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

cacv 143/2004 & CACV 153/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal nos. 143 & 153 of 2004

(on appeal from HCA NO. 967 of 2004)

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REASONS FOR JUDGMENT

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Hon Le Pichon JA:

1.  These are appeals from (1) the order of Deputy Judge Chan dated 28 April 2004 refusing the defendants’ application to discharge an ex parte injunction granted by Deputy High Court Judge Muttrie and (2) the order of Deputy High Court Judge Saunders dated 14 May 2004 granting interim injunctions, in particular, an injunction restraining the defendants from trespassing or staying on the land in question and the buildings thereon.  At the conclusion of the hearing the appeals were allowed with written reasons to be handed down later which we now do.  The orders made included the setting aside of the costs order made by Deputy Judge Chan, the discharge forthwith of the injunction granted by Deputy Judge Saunders, an order for an inquiry as to damages pursuant to the plaintiff’s undertaking and an order for costs in favour of the defendants, such costs other than the costs of the appeal to be on an indemnity basis. 

Background

2.  The Wong family owns land in Yuen Long in the New Territories (“the land”) which is registered in the name of the plaintiff.  Through International Resort Centre Ltd (“IRC”), the Wong family runs a riding club.  In 2003, IRC entered into a Management Agreement (“the Agreement”) with the 1^st defendant for a term of 3 years commencing on 1 August 2003 and expiring on 31 July 2006 and for a further term at an agreed increment of not more than 5% on the monthly licence fee payable under clause 1.2(a) commencing 1 August 2006 and expiring on 31 July 2009.  The Agreement was signed by the 1^st defendant on 24 September 2003 and by IRC on 17 October 2003.  The 2^nd defendant is a director and shareholder of the 1^st defendant.

3.  The Agreement provided for the payment by the 1^st defendant of a licence fee of $35,000 per month as well as for all recurrent and non-structural operating expenses for the riding school whilst IRC was to be responsible for all structural expenses.  So, subject to the payment of the monthly licence fee and the specified expenses, the 1^st defendant was given the right under clause 1.6 “to derive income from the riding school, including entrance fees, monthly subscription fees for new members, livery, horse rental, riding lessons and moviemaking.”  It is the defendants’ case that because of the dilapidated state of the Club and poor facilities, improvement works requiring substantial investment had to do be carried out.  In deciding whether or not to carry out the intended improvement works, the length of the term was an important consideration for the defendants.  It is their case that Alice Wong of the Wong family assured the 1^st defendant that they could safely proceed with the intended improvement works. 

4.  In any event, improvement works costing about $775,000 were carried out commencing September 2003.  It is the defendants’ case that they were carried out with the knowledge and consent of the Wong family.  According to the defendants, in December 2003, the 1^st defendant reached an agreement with Mr Ronnie Wong that the 1^st defendant would remove a swimming pool on the land and build a new training corral in its place.  In return, the monthly licence fee would be reduced from $35000 to $26000.  The 1^st defendant said that it had expended $300,000 on that work and that since December 2003, as per the Agreement reached with Mr Ronnie Wong the 1^st defendant had been paying IRC a reduced licence fee of $26,000 per month without any complaint of underpayment by the plaintiff until 12 March 2004.  For the plaintiff, it was said that much of the expenditure was incurred in respect of adjoining land not owned by the plaintiff but it was accepted that some monies had been spent on improving the plaintiff’s land.

5.  In January 2004, Mr Ronnie Wong and the 2^nddefendant had a discussion regarding a contemplated sale of the land.  As will appear below, the nature of the discussion is disputed.  In any event, on 30 January 2004, the plaintiff entered into a formal agreement with Ample Group International Ltd (“Ample”) to sell the land to Ample with vacant possession and completion was scheduled for 30 April 2004. 

6.  The sale came to the notice of the defendants whose solicitors then took the matter up with the plaintiff’s solicitors by letter dated 8 March 2004.  The defendants’ solicitors asserted that the 1^st defendant, at the request of and/or with the full knowledge, approval and/or encouragement of the Wong family and IRC, had carried out substantial improvement works to the land, the Club and its structure and facilities.  They raised a claim to proprietary estoppel and called upon the Wong family to honour their legal and moral obligations to the defendants and the members of the Club.  They also sought an undertaking in writing from the plaintiff to the effect that (a) the 1^st defendant is entitled to continue to use, occupy and operate the land in accordance with the Agreement until 31 July 2009 and (b) it would procure Ample to give a similar undertaking. 

7.  By letter dated 12 March 2004, the plaintiff’s solicitors replied asserting an agreement reached in January that the Agreement would cease on 30 April 2004 and the sum of $100,000 would be payable to the 1^st defendant as removal allowance.  It further asserted a breach of clauses 1.2(a) (payment of a monthly licence fee) and 2.2 (payment of operating expenses) in that the 1^st defendant owed the plaintiff in aggregate the sum of $105,600 in respect of waiver fees and the balance of the licence fees for the months of December 2003 through March 2004.

8.  Four sets of the proceedings then followed:

(1)     On 19 March 2004, IRC commenced an action in the District Court (DCCJ 1516 of 2004) claiming arrears of licence fees and waiver fees.  An order 14 summons is still pending.

(2)     On 20 March 2004, the 1^st defendant commenced an action in the High Court (HCA 662 of 2004) against IRC, the plaintiff and Ample for specific performance of the Agreement and damages in addition or lieu, declarations as to the rights of the 1^st defendant to use, occupy and enjoy the land in accordance with the Agreement and an injunction restraining IRC, the plaintiff and Ample from preventing, obstructing or otherwise interfering with the use of the Club by the 1^st defendant in accordance with the Agreement until 31 July 2009.

(3)     On 1 April 2004, the plaintiff commenced proceedings for possession under Order 113 (HCMP 873 of 2004).  The hearing has been adjourned pending this appeal.

(4)     On 24 April 2004, the plaintiff commenced the present action by issuing a generally endorsed writ claiming injunctions to restrain the defendants from being on the land and from molesting, interfering with or disturbing the plaintiff and for damages for trespass.

The ex parteorder

9.  On the day these proceedings were issued, the plaintiff applied for and obtained ex parte injunctions from Deputy High Court Judge Muttrie.  The affirmation of Mr Ronnie Wong in support of that application sought relief in the form of injunctions, inter alia, to exclude the defendants from the land on the basis that they were trespassers and had no right to be there.  That assertion was grounded on the allegation that the defendants were in arrears with the payment of waiver fees and licence fees to the extent of $105,600 and had failed and/or refused to pay them thereby breaching clauses 1.2(a) and 2.2 of the Agreement, entitling the plaintiff to terminate it under clause 5.1(c) and that the plaintiff had accepted the 1^st defendant’s repudiation of the Agreement by letter dated 12 March 2004 from its solicitors.  The plaintiff also referred to an incident on 21 April 2004 when allegedly the 2^nd defendant had used his vehicle to block the main gate of the riding school.  Whilst it was accepted that by the afternoon of 22 April 2004 the vehicle had been removed from the main entrance, Mr Wong complained that the employees of the 1^st defendant were still present on the land.  He also referred to the plaintiff’s obligations under the sale and purchase agreement to deliver vacant possession to Ample on 30 April 2004 and its potential exposure to a huge claim in damages if it could not deliver vacant possession. 

10.  The ex parte application was made on 24 April some 2 days after the incident deposed to in Mr Wong’s affirmation and 6 weeks after the defendants had first asserted a claim based on proprietary estoppel and the reason for the payment of a reduced licence fee.  Quite why the application was not made on notice to the defendants is not apparent from the supporting affirmation of Mr Wong.  The evidence filed disclosed no grounds for secrecy or urgency.  At the appeal hearing, counsel for the plaintiff sought to explain that what had prompted the ex parte application on 24 April was the fact that there had been press reports that morning that there would be a demonstration at the riding school that afternoon.  Mr Collins who appeared for the plaintiff could not explain why, if that was so, no supplemental affirmation had been filed subsequent to the hearing before Deputy High Court Judge Muttrie deposing to those events.  One would have expected an undertaking to file evidence that justified the making of an ex parte order assuming it had not been possible or feasible for the evidence to have been filed prior to the hearing.

11.  Be that as it may, Mr Wong’s affirmation failed to disclose the letter dated 8 March 2004 from the 1^st defendant’s solicitors described in paragraph 6 above.  That letter explained in detail the reason for the payment of the reduced licence fee as well as the defendants’ claim to proprietary estoppel.  To my mind, the plaintiff’s failure to inform the judge of the contents of the letter of 8 March constituted material non-disclosure.  Had the judge’s attention been drawn to it, it would have become apparent that whether or not section 5.1(c) was triggered entitling the plaintiff to terminate the Agreement was a triable issue which could not have been determined on affidavit evidence.  That would undoubtedly have undermined the plaintiff’s case that the defendants had no right to be on the land.

12.  If the 1^st defendant was not in breach of any of the terms or conditions of the Agreement so that the plaintiff could not rely on clause 5.1(c), the plaintiff was hardly in the position to claim that the Agreement had been terminated unless it could show that clause 5.1(a) had been triggered.  That provided as follows:

“5.1     Without prejudice to any other remedies each party may have against the other, this Agreement may be terminated as follows:

(a)       Upon receiving notice from the Landlord of LOT 64 and 73 BRP in DD 108 of its intention to redevelop the Premises or part thereof, or from the government to resume the Premises or part thereof, IRC may give 6 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;

…”

There was no evidence of receipt by IRC of a notice from the plaintiff of its intention to develop the land or of the resumption notice from government which was a pre-requisite to the termination of the Agreement on 6 months’ written notice to the 1^st defendant.  Accordingly, on any footing, the plaintiff could not have shown that the 1^st defendant was not entitled to remain on the land under the terms of the Agreement.  It necessarily followed that there was no basis upon which the ex parte injunctions could have been granted on 24 April. 

Refusal to discharge the ex parte order

13.  In any event, the ex parte order should have been set aside by reason of the material non-disclosure referred to above.  When the matter came before Deputy High Court Judge Chan on 28 April on the application by the defendants for a discharge, regrettably, the judge did not go into the merits of the ex parte order.  Rather, he took the view that the defendant’s rights

“do not depend on whether it has a physical presence in the land on the date of completion.  Its rights will be resolved when the actions I have mentioned above are resolved.

On the need to go back to the business, I can’t see any difference whether the application for discharge is to be entertained now or on 30 April.  I therefore fail to see any urgency in this application.  I also note that the horses which were kept in the stables on this land are now in the custody and care of the Hong Kong Jockey Club and therefore the care and attention to the horses is not one of the grounds for urgency.”

With respect, had the judge gone into the merits of the ex parte order, he would have realized that the grant of any injunction would hardly have maintained the status quo.  Rather, it would have had the effect of evicting the defendants from the land upon which they had been carrying on business.  It would have been necessary to go into the question of damages being an adequate remedy.  Prima facie, the plaintiff’s loss should it prevail at the end of the day would appear to have been compensatable in damages.  That would not have been the case as regards the defendants.  Moreover, it was wrong to consider that the matter could not be considered urgent simply because the return date of the inter partes summons was only two days away.  Given that the business conducted by the defendants on the land was that of a riding school, the urgency of the matter was really self-evident.

The interim injunction

14.  Mr Collins who appeared for the plaintiff sought to uphold the order made on 14 May 2004 whereby interim injunction was granted which had the effect of evicting the defendants from the land.  As appears from paragraphs 15 to 17 of the judgment, the judge considered that the 1^st defendant had no more than a contractual licence under the Agreement which was revocable by the licensor and even if revocation was in breach of contract, the licensee was confined to his financial remedy.  He rejected the contention that by virtue of the improvements carried out on the land, an equitable interest in the land had been acquired.  In his view that suggestion was ‘tenuous’ and he equated the entitlement of the 1^st defendant to occupy the land to that of a building contractor employed by an owner of land to carry out improvement works on the land.

15.  Mr Graham who appeared for the defendants rightly challenged the correctness of the legal propositions flowing from that analysis.  As explained in Megarry & Wade, The Law of Real Property, 6^th Edition at 17-007 to 17-013, the common law position where a licence, unless coupled with an interest, was always revocable has been modified in three aspects.  First, its revocation may be restricted by contract.  The rights of the parties to a contractual licence, in particular, whether or not and in what circumstances a contractual licence is revocable, is a matter of construction.  See the decision of the House of Lords in Winter Gardens Theatre (London) Ltd v Millennium Productions Ltd [1948] AC 173 at 196.  If the contract is specifically enforceable in equity, an injunction will be granted to restrain a wrongful revocation.  Second, a licence that has been acted upon cannot usually be revoked.  Winter v Brockwell (1807) 8 East 308 at 310; Megarry & Wade, op. cit. at 17-012.  Third, the doctrine of proprietary estoppel may operate to restrict its revocation. 

16.  Had the judge had regard to the correct legal position as expounded in Megarry & Wade, he would inexorably have reached the conclusion that the defendants had a strong case for remaining on the land, that the balance of convenience was in favour of the defendants, and were it necessary to consider the preservation of the status quo, it would have been evident that its preservation required the refusal of the injunction sought.  I am accordingly of the view that there was no valid basis for upholding the interim injunction granted.

Hon Lam J:

17.  I agree with Le Pichon JA that the appeals should be disposed of as per Paragraph 1 above for the reasons given by Her Ladyship.  I also join Her Ladyship in the disapproval as to the manner in which the Plaintiff obtained the ex parte injunction before Deputy High Court Judge Muttrie.  Even taking into account of the explanation of Mr Collins set out in Paragraph 10 above, I still do not think the ex parte application for injunction in those terms could be justified.  Coupled with the material non-disclosure in that application as alluded to by Le Pichon JA, the Plaintiff had obtained an unfair advantage.  Since another set of Order 113 proceedings had been commenced well before the issue of writ in these proceedings, it strikes me that the ex parte application was a tactical move with a view to present a fait accompli to the Defendants.  The court should be astute to deprive a litigant the fruit of such abuse of its process.  For this reason, there is a distinction between an urgent application for ex parte relief and an urgent application for the discharge of an ex parte order obtained by the other side. 

18.  In the circumstances, the Plaintiff should bear the consequences of its ill-advised tactics, including payment of costs on indemnity basis for proceedings in the court below with an order for inquiry of damages.