KINCHENG BANKING CORPORATION v. TOPTIME INTERNATION TRADING LTD AND OTHERS

DCCJ 9012/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 9012 OF 2001

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DECISION

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Introduction

1.  This is an application of Wong Man Yi (“MY”) and Wong Fai Yeung (“FY”) to strike out the Statement of Claim of Bank of China (Hong Kong) Limited (“BOC”) dated 29 May 2001 by way of their summons dated 29 October 2013 (“the Summons”) pursuant to Order 18 r.9 of the Rules of the District Court, Cap. 336H. This application concerns MY, FY and BOC only.

2.  For the purpose of this application, it is necessary to first set out in brief the parties’ respective cases and the procedural history of these proceedings.

3.  On 14 September 1994, Toptime International Trading Limited (“Toptime”) signed a document entitled “Undertaking For Repayment of Overdraft” of both sides dated 14 September 1994 (“the Undertaking”) in favour of BOC for the granting of an overdraft facility to the extent of HK$800,000 (“the Overdraft Facility”).

4.  The Overdraft Facility was secured by a guarantee dated 14 September 1994 (“the Guarantee”) and it is the subject matter of these proceedings. The parties to the guarantee were the Kincheng Banking Corporation (“Kincheng”) as guarantee on the one part and MY, Wong Man Fai (“MF”) and FY as guarantors on the other. Under the Guarantee, MY, MF and FY were obliged to pay Kin Cheng on demand all sums of money which were then or should at any time thereafter be owing to Kincheng by Toptime to an extent of HK$800,000 and interest.

5.  The Guarantee was expressly made a continuing security and shall not be considered as being satisfied by any intermediate payment or satisfaction of the whole or any part of the moneys and obligations thereby secured: Clause 11.

6.  MY is neither a shareholder nor a director of Toptime. At the time when the Guarantee was executed, FY was a director and shareholder of Toptime. On 16 September 1997, FY ceased to be a director and on 12 May 1998, he ceased to be a shareholder altogether. MY, MF and FY are brothers.

7.  There was a reconstruction of the indebtedness of Toptime to Kincheng. On or about 31 October 1997, Toptime created a promissory note of the same date (“the Promissory Note”). In consideration of Kincheng’s agreeing to advance the sum of HK$800,000 to Toptime, Toptime undertook and agreed to repay Kincheng the said loan by 12 equal monthly instalments with interest thereon.

8.  As at 10 March 2001, Toptime was indebted to Kincheng in the sum of HK$497,280.45 together with interest under the Promissory Note. Toptime failed to repay the said sum to Kincheng despite repeated demands including a letter issued by Messrs Ford Kwan & Company, former solicitors for BOC, dated 15 October 1999.

9.  By virtue of the Bank of China (Hong Kong) Limited (Merger) Ordinance, Cap. 1167 (enacted on 20 July 2001), Kincheng was merged to BOC. BOC became the plaintiff of these proceedings. Kincheng issued the Writ herein on 29 May 2001 before the merger. On the face of it, the claim of BOC is a run-of-the-mill enforcement action of a bank guarantee.

10.  Both MY and FY filed their respective Defence prepared by themselves in person on 19 July 2001. The pleaded defence of MY is that the Guarantee was executed in a dubious manner and as a result it should be set aside. He alleges that Kincheng gave a few blank guarantees to a staff member of Toptime for him to bring them back to Toptime. In the blank guarantees, he alleges that some information such as the name of the company, the amount of the loan involved and the date was missing. He further alleges that before he signed on the Guarantee, Kincheng did telephone him and assured him that the Guarantee was only for the specific purpose of the Overdraft Facility and would not cover other accounts or loans relating to Toptime. Since the Overdraft Facility was repaid in full on or about 5 December 1997, MY believes that the Guarantee had become discharged and ineffectual.

11.  MY further maintains that the Promissory Note was created without due authorization of Toptime in that there was no valid board resolution passed to authorize MF to sign the same.

12.  MY lastly asks for damages for all the mental sufferings and economic loss caused by the wrongful accusations of Kincheng/BOC.

13.  The defence of FY does not differ materially from that of MY and he also asks for damages similarly. In other words, both MY and FY mount counterclaims against Kincheng and hence BOC.

14.  On 1 August 2001, BOC applied for an extension of time to file its Reply and Defence to Counterclaim. On 23 August 2001, BOC applied again for a further extension of time. Eventually, on 18 September 2001, BOC filed its Reply and Defence to Counterclaim.

15.  On 16 October 2001, default judgment was entered against Toptime and MF.

16.  A direction hearing was conducted on 23 January 2002 before Master C.K.Chan (as he then was). The master ordered that the parties were to file and exchange lists of documents on or before 4 February 2002 and witness statements on or before 20 February 2002.

17.  On 19 March 2002, BOC filed and served its list of documents whilst MY filed his on 29 January 2002. FY filed none. Neither party filed any witness statement.

18.  On the other hand, at long last, on 18 March 2009, BOC brought enforcement action against MF by way of a bankruptcy petition. MF was adjudicated a bankruptcy as a result on 13 May 2009. His bankruptcy was eventually discharged on 13 May 2013.

19.  The matter as against MY and FY fell into a coma until 8 November 2012 when BOC served a copy of the Notice of Change Solicitors by its current solicitors Messrs K.W. Ng & Co. (“KW Ng”). The next step came only on 25 April 2013 when KW NG filed a Notice of Intention to Proceed. This was met with a protest of MY by way of his letter dated 6 May 2013. In the said letter, MY complained about the delay, not just relating to the present action, but also two other High Court actions (HCA 10275/2000 and HCA 3094/2001) apparently being prosecuted by BOC against him.  

20.  On 4 September 2013, KW Ng took out a case management conference summons (“the CMC summons”) on behalf of BOC.

21.  That galvanized MY and FY into activity and on 17 September 2013, Messrs Lau, Wong & Chan filed a Notice to act for them.

22.  On 29 October 2013, they saw fit to take out the Summons and make this application.

23.  That basically concludes the narrative of all the essential background facts and the procedural history of this matter. However, I should mention a step taken by MY on 10 August 2005 which is worthy of note.

24.  On that day, MY had an appointment at Kwun Tong District Office Centre with a duty lawyer for free legal advice provided by the Duty Lawyer Service. There, MY sought legal advice in respect of the present action. MY made a detailed contemporaneous record of the meeting with the duty lawyer and the record, written in the Chinese language, is exhibited to his supporting affirmation (“the Record”) in an attempt to explain his own inaction.

25.  In the Record, MY first indicated his satisfaction with the legal advice obtained from an English lawyer in his fifties. He was advised that he could take out a striking out summons at that time but the chance was only fifty-fifty. If he were to take such an active stance, BOC would undoubtedly pursue the present action. MY was further advised to wait; the longer the delay, the more understanding and sympathetic the court would be towards him and hence the better his chance to strike out the claim for want of prosecution would be.

26.  Lastly, MY was advised to apply for legal aid. He laughed up his sleeve at this suggestion according to the Record. His evidence was that he actually issued a letter to the Legal Aid Department on 13 February 2003 whereby he indicated that he had no alternative but to cease legal aid on the ground that he could not afford to pay any further contribution to the legal costs incurred. In the said letter, MY also asked for legal aid to be continued for a while since the action had gone asleep and no extra legal costs was likely to be incurred.

27.  Lastly, to complete the picture, I should mention the letter issued by Messrs Lo, Wong & Tsui (“LWT”) to the Legal Aid Department dated 24 May 2002 (“LWT’s letter”). Apparently, LWT then acted for MY on the instruction of the Legal Aid Department. In LWT’s letter, LWT reported that a passive strategy was adopted because they did not think there was any particular benefit in bringing these proceedings to an early conclusion as far as MY was concerned.

Applicable Principles

28.  This present application is essentially to strike out the claim of BOC for want of prosecution. Both Mr Tsui, counsel for MY and FY and Mr Chan, counsel for BOC, refer me to the restated principles set out in the speech of Ma CJ in Wing Fai Construction Co Ltd. v Yip Kwong Robert (2011) 14 HKCFAR 935 at §75. To avoid overburdening this Decision, I do not intend to set them out here. Suffice it for me to mention those considerations of particular relevance to this application.  

29.  First, striking out is a remedy of the last resort and only where it would be plain and obvious to do so. If there are other measures that are more appropriate to be taken, they ought to be.

30.  Second, it has never been the law that mere delay will be sufficient to justify an order to strike out. Abuse of the process of the court is the foundation for the exercise of the jurisdiction to strike out for delay. The Birkett v James second limb, if proved, will continue to be sufficient to constitute a form of abuse so that inordinate and inexcusable causing real prejudice would be an abuse.

31.  Prejudice can take many forms too. The most compelling form of prejudice to a defendant is that there is a substantial risk that a fair trial is not possible due to the delay. Another form of prejudice is undue anxiety caused by proceedings hanging over the head of a defendant.

32.  Where abuse such as contumelious conduct on the part of a plaintiff is clearly demonstrated, proceedings can be struck out even where prejudice to the defendant cannot be shown. That said, prejudice will often be extremely relevant to the overall justice of the case.

33.  Third, the conduct of the parties will remain a relevant consideration of the court, both to the critical question of abuse as well as to the overall justice of the case. It will no longer be possible (if it ever was) for a defendant to sit idly by and do nothing, in the hope that sufficient delay would be accumulated so that some sort of prejudice can then be asserted. If it is sought to be argued that time has dimmed the memories of the witnesses, the court will usually want to know what steps have been taken by the defendant to take instructions, or proof or locate witnesses.  

34.  Lastly, merely for a party to start proceedings and then delay (which will often involve a failure to comply with the applicable rules of court) will not necessarily amount to an abuse justifying an order to strike out an action. In order for the “warehousing” of claims to justify striking out, it must be clear that the plaintiff is abusing the process of the court. A plaintiff is abusing the process of the court if he has no intention to bring proceedings to a conclusion despite being urged upon by the defendant to proceed with the action: see Grovit v Doctor, 645H-646A.

35.  Both Mr Tsui and Mr Chan helpfully refer to me some other authorities, both pre-CJR and post-CJR, concerning striking-out applications. Much appreciative for their industry as I am, I do not think it is necessary to go through those helpful authorities in this Decision. I shall consider the particular facts of the present case in light of the guiding principles set out by Ma CJ in Wing Fai Construction Co Ltd.

36.  The Summons was taken out after the implementation of the CJR. This is not a straddle case as identified in Wing Fai Construction Co Ltd. I shall simply dispose of the present application in accordance with the existing law.    

Parties’ Concessions

37.  Both parties make sensible concessions at the outset of the hearing. Mr Tsui agrees that MY and FY would abandon their respective counterclaims if their application is acceded to. Indeed, I fail to see how they could proceed with their counterclaims if they now contend that they can no longer be able to challenge the validity of the Guarantee due to the delay caused by BOC.

38.  On the other hand, Mr Chan accepts that there was inordinate and inexcusable delay on the part of BOC. This is a realistic approach and the delay is substantial and indefensible on the evidence. Given this concession, I do not really have to make a microscopic examination of the delay and the explanation of BOC proferred. To me, the material delay should start from the filing of the list of document by BOC on 19 March 2002 to the filing of the Notice of Intention to Proceed by BOC on 25 April 2013.

Analysis

39.  BOC has obviously warehoused the present action for a long while. However, there is little evidence of its intention to abuse the process of the court. To start with, there was no refusal of any attempt on the part of the defence to bring the present action to a conclusion. Quite on the contrary, the clear evidence is that MY and FY deliberately adopted a “letting sleeping dogs lie” attitude. Nor was there contumelious conduct of BOC shown on the evidence such as persistent failures to comply with the applicable rules of court.

40.  Mr Tsui points out that when BOC instituted bankruptcy proceedings against MF in March 2009, it should also have reviewed the present action and it was only its deliberate choice and commercial decision not to proceed with the present action against MY and FY.

41.  I fail to see how this could assist the defence to show abuse. In my view, BOC of course was entitled to take action against MF apparently with a deeper purse instead of throwing good money after bad. It is the evidence of the defence that MF was the actual owner of Toptime. When it transpired MF could not satisfy the default judgment approaching the automatic discharge of MF’s bankruptcy in May 2013, it was only natural for BOC to turn to MY and FY. 

42.  I then consider whether or not the delay has caused real prejudice to MY and FY. They now complain that a fair trial is no longer possible because of (1) loss of witnesses (2) loss of memories and (3) loss of documents. Further, they complain that they have suffered prejudice in that MY and FY’s medical conditions deteriorated in the wake of the resumption of these proceedings and their loss of reputation. I shall deal with all these complaints in turn.

43.  The possibility of a fair trial is very much in the forefront of my mind. However, any complaints about its infeasibility must be viewed in light of the admitted “letting sleeping dogs lie” attitude adopted by MY and FY. They obviously tried to take advantage of the delay in this long-intended striking out application, as shown in the Record and, to a lesser extent, the LWT’s letter. Though I accept that such an attitude might be prevalent before the CJR and I agree with Mr Tsui this might not be something which I should take against MY and FY when I consider the parties’ respective conduct, any alleged loss of memories and/or documents is in fact self-induced and/or self-inflicted albeit on legal advice. MY and FY indeed welcomed the delay. They could have made contemporaneous records of the important events to assist their memories and taken extra care to preserve relevant documents for the purposes of these proceedings. I have little sympathy with MY and FY for their purported difficulties in handling the trial, if any.

44.  As regards loss of witnesses, MY now inexplicably recalls the name of the staff member of Kincheng who made misrepresentation to them before the Guarantee was executed albeit he was unidentified in his defence. He was one Mr Lee Tai Pang, the then Quarry Bay Branch manager of Kincheng.  He was alleged to have sent to three staff members of Toptime the Guarantee for the signatures of MY, MF and FY. MY could only remember the first names of the three staff members but they have already left the employment of Toptime and could not be located.  Lee Tai Pang also left BOC and cannot now be traced.

45.  Another staff member alleged to be a crucial witness is one Mr Lam Chun Charm, the then Assistant General Manager of Kincheng. MY claims that he learnt from MF that Mr Lam had already emigrated to Canada. MY however fails to explain how the evidence of Mr Lam is relevant to his defence including his plea of misrepresentation.

46.  In the first place, Mr Lee’s absence would only mean that MY’s allegation of misrepresentation cannot be contradicted by the alleged misrepresentor. I fail to see how he and FY would suffer prejudice as a result.

47.  It is submitted that Mr Lee’s evidence may actually confirm the defence case and so MY and FY might be prejudiced. This is purely speculative. There is no evidence when Mr Lee left Kincheng/BOC and prior to that MY and/FY had ever made a genuine effort to locate him. There is no evidence to the effect that Mr Lee was approached by either MY or FY for the purpose of these proceedings and that he had ever indicated that he would support the defence by his admission of misrepresentation. All in all, I am not convinced that a fair trial has become impossible because of the absence of Mr Lee.

48.  With respect to Mr Lam and the three staff members of Toptime, again MY and FY had the same difficulties in persuading me that they have done adequately to obtain relevant evidence from them. Worse still, their evidence fails to convince me that their evidence would be relevant to the defence at all. For one thing, the role by played by the three staff members seems very much limited to their delivery of the Guarantee to MY, MF and FY as messengers. It is not even suggested that they themselves had read the Guarantee and had noted that certain parts of the Guarantee were left blank as alleged in the defence.

49.  MY and FY complain that during the substantial delay, both of them have changed their offices a few times and as a result, certain blank documents sent by Kincheng/BOC for their signatures were lost. Also Mr Lee once sent a fax concerning the loan restructuring to Toptime but the fax was lost already.

50.  The evidence in this regard is under-particularised and most unimpressive. First, as rightly pointed out by Mr Chan, the alleged missing documents are not nowhere to be found in the list of documents filed by MY. I am not convinced of the probative value of the alleged documents, either. Lastly, for the missing fax, there is no evidence that MY and FY have ever requested Kincheng/BOC to produce to them the original document. No specific discovery of the same has ever been sought as well.

51.  Finally, I shall deal with their allegation of dimmed memories. The factual dispute is centred on the circumstances under which the Guarantee was executed. There are also allegations that MY and FY were separately called and were similarly misrepresented about the true nature of the Guarantee. Bare assertions aside, on the evidence adduced by MY and FY, I fail to see how their memories about the execution of the Guarantee and the alleged misrepresentation have been dimmed as a result of the delay. Quite on the contrary, in his supporting affirmation, MY is now able to give more details and particulars about the important events than his pleaded case.

52.  I should mention that from the Record, it can be seen that MY was very much serious about the tactics to be deployed in these proceedings. He even found it necessary to make a detailed contemporaneous record of a piece of free legal advice obtained. I do not believe that he would allow his memory about the focal events in these proceedings to fade away naturally.

53.  Mr Tsui helpfully draws my attention to Cheung Sai Kit v Wong Chiu Kit, Eric, unreported, HCA 1611/2005, 17.12.2009 where Au J held that affirmations used for interlocutory purposes might only help refreshing the witnesses their memories of the main events and not cover all the important details of the events to be recalled at trial.

54.  Here, the situation is that MY is able to give more details about the main events than what he did in his pleaded case. Absent cogent evidence as to about what particular parts of the important exchange(s) between he and the staff members his memory has been dimmed, I am unable to accept the validity of his complaint of loss of memory despite the lapse of almost 20 years.

55.  For the foregoing reasons, I believe that a fair trial of the present action is still possible despite the substantial delay.  

56.  MY further relies on his present medical condition to establish prejudice. Mr Tsui points out the correlation between the HbA1c level (a measurement used for diabetic patients) of MY and the recent resumption of these proceedings by reference to the medical reports of MY. His HbA1c level was only slightly above average prior to the Notice of Change of Solicitors was filed in December 2012 but was shot up after the issue of the CMC summons in September 2013.

57.  Interesting as the analysis of Mr Tsui may sound, I cannot lightly accept that the deterioration of MY’s diabetic condition is attributable to the delay absent medical evidence.

58.  FY in his affirmation says nothing more than he suffers from diabetes and coronary heart disease. It cannot be shown that his medical condition has anything to do with the present proceedings let alone the delay.

59.  I would accept that MY and FY should suffer certain mental stress and anxiety with the present action hanging over their heads for so long. However, as observed above, they are in my view equally blameworthy for the delay. They have been as much in the driving seat as BOC. They should have pursued their counterclaims in full vigour if they had had conviction in their defence. As they are businessman, they should normally want to have their names cleared as soon as possible and they would get rid of an invalid guarantee sought to be enforced against them. 

60.  This is also my view on the alleged loss of reputation on the part of MY and FY. I should add that I am not impressive by their evidence in this regard at all and I am not convinced that the alleged loss was due to the delay. I also note that there are actually two other High Court actions against MY. I am unable to accept that any loss of reputation was suffered by MY by reason of the delay in these proceedings in the District Court.

Conclusion and Orders

61.  For the foregoing reasons, I am not satisfied that this is a plain and obvious case that I should exercise my discretion to strike out the claim of BOC. In my judgment, a fair trial is still possible despite the delay and no doubt appropriate measures are available to make up for the loss of time. I am not convinced that MY and FY have suffered real prejudice because of the delay and that the present proceedings are actually an abuse of the process of the court.

62.  I therefore dismiss the Summons, with costs to BOC (including any costs reserved), to be taxed if not agreed. I also allow certificate for counsel.

63.  Now that BOC has shown its unequivocal intention to bring these proceedings to a conclusion, BOC should redouble its effort to ensure that no further delay however slight is to be caused. First and foremost, the hearing of the CMC summons should be resumed as soon as possible pursuant to paragraph 6 of the Order of Registrar Lui (as he then was) dated 30 October 2013.

64.  It remains for me to thank both Mr Chan and Mr Tsui for their thorough preparation and skillful submissions.