LAM KONG SANG v. MOK SUNG KIT

DCCJ 3121/2016

[2018] HKDC 812

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3121 OF 2016

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DECISION

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1.  By summons dated 4 June 2018, the defendant applies for leave to appeal against my judgment dated 8 May 2018.

2.  There are four proposed grounds of appeal set out in the defendant’s draft notice of appeal, a copy of which is attached to his summons.  I shall adopt the defined terms used in the judgment below.

Legal principles

3.  The principles governing the threshold for granting leave to appeal are not in dispute.  The applicant needs to show that the appeal has a “reasonable prospect of success” or there is some other reason in the interests of justice why the appeal should be heard: section 63A(2) of the District Court Ordinance, Cap 336.

4.  On the “reasonable prospect of success” limb, “an applicant is required to show more than just an arguable case, but an appeal that has merits and ought to be heard, although he does not have to demonstrate that the appeal will probably succeed”: Wynn Resorts (Macau) SA v Mong Henry [2009] 5 HKC 515 at para 19, per Chu J.  In SMSE v KL [2009] 4 HKLRD 125, Le Pichon JA observed that “reasonable prospect of success” involves the notion that the prospects of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable” (at para 17).

The proposed grounds

5.  At today’s hearing, Ms Annie Lai, counsel for the defendant, confirmed that the defendant does not challenge that the parties reached the oral agreement as alleged by the plaintiff and that the defendant was in breach of the oral agreement.

6.  What the defendant seeks to challenge is my ruling that he should be held liable for the entirety of the damages as claimed by the plaintiff, in particular, the claim for the costs incurred by Ng and the interest payments.  The damages, the defendant argues, should be confined at most to the amount claimed by Ng, namely $85,750 with fixed costs for the default judgment.

7.  The defendant puts forward four grounds of appeal.  It is apparent that there is a fair amount of repetition and overlapping amongst them.  For practical reasons, it would be more effective and efficient for me to deal with each of the substantive contentions as they appear in the proposed grounds, rather than adhering to the grounds as numbered.  As far as I can tell, there are three substantive contentions.

8.  I should, however, state at the outset that none of these contentions were pursued at trial.  On damages, the only ground of defence relied on at trial was that the plaintiff had failed to mitigate his loss: see paras 9 and 120 of my judgment.  The proposed grounds do not touch on my ruling on mitigation at all.  Instead, the defendant now seeks to overturn my ruling on damages relying on arguments based on causation and remoteness.  I am not entirely sure if it is open to the defendant to raise them for the first time at the appeal stage, particularly given that the defendant has so far not offered any explanation at all why these points were not pursued at trial, as submitted by Mr Damian Wong, counsel for the plaintiff.  See also Hong Kong Civil Procedure 2018 at para 59/10/7.

9.  I shall, however, proceed for the time being on the assumption that the defendant may pursue these new points on appeal.

First contention

10.  The defendant argues that I was wrong to hold that all of the plaintiff’s claimed loss was caused by the defendant’s breach of the oral agreement, “reasonably and naturally flowing from [the defendant’s] breach and being an anticipated consequence of the breach”.  This contention is made in the first proposed ground and repeated in the second and third.  This is a challenge on causation. 

11.  The defendant argues that the plaintiff should never have defended the civil claim brought by Ng. Alternatively, even if there was merit in the plaintiff’s defence, given the stake involved, the plaintiff’s decision to defend was “clearly unreasonable and unjustified”.  The decision to defend was voluntary and unreasonable and amounted to an intervening act on the plaintiff’s part which was the direct or effective cause of his loss.

12.  The basis for saying that the plaintiff should not have defended Ng’s claim is that there is strong evidence of clear negligence on the plaintiff’s part in the traffic accident as disclosed in the judgment of the District Judge trying Ng’s claim.  Some of the findings are extracted from that judgment and relied on by the defendant to demonstrate the lack of merit of the plaintiff’s defence there.

13.  On causation, the general principle is that a plaintiff may recover damages for a loss only where the breach of contract was the “effective” or “dominant” cause of that loss.  Strictly speaking, there is no formal test for causation.  It has been stressed that the courts should be guided by common sense when deciding whether a breach of contract is a sufficiently substantial cause of the plaintiff’s loss: see, eg, Chitty on Contracts (32^nd ed) at para 26-058; Galoo v Bright Grahame Murray [1994] 1 WLR 1360, 1374G-1375B.

14.  The crux of the defendant’s present complaint is that the plaintiff’s decision to defend was unreasonable and it was effectively due to that decision of his that the subsequent losses arose.

15.  In paras 124 to 135 of my judgement, I have addressed this very issue and came to the view that the plaintiff had acted reasonably in relation to Ng’s claim, with full reasons given, although in the different context of the plaintiff’s duty to mitigate.

16.  It has been said that the rules on mitigation are aspects of the principle of causation.  Mitigation of loss can be seen as an aspect (or category) of the larger principle of causation: Lagden v O’Connor [2004] 1 AC 1067 at paras 99 to 100, per Lord Walker, citing and endorsing Robert Goff LJ’s remark in Koch Marine Inc v D’Amica Societa di Navigazione ARL [1980] 1 Lloyd’s Rep 75 at 88.  The present case is, in my view, an illustration of the point. Whether the plaintiff had properly mitigated his loss and whether his act had been the effective cause of his loss, both turn on the reasonableness of his decision to defend.  Mr Wong accepted at this morning’s hearing that if the plaintiff was indeed acting unreasonably in his defence, that would break the chain of causation.

17.  There is nothing in the defendant’s present submissions which would suggest that my ruling on the “reasonableness” issue is wrong as a matter of law.

18.  As I understand it, Ms Lai’s submissions, as elaborated orally this morning, are twofold.

19.  First, the plaintiff was personally involved in the accident.  He was privy to it.  The defendant was not.  The trial judge in Ng’s claim had found that the plaintiff was “completely” to blame for the accident.  In the circumstances, the defendant, Ms Lai submitted, should not have gone ahead to defend. 

20.  The implicit premise of this submission is that the plaintiff knew that he had been in the wrong and that had caused the traffic accident.  However, the plaintiff’s subjective state of mind as to whether he was in the wrong as far as the traffic accident was concerned was not explored at the (present) trial. There was no submission made on behalf of the defendant at trial to that effect.  The cross-examination focused on his own assessment of his prospect in the civil lawsuit.  Accordingly, in the circumstances, I do not think that this argument could assist the defendant’s case at this stage.

21.  Secondly, Ms Lai emphasised the huge difference in amount between what was at stake in Ng’s claim, namely a sum of over $80,000, and the potential quantum of the legal costs that would be incurred by parties if a trial was to proceed at the District Court, which ended up to be over $300,000.  The amounts were so disproportionate that it was unreasonable for the plaintiff to choose to defend.  That is the gist of Ms Lai’s submission. 

22.  Again, I do not think there is any merit in this submission.  First, this matter can at most only be one factor to be taken into account when considering the reasonableness issue.  Second, I have set out the other relevant factors in my judgment: see para 134.  In any event, the plaintiff’s own evidence, which I have accepted, was that he was financially constrained to handle such a claim when he received the demand letter – see para 47.  It was not as if he had the capability or option of simply paying the amount upfront out of his own pocket and then considering his next step.

23.  Overall speaking, applying the common sense approach, the factors which I relied on in the judgment would point to the defendant’s breach being the “effective” or “dominant” cause of the plaintiff’s losses.  There is no reasonable prospect of success in the first contention.  The defendant’s present effort to argue the case under the heading of “causation” instead of “mitigation” does not advance or improve his case at all since either way the outcome turns on the same issue.

Second contention

24.  The defendant now argues that the plaintiff’s loss is too remote or not within the reasonable contemplation of the defendant.  The loss was not the probable result of the breach.  Particular emphasis is placed on the claim for the costs of enforcement and the interest payments in respect of the loan taken out by the plaintiff to settle the judgment sums.

25.  This contention is made in the second proposed ground and repeated in the third.

26.  There is no elaboration on this point in Ms Lai’s submissions as to why the losses were too remote.  Again, here, the defendant seems to be saying that the plaintiff should not have defended Ng’s claim and what he had done was not a usual course of event flowing from the defendant’s breach of the oral agreement.

27.  The general principle on remoteness is summarised in Chitty as follows.  A type or kind of loss is not too remote a consequence of a breach of contract if, at the time of contract, and assuming that parties actually foresaw the breach in question, it was within their reasonable contemplation as a not unlikely result of that breach: see para 26-111.

28.  In respect of the claim for interest payment, a prominent feature of the plaintiff’s case is his lack of financial resources, which had left him with no alternative but (a) to borrow, and (b) worse still, to borrow from a money lender at a higher interest rate than from a bank.

29.  In paras 141 to 143 of my judgment.  I addressed the following questions:-

(a) Had the plaintiff acted reasonably by borrowing from the money lender?

(b) Had it been reasonably foreseeable that the plaintiff might have to incur more expenses than usual?

(c) Should the defendant bear the consequence of the plaintiff’s impecuniosity?

30.  I came to a ruling in favour of the plaintiff with full reasons given, albeit, again, in the context of the duty to mitigate.  All these questions arising under mitigation are relevant and material to the question of remoteness.

31.  It has been observed that in some cases, the rules on mitigation and those on remoteness are entwined where what was “reasonable” mitigation and what was “within reasonable contemplation” are treated as inter-changeable concepts: Chitty at para 26-083.

32.  In my view, the observation applies with force in the present case.  The plaintiff’s financial means (or the lack of it), as found, is a matter that goes to both the issue of “reasonable contemplation” and “reasonable” mitigation and ought to be taken into account on both fronts.  In any event, Ms Lai has not attempted to distinguish the decision made in Lagden v O’Connor which I have cited in support of my ruling in para 142 of my judgment.   

33.  Applying my ruling on the mitigation issue to the remoteness issue, the inevitable conclusion is that the losses, including the interest expense, were not remote.

34.  Accordingly, there is no reasonable prospect of success for the second contention.  Similarly, the defendant’s effort to argue the case under the heading of “remoteness” instead of “mitigation” does not advance or improve his case at all as the underlying considerations are the same in this case.

Third contention

35.  The defendant argues that the damages “should be assessed on the basis that the defendant would have performed in the way which would have benefited him most, eg at the least cost to himself”, quoting Chitty at para 26-075.  This contention is made in the fourth proposed ground.

36.  Again, it seems that what the defendant is saying is that if the defendant had been in compliance with his contractual obligation, he would not have chosen to defend Ng’s claim and would have paid out $85,750 and the limited legal costs upfront.  As such, the defendant should only be held liable for that amount consequent upon his breach.

37.  This goes back to the same point concerning the reasonableness of the plaintiff’s decision to defend. As analysed above, there is no merit in this contention.

Conclusion

38.  None of the substantive contentions put forward by the defendant has any reasonable prospect of success.  It is therefore not necessary to rule on whether it is open to the defendant to pursue those new contentions at this stage.  There being no other reason why the appeal ought to be heard, I dismiss the defendant’s application seeking leave to appeal.

( Discussion re costs )

39.  The plaintiff do have costs of the summons, to be taxed if not agreed, with certificate for counsel. The plaintiff’s own costs be taxed in accordance with the Legal Aid Regulations.