18 Commercial law
Scope of commercial law
The area covered by the term ‘commercial law’ is not defined but is potentially very large. In this chapter, I will limit myself to contract law, shipping law, arbitration, banking and money lending, confidence, and company law. Land law and transactions relating to land are topics dealt with separately in Chapter 19 by Malcolm Merry.
Nature of commercial appeals to the Court of Final Appeal
Commercial appeals to the Court of Final Appeal (CFA) inherited the legacy from the colonial days, when civil appeals on final judgments were brought as of right, from Hong Kong to the Privy Council (PC). After 1997, final judgments in civil matters (above HK$1 million) enjoyed the same special privilege of being appealable to the CFA, as of right and without leave. Because the monetary limit is really low (the same as the limit for first instance matters heard by the District Court), the CFA is burdened by having to hear a large number of final appeals of commercial disputes irrespective of whether there is any important point of law at issue. This easy access of commercial appeals to the CFA without leave can be considered somewhat special for a final court in the common law world. In mature jurisdictions such as the United Kingdom, Australia, New Zealand, and the United States, commercial appeals are generally subject to leave applications and are therefore limited to only a small number of appeals raising important questions of law.1 In Hong Kong, the CFA as the final appellate court has to hear and dispose of many commercial appeals that are only of marginal legal value. In this chapter, I will limit my discussion to a small number of significant cases in different areas of law relating to commerce and business.2
Special expertise of the Court of Final Appeal judges on commercial law
Under our system, the Chief Justice selects and decides on the particular non-permanent judge (NPJ) to sit in any particular appeal. There is much expertise and experience in commercial law in the CFA for the Chief Justice to draw upon, this is both by way of permanent judges (PJs) and NPJs. In the CFA, a working pattern has developed whereby a leading judgment is given by a member of the court, sometimes with a concurring judgment given by other members of the court. Interestingly, dissent is very rare in the CFA, especially in commercial appeals.
A glance at the leading judgments, the substantial concurring judgments, and the two dissents given in the more significant commercial appeals I will be referring to later demonstrates the range of expertise in the CFA given by judges with a commercial law background: Ching PJ (Bewise), Litton PJ (Bewise dissent, Resource 1 concurring), Bokhary PJ (Resource 1, Polyset, Swire Properties, Chime concurring), Chan PJ (Strong Offer), Ribeiro PJ (Polyset, Shanghai Tongji, Emperor Finance, Celestial Finance, Unruh, Nam Tai, Carewins, PCCW), Litton NPJ (Polyset dissent, BOC Fung, Carewins concurring), Mason NPJ (Hebei, Resource 1), Hoffmann NPJ (PCCW concurring), Millet NPJ (Akai), and Scott NPJ (BOC Li, Chime).
Role of the Chief Justice in commercial appeals to the Court of Final Appeal
Before he became Chief Justice, Andrew Li was a popular barrister and leading counsel with a large commercial practice (including appearing before the PC). But although the Chief Justice sat in a substantial number of the significant CFA commercial appeals, he did not give any of the leading judgments in these commercial appeals. At first blush, this is puzzling. But when considered further, it is logical and reflects the true and dedicated character of the Chief Justice. Andrew Li had very little exposure to public law when he was in private practice. But upon taking up the office of Chief Justice, he ensured that he took the leading role in the important public law cases and that he gave the important leading judgments in many of these significant cases. This is in contrast to his deliberately not taking up the primary position in commercial appeals in the CFA.
My interpretation is that this conscious decision stemmed from his perception that as Chief Justice, his primary duty was to ensure that paramount care be given to the full and open development of public law by the CFA. This is of fundamental importance to Hong Kong. Commercial law in Hong Kong is well developed, and as said earlier, in the CFA, there are many PJs and NPJs of commercial experience and learning who can be relied upon as safe hands over commercial appeals. It is a tribute to the Chief Justice that he had the strength of character and the confidence to leave the familiar work of commercial law in the safe hands of other PJs and NPJs, but he took on the difficult and sometimes treacherous public law appeals to ensure the proper development of public law for the long term good of Hong Kong. This is a clear example of what Sir Anthony Mason referred to as the Chief Justice's leadership with a strategic vision and a capacity for the long view.3
Categories of commercial appeals to the Court of Final Appeal
In this chapter on the work done by the CFA on commercial law, it is not possible to do justice to the work of the very high quality that was done as a matter of course by the CFA during the Andrew Li years. The work consists of a wide variety, and I will attempt to touch upon some of the leading cases in each of the following categories: contract, shipping, arbitration, banking and money lending, confidence, and company.
Contract
Because contract law principles are generally the foundation of commercial law, I will start with the subject of contract law. Polyset Ltd v. Panhandat Ltd,4 although a case on land transaction, raised an interesting question of contract law. After entering into the contract to purchase five shops, the purchaser refused to complete on the ground that it had the option to rescind under the agreement. This contention raised two issues: first as to whether the purchaser was entitled to rescind and second, if not, whether the purchaser was entitled to the return of some part of the large deposit paid. The CFA unanimously affirmed the decision in the courts below that the purchaser was not entitled to rescind and held that it had repudiated the contract. By a majority with Litton NPJ dissenting, the CFA held that the total deposit of HK$40.25 million (paid in four installments under the main agreement) could not be forfeited and ordered the return to the purchaser of the difference between the deposit sum of HK$40.25 million and the sum of HK$33 million assessed as damages suffered by the vendor on the repudiation of the purchaser. The rescission issue turned on its special facts and was of interest only to the parties. However, the deposit issue gave rise to different views in the CFA. This issue was of general importance and attracted the attention of the academic community.
Deposit was described by Ribeiro PJ in his leading judgment:
The forfeitable deposit is tendered to encourage the vendor to make the necessary commercial act of faith. It is, as the authorities show, an “earnest”, that is, a thing of value given to signify serious intent on the purchaser's part. It is also the quid pro quo for the vendor depriving himself of the ability to deal commercially with the property, and so of making any potentially greater profits, while awaiting completion.5
As pointed out by Lord Hailsham in Linggi Plantations Ltd v. Jagatheesan,6 the uniqueness of forfeitable deposits was of ancient origin, and judges always held that the rule relating to relief against penalty (a disguised liquidated damages clause) did not apply to deposit and that the bargain of the parties was to be carried out.
The sea change was brought about by Workers Trust & Merchant Bank v. Dojap Invstments Ltd.7 It introduced for the first time a test of reasonableness on deposit as earnest money and set the reasonableness test by reference to the usual market deposit of 10 per cent, requiring a larger deposit to be justified by reference to special circumstances. So instead of the starting point being the bargain of the parties on the deposit as shown by the contractual intention set out in the contract and with no relief, the courts intervened by requiring the vendor to justify a deposit higher than the usual percentage in the market.
The CFA applied the Workers test and held that in the circumstances, the 35 per cent deposit was too excessive. Reference was made to the 35 per cent being 3.5 times the usual 10 per cent deposit. There was also reference to the deposit being higher than a genuine pre-estimate of potential loss.
There was a strong and reasoned dissent from Litton as a NPJ. After referring to a passage in Photo Production Ltd v. Securicor Transport Ltd,8 Litton NPJ stated:
By whatever yardstick one measures the proposition – unconscionability, unreasonableness, or that articulated by Lord Diplock as set out above – the threshold for the court's intervention is necessarily high. Where business people are dealing with each other at arm's length, their freedom to contract as they please is something the courts respect and protect. The court's “conscience” – a metaphorical term indicating a common standard of behavior rather than a judge's conscience – is not easily engaged.9
Polyset was not received with universal enthusiasm in Hong Kong. In an article by Lusina Ho, the correctness of Polyset was questioned, and the author proposed various other alternative solutions to the problem.10 Malcolm Merry refers to the very special circumstances of the transaction in Polyset that should have provided strong and compelling reasons for the CFA to uphold the deposit.11 He asked the rhetorical question that if the facts of this unique case could not justify a valid deposit, it would be difficult to envisage any case that would pass the Polyset test.
It is difficult to disagree with Merry on that statement. Was this a missed opportunity for the CFA to develop the law by reference to our local conditions, as asked by Merry? Only time will tell, but it is difficult to envisage any future litigant who will be brave enough to take a case to the CFA in the hope that the CFA will modify Polyset. It is more likely that if there is enough strong commercial feeling in Hong Kong against Polyset, then legislation can provide a more satisfactory solution to this thorny and difficult question of forfeitable deposit in a way that will satisfy both the necessity for commercial certainty and for enforcement of commercial bargains. Hong Kong has a notorious volatile property market with ups and downs often of 50 per cent, which is probably unique in the world. Business people in Hong Kong on the basis of Polyset would not know, when entering into a large commercial contract, which side of an agreed deposit of 15 per cent, 25 per cent or 35 per cent they fall on as ‘special circumstances’, with or without the advice of their lawyers.
In Shanghai Tongji v. Casil,12 the CFA affirmed the principle of strictness of inferring contract by conduct. Ribeiro PJ in the leading judgment confirmed the requirement of unequivocality established by The Aramis13 and The Gudermes.14 In particular, he referred to what was said in The Gudermes as the stringent test: ‘What they do must be consistent only with there being a new contract implied, and inconsistent with there being no such contract’.15
Then after referring to the double questions in relation to each of the parties to the alleged implied contract, Ribeiro PJ said:
It would not be sufficient to answer, ‘It might’ to these questions. The objective test would only be met if the conclusion is reached in each case that the parties’ conduct is consistent only with there being a new contract implied, and inconsistent with there being no such contract.16
The CFA took the view that such a requirement was not met in the case. The restitution claim also failed on the facts.
Whether a contract is unenforceable because of champerty is the subject of the dramatic case of Unruh v. Seeberger.17 The plaintiff sought to enforce his agreement with the defendant in which the plaintiff agreed to use his best endeavour in connection with an arbitration in Holland. The contract provided a special bonus be payable to the plaintiff if the arbitration award received exceed US$10 million. The arbitration resulted in a settlement in excess of US$10 million, but the plaintiff was not paid the special bonus, and he issued proceedings against the defendant for breach of contract and against the second defendant company for liability under an alleged oral agreement. The defence to the claim for the bonus was that the contract for payment of the special bonus was champertous and there was no estoppel by convention in relation to the second defendant company. The plaintiff was successful at first instance and in the Court of Appeal. The CFA upheld the lower court finding that there was no champerty but allowed the appeal of the second defendant.
The CFA examined and confirmed that one category of conduct excluded from the scope of champerty was the legitimate ‘common interest’ in the outcome of litigation category. The CFA held that the champerty defence failed because first, the plaintiff's interest and duty in the arbitration was his means of realizing the value of the assets sold by the plaintiff, and second, because in Holland where the arbitration took place and where the plaintiff was to perform his assistance, champerty was not prohibited by Dutch law.
The very learned analysis of the CFA on maintenance and champerty will be of permanent value in that it sought to identify the modern diverse strands that constitute the contemporary public policy of non-enforceable contracts. As said by Sir Anthony Mason, Unruh provides a striking example of judicial development of the common law.18 Ribeiro PJ's exposition of commercial common interest will no doubt provide essential reading on the modern common law of maintenance and champerty.
Although the review of the law on estoppel by convention by Ribeiro PJ is of value because of its vigorous analysis, the reversal of the Court of Appeal on estoppel by convention turned on really a lack of evidence to support the required estoppel by convention.
Shipping
The shipping case of Bewise Motors Co. Ltd v. Hoi Kong Container Services Ltd19 is one of the early cases that came up to the CFA with Ching PJ still sitting. It is a case of sub-bailment with the owner of the cars suing the defendant warehouse for the theft of the cars. Two sets of conditions were in play, the one of freight forwarder–bailee (containing a larger exemption) and the other of the warehouse–sub-bailee (containing smaller exemption). The freight forwarder's conditions contained a Himalaya clause. At issue before the CFA were two questions, which set of conditions should apply and if the warehouse–sub-bailee's conditions should apply, on its proper construction, would it be wide enough to exempt the sub-baileee–defendant from liability for the theft of the cars. The CFA held unanimously that the warehouse–sub-bailee's conditions applied and by a majority (with Litton PJ dissenting) that on the true construction of the warehouse–sub-bailee's conditions, the defendant was exempted from liability.
The construction of the warehouse–sub-bailee's conditions turned on the particular terms of such conditions. The question of general interest, especially for shipping law, was the choice of the conditions applicable to this sub-bailment.
Ching PJ in giving the leading judgment said:
Both the Himalaya clause and the so-called doctrine of sub-bailment are mechanisms designed to extend the benefit of the terms between the original parties to the sub-contractor or sub-bailee. Neither, however, are mechanisms which can supervene over the actual terms of a sub-contract or a sub-bailment. So, in logic, where a sub-contractor or a sub-bailee expressly declines to enter into a transaction except upon his own terms alone there can be no room for the incorporation of the terms of the contractor or bailee, still less ratification of those terms after the event.20
This judgment of Bewise and the above passage were cited by the English Court of Appeal in Lotus Cars Ltd v. Southampton Cargo Handling Plc.21 It was also a similar case of theft at the docks. Rix LJ was of the view that there was good sense in what Ching PJ said above and in the circumstances of this case the sub-bailee's own terms should apply in preference to the terms brought into play via the Himalaya clause, to the extent of any inconsistency between them.22
The next shipping case that came before the CFA was The Resource 123 in which the CFA considered two issues, one on the mode of challenge to admiralty jurisdiction and the other on the construction of the expression ‘owner’ in the High Court Ordinance.24
The leading judgment on mode of challenge to jurisdiction was given by Mason NPJ. The issue was whether Order 12, Rule 8 provided an exclusive code of challenge to jurisdiction, including challenge to admiralty jurisdiction. This issue was raised by the defendant as it was out of time under Order 12, Rule 8 to apply to the court to set aside the proceedings and the arrest. Mason NPJ said that Order 12, Rule 8 in its application to section 12B(4) of the High Court Ordinance (providing for the exercise of Admiralty jurisdiction) did not exceed the rule-making power and that Order 12, Rule 8 provided a comprehensive and exclusive code for the taking of jurisdictional objections (including admiralty actions in rem) and excluded a challenge under Order 75, Rule 13. The CFA held that the time limit, provided in Order 12, Rule 8 for objections to jurisdictions, was not ultra vires, and thus the application made was out of time.
The second issue of the defendant was successful in the CFA. The issue raised was if ‘owner’ in section 12B(4)25 of the High Court Ordinance (providing for actions in rem) meant registered owner of the ship, there could not be any proper action in rem in the circumstances of this case. Bokhary PJ, in giving the leading judgment, accepted the argument for the defendant and followed the English Court of Appeal decision of Evpo Agnic26 confining the meaning of owner in that provision of the statute to registered owner. This restrictive construction of ‘owner’ is apparently not shared in Singapore or in Australia.27
In the 2009 decision of Carewins Development v. Bright Fortune Shipping Ltd,28 the issue was raised as to the application of the presentation rule, in which the original bill of lading (‘to order’) must be presented to obtain delivery of the cargo, to straight bills. The CFA held by the leading judgment of Ribeiro PJ that the presentation rule applies to straight bills as much as it applies to ordered bills. In England, Wales, and Singapore, the authorities cited were in favour of strict requirement of production for taking delivery. The same rule also applied in many European countries. By this decision, the CFA clarified the law in Hong Kong on the necessity to present the original straight bill for delivery of the goods.
The second issue in Carewins was whether the terms of the straight bill exempted the carrier from liability for release of the cargo without production of the bill. Although the CFA confirmed that the Court of Appeal had rightly construed the exemption clause as not covering the deliberate release of the goods without production of the straight bill, the judgment of Ribeiro PJ on this issue was more than a mere exercise in construing the particular terms of the bill. The statement of principle regarding the proper construction of exemption clauses will be of long-term importance in the common law world. The principle was stated as follows:
It will often be the case that an exemption clause uses very broad words which, viewed simply as a matter of language, may be thought apt to exclude all conceivable liability. But the process of construction does not stop there. Wide words of exemption will often cover a whole range of possibilities, some of which will be consistent with maintaining the contractual obligations which reflect the main purpose of the parties’ agreement, and some of which would negate those obligations and effectively deprive the contract of any compulsory content. In such cases, the clause is construed contra proferentum to ascribe the narrower meaning to it in order to sustain the purpose and legal effect of the parties’ contract.
…The exemption clause is given effect as excluding liability for the breach only where the words are “clear and fairly susceptible of one meaning only”. If it is also fairly susceptible of a meaning which does not exclude liability for the breach in question, it is that narrower, contra preferentum meaning which will ascribe to the term.29
Arbitration
In recent years, arbitration as a means of resolving commercial disputes has taken much of the workload from courts, including those in Hong Kong. The New York Convention has further reduced the involvement of courts with enforcement of foreign arbitration awards.
Two arbitration award cases came before the CFA. The first in 1999 involved a Beijing Award, and the second in 2003 involved a Hong Kong Award. In the case of Hebei Import & Export Corp v. Polyteck Engineering,30 the CFA affirmed Finlay J's judgment allowing enforcement of a CIETAC Award in favour of the Beijing buyer of machinery against the Hong Kong seller. At issue was whether there was a denial of natural justice and apparent bias and whether the conduct of the seller in the arbitration precluded the seller from raising these defences. Mason NPJ gave the leading judgment and held that:
(1) Failure to raise public policy grounds in Beijing does not mean that the point cannot be raised in HK when a different consideration of public policy applies. Beijing and HK each has its own public policy.31
(2) The seller failed in the arbitration to raise the point of the arbitrator's communication with technicians and proceeded with the arbitration as if nothing untoward had happened. Therefore the communication complained of does not give rise to a case within section 44(3) of the Ordinance.32
(3) On the facts, the CFA was not satisfied that the seller was unable to present its case or that there was violation of the basic notions of justice and morality of HK.
Emphasis was placed both by Mason NPJ and by Bokhary PJ (who gave a concurring judgment) on the importance of finality, comity, and non-interference of courts with international commercial arbitration awards except in the most exceptional circumstances. The CFA affirmed and applied the international norm for enforcing international commercial arbitration awards.
The interference with domestic arbitration awards was the subject of the case of Swire Properties v. Secretary for Justice.33 The clause said to be wrongly construed by the domestic arbitrator was not a standard clause but a ‘one-off’ clause, and the CFA gave guidance as to how discretion under section 23 of the Arbitration Ordinance34 of granting leave to appeal should be exercised. Leave was given by the Court of Appeal to take the appeal further to the CFA because it was the first time the proper approach to the granting of leave to appeal from an arbitration award was seriously tested. Bokhary PJ giving the important leading judgment, held that:
(1) In the case of questions of law of general public importance or construction of a standard clause, a slightly less severe test than the guideline in Nema-Antaios (strong prima facie case) should be applied. The less severe test is that there was at least a serious doubt as to its correctness.35
(2) In the case of a ‘one-off’ clause, the high burden must be satisfied that the arbitral tribunal appeared to be obviously wrong. Further it is hoped that, having regard to the speed and finality at which arbitration is aimed, a refusal by the High Court of leave would normally prove difficult to upset.36
(3) A Hong Kong judge who refuses leave to appeal to the High Court from an arbitral award should give his reasons, although only very briefly for such refusal.37
Money lending and banking
Money lending has been subjected to statutory control in Hong Kong for some years. The heady days of financial speculation in the period before the handover of sovereignty in 1997 generated a number of cases involving money lending. In a series of three judgments, the CFA provided guidance to the legal community on the proper approach to resolve disputes arising out of money lending. The first and most important of the three judgments is Emperor Finance Ltd v. La Belle Fashions.38 This judgment is regarded as the fundamental judgment of the CFA on money lending.39
The case of Emperor Finance started as a straightforward enforcement by the plaintiff money lender for the contractual sums payable by the defendants, resulting from heavy losses suffered by the defendants on the Hang Seng Index Futures. At first instance, the judge ordered enforcement and dismissed all defences of the defendants. Most astonishingly, the Court of Appeal (Rogers VP giving the leading judgment) reversed the judge on the facts and held that the enforcement claim failed. The CFA, in a meticulous judgment by Ribeiro PJ, first analysed the errors of the Court of Appeal on facts and restored the original findings of the judge on the facts. Then the CFA went on to consider the law, and this is where this judgment is of great general and public importance.
The Court of Appeal in Emperor Finance held that the plaintiff was engaged in the business of banking and taking deposits and was in breach of sections 11(1) and 12(1) of the Banking Ordinance;40 thus, the amount claimed was illegal and not enforceable. The CFA held that the Court of Appeal was wrong to regard the plaintiff as carrying on a banking business when it was not a case of the receiving money having come from the general public and when the transfer in question was not a ‘loan’.
The CFA was at its most restrained when it dealt with the defence of breaches under the Money Lenders Ordinance (MLO),41 which was first raised by the Court of Appeal itself. The CFA started by holding that section 18 of the MLO applied to bodies corporate. It then went on to reverse, in detail, the breaches of the various provisions of the MLO said by the Court of Appeal to have occurred. Finally, the CFA, after holding that there were two breaches of section 18, said nevertheless there should have been an exercise of discretion under section 18(3) in favour of the lender. Ribeiro PJ said
In exercising its discretion the court should examine the breach or breaches in question, their consequences for the parties to the transactions and any other circumstances which may make it inequitable to hold the agreements unenforceable.42
The second case of Celestial Finance Ltd v. Yu Man Hon43 was also an appeal from the Court of Appeal (leading judgment of Rogers VP). The Court of Appeal struck out the claim of the lender on the basis that breach of section 20(1)(c) of the MLO renders the loan totally non-recoverable. The CFA reversed the Court of Appeal, restored the action, and in its judgment affirmed the obiter opinion in Emperor Finance that breach of section 20(1) was not always fatal and was capable of being cured by the lender by reason of section 20(4). Ribeiro PJ said:
It follows that the fact that the appellant was in breach of s20(1)(c) does not mean that it has been permanently deprived of its security. Such a default is curable and if, as a matter of fact, it was cured by the eventual delivery of a s20(1)(c) statement…, suspension of the appellant's entitlement to enforce its security will have come to an end.44
In Strong Offer Investment v. Nyeu Ting Chuang,45 the CFA had the occasion to further clarify the law. Although the appeal was dismissed and the CFA affirmed the enforcement of the loan, the amount recoverable was ordered to be reduced because of the compound interest included. Chan PJ writing the leading judgment said the following, which is now often quoted as a good summary of the essence of what the MLO seeks to achieve:
Section 18 offers one of the key protections to uneducated, ignorant and unsophisticated borrowers who may not be aware of all the terms and conditions under which the loans are made to them. It seeks to impose certain requirements the compliance with which is a pre-requisite to the enforcement of the loan agreement against the borrower. Section 18(1) provides that no agreement and no security shall be enforceable unless the following conditions are satisfied : (1) there must be a note or memorandum of the agreement in writing; (2) the note or memorandum must contain all the terms as required under s.18(2); (3) the note or memorandum must have been signed personally by the borrower; (4) the borrower must have been given a copy of the note or memorandum including a summary of the prescribed provisions of the Ordinance at the time of signing; and (5) the note or memorandum must have been signed before money was lent or the security was given.…These conditions are imposed to ensure that a borrower is fully aware of and freely agrees to all the terms and conditions of the loan, and in particular knows exactly how much money he has borrowed and what interest he has to pay.
On the other hand, the statute is not intended to stifle genuine money-lending transactions or to let the money lender lose all the money he has lent out and all the security he has because of a failure to comply with all such requirements, however trivial or unintentional the breach may be. Hence, where it is not inequitable to do so, the court would enforce the loan agreement with suitable variations, modifications and exceptions. This is the discretion given to the court by s. 18(3).
In resolving any dispute between the money lender and the borrower, therefore, there should be no pre-conceptions either in favour of or against the money lender or the borrower. The statute has sought to strike a fair balance between the two parties. In applying the provisions of s.18, the court has to bear in mind, amongst other things, the parties’ respective rights and obligations under the statute as well as the agreement made by them….
The above three judgments of the CFA on money lending have clarified the law in Hong Kong on this subject. They have been applied in many subsequent cases by judges at first instance (Waung J in 2004,46 Mayo J in 2005,47 Muttrie J in 2006,48 Patrick Fung J in 2007,49 and Poon J in 200850). But in the Court of Appeal, Waung J was in the minority in the case of Huaxin (Hong Kong) Co. Ltd v. Cheerful Corp.51 when Waung J applied the CFA judgments. Rogers VP disagreed and was in the majority; the majority prevailed, but there was a follow-up.52
On 1 April 2003, the amendment made to the MLO by Part V of the Securities and Futures Ordinance53 came into effect, thereby exempting securities margin-trading financing by registered lenders from the operation of section 18. It is hoped that the CFA will in the future be less vexed on money lending enforcements.
I now turn to the two unusual banking cases in the CFA. The first is Bank of China v. Fung Chin Kan54 in which the CFA held in favour of the bank customers who alleged that there was a pre-contract representation of liability limited to HK$3.3 million and that they should not be liable for any excess under the all monies charge. The judgment of Litton NPJ was put on the basis that there was a collateral contract that existed alongside but independent of the main contract constituted by the legal charge. On the basis of that collateral contract, the CFA ordered that judgment against the Fungs be limited to HK$3.3 million and the bank be given possession of the property charged under the legal charge.
The other members of the CFA (Bokhary and Chan PJJ and Mortimer and Cooke NPJJ) agreed with the judgment of Litton NPJ but also expressed the view that the same decision could have been reached by way of analysis of one composite agreement with two parts, as advanced by Lord Cooke NPJ (without the support of Litton NPJ). The decision of the CFA might be considered as being decided on somewhat special facts because most collateral contract judgments fall into that category. But what is surprising is that in its attempt to do justice in the particular case, the CFA (as a final court, the primary duty of which is to lay down legal principle) seemed to have departed from the usual cautious approach towards collateral contracts.
Hong Kong courts, following the famous authority of Heilbut, Symons & Co v. Buckleton,55 have always been reluctant to uphold collateral contracts. This surprising case therefore caused the Hong Kong academic community to examine the judgment carefully. In a critical article by Jessica Young, she discussed the various areas such as misrepresentation, partial rescission, or rectification that could have been considered by the CFA but were not and concluded by suggesting that the same result could have been reached by way of rectification.56 The article ended with a concern as to how in future the Hong Kong courts would deal with similar cases of pre-contractual statements as to a person's liability and whether the Hong Kong courts will resort to the same proactive approach compared with the conservative approach of the English courts.
In Li Sau Ying v. Bank of China,57 the CFA gave guidance (which is an important function of the final court) on the proper approach to banking cases involving an allegation by a customer of undue influence. In the leading judgment of Scott NPJ, he cautioned against overcomplicating the undue influence issue where the relationship in question was not one of presumed undue influence category of Class 2A. Lord Scott expressed the hope that in future cases, when it was not a Class 2A category relationship, concentration should be on whether the evidence justified the inference that the impugned transaction was procured by the trust and confidence reposed on the alleged dominant party. There should be no reference to or assistance from evidential presumptions of undue influence, which is likely to cause confusion.
Confidence
Hong Kong was one of the early jurisdictions in the world involved in the international Spycatcherlitigation (United Kingdom, Australia, and New Zealand were other notable jurisdictions involved) in which breach of confidence was the successful ground invoked for the injunction granted. This was one of the early successes of Robert Ribeiro as a rising barrister. It came as no surprise that the CFA took up and granted special leave to appeal in the case of Nam Tai Electronics Inc. v. PricewaterhouseCoopers.58 This was a most instructive case in which the CFA examined the scope of the duty of confidence owed by the accounting firm to its former client. The case of the accounting firm–defendant was that the disclosure was a defensive response to the plaintiff's allegation to the creditors of a company in liquidation that the defendant should not be appointed as liquidator of that company because the defendant had a conflict of interest. In a carefully written leading judgment, Ribeiro PJ examined the scope of the various qualifications to the duty of confidence (consent qualification, self-interest qualification, and self-defence). Having regard to the opaque statement by the plaintiff, the CFA was of the view that the disclosure of the defendant in response did not fall into either the consent or self-interest qualification category,59 and therefore there was a breach of the duty of confidence.
As no financial loss was suffered, the CFA awarded to the plaintiff nominal damages of HK$100. The long litigation was therefore only a Pyrrhic victory for the plaintiff. But in reality, it was much worse than that. It was a disaster financially for the plaintiff. On 7 April 2008, the CFA handed down its decision on costs. As the defendant had made a payment into court before Waung J, sometime in May 2001, long before the trial started, the CFA made the costs order that the plaintiff was to pay to the defendant all costs incurred after the date of payment in, which means all costs at all three levels: before Waung J, before the Court of Appeal, and before the CFA.
PCCW v. Aitken60 was a case in which the employer failed to obtain a comprehensive and wide injunction against an ex-employee to prevent the ex-employee from working for the new employer engaged in a competing business. The plaintiff appealed against a limited injunction order granted by the judge restricting the injunction to identified confidential information. Ribeiro PJ stated that the law adopted a policy in favour of freedom of employment and against restraint of trade. Courts would not restrain a former employee from deploying his or her own skills and knowledge for the benefit of the new employer. Restraint as to the former employee's field of activity (which was what the plaintiff was effectively seeking to do) would not be permitted. This policy is to be distinguished from the other policy deriving from Prince Jefri Bolkiah v. KPMG,61 in which the court will restrain a former lawyer from acting for a new client unless it is satisfied that there is no risk of misuse or disclosure of the former client's confidential information.
Lord Hoffmann NPJ stressed the important difference between privilege and confidence in a passage quoted in Gary Meggitt's chapter in this volume.62 In his substantial concurring judgment, Lord Hoffmann concluded:
There is a very considerable difference between the position of a solicitor and an employee, even though the confidential information which they have obtained may be the same. The solicitor will normally have many clients and will not be dependent upon one for his livelihood. Even if the new client is important to him, he does not have to act for him in a matter in which he previously acted for the other side. The employee can have only one employer at a time and, in the nature of things, his new employer is likely to be in the same line of business and therefore in competition with the previous one. I therefore see no reason of logic or policy which requires the special remedy against solicitors to be extended to employees who have information which would be protected by LPP.63
The defendant was neither a former in house lawyer nor a former lawyer of the plaintiff, and thus the CFA held that the Bolkiah principle did not apply. The CFA left open the question of relief against a former in-house lawyer who changes side and a former in-house lawyer who goes into private practice acting for the other side.
Company
Nina Kung v. Tan Man Kou (Re Chime Corp. Ltd)64 was part of the huge litigation arising from the death of Teddy Wang and the ensuing disputes between the father of Teddy Wang (Senior Wang) and Nina Wang, Teddy's widow. While the probate litigation was raging in the probate court between the widow and the Senior Wang (eventually leading to the CFA judgment of Nina Kung v. Wang Din Shin65 with five separate substantial judgments), the company court had to consider a section 168A66 petition brought by the administrator of the estate of Teddy Wang against Nina Wang for alleged unfair prejudice conduct. An application to amend the petition included an allegation that Nina Wang had improperly procured the company to advance loans of some HK$4.5 billion to CAL, a company of Nina Wang, and to seek an order of repayment of the loan to the company. The judge refused the amendment sought, but the Court of Appeal allowed the amendment. The CFA allowed the appeal and said that the amendment containing the prayer should not be allowed, and amendments to the body of the petition relating to conduct also should not be allowed (except to the limited alleged mismanagement conduct).
The leading judgment was given by Scott NPJ. He first defined the issue of the appeal before the CFA as ‘whether the court can, on a s.168A petition, deal with and dispose of a cause of action for damages or restitution that is vested in the company and, if it can do so, in what circumstances it should do so’. Lying at the heart of this issue was the distinction in law between a section 168A petition for unfair prejudice and a derivative action in the name of the company.
Lord Scott NPJ made the following important statement of law:
As a general rule, in my opinion, the court should not in a s.168A petition make an order for payment to be made by a respondent director to the company unless the order corresponds with the order to which the company would have been entitled had the allegations in question been successfully prosecuted in an action by the company (or in a derivative action in the name of the company). If the order does not so correspond then, either the company will have received less than it is entitled to, in which case it will be entitled to relitigate the issue in an action against the director for the balance, or the company will have received more than it was entitled to, in which case, a clear injustice to the director will have been perpetrated……
Moreover, the use of a s.168A petition in order to circumvent the rule in Foss v Harbottle (1843) 2 Hare 461 in a case where the nature of the complaint is misconduct rather than mismanagement is, in my opinion, an abuse of process….67
As P. Y. Lo notes, the CFA judgment in Re Chime has been adopted by the PC and in Australia.68
In Liquidators of Akai Holdings v. Grande Holdings,69 the important question was the scope of the power of the liquidator of a company to seek information in relation to the affairs of the company under section 221 of the Companies Ordinance.70 In dismissing the appeal, Millett NPJ clarified the law in this way:
Section 221 and corresponding provisions overseas are designed to enable a liquidator to carry out his functions. These are twofold: (i) to collect the assets of the company, settle its liabilities and distribute its surplus funds amongst its creditors; and (ii) to investigate the causes of the company's failure and the conduct of those concerned in its dealings and affairs.…The first of these functions is primarily of concern to the company's creditors and shareholders; the second serves a wider public interest in enabling the authorities to take appropriate action against those guilty of misconduct in relation to the company….
The section is a vital part of the statutory insolvency regime. It is designed to meet the difficulties faced by liquidators in finding out what has happened to the company's assets and what has caused the failure of the company. It has often been observed that a liquidator is usually a stranger to the affairs of the company. He relies on orders for examination and production to reconstitute the knowledge of the company, in circumstances where the records are often inadequate, in order to be able to perform his duties in recovering the company's assets and generally to enable him to carry out his functions effectively and with as little expense and as expediently as possible.
The section's purpose, however, is not limited to reconstituting the state of the company's knowledge, even though that may be one of the purposes most clearly justifying the making of an order.…It may be used to discover facts and documents relating to potential claims by the liquidator against third parties or to enable him to report to the authorities with a view to taking action against those responsible for the company's failure…where it was used to enable disqualification proceedings to be taken against former directors. There is an important public interest ensuring that the liquidator should obtain the information needed to understand the company's affairs and the reasons for its failure; and to report to the authorities to enable them to take appropriate action against those guilty of misconduct in relation to the company's affairs.
It has been repeatedly stated, and the legislative purpose demands, that the powers conferred on the court by the section or its overseas equivalents are wide, general and unlimited. The liquidator must satisfy the court that the information or documents sought are reasonably required to enable him to carry out his functions. In considering this question, the authorities establish that great weight should be given to the views of the liquidator, for he is an officer of the court and alone has the necessary knowledge of the problems facing him in understanding the affairs of the company and his reasons for seeking production of documents in the terms proposed; moreover, there are often great difficulties in seeing how the terms of the order can be cut down and remain effective….71
Lord Millett NPJ acknowledged that the exercise of the power was capable of being severe but that it was tempered by the court's discretion. Summarizing the general principles governing the balancing exercise, Lord Millett gave a reminder that the court ‘must take care not to cut down the width of the order sought by the liquidator in a way which would risk making it ineffective’.72 This CFA judgment will no doubt be of fundamental importance in common law jurisdictions having the same or equivalent provisions.
Conclusion
It will be seen from the account given in this chapter that the development of commercial law has continued unabated since the handover in 1997. The vigour of that development has been truly remarkable. The geographical availability of the CFA is one factor. As noted, the high quality of the PJs and NPJs is a key factor. The cross-fertilization arising from NPJs from different jurisdictions who are familiar not only with their own laws but also with international common law is a special bonus. Then finally, it must not be forgotten that the presence of counsel of the highest calibre both locally and from the United Kingdom ensured that the CFA is given not only reliable but superior assistance. Michael Thomas QC and SC (appearing in no less than five of the cases I have discussed), who qualifies under both categories of counsel, is undoubtedly the star counsel in the CFA. There can be no doubt that the high reliability of the CFA in commercial appeals contributes to the high regard for Hong Kong held by the international business community.
Many of the chapters in this volume refer to the presence of the eminent NPJs in contributing to the jurisprudence of the CFA. In his chapter, Michael Thomas refers to the large contribution made by Sir Anthony Mason NPJ to the CFA and to Hong Kong.73 A tribute must be paid to Sir Anthony Mason for his enormous contribution to the jurisprudence of Hong Kong and to the CFA standing high in the international world. Both his presentation at the University of Hong Kong's CFA conference in March 2010 and his chapter in this volume attest to his intellectual vigour and his love for Hong Kong.
The contribution in the past 13 years of Sir Anthony Mason and all others earlier referred to helped to ensure that after 1997, instead of Hong Kong being left in the backwaters of Asia, the CFA has grown into an internationally recognized final court of high standing, with its judgments respected and held in high esteem by the common law courts. This was largely because of the combination of the good fortune of our constitution (by way of the Basic Law) establishing a legal regime of overseas NPJs sitting in the CFA and Andrew Li's judicious selection of NPJs of the highest calibre from England, Australia, and New Zealand to sit regularly in the CFA. In this sense, without his voice being heard in the reported CFA commercial law judgments, the Chief Justice was our true hero, who has ensured that judgments on commercial law in Hong Kong will continue to be cited, followed, and applied in the courts of the common law world.
1 For further criticisms of the ‘as of right’ civil appeal route, see Chapter 8 (Thomas) in this volume.
2 Polyset Ltd v. Panhandat Ltd (2002) 5 HKCFAR 234 (‘Polyset’); Shanghai Tongji Science & Technology Industrial Co. Ltd v. Casil Clearing (2004) 7 HKCFAR 79 (‘Shanghai Tongji’); Siegfried Analbert Unruh v. Hans-Joerg Seeberger (2007) 10 HKCFAR 31 (‘Unruh’); Bewise Motors Co. Ltd v. Hoi Kong Container Services Ltd (1997–1998) 1 HKCFAR 256 (‘Bewise’); Re Resource 1 (2000) 3 HKCFAR 187 (‘Resource 1’); Carewins Development (China) Ltd v. Bright Fortune Shipping Ltd (2009) 12 HKCFAR 185 (‘Carewins’); Hebei Import & Export Corp. v. Polytek Engineering Co. Ltd (1999) 2 HKCFAR 111 (‘Hebei’); Swire Properties Ltd v. Secretary of Justice (2003) 6 HKCFAR 236 (‘Swire Properties’); Emperor Finance Ltd v. La Belle Fashions Ltd (2003) 6 HKCFAR 402 (‘Emperor Finance’); Celestial Finance Ltd v. Yu Man Hon (2004) 7 HKCFAR 450 (‘Celestial Finance’); Strong Offer Investment Ltd v. Nyeu Ting Chuang (2007) 10 HKCFAR 529 (‘Strong Offer’); Bank of China (Hong Kong) Ltd v. Fung Chin Kan (2002) 5 HKCFAR 515 (‘BOC Fung’); Li Sau Ying v. Bank of China (Hong Kong) Ltd (2004) 7 HKCFAR 579 (‘BOC Li’); Nam Tai Electronics Inc. v. PricewaterhouseCoopers (2008) 11 HKCFAR 62 (‘Nam Tai’); PCCW-HKT Telephone Ltd v. David Matthew McDonald Aitken (2009) 12 HKCFAR 114 (‘PCCW’); Nina Kung v. Tan Man Kou (Re Chime Corp. Ltd) (2004) 7 HKCFAR 546 (‘Chime’); The Joint and Several Liquidators of Akai Holdings Ltd v. The Grande Holdings Ltd (2006) 9 HKCFAR 766 (‘Akai’).
3 See Chapter 13 (Mason) in this volume.
4 (2002) 5 HKCFAR 234.
5 Ibid., [69].
6 [1972] 1 MLJ 89 (PC).
7 [1993] AC 573 (PC).
8 [1980] AC 827 (HL).
9 Polyset, [156].
10 ‘Deposit: The Importance of Being (an) Ernest’ (2003) 114 LQR 34.
11 See Chapter 19 in this volume.
12 (2004) 7 HKCFAR 79.
13 The Aramis [1989] 1 Lloyd's Rep 213 (Eng CA).
14 Mitsui & Co. Ltd v. Novorossiysk Shipping Co (The Gudermes) [1993] 1 Lloyd's Rep 311 (Eng CA).
15 Shanghai Tongji, [39].
16 Ibid., [51].
17 (2007) 10 HKCFAR 31.
18 See Chapter 13 in this volume.
19 (1997–1998) 1 HKCFAR 256.
20 Ibid., 271H.
21 [2000] 2 Lloyd's Rep 532 (Eng CA).
22 Ibid., [51].
23 (2000) 3 HKCFAR 187.
25 12B. Mode of Exercise of Admiralty Jurisdiction…:
25 (4) In the case of any such claim as is mentioned in s. 12A(2)(e) to (q), where–
(a) the claim arises in connection with a ship; and
(b) the person who would be liable on the claim in an action in personam (the relevant person) was, when the cause of action arose, the owner or charterer of, or in possession or in control of, the ship,
25 an action in rem may (whether or not the claim gives rise to a maritime lien on that ship)be brought in the Court of First Instance against–
(i) that ship, if at the time when the action is brought the relevant person is either the beneficial owner of that ship as respects all the shares in it or the charterer of it under a charter by demise;…
26 [1988] 1 WLR 1090 (Eng CA).
27 See Notes to Paul Myburgh in ‘Arresting the Right Ship: Procedural Theory: The In Personam Link and Conflict of Laws’ in (ed.), Jurisdiction and Forum Selection in International Maritime Law: Essays in Honor of Robert Force (The Hague: Kluwer International Press, 2005) 283–320.
28 (2009) 12 HKCFAR 185.
29 Ibid., [51] and [53].
30 (1999) 2 HKCFAR 111.
31 Ibid., 136I–137A.
32 Ibid., 139I–140F.
33 (2003) 6 HKCFAR 236.
34 Cap. 341.
35 Swire Properties, [43].
36 Ibid., [46].
37 Ibid., [55].
38 (2003) 6 HKCFAR 402.
39 I notice that in the University of Hong Kong's 2009 Postgraduate Certificate in Laws (PCLL) Examiners Report, PCLL candidates are expected to demonstrate their knowledge of the Emperor Finance series of CFA judgments.
40 Cap. 155.
41 Cap. 163.
42 Emperor Finance, [119].
43 (2004) 7 HKCFAR 450.
44 Ibid., [22].
45 (2007) 10 HKCFAR 529.
46 Chow Tai Fook Jewellery Co. Ltd v. Wong Shun (unreported, HCA 22168/1998, 31 December 2004, CFI) of Waung J.
47 Silverlink (Hong Kong) Finance Ltd v. Zhang Sabine Soi Fan (unreported, HCA 2783/1998, 24 November 1998, CFI) of Deputy Judge Mayo.
48 China Everbright Finance Ltd v. Chan Yung (unreported, HCA 18300/1999, 24 October 2006, CFI) of Deputy Judge Muttrie.
49 Treasure Spot Finance Co. Ltd v. Li Chik Ming (unreported, HCA 5387/2001, 10 July 2007, CFI) of Recorder Patrick Fung SC.
50 The New China Hong Kong Finance Ltd v. Shimada Ltd (unreported, HCA 11030/1999, 5350/2000 & 565/2005, 14 November 2008, CFI) of Poon J.
51 Unreported, CACV 343/2003, 1 March 2005 (CA).
52 For subsequent steps, see Huaxin (Hong Kong) Co. Ltd v. Cheerful Corporation (unreported, HCA 621/2003, 18 July 2005, CFI) of Deputy Judge Carlson.
53 Cap. 571.
54 (2002) 5 HKCFAR 515.
55 [1913] AC 30 (HL).
56 ‘Misrepresentation or Collateral Contracts’ (2003) 33 HKLJ 9.
57 (2004) 7 HKCFAR 579.
58 (2008) 11 HKCFAR 62.
59 Ibid., [81].
60 (2009) 12 HKCFAR 114.
61 [1999] 2 AC 222 (HL).
62 See Chapter 21 in this volume.
63 PCCW, [62].
64 (2004) 7 HKCFAR 546.
65 (2005) 8 HKCFAR 387.
66 Companies Ordinance (Cap. 32).
67 Chime, [62] and [63].
68 See Chapter 22 in this volume.
69 (2006) 9 HKCFAR 766.
70 Cap. 32.
71 Akai, [23]–[27].
72 Ibid., [30(8)].
73 See Chapter 8 in this volume.
