THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD. v. KUAN TAO SHENG AND OTHERS

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1997, Nos 101 & 105
(Civil)

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J U D G M E N T

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Mortimer V-P :

1. These appeals by the 1st and 2nd defendants (who are father and son respectively) are against the dismissal by Jerome Chan J on 7 May 1997 of their applications to strike out the plaintiff's claim for want of prosecution. The plaintiff is a bank and sues the defendants as guarantors of the debts of Engstrong Ltd (Engstrong).

The background

2. With gratitude I take the background from the judgment below. The claim is for $166m plus interest.

"The 1st and 2nd Defendants jointly owned a two-third interest in the partnership, whilst Engstrong owned the remaining one-third interest through a shell company, the 3rd Defendant herein. Engstrong was beneficially owned by Yue Xiu Enterprises Limited ("Yue Xiu"), which was the official representative of Guangzhou Municipality in Hong Kong. The 1st Defendant was the chairman of the board of directors and the 2nd Defendant was the managing director of the 3rd Defendant. The 2nd Defendant is the son of the 1st Defendant. The guarantee in question was only one of a series of financial transactions between the various parties in a scheme of corporate restructuring in preparation for the partnership going public. In the event, the scheme failed and the 3rd Defendant went into voluntary liquidation. Engstrong was unable to repay the debt resulting in these proceedings against the guarantors."

3. The third defendant has taken no part in the action and can be ignored for the purposes of these appeals.

The chronology

4. It is useful to set out the chronology:

The judge's findings

5. The judge began by stating the principle in Birkett v James [1978] AC 297. He pointed out that the court's power to dismiss an action for want of prosecution is in the normal case only exercised:

(1) where the plaintiff's default has been intentional and contumelious; or

(2) where there has inordinate and inexcusable delay by him or his legal representative, and

(3) which leads to a substantial risk that a fair trial will not be possible or to serious prejudice to the defendant.

Further, in the ordinary case this power will not be exercised during the limitation period as it remains open to the plaintiff to issue a new writ. In such circumstances, striking out would be an empty process which could disadvantage the defendant.

Delay

6. Four particular periods of delay were identified in the court below:

(1) 12 October 1990 to 17 December 1991 - 14 months;

(2) 7 January 1992 to 30 October 1992 - 10 months;

(3) 7 October 1993 to 1 October 1994 - 12 months; and

(4) 9 December 1994 to 30 July 1996 - 19 months.

The judge examined these periods of delay and concluded that the first and the fourth periods were excusable, that most of the second period of delay was also excusable but the third period was inexcusable. His conclusion was:

"Taking an overall view of the various periods of alleged delay against a consideration of the conduct of not only the Plaintiff but of the Defendants as well, I was not satisfied that there had been inordinate and inexcusable delay of an extent warranting such draconian sanction as a dismissal of the Plaintiff's claim."

Prejudice

7. The 1st defendant claimed that a fair trial was no longer possible and he had suffered serious prejudice because he had a stroke in 1995 and because of the onset of senile dementia, he was not capable of giving coherent evidence. The judge rejected this contention on the basis that there was no causal connection between this defendant's disability and the risk that a fair trial would not be possible. He noted that the only defence raised was one of undue influence whereas he - the defendant -had not pleaded that the 2nd defendant was acting as the plaintiff's agent nor that the bank had any actual or constructive notice of that fact. As to the 2nd defendant's complaint of damage to his reputation and inability to conduct business, the judge rejected this also as not caused by the delay but by the proceedings themselves.

Delay during the limitation period

8. Primarily, however, the judge decided that there was no culpable delay after the end of the limitation period and before each defendant had issued his summons to strike out. The defendants therefore were not entitled to rely upon any culpable delay between the issue of the writ and the expiry of the limitation period. This delay could not be relied upon unless there had been further inordinate and inexcusable delay after the limitation period or at least since the last step in the action had been taken.

9. Specifically, he held:

"that such further post-limitation delay, albeit of no significance on its own, to be a pre-condition to bring any pre-limitation delay into operation."

And

"that the plaintiff was not guilty of any post-limitation culpable delay to entitle the Defendant to rely upon any post-writ and pre-limitation delay whether culpable or otherwise."

Submissions on the appeal

10. The defendants contend that the judge was wrong in all his major findings. They submit:

(1) That inordinate and inexcusable delay after the issue of the writ and before the expiration of the limitation period can be relied upon by a defendant who seeks to strike out after the limitation period has expired.

(2) That such delay may be treated as inordinate and inexcusable after the expiry of the limitation period.

(3) That the overall delay here is clearly inordinate and inexcusable.

(4) That the delay has caused each defendant serious prejudice. Further, in the 1st defendant's case a fair trial is no longer possible because of his mental condition.

(5) That for these reasons the judge was wrong not to exercise his discretion to strike out the claim for want of prosecution.

The plaintiffs'/respondents' submissions

11. In sum, Mr Tang SC for the plaintiffs submits that:

(1) Delay following the issue of the writ but before the expiry of the limitation period cannot be relied upon in the absence of further culpable delay thereafter.

(2) That any step in the action taken by the plaintiff during the limitation period - in this case the serving of the notice of intention to proceed on 30 July 1996 - is equivalent for these purposes to the issue of a new writ.

(3) That the judge's findings on delay and prejudice and his decision not to exercise his discretion to strike out the claim were correct.

The applicable law

12. In Trill v Sacher [1993]1 WLR 1379, 1398 to 1400 Neil LJ summarises the relevant principles and guidelines. It is useful to set these out in full:

"(1) The basic rule is that an action may be struck out where the court is satisfied (a) 'that there has been inordinate and inexcusable delay on the part of the plaintiff or his lawyers,' and (b) 'that such 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 to have caused serious prejudice to the defendants either as between themselves and the plaintiff or between each other or between them and a third party:' see Birkett v. James [1978] A.C. 297,318.

(2) The general burden of proof on an application to strike out for want of prosecution is on the defendant.

(3) Inordinate delay cannot be precisely defined. 'What is or is not inordinate delay must depend upon the facts of each particular case:' Allen v. Sir Alfred McAlpine & Sons Ltd. [1968] 2 Q.B. 229, 268F. It is clear, however, (a) that for delay to be inordinate it must exceed, and probably by a substantial margin, the times prescribed by the rules of court for the taking of steps in the action; and (b) that delay in issuing the writ cannot be classified as 'inordinate' provided the writ is issued within the relevant period of limitation.

(4) Delay which is inordinate is prima facie inexcusable: see Allen's case at p. 268F. It is for the plaintiff to make out a credible excuse. For example, difficulties with regard to obtaining legal aid may provide such an excuse.

(5) Where a plaintiff delays issuing proceedings until towards the end of the period of limitation he is then under an obligation to proceed with the case with reasonable diligence: Birkett v. James [1978] A.C. 297, 323D. Accordingly, a court is likely to look strictly at any subsequent delay which is in excess of the period allowed by rules of court for taking the relevant step, and may regard such subsequent delay as inordinate even though a similar lapse of time might have been treated less strictly had the action been started earlier.

(6) A defendant cannot rely on a period of delay for which he has himself been responsible.

(7) A defendant cannot rely on a period of delay if at the end of the period he 'so conducts himself as to induce the plaintiff to incur further costs in the reasonable belief that the defendant intends to exercise his right to proceed to trial notwithstanding the plaintiff's delay:' Allen's case [1968] 2 Q.B. 229, 260. It has been said that this rule is based on waiver or acquiescence, but the better view appears to be that the defendant is estopped: see County & District Properties Ltd. v. Lyell (Note) [1991]1 W.L.R. 683, 690F.

(8) Save in exceptional cases an action will not be struck out for want of prosecution before the expiry of the relevant limitation period: Birkett v. James [1978] A.C. 297, 321D. It is not altogether clear how this rule is best explained. It may be that before the limitation period has expired the delay cannot properly be regarded as 'inordinate:' cf. Birkett's case, at p. 321DE Alternatively, it may be that, though the delay is both inordinate and inexcusable, the court would not in the ordinary case exercise its discretion to strike the action out if a fresh writ could be issued at once. To do so would only delay the trial.

(9) Once the limitation period has expired the court is entitled to take account of all the earlier periods of inexcusable delay since the issue of the writ. These periods can include: (a) periods of delay occurring before the expiry of the limitation period which at an earlier stage could not be treated as 'inordinate' (see (8) above), and (b) periods of delay on which at an earlier stage the defendant could not rely because he was estopped from doing so by inducing the plaintiff to incur further costs in the reasonable belief that the action was going to proceed to trial, but which have been revived by subsequent inordinate and inexcusable delay. This proposition seems to follow from Diplock L.J.'s proviso in Allen's case [1968l 2 Q.B. 229 260c: 'unless the plaintiff has thereafter been guilty of further unreasonable delay.' It is also supported by a later passage in his judgment, at p. 260:

'But it must be remembered that the evils of delay are cumulative, and even where there is active conduct by the defendant which would debar him from obtaining dismissal of the action for excessive delay by the plaintiff anterior to that conduct, the anterior delay will not be irrelevant if the plaintiff is subsequently guilty of further unreasonable delay.'

(10) A defendant cannot rely on any prejudice caused to him by the late issue of a writ. Thus such prejudice is not due to delay which can be characterised as inordinate or inexcusable. Some additional prejudice after the issue of the writ must be shown. The additional prejudice 'need not be great compared with that which may have been already caused by the time elapsed before the writ was issued,' but it 'must be more than minimal; and the delay in taking a step in the action if it is to qualify as inordinate as well as prejudicial must exceed the period allowed by rules of court for taking that step:' Birkett v. James [19781 A.C. 297, 323.

(11) Prejudice to the defendant may take different forms. In many cases the lapse of time will impair the memory of witnesses. In other cases witnesses may die or move away and become untraceable.

(12) The prejudicial effect of delay may depend in large measure on the nature of the issues in the case. Thus the evidence of an eyewitness or of a witness who will testify to the words used when an oral representation was made is likely to be much more seriously impaired by the lapse of time than the evidence of someone who can rely on contemporary documents. A defendant may also suffer some prejudice from prolonged delay in an action which involves imputations against his reputation, though this factor by itself is unlikely to provide a ground for striking out.

(13) When considering the question of prejudice and, if it is raised, the question whether there is a substantial risk that it will not be possible to have a fair trial of the issues in the action, the court will look at all the circumstances. It will look at the periods of inordinate and inexcusable delay for which the plaintiff or his advisers are responsible and will then seek to answer the questions: has this delay caused, or is it likely to cause, serious prejudice, or is there a substantial risk that because of this delay it is not possible to have a fair trial of the issues in the action? As Slade L.J. stressed in Rath v. C. S. Lawrence & Partners [1991] 1 W.L.R. 399, 410: 'a causal link must be proved between the delay and the inability to have a fair trial or other prejudice, as the case may be.'

(14) An appellate court should regard its function as primarily a reviewing function and should recognise that the decision below involved a balancing of a variety of different considerations on which the opinions of individual judges may reasonably differ as to their relative weight. Accordingly, unless intervention is necessary or desirable in order to achieve consistency where there appear to be conflicting schools of judicial opinion, the appellate court should only interfere where the judge has erred in principle: Birkett v. James [1978] A.C. 297, 317."

Where relevant to this appeal, I accept this as an accurate, if general, statement of principle.

The first issue: is it permissible to treat post-writ but pre-limitation delay as inordinate absent further culpable post-limitation delay?

13. I now turn to the issues on these appeals. Mr Tang SC points out that there is no culpable post-limitation delay here. He submits that some such culpable delay is required to trigger consideration of the earlier delay. Were it otherwise he contends the only way in which a plaintiff guilty of potentially culpable pre-limitation delay can protect his position is to issue a new writ with recognised adverse consequences. He concedes that thereafter the plaintiff must pursue his new action diligently.

14. He further submits that in order to avoid the unnecessary issuing of a new writ, any step in the action taken by the plaintiff before the expiry of the limitation period must be regarded as equivalent to the issue of a new writ so that only in circumstances where pre-writ delay becomes relevant can delay prior to the step be treated as culpable. He points out that none of the English cases decides anything contrary to his submissions.

15. Without question in considering the culpability of delay by the plaintiff, the statutory right given by the Limitation Ordinance to delay the issue of a writ to the end of the limitation period creates anomalies. Such delay is not culpable even if it prejudices the defendants or adversely affects the ability to hold a fair trial. But such delay is not always irrelevant. See principle (10) in Trill v Sacher (above) at 1399C. These anomalies are considered by Purchas LJ in his minority judgment in Hollis & anor v London Borough of Islington & anor Court of Appeal (CA Division) unreported 27 January 1989.

16. For my part, I am unable to accept these submissions of Mr Tang. The judge fell into error in his specific findings on limitation period delay above upon which he decided the application.

17. In Birkett v James the issue upon which the House of Lords decided the appeal was whether Cobb J had properly exercised his discretion to strike out an action in which inordinate and inexcusable delay before the expiration of the limitation period had caused prejudice to the defendant. The ratio of the appeal appears in Lord Diplock's speech at 332D. He was of the opinion:

"that the fact that the limitation period has not yet expired must always be a matter of great weight in determining whether to exercise the discretion to dismiss an action for want of prosecution where no question of contumelious default on the part of the plaintiff is involved; and in cases where it is likely that if the action were dismissed the plaintiff would avail himself of his legal right to issue a fresh writ the non-expiry of the limitation period is generally a conclusive reason for not dismissing the action that is already pending."

Before the decision in Birkett v James there was a divergence of judicial opinion as to whether it was a proper exercise of discretion to strike out actions before the end of the limitation period for post-writ inordinate delay causing prejudice. It has never been suggested that in exceptional cases a judge may not exercise his discretion to strike out during the limitation period. But striking out during the limitation period in the ordinary case serves no purpose and has adverse consequences. As Lord Denning MR put it in Instrumatic Ltd v Supabrase Ltd [1969]1 WLR 519, 522:

"The period of limitation is six years. It has not run. If this action were dismissed, the plaintiffs could start another action tomorrow. So what good is it to dismiss the claim for want of prosecution?"

If other necessary factors are made out, once the limitation period has expired, there is no good reason why the judge should not exercise his discretion to strike out the claim. In Rath v CS Lawrence & partners (CA) [1991] WLR 399, 406B Farquharson LJ correctly states the law:

"The position of the plaintiff who has delayed the issue of his writ until the last moment of the limitation period is, it is true, in one sense more advantageous than that of the plaintiff who issues his writ without delay. The former has exploited the period given to him by Parliament to the fullest extent, and cannot be criticised unless he is guilty of further delay after the limitation period has expired. The position of the latter is, however, quite different. Once a plaintiff has issued his writ and set the treadmill of litigation into motion, he is bound to observe the rules of the court. If he flouts them to the extent that the plaintiffs have in the present case I can see no reason why the defendants should not rely upon it, after the limitation period has expired, to support an application to strike out."

In the same case Slade LJ held that he could find no support in Birkett v James for the proposition that time lapsed after the issue of a writ but before the expiration of the limitation period could not constitute inordinate delay for the purpose of an action to strike out. See Birkett v James above at 411C. I agree that there is none.

18. For these reasons I would hold that once the limitation period has expired there is no reason in law or practice why a judge should not exercise his discretion to strike out. By this time the striking out will serve the purpose intended whereas it could not do so before. Further, I can find no sound basis for Mr Tang's submission that any step in the action taken before the end of the limitation period is the equivalent of the issue of a new writ. If a step in the action is taken before the end of the limitation period such may or may not influence the exercise of the judge's discretion. It will be considered in accordance with the principles. On the facts of this case, however, I would hold that the plaintiffs' notice of intention to proceed of 30 July 1996, 14 days before the limitation period expired was not a step in the action. It was simply a notice to indicate that a step in the action was going to be taken.

19. In the circumstances it falls to this Court to exercise its own discretion. However, the judge also helpfully considered the issues of delay and prejudice. This Court must give appropriate weight to his assessment of those matters in accordance with principle (14) above.

The second issue: was the delay inordinate and inexcusable?

20. The judge considered the periods of delay in detail. He made a careful assessment of each period, each step taken, the explanations offered and the part played by the defendants. He concluded that the delay was excusable save for the third period between October 1993 and October 1994. I repeat his finding at p. 44G:

"Taking an overall view of the various periods of alleged delay against a consideration of the conduct of not only the Plaintiff but of the Defendants as well, I was not satisfied that there had been inordinate and inexcusable delay of an extent warranting such draconian sanction as a dismissal of the Plaintiff's claim. The operative delay was insufficient to justify granting the Defendant's application."

Taken as a whole, the delay is plainly and obviously inordinate. However, the judge analysed the last period of delay from December 1994 to July 1996. He found that the 2nd defendant was taking the lead for the defence side. The effect of his finding was that the defendants consented to the plaintiff not setting down the action after 7 February 1995 following its letter indicating a desire to do so. Also, by the 2nd defendant's solicitors' letter of 11 October 1995, the plaintiff's efforts in obtaining a contribution from another party had the defendants' consent. Further, in the same letter they consented to the action being pursued by asking whether the plaintiff would add another party as defendant or leave it to the defendant to commence third party proceedings. The judge held that the 2nd defendant was estopped from relying upon the delay prior to that letter.

21. Although the judge does not deal specifically with the question whether earlier inordinate delay was revived by some delay between October 1995 and July 1996, it is - at the very least - implicit in his judgment that if there was culpable delay thereafter such as would have enabled the defendants to rely upon all the earlier delay, he felt it insufficient to justify granting the defendants' application. It seems that he accepted the plaintiff's explanation that it was induced to believe during this period that the 2nd defendant was pursuing the action and consequently incurred further costs. See Lam Shun's affidavit paras. 56 and 57.

22. Although I may well have decided otherwise, this is a matter well within the judge's discretion and although I hold that he was wrong in his primary finding, I am not prepared on the evidence to say that he was plainly wrong in this alternative finding. In these circumstances I would uphold it.

23. It follows that my finding on the second issue is sufficient to resolve this appeal but I will briefly consider the other issue.

The third issue: were the defendants prejudiced by the delay and is a fair trial possible?

24. The 1st defendant is 79 years of age and in April 1995 he suffered a stroke. It is submitted that he has suffered serious prejudice by the delay because he will not be able to give any coherent evidence consequential upon the development of senile dementia. The doctor reports "that he cannot recollect past events with any degree of accuracy", and that lawyers would have difficulty in taking instructions from the 2nd defendant "although with persistence and patience it may just be possible" for the 2nd defendant to understand what is required of him.

25. The judge was not satisfied that the 1st defendant would suffer any prejudice as a result of the delay. No doubt he had in mind his finding that the 2nd defendant was estopped from relying upon delay before 11 October 1995 whereas he suffered his stroke earlier in April 1995. However, the basis of his finding was that he had not pleaded any real defence to the action and therefore his evidence would be valueless. Whereas for my part I would hesitate to decide such a matter upon a pleading point, the defence as pleaded is undoubtedly thin and unparticularised.

26. Had the 2nd defendant been able to rely upon any inordinate delay following his stroke in 1995, I would have allowed the appeal in his case as he establishes serious prejudice.

27. Turning to the 2nd defendant, he complains that he has suffered prejudice because he has lost his recollection of the circumstances of the execution of the guarantee. He further contends that his business reputation has suffered so that he has lost opportunities. These are relevant matters. However, I am unable to fault the judge's finding at 46B that

"The alleged damage to reputation had no relevance to any risk of inability of a fair trial, nor any causal link with the delay. Such damage would be caused by the fact of the proceedings and not the length of time the proceedings took to be completed."

Conclusion

28. It is necessary for this Court to exercise its discretion having found the judge to be in error on his principle finding. He made alternative findings. Those findings must be given some weight.

29. For the reasons I have endeavoured to set out, I would dismiss the appeal and make an order nisi for the costs of the appeal in the plaintiff's favour.

Godfrey, J.A. :

On the first issue identified by Mortimer, V-P, as to whether it is permissible to treat post-writ but pre-limitation delay as inordinate absent further culpable post-limitation delay, I agree with him, and, for the reasons he gives, I would hold that it is. I would therefore, like Mortimer V-P, dissent from the judge's view to the contrary, despite the argument in support of that view so ably advanced by Mr. Robert Tang, S.C. for the plaintiff.

30. On the second issue, whether the plaintiff's delay here was inordinate and inexcusable, I entirely agree with Mortimer, V-P that the plaintiff's delay was, plainly and obviously, inordinate. I would myself have held that it was inexcusable as well. But it seems to me that the defendants have so conducted themselves as to induce the plaintiff to incur further costs in the reasonable belief that the defendants intended to exercise their right to proceed to trial notwithstanding the plaintiff's delay. I would hold that in all the circumstances of the case, identified by the judge and by Mortimer, V-P, the defendants cannot be allowed to rely on the plaintiff's delay as inexcusable. That being so, there is no need for me to consider the matter of the prejudice allegedly suffered by the defendants by reason of that delay.

31. In the result, I agree that the appeal must be dismissed.

Keith, J. :

32. For the reasons given by Mortimer V-P, I agree that this appeal must be dismissed.