KUOK LUEN (MACAU) AGENTE DE PROGRAMS TELEVISIVOS LIMITADA AND OTHERS v. TIDETIME SUN (GROUP) LTD AND OTHERS

HCA 1456/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1456 OF 2006

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D E C I S I O N

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I.  INTRODUCTION

1.  By 2 summonses respectively dated 5 May and 23 June 2010, the 1^st Defendant (“D1”) applies to strike out the Plaintiffs’ (“Ps’”) Statement of Claim (“SOC”) and to dismiss their action against D1 pursuant to Order 18 rule 19(a)-(d) and/or Order 34 rule 2(2) of the Rules of the High Court (“RHC”) and for want of prosecution and/or abuse of process under the inherent jurisdiction of the court (“1^st and 2^nd Summonses”).  Such summonses came before me on 13 July 2010. It transpires that Ps have filed an Amended Statement of Claim (“ASOC”) on 14 December 2006, so I granted leave for Ps to amend the 1^st and 2^nd Summonses to refer to the ASOC rather than to the SOC (“Amended 1^st and 2^nd Summonses” or collectively “Amended Summonses”).

2.  Under the new regime following the Civil Justice Reform (“CJR”) which requires the courts to actively manage and short-schedule cases, strike out applications of the sort referred to above should be few and far between. The Amended Summonses may well be a legacy of laxity that has been carried over from the pre-CJR era. As such, they provide a timely opportunity to revisit the legal principles for striking out in light of the new litigation culture.

II.  BACKGROUND

3.  Ps were the shareholders of TV Viagens (Macau) S.A.R.L. (“Company”) which operated a satellite television channel focused on travelogue programmes under a cooperation agreement with another company for inter alia broadcasting such programmes to hotels and guesthouses in Mainland China.  D1 was/is a BVI company whose shares were/are publicly listed in Hong Kong.  At the material time, the 2^nd Defendant (“D2”) was its wholly-owned subsidiary.

4.  On 11 July 2000, the 4^th-named Plaintiff on behalf of Ps as Party A (“Party A”), D2 as Party B (“Party B”) and D1 as Party C (“Party C”) executed a written preliminary agreement (“Preliminary Agreement”), which provides inter alia as follows:

“鑒於：

……

(2) [Party B]與[Party C](收購方)擬從本協議書所訂明之條件收購，而[the Company]之股東(出售方)擬以該等條件出讓出售方所持有的於[the Company]已發行股本中60%的股份予收購方(即[Party B]與[Party C])所指定的承受者，亦即[Party B](承受方)。[“PA Recital 2”]

(3)          協議三方經友好協商及討論後，已同意本協議書以下所述之若干主要原則，並希望訂立本協議書以記錄三方之間之合作條件和理解及概述日後合作談判的架構。[“PA Recital 3”]

(4)          協議三方將在本協議書的基礎上，就上述之項目達成正式轉讓合同。[“PA Recital 4”]

協議三方茲同意如下：

1. 股份轉讓

1.1 收購方同意以港幣36,300,000元(以下述第1.2條內所訂之方式支付)的代價向[Party A]購買轉讓股份(以下稱該轉讓股份)。[“PA Clause 1.1”]

1.2 收購方同意[Party C]需從每股港幣0.22元之發行價，向[Party A](或[Party A]所指定之公司或人仕)配發165,000,000股(占[Party C]已發行股本之3.3%)每股面值港幣0.02元之[Party C]普通股股份(“代價股份”)以繳付收購方根據第1.1條所述應繳付予[Party A]之轉讓股份代價。收購方保證該165,000,000股占[Party C]已發行股本之3.3%。[“PA Clause 1.2”]

……

3. 承諾

……

3.2 收購方向[Party A]承諾及保證：

……

e. 於簽署正式轉讓合同及完成交易後，負責[the Company]的營運管理和籌措未來營運及發展的足夠資金(包括但不限於對外融資或提供股東貸款)，惟該融資或股東貸款必須在不改變[Party A]於[the Company]中的持股比例(即40%)的原則下實行(因上市重組唯而協議三方同意調整其持股比例的情況除外)。

……

8. 協議書有效期

本協議書一經協議三方簽署後立即生效，並且持繼有效，直至正式轉讓合同簽署和完全生效為止；唯正式轉讓合同簽署和正式生效之日期不能遲於二零零零年八月三十一日，否則除協議三方一致同意延期外，本協議書即告終止，但不影響終止前已發生或導致之權利及追討。[“PA Clause 8”]”

5.  Pursuant to the Preliminary Agreement, Ps as vendors and D2 as purchaser executed the formal sale and purchase agreement dated 8 August 2000 (“Formal Agreement”), which provides inter alia as follows:

“2. SALE AND PURCHASE OF THE SALE SHARES

2.1         Subject to the terms and conditions of this Agreement, each of the Vendors, as beneficial owners of the respective number of Sale Shares as set out in column 3 of Schedule 1, shall sell and the Purchaser shall (or the Purchaser’s nominee as nominated by the Purchaser), relying on the warranties and indemnities herein contained, purchase the Sale Shares, ……” [“FA Clause 2.1”]

……

4. CONSIDERATION

4.1 The consideration for the sale and purchase of the Sale Shares shall be in the sum of HK$34,935,000.00 which shall be paid by the Purchaser by way of cashier order in the following manner:

(a) the sum of HK$500,000.00 shall be paid within five (5) Business Days after the signing of this Agreement to the Vendors’ Solicitors as receiving payment agent of the Vendors as a deposit and in part payment of the Consideration upon the terms and conditions set out in Clause 4.3; and

(b)          the balance of the Consideration being the sum of HK$34,435,000.00 shall be paid to the Vendors’ Solicitors as receiving payment agent of the Vendors at Completion for the payment of the balance of the Consideration. [“FA Clause 4.1”]

……

6. MANAGEMENT OF THE COMPANY

6.1 Upon Completion, the Purchaser shall be entitled to the overall management and operations of the Company, and shall arrange for additional financing (including but not limited to obtaining financing from banks and other financial institutions or provisions of shareholders’ loans) as may be required by the Company for operational and development needs Provided that the obtaining of such fund raising shall not in any way result in any change in Kuok Luen’s [ie the 1^st-named Plaintiff] shareholding ratio in the Company save for any reorganization of the Company in preparation for the listing of the Shares on any of stock exchanges as agreed by the parties hereto. [“FA Clause 6.1”]

……

14. GENERAL

14.1 This Agreement constitutes the entire agreement between the parties hereto with respect to the matters dealt with herein and supersedes all previous agreements, arrangements, statements, understandings or transactions between the parties hereto in relation to the matters hereof and the parties acknowledge that no claim shall arise in respect of any agreement so superseded.[“FA Clause 14.1”]”

6.  There is no dispute that (a) the Formal Agreement is in fact the formal agreement contemplated by and referred to in the Preliminary Agreement (see paragraph 7 of the ASOC) and (b) the Formal Agreement was executed and came into effect on or before 31 August 2000 or any mutually agreed extended deadline (“FA Deadline”, see also para.29 of the written submissions of Mr Lam, counsel for Ps).

III.  Ps’ CASE

7.  Ps claim that upon negotiations and agreement reached after the execution of the Preliminary Agreement, D2 (ie “承受方” nominated by “收購方” (ie D1 and D2 (collectively “Ds”) in PA Recital 2) executed the Formal Agreement on its own behalf and on behalf of D1 for the sale and purchase of the sale shares in the Company (“SP Transaction”).  So Ds (收購方) knew or ought to have known that pursuant to the Preliminary and Formal Agreements they had to take over the management and business of the Company and to provide funding for its operation and development upon completion of the SP Transaction, and if they were in breach of such obligations, it would follow that (a) the Company would not be able to continue its operation, and (b) the remaining 49% shareholding in the Company held by the 1^st-named Plaintiff (“Kuok Luen”) would become worthless.  Ds initially honoured their obligations, but in breach of the Preliminary and Formal Agreements they subsequently refused to provide further funding for the operation and development of the Company.

8.  On 17 December 2002, Mr Lee Ping (ie the 3^rd-named Plaintiff, “Mr Lee”) commenced HCA4716/2002 (“Other HC Action”) to compel D2 (being “承受方” nominated by Ds as “收購方”) to pay (a) outstanding expenses of the Company and/or (b) damages for breach of the Formal Agreement.  On 20 December 2002, D2 issued a Third Party Notice against Macau Media Holdings Ltd (“Macau Media”) for indemnity and contribution pursuant to an alleged agreement it made with Macau Media on 11 September 2002.

9.  Ps claim they subsequently discovered that without any prior notice to them Ds sold their 51% shareholding in the Company to Macau Media in/about September 2002, and wrongfully and in breach of contract abandoned and transferred the operation and management of the Company to Macau Media.  As a result, the Company went into grave difficulties and eventually ceased business in 2004, so the 49% shareholding in the Company held by Kuok Luen became worthless.

10.  On 10 July 2006, Ps commenced the present action against Ds  to claim inter alia the following reliefs: (a) damages suffered by Kuok Luen in the sum of HK$76,862,745.00 (ie the value of Kuok Luen’s 49% shareholding in the Company as at September 2002) or to be assessed by the court; (b) further or in the alternative, damages for breach of contract; and (c) a declaration that Ds have been in breach of (i) the Preliminary and Formal Agreements or (ii) the Formal Agreement which is based on the Preliminary Agreement.

IV.  D1’s CASE

11.  D1 denies Ps’ claim. It avers that the Preliminary Agreement has lapsed or ceased to have effect and has been superseded by the Formal Agreement to which it is not a party, hence Ps cannot impute D2’s obligations under the Formal Agreement onto D1.  Further, D1 is not a party to any alleged transaction between D2 and Macau Media as regards D2’s interests in the Company.

V.  PROCEDURAL HISTORY

12.  D2 has not filed any acknowledgment of service or taken any part in the action. Below is a brief chronology of the proceedings between Ps and D1:

Date	Description
10/7/06	Writ of Summons issued
2/9/06	SOC filed
14/9/06	ASOC filed
28/9/06	D1’s Defence filed
3/5/07	Summons for Directions filed
22/5/07	Hearing of Summons for Directions
25/6/07	Ps’ List of Documents filed
6/7/07	D1’s List of Documents filed
26/7/07	Consent Summons concerning case management filed
31/7/07	Order made in respect of the Consent Summons
4/7/07	Summons concerning case management filed
13/9/07	Hearing of the Summons
27/9/07	Witness statement of Chen Huajie filed forD1
27/9/07	Witness statement of Mr Lee filed for Ps
26/10/07	Ps’ checklist (“Ps’ Checklist”) filed
29/10/07	D1’s checklist filed
31/10/07	Hearing for Checklist Review (“CLR”)
3/10/08	Ps’ Supplemental List of Documents filed
5/5/10	Notice of Intention to Proceed filed by D1
5/5/10	1st Summons filed
7/5/10	Notice of Intention to Proceed filed by Ps
23/6/10	2nd Summons filed
8/7/10	Ps’ Summons (see paragraph 14 below) filed

13.  At the CLR hearing on 31 October 2007, Master Lung granted “leave to [Ps] to set down within 42 days for 3 days trial (subject to counsel certificate as to the estimated length of trial) before a judge alone in the fixture list.  There be a pre-trial review before the trial judge for 30 minutes on a date 8 weeks before trial. Parties shall confirm the length of trial by counsel in charge at the pre-trial review” (“Setting Down Order”).

VI.  Ps’ SUMMONS

14.  On 9 July 2010, Ps took out a summons inter alia (a) for extension of time to set down the action down for trial under Order 3 rule 5 of the RHC and (b) for further case management directions including leave to adduce valuation expert evidence and to serve further witness statement, list of documents and hearsay notice (“Ps’ Summons”).

15.  Ps’ Summons was originally returnable on 14 July 2010.  At the hearing before me on 13 July 2010, Mr Lam applied to bring forward Ps’ Summons to enable me the view the case in the round. [1]Eventually Mr Lam and Mr Chong, counsel for D1, agreed and I directed that the hearing of Ps’ Summons be expedited to 13 July 2010 to enable me to view the case in the round but not to adjudicate on the case management reliefs sought.

16.  Mr Lam concedes that the Amended Summonses should be dealt with first so that if Ps’ claim against D1 is struck out there will be no need to go further.  But even if I am to dismiss the Amended Summonses, whether Ps should be given a further 60 days to set down the action for trial necessarily depends on whether the court is prepared to accede to the further case management directions sought in Ps’ Summons.  Given the requirements in paragraph 20 of Practice Direction 5.2 and the recent guidance by Lam J in Chok Yick Interior Design & Engineering Co Ltd v Lau Chi Lun trading as Chi Hung Construction Eng Co HCA1456/2006 (unreported, 5 May and 21 June 2010) on expert evidence, there is insufficient information before me for proper consideration of the request for expert evidence.  Further, no draft witness statement has been annexed to Ps’ Summons, and it is unclear why further witness and documentary evidence is required when the Setting Down Order has been granted years ago.  So I adjourned Ps’ Summons with liberty to restore no later than 14 days after the final disposal of the Amended Summonses.

VII.  PRELIMINARY MATTERS

17.  I shall briefly deal with 2 preliminary matters. First, I disagree with Mr Lam’s suggestion that D1’s conduct in filing a Notice of Intention to Proceed (“Proceed Notice”) on 5 May 2010 is inconsistent with the Amended Summonses.  Although it is not strictly necessary to file a Proceed Notice if the only action contemplated is to strike out an action for want of prosecution, a Proceed Notice of itself is not a step in the action but a notice to indicate that a step in the action is going to be taken. [2]  Since D1 filed the 1^st Summons and the Proceed Notice on the same day, the step in the action then contemplated by D1 must be to strike out the SOC for want of prosecution.  In any event, a Proceed Notice is required for the 2^nd Summons for striking out pursuant to Order 18 rule 19(1) of the RHC.

18.  Next, Mr Chong argues that even if, contrary to D1’s case, (a) the Preliminary Agreement has not lapsed or ceased to have effect and (b) D2 has executed the Formal Agreement on its own behalf and on behalf of D1, the 2^nd, 3^rd and 4^th-named Plaintiffs (“P2, P3 and P4”) still have no cause of action against D1.

19.  After completion of the SP Transaction, D2 and Kuok Luen respectively held 51% and 49% of the shareholding in the Company (see Schedules 1 and 2 of the Formal Agreement).  Ps claim that Kuok Luen suffered loss because its shareholding in the Company became worthless, and “…… 原告人們蒙受了重大損失(見上述所陳述之[Kuok Luen]損失 ……” (see paragraphs 17 and 19 of the ASOC).  On such basis, Mr Chong argues that (a) if P2, P3 and P4 are not shareholders of Kuok Luen they have not suffered any loss and therefore have no cause of action against D1, but (b) if they are shareholders of Kuok Luen they allegedly have suffered the same loss as Kuok Luen but such reflective loss does not constitute any viable cause of action, so the claim by P2, P3 and P4 against D1 must be struck out. [3]

20.  Again, I disagree. Under the principle of privity of contract, a contracting party who suffers no loss has a right to enforce the benefit of the contract in favour of a third party by compelling the defaulting contracting party to pay damages for loss suffered by such third party.  Here, Ps’ rights and liabilities under the Formal Agreement are joint and several (see clause 14.4), so P2, P3 and P4 together with Kuok Luen as joint and several contracting parties have capacity to sue for breach of contract (if any) even though they have suffered no loss.

21.  Mr Chong eventually concedes he will not rely on the argument in paragraphs 18-19 above for the purpose of the Amended Summonses, but suggests that the absence of any loss on the part of P2, P3 and P4 is still relevant because their unnecessary involvement in the present action has increased costs.  But when pressed on the point, Mr Chong is unable to identify any additional costs caused by the joinder of P2, P3 and P4.  I am not with Mr Chong on his submission.

VIII.  LEGAL PRINCIPLES ON ORDER 18 RULE 19(1) OF THE RHC

22.  In respect of striking out pursuant to Order 18 rule 19(1) of the RHC, the principles are well established and I need go no further than to refer to Hong Kong Civil Procedure 2010 Vol.1 inter alia as follows:

“…... It is only in plain and obvious cases that the court should exercise its summary powers to strike out …… any pleading under this rule. …… Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. …… The mere fact that the case is weak and not likely to succeed is no ground for striking it out ……

It is for the party seeking to strike out …… pleading to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail. ……” (para.18/19/4 at pp.394-296)

“The object of the rule is to stop cases which ought not to be launched – cases which are obviously frivolous or vexatious, or obviously unsustainable. …… The expression “frivolous or vexatious” includes proceedings which are an abuse of process …… A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed. A proceeding is vexatious when it is oppressive and/or lacks bona fides. ……” (para.18/19/8 at p.397)

“Paragraph 1(d) confers upon the court in express terms powers which the court has hitherto exercised under its inherent jurisdiction where there appeared to be “an abuse of the process of the Court”. This term connotes that the process of the court must be used bona fide and must not be abused. The court will prevent the improper use of its machinery, and will, in a proper case (e.g. where an action is absolutely groundless ......; where the pleading is a sham or entirely without substance ……), summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation ……” (para.18/19/10 at p.399)

IX.  ORDER 18 RULE 19(1) OF THE RHC

23.  D1’s Group Financial Controller, Madam Wong Mei Ling (“Madam Wong”), in her affirmations filed on 5 May and 23 June 2010 says that Ps’ pleaded cause of action against D1, ie breach of contract in respect of both the Preliminary and Formal Agreements, is unsustainable and unarguably bad in that (a) the Preliminary Agreement has lapsed or ceased to have effect and/or has been superseded by the Formal Agreement and (b) D1 is not a party to the Formal Agreement.  Mr Chong argues that Ps’ claim against D1 discloses no viable cause of action, lacks bona fides and cannot possibly succeed; it is therefore oppressive, frivolous, vexatious and an abuse of the court’s process.

(a)  Preliminary Agreement

24.  Ps’ primary pleaded case is that the Formal Agreement made by D2 on its own behalf and on behalf of D1 has been executed and has come into effect on or before the FA Deadline (“Primary Case”).  Mr Lam accepts that in such circumstances the Preliminary Agreement has lapsed and ceased to have effect pursuant to the first part of PA Clause 8 (ie “本協議書一經協議三方簽署後立即生效，並且持繼有效，直至正式轉讓合同簽署和完全生效為止”, “First Part”).  But in fact paragraph 12 of the ASOC pleads that Ds have been in breach of both the Preliminary and Formal Agreements, which, contrary to the Primary Case, suggests that the Preliminary Agreement remainseffective notwithstanding the existence of the Formal Agreement.  Be that as it may, I need not say anything further on this because D1 agrees that the the Preliminary Agreement has lapsed.

25.  Mr Lam argues that on Ps’ alternative case (“Alternative Case”) as follows:

(a) the formal agreement contemplated by and referred to in the Preliminary Agreement should be executed by Ps as vendors and Ds as purchaser;

(b) (contrary to the Primary Case) D1 is not a party to the Formal Agreement and D2 has executed such agreement solely on its own behalf;

(c)  Ps and D1 have not entered into any other formal agreement on or before the FA Deadline or at all,

the Preliminary Agreement still continues to be effective between Ps and D1. Mr Lam says the First Part is inapplicable in the context of the Alternative Case because the Formal Agreement not having been executed on behalf of D1 is not fully effective (ie “完全生效”), and the second part of PA Clause 8 (ie “唯正式轉讓合同簽署和正式生效之日期不能遲於二零零零年八月三十一日，否則除協議三方一致同意延期外，本協議書即告終止，但不影響終止前已發生或導致之權利及追討”, “Second Part”) is also inapplicable because Ps and D2 have in fact executed the Formal Agreement and it has became formally effective (ie “正式生效”) on or before the FA Deadline.

26.  First of all, the Alternative Case has not been properly pleaded. Although the ASOC is premised on the material facts in paragraph 25(a) and (c) above and on the further material fact that D2 has executed the Formal Agreement on its own behalf and on behalf of D1 (see paragraph 24 above), there is no express plea of the alternative material facts in paragraph 25(b) above which essentially contradict the pleaded Primary Case.  In my view, if Ps are to rely on the Alternative Case, it should have been expressly pleaded and not left to speculation and inference.

27.  But even if one can infer the Alternative Case from the ASOC (which I disagree), does the Formal Agreement satisfy the requirement in the proviso in the Second Part (ie “唯正式轉讓合同簽署和正式生效之日期不能遲於二零零零年八月三十一日”, “Clause 8 Proviso”) so that the Preliminary Agreement is not terminated but continues to have effect between Ps and D1?

28.  I agree with Mr Chong’s criticism that such interpretation is strained and artificial. The starting point of the Alternative Case must be the material fact in paragraph 25(a) above, ie that the formal agreement contemplated by and referred to in the Preliminary Agreement is to be made between Ps as vendors and Ds as purchaser.  Depending on whether such formal agreement has been executed and has come into effect on or before the FA Deadline or not, PA Clause 8 specifies different consequences.  If such requirement is met, the Preliminary Agreement continues to have effect until such formal agreement has been executed and fully come into effect (see First Part), which means that thereafter all contractual rights and liabilities will be governed by the terms of the formal agreement.  But if such requirement is not met, the Preliminary Agreement will terminate without prejudice to any accrued rights and liabilities (see Second Part), which means that the SP Transaction will fall through and only antecedent rights and liabilities remain to bind the parties.  It is plain from the above analysis that under the Alternative Case the Preliminary Agreement in any event will not survive but will come to an end except for antecedent rights and liabilities.

29.  But Mr Lam suggests that under the Alternative Case, although D1 is left out of the Formal Agreement so that such agreement is not “fully effective” within the meaning of the First Part, such agreement satisfies the requirement in the Clause 8 Proviso so that the Preliminary Agreement is not terminated but continues to bind Ps and D1 under the Second Part.

30.  I disagree. Under the Alternative Case as raised by Mr Lam, D1 has not executed any formal agreement as at the FA Deadline, so there is no “form” in existence between Ps and D1 that can be formally effective, but since a formal agreement between Ps and D1 is a necessary part of the formal agreement between Ps and Ds as contemplated by and referred to in the Preliminary Agreement, the Formal Agreement that leaves out D1 cannot be regarded as the formal agreement (ie “正式轉讓合同”) within the meaning of the Clause 8 Proviso let alone one that is duly executed and/or formally effective on or before the FA Deadline.  After all, there is no dispute there is no other formal agreement between Ps and D1.

31.  Further, to take Mr Lam’s submission to its logical conclusion within the context of the Alternative Case, the Formal Agreement binds Ps and D2 and governs their contractual relationship because for them the Preliminary Agreement has been terminated under the First Part, yet the Preliminary Agreement remains effective to bind Ps and D1.  As seen in paragraphs 4-5 above and paragraph 38 below, the provisions in the Formal and Preliminary Agreements are different in terms of the quantity of the sale shares of the Company, the amount of the consideration, the method and party responsible for paying the consideration, etc.  So in respect of the single SP Transaction, is D1 to buy a larger quantity of the sale shares for a higher consideration to be paid via allotment of shares in D1 to Ps under the Preliminary Agreement whilst D2 buys a smaller quantity of the sale shares for a lower consideration to be paid in monetary form by D2 under the Formal Agreement?  In my view, it is objectively unthinkable for commercial parties to adopt such an unworkable interpretation of contract.

32.  In my view, under the Alternative case, the Clause 8 Proviso has not been satisfied and the Second Part applies to terminate the Preliminary Agreement without prejudice to antecedent rights and liabilities.  Thus, whether on the Primary or Alternative Case and irrespective of FA Clause 14.1, the Preliminary Agreement has come to an end pursuant to its own express provision.  In my view, there is no viable cause of action based on the Preliminary Agreement.  That being so, the Alternative Case is impossible and unsustainable, and I now turn to the Primary Case based on breach of the Formal Agreement.

(b)  Formal Agreement

33.  Mr Lam submits that under the Primary Case D1 is a disclosed principal who can sue on the Formal Agreement made by D2 as its agent acting within the scope of its actual authority.[4]  He claims that PA Recital 2 states that Ps intend to sell 60% of their shareholding in the Company to D2 as nominee specified by Ds as purchaser (ie “收購方(即[D2]與[D1])所指定的承受者，亦即[D2](承受方)”), which shows that D2 is to buy and receive the sale shares on its own behalf and on behalf of D1, and which further explains why only D2 and not D1 has executed the Formal Agreement.  Further, Mr Lam argues that since D1 claims it is not a party to the Formal Agreement, it cannot rely on FA Clause 14.1 (which provides that the Formal Agreement “supersedes all previous agreements, arrangements, statements, understandings or transactions between the parties hereto in relation to the matters hereof ……”) to deny that the Preliminary Agreement (ie PA Recital 2) establishes that D2 has executed the Formal Agreement on its own behalf and on behalf of D1.

34.  To take the last point first, I cannot see how Ps can brush aside FA Clause 14.1 by praying in aid D1’s contention that it is not a party to the Formal Agreement when they themselves rely on the Primary Case which is premised on inter alia the Formal Agreement being effective and binding on Ps and both Ds.  In any event, as explained above, quite irrespective of FA Clause 14.1, the Preliminary Agreement has come to an end.

35.  But even if one is to consider the Preliminary Agreement, Mr Chong submits that PA Recital 2 merely provides inter alia that Ps as vendors (“出售方”) intend to sell their 60% shareholding in the Company to D2 as transferee specified by Ds as purchaser (“出讓出售方持有的於[the Company]已發行股本中60%的股份予收購方 …… 所指定的承受者” or “承受方”), but other than so identifying D2 as the transferee of the sale shares the Preliminary Agreement has not spelled out any requirement for the Formal Agreement to be executed by D2 on its own behalf and on behalf of D1. Rather, the Preliminary Agreement contemplates that the parties will further negotiate and agree on the formal agreement (see PA Recital 3-4), so the Formal Agreement made between Ps and D2 pursuant to such negotiations and agreement “constitutes the entire agreement between the parties hereto [ie Ps and D2] with respect to the matters dealt with herein” (see FA Clause 14.1), and the “matters dealt with herein” are plainly referable to the SP Transaction.[5]

36.  I am of the view that I should start with the undisputed fact that D1 has not been named as party to and has not executed the Formal Agreement.  None of the contractual provisions in the Formal Agreement expressly refer to any rights and/or liabilities on the part of D1.  Yet for the purpose of the Amended Summonses both Ps and D1 do not dispute that the Formal Agreement is valid and effective.  The question is whether Ps can rely on PA Recital 2 to say that D1 is the disclosed principal of D2 and hence a contracting party to the Formal Agreement.

37.  Neither counsel has referred to the parol evidence rule, but I believe Mr Lam relies on an exception thereto by which extrinsic evidence may be adduced to show that a contracting party to an agreement is an agent for another person and acts as such in making the agreement so as to give the benefit or the burden of the agreement to his principal. [6]  But even if I am to construe the written Formal Agreement by looking at the objective factual background known to the parties at or before the date of such agreement, including evidence of its genesis and objective aim, I am not persuaded there is any arguable case that D1 is a disclosed principal of D2 in executing the Formal Agreement.

38.  Although the Preliminary Agreement refers to Ds as purchaser in the SP Transaction, it contemplates that the parties will enter into further negotiations to agree the formal agreement referred to therein, and depending on the results of the negotiations and/or any agreement that may be reached the Preliminary Agreement will either cease to have effect or terminate.  In fact, such further negotiations eventually resulted in the Formal Agreement that deals with the SP Transaction in a distinctly different manner to that envisaged in the Preliminary Agreement:

(a) the quantity of the sale shares in the Company is reduced from 60% (see PA Clause 1.1) to 51% (see FA Clause 1.1) with the remaining 9% relegated to a call option excisable by D2 and/or its nominee;

(b) the consideration payable is reduced from HK$36,300,000.00 (see PA Clause 1.1) to HK$34,935,000.00 (see  FA Clause 4.1);

(c)  the method of payment is changed from the allotment of 165,000,000 shares in D1 at HK$0.02 per share to Ps or their nominee (see PA Clause 2.1) to monetary payment by D2 (see FA Clause 4.1).

Plainly, the description of Ds as purchaser as well as D1’s responsibility for the consideration have been removed in the Formal Agreement.  This sits well with clause 12 of the Formal Agreement which provides that each of Ps as vendors shall do all acts “to vest the registered and beneficial ownership of the Sale Shares in the Purchaser [defined as D2] free from all Encumbrances and with all rights now and hereafter attaching thereto” (my emphasis) (“FA Clause 12”).  Save and except for the quantity of the sale shares, FA Clause 12 also sits comfortably with the provision in PA Recital 2 that Ps are to “出讓…… 所持有的於[the Company]已發行股本中60%的股份予收購方…… 所指定的承受者, 亦即[D2](承受方)”.  In my view, if D1 is intended to be a beneficial co-owner of the sale shares, there is no reason for FA Clause 12 not to have made that clear.  Further, Ps and D2 have been legally represented in the course of preparing and executing the Formal Agreement.  If D1 is a material contracting party, I find it incredible that the Formal Agreement is totally silent of such fact, and no or no satisfactory explanation has been offered for such silence.  In my view, it is plain and obvious that D2 and not D1 is the contracting party to the Formal Agreement and the beneficial owner of the sale shares upon completion of the SP Transaction. 

39.  In light of the above analysis and of the situation in which the parties were in at the time of the Formal Agreement, it is not arguable for Ps to contend on the basis of PA Recital 2 that D2 has executed such agreement on its own behalf and on behalf of D1.  In any event, once the Formal Agreement, which is the formal agreement contemplated by and referred to in the Preliminary Agreement, has been executed and has come into effect on or before the FA Deadline, the Preliminary Agreement (including PA Recital 2) comes to an end.  In my view, there can be no doubt that D1 is not a party to the Formal Agreement.

(c)  Subsequent conduct

40.  There is some doubt as to whether subsequent conduct can aid the interpretation of contract, but since Ps rely on such conduct I shall err on the side of caution and consider the same.

41.  D1’s 2001 annual report (“2001 Report”) states that “…… we are developing a second channel focused on travelogue programmes.  We believe that growing our operations by acquisitions is one of the right strategies.  Accordingly, we acquired a controlling interest in [the Company] ……”  Mr Lam submits that the 2001 Report clearly treats the shareholding in the Company held by D2 as shares owned by D1 itself, which suggests that D2 is D1’s nominee and vehicle for holding such shares and in entering into the Formal Agreement with Ps.

42.  I am not persuaded that D1’s acquisition of a controlling interest in the Company lends support to Mr Lam’s submission.  Although the 2001 Report regards both D2 and the Company as subsidiaries of D1, they are different because at the material time D2 was a wholly owned subsidiary under section 2(4)(a)(iii) of the Companies Ordinance Cap.32 and the Company was a partly owned subsidiary of a subsidiary (ie D2) under section 2(4)(b).  D1 has acquired its controlling interest in the Company through its ownership of the share capital of D2, which subsidiary in turn has held 51% shareholding in the Company (see “Investment in Subsidiaries” section of the notes to the financial statements in the 2001 Report which states that D1 indirectly held 51% shareholding in the Company).  This does not in any way contradict FA Clause 12 which expressly provides that “the registered and beneficial ownership of the Sale Shares in the Purchaser [defined in the Formal Agreement as D2]” shall be vested in D2 as a separate legal entity albeit also a wholly owned subsidiary of D1.

43.  Next, if one is consider subsequent conduct, one cannot ignore the absence of any or any satisfactory explanation as to why Mr Lee has merely sued D2 (and not both Ds) in the Other HC Action for breach of the Formal Agreement, and why his pleadings aver inter alia that Ps have sold the sale shares to D2 (and not both Ds) and that the Formal Agreement specifies duties and obligations on the part of D2 without any mention of D1.

44.  Mr Lam purports to distinguish the Other HC Action from the present action by saying that the former seeks specific performance of the Formal Agreement by requiring D2 to pay certain sums under such agreement.  But in fact Mr Lee has also sued for damages allegedly suffered as a result of D2’s breach of the Formal Agreement in the Other HC Action, which cause of action arguably overlaps to a certain extent with that in the present action.  Further, D2 in its Defence in the Other HC Action admits the Formal Agreement between itself and Ps, and have not in any way suggested that D1 is its disclosed principal in respect of the Formal Agreement. No Reply was filed by Mr Lee.

(d)  Delay

45.  Mr Lam submits that I should dismiss the Amended Summonses in view of D1’s unexplained but significant delay in issuing the 1^st Summons almost 4 years after the Writ of Summons and the ASOC.  In support, Mr Lam cites Hong Kong Civil Procedure 2010 Vol.1 para.18/19/3 at p.393 which suggests that a striking out application should be made promptly and as a rule before the pleadings are closed. But in fact that passage goes on to state as follows:

“…… However, the application [may] be made even after the pleadings are closed …… or the trial set down …… in Tang Wang Shiu v. Tang Kiu Yeung [2002] 3 H.K.L.R.D 627. Bearing in mind that O.18, r.19 permits an application to be made “at any stage of the proceedings”, Recorder Kenneth Kwok S.C. held that “the duty must lie … on a party not to put in, and persist on the basis of, a pleading which offends against O.18, r.19. (Consequently), the recipient of an offending pleading cannot be under a greater duty to enforce the rule before the commencement of trial”. In coming to his decision, Recorder Kenneth Kwok S.C. preferred the Goymer v. Lombard North Central Wheelease Ltd, The Times, April 1, 1993 line of cases in which Leggatt L.J. stated that “the court will not nowadays feel precluded from exercising its power on the ground that the trial is imminent”. An important factor in exercising the Court’s discretion was the emphasis upon saving precious court time, no matter the stage of the application (Johnson v. Gore Wood & Co. [1999] B.C.C. 474, CA).”

I respectfully adopt the above observations. In the end, Mr Lam concedes that if Ps’ pleaded claim against D1 is impossible and unarguably bad, the alleged delay will not preclude the court from exercising its summary power to strike out.

(e)  Summary

46.  By reason of the above matters, it is plain and obvious that Ps’ claim against D1 in the ASOC is unsustainable and unarguably bad. Such claim should be struck out as being frivolous and vexatious, and an abuse of the process of the court.

X.  LEGAL PRINCIPLES ON STRIKING OUT ON OTHER GROUNDS

47.  It has been held in Birkett v James [1978] AC 297 that an action may also be struck out where the court is satisfied that (a) the default has been intentional and contumelious, eg disobedience to a peremptory order of the court or conduct amounting to an abuse of the process of the court, or (b)(i) there is inordinate and inexcusable delay on the part of the plaintiff and his legal representatives and (ii) 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 have caused serious prejudice to the defendants either as between themselves and the plaintiff or between each other or a third party. [7]  The burden of proof is on the defendant(s).

48.  In respect of the second limb in Birkett, “inordinate” means materially longer than the time usually regarded by the profession and courts as an acceptable period. [8]  What is or is not inordinate delay must depend on the facts of each particular case.  But delay which is inordinate is prima facie inexcusable, and it is for the plaintiff to make out a credible excuse. [9] Further, this ought to be looked at from the defendant’s point of view or, at least, objectively. [10]

49.  The prejudice that a defendant relies on is a matter of fact and degree, but must be more than minimal and can take different forms.  Mere assertion of prejudice is not enough, and proper evidence of the prejudice suffered or why a fair trial of any particular issue is not possible or likely not possible is required. [11]

50.  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.  The court will consider the periods of inordinate and inexcusable delay for which the plaintiff or his advisers are responsible, and will then ask itself whether this delay caused or is likely to cause serious prejudice, or whether there is a substantial risk that because of this delay it is not possible to have a fair trial of the issues in the action.  The prejudice must be caused by the delay.

51.  But satisfaction of the general conditions only means that the court may exercise its discretion to strike out, and it does not follow that the court must do so. [12]  Further, save in exceptional cases an action will not be struck out for want of prosecution before the expiry of the relevant limitation period. [13]  But 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 of summons. [14]

52.  Here, D1 also seeks to invoke Grovit v Doctor [1997] 1 WLR 640 in which the House of Lords pointed out there was a further category of cases where the delay amounted to an abuse of process to ground striking out applications.  Lord Woolf explained at pp.647-648 as follows:

“……This conduct on the part of the appellant constituted an abuse of process. The courts exist to enable parties to have their disputes resolved. To commence and to continue litigation which you have no intention to bring to conclusion can amount to an abuse of process. Where this is the situation the party against whom the proceedings is brought is entitled to apply to have the action struck out and if justice so requires (which will frequently be the case) the courts will dismiss the action. The evidence which was relied upon to establish the abuse of process may be the plaintiff’s inactivity. The same evidence will then no doubt be capable of supporting an application to dismiss for want of prosecution. However, if there is an abuse of process, it is not strictly necessary to establish want of prosecution under either of the limbs identified by Lord Diplock in Birkett v James [1978] AC 297. In this case once the conclusion was reached that the reason for the delay was one which involved abusing the processing of the court in maintaining proceedings when there was no intention of carrying the case to trial the court was entitled to dismiss the proceedings.” (my emphasis)

53.  For the purpose of such discretionary power to strike out an action where the proceedings amount to an abuse, the act of commencing and then “warehousing” proceedings until it is a convenient time for a party to pursue them has been held to constitute such an abuse. [15]

54.  In Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 2 All ER 181, 188, having set out the principles in Birkett, Lord Woolf said the non-expiry of the limitation period did not figure to the same degree in a case where the proceedings which were being struck out constituted an abuse of process.  At that time the Civil Procedure Rules (“CPR”) were pending, but looking towards the future, Lord Woolf said at pp.191-192 as follows:

“The gradual change to a managed system which is taking placeimposed additional burdens upon the courts …… It was therefore in the interests of litigants as a whole, that the court’s time is not unnecessarily absorbed in dealing with satellite litigation which non-compliance with the timetables laid down by the rules creates. …… From now on it is going to be a consideration of increasing significance. Litigants and their legal advisers, must therefore recognise that any delay which occurs from now on will be assessed not only from the point of view of prejudice caused to the particular litigants whose case it is, but also in relation to the effect it can have on other litigants who are wishing to have their cases heard and the prejudice which is caused to the due administration of civil justice. The existing rules do contain time limits which are designed to achieve the disposal of litigation within a reasonable timescale. Those rules should be observed.

…… We think that the change in culture which is already taking place will enable courts to recognise for the future, more readily than heretofore, that a wholesale disregard of the rules is an abuse of process ……  While an abuse of process can be within the first category identified in Birkett v James it is also a separate ground for striking out or staying an action …… which does not depend on the need to show prejudice to the defendant or that a fair trial is no longer possible. The more ready recognition that wholesale failure, as such, to comply with the rules justifies an action being struck out, as long as it is just to do so, will avoid much time and expense being incurred in investigation questions of prejudice, and allow the striking out of actions whether or not the limitation period has expired ……”

55.  Notwithstanding Lord Woolf’s observations, Mr Lam suggests that I should exercise the discretionary power to strike out for abuse of process with circumspection.  He reminds that Woo VP in New China Hong Kong Group Ltd v AIG Asian Infrastructure Fund LP [2005] 1 HKLRD 383 regarded Grovit and Arbuthnot Latham Bank Ltd as “significant inroad” upon the Birkett principles in that the requirement to prove likely prejudice suffered by the defendant under the second limb in Birkett had been rendered unnecessary but might be regarded as an identification of a facet of abuse of process.  At pp.393-394, Woo VP went on to hold that mere delay without more would not amount to an abuse of process, but disobedience of a court order was capable of being regarded as contumelious conduct.  Where there was no disobedience of any court order, before inordinate and inexcusable delay in complete disregard of the rules of the court could properly be regarded as contumelious or abuse of process, there had to be full awareness of the consequences.  In addition, after being satisfied that the plaintiff’s conduct amounted to an abuse, the court still had to consider whether it would be fair to strike out the action.[16]

56.  New China Hong Kong Group Limited was decided before the CJR. Mr Chong refers me to the more recent decision of Reyes J in Nanjing Iron & Steel Group International Trade Co Ltd & ors v STX Pan Ocean Co Ltd & anor HCAJ177/2006, (unreported, 7 September 2009).  Like the present proceedings, that case was commenced before the CJR, but the application to strike out for want of prosecution was heard after the operation of the new rules.  The learned judge rejected the argument that because the action was commenced long before the CJR came into effect the new rules should not apply.  He went on to find that under the present CJR regime, in the absence of compelling reasons, it was contrary to the underlying objective in Order 1A rule 1(b) of the RHC for a party to allow an action to languish for 2 years once the same had been commenced, and this “would seem to [him] to be sufficient cause to strike out the claim”.

57.  Nanjing Iron & Steel Group International Trade Co Ltd has been considered by the Court of Appeal in Wing Fai Construction Co Ltd [2010] 3 HKC 593.  The facts in that case are peculiar in that the period of delay occurred and the summons to strike out was taken out well before the CJR. The Court of Appeal pointed out that the underlying objective in Order 1A rule 1(b) of the RHC was not a rule which required a specific act to be done as such, and there was no specific rule relating to striking out for want of prosecution following the CJR, so the matter was still an exercise of the inherent jurisdiction of the court.  Whilst the RHC currently in force was applicable to the case, in circumstances where the period of delay occurred and the summons to strike out was taken out well before 2 April 2009, the matter of delay had to be considered in the context in which it occurred with reference to the principles applicable at the relevant time.  A party could not be blamed for not observing a rule that did not exist at the relevant time.  The Court of Appeal disagreed insofar as Nanjing Iron & Steel Group International Trade Co Ltd would indicate otherwise.

58.  But where the period of delay or part thereof occurs and the summons to strike out is taken out after the CJR, it is useful to take note of the Court of Appeal’s observations at p.597 that “[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”.

59.  In my view, there cannot be closed categories of abuse of process or any hard and fast rules because procedural and substantive justice must reflect contemporary values and must take into account the particular circumstances of the case.  With the advent of the CJR, there is a wider role for the doctrine of abuse of process to control dilatory conduct. Change in the litigation culture towards active case management and greater control by the courts of their processes bring into focus Lord Woolf’s observations in Arbuthnot Latham Bank Ltd.  Thus, in respect of post-CJR delay, the principles in the older cases, including Woo VP’s concerns in New China Hong Kong Group Limited over possible “inroads” upon the Birkett principles, now fall to be considered in such light.

60.  For this, I draw support from Securum Finance Ltd v Ashton & anor [2000] 3 WLR 1402, the post-CPR sequel to Arbuthnot Latham Bank Ltd, which held that the approach of the courts in deciding whether to strike out a second action after the first one was struck out for delay reflected a different attitude to the older cases.  At p.1413 Chadwick LJ endorsed the “change in culture” which had taken place for the last 3 years, and confirmed that the effect on other litigants in respect of delay in the proceedings in which that delay had occurred was a factor to which the court must have regard when considering whether to strike out those proceedings.

61.  In Hong Kong, post-CJR changes to the court’s approach towards the conduct of litigation bring into focus the effect of how the parties’ conduct of proceedings after 2 April 2009 has on the courts and other litigants.  Due recognition should be given to the underlying objectives and to the public interest in efficient use of court resources. Where a litigant demonstrates disregard for the orders or procedures of the court, his failure to take procedural steps and other delay in the conduct of proceedings are capable of constituting abuse of process, and the court may strike out the claim if it is fair to do so.  This is in line with the observations in Nanjing Iron & Steel Group International Trade Co Ltd and Wing Fai Construction Co Ltd as applicable to post-CJR delay.

62.  Turning to Order 34 rule 2(2) of the RHC, it is common ground that Ps have not complied with the Setting Down Order to set down the action for trial by 12 December 2007, and the court is empowered to dismiss the action against D1 under such rule even though it is not bound to do so.

63.  According to Hong Kong Civil Procedure 2010 Vol.1 para.25/L/1 at pp.572-571 and para.34/3/4 at p.699, it is said that generally speaking the same principles are applied whether the court is acting under its express power or under its inherent jurisdiction, and the relevant principles for exercising the discretion under Order 34 rule 2(2) of the RHC are those set out in Chevalier (E&M Contracting) Ltdv Rotegear Development Ltd & ors [2005] 4 HKLRD 30, ie the jurisdiction will be exercised if it is shown there has been inordinate and inexcusable delay on the part of the plaintiff, which gives rise to prejudice to the defendant (eg there is substantial risk that it will no longer be possible to have a fair trial).

64.  Mr Lam submits that the relevant principles can be found in Costellow v Somerset County Council [1993] 1 WLR 256, 263-264 as cited by Nazareth VP in Po Kwong Marble Factory Ltd v Wah Yee Decoration Co Ltd [1997] HKLRD 1341, 1347-1348 [17]:

“…… The first principle is that the rules of court and the associated rules of practice, devised in the public interest to promote the expeditious dispatch of litigation, must be observed. …… This principle is reflected in a series of rules giving the court a discretion to dismiss on failure to comply with a time limit: …… Ord. 34, r. 2(2) are examples. This principle is also reflected in the court’s inherent jurisdiction to dismiss for want of prosecution.

The second principle is that a plaintiff should not in the ordinary way be denied an adjudication of his claim on its merits because of procedural default, unless the default causes prejudice to his opponent for which an award of costs cannot compensate. This principle is reflected in the general discretion to extend time conferred by Ord. 3, r.5, a discretion to be exercised in accordance with the requirements of justice in the particular case. ……

Neither of these principles is absolute. If the first principle were rigidly enforced, procedural default would lead to dismissal of actions without any consideration of whether the plaintiff’s default had caused prejudice to the defendant. But the court’s practice has been to treat the existence of such prejudice as a crucial, and often a decisive, matter. If the second principle were followed without exception, a well-to-do plaintiff willing and able to meet orders for costs made against him could flout the rules with impunity, confident that he would suffer no penalty unless or until the defendant could demonstrate prejudice. This would circumscribe the very general discretion conferred by Ord. 3, r.5, and would indeed involve a substantial rewriting of the rule. ……

…… But in the ordinary way, and in the absence of special circumstances, a court will not exercise its inherent jurisdiction to dismiss a plaintiff’s action for want of prosecution unless the delay complained of after the issue of proceedings has caused at least a real risk of prejudice to the defendant. A similar approach should govern applications made under Orders …… 34. Save in special cases or exceptional circumstances, it can rarely be appropriate, on an overall assessment of what justice requires, to deny the plaintiff an extension (where the denial will stifle his action) because of a procedural default which, even if unjustifiable, has caused the defendant no prejudice for which he cannot be compensated, by an award of costs. In short, an application under Ord. 3, r.5 should ordinarily be granted where the overall justice of the case requires that the action be allowed to proceed.”

65.  If the above represents the law on striking out under Order 34 rule 2(2) of the RHC, it is only appropriate that I turn to the second limb in Birkett in order to resolve the striking out application for want of prosecution under the inherent jurisdiction as well as under Order 34 rule 2(2) of the RHC. But do the above represent the law on the subject?

66.  In this respect, I make 2 initial observations. First, the above authorities are drawn from the pre-CJR regime.  Although the wording of the current Order 34 rule 2(2) of the RHC is the same as the pre-CJR version, question arises as to whether the discretion conferred by such rule should be viewed through the prism of the new rules.  Secondly, Ps’ delay in setting down the action for trial from 13 December 2007 to 8 July 2010 straddles both pre- and post-CJR periods. Indeed, the latter period of some 15 months (ie about half of the total period) cannot be said to be insubstantial.

67.  In my view, any pre-CJR delay has to be considered in the context in which it occurred with reference to the principles applicable at the relevant time, but for any post-CJR delay the parties are acting under a different regime so the court should not be constrained to make the same sort of decision as it would have to make under the old rules when exercising discretion whether to strike out or decline to do so under Order 34 rule 2(2) of the RHC.

68.  Order 1A rule 2(2) of the new rules enables the court to deal with cases justly, and an element of guidance is the underlying objective that requires the court to ensure that a case is dealt with as expeditiously as is reasonably practicable (see Order 1A rule 1(b) of the RHC).  The court seeks to give effect to such underlying objective when it exercises any powers given to it by the rules, and this necessarily applies to strike out under the new rules.  So if the court is called upon to consider whether or not to strike out a claim under the new rules where the period of delay or part thereof occurs on or after 2 April 2009, it is necessary to bear in mind not only the rationale for the exercise of discretion under Order 34 rule 2(2) of the RHC, which is to ensure that delay will not occur in the preparation for trial, but also the new litigation culture that delay outside the time limits imposed by the court rules and orders (which set out the framework within which the litigation has to be resolved) will not go unmarked.

69.  In my view, for post-CJR delay, there can be no hard and fast set of circumstances in which the court will strike out the claim or decline to do so under Order 34 rule 2(2) of the new rules.  As explained above, it depends on the intrinsic justice in each particular case in accordance with the underlying objectives and taking into account all relevant circumstances.  Further, it may be influenced by and to some degree restate the characteristics of the inherent power to strike out for abuse of process. Although the above approach does not mean that all previous factors or decisions should be jettisoned, it is normally relevant to consider the following matters:

(a) the length, reasons and responsibility for the delay;

(b) the degree to which the defaulting party has failed to observe the rules or court order;

(c)  the prejudice suffered by the innocent party as a result and whether an award of costs can adequately ameliorate that prejudice;

(d) the costs associated with the delay;

(e)  the effect of the delay on trial, eg whether it is still possible to have a fair trial;

(f)   the effect of the delay contributed by the defaulting party on other litigants and other proceedings;

(g) the conduct of the parties in relation to the action;

(h) other special factors relevant to the particular case;

(i)   whether the strike out sanction is proportionate.

70.  I am unable to accept any suggestion of quasi-entitlement to extension of time for post-CJR delay subject only to compensation for costs thrown away.  A late application to extend time for setting down an action for trial has a fairly high threshold to pass, and the innocent party’s unenviable position of having to defend litigation which the defaulting party seeks to reopen afresh to adduce new witness, documentary and/or expert evidence after substantial delay in setting down for trial can of itself amount to a prejudice.  In this respect, I draw analogy from the learned observations by A Cheung J on late application to introduce new evidence:

“Talking about prejudice, I do not accept that in this new era, the fact that the innocent party can ask for an adjournment (even if one that is to be paid for by the other side) would mean that there is no prejudice. Equally, the fact that a party, not wanting to lose a hearing date, refrains from asking for an adjournment, does not mean there is no prejudice. The unenviable position that such a party finds himself in is in itself a prejudice.” [18]

71.  In Leung Catherine v Tary Limited HCPI 805/2007, Fung J (unreported, 12 October 2009), the action had not been set down for trial after 3 CLR hearings, and belated applications for expert evidence and amendment of pleadings were made at a case management conference.  The learned judge highlighted the need for prompt compliance of any order for setting down for trial by saying at para.15 that “[as] for the future, I suggest the Master should consider making an unless order for setting down to be sanctioned by dismissal of the action once it is concluded that the case preparation is complete and sealed with an order of no further evidence without leave”.

72.  In Aon Risks Services Australia Limited v Australian National University [2009] HCA 27 (5 August 2009), a decision of the High Court of Australia, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ said as follows:

“111. An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend. Statements in [Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146] which suggest only a limited application for case management do not rest upon a principle which has been carefully worked out in a significant succession of cases. On the contrary, the statements are not consonant with this Court’s earlier recognition of the effects of delay, not only upon the parties to the proceedings in question, but upon the court and other litigants. Such statements should not be applied in the future.

112. A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate.

113. In the past it has been left largely to the parties to prepare for trial and to seek the court’s assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy. It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings.

114. Rule 21 of the Court Procedures Rules recognises the purposes of case management by the courts. It recognises that delay and costs are undesirable and that delay has deleterious effects, not only upon the party to the proceedings in question, but to other litigants. The Rule’s objectives, as to the timely disposal of cases and the limitation of cost, were to be applied in considering ANU’s application for amendment. It was significant that the effect of its delay in applying would be that a trial was lost and litigation substantially recommenced. It would impact upon other litigants seeking a resolution of their cases. What was a “just resolution” of ANU’s claim required serious consideration of these matters, and not merely whether it had an arguable claim to put forward. A just resolution of its claim necessarily had to have regard to the position of Aon in defending it. An assumption that costs will always be a sufficient compensation for the prejudice caused by amendment is not reflected in r 21. Critically, the matters relevant to a just resolution of ANU’s claim required ANU to provide some explanation for its delay in seeking the amendment if the discretion under r 502(1) was to be exercised in its favour and to the disadvantage of Aon. None was provided.”

73.  Whilst these observations concern a late application to amend a pleading, they have been made in the context of court rules which in effect provide that the rules, processes and procedures of the court are to be applied to attain the just resolution of disputes, the efficient use of court resources and the timely disposal of litigation at a cost affordable to litigants, which principles echo the underlying objectives in our new rules.  In my view, the above observations are of general application.

74.  Ultimately, I think there is little inconsistency between the older authorities and Order 1A of the RHC subject to the caveat that the parties’ conduct of the proceedings before 2 April 2009 has to be assessed in accordance with the rules which were then applicable and their conduct on or after 2 April 2009 has to be viewed in accordance with the new rules having regard to the underlying objectives and other provisions in Order 1A of the RHC.  Indeed, the Court of Appeal in Wing Fai Construction Co Ltd reminded that although there was a marked difference between a rule which required a particular act to be done and a rule which set out an underlying objective or guiding principle, “[following] the introduction of the [CJR], 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” (p.597).

75.  With the above principles in mind, I turn to consider the application for striking out for want of prosecution and for abuse of process of the court, and then return to the exercise of discretion under Order 34 rule 2(2) of the RHC.

XI.  WANT OF PROSECUTION

76.  The court has inherent jurisdiction to dismiss an action for want of prosecution if there has been default in complying with the rules and/or court order or excessive delay in the prosecution of the action.  The question here is whether Ps’ claim against D1 should be so dismissed.

(a)  Delay

77.  Ps’ last step in the proceedings (ie filing their Supplemental List of Documents on 3 October 2008) was taken almost a year after the Setting Down Order.  Between 4 October 2008 and 8 July 2010 (ie about 20 months), Ps have not initiated any step in the proceedings to pursue their claim.  To make it worse, they have failed to set down the action for trial since 13 December 2007 (ie over 2½ years ago) or to seek any extension of time to do so until the Ps’ Summons on 9 July 2010.  Rather it was D1 who has taken the initiative to file the Proceed Notice and to take out the 1^st Summons on 5 May 2010.

78.  Mr Lam confirms that although Ps will not concede there has been inordinate and inexcusable delay, he will not make any submissions against such proposition.

79.  The only explanation for the delay comes from Madam Leung Shuk Yee Pauline (Mr Lee’s personal assistant, “Madam Leung”) in her affirmation in opposition filed on 3 June 2010.  She deposes that at the time of preparing the case for setting down for trial after the Setting Down Order, Ps have been advised to apply for leave to adduce expert evidence to assist the court to assess damages, so they have been “looking for an accounting expert to provide opinion on assessing damages.”

80.  However, in Ps’ Checklist filed for the CLR hearing before Master Lung on 31 October 2007, Ps’ solicitor has confirmed that (a) all steps which ought to be taken to prepare the action for trial has been duly taken and completed without need to deal with any further interlocutory matter, and (b) no expert witness will be called.  Plainly, prior to the Setting Down Order there has been no thought of any need for expert evidence.

81.  Ps’ Checklist confirms that counsel’s advice will be obtained within 42 days after the Setting Down Order.  Further, the Setting Down Order requires the present action to be set down for trial by 12 December 2007.  When viewed against such background, Madam Leung’s allegation that Ps has received advice to seek leave to adduce valuation expert evidence “[at] the time of preparing the case for setting down” suggests that such alleged advice should have been received by 12 December 2007.

82.  But when D1’s solicitors wrote to Ps’ solicitors on 21 May and 3 June 2008 to query whether Ps have set down the action for trial, Ps’ solicitors replied on 6 June 2008 saying inter alia as follows :

“Leave was granted to set the case down.  However, for the purpose to better inform the Court of the dispute between the parties, [Ps’ solicitors] are advised by [Ps’] Counsel to discover annual reports and relevant announcement (“the Documents”) of [D1]. [Ps’ solicitors] shall apply for further leave to set the case down soonest after the Documents are obtained.”

There has been no intimation at all of any need for valuation expert evidence before setting down the action for trial “soonest” even though Ps have already received advice from counsel by that time.  According to Ps’ legal advisers, the only outstanding matter is the discovery of D1’s annual reports and announcements.  Ps’ Supplemental List of Documents disclosing such annual reports has been filed about 4 months later on 3 October 2008, but Ps have not taken any further step towards seeking leave for valuation expert evidence or seeking time extension for setting down the action for trial until Ps’ Summons on 9 July 2010.

83.  Bearing in mind that Ps have been legally represented all along, I find Madam Leung’s explanation that Ps have been looking for an accounting expert pursuant to legal advice received both incredible and unconvincing.  This view is bolstered by the absence of any or any cogent explanation for Ps’ procrastination for over 2 years or more in (a) applying for leave to adduce expert evidence, (b) obtaining any valuation expert opinion from an accounting expert and/or (c) seeking leave to adduce further witness and documentary evidence when (i) they have already sought counsel’s advice, (ii) resurrected the action in 2008 to discover and disclose D1’s annual reports and (iii) indicated as early as in mid-2008 that they will seek leave to set down the action for trial “soonest”.  There is also absence of any prior intimation to D1 of the above matters or of any difficulty in locating an accounting expert.  The hollowness of Madam Leung’s explanation is further highlighted by Mr Lam’s confirmation at the hearing that Ps have engaged Mr Benny Kwok as valuation expert to provide expert opinion on the loss in value of their shareholding in the Company only after D1 has taken out the 1^st Summons.

84.  Mr Lam submits that recently he has been asked to and has completed a review of the evidence of the present case, which has resulted in directions being sought vide Ps’ Summons.  In my view, the recent involvement of Mr Lam only serves to detract from the reliability of Madam Leung’s explanation for the delay.  I am firmly of the view that the periods of inaction by Ps since the Setting Down Order and since their Supplemental List of Documents amount to inordinate and inexcusable delay.

(b)  Prejudice

85.  Mr Chong fairly accepts that for the purpose of the Amended 1^st Summons, D1 will not rely on the ground that there will not be a fair trial of the issues in the action.

86.  Madam Wong in her affirmation states that as a publicly listed company D1 is required under the Listing Rules to make disclosure of any information that will materially affect its share price, so D1 has disclosed the present claim in its annual reports and considerable time and costs have been incurred for complying with the Listing Rules.  Madam Wong claims that as a result, potential investors and bankers are fully aware of such claim, and the size of such claim (ie for loss and damages of some HK$76,800,000.00 being about 50% of D1’s market capitalisation of about HK$152,000,000.00) hanging over D1’s head has put off some investors and bankers.  Madam Wong says she has had discussions with various bankers, including Mr Spenser Yeung (Vice President of Hang Seng Bank Limited) and Ms Ingi The (Assistant Vice President of The Hongkong and Shanghai Banking Corporation Limited) who have expressed concerns regarding the present litigation, “which would affect [D1’s] application for raising finance with those banks”.  Moreover, some strategic investors, including Mr Victor Lam (Managing Director of Jimei Investment Holdings Limited), have also raised concerns about the present litigation.  Madam Wong claims the above instances show that D1’s business has been seriously affected in terms of its investment opportunities and capabilities of attracting investment and finance, and the delay has caused D1 serious prejudice, inconvenience, embarrassment and adverse reputation.

87.  On the other hand, Madam Leung takes the view that D1 has not suffered any prejudice as evident from D1’s 2009 annual report which states inter alia that:

“[with] the advice of [D1’s] external legal adviser, the directors are of the opinion that [D1] has no legal or financial obligations to [Ps] in that the [Preliminary Agreement] was superseded by the [Formal Agreement] and that [D1] was not bound by the [Formal Agreement]. The directors are of the opinion that [D1] will strongly refute and [D1] intends to vigorously contest the allegations and that the allegations are to be without merit and too remote to be held against [D1]. Based on legal advice, the directors are of the opinion that [D1] has a very good chance of successfully defending the case. The directors believe that the dispute can be settled without losses to be incurred by the Group and [D1], and therefore no provision for losses in this aspect has been made in these financial statements”.

Mr Lam submits that the alleged prejudice is nothing but general and vague assertions unsupported by documentary evidence.  Since D1 has not made any provision in its financial statements for the present litigation, its effect on D1 must have been minimal.  He further submits that any alleged prejudice is caused by the fact of the proceedings and not by the length of time required for completing them, so there is no causal link between any alleged prejudice and the delay.

88.  In my view, whilst I accept the fact that a defendant may suffer some prejudice from prolonged delay in an action which involves imputations against his reputation by itself may not necessarily provide a ground for striking out [19], there can be no doubt that prejudice in the Birkett sense that entitles a defendant to strike out an action is not confined to prejudice affecting the actual conduct of the trial, but includes, inter alia, prejudice to the defendant’s business interests. [20]  In Department of Transport v Chris Smaller (Transport) Ltd [1989] AC 1197, 1209, Lord Griffiths said as follows:

“…… there can be no doubt that if the defendants had been able to establish significant damage to their business interest, flowing directly from the culpable delay of 13 months after the issue of the writ, a judge would have been entitled to regard it as prejudice justifying striking out the action. I would, however, express a note of caution against allowing the mere fact of anxiety that accompanies any litigation being regarded as of itself a sufficient prejudice to justify striking out an action.” [21]

89.  In Mohamed Al-Fayed v Emanoeul Antiques Limited (unreported, transcript of judgment dated 23 July 1997) as cited by Au J in Cheung Sai Kit v Wong Chiu Kit, Eric HCA1611/2005 (unreported, 17 December 2009), Roch LJ referred to Department of Transport and confirmed that prejudice entitling an applicant to have an action struck out for want of prosecution included prejudice to his business interests.  Nourse LJ also said it had been authoritatively established that significant damage to the applicant’s business interests flowing directly from the inordinate and inexcusable delay (as distinct from the anxiety which prolonged litigation inevitably caused) was a sufficient ground of prejudice to justify striking out.  In that case, direct affidavit evidence that demonstrated significant prejudice was not contested by any affidavit filed on behalf of the plaintiff. It was held that where a businessman was sued for fraud or dishonesty and the action was protracted, it was a matter of common sense that the existence of such allegations must have had a grave and disruptive effect on his business.  This was endorsed by the learned judge in Cheung Sai Kit where the defendant affirmed that the plaintiff’s allegations of fraud against him in the proceedings adversely affected his reputation as a businessman and in turn affected his business and credit (eg reduction of his credit card limit and refusal of credit card application).  The learned judge noted that the evidence other than the reasons for lowering the credit card limit was not materially challenged, and concluded that the inordinate delay caused serious prejudice to the defendant.

90.  With the above principles in mind, I turn to the question at hand, ie whether the size of Ps’ claim hanging over D1 and the concerns expressed by potential financiers and investors “regarding the present litigation” amount to prejudice in the Birkett sense. 

91.  For prejudice to justify dismissal on Birkett basis, some additional prejudice, which need not be great but must be more than minimal, to the defendant flowing from the post-writ delay must be shown, and more than bald assertion that the delay has prejudiced the defendant is required.  “The prejudicial effect of delay depends largely on the nature of the issues in the case”, but “[there] had to be some indication of some specified prejudice on some specified issue”. [22]

92.  D1’s 2001 and 2003 annual reports show that it is a multi-media operator with varied interests including investments in the media-related industry.  It is a matter of common sense that D1 requires funding for its operations and investments (see the 2001 Report which records that D1 has raised approximately HK$87 million in order to strengthen its capital base for the various investments in the media-related business), and consequently there is a need to secure funding from financiers and/or investment in D1 by investors.  The fact that D1 believes it has a strong defence and has made no provision for the present litigation in its financial statements do not alter the fact that a substantial claim of about HK$76.8 million (about half its market capitalisation) against the company is within public knowledge, and therefore known to its potential financiers and/or investors.

93.  But I am not persuaded that the size of Ps’ claim of itself amounts to sufficient prejudice in the Birkett sense since this relates to the consequence of the litigation and not attributable to Ps’ delay.  Further, there is no affirmation evidence as to (a) whether Madam Wong has spoken with Mr Yeung, Ms The and Mr Lam before or after 12 December 2007, (b) whether ultimately D1 has been hindered in raising finance or has to put aside plans for expansion or not, (c) whether Hang Seng Bank Limited, The Hongkong and Shanghai Banking Corporation Limited and/or Jimei Investment Holdings Limited has offered finance to and/or investment in D1 in the end notwithstanding the concerns expressed by their representatives, (d) even if such banks and/or investment company have refrained from offering financing or investment, whether D1 has been able raise finance or attract investment from other sources nonetheless, and (e) how the expressions of concern by Mr Yeung and Ms The “affect [D1’s] application for raising finance with these banks”.  In the absence of such evidence, I am not satisfied there is sufficient evidence that the delay in resolving the claim has inhibited D1’s ability to raise finance and to attract investors over the period of delay or that it has caused additional prejudice beyond the consequence of the litigation itself.

(c)  Discretion

94.  Since I am not satisfied that D1 has shown sufficient prejudice in the Birkett sense, I will not exercise my discretion to strike out Ps’ claim against D1 for want of prosecution under the second limb of Birkett. But in deference to counsel’s submissions, I shall briefly deal with the time-bar issue.  The discussion on the time-bar issue below is premised on the Primary Case (which, as seen above, I do not accept).

95.  Madam Leung says Mr Lee’s witness statement confirms that Ps’ cause of action against D1 accrued in September 2002 because D1’s breach of contract occurred since then. Madam Wong says Ps’ cause of action for breach of contract accrued at the latest by December 2002. [23]  On either case the cause of action based on breach of contract is time-barred. But, contrary to what Madam Leung says, Mr Lam argues that D1’s obligation to provide finance is a continuing one, and since Ps and D1 remain in contractual relationship until Ps’ acceptance of repudiation and the termination of the Preliminary and Formal Agreements upon issuance of the Writ of Summons on 10 July 2006, time does not start to run until then and hence Ps’ claim against D1 is not time-barred.

96.  A key foundation of Mr Lam’s submission is the acceptance of repudiation upon issuance of the Writ of Summons so that time only starts to run in 2006.  But there is no such plea in the ASOC.  Although Mr Lam submits that the cause of action based on acceptance of repudiation is implicit in the pleading, he does not cite any authority for such proposition. On the contrary, Power J in giving the judgment of the Court of Appeal in Technoway Limited v Penmack Holdings Limited CACV183/1990 (unreported, 27 March 1991) stated as follows :

“21.  We are satisfied that acceptance of a repudiation must be pleaded and that there was no acceptance by HCB pleaded in the further amended Statement of Claim.  Such matters cannot be left to the perception of a party.  He is entitled to know with exactness what is alleged against him. ……”

In the circumstances, Ps’ cause of action as pleaded in the ASOC is based on breach of contract and not acceptance of repudiation.

97.  In support of his proposition that time does not start to run until 10 July 2006, Mr Lam relies on Halsbury’s Laws of England 4^th ed reissue Vol.28 para.865 at p.866 as follows:

“Where a party, in breach of his contractual undertaking, fails to perform a contractual obligation, the plaintiff’s cause of action will accrue on the date when the obligation should have been performed, notwithstanding that that failure was capable of rectification at a later date, unless the parties remain in a contractual relationship, in which case time will not start to run until the date when the relevant obligation becomes impossible to perform.”

98.  The authority for the above proposition is Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp[1979] Ch 384.  In that case, the solicitors failed to register an option to purchase the father’s farm for the claimant, but the claimant continued to consult the solicitors over a number of years as to whether he would exercise the option.  The damage occurred in 1967 when the father conveyed the farm to his wife with a view to defeat the option.  The claimant’s action against the solicitors commenced in 1972.  As regards the cause of action in contract, the question was (a) whether the solicitors had a duty to register the option within a reasonable time so that such duty was broken (ie the breach of contact occurred) once and for all when a reasonable time had elapsed or (b) whether the breach of contract was the non-performance of the solicitors’ obligation to register the option before a third-party acquired an interest so that the omission continued to bind the solicitors until the date at which it became impossible to perform.  In accepting the latter view, Oliver J said at p.435 that it was important to note that this was a case of simple non-feasance and “[so] far as the client is concerned, it is a matter of total indifference to him at what date the solicitor chooses to fulfil his contractual obligation …… [ie to take such steps as when necessary and practicable to ensure that the option was binding on the land into whosesover hands it might come before any third party acquired a legal estate] so long as it is effectively fulfilled”.

99.  On the other hand, Mr Chong relies on the principles in Bell v Peter Browne & Co [1990] 3 WLR 510. In 1978, the plaintiff in that case transferred the matrimonial home in the joint names of the plaintiff and his wife into the wife’s sole name on the basis that he would receive 1/6 of the gross proceeds of sale of the property whenever that sale occurred. But the solicitors took no step to protect his interest in the proceeds of sale, and no declaration of trust or mortgage was prepared or executed.  In 1979 the couple divorced, and in 1986 the plaintiff’s former wife told him she had sold the property and spent all the proceeds.  It was held that although the solicitors’ breach of contract was remediable by lodging a caution until the property was sold, time began to run from the date of the breach in 1978 and expired before issuance of the writ of summons in 1987.  Nicholls LJ said at pp.514-515 as follows:

“…… A remediable breach is just as much a breach of contract when it occurs as an irremediable breach, although the practical consequences are likely to be less serious if the breach comes to light in time to take remedial action. Were the law otherwise, in any of these instances, the effect would be to frustrate the purpose of the statutes of limitation, for it would mean that breaches of contract would never become statute-barred unless the innocent party chose to accept the defaulting party’s conduct as a repudiation or, perhaps, performance ceased to be possible.

For completeness I add that the above observations are directed at the normal case where a contract provides for something to be done, and the defaulting party fails to fulfil his contractual obligation in that regard at the time when performance is due under the contract. In such a case there is a single breach of contract. By way of contrast are the exceptional cases where, on the true construction of the contract, the defaulting party’s obligations is a continuing contractual obligation. In such cases the obligation is not breached once and for all, but it is a contractual obligation which arises anew for performance day after day, so that on each successive day there is a fresh breach. A familiar example of this is the usual form of repairing clause in a tenancy agreement. Non-repair for six years does not result in the repairing obligation becoming statute-barred while the tenancy still subsists. The obligation of the tenant or the landlord to keep the property in repair is broken afresh every day the property is out of repair ……

      …… Midland Bank Trust Co. Ltd. …… may be distinguishable on its facts. There the defendant firm of solicitors never treated themselves as functus officio in relation to the option.  They continued to have dealings with their client in respect of the unregistered option …… the instant case stands in marked contrast.  There is no suggestion that the defendants had any further contact with the plaintiff or his affairs after the conclusion of the divorce proceedings. That was more than six years before the writ was issued. ……”

100.  Here, the question is whether Ps and D1 have remained in contractual relationship (as in the case of landlord and tenant) so that time does not start to run until the date in which D1’s contractual obligation to provide finance becomes impossible to perform.

101.  In my view, the contractual obligation to provide finance “as may be required by the Company for operational and development needs” (see FA Clause 12) must have been time-sensitive so that the relevant funding will be provided as and when required to meet the needs of the Company.  The fallacy of Mr Lam’s argument that time does not run until 2006 is amply illustrated by the fact that the Company has ceased business altogether in 2004 and it would have been pointless for D1 to provide funding “for operational and development needs”, say, in 2006. It is abundantly clear from Madam Leung’s affirmation that in 2002 (ie long before 2006) the parties knew that there were accrued and unpaid operational costs of the Company for which D1 had not provided any funding (see paragraph 12 of the ASOC).  This is amply demonstrated by the Other HC Action commenced by Mr Lee against D2 for payment of the accrued operational costs incurred by the Company as well as for damages for breach of the Formal Agreement.

102.  Further, as shown in paragraphs 13-15 of the ASOC, by December 2002 Ps knew that D2 had sold its 51% shareholding in the Company to Macau Media, and that Ds had abandoned and transferred the operation and business of the Company to Macau Media (see also D1’s 2003 annual report).  In my view, this means that on the Primary Case, at the latest by December 2002, D1’s intention not to perform the Formal Agreement (ie not to provide funding and not to operate the Company) was already manifest, and unlike Midland Bank Trust Co Ltd there is no evidence of continued dealings between Ps and D1 as regards the provision of funding, the operation and business of the Company and/or the performance of the Formal Agreement thereafter.

103.  In my view, Ps’ cause of action against D1 accrued at the latest by December 2002 and their claim is by now time-barred.  In the circumstances, but for the fact that D1 has failed to show sufficient prejudice in the Birkett sense, I would have exercised my discretion to dismiss Ps’ claim against D1 for want of prosecution.

XII.  ABUSE OF PROCESS AND ORDER 34 RULE 2(2) OF THE RHC

104.  Since I have already dealt with the issue of abuse of process under Order 18 rule 19(1) of the RHC on the basis that it is plain and obvious that there is no arguable cause of action against D1, I shall for the purpose of this discussion assume there is a viable cause of action against D1 (which I disagree).

105.  Abuse of process connotes that the process of the court must be used bona fide and properly, and the court will prevent improper use of its machinery. [24]  The authorities suggest that a flaunting of the court rules with full awareness of the consequences and/or deliberate warehousing of claims to deal with when convenient and/or to continue with litigation with no intention to bring it to a conclusion entitles the court to draw the inference that the delay is due to an improper motive and therefore there has been an abuse of process.  However, this is not a necessary or ipso facto inference, and the court has to look at all the circumstances and not view the matter solely from the defendant’s perspective. [25]

106.  Mr Chong submits that Ps have all along been aware they never have any claim against D1 so the action has been brought for tactical reason in the hope that D1 will succumb to such frivolous action and come to some sort of compromise with them.  On the other hand, Mr Lam submits there has been mere delay only that does not amount to any abuse of process.  He further argues that because the Setting Down Order grants leave to Ps to set down the action for trial within 42 days and does not positively direct or require them to do so, the consequence of non-compliance of such order is not as serious.

107.  I disagree. I am not persuaded that under the Setting Down Order Ps can choose to set down the action for trial within 42 days or not. In my view, the Setting Down Order when considered in light of Order 34 rule 2 of the RHC applicable at that time is plainly unlike an order granting leave to the applicant, say, to file and serve a Reply to a Defence if so advised.  In the latter case, the applicant can choose whether to file/serve the subject pleading or not in the safe knowledge that any failure to do so does not amount to disobedience of the court order.  But Order 34 rule 2(1) of the old RHC provides that “[every] order made in any action which provides for trial before a judge shall …… fix a period within which the plaintiff is to set down the action for trial”.  Mr Lam does not dispute that the Setting Down Order has been made pursuant to such rule.  In my view, such rule plainly envisages that Ps will have to set down the action for trial within the time period specified in the Setting Down Order. The consequences of non-observance specified in Order 34 rule 2(2) of the RHC puts the matter beyond doubt. Here, by failing to set down the action for trial, Ps have defaulted in compliance with both the Setting Down Order and Order 34 rule 2 of the RHC.  As discussed, the consequences of such default have been spelled out in the rule itself (ie “the Court may order the action to be dismissed accordingly or may make such order as it thinks just”) and Ps have been legally represented all along, so they cannot claim to be unaware of the consequences of disobedience of the court rule or order. Yet Ps have not taken any positive step between 13 December 2007 and 8 July 2010 to apply for time extension to set down the action for trial.

108.  I have already discussed the incredible nature of Ps’ explanation for the delay.  The question is whether on the facts of the present case one can infer from the long and inexcusable delay as well as from the other relevant circumstances the lack of an intention or settled intention to bring this case to trial.

109.  In my view, as said by Lord Woolf in Grovit, Ps’ inactivity in taking any step to set down the action for trial for 2½ years (which is not an insubstantial period) amounts to prima facie evidence of their lack of intention to continue the action to a conclusion. [26]  Since mid-December 2007 there are no further outstanding case management steps save for discovery of D1’s annual reports and extension of time for setting down the action down for trial. In view of the nature of the dispute, I do not consider it should take 2½ years for Ps to issue a summons for time extension, especially when D1 has raised this very matter with them in mid-2008.  I agree with D1 and do not find the reason given by Ps to be valid.  What happened is that at the very brink of setting down the action for trial Ps balked at doing so, and although the ball was squarely within their side of the court they have done nothing to ward off a striking out application.

110.  In my view, it is obvious that Ps have no real intention of prosecuting to trial the action as constituted and the case is one that is dead in the water rather than having gone to sleep. [27]  In view of the lame excuses disclosed by Ps for the inordinate and inexcusable delay, I conclude from the evidence of objective conduct that the main reason why there has been a delay is a conscious decision made to “warehouse” this action.  For this reason, I agree with D1 that there has been disobedience of court order (ie the Setting Down Order) and wholesale failure to comply with the RHC (ie Order 34 rule 2 of the RHC) that cannot be cured by Ps’ Summons issued at the eve of the hearing of the Amended Summonses or by Ps’ recent activity in seeking advice from counsel and obtaining valuation expert opinion, which given the history of the proceedings I find to be late and desperate tactical steps in the hope of warding off D1’s striking out applications.

111.  Ps’ conduct therefore falls within that which the court has found to amount to an abuse of the court’s process and it is strictly unnecessary to consider whether there was substantial prejudice to D1 or whether the limitation period for Ps’ claim against D1 has expired.

112.  However, even after being satisfied that Ps’ conduct can amount to an abuse, the court still has to consider whether it is fair and just to strike out their claim against D1. [28]  Under such scenario, the fact that a plaintiff has abused the court’s process by maintaining an action which he has no intention to progress to trial is a weighty factor in favour of dismissal of the action.  Further, as discussed above, there is a not insubstantial period of post-CJR delay of some 15 months that needs to be viewed through the prism of the new rules.  In the new era under the CJR, it is not acceptable for Ps to set their own timetable and proceed with the litigation at their pace without regard to the timetable set by the court and to the underlying objective of progressing the case as expeditiously as is reasonably practicable.  Ps’ failure to restore the case for timely compliance with the Setting Down Order for the whole post-CJR period until 9 July 2010 has led to disruption of the court’s work. Disregard of court rules and orders inevitably leads to further applications for enforcement in one manner or another (such as D1’s present applications) or for bringing the subject action to trial (such as Ps’ Summons).  Such applications not only increase costs but takes up court time that should have been made available for hearing and disposing of other cases which need to be dealt with.  Taking these matters into consideration as well as all relevant factors for exercise of discretion under the inordinate and inexcusable delay ground discussed above, I dismiss the action herein against D1 for abuse of process in the Grovit sense.

113.  Further, bearing in mind the above discussions in relation to the exercise of discretion for striking out under Order 34 rule 2(2) of the RHC as well as all the circumstances of the present case and all the factors and considerations discussed above (including the absence of sufficient prejudice in the Birkett sense), I also dismiss the action against D1 pursuant to Order 34 rule 2(2) of the RHC.

XIII.  CONCLUSION

114.  I therefore order that Ps’ claim in the ASOC against D1 be struck out, and the action against D1 be dismissed.  There is no reason why costs should not follow event.  There be a costs order nisi that Ps do pay to D1 costs of the Amended Summonses and costs of the action between them (including all costs reserved, if any) with certificate for counsel to be taxed if not agreed.

115.  Mr Lam submits that D1’s entitlement to costs should be reduced due to their delay in taking out the striking out applications.  I am unable to accept such argument.  D1 has been successful in striking out Ps’ pleading on the basis of there being no viable claim against D1 and in dismissing Ps’ claim against D1 for abuse of process.  In my view, to deprive D1 of any aspect of costs under the costs order nisi when Ps maintained their pleadings and persisted in their claim against D1 and resisted the Amended Summonses even up to the hearing before me will be unfair. After all, the primary duty falls on Ps to raise a viable claim against D1 that can be properly maintained, and they have fallen short of doing so.

116.  I have also considered whether I should direct summary assessment of costs.  But since the costs order nisi covers costs of the action between Ps and D1 and there is some history in this matter given Ps’ delay in progressing the action to trial, I am of the view that usual taxation will be more appropriate.

___________________

[1]     Hong Kong Civil Procedure 2010Vol.1 para.3/5/9 at p.58 and Costellow v Somerset County Council [1993] 1 WLR 256, 264

[2]     Hong Kong Civil Procedure 2010 Vol.1 para.3/6/1 at p.58

[3]     Waddington Ltd v Chan Chun Ho (2008) 11 HKCFAR 370

[4]     see Bowstead and Reynolds on Agency 18^th ed para.8-001 at p.331

[5]     see also Inntrepreneur Pub Company (GL) v East Crown Limited [2000] 2 Lloyd’s Rep 611, 614-615, per Lightman J

[6]     Chitty on Contracts 29^th ed Vol.1 para.12-114 at pp.874-875

[7]     Hongkong & Shanghai Banking Corp Ltd v Kuan Tao Sheng & ors [1998] 2 HKLRD 585 applied in Team Glory Development Limited v So Luen Fai and all other occupiers of “Lot No. 2030A in D.D. 95, Ku Tung, N.T.” CACV 231/2008 (unreported, 12 February 2009)

[8]     Hong Kong Civil Procedure 2010 Vol.1 para.25/L/5 at p.575

[9]     Hongkong & Shanghai Banking Corp Ltd(supra) at p.591

[10]   Hong Kong Civil Procedure 2010 Vol.1 para.25/L/6 at p.575 and Ho Hip Lik & anor v Kwan Man Ho & ors [1996] 2 HKLR 184, 186

[11]   Lui Chun Kwong v Kier Hong Kong Ltd & ors [1995] 1 HKC 695, Chevalier (E&M Contracting) Ltd v Rotegear Development Ltd & ors [2005] 4 HKLRD 30, and Lee Hung Chiu Philip v Becton Dickinson Asia Ltd HCA2830/2000, Mr Recorder McCoy SC (unreported, 5 July 2007)

[12]   Kerry Foodstuffs Co Ltd v Phulsawat Navy Co Ltd [1999] 3 HKC 523, 527-528

[13]   Hong Kong & Shanghai Banking Corp Ltd(supra) at p.592

[14]   Trill & anor v Sacher & ors [1993] 1 WLR 1379, 1398-1399

[15]   Arbuthnot Latham Bank Ltd & ors v Trafalgar Holdings Ltd & ors [1998] 2 All ER 181, Formative Way Company Limited & anor v Lam Soon Warehouse Company Limited HCA5312/1992, Deputy High Court Judge Poon (as he then was) (unreported, 22 October 2001), Advaita Enterprises v Seafast Marine Transport Inc & ors HCCL241/1995 and HCCL158/1996, Chung J (unreported, 24 November 2001), South-east Asia Finance Company Limited v Tsui Luen On HCA1997/2000, Deputy High Court Judge A Cheung (as he then was) (unreported, 16 December 2002), Tam Chi Kok Gabriel, the sole judicial trustee of the estate of Fok Cho Min, deceased v Fok Eugenia alias Fok Lai Yim, the executrix of Wong Kim Ball alias Kimball Wong alias Kim Ball Wong, deceased HCA1859/1992, Deputy High Court Judge A Cheung (as he then was) (unreported, 12 June 2003), and Cheung Sai Kit v Wong Chiu Kit, Eric HCA1611/2005, Au J (unreported, 17 December 2009)

[16]   see also Chevalier (E&M Contracting) Ltd(supra) at pp.40-45

[17]   see also Computronics International (a firm) v PIFF Shipping Ltd [1997] 2 HKC 53

[18]   Wise Union Industries Limited v Hong Kong Science and Technology Parks Corporation HCAL12&13/2009 (unreported, 21 September 2009)

[19]   Trill & anor (supra) at p.1399 as cited in Hong Kong & Shanghai Banking Corp Ltd(supra) at pp.591-593

[20]   Hong Kong Civil Procedure 2010 Vol.1 para.25/L/7 at pp.576-577

[21]   see the cases cited in In re Samuel & Investors Ltd v CGL Investment Ltd HCCW 189&134/1983, Barnett J (unreported, 8 January 1991): President of India v John Shaw & Sons (Salford) Ltd (1977), Bridgenorth District Council v Henry Willcock & Co Ltd (1983), and Quartz Hill Consolidated Gold Mining Company v Eyre (1883)

[22]   Lui Chun Kwong (supra) at pp.704-703

[23]   Halsbury’s Laws of England 4^th ed reissue Vol.28 para.864 at p.446

[24]   Hong Kong Civil Procedure 2010 Vol.1 para.18/19/10 at p.399

[25]   see Advaita Enterprises(supra) at para.15

[26]   Cheung Sai Kit(supra) at para.17

[27]   see distinction drawn by Deputy High Court Judge A Cheung (as he then was) in South-east Asia Finance Company limited (supra) at paras.33-34

[28]   see Grovit v Doctor [1997] 1 WLR, 640, 647 and South-east Asia Finance Company Limited(supra) at para.35