XCHRX HERBERT HAUSTER v. FPB ASIA LTD. AND ANOTHER

HCA 7459/1992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7459 OF 1992

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REASONS FOR DECISION

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1. This is an appeal against the order of Master Poon dismissing the Plaintiff's claim for want of prosecution. The 1st Defendant FPB Asia Limited formerly known as IBI Asia Limited is a licence deposit-taking company and the 2nd Defendant First Pacific Bank Limited is a banker that had succeeded the Far East Bank Limited.

2. At all material times, a Louis Louvet was the managing director of IBI Asia Limited and a director and executive vice chairman of the Far East Bank Ltd.

3. Between 1987 and 1988, the Plaintiff remitted more than US$400,000.00 to the Defendants on the suggestion of Louvet to an account with IBI Asia Limited. In August of 1987, the Plaintiff also drew a cheque for Swiss Franc 300,000.00 and sent it to Louvet at the Far East Bank. The cheque was subsequently converted into Hong Kong dollars by Far East Bank Ltd and paid into an account of Modern China Development Ltd, a company owned and controlled by a Dorothy Poon who is said to be Louvet's mistress.

4. It is alleged that in 1988, Louvet had fraudulently and dishonestly misapplied the Plaintiff's fund to settle the debt of the Modern China Development owed to the Defendants. The Plaintiff claims that the Defendants are liable for Louvet's wrongdoing and/or knowingly assisting Louvet's fraud. The Plaintiff also claims that the Defendants were negligent or were in breach of their fiduciary duties towards the Plaintiff.

5. The defence is that at all material times, Louvet was dealing with the Plaintiff's money as his representative duly authorised under powers of attorney granted by the Plaintiff to Louvet in his personal capacity and not as an officer of the Defendants.

6. The disputes between the parties give rise to the following issues:

(1) the relationship between the Plaintiff and Louvet at the material times and the circumstances in which the Plaintiff's monies were deposited with the Defendants through Louvet;

(2) whether the Plaintiff had expressly or impliedly authorised Louvet to execute the transactions in question, which transactions ultimately resulted in the Plaintiff losing all his monies; and

(3) whether the Defendants had been negligent and/or were in breach of their fiduciary duties towards the Plaintiff.

7. The writ was issued in October 1992 shortly after the Plaintiff's demand for repayment was rejected by the Defendants in June of 1992.

8. It may not be necessary to set them out in detail but clearly there had been substantial interlocutory applications including appeals since the commencement of the action.

9. In January 1997, the Plaintiff through his solicitors indicated the need to re-amend the Statement of Claim which the Defendants initially objected. On 9 April 1997, a consent order was made allowing the Plaintiff to re-amend the Statement of Claim which was served on 12 April 1997. The Re-Amended Defence ought to have been filed within 30 days from 9 April 1997. The Defendants did not serve their Re-Amended Defence until 4 June 1997, 5 months after the Plaintiff had first indicated his wish to re-amend the Statement of Claim.

10. In early June of 1998, the Plaintiff had to take out a summons for specific discovery of relevant documents. Initially, the Defendants asked for 60 days to make discovery and 28 days were eventually granted. Apparently, the discovery was not made within time and the Plaintiff took out a summons for an unless order on 21 September 1998 to compel the Defendants to make discovery which summons was returnable on 21 October 1998. A consent order was then made on 20 October 1998 vacating the summons with costs to the Plaintiff in any event.

11. The Defendants then filed a further supplemental list of documents a month later on 20 November 1998. There was a lapse of over 5 months since June 1998.

12. The further supplemental list of documents filed by the Defendants on 20 November 1998 consists of over 400 pages of documents which led to exchanges of correspondence and requests for documents and inspections lasting for months until April of 1999.

13. Indeed, on 8 February 2000, the Plaintiff still found it necessary to take out another application for specific discovery, having filed the notice to proceed on 16 December 1998.

14. It is fair to say that the further application was taken out after the Plaintiff had been warned by the Defendants of their wishes to take out the dismissal application. The dismissal application was taken out on 17 February 2000 when there was indication from the Plaintiff that the case should be set down for trial.

15. There are disputes between the parties as to when the Plaintiff's cause of action arose. One view is that it was in 1987 or 1988 when the Plaintiff made the payments to the Defendants in which event there had been a pre-writ delay of some 5 years. Another view is that the Plaintiff's cause of action only arose when he became aware of the alleged fraud and/or negligence and after his demands for repayment were rejected by the Defendants in which event there is no or hardly any pre-writ delay at all.

16. Irrespective of when the Plaintiff's cause of action arose, the Plaintiff's claim is now time barred and if it is dismissed for want of prosecution, the Plaintiff can no longer pursue the matter against the Defendants. His only remedy, if any is against his solicitors.

17. Mr Tong SC, on behalf of Defendants, makes no separate complaint against any pre-writ delay although he invites the Court to take into consideration the cumulative effect of all the alleged delay. Instead, Mr Tong identifies periods of delay between 1995 to the end of 1999 or early 2000, totalling just over 3 years.

18. The exact periods of delay complained of by the Defendants varied at different stages of the proceedings.

19. As pointed out by Mr Huggins SC, initially the Defendants' solicitors only complained of two periods, between December 1995 to January 1997 and November 1998 to December 1999. When the matter went before the Master, Mr Tong SC relied on 3 periods of delay, namely December 1995 to January 1997, July 1997 to June 1998 and November 1998 to December 1999 plus a period of 3 weeks before the summons for specific discovery was taken out on 8 February 2000.

20. In this appeal, there is further variation of the periods of delay complained of.

21. I do not find it necessary to examine those periods in minute details. The general impression is that for a period of just over 3 years between the end of 1995 and the end of 1999 or early 2000, the Plaintiff had not taken any procedural steps in the prosecution of the case against the Defendants.

22. Indeed, between December 1995 and January 1997, the only procedural steps taken, according to court file, were an application by the Defendants in connection with the security for costs on 25 June 1996 which appeared to have been disposed of by consent and then a notice to produce taken out again by the Defendants on 26 September 1996.

23. Since July 1997, the Plaintiff had taken no procedural step until 2 June 1998 when the summons was taken out by the Plaintiff against the Defendants for specific discovery. Between November 1998 and December 1999, when the notice of intention to proceed was served, the Plaintiff had not taken any procedural steps at all. Prima facie, there had been delay on the part of the Plaintiff's solicitors.

24. The law on dismissal of action for want of prosecution is well established. To succeed, the Defendants must show that there has been inordinate and inexcusable delay on the part of the Plaintiff or his lawyers and as a result of such delay, serious prejudice is caused to the Defendants or there is a substantial risk that a fair trial is rendered impossible. (Allen v. Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 29; Birkett v. James [1978] AC 297.) Other general principles are also clearly and succinctly set out in the judgment of Peter Gibson LJ in Shtun v. Zalejska [1996] 1 WLR 1270 at p.1277.

25. The onus is on the defendants to establish inordinate delay. Birkett v. James (Supra) also establishes that the delay relied on must be post-writ delay. But a late start could mean the Plaintiff should proceed with due speed as pre-writ delay can be taken into account when considering if post-writ delay is inordinate and inexcusable.

26. For the purpose of the present appeal, I am not persuaded that I should take into consideration any alleged pre-writ delay. The available evidence is not adequate for me to make a finding against the Plaintiff on this issue.

27. It is the Plaintiff's case that after his demands for repayment were rejected, he then discovered the alleged fraud and/or negligence and soon thereafter he commenced the present proceedings. There is no compelling reason or evidence to suggest that it was incumbent upon the Plaintiff to start the action earlier than he did.

28. I am persuaded that in deciding if there had been inordinate and inexcusable delay, one is entitled to look at the entire background of the case including but not limiting to the issues of law and facts involved in dispute, the complexity of such issues, the time and effort required for the proper preparation of the case and the manners in which the proceedings are being conducted by the parties.

29. I am also persuaded that apart from the procedural steps prescribed by the rules, the Court should also take into consideration the actual and necessary steps undertaken by the Plaintiff in the prosecution of the case in determining possibly the question or whether the delay is inordinate but certainly the question of whether the alleged delay is inexcusable.

30. A cursory overall views of the present proceedings reveal the following special features:-

(1) It involves an aged gentleman living in America and two major financial institutions in Hong Kong which had gone through some significant restructuring.

(2) The dispute arose out of transactions between bankers and customers although the documents pertaining to such transactions for one reason or another may not be completed.

(3) The events in question took place many years ago and they covered a significant period of time.

(4) The causes of action are complicated involving the difficult questions of law and facts.

(5) There had also been repeated interlocutory applications including interlocutory appeals and clearly both parties had been trying to fight every possible battles, necessary or otherwise. The attitudes of the lawyers on both side as demonstrated on the documents are anything but cooperative.

(6) There are also significant numbers of documentary evidence and the Defendants had not been too forthcoming with voluntary discovery resulting in repeated applications by the Plaintiff for specific discovery.

(7) As identified earlier by this Court, the Defendants themselves, had been guilty of some periods of delay.

31. As I have observed in the course of counsel's submission, it is not my intention to find fault with the Defendants' solicitors on their delay, but it is necessary to bring out such matters to demonstrate perhaps that in practice, delay is sometimes unavoidable in the adversarial system of the litigation that we practise in Hong Kong.

32. Both parties had filed lengthy affirmations or affidavits detailing what had been done or had not been done during the relevant periods. It is not, in my view, necessary or desirable to examine in any great detail the allegations by the parties. They are certainly entitled to view the matters in a way most favourable to their respective cases.

33. But as emphasised by Mr Huggins SC, on behalf of the Plaintiff, it is clearly not a case where nothing happened at all during the alleged periods of delay. On the contrary, there was a great deal of activities undertaking by the handling solicitors for the Plaintiff with the view to properly prepare the case for trial.

34. Mr Francis, in his 3rd and 4th affidavits had detailed the various steps undertaken by him and I do not intend to repeat them. But between December 1995 and January 1997, there were arguments between the parties on the terms of the guarantee in relation to the security for costs to be put up by the Plaintiff as he was an ordinarily resident out of jurisdiction. It appeared that the Plaintiff had to consult American lawyers on the powers of attorney in question and had to consider the question of re-amendment to the Statement of Claim. There were applications for discovery and security for costs as well as proposed interlocutory appeals on such matters. Indeed the parties had exchanged almost 80 letters during that period.

35. Between July 1997 and June 1998, the Plaintiff's solicitors again were busy in taking instructions from the Plaintiff on many occasions including a meeting in London. There was also the need to obtain banking expert's opinion possibly with the view to substantiate the claim for negligence and/or breach of fiduciary duties on the part of the Defendants.

36. I agree with the observation of Mr Huggins SC that throughout the proceedings, the Defendants had not been too forthcoming with their discoveries of documents. It was not until much pressure had been put on them by the Plaintiff that the Defendants made extensive supplemental discovery on 20 November 1998 of some 400 pages of documents.

37. The next 12 months were taken up by the requests for inspection, examination of the documents by the Plaintiff's solicitors and obtaining instructions from the Plaintiff on those documents. It may not be very important, but the Plaintiff did not consider the Defendants had made full discovery and hence the application by the Plaintiff on 8 February 2000 for specific discovery.

38. I do not want to be seen to be over protective of the Plaintiff's solicitors in their handling of the case and I certainly will not encourage laxity or dilatoriness on the part of any legal practitioners. There may well be a short period of laxity on the part of the Plaintiff's solicitors before the notice to proceed was filed on 16 December 1999.

39. But to justify the dismissal of the Plaintiff's case, the Defendants must demonstrate not only is the delay excessive but it is also inexcusable. After all, to dismiss an action for want of prosecution is to deprive the Plaintiff the chance of establishing his case in Court no matter how strong his case may be.

40. I have considered the background of the case as well as the helpful submissions from counsel. In my view, with respect, the Defendants have not reached the requisite threshold to justify the order they sought.

41. The Plaintiff's solicitors may well be too cautious. They may have taken longer time than absolutely necessary to prepare the case for trial. But whatever delay there may be, such delay in my view, is not excessive and certainly not inexcusable.

42. The aforesaid conclusion would, of course, dispose of the issues involved in this appeal.

43. But in deference to senior counsel's submissions, I also wish to briefly deal with the issues of fair trial and prejudice to the Defendants.

44. The basis for saying that there is a substantial risk and that a fair trial is not possible or that serious prejudice is likely to be caused to the Plaintiff is that both the Plaintiff and Louvet are old and that their recollections of the material events would be affected by the passage of time.

45. Mr Tong SC, has not identified the issues to which Louvet's memory is relevant or which part of his memory of the relevant event has been affected by the passage of time. He has not demonstrated exactly what impact the alleged loss of memory of Louvet has on the issues that need to be resolved.

46. Mr Tong SC rests his case on the premises that there are disputes as to facts pertaining to what happened between the Plaintiff and Louvet in 1987 and 1988. He suggests that Louvet's memory of the relevant events must be affected by the passage of time and when he gives oral evidence on those events, his evidence will be adversely affected by the lapse of time.

47. Mr Tong is, of course, entitled to adopt the approach as he does. As demonstrated in the case of Shtun v. Zalejska [1996] 1 WLR 1270 and Hornagold v. Fairclough Building Co. [1993] 2 PIQR 400, it is not essential that there should be evidence of the particular respects in which potential witnesses' recollection were impaired, nor did the impairment have to be attributed to any particular period of delay. In an appropriate case, the Court was entitled to draw an inference that by reason of the delay complained on, serious prejudice would be caused to the Defendant as a result of impairment of witnesses' recollection.

48. A judge should not always be precluded from drawing inference favourable to the defendant in the absence of specific evidence expressly particularising the risk of prejudice.

49. Having said that it is also fair to say that if a defendant can actually pinpoint evidence showing the impairment of witnesses' recollection, how such impairment is attributed to a particular period of delay and how such impairment affects the issues in dispute, then prejudice and/or unfair trial can be more readily established.

50. In any event, the leading authorities recognise the importance of examining all the circumstances of the case to decide if there could be a fair trial and if the defendant had been seriously prejudiced by the delay.

51. Peter Gibson LJ in Shtun's case (supra) said at p.1285:

"In my judgment, in order to determine whether a defendant has suffered the necessary prejudice when it is in the form of the impairment of witnesses' recollections as a result of inordinate and inexcusable post-writ delay, the court must examine with care all the circumstances of case, including both the affidavit evidence as well as the issues disclosed by the pleadings. It is not, in my judgment, essential in every case that there should be evidence of particular respects in which potential witnesses' memories have faded, still less that it need be shown that such fading of memories occurred in a particular period."

52. Neil LJ also said at p.1290:

"In many cases, however, the resolution of the issues will depend on oral testimony. Sometimes, the defendant will be able to show that a witness has died or has become too infirm to give evidence or has disappeared. But there will be cases where the proper assessment of the defendant's position and the nature and degree of any prejudice will not depend primarily on the absence of one or two particular witnesses but on all the circumstances of the case. It is in these cases that the experience of the judge has a crucial part to play in evaluating prejudice and the possibility of a fair trial."

53. I accept that the oral testimonies of the Plaintiff and Louvet in the present case, as in any case are important. But this is not a case where the issues to be decided depend entirely on the oral testimonies of the witnesses and that such oral testimonies also rely entirely on the recollections of the events by the witnesses without any documentary evidence.

54. The transactions in question are of course banking transactions. They are bound to be documents of some kinds although for one reason or another the documents may not be as complete as one hopes.

55. There are the powers of attorney and there are the correspondence, however, few they may be. What is more importance, in my view, is that as early as 1994, both the Plaintiff and Louvet had already made full and detailed statements on the issues. At that time, it was decided by the Defendants that Louvet would not attend court to give viva voce evidence and his statement was then tendered under the hearsay rules.

56. Mr Huggins SC, in my view, is right to point out that the Defendants were sufficiently informed of the gravamen of the Plaintiff's case from the outset to enable them to obtain full statements from Louvet and to secure or preserve all relevant documents. If they fail do it and suffer prejudice, the prejudice cannot be too significant in an application to dismiss as it is the result of their failure to take reasonable steps to safeguard their interest rather than that of delay.

57. But I do not think that issue arises in the present case as Louvet's statement indeed is very lengthy and detailed. There are also further particulars of the defence which can be referred to if the need arises.

58. It is also worth mentioning that but for the change of circumstances which results in Louvet being able to attend court, the Defendants would have proceeded with the trial on Louvet's statement without his attending court and any delay could not have led to any prejudice to the Defendants or an unfair trial.

59. We have not been told what the change of circumstances is and how it effects the decision of Louvet to attend the trial. Of course, such change of circumstances is in no way attributable to the Plaintiff.

60. Even if the Defendants were not allowed to have Louvet's statement admitted as his evidence in chief, Louvet would certainly be entitled to refer to his statement to refresh his memory should the need arise.

61. Mr Tong SC mentions of loss of material documents. He is, of course, not suggesting that the loss of documents is the result of the delay on the part of the Plaintiff. His point is simply that the delay would make a fair trial even more difficult in the light of such loss of documents. As the loss of documents was not caused by any alleged delay, I am not persuaded that it is a significant matter at all.

62. Mr Tong SC also mentions the Biss prejudice when there are allegations of fraud and dishonesty against the Defendants. He refers to the case of Can-Asia Capital Co. Ltd v. Kwok Yee William & Ors [1995] 1 HKC 521.

63. The Defendants are of course not individual professional people as such. They are significant banking institutes. In my view, a Biss type of prejudice has little relevance in cases involving large institutions. There is no suggestion that the litigation in question really has any profound effect on the reputations or the business of the Defendants.

64. In the light of the background of the case, I am also not persuaded that the provision of the reserve fund for the action and the payment into Court by the Defendants to be of any significance at all.

65. On the evidence, I am persuaded that even on the assumption that there had been inordinate and inexcusable delay, there have not been serious enough prejudice to the Defendants and there is no risk of a fair trial being rendered impossible to justify the dismissal of the Plaintiff's case for want of prosecution. I have considered the background of case with care and anxiety, I am not persuaded that the order sought by the Plaintiff should be made.

66. Looking at the entire background of the case, I certainly would not have exercised any discretion in favour of the Defendants. I should of course take into consideration the fact that it was only as late as November 1998 when the Defendants disclosed the large number of documents which no doubt prompted the Plaintiff to take further steps with regard to the prosecution of the case.

67. In my view, the learned Master was wrong in granting the order sought by the Defendants. In the circumstances, the appeal must be allowed and the order of the Master set aside.