Blockchain Group Company Ltd (Formerly Ping Shan Tea Group Ltd and Huafeng Group Holdings Ltd) (in Liquidation) v. Pkf Hong Kong Ltd (Formerly Pkf (A Firm))
Read the full judgment text of HCA 297/2022 on BabelCite. This High Court CFI judgment was delivered on 27 March 2024.
1. This is the Plaintiff’s appeal from Master Frances Lok’s dismissal on 19 September 2023 of its application by summons filed on 12 June 2023 (“the Summons”) to amend the name of the current Defendant from “PKF Hong Kong Limited (formerly PKF (a firm))” to “PKF (a firm)”.
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HCA 297/2022 [2024] HKCFI 903 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 297 OF 2022 ____________________ BETWEEN
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_________________ DECISION _________________ 1.This is the Plaintiff’s appeal from Master Frances Lok’s dismissal on 19 September 2023 of its application by summons filed on 12 June 2023 (“the Summons”) to amend the name of the current Defendant from “PKF Hong Kong Limited (formerly PKF (a firm))” to “PKF (a firm)”. Background facts 2.PKF (a firm) is an accounting firm organised as a partnership and registered in 1976. It acted as the Plaintiff’s auditor until 9 May 2017. 3.PKF Hong Kong Limited (“PKF Ltd”) is a limited company incorporated in January 2017. It replaced PKF (a firm) as the Plaintiff’s auditor after 9 May 2017. 4.Lai Kar Yan Derek and Yip Wa Ming Ben (“Mr Yip”) of Deloitte Touche Tohmatsu (“the Liquidators”) were appointed liquidators of the Plaintiff on 4 June 2019. 5.The Plaintiff (acting through the Liquidators) issued the writ on 22 March 2022 making claims in respect of
6.The writ named “PKF Hong Kong Limited (formerly PKF (a firm)” as Defendant. 7.The Plaintiff seeks
8.PKF Ltd and PKF (a firm) opposed the application. Their stance is that the description of the Defendant named in the writ was intended to identify PKF Ltd as the Defendant, albeit there was a mistake that PKF Ltd was somehow “formerly PKF (a firm)”. 9.At stake are the causes of action the Plaintiff has initiated. It must succeed on either the amendment application or the substitution application. Otherwise, those claims would be barred by limitation. I. The amendment application A. Applicable principles 10.RHC O 20 governs applications to amend. Rules 5(2) to (3) provides as follows:
11.Those provisions need to be read together with Section 35 of the Limitation Ordinance (Cap 347) (“LO”) that governs the bringing of new claims after the expiry of the limitation period. For present purposes, the following are pertinent:
12.Therefore, for O 20 r 5 (3) to apply, the court must be satisfied that
see International Bulk Shipping and Services Ltd v Minerals and Metals Trading Corp of India [1996] 1 All ER 1017, 1025j-126a. 13.The first requirement is not satisfied unless the mistake is one of name. The mistake has to be a mistake as to the name rather than the identity of the party or as to legal rights[1]: see per Tang PJ in Beijing Tong Gang Da Sheng Trade Co Ltd v Allen & Overy (A Firm) (2016) 19 HKCFAR 705 at §43. 14.The distinction between an error of identification and an error of nomenclature is often fine. Case law contains various expressions of the distinction derived from the circumstances of the particular case which serve as useful points of reference. 15.In the Beijing case (at §§44-45), Tang PJ cited from Adelson v Associated Newspapers Limited [2008] 1 WLR 585 where Lord Phillips CJ considered that under O 20 r 5:
16.Another expression of the distinction is to be found in the judgment of Leggatt J (as he then was) in Insight Group Limited v Kingston Smith [2014] 1 WLR 1448 where a claim for damages for professional negligence had been mistakenly brought against an LLP rather than the partnership whose business the LLP took over[2]. 17.At §57, Leggatt J stated that in that scenario there are 2 possible types of mistakes:
18.In determining into which category a particular case falls, the whole of the evidence must be considered to explain why the LLP, and not the firm, was named as the defendant. At §58, Leggatt J elaborated on the evidence as follows:
19.It is common ground that subsequent cases such as American Leisure Group Limited v Olswang LLP[3] [2015] PNLR 21 and Jenkins v JCP Solicitors Ltd[4] [2019] PNLR 21 applied the Insight Group analysis. 20.A genuine mistake is not limited to mistakes without fault: The Sardinia Sulcis and Al Tawwab [1991] 1 Lloyd’s Rep 201 at p 206 col 1 citing Russell LJ’s statement in Mitchell v Harris Engineering Co Ltd [1967] 2 QB 703 at 721. B. The Plaintiff’s case 21.Mr Manzoni SC, senior counsel for the Plaintiff, focused on 3 matters in support of his submission that the mistake is one of nomenclature. They are (1) pre-writ correspondence; (2) the indorsement of claim; and (3) the Plaintiff’s affirmations. 22.By letter addressed to PKF Ltd as auditor of the Plaintiff and its subsidiaries (“the Group”) dated 31 July 2019 (“the July 2019 request”), the Liquidators requested PKF Ltd to provide internal documents and working papers for the financial years for the period from 30 September 2012 to 31 December 2017. Further letters were sent on 15 November 2021 and 12 January 2022. 23.Mr Manzoni highlighted the Liquidators’ use of the words “you” when addressing PKF Ltd and describing the working papers sought as “your [working papers]”. He submitted that it reflects the Liquidators’ belief and understanding that PKF Ltd is in some way the auditor from 2012 to 2017 and they are looking to recover the papers from the auditor that did those audits. 24.Due to the reorganisation of PKF (a firm) into PKF Ltd on 9 May 2017, PKF Ltd replaced PKF (a firm) as the Plaintiff’s auditor. It obtained possession[5] of PKF (a firm)’s working papers and internal documents for the earlier audits. When PKF Ltd received the July 2019 request, it still was the Plaintiff’s auditor and remained as such until January 2020 when the Plaintiff appointed a different firm as its auditor. 25.Despite the reorganisation, there was considerable overlap between the current shareholders and directors of PKF Ltd and the partners of PKF (a firm) at the time of the 2015 audit. 26.In PKF Ltd’s reply of 25 January 2022[6], when it informed the Liquidators that the engagement partners for the audits resigned[7] to join the firm that the Plaintiff engaged as its new auditor in January 2020, it referred to the resignation as being from “our firm”. The Plaintiff considered that by so doing, PKF Ltd is effectively saying that it was the service provider in 2015. On that basis, the Plaintiff submitted that, objectively, both the Liquidators and PKF Ltd considered that PKF Ltd and PKF (a firm) are one and the same. 27.The writ of summons is dated 22 March 2022. The Plaintiff invited attention to the indorsement itself to ascertain who the intended defendant of the claims is. The relief sought is for
28.The entity against whom such relief is sought can only be the party to the contract or an assignee. Equally, the entity owing such a duty to the Plaintiff can only be the provider of the services that are the subject of the claim. It is common ground that PKF (a firm) provided such services. 29.The Plaintiff submitted that nothing in the writ points to PKF Ltd, except for the name. Because there is a mistake in the name, one cannot look at the mistake to say that was the intention. 30.The Plaintiff’s evidence consists of 2 affirmations filed by Mr Yip dated 9 June 2023 (“Yip 1st”) and 6 September 2023 (“Yip 2nd”) respectively. Yip 1st explained[8] that
31.Yip 2nd stated that
32.Although the Plaintiff was intending to sue PKF (a firm), the services provider, it did not know until 22 March 2023 (which is post-writ) that PKF (a firm) continued to exist. Mr Yip’s evidence is that the prior to that date, it was the Plaintiff’s understanding that PKF (a firm) had ceased to exist. 33.The Plaintiff was unable to respond to the Court’s question as to how it reached that understanding except to state that it is a mistake and one cannot apply logical tests to a mistake. Mr Manzoni submitted that the question is what Mr Yip meant when he said PKF (a firm) does not exist and thought that PKF Ltd had taken over. He further submitted that prior to the writ, both parties[9] were working on the assumption that the services provider was in some way PKF Ltd, that PKF (a firm) had somehow transformed itself to PKF Ltd. 34.The Plaintiff submitted that when all the evidence is viewed objectively, it is clear that the Plaintiff was intending to sue the professional services firm that conducted the negligent audit. The mistake was one of name and the amendment should be allowed. 35.Mr Keith Lam, counsel for PKF Ltd and PKF (a firm), submitted that to come within O 20 r 5 (3), there must be a mistake of a qualifying nature, i.e. a mistake as to the name as opposed to a mistake of identity or legal right[10]. One is therefore concerned with the nature of the mistake. 36.The writ, being the document contemporaneous with the mistake, is the most important piece of evidence. While Mr Manzoni focused almost exclusively indorsement of claim, brushing aside the description of the Defendant that appears on the first page of the writ because it contained a mistake, Mr Lam submitted that the description of the Defendant - PKF Ltd (formerly PKF (a firm)) - which is an integral part of the evidence, is important. 37.The description identifies both ‘Ltd’ and ‘firm’. It does not say that they are the same entity. In applying this description, the Liquidators must have thought that that the 2 names refer to 2 different entities. Given their professional background, they could not have thought that a limited company and a firm could be the same thing. Mr Lam submitted that the description suggests that there was no mistake that they were the same entities. 38.Relevantly,
39.Mr Lam submitted that the writ has to be read in its entirety with the description which identifies both entities. The Liquidators were aware that PKF (a firm) was the auditor that conducted the relevant audit. Nevertheless, they did not sue PKF (a firm). Instead, they sued PKF Ltd, describing it as “(formerly PKF (a firm))”. 40.The writ does not state that the Plaintiff was suing the auditor of the 2015 audit. It only stated that the claim is “in connection with or arising out of” inter alia, the 2015 audit. It was suing PKF Ltd while also describing PKF Ltd as being “formerly PKF (a firm)”. The description used is equally consistent with a claim against an entity which has taken over the liability of the actual auditor. 41.The Plaintiff named PKF Ltd as the defendant because it thought PKF (a firm) ceased to exist and that PKF Ltd was the successor entity. The description of the defendant in the writ that the plaintiff actually applied was “the successor entity of the entity which made the 2015 Audit Report”. 42.This was the wrong description and is not a mistake as to the name. 43.As regards the pre-writ correspondence where the Liquidators appeared to have assumed that PKF Ltd was the auditor for the relevant years, that is contrary to the description the writ and the Liquidators’ evidence that they knew that PKF (a firm) was the auditor. 44.Mr Lam submitted that for this reason the Plaintiff could not rely on the pre-writ correspondence to take it within the Insight Group line of cases[14]. All those cases involved the plaintiff mistakenly thinking that it was the LLP or Ltd, the successor entity that was the services provider, not realising that there was a previous partnership. 45.The present case is factually different because the Liquidators realised that it was PKF (a firm) and not PKF Ltd that conducted the audits in question. 46.On the question as to the “identity of the person intended to be sued”, in his judgment in The “Sardinia Sulcis” and “Al Tawwab” [1991] 1 Lloyd’s Rep 201 at 207 col 1, Lloyd LJ explained the proper approach in these terms:
47.For the reasons set out by Lloyd LJ in the italicized part of the passage cited above, the Plaintiff’s approach, focusing largely (if not exclusively) on the indorsement of claim to identify the person intended to be sued for the wrong suffered, is too wide a test and cannot be correct. 48.The description of the intended defendant is critical. In the present case, the correct description is simply the entity that provided the relevant audit service. However, that is not the actual description applied. The Liquidators were suing PKF Ltd while also describing it as “formerly PKF (a firm)”. The description is clearly wrong and applying the Sardinia Sulcis test, this is not a case where there is unlikely to be any doubt as to the identity of the person intended to be sued but a case where the plaintiff gets the wrong description. 49.Mr Manzoni cautioned that as the Liquidators’ evidence is ex post facto, one should approach it with care, relying on Leggatt J’s observations[15] in Insight Group that ex post facto accounts “may well not be conclusive” given that “the person responsible for the mistake may have given no proper thought to the decision to name [the wrong defendant]”. 50.That, however, is not the position in the present case because the description itself, referring to two different entities, shows that some thought was given to differentiating between them. The Liquidators’ evidence sheds light on their reason for choosing the description used. 51.One reaches the same result by applying the Insight Group test[16]. On the facts, the present case falls squarely within the 2nd category with the consequence that the Court has no power to grant relief. C. Conclusion 52.In my view, PKF Ltd and PKF (a firm) have convincingly countered the 3 matters on which the Plaintiff relies in support of the amendment application. It follows that the amendment application must fail. (II) Extension of validity of the writ 53.This application is only relevant if the amendment application is allowed. Given my conclusion above, it does not arise for consideration. (III) The substitution application 54.The substitution application is an alternative to the amendment application. It is a new point not raised before the Master. A. Relevant provisions 55.In pertinent part, O 15 r 6 provides as follows:
56.Those provisions need to be read together with Sections 35 (6) (b) and 35 (7) (b)[17] of the LO set out in §11 above and, for ease of reference, are replicated in footnote 17 below. B. The proper construction of O 15 r 6(5)(a) and r 6(6)(e) 57.The meaning of “if, and only if” in rule 6(6) was contentious. Mr Manzoni submitted that the current position is set out in Chan King Leung Willy v Wo Ming Engineering Limited [2021] HKCFI 951. In that case, Chu J referred to the defendant’s submission[18] that the words “if, and only if” in rule 6(6) exhaustively defined all the situations where joinder or substitution of parties shall be treated as necessary for the purposes of rule 6(5)(a). 58.At §55, the judge disagreed with the defendant’s submission that rule 6(6) be narrowly interpreted in a restricted manner so as not to cause undue injustice[19]. After accepting the plaintiff’s submissions in relation paragraphs (a), (c) and (d) of rule 6(6), she stated that
59.Mr Lam highlighted the fact that
60.The Report provides the legislative history behind rules 6 (5) and (6):
61.Those matters are echoed in The Choko Star [1996] 1 WLR 774 where Mance J considered the legislative history of the rules 6 (5) and (6)[21] at 779H-791D. 62.The following paragraphs of the Report have particular relevance in light of the interpretation the Plaintiff advocates:
63.Mr Lam submitted that it is clear from this that the intention here is not only that the 5 specific cases are intended to be the situations covered in rule 6(6), but also that no other case should be allowed except those identified in the rules. 64.For this reason it was submitted that rule 6(6) is intended to cover only situations where the new defendant is joined or substituted where it was under a joint but not several liability with the original defendant. 65.The Plaintiff disagrees. Its case is that the Report only deals with ‘addition’, not with ‘substitution’ (citing Irwin v Lynch [2011] 1 WLR 1364 at §18[25]) and is therefore inapplicable or has no relevance. 66.Mr Manzoni submitted that rule 6(6)(e) must be construed purposively, citing the Chan case at §55. In the context of substitution, he submitted that
On its proper construction, substitution is permitted, subject to the discretion of the Court. 67.Apart from the matters set out at §59(i) and (ii) above, one cannot discern from a closer reading of §§56 to 58 of the Chan case, any statement or suggestion that the party seeking substitution does not have to satisfy one of the categories under rule 6(6). 68.Turning to the Report, the relevance of the legislative history of rules 6 (5) and (6) is evident from The Choko Star [1996] 1 WLR 774 at 779H-791D. The matters highlighted in §59 above are reflected in the judgment of Mance J who considered the legislative history of the rules 6 (5) and (6). Not only are the 5 specific situations exhaustive, they apply whether what is sought is an addition or a substitution[26]. 69.The Plaintiff sought to derive assistance from the UK equivalent of O 15 r 6(6)(e) and section 37(7)(b) of the LO, namely, r 19.6(3)(b)[27] of the UK Civil Procedure Rules (“CPR”)[28] and §35(6)(b) of the UK Limitation Act 1980[29]. In Irwin v Lynch and Insight Group, the UK Courts adopted a wide construction for those provisions. The Plaintiff urged this Court to adopt the same approach. 70.Mr Lam submitted that the UK position does not assist because the scope of O 15 r 6 (6)(e) is different and more restrictive than the current English position is under CPR r 19.6(3)(b). The current CPR r 19.6(3)(b) is in essentially the same terms as section 35(7)(b) of the LO but O 15 r 6(6) is more restrictive than section 35(7)(b) of the LO. 71.As Lloyd LJ noted in Irwin v Lynch, the then CPR r 19.5(3)(b) “are now not in the same form as they were under the Rules of the Supreme Court[30]”. Hence, the Court need not construe the current CPR rules by reference to the Report or the authorities under the previous rules[31]. CPR r 19.5(3)(a) which is in similar terms to O 20 r 5 should be construed in accordance with the jurisprudence under O 20 r 5. 72.In Winland Mortgage Limited v Star Rainbow Investments Limited [2020] HKCFI 3163, a case concerning O 15 r 6(6)(a) and (b), the Court noted (at §113(4)) that the provision in CPR r 19.5 is very different from current Hong Kong rules and Irwin v Lynch did not assist. 73.The Plaintiff’s construction urged upon the Court (at §66 (2) and (3) above) involves ignoring the words “issued jointly with the defendant” in the case of a substitution, while also keeping “not also being severally liable”. That is not a permissible application of the purposive approach of statutory construction. 74.A purposive approach does not entitle one to distort or ignore the plain meaning of the text and construe the statute in whatever manner that achieves a result which is considered desirable: see China Field Limited v Appeal Tribunal (Buildings) (No 2) (2009) 12 HKCFAR 342 at §36. C. Conclusion 75.I do not find the Plaintiff’s submissions convincing. The construction urged upon the Court is not a purposive construction. 76.I agree with Mr Lam’s construction of O 15 r 6(5)(a) and r 6(6)(e). 77.As the Plaintiff cannot demonstrate that it is within one of the 5 specific categories rule 6(6), the substitution application must fail. III. Order 78.The appeal is dismissed. 79.I make an order nisi of costs in favour of the Defendant and the Respondent with certificate for counsel, such costs to be summarily assessed and payable forthwith.
Mr Charles Manzoni SC, instructed by Karas So LLP, for the Plaintiff Mr Keith Lam, instructed by Jun He Law Offices, for the Defendant and the Respondent [1] That reading is made clear by the wording in section 35(7)(a) of the LO. [2] At § 56. [3] Where the plaintiff wrongly named the successor LLP instead of the predecessor partnership as the defendant. [4] Where the correct defendant was an LLP solicitors’ practice, but the plaintiff wrongly sued the successor limited company. [5] PKF Ltd's evidence is that they came into PKF Ltd's possession upon the resignation of PKF Firm: see the affirmation of Leong Ting Kwok David dated 9 August 2023 at §15. [6] It transpires that there was no follow-up for over 2 years after PKF Limited's response to the July 2019 request on 19 August 2019. [7] The dates of cessation are 2 October 2019 and 4 December 2019 respectively. [8] Yip 1st §14. [9] The Plaintiff’s assertion is based on nothing more than the use of "our firm" in PKF Ltd's letter of 25 January 2022. See §26 above. [10] See §12 above. [11] At §10 [12] See Yip 2nd at §18. [13] See Yip 2nd at §13. [14] American Leisure Group and Jenkins cases [15] Insight Group at §58 cited in §18 above. [16] See §§ 16-17 above. [17] “35. New claims in pending actions: rules of court
[18] At §53. [19] The injustice in this was that the effect of permitting a new claim could be to deprive the defendant of the limitation defence. [20] Section 35(7)(b) provides that the addition or substitution would be necessary for the determination of the original action if any claim already made cannot be maintained by or against an existing party unless the new party is joined or substituted as plaintiff or defendant. But O 15 rr 6(6) and 6(5) (and thus sections 35(6)(b) and (7)(b)) are only satisfied "if, and only if" the case falls within one of the 5 scenarios identified in r 6(6)(a) to (e). In other words, the 5 scenarios are exhaustive. [21] It included this extract from the judgment of Judge Diamond on r 6:
[22] In the case of joint obligations, the rule is that all joint obligors must be sued for the action to be properly constituted. Where the plaintiff who starts proceedings against some, but not all, of the persons jointly liable has in fact enabled those on the "other side" to know that the proceedings were aimed at them. The Committee considered the failure to join a person jointly liable as akin to the "misnomer cases" covered by O 20 r 5(3). [23] The 5th case identified is
[24] §5.25 of the Report stated that:
[25] At p 1369G-H. [26] Mance J’s judgment included this extract from the judgment of Judge Diamond on r 6 without disapproval
[27] R19.6 was originally numbered r 19.5 and this explains why the English cases cited referred to r19.5. [28] It provides, inter alia,
[29] It provides, inter alia,
[30] See Irwin v Lynch at §19. [31] See Irwin v Lynch at §18. | |||||||||||||||||||||||||
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