PHILIP LAWRENCE CHOY v. NISSEI SANGYO AMERICA, LTD.

IN THE COURT OF APPEAL

1995, No. 35
(Civil)

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J U D G M E N T

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Litton, V.-P.:

1. This appeal concerns an action instituted by Nissei Sangyo America Limited (the plaintiff) against Philip Lawrence Choy (the Defendant) in June 1990. The proceedings revolve around the affairs of a Hong Kong registered company called Camaro Trading Company Limited and, in particular, payments of commission made by the plaintiff to Camaro at its address in Huntsville Alabama totalling more than US$2m. The payments were made between September 1987 and February 1989 pursuant to a sales representative agreement dated 1 January 1987. This agreement was negotiated and signed in the USA and related to the sale of cassette mechanism to the Chrysler Corporation of Huntsville, Alabama. The commission payments were made without any deduction of a 30% withholding tax: in the mistaken belief, so the plaintiff says, that Camaro was an Alabama company. This exposed the plaintiff to tax liability in the USA.

2. The litigation has had a checkered history. This is the third occasion that the proceedings have come to the Court of Appeal. There was, originally, a claim for damages against the defendant for fraudulent misrepresentation but this has been struck out. Since the decision of this court in January 1992, all that remains of the plaintiff's claim against the defendant is a Norwich Pharmacal action for discovery: a relief, based upon the old Chancery bill for discovery, formulated by Lord Reid in Norwich Pharmacal v. Customs and Excise [1974] AC 133 at 175 as follows:

"... If through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers."

3. Accordingly, the sole relief which the plaintiff now seeks against the defendant is in these terms:

"(1) An Order that the Defendant do disclose:-

(a) the identity and location of the beneficial owner or owners of the shares of and in Camaro; and

(b) the destination and identity of the payee of the discounted amounts of the cheques paid by Berlin according to his instructions as aforesaid.

(2) And Order that the Defendant give full discovery of all documents that are or have been in his possession custody or control relating to the facts referred to at (a) and (b) of the preceding sub-paragraph hereof."

4. The "Berlin" referred to in paragraph (1)(b) above is a company called Berlin Company Exchange Limited, a licensed money-changer who, as is alleged in the statement of claim, discounted the cheques totalling over US$2m paid by the plaintiff by way of commission to Camaro.

5. As is apparent from the relief sought against the defendant, it is no longer averred by the plaintiff that the defendant is under any liability to the plaintiff beyond the duty to give information, in order that the plaintiff might pursue its claim for damages against other tortfeasors. And that cause of action against the tortfeasors is said to have arisen in 1987 in Alabama USA when the sales representative agreement with Camaro was made. It seems a fair inference to draw that if the Norwich Pharmacal claim for discovery were genuinely instituted, with the intent of identifying the tortfeasors, the plaintiffs would wish to get on with the claim as quickly as possible.

6. In this case, what happened was this: On 12 January 1993 an order was made for the exchange of documents within 28 days and the action was ordered to be set down for trial in the fixture list within 30 days, with an estimated length of trial of 7 days. But the plaintiff did nothing in the action for over one year thereafter. By letter dated 5 May 1994 the plaintiff's solicitors gave notice that they had instructions to prosecute the action to trial and asked whether the defendant's solicitors consented to their late filing of the list of documents. The defendant's response was his summons to have the action dismissed for want of prosecution. This summons was heard by Mayo J who, on 13 January 1995, immediately upon the conclusion of oral arguments, dismissed it. Hence the appeal to this court.

Inordinate delay

7. The judge found that the delay of about 14 months, up to 5 May 1994, constituted inordinate delay. I wholly agree, having regard to the circumstances of this case. It was in January 1993 that the order to set the case down for trial was made. Setting down was to take place within 30 days. But, instead, the action went to sleep for over a year. It is difficult to see how the judge's finding of inordinate delay can be faulted.

Inexcusable delay

8. The judge concluded that whilst the delay was inordinate, it was "to a large extent justified or excused". To appreciate the judge's reasoning, it is necessary to advert to the proceedings which the plaintiff commenced in May 1993 in Illinois pursuant to which a letter of request was issued. It relates to evidence to be obtained from the Hongkong Bank concerning the commissions remitted to Hong Kong between September 1987 and February 1989. The plaintiff also hoped that those proceedings would assist in showing who was the beneficial owner of Camaro.

9. By the time the judge heard the defendant's summons in this case, the evidence had been obtained pursuant to the letter of request, and it was Mr Barlow's point, for the defendant, made before the judge that the action should be dismissed by the judge for this additional reason: that the subject-matter of this litigation had been overtaken by events, as to which the judge said:

"There can be no certainty that the evidence which has been sent to Illinois will conclusively establish who was the beneficial owner of Camaro.

As can be seen from the particulars of the United States Tax Legislation recited in the Statement of Claim, it is necessary for the Plaintiff to establish that the eventual recipient of the funds in question is a United States party. If the identity of the beneficial owner of Camaro is not disclosed, the Plaintiffs may be unable to absolve itself from liability to account to the IRS for the tax which should apparently have been deducted.

This being the case, it may still be necessary for the Plaintiffs to proceed with this litigation if it is to achieve its objectives."

10. The judge then went on to say:

"From what I have stated above, it can be seen that the action being taken in the United States was designed to resolve some of the issues in the present case and perhaps save the cost of a trial. I am satisfied that the delay which was occasioned by this was, to a large extent, justified or excused."

11. In my judgment, the judge's reliance on the Illinois proceedings for excusing inaction in the present action is incorrect. As Mr Barlow rightly argues, where there are good reasons for an action in Hong Kong to be temporarily stayed, and it is in the interests of both parties that it should be stayed, the plaintiff can always seek the consent of the other side and, in the absence of agreement, can himself apply to the court for a stay: or for an extension of time sine die to take the next step in the proceedings. Where an order has already been made for the action to be set down for trial - as was done in this case - the rules specifically allow the defendant to apply to the court to dismiss the action for want of prosecution: Order 34 rule 2(2). It must be assumed that the plaintiff was aware of this. Yet it chose to do nothing in the Hong Kong proceedings for well over a year and when the defendant invoked the court's jurisdiction under O34 r2(2) the plaintiff turns round and says that there have always been good reasons why the order to set down was not complied with.

12. In my view, the judge erred in concluding that the delay was excusable. In coming to this view I am assisted by Godfrey JA's observations in Can-Asia Capital Co. Ltd. v. Kwok Yee, William and others (CA 173/94, 17 January 1995, unreported), a case concerning a claim for damages against solicitors. There were parallel proceedings against a bank, and at p5 Godfrey JA said:

"Where there is some good reason for delay, the plaintiff should put that reason to the defendant and seek the defendant's agreement to that course. That was not done here."

Substantial risk of prejudice

13. In considering the question of the risk that a fair trial might no longer be possible, the peculiar nature of these proceedings must be borne in mind. To put the defendant under a duty to provide the information sought in the statement of claim, the plaintiff will have to establish, at least on a prima facie basis, that it has a good claim for damages against a third party: here, that the deceit as alleged was practised upon it, causing it loss and damage.

14. It must be borne in mind that, given the peculiar nature of this case, there is no issue joined between the parties on the question of deceit as such. No allegation of deceit is made against the defendant which he is personally called upon to defend. What the plaintiff needs to establish on a prima facie basis is that there has been deceit practised upon it by someone else: not, perhaps, carrying a very heavy burden of proof. Nevertheless, it is difficult to see how a case can be set up at all without witnesses being called to testify. These witnesses will be recalling events which occurred in Alabama USA in 1987 and, on one matter raised in the defence, may have to go back in time to 1984. These will, of course, be witnesses for the plaintiff. No witnesses will be called for the defendant. Is this necessarily fatal to the defendant's argument of prejudice?

15. In the court below the judge, in concluding that a sufficient degree of prejudice to the defendant has not been shown, referred to the case of Hornagold v. Fairclough Building Ltd. (Times Law Report 3/6/93) and in particular to the passage in the judgment which said:

"But there had to be more than the bald assertion that the delay had prejudiced the defendants ....

There had to be some indication of the prejudice, for example that no statement was taken at the time of the material events so that a particular witness who would have been called on a particular issue had no means of refreshing his memory, or that a particular witness who was to be called on a particular issue was of an advanced age and no longer wished to give evidence or had become infirm and unavailable in the period of the further inordinate and inexcusable delay."

16. In the type of case such as Hornagold v. Fairclough Building Ltd. concerning a claim for damages for personal injuries, the "evidential prejudice" to the defendant of the kind set out in that judgment would normally be decisive. In such a case, where the limitation period has not expired, and the plaintiff is entitled to issue a fresh writ for the same cause of action if the original action were dismissed for want of prosecution, a court would be most reluctant to make such an order, unless there was a substantial risk that justice could not be done: see, for example, Lord Diplock in Birkett v. James [1978] AC 297 at 322B-C. The reasons are obvious. The court, instead of curing the injustice caused by the delay, would simply add to a further delay by dismissing the original action.

17. Here, the plaintiff is simply asking the defendant to provide it with a mere procedural tool in the action. The defendant is being "vexed" because it is said that the disclosure of the information sought from him might enable the plaintiff to maintain a cause of action against someone else: a cause of action which, if it arises at all, would arise not in Hong Kong but in Alabama. And there is before the court uncontradicted evidence that, by the law of the State of Alabama, the limitation period is two years and has long expired.

18. In these circumstances, it seems to me that the judge has placed far too heavy a reliance upon the absence of "evidential prejudice" of the kind referred to in Hornagold v. Fairclough Building Ltd.

19. A broader approach is in my judgment called for in the circumstances of this case. In this regard, Mr Barlow has drawn our attention to the decision of Sir John Donaldson MR in Pursey v. British Aerospace PLC [CA, 2.5.84 unreported] where, despite the fact that no evidence was intended to be called by the defendants, the court held that there was "non-evidential prejudice, affecting both plaintiff and defendant alike. The lapse of time has prejudiced the chances of a fair trial".

Conclusion

20. There is, of course, a general principle of law that a plaintiff should not in the ordinary way be denied an adjudication of his claim on its merits because of procedural default: see observations to this effect in Costellow v. Somerset County Council [1993]1 WLR 256 at 263-H. Where an appropriate order for costs can be made to compensate the defendant, a court would generally give to the plaintiff an enlargement of time under O3 r5 to cure the procedural default. Equally, the rules of court, devised in the public interest to promote the expeditious despatch of litigation, are meant to be observed. As Sir Thomas Bingham MR at 263-G:

"The prescribed time limits are not targets to be aimed at or expressions of pious hope but requirements to be met."

21. These are matters of fine balance. Normally, where a judge has exercised a discretion and refused an application to dismiss an action for want of prosecution, this court would not interfere. But this in an altogether exceptional case and, as I have endeavoured to explain, where the judge has adopted an erroneous approach both as regards the question of "inexcusable delay" and of "risk of prejudice", this leaves the question of discretion for us to examine afresh.

22. Looking at the matter in the round, and having regard to the long history of this litigation, I am satisfied that to allow the plaintiff to pursue its claim for information against the defendant at this stage would amount to an abuse of the process of the court. In my judgment, that was the position before the judge, but it is reinforced now for this reason: the plaintiff itself no longer wishes to pursue the claim against the defendant and has, on 11 April 1995, since judgment was delivered by Mayo J, taken out an application for leave to discontinue the action against the defendant upon various terms as to costs. The hearing of this summons has been stood over pending the result of this appeal.

23. I would allow the appeal, discharge Mayo J's order, and make an order instead that the action be dismissed for want of prosecution, with costs to the defendant. I would also make an order nisi that the plaintiff pays the costs of this appeal.

Godfrey, J.A.:

24. I agree.

Liu, J.A.:

25. I gratefully adopt the facts set out in the judgment of my Lord, the Vice President.

26. In Rath v. C.S. Lawrence & Partners, [1991]1 WLR 399 at p.406D-E, Farquharson LJ had this to say:-

"Once a plaintiff has issued his writ and set the treadmill of litigation into motion, he is bound to observe the rules of the court. If he flouts them to the extent that the plaintiffs have in the present case, I can see no reason why the defendants should not rely upon it, after the limitation has expired, to support an application to strike out." (Emphasis added.)

27. Rath was followed in Hancok Shipping Co. v. Kawasaki Ltd, [1992]1 WLR 1025. At p.1031G-H, Stanghton LJ said:-

"In Rath v. C.S. Lawrence & Partners [1991]1 WLR 399, it was held that prejudice suffered before the action would have been time-barred was relevant to the decision whether to dismiss an action for want of prosecution, even though an action will not ordinarily be dismissed until the period of limitation has expired. ...... The expiry of the cause of action is thus the condition or trigger which enables the defendant to rely on earlier prejudice."

28. In the Official Administrator suing as Administrator of the estate of Charles Henry Craggs deceased v. AG, [1981]1 HKLR 429 at p.432J Sir Alan Huggins observed:-

"If a plaintiff whose action was struck out for want of prosecution could immediately bring a fresh action, the effect of the order to strike out would be merely to cause delay and expense."

29. Earlier in Birkett v. James, [1978] AC 297 at pp.320G/H-321B, Lord Diplock had summed it up in these terms:-

"There may be exceptional cases ...... 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 well be 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. ...... 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."

30. In this case, the cause of action is claimed to have arisen as from the plaintiff's discovery of the alleged material facts in early 1989. This action was commenced on 14 June 1990. The limitation period expired in early 1995. The plaintiff failed to cause documents to be exchanged and the case set down for trial in disobedience to the directions given in January 1993. The plaintiff only gave notice of its intention to proceed in May 1994, but more than half a year before the time-bar on its alleged facts. A month later in June 1994, the defendant applied for a dismissal for want of prosecution. This is not a "late start" action but the judge is right that there has been inordinate delay. Evidently, it does not follow that the court's discretion to dismiss an action cannot be exercised before the expiry of the limitation period, but the criticisms levelled at the judge's decision here should be entertained in the context of this time frame.

31. In addition, Mayo J took into consideration (1) the involved litigation in different jurisdictions for virtually a common purpose, (2) the delay already caused by the interim and intervening applications here and elsewhere in the "somewhat chequered (litigation) history", (3) the predominantly documentary material in the questioned transactions, (4) the nature of the issues, particularly the defendant's alleged role in the financial services he provided, (5) possible dimming of witnesses' memories in the fine points of detail material to the disclosures sought from the defendant, (6) the omission to particularise the defendant's complaints of serious prejudice and (7) the anxiety occasioned by the allegations during the delay. As to (6), the difference of opinion in Hornagold v. Fairclough Building Ltd, Times 3 June 1993, was finally laid to rest by the Appellate Committee of the House of Lords in Roebuck v. Mungovin, [1994]2 AC 224, holding that it would be unhelpful "to attempt to allocate prejudice" disjunctively to either one of the two successive periods of delay in any given case. But specific evidence of alleged serious prejudice flowing from memory would still be desirable. See p.234F-G, per Lord Browne-Wilkinson. The judge was mindful of the facts that the allegations were based on events occurred in 1987 but that the relationship between the parties related back to 1984. At the time, the subject matter of litigation had not been overtaken by events. He looked at all the features in the round and balanced the circumstances as a whole. The trite principles were identified by the judge for application viz. whether the delay was excusable and "the further questions as to whether such delay gave rise to a substantial risk that it might not be possible to have a fair trial of the issues or that serious prejudice might be occasioned to the Defendant as a result of the said delay". See Birkett v. James, supra; Allen v. Sir Alfred McAlphine & Sons Ltd, supra; Department of Transport v. Chris Smaller (Transport) Ltd, [1989] AC 1197; Roebuck v. Mungovin, supra p.230C/D-E. He was not wrong in principle and did not appear to have had regard to any irrelevant considerations. Shorn of subtle legal analysis, in reality the circumstances in and surrounding (1) and (2) above are sufficient to explain the inordinate delay. His evaluation of the situation was otherwise largely based on surmised expectancies and probabilities in the future conduct of the proceedings. By that time, the plaintiff had proposed, before the time-bar, to proceed with the action. The judge was not satisfied with the two preconditions (inordinate delay and serious prejudice to the defendant) for dismissing, in his discretion, this action.

32. The power to dismiss an action for want of prosecution is based "on the inherent jurisdiction of the court to control its own procedure". Trill v. Sacher, [1993]1 WLR 1379 at p.1394E/F, per Neil LJ. "It is ..... a Draconian order and will not be lightly made." Allen v. Sir Alfred McAlphine & Sons Ltd [1968]2 QB 229 at p.259, per Diplock LJ. At p.1399H-p.1400A in Trill v. Sacher, supra, Neil LJ drew attention to the obvious:-

"The decision below involved a balancing of a variety of different considerations on which the opinions of individual judges may reasonably differ as to their relative weight. Accordingly, unless intervention is necessary or desirable in order to achieve consistency where there appear to be conflicting schools of judicial opinion, the appellant court should only interfere where the judge has erred in principle : Birkett v. James [1978] AC 297, 317."

33. The discretion the judge exercised on the conclusions he reached as to excusable delay and absence of substantial risk of prejudice should not be interfered with. There were no other exceptional circumstances to exclude the plaintiff from the proceedings. I would dismiss the appeal.

Litton, V.-P.:

34. The result is that, by a majority, the appeal is allowed, the action is dismissed with costs to the defendant. We make an order nisi that the plaintiff pays the costs of the appeal.