Civil Action2003

GRAND PACIFIC EQUITY LTD v. R.S.H. SPORTS (HK) LTD AND OTHERS

Related cases with same parties

CACV99/2006GRAND PACIFIC EQUITY LTD v. R.S.H. SPORTS (HK) LTD AND OTHERS
FAMV22/2007GRAND PACIFIC EQUITY LTD (Formerly known as EAST ASIA AMERICAS CAPITAL LTD) v. R.S.H. SPORTS (HK) LTD AND OTHERS

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61142-EN-2008-05-20

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HCA 4713/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4713 OF 2003

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BETWEEN
	GRAND PACIFIC EQUITY LIMITED (formerly known as EAST ASIA AMERICAS CAPITAL LIMITED)	Plaintiff
	and
	R.S.H. SPORTS (HK) LIMITED	1^st Defendant
	MICHAEL DAVID CAPPER	2^nd Defendant
	JAGDEV SINGH GILL	3^rd Defendant
	VINOD KUMAR GOMBER	4^th Defendant
	and
	ITJIH SJAMSUL NURSALIM	Third Party

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Before: Deputy High Court Judge To in Chambers (Open to Public)
Date of Hearing: 7 May 2008

Date of Decision: 20 May 2008

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D E C I S I O N

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INTRODUCTION

1. This is the Third Party’s application by Summons dated 16 July 2007 to strike out the 3^rd and 4^th Defendants’ Third Party Notice filed on 16 March 2006 and Third Party Points of Claim dated 2 April 2007 against the Third Party as disclosing no reasonable cause of action and/or an abuse of the process of the court pursuant to Order 18 rule 19(1) of the Rules of the High Court.

2. The Plaintiff is a licensed money lender. The Third Party, Mrs Nursalim, and her husband were at all material times directors and beneficial owners of the Plaintiff. The 1^st Defendant is a company incorporated in Hong Kong. The 2^nd, 3^rd and 4^th Defendants were its directors. On or about 6 November 1997, the Plaintiff entered into a loan agreement to advance US$1 million to the 1^st Defendant. The 1^st Defendant failed to repay the loan on demand. On 27 December 2003, the Plaintiff commenced proceedings against the four Defendants. On 7 February 2006, the 3^rd and 4^th Defendants issued a Third Party Notice against Mrs Nursalim seeking an indemnity in the event that they be held liable to the Plaintiff under the guarantee.

The 3^rd and 4^th Defendants’ case in the Third Party Proceedings

3. The 3^rd and 4^th Defendants’ case in the Third Party Proceedings as set out in their Third Party Points of Claim dated 2 April 2007 is as follows.

4. The Plaintiff was at all material times substantially owned and controlled by Mr and Mrs Nursalim, who were also directors of the Plaintiff. Mrs Nursalim and her family members are and were at all material times controlling the Gajah Tunggal group of companies (“GT Group”), which was one of the largest conglomerate in Indonesia with interests in, inter alia, banking and finance business.

5. The 3^rd Defendant, Mr Gill, was one of the founders and major shareholders of RSH Limited which, until 23 January 1997 wholly owned and controlled the 1^st Defendant. The 2^nd Defendant, Mr Capper, was a director and the chief operations officer of the 1^st Defendant until 9 September 1997 and formally resigned as director on 10 February 1998.

6. On 19 September 1989, Mr Gill and Mrs Nursalim respectively on behalf of RSH Limited and the GT Group entered into a joint venture agreement in the business of wholesaling, distribution and retailing of sporting goods and sports related products in Indonesia. The joint venture was carried out through a corporate vehicle, P T Miltra Adiperkasa (“PTMA”), in which Mr Gill and Mrs Nursalim each had a 50% interest.

7. By an investment agreement dated 12 November 1996 between RSH Limited, Meadowgrove Pte Ltd (“Meadowgrove”), which was a nominee company of Mrs Nursalim or an affiliated company of the GT Group, and the 1^st Defendant, Meadowgrove would invest in the 1^st Defendant by acquiring 50% of its shares. Since around 23 January 1997, each of RSH Limited and Meadowgrove held 50% of the interest in the 1^st Defendant and each was liable to contribute 50% of the 1^st Defendant’s working capital. Pursuant to a restructuring agreement made between Mr Gill and Mrs Nursalim, Meadowgrove and RSH Limited transferred all their shares in the 1^st Defendant to PTMA, save for one share which was transferred to Mr Gill to hold on trust for PTMA. The transfer of the 1^st Defendant’s share to PTMA was in anticipation of listing of PTMA’s shares on the Jakarta Stock Exchange. Despite the transfer, Mr Gill and Mrs Nursalim continued to make cash contributions directly to the 1^st Defendant for its working capital requirements.

8. On or about 9 April 1997, Mr Gill had a meeting with Mrs Nursalim at her residence in Jakarta to discuss the pressing financial needs of the 1^st Defendant. During the meeting, Mrs Nursalim agreed that she or the GT Group would provide their share of funding to the 1^st Defendant and that the funds would be transferred by “her bank”, i.e. the Plaintiff. She represented to Mr Gill that the 3^rd and 4^th Defendants had to “do the formalities” and then she would sort out the rest of the matter later. Mr Gill related the discussion to the 4^th Defendant, Mr Gomber, who agreed to the arrangement.

9. On or about 21 April 1997, the Plaintiff issued a loan facility letter offering the 1^st Defendant a facility package of US$1 million repayable in three months against a joint and several directors’ guarantee from Mr Capper, Mr Gill and Mr Gomber. Upon receipt of the facility letter, Mr Gill immediately telephoned Mrs Nursalim to clarify why her capital contribution took the form of a loan facility and why they were required to provide a personal guarantee. Mrs Nursalim told Mr Gill to sign the facility letter and the guarantee; and that she would arrange for the loan to be repaid within a few days. She also represented and assured Mr Gill and Mr Gomber that the guarantee was a formality and not intended to be enforced, that they need not worry about it at all and that she would be personally responsible for repaying the loan. She said to Mr Gill “I will be responsible for it, you do not have to worry.” She also said that the loan would be dealt with in one way or the other between the Plaintiff and herself, and that the guarantee was just a formality and would in no way be enforced by the Plaintiff. In reliance of Mrs Nursalim’s representation and assurance, Mr Gill, Mr Gomber and Mr Capper signed as the guarantee.

10. Thus, the 3^rd and 4^th Defendants are relying on two causes of action, namely:

(1) a cause of action in contract for Mrs Nursalim’s alleged failure to honour her assurances to repay the loan within a few days and that the guarantee was just a formality which was not to be enforced; and

(2) a cause of action in misrepresentation that Mrs Nursalim allegedly represented that the guarantee would not be called on and that the loan to the 1^st Defendant would be repaid by her within a few days.

The basis of the striking out application

11. The Third Party’s basis for the striking out application is that the Third Party’s claim was time barred. Mr Smith SC, counsel for the Third Party, submits that the claim against Mrs Nursalim is in contract and tort and is thus subject to a six year limitation period by virtue of section 4 of the Limitation Ordinance. His argument is as follows. The primary limitation period starts to run from the date of accrual of the cause of action. The latest date on which the cause of action in either contract or tort could have accrued was the date when the Plaintiff made demand under the guarantee against Mr Gill and Mr Gomber, which was 8 April 1999. Accordingly, the Third Party’s claim became time barred by 8 April 2005 and was thus time barred when the Third Party Proceedings commenced on 7 February 2006. Thus, the issues raised by the striking out application are when the limitation period started to run in the cause of action in contract and in the cause of action in tort.

12. Counsel are in agreement that the party against whom the issue of limitation is raised bears the burden of proving that the claim falls within the limitation period. This is the well settled position in Hong Kong as it is in the United Kingdom: see Kensland Realty Limited and Tai, Tang & Chong,FACV 11 of 2007 (7 March 2008) per McHugh NPJ at paragraph 153. It is trite law that for the purpose of resisting an application for striking out a claim, the burden is discharged by showing that it is arguable that the claim falls within the limitation period, without actually proving on balance of probability that the claim indeed falls within the limitation period.

The cause of action in contract

13. Mr Smith SC referred me to Telfair Shipping Corporation v Inersea Carriers [1985] 1 WLR 553, in which Neill J, as he then was, after reviewing a number of cases on the question of when time started to run in a cause of action in contract, drew a distinction between a cause of action based on breach of contract of indemnity and that based on breach of any other ordinary contract. His Lordship held that in the case of a cause of action based on breach of contract of indemnity, the extent of the indemnity and the time at which the cause of action accrues depend on the construction of the contract. The indemnity may be express or implied. If on the true construction of the contract, the indemnity is an indemnity against liability, the cause of action accrues when the liability is incurred. This includes a contingent liability. If the indemnity is a general indemnity recognised by the common law, time does not begin to run against the indemnified party for the purpose of pursuing his indemnity against the indemnifying party until the liability of the indemnified party to a third party has been established and ascertained. In the case of a cause of action based on other types of contracts, time starts to run from the date of breach of the contract relied upon. His Lordship explained the position as follows at 566:

“From a consideration of these cases and other authorities to which my attention was directed it seems to me that it is possible to identify at least three ways in which a person, A, who has become liable to B may be able to obtain redress from C.
The first way is by an action for damages for breach of contract (or warranty). In such a case A will be in a position to claim that the incurring of his liability to B flowed directly from an act of C which constituted a breach of a contract between A and C or of a warranty given by C to A. The damages will be assessed in accordance with Hadley v Baxendale (1854) 9 Exch 341 principles. The cause of action will date from the date of breach.
The second way is by a claim on an express indemnity. In such a case the extent of the indemnity and the time at which the cause of action arises will depend on the construction of the contract. If the indemnity is an indemnity against liability, as it was held to be in Bosma v Larsen [1966] 1 Lloyd’s Rep 22, the cause of action will come into existence when A incurs a liability to B. It may be that in certain circumstances a liability may be incurred for this purpose when the liability is still merely contingent: see Forster v Outred & Co [1982] 1 WLR 86. If, however, the indemnity is a general indemnity, as the relevant clause was held to be in R & H Green & Silley Weir Ltd v British Railways Board (Note) [1985] 1 WLR 570, then time will not begin to run against A for the purpose of pursuing his indemnity against C until A’s liability to B has been established and ascertained: see below. One may notice in passing that, as the arbitrator pointed out in his reasons, McNair J did not deal separately with the words “or consequences” in the contractual indemnity in Bosma v Larsen [1966] 1 Lloyd’s Rep 22.
The third way in which A may claim against C in respect of sums which he has had to pay to B is under an implied indemnity. As I understand the matter, such an implied indemnity would prima facie be a general indemnity of the kind recognised by the common law. The rules relating to what I have described as a general indemnity were explained by Fletcher Moulton LJ in In re Richardson, Ex parte Governors of St Thomas’s Hospital [1911] 2 KB 705, 712:
‘If, for instance, B was bound to pay a sum to A and C was bound to indemnify B, … then B could not sue C unless he could aver payment to A. It was the same thing whether it was a case of suretyship, indemnity, or contribution. In all cases before you could make a guarantor pay you must prove that you had actually paid the money. No better example of this could be given than the case of Collinge v Heywood (1839) 9 A & E 633. That was a contract to indemnify a plaintiff against costs, and it was decided that the cause of action arose when he paid the costs, not when the costs were incurred or the attorney’s bill was delivered to him; and it happened that it was a point of cardinal importance in that case to decide the moment when the cause of action arose, because it was a question there of the date from which the Statute of Limitations began to run. There the court applied the well-known common law principle that before you can avail yourself of your right of indemnity you must shew that you have paid the money … the rule in Chancery was somewhat different, and yet, to my mind, it emphasizes the fundamental principle that you must have paid before you have a right to indemnity, because the remedy which equity gave was a declaration of a right. You could file a bill against the principal debtor to make him pay the debt so that you would not be called upon to pay it, and then you obtained a declaration that you were entitled to an indemnity. You could in certain cases have a fund set aside in order that you might be indemnified, to avoid the necessity of your having to pay and then to sue for the money you had paid, which perhaps would not repair your loss and credit even if it discharged the debt. But I do not think that equity ever compelled a surety to pay money to the person to whom he was surety before the latter had actually paid. He might be ordered to set a fund aside, but I do not think that he could be ordered to pay.’
It seems clear, however, that even in equity time does not begin to run for the purposes of any limitation period until the liability of the person to be indemnified has been ascertained.”

Neill J’s dicta were approved by the English Court of Appeal in Firma C-Trade SA v Newcastle Protection And Indemnity Association (The “Fanti”) [1989] 1 Lloyds Law Rep 239. Despite that case was reversed on appeal to the House of Lords, Neill J’s dicta were not disturbed.

14. Mr Smith SC submits that the 3^rd and 4^th Defendants’ claim in contract is not based on any contract of indemnity but is a straightforward claim for breach of contract or warranty so that time started to run from the date of breach. He argues that the 3^rd and 4^th Defendants’ case is simply that they entered into the guarantee with the Plaintiff on Mrs Nursalim’s assurance or promise that the loan would be repaid within a few days or that the guarantee would not be enforced. There was no express or implied agreement to indemnify. The 3^rd and 4^th Defendants’ recourse is to sue Mrs Nursalim in contract. The contract with Mrs Nursalim was breached when she failed to repay the loan within a few days as promised. But Mr Smith SC was prepared to give the 3^rd and 4^th Defendants the benefit of treating the Plaintiff’s letter of demand dated 8 April 1999 as the date of breach. Hence, Mr Smith SC submits that time started to run against the 3^rd and 4^th Defendants from 8 April 1999 and their claim against Mrs Nursalim was time barred by 8 April 2005, and was thus time barred when the Third Party Proceedings commenced on 7 February 2006.

15. Mr Smith SC further argues that despite the 3^rd and 4^th Defendants claimed to be “indemnified” in the Third Party Points of Claim, the word “indemnified” should be understood in its general sense and not to be construed in the technical sense as inferring the existence of a contract of indemnity. He referred to the standard pleadings in third party claims in contract and in nuisance in Atkin’s Encyclopaedia of Court Forms in Civil Proceedings Vol 37 at 400-401, in which the words “indemnity” or “indemnify” are used in the examples without any underlying contract of indemnity. According to the Shorter Oxford English Dictionary, the word “indemnify” means to compensate for loss suffered, expenses incurred, disadvantages, annoyances, hardships etc. I agree with Mr Smith SC that those words used in Atkin’s Encyclopaedia of Court Forms are intended to convey the ordinary meaning of claiming compensation in the absence of an underlying contract of indemnity. But that argument is not necessary because despite the use of the word “indemnified” in the Third Party Points of Claim, the issue remains whether the contract which the 3^rd and 4^th Defendants sue upon is a contract of indemnity or not.

16. Mr Leong SC, counsel for the 3^rd and 4^th Defendants, argues that the 3^rd and 4^th Defendants’ case is based on express or implied indemnity. He emphasises the significance of the relationship between Mr Gill, Mrs Nursalim and the Plaintiff. Firstly, Mr and Mrs Nursalim were at the material times in control of the Plaintiff. Even according to the Third Party’s Defence to the Points of Claim, prior to 31 May 1998, Mr and Mrs Nursalim held the majority shareholding in the Plaintiff through their company, Ban Hin Leong Company Limited and that Mr and Mrs Nursalim were directors of the Plaintiff at the material time. Mrs Nursalim was a director of the Plaintiff from 1 June 1984 to 25 January 2000 while Mr Nursalim was a director from 31 March 1981 to 18 July 2003. Mr and Mrs Nursalim clearly had the control of the Plaintiff at the time the facility letter and guarantee were signed by the 2^nd, 3^rd and 4^th Defendants. Mrs Nursalim pleaded in her Defence to the Third Party Points of Claim that the Plaintiff was managed and controlled by its Hong Kong based directors and she did not participate in the control and management of the Plaintiff’s day to day operations including the advancement of loans and guarantee requirements. But that is a matter to be determined at trial, should there be one.

17. Secondly, on the 3^rd and 4^th Defendants’ case, Mrs Nursalim and Mr Gill were partners in the 1^st Defendant through PTMA. Under the terms of their joint venture agreement, each of them had to contribute to 50% of the working capital of the 1^st Defendant. Mr Gill’s contribution had exceeded 50% while Mrs Nursalim’s had fallen behind. Mr Gill discussed with Mrs Nursalim about her contribution to the working capital of the 1^st Defendant. Mrs Nursalim agreed to transfer funds from what she called “her bank” to the 1^st Defendant. Then as events turned out, the Plaintiff offered the facility package to be secured by the personal guarantee of the 2^nd, 3^rd and 4^th Defendants. Mrs Nursalim was, on the one hand the alter ego of the Plaintiff, and Mr Gill’s business partner on the other. It was in that context that Mrs Nursalim told and assured Mr Gill that the guarantee was a formality and not intended to be enforced, that he and Mr Gomber need not worry about it at all and that she would be personally responsible for repaying the loan. She said “I will be responsible for it, you do not have to worry.” She said that the loan would be dealt with in one way or the other between the Plaintiff and herself. Basically, the loan was Mrs Nursalim’s capital contribution to the 1^st Defendant. The Plaintiff was Mrs Nursalim’s own bank. It could, at least, be argued that when Mrs Nursalim said she would deal with the loan in one way or the other with the Plaintiff and told Mr Gill that she would be personally responsible for repaying the loan and that Mr Gill did not have to worry, she was offering an implied if not express indemnity to Mr Gill. The scenario is very much different from that of an ordinary loan transaction entered into at arm’s length with an independent bank and Mrs Nursalim were merely a co-director of the 1^st Defendant who was under no obligation to contribute any working capital to the 1^st Defendant.

18. Mr Smith SC referred to the following dicta of Fry LJ in Birmingham And District Land Company v London And North Western Railway Company, CA (1886) 34 Ch D 261 at 276 and submits that an indemnity to compensate for loss suffered as a result of breach of promise could not be implied from a promise itself:

“Now in my view the word “indemnity” in the rule which we have now to construe, means to express a direct right either at law or in equity to indemnity as such, and I think that this right has to be contrasted, and not to be for a moment confounded, with the right to damages which arises either from a breach of contract or from tort. Let me take in the first instance the case of a breach of contract. A breach of contract gives rise, or may give rise, to a right to damages, but those damages are not the subject of the contract. They arise from the breach of the contract, and therefore they are in no sense the subject of the contract itself. When a man contracts that he will do a thing, it can hardly be taken as implying a contract as to what will arise if he does not do the thing. In the same manner with regard to tort, the right to damages for tort does not arise from any implied contract that if I do a wrong I will indemnify the person wronged for the wrong I have done. It is the common law right which everybody has to damages for a wrong which has been done to him. Therefore the right to such damages is not a right to indemnity, although when you come to ascertain what the measure of damages is, it may be that indemnity will properly express that measure of damages.”

I have no doubt in the logic in the above dicta. However, whether a contract of indemnity is to be implied depends on the facts of a particular case. In the case of a transaction at arms’ length between unrelated parties, a person who breaches a contract can hardly be implied to have agreed to indemnify the victim of his breach. But on the peculiar facts of the present case, the logic applies with much less force, though it is a consideration to be taken into account. On balance, while I agree that such indemnity cannot arise in a claim in tort, I think the 3^rd and 4^th Defendants’ case of express or implied indemnity in contract is arguable.

19. In view of the relationship between the Plaintiff, the 3^rd and 4^th Defendants and Mrs Nursalim, the indemnity must be a general indemnity. Before the 3^rd and 4^th Defendants can avail themselves of the right of indemnity, they must have repaid the loan first. Thus, not until their liability has been crystallized and ascertained does time start to run against them.

20. The 3^rd and 4^th Defendants bear the burden of proving that the claim was made within the limitation period. For the purpose of resisting an application to strike out, it is sufficient for them to show that their case is arguable. In addition to Mr Gill’s witness statement, the 3^rd and 4^th Defendant’s case is supported by circumstantial evidence. On 24 March 1999, the Plaintiff issued a letter of demand to the 1^st Defendant. No action was taken thereafter. At that time, Mr and Mrs Nursalim had transferred their shares in the Plaintiff to two outside parties, but on the face, they were still in control of the Plaintiff as directors. On 27 November 2001, two years and eight months later, another letter of demand was issued to the 1^st Defendant. Mr Gill replied by a letter dated 13 December 2001 saying that the facility was the subject matter of an arrangement between him and Mrs Nursalim and asked the Plaintiff to refer to Mrs Nursalim. Again, the matter went dormant for another two years. The Writ of Summons in the present action was not issued until 27 December 2003. Though Mrs Nursalim had resigned as director of the Plaintiff on 25 January 2000, her husband remained as a director of the Plaintiff until July 2003. Mr Gill’s letter and the Plaintiff’s inaction for more than four years lend support to the 3^rd and 4^th Defendants’ case. I think the 3^rd and 4^th Defendants’ case is capable of belief. Accordingly, I am satisfied that the 3^rd and 4^th Defendants have shown an arguable case that their cause of action in contract against Mrs Nursalim accrued within the limitation period.

The cause of action in tort

21. The cause of action in misrepresentation, being a claim in tort, accrued when actionable damage was suffered: see Law Society v Sephton & Co (a firm) and others [2006] 2 AC 543 at para 83, per Lord Mance. This legal proposition, being the decision of the House of Lords, is beyond dispute. Thus, the cause of action accrued when a claim was made, at the latest, when the Plaintiff issued the letter of demand against the 3^rd and 4^th Defendants on 8 April 1999. The claim in misrepresentation was therefore time barred. But that is not fatal to the 3^rd and 4^th Defendant as their claim in contract is not time barred.

Conclusion

22. I am satisfied that the 3^rd and 4^th Defendants have shown an arguable case that their cause of action against the Third Party is based on a contract of indemnity and it accrued within the limitation period. Accordingly, the Third Party’s application to strike out the Third Party Notice and Third Party Points of Claim is dismissed with a costs order nisi that the Third Party shall pay the 3^rd and 4^th Defendants’ costs.

	( Anthony To )
	Deputy High Court Judge

Mr. Alan Leong SC and Mr. Hectar Pun, instructed by Messrs Fairbairn Catley Low & Kong, for the 3^rd and 4^th Defendants

Mr. Clifford Smith SC, instructed by Messrs Tanner De Witt, for the Third Party

52319-EN-2006-02-20

GRAND PACIFIC EQUITY LTD v. R.S.H. SPORTS (HK) LTD AND OTHERS

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HCA4713/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4713 OF 2003

---------------------

BETWEEN

	GRAND PACIFIC EQUITY LIMITED (formerly known as EAST ASIA AMERICAS CAPITAL LIMITED)	Plaintiff
	and
	R.S.H. SPORTS (HK) LIMITED	1^st Defendant
	MICHAEL DAVID CAPPER	2^nd Defendant
	JAGDEV SINGH GILL	3^rd Defendant
	VINOD KUMAR GOMBER	4^th Defendant

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Before : Hon Yam J in Chambers

Date of Hearing : 20 February 2006

Date of Judgment : 20 February 2006

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JUDGMENT

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1. In this action the plaintiff is a Hong Kong company suing the 1st defendant as a debtor, which is also a Hong Kong company. The 2^nd, 3^rd and 4^th defendants are guarantors for the 1^st defendant’s debts. They are outside the jurisdiction; they are Singaporeans.

2. There was a statement of an outstanding debt addressed to the 1^st defendant, dated 28 May 1998, with copies to the 2^nd, 3^rd and 4^th defendants. The 3^rd defendant put forward — not strongly, I must say — that this is a demand against the 3^rd defendant for payment. But I accept the plaintiff’s submission that that was, at most, a demand from the 1^st defendant. The proper and official demand from the plaintiff against the 3^rd defendant was dated 8 April 1999 for the 1^st defendant’s debts and, therefore, the six years’ limitation period had not begun to run earlier and it only ran from 8 April 1999, for six years, to 8 April 2005.

3. In the year 2003, a writ was issued on 27 December and it was served on the 1^st defendant in Hong Kong. There was no application to serve out of jurisdiction until 7 June 2004. That is nearly six months afterwards. However, Master de Souza, on 10 June 2004, raised three queries, whether service outside the jurisdiction was justified. I stop here for a moment to say that those three queries raised did not recognise the fact that the plaintiff was entitled to serve it outside the jurisdiction since it was suing against the Hong Kong resident together with a foreigner, outside the jurisdiction.

4. Be that as it may, obviously there was a six months’ delay on the part of the plaintiff to apply for leave to serve outside the jurisdiction, and they did not reply to Master de Souza’s query until 19 November; that is more than five months afterwards, when the plaintiff filed its 2^nd affirmation in response. At the same time, the plaintiff applied for renewal of the writs. On 24 November, Master Kwan granted leave : (1) to extend the validity of the writ for six months, i.e. up to 25 May 2005; and (2) to serve the writ outside the jurisdiction. Stopping here for a moment, the extension of time would therefore be beyond the six years’ limitation period of 8 April 2005.

5. On 3 December 2004, the plaintiff obtained default judgment against the 1^st defendant. Between 17 and 23 December, the plaintiff attempted four times to serve it personally on the 3^rd defendant as was required under Singaporean law and procedure, but failed. The writ, of course, expired by 26 December 2004 but it was extended, as aforesaid, by Master Kwan until 25 May 2005.

6. On 14 January 2005, the plaintiff wrote to the defendants’ Singaporean lawyers indicating that they wanted to serve the writ and other documents on the 3^rd defendant pursuant to Master Kwan’s order. Eventually, it was arranged that the 3^rd defendant’s present solicitors would accept service of the writ on his behalf. Therefore, on 3 February 2005, the writ was served on the firm of solicitors in Hong Kong acting for and on behalf of the 3^rd defendant.

7. However, on 2 March, the 3^rd defendant issued a summons to set aside the order of Master Kwan obtained by the plaintiff ex parte. By 8 April 2005, as aforesaid, counting from the demand letter six years ago, the cause of action against the 3^rd defendant was time-barred. Master Lung heard the 3^rd defendant’s summons by 20 December last year and dismissed the 3^rd defendant’s summons. Now the 3^rd defendant appeals to this court.

8. Apparently, both parties, counsel appearing for either side, has said that the court in this kind of application will have to consider a two-stage inquiry. Stage 1, the court must be satisfied there was a good reason to extend time and, if so satisfied that there was a good reason to extend time, the court then and only then would proceed to stage 2 and decide whether or not to exercise its discretion in favour of renewal by considering all the circumstances of the case, including the balancing of prejudice or hardship on both parties.

9. I will start from the House of Lords case in Kleinwort Benson Limited v. Barbrak Limited [1987] 1 AC 597, at page 615G–H, Lord Brandon said :

“My Lords, there are three main categories of cases in which, on an application for extension of the validity of a writ, questions of limitation of action may arise, all being cases in which the writ has been issued before the relevant period of limitation, that is to say the period applicable to the cause of action on which the claim made by the writ is founded, has expired. Category (1) cases are where the application for extension is made at a time when the writ is still valid and before the relevant period of limitation has expired. Category (2) cases are where the application for extension is made at a time when the writ is still valid but the relevant period of limitation has expired. Category (3) cases are where the application for extension is made at a time when the writ has ceased to be valid and the relevant period of limitation has expired. In both category (1) cases and category (2) cases, it is still possible for the plaintiff (subject to any difficulties of service which there may be) to serve the writ before its validity expires, and, if he does so, the defendant will not be able to rely on a defence of limitation. In category (1) cases, but not category (2) cases, it is also possible for the plaintiff, before the original writ ceases to be valid, to issue a fresh writ which will remain valid for a further 12 months. In neither category (1) cases nor category (2) cases, therefore, can it properly be said that, at the time when the application for extension is made, a defendant who has not been served has an accrued right of limitation. In category (3) cases, however, it is not possible for the plaintiff to serve the writ effectively unless its validity is first retrospectively extended. In category (3) cases, therefore, it can properly be said that, at the time when the application for extension is made, a defendant on whom the writ has not been served has an accrued right of limitation.

It would not be right, however, to regard the question whether, at the time of the application for extension, a defendant on whom a writ has not been served has an accrued right of limitation as the only significant factor in relation to such extension. For, even in category (1) cases and category (2) cases, where there is no such accrued right, the effect of an extension may still enable a plaintiff to serve a writ, which was issued before the relevant period of limitation expired, more than 12 months after the expiry of that period. This necessarily involves a departure, in favour of a plaintiff, from the general rule on which a defendant is entitled to rely that a writ against him, if it is to be effective, must be issued before the relevant period of limitation has expired and must be served on him within 12 months of its issue.

My Lords, there is a considerable body of authority on the principles to be applied by the court where, on an application for the extension of the validity (in which I include the renewal) of a writ, questions of limitation are involved. I do not think that it is necessary for me to examine the whole of this body of authority in detail, but it will be helpful if I refer to the statements of principle which are to be found in the more important reported cases.”

10. Mr Jason Pow, as the counsel for the plaintiff, submitted strongly that, in this case, a good cause could be shown and the fact that when Master Kwan considered the extension when the application to set aside the order of Master Kwan was made on 2 March 2005, the limitation period had not expired until 8 April 2005 as aforesaid. If Master Kwan had refused the plaintiff’s application to extend the writ, or if Master Lung could have heard the 3^rd defendant’s application on 3 February 2005 and set aside the order of Master Kwan, the plaintiff could have issued a fresh writ and that would have been within the limitation period. The plaintiff by reason of Order 11 rule 1, could have obtained also, at the same time, an order to serve the writ outside the jurisdiction on the 3^rd defendant. Apparently, Mr Pow submitted to this court that this, by itself, would constitute a good reason to extend the validity of the writ.

11. However, I could not gather this proposition from the case of Kleinwort Benson and, in fact, in a subsequent case of the Court of Appeal in England, in the case Goldenglow Nut Food Co. Ltd v. Commodin (Produce) Ltd [1987] Vol. 2 Lloyd’s Law Reports, May LJ said at page 577 :

“However category (1) cases where a defendant is outside the jurisdiction are not so simple to be dealt with. Although the limitation period may not have expired, the relevant considerations, upon which to decide whether leave to serve a fresh writ out of the jurisdiction should be given, may be very different when an application is made to extend the validity of the original writ than when leave to serve that original writ out of the jurisdiction was first made. If a writ has not been served upon a defendant out of the jurisdiction when an application to extend its validity is made, an important consideration to include in the balance when deciding whether or not ‘good reason’ has been shown for an extension, will be whether leave would then be given to serve a fresh writ out of the jurisdiction which ex hypothesi the plaintiff could in any event issue. If the probabilities are that in all the circumstances such leave to serve out would probably not be given, then this must militate against the grant of any extension of the validity of the writ. For my part, I am not prepared to equate this type of case with category (3) cases as referred to in The Myrto, as was contended for by the respondents in the instant appeal. I can see no reason to do so. The basic rule remains - has a good reason been shown to extend the validity of the writ? But the international aspects of any case are clearly material when answering this question, for the reasons that I have just given.”

12. I must point out the case of Goldenglow is a category (1) case. The breach of contract and discovery of the same occurred in March or April 1981 and the six years’ period expired by April 1987. The writ was issued on 1 August 1983 and it was not served for 15 months until, in February 1985, there was an extension until 31 July 1985. The Registrar heard the case and refused to set aside the extension. Rogers J heard the case and decided, in April 1986, to allow the appeal and set aside the extension. At the time of both decisions, the plaintiff was still within the six years’ limit. The plaintiff appealed to the Court of Appeal. The Court of Appeal heard it outside the limitation period on 30 and 31 July 1987, but still the Court of Appeal in England upheld the decision of the judge below.

13. So the first hurdle the plaintiff must overcome is whether there is any explanation for the delay from the issue of the writ on 27 December 2003 up to the application for extension in November 2004. What was the first period of delay of more than six months until they applied for service outside the jurisdiction, and what was the delay after Master de Souza raised the queries in June 2004? The plaintiff explained by saying that in January 2004, the Singaporean lawyers representing the 3^rd defendant wrote to the plaintiff’s solicitors informing them about the 3^rd defendant’s defence. Basically, the 3^rd defendant alleged that it was a joint venture among the 1^st defendant, the 3^rd defendant and one Mrs Nursalim, and it was agreed among them that the debt was not meant to be repaid by the 3^rd defendant and that Mrs Nursalim would shoulder the outstanding debts. The plaintiff inquired from Mrs Nursalim who asked for time, but she never came back again. There was no good reason explaining why they had to wait so long, until June, to ask for service outside jurisdiction and, thereafter, for another five months until they asked for the extension time.

14. It has been clearly stated in the White Book, under Order 6 rule 8, at page 68, that there are examples of good reasons, or reasons which have been held to be good, and they are : (a) a clear agreement with the defendant that service of a writ be deferred; (b) impossibility or great difficulty in finding or serving the defendant, more particularly if he is evading service. There are also examples of bad reasons. I cannot accept that the plaintiff has satisfied me of the first hurdle, and that is stage 1, that they have a good reason for extension of the writ. Apparently, I cannot criticise the plaintiff after they got the order of service outside jurisdiction and extension of writ, they have promptly tried to serve on the 3^rd defendant. I must say that it was quite unfortunate for the plaintiff that these four services were not fruitful. If that was served before 26 December 2004, they could have served on the 3^rd defendant within the original validity period of one year of the writ. Unfortunately, they could not serve it until February 2005. Since, from the authorities, I could not read into the authorities that the fact that the plaintiff could issue a fresh writ at any time of the refusal of the extension for setting aside the extension, that could be a good reason.

15. Accordingly, I cannot go on to the second stage of balancing the hardship. However, here, I must express that I have no sympathy for the 3^rd defendant and have every sympathy for the plaintiff. If sympathy was the guiding principle, I would have held against the 3^rd defendant, but unfortunately, that is not to be the case. If I am asked to exercise my discretion in the exercise of balancing hardship, I would have no doubt at all that I would rule in favour of the plaintiff. There is no prejudice against the 3^rd defendant at all if the extension of time should not be set aside. The prejudice and hardship to the plaintiff is considerable. The main hardship, of course, is the plaintiff will have lost one guarantor out of the three guarantors. Whether the 3^rd defendant could set up his defence as stated by his Singaporean lawyers is beside the point. So with some reluctance, I must allow the appeal.

16. The order of Master Kwan on 24 November 2004 be set aside. Costs of the appeal and before Master Lung be to the 3^rd defendant, to be taxed if not agreed.

17. I have to refuse the application for certificate for two counsel simply on the fact that, on the plaintiff’s side, they also work on the fact that one senior counsel is enough and, therefore, on taxation, I think a master will only allow the fee charged by the senior counsel.

(D. Yam)
Judge of the Court of First Instance
High Court

Mr Jason Pow, instructed by Messrs Preston Gates & Ellis, for the Plaintiff

Mr Alan Leong, SC, leading Mr Hectar Pun, instructed by Messrs Fairbairn Catley Low & Kong, for the 3^rd Defendant

Appeal allowed: see CACV99/2006 dated 1 November 2006