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HCA 2448/2014
[2018] HKCFI 1395
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 2448 OF 2014
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CHINA MEDICAL TECHNOLOGIES, INC.
(In liquidation) |
Plaintiff |
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BANK OF CHINA (HONG KONG) LIMITED |
Defendant |
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Before: Hon Au-Yeung J in Court
Dates of Hearing: 27 and 28 March 2018
Date of Decision: 20 June 2018
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D E C I S I O N
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A. INTRODUCTION
1. There are 2 summonses before the court made by the Defendant (“BOC”):
(1) To set aside a Master’s order extending the validity of the writ for 12 months; and
(2) To set aside service of the writ.
2. The Plaintiff was wound up in the Cayman Islands in 2012. An ancillary winding-up order was made in Hong Kong on 1 September 2014. Mr Borrelli has been one of the Liquidators appointed by the Cayman Islands court and the Hong Kong Court respectively.
3. The Plaintiff was hopelessly insolvent, with provable claims in excess of US$400 million. Ongoing investigations showed that the Plaintiff’s management perpetrated a fraudulent scheme to misappropriate US$355.5 million of the Plaintiff’s assets by purportedly acquiring worthless medical technology known as the FISH Technology and SPR Technology (collectively “the Technologies”).
4. There were transfers of funds made between November 2006 and December 2009 (“the Transfers”) from the Plaintiff’s account with BOC to accounts held by one Supreme Well Investments Limited (“Supreme Well”) with BOC and Bank of East Asia.
5. Supreme Well and its bank accounts were controlled by the Plaintiff’s former management. Supreme Well did not have any business operations and was struck off the Register of Companies in the BVI after receiving US$355.5 million from the Plaintiff. The Liquidators do not know the ultimate recipients of the Plaintiff’s cash.
6. The Plaintiff issued a protective writ of summons with a general indorsement of claim on 2 December 2014 (“the Writ”). The Liquidators asserted that the Transfers were made by the Plaintiff’s management for which BOC was liable for at least US$303.75 million for breach of contract, dishonest assistance, knowing receipt, breaches of duty and of trust, conspiracy, negligence and/or unjust enrichment.
7. The Indorsement of Claim (“the Indorsement”) expressly stated as follows:
“THIS WRIT is issued solely for the purpose of preserving the claims identified above in light of the pending expiry of possible limitation periods” and the Plaintiff “has made no decision as to whether or not it will pursue the claims” which will be subject to “further and on-going investigations” by the Liquidators and the outcome of those investigations.
To the extent that any prima facie limitation periods relating to the claims might 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”
8. On 30 November 2015, ie one day before the expiry date, the Liquidators made an ex parte application to extend the validity of the Writ for 12 months (“the Extension Application”).
9. The reasons advanced by the Liquidators were that despite all reasonable efforts, they required further information before they could make an informed decision as to whether to proceed with any of the potential claims against BOC. The Liquidators referred, in particular, to its application against BOC (and BEA) for production of documents and oral examination of certain employees of the banks pursuant to s.221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32 (“the s.221 Application”), for which judgment was then pending.
10. On 7 December 2015, a Master made an order extending the validity of the Writ “for 12 months from the date of its expiry” (“the Extension Order”), ie up to 1 December 2016.
11. Eight days later, on 15 December 2015, Harris J handed down his decision (“Harris J’s Judgment”) largely dismissing the Plaintiff’s s.221 Application but ordering interrogatories to be served on BOC’s employees and ordering examination. The material findings were that:
(a) The documents sought, save for one narrow category, were not documents “relating to the company”within the meaning of section 221(3) of Cap 32 and hence the court had no jurisdiction to order their production. (§16)
(b) Whilst Harris J accepted “that the Liquidators would prefer to obtain further information if possible before deciding how to proceed”, he did not consider it necessary. The Liquidators had been provided with considerable information and “had sufficient information to make an informed assessment, sufficient for the purposes of deciding whether or not to proceed, of the prospects of the banks being able to assert credibly that they took reasonable steps to comply with the HKMA Guidelines and their own internal protocols intended to ensure that so far as possible the banks are not used as a conduit for unlawful money transfers … The Liquidators do not need any more information in order to decide whether or not they have a viable claim” and therefore it would be oppressive to order the production and examination sought. (§§29-32).
12. The Plaintiff obtained, from Harris J, leave to appeal on the construction of section 221(3) and his holding thereunder but not on other grounds.
13. On 3 November 2016, the Court of Appeal declined to give leave on further grounds that failed before Harris J. The Court of Appeal held (§§16, 17 & 22), amongst others, that
“… The judge gave careful consideration to the material that the liquidators already had, and formed a view as to whether or not such material should suffice to enable them whether or not to pursue their proposed claims against the bank.”
14. On 4 November 2016, BOC’s solicitors informed the Liquidators that BOC’s employees would not be answering the interrogatories served on them pursuant to Harris J’s Judgment.
15. Shortly before the expiry date, the Plaintiff purported to serve the Writ by leaving and by ordinary post on 29 November 2016. There is dispute as to the date of service.
16. BOC submits that the Extension Order should be set aside because:
(a) There were no good reasons or matters capable of being good reasons advanced for the extension. What were advanced turned out to be bad reasons, as was subsequently determined, inter partes, by Harris J and the Court of Appeal; and
(b) The Liquidators were guilty of material non-disclosure in failing to inform the Master of Harris J’s Judgment which destroyed the basis for seeking the Extension Order.
(c) The Liquidators were guilty of material non-disclosure in failing to inform the Master that some causes of action have expired before filing of the Writ and that some causes would expire if the Writ was not renewed.
17. BOC also submits that service of the Writ ought to be set aside because:
(a) The Writ was not left at the registered office of BOC on 14th floor, Bank of China Tower, 1 Garden Road, Hong Kong (“the Registered Office”) but on the ground floor of the BOC Tower and the receptionist was not an employee of BOC; and
(b) The deemed date of service by ordinary post was after expiry of the validity of the Writ.
18. Logically, if the Extension Order is discharged and no re-grant is made, BOC submits that it must follow that the Writ was not served during the period of validity and the action should stand dismissed.
19. The Liquidators oppose both applications. They say that the grounds for seeking the extension was the Liquidators’ genuine views that they needed investigation. That extended beyond pursuit of the s.221 Application, including the appeal, to using all reasonable means by which they might obtain information as to BOC’s knowledge (or otherwise) of breaches of duty by the Plaintiff’s management. They needed to do so before pursuing serious allegations against BOC in costly and risky litigation.
20. Whether there were matters capable of amounting to good reason was to be determined by reference to the circumstances prevailing at the time the Extension Application was made and not by reference to a subsequent event, in this case, a decision by a different court applying a different legal test.
21. The Liquidators also submit that Harris J’s Judgment was of limited scope. There is a possibility that the Liquidators might get more information if they are successful in the pending appeal to the Court of Appeal.
22. Further, BOC has been provided with a copy the Writ since March 2015. BOC relied on it in the s.221 Application as the source of the oppression said to arise if an order for production of documents were made.
23. The Liquidators deny that failure to bring Harris J’s Judgment to the attention of the Master amounted to material non-disclosure. If it did, the non-disclosure was innocent.
24. Mr Manzoni SC, counsel for the plaintiff, conceded that Mr Borrelli made a “mistake” in his affidavit about possible limitation defences but BOC was not denied any of its right to run limitation defences.
25. If there was material non-disclosure, the Liquidators request the court to affirm or regrant the Extension Order.
26. As to service of the Writ, the Liquidators contend that service had been validly effected by leaving with the receptionist who received the Writ on behalf of BOC. Ordinary post was effected 2 clear days after 29 November 2016. Service was effected by either mode before expiry of the extended validity...
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