LEECOM HOLDINGS LTD AND ANOTHER v. DAVID TSUI PO WING

HCA 2294/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2294 OF 1997

____________

____________

_______________

J U D G M E N T

_______________

1.  On 1 November 2005 a Master on the defendant’s application dismissed this action for want of prosecution.  This is an appeal by rehearing from that decision.

Background Facts

2.  Jeffrey Lee owns and controls the 1^st plaintiff.  The 2^nd plaintiff is his mother.  He and the defendant were longstanding friends going back to schooldays.

3.  In 1987, the defendant incorporated a company called Paigorton Limited (Paigorton) to be used as a vehicle for himself and other participants to buy and sell shares in a company called Japan Wool Textile Limited (Japan Wool) which was listed on a Japanese stock exchange.

4.  In March 1987, the defendant and Mr Lee discussed his participation in the venture.  The upshot was an agreement that the 1^st plaintiff would advance to the defendant $1 million to be used to purchase shares in Japan Wool on the basis that profits engendered would be split between them.  It was further agreed that the 2^nd plaintiff would advance funds for investment in her own right.  To this end in April 1987, the 1^st plaintiff made over $1 million which the defendant used to buy 11,918 shares, and the 2^nd plaintiff paid the equivalent of $4,073,660.00 which was used to buy a further 48,545 shares.

5.  The plaintiffs were two of a number of participants who invested in Japan Wool through Paigorton.  According to the defendant, between April and August 1987, nearly ¥900 million was utilised to buy a total of 540,000 shares in Japan Wool.

6.  It is the plaintiffs’ case that by 1989, with no return on their investments having been forthcoming, Mr Lee began to press for their money back.  The defendant vacillated, saying that market conditions were not favourable.  In early 1991, he asked for a further 6 months to realize on the shares.  The outcome was an agreement, professionally prepared, made between and signed by the plaintiffs and defendant, who was described therein as acting in his personal capacity and as an agent for Paigorton.  The agreement provided for the division of the proceeds of sale of the shares purchased by the funds provided in turn by each of the plaintiffs.  The 2^nd plaintiff could call for a sale at any time; the 1^st plaintiff could do so after 6 months from the date of the agreement, which was 22 March 1991.  The defendant in his personal capacity guaranteed repayment of the loan of $1 million.

7.  From about September 1991, the plaintiffs demanded a sale of the shares and a release of the proceeds.  In or about 1992, 20,000 of the shares were sold, and in January and February 1992, a total of $2,362,675.95 was paid over.

8.  Nothing further was to be forthcoming.

9.  It is the plaintiffs’ case that despite repeated demands, the defendant failed to pay to the plaintiffs the balance of their investments or to account to them for the remaining 40,463 shares in Japan Wool or the proceeds of sale.

10.  In late 1996, Mr Lee instructed the issue of these proceedings; the writ is dated March 1997.  He says the delay, which in fact brought the action close to being time-barred, was in deference to the relationship of 30 odd years he had with the defendant.

11.  The defendant filed a defence in May 1997.  In it he denied any liability.  Inter alia his grounds were a want of consideration in the March 1991 agreement and that because of adverse market forces, the amounts paid to the plaintiffs in January and February 1992 represented the sum total of the sale proceeds of the shares purchased with the plaintiffs’ funds.

12.  Various steps in the proceedings as I shall come to were then undertaken.  Suffice to say for the moment that by June 2005, 8 years after the writ and nearly 14 years after the cause of action arose, with the proceedings still unresolved, the defendant made his application for a dismissal which the Master was to grant in November last.

The Legal Principles

13.  These are well settled; the leading authority is the House of Lords’ case Birkett v James [1978] AC 297.  Lord Diplock, at page 318, referred to the inherent jurisdiction available to judges to dismiss an action for want of prosecution, if there was a delay so prolonged that to bring on the action would involve a substantial risk that a fair trial of the issues would not be possible.  He said:

“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.”

14.  Later in his judgment, Lord Diplock explained that any lapse of time before the issue of the writ could not of itself constitute inordinate delay, which must relate to time which the plaintiff allows to lapse unnecessarily after issue of the writ.  But pre-writ delay may play a part.  At page 322, he said:

“A late start makes it the more incumbent upon the plaintiff to proceed with all due speed and a pace which might have been excusable if the action had been started sooner may be inexcusable in the light of the time that has already passed before the writ was issued. … To justify dismissal of an action for want of prosecution some prejudice to the defendant additional to that inevitably flowing from the plaintiff’s tardiness in issuing his writ must be shown to have resulted from his subsequent delay (beyond the period allowed by rules of court) in proceeding promptly with the successive steps in the action.  The additional prejudice need not be great compared with that which may have been already caused by the time elapsed before the writ was issued; but it must be more than minimal; and the delay in taking a step in the action if it is to qualify as inordinate as well as prejudicial must exceed the period allowed by rules of court for taking that step.”

15.  The merits of a plaintiff’s case is generally not a matter with which a court faced with an application to dismiss need be concerned.  In Austin Securities Limited v Northgate and English Stores Limited [1969] 1 WLR 529, Lord Denning MR said at page 531:

“We are not concerned with the merits of the claim or defence, but with the course of the legal proceedings.”

16.  And in Allen v Sir Alfred McAlpine and Sons Limited [1968] 2 QB 229, Lord Denning declined to disturb an order for dismissal notwithstanding what he described as a grievous wrong suffered by the plaintiff in the loss of her husband, giving her a good claim for compensation.  In spite of that, he said at page 248:

“The delay has been so great that two out of six witnesses cannot now be traced and the memory of the other four must be greatly impaired.  It is impossible to have a fair trial after so long a time.  The judge struck out the action.  I would not disturb his decision.”

17.  The Court of Appeal case of Hunter and Skingley, [1997] 1 WLR 1466, is authority for the proposition that account should be taken of the respective roles of the parties giving rise to delays in proceedings.  In this case, it was held that the judge was wrong to dismiss the action on the grounds of prejudice caused by inordinate delay because the defendant was materially to blame for the delay.

18.  That said, the burden of prompt pursuit of a claim falls squarely on the plaintiff.  It is not for the defendant to press for resolution.  In Birkett v James (supra), Lord Salmon said at page 329:

“Prior to 1967 a comparatively small but nevertheless significant number of solicitors appearing for plaintiffs had been guilty of inordinate and inexcusable delay in proceeding with their clients’ claims.  This unfortunate practice had been responsible for causing serious prejudice to plaintiffs and defendants alike.  These delays had become a blot on the administration of justice for it is of great public importance that actions should be brought to trial with reasonable expedition.  Defendants’ solicitors might no doubt have taken out applications to dismiss for want of prosecution or for peremptory orders to compel the plaintiffs to get on with their actions.  Not unnaturally they rarely did so, relying on the maxim that it is wise to let sleeping dogs lie.  They had good reason to believe that a dog which had remained unconscious for such long periods of time might well die a natural death at no expense to their clients; whereas, if they were to take the necessary steps to force the action to trial, they would merely be waking up a dog for the purpose of killing it at great expense to their clients which they would have no chance of recovering.  Accordingly it was unusual for summonses to dismiss actions for want of prosecution or for peremptory orders to be taken out.  I do not think that defendants’ solicitors can be blamed for this practice nor that the plaintiffs or their solicitors should be entitled to derive any benefit from it.”

19.  On the same point, in Allen v Sir Alfred McAlpine and Sons Limited (supra) Lord Diplock said at page 257:

“As regards the position of the defendant, the Rules of the Supreme Court give to the plaintiff the initiative in bringing his action on for trial.  The pace at which it proceeds through the various steps of issue and service of writ, of pleadings and discovery, of order for directions and setting down for trial is in the first instance within his control.  The rules also provide machinery whereby the plaintiff can compel the defendant to take promptly those steps preparatory to the trial which call for positive action upon his part and provide an effective sanction against unreasonable delay by the defendant.

….

Where the delay is on the part of the plaintiff, there are some steps, such as obtaining an order for directions or setting down the action for trial, which the defendant may take himself; but it is seldom in the defendant’s interest to press on with the trial of the action, whatever view he takes of the plaintiff’s chances of success.

….

Although in exceptional cases there may be reasons why it is to the defendant’s advantage to have an action against him disposed of speedily, it would be unrealistic to expect him in an ordinary action for damages, particularly in “accident cases,” to take steps to hasten on for trial an action in which the plaintiff’s prospects of success appear at the outset to be good.

….

It is thus inherent in an adversary system which relies exclusively upon the parties to an action to take whatever procedural steps appear to them to be expedient to advance their own case, that the defendant, instead of spurring the plaintiff to proceed to trial, can with propriety wait until he can successfully apply to the court to dismiss the plaintiff’s action for want of prosecution on the ground that so long a time has elapsed since the events alleged to constitute the cause of action that there is a substantial risk that a fair trial of the issues will not be possible.”

20.  Finally, on the issue of prejudice, I quote direct from the White Book at page 477:

“   (3)  Prejudice to the defendant – This is a matter of fact and degree and has been discussed in Allen v. McAlpine [1968] 2 Q.B. 229; [1968] 1 All E.R. 543, CA, and in a large number of reported cases.  The effect of the lapse of time on the memory of witnesses or, in the course of such time of their death or disappearance are the most usual factors.  Their importance depends upon the circumstances, the issues and the other evidence that can be given.  Thus the lapse of time may be very prejudicial if the circumstances of an accident or oral contracts or representations are in issue, but is of much less importance in a heavy, well-documented commercial action (National Insurance Guarantee Corp. Ltd. v. Robert Bradford & Co. Ltd. (1970) 114 S.J. 436. CA).  In a case of prolonged culpable delay following long delays in serving of proceedings, the court may readily infer that memories and reliability of witnesses has further deteriorated in the period of culpable delay (Benoit v. Hackney LBC, unreported, February 11, 1991, CA Transcript No. 91/0116).  Bald assertion of prejudice or of a substantial risk that a fair trial was not possible are insufficient.  There has to be some indication of prejudice. …”

21.  Lord Denning MR said in Rowe v Tregaskes (1968) 1 WLR 1475 at page 1477:

“The delay in the first two or three years is often the most prejudicial of all”.

The Issues

22.  Was there, post-writ, inordinate and inexcusable delay, in which the defendant played no significant role, giving rise to substantial risk rendering a fair trial not possible or which has resulted in prejudice to the defendant?

Delay

23.  In his affidavit filed in support of this application, the defendant set out a chronology of events and the proceedings, and I now reproduce that below:

Event		Date
Alleged Investment venture in trading between the parties		9/1987
Subsequent Agreement		22/3/1991
Writ of Summons		5/3/1997
Acknowledgement of Service		18/3/1997
Defence		5/5/1997
Summons for Order 14 by the Plaintiffs with Affirmation of Lee Chu Nee, Jeffrey in support		2/12/1997
Affirmation of David Tsui Po Wing opposing the Plaintiffs' Summons for Order 14		15/1/1998
2nd Affirmation of Lee Chu Nee, Jeffrey in reply to Affirmation of David Tsui Po Wing		2/2/1998
Order dismissing the Plaintiffs’ Summon with costs		18/3/1998
Summons for Directions		31/3/1998
Order for Directions		1/5/1998
List of Documents of the Defendant		16/5/1998
List of Documents of the Plaintiffs		5/2/1999
Summons for leave to amend Statement of Claim by the Plaintiffs		18/2/2000
Order for leave to amend Statement of Claim		22/2/2000

24.  To this list can be added:

Event		Date
Summons to dismiss		8/6/05
Order dismissing action		1/11/05
Notice of appeal		10/11/05
Hearing of appeal		23/12/05

25.  Mr Campbell for the defendant invited me to note the following periods of delay; namely, 7 months between the filing of the defence and the application for summary judgment, 9 months from the order for directions and list of the plaintiffs’ documents, and 1 year from then to the application to amend the statement of claim; a total in all of 2 years 4 months during the period Lord Denning described in Rowe v Tregaskes (supra) as “often the most prejudicial of all”.

26.  Then, following the filing of the amended defence, five years was to pass without virtually anything happening at all; filing notices of intention to proceed is not a step in proceedings, see Order 3 rule 6 RHC.

27.  Mr Sakhrani for the plaintiffs did not seek to upset the defendant’s chronology which, as he accepts, demonstrates that things were moving along slower than they should; however, in the particular circumstances, both sides were dragging their feet.  Mr Campbell for his part puts the blame squarely on the plaintiffs, apart from a period of 2 months in late 2002.

28.  It is quite apparent that it was Mr Lee who was responsible for the period of inactivity; he said as much in his affidavit to oppose.  Having otherwise considered the history, I find in favour of the defendant on the point; and 2 months compared with more than 7 years quite patently puts virtually all the delay at the plaintiffs’ door.

29.  Coupling this with the significant tardiness in getting the action off the ground in the first place, I am satisfied there was delay, that it was occasioned almost entirely by the plaintiffs, and that it was inexcusable and inordinate.

Prejudice

30.  It is useful to summarize the areas of prejudice from the evidence filed that Mr Campbell submits would result in a fair trial being impossible to achieve.

Paigorton

31.  In the original statement of claim, the cause of action is breach of the agreement of March 1991 and liability under the personal guarantee.  These claims were answered in the defence.  Then the amended statement of claim came to be filed which raised a key issue as to whom the money in question was transferred and thus who would or might be found to be ultimately liable.  Paigorton’s role was not a live issue until the pleadings were amended.  But by then, in early 2000, about 9 years after the cause of action arose, Paigorton was virtually dead.  The financial reversal of 1997 saw it undertake its last trade in that year.  With nothing to do, its staff left and it became dormant, and remained so until it was struck off the register in 2003.

32.  The investment scheme operated by Paigorton was undertaken by the accountants Peat Marwick; since then there has been a merger under the name of KPMG.  Key staff left years ago.  By virtue of the time spent and the striking out, no documentation going to the trading in shares can be found.  There was another director of Paigorton called Charles Wong.  The defendant has had no contact with him since the striking off in 2003.  And Charles Chu, the solicitor who acted for Paigorton at the relevant time, cannot retrieve the relevant file.

33.  So, vital documentary evidence, and direct evidence from those who had personal knowledge of how trading was conducted, can no longer be available at trial.

34.  Mr Sakhrani for his part submits that the issues are narrow and straightforward.  Although the pleadings were amended several years after the writ was filed, the crucial issues remain unchanged and it was or should have been always plain as to what evidence might be required to assist the defendant and his defence.  So, the delay, and in particular the most recent delay of 5 years, could not be arguably to blame for the defence not being able to produce evidence it claims is vital.  Furthermore, Paigorton was run and controlled by the defendant; there is nothing to suggest that there is or may be evidence that he is not aware of.

35.  Finally and importantly, that in complaining of an inability to mount a proper defence, the defendant has made bold assertions only, having not condescended to particulars.

My Determination

36.  I am satisfied on the matters before me for the reasons argued by Mr Campbell that the defendant has done enough to establish that it would be impossible to conduct a fair trial because of the inordinate delay by the plaintiffs in pursuing their claims.

37.  Of course it is likely to emerge that the defendant was the author of the scheme and a key player.  But it was obviously not a small operation during the period it was running.  Known statistics reveal that the plaintiffs’ interest amounted to about 11% of the total.  I accept that important evidence might only emerge through the books of account, share registers and so on that those administering the scheme would or might have been able to produce had the action been begun and pursued timeously.  Neither event occurred.  With the action having been issued nearly 6 years after the cause arose, and nearly 9 years more having transpired and a key entity having stopped trading 9 years ago and then been struck off as defunct, it is not surprising that such evidence is no longer available.

38.  I exercise my discretion by ruling in favour of the application to dismiss the action.  The appeal is dismissed with costs (nisi at first instance) to the defendant.