THE LIQUIDATORS OF WING FAI CONSTRUCTION CO LTD (IN COMPULSORY LIQUIDATION) v. YIP KWONG ROBERT AND OTHERS

CACV 273/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 273 OF 2009

(ON APPEAL FROM HCCW NO. 735 OF 2002)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a decision of Madam Justice Kwan given on 7 October 2009.  The matter before the judge was an application that the action be dismissed for want of prosecution under the inherent jurisdiction of the court.  The application was dated 19 August 2008 and has remained in the same form.  It was not heard until 23 September 2009.

2.  The judge dismissed the application.  At the conclusion of the hearing of this appeal, this court reserved its decision to be given in writing.

Background

3.  The background to this case is set out fully in the decision below.  In that respect I would refer to paragraphs 5-22 and 27-33 of the decision which will not be repeated herein save to say that the basis of the claim by the liquidators is for breach of fiduciary duty and/or breach of trust.  These proceedings were commenced by summons under section 267 of the Companies Ordinance Cap. 32 (“the Ordinance”) dated 30 August 2004.  The proceedings relate to payments and shortfall which occurred between February 2001 in May 2002.  The judge did not consider that this was a situation which could be termed a “late start” action.  Between the commencement of these proceedings and 19 April 2006 there was considerable action including pleadings on both sides.  It was on that day that the liquidators’ solicitors wrote, in response to a request from the respondents’ solicitors of 18 July 2005, stating that all documents which were in the possession of the liquidators had been provided.

4.  Thereafter no steps were taken between 19 April 2006 and 22 May 2008.  On that day the summons for directions was issued on behalf of the liquidators.  On 19 August 2008 the respondents issued the present summons to strike out the proceedings on the basis that they were an abuse of the process of the court because the liquidators had been in default intentionally and contumaciously.  The second ground was that there had been inordinate and inexcusable delay on the liquidators’ part and that the delay would give rise to a substantial risk that it was not possible to have a fair trial of the issues in the proceedings and that the delay was likely to cause serious prejudice to the respondents.

The judgment below

5.  As already indicated, the judge held that this was not a late start case.  The judge very rightly, in my view, took into consideration the difficulties which had faced the liquidators on taking office.  The judge recorded how most of the books and records had either been removed or destroyed and that it had been necessary to retrieve data from computer hard drives using the services of specialist information technology consultants.  Even then, only limited financial information was recovered.  Then there was the need to conduct the private examinations of the respondents under section 221 of the Ordinance.  Finally, the judge recorded that no statement of affairs had been submitted in accordance with the provisions of section 190(2)(a) of the Ordinance.

6.  The judge then considered, in some detail, the period from the issue of these proceedings until 19 April 2006 and considered that that period had been adequately explained.

7.  The judge then went on to consider the period thereafter until May 2008.  The judge observed that no summons for directions had been taken out under the provisions of Order 25 rule 1(1).  Despite the fact that the liquidators had been heavily engaged in other litigation, including defending contempt proceedings brought against one of the liquidators by the first and second respondents up to and including in the Court of Final Appeal, the judge held that there had been inexcusable and inordinate delay in the two year period prior to May 2008.

8.  The judge then went on to consider whether it had been established that it was not possible to have a fair trial due to the two-year period of delay and came to the conclusion that that had not been established.  The judge was also satisfied that no serious prejudice had been caused by reason of the delay.  Finally, the judge rejected the argument that the liquidators had been guilty of abusing the process of the court.

This appeal

9.  On this appeal, Mr Barlow SC, who appeared on behalf of the respondents, relied on two main grounds for suggesting that the judgment had been wrong.  In the first place Mr Barlow argued that the well-established rules relating to dismissal for want of prosecution were now superseded by the rules following the amendments as part of the Civil Justice Reform.  In the second place Mr Barlow sought to argue that there was a substantial risk that it was not possible to have a fair trial of the issues in the action because the liquidators’ case was unparticularised and incomprehensible.

10.  When asked to explain which Rule under the Rules of the High Court the respondents relied upon, Mr Barlow referred to Order 1A, rule 1(b).  He then went on to cite in particular paragraphs 13 and 14 of the judgment of Reyes J in Nanjing Iron & Steel Group International Trade Co. Ltd and others v STX Pan Ocean Co. Ltd and another HCAJ 177 of 2006 (7 September 2009).  That passage read:

“13.  Under the present CJR regime, that would seem to me to be sufficient cause to strike out the claim.  In the absence of some compelling reason, it is contrary to the underlying objective in Order 1A, Rule 1(b) (“to ensure that a case is dealt with as expeditiously as is reasonably practicable”) for a party to allow an action to languish for 2 years once the same has been commenced. I am unable to see any compelling reason in this case.  There simply is no excuse for such a long delay.

14.   It is suggested that the new CJR rules should not apply here, because the action was commenced long before CJR came into effect.  But I disagree with that suggestion.  The Court is bound to apply the rules as they are when a case is heard before it.  There is no transitional provision in the rules mandating the Court to ignore the rules (including the underlying objectives) as they now are.  It seems to me that the plaintiffs have only themselves to blame if they have delayed progressing their case to an extent that the applicable procedural rules have changed in the interval.”

11.  It is quite clear that Order 1A, rule 1(b) is not a Rule that requires a specific act to be done as such, it is one of the “underlying objectives” of the Rules namely to ensure that a case is dealt with as expeditiously as is reasonably practicable.  It should be otiose to point out that there is a marked difference between a Rule which requires a particular act to be done and a Rule which sets out an underlying objective or guiding principle.  There is no specific Rule relating to striking out for want of prosecution in the current High Court Rules.  The matter is still one of the exercise of the inherent jurisdiction of the court.  Following the introduction of the Civil Justice Reform, there are, of course, specific provisions in the Rules in relation to various steps which are required to be taken in relation to an action and orders which should be made when those steps have to be taken.  Those provisions are designed to ensure that delay will not occur in the preparation of the case for trial.  However, none of those specific Rules are applicable in the present case.  The matter is still a matter of the exercise of the discretion by the court under the inherent jurisdiction.

12.  I would add that it is in no way suggested that the Rules applicable to the present case are not the Rules which are now in force following the Civil Justice Reform.  Nevertheless, it must be pointed out that the period of delay complained of occurred well before the introduction of the amendments which led to the current Rules.  Furthermore, the summons to strike out was also taken out well prior to 1 April 2009.  In those circumstances the approach of the judge below applying the principles that were applicable at the relevant time, was in my view correct and cannot be faulted; the matter of delay had to be considered in the context in which it occurred.  In so far as the judgment in the Nanjing Iron & Steel case would indicate otherwise, I would respectfully disagree.

13.  The judge considered the failure to take out a summons for directions.  No doubt in similar proceedings which are commenced now, other Rules will be relevant that did not exist previously and the court, faced with an application to strike out for want of prosecution, would have to take into consideration any non-observance of those Rules.  But a party cannot be blamed for not observing a Rule that did not exist at the relevant time.

14.  The judge was certainly strict in the application of the proper principles.  For example, it may be said that in holding that there was inordinate and inexcusable delay in the two-year period prior to May 2008 the judge gave no benefit of any doubt in favour of the liquidators, as she might have done in view of the extensive litigation with which they were engaged.

15.  Following the decision in the court below, the respondents took out a summons to dismiss the present proceedings under Order 18 rule 19.  That summons is shortly to be heard before the Court of First Instance and it would have been wholly inappropriate for this court to accede to Mr Barlow’s suggestion that the court should consider the matters which will be before that court very shortly.

16.  In my view, therefore, this appeal should be dismissed and I would make an order nisi of costs in favour of the company.

Hon Le Pichon JA:

17.  I agree with the judgment of Rogers VP.