CACV 402/2022,  HKCA 956
On Appeal From  HKCFI 2830
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO 402 OF 2022
(ON APPEAL FROM HCA NO 1789 OF 2017)
||THE HONG KONG POLYTECHNIC UNIVERSITY
||Hon Barma JA, Hon G Lam JA and Hon Anthony Chan J in Court
|Date of Hearing:
||14 July 2023
|Date of Judgment:
||25 August 2023
J U D G M E N T
Hon Anthony Chan J (giving the Judgment of the Court) :
1. This is the Plaintiff’s appeal against a Judgment given after trial dated 9 September 2022 by which its claim to recover possession of various spaces within its campus (“Spaces”) from the Defendant was dismissed. In favour of the Defendant’s Counterclaim, the Court granted an order for specific performance of a Memorandum of Agreement made between the parties dated 10 May 1988 (“MoA”). Further, the Defendant was awarded 85% of the costs of the action, with a certificate for two counsel.
2. There are 7 Grounds of Appeal advanced in the Plaintiff’s Amended Notice of Appeal. Essentially, the issues before this Court concern: (1) the correctness of the approach taken by the learned trial Judge, DHCJ Khaw SC, to the construction of the MoA which gave rise to a contractual licence granted by the Plaintiff to the Defendant for the occupation of the Spaces (“Licence”); (2) the Judge’s rejection of the Plaintiff’s case of an implied term over the termination of the Licence; and (3) whether the order for specific performance of the MoA was justified.
3. There was no real controversy over the material facts. The Judge held that: “[g]iven the nature of this case, little really turns on the quality or credibility of the evidence given by the parties’ witnesses. … I find all the witnesses … truthful and honest and have tried their best to assist the Court by providing their knowledge and understanding of the relevant matters.”
4. The material facts can be succinctly stated as follows. The Defendant is a charitable body well-known for its services to the disabled and persons with special needs. Around late 1985, the Hong Kong Society of Rehabilitation (“HKSR”), which was operating an outpatient centre providing services to persons with disabilities and chronic illness called Rehabaid Centre (“RC”), reached an understanding with the Plaintiff to relocate the RC to premises within the Plaintiff’s campus (“Campus”).
5. In March 1986, an application was made by the Plaintiff to the Hong Kong Jockey Club (“HKJC”) for funding to build a Rehabilitation Engineering Centre (“REC”) on Campus. As the Judge found, the application document (“HKJC Application”) provided a “first glimpse of the intended purposes behind the creation of the REC”. The REC would not be concerned with the medical aspects of disability, but with the design and technology of aids and devices to assist the rehabilitation process.
6. On the relationship between the REC and RC, the HKJC Application referred to the co-location of the two Centres on Campus. The RC was then occupying short-term accommodation and was anxious to secure a “permanent base”. The functions of the two Centres were “directly complementary”, and the RC would “derive considerable benefit through its proximity to the technological support of the [REC]”.
7. The HKJC Application was duly approved under which funding of HK$41.9m would be provided, with HK$2.2m earmarked for the RC which would be accommodated in the same New Annex (to be built with the funding) as the REC.
8. There were other contemporaneous documents from 1986 recording the anticipated “close co-operation” between the RC and the REC. In particular, the therapists and engineers would work together to design the requisite aid.
9. One of the contemporaneous documents, which was not specifically referred to in the Judgment but was drawn to the attention of this Court by Mr Yu SC, who appeared with Mr Lam for the Plaintiff, referred to the discussions between the two sides on, inter alia, management arrangements under which some degree of integration of the staff and management between the Plaintiff and the RC was recorded. Although there was no finding by the Judge as to whether the discussions were put into effect, Mr Yu is right to maintain that the document reflected the intention of close cooperation between the parties at the material times.
10. In 1987, pending the completion of the New Annex, the REC and RC were allocated some temporary spaces on Campus.
11. As stated under the Introduction of the MoA dated May 1988, its purpose was to “set out the arrangements associated with [RC] being established on [Campus] in adjacent accommodation to the [REC]”. It went on to state in the second paragraph under Introduction :
“It is necessary to define the arrangements which will apply to the operation of [RC] on [Campus]. This Agreement may be changed in the future if both parties … so decide and sign a new memorandum of agreement.” (“New MoA Clause”)
12. Under the terms of the MoA, RC’s occupation was rent-free (Clause 2.1) and the Plaintiff would provide the RC with utilities, cleaning, maintenance, security, etc, in return for a “token charge” of HK$10,000 annually, subject to annual review to keep it in line with cost inflation (Clause 2.2). During the entire period of occupation by the RC, the Plaintiff had received HK$583,245 in token charges. On the other hand, from 1987 to 30 June 2017, the Plaintiff had paid about HK$12m in providing water, electricity and cleaning services to the RC.
13. It was common ground that the MoA gave rise to a contractual licence. However, the document was silent on the duration of the Licence.
14. The New Annex was completed in July 1990. On 5 September 1990, the RC moved into the New Annex in areas adjacent to the REC. The areas occupied by the RC had grown over the years from 476 sq m in 1990 (when it first moved into the New Annex) to 576 sq m at the time of the trial.
15. In 1992, the Defendant was incorporated as a separate entity from HKSR to take over the operation of the RC. By a Novation Agreement dated 1 November 1992 made between the Plaintiff, HKSR and the Defendant, the Defendant took over HKSR’s rights and obligations under the MoA.
16. The collaboration between the RC and the REC had substantially decreased in 1991 after the Hospital Authority took over the management of the former. Since about 1994, there had no longer been any collaboration or meaningful collaboration between the RC and the REC, primarily due to the lack of referrals by the former to the latter.
17. In 1998, the Plaintiff started exploring with the management of the RC about its relocation due to space shortage at the Campus. In March 2007, the Plaintiff had to lease an area of 20,000 sq ft in commercial premises to accommodate its research staff. By October 2018, the shortage of space was in excess of 42,000 sq m.
18. By a letter dated 19 November 2015, the Plaintiff’s solicitors served a Notice to Quit on the Defendant and demanded the vacation and delivery up of the Spaces to the Plaintiff on 1 June 2016.
19. The Plaintiff’s pleaded case was that, as a matter of proper interpretation of the MoA or, alternatively, based on a term implied by reason of business efficacy or obvious intention of the parties, “[it] would be entitled to terminate HKSR’s occupation at [its] Campus upon the cessation of collaboration or cooperation between [RC] and [REC] and upon giving reasonable notice”.
20. The Defendant’s pleaded case was that, as a matter of proper interpretation of the MoA or, alternatively, based on a term implied by reason of business efficacy or the common intention of the parties, “HKSR would be allowed to occupy the [Spaces] as agreed from time to time on [the Campus] indefinitely for the operation of [RC]” and “the Licence is a perpetual licence”. By way of Counterclaim, the Defendant sought an order for specific performance of the MoA against the Plaintiff.
21. It can be readily seen from the foregoing that this case turned on the proper construction (that word is often used interchangeably with “interpretation”) of the MoA, alternatively the implication of a term, in relation to the termination of the Licence.
22. On the approach to the construction exercise, the Judge rejected the Plaintiff’s contention that, for contracts which were silent on duration or manner of determination, the proper approach was to ascertain the common intention of the parties. Drawing a distinction between the interpretation of the MoA and the implication of a term into the same, the Judge accepted the Defendant’s submission that the approach should be one of implication of terms, and applied the test for implication of terms laid down in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283. The Judge held that the burden fell on the Plaintiff “to establish that the Licence was terminable upon the alleged conditions”. The consequence was that if the Plaintiff failed to establish the implied term, its claim would fail.
23. The Judge considered the background, purpose of the arrangement between the Plaintiff and Defendant as well as common intention in detail by reference to primarily the pre-contractual documents and the MoA. The key documents were the HKJC Application and...