[2024] 2 HKLRD 178, [2024] HKCA 194, the Plaintiff appealed against the decision of DHCJ H Au-Yeung

refusing leave to amend parts of his pleading on claims in respect of the Defendant’s alleged acquisition of secret profits (in the form of 10% Dry Shares in a company) whilst acting as the Plaintiff’s fiduciary. The appeal was dismissed by the Court of Appeal (Kwan V-P, Au and Chow JJA) on limitation grounds.

The appeal involved the interesting question of whether a claim against a defendant who is said to be in breach of trust or fiduciary duty arising as a direct consequence of the transaction impugned falls within the scope of s.20(1)(b) of the Limitation Ordinance (“

[2003] 1 HKLRD 524 (concerning the receipt of bribes by a police officer), that the constructive trust imposed on the Defendant’s 10% Dry Shares was a “category 1” trust and no limitation period was applicable by virtue of s.20(1)(b). The Court of Appeal rejected the argument and refused to follow 

. Applying the English line of authorities including

[2020] EWHC 686 (Ch), the Court of Appeal held that where fiduciary duty arose directly out of the transaction that gave rise to the secret profits, the constructive trust imposed on those profits was a “category 2” trust. This is different from the situation of a “category 1” trust which involves misappropriation of pre-existing trust property in the defendant’s lawful possession and over which he had assumed duties of a trustee or fiduciary. Accordingly, s.20(1)(b) LO had no application and a six-year limitation period applied, barring the Plaintiff’s claim.

The Plaintiff also contended that there was no limitation period in relation to the claim for equitable compensation under the no-conflict / no-profit rule. The Court of Appeal rejected the argument, holding that s.20 of the LO applies to breaches of the self-dealing and fair-dealing rules by trustees, and any distinction between breach of duty and imposition of disabilities is for the purposes of limitation irrelevant.

, instructed by Wanda Tong & Co, acted for the Plaintiff (Appellant).

, instructed by Zhong Lun Law Firm LLP, acted for the Defendant (Respondent).

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