KINCHENG BANKING CORPORATION v. TOPTIME INTERNATION TRADING LTD AND OTHERS

HCMP 1481/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1481 OF 2014

(ON AN INTENDED APPEAL FROM DCCJ NO. 9012 OF 2001)

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Hon Kwan JA (giving the decision of the Court):

1. On 10 March 2014, HH Judge Kent Yee dismissed the application of the 2^nd and 4^th defendants to strike out the statement of claim of the plaintiff bank for want of prosecution (“the Decision”). The defendants’ application for leave to appeal against the Decision to the Court of Appeal was refused by the judge on 5 June 2014 (“the Leave Decision”). They have renewed their leave application to the Court of Appeal by a summons issued in these proceedings on 18 June 2014.

2. Pursuant to the power under Order 59 rule 2A(5) of the Rules of the High Court, we think it appropriate to determine the application on paper without an oral hearing.

3. For leave to appeal to be granted, the requirement in section 63A of the District Court Ordinance, Cap 336 must be satisfied.  It must be shown that the appeal has a reasonable prospect of success or that there is some other reason in the interests of justice that the appeal should be heard.  It is well established that a reasonable prospect of success means an appeal with prospects that are more than fanciful but do not need to be shown to be probable.

4. Furthermore, a judicial decision whether to accede to an application to strike out an action for want of prosecution is always discretionary (Wing Fai Construction Co Ltd v Yip Kwong Robert (2011) 14 HKCFAR 935 at §§80 and 88).  In accordance with established principles, an appeal court would not interfere with a judge’s exercise of discretion in such an application unless it is shown that the decision is plainly wrong, or that the judge has applied the wrong legal principles (CIL Holdings Limited v Kwok Han Qiao formerly known as Kwok Wai Tak Edward, CACV 90/2013, 20 March 2014, §40).

5. Three grounds of appeal are advanced in the draft notice of appeal attached to the summons.  They are not entirely the same as the grounds of appeal advanced before the judge and dealt with in the Leave Decision.  The defendants’ solicitors have re-marshalled their arguments and raised new contentions with reference to new and additional authorities.  It is necessary for us to address the defendants’ arguments in greater length than we would otherwise have done in giving reasons why we think leave of appeal should be refused.

An overview of the Decision

6. We do not propose to set out in detail the facts, which appear in §§3 to 27 of the Decision.  A brief summary of the judge’s findings would suffice for present purpose.

7. The writ in this action was issued by Kincheng Banking Corporation (before it was merged to the plaintiff) in May 2001 against four defendants.  The claim against them was for the outstanding debt in respect of facilities granted to the 1^st defendant.  The 2^nd, 3^rd and 4^th defendants were sued as guarantors by a guarantee dated 14 September 1994.  Pleadings were closed in September 2001.  On 23 January 2002, a Master ordered the parties to file and exchange list of documents and witness statements by certain dates in February.  The plaintiff and the 2^nd defendant filed their lists of documents in March 2002 and January 2002 respectively.  The 4^th defendant did not file any list of documents.  None of the parties filed any witness statement.

8. The material delay found by the judge started from the filing of the list of documents by the plaintiff on 19 March 2002 and lasted to the filing of the Notice of Intention to Proceed by the plaintiff on 25 April 2013.  The plaintiff accepted before the judge that this delay was inordinate and inexcusable.

9. Whilst the judge found that the plaintiff has obviously ‘warehoused’ the present action for a long time, he declined to find on the evidence that this amounted to abuse of process of the court[1].  He considered the complaints of the defendants that a fair trial is no longer possible because of (1) loss of witnesses, (2) loss of memories and (3) loss of documents.  He found against the defendants on the evidence on each of these complaints[2] and concluded that a fair trial of the action is still possible despite the substantial delay[3].  He was not convinced that the defendants have suffered real prejudice because of the delay or that the present proceedings are actually an abuse of the process of the court[4].

10. He rejected the contentions based on the defendants’ deterioration in health, mental stress and anxiety and loss of reputation[5].

11. The judge concluded that he is not satisfied this is a plain and obvious case that he should exercise his discretion to strike out the statement of claim and therefore dismissed the summons[6].

The first ground of appeal

12. The first ground advanced by the defendants is that the judge had misunderstood that the present case was not a “straddle case” as identified in Wing Fai and stated that he “shall simply dispose of the present application in accordance with the existing law”[7].

13. The judge had understood a “straddle case” as referred to in Wing Fai to mean a case in which the summons for striking out was issued before the Civil Justice Reform (“CJR”) came into effect but was heard when the CJR was already in operation.  He was mistaken about this.  A “straddle case” referred to in Wing Fai is a case which straddled the CJR, namely, where proceedings have been commenced before the CJR came into effect[8].  And the approach to be adopted in straddle cases is that the court will apply the law as exists today, but when evaluation is made of the conduct of a party in the proceedings, the court should take into account the circumstances prevailing at the relevant time and the statutory structure in place at the relevant time[9].

14. The defendants’ solicitors then cited various passages in CIL[10] in support of their contention that the judge’s evaluation of the evidence and findings were wrong regarding the complaints of the dimming of memories, the loss of witnesses, and in laying the blame on the defendants for “letting sleeping dogs lie”.

15. Notwithstanding the mistake made by the judge that the present case was not a “straddle case”, we do not think he had fallen into error in his approach in his evaluation of the conduct of the parties.

16. First, as rightly pointed out by the plaintiff’s counsel, Mr Anthony Chan, the judge had correctly summarised the applicable principles in Wing Fai[11].  It is telling that in the leave application before the judge, there was no suggestion that he had misunderstood or misapplied those principles in the Decision[12].

17. Second, in considering the various complaints of the defendants that it would not be possible to have a fair trial, the judge mentioned at the outset it is clear on the evidence that the defendants “deliberately adopted a ‘letting sleeping dogs lie’ attitude”[13] and any complaints about the infeasibility of a fair trial must be viewed in light of that attitude[14].  Although the judge accepted that such an attitude might be prevalent before the CJR and agreed with the defendants’ counsel “this might not be something which [he] should take against [the 2^nd and 4^th defendants] when [he considered] the parties’ respective conduct”, he went on to say that any alleged loss of memories and/or documents is in fact “self-induced and/or self-inflicted albeit on legal advice”[15].

18. There is no error in his approach.  Cases decided before the CJR did not approve a stance that if a defendant adopted the attitude of letting sleeping dogs lie, he would not need to take the precaution of preserving documents and securing the proof of witnesses.  To the contrary, the court had expected a person who was sued to take at least some basic steps to guard against the dimming of memories with time and to preserve relevant evidence, such as by making a record of relevant recollections, by taking proofs from potential witnesses, and by preserving documents, particularly when the defendant had the opportunity of considering the claim with his legal advisers.  See Hymer v Mass Transit Railway Corp & Ors [2000] 2 HKLRD 589 at 610D to J.

19. The judge had applied the legal principles in Wing Fai in a “straddle case” correctly when he came to evaluate the parties’ conduct.  He had regard to the law that exists today with the CJR having come into operation and the prevailing circumstances at the relevant time.  He rightly pointed out there was no evidence that the defendants had ever made genuine efforts to locate the witnesses who had not been identified in their pleadings in 2001 but mentioned for the first time in their affirmations made in October 2013 in support of the strike out application.  There was no evidence that they had done adequately to obtain relevant evidence[16].  He was not convinced of the probative value of the alleged missing documents[17], and on the evidence adduced in the strike out application, he failed to see how the defendants’ memories about the alleged misrepresentation when the guarantee was executed have been dimmed as a result of the delay[18].

20. We agree with Mr Chan that the statements of Yuen JA in the various passages in CIL cited by the defendants were taken out of context and without regard to very different factual situations in the two cases.  It is pertinent to note that the defendant in CIL had received positive indications from the plaintiff and its chairman that the plaintiff was no longer pursuing its claim[19], and this went beyond mere inaction and delay as in the present case.  Unlike CIL, in which the plaintiff there was able to adduce a witness in support of its case, the missing witness who allegedly misrepresented to the defendants in the present case would only mean that the 2^nd defendant’s allegation cannot be contradicted by the plaintiff calling this person as a witness.  The judge failed to see how the defendants would suffer prejudice as a result[20].

21. We do not see any valid basis to impugn the judge’s findings on the evidence.  There is no substance in the first ground of appeal.

The second ground of appeal

22. The complaint here concerns the judge’s approach to the issue of ‘warehousing’.  It was submitted that having found the plaintiff has warehoused the action for a long time, the judge incorrectly assumed that “being urged upon by the defendant to proceed with the action”[21] was the only precondition for proving that the plaintiff has no intention to bring proceedings to a conclusion.  And on that erroneous basis, the judge held that the warehousing of the claim in this case was not abusing the process of the court.

23. It was further argued that given the finding that the plaintiff has warehoused its claim, the judge should have examined the plaintiff’s explanation for its prolonged inactivity and if he was not satisfied with the explanation, he should have found that the warehousing of itself amounted to an abuse of process justifying striking out.  An article entitled “Inordinate Delay” by Professor Reyes in Law Lectures for Practitioners 2012 was cited in support of this proposition.  In this article, Professor Reyes read Lord Woolf’s statements in Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 1 WLR 1426 at 1437B to F as “equating inordinate and inexcusable delay with abuse of process” and was of the view that the reasoning of the Chief Justice in Wing Fai at §75(4) is not right.

24. We do not think these are valid contentions that the judge had misapplied the law in Wing Fai.

25. In the Decision at §34, the judge had correctly stated that in order for the warehousing of claims to justify striking out, it must be clear that the plaintiff is abusing the process of the court.  When he went on to say that a plaintiff is abusing the process of the court if he has no intention to bring proceedings to a conclusion despite being urged upon by the defendant to proceed with the action, he was merely referring to the situation in Grovit v Doctor [1997] 1 WLR 640 at 645H to 646A.  The defendants’ solicitors have misread that sentence to mean that the judge was referring to this as the only situation or precondition to find abuse of process where there was a warehousing of the claim.  The judge was obviously aware of the statements of Ma CJ in Wing Fai concerning the warehousing of claims in the context of abuse of process, as he had referred to the analysis of the Chief Justice in that regard more than once in the Leave Decision, see §§18 to 20.  As rightly pointed out by Mr Chan, the instances of warehousing of claims as amounting to abuse of process identified in Wing Fai at §75(4) are but only examples, they are clearly not meant to be exhaustive.

26. As for the argument that in the absence of satisfactory explanation from the plaintiff for prolonged inactivity the judge should find the warehousing of a claim in itself would amount to an abuse of process justifying striking out, that is not the law as stated in Wing Fai.  Inactivity by itself would not indicate that the plaintiff has simply no intention to bring proceedings to a conclusion.  The court will need more than just mere inactivity to reach the clear conclusion that the plaintiff is abusing the process of the court before the action could be struck out, see Wing Fai at §§56 and 75(4).  The failure to give satisfactory explanation for prolonged inactivity would establish inordinate and inexcusable delay.  As the Chief Justice said at §§75(2) and (5), it is still important when looking at the aspect of delay that it should be both inordinate and inexcusable, and that abuse is shown.  It has never been the law that mere delay will be sufficient to justify striking out, the element of abuse of process must be clearly demonstrated for proceedings to be struck out.

27. On the evidence before him, the judge came to the view there is little evidence that the plaintiff intended to abuse the process of the court.  The plaintiff did not refuse any attempt by the defendants to bring the action to a conclusion, nor was there contumelious conduct of the plaintiff shown on the evidence such as persistent failures to comply with the applicable rules of court[22].

28. The citation of cases (being Nanjing Iron & Steel Group International Trade Co Ltd v STX Pan Ocean Co Ltd, HCAJ 177/2006, 7 September 2009, Reyes J; Cheung Sai Kit v Wong Chiu Kit, HCA 1611/2005, 17 December 2009, Au J; and Wing Fai Construction Co Ltd v Cheng Kit Yin Kelly & Ors, HCA 833/2004, 19 October 2010, Poon J) does not advance the defendants’ argument that warehousing of the claim in the present case should amount to abuse of process, as the fact situations in the cases cited are very different. This was pointed out in Wing Fai at §§75(6) and 81(3).

29. Nor do we find it of assistance to the defendants here that L Chan J in Kwangtung Provincial Bank v Chung Sun Kwan & Anr, HCMP 7711/1999, 19 March 2014, gave leave to appeal against his decision in refusing to strike out the third party proceedings, taking the view that the third party’s argument that the defendant, as the Official Receiver’s assignee, had warehoused the claim has a reasonable prospect of success.  The fact situation in that case is again very different.  Besides, L Chan J had, in his earlier decision on 13 February 2014, correctly stated the law at §38 that in order for warehousing of claims to justify striking out, it must be shown that the plaintiff is abusing the process of the court.  He did not equate the warehousing of claims with abuse of process.

30. We are of the view there is no merit in the defendants’ arguments in the second ground.

The third ground of appeal

31. The third and last ground of the intended appeal relates to the finding in §39 of the Decision that there was no contumelious conduct of the plaintiff.

32. This may be dealt with succinctly as there is little merit in the defendants’ contention and it was canvassed in the leave application before the judge.  Suffice it to say we agree entirely with his reasons for rejecting the defendants’ arguments in §§21 to 22 and in §§13 to 15 of the Leave Decision.

Conclusion and costs

33. The defendants have failed to demonstrate that the judge’s exercise of discretion is plainly wrong or that he has applied wrong legal principles.  As none of the grounds of appeal in the draft notice of appeal have reasonable prospect of success, nor is there any other reason in the interests of justice that the intended appeal should be heard, we dismiss the defendants’ application for leave to appeal.

34. We make a further order under Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes, as this application is wholly without merit.

35. We make an order nisi that the defendants should pay the plaintiff’s costs of this application and we proceed to make a gross sum assessment.

36. The plaintiff has put in a statement of costs in the total sum of $124,686.  We think the amount claimed is excessive, particularly in respect of the solicitors’ charges.  We note that other than the revised draft notice of appeal and the defendants’ skeleton submissions before us, no new documents are placed before this court.  The time taken by the solicitors in communications with client and counsel, and professional work done in the preparation, perusal and consideration of documents is not justified on a party-and-party basis, not to mention apparent duplication with work done by counsel.  We reduce the fees claimed in respect of solicitors’ work and disbursements apart from counsel’s fees from $89,686 to $24,000.  Counsel’s fees are reduced from $35,000 to $30,000.  The total amount of reasonable fees assessed summarily is $54,000.

37. Any party who seeks to vary the above order nisi and gross sum assessment shall lodge a written submission within seven days hereof, with leave to the other party to reply in writing within seven days thereafter.

[1] Decision, §39

[2] Decision, §§44 to 48, 49 to 50 and 51 to 54

[3] Decision, §55

[4] Decision, §61

[5] Decision, §§56 to 60

[6] Decision, §61

[7] Decision, §36

[8] Wing Fai, §74

[9] Wing Fai, §29; CIL, §38

[10] CIL, §§42.2, 42.4, 42.5, 44 and 45

[11] Decision, §§28 to 34

[12] Leave Decision, §15

[13] Decision, §§24 to 27, 39

[14] Decision, §43

[15] Decision, §43

[16] Decision, §§47, 48

[17] Decision, §50

[18] Decision, §§51, 54

[19] CIL, §§30, 31

[20] Decision, §46

[21] Decision, §34

[22] Decision, §39