JEKCO ELEVATORS LTD v. MILLION HOTEL MANAGEMENT LTD

DCCJ 1440/2018

[2022] HKDC 209

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1440 OF 2018

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DECISION

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BACKGROUND

1.  By Judgment handed down on 12 October 2021 (“the Judgment”), this court:

(1)  ordered the defendant to pay the plaintiff damages in the sum of $135,300; and

(2)  dismissed the defendant’s counterclaim.

2.  By Summons filed on 9 November 2021 (“the Leave Summons”), the defendant applied for leave to appeal.

3.  I will adopt herein the abbreviations used in the Judgment.

THE APPLICABLE LEGAL PRINCIPLES

4.  The requirement for granting leave to appeal is set out in section 63A(2) of the District Court Ordinance (Cap 336, Laws of Hong Kong). It is trite that leave to appeal shall not be granted unless the court is satisfied that the intended appeal has a reasonable prospect of success or there is some other reason in the interest of justice why the appeal should be heard.

5.  It is also well established that a reasonable prospect of success means an appeal with prospects that are more than fanciful without having to be probable (SMSE v KL [2009] 4 HKLRD 129 at paragraph 17).

6.  Even if the threshold test of reasonable prospect of success is satisfied, the court is not obliged to grant leave to appeal. The court still retains discretion whether to do so, although the fact there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion. The court should take into account Order 1A of the Rules of the District Court (“RDC”), and shall seek to give effect to the underlying objectives set out therein in the exercise of its powers. Among those underlying objectives, RDC are “to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings” (Order 1A, rule 1(c)) and “to ensure that the resources of the Court are distributed fairly” (Order 1A, rule 1(f)) (Ho Yuen Ki Winnie v Ho Hung Sun Stanley (HCA 391/2006, unreported, 25 May 2009, at paragraphs 3 and 8) and CWG v MH & Others [2014] 1 HKLRD 838 at paragraph 13).

THE DRAFT GROUNDS OF APPEAL

7.  The defendant’s draft grounds of appeal may be summarised as follows:

(1)  This court erred in not making any determination on whether the plaintiff had acted in repudiatory breach of the 2^nd Agreement because of the incident on 26 June 2017 (when lift number 1 uncontrollably descended from 27/F to G/F) (i.e. item 60 of paragraph (3) of the defendant’s Answers to Directions dated 9 June 2021) which is a serious incident. If the court had done so, it would have concluded that the plaintiff had acted in breach of the 2^nd Agreement (“Ground 1”);

(2)  This court erred in law in not determining whether there was any breach of the 1^st Agreement which was relevant to the issues of whether the defendant was entitled to any damages on its counterclaim and whether the plaintiff’s breach of the 2^nd Agreement was sufficiently serious to justify its termination of the 2^nd Agreement (“Ground 2”); and

(3)  This court erred in adopting the contractual price for the 2^nd Agreement as the plaintiff’s loss which should have been awarded on the basis of its loss of net profits only (“Ground 3”).

8.  I will deal with these grounds in turn below.

DISCUSSION

Ground 1

9.  Under this ground, the defendant complained that this court had failed to make a ruling on whether the plaintiff had acted in repudiatory breach of the 2^nd Agreement by reason of the incident on 26 June 2017 in which lift No.1 uncontrollably descended from 27/F to G/F. It was submitted that if the court had done so, it would have concluded that the plaintiff had acted in breach of the 2^nd Agreement.

10.  As recognised by Mr Tom Ng, the defendant’s counsel for this application for leave to appeal, this incident was clearly in this court’s mind when it considered the Ground of Failing to Maintain[1] because it had been expressly referred to in paragraphs 73 and 74 of the Judgment.

11.  As I pointed out in paragraph 79 of the Judgment, if the lift resumed normal operation after repair work had been done by the plaintiff’s technician, it cannot be said that the plaintiff had failed its duty pursuant to the 2^nd Agreement. From the Occurrence Book[2], it can be seen that after the repair work done by the plaintiff on 26 June 2017, the only remaining problem of lift No.1 was about the false overload alarm. There was no further complaint about “uncontrolled descending”. That was the reason why this court only dealt further with the false overload alarm issue. In my view, the complaint about “uncontrolled descending” did not require further discussion.

12.  Furthermore, as pointed out by Ms Moy, the defendant’s case all along was that the plaintiff’s alleged breaches were not to be viewed in isolation but in cumulation, and that there were “congeries of defects”. In the Judgment, all the other complaints of malfunctions put forward by the defendant in support of its termination of the 2^nd Agreement have been rejected. The “uncontrolled descending” incident happened on 26 June 2017 alone cannot assist the defendant anyway. Indeed, it has never been the defendant’s case that the “uncontrolled descending” from 27/F to G/F of lift No.1 on 26 June 2017, by itself, would amount to a sufficient reason for the defendant to terminate the 2^nd Agreement.

13.  I therefore hold the view that Ground 1 has no reasonable prospect of success.

Ground 2

14.  Under this ground, the defendant submitted that this court had erred in not determining “whether there was any breach of the 1^st Agreement”.

15.  I note that, in his submission, Mr Ng no longer contends (as solicitors did in the draft Notice of Appeal) that the question of “whether there was any breach of the 1^st Agreement” is relevant to the issue of whether the plaintiff’s breach of the 2^nd Agreement was sufficiently serious as to justify the defendant’s termination of the 2^nd Agreement. I will therefore not deal with that part of Ground 2 even though it was included in the draft Notice of Appeal.

16.  In Mr Ng’s written submission, he submitted that:

(1)  If the plaintiff was in breach of the 1^st Agreement, then the defendant would at the very least be entitled to nominal damages;

(2)  Hence, the issue of whether there was any breach of the 1^st Agreement remained a live issue even if the court considered that the plaintiff’s performance of the 1^st Agreement would not be relevant in deciding whether the defendant was entitled to terminate the 2^nd Agreement;

(3)  Although the court had made findings on the defendant’s counterclaim, the court had made no finding on whether there was any loss caused by the breach of the 1^st Agreement, or whether the plaintiff should at least be liable to pay nominal damages for its breach of the 1^st Agreement.

17.  As this court pointed out in the Judgment, the defendant’s counterclaim (as pleaded) was that by reason of the plaintiff’s breaches of the Agreements, the defendant had to engage Sigma to remedy the defects of the 2 lifts of the Hotel after the 2^nd Agreement had been terminated. The counterclaim was made on the basis of the Quotation[3]. It was held in the Judgment that even if the defendant had indeed incurred the expenses included under the Quotation, the defendant could not succeed in its counterclaim unless it could establish that there were indeed defects in the parts mentioned in the Quotation and that the plaintiff had failed to replace those parts free of charge for the defendant. In this regard, it is important to bear in mind Clause 5 of the Agreements which reads:

“乙方要對設備作全方位檢查，並提供有關的零件及人工對設備進行必要的修理，但不包括更換機箱LED照明、機箱風扇、人為故障造成的損壞。” (emphasis added)

18.  The burden was on the defendant to prove the necessity of replacement of the relevant parts. In paragraph 114 of the Judgment, it was held that the defendant had failed to prove that the plaintiff had breached the Agreements in failing to replace those parts for the defendant. The defendant’s counterclaim was therefore dismissed.

19.  Hence, I do not agree that the court had failed to make any finding on whether the defendant had suffered any loss by reason of the alleged breach of the 1^st Agreement.

20.  As far as the other alleged breaches were concerned, the defendant had never pleaded any other items of special damages. Neither had his trial counsel (not Mr Tom Ng) ever submitted to the court that nominal damages should be awarded to the defendant even if the defendant could not prove other heads of damages.

21.  I therefore hold the view that Ground 2 has no reasonable prospect of success.

22.  Even if it is reasonably arguable that this court should have decided whether the defendant was entitled to nominal damages, I would not exercise my discretion in granting leave to appeal in the interests of procedural economy and proportionality, because it does not worth the legal costs and time, not to mention judicial resources, for the defendant to argue only for nominal damages on appeal.

Ground 3

23.  The crux of the defendant’s argument under this ground is that the court had erred in adopting the contractual price for the professional service as the plaintiff’s loss.

24.  Mr Ng submitted that one cannot assume that the plaintiff could have earned the entirety of the gross revenue sum without incurring any variable cost and that therefore the plaintiff should only be awarded with the amount of net profits rather than its loss of gross revenue.

25.  At the trial, after the close of the defendant’s case, directions had been given for the parties to exchange two rounds of written submissions: the written closing submissions and the written reply submissions respectively. In both sets of submissions lodged by the defendant’s trial counsel, no argument had been made on the amount of damages which the plaintiff should be entitled to in the event the court found that there was no repudiation of the 2^nd Agreement on the part of the plaintiff. The defendant’s trial counsel, on the other hand, lodged a “Defendant’s Note on the Legal Issues” on the same day when he lodged his written reply submissions, in which he made the following submissions on quantum:

“15. On the other hand, even if the Plaintiff is to be held innocent, the Plaintiff is only allowed to claim damages but not the contract sum in this case. This is so despite the Plaintiff was delivering professional services. The only remedy is to sue for damages and not for the contract sum if the contract is unable to be completed without the cooperation of the other party [See Chitty (33^rd Edition), at §24-010].

16. Here, the Maintenance Works under the Agreements could only be completed in the Hotel, if not the lift shafts of the Hotel. The Plaintiff was unable to complete the contract without the Defendant’s cooperation.

17. This is not to absurdly suggest that the Plaintiff would not be entitled to any remedy at all. The application means the Plaintiff would still be entitled to damages, but not the contract sum. However, the Plaintiff did not prove the loss for the damages. There is no evidence whatsoever at all in this respect.

18. The Plaintiff’s reliance on the Ryoden is of assistance to its case. In that District Court case, it concerned a self-induced frustration. There was no discussion on the available remedy where performance requires the cooperation of the other party.

19. Alternatively, the Plaintiff may claim the contract sum if it was stipulated that the contract sum would become payable irrespective of the performance of its outstanding obligations [See Chitty (33^rd Edition), at §27-002]. Again, the Plaintiff was in repudiatory breach of the Agreements to begin with and there is no liability on the Defendant’s part before going into quantum. In any event, as a matter of fact-finding, the Plaintiff did not prove any loss whatsoever for the damages.”[4]

26.  It can be seen from the above that, while the defendant’s trial counsel did argue that the plaintiff should not be awarded with the contract sum and that the plaintiff had failed to prove its damages, his submission was made on the basis of the proposition that “the only remedy is to sue for damages and not for the contract sum if the contract is unable to be completed without the cooperation of the other party”. This argument had been dealt with in paragraphs 98 to 103 of the Judgment.

27.  As Ms Moy pointed out, the defendant is now raising a new argument which was not made at the trial. Mr Ng for the defendant did not dispute this assertion in his reply submissions.

28.  The Court of Appeal has a discretion to allow new points which was not argued in the court below to be raised on appeal. In Cathay Pacific Flight Attendants Union v Director of Civil Aviation [2007] 2 HKLRD 668, Ma CHJC (as his Lordship then was) has given the following guidance as to how such a discretion should be exercised:

“(1) Where new points are sought to be raised on appeal (not having been raised in the court below), it is for the Court of Appeal to decide in its discretion whether or not to allow this.

(2) Where pure points of law are involved, the Court of Appeal may be more inclined to allow these to be raised than if factual questions or mixed law/fact issues are involved.

(3) Where in particular any factual questions are sought to be raised, the Court of Appeal will be anxious to ensure that no prejudice to the other side will be caused. This is equally applicable to pure points of law but is more acute when factual issues are involved.

(4) If the court does allow new factual points to be raised, the other side must be given sufficient opportunity to meet them. It does not follow from this, however, that just because the other side may be given an opportunity to deal with new factual issues that leave will be given to raise them. The time for going into the facts is before the trial court. It is not for the appeal courts to try and determine disputed facts.

(5) The Court of Appeal will almost invariably expect an explanation to be given as to why new points raised on appeal (whether of fact or law) were not raised in the court below. This is an important facet of the court’s discretion.

(6) It is also incumbent on the party seeking to raise new points on appeal to alert the court and the other party or parties that this is the case. It will not be good practice merely to ‘slip in’ new points without there being some prior indication of this.

(7) Where appropriate, an application should be made to amend pleadings or in judicial review proceedings, the Form 86A application for leave to apply for judicial review.”

(at paragraph 45)

29.  In Flywin Company Limited v Strong & Associates Limited [2002] 2 HKLRD 485, Bokhary PJ also said that:

“38. Where a point is taken at the trial, the facts pertaining to it are open to full investigation at the evidence-taking stage of the litigation. That is as it should be. Therefore where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, the position is as follows. He will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial.

39. Clearly the foundational imperative of the ‘state of the evidence’ bar, as I propose to call it, is fairness. […]”

30.  Mr Ng’s new point is fact-sensitive because it involves the question of the amount of variable costs. The defendant has also failed to provide any explanation why this point was not taken at the trial. In my view, it would be very unfair to the plaintiff if the defendant is allowed to raise this on appeal.

31.  I therefore hold the view that there is no reasonable prospect for the defendant to be able to obtain leave from the Court of Appeal for the purpose of raising this new point.

32.  Despite my conclusion above, I will deal with Mr Ng’s argument on this new point below.

33.  Among other things, Mr Ng submitted that:

“One simply cannot assume that P could have earned the Lost Gross Revenue Sum without incurring any variable cost. Indeed, the presumption in a claim for reliance loss is that ‘because it is the defendant who has (in the simple case) caused the predicament in which the claimant finds itself, the law applies a rebuttable presumption that the claimant would have generated enough revenue at least to breakeven’: Galtrade Limited v BP Oil International Limited [2021] EWHC 1796 (Comm), at §126; see also Omak Maritime Ltd v Mamola Challenger Shipping Co Ltd [2011] Bus. L.R. 212, §§42-49.”[5]

34.  The proposition which Mr Ng cited in his submission as quoted above was taken from the case of Galtrade Limited v BP Oil International Limited [2021] EWHC 1796 (Comm). That was a wasted expenditure case. When Mr Adrian Beltrami QC, sitting as a Judge of the High Court of England and Wales, stated what was quoted above, he was dealing with the question of whether the claim would fail because the defendant had established that the claimant would have lost money even if the contract was performed. Mr Ng had only quoted paragraph 126 in his written submission. In my view, it may be useful to refer to the following paragraphs of the Judgment as well:

“124. As I have mentioned, the juridical nature of the claim for wasted expenditure was explained by Teare J in The Mamola Challenger as an expression of a contractual claim for expectation losses. Particularly where a claimant may be unable to articulate a conventional claim for lost profits (as in, for example Savva v Hussein), it may instead be able to say that it would not have suffered the losses evidenced by its wasted expenditure if the defendant had performed the contract. The premise is that it would in that event have generated profit, or at least revenue, which would at a minimum have recouped the level of expenses so that they were not wasted.

125. This means that, in turn, such a claim has validity only if and to the extent that the Court is satisfied that the claimant would indeed have generated the necessary revenue to recoup the expenses. The Court will not knowingly make an award of damages which puts the claimant in a better position than if the contract had been performed and so will not allow a claim for wasted expenditure if the result of the breach is that the claimant has thereby managed to extricate itself from a loss-making transaction.

126. Because it is the defendant who has (in the simple case) caused the predicament in which the claimant finds itself, the law applies a rebuttable presumption that the claimant would have generated enough revenue at least to break even: Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111, [2013] 1 Lloyd’s Rep 526, at [188] and [190], per Leggatt J. Further, as per Kramer [18-77], ‘the burden on the defendant is a real one, and the court will not lightly conclude that the claimant would not have recouped its expenditure.’ The principle also operates as a cap, in that there is a sliding scale under which a claimant may be able to recover more or less of its wasted expenditure depending on how far it would have missed that break even point.

127. The Court must therefore consider, on the defendant’s burden of proof, the hypothetical question of the claimant’s profitability in the eventuality of contractual performance. In so doing, the Court will apply what has been referred to as the ‘fair wind’ principle, or the ‘principle of reasonable assumptions’. In Yam Seng, at [188], Leggatt J described this as being that ‘it is fair to resolve uncertainties about what would have happened but for the defendant's wrongdoing by making reasonable assumptions which err, if anything, on the side of generosity to the claimant where it is the defendant’s wrongdoing which has created those uncertainties.’ ”

(emphasis is mine)

35.  In the present case, the plaintiff has pleaded that the contractual price was its damages suffered by reason of the defendant’s breach of the 2^nd Agreement. In my view, if it is the defendant’s case that the contractual price was not the plaintiff’s loss, it would be up to the defendant to plead the reason why in its Defence. If it is the defendant’s case that there would have been variable costs which should be taken into account when the plaintiff’s loss is ascertained, it should plead clearly such a matter in its pleading, so that the plaintiff would be notified fairly that this would be one of the issues in dispute.

36.  However, the defendant has not done so. In my view, as a matter of fairness, in the present state of the pleadings, the defendant should not have been allowed to rely on this argument even if it was raised at the trial.

37.  The defendant therefore has no reasonable prospect of success on this ground.

38.  Mr Ng further argued that it is in the interest of the public (and hence in the interest of justice) for this ground to be argued before the Court of Appeal.

39.  The plaintiff’s claim which was allowed in full is only in the sum of $135,300. Bearing in mind the underlying objectives to increase the cost effectiveness of civil practice and procedure and to promote a sense of reasonable proportionality and procedural economy in the conduct of proceedings, I do not think this is the appropriate occasion for the matter to be argued before the Court of Appeal.

40.  I therefore hold that the defendant has failed to show that there is some other reason in the interest of justice for the appeal to be heard.

CONCLUSION

41.  By reasons of the aforesaid, the defendant’s application for leave to appeal is hereby dismissed.

COSTS

42.  There is no reason why costs should not follow the event. I make a costs order nisi that the defendant shall bear the plaintiff’s costs of the Leave Summons, with certificate for counsel, to be taxed if not agreed.

43.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper) within 14 days hereof.