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Dispute Resolution Law Alert - July 2017
Submitted by // K Bowers, Partner / Solicitor Advocate
21 July 2017


…AND YOU'RE OUT OF TIME!

Limitation Period and the "Analogy Exception"

Summary

The recent case of Liu Hsiao Cheng v Wong Shiu Wai (No. 2) [2017] HKEC 541 involves disputes between the Plaintiff and the 1st Defendant, who were shareholders and directors of a Hong Kong company in the tobacco business in Zimbabwe ("Company"). In essence, the Plaintiff brought an action against the 1st Defendant for breach of fiduciary duty resulting from various wrongful acts. The 1st Defendant counter-claimed against the Plaintiff that he had breached his own fiduciary duty as a director / de facto director of the Company, by refusing and / or failing to provide an account of funds remitted to Zimbabwe ("Remittances") despite repeated requests by the 1st Defendant.

Seeing as some of the alleged Remittances were made prior to 12 July 2007 (more than 6 years before the date of the start of the action), the Plaintiff made an application to strike out the 1st Defendant's claim in relation to those Remittances on the ground that they were brought out of time by virtue of s.4(2) of the Limitation Ordinance (Cap. 347) ("Ordinance"). Pursuant to s.4(2) of the Ordinance, "an action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action." In other words, all parties concerned would be time-barred from bringing an action once the 6 year limitation period had expired. [1]

On the other hand, the 1st Defendant argued that s.4(2) of the Ordinance did not apply since his claim for an account against the Plaintiff was a claim for equitable relief under s.4(7) of the Ordinance in circumstances where the duty to account arose from a violation of an underlying right which was equitable in nature, based upon the Plaintiff's fiduciary duty. Pursuant to s.4(7) of the Ordinance, "[the] section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment contained in the Limitation Act 1980 (1980 c 58 UK) is applied in the English Courts." ("Analogy Exception").

Alternatively, the 1st Defendant also argued that his claim could be regarded as a claim to recover trust property or the proceeds thereof within the meaning of s.20(1)(b) of the Ordinance, for which there is no prevailing limitation period.

Decision

The Court decided that the 1st Defendant's claim for an account was for equitable relief, based on the Plaintiff's fiduciary duty as a director / de facto director of the Company, to account to the Company for monies belonging to the Company which were remitted to Zimbabwe. Accordingly, s.4(2) had no direct application to the 1st Defendant's claim.

Nonetheless, under s.4(7) of the Ordinance, s.4(2) might still apply by virtue of the Analogy Exception. Under the Limitation Act 1939 and the Limitation Act 1980, the English Courts have adopted the approach that in determining whether the statute of limitations could apply by 'analogy' to an action for an account in equity, one had to ask whether the underlying cause of action giving rise to the duty to account was itself subject to any prevailing time limit as prescribed by the statute of limitations. In summary, where the equitable claim for an account is ancillary to another equitable claim, the same limitation period would also apply to the claim for an account. In this case, the 1st Defendant's claim against the Plaintiff for an account was based on (i) the Plaintiff being a fiduciary of the Company, and (ii) assets belonging to the Company had (allegedly) coming under the Plaintiff's control. On the other hand, if there is no limitation period applicable to the other equitable claim, the claim for an account would likewise not be subject to any limitation period.

Ultimately, the Court held that the 1st Defendant's claim for an account in relation to Remittances made on or before 12 July 2007 was time-barred (upon expiry of the 6 year limitation period) and granted the Plaintiff's strike-out application. As a matter of principle, the Court held that the prevailing 6 year limitation period could be applied by analogy to the claim for an account by the 1st Defendant against the Plaintiff.

Moreover, the Court disposed of the 1st Defendant's alternative argument based on s.20(1)(b) of the Ordinance, as its claim could not be regarded as an action to recover trust property belonging to the Company, or the proceeds thereof in the Plaintiff's possession.

Comment

This recent judgment illustrates the approach taken by the Court when determining whether any exceptions to the Ordinance would apply to actions brought after the prescribed limitation period. Parties should be mindful of the applicable limitation periods and are encouraged to seek legal advice, where necessary.

Parties should always avoid waiting until the last minute to commence any Court action.

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[1] Note: Limitation periods vary depending on the nature of the claim.

 

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