XCHRX MITSUI & CO (HK) LTD. v. MD LTD.

HCA9780/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9780 OF 1995

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J U D G M E N T

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1. I had dismissed the defendant's appeal at the conclusion of the hearing. I will now give my reasons.

THE APPEAL

2. This is the defendant's appeal against the decision of Master Jones refusing to dismiss the plaintiff's action for want of prosecution. The defendant alleged that there had been inordinate and inexcusable delay by the plaintiff and 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. The action was commenced in September 1995. The defendant's application to strike out was issued on 6 July 1999.

THE PLAINTIFF'S CLAIM

3. The plaintiff's case is briefly this : between December 1992 and December 1993, the defendant had sold computer floppy discs ("discs") to the plaintiff which were found to be defective. These discs were rejected by the plaintiff and by agreement reached between the parties, they were shipped back to the defendant. Other discs sold by the defendant to the plaintiff were found to be of inferior quality. The plaintiff had to downgrade the products and resell them to suppliers at discounted prices. The value of the rejected discs amounted to US$6,120,508.71. The defendant had since repaid the plaintiff by deduction from prices of discs subsequently supplied, totalling US$1.4 million, as well as by 5,850,000 pieces of free of charge replacement discs totalling US$1,820,160, leaving a sum of US$2,900,348.71.

4. Alternatively, the plaintiff alleged that a settlement had been reached with the defendant in December 1993 and evidenced by a memorandum ("the memorandum") signed by one Mr Dennis Chin ("Mr Chin") for and on behalf of the defendant in February 1994, in which the defendant agreed to pay the plaintiff compensation in the sum of US$5 million and supplied to the plaintiff free of charge a total of 6,600,000 replacement discs. The defendant had only repaid US$1.4 million and 3.4 million pieces of the discs, leaving the balance of US$3.6 million and the value of the outstanding free of charge replacement discs at US$757,120.

THE DEFENCE

5. The defendant denied that the discs were defective. It alleged that the memorandum was invalid because Mr Chin had no authority to sign on its behalf. It was entered into by Mr Chin as a result of misrepresentation by the plaintiff. The plaintiff had breached the agreement between Mr Chin and the plaintiff by failing to place orders with the defendant. The memorandum was sent to the plaintiff on 22 September 1994. The plaintiff immediately disputed this memorandum by a letter dated 24 September 1994.

THE PRINCIPLE

6. The principle in striking out an action for want of prosecution is that there has been inordinate and inexcusable delay on the part of the plaintiff, and that such delay will give rise to a substantial risk that it is not possible to have a fair trial of the action or that it is likely to cause serious prejudice to the defendant : Birkett v. James [1978] AC 297.

THE DELAY

1st period

7. The defendant initially relied on three periods of delay totalling 341/2 months. It does not now rely on the 1st period. The 1st period is two months between 24 January to 2 April 1996. On 5 January 1996, the plaintiff issued an Order 14 summons and on 23 January 1996, the defendant applied for judgment on admission against the plaintiff. On 24 January 1996, the master ordered the filing of affirmations. The affirmation of the plaintiff was only filed on 2 April 1996. This period of two months clearly cannot be considered as an inordinate delay.

2nd period

8. The defendant further relied on the 2nd period of delay of nine months from 12 June 1996 to 5 March 1997. On 12 June 1996, the master granted leave to defend and dismissed the application for judgment on admission. On 5 March 1997, the plaintiff issued the summons for direction. In my view, this period of nine months is an inordinate delay. I do not accept the plaintiff's explanation that it delayed in the case because it was waiting for the defendant's Amended Defence and Counterclaim which it had intimated that it would serve at the time of Order 14 hearing. The plaintiff's solicitors, Messrs P C Woo & Co ("Woo"), had by a letter dated 26 June 1996 stated that if the plaintiff did not receive the defendant's Amended Defence within the next 14 days, then the plaintiff would take out a summons for direction without further notice. This clearly showed that the explanation for the inactivity is not an excuse at all.

3rd period

9. The 3rd period of delay is 231/2 months from 7 April 1997 to 20 March 1999. The defendant filed the Amended Defence and Counterclaim on 7 April 1997 and thereafter, the plaintiff did not take any steps in the proceedings until 20 March 1999 when it filed a notice of intention to proceed.

10. In my view, there is an inordinate delay on the part of the plaintiff in this 3rd period. The plaintiff explained that during 1997 and 1999, it and its solicitors took a long time to go through all the documents in this case. The hearing of the unsuccessful Order 14 application brought up issues which required further investigation into the documents. Further the plaintiff had doubts regarding the commercial viability of proceeding further against the defendant.

11. It appeared that the documents exhibited to the plaintiff's affirmation in support of Order 14 application and those in its lists of documents are almost the same, hence the explanation is not a good one. As to the question whether the action should continue against the defendant, it seems the plaintiff only gave instructions to carry out an investigation on the defendant on 8 April 1999. The report was provided on 29 April 1999. This again did not explain the delay before April 1999.

12. The plaintiff further said that it was engaged in another litigation at the same time. This litigation was not connected with the present case and this can not be an excuse for the delay.

13. In my view, there had been inordinate and inexcusable delay in the 3rd period. And overall there is inordinate delay in the prosecution of the case.

DELAY BY THE DEFENDANT

14. The master had made an order on 25 March 1997 ordering both parties to file and serve a list of documents within 14 days and witness statement within 42 days respectively. On 21 May 1999, the plaintiff applied by summons requiring the plaintiff to file the list of documents within seven days. The master made an order on 15 June 1999 ordering the defendant to file the list within 21 days. Then on 6 July 1999, the defendant issued the summons to strike out. At that time the defendant still had not filed the list of documents which was only filed on 28 February 2000. The plaintiff contended that the defendant had not observed the order in filing the list the documents within time. It argued that although it is not a matter that caused the plaintiff to delay in the prosecution of its case, it is a factor to be taken into account when the court considers whether to exercise the discretion to strike out the action. In Austin Securities v. Northgate [1969] 1 WLR 529, Lord Denning in deciding that the case in question was not a proper one for striking out, referred to the fact that the defendants were just as guilty of delay as the plaintiff. Edmund Davies LJ in the same case held that :

"But even were it the case that prejudice had been established by the defendants, there looms over everything else the question, how did that prejudice arise? If it be the case that any prejudice flowed directly from the activity or the inactivity of the defendants themselves, and (above all) if they, or one acting in their name or on their behalf, neglected his duties, and it was from such neglect that the prejudice flowed, it is clearly not open for such defendants to plead that they have been prejudiced by reason of the failure of the plaintiffs to press on with their action."

15. In Allen v. Sir Alfred McAlpine & Sons Ltd and Anothers [1968] 2 QB 229, Lord Denning, dealing with the second (i.e. the nurse's case) of the three case under appeal, also referred to the fact that the defendant had in breach of the rules failed to file the defence as one of the factors to be considered in deciding whether the defendant had been prejudiced by the delay. Diplock LJ in the same case at page 258 stated that :

" It is thus inherent in an adversary system which relies exclusively upon the parties to an action to take whatever procedural steps appear to them to be expedient to advance their own case, that the defendant, instead of spurring the plaintiff to proceed to trial, can with propriety wait until he can successfully apply to the court to dismiss the plaintiff's action for want of prosecution on the ground that so long a time has elapsed since the events alleged to constitute the cause of action that there is a substantial risk that a fair trial of the issues will not be possible." (emphasis added)

Diplock LJ, at page 260, expressly stated that the previous conduct of the defendant is always relevant since the power to dismiss an action for want of prosecution is only exercisable upon the application of the defendant.

16. I think it is a matter of common sense and it is only right that a defendant in a striking out application must show that on its part it had not dragged its feet and delayed the progress of the case. In this case, the delay by the defendant in serving the list of documents is clearly one of the factors to be taken into account in the exercise of my discretion. However, this is not a matter that would carry substantial weight in the overall exercise of my discretion. The overall delay is caused by the plaintiff.

PREJUDICE

The defendant's case

17. However, what is fatal to the defendant's application is on the question of prejudice. The defendant emphasized that this is a case which involves mainly oral evidence. Mr Chin is a crucial witness. The defendant had ceased business in 1996 and Mr Kuo of the defendant, who now conducted the case on its behalf, only joined the defendant in May 1994. The defendant stated that Mr Chin can no longer be found. He had already left the defendant's employment on 20 September 1994 which was two days before the defendant received the memorandum. Mr Kuo however managed to meet Mr Chin later, and Mr Chin confirmed to him the matters pleaded in paragraphs 11 and 12 of the Defence and Counterclaim. These two paragraphs are in respect of the misrepresentation by the plaintiff and the reliance of the misrepresentation by Mr Chin in entering into the settlement agreement. As the plaintiff had not pursued the alleged memorandum, Mr Kuo had not put down the reply of Mr Chin on the memorandum on record. He had also asked Mr Chin to make an affirmation to recount the matter but Mr Chin refused to do so as he realized that the defendant might claim against him for breach of duties during the course of his employment with the defendant.

NO PREJUDICE SUFFERED

18. In my view, the defendant had failed to show that it would suffer prejudice because Mr Chin could no longer be found. The defendant's case is that Mr Chin did not have the authority to represent it and he was induced by misrepresentation to sign the memorandum. To substantiate its case, it is obvious that the evidence of Mr Chin in the form of an affidavit or witness statement should be obtained either at the Order 14 stage or afterwards because after the filing of the Amended Defence on 7 April 1997, the defendant just cannot assume the plaintiff would not proceed with the action. The fact remains that the defendant had not been able to secure the evidence of Mr Chin irrespective of whether there is delay or not. Certainly the defendant cannot point to the fact that it is the plaintiff's delay that results in the position it now faces.

Steps taken to locate Mr Chin

19. Mr Li, counsel for the defendant, submitted that the proper approach should be this : even if Mr Chin is a reluctant witness, there is legal mechanism to compel him to give evidence at the hearing by subpoena if he is then available. But he is no longer available.

20. In my view, there must be a connection between the delay and the unavailability of Mr Chin. If the defendant wishes to compel Mr Chin to give evidence, then obviously it must try to maintain contact with him in the first place. This apparently had not been done. All that the defendant had done was to rely on the colleagues of Mr Chin to contact him. The defendant merely said this : "But now, as the relevant colleagues have all left, it is impossible to re-establish contact with Mr Chin.". There is no evidence of the steps that had been taken to locate these former colleagues or Mr Chin by other means. In my view the defendant had not even got over the hurdle of showing Mr Chin is no longer available.

OTHER FACTORS

The plaintiff's own witness

21. The defendant also stated that Mr Shinji Shibatani of the plaintiff is an important witness and there is only a bare allegation that he is now not in Hong Kong, but his witness statement is being finalized. The defendant submitted that even if he can be found, he would probably be suffering from memory loss due to lapse of time.

22. I do not think this is a matter that would assist the defendant. It really is for the plaintiff to decide whether it would call this witness or not.

Counterclaim

23. On the matter of counterclaim, even if the defendant had not prosecuted the counterclaim, it does not mean the plaintiff should not proceed with his own case.

Further steps

24. The application to strike out was only taken after further steps were taken by the plaintiff in this action. On 21 April 1999, the plaintiff filed its list of documents and issued a summons requiring the defendant to file the list of documents. There was a hearing before the master on 23 June 1999. Mr Cheung, counsel for the plaintiff, referred to Austin, in which Lord Denning referred to the notice of intention to proceed :

"It was a month's notice. That month is given by the rules so as to enable the defendants to consider their position, and to apply, if so advised, to dismiss the action for want of prosecution. The defendants did not apply within the month."

25. I do not think the failure by the defendant to issue the summons to strike out prior to the steps taken by the plaintiff is necessarily fatal to its application. As observed by Union V-tex Shirt Factory Ltd v. Union V-tex Realty Ltd and Others, Civil Appeal No.48 of 1983, the true rule is not that it is incumbent on a defendant who may later wish to apply to strike out an action for want of prosecution to complain timorously of any delay that has occurred. (See judgment of Fuad JA.)

26. The true deposition is stated by Lord Browne-Wilkinson in Roebuck v. Mungovin [1994] 2 AC 224 (and referred to in The Sunshine Capital Investment Limited and Anr. v. Daiwa Securities (HK) Ltd and Anr., HCA5582/1991, 16 December 1998) :

"Where a plaintiff has been guilty of inordinate and inexcusable delay which has prejudiced the defendant, the subsequent conduct which induces the plaintiff to incur further expense in pursuing the action does not, in law, constitute an absolute bar preventing the defendant from obtaining a striking out order. Such conduct of the defendant is, of course, a relevant factor to be taken into account by the judge in exercising his discretion whether or not to strike out the claim, the weight to be attached to such conduct depending upon all the circumstances of the particular case."

The House of Lords overruled the earlier decision of County and District Properties v. Lyell [1991] 1 WLR 683 on this point.

In the present case, the steps that had been taken after the Notice of Intention to proceed were of course not steps initiated by the defendant. They do not indicate an apparent willingness by the defendant for the action to be continued. The attendance of the defendant before the master on 23 June 1999 is only a factor to be taken into account by the court in deciding whether to exercise the discretion to strike out the claim. In my view, this step by itself is not crucial to the exercise of my discretion. As I had indicated, what is crucial to this case is that the alleged unavailability of Mr Chin is not a prejudice to the defendant that arose as a result of the delay.

Limitation

27. The defendant submitted that the limitation period of the settlement agreement expired in February 2000. I think what is important to bear in mind is this : when the application to strike out was issued in July 1999, the limitation period had not yet expired. This remained to be the position when the master heard the application. The expiration of the limitation period now is not fatal to the plaintiff's claim in view of my decision in this matter.

CONCLUSION

28. Accordingly, the appeal is dismissed with costs to the plaintiff in any event.