Hui Chun Ping v. Hui Kau Mo

CACV 377/2022, [2024] HKCA 508

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)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.On 28 February 2024, we gave judgment (“CA Judgment”)[1] dismissing the plaintiff’s appeal from the decision of Deputy High Court Judge H Au-Yeung on 16 August 2022,[2] in which the judge revoked leave previously granted to the plaintiff by Master Kenneth Lee to amend his re-amended statement of claim (“RASOC”) as per §§49 to 53 and prayers (3) and (4) (“Impugned Pleas”) of the draft re-re-amended statement of claim (“RRASOC”) annexed to the plaintiff’s summons filed on 5 July 2021. The Impugned Pleas relate to the plaintiff’s claim against the defendant in respect of the secret profits acquired by the defendant from a third party in June 2006 when the defendant acted as an agent for the plaintiff in a construction project where the plaintiff provided consultancy services to the third party. In the CA Judgment, we upheld the judge’s decision in revoking the leave to amend the RASOC for the Impugned Pleas on the ground that the plaintiff’s claim for the secret profits is time-barred in the present action commenced by the plaintiff on 13 November 2018. The plaintiff seeks leave to appeal to the Court of Final Appeal.

2.The questions said to be of great general or public importance read as follows:

“Should the Plaintiff’s amendments to include the Impugned Pleas in the RRASOC be refused on limitation grounds? In particular:

(1) Is a constructive trust asserted by a principal against a fiduciary over secret profits received by the fiduciary from a third party in the course of the fiduciary relationship without disclosure to and consent from the principal a category 1 or category 2 constructive trust for the purpose of s.20 of the Limitation Ordinance (Cap 347) (“LO”)?

(2) Even if the constructive trust is a category 2 constructive trust such that s.20(1)(b) LO does not apply, is the constructive trust claim otherwise subject to a 6-year limitation period?

(3) Is a claim for accounts and enquiries in relation to the property so received subject to a 6-year limitation period?

(4) Is a claim for equitable compensation in relation to the property so received, which is premised on the fiduciary’s infringement of the pure no-conflict and no-profit duty, subject to a 6-year limitation period?”

3.The relevant factual background and procedural history of this case in the proceedings before the lower court have been set out at §§2 to 21 of the CA Judgment and will not be repeated.

4.Our reasons and findings, in so far as they relate to the questions on which leave is sought to appeal to the Court of Final Appeal, were as follows:

(1)  It is well-established that for the purposes of limitation, there are broadly two categories of constructive trusts, namely category 1 trust and category 2 trust. We followed Gwembe Valley Development Co Ltd (in receivership) & Another v Koshy & Others (No 3) [2004] 1 BCLC 131 (and the English authorities following it) and held that the constructive trust imposed from the defendant’s receipt of the secret trusts in breach of his fiduciary duty is a category 2 trust. A category 2 trust is not a “real” trust but a proprietary constructive trust imposed as a remedial device where a person in breach of fiduciary duty is required to account for and restore immediately the assets misappropriated from an impeached transaction. Hence, section 20(1)(b) of the LO does not apply to this case (§§76 to 94 of the CA Judgment).

(2)  By section 20 of the LO or by analogy drawn from section 4(1) of the LO in respect of a claim for secret profits, the six-year limitation period applies to the plaintiff’s claim for equitable compensation under the no-conflict or no-profit rule (§§100 to 104 of the CA Judgment).

(3)  The plaintiff’s pleaded case in §53(2) under the Impugned Pleas is not for an account simpliciter but a classic case of accounting based on breach of fiduciary duty. By analogy drawn from section 4(2) of the LO, the six-year limitation period also applies to the plaintiff’s claim (§§110 to 111 of the CA Judgment).

5.It is in this context that the plaintiff is seeking leave to appeal to the Court of Final Appeal on the four questions set out above. As appeals from interlocutory orders to the Court of Final Appeal are rare and exceptional and the proposed appeal is an interlocutory appeal, leave to appeal will generally be refused unless it can clearly be seen that (1) the proposed appeal genuinely raises a question of law of great general or public importance; (2) the result of the appeal would indeed turn on how that question is answered; and (3) such result is likely to make a significant contribution to the just disposal of the litigation: Pacific Electric Wire & Cable Ltd v Hu Hung Chiu & Anr, FAMV 73/2007, 13 March 2008 at §§7 to 8; Bright Shipping Ltd v Changhong Group (HK) Limited [2020] HKCA 162 at §5.

6.In the written submissions for the plaintiff, Mr Paul Shieh SC[3] submitted that the proposed four questions of law are of great general or public importance in that there is a divergence between the authorities in Hong Kong and England on the imposition of a constructive trust over unauthorised profits acquired by a fiduciary and on the categorisation of such a constructive trust as a category 1 or category 2 trust for the purposes of limitation and as such, the involvement from the Court of Final Appel is warranted to develop the law in this area to ensure coherence, clarity and simplicity in the relevant legal principles. Mr Shieh further submitted that as it is common to encounter claims pertinent to a fiduciary’s abuse and exploitation of his fiduciary position to acquire unauthorised or secret profits, there is a clear and urgent need for the Court of Final Appeal to provide clarification and guidance on the applicability of the limitation periods to these claims. There is no suggestion from Mr Benjamin Yu SC in the submissions for the defendant[4] that these questions of law are not of great general or public importance and we are satisfied that they are.

7.Mr Shieh submitted that we erred in applying the Gwembe Valley line of cases to find that the proprietary constructive trust imposed on the secret profits acquired by the defendant in breach of his fiduciary duty is a category 2 trust, which therefore falls outside the ambit of section 20(1)(b). He submitted that the Gwembe Valley line of cases are wrongly decided and the Hong Kong authority of Secretary for Justice v Hon Kam Wing [2003] 1 HKLRD 524 should be followed instead on the issue of categorisation of a constructive trust in relation to secret profits acquired by a fiduciary. He relied on various passages in Williams v Central Bank of Nigeria [2014] AC 1189 in which Gwembe Valley was referred to, and argued that the plaintiff’s position that the constructive trust over the secret profits acquired by an agent is a true trust and thus a category 1 trust is supported by the views of the UK Supreme Court in Williams.

8.As a fallback position, Mr Shieh submitted that if a category 2 trust is not regarded as a “trust” within section 20(1)(b), it should not be a “trust” within section 20(2) of the LO either and the plaintiff’s claim is not subject to the six-year limitation period by the operation of section 20(2), whether directly or by analogy, when the plaintiff’s constructive trust claim is not premised on the defendant’s breach of fiduciary duty but on a “disability” suffered by the plaintiff in equity from the defendant’s acquisition of the secret profits.

9.We have considered the arguments to the contrary of Mr Yu, who sought to persuade us that the Gwembe Valley line of cases are rightly decided and the plaintiff fails to explain why the Hong Kong courts should depart from the English authorities by simply relying on Hon Kam Wing when both jurisdictions have the same legislative regime on limitation. Mr Yu submitted that the four proposed questions are unmeritorious and the arguments raised by Mr Shieh in support of those questions are not reasonably arguable.

10.We do not think Mr Shieh’s submissions seeking to justify the imposition of a category 1 trust in this situation and contending that no limitation period is applicable whether under section 20(2) or by analogy are not reasonably arguable. In view of the general importance of these questions of law, we consider it beneficial to have the legal position authoritatively stated by the Court of Final Appeal and it would be appropriate to grant leave to appeal on all four questions raised in the Notice of Motion filed on 27 March 2024.

11.Leave is granted to the plaintiff to appeal against the CA Judgment to the Court of Final Appeal on the usual conditions. We order the costs of this application to be in the cause of the appeal with a certificate for two counsel.

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

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