THE INCORPORATED OWNERS OF FREDER CENTRE v. GRINGO LTD AND ANOTHER

LDBM 290/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 290 OF 2013

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DECISION
LEAVE TO APPEAL AND STAY OF EXECUTION
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1.  After hearing evidence and submissions on the Application, judgment was handed down on 9 December 2014 (“the Judgment”).  I shall adopt the same nomenclatures used in the Judgment.  In short, my decision was that judgment be entered for the Applicant and injunctions be granted for the Respondents to remove the Trade Names from the External Wall which is the common parts of Freder Centre.

2.  Now the Respondents intend to appeal against my decision.  There is no dispute that the law applicable to leave application is governed by section 11AA of the Lands Tribunal Ordinance.  Mr Wu indicated that the Respondents would rely only on the ground that the appeal has a reasonable prospect of success but not on the limb concerning interests of justice.

The Intended Grounds of Appeal

3.  The Draft Grounds of Appeal are as follows:

It was erroneous:
(i)	to hold that any assigned space for purpose to affix/exhibit/paint its business name/business notice/advertisement (“the Assigned Space”) could not be implied but to expressly and unequivocally provide in the DMC;
(ii)	to find that there was no acquiescence by the Applicant in respect of the affixing/installation of the Trade Names;
(iii)	to hold that the 1st and 2nd Respondents could not rely on other trade names or advertisements exhibited at various places by other owners/occupiers of Freder Centre for about 20 years to establish the defence of acquiescence; and
(iv)	to grant the injunctive relief in favour of the Applicant against the 1st and 2nd Respondents without taking sufficient note that enforcement was arbitrarily brought against the 1st and 2nd Respondents only.

Meaning of Assigned Space

4.  It is said that since there is no definition of “assigned space” in the DMC this phrase should be interpreted in the light of business need and reality.  It is submitted by Mr Wu that in the circumstances of the present case the only meaningful assigned space for the purpose of affixing trade names, business notices or advertisement pursuant to Clause 14 of the DMC is the space immediately above the external wall of every shop entrance/shop front.  It is further submitted that every shop at the ground level or basement in any commercial building across the territory is doing the same, i.e. by exhibiting their trade names/signboard at the space immediately above the shop entrance/shop front.

5.  I agree it is not uncommon for signboards or trade names to be put up immediately above the shop although I would not say that this is the case for each and every shop at ground level and basement in Hong Kong.  They are not relevant to present case however as there was no background facts produced to explain why and how those trade names come to be affixed thereat and whether those parts where trade names were put up are common parts of a building.  More importantly I know not of the provisions in their deed of mutual covenant or if there are any. 

6.  Coming back to the present case, Clause 14 does, in my view, give effect to business need and reality and for this reason there are space assigned for such purpose, namely the directories at the lobby and near the entrance of the car park.  My finding was that the “assignment” of space for the purpose of trade names advertisement and signboards, by the natural and proper meaning, must be done expressly and not impliedly.  It is not disputed that the I.O. is duty-bound to manage and enforce the provision of the DMC, it has the power to approve the affixing of trade names and signboards.  This is the juncture where the business need and reality is to be catered for case by case.  As I have mentioned in paragraph 12-13 of the Judgment, there is virtually no evidence to show that the part above the shop is the assigned space.  Further, there was no evidence to show that the Respondents had asked the External Wall to be assigned to it for this purpose so that the business need and reality could have been considered.

Whether there was acquiescence

7.  The Respondents said that my finding on no acquiescence was erroneous.  Mr Wu confirmed that although he had produced 3 more authorities at the present hearing to support his case, the arguments advanced by him were basically same as those advanced at trial and I had already dealt with those arguments in the Judgment (paragraphs 20-24).  Further I have dealt with the existence of other signboards and trade names in paragraphs 25-26.

8.  The authorities raised by Mr Wu are cases in which decisions were made apparently in favour of the Respondents who had been in breach of the deed of mutual covenant.  In my view Cheung Yuet v.The Incorporated Owners of Oriental Gardens [1979] HKLR 536 is distinguishable for it was found that there was capricious enforcement; where in the present case, I have accepted the Applicant’s case that there was no capricious enforcement.  In Incorporated Owners of Dragon View v. Nalpak Ltd [1989] 1 HKC 549, Godfrey J had considered an undertaking given by the Respondents not to commit further breach as he refused granting an injunction (P553 lines D-F).  After reading the authorities submitted by the Respondents, I am of the view that those cases were decided on their own facts and should not be applied strictly to the present case.

9.  I understand that the Respondents also complained that I had failed to find that the enforcement was arbitrary with those evidences before me.  That was a finding of fact and such finding was made upon my acceptance of the I.O.’s evidence that they had financial constraint to enforce the long-exiting signboards and trade names, but they would take enforcement action against those recently installed fixtures for the time being.  Mr Wu has suggested that it would cost the I.O. almost nothing by issuing warning letters.  That may be right.  It was however not put to Mr Tang for him to explain at the trial and obviously warning letters would carry no force if not followed by legal proceedings.

10.  For the above reasons, I am not persuaded that the Respondents have made out its case that the intended appeal has a reasonable prospect of success.  I therefore dismiss the application for leave to appeal.

11.  As to the application for stay of execution, I have granted interim stay pending determination on the application for leave to appeal in the Tribunal.  Mr Wu said that even if his application for leave to appeal is refused, he would ask that stay be granted until determination of leave application in the Court of Appeal.  It is not suggested that that the Trade Names had posed any immediate danger or hazards to the Building or other owners, weighing the balance of consequence between keeping the Trade Names for a further short period of time and having them removed before a decision on the leave application in the Court of Appeal is pronounced, I agree that discretion should be exercised in favour of keeping them for the time being.  I therefore grant stay for a period pending determination of the leave application for appeal in the Court of Appeal or for 4 months from date of this decision, whichever is the earlier.

12.  The Applicant had mentioned in the written submission that if stay of execution is granted, the Applicant will ask for a security for costs pursuant to RHC Order 59 Rule 13. Since the stay granted was for a rather short period of time, I refuse such application.

Conclusion

13.  The application for leave to appeal is dismissed.  The application for stay of execution is granted pending determination of application for leave to appeal in the Court of Appeal or for 4 months from date of this decision, whichever is the earlier.

Costs

14.  Costs should follow the event.  The Respondents should pay the Applicant’s costs of the leave application.  Although I grant stay of execution, I do not find that the Respondents should get costs because it was not granted on merit but on discretion and balance.  Further the argument on stay took limited time only and it was basically part and partial to the leave application.  I order that the Respondents do pay costs of and incidental to the Summons taken out by them on 6 January 2015.  Such costs are to be taxed if not agreed at District Court Scale.  This is an order nisi to become absolute if no application is made to vary the same within 14 days from the date of this decision.

LDBM 290/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 290 OF 2013

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J U D G M E N T

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1. The Applicant is the owners’ incorporation of Freder Centre situated at Nos.3, 3A & 3B Mok Cheong Street, Nos.62-68 Sung Wong Toi Road and Nos.210-230 Kowloon City Road, Kowloon (“the Centre”).  It was incorporated pursuant to the Deed of Mutual Covenant dated 21 September 1979 and registered in Urban Land Registry (“the DMC”) under the Building Management Ordinance, Cap.344 (“the BMO”).

2. The 1^st Respondent is the registered owner of Units B and C in the basement of the Centre (“the Premises”), while the 2^nd Respondent is the tenant and occupier of the Premises.

3. By way of a Notice of Application filed on 6 November 2013, the Applicant asked for an injunction to order the Respondents to remove those trade names “香港免稅店” (“the Trade Names”) affixed and exhibited on the external wall of the Centre to be more particular at the part above the doorway facing Sung Wong Toi Road next to an entrance of the Centre at 68 Sung Wong Toi Road as shown in Photo 4A at page 199 of the Trial Bundle (“the External Wall”).

The Case of the Applicant

4. The Applicant said that it was provided under Clause 14 of the Third Schedule of the DMC(“Clause 14”) that the Trade Names could only be affixed in the space assigned for that purpose (“the Assigned Space”):-

“Subject to sub-clause (15) hereof not to affix or exhibit or paint or cause permit or allow to be affixed or exhibited or painted on any window or any external part of the said building or any part of the common entrances staircases and landings lifts or passages therein any name or business notice or advertisement whatsoever except only in the space assigned for that purpose bearing only the name of the factory or occupier.”

5. It was said that the External Wall is not the Assigned Space and that the Assigned Space were those directory boards placed inside the main lobby and the entrance of the car park.  The directories are to show the whereabouts of the companies on all floors including those shops on ground floor and basement.

6. The Applicant also relied on Section 2 of the BMO on the definition of “common parts” and I understand the Respondents took no issue on thisand conceded that the External Wall is common parts of the Centre.

The Case of the Respondents

7. The Respondents said that the External Wall was the Assigned Space or alternatively they relied on acquiescence to resist the Application.

8. In support of their case of acquiescence, the Respondents said that their trade names had been exhibited at other part of external walls of the Centre since early 2005 when the 2^nd Respondent came to occupy the Properties and more had been put up in early 2007 as shown in photographs 27A and 28A in page 211 of the Trial Bundle. It was said that not only there was no warning or enforcement action taken against them, in fact, almost all shops on the ground floor put up their trade names on the external walls at a place close to the entrance of their shops.  Further, it was said that the Trade Names are necessary indication of the presence of the business of the 1^st Respondent in the basement.

Issues to be Determined

9. The issues are (i) whether the External Wall was the Assigned Space and (ii) whether acquiescence could be proved from evidence produced before the Tribunal.

Discussion

Whether the External Wall is the Assigned Space

10. There was no direct evidence adduced to say that the External Wall was the Assigned Space. It is not disputed that there was no definition for Assigned Space in the DMC.  The Respondents contended that in the absence of any express provision in the DMC and Supplemental DMC the “Assigned Space” should be interpreted to mean a space immediately above the external wall of every shop entrance.  In the case of the shop of the 2^nd Respondent, the doorway entrance of the ground floor must be the Assigned Space, and is the only meaningful assigned space.

11. Further the Respondents asked this Tribunal to draw an inference from the circumstances that the External Wall should be the Assigned Space.  Mr Wu asked the Tribunal to find that it was so on the basis that every shop is doing the same thing.  Mr Wu submitted that it was significant to note that ground floor and basement units of the Center are not directly accessible from the lobby, customers approach the shops directly from the public roads.  As such, a sign bearing the name of the occupier right above its shop premises or doorway entrance is a commercial necessity.

12. I am of the view that “space for that purpose” can only be “assigned” expressly and unequivocally and not impliedly, and such assignment should have been done formally like getting a resolution of management committee or by an authorized agent such as the management company.  There was no such evidence that the External Wall had been assigned to the 1^st Respondent or its predecessor in title to put any trade names thereat.  I do not agree that the External Wall was the Assigned Space for the Trade Names.

13. The fact that everybody is doing that could not prove an act which has to be done expressly and unequivocally had been done impliedly.

Whether the Breach could be Acquiesced

14. There have been quite a few cases in which it was held that the incorporated owners had no power to acquiesce a breach of the deed of mutual covenant, yet there were cases in which the holding is different.  Relying on Hollywood Shopping Centre Owners Committee Ltd v The Incorporated Owners of Wing Wah Building Mongkok Kowloon, HCA 1582/2007 Mr Wu submitted that Recorder Yuen had resolved the apparent inconsistency as he had observed that the two lines of authorities were dealing with different types of breaches.  The learned Recorder’s conclusion at paragraph 65 is as follows:

(a)  whether or not acquiescence can be set up as a defence to a claim for breach of mutual covenants (whether express or implied by reason of section 34I(2) of the BMO) depends on the nature or type of breach in question;

(b)  if the breach of mutual covenants in question is within the power of the incorporated owners to acquiesce, acquiescence can be a valid defence provided all the requisite elements giving rise to acquiescence are established;and

(c)  on the other hand, if the breach of mutual covenants in question is beyond the power of the incorporated owners to acquiesce, the defence of acquiescence will not be available since the incorporated owners cannot acquiesce in acts which they in law cannot do.

15. It was submitted by Mr Wu that in the present case, the Applicant would have the power to acquiesce.

16. Ms Lee who represented the Applicant took no issue on the above legal principles.  She further conceded that in the present case, the incorporated owner was conferred the power to approve by virtue of s34I(1)(a) of BMO and thus it has power to acquiesce.  But, she went on to say that, since such power had never been exercised by the Applicant in relation to the Trading Name, the Applicant shall have no power to approve or acquiesce the Trading Name.

17. Section 34I(1)(a) says this:

No person may-

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners' committee (if any);

18. Further, section 34C(2) says that:

“in the event of any inconsistency between this Part and the terms of a deed of mutual covenant or any other agreement, this Part shall prevail.”

19. Applying sections 34C(2) and 34I(1)(a) the IO would have the power to approve conversion of common parts into own use by an owner by a resolution of the management committee.  Further the Trade Names in the present case had not been found to be illegal structures (at least this was not the basis of the Applicant’s case).  I am of the view that the nature of breach in the present case is the kind which the IO has the power to approve and therefore to acquiesce.  I do not agree with Ms Lee’s saying that since there was no exercise of power to approve, there is no power to acquiesce.  The test is whether the IO is in a position to approve, that would depend on the nature of the breach.  If the breach involves contravention of other rules and regulations, it is likely to be beyond the power of the IO to approve.   

Whether the Breach had been Acquiesced

20. The next question is whether in fact the breach in the present case had been acquiesced.  It is not disputed that with the exception of one shop on ground floor, all other units on the ground floor and the basement had affixed or exhibited shop names or name signboards or product brand-names on the external walls close to their respective units.  Some of these trade names or signboards came into existence as early as in 1982.  It was not denied by the Applicant that except the present proceedings no enforcement action had been taken against any owners.  Mr Tang, witness for the Applicant, said that as the manager in control of management of the centre, he did report to the Applicant at various management meetings the existence of such trade names and signboards.  There was no dispute that during the installation of the Trade Names in November 2012, the Applicant did not issue any warnings or to take any enforcement action against the respondents.

21. Mr Wu submitted that on such undisputed fact, acquiescence is proved and it is unjust and inequitable for the Applicant to take enforcement action now and against only the Respondents.  Further he refused to accept the explanation given by Mr Tang saying that only recent unauthorized fixtures would be enforced due to lack of resources on the part of the Applicant.

22. The Trade Names were put up in or about November 2012.  It was not disputed that warning letters demanding their removal had since been issued by the Applicant’s lawyer on 22 March and 24 April 2014.  The time lapse between the installation and the warning was about 4 months’ time.

23. The defence of acquiescence arises if a party lies by and knowingly permits another to incur an expense in doing an act under the belief that it would not be objected to, and so a kind of permission may be said to be given to another to alter his position, he may be said to acquiesce.

24. As far as the Trade Names are concerned, it is difficult to say that the Applicant did lie by. There was no evidence as to the duration taken to affix the Trade Names.  But, so soon, in about 4 months’ time, after they were affixed, the Applicant objected to their presence.  I am of the view that such time lapse itself could not have pointed to acquiescence.  Further there was no evidence put forth to say how the Respondents had altered their position or suffered detriment.

25. Moreover, I do not agree that the Respondents could rely on other trade names or advertisements exhibited at various places at the Centre in support of their assertions of acquiescence.  Those other signboards and trade names were put up at different times and at different locations.  As mentioned above the Trade Names were opposed to promptly.  In Wing Ming Garment Factory Limited v. The Incorporated Owners of Wing Ming Industrial Centre and Others [2007] 5 HKC 410, Ryes J as he then was said in paragraph 8 that:

The Incorporated Owners have an obligation to enforce the covenants in the DMC.  If Wing Ming believes that the Incorporated Owners is not performing its proper duty, it can apply to the Court for an Order of specific performance requiring the Incorporated Owners to enforce relevant obligations under the DMC. What Wing Ming is not entitled to do is to say, because other owners are flouting the DMC, it can too.

26. Further, whether the other signboards had been acquiesced was not an issue for trial at the present hearing.  The fact that they had been in existence for a long time itself may not necessarily be successful in raising a defence of acquiescence in other actions.

27. The allegation that the Applicant had unfairly exercised their power as they only took enforcement against the Respondents must fail because in the present application the Applicant only asked for an order for the removal of the Trade Names and not those two other groups of trade names exhibited by the Respondents in other parts of the external walls.  This is consistent with what Mr Tang had told the Tribunal that due to financial constraint, enforcement would be taken against those recently installed fixtures for the time being.

Injunctive Relief Sought

28. Injunctive order is an equitable relief and the Tribunal has to consider the whole of the circumstances and find that it is equitable before such an order is granted.  I understand the Respondents are saying that it was almost a need for the Trade Names to be exhibited.  After balancing it with the Respondents obligation to comply with the provisions in the DMC and section 34I(1)(a), I do not think the Tribunal should be sloth in granting the injunctive relief as claimed.  In Snell’s Equity 32^nd ed. paragraph 18-036, it is stated that:

“The jurisdiction of the court to grant an injunction is discretionary. Yet “the discretion is not one to be exercised according to the fancy of whoever is to exercise the jurisdiction of Equity”, it must be exercised judicially according to the rules which have been established by precedent….. But as a general rule a party who establishes his right and its violation will be entitled to an injunction, although exceptions are more likely where mandatory relief is sought. Thus, it is no defence to an action for an injunction that compliance will be inconvenient and expensive, as where a river is being polluted by the outfall from large sewers. The severity of the rule that a defendant must find his own way out of the difficulty, whatever the cost, is frequently mitigated by not immediately imposing the injunction, or by suspending its operation.”

29. I also believe that there is a risk for the Respondents to continue with the breach.  Having considered the whole of the circumstances, I enter judgment for the Applicant.

30. It is now ordered that the Trade Names shall be removed by the Respondents within 3 months from date of this order with the External Wall to be reinstated; further the Respondents shall be restrained from doing the same again.

Costs

31. I see no reason why costs should not follow the event.  The Respondents shall jointly and severally bear the Applicant’s costs of this Application, to be taxed at District Court scale if not agreed.  This is an order nisi to become absolute if no application is taken out to vary the same within 14 days.

Order

32. My order is as follows:-

1. A mandatory injunction that the 1^st and/ or 2^nd Respondents whether by himself/ herself/ themselves, his/ her/ their servants, agents, tenants, or otherwise howsoever do forthwith remove the Trade Names on the External Wall and reinstate the External Wall to the original state within 3 months form day of this order;

2. An prohibitory injunction restraining the 1^st and/ or 2^nd Respondents whether by himself/ herself/ themselves, his/ her/ their servants, agents, tenants, or otherwise howsoever from affixing or exhibiting any business name, business notice, sign, signboard and/ or advertisement on the External Wall and/ or converting the External Wall for their own use; and

3. An order nisi that the 1^st and 2^nd Respondents do jointly and severally pay the Applicant’s costs of this Application to be taxed at District Court Scale if not agreed.

Ms Lee Hoi Wan, of Messrs. Huen & Partners, for the Applicant

Mr Paul KN Wu, instructed by Messrs. Damien Shea & Co., for the 1^st and 2^nd Respondents