H&M HENNES & MAURITZ AB AND ANOTHER v. H & M GMBH LTD AND ANOTHER

HCA 1946/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1946 OF 2008

BETWEEN

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REASONS FOR DECISION

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1.  This is the defendants’ application to strike out the plaintiffs’ action issued on 8 October 2008 for want of prosecution under the inherent jurisdiction of the Court on the ground that there was an abuse of process of the Court.[1]

2.  The plaintiffs oppose this application.

3.  Counsel L. Cheung acts for the defendants and Counsel D. Clarks acts for the plaintiffs.

4.  The defendants rely upon the plaintiffs’ inordinate and inexcusable delay for a period of 3 years between November 2008 and November 2011.[2]

5.  The plaintiffs have given no explanation for the delay mentioned above.

6.  It seems that the plaintiffs have made no denial of the alleged delay as Mr. Clarks has not given any submission to explain or refute the allegations.

7.  Mr. Clarks’ written submission confirms that the defendants had filed the Notice of Intention to Proceed in November 2011 and “asked the Plaintiffs to proceed with the case or abandon it.”[3]  He further submits that since then there had been negotiations for settlement, which failed. The defendants agree that the plaintiffs had sent without prejudice letters to the defendants for settlement since 30 January 2012.[4]

8.  Having not been able to reach settlement, the plaintiffs filed a Notice of Intention to Proceed and took out a Case Management Summons and the defendants took out this application to strike out.

9.  Respective Counsel’s arguments are based upon the above facts.

10.  Both counsel have referred to the comprehensive approach set out in the recent leading authority of the Court of Final Appeal in Wing Fai Construction Co. Ltd. (in liquidation) v Yip Kwong Robert [2012] 1 HKLRD589 delivered on 8 December 2012 by the Chief Justice and was agreed by other members.

11.  We are fortunate to have the Court of Final Appeal to review the legal principles and set out the guidelines on the important issues under the Civil Justice Reform for us.  This court should, of course, follow the decisions and I will gratefully adopt the approach as set out in the judgment. The references in the following paragraphs refer to the Court of Final Appeal’s judgment, unless otherwise specifically stated.

12.  The Chief Justice said at §80:

“80. Finally, I would like to stress that the power to strike out for delay is of course discretionary and derives from the inherent jurisdiction of the court. The inherent jurisdiction of the court exists to avoid injustice, prevent abuse, preserve the dignity of the court or to facilitate the administration of justice:- see Credit Lyonnais v SK Global Hong Kong Limited [2003] 4 HKC 104, at 107B-C (at para. 2). In exercising its discretion under the inherent jurisdiction, a court must, in applying those principles I have earlier set out, ultimately asks itself the question whether or not in the circumstances, it is just to strike out. A mechanistic approach in which the bigger picture is lost sight of (or, to adopt a more colourful phrase commonly used in our courts, to ‘lose the wood for the trees’), is to be eschewed.”

13.  Lord Scott of Foscote, NPJ has reminded us of the way to treat the judicial decision.  At §88, he said:

“88. In paras 64 to 75 of his judgment the Chief Justice has restated the principles to be applied to applications for actions to be dismissed for want of prosecution. I am in respectful agreement with that restatement and would only add that it is, in my opinion, important to bear in mind that a judicial decision whether or not to accede to an application to strike out for want of prosecution is always a discretionary one. The statutory rules applicable to the exercise of the discretion are to be found in the Rules of Court set out in the White Book. Judicial decisions explaining the Rules that relate to strike-out applications and the manner in which those Rules should be given effect should not be treated as a statute replacing the Rules themselves but rather as a very important guide to the exercise of the discretion. The power to strike out remains a discretionary one.”

14.  I should also bear in mind the primary aim of resolution of disputes in accordance with the substantive right of the parties in exercising the powers of the Court under Order 1A rule 2:

2.  Application by the Court of underlying objectives (O. 1A, r. 2)

(1)  The Court shall seek to give effect to the underlying objectives of these rules when it-

(a)   exercises any of its powers (whether under its inherent jurisdiction or given to it by these rules or otherwise); or

(b)   interprets any of these rules or a practice direction.

(2)    In giving effect to the underlying objectives of these rules, the Court shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.

15.  Ultimately, we have to make a fine balance between this primary aim and striking out when we exercise our judicial discretion.

16.  Faced with an application for striking out for want of prosecution such as this application, the court should bear in mind the applicable principles as set out in §§64 to 69:

“The applicable principles

64. One of the main objectives of the CJR is to enable parties to proceedings to have their dispute resolved as expeditiously, effectively and efficiently as reasonably practicable. The primary responsibility of the court, as made clear by O.1A r.2(2), is to “secure the just resolution of disputes in accordance with the substantive rights of the parties”. The role of the court is therefore not of course to prevent actions being litigated; quite the opposite.

65. It is accordingly within this context that the jurisdiction to strike out for delay must be seen. In my judgment, striking out should only be used in plain and obvious cases: it must be plain and obvious that by reason of his delay, a plaintiff should be deprived of the opportunity to go to trial for the resolution of his dispute with the defendant. This is not a novel proposition at all. In Allen v McAlpine (which, in many ways, was the foundation of the Birkett v James line of cases), Lord Denning referred to strike out on the basis of delay as a “stern measure” (at 245D). Diplock LJ in the same case referred to it as a “Draconian order and will not be lightly made” (at 259F).

66. The next general point is this. I believe the foundation for the jurisdiction to strike out for delay must be predicated on an abuse of the process of the court by the plaintiff. This is the common feature which connects the various reasons that have been used as grounds for the jurisdiction to strike out. Inordinate and inexcusable delay causing prejudice to a defendant, contumelious conduct or initiating proceedings without any intention to bring them to a conclusion, are all examples, in my view, of abuse.

67. …………

68. In any event, it is now time to recognize that in Hong Kong, the foundation for the jurisdiction to strike out for delay must be abuse of process. For my part, I find it difficult to conceive of a case where a court will strike out for delay unless there is this element of abuse.

69. Seen in this way, and particularly given the consequences of a strike out (namely, that a plaintiff will be deprived of the opportunity to go to trial to have his dispute with the defendant adjudicated), resort to a striking out must be a remedy of last resort.  I must, however, elaborate on this last statement in case there is any room for arguing that this may signal a more relaxed approach on the part of the courts regarding delays in litigation.  It does not.”

17.  It can be seen that the defendants have to establish inordinate and inexcusable delay predicated on an abuse of the process of the court by the plaintiffs, having regard to the various forms of abuse of the process such as real prejudice or a substantial risk that a fair trial being impossible; the “Bliss” prejudice, aggravating factor of interim injunction; warehousing without intention to bring proceedings to a conclusion or a wholesale disregard of the rules or court orders; contumelious conduct on the part of the plaintiff etc..  See §75.

18.  If the defendants fail to do so, the application should be dismissed.

19.  If the defendants succeed to establish inordinate and inexcusable delay and abuse of the process by the plaintiffs the court will have to consider whether there are other measures that are more appropriate to be taken and whether striking out is the last resort and as the Chief Justice said at §80: “ultimately asks itself the question whether or not in the circumstances, it is just to strike out.”, taking into account of the defendant’s conduct such as the attitude of “letting sleeping dogs lie” and other relevant circumstances such as steps to preserve witnesses’ evidence for dim memory as well.  See §75(8).

20.  With the above principles, I shall now consider the defendants’ application.

Inordinate and inexcusable delay

21.  It cannot be disputed that the plaintiffs have had inordinate and inexcusable delay for about 3 years between November 2008 and November 2011.

Order 25 rule 4 of RHC

22.  This morning, Mr. Cheung has submitted his supplemental skeleton arguments 10 minutes before the hearing. He replies to the submissions in Mr. Clarks’ skeleton argument.  But he has taken one new point of asking this court to take into consideration of Order 25 rule 1(4) of striking out the plaintiffs’ claim for failing to take out a Case Management Summons within the prescribed time.  He submits that this court can take this point into consideration.  I note that this point was only made known to the plaintiffs and this court shortly before this hearing.  Mr. Clarks will be taken by surprise.  However, I am content to consider it as part of the delay on the part of the plaintiffs.  I shall not deal with the specific provisions in Order 25 because it should be dealt with by a separate application and the court will have to focus on the relevant facts and the circumstances.  In fact, Order 25 rule 1(4) provides that the defendants may take out a Case Management Summons or apply for an order to dismiss the action.  The defendants have not made the option today.  Mr. Cheung is content with my approach.

Abuse of process

23.  The defendants say that there was an abuse of the process as the plaintiffs had no intention to proceed, which was demonstrated by the extensions of time for filing the Reply in 2008 and thereafter for staying dormant until November 2011 when the defendants filed the Notice of Intension to Proceed and the plaintiffs further stalled the progress.  However, the defendants do not deny that after the Notice of Intention to proceed in November 2011, the plaintiffs and the defendants had taken steps to negotiate for settlement and that the negotiation had taken 6 months from November 2011 to May 2012[5]. The plaintiffs had written to the defendants to refrain from taking out striking out application.  In May 2012, the plaintiff and the defendant had almost reached settlement if not for the fact that the plaintiff suddenly changed their solicitors and they put forward new settlement terms.  The Plaintiffs had also taken out the Notice of Intention to Proceed in June 2012 and the Case Management Summons in July 2012.[6]  All these proceedings show that the plaintiffs were not stalling the proceedings after the defendants had served the Notice of Intention to Proceed on the plaintiffs.  It seems that the parties appreciated the new culture as set out in the CFA judgment.

Prejudice – business and financial interest

24.  Paragraph 13-15 of the defendants’ skeleton submission concern the prejudice to the defendants in respect of business and financial interest.  The defendants’ suppliers had concern and showed reluctance to do business with the defendants and the prolonged litigation affected the defendants from getting support from the banks for funding.

25.  Mr. Clarks submits that these are pressures all parties to litigation may face.  There is no evidence from third parties to support the allegations.

26.  This is understandable and, as Mr. Clarks submits, applicable to the parties involved in litigation.  I accept Mr. Clarks’ comment that in the defendants’ affidavit, there is no independent evidence to support the allegations.  However, I also accept that litigation may have undesirable effects on business.  But the effects depend on the nature of business and other business and commercial circumstances relating to the parties’ businesses.  Nevertheless, the longer the litigation, the worse effects would have been for the businesses.  It is, at least, a matter of degree of adverse influence. I accept the delay did have adverse effects on the defendants’ business. It is only a matter of degree.

Prejudice – undue pressure/anxiety

27.  Paragraph 16 to 22 of the defendants’ skeleton argument set out the undue pressure, frustration and anxiety on the defendants, emphasis being on the 2nd defendant’s age of 72, relying on the case of Biss v. Lambeth of Damocles’s sword hanging over his head.  The plaintiffs argue that this is the normal pressure faced by parties to an action.  The plaintiffs further submit that the defendants could have relieved the pressure by proceeding with the action earlier.[7]  By analogy with the reasons in the preceding paragraph, I accept that there will be prejudice to the defendants caused by the delay.  Again, it is a matter of degree.

Prejudice – fair trial not possible

28.  Paragraph 23 to 29 of the defendants’ skeleton argument set out the prejudice of having memories of the witnesses getting dimmer and making it more difficult in locating the witnesses too.  The defendants have also relied upon the advanced age of 2^nd defendant.  Mr. Clarks argues that the prejudices are similar to those in Johnson Controls Hong Kong Ltd. v Associated Engineers Ltd HCCT47/2011 delivered on 28 February 2012 by Au J. where there had been inordinate and inexcusable delay of 6 year and 5 months and in Ready Mixed Concrete (HK) Ltd v Tong Kee Engineering Ltd (HCCT 9/2005) delivered by Au J. on 5 March 2012 where the inordinate and inexcusable delay was 6 years.  Au J. had rejected those applications for striking out, relying upon the decisions of Wing Fai.

29.  By the same reasoning, it is hard to argue that there is no prejudice at all for the delay. It is only a matter of degree and whether it is to such an extent that a fair trial is not possible.  I accept Mr. Clarks’ argument that there is not an argument that the main witnesses are not available, just that their memories have faded, which according to the Court of Final Appeal, the court will usually want to know what steps have been taken by the defendants to take instructions, or proof or locate witnesses: cf the remarks of Ribeiro JA in Hymer v Mass Transit Railway Corporation [2000]2 HKLRD 589, at 610D-J viz. the reasonable steps to preserve the evidence such as the witness statements for the legal proceedings at the first possible moments when the memories were fresh.[8]  The defendants have given no evidence on whether the evidence has been preserved.  There is simply no evidence to show that the delay has rendered a fair trial not possible, far from that.  This, coupled with the reasons I set out below for considering all the circumstances, including the defendants’ conduct, will certainly weaken the defendants’ strength in their application of striking out the plaintiffs’ action.

The ultimate question – is it just to strike out?

30.  I have already made assessments of the prejudices raised by the defendants above.  Now I should also consider the defendants’ conduct, which the Court of Final Appeal said that the court must do.  See §19 supra.

31.  I consider that it is not too harsh to say that the defendants had contributed to the delay themselves in this case.  This is because they had deliberately taken no action knowing that the plaintiffs had delayed.  This is worse than the attitude of “letting the sleeping dog lie”.  I say this because the defendants have told me in this application that their business was affected by the prolonged litigation and the 2nd defendant was also distressed too.  Therefore, there was simply no reason for the defendants to take no action to push the plaintiffs to proceed after 28 November 2008.  They had not told the plaintiffs the bad effects on their business and the 2^nd defendants’ health by the plaintiffs’ delay.

32.  The next question is: are there any other options than striking out?  The answer must be in the affirmative.  The proceedings have come to a stage of Case Management Summons where the pleadings have closed and parties’ cards are on the table. There can be agreement between the parties on tighter timetable for the preparation of the evidence for the trial. The parties have confirmed to me this morning that they do not require expert evidence.  In the circumstance, the matter should be able to set down within6 months from now if the application for striking out fails.  As to the memory of the witnesses, the defendants can consider preservation of their evidence, the same applies to the 2^nd defendant, whose age, in my view, is only a neutral factor, taking into account of the average life expectancy in Hong Kong, which is about 80.  That the defendants have failed to preserve the evidence before is something that the defendants have to take the consequences themselves.

33.  I have also taken into account the relatively short period of delay, as compared with Johnson Controls and Readymix.

34.  Taking into account of each of the prejudices separately or all of them together accumulatively, it is clear that a fair trial is possible.

35.  I do not think it is just to strike out the plaintiffs’ action.  As such, I dismiss the defendants’ application.

36.  Now I shall deal with the costs of this application. Mr. Cheung has referred me to the case of Darache E. Haughey and Joseph Kin Ching Lo, the Joint and Several Liquidators of Weihong Petroleum company Limited (in Liquidation) and Lai Hon San & Others HCCW19/1998 delivered on 29 September 2012, in which the learned Deputy Judge Le Pichon, after finding that there had been inordinate and inexcusable delay, dismissed the application for striking out because the applicants were unable to demonstrate real prejudice, had made an order nisi of costs in the cause.  There was no reason for making the costs order nisi stated in her judgment.  In another case of striking out application in China Nonferrous Metals (Hong Kong) Finance Company Limited (In Liquidation) & Another v South-East Asia Investment Holding Company Limited and Another HCCL 20/2002 delivered by the learned Deputy High Court Judge M. Chan (as she then was) on 31 July 2012, in which she found that both sides were culpable of delay and the application of striking out failed, she said “ … since both sides are culpable of delay, instead of ordering costs to follow the event of the unsuccessful application for striking out, I consider that a fair order would be for each party to bear its own costs and make an order nisi to such effect.”

37.  Mr. Clarks submits that costs are matters of discretion of the court.  He refers me to Johnson Controls and Readymix, where in Johnson Controls, the learned Judge Au ordered the applicant, who had failed the application for striking out to the pay costs and in Readymix, he did not make any order for costs.  But he has drawn my attention to the following facts, which are not disputed by Mr. Cheung: a) on 13.12.2011 the defendants’ solicitors wrote to the plaintiffs’ solicitors telling the plaintiffs to proceed or it should abandon the claim.  When the plaintiffs proceeded with the Notice of Intention to Proceed and took out a Case Management Summons, the defendants applied for the striking out; b) the plaintiffs’ solicitors had on 24 July 2012 written to the defendants’ solicitors telling them to drop the application in light of the Wing Fai case. The defendants still proceeded with the application.

38.  Under Order 62 rule 5 of RHC, the court has to take into account special matters as set out in rule 5, which include the conduct of all parties.[9] I consider that this application was caused by the plaintiffs’ delay and the defendants’ understanding of the circumstances and the law set out in the Wing Fai case.  If not for the plaintiffs’ default, the defendants must bear the costs.  The defendants’ conduct of encouraging the plaintiffs to proceed on the one hand, but took out this application when the plaintiffs proceeded on the other hand is another factor against the defendants.

39.  In the circumstances, I accede to Mr. Clarks’ submission that the costs of this application, including all costs reserved and the costs of today’s hearing (with counsel’s certificate) be the plaintiffs’ costs in the cause, to be taxed if not agreed.

40.  I shall make an order for this application in terms as follows:

a.  The defendants’ summons  for striking out be dismissed; and

b.  The costs of this application, including all costs reserved and the costs of today’s hearing (with counsel’s certificate) be the plaintiffs’ costs in the cause, to be taxed if not agreed.

41.  I understand that the Case Management Summons has been adjourned to today’s hearing.  I shall now deal with the Case Management Summons to give directions for the preparation for the trial.  With the mutual understanding that this matter has passed through a delay of 3 years, the parties have now agreed the directions as per the draft order submitted to this court today as amended.  I shall now make an order in terms of the draft order as amended.  The return date for the Case Management Conference under paragraph 9 of the draft order will be given by the court to the parties in due course.