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China Medical Technologies, Inc. (In Liquidation) v Bank Of China (Hong Kong) Ltd

Judgment Cited authorities 4 Cited in 1 Precedent Map Related
Vincent
Judgment Date22 September 2020
Neutral Citation[2020] HKCFA 28
Year2020
Judgement NumberFAMV239/2019
Subject MatterMiscellaneous Proceedings (Civil)
CourtCourt of Final Appeal (Hong Kong)
FAMV239/2019 CHINA MEDICAL TECHNOLOGIES, INC. (IN LIQUIDATION) v. BANK OF CHINA (HONG KONG) LTD

FAMV No. 239 of 2019

[2020] HKCFA 28

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 239 OF 2019 (CIVIL)

(ON APPLICATION FOR LEAVE TO APPEAL

FROM CACV NO. 320 OF 2018)

___________________________

BETWEEN
CHINA MEDICAL TECHNOLOGIES, INC. (IN LIQUIDATION) Plaintiff
(Applicant)
and
BANK OF CHINA (HONG KONG) LIMITED Defendant
(Respondent)

___________________________

Appeal Committee: Mr Justice Ribeiro PJ, Mr Justice Fok PJ and Mr Justice Cheung PJ
Date of Hearing and Determination: 17 September 2020
Date of Reasons for Determination: 22 September 2020

________________________________

REASONS FOR DETERMINATION

________________________________

Mr Justice Fok PJ:

1. We dismissed this application for leave to appeal at the conclusion of the hearing and indicated that we would hand down our reasons for doing so in due course, which we now do.

Background

2. The present application arises out of an action commenced by writ issued on 2 December 2014 by the liquidators of the plaintiff company.

3. The plaintiff was ordered to be wound up in the Cayman Islands in 2012 and an ancillary winding-up order was made in Hong Kong in 2014. The plaintiff was insolvent and investigations suggested the company’s management had perpetrated a fraud on it by misappropriating about US$355.5m of the plaintiff’s funds by acquiring worthless medical technology. It was suggested by the liquidators that between 3 November 2006 and 4 December 2009, funds in this amount were apparently transferred from the plaintiff’s account with the defendant to accounts held by a company called Supreme Well Investments Limited with the defendant and Bank of East Asia.

4. The liquidators not knowing if there was a viable claim against the defendant, the writ was issued as a purely protective measure to preserve the position claiming damages for breach of contract, and equitable compensation for dishonest assistance, knowing receipt and breach of tortious, equitable, fiduciary, statutory, regulatory and other duties, and repayment or restitution of the plaintiff’s funds. After the causes of action pleaded in the generally endorsed writ, the liquidators expressly pleaded that:

“THIS WRIT is issued solely for the purpose of preserving the claims identified above in light of the pending expiry of possible limitation periods. For the avoidance of doubt, the Plaintiff has made no decision as to whether or not it will pursue the claims. Any decision as to whether or not the Plaintiff will pursue these claims is subject to further and on-going investigations by the Joint Official Liquidators of the Plaintiff appointed by the Grand Court of the Cayman Islands and the Provisional Liquidators of the Plaintiff appointed by the High Court of Hong Kong and the outcome of those investigations.

To the extent that any prima facie limitation periods relating to the claims set out herein have expired, and in circumstances where the Plaintiff only obtained knowledge of the claims in February 2014, the Plaintiff intends to rely on provisions of the Limitation Ordinance (Cap.347) either directly or by analogy to extend the relevant limitation period.”

5. For the reasons explained below, the writ was not served within its original period of validity (1 December 2015). On 30 November 2015, the liquidators applied ex parte for an extension of the validity of the writ for a further 12 months. On 7 December 2015, Master J. Wong extended the validity of the writ (to 1 December 2016). On 29 November 2016, the liquidators took steps to serve the writ on the defendant. Effective service is disputed.

6. On 20 June 2018, on the application of the defendant, Au Yeung J set aside the extension order, set aside service of the writ and dismissed the action against the defendant.[1] The liquidators’ appeal against the orders of Au Yeung J was dismissed by the Court of Appeal on 22 March 2019.[2] The Court of Appeal refused to grant leave to the liquidators to appeal to the Court of Final Appeal.[3]

7. The ex parte application for an extension of the validity of the writ was made one day before its expiry, on 30 November 2015. It was supported by an affidavit of one of the joint liquidators of the plaintiff, Mr Cosimo Borrelli. He stated that the liquidators were still not in a position to decide whether to pursue any claims against the Defendant[4] and explained that they had been pursuing documents from the defendant and the Bank of East Asia and that they had also issued a summons seeking a court order against both banks pursuant to s.221 of the Companies Ordinance (Cap.32) to compel them to produce documents and for the examination of various members of their staff. He further explained that this summons had been heard before Harris J on 12 August and 16 and 17 September 2015 and that judgment was reserved.

8. On 15 December 2015, after the validity of the writ had been extended by the master, Harris J handed down his judgment dismissing the plaintiff’s s.221 application but ordering interrogatories to be served on the defendant’s employees.[5] He accepted “that the Liquidators would prefer to obtain further information if possible before deciding how to proceed, but in my view it is not necessary. They have such information as they reasonably need to make an informed decision.”[6] He also held “[t]he Liquidators do not need any more information in order to decide whether or not they have a viable claim.”[7]

9. Harris J granted the liquidators leave to appeal on an issue of construction of s.221(3) of the Companies Ordinance (Cap.32) but refused leave in respect of further grounds. On 3 November 2016, the Court of Appeal refused the liquidators’ application for leave to appeal on those further grounds, holding that the judge had properly taken into account the nature of the plaintiff’s claims and the matters that would need to be proved but concluded that “the material that the liquidators had already obtained … was sufficient to enable the liquidators to make a sufficiently informed decision as to whether or not to commence proceedings (or, in this case, to press forward with the protective writs that had been issued).”[8]

10. It was only after this refusal of leave to appeal that the liquidators sought to proceed with the action by purporting to serve the writ on the defendant. This they sought to do by personal service and by post.

11. It was in these circumstances that the matter came before Au Yeung J on the setting aside application taken out by the Defendant. For present purposes, there are three aspects of her judgment that are relevant:

(1) First, her Ladyship held that there was good reason for the liquidators to choose not to serve the writ during its first 12 months of validity and to apply for an extension thereafter. But she went on to hold that the court could take into account evidence and facts that occurred after the order to extend the validity of the writ had been made by the master. She referred to Harris J’s judgment and held that it “answered the purpose of the Liquidators’ investigations – to decide the viability of the claim against BOC. … There were thus no good reasons to extend the Writ on the date the Extension Order was made.”[9] She held that “there were matters capable of being good reasons at the time of the Extension Order. However, those matters have turned out to be not good reasons because of Harris J’s judgment.” [10] Elsewhere she described the good reason as having been “wiped out”.[11]

(2) Secondly, her Ladyship held that the liquidators had been guilty of material non-disclosure in relation to the limitation periods for the claims. There were 10 payments said to constitute the underlying claims against the defendant. In his affidavit, Mr Borrelli gave the impression that the limitation period for all the claims had not expired when the writ was issued.[12] However, six of the payments were made more than six years before the date of the issue of the writ and were therefore prima facie already time-barred at that date. Her Ladyship held that the liquidators “misled the Master into believing that the Plaintiff would be denied an unexpired claim as large as US$355.5 million if the Writ was not extended”[13] and concluded there was material non-disclosure and misrepresentation of the limitation issues before the master which she described as “serious and egregious”.[14] She declined to exercise her discretion to re-grant the extension order.[15]

(3) Thirdly, in relation to service of the writ, her Ladyship held that the writ had not been left at the registered office of the defendant[16] and that the purported service by post was too late.[17] She refused to exercise her discretion to cure the defect in service by reason of the liquidators’ deliberate decision to defer service of the writ until the end of the two-year period of its validity and her findings on material non-disclosure and misrepresentation.[18]

12. The Court of Appeal affirmed Au Yeung J’s decision in respect of the absence of good reason and material non-disclosure in relation to the limitation periods and did not find it necessary to deal with the dispute relating to service of the writ.[19]

(1) As to the question of whether there was good reason to extend the validity of the writ, Kwan JA (with whom Lam VP and Cheung JA agreed) held that it was appropriate to have regard to Harris J’s decision in determining if there was good reason to extend the validity of the writ. Her Ladyship concluded that there was no basis to interfere with Au Yeung J’s exercise of discretion and her “holding that in all the circumstances...

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