Defendants will welcome the recent decision in Bank of China (Hong Kong) Ltd v Ho Chi Lui,(1) in which a Hong Kong judge struck out court proceedings that the plaintiff allowed to remain inactive ('warehoused') for over 14 years. The decision is another illustration of the courts' willingness to strike out stale claims in cases of egregious delay, following the landmark decision of the Court of Final Appeal in Wing Fai Construction Co Ltd v Yip Kwong Robert.(2)
The three defendants were guarantors of a debt owed by a company to the bank. The company defaulted on its debt and in June 1999 the bank commenced court proceedings to enforce the guarantees.
In April 2000 the bank obtained partial judgment against two of the defendants (then acting in person) pursuant to one of the guarantees. As to the balance of the bank's claim, the court gave directions for exchange of documents and witness evidence. However, as things transpired, the defendants failed to disclose documents and none of the parties produced witness statements.
In August 2000 the court ordered the defendants to give discovery within 14 days, failing which their defence would be struck out and the bank would be permitted to apply for final judgment against them. Although the defendants failed to comply with this order, the bank did not apply for final judgment.
Rather, between February 2001 and March 2012 the defendants made monthly payments to the bank, which it accepted in partial settlement of the partial judgment. Sometime after the payments stopped, in 2013, the bank petitioned for the defendants' bankruptcy, seeking payment of the balance of the partial judgment. The defendants made a further payment and the bank withdrew its bankruptcy petition, while purportedly reserving its right to pursue the balance of its claim.
In October 2014 the bank gave notice of its intention to proceed with the court proceedings, with a view to recovering the balance of its claim.(3) The defendants applied to strike out the proceedings for want of prosecution.
The defendants contended that the filing of the notice (to proceed) amounted to an abuse of process because the bank had (in effect) abandoned its claim. For more than a decade, the bank had been concerned only with pursuing the partial judgment, knowing that this was its best chance of securing a recovery. The bank made no effort to progress the action during this time and had been in breach of the order to file witness statements for over 14 years.
Alternatively, the defendant argued that the bank had been warehousing its claim, having let the court proceedings become inactive between 2001 and 2012, while at various times seeking to obtain as much voluntary repayment under the partial judgment as possible. Even after the defendants stopped making voluntary contributions in March 2012, the bank did not proceed with the action but commenced bankruptcy proceedings based on the partial judgment.
The defendants further submitted that the bank's inaction stood to prejudice them. In this regard, they argued that:
- if the plaintiff had obtained final judgment in 2000 or 2001, any action to enforce it would by now be time barred. By letting the claim drag on, the bank would obtain a further 12 years in which to enforce a judgment and an additional six years of interest;(4)
- the bank led the defendants to believe that it was enforcing only the partial judgment, further to which the defendants made payments to the bank for approximately 11 years; and
- a fair trial was no longer possible as a result of the delay. The company (whose liability the defendants had guaranteed) had been wound up in 2006, its documents and records were no longer available and as to any witnesses still available, their memories would have faded.
For its part, the bank denied that it had abandoned its claim, as demonstrated by its ongoing effort to pursue the partial judgment. The bank had been hoping to settle the claim through negotiation – hence why it had been prepared to accept the partial repayments.
Relying heavily on the principles articulated in Wing Fai, the bank further contended that:
- the defendants had also not taken any steps to progress the claim (contrary to their case management duty not to "let sleeping dogs lie"), which weighed heavily against an order for strike-out;
- the mere fact of warehousing was not sufficient to justify strike-out of the bank's action. The bank argued that it must be shown that it intended to abuse the court process; and
- strike-out is a remedy of last resort and, where possible, the court should make use of the other powers available to it (eg, deprive the bank of interest).
The judge hearing the defendants' application decided that the bank's inactivity, in the context in which it occurred over so many years, amounted to abuse of process for which strike-out was appropriate.
In reaching his decision, the judge relied heavily on the fact that the bank had been at liberty to apply for final judgment as far back as 2000, but failed to do so. The bank also had over 14 years to resolve its claim, but had not done so. Instead, the bank was warehousing the balance of its claim while it pursued recovery of the partial judgment. The bank had been unable to provide any satisfactory explanation for its inactivity and the delay was inexcusable. In light of this abuse of process, it was not necessary for the defendants to show prejudice.
On the matter of whether the defendants had a responsibility to move the claim forward themselves, it was relevant that the defendants were unrepresented during the 14 years of inactivity and, as such, could not be expected to have understood the nuances of a party's procedural duty not to "let sleeping dogs lie". Importantly, the last step in the action had been for the bank to apply for final judgment and it was unreasonable to expect the defendants (as laypeople) to have prompted the bank to do this.
Delays do, of course, occur and the courts in Hong Kong will endeavour to ensure that plaintiffs are not unreasonably deprived of the opportunity to pursue their claims. That said, there are clearly limits to what the courts will tolerate. This was a case in which a plaintiff, after doing nothing to progress its claim for over 14 years, one day decided to resurrect the proceedings.
Even though delay (of itself) may not justify strike-out for abuse of process, on a fair reading of the judgment, the period of 14 years' delay was crucial to the judge's decision. If delay of this duration does not amount to abuse of process, it is difficult to see what might.
Dismissal of stale claims is fact dependent and the issue is not one of delay alone, but whether there has been – and the extent of any – abuse of process. Defendants can take some comfort from the court's application of the principles set out in Wing Fai in this case. The outcome in the case illustrates a robust approach – one which acknowledges that the test for strike-out based on abuse of process (post-Wing Fai) is ultimately an exercise of the court's discretion.(5)
That said, it would be remiss to place too much stock in this decision. A defendant that is legally represented is still expected to adopt a more proactive approach to case management – for example, by progressing the court proceedings as expeditiously as is reasonably practicable in the circumstances. It so happens that in this instance there was nothing really to case manage once the bank had been at liberty to apply for final judgment. More than 14 years later, the defendants' newly appointed lawyers appear to have picked up on this point to good effect.
For further information on this topic please contact Carmel Green or Antony Sassi at Smyth & Co in association with RPC by telephone (+852 2216 7000) or email (firstname.lastname@example.org or email@example.com). The RPC website can be accessed at www.rpc.co.uk.
(1)  HKEC 1877, August 31 2016. The bank has lodged an appeal to the Court of Appeal, likely to be heard in 2017.
(3) One month's notice of intention to proceed after one year's delay is required, pursuant to the Rules of the High Court Order 3, Rule 6.
(4) Section 4(4) of the Limitation Ordinance (Cap 347).
(5) For example, see judgment in Wong Chong Kwai Yin v Tsang Hau Ling  HKEC 1950, August 18 2016. An unsuccessful application to strike out for abuse of process (the relevant delay being two separate periods of approximately 30 months and 22 months).
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