GOLDWAN CONSULTANTS LTD v. SOUTH-EAST ASIA INVESTMENT AND AGENCY CO, LTD AND OTHERS

HCA 17783/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 17783 OF 1999

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J U D G M E N T

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1. This is a claim by the Plaintiff for water damage to its property at flat B 32nd floor, Amber Garden, Nos. 70-72 Kennedy Road, Hong Kong (hereinafter called "flat 32B"). At all material times up to shortly before the issue of the writ herein, the 1st and 2nd Defendants were the registered owners of the external wall of Amber Garden. Shortly before the issue of the writ herein, on 19 October 1999, the 1st and 2nd Defendants assigned their interest in the external wall to Springtide Properties Limited. The Plaintiff's case was that as the owners of the external wall, the 1st and 2nd Defendants were also the owners and occupiers of a certain architectural feature extending from the external wall immediately above the balcony of flat 32B. The 3rd Defendant was and still is the registered owner of flat A on 33rd floor of Amber Garden (hereinafter called "flat 33A"). Flat 33A is directly above flat 32B.

2. The Plaintiff alleged that flat 32B was let to a tenant whose tenancy expired in August 1999. When the tenancy expired, the Plaintiff recovered possession and found water stains at the ceiling walls of the living room, bed-rooms and bathroom to the master bed-room indicating that there were water seepage in these areas. The Plaintiff instructed a firm of surveyor who reported to the Plaintiff in September 1999 that the water damage was due to the presence of water in the void of the architectural feature and the water there seeped through external wall and got into the ceiling walls of the Plaintiff's flat 32B. The Plaintiff case was that the water damage to flat 32B was caused by the private nuisance created by the 1st and 2nd Defendants and also by the 1st and 2nd Defendants' negligent failure to maintain their property in accordance with their obligation under the Deed of Mutual Covenants and the Building Management Ordinance. There followed some correspondence between the Plaintiff's solicitors and the 1st and 2nd Defendants' solicitors who asked the Plaintiff to withhold issuing proceedings pending their clients' investigation. Eventually flat 32B was inspected by the 1st and 2nd Defendants' expert and also by the Plaintiff's expert again in October 1999. On this occasion, the Plaintiff's expert came to the view that it was also a probable cause that the water damage was caused by seepage from flat 33A. The Plaintiff thus thought that it also had a cause of action against the 3rd Defendant similar to that against the 1st and 2nd Defendants. The negotiation between the parties did not result in any resolution of the dispute. On 16 November 1999, the Plaintiff issued proceedings against all 3 Defendants.

3. As the 3rd Defendant stood in a neutral position in the 2 applications before me, I would not recite the facts and events relating to the 3rd Defendant in this Judgment.

4. By their Defence filed out of time on 4 January 2000, the 1st and 2nd Defendants pleaded that in October 1999 they had already assigned their rights and interest in the external wall to Springdale Properties Limited. It is just not too sure as to what is the purpose of this plea. It was not asserted that by reason of the assignment, they could get rid of their liability in relation to the failure to properly maintain their property while they were the registered owners. Furthermore, the 1st and 2nd Defendants while admitting that there was the architectural feature situated immediately above the balcony of flat 32B and that this feature was connected to the external wall, denied that they were the owners of this feature. These 2 Defendants made no admission on the water seepage or damage to flat 32B and also denied any negligence, nuisance or breach of any obligation under the DMC and also under the Building Management Ordinance. In their Defence there were also certain pleas on the effect of the correspondence between the solicitors and also complaints that their experts were not allowed to carry out a certain inspection and test.

5. The Reply to the Defence of the 1st and 2nd Defendants' Defence was filed on 14 March 2000 with the consent of these 2 Defendants and the Rejoinder by the 1st and 2nd Defendants were filed on 5 October 2000. Meanwhile the Plaintiff had taken out a summons for direction on 4 July 2000. On 20 July 2000, the Master directed, inter alia that the parties were to serve their lists of documents within 21 days and inspection was to take place within 14 days of the service of the lists, and that the parties were to exchange their witnesses' statements as to fact within 42 days after inspection of documents. The Master further directed that the parties were to serve within 14 days all their expert reports which they intended to rely. On 20 July 2000, the Master gave further direction relating to the expert evidence. Amongst the directions given were that the experts were to exchange their reports within 21 days after their 2nd inspection and that they should meet on a without prejudice basis within 14 days thereafter. The experts were directed to try to prepare a joint expert report, if possible within 14 days of the without prejudice meetings identifying the area of agreement and disagreement.

6. On the Plaintiff's case flat 32B was let to a tenant till August 1999 when the lease expired and not surprisingly the tenant refused to renew the tenancy. At the beginning there appeared to be a certain degree of goodwill between the parties even after this action was commenced. Between end of January 2000 and 17 February 2000 it would appear that the 1st and 2nd Defendants had sent in some contractor to do some remedial work on the architectural feature and also to flat 32B. However, there was some dispute now between the parties as to what work was in fact done. In the chronology annexed to the affirmation of Wong Wai Yee filed on 29 August 2002, the 1st and 2nd Defendants' contractor would describe the work done to flat 32B was merely touch up work. According to a letter written by the Plaintiff's solicitors to the 1st and 2nd Defendants' solicitors dated 24 February 2000 the Defendants' contractor had drilled a hole at the bottom of the architectural feature and the Plaintiff's solicitors wanted to find out the purpose of such hole. Also in the same letter the Plaintiff informed the Defendants of the intention to redecorate the premises. This is perfectly understandable because it would be surprising that any reasonable owner of a property would simply allow the property to stay in the way it was solely for the purpose of preserving evidence for the litigation without taking any steps to mitigate its loss in making good the premises so as stop any loss of enjoyment of the premises. By a letter dated 14 March 2000 the Plaintiff's solicitors further informed the Defendants' solicitors that work had commenced and had further listed in the letter a brief description of the work which would be started in a few days time. At this time, the 1st and 2nd Defendants did not appear to be very much concerned with the work that the Plaintiff intended to do.

7. After the direction of the Master of 20 July 2000, there was again further correspondence between the parties on both the inspection and also on the type of remedial work required. Since the direction also envisaged that destructive tests might be conducted by the parties, there was also correspondence directed at what tests the parties would do. The Plaintiff's stance appeared to be that its experts did not propose to conduct any such test. The Defendants' side appeared to be quite indecisive at least up to 20 December 2000 when their solicitors told the Plaintiff's solicitors after many reminders that their experts were still considering whether to recommend any further test to flat 33A. Eventually on 5 January 2001, the Defendants' solicitors finally confirmed that their clients (sic) would not recommend any further test to be conducted at flat 33A and in the same letter the Defendants' solicitors also said that the Defendants' experts were preparing the report and they would inform the Plaintiff when the report was ready for exchange. Eventually the parties exchange their experts' reports on 31 January 2001. It is fair to say that between July 2000 to end of January 2001, the Plaintiff appeared to be the party who was keen to get on with the action. During this period of time, it was the 1st and 2nd Defendants who appeared to be slow in the progress of getting on with the case. Consequently the Plaintiff's solicitors had written many letters to his counterpart with a view of chasing up the progress. Of course the Defendants through their solicitors appeared to suggest that their experts actually required much time to complete the work of the report etc.

8. In accordance with the direction of the Master, the parties' experts did meet and eventually on 9 May 2001, a joint Statement of Inspection of flat 33A was prepared setting out the agreements and differences between the parties. This joint report was filed on 28 May 2001.

9. Thereafter the Plaintiff spent the time in preparing witness statements and also in obtaining advice from counsel on evidence. On 26 June 2002, the Plaintiff filed a notice of intention to proceed. On 29 July 2002 the Plaintiff issued a summons for leave to amend the Statement of Claim. Before the summons was heard, on 29 August 2002, the 1st and 2nd Defendants issued a summons for the dismissal of this action for want of prosecution under the inherent jurisdiction of the court. The Defendants alleged that the Plaintiff had been guilty of inordinate and inexcusable delay in proceeding with this action to the prejudice of the 1st and 2nd Defendants. Master Kwang directed that the 2 summons be heard together and on 10 December 2002, Master Brock directed that this matter be heard by a Judge.

10. It is convenient to deal with the application for the dismissal of the action first.

11. The law on the dismissal of action for failure to comply with the rules or the order of the court or for want of prosecution is well settled. The approach of the court will differ depending on whether the default is contumelious or not. In the present case, there was no suggestion that the Plaintiff had been guilty of contumelious default. The governing principles were laid down by the House of Lords in the well known case of Birkett v James [1978] AC 297. In order to succeed the Defendants seeking to dismiss the action for want of prosecution would have to show that (a) there has been inordinate and inexcusable delay on the part of the Plaintiff or its 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 or is such as is likely to cause or to have caused serious prejudice to the Defendants either as between themselves and the Plaintiff or between each other or between them and a third party. It is important to note that in order to succeed, the inordinate and inexcusable delay must be causative of the prejudice suffered. It is also important to note that since the dismissal of an action under this jurisdiction would not be an adjudication of the cause on merits, there is nothing to stop a plaintiff from issuing another new writ on the same cause of action. Hence, unless the relevant limitation period has expired, there is relatively little point in dismissing an action where the plaintiff could start a new action all over again. Thus save in exceptional cases, an action will not be dismissed or struck out for want of prosecution before the expiry of the relevant limitation period (see Birkett v James [1978] A.C. 297, 321D). The principles set out in Birkett v James had been followed in a number of English and Hong Kong authorities with different gloss to reflect the application of the principles to different factual situations. A convenient summary of those applicable principles was set out by Neill L.J. in Trill v Sacher [1993] 1 WLR 1379, n1398-1400 which was also reproduced in the judgment of Mortimer V.P. in Hong Kong & Shanghai Banking Corp. Ltd. v Kuan Tao Sheng [1998] 1 HKC 438 at 443F-445I.

12. On the part of the Defendants it was contended that the Plaintiff had been guilty of inordinate and inexcusable delay since the issue of the writ in November 1999. There was no dispute that the test for inordinate delay was whether the delay was materially longer than the time which was usually regarded by the courts and the profession as an acceptable period. Again there was no real dispute between the parties that for the purpose of deciding whether the delay was excusable or not, the matter ought to be looked at primarily from the Defendants' point of view. However, it is well established that delay to which the Defendants were responsible would be excusable. Likewise the Defendants would be estopped from relying on any delay where their conduct had induced the Plaintiff to incur further costs in the belief that the Defendants would pursue the action notwithstanding the Plaintiff's delay (see Hong Kong & Shanghai Banking Corp Ltd. v Kuan Tao Sheng [1998] 1 HKC 438 at 448D-I, 450A-D).

13. On the facts of the present case, I could not find that there was any inordinate or inexcusable delay up to the time of the filing of the Joint Statements by the experts on 28 May 2001. The Plaintiff contended that since the filing of the Joint Statements, the Plaintiff had spent time in the preparation of witness statements and seeking advice on evidence from counsel. It was also contended that between 13 December 2001 and 4 February 2002 there was without prejudice correspondence between the parties concerning at least the progress of the case and I was told that these discussions also related to the market rental of the Plaintiff's flat 32B. The Defendants contended that this negotiation was not relevant because the question of the market rental of flat 32B was never in issue and pointed to the fact that there was not even any direction in relation to expert evidence on valuation. However, the Statement of Claim did make a claim for damages to be assessed and it would not take much imagination for anyone to realise that there would be loss of use of the property during the course of any repair. Whether the issue of rental value of the property had been made an issue or not, the Plaintiff contended that the Defendants by their conduct had certainly led the Plaintiff into believing that the Defendants would not take issue on delay and through the correspondence encouraged the Plaintiff to spend time and money in making further preparation for the trial of this action. The Defendants of course denied any such estoppel. It was contended by the Defendants that in fact by their solicitors' without prejudice letter of 13 December 2001, the Defendants had requested the Plaintiff to discontinue the action in view of the lack of progress.

14. I am of the view that the Defendants' conduct in continuing to engage in without prejudice correspondence with the Plaintiff after making the invitation to the Plaintiff to discontinue the action on the ground that the action had come to a stand still without any progress instead of making an application to strike out the action for want of prosecution, could be reasonably understood as meaning that the Defendants would be prepared to pursue the action notwithstanding the Plaintiff's delay since 28 May 2001. However, that did not provide any excuse for any delay since 4 February 2002 when it was acknowledged by both parties that the negotiation had broken down.

15. I do not consider that the need to obtain counsel's advice on evidence and the preparation of the witness statements could amount to a reasonable excuse for the delay. This is particularly so when there was a lot of time since the Master's direction of 20 July 2000 for such advice to be taken and for witness statements to be prepared.

16. The Defendants claimed that they had suffered from prejudice. The Defendants relied on the observation of Lord Griffiths in Department of Transport v Chris Smaller Ltd. [1989] 1 All E.R. 897 at 904j, that prejudice to the Defendants may be of varying kinds and it is not confined to prejudice affecting the actual conduct of the trial. This was not disputed by the Plaintiff. However, unlike cases involving claims against professional persons where the very fact of a claim hanging over their head has been recognised as a severe prejudice, or cases where the long delay of a pending action has caused significant damages to the business plan or interest, in the present case, the Defendants were not able to point to any particular kind of prejudice other than the difficulties in defending the action. In fact, very little was known about the 1st and 2nd Defendants. Apart from their ownership of the external wall and the subsequent disposal thereof shortly before the writ was issued, there was nothing known about these 2 Defendants and they had not disclosed anything about themselves or their business activities.

17. Regarding the prejudice to the defence of this action and the substantial risk that a fair trial is rendered impossible, the Defendants relied on the followings:

(a) There was delay caused by the Plaintiff's alleged opposition to inspect flat 32B and because of the delay in having inspection, the experts were unable to reach any absolute conclusion on the source and method of water leakage into flat 32B or to recommend any further testing to be done.

(b) The condition of flat 32B had changed and the Defendants were no longer the owner of the external wall so that they would not be able to comply with any injunction granted against them.

(c) Although there was no complaint of water leakage since April 2000 the Defendants had to suffer from the inconvenience of having had to defend this action and the situation would be worse if the Plaintiff was given leave to amend the Statement of Claim.

(d) There was the inevitable consequence of the dimming of the memories of witnesses on where the leakage was observed etc.

18. As to contention (a), it is to be noted that the main basis of the complaint of prejudice relied on was founded on the observation of the experts in the Joint Statements. The prejudice, if any, would spring from the fact that some work had been done to flat 32B prior to any joint inspection and any joint statement. Given that the relevant inordinate and inexcusable delay in the present case only occurred after the preparation and filing of the Joint Statement, I do not see the delay having any causative effect on this alleged prejudice at all.

19. As to contention (b), I do not see any probative value or relevance in this contention. The Defendants transferred their interest after they heard of the possible claim and before the issue of the writ herein. Even if this would mean that they would not be able to comply with any injunction sought by the Plaintiff in this action, I could not see how this could amount to any "prejudice" arising out of any relevant inordinate and inexcusable delay. In fact if it was impossible for them to comply with the injunction sought, it would merely mean that the court would probably not grant the injunction against them.

20. As to contention (c), there was nothing put forward to justify any suggestion that the Defendants would suffer from any additional prejudice other than the fact that there was a pending action. As I have pointed out earlier, the Defendant had not put forward any evidence on any of their activities. I could not see any real prejudice and certainly I do not think that this would amount to any prejudice in the form of any risk of fair trial not being possible.

21. In relation to (d), it has to be remembered that the main point of dispute is likely to be on the cause of the water leakage and the exact extent of the leakage or the size of the wet patches were not of the most crucial importance. In any case, there was no suggestion that the experts had not taken down sufficient record of what they saw at the time of their inspection. I do not consider that this possibility of the dimming of memory was any or any sufficient prejudice to justify the dismissal of the action.

22. In any event given that it was acknowledged by the Defendants' counsel that the limitation period had not expired, there is really no reason for me to exercise my power and discretion to strike out the Plaintiff's action.

23. Thus to conclude, I would dismiss the Defendant's summons of 29 August 2002.

24. In relation to the Plaintiff's summons for leave to amend the Statement of Claim, the main objection of the Defendants was the intended amendment to paragraph 5 of the statement of claim whereby instead of pleading that in or about August 1999 the ceiling and walls of various parts of flat 32B suffered from damp stains and patches owing to water leakage, the Plaintiff would now want to allege that these damp stains and patches were found in or about May 1998. The Defendants contended that this would effectively change the cause of action so that instead of making an investigation of the cause of water damage since August 1999, in the light of the new pleading, the Defendants would have to investigate the cause of water damage since May 1998. The Defendants contended that since it was not possible to carry out any investigation on the cause of the water damage in 1998 in view of, inter alia the change and repair work done to flat 32B and possibly also to 33A, the Defendants would suffer from real prejudice which could not be compensated by a suitable order as to costs.

25. On the other hand, the Plaintiff contended that notwithstanding the change to the date when water patches were found, it was the same cause of action being relied upon by the Plaintiff. Also the Defendants did not suffer from any alleged prejudice because it would be plain from the particulars of special damages that the Plaintiff would only claim for loss of use of the property (as reflected by the rental value) since August 1999.

26. Looking at the pleadings in this case, I am bound to say that the Statement of Claim whether as drafted or as amended is far from being a model pleading. In its original form, paragraph 5 pleaded that in or about August 1999 damp stains and patches were found at various parts of flat 32B. Since the cause of action for nuisance would not be completed without any damage, a reasonable way of interpreting the pleading is that the Plaintiff was relying on a cause of action which had only accrued in August 1999. Insofar as the cause of action for breach of duties to repair under the DMC and the Building Management Ordinance is concerned, although technically a cause of action for breach of contract would not require any actual damages being shown, in view of the fact that the obligation to repair would only arise when the need to repair would arise, it is also reasonable to interpret the original pleading as meaning that in or about August 1999, there was the failure to carry out the obligation to repair thus causing the damage to flat 32B as manifested by the presence of the damp stains and patches.

27. In the circumstances I am of the view that the 1st and 2nd Defendants were right in contending that this was an amendment which would involve a change of the cause of action. The most crucial question however, is whether these Defendants had suffered any prejudice which could not be compensated by a suitable order as to costs. On this point, I am also of the view that in view of the lapse of time and the change and repair to flat 32B, it is now quite impossible for the Defendants to collect evidence relating to the damp stains or patches occurring since May 1998. It is one of those rare cases where the Defendants could not be adequately compensated by a suitable order as to costs.

28. As to the contention that the amendment would not really prejudice the Defendants because the Plaintiff only seeks special damages in the form of loss of use of the property since August 1999, I do not think that this limitation of the amount of damages could address the concern of the Defendants on the change to the cause of action. It has to be remembered that apart from the special damages in the form of loss of use of the property, the Plaintiff would also set out as a particular of special damage of the diminution of the value of flat 32B caused by the extensive water leakage which may affect its structural integrity. Although in the prayer, nothing was mentioned about this item of damages, I am of the view that the Defendants are justified to raise the concern

29. As to the rest of the intended amendments, I do not see that there is any real objection to these amendments which basically relate to the things done since the cause of action arose and they are relevant to the issue of the extent of the damage and the mitigation of the damage. I am prepared to grant leave to make these other amendments. There would of course be leave to the Defendants to make the consequential amendments to their Defence within 14 days from the handing down of this Judgment.

30. On the question of costs, on the summons to amend I have to bear in mind that the Plaintiff is no doubt asking for the court's indulgence to make the amendments and in the ordinary course of event, should be asked to pay the costs even if the Plaintiff is entirely successful in its application. Further, I have also had to bear in mind that the Defendants had been partially successful in resisting at least one intended amendment. Also notwithstanding the general rule that the party asking for the court's indulgence would have to pay the costs for the application of the indulgence, the court may order costs of the substantive hearing for the application against the party who had unreasonably resisted the application (see Lessy SARL v Pacific Star Development Ltd. [1996] 2 HKLR 1 at 2B-C).

31. In relation to the application to strike out for want of prosecution of the action which had been successfully resisted, one view of the matter is that it is in fact the party guilty of delay in complying with the rules or the court's direction who has to ask for the indulgence of the court to continue with the action and hence he should not get the costs of the first instance hearing of the application even though he is successful (see the remarks of Brandon J. in The Mollymawk [1974] 1 Lloyd's Rep 32 at 39). However, in the present case, I have to bear in mind that since 1974, the law in this area had been clearly laid down in Birkett v James, and this is a case where I would find that the Defendants had not really begun to show any real prospect of success in their attempt to strike out because their evidence on prejudice was so tenuous and also this is a clear case where the limitation period has not expired. Hence the Defendants' conduct in trying to have this action struck out is somewhat unreasonable and has in fact caused further delay to the proceedings.

32. Finally I have to bear in mind that the 2 summons were all along heard together both before the Master and before me, and it is inevitable that some part of the time was spent on facts and issues which were common to both summons. It is thus convenient for me to make a single order as to costs in relation to both summons instead of artificially apportioning the time taken for each application.

33. Taking all the aforementioned factors and consideration into account, I would make the following order nisi on costs:

(1) As between the Plaintiff and the 1st and 2nd Defendants on both the summons to amend the Statement of Claim and to strike out:

(a) The 1st and 2nd Defendants shall have the costs of the hearing before the Master on 3 September 2002.

(b) The 1st and 2nd Defendants shall have the costs of and occasioned by the amendment.

(c) The Plaintiff is to have 80% of the costs of the affidavits or affirmations filed for the purpose of these 2 summons and also 80% of the costs of the hearing before the Master on 10 December 2002 and also before me.

(d) There will be a certificate for counsel for the hearing before me.

(2) As between the Plaintiff and the 3rd Defendant:

(a) The 3rd Defendant shall have the costs of the hearing before the Master on 3rd September 2002.

(b) The 3rd Defendant shall have the costs of and occasioned by the amendment.

(c) There shall be no order as to costs for any hearing before the Master on 10 December 2002 and also before me.