Can-asia Capital Co. Ltd. v. Kwok Yee, William and Others

CACV000173/1994

IN THE COURT OF APPEAL

1994, No. 173
(Civil)

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Coram : Hon. Nazareth, V.-P., Mortimer & Godfrey, JJ.A.

Dates of hearing : 13, 16 & 17 January 1995

Date of judgment : 17 January 1995

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J U D G M E N T

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Godfrey, J.A. :

1. This is an appeal from an order of Rhind, J., made on appeal from a master's order striking out an action for want of prosecution.

2. The principle upon which the court exercises its power to do so, conferred by Order 25 rule 1(4) of the Rules of the Supreme Court, is well-settled. The court will exercise this power where there has been inordinate and inexcusable delay and where by reason of that delay the defendant will suffer serious prejudice if the action is allowed to continue.

3. Here the plaintiff asked the judge to exercise his discretion to allow the action to continue. The judge did so. He accepted, as I read his judgment, that there had been inordinate and inexcusable delay, but he did not accept that this had caused the defendants serious prejudice.

4. I must state something of the background to the case, to explain why the judge came to that conclusion.

5. The plaintiff is a subsidiary of a Canadian company which decided that it wanted to invest in real property in Hong Kong.

6. In May 1985, the parent company gave instructions for the formation of the plaintiff for this purpose to a firm of solicitors practising in Hong Kong under the style or firm name of "Fairbairn & Kwok" ("the firm").

7. A former partner in the firm, a Mr. William Kwok, had by the material time become a consultant of the firm and was entrusted with this business. Most unfortunately, William Kwok turned out to be, as the judge described him, "a thief". His general modus operandi was to convert to his own use money received by him from the plaintiff for the purposes of investment in Hong Kong property.

8. One transaction, however, took a different form. It involved a sum of US$475,000, transferred to a branch of the Union Bank of Switzerland ("UBS") in Hong Kong, and ultimately credited to the firm's client account with the Hong Kong & Shanghai Banking Corporation on 16 September 1985.

9. The plaintiff says that the transfer was made for the purposes of investment on behalf of the plaintiff in a Hong Kong property to be selected for the plaintiff by William Kwok. (The account is said to have been designated a "trust account" by the firm.)

10. The sums converted by William Kwok to his own use were the subject of proceedings against UBS, which appears to have paid them out to William Kwok without proper authority. And, in addition to the proceedings against UBS, the plaintiff by a writ issued on 25 April 1988, instituted an action against the firm. The writ in the action was endorsed with a statement of claim, which pleads the facts to which I have already referred and, as to the sum of US$475,000, alleges in para. 13.1 and 13.2 as follows:

"13.1 On or about 16 September 1985 a sum of US$475,000, being money of the Plaintiff was paid into the Defendant firm on the instructions of William Kwok but without the authority of the Plaintiff. The said sum was fraudulently misappropriated by William Kwok which misappropriation was known or ought to have been known by the Defendant firm. The Plaintiff has no knowledge (until after discovery) of whether any part of the said US$475,000 has been paid out by the Defendant firm. In so far as any part of the said US$475,000 has been paid out by the Defendant firm, none of such sum or sums has been expended for any purpose of the Plaintiff. Alternatively the Defendant firm converted the said sum of US$475,000 to its own use.

13.2 In addition to the matters particularized in paragraphs 6-12 above, the Plaintiff will rely on the payment of the said sum of US$475,000 to the Defendant firm in support of its averment in paragraph 5.2 above that the Defendant firm knowingly assisted and participated in the fraudulent schemes as particularized."

11. In paragraph 15 of the statement of claim, the plaintiff alleges as follows:

"15 By reason of the matters aforesaid the Plaintiff has suffered loss and damage as follows:-

[15.1 Here, the plaintiff sets out the sums misappropriated by William Kwok for his own benefit.]

15.2 US$475,000

15.3 The value of real property in Hong Kong increased from 1985. If the above sums had been invested in real property in Hong Kong, as intended by the Plaintiff, the value of such property would have appreciated, and the Plaintiff has therefore suffered damage."

12. The defendants filed a defence on 26 October 1988.

13. In paragraph 13 of the defence, the defendants aver as follows:

"13(i) In the absence of particulars as to the means by which the firm "Fairbairn & Kwok" is alleged to have been paid the sum of US$475,000.00, and in the absence of any identification of the alleged document(s) allegedly constituting or evidencing payment, it is not admitted that the sum of US$475,000.000 was paid ....."

14. On 9 November 1988, there being no reply, the pleadings were deemed to have been closed. The action went to sleep for years; but the plaintiff did prosecute its claim against UBS in relation to the moneys converted by William Kwok to his own use.

15. On 29 June 1992, the plaintiff settled its differences with UBS in relation to those sums. It does not appear that the plaintiff, or its advisers, informed the defendants or their advisers of this settlement at that stage; nor did the plaintiff make any attempt to amend its pleadings in this action so as to reflect the new situation which had arisen; nor did it take any step in the action until 12 December 1992, when it gave notice of intention to proceed followed on 16 December 1992 by a further and better notice of intention to proceed.

16. On 14 October 1993, the plaintiff took out a summons for directions in the action. It contained no application to amend the statement of claim. On 22 October 1993, by now no doubt thoroughly fed up with the whole matter, the defendants took out the summons to dismiss this action for want of prosecution with which the Master, the judge and now this court have been concerned.

17. On 28 January 1994, the Master, as I have said, decided to dismiss the action for want of prosecution.

18. On 20 July 1994, the judge heard the plaintiff's appeal. On 2 September 1994, he delivered judgment, taking a different view of the matter and re-instating the action.

19. On 27 September 1994, the defendants appealed to this court. On 23 November 1994, the plaintiff took out a summons to amend its statement of claim. The hearing of that summons now stands adjourned for hearing on 24 February 1995. We, in this court, must be careful to say nothing to influence the discretion of the Master (or the judge) who has to deal with that application.

20. Rhind, J. recited the facts in his judgment (to which reference may be made for a fuller description of the background than that which I have given above). The judge took into account, in coming to his conclusion to reinstate the action, a considerable amount of affirmation evidence which had been filed on behalf of the plaintiff. This demonstrated a number of things. First, it showed that the plaintiff was no longer contending that the sum of US$475,000 had been paid to the defendants without the plaintiff's authority as had originally been alleged. Secondly, it showed that the plaintiff was now contending instead that the US$475,000 had been transferred to the defendants with the plaintiff's authority, but that the defendants had failed to account to the plaintiff for that sum. The judge pointed out that on the material originally before the court the plaintiff's cause of action lay in contract and/or tort, with an appropriate limitation period of six years. The judge referred to a number of the leading authorities. He exercised his discretion in favour of allowing the action to continue. We can interfere only if he erred in principle or otherwise went plainly wrong. Did he do so?

21. The delay in the present case was clearly inordinate. The events which gave rise to the plaintiff's claim took place in 1985. It is now 1995. The necessity to get on with your action has been so often pointed out by judges to the solicitors for plaintiffs that I am saddened to think cases are still occurring in which it is necessary to repeat again that they owe a duty to the court as well as to their clients to ensure that litigation in these courts is prosecuted with due diligence.

22. There may be cases where the delay is excusable. But in this case, it was not. Where there is some good reason for delay, the plaintiff should put that reason to the defendant and seek the defendant's agreement to that course. That was not done here. There may, of course, be cases where the delay is excusable because it is the defendant himself who has caused or materially contributed towards the delay, but no one has suggested that that was so in this case. So the only question here is whether the defendants suffered any serious prejudice as a result of this inordinate and inexcusable delay.

23. The most serious prejudice which the courts have to contemplate when considering whether or not to dismiss an action for want of prosecution is the risk that it may no longer be possible in all the circumstances to have a fair trial of the action. Inordinate and inexcusable delay does not necessarily lead to the conclusion that there cannot be a fair trial. But even when there is no risk as to the fairness of the trial, the defendant may, for other reasons, suffer serious prejudice if the action is allowed to continue. A good example is a case in which fraud, or professional negligence, is alleged against a professional man. Charges of that nature may be most damaging to his practice and the court should do all it can to protect him from this.

24. So, if in the present case it had appeared to me that the plaintiff was insisting on prosecuting the charges of fraud and professional negligence originally pleaded, I would unhesitatingly have agreed that after all this time this action should be dismissed for want of prosecution. The prejudice, I would have thought, would have been so serious, and would have lasted for so long a time, as to warrant such a conclusion. But the fact is that the action is now simply an action for recovery (no doubt with interest and costs) of the sum of US$475,000 come to the hands of the defendants. The charges of fraud and professional negligence have been abandoned. The only issues in the action are whether the sum in question was in fact paid to the defendants by or on behalf of the plaintiff and, if so, whether they are liable to return it. These are dry as dust questions, capable of resolution on the documents in the case. For my part I see no reason why, despite the inordinate and inexcusable delay, the defendants' interest will be prejudiced in any way if the action is allowed to continue. I see no reason why the plaintiff who has, on its pleaded case, handed its money to the defendants, should be shut out from seeking to recover it.

25. Generally speaking, this is the reasoning which appealed to the judge. He put the matter in this way (making an error as to the amount):

"Now that Can-Asia's claim against the Defendant firm is confined to the one payment of US$450,000 made into its client account on 16 September 1985, there is no longer any scope for the Defendant firm to argue prejudice on account of missing witnesses or the frailty of human recollection as it might have done in relation to the eight sham conveyancing transactions which need no longer feature in the case against it."

He continued:

"Although I am not without sympathy for the partners of the Defendant firm in the situation in which they find themselves, I, nonetheless, do not consider that the Master was correct even on the material before him, to accede to strike-out application.

The Defendant firm's partners are all officers of the court, and I do not think it is right that money can be seen to have disappeared into their client account without their being liable to account for it to its owner."

He added this:

"Faith in the solicitors' branch of the legal profession would be undermined in the eyes of the public if it were thought circumstances could exist where solicitors might be justified in holding on to client money without having to account for it. I think the public are entitled to view money going into a solicitor's client account as virtually sacrosanct. The court should not countenance what happened here where the Defendant firm was not even prepared to admit the money was paid into its client account and has failed to come forward with any acceptable explanation of why the client should not get its money back."

26. The judge did not overlook the earlier history of the matter. He said this:

"Little imagination is needed to realise how unpleasant it must have been for the partners of the Defendant firm to have Can-Asia's statement of claim with its allegations of fraud and professional negligence hanging over them year after year."

27. He thought comparatively little of the defendants' contention that serious prejudice had been suffered by the firm in that other solicitors, in London and Hong Kong, were put off by the existence of this action from negotiating with it for some form of association or amalgamation. The judge was not persuaded that such rebuffs as the defendants had suffered resulted from this action. He thought these rebuffs were the result of the damage done to the firm by the dishonest behaviour of Mr. William Kwok. He concluded that the defendants had not suffered and would not suffer serious prejudice if the action was allowed to continue.

28. I think I would have come to the same conclusion as the judge; but that is irrelevant, since it is not for this court to substitute its own discretion for that of the judge except where the judge has erred in principle, or can be shown to have reached the wrong conclusion by a faulty assessment of the various factors which he had to consider.

29. I am, for my part, not persuaded that the judge here erred in the exercise of his discretion. He did not, I think, err in principle. He did not, I think, err in balancing as he had to do the various considerations which he had before him. He cannot be said to have reached a conclusion which was plainly wrong.

30. I have deliberately said nothing about the long and interesting arguments that were addressed to us about the impact of the Limitation Ordinance, Cap. 347, particularly s.20(1), on the matters which the judge had to consider. No doubt, as a general rule, the court will not engage upon an exercise in futility such as one which would require a plaintiff to institute a fresh action when his claim in the original action is not itself time-barred. Further than that, I would prefer to say nothing about the limitation point on which argument was addressed to us. It is sufficient to say that, for the reasons I have endeavoured to state, I do not think we have any justification in the present case for interfering with the discretion of the judge exercised in favour of allowing this action to continue.

Mortimer, J.A.:

31. During 1985 the former senior partner and then consultant to the defendants' firm of solicitors defrauded the plaintiff of a sum in excess of $14m in a series of six bogus property transactions. The money was obtained and stolen by him.

32. On 16th September 1985 the plaintiff alleged that a sum of US$475,000 was paid into the defendants' account. This was not the subject of a bogus transaction. It is an isolated and different transaction.

33. The plaintiff issued two writs. One against its bank on 28th November 1987 alleging lack of mandate in making payments, and one against the present defendants on 25th April 1988 endorsed with the statement of claim which alleges their complicity in the frauds. Judgment in default was obtained against the former senior partner.

34. On 26th October 1988 a defence was filed. This action then went to sleep but the plaintiff pursued the bank for the rest of the claim save for the US$475,000. For a few months the defendants were the subject of third party proceedings in the action against the bank. But those proceedings were struck out on 23rd April 1992 because there was insufficient time for them to prepare for trial.

35. On 29th June 1992 the proceedings against the bank were settled. The plaintiff recovered all save that sum of US$475,000 but it did not tell the defendants.

36. On 12th December 1992 the plaintiff gave notice of intention to proceed. The notice had an error which was corrected on 16th December. The action by then had been dormant for over four years. It continued to slumber for another nine months. Eventually in September 1993 the plaintiff's solicitors informed the defendants that a list of documents would be soon prepared and that the pleadings would be amended in the near future. But on 22nd October 1993 the defendants issued a summons asking for dismissal of the action for want of prosecution. It was then five years and two days since they had filed their defence.

37. The summons came before the master on 28th January 1994 and he acceded to the defendants' submissions. The plaintiff appealed. On 2nd September 1994 the judge allowed the appeal and restored the action now limited to the US$475,000. The defendants now appeal to this Court submitting that the judge was plainly wrong in the exercise of his discretion to allow this action to proceed.

38. For the appellant, Mr Kenneth Kwok, Q.C., submits in summary that the plaintiff had been guilty of inordinate and inexcusable delay and that the defendants have suffered serious prejudice in having grave allegations concerning their professional conduct hanging over their heads for many years. Further, that this has affected them in their practice and financially because a number of negotiations for amalgamation or association with other practitioners firms have fallen down because of those allegations.

39. Although the allegations are not pursued, he continues, they remain on the pleadings and are still to be taken into account. He submits the judge was wrong to decide that if struck out, the actions would not be statute barred on the basis that the sum was held in trust. In support he cites a number of cases: Re Hindmash (1860) 1 Drew & Sm 129; Watson v. Woodman (1875) LR 20 Equity 721; and Dooby v. Watson (1888) 39 Ch D 178. Further, he says that the judge had no evidence before him to show that the sum had been paid into their bank account or had been paid to the solicitors for the purposes of investment as is now alleged. The judge should have dealt with the case as pleaded; there being no amendment to the pleadings before him or indeed before this Court. Finally, the judge was wrong in concluding that the plaintiff could pursue the action as of right because the action was not statute barred. He submits that the appropriate course in these circumstances is for the action to be dismissed and to allow the plaintiff to pursue any new claim which it may be able to formulate.

40. On the other hand, the plaintiff submits that this Court has no grounds upon which it can interfere with the judge's discretion. Mr Thomas, Q.C. submits there is no basis upon which it can do so.

41. At the outset, this Court persuaded itself that this appeal could turn on whether or not the action would be statute barred if it was dismissed. We heard preliminary submissions from counsel on the point. I am satisfied that we were wrong to take that view and no doubt inadvertently we disrupted counsel's submissions. I am satisfied that the case does not turn at all upon the limitation point.

42. The judge below exercised his discretion with some care. Of course, this Court cannot interfere unless satisfied that he was plainly wrong. I take the view that appellate courts need reminding of this from time to time. Also, perhaps, appellants should be fully aware of the difficulties they face when challenging the exercise of a judge's discretion in circumstances such as this. Lord Diplock referred to the principle in Birkett v. James [1978] AC 297 at 317. He said:

"... an appellate court ought not to substitute its own 'discretion' for that of the judge merely because its members would themselves have regarded the balance as tipped against the way in which he had decided the matter. They should regard their function as primarily a reviewing function and should reverse his decision only in cases either (1) where they are satisfied that the judge has erred in principle by giving weight to something which he ought not to have taken into account or by failing to give weight to something which he ought to take into account;"

43. In reaching his decision, the judge relied upon well-known cases. Those principles to be applied in exercising the discretion whether to dismiss for want of prosecution are properly and usefully summarised in para.2516 of the Supreme Court Practice 1995. The requirements are:

(a) That there is an inordinate and inexcusable delay on the part of the plaintiff or his lawyers; and

(b) That such delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or is such as likely to cause or have caused serious prejudice to the defendants either as between themselves and the plaintiff or between each other or between them and the third party.

44. If these matters are established it is open to the judge to consider whether to strike out the action.

45. What did the judge decide? It is not completely clear whether he took the view that the delay was inordinate and inexcusable. However, delay of this nature is plainly and obviously inordinate. The excuse put forward is that the plaintiff was first pursuing the action against the bank to recover the money. This, it is said, was to the defendants' advantage and they cannot complain if the action against them has been delayed.

46. If this had been done, either with the defendants' consent or even with their knowledge, it could have been considered as an excuse - perhaps a perfect excuse if consent had been obtained. But in fact the defendants were not informed that this approach was being followed nor were they even informed of the settlement with the bank. In the absence of agreement or the delay being the fault of the defendants (not alleged here) it would, in my judgment, be very difficult indeed for a plaintiff to excuse a delay of this magnitude.

47. But in the end, as the judge found, this case does not turn on delay. The judge rightly turned to consider the effect of the delay demonstrated. He found serious prejudice to the defendants in having grave allegations of fraud hanging over them for many years. When this happens to professional men and women the effect need not be emphasised. Such allegations, it seems to me, will always constitute serious prejudice. Indeed such serious prejudice as may call for dismissal of the action. In this particular case, however, the situation has changed. The original allegations which remain on the pleadings, will not now be pursued. Counsel for the plaintiff made it clear to the judge below and to this Court that the allegations of fraud will not be pursued. The only allegation which will be pursued is the claim for the return of the US$475,000 alleged to have been paid to the defendants and not accounted for. The claim for fraudulent misappropriation on the pleadings remains. But that has been dropped. The case which remains is one of conversion.

48. Had the action been pursued as still pleaded, I, for my part, would not have had the slightest hesitation in saying that it ought to be dismissed for the prejudice to the defendants personally and also, I would not have had the slightest difficulty in saying that a fair trial of the action was no longer possible. But that matter has been changed radically by the undertakings given to the judge and to this Court. The approach of the judge below to the prejudice alleged takes into account the fact that it is not prejudice which affects the conduct of the trial. A point which was touched upon by Lord Griffiths in his speech in Department of Transport v. Chris Smaller (Transport) Ltd. [1989] 1 All ER 897 at 904J:

"[Having dealt with certain authorities] These authorities clearly establish that prejudice may be of varying kinds and it is not confined to prejudice affecting the actual conduct of the trial. It would be foolish to attempt to define or categorise the type of prejudice justifying striking out an action, but there can be no doubt that if the defendants had been able to establish significant damage to their business interests, flowing directly from the culpable delay of 13 months after the issue of the writ, a judge would have been entitled to regard it as prejudice justifying striking out the action. I would, however, express a note of caution against allowing the mere fact of the anxiety that accompanies any litigation being regarded as of itself a sufficient prejudice to justify striking out an action."

49. With respect, I would accept and repeat this note of caution. The primary consideration is often whether there can still be a fair trial of the issue in the absence of prejudice which affects business interests.

50. The judge, in considering prejudice, found himself not able to accept that the failure of the negotiations for amalgamation or association with other firms was caused by these allegations. He thought they would have failed anyway as a result of having a thief as a consultant in the firm. So he balanced this matter in a manner in which it is not appropriate for this Court to interfere. This prejudice has to be properly weighed and with respect the judge did carefully balance it and he also examined the factors which could lead to a risk that a fair trial of the issues had become impossible. The passage in which the judge dealt with this point has been referred to by Godfrey J.A. I do not repeat it.

51. In giving the undertakings to abandon all claims save for the return of the US$450,000 the underlying claim has been considerably changed but the broad facts are already pleaded. Those are the receipt of the money into the solicitors' account and the failure to account for it. The judge concluded after careful reasoning that this was a simple allegation against solicitors with duties to account and that the trial of this issue would not depend upon oral evidence but almost entirely on documentary records. Mr Kenneth Kwok, Q.C. was not able to submit convincingly that this was not the position.

52. The judge regarded the risk that it was not possible to have a fair trial of the remaining issues as not established and in these circumstances he decided to exercise his discretion not to dismiss the action. He decided this before going on to consider whether or not any amendment to raise a new claim would be statute barred under s.20 of the Limitation Ordinance.

53. After such a delay, it is exceptional to allow a case to proceed. It seems to me, however, that the judge considered this matter with care and I can see no ground upon which we ought to interfere with his discretion.

54. I do not propose to consider all the matters raised. However, with the experience of hearing submissions in this case, I would echo what was said by Staughton L.J. in Barclays Bank plc v. Miller [1990] 1 WLR 343 at 348A:

"... where it was open to doubt and serious argument whether the cause of action would be timed barred if a fresh writ were issued. In such a case it may well be that the interests of justice are best served by dismissing the action for want of prosecution; leaving it to the plaintiff, if he chooses to do so and if he has the funds, to start a fresh action. The alternative is that masters, and judges on appeal and even this court, may become embroiled, on an application to dismiss for want of prosecution, in long and elaborate arguments as to whether some future action, if it were brought, would be time barred. There is a good deal to be said for the view that masters should not have that task forced upon them when the problem may never arise and, if it does arise, could perhaps more conveniently be considered in another way."

55. The courts should not usually be burdened with arguments of this kind and in this case had I come to the conclusion that the appeal did turn on the limitation point, I would have been inclined to think that the judge was plainly wrong not to dismiss the case for want of prosecution on the unamended pleadings. This would have left the plaintiff to pursue a new action if it thought fit, facing a possible defence of laches if not limitation.

56. I agree, therefore, that the judge's ruling should stand and I, for my part, would dismiss the appeal. It follows from this that whatever timetables are now laid down, they will have to be strictly adhered to and no further delay in this matter can be tolerated.

57. Finally, I would not leave the case without expressing my gratitude for counsel for their assistance.

Nazareth, V.-P.:

58. I agree with my Lords and would also dismiss the appeal. I would echo my brother, Mortimer J.A.'s remarks and acknowledge the assistance I have derived from counsel's very thorough and able submissions.

Representation:

Mr. Kenneth Kwok, Q.C. & Mr. Jason Pow (M/s Wilkinson & Grist) for Appellants/2nd to 10th Defendants

Mr. Michael Thomas, Q.C. & Mr. William Stone (M/s Kwan & Kwan) for Respondent/Plaintiff