Wong Chung Ming Development Fund Co Ltd v. Profit Surplus Ltd

HCA 335/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 335 OF 2008

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Before:  Deputy High Court Judge Au in Chambers

Date of Hearing:  22 September 2008

Date of Handing down of Decision:   23 September 2008

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DECISION

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1. The Plaintiff is the owner of No. 31-33 Hollywood Road and the building erected on it.  The Defendant is the owner of the adjacent land at No 35-37 of Hollywood Road, where the Defendant has just constructed a new commercial building on it.  

2. On 14 August 2008, Deputy High Court Judge Gill handed down his judgment (“the earlier judgment”) and granted an interlocutory injunction against the Plaintiff.  The effect of the injunction is to restrain the Plaintiff from doing anything to prevent the Defendant from (a) connecting its sewage drainage system to the Plaintiff’s drainage system under the Plaintiff’s land, and (b) using the said system when connected.

3. On 23 August, the Plaintiff lodged its appeal against the learned Judge’s Order.  By its Summons filed on 4 September (albeit dated 25 August), the Plaintiff applied for a stay of execution of the learned Judge’s Order. 

4. This is the hearing of the Plaintiff’s application.

5. In this decision, I shall adopt the abbreviations used in the earlier judgment. This decision should thus be read together with the earlier judgment.

II.      Brief background

6. The background leading to the dispute, and the nature of the dispute between the parties have been set out in details at paragraphs 1 to 50 of the earlier judgment.  I will not repeat them here.  Suffice for me to set out some of the salient background facts more relevant to this application.

7. In March 2007, the Defendant connected the sewage drainage system of its newly constructed building to the existing system under the Plaintiff’s land through the Plaintiff’s manhole. 

8. However, in about May 2007 the Plaintiff disconnected that connection.

9. Despite various exchanges of correspondence between the parties, the Plaintiff has refused to give any consent to the Defendant to connect its drainage system to the Plaintiff’s.

10. Between February and May 2008, the Defendant had apparently sought to continue to carry out various works at the Plaintiff’s manhole and drainage system to effect an upgrading of that sewage system and for the purpose of connecting the Defendant’s own system to it.  This was again met with repeated oppositions from the Plaintiff.

11. In light of the dispute between the parties, the Plaintiff issued the present claim against the Defendant in March 2008, seeking an injunction against the Defendant restraining it from trespassing on the Plaintiff’s premises, its manhole by connecting or seeking to connect to the drainage system.  It also seeks damages from the Defendant’s alleged trespass.

12. The Defendant defends the claim and counterclaims for (a) a declaration that it has the right to connect its drainage system to that of the Plaintiff, and (b) an injunction to restrain the Plaintiff effectively from doing any acts to prevent the Defendant from carrying out works to connect its drainage system with the Plaintiff’s at the Plaintiff’s manhole, and from using the said drainage system

13. By June 2008, the construction of the commercial building on the Defendant’s land was practically completed, with the only outstanding matter before the issue of an occupation permit the connection of its sewage system.

14. Thus, on 3 June 2008, the Defendant took out an interlocutory injunction application against the Plaintiff, seeking to restrain the Plaintiff from interfering or preventing the Defendant from carrying out the necessary works to connect the drainage system with that of the Plaintiff.

15. At the interlocutory hearing, it is the Defendant’s case that it (being the owner of the land at No 35-37 Hollywood Road) has a prescriptive right to connect to the drainage system now in place at the Plaintiff’s land.  It seeks to support its case in reliance on, inter alia, various old approved building plans and letters from the Drainage Services Department to say that, since as early as the 1960’s, the sewage drainage system of the Defendant’s land has been connected to the drainage system located under the Plaintiff’s land.

16. The Plaintiff however maintains the position there is no such prescriptive right, as no such alleged pre-existing drainage connection existed.  The Plaintiff relies on various expert reports on the interpretation of the building plans, and factual inspection evidence to say that no such drainage connection existed previously.  The Plaintiff also says that the building plans do not provide any conclusive evidence that the alleged drainage connection existed, as the plans do not amount to any evidence that the suggested drainage system was in fact implemented.

17. The interlocutory application was heard before Deputy High Court Judge Gill.  As mentioned above, on 14 August 2008, the learned Judge granted the interim relief sought by the Defendant.

18. Since the grant of the interim injunction and before today’s hearing, the Defendant has effectively completed the works to connect its drainage system with that of the Plaintiff’s, albeit no OP has yet been issued.

III.    The present stay application

The earlier judgment

19. For the present purpose, the learned Judge’s relevant conclusions in granting the interlocutory injunction can be summarized as follows:

(1)  After applying the test concerning the grant of a mandatory interlocutory injunction, the learned Judge is satisfied that there is a high degree of assurance that the Defendant will at trial establish that it has the prescriptive right to connect the sewage system to the Plaintiff’s drainage system at the manhole by reason of an easement arising from a presumed grant under the doctrine of loss of modern grant, or an implied grant of an easement of necessity, or quasi-easement arising from the doctrine of Wheeldon v Burrows, or common intention.  The learned Judge came to that view based predominantly on (a) the certified existence of a sullage drain on site that ran from an existing manhole towards part of the service lane which was at part of No. 37 of Hollywood Road, and (b) the lack of other evidence to show that the plan was not implemented.  See: paras 56-65 of the earlier judgment.

(2)  The learned Judge also concludes that damages would not be an adequate remedy for the Defendant if the injunction is wrongly not granted.    On the other hand, if injunction is wrongly granted, damages would be a sufficient remedy for the Plaintiff as it will “not affect the plaintiff’s enjoyment of its property at all; there will be a disconnection and that will be that.  Minimal loss and damages will result”.   In the premises, the learned Judge further concludes that the balance of convenience lies in favour of granting the injunction.   See: paras 66-74 of earlier judgment.

Applicable principles

20. Both parties agree that the principles governing an application for stay pending appeal are those set out by Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at 87D-90A, paras 6-10.  They can be summarized as follows:

(1)  The burden is on the appellant to justify a stay of execution by showing that there are good reasons for stay.

(2)  The existence of a strong ground of appeal or strong likelihood of success on appeal is by itself a good reason for stay.  But in the majority of cases, it is undesirable and unnecessary to go deeply into the merits and strength of an appeal.

(3)  If an appellant only has an arguable appeal, he will have to provide additional reasons as to why a stay is justified.

(4)  A commonly recognized good reason is that an appeal will be rendered nugatory if no stay is granted.  To determine that question, the court may have regard to the nature of the order being appealed against.

(5)  An appeal being rendered nugatory does not mean in all cases that without a stay, the appellant will face financial ruin or the loss of all his property.  Demonstrating that the failure to grant a stay will have a serious deleterious effect on the appellant is sometimes sufficient.

(6)  However, in considering whether to exercise to grant a stay, the Court must also not forget the position of the successful party, and it is always relevant to consider the prejudice would be caused to the successful party in the event a stay is granted.  Thus, a fortori the court must consider any contention that the appeal would be rendered nugatory to the successful party (in the event the appeal is dismissed) should a stay of execution be imposed.

(7)  Ultimately, the court embarks on a balancing exercise and uses its common sense, with the starting point that the successful party is not to be deprived of the fruits of his success.

21. Further, it is trite that the Court of Appeal would not lightly interfere the exercise unless it can be shown that the learned Judge is clearly wrong, for example, in applying the wrong legal principles, or in arriving at a conclusion that no reasonable judge would have so come to.

The grounds in support of a stay

22. Mr Rimsky Yuen, SC, for the Plaintiff, submits that a stay of execution should be granted for the following reasons:

(1) The Plaintiff has a strong ground of appeal which is likely to succeed: 

(a) The learned Judge has clearly wrongly concluded that damages would not be a sufficient remedy for the Defendant.  Mr Yuen relies heavily on the decision of Patten J in Centrica Langage Ltd v Langage Energy Park Ltd [2007] EWHC 1003 (Ch) and submits that damages is plainly a sufficient remedy for the Defendant if an injunction is wrongly not granted.  

(b) In the premises, applying the trite principles in governing the grant of interim injunction, on that basis alone, no injunction should have been granted and there is no need to consider the question of balance of convenience. 

(c)  Mr Yuen also submits that the learned Judge has also erred in principle in his approach to the question of balance of convenience, since even if the question of balance of convenience comes into play, it must lie in favour of preserving the status quo: that is not to allow the Defendant to connect its drainage system to that of the Plaintiff’s. 

(2) Alternatively, if the Plaintiff has an arguable appeal, it would be rendered nugatory if a stay is not granted since:

(a)  the injunction granted is mandatory in nature and is a final relief sought by the Defendant;

(b) the damage to be suffered by the Plaintiff either (i) is not compensatible by damages, or  (ii) is one that the Defendant is unlikely to be in a position to compensate.

IV.    Discussion

Merits of the appeal

23. In addressing the question of (a) whether damages would be a sufficient remedy for the Defendant if injunction is wrongly not granted, and (b) the balance of convenience, the learned Judge says as follows in the earlier judgment:

“The Balance of Convenience

66.  Against a strong argument mounted by Mr Yuen that damages would be an adequate remedy, I am satisfied in the circumstances that would not be so.

67.  The defendant would be faced with having a virtually completed building lying dormant for as long as it takes to complete the trial and then prospectively the appeal process to follow.  This would result in an extraordinarily high level of loss of income and/or recovery of capital and inevitably the building would with lack of use fall into disrepair.  The alternative would be virtually to abandon its counterclaim, and realign the sewage drains and seek approval to connect into the drain in Hollywood Road.  That would require alteration to the structure, complex reconstruction at basement level, and delays associated with getting approval for this realignment.

68.  David Chan said this would take nine months to achieve at a cost of $200,000.  This is strongly challenged by Wong Chi Kwong, of the firm of architects responsible for the construction of the defendant’s building.  He states from paragraph 9:

‘9. …

Now the new building has already been built and to re-route the drainage system would involve a substantial alteration to the new building with submission of new plans for the approval of the Building authority.

10.    If the foul drainage is to be discharged from a new manhole on the ground floor level and connected to the public foul sewer at Hollywood Road, the drainage pipe of the new system has to be re-designed and re-routed from the basement of the new building to the ground level with the construction of a suspended manhole, sump pits and a pump room at the basement.  This would render most of the basement unusable.

11.    Further such a proposal would involve construction work at government land at Hollywood Road and require approval from the government and the relevant District Board.  In view of the fact that that section of Hollywood Road is a very busy road with a heavy traffic flow and a very narrow pavement, one cannot assume that consent from the government and/or the relevant District Board for such a construction work would be readily given.  In any event, it would definitely take a long time for such an application to be processed.  In my opinion, such a proposal in the Report is wholly unrealistic and impracticable and, even if possible, would involve a very long delay and substantial costs including the loss of use of the basement which would greatly exceed the unrealistic estimation of no more than 9 months and $200,000.00 in the Report.’

69.  It is not for me to resolve this dispute in the affidavits.  Suffice to say that on any view the rerouting would be long and complex and expensive, and approval to it not assured. 

70.  So, where does the balance of convenience lie?

71.  The answer I believe is clear-cut.  It favours the granting of the interlocutory injunction.

72.  Where is the inconvenience to the plaintiff?  There will be short-term disruption but the end result will be a pipeline reconstructed at the defendant’s expense that will in fact be an upgrade rendered compulsory by the DSD.  The concern that the line will be overloaded is a speculation; and surely the DSD would not authorize the connection and reconstruction without paying heed to the prospective flow from the new building.

73.  If the plaintiff is successful after trial there will be a massive upheaval for the defendant.  But it will not affect the plaintiff’s enjoyment of its property at all; there will be a disconnection and that will be that.  Minimal loss and damages will result.

74.  That the Building Authority may not grant an occupation permit in the face of ongoing litigation is with respect to David Chan further speculation.  I should have thought that provided construction is in all respects in compliance with the requirements of the regulations administered by the Authority, the granting of the permit would follow.  If not, that will be for the defendant’s management to deal with.”

24. As far as I can understand from the learned Judge’s reasoning, he comes to the conclusion that damages would not be a sufficient remedy for the Defendant because the alternative rereouting drainage work that needs to be carried out by the Defendant would be “long and complex and expensive, and approval to it not assured”.  He also relies on the same reason to come to the conclusion that the balance of the convenience should lie in favour of granting the interim relief.

25. Mr Yuen for the Plaintiff submits that the learned Judge’s approach and conclusion are clearly wrong in principle:

(1)  If the rerouting issue features in the learned judge’s consideration as to whether damages is a sufficient remedy, this is clearly an irrelevant factor which the learned judge has wrongly taken into account.   This so because if the injunction is wrongly not granted at the interim stage, there would no question of re-routing, since the Defendant would be able to connect the drainage system at the Plaintiff’s land after establishing its right at trial.  There is no suggestion that the Defendant has to go for the rerouting if no interim relief is granted.

(2)  Thus, without the question of rerouting, the only damage that the Defendant would suffer in the interim period would be, as the learned Judge has set out at paragraph 67M-P of the earlier judgment, “the loss of income and/or recovery of capital and inevitably the building would with lack of use fall into disrepair” which is clearly compensatible by damages.  There is no suggestion that the Plaintiff is not good for its undertaking as to damages.

(3)  According to trite legal principles, once the Defendant’s loss is compensatible by damages, interim injunction should not be granted and there is no question of balance of convenience. See:  American Cyanamid v Ethicon Ltd [1975]AC 396, 408B-F.

(4)  Further, even if the question of balance of convenience had to be considered, for the same reasons set out in subparagraph (2) above, the question of rerouting should not constitute a relevant consideration, and again according to trite legal principles, the balance of convenience must lie in favour of preserving the status quo by not allowing the Defendant to connect the drainage system and to use it: American Cyanamid, supra, 408G.

(5)  For these reasons, the learned Judge has clearly erred in principle in his approach to the issues of (a) whether damages is a sufficient remedy for the Defendant, and (b) even if necessary, the balance of convenience.

26. I accept Mr Yuen’s submissions. I am satisfied that notwithstanding that the learned Judge was exercising his discretion in granting relief, the Defendant has demonstrated to me that this ground of appeal stands a strong chance of success.

27. Mr Edward Chan, SC, on the other hand contends as follows:

(1)  At the hearing before the learned Judge, it was part of the Defendant’s submissions that, given that the Defendant was claiming a proprietary right of easement and the right to use it, by definition damages would not be a sufficient remedy, and the rights would always be protected by an injunction.   Mr Chan then further submits that as the learned Judge has not rejected those submissions in his judgment, it must therefore form part of his reasons for coming to his above conclusion.

(2)  Alternatively, the Court of Appeal is entitled to consider these submissions again, which are clearly meritorious and the Plaintiff’s appeal cannot be said to be bound to win.

28. However, in the earlier judgment, the learned Judge has neither set out Mr Chan’s above submissions nor included that as part of his reasons in coming to the conclusion that damages is not a sufficient remedy for the Defendant.  Without these, with respect to Mr Chan, I could not come to the view that the learned judge has accepted Mr Chan’s above submissions as part of his reasons in arriving at his conclusion.   

29. Further, I do not think the contention that damages is normally not a sufficient remedy to protect an established proprietary right can be taken too far.  Each case must be decided on its own circumstances.   Having had regard to the Defendant’s own case that the use of the purported easement to connect the sewage system is to enable the OP to be issued, and given that the Court is now only considering the interim stage when there is still a dispute as to existence of the claimed proprietary right, for the purpose of a stay application, I am  not prepared to accept  that this contention is so likely to be accepted by the Court of Appeal such that, even if the learned Judge was wrong in his initial exercise of discretion as discussed above, the Plaintiff still does not stand a strong chance of success in setting aside the interim injunction. 

30. For these reasons, I reject Mr Chan’s submissions that the Plaintiff has not shown a high likelihood of success in the appeal against the interim injunction.

31. Mr Chan further submits that as the Defendant has already completed the connection of the drainage system, any stay of execution of the Order is academic and “otiose”.  The Defendant also says the Plaintiff is guilty of material delay in pursing the stay application, and the Court should not exercise its discretion to grant the stay.

32. I do not agree the stay is academic, and accept Mr Yuen’s submissions that the stay of execution would still effectively operate to suspend the operation of paragraph 3 of the Order[1], and thus serve a useful purpose.  

33. I also do not accept that there has been a material delay on the part of the Defendant in proceeding with the application for a stay:

(1)  The Order was sealed on 18 August 2008.  The Notice of Appeal was filed on 23 August 2008.

(2)  The Plaintiff put the Defendant on notice of its application for a stay by its letter dated 28 August 2008, enclosing therewith a copy of the Summons. 

(3)  I do not think a delay of 10 days since the Order can be regarded for the present purpose a material delay to justify my exercise of discretion against a grant of stay.  In any event, any prejudice arising from the delay is caused to the Plaintiff not the Defendant, a matter I have already taken into account above in considering whether the delay has rendered the stay application academic.

(4)  Further, from the copies of the correspondence exchanged between the parties concerning the fixing of the date of this hearing, it appears that the subsequent delay, if any, in having the application heard is due to the complication arising from the need to find another judge instead of Deputy High Court Judge Gill to hear it, in light of the learned Judge’s retirement.

(5)  In the circumstances, I do not think the Plaintiff can be criticized for this further part of the “delay”.

34. In the premises, on the basis that the Plaintiff has demonstrated that it has a high likelihood of success in the appeal, and upon the Plaintiff’s undertaking that it would use its best endeavour to expedite the hearing of the appeal, I would grant the stay of execution of the Order pending appeal.

Other grounds in support of a stay

35. Given my above conclusion, I would only deal with these briefly.

36. If I were wrong above on the merits of the appeal, and that the Plaintiff only has an arguable appeal, I would also grant a stay of execution on the following ground[2]:

(1)  If no stay is granted, it is more likely than not that an OP for the Defendant’s new commercial building would be issued (as it is the Defendant’s own case that the only outstanding obstacle for the issue of the OP is the connection and use of the drainage system).

(2)  Once the OP is issued, the commercial building is likely to be put into use for sale or rental (it is noted that the Defendant has not put in any evidence as to its plan on whether to sell or only lease out units of the building).

(3)  If any of these happen before the appeal, third parties’ interest (ie., the new purchasers or the tenants) may become relevant at the appeal (as accepted by Mr Chan) in considering whether to set aside the interim injunction.  This is so because, even if the Court of Appeal has come to the view that the learned Judge was wrong in granting it in the first place, the setting aside of the interim injunction may seriously affect other third parties’ use of the property. 

(4)  There is thus at least a possibility (which cannot be ruled out for the present purpose) that the appeal would be rendered nugatory if no stay is granted, since the events that are likely to occur after the grant of the injunction would result in the Court of Appeal not setting aside the interim injunction.

37. The Plaintiff further submits that the appeal is also likely to be rendered nugatory because the Defendant, as a developer BVI company with HK$1 capital may, once the building is sold, simply dispose of the proceeds of sale and disappear.  Thus, if no stay of execution is granted, and the Plaintiff succeeds in its appeal, the Defendant may not be there anymore to compensate the Plaintiff’s loss, and to reimburse or fork out the expenses that need to be incurred in disconnecting the drainage system. 

38. On this ground, I reject the Plaintiff’s submissions.  I agree with Mr Chan’s submissions that:

(1)  The present evidence shows that the value of the Defendant’s building far exceeds its liability under the mortgage. 

(2)  In the premises, and coupled with (a) the learned Judge’s conclusion that the damage that is likely to be suffered by the Plaintiff for a wrongful grant of injunction is minimal, and (b) the lack of any evidence from the Plaintiff to show the likely quantum of damages it may suffer thereof, the Plaintiff has failed to establish that the Defendant is not good for its undertaking as to damages or that the Defendant is likely not to be available for meeting the undertaking.

V.      Conclusion

39. For the reasons stated above, and subject to the Plaintiff’s undertaking that it would expedite the hearing of the appeal, I allow the Plaintiff’s application and order an interim stay of execution of Deputy High Court Judge Gill’s Order dated 14 August 2008, pending the determination of Plaintiff’s appeal therefrom by the Court of Appeal.

40. I further make an order nisi that costs of this application be in the cause of the appeal, with certificate for two counsel.   Unless any of the parties applies to vary it, this order will be made absolute 14 days from today.

41. It remains for me to thank leading counsel’s assistance.

Mr. Rimsky K.K. YUEN, SC, leading Mr. Victor DAWES, instructed by Messrs Hau, Lau, Li & Yeung for Plaintiff.

Mr. Edward K.S CHAN, SC, leading Mr. Kenny C.P. LIN, instructed by Messrs Woo, Kwan, Lee & Lo for Defendant.

[1] Which restrains the Plaintiff from doing anything to prevent or obstruct the Defendant from “otherwise using the Pipe to drain foul drainage from the Defendant’s Premises into the public manhole and drainage pipe…”

[2] Subject also to the Plaintiff’s undertaking to expedite the appeal.