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

DCCJ 3417/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3417 OF 2010

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DECISION

Introduction

1. On 31 May 2012, I handed down my judgment in favour of the Plaintiff and granted, inter alia, an order (1) restraining the Defendants or their agents from occupying or trespassing into the Plaintiff’s Exterior Wall of Kaiser Estate, 3^rd Phase, Nos 9,11,11A Hok Yuen Street, No 18 Man Lok Street, Kowloon; (2) requiring the Defendants to reinstate the Exterior Wall into its original state and condition; and (3) damages to be paid to the Plaintiff by the Defendants. I rejected the defences of proprietary estoppel and part performance put up by the 1^st Defendant.

2. By a notice of application for leave to appeal filed on 28 June 2012, the 1^st Defendant now seeks leave to appeal my judgment limited to the defence of proprietary estoppel in respect of those parts of the Exterior Wall occupied by the roller shutters only.

3. Mr Poon, Counsel for the 1^st Defendant, confirms in this hearing that the 1^st Defendant accepts the judgment in respect of the remaining parts of the Exterior Wall (ie those parts of the Exterior Wall excluding the roller shutters) and the judgment on quantum. 

4. Mr Lam, Counsel for the Plaintiff, tries to argue that the order now sought by the 1^st Defendant (which is limited to the part of the Exterior Wall occupied by the roller shutters) is not consistent with the pleadings of the 1^st Defendant who has all along pleaded that it owned the whole of the Exterior Wall. I will simply reject this argument for the purpose of this application, for it is undisputed that the roller shutters, after their installation, form part of the Exterior Wall.

A brief recap of background facts

5. The background leading to this action and my reasons for giving judgment in favour of the Plaintiff or rejecting the 1^st Defendant’s defence have been set out in my judgment, and I do not propose to repeat them at length here. For convenience, I would adopt herein the abbreviations used in my judgment.

6. However, it may be helpful to note by way of background that part of the Exterior Wall owned by the Plaintiff actually circumscribed Shop P of the ground floor of the Building. Shop P was and still is owned by the 1^st Defendant. The 1^st Defendant acquired Shop P prior to the Plaintiff’s execution of the assignment to purchase the Exterior Wall. The Plaintiff’s predecessor-in-title was a company limited in liquidation and as such, 2 joint liquidators were appointed to deal with its assets.

7. With an intention to convert Shop P into smaller units, the 1^st Defendant wrote an email dated 2 November 2009 to the liquidators seeking approval to change part of the Exterior Wall which circumscribed Shop P into 5 roller shutters, to which the liquidators gave written approval by way of a letter dated 12 November 2009. Subsequent to this letter, the 1^st and/or the 2^nd Defendants (as the case may be) not only changed part of the Exterior Wall from brick wall into roller shutters, but also performed the said Alterations/Additions to the Exterior Wall.

8. The 1^st Defendant claimed that in view of the encouragement or approval from the liquidators, it has obtained an exclusive right to use and possess the relevant part of the Exterior Wall to the exclusion of the Plaintiff.

Applicable Legal Principle

9. Section 63A (2) of the District Court Ordinance provides that leave to appeal shall not be granted unless the intended appeal has a reasonable prospect of success. The court will only refuse leave if satisfied that the applicant has no realistic prospect of succeeding on the appeal.

10. The 1^st Defendant needs to satisfy this court that the intended appeal has a realistic prospect of success, in the sense that it has at least an arguable case in the intended appeal:  Ma Bik Yung v. Ko Chuen, HCMP 4303/1999 adopting and approving Smith v. Cosworth Casting Processes Ltd [1997] 1 WLR 1538.

The 1^st Defendants’ Proposed Grounds of Appeal

11. In the 1^st Defendant’s draft notice of appeal attached to the notice of application for leave to appeal, the 1^st Defendant has set out various grounds of appeal, which in my view and is also confirmed by Mr Poon, boil down to the following main grounds (with ground (1) being the primary and ultimate ground):

(1)I erred in requiring the 1^st Defendant to prove the existence of assurance/encouragement and reliance as to ownership, tenancy or licence [paras (2) – (4) and (12)];

(2)I failed to apply an objective test in determining whether there was any requisite assurance from the Liquidators [paras (5) – (11)];

(3)I erred in not finding reliance by the 1^st Defendant on the Liquidator’s assurance [paras (13) – (14)];

(4)I erred in not finding that there was sufficient detriment suffered by the 1^st Defendant; [paras (15) -  (19)];

(5)I erred in finding that the Plaintiff did not have notice of the 1^st Defendant’s alleged interest over the relevant part of the Exterior Wall [paras (20) – (24)]

Ground (1) : Error  in requiring the 1^st Defendant to prove the existence of assurance/encouragement and reliance as to ownership, tenancy or licence

12. Mr Poon for the 1^st Defendant refers me again (which he had already done so in his closing submission in the trial) to Gillet v Holt [2001] Ch 210 (CA) and says that proprietary estoppel does not require assurance to point to “what particular interest to be granted… or by what type of disposition”. In essence, he is saying that assurances need not be “absolutely precise in relation to the nature or quantum” (see para 31(1) of my judgment). However, instead of asking the correct question of whether the 1^st Defendant was encouraged to believe that it has obtained or would enjoy some right or benefit over the Exterior Wall, I misdirected myself by requiring the 1^st Defendant to prove assurance/encouragement as to “ownership, tenancy or licence” which is “absolutely precise in relation to the nature or quantum”. 

13. I have no dispute that in a case of proprietary estoppel such as this case, the proper starting question is whether the 1^st Defendant was encouraged to believe that it would enjoy rights of some kind over the Exterior Wall. I have asked myself this question and made a conclusion in para 48 of my judgment.

14. It is true that in the judgment, I gave consideration to the nature of right over the Exterior Wall as alleged by the 1^st Defendant, namely ownership of the Exterior Wall. But I am of the view that I am entitled to do so because it is the part and partial of the updated agreed list of issues duly signed by both Counsel.

15. It is also the pleaded case of the 1^st Defendant (in para 13 of its defence) that it pleads “exclusive use and possession” of the relevant part of the Exterior Wall. Short of pleading of any rent or fee, this can only be taken to mean ownership.

16. Further, in his evidence, Mr So of the 1^st Defendant said repeatedly that the Liquidator had given away the Exterior Wall to the 1^st Defendant (“俾咗幅牆你”).  

17. And above all, during his closing submission, when this court tried to clarify the 1^st Defendant’s case on what kind(s) of proprietary right it was talking about, Mr Poon for the 1^st Defendant, Mr Poon did submit and say that “[the 1^st Defendant’s] expectation of an interest in land is in form of ownership”. When asked if this was the 1^st Defendant’s only case, Mr Poon replied in the affirmative (recordings from 11.29.23 – 11.29.42 on 4 May 2012 refer).

18. It is, with respect, inappropriate for Mr Poon to retract from this submission in this intended appeal application by arguing that this part of his submission related to the defence of part performance only.

19. As such, I cannot see there is any reasonable prospect of success of the 1^st Defendant’s intended appeal on this ground.

Ground (2) : Failure to apply an objective test in determining whether there was any requisite assurance from the Liquidators

20. By this ground, Mr Poon essentially submits that I was wrong in trying to look for evidence which showed that the Liquidators subjectively knew that they were making an assurance when the law only requires the proof that the representor “ought to have known” of the assurance.

21. I would refer to paras 35, 48 and 59 of my judgment on the analysis and application of an objective test to the knowledge of the Liquidators.

22. Mr Poon repeats the test, as he did in his closing submission in the trial, profound by Lord Hoffmann in Thorner v Major [2009] 1 WLR 776 that “the question was whether [the promisor’s] words and acts would reasonably have conveyed to the [claimant] an assurance that he would do so”.

23. I have not overlooked this submission and have in fact touched on it in paras 55 and 56 of my judgment, in which I ruled that under the background that Mr So of the 1^st Defendant has over 10 years of experience as a property investor, that the discussion of work relating to the Exterior Wall was done in a commercial context, and that it was shared knowledge that the Exterior Wall would be sold to a new owner in the imminent future, it would not be objectively probable that Mr So (and thus the 1^st Defendant) could reasonably have held the belief that it would acquire any interest over the Exterior Wall by paying just an administration fee of $500 but nothing more. It goes without saying that the other side of the ruling is that the Liquidators’ acts including but not limited to the Approval Letter would not have reasonably conveyed to the 1^st Defendant that it would acquire any exclusive interest or right of the Exterior Wall.

24. Mr Poon further submits that I was wrong in accepting the Plaintiff’s proposition that the Liquidators could not have encouraged a belief of which they did not have any knowledge, for the 1^st Defendant’s case is one based on active, but not passive, encouragement. In the case of active encouragement, there is no requirement that a belief has to be known by the representor before he can actively encourage the belief.

25. Mr Poon goes on to comment that in so far as active encouragement is concerned, my judgment focused on the analysis of active encouragement as to ownership, instead of rights of some kind over the Exterior Wall.

26. This argument active and passive encouragement is a repetition of what Mr Poon submitted in the trial, to which it goes without saying that I had considered the same.

27. I would also refer to paras 14 to 18 of this decision in reply to what Mr Poon’s submission per para 25 above.

28. I am not persuaded that there is a reasonable prospect of success on this ground.

Ground (3) : Error in not finding reliance by the 1^st Defendant on the Liquidator’s assurance

29. This appeal ground concerns my obiter ruling on reliance.

30. Mr Poon argues that this court failed to pay due regard to the evidence of Mr So of the 1^st Defendant and the “chain of correspondence in which the 1^st Defendant repeatedly sought the Liquidators’ approval to install the roller shutter”.

31. All I would say is that the finding for (or the lack of) reliance is a finding of facts with which an appellate court would seldom interrupt. Further, in so far as documentary evidence is concerned, only the Email was produced which showed that the 1^st Defendant had attempted to seek approval from the Liquidators to install the roller shutters. Apart from Mr So’s bare oral assertion (which Mr Lam did query during the cross examination), there certainly lacks documentary evidence to show that the 1^st Defendant had repeatedly sought the Liquidators’ approval by a chain of correspondence.

32. Therefore, I fail to see any reasonable prospect of success on this ground. 

Ground (4) : Error in not finding that there was sufficient detriment suffered by the 1^st Defendant

33. Mr Poon submits that I have taken a wrong approach in confining the detriment suffered by the 1^st Defendant to the cost of installing the roller shutters only and that I have failed to explain why the detriment suffered by the 1^st Defendant was not adequate.

34. It needs to point out that the finding on detriment is obiter because I already found in earlier part of my judgment that the 1^st Defendant failed to establish the element of assurance/encouragement. That explains why I was brief in the analysis on detriment in my judgment.

35. If paras 70 to 71 of my judgment are read properly and together, it would be clear that renovation in para 71 means the said Alterations/Additions of the Exterior Wall, including the installation of the roller shutters.

36. However, I agree with Mr Poon that as a matter of logic, if there was enjoyment in form of renovation which was capable of countervailing the 1^st Defendant’s detriment, it is an enjoyment recognized by the court and would not have attracted liability for damages. But it needs to be emphasized that such agreement of mine is premised on the condition that the other ingredients of proprietary estoppel were established by the 1^st Defendant, which regrettably is not my findings in this case.

Ground (5): Error in finding that the Plaintiff did not have notice of the 1^st Defendant’s alleged interest over the relevant part of the Exterior Wall

37. This appeal ground also concerns the obiter of my judgment.

38. I do not propose to repeat at length Mr Poon’s argument on notice. Suffice for me to note at this stage is that he says I was wrong in holding that the Plaintiff had acquired equitable interest over the Exterior Wall as at 30 October 2010 and that the Liquidators were trustees for the Plaintiff for the time being.

39. Having re-visited condition no. 2 of the Form of Tender, I have to agree with Mr Poon that the Form of Tender did provide a mechanism for cancellation of the sale and purchase of the Exterior Wall before the formal Sale and Purchase Agreement was signed.

40. Be that as it may, it was Mr Poon’s closing submission in the trial that the shared background and knowledge of the 1^st Defendant and the Liquidators that “both of them expected a change of ownership of the exterior wall in the imminent future. In fact, such change should have been more imminent than what has actually happened because the form of tender suggested the completion date at 30 October 2009” (see para 20 of Mr Poon’s closing submission).

41. It was also the unchallenged evidence of the Plaintiff’s witness that the Plaintiff was informed of the tender result on 30 October 2009.

42. As such, I cannot see why I was not entitled to place weight on this date of 30 October 2009 and to make the findings on notice per more particularly set out in paras 86 to 88 of my judgment.

43. In any event, even if (just assuming) I was wrong on the analysis of notice and putting the 1^st Defendant’s case to its highest (but I must stress that this is never the case of the 1^st Defendant), what the 1^st Defendant at the most had obtained from the Liquidators was no more than a mere licence, which is a personal right incapable of binding a third party. In such scenario, the issue of notice simply does not arise.

Conclusion

44. Due to the matters set out above, I am not satisfied that 1^st Defendant’s proposed grounds of appeal show any realistic prospect of success. Its application for leave to appeal is thus refused.

45. I shall make a costs nisi to the effect that the 1^st Defendant do bear the Plaintiff’s costs of this application to be taxed if not agreed. For avoidance of doubt, I certify the attendance of Counsel in this hearing.

46. If neither party applies to vary the costs order nisi within 14 days from today, the said costs order nisi will be made absolute.