Union V-tex Shirt Factory Ltd v. Union V-tex Realty Ltd and Others

CACV000048/1983

BETWEEN:

(Action No.219 of 1976)

BETWEEN:

(Action No. 602 of 1976)

Coram: Sir Alan Huggins, V P., Yang & Fuad, JJ.A.

Date of Judgment: 29th July, 1983.

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REASONS

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Sir Alan Huggins, V.-P.:

1. Early in February 1973 the Plaintiff company purported to convey to Union V-Tex Realty Ltd. ("Realty'") two parcels of land.  Realty was a company which was incorporated on 2nd February 1973 with an issued share capital of $9,000,000.00 and which on 14th February 1973 issued a prospectus for a new issue of 3,000,000 shares of $1 each at par.  The Plaintiff was a private company wholly owned by Mr. Wong Ping-shan, his wife and their son. Mr. Wong was the chairman and managing director. His wife and the person who has been described as the "6th Defendant" in these proceedings were among the directors. Mr. Wong, his wife and the other remaining Defendants were appointed to the board of directors of Realty on 7th February 1973. Mr. Wong died in October 1973 and his wife carried on the Plaintiff's business until she left Hong Kong some time in 1974. The business of the Plaintiff was deteriorating and the company went into liquidation in April 1975.

2. The liquidator came to the conclusion that the conveyances of the two parcels of land had been fraudulent and in 1976 he instituted an action against Realty. Two months' later he started a second action against the personal representatives of Mr. Wong, against his wife, and against four other individuals arid two companies all of whom were directors of Realty. The Statement of Claim which was eventually filed also alleged conspiracy to defraud the creditors of the Plaintiff. Proceedings against the two companies which were directors have been discontinued. The two actions were consolidated and the consolidated action pursued its painful way until, early this year, the 5th Defendant applied to have the action against him dismissed for want of prosecution.  Similar applications by Realty and by the 3rd, 4th and 5th Defendants followed and it is with these applications that we are concerned. The judge found that there had been four periods of inordinate and inexcusable delay, totalling between 2¹/₂ and 3 years, but he came to the conclusion that the applicants had not been sufficiently prejudiced to justify dismissing the actions. The Defendants appealed I think it may be of assistance to set out at the beginning a time-table of the important events:

3. The four periods of inordinate and inexcusable delay found by the judge were:

These findings were not challenged save to this extent, that by Respondent's Notices the Plaintiff has sought to show(A)that Realty had waived and/or acquiesced in all the delays,(B) that the 5th Defendant, having waived and/or acquiesced in all the delays up to the 8th March 1982, was not guilty of inordinate and inexcusable delay thereafter, and (c) that if the 5th Defendant was guilty of inordinate and inexcusable delay, he had waived and/or acquiesced in that delay.

4. I can deal with the claim against Realty very shortly. In my view the judge was right to hold that the three matters advanced as conduct precluding were insufficient to preclude Realty from relying on the delays complained of: even if any of them was such as would have justified the Plaintiff in thinking that Realty was committed to going to trial, the Plaintiff has not shown that it did anything in reliance upon this representation before the application to strike out other than to take the formal step of applying for a date of hearing. By that date a majority of the Defendants had already applied to strike out. Realty's failure to oppose the application to fix a date was mere inaction which could not amount to waiver or acquiescence: per Lord Justice Salmon in Allen v. Sir Alfred McAlpine & Sons Ltd. (1968) 2 Q.B. 229, 272E.

5. As far as the 5th Defendant was concerned importance of the last and comparatively short, period of delay found by the judge was that the judge also decided - and this decision was not challenged - that the 5th Defendant was precluded from basing his application on all the previous delays by reason of his having, in March 1982, restored his summons for specific discovery, thereby indicating that it was his intention to go to trial in spite of the inordinate delays up to that time. The judge held that the subsequent delay at the end of 1982 was nevertheless sufficient, in the light of all the circumstances, to warrant dismissal. of the actions. Therefore, if the Plaintiff had been able to persuade us that the finding of this subsequent inordinate and inexcusable delay was wrong, the 5th Defendant could not have succeeded in his application to dismiss the action.

6. The Plaintiff's contention was that this final period of delay was not inordinate and inexcusable because the 5th Defendant had been unreasonable in his demand for specific discovery. We were taken at length through the Statement of Claim and the 5th Defendant's Defence and through the correspondence, because, as I understood it, counsel was contending that the burden was on the 5th Defendant to prove that Realty had paid the purchase prices of the two parcels of land and that the Plaintiff's documents which it was originally sought to have produced were  not relevant to that issue. Moreover, it was said, the order for specific discovery which was eventually made, being limited to only two lots of supporting vouchers, showed that the 5th Defendant had been unreasonable in his original demands.  I shall not discuss this matter in detail because it seemed to me to be based on a fundamental fallacy. In the light of the previous long delays, the nature of the claim and the time which had elapsed before the discovery of the cause of action I thought it was incumbent on the Plaintiff to use the maximum diligence in prosecuting its claim during the material period. To take three months to comply with an order which called for compliance within 21 days was not using the maximum diligence, and I thought the judge was fully entitled to find that the delay, though short in relation to the entire history of the case, was not only inexcusable but also inordinate.  The 5th Defendant thereafter did nothing which, in my view, precluded him from relying upon that delay.

7. The main issue on the appeal was whether the judge was wrong when he held that in. all the circumstances the Defendants had not been so prejudiced by the delays that it was in the interests of justice that the litigation should be brought to an end.

8. It was common ground that there were two kinds of prejudice which fell to be considered in a case like this. The first, which was described as "traditional prejudice", arose from the destruction of documents, non-availability of witnesses and the fading of the memories of those witnesses who were still available. The second was described as "Biss prejudice", from the name of the case in which it became firmly established that the court was entitled to have regard to the mental strain and to the actual damage resulting to a defendant when delay kept a claim hanging over his head for an inordinate length of time.

9. I deal first with the traditional prejudice.  There were several points in relation to which the Defendants contended that the judge was in error. First, as to the destruction of documents, non-availability of witnesses and the loss of memory as to what he called "the minutiae", he said that the major damage had been done before the cause of action was discovered, some three years after the material events.  Thus Mr. Wong had died in 1973 and Mrs. Wong had disappeared in 1974, whilst any missing documents of the Plaintiff were missing before the liquidator was appointed in 1975. That was prejudice which was not occasioned by the Plaintiff and which was discounted by the judge. The Defendants submitted that that was wrong and they relied on Birkett v. James 1978 A.C. 297.  Although that case was not without its relevance to this case, I did not think it would justify our treating actually proved prejudice which occurred prior to discovery of the case of action as a basis for dismissing the action. That is not to say that such prejudice was irrelevant, for any prejudice arising from the default of the Plaintiff had to be viewed in the light of previously existing prejudice. The judge went on to suggest that the witnesses would have forgotten so much in the three years from 1973 to 1976 that there would be no material loss of memory during the periods of delay for which the Plaintiff was responsible. I suppose it may be true that the curve of loss of memory against time is steepest at some point a few months after the events, though much must depend upon the individual and upon the nature of the events.  Usually the curve does not then stop rising and, indeed, it may never flatten out. Three years' delay may not be so serious, if it starts seven years after the events, as if it starts immediately after them, but it is not to be ignored. However, in the outcome, I did not think the judge did ignore it, for he said that really what he had to do was to contrast the position as it might have been at a trial in October 1980 with the position which would exist in October 1983.He thought that there was no substantial risk that, whilst the trial in October 1980 would have been fair, a trial in October 1983 would be unfair. Had he been right when he said that the primary facts in issue between the parties would in he end "depend upon matters of record or ... be found in documents" I would not have quarrelled with his conclusion. In effect he was saying that the availability of witnesses and the extent of their memories were going to play an insignificant role in the determination of the issues, and with respect I thought that was going too far. I thought Mr. Gatehouse was right when he said that there was much in the documents which required to be explained. The judge fairly drew a distinction between ascertaining from the evidence on the one hand what happened and, on the other, the states of mind of the protagonists, but one could not overlook the difficulty which a judge would experience in deducing the state of mind of a witness who could reasonably say nothing more than "I cannot remember".

10. The judge found that "Biss prejudice" undoubtedly did exist in this case, but he attached no substantial weight to it because

"submissions based on prejudice of that kind get weaker the closer one gets to the date of trial. The time will come, no doubt, when what becomes important is to get the matter resolved. Indeed, some might say, not necessarily in this case, that when one gets close to the date of hearing, the worst that could happen from the point of view of a professional defendant, I mean a defendant who is a professional man, would be to have the allegations left in the air so to speak and untried."

He thought this applied in particular to the 5th Defendant, who is a solicitor and who acted as such in relation to the conveyances of the two parcels of land. I could understand that a professional man might take the view that he would like to have a claim against him dismissed on the merits when it involves allegations of fraudulent conduct. However, whether the desirability of positively clearing his name would outweigh his desire to be rid of the litigation immediately (especially when it had already been long protracted) seemed to me to be very much a matter of personal choice, and where a defendant applied to dismiss the proceedings against him for want of prosecution it was to be assumed that he had made his choice in favour of immediate termination.   As I saw it, the only relevance of the approach of the date of hearing of the action was that the defendant might have delayed so long in making his application to dismiss that he had been guilty of "conduct precluding".  I have already discussed this matter in relation to the 5th Defendant and I took the view that there was no conduct precluding the Defendants from relying on the prejudice they had already suffered. That prejudice had been considerable and the fact that it would continue for only a short time longer if the case went to trial could not wipe out what has occurred before. The judge observed:

"Here it did not seem to occur to any defendant that he was being oppressed in this way until after the 5th defendant took an initiative in January this year when it became known to all of them that they had been suffering prejudice of this kind for a number of years and that by now or by January 1983 it had become intolerable. So far as I know, there has not been a single complaint in any letter prior to that date and made as it is now, it does sound a little hollow to me, particularly in the case of the 5th defendant, who, quite legitimately during 1983, was employing the tactics to which I have already referred to extend the time under which he had to suffer his burden."

Reading this in the context of what he had said previously I thought the judge was suggesting that, although there had been prejudice of the Bias variety, it was shown not to be very serious because the Defendants had not applied earlier. There seemed to me to be two answers to this argument. First, I did not think that Biss prejudice was wholly dependent upon the subjective view of the defendant, although obviously that part of it which consisted in mental anguish would be. Secondly, there could always be the last straw which breaks the camel's back, and the broad shouldered defendant was not to be treated differently by reason of his broad shoulders.

11. In relation to Realty there was, of course, the additional prejudice of the kind referred to in President of India and Union of India v. John Shaw & Sons (Salford) Ltd. 25th October 1977 (Unreported).

12. I was reluctant to differ from the learned judge in chambers as to what broad considerations of justice dictated in the present case, but I am compelled to say that I attached more weight to the Biss type prejudice than he did and that I had grave doubts whether a fair trial can be had at this late date. Accordingly I proposed to allow the appeal and strike out the claims against the five Appellants.

Yang, J.A. :

13. I have had the advantage of reading the judgments in draft of both the learned Vice-President and my brother Fuad. There is nothing I can usefully add. I would also allow the  appeal and strike out the Respondents claims.

Fuad, J.A. :

14. I agree with the reasons set out in the judgment of Sir Alan Huggins, V.P. and wish to refer to several matters which seem to me of importance.  With regard to the second passage quoted by the Vice-President from the judgment appealed against, in my respectful view, the words employed by the Judge come perilously close to suggesting that it is incumbent on a defendant who might later wish to apply to strike out an action for want of prosecution, to complain timeously of any delay that has occurred. That this is not so is shown, I think, from the following passage from the judgment of Diplock, L.J. in Allen v. McAlpine [1968] 2 Q.B. 229, at p.258 -

"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 e 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. "

15. I agree with the Judge's conclusion that Realty had done nothing (by what might be called acquiescence or waiver) to preclude them from relying on the delay which he accepted was inordinate and inexcusable.  However, in my judgment he did not give sufficient weight to the special prejudice that resulted to Realty. This is plainly shown by the affidavits of Mr. Tsui Yiu Wah filed in support of Realty's application. Since the issue of the writ, their trading activities have been severely restricted. Realty's present Directors have thought it wise not to commit funds to any projects or ventures while the action was pending.  For the same reason no dividends have been declared, and the shareholders have suffered. One of the properties which form the subject matter of the action cannot be disposed of or re-developed by reason of an injunction granted in January 1976, over seven years ago.  No advantage could be taken of the 1980/81 property boom.  All proceeds from the rental have had to be deposited into a bank account in the meantime.  The other property was sold by a Court Order dated the 31st March 1976, and under the same Order, the proceeds of sale ($3.4m) are held in a bank account in the names of the Plaintiffs and Realty. Interest has not kept up with inflation.

16. It is also very relevant, in my vice, to note that the Directors have no personal knowledge of the present Board of facts surrounding the alleged fraud and conspiracy, and would have to depend to an extent on the memories of the other Defendants who were Directors at the relevant time.

17. All in all, Mr. Tsui says, Realty has not been able to carry on its business affairs properly or commit itself in forward transactions He adds -

"Furthermore, the Board of Directors has encountered considerable embarrassment at the Annual General Meetings.  Since the year 1975/6, the Annual Reports of the Defendant have had to contain a note indicating the present proceedings.  Over the years, it has become more and more difficult and embarrassing to reply to queries raised by shareholders at the Annual General Meetings due to the long delay of the pending action with no solution of the same."

18. In my judgment, on these grounds of prejudice, Realty should have succeeded, and broad justice might well have demanded that the whole action should have been dismissed even if no other defendant had been able to establish what the Vice-President has called "Biss type prejudice".

19. I would conclude my observations by remarking that in the light of recent and consistent decisions, Hong Kong practitioners cannot be in any doubt that the Courts here will exercise their jurisdiction to ensure that unnecessary and unfair delays do not occur in the prosecution of actions.  It Seems to be that it is almost inconceivable, after all this time, that justice can now be done to the parties at the trial.

29th July, 1983.