MITSUBISHI ELEVATOR HONG KONG CO LTD v. MARRIOT ENGINEERING & CONSTRUCTION CO LTD

DCCJ 3970/2011

[2018] HKDC 237

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3970 OF 2011

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DECISION

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Introduction

1.  I handed down my judgment on 15 September 2017 (“the Judgment”) on assessment of damages. The defendant applied by way of summons on 13 October 2017 for leave to appeal; and the plaintiff applied by way of summons on 6 December 2017, for an order that the judgment sum be paid into court on condition of leave to appeal.

2.  As a recap, the defendant was a main contractor of renovation works at a premise located at 8 – 12 Peak Road; the plaintiff was a supplier of lift and elevator. The plaintiff and the defendant entered to a contract that the plaintiff agreed to supply and install a Nexway S Model lift (“the Lift”) in the said premise at a lump sum price of $598,000. For some reason, the defendant ceased to be the main contractor of the renovation works, it refused to accept the Lift when the plaintiff had duly manufactured and delivered to the plaintiff’s warehouse. The defendant admitted it was in breach of contract and had admitted liability. In the assessment of damages, I awarded the plaintiff judgment sum HK$584,060.80 together with interest at judgment rate from the date of the judgment until payment.  

The defendant’s summons

3.  The main ground of appeal is that I have erred in finding the contract was one of contract for sale and goods rather than contract for goods and services. As a result, I have adopted an erroneous formula in assessing damages pursuant to section 52 of the Sale of Goods Ordinance, Cap 26 (“the Ordinance”). The correct assessment of damages shall be done under the common law principles.

4.  Notwithstanding this, the defendant also submitted I have erred in assessing damages in sum of HK$584,060.80.

5.  The legal principles of granting leave to appeal are well settled.  Leave to appeal shall not be granted unless the court is satisfied the appeal has a reasonable prospect of success or there is some other reason in the interest of justice why the appeal should be heard. (See section 63A(2) of the District Court Ordinance, Cap 336)

6.  Reasonable prospect of success connotes the prospect of succeeding must be reasonable and more than fanciful, without having to be probable.  An applicant is required to show more than just an arguable case, but he does not have to demonstrate the appeal will probably succeed. Even if the court takes the view that there is a reasonable prospect of success, it still remains adiscretion as to whether to grant leave, though the fact that there is, ex hypothesi, a reasonable prospect of success would heavily influence the court in exercising its discretion. (See commentary of Hong Kong Civil Procedure 2018, §59/2A/4)

7.  Mr Wong, counsel for the defendant argued, I shall find the contract be one of goods and services but not sale of goods. The reason being, apart from manufacturing of the Lift, the plaintiff agreed to install the same in the premise. Installation itself, was a kind of service rendered. For this reason, the contract was outside the ambit of the Ordinance.

8.  The defendant’s attempt on the minute categorization of nature of the contract, whether the labour element existed prior, during or subsequent to the manufacturing process is not well founded. I cannot put it anywhere simpler, that the plaintiff agreed to manufacture the Lift and to install it. It could not be a contract for labour and services.  By the same token, I could not be in accord with Mr Wong that the substantial purpose of the contract was the plaintiff’s provision of labour to install the Lift.  In the Re-Amended Defence, the defendant simply denied the contract was not a “sale of goods” contract and yet no positive defence, i.e. the nature of the contract, has been pleaded. The defendant’s main defence was that the plaintiff’s failure to mitigate loss. On this ground, I do not see there is a real prospect of success.

9.  The second ground. Mr Wong articulated I have not taken into account the “expenses saved”. Mr Kwok, counsel for the plaintiff, conceded he has made reference to “expenses saved” in his written opening submissions during trial. The “expenses saved” referred to those items that the plaintiff could have saved at time of defendant’s breach. Mr Kwok explained, the “expenses saved” was put as an alternative case should the court find the contract was not a contract for sale within the Ordinance. In my judgment, I found the contract was a contract for sale, it is therefore not necessary to consider the “expenses saved” items. I am not persuaded that it is a reasonable ground of appeal.

10.  Mr Wong further submitted, I have erred in the computation on assessment of damages pursuant to section 52(2) of the Ordinance, the subsection reads,

“52. Damages for non-acceptance

(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach of contract.

Mr Wong continued, the principle in assessment of damages should be “what is the direct and natural loss of the innocent party”.  Section 52(2) does not say damages assessed should always be the contract price less the value of the goods. Damages awarded is compensatory in nature, intended to give the innocent party the value of contractual benefit of which he was deprived by the breach, no less, but no more. The defendant at trial (represented by Mr Francis) submitted, as the plaintiff has failed to prove the quantum of damages in accordance with section 52(2), including but not limited to “expenses saved”, the defendant is only liable to nominal damages only.

11.  I have difficulty in comprehending this ground of appeal. I agree with Mr Kwok that the defendant has ignored the proper measure of damages being contract price less residual value, where damages shall be that “flows directly and naturally from the defendant’s breach”. (See Harlow & Jones v. Panex (International) QB (Com CT) 509). The defendant barely and repeatedly alleged the plaintiff has failed to prove the damages suffered, without stating a positive case of damages ought to have been assessed. It would be blatantly wrong if an order for nominal damages be ordered. I see there are no reasonable prospect of success in this ground as well.

12.  I failed to see there are some other reason in the interest of justice why the appeal should be heard. I refuse to exercise my discretion to grant leave of appeal to the defendant.

The plaintiff’s summons

13.  The plaintiff’s summons was taken out pursuant to Order 23 of the Rules of the District Court. Briefly, Order 23 is the rule for ordering security of costs when the plaintiff is an ordinary resident out of the jurisdiction; a nominal plaintiff or a plaintiff who has changed its address during the course of proceedings with a view to evade consequence of litigation. An order for payment on costs by that plaintiff should be granted so as to give security of the defendant’s costs.

14.  Mr Kwok submitted at the hearing that section 63A(1)(b) of the District Court Ordinance, Cap 336 should be applicable here. The section reads,   

“Leave to appeal

(1) Leave to appeal granted under section 63 may be granted—

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(b) subject to such conditions as the judge, the master or the Court of Appeal hearing the application for leave considers necessary in order to secure the just, expeditious and economical disposal of the appeal.”

Mr Kwok continued, the defendant had failed to pay the judgment sum since the date of judgment. The plaintiff filed an affirmation to show the defendant is not operating his business at its registered address, the residential address of the director of the defendant was not shown in the company search. The Court should impose condition to leave to appeal, if so granted, that the defendant should make payment in of the judgment sum and give security on the plaintiff’s costs of the appeal. Mr Kwok further explained the Court shall not be bound by Order 23 to impose such conditions.

15.  The Court shall not be a machinery to assist the plaintiff in enforcing judgment sum. I do not see there are valid reasons that the plaintiff shall benefit from enjoying security of judgment sum on condition of appeal. I am given to understand the plaintiff has already commenced enforcement proceedings against the defendant. As the defendant has not taken application for stay of enforcing the judgment by the defendant before me, there is nothing to disturb the plaintiff to proceed with the enforcement proceedings.

16.  With regard to the security of costs on appeal, the relevant provision should be Order 59 rule (10)(5) of the Rules of the High Court, Cap 4A. The Court of Appeal may, in special circumstances, order that such security shall be given for the costs of an appeal as may be just. The proper forum for the plaintiff to seek security on costs on appeal (should leave to appeal be granted) shall be the Court of Appeal.

17.  Be it as it may, Mr Kwok contended, should leave to appeal be dismissed, a dismissal of the plaintiff’s summons should follow, with costs to the plaintiff. The defendant submitted an order that no order as to costs of the plaintiff’s summons is appropriate.

Conclusion

18.  With the reasons foregoing, I make the following order:

(i) The defendant’s summons filed on 13 October 2017 be dismissed.

(ii) The costs of the defendant’s summons filed on 13 October 2017 be paid by the defendant to the plaintiff, with certificate for counsel, to be taxed if not agreed.

(iii) The plaintiff’s summons filed on 6 December 2017 be dismissed.

(iv) There be no order as to costs of the plaintiff’s summons filed on 6 December 2017.