Applications to strike out for delay – A thing of the past?

In The Liquidator of Wing Fai Construction Co Ltd (in compulsory liquidation) v. Yip Kwong Robert & Ors (FACV No. 3 of 2011, 8 December 2011), the Court of Final Appeal (“the CFA”) restated the principles which apply to applications to strike out actions for delay. The CFA said that with the new litigation culture and initiatives, aimed at expeditious and effective resolution of disputes, brought about by the Civil Justice Reforms (“the CJR”), introduced on 2 April 2009, it was appropriate to restate those principles.

Applicable principles post-CJR
The CFA said that the applicable principles post-CJR are as follows:

1. Striking out an action for delay, should only be used as a last resort and when it is 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. One of the main aims of the CJR is to enable parties to have their dispute resolved as expeditiously, effectively and efficiently as reasonably practicable. The primary responsibility of the court, as made clear by the “underlying objectives” (introduced by the CJR and set out in the court rules) is to “secure the just resolution of disputes in accordance with the substantive rights of the parties”. The court’s role is therefore not to prevent actions being litigated, but quite the opposite.

2. Mere delay is not sufficient. There must be an element of abuse of the process of the court by the plaintiff. Inordinate and inexcusable delay causing real prejudice would be an abuse. Prejudice can take the form, for example of a substantial risk that a fair trial is not possible, having proceedings hanging over one’s head causing anxiety or the existence of an interim mareva injunction pending trial.

3. Merely for a party to start proceedings and then delay (“warehouse”), as the liquidators were alleged to have done in the present case, will not necessarily amount to an abuse. The appropriate remedy in such cases may be for the court to exercise some of its other powers, such as making peremptory orders or ordering the payment into court of a substantial sum. For “warehousing” to justify striking out, it must be clear that the plaintiff is abusing the process of the court. Accordingly, where there is simply no intention to bring proceedings to a conclusion or there is a “wholesale disregard” of the rules or court orders, abuse can be found to exist.

4. Where abuse is clearly demonstrated, proceedings can be struck out even where prejudice to the defendant cannot be shown. For example, where there is contumelious conduct on the part of a plaintiff, no prejudice to the defendant need necessarily be shown. However, in the majority of applications to strike out for delay, whether or not there is prejudice to the defendant will often be extremely relevant and very much a factor.

5. The parties’ conduct remains a relevant consideration. Post-CJR, where all parties to the proceedings have the obligation to prosecute the proceedings and assist the court in furthering the “underlying objectives”, it is highly relevant to consider any failure on the part of the parties. Defendants can no longer adopt the attitude of “letting sleeping dogs lie” i.e. sit back and do nothing, in the hope of accumulating sufficient delay so that some sort of prejudice can then be asserted. If, for example, a defendant seeks to argue that the delay has dimmed the memories of witnesses, the court will usually want to know what steps the defendant has taken to take instructions, or proof or locate witnesses. The court will certainly want to know what the true nature of the defence is, in order to assess the extent of the prejudice suffered by a defendant.

6. Previously, the attitude of the court has been to look only to the position of the parties themselves. However, post-CJR, the courts must now have regard to wider considerations, such as the “underlying objective” of ensuring that the court’s resources are distributed fairly. The court must bear in mind its own practical limitations and the fact that there are other litigants who are entitled to have their disputes resolved by the court.

7. The non-expiry of any applicable limitation period should no longer be a reason for not striking out for delay. A plaintiff (who is guilty of inordinate and inexcusable delay and has abused the process of the court) should no longer be permitted to institute another action at the expense of other, far more deserving litigants. The policy of the CJR is for disputes to be expeditiously, effectively and efficiently resolved and seeks to achieve this by ensuring that parties to litigation get on with the proceedings, by complying with the court rules and orders. It is wrong as a matter of principle, that where a plaintiff has otherwise abused the process of the court, he should be allowed to continue with a stale action simply on the basis that he would be free to institute another action within the limitation period. Where there is abuse, the court ought to strike out the action for delay and leave it to the plaintiff to institute fresh proceedings. The burden would then be very much on the plaintiff to justify why he should be permitted to continue with the second action.

8. Post-CJR, it remains the position that the fact any delay was caused by the plaintiff’s legal representatives, will not be relevant to the exercise of the court’s discretion. Acts done or omitted to be done by a party’s legal representatives will be attributable to that party.

The CFA said that post-CJR, in light of the above principles, it would seldom be necessary to refer to authorities such as Birkett v James and the many authorities, both in England & Wales and in Hong Kong, following that decision (which have been applied in Hong Kong for many years), as those authorities had not taken into account the procedural changes under the CJR in Hong Kong (or the Woolf Reforms in England).

One of the other issues considered by the CFA was the extent to which it could take the CJR into account where (as in the present case) the application to strike out had been made before the CJR came into effect, but was heard after the CJR came into effect. The CFA said that for applications such as the present, the court must take the CJR into account i.e. it has to apply the law as it exists today. However, when evaluating the conduct of a party (in the present case examining the delay that had taken place), the court does not disregard the circumstances and the statutory structure in place at the relevant time. So in the present case the delay had to be viewed in the context in which it arose (i.e. pre-CJR) and at a time when the liquidators were perhaps not expected to do as much to move the proceedings along than would be the case now.

Applying the above principles, the CFA affirmed the decisions of the courts below, which had dismissed the Respondents’ application to strike out the liquidators’ claims. Although the liquidators had been guilty of inordinate and inexcusable delay for two years, there was not the degree of abuse that would prompt the court to strike out and it was by no means plain and obvious that the sanction should be utilized here. Further, the CFA was not convinced that a fair trial would not be possible.

What is the likely effect of the CFA’s judgment?
There will probably be far fewer applications to strike out actions for delay, given that actions will only be struck out in the most plain and obvious cases and as a last resort. Mere delay will be insufficient and there has to be an element of abuse. Further, defendants will no longer be able to sit back and do nothing, in the hope of accumulating delay to form the basis of a strike out application. They will be expected to be pro-active and move the case forward and try other options, such as applying for peremptory orders.

In its judgment, the CFA said that post-CJR, it would expect to see virtually no applications to strike out for delay (or at least very few) unless for instance peremptory orders had not been complied with. This did not, the CFA said, signal a more relaxed approach by the courts to delay. Under the CJR regime, the combination of the court’s greater case management powers and duties and the obligation on the parties to assist the court in achieving the underlying objectives and get on with the action, should ensure that delays are kept to a minimum. Post-CJR, peremptory orders are more readily made by the court and the court is also now able to act on its own motion, even where the parties have not applied to court. Accordingly, no proceedings should get to the stage where delay will prompt an application to strike out for delay.