Kuok Luen (Macau) Agente De Programs Televisivos Limitada and Others v. Tidetime Sun (Group) Ltd and Others

CACV 77/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 77 OF 2011

(ON APPEAL FROM HCA NO. 1456 OF 2006)

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BETWEEN

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Before: Hon Tang VP and Fok JA in Court

Date of Hearing: 23 September 2011

Date of Judgment: 23 September 2011

Date of Handing Down Reasons for Judgment: 4 October 2011

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REASONS FOR JUDGMENT

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Hon Tang VP:

1.I have had the advantage of reading Fok JA’s judgment in draft. I agree with it and have nothing to add.

Hon Fok JA:

Introduction

2.This is an appeal from a judgment of Deputy High Court Judge Burrell dated 8 April 2011 by which he dismissed an appeal from a decision of Master Ng striking out the plaintiffs’ Amended Statement of Claim and dismissing the action against the 1^st defendant.

3.On 29 July 2010, the Master had struck out the plaintiffs’ claim against 1^st defendant under RHC Order 18 rule 19 on the ground that it was frivolous or vexatious or obviously unsustainable and also under the principle in Grovit v Doctor [1997] 1 WLR 640 on the ground that the claim against 1^st defendant was one which the plaintiffs had no intention to bring to a conclusion and was therefore an abuse of the court’s process.  The Deputy Judge agreed with the Master and dismissed the plaintiffs’ appeal.  Hence, the plaintiffs’ further appeal to this court.

4.At the conclusion of the hearing, we dismissed the appeal with costs, indicating that we would hand down our reasons at a later date.  These are our reasons.

Background

5.The Deputy Judge noted that the Master had given a comprehensive 55-page written decision in which she set out a detailed factual background of the case.  Neither the Deputy Judge nor counsel appearing before him made any criticism of the accuracy of the Master’s history of the case over the first nine pages of her decision and for that reason the Deputy Judge set out the background in outline only.

6.Therefore, for the purposes of this appeal, it is sufficient to set out the relevant paragraphs from the judgment below in which the Deputy Judge so set out the background:

“3. The case concerns two contracts. The parties to the first contract in July 2000 were the plaintiffs, the 1^st defendant and the 2^nd defendant (“Ps, D1, D2”). By this preliminary agreement (“PA”) D1 and D2 agreed to purchase 60% of some shares owned by Ps at a particular price to be paid in the form of shares owned by D1.

4. Clause 8 of the PA stated :

“This Agreement becomes effective as soon as it is signed by the three parties to this Agreement, and shall remain effective until the formal transfer agreement is signed and becomes wholly effective.  But the execution and effective date of the formal transfer agreement must not be later than 31^st August 2000 or otherwise, unless all three parties to this Agreement unanimously agree to an extension of time, this Agreement shall be terminated, without prejudice to rights and claims arising from or caused by matters which happened before termination.” [Emphasis added]

5. Thus the PA was certain to terminate either on the signing of a formal agreement (“FA”) or 31 August 2000 whichever was sooner.

6. The FA was in fact signed on 8 August 2000. It was different from the PA in a number of ways:

(i) The parties were the Ps and D2;

(ii) D1 is not mentioned at any point in the 36 pages that it covers;

(iii) the number of shares to be purchased is 51%;

(iv) the price has been reduced accordingly;

(v) the payment is to be made in cash, not shares; and

(vi) it is stated to be an ‘entire’ agreement which supercedes the PA.

7. Ps claim in these proceedings is that the FA was breached in 2002 when steps were taken in the management of ‘the Company’ in breach of the agreement which caused Ps substantial financial loss.”

7.For convenience, I shall adopt the abbreviations used by the Deputy Judge.

8.So far as the procedural history of the action is concerned, again, it suffices to set out the outline as contained in tabular form in paragraph 8 of the Judgment below, viz.:

2000	The PA and FA are signed
2002	The alleged breach
2002	A different High Court action is lodged arising out of the same facts by P3 against D2 alone.
2006	Amended Statement of Claim and Defence filed (both in September)
May2007 – October 2007	Various procedural steps taken (Summonses for Directions, Filing of Documents, filing of witness Statements, Checklist hearings and so on).
31 October 2007	Order of Master Lung by which he gave Ps leave to set down for trial within 42 days
3 October 2008	Ps file short list of supplemental documents
5 May 2010	D1’s summons to strike out for want of prosecution and abuse of process under O.34, r.2(2)
23 June 2010	D1’s summons to strike out and dismiss the claim under O.18, r.19
8 July 2010	Ps apply for an extension of time to set the matter down for trial (5 days before the hearing before Master Ng)

The issues on appeal

9.The issues on this appeal, as before the Deputy Judge below, are two-fold.  First, has D1 established that Ps have no arguable cause of action against it and that the claim is thereby an abuse of the court process?  Secondly, has D1 established that, pursuant to the principle in Grovit v Doctor, it is plain and obvious that Ps had no intention of pursuing the matter to trial?

10.As noted above, both the Master and the Deputy Judge answered both these questions in the affirmative.  Mr Simon K.C. Lam, counsel for Ps, seeks to argue in this appeal that the Deputy Judge should have answered them in the negative.

Whether the plaintiffs’ claim frivolous or vexatious, or obviously unsustainable

11.As before the Deputy Judge below, there was no dispute as to the principles under RHC Order 18 rule 19.  It is only if Ps’ claim against D1 is obviously frivolous or vexatious, or obviously unsustainable, that the court will strike it out.

12.As noted above, Ps’ claim in these proceedings is that the FA was breached.  Whether D1 was a party to the FA, being the agreement sued upon, was critical to that claim.

13.It was Ps’ case on appeal that it was not plain and obvious that D1 was not a party to the FA.

14.What the Deputy Judge said about this is set out at paragraphs 16 to 21 of his Judgment:

“16.  There can be no doubt that D1 does not feature in the FA. Throughout “the purchaser” is described in the singular and is D2.  Ps submit they have an arguable case that D2 purchased the shares both on its own behalf and on behalf of D1.

17.  I agree with the Master’s decision that this argument cannot succeed.  Any sensible reading of the two agreements leads to the sole conclusion that D1 was specifically excluded from the FA.  If D2 was purchasing as D1’s agent the FA could have and would have said so.  D1’s inclusion in the PA was, inter alia, because the sale was to be via D1’s shareholding. Not so in the FA.  In the FA the sale was by way of D2’s cash.

18.  Any argument that the PA somehow survived the signing of the FA is also certain to fail.  The intention of the parties in the PA is unequivocal.  The FA crystallizes what was stated and intended in the PA as to the “shelf life” of the PA.  The “intention” referred to in the recital of the PA, namely that “D1 and D2 intend to purchase upon terms …” can only be construed in the context of the terms stipulated in the PA.  The terms of the FA are wholly and significantly different.

19.  The FA is a lengthy and carefully drafted document (drafted by lawyers on both sides). No credible explanation has been advanced to explain D1’s absence from it other than that advanced by D1 itself.

20.  After a careful analysis of a number of the contractual clauses in both the PA and the FA, the Master concludes :

“In light of the above analysis and of the situation in which the parties were in at the time of the Formal Agreement, it is not arguable for Ps to contend on the basis of PA Recital 2 that D2 has executed such agreement on its own behalf and on behalf of D1. In any event, once the Formal Agreement, which is the formal agreement contemplated by and referred to in the Preliminary Agreement, has been executed and has come into effect on or before the FA Deadline, the Preliminary Agreement (including PA Recital 2) comes to an end. In any view, there can be no doubt that D1 is not a party to the Formal Agreement.”

21.  In my judgment both her analysis and this conclusion cannot be faulted.”

15.It was Mr Lam’s contention that it was apparent from the passages cited above that what operated in the mind of the Deputy Judge when he arrived at his decision was limited to one single point, namely that D1 was not named as a purchaser in the FA.  He submitted that the Deputy Judge’s conclusion in this regard was plainly wrong for a number of reasons.

16.He contended that D2 signed the FA on its own behalf and also as agent on behalf of D1 since: D1 was specifically named in the PA as a co-purchaser of the shares concerned together with D2; in the PA, the FA then anticipated to be compiled was specifically called a transfer agreement, thereby making it plain that the purpose of the FA was to effect the transfer of shares purchased by virtue of the PA; D2 was specifically named in the PA as the receiving party to whom the shares jointly purchased by D1 and D2 were to be transferred; it should therefore come as no surprise that D2 was the only party named in the FA as the purchaser because the FA was an instrument of transfer and D2 was the only transferee.

17.Mr Lam’s argument in this regard was premised on the fact that recital 2 to the PA provided (in translation) as follows:

“Party B and Party C (the Purchasers) intend to purchase upon the terms stipulated by this Agreement, and the shareholders of TV Viagens (the Vendors) intend upon the same terms to sell 60% of all their shares in TV Viagens to the receiving party appointed by Party B and Party C, viz., Party B (the Receiving Party).”

Party B was identified in the PA as D2 and Party C was identified as D1.

18.In my view, Mr Lam’s argument is without any merit.  By clause 8 of the PA, the PA was only to remain effective “until” the FA was executed and became wholly effective.  It was common ground that the FA was made on 8 August 2000 and has become wholly effective.  Clause 14.1 of the FA expressly provided that:

“This Agreement constitutes the entire agreement between the parties hereto with respect to the matters dealt with here in and supersedes all previous agreements, arrangements, statements, understandings or transactions between the parties hereto in relation to the matters here of and the parties acknowledge that no claim shall arise in respect of any agreement so superseded.”

The position, quite simply, is that upon the execution and coming into effect of the FA, the PA was superceded and was no longer effective.

19.The Master dealt comprehensively with the argument in which Mr Lam persisted in this court in paragraph 38 of her Decision, with which I am in full agreement:

“38. Although the Preliminary Agreement refers to Ds as purchaser in the SP Transaction, it contemplates that the parties will enter into further negotiations to agree the formal agreement referred to therein, and depending on the results of the negotiations and/or any agreement that may be reached the Preliminary Agreement will either cease to have effect or terminate. In fact, such further negotiations eventually resulted in the Formal Agreement that deals with the SP Transaction in a distinctly different manner to that envisaged in the Preliminary Agreement:

(a) the quantity of the sale shares in the Company is reduced from 60% (see PA Clause 1.1) to 51% (see FA Clause 1.1) with the remaining 9% relegated to a call option excisable by D2 and/or its nominee;

(b) the consideration payable is reduced from HK$36,300,000.00 (see PA Clause 1.1) to HK$34,935,000.00 (see FA Clause 4.1);

(c) the method of payment is changed from the allotment of 165,000,000 shares in D1 at HK$0.02 per share to Ps or their nominee (see PA Clause 2.1) to monetary payment by D2 (see FA Clause 4.1).

Plainly, the description of Ds as purchaser as well as D1’s responsibility for the consideration have been removed in the Formal Agreement. This sits well with clause 12 of the Formal Agreement which provides that each of Ps as vendors shall do all acts “to vest the registered and beneficial ownership of the Sale Shares in the Purchaser [defined as D2] free from all Encumbrances and with all rights now and hereafter attaching thereto” (my emphasis) (“FA Clause 12”). Save and except for the quantity of the sale shares, FA Clause 12 also sits comfortably with the provision in PA Recital 2 that Ps are to “出讓 …… 所持有的於[the Company]已發行股本中60%的股份予收購方 …… 所指定的承受者, 亦即[D2](承受方)”. In my view, if D1 is intended to be a beneficial co-owner of the sale shares, there is no reason for FA Clause 12 not to have made that clear. Further, Ps and D2 have been legally represented in the course of preparing and executing the Formal Agreement. If D1 is a material contracting party, I find it incredible that the Formal Agreement is totally silent of such fact, and no or no satisfactory explanation has been offered for such silence. In my view, it is plain and obvious that D2 and not D1 is the contracting party to the Formal Agreement and the beneficial owner of the sale shares upon completion of the SP Transaction.”

[Emphasis in original]

[See above for translation of recital (2)]

20.The various reasons for holding that it was no accident that D1 was not a party to the FA are clearly set out in that passage.  The Deputy Judge agreed with this analysis of the Master (the citation in paragraph 20 of his Judgment is from paragraph 39 of the Master’s Decision, i.e. the conclusion following the analysis set out above), as do I, and there is therefore no basis for Mr Lam’s contention that the Deputy Judge rejected Ps’ argument on one point alone or that he ignored the agency argument.

21.Mr Lam contended that the Deputy Judge was wrong to hold, in paragraph 19 of the Judgment, that the only explanation for D1’s absence from the FA was that advanced by D1 itself, since D1 never put forward any such explanation.

22.I disagree.  It was not necessary for D1 to put forward any positive explanation beyond reference to the express terms of the PA and the FA.  In any event, the Deputy Judge’s reference to the explanation advanced by D1 itself was clearly a reference to the arguments which led him to hold, in paragraph 17 of his Judgment, that D1 was specifically excluded from the FA.

23.A further argument advanced by Mr Lam in support of the contention that D1 is a party to the FA was that D1’s post-FA conduct shows that it acknowledged that it regarded itself, rather than D2, as owner of the shares.  The conduct relied upon is the publication by D1 of its annual report for 2001, in which the shares of the company, TV Viagens (Macau) SARL (“TV Viagens”), held under the name of D2 were treated as shares owned by D1 itself.  Thus, submitted Mr Lam, this pointed to D2 being D1’s nominee and vehicle in the holding of shares in TV Viagens and also supported Ps’ contention that D2 was acting as D1’s nominee in entering into the FA with Ps.

24.However, in my view, the evidence relied on by Ps (assuming it to be admissible) does not support Mr Lam’s contentions.  So far as D1’s annual reports are concerned, these showed the contrary since they clearly stated that it only had an indirect interest (51%) in TV Viagens through a subsidiary.  Far from supporting Ps’ argument, this evidence undermines it.

25.Furthermore, there is other subsequent conduct which also undermines Ps’ argument, namely the fact that, in 2002, P3 commenced an action (HCA 4716/2002) against D2 only for breach of the FA.  In that action it is asserted that Ps sold the shares in TV Viagens to D2 and that D2 was in breach of the FA but there is no mention of D1 as a party to that agreement.

26.These points were all addressed by the Master in paragraphs 40 to 44 of her Decision, with which I am also in full agreement:

“40. There is some doubt as to whether subsequent conduct can aid the interpretation of contract, but since Ps rely on such conduct I shall err on the side of caution and consider the same.

41. D1’s 2001 annual report (“2001 Report”) states that “…… we are developing a second channel focused on travelogue programmes. We believe that growing our operations by acquisitions is one of the right strategies. Accordingly, we acquired a controlling interest in [the Company] ……” Mr Lam submits that the 2001 Report clearly treats the shareholding in the Company held by D2 as shares owned by D1 itself, which suggests that D2 is D1’s nominee and vehicle for holding such shares and in entering into the Formal Agreement with Ps.

42. I am not persuaded that D1’s acquisition of a controlling interest in the Company lends support to Mr Lam’s submission. Although the 2001 Report regards both D2 and the Company as subsidiaries of D1, they are different because at the material time D2 was a wholly owned subsidiary under section 2(4)(a)(iii) of the Companies Ordinance Cap.32 and the Company was a partly owned subsidiary of a subsidiary (ie D2) under section 2(4)(b). D1 has acquired its controlling interest in the Company through its ownership of the share capital of D2, which subsidiary in turn has held 51% shareholding in the Company (see “Investment in Subsidiaries” section of the notes to the financial statements in the 2001 Report which states that D1 indirectly held 51% shareholding in the Company). This does not in any way contradict FA Clause 12 which expressly provides that “the registered and beneficial ownership of the Sale Shares in the Purchaser [defined in the Formal Agreement as D2]” shall be vested in D2 as a separate legal entity albeit also a wholly owned subsidiary of D1.

43. Next, if one is consider subsequent conduct, one cannot ignore the absence of any or any satisfactory explanation as to why Mr Lee has merely sued D2 (and not both Ds) in the Other HC Action for breach of the Formal Agreement, and why his pleadings aver inter alia that Ps have sold the sale shares to D2 (and not both Ds) and that the Formal Agreement specifies duties and obligations on the part of D2 without any mention of D1.

44. Mr Lam purports to distinguish the Other HC Action from the present action by saying that the former seeks specific performance of the Formal Agreement by requiring D2 to pay certain sums under such agreement.  But in fact Mr Lee has also sued for damages allegedly suffered as a result of D2’s breach of the Formal Agreement in the Other HC Action, which cause of action arguably overlaps to a certain extent with that in the present action.  Further, D2 in its Defence in the Other HC Action admits the Formal Agreement between itself and Ps, and have not in any way suggested that D1 is its disclosed principal in respect of the Formal Agreement.  No Reply was filed by Mr Lee.”

[All emphasis in original]

27.A final argument advanced by Mr Lam was that, even if D1 were not a party to the FA, D1 would still be liable under the PA because, so far as D1 was concerned, it was not superceded by the FA.  Also, it was contended that D1 could not take the benefit of clause 14.1 of the FA, the entire agreement clause, since it was not privy to that agreement.  Finally, it was suggested that the PA did not lapse on 31 August 2000 since the FA was in fact executed and came into effect before that date.

28.None of these contentions have any merit whatsoever.  As noted above, by clause 8, the PA was to remain effective until the formal transfer agreement was signed and became wholly effective.  The FA was executed on 8 August 2000 and has become wholly effective, so the PA would no longer remain effective.  It is also to be noted that clause 8 went on to provide that:

“… the execution and effective date of the formal transfer agreement must not be later than 31^st August 2000 or otherwise, unless all three parties to this Agreement unanimously agree to an extension of time, this Agreement shall be terminated without prejudice to rights and claims arising from or caused by matters which happened before termination.”

In other words, by 1 September 2000, the PA would have terminated in any event.

29.The Deputy Judge dealt with the argument that the PA might have survived the FA at paragraph 18 of his Judgment.  For her part, the Master also dealt with this argument at paragraphs 24 to 32 of her Decision, with which, again, I am in full agreement:

“24.  Ps’ primary pleaded case is that the Formal Agreement made by D2 on its own behalf and on behalf of D1 has been executed and has come into effect on or before the FA Deadline (“Primary Case”).  Mr Lam accepts that in such circumstances the Preliminary Agreement has lapsed and ceased to have effect pursuant to the first part of PA Clause 8 (ie “本協議書一經協議三方簽署後立即生效，並且持繼有效，直至正式轉讓合同簽署和完全生效為止”, “First Part”).  But in fact paragraph 12 of the ASOC pleads that Ds have been in breach of both the Preliminary and Formal Agreements, which, contrary to the Primary Case, suggests that the Preliminary Agreement remains effective notwithstanding the existence of the Formal Agreement.  Be that as it may, I need not say anything further on this because D1 agrees that the the Preliminary Agreement has lapsed.

25.  Mr Lam argues that on Ps’ alternative case (“Alternative Case”) as follows:

(a)  the formal agreement contemplated by and referred to in the Preliminary Agreement should be executed by Ps as vendors and Ds as purchaser;

(b)  (contrary to the Primary Case) D1 is not a party to the Formal Agreement and D2 has executed such agreement solely on its own behalf;

(c)  Ps and D1 have not entered into any other formal agreement on or before the FA Deadline or at all,

the Preliminary Agreement still continues to be effective between Ps and D1.  Mr Lam says the First Part is inapplicable in the context of the Alternative Case because the Formal Agreement not having been executed on behalf of D1 is not fully effective (ie “完全生效”), and the second part of PA Clause 8 (ie “唯正式轉讓合同簽署和正式生效之日期不能遲於二零零零年八月三十一日，否則除協議三方一致同意延期外，本協議書即告終止，但不影響終止前已發生或導致之權利及追討”, “Second Part”) is also inapplicable because Ps and D2 have in fact executed the Formal Agreement and it has became formally effective (ie “正式生效”) on or before the FA Deadline.

[See above for translation of clause 8]

26.  First of all, the Alternative Case has not been properly pleaded.  Although the ASOC is premised on the material facts in paragraph 25(a) and (c) above and on the further material fact that D2 has executed the Formal Agreement on its own behalf and on behalf of D1 (see paragraph 24 above), there is no express plea of the alternative material facts in paragraph 25(b) above which essentially contradict the pleaded Primary Case.  In my view, if Ps are to rely on the Alternative Case, it should have been expressly pleaded and not left to speculation and inference.

27.  But even if one can infer the Alternative Case from the ASOC (which I disagree), does the Formal Agreement satisfy the requirement in the proviso in the Second Part (ie “唯正式轉讓合同簽署和正式生效之日期不能遲於二零零零年八月三十一日”, “Clause 8 Proviso”) so that the Preliminary Agreement is not terminated but continues to have effect between Ps and D1?

28.  I agree with Mr Chong’s criticism that such interpretation is strained and artificial.  The starting point of the Alternative Case must be the material fact in paragraph 25(a) above, ie that the formal agreement contemplated by and referred to in the Preliminary Agreement is to be made between Ps as vendors and Ds as purchaser.  Depending on whether such formal agreement has been executed and has come into effect on or before the FA Deadline or not, PA Clause 8 specifies different consequences.  If such requirement is met, the Preliminary Agreement continues to have effect until such formal agreement has been executed and fully come into effect (see First Part), which means that thereafter all contractual rights and liabilities will be governed by the terms of the formal agreement.  But if such requirement is not met, the Preliminary Agreement will terminate without prejudice to any accrued rights and liabilities (see Second Part), which means that the SP Transaction will fall through and only antecedent rights and liabilities remain to bind the parties.  It is plain from the above analysis that under the Alternative Case the Preliminary Agreement in any event will not survive but will come to an end except for antecedent rights and liabilities.

29.  But Mr Lam suggests that under the Alternative Case, although D1 is left out of the Formal Agreement so that such agreement is not “fully effective” within the meaning of the First Part, such agreement satisfies the requirement in the Clause 8 Proviso so that the Preliminary Agreement is not terminated but continues to bind Ps and D1 under the Second Part.

30.  I disagree. Under the Alternative Case as raised by Mr Lam, D1 has not executed any formal agreement as at the FA Deadline, so there is no “form” in existence between Ps and D1 that can be formally effective, but since a formal agreement between Ps and D1 is a necessary part of the formal agreement between Ps and Ds as contemplated by and referred to in the Preliminary Agreement, the Formal Agreement that leaves out D1 cannot be regarded as the formal agreement (ie “正式轉讓合同”) within the meaning of the Clause 8 Proviso let alone one that is duly executed and/or formally effective on or before the FA Deadline.  After all, there is no dispute there is no other formal agreement between Ps and D1.

31.  Further, to take Mr Lam’s submission to its logical conclusion within the context of the Alternative Case, the Formal Agreement binds Ps and D2 and governs their contractual relationship because for them the Preliminary Agreement has been terminated under the First Part, yet the Preliminary Agreement remains effective to bind Ps and D1.  As seen in paragraphs 4-5 above and paragraph 38 below, the provisions in the Formal and Preliminary Agreements are different in terms of the quantity of the sale shares of the Company, the amount of the consideration, the method and party responsible for paying the consideration, etc.  So in respect of the single SP Transaction, is D1 to buy a larger quantity of the sale shares for a higher consideration to be paid via allotment of shares in D1 to Ps under the Preliminary Agreement whilst D2 buys a smaller quantity of the sale shares for a lower consideration to be paid in monetary form by D2 under the Formal Agreement?  In my view, it is objectively unthinkable for commercial parties to adopt such an unworkable interpretation of contract.

32.  In my view, under the Alternative case, the Clause 8 Proviso has not been satisfied and the Second Part applies to terminate the Preliminary Agreement without prejudice to antecedent rights and liabilities.  Thus, whether on the Primary or Alternative Case and irrespective of FA Clause 14.1, the Preliminary Agreement has come to an end pursuant to its own express provision.  In my view, there is no viable cause of action based on the Preliminary Agreement.  That being so, the Alternative Case is impossible and unsustainable, and I now turn to the Primary Case based on breach of the Formal Agreement.”

[All emphasis in original]

30.In my judgment, the Deputy Judge was right to strike out Ps’ claim against D1.  It is plain and obvious that claim is frivolous or vexatious and unsustainable.

Whether claim liable to be struck out as abuse of process

31.In light of the conclusion on D1’s strike out application based on RHC Order 18 rule 19, the application to strike out on the principle in Grovit v Doctor is academic to the outcome of this appeal.  However, it is a free-standing ground for striking out the claim, which would apply even if I did not agree with the Deputy Judge’s conclusion that the claim was liable to be struck out as being frivolous or vexatious and unsustainable.

32.Ps’ grounds of appeal challenge the Deputy Judge’s holding that this was not a case of mere delay and that the delay would have continued indefinitely but for D1’s strike out application.  It was contended that there was no basis for the Deputy Judge’s conclusion that Ps had “no real intention to take the 1^st Defendant to court”.

33.It was also contended that the Deputy Judge wrongly took into consideration an irrelevant consideration, namely the weakness of Ps’ case against D1.

34.Finally, Ps contended, relying on New China Hong Kong Group Ltd & Anor v AIG Asian Infrastructure Fund LP & Ors [2005] 1 HKLRD 383, that there was nothing exceptional in this case to make Ps’ conduct an affront to the court and to its rules and so as to constitute such conduct an abuse of the process of the court.  In the circumstances, it was said, it was unfair to strike out Ps’ claim against D1, who had suffered no prejudice as a result of the delay and the striking out was against the spirit of RHC O.1A r.2(2).

35.The Deputy Judge was clearly alive to the proposition that mere delay was not a sufficient basis on which to exercise the discretion to strike out.  At paragraph 41 of his judgment, he agreed this was not a case of mere delay but held that there was more, namely that:

“[t]he facts lead to a compelling inference that there was no real intention to take D1 to court.”

36.Those facts were the facts summarised in paragraph 40 of his Judgment, namely:

“(i) In 2006, 4 years after an alleged breach, Ps file a Statement of Claim which, on any view, against D1 was a weak case.

(ii) In 2002 another action had been commenced on an identical factual basis by P3 against D2 alone. No claim was made against D1.

(iii) Ps ignored a court order to set the case down for trial in October 2007.

(iv) No extension of time was sought, no summons was issued re-applying for leave to set down until five days before the hearing of this summons.

(v) 2½ years later P1’s non-action was brought to an end by D1 by this summons.

(vi) P3’s personal assistant gave [a] lame excuse for the inactivity.

(vii) The delay would have continued indefinitely but for D1’s action.”

37.I am satisfied the Deputy Judge was correct in drawing the inference that Ps had no real intention to take D1 to court from those facts.  So far as he relied on the weakness of Ps’ case against D1 (and in characterising it as weak rather than bound to fail he was being generous to Ps), this was an entirely relevant fact in considering whether, objectively, Ps really did intend to pursue the claim to trial.

38.So far as New China Hong Kong Group Ltd & Anor v AIG Asian Infrastructure Fund LP & Ors is concerned, it is clear that the Deputy Judge had in mind the caution expressed by Stone J in that case (at §66) since he set out the relevant passage in paragraph 26 of his Judgment.

39.Contrary to Ps’ contention, I am satisfied that the facts fully justified the conclusion reached by the Deputy Judge (and, previously, the Master also) that Ps had no real intention to take D1 to court.  That inference, in my view properly drawn, gave the court jurisdiction to exercise its discretion to strike out the action as an abuse of the court’s process.

40.RHC O.1A r.2(2) does not assist Ps.  The court’s exercise of its powers for the just resolution of disputes in accordance with the substantive rights of the parties does not require the court to permit a party to maintain a claim that it has concluded is bound to fail.  Quite the contrary.

41.In exercising his discretion, the Deputy Judge was aware of the need to be satisfied that it would be fair and just to strike out and dismiss the claim.  Although Mr Lam cited a number of cases in which other courts declined to strike out a claim as an abuse of process, those cases are decisions on their own facts and do not, in my view, demonstrate any error on the part of the Deputy Judge.  I do not see any basis for interfering with his exercise of discretion, which was a proper exercise of that discretion.  I would have reached the same conclusion.

Mr Simon K C Lam, instructed by Messrs Fung, Wong, Ng & Lam, for the Plaintiffs/Appellants

Mr Anthony Houghton SC & Mr Patrick Chong, instructed by Messrs Chong & Yen, for the 1^st Defendant/Respondent