YAU AND LAU (a firm) v. CHOW CHUNG TAO AND ANOTHER

DCCJ 14042/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 14042 OF 2000

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DECISION

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Background

1.  The Plaintiff, a firm of solicitors, ("Plaintiff Solicitors") commenced these proceedings against the Defendants for recovery of a sum of $121,238 as outstanding legal fees for services relating to their conduct of High Court Action No. 12016 of 1999 ("Conveyancing Action") on behalf of the Defendants, their former clients. The Conveyancing Action was commenced by a Mr. Cheng for the return of a deposit paid by Mr. Cheng as purchaser from the Defendants as vendors of the aborted sale of a property in North Point, Hong Kong. Judgment in default of defence was obtained against the Defendants in the Conveyancing Action. Essentially, the Defendants were unable to set aside the judgment in default as the Court was not satisfied that they had any defence on the merits to the purchaser's claim.

2.  By way of defence, the Defendants say that the Plaintiff Solicitors were negligent and in breach of their professional duties owed to the Defendants in their conduct of the Conveyancing Action, and in permitting judgment in default to be entered against them. They say that the services provided by the Plaintiff were of no value at all, and that the consideration for their fees had wholly failed. The Defendants seek to set off against any fees payable by them the damages sustained by them as a result of the  negligence of the Plaintiff Solicitors. A Counterclaim was filed in relation to the Defendants’ loss and damage suffered.

3.  The Defendants also issued third party proceedings against the solicitors who had handled the aborted sale of the property on their behalf ("Third Party Solicitors"), claiming that the Third Party Solicitors had been negligent in the sale of the property and that it was as a result of such negligence that they had to instruct the Plaintiff Solicitors to defend the Conveyancing Action which resulted in judgment being obtained against the Defendants on the ground that the Defendants had no meritorious defence to the purchaser's claim for the return of the deposit. The Defendants seek an indemnity or contribution from the Third Party Solicitors in respect of any professional fees which the Defendants should be held liable to pay to the Plaintiff Solicitors.

4.  The Writ was issued on 22 September 2000. A Defence and Counterclaim was filed on 15 November 2000. The Third Party Statement of Claim was filed on the same day. A Defence was filed by the Third Party on 17 January 2001. On 2 May 2003, an Order was made for the Plaintiff Solicitors, the Defendants and the Third Party Solicitors to file their respective lists of documents, for inspection of documents, and for the parties to file and serve signed witness statements as to facts. The Defendants have emphasized that this was made on the Defendants' application, the Plaintiff Solicitors having failed to take any step to pursue the proceedings at all since the close of pleadings in December 2000.

5.  Lists of documents have since been filed by the Defendants in November 2003 and by the Third Party Solicitors in February 2004. The Third Party Solicitors made some attempts to seek specific discovery of documents from the Defendants in March 2004, but neither party took further steps to process the Third Party proceedings until the Defendants filed Notice of Intention to Proceed in February 2009 and sought agreement on further directions in March 2009, whereupon the Third Party Solicitors applied by summons issued on 1 April 2009 to strike out the Third Party proceedings.

6.  The ground stated in the Summons for striking out is that there has been an abuse of the process of the Court for want of prosecution. On 21 September 2009, the Master struck out the Defendants' claims for an indemnity and for contribution, on the ground that the Third Party Statement of Claim does not identify the cause of action. However, the Master refused to strike out, on the ground of delay, the remainder of the Defendants' claims for damages for breach of contract and negligence, on the basis that the Third Party Solicitors have not suffered prejudice as a result. The Third Party Solicitors appeal against the learned Master's decision.

Issues

7.  At both the hearing before the Master and the hearing of the appeal, the Defendants do not dispute that there has been inordinate and inexcusable delay. In issue is whether such delay gives rise to an abuse of process to warrant a striking out, and whether the inordinate and inexcusable delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or is such as is likely to cause or have caused serious prejudice to the Third Party Solicitors.

8.  The legal principles for striking out on the ground of want of prosecution are clearly established, and Counsel for the Defendants and for the Third Party Solicitors are not in serious disagreement over the application of these principles. The Court of Appeal's decision in New China Hong Kong Group Ltd. v. AIG Asian Infrastructure Fund LP [2005] 1 HKLRD 383 examined and clarified the application of the principles set out in Birkett v. James [1978] AC 297 and in Grovit v. Doctor [1997] 1 WLR 640. In summary, the Court has a discretion to strike out an action where there has been inordinate and inexcusable delay, and such delay gives rise to a substantial risk that a fair trial would not be possible or is such as is likely to cause or to have caused serious prejudice to the defendant. The Court may also strike out an action where there is an abuse of process, and it would be fair to strike out the action. Mere delay, without more, would not amount to an abuse of process.  There has to be disobedience of a court order capable of being regarded as contumelious conduct, with full awareness of the consequences.

The inordinate and inexcusable delay ground

9.  On the facts of this case, there is clearly inordinate and inexcusable delay on the Defendants' part in pursuing the Third Party proceedings, and the Defendants have not even denied this. What they deny is that the Third Party Solicitors have suffered any prejudice as a result of the delay.

10.  The Third Party Solicitors claim that since March 2004, they have asked the Defendants for discovery of their agreements with estate agents to offer the property for sale on the market between 9 June 1999 and 22 February 2001, and documents evidencing the Defendants' attempts to sell the property between these dates. The Third Party Solicitors claim that these documents are relevant to the question of whether the Defendants have taken adequate steps to mitigate their loss, if any, sustained as a result of the Third Party Solicitors' negligence or breach of duty. They claim that the exchange of witness statements should be extended until after inspection of the documents sought by them, but that the Defendants have not confirmed when they would be in a position to disclose the documents in question.

11.  As I have made clear in the course of the hearing before me, neither the Defendants nor the Third Party Solicitors have any excuse to delay the progress of the third party proceedings by reason of the Third Party Solicitors' request for discovery, or by reason of the Defendant 's failure to make discovery or to give any satisfactory answer in relation to the request for discovery. It is open to the Third Party Solicitors to apply to the court for an order for specific discovery if they take the view that they are entitled to such an order. It is equally open to the Defendants to apply to the court to enforce the order for exchange of witness statements if they take the view that the Third Party Solicitors have no reason to delay the exchange.  Despite some empty threats made by the Third Party Solicitors, they never pursued the request for specific discovery - even assuming that the documents sought are relevant. Similarly, despite the Defendants' assertion on 4 November 2003 that they were ready to exchange witness statements, they failed to take any further action to proceed until March 2009. The Defendants also say, through their solicitors' affirmation, that they have already disclosed all the available documents relating to the attempts to sell the property.

12.  The Third Party Solicitors argue that by reason of the delay in the conduct of the third party proceedings, it would be "extremely difficult" for them now to verify information relating to the Defendants' attempts made between 9 June 1999 and 22 February 2001 to sell the property in order to minimize the Defendants’ loss from a fall in the market value of the property. It is alleged that the Defendants did not sell the property until March 2001, and that they had failed to mitigate their damage.

13.  If the Third Party Solicitors wish to set up a positive case to show that the Defendants had failed to mitigate their loss or damage by not taking adequate steps to sell the property within a reasonable time after the aborted sale to Mr. Cheng, such allegations must be specifically pleaded with supporting particulars : Lai Hon Ming v. Fong Wai Keung & Another, unreported, HCPI No. 994 of 2001, 21 October 2002; para 18/8/17AA Hong Kong Civil Procedure 2010. They failed to plead such a case, and evidence of the type of documents requested in the letter dated 18 March 2004 from the solicitors acting for the Third Party Solicitors is irrelevant to the pleaded issues.

14.  In any event, and apart from the pleading issue, I am not satisfied that the Third Party Solicitors have shown that there is a substantial risk that it will not be possible to have a fair trial of the issues in the action or is such as is likely to cause serious prejudice to the Third Party Solicitors. It is clear that the Defendants' claims of negligence made against the Third Party Solicitors in this case do not turn on the witnesses' recollection of factual events, but relate only to questions of law to be argued at trial. The allegation of negligence relates to the adequacy or otherwise of the answers made by the Third Party Solicitors to the requisitions made on behalf of the purchaser of the property, and whether the Third Party Solicitors had shown good title. The lapse of time should not create prejudice to the Third Party Solicitors in the form of any prejudicial effect on the evidence from and memory of the witnesses.

15.  Nor am I convinced that it will not be possible for the Third Party Solicitors to produce evidence, from experts or otherwise, on the market price of the property between June 1999 and February 2001. Apart from the bare assertion made by the Third Party Solicitors that there are such difficulties, there is no further particulars or evidence as to how such evidence would not be available, when one would expect professional property agents to maintain such records and data. I have assumed, from the Third Party Solicitors' assertion, that the alleged difficulty in the verification of the information relating to the Defendants' attempts to sell the property is the difficulty to verify the market price of the property at the material time. The Defendants having confirmed that all the attempts to sell the property are evidenced by the disclosed documents, it would not be necessary for the Third Party Solicitors to show that the Defendants had in fact made more attempts to sell the property.

16.  Counsel for the Third Party Solicitors have argued at the hearing that prejudice can be inferred from the fact that the third party proceedings have been hanging over the head of the Third Party Solicitors since November 2000, without any positive act on the Defendants' part to bring the proceedings to an end, and that the reputation of professional men are at stake. Counsel relies on the decision in Poncher v. P. H. Sin & Co [1973] HKLR 349, a case in which allegations of negligence were made against solicitors, in the absence of a clearly formulated statement of claim (a fact which distinguishes the case from the present one).

17.  Generally, mere assertion of prejudice is not enough and there has to be proper evidence of the prejudice suffered or likely to be suffered. Li Chun Kwong v. Kier Hong Kong Ltd. & Ors. [1995] 1 HKC 695 and Lee Hung Chiu Philip v. Becton Dickinson Asia Ltd. HCA 2830/2000, unreported, 5 July 2007 are authorities on the point. In the present case, Counsel for the Defendants highlighted the fact that the Third Party Solicitors have not even asserted by affirmation in support of the striking out application that they have suffered prejudice as professionals by reason of the delay in the proceedings. 

18.  Whilst I agree that in an appropriate case, inferences of prejudice may be made, and that cases in which serious charges are laid against professionals should be disposed of with the minimum of delay, in considering whether serious prejudice has been established and whether the discretion to strike out should be exercised, all the circumstances of the case have to be looked at.

19.  I bear in mind that the Judgment of Cheung, J (as he then was) in the Conveyancing Action makes it clear that the Defendants have a strong case of negligence against the Third Party Solicitors by virtue of their handling of the sale of the property. It is true that the Third Party Solicitors were not parties to the Conveyancing Action, and they have emphasized that they are not bound by the Judgment itself. However, the issue of their negligence does not appear to be fact sensitive or to be dependent upon the evidence from the Third Party Solicitors handling the sale at the relevant time. Rather, it focuses on whether the Third Party Solicitors were negligent in law in failing to provide a copy of the mortgage over the property to the purchaser, Mr. Cheng, in the course of proving title. The Third Party Solicitors have not raised any dispute as to this essential fact.  On the facts recited in the Judgment, the legal position is clearly expressed by Cheung, J.

20.  If the Third Party Solicitors did not want the action to hang over their heads, it would have been perfectly open to them to actively bring the action to trial and conclusion, and clear their name. This they failed to do, and they are equally to be blamed for the delay.

21.  In all the circumstances, I am not satisfied that there is substantial risk that a fair trial is not possible, or that serious prejudice is likely to be caused to the Third Party Solicitors, to warrant the exercise of my discretion to strike out the Defendants' claim against the Third Party Solicitors.

The abuse of process ground

22.  The Defendants have complied with the Order of the Court to file a list of documents. They claim that they had informed the Third Party Solicitors since November 2003 that they were ready to exchange witness statements, which was delayed when the Third Party Solicitors pressed for specific discovery of documents. Whilst I do not accept that there is sufficient cause to delay the exchange of statements, I am not satisfied that there is such a wholesale disregard of the rules on the Defendants' part as to amount to an abuse of process.

23.  As to whether there is evidence of the Defendants' intention to bring the action to a conclusion, they finally took steps in March 2009 to submit further directions for the exchange of statements and to seek a pretrial review.  For the reasons set out in paragraphs 19 and 20 above, I do not consider that it would be fair in the circumstances of this case to strike out the Defendants' claims against the Third Party Solicitors, on the ground of abuse of process.  I would add, though, that in view of the merits of their claim in negligence, any further procrastination on the Defendants’ part would henceforth be considered as evidence of a lack of genuine intention to bring these proceedings to a conclusion.

Conclusion

24.  In view of the inordinate delay on the part of both the Defendants and the Third Party Solicitors, the absence of any explanation for the delay, and the underlying objectives of the Rules of the District Court to ensure that the case is dealt with as expeditiously as is reasonably practicable, I will make the following orders to ensure that these proceedings are pursued without any further protracted delay:

(1)    Unless the Defendants file and serve by 4 pm on 20 November 2009 signed witnesses statements of fact, the Defendants' Statement of Claim in the third party proceedings herein be struck out, with costs to the Third Party;

(2)    Unless the Third Party files and serves by 4 pm on 20 November 2009 signed witnesses statements of fact, the Third Party's Defence in the third party proceedings herein be struck out, and the Defendants be at liberty to enter judgment against the Third Party with costs;

(3)    Unless either of the parties take out a case management summons pursuant to Order 25 Rules of the District Court by 11 December 2009 following the parties' compliance with paragraphs (1) and (2) above, these third party proceedings be struck out for want of prosecution.

The order made by the Master

25.  There was some dispute between the parties as to whether the present appeal extends to the order made by the Master to strike out paragraphs (a) (b) and (c) of the Defendants' prayer for relief. It is clear that an appeal against the Master's decision under Order 58 is by way of rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him or her for the first time (para 58/1/2, Hong Kong Civil Procedure 2010).

26.   On rehearing, I have made the orders specified in paragraph 24 above. They replace the order made by the Master for striking out paragraphs (a) to (c) of the prayer but retaining the Defendants' claim against the Third Party Solicitors for damages for breach of contract and/or negligence. As the initial application for striking out was on the ground of abuse of process, and the parties have not made submissions before me on the validity of the cause of action for indemnity and contribution, I do not consider it to be appropriate to make any order for striking out on the basis that the Defendants failed to disclose a cause of action against the Third Party Solicitors for indemnity, as the learned Master did.

Costs

27.  I remain of the view that both the Defendants and the Third Party Solicitors are guilty of inordinate and inexcusable delay in the conduct of the third party proceedings. The Defendants cannot put the blame on either the Plaintiff for failing to prosecute the main action, or on the Third Party Solicitors in respect of the delayed exchange of witness statements. Nor can the Third Party point fingers at the Defendants, without taking the steps open to them to process the third party proceedings with due diligence. They should each bear their own costs of the striking out application and the appeal.