XCHRX CON-TECH FRANCHISE ASIA LTD. v. CENTURY CITY HOLDINGS LTD. AND ANOTHER

HCA 1343/1990

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1343 OF 1990

____________

_________________________________

REASONS FOR DECISION

_________________________________

Introduction

1. On 2 November 2000, the 1st Defendant ("D1") took out a summons asking for the original action herein to be dismissed:-

(a) for want of prosecution;

(b) by reason of the plaintiff's failure to issue a summons for directions.

2. At the end of the hearing of that application on 13 March, 2001, I granted an order in D1's favour. The following are the reasons for that decision.

The Nature of these Proceedings

3. The plaintiff brought this action against D1 claiming repayment of a loan under a loan agreement dated 6 October 1983. According to the loan agreement (as varied by a supplemental agreement dated 12 January 1984), the loan was repayable on or before 29 February 1984. The Amended Statement of Claim pleads that:-

(1) D1 acknowledged in writing on 29 March 1984 that the outstanding balance was $4 million odd;

(2) the last partial payment was made on 11 February 1985.

4. According to the above pleas, the plaintiff's cause of action accrued either on 29 February 1984 (the contractual repayment date), 29 March 1984 (the date of acknowledgement) or (latest) 11 February 1985 (the date of the last partial payment).

5. D1's defence is in essence as follows:-

(a) on 30 May 1985, the plaintiff assigned the said loan to the 2nd defendant ("D2");

(b) subsequently (in August 1985), the said loan was assigned by D2 to a Mr Bong Shu Yin Daniel, the 3rd defendant in D1's counterclaim ("Bong").

It is D1's case that both assignments were validly made (a claim disputed by the plaintiff) and, in relation to the assignment between the plaintiff and D1, D1 has provided consideration by way of procuring its entitlements (company shares and cash) to be provided to a Mr Ch'ng Poh ("Ch'ng") (who was in control of the plaintiff) by one UTG, a Hong Kong company. Those entitlements were in fact provided to, and accepted, by Ch'ng.

The Relevant History of these Proceedings

6. In brief, D1 submitted that since 10 August 1991 (a period of nearly 10 years), no proactive step has been taken by the plaintiff. The detailed chronology of these proceedings (undisputed by the plaintiff) can be found at para. 17 of the affirmation of Ng Kwai Kai dated 1 November 2000. If one leaves aside things like the application for security for costs (made by D1), notices of change of solicitors or notices of intention to proceed, no real progress has been made herein since close of pleadings.

The Issues in this Application

7. The relevant legal principles are undisputed and have been summarized at para. 8 of D1's skeleton submissions:-

"The test is that established in Allen v Sir Alfred McAlpine & Sons Ltd. [1968] 2 QB 229 ..., approved by the House of Lords in Birkett v James [1978] AC 297 ..., and reconfirmed in Department of Transport v Chris Smaller (Transport) Ltd. [1989] 1 AC 1197 ... That test requires a defendant seeking to have an action against it dismissed for want of prosecution to satisfy the Court that :

(1) There has been inordinate delay;

(2) The delay is inexcusable; and

(3) The delay either :

(a) will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action; or

(b) is such as is likely to cause or to have caused serious prejudice to the defendants, whether as between themselves and the plaintiff or between each other or between them and a third party; and

(4) Save in exceptional cases (usually where there has been contumelious default) the relevant limitation period must have expired".

8. It is D1's argument that the facts relevant to this application meet the requirements at (1) to (3) above and the plaintiff's claim has been time-barred. Therefore the court's discretion ought to be exercised to dismiss this action. Alternatively, the plaintiff's claim ought to be dismissed pursuant to RHC Ord 25 r 1(4).

(1) Is the Plaintiff's Claim Time-Barred?

9. D1 contended that the plaintiff's claim has already been time-barred a long time ago. According to the dates given in the Amended Statement of Claim, the claim was time-barred since :

(a) 1 March 1990 (6 years after 29 February 1984, the contractual repayment date) by virtue of s. 4(1)(a) of the Limitation Ordinance, Cap. 347;

(b) alternatively, 29 March 1990 (6 years after 29 March 1984, the date of D1's written acknowledgment) by virtue of ss. 23(3) and 24 of Cap. 347;

(c) alternatively, 11 February 1991 (6 years after 11 February 1985, the date of the last partial payment).

10. In D1's skeleton submissions, D1 argued that the claim was time-barred on 29 May 1991 (6 years after an acknowledgement of the debt was made in the assignment document between D1 and Bong dated 30 May 1985).

11. In view of the date set out at (a) above, D1's counsel observed that it might not have been a mere coincidence that the writ herein was issued on 27 February 1990.

12. Plaintiff's counsel denied that the plaintiff's claim had been time-barred. She argued at the hearing that time under s. 23(3) (and, necessarily, that under s. 4(1)(a)) of Cap. 347 does not start to run unless and until a written acknowledgement has been made to "a claim". In this action, the "claim" was made by way of a letter dated 8 February 1990 from Ch'ng to D1's chairman. Up to today (so the plaintiff said), there has not been any "acknowledgement" of that "claim".

13. I disagree with the plaintiff's argument because :

(1) it is inconsistent with the plea at para. 9 of the Amended Statement of Claim which states that D1 acknowledged the loan in writing on 29 March 1984;

(2) the construction of s. 23(3) of Cap. 347 contended for by the plaintiff would render the limitation period provided for under s. 4(1)(a) of Cap. 347 practically (if not entirely) meaningless or superfluous;

(3) further to (2) above, the net result of the plaintiff's contention is this: it was the legislative intention of s. 23(3) that whether (and if so when) the limitation period should begin to run should depend on when a creditor (or a person entitled to sue) makes a "claim" (if he makes it). This cannot be right.

14. To conclude, I find that the plaintiff's claim has been time-barred by the time of this application.

(2) Was the Delay Inordinate and/or Inexcusable?

15. D1 submitted that, since 10 August 1991, there was a complete lack of activity by the plaintiff for nearly 10 years (or nearly 9 years if D1's application for the fortification of security for its costs is excluded from the period of delay).

16. Plaintiff's counsel accepted that there were 2 periods of "inactivity", namely, from 1991 to 1994 and from 1995 to 2001. She argued that there had been acquiescence on D1's part (alternatively, D1 encouraged the plaintiff to further proceed) because :

(1) D1 applied for, and subsequently applied for the fortification of, security for its costs in 1991 and from December 1994 to May 1995 respectively;

(2) D1 failed to apply for summons for directions which it could have under Ord 25 r 1(4);

(3) D1 failed to take out an application to dismiss the plaintiff's claim despite earlier correspondence threatening to do so.

17. There is no need to deal with (2) and (3) above save to state that they have no substance in relation to whether the plaintiff's claim ought to be dismissed for want of prosecution. Mere inactivity on D1's part where no procedural step on its part is called for cannot be regarded as conduct of acquiescence.

18. As regards (1) above, I agree with D1's argument that an application for, and an application for the fortification of, security for costs does not per se amount to acquiescence. It is not conduct which should lead the plaintiff to believe that the action will definitely go to trial: see, for example, Orsank SA v. Spencer Associates, 19 February 1998, unrep., English Court of Appeal. Security for costs is to safeguard a defendant's position as regards its legal costs if the action is dismissed. An action can be dismissed for various reasons before it is tried. The same reasoning applies to the bank guarantee provided by way of security for D1's costs.

19. Apart from the above, 3 further matters have been raised on the plaintiff's behalf: (1) the plaintiff's changes of solicitors, (2) D1's inactivity with regard to its counterclaim and (3) Ch'ng's imprisonment.

20. I do not find that the changes of solicitors provided any valid reason for the delay.

21. As regards inactivity relating to D1's counterclaim, that may (subject to further arguments which may be raised on another occasion if necessary) give rise to an application to have it dismissed for want of prosecution: see Hong Kong Civil Procedure 2001, para. 25/L/12. However, I do not agree that the delay of a defendant in prosecuting its own counterclaim can somehow assist a plaintiff who has delayed prosecuting its own claim.

22. The relevance of Ch'ng's imprisonment to this application is simply not established. It may be less convenient for the legal representatives to take instruction while Ch'ng was incarcerated but any delay so caused must have been far less than the nearly 9 years' delay.

23. For the above reasons, I find that there has been inordinate and inexcusable delay on the plaintiff's part from 1991 to 1994 and from 1995 to 2001 (a period of about 9 years).

(3) Did the Delay Prejudice D1?

24. 2 types of prejudice have been put forth, and will be dealt with below.

(3)(a) Prejudice related to Trial

25. D1 argued that by reason of the pre-writ delay, (1) it has entered into restructuring arrangements and made payment to Bong; (2) it was deprived of an opportunity to identify the relevant facts and materials to defend the claim timorously.

26. Pre-writ delay (when the writ was issued within the limitation period) is by itself irrelevant to an application like this. But where there has also been post-writ delay, the court is entitled to consider the whole period (whether pre-writ or post-writ): Hong Kong Civil Procedure 2001, para. 25/L/5.

27. Where there has been delay, whether a defendant is likely to suffer prejudice by being deprived of a fair trial is easier to determine in cases at either extreme, namely, litigation which is dependent entirely (or almost entirely) on the credibility of witnesses on the one hand and that which can satisfactorily be determined on the contemporaneous documents, or where such documents are abundant and can shed light on the final outcome. A fair trial is unlikely for litigation which needs to be decided on credibility whereas it would usually still be possible for litigation where contemporaneous documents are abundant and clear.

28. For litigation falling within the 2 extremes, the likelihood of a fair trial is less easy to ascertain. At the end, whether the defendant is likely to be prejudiced will turn on the circumstances of each case.

29. Where there has been inordinate and inexcusable delay (both pre-writ and post-writ), it is only necessary for a defendant to show a small degree of non-minimal additional prejudice during the post-writ period: Birkett v. James, p. 323; Trill v. Sacher [1993] 1 WLR 1379, 1399.

30. Having regard to the long delay in these proceedings, an inference can be readily drawn that witnesses' memory has faded: Shtun v. Zalejska [1996] 1 WLR 1270; Lee Pui Kuen v. ATV Ltd, 5 July 2000, unrep., Court of Appeal.

31. In these proceedings, the issues which have to be determined by assessing the witnesses' credibility but contemporaneous documents may either be lacking or unable to assist would include :

(a) whether the plaintiff was Ch'ng's alter ego;

(b) what the nature of the arrangement between D2 and Ch'ng was.

Further,

(1) witnesses from UTG might no longer be found and/or be unable to recall the relevant matters;

(2) other witnesses, including those present at the meeting between D2 and Ch'ng, might not be found and/or be unable to recall the relevant matters.

32. By reason of the matters above, I am satisfied that D1 has been prejudiced in that a fair trial is unlikely.

(3)(b) Financial Prejudice

33. Financial prejudice is now recognised as one type of prejudice which may justify the dismissal of proceedings: Biss v. Lambeth Health Authority [1978] 1 WLR 382; Department of Transport v. Chris Smaller (Transport) Ltd; Hayes v. Bowman [1989] 1 WLR 456; Antcliffe v. Gloucester Health Authority [1992] 1 WLR 1044; Gahan v. Szerelmey (UK) Ltd. [1996] 1 WLR 439; Bouygues SA v. Red Sea Insurance Co. Ltd. [1997] 4 HKC 149.

34. The financial prejudice relied upon by D1 herein is :

(1) substantial amount of contractual interest now becomes payable;

(2) D1's financial position has deteriorated;

(3) Ch'ng's financial position is uncertain now that a judgment for a substantial sum has been entered against him.

35. The amount of interest payable is a matter for the court's discretion and substantial delay is a factor to be taken into account: Hong Kong Civil Procedure 2001, para. 6/L/9 and 6/L/22. The financial prejudice related to this may not be real or serious. There is also insufficient evidence regarding Ch'ng's suspected impecuniousity. However, I am satisfied that there is financial prejudice arising from the deterioration in D1's financial position.