WAH NAM GROUP LTD (In Liquidation) AND ANOTHER v. INSIGNIA BROOKE (HONG KONG) LTD AND OTHERS

HCA661/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 661 OF 2004

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J U D G M E N T

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Background

1. The 1^st plaintiff (Wah Nam Group Limited) was wound up by an Order made on 26 July 2000.  There were two liquidators appointed therefor.  On 12 May 2003, the 2^nd defendant Mr Tony Cheng was orally examined by Mr John Scott SC, counsel for the 1^st plaintiff on the instructions of the solicitors for the liquidators.  

2. One Mr David Faulkner of the 1^st defendant (Insignia Brooke (Hong Kong) Limited formerly known as Brooke International (China) Limited) was also orally examined.  From the transcript of the examination, the following factual matters were drawn out from the witnesses, namely :

(1) The liquidators found out that the 2^nd defendant was the senior manager of the Corporate Valuations Department of the 1^st defendant.  Mr Cheng had made certain valuation report of a piece of land.

(2) Mr Cheng admitted that one Mr William Sham of Brooke International did not review the related feasibility study dated 22 June 1999, but he did look at the final version of the valuation report dated 29 December 1999 relating to the stated valuation.

(3) There were a feasibility study and 4 property valuations (a total of 5 documents) submitted by Tony Cheng to the 1^st plaintiff between June and December 1999, i.e. before its liquidation.  The land was located in Xiao Liu Bu, Tian Shui District in Xinhui City of Jiangmen City of the Guangdong Province. 

(4) The open market valuation was stated as $45 million as at 31 October 1999.  

(5) Upon investigation by the liquidators, they opined that a reasonable and fair assessment of the open market value of the property as at the same date was only in the region of between RMB5.328 million to RMB6.66 million only.  

(6) However the company relied on the valuation of the 2^nd defendant for and on behalf of the 1^st defendant in acquiring the property at $45 million, and has therefore suffered loss and damage in the region of about $38.657 million.  The acquisition was made through the 2^nd plaintiff by purchasing the shares of the vendor, one Summit Mass Limited.

(7) There were five documents signed by Tony Cheng as follows :

(i)    Draft Valuation Report dated 14 June 1999;

(ii)  Feasibility Study Report dated 22 June 1999;

(iii)    Draft Valuation Report dated 25 November 1999, signed by Tony Cheng for and on behalf of Brooke International;

(iv)    Final Valuation Report dated 28 December 1999 signed by Tong Cheng for and on behalf of Brooke International; and

(v)  a circular  with the inclusion of the valuation letter and certificate dated 28 December 1999 signed by Tong Cheng for and on behalf of Brooke International.

(8) There is a dispute as to whether Tong Cheng was acting for he himself only as alleged by Mr Faulkner or Tong Cheng was acting on behalf of Brooke International as alleged by the liquidators.

(9) For reasons only best known to Mr Scott, counsel for the 1^st plaintiff, or possibly those instructing him and the liquidators, no question has been asked in the oral examination of Tong Cheng as to whether he was acting for he himself only or for and on behalf of Brooke International.

The litigation

3. After a letter of demand before action on 15 October 2003, Mr Rod Sutton, one of the joint and several liquidators with one Desmond Chiong Chung Seng, wrote to Insignia Group (HK) Limited, the liquidators instituted the present proceedings in the name of the 1^st plaintiff and the 2^nd plaintiff by writ of summons on 19 March 2004.  The 2^nd plaintiff is a wholly owned subsidiary of the 1^st plaintiff.

4. After the Writ was served, there is nothing very unusual in its course of litigation (see Appendix 1 of Chronology annexed hereto, which was helpfully prepared by the 1^st defendant’s solicitors).  There were some incidents of discovery after discovery, and amendment after amendment.  This is expected as the 1^st plaintiff is represented by liquidators instead of its usual company directors/officers/senior executive.  Further the 1^st defendant is denying its involvement or the 2^nd defendant’s representative capacity for the 1^st defendant.  There were also several requests for Further and Better Particulars. 

5. On the other hand, the 1^st defendant eventually succeeded in getting an Order for security for costs from the 1^st plaintiff who then paid $3 million into court for that purpose on 20 March 2007.  The 1^st defendant and the 2^nd defendant filed their 4^th and 1^st Supplemental List of Documents respectively in June and July 2007.  Apparently these were the last items of works appearing in the court file. 

The striking out

6. On 15 May 2009 the 1^st defendant took out a summons to strike out the plaintiffs’ claim against the 1^st defendant for want of prosecution.  There was no letter of warning beforehand.  The 1^st defendant alleged that the plaintiffs had not done anything between March 2007 and May 2009 for 26 months.  The 1^st defendant relied on the following grounds and authorities cited :

(1) the plaintiffs are guilty of inordinate and inexcusable delay in the prosecution of the action[1];

(2) this kind of default was intentional and contumelious[2];

(3) the delay had caused the 1^st defendant to suffer serious prejudice and has given rise to a substantial risk that it is not now possible to have a fair trial of the of those matters in issue between the plaintiffs and the 1^st defendant[3]; and

(4) the limitation periods in respect of the plaintiffs’ claim against the 1^st defendant have expired. 

The delay

7. On the other hand, Mr Sutton in his 3^rd affidavit dated 12 June 2009, paragraph 9 set out those steps taken by the plaintiffs in trying to contact factual witnesses between October 2006 up to date as follows :

“9.   Without waiving legal professional privilege in communications between the Plaintiffs and/or their legal advisers on the one hand and factual witnesses on the other hand, I set out below the steps taken by the Plaintiffs in trying to contact them for the purpose of preparing the witness statements:

(i) Matthew Chan

Date	Steps
Oct 2007 to late 2008	Attempts to establish contacts with Matthew Chan
	Steps taken include: e-mailing all of his known personal e-mail accounts; conducting directorship search and land search seeking to locate his whereabouts etc.
Late 2008	Established contact with Matthew Chan, now based in Canada
8 Jan 2009 to date	Interview with Matthew Chan by way of telephone conferencing
	Further communications regarding his evidence
	Draft witness statement now prepared

(ii)  Patrick Cheng

Date	Steps
Oct 2006	Meeting with Patrick Cheng in Hong Kong
Feb 2009	Established contact with Patrick Cheng, now based in Beijing
9 Mar 2009	Interview with Patrick Cheng
To date	Draft witness statement prepared

(iii) Chow Kit Lin

Date	Steps
19 Mar to 30 Aug 2008	Telephone conversations with Ms Chow and her husband to seek her corporation
	Cooperation refused

(iv) Dr Paul Yong

Date	Steps
13 Feb 2009	Letter sent to Dr Yong to seek his cooperation
	Established contact with his lawyer in Hong Kong shortly after
	Cooperation refused

(v)  Andy Choy

Date	Steps
16 Oct 2008	Telephone conversation with Andy Choy seeking his cooperation
29 Oct 2008	Letter sent to Andy Choy to request cooperation
	No response
29 Apr 2009	Second letter sent to Andy Choy to request cooperation on threat of resuming private examination pursuant to section 221 of the Companies Ordinance
	No response
12 May 2009	Established contact with Andy Choy by telephone after a search on the Internet on Google.com
13 May 2009	Interview with Andy Choy”

8. One would expect a lot of difficulties in getting a witness statement from each of the potential witnesses who worked in the plaintiffs company as certain material facts may implicate them.  Further the matter became even more difficult because Summit Mass Limited now said that they have lost all the title documents to the Land.  From the unchallengeable evidence of Mr Sutton, I accept his explanation that time was spent in getting evidence from witnesses and I was told by counsel for the plaintiffs that the witnesses statements of Matthew Chan and Patrick Cheng can be exchanged at any time now.  Thus there was no inordinate and inexcusable delay between March 2007 and May 2009.  The plaintiffs were at least not “warehousing” the action herein. 

9. However, at the hearing before me, Mr Bowers of the 1^st defendant’s solicitors questioned why the plaintiffs’ witnesses were not interviewed immediately or shortly after the Oral Examination in May 2003 or at least shortly before/after the Writ issued in March 2004.  A lot could be said of the wisdom in taking witness statements from all potential witnesses at an earlier stage.  Although liquidators and solicitors for the plaintiffs were mindful of the usual 6 years’ limitation from the dates of the Feasibility Study and the Valuation Reports between June and December 1999, there was no reason why witnesses had not beencontacted shortly after May 2003 or March 2004.  Steps therefor could be taken collaterally with the on-going litigation since March 2004.  Although it would have taken some time in getting statements from those witnesses, it could not be said that 2 years would also be required after the Writ was issued for that purpose, pushing the payment of $3 million into court by the plaintiffs from March 2007 to May 2009 or even up to June 2009. 

10. I must say taking witnesses statements only after the close of pleadings, or maybe, discovery also, has caused some delay by the plaintiffs’ liquidators and solicitors.  However, I cannot say this delay is inordinate and inexcusable.  In any event, it is not intentional and contumelious. 

11. In other words, the plaintiffs were not “warehousing” the action.  If they were not serious, they would not have paid $3 million into court.  They were actually actively working in the case by obtaining statements from potential and important witnesses.  Their delay was in taking those steps only after discovery but not earlier and not simultaneously with the earlier course of litigation.  Thus, I do not consider it appropriate to strike out the plaintiffs’ claim against the 1^st defendant for want of prosecution in the circumstances of this case.  There is simply no want of prosecution. 

Any prejudice?

12. The next question to decide is whether there is any prejudice caused by the plaintiffs to the 1^st defendant to the extent that there will not be a fair trial between them.  The 1^st defendant said that the plaintiffs’ case against the 1^st defendant is relying on some oral communications between the plaintiffs and the 2^nd defendant.  There were only 5 documents (as aforesaid) to support their case against the 1^st defendant.  Mr Faulkner has already said that there was not one single document or file in the hands of the 1^st defendant in respect of this valuation.  The 1^st defendant said the 2^nd defendant was, all along, acting for himself only and not for and on behalf of the 1^st defendant.  The 1^st defendant can call 5 former employees of the 1^st defendant to support its case.  But because of the lapse of time since 1999, they will not be able to give sufficiently detailed, relevant and accurate evidence to resolve those matters in issue.  

13. These 5 potential witnesses, in the words of Mr Richard Khaw, counsel for the plaintiffs, all of a sudden, swore affidavits in May 2009, all stating in almost identical terms that they no longer have any reliable memory of the detail of any of the events relevant to the issues in dispute.  They are :Wong, Brooke, Sham, Jackson and Faulkner.  

14. However the main defence of the 1^st defendant is that the 2^nd defendant was acting for the 2^nd defendant himself only.  When the 2^nd defendant signed 3 of those 5 documents, stating the 2^nd defendant was signing for and on behalf of the 1^st defendant, the 1^st defendant said that according to its company policy, only senior surveyors of director or head of department level were authorised to give valuations on behalf of the 1^st defendant.  Thus the 2^nd defendant had no authority to sign any valuation report on behalf of the 1^st defendant.  Further the 1^st defendant said the plaintiffs’ purchase of the Land by way of purchase of Summit Mass Ltd was not a commercial transaction at arm’s length and the plaintiffs did not rely on the defendants’ valuation at the time of purchase. 

15. Accordingly, Mr Khaw submitted that the 1^st defendant could not say what material facts those 5 witnesses could not remember in detail in order to establish its aforesaid defences.  

16. Further, there is no reason why the 1^st defendant’s witnesses (being qualified surveyors or valuers) could not give evidence on general matters in the trade such as methodologies, assumptions on availability of general utilities, basis of comparison, and also the need to take into account previous transactions.  In any event, expert evidence can assist in this regard. 

17. I accept the submissions of Mr Khaw.  In the first place, if there is any delay on the part of the plaintiffs in not taking proof of evidence from witnesses earlier, there is no inordinate and inexcusable delay, which in turn has caused prejudice to the 1^st defendant resulting in a risk that it is no longer possible to have a fair trial, i.e. some delay on the plaintiffs is not enough to strike out their claim.  The delay must be inordinate and inexcusable which has caused the alleged prejudice. 

18. Even if I am wrong here, there is no real risk in the circumstances of this case in light of the defences of the 1^st defendant and thus, those issues in dispute, even with the passage of time of 10 years after 1999.  In the course of argument at the hearing, Mr Bowers submitted that the plaintiffs should have taken statements earlier.  In that case the 1^st defendant or its solicitors must have taken statements from their 5 witnesses much earlier in 2003 at the time of the Oral Examination or shortly after the writ was issued.  If not, I would only say : “those who live in glass houses should not throw stone”. 

19. In respect of oral evidence of instructions from the 1^st plaintiff to the 2^nd defendant, the 2^nd defendant can testify subject to cross-examination by the 1^st defendant at the trial.     In any event, the plaintiffs’ case against the 2^nd defendant shall continue and he is at liberty to subpoena any of the witnesses of the 1^st defendant. 

20. On the other hand if the 2^nd defendant’s case is that he was acting for and on behalf of the 1^st defendant, the 1^st defendant will be brought back to the trial by the 2^nd defendant’s third party’s proceedings against the 1^st defendant in any event.  As submitted by Mr Khaw, this will be an overwhelming factor against the 1^st defendant in its present application as in the case of Lui Chun Kwong v. Kier Hong Kong Limited & Ors [1995] 1 HKC 695 at 71B-C.  It will be entirely undesirable if the court is to find at the end of the day, that the 2^nd defendant was actually acting for the 1^st defendant, but the case against the latter had already been struck off.  

Limitation?

21. The fact that the plaintiffs’ action may be barred by now would actually cut both ways.  This action should not be struck out unless the plaintiffs are guilty of inordinate and inexcusable delay, which I have earlier decided to the contrary.  Thus, in an action with a prima facie case of meritorious claim, the action should not be struck out if the plaintiffs cannot commence another action within the limitation period again.

Master Levy’s Order

22. As a last resort, Mr Bowers submitted that the plaintiff have not complied with Master Levy’s Order way back to 6 October 2004, which provided that the parties should file and exchange witness statements of facts within 90 days of the completion of inspection of documents.  (See my endorsement in red and bold letters in Appendix I.)

23. However, there is no evidence whether or not and if so when inspection of documents has been completed; whether by way of actual inspection or inspection by copies of the original in possession of a party being given to the other party.  Thus it is not even certain whether 90 days thereafter has actually expired.

24. Further, there were a number of amendments and discoveries by Lists of Documents and, as submitted by Mr Khaw, this timetable would have to be revisited.  The 1^st defendant has not even requested the plaintiffs to exchange witness statements or any indication that the 1^st defendant’s own witness statements were ready for exchange.

25. In any event, this is not a striking out for non-compliance of Master Levy’s Order way back to October 2004.  If so, the 1^st defendant will have to obtain an Unless Order in the first place.

Conclusion

26. The 1^st defendant has not made out a case for striking out the plaintiffs’ case for want of prosecution and its application is therefore dismissed.

27. The usual order of costs-should-follow-the-event should be made.  Accordingly there is also an Order nisi that the 1^st defendant shall bear the costs of the plaintiffs in this application in any event.

Epilogue

28. As suggested by Mr Khaw, there should be a summons for direction as the plaintiffs are in a position to exchange witness statements.  This can be done by the parties themselves.  In the wake of the new Civil Justice Reform, I would however further direct and order as follows :

(1) the parties shall, as far a possible, try to agree on further directions and/or orders of the Court; and

(2) the parties shall proceed to fix a Management Conference before me (since I have been seized of the case) or any other Judge (if one cannot be fixed in the near future accordingly to my diary) on a date to be fixed in consultation with counsel’s diaries.

 

 

June & December 1999	2nd Defendant’s valuation of the Property
6 January 2000	Purchase of the Property
26 July 2000	Winding-up Order against the 1st Plaintiff
12 May 2003	Oral examination of the 2nd Defendant in the liquidation of the 1st Plaintiff
13 May 2003	Oral examination of David Faulkner in the liquidation of the 1st Plaintiff
15 October 2003	Letter before action to the 1st Defendant
19 March 2004	Writ of Summons
3 April 2004	1st Defendant’s Acknowledgment of Service
4 May 2004	1st Defendant’s Defence
12 May 2004	2nd Defendant’s Defence
14 May 2004	2nd Defendant’s Amended Defence
2 July 2004	Reply to the 1st Defendant’s Defence
2 July 2004	Amended Writ of Summons / Statement of Claim
20 July 2004	1st Defendant’s Notice of Change of Solicitors
27 July 2004	2nd Defendant’s Re-Amended Defence
13 September 2004	Plaintiffs’ Summons for Directions
6 October 2004	Order: Master Levy (directions) that, inter alia, the parties shall exchange witnesses statements within 90 days after completion of inspection of documents…
3 November 2004	2nd Defendant’s List of Documents
17 November 2004	1st Defendant’s List of Documents
9 December 2004	Plaintiffs’ List of Documents
17 May 2005	Plaintiffs’ 2nd List of Documents
25 May 2005	1st Defendant’s Request for Further and Better Particulars of the Amended Statement of Claim
25 May 2005	1st Defendant’s Request for Further and Better Particulars of the Reply to the 1st Defendant’s Defence
14 June 2005	Plaintiffs’ 3rd List of Documents
25 June 2005	1st Defendant’s Supplemental List of Documents
29 July 2005	1st Defendant’s Summons (Answers to the 1st Defendant’s Requests for Further and Better Particulars)
6 September 2005	Plaintiffs’ Answer to the 1st Defendant’s Request for Further and Better Particulars of the Amended Statement of Claim
6 September 2005	Plaintiffs’ Answer to the 1st Defendant’s Request for Further and Better Particulars of the Reply to the 1st Defendant’s Defence
7 October 2005	1st Defendant’s 2nd Supplemental List of Documents
21 March 2006	1st Defendant’s 3rd Supplemental List of Documents
9 May 2006	Re-Amended Writ of Summons/Statement of Claim
5 June 2006	1st Defendant’s Amended Defence
14 June 2006	2nd Defendant’s Re-Re-Amended Defence
24 July 2006	Amended Reply to the 1st Defendant’s Amended Defence
20 September 2006	Plaintiffs’ 4th List of Documents
26 September 2006	1st Defendant’s 1st Affidavit of Alice Veronica Hutchens (security for costs)
27 September 2006	1st Defendant’s Summons (security for costs)
2 November 2006	Plaintiffs’ 2nd Affidavit of Roderick John Sutton (security for costs)
22 November 2006	1st Defendant’s 2nd Affidavit of Alice Veronica Hutchens (security for costs)
14 February 2007	Order: Registrar C. Chan (security for costs)
20 March 2007	Plaintiffs’ Notice of Payment into Court (HK$3 million security for the 1st Defendant’s costs)
13 June 2007	1st Defendant’s 4th Supplemental List of Documents
18 July 2007	2nd Defendant’s Supplemental List of Documents
15 May 2009	1st Defendant’s Summons to strike out the Plaintiffs’ claim against the 1st Defendant for want of prosecution