XCHRX LAM GEOTECHNICS LTD. v. MARIA JUSTINE MILICICH AND ANOTHER

HCA158/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.158 OF 2002

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J U D G M E N T

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1. The plaintiff is a geotechnical and environment contractor. The 1st defendant, Dr Milicich, is a marine biologist and ecologist and she operates through the 2nd defendant, which is her own company.

2. In early 2001, the plaintiff entered into a five-year contract with the Government for field sampling and laboratory testing for a contaminated mud pit adjacent to the Chek Lap Kok Airport. The contract contains provisions for liquidated damages. Part of the work involved the trawling, sampling and analysis of demersal or bottom-feeding fish in the mud pit; the fish had to be caught and their flesh analysed for chemical pollution. The plaintiff was required to provide the services of an experienced ecologist who was to manage and supervise this work, and in particular to be on board the trawler during all field surveys and sampling. The plaintiff subcontracted this work to the Hong Kong University of Science and Technology ("HKUST"). Two "trawling events" or series of trawls were carried out in May 2001 but the HKUST did not provide an ecologist to be on board the trawler and refused to provide an on-board ecologist for the next trawling event which was due in August 2001.

3. Dr Milicich was known to the Engineer named in the plaintiff's contract with the Government, namely Mouchel Asia Ltd, and the latter recommended her to the plaintiff. On 11 June 2001 she made a quotation to the plaintiff for her services as ecologist for the August trawling event, at $79,750 per event. This was later revised to $85,750 per event. On 26 July 2001 the plaintiff accepted the quotation on a "per event" basis for the duration of the main contract. There is a dispute as to whether there was a contract between the plaintiff and the defendant or defendants for services over the period of the main contract, or an agreement for a series of single lump-sum contracts, one for each event, at a fixed price over the same period. However it was agreed that for each trawl the catch would be enumerated and certain data would be calculated from it and submitted to the plaintiff, along with tissue samples.

4. Dr Milicich worked on the trawler for the trawling event on 6 - 7 August 2001. She complained that there were not enough staff provided by the trawling subcontractor to deal with the fish caught, so that instead of supervising she had to do this work herself. Because of this, and because the HKUST agreed that in future it would provide an on-board ecologist, the plaintiff notified the defendants on 29 August 2001 that her services for the next trawling event commencing on 30 August 2001 were not required.

5. The defendants had estimated that they would be able to deliver to the plaintiff the final data and tissue samples for the two trawling events, at the beginning and end of August 2001, within 2.5 weeks of the next trawl. However, following the plaintiff's notification that the defendants' services were no longer required, a dispute arose. The defendants on 29 August 2001 demanded payment of $346,250 from the plaintiff, 75% of which was to be paid within a week and 25% on submission of the data and tissue samples. The plaintiff on 28 December 2001 made an open offer to the defendants of $125,500 but this was not accepted, nor have the defendants handed over the data and tissue samples known collectively as "the deliverables". The plaintiff on 15 January 2001 issued its writ claiming mandatory injunctions for delivery of the deliverables and an indemnity in respect of costs, liquidated damages and any other sum which the plaintiff may have to pay to the Government in respect of its own failure to submit data as required by its contract. In the meantime on 8 January 2001 the 1st defendant "trading under the name and style of Milicich & Co. Ltd" issued a writ against the plaintiff in the District Court, indorsed with a claim for damages for breach of contract. The parties have now appeared before me on summons inter partes for a mandatory injunction for delivery up of the deliverables.

6. What we have here is the plaintiff in these proceedings claiming, apart from the mandatory injunction, an indemnity against damages to which it may become liable, and Dr Milicich in separate proceedings claiming damages against the plaintiff for breach of contract. The defendants by their solicitor's letter dated 2 January 2002, in answer to the plaintiff's letter before action, said :

"Moreover your client has now made an open offer which effectively admits the propriety of our client's claims, it is now simply a matter of quantifying our client's losses at law.

In the meantime, and for the avoidance of any conceivable doubt our client has been and remains ready, willing and able to deliver 'the Deliverables' throughout."

7. I said in the course of the hearing that it would be practical in my view for the deliverables to be delivered up and for the parties to deal separately with their other claims. That seems to be what the defendants are suggesting in their solicitors letter. But it has not been done. The defendants have put forward no evidence but through counsel have argued that legal principle is on their side and that the plaintiff is not entitled to the mandatory injunction. I do not resile from my view of what is practical but lest I be accused of having decided the matter in advance I must say that this is a court of law, not practicality and if the plaintiff does not have the law on its side it cannot have the injunction which it seeks, no matter how desirable that may seem as a matter of practicality.

8. The general principles for the grant of an interlocutory injunction are set out by Lord Diplock in the case of American Cyanamid Co. v. Ethicon Ltd [1975] AC 396 at 406-409. In brief, there must be a serious question to be tried and the balance of convenience must lie in favour of granting the injunction. However, where a mandatory injunction is sought, the plaintiff's case must be made out to a higher standard of proof than was required for a prohibitory injunction. Per Nazareth VP in TKI Ltd v. New Happy Ltd [1995] 1 HKC 551 at 555B-D :

"It was common ground that for an interlocutory mandatory injunction, the plaintiff's case had to be made out to a higher standard of proof than is required for a prohibitory injunction (Shepherd Homes Ltd v. Sandham [1971] Ch 340 at 351G per Megarry J, as he then was) and that such higher standard had been described in various acceptable ways: 'a very strong probability upon the facts' Morris v. Redland Bricks Ltd [1970] AC 652 at 665 per Lord Upjohn; 'a strong prima facie case' De Falco v. Crawley Borough Council [1980] QB 460 at 478 per Lord Denning MR contrasting the position of an interim mandatory injunction with that of an interlocutory prohibitory injunction under the principles in the American Cyanamid [1975] AC 396 case; 'the court must feel a high degree of assurance that at the trial it will appear that the injunction was rightly granted' per Megarry J in Shepherd Homes at p 351G."

9. As to the balance of convenience this only falls to be considered if damages would not be adequate as a remedy. The governing principle is that the court should first consider whether if the plaintiff succeeds at trial he would be adequately compensated by damages for any loss caused by the refusal to grant an interlocutory injunction. If damages would be an adequate remedy, and the defendant would be in a position to pay them, no injunction should be granted. If damages would not be an adequate remedy, the court should consider whether, if the injunction were granted, the defendant would be adequately compensated by the plaintiff's undertaking as to damages. If so, and the plaintiff would be in a position to pay them, there would be no ground to refuse the injunction. It is where there is doubt as to the adequacy of the respective remedies in damages that the question of balance of convenience arises. Where other matters are evenly balanced it is prudent to preserve the status quo. The extent to which the disadvantages to each party would be incapable of being compensated if he succeeds at the trial is a significant factor in assessing where the balance of compensation lies. See Fellowes & Son v. Fisher [1976] 1 QB 122 CA.

10. The defendants argue that there is no strong prima facie case because the plaintiff has by making an open offer of $125,000 admitted the breach of the contract in respect of which the injunction is sought. They further argue that damages would be an adequate remedy and therefore no injunction should be granted.

11. As I have indicated the parties are in dispute as to the nature of the contract. The plaintiff says that there was one lump-sum contract which was to be followed by a series of further lump-sum contracts at the same agreed price. The defendants wanted a five-year contract, but they never got it. The defendants say that there was a five-year contract. I think this is an open question, at this stage. The correspondence does not seem entirely clear to me, and the defendants have not filed any affidavit evidence. No doubt at trial evidence will be given of the verbal exchanges between Dr Milicich and Mr Hall of the plaintiff as well as their correspondence, which is now before me. It is however to be noted that the claim of a five-year contract was not originally put forward; Dr Milicich's claims put forward in her e-mail of 29 August are for payment for extra work done by her and her staff in respect of the trawling event in which she participated and for various losses which seem to be based on the loss of the next trawling event. That in itself seems to favour a finding of a series of lump-sum contracts.

12. In any event whether there was an agreement for a series of lump-sum contracts or a five-year agreement to cover a series of the early August trawling event plus a further series of nine trawling events all at the same price (see the plaintiff's letter of 26 July 2001), what was in contemplation was that the plaintiff would pay for the August event and the defendant would process and later hand over the tissue samples and data. If there was a five-year contract, what is before me seems to imply that the same would happen in respect of each trawling event. Even if the plaintiff did wrongfully repudiate that contract in respect of future events I do not see how this would absolve the defendants from completing the work already undertaken or the plaintiff from paying for it, particularly when payment has been offered and the defendants say that they are and remain willing to hand over the deliverables. It seems to me therefore that there is a strong prima facie case.

13. It is true that if damages would be an adequate remedy, and the defendants would be in a position to pay them, no injunction should be granted. The defendants say that the whole matter is a question of money; a further trawling event could be arranged to make up for the lost data, and if the plaintiff itself ultimately becomes liable for liquidated damages to the Government then so be it; it can pass on its claim to the defendants. This is of course all very well so long as the defendants can pay but it seems that the liquidated damages to which the plaintiff might become liable would amount to at least something over $300,000. There is also the threat, which appears in correspondence from the Engineer, that the plaintiff might, if it does not produce the data, be the subject of an "adverse report" which could jeopardise its future business dealings with the Government. The 2nd defendant is obviously a small business. There is no evidence of what it or Dr Milicich herself are worth but there certainly seems to be a risk that the defendants would not be in a position to pay damages if damages were ordered. Further the plaintiff says that the data sought is part of a series; it comes from the second trawling event and was obtained in a particular season; so it cannot simply be replaced by carrying out a later trawling event. I accept this. It seems to me that damages would not be an adequate remedy, even if the defendants could pay them.

14. Following Fellowes, above, I have then to consider whether, if the injunction is granted, the defendant will be adequately compensated by the plaintiff's undertaking as to damages. Now there is already an open offer of $125,500 which appears to cover all the defendants' outstanding claims in respect of the August trawling event in which they participated. The plaintiff is willing to pay this into court in lieu of an undertaking. It seems to me that the defendant will be adequately compensated.

15. Insofar as it is necessary to consider the balance of convenience that seems to me to be overwhelmingly in favour of granting the injunction. The data is only useful as part of a series from which the contamination of the mud pit can be gauged. It is no use to anyone, in the form of electronic data in the defendants' computer and frozen fish tissue samples.

16. The defendants took two preliminary points, namely that if the deliverables are the property of the Government, as the plaintiff claim and as their contract with the Government provides, the Government is the proper party to seek injunction; and that the plaintiff should have elected to sue either the 1st or the 2nd defendant but not both.

17. I do not think there is anything in the first point. The contract was to do work for the plaintiff, not the Government and it is to the plaintiff that the deliverables should be handed over irrespective of who is the ultimate proprietor. As to the second point, the plaintiff contracted for the services and expertise of Dr Milicich as ecologist. She conducted all her correspondence as "Milicich & Co.". Unfortunately she did not include the "Ltd" in her letterhead. If she had contracted as an unlimited company as which she traded, she would be personally liable and no doubt that is what the plaintiff thought and was entitled to think when it saw her letterhead. It is difficult to see how she can now escape personal liability by putting her limited company between the plaintiff and herself especially when she designs herself in the District Court action as "trading as" the limited company.

18. For all these reasons I think that the law is on the same side as the practicalities here, and that the plaintiff is entitled to the injunction sought. There will be an injunction in terms of the draft prepared by counsel for the plaintiff save that the plaintiff, in lieu of making any undertaking as to damages, is to pay the sum of $125,500 into court pending the outcome of this action; and the mandatory injunction is to take effect forthwith on notice of such payment being given to the defendants. That draft provides for costs in the cause, and that will be my order for costs, though, as I indicated to counsel when they addressed me on costs, since this judgment is to be handed down the costs order will be made nisi.