In China Medical Technologies Inc (In Liquidation) v Bank of East Asia Ltd, the court granted an ex parte order extending the validity of a writ – the court document by which most Hong Kong proceedings are commenced – effectively giving the plaintiffs an additional year in which to effect service. The High Court has now discharged that order with the consequences that service was set aside and the action dismissed.(1) This is the latest in a number of similar decisions affecting the same plaintiff liquidators, and suggests that the courts will in future scrutinise extension applications much more closely. It also serves as a timely reminder of a plaintiff's duty to make full and frank disclosure both on and after ex parte applications – for example, the duty to inform the court of material facts, including unhelpful information, continues until such time as the proceedings are served, and there is no distinction in this respect between ex parte extension applications (as in this case) and other ex parte applications such as urgent injunctions.
When a plaintiff issues a writ, the effect is to stop the running of any relevant limitation period. This is particularly important for causes of action where the limitation period is quite short, such as certain marine and personal injury claims. After a writ has been issued, it must be served within one year. However, it is not uncommon for plaintiffs then to have difficulty effecting service on the defendant or to have legitimate reasons for wanting to delay service.
The court rules, therefore, provide power to extend the validity of writs, provided that 'good reasons' are shown and the court considers that it should exercise its discretion to do so. Each case depends on its own circumstances but one example is where an in rem writ cannot be served on a ship because it simply has not called at Hong Kong.(2)
In China Medical Technologies Inc, the writ was issued on 2 December 2014. It was due to expire on 1 December 2015. However, the day before that (30 November 2015), the plaintiff applied ex parte to extend the writ's validity. It is unclear why the application was made so late or what effect this had on the thinking of the master in question (the judicial officer who granted the original ex parte order), but on 7 December 2015 the writ was extended until 2 December 2016 (the 'extension order').
The plaintiff's evidence of good reasons included:
- the liquidators needed more time to conduct investigations before they could determine what cause of action (if any) there was against the defendant; and
- their application for production of documents and examination of certain persons, pursuant to Section 221 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32), had not yet been determined.
As it transpired, the Section 221 application was dealt with by another judge just one week after the extension order was granted. This was well before the (extended) writ was eventually served on 29 November 2016.
After the writ was served, the defendant applied to set aside the extension order on the basis that (among other things) there had been no good reasons to extend and the plaintiff had not discharged its duty to be full and frank.
The defendant's application was contested. Besides arguing that there were good reasons for the extension, the plaintiff argued that the defendant had lost the right to challenge the extension order because it had submitted to the court's jurisdiction or waived any objection to the validity of the writ or its service. That argument was rejected for reasons beyond the ambit of this article, save to note that the defendant had not taken any substantive steps in the proceedings (and had done no more than keep its options open).
In a robust judgment, which was plainly correct on the authorities, the court did set aside the extension order and dismissed the proceedings.
The judgment is heavily reliant on a similar judgment handed down previously by the Court of Appeal in a connected case.(3) In short, the court found that there were no good reasons for the master to have extended the writ at the ex parte stage and that there had moreover been a material non-disclosure. The Court of Appeal judgment in the previous case was binding on the court and the facts were identical.(4)
No good reasons Applying the earlier decision, the court agreed that the plaintiff had had sufficient information to decide whether to proceed with its claim when the extension order was applied for, and the outstanding Section 221 application was not relevant in assessing the viability of its claim. There were, therefore, no good reasons. The plaintiff had had sufficient information to proceed.
Material non-disclosure The court was also concerned by an apparent breach of an applicant's continuing duty to give full and frank disclosure on an ex parte application. Importantly, the court noted that this duty continued as long as the proceedings remained on an ex parte basis – in this case, until service of the proceedings, which would be the first occasion when the defendant would have become aware of the extension order, and the justification provided for it, and thus the ability to contest it.
It is important to stress that there was no finding by the court that the plaintiff's conduct amounted to an abuse of process. The non-disclosure by the plaintiff may have been innocent, as was the case in the previous matter.(5)
However, taken together, the judgments in both cases are an important development. For some time, there has been a general feeling among practitioners in Hong Kong that granting ex parte permission to extend the validity of writs has been treated as more of a formality than an exception.
Good reasons to extend the validity of a writ do not mean exceptional reasons – however, such an extension should not be the norm. What amounts to a good reason is fact specific but could include (for example) an express agreement with a defendant that service of a writ be deferred or where a defendant is evading service.
Even where a good reason does exist to extend the validity of a writ, the court must exercise a discretion – balancing, on the one hand, the prejudice to a plaintiff in not granting an extension and, on the other hand, the prejudice to a defendant in granting an extension. In this regard, the judgments in the China Medical Technologies Inc cases are likely to serve as important precedents not just for practitioners but also for the judiciary.
The court's clarification that the ex parte duty to be full and frank continues for the entirety of the period during which the proceedings remain on an ex parte basis is also highly significant and is likely to concentrate the minds of plaintiffs and their lawyers more so than, perhaps, has been the case in the past.
Endnotes
(1) [2019] HKCFI 2143, 5 September 2019.
(2) Rules of the High Court, Order 6, Rule 8 ("Duration and renewal of writ").
(3) China Medical Technologies Inc v Bank of China (Hong Kong) Ltd [2018] HKCFI 1395 (first instance) and [2019] HKCA 402 (an unsuccessful appeal – in respect of which permission to appeal to the Court of Final Appeal was refused: [2019] HKCA 735).
(4) [2019] HKCA 402 and supra note 1 at paragraphs 4 and 9.
(5) China Medical Technologies Inc v Bank of China (Hong Kong) Ltd [2018] HKCFI 2007, 29 August 2018 ("Decision on costs").
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