NEWBOND PROPERTIES LTD v. MATCH POWER INVESTMENT LTD

DCCJ 127/2007
DCCJ 128/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 127 & 128 OF 2007

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D E C I S I O N

1.  This dispute arose out of the sale and purchase of two properties in a new development in Kowloon.  The Plaintiff, Newbond, was the purchaser and the Defendant, Match Power, was the developer.  In January 2007, Newbond commenced these two actions against Match Power for damages and contractual interest for delayed completion of the sale and purchase of the two properties.

2.  This January, Match Power filed the two summonses in question applying to have these two actions respectively struck out for want of prosecution.  They were heard together.

The claim

3.  The development is called One Beacon Hill.  The properties in question were sold prior to the completion of construction under the Government’s Consent Scheme.  The sale and purchase agreements were entered into between the parties on 14 March 2003.

4.  The claims are based on, amongst others, the following provisions of clause 4 of the sale and purchase agreements:

(1) Match Power was to complete the development in compliance with the Conditions of Sale of the land by 31 December 2003.

(2) If Match Point failed to complete the development on time, Newbond would be liberty to rescind the agreements in 28 days.  Otherwise, Newbond would be deemed to have elected to wait for completion; and in which case Match Power would be liable to pay Newbond interest at 2% per annum above the HSBC prime rate on the amounts paid under the agreements from the date following the contractual completion date as extended.

(3) The issue of the Certificate of Compliance shall be conclusive evidence that the development had been completed or is deemed to have been completed.  But Match Power was not precluded from proving that it had complied with the Conditions of Sale by any other means.

5.  There was the issue of whether Match Power had completed the development in compliance with the Conditions of Sale of the land.  One of the allegations, according to the pleading, had to do with the removal of certain trees from the site by Match Power without the prior consent of the Director of Lands and thus infringement of Special Condition of Sale No.12.

6.  The contractual completion date was extended to 29 February 2004.  But the Certificate of Compliance was not issued until 29 July 2004.  The properties were assigned to Newbond only in August 2004.  Therefore Newbond holds Match Power liable for damages and/or contractual interest for the delayed completion of the sale and purchase of the properties.

7.  Match Power denies breach.  Alternatively, any breach of Special Condition No.12 had been rectified prior to the issue of the Occupation Permit.  The occupation permit was issued on 7 February 2004.  Only the Certificate of Compliance was not issued until July 2004.

8.  Match Power also pleads that this was the practice at the time that the Director of Lands would only require compliance with positive covenants in the Government Grant, not negative covenants such as Special Condition No.12, for the issuance of the Certificate of Compliance.

Chronology of events

9.  For the purpose of these applications, the following chronology of events is relevant:

10.  Pursuant to the summons for directions in February 2007, the Master on 7 March 2007 made directions as to discovery of documents and exchange of witness statements.  It was also ordered that Newbond should take out an application for a pre-trial review within 3 months from the date of that order.

11.  Since the discovery of documents in October 2007, there was nearly two years of inaction.  The rest of the Master’s directions have never been complied with.

The principles

12.  The starting point is Birkett v James [1978] AC 297.  An action is liable to be dismissed for want of prosecution on either of two limbs:

(1) there has been intentional and contumelious default, e.g., disobedience to a peremptory order of the court or conduct amounting to an abuse of process; or

(2) there has been inordinate and inexcusable delay on the part of the plaintiff or its lawyers; and such delay will give rise to a substantial risk that it becomes impossible to have a fair trial of the issues in the action or is such as is likely to cause or to have caused serious prejudice to the defendant either as between the defendant and the plaintiff or between the defendant and a third party.

13.  Commencing and maintaining an action with no intention of bringing the same to a conclusion is an abuse of process.  Once it is concluded that the reason for the delay is one which involved such abuse of process, the court is entitled to dismiss the proceedings: see Grovit v Doctor [1997] 1 WLR 640.

14.  The principles in Birkett v James and the approach in Grovit v Doctor were discussed by the local court of appeal in New China Hong Kong Group Ltd & Anor v AIG Asian Infrastructure Fund LP & Ors [2005] 1 HKLRD 383.

15.  Woo, JA made clear that mere delay would not amount to an abuse of process.  Disobedience of a court order is capable of being a contumelious conduct.  In the absence of such conduct, before inordinate and inexcusable delay in complete disregard of the rules of the court could properly be regarded as contumelious conduct or abuse of process, there had to be full awareness of the consequences.  After being satisfied that the plaintiff’s conduct amounted to an abuse, the court still had to consider whether it was fair to strike out the action.

16.  Stone J agreed and added this: The Grovit v Doctor line of argument is confined to patent abuse of process.  The court’s power to strike out proceedings for wholesale disregard of procedural rules (because it constitutes an abuse of process) should not be taken as a ready alternative to its power to strike out for inordinate and inexcusable delay (where the element of prejudice is essential).  The abuse of process route is for cases of an exceptional nature where the conduct of the party in default amounted to an affront to the court and its rules.

17.  Mr Man relied on Nanjing Iron & Steel Group International Trade Co Ltd v STX Pan Ocean Co Ltd HCAJ 177/2006 (7 September 2009).  He cited Reyes J’s statement that it would be an abuse of process to warehouse a case, i.e., for a party to initiate proceedings and then do nothing about it while dealing with other matters.

18.  The above statement by Reyes J should not be read in isolation from the factual matrix of Nanjing Iron & Steel.  In that case, the relevant limitation period was one year only.  His Lordship actually explained why the shorter-than-normal limitation period was particularly important to a defendant in the context of Admiralty dispute.  In that case, following the extension of the limitation period by agreement, the plaintiff merely issued a generally endorsed writ and proceeded to arrest the defendant’s vessel as security for the claim.  No statement of claim was filed and nothing further was done.  Two years later, the plaintiff sought the defendant’s consent to file the statement of claim out of time but without providing any draft.  Notice to proceed was file only afterwards.

19.  It can be seen that the circumstances of that case were more than mere delay.  It was in those circumstances that Reyes J came to his conclusion that the plaintiff was guilty of abuse of process.  His Lordship also concluded that the action ought to be dismissed on the ground of delay causing substantial prejudice to the defendant.  He found that the prejudice due to lapse of witness memory could be assumed simply because of the passage of time.

20.  Nanjing Iron & Steel was also cited for another reason.  It is a post civil justice reform case on striking out for want of prosecution.  Like the present case, Nanjing Iron & Steel was commenced prior to the operation of the new rules but the application to strike out was heard by the court after the reform.  It was argued that the new rules should not apply because the action was commenced well before the new rules came into effect.

21.  Reyes J rejected such argument.  His Lordship found that under the present CJR regime, in the absence of compelling reasons, it is contrary to the underlying objective of the new rules of the court (i.e., to ensure that a case is dealt with as expeditiously as is reasonably practicable (O.1A, r.1(b)) for a party to allow an action to languish for 2 years once the same has been commenced.

The applications

22.  In the present case, Match Power relies on both the abuse of process ground and the ground of delay causing prejudice.  It also refers to the effect of new O.1A, r.1(b) in the present application.

Abuse of process

23.  Mr Man submitted that this is a case of ‘warehousing’ of litigation after its commencement.

24.  Surprisingly no affidavit has been filed on behalf of Newbond to explain the delay, notwithstanding the leave of the court.  When asked in court whether Newbond is thus accepting that the delay is inexcusable, Mr Yeung appearing on its behalf was regrettably far from forthcoming and unequivocal.  Inevitably, I conclude that the delay is inordinate and inexcusable.

25.  While mere delay per se does not suffice to constitute an abuse of process, it is evidence of abuse.  This action was effectively shelved without compliance with most of the directions of the Master in 2007.  Unlike the plaintiff in New China Hong Kong Group, Newbond did not care to explain its circumstances or to file any evidence to address the issue of intention with respect to the action at any given time between 2007 and 2009.  In fact, Newbond did not even care to draw up and to file the order of the Master in March 2007.  It was Match Power that did so in May 2010.

26.  All these could only be taken to be the conscious decisions of Newbond between 2007 and 2009.  Being legally represented, Newbond could only be taken to be aware of the consequence of such decisions.  This was more than mere delay.  A litigant who chose to conduct litigation in such manner would only expect criticism for nothing less than an abuse of process.

27.  In New China Hong Kong Group, Woo JA considered that a significant factor that would operate against the exercise of the discretion to dismiss the action on the ground of abuse of process was the limitation period.  Even if that action had been dismissed then, the plaintiff there could still have commenced a fresh action within the unexpired limitation period.  Dismissal of the action then would not have been just and fair in the circumstances.

28.  There is no such concern in the present case.  The right of Newbond to claim for contractual remedies accrued on 29 February 2004 (i.e., the extended completion date) at the latest.  By now, the right of action would have been time-barred.

29.  I am satisfied that the action is liable to be struck out on this ground.

Consequence of delay

30.  In line with the affidavit, Mr Man for Match Power submitted that it is impossible to know the exact allegations by Newbond and hence impossible to identify all the possible witnesses.  Even if they are identified, their memory of the events in 2003 and 2004 may not be reliable due to the lapse of time.  In the circumstances, there is a substantial risk that a fair trial will become impossible or that Match Power’s defence is seriously prejudiced.

31.  In his submissions, Mr Yeung referred to numerous cases involving similar claims by other purchasers against Match Power.  I accept Mr Man’s submission that it is neither right nor fair to seek to refer to these other actions, perhaps except for their existence, as evidence in support of the argument on behalf of Newbond without a proper affidavit.

32.  Nevertheless, Newbond drew this court’s attention to the written judgment in Yen Wing Choi & Ors v Match Power Investment Limited HCA 1829/2005 (24 December 2009).  The plaintiffs in HCA 1829/2005 are 7 purchasers of properties in the same development.  From that judgment, I understand that those purchasers are pursuing similar remedies against the same factual background as that alleged in the present cases (see paras.2 to 11 of that judgement).

33.  That was a judgment on the preliminary issues surrounding certain settlement agreements between six of the plaintiffs and Match Power.  Essentially the court concluded that those purchasers’ right to claim under their sale and purchase agreements have not been compromised or waived.  That action will proceed.  The court indeed gave liberty to the parties to apply for directions on the further conduct of that case.

34.  The issue to be tried in HCA 1829/2005 will be whether Match Power was “in breach of clause 4(1)(c) [of the sale and purchase agreements] in failing to complete the development in compliance with the conditions of the Government Grant and the building plans on or before 31 December 2003 or 29 February 2004 and that, as such,  [the purchasers] are entitled to damages, including payment of interest under clause 4 [of the sale and purchase agreements]” (see para.9 of that judgment).

35.  It would seem that even in the absence of the present action, Match Power would have had to answer similar claims by the other purchasers in HCA 1829/2005.  I tend to expect contemporaneous documentation of the dealings between Match Power and the Government on the issue of completion and compliance with the Conditions of Sale.  It would also seem that expert evidence would be involved in relation to the contentions of Match Power.  I therefore doubt the extent to which oral evidence based on pure memory would be required.

36.  However Mr Man stressed that in the present case, Newbond is also alleging breach of “the Other Conditions” of the Conditions of Sale on the part of Match Power.  It is actually pleaded that until discovery, Newbond would be unable to give further particulars of “the Other Conditions” and the respective dates on which Match Power had allegedly purged the breach.  At present, the allegations in this respect remain non-particularised.

37.  Mr Man submitted that such vague complaint adds to the substantial risk that a fair trial would become impossible.  The reason is that it is not even possible to identify all possible witnesses who would be involved.  After consideration, and in the absence of contrary evidence from Newbond, I agree with Mr Man that such risk cannot be under-estimated.

38.  I am satisfied that the action ought to be dismissed on this ground.

O.1A, r.1(b)

39.  Mr Man commended what Reyes J said about the implication of the civil justice reform in Nanjing Iron & Steel (above).  Mr Man fairly drew this court’s attention to the case of Re Wing Fai Construction Co Ltd CACV 273/2009 (30 April 2010).  The peculiar facts of Wing Fai Construction were that the period of delay occurred and even the summons to strike out was taken out well before reform.  In those circumstances, the matter of delay had to be considered in the context in which it occurred and with reference to the principles applicable at the relevant time.  A party cannot be blamed for not observing a rule that did not exist at the relevant time.  The court of appeal would disagree with the judgment in Nanjing Iron & Steel case insofar as the judgment would indicate otherwise.

40.  By the time of the introduction of the new rules, there had already been a period of one and a half year of inaction in the present case.  Notwithstanding that, Newbond continued the delay for a further period of nearly 6 months post CJR and before filing the notice of intention to proceed on 29 September 2009.  Having done so, Newbond took another 3 months to take out the case management summons in January this year.

41.  The circumstances of the present case differ from those in Wing Fai Construction (above).  In view of my above conclusion, it suffices for me to say that the new rules and the underlying objective under O.1A, r.1(b) hardly operate in favour of Newbond.

Conclusion

42.  For the above reasons, both actions are dismissed with costs, including the costs of these applications, to Match Power.  Costs shall be taxed, if not agreed, with certificate for counsel.