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.

Mr Alex Lai, instructed by Messrs B.C. Chow & Co., for the plaintiff

Mr Kevin Lau, instructed by Messrs T.C. Foo & Co., for the 1^st and 2^nd defendants

DCCJ 3400/2019

[2020] HKDC 799

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3400 OF 2019

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JUDGMENT

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1.  This is a case of alleged unauthorized installation of telecommunications equipment on the roof and certain common areas of a building called Gough Plaza on Gough Street (“the Building”).

Background

2.  The defendants, who are husband and wife, are the registered owners of 5^th Floor Flat B and Roof B of the Building.

3.  There is no dispute that the defendants, in pursuance to an agreement (“the Agreement”) with Hong Kong Telecommunications Limited (“HKT”) dated 30 December 2008, permitted CSL Limited (“CSL”) / HKT to install various aerial and associated equipment (“the Equipment”) on the Roof B and various electrical wires and conduits (“the Conduits”) running through corridors and various service rooms which are common areas of the Building.

4.  It is also not in dispute that the defendants have received license fees from CSL / HKT pursuant to this agreement.

5.  The plaintiff initially also claimed an injunction for removal of the Equipment and Conduit against HKT as the 3^rd defendant. These were removed by HKT in around November 2018 so the plaintiff has discontinued that action on 27 February 2019.

6.  The plaintiff’s case against the remaining defendants is that the installation of the Equipment and the Conduit is a breach of DMC and a trespass, and that the license fee received was an “unjust enrichment” and thus claim for an account for the license fees.

7.  The defendants deny that there was a breach of DMC or trespass, and if there were any, these were subject to waiver and acquiescence by the plaintiff, and if anything, the remedy of “account of profits” is not open to the plaintiff.

Breach of DMC and trespass

8.  Although the Equipment sat on Roof B, these were secured by metal brackets parts of which were bolted to the internal surfaces of the parapet wall.

9.  There cannot be any serious contention that the parapet wall is not a common area of the Building: paragraph 2 and Schedule 1 of the Building Management Ordinance specified that the parapet wall is a common part of a building unless specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner. No such instrument was produced before the court.

10.  One may argue that the owner of the roof may be regarded as the owner of the internal surface of the parapet wall, but this does not extend to the structural part of the parapet wall, namely the concrete part of the parapet wall (The Incorporated Owners of Mei Foo Sun Chuen Stage VI v Grandyield Knitters Limited LDBM 110/2011).

11.  As such, I accept that the defendants may, say, paint the internal surface of the parapet wall, but they cannot interfere with the concrete or structural part. Here, the bolts were driven into the concrete structure of the parapet wall.

12.  I would therefore find that this was both a trespass of the common parts of the Building and a breach of clause 4 (“...nor shall any owner...damage alter or interfere…any parts of the Common Areas...”), clause 13 (“No part of the Common Areas shall be...used for any business or private purpose...”) and clause 16 (“...No owner shall affix or install his own private aerial outside any part of the said Building without prior written consent of the Manager”) of the DMC.

13.  Further, the Equipment were very substantial in size and substantially higher than the parapet wall and this would be in breach of paragraph 37 of the DMC preventing any “alteration of the external appearance” of the Building “without prior consent in writing of the Manager”.

14.  Although clauses 16 and 37 of the DMC are concerned with activities permissible with written consent of the manager, it is not disputed between the parties that no such written consent was ever obtained.

15.  It is also clear from the electrician report (Trial Bundle B, p. 198-203) that the Conduit was installed in the common areas of the Building.

16.  I do not accept the arguments by the defendants that they can rely on Section III clause 1(c) of the DMC.

17.  This paragraph provides for easement rights of the owners of “free and uninterrupted passage...of...electricity...” But the same paragraphs stated that such easement is “subject always to the rights of the Manager...”

18.  It cannot be the intention of this clause to allow complete freedom for the owner to install any electrical system he wishes in the common areas. If there was no electrical system in place, it would still require the incorporated owners or managers to decide on a system to be installed in accordance with the procedures stated in the DMC: 338HK Limited v The Incorporated Owners of Tak Bo Building[2018] HKCA 164.

19.  Having established that there were multiple breaches of the DMC as well as trespassing, I will now turn to the defence.

20.  The defendants raised a defence of waiver and acquiescence. There is a dispute as to when the plaintiff became aware of the Equipment and Conduit.

21.  I found the evidence given by Mr. Law (for the plaintiff) not entirely consistent.

22.  Mr. Law stated in his witness statement (paragraph 20, Trial Bundle p. 68) that, in about 2015, he received a complaint from the owner of Flat 5A / Roof A regarding rubbish obstructing the roof area. He went up to investigate and saw some chairs etc., and he incidentally noticed the Equipment on Roof B. Yet, in the incorporated owners meeting minutes dated 13 April 2017 (trial bundle p. 195), it was stated (as I translate into English), that:

“According to a complaint raised by an owner, the owner of 5B had installed telecommunications equipment on the roof without approval from IO...this private engineering required passing through various service rooms and conduits and also trespassing of common areas...”

23.  During cross examination, Mr. Law said that this complaining owner was a Mr. Law Yiu Sum (“YS Law”) who said that he saw big machineries on the roof. But this was in 2017, and YS Law made the complaint about a week after Mr. Law himself discovered the Conduits. In his witness statement, Mr. Law stated that he discovered the Conduits when investigating a complaint by the lift company made to the plaintiff that the lamp in the lift machine room was malfunctioning, but there was no mention of this subsequent complaint by YS Law.

24.  There was also a dispute whether a key to the Key Box inside the management office (which contained all the keys to various utility rooms in the Building) was ever given to the 1^st defendant as the secretary of the incorporated owners. I would not go into the details of this dispute suffice to say that Mr. Law claimed that Mr. Wong had the key which meant that he could have provided access to the CSL workers installing the Conduits without anyone noticing. Mr. Wong denied this and suggested that the CSL workers would have to seek co-operation of the incorporated owners / management of the Building to gain access to the utility areas. This would, of course, further imply that the plaintiff must have notice of the installation at the time.

25.  Mr. Wong also claimed that he had mentioned the installation to Mr. Law after being approached by CSL in 2008 but Mr. Law only said that: “This was your property so it is for you to decide, but make sure the telecom workers won’t damage the lift doors when transporting the equipment.”

26.  Much of these are “he says, she says” scenarios with little or no supportive evidence either way. However, I do not think that the court needs to make such factual findings.

27.  Upon reading various clauses in the DMC, it is clear that certain clauses allow activities on “prior written consent” or “with permission” of the manager but other clauses do not contain such wordings. An example of the former is Clause 16 which deals with installation of “outside aerial” and an example of the latter is Clause 12 concerning use of premises for “illegal or immoral purposes”. This shows that it is the clear intention of the DMC that certain activities are strictly prohibited under all circumstances so the manager / incorporated owners have no power to consent to.

28.   The wordings in Clause 4 make this very clear:

“No Owner or the Manager shall make or permit...any structural alterations to any part of the said Building which may...interfere with the use...nor shall any owner...damage alter or interfere...any parts of the Common Areas...”

29.  Similarly, no such “prior consent” wordings were found in Clause 13.

30.  As such, I find that the breaches, at least with regard to Clauses 4 and 13 of the DMC, were not within the power of the plaintiff to acquiesce to. As such, the defence of acquiescence and waiver was not available to the defendants in this case (Hollywood Shopping Centre Owners Ltd v The Incorporated Owners of Wing Wah Building Mongkok Kowloon HCA 1582/2007).

31.  As for the defence on limitation, I do not think this was seriously canvassed by the defendants. Suffice to say that for a breach of contract, the relevant limitation is 12 years. The Agreement was executed at the end of 2008 and the writ was issued on 9 November 2017. I cannot see any basis for this defence.

Account of profit as a remedy

32.  The plaintiff is relying on the cases of Shine Empire Limited v The Incorporated Owners of San Po Kong Mansion HCA 3444/2001 and Hollywood Shopping Centre Owners Committee Limited v The Incorporated Owners of Wing Wah Building Mongkok Kowloon HCA 1582/2007.

33.  However, I do not think that such precedents apply in the current case.

34.  The Shine Empire case concerned one defendant trespassing onto the roof of a building and wrongly contracted with other defendants for installation of equipment on the roof. The Judge founded, as a matter of fact, that the roof belonged to the plaintiff:

“109. I do not think that it has been established that the plaintiff ever relinquished its rights to the roof or parapet walls…”

35.  The Judge in that case allowed a claim for restitution of the license fee on the basis because he found that that particular defendant had unjustly enriched itself.

36.  The Hollywood Shopping Centre case was similar: the Judge founded, as a matter of fact, that the defendant managed the canopy of the building and also had the right to put up advertisements at the building (see paragraphs 29, 70 and 71 of the Judgment). However, the plaintiff had contracted with an advertising agency to install advertisement boards on the canopy and has profited from the license fees. Again, the Judge in this case allow the defendant’s counter-claim for an account for profit.

37.  The legal principles in “claim for restitution based on unjust enrichment” have been considered in the Final Court of Appeal case Shanghai Tongji Science and Technology Ltd v Casil Clearing Ltd [2014] 2 HKLRD:

“67. A useful framework for approaching such claims…involves asking four questions:

(a)Was the defendant enriched?

(b)Was the enrichment at the plaintiff’s expense?

(c)Was the enrichment unjust?

(d) Are any of the defense applicable?”

38.  The most relevant question here is question (b): was the enrichment at the plaintiff’s expenses?

39.  In the cases of Shine Empire and Hollywood Shopping Centre, the common fact was that one party was taking the profit which rightfully belonged to the other party. Thus the profit was taken at the other party’s expense: it was the other party who actually had the capacity to enter into the agreement and to take profit from it.

40.  This is clearly aligned with the fundamental principle in compensation of a civil claim: that the wronged party should be restored, as far as possible, to the position as if the wrong was not done.

41.  Thus, in this case, the question to be asked would be: was the plaintiff (instead of the defendants) in a rightful position to enter into the Agreement and to benefit from the license fee?

42.  The answer, based on the facts of this case, is “no”.

43.  Unlike the cases of Shine Empire and Hollywood Shopping Centre, the Equipment was installed on Roof B which belonged to the defendants and not the plaintiff. Although the installation process might require approval by the plaintiff, there was no evidence before the Court how the plaintiff might otherwise benefit from the Agreement or the license fee.

44.  In other words, it could not be said that the defendants took away the profit that should rightfully belong to the plaintiff. There was no “enrichment at the plaintiff’s expense”and thus no “unjust enrichment”. Therefore, I found no basis for the remedy for restitution.

45.  Finally, there was a discussion whether AG v Blake [2001] 1 AC 268 should apply here. This was a case where an account for profit was allowed for a breach of contract (without the basis of “unjust enrichment”). However, I agree with Mr. Lau, counsel for the defendants, that Blake was an exceptional case (a convicted spy profiting from a book he wrote in breach of his service contract) that touched on public interest and a breach of “something akin to a fiduciary duty”. Such circumstances clearly do not apply to the current case.

Conclusion

46.  As such, I now face the unusual situation where there is a finding of liability but the specifically pleaded relief is not applicable.

47.  The plaintiff also pleaded for “such further and/or other relief” as the court may deem just in the Statement of Claim. The Equipment and Conduit had already been removed by HKT back in November 2018. I would imagine that if, for example, there were damages to the Common Areas that required repairs or restoration work, there might be a basis for a claim in damages. However, the plaintiff has produced no such evidence so the Court cannot speculate on such.

48.  I would therefore dismiss this claim and give an order nisi that the costs of the action be to the defendants to be taxed if not agreed.