Hotung Investment (China) Ltd v. Ernst & Young (Sued As a Firm) and Others

CACV 271/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 271 OF 2011

(ON APPEAL FROM HCA NO. 2376 OF 2009)

________________________

BETWEEN

________________________

Before: Hon Kwan and Lam JJA in Court

Date of Hearing: 16 October 2012

Date of Judgment: 1 November 2012

________________________

J U D G M E N T

________________________

Hon Kwan JA:

1.This is the defendants’ appeal against Yam J’s refusal on 7 September 2011 to strike out the plaintiff’s claim, or to order a trial of preliminary issues, or to determine the issues raised under Order 14A of the Rules of the High Court. The appeal is brought with leave granted by Tang VP on 9 December 2011. The primary contention of the defendants is that the plaintiff’s claim is time-barred.

Background

2.The relevant background matters may first be stated as follows.

3.Eric Edward Hotung (“EEH”) was the settlor of two trusts in 1979 to 1980, one in favour of his three younger sons, Eric, Sean and Anthony with Madam Ho Yuen Ki Winnie as the trustee (“the Ho Trust”), and the other in favour of his three daughters, Mara, Gabrielle and Sheridan with Hillhead Limited, the 2^nd defendant herein, as the trustee (“the Hillhead Trust”) (collectively “the Trusts”).  The 2^nd defendant was a service company of Ernst & Young, the 1^st defendant herein.  The 3^rd defendant, Ronald Ho, a nephew of EEH, was a partner of the 1^st defendant and a director of the 2^nd defendant.

4.The assets of the Trusts are 20,004 shares in Hotung Enterprises Limited (“HEL”) and six shares in Hotung Investment (China) Limited, the plaintiff herein.  HEL held 93.75% of the shares in the plaintiff.  The remaining 6.25% of the shares in the plaintiff were held by the trustees, namely, Madam Ho Yuen Ki and the 2^nd defendant.  At all material times while the three sons and three daughters held the beneficial interest in the plaintiff, the legal interest in the plaintiff was held by the trustees, whether directly or indirectly through HEL.

5.It is alleged that Sean and his siblings were not aware of their beneficial interests in the plaintiff and HEL until around 1998.  They attempted to assert their beneficial interests from 1998 onwards but were obstructed by EEH through a lengthy series of litigation, in particular HCA 571 of 2003, an action brought by EEH against Sean, three of his siblings and the trustees of the Trusts seeking relief that the Trusts were revocable.  On 4 March 2005, judgment was given in that action dismissing EEH’s claim and confirming the beneficial interests of Sean and his siblings in the Trusts.

6.In 2002, Mara and Sheridan transferred their interest in the Hillhead Trust to Sean.  In July 2007, Sean was appointed to the plaintiff’s board of directors and thereby gained control of the plaintiff.

7.The plaintiff was and is engaged in the business of investment and property holding.  It acquired properties Kam Chin Village, Sheung Shui, New Territories (“the NT Properties”) in 1991.  The value of the NT Properties as stated in the plaintiff’s audited accounts for the year ended 31 March 1998 was $23.8 million.  The NT Properties were adjoined to other plots of land (“the Adjacent Lands”) owned and controlled by EEH and Hotung Estates Limited (“Hotung Estates”, a company owned and controlled by EEH).  In December 1998, the plaintiff assigned the NT Properties to Hotung Estates for $17.5 million.  The sale was sanctioned by two of the plaintiff’s directors, Joseph Gregory Hitselberger (“JGH”) and Song Fok Tek Frank (“SFT”).  EEH, who was also a director of the plaintiff at the time, declared his interest in Hotung Estates and did not vote at the board meeting in which the resolution was passed.

8.On 17 April 2000, the combined land made up of the NT Properties and the Adjacent Lands (of which the NT Properties formed 33%) was sold by Hotung Estates for a consideration of $204.3 million.

9.It is alleged in the statement of claim that the sale of the NT Properties for $17.5 million was at a gross undervalue, in that it did not reflect any premium and enhancement in value of the NT Properties and the combined land from the merger of the adjoining lots.  The directors who sanctioned the sale were in breach of their fiduciary duties to the plaintiff, as they knew or must have known that the NT Properties were sold at a gross undervalue.

The plaintiff’s case against the defendants as pleaded

10.The only cause of action pleaded against the defendants is dishonest assistance[1].  It is alleged in the statement of claim that the 3^rd defendant dishonestly assisted the breaches of duty of the plaintiff’s directors and is liable to account to the plaintiff as constructive trustee.  The 1^st defendant is vicariously liable for the 3^rd defendant’s dishonest assistance by virtue of section 12 of the Partnership Ordinance, Cap 38 and the 2^nd defendant is also vicariously liable as the 3^rd defendant in committing the acts of dishonest assistance was acting as a director and agent of the 2^nd defendant.

11.The acts of dishonest assistance of the 3^rd defendant took the form of false and misleading representations to Mara, Gabrielle and Sheridan from early 1998 to late 1998, in the period immediately preceding the sale of the NT Properties, with the intention and effect of diverting attention away from, covering up, and/or concealing the sale of the NT Properties at a gross undervalue[2].  The key paragraphs are paragraphs 24 and 25 of the statement of claim.  As pleaded, the two false representations were:

(1)  In about April 1998[3], the 3^rd defendant falsely represented to Mara, Gabrielle and Sheridan that HEL (as opposed to Hotung Estates) intended to acquire properties in the New Territories of approximately 200,000 sq ft in size for investment purposes.  The 3^rd defendant was referring to the portion of the Adjacent Lands as the properties to be acquired.  This representation was primarily made in written form by the 3^rd defendant by a draft letter dated 29 April 1998 addressed to the 3^rd defendant by Mara, Gabrielle and Sheridan, which was prepared by the 3^rd defendant and sent to Gabrielle and Sheridan by EEH’s personal assistant Mrs Patricia Will[4] and/or Mara.

(2)  The 3^rd defendant falsely represented that certain procedures were required for the acquisition of properties in the New Territories of approximately 200,000 sq ft in size, namely, the issuance of new shares of HEL, and the issuance of blank transfer forms to replace originals from when Mara, Gabrielle and Sheridan first acquired their beneficial interest in HEL that were mislaid or lost.  This representation was made in or about August 1998 when the 3^rd defendant prepared an indemnity purportedly for the purpose of issuing replacement blank transfer forms, which was then sent to Mara, Gabrielle and Sheridan by Mrs Will.  The indemnity was meant to be and was in fact signed and returned to the 3^rd defendant by Mara, Gabrielle and Sheridan[5].

12.It is alleged that the effect of these representations by the 3^rd defendant was to mislead Mara, Gabrielle and Sheridan that HEL and the plaintiff were being properly managed in their best interests, causing them to refrain from immediately asserting their beneficial rights and/or inquiring into the plaintiff’s affairs which they otherwise would likely have done and which could have exposed the sale of the NT Properties at a gross undervalue[6].

13.The dishonesty of the 3^rd defendant is to be inferred from his knowledge of various matters and his acts[7].  The salient ones are his knowledge of EEH’s intentions to unite the NT Properties and the Adjacent Lands and that EEH had no reason to transfer the portion of the Adjacent Lands held by him to HEL; that there never existed any original blank transfer forms when Mara, Gabrielle and Sheridan first acquired their beneficial interests in HEL; that the NT Properties were valued in the plaintiff’s audited accounts at a price substantially higher than $17.5 million; and that he had failed to cause the 2^nd defendant to take any action to prevent the sale, to make inquiries as to the true value of the NT Properties, to advise or alert Mara, Gabrielle and Sheridan to make inquiries or obtain independent advice.

14.The plaintiff relies on section 26(1)(a), (1)(b) and (3) of the Limitation Ordinance, Cap 347[8] to postpone any applicable limitation period on the basis of the defendants’ fraud and/or on the basis that the relevant defendants by committing the deliberate breaches of duty in circumstances where they are unlikely to be discovered for some time caused facts relevant to the plaintiff’s action to be concealed[9].  The “defendants’ fraud”, “the facts relevant to the plaintiff’s right of action” allegedly to be deliberately concealed from the plaintiff, and the “deliberate commission of a breach of duty” are the acts of dishonest assistance committed by the 3^rd defendant as stated earlier[10].  The natural person whose knowledge is alleged to constitute the plaintiff’s knowledge for the purposes of sections 26(1)(a), (1)(b) and (3) is Sean[11].  It is averred that the knowledge of the preceding directors, who were all involved in the wrongs committed against the plaintiff, is not attributable to the plaintiff[12].  The date on which the plaintiff discovered and could with reasonable diligence have discovered the alleged fraud was in November 2009[13].  So this action was brought within time as the writ was issued on 26 November 2009.

15.It is not in dispute that the limitation period for claims in dishonest assistance in breaches of duty is six years (Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139 at paras 19 to 24).  The cause of action in dishonest assistance would be statute-barred if it had accrued before 26 November 2003.  Given that the alleged acts of dishonest assistance took place in 1998, the plaintiff’s claim is prima facie time-barred unless its case falls within any statutory extension.  And once the defence of limitation is pleaded[14], the onus is on the plaintiff to prove that the cause of action accrued within the limitation period (Kensland Realty Ltd v Tai, Tang & Chong (2008) 11 HKCFAR 237 paras 67 and 153).

16.To ascertain whether the plaintiff’s claim is indeed time-barred, two matters arise for consideration:

(1)  how should section 26(1) be construed; should the knowledge of Gabrielle and Sheridan be attributed to the plaintiff for this purpose on the plaintiff’s own case (as contended by Mr Yu, SC for the defendants), or should the knowledge of Sean be attributed (as contended by Mr Barlow, SC for the plaintiff); and

(2)  if (1) is held in favour of the defendants, when did Gabrielle and Sheridan have the requisite knowledge or could have discovered the relevant matters with reasonable diligence.

The proper construction of section 26(1)

17.Mr Yu’s arguments for the defendants on the limitation issue may be stated as follows.

18.According to the plaintiff’s case as pleaded, the fraud and the facts said to be relevant to the plaintiff’s cause of action which have been concealed are the acts of dishonest assistance pleaded in paragraphs 24 and 25 of the statement of claim.  These paragraphs allege that the 3^rd defendant assisted in the breach of fiduciary duties by JGH and SFT by making false and misleading representations to Mara, Gabrielle and Sheridan from early 1998 to late 1998.  The plaintiff is suing the defendants for dishonest representations made to Gabrielle and Sheridan[15], which had the effect of causing Gabrielle and Sheridan not to take action earlier.  However, in the FBP, it is stated that the natural person whose knowledge is alleged to constitute the plaintiff’s knowledge for the purposes of sections 26(1)(a), (1)(b) and (3) is Sean.  This is a strange stance, as the plaintiff is relying on the alleged fraud or concealment perpetrated on Gabrielle and Sheridan, and then says that because a different person, Sean, did not know about it until 2007 or 2009, the limitation period did not start running until then.  In effect, it would mean that the plaintiff can have its cake and eat it.

19.Mr Yu made it clear it is not the defendants’ position that section 26(1) is properly engaged in this case, because the statement of claim does not plead any relevant fraud of the 3^rd defendant, which would have prevented the plaintiff from taking action.  Even if Gabrielle and Sheridan were deceived, it is difficult to see how their deception would have a causal connection to the inability of the plaintiff to sue.  It is not necessary for present purpose to resolve this, as the strike out application was taken out on the basis of the plaintiff’s own case that section 26(1) is engaged to postpone the limitation period.

20.Mr Yu argued that on the proper construction of section 26(1), if it is the plaintiff’s case that the limitation period should be suspended because a fraud or concealment was practised on Gabrielle and Sheridan, then when the effect of such fraud or concealment had ended (i.e. when Gabrielle and Sheridan had knowledge of the relevant facts or could with reasonable diligence have discovered them), time should start running again.  Section 26(1)(a), (b) and (c), which deals with the situation where time may be postponed in case of fraud, concealment or mistake, must be read with what he termed the “tail piece” (“the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it”).

21.This construction is most clearly borne out if one looks at section 26(1)(b).  This section can only be engaged if “any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant”.  The phrase “from him” must be a reference to the plaintiff.  And the reference to “the plaintiff” in the “tail piece” must be the same person as the person on whom the defendant has practised deliberate concealment.

22.In the context of this case, the core of the plaintiff’s complaint under section 26(1) is that the 3^rd defendant had perpetrated fraud on Gabrielle and Sheridan or concealed the facts relevant to the plaintiff’s right of action from them.  So for the plaintiff’s reliance on section 26(1)(a) or (b) to make sense, the plaintiff would necessarily have to say that the knowledge of Gabrielle and Sheridan should be attributed to the plaintiff.  Otherwise it would not be possible to sensibly say that there has been any deliberate concealment “from him”, i.e. the plaintiff.

23.Mr Barlow argued that section 26(1) should be construed purposively to import an underlying legislative policy that the limitation period is to be postponed in case of fraud, concealment or mistake until such time as the plaintiff discovered or should have with reasonable diligence have discovered the fraud, concealment or mistake, “so that the plaintiff thereafter has the opportunity to issue proceedings within the deferred limitation period”.  In the case of a company that was under the control of the defendants being sued, he submitted that the court should adopt a “nuanced” approach and strive to adopt a construction of section 26(1) that is consistent with the established principles of company law.  He contended that the plaintiff company does not “discover” the fraud, concealment or mistake and the effect of the fraud, concealment or mistake is not removed until the plaintiff is free from the control of the wrongdoers so that the company is able to act upon the requisite knowledge.

24.The dividing line between Mr Yu and Mr Barlow is that Mr Barlow contended that section 26(1) should be construed to postpone time where there is inability to sue in the case of a company controlled by wrongdoers.  Mr Barlow submitted that in this situation, the discovery of sufficient facts to start proceedings should be equated with the ability to bring proceedings.

25.It is common ground that when construing a provision of the Limitation Ordinance, it is the court’s duty to construe such provision so as to promote its underlying legislative policy (Kensland Realty Ltd , supra at 247H, para 2).  Both counsel have referred us to the words of Chan PJ at 254H, para 28, in which he stated that the purpose of having limitation provisions is “to ensure on the one hand, that a defendant is not unduly vexed by stale claims to his disadvantage particularly when the relevant evidence has been lost and the memory of the witnesses has failed; and on the other hand, that a plaintiff is not unfairly prejudiced by a lack of knowledge of the relevant facts required to bring a claim until after it is time barred”.

26.Mr Barlow referred us also to the judgment of Ribeiro PJ in Kensland Realty Ltd at paras 63, 73 and 94.  I am unable to see how these passages would provide support for his contention that section 26(1) should be construed to mean that time is to be postponed where the plaintiff is unable to bring proceedings, as the ability to bring proceedings was not the focus of the discussion in that case.

27.Mr Barlow submitted that the deception practised on Gabrielle and Sheridan as pleaded in paras 24 and 25 of the statement of claim resulted in the plaintiff not being in a position to bring proceedings until 2007 when Sean gained control of the plaintiff, but the knowledge of Gabrielle and Sheridan should not be attributed to the plaintiff as they were merely beneficial owners not registered shareholders.  I fail to see the reason or logic for this submission.

28.Mr Yu approached the construction of this provision from first principles.

29.The fact that a plaintiff did not know or could not, even with reasonable diligence, have discovered the essential facts for pleading a cause of action is not, on its own, sufficient to postpone the commencement of the limitation period.  Historically, section 26 was enacted to reflect the equitable principle that a statute should not be used as an engine of fraud and “deliberate concealment” was merely a species of fraud (Limitation Periods by Andrew McGee, 6^th ed (2010), paras 20-002 and 20.010).

30.To postpone time under section 26(1), the additional element of fraud, deliberate concealment or mistake must be shown.  Further, the postponement of the limitation period is only up to the time when the plaintiff has discovered, or could with reasonable diligence have discovered, the fraud, deliberate concealment or mistake (Cartledge v E Jopling & Sons Ltd [1963] AC 758 at 772, per Lord Reid).  The subsequent enactment of section 27 (which applies only to personal injuries claims) and section 31 (which applies to actions in negligence in respect of latent damages not involving personal injuries) does not alter the law in that the “undiscoverability” of the facts relevant to a cause of a action is not by itself sufficient to postpone the running of time.

31.Mr Yu referred to the locus classicus on the rules of attribution of a person’s knowledge to a company in the opinion of the Privy Council in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500.  As explained by Lord Hoffmann, there are three types of rules of attribution – primary (under a company’s constitution or rules of company law), general (under the principles of agency) and special (in which the court considers as a matter of interpretation that the particular substantive rule is intended to apply to companies and fashions a special rule of attribution).  In 507E to F, Lord Hoffman has this to say:

“This is always a matter of interpretation: given that it was intended to apply to a company, how was it intended to apply? Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company? One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.”

32.He submitted that in this instance, the special rule of attribution should be applied to the substantive rule in section 26(1) to attribute the knowledge of Gabrielle and Sheridan to the plaintiff, to give effect to the legislative policy, which is to ensure that a plaintiff is not prejudiced by any period of delay created by fraud, deliberate concealment or mistake, and which the plaintiff had not discovered or could not with reasonable diligence have discovered.

33.In his reasons for decision, Yam J said he does not have to decide if the knowledge of Gabrielle and Sheridan should be attributed to the plaintiff for the purpose of the limitation issue and then expressed a view that such knowledge should not be attributed.  He reasoned that “while it is true the entire pleaded case of the plaintiff rests on the acts done by [the 3^rd defendant] towards Gabrielle and Sheridan, one must not forget that the plaintiff in this action is a company.  The usual law regarding companies should still apply to the plaintiff and this rule should not be bent merely because the alleged mechanism for the fraud happens to involve 2 beneficiaries of the company.”[16]

34.I agree with Mr Yu that this is an error of law, for the reasons as he had submitted, which I find convincing.  The gravamen of the plaintiff’s complaint is that Gabrielle and Sheridan had been prevented by the alleged fraud or deliberate concealment of the 3^rd defendant from knowing the true facts, namely, that the NT Properties were sold at undervalue.  If the knowledge of Gabrielle and Sheridan cannot be regarded as the knowledge of the plaintiff, section 26(1) does not even become engaged.

35.Assuming that the knowledge of Gabrielle and Sheridan could be so regarded, time should run again when Gabrielle and Sheridan discovered, or could with reasonable diligence have discovered the alleged fraud or deliberate concealment.  And assuming section 26(1) could be engaged, in asking when the effect of the alleged fraud or deliberate concealment is removed, this must be when the truth was discovered, or could with reasonable diligence have been discovered by the same persons who were allegedly defrauded.  I agree with Mr Yu that any other construction would defeat the policy of the legislation.  This section is construed strictly against plaintiffs; it is for a plaintiff to establish that “he falls strictly and literally within the exception the benefit of which is given to him by this statute” (Chetham v Hoare (1870) 9 LR Eq 571 at 577).

36.Mr Barlow prayed in aid the decision of Yuen J (as she then was) in China Everbright-IHD Pacific Ltd v Ch’ng Poh, HCA 12837 of 1995, 27 February 2001.  The defendant in that case was in control of the plaintiff for a long time and in considering whether the plaintiff could have discovered the facts relevant to its claim with reasonable diligence for the purpose of section 26(1)(b), it was stated that this issue cannot be considered in a vacuum and it would be unreal to ignore the role the defendant played in the plaintiff throughout the years.  In concluding that the plaintiff could not have discovered with reasonable diligence the relevant facts six years before the issue of the writ, Yuen J was not concerned with the question whether the plaintiff had the capacity to bring proceedings.

37.Mr Barlow also cited Stone & Rolls Ltd v Moore Stephens [2009] 1 AC 1391, paras 39 to 43, 106, 134, 137, 144, 198 and 227.  The Hampshire Land principle (that a company will not have attributed to it an agent’s guilty knowledge of a fraud when that wrong is practised on the company itself as the wrongdoer could not be expected to disclose his own fault) discussed in Stone & Rolls Ltd has no bearing to the present situation.  The question considered in Stone & Rolls Ltd was whether the defence of ex turpi causa was available to the defendant and whether the plaintiff was entitled to bring the claim, notwithstanding that the person in control of the plaintiff at the material time was the fraudster.  It has no relevance to section 26(1) of the Limitation Ordinance.

38.I do not think the cases cited by Mr Barlow would support his propositions on the purposive construction of section 26(1) advanced by him.  I reject Mr Barlow’s submission on the construction of section 26(1).  This provision is directed at the knowledge of the plaintiff, not the ability to sue.  As pointed out by Mr Yu, extension of the limitation period in case of disability is found in other provisions, such as section 22.

When did Gabrielle and Sheridan discover, or could with reasonable diligence have discovered the fraud or deliberate concealment

39.I turn to consider when Gabrielle and Sheridan discovered, or could with reasonable diligence have discovered the alleged fraud or deliberate concealment.  It is not necessary to be drawn into the dispute whether Mr Barlow had made a concession before Yam J that, assuming it was Gabrielle and Sheridan’s knowledge which was relevant, then they had (or could have with reasonable diligence) discovered the alleged fraud before November 2003.

40.Mr Yu referred us to the relevant documentary evidence showing that Gabrielle and Sheridan clearly had the requisite knowledge more than six years before the issue of the writ in November 2009.  This evidence may be summarised as follows:

(1)  Gabrielle had written a fax to her mother dated 14 May 2002 alleging that EEH had “undersold” the land in the New Territories shortly after she signed the letter in April 1998.

(2)  On 20 December 2002, Gabrielle wrote to Mr Peter Vine in respect of the letter addressed to the 3^rd defendant dated 29 April 1998 (alleged to be drafted by the 3^rd defendant containing a false representation) stating that “it has now come to my attention that I was purposely misled” and requesting for all the correspondence and documents on the file.

(3)  On 6 January 2003, Gabrielle wrote a letter addressed to “To whom it may concern” complaining that the land in the New Territories held in trust for her and her two sisters had been sold and she did not know where the proceeds went and that “the [Hillhead] Trust was intended to benefit the beneficiaries, however, it appears that special interests have adopted it as a vehicle for other purposes”.

(4)  Sheridan also wrote a letter on 8 January 2003 addressed to “To whom it may concern” complaining that EEH refused to answer any questions about the land she beneficially owned and EEH and her brother Michael resorted to threatening and bullying her to get her to sign the letter addressed to the 3^rd defendant dated 29 April 1998.  Sheridan repeated this complaint in her witness statement in HCA 571 of 2003 dated 10 October 2003 (more than six years before the writ was issued in this action).

(5)  Gabrielle made a witness statement in HCA 571 of 2003 dated 29 September 2003, adopting her letter dated 6 January 2003 addressed to “To whom it may concern”.

41.Neither Gabrielle nor Sheridan has filed any affidavit in this application denying their past letters and statements.

42.Mr Yu submitted it is clear from the above that Gabrielle and Sheridan knew, or could with reasonable diligence have discovered, that the transaction contemplated in the letter dated 29 April 1998 did not proceed, and that EEH was dealing with the land without reference to them.  Further, with reasonable diligence, they could have found out the price at which the land was sold from the Land Registry, and whether it was at fair value.

43.Yam J took the view that the defendants should still fail in their application to strike out the plaintiff’s claim notwithstanding the evidence before him.  His reasoning was as follows:

“Admittedly, those witness statements are strong evidence that tend to suggest that Gabrielle and Sheridan had knowledge of, or suspected the fraud in the sale of the NT Properties as early as 2002, despite Mr Barlow’s best attempt to disavow them. However the threshold for a striking-out application is high, requiring the applicant to make out a “plain and obvious case.” In my judgment, these witness statements do not support such a case as it is still open for Gabrielle and Sheridan to challenge the validity of these statements. It is also open to the plaintiff to adduce extrinsic evidence to prove that Gabrielle and Sheridan did not in fact have such knowledge and suspicion.”[17]

44.The judge has plainly fallen into error.  There is no evidence before him to contradict the letters and witness statements of Gabrielle and Sheridan, which are clear and unequivocal.  There is no basis for his conjecture that Gabrielle and Sheridan might wish to challenge their own statements, or his speculation that there might be extrinsic evidence that could be adduced to contradict the existing evidence of Gabrielle and Sheridan.  Mr Barlow submitted that it would not be right to reach a conclusion on this issue without the benefit of examination or cross-examination of Gabrielle and Sheridan and without consideration of other relevant documents.  The fact remains that the plaintiff has been given opportunity to adduce evidence from Gabrielle and Sheridan to contradict or explain their earlier statements and that opportunity was not taken.  Nor was it shown what other documents would have shown that Gabrielle and Sheridan did not have the requisite knowledge or could not have discovered the facts relevant to the plaintiff’s claim with reasonable diligence.  On the existing evidence, one cannot escape from the conclusion that Gabrielle and Sheridan had the requisite knowledge or could have discovered the relevant facts with reasonable diligence more than six years before the commencement of proceedings.

45.I am satisfied the defendants have made out a plain and obvious case that the plaintiff’s claim against them is time-barred.  As stated in Kensland Realty Ltd, supra at 286C, para 141, the court should accede to an application for striking out where the materials available are sufficient and the facts are unequivocal.

No connection between the dishonest assistance and breach of duty

46.I propose to deal with the defendants’ submission on this shortly, as the conclusion I have reached on the limitation issue is sufficient to dispose of this appeal.

47.The point taken by the defendants is that the alleged dishonest assistance of the 3^rd defendant in April and June 1998[18] (in preparing the draft letter dated 29 April 1998 and in preparing an indemnity for issuing replacement blank transfer forms in June 1998) could not have assisted the alleged breaches of fiduciary duty of the plaintiff’s directors in approving the sale in November 1998.  So these documents prepared by the 3^rd defendant would not have amounted to assistance of the approval to dispose of the NT Properties.

48.The plaintiff pleaded its case of the circumstances in which the 3^rd defendant came to prepare the draft letter and the blank indemnity more fully in the reply[19].  It was alleged that EEH became concerned in the beginning of 1998 that Gabrielle and Sheridan would interfere with or derail his plan to have the NT Properties transferred to Hotung Estates and had expressed these concerns to the 3^rd defendant, asking the 3^rd defendant to advise and assist Mrs Will and it was in that context that the 3^rd defendant prepared the documents in question.

49.In view of this further pleading, I do not think it has been shown there could be no connection between the dishonest assistance and the subsequent breach of duty of the plaintiff’s directors in approving the sale.  I would decline to strike out the plaintiff’s claim on this ground.

Conclusion

50.For the above reasons, I would allow the defendants’ appeal and order that the plaintiff’s claim against the defendants be struck out.  I would make an order nisi that the plaintiff should pay the defendants’ costs of this appeal and the costs below, with certificate for two counsel.

Hon Lam JA:

51.I agree with the judgment of Kwan JA.  I would add some observations on China Everbright-IHD Pacific Limited v Ch’ng Poh, supra.  In that case, Yuen J (as she then was) made a specific finding that the defendant had deliberately concealed his participation in a conspiracy against the plaintiff company.  The conspiracy was one of the causes of action of the plaintiff in the case.  The evidence specifically supporting such finding was an affirmation made by the defendant in an earlier action.  This was considered together with the fact that the defendant was in control of the plaintiff and its legal actions, constant turnover in memberships of the board of directors of the plaintiff, and the defendant’s position as controlling shareholder.  It was against these circumstances that Yuen J went on to make a finding that the plaintiff could not with reasonable diligence have discovered the concealment which was upheld on appeal, see the judgment of the Court of Appeal in CACV 513 of 2001, 19 Feb 2002, paras 75 to 80.

52.In contrast, as submitted by Mr Yu, there is nothing to suggest that sale at gross undervalue was concealed from the Plaintiff.  On Mr Barlow’s own case, the knowledge of Mara, Gabrielle and Sheridan was not the knowledge of the Plaintiff.  They were neither shareholders nor directors nor agents of the Plaintiff.  Mr Barlow did not contend that there was any special rule of attribution which should attribute their ignorance to the Plaintiff.  Actually, he contended otherwise.

53.Thus, there was no relevant concealment under Section 26(1)(b).

54.Mr Barlow also relied on Section 26(1)(a) and contended that the action is based upon the fraud of the Defendants.  The alleged fraud is the acts of dishonest assistance in terms of the false representations made to Gabrielle and Sheridan.  It is alleged that the representations were made dishonestly.  I shall proceed on the basis that the Plaintiff has an arguable case under Section 26(1)(a).  It still has to show that it could not with reasonable diligence have discovered the same until less than 6 years before the issue of the writ.

55.In this respect, Mr Barlow relied on China Everbright-IHD Pacific Limited v Ch’ng Poh, supra, to contend that the Plaintiff could not, even with reasonable diligence, have discovered the alleged fraud until Sean assumed control over the Plaintiff.  As mentioned above, China Everbright-IHD Pacific Limited v Ch’ng Poh was a case about deliberate concealment and the finding of Yuen J was made in respect of the timing when the plaintiff company could have discovered the concealment.  But there is no relevant concealment in the present case.  Is there any other reason to hold that the Plaintiff could not have discovered the alleged fraud before Sean assumed control?

56.It is important not to conflate this last question with another question: whether the Plaintiff’s failure to issue a writ until Sean assumed control was due to the control of the company by alleged wrongdoers.  Section 26 only postpones the running of limitation period when the fraud was not discovered.  It does not postpone the running of limitation period when a company took no action due to reasons other than lack of knowledge of the fraud.  China Everbright-IHD Pacific Limited v Ch’ng Poh did not decide otherwise.

57.For the reasons already canvassed by Kwan JA, Mr Barlow’s construction of Section 26 must be rejected.  In my view, counsel’s approach is a re-writing of Section 26 instead of construing it.

58.Mr Yu’s submission (which is accepted by Kwan JA) is that if the discovery of fraud were to be deferred by reason of the false representations made to Gabrielle and Sheridan, Section 26 should be construed as giving rise to a rule of special attribution so that the fraud must be taken as discovered when the effect of the false representations was dispelled.  Subject to what I shall say below, I agree with this approach.  As Mr Yu submitted in the course of the hearing, to hold otherwise would mean that no matter how soon after the false representation were Gabrielle and Sheridan disabused as to the true position (Mr Yu gave the extreme hypothetical example of 1 day), the limitation period would still be postponed until Sean got the control of the Plaintiff.  It is difficult to see how such a result could be consistent with the policy underlying the Limitation Ordinance and Section 26.

59.This extreme example can also illustrate the distinction at para 56 above.  No matter what the position was prior to the discovery of the true position by Gabrielle and Sheridan, the non-action by the Plaintiff after that was not due to any non-discovery of the fraud.  Rather, on Mr Barlow’s case, it was due to the control of the Plaintiff by EEH.  And that was not a ground for the postponement of limitation period under Section 26.

60.One can actually take one step further.  Even prior to the discovery of the true position by Gabrielle and Sheridan, since they were not the Plaintiff and their knowledge were not attributed as the knowledge of the Plaintiff on any one of the bases discussed in Meridian Global Funds Management Asia Ltd v Securities Commission, supra, the fraud had always been within the knowledge of those responsible for the management of the Plaintiff. On that analysis, there would not be any postponement under Section 26.

61.In the present case, Mr Yu does not need to go that far.  This is because, as held by Kwan JA, the Plaintiff did not adduce any evidence to contradict the defendants’ evidence on the date of acquisition of knowledge of the true position by Gabrielle and Sheridan.

62.I also agree with the order proposed by Kwan JA at para 50.

Mr Barrie Barlow SC, instructed by Reimer & Partners, for the Plaintiff / Respondent

Mr Benjamin Yu SC & Mr Bernard Man, instructed by Simmons & Simmons, for the 1^st to 3^rd Defendants / Appellants

Please refer to FAMV24/2013 for the relevant appeal(s) to the Court of Final Appeal.