Introduction
In the recent case of Trinity Concept Ltd (In Liq) v Wong Kung Sang (黃共生) [2022] 1 HKLRD 1388, the Court of First Instance (“To research”) dismissed the defendant’s request to strike an account application on the ground that the action had not been brought within the six-year limitation period provided for in Article 20(2) of the Limitation Ordinance (Cap. 347 of the Laws of Hong Kong) (“LO”).
Background
Trinity Concept Ltd (the “Applicant“), a company in liquidation, brought an action against the defendants, who were two former directors of the plaintiff (the “Defendants”). The plaintiff claimed that the defendants breached their fiduciary duties by making a total of 139 third-party payments without giving a proper explanation (the “Suspicious transactions”). The plaintiff sought an account, an order for the release of property or payment of sums recognized as due for consideration, and alternatively fair compensation. The defendants argued that the suspicious transactions took place more than six years prior to the issuance of the writ and that, therefore, this action was brought out of time and should be dismissed pursuant to section 4(2) of the LO.
Decision
The Court identified the following issues that were material to the striking out application:
1. What is the nature of a director’s duty to the assets of the company;
2. If the director is considered a trustee of the assets of the company, then he has a duty to account for the assets. What is the nature of a trustee’s accountability? What protection is given to a beneficiary with respect to trust assets under trust law?
3. Is an order recipient’s request for an account subject to a statutory limitation period? Is his request for orders subsequent to taking account or for fair compensation subject to any legal limitation period?
4. What is the appropriate approach the court should take to strike out a director’s claim in the current situation?
The defendants relied on Liu Hsiao Cheng vs. Wong Shu Wai [2018] 1 HKLRD 1087 (“Liu”) in support of their delisting request. The Court also held that Liu was a significant decision in this case and set out the following analysis:
Nature of a director’s duty in relation to the company’s assets
As the Court of Appeal said in Liu, directors of a corporation should be treated as trustees of the assets of the corporation that are under their control. As such, the director(s) of a company have a fiduciary duty to the company.
Accountability of trustee
In determining whether the statutory limitation period applies to a claim for an account, the Court will consider the nature of each claim, according to which a fiduciary’s primary duty is to exercise power in name and to act in the best interest of the beneficiary. In order to ensure the proper execution of the trust, the beneficiary is entitled to require the trustee to return to the assets of the trust any insufficiency which may appear when the account is taken.
It is important to note that the beneficiary’s right to an account is a right. As part of the fiduciary relationship between the fiduciary and the beneficiary, the beneficiary does not need to prove that there has been a breach of trust to obtain an account order. When considering granting an order for account, the onus is on the trustee to justify their actions.
Limitation periods in connection with an action for account and subsequent orders
The Court held that a beneficiary’s request for an account without any allegation of breach of trust and without seeking further orders upon reckoning was not subject to any statute of limitations. However, the fiduciary can invoke the six-year limitation period in cases of breach of trust, subject to two exceptions provided for in Article 20(1) of the LO, such as fraud. While the application for an account remained subject to no statute of limitations, the fact that the application for other orders was subject to the six-year statute of limitations would likely weigh heavily on whether the court would exercise its discretion. to order an account.
Further, the Court clarified that where a trustee seeks to strike out a beneficiary’s claim for an account and other orders for alleged breach of trust on the basis that the claim is statute-barred, the court must first consider the pleading to determine if there was an arguable accountable case. If so, the claim must At first glance not be expunged, and the court would then have to consider whether the trustee was able to demonstrate at the interlocutory stage that the request for further orders would be statute-barred. If so, then it would appear that there was good cause to strike out the application. If the beneficiary did not have sufficient information about the trust to identify any wrongdoing, the claim should generally be allowed to proceed to trial. The trustee could invoke the defense of limitation at a later stage.
The defendants’ motion to strike out was denied because the plaintiff did not have sufficient information to assess whether the payments were properly made. The Court was unable to conclude at the oral argument stage whether there had been a breach of trust, the nature of such breach, if any, and whether the plaintiff’s request for further prescriptions had to be prescribed.
Take away key
This decision is a timely reminder to business leaders that they are accountable for the assets and At first glance there is no limitation period applicable to a beneficiary’s request for a deposit, even in the absence of an allegation of breach of trust or fraud.
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