in First Subsea at §62:

“The director cannot be a class 1 fiduciary for the purposes of section 21(3) but not for the purposes of section 21(1) and for the same reason I do not see how it is possible to treat a director differently as between section 21(1)(a) and section 21(1)(b) depending on the nature of the breach which he commits.”

64.That does not mean section 20(2) is otiose, as it can capture actions to recover trust properties from non-trustees such as innocent recipients (Lewin on Trusts at §§50-075 to 50-076). This is sufficient to refute any suggestion that the plaintiff’s proprietary claim (if not a category 1 trust falling within section 20(1)(b)) should be time-barred on the basis that the defendant’s infringement of the no-conflict/no-profit rule should be treated as a “breach of trust” under section 20(2)[41].

65.The distinction between the two categories of constructive trustees obtained even after the Trustee Act 1888 serves to show that category 2 trustees were never meant to fall within the statutory scheme under section 20, including section 20(2). Whilst category 2 constructive trustees may be able to plead limitation in some cases, it was not by reference to the language of section 20(2), but was because the factual configuration enabled certain common law limitation periods to be applied “by analogy”.

D.3.2  The defendant’s arguments

66.The present case is factually on all fours with Gwembe Valley. The English Court of Appeal held that the managing director who failed to disclose his personal interest in transactions with the company held the secret profits as constructive trustee, that the trust imposed was a category 2 trust and could not be brought within section 21(1)(b) of the Limitation Act. Gwembe Valley is good law in England and Wales and was affirmed or followed in appellate (in particular, First Subsea) and first instance decisions[42].

67.Like Mr Shieh, for a start Mr Yu emphasised the distinguishing nature of the two categories of constructive trust. And he analysed the distinction between the two categories with regard to the legislative context of section 20(1)(b) of the Limitation Ordinance.

68.His analysis with regard to the legislative context may be stated as follows:

(1)  The distinction between the two kinds of constructive trustees for the purposes of limitation was drawn at a time when there was no statutory basis for the limitation of equitable remedies. Common law periods of limitation were applied by analogy in appropriate cases. Constructive trustees of category 1 trusts (such as trustees de son tort), like express trustees, were accountable without limitation of time on the basis that their possession of trust assets was for and on behalf of the beneficiary and entirely consistent with the beneficiary’s interest so time could never run against the beneficiary[43].

(2)  Prior to section 8 of the Trustee Act 1888, trustees were unable to raise a limitation defence even for innocent breach of trust. The rule that trustees could have no limitation defence for even innocent breaches was felt to be too harsh and was changed by the 1888 Act section 8(1)[44].

(3)  In Taylor v Davies [1920] AC 636, the Privy Council held that section 47 of the Limitations Act 1914 of Ontario, which corresponded with section 8 of the English Trustee Act 1888, did not have the effect of taking away the previous right of category 2 constructive trustees to rely on limitation. Viscount Cave said at 653:

“The expressions ‘trust property’ and ‘retained by the trustee’ [in the Canadian provision] properly apply, not to a case where a person having taken possession of property on his own behalf, is liable to be declared a trustee by the Court; but rather to a case where he originally took possession upon trust for or on behalf of others. In other words, they refer to cases where a trust arose before the occurrence of the transaction impeached and not to cases where it arises only by reason of that transaction.”

(4)  Section 8 of the Trustee Act 1888 was replaced by section 19 of the Limitation Act 1939. The latter was not intended to introduce a fundamental change to the law[45]. The same can be said of section 21 of the Limitation Act 1980 and section 20 of the Limitation Ordinance, which was modelled on section 19 of the 1939 Act[46].

69.The reason why claims against express trustees were never barred by limitation was because the trust assets were lawfully vested in the trustee, and possession was the beneficiary’s possession. The rule was extended to constructive trustees of category 1 trusts but not to those of category 2[47]. Trustees of category 1 trusts comprise “persons who have lawfully assumed fiduciary obligations in relation to trust property”[48]. Whilst category 1 trusts comprise trusts which arose before the occurrence of the transaction impeached, category 2 trusts are cases which arose only by reason of the transaction[49].

70.Applying the above, the trust imposed on an agent who obtained a secret profit is a category 2 constructive trust.

71.First, a “defining characteristic” of a category 1 trust is that the trustee should be “in lawful possession of trust property”[50]. Whilst it may be contended that the benefits of the secret profit are acquired by the wrongdoing agent on the principal’s behalf, this still does not qualify as a true trust as the agent cannot be said to be “in lawful possession” of the secret profit. To the contrary, the constructive trust was imposed by law as a response to his breach of fiduciary duty. This defining characteristic of category 1 trustees as being in lawful possession of the trust property distinguishes them from category 2 trustees. Gwembe Valley (and the cases following it) is justified in classifying an agent who received secret profits as a category 2 trustee, given his liability to account for those profits, and that any constructive trust imposed does not depend on pre-existing responsibility for any property of the principal but arose directly out of the transaction that gave rise to the profits.

72.Second, the proprietary consequence of a constructive trust according to FHR is a red herring insofar as the distinction between the two categories of constructive trust is concerned. The creation of an equitable proprietary interest in favour of the principal is a necessary but not sufficient condition to trigger the exception in section 20(1)(b). The overemphasis on the proprietary consequence of such constructive trust ignores the defining characteristic of a category 1 trustee coming into possession of the trust property lawfully, and not as a result of the impeached transaction. It also overlooks the crucial distinction between the case of a director who misappropriates trust assets (a category 1 trust) and breach of duty that does not involve misappropriation of trust property (a category 2 trust, as in Gwembe Valley)[51].

73.Third, FHR was concerned with the limits of the equitable rule by which an agent who acquires a benefit in breach of his fiduciary duty is treated as having acquired the benefit on behalf of the principal, so that it is beneficially owned by the principal. Specifically, what was in dispute was the extent to which the equitable rule applies where the benefit is a bribe or secret commission. It was not concerned with limitation statute and the distinction between the two categories of constructive trust. Unsurprisingly, there was no discussion by the Supreme Court in that case of Gwembe Valley.

74.Fourth, the correctness of Hon Kam Wing is doubtful, in light of the decision of the Court of Final Appeal in Peconic. The first instance decision in Peconic relied on Hon Kam Wing and held that Peconic’s claim against Chio, a director of Peconic, was an action by a beneficiary to recover trust property (ie secret profit) in respect of a breach of trust and thus fell within section 20(2), because one was concerned with a constructive trust of category 1[52]. Reference was made to the judgment of Lord Hoffmann NPJ at §§19 to 26 in support of the assertion that “this decision” was overturned in the Court of Final Appeal. Further, Hon Kam Wing is doubted in Lewin on Trusts. It was cited in fn 350 to §50-079 with a remark of “sed quaere” by the editors.

75.Fifth, the plaintiff has not cited any authority in support for the proposition that even if section 20(1)(b) does not apply on the basis that the constructive trust is a category 2 trust, it does not follow that there is a limitation period of six years to capture the plaintiff’s claim under section 20(2). This proposition goes against the highest authorities which held that the law has preserved the right of constructive trustees in a category 2 trust to rely on limitation defence, see Taylor v Davies at 651 and 653.

D.3.3  Discussion

76.In contending that the proprietary constructive trust in this instance should come within category 1, it should be borne in mind the provision that the plaintiff is relying on as excepting his claim from any time bar is section 20(1)(b).

77.I agree with Mr Yu that the present case is factually on all fours with Gwembe Valley. What Mummery LJ said at §118(ii) aptly describes the present situation regarding the defendant’s liability to account to the plaintiff for the unauthorised profits in respect of the 10% Dry Shares:

“Mr Koshy’s personal liability to account to GVDC for profits made by him from his fiduciary position as a director is not dependent on establishing that he has received any money or other property belonging GVDC as a result of the misapplication of GVDC’s assets, whether in the form of payments made by GVDC directly to him, or in the form of payments made, via Lasco, indirectly to him. GVDC’s causes of action against Mr Koshy were based on the equitable disabilities or the fiduciary duties to which he was subject as a director of GVDC. As such, he was under a personal liability in equity to account to GVDC for unauthorised profits: either because he was disabled in equity from making an unauthorised personal profit out of the position occupied by him and/or because he acted in dishonest breach of fiduciary duty by deliberately and secretly doing so. The profits made by him are treated as taken for and of behalf of GVDC, as the person to whom he owed the duty to account. As between him and GVDC, equity prevents Mr Koshy from asserting, in answer to the claim for an account, that he is entitled to retain the profits (if any) made by him for his own benefit.”

78.The reason for holding that the constructive trust imposed on Mr Koshy was not a category 1 but a category 2 trust and could not be brought within section 21(1)(b) of the Limitation Act was encapsulated in §119, which stated as follows:

“If that is the correct analysis, then it is clear in our view that any trust imposed on Mr Koshy is a class 2 trust, within Millett LJ’s classification. We agree with the judge that liability to account for unauthorised profits may arise within a wide spectrum of factual situations. However, that does not alter the analysis under section 21(1)(a) and (b), each of which must be applied in accordance with its own terms. We disagree, respectfully, with the judge in treating dishonesty as a factor taking the case from class 2 to class 1, for the purposes of para (b). Nor do we think that is the effect of the passage from Chadwick LJ’s judgment in Harrison’s case[53] quoted by the judge ([2002] 1 BCLC at [295]). As the judge recognised, in that case the director transferred to himself property which had previously belonged to the company, and in relation to which he had ‘trustee−like responsibilities’ before the transaction in question. By contrast, 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, any more than it was in Taylor v Davies.”

79.As mentioned, Gwembe Valley was affirmed or followed in appellate and first instances decisions in England and Wales. It was referred to by the Supreme Court in Williams v Central Bank of Nigeria without disapproval[54] (the trust claims there were based on dishonest assistance and knowing receipt and the issue on appeal turned on whether they were subject to limitation defence by virtue of section 21(1)(a)). Importantly, various passages in the judgments of the majority (Lord Sumption JSC and Lord Neuberger of Abbotsbury PSC, Lord Hughes JSC agreed with Lord Neuberger) do not support Mr Shieh’s proposition based on academic writings.

80.Mr Shieh has submitted that a fiduciary who holds an unauthorised gain on trust for his principal should be treated as holding that gain as a trustee within section 20(1), that the ongoing accounting duties of such constructive trustees are rooted in receipt just like express trustees, and the claim is not wrong-based. It does not depend on the principal establishing anything more than the fact of a pre-existing fiduciary relationship and receipt, and is regardless of whether the fiduciary relationship is coupled with any control over property and whether the secret profits consist of or are derived from assets previously owned by the principal beneficially.

81.His proposition is at odds with various passages in Williams v Central Bank of Nigeria. It was held by the majority that for a trust to come within the limitation provisions, a wider range of management and fiduciary duties are necessary, on the basis that the Trustee Act 1925 only referred to these trusts. The relevant passages read:

“26. … Section 31(1) of the 1939 Act adopted the meaning given to ‘trust’ and ‘trustee’ in section 68(17) of the Trustee Act 1925. This had the effect of broadening the definition to include personal representatives, whose unsatisfactory position had been the main source of concern to the [Wright] Committee. Otherwise the scope of the new definition was no broader than that of the Trustee Act 1888. But it goes further than that. By adopting the meaning and not just the language of the definition in the Trustee Act 1925, Parliament made it even clearer that the intention was simply to cover de facto trustees. The Trustee Act 1925 is concerned with the administration of true trusts. It is not concerned with constructive trusts imposed by equity on strangers to the trust in the exercise of its remedial jurisdiction. As Millett LJ observed when making this point in the Paragon case [1999] 1 All ER 400, 412, constructive trustees required to account in the exercise of equity’s remedial jurisdiction,

‘have no trust powers or duties; they cannot invest, sell or deal with the trust property; they cannot retire or appoint new trustees; they have no trust property in their possession or under their control, since they became accountable as constructive trustees only by parting with the trust property. They are in reality neither trustees nor fiduciaries, but merely wrongdoers.’

All of these considerations apply equally to section 21 of the Limitation Act 1980, which is in the same terms.”

“31. The essence of a liability to account on the footing of knowing receipt is that the defendant has accepted trust assets knowing that they were transferred to him in breach of trust and that he had no right to receive them. His possession is therefore at all times wrongful and adverse to the rights of both the true trustees and the beneficiaries. No trust has been reposed in him. He does not have the powers or duties of a trustee, for example with regard to investment or management. His sole obligation of any practical significance is to restore the assets immediately. It is true that he may be accountable for any profit that would have been made or any loss that would have been avoided if the assets had remained in the hands of the true trustees and been dealt with according to the trust. There may also, in some circumstances, be a proprietary claim. But all this is simply the measure of the remedy. It does not make him a trustee or bring him within the provisions of the Limitation Act 1980 relating to trustees.”

(per Lord Sumption JSC)

“69. When one looks at the definition, at least on its own, there is no reason to think that the drafter of section 68(1)(17) intended ‘constructive trust’ or ‘trustee’ to have a wider meaning than that which they had been accorded by the courts of equity over the years. Indeed, it would be surprising if a statute concerned with consolidating the law governing the powers and duties of trustees did not adopt an orthodox definition of ‘trust’ and ‘trustee’.

70. If one casts one’s eyes more widely, the provisions of the 1925 Act appear to me to reinforce the notion that knowing recipients or dishonest assisters were not intended to be covered by the definition. The Act is concerned with classic trusts, or, as Millett LJ put it in the Paragon case [1999] 1 All ER 400, 412, with ‘the powers and duties of trustees properly so called’, rather than ‘persons whose trusteeship is merely a formula for giving restitutionary relief’. It appears to me that a dishonest assister cannot be within the statutory definition as he does not have trust property without also being a knowing recipient, and, as for a knowing recipient, he ‘never assumes the position of a trustee’ because his receipt of trust property ‘is adversely to the [claimant]’, to quote Millett LJ again. I should add that that is a vital distinction between a trustee de son tort and a knowing recipient, which is why, assuming (which is almost certainly right) that a trustee de son tort is included within the section 68(1)(17) definition, that does not assist Dr Williams’s case.

71. The first four Parts of the 1925 Act deal with permitted investments, general powers of trustees, appointment and discharge, and the powers of the court; and the remaining, fifth, Part contains ‘general provisions’. It is a little difficult to see how most of the sections of the 1925 Act could apply to a dishonest assister (at least unless he was also a knowing recipient), because he has no assets in respect of which he can he said to be a trustee. Further, many of the provisions appear inappropriate in relation to property for which a knowing recipient is obliged to account. I have in mind provisions such as sections 8, 30 (exculpatory where trust money lost on loans, or due to agent’s defaults), section 25 (delegation of trustee’s functions), 31 and 32 (powers of maintenance and advancement), 36-39 (power to retire and appoint fresh trustees) and 57 (power of court to authorise dealings). As Lord Sumption JSC says in para 31 above, a knowing recipient has one overriding duty, and that is to account for and return the property.

72. Given the unambiguous way in which the 1939 and 1980 Acts incorporate the definition in the 1925 Act, the definition of ‘trustee’ in the 1925 Act simply cannot have a different meaning in the later Acts from that which it has in the 1925 Act itself, simply because any wording is ‘subject to the context’, or because of ‘the mischief being addressed’ in the later Acts, or because of ‘Parliament’s evident intention when enacting’ the later Acts. …

73. In the present instance, the definition sections of the 1939 and 1980 Acts unambiguously state that the meaning of ‘trustee’ is to be determined by reference to the definition in the 1925 Act. For a court to suggest that, in the 1939 or 1980 Acts, the definition or the expression can have a different meaning from that which it has in the 1925 Act is both inconsistent with the plainly expressed will of Parliament as set out in the definition sections of the 1939 and 1980 Acts and a recipe for uncertainty in future cases of statutory interpretation.”

(per Lord Neuberger PSC)

82.Section 2(1) of the Limitation Ordinance provides that “trust” and “trustee” have “the same meanings respectively as in the Trustee Ordinance”. Just like the English statutes, the definition provision in the Limitation Ordinance is to be determined by reference to the definition in the Trustee Ordinance, which is also modelled on the English Act. The Trustee Ordinance is concerned with the administration of true trusts, unlike the situation of a constructive trustee required to account in the exercise of equity’s remedial jurisdiction whose sole obligation of any practical significance is to restore the assets immediately. His possession is at all times wrongful and adverse to the rights of the claimant, nor does he have the powers and duties of a trustee with regard to investment and management. Most of the provisions in the Trustee Ordinance do not apply to him appropriately. He does not come within a “trustee” as provided in section 20(1) of the Limitation Ordinance which is determined by reference to the Trustee Ordinance. The meaning and language of “trustee” in the Trustee Ordinance do not extend to constructive trustees whose liability to account arose from the misapplication itself.

83.As further stated by Patten LJ in First Subsea at §41,

“the gateway to section 21 is the definition of ‘trust’ and ‘trustee’ in section 38(1) [of the Limitation Act[55]]. The protection afforded to beneficiaries depends upon the status of the defendant at the time he commits the breach complained of. This is a question of statutory construction to which Taylor v Davies provided an answer which has now been adopted in relation to section 21 of the 1980 Act.”

84.The effect of the decisions in the Paragon case and Williams v Central Bank of Nigeria, as Patten LJ explained in §50, is that a director is a “trustee” within the extended definition contained in section 38(1), and section 21 is directly applicable to claims against a director for breaches of his fiduciary duties. The issue is whether a different situation obtains when the breach of duty does not involve the misappropriation of trust property, which was the position in Gwembe Valley. Mr Koshy, like the agent in FHR, made a secret profit at the expense of the company for which he was accountable. It was held that the only constructive trust imposed by equity in respect of the secret profit would be of category 2 stemming from the breach of duty.

85.Patten LJ dealt with the criticism of Gwembe Valley that a breach of duty not involving the misappropriation of trust property (a category 2 trust) cannot fall within section 21(1)(a) either. He recognised that the definition of “trust” and “trustee” contained in section 38(1) applies to those terms wherever they appear in section 21 and requires them to be given a consistent interpretation. He said at §§59, 62 and 63:

“59. 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 virtute 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.”

“62. It seems to me to follow from this that if a director is a trustee for the purposes of section 21 then the phrase ‘breach of trust’ must encompass any breach of his fiduciary duties as such a director towards the company. If he causes loss to the company as in this case he is accountable in precisely the same way as a trustee would be for any loss caused by his breach of duty to the trust. The director cannot be a class 1 fiduciary for the purposes of section 21(3) but not for the purposes of section 21(1) and for the same reason I do not see how it is possible to treat a director differently as between section 21(1)(a) and section 21(1)(b) depending on the nature of the breach which he commits. The criticism of the decision in the Gwembe case proceeds on the premise that Mr Koshy was not liable under section 21(1)(b) because the only trust property he obtained was not company property but a secret profit subject to a constructive trust. Therefore, so the argument goes, it would be wrong in principle for the same breach to attract the provisions of section 21(1)(a). But that seems to me to confuse what the two subsections are dealing with. Mr Koshy was only ever a trustee of the secret profit by virtue of the constructive trust imposed as a result of his fraud. But he was not in breach of that trust. The class 2 constructive trust, as Lord Hoffmann explained in the Paragon case, imposed no duties on him nor did it make him a fiduciary. He was a fiduciary by reason of his office as director and the fraud which he committed was a breach of those duties; not of the class 2 constructive trust.

63. The Paragon case and Williams v Central Bank of Nigeria (and the authorities on which they are based) are concerned with identifying the class of fiduciaries who fall within the definition of ‘trustee’ in section 38(1). This, as I mentioned earlier, is a question of status which is determined by the nature of the office which they lawfully hold and the power over the trust property which that gives them. A defendant fiduciary cannot move from class 2 to class 1 or vice versa dependent on the type of breach of duty which he commits. Once he is a class 1 fiduciary and therefore a trustee within the meaning of section 38(1), it seems to me that he must be that for all Limitation Act purposes under section 21. Therefore if the breaches of fiduciary duty by Mr Emmett as director were fraudulent as found by the judge then section 21(1)(a) operates to prevent time running under section 21(3).”

86.Lord Briggs JSC, who was a party to the decision in First Subsea, gave the judgment of the Supreme Court in Burnden Holdings. The issue on appeal in Burnden Holdings was whether section 21(1)(b) of the Limitation Act applied to director trustees where the misappropriated property had remained legally and beneficially owned by corporate vehicles, rather than having become vested in law or in equity in the defaulting directors. Whilst noting that the difficulties arising from Gwembe Valley do not concern the issue on appeal, he did not express disapproval of Gwembe Valley and First Subsea and had this to say at §11:

“It is common ground (and clear beyond argument) that, as directors of an English company who are assumed to have participated in a misappropriation of an asset of the company, the defendants are to be regarded for all purposes connected with section 21 as trustees. This is because they are entrusted with the stewardship of the company’s property and owe fiduciary duties to the company in respect of that stewardship: see … most recently, First Subsea Ltd v Balltec Ltd …, para 50, per Patten LJ. By the same token, the company is the beneficiary of the trust for all purposes connected with section 21. Complications have arisen where, although a director, the defendant’s breach of duty did not involve the misapplication of company property: see for example Gwembe Valley …, but those difficulties (if indeed they survive the decision of the Court of Appeal in the First Subsea case) do not arise on this appeal.”

87.On the assumed facts in Burnden Holdings, the directors had previously received company property and converted it to their own use when it was diverted to a company in which they had a majority stake. That was sufficient to engage section 21(1)(b), even though the relevant property was not transferred to the directors personally.

88.In Davis v Ford, Adam Johnson QC sitting as a deputy High Court Judge posed the question of the case of a company director who diverts a maturing business opportunity for his own benefit[56]. And he answered it in this way:

“314. … Such a case may result in a proprietary remedy, as illustrated by the Bhullar Bros. case[57] already discussed above. Another good example is the case where an agent receives a bribe or secret commission in breach of duty. The Supreme Court has held that in such cases the benefit accruing to the agent is to be treated as having been acquired on behalf of his principal, so that the benefit is owned by the principal who has a proprietary as well as a personal remedy against the agent: see FHR European Ventures LLP and others v. Cedar Capital Partners LLC [2014] UKSC 250, [2015] AC 250.

315. But do such cases involve any misapplication of ‘trust property’, such that they fall within LA 1980, section 21(1)(b)? The authorities support the view that the answer is no.”

89.Based on the English authorities, section 20(1)(b) has no application in this instance because the claim is not one to recover trust property in the possession of the defendant as trustee. Trust property in this context meant pre-existing trust property. On the plaintiff’s case as pleaded, there had been no misapplication of pre-existing trust property. The imposition of a proprietary constructive trust is a remedial device in response to the receipt by the defendant of the secret profit in breach of his fiduciary duty. I agree with Mr Yu’s submissions that the constructive trust imposed is a category 2 trust.

90.Hon Kam Wing is the only decided case cited to us that provides support for the plaintiff’s contention the proprietary constructive trust imposed in such situation is a real trust and falls within category 1. It was decided before Gwembe Valley and the court did not have the benefit of the reasoning in the subsequent decisions.

91.In the first instance decision in Peconic, after applying Gwembe Valley and Hon Kam Wing, it was held that the main culprit Chio was a category 1 constructive trustee for the purpose of sections 20(1) and (2), as the monies comprising the secret profits had been monies belonging to Peconic. Lord Hoffmann held in §18 that the action against Chio was an action by a beneficiary in respect of his fraudulent breach of trust (coming within section 20(1)(a)) and hence no limitation period applied. On this, there was no difference with the ruling at first instance. Lord Hoffmann then proceeded to consider the position of Chio’s dishonest assister Danny Lau in §§19 to 26 and, on this point, agreed with the reversal of the first instance decision by the Court of Appeal. This reversal did not involve any consideration of Hon Kam Wing. Mr Shieh is correct to say there is nothing in Lord Hoffmann’s judgment in Peconic that cast doubt on this decision.

92.That said, Hon Kam Wing is not a satisfactory decision. The issue that the court was asked to resolve was whether the constructive trust imposed over the properties received as bribes should be within category 1 or category 2, on the premise that if it was category 1, section 20(1) would apply so the government’s claims would not be time-barred[58]. There was no consideration in the judgment whether section 20(1)(b) or (a) or both would apply. I also have reservations about the reasoning that the transaction impeached was not the receipt of the bribes but the failure to hand them over (there was no disagreement of the parties on this)[59] and the judge’s disagreement with the submission that the case was within category 2 when the constructive trust was imposed upon the receipt of the bribes[60]. It is difficult to reconcile with the statements of Viscount Cave in Taylor v Davis at 653 affirmed by the Court of Final Appeal in Peconic.

93.For all the above reasons, I reject the plaintiff’s contention that the proprietary constructive trust in this instance should come within category 1 and that no limitation period is applicable by virtue of section 20(1)(b). The Paragon case and Williams v Central Bank of Nigeria have established that this provision is to be given a narrow interpretation. This being a category 2 trust, it has been held that the limitation statute did not have the effect of taking away the previous right of trustees of category 2 to rely on limitation defence.

94.As section 20(1)(b) does not apply, and the plaintiff does not rely on section 20(1)(a), time would run against the plaintiff from the date when the right of action accrued, ie when the defendant secretly acquired the 10% Dry Shares in June 2006. A six-year limitation period applies, either directly by section 20(2) (“an action by a beneficiary to recover trust property or in respect of any breach of trust”) or by analogy (applying section 4(7)[61]) to either the six-year period for breach of trust in section 20(2) or for breach of contract where there is breach of fiduciary duty in a contractual context[62]. The plaintiff’s claim is therefore time‑barred.

D.4  The claim for equitable compensation under the no-conflict/no-profit rule

D.4.1  The plaintiff’s arguments

95.This head of the plaintiff’s claim for equitable compensation, based on infringement of the no-conflict/no-profit rule, is separate and distinct from any characterisation of the receipt as being subject to a proprietary trust. Such claim has no analogy at common law or otherwise and is not subject to any period of limitation (The Principles of Equity & Trusts by Graham Virgo, p 517, the classification in (5); Equity & Trusts (6th ed) by Michael Haley and Lara McMurtry at §17-028 fn 128).

96.The judge was wrong to follow Gwembe Valley at §§104 to 109[63], which suggests that breach of the no-conflict/no-profit rule should for limitation purposes be classified as a breach of “trust” under section 20(2). As explained in Tito v Waddell (No 2) at 248 to 249, the no‑conflict/no-profit rules are in reality not duties but disabilities preventing fiduciaries from entering into certain transactions, and cannot be classified as trust or “trust-like” duties within section 20(2).

97.As the plaintiff’s claim for equitable compensation is based on a disability and cannot be equated to a breach of trust under section 20(2), this claim cannot be time-barred.

D.4.2  The defendant’s arguments

98.The plaintiff’s reliance on the two textbooks cited is misplaced. Professor Virgo’s view was tentative (“It seems that no statutory limitation period applies to such claims, either directly or by analogy …”). The other textbook contained merely a passing reference to this subject. The view expressed in the two academic works goes against the tide of authorities and departs from the widely accepted position. The cases and academic works cited by the judge[64] set out the legal position in clear and unequivocal terms and were rightly accepted by the judge in holding that the limitation period of six years applies.

99.In any event, even if the plaintiff were correct in contending that the claim based on breach of the no-profit rule is not subject to any limitation period, section 4(1) of the Limitation Ordinance may be applied analogously in respect of a claim for secret profits, which is analogous to a claim based on debt or money had and received, citing Metropolitan Bank v Heiron (1880) 5 Ex D 319 at 323; Attorney General of Hong Kong v Reid at 331C to D; Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339 at 367 to 368; and Coulthard v Disco Mix Club Ltd [2000] 1 WLR 707 at 730E.

D.4.3  Discussion

100.I agree with Mr Yu’s submissions and reject the contention that there is no limitation period in respect of the claim for equitable compensation based on the no-conflict/no-profit rule. The correct legal position is as stated in the authorities quoted by the judge in §57 of the Decision. I agree with the views of Mummery LJ in Gwembe Valley at §§104 to 109 that the reasons for treating the no-profit rule as falling outside the statutory scheme for limitation are unsound and the distinction in Tito v Waddell (No 2) between a breach of fiduciary duty and an equitable disability is a “needless complication”. Section 20 of the Limitation Ordinance applies 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[65].

101.Mr Shieh took issue with the defendant’s argument that the plaintiff’s claim based on a breach of the no-profit rule should attract a limitation period analogous to that applicable to a claim based on debt or money had and received under section 4(1) as a wholly new point not raised below or in the respondent’s notice. Hence, it should not be considered by this court. Mr Yu’s argument is in response to Mr Shieh’s contention that the claim for equitable compensation has no analogy at common law or otherwise. A respondent’s notice is not strictly necessary to raise this legal point. In any event, Mr Shieh has replied to this fully.

102.Mr Shieh submitted that the cases cited by Mr Yu do not support the proposition that a “pure breach” of the no-conflict/no-profit rule is analogous to a claim based on debt or money had and received for limitation purposes:

(1)  Coulthard v Disco Mix Club Ltd held that the allegations of breaches of fiduciary duty, being “deliberate and dishonest under-accounting”, were based on the same factual allegations as the common law claims of fraud and are “no more than the equitable counterparts” of the claims at common law (at 730B to C). The statement at 730E was dealing with fraudulent and “deliberate withholding of money due”, not breach of the no-conflict/no-profit rule. In the classification in The Principles of Equity & Trusts by Virgo at p 517, this would come within (3) instead of (5).

(2)  Metropolitan Bank v Heiron was overruled by the Supreme Court in FHR at §§47 to 50 and is no longer good law on the point of limitation for the recipient of a bribe. In any event the case was concerned with a director’s receipt of a bribe in a classic case of “concealed fraud” (at 323, per James LJ) or “founded upon fraud” (at 324, per Brett LJ), so that the limitation period for common law fraud was applied by analogy. It too would come within classification (3) by Virgo.

(3)  The passage in Attorney General of Hong Kong v Reid at 331C to D (“The false fiduciary who received the bribe in breach of duty must pay and account for the bribe. … as soon as the first respondent received a bribe …, he became a debtor in equity … for the amount of that bribe.”) is not in the context of limitation.

(4)  Boston Deep Sea Fishing at 367 to 368 describes the liability of an agent in respect of a bribe as a liability for money had and received based on an implied contract. This passage is not concerned about limitation periods and does not deal with the nature of infringing the no-profit rule.

103.Mr Shieh made an overarching observation that one cannot rely on observations in cases to the effect that liability to restore a bribe or secret profit is in the form of a debt (in equity) and argue that the common law period of limitation for a debt should apply by analogy. One must not just focus on the fact that it is an obligation to pay a sum of money, but on how that obligation arose. He reiterated that liability under the no-conflict/no-profit rule is sui generis and not analogous to the common law liability to repay a borrowed sum by way of debt or repay a sum received by mistake.

104.I am not persuaded by Mr Shieh. Although Attorney General of Hong Kong v Reid and Boston Deep Sea Fishing were not concerned with limitation period, the statements cited provide support for the defendant’s contention that limitation period for a claim based on debt or money had and received may be applied by analogy to a claim for equitable compensation based on the no-conflict/no-profit rule. It is immaterial how the liability may arise under the no-conflict/no-profit rule is different. For the limitation period to be applied by analogy, what matters is whether the claims are based on the same facts and there is correspondence between the remedies available[66]. I consider these requirements are met.

D.5  The claim for equitable reliefs including an account

D.5.1  The plaintiff’s arguments

105.The judge is wrong to hold that the plaintiff’s claim under prayer (4) is based on the defendant’s alleged breach of fiduciary duties and should therefore be subject to a limitation period of six years[67]. The plaintiff’s claim for an account is based purely on his equitable right arising out of the defendant’s fiduciary duty to account as the plaintiff’s agent[68], and/or the plaintiff’s equitable interest in the 10% Dry Shares under the constructive trust[69]. There is nothing in §53(2) of RRASOC which suggests that the plaintiff’s claim for an account is premised on any breach of fiduciary duty. It is well-established that an account is not a remedy for wrong, but is based solely on the fiduciary’s performance of his obligation. There is thus no requirement for the plaintiff to rely on any breach of duties in order to obtain an account (Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at §§167 to 168; Liu Hsiao Cheng v Wong Shu Wai at §47).

106.No wrong needs to be proved for the plaintiff to seek an account. In any event, it is a general rule that a pleader, who has pleaded more than he strictly need have done, can always disregard the unnecessary or surplus averments and rely simply on the more limited ones (Arab Bank Ltd v Ross [1952] 2 QB 216 at 229).

107.Contrary to the judge’s holding[70], the plaintiff’s claim is for the defendant to render an account simpliciter, as to which no direct or analogous limitation period is applicable under section 4(7) (Liu Hsiao Cheng v Wong Shu Wai at §17).

108.While the plaintiff also seeks in prayer (4) an order of delivery up of what is found due after an account is taken, that is a separate relief subject to the analysis under the proprietary claim based on constructive trust in D.3. Even if this specific claim is time-barred, the claim for an account itself in the earlier part of prayer (4) remains free from any limitation period.

D.5.2   The defendant’s arguments

109.The plaintiff’s submissions mischaracterise his own pleaded case. In §53(2) of RRASOC, the plaintiff pleads a claim for an account and equitable compensation and in prayers (4) to (5) the remedies for his case against the defendant at §§51 to 52 for alleged breach of fiduciary duties. This is a classic case of accounting based on breach of fiduciary duty. The plaintiff is not seeking an account simpliciter and Liu Hsiao Cheng v Wong Shu Wai is clearly distinguishable as the judge has held.

D.5.3  Discussion

110.I agree with Mr Yu that the plaintiff’s case as pleaded is not for an account simpliciter but a classic case of accounting based on breach of fiduciary duty. The limitation period of six years applies by analogy with section 4(2).

111.In any event, as stated by David Richards J in Barnett v Creggy [2015] PNLR 13 at §82:

“Section 23[71] would not appear to apply to a beneficiary’s claim against a trustee for an account in equity, as it is a free-standing remedy which is not based on any other claim: see Attorney-General v Cocke [1988] Ch. 414, Lewin on Trusts (18th edn, 2008) at 44–41, Underhill & Hayton: Law of Trusts and Trustees (18th edn, 2010) at 94.32. Nonetheless, as observed in Lewin, a trustee cannot be deprived of a limitation defence otherwise available to him merely because the beneficiary seeks an account. If it is clear that all claims against the trustee would be time-barred, and an account would serve no other useful purpose, the court will not order an account: see How v Earl Winterton [1896] 2 Ch. 626.”

D.6  Arising out of the same facts under Order 20 rule 5(5)

112.Order 20 rule 5(2) empowers the court to grant leave to amend the writ or pleading in the particular circumstances mentioned in paragraphs (3), (4) and (5), even though the application is made after the expiry of the relevant limitation period current at the date of issue of the writ.

113.The courts have established a “three-stage test” to assist in determining how the powers under Order 20 rule 5(5) should be exercised. The test is as follows:

(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.

114.The plaintiff’s contention is that Stage 3 should be answered yes.

D.6.1  The plaintiff’s arguments

115.The Impugned Pleas all arise out of the same or substantively the same facts as RASOC §19, which Master Martin Wong did not strike out and the defendant did not appeal against this. The duty not to make a secret profit has all along been pleaded in RASOC at §8. No fraud or dishonesty has been alleged in the Impugned Pleas. There is no fundamental change of the plaintiff’s case on the 10% Dry Shares.

116.The Impugned Pleas can cause no prejudice to the defendant (and none was suggested), since the defendant had already investigated matters concerning RASOC §19 and pleaded to them in the amended defence at §31.

D.6.2  The defendant’s arguments

117.Mr Yu submitted that the three-stage test is not engaged in this instance in light of the precondition in Order 20 rule 5(2) not being met.

118.The plaintiff’s pleaded case is that the defendant secretly acquired the 10% Dry Shares by 29 June 2006. As the judge had found[72], it is apparent from the plaintiff’s letter to the defendant dated 6 November 2012 that the plaintiff must have known by then the defendant’s acquisition of the 10% Dry Shares. By the time the writ of this action was issued on 13 November 2018, the claim on the 10% Dry Shares would have been time-barred.

119.As the claim on the 10% Dry Shares was time-barred when the writ was issued, an amendment adding a new cause of action which is time-barred on the date when the writ is issued will not be able to satisfy the requirements in the rules of court and sections 35(5) to (6) of the Limitation Ordinance, and cannot be permitted pursuant to section 35(3).

120.Even assuming the three-stage test were engaged, Stage 3 is not met for these reasons.

121.First, Order 20 rule 5(5) requires the new cause of action to arise “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”. As Master Martin Wong has ordered §20 and prayer (2) of RASOC to be struck out, there was simply no cause of action left and no relief claimed in the pleading in respect of the 10% Dry Shares. §19 of RASOC does not avail the plaintiff. There is nothing that the new cause of action can be said to arise out of the same facts or substantially the same facts as.

122.Second, the character of the plaintiff’s case has changed fundamentally as the new claim introduces an allegation of intentional wrongdoing. As Pill LJ stated in Paragon Finance at 420 d to h:

“… to allege that an injury is caused intentionally is to add a new allegation of fact which gives the allegations of act as a whole a substantially different character. … The addition of allegations of intentional wrongdoing take these cases beyond the power conferred by s 35(4) because the claims do not arise ‘out of the same facts or substantially the same facts’. … it is the allegation of intentional wrongdoing which also prevents the claim arising out of the same or substantially the same facts for the purposes of the section.”

D.6.3  Discussion

123.I agree with Mr Yu the three-stage test is not engaged as the precondition in Order 20 rule 5(2) is not met. I also agree with him even assuming the test were engaged, §19 of RASOC does not avail the plaintiff.

E.  Conclusion and costs

124.In conclusion, I uphold the judge’s decision in refusing leave to amend for the Impugned Pleas only on the ground that the claim regarding the secret profit of the 10% Dry Shares is time-barred, not on the ground of abuse of process. I would dismiss the plaintiff’s appeal.

125.I would make an order nisi awarding two-thirds of the costs of the appeal to the defendant, as the limitation defence took up a substantial part of the arguments in this appeal. There will be a certificate for two counsel.

Hon Au JA:

126.I agree with the judgment of Kwan VP.

Hon Chow JA:

127.I agree with the judgment of Kwan VP.

(Susan Kwan)
Vice President
(Thomas Au)
Justice of Appeal
(Anderson Chow)
Justice of Appeal

Mr Paul Shieh SC and Mr John Leung, instructed by Wanda Tong & Co, for the Plaintiff (Appellant)

Mr Benjamin Yu SC and Ms Bonnie Cheng, instructed by Zhong Lun Law Firm LLP, for the Defendant (Respondent)



[1]  [2022] HKCFI 2451

[2]  The RRASOC was filed on 21 December 2021 and ordered to be expunged by the Decision when the order of Master Kenneth Lee was set aside.

[3]  RRASOC §§2(4), 4, 6

[4]  RRASOC §5

[5]  RRASOC §11

[6]  RRASOC §§14, 15

[7]  RRASOC §§6, 20

[8]  RRASOC §§21, 21(2)

[9]  RRASOC §22

[10]  RRASOC §§2(3), 49, 50

[11]  RRASOC §§52, 53 and prayers (3) to (5)

[12]  Late 2013 or early 2014

[13]  §§25 to 26 of the plaintiff’s affirmation exhibited to the affirmation of Lo Wai Keung Peter filed on 13 August 2020

[14]  Late 2012, the relevant letter of the plaintiff to the defendant in November 2012 had been referred to in §12 of RASOC although the date was mistakenly stated as “16 November 2012” instead of “6 November 2012”.

[15]  Decision, §§83 to 90

[16]  Decision, §§92 to 103

[17]  With Mr John Leung

[18]  Decision, §§84 to 86

[19]  With Ms Bonnie Cheng

[20]  2nd affirmation of the defendant filed on 6 May 2020, §5(b) and the letter of the defendant’s solicitors to the plaintiff’s solicitors dated 15 January 2020 exhibited thereto.

[21]  2nd affirmation of the defendant, §5(c)

[22]  Decision, §87

[23]  Decision, §§88, 89

[24]  Affidavit of Tong Wai Oi Wanda filed on 27 April 2021, §§6, 7

[25]  RRASOC §50, see also §§51 and 52

[26]  RRASOC §2(3)

[27]  The equivalent provision in the Limitation Ordinance, Cap 347 is section 20(1)(b).

[28]  [2018] AC 857 at §§16 to 22

[29]  Decision, §§53, 55, 56, 92. The plaintiff cited in support The Principles of Equity & Trusts by Graham Virgo (4th ed), p 517 and Tito v Waddell (No 2) [1977] Ch 106 at 249.

[30]  Decision, §§56, 57, 58, 92, adopting the reasoning in Gwembe Valley Development Co Ltd (in receivership) & Anr v Koshy & Ors (No 3) [2004] 1 BCLC 131 at §§104 to 109, which disapproved of the approach in Tito v Waddell (No 2). The judge also cited Snell’s Equity (34th ed) at §7-063; Remedies for Torts, Breach of Contract and Equitable Wrongs by Andrew Burrows (4th ed) at pp 543 to 544; Pearce & Stevens’ Trusts and Equitable Obligations (7th ed) by Robert Pearce and Warren Barr at pp 664 to 665; and Lewin on Trusts, vol 2 (20th ed) at §§46-062 and 50-083.

[31]  Limitation Ordinance, s 2(1); Trustee Ordinance, Cap 29, s 2.

[32]  Paragon Finance Plc v D B Thakerar & Co [1999] 1 All ER 400 at 408 to 409, 412 to 414; approved in Williams v Central Bank of Nigeria [2014] AC 1189 at §7 onwards, 55 to 56.

[33]  Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 1 WLR 1555 at 1582.

[34]  Decision, §§99, 101

[35]  Equivalent to s 20(2) of the Limitation Ordinance

[36]  It was held that no limitation period applied because the defendant was a director and as such to be treated as a true trustee, the action was treated for limitation purposes as analogous to an action for “fraud or fraudulent breach of trust” within section 21(1)(a). See conclusions at §161.

[37]  Equivalent to s 20(1)(b) of the Ordinance

[38]  Quoted in the Decision at §98(2)

[39]  Decision, §100

[40]  Decision, §99

[41]  Decision, §92

[42]  Such as Davis v Ford [2020] EWHC 686 (Ch) at §§310 to 319. The appeal and cross-appeal from the first instance decision were dismissed in [2023] EWCA Civ 167, the holdings on limitation did not feature in the appeal and cross-appeal.

[43]  Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139 at §§19, 20; Williams v Central Bank of Nigeria at §§12, 13; First Subsea at §39

[44]  Peconic at §20

[45]  Peconic at §22

[46]  Peconic at §19; Williams v Central Bank of Nigeria at §§43 to 53

[47]  Taylor v Davies at 650 to 651; Clarkson v Davies [1923] AC 100 at 110 to 111

[48]  Williams v Central Bank of Nigeria at §9

[49]  Williams v Central Bank of Nigeria at §60, referring to Taylor v Davies at 651; Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 at §139

[50]  First Subsea at §45; Williams v Central Bank of Nigeria at §13

[51]  First Subsea at §§50, 62

[52]  HCA 16255/1999, 1 June 2006, at §§621 to 624

[53]  Harrison (J J) (Properties) Ltd v Harrison [2001] EWCA Civ 1467

[54]  At §§28 and 117. Lord Mance JSC, who was in the minority, distinguished Gwembe Valley at §152.

[55]  38(1) provides that the expressions “trust” and “trustee” have the same meanings respectively as in the Trustee Act 1925.

[56]  This would appear to be the “twilight” or “limbo” area mentioned by Mr Shieh in his oral submissions. His contention is that the constructive trust imposed does not fall within category 1 or 2 and has been left undealt with by the law, which I do not accept.

[57]  Bhullar v Bhullar [2003] 2 BCLC 241

[58]  §14, see also §11.

[59]  §63

[60]  §64

[61]  Section 4(7) provides that section 4 (limitation of actions of contract and tort and certain other actions) “shall not apply to any claim … for other equitable relief, except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment contained in the Limitation Act 1980 is applied in the English Courts.” The equivalent provision in the Limitation Act 1980 is section 36(1).

[62]  Breach of Contract and Equitable Wrongs by Andrew Burrows at p 544

[63]  Decision, §56

[64]  Decision, §57; set out in footnote 30 of this judgment.

[65]  Lewin on Trusts, vol 2 at §50-083

[66]  Snell’s Equity at §7-063

[67]  Decision, §100

[68]  RRASOC, §§51 to 52

[69]  RRASOC, §53(1)

[70]  Decision, §100

[71]  Equivalent to section 4(2) of the Limitation Ordinance, which reads: “An action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action.”

[72]  Decision, §102

Other Judgments in This Case

Further hearings and rulings under CACV 377/2022