In a recent decision, Deputy High Court Judge Gary CC Lam dismissed an application to strike out an unfair preference claim brought by the liquidators of RZ3262019 Limited. The judgment provides a significant analysis of issue estoppel, particularly on the novel question of how an issue is characterised when a foreign court has applied a different, higher standard of proof.
Background
The liquidators of RZ3262019 Limited (the “Company”) commenced proceedings against several Defendants, alleging that guarantees provided by a subsidiary to the 1st and 2nd Defendants constituted an unfair preference under the Companies (Winding up and Miscellaneous Provisions) Ordinance.
The 1st and 2nd Defendants applied to strike out the claim, arguing that a court in Chengdu had already determined the underlying issues of an alleged “malicious conspiracy”. They claimed this created an issue estoppel, barring the liquidators from re-litigating the same matter in Hong Kong.
The Court’s Decision
The Court refused to strike out the claim, delivering a detailed decision on the principles of issue estoppel involving foreign judgments. The key findings were:
- Issues Weren’t Identical Due to Different Standards of Proof: The Court found that the issue before the Hong Kong court was not the same as the one decided by the PRC court. Under PRC law, malicious conspiracy generally needs to be proven up to a standard of beyond reasonable doubt. In contrast, the unfair preference claim in Hong Kong only requires the liquidators to prove their case on the balance of probabilities.
- Adoption of a Cautious Approach: Following the English authority in Alexander Brothers Ltd v Alstom Transport SA, the judge held that courts must be cautious before concluding that a foreign court has decided the same issue. The judgment affirms that “there comes a point at which an issue subject to a significantly different standard of proof becomes a different issue”. A negative finding by a foreign court based on a higher standard of proof does not prevent a party from trying to prove the same factual allegation to a lower standard in a different jurisdiction.
- A Point for Appellate Consideration: The characterisation of an issue for estoppel purposes, especially concerning differing legal tests and standards of proof in foreign judgments, is a developing area of law. This decision raises a novel point on which, to date, there is no appellate authority in Hong Kong, and it is a topic that may benefit from future consideration by the Court of Appeal.
Read the full decision here.
Anson Wong SC, Lai Chun Ho, and Charlie Liu, instructed by Charles Chu & Kenneth Sit, for the 1st Defendant.
William Wong SC and Martin Kok, instructed by Squire Patton Boggs, for the 2nd Defendant.
