EAST SURPLUS INVESTMENT LTD v. TINCHO INDUSTRIAL CO LTD AND ANOTHER

HCMP 1739/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1739 OF 2012

(ON AN INTENDED APPEAL FROM DCCJ NO. 3417 OF 2010)

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J U D G M E N T

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Hon Kwan JA (giving the Judgment of the Court):

1. This is the 1^st defendant’s application for leave to appeal against the judgment of Deputy Judge Grace Chan in DCCJ 3417/2010 handed down on 31 May 2012 (“the Judgment”). The judge refused leave to appeal in a decision given on 3 August 2012 (“the Decision”).

2. Pursuant to the powers of this court under Order 59 rule 2A(5)(a) of the Rules of the High Court, this application is determined on the basis of the statements in support and in opposition without an oral hearing.

3. Under section 63A(2) of the District Court Ordinance, Cap. 336, leave to appeal to the Court of Appeal shall not be granted unless the Court of Appeal is satisfied that the appeal has a reasonable prospect of success, or that there is some other reason in the interests of justice why the appeal should be heard. Reasonable prospect of success involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable”.

4. The 1^st defendant has attached to its summons a draft Notice of Appeal with 28 grounds settled by Mr Kevin Poon who was also the trial counsel.  These grounds are prolix, repetitive and I do not find them helpful.  I do not intend to deal with each of them but will concentrate on the main ground developed in the statement in support.

5. The dispute here concerned the exterior walls of Kaiser Estate in Hung Hom, Kowloon.  The plaintiff was and is the registered owner of the exterior walls and the 1^st defendant the registered owner of Shop P on the ground floor of Kaiser Estate 3^rd Phase (“Shop P”).  Part of the exterior walls owned by the plaintiff formed the external walls of Shop P (“the Subject Wall”).  The plaintiff sued the 1^st defendant for trespass of the Subject Wall and the 1^st defendant counterclaimed for a declaration it has the right to exclusive use and possession of the Subject Wall, by virtue of proprietary estoppel, alternatively by virtue of an oral agreement evidenced by part performance.

6. The judge found in favour of the plaintiff and granted injunctive relief and damages of $705,400 up to the date of the judgment and thereafter at $34,500 per month until the 1^st defendant has dismantled and removed all objects added to the Subject Wall and reinstated it to its original state.

7. The 1^st defendant’s intended appeal is limited to the defence of proprietary estoppel in respect of the area of the Subject Wall occupied by five roller shutters.  It does not seek to challenge the judgment in respect of other parts of the Subject Wall in which it had replaced the concrete with marble stones and where it had displayed advertisements or signboards at the roller shutters.

8. The background facts set out in paragraphs 11 to 27 of the Judgment and other relevant facts that do not appear to be in dispute, may be summarised as follows:

(1)  In 2009, the exterior walls were owned by Wise Elite Holdings Limited which was in liquidation.  The liquidators put the exterior walls on the market for sale by a tender notice.  The plaintiff made a firm offer of $650,000 on 22 October 2009.  The 1^st defendant also submitted a tender.  The 1^st defendant’s director, So Tin Cho, had over ten years of experience as a property investor.

(2)  In the form of tender, it was stated that the completion date would be 30 October 2009.  A schedule setting out all the licences granted in respect of the exterior walls was attached to the form of tender.

(3)  On 22 October 2009, the 1^st defendant signed an agreement to purchase Shop P.  This was followed by an assignment on 10 December 2009.  It was the 1^st defendant’s intention to sub-divide Shop P into five units for letting.  For that purpose, the 1^st defendant would need to build separate entrances for each sub-divided unit and install independent air conditioning outlet for each, which would involve alteration works at the Subject Wall.  Mr So, who owned other property or properties in Kaiser Estate, knew that he would need to obtain the consent of the owner of the exterior walls before he could carry out such alteration works to the Subject Wall, and that was why he submitted a tender to purchase the exterior walls (paras 4 and 18 of Mr So’s witness statement).

(4)  The 1^st defendant’s tender for the exterior walls was not successful.  On 30 October 2009, the plaintiff was informed by the liquidators that its tender was accepted.

(5)  On 2 November 2009, the 1^st defendant through its estate agent sent an email to the liquidators seeking approval to alter part of the Subject Wall by installing five roller shutters.  Further details of the works were set out in the three plans and photographs attached to the email.

(6)  The liquidators replied by letter on 12 November 2009 stating that they “do not have objection against [the 1^st defendant’s] proposal to change [the Subject Wall] to roller shutters”.  The liquidators requested for a cheque of $5,500 payable to the company in liquidation, of which $5,000 was for the renovation deposit and $500 was for administrative charge which was non-refundable.  The 1^st defendant duly paid $5,500 as requested.

(7)  Upon completion of the sale and purchase of Shop P, the 1^st defendant carried out alteration works at the Subject Wall at its expense.  On 31 December 2009, it signed a tenancy agreement to let the whole of Shop P to the 2^nd defendant.  As the 2^nd defendant did not require five separate entrances, at the 2^nd defendant’s request, the 1^st defendant allowed the latter to seal up four roller shutters and put up advertisement boards on them.  On 23 April 2010, the renovation deposit was returned to the 1^st defendant.

(8)  The plaintiff signed an agreement for sale and purchase of the exterior walls on 11 March 2010.  The exterior walls were sold subject to the licence agreements as set out in the 4^th schedule thereto, giving the names of the licensees, the subject premises of the licences (for air condensers and signboard) and the licence fees.  The 4^th schedule did not mention any licence granted in respect of the Subject Wall.  An assignment of the exterior walls was executed by the plaintiff on 22 March 2010.

(9)  On 29 June 2010, the plaintiff through its solicitors wrote to the 1^st defendant demanding removal and dismantling of all the signboards and advertisements put up at the Subject Wall.  The writ was issued in October 2010.

9. It is pertinent to note how the 1^st defendant’s case on proprietary estoppel was pleaded in its defence.  The 1^st defendant pleaded that on various occasions, it had conveyed to the liquidators its intention of sub-dividing Shop P into smaller units and the works required to be done to the Subject Wall as mentioned earlier at its own expense.  It was alleged the 1^st defendant “expressed that in order to accommodate needs for the newly partitioned units, the 1^st defendant needed to be granted the right to exclusive use and possession of the Subject Wall after the renovation and alteration works were completed”.  Alternatively, it was alleged that “it is implied by reason of business efficacy that the 1^st defendant be given the right to exclusive use and possession of Subject Wall after the renovation and alteration works were completed.”  The same allegations were pleaded in the alternative to constitute an oral contract, as evidenced by part performance.  It was pleaded that both the plaintiff’s predecessor in title and the plaintiff were “estopped from denying the 1^st defendant’s entitlement to the exclusive use and possession of the Subject Wall” and it was asserted that the 1^st defendant has “the right to exclusive use and possession of the Subject Wall”.  A declaration to that effect was claimed in the counterclaim.

10. In the opening submission of Mr Poon at trial, he submitted that the right thus asserted by the 1^st defendant would endure “irrespective of the change of ownership of the exterior wall”.  In his closing submission, he stated that “it must be implicit, and go without saying that [the 1^st defendant] would be given the exclusive right to use [the Subject Wall] free of charge”.

11. The judge analysed the 1^st defendant’s case on proprietary estoppel and made factual findings on the three requisite elements of assurance or representation to the claimant, reliance on it by the claimant, and detriment to the claimant as a result of the reliance.  It must be borne in mind that when these elements are applied to the facts, each does not exist in watertight compartment to be kept separate from the others.  As stated by Robert Walker LJ (as he then was) in Gillet v Holt [2001] Ch 210 at 225D, “the quality of the relevant assurances may influence the issue of reliance, that reliance and detriment are often intertwined, and that whether there is a distinct need for a “mutual understanding” may depend on how the other elements are formulated and understood.  Moreover the fundamental principle that equity is concerned to prevent unconscionable conduct permeates all the elements of the doctrine.  In the end the court must look at the matter in the round.”

12. Looking at the judge’s analysis of the requisite elements in paragraphs 39 to 74 of the Judgment, I am satisfied that she had followed the above approach.  And in determining the proper interpretation to be placed on the words and conduct constituting the assurance alleged, the judge had regard to the “shared background and knowledge of the parties” (Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1 at para 57).

13. The judge had regard to the considerable experience of Mr So as a property investor, and that he had made a tender to buy the exterior walls shortly before he approached the liquidators for approval of the alteration works to the Subject Wall.  It was relevant to note that the 1^st defendant’s negotiation with the liquidators of the alteration works was done in a commercial context at arm’s length, and that it was the shared knowledge of the liquidators and the 1^st defendant that the Subject Wall had commercial value and the exterior walls would be sold to a new owner in the imminent future.  To all that, I would add that the Subject Wall on the ground floor at the street corner formed a conspicuous part of the exterior walls and it was also part of the shared knowledge that the exterior walls were to be sold subject to licences granted at the fees paid to the owner.

14. Against this background, the judge found it would be “implausible and against common sense that the Liquidators would, having decided to sell the Exterior Wall and informed the Plaintiff of the acceptance of the firm offer on 30 October 2009, have given any express or implied assurance to the 1^st Defendant that it would obtain some interest over the Exterior Wall of Shop P”.  She held that the letter of the liquidators, the payment and return of the renovation deposit, merely showed that the liquidators had given approval to the installation of the roller shutters at the Subject Wall but nothing more.  She found “it would have gone too far” that the liquidators would abandon ownership of the Subject Wall to the 1^st defendant for good and at nil consideration.  It was equally “inherently improbable and incredible” that the 1^st defendant could reasonably have held the belief that by giving $500 administrative charge to the liquidators and carrying out the alteration works at the Subject Wall, it would be given the right to exclusive use and possession of the Subject Wall free of charge, and that such right would be expected to endure irrespective of the change of ownership of the exterior walls.

15. The judge found that none of the requisite elements were present here.  This outcome would seem to me to accord with common sense and the commercial realities.

16. The main point taken by Mr Poon in this intended appeal is an argument he had run time and again, in his opening submission at trial, his closing submission at trial, the application before the judge for leave to appeal, and the present application.  He contended that the judge had erred in law in that her enquiry was premised on looking for a specific proprietary right, namely, ownership of the Subject Wall, as alleged by the 1^st defendant.  In so doing, the judge had erroneously set too high a standard for the 1^st defendant, as to establish assurance for proprietary estoppel, it is “not essential” that the representee’s entitlement should have been explicitly identified by the representor in terms of some specific proprietary right and that the expectation engendered by the assurance may involve a “fairly inarticulate understanding” that the representee will acquire “rights of some kind”.  In support of this, he cited, inter alia, Gray & Gray, Elements of Land Law, 5^th ed (2009), para 9.2.41.  So it is “entirely possible” that an arrangement so equivocal in its terms as to be incapable of giving rise to a binding contract may sometimes be held to confer upon the representee a “right in equity to a transfer of the whole property” (Jones v Watkins [1987] CA Transcript 1200, mentioned in Gray & Gray, op cit, para 9.2.41).

17. Mr Poon argued that as long as the 1^st defendant can prove its reasonable expectation of acquiring rights of some kind, the assurance element would be satisfied and it is unnecessary and inappropriate to inquire into what specific proprietary right was expected to be granted by the assurance.  It is only at the stage of granting relief that the court would inquire into and decide whether the claimant’s equity should be satisfied by declaring ownership, tenancy, licence or some other kind of relief.

18. In my view, Mr Poon’s submission is premised on a misunderstanding of the law.  There are of course situations, particularly in dealings between family members or friends, when entitlements are expressed in vague or uncertain terms and that may be sufficient assurance for the purpose of proprietary estoppel.  As stated in Gray & Gray, at para 9.2.40, cited in paragraph 31(1) of the Judgment, the court draws an important distinction between two different sorts of certainty: “In the law of estoppel relevant assurances must always be certain as to the existence or inevitability of the representee’s entitlement, but need not be absolutely precise in relation to the nature or quantum of that entitlement.”

19. In seeking to apply any legal principle, it is important to have regard to the facts of the case in hand.  The present case is not about dealings between family members or friends in which the entitlement was expressed in equivocal terms.  On the 1^st defendant’s case as pleaded, there was nothing equivocal or uncertain about what the plaintiff and its predecessor in title were alleged to be estopped from denying.  As stated by Lord Scott of Foscote in Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55 at para 28 (with whose speech Lord Hoffmann, Lord Brown and Lord Mance all agreed),

“Proprietary estoppel requires, in my opinion, clarity as to what it is that the object of the estoppel is to be estopped from denying, or asserting, and clarity as to the interest in the property in question that that denial, or assertion, would otherwise defeat. If these requirements are not recognised, proprietary estoppel will lose contact with its roots and risk becoming unprincipled and therefore unpredictable, if it has not already become so.”

20. In my judgment, in this particular instance, it is entirely proper for the judge to approach her enquiry whether the requisite elements were made out with regard to the entitlement alleged in the pleading as clarified in counsel’s submission, namely, a right to exclusive use and possession of the Subject Wall free of charge irrespective of the change of ownership of the exterior walls.

21. In any event, as appeared from the Judgment and the Decision, the judge had started her inquiry with the question whether the 1^st defendant was encouraged to believe that it would enjoy rights of some kind over the Subject Wall and had answered that in the negative.

22. Before leaving the main argument, I wish to mention that Mr Poon’s citation of a certain extract from Gillet v Holt, supra, was out of context and not a proper citation of an authority.  The passage he laid great emphasis on appeared at 230E to F of the law report and not at 226C to D as stated in all his submissions and is simply not in support of his main argument.  Robert Walker LJ in that extract was addressing a proposition that the court below was too influenced by the cases on mutual wills “in which a definite agreement is an essential part of the doctrine”.

23. As the main argument fails, it is unnecessary to deal with the other grounds advanced in the draft Notice of Appeal.  I would simply express my agreement with the views of the judge in the Decision that there is no reasonable prospect of success regarding the other grounds.

24. The 1^st defendant has not met the threshold onus for leave to appeal to be granted, so this application must be dismissed.

25. As the application is entirely without merit, I would make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes.

26. I would make an order nisi that the 1^st defendant is to pay the plaintiff’s costs of this application, to be assessed on a gross sum basis.  The plaintiff is to lodge a skeleton bill for gross sum assessment within 7 days upon the costs order nisi becoming absolute, and the 1^st defendant may respond to this within 7 days of service of the bill.