OTC INTERNATIONAL AG v. PERFECT RECOVERY LTD AND ANOTHER

HCCL 11/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 11 OF 2007

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J U D G M E N T

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The application

1. This is a construction summons.

2. The statute to be construed is the Transfer of Businesses (Protectionof Creditors) Ordinance, Cap 49, and the point at issue is the limitation period for the issuance of proceedings thereunder: is the time limit for instituting proceedings against a transferee of a business one month (as says the 2^nd defendant) or 1 year (as the plaintiff maintains)?

3. It strikes me as surprising that this practically significant point, which arises within the framework of an Ordinance which has been in operation for almost three decades – it was promulgated on 27 June 1980 – to-date appears not to have been subject to specific judicial consideration, although leading counsel on both sides tell me that their researches indicate this to be the case.

4. It may be that a ‘correct answer’ always has been assumed – indeed, I have been shown obiter dicta which tend to suggest that this is the position (see, for example, the assumption made by Madam Justice Kwan in paragraph 12 of her judgment on the application for approval of the 1^st defendant’s Scheme of Arrangement) and that it is not until now, and the particular factual matrix presented by this case, that the argument which this court has entertained has had any immediate relevance, albeit the point had attracted earlier academic comment: see the lucid and critical commentary upon the then newly-enacted Ordinance by Knight & Willoughby, Hong Kong Law Journal (1980) 10 HKLJ 348, at 353, who refer to the possibility of a “serious mistake” having been made in the drafting of the legislation.

5. Be that as it may. It now falls to this court specifically to sound to the issue.

This litigation

6. First, some brief background as to how and why this limitation point has arisen.

7. This case, HCCL 11 of 2007, involves a claim by OTC International AG, a German company, by Points of Claim dated 28 June 2007, against the 1^st defendant, a Hong Kong company (formerly known as NICI Asia Ltd), which at all material times was a wholly-owned subsidiary of one NICI AG, a German company carrying on the business of manufacturing and distributing products under the trade name ‘NICI’.

8. The 2^nd defendant, Nici Asia Limited, is another Hong Kong company, which at the material time was a subsidiary of the 1^st defendant.

9. The basis of the plaintiff’s claim, as pleaded against the 1^st defendant, is that the plaintiff says that it is owed a sum of money by the 1^st defendant slightly in excess of Eur 5.4 million, and a separate amount of Eur 270,000; the causes of action prayed in aid are breach of contract and unjust enrichment.

10. The contingent claim against the 2^nd defendant in the like cumulative sum of approximately Eur 5.67 million is pleaded at paragraph 17 of the Points of Claim, which recite that on 26 October 2006, pursuant to a restructuring exercise, the 1^st defendant transferred to the 2^nd defendant the whole of its business as well as all of the 1^st defendant’s assets required for or in connection with the operation of the 1^st defendant under the trade name of ‘NICI’; as I understand the position, subsequent to such transfer, the 1^st defendant sold its shares in the 2^nd defendant to an independent 3^rd party purchaser, and the proceeds thereof were distributed in accordance with a Scheme of Arrangement approved by the Hong Kong court.

11. In any event, it is said at paragraph 17(1) that the 1^st defendant and the 2^nd defendant are respectively the ‘transferor’ and the ‘transferee’ of the business within the meaning of the Transfer of Businesses (Protection of Creditors) Ordinance, Cap 49 (hereinafter ‘the Ordinance’), and that pursuant to section 3 thereof, the 2^nd defendant thus has become liable for all the debts and obligations of the 1^st defendant.

The ‘forum non conveniens’ application/resultant Order

12. By summons dated 17 July 2007 the 1^st defendant moved an application that all further proceedings against it be stayed on the basis that the case against it was clearly or distinctly more appropriate for trial in Germany the Regional Court of Munich or Coburg.

13. This application resulted in a judgment of this court handed down on 19 June 2008, in which the court acceded to this application for a stay in favour of either of these German courts, to the jurisdiction of either the 1^st defendant undertook to submit.

14. This judgment speaks for itself, and so far as I am aware has not been the subject of appeal.

15. Suffice it to say that one of the matters which arose in evaluating the 1^st defendant’s application for a stay of proceedings against it in this action was the position of the 2^nd defendant (see paragraphs 63-68 of that judgment) in light of the principle that all disputes arising from the same factual matrix ought to be tried in the same action at the same time before the same court.

16. However, at the adjourned hearing of the fnc application, the court’s concern in this regard was alleviated by the submission by counsel for the 2^nd defendant, Mr William Wong, who told the court in terms the 2^nd defendant was entirely “neutral” about this application (para 66), and at the same time foreshadowed that it was his client’s intention to ask the court, pursuant to the provisions of Order 14A or Order 33, to judge the short point which concerned his client in this case, which was a discrete and ‘non-fact sensitive’ point of law pursuant to section 3 of the Ordinance, namely, whether the legal proceedings as had been issued against it in this action had been instituted in time.

17. This stance has resulted in the present summons dated 4 September 2008, which as matters have transpired is an application which has been issued not by the 2^nd defendant, but by the plaintiff – hence the current debate.

The terms of the summons

18. The application now before the court is framed thus:

1. There be a determination of the following question of law pursuant to Order 14A or alternatively Order 33 rules 3 and 4(2) of the Rules of the High Court:

On the proper construction of sections 4(3), 4(5)(b) and 9 of the Transfer of Businesses (Protection of Creditors) Ordinance, Cap 49, whether a transferee is liable under section 3(1) for any liabilities incurred before the transfer of a business if an action was brought against the transferee more than 1 month after the publication of a notice of transfer given under section 4(3), but before the expiration of 1 year from the date of the transfer of the business.

Paragraphs 2 and 3 of the summons request the Court to make such Order or Judgment in light of its answer to the foregoing question of law as it thinks just, and that the costs of and occasioned by the application are to be to the plaintiff in any event.

19. The plaintiff invites the court to respond to this question posed in the affirmative, thereby retaining its contingent right of recourse against the 2^nd defendant if and in so far as the German court decides in its favour on the primary claim against the 1^st defendant.

20. To the contrary, the 2^nd defendant invites a judicial response in the negative, thereby immediately relieving the 2^nd defendant from any liability to the plaintiff in this action.

Agreed Statement of Facts

21. On 5 December 2008 the parties filed a set of Agreed Facts, signed by the solicitors for the plaintiff, Messrs Deacons, and the solicitors for the 2^nd defendant, Messrs Norton Rose Hong Kong, for use at the hearing of the plaintiff’s application.

22. This is a document of some 4 pages, but in substance 4 dates only are relevant for the purpose of this discussion:

(i) 26 October 2006, the date upon which the 1^st defendant and the 2^nd defendant entered into an Asset Sale and Purchase Agreement pursuant to which the 1^st defendant transferred to the 2^nd defendant certain of the 1^st defendant’s assets, comprising all of the 1^st defendant’s assets required for or in connection with the operation of the 1^st defendant under the trade name of “NICI”;

(ii) 27 October 2006, upon which date the 1^st and 2^nd defendants jointly published a Notice in the Hong Kong Government Gazette, the Standard, the Hong Kong Economic Journal and the Hong Kong Economic Times, which stated that the 1^st defendant would enter into the Scheme of Arrangement in respect of its debts and obligations and the transfer of the business, and which Notice was in the form prescribed by section 25 of the Ordinance;

(iii) 29 May 2007,which was the date the Hong Kong court sanctioned the Scheme of Arrangement;

(iv) 1 June 2007, which was the date when the plaintiff issued the present proceedings against the 1^st and 2^nd defendants, which proceedings were served on the same day on both defendants.

The ‘key’ fact

23. From the perspective of the question as now posed to the Court, and argument consequent thereon, the ‘key fact’ is that, as the foregoing dates disclose, during the month following the publication of the Notice in the Hong Kong Government Gazette and in the English and Chinese press, that is, in the period from 27 October – 26 November 2006, no...