Bank of China (Hong Kong) Limited (the successors of all undertakings of the Yien Yieh Commercial Bank Limited by virtue of the Bank of China (Hong Kong) Limited (Merger) Ordinance (Cap. 1167) v Ho Chi Lui & Anor - HCA 10239/1999 (31 August 2016)
In this Law Alert, we summarise the Hong Kong Court's approach to strike-out applications, both pre & post CJR, and consider the High Court's recent decision in Bank of China (Hong Kong) Limited v Ho Chi Lui & Anor - HCA 10239/1999 (31 August 2016).
Before the Civil Justice Reform (which came into effect in April 2009), the Hong Kong Court followedBirkett v James  AC 297 where the Court had the power to strike out proceedings where it was satisfied that there was (i) contumelious default (i.e. breach of court orders) or abuse of the court process; or (ii) inordinate and inexcusable delay, coupled with consequential prejudice to the defendant.
This approach changed with the arrival of the CJR, with Wing Fai Construction Co Ltd v Yip Kwong Robert  1 HKLRD 389 (a case in which HWB lawyers acted for the Plaintiff), a landmark case involving an application to strike out for delay or want of prosecution. Ma CJ re-evaluated the pre-CJR approach and applied the core principles of the CJR in striking out claims.
Ma CJ noted that a mere delay on the part of the plaintiff would no longer be a proper ground for dismissal of proceedings for delay or want of prosecution unless:-
- it was plain and obvious that by reason of the delay, a plaintiff should be deprived of the opportunity to go to trial for the resolution of his dispute with the defendant; and
- there was an element of abuse of the process of the court by the plaintiff.
Ma CJ emphasised an abuse of process may be established where there is no intention to bring proceedings to trial however good the reason for warehousing them and dormant inactive proceedings causing "inordinate and inexcusable delay causing prejudice to a defendant… are all examples of abuse". In Wing Fai, although there was clear period of delay, the necessary element of 'abuse' was lacking and the appeal was therefore dismissed.
Post CJR, RHC Order.18, r.19(1) applies and the established grounds to strike-out a pleading or action are as follows:-
- it discloses no reasonable cause of action or defence, as the case may be; or
- it is scandalous, frivolous or vexatious; or
- it may prejudice, embarrass or delay the fair trial of the action; or
- it is otherwise an abuse of the process of the court;
In Bank of China (Hong Kong) Limited v Ho Chi Lui & Anor, the three Defendants were guarantors of Hanwood Limited ("Hanwood") which owed money to Yien Yieh Commercial Bank Limited ("YY Bank"). On 23 June 1999, Hanwood defaulted on its debts and YY Bank commenced proceedings to enforce the guarantees. On 1 October 2001, Bank of China (Hong Kong) Limited (the Plaintiff) merged with YY Bank. YY Bank sold a property mortgaged by Hanwood in partial discharge of Hanwood's debt, which left part of the debt outstanding, and YY Bank obtained partial judgment.
The proceedings continued and the Plaintiff was granted an order on an unless basis, which meant that if the Defendants did not exchange lists of documents within 14 days, their Defence would be struck out and the Plaintiff could make an application to apply for final judgment against the Defendants, which would bring the matter closer to finality. The Defendants did not comply with the unless order and the Plaintiffs did not apply for final judgment. Instead, the Plaintiff sent the Defendants a statutory demand for the partial judgment amount. The 2nd Defendant and the Plaintiff then agreed monthly repayments to offset the remaining amount owed by Hanwood. The Plaintiff also agreed to withhold taking further legal action against the Defendants and to stop charging interest in relation to the money owed by Hanwood.
Hanwood was wound up in 2006 and monthly instalments were made to the Plaintiff up until March 2012, leaving an outstanding balance. Another statutory demand was sent to the Defendants for the outstanding balance and the Plaintiff subsequently presented bankruptcy petitions. It was agreed that the Plaintiff would withdraw the bankruptcy petitions on payment of partial funds, which were paid by the 2nd Defendant.
On 13 October 2014, the Plaintiff filed a Notice of Intention to Proceed. Five months later, the Plaintiff then applied for leave to amend its Statement of Claim. On 8 April 2015, the Defendants applied to strike out the action for want of prosecution. At the hearing on 19 January 2016, Master K. Lo dismissed the strike out application and allowed the Plaintiff's application for leave to amend its Statement of Claim.
On 31 August 2016, Deputy High Court Judge Cooney SC ("DHCJ Cooney"), on appeal from Master K. Lo's decision, decided to strike out the action for want of prosecution on the grounds that it was an abuse of the process of the Court.
DHCJ Cooney explained that during the time that the Defendants were making payments, the Plaintiff "warehoused the balance of its claim…. to one side and has done nothing about it". And found that "warehousing is evident from the failure to apply for default judgment, the inactivity in respect of the balance for more than 14 years…and the plaintiff's acceptance of repayment by instalments of the partial judgment only...the plaintiff did nothing to obtain judgment or to resolve its claim".
All the parties in litigation have an obligation to progress the action so that they are brought closer to the resolution of their dispute. Plaintiffs (such as banks) often launch many claims and selectively pursue a few at any one time. It is generally not advisable to "warehouse" claims, but if warehousing is used as a litigation strategy there must be evidence of the intention to bring proceedings to a conclusion. Otherwise, a lengthy delay may amount to an abuse of the process of the Court.
As shown in Wing Fai and followed in Bank of China, it is a prerequisite to show an element of abuse of the Court process to succeed in an application for strike out based upon delay. An example of an abuse of the Court's process is where parties "let sleeping dogs lie" so that when there is an opportunity to bring matters closer to resolution, such as applying for final judgment after a failure to comply with an unless order, it should be done expeditiously and as soon as is reasonably practicable.