Ozner Water International Holding Ltd (in Liquidation) and Another v. Ernst & Young (A Firm) and Another

Read the full judgment text of HCA 295/2022 on BabelCite. This High Court CFI judgment was delivered on 15 September 2025.

1. These are applications to set aside the orders for leave to service the writs out of jurisdiction and leave to extend the validity of writs on the ground of material non-disclosure.

Cited by 1 case · Cites 12 cases

Case No.HCA 295/2022[2025] HKCFI 4203
Court
High Court CFI
Date15 Sep 2025
Judge
Case Document
100%Judiciary

HCA 295/2022,
HCA 455/2023 &
HCA 172/2024

[2025] HKCFI 4203

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 295 OF 2022 & NO. 455 OF 2023

________________

BETWEEN

  OZNER WATER INTERNATIONAL
HOLDING LIMITED (IN LIQUIDATION)
1st Plaintiff
  HONG KONG FRESH WATER
INTERNATIONAL GROUP LIMITED
(IN LIQUIDATION)
2nd Plaintiff

and

  ERNST & YOUNG (A FIRM) 1st Defendant
  ERNST & YOUNG HUA MING LLP
安永华明会计师事务所(特殊普通合伙)
2nd Defendant

________________

AND

HCA 172/2024

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 172 OF 2024

________________

BETWEEN

  OZNER WATER INTERNATIONAL
HOLDING LIMITED (IN LIQUIDATION)
1st Plaintiff
  HONG KONG FRESH WATER
INTERNATIONAL GROUP LIMITED
(IN LIQUIDATION)
2nd Plaintiff

and

  ERNST & YOUNG HUA MING LLP
安永华明会计师事务所(特殊普通合伙)
Defendant

________________

Before: Hon Au-Yeung J in Chambers
Date of Hearing: 12 June 2025
Date of Judgment: 15 September 2025

________________

J U D G M E N T

________________

A. INTRODUCTION

1.These are applications to set aside the orders for leave to service the writs out of jurisdiction and leave to extend the validity of writs on the ground of material non-disclosure.

2.The Plaintiffs (“Ozner” and “HKFW” respectively) in each of the 3 actions are members of the Ozner Group.

3.The underlying proceedings concern audits by the 1st Defendant (“EYHK”), as the statutory group auditor, and the 2nd Defendant (“EYHM”), as the component auditor, for the Ozner Group’s consolidated financial statements for financial years ended 2015 to 2018.

4.The Plaintiffs sue the Defendants for, among others, failing to identify and question material inaccuracies in the financial statements and therefore failing to act with the care and skill of reasonably competent auditors.

5.The Plaintiffs had obtained leave from various Masters (collectively, “the Masters”) to (i) extend the validity of the writs in the 2022 and 2023 Actions; and (ii) to serve all 3 writs on EYHM out of jurisdiction (collectively “the Leave Orders”).

6.By Summonses issued on 25 October 2024 (“the Set-Aside Applications”), EYHM challenges the jurisdiction of the Court and seeks to set aside the Leave Orders in each Action.

7.The Plaintiffs have admitted their failure to disclose to the Masters, in the ex parte stage, the existence of several Clauses in the General Terms & Conditions (“GT&Cs”) in the Engagement Letters governing the liability of the Defendants.

8.EYHM say that those Clauses in themselves may operate as “complete defences” for EYHM. There is in fact no serious issue to be tried or good arguable case to satisfy any of the gateways for service out under Order 11. In any event, the material non-disclosure in itself justifies setting aside of the Leave Orders and no re-grant should be made.

9.The Plaintiffs, however, say that the non-disclosure was not material, and even if the Court is minded to set aside the Leave Orders, the Court should re-grant leave, given that the non-disclosure was innocent and inadvertent, and the orders could and would have been granted even if the relevant contractual clauses were disclosed.

B. BACKGROUND

B1. Parties

10.Ozner is a company incorporated in the Cayman Islands, whose shares were listed on the Hong Kong Stock Exchange until its delisting on 5 December 2022. HKFW is a Hong Kong company wholly owned by Ozner. Both Plaintiffs were mainly engaged in China in the business of manufacturing, leasing and servicing water purification machines installed in companies and households.

11.The 1st Defendant in the 2022 and 2023 Actions is EYHK, being a Hong Kong partnership. EYHM is a Mainland Chinese partnership, which is a separate legal entity from EYHK. Both EYHK and EYHM are member firms of Ernst & Young Global Limited.

12.EYHK had been engaged by Ozner as its auditor and reporting accountant during the listing process, and continued to be its auditor in the financial years FY 2014 to FY 2019. EYHK issued clean independent auditor reports for the financial statements of the Ozner Group throughout 2014 to 2018, but issued a disclaimer of opinion in respect of FY 2019.

13.Shortly thereafter, on 31 July 2020, Ozner announced that EYHK would not be reappointed as auditor.

14.On 14 December 2020, DBS Hong Kong Branch petitioned for the winding-up of the Plaintiffs on the basis that they had failed to settle an outstanding bank facility in the sum of approximately USD 50 million.

15.The Plaintiffs were wound up on 17 March 2021 in Hong Kong, and joint and several liquidators (“JSLs”) were appointed in respect of Ozner and HKFW, respectively, in April and July 2021.

B2. Procedural History

16.I tabulate the 3 writs in respect of these proceedings:

Action Date of Writ Date of order for service out Date of service on EYHK Date of service on EYHM Date of SOC
2022 Action
re FY 2015
21.03.2022 (amended on 13.03. 2023) 28.03.2023 by Master Lai (“HCA 295 Order”) 20.03.2023 20.06.2023  
2023 Action
re FY 2016
24.03.2023 28.03.2024 by Master Hui (“HCA 455 Order”) 29.01.2024 25.06.2024 29.01.2024 (“1st SOC”) prepared in anticipation of consolidation with 2022 & 2023 Action
2024 Action
re FY 2017 & FY 2018
25.01.2024 20.05.2024 by Master Rita So (“HCA 172 Order”)   25.06.2024 02.09.2024 (“2nd SOC”)

17.Applications for leave to serve out of jurisdiction were made and granted in all 3 actions; but extensions of validity of writ were only made and granted in the 2022 and 2023 Actions. They were supported by the respective affirmations of Chan Man Hoi (“Mr Chan”), one of the JSLs, together with skeleton submissions.

18.On 14 July 2023, EYHM acknowledged service of the 2022 Writ.

19.On 19 July 2024, EYHM acknowledged service of both the 2023 and 2024 Writs.

20.The contents of the 1st and 2nd SOC are essentially identical. In essence, the Plaintiffs claim that “EY” (defined as both EYHK and EYHM in the 1st and 2nd SOC) failed to act with the care and skill expected of reasonably competent auditors in that:

(1) They failed to question, amongst others, the accuracy of the Ozner Group’s historical financial statements, the viability of the Ozner Group’s business or business model and whether there were material undisclosed related party transactions;

(2) EY ought to have ascertained or identified various material inaccuracies, so as to conclude that in fact the profits and assets of the Group as set out in FY 2015 to 2018 were materially overstated and did not give a true and fair view of the consolidated financial position of the Ozner Group;

(3) Accordingly, EYHK should have refused to issue clean audit opinions for the financial statements for FY 2015 to FY 2018.

(4) Had various issues been identified and reported to governance, the Ozner Group would have had accurate information on which to base management and governance decisions.

21.The Plaintiffs claim that EYHM breached its tortious duties to exercise reasonable care and skill in planning and conducting substantive audit work in 2015-2018 as the component auditor. As a result of the materially misstated financial statements, the Plaintiffs suffered loss and damage by wrongfully paying dividends, income tax, finance costs, audit fees, directors’ remuneration and wasted expenditure. They therefore claim up to US$251 million. There is dispute as to whether the Plaintiffs are suing the Defendants in tort, or tort and contract.

22.On 25 October 2024, EYHM took out the Set Aside Applications.

B3. Ex-Parte Applications

23.At the ex parte stage, the structure and contents of Mr Chan’s affirmations and skeleton submissions are largely similar:

(1) Description of the Defendants: JSLs referred to EYHK as the statutory group auditor, and EYHM as an agent and/or a component auditor of EYHK. They defined EYHK and EYHM as “EY”. The Defendants collectively provided audit services to the Ozner Group for FY 2015 to 2018. It was quite apparent in the documents filed by the Plaintiffs that they elided the 2 Defendants, suggesting that EYHK and EYHM formed a single amorphous entity.

(2) Claims: The alleged negligent issuance of unqualified audit opinions by “EY” causing loss.

(3) Order 11 Gateways: Showing a good arguable case that the claim fell within Gateway C (claim served on a defendant and foreign defendant was a necessary or proper party), and Gateway F (tortious damage sustained in Hong Kong arising out of the Plaintiffs’ audit services for the Ozner Group).

(4) Non-reliance on Gateway D: JSLs have not been able to locate any Engagement Letter signed with EYHM and were unaware of any agreement entered into by EYHM in respect of the impugned audits. Thus the Plaintiffs did not rely on Gateway D (contract claim). However, the Engagement Letters signed with EYHK were exhibited, with a caveat that the Engagement Letter for the FY 2016 audit “appeared to be incomplete and did not attach any standard terms of business”. Mr Chan’s affirmation for the 2023 Action stated that “the Liquidators expected the GT&Cs concerning jurisdictions … to be identical or similar to that for the 2015 Audit”.

(5) Forum: The Plaintiffs asserted that Hong Kong was the appropriate forum, bearing in mind the close connection with Hong Kong and the risk of duplication of proceedings (as EYHK would be sued here). In particular, they expressly referred to the Engagement Letter signed by EYHK for the FY 2015 audit, the exclusive jurisdiction clause and the clause stating the governing law to be that of Hong Kong.

(6) Full and frank disclosure: Mr Chan identified 3 potential defences of EYHM: (i) limitation; (ii) the rule against reflective loss; and (iii) deceit and illegality, ie that EYHM (and EYHK) were deceived by and/or relied on the Ozner Group’s senior management, who were responsible for perpetrating a false accounting scheme or other acts of fraud. He also referred to an intended stay application so that JSLs could have more time to formulate/particularize their claims.

(7) Reasons for extending validity of writ: JSLs explained why they had taken the amount of time they had to investigate the claims and what further time was required to effect service.

24.Skeleton submissions filed by the Plaintiffs in support of each of the ex parte applications did not add anything substantial to the evidence.

C. ISSUES IN DISPUTE

25.The issues in dispute are as follows:

(1) Whether there was material non-disclosure concerning the Exemption Clauses in the applications for the Leave Orders (collectively “the Leave Applications”);

(2) Whether the relevant Gateways for service out were satisfied;

(3) If there had been material non-disclosure, whether there should be a re-grant or dismissal of the Leave Applications.

D. LEGAL PRINCIPLES

D1. Legal principles on service out of jurisdiction

26.To obtain leave to serve out of the jurisdiction, a plaintiff must satisfy the Court that: (a) there is a good arguable case that it falls within a jurisdictional gateway in O.11 r.1(1) RHC; and (b) there is a serious issue to be tried on the merits of the case against the foreign defendant; and (c) Hong Kong is the appropriate forum for the trial of the action under the principles governing forum conveniens: Fong Chak Kwan v Ascentic Ltd [2020] HKCFI 679 at §41, Marlene Ng J.

27.In an application for leave to serve a writ out of the jurisdiction, the Court is concerned with whether it should assume jurisdiction. Its primary focus is not on the merits of the case, save to the extent that it must be satisfied that there is a serious issue to be tried: Fong Chak Kwan, at §64.

28.The plaintiff is not required to anticipate all the arguments, or all the points, which might be raised against his case: Electric Furnace Co v Selas Corp of America [1987] RPC 23, p29(5), Slade Listing Judge, but he has to make full and frank disclosure.

29.A failure to refer to arguments on the merits which the defendant may seek to raise in answer to the plaintiff’s claim would not amount to material non-disclosure, “unless they are of such weight that their omission may mislead the Court in exercising its jurisdiction under the rule and its discretion whether or not to grant leave: Fong Chak Kwan, §65.

30.The good arguable case standard requires the plaintiff to supply a plausible evidential basis for the application of a relevant jurisdictional gateway. If there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but if no reliable assessment can be made in which case, there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it. See China Medical Technologies Inc (In Liquidation) v Paul, Weiss, Rifkind, Wharton & Garrison LLP (a firm) [2019] HKCFI 2631 at §50, per G Lam J (as he then was), following Brownlie v Four Seasons Holdings Inc [2017] UKSC 80, [2018] 1 WLR 192 at §7 per Lord Sumption JSC.

31.A good arguable case means something more than a prima facie case or being merely sufficient to raise an issue, but less than proof on the balance of probabilities: China Medical v Paul, Weiss at §51.

32.The practice is to look primarily at the plaintiff’s evidence and not to attempt to try disputes of fact on affidavit: Fong Chak Kwan at §45.

33.The standard of serious issue to be tried is a relatively low threshold because, at the stage of a service out application, the prospects of the plaintiff’s case can only be investigated to an extent limited by the inherent nature of the exercise: China Medical v Paul, Weiss at §222.

34.The serious issue to be tried test applies to both issues of fact and law. It is sufficient for an applicant to establish that “there remains a substantial question of fact or law or both, arising on the facts disclosed by the affidavits, which the plaintiff bona fide desires to try”: Fong Chak Kwan at §48, following Seaconsar Far East Ltd v Bank Markazi Jomhouri Islami Iran [1994] 1 AC 438 per Lord Goff at 452D.

D2. Legal principles on extension of validity of writ

35.Ex parte applications for extension of a writ should be no different in principle from other kinds of orders or reliefs obtained ex parte, when the Court entrusts the applicant with its order so that justice can be done. It is incumbent on the applicant to make full and frank disclosure whilst proceedings remain on an ex parte basis: China Medical Technologies Inc (in liquidation) v Bank of China (Hong Kong) Limited [2019] 2 HKLRD 710 at §§69-70, per Kwan JA (as she then was).

D3. Legal principles on material non-disclosure in ex parte applications

36.The leading authorities on full and frank disclosure in ex parte applications and consequences of material non-disclosure are Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642 at §56, Kwan JA (as she then was) and Fong Chak Kwan[1]. The general principles have recently been summarized in Hwang Joon Sang v Golden Electronics Inc [2021] HKCFI 2425 at §37, Coleman J:

“(1) An applicant making an ex parte application must act fairly in all material aspects when preparing and presenting the application.

(2) This includes the duty to disclose to the Court all matters which are material, meaning those matters material to the court’s assessment and decision whether or not to grant the relief without notice, and if so on what terms.

(3) The test as to materiality is an objective one, and ultimately a question for the court. Hence, it is no excuse for an applicant subsequently to say that he was generally unaware, or did not believe, that the facts were relevant or important.

(4) Non-disclosure may be material even if its effect is just to give a seriously different ‘flavour’ to the case.

(5) The duty of full and frank disclosure is a stringent one, designed to protect the absent party.

(6) Therefore, if material non-disclosure has occurred at the ex parte application, the order obtained at such an application would likely be set aside automatically without going into the merits. The general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.

(7) Nevertheless, there is a discretion to re-grant the same order. That jurisdiction should be only sparingly exercised, taking into account the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(8) Hence, an assessment will be made as to the degree and extent of the culpability with regards to the non-disclosure. The more serious or culpable the non-disclosure, the more likely the court is to set its order aside and not renew it, however prejudicial the consequences.

(9) It is therefore relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge. Nor is there a general rule that a deliberate breach will attract that sanction.

(10) The application of principles which seek to uphold the integrity of the judicial process should not be carried to such lengths as will allow them to become the instrument of injustice.

(11) Because of the penal nature of the jurisdiction, the court should have regard to the proportionality between the punishment and offence.

(12) When exercising the discretion whether to re-grant the order, the court should take into account all relevant circumstances.”

37.The duty of disclosure on the plaintiff encompasses “significant factual, legal and procedural aspects of the case”, which includes disclosure of matters that are or may be adverse to the applicant, and the plaintiff should fairly state the points made against him by the defendant. The duty of disclosure does not only apply to the facts known by the plaintiff but includes any additional facts it would have known had proper inquiries been made before the ex parte application. The applicant must therefore make all proper inquiries as to matters of both fact and law before making the application. See Fong Chak Kwan, at §§62-63; Altrans Fast Cargo Ltd v Liu Yugang [2023] HKCFI 1579 at §44 per Wilson Chan J. China City Construction & Development Co (HK) Ltd v 宁波佳合港湾股权投资合伙企业 [2020] HKCFI 1925 at §98 per DHCJ Victor Dawes SC.

38.The duty of disclosure extends to identifying potential defences, which would have been available to be taken by the defendant had he been present at the application, provided that: the defence (i) is one which can reasonably be expected to be raised in due course by the defendant; and (ii) is not one which can be dismissed as without substance or importance: China Huishan Dairy Holdings Company Limited (in provisional liquidation) v KPMG (a firm) [2024] HKCFI 1494 at §28, DHCJ Kent Yee.

39.A defence which is or may be fatal to the applicant’s case or which may go to demolish the applicant’s cause of action and hence no serious issue to be tried, is almost certainly material matter which influences the court’s discretion on granting or refusing leave, and therefore must be disclosed and drawn to the court’s attention: Tremendous Success Holdings Limited & anor (unrep., HCA 2345 & 2423/2013, 11 July 2016) §191, DHCJ Anita Yip SC.

40.“Full” disclosure means complete disclosure and encompasses all relevant aspects. “Fair” disclosure requires a fair assessment of the materiality when the applicant makes disclosure. In the context of anticipating a defence which may affect the question of serious issue to be tried, it is not necessary, indeed inappropriate, for the applicant to come to his own conclusion on the merits of the defence. The test is if on a fair assessment of the case, the defence is very likely to affect the claim to the extent that there may be no serious issue to be tried, he should make the disclosure. See Tremendous Success, §195.

41.It is no answer to a complaint of non-disclosure that:

(1) If the relevant matters had been placed before the court, the decision would have been the same: Fong Chak Kwan, at §59; Altrans Fast Cargo, at §44.

(2) The relevant information giving rise to the defence was contained in an exhibit though not referred to in the body of the affidavit in the context of a possible defence. The applicant has the responsibility of ensuring that all relevant points are presented clearly and distinctly: China Huishan Dairy, at §28.

E. MATERIAL NON-DISCLOSURE OF THE EXEMPTION CLAUSES

E1. The relevant Clauses

42.The following exemption clauses in the GT&Cs (collectively, “the Exemption Clauses”) are relevant:

(1) Clause 2

“本公司可将本服务的若干部分分判予其他安永机构,这些机构可与贵公司直接接洽。然而,仅本公司对报告、本服务的履行、以及本协议项下本公司的其他责任向贵公司负责。”

“We may subcontract portions of the Services to other EY Firms, who may deal with you directly. Nevertheless, we alone will be responsible to you for the Report(s), the performance of the Services, and our other obligations under this Agreement.” (English translation, underline added).

(2) Clause 8

贵公司如有任何与本服务相关或根据本协议提出的其他索赔,须于被指导致有关损失的作为或不作为发生后六(6)年内提出。

“Should you have any other claim relating to the Services or under this Agreement, they shall be raised no later than six (6) years of the act or omission alleged to have caused the loss in question.” (English translation, underline added).

(3) Clause 10

贵公司不得针对任何其他安永机构或本公司的或其分包商、成员、股东、董事、高级人员、合伙人、主任人员或雇员(「安永人员」),提出与本服务相关或其他根据本协议的索赔或诉讼。贵公司仅可针对本公司提出索赔或诉讼。

You may not bring claims or proceedings relating to the Services or other claims or proceedings under this Agreement against any other EY Firm or our or its subcontractors, members, shareholders, directors, officers, partners, principals or employees (“EY Persons”). You shall make any claim or bring proceedings only against us.” (English translation, emphases added).

(4) Clause 10 (in the earlier two Engagement Letters for the FY 2015 and FY 2016 audits):

“第5 至8 节及本10 节乃为其他安永机构及一切安永人员的利益而制订,该等机构及人员有权要求执行上述各条。”

“Clauses 5 to 8 and this clause 10 are intended to benefit the other EY Firms and all EY Persons, who shall be entitled to enforce them.” (English Translation)

(5) Clause 36 (in the Engagement Letters for the FY 2017 and FY 2018 audits):

“第5 至8 條和第10 條的限制,以及第11、14和17條的規定,亦惠及其他安永機構及所有安永人員,該等機構及人員有權要求執行上述各條。

“The limitations in clauses 5 to 8 and clause 10 and the provisions of clauses 11, 14, and 17 are intended to benefit the other EY Firms and all EY Persons, who shall be entitled to enforce them.” (English Translation)

43.Each of the Engagement Letters which EYHK signed for the relevant audits for FY 2015 to FY 2018 incorporated GT&Cs which included the Exemption Clauses.

44.It is plain that the combined effect of the Exemption Clauses is to eradicate EYHM’s liability on the one hand, but impose liability on EYHK solely on the other, for the services to be rendered to Ozner. Any claim in respect of such services or the engagement can only be brought against EYHK within a period of 6 years.

E2. Right to enforce the Exemption Clauses

45.Section 4 (1)(a) of the Contracts (Rights of Third Parties) Ordinance, Cap 623 (“CRTPO”) provides as follows:

“A third party may enforce a term of a contract (including a term that excludes or limits liability) if (a) the contract expressly provides that the third party may do so; or (b) the term purports to confer a benefit on the third party.”

46.Ozner is a party to each of the Engagement Letters containing the Exemption Clauses. The third party to the contract, ie EYHM, is an EY organization. On the Plaintiffs’ own case, EYHM was an agent or component auditor of EYHK. Clauses 2, 10 and 36 have expressly conferred benefits on EYHM. EYHM can enforce the GT&Cs against Ozner.

47.The Engagement Letters for the audits of FY 2015 and 2016 appear on their face to have been entered into by Mr Xiao as a director on behalf of Ozner’s subsidiaries, including HKFW. Hence, it is at least reasonably arguable that HKFW is bound by the GT&Cs. EYHM is entitled to invoke Clauses 2 and/or 10 against HKFW under CRTPO.

48.In the premises, it is at least reasonably arguable that EYHM has a complete defence to the Ozner and HKFW’s claims by relying on the Exemption Clauses.

E3. Materiality of the Exemption Clauses

49.The Exemption Clauses are material in that they constitute defences which may destruct the Plaintiffs’ claim and prevent the existence of any serious issue to be tried against EYHM. The Plaintiffs were obliged to draw them to the Masters’ attention and not just bury them within the exhibits. It is no excuse that the Plaintiffs have already disclosed some other potential defences of EYHM. In terms of significance, the Exemption Clauses would be a defence that any reasonable counsel for EYHM would raise with a view to achieving a complete exemption of liability.

50.Mr Manzoni SC is careful to stress that the Plaintiffs’ claims are in tort and not contract. He submits that the Exemption Clauses do not exclude negligence or tort. The 1st and 2nd SOC have not pleaded any contractual claim by HKFW against either EYHK or EYHM. It appears not to be the Plaintiffs’ case that HKFW is a party to the 2 earlier Engagement Letters. Ms Lau SC also accepts that FY 2017 and 2018 did not involve any Engagement Letter purportedly entered into on behalf of HKFW.

51.Without disrespect, these are not answers to the non-disclosure. The writs that were placed before the Masters for the Leave Applications expressly referred to causes of action in tort and contract. Throughout his affirmations, Chan has repeatedly elided EYHK and EYHM as “EY”, and referred at various places to EYHM’s alleged “breaches of contract”.

52.Even assuming that the claim is in tort only, the existence of the Exemption Clauses is materially relevant to whether there is any assumption of responsibility by EYHM vis-à-vis HKFW, and thus the question of existence of any duty of care. This is because:

(1) The starting point is that an auditor instructed to audit the accounts of one company in a group usually owes no duty to other companies in the group: Jackson & Powell on Professional Liability (9th ed.) at §17-080. The Plaintiffs have not pleaded or referred to evidence otherwise that can depart from this starting point.

(2) In circumstances where there is already a clearly delineated contractual regime setting out the rights and responsibilities between Ozner and EYHK, there is all the more reason why EYHM could not have separately assumed any responsibility vis-à-vis HKFW in parallel to Engagement Letters. There is no basis to find the existence of independent tortious duties owed by EYHM.

53.Mr Manzoni SC further contends that EYHM simply cannot establish that the Exemption Clauses are a complete defence in the Set Aside Applications for the following reasons:

(1) Section 4(1) of CRTPO only applies to contracts entered into on or after 1 January 2016. Although undated, the FY2015 Engagement Letter was likely to have been entered into before CRTPO came into force.

(2) There can be different interpretations to the Exemption Clauses. In Clause 10, for example, Mr Manzoni queries whether “under this Agreement” only qualifies “other claims or proceedings” or “claims or proceedings relating to the Services”. If it is the latter, it only covers contractual but not tortious claims, and hence could not be destructive of the Plaintiffs’ claim. It is not even clear if EYHK would accept responsibility under the Engagement Letters.

(3) The Court is not in a position at an interlocutory stage to determine the proper meaning of the Exemption Clauses.

(4) The modern approach is that “one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law and clear express words must be used in order to rebut this presumption. The more valuable the right, the clearer the language will need to be: Triple Point Technology Inc v PTT Public Co Ltd [2021] 3 WLR 521, at §§109 and 111. There is no evidence as to the division of work and responsibility. At the trial, the Court may find that EYHM had negligently performed the audit but EYHK had properly performed its supervisory role and was not negligent. An example can be found in Arbiter Group Plc v Gill Jennings & Every [2001] RPC 4.

(5) Certain clauses of the GT&Cs are void and unenforceable for (a) not being reasonable within the meaning of section 7 of the CECO; (b) contravening section 415 of the Companies Ordinance; and (c) contrary to public policy.

54.Mr Manzoni SC submits that these are substantive issues of fact and of law. He points out that EYHK, the party who prepared and signed the Engagement Letters, is not a party to the Set Aside Applications. A fact-finding exercise should only be undertaken at trial. As DHCJ Le Pichon has cautioned in China Metal Recycling (Holdings) Ltd (In Liquidation) & Ors v UBS AG & Anor[2]

“Increasingly, Order 11 hearings have become the arena for battling out difficult questions of law when, in my view, such questions are usually best suited for resolution and determination after trial in light of all the facts.”

55.I do not accept these submissions. With regard to §53(1), even if Mr Manzoni SC is correct, there was still an issue as to whether CRTPO applied. That was still something that should have been disclosed to the Masters.

56.With regard to §53(2), the Exemption Clauses do purport to exempt tortious liability. By way of example, under Clause 2, EYHK may subcontract to other EY Firms but EYHK alone will be responsible for the performance of the Services, which would include being responsible for negligence or tortious performance. Clause 8 covers any other claim relating to the Services or under this. Clause 10 provides that the Plaintiffs may not bring claims or proceedings relating to the Services or other claims or proceedings under this Agreement, indicating that EYHK may be liable contractually or under tort. Hence even if the Plaintiffs are only suing in tort, they should still disclose these Clauses to the Masters. It is up to the Plaintiffs to plead the division of work and responsibility of each Defendant. However, the Plaintiffs themselves made no distinction between the role and responsibilities of EYHK and EYHM.

57.With regard to §53(3) and (4), I remind myself that the Court is here to consider the merits only to the extent of determining whether to assume jurisdiction: Fong Chak Kwan, §64. Accordingly, it is not appropriate, at an interlocutory stage, to take an affirmative view on whether the Exemption Clauses can constitute a complete defence. In fact, it is not the stance of Ms Lau SC, that FYHM has a complete defence. EYHM’s stance, instead, is that it is at least a viable defence, a reasonably arguable defence, that HKFW is bound by the GT&Cs as a signatory to the Engagement Letters, and that EYHM can enforce them against the Plaintiffs. I agree that hers is a proper stance.

58.With regard to §53(5), section 415 of the Companies Ordinance provides statutory protection from exemption clauses applicable to a Hong Kong company:

“(2) If a provision purports to exempt an auditor of the company from any liability that would otherwise attach to the auditor in connection with any negligence, default, breach of duty or breach of trust occurring in the course of performance of the duties as auditor in relation to the company, the provision is void.”

59.However, section 415 does not assist the Plaintiffs because it has always been their case that EYHK (not EYHM) is the “statutory” auditor. In fact, EYHK has acknowledged in Clause 31 of the Engagement Letters that despite Clauses 5, 6, 7 and 9 of the GT&Cs limiting EYHK’s liability, they “fully realize that it is not possible to limit [EYHK’s] liability to shareholders arising from its role as auditor under the Companies Ordinance, and we do not seek to do so.”

E4. Non-Disclosure of the Exemption Clauses

60.It is not in dispute that the Plaintiffs failed to draw to the Court’s attention the Exemption Clauses, whether in the supporting affirmations or the skeleton submissions before the Masters. The Exemption Clauses are weighty materials which may affect the Masters’ decision in deciding whether or not to grant the Leave Applications and on what terms.

61.JSLs explanation for the non-disclosure is that they had not reviewed the Engagement Letters and GT&Cs “for the specific purpose of analyzing whether there are any potential contractual defences for EYHM” because the claims advanced are based on tort, and EYHM is not party to the Engagement Letters. I find this to be a crafty and wholly unacceptable excuse.

62.Firstly, JSLs were plainly aware of the GT&Cs and, contrary to their submission, did consider a contract claim. See paragraph 51 above.

63.Secondly, the Exemption Clauses are not ordinary exemption clauses. Anyone who had gone through the Engagement Letters would have been prompted to think twice about suing EYHM, even if the nature of the claim is in tort. When asked by this Court whether the Plaintiffs as professionals would have asked whether EYHM would fall within Clause 2, Mr Manzoni SC frankly concedes that he could not run away from that. I find that this is the type of situation where, in the words of Coleman J in Hwang Joon Sang, the Exemption Clauses “give a seriously different flavour to the case” and should have been disclosed to the Masters.

64.Thirdly, if, on one construction, the Exemption Clauses are reasonably capable of covering a tort claim and/or exempt EYHM’s liability (and I think so they are), that construction cannot be dismissed as without substance: China Huishan Dairy. The Masters should have been informed.

65.In fact, the effort used by Mr Manzoni SC to try and construe the Exemption Clauses in different ways in order to downgrade their materiality only brings about an effect in favour of EYHM.

66.Fourthly, the Plaintiffs have made 3 successive ex parte applications, alongside their further investigation and consideration for the purpose of “properly” formulating the statement of claim. The ex parte applications for the 2023 and 2024 Actions were made only after the 1st SOC was filed. And yet the affirmations of Mr Chan in HCA 455 and HCA 172 made no mention of this possible defence based on the GT&Cs Exemption Clauses at all. I am not satisfied that the omission was inadvertent.

67.I find the Exemption Clauses do give rise to a defence that is objectively material in the eyes of the Court. Omission to put them before the Masters may have misled the Masters in exercising their discretion to grant the Leave Orders: China City Construction, at §101.

E5. Discharge for material non-disclosure

68.There could not have been a more material non-disclosure than failure to disclose a defence that could have exempted a defendant’s liability and hence prevented any serious issues to be tried or any good arguable case to be advanced under any Order 11 gateway. Had the defence under the Exemption Clauses been properly disclosed to the Masters, he or she would surely have raised requisition, if not simply refused the Leave Applications outright. I have thus no hesitation in discharging all of the Leave Orders granted.

F. GATEWAYS FOR SERVICE OUT

F1. Gateway C

69.The proper approach in determining whether a foreign defendant may be served under Gateway C, as stated in Fong Chak Kwan at §§77-78, involves a three-stage test:

(1) Showing genuine proceedings, in that (a) there is a real issue between the plaintiff and the “anchor” defendant; (b) which the plaintiff may reasonably ask the Court to try, are properly commenced within the jurisdiction and served on a first anchor defendant;

(2) Whether the overseas defendant is a “necessary” or “proper” party to that claim; and

(3) Whether it is appropriate to permit the claim against the overseas defendant to proceed here in terms of convenient forum, bearing in mind the suit already pending.

70.Whether the overseas defendant is a proper party does not require the plaintiff to have a cause of action against him or to show a good arguable case on the merits. The question is whether, supposing both parties were within the jurisdiction, they would have been proper parties to the action. The plaintiff only needs to show that some common question of law and fact would arise. See China Metal Recycling (Holdings) Ltd (In Liquidation) v UBS AG [2021] HKCA 1450 at §§17-18; Queenston LLC v Serlen Ltd (unrep., HCA 7585/2000, 27 April 2001), at §67 not followed.

71.It is undisputed that there is a serious question to be tried in respect of the Plaintiffs’ claim against EYHK as the anchor defendant. EYHM is a proper party because the Plaintiffs’ claims against EYHK and EYHM will depend upon one investigation concerning their audits, with their respective role and responsibilities. There will be significant overlap in issues of fact and of law. Hong Kong is the natural and appropriate forum for trial. EYHM does not dispute the service out Orders on the basis of forum non conveniens. Gateway C is engaged.

F2. Gateway F

72.Gateway F is engaged in that there is a claim in tort against EYHM and damages were suffered by the Plaintiffs that resulted from an act committed in Hong Kong. The double actionability rule is also satisfied.

73.However, material non-disclosure existed which would have thrown in doubt the existence of serious issues to be tried and hence would have justified setting aside the Leave Orders under both Gateways.

G. REGRANT OF LEAVE

74.Whether the non-disclosure was innocent, in that the fact was not known to the applicant or its relevance was not perceived, is an important consideration of whether the ex parte order should be discharged, although it is not decisive. Where there is no intention to deceive and any re-application would be bound to succeed (i.e., the result with disclosure would have been the same), the court may not discharge the leave. See Fong Chak Kwan, at §§72 and 75.

75.As this Court has noted in China Medical Technologies, Inc. (in liquidation) v Bank of China (Hong Kong) Limited [2018] HKCFI 1395 at §115, the Court should take a hard stance on liquidators who are guilty of material non-disclosure. If the barring of a claim is the result of their material non-disclosure, then this is something they should live with.

76.In this case, the material non-disclosure was of the most serious kind, repeated through several Leave Applications before the Masters. A professional team was involved in that exercise. Mr Chan was and is a partner of Deloitte. The JSLs collectively were highly experienced insolvency practitioners having significant experience in this field and in matters of audit negligence. It was too much of a coincidence that everyone involved in preparing Mr Chan’s Affirmation and the skeleton submissions before the Masters had not appreciated the significance of the Exception Clauses.

77.Even if it had been an innocent breach, that itself is not sufficient justification for re-grant; a fortiori, when the non-disclosure could not have been inadvertent.

78.I am of the view that this is not a clear case where a Master would have granted the Leave Applications had he/she been told of the potential defence on Exemption Clauses.

79.Mr Manzoni SC submits that setting aside leave to serve out and extensions of validity of the relevant Writs would mean a loss of valuable claims against EYHM who has possession of all the substantive audit working papers (which are allegedly prohibited from being transmitted outside the Mainland). This would cause prejudice to the Plaintiffs’ creditors. Failure to re-grant will mean that the Plaintiffs have no recourse to EYHM due to expiry of limitation period.

80.I am unable to accept these submissions for the following reasons:

(1) If a plaintiff is not entitled to sue a particular defendant in the first place, there is no room for the plaintiff to assert loss of valuable claims.

(2) Any potential prejudice in setting aside an ex parte order without a regrant (such that the plaintiff loses one of its only assets) would be reduced if, eg, a plaintiff can establish its claims against other entities: China Medical Technologies, Inc. (in liquidation) v Bank of China (Hong Kong) Limited [2018] HKCFI 1395, §115. In the present case, even if EYHM were to drop out as a party, the Plaintiffs can still sue EYHK in the 2022 and 2023 Actions, and in the arbitration proceedings in respect of the audits for FY 2017 and FY 2018[3] on similar grounds as they pursue EYHM. There is no prejudice to the Plaintiffs.

(3) As with all cases, where a plaintiff chooses to issue a writ close to expiry of the limitation period, he/she runs the risk of being barred from further pursing a claim when the Leave Orders are set aside.

(4) The Plaintiffs can, in principle, apply for third party discovery against EYHM.

81.Mr Manzoni SC further submits that EYHM can simply raise the Exemption Clauses at trial after a re-grant. He does not actively dispute the proposition that the Exemption Clauses may give rise to one reading that destructs the Plaintiffs’ case against EYHM. He submits that it is a matter for trial, as there are many ways to look at the Exemption Clauses.

82.Without disrespect, this is a circular argument. If there is no serious issue to be tried or good arguable case to justify service out of jurisdiction, there is no reason to allow a plaintiff to waste the Court’s time and resources again to re-argue an unviable claim. I agree with Ms Lau SC that it would completely violate the philosophy behind the need to obtain leave to serve out. It will also cause EYHM to be unnecessarily dragged into litigation.

83.For the reasons given in this Section, declining to re-grant of any of the Orders is the only proportional outcome, and I so order.

H. DELAY OF THE DEFENDANT

84.It is not clear if the Plaintiffs still complain about EYHM playing tactical delay leading up to the Set Aside Applications. The facts were that, on 10 March 2023, RPC stated that it had no instructions to accept service of the 2022 Writ on behalf of EYHM, despite having accepted service for EYHK. This necessitated the service out application for the 2022 Writ. Similarly, on 26 January 2024, despite acting for both EYHK and EYHM in the 2022 Action, RPC stated that it had no instructions to accept service of the 2023 and 2024 writs. This necessitated the service out application for the 2023 and 2024 Writs. It was only on 25 October 2024, (a) more than 15 months after acknowledging service of the 2022 Writ; and (b) till the 2022, 2023 and 2024 Writs were served out of jurisdiction on EYHM, that the Setting Aside Applications were taken out. EYHM’s alleged delay is said to have caused difficulty to the Plaintiffs in suing EYHM because of expiry of the limitation period.

85.I am unable to agree. An application to set aside the Orders can be made with the time allowed to file and serve a defence: Hong Kong Civil Procedure 2025, Vol 1, §12/8/3. EYHM has taken out the Setting Aside Applications and sought leave to file the defence after disposal of these Applications. In any case, there is no suggestion as to how any “delay” of EYHM has caused prejudice to the Plaintiffs.

86.Further, the Plaintiffs have proceeded in a piecemeal fashion to issue writs for audits for different financial years. See Table above. The 1st SOC, the Writ in the 2024 Action and the 2nd SOC were all served in 2024. EYHM took out the Set-Aside Applications a month after the 2nd SOC was served. They were justifiably issued and heard together.

87.Accordingly, I am not satisfied that there has been any delay on the part of EYHM or any delay that should have denied EYHM relief.

I. CONCLUSION AND COSTS

88.For the reasons given above, I find that there was material non-disclosure concerning the Exemption Clauses in the Leave Applications. The Leave Orders should be set aside without a re-grant. I therefore grant an order in terms of each of the Set-Aside Applications.

89.I have considered Ms Lau SC’s request for costs on indemnity basis. There is a difference between deliberate failure to disclose in order to mislead and withholding facts erroneously believed not to be material: Hong Kong Civil Procedure 2025, Vol 1, § 11/4/36.

90.Having carefully considered the circumstances, I am not satisfied that the evidence has reached a level to show the non-disclosure to have been deliberate though it was not inadvertent. I therefore make an order nisi that costs of, all 3 set aside Applications, together with certificates for 2 counsel, be to EYHM, to be taxed forthwith if not agreed.

91.I thank counsel for their great assistance.

  (Queeny Au-Yeung)
  Judge of the Court of First Instance
  High Court

Mr Charles Manzoni SC, instructed by Karas So LLP and Mr Jason Karas (Solicitor Advocate) of Karas So LLP, for the 1st and 2nd Plaintiffs in all cases

Ms Queenie Lau SC and Ms Natalie So, instructed by Reynolds Porter Chamberlain, for the 1st and 2nd Defendants in HCA 295/2022 and HCA 455/2023, and the Defendant in HCA 172/2024



[1]   Appeals to the Court of Appeal ([2021] 6 HKC 401) and CFA ([2022] 5 HKC 426) were dismissed.  Finding of material non-disclosure by Hon Marlene Ng J in the CFI was not disturbed.

[2]   [2021] HKCFI 1657 at [13].

[3]   Those audits are subject to an arbitration clause. Ozner has issued a Notice of Arbitration against EY HK on 18 March 2024.