TURBO TOP LTD v. THE COMMISSIONER OF RATING AND VALUATION

cacv 104/2006 AND CACV 105/2006

CACV 104/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 104 of 2006

(on appeal from HCAL NO. 95 of 2005)

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J U D G M E N T

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Hon Rogers VP:

1.  These were appeals from a decision of Hartmann J given on 17 January 2006.  The judge on that occasion was dealing with applications to set aside orders for stays which he had made in July and August of the previous year when granting leave to the applicants to apply for judicial review of decisions made by the Commissioner of Rating and Valuation (“the Commissioner”) in April of that year whereby he withdrew orders made by him on various dates between 1997 and 2004 to hold over payment of Government rent until the outcome of appeals to the Lands Tribunal.  Those appeals had been launched on behalf the various applicants against the Commissioner’s assessments of rateable values for Government rent in respect of various parcels of land.

2.  Each stay order was thus a form of injunction.  The orders had originally been made without the attendance of lawyers simply on the papers submitted on the application for leave to apply for judicial review.  Those orders did not contain cross-undertakings as to damages.  It was in those circumstances that the matter came before Hartmann J on applications on behalf of the Commissioner that those stays be set aside and, in default if they were not set aside, that the applicants should be required to give undertakings to pay damages or loss which the court may thereafter be of the opinion that the Government may have suffered for which the applicants ought to pay.  As a fallback position it was said that the undertakings should be that the interest should be calculated at 2% above average best lending rate from note issuing banks in Hong Kong and, in the alternative, that the interest should be calculated on the rate of return of Government’s investment in the Exchange Fund from the date on which the stays were imposed.

3.  Hartmann J ordered that the respective stays should remain until the determination at first instance of the application for judicial review, subject to undertakings on the part of the applicants as to damages incorporating an interest rate equal to HIBID on three-month deposits.  It was against those orders that these appeals were brought on behalf on the Commissioner.  At the conclusion of the hearing of these appeals judgment was reserved which we now give.

Background

4.  It remains to be said that the application for judicial review in respect of which CACV 104 of 2006 is relevant was successful but the appeal in that matter has been settled on terms the details of which were not revealed.  The application in respect of which CACV 105 of 2006 is relevant failed; the applicants have paid the applicable rents.

5.  Whilst these appeals are against the orders made on 17 January 2006, the only relevant matter now outstanding is the question as to the form of the order.  As in the court below, it was argued on behalf of the Commissioner that, on the basis that the various stays would be imposed, or more correctly remain in force, the orders should have required undertakings by the various applicants in the form commonly referred to as cross-undertakings as to damages.  It was argued that it was not correct for the court to specify in an order requiring the cross-undertaking the basis upon which the damages would be assessed.  This court was informed, and there was no dispute about it, that the reference in paragraph 58 of the judgment to the parties wishing to have “the appropriate rate set now” was a reference to submissions on the part of the applicants and not the Commissioner .  Various alternatives were canvassed as to the basis on which damages or loss could be assessed on an enquiry as to damages in the event that the judge held there should be some specification in that regard.

6.  In my view, the issues in these cases fall in a very small compass.  As already indicated, the orders that there should be stays were the equivalent of, if not in fact, orders imposing injunctions pending trial on merits i.e. they were interlocutory injunctions.  Although it would seem that the more recent approach is that it will not be assumed that there is an implied cross-undertaking as to damages in an order for an interlocutory injunction, it has long been the practice of the court to demand that any party in whose favour an interlocutory injunction is granted should give such a cross-undertaking and the court will invariably insert such an undertaking into an order if one has been drawn up without such an undertaking.

7.  As to the form of the undertaking, Mr Roots QC, who appeared on behalf of the respondents to these appeals, could not direct this court to a single instance where, in the formulation of the undertaking that it required, the court has attempted to specify the basis upon which the damages or loss should be assessed.  In my view there is very strong reason why that is so.  The purpose of the practice of requiring an undertaking as to damages upon the grant of an interlocutory injunction is to provide the person enjoined by the injunction with an adequate remedy in the event that the party obtaining the injunction is unsuccessful at trial.  Interlocutory injunctions have to be granted on incomplete evidence.  Although court may make some assessment of the likely damage it is impossible to know with certainty what damage will occur in advance.  This is particularly so in financial matters.

8.  In the present instance it was impossible as of 17 January 2006 for anyone to know what the Government would have done with the millions of dollars that it would otherwise have received in payment of rent from the applicants, on the assumption that those rents would have been paid.

9.  It was the Government’s case that if the rent demands had remained in force and the rents had been paid it would have paid any excess funds over and above its immediate requirements into the Exchange Fund.  That Fund had consistently provided the public coffers with an attractive rate of return.  If, on the other hand, the rent demands had remained in force and the rents had not been paid, the Government would have charged default penalty charges and in addition interest at a higher rate of 2% above the average best lending rate of note issuing banks from time to time.

10.  Hence, it would not be until there would be an enquiry as to damages or loss that the facts could be ascertained so that a proper assessment could be made.  In summary, the only correct form of order was that there should have been incorporated in the recital of the order a requirement that the applicants for judicial review in favour of whom the stays were to be granted should give cross-undertakings to pay damages or loss to the Government.

11.  It is strictly unnecessary, therefore, to go into the further matters which were canvassed, to a greater or lesser extent, in the course of these comparatively short appeals.  The first observation I would make is that it would seem that a serious error crept into the process right at the beginning.  In the application for leave to apply for judicial review the founding affidavits requested that, if leave to apply for judicial review were granted, the applicants should be given interim relief and an urgent hearing in that regard was requested no later than approximately three or four weeks after the applications had been filed.  Those were proper requests.  However, the stay orders were granted without a hearing and in the absence of any notice to the Commissioner or the Government.

12.  It has been made clear in a number of cases that derogation from the principle that orders which adversely affect parties’ interests should only be permitted without notice in exceptional circumstances where there is extreme urgency.  This was seemingly overlooked when the stays were granted on paper without any notice to the Government.  Ex parte orders for an injunction should only be made where either the delay involved in giving notice would cause the applicant injustice or the defendant would take action which would nullify the effect of the injunction.  The grant of an injunction ex parte goes against the normal way litigation is conducted.  It is an infringement of the rights of natural justice of each party to be heard.  The Government is as entitled to those rights as any other litigant.

13.  As regards the continuation of the stay on the 17 January 2006, an interlocutory judgment is to prevent irreparable harm being occasioned to the party seeking an injunction.  As Lord Diplock said in his much quoted speech in American Cyanamid v Ethicon Ltd [1975] AC 396 at 408B:

“As to that, the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial.  If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however a strong the plaintiff’s claim appeared to be at that stage.”

14.  It was in this respect, that in my view, the grant of the stays in these proceedings was highly questionable.  The applicants’ argument was that if money were paid in respect of rent which ultimately was shown to be wrongly charged, they would only receive back the rent but no damages or interest element.  It may be that recent authority of Sempra Metals Ltd v Inland Revenue Commissioners and another [2007] 3 WLR 354 has opened the way for a claim to be made in respect of interest on the amounts which had been paid in the meantime.  But even assuming that be not so and that no interest would be recoverable, the absence of a right to damages or interest in compensation would be because the law gives no such right in those circumstances.

15.  The judge below looked upon the matter as being one where if the applicants were successful on the judicial review the damages to which they would be entitled would be damages for the wrongful termination of the holding over.  In my view, however, the measure of damages must be the same as if rent were wrongly demanded, the fact that the payment of rent on a demand that was subsequently proved to be erroneous does not constitute the payer as having suffered a wrong which is compensatable cannot give rise to damages.

16.  Finally, I would comment that in making the order in respect of the undertakings as to damages on the basis that they would be calculated at an interest rate equal to HIBID on three-month deposits (HIBID is a low interbank rate, available to the Government but not to entities such as the applicants), the judge said at paragraph 59:

“It seems to me, as a basic principle, that the interest factor, as part of the undertaking in damages, must in the present case look more to what it would have cost Government to borrow the funds in issue rather than what profit Government could make if the funds were made immediately available.”

17.  I regret that I can see no justification for such an approach.  At best the concept is that if Government intended to increase the Exchange Fund to the extent of the amount of the rents which it claimed, it would have to go out and borrow that money in order to fund the investments.  Borrowing money to fund investments is a very different concept from using money that a party has in order to make investments.  I see no basis for any such “basic principle”.  In assessing damages under a cross-undertaking as to damages the Government, as any other party, is entitled to be treated on the basis of what it can show would likely have happened if the relevant injunction had not been granted.  It is not to be treated on the basis that it was its duty to mitigate damage.  In the present case an analysis taken to the extreme would be that the imposition of the stay in these cases would enable the respective applicants to retain their money at a cost at which the Government, but not themselves, could borrow it.

18.  In my view there is no alternative but to allow these appeals and vary the orders in the court below to the extent that the order should contain an undertaking in the recitals in the following form:

“Upon the applicant undertaking to this court that it will abide by any order which this court may make as to damages in case this court shall be of the opinion that the respondent or any other party shall have suffered any by reason of this order which the applicant ought to pay.”

19.  I would make an order nisi of costs in favour of the respondent Commissioner here and below.

Hon Le Pichon JA:

20.  I agree.

Hon A Cheung J:

21.  I also agree with the judgment of my Lord, the Vice President.

22.  In Ho Wing-cheong v Graham Margot [1990] 2 HKLR 26, Godfrey J (as he then was) held, following English and Australian authorities, that the court assesses damages payable under the usual form of undertaking as to damages by analogy to the ordinary case of breach of contract so that the damages allowed are the proximate and natural damage caused to the claimant by reason of the interlocutory injunction.  Loss or damage which the claimant would have sustained otherwise, such as detriment which flows from the commencement of litigation itself, is not recoverable.  Nor is loss that is too remote from the injunction recoverable.  See also generally Hong Kong Civil Procedure 2008, vol 1, paras 29/1/26 to 29/1/29.

23.  It may be that in such an assessment, the question of mitigation of loss could arise, just like any ordinary assessment of contractual damages: McGregor on Damages (17^th ed) para 7-040 et seq.  But even if mitigation be relevant (on which counsel has made virtually no submission), the burden must be on the paying party to prove that the claimant has failed to mitigate his loss: McGregor at para 7-019.   The touchstone is reasonableness.  On the materials placed before the Court, there is simply insufficient evidence to suggest that the Government should reasonably (as opposed to could) borrow hundreds of millions of dollars from the market to place them with the Exchange Fund so as to earn the same return that the Government could make with the rents if they had not been held over by reason of the injunction (and thus “mitigate” its loss).