Read the full judgment text of CACV 242/2011, CACV 243/2011 & CACV 275/2011 on BabelCite. This Court of Appeal judgment was delivered on 3 August 2012 before Kwan JA, Fok JA and Lam J.
Civil procedure – amendment of pleadings – new cause of action – relation-back rule under s.35(1)(b) of the Limitation Ordinance (Cap 347) – extended limitation period under s.26(1) – reasonably arguable limitation defence – Welsh Development Agency v Redpath Dorman Long Ltd – Sun Focus Investment Ltd v Tang Shing Bor – Extramoney Ltd v Chan, Lai, Pang & Co – reflective loss rule – Johnson v Gore Wood & Co – Waddington Ltd v Chan Chun Hoo – costs of amendment application – oral guarantee and collateral contract – 40% JVC shareholding – US$3 million capital contribution – 20% shareholder of JVC – fraudulent concealment of beneficial interest – TAC declaration of trust – certificate for two counsel – Fattal v Walbrook Trustees (Jersey) Ltd – leave to bring fresh action. The 1st and 2nd plaintiffs claimed breach of an oral guarantee and an oral collateral contract and warranty given by the defendant in July to August 2001 to transfer its 40% shareholding in a PRC joint venture company (JVC) if Whirlwind and Cheng failed to perform obligations under a separate share sale. The 3rd plaintiff claimed US$3 million in outstanding capital contribution to the JVC. In its September 2008 defence, the defendant disclosed for the first time that it had transferred its 40% JVC shares to TAC in April 1998 and held only legal title, prompting the plaintiffs to seek to amend to plead a new claim of fraud or deceit. The defendant contended the plaintiffs knew of the alleged fraud no later than 2002. Held, allowing the defendant's appeals in CACV 243/2011 and CACV 275/2011; dismissing the plaintiffs' appeal in CACV 242/2011: (1) The proper approach to amendments adding new claims arguably time-barred is that of Welsh Development Agency v Redpath Dorman Long Ltd and the Court of Appeal's decision in Sun Focus Investment Ltd v Tang Shing Bor — leave to amend should not be granted where the defendant has a reasonably arguable limitation defence, which would be lost through the operation of the relation-back rule in s.35(1)(b) of the Limitation Ordinance (Cap 347). The contrary approach in Extramoney Ltd v Chan, Lai, Pang & Co of allowing amendment and leaving limitation as a live issue at trial is incorrect and did not consider the relation-back rule. (2) The plaintiffs have not established that the defendant has no reasonably arguable limitation defence to the new fraud claim. The fact that s.26(1) was relied upon from the start of the original action does not distinguish Sun Focus Investment, as s.26(1) is itself disputed. Reliance on s.26(1) does not avoid the need to show no reasonably arguable limitation defence (following Fattal v Walbrook Trustees (Jersey) Ltd). (3) The 3rd plaintiff's claim for damages, framed as a personal action under the JVC contract and memorandum, was barred by the reflective loss rule; the alleged losses as a 20% shareholder of the JVC were merely reflective of the JVC's own losses and not recoverable by the shareholder (applying Johnson v Gore Wood & Co and Waddington Ltd v Chan Chun Hoo). (4) The plaintiffs' appeal against the costs order below was dismissed, as the judge was in error in granting leave to amend and the costs arguments were no longer open to them. (5) The court refused leave to amend and, since the draft also sought to resurrect claims previously struck out, dismissed the action of the 1st to 3rd plaintiffs against the defendant. (6) Costs of the appeals to follow the event; order nisi that the plaintiffs pay the defendant's costs with a certificate for two counsel; 1st and 2nd plaintiffs at liberty to issue a fresh writ for the new fraud claim.
Legal issues: Whether leave to amend should be granted to add a new fraud claim arguably time-barred · Whether the 3rd plaintiff's claim for damages is barred by the reflective loss rule · Whether the costs order below awarding costs to the defendant should be disturbed
Outcome: Defendant's appeals in CACV 243/2011 and CACV 275/2011 allowed; plaintiffs' appeal in CACV 242/2011 dismissed. Order granting leave to amend set aside; action of the 1st to 3rd plaintiffs against the defendant dismissed
Cites 6 cases