Introduction
Background
Decision
Comment
Sunlight Technology Development Ltd v AGP (Far East) Ltd(1) is a good example of the first-instance courts' pragmatic approach to the principles governing dismissal for abuse of process – in particular, want of prosecution (namely, delay). Although dismissal in such circumstances is a sanction of last resort (according to the leading appellate court authority),(2) the first-instance courts in Hong Kong have often shown commendable pragmatism in the exercise of their discretion. In Sunlight Technology Development, not only did the court strike out the plaintiff's claim (with which the plaintiff agreed) but, on the main issue, it also struck out the defendant's counterclaim. The proceedings had been commenced in 2007 and, after 2008, neither party had taken a step in the action until 2019 – some 11 years later. For good measure, considering the plaintiff's reasonable settlement overtures between 2020 and 2021, the court awarded the plaintiff most of its costs on an indemnity basis as from July 2020.
The plaintiff commenced proceedings against the defendant in 2007. The plaintiff's claim was for the return of a deposit that it had paid for the purchase of an electricity generator from the defendant. The generator was delivered to the plaintiff's factory on or about 1 September 2007. The plaintiff claimed that it had contracted to purchase a new generator of a particular type and from a particular country of origin but that the generator that had been delivered did not match these requirements.
The defendant's defence was that the generator it had sold to the plaintiff complied with the contractual description, as evidenced in the contract and in certain alleged pre-contractual verbal negotiations between the parties' main representatives. The defendant counterclaimed for the balance of the purchase price.
From 2008 to 2019, neither party appears to have taken a step in the action. By the time that the defendant tried to reactivate the case in 2019, the parties' main representatives were elderly and partially retired, deceased or could not be contacted.
The defendant's attempt to reactivate the case in 2019 appears to have met with a certain flurry of activity, during which the parties tried to comply with their case management responsibilities.
On 23 March 2021 the plaintiff applied to strike out the defendant's counterclaim for want of prosecution. The plaintiff accepted that its claim should also be struck out for the same reason. A judicial officer hearing the application dismissed it. The plaintiff appealed to a judge of the District Court, who heard the appeal as a re-hearing.
Two principal issues required the Court's determination with respect to the defendant's counterclaim – namely, whether there had been:
- inordinate delay by the defendant, coupled with serious prejudice to the plaintiff; and
- abuse of process.
The Court allowed the plaintiff's appeal and ordered that the defendant's counterclaim be struck out for want of prosecution – it followed that the plaintiff's claim should likewise be struck out.
Delay
The Court held that the 11-year delay in progressing the counterclaim was inordinate and the various business and personal reasons put forward respectively by the defendant and its director did not excuse the delay. Indeed, at the hearing, the defendant appeared to accept that the delay was inexcusable, having initially decided not to pursue its counterclaim for the first two years. An interesting passage in the Court's decision reads as follows:
The "I was really busy" reasons given for the complete inaction in the ensuing 9 years were not only unacceptable as good reasons, but in my view, were disingenuous excuses that did not stand up to the slightest scrutiny, and I completely reject them as not being the true reasons behind the complete inaction for those 9 years by the defendant.(3)
Serious prejudice and abuse
The Court noted that of the four main representatives allegedly involved in the verbal negotiations at the time of the contract, two were elderly (approximately 77 and 81 years old) with fading memories of relevant events, one of whom could not be contacted – a third had died, while a fourth could not be contacted and had left the defendant's employment. Against the background of the importance of the alleged verbal negotiations to the defence and counterclaim, the Court held that there was a substantial risk that a fair trial would no longer be possible and this was not of the plaintiff's making.(4)
With respect to the defendant's apparent willingness to take a risk that its evidence regarding the alleged verbal negotiations might not come up to proof, the Court stated as follows:
With respect, one party's willingness to take the risk of failing at trial does not make the trial thereby become any fairer generally or fairer to the other party. The defendant's own acceptance of risk is therefore neither here nor there.(5)
The Court concluded that the defendant's inactivity justified the strike out of its counterclaim. As a result of the Court's order, the entire action came to an end, save for a dispute between the parties as to who should pay the other's costs in the absence of agreement.
During the Court's deliberations on the appropriate costs order, it became apparent that the defendant had rejected a number of without prejudice offers to settle from the plaintiff that were more advantageous to the defendant than the outcome in the case – namely, the dismissal of the entire action for want of prosecution. With that in mind, the Court ordered that there be no order as to the costs of the action up to 30 July 2020 when the defendant had made its own optimistic offer to settle, having rejected the plaintiff's reasonable offers of settlement. With respect to the parties' costs after that date, the Court ordered that the defendant pay the greater part of the plaintiff's costs of the action (including the counterclaim), together with the costs of the application to strike out and the costs of the appeal, on an indemnity basis.(6) On the face of it, these costs could be substantial and exceed the amounts in dispute in the proceedings – therein lies another tale.
The decision is that of a judge of Hong Kong's busy District Court. As such, it has less general precedent value. However, this is more than made up for by the fact that the decision was fully reasoned and a very useful explanation of the relevant principles governing dismissal for want of prosecution in a given case. These principles are no less applicable in the District Court as they are in the High Court or with respect to a defendant's counterclaim as they are to a plaintiff's claim.
When the Court of Final Appeal laid down the test for dismissal for abuse of process, the emphasis appeared to be on trying to get stale claims back on track in accordance with the court's case management powers, with striking out being a last resort.(7) Since that landmark case, some first-instance courts (supported by judgments of the Court of Appeal) have shown commendable pragmatism in avoiding too rigid an application of the power to strike out for abuse of process and been willing to be robust when confronted with egregious delay. While delay of itself is unlikely to justify dismissal for want of prosecution, where there is egregious delay generally it should not take much in practice for a court to find abuse of process. Therefore, the outcome in Sunlight Technology Development is understandable.
Finally, the court's decision on costs is a salutary warning to parties that, generally or in similar circumstances, refuse reasonable settlement offers or make unreasonable counteroffers – in this case described by the court as "claiming to the hilt" and being "unrealistic".(8)
For further information on this topic, please contact Antony Sassi, David Smyth or Warren Ganesh at RPC by telephone (+852 2216 7000) or email ([email protected], [email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.
Endnotes
(2) Re Wing Fai Construction Co Ltd [2012] 1 HKLRD 589.