THE KWANGTUNG PROVINCIAL BANK v. CHUNG SUN KWAN

HCMP 7711/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 7711 OF 1999

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D E C I S I O N

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1.  This is an application by the third party for leave to appeal against my decision given on 13 February 2014. My decision was against the third party’s appeal from a decision by Master Ho. Master Ho decided against the third party’s application to strike out the third party proceedings as brought by the defendant. The grounds of the application to strike out are (i) for want of prosecution and (ii) further or alternatively under O 18 r 19(b) of the Rules of the High Court or the inherent jurisdiction of the court. O 18 r 19(b) provides that the court may strike out any pleading if it is an abuse of the process of the court.

2.  The first ground for striking out is based on the second limb of Birkett v James [1978] AC 297, that the defendant is guilty of an inordinate and inexcusable delay in prosecuting the third party proceedings resulting in a substantial risk that it is not possible for the third party to have a fair trial of these proceedings or serious prejudice to him.

3.  The second ground is based on an allegation that the defendant and/or his predecessor, the official receiver had “warehoused” the third party proceedings.

4.  Master Ho dismissed the application on 2 October 2013, but made no order as to costs.  The third party appealed against Master Ho’s dismissal of the summons.  The defendant also cross-appealed against Master Ho’s decision not to make any order of costs.  I dismissed the third party’s appeal and also the defendant’s cross-appeal on 13 February 2014.

Background

5.  These proceedings were started by the plaintiff on 14 December 1999 for payment of monies due from the defendant under certain covenants in a charge, further charge and facility letters dated 26 January 1996 and 24 April 1997.

6.  The plaintiff also sought delivery up of vacant possession of the ground and first floors of a building erected on the RP of Lot 1203 in DD 19, which were charged by the defendant to the plaintiff to secure repayment of loans advanced by the plaintiff.

7.  The plaintiff obtained judgment on 6 March 2000 against the defendant for payment of over HK$3 million and delivery up of the properties.

8.  The defendant obtained leave on 14 March 2000 to institute the third party proceedings.  Master Jones gave the third party’s directions on 29 June 2000, directing the defendant to file his third party’s statement of claim within 28 days and the third party his defence within 14 days thereafter.  Discovery of documents was to follow 14 days thereafter and inspection within 7 days thereafter.  There should then be exchange of witness statements within 42 days from the close of pleadings.  The date for exchange of witness statements was subsequently postponed to 10 April 2001.

9.  The rest of the story has been set out in my decision dated 13 February 2014.

10.  To cut a long story short, the defendant was adjudged a bankrupt on 18 December 2002.  The third party proceedings then became vested in the official receiver.  There was no further progress of these proceedings because the official receiver was not prepared to proceed with the proceedings by using public funds.  The official receiver was only prepared to proceed if:  (i) there was a sufficient indemnity to pay the legal costs and the third party’s costs in the event that the third party proceedings should be dismissed; and (ii) there be a prospect of success in the third party proceedings.

11.  The defendant’s bankruptcy was discharged in December 2006, but the official receiver maintained that the third party proceedings were still vested in her.  She also tried to negotiate with the third party in May 2007 for a settlement of these proceedings but the attempt did not bear fruit.

12.  The third party proceedings were eventually assigned to the defendant on 22 September 2012 at HK$5,000.

13.  The defendant’s solicitors then issued a notice of intention to proceed which was followed by a case management summons on 12 December 2012.  The third party then issued the summons to strike out on 8 February 2013.

14.  Master Ho found that the defendant was guilty of inordinate and inexcusable delay, but further found that if there was any prejudice following from the delay, it was the result of the fault of both sides, as the third party had also failed to make proper discovery and prepare his witness statement for exchange.  Hence, Master Ho dismissed the application, but made no order as to costs.

Decision on delay

15.  After hearing the parties on appeal, I did not make any finding on whether the official receiver was guilty of any inordinate and inexcusable delay as I had not heard from the official receiver.  I however found that the defendant had all along been pushing the official receiver to press ahead with the third party proceedings, but the official receiver, for reasons that I have mentioned above, did not move the proceedings ahead.  The position of the defendant was in opposition to that of the official receiver. I therefore concluded that the defendant was not liable for the delay of the official receiver as such a conclusion would be contrary to reality.  I therefore found that the defendant was not liable for any inexcusable delay.

Decision on prejudice

16.  Though my conclusion on delay was not the same as Master Ho’s, I echoed Master Ho’s decision that the third party’s prejudice was brought about by the failure of both sides to make full discovery in April and June 2001 and their failure to prepare their witness statements for exchange then.  I was also of the view that if the third party should have prepared his case properly, he would not suffer from the alleged prejudice to his ability to properly defend these proceedings.

17.  Regarding the third party’s criticism that the defendant had failed to make timely discovery of his receipts of deposits from purchasers of properties and the documents showing the alleged payments made by the third party of mortgage instalments which failures had allegedly put the third party in difficulty, I was of the view that the third party should have applied for specific discovery of the documents by the defendant back in 2001.

Decision on “warehousing”

18.  On the second ground of attack of “warehousing”, I also found that the official receiver had not “warehoused” the third party proceedings as I found that the official receiver did intend to bring the proceedings to a conclusion.

19.  I also concluded that even if the official receiver should have “warehoused” the proceedings, I would not put the defendant into the official receiver’s shoes merely because he was the official receiver’s assignee as to do so would be to ignore the history of the case and the reality. 

Exercise of discretion

20.  Finally and in case I were wrong on all those grounds, I exercised my discretion not to strike out the third party proceedings in the light of the persistent conduct of the defendant in wanting to push these proceedings ahead.

Dismissal of appeal

21.  For the above reasons, I dismiss the third party’s appeal.

The applicable legal principle

22.  This application for leave is made under section 14AA(1) and (4) of the High Court Ordinance, Cap 4 and O 59 r 2B of the Rules of the High Court:

“(4) Leave to appeal for the purpose of subsection (1) shall not be granted unless the court hearing the application for leave is satisfied that –

(a) The appeal has a reasonable prospect of success; or

(b)   There is some other reason in the interests of justice why the appeal should be heard.”

This application is brought under subsection 4(a). 

23.  It has been explained in the case of SMSE v KL [2009] 4 HKLRD 125 at para 17 per Le Pichon, JA that “reasonable” means more than fanciful but without having to be probable.

Consideration

24.  In this application for leave, the third party relies on a number of grounds to appeal against my conclusions and findings.

25.  Regarding my finding that the defendant was not guilty of inordinate and inexcusable delay, the third party raises the ground that I should have held against the official receiver on delay and further to find against the defendant on the same issue on the basis that the defendant, being the assignee of the official receiver, should be responsible for the same fault.  I think this argument has a reasonable prospect of success. 

26.  However, success on this ground alone will not result in a successful appeal.  The third party has also to show a reasonable prospect of success in overturning my decision on prejudice before leave can be granted for appeal against my decision on the first ground for striking out.  But there is no ground of appeal addressed to the criticism that the third party should have made proper discovery, prepared his witness statements and applied for specific discovery in 2001.  I cannot see any reasonable prospect of success in the appeal against my decision on the first ground.  I therefore would not grant leave to appeal against my decision on this ground for striking out.

27.  Regarding the second ground of striking out that the third party’s proceedings had been “warehoused” by the official receiver, the third party makes the ground of appeal that the official receiver, in waiting for an indemnity on costs and then the demonstration of a reasonable prospect of success of the third party proceedings, was “warehousing” the third party proceedings and the defendant, being the official receiver’s assignee, should be responsible for the consequence of “warehousing”.  I think this ground also has a reasonable prospect of success.

28.  Regarding my final exercise of discretion in favour of the defendant, I do not think the third party has raised any useful ground as he merely asserted that my discretion should have been exercised in his favour.

Decision

29.  Bearing in mind my assessment that the ground of appeal on “warehousing” has a reasonable prospect of success and if this ground should succeed on appeal, it may have an effect on my exercise of discretion, I therefore grant leave to the third party to appeal against my dismissal of the appeal.  I also order that costs of this application be in the appeal.