THE NEW CHINA HONG KONG GROUP LTD (in liquidation) AND ANOTHER v. AIG ASIAN INFRASTRUCTURE FUND LP AND OTHERS

CACV 108/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 108 OF 2004

(ON APPEAL FROM HCCL NO. 97 OF 2000)

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REASONS FOR JUDGMENT

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Hon Woo VP :

Introduction

1. This is an appeal by the plaintiffs from the Decision and Order made on 31 March 2004 by Deputy High Court Judge Poon whereby he dismissed this action for abuse of process of the court.

2. At the conclusion of the hearing before us, we allowed the appeal with costs to the plaintiffs here and below (with a certificate for two counsel).  Our reasons appear below.

Background

3. The claim involves quite complicated facts.  However, for the purposes of this appeal, a brief summary is adequate, and I need only adopt that which the judge set out in his Decision, as follows: 

“2. The background facts leading to these proceedings are complex.  They concern the financial arrangements for the construction and maintenance of an expressway linking Chengdu and Mianyang in the Sichuan Province (‘the Expressway’).  For present purposes, they may be summarized as follows.

The joint venture

3. The Expressway is the subject matter of a joint venture between New China Hong Kong Group Limited (‘NCHK Group’), a Hong Kong company and Sichuan Highway Construction and Development General Corporation of the Sichuan Province (‘Sichuan Highway’).  On 29 December 1993, NCHK Group incorporated a wholly owned subsidiary in the British Virgin Islands, New China Hong Kong Highway Limited (‘NCHK Highway’), for the purpose of this joint venture.  Later on 28 March 1994, NCHK Highway and Sichuan Highway entered into a joint venture agreement for the construction and management of the Expressway and the provision of other ancillary and servicing facilities.

The Subscription Agreement

4. To raise funds for the joint venture, by a subscription agreement dated 15 October 1994 (‘the Subscription Agreement’), the parties thereto, including NCHK Group and the 1^st to 4^th defendants herein, agreed to subscribe for shares in NCHK Highway.  NCHK Group held the shares in NCHK Highway through its wholly owned subsidiary, NCHK (Chengdu Mianyang) Limited (‘NCHK(CM)’).

5. Pursuant to Clause 7(2) of the Subscription Agreement, the parties agreed that NCHK Group or its wholly owned subsidiary would deposit a total of 599,291 of its shares in NCHK Highway (‘the Escrow Shares’) with an escrow agent as provided for by an escrow agreement to be entered into between the parties to the Subscription Agreement and an escrow agent.

The Escrow Agreement

6. On 31 October 1994, the parties entered into an escrow agreement (‘the Escrow Agreement’).  Victor Chu & Co. (‘VC’) was appointed the escrow agent.  Clauses 5 and 6 of the Escrow Agreement set out the specific circumstances in which VC was entitled to release the Escrow Shares and the money in the Escrow Account as defined in the Escrow Agreement (‘Escrow Money’).  In brief, depending on the prescribed circumstances, VC would release the Escrow Shares and the Escrow Money to NCHK Group’s camp (under Clause 5) or the defendants’ camp (under Clause 6).

Transfer of interest in NCHK Highway

7. On 10 March 1998, Century City International Holdings Limited (‘Century City’), a publicly listed company in Hong Kong, incorporated a wholly owned subsidiary, Evercheer Holdings Limited (‘Evercheer’), for the specific purpose of acquiring from NCHK Group its interest in HCHK Highway.  The transaction was completed in April 1998.  Pursuant to this transaction, NCHK Group gave an indemnity to Century City and Evercheer against any losses occasioned by a distribution of the Escrow Shares and the Escrow Money otherwise than in accordance with Clause 5 of the Escrow Agreement.

8. Century City owned money to Shenyin Wanguo (H.K.) Limited (‘Shenyin Wanguo’) under certain unconnected transactions.  In January 1999, Century City transferred its interest in Evercheer to Crux Assets Limited (‘Crux’), a wholly owned subsidiary of Shenyin Wanguo in discharge of its liability to Shenyin Wanguo.  Pursuant to this transaction, Century City agreed, under a deed of indemnity dated 30 December 1998, to indemnify Crux for any loss incurred as a result of the distribution of the Escrow Shares and Escrow Money under Clause 6 of the Escrow Agreement.

Distribution of Escrow Shares in July 1999                                                                   

9. In early 1999, the Expressway was completed and has since been in operation.  Disputes, unfortunately, began to arise.  In July 1999, the relevant defendants gave instructions to VC to distribute the Escrow Shares to them under Clause 6 of the Escrow Agreement, which VC did accordingly on or about 7 July 1999.

10. VC’s distribution of the Escrow Shares triggered the chain of indemnities mentioned above.  NCHK Group became liable to indemnify Century City, who was in turn obliged to indemnify Crux.  However, NCHK Group was then in liquidation.  Its indemnity to Century City was simply valueless.  Thus Century City found itself in a hardly enviable position.  It had to indemnify Crux but at the same time it had no effective recourse against NCHK Group.  In the end, Century City’s liability to Crux was settled by a loan from Shenyin Wangou (sic) to another subsidiary of Century City.  The net financial effect of this arrangement is that Century City’s liability under the indemnity was replaced by a loan.

Enabling Century City to sue through Evercheer

11. It can be readily seen from the above that the financial loss resulting from VC’s distribution of the Escrow Shares to the defendants’ camp fell ultimately on Shenyin Wangou (sic).  But Shenyin Wangou (sic) did not wish to take action itself to recover the Escrow Shares.  What was done instead was that Century City and Crux then entered into a Settlement Agreement dated 19 May 2000 for the purpose of enabling Century City to take necessary steps to recover the Escrow Shares.  However, at that time Century City did not have any interest in NCHK Highway that would enable it to sue.  Thus Crux transferred Evercheer, the vehicle holding such interest, to Century City BVI Holdings Ltd, a subsidiary of Century City.  Evercheer was at the same time given a put option, which would expire by 30 June 2001, to put the Escrow Shares to Crux at a price of some HK$93 million if the action was successful (‘the Put Option’).  That would effectively eliminate/offset the loan due from Century City to Shenyin Wanguo in lieu of indemnity mentioned above.

12. Further, to enable Evercheer to take the necessary action to recover the Escrow Shares, NCHK Group had assigned all the rights and causes of action accrued in favour of NCHKH(CM) by a deed of assignment dated 17 October 2000.

13. Eventually, on 15 November 2000, Evercheer and NCHK Group commenced the present action.  Evercheer, as 2^nd plaintiff, sues in its own right as the assignee of all the rights and causes of action accrued in favour of NCHKH(CM) mentioned above.  NCHK Group, though named the 1^st plaintiff, is merely nominal.  Its sues by its attorney, Evercheer, pursuant to a power of attorney dated 23 January 1999 and as a trustee for Evercheer pursuant to a declaration of trust of the same date.

14. By virtue of the above arrangements, Evercheer, driven by Century City, became the vehicle to run the present action.”

Chronology of material events

4. It is now necessary to identify the material events, encompassing the procedural steps taken in this action, that led to the dismissal of this action as ordered by the judge.  Some of the events set out below were used by the judge in his analysis to found his decision, but all the key events which will feature in this appeal are also included.

(1)	15/11/2000	Evercheer & NCHK Group commenced this action, Century City being the “dominus litis”.
(2)	07/12/2000	Plaintiffs served the Points of Claim herein.
(3)	08/12/2000	Plaintiffs’ summons for a speedy trial.
(4)	21/12/2000	Plaintiffs’ summons in (3) dismissed by Stone J.
(5)	06/01/2001	Plaintiffs served voluntary Further and Better Particulars of their Points of Claim.
(6)	18/01/2001	Defendants served Points of Defence herein.
(7)	01/02/2001	Plaintiffs served Points of Reply.
(8)	12/03/2001	Plaintiffs provided security for costs of the action by paying $1 million into court.
(9)	17/04/2001	Plaintiffs served Further and Better Particulars of their Points of Reply.
(10)	10/10/2001	Negotiations for settlement between the parties proposed by Shenyin Wanguo, awaiting Defendants’ response.
(11)	End 2001	Lack of response from Defendants; Shenyin Wanguo sought papers from Century City to see what needed to be done to take over the conduct of this action.
(12)	07/01/2002	Plaintiffs changed their solicitors for this action, from Linklaters to DC Cheung & Co.
(13)	20/05/2002	Plaintiffs changed their solicitors from DC Cheung & Co to Fred Kan & Co (their present solicitors).
(14)	Nov 2002	Shenyin Wanguo retained Fred Kan & Co to seek legal advice from London counsel on this action.
(15)	Feb/Mar 2003	Shenyin Wanguo received legal advice from London counsel and decided to take over conduct of this action by acquiring the entire issued shares of Evercheer back from Century City.
(16)	End March	Outbreak of SARS.
	to end May 2003
(17)	03/05/2003	Defendants’ summons to strike out plaintiffs’ claim for abuse of process.
(18)	18/07/2003	Completion of acquisition of shares in Evercheer by Shenyin Wanguo from Century City.
(19)	31/03/2004	Deputy Judge Poon struck out plaintiffs’ claim and dismissed the action.

The law

5. I will briefly state the approach which this Court should adopt in dealing with this appeal before I embark upon the law and principles relating to striking out for abuse of process.

6. This appeal relates to a striking out under Order 18, rule 19 of the RHC.  It is trite that it must only be in a plain and obvious case that this summary power to strike out an action should be used: para 18/19/4 of Hong Kong Civil Procedure 2004, Vol 1.  On the other hand, the judge’s decision is one involving the exercise of his discretion, and unless he is shown to have erred on law or failed to apply legal principles correctly, this Court should not interfere: see para 59/1/49 of the same volume.

7. I now turn to the law relating to striking out for abuse of process.

8. In his Decision dated 31 March 2004, the judge dealt with the law in this respect in some detail.  He first set out the traditional approach for dismissal of an action for want of prosecution as laid down in Allen v McAlpine [1968] 2 QB 229 CA, which was approved by Lord Diplock in Birkett v James [1978] AC 297 at 318F-319A, which is as follows:

“The power should be exercised only where the court is satisfied either (1) that the default has been intentional and contumelious, e.g., disobedience to a peremptory order of the court or conduct amounting to an abuse of the process of the court; or (2)(a) that there has been inordinate and inexcusable delay on the part of the plaintiff or his lawyers, and (b) that such delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or is such as is likely to cause or to have caused serious prejudice to the defendants either as between themselves and the plaintiff or between each other or between them and a third party.”

9. The judge went on to state that the stance taken by counsel for the defendants before him.  They were not relying on the Birkett v James principles.  Instead they sought to invoke Grovit v Doctor [1997] 1 WLR 640 HL, in which a new approach was adopted by the court to more readily strike out actions for want of prosecution than heretofore under the Birkett v James principles.  The judge referred to the various authorities that followed Grovit v Doctor, as to the various manner in which an abuse of process could be considered as being committed.  If I may say so, the judge’s analysis of the law in his Decision is correct and cannot be faulted, save for one matter to which I shall return later. 

10. In Grovit v Doctor, which was a defamation action, Lord Woolf, with his speech the other Law Lords agreed, expressly stated at 644G that the appeal before the House was “not an appropriate vehicle for making significant inroads on the principles endorsed by Lord Diplock in Birkett v. James.”  The conclusion that Lord Woolf reached can be found at pp 647G-648A, as follows:

“…, 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] A.C. 297.  In this case once the conclusion was reached that the reason for the delay was one which involved abusing the processing of the court in maintaining proceedings when there was no intention of carrying the case to trial the court was entitled to dismiss the proceedings.” (Emphasis added)

11. It can be seen, therefore, that the ratio decidendi of Grovit v Doctor is that maintaining an action when there is no intention of carrying it to trial is an abuse of process rendering the action liable to be struck out.  Athough Lord Woolf intimated that this was not a significant inroad upon the principles endorsed by Birkett v James, it in fact was, in the sense that the requirement to prove likely prejudice suffered by the defendant under the second limb of Birkett v James has been rendered unnecessary.  This may, however, be regarded as an identification of a facet of abuse of process.

12. Another significant inroad on the Birkett v James principles may be considered as having been made in the case of Arbuthnot Latham Bank Ltd v Trafalgar Holdings Ltd [1998] 1 WLR 1426, CA, where Lord Woolf warned at p 1436E-F:

“In Birkett v. James [1978] A.C. 297 the consequence to other litigants and to the courts of inordinate delay was not a consideration which was in issue.  From now on it is going to be a consideration of increasing significance.  Litigants and their legal advisers, must therefore recognise that any delay which occurs from now on will be assessed not only from the point of view of the prejudice caused to the particular litigants whose case it is, but also in relation to the effect it can have on other litigants who are wishing to have their cases heard and the prejudice which is caused to the due administration of civil justice.  The existing rules do contain time limits which are designed to achieve the disposal of litigation within a reasonable time scale.  Those rules should be observed.”  (Emphasis added)

13. While inordinate delay was to be viewed more seriously by the courts thenceforth, as is apparent from Lord Woolf’s warning, it does not mean that mere delay, without more, would amount to abuse of process.  This was recognised by Lord Woolf, who referred to two decisions to that effect, see Arbuthnot at pp 1432H-1433E.  In Barclays Bank Plc v Maling [1997] EWCA Civ 1480 (23 April 1997), following Teale v McKay [1994] PIQR 508, Aldous LJ stated:

“That case is a clear indication that mere delay, whether or not caused by incompetence, cannot amount to an abuse of process which will enable an action to be struck out.  What is needed is disregard of the court’s orders.  It may be that deliberate as opposed to negligent disregard may not be required (see Hytec Information Systems Ltd. v. Coventry City Council [1997] 1 W.L.R. 1666).” (Emphasis added)

14. The other case to which Lord Woolf referred is Culbert v Stephen G Westwell & Co. Ltd [1993] PIQR 54, where Parker LJ said at pp 65-66:

“… An action may also be struck out for contumelious conduct, or abuse of the process of the court or because a fair trial in action is no longer possible.  Conduct is in the ordinary way only regarded as contumelious where there is a deliberate failure to comply with a specific order of the court.  In my view however a series of separate inordinate and inexcusable delays in complete disregard of the rules of the court and with full awareness of the consequences can also properly be regarded as contumelious conduct or, if not that, to an abuse of the process of the court.  ….” (Emphasis added)

15. This passage of Parker LJ’s judgment was followed in Choraria Sethia [1998] CLC 625 where Nourse LJ, after referring to Birkett v James and Grovit v Doctor, stated at 630F:

“The law … may therefore be stated thus.  Although inordinate and inexcusable delay alone, however great, does not amount to an abuse of process, delay which involves complete, total or wholesale disregard, put it how you will, of the rules of court with full awareness of the consequences is capable of amounting to such an abuse, so that, if it is fair to do so, the action will be struck out or dismissed on that ground…” (Emphasis added)

16. Again, as I see it, Parker LJ was identifying another way of constituting an abuse of process or contumelious conduct, which is a series of inordinate and inexcusable delays in complete disregard of the rules of the court and with full awareness of the consequences.  Despite the court being satisfied that the plaintiff’s conduct amounts to an abuse in the manner described, as Nourse LJ observed, it is still necessary for the court to consider whether it is fair to strike out the action.

17. It is with the recently developed law in mind that I proceed with the examination of the judge’s Decision.  In particular, it is necessary to examine the evidence of this case to see whether or not, apart from inordinate and inexcusable delay on the part of the plaintiffs in disregard of the rules of the court, there was full awareness on their part of the consequences, so that their conduct or inaction can properly be regarded as contumelious conduct or an abuse of the process of the court.

The Decision

18. The judge examined the delay on the part of the plaintiffs to take steps in the action, and found that Century City, the dominus litis of this action, did not take any steps in the action since 17 April 2001.  The judge found that:

“48. The principal reason why there had been delay and procedural inaction is undoubtedly the loss of commercial incentive to continue with this litigation after the application for speedy trial failed.  The reality is that Century City had since put the action on the back burner with a very low priority in relation to its commercial activities….

49. … I rule that there had been inordinate and inexcusable delay on the part of the plaintiffs since 17 April 2001 before the defendant took out the present application.”

19. Pausing here, Mr Warren Chan SC, on behalf of the plaintiffs, does not challenge the finding of inordinate and inexcusable delay for the purposes of this appeal.  I therefore do not need to deal further with this aspect of the case.

20. The judge went on to consider whether there was an abuse of process.  He accepted Mr Shieh’s invitation to conclude that the inordinate and inexcusable delay involved an abuse of process on the part of the plaintiffs.  Mr Shieh’s submission with regard to the plaintiffs’ abuse of process, as accepted by the judge, is three-fold, namely,

(a)	the plaintiffs had no intention to continue with the action and to bring it to conclusion;
(b)	there was a wholesale disregard of their obligations under the rules of the court by the plaintiffs who had made no attempt at all to progress the action; and
(c)	the plaintiffs’ change of tack.

Grounds of appeal

21. Mr Chan has raised a number of grounds of appeal to challenge all these three aspects that culminated in the judge’s finding of abuse of process.

Inordinate delay & intention to go to trial

22. Mr Chan submits that there is simply no evidence justifying the judge’s finding that the plaintiffs had no intention to bring the action to conclusion.  The only evidence relied upon and capable of being relied upon by the judge was the inordinate and inexcusable delay of two years on the part of the plaintiffs since April 2001. 

23. Mr Chan relies on the passage, referred to above, of the judgment of Aldous LJ, in Barclays Bank Plc v Maling, which was followed by Nourse LJ inChoraria v Sethia.  He further relies on the rule that mere delay, though substantial, does not amount to an abuse of process, a contention that was apparently accepted by Lord Woolf in Arbuthnot, when at p 1432H he said:

“For this purpose delay alone, even delay of 11 years, does not amount to an abuse of process.  This was made clear in the recent case of Barclays Bank Plc. v. Maling (unreported), 23 April 1997.”

24. The same rule was adopted in Jeyaretnam Joshua Benjamin v Lee Kuan Yew [2001] 4 SLR 1, at 21C-D, 22B-23I, per LP Thean JA, and South-East Asia Finance Co Ltd v Tsui Luen On, HCA 1997/2000 (16 December 2002, unreported) per Deputy Judge A Cheung (as he then was) at paras 31-34.

25. Mr Chan’s submission is that apart from the inordinate and inexcusable delay on the part of the plaintiffs, the judge failed to identify any objective conduct evincing an intention on the part of the plaintiffs not to bring the proceedings to a conclusion.  Indeed, there was cogent evidence to the contrary.  On 12 March 2001, the plaintiffs paid security for costs in the sum of $1,000,000 into court.  Moreover, there were two changes of solicitors, first from Linklaters to Messrs D C Cheung & Co on 7 January 2002, and second, from D C Cheung & Co to the plaintiffs’ present solicitors Messrs Fred Kan & Co on 20 May 2002.  Shenyin Wanguo had as early as at the end of 2001 asked Century City to pass on the relevant papers in the action for Shenyin Wanguo’s Legal and Compliance Department to see what needed to be done in order to take over the conduct of the litigation and to reactivate the legal proceedings.  In about November 2002, Shenyin Wanguo retained the services of Fred Kan & Co to seek advice from London Counsel on various matters, including the merits of this action.  In February and March 2003, such legal advice had been obtained and Shenyin Wanguo decided to take over the conduct of this action by acquiring the entire issue of share capital of Evercheer from Century City.  Despite the intervention of SARS from March to May 2003, the acquisition was completed on 18 July 2003. 

26. In such circumstances, Mr Chan submits, I consider correctly, that the defendants manifestly have failed to demonstrate that the plaintiffs had no intention to bring the proceedings to a conclusion. 

27. The judge’s view on the intervention of Shenyin Wanguo is as follows:

“52. In my view, the steps taken by Shenyin Wanguo since October 2001 offer no mitigation.  Such steps are mere preparatory steps undertaken by Shenyin Wanguo to enable it take over the proceedings.  They are not steps taken in these proceedings on behalf of the plaintiffs.”

28. Moreover, it appears that the judge was influenced by Mr Shieh’s submission, which is repeated before us, that

“the action is not saved by any belated attempt by the party to state that he has since decided to conduct the action in a manner which is not an abuse.”

29. While the judge was correct in his view that Shenyin Wanguo cannot divorce itself from the “abuse of process” on the part of Century City, in my judgment he was wrong in ignoring the preparatory steps undertaken by Shenyin Wanguo in taking over the proceedings by merely brushing them aside in terms of not being steps taken in the action on behalf of the plaintiffs.  In my view, these steps, though preparatory by Shenyin Wanguo to take over the proceedings and not as such steps in the action, must be relevant for the court’s consideration whether the plaintiff’s present stance of wishing to pursue the action was but a bare statement or is supported by evidence.  The steps taken by Shenyin Wanguo in taking over the proceedings, in my view, clearly demonstrate that once they become the dominus litis of this action on behalf of the plaintiffs, they would pursue the action.  Those preparatory steps would normally restart the rolling of the wheel of the legal process.  They are also relevant for the consideration whether the delay was excusable or as part of the explanation for the inaction between the end of 2001 and early 2003. 

30. On behalf of the defendants, Mr Shieh stresses that the judge found that Century City had no commercial incentive to continue with the litigation.  He submits that this view of the judge is justified in that despite the admission of Mr Tony Lee, Chief Executive Officer of Shenyin Wanguo, in his affirmation that “there remained little commercial incentive for the Century City Group to continue its hitherto aggressive stance”, Century City did nothing to progress the action at all in accordance with the usual timetable.  This point is partly related to the change of tack, which will be dealt with below.  What I need say at this stage is that the fact that Century City had no commercial incentive to continue with its aggressive stance cannot fairly be equated with an intention not to continue with the litigation.

31. The facts as disclosed in Mr Tony Lee’s affirmation are that, after the failure to obtain a speedy trial of this action, Century City had been experiencing financial difficulties, but at the same time it owed Shenyin Wanguo or its subsidiary companies an indemnity in respect of the Escrow Shares and money allegedly wrongfully distributed (the cause of action of the claim herein).  It was in the interest of Century City to pursue this action, and when its ability to repay Shenyin Wanguo the loan (which was in substitution for the indemnity) became questionable, Shenyin Wanguo was desirous of pursuing this action.  It is for this purpose that Shenyin Wanguo had in October 2001 attempted to negotiate with the defendants for a settlement, and as the prospect of that looked grim, it had since the end of 2001 been taking preparatory steps to enable it to become the dominus litis of this action.  This change of circumstances provides adequate explanation as to why there was the delay and why the delay could not properly be used as proof of absence of an intention to proceed to trial. 

Wholesale disregard of the rules

32. It is clear from what was said by Aldous LJ in Barclays Bank v Maling, Parker LJ in Culbert v Stephen Westwell and Nourse LJ in Choraria v Sethia that long inordinate and inexcusable delay does not amount to an abuse of process unless there is contumelious conduct or abuse of process.  Disobedience of a court order, albeit non-peremptory, is capable of being regarded as contumelious conduct.  On the other hand, inordinate and inexcusable delay in complete disregard of the rules of the court, without disobedience of any court order, can only amount to an abuse of process if and insofar as that delay or default was committed with the full awareness of the consequences. 

33. Mr Shieh has identified the plaintiffs’ failure to comply with the rules of court in the present case, long after the close of pleadings, as being not taking out a summons for directions under O 25, r 1 of the RHC, not making mutual discovery under O 24, r 2, and not exchanging witness statements under O 38, r 2A.  He asks us to pay special heed to the fact that this action was brought in the Commercial List where expedition is considered to be significant.  To the contrary, Mr Chan submits that this non-compliance with the rules of the court cannot amount to “wholesale disregard” of the rules on the part of the plaintiffs.  If it were otherwise, mere inaction and delay per se would be sufficient to justify the dismissal of the action based on abuse of process.  I agree. 

34. It is also to be noted that there was no breach or disobedience of any court order, non-peremptory or otherwise, and there is no evidence that plaintiffs were contumelious in not following the court rules.  This is a significant distinction from the cases where there was a breach of orders, such as Culbert v Stephen G Westwell,Choraria v Sethia, Lace Co-ordinates Ltd v NEM Insurance Co Ltd (19 Nov 1998, unreported), Shikari v Malik (5 May 1999, unreported) and Orbit Development (Southern) Ltd v McCarthy & Stone (Developments) Ltd (5 Oct 1999, unreported).

35. Nor is there any evidence to show that the plaintiffs’ disregard of the rules of the court was with full awareness of the consequences.  It is clearly unlike a case where there had been an attempt to strike out whereby the plaintiff was made aware of the consequences that might flow from inaction in proceedings with the legal parties, as in Arbuthnot. 

36. In Habib Bank Ltd v Jaffer & Anor (29 Mar 2000, CA, unreported), the plaintiff bank not only disregarded its own solicitors’ advice as to the necessity of making full discovery and providing witness statements promptly, the failure of which would or might result in the action being struck out for want of prosecution, but it did so because it thought that it knew better than they did.  That justified the court striking out the action. 

37. There is no evidence of anything of this sort in the present case.  In his Decision, the judge had never mentioned nor made any finding that the plaintiffs appreciated the consequences of their inaction in these proceedings. 

38. Mr Shieh argues that that the plaintiffs’ sheer inaction for two years, their being represented by a reputable firm of solicitors, and the lack of affidavit evidence filed on their behalf denying any awareness of the consequence thus enabled the inference to be drawn that they were aware of the consequences.  This argument needs only to be stated to be rejected.  I find that the judge erred in failing to consider this very important aspect of the case. 

Change of tack

39. The judge summarised Mr Shieh’s arguments in this respect in his Decision as follows:

“The plaintiffs saw fit to ‘sell’ their case to the court on one basis when it suited them, and then to act on a wholly different basis once their objectives could not be achieved.  They pushed vigorously for a speedy trial and justified the application on the ground that it was in the interest of all partied concerned that these proceedings be conducted and determined as expeditiously as was possible.  But when the application failed, they completely changed tact.  There was no trace of the plaintiffs continuing to have regard for the interest of all parties concerned to resolve the matter expeditiously.”

40. When addressing us, Mr Shieh takes the point that the change of tactics in this case was cynical: it involved (effectively) reneging on the high-sounding words and assurances which earlier had been given to the court when it had suited the plaintiffs.  Further, the consequences of the change was a period of inordinate and inexcusable delay.  The fact that the period of the delay came about in such circumstances made the delay the more obvious.  The change of tactics aggravated the delay. 

41. Added to this, Mr Shieh draws our attention to the fact that Shenyin Wanguo, the current owner of Evercheer and financier of this action, had a put option to get out of the deal after 2 years or after $2.5 million has been incurred in the costs of this action.  This, Mr Shieh submits, tells against the so-called commitment of Shenyin Wanguo to prosecute this action to the end because such commitment is less than complete or whole-hearted. 

42. While the change of tack might accentuate the court’s view on the reasons behind the inordinate and inexcusable delay, namely, in the sense of whether the delay was excusable or not, I accept Mr Chan’s submission that this cannot be said to be tantamount either to an abuse of process or to an affront to the rules of the court.  Circumstances may vary, which may include, as in the present case, the parties’ fortunes as well as the position of the dominus litis, which may justify different tactics being adopted by the parties to the litigation at different times.  However, looking at the facts of this case, the change of tack, although not accepted by the judge as an excuse for the delay, in my view does not amount to an abuse of process or a wholesale disregard of the rules of the court with full awareness of the consequences.

The respondents’ notice

43. In the respondents’ notice, the defendants raise the point that Mr Tony Lee’s evidence should not have been accepted by the judge in his determination of the application to strike out.  It is argued that Mr Tony Lee’s evidence is inadmissible because it is hearsay, because of his failure to disclose the source of his information. 

44. Mr Shieh contends that as Mr Tony Lee was an officer of Shenyin Wanguo and not Century City or Evercheer, his description of the reasons for the plaintiffs’ inaction, namely, that it was due to a large extent to the financial problems of Century City, should not be admissible, or should have been rejected by the judge.

45. The attack on behalf of the defendants upon the admissibility or acceptability of the affirmation of Mr Tony Lee was directed at Mr Tony Lee’s reference to Century City’s “serious liquidity problems”, the “little commercial incentive for the Century City Group to continue its hitherto aggressive stance”, and in particular, the reference in para 11 of his affirmation that “By October 2001, it was clear to me that the Century City Group simply did not have sufficient financial resources to fund this litigation.”

46. In rejecting this argument, the judge said:

“It is apparent from para. 11 of the affirmation that Mr Lee did have personal knowledge of the financial difficulties of Century City at the time.  He had also produced the relevant annual accounts of Century City as exhibits in support.  He also knew in his capacity as the director and chief executive officer of Shenyin Wanguo why and how Century City was tasked to bring the present action through Evercheer.  Properly understood in their entire context, Mr Lee’s evidence on the reasons for the delay and inaction is not hearsay as such….”

47. The judge’s reasoning cannot be faulted.  In any event, the judge did not accept the reasons based on financial difficulties on the part of Century City as a reasonable excuse for the plaintiffs’ inordinate and inexcusable delay in the conduct of this action.

Limitation and other factors

48. The judge also considered whether it was just in the circumstances of this case to dismiss the action.  This point was considered by him in the context of his finding that the plaintiffs were guilty of an abuse of process.  The judge said:

“57. … When there is abuse of process, it is frequently the case that justice requires the case to be dismissed … After all, abuse of process is itself a very weighty factor in favour of dismissal.  But I would still need to take into all relevant circumstances of this case in considering how to exercise my discretion.  Mr Fung [counsel for the plaintiffs before the judge] has asked me to take into account the size of the claim which is in the region of HK$100 million.  If I were to dismiss the action, the plaintiffs would be driven away from the judgment seat without a proper adjudication of this complex and enormous claim.  That may well be true but I do not think any weight should be given to that.  Having abused the process, the plaintiffs only have themselves to blame.  Mr Fung next points out that since the limitation period has not expired, the plaintiffs can still commence fresh proceedings, resulting in further expenses and delay.  As I have already pointed out, the fact that the limitation period has not expired is of little significance in a case where the proceedings are struck out constitutes an abuse of process.  In such circumstances, the plaintiff may well find that if he brings fresh proceedings after the original proceedings are struck out they are stayed because of his conduct…” (Emphasis added)

49. The judge obviously relied on two passages in Lord Woolf’s judgment in Arbuthnot on the question of limitation.  Lord Woolf said at pp 1432G and 1436H-1437B:

“The fact that the limitation period has not expired, does not figure to the same degree in a case where there has been contumelious conduct on behalf of a plaintiff or where the proceedings which are being struck out constitute an abuse of process: see Grovit v. Doctor [1997] 1 W.L.R. 640.  In such circumstances, the plaintiff may well find that if he brings fresh proceedings after the original proceedings are struck out they are stayed because of his conduct.”

“While an abuse of process can be within the first category identified in Birkett v. James [1978] A.C. 297 it is also a separate ground for striking out or staying an action (see Grovit v. Doctor at pp. 642-643) which does not depend on the need to show prejudice to the defendant or that a fair trial is no longer possible.  The more ready recognition that wholesale failure, as such, to comply with the rules justifies an action being struck out, as long as it is just to do so, will avoid much time and expense being incurred in investigation (sic) questions of prejudice, and allow the striking out of actions whether or not the limitation period has expired.  The question whether a fresh action can be commenced will then be a matter for the discretion of the court when considering any application to strike out that action, and any excuse given for the misconduct of the previous action: see Janov v. Morris [1981] 1 W.L.R. 1389.  The position is the same as it is under the first limb of Birkett v. James.  In exercising its discretion as to whether to strike out the second action, that court should start with the assumption that if a party has had one action struck out for abuse of process some special reason has to be identified to justify a second action being allowed to proceed.”

50. I am not able to find any passage in Grovit v Doctor relating to the diminution of the significance of the non-expiry of the limitation period.  Grovit v Doctor is a case in which the limitation period had expired when the application for striking out the action was taken.  Therefore the question that the expiry or otherwise of the limitation period did not arise for consideration in that case. 

51. In Birkett v James, Lord Diplock explained the significance of the limitation period not having expired.  As Lord Woolf described it at p 1432C of Arbuthnot,

“The reason is that in the absence of some conduct which means that a second action could be stayed, it would not benefit the defendant to have the first action struck out since this would only result in further proceedings which would inevitably cause more expense and delay.”

52. I accept that where an action had been dismissed for abuse of process of court and the plaintiff brings a fresh action within the limitation period, in an application to strike out the fresh action, the court will take into account the reason for the abuse of process in the first action when considering whether the second action should also be dismissed or stayed.  However, there is a very significant countervailing factor based on the fact that a fresh action can be commenced within the limitation period, for otherwise the courts would be seen as giving greater preference to the reputation, expedition and efficiency of the system of administration of civil justice as against the right granted by the limitation statute, which is a right given by the legislature to litigants.  I can see an argument that once an action is started, it is subject to the rules of the court, and therefore the civil process should not be abused to put pressure and anxiety on the defendant, without an intention of bringing the action to trial.  However, short of this kind of conduct, any inordinate and inexcusable delay on the part of the plaintiff, without proof of this intention to abuse the court process, cannot be a ground to strike out, or otherwise the right to make claim within the limitation period, as accorded by statute, would be removed. 

53. What is the difference between a plaintiff not taking out action until just a day before the expiry of the limitation period, and a case where action has been started very soon after the cause of action arose but the plaintiff has let it lie dormant for a long time and starts to take a step in the proceedings just prior to the expiry of the limitation period?  Unless the court is satisfied that the action has been maintained for the purpose of bringing pressure and anxiety and to oppress the defendant, or the defendant has been prejudiced, or strong similar reasons, there should not be any difference; in the former case, the plaintiff is permitted to start his claim very late in the limitation period, so that, absent abuse, should he not be permitted to continue with his action that has been started a long time ago?

54. Indeed, Lord Diplock dealt with this subject at some length in Birkett v James at pp 319-322.  I hope I may be excused for citing his observations extensively:

“(1)  Non-expiry of limitation period

Crucial to the question whether an action ought to be dismissed for want of prosecution before the expiry of the limitation period is the answer to a question that lies beyond it, viz., whether a plaintiff whose action has been so dismissed may issue a fresh writ for the same cause of action.  …

It is an attractive argument that … the court … should also have power to prevent a fresh action being started.  … It assumes that the court has power to treat as amounting to inordinate and inexcusable delay in proceeding with an action a period shorter than that within which Parliament by a Limitation Act has manifested its intention that a plaintiff should have a legal right to commence proceeding with his action.  No one has been bold enough to argue that if the plaintiff has not issued a previous writ he could be deprived of that right at the discretion of a judge because the judge thought that in the circumstances of the particular case the statutory limitation period was too long.  So in such a case, at any rate, time elapsed before issue of the writ which does not extend beyond the limitation period cannot be treated as inordinate delay; the statute itself permits it.

Can that same period of time elapsed become inordinate delay so as to entitle the court to prevent the plaintiff from issuing his writ within the limitation period by reason of the fact that he had started previous proceedings for the same cause of action which have become abortive?  … there is nothing here to transform into inordinate delay time that has elapsed before the expiry of the limitation period.

There may be exceptional cases, of which Spring Grove Services Ltd. v. Deane (1972) S.J. 844 … may be an example, 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 such a case it may be well that the court, in the exercise of its inherent 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.  But, such exceptional cases apart, where all that the plaintiff has done has been to let the previous action go to sleep, the court in my opinion would have no power to prevent him starting a fresh action within the limitation period and proceeding with it with all proper diligence notwithstanding that his previous action had been dismissed for want of prosecution.

If this be so, it follows that to dismiss an action for want of prosecution before the limitation period has expired does not, save in the exceptional kind of case to which I have referred, benefit the defendant or improve his chances of obtaining a fair trial; it has the opposite tendency.

… where no question of non-compliance with a peremptory order is involved the court is not in my view entitled to treat as ‘inordinate delay’ justifying dismissal of the action in accordance with the second principle in Allen v. McAlpine a total time elapsed since the accrual of the cause of action which is no greater than the limitation period within which the statute allows plaintiffs to start that action.  To dismiss the action in such circumstances would, in my view involve an error in principle in the exercise of judicial ‘discretion’ which it is the function of the appellate court to correct.

… I am of the opinion that the fact that the limitation period has not yet expired must always be a matter of great weight in determining whether to exercise the discretion to dismiss an action for want of prosecution where no question of contumelious default on the part of the plaintiff is involved; and in cases where it is likely that if the action were dismissed the plaintiff would avail himself of his legal right to issue a fresh writ the non-expiry of the limitation period is generally a conclusive reason for not dismissing the action that is already pending.” (Emphasis added)

55. Mr Shieh contends that Lord Diplock’s speech, cited above, only relates to the second limb of the principle, namely, inordinate and inexcusable delay with prejudice to the defendant.  I do not agree.  I consider it as having general application to the issue of striking out for want of prosecution, including the ground of abuse of process referred to in the first limb, insofar “abuse of process”, as opposed to contumelious default, has been expanded by the recent development of the law to include inordinate and inexcusable delay.  

56. Moreover, as I see it, Lord Woolf’s statements about the limitation period would create difficulty in view of its apparent conflict with Lord Diplock’s analysis on this matter in Birkett v James and, in particular, the argument that the right given by statute for action to be brought within the limitation period should not be undermined. 

57. Apart from my view that the judge was wrong in finding that the plaintiffs’ were guilty of an abuse of process, I consider that he erred in failing to give sufficient weight to this very significant fact that the limitation period has not yet expired, which would have enabled the plaintiffs to bring a fresh action in case this action was struck out.  This factor militates heavily against the exercise of his discretion to strike out this action, and renders it unjust or unfair.

58. While I accept that the size of the claim should not feature in the face of a finding that the plaintiffs had abused the process of the court, I consider it an important factor to be taken into account in the determination as to whether or not the plaintiffs’ intention was, or was not, to carry on with the action to its conclusion.  This large claim is not an illusory amount, but is based on the fact that the Escrow Shares alleged to have been wrongly distributed were worth $93 million, as borne out by the put option that such Escrow Shares could be sold at that price.

Conclusion

59. In the circumstances, this appeal was allowed with costs, as ruled at the outset of this judgment.

Hon Stone J :

60. I agree with the judgment of the Vice President.  In light of the argument, I would wish to add a few words of my own.

61. Stripped down to its bare bones, and uncamouflaged by the able argument of leading counsel, the proposition advanced in this case is stark: that a delay of two years, absent expiry of the limitation period, absent breach of any order of the court, and absent any indication or warning to the plaintiffs by the defendants, nevertheless is sufficient in the circumstances to permit the inference that there was a settled intention on the part of the plaintiffs not to bring this litigation to a conclusion, thereby permitting the characterization of ‘abuse of process’.

62. True it is that the plaintiffs did not assist themselves in terms of the comparison between the activism of their early application for a speedy trial, and thereafter, and consequent upon the dismissal of such application, the intrusion of commercial realities and the undoubted delay which was permitted to occur.  The difference of attitude is, of course, obvious, but in my view it is does not compel the conclusion the defendants now wish to be drawn.

63. In principle considerable caution must be exercised before acceding to that which, for shorthand purposes, I will term a ‘Grovit v. Doctor’ strike out application, tempting though it may be for the courts proactively to demonstrate, in line with the modern mood, that the rules of procedure are there to be obeyed, and that cases should not be permitted to drag.

64. This is a case that was commenced before the Commercial Court, and if I may say so, that Court has not shown itself to be backward in terms of case management if and when delay is brought to its attention.  In this instance all that the defendants needed to do, as must have been appreciated by their professional advisers, would have been to take out a summons for directions, the better to ensure (and in the circumstances it strikes me as a pretty safe bet) that this action would be permitted to delay no more, and that the court, once apprised of such delay, would drive the matter forward.

65. That course, however, was eschewed.  To the contrary.  It was decided to mount this application, no doubt at very significant cost indeed in terms of the expenditure upon legal representation both here and below, only for the whole exercise to be rendered nugatory, with yet further delay which now has occurred in terms of the overall progress of this action.  The objective observer might think that these procedural tactics do not reflect well upon our system for the resolution of a serious, sizeable, and factually complex civil dispute.

66. As the circumstances of this case neatly illustrate, 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 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.

67. ‘Abuse of process’ means what it says.  Practising lawyers tend to have a feel for what it connotes.  Perhaps it is like an elephant: difficult to describe, but you know it when you see it.  As Peter Gibson LJ observed in Lace Co-Ordinates Ltd v. NEM Insurance Co Ltd, (unrep) CA, 19 November 1998, “… I would be reluctant to have written in tablets of stone what constitutes an abuse of process”, although on the facts then before him he had no difficulty in thus characterizing that case.

68. During the course of this appeal a number of modern English cases in this area have been cited to this court.  Whilst these cases are all obviously fact-sensitive, with each case being decided in terms of its own factual matrix, what is noticeable within this emerging doctrine is the differing emphases in the articulation of applicable principle.

69. In my judgment the appropriate approach to strike out applications of this nature is that adumbrated by Auld LJ in Miles v. McGregor (unrep) CA, 23 January 1998, wherein the learned judge stated:

“The emphatic articulation and the application by the court in Choraria [Choraria v. Sethia, [1998] CLC 625, CA] 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 court’s 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.”  (emphasis added)

70. Whilst it is right to record that this approach of Auld LJ, with its emphasis on “cases of an exceptional nature”, was not wholeheartedly embraced by the court in Lace Co-Ordinates, op cit. — Hirst LJ observing that in his view all that Auld LJ was doing was “no more than sounding a note of caution that Arbuthnot Latham [Arbuthnot Latham v. Trafalgar Holdings [1998] 1 WLR 1426] should not be applied too readily and that, as that case itself makes clear, 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’.

71. For my part, with great respect to the learned Deputy Judge below, and notwithstanding the urging of Mr Shieh SC, in the present instance I was signally unable to identify that which properly could be regarded as an ‘abuse of process’.

72. In my view this was a tactically opportunistic and unmeritorious application, and I entertained no doubt that this appeal should succeed, with costs to the plaintiffs here and below.