SUNLIGHT TECHNOLOGY DEVELOPMENT LTD v. AGP (FAR EAST) LTD

DCCJ 4867/2007

[2022] HKDC 134

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4867 OF 2007

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DECISION

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1.  Before me for determination is the plaintiff’s appeal against the order of Master Maurice Lam made on 14 September 2021 dismissing the plaintiff’s application by summons dated 23 March 2021 to strike out the counterclaim for want of prosecution (“P’s Summons”) based on the grounds that there were (a) inordinate and inexcusable delay, coupled with serious prejudice, per the second limb of Birkett v James[1],and (b) abuse of process, per Grovit v Doctor[2], in that the defendant had raised the counterclaim with no intention of concluding it.

2.  I would mention at this juncture that in this appeal, the plaintiff expressly accepts that the plaintiff’s claim herein ought also to be struck out for want of prosecution. In fact, the plaintiff sought such an order, among others, in its Notice of Appeal filed on 28 September 2021.

3.  It is trite that this appeal would proceed by way of a re-hearing.

The dispute and parties’ pleaded case

4.  The plaintiff was and is in the business of designing and manufacturing toys. In 2005, it had newly set up a factory at Tangxia in Dongguan in the PRC. The defendant was a supplier of electricity generator sets. At the time of the dispute identified below, the plaintiff and the defendant already had had a certain amount of previous dealings, though the details of these previous dealings are not known.

5.  On about 13 August 2007, the parties signed a written agreement (“the Agreement”) whereby the plaintiff agreed to buy, and the defendant agreed to sell, to transport to the plaintiff’s factory at Tangxia and to install an electricity generator set driven by a diesel engine with a synchronizing control system (“the Generator Set”) at the price of HK$490,000. On 14 August 2007, a deposit of HK$147,000 was paid by the plaintiff to the defendant (“the Deposit”).

6.  The Agreement was written in Chinese on the stationery of the defendant. It consisted of 3 pages. Materially, Clause 1 of the Agreement provided, among others, that “型號：#8281Sri27 機型 (全新西班牙製造及進口)” (“Clause 1”).

7.  The parties’ dispute centered on this Clause 1. It is the plaintiff’s case that Clause 1 was an express term that the Generator Set was to be “newly manufactured in and imported from Spain”.

8.  On about 1 September 2007, the Generator Set was delivered to the plaintiff’s factory. However and according to the plaintiff’s case, the Generator Set was not newly manufactured or newly imported from Spain. Rather, it was manufactured and imported into the PRC in 2004, which was 3 years ago. Moreover, it was said that various parts of the Generator Set were severely rusted and corroded. After some correspondences were exchanged between the parties and on 21 September 2007, the plaintiff gave a formal notice to the defendant to reject the Generator Set, but the defendant refused to take back the same or to return the Deposit. I am given to understand that the defendant had not proceeded with the installation of the Generator Set either.

9.  The plaintiff then issued the Writ on 2 November 2007 to commence this action to claim for the return of the Deposit.

10.  In the Defence and Counterclaim filed on 8 December 2007, and broadly, the defendant admitted the signing of the Agreement and the sale but denied the plaintiff’s averment as to Clause 1. It denied that the sale was a sale by description under the Sale of Goods Ordinance, or that the Agreement was further evidence by an invoice which described the Generator Set as “brand-new”, or that it had breached the Agreement as alleged. The defendant pleaded that “the Generator was sourced from ShangHai [sic] Famous Machinery Electronic Company” and “was never used before and was imported from Spain to the PRC as stock for sales”[3].

11.  The defendant counterclaimed for the balance of the price at HK$343,000.

12.  Importantly for the purpose of this appeal, the defendant in §3(3) of the Defence and Counterclaim pleaded certain negotiations that occurred prior to the signing of the Agreement, thus:-

“(3) In the course of negotiations between the Plaintiff and the Defendant, the Plaintiff was informed that the Generator had ceased to be made since 2005 and had been replaced by a newer model but that there was no stock for the 2007 new model. The Defendant expressed its opinion that the Generator was more compatible with the Plaintiff’s existing 8281Sri27 generator system, which was supplied to the Plaintiff by the Defendant several years ago. The Defendant showed the Plaintiff a picture of the Generator and the Plaintiff knowing full well that the Generator had ceased production in 2005 accepted the Generator and signed the Agreement and paid the Deposit. The Generator was delivered by the Defendant to the Plaintiff’s factory at DongGuan, the People’s Republic of China, on 1^st September 2007.”

13.  Further particulars about the said negotiation were given in the Replies to the Plaintiff’s Request for Further and Better Particulars of the Defence and Counterclaim dated 17 January 2008 (“D’s F&B”). There, the defendant averred that the negotiation took place in a face to face meeting held on 9 August 2007 at the plaintiff’s office in Dongguan between Leung Kim Wah (“Leung”), the defendant’s District Sales Manager, and Tang Hok Sing (“HS Tang”) and Yung Kwok Hui (“KH Yung”), both of the plaintiff (“the Meeting”), and that all the communications were oral and Leung told HS Tang and KH Yung that there was “no stock for 2007 new model”, that “for 2007 new model, delivery was at least 3 months, which could not meet the plaintiff’s quick delivery request”, that “old model is better and compatible to existing same old model generator”. It was further said in D’s F&B that the plaintiff was shown a catalogue, that there was no written record of the Meeting, but that “the draft agreement RL1Q070809” was a “written confirmation/record of such verbal communication”[4].

14.  In this connection, in the defendant’s List of Documents, “the draft agreement RL1Q070809” mentioned in D’s F&B was not disclosed, but disclosed was a “Copy Contract signed and chopped by the plaintiff, which was superseded dated 10 August 2007” bearing “檔案編號：RL2C070810”.

15.  In the Reply and Defence to Counterclaim filed on 21 February 2008, the plaintiff admitted that certain negotiation took place between the parties on about 9 August 2007 in which a catalogue of generators was shown to HS Tang but denied there were such verbal communications as alleged in §3(3) of the Defence and Counterclaim.

Procedural history

16.  I turn next to the procedural history.

17.  The filing of the parties’ respective pleadings has been alluded to above. The pleadings were thus closed on 7 March 2008.

18.  Since then, both parties had not taken any step whatsoever to further prosecute their respective claims. It is common ground that from then until the Notice of Intention to Proceed was filed by the defendant, there were also no negotiations, mediations, communications or the like concerning the dispute.

19.  Then, 11 and a half years later on 4 November 2019, the defendant filed a Notice of Intention to Proceed to revive the action.

20.  Since then, the parties have taken the following steps in this action:

(a)  On 13 March 2020, the defendant filed its Timetabling Questionnaire.

(b)  On 5 November 2020, the plaintiff filed a Notice of Change of Solicitors. On 1 December 2020, the plaintiff filed its Timetabling Questionnaire.

(c)  On 7 December 2020, the parties filed a Consent Summons jointly seeking the usual case management directions.

(d)  On 19 January 2021 and 3 February 2021, the defendant and the plaintiff respectively filed their Lists of Documents.

21.  On 23 March 2021, the plaintiff issued P’s Summons.

22.  On the same occasion the Master dismissed P’s Summons, the Master, apparently on his own volition and no doubt with an intention of hurrying the matters on, also (a) made an unless order that the defaulting party’s claim or counterclaim be struck out if it failed to exchange its witness statement on 19 October 2021 and (b) fixed a hearing on 11 November 2021 for setting down the matter for trial. In compliance to the said unless order, the parties have also exchanged their witness statements on 19 October 2021.

23.  On 9 November 2021, the Master made another unless order against the plaintiff that unless it made an application to amend its Writ and Statement of Claim by 1 December 2021, it be debarred from doing so. In due compliance and on 1 December 2021, the plaintiff applied and was later granted leave to so amend.

24.  The defendant in resisting this appeal, I think rightly, did not seek to rely on the steps taken by the plaintiff in compliance of the said 2 unless orders, which steps were in my view clearly taken under the pressure of the unless orders.

Legal principles

25.  Mr Cheung and Mr Lam, respectively counsel for the plaintiff and counsel for the defendant, addressed me in their written submissions quite extensively on the law. Both cited and relied on the landmark CFA case of Wing Fai Construction Co Ltd v Yip Kwong Robert (2011) 14 HKCFAR 935 in which the learned Chief Justice Ma comprehensively reviewed the cases and principles and then explained and re-instated them in light of the changes made in the Civil Justice Reform. In my view, the parties do not have a real disagreement on the applicable principles, but are arguing how they should be applied and that emphasis should be placed one over some other of those applicable principles. In considering this matter, I have borne in mind and directed myself in accordance with these general principles, which I shall not quote in length here.

Inordinate and inexcusable delay

26.  It is more than plain that by any measure 11 and a half years of complete inaction was inordinate delay.

27.  Initially in his written submissions, Mr Lam submitted that the delay could nevertheless be regarded as excusable, given that the defendant “has fully explained the reasons for the delay” and with some “reasonable allowance” afforded to the defendant.

28.  It is particularly pertinent to note that the reason given by Lai Kin Hung Andy (“Lai”), a director of the defendant, for the complete inaction in the initial 2 years was that “business dealings between the parties in fact lasted well into 2009. Out of respect for the business relationship between the parties, and not wanting to destroy potential business opportunities between the parties, I decided to put the case temporarily on hold and did not wish to actively push forward with the present case at the time”[5] (my emphasis). In my view, not only was that not a good reason justifying the delay, but the defendant is actually informing the court that it was its conscious decision, based on consideration of its business interest, not to further prosecute its counterclaim (albeit with a gross that it was a “temporary” hold). I will refer to this later on.

29.  For the period from 2010 to 2019, Lai gave the following reasons for inaction : that in 2010 his father’s health deteriorated dramatically and he devoted all his time and resources to expand the defendant’s business to Guangxi and Hainan from 2010 to 2015, while in 2015 he suffered an accident (without giving any details) requiring follow-up treatments, and then in 2017, he had to make arrangements for his father to emigrate to Thailand.

30.  I have no difficulties in finding that none of these, singularly or together, are good reasons justifying the complete inaction since March 2008, particularly bearing in mind that the defendant has been legally represented from 2007 until now and by the same firm of solicitors.

31.  At the hearing, Mr Lam expressly accepted, in my view rightly, that the delay was inexcusable. I so find.

Serious prejudice and an abuse?

32.  The gravamen of the plaintiff’s complaint of serious prejudice is that there is a substantial risk that a fair trial is no longer possible in that:-

(a)  HS Tang, a director of the plaintiff who attended the Meeting, is now aged 77 and partially retired. He can no longer recall the details of the Meeting including what was discussed as a result of loss of memory due to old age and the lapse of over 14 years between the Meeting and now.

(b)  KH Yung, a director the plaintiff and the other representative of the plaintiff who attended the Meeting, had resigned his directorship in December 2015 and had changed his phone number, and thus cannot be contacted. In any case, he was born in 1940 and is now 81 years old and would not be able to recall the details of the Meeting.

(c)  Tang Kin Wai, the key person of the plaintiff at the time handling the entire transaction regarding the Generator Set, unfortunately passed away in May 2020 at the age of 41.

(d)  The plaintiff had tried to contact Leung, the defendant’s then District Sales Manager who attended the Meeting, whom the plaintiff believed would speak the truth. However, the plaintiff found out that Leung had left the employment of the defendant and could no longer be contacted.

33.  The plaintiff now says that it is no longer able to properly present his case, particularly in relation to the defendant’s allegations about what was said, was discussed and was even accepted by the plaintiff in the Meeting.

34.  On 19 October 2021, the defendant filed the witness statement of Lai. Lai there said that on 9 August 2007 before Leung attended the Meeting, Lai personally instructed Leung to inform the plaintiff a number of specific matters which Lai listed out in his witness statement (which were the same matters pleaded in D’s F&B as set out in paragraph 13 above), and that Leung reported to him afterwards that all these matters were duly conveyed and the plaintiff had decided to purchase the older model and such.

35.  Upon enquiry by this court at the hearing, the defendant did not say whether it would or would not be calling Leung as its witness in due course.

36.  I agree with the submission of Mr Cheung that what was actually discussed in the Meeting between the participants and what was there conveyed by Leung to, and understood/accepted/agreed by, HS Tang and KH Yung would be a very important aspect of the factual dispute at trial. Arguably, what was so conveyed by Leung and understood/accepted/agreed by HS Tang and KH Yung would form part, if not a very important part, of the factual matrix and context for the proper interpretation of Clause I to resolve its meaning in the context of the present dispute. Indeed, such factual allegations now so pleaded by the defendant may even support a case that what was agreed in the Meeting form part of the agreement reached by the parties, which case the defendant may later introduce by amending its Defence and Counterclaim. As such and either way, I do not accept Mr Lam’s submission to the effect that the issue for trial is a simple one of construction and the evidence of the parties’ witnesses would be unimportant.

37.  Moreover, the specific issues of facts to be resolved at trial would concern whether certain words were actually spoken and their context, and what the oral response of the other parties was (if any) and what the response meant objectively and in context. At the hearing, this court brought up the case of Yu Man Fung Alice v Chiau Sing Chi Stephen[6] as a prime illustration of what might be entailed in resolving the factual dispute regarding alleged oral communications that took place a long time ago. The credibility of the witnesses no doubt would be closely examined, their demeanours and performance in the witness box pivotal, as would whether there were inconsistencies and other unsatisfactory aspects in his testimony, not just on details concerning the Meeting, but concerning his testimony over other aspects as well. No doubt, the parties’ witnesses would be heavily cross-examined at trial in the contest.

38.  With Tang Kin Wai now deceased, both HS Tang and KH Yung aged 77 and 81, and KH Yung could not be contacted, and the Meeting having taken place 14 odd years ago, I am of the clear view and conclusion that there is a substantial risk that a fair trial of the present dispute is no longer possible now.

39.  Mr Lam submitted that the matter of the Meeting was raised by the defendant, who would therefore bear the burden of proof, but the defendant was prepared to take the risk that at trial it might not come up to proof regarding its allegations of what was discussed in the Meeting. With respect, one party’s willingness to take the risk of failing at trial does not make the trial thereby become any fairer generally or fairer to the other party. The defendant’s own acceptance of risk is therefore neither here nor there.

40.  Mr Lam then submitted that “there is no objective evidence” supporting that HS Tang’s memory had deteriorated from 2007 to now. Mr Lam relied on the following sentence said by G Lam J (as he then was) in Tsang Foo Keung & Another v Chu Jim Mi Jimmy & Another[7], in which the learned judge dismissed the loss of memory of a witness one Lo Ming as a head of prejudice, that “As regards Lo Ming, there is no concrete evidence to suggest that his mental capacity has deteriorated over the period of the delay, or that his unwillingness to testify is caused by the delay in the action”[8].

41.  Tsang Foo Keung was a case in which the defendant claimed adverse possession which by the nature of that claim would entail recalling events or matters regarding possession more than a decade or even longer ago. There, Lo Ming was said to be already “of advanced age”, there was no mention of whether his evidence would be important, there was also no evidence suggesting his unwillingness to testify was caused by the delay. The learned judge then observed that the alleged prejudice in the form of old age and impaired mental ability has to be examined in the light of the relevant issues, which was then outlined by him, and which concern certain land use day in and day out by the defendant there over certain periods. Moreover, it is not known what evidence was or was not proffered in that case in relation to Lo Ming’s mental capacity. As Lo Ming was said to be unwilling to be a witness, I would tend to think that there was no affirmation evidence filed by Lo Ming in that regard.

42.  Evidently, the lack of some concrete evidence to show Lo Ming’s loss of mental capacity was the consideration the learned judge gave weight to in the facts and circumstances of that case. However, the learned judge did not lay down any general rule or principle concerning such requirement to have concrete evidence, not to say the requirement to have objective evidence. Apart from the said sentence in Tsang Foo Keung, Mr Lam was unable to cite any authority in support. Bearing in mind that whether to strike out for want of prosecution is a discretionary power, the exercise of which requires consideration and assessment over a variety of matters in different circumstances, I do not accept Mr Lam’s submission that some sort of “objective” evidence is, as a matter of general rule, necessarily required.

43.  Here, HS Tang has filed an affirmation affirming to the fact that his memory was not working well in recent years and that he could not now recall well events that happened 14 years ago, and particularly that he could no longer remember the details of the Meeting. In light of the specific issues at trial in this case, the importance of the testimony of HS Tang and his performance as a witness over matters not just concerning the Meeting but over other aspects as well, as explained above, I would readily accept HS Tang’s such evidence and would also readily infer that his memory over the pertinent detail matters would have dimmed due to old age and the long lapse of 14 odd years.

44.  Mr Lam then cited a number of cases[9] and submitted that it can be seen that where a defendant alleges prejudice in the form of dimming of memory or inability to locate witnesses, the court has time and again commented unfavourably on the defendant’s failure to explain what steps had been taken to preserve relevant evidence, and treated such failure as a strong factor that weighed heavily against striking out the action based on such alleged prejudice, in that the prejudice was caused by the failure to take such steps rather than by the delay.

45.  Mr Cheung did not dispute this general approach. His straightforward submission and explanation was that after the close of pleadings in March 2008, both parties were no longer interested in pursuing this piece of litigation, and therefore no steps had since been taken by the plaintiff, as well as by the defendant. On the plaintiff’s part, Mr Cheung readily accepted that the plaintiff had since not been so interested.

46.  On the part of the defendant, the only matters proffered were the explanations given by Lai already set out in paragraphs 28 and 29 above. As said, according to Lai, it was the defendant’s conscious decision, out of furthering its own business interest, not to pursue its counterclaim in the initial 2 years. The “I was really busy” reasons given for the complete inaction in the ensuing 9 years were not only unacceptable as good reasons, but in my view, were disingenuous excuses that did not stand up to the slightest scrutiny, and I completely reject them as not being the true reasons behind the complete inaction for those 9 years by the defendant.

47.  Both parties’ complete lack of interest in further pursuing the litigation was also borne out by the objective fact that since March 2008, there was a complete lack of out-of-court communications made or steps taken in relation to this dispute. The dispute was thus left completely dormant and unmentioned, whether within the court proceedings or outside, for over 11 years.

48.  In the circumstance, the irresistible inference this court would draw is that after the close of pleadings both the plaintiff (who conceded it) and the defendant were no longer interested in pursuing this piece of litigation to conclusion.

49.  In my judgment, there were thus abuses of process, per Grovit v Doctor, on the part of both the plaintiff and the defendant in that they respectively commenced the claim and the counterclaim herein with no intention of bringing them to conclusion. For this reason also, I think it appropriate to exercise my discretion to strike out both the claim and the counterclaim herein as abuses.

50.  Given the above, I accept as tenable the plaintiff’s explanation that it was upon the understanding that both parties were no longer interested in pursuing this action that it did not take further steps in preserving the relevant evidence. Thus, I do not find the failure by the plaintiff to take steps to preserve evidence as weighty a factor against the plaintiff. Evaluating the overall circumstances, I would not hold that the substantial risk that a fair trial is now no longer possible was the plaintiff’s own making.

51.  Regarding the defendant’s point that the plaintiff had taken certain steps in this action between the defendant’s Notice of Intention to Proceed and P’s Summons and that there was delay in applying to strike out in this period, I accept as reasonable the plaintiff’s explanations that its present director Yung Yam Man only took over management of the plaintiff in 2016 and he needed the time to investigate, to locate and contact the above-mentioned previous personnel of the plaintiff, and to seek proper legal advice before the plaintiff decided to issue P’s Summons, and that the steps the plaintiff took in the meantime were formal steps such as filing the timetabling questionnaire and consenting to the usual case management directions. I do not consider there was substantial delay or that the taking of those formal steps is a weighty consideration in the circumstances.

52.  In the round, I am satisfied that it is appropriate and just to exercise the court’s discretion to strike out the counterclaim. It was repeated stressed by Mr Lam that only in a plain and obvious case that the court should so strike out as a measure of last resort. For the avoidance of doubt, I have taken these into account and am so satisfied.

Disposal

53.  In the premises, I will allow this appeal and order that the defendant’s counterclaim herein be struck out for want of prosecution; and will also order that the plaintiff’s claim herein be likewise struck out for the same reason.

54.  I will make a costs order nisi that the plaintiff will have the costs of this appeal and P’s Summons, including the costs of the hearing before the Master, with certificate for counsel, to be taxed if not agreed. This order nisi will become absolute after 14 days unless either party applies by summons to vary within that time.

55.  Concerning the costs of this action, as asked jointly by both counsel, I direct that (a) both parties lodge and exchange their respective written submissions on costs of this action setting out clearly the costs order(s) sought within the next 21 days, and (b) both parties lodge and exchange their reply written submissions, if so advised, within 14 days thereafter. This court will then dispose of the matters on papers.

56.  Lastly, I thank both counsel for their assistance.