The Liquidator of Wing Fai Construction Co Ltd (in Compulsory Liquidation) v. Yip Kwong Robert and Others
Read the full judgment text of FACV 3/2011 on BabelCite. This Court of Final Appeal judgment was delivered on 8 December 2011 before Chief Justice Ma, Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ, Lord Scott of Foscote NPJ.
Civil procedure – strike out for delay – want of prosecution – Civil Justice Reform (CJR) – restatement of applicable principles – abuse of process as foundation for jurisdiction – 'warehousing' of claims – non-expiry of limitation period no longer a factor against striking out – 'letting sleeping dogs lie' no longer acceptable – Birkett v James approach revisited – straddle cases – misfeasance proceedings against former directors of company in compulsory liquidation – two-year delay by liquidators – whether delay justified striking out – held: appeal dismissed – liquidators' delay of two years from 19 April 2006 to 22 May 2008 was inordinate and inexcusable but not sufficient by itself to justify striking out – no abuse of process established – Respondents' own conduct relevant – Points of Defence contained no positive case – Respondents did not pursue applications for Further and Better Particulars or take proofs from witnesses – separate proceedings (HCA 833/2004) involving four-year delay could not be imported – court restated 11 principles governing strike-out applications post-CJR – striking out is remedy of last resort – abuse of process is foundation – mere delay insufficient – non-expiry of limitation period no longer militates against striking out – court has many intermediate powers (peremptory orders, payments into court, costs orders) – CJR applies to pre-existing proceedings – order nisi for costs in favour of liquidator.
Legal issues: Applicability of CJR to pre-existing proceedings (straddle cases) · Restatement of principles governing strike-out applications for delay post-CJR · Whether the liquidators' delay justified striking out the action · Whether 'warehousing' of claims constitutes abuse of process · Whether non-expiry of limitation period remains a factor against striking out
Outcome: Appeal dismissed. The Respondents' appeal against the dismissal of their application to strike out the misfeasance proceedings for delay was dismissed.
Cited by 66 cases · Cites 8 cases
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FACV No. 3 of 2011 IN THE COURT OF FINAL APPEAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION FINAL APPEAL NO. 3 OF 2011 (CIVIL) (ON APPEAL FROM CACV NO. 273 OF 2009) _______________________ Between:
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Date of Hearing: 22 November 2011 Date of Judgment: 8 December 2011 _______________________ J U D G M E N T ______________________ Chief Justice Ma: 1.This appeal raises important questions regarding applications to strike out actions for delay (sometimes referred to as applications to strike out for want of prosecution). These questions will require a discussion of the impact of the Civil Justice Reform (the CJR) which came into effect on 2 April 2009. For many years, the courts in Hong Kong have on the whole followed the approach of the decision of the House of Lords in Birkett v James [1978] AC 297 and the cases which followed that decision. In my view, a re-evaluation of this approach is necessary in the light of the CJR. A restatement of the applicable principles is appropriate. It was for these reasons that leave to appeal was given by the Appeal Committee of this Court to the Respondents on 21 January 2011. A Background 2.On 6 July 2002, a winding up petition was presented against Wing Fai Construction Company Limited (the Company). The Company had been engaged in the business of engineering, construction, industrial consultancy services, engineering advisory services and contracting services. A winding up order was made on 9 December 2002 and liquidators were appointed. There is now only one liquidator, Mr Nicholas Hill (who is the Applicant in these proceedings). The Respondents (the Appellants in this appeal) were, until their resignations, directors of the Company. The first and the second Respondents resigned on 26 July 2001, the third Respondent on 22 April 2002. 3.Prior to 22 April 2002 (when the Company was sold to Sino Glister International Investments Limited), the Company was a wholly-owned subsidiary of Benefit Holdings International Limited, which in turn was a wholly-owned subsidiary of China Rich Holdings Limited, a Hong Kong listed company. The Company’s business constituted approximately 90% of the turnover of the China Rich group. 4.Provisional liquidators were appointed on the presentation of the Petition. They found that the financial records of the Company were virtually non-existent; they appeared either to have been removed or destroyed. The provisional liquidators therefore had to use specialist information technology consultants to retrieve data from computer hard drives. Only limited financial information was extracted. The provisional liquidators also conducted private examinations of the Respondents (as well as others) under s.221 of the Companies Ordinance Cap.32. The Respondents were also required to submit a statement of affairs under s.190 (2)(a) of the Companies Ordinance. This has yet to be provided. 5.On 30 August 2004, a summons was issued by the liquidators (as the Applicants) against the Respondents alleging misfeasance, breach of duty and breach of trust. The complaint identified in this summons was that they had authorized payments by cheque and the purchase of letters of credit, amounting to nearly HK$33 million from the Company’s funds, for the benefit of two companies without any apparent consideration. 6.This summons was supported by a lengthy affidavit from one of the liquidators (some 63 pages with 57 exhibits). 7.The liquidators’ claim against the Respondents was later pleaded in Points of Claim dated 12 October 2004 (which had been ordered by the Court to be served). The Points of Claim were much criticized by Mr Barrie Barlow SC (who represented the Respondents in this appeal). It was submitted by Mr Barlow that the claim against the Respondents was unparticularized, vague and even demurrable; in short, in his words, the pleading was hopeless. 8.In my view, these criticisms were without justification. Certainly, Chu J, in a judgment handed down on 28 March this year, saw no merit in them, when she rejected applications by the Respondents to strike out the Points of Claim and to dismiss the misfeasance proceedings. It is easy to understand why counsel pitched the case so high. As will later be seen, it is relevant, in determining whether or not the Applicant’s claim should be struck out for delay, for the Court to consider the Respondents’ own conduct and any prejudice that was allegedly suffered by them. Mr Barlow sought, by attacking the Points of Claim in the way he did, to deflect any criticism that could be made against his clients for not having even now revealed the true nature of their defence or in apparently not even taking any steps to gather evidence. 9.The pleaded case on misfeasance against the Respondents, as contained in the Points of Claim, is essentially as follows:-
10.The service of the Points of Claim prompted applications in November and December 2004 by the Respondents for Further and Better Particulars and for discovery. It was asserted at the time that unless these applications were granted, the Respondents would not be in a position to serve their Points of Defence. Given the pleaded case outlined above, I find this assertion surprising. Although the Points of Claim could be better particularized, it was not so lacking in content that a sensible, proper defence could not be pleaded. 11.On 8 December 2004, the liquidators provided Further and Better Particulars by letter, which repeated parts of the affidavit in support of the misfeasance summons and the documents exhibited in it. The next day, the parties consented to an order whereby the Respondents’ applications for Further and Better Particulars and discovery were withdrawn. The Respondents were given 14 days to serve their Points of Defence. 12.The Points of Defence dated 23 December 2004, which remains to this day unamended, is a pleading that was described by Kwan J (who heard the original application by the Respondents to strike out for delay) as containing no positive case, and mainly putting the liquidators to strict proof. As to those major allegations contained in the Points of Claim (see para. 9 above), there is no positive case put forward, merely denials or non-admissions:- nothing is pleaded, for example, about the Respondents’ links with FCEL and KCEL, whether these companies carried on business at all, or whether the Company had legitimate dealings with these two companies and if so, what these business dealings comprised etc. 13.Thereafter, in the chronology of this action, by a letter dated 11 July 2005, the liquidators provided to the Respondents three additional affirmations, together with an affidavit exhibiting additional documents. 14.This letter was met by a 37 page letter dated 18 July 2005 from the Respondents’ solicitors seeking Further and Better Particulars and further discovery. It appears that the vast majority of the requests made in this letter were a repetition of the requests made in November 2004. This was answered by the liquidators’ solicitors on 19 April 2006. 15.From 19 April 2006 to 22 May 2008 when the liquidators issued a summons of directions, there was no activity in the proceedings. This prompted the Respondents to issue a summons to strike out for delay on 19 August 2008. B The decisions of Kwan J and the Court of Appeal 16.Kwan J heard the application to strike out on 23 September 2009, and handed down her decision on 7 October 2009. The basis of the application to strike out before her was two-fold:- under the second limb of Birkett v James (inordinate and inexcusable delay, coupled with prejudice) and abuse of process (the so-called Grovit v Doctor ground, named after the decision of House of Lords in Grovit v Doctor [1997] 1 WLR 640). 17.Regarding the Birkett v James ground, Kwan J dealt with the issues of delay and prejudice in the following way:-
18.In relation to the Grovit v Doctor ground, the Respondents argued that the liquidators had been ‘warehousing’ their claims. I will later in this judgment deal with this particular aspect of abuse. The essence of the submission was that it would be an abuse to commence proceedings without any intention to bring them to a conclusion, while other proceedings or matters were being pursued instead. Kwan J declined to find any abuse along these lines. There was insufficient evidence to infer that the two year period of inordinate and excusable delay evidenced an intention on the liquidators’ part not to bring the proceedings to a conclusion. 19.The application to strike out was accordingly dismissed by Kwan J. It being an interlocutory application, leave to appeal to the Court of Appeal was required. On 8 December 2009, Kwan J gave leave to appeal, primarily on the basis it was arguable whether the principles governing strike out applications for delay needed to be revised in the light of the CJR. The present proceedings of course straddled the pre- and the post-CJR regimes. 20.The appeal was heard by the Court of Appeal (Rogers VP and Le Pichon JA) on 16 April 2010. Judgment was handed down on 30 April 2010. The Court of Appeal upheld the decision of Kwan J. As regards the question of the applicable principles post-CJR, there was little analysis in the judgment, although the learned Vice President (with whose judgment Le Pichon JA agreed) did say (in para. 12) that “the matter of delay had to be considered in the context in which it occurred” and (in para. 13) that “a party cannot be blamed for not observing a Rule that did not exist at the relevant time”. As to these general statements, subject to what follows later in this judgment, there is perhaps little controversy. 21.The Court of Appeal refused leave to appeal to this Court. As noted earlier, the Appeal Committee of this Court gave leave to appeal on 21 January 2011. 22.I shall in due course have to set out the principles governing applications to strike out for delay and also to apply them to the facts of the present case. Before doing this, however, I should first look at the impact of the CJR. C The impact of the CJR on the applicable law in the present case 23.From the foregoing, it can be seen that when the summons to dismiss for want of prosecution was taken out (19 August 2008), this was prior to the coming into effect of the CJR. By the time the summons was dealt with by Kwan J (23 September 2009), the CJR was already in operation. The question therefore arises as to the extent to which the Court has to, or even can, take into account the Reform. The Respondents submit that the CJR ought to be taken into account: the parties must take the law as they find it at the time the matter is determined by the Court. As a general statement, I agree with it. This does not, however, provide a complete answer. While of course the Court will determine any case before it on the basis of the applicable law as the Court sees it, the important question, when statutory amendments have intervened, is to inquire whether the amended law will apply to those events which have taken place prior to the coming into effect of the amendments. 24.What then was the impact of the CJR on proceedings in existence at the time the Reform came into effect? In England, following the introduction of the Civil Procedural Rules (the Woolf Reform), transitional provisions regarding the applicability of the new Rules to pre-existing proceedings were contained in a Practice Direction (Part 1 of Practice Direction 51A: Transitional Arrangements). By para. 15 of that Practice Direction, it was stated that the general presumption is that the new Rules would apply to pre-existing proceedings unless directed otherwise. In Hong Kong, there is no such Practice Direction and so this question must be decided as a matter of principle. 25.Clearly, some aspects of the CJR cannot be applied retrospectively. For example, the new O.5 r.1 prescribes that, now, civil proceedings may only be commenced either by writ of summons or originating summons. This provision does not apply to proceedings which, prior to the CJR taking effect, had already been commenced by some other originating process. Such proceedings would continue as though the amendment had not been made: O.5 r.7. 26.Other provisions introduced under the CJR however – indeed the majority of them – will govern pre-existing proceedings. As a matter of commonsense alone, this must be so. This is also the position as a matter of statutory construction. Mr Barlow drew our attention to a number of authorities to this effect; among them the older cases of Gardner v Lucas (1878) 3 App. Cas. 582, at 603 and Attorney General v Vernazza [1960] AC 965 at 975 and 977, where it was held that statutory provisions dealing with procedural matters will generally be construed so as to apply to proceedings of which the Court was seized at the time the provision came into effect. 27.Some provisions in the new Rules under the CJR (I will in this Judgment refer to the Rules of the High Court) are expressly stated to apply to existing proceedings. One of the most important of these is the new O.25 dealing with the case management summons and conference, one of the most important changes introduced under the CJR. The new procedures under O.25 will apply to actions existing at the time the CJR took place: see O.25 r.11. 28.Even without such express indication that provisions are to apply, it is clear that many other new provisions will apply to existing proceedings. For example, the underlying objectives (contained in O.1A) will clearly apply to all proceedings which were in existence at the time the CJR took effect. It would be odd to suggest that they did not. Nothing in the language of the new O.1A suggests that they would not be so applicable. Further, it would be not only illogical but contrary to the ethos of the CJR were an artificial distinction to be drawn between proceedings in existence at the time the Reform was implemented and post-CJR proceedings. 29.The approach to applications such as the present must therefore take into account the Reform that has taken place in Hong Kong. This was held by Fok JA to be the position: see Winpo Development Ltd v Wong Kar Fu [2011] 2 HKC 524, at 532D-F (para. 31). This was also the position in England when the Woolf Reform took effect:- see Biguzzi v Rank Leisure PLC [1999] 1 WLR 1926; John Ian Purdy v Philip John Cambran [2000] CP Rep 67; Annodeus Entertainment v Gibson, unreported, Chancery Division, 2 February 2000. The Court is to apply the law that exists today. However, this is not to say that when an evaluation is made of the conduct of a party in proceedings (in the present case to examine the delay that has taken place), the Court then somehow disregards the circumstances and the statutory structure in place at the relevant time. There is a distinction to be made between, on the one hand, the application of the law that applied pre-CJR in determining an application and, on the other, taking into account circumstances prevailing at the relevant time, when making a factual evaluation (such as whether or not delay in proceedings was excusable). There is no inconsistency between a court adopting the latter approach without applying the former. This is the position in England : see Biguzzi. 30.Before dealing with the principle governing applications to strike out for delay, I must first say something about the CJR itself. D The CJR: a change in litigation culture 31.The CJR came into effect on 2 April 2009. Significant changes were made to those ordinances and subsidiary legislation governing civil procedure in our courts. There were of course miscellaneous provisions governing specific aspects of civil procedure. However, the main purpose of the CJR was the intention to bring about a change in litigation culture. Broadly speaking (I shall presently go into some of the more important provisions as illustrations), the principal themes of the CJR are:-
32.We are of course concerned in this appeal with an application to strike out for delay. In this context, the following Rules which were introduced by the CJR are of note:
33.Of course, where a party defaults or abuses the process to such an extent the court is of the view that ‘enough is enough’, the ultimate sanction of the court may be to strike out an action or the defence, without the matter going to trial. However, in the armoury of the court’s powers, striking out must be the ultimate weapon, to be used only where it is plainly and obviously the appropriate remedy. There are many orders that can be made before striking out should be considered. In other words, the court is not left with a choice of not doing anything at all on the one hand or striking out on the other; it is now encouraged to consider the many possibilities that lie in between these two extremes. 34.Critical to the success of the CJR and its objectives is the realization that litigation is not to be treated as a game, but as a serious legal contest (to borrow a phrase used by Walton J in another context in Rightside Properties Limited v Gray [1975] Ch. 72 at 88 E-F). Here, O.1A r.3 is of fundamental importance, stating it to be the duty of parties to a litigation and (I would stress) their legal representatives to assist the court in furthering the underlying objectives set out in O.1A r.1. It is of course important to recognize, as stated in O.1A r.2(2) that the primary aim of exercising its powers is for the court to “secure the just resolution of disputes in accordance with the substantive rights of the parties”. This places in context the operation of the Rules under the CJR:- Rules do not exist for the sake of compliance with them as an end in itself; they exist for the purpose of ensuring that disputes before the courts are justly resolved. It does not, however, provide any excuse for parties or their legal representatives not to comply with the Rules or orders made by the court, nor does it relieve them of this duty under O.1A r.3. The emphasis must be placed on the word “just”. E Striking out or dismissal of an action for delay E.1 The need for a restatement of the applicable principles 35.With the background of the CJR and the new litigation culture that the Reform has brought, it is appropriate for this court to restate the applicable principles regarding applications to strike out or dismiss actions for delay. In my view, this is both timely and necessary. 36.It is timely owing to the changes brought about by the CJR. As can be seen from the discussion above, the CJR brought about many initiatives having as their objective the expeditious and effective resolution of disputes. It is important within this new context to see the role of applications to strike out for delay. 37.The necessity for a restatement arises from the vast jurisprudence spawned from the decision of the House of Lords in Birkett v James, both here and in England. The attempts made over the years to rationalize aspects of that decision, to develop what were seen to be new approaches to that case and even cutting inroads into it, have all led to a somewhat unsatisfactory, and at times confusing, state of affairs. 38.The cause for the confusion can perhaps to a large extent be attributable to the fact that, for many years, the speech of Lord Diplock in Birkett v James had been construed almost like a statute. Moreover, I fear that, particularly in recent times, the courts may have lost sight of certain basic principles, and have adopted approaches which have led to some confusion. The treatment of what has been referred to as the ‘warehousing’ of claims, an aspect much relied on by the Respondents in the present case, provides a ready example. I shall deal with this aspect later in this Judgment. E.2 Birkett v James and after 39.The approach of the House of Lords in Birkett v James is well-known. Essentially, it consists of that part of Lord Diplock’ speech at 318E-G:-
40.I shall in due course return to the first limb of Lord Diplock’s statement (contumelious default and abuse). It is this part of his speech that has contributed significantly to the confusion that has arisen in applications for dismissal for delay. However, for the time being, I will concentrate on the second part. It is this part of the judgment in Birkett v James which, over the years, has been most frequently used in applications for dismissal for want of prosecution. For many years, this was commonly known among practitioners and judges alike as the ‘Birkett v James’ ground for dismissal for delay. 41.A useful summary of the principles which have been applied by the courts in England and Hong Kong in relation to this particular ground (prior to the advent of the civil procedural reforms there and here) is contained in the judgment of Neill LJ in Trill v Sacher [1993] 1 WLR 1379, at 1398A-1400A. This approach was adopted in Hong Kong as the proper approach: see Hongkong & Shanghai Banking Corporation Ltd v Kuan Tao Sheng [1998] 2 HKLRD 585, 591B-593H; more recently in Winpo Development Limited v Wong Kar Fu at 531G-H (para. 27). 42.Two specific aspects were dealt with in Birkett v James that over the years have, in my view, been controversial, namely, (a) the treatment of the limitation period and (b) the belief that a defendant to proceedings was entitled to adopt an attitude of “letting sleeping dogs lie” to proceedings which have been commenced against him. 43.I deal with the latter first. 44.Under the pre-CJR (and in England, the pre-Woolf Reform) system, the progress of an action was left largely in the hands of the parties themselves. The court was passive in the vast majority of cases, only being involved when the parties chose to involve it. Furthermore, in dealing with cases, the court would generally bear in mind only the position of the parties. Considerations such as other litigants, the court’s own resources, procedural economy and general considerations involving the administration of justice were scarcely prominent in the way proceedings were conducted. Quite the contrary, they were seen to be almost irrelevant considerations. In Allen v Sir Alfred McAlpine & Sons Limited [1968] 2 QB 229, Salmon LJ said this at 268B-D:-
45.It was within this system that it was considered perfectly proper for a defendant to do little or nothing to progress an action, with the consequence that, unless the defendant was obliged (whether under Rules or by order of court) to take a step in the proceedings, he did nothing at all. Accordingly, in the consideration of an application to dismiss for want of prosecution, the inactivity of a defendant (unless he had been obliged by the Rules or by a court order to do something) was not a relevant consideration for the court:-
46.These statements, seemingly of principle from the highest authority in England, were applied in Hong Kong. It gave rise to (understandably) litigation tactics on the part of defendants, whereby actions were permitted to go to sleep and an inactive plaintiff would be treated as a ‘sleeping dog’ which should not be awakened, in the hope that when it did, an application to dispose of the whole action by the defendant (in an application to dismiss for want of prosecution) could be mounted. Defendants were simply encouraged not to progress an action to enable the real dispute between the parties to be resolved. Prior to the Reform in England, this attitude remained one that was apparently sanctioned by the court: see Grovit v Doctor at 644F. 47.This attitude of “letting sleeping dogs lie” is no longer acceptable post-CJR, where all parties to a litigation have the obligation to progress an action so that they are brought closer to the resolution of their dispute, rather than be distracted by litigation tactics. It is also important to bear in mind that post-CJR, the parties and the court have at their disposal many options to enable an action to progress to the ultimate resolution of the relevant dispute. An ‘all or nothing’ approach whereby a defendant can sit idly by while delays accumulate in the hope that, if of sufficient length, the delay can lead to a chance to apply to strike out for want of prosecution, is nowadays in my view, a deeply unattractive approach, particularly in the light of O.1A r.3 (see para. 34 above). 48.I now deal with the aspect of limitation periods. In Birkett v James, this was seen to be a critical factor. Where a limitation period had yet to expire by the time an application to strike out for want of prosecution was heard, this was regarded as a powerful factor against striking out. Lord Diplock described it as a matter of “great weight” (at 322D); Lord Edmund-Davies said it would be “quite exceptional (and difficult to imagine)” an action being struck out in such circumstances (at 334B-C). This approach has been followed in Hong Kong :- see, for example, Hongkong & Shanghai Banking Corporation v Kuan Tao Sheng (para. 41above). The thinking behind these statements was simple: if a plaintiff had simply left it to the last minute to issue his writ, a defendant would have suffered even more delay than was the case where proceedings had started earlier. It was felt that the courts had no power to shorten what was legislated by statute to be the proper period of limitation. Indeed, an argument was even made that, ironically, a defendant was better off with proceedings brought against him at an earlier stage (even if delays occurred) than if no proceedings were brought at all because he would then have more notice of the nature of the case made against him. 49.As we shall see (see para. 75(10) below), this approach has changed post-CJR. However, even before the procedural reform in England, this facet of the jurisdiction to strike out for want of prosecution was regarded as unsatisfactory. In Trill v Sacher, Neill LJ found it difficult to explain the rule:- at 1398G-H. Exceptions were found to mollify the effect of it. For example, while logically, if the non-expiry of a limitation period was to be accorded such great weight, it may be thought that any period of delay in the course of proceedings occurring prior to the expiry of the applicable limitation period ought to be disregarded, the courts have held the opposite to be the case; such delay could be counted towards a period of inordinate delay under the second limb of Birkett vs James : see Hongkong & Shanghai Banking Corporation v Kuan Tao Sheng at 595E, 597G. 50.The effect of non-expiry of the limitation period, which was often a decisive factor to dismiss applications to strike out for delay, was regarded by many as difficult to accept as a matter of principle. Rhetorically, why should a plaintiff who had delayed excessively to the prejudice of a defendant, be able to benefit from the mere fact that the applicable limitation period had yet to expire? True it is that the plaintiff could simply have waited to the last day before issuing his writ, but this surely did not entitle the plaintiff, if he issued his writ earlier, to delay excessively and misuse the court system. As will presently become clear, I believe that this should from now on no longer be the position. 51.No doubt in an attempt to lessen the potential unfairness of a limitation period operating in favour of an undeserving plaintiff (and perhaps some other aspects of the jurisdiction to strike out, such as the need on a defendant’s part to show real prejudice under the second limb of Birkett v James), the courts then started to develop within the context of delay a principle based on abuse of the process of the court. This came into prominence in the decision of the House of Lords in Grovit v Doctor. In that case, an action in defamation, the House of Lords was faced with an application to dismiss for want of prosecution in circumstances where there had been inordinate delay (two years), during which the defendant had invited the plaintiff either to proceed or to abandon the action. At the time the application was made and heard, the limitation period had not yet expired. In spite of this, the action was struck out on the basis of abuse of process. It will be recalled from the well-known passage from Birkett v James set out in para. 39 above that the first limb of striking out for want of prosecution included “conduct amounting to an abuse of the process of the court”. This was regarded by Lord Woolf of Barnes (who delivered the speech with which the others agreed in Grovit v Doctor) as constituting a separate ground to strike out for delay:- at 642H-643A. At 647G-648A, he also said this:-
52.This ground of striking out, namely abuse of the process of the court in the form of commencing and continuing litigation without any intention of bringing it to a conclusion, was regarded by many as a “new approach”: see, for example, the decision of the Court of Appeal in New China Hong Kong Group Limited v AIG Asian Infrastructure Fund LP [2005] 1 HKLRD 383, at 392A-B (para. 9) per Woo VP. In that passage, the learned VP (with whose judgment Stone J agreed) regarded this approach as being one that was adopted by the court “to more readily strike out actions for want of prosecution than heretobefore”. He regarded Grovit v Doctor as having cut a significant inroad into the Birkett v James approach in that under the abuse of process limb, it was unnecessary for a defendant to demonstrate prejudice, which was a key component under the second limb of Birkett v James. 53.Furthermore, Grovit v Doctor was seen to circumvent the rule regarding the treatment of limitation periods. Where abuse of process was relied on, it did not matter if the applicable limitation period had yet to expire:- see Arbuthnot Latham Bank Limited v Trafalgar Holdings Limited [1998] 1 WLR 1426, at 1432G-H per Lord Woolf MR. 54.With these developments arising from Grovit v Doctor and the way it was dealt with in later cases, the practice regarding applications to dismiss for delay took another turn. Parties and their legal representatives began mounting applications to dismiss on the basis not just on the traditional second limb of Birkett v James, but more frequently on the basis of delay, realizing that, under this head, it was no longer necessary to show either prejudice or the expiry of the limitation period. All that was necessary was to show that in delaying, the plaintiff had demonstrated that he had no intention to bring the proceedings to a conclusion. 55.This form of abuse has, in recent times, been increasingly used as a basis to strike out. In Arbuthnot Latham, a reference was made by Lord Woolf to the ‘warehousing’ of claims. This rather inexact term refers generally to a situation where a plaintiff has initiated a number of actions against various people (say, as in the present case, in the course of a liquidation of a company) and, for tactical reasons or otherwise, selects which action to proceed with or not, as the case may be. At 1437B-F, Lord Woolf said:
56.Seen in isolation, parts of this passage, if construed almost as a statute, may be apt to confuse, as they seem almost automatically to equate the ‘warehousing’ of claims with abuse, particularly where delay is involved. It seems to allow an argument to the effect that where there is inactivity, this would by itself indicate an unwillingness on the part of a plaintiff not to comply with the rules and therefore, without more, this would constitute abuse. In my view, the court will need more than just mere inactivity before striking out: see para. 75(4) below. 57.In Nanjing Iron and Steel Group International Trade Company Limited v STX Pan Ocean Company Limited, unreported, HCAJ 177 of 2006, 7 September 2009, Reyes J struck out an action for want of prosecution on the basis of a delay of two years, which he found to be inordinate. His reasoning was as follows:-
58.In Cheung Sai Kit v Wong Chiu Kit Eric, unreported, HCA 1611 of 2005, 17 December 2009, Au J struck out an action as an abuse on the basis that the plaintiff was “warehousing his action”. The learned Judge meant by this term that the plaintiff had not taken any step in the proceedings for 32 months and therefore this constituted prima facie evidence of a lack of intention to bring the action to a conclusion. 59.Most recently, in Wing Fai Construction Company Limited (In Liquidation) v Cheng Kit Yin Kelly, unreported, HCA 833 of 2004, 19 October 2010, Jeremy Poon J struck out the present liquidator’s claim against a number of defendants (including the Respondents) on the basis of a four year delay that had taken place from 2005 to 2009. The learned Judge did not regard as excusable the reason provided by the liquidator that there were insufficient funds to prosecute the action. He regarded this as ‘warehousing’. He refused an extension of time to allow the liquidator to provide security for costs out of time and also dismissed the action for want of prosecution. His decision was upheld on appeal. 60.There is a danger when one sees the way that the courts have dealt with the aspect of delay, to lose sight of the very basis of the jurisdiction to strike out. There appears to be a growing belief that with the new litigation culture brought about by the CJR, applications to strike out for delay will somehow become easier to mount them before. All that is needed is a lengthy delay. As I shall explain presently, this is not the position at all. 61.To summarize then, from recent decisions in particular of the Hong Kong courts, it would appear that applications to strike out for delay will involve one or more of three separate grounds:-
For an example of this three-pronged approach, see A&M Manufacturing and Marketing Limited v Iu Po Shing, unreported, CACV 15 of 2011, 6 September 2011 at para. 19. In Cheung Sai Kit, Au J approached the application on two bases: the second limb of Birkett v James and abuse of process. In the present case, as we have seen, the Respondents also relied on these two grounds. 62.The enlargement of the jurisdiction to strike out for delay in the way I have described, if not properly rationalized as a matter of principle, can lead to a very unsatisfactory state of affairs and may encourage even more litigation tactics than before the CJR. 63.Hence, as I have said earlier, it is both timely and necessary to restate the applicable principles in the light of the CJR. E3 The applicable principles 64.One of the main objectives of the CJR is to enable parties to proceedings to have their dispute resolved as expeditiously, effectively and efficiently as reasonably practicable. The primary responsibility of the court, as made clear by O.1A r.2(2), is to “secure the just resolution of disputes in accordance with the substantive rights of the parties”. The role of the court is therefore not of course to prevent actions being litigated; quite the opposite. 65.It is accordingly within this context that the jurisdiction to strike out for delay must be seen. In my judgment, striking out should only be used in plain and obvious cases: it must be plain and obvious that by reason of his delay, a plaintiff should be deprived of the opportunity to go to trial for the resolution of his dispute with the defendant. This is not a novel proposition at all. In Allen v McAlpine (which, in many ways, was the foundation of the Birkett v James line of cases), Lord Denning referred to strike out on the basis of delay as a “stern measure” (at 245D). Diplock LJ in the same case referred to it as a “Draconian order and will not be lightly made” (at 259F). 66.The next general point is this. I believe the foundation for the jurisdiction to strike out for delay must be predicated on an abuse of the process of the court by the plaintiff. This is the common feature which connects the various reasons that have been used as grounds for the jurisdiction to strike out. Inordinate and inexcusable delay causing prejudice to a defendant, contumelious conduct or initiating proceedings without any intention to bring them to a conclusion, are all examples, in my view, of abuse. 67.I instantly recognize of course that in the well-known passage in Birkett v James (see para. 39 above), Lord Diplock referred to abuse as being part of the first limb to justify a striking out for want of prosecution. Further, in Grovit v Doctor, the House of Lords also seemed to regard abuse as a separate reason to strike out under the inherent jurisdiction of the court. Conceptually and in practical terms, this apparent distinction between abuse of process and the second limb of Birkett v James, has caused difficulties and in many cases, confusion. When Lord Diplock referred to abuse of the process of the court under his first limb, I do not believe he was referring to abuse in the general sense; he was merely discussing the matter in the context of conduct that was intentional and contumelious such as an inexcusable breach of a peremptory order. 68.In any event, it is now time to recognize that in Hong Kong, the foundation for the jurisdiction to strike out for delay must be abuse of process. For my part, I find it difficult to conceive of a case where a court will strike out for delay unless there is this element of abuse. 69.Seen in this way, and particularly given the consequences of a strike out (namely, that a plaintiff will be deprived of the opportunity to go to trial to have his dispute with the defendant adjudicated), resort to a striking out must be a remedy of last resort. I must, however, elaborate on this last statement in case there is any room for arguing that this may signal a more relaxed approach on the part of the courts regarding delays in litigation. It does not. 70.Under the CJR regime, the combination of greater case management by the courts and the obligation on all parties to proceedings to assist the court in achieving the underlying objectives, should ensure that delays are kept to a minimum. While certain delays may be unavoidable, certainly the type of delays that have in the past led to applications to strike out for want of prosecution, should now be consigned to history. 71.As seen above, the Court now has in its arsenal a number of different powers to ensure that an action is proceeded with expeditiously and that its orders are complied with. Some of these powers have always been available to the Court, while others have been introduced under the CJR. Peremptory orders are now more readily made than before, the Court is able to act on its own motion even where the parties have not applied to court, conditions such as ordering payments into court to be made or other conditions can be imposed, and stringent order for costs (even summary assessment) can be made. The Rules also prescribe the remedy of striking out in certain circumstances: for example, under O.25 r.1(4), (5) and r.1C. 72.Accordingly, under the CJR regime, I would expect to see virtually no applications (at least very few) to strike out for delay, unless peremptory orders have not been complied with, or provisions such as O.25 r.1(4), (5) or r.1C apply. Unlike the pre-CJR position, the court should only in rare cases have to face such an application arising from delay. With its greater case management powers and duties, and the obligation on all parties to get on with an action, no proceedings should get to the stage where a delay will prompt an action to strike out for want of prosecution. This was the precise point made in England when the Woolf Reforms took place:- see Biguzzi v Rank Leisure PLC [1999] 1 WLR 1926, at 1933C per Lord Woolf MR. This had been the sentiment of the English Courts even before the Woolf Reforms were implemented: see Department of Transport v Chris Smaller (Transport) Limited [1989] 1 AC 1197, at 1207F-H; Grovit v Doctor at 643B-644F. 73.Moreover, when delays do occur, greater use of the court’s powers can, and should in the majority of cases, be made rather than an application to strike out: see here also the remarks of Lord Woolf in Biguzzi at 1933D. Orders for striking out should only be applicable in plain and obvious cases, and where there has been abuse. It should be an application made in the last resort. The courts ought not to be faced with an “all or nothing” approach whereby it is left only with the choice of either allowing the action to be continued or to strike it out. Nowadays, the court has more options than just these two extreme positions: cf Annodeus Entertainment Limited v Gibson. 74.But in those (hopefully rare) cases where the court is faced with an application to strike out for want of prosecution, what are the applicable principles? I must also deal with the position of those cases which ‘straddle’ the CJR, namely, where proceedings have commenced before the CJR came into effect, such as the present case. 75.It is not appropriate to deal on a comprehensive basis with the many nuances that can arise in an application to strike out for want of prosecution (such as the different shades of prejudice that can arise when proceedings have been subjected to delay) but the following principles ought to be borne in mind in most cases:-
76.So what of cases such as Birkett v James and the many authorities, both in England and in Hong Kong following that decision? In the light of the restated principles, I would think that it will seldom be necessary to refer to those authorities that do not take into account the procedural changes under the CJR (or the Woolf Reform). 77.The present case is, as I have earlier described it, a straddle case where the proceedings were commenced prior to the CJR taking effect. Much time was devoted in the parties’ respective Cases as to whether post- or pre- CJR principles regarding the approach of the court to applications to strike out for delay, applied. Mr Barlow was at pains to point out that both Kwan J and the Court of Appeal appeared to apply pre-CJR principles, with the consequence that the exercise of discretion by both courts below was for this reason to be impugned. He invited this Court to exercise the discretion afresh. 78.In view of the restatement of the applicable principles, it is unnecessary to decide the issue of whether Kwan J or the Court of Appeal took sufficiently into account, if at all, the changes made by the CJR. In disposing of the present case, I have simply applied the restated principles. 79.As to the approach to be adopted in relation to the ‘straddle’ cases, I would repeat paras 23 to 29 above. 80.Finally, I would like to stress that the power to strike out for delay is of course discretionary and derives from the inherent jurisdiction of the court. The inherent jurisdiction of the court exists to avoid injustice, prevent abuse, preserve the dignity of the court or to facilitate the administration of justice:- see Credit Lyonnais v SK Global Hong Kong Limited [2003] 4 HKC 104, at 107B-C (at para. 2). In exercising its discretion under the inherent jurisdiction, a court must, in applying those principles I have earlier set out, ultimately asks itself the question whether or not in the circumstances, it is just to strike out. A mechanistic approach in which the bigger picture is lost sight of (or, to adopt a more colourful phrase commonly used in our courts, to ‘lose the wood for the trees’), is to be eschewed. F The principles as applied in the present case 81.Applying those principles which have been identified earlier, I am firmly of the view that the courts below were correct to dismiss the application to strike out. My reasons are as follows:-
82.Overall, justice does not demand that the present proceedings be struck out. There is not that degree of abuse that would prompt the court to strike out the proceedings; certainly it is by no means plain and obvious that this ultimate sanction should be utilized. Nor am I convinced that a fair trial of these disputes is not possible. No doubt, with the delay that has already taken place in this action (the present striking out application has, to date, taken over three years to resolve), the court and the parties will now be keen to move these proceedings along at a more acceptable pace. This will be in the interest of everyone, not least the Respondents themselves and the body of creditors whom the liquidator represents. G Conclusion 83.For the above reasons, the Respondents’ appeal is dismissed. I would also make an order nisi that the liquidator should have the costs of this appeal, to be paid by the Respondents, such costs to be taxed if not agreed. If any party wishes to have a different order for costs, written submissions should be served on the other party or parties and lodged with the Court within 14 days of the handing down of this judgment, with liberty on the other party or parties to lodge written submission within 14 days thereafter. In the absence of such written submissions, the order nisi will stand absolute at the expiry of the time limited for these submissions. Mr Justice Bokhary PJ: 84.I agree with what Chief Justice Ma says and with what Lord Scott of Foscote NPJ adds. Mr Justice Chan PJ: 85.I agree with the judgment of the Chief Justice and the observations made by Lord Scott of Foscote NPJ. Mr Justice Ribeiro PJ: 86.I agree with the judgment of the Chief Justice. Lord Scott of Foscote NPJ: 87.I have had the advantage of reading in draft the judgment of Chief Justice Ma and am in full agreement with the reasons he has given for dismissing this appeal. 88.In paras 64 to 75 of his judgment the Chief Justice has restated the principles to be applied to applications for actions to be dismissed for want of prosecution. I am in respectful agreement with that restatement and would only add that it is, in my opinion, important to bear in mind that a judicial decision whether or not to accede to an application to strike out for want of prosecution is always a discretionary one. The statutory rules applicable to the exercise of the discretion are to be found in the Rules of Court set out in the White Book. Judicial decisions explaining the Rules that relate to strike-out applications and the manner in which those Rules should be given effect should not be treated as a statute replacing the Rules themselves but rather as a very important guide to the exercise of the discretion. The power to strike out remains a discretionary one. 89.In the present case the power was, as I think, exercised impeccably by the first instance judge, Kwan J. No ground has been shown justifying the invalidation of that exercise. Chief Justice Ma: 90.The appeal is accordingly dismissed. As to costs, the Court makes the orders set out in para. 83 above.
Mr Barrie Barlow SC (instructed by Messrs Clyde & Co) for the appellants Mr Russell Coleman SC (instructed by Messrs Reed Smith Richards Butler) for the respondent |
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