SUPER WORTH CONTRACING CO LTD v. TOP GLORY HOLDING CO LTD AND ANOTHER

HCA3754/2000 & HCA6734/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3754 OF 2000

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(Consolidated by the Order of the Honourable Mr Justice Yeung dated 6 December 2000)

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J U D G M E N T

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1. The plaintiff appeals against the Order of Master S. Kwang made on 5 November 2008 whereby the Statements of Claim in the consolidated actions were struck out and the consolidated actions dismissed on the grounds of abuse of process of the Court.

Background

2. There are two actions here, HCA 3754 of 2000 (“the 1^st Action”) and HCA 6734 of 2000 (“the 2^nd Action”) consolidated by the order of Yeung J (as he then was) on 6 December 2000.  The plaintiff is the same plaintiff in both actions although there is a second plaintiff in the 2^nd Action.

3. In the 1^st Action, the plaintiff claims against the 1^st defendant for just over HK$58 million being unpaid bills for building works done by the plaintiff in the construction of 3 hotels under the name of “Gloria Inns” in the PRC.

4. There is also a claim by the plaintiff against the 2^nd defendant for an amount of over HK$15 million being unpaid bills for work done by the plaintiff at the behest of the 2^nd defendant in respect of the “Capital Paradise” project, being the development of a clubhouse in Beijing.

5. The plaintiff also claims a sum of over HK$12 million against the 2^nd defendant being unpaid bills for work done by the plaintiff at the behest of the 2^nd defendant in respect of a development in Shenyang, PRC, known as Pang Yuen Metro Plaza.

6. As for the 2^nd Action, the defendant sued is in effect the 1^st defendant in the 1^st Action.  The plaintiffs’ claim in the 2^nd Action is that the defendant was in breach of an oral agreement between them whereby the 1^st plaintiff was to construct 20 hotels in various parts of the PRC within a period of 5 years.  However, after building the first 3 hotels, the defendant failed to honour the oral agreement by failing to procure the building of the remaining 17 hotels causing loss to the 1^st plaintiff estimated in the region of over US$54 million resulting in the 1^st plaintiff having to cease its business.  The 2^nd plaintiff, a director and shareholder of the 1^st plaintiff, has also suffered loss of income as a result.

7. In a nutshell, the defence raised to the plaintiffs’ claims being that the defendants deny the alleged oral agreement relied on by the plaintiffs in the 2^nd Action.

8. The defendant in the 1^st Action also deny having assumed personal liability for the construction works done by the plaintiff for a joint venture.  The defendant also say that in any event, the works done by the plaintiff were defective and that the plaintiff were not entitled to claim payments by reason of breach of collateral agreement in failing to hand over the necessary documentation upon completion of the construction in compliance with PRC laws and regulations.

9. After the two actions were consolidated in December 2000, pleadings were filed, discovery made and witness statements were exchanged between the parties by March 2001.

10. On 4 April 2001 leave was given to set down for trial.

11. On 25 April 2001, further orders were made by the Master setting out a timetable for the plaintiffs to file amended pleadings, make further discovery and file supplemental witness statements.  The leave given for setting down was set aside.

12. Time for complying with the order of 25 April 2001 expired on 23 June 2001.  The plaintiffs did not take any steps provided for by the order of 25 April 2001.

13. On 26 July 2001, the plaintiffs applied for a split trial of liability and quantum.  After hearing the parties, the application for split trial was dismissed by Chung J on 12 November 2001.

14. Thereafter nothing more was done by the plaintiffs for almost seven years until the defendant took out this present summons to strike out the claim on 13 August 2008.

15. The application by the defendant to strike out the Statement of Claim and to dismiss the consolidated actions was put on two basis, firstly, that due to the inordinate and inexcusable delay a fair trial of the matter is no longer possible and secondly, on abuse of process in that the plaintiffs have no intention to bring this matter to trial.

16. On the first limb of the application, namely inordinate and inexcusable delay, the Master held that there was inordinate and inexcusable delay by the plaintiff of almost 7 years, but that on the facts of this case, he was not satisfied that the defendants have been so prejudiced that there cannot be a fair trial of the issues. 

17. Accordingly, the Master declined to strike out under the Birkett v James limb of this application.

18. In this appeal, although there was, strictly speaking, no appeal against this part of the Master’s decision, however, since an appeal from a Master’s decision to a judge in chambers was by way of a rehearing, this limb of the application to strike out was submitted anew by the defendant and opposed by the plaintiff.

19. Having had the benefit of reading the transcript of the oral reasons given by the Master, I can see nothing wrong with the reasons given by the Master as to why he reached the conclusion that he did and for those same reasons I would likewise hold that there can still be a fair trial of the issues in the case despite the delay since November 2001.

20. Turning now to deal with the real dispute in this appeal, namely the abuse of process limb relied on by the defendants. 

21. After the Master held that the defendant had not satisfied him that on the evidence the defendant did suffer serious prejudice such that a fair trial was not possible, he went on to consider the abuse of process ground.

22. The Master accepted that the court would only consider striking out on abuse of process only in exceptional circumstances and only and only if the case comes within the Grovit v Doctor principles, namely that the plaintiff had made a conscious choice not to proceed with the action to trial.

23. In the present case, the Master inferred, from the plaintiffs’ inaction for some seven years, after all the directions had been given by the court but failed to be complied with by the plaintiffs, that the plaintiffs had no intention of proceeding with the action to trial.

24. As for the plaintiffs’ explanation of lack of funds, the Master did not accept that explanation on the basis that the plaintiffs’ lack of funds was not caused in 2001 but its financial difficulties went back as far as 1997.

25. The Master also took into account the fact that the plaintiffs took no steps to raise funds until faced with the striking out application.

26. When coming to the conclusion that he did that there was abuse by the plaintiffs, the Master ought to have drawn a distinction between the plaintiff’s inability to proceed with the matter through lack of funds (which was the case here) from the plaintiff’s not wanting to bring the action to trial (which would be an abuse of court process).

27. That is amply illustrated by the peculiar facts as existed in the case of Grovit v Doctor.  There the plaintiff brought a claim for defamation in respect of a written reference given by the 1^st defendant to the 2^nd defendant in 1989.

28. The defence admitted that the statement referred to the plaintiff, denied it was defamatory and pleaded justification.

29. The 3^rd defendant dropped out after going into liquidation, and the claim against the 4^th to 7^th defendants were dismissed by consent.

30. In July 1990 an order was made directing trial of a preliminary issue as to whether the words complained of were capable of bearing a defamatory meaning, but no steps were taken by the plaintiff after September 1990.

31. In October 1992, the defendants applied to strike out for want of prosecution.  On that application the deputy judge was satisfied that on the evidence the plaintiff had literally no interest in actively pursuing the litigation and it was “dead in the water”.

32. On appeal by the plaintiff to the Court of Appeal, Evans LJ (in the Court of Appeal) recorded that the plaintiff did not seek to challenge the conclusion come to by the deputy judge stated above.  Evans LJ also indicated that the evidence in the case suggests that the appellant intended to maintain a state of anxiety on the part of the defendants and if the plaintiff intended to prolong the defendant’s anxiety, that alone would be sufficient ground to uphold the judgment of the deputy judge. 

33. Glidewell LJ (in the Court of Appeal) posed the question whether the appellant’s conduct amounted to an abuse of process and concluded that it did.

34. The Court of Appeal therefore dismissed the plaintiff’s appeal.

35. The plaintiff appealed to the House of Lords.

36. After counsel for the appellant (plaintiff) made his submission, their Lordships took time to consider whether they would need to call upon to hear counsel for the respondents.  When the hearing resumed, and before their Lordship could indicate that they did not require the assistance of counsel for the respondent, counsel for the appellant sought leave, upon instructions, to withdraw the appeal.  The House of Lords were not prepared to grant the leave sought, instead gave judgment in the matter dismissing the plaintiff’s appeal on the basis that the conduct on the part of the appellant constituted an abuse of process.

37. It can be seen therefore that in Grovit v Doctor, it was never challenged by the plaintiff that he did not have the intention to bring the matter to trial.  The argument raised by the plaintiff all the way to the House of Lords was whether that conduct of his amounted to an abuse of court’s process.

38. Coming back to the present case, either no or insufficient consideration had been given by the Master to the statement by the plaintiffs that they now intend to bring the matter to trial after having raised the necessary funds.

39. No evidence has been adduced by the defendant to contradict this statement of the plaintiffs.

40. In the final analysis, this uncontradicted evidence of the plaintiffs must go a long way to displace the inference reached by the Master.

41. With due respect to the Master, he had fallen into the very pitfall which Stone J warned against in the case of New China Hong Kong Group Ltd (in liq) v AIG Asian Infrastructure Fund LP [2005] 1 HKC 281, when Stone J said these words at page 301:

“In principle considerable caution must be exercised before acceding to that which, for shorthand purposes, I will term a ‘Grovit v Doctor’ strike out application, tempting though it may be for the courts proactively to demonstrate, in line with the modern mood, that the rules of procedure are there to be obeyed, and that cases should not be permitted to drag.

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As the circumstances of this case neatly illustrate, unless the ‘Grovit v Doctor’ line of argument is confined to those instances which are patently abusive of the process, and may be demonstrated to be so, there is a danger that the time-honoured and established Birket v James doctrine – in terms of inordinate and inexcusable delay coupled with consequent prejudice – in effect will be emasculated by the back door, with the result that undue and inordinate delay, leading to inference of intention to prosecute the action no further, and hence characterization as an abuse of process, will be sufficient to get home on a strike out in the absence of the required element of prejudice.”

42. Given the above, I would allow the appeal by the plaintiff from the decision of the Master, set aside the order of the Master and dismiss the defendant’s application to strike out.

43. I would further give consequential direction that this matter be listed at the earliest for a pre-trial review for final directions to be given for setting down for trial.

44. There will be a costs order nisi that the cost of this appeal and the hearing below before the Master be to the plaintiff in any event.