Commercial list cases – time to build? – Commentary
In China Metal Recycling (Holdings) Ltd (In Liquidation) v UBS AG,(1) a High Court judge considered the defendant’s request for the action to be transferred from the general civil list to the commercial list. As a matter of case management discretion, the judge held that the most important factors when considering whether to transfer a case to the commercial list are the subject matter of the case and whether there are commercial issues that would benefit from the expertise of judges in the commercial list. While the Court acknowledged that the defendant’s request was not unreasonable, it declined to transfer the action to the commercial list. The case raises the issue of whether commercial disputes are being adequately resourced by the courts in Hong Kong.
Following its initial public offering (IPO) in June 2009, the plaintiff company was wound up in February 2015. It appears that some of the former senior management had perpetrated a large-scale fraud using fictitious transactions to inflate the company’s revenue and profits and, in turn, raise substantial funds by defrauding investors.
The company’s liquidators commenced several legal proceedings, including against the defendant in July 2019. The defendant had been the IPO sponsor. In brief, the liquidators alleged (on behalf of the company) that the defendant’s project director, who had been responsible for the defendant’s day-to-day role as sponsor, had knowledge or suspicion of certain falsities while conducting due diligence but had still permitted the defendant to make disclosures that were not true, accurate and complete. Therefore, the company claimed that the defendant had assisted the company’s former senior management in (among other things) breaching their fiduciary duties and participating in the company’s fraudulent trading. In short, the company’s claim against the defendant turned on the extent of the project director’s knowledge and conduct.
The allegations are denied by the defendant in what is likely to be hard-fought and complex commercial litigation.
The issue for the Court to determine was whether the action should be assigned to a judge in the general civil list for case management and trial purposes or whether it should transferred to a judge in the commercial list.
The judge declined to transfer the action to the commercial list.
The judge noted that the commercial list is for the disposal of commercial matters. The commercial list’s two primary purposes are to enable commercial actions to proceed more efficiently and be presided over by a judge with specialist commercial experience or expertise. While noting that many civil cases have a commercial element, the judge held that the most important factors when deciding whether to transfer a case to the commercial list are the subject matter of the case and whether particular commercial experience or expertise is required. She stated: “the Commercial List should be reserved for cases that require the specialist commercial expertise of a judge, eg one involving novel issues of law in a particular commercial area or industry practice”.(2)
Nature of case
While the judge acknowledged that the case was a “commercial” one, she did not consider that the issues raised required specialist knowledge in respect of IPOs. The judge noted that the nature of the company’s claims concerned alleged fraud, dishonesty, breach of fiduciary duties, attribution of knowledge and falsity of documents. The judge considered that many judges in the general civil list had sufficient commercial knowledge to be able to try the case.
As the judge acknowledged, the defendant’s request was not unreasonable. The nature of the plaintiff’s claims appear to be commercial and raise complex issues. It is possible that on another day before another judge the outcome may have been different.
In terms of case management, the parties are still entitled to apply for the case to be assigned to a specific trial judge while inviting that judge to adopt case management procedures from the commercial list.(3)
The case also brings to the fore the issue of judicial resources. Many general civil cases in Hong Kong are not assigned to a specific judge until late in the proceedings and until then they are case managed by different judges, deputy judges or judicial officers; a situation that is not conducive to efficient case management and consistency in decision making. This has been a challenge for parties to commercial litigation in Hong Kong for a long time.
The Hong Kong courts do not have specialist civil courts (unlike some jurisdictions), although there is a highly respected Family Court which is part of the District Court. There are several specialist civil lists (some with specialist practice directions) – for example, the commercial list, administrative law list, construction and arbitration list and personal injuries list.
Approximately 10 years ago there was talk of a specialist commercial court being established but that initiative appears to have petered out. Apparently, at the time, there was concern in some quarters that the caseload might not justify such an initiative or that it might be seen to favour commercial interests – misplaced concerns given the public interest in Hong Kong’s commercial status and reputation. The issue of a commercial court should be put back on the agenda to enhance Hong Kong’s offering as a commercial disputes resolution hub; something that the government and the legal profession are keen to promote. There are many complex commercial cases that would benefit from more proactive case management and a specialist court – a case of “build it and they will come”.
For further information on this topic, please contact Jacky Darsono, Antony Sassi or David Smyth at RPC by telephone (+852 2216 7000) or email ([email protected], [email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.