PROSPERFIELD VENTURES LTD v. TRIPOLE TRADING LTD & OTHERS

HCA5370/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.5370 OF 1993

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REASONS  FOR JUDGMENT

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The Applications

1. In these related actions this Court had before it identical applications: first, by like summonses dated 12 September 2001, an application to dismiss each action for want of prosecution, and second, by like summonses dated 8 August 2002, an application to dismiss each action for abuse of process.

2. In HCA 5370 of 1993 the applications were mounted by the 1st, 2nd and 4th defendants, and in HCCL 98 of 1995 by the 1st, 2nd and 5th defendants.

3. At the conclusion of the hearing the applications in each of these actions were dismissed. Directions were then made in terms of outstanding procedural matters, and a 15 day trial in the Commercial List was fixed to commence on 31 March 2003.

4. I now give reasons underpinning the dismissal of these summonses.

The Factual Background

5. Stripped of detail, and there is much of that, at bottom these cases concern a fight over the ownership of 50.73% of the shareholding of a Shenzhen company named Shenzhen Champaign Industrial Corporation, referred to in the extensive affidavit evidence on both sides as 'SCIC'. This company began life in 1987, but in January 1989 was reorganized into a sino-foreign equity joint venture, its name was changed, and in February 1990 the company was listed on the Shenzhen Stock Exchange.

6. It is undisputed that as at the date of listing 50.73% of the issued share capital in SCIC was owned by Mr James Peng, the deponent on behalf of the plaintiffs in each of these actions, via a series of shareholdings in nominee companies, at the apex of which stood Panco Industrial (Holdings) Ltd, a Hong Kong company and the plaintiff in HCCL 98 of 1995.

7. All did not proceed smoothly for SCIC, nor, for that matter, for Mr Peng. SCIC had entered into loan agreements with Chinese financial institutions, such loans being secured by Panco's shares in SCIC. It appears, however, that such form of security did not continue to be acceptable to mainland financial authorities, the loans became unsecured, and in June 1992 the Shenzhen Intermediate People's Court froze SCIC's assets. In July 1992 investigation was opened into SCIC's share ownership, followed shortly thereafter by suspension of trading of shares of SCIC on the Shenzhen Exchange. The culmination of government activity regarding SCIC appears to have been a restructuring of SCIC by the Shenzhen authorities in or about March 1993, notwithstanding the existence of on-going court proceedings, and in particular a successful appeal by Panco in May 1993 against the earlier order of the Intermediate People's Court.

8. In addition to Mr Peng, the other main protagonists to the present Hong Kong litigation, and, I apprehend, the persons driving the instant applications to strike out the two Hong Kong cases currently on foot, are Ms Ding Peng and Mr Zheng Lie Lie. The latter gentleman has been the principal deponent on behalf of the defendants in these applications, albeit the court has seen nothing from Ms Ding Peng. It seems that at the beginning of 1993 they had joined Mr James Peng at what is described as 'the Prosperfield group' of companies, this term denoting the corporate group hitherto effectively controlling SCIC.

9. In his affidavit evidence Mr Peng observes that he thought that as the niece of Deng Xiaoping Ms Ding's political connections could help solve the problems SCIC was encountering with the Shenzhen Government, in particular in preventing that government from acquiring SCIC; thus she became a consultant to the Prosperfield group, whilst Mr Zheng was to act as her assistant. Whatever the intention, however, clearly this arrangement did not work as he had envisaged, because Mr Peng deposes to the further belief that Ms Ding and Mr Zheng subsequently tried to exploit their polititical connections with the Shenzhen Government by secretly collaborating with them to gain control of SCIC.

10. Such is the broad background to the two actions the subject of the current strike out applications. In both the 'Prosperfield action' and the 'Panco action', instituted in June 1993 and June 1995 respectively, the foundation of the claims made against the defendants, which in both actions include Ms Ding and Mr Zheng, goes to the avoidance of certain transactions (respectively an agreement between Prosperfield and Tripole Trading dated 11 June 1993, and an agreement dated 17 June 1993 between Panco and China Projects) the intention behind which, it is said, was to strip the assets of Prosperfield and Panco without any consequent commercial benefit accruing to shareholders, and more particularly to acquire the 50.73% shareholding in SCIC.

11. Descriptive compression belies the very considerable amount of detail which has been thrown up, arises, but that in essence is the thrust of these actions, the core factual issue for determination at trial being an allegation as to the existence of an oral agreement between Mr James Peng on the one hand and Ms Ding and Mr Zheng on the other, whereby it is said by the defendants that Peng had agreed with Ding and Zheng that they would beneficially own 100% of Panco in order that they would be able to deal with the problems the corporate group then was encountering. This in turn led to a complicated series of transactions said to have effected the transfer of beneficial ownership of the group to Ms Ding and Mr Zheng, the intention being to demonstrate to the Shenzhen authorities that James Peng was no longer involved with the group and that control of the group should be ceded back to the new shareholders, Ms Ding and Mr Zheng.

12. The declaratory and injunctive relief variously sought in the two actions reflects the genesis of these cases. On 23 June 1993 Leonard J granted interlocutory injunctions prohibiting dealing in certain specified shares against Tripole Trading and Zheng, and a similar injunction against Ms Ding, Ng Hiu Nam and China Projects Ltd (the 1st, 3rd and 6th defendants in the Panco action) was granted by Deputy Judge Wong on 2 September 1993. These injunctions remain in force. No attempt has been made to discharge them, and it is asserted by the plaintiffs that steps allegedly subsequently taken by the defendants in China regarding the SCIC shareholding are in breach of the terms of the injunctive relief earlier granted in Hong Kong.

The Chronology of the Proceedings

13. Factual disagreements notwithstanding, there is no scope for contention in terms of what happened procedurally, and when, in these two actions.

14. The Writ in the Prosperfield action was issued on 23 June 1993, and a Re-Amended Indorsement of Claim and Statement of Claim was filed on 13 October 1995, the hiatus occurring because of difficulties over the correct plaintiff. The Defence of the 1st, 2nd and 4th defendants was filed on 7 December 1995, and the Reply filed on 14 June 1995. Discovery took place in May 1996, and the last procedural step before the delay complained of was the filing on 26 June 1996 of the Re-Amended Defence. Since that date nothing occurred until the plaintiff filed a Notice of Intention to Proceed in April 2001, a gap of almost 5 years.

15. In the Panco proceedings the Writ was issued on 16 June 1995, and the Amended Statement of Claim filed on 13 October 1995. The Amended Defence of the 1st, 2nd and 5th defendants was filed on 23rd November 1995, and Further and Better Particulars of that Defence on 5th March 1996. On 24 April 1996 the plaintiff's Summons for Directions was adjourned, the plaintiff not seeking to restore that hearing until July 2001.

16. The respective summonses to strike out for want of prosecution were filed on 12 September 2001, with the supplementary summonses for dismissal on the basis of abuse of proceedings following on 8 August 2002.

Dismissal for want of prosecution

17. I shall not here rehearse the applicable principles, which are tolerably well-known. Mr Smith SC, who appears on behalf of the defendant applicants, accepts that the burden is on him to establish inordinate and inexcusable delay and consequential prejudice to the defendants arising from such delay.

18. He also accepts that on the pleadings in a case wherein allegations of breach of trust are made that it is not possible to assert that a new action necessarily would be time-barred, but he says that even if no statutory time-limit were applicable to the plaintiff's causes of action (which accrued in both actions in June 1993), any new action nevertheless could be defeated by the doctrine of laches constituted by the delay and resultant prejudice, and could be pleaded as such in any new defence. The fact that the plaintiffs were not precluded from commencing fresh proceedings, therefore, was not fatal to this application.

(i) Delay: inordinate?

19. In my view there is no necessity to consider this head at any length. A glance at the chronology of these actions to-date demonstrates a degree of delay which normally is not countenanced in modern litigation, and in argument in this case this aspect did not occasion any serious debate.

(ii) Delay: inexcusable?

20. The issue of whether in the circumstances the delay was excusable provided the main battleground in these applications. Predictably Mr Smith maintained that it was not, whilst Mr Huggins SC for the plaintiffs argued that such delay as admittedly had transpired most certainly was excusable in light of the unfortunate events that subsequently had befallen Mr James Peng. Somewhat ambitiously, given the events duly revealed in the evidence, the affidavit leading these applications as sworn by the defendant's solicitor saw fit to assert that the deponent was "aware of no matters which might render the plaintiff's inordinate delay excusable". What therefore are the facts relied upon by the plaintiff which underpin this particular aspect of the debate?

21. It appears that the difficulties encountered by Mr James Peng in terms of the intervention by the Shenzhen authorities in the affairs of SICC did not center solely upon Shenzen Government Directive No. 355 of 1993 whereby the shareholding in SCIC, and in particular Panco's shareholding therein, was ordered to be 'restructured', which for all practical purposes appears to have mandated the removal of Mr Peng from any involvement with or ownership of SCIC or Panco.

22. Mr Peng says that on 13 October 1993 while on a business trip to Macau he was abducted from his hotel room at the Mandarin Oriental Hotel and brought across the border into Shenzhen, and thereafter held in jail for about 10 months without charge and without access to counsel and visitation from family and friends.

23. He says that he was finally charged with taking advantage of his position as Chairman of SCIC and the embezzlement of 1.1 million yuan in 1989 and 290,000 yuan in 1992, and that in the period between August 1994 and October 1995 his case was brought before the Shenzhen People's Intermediate Court "many times", but that on each occasion it was sent back for lack of evidence.

24. However, two years after his kidnapping and illegal detention, in October 1995 he was sentenced to 18 years in prison having been convicted of stealing 290,000 yuan and misappropriating another 800,000 yuan from SCIC. Mr Peng asserts that this conviction flew in the face of evidence, in the form of bank records, auditors' reports and trust account records, that in fact showed he had not embezzled company monies but to the contrary was owed a large sum by SCIC.

25. Mr Peng, an Australian national, states that in June 1997 the intense diplomatic lobbying which had been brought to bear by the Australian government subsequent to his arrest appeared to be bearing fruit when he was transferred from the Guangdong prison to a Shanghai hotel seemingly on the basis of imminent deportation, but that it was only after a further two years of diplomatic lobbying that he was released in November 1999 shortly after a visit by President Jiang Zemin to Australia.

26. Mr Peng also says that after his release he was in poor health, having caught Hepatitis B and serious gum and skin disease during his time in prison, and that "it was about 6 to 8 months before I was well enough to continue to pursue justice through the Hong Kong courts again." Accordingly it was about in the middle of 2000 when he began to catch up with developments in the Hong Kong litigation, and later had discussions with fellow directors and legal advisers as to how to proceed.

27. Against this evidential backdrop, Mr Smith SC argued that the explanation put forward that Mr Peng was in prison was insufficient. Mr Peng was not the plaintiff, and was at the most a witness, Mr Smith submitted, noting that the plaintiffs had been able to plead a Reply when Mr Peng was in prison. Further, and perhaps most important, he submitted, the fact of going to prison for an offence of which one has been convicted neither is reason nor excuse for not proceeding with the action, citing here obiter dicta of Rhind J in Mohan v McElney [1981] HKC 518, at 524.

28. The reference to the status of Mr Peng as a mere witness does not sit happily with the stated belief of Mr Zheng that in these actions the 'real plaintiff' was Mr Peng, and it is clear beyond peradventure that the real protagonists in these cases are Mr Peng on the one hand and on the other those persons whom he maintains have been plotting to subvert him, namely Ms Ding and Mr Zheng. Nor do I consider that the pleading point has much weight. It is true that a Reply to the Amended Defence was filed on 14 June 1996, but the Re-Amended Defence, in which the all-important March 1993 oral agreement between Mr Peng and Ms Ding and Mr Zheng assumes center-stage, was filed on 26 June 1996, and I have sympathy with the submission that to proceed with the actions it was not only necessary to be in the position to obtain detailed instructions from Mr Peng but also to be in position to call him to give evidence at trial, and that as things then stood obviously neither course was possible.

29. The interesting point of principle which arises under this head is whether Mr Smith is correct in asserting the irrelevance for present purposes of the period spent by Mr Peng in jail in Guangdong, in particular the period after conviction. Mr Huggins says that Mr Smith is not correct, relying in particular upon two cases, namely Akhtar v RD Harbottle (Mercantile) Ltd (1982) 126 Sol Jo. 643, as to which I have the advantage of a Lexis transcript, and Konstantin M Eyermann Gmbh and Another v Brown and Another (1992) unrep., of which again I have the advantage of a Lexis transcript of the extemporary judgments delivered by the Civil Division of the Court of Appeal on 8 October 1992.

30. In Akhtar, op cit, the English Court of Appeal regarded a situation wherein the plaintiff in a civil action had been held in prison in Burma without conviction upon "relatively trivial" customs evasion charges as excusing the 5 year delay that had occurred, whilst in Konstantin, op cit, the Court of Appeal regarded as excusable a 14 month delay which had occurred by reason of the fact that the plaintiff in that period had been in prison. The appellate court noted that the contention that had been put forward below to the effect that being in prison could not avail him was not a contention put forward on appeal, Simon Brown LJ observing that "clearly [that fact] constituted an insoluble problem for any significantly earlier fixing of a new trial date for this action and accordingly, with the benefit of hindsight, the further elapse of time... was excusable."

31. In my view the cases cited in this context do not in themselves validate the respective positions now adopted by the parties, and I do not accept, as a matter of broad principle, the proposition that being in prison necessarily does, or does not, suffice to excuse delay. As with a good deal else, the answer must depend upon the specific circumstances which the court is required to evaluate in order to arrive at a result in any particular case.

32. Which brings me to a particular aspect of this case which requires consideration, and which cannot simply be subsumed within an argument on general principle. It is this. Mr Peng maintains that not only did Ms Ding and Mr Zheng try to exploit their political connections with the Shenzhen Government by secretly collaborating with them in order to gain control of SCIC, but he also ascribes his kidnap from Macau and subsequent detention in jail in Guangdong precisely to the activities or influence of Ms Ding and Mr Zheng. For his part Mr Zheng denies any general conspiracy to defraud Mr Peng or his companies, or to cause him to be imprisoned in China, asserting that these accusations are scandalous and embarrassing.

33. The court is of course in no position, at this interlocutory stage, to form a conclusion as to the truth of these matters, nor for that matter the assertion also voiced by Mr Peng that he was wrongly convicted in face of overwhelming evidence to the contrary. By the same token, however, in my judgment these allegations cannot merely be "disregarded", as Mr Zheng now requests should be the case. In my judgment all that the court properly can do is to look at the entirety of the available evidence against the background of objectively-verifiable facts - there is, for example, no doubt that Mr Peng indeed was kidnapped from his hotel in Macau, that he was held prisoner in a Chinese jail from October 1993 until his release in November 1999, and that SCIC in fact has been restructured at the behest of the Shenzhen government - and to take a view as to whether the varied allegations as now made within the context of delay may safely be designated as manifestly frivolous and unsustainable. And if, as here, such does not represent the position, then in my judgment it remains open to the court to place these additional matters into the discretionary mix, notwithstanding that it presently cannot form any final view as to the truth or otherwise of the matters now variously raised. It would be unpalatable indeed were a situation to occur wherein those responsible for another's incarceration were able to utilize the delay thereby occasioned to an action to sustain an application to strike out that action.

34. I have concluded, therefore, after reflecting upon all the evidence, and in particular the fact of the 6 year period of detention in China, taken together with the post-imprisonment ill-health experienced by Mr Peng, whose evidence must be crucial to the plaintiffs' prospects in both the Prosperfield and Panco actions, that the undoubted period of delay occasioned to this civil litigation in Hong Kong in the circumstances cannot be castigated as "inexcusable". I so hold.

(iii) Prejudice

35. In light of the conclusion I have reached under the 'excusability' head, which in itself is sufficient to dispose of this application, there is no necessity to consider in detail the other main element in applications of this nature, namely that of prejudice occasioned by such delay.

36. In the circumstances of this particular case I do not think that the argument as to a general dimming of memory is a particularly valid one when it comes to the main protagonists Mr Peng, Ms Ding and Mr Zheng, each of whom no doubt are convinced as to the the rectitude of their respective cases and are likely, I suspect, to maintain a signally clear recollection of events; indeed, it is not suggested on the evidence that any of the witnesses would have difficulty in recalling the essential matters relating to the central issues for debate in these actions. In addition, as the background to these two cases reveals, a substantial amount of documentation has come into being with regard to the various corporate transactions which it is common ground have taken place (eg. the Hark Herald/Jadegarden agreement of June 1992, which itself resulted in litigation), so that historical reference points exist, whilst in addition there are available various contemporary documents and affidavits made in interlocutory applications both in these and other associated cases.

37. One of Mr Smith's bull points under the prejudice head focuses on the unfortunate death of a Mr Zhang Hong Zhi, who was one of the members of the SCIC Restructuring Committee. However, as Mr Huggins pointed out, Mr Zhang was but one of six members of this committee, that there is no basis alleged for the apparent belief that he had any exclusive knowledge, and that in any event the restructuring of SCIC does not sound to the core issue in the two actions, which is the crucial oral agreement allegedly made between Peng on the one hand and Ding and Zheng on the other.

38. As to potential difficulties with other witnesses, this does not appear substantial. Mr Huggins submitted that there is, for example, no hard evidence that Mr Deng Liu Gen and Mr Ng Hiu Nam will not be attending the trial, or that they cannot be found. I agree. The fact that solicitors are non-responsive in itself is not particularly persuasive. Nor am I convinced that the assertion now made that Mr Wong Ying Kin "has recently fallen out with Deng and Zheng due to an unrelated conflict of interests", and is now said to be unwilling to testify, is a matter which greatly assists the defendant - such an eventuality may be unfortunate, but could have occurred at any time, whilst the matter of the Jadegarden settlement, in which Mr Wong represented the Jadegarden group in negotiations with Hark Herald, is an historical fact given effect to by a series of written agreements, and it is difficult to see how details of the negotiations are of particular relevance to the matters currently at stake in these two actions.

39. At the end of the day the degree of prejudice said to exist is in my view far from convincing, and within this context there is at least the impression of a certain amount of 'reaching' for the purposes of this application. Accordingly, I concluded that it has not been established that in the circumstances it is no longer possible to have a fair trial of this action.

40. It follows that I further specifically decline to accept Mr Smith's beguiling invitation - prompted by the inability to show that recognized limitation periods applied to Prosperfield's and Panco's claims - to strike out the existing two actions, thereby enabling a fresh action to be commenced in which laches then could be pleaded as a defence. Such would seem to me to constitute yet further delay and an appalling waste of costs, which of course on the basis of this scenario would accrue in the defendants' favour.

Dismissal for abuse of process

41. This separate application, which appears to have been issued solely out of an abundance of caution, has as its origin a sentence at paragraph 110 of his affirmation which reads: "When there was word that I would be released in 1996, it was decided by the PIHL board that proceedings would be put on hold until I was released..."

42. In fact, this argument is subsumed within the general 'delay' rubric, but Mr Smith makes the further point that any 'warehousing' of an action is an abuse against which the court will strongly react. He may well be correct in instances of true 'warehousing', which tend to occur, for example, in the context of multifarious cargo claims, but this most certainly is not such a case, and I reject the submissions made in this regard.

Order

43. As earlier noted, at the conclusion of the hearing the applications to strike out on the alternative bases were dismissed.

44. As to costs, I was asked to make an order nisi, although it is clear that costs must follow the event. Such order nisi, therefore, is that the costs of and occasioned by the defendants' summonses in each of these two actions are be paid by the applicants to the plaintiff, such costs to be taxed if not agreed.

45. Mr Smith also asked that I consider ordering that costs should be 'in any event', not least because of the relative proximity of the trial that now has been ordered to commence on 31 March 2003. I decline this request. I cannot see that the 'event' has much to do with it. These applications were discrete applications, and have been dealt with as such.

46. I accede to the request that the applications be certified as fit for 2 counsel.