Winland Enterprises Group Inc. v. Wex Pharmaceuticals Inc. and Another

CACV 154/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 154 OF 2011

(ON APPEAL FROM HCCL 4/2011

Transferred from HCA 1573/2010)

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BETWEEN

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Before: Hon Hartmann JA and To J in Court

Date of Hearing: 7 March 2012

Date of Judgment: 29 March 2012

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J U D G M E N T

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Hon To J:

Background

1.This is the plaintiff’s (“Winland”) appeal against the order of Reyes J made on 20 July 2011 that the leave granted to Winland to issue a concurrent writ of summons and to serve a sealed copy thereof on the 1^st defendant (“WEX”) out of the jurisdiction be set aside with Winland paying WEX’s costs of the application.

2.Winland is a company incorporated in the British Virgin Islands as a corporate vehicle for a group of investors represented by Margaret Chow (“Chow”) and Timothy Ma (“Ma”). 

3.WEX is a listed company incorporated in Canada engaged  in the pharmaceutical industry.  It has a number of wholly owned subsidiaries, including WEX Medical Limited incorporated in Hong Kong (“WEX HK”), GlobalMed Corporation incorporated in West Indies (“GlobalMed”) and Acro Pharm Corporation incorporated in Barbados (“Acro Pharm”), the 2^nd defendant herein.  WEX also has 97% interest   in Nanning Maple Leaf Pharmaceutical Company Limited (“Nanning”) incorporated in the People’s Republic of China (“the PRC”). 

4.WEX and the above subsidiaries shared some common staff.  Frank Shum (“Shum”) was until 16 August 2005 a shareholder, director, president and chief executive officer of WEX; a director and chairman of WEX HK; authorised person and “lawyer at large” of Acro Pharm;  and the chairman and legal representative of Nanning.

5.Grace Leong (“Leong”) was a director of WEX; director and deputy manager of WEX HK and Shum’s assistant until 13 March 2006. 

6.In about July 2001, Shum and Leong on behalf of WEX discussed with Chow and Ma the possibility of WEX granting exclusive distribution rights in Tetrodin for treatment for opiate withdrawal in   Peru to a company to be nominated by Chow and Ma.  Tetrodin, also known as Tetrodonin, is extracted from tetrodotoxin (referred to collectively as “TTX”).  The discussion resulted in Chow and Ma agreeing to subscribe for shares in WEX through private placement (“Share Purchase Agreement”) and in Winland entering into an agreement with GlobalMed on 5 December 2001 for sole distributorship of Tetrodin in Peru (“GlobalMed Agreement”).

7.In about April 2003, at the request of Shum, the GlobalMed Agreement was cancelled and replaced by an agreement on identical terms between Winland and Acro Pharm (“Acro Pharm Agreement”) on 21 May 2003.

8.On 25 November 2003, Winland entered into an exclusive distributorship agreement for Tetrodin in Peru (“Peru Agreement”) with Forbest Medical International S.A.C. (“Forbest”).  On 12 April 2004, the Peru Agreement was transferred from Forbest to Equipos Y Medicinas S.A.C. (“Equipos”).

9.With the documentation provided by WEX, Equipos obtained Sanitary Registry Authorisation from the health authority in Peru on 24 February 2004 which permitted and licensed Equipos to import and sell Tetrodin manufactured by Nanning in Peru.  The authorisation commenced on 5 February 2004 and expired on 5 February 2009.

10.In August 2004, WEX, Winland and Equipos jointly arranged clinical testing of the effectiveness of Tetrodin for treatment of opiate withdrawal precipitated by cocaine abuse in Peru.  Pursuant to the arrangement, Winland placed a small purchase order with Acro Pharm for Tetrodin on 25 August 2004.  The Tetrodin was never delivered.  In January 2005, Shum requested to delay the commencement of the Acro Pharm Agreement.  Winland agreed.

11.In an e-mail dated 24 April 2010, WEX informed Winland that as the final study report prepared by Ventana Clinical Research Organisation issued on 9 January 2006 concluded that the administration of Tetrodin did not attenuate withdrawal symptoms precipitated by naloxone, WEX discontinued development of Tetrodin for opiate withdrawal.  WEX proposed to Winland to terminate the Acro Pharm Agreement and to dissolve Acro Pharm whose only business related to that agreement.  Winland considered the e-mail evinced an intention on the part of WEX not to be bound by the Acro Pharm Agreement and       to repudiate that agreement.  Winland accepted the repudiation by WEX and Acro Pharm by filing a writ of summons with a statement of claim  on 19 October 2010.

12.On 25 November 2010, Winland obtained by way of   ex parte application leave from Master de Souza pursuant to Order 11    of the Rules of the High Court to issue a concurrent writ of summons     in this action and to serve it out of the jurisdiction on WEX in Canada.  On 8 February 2011, WEX applied pursuant to Order 12 rule 8 to have the order of Master de Souza discharged.  On 20 July 2011, Reyes J set aside the order of Master de Souza with costs against Winland.

13.Winland now appeals against the order of Reyes J.  On   30 January 2012, it also applied for leave to adduce new evidence  relating to fraudulent concealment by WEX of Nanning’s loss of the intellectual property rights in Tetrodin in the PRC (“the China Patent”).

Winland’s case, grounds for service out on WEX, WEX’s objections and issues raised by this appeal

14.Altogether, Winland filed five versions of the statement of claim.  The original version was considered by Master de Souza when granting leave to serve out at the ex parte stage.  The third version, ie the re-amended statement of claim amended pursuant to leave granted by Reyes J on 17 March 2011 was considered before the learned judge at  the inter parte review.  Thereafter, Winland filed two further amended versions.

15.Winland’s case against Acro Pharm as disclosed in the re-amended statement of claim is that Acro Pharm was in anticipatory breach of the Acro Pharm Agreement and that at the time of entry into that agreement Nanning had lost its ownership of the China Patent.  Winland also alleged that it was a condition precedent to the Share Purchase Agreement that WEX would grant distribution rights in Tetrodin in Peru to a company to be nominated by Chow and Ma.  In the re-re-re-amended statement of claim, Winland introduced a new case of fraudulent concealment of Nanning’s loss of the China Patent.

16.WEX is not a party to the Acro Pharm Agreement.   Mr Remedios, counsel for Winland, concedes that Winland has no independent cause of action against WEX.  Hence, Winland sought to fix liability on WEX for Acro Pharm’s breach of contract by seeking to lift the corporate veil of Acro Pharm. In very broad terms, Winland’s case against WEX as pleaded in the re-amended statement of claim is that Winland withheld the supply of Tetrodin from Acro Pharm and that Acro Pharm was at all material times and still is the alter ego of WEX and a façade to cloak the fact that in truth the Acro Pharm Agreement and its business was carried on by WEX to evade its legal obligation and liability.  In the re-re-re-amended statement of claim, Winland added a new case of fraudulent concealment that at the time of entry into the GlobalMed Agreement and later the Acro Pharm Agreement, WEX fraudulently, deliberately and dishonestly concealed Nanning’s loss of its ownership of the China Patent and that the placement of WEX’s shares to Winland supplied the motive for making the fraudulent concealment.  The new evidence sought to be adduced is to support this new case.  This is the case based on which Winland appeals the decision of Reyes J. 

17.To obtain leave for service out of the jurisdiction on WEX pursuant to Order 11 rule 1(d), Winland has to make out a case that the Acro Pharm Agreement was in effect an agreement between Winland  and WEX by lifting the corporate veil of Acro Pharm.  Mr Remedios relies on WEX’s fraud, concealment of the loss of the China Patent, its use of Acro Pharm as a façade and that Acro Pharm is WEX’s puppet as grounds for lifting the corporate veil. At the ex parte stage, it also sought leave under Order 11 rule 1(f) by making a claim founded on tort.  But that alternative was not pursued at the appeal.

18.WEX’s main ground of objection to the appeal is that in a review under Order 12 rule 8, it is not open to a plaintiff to present a different case on the basis of the new evidence sought to be adduced  from that which formed the basis on which leave to serve out was granted by the master or on which the master’s decision was reviewed by the Court of First Instance. For that reason, Mr Carolan, counsel for WEX, argues that leave should not be granted to Winland to adduce the new evidence.  WEX’s further grounds of objection are that on the basis of the re-amended statement of claim then before Reyes J, there was no intelligible cause of action against WEX, no serious issues to be tried   and no valid ground for lifting the corporate veil of Acro Pharm.

19.The issues raised by this appeal are:

(1)   what is the proper approach of the appellate court in a review under Order 12 rule 8;

(2)   whether leave should be granted to permit Winland to adduce the new evidence;

(3)   what are the legal principles applicable to lifting of the corporate veil;

(4)   whether Winland has made out a case that the corporate veil of Acro Pharm should be lifted; and

(5)   whether on the evidence available, Winland has satisfied the court that there is a serious issue to be tried in respect of its claim against WEX.

These issues will have to be considered in turn.  But before turning to the issues, I shall first set out the new evidence sought to be adduced and some background facts relating to the China Patent.

The new evidence sought to be adduced

20.The new evidence sought to be adduced by Winland consists of a judgment delivered by the Beijing Higher People’s Court in E.Z.Z.C.Zi No. 53 on 27 November 2001 and a declaration by an attorney of Jeekai & Partners as to the effect of that judgment.  In that judgment, the Beijing Higher People’s Court set out the background of the dispute over the China Patent and held that Nanning lost its ownership in the China Patent to the People’s Liberation Army (“the PLA”) and another party.  Jeekai & Partners is an intellectual property law firm in the PRC officially authorised by the State Intellectual Property Office (“SIPO”) and the State Administration for Industry and Commerce of the PRC to provide services to Chinese and foreign clients in the field of intellectual property law.  According to that declaration, the judgment of the Beijing Higher People’s Court is a final judgment and that there is no further right of appeal.

21.Winland filed the 5^th Affirmation of Chow and an affirmation of Chan Ching Ching in support of Winland’s application for leave to adduce the new evidence.  In essence, they said that despite diligent effort the above evidence could not have been obtained at the time of the hearing before Reyes J.  Hence, they could only produce an incomplete internet copy of the court case.  They explained that not being a party to that litigation, the judgment of the Beijing Higher People’s Court was not available to Winland.  It was only through very onerous effort that they obtained the documentary evidence.  

22.WEX does not challenge the allegation that the new evidence could not have been obtained with reasonable diligence for use at the hearing before Reyes J.  By its nature, the evidence is presumably to be believed.  If the new evidence is admissible and if on the totality of the evidence, it would have an important influence on the result of this appeal, the three requirements in Ladd v Marshall [1954] 1 WLR 1489 would have been satisfied.  Those facts were known to WEX at all times.  The admission of the evidence would not be prejudicial to WEX.  Accordingly, the new evidence is received de bene esse and Winland’s application for leave will be determined depending on the merit of this appeal.

The China Patent in the use of Tetrodin for opiate withdrawal

23.The following is the finding of fact relating to the China Patent by the Beijing Higher People’s Court.  Pan Xinfu (“Pan”), a scientist employed by the PLA, was in charge of a research project of separation and extraction of tetrodotoxin in 1979 and then its commercialisation from 1982 to 1985.  Qiu Fanglong (“Qiu”), who was not a member of the PLA, completed certain clinical experiments for    the patent of the invention.  On 17 March 1994, Pan and Qiu filed         the patent application entitled “The Use for Abstaining from Drug Dependence by Interacting with Sodium Channel on the Cell Membrane” to SIPO.  On 10 February 1995, they assigned the right to apply for the Patent to Nanning.  In the same year, Pan was demobilized from the PLA.  On 22 January 2000, SIPO granted Nanning the Patent No ZL95190556.2 for the invention, ie the China Patent.  WEX manufactured tetrodotoxin and its derivative product Tetrodin, an amino hydrogenated quinazoline compound and derivative at their Nanning facility in the PRC.

24.Before the grant of the China Patent to Nanning, a dispute arose between the PLA on the one part and Pan and Qiu on the other as to Nanning’s right to apply for the China Patent, which resulted in litigation before the Beijing Intermediate People’s Court in 1998.  In 2000, the Beijing Intermediate People’s Court held that Nanning was not qualified to apply for the China Patent and that the right to apply was jointly owned by Pan, Qiu and the PLA.  All the parties, including Nanning, appealed to the Beijing Higher People’s Court.  On 27 November 2001, the Beijing Higher People’s Court delivered its judgment holding that the PLA and Qiu jointly owned the right to apply for the China Patent.  Based on that judgment, SIPO changed the registered ownership of the China Patent from Nanning to the PLA and Qiu on 31 October 2002. 

25.It should be noted that the GlobalMed Agreement was negotiated at a time when the ownership of the China Patent was in dispute, though Nanning was its registered owner; but that at the time     of execution of the GlobalMed Agreement and later the Acro Pharm Agreement, the judgment of the Beijing Higher People’s Court had been delivered holding that the right to apply for the China Patent was jointly owned by the PLA and Qiu, though Nanning’s name was not yet removed from the register of SIPO.  Those facts were not known to Winland and were not pleaded in the re-amended statement of claim.

The proper approach of the appellate court in a review under Order 12 rule 8

26.Unless a claim is one which the Court of First Instance is authorised by statute to hear notwithstanding that the person against whom the claim is made is not within the jurisdiction, leave for service of a writ out of the jurisdiction on that person is required under Order 11 rule 1.  An application for leave must be supported by an affidavit stating, among other things, the grounds on which the application is made and that in the deponent’s belief the plaintiff has a good cause of action: Order 11 rule 4(1).  The application shall be made ex parte to a master.  No leave shall be granted unless it shall be made sufficiently to appear to the court that the case is a proper one for service out of the jurisdiction,  ie there are serious issues to be tried: Order 11 rule 4(2).  The plaintiff  has to demonstrate a good arguable case as part and parcel of demonstrating the applicability of the grounds for service out under one of the sub-paragraphs of Order 11 rule 1.  This stage is referred to as the ex parte stage.  The party on whom the writ is served and who wishes to dispute the jurisdiction of the court must apply to the Court of First Instance by summons stating the grounds of the application supported   by an affidavit verifying the facts on which the application is based.  The application will be heard inter parte before a judge of the Court of First Instance.  This is referred to as the inter parte stage.

27.Mr Carolan submits that if a plaintiff obtained leave at the   ex parte stage to serve out on the basis of a certain cause of action as framed in a writ, he must stand by that pleading when the defendant  seeks to challenge the service of the writ on him at the inter parte stage.  He referred to the Court of Final Appeal’s decision in Kayden Ltd v Securities and Futures Commission (2010) 13 HKCFAR 696.

28.Before turning to Kayden Ltd, it would be instructive to refer to Parker v Schuller (1901) 17 TLR 299.  In that case, the plaintiff had obtained leave to serve a writ on a foreign defendant alleging breach of contract within the jurisdiction consisting of a failure to deliver goods at Liverpool.  It later sought to allege instead that the breach was of an obligation to deliver the documents required under the CIF contract.  The English Court of Appeal refused to entertain the new basis for establishing jurisdiction.  Romer LJ said at 300:

“... an application for leave to issue a writ for service out of the jurisdiction ought to be made with great care and looked at strictly. If a material representation upon which the leave was obtained in the first instance turned out to be unfounded, the plaintiff ought not to be allowed, when an application was made by the defendant to discharge the order for the issue of the writ and the service, to set up another and a distinct cause of action which was not before the Judge upon the original application.”

29.The strict approach in Parker v Schuller was approved by  the Court of Final Appeal in Kayden Ltd.  Ribeiro PJ explained that the need for this strict approach is justified on the basis: (1) that special    care is required before a plaintiff invokes the court’s extraordinary    long-arm jurisdiction; (2) that good faith is expected of the plaintiff’s representations made at the ex parte stage in the absence of the defendant; and (3) that both the court and the defendant must be apprised of the cause of action alleged and the case which the defendant has to meet    and decide whether to mount any challenge.  Strict adherence to the legal basis advanced in support of service out is necessary otherwise the protection given to the defendant from the court’s exercise of its extraordinary long-arm jurisdiction could be easily circumvented.  His Lordship said at 715:

“36. The need for a strict approach is dictated by at least three related considerations. First, it is grounded on recognition of the need for special care given the extraordinary nature of the long-arm jurisdiction asserted under O.11. As Lord Mustill pointed out, it involves seeking to compel a foreign defendant to submit to adjudication by the court or suffer judgment and execution in default. [Mercedes Benz AG v Leiduck [1996] 1 AC 284, 301. And see Siskina (Cargo Owners) v Distos [1979] AC 210, 254-255 (Lord Diplock).]

37. Secondly, as indicated in the passage from Parker v Schuller cited above, the court acts on the faith of the plaintiff’s representations made to it ex parte when granting leave for service of process abroad. Given the extraordinary nature of the jurisdiction which the court would thereby be asserting, it insists on special care on the plaintiff’s part and full disclosure of the basis upon which that jurisdiction is invoked.

38. Thirdly, as Neill LJ pointed out in Excess Insurance Co Ltd v Astra SA Insurance and Reinsurance Co [1997] CLC 160, 166

... it is not only the court which must be apprised of the cause of action alleged. The defendant must know the basis of the claim which he has to meet so that, if so advised, he can challenge the order which asserts the court's jurisdiction over him.

39. In Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc [1990] 1 QB 391, 436, Slade LJ emphasised the need for strict adherence to the legal basis advanced in support of service out but was prepared to admit of a possible exception:

... if the draftsman of a pleading intended to be served out of the jurisdiction under O.11 r.1(1)(f) (or indeed under any other sub-paragraph) can be reasonably understood as presenting a particular head of claim on one specific legal basis only, the plaintiff cannot thereafter, for the purpose of justifying his application under O.11 r.1(1)(f), be permitted to contend that that head of claim can also be justified on another legal basis (unless, perhaps, the alternative basis has been specifically referred to in his affidavit evidence, which it was not in the present case). With this possible exception, if he specifically states in his pleading the legal result of what he has pleaded, he is in our judgment limited to what he has pleaded, for the purpose of an Order 11 application. To permit him to take a different course would be to encourage circumvention of the Order 11 procedure, which is designed to ensure that both the court is fully and clearly apprised as to the nature of the legal claim with which it is invited to deal on the ex parte application, and the defendant is likewise apprised as to the nature of the claim which he has to meet, if and when he seeks to discharge an order for service out of the jurisdiction.”

30.The rule in Parker v Schuller has recently been abolished in the United Kingdom.  In NML Capital Ltd v Republic of Argentina [2011] UKSC 31, the English Supreme Court considered Parker v Schuller inconsistent with the spirit of CPR in that it is pointless making an applicant who is bound to succeed on a fresh application start all over again.  But as submitted by the learned editors of Hong Kong Civil Procedures 2012 at paragraph 11/4/10, the strict approach of the Court  of Final Appeal is more consistent with the emphasis under CPR or CJR of proper preparation from the outset, informing the defendant early of the case it has to meet and the trend away from an absolute right to amend so long as prejudice to the defendant is compensable in costs.   

31.On the state of the authorities, this court is bound by the Court of Final Appeal’s decision in Kayden Ltd.  A plaintiff, who obtained leave at the ex parte stage to serve a writ out of the jurisdiction on the basis of a certain cause of action as framed in the writ, must adhere to that pleading when the regularity in that writ or service is challenged.  He may not put forward a different case to improve the basis on which leave to serve out was granted.  If he acknowledges that the original case as pleaded was insufficient to support the grant of leave to serve out,      he must seek fresh leave for the new pleading to be served out either by making another ex parte application before the master or to seek leave to amend the pleading before the judge at the inter parte stage and re-apply for leave to serve out.

32.This court shall therefore adopt the strict approach in reviewing the decision of the court below in granting or refusing leave to serve out on the basis of the statement of claim then before the court below, ie the re-amended statement of claim.  If the new evidence sought to be adduced is consistent with the re-amended statement of claim then before Reyes J, is relevant and would have an important influence on the decision whether to grant leave to serve out, it will be admitted.  Then, this court shall consider whether the corporate veil of Acro Pharm   should be lifted and whether on the evidence available Winland has satisfied the court that there is a serious issue to be tried.

Winland’s pleaded case in the re-amended statement of claim

33.Winland sets out four basis for lifting the corporate veil of Acro Pharm: fraud, concealment, that Acro Pharm is and was a façade and a puppet of WEX.  It filed a thirty-eight page statement of claim on 19 October 2010, which was the one considered by Master de Souza when granting leave to serve out of the jurisdiction.  Subsequent to that, Winland filed an amended statement of claim on 14 January 2011 pursuant to Order 20 rule 3 without leave and then a re-amended statement of claim on 18 March 2011 pursuant to leave granted by   Reyes J.  The one before Reyes J was the third version comprising of fifty-three pages.

34.In paragraph 18 of the re-amended statement of claim, Winland pleaded Nanning’s ownership of the China Patent on 22 January 2000.  In paragraph 23, it pleaded Nanning’s loss of the China Patent to the PLA and Qiu on a date prior to 31 October 2002, giving the following particulars:

“WEX in:

i) Its 2005 Annual Report stated inter alia that “The Company was notified in April 2005 that its appeal with the Chinese Patent Office concerning ownership of a patent relating to addiction withdrawal in the territory of China was not successful.”

ii) A news release dated the 29^th June 2005 and signed by Don Evans stated inter alia:

a. “[WEX] announced that it had been notified that based on a court ruling (the Ruling) the Chinese Patent Office (CPO) had changed registered ownership of the [China Patent] in China from the Company’s subsidiary, [Nanning] to one of the two inventors and a third party who alleges to have been an employer of the other inventor.

b.   “The patent was granted in China on January 22, 2000. … Even though the Company is currently investigating other legal and business options, until the ownership of the patent is resolved and as a result of financial and other considerations, the Company has decided to temporarily postpone development and testing of its opiate addiction withdrawal drug in China.”

iii) An internal memo prepared by [Leong] dated 10 October 2005 entitled “Winland Enterprises Group Incorporated Summary of Events” stated inter alia that “WEX has ceased all work on this project since January 2005. Testing of Tetrodin and Tetrodonin has been stopped until further notice and decision by WEX’s management.”

iv) Its “Annual Report 2006” stated inter alia that:

(1) “… the Company entered into discussions with the other parties and, as a result, both registered owners of this [China Patent] have provided written confirmation that they are willing to transfer the ownership back to [Nanning] on terms to be finalized that the Company believes will be satisfactory.”

(2) “The Company is currently evaluating the situation and until ownership of the patent is resolved and as a result of financial and other considerations, the Company has decided to temporarily postpone development and testing of its opiate addiction withdrawal drug in Canada and China.  The ultimate outcome of this matter is uncertain at this time.  There can be no assurances that this matter will be resolved on a timely manner or that the outcome will be resolved on a favourable basis for the Company.”

v) A document entitled “New Approach for Pain Relief Annual Report 2007” stated inter alia:

a. “The Company will not pursue the development of Tetrodin for the management of pain symptoms associated with addiction and withdrawal from abused substances in Canada and China until intellectual property issues are resolved and additional financing is available.”

b. “The Chinese Patent office in PRC notified the Company in April 2005 that the Company’s appeal claiming ownership of [the China Patent] was not being upheld.  The Company has taken no action to counter this decision and the Company does not currently expect to incur further costs in relation to this matter.”

vi)   A document entitled Annual Information Form for the Fiscal Period ended December 31, 2009” dated the 12^th February 2010 stated inter alia “The Company has previously advised that based on the Ruling by State Intellectual Property Office of the People’s Republic of China, the registered ownership of [the China Patent]” has been transferred from [Nanning], to a third party (“the Third Party”).  We have also previously advised that this Third Party has requested transfer of ownership of the corresponding German patent and has effected the transfer of a corresponding Belgium patent.  Recently, the Company was also advised that this Third Party has become noted as the registered owner over the corresponding French patent.  These developments affect the patents related to use of TTX for drug withdrawal, which indication the Company has decided not to pursue.”

35.Mr Remedios argues that most of the representations  pleaded in paragraph 23 of the re-amended statement of claim were false.  I believe WEX’s representations regarding appeals with the Chinese Patent Office or State Intellectual Property Office were innocent mistakes. But in the light of the new evidence sought to be adduced, it is probable that WEX’s representations that it was notified in April 2005 of the outcome of Nanning’s appeal in respect of the China Patent and was investigating other legal and business options were false and misleading.  This is because the judgment of the Beijing Higher People’s Court was  delivered more than three years prior to April 2005 and that judgment was final under PRC law.  However, the tenor of the plea contained in paragraph 23 is to the effect that WEX stopped development, testing      or manufacturing of Tetrodin and evinced no intention or ability to    perform or to enable Acro Pharm to perform the Acro Pharm Agreement.  Obviously, those particulars were pleaded as facts in support of Nanning’s  loss of the China Patent.  There was no plea of concealment, whether fraudulent or otherwise. 

36.In paragraph 58, Winland pleaded GlobalMed’s breach of the GlobalMed Agreement.  In paragraph 87, it pleaded Acro Pharm’s breach of the Acro Pharm Agreement.  In paragraphs 90 to 92, it pleaded that WEX induced Acro Pharm’s breach of contract, that Acro Pharm was and is WEX’s alter ego and that Acro Pharm’s corporate veil should be lifted.  Winland pleaded as follows:

“90. Acro Pharm’s breach of the Agreement was caused by WEX’s wrongfully and unlawfully withholding that which was necessary for Acro Pharm to fulfil its contractual obligations to Winland, namely, the supply of Tetrodonin, and did so with the requisite knowledge of the Agreement and the Peru Agreement and with the requisite intention.

91. Further, and/or in the alternative, the Plaintiff says that Acro Pharm was at all material times and is the alter ego of WEX and that Acro Pharm was a façade to cloak the fact that in truth the Agreement and the business was carried on by WEX and that Acro Pharm was a corporate structure used by WEX to evade legal obligations and liabilities.

(giving various particulars)

92.  By reason of the matters pleaded in paragraph 91, the Plaintiff says that the corporate veil should be lifted.”

That was Winland’s pleaded case as it stood before Reyes J which presumably was an improved version than the one before Master de Souza when leave to serve out was granted.  Indeed, in the 1^st Affidavit   of Chow, paragraphs 90 and 91 were quoted verbatim as the grounds    for serving out.  The various particulars pleaded under paragraph 91 may be treated as pleading of the façade and puppet.  But there was no plea   of concealment, whether fraudulent or otherwise.  Allegation of fraud was first introduced in paragraph 79H of the re-re-amended statement of claim filed on 3 August 2011, but that was after the hearing before Reyes J.

Whether leave to adduce the new evidence should be granted

37.Winland’s case now advanced before us by Mr Remedios    is one of fraudulent concealment.  WEX was fraudulently concealing the fact that when it entered into the Acro Pharm Agreement and its precursor, the GlobalMed Agreement, it did not have ownership of the China Patent and it did so with the requisite knowledge, requisite intention and   motive of inducing Chow and Ma to subscribe for shares in WEX.  Fraud has to be specifically pleaded.  A plaintiff relying on fraud in support of his claim is required to specifically set out in his particulars of claim    any allegation of fraud, details of any misrepresentation, details of all breaches of trust and notice or knowledge of facts: see Bullen & Leake & Jacob’s Precedents of Pleadings 17^th Ed, para 57-02.  But fraud was not Winland’s pleaded case before Reyes J.

38.Mr Remedios was adamant that it matters not that fraudulent concealment had not been pleaded as fraud was forefront in the mind of the learned judge who was alive to the issue of fraud, but only that the learned judge fell into error by dismissing it out of hand without considering or adequately considering all the evidence listed in Winland’s notice of appeal and that he was misled due to the non-availability of    the new evidence at that stage.  Mr Remedios quoted paragraph 14 of the learned judge’s judgment:

“Winland is in effect alleging that WEX acted fraudulently. The gist of the fraud (according to Winland) is that WEX never told (but rather concealed) the fact that Nanning had lost the ownership of the intellectual property rights to TTX. This was despite cl.5.2.10 of the Agreement whereby Acro Pharm was bound to “make timely disclosure of all … circumstances and everything known to it concerning the … transaction that would likely influence the conduct of [Winland]”. WEX (it is said) so dominated Acro Pharm that the latter had “no separate will of its own”. Acro Pharm (it is suggested) was a mere shell with none of its own staff or offices.”

39.It is not difficult to perceive from the re-amended statement of claim that Winland may have a case of fraud against WEX.  This is particularly so because, as revealed in paragraph 22 of the judgment,    Mr Remedios was suggesting to the learned judge that WEX ought to have but did not disclose to Winland that it had lost the China Patent.  That was perhaps why Reyes J took the extra step of considering Winland’s possible cause of action based on fraud against WEX, which as the learned judge said was at that stage unpleaded.  The learned judge probably had in mind the principle in Kayden Ltd.  That was why he emphasised that the point was unpleaded.  If the case as pleaded therein was insufficient to support the grant of leave to serve out, under the principle in Kayden Ltd, Winland may not put forward a different,  though better, case to support its case for leave.   Even though the learned judge had considered fraud and reached a conclusion, rightly or wrongly, that could not cure the inadequacy in Winland’s pleading.  If leave had been given on the basis of a case of fraud which was unpleaded, it would have been open to WEX to have the leave set aside on the authority of Kayden Ltd. 

40.The case of fraudulent concealment now advanced by        Mr Remedios as reflected in paragraph 79H of the re-re-re-amended statement of claim is:

“Further, by reason of the matters aforesaid WEX fraudulently, knowingly and deliberately deceived Winland into cancelling the GlobalMed Agreement and entering into the [Acro Pharm] Agreement.

Particulars

(It then gave particulars relating to concealment of Nanning’s loss of the China Patent.).”

Mr Carolan submits that the plea of fraud is inadequate.  Fraud must be specifically and clearly pleaded.  It is not permissible to plead fraud without connecting it to a recognised cause of action.  Six usual causes of action have been identified in Bullen & Leake & Jacob’s Precedents of Pleadings 17^th Ed, Vol 2 at 937.  These are fraudulent misrepresentation or deceit; conspiracy; unlawful interference or inducing breach of contract; bribery; money had and received; and constructive trusts including knowing receipt and dishonest assistance.  Misrepresentation relating to Acro Pharm’s exclusive distributorship in Tetrodin (but not ownership of the China Patent) was pleaded in the original version of   the statement of claim before Master de Souza, but was jettisoned          by Winland prior to the review before Reyes J.  Insofar as active concealment of a material fact is concerned, which is what the above plea is about, it may operate as a misrepresentation.  But, mere non-disclosure will not give rise to a cause of action, unless there is a duty of disclosure.  Here, such duty was not even pleaded.  The plea does not fall within any of the remaining five heads.

41.Technicality aside, Winland’s case of fraud is clearly outside the scope of the re-amended statement of claim.  If the leave to serve out is upheld, WEX would be asked to answer a profoundly different case from that based on which leave for service out of the jurisdiction was presented by Winland, and within the confines of which this appeal should be argued.  Under the principle of Kayden Ltd, it is not permissible for Winland to seek to justify the grant of leave by advancing a new case of fraudulent concealment as the basis for serving out of the jurisdiction.

42.The purpose of adducing the new evidence is to show that WEX, through Shum who was its director, president and chief executive officer, director of Acro Pharm and the chairman and legal representative of Nanning who appeared on behalf of Nanning in the appeal before the Beijing Higher People’s Court in the China Patent appeal, had knowledge of Nanning’s loss of the China Patent, that the judgment of the Beijing Higher People’s Court was final and Nanning had no right of appeal.       In the light of this knowledge, Wex’s announcements in its various annual reports relating to Tetrodin and the preparatory steps taken for the clinical tests in Peru were just stalling games from which dishonesty    and fraud could be inferred.  As it is not open to Winland to argue on    the basis of fraudulent concealment, the new evidence is irrelevant and could have no effect on the decision which this court is asked to make.  The requirements in Ladd v Marshall are not met.  Accordingly, the application to adduce the new evidence is refused.

Legal principles applicable to lifting of the corporate veil

43.The principle of separate corporate personality has been cast in stone since Salomon v A Salomon & Co Ltd [1897] AC 22.  It applies as between a company and its shareholders who are personal individuals and as between a subsidiary and its parent company.  There are but few exceptions to the principle, most of which are creations of the statute. The few common law exceptions created by the courts were based on either a principle of public policy or on the principle that devices used    to perpetrate frauds or evade obligation will be treated as nullities, or on  a presumption of agency or trusteeship.  Of those exceptions, only the second one is relevant in the present context.  The learned author of Pennington’s Company Law 8^th ed was only able to identify three such cases in which the court disregarded the separate legal personality of       a company because it was formed or used to facilitate the evasion of  legal obligation. 

44.The first one in chronological order is Gilford Motor Company Limited v Horne [1933] Ch 935.  There, the defendant employee had entered into an agreement with the plaintiff company not to solicit its customers or to compete with it for a certain period of time after leaving its employment.  After ceasing to be employed by the plaintiff, the defendant formed a company for the purpose of carrying on a competing business and caused the whole of its shares to be allotted to  his wife and an employee who were appointed as its directors.  The court held that the defendant company formed by the defendant was a mere cloak or sham to enable him to commit breaches of his agreement with the plaintiff and issued an injunction against him and his company restraining them from soliciting the plaintiff’s customers.  Romer LJ said at 121:

“… this defendant company was formed and was carrying on business merely as a cloak or sham for the purpose of enabling the defendant Horne to commit the breach of the covenant that he entered into deliberately with the plaintiffs on the occasion of and as consideration for his employment as managing director.”

45.In Jones and another v Lipman and another [1962] 1 All   ER 442, the first defendant agreed to sell freehold land to the plaintiff.  While pending completion, he sold the land and transferred it to the defendant company which he acquired and of which he and a clerk of   his solicitors were sole shareholders and directors.  The court ordered specific performance compelling the first defendant and the defendant company to convey the land to the plaintiff.  Russell J said at 445:

“The defendant company is the creature of the first defendant, a device and a sham, a mask which he holds before his face in an attempt to avoid recognition by the eye of equity.”

46.In Creasey v Breachwood Motors Ltd [1993] BCLC 480,      a company sought to avoid a judgment for damages for wrongful dismissal obtained against it by its manager, the plaintiff, by forming a new company to which it transferred all its assets and liability, except the judgment debt in favour of the plaintiff.  The company then procured its own dissolution.  It was held that the new company was bound by the judgment in view of the blatant attempt by the original company to evade enforcement of the judgment against it.

47.That decision was considered by this court in China Ocean Shipping Co v Mitrans Shipping Co Ltd [1995] 3 HKC 123.  There, the plaintiffs chartered its vessel to a Panamanian company (“Mitrans Panama”). Little is known of Mitrans Panama except that it has an office at the defendants’ place of business in Hong Kong, that its president is     a director and shareholder of the defendants and that it shared some common staff with the defendants.  Disputes arose which resulted in an arbitration award made against Mitrans Panama.  When Mitrans Panama failed to pay the damages, the plaintiffs sought payment from the defendants, contending that the defendants and Mitrans Panama were  one single economic unit and that the corporate veil ought to be lifted since Mitrans Panama acted as a façade for the defendants to evade their legal obligation to the plaintiffs.  The Court of First Instance refused the defendants’ application to strike out the statement of claim.  On appeal, this court rejected the single economic unit argument, distinguished between evasion and avoidance of legal obligation and held that the courts may lift the corporate veil to prevent an evasion of legal obligation, but the use of a corporate structure to avoid incurring any legal obligation in the first place was not objectionable.   

48.Bokhary JA, as he then was, adopted the dicta of Slade LJ   in Adams And Others v Cape Industries Plc And Another [1990] 1 Ch 433 in rejecting the plaintiff’s single economic unit argument and accepted as legitimate the way in which corporate structure has been used to insulate members of a corporate group from liability in respect of particular future activities of the group or certain members of the group.  His Lordship said at 125F to 126A:

“One of the plaintiffs' arguments is that the defendants treated themselves and Mitrans Panama as a single economic unit with interchangeable names. However, as was said by Robert Goff LJ in Bank of Tokyo Ltd v Karoon [1987] AC 45n at p64 and adopted in the judgment of the Court of Appeal in England delivered by Slade LJ in Adams v. Cape Industries Plc. [1990]1 Ch 433 at p538G-H:

[Counsel] suggested beguilingly that it would be technical for us to distinguish between parent and subsidiary company in this context; economically, he said, they were one. But we are concerned not with economics but with law. The distinction between the two is, in law, fundamental and cannot here be bridged.

  Later on in the judgment in Admas v Cape Industries Plc (supra) this was said (at p544D-F):

... we do not accept as a matter of law that the court is entitled to lift the corporate veil as against a defendant company which is the member of a corporate group merely because the corporate structure has been used so as to ensure that the legal liability (if any) in respect of particular future activities of the group (and correspondingly the risk of enforcement of that liability) will fall on another member of the group rather than the defendant company. Whether or not this is desirable, the right to use a corporate structure in this manner is inherent in our corporate law.”

49.Then, after referring to Creasey v Breachwood Motors Ltd, his Lordship turned to the facts in China Ocean Shipping Co and distinguished between evading obligation and liability which is wrongful and avoiding obligation and liability which is not.  His lordship said at 127B-E:

“  In the present case, there was no evasion of any obligation or liability by the defendant. There was no liability or obligation on the defendant's part to evade. No liability or obligation on anybody's part existed until the charterparties were entered into. And it was Mitrans Panama who entered into the charterparties and who assumed liability or obligation to the plaintiff thereunder. The plaintiff chose to deal with Mitrans Panama without insisting on a guarantee.

Using a corporate structure to evade legal obligation is objectionable. The courts' power to lift the corporate veil may be exercised to overcome such evasion so as to preserve legal obligation. But using a corporate structure to avoid the incurring of any legal obligation in the first place is not objectionable. And the courts' power to lift the corporate veil does not exist for the purpose of reversing such avoidance so as to create legal obligations.

It is no use for the plaintiff to say in argument that it relies on the award as opposed to the charterparties. The award is not against the defendant either. It is against Mitrans Panama. The plaintiff has not pleaded that the defendant had sent Mitrans Panama in as a facade for the purposes of the arbitration. Rather, the plaintiff's pleaded case is that the defendant had sent Mitrans Panama in right from the start as a facade for the purposes of the charterparties.”

50.From the above dicta, it should be appreciated that the principle of separate corporate personality must be viewed with commercial realism.  Corporate personality was created under our laws to give to a company a separate legal identity so that it can carry on commercial activities as an individual distinct from its shareholders and to insulate them from legal liability arising out of those activities, but only insofar as the law permits.  The memorandum, the articles of association and the statutes set out the regime within which the corporation operates from its inception to its dissolution.  This principle of separate corporate personality has not been successfully challenged for over a hundred years since Solomon v A Salomon & Co Ltd. There are but two exceptions created as a result of judicial decisions based on either a well founded principle of public policy or the principle that devices used to perpetrate frauds or evade obligation will be treated as nullities.  The legality of the use of a separate corporate identity to avoid or insulate its shareholders or its parent company from legal liability arising out of the activities of the company or the subsidiary has never been questioned.  The use of a corporate veil to insulate its shareholders or its parent company from legal liability is not objectionable, unless, as the cases show, it is coupled with some illegitimate purpose, such as devices to perpetrate frauds or to evade legal obligation.  In Gilford Motor Company Limited, the illegitimate use of the corporate veil was to cover up the employee’s breach of covenant.  In Jones and another v Lipman     and another, it was to enable the vendor of land to evade specific performance of the sale and purchase agreement.  In Creasey v Breachwood Motors Ltd, it was to frustrate a successful plaintiff from enforcing his judgment.  In China Ocean Shipping Co, in the absence of any illegitimate use of the corporate veil, or façade, this court declined to lift the veil.

51.Thus, the law permits the use of a corporate veil to avoid legal obligation and liability.  What the law does not permit and that is when the court will lift the corporate veil is its use for illegitimate purposes such as evading legal obligation and liability.  When looked at with realism, avoiding or confining legal obligation was precisely the reason for which the principle of corporate personality came to be evolved.  As commercial activities become more complex, a system of holding and subsidiary companies was developed to protect members of the group from liability caused by activities of other members.  However, the members operate as one integrated whole as if they are various parts of the human body or departments of one large undertaking owned by the parent company.  In the modern commercial world, members of the group may even share common management, common directors and common staff.  A subsidiary may appear to have separate existence but no separate mind of its own.  It may even be one economic unit with the parent company.  However, the law is not concerned with the functional organisation of the group.   As Slade LJ said, “we are not concerned with economics but with the law”.  It really matters not that much that a subsidiary is run by the same staff as the parent company or at the direction of the parent company.  It is, in my view, wrong to place undue emphasis on those factors and to go that far as to infer from those factors that a subsidiary is a façade or a puppet and for that reason alone the corporate veil ought to be lifted (I am conscious of the case of Smith, Stone and Knight Ltd v Lord Mayor, Aldermen and Citizens of the City of Birmingham [1939] 1 All ER 116 relied on by Mr Remedios, which     I shall return in a minute).  There is no magic in the word ‘façade’ as the French call it or ‘facciata’ as the Italians call it and from which that word originates.  It just means an outward appearance or front, especially one which is deceptive. But unless on the fact it carries that latter meaning and that when its use is in conjunction with some illegitimate purpose, such as to evade legal obligation and liability, there is no justification for lifting the corporate veil. 

52.I now turn to Smith, Stone and Knight Ltd v Lord Mayor, Aldermen and Citizens of the City of Birmingham which is heavily relied on by Mr Remedios for his argument that a façade by itself justifies lifting of the corporate veil.  In that case, the plaintiff company acquired a partnership business and had it incorporated as its subsidiary.  The plaintiff company, which became the parent company, held all the shares of the subsidiary except five which were held by its directors in trust for the parent company. The defendant corporation compulsorily acquired the premises owned by the parent company upon which the business of the subsidiary was carried on.  The parent company claimed compensation in respect of removal and disturbance.  A preliminary point was raised, which was whether, as a matter of law, the parent company could claim compensation for disturbance of the business which was carried on on the premises to be compulsorily acquired or whether that claim must be made by the subsidiary in occupation.  In the latter event, the defendant could escape paying compensation altogether by virtue of the Lands Clauses Consolidation Act 1845.  The defendant corporation relied on Solomon v A Solomon & Co Ltd and contended that the proper claimant was the subsidiary.  Atkinson J rejected the defendant corporation’s argument of separate corporate personality and held that possession by a separate legal entity was not conclusive on the question of the right to claim, and as the subsidiary company was not operating   on its own behalf but on behalf of the parent company, the parent company was the party to claim compensation.  Mr Remedios relies on the six point test set out by Atkinson J at 121 for determining the question of whether the parent company or a subsidiary was carrying on business of the subsidiary to justify lifting the corporate veil.  He submits that applying that test, Acro Pharm’s corporate veil should be lifted.

53.With respect, I am unable to read that case as having laid down any legal principle to the effect as contended by Mr Remedios.  That was not a case of lifting the corporate veil but a case of agency. The question in that case was whether the occupation of the premises by the subsidiary was the occupation of the parent company.  Atkinson J  said at 120D:

“It is well settled that the mere fact that a man holds all the shares in a company does not make the business carried on by that company his business, nor does it make the company his agents for the carrying on of the business. That proposition is just as true if the shareholder is itself a limited company. It is also well settled that there may be such an arrangement between the shareholders and a company as will constitute the company the shareholders’ agent for the purpose of carrying on the business and make the business the business of the shareholders.”

The learned judge then referred to the dicta of Cozens-Hardy MR and Fletcher Moulton LJ in Gramophone & Typewriter Ltd v Stanley [1908] 2 KB 89, 5 Tax Cas 358, a revenue case, holding that whether a company was an agent of its shareholder is in each case a question of fact.  Then the learned judge referred to Inland Revenue Comrs v Sansom [1921] 2 KB 492, 8 Tax Cas 20, another revenue case, in which Lord Sterndale approved the dicta of Cozens-Hardy MR and said that the mere fact that the case is one which falls within Salomon v Salomon & Co is not of itself conclusive.  Then, Atkinson J said at 121A:

“It seems therefore to be a question of fact in each case, and those cases indicate that the question is whether the subsidiary was carrying on the business as the company’s business or as its own.”

Then summing up his observation on a number of revenue cases, the learned judge framed the six point test.  That six point test only lists out the indicia of agency.  It is clear that the six point test is a test of agency and it is wrong to rely on that test as one for lifting the corporate veil. It may well be that if the test is satisfied, a subsidiary is a façade or a puppet of its parent company, but there is no legal principle that as such its corporate veil should be lifted in the absence of any evidence that the veil was used for any illegitimate purpose.  

54.In summary, the court will lift the corporate veil of a company if it is a façade or a puppet of the parent company used to perpetrate fraud or evade legal obligation and liability.  Fraud and concealment which may have such effect are valid grounds for lifting  the corporate veil.  That a company is a façade or a puppet of its parent company by itself is neither here nor there.  It is just some evidence from which the inference of illegitimate purpose may be drawn or on which to support a finding of the illegitimate purpose behind the façade.  Unless the use of a corporate veil for such illegitimate purpose is proved, the use of a façade or that a company is a puppet of its parent company without more does not justify lifting of the corporate veil.

Whether Winland has shown a good arguable case that the corporate veil of Acro Pharm should be lifted

55.Winland relies on WEX’s fraud, concealment, the façade and Acro Pharm as WEX’s puppet as separate grounds for lifting the corporate veil of Acro Pharm.      

56.In the re-amended statement of claim before Reyes J, fraud was not pleaded. Active concealment of a material fact, whether in whole or in part, may operate as a misrepresentation: Schneider v Heath (1813) 3 Camp 506.  However, non-disclosure of facts will not give a cause of action: Smith v Hughes (1871) LR 6 QB 597, unless there is a duty of disclosure, eg where there is a fiduciary relationship as in the case of a uberrimae fidei contract. Accepting that Nanning’s continued ownership of the China Patent is a material fact as it was cited in the recital of the Acro Pharm Agreement, but no such duty of disclosure was pleaded.  Concealment in the absence of a duty of disclosure does not amount to perpetrating fraud.  As was remarked by Reyes J in paragraph 22 of his judgment, “that may possibly found a distinct cause of action (presently unpleaded) against WEX for misrepresentation in breach of some alleged contractual or common law obligation owed by WEX to Winland”. Thus, what is left of Winland’s case for lifting the corporate veil is that Acro Pharm is a façade or WEX’s puppet for the purpose of evading WEX’s legal obligation and liability.

57.Mr Remedios argues rigorously that WEX dominated Acro Pharm’s finances and business and that the persons conducting Acro Pharm’s business were appointed and employed by WEX such that Acro Pharm has no separate will of its own.  This is disputed by Mr Carolan.    I do not find it necessary to go into those factual disputes for the purpose of this proceeding. According to Chow, the GlobalMed Agreement was negotiated along with and as part of the Share Purchase Agreement for WEX’s shares.  Acro Pharm was incorporated by WEX only after it was agreed to cancel the GlobalMed Agreement and to replace it with the Acro Pharm Agreement.  There is ample evidence from the documents issued by WEX, WEX HK and Acro Pharm that the performance of the Acro Pharm Agreement was carried out by the common staff of WEX and Acro Pharm who not only did not distinguish their capacity as staff of Acro Pharm but also dealt with matters relating to WEX’s business in the same correspondence, such as the value of WEX’s shares, placement of WEX’s shares and seeking approval from WEX in connection with the performance of the Acro Pharm Agreement.  Those documents are not conclusive, but are at least sufficient to demonstrate a good arguable case that Acro Pharm is a façade or a puppet of WEX.  But that alone is not sufficient.  Winland has to show it has an arguable case that the façade is used or Acro Pharm acted as WEX’s puppet to cloak the fact that in truth the Acro Pharm Agreement and its business was carried on by WEX to evade its legal obligation and liability.

58.Mr Remedios relies on a letter from WEX to GlobalMed dated 30 April 2003 cancelling WEX’s distributorship agreement with GlobalMed at the same time when the GlobalMed Agreement with Winland was terminated.  The letter was issued three weeks before the signing of the Acro Pharm Agreement.  He raises the novel argument that as no similar distributorship agreement between WEX and Acro Pharm was disclosed, no such agreement existed and the replacement of the GlobalMed Agreement by the Acro Pharm Agreement was arranged for the purpose of evading WEX’s legal obligation in the case of Acro Pharm’s breach of the Acro Pharm Agreement.  He argues that with the loss of the China Patent, WEX was unable to manufacture Tetrodin to supply to Winland and would be in breach of the GlobalMed Agreement.  GlobalMed would be wound up if sued by Winland and its liquidator would seek to recover damages from WEX, but in the absence of a similar distributorship agreement between WEX and Acro Pharm, Acro Pharm would have no recourse against WEX.  This is an extremely strained argument.  Mr Carolan replies that under that scenario the liability which WEX could evade would be its liability to GlobalMed and not liability to Winland.  That would be a matter between WEX and its subsidiaries and could not justify lifting the corporate veil.  Apart from this theoretical difficulty, Mr Carolan argues that the Acro Pharm Agreement and the GlobalMed Agreement are in similar terms and there are similar recitals to the effect that WEX, Nanning and Acro Pharm or GlobalMed had distribution rights in Tetrodin.  Accordingly, WEX’s position would not be in any way improved by replacing the GlobalMed Agreement with the Acro Pharm Agreement.  I agree.  The present case is on all fours with China Ocean Shipping Co. Prior to the signing of the Acro Pharm Agreement, Acro Pharm and, for that matter, WEX had no obligation or liability towards Winland to evade.  GlobalMed may have obligation or liability towards Winland under the GlobalMed Agreement which was discharged by the Acro Pharm Agreement, but it is not Winland’s pleaded case that GlobalMed was also a façade used in conjunction with any illegitimate purpose of Acro Pharm or WEX. 

59.Winland is seemingly aggrieved by the learned judge’s rejection of its case of active concealment based on the statements contained in WEX’s annual reports and other public announcements. In the light of the new evidence, the learned judge might have been misled by those statements. But even if was not so misled, he could not have reached any other conclusion as he was bound by Winland’s case for lifting the corporate veil as presented before the master and by its pleaded case in the re-amended statement of claim.  Paragraph 22 of his judgment shows that Reyes J was conscious of Winland’s complaint of non-disclosure, but he had to remind himself that the issue was unpleaded.  In the light of the constraint before him, the learned judge succinctly summarised Winland’s case in paragraph 23 of his judgment as follows:

“23. At the end of the day, Winland’s case against WEX boils down to little more than that Acro Pharm is a wholly-owned subsidiary of WEX. That bare fact is insufficient to found a piercing of the corporate veil so as to treat Acro Pharm and WEX as one and the same. That Acro Pharm may not have had offices or staff of its own, or may have relied for its decision-making on persons who were incidentally also officers of WEX, is neither here nor there. Many subsidiaries of multi-national corporations operate on a similar basis.”

The learned judge then reached the conclusion, with which this court agrees, that on the basis of Winland’s case as pleaded in the re-amended statement of claim before Reyes J or the original statement of claim before the master there is no valid ground for lifting the corporate veil.  

Whether there is a serious issue to be tried

60.Having reached the conclusion above, it would be futile to investigate if there is a serious issue to be tried. In the light of the pleadings as they now stand, the issue has been well argued by Mr Remedios as against Acro Pharm but not as against WEX.

Conclusion

61.Winland obtained leave from the master pursuant to Order 11 to issue a writ out of the jurisdiction on WEX on the basis of some inadequately pleaded grounds for lifting the corporate veil of Acro Pharm.  When an application is made by a defendant pursuant to Order 12 rule 8 to discharge the order granting leave to serve out, the plaintiff may not put forward a different case to justify the grant of leave.  It is therefore not permissible for Winland to advance a case of fraudulent concealment before Reyes J and again before this court in support of its application for leave which is profoundly different from that which was before Master de Souza upon the original application. 

62.As the new evidence which Winland seeks to adduce is to support its case of fraudulent concealment which it is not permitted to argue on this appeal, the new evidence is irrelevant and will not have any influence on the result of this appeal.  Accordingly, leave to adduce the new evidence is refused.

63.Winland relied on WEX’s fraud, concealment, and the use of Acro Pharm as a façade and its puppet as grounds for lifting the corporate veil of Acro Pharm.  It is not open to Winland to present a case based on fraud and concealment on this appeal, which in any event was not pleaded or not adequately pleaded.  Winland also failed to show that WEX’s use Acro Pharm as a façade and as its puppet was to cloak the fact that the Acro Pharm Agreement and its business was carried on by WEX to evade its legal obligation and liability.  In the circumstances, Reyes J was right in not exercising the court’s power to lift the corporate veil of Acro Pharm and in setting aside the leave to serve out granted by the master. 

64.Accordingly, this appeal is dismissed with costs against the plaintiff.

Mr Leo Remedios, instructed by Bernard Wong & Co, for the plaintiff (appellant)

Mr Paul Carolan, instructed by Baker & McKenzie, for the 1^st and 2^nd defendants (1^st and 2^nd respondents)