LEE KWONG YAN v. LAI YAN TRANSPORT CO LTD

HCA 382/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 382 OF 2011

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BETWEEN

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REASONS FOR DECISION

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1.  Following the hearing of the Plaintiff’s application by summons dated 8 March 2011 for an interlocutory injunction in this action, I granted an order substantially in terms of paragraph 1 of the summons and indicated that I would give my reasons in writing in due course. This I now do.

The Application

2.  Under the summons the Plaintiff seeks an interlocutory injunction under Order 29 Rules 1 and 2 of the Rules of the High Court Cap. 4A to restrain, inter alia, the disposal of and to preserve as subject matter of the property claimed in this action.  The subject matters for which the restraining order and/or preservation order are required are three vehicles and the passenger service licenses required by law to operate them commercially.

Relevant Background Facts

3.  The Plaintiff and the Defendant are parties to an agreement in Chinese titled “provisional sale and purchase agreement” (“臨時買賣合約”, hereafter referred to as “the Agreement”) dated 1 June 2010.  Under the Agreement, Lee Wai Hung on behalf of the Defendant as the seller agreed to sell, and the Plaintiff as the purchaser agreed to purchase, three tour buses for a consideration of HK$3,000,000. 

4.  There appears to be no dispute that the object of the Agreement is to enable the vehicles to be used commercially as non-franchise buses, which requires valid passenger service licences (“PSLs”) to be issued in respect of each vehicle in the owner’s name. Neither is there any dispute between the parties that it is the intention of the Defendant to give up the PSLs issued in respect of the vehicles in question at the same time as transferring the vehicles to the Plaintiff to enable the Plaintiff to secure PSLs for those vehicles in his name. 

5.  While a PSL cannot be transferred as property, there is evidence before me to show that the Transport Department would normally be prepared to grant an application to the purchaser of a commercial vehicle to “take up” a PSL issued in respect of the vehicle concurrently with the “renunciation” of the PSL by the seller of that vehicle as part and parcel of the sale transaction.  The required renunciation concurrent upon the “taking up” of a PSL in this context appears to stem from the administration’s policy to put a lid to the number of operating non-franchise buses.

6.  Upon signing the Agreement, the parties by their respective solicitors exchanged numerous letters initially with a view to coming to terms regarding the detailed implementation of the Agreement.  The parties did not manage to reach any consensus. 

7.  By a letter dated 17 February 2011, the Defendant’s solicitors purported to terminate the Agreement for the Plaintiff’s failure to fix a reasonable date for completion pursuant to the Agreement.  On the following day, the Defendant’s solicitors sent to the Plaintiff’s solicitors a cashier order in the sum of $500,000 being the return of the deposit paid under the Agreement by the Plaintiff.  The payment was accepted by the Plaintiff.

8.  The Plaintiff thereafter commenced this action, claiming, inter alia, specific performance of the Agreement with all consequential and necessary directions pertaining thereto, and a declaration that the vehicles in question and the PSLs in respect thereof are held on constructive trust for the Plaintiff.  On the same date as the date of issue of the Writ of Summons, the present summons was filed together with two affirmations in support thereof.

9.  In the Defence filed by the Defendant after affirmation evidence has been filed by both parties pursuant to directions given under the summons, the point was first raised that the acceptance of the return of the deposit by the Plaintiff was an unequivocal act of acceptance on the part of the Plaintiff that the Agreement had been terminated.  It is said that specific performance is therefore not a remedy available to the Plaintiff.

10.  At the hearing of the summons, and upon defence counsel’s agreement, I granted the Plaintiff’s application by summons dated 20 June 2011 for the filing of the 3^rd Affirmation of Lee Kwong Yan to explain the circumstances under which the return of the deposit was accepted, subject to a bundle of correspondence to complete the relevant course of correspondence referred to in that affirmation being placed before the court. 

Issues in this Application

11.  The primary basis on which the Plaintiff claims interlocutory relief to preserve the vehicles and the PSLs pending judgment or further order is his entitlement to specific performance of the Agreement as the final relief in this action.

12.  I accept that the application is governed by the American Cyanamid principles.  I am to consider whether there is a serious issue to be tried in respect of each of the following:-

(i)   Whether the Agreement was enforceable by specific performance;

(ii)   Whether the Defendant was in breach of the Agreement.

13.  Counsel for the defence, Mr Chiu, concedes that there is no need to proceed to consider balance of convenience if I were to hold the view that there are serious issues to be tried on both of the above issues.

Serious issue on Enforceability of Agreement by Specific Performance

14.  In relation to this issue, I am to consider whether specific performance will do more perfect and complete justice than an award of damages, in view of the nature of the agreement between the parties (Chitty on Contract 30^th Ed. Para. 27-005).  Where it would be unjust to limit the relief available to a plaintiff to damages, e.g. where damages would be difficult to quantify, specific performance is the appropriate remedy for breach of contract.

15.  Mr Wong, Counsel for the Plaintiff, relies on two Australian cases in particular, which he regards as highly analogous to the present case.  The first is Dougan v Ley (1946) 71 CLR 142, where a contract for the sale and purchase of registered and licensed taxicab was held to be specifically enforceable.  The second case on the same question, Hartley v Miller 1987 NSW LEXIS 6587, likewise relates to the purchase of a taxi plate.  Specific performance was also decreed on the basis that the contract is really one for the sale and purchase of a business to exploit the taxi plate, which was more than an ordinary article of commerce.

16.  Defence Counsel Mr Chiu takes a number of points in arguing that the remedy of specific performance is not available to the Plaintiff. 

17.  He submits that since the Defendant is entitled to rescind the contract, specific performance is not available.  He argues that the implied term of a duty to cooperate is pleaded far too widely in the Statement of Claim, such that it would not have been possible for the equitable relief to be granted.  Mr Chiu also relies on what he argues to be unreasonable behavior on the part of the Plaintiff in negotiating the terms of a further written agreement with more detailed terms, the alleged unreasonableness of the requirements made on the part of the Transport Department to the Plaintiff on what was required to be shown on the face of the vehicle sale and purchase agreement in order to support a corresponding application for PSLs, and the alleged unreasonable rejection by the Plaintiff to have the Transport Department’s requirement put in writing as one of the conditions of the Defendant offering assistance in the application process. 

18.  Last but not least, the Defendant relies on the acceptance of the return of deposit as clear acceptance that the contract was at an end, alternatively a clear acceptance of the repudiation of the Agreement by the Defendant.  Having considered the circumstances in which the deposit was accepted upon its return, I am unable to agree with the proposition advanced by the defence.  It is not disputed that the returned deposit was cashed in and applied towards making up a sum of HK$3,000,000 to be presented in the form of a cashier order in favour of the Defendant in order to demonstrate the Plaintiff’s readiness and willingness to complete the transaction in the course of settlement negotiations, which turned out to be unsuccessful.  I do not accept that it has the effect of stripping the Plaintiff of its entitlement to the equitable remedy, as the relevant conduct was entirely consistent with his claim for the remedy at the date of the Writ and the present summons.

19.  Having considered each of the arguments advanced on behalf of the Defendant, I am nevertheless convinced that there is a serious issue to be tried that the Agreement was specifically enforceable.  In particular, I take the view that the court has the power to impose a wide remedy in granting the relief of specific performance as may be appropriate, such as that granted by Roger J in the Supreme Court of New South Wales in Dougan v Ley (1946) 71 CLR 142, at p.148, in the following terms which was approved by the High Court of Australia on appeal: –

“the appellant do all things and execute all documents which are proper and necessary in order to enable the plaintiffs to present a proper application to the Commissioner for Road Transport and Tramways for the granting of a transfer of the registration and licence of the taxi-cab.”

Serious Issue on Breach of Agreement

20.  The Plaintiff argues that the Defendant was in breach of the Agreement by failing to comply with the implied duty of co-operation.  The evidence of the Plaintiff showed that the Transport Department had pointed out three defects/or omissions in the Agreement which were obstacles to the Plaintiff obtaining the necessary registration for PSLs in place of the PSLs to be relinquished by the Defendant. The Plaintiff had invited the Defendant to enter into a new written agreement which would comply with all the requirements to no avail, not least due to other counter-proposals for conditions which the Plaintiff found unacceptable and unreasonable. 

21.  The Defendant disputed the necessity of those requirements, and in correspondence insisted on the Transportation Department’s specific requirements to be stated in writing, which according to the Plaintiff, the Transport Department was not prepared to do on a case by case basis.

22.  Further, the Defendant pointed the finger at the Plaintiff for failing to agree to a completion date of 4 months to complete the application with the Transport Department in breach of the implied term as to time for completion.  The Plaintiff, in answer, cited the prevention principle as stated in the Judgment of the Court of Final Appeal in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381.

23.  In my view, there is plainly a serious issue to be tried on whether the Defendant has been in breach of the Agreement in not fulfilling its implied duty to co-operate in the process of sale of the vehicles with the rights to take over the PSLs under the Agreement, and in particular what reasonable cooperation entailed in the context of the process of the renunciation and corresponding application for PSLs at the Transport Department for the Plaintiff to secure the necessary licenses to commercially operate the vehicles, the latter being part and parcel of the what was bargained for under the Agreement.

Conclusion

24.  As there are serious issues to be tried on both issues outlined above, it follows that damages are not an adequate remedy.  I therefore grant the Order which I did for interlocutory relief.

Costs

25.  I make a costs order nisi for costs of the Plaintiff’s summons dated 8 March 2011 to be costs in the cause.