HOVER BASE INVESTMENTS LTD v. BEST CONCEPT MANAGEMENT LTD AND ANOTHER

HCA 967/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 967 OF 2004

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J U D G M E N T

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1. The Plaintiff, Hover Base Investments Limited (Hover Base) is the registered owner of land in the New Territories described as The Remaining Portion of Lot No. 64 in D.D.108, Sub-section 2 of Section B of Lot 72 in DD108 and The Remaining Portion of section B of Lot No. 73 in D.D.108 (the land). The land is situated at No. 228 Fan Kam Road, Yuen Long in the New Territories. Hover Base has four shareholders, all members of the Wong Family.

2. International Resort Centre Limited (IRC) is owned by the same four members of the Wong Family. Those four shareholders, in each company, are also the directors of both companies. On the land are buildings and facilities which enable the business of a resort centre and a horse riding school to be operated. Hover Base has granted to IRC a bare licence to carry on that business. The licence is not in the writing nor is it the subject of any formal contract. Consequently, IRC has no proprietary interest in the land and carried on the riding school business by virtue of the licence. Both Hover Base and IRC take the view, probably correctly, that that licence is revocable at will, or at least, upon reasonable notice.

3. By a formal written agreement, (the management agreement), which is undated, but which commenced on 1 August 2003, IRC appointed Best Concept Management Limited (Best) to be the manager of the riding school, including stables, classrooms and the lecture room, on the land. The recitals to the management agreement record that it was entered into for the purpose of regulating the relationship between IRC and Best.

4. Certain terms of the management agreement are relevant to this decision. First, it is for a term of 3 years commencing on 1 August 2003 and expiring on 31 July 2006, both dates inclusive. During the continuance of the management agreement, Best was required to pay IRC a licence fee of $35,000.00 per month, payable in advance, on the first day of each month. Best was responsible for all recurring and non structural operating expenses for the riding school, those expenses being particularised as, but not limited to, the up-keep of the horses, the employment of staff, water charges and electricity charges. IRC, for its part, was responsible for all structural expenses for the riding school. Specifically by para. 3.1 of the agreement, IRC agreed to:

"provide the use of the riding school to Best."

The management agreement provided that the monthly subscription fees of all members, other than existing members whose names were set out in a schedule attached to the management agreement, were payable wholly to Best. The parties also agreed:

"to enter into a new agreement for period of another three years, (i.e. commencing on 1 August 2006 and expiring on 31 July 2009) under the same terms and conditions as stated in this agreement".

It was agreed that Best would pay an increased fee for the second term of the management agreement.

5. In an affidavit filed by the 2nd Defendant, who is a director of Best, it is contended that an agreement was reached between two directors of IRC and Best that the licence fees would be reduced to $26,000.00 per month from 2003. That sum was paid in December, January and February, and accepted by IRC without complaint, and no action was taken alleging that the payment was in breach of the management agreement.

6. On 31 January 2004, Hover Base entered into an agreement for sale and purchase of the land to Ample Group International Limited (Ample). The purchase price is $11,605,650.00 and a deposit of $3,481,695.00 has been paid. Completion of the transaction was due on 30 April 2004 but I was informed during the hearing that agreement had been reached between Hover Base and Ample to postpone the completion date by one month. The agreement for sale and purchase provides for vacant possession.

7. The management agreement makes specific provision for Hover Base to have a right to terminate the licence in the following circumstances:

"Upon receiving notices from the landlord of Lot 64 and 73 BRP in DD108 of its intention to read a valid premises or part thereof, all from the Government to resume the premises or part thereof, IRC may give six months' written notice to Best to terminate this agreement and this agreement shall be terminated at the end of the notice whereupon neither party shall have any claim whatsoever from the other."

8. By a letter dated 12 March 2004, the solicitors for IRC wrote to the solicitors for Best purporting to

"accept the repudiation of Best of the Management Agreement for failure to pay the full licence fees punctually."

9. On 15 March 2004, Hover Base, by the same solicitors as IRC, purported to notify Best's solicitor that:

"as the Management Agreement between (Best) and IRC has been terminated (Hover Base) shall take over the land in question"

10. A demand was made that vacant possession be delivered by 22 March 2004 failing which application would be made to the court. In the letter demanding the rent, IRC demanded the sum of $105,600.00 together with interest and costs, and to deliver vacant possession of the land within 7 days failing which legal proceedings would be instituted.

11. There then followed the issue of a plethora of legal proceedings. First, on 19 March 2004, IRC commenced proceedings in the District Court alleging that Best was in default of paying the licence fees and seeking judgment for that sum with interest. To that, a defence has been filed. Second, on 20 March 2004, Best issued proceedings in the High Court Civil Action No. HCA 662/2004 against IRC, Hover Base, and Ample, claiming damages to be assessed for the loss of value improvements, loss of revenue and profit and the cost of relocation and setting up a new riding club. Third, Hover Base had commenced proceedings under O. 113, by way of Originating Summons seeking a summary order for possession of the land. Because the only order that may be made under an O. 113 proceeding is an order for possession of the land, the present, fifth set of proceedings, was commenced seeking an injunction. On the Saturday 24 April 2004, on an ex parte basis, Hover Base obtained from the Duty Judge an interim injunction restraining Best and the 2nd Defendant from trespassing or staying on or otherwise entering upon the land, until 30 April 2004. The matter now comes before me, Hover Base seeking to continue the injunction, Best and the 2nd Defendant resisting that order.

12. The principles upon which an interlocutory injunction is issued were not in dispute and are well-known: (1) there must be a serious question to be tried, (2) damages must be an inadequate remedy, (3) the balance of convenience as between the parties must favour of the grant of an injunction: see American Cyanamid v Ethicon [1975] AC 396.

13. There is no doubt that there is a serious question to be tried. Both parties accepted that were the interim injunction to continue, not only would these proceedings effectively be concluded, but the O. 113 proceeding would also be effectively concluded. If the injunction is to continue, Hover Base will complete the sale to Ample, and Best will be left to its remedy in damages. In a case where the grant or refusal of an injunction would in practice determine an action, the court must approach the matter on a broad principle to avoid injustice. In such circumstances, it is appropriate to investigate "the degree of likelihood" of the defendant succeeding at trial: See HKP 2004 29/1/18.

14. In the present case, the defendant seeks to retain its right to use the land pursuant to the management agreement. If the injunction is granted, it would lose its access to the land. Ms Lee, for the Defendants, was obliged to concede that any licence that Best had to use the land was not irrevocable. Further, she was obliged to acknowledge should Hover Base wish to redevelop the land it could give Best six months' notice.

15. Any right to occupy the land granted pursuant to the Management Agreement is a mere contractual licence. Notwithstanding the argument that some equitable interest had arisen on the land by virtue of improvements being undertaken by Best, I am satisfied that there was no grant in relation to the land accompanying the licence that necessarily accompanied the Management Agreement. It appears to me that it is unarguable that a contractual licence, not accompanied or coupled with a grant, is revocable by the licensor. If the revocation by the licensor is in breach of the contract, the licensee still becomes a trespasser and is liable to be evicted. He must be satisfied with his financial remedy for breach of contract: see Cheshire and Burn Modern Law of Real Property 16th edition, pp. 640, 641 and the cases cited there.

16. Best contends that it has acquired an equitable interest in the land by virtue of improvements carried out. Exhibited to Mr Tsang's affidavit are details of work that had been carried out and a plan of those works. His total expenses incurred appeared to be $775,000.00. Of that $500,000.00 is the demonstrably attributable to land and works that do not form part of the land owned by Hover Base and upon which Best was required to manage the riding school pursuant to the agreement with IRC. The suggestion that an equitable interest in the land has been acquired is tenuous at best and, sensibly recognising this, was not seriously pressed by Ms. Lee during the argument.

17. I am satisfied that the entitlement of Best to occupy the land is no greater than that of a building contractor employed by an owner of land to carry out building works on the land. Consequently, the principles discussed in N. C. Chan v Chan Chun Lee Construction Company [1964] HKLR 254, and Mayfield Holdings Limited v. Moana Reef Limited [1973] 1 NZLR 309 apply. I am satisfied that it is not arguable that the licence to enter upon land that arose by virtue of the management agreement is coupled with any interest in the land at all so as to make it irrevocable in the absence of the lawful termination of the contract. Further, there is no implied negative covenant in the management agreement on the part of Hover Base not to revoke the licence in breach of the contract.

18. Mr Collins was obliged to acknowledge that it was strongly arguable that Hover Base's action and IRC's action in revoking the management agreement and the licence were wrongful. At the very least, he conceded that longer notice may have been required to be given, than the 7 days that were given. But, he argued, that was a matter for damages.

19. It is said for the Plaintiff that the inability to complete the sale of the land will constitute a potential irreparable loss and prejudice which may not be compensated by damages. It is argued on the other hand, although disputed by Best, that any loss is suffered by Best can be fully compensated by damages.

20. It is right that the Court ought not to assist a wrongdoer, but it needs to be remembered that the refusal of the injunction sought by Hover Base will not entitle or help Best to return to the property and carry out the management of the riding school. The horses are gone. There is no riding school now to be managed. It is abundantly plain that the contract between IRC and Best, being a contract for the provision of personal services will not be enforced by specific performance because the court would refuse to order specific performance against Best, see Chitty on Contract 28th edition § 28-041.

21. It is argued that damages would not be an adequate remedy as the eviction by force of Best from the side would lead to the collapse of Best. While the assertion was made by Mr Tsang in his affidavit, no financial information was put before the court to substantiate the assertion. The consequences of the laying-off of staff and the like are consequences which are regularly likely to occur in building contract disputes but are not found to be a basis for the court to refuse injunctions in those cases.

22. I am satisfied that damages will be an adequate remedy for Best and that its rights to damages are fully preserved in the proceedings that it has commenced.

23. In the whole of the circumstances I am satisfied that the balance of convenience favours the continuation of the injunction. There will be an order in terms of paragraph 1 of the Inter Partes Summons dated 26 April 2004. It is likely that this order will conclude these proceedings. In my view the question of costs in these proceedings ought to be considered at the same time as costs in Best's damages action (HCA 662/2004) are considered. For that reason there will be an order nisi that costs are reserved.