Civil Action1998

CHEUNG YUK CHUN v. YEUNG WO FAI

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54143-EN-2006-08-07

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HCA 6191/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6191 OF 1998

____________________

BETWEEN

	CHEUNG YUK CHUN	Plaintiff
	and
	YEUNG WO FAI	Defendant

____________________

Before: Master Au Yeung in Chambers

Dates of Hearing: 2 & 4 August 2006

Date of Judgment: 7 August 2006

__________________

D E C I S I O N

__________________

1. The defendant relies on the second limb of Birkett v James and the principles in Grovit v Doctor to dismiss the claim for want of prosecution.

(I) The Second Limb of Birkett v James

2. The defendant has to show:

(i) Delay on the part of the plaintiff;

(ii) The delay was inordinate and inexcusable;

(iii) There was substantial risk that a fair trial would not be possible or that there would be serious prejudice to the defendant.

Delay

3. There are four periods to note:

(i) From default judgment on 12 June 1998 to resale on 20 December 2004 (6½ years)

(ii) From resale to 22 March 2005 (3 months)

(iii) From after 22 March to 20 April 2006 (13 months)

(iv) From and after 20 April 2006

4. There was clear delay in the first period. There was not even a demand letter from the plaintiff and the litigation had grounded to a halt. Objectively, the plaintiff had not displayed any intention to proceed. It was also clear delay to take over six years to resell the suit property. Whilst it is up to the master on assessment of damages to decide if the plaintiff had been reasonable in mitigation, that does not bar me in this application from deciding if there had been a delay in bringing about the assessment. Broadly I take into account two factors:

(i) In discharge of her duty to mitigate the plaintiff ought to dispose of the property within reasonable time. This duty existed even with the existence of clause 21. See Alucase Company Limited v Keen Lloyd (Holdings) Limited. I do not accept that she needed to have an actual resale to proceed with the assessment. If she could not resell, the court would use the market price obtainable with reasonable mitigation steps to assess her loss. In this case whilst I will not in this application use the word “speculation” to describe the plaintiff’s delay in the sale of the property, and although I note the falling market, I find six years taken to bring this case to assessment to be unreasonable.

(ii) The evidence on assessment will principally be from information within the plaintiff’s possession (for example, the mitigation and the rental recovered) and the expert valuer. There would be no difficulty for the plaintiff to shape up her case for assessment within a short time from the default judgment.

5. Both counsel have sought to argue on the limitation period applicable to assessment of damages. In my view, it was unnecessary to do so. Limitation period, as laid down in the Limitation Ordinance has been treated as governing the substantive rights of parties to bring an action and has to be pleaded. If the legislature does not see fit to set out the limitation time for assessment of damages, I do not see why the court needs to do so. The assessment, being part of the procedure to dispose of a case, can be dealt with having regard to the rules and the case management powers of the court.

6. I note the holding of District Judge Sweeney in the case of Ho Tsz Bun. Without disrespect to the learned judge, although he has mentioned the cases of Allen v McAlpine and Birkett v James, he has not explained how his decision could be applied in general and where a defendant is not absent, as in this case. The facts in Ho Tsz Bun are peculiar and, in my view, the decision of the learned judge should be limited to the facts of that case.

7. Having regard to the duty to mitigate, the fact that the potential evidence has been within the possession of the plaintiff and the expert evidence was not difficult to obtain, reasonable time to bring the matter up for assessment would be about a year after the default judgment. In any case, even building in the absence of the plaintiff from Hong Kong, and the difficulty with the court’s diary, it should not be more than two years. I find that there was inordinate and inexcusable delay for the first period.

8. With regard to the second period, I find that there had been no delay. Between December 2004 and February 2005 were two major holidays. It was not unreasonable for the plaintiff to demand for damages only about two months after the resale. There then followed some correspondence over the question of discharge of the charging order, a warning from the defendant to dismiss the proceedings for want of prosecution and a purported attempt to make discovery on the part of the plaintiff before the case came to a halt again.

9. With regard to the third period, notwithstanding the defendant’s warning letter, it took the plaintiff 13 months in order to get directions for assessment. The purported explanation was that she was waiting for an offer from the defendant to settle. This, in my view, was not a good explanation. If the plaintiff chose to put her own affairs above litigation she had to take the consequences. Moreover, it was clear that the defendant has adopted an entirely uncooperative attitude and was not offering to settle. He was even asking to discharge the charging order, not on an unreasonable ground. If the plaintiff was really waiting for an offer to settle before deciding whether or not to proceed, I find that waiting to be unnecessarily long. In that year I do not find the defendant to be encouraging the plaintiff to proceed, or to think that the defendant has abandoned any wish to proceed with the dismissal application. The defendant was entitled to let sleeping dogs lie until an appropriate moment to take out the application. Events in the fourth period show that directions were not difficult to get and could even be obtained without co-operation of the defendant. In my view, the plaintiff’s delay in the third period was inordinate and inexcusable.

10. With regard to the fourth period, there was no delay on the part of the plaintiff. Things moved swiftly in about one month. The plaintiff successfully obtained directions for assessment and had actually set it down for hearing.

11. In summary, the total period of delay was 6½ years, plus 13 months.

Prejudice to the Defendant or Risk of No Fair Trial

12. Mr Yao for the defendant has identified three potential heads of prejudice:

(i) An increase in quantum of damages because of the delayed resale;

(ii) The huge increase in interest by about $5 million since entry of the default judgment;

(iii) The additional cost to obtain a valuer’s report.

In deciding the question of prejudice, I have adopted the figures in the table presented by Mr Yao in his reply and the defendant’s valuer’s report.

13. With regard to the first head of prejudice, whether there was delay or not in the resale, the master on assessment would apply the same principles on duty to mitigate and the right to claim damages within a reasonable time. I do not see how the actual resale price could affect those legal principles. I do not regard this difference in the notional price, if there had been an earlier assessment, and the actual resale price, could be regarded as a prejudice to the defendant that would leave the defendant with no remedy.

14. With regard to the second head of prejudice, the master is entitled to take into account the interest incurred since the default judgment. Equally, he or she can consider that during the years of delay the defendant has had use of the money which he would otherwise have to pay as damages. It is up to the defendant to persuade the master to discount all or part of the interest accrued because of the delay. This is not a prejudice that has no remedy for the defendant.

15. With regard to the third head of claim, this could not be a serious prejudice to the defendant. The increased cost in obtaining the valuation report was minimal compared to the likely damages recoverable by the plaintiff. Any prejudice suffered can be compensated for by costs or otherwise with persuasion of the master.

16. In the premises I find that there was no prejudice to the defendant.

17. The question of whether or not a fair trial was possible was not emphasised in this application. This is not a case where the delay will cause the defendant’s witnesses to lose their memory. The evidence will be largely from the plaintiff’s realm and for the experts on both sides. In my view a fair trial is still possible.

18. In summary, the defendant’s reliance on the second limb of Birkett v James fails for want of prejudice or risk of no fair trial.

(II) Grovit v Doctor Principles

19. I agree with the submission of Miss Tong, that Grovit v Doctor ought to be treated with caution in the light of the New China case which is binding on me. Delay, per se, was not sufficient. The defendant has to show a wholesale disregard of the rules with full awareness of the consequences which amounted to abuse of process. He also has to show that it would not be fair to let the case proceed, although it is not necessary to show prejudice to the defendant. In the following analysis I have taken into account my analysis on the issue of delay.

20. I do not find the plaintiff to have shown a wholesale disregard of the rules. As soon as she decided to proceed with the assessment, she purported to make discovery and requested for the same from the defendant. Although Order 37 expects parties to act promptly after judgment on liability has been entered, there was nothing to prevent a party from, after a period of delay, purporting to act under it and invite the other party to adopt the directions, the automatic directions, by agreement. It was not necessary for the plaintiff to go back to a master to validate her purported act of discovery. Equally, the defendant could have applied to the master for directions. In the present case the plaintiff has already started the engine rolling in the year 2005 and pursued it again after a year’s delay, in the year 2006. Apart from time, there did not appear to be breach of any rules or court order. Overall, the plaintiff’s conduct could not be regarded as an affront to the rules.

21. If I am wrong, the next thing to consider is whether or not the plaintiff was fully aware of the consequences of her delay. I have no hesitation in finding in the affirmative in view of the defendant’s warning letter.

22. Would it be fair to let the plaintiff proceed? The present position is that the plaintiff has remedied her delay before the defendant took out the present summons. She had not disregarded Master Hui’s directions, which were complied with until they were stayed by Master de Souza’s order. There seemed to be nothing further for the plaintiff to do but to proceed with the hearing for assessment in about two months’ time. Mr Yao seems to suggest that it was not a race of summons between the parties and queried the application of White v Glove. I take this line of submission with some caution. A court looks at all the circumstances to decide the question of fairness. The plaintiff, having discovered her delay on default proceeded quickly to remedy the situation. The defendant, on the other hand, sat on his warning also for about a year. The defendant’s position as at the date of the warning letter was no different from that of his summons but for the plaintiff’s remedial acts since the taking out of the summons for directions. The defendant has to take the consequences of his inaction for one year. For my part, I can see nothing wrong in principle with White v Glove. I notice that there are no other authorities from Hong Kong which deal exactly with the position before me. After all, dismissal for want of prosecution is a drastic remedy and is not to be granted, save in exceptional circumstances. In my view, it would not be fair to dismiss the plaintiff’s claim, having regard to the defendant’s own delay. In two months’ time the master will be considering all the questions about mitigation and prejudice to the defendant with full evidence before him or her.

23. It is not appropriate to dismiss this claim. In summary, the defendant also fails under the Grovit v Doctor principles. The summons is therefore dismissed.

(Discussion re costs)

Costs

24. The defendant asks for no order as to costs, but the plaintiff asks for costs of the dismissal summons. I have considered counsel’s submission last time. I have also considered whether or not I should award part of the costs to the defendant since at the time the defendant took out the summons the objective circumstances were that the plaintiff had no intention to proceed, she being completely silent, even with a demand for damages or assessment. In the end, however, I am persuaded by Miss Tong that the defendant simply failed to discharge his burden of proof of prejudice under the Birkett v James principles and had failed to demonstrate a wholesale disregard of the rules or fairness in dismissal. The evidence required of him to set up his application did not depend on the plaintiff’s evidence in reply. In the premises I would order that:

(i) Costs of the dismissal summons should be awarded to the plaintiff to be assessed;

(ii) The cost before Master Hui should be in the cause of the assessment because that hearing dealt with the directions for assessment;

(iii) The costs before Master de Souza should be to the plaintiff, as that hearing arose out of the application for dismissal.

25. I also order that the stay granted by Master de Souza on 12 June 2006 be uplifted, subject to the directions below. Master Hui’s order, dated 12 May 2006 be varied to the following extent:

(i) The defendant is to file and serve his list of documents within 14 days from today;

(ii) There be inspection of documents within 14 days thereafter;

(iii) The plaintiff to file and serve affidavit evidence within 14 days after inspection of documents;

(iv) The defendant to file and serve affidavit evidence within 14 days thereafter;

(v) The plaintiff to file and serve affidavit evidence in reply within 14 days thereafter;

(vi) Expert evidence to be filed and exchanged within 14 days after inspection of documents.

(Queeny Au-Yeung)
Master of the High Court

Ms Sara Tong, instructed by Messrs Baker & McKenzie, for the Plaintiff

Mr Eric Yao, instructed by Messrs Gary Mak, Dennis Wong & Chang, for the Defendant

53691-EN-2006-07-20

CHEUNG YUK CHUN v. YEUNG WO FAI

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HCA 6191/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 6191 OF 1998

____________

BETWEEN

	CHEUNG YUK CHUN	Plaintiff
	and
	YEUNG WO FAI	Defendant

____________

Before: Hon Lam J in Chambers

Date of Hearing: 20 July 2006

Date of Judgment: 20 July 2006

_______________

J U D G M E N T

_______________

1. I have before me an ex parte application for Mareva Injunction. The action concerns a sale and purchase agreement and as far as the substantive claims in the action concerned, it was concluded on 12 June 1998 by a final and interlocutory judgment entered in favour of the plaintiff. The final judgment is in respect of a liquidated sum and then, on top of it, there is an interlocutory judgment for damages to be assessed.

2. By way of enforcement of the final judgment, the plaintiff obtained a charging order in 1999 on certain shares. The order nisi was made on 7 June 1999 and the order absolute was made on 14 July 1999. Apart from that, the plaintiff did not proceed with the enforcement of the judgment, nor did the plaintiff proceed with the assessment of damages pursuant to the interlocutory judgment until a couple of years later.

3. The property was resold by the plaintiff in November 2004 at a considerable shortfall as compared with the contract price, that is, the price stipulated in the agreement between the plaintiff and defendant which was the subject matter of this action. Let me say at this stage I do not agree that because of the fact that the property had not been resold prior to November 2004 the plaintiff could not proceed with the assessment of damages pursuant to the interlocutory judgment. Damages can still be assessed even if the property had not been resold. But the plaintiff has taken no steps to proceed with the assessment of damages pursuant to the interlocutory judgment in the meantime.

4. In February 2005 there were correspondence between solicitors. The first move, according to the materials placed before me, was a letter by solicitors for the defendant on 18 February 2005. By that letter, the defendant indicated that he wished to apply for a discharge of the charging order and proposed to make payment of sums pursuant to the final judgment in order to secure the discharge of the charging order. I note that this letter was written at a time when there was no suggestion from the plaintiff to the defendant that the plaintiff would reactivate the process with regard to assessment of damages pursuant to the interlocutory judgment. There was no immediate response by the plaintiff to that letter and the defendant’s solicitors sent a reminder on 23 February.

5. It was only on 28 February 2005 that the plaintiff’s solicitor wrote back and informed the defendant that the property had been resold at a considerable loss and it is said in the last paragraph of that letter as follows:

“If your client is seeking to discharge the charging order absolute on shares, our client will be seeking to recover the above...”

referring to the loss suffered on resale

“...damages and interest to be calculated at judgment rate to the date of payment and we will be asking for an appointment before the master to assess damages based on the above calculation unless your client has a sensible offer to settle the damages suffered by our client.”

6. Pausing here, it seems to me that, at that stage solicitors for the plaintiff seem to have some misconception about the effect of the charging order. The charging order was granted pursuant to the final judgment and the final judgment is, of course, confined to the sum which had been ordered in favour of the plaintiff in the final judgment. Hence, the charging order can only be security as far as the amount set out in the final judgment is concerned. It has nothing to do with the interlocutory judgment. Until the damages have been assessed, there is no ascertained sum to be included in the judgment against the defendant in respect of the claim under the interlocutory judgment. The plaintiff’s solicitor seems to be suggesting that until the amounts for the claim with regard to the interlocutory judgment is settled, there should not be a discharge of the charging order.

7. On 10 March 2005, solicitors for the defendant responded. Paragraph 3 of that letter pinpoints the fallacy that I have highlighted. It is said as follows:

“Further, we do not agree that the charging order absolute was obtained by your client based on the final interlocutory judgment. It is a condition prerequisite to the right of charging order that there must be a final judgment or order under which a judgment debtor is required to pay a sum of money to the judgment creditor.”

Reference was made the to Hong Kong White Book.

“We say, therefore, that the charging order absolute was obtained by your client on the strength of the part of judgment that is final only as opposed to interlocutory.”

8. The plaintiff’s solicitors wrote back on 15 March 2005. Perhaps by that stage, the plaintiff’s solicitors realised the fallacy in their argument that the charging order can be a security for the final as well as the interlocutory judgment. Hence, it is said in the second paragraph:

“Your client is under an obligation to satisfy the entire judgment debt owed to our client pursuant to the judgment dated 12 June 1998. Unless your client has fully settled the judgment, interlocutory or otherwise, your client shall not be entitled to discharge the charging order absolute imposed on the shares in Sit O Hong Kong Handbag Factory Limited with a view to disposing of the shares. If your client applies to discharge the charging order, our client will oppose and will apply for an injunction against your client restraining any disposal.”

9. Therefore, the defendant had been alerted to the possibility of an application for an injunction with regard to the disposal of the shares as early as 15 March 2005.

10. The response of the solicitors for the defendant was in a letter dated 18 March 2005. In that letter, the defendant informed, through solicitors, the plaintiff that the defendant did not have any present intention of disposing of his interest in the shares in any way and the defendant also informed the plaintiff that there was no agreement or negotiation going on between the defendant and any party in respect of the disposal of the shares. The plaintiff’s solicitors wrote back on 22 March 2005 reiterating that the defendant was obliged to settle the whole of the judgment, whether it is interlocutory or otherwise. He asked for confirmation from the defendant that the defendant would not transfer or dispose of any of the shares within the next six months and, should there be any change of intention, the defendant agreed to give a one-month written notice to the plaintiff prior to any transfer or disposal.

11. After that, things seem to have become dormant. The next things that happened seems to be two applications. One is an application by the plaintiff to proceed with the assessment of damages; the other is the application by the defendant for the discharge of the charging order. The application to discharge was made by a summons taken out on 10 April 2006 and it was heard on 10 July 2006 before Master Jack Wong. At that hearing, the master ordered that the charging order be discharged within two clear days after payment of the amount specified. The defendant made the payment on 19 July, that is, yesterday. In other words, pursuant to the order of the master, the charging order will be discharged in two days’ time from 19 July.

12. With regard to the assessment of damages, it has been fixed to be heard on 27 October 2006. In the meantime, the defendant took out a summons to dismiss that assessment on the basis of want of prosecution and/or abuse of process. Summons was taken out on 30 May 2006 and it is due to be heard on 2 August 2006.

13. There are some other correspondence between the solicitors which are relevant for present purposes. On 20 April 2006, the plaintiff’s solicitors wrote to the defendant’s solicitors with regard to the summons for the discharge of the charging order. The plaintiff’s solicitor reiterated that the defendant was under an obligation to satisfy the final as well as interlocutory judgment. The following request was made in that letter:

“Apart from payment of the judgment sums pursuant to the final judgment, the plaintiff’s solicitors request the defendant to give an undertaking to the court that he shall not transfer, deal with and/or dispose of the shares until the final determination of the assessment of damages and that the defendant shall apply any money raised on the shares to satisfy the remaining judgment debt owed to the plaintiff.”

14. The plaintiff’s solicitors indicated that if the defendant turned down that request, they would oppose the summons for the discharge of the charging order. In the application for the discharge of the charging order, the supporting affirmation is an affirmation made by the solicitors for the defendant. Paragraph 6 of that affirmation sets out the reasons and background to the application for discharge. It is said that in or about early 2005, defendant approached the defendant’s solicitors and sought advice on how to discharge a charging order which completely stultified the shares in the hands of the defendant. The defendant’s complaint was that he could not raise money upon the shares in any way and that he could not receive dividends arising therefrom.

15. Coming back to the correspondence in April 2006, the defendant’s solicitors replied on 20 April 2006 and refused to comply with the conditions set by the plaintiff’s solicitors. It is against this background that the plaintiff made the ex parte application this morning. Miss Tong who appears for the plaintiff, justified the application on an ex parte basis on two grounds. First, she said this is an application for a Mareva injunction and, second, she said there is a risk of dissipation of assets. She also submitted that because of the time constraint, bearing in mind payment having been made yesterday, as a consequence the charging order will be discharged on 22 July. There is an element of urgency in the matter.

16. I have discussed the relevant consideration for ex parte applications in my judgment in the case of Slik Hong Kong Company Limited v Evans HCA1424 of 2005 in my judgment dated 25 July 2005. I do not need to repeat what I have said there. It is also important to bear in mind it is not the purpose of a Mareva injunction to alter the law with regard to insolvency. With regard to the interlocutory judgment and the claims of the plaintiff that has yet to be assessed pursuant to the assessment of damages, the plaintiff is not a secured creditor and it is not the aim of Mareva injunction to elevate the plaintiff into a position of secured creditor. A Mareva injunction is to prevent a defendant from disposing of his asset with a view to defeat the plaintiff’s claim, i.e. putting his assets out of the reach of the plaintiff in order to stultify the enforcement of a judgment.

17. Another fundamental principle one must bear in mind is that it is not the purpose of a charging order to give the plaintiff security over the interlocutory judgment. As the solicitors for the defendant correctly pointed out in correspondence, a charging order is only a security with regard to the final judgment.

18. Having considered all the arguments of Miss Tong - and counsel has certainly said all she could have said on behalf of the plaintiff - I am of the view that this is not a proper case for ex parte application. Even though most Mareva injunctions proceed by way of ex parte application, the principles I have set out in Slik Hong Kong Company Limited are still applicable with regard to Mareva injunction. Certainly there could be cases where it would be more appropriate to proceed by way of inter parte application rather than ex parte application even though the plaintiff is seeking, in essence, Mareva type of relief.

19. In the unusual circumstances of the present case, I am of the view that the plaintiff should have proceeded on an inter parte basis. There is no question of secrecy in terms of the application because, as I have said, the defendant has been alerted way back in 2005 in correspondence between solicitors that the plaintiff might go for an injunction with regard to the shares.

20. As far as urgency is concerned, it can be seen from the chronology that I have recited earlier that the intention on the part of the defendant to secure a discharge of the charging order had been made known to the plaintiff in February 2005. The discharge summons was issued in April 2006. The plaintiff’s concern about the disposal of the shares, as far as I understand from the argument of Miss Tong, arose from the discharge of the charging order. If that is the real concern, the plaintiff could have taken out an inter parte application to prevent or restrain the defendant from disposing of the shares even though the charging order is yet to be discharged upon payment. Pending the determination of the assessment of damages, I see no reason why this could not have been done after the discharge summons has been taken out by the defendant.

21. So as far as urgency is concerned, to an extent it is self-induced on the part of the plaintiff. Moreover, there is still time for the plaintiff to take out inter partes summons if necessary with time abridged to have the matter properly canvassed on an inter parte basis. Even though payment was made yesterday, there is no reason why the plaintiff could not take out an inter parte application returnable, say, this Friday. Litigation lawyers in Hong Kong should be familiar with the practice of this court having a summons day every week. These sorts of summonses can be dealt with on an inter parte basis before the summons judge. On these grounds alone, I do not think it is appropriate to deal with the present application on an ex parte basis.

22. Moreover, I have some reservations about the plaintiff’s case as to risk of dissipation. The defendant has indicated his intention to procure a discharge of the charging order on 18 February 2005 even before he was informed by the plaintiff of the intention of restoring the assessment of damages and the loss that the plaintiff has allegedly suffered upon resale of the property. The reasons given in the affirmation in support of the application for discharge is perfectly legitimate. The defendant is concerned about not being able to get payment of dividends and perhaps to use the shares to raise funds. There could be many reasons why the defendant could legitimately have wanted to use the shares to raise funds for his purposes. I have some doubt whether the mere fact that the defendant procured a discharge of the charging order can be construed as evidence of dissipation of assets with a view to defeat the plaintiff’s claim in these circumstances.

23. Miss Tong placed emphasis on the refusal of the defendant to give undertakings pursuant to the request of the plaintiff’s solicitors. To start with, I do not think the plaintiff’s solicitors have any proper basis to demand the giving of such undertaking as a condition for the discharge of the charging order. If the plaintiff has concerns about the execution of the judgment that might be finalised upon assessment of damages, the plaintiff should have shown a case of risk of dissipation of assets without any reference to the discharge of the charging order. If the plaintiff can show risk of dissipation, courts may consider granting Mareva-type of relief. If the plaintiff cannot show any risk of dissipation in the sense that the dissipation would be for the purpose of frustrating the execution of judgment by the plaintiff, there is no reason why, pending judgment being finalised or enforced, the defendant should be debarred from using his own funds or shares for whatever legitimate purposes he might have. Otherwise we will be rewriting the law with regard to insolvency and security.

24. In any event, as I have said, I do not think this is a matter that should have been proceeded on an ex parte basis and this question of risk of dissipation may well be argued on an inter partes basis on another occasion. As far as I am concerned, I will dismiss the ex parte application for the reasons given.

(M H Lam)
Judge of the Court of First Instance
High Court

Miss Sara Tong, instructed by Messrs Baker & McKenzie, for the Plaintiff