WING FAI CONSTRUCTION CO LTD (In Liquidation) v. CHENG KIT YIN KELLY AND OTHERS

CACV 249/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 249 OF 2010

(ON APPEAL FROM HCA NO. 833 OF 2004)

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BETWEEN

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JUDGMENT

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Hon Yuen JA:

1.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

2.  This is the plaintiff’s application for leave to appeal to the Court of Final Appeal from the judgment of the Court of Appeal (Le Pichon, Kwan JJA and Chu J) on 1 April 2011, on the ground that the appeal involves questions of great general or public importance, or which otherwise ought to be determined by the Court of Final Appeal. By consent, this application is dealt with by written submissions without a hearing.

The decision of Poon J

3.  The plaintiff’s appeal to the Court of Appeal was from the order of Poon J on 19 October 2010. By his order, the judge dismissed the plaintiff’s application for leave to provide security for the defendants’ costs of the action out of time (“the Extension Application”) and granted the applications of the 1^st, 4^th and 5^th defendants (collectively “the defendants”) to dismiss the action for want of prosecution (“the Dismissal Applications”). The action was brought by the liquidators of the plaintiff in April 2004 to recover $10.4 million that the 1^st to 3^rd defendants had caused to be transferred to the 4^th to 8^th defendants.

4.  On 9 December 2005, Poon J ordered the plaintiff to provide security for costs in the sum of $800,000 by payment into court within 14 days (“the 2005 Order”). The plaintiff failed to comply with the 2005 Order for more than 4 years. It took out the Extension Application on 17 February 2010.

5.  In his decision on 19 October 2010, Poon J held it was beyond doubt that the plaintiff’s delay was inordinate and there was no reasonable excuse for it. As the Extension Application had failed, the stay imposed by the 2005 Order continued to operate, effectively staying the action permanently. To achieve finality, the judge exercised his discretion to dismiss the action against the defendants. He then dealt with the Dismissal Applications briefly, as what he said about the Extension Application was sufficient to dispose of the Dismissal Applications. He did not think the plaintiff’s case in the action was wholly unmeritorious. He found that the defendants had suffered prejudice as a result of the plaintiff’s delay, so he dismissed the action against the defendants for want of prosecution.

The decision of the Court of Appeal

6.  The Court of Appeal dismissed the plaintiff’s appeal at the conclusion of the hearing. The reasons for judgment were given by Le Pichon JA on 8 April 2011.

7.  The court noted that the plaintiff had requested and was granted an adjournment at the first hearing before Poon J in May 2010, for it to address lacunae in its evidence including incomplete information regarding the plaintiff’s realisations by the liquidators and liabilities between December 2005 and August 2010. Having reviewed the further evidence filed by the liquidators before the adjourned hearing in October 2010, the court came to the view that the liquidators had chosen to use $3 million to settle accrued liabilities in respect of their fees as well as legal fees, instead of providing security of $800,000 under the 2005 Order. Further, there was no proper explanation by the liquidators how their litigation activity in quite a number of other proceedings throughout 2006 to 2009 was funded. The further delay of over 4 months from the receipt of $1.8 million in June 2009 before the liquidators activated the administrative machinery for the release of these funds was egregious and inexplicable.

8.  The court found ample evidence to support the conclusion of Poon J that the plaintiff’s deliberate decision to continue to act in breach of the 2005 Order and not to continue the action until it was financially able to do so is tantamount to warehousing the action. The court was of the view that the judge was fully entitled to exercise his discretion in the way he did and there was no valid basis for interfering with it.

The questions raised in the intended appeal

9.  Three questions were put forward in the amended Notice of Motion as questions of great general or public importance and were as follows:

“1. What is the extent to which the law relating to applications to strike out for want of prosecution and/or applications for an extension of time have changed (if at all) following changes brought about by the Civil Justice Reform and whether any differences in the law ought to apply to applications which were after the coming into effect of the Civil Justice Reform changes, but in relation to delay which all or almost all happened prior to the coming into effect of the Civil Justice Reform changes.

2. What is the extent to which a respondent to an application to strike out for want of prosecution and/or an applicant seeking an extension of time can rely – as explanation and/or excuse for the delay or any part of it – upon the actions of the other side (or any of them) in other actions between the same parties or a combination of them, and does it make a difference by whom such actions are brought and against whom.

3. Would the answer to question 2 above be different if the other actions arise out of broadly the same or similar factual circumstances, or out of the same or similar underlying relationships between the parties.”

10.  In respect of question 1, Mr Coleman, SC submitted for the plaintiff that the same issues arise in respect of the strike out application for want of prosecution in related proceedings for misfeasance in the winding up of the plaintiff (HCCW No. 735 of 2002), which involve the plaintiff and the 1^st to 3^rd defendants to this action. Leave to appeal was granted by the Court of Final Appeal (The Liquidators of Wing Fai Construction Co. Ltd. (In Compulsory Liquidation) v. Yip Kwong Robert & Others, FAMV No. 31 of 2010, 21 January 2011) and the appeal in FACV No. 3 of 2011 will be heard later this year. As these issues have already been placed before the Court of Final Appeal, this indicated that the issues in question 1 would merit consideration and it has been acknowledged by the Appeal Committee that a question similar to question 1 is one of great general or public importance. Mr Coleman contended that this importance should also extend to applications for extension of time.

11.  Mr Coleman submitted further as the Court of Final Appeal has never previously considered the applicable criteria for the exercise of the court’s discretion to grant an extension of time, as leave to appeal was refused by the Appeal Committee in Nantong Angang Garments Co. Ltd. v. Hellmann International Forwarders Ltd., FAMV No. 15 of 2006, 29 September 2006, it would be helpful for the Court of Final Appeal to clarify the applicable principles after the Civil Justice Reform, and specifically, the extent to which an explanation for any delay must be given.

12.  As pointed out in the submissions of Mr Barlow, SC for the 1^st defendant, question 1 had not even been argued before Poon J or the Court of Appeal. In formulating the question in this manner, the plaintiff is just seeking to mould the present proceedings into a simulation of the appeal brought by the 1^st defendant and 2 others in FACV No. 3 of 2011. The present situation is not comparable. We are here concerned with the exercise of the discretion of the judge in refusing an extension of time and dismissing the action as a result where the action has been stayed for over 4 years due to the plaintiff’s deliberate decision not to comply with an order to provide security for costs. This is not a question of great general or public importance, nor is there an arguable basis for appeal. As stated by Ribeiro PJ in Nantong Angang Garments at para. 10, how the court’s discretion to extend time should be exercised is “plainly a matter which must be approached flexibly and contextually on the facts of each particular case.” There is no reason to think that this exercise of discretion has now been changed as a result of the Civil Justice Reform.

13.  For questions 2 and 3, Mr Coleman submitted that it would be of assistance if the Court of Final Appeal were to clarify the extent to which a respondent to an application to dismiss for want of prosecution and/or an applicant seeking extension of time, can rely, as an excuse for delay, upon the actions of other parties to the litigation, especially where these actions arise out of broadly the same or similar factual circumstances, or out of the same or similar underlying relationships between the parties. His argument was that in the present context, what would be of relevance is the extent to which the explanation for delay could rest upon the fact that the plaintiff’s delay in furnishing the funds to comply with the 2005 Order had been caused or contributed to by the actions including wrongdoings of the 1^st to 3^rd defendants. He gave as an example the $1.8 million received by the plaintiff in 2009, submitting that the money should have been available to the liquidators much earlier but was not because the 3^rd defendant had pursued a clearly hopeless appeal to the Court of Final Appeal.

14.  Mr Coleman further prayed in aid the decision of the Appeal Committee in Sunchase International Group (China) Ltd. & Others v. Vincor Group of Companies (Investment) Ltd. & Others, FAMV No. 21 of 2004, 22 February 2005, para. 5, in which it was stated that since an order for a stay itself prevents the plaintiff from further prosecuting the action, the usual basis for dismissing a case for want of prosecution, namely, inordinate and inexcusable delay on the plaintiff’s part to the prejudice of the defendant, is inapplicable.

15.  Questions 2 and 3 are fact-sensitive questions. They are not questions of great general or public importance. Moreover, they are not properly arguable in view of the analysis of the liquidators’ evidence by the Court of Appeal and the conclusion reached that there was ample evidence to support the judge’s view that there was warehousing of the action by the plaintiff.

16.  As for the statement in Sunchase International Group (China) Ltd. thatthe usual basis for dismissing an action for want of prosecution would not be applicable where there is an order for a stay which prevents the plaintiff from further prosecuting the action, this is of no consequence to the present case. As submitted by Mr McCoy, SC for the 4^th and 5^th defendants, the judge had decided to dismiss the action for failure to provide the security ordered and no question of great general or public importance arises.

17.  For the above reasons, the plaintiff’s application for leave to appeal to the Court of Final Appeal should be dismissed, with an order nisi that the plaintiff is to pay the costs of the 1^st, 4^th and 5^th defendants in this application.

Hon Chu JA:

18.  I agree.