SOUTH-EAST ASIA FINANCE CO. LTD. v. TSUI LUEN ON

HCA 1997/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1997 OF 2000

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J U D G M E N T

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1. This is an appeal brought by the Plaintiff against an order made by a master on 30 October 2002. By his order, the learned master struck out the Plaintiff's statement of claim and dismissed its action with costs including the costs of the application to strike out, "without prejudice to the right of the Plaintiff to issue a new writ for the same cause of action in the District Court".

Chronology of events

2. The present action was commenced on 25 February 2000. The Plaintiff is the former employer of the Defendant. In the action, the Plaintiff sues for the repayment of an alleged loan and an alleged advancement in the total sum of HK$201,000.00.

3. In the defence filed on 30 March 2000, the Defendant avers that the alleged loan in the sum of HK$200,000.00 was in fact a tax free bonus earned by the Defendant in connection with his former employment with the Plaintiff. The Defendant also denies the advancement of the sum of HK$1,000.00 by the Plaintiff.

4. A "statement of reply" was filed by the Plaintiff on 13 April 2000, joining issues with the Defendant upon his defence.

5. A request for further and better particulars of the statement of claim and the so-called statement of reply was filed on 4 May 2000. An answer was supplied by the Plaintiff on 17 May 2000.

6. In the meantime, the Defendant as claimant commenced proceedings in the Labour Tribunal for the recovery of outstanding payments arising from the termination of his employment with the Plaintiff. The proceedings culminated in an order by consent made by the Labour Tribunal on 5 May 2000. Under the consent order, the Plaintiff (as defendant in the Labour Tribunal proceedings) was ordered to pay a total sum of HK$143,252.00 in full and final settlement of the claim of the Defendant (as claimant in those proceedings) in the Labour Tribunal. Paragraph 2 of the consent order in Chinese reads as follows:

"雙方同意裁決款項須於2000年5月19日或之前交到本處並由本處保管。直至高等法院原訟法庭之案件審理完畢。"

7. After the close of pleadings in the present action, neither party applied to the court for directions by issuing a summons for directions. The action went to sleep for 2 years.

8. On 16 August 2002, the Defendant filed a notice of intention to proceed. On 17 September 2002, the Defendant took out the present summons to strike out the action for want of prosecution. A supporting affirmation of the Defendant was filed on the same day.

9. On the following day, a cross-summons was taken out by the Plaintiff to transfer the present action to the District Court on the ground that the amount of claim now falls within the jurisdiction of the District Court.

10. On 23 September 2002, a manager of the Plaintiff filed an affirmation in opposition to the strike out summons. The explanation for the delay of 2 years was set out in paragraphs 2 and 3 of that affirmation which read as follows:

"2. I was informed by Mr Ng Hon Leung, the Chairman of the Plaintiff that the Plaintiff has so far failed to proceed with the action to trial because he know [sic] that the Defendant had been unemployed since about May 2000. Even if the action is proceeded with the Plaintiff might get an empty judgment against the Defendant. It was out of this reason and partly out of some sympathy for the Defendant that the Plaintiff has not proceeded with the action.

3. Only recently the Plaintiff has decided to proceed with the matter to trial even if it meant that any judgment against the Defendant would be an empty one. So the Plaintiff has instructed its Solicitors Messrs T C Lau & Co. to file an application to transfer the action to the District Court. The application is scheduled to be heard on Tuesday, the 24th day of September 2002 at 10 a.m. I confirm that the Plaintiff is ready to proceed the matter to trial."

11. On 13 October 2002, the application to strike out was heard by the learned master who made his order in the way described above.

12. The Plaintiff is dissatisfied with the order, and as I said, this is my judgment on the Plaintiff's appeal.

Strike out for want of prosecution

13. The general principles applicable to this type of applications to strike out are not in dispute. They are conveniently summarised in paras. 25/L/1 to 25/L/22 of Hong Kong Civil Procedure 2002 (Vol. 1). Despite the lapse of time, the leading authority in this field remains the House of Lords' decision in Birkett v. James [1978] AC 297. There are, broadly speaking, two categories of cases, namely (a) contumelious default, and (b) inordinate and inexcusable delay giving 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 to have caused serious prejudice to the defendant.

14. However, as has been pointed out by the House of Lords in Grovit v. Doctor [1997] 1 WLR 640, there is a third category of cases, namely, where the delay amounts to an abuse of the process of the court. Whether they should, strictly speaking, be labelled as cases wanting of prosecution, is unimportant. Lord Woolf explained in Grovit this distinct and separate ground for striking out or staying proceedings thus:

"Even without this surprising late development, I am satisfied that both the deputy judge and the Court of Appeal were entitled to come to the conclusion which they did as to the reason for the appellant's inactivity in the libel action for a period of over two years. 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 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."

15. In this appeal, I am concerned with two of the above three potential grounds for strike out, namely inordinate and inexcusable delay, and abuse of process.

Inordinate and inexcusable delay

16. As regards inordinate and inexcusable delay, there is not much disagreement between counsel that this is indeed a case of inordinate and inexcusable delay. The period involved is over 2 years. The explanation given does not amount to any valid justification or excuse for the inordinate delay.

17. But a major hurdle facing the Defendant is that admittedly the limitation periods applicable to the causes of action relied on by the Plaintiff in the present case have not yet expired. In those circumstances, according to Birkett v. James, it is "a matter of great weight" (p. 322D/E), if not "a conclusive reason" (at p. 322E), against the court's exercise of its discretion to strike out the proceedings. The simple reason is that in a normal case, given that the limitation period has not expired, if the action is dismissed, the plaintiff can immediately issue a fresh writ suing on the same cause of action. The effect of dismissing the previous action can only be to prolong the time which must elapse before the trial can take place beyond the date when it could have been held if the previous action had remained on foot. This would only aggravate; it can never mitigate the prejudice to the defendant from delay: Birkett v. James at p. 320B-C.

18. However, Lord Diplock in his leading judgment in Birkett v. James accepted that there might be "exceptional circumstances", and he gave as an example of those exceptional circumstances that where the plaintiff's conduct in the previous proceedings has induced the defendant to do something which will create more difficulties for him in presenting his case at the trial than he would have had if the previous proceedings had never been started. In those circumstances, it may well be that the court, in the exercise of its jurisdiction, should stay the second proceedings on the ground that, taken as a whole, the plaintiff's conduct amounts to an abuse of the process of the court. In that case, there would indeed be a point in the court exercising its discretion to dismiss the first action. See Birkett v. James at p. 320G-321B.

19. In my judgment, in an ordinary case, the non-expiry of the limitation period is indeed an overwhelming if not conclusive reason against the dismissal of the current proceedings. No good will be achieved by dismissing the current proceedings, given that punishment of the plaintiff on costs is not a legitimate object of exercising the court's jurisdiction to strike out under the inordinate and inexcusable delay limb. But where the striking out of the current proceedings would achieve something good, then everything must be considered properly in order to see whether the good to be achieved by striking out the current proceedings would outweigh the downside of doing so when the limitation period has yet to expire.

20. I have already referred to the example given by Lord Diplock in Birkett v. James as constituting exceptional circumstances to the general principle that was enunciated by the learned judge in that case. I do not believe that Lord Diplock was intending to provide an exhaustive description of those exceptional circumstances. His lordship was there merely giving an example.

21. In my judgment, on the facts of the instant case, there is a factor present making it an exceptional case. A sum of money representing an award in favour of the Defendant (in the present case) has been locked up for over 2 years in the Labour Tribunal pending the outcome of the present action. If the present action is dismissed for want of prosecution, the result will be that the Defendant will be entitled to retrieve the award from the Labour Tribunal and enjoy the fruits of his success in the Labour Tribunal proceedings (subject to the construction point raised by Ms Cheng, SC, appearing for the Plaintiff, which will be discussed below). This, in my judgment, is something that the Court can legitimately take into account in considering whether it should exercise its discretion to dismiss the present proceedings notwithstanding that the limitation period has not expired. Of course, this is only going to be one of the many factors to be taken into account. It is by no means a conclusive factor.

22. The Court must also consider the usual downside of dismissing proceedings whilst the limitation period is still unexpired, and the risk of the Plaintiff's commencing a new action thereby resulting in further expenditure of costs and further delay in the resolution of the substantive dispute between the parties. In the present case, the likelihood of the Plaintiff commencing a new action is great. The learned master envisaged indeed this when he made the order to dismiss the present proceedings which was "without prejudice to the Plaintiff's right to commence a new action in the District Court." This is something that I must seriously take into account.

23. Furthermore, whilst there is a suggestion that the Defendant is not particularly resourceful financially and allegedly he has been unemployed for over 2 years, the Defendant has not put in any evidence of his actual financial position or his requirement of the money that has been locked up in the Labour Tribunal. Of course, I accept as a general proposition that the locking up of a substantial amount of money, like the award involved in the Labour Tribunal, is by itself a prejudice.

24. This also brings me to the general requirement that under this present category, normally one must show, apart from inordinate and inexcusable delay, prejudice resulting from the period of delay in terms of a substantial risk that it is not possible to have a fair trial of the issues or is such as is likely to cause or to have caused serious prejudice to the Defendant. Apart from the prejudice to the Defendant in the sense that he has been kept away from the award locked up in the Labour Tribunal for a longer period of time than it should have been the case, no prejudice, particularly no prejudice in terms of the fair disposal of the issues between the parties, is relied on by the Defendant in support of his application or in opposition to the present appeal.

25. As I said, the amount at stake in the present action is actually within the increased jurisdiction of the District Court. It is a known fact that the waiting list for trial of civil actions in the District Court is reasonably short, and cases are very often tried within the same year that they were commenced in the District Court. In other words, if the present action is not dismissed but transferred to the District Court, the chances of the action being heard and disposed of within half a year to one-year's time are good. Of course, once the dispute between the parties is resolved and if the Defendant is successful in the case, he will be able to receive his award from the Labour Tribunal together with all accrued interest on the award. That, in my judgment, I can legitimately take into account.

26. Ms Cheng further took the point at the hearing that in fact the wording of the material part of the consent order in the Labour Tribunal is not free from difficulties. According to her contended construction, the money may only be released to the Defendant upon the resolution of the dispute between the parties by the court on the merits. In order words, she argued that in case the present action is disposed of by an order like the one that the Defendant has successfully obtained from the learned master below, it would not amount to "審理" referred to in the consent order, and in that case the money would still not be payable out from the Labour Tribunal to the Defendant. She contended that there is simply insufficient material before the Court, particularly material relating to the background leading to the making of the consent order to enable the Court to come to an informed construction of the material part of the consent order (subject of course to the parol evidence rule where it applies). In other words, it would simply be pre-mature for the Court to assume that the dismissal of the present action would achieve something good, thereby constituting an exceptional case to the general rule that no action should be struck out prior to the expiry of the limitation period.

27. With respect, I am not convinced by the construction put forward by Ms Cheng. In my judgment, the meaning of the material part of the order is reasonably clear. On its proper construction, it simply requires the stake-holding of the money pending the conclusion of the present High Court action. Nothing should turn on the mode of conclusion of the present action, which may take one of many different forms, like a judgment after trial, a strike out order under Order 18 rule 19 based on pleading alone or pleading and evidence, a summary judgment under Order 14, discontinuance and withdrawal under Order 21, a settlement between the parties, or a strike out or stay order due to an abuse of process or want of prosecution in the Birkett v. James sense. In my judgment, all this does not matter. No fine differentiation should be made in relation to the mode and manner of conclusion of the present action.

28. However, my rejection of Ms Cheng's argument does not release me from performing a balancing exercise in the present case in relation to the inordinate and inexcusable delay ground. Having borne all the above matters in mind, in my judgment, more harm than good would be done by dismissing the present action when in all likelihood, the Plaintiff would commence a fresh action in the District Court immediately following the dismissal. If the action is not dismissed, and if the Defendant has a good defence to the action, this will be formally pronounced by the District Court after trial (following the transfer of the present action to the District Court) within a reasonable period of time, assuming that both sides from now on will (and will be made to) conduct their claim and defence respectively with diligence.

29. On the other hand, if the present action is dismissed when the Defendant in fact does not have a good defence to the present action, then allowing him to get hold of the money presently locked up in the Labour Tribunal would actually defeat the original purpose of locking up the money pending the outcome of the present action, and in any event would only allow him to enjoy the money for a relatively short period of time before he would have to repay the money to the Plaintiff in satisfaction of the judgment that would, ex hypothesi, be entered against him by the District Court under the fresh action to be commenced by the Plaintiff following the dismissal of the present action.

30. For all these reasons, and as I said having borne all the above matters in mind, in the exercise of my discretion, I would not dismiss the present action on the inordinate and inexcusable ground.

Abuse of process

31. Turing to the abuse of process ground based on the more recent decision of the House of Lords in Grovit v. Doctor, I accept that on the evidence, the failure of the Plaintiff to proceed with the action for the past 2 years was the result of a conscious and deliberate decision on its part not to proceed with the action. Whether, on the evidence, one could elevate that to a conscious and deliberate decision never to bring the present action to trial is quite another matter. The reasons given for the Plaintiff's decision were the Defendant's lack of assets for enforcement and the Plaintiff's sympathy for the Defendant's plight as a result of his unemployment. Commonsense would suggest that in case the Defendant's financial and employment conditions should improve, the Plaintiff might see more sense and attraction to proceed with the present action.

32. In other words, unlike the facts in Grovit v. Doctor, one cannot definitely say that in the present case the Plaintiff has made a conscious and deliberate decision never to bring the present action to conclusion. Perhaps one could go as far as to say that up to the time when the Defendant took out the application to strike out, there was no such intention. But one just could not exclude the possibility that the Defendant's financial and employment conditions would improve thereafter and the Plaintiff would find it attractive to renew its effort in the present action.

33. In Grovit v. Doctor, the same could not be said. According to the judgment of the first instance judge, the evidence before the court showed that the plaintiff had "literally no interest in actively pursuing [the litigation]. So far as he was concerned, [the court was] sure it was dead in the water" (at p. 646B).

34. The usual phrase used in this area of the law to describe a period of inactivity is that the action has gone to "sleep". In my judgment, the contrast between a sleeping action and a dead one aptly describes the distinction between the present case and the case before the House of Lords in Grovit v. Doctor.

35. In any event, even if I were wrong, and even if a case of an abuse of process could be made out on the evidence along the lines indicated by the House of Lords in Grovit v. Doctor, I do not think that the judgment of the House of Lords means that the court would have no choice or discretion in that situation but to strike out or stay the proceedings by reason of the abuse of process identified by the court. In the passage extracted above, Lord Woolf simply said that "if justice so requires" (p. 647H), the court will dismiss the action.

36. In other words, I would still need to take all relevant factors into account in considering how the Court's discretion should be exercised. In this regard, given the order below that the dismissal is without prejudice to the Plaintiff's right to bring a new action in the District Court, against which there is no cross-appeal by the Defendant, I am further of the view that I could and should in fact take into account the same or similar considerations that I bore in mind in deciding how I should exercise my discretion under the inordinate and inexcusable delay ground discussed at some length above. Of course, in the present balancing exercise, the fact that ex hypothesi, the Plaintiff has abused the process of the court by maintaining an action that it has no intention to bring to conclusion is by itself a weighty factor in favour of a dismissal order.

37. On the basis that I were wrong in that this was indeed an abuse of process case, in the exercise of my discretion, I would still refuse to strike out the present proceedings. In my judgment, it would be more preferable to lay down stringent directions (in the form of unless orders, where appropriate) for the further conduct of the present proceedings and at the same time order the transfer of the present action to the District Court where - so I could say with some confidence - the action would be tried and disposed of reasonably expeditiously, than to strike out the present action.

38. For all those reasons, I am not with the Defendant on the abuse of process ground either.

Outcome

39. The upshot of all this is that I would allow the present appeal. I make an order setting aside the order of the learned master. I further give the following directions:

(1) Unless the parties do file and serve their respective lists of documents within 21 days from the date this judgment is handed down, the statement of claim, or as the case may be, the defence be struck out, and judgment be entered accordingly;

(2) There be inspection of documents within 7 days thereafter;

(3) Unless the parties do file and serve their respective signed witness statements as to fact within 60 days from the date hereof - such evidence to stand as evidence in chief of the makers of the statements subject to any further or other direction by the trial judge, no evidence shall be allowed to be adduced at the trial by the party in default of so filing and serving its or his witness statement without the leave of the court;

(4) Without prejudice to the above directions, the present action be forthwith transferred to the District Court;

(5) For the avoidance of doubt, the parties are at liberty to apply for further directions from the District Court after the transfer pursuant to Order 78 rule 3(2) of the Rules of the District Court (Cap. 336).

40. As regards costs, I make the following order nisi, namely, that the costs of the Defendant's application to strike out before the master be costs in the cause, there having been reasonable grounds to support such an application although eventually they were found by me to be insufficient to support a dismissal order, whereas the costs of this appeal be paid by the Defendant to the Plaintiff in any event, such costs to be taxed if not agreed.

41. Subject to what I have ordered and directed above, I make no order relating to the Plaintiff's cross-summons to transfer the present action to the District Court, which summons was not dealt with by the learned master given the order that he made. I make an order nisi that the costs of that summons be in the cause.

42. My orders nisi shall become absolute upon the expiry of 14 days after this judgment is handed down, unless either party applies to vary the order within the 14-day period.

43. Lastly, I would like to thank counsel for their helpful assistance.