FAMV No. 251 of 2023
[2023] HKCFA 29
IN THE COURT OF FINAL APPEAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MISCELLANEOUS PROCEEDINGS NO. 251 OF 2023 (CIVIL)
(ON APPLICATION FOR LEAVE TO APPEAL FROM
CACV NO. 384 OF 2022)
BETWEEN
CHINA METAL RECYCLING (HOLDINGS) 1st Plaintiff
LIMITED (IN LIQUIDATION) (1st Respondent)
COSIMO BORRELLI AND CHI LAI MAN JOCELYN 2nd Plaintiff
IN THEIR CAPACITY AS THE JOINT AND (2nd Respondent)
SEVERAL LIQUIDATORS OF CHINA METAL
RECYCLING (HOLDINGS) LIMITED
and
UBS AG 1st Defendant
(Applicant)
UBS EUROPE SE (FORMERLY TRADING AS 2nd Defendant
UBS LIMITED)
Appeal Committee: Mr Justice Ribeiro Acting CJ, Mr Justice Lam PJ and
Mr Justice Bokhary NPJ
Date of Hearing and
Determination: 30 August 2023
Date of Reasons for
Determination: 5 September 2023
-2-
REASONS FOR DETERMINATION
Mr Justice Ribeiro Ag CJ:
1. At the hearing, this application for leave to appeal was dismissed
with costs for reasons which we now provide.
A. The background
2. China Metal Recycling (Holdings) Limited (“CMR”) was listed on
the Hong Kong Stock Exchange (“HKEX”) on 22 June 2009, raising HK$1.7Bn
on its Initial Public Offering (“IPO”). Mr Chun Chi Wai (“Chun”) was a
director, its Chairman and CEO. UBS AG was one of the joint sponsors, the
sole global coordinator, sole lead manager and sole bookrunner for that IPO.
UBS AG had provided financial advice to CMR prior to the listing and had
acted as the exclusive placement agent in connection with certain notes and
warrants issued by CMR. UBS Europe SE, a wholly-owned subsidiary of UBS
AG, had subscribed for some of those notes and warrants, and on the successful
IPO, reaped substantial profits from those instruments either for itself or for
UBS AG.
3. Some four years after the listing, on 26 July 2013, the Securities
and Futures Commission petitioned to wind up CMR and the 2nd Plaintiffs (“Ps”)
were appointed as provisional liquidators. CMR was wound up on 26 February
2015 on the ground that large-scale fraud had been perpetrated by Chun on
HKEX and investors. Ps were appointed Liquidators on 14 May 2015.
4. They issued the writ on 25 July 2019 and served it on UBS AG in
Hong Kong on 23 June 2020. UBS Europe SE was served in Germany as a
necessary or proper party to the Hong Kong action against UBS AG. In this
application, we are concerned only with the action against UBS AG.
-3-
5. Ps allege that UBS AG had acted dishonestly by permitting or
procuring Chun to make representations to HKEX and potential investors in the
listing application which overstated CMR’s revenues and profits and which
UBS knew or suspected were false, and by continuing to assist CMR in that
application without making the necessary investigations, enquiries or
disclosures.1
6. Ps’ claim against UBS AG is framed in terms of dishonest
assistance and knowing receipt in connection with Chun’s breaches of fiduciary
duty. They claim that UBS AG is liable to disgorge fees and commissions
received and the sums of HK$79M and HK$244M representing the proceeds of
the notes and warrants. Ps’ further or alternative claim is for fraudulent trading
under section 275 of the Companies (Winding-up and Miscellaneous Provisions)
Ordinance 2 (“CO s 275” and “the Ordinance”), alleging that UBS AG was
knowingly a party to Chun’s carrying on of the business of CMR with intent to
defraud the company’s creditors and/or for a fraudulent purpose. Ps claim that
UBS AG is liable under CO s 275 for all or any of the debts or other liabilities
of CMR.3
B. The procedural history
7. The writ containing the fraudulent trading claim under CO s 275
(issued on 25 July 2019) was served on UBS AG on 23 June 2020. UBS AG at
1
Court of Appeal: CA §8.
2
Cap 32. CO s 275 provides: “If in the course of the winding up of a company it appears
that any business of the company has been carried on with intent to defraud creditors of
the company or creditors of any other person or for any fraudulent purpose, the court, on
the application of the Official Receiver, or the liquidator or any creditor or contributory of
the company, may, if it thinks proper so to do, declare that any persons who were
knowingly parties to the carrying on of the business in manner aforesaid shall be
personally responsible, without any limitation of liability, for all or any of the debts or
other liabilities of the company as the court may direct.”
3
CA §§8-9.
-4-
that stage took no objection to the form of the proceedings and proceeded to
defend the action:
“It sought and obtained from the plaintiffs documents referred to in the pleading of,
inter alia, the fraudulent trading claim. It sought security for the costs of defending
the action including the fraudulent trading claim. It filed and served its defence on
24 December 2020, denying the allegations comprised in the fraudulent trading claim
and raising no objection to the form of the claim. On 5 May 2021, it filed and served
further and better particulars of its defence.” 4
8. On any view, the writ was served in time and limitation was not
pleaded in UBS AG’s defence.5 However, in the light of two judgments of Ng J
in a different liquidation (in which Ps’ firm were Liquidators)6 Ps became aware
of a potential objection to the CO s 275 claim having been commenced by writ
instead of by a misfeasance summons in the winding-up as required by rule
58(1) of the Companies Winding-up Rules (“WU r 58(1)”) which relevantly
provides:
“An application under any of the following provisions ... (b) section 275(1), (2) or (4)
of the Ordinance; ... shall be made by a summons returnable in the first instance in
chambers, in which summons shall be stated the nature of the declaration or order for
which application is made, and the grounds of the application, and which summons,
unless otherwise ordered by the court, shall be served, in the manner in which an
originating summons is required by the Rules of the High Court (Cap. 4 sub. leg. A)
…”
9. Thus, as a precautionary measure, 7 Ps issued a summons in the
winding-up claiming essentially the same relief for fraudulent trading under CO
s 275 and served it on UBS AG on 28 May 2021, seeking directions that such
summons and the action begun by writ should be consolidated.
10. It was at this point that UBS AG raised the originating process
objection. It sought to strike out the writ as having been issued in breach of WU
4
CA §33.
5
CA §§28-29.
6
China Medical Technologies, Inc v Wu Xiaodong [2020] 1 HKLRD 342; and China
Medical Technologies, Inc v Bank of China (Hong Kong) Limited [2021] HKCFI 3042.
7
CA §34.
-5-
r 58(1).8 As the argument developed, UBS AG also sought to contend that the
claim initiated by the misfeasance summons is time-barred.9 The question of
limitation is very much in dispute. But if UBS AG’s arguments were to succeed,
it would rid itself of the entire claim, the writ being set aside as a nullity and the
remaining summons being time-barred.
C. The Judge’s decision
11. The striking out application succeeded before the Judge 10 who held
that WU r 58(1) imposed a mandatory requirement so that commencing a CO s
275 claim by writ was not allowed. He held that claim was therefore a nullity.11
His Lordship held that it could not be saved by O 2 r 1(3) 12 and O 2 r 2(1) 13 of
the Rules of the High Court (“RHC”) for several reasons, the most relevant
being that “by virtue of Order 1 rule 2(2),14 the RHC do not apply to winding up
proceedings”15.
8
Summons issued on 27 January 2022.
9
Letter from Herbert Smith Freehills to Karas LLP dated 9 September 2021.
10
Anthony Chan J [2022] HKCFI 2215 (“Decision”).
11
Decision §27.
12
Order 2 r 1(3) provides: “The Court shall not wholly set aside any proceedings or the writ
or other originating process by which they were begun on the ground that the proceedings
ought to have begun by an originating process other than the one employed, but shall
instead give directions for the continuation of the proceedings in an appropriate manner.”
13
Order 2 r 2(1) provides: “An application to set aside for irregularity any proceedings, any
step taken in any proceedings or any document, judgment or order therein shall not be
allowed unless it is made within a reasonable time and before the party applying has
taken any fresh step after becoming aware of the irregularity.”
14
Order 1 r 2(2) provides: “These rules shall not have effect in relation to proceedings of
the kinds specified in the first column of the following Table (being proceedings in
respect of which rules may be made under the enactments specified in the second column
of that Table) – ... Proceeding relating to the winding-up of companies – Companies
(Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), section 296.”
15
CA §15.
-6-
12. Ps also sought to rely on WU r 209(1) which is pivotally important
in the present application. It provides:
“No proceedings under the Ordinance or the rules shall be invalidated by any formal
defect or by any irregularity, unless the court is of opinion that substantial injustice
has been caused by the defect or irregularity, and that the injustice cannot be remedied
by any order of the court.”
13. The Judge, however, held that they could not rely on that rule
apparently for the simple reason that they had sought to bring their CO s 275
claim by writ instead of by summons under WU r 58(1):
“I do not believe that the Plaintiffs can rely upon Rule 209(1) to cure the defect in
their s 275 Claim when they relied upon the inapplicable regime under the RHC to
make that Claim. Had they relied upon Rule 58 to make their claim, then Rule 209(1)
may be invoked in the event of defect.” 16
D. The Court of Appeal’s judgment and UBS AG’s arguments
14. In our view, for reasons corresponding to those provided by the
Court of Appeal, the appeal was rightly allowed and UBS AG’s striking out
summons rightly dismissed. The contrary is not reasonably arguable.
15. It is not in dispute that under WU r 58(1), a CO s 275 fraudulent
trading claim made in the course of a winding-up “shall be made” by summons
in the winding-up and that, by commencing the proceedings by writ, Ps failed to
comply with that rule.
16. We would also accept that the RHC’s curative provisions (O 2 r 1(3)
and O 2 r 2(1)) regarding adoption of an incorrect originating process are not
applicable because proceedings relating to the winding-up of companies are
excluded by O 1 r 2(2). However, it is important to note that the reason why O
1 r 2(2) excludes such winding-up proceedings is that they are “proceedings in
respect of which rules may be made under the enactments specified in the
16
Decision §16.
-7-
second column of that Table”, ie, the Winding-up Rules. In other words, in
cases of incorrect originating process, curative relief is to be sought in the
winding-up rules relevant to the appropriate proceedings.
17. Although not applicable, the RHC statutory scheme is instructive.
It expressly provides 17 that use of a wrong originating process “shall be treated
as an irregularity and shall not nullify the proceedings, any step taken in the
proceedings, or any document, judgment or order therein.” Moreover, any
challenge to such non-compliance must be “made within a reasonable time and
before the party applying has taken any fresh step after becoming aware of the
irregularity”, showing that non-compliance can be waived. It is therefore clear
that such defects are treated as purely procedural and curable, usually on terms
as to costs with any other appropriate directions. Non-compliance does not
mean nullity.
18. WU r 209(1) is similarly curative. It provides that “no proceedings
under the Ordinance [ie, Cap 32] or the rules shall be invalidated by any formal
defect or by any irregularity, unless the court is of opinion that substantial
injustice has been caused by the defect or irregularity, and that the injustice
cannot be remedied by any order of the court.”
19. With respect, the Judge’s decision that WU r 209(1) was
inapplicable simply because Ps had relied on “the inapplicable regime under the
RHC to make that Claim”18 begs the very question at hand: Is the admitted non-
compliance by issue of a writ merely a “formal defect or irregularity” coming
within WU r 209(1) and therefore curable?
17
O 2 r 1(1)-(3).
18
Decision §16.
-8-
20. Mr Jat Sew-tong SC, appearing for UBS AG, similarly evaded the
issue whether WU r 209(1) is applicable by contending, as the premise of his
argument, that non-compliance with WU r 58(1) rendered the writ a nullity so
that there was nothing capable of being cured by WU r 209(1). That is a
question-begging premise that flies in the face of the content, purpose and effect
of that rule and is unsustainable.
21. The Court of Appeal’s analysis demonstrates that WU r 209(1) is
plainly applicable:
(a) The “proceedings” in which the CO s 275 claim is made are
“proceedings under the Ordinance”, defined by WU r 2 as “the
proceedings in the winding up of a company”; brought under Cap
32 before the right court by liquidators who are given standing
under CO s 275.
(b) The substantive claim is “under the Ordinance” being a claim for
fraudulent trading under CO s 275 made “in the course of the
winding up”.
(c) The Court of Appeal concluded, and we agree, that commencing
the claim by writ instead of by summons is a “formal defect” or
“irregularity”.19 In Phillips v McGregor-Paterson,20 Henderson J so
held in relation to the equivalent UK rule. There is no difference in
the substance between the fraudulent trading claim initiated by writ
and that contained in the later summons, merely a difference in the
form of the originating process.
19
CA §23.
20
[2010] 1 BCLC 72. Insolvency Rules 1986, r 7.55: “No insolvency proceedings shall be
invalidated by any formal defect or by any irregularity unless the court before which
objection is made considers that substantial injustice has been caused by the defect or
irregularity and that the injustice cannot be remedied by any order of the court.”
-9-
(d) It follows that, unless the court is satisfied that “substantial
injustice has been caused by the defect or irregularity, and that the
injustice cannot be remedied by any order of the court”, the writ
should not be invalidated and the proper approach would be to give
appropriate directions for the continuation of the case.
22. UBS AG also sought to argue that “substantial injustice” exists so
as to exclude WU r 209(1) principally because granting Ps such relief, would
mean that UBS AG is deprived of an accrued limitation defence.21
23. That is quite untenable:
(a) First, there is no “accrued limitation defence”. The writ was issued
in good time and UBS AG has not pleaded limitation in its defence.
The striking out application was brought, not on the basis that the
claim was time-barred, but for non-compliance with WU r 58(1).22
(b) Since issuing the claim by writ instead of a summons is a formal
defect, application of WU r 209(1) to cure that defect does not
defeat any “accrued limitation defence”. It cures a formal defect
where no limitation defence exists. It does not cause UBS AG any
injustice. Indeed, UBS AG’s argument has it the wrong way
around. If a curative order under WU r 209(1) were refused, UBS
AG would possibly gain a previously non-existent limitation
defence and deprive Ps of a claim which was brought in time,
albeit with a formal defect. Refusing the curative relief would
cause substantial injustice to the company in liquidation, not to
UBS AG.
21
UBS AG skeleton argument §§4, 8(3).
22
4th Affidavit of Gareth Huw Thomas, filed on behalf of UBS AG, dated 27 January 2022
at §5; CA §29; CA Leave §9.
-10-
(c) Secondly, even on the (rejected) argument that one should treat the
writ as a “nullity”, it is by no means clear that UBS AG has an
accrued limitation defence in respect of the misfeasance summons.
Relevant dates are as follows:
26.2.15 Date of winding-up order. UBS AG says limitation period starts
here, runs out in 6 years’ time, so claim is time-barred on
26.2.21.
14.5.15 Ps were appointed Liquidators. Ps say limitation period starts
here, so claim is prima facie time-barred on 14.5.21.
25.7.19 Writ issued, within time on any view.
12.5.21 Winding-up s 275 summons issued. Out of time per UBS AG.
Within time per Ps.
(d) The Court of Appeal was content to assume that both positions
were arguable and so did not accept that UBS AG had an accrued
limitation defence. 23 There is also a potential issue as to the
applicability (factually and as a matter of law) of section 26(1) of
the Limitation Ordinance 24 regarding postponement of the
limitation period in case of fraud, concealment or mistake, again
raising potential issues of fact and law that can only be dealt with
at trial.
24. The other complaint made by UBS AG is that Ps deliberately and
knowingly chose the wrong originating process and should, for that reason, be
refused relief under WU r 209(1). While the Court of Appeal expressed surprise
that Ps had not changed tack sooner (after becoming aware of the point arising
in China Medical Technologies, Inc v Wu Xiaodong25), it took into account the
23
CA §28.
24
Cap 347. Letter Karas LLP to Herbert Smith Freehills dated 12 October 2021.
25
[2020] 1 HKLRD 342; CA §32.
-11-
overall conduct of the proceedings (including UBS AG’s active participation for
many months without any WU r 58 objection) and decided that “it would be a
disproportionate response to strike out the claim on the ground of the formal
defect, in circumstances where the subsequent section 275 summons is arguably
time-barred and the application to strike out was issued even later”.26
E. The leave application
25. The Court of Appeal refused leave to appeal sought on the same
grounds as are now being advanced. 27 UBS AG seeks leave, proposing the
following Questions:
Question 1:
Whether a purported claim for fraudulent trading pursuant to s.275 of the
Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32
(“Ordinance”) brought by writ of summons in deliberate and knowing breach
of rule 58(1) of the Companies (Winding Up) Rules, Cap 32H (“WU Rules”)
is or can be regarded as “proceedings under the Ordinance” within the
meaning of rule 209 of the WU Rules (Judgment §22), or is it a nullity by
reason of the breach of the mandatory provision of rule 58(1) (i.e., the position
adopted by Anthony Chan J (“Judge”) in the CFI Judgment dated 20.7.2022
([2022] HKCFI 2215; “CFI Judgment”)).
Question 2:
Does rule 209, being a provision in subsidiary legislation, empower the Court
to deprive a defendant of an accrued substantive right to rely on a valid
limitation defence under the Limitation Ordinance, Cap 347 (‘LO’').
Question 3:
In the alternative to Question 2, does ‘substantial injustice’ within rule 209
include the deprivation of a valid limitation defence? See Judgment §29, Re
Continental Assurance Co of London plc (in liq) (No 2) [1998] 1 BCLC 583
per Evans-Lombe J at 587h, Re Taunton Logs Ltd [2020] EWHC 3480 (Ch) at
§45.2; but cf Allen v Mittal [2022] EWHC 762 (Ch) per Deputy ICC Judge
Agnello QC at §72, Re SMU Investments Ltd [2020] EWHC 875 (Ch) per
26
CA §35.
27
G Lam and Chow JJA and S T Poon J [2023] HKCA 738.
-12-
ICC Judge Prentis §49, Re Baillies Ltd (in liq) [2012] BCC 554 per HH Judge
Purle QC at §22.
26. For the reasons given above, we do not consider any of those
questions reasonably arguable. As to Question 1, the case plainly falls within
WU r 209(1) and the proposition that non-compliance with WU r 58(1)
rendered the writ an incurable nullity is indefensible. Questions 2 and 3 are
both premised on UBS AG having an accrued limitation defence and that
granting curative relief would deprive it of the same – which cannot be made
out.
27. Leave is also sought on the “or otherwise” ground based on the
criticism that Ps knowingly and deliberately failed to comply with WU r 58(1).
The Court of Appeal duly considered this and exercised its discretion to permit
reliance on WU r 209(1) taking account of the overall conduct of the
proceedings. There is no basis for interfering with that exercise of discretion.
28. In essence, UBS AG seeks to reinstate a decision striking out Ps’
claim on the ground of non-compliance with a rule that ought to have been
treated as straightforwardly curable. We accordingly dismissed the application
with costs on the basis that none of the points sought to be raised is reasonably
arguable.
(R A V Ribeiro) (M H Lam) (Kemal Bokhary)
Acting Chief Justice Permanent Judge Non-Permanent Judge
Mr Jat Sew Tong SC and Ms Elizabeth Cheung, instructed by Herbert Smith
Freehills, for the 1st Defendant (Applicant)
Mr Charles Sussex SC, instructed by, and Mr Kevin Kee (Solicitor Advocate)
of, Karas So LLP, for the 1st & 2nd Plaintiffs (1st & 2nd Respondents)
UBS AG v. CHINA METAL RECYCLING (HOLDINGS) LIMITED (IN LIQUIDATION) AND ANOTHER
FAMV No. 251 of 2023
[2023] HKCFA 29
IN THE COURT OF FINAL APPEAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MISCELLANEOUS PROCEEDINGS NO. 251 OF 2023 (CIVIL)
(ON APPLICATION FOR LEAVE TO APPEAL FROM
CACV NO. 384 OF 2022)
BETWEEN
CHINA METAL RECYCLING (HOLDINGS) 1st Plaintiff
LIMITED (IN LIQUIDATION) (1st Respondent)
COSIMO BORRELLI AND CHI LAI MAN JOCELYN 2nd Plaintiff
IN THEIR CAPACITY AS THE JOINT AND (2nd Respondent)
SEVERAL LIQUIDATORS OF CHINA METAL
RECYCLING (HOLDINGS) LIMITED
and
UBS AG 1st Defendant
(Applicant)
UBS EUROPE SE (FORMERLY TRADING AS 2nd Defendant
UBS LIMITED)
Appeal Committee: Mr Justice Ribeiro Acting CJ, Mr Justice Lam PJ and
Mr Justice Bokhary NPJ
Date of Hearing and
Determination: 30 August 2023
Date of Reasons for
Determination: 5 September 2023
-2-
REASONS FOR DETERMINATION
Mr Justice Ribeiro Ag CJ:
1. At the hearing, this application for leave to appeal was dismissed
with costs for reasons which we now provide.
A. The background
2. China Metal Recycling (Holdings) Limited (“CMR”) was listed on
the Hong Kong Stock Exchange (“HKEX”) on 22 June 2009, raising HK$1.7Bn
on its Initial Public Offering (“IPO”). Mr Chun Chi Wai (“Chun”) was a
director, its Chairman and CEO. UBS AG was one of the joint sponsors, the
sole global coordinator, sole lead manager and sole bookrunner for that IPO.
UBS AG had provided financial advice to CMR prior to the listing and had
acted as the exclusive placement agent in connection with certain notes and
warrants issued by CMR. UBS Europe SE, a wholly-owned subsidiary of UBS
AG, had subscribed for some of those notes and warrants, and on the successful
IPO, reaped substantial profits from those instruments either for itself or for
UBS AG.
3. Some four years after the listing, on 26 July 2013, the Securities
and Futures Commission petitioned to wind up CMR and the 2nd Plaintiffs (“Ps”)
were appointed as provisional liquidators. CMR was wound up on 26 February
2015 on the ground that large-scale fraud had been perpetrated by Chun on
HKEX and investors. Ps were appointed Liquidators on 14 May 2015.
4. They issued the writ on 25 July 2019 and served it on UBS AG in
Hong Kong on 23 June 2020. UBS Europe SE was served in Germany as a
necessary or proper party to the Hong Kong action against UBS AG. In this
application, we are concerned only with the action against UBS AG.
-3-
5. Ps allege that UBS AG had acted dishonestly by permitting or
procuring Chun to make representations to HKEX and potential investors in the
listing application which overstated CMR’s revenues and profits and which
UBS knew or suspected were false, and by continuing to assist CMR in that
application without making the necessary investigations, enquiries or
disclosures.1
6. Ps’ claim against UBS AG is framed in terms of dishonest
assistance and knowing receipt in connection with Chun’s breaches of fiduciary
duty. They claim that UBS AG is liable to disgorge fees and commissions
received and the sums of HK$79M and HK$244M representing the proceeds of
the notes and warrants. Ps’ further or alternative claim is for fraudulent trading
under section 275 of the Companies (Winding-up and Miscellaneous Provisions)
Ordinance 2 (“CO s 275” and “the Ordinance”), alleging that UBS AG was
knowingly a party to Chun’s carrying on of the business of CMR with intent to
defraud the company’s creditors and/or for a fraudulent purpose. Ps claim that
UBS AG is liable under CO s 275 for all or any of the debts or other liabilities
of CMR.3
B. The procedural history
7. The writ containing the fraudulent trading claim under CO s 275
(issued on 25 July 2019) was served on UBS AG on 23 June 2020. UBS AG at
1
Court of Appeal: CA §8.
2
Cap 32. CO s 275 provides: “If in the course of the winding up of a company it appears
that any business of the company has been carried on with intent to defraud creditors of
the company or creditors of any other person or for any fraudulent purpose, the court, on
the application of the Official Receiver, or the liquidator or any creditor or contributory of
the company, may, if it thinks proper so to do, declare that any persons who were
knowingly parties to the carrying on of the business in manner aforesaid shall be
personally responsible, without any limitation of liability, for all or any of the debts or
other liabilities of the company as the court may direct.”
3
CA §§8-9.
-4-
that stage took no objection to the form of the proceedings and proceeded to
defend the action:
“It sought and obtained from the plaintiffs documents referred to in the pleading of,
inter alia, the fraudulent trading claim. It sought security for the costs of defending
the action including the fraudulent trading claim. It filed and served its defence on
24 December 2020, denying the allegations comprised in the fraudulent trading claim
and raising no objection to the form of the claim. On 5 May 2021, it filed and served
further and better particulars of its defence.” 4
8. On any view, the writ was served in time and limitation was not
pleaded in UBS AG’s defence.5 However, in the light of two judgments of Ng J
in a different liquidation (in which Ps’ firm were Liquidators)6 Ps became aware
of a potential objection to the CO s 275 claim having been commenced by writ
instead of by a misfeasance summons in the winding-up as required by rule
58(1) of the Companies Winding-up Rules (“WU r 58(1)”) which relevantly
provides:
“An application under any of the following provisions ... (b) section 275(1), (2) or (4)
of the Ordinance; ... shall be made by a summons returnable in the first instance in
chambers, in which summons shall be stated the nature of the declaration or order for
which application is made, and the grounds of the application, and which summons,
unless otherwise ordered by the court, shall be served, in the manner in which an
originating summons is required by the Rules of the High Court (Cap. 4 sub. leg. A)
…”
9. Thus, as a precautionary measure, 7 Ps issued a summons in the
winding-up claiming essentially the same relief for fraudulent trading under CO
s 275 and served it on UBS AG on 28 May 2021, seeking directions that such
summons and the action begun by writ should be consolidated.
10. It was at this point that UBS AG raised the originating process
objection. It sought to strike out the writ as having been issued in breach of WU
4
CA §33.
5
CA §§28-29.
6
China Medical Technologies, Inc v Wu Xiaodong [2020] 1 HKLRD 342; and China
Medical Technologies, Inc v Bank of China (Hong Kong) Limited [2021] HKCFI 3042.
7
CA §34.
-5-
r 58(1).8 As the argument developed, UBS AG also sought to contend that the
claim initiated by the misfeasance summons is time-barred.9 The question of
limitation is very much in dispute. But if UBS AG’s arguments were to succeed,
it would rid itself of the entire claim, the writ being set aside as a nullity and the
remaining summons being time-barred.
C. The Judge’s decision
11. The striking out application succeeded before the Judge 10 who held
that WU r 58(1) imposed a mandatory requirement so that commencing a CO s
275 claim by writ was not allowed. He held that claim was therefore a nullity.11
His Lordship held that it could not be saved by O 2 r 1(3) 12 and O 2 r 2(1) 13 of
the Rules of the High Court (“RHC”) for several reasons, the most relevant
being that “by virtue of Order 1 rule 2(2),14 the RHC do not apply to winding up
proceedings”15.
8
Summons issued on 27 January 2022.
9
Letter from Herbert Smith Freehills to Karas LLP dated 9 September 2021.
10
Anthony Chan J [2022] HKCFI 2215 (“Decision”).
11
Decision §27.
12
Order 2 r 1(3) provides: “The Court shall not wholly set aside any proceedings or the writ
or other originating process by which they were begun on the ground that the proceedings
ought to have begun by an originating process other than the one employed, but shall
instead give directions for the continuation of the proceedings in an appropriate manner.”
13
Order 2 r 2(1) provides: “An application to set aside for irregularity any proceedings, any
step taken in any proceedings or any document, judgment or order therein shall not be
allowed unless it is made within a reasonable time and before the party applying has
taken any fresh step after becoming aware of the irregularity.”
14
Order 1 r 2(2) provides: “These rules shall not have effect in relation to proceedings of
the kinds specified in the first column of the following Table (being proceedings in
respect of which rules may be made under the enactments specified in the second column
of that Table) – ... Proceeding relating to the winding-up of companies – Companies
(Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), section 296.”
15
CA §15.
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12. Ps also sought to rely on WU r 209(1) which is pivotally important
in the present application. It provides:
“No proceedings under the Ordinance or the rules shall be invalidated by any formal
defect or by any irregularity, unless the court is of opinion that substantial injustice
has been caused by the defect or irregularity, and that the injustice cannot be remedied
by any order of the court.”
13. The Judge, however, held that they could not rely on that rule
apparently for the simple reason that they had sought to bring their CO s 275
claim by writ instead of by summons under WU r 58(1):
“I do not believe that the Plaintiffs can rely upon Rule 209(1) to cure the defect in
their s 275 Claim when they relied upon the inapplicable regime under the RHC to
make that Claim. Had they relied upon Rule 58 to make their claim, then Rule 209(1)
may be invoked in the event of defect.” 16
D. The Court of Appeal’s judgment and UBS AG’s arguments
14. In our view, for reasons corresponding to those provided by the
Court of Appeal, the appeal was rightly allowed and UBS AG’s striking out
summons rightly dismissed. The contrary is not reasonably arguable.
15. It is not in dispute that under WU r 58(1), a CO s 275 fraudulent
trading claim made in the course of a winding-up “shall be made” by summons
in the winding-up and that, by commencing the proceedings by writ, Ps failed to
comply with that rule.
16. We would also accept that the RHC’s curative provisions (O 2 r 1(3)
and O 2 r 2(1)) regarding adoption of an incorrect originating process are not
applicable because proceedings relating to the winding-up of companies are
excluded by O 1 r 2(2). However, it is important to note that the reason why O
1 r 2(2) excludes such winding-up proceedings is that they are “proceedings in
respect of which rules may be made under the enactments specified in the
16
Decision §16.
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second column of that Table”, ie, the Winding-up Rules. In other words, in
cases of incorrect originating process, curative relief is to be sought in the
winding-up rules relevant to the appropriate proceedings.
17. Although not applicable, the RHC statutory scheme is instructive.
It expressly provides 17 that use of a wrong originating process “shall be treated
as an irregularity and shall not nullify the proceedings, any step taken in the
proceedings, or any document, judgment or order therein.” Moreover, any
challenge to such non-compliance must be “made within a reasonable time and
before the party applying has taken any fresh step after becoming aware of the
irregularity”, showing that non-compliance can be waived. It is therefore clear
that such defects are treated as purely procedural and curable, usually on terms
as to costs with any other appropriate directions. Non-compliance does not
mean nullity.
18. WU r 209(1) is similarly curative. It provides that “no proceedings
under the Ordinance [ie, Cap 32] or the rules shall be invalidated by any formal
defect or by any irregularity, unless the court is of opinion that substantial
injustice has been caused by the defect or irregularity, and that the injustice
cannot be remedied by any order of the court.”
19. With respect, the Judge’s decision that WU r 209(1) was
inapplicable simply because Ps had relied on “the inapplicable regime under the
RHC to make that Claim”18 begs the very question at hand: Is the admitted non-
compliance by issue of a writ merely a “formal defect or irregularity” coming
within WU r 209(1) and therefore curable?
17
O 2 r 1(1)-(3).
18
Decision §16.
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20. Mr Jat Sew-tong SC, appearing for UBS AG, similarly evaded the
issue whether WU r 209(1) is applicable by contending, as the premise of his
argument, that non-compliance with WU r 58(1) rendered the writ a nullity so
that there was nothing capable of being cured by WU r 209(1). That is a
question-begging premise that flies in the face of the content, purpose and effect
of that rule and is unsustainable.
21. The Court of Appeal’s analysis demonstrates that WU r 209(1) is
plainly applicable:
(a) The “proceedings” in which the CO s 275 claim is made are
“proceedings under the Ordinance”, defined by WU r 2 as “the
proceedings in the winding up of a company”; brought under Cap
32 before the right court by liquidators who are given standing
under CO s 275.
(b) The substantive claim is “under the Ordinance” being a claim for
fraudulent trading under CO s 275 made “in the course of the
winding up”.
(c) The Court of Appeal concluded, and we agree, that commencing
the claim by writ instead of by summons is a “formal defect” or
“irregularity”.19 In Phillips v McGregor-Paterson,20 Henderson J so
held in relation to the equivalent UK rule. There is no difference in
the substance between the fraudulent trading claim initiated by writ
and that contained in the later summons, merely a difference in the
form of the originating process.
19
CA §23.
20
[2010] 1 BCLC 72. Insolvency Rules 1986, r 7.55: “No insolvency proceedings shall be
invalidated by any formal defect or by any irregularity unless the court before which
objection is made considers that substantial injustice has been caused by the defect or
irregularity and that the injustice cannot be remedied by any order of the court.”
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(d) It follows that, unless the court is satisfied that “substantial
injustice has been caused by the defect or irregularity, and that the
injustice cannot be remedied by any order of the court”, the writ
should not be invalidated and the proper approach would be to give
appropriate directions for the continuation of the case.
22. UBS AG also sought to argue that “substantial injustice” exists so
as to exclude WU r 209(1) principally because granting Ps such relief, would
mean that UBS AG is deprived of an accrued limitation defence.21
23. That is quite untenable:
(a) First, there is no “accrued limitation defence”. The writ was issued
in good time and UBS AG has not pleaded limitation in its defence.
The striking out application was brought, not on the basis that the
claim was time-barred, but for non-compliance with WU r 58(1).22
(b) Since issuing the claim by writ instead of a summons is a formal
defect, application of WU r 209(1) to cure that defect does not
defeat any “accrued limitation defence”. It cures a formal defect
where no limitation defence exists. It does not cause UBS AG any
injustice. Indeed, UBS AG’s argument has it the wrong way
around. If a curative order under WU r 209(1) were refused, UBS
AG would possibly gain a previously non-existent limitation
defence and deprive Ps of a claim which was brought in time,
albeit with a formal defect. Refusing the curative relief would
cause substantial injustice to the company in liquidation, not to
UBS AG.
21
UBS AG skeleton argument §§4, 8(3).
22
4th Affidavit of Gareth Huw Thomas, filed on behalf of UBS AG, dated 27 January 2022
at §5; CA §29; CA Leave §9.
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(c) Secondly, even on the (rejected) argument that one should treat the
writ as a “nullity”, it is by no means clear that UBS AG has an
accrued limitation defence in respect of the misfeasance summons.
Relevant dates are as follows:
26.2.15 Date of winding-up order. UBS AG says limitation period starts
here, runs out in 6 years’ time, so claim is time-barred on
26.2.21.
14.5.15 Ps were appointed Liquidators. Ps say limitation period starts
here, so claim is prima facie time-barred on 14.5.21.
25.7.19 Writ issued, within time on any view.
12.5.21 Winding-up s 275 summons issued. Out of time per UBS AG.
Within time per Ps.
(d) The Court of Appeal was content to assume that both positions
were arguable and so did not accept that UBS AG had an accrued
limitation defence. 23 There is also a potential issue as to the
applicability (factually and as a matter of law) of section 26(1) of
the Limitation Ordinance 24 regarding postponement of the
limitation period in case of fraud, concealment or mistake, again
raising potential issues of fact and law that can only be dealt with
at trial.
24. The other complaint made by UBS AG is that Ps deliberately and
knowingly chose the wrong originating process and should, for that reason, be
refused relief under WU r 209(1). While the Court of Appeal expressed surprise
that Ps had not changed tack sooner (after becoming aware of the point arising
in China Medical Technologies, Inc v Wu Xiaodong25), it took into account the
23
CA §28.
24
Cap 347. Letter Karas LLP to Herbert Smith Freehills dated 12 October 2021.
25
[2020] 1 HKLRD 342; CA §32.
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overall conduct of the proceedings (including UBS AG’s active participation for
many months without any WU r 58 objection) and decided that “it would be a
disproportionate response to strike out the claim on the ground of the formal
defect, in circumstances where the subsequent section 275 summons is arguably
time-barred and the application to strike out was issued even later”.26
E. The leave application
25. The Court of Appeal refused leave to appeal sought on the same
grounds as are now being advanced. 27 UBS AG seeks leave, proposing the
following Questions:
Question 1:
Whether a purported claim for fraudulent trading pursuant to s.275 of the
Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32
(“Ordinance”) brought by writ of summons in deliberate and knowing breach
of rule 58(1) of the Companies (Winding Up) Rules, Cap 32H (“WU Rules”)
is or can be regarded as “proceedings under the Ordinance” within the
meaning of rule 209 of the WU Rules (Judgment §22), or is it a nullity by
reason of the breach of the mandatory provision of rule 58(1) (i.e., the position
adopted by Anthony Chan J (“Judge”) in the CFI Judgment dated 20.7.2022
([2022] HKCFI 2215; “CFI Judgment”)).
Question 2:
Does rule 209, being a provision in subsidiary legislation, empower the Court
to deprive a defendant of an accrued substantive right to rely on a valid
limitation defence under the Limitation Ordinance, Cap 347 (‘LO’').
Question 3:
In the alternative to Question 2, does ‘substantial injustice’ within rule 209
include the deprivation of a valid limitation defence? See Judgment §29, Re
Continental Assurance Co of London plc (in liq) (No 2) [1998] 1 BCLC 583
per Evans-Lombe J at 587h, Re Taunton Logs Ltd [2020] EWHC 3480 (Ch) at
§45.2; but cf Allen v Mittal [2022] EWHC 762 (Ch) per Deputy ICC Judge
Agnello QC at §72, Re SMU Investments Ltd [2020] EWHC 875 (Ch) per
26
CA §35.
27
G Lam and Chow JJA and S T Poon J [2023] HKCA 738.
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ICC Judge Prentis §49, Re Baillies Ltd (in liq) [2012] BCC 554 per HH Judge
Purle QC at §22.
26. For the reasons given above, we do not consider any of those
questions reasonably arguable. As to Question 1, the case plainly falls within
WU r 209(1) and the proposition that non-compliance with WU r 58(1)
rendered the writ an incurable nullity is indefensible. Questions 2 and 3 are
both premised on UBS AG having an accrued limitation defence and that
granting curative relief would deprive it of the same – which cannot be made
out.
27. Leave is also sought on the “or otherwise” ground based on the
criticism that Ps knowingly and deliberately failed to comply with WU r 58(1).
The Court of Appeal duly considered this and exercised its discretion to permit
reliance on WU r 209(1) taking account of the overall conduct of the
proceedings. There is no basis for interfering with that exercise of discretion.
28. In essence, UBS AG seeks to reinstate a decision striking out Ps’
claim on the ground of non-compliance with a rule that ought to have been
treated as straightforwardly curable. We accordingly dismissed the application
with costs on the basis that none of the points sought to be raised is reasonably
arguable.
(R A V Ribeiro) (M H Lam) (Kemal Bokhary)
Acting Chief Justice Permanent Judge Non-Permanent Judge
Mr Jat Sew Tong SC and Ms Elizabeth Cheung, instructed by Herbert Smith
Freehills, for the 1st Defendant (Applicant)
Mr Charles Sussex SC, instructed by, and Mr Kevin Kee (Solicitor Advocate)
of, Karas So LLP, for the 1st & 2nd Plaintiffs (1st & 2nd Respondents)