THE INCORPORATED OWNERS OF GOUGH PLAZA v. WONG CHING KONG AND ANOTHER

DCCJ 3400/2019

[2022] HKDC 246

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3400 OF 2019

(Transferred from HCA 2572/2017)

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DECISION

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1.  There are two applications by the plaintiff before the court: an application for leave for appeal against the judgment of this court dated 17 September 2020 (the “Judgment”)  and an application for variation of the costs nisi.

Leave for appeal

Legal principles

2.  The law is trite:

“Under section 63A(2)  of the District Court Ordinance, Cap 336, leave shall not be granted unless the appeal has a reasonable prospect of success, or there is some other reason in the interests of justice that the appeal should be heard. Reasonable prospect involves the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable”.” (Chan Lap Kit v Yushun Technology Ltd [2018] 1 HKLRD 192 at paragraph 7)

3.  The background of the case has been stated in details in the Judgment and needed not be repeated here.

The grounds for appeal

4.  The plaintiff has advanced 3 grounds for appeal (as stated in its Amended Notice of Appeal).

i)  Ground 1: In declining to order 1^st and 2^nd defendants for an account of the profit and/or licence fee and/or to follow the decision of AG v Blake [2001] 1 AC 268, the learned Judge non-directed himself to the following matters:

a)  The 1^st and 2^nd defendants are making profit by entering into an agreement with HKT and by breaching the covenants of DMC;

b)  At all material times, the 1^st defendant was the secretary of the plaintiff and his position is closely akin to a fiduciary;

c)  The breach of covenants of DMC was cynical and opportunistic;

d)  The plaintiff has a statutory duty to enforce the DMC and/or a legitimate interest to prevent 1^st and 2^nd defendants profiting from any breach of the DMC;

e)  The relevant provisions under the DMC in question are negative land covenants and the breach thereof resulted loss of valuable asset created or protected by the right which was infringed; and

f)  In the circumstances, the present case is a case where the normal compensatory damages was inadequate, specific performance or injunction were inappropriate relief.

ii)  Ground 2: Alternatively, having found 1^st and 2^nd defendants had been in breach of multiple covenants of DMC, the learned judge erred in declining to grant relief to the plaintiff on the ground that the 1^st and 2^nd defendants had not been enriched at the expense of the plaintiff, the learned Judge ought to have granted the plaintiff relief including an account of profits and/or licence fee, or alternatively negotiating damages and/or damages in lieu of injunction regardless of the 1^st and 2^nd defendants had been enriched at the expenses of the plaintiff.

iii)  Ground 3: the learned Judge erred in taking into account the matters set out below which were irrelevant as the claim of the plaintiff against the 1^st and 2^nd defendants was founded on the breach of covenants on part of the 1^st and 2^nd defendants rather than on the reversal of unjust enrichment:

a.  The plaintiff would not have been in a position to enter into the same agreement made between the 1^st and 2^nd defendants and HKT and would not have obtained the licence fee;

b.  There was no evidence that the plaintiff would otherwise benefit from the agreement (with HKT)  or licence fee;

c.  The 1^st and 2^nd defendants did not take away “the profit that should rightfully belong to the plaintiff”.

Grounds 1 and 3

5.  The plaintiff’s counsel, Mr. Alex Lai, has referred the court extensively to the textbook “The Principles of the Law of Restitution” by professor Virgo.

6.  However, there is, in reality, no argument in the law of restitution here: the remedy of restitution is available for various courses of action and two of which may be relevant in the current case, namely, unjust enrichment and “AG v Blake-type” breach of contract.

7.  The court has, as a finding of facts, ruled that the former course of action does not apply to the current case (paragraphs 32 to 44 of the Judgment). Grounds of Appeal 1 and 3 also made it clear that the plaintiff has abandoned this as a course of action.

8.  As such, Grounds 1 and 3 are essentially the same argument: the plaintiff is submitting that the current case amount to the exceptional circumstances of AG v Blake thus justifying a remedy of restitution for a breach of contract (that is, the DMC).

9.  However, the court has already considered all the facts and circumstances of the case and, again, as a finding of fact, that they do not amount to the exceptional circumstances of AG v Blake: see paragraph 45 of the Judgment.

10.  As to the individual points raised under Ground 1, points a)  to f)  of Ground 1 are a rehashing of the same arguments before the court, but I will also deal with them here.

11.  Point a)  is of no help: there was a finding of breach of DMC and the defendants had profited from that, but this did not point to any exceptional circumstances.

12.  Point b)  also does not assist the plaintiff: the evidence was that the 1^st defendant was only the secretary (and not a member)  of the Incorporated Owners’ Committee (“IO”)  therefore owed no fiduciary duty, and there was no evidence that the 1^st defendant breached any duties as a secretary of the IO when committing the breach of DMC.

13.  I agree with Mr. Kevin Lau, the counsel for the 1^st and 2^nd defendants, that the breach of DMC was committed by the defendants were as the owners of Roof B of the building and not by the 1^st defendant in the role of the secretary of the IO of the building. This is clearly very different from the case of AG v. Blake, which concerned wrongfully divulging confidential information of national interest in breach of a non-disclosure agreement and profiting from this wrongful act.

14.  Point c)  is not based on any evidence before the court nor any findings of the court. Further, even if the court made a finding that the breach was “cynical and opportunistic”, I cannot see how that amount to any exceptional circumstances of AG v Blake.

15.  Points d), e), f)  and g)  also would not amount to any exceptional circumstances of AG v Blake.

16.  In short, the finding of facts of this court is that this is a case of a simple breach of DMC by two owners with no findings of unjust enrichment. It would be a major extension for the law of restitution if such a remedy is awarded.

Ground 2

17.  Mr. Lai argued for the relief of account for profit, negotiating damages and/or damages in lieu of injunction.

18.  The first hurdle is that the plaintiff did not plead for the latter two reliefs.

19.  Further, negotiating damages is a restitutionary remedy “assessed by reference to a hypothetical negotiation between the parties, for such amount as might reasonable have been demanded by the claimant” which is “a difficult and uncertain exercise” and recent practice has been to instruct “forensic accountants to give exert evidence” with “the aim to arrive at an objective valuation” (One Step (Support)  Ltd. V Morris-Garner and another [2018] UKSC 20 at paragraphs 23, 74 and 75).

20.  As such, even if the plaintiff has pleaded for the relief of negotiating damages (and that the court finds such a restitutionary remedy appropriate in this case), the plaintiff has failed to provide any evidence (let alone any expert evidence)  as to what amount of money might hypothetically be demanded by the IO for granting consent to the defendants for the agreement with HKT to put up the telecommunications equipment on the defendants’ roof.

21.  Mr. Lai is effectively asking the court to pluck a figure from thin air. The court clearly is not in a position to do so.

22.  The plaintiff pleaded for account for profit as the only relief and the court has already found that this restitutionary remedy is not appropriate under the circumstances of this case.

Conclusion

23.  As such, I am not satisfied that there is a reasonable prospect of success, or there is some other reason in the interests of justice that the appeal should be heard. I would therefore dismiss the plaintiff’s application for leave to appeal.

24.  The cost of this application be to the 1^st and 2^nd defendants with certificate for counsel. If there is no agreement on costs, the 1^st and 2^nd defendants shall, within 14 days of this order, lodge and serve a summary bill of costs and the plaintiff shall lodge and serve a summary list of objections 14 days thereafter, and the court shall assess costs summarily on paper.

Variation of cost order nisi

25.  There is no dispute between the parties that the costs of the action should be split into two periods: the costs of action up to the time the telecommunications equipment were removed by HKT on 30 October 2018, and the costs of the action after this up to and including the trial.

Costs of action up to 30 October 2018

26.  The plaintiff’s initial claim against the 1^st and 2^nd defendants included an injunction for the removal of the equipment, and the 1^st and 2^nd defendants’ original defence was that the equipment did not belong to them and they could not unilaterally remove them. The plaintiff therefore obtained leave to join HKT as 3^rd defendant on 24 October 2018 and HKT removed the equipment on 30 October 2018.

27.  The 1^st and 2^nd defendants argued that the plaintiff was only successful against HKT, which exercised its right for early termination of the agreement and removed the equipment. The 1^st and 2^nd defendants claimed that the injunction would otherwise be resisted by them.

28.  I note that Clause 9 of the agreement between the defendants and HKT allowed a 2 months’ notice for HKT to terminate the agreement. The fact that HKT had removed the equipment within 6 days of being joined as 3^rd defendant showed that the 1^st and 2^nd defendants might have likely waived this two months’ period of notice. This showed some degree of acceptance of the injunction by the 1^st and 2^nd defendants.

29.  I agree with Mr. Lai that the cost up to this time should be to the plaintiff: it is clear that the plaintiff got what it has asked for.

The remaining costs of action up to and including the trial

30.  As stated in paragraph 46 of the Judgment, this is an unusual case where there is a finding of liability but the specifically pleaded relief is not applicable.

31.  As discussed in paragraph 47 of the Judgment, the equipment had already been removed. The plaintiff did not seek any claim for damages for repairs in the common areas but instead sought an account of profit which, as the court finds, is misconceived under the circumstances being not an unjust enrichment nor “AG v Blake-type” case.

32.  On the other hand, Mr. Lai argued that much of the trial time was spent in the dispute in liability which the 1^st and 2^nd defendants lost. Although there was plenty of factual disputes which concerned whether there was prior approval, acquiescence and waiver from the IO for the installation of the HKT equipment, there were clauses in the DMC which was not within the power of the IO to acquiesce to (paragraphs 26 to 30 of the Judgment). Thus, the issue of liability should be quite settled on plain reading of such clauses.

33.  I have been referred to cases like Hung Fung Enterprises Holdings Ltd. V Agricultural Bank of China [2012] 3 HKLRD, Moulin Global Eyecare Holdings Limited (in liquidation)  and Others v Olivia Lee Sin Mei HCA 167/2008 and Chan Ningning v King & Wood (a firm) HCMP 163/2012 [2020] HKCFI 602 etc.

34.  In the current case, one may criticise that the plaintiff for continuing to pursue the claim after the equipment was removed, but one may also criticise the 1^st and 2^nd defendants for taking on obviously untenable points of defence in liability when the main line of defence should have been that the relief sought by the plaintiff was unjustifiable.

35.  On balance, I would take a broad brush approach and give no order as to costs of the remainder of the action.

Conclusion

36.  I would vary the costs order nisi for the cost of the action against the 1^st and 2^nd defendants up to 30 October 2018 be to the plaintiff to be taxed if not agreed.

37.  As for the remaining costs of the action up to and including the trial, there be no order as to costs.

38.  The costs of this application be to the plaintiff with certificate for counsel. If there is no agreement on costs, the plaintiff shall, within 14 days of this order, lodge and serve a summary bill of costs and the 1^st and 2^nd defendants shall lodge and serve a summary list of objections 14 days thereafter, and the court shall assess costs summarily on paper.