Hang Heung Hop Kee Investment Company Ltd v. Maycarol Company Ltd and Another

HCA 1664/2011

[2024] HKCFI 523

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1664 OF 2011

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J U D G M E N T

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INTRODUCTION

1.By way of her decision dated 16 November 2022 (the “Decision”), a Master, amongst other matters:

(1)  dismissed the plaintiff’s application to file the 2^nd affirmation of Cheng Hung Kit and the affirmation of Tsoi Lawrence Chik Sang (the “New Evidence Decision”); and

(2)  struck out the plaintiff’s statement of claim and dismissed the plaintiff’s action against the 2^nd defendant (the “Striking Out Decision”).

2.By a notice of appeal filed on 25 November 2022 (the “Notice of Appeal”), the plaintiff seeks to appeal against the New Evidence Decision and the Striking Out Decision.

3.By summons filed on 14 August 2023, the 2^nd defendant now seeks to strike out and dismiss the Notice of Appeal for want of prosecution and abuse of process (the “Summons”). In gist, the 2^nd defendant’s case is that since the filing of the Notice of Appeal, the plaintiff did not take any steps to proceed with its appeal, notwithstanding the 2^nd defendant’s chasers.

REPRESENTATION OF THE PLAINTIFF

4.A few days before the substantive hearing of the Summons, solicitors originally acting for the plaintiff obtained an order to cease acting for the plaintiff.

5.At the hearing, the court ascertained from Mr Leung of Messrs M.K. Lam & Co, previous solicitors for the plaintiff, that the plaintiff had had notice of the Summons and of the notice of hearing for the Summons.

6.A Mr Cheng Hung Kit, purporting to be a director of the plaintiff company appeared at the hearing and sought an adjournment of the hearing so that he could instruct solicitors to act for the plaintiff to resist the Summons.

7.After hearing submissions from Mr Cheng and Mr Chok, counsel for the 2^nd defendant, I refused to accede to the request of Mr Cheng to adjourn the hearing for the following reasons:

(1)  Mr Leung of Messrs M.K. Lam & Co, previous solicitors for the plaintiff, confirmed that the plaintiff company had had notice of the Summons and knew about the hearing.

(2)  By consent, directions for the conduct of the Summons (including filing of affidavits) had been given by the Court on 24 August 2023 – yet the plaintiff had filed no evidence in opposition to the Summons. There is no reason provided for the lack of evidence filed.

(3)  Mr Chok submitted that Mr Cheng had no capacity to represent the plaintiff company as he had been removed previously. This was disputed by Mr Cheng. However, even assuming for present purposes Mr Cheng is still a director of the plaintiff, he had not produced any board resolution authorising him to seek an adjournment of the hearing, nor had he obtained any leave to represent the plaintiff company at the scheduled hearing from the Practice Master.

(4)  Without any authorisation from the plaintiff company to seek an adjournment, allowing the adjournment might put the 2^nd defendant at the risk of being unable to recover the costs thrown away by reason of such adjournment.

8.Having been satisfied that the plaintiff company had had notice of the Summons and of the hearing, I proceeded with the hearing in the absence of the plaintiff company being represented.

BACKGROUND - THE PLAINTIFF’S CLAIMS

9.In summary, the plaintiff’s claims are as follows:

(1)  By an agreement dated 4 July 2007, the plaintiff agreed to sell 8 lots of land to the 1^st defendant for HK$6,000,000. The 1^st defendant then undertook to enter into a tenancy agreement with Hang Heung Cake Shop Company Limited (“HHCS”) in respect of the 8 lots for a term of 2 years from the date of completion at a monthly rent of HK$65,000. In addition, the 1^st defendant undertook to make an interest-free loan in the sum of HK$500,000 to the plaintiff upon completion (“Interest-free Loan”). The 1^st defendant eventually entered into a tenancy agreement with HHCS.

(2)  By a Supplemental Agreement also dated 4 July 2007, the 1^st defendant granted an option to the plaintiff to re-purchase the 8 lots, free from all encumbrances except the tenancy, for HK$6,000,000, to be exercisable within 2 years from the date of completion of the sale and purchase of the 8 lots (“Option”). However, the 1^st defendant could refuse the plaintiff’s exercise of the Option should the plaintiff fail to repay the Interest-free Loan.

(3)  The plaintiff and the 1^st defendant entered into a Deed of Loan dated 30 July 2007, whereby it was agreed that the plaintiff would repay the Interest-free Loan when exercising the Option within 2 years thereof. If the Option was not exercised, the plaintiff was still required to repay the Interest-free Loan by 29 July 2009, failing which interest at 12% per annum would accrue from 30 July 2009.

(4)  Pursuant to a Supplemental Deed of Loan dated 31 July 2009, the plaintiff and the 1^st defendant agreed to extend the deadline for the exercise of the Option for 2 years. However, it was also provided that the Option would in any event lapse if HHCS failed to pay rent for the 8 Lots for 2 consecutive months.

(5)  HHCS failed to pay rent for more than 2 consecutive months and the Option thus lapsed under the Supplemental Deed of Loan.

(6)  The 1^st defendant then sold and assigned the 8 lots to the 2^nd defendant for HK$6,000,000 and the Deed of Loan for HK$500,000.

(7)  The plaintiff claims that the relevant agreements, in particular, the existence of the Option created a mortgage over the 8 lots as security for the HK$6,000,000 and the Interest-free Loan. The provision of the lapse of the Option is said to amount to a clog on the plaintiff’s right of redemption.

(8)  The plaintiff alleges that the 2^nd defendant had purchased the 8 lots from the 1^st defendant with notice of the plaintiff’s right of redemption and as a result the 1^st and 2^nd defendants held the 8 lots as constructive trustee for the plaintiff.

APPLICABLE LEGAL PRINCIPLES – STRIKING OUT FOR WANT OF PROSECUTION

10.The foundation for the jurisdiction to strike out for delay is based on an abuse of the process of the Court by the party whose case is to be struck out. Inordinate and inexcusable delay causing prejudice to a defendant, contumelious conduct or initiating proceedings without any intention to bring them to a conclusion which is commonly referred to as ‘warehousing a claim’, are examples of abuse[1].

11.Prejudice to the defendant in the majority cases would be extremely relevant. In addition to the plaintiff’s conduct of abuse, the Court is also required to consider all other circumstances, including the chance of success of the intended appeal[2].

12.Although the above cases concerned appeals being made to the Court of Appeal, there is no reason why the same principles do not apply to appeals made against a Master’s decisions to the Court of First Instance.

CHANCES OF SUCCESS OF THE INTENDED APPEAL

13.It is trite that an appeal from Master is dealt with by way of actual re-hearing[3]. I am of the view that the statement of claim as against the 2^nd defendant ought to be struck out and plaintiff’s appeal against the Striking Out Decision has no real chance of success for the following reasons:

(1)  Since the Reply was filed on 8 June 2012, there has been no progress with the plaintiff’s claims. This constituted a delay of more than 10 years on the part of the plaintiff.

(2)  No sufficient reasons had been put forward to justify the substantial delay – reluctance of the plaintiff’s shareholders to fund the litigation does not constitute sufficient reasons. In fact, the admitted reluctance on the part of the plaintiff to prosecute the claims is more a reason in support of the 2^nd defendant’s application to strike-out rather than against it.

(3)  The prejudice of such inordinate delay suffered by the 2^nd defendant is clear: the plaintiff’s claim affects the 2^nd defendant’s title to the 8 lots, as the Writ of Summons was registered against the 8 lots.

(4)  In July 2022, the 1^st defendant had similarly applied to strike-out the plaintiff’s claims for want of prosecution; yet the plaintiff did not oppose such application, such that the plaintiff’s claims against the 1^st defendant had been struck out. There was no appeal against the relevant order.

(5)  There is no legitimate reason why the plaintiff would continue its claims against the 2^nd defendant when it has effectively given up its claims against the 1^st defendant, which was the primary party that had entered into the various agreements with the plaintiff.

(6)  With the 1^st defendant having fallen of the picture, it also became extremely difficult for the 2^nd defendant to continue defending the plaintiff’s claims with the primary party becoming a non-party.

(7)  The plaintiff has not defended the 2^nd defendant’s claim in DCCJ 3084/2019 against it wherein the 2^nd defendant contended that the Interest-free Loan was simply a debt rather than part of a mortgage arrangement. Judgment was obtained by the 2^nd defendant against the plaintiff in the District Court action, with no appeal therefrom. It is difficult to see how, in the circumstances, the plaintiff can still contend that the Interest-free Loan was part of an arrangement to create a mortgage.

(8)  There is insufficient conviction shown on the part of the plaintiff to proceed with its claim against the 2^nd defendant rather than just to warehouse it.

14.I am also of the view that the last minute attempt of the plaintiff to adduce the new affidavits should not be acceded to and the plaintiff’s appeal against the New Evidence Decision has no real chance of success for the following reasons:

(1)  The summonses seeking to adduce the affidavits were filed at the 11^th hour, with no reasons put forward explaining the delay.

(2)  The contents in the affidavits referred to the plaintiff’s internal dispute could have been canvassed in the previous round of evidence. No reasons had been put forward explaining why they were not previously included.

THE PRESENT APPEAL AND ITS PROCEDURAL HISTORY

15.Dissatisfied with the New Evidence Decision and the Striking Out Decision, the plaintiff filed the Notice of Appeal on 25 November 2022.

16.Nothing happened in the appeal thereafter. During this period, the plaintiff had not taken any steps to prepare for the appeal or to fix a date for its hearing. This is despite the 2^nd defendant had sought the plaintiff’s clarification by letter dated 18 April 2023 as to whether it intended to proceed with the appeal, and requesting the plaintiff to dismiss the Notice of Appeal, or fix a date for the substantive hearing by letter dated 31 July 2023. No response whatsoever was given by the plaintiff.

17.The plaintiff had failed to file any evidence and as such did not put forward any reason to explain the inaction of over 10 months.

18.In the present case, taking the history of the matter as a whole as summarised above, and for the following reasons, I am satisfied that the Notice of Appeal ought to be struck out as the inaction amounted to an abuse by the plaintiff.

19.Firstly, after filing the Notice of Appeal, the plaintiff had failed to prosecute its appeal at all, let alone expeditiously. In failing to prosecute the appeal, the plaintiff was in breach of the relevant rules, which are there to ensure that a case should be dealt with as “expeditiously as is reasonably practicable”[4]. The plaintiff has provided no explanation at all for its inaction.

20.Secondly, the inaction coupled with the following shows that the plaintiff does not have a genuine intention to pursue the appeal to an end:

(1)  In breach of Order 58 rule 1(2) of the Rules of the High Court, the time at which the appeal should first be heard on the Notice of Appeal was left blank. There is no reason why such date would not have been inserted.

(2)  Despite having agreed and having been directed to put in evidence in opposition to the Summons, no such evidence was put forward.

(3)  The plaintiff well knew that internally there was disagreement as to whether the original claim ought to be continued. It thus follows that there would be similar disagreements on whether the Notice of Appeal seeking to appeal against the Striking Out Decision and the New Evidence Decision ought to be pursued. There could simply be no consensus within the plaintiff to proceed with the Notice of Appeal.

21.Thirdly, the plaintiff’s failure to prosecute the appeal diligently has caused the following prejudice to the 2^nd defendant:

(a)  The action has since its commencement lasted for more than 12 years. Mr Chok submitted and I accept that this has created substantial litigation pressure for the 2^nd defendant.

(b)  The existence of the Notice of Appeal remains a blot on title to the 8 lots should its existence be brought to the notice of any potential purchaser. Indeed, it might be said that the 2^nd defendant would be obliged to disclose the fact that there is a pending appeal brought by the plaintiff such that it might be said that there is doubt as to the 2^nd defendant’s title to the 8 lots.

22.Fourthly, as set out in paragraphs 13 – 14 hereinabove, I do not consider that there is any strong chance of success to the Notice of Appeal.

23.I therefore accept Mr Chok’s submissions that the Notice of Appeal should be struck out for abuse of process.

COSTS OF THE SUMMONS

24.Costs follow the event. The 2^nd defendant should have the costs of the Summons, with certificate for Counsel, to be summarily assessed on a party and party basis, if not agreed. Such costs order is on a nisi basis, and will become absolute after 14 days hereof if no application to vary such costs order is taken out.

25.The 2^nd defendant do lodge and serve their statement of costs within 7 days hereof. The plaintiff do lodge and serve its list of objections, if any, within 7 days thereafter. Summary assessment will be carried out on paper after the expiry of the deadlines.

The plaintiff, acting in person, absent

Mr Brian Chok, instructed by Chui & Lau, for the 2^nd defendant