DSG INTERNATIONAL SOURCING LTD v. WAON DEVELOPMENT LTD

HCA1294/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1294 OF 2006

-----------------------

BETWEEN

-----------------------

------------------------

J U D G M E N T

------------------------

1.  This is an application by the defendant to strike out the plaintiff’s claim on the grounds of :

(a) absence of intention of the plaintiff to proceed with this action thus amounting to an abuse of court process (Grovit v Doctor limb);

(b) inordinate and inexcusable delay by the plaintiff occasioning real prejudice to the defendant and which has rendered a fair trial impossible (Birkett v James limb); and

(c) intentional and contumelious breach of court order by the plaintiff.

Background

2.  The plaintiff claims against the defendant for supplying defective tower fans under various sale and purchase agreements entered into between February and May 2005.

3.  The tower fans purchased by the plaintiff from the defendant were for retail distribution in Europe.

4.  In June 2005, a UK customer after purchasing one such tower fan for about three to four weeks found the tower fan on fire while being used.

5.  Subsequently further faults with the tower fan were reported in Norway and which was labeled a potential fire hazard.

6.  As a result, those tower fans supplied by the defendant had been recalled from retailers in or about March 2006.

7.  It is the plaintiff’s case that the tower fans supplied by the defendant were defective because the copper wires in the main electricity cord were damaged which was caused by the defective design of the cord anchorage of the tower fan.

8.  On this basis, the plaintiff claims damages for the contract price, the costs of recalling the defective tower fans and the damage done by the tower fans.

9.  For its case on liability, the plaintiff relies on :

(a) A meeting between the representatives of the parties held on 9 January 2006 at which meeting the plaintiff says that one David Lee of the defendant admitted that the design and manufacturing of the tower fans were defective. It is also the plaintiff’s case that the admissions made by David Lee were recorded in a meeting summary and which was sent to the defendant by email the same date as the meeting.

(b) A test report dated 23 March 2006 prepared by Intertek Testing Services H.K. Ltd to the effect that the copper wires in the main electricity cord were damaged which was caused by the sharp cord anchorage.

10.  On the other hand, the defendant disputes liability and denies that the tower fans were defective.

11.  While the defendant admits that a meeting took place on 9 January 2006, it denies that any admission was made by David Lee as alleged by the plaintiff.  The defendant also disputes the accuracy of the meeting summary relied on by the plaintiff.  The defendant’s case is that the parties at this meeting only agreed to instruct Intertek to test the tower fans.

12.  As for the report by Intertek dated 23 March 2006, the defendant’s case is that that report was commissioned without the defendant’s consent.  The defendant seeks to rely on an earlier report by Intertek dated 8 March 2006 in which Intertek found that the tower fans tested complied with the relevant European safety standards.

13.  The Writ with Statement of Claim was issued on 16 June 2006.

14.  A Defence was filed on 13 July 2006.

15.  A Reply was filed on 17 August 2006.

16.  On 23 October 2006, by an order of Registrar Chan directions were given (inter alia) for discovery and inspection of documents and that signed witness statements were to be filed by both parties within 60 days of that order.

17.  By summons filed on 9 February 2007, the defendant requested further and better particulars of the Statement of Claim from the plaintiff and by an order dated 16 February 2007, Master de Souza ordered such further and better particulars to be given by the plaintiff.  The answers to the particulars sought were duly furnished by the plaintiff by letter dated 28 February 2007.

18.  Thereafter, no other steps were taken for some 39 months until the plaintiff sought to revive this matter by the service upon the defendant of a Notice of Intention to Proceed dated 1 June 2010.

19.  Thereafter a number of proposals and counterproposals by correspondence were made between the parties as to the further procedural steps to be adopted in this matter.

20.  Ultimately the parties consented (by way of Consent Summons) to, inter alia :

(a) an extension of 28 days for the mutual exchange of witness statements pursuant to the order of the Registrar made on 23 October 2006 and that any application for further extension of time to be made not more than seven days after that 28 days extension;

(b) filing and serving of Timetabling Questionnaires and Mediation Certificates within 14 days;

(c) if counsel’s advice was required, the same to be obtained by the parties within 28 days after the exchange of witness statements and any interlocutory applications as may be advised to be taken out within 14 days thereafter; and

(d) the matter be adjourned to Case Management Conference hearing on 9 December 2010.

21.  The order upon the above Consent Summons was made by Master de Souza on 12 August 2010.

22.  Upon the defendant’s failure to comply with the Consent Order for the exchange of witness statement, the plaintiff took out a Summons on 16 September 2010 for an unless order that the defendant do exchange witness statements.

23.  At the same time, on 20 September 2010, the defendant issued a Summons seeking a stay of proceedings in the matter for eight weeks.

24.  Both summons were heard by Master Ho on 22 September 2010 and the Master acceded to the plaintiff’s application for an unless order and dismissed the defendant’s application for stay.

25.  On 27 October 2010 the defendant informed the plaintiff of its intention to issue a summons to strike out the plaintiff’s claim and the present summons for striking out was taken out by the defendant on 15 November 2010.

The strike out application

26.  In respect of the first limb relied on by the defendant (i.e. the Grovit v Doctor limb) it was submitted that the 39 months of delay and inaction by the plaintiff (from March 2007 to the Notice of Intention to Proceed dated 1 June 2010), of which almost half fell within the post-CJR regime, was inordinate and inexcusable.  It showed that the plaintiff had no intention of proceeding with this action and such delay cannot be condoned in the current litigation culture.

27.  The defendant submitted that the explanations and reasons given by the plaintiff, that it took time to obtain evidence and translation form the UK and the Nordic region relating to the incidents concerning the tower fan and that its holding company in the UK had undergone changes in personnel responsible for handling this action, were patently inadequate and wholly unsatisfactory.  No particulars had been given by the plaintiff as to what were the “documents and information” to be obtained from the UK and Norway and no explanation given as to what was the difficulty in obtaining same.

28.  As for the second limb relied on (i.e. the Birkett v James limb), namely prejudice caused to the defendant by the delay, it was submitted that the defendant had been prejudiced as to :

(a) the oral evidence relating to the existence of the alleged defects and its causes;

(b) the testing of the tower fans in question; and

(c) the quantum of the plaintiff’s claim.

29.  In so far as oral evidence and witnesses are concerned, witness statements of David Lee and Angie Wong on behalf of the defendant have already been filed in October 2010.

30.  It was contended by the defendant that it had been prejudiced because the memories of its witnesses have faded as a result of the delay by the plaintiff and that they could not remember as much detail as they might otherwise have, particularly when they may be cross examined as to other details not in their witness statements.

31.  It was also submitted by the defendant that many of its employees who may have been able to give evidence in this matter had already left their employment during the period of the plaintiff’s delay thus causing further prejudice to the defendant.

32.  As for the testing of the tower fans, it was the contention by the defendant that although the tower fans had been tested and reports obtained by Intertek before the action commenced, any examination which may have to be undertaken by the parties experts now would not be satisfactory or helpful after such a long lapse of time due either to the deterioration of the material used or caused by problems of storage over the years.

33.  Thirdly, as for the quantum claimed, there now appears to be claims for fire damage which claims only surfaced with the witness statements filed by the plaintiff in October 2010 and given the lapse of time, it would be difficult if not impossible for the defendant to now conduct any investigation as to these alleged fire damage.

34.  Based on the above, the defendant submits that as a result of the delay resulting in the prejudice caused to the defendant, a fair trial is no longer possible.

35.  On the third limb relied on by the defendant, that of intentional and contumelious default in complying with a court order, the defendant relies on the plaintiff’s failure to comply with the order of Registrar Chan dated 23 October 2006 to exchange witness statement and to set down the case for trial.  The defendant submits that the failure to comply with such order by the plaintiff must have been deliberate since the plaintiff did comply with a later order of Master de Souza to furnish further and better particulars of the Statement of Claim and therefore could not have forgotten about the earlier order of Registrar Chan.

Decision

36.  As a starting point, it cannot be denied that here there has been inordinate delay on the part of the plaintiff for some 39 months between March 2007 and June 2010 when this matter had gone to sleep and no steps had been taken at all during that period.

37.  Dealing with the Grovit v Doctor limb of the defendant’s argument first of all, I bear in mind the caution given by Stone J in the case of New China Hong Kong Group and anr v AIG Asian Infrastructure Fund LP and others [2005] 1 HKLRD 383 at 406 :

“ As the circumstances of this case neatly illustrate, unless the Grovit v Doctor [1997] 1 WLR 640 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 [1978] AC 297 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 the inference of intention to prosecute the action no further, and hence to characterization as an abuse of process, will be sufficient to get home on a strike-out in the absence of the required element of prejudice.”

and later went on to say :

“…. ‘something significantly more is needed than inordinate and inexcusable delay’ – it is probable that the clear requirement for a significant further element within the factual equation before the ‘abuse of process route’ can succeed in any given case is likely to elevate that case to something sufficiently out of the ordinary so as to merit the epithet ‘exceptional’.”

38.  When one looks deep enough into the facts of the case of Grovit v Doctor [1997] 1 WLR 640, it will be seen that the facts in that case are indeed exceptional in that it was never denied or disputed by the plaintiff in that case that he had no intention to bring the matter to trial.  Indeed the decision by the House of Lords turned on whether absent such intention, that tantamount to an abuse of court process.  The House of Lords held that it did and on that basis struck out the claim.

39.  Coming back to the present case, although it cannot be denied that there was inordinate delay of some 39 months, it would need to be inferred from such delay that there was the intention of the plaintiff not to bring this matter to trial before an abuse of court process can be established.

40.  On the facts of the present case, such an inference, in my view, cannot be drawn.

41.  After issuing the Notice of Intention to Proceed, not only did the plaintiff take positive steps to chase after the defendant for the exchange of witness statements, but had indeed entered into a Consent Summons extending the time for the exchange of witness statements. Moreover, when the defendant failed to comply with that terms contained in the Consent Summons, upon which an order had been made, steps were then taken by the plaintiff to obtain an “unless order” against the defendant for the exchange of witness statements.

42.  Such action on the part of the plaintiff in pressing on with the exchange of witness statements in this matter is inconsistent with the inference which the defendant is asking this court to draw from the 39 months delay that the plaintiff had no intention of bringing this matter to trial.

43.  Why then was there this 39 months delay by the plaintiff?  This brings me to the explanations and the reasons furnished by the plaintiff for such delay, namely that the plaintiff was waiting for translations of certain documents from the Nordic region and that the plaintiff had undergone changes as to the personnel responsible for handling this matter on behalf of the plaintiff.

44.  Those explanations, while they may not be wholly sufficient to excuse the plaintiff from the inordinate delay, nevertheless give an explanation as to why there was such a delay.  Now that those difficulties are overcome, what it means is that the plaintiff will be in a position to expeditiously bring this matter to trial without further delay as can be seen from what has been done by the plaintiff after the Notice of Intention to Proceed.

45.  For these reasons, I am not persuaded that it can or should be inferred from the delay, albeit inordinate, that the plaintiff had no intention of bringing this matter to trial or that there has been abuse of the court process due to such delay.

46.  I turn now to deal with the second limb of the defendant’s application to strike out.

47.  Under the Birkett v James approach, the onus is upon the defendant to show that there has been prejudice caused to the defendant by the delay such that a fair trial can no longer be achieved.  The two affirmations sworn by David Lee and Angie Wong simply states that with the passage of time, they can no longer remember all the details in this matter despite having made their witness statements in October 2010.

48.  In this respect, a bald assertion of prejudice will not suffice and it is necessary for a defendant to show what prejudice is occasioned and how it is occasioned.  It may arise in a number of ways such as witnesses becoming unavailable or that the lapse of time from the delay has affected the recollection of witnesses in the context of the issues in the case and of the nature of the evidence to be put before the court to determine those issues.

49.  Although there are authorities to the effect that that it is not enough merely to assert that in the nature of things memories will have dimmed with the passage of time (see Slade v Adco Ltd [1996] PIQR 418), there can be cases where prejudice can clearly be inferred from the primary facts.

50.  This point was made clear by Peter Gibson LJ in Shtun v Zalejska [1996] 1 WLR 1270 at 1285 where he said :

“ In my judgment, in order to determine whether a defendant has suffered the necessary prejudice when it is in the form of the impairment of witnesses’ recollections as a result of inordinate and inexcusable post-writ delay, the court must examine with care all the circumstances of the case, including both the affidavit evidence as well as the issues disclosed by the pleadings. It is not, in my judgment, essential in every case that there should be evidence of particular respects in which potential witnesses memories have faded, still less that it need be shown that such fading of memories occurred in a particular period. That would be to approve of the classical inept question in cross-examination, ‘When did you first forget?’ Every court in the land is accustomed to drawing inferences from primary facts. So long as there are primary facts from which inferences can properly be drawn, there is nothing wrong with doing so. That is as true in this area of the law as it is in any other. It is not a reversal of the burden of proof that the court at the invitation of the defendant should draw an inference of prejudice from the material put before it.”

51.  In the present case, the issue of liability in dispute really turns on two main points.  Firstly, whether the cause of the fire-hazards in the tower fans was due to a defect in the design of it and secondly, whether David Lee of the defendant had admitted that the design and manufacturing of the tower fans were defective as alleged by the plaintiff at the meeting held on 9 January 2006.

52.  As to the first matter, tests reports had already been obtained in March 2006 from Intertek which deals with the cause of the fire from the tower fans after testing of the tower fans by Intertek.

53.  Seemingly, the earlier report from Intertek stated that the tower fans complied with the relevant clauses of the European technical and safety standards for fans and domestic electrical appliances.  This earlier report is relied on by the defendant.

54.  The later report from Intertek is to the effect that the copper wires in the main electricity cord were damaged which was caused by the sharp cord anchorage.  This later report is relied on by the plaintiff to show defective design or manufacturing on the part of the defendant.

55.  The contention therefore between the parties arising from these two reports from Intertek would seemingly turn on the explanation, if any, as to why the two reports appears, at least on the face of them, to be inconsistent as to its contents and also as to why and how the later report came about if that had not been commissioned by the defendant.

56.  On that score, the memories of witnesses would not appear to be of any great importance.

57.  As to the second point, namely whether or not David Lee has made the admission that the tower fans of the defendant were defective and which admission was recorded in the meeting summary and emailed to the defendant on the same date as the meeting on 9 January 2006, that is a matter which a court will have to decide as to how much weight it can give to the contents of the meeting summary after hearing evidence as to how that meeting summary came about and any evidence from the defendant as to what action, if any, was taken by the defendant in respect of the admission contained in the meeting summary after it had received the email of that meeting summary from the plaintiff.  If such admission had not been made by David Lee at the said meeting, one would have expected the defendant to have put on record by email or some other written form denying the admission contained in the meeting summary once the defendant had received and became aware of the contents of that meeting summary containing the alleged admission.

58.  On the basis that these would have been matters put on record in written form, again the memory of witnesses should not have figured significantly for such evidence now to be adduced.

59.  Indeed, there has been a long and detailed witness statement from David Lee, the English translation of which spans over 30 pages containing over 80 paragraphs. There is also another shorter witness statement from Angie Wong.  Both these witness statements were filed on behalf of the defendant and dated 7 and 8 October 2010 respectively.

60.  Given that David Lee says in his witness statement that he has left the employment of the defendant (in or about September 2010), it would appear that he is nevertheless still available to the defendant as a witness and is prepared to appear as a witness for the defendant in this matter.

61.  As far as expert witnesses are concerned, the point has been raised by the defendant that because of the delay, it would be quite unsatisfactory for it now to engage an expert to examine the tower fans and come out with an expert report.

62.  That may well be so, but given that test reports had been obtained from Intertek as early as March 2006, one would have expected that if the defendant had wanted to engage its own experts to examine the tower fan and come out with an expert report, the time for it to have taken that step would have been immediately or shortly after the 2^nd report from Intertek which was dated 23 March 2006, particularly when the contents of that report was unfavourable to the defendant and not accepted by it.

63.  For the reasons given above, I am not persuaded that the defendant has been put to any prejudice in so far as the issue of liability is concerned such that there cannot be a fair trial in this matter.

64.  In so far as the issue of quantum is concerned, the initial two incidents of fire which happened in July 2005 in the UK and in January 2006 in Norway did not give rise to any great damage caused to those two respective customers although they had the effect of putting the plaintiff and the chain stores selling such tower fans on notice that the tower fans may be a fire-hazard and did ultimately result in all the tower fans being recalled from the chain stores.

65.  However, there were at least three other incidents of fire from such tower fans in Norway which were categorized as (a) fire in Trondheim Store in which the fire caused a shop to be burnt; (b) fire in a customer’s home in Tongsberg; and (c) fire in a customer’s home in Lorenskog..

66.  It would appear from the witness statement of Ian Kendrick of the plaintiff that the claim in respect of the fire damage to the Trondheim Store, the customer’s home in Tongsberg and the customer’s home in Lorenskog, that the claim for fire damage comes to US$133,484, US$52,850 and US$67,950 respectively.

67.  The documentation in respect of these three fire incidents in Norway are in the Norwegian language and English translations of these documents has to be obtained.

68.  While it is true that the defendant will face difficulty in investigating and assessing the claim for fire damage in respect of these three incidents, that difficulty is caused by the logistics due to the fact that the fires occurred in Norway and perhaps also by the language difference, rather than due to the delay in this matter.

69.  Put another way, even if there had not been the delay by the plaintiff, the defendant will still be faced with such difficulties in investigating the claim for fire damage.

70.  Lastly, I turn now to deal with the third limb of the application, namely intentional and contumelious default of court order by the plaintiff.

71.  Admittedly, there was default by the plaintiff in complying with the order of Registrar Chan dated 23 October 2006 to exchange witness statement and to set down for trial.  However, I do not find such default to be intentional and contumelious as has been shown by subsequent event, namely, the steps taken by the plaintiff after its Notice of Intention to Proceed, by obtaining an unless order against the defendant for its failure to exchange witness statements as ordered and which has been covered in some detail in an earlier part of this judgment.

72.  In the circumstances, and for the reasons given, I am not persuaded that this is a proper case for the court to strike out the plaintiff’s claim albeit that there was a delay of some 39 months by the plaintiff.

73.  Accordingly, the application for striking out is refused and the defendant’s Summons dated 15 November 2010 is dismissed.

Costs

74.  As matters stand, I can see no good reason why costs should not follow the event.

75.  There will be a costs order nisi that the costs of this application be to the plaintiff in any event.