Dismissal of “Stale” Claims Five Years On

At the time of writing, Bank of China (Hong Kong) Ltd v Ho Chi Lui & Ors [2016] HKEC 1877, HCA No. 10239/1999 (note the year), is the latest reported case that applies the test for strike out (dismissal) for abuse of process; in particular, using more familiar terminology, strike out for “want of prosecution” or “delay”. Some readers may recall that the applicable principles are set out in the Chief Justice’s leading judgment in Re Wing Fai Construction Co. Ltd (2011) 14 HKCFAR 935; a landmark decision of the Court of Final Appeal, approaching its fifth anniversary and still a leading judgment on the courts’ and parties’ case management responsibilities since the introduction of CJR in Hong Kong in April 2009.

In Bank of China (Hong Kong) Ltd v Ho Chi Lui, the judge allowed the defendants’ application to dismiss the action. In short, over the course of some 14 years, the bank had failed to apply to enter final judgment (for the balance of its claim) and had taken no significant steps in the proceedings. During these years of procedural inactivity (so-called “warehousing”) the parties had conducted various negotiations with respect to payment of the first and second defendants’ liability under a guarantee given to the bank. At the time of the defendants’ strike out application (in April 2015) the last procedural step in the case had been at the bank’s option (in 2000–2001); therefore, there had been little for the defendants to case manage. In the intervening years, the defendants had not been represented by lawyers.

The outcome in the case reflects a robust application of the principles set out in Wing Fai and confirms that dismissal for abuse of process is ultimately an exercise of judicial discretion.

Five years on from Wing Fai some reflections can be made.

  • The test for strike out, as set out in Wing Fai, appears challenging; for example, the sanction of strike out is described as a “last resort”. That said, as a result of some robust first instance judgments and some appellate court “revisionism”, it is clear that dismissal for abuse of process is not an exceptional outcome; particularly, in cases of egregious delay during which defendants have ceased to be legally represented (Re Chung Sun Kwan [2014] HKEC 1382 and [2014] 6 HKC 542; and Re Kwok Han Qiao [2014] HKEC 485).
  • A defendant who chooses to “wake sleeping dogs”, after years of procedural inactivity by a plaintiff, can usually at best expect a “drop hands settlement”, with little or no prospect of recovery of costs (even assuming the plaintiff can be found).
  • A defendant who applies to dismiss an action for abuse of process should have a “paper trail” in place evidencing the plaintiff’s default and inactivity. The defendant should also refer the court to any special feature that justifies dismissal; for example, in Bank of China (Hong Kong) Ltd v Ho Chi Lui, the sheer length of delay and the fact that the defendants could not be expected to have to prompt the bank to enter a final judgment*.
  • A successful application should be accompanied with an order for costs “of the action” in favor of the applicant. However, in the event of an unsuccessful application, applicants should consider seeking an order that there be “no order as to costs” or that the plaintiff be deprived of some of its interlocutory costs (depending on the length of the delay and the plaintiff’s overall conduct in the action).

Editorial Note: A Notice of Appeal was filed in September 2016. For more on dismissal of “stale” claims, use the search function of the Hong Kong Lawyer online.

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Senior Consultant, RPC