CHAN CHING MAN v. IP CHIU HUNG AND OTHERS

HCCW450/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO. 450 OF 2003

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D E C I S I O N

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1. This is an application to strike out a winding-up petition.  The petition was presented by Chan Ching Man in respect of a company called Kam Wing Travel Group Limited (“the Company”).  The petition seeks the winding-up of the Company on the just and equitable ground under section 177(1)(f) of the Companies Ordinance (“the Ordinance”).  In the alternative, it seeks an order for the purchase of the Petitioner’s shares by the 1st and 2nd Respondents under section 168A of the Ordinance.  The Respondents are Mr Ip Chiu Hung and Mr Ho Shek Wing, who are the other shareholders in the Company.

2. It appears that the Company was set up jointly by the three shareholders to conduct a transportation business.  The venture appears to have begun following discussions in early 2002.  However, it seems to have been short-lived.  Disputes appear to have soon arisen, eventually leading to the presentation of the petition shortly over a year after the venture was first discussed.  The petition was presented on 23 April 2003.  There was an affirmation filed in support of it by the Petitioner in the form of the usual verifying affirmation.  The 1st Respondent filed a fairly detailed affirmation in opposition, which was stated to have been filed on behalf of both Respondents.

3. On 23 June 2003, Kwan J gave directions for the further conduct of the proceedings.  The 2nd Respondent was given leave to file an affirmation in opposition as well, with the Petitioner being given leave to file evidence in reply.  This was eventually done, although not in strict accordance with the timetable that had been set down in the order.  The 2nd Respondent’s affirmation in effect simply adopted the evidence of the 1st Respondent which had already been filed.

4. Following the close of evidence there should have followed discovery and inspection of documents.  However, this did not take place as scheduled, and did not take place for a very long time.  In early January 2004, it seems that the Respondent’s solicitors wrote to those acting for the Petitioner, saying that the Respondent’s list of documents was ready and inquiring what the position was with the Petitioner’s list.  The reply from the Petitioner’s solicitors, received a few days later, indicated that they expected to have their list of documents ready within a short time.  Thereafter, however, apart from some correspondence concerning a possible application for a validation order, the proceedings went to sleep.  No steps were taken by either party for a very considerable period.  While the Petitioner did not file his list of documents in accordance with the court’s directions, nor, it has to be said, did the Respondents.

5. After a period of some four years of inaction, in November 2007 the Respondents took out this application seeking the dismissal of the petition on the grounds of want of prosecution.  In this context, they allege both that there had been an abuse of process and a want of prosecution.  The Petitioner responded with a summons of his own of 13 December 2007, seeking dismissal of the Respondent’s summons and also seeking further directions to enable the proceedings to progress.

6. At the hearing today, Mr Leung, who appears for the Petitioner, did not pursue the first part of that summons.  He did, however, ask for directions to be given for the further conduct of these proceedings.  Mr Lau, appearing for the Respondents, submitted that there had been in this case both an abuse of process and also such want of prosecution as would justify the court in dismissing the petition.  So far as abuse of process is concerned, Mr Lau submitted that the unexplained delay of some four years from about January 2004 until late 2007 was of itself clear evidence that the Petitioner did not genuinely intend to proceed with the petition.  In those circumstances, he submitted, there had been an abuse of process on the part of the Petitioner in the sense identified in the decision of the House of Lords in Grovit v Doctor [1997] 1 WLR 640.

7. The leading authority on striking out for want of prosecution in so far as Hong Kong is concerned is still Birkett v James [1978] AC 297.  There Lord Diplock stated the principles on which the power should be exercised in the following terms.  He said:

“The power should be exercised only where the court is satisfied either:

(1)	that the default had been intentional and contumelious; for example, disobedience to a pre-emptory order of the court or conduct amounting to an abuse of the process of the court; or
(2)	(a)	that there had been inordinate and inexcusable delay on the part of the plaintiff or his lawyers; and
	(b)	that such delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action such as is likely to cause or to have caused serious prejudice to the defendant either as between themselves and the plaintiff or between each other or between them and the third party.”

8. Grovit v Doctor established that maintaining an action where there was no intention of carrying it to trial was an abuse of process which rendered the action liable to be struck out.  Grovit v Doctor was considered in Hong Kong by the Court of Appeal in New China (Hong Kong) Group Limited v AIG Asian Infrastructure Fund LP [2005] 1HKLRD 383.  There, while the Court of Appeal confirmed that the disobedience of a court order could be regarded as contumelious conduct, it pointed out that where there was no disobedience of a court order but only a failure to comply with the rules of court, before such conduct could be considered contumelious, it was necessary for there to be a full awareness of the consequences of the conduct on the part of the plaintiff.  At the end of the day, what has to be established is that the petitioner or plaintiff in any given case is maintaining an action which he has no intention of carrying to trial.

9. In this case, the Petitioner has certainly delayed for a very considerable period.  But can it be said that the delay, of itself and without more, establishes that he is simply maintaining the petition with no intention of carrying it to trial?  The Petitioner has, in fact, put forward an explanation for his failure to act.  He says that in the 1st Respondent’s affirmation in opposition to the petition, the 1st Respondent had indicated that the Respondents were prepared to buy out the Petitioner at a fair valuation and were awaiting the production of the latest set of accounts of the company in order to consider what offer to make.  The Petitioner says that when the time came for his list of documents to be filed he decided to wait to see what offer might be forthcoming and that this was the reason why he did not progress with the action at that stage.  He says that it was not and has never been his intention to maintain the action in being without intending to eventually get to trial but that he was hoping that the matter could be resolved without the need for a trial at that stage.

10. While I shall have more to say about this approach in the context of dismissal on the ground of inordinate and inexcusable delay, I have to say that I do not think that it can be inferred from the Petitioner’s inaction in itself that he had no intention of proceeding with his petition so as to render his inaction an abuse of the process per se.  In Vitara Foods Limited [1999] BCC 315, a petition seeking relief under section 459 of the Companies Act 1985, which is equivalent to our section 168A, was dismissed on the basis of a Grovit v Doctor abuse of process.  However, in that case, the facts were quite exceptional in that the company concerned had, in fact, been struck off and the proceedings had thereby become meaningless at law.  Whereas the meaningless nature of the proceedings was capable of being remedied by the taking of steps on the part of one or other party to restore the company to the register, nothing had been done by the petitioner for a considerable period after he had become aware of this problem and in those circumstances the court thought it appropriate to conclude that the petitioner had evinced a lack of an intention to bring the proceedings to trial so as to justify a finding of abuse of process on his part.

11. In this case, there does not appear to be any such feature.  There has been a failure to comply with the court ordered timetable and in this context it seems to me that there has technically been a breach of, or a failure to comply with, a court order.  However, I think it has to be borne in mind that at present failure to comply with a timetable will not, of itself, necessarily be regarded as contumelious conduct.  It certainly is possible for it to be rendered contumelious conduct where a party takes steps to obtain an “unless” order so as to bring home to the party in default the consequences of failure to comply.  However, that was not done in this case, and moreover, the failure on the part of the Petitioner was one that was shared by the Respondent.  The Respondents themselves took no steps to file their own list of documents or to take steps to get the Petitioner to do so.

12. While I would accept that they may not have been under any obligation to apply for pre-emptory orders, it seems to me that the failure to do so in this case, where the failure is in essence one to comply with a timetable, makes it difficult to infer that the Petitioner had no intention of bringing the proceedings to a conclusion if necessary, particularly in the light of the Petitioner’s evidence as to his thought processes behind his failure to act.  Thus, given the Petitioner’s thought processes to which he has deposed, I do not think that abuse of process in the Grovit v Doctor sense is made out in this case.

13. So far as the other limb for striking out is concerned, I am satisfied that there has been both inordinate and inexcusable delay.  I do not think that it can seriously be disputed that four years of inactivity is inordinate delay, nor do I think that the delay was excusable.  In this regard, it seems to me that there is a distinction between abuse of process in the Grovit v Doctor sense and the question of whether or not a particular delay is excusable or not.  While I have accepted that the Petitioner’s explanation of his inactivity is sufficient to negative the necessary intention that is required to found a case of abuse of process in the Grovit v Doctor sense, I do not think it follows from that that the delay was excusable.  In my view, while it might have been understandable or excusable for the Petitioner to have decided in the light of the 1st Respondent’s affidavit to wait to see whether or not an offer for the purchase of a shareholding in the company would be forthcoming, I do not think that he was entitled to wait an indefinite period for this to happen.

14. If no offer were forthcoming within a reasonable time, which would be measured in months rather than years, I would have expected the Petitioner to have taken some steps, at least, to ascertain whether or not any offer was, in fact, going to be forthcoming and on receiving confirmation that none would be forthcoming, or in the absence of confirmation, to indicate that in the absence of any offer he would reactivate the proceedings.  The fact is that the Petitioner took no steps at all to progress with the proceedings and I do not think that the expectation of having an offer made to him was one that justified a delay as long as that which occurred in this case.

15. As I have said, while it might have justified some delay, a point in time must have come by which the Plaintiff should have realised that no offer would be forthcoming and steps should then have been taken to progress with the proceedings.  I therefore am satisfied, as I have said, that the delay in this case has been both inordinate and inexcusable.  However, as is clear from Birkett v James, it is not sufficient to justify striking out an action that delay is both inordinate and inexcusable.  It is necessary also for some prejudice to the Respondents to be demonstrated.

16. In the present case, the Respondent identified three forms of prejudice in his affirmation in support of this application.  The first was that the company’s operations had effectively been frozen.  With respect to Mr Lau, I think at the end of the day that this is not a sufficient ground of prejudice to justify the striking out of the proceedings on this basis.  It seems to me that if there were genuine difficulty that were being caused by the existence of the winding-up petition, it would have been possible for the company to have obtained a validation order to enable it to carry on business if it were desired to do so.  There was, in fact, some evidence that the company was contemplating making an application for precisely such an order.  However, for reasons which are not entirely clear the company appears to have decided not to pursue such an application and in the circumstances I do not think that any difficulties that may have arisen as to this can be put down wholly to the Petitioner’s inactivity.

17. As for the other forms of prejudice alleged, which relate to the loss of business opportunities because of the existence of a winding-up petition against the company, it seems to me, at the end of the day, that these forms of prejudice, the details of which were relatively unparticularised and vague, arose to the extent that they did more because of the presentation of the petition than because of the delay in prosecuting it.

18. Finally, Mr Lau relied also on the more classic form of prejudice that was identified in Birkett v James - that there would be prejudice to the conduct of a fair trial.  Mr Lau submitted in this regard that oral evidence would be of some importance at the trial of the proceedings as much of the evidence would have to traverse matters that would depend, in part at least, on the recollection of the parties as to what occurred.  He submitted that there would inevitably have been some dimming of recollection in the many years that have elapsed since the proceedings were first brought.

19. I would accept that there would be some dimming of recollection and that this might cause a certain amount of difficulty at the trial.  However, having given the matter careful thought it seems to me that the prejudice in this sense is perhaps somewhat overstated and more apparent than real.  As I have noted, an affirmation was prepared and served on behalf of the 1st Respondent shortly after the proceedings were commenced.  The affirmation is one that is quite detailed and goes into considerable detail as to the alleged understanding between the parties and as to the facts and matters alleged by the Petitioner as well as facts and matters that are relied upon by the Respondents in response to the petition, in particular in support of an allegation that the Petitioner lacked clean hands.

20. Although it is fair to say that the 2nd Respondent did not, as Mr Lau indicated, file a substantive affirmation, the fact is that he did file an affirmation in accordance with directions given by Madam Kwan J, in which he adopted the evidence put forward on his behalf by the 1st Respondent.  In those circumstances, I am not satisfied that it will not be possible to have a fair trial of the proceedings or that any prejudice which may arise as a result of the possible dimming of recollections is such as to justify the dismissal of the proceedings in this case.

21. In those circumstances, while I have some sympathy for the position of the Respondents, having regard to the long delay that has occurred, which has in my view been inexcusable, I am not satisfied that there is sufficient prejudice to justify the court in exercising its powers to impose what is a draconian remedy of striking out the proceedings in their entirety.  For those reasons, I would dismiss the application that has been made by the 1st and 2nd Respondents.

(Submissions on costs and further directions)