HOI SING CONSTRUCTION CO LTD (in Liquidation) v. ITC CORPORATION LTD

HCA 11433/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11433 OF 1998

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J U D G M E N T

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Introduction

1.  I have before me a summons dated the 7^th July 2004 taken out by the Defendant to dismiss the action for want of prosecution, no step to progress it having been taken by the Plaintiff since the 25^th February 2000, being a period of four years and three months’ prior to the issue of the summons.

2.  I ought to first give a brief description of the nature of action which is a substantial one.  The Plaintiff, a company in liquidation, is claiming the sum of $297 million together with interest on this amount against the Defendant based on a guarantee purportedly given by the Defendant, on or before the 31^st December 1995, in relation to amounts owing to the Plaintiff by a related company of the Defendant being Hoi Sing Builders Limited (“Builders”).  In 1995 Builders was a non wholly-owned subsidiary of the Defendant, which itself has undergone two name changes since then.  In 1995 it was known as CEF Concord Holdings Limited (“CEF”) and later re-named Pacific Rim Infrastructure Management Enterprises Limited (“PRIME”).  By March 1997 Builders had become a wholly-owned subsidiary of PRIME.  In March 1997 PRIME sold its shares in the Plaintiff and Builders to Vogue Limited which is an unconnected company.  Following this sale three demands, in May and June 1998, have been made of the Defendant by the Plaintiff’s liquidators, under the alleged guarantee.

The Issues

3.  Central to this action is the very existence of the guarantee which takes this case out of the usual run of claims based on a guarantee, the full terms of which would be in writing and in a self-contained readily identifiable document.  Should this go to trial the court will be asked to infer the existence of the guarantee by reference to three documents in which it is mentioned.  These documents are; a letter dated the 29^th April 1996 from the Defendant to its auditors Ernst and Young [Bundle B:38:275-281] where at page 276 the following passage appears:

“In addition, the repayment of the balance due from Hoi Sing Builders Limited, a non-wholly owned subsidiary of the Company, to Hoi Sing Construction Company Limited (“Hoi Sing”), a wholly-owned subsidiary of this company as at 31^st December 1995 is guaranteed by the company.”

Secondly; Note 3 at page 12 of the Plaintiff’s audited accounts for the year-ended 31^st December 1995 [Bundle B:37:260] which is in these terms:

“3. Corporate Affiliation (continued)

The balance with the intermediate holding company is unsecured, bears interest at 5.5% (1994: prime plus 1.5%) per annum and has no fixed terms of repayment.  The intermediate holding company has undertaken not to demand repayment in the amount of HK$100,000,000 due to it prior to 31 December 1996.  Accordingly, this amount has been classified as a long term liability.  In addition, the non-current portion of the amount due to the intermediate holding was subordinated to all the present and future secured and unsubordinated obligations of the Company.

Included in the amount due from fellow subsidiaries was a balance of HK$77,921,204 (1994: HK$15,986,711) due from Hoi Sing Builders Limited which is unsecured, bears interests at 5.5% (1994: prime plus 1.5%) per annum and has no fixed terms of repayment.  The repayment of the amount due from Hoi Sing Builders Limited is guaranteed by the intermediate holding company.(emphasis added)

The balance with other fellow subsidiaries and the immediate holding company are unsecured, interest-free and have no fixed terms of repayment.”

and lastly in an Agreement for the Sale and Purchase of shares in the Plaintiff dated the 26^th March 1997 [Bundle B:39:283-310 at 291-292] which is expressed in this way:

“	4.4	Subject to clause 4.5, in consideration of the Purchaser entering into this Agreement, PRIME undertakes to assign and transfer to the Purchaser, on the Release Date (if and when such date occurs), any debt owing by the Company to PRIME at that time, being the aggregate of:
		4.4.1	the balance of the Construction Debt (being that amount of the Construction Debt which is not the Assigned Construction Debt); and
		free from any option, charge, lien, equity, encumbrance, rights of pre-emption or any other third party rights and together with all rights attached thereto.
	4.5	PRIME shall be under no obligation to effect any assignment under clause4.4 if an order is made for the winding up of the Company or any other action is taken prior to the Release Date which challenges the validity of the release of the Guarantee before the Release Date.
	4.6	If PRIME is satisfied that the Purchaser has procured the full and irrevocable release of the Guarantee it shall send written notice to the Purchaser to that effect, such notice to be given in accordance with clause 10.”(emphasis added)

Additionally, it is said on behalf of the Plaintiff that the guarantee has also been referred to in another document which at present has yet to be produced.

4.  The Respondents response, as pleaded, is to put the Plaintiff to proof of the existence of the guarantee as well as to claim a set-off in the sum of more than $318 million.  The Defendant had wished to have the set-off tried as a preliminary issue as long ago as July 1999, which could have had the effect of disposing of the whole of the action at an early stage.  That proposal was successfully opposed by the Plaintiff at a hearing before Godfrey J.  But now, after a lapse of 5 years, it is the intention of the Plaintiff to admit the Defendant’s set-off by amending the Statement of Claim to reflect that admission.  This appears from the affidavit of Mr David Kennedy sworn on the 29^th September 2004 for the purposes of this application.  The effect of this admission will be to reduce the size of the claim, on the Plaintiff’s calculation, to a relatively modest $40 million [Bundle A: 11 at 75].

5.  In referring to the issues raised in the pleadings Mr Neoh S.C., on behalf of the Defendant, whilst recognising that now is not the time to debate the substantive merits of the action, draws attention to the absence of any primary evidence proving the existence of the guarantee as well as what he describes as the commercial unreality of a listed parent company (the Defendant) guaranteeing a debt due by a non-wholly owned subsidiary (Builders) to another wholly-owned subsidiary (Hoi Sing).  This is particularly so in these circumstances when Builders eventually became a wholly-owned subsidiary and inter-group loans between subsidiaries would have been mutually set-off in the group accounts.  Mr Neoh suggests that it is in this restricted context that the notion of a guarantee has to be understood.  The Sale and Purchase agreement, to which I have already referred, and where a “guarantee” is mentioned is drafted in the way that it has been because there was doubt as to the existence of such a guarantee and as to its terms and effect.  So, submits Mr Neoh, and because this is so, if the existence of this guarantee is going to be proved it will be necessary to go beyond the few documents which I have referred to.  The oral evidence and recollection of those the operated Builders, Hoi Sing, CEF and PRIME and perhaps the audit staff who carried out the audits will be crucial.  To this extent the merits of the action, in the sense of how the claim will need to be proved, is of relevance in the application because, Mr Neoh submits, it should have been clear from the outset, to those conducting the action on behalf of the Plaintiff, that this was never going to be an action that could be tried on the documents alone but requires the testimony of witnesses whose recollections, of events long past, will be fundamentally important.

6.  This is an analysis to which I will need to return presently.

When and in what circumstances should an action be dismissed?

7.  The legal principles governing the exercise of the court’s discretion in such matters are well established and so I propose to take these shortly.  The difficulty always arises in the application of the relevant facts to those principles.

8.  The applicant for a dismissal must demonstrate that two distinct features are present.  Firstly, that the Plaintiff has been guilty of inordinate and inexcusable delay in prosecuting the action and that this delay has caused the Defendant prejudice or [either will do] has created a substantial risk that a fair trial is no longer possible.  See Birkett v. James (1978) A.C. 297.

9.  I take the question of delay first.  In respect of this ‘condition precedent’ to the exercise of the jurisdiction, Mr Maurellet for the Plaintiff, whilst not conceding the point has not really sought to press home any sustained submission that inordinate and inexcusable delay is not present in this case.  He has chosen to contest the matter on the second requirement relating to the consequent prejudice or substantial risk that a fair trial may not be possible.

10.  Delay will be considered inordinate when it is materially longer than the time usually regarded by the profession and the courts as an acceptable period for taking steps in the action.  To decide whether delay is inexcusable one needs to consider the period from the Defendant’s point of view or at least objectively.  [see Hong Kong Civil Procedure para. 25/L/6].

11.  As to prejudice and/or the substantial risk that a fair trial is no longer possible, such prejudice may take varying forms going beyond forensic prejudice affecting the conduct of the trial itself.  This includes, what is in part alleged here, prejudice to the Defendant’s financial or business interests.  A case in point is Department of Transport v. Chris Smaller (Transport) Limited (1989) A.C. 1197, per Lord Griffiths at 1209-1210 where he observed that:

“…there can be no doubt that if the defendants had been able to establish significant damage to their business interest, flowing directly from the culpabable delay of 13 months after the issue of the writ, a judge would have been entitled to regard it as prejudice to justify striking out an action.”

That having been said he also sounded a note of caution by referring to what he had said in the Court of Appeal in Eagil Trust Co. Ltd. v. Pigott-Brown (1985) 3 ALL ER 119,124;

“Any action is bound to cause anxiety, but it would as a general rule be an exceptional case where that sort of anxiety alone would found a sufficient ground for striking out in the absence of any particular prejudice.  Biss’s case is an example of such an exceptional case, the action hanging over for 11½ years, with professional reputations at stake.”

The situations where prejudice in its various forms may be shown are varied and must be judged according to the facts of the particular case before the court.

12.  Forensic prejudice that is most commonly relied on is that caused, by the effects of delay and the lapse of time, to the memory of the witnesses who will have to speak of events long past, which is also alleged in this case.

13.  A sub-branch of this jurisdiction (if I may so describe it) which will be appealed to following long delay appears as an aspect of abuse of process where a party starts an action but has no intention of bringing it to a conclusion.  The best example of this appears in the case of Grovit v. Doctor (1997) 1 WLR 640, 647F (House of Lords) per Lord Woolf.  This was a libel action started by the Plaintiff which for two years he had done nothing to prosecute.

“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 a 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 court will dismiss the action.  The evidence which was relied on to establish the abuse of process may be the plaintiff inactivity.  The same evidence will then no doubt be capable of supporting an application to dismiss for want of prosecution.  However, if there is in 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 process 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.”

This aspect was further considered and discussed in Arbuthnot Latham Bank v. Trafalgar Holdings Ltd. (1998) 1WLR; again by Lord Woolf, this time sitting as Master of the Rolls, in the Court of Appeal.  At 1437C-D he said that:

“Whereas hitherto it may have been arguable that for a party on its own initiative to in effect “warehouse” proceedings until it is convenient to pursue them does not constitute an abuse of process, when hereafter this happens this will no longer be the practice.  It leads to stale proceedings which bring the process of litigation into disrepute.”

What Lord Woolf was saying is to be understood against the background of the Civil Justice reforms, under his chairmanship, which were then in the process of being introduced in England and Wales.  That process is still at an embryonic stage in Hong Kong.  TheGrovit v. Doctor ground for striking out has very recently been considered by the Court of Appeal in Hong Kong, but before I refer to that case I should, because strong reliance is placed on this aspect of the courts power by the Defendant, refer to an earlier part of Lord Woolf M.R.’s judgment in Arbuthnot Latham at 1436H where he made clear that if abuse of process is made out it will not be necessary to investigate questions of prejudice.  He said:

“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 (see Grovit v. Doctor at pages 642-3) 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 the 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 of questions of prejudice, and allow the striking out of actions whether or not the limitation period has expired.”

14.  In New China Hong Kong Group Ltd and Anr. v. AIG Asia Infrastructure Fund LP and Ors. CACV 108/04.  The Court of Appeal examined the Grovit v. Doctor abuse of process means of striking out an action for delay.  It is not necessary to refer to the facts save to observe that this was a case involving delay by the Plaintiffs.  For the purposes of the appeal the Plaintiffs went so far as to accept that the delay was both inordinate and inexcusable.  It is quite clear from a reading of the judgments (Woo VP and Stone J.) that the Court of Appeal was very anxious to make it clear that the Grovit v. Doctor route was to be restricted to cases of an exceptional nature.  Stone J at paragraph 66 of his judgment (in this as yet unreported but important decision) put it in this way;

“…unless the Grovit v. Doctor line of argument is confined to those instances which are patently abusive of the process, and may be demonstrated to be so, there is a danger that the time-honoured and established Birkett v. James doctrine – in terms of inordinate and inexcusable delay coupled with consequent prejudice – in effect will be emasculated by the back door, with the result that undue and inordinate delay, leading to inference of intention to prosecute the action no further, and hence characterisation as an abuse of process, will be sufficient to get home on a strike out in the absence of the required element of prejudice.”

At paragraph 69 he was for adopting the approach of Auld LJ in Miles v. McGregor (unrep.) C.A. 23^rd January 1998, which Auld LJ expressed in this way:

“The emphatic articulation and the application by the court in Choraria v. Sethia (1998) CLC 625 C.A. of this quite separate power to strike out proceedings for wholesale disregard of procedural rules because it constitutes an abuse of process of this court should not however be taken as a ready alternative to the courts power to strike out an action for inordinate and inexcusable delay.  The abuse of process route is for cases of an exceptional nature where the conduct of the party in default amounts to an affront to the court and to its rules.”

15.  I propose to adopt that cautionary analysis of the Grovit v. Doctor approach in my examination of the timetable in this matter to determine whether it is appropriate, as Mr Neoh suggests it is, to invoke this jurisdiction which would not require any examination as to whether the Defendant has suffered what would otherwise be the requisite prejudice as explained in Birkett v. James.

16.  Before I turn to the chronology in order to examine whether a strike out is warranted I should first observe that the limitation period has now expired.  It has expired on either view of the matter.  Firstly, in the absence of any evidence as to whether the cause of action under the guarantee would accrue upon making a demand for repayment (the period would have expired on the 31^st December 2001.  Secondly, even if the guarantee was a ‘demand’ guarantee, the period would have expired on the 9^th December 2004, six years after the date of the last demand made by Hoi Sing.  The consequence of this therefore is that if I strike out the action Hoi Sing will be time-barred from bringing a new claim on the guarantee, which is highly relevant to the exercise of my discretion, because the defendant will, therefore, have an unanswerable defence to a new action. [See Lord Diplock in Birkett v. James supra at 319H-322E].

The Chronology

17.  I have been helpfully provided with a detailed chronology prepared on behalf of the Defendant.  I propose to attach it to this judgment so that reference may be made to it as and when it becomes necessary to do so.  For the purposes of deciding whether the delay has been inordinate and inexcusable I intend to refer to such events in the chronology as may be required and make such comment as I need to in order to explain my reasoning.  For present purposes I take the attached chronology as read. 

Delay – inordinate and inexcusable?

18.  The writ came on the 10^th July 1998, there having been demands made by the liquidators under the alleged guarantee in May and June that year.  Prior to that, on the 28^th November 1997 the Defendant had proved in the Plaintiff’s liquidation in the sum of $308,207,367.98.

19.  The writ was acknowledged by the Defendant on the 23^rd July 1998 which filed its Defence on the 1^st September 1998.  The reply and a request for further and better particular of the Defence came quickly thereafter on the 15^th September 1998.  At that initial stage the Plaintiff conducted the litigation with commendable diligence and dispatch.

20.  In November 1998 the liquidators started Preference Proceedings in the Companies Court (HCCW 356/97) and in December 1998 they admitted the Defendant’s proof of debt in the liquidation to the extent of $257,662,316.15 which represented 95% of all creditor claims against the Plaintiff which the liquidators felt able to admit.  This represents the first six months immediately following the issue and service of the writ.

21.  In 1999 the matter proceeded at a more leisurely, but perfectly acceptable, pace including the hearing and dismissal, on the 4^th August, by Godfrey J., of the Defendant’s application to hear its set-off as a preliminary issue.  On the 10^th June 1999 Master Poon made orders on the Summons for Directions which included the exchange and filing of witness statements and the exchange of lists of documents.  That list came on the 25^th February 2000 which, as I observed at the outset, is the last step taken by the Plaintiff in the action.

22.  I will need to consider the explanation put forward on behalf of the Plaintiff for this inactivity in a moment.  In doing so, I will be able to come to a conclusion as to whether the delay has been inordinate and inexcusable, and if that is so to decide, on what will be a totality of the relevant evidence, whether the case is one of these ‘exceptional ones’ which would justify a description of the Plaintiff’s conduct of the litigation as an abuse of process of the Grovit v. Doctor type which merits it being struck out without the necessity of going on to decide whether such delay has resulted in prejudice to the Defendant of the type required in Birkett v. James.

23.  For the sake of completeness, in respect of the chronology, I should note that the Defendant filed supplemental lists of documents in April and July 2000.  In March 2001 the Plaintiff’s Preference Proceedings were dismissed.  In May 2001, the Defendant made an offer to settle the action which was rejected, but not until March 2003.  In July 2003 a second offer was made by the Defendant which was rejected in October that year.  On the 9^th June 2004 the limitation period had expired on any view of the facts and on the 7^th July 2004 this summons was taken out.

What has the Plaintiff been doing since February 2000?

24.  Although Mr Maurellet has not pressed the issue of delay this needs to be examined in order to decide the Grovit v. Doctor ground.  Mr Neoh has addressed me on the six matters raised in the Plaintiff’s evidence which are said to provide some explanation or justification for the delay.

(a)	without prejudice negotiations – offers of settlement.
	It is common ground that for these purposes I am entitled to look at the ‘without prejudice’ correspondence prior to the issue of this summons, which I have.  The first offer came in May 2001 from the Defendant to the effect that it would reduce its claim in the liquidation to $200 million (a considerable reduction from the $297 million that was actually claimed) provided the Plaintiff withdrew all its claims against the Defendant, its directors, servants and employees.  No response was received until 22 months later on the 18th March 2003 rejecting the proposal.  A second offer to settle came on the 7th July 2003.  This was rejected seven months later in October 2003.  In relation to these negotiations, Mr Neoh draws attention to the very slow pace at which the Plaintiff has conducted these and that in any event it was the Defendant who has taken the constructive approach in making the offers with hardly anything from the Plaintiff as a counter offer.  Given this timetable and the paucity of enthusiasm from the Plaintiff to offer anything constructive (clearly the parties were very far apart) it is difficult to find anything in the negotiations which can explain or excuse the delay of 4 years and three months in which the Plaintiff has done nothing to advance the litigation.
(b)	Scarcity of funds
	Mr Kennedy in his affidavit [paras. 14-16 A:11:0072] cites lack of funds as a reason for not pressing on with the action with more vigour.  Reliance is placed on Hymer v. MTRC [2000] 2HKRLD589 by Mr Neoh where Ribeiro J.A. at 607G-608B observed that
	“…where a plaintiff … is unable to advance his litigation because of lack of funds, there is likely to come a time when his action has to be struck out for want of prosecution.”
	Mr Neoh seeks to emphasise this in relation to an insolvent Plaintiff.  He submits that a liquidator should be careful before starting proceedings.  He should have regard to the cost benefit of any action before he brings it.  Unacceptable risks should not be taken with the Company’s assets by engaging in risky and costly litigation where there is no real prospect of success.  Once the liquidators start their action they should proceed with due diligence having regard to their duties to the body of creditors as a whole.  This, complains Mr Neoh, has not happened in this case.  They have sat on the matter for all of this time notwithstanding the fact that, contrary to Mr Kennedy’s plea that funds have been short, the liquidators’ had brought in $47 million between October 1997 and February 2001 which would have been sufficient to press on with the action.  Instead of doing so the liquidators’ decided to pursue another claim, referred to here as the King’s Road Arbitration, which has been time consuming and, in terms of cost benefit, to little effect.  Mr Neoh submits that this is indicative of where their priorities lay and is also indicative of the fact that the liquidators have no intention to bring these proceedings to a conclusion – a matter supporting his Grovit v. Doctor abuse of process argument.
(c)	Shortage of funds caused by the Defendant
	If this could be demonstrated it would go a long way to excuse the lack of progress caused by a shortage of money to fund the litigation.  Nevertheless, I am satisfied that this cannot be supported.  The liquidators started fraudulent Preference Proceedings against the Defendant which were dismissed for lack of evidence by Deputy Judge Kwan (as she then was) as long ago in March 2001 and no action was taken by the liquidators against Mr Tom Lau one of the Defendant’s directors.
(d)	Missing Records and Computer Hard Discs
	This is a serious allegation against the Defendant that it has caused the removal of accounting records which has hampered the preparation of the case.  Apart from the insufficiency of the evidence to support such a claim there would also appear to be no causal link between the actual removal of the information and the Plaintiff’s inability to prosecute the action.  The allegations were first made in September 1998, there are two affirmations to this affect, which is when the action started and yet the Plaintiff was still able to proceed with the action with commendable speed.  In any event this cannot and does not explain why the Plaintiff has done nothing in the action after February 2000.
(e)	The obtaining of advice from specialist London Counsel
	This relates to advice on the issue of the Defendant’s set-off, which was no doubt a pressing and important aspect of the action as a whole.  Nevertheless, it simply cannot now be used as an excuse or explanation for the lack of progress since February 2000.
(f)	Change of solicitors
	This too cannot justify the substantial delay in the case.  Ma J.’s (as he then was), remarks in China Link Construction Co. Ltd. v. China Insurance Co. Ltd (2002) 1HKLRD 844, 865 E-F are apt;
	“…it is of course, the Plaintiff’s privilege to change its legal team, but this is no excuse for causing delay to the Defendant.”

25.  The Plaintiff’s inactivity, even having the most generous regard to the explanations and excuses that have been put forward, can only admit of one conclusion which is this amounts to inordinate and inexcusable delay.  From this conclusion it is convenient to first consider whether this should properly be characterised as an abuse of process of Grovit v. Doctor proportions which would justify a dismissal of the action without a consideration of whether the delay has caused the Defendant prejudice of the type required under Birkett v. James.

Abuse of Process?

26.  The principal way in which this is put against the Plaintiff is that these proceedings were started with no, or no definite, intention to bring them to a conclusion.  Mr Kennedy speaks at paras. 15-16 of his affidavit [A:11:0072] of the prosecution of this action being contingent upon the King’s Road arbitration being resolved in the Plaintiff’s favour.  If the Plaintiff did not have the financial wherewithal to proceed with the action in a reasonably timely fashion as contemplated by the Rules it should not have started it in the first place.  The allegation is that the action has been ‘warehoused’ until it is convenient to proceed with it (see Arbuthnot Latham supra.).  Now that $5 million may be available to the liquidators from the King’s Road matter, it will become possible to remove the action from the ‘warehouse’ and proceed with it.  Without this amount of $5 million available the action could not proceed and so that is why Mr Neoh says that, between February 2000 and now, there has been ‘no definite intention’ to progress to trial.

27.  Another allegation under this heading relates to how this deliberate delay by the Plaintiff has served an ‘ulterior purpose’.  In the course of the negotiations to explore settlement the Plaintiff’s then solicitors Simmons & Simmons, in a letter dated 11^th December 2000 [B:45:0367-0370], suggested that if this action were successfully defended the liquidators’ would pursue other proceedings against the Defendant, its directors and other senior employees, involving allegations of fraud and other improper conduct.  It was for this reason that the Defendant sought to protect itself by seeking an overall settlement which would have prevented the bringing of another action of this latter type.  Mr Neoh suggests therefore that this being the liquidators approach it served them to keep this action alive in the hope of keeping pressure on the Defendant and its directors in order to force an advantageous settlement out of the Defendant.  The Plaintiff has, he says, deliberately used its inactivity in this action as a means of applying illegitimate pressure on the Defendant and its directors.  In this regard attention has been drawn to Mohamed Al Fayed v. Emanouel Antiques Ltd (1997) EWCA Civ. 2171.  Whilst I can understand the reason why this case is relied on by Mr Neoh and the principle to be drawn from it, I do not believe that the evidence in the instant case comes anywhere near the rather crude and obviously illegitimate motives employed by Mr Al Fayed in that case.  And so even before I come to Mr Maurellet’s response to this part of the case I am able to indicate that this part of the argument by Mr Neoh must fail.  As I read the correspondence and having regard to the evidence as a whole I do not believe that one can ascribe to these liquidators the bad-faith or motive, for this is what the complaint amounts to, that had been demonstrated in the case of Al Fayed.   All they were doing was seeking to get the best settlement overall that they could achieve and so this does not take them out of the usual run of hard commercial negotiation.  Lastly, reliance is placed on the contumelious disregard of Master Poon’s order for exchange of witness statements in June 1999.  Mr Neoh submits the liquidators have had no interest to get on with the action despite repeated requests to do so.  All of these features are said to amount to an abuse of process which should now be disciplined by the ultimate sanction of a striking out.

28.  Mr Maurellet, in reply, draws attention to China Hong Kong v. AIG, to which I have already referred.  The Court of Appeal in that case has emphasised that delay simpliciter would not amount to an abuse of process.  It is still necessary to consider whether it would be fair to strike out even if the delay (inordinate and inexcusable) in complete disregard of the Rules and knowing of the consequences, constituted an abuse of process (per Woo VP).  Mr Maurellet also draws attention to steps taken such as taking a London Silk’s opinion and a change of solicitors, which would not be reflected in the court file, are matters to which regard can be had in deciding whether it is really a case of having no definite intention of pursuing the matter to trial so as to ‘qualify’ for the ultimate sanction of a strike out.  Mr Maurellet also draws attention to the fact these grave allegations are being made against court-appointed liquidators who operate under the supervision of a Committee of Inspection.  As liquidators they do not have the same vested interest as a personally involved litigant, be it an individual or a corporate entity backed by shareholders and directors, all of whom have a personal interest to serve.  Mr Maurellet further submits that I should be very slow, in the absence of actual and compelling evidence, to say that the liquidators have abused the process of the court.

29.  I have come to the conclusion that on this limb Mr Maurellet is right.  Whilst it is inescapable that the liquidators have done nothing to progress the matter for over four years, they have done some things in the action such a seeking advice from London which is not reflected in the court file.  This is a bad case of delay – that in itself is not enough in these circumstances.  I have acquitted the liquidators of the charge of having a collateral motive in keeping the action on the back-burner.  Had I concluded that bad motive existed, I daresay that this would have put a different complexion on their conduct of the action.  I am not disposed to say that this conduct by them amounts to abuse of process and so I decline to strike out the action under this head.  Accordingly, I must now go on and consider whether the requisite degree of prejudice consequent on the delay is present.

Prejudice

30.  In this regard Mr Neoh makes his submissions under three principal headings.  Firstly, that the delay has had an adverse effect on the Defendant’s business.  At paragraph 11 above I have referred to Department of Transport v. Chris Smaller (Transport) Ltd. where Lord Griffiths observed that proven significant damage to a Defendant’s business interest flowing from, in that case culpable delay of 13 months after issue of the writ, could have justified a striking out.  His remarks in the Court of Appeal in Eagil Trust v. Pigott-Brown (also referred to at paragraph 11) should also be noted to the effect that anxiety alone in the absence of any particular prejudice would not usually justify an order. 

31.  In this matter Mr Neoh refers to the fact that in this big claim the Defendant has been compelled, since 1998-2003 to include in its Financial Statement a summary of the action, which he says provides a reasonable basis for the Defendant’s concern that the action is having a depressive effect on its share price.  Had the matter proceeded with due expedition this would not have been the case and everybody would have known where they stand.

32.  Mr Maurellet’s response is to say that there is simply no sufficient evidence to make out this contention.  He relies on Bouyges v. Red Sea (1997) 4HKC145 where Nazareth VP made clear that as to this the normal rules of causation and the burden of proof would apply.  Speculation is not sufficient.  In this matter no such evidence is offered to substantiate the claim and it is insufficient, says Mr Maurellet, to act on the fact that the share price dropped for a day or two 7 years ago after an announcement of the claim.  There is nothing by way of cogent evidence that the action is affecting the company’s business or relations with third parties.  Furthermore, the nature of the announcement in the annual report is a very confident rebuttal, on the advice of Herbert Smith and of specialist insolvency Counsel, that the company has a good defence.

33.  I am afraid to say that this is a case where the evidence to justify this type of prejudice is lacking and this part of the argument must fail.  There may be anxiety, as there is bound to be in any case (see Eagil Trust at para. 11), but on this evidence that is as far as it gets.

34.  Secondly, Mr Neoh refers to the effect that the delay has played in the Defendant’s right to recover in the liquidation.  Had the matter proceeded with due expedition it would have been wrapped up by now.  By virtue of the Plaintiff’s dilatoriness the Plaintiff would have been able to recover some of the debt owed to it by the Plaintiff.  Whilst this is undoubtedly so, it amounts to no more than another way of saying that the Plaintiff have been slow.  In my view, this is no more than what will occur in every case of delay where the Defendant is also a creditor in the liquidation.  I cannot see how this type of prejudice by itself would be sufficient to justify a striking out.

35.  Thirdly, Mr Neoh draws attention to the more obvious prejudice which comes from any delay in litigation namely the effect that this will have on the memory of witnesses.  In this regard particular attention is drawn to the fact that the existence of the guarantee and its terms and effect is the key issue in the action.  Because there is no separate guarantee document oral evidence will be highly significant in proving its existence.  As yet the Plaintiff has not identified its witnesses.  Whoever they are they must speak of events and documents that were created nearly ten years ago.  That of itself, submits Mr Neoh, will produce a substantial risk that a fair trial is no longer possible. 

36.  There can be no doubt that this is a very worrying aspect of the case where I have already found that the delay that has been created by the Plaintiff’s inactivity is both inordinate and inexcusable.  Given these circumstances, and unsurprisingly, Mr Maurellet places considerable reliance on the fact that the Defendant has the burden of establishing the requisite prejudice.  He also draws attention to the fact that the:

“….likely evidence (documentary/oral evidence) on each issue and what is the alleged effect of the delay on such evidence so as to render the fair trial on any particular issue not possible or likely to be not possible [should be set out].  In the absence of such full and proper evidence put before the court, it seems to me that save in exceptional cases, it would be very difficult for the court to conclude or be satisfied that a fair trial of the issues of the action is not possible.”

These were the remarks of Waung J. in Lui Chun Kwong v. Kier Hong Kong 1995 (1HKC697 at 712 b-d).  The Judge also made the further observation that where a large part of the evidence was documentary then the difficulty in the establishing that a fair trial would be impossible would be increased.  Mr Maurellet submits that it is plain from the answers to the request for further and better particulars, which the Plaintiff has provided, that its case will be made out on the basis of inferences drawn from the documentary evidence and in this regard I have already identified the documents where the guarantee is mentioned.

37.  As in the case of Lui v. Kier, Mr Maurellet submits that the Defendant has provided no proper evidence to explain in what way a fair trial of the issues could not be possible.  What the Defendant has done is merely to rely on the excessive delay and from that fact invite the court to conclude that human nature and frailties being what they are that a fair trial will not be possible.  Mr Maurellet suggests that having regard to the way that the case has been pleaded that this is not going to be a memory case but very much a documents case, with the court being invited to draw the appropriate inferences, which the Plaintiff suggests point to the existence of the guarantee.

38.  In this regard, Mr Maurellet seeks to draw some comfort from the remarks of Ribeiro J.A. in Hymer at page 609 where the learned Justice of Appeal (as he then was) observed that:

“…it is no doubt the case that generally, the passage of time dims memories.  However, this does not necessarily mean that a fair trial cannot be conducted.”

39.  In this regard, Mr Maurellet also makes the point that it ought to have been abundantly clear, at the time that the further and better particulars were filed what it was the Plaintiff was suggesting as being its case.  In such circumstances it was open to the Defendant to take proofs of evidence from its potential witnesses at that stage (28^th December 1999) when one would have expected that the witnesses were clearly identifiable and their memories sharper than they will be after such a considerable lapse of time (see Hymer at 610).

40.  There is no question in my mind that this aspect of the case is the most troubling.  Nevertheless, I have come to the conclusion that notwithstanding all the inevitable difficulties created by this delay that a fair trial will be possible on the Plaintiff’s pleaded case and the way in which it will seek to advance its case.  It is quite apparent that this is not a case which relies on conversations made many years ago which the witnesses are going to have to recollect for the trial judge.  If anything the delay is more likely to reflect adversely on the Plaintiff’s case rather than the ability of the Defendant to resist it.  The Plaintiff after all bears the burden of proving its case and unless it can provide cogent evidence of the existence and the terms and effect of the guarantee its action will fail.  In such matters one must also trust the trial process itself to overcome the inevitable problems created by delay and unless a compelling case of prejudice is made out it is a strong thing to ask the court to drive the Plaintiff from the judgment seat.  I regret to say that in this matter the Defendant has not been able to supply such evidence beyond the fact of serious and inexcusable delay.  That of course, is insufficient by itself with the consequence that the summons, although amply justified, must stand dismissed.

Costs

41.  Although the Plaintiff has succeeded I do not consider that this is a case where it ought to have its costs.  As I have already indicated this is a summons that was amply justified so I would have thought that the correct order for costs is to say that costs should be in the cause.  There will also be certificate for two counsel for the Defendant.  This order must be an order nisi in the usual way.

42.  It is now incumbent on the Plaintiff to do all it can to bring the matter on for trial at the earliest possible opportunity.

HCA 11433/1998

Chronology