CIL HOLDINGS LTD v. KWOK HAN QIAO formerly known as KWOK WAI TAK EDWARD

HCA 2725/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2725 OF 2001

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s appeal against the master’s order dated 13 September 2012 whereby the master struck out the pleadings and dismissed this action.  The grounds based on which the defendant’s earlier striking out application was brought were:

(a)  there has been inordinate and inexcusable delay which caused prejudice to the defendant in that there is a real risk there cannot be a fair trial of this action;

(b)  before September 2011, there was no intention on the plaintiff’s part to proceed with this action.

This action

2.  The plaintiff commenced this action in June 2001 claiming $98 million as money had and received by the defendant for the plaintiff’s use.  According to the plaintiff, the sum claimed was paid to the defendant for the purpose of investing into two projects in the Mainland: a hotel and an aluminium pipe factory.  The plaintiff alleges that the defendant did not do so and he failed to account to the plaintiff the sum claimed.

3.  The defendant denies the claim.  He asserts that the sum claimed was paid to him (or to parties related to him) for the following purposes:

(1)  to be invested in project(s) which his business consultancy company may identify later;

(2)  pending such event(s), as security held by his company (which has in effect acted as a guarantor of the plaintiff’s acquisition of a real property from a vendor).

Because the said acquisition was paid for partly in cash and partly by the plaintiff’s stocks, the plaintiff and the defendant agreed to ensure the stock price would not be depressed.  The price of the plaintiff’s stocks has subsequently dropped resulting in loss to the said vendor.

4.  Further, so the defendant pleads, he has caused various loans to be advanced to the plaintiff.  The sum claimed ought to be set-off against those loans.

5.  By way of background, the plaintiff is a public company whose stocks are listed at the Hong Kong Stock Exchange.

Delay and prejudice

6.  Three matters relevant to this aspect are common ground:

(a)  because of the paucity of determinative documents, which of the parties’ version of events (see para 2 to 4 above) will be accepted by the court depends almost entirely on an assessment of the witnesses’ testimony at trial;

(b)  two potentially material witnesses have passed away:

(1)  Mr Joseph Szeto (“Szeto”), the former chairman of the plaintiff’s board of directors (and one of its 3 directors), passed away in September 2010;

(2)  Mr James Lau (“Lau”), another of the plaintiff’s 3 directors, passed away in December 2011;

(c)  of the total period of about 10 years (June 2001 to September 2011), the period of delay was about 9 years 8 months:

(1)  15 December 2001 to 25 September 2006 (4 years 9 months): last filing of the defendant’s list of documents to the plaintiff’s notice of intention to proceed (RHC Ord 3 r 6) (“Ord 3 r 6 notice”);

(2)  25 September 2006 to 24 June 2008 (1 year 9 months): from the said notice to the plaintiff’s second Ord 3 r 6 notice;

(3)  24 June 2008 to 4 May 2011 (2 years 10 months): from the said second notice to the plaintiff’s third Ord 3 r 6 notice;

(4)  5 May 2011 to 19 September 2011 (4 months): from the said third notice to the plaintiff’s case management summons.

7.  Thus, the parties’ main disagreement concerns whether:

(1)  the said period of delay (or part(s) of it) was inordinate and inexcusable;

(2)  the death of the said two witnesses would cause prejudice to the defendant.

8.  The plaintiff’s only reason for the above delay is in gist that the trading of the plaintiff’s stocks has been suspended for about 7 years, and it was in financial difficulties during that period.  The plaintiff also deposed that its financial resources were utilized for re-activating the trading of its stocks.

9.  The plaintiff accepts that the delay was inordinate (para 16, plaintiff’s skeleton submissions).  On the other hand, the defendant argues further that the delay was caused by the plaintiff’s deliberate choice of allocating its resources to another purpose (instead of pursuing this action).

10.  The argument that the delay was “deliberate” is tantamount to saying that there has been “contumelious default”: Hong Kong Civil Procedure 2013, Vol 1, para 25/L/3 citing authorities such as Re Jokai Tea Holdings Ltd (Note) [1992] 1 WLR 1196 (which has been accepted in various local court decisions including Lee Shuk Yee v Lee Suk Ping and Others CACV 132/1996 (12 December, 1996), para 28).  Contumelious conduct almost inevitably leads to a striking out order being made against the defaulter’s case.

11.  The test for determining whether there has been “intentional and contumelious conduct” is to decide if the default was:

“deliberately and without proper excuse” (emphasis supplied) (the Jokai decision, p 1202).

Falling on the other side of the line would be conduct where:

“… a party can explain convincingly that outside circumstances account for the failure to obey the peremptory order and that there was no deliberate flouting of the court’s order” (emphasis supplied) (the Jokai decision, p 1202).

Similarly in Hytec Information Systems Limited v Coventry City Council [1997] 1 WLR 1666, the dividing line was said to be:

“… whether a party’s failure to comply with an order is inexcusable in the sense of being without a reasonable excuse” (emphasis supplied) (p 1667).

12.  I do not consider the delay was caused by the plaintiff’s contumelious conduct.  While utilizing financial resources to re-activate the plaintiff’s stock trading may not be an entirely exonerating reason, such conduct falls within the range of “reasonable excuse”.  In so concluding I have taken into account:

(a)  the context in issue concerns generally dilatory conduct (rather than disobeying a peremptory order);

(b)  the plaintiff’s reason for the delay could account for only part of the period of delay.

However, I conclude that the delay has been inordinate and inexcusable.

13.  Having so concluded, I turn to consider whether the delay would bring about a substantial risk of no fair trial (arising from the loss of two allegedly important witnesses).

14.  The defendant will naturally be an important witness who would testify in support of his case.  On the other hand, the testimony of the plaintiff’s Mr Peter Ho (“Ho”) will be crucial to the plaintiff’s case.

15.  The prejudice contended for in relation to the death of Lau is that Lau would have been able to testify in support of the defence if he had not passed away.  Reliance has been placed on Lau’s witness statement filed in another action (where both Lau and the defendant herein were two of the defendants: HCA 2206/2000).

16.  A perusal of Lau’s said witness statement shows that he mentioned nothing about the sum claimed when he narrated the agreement concerning the plaintiff’s acquisition of the Mainland real property.  It is unclear if one should infer from the absence of such statement(s) that:

(1)  (as the defendant claims) “[because the agreements in issue in the present action] were not in issue [in HCA 2206/2000], [Lau’s] witness statement accordingly did not deal with [them]”: para 28(3), defendant’s skeleton arguments; or

(2)  the sum claimed never formed part of the security for ensuring the plaintiff’s stock price would not be depressed; or

(3)  Lau could not remember (or could not be certain about) such matter.

17.  By reason of the above matters, I also agree with the plaintiff that Lau’s testimony (if it were given as appears in the said witness statement), taken to the highest, would have been corroborative in nature.

18.  The defendant puts the importance of Szeto as a witness as follows:

(a)  Szeto used to be the chairman of the plaintiff’s board of directors;

(b)  he was involved in all of the events relevant to this action;

(c)  “[if he had been] called as a witness for P in this action, D is doubtlessly entitled to strenuously cross-examined [sic] him in as much as D is entitled to cross-examine [Ho]”: para 29, defendant’s skeleton arguments.

19.  The defendant ventures further to say that Szeto would have been called to testify for the defence (should the plaintiff decide not to).  The defendant asserts that Szeto would have supported his case because:

(1)  the defendant has commenced a third party proceeding in HCA 2206/2000 where he sought indemnity from Szeto and Ho;

(2)  Szeto and the defendant have settled the third party proceeding in January 2008;

(3)  allegedly, Szeto told the defendant in January 2008 the plaintiff had not asked Szeto to make a witness statement.  Szeto also said that the plaintiff would not proceed with this action.

20.  Because of what has been said in para 16 above (which should apply to Szeto as well), the defendant’s contention that Lau was an important witness for the defence borders on being speculative.  The same can be said about Szeto insofar as it is asserted that he would also be supportive of the defence case.  Purely because Szeto has settled the defendant’s claim against him is neither here nor there.  Even if Szeto had made the statements set forth in para 19(3) above, they do not necessarily mean that Szeto would have given supportive testimony.  Finally, merely because a potential witness is not available for cross-examination is insufficient to found a real risk of no fair trial.

21.  Accordingly, I do not consider there is a substantial risk that there cannot be a fair trial of this action.

Abuse of court process

22.  This aspect first centres around the defendant’s alleged belief that the plaintiff has no intention of pursuing this action to the end.  The belief is said to rest on the qualified opinion of the plaintiff’s auditors expressed in the plaintiff’s financial statements for the year ending 30 June 2002.  The relevant part of the financial statement reads:

“There was no sufficient evidence to verify and confirm the existence of [the sum claimed]”.

On the other hand, the defendant acknowledges that the plaintiff has expressed confidence for the prospect of this action, but he says he regards that as a mere tactic to placate the auditors.

23.  Reliance is also placed here on the matters set out in para 16 to 17 above (Lau’s witness statement), para 18 to 19 above (the defendant’s court settlement with Szeto, and Szeto’s alleged statements to the defendant) and Ho’s non-contest of the said third party proceeding.

24.  The defendant claims that the above matters made him believe that the plaintiff had no intention to proceed with this action.

25.  I do not agree with the above claim.  In relation to the plaintiff’s audited accounts, the defendant has unduly over-emphasized the auditors’ qualified opinion (which in any event was probably based more on their profession’s own accounting standards, than on a pure legal analysis), and under-emphasized the view of the plaintiff’s board of directors (to the contrary) (which may or may not be based on legal advice given to it).

26.  The defendant’s arguments set out in para 23 above have been dealt with under the previous sub-heading.  The discussion there (see para 16 to 17 and 20 above) is repeated here.  Similar to that discussion, Ho’s non-contest of the said third party proceeding cannot advance the defendant’s case here.

Conclusion

27.  To conclude, my discretion should be exercised in favour of the plaintiff.  Accordingly:

(a)  the appeal is allowed;

(b)  the master’s order is set aside;

(c)  the defendant’s summons dated 9 March 2012 is dismissed.

Other matters

28.  The parties’ submissions also mentioned various other points.  These have not been expressly set out or dealt with in the above headings and sub-headings.  This is so only because of the need to balance between the length of the judgment and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

29.  In particular, the plaintiff also relies on the defendant’s “consent” to the further progress of this action since 30 December 2011.  By reason I have been able to conclude in the plaintiff’s favour, there is no need to consider such matter.

Costs order nisi

30.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this appeal, and of the summons, (including any related reserved costs) be paid by the defendant to the plaintiff.  I also certify the suitability of court attendance by two counsel.

31.  If no application is made to vary the above order nisi, I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(1)  the plaintiff be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(2)  the defendant be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.