WING FAI CONSTRUCTION CO LTD (In Liquidation) v. CHENG KIT YIN KELLY AND OTHERS

CACV 249/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 249 OF 2010

(ON APPEAL FROM HCA NO. 833 OF 2004)

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BETWEEN

	WING FAI CONSTRUCTION COMPANY LIMITED (In Liquidation)	Plaintiff
	and
	CHENG KIT YIN KELLY	1st Defendant
	KAM SHING	2nd Defendant
	YIP KWONG ROBERT ALIAS YIP KWONG	3rd Defendant
	CHINA RICH HOLDINGS LIMITED	4th Defendant
	CHINA RICH PROPERTIES LIMITED	5th Defendant
	FITZROYA FINANCE COMPANY LIMITED	6th Defendant
	EVERGREEN CLUB LIMITED	7th Defendant
	BUSINESS ROOTIS LIMITED	8th Defendant

---------------------

Before: Hon Yuen, Kwan and Chu JJA in Court

Dates of Written Submissions: 1, 15 and 22 June 2011

Date of Handing Down of Judgment: 14 July 2011

_______________

JUDGMENT

_______________

 

Hon Yuen JA:

1.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

2.  This is the plaintiff’s application for leave to appeal to the Court of Final Appeal from the judgment of the Court of Appeal (Le Pichon, Kwan JJA and Chu J) on 1 April 2011, on the ground that the appeal involves questions of great general or public importance, or which otherwise ought to be determined by the Court of Final Appeal. By consent, this application is dealt with by written submissions without a hearing.

The decision of Poon J

3.  The plaintiff’s appeal to the Court of Appeal was from the order of Poon J on 19 October 2010. By his order, the judge dismissed the plaintiff’s application for leave to provide security for the defendants’ costs of the action out of time (“the Extension Application”) and granted the applications of the 1^st, 4^th and 5^th defendants (collectively “the defendants”) to dismiss the action for want of prosecution (“the Dismissal Applications”). The action was brought by the liquidators of the plaintiff in April 2004 to recover $10.4 million that the 1^st to 3^rd defendants had caused to be transferred to the 4^th to 8^th defendants.

4.  On 9 December 2005, Poon J ordered the plaintiff to provide security for costs in the sum of $800,000 by payment into court within 14 days (“the 2005 Order”). The plaintiff failed to comply with the 2005 Order for more than 4 years. It took out the Extension Application on 17 February 2010.

5.  In his decision on 19 October 2010, Poon J held it was beyond doubt that the plaintiff’s delay was inordinate and there was no reasonable excuse for it. As the Extension Application had failed, the stay imposed by the 2005 Order continued to operate, effectively staying the action permanently. To achieve finality, the judge exercised his discretion to dismiss the action against the defendants. He then dealt with the Dismissal Applications briefly, as what he said about the Extension Application was sufficient to dispose of the Dismissal Applications. He did not think the plaintiff’s case in the action was wholly unmeritorious. He found that the defendants had suffered prejudice as a result of the plaintiff’s delay, so he dismissed the action against the defendants for want of prosecution.

The decision of the Court of Appeal

6.  The Court of Appeal dismissed the plaintiff’s appeal at the conclusion of the hearing. The reasons for judgment were given by Le Pichon JA on 8 April 2011.

7.  The court noted that the plaintiff had requested and was granted an adjournment at the first hearing before Poon J in May 2010, for it to address lacunae in its evidence including incomplete information regarding the plaintiff’s realisations by the liquidators and liabilities between December 2005 and August 2010. Having reviewed the further evidence filed by the liquidators before the adjourned hearing in October 2010, the court came to the view that the liquidators had chosen to use $3 million to settle accrued liabilities in respect of their fees as well as legal fees, instead of providing security of $800,000 under the 2005 Order. Further, there was no proper explanation by the liquidators how their litigation activity in quite a number of other proceedings throughout 2006 to 2009 was funded. The further delay of over 4 months from the receipt of $1.8 million in June 2009 before the liquidators activated the administrative machinery for the release of these funds was egregious and inexplicable.

8.  The court found ample evidence to support the conclusion of Poon J that the plaintiff’s deliberate decision to continue to act in breach of the 2005 Order and not to continue the action until it was financially able to do so is tantamount to warehousing the action. The court was of the view that the judge was fully entitled to exercise his discretion in the way he did and there was no valid basis for interfering with it.

The questions raised in the intended appeal

9.  Three questions were put forward in the amended Notice of Motion as questions of great general or public importance and were as follows:

“1. What is the extent to which the law relating to applications to strike out for want of prosecution and/or applications for an extension of time have changed (if at all) following changes brought about by the Civil Justice Reform and whether any differences in the law ought to apply to applications which were after the coming into effect of the Civil Justice Reform changes, but in relation to delay which all or almost all happened prior to the coming into effect of the Civil Justice Reform changes.

2. What is the extent to which a respondent to an application to strike out for want of prosecution and/or an applicant seeking an extension of time can rely – as explanation and/or excuse for the delay or any part of it – upon the actions of the other side (or any of them) in other actions between the same parties or a combination of them, and does it make a difference by whom such actions are brought and against whom.

3. Would the answer to question 2 above be different if the other actions arise out of broadly the same or similar factual circumstances, or out of the same or similar underlying relationships between the parties.”

10.  In respect of question 1, Mr Coleman, SC submitted for the plaintiff that the same issues arise in respect of the strike out application for want of prosecution in related proceedings for misfeasance in the winding up of the plaintiff (HCCW No. 735 of 2002), which involve the plaintiff and the 1^st to 3^rd defendants to this action. Leave to appeal was granted by the Court of Final Appeal (The Liquidators of Wing Fai Construction Co. Ltd. (In Compulsory Liquidation)v. Yip Kwong Robert & Others, FAMV No. 31 of 2010, 21 January 2011) and the appeal in FACV No. 3 of 2011 will be heard later this year. As these issues have already been placed before the Court of Final Appeal, this indicated that the issues in question 1 would merit consideration and it has been acknowledged by the Appeal Committee that a question similar to question 1 is one of great general or public importance. Mr Coleman contended that this importance should also extend to applications for extension of time.

11.  Mr Coleman submitted further as the Court of Final Appeal has never previously considered the applicable criteria for the exercise of the court’s discretion to grant an extension of time, as leave to appeal was refused by the Appeal Committee in Nantong Angang Garments Co. Ltd. v. Hellmann International Forwarders Ltd., FAMV No. 15 of 2006, 29 September 2006, it would be helpful for the Court of Final Appeal to clarify the applicable principles after the Civil Justice Reform, and specifically, the extent to which an explanation for any delay must be given.

12.  As pointed out in the submissions of Mr Barlow, SC for the 1^st defendant, question 1 had not even been argued before Poon J or the Court of Appeal. In formulating the question in this manner, the plaintiff is just seeking to mould the present proceedings into a simulation of the appeal brought by the 1^st defendant and 2 others in FACV No. 3 of 2011. The present situation is not comparable. We are here concerned with the exercise of the discretion of the judge in refusing an extension of time and dismissing the action as a result where the action has been stayed for over 4 years due to the plaintiff’s deliberate decision not to comply with an order to provide security for costs. This is not a question of great general or public importance, nor is there an arguable basis for appeal. As stated by Ribeiro PJ in Nantong Angang Garments at para. 10, how the court’s discretion to extend time should be exercised is “plainly a matter which must be approached flexibly and contextually on the facts of each particular case.” There is no reason to think that this exercise of discretion has now been changed as a result of the Civil Justice Reform.

13.  For questions 2 and 3, Mr Coleman submitted that it would be of assistance if the Court of Final Appeal were to clarify the extent to which a respondent to an application to dismiss for want of prosecution and/or an applicant seeking extension of time, can rely, as an excuse for delay, upon the actions of other parties to the litigation, especially where these actions arise out of broadly the same or similar factual circumstances, or out of the same or similar underlying relationships between the parties. His argument was that in the present context, what would be of relevance is the extent to which the explanation for delay could rest upon the fact that the plaintiff’s delay in furnishing the funds to comply with the 2005 Order had been caused or contributed to by the actions including wrongdoings of the 1^st to 3^rd defendants. He gave as an example the $1.8 million received by the plaintiff in 2009, submitting that the money should have been available to the liquidators much earlier but was not because the 3^rd defendant had pursued a clearly hopeless appeal to the Court of Final Appeal.

14.  Mr Coleman further prayed in aid the decision of the Appeal Committee in Sunchase International Group (China) Ltd. & Others v. Vincor Group of Companies (Investment) Ltd. & Others, FAMV No. 21 of 2004, 22 February 2005, para. 5, in which it was stated that since an order for a stay itself prevents the plaintiff from further prosecuting the action, the usual basis for dismissing a case for want of prosecution, namely, inordinate and inexcusable delay on the plaintiff’s part to the prejudice of the defendant, is inapplicable.

15.  Questions 2 and 3 are fact-sensitive questions. They are not questions of great general or public importance. Moreover, they are not properly arguable in view of the analysis of the liquidators’ evidence by the Court of Appeal and the conclusion reached that there was ample evidence to support the judge’s view that there was warehousing of the action by the plaintiff.

16.  As for the statement in Sunchase International Group (China) Ltd. thatthe usual basis for dismissing an action for want of prosecution would not be applicable where there is an order for a stay which prevents the plaintiff from further prosecuting the action, this is of no consequence to the present case. As submitted by Mr McCoy, SC for the 4^th and 5^th defendants, the judge had decided to dismiss the action for failure to provide the security ordered and no question of great general or public importance arises.

17.  For the above reasons, the plaintiff’s application for leave to appeal to the Court of Final Appeal should be dismissed, with an order nisi that the plaintiff is to pay the costs of the 1^st, 4^th and 5^th defendants in this application.

Hon Chu JA:

18.  I agree.

(Maria Yuen) Justice of Appeal

(Susan Kwan) Justice of Appeal

(Carlye Chu) Justice of Appeal

Mr Russell Coleman, SC, instructed by Messrs Reed Smith Richards Butler, for the Plaintiff/Appellant

Mr Barrie Barlow, SC, instructed by Messrs Barlow Lyde & Gilbert, for the 1st Defendant/1st Respondent

Mr Gerard McCoy, SC and Ms Kim Rooney, instructed by Messrs Lily Fenn & Partners, for the 4th and 5th Defendants/2nd and 3rd Respondents

CACV 249/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 249 OF 2010

(ON APPEAL FROM HCA NO. 833 OF 2004)

________________________

BETWEEN

	WING FAI CONSTRUCTION COMPANY LIMITED (In Liquidation)	Plaintiff
	and
	CHENG KIT YIN KELLY	1st Defendant
	KAM SHING	2nd Defendant
	YIP KWONG ROBERT ALIAS YIP KWONG	3rd Defendant
	CHINA RICH HOLDINGS LIMITED	4th Defendant
	CHINA RICH PROPERTIES LIMITED	5th Defendant
	FITZROYA FINANCE COMPANY LIMITED	6th Defendant
	EVERGREEN CLUB LIMITED	7th Defendant
	BUSINESS ROOTIS LIMITED	8th Defendant

________________________

Before: Hon Le Pichon, Kwan JJA and Chu J in Court

Date of Hearing: 1 April 2011

Date of Judgment: 1 April 2011

Date of Handing Down Reasons for Judgment: 8 April 2011

________________________

REASONS FOR JUDGMENT

________________________

 

Hon Le Pichon JA:

1.  This was an appeal by the plaintiff from an order of Poon J dated 19 October 2010 dismissing the plaintiff’s summons for leave to provide security for the defendants’ costs of the action out of time and its action against the first, fourth and fifth defendants (collectively “the defendants”). On the summonses of the defendants which were heard at the same time, the judge also dismissed the plaintiff’s action against them for want of prosecution. At the conclusion of the hearing the appeal was dismissed for reasons to be handed down which we now do.

The background facts

2.  The plaintiff company was put into liquidation in December 2002.  Its liquidators commenced these proceedings against, inter alia, the defendants in April 2004.  The background is set out in §§1-10 of the earlier decision dated 9 December 2005 of Poon J to which reference should be made.

3.  The first to third defendants (who are individual defendants) were the authorised signatories of the plaintiff’s bank accounts between 22 April and 6 July 2002.  The fourth defendant is a Hong Kong listed company and holds a number of subsidiaries including the fifth to eighth defendants through an intermediate company (collectively “the China Rich Group”).

4.  The plaintiff and two other companies (collectively referred to as “the construction group”) formed part of the China Rich Group until 22 April 2002 when the construction group was sold to Sino Glister International Investments Ltd.  Like the plaintiff, the other two companies in the construction group have also been put in liquidation.  David Kennedy and Cosimo Borelli were appointed the liquidators of the plaintiff. Nicholas Hill was appointed an additional liquidator in October 2004 and has become the sole liquidator since June 2009.

5.  From about 2003, the liquidators of the companies in the construction group (all of whom emanated from RSM Nelson Wheeler Corporate Advisory Services Limited) commenced numerous actions in the name of the three companies in the construction group against the defendants or some of them and/or their related entities.

6.  On 8 April 2004, the plaintiff brought this action against the defendants alleging that between 22 April and 6 July 2002, the first to third defendants had wrongfully caused to be transferred a total of approximately $10.4 million out of the company’s accounts to the fourth to eighth defendants.  The plaintiff sought an account from the defendants.

7.  On 21 December 2004, the first to eighth defendants applied for security for costs pursuant to section 357 of the Companies Ordinance.  The judge heard the application on 25 October 2005.  The judge was satisfied on the evidence that the plaintiff would be unable to pay the defendants’ costs if successful in their defence and, on 9 December 2005, ordered that security for the defendants’ costs up to the preparation of the trial in the sum of $800,000 be paid into court by the plaintiff within 14 days (“the 2005 order”).  After the decision was handed down, the plaintiff applied by letter to vary the form of security by being permitted to provide a bank guarantee instead but the judge was not persuaded that the form of security should be changed.

8.  The plaintiff failed to provide the security ordered within 14 days of 9 December 2005.  There matters stood.  It did not appeal the judge’s order.

9.  Over four years later, by summons dated 17 February 2010, the plaintiff applied for leave to provide the security ordered out of time.  On 23 February and 25 March 2010, the first and the fourth defendants took out summonses respectively seeking an order that the action be struck out for want of prosecution.  The summonses were amended to include an application for dismissal for abuse of the court process and to add the fifth defendant as an applicant.  Both sides filed evidence to support their respective summonses.

The proceedings below

10.  In view of the oral submissions of Mr Coleman SC on the appeal, it is necessary to go into the evidence before the judge in some detail.

11.  The summonses came before the judge on 24 May 2010.  It emerged in the course of the hearing that there were deficiencies in the plaintiff’s evidence that were sufficiently serious to cause it to seek an adjournment.  Inter alia, the plaintiff needed to answer the defendants’ criticism that the delay reflected a wilful choice on the liquidator’s part not to fund this action.  Recognising that the result of a striking out application could be draconian, the judge rightly considered that the overall justice of the case required him to accede to the plaintiff’s request for an adjournment.  He exercised his discretion accordingly.

12.  It is apparent from the transcript that the judge considered that there were lacunae in the plaintiff’s evidence that needed to be addressed.  First, the apparent delay between the recovery of the $1.8 million (said to enable the liquidators to provide the security and continue with the action) and the taking out of the application for time had to be explained.  Second, there were queries as to whether there was a third party funder.  Third, even assuming there was no funder, there was incomplete information regarding the plaintiff’s realizations and liabilities between December 2005 and August 2010.

13.  The evidence showed that the plaintiff was able to fund some 8 or 9 pieces of litigation over the years since the liquidation.  While it was the plaintiff’s case that it had insufficient funds to provide the security ordered at the time, it provided very little financial information to the court.

14.  More informative on the plaintiff’s financial condition was the second affirmation of Mr Wan, the financial controller of the fourth defendant who deposed to information derived from the liquidation accounts for the periods between 6 July 2002 and 27 February 2003 and 28 February 2003 and 8 June 2006.  During those periods liquidators’ fees and expenses of about $5.6 million and professional and legal fees of almost $1 million had been paid.  Despite realizations totalling $8 million up to 8 December 2006, as at that date, monies left in the account were less than $200,000.

15.  Counsel previously acting for the plaintiff informed the court at the May 2010 hearing that the information in Mr Wan’s affirmation was “an incomplete record of movements in and out of the liquidation account” which the liquidator (namely Mr Hill) wished to supplement by putting in “additional evidence to show the picture … about the availability of funds”.

16.  A further round of evidence ensued.  It was completed by the end of June 2010 and the adjourned hearing took place on 19 October 2010.

17.  The further evidence filed by the plaintiff did not challenge Mr Wan’s figures as such.  Rather, it explained that the net position of the liquidation account having a sum of less than $200,000 was the position prevailing on 9 December 2005, the date security for costs was ordered.  A summary of receipts and payments immediately prior to that date was provided.  Since that date, there has been two receipts in the liquidation, namely approximately $736,000 received on 2 April 2007 and a further $1.8 million on 24 August 2009.  (Inexplicably, the latter date was wrong.  The $1.8 million was actually received in June 2009 and not August.  There was thus a delay of 8 months before the plaintiff made its application.)

18.  It was accepted that the plaintiff’s delay since December 2005 was inordinate.  The judge concluded that the plaintiff’s application must fail because no reasonable excuse had been shown.  The practical effect of his decision was that the stay that had come into effect when the plaintiff failed to comply with the 2005 order to provide security for costs had become permanent.  In order to achieve finality, the judge exercised his discretion and dismissed the action against the defendants.

This appeal

19.  It seemed from the skeleton submissions of Mr Coleman that he was not relying on the grounds set out in the notice of appeal (which had been settled by his predecessor).  It was unclear what his grounds were other than that the plaintiff was now in a position to provide the security ordered.

20.  In oral submissions, Mr Coleman took issue with §§8 and 9 of the judgment.  He submitted that the judge erred in principle because he had applied the wrong test, that instead of applying the test for the enlargement of time, he had applied the test applicable for want of prosecution.  Mr Coleman also sought to derive assistance from a decision (HCCW 735/2002) of Kwan J (as she then was) and of this court in CACV 273/2009 (differently constituted) in an application made by some of the defendants in the present action (who were also defendants in that action) to strike out misfeasance proceedings brought against them by the liquidators in the plaintiff’s liquidation for want of prosecution or abuse of process.  Those are fact sensitive issues and I cannot see that it is of assistance to this court to have cited to it observations made in a different case involving different facts.

21.  In considering whether there was any reasonable excuse, the judge summarised the plaintiff’s case in these terms:

“8. … What the plaintiff has put forward is, in gist, this. As at December 2005, the plaintiff simply did not have sufficient funds to provide the security for costs. That remained the situation until April 2007 when the liquidators recovered some HK$700,000. By then the plaintiff could have provided the security, albeit out of time, but was unable to finance the action any further. So it decided not to provide the security but applied its resources to other, presumably, more promising actions, including its claims against the 3^rd defendant. In August 2009, some HK$1.8 million was recovered from the 3^rd defendant, which enabled the plaintiff to provide the security and to continue with this action and other outstanding actions. To borrow the description used by its counsel, Mr Bartlett, the plaintiff now has “the fighting fund”. After some without prejudice negotiations with the defendants which yielded no fruitful result, the plaintiff filed the notice of intention to proceed in January this year and the present application one month later.”

22.  Pausing there, I would observe that the judge had not quite appreciated the implications of Mr Hill’s evidence concerning the liquidation accounts, no doubt because the material had been presented in such a way that its implications were not readily apparent.  What the further evidence filed by the liquidator did not do was to provide the court with a readily comprehensible and comprehensive snapshot not only of the realisations from the liquidation but also of its accrued liabilities between December 2005 and the receipt of the $1.8 million.

23.  On a more careful reading of the affidavit dated 31 May 2010 of Mr Hill, the sole liquidator since June 2009, in fact, the net position of the liquidation in December 2005, far from showing any surplus, had a negative balance of at least $1.8 million (if not $2 million) representing unpaid liquidator fees.  That was never expressly stated but appears to be the effect of §14 of his affidavit.  The liquidators apparently had ‘sanctioned’ the payment (inferentially, by December 2005) of “more than” $2 million (but without specifying what precisely that meant) out of the fees collected by the liquidators, requiring an upward adjustment of legal fees paid by $2 million and a downward adjustment of the liquidators’ fees paid by $2 million.  It is to be observed that the summary provided in Mr Hill’s affidavit related to receipts and payments and not receipts and accrued liabilities.

24.  Further, HCA 810 of 2003 was settled on 1 September 2006 for the sum of $3.8 million.  The net receipt in April 2007 of $736,000 was what was left of the $3.8 million “after deducting the plaintiff’s legal fees”.  The impression conveyed was that the legal costs of HCA 810 came to $3 million odd.  It is surprising, to say the least, that $3 million worth of legal costs could have been incurred when the action had not even reached the stage of setting down for trial.

25.  But interestingly, in §17 of his first affidavit, Mr Hill deposed to the settlement of HCA 810 leaving “a balance in the estate of slightly more than HK$800,000”.  If that were the case, it would mean that somehow the deficiency of $1.8 million to $2 million in the estate as at December 2005 in the form of unpaid liquidator’s fees had been cleared.  The only source would have been the settlement funds.  In the circumstances there is every reason to believe that part of the $3 million went to reimbursing the liquidators to the tune of $2 million for the ‘sanctioned’ payment referred to above.

26.  The judge proceeded to consider the matter from the perspective the most favourable to the plaintiff and reached the following conclusion:

“9. The defendants have leveled (sic) criticisms at the plaintiff’s evidence. I do not think I need to dwell on them. For even taking the plaintiff’s case at its highest, it does not amount to any reasonable excuse. The plaintiff’s decision not to provide security for costs in April 2007 when it was able to do so, coupled with its application of its resources then available to other actions, is clearly a deliberate commercial decision (a) to continue to act in breach of the 2005 Order and (b) not to continue with the present action for the time being until it was financially able to do so. Now it says it has the money to continue with the present action and should be allowed to do so. The plaintiff is effectively saying, “I can choose and decide when to suspend or continue with the action depending on my resources from time to time.” It is tantamount to warehousing the action. Litigation cannot be conducted in such manner. The inordinate delay is in my view inexcusable.”

27.  Mr Coleman submitted that the correct test is that set out at 3/5/2 in Hong Kong Civil Procedure 2011, namely, that “there is no requirement that an adequate explanation for delay be given before the discretion can be exercised”.  That comment is an extract from the passage which (omitting citation of authorities) reads:

“[The object of the rule for enlargement of time] is to avoid injustice to the parties. In making an application for an extension of time, a clear statement of the reasons for the inability to comply with the stipulated time limit should normally be provided. However, there is no requirement that an adequate explanation for delay be given before the discretion can be exercised, rather all matters (including the adequacy of any reason for delay) must be considered.”

28.  It is clear from that commentary that, contrary to what Mr Coleman sought to suggest, an adequate explanation for delay is the norm.  While there may be cases where it may be appropriate to exercise the discretion notwithstanding the absence of an adequate explanation, such cases are an exception to the general rule.  It is also clear that the exercise of the judge’s discretion to enlarge time is highly fact-sensitive.  Indeed if (as was Mr Coleman’s submission) the only test is whether an extension of time was just or unjust, that would be equally fact-sensitive.  In the present case, given the history of the proceedings and, in particular, the reasons for the adjournment, this plainly was a case where an adequate explanation was expected and required for good reason.

29.  Mr Coleman submitted that the liquidators could not be criticized for choosing to settle accrued liabilities in respect of their fees as well as legal fees instead of complying with the 2005 order.  Implicit in that submission is that in 2006 there were sufficient funds available for the 2005 order to have been complied with, which is contrary to the liquidator’s earlier stance.  It was said that it was a question of paying the tailor or the grocer.  That is all very well but absent a full and frank disclosure of the liabilities met and when they had accrued, the submission rings hollow.  Further, the hard fact is that apart from meeting those liabilities, the liquidators were able to be active in other litigation throughout 2006, 2007, 2008 and 2009 the cost of which has never been disclosed.  Accepting Mr Hill’s statement that there was no third party funder, notwithstanding that one of the purposes of the adjournment was to enable Mr Hill to fill in the blanks, one is left with having to speculate how that litigation activity was funded.  That is hardly a satisfactory state of affairs.

30.  In any event, despite having received $1.8 million on 8 June 2009, there was an inexplicable delay of 4½ months before the administrative machinery for the release of those funds was even activated.  In the overall context of this case, that period of delay is particularly egregious and inexcusable.  Litigants should be disabused of the notion that court orders do not mean what they say. A party seeking an extension of time does not have the luxury of proceeding at a pace that is to its liking.  Rather, it has to proceed with all due despatch and approach the matter with a sense of urgency.

31.  For my part, there was ample evidence to support the judge’s conclusion that the plaintiff’s deliberate decision (whether or not the epithet ‘commercial’ was appropriate) to continue to act in breach of the 2005 order and not to continue this action until it was financially able to do so is tantamount to warehousing the action.  I fully share the judge’s sentiment that litigation cannot be conducted in such a manner: it renders the inordinate delay inexcusable. In my view, the judge was fully entitled to exercise his discretion in the way that he did and I see no valid basis for interfering with it.

32.  Finally, Mr Coleman sought to impugn the judge’s finding that the defendants had suffered prejudice as a result of the plaintiff’s delay.  In short, Mr Coleman submitted that if the defendants had suffered any disadvantage or prejudice by reason of the delay, they had brought it all on themselves by not taking appropriate action at the first opportunity such as taking adequate witness statements at an early stage.  However the judge’s conclusions on prejudice while relevant to the defendants’ striking out applications, are not relevant to the discretion he exercised on the plaintiff’s application.  That is crystal clear from §12 of his judgment which has been summarized in §18 above.

Hon Kwan JA:

33.  I agree with the Reasons for Judgment of Le Pichon JA.

Hon Chu J:

34.  I agree.

(Doreen Le Pichon) Justice of Appeal

(Susan Kwan) Justice of Appeal

(Carlye Chu) Judge of the Court of First Instance

 

Mr Russell Coleman SC, instructed by Messrs Reed Smith Richards Butler, for the Plaintiff/Appellant

Mr Barrie Barlow SC, instructed by Messrs Barlow Lyde & Gilbert, for the 1^st Defendant/1^st Respondent

Mr Gerard McCoy SC & Ms Kim Rooney, instructed by Messrs Lily Fenn & Partners, for the 4^th & 5^th Defendants/2^nd & 3^rd Respondents

CACV 249/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 249 OF 2010

(ON APPEAL FROM HCA NO. 833 OF 2004)

________________________

BETWEEN

	WING FAI CONSTRUCTION COMPANY LIMITED (In Liquidation)	Plaintiff
	and
	CHENG KIT YIN KELLY	1st Defendant
	KAM SHING	2nd Defendant
	YIP KWONG ROBERT ALIAS YIP KWONG	3rd Defendant
	CHINA RICH HOLDINGS LIMITED	4th Defendant
	CHINA RICH PROPERTIES LIMITED	5th Defendant
	FITZROYA FINANCE COMPANY LIMITED	6th Defendant
	EVERGREEN CLUB LIMITED	7th Defendant
	BUSINESS ROOTIS LIMITED	8th Defendant

Before: Hon Yuen JA in Chambers

Date of hearing and decision: 11 March 2011

________________________

DECISION

________________________

 

Hon Yuen JA:

1.  HCA833/2004 is an action by a company in liquidation (“the Company”) against various persons, including the 1^st Defendant, and the 4^th and 5^th Defendants which are companies.

2.  In December 2005, Poon J (then Deputy Judge Poon) ordered the Company to provide security for costs of that action within 14 days (“the 2005 Security order”).  The Company failed to do so and the action was accordingly stayed.

3.  It would appear that by 2007 the Company had funds to satisfy the Security order (by then out of time) but the liquidators decided not to pursue the matter.

4.  It was not until 2010 that the Company sought an extension of time to comply with the 2005 Security order. However Poon J refused to grant the extension in a judgment given on 19 October 2010 (“the 2010 Non-extension order”).

5.  On 15 November 2010, the Company filed a Notice of Appeal against the 2010 Non-extension order (“the Appeal”). The 1^st Defendant filed a Respondent’s notice within 2 weeks thereafter.

6.  On 14 December 2010, the hearing date of the Appeal was fixed for 1 April 2011.

7.  On 6 January 2011, the 1^st Defendant’s solicitors wrote to the Company’s solicitors asking for security for costs.

8.  On 13 January 2011, the Company’s solicitors declined to provide security.

9.  On 16 February 2011, the 4^th and 5^th Defendants issued a summons that the Company provide security for costs of the Appeal.  The 1^st Defendant was made aware of this in a fax from the 4^th and 5^th Defendants’ solicitors on 21 February 2011.  The date of hearing was fixed for 2 March 2011, some 9 days after the fax.  

10.  The 4^th and 5^th Defendants’ summons for security for costs of the Appeal was heard by Le Pichon JA.  In an oral decision given on the morning of 2 March 2011, her ladyship granted the 4^th and 5^th Defendants’ application for security for costs in the sum of $200,000 to be paid within 21 days (i.e. by 23 March 2011).

11.  In the afternoon of Le Pichon JA’s order, the 1^st Defendant also issued a summons that the Company provide security for costs of the Appeal.  She is seeking security in the sum of $295,000 odd to be paid within 14 days (although para. 2 refers to 28 days for payment).  This is the summons before me now.

12.  The Company is resisting security for costs primarily on the ground that the 1^st Defendant has deliberately delayed making this application until after Le Pichon JA made the order for security for costs in favour of the 4^th and 5^th Defendants.

13.  I agree there has been a deliberate decision to delay the application, it has been made too late and I dismiss it in the exercise of my discretion.  It is well-established that an application for security for costs should be made promptly after the Appeal is set down (see the authorities discussed in para. 59/10/37 of Hong Kong Civil Procedure 2011).   The Appeal was set down on 14 December last year.  Mr Barlow for the 1^st Defendant concedes fairly that the application is late.  The 1^st Defendant’s solicitors had asked for security for costs in correspondence after the Appeal was set down for hearing.  That request was resisted by the Company on 13 January (2½ months before the hearing of the Appeal).  However the 1^st Defendant chose not to issue an application to court in the 1½ months thereafter.  Even when she was informed by the 4^th and 5^th Defendants on 21 February 2011 that they had issued a summons, the 1^st Defendant did not issue her own summons which, if done promptly, could well have been heard together with the 4^th and 5^th Defendants’ summons on 2 March.  There is nothing in the 1^st Defendant’s affirmation in support of her application which indicates that its preparation was a particularly difficult or time-consuming exercise.  The main evidence of the Company’s impecuniosity came from an affidavit of Mr Hill the liquidator filed in May last year.  In other words, I am not persuaded that there is any good reason for the lateness of the application. 

14.  The lateness of this application would prejudice the Company.  As the 1^st Defendant is aware (see the affirmation of her solicitor Miss Melissa Chim para. 31) the liquidators have to undergo a “cumbersome” process involving an application to the Official Receiver’s Office before funds can be released from the liquidation account. From past experience that process took approximately a month.  To order the Company to provide security for costs within the requested period of 14 days would not provide adequate time for processing the request for funds, a matter which is outside the liquidators’ control.  Even to order the Company to provide security within the same period as that ordered by Le Pichon JA (21 days, already 7 days short of the usual period of 28 days) would be meaningless as that would take us to the very day of the hearing of the Appeal.

15.  In the circumstances, I would dismiss the 1^st Defendant’s summons for security for costs with costs to the Company.           

  

   

	(MARIA YUEN)
	Justice of Appeal

 

Mr Kevin Bowers, of Messrs Reed Smith Richards Butler, for the Plaintiff/Respondent

Mr Barrie Barlow SC, instructed by Messrs Barlow Lyde & Gilbert, for the 1^st Defendant/Applicant

CACV 249/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 249 OF 2010

(ON APPEAL FROM HCA NO. 833 OF 2004)

________________________

BETWEEN

	WING FAI CONSTRUCTION COMPANY LIMITED (In Liquidation)	Plaintiff
	and
	CHENG KIT YIN KELLY	1st Defendant
	KAM SHING	2nd Defendant
	YIP KWONG ROBERT ALIAS YIP KWONG	3rd Defendant
	CHINA RICH HOLDINGS LIMITED	4th Defendant
	CHINA RICH PROPERTIES LIMITED	5th Defendant
	FITZROYA FINANCE COMPANY LIMITED	6th Defendant
	EVERGREEN CLUB LIMITED	7th Defendant
	BUSINESS ROOTIS LIMITED	8th Defendant

________________________

Before: Hon Le Pichon JA in Chambers

Date of Hearing: 2 March 2011

Date of Decision: 2 March 2011

Date of Handing Down Reasons for Decision: 3 March 2011

________________________

REASONS FOR DECISION

________________________

 

Hon Le Pichon JA:

1.  This was an application for security for costs by the fourth and fifth defendants (“the defendants”) in an appeal by the plaintiff from a judgment dated 19 October 2010 of Poon J. An order to provide security for costs in the sum of $200,000 was made, such sum to be paid within 21 days. My reasons appear below.

2.  The plaintiff is a company in liquidation.  In October 2010, the judge refused its application for leave to pay out of time security for costs that had been ordered in December 2005 and struck out the action for want of prosecution.  The plaintiff’s appeal from the judgment is due to be heard on 1 April 2011.

3.  On the basis of the materials placed before the court, I am satisfied that the plaintiff is impecunious.  I do not consider that the fact that some 18 months ago the liquidator recovered $1.8 million assists when the court has no information as to the current financial condition of the plaintiff.

4.  The only countervailing factor militating against making an order for security was the defendants’ delay in applying for security for costs.  The notice of appeal was filed on 15 November 2010.  On 20 December 2010, the defendants applied for security by letter to the plaintiff.  The plaintiff declined the request on 22 December 2010.  The notice of hearing was issued on 5 January 2011 but the defendant did not take out its summons for security until 16 February 2011, a delay of six weeks.

5.  Mr McCoy SC acknowledged and regretted the inexcusable delay on the part of those instructing him in taking out the summons but submitted that the plaintiff had been put on notice and there was nothing to suggest that the defendants would or had changed their minds.  Mr Bowers who appeared for the plaintiff referred to A Co v K Ltd [1987] 3 All ER 377 for the proposition that such applications to the Court of Appeal must be made with the “maximum possible expedition”.  Those observations were made in the context of an application made within 14 days of the appeal itself when the appeal had been set down 14 months previously.

6.  I agree that applications for security for costs must be made promptly but in exercising its discretion, the court is to have regard to all relevant circumstances.  In the present case, the plaintiff could not have been taken by surprise given the earlier written request.  It is inconceivable that the defendants would have second thoughts about seeking security since they had succeeded in a strike out.  The court also needs to consider the strength of the appeal.  The fact that there has been delay in making the application is a relevant and important consideration but it is not necessarily conclusive or dispositive.

(Doreen Le Pichon) Justice of Appeal

Mr Kevin Bowers, of Messrs Reed Smith Richards Butler, for the Plaintiff/Respondent

Mr Gerard McCoy SC & Ms Kim Rooney, instructed by Messrs Lily Fenn & Partners, for the 4^th & 5^th Defendants/Applicants