THE PRUDENTIAL ENTERPRISE LIMITED v. YU KWAI CHI AND ANOTHER

Property law - lease-of business premises for use not approved by Building Authority - whether interim injunction should issue in favour of lessor against lessee for carrying on business strictly in accordance with contractual permitted use - effect of Building Authority and Director of Fire Services not resorting to statutory enforcement powers but merely warning parties by letter - suspension of lessee's business in terms of interim injunction sought might lead to its extinguishment - statutory enforcement and penal powers of Building Authority and Director unaffected by refusal of interim injunction- balance of convenience criteria - where relevant factors evenly balanced prudent to preserve status quo pending hearing of substantive action - Held: Application for interim injunction refused - Sections 16, 21, 25, 44, 50 Buildings Ordinance, Cap. 123; Section 9 Fire Services Ordinance, Cap. 95.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

H. C. Action No. 4158 of 1985

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JUDGMENT

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1. This summons taken out by the plaintiff for an interim injunction, was heard in chambers but I am delivering judgment in open Court. The summons seeks to restrain the defendants until further order from using premises situate at the 4th Basement, The Prudential Centre, 216-228A Nathan Road, Kowloon (hereinafter called "the premises!') as a billiard hall and drinking bar until such time as an occupation permit may be granted by the Building Authority permitting the premises to be used for such purposes.

2. The premises form part of the completed Phase 1 of The Prudential Centre which, including a Phase 2, which has never been constructed, was originally planned as a hotel. In those plans the premises were to be used for storage and other purposes incidental to the proposed hotel. The original temporary occupation permit issued for the completed Phase 1 by the Building Authority pursuant to Section 21 of the Buildings Ordinance, Cap. 123 on 10th December 1982 permitted the premises to be used for the following designated purposes:

3. The hotel project having been deferred, the plaintiff sought to let the premises for other purposes and in May 1984 advertised them as being suitable for use as a billiard room. Towards the end of May 1984 negotiations commenced between the parties for the lease of the premises for a billiard room. The negotiations led the plaintiff to offer a lease of the premises on the terms set out in a letter sent to the defendants on 11th July 1984. The offer was accepted by the defendants on 13th July 1984.

4. At this stage the plaintiff was aware that before the premises could be used as a billiard room, the consent of the Building Authority to the change of use would have to be obtained, while it might also be necessary for the defendants to obtain from the Urban Services Department a public billiard room licence under the Public Health and Urban Services Ordinance, Cap. 132. The plaintiff understood from its advisers that the consent of the Building Authority could be obtained without difficulty. On 14th July 1984 the plaintiff's authorised person duly applied to the Building Authority for consent to the change of use.

5. The principal reason for the present dispute is that instead of waiting until the Building Authority had granted consent the parties, on 25th July 1984, entered into a lease of the premises for a period of 3 years from 1st August 1984 at an initial rent of $35,000 per month. The covenants of the lease required the defendants to fit the premises out as a billiard room and drinking bar and limited their use of the premises to those particular purposes. In terms of the lease the defendants went into possession on 1st August 1984 and fitted out the premises. Since the completion of this work the defendants have carried on business using the premises solely for the purposes of a billiard room and a drinking bar. In the event, as the billiard room was used for the purposes of a private club, no billiard licence was necessary or obtained.

6. On 2nd August 1984 the Building Authority sent notice to the plaintiff that the application for change of use had been disapproved. The twofold grounds of disapproval were that a certificate from the Director of Fire Services had not been obtained as required by Section 16(1)(b) and that the remainder of the 4th Basement would be deprived of a secondary means of escape contrary to Regulation 41(1) Building (Planning) Regulations, Paragraph 9 of the Code of Practice issued by the Director of Fire Services and by Section 16(1)(d) of the principal Ordinance. Since the requirement of developers to obtain various Government departmental consents and approvals was some years ago centralised in the Building Authority, all these matters are properly dealt with through the Building Authority. However, I note that on 31st July 1984 the Director of Fire Services, as well as reporting to the Building Authority, had written direct to the plaintiff's authorised person informing him that the location of the Billiard room in the 4th Basement was not acceptable.

7. At this stage the parties shared the same authorised person who in discussions with the Director of Fire Services had ascertained that the new practice of the Director was not to permit the use of basements below a 3rd level to be used for any significant entertainment or commercial purpose. Apparently, the Prudential Centre was one of the first buildings in Hong Kong to extend down to a 4th Basement level and this new requirement had not been known or anticipated by the plaintiff's advisers. The plaintiff's reaction was to write to the defendants at first calling on them to carry out work to enable approval to be granted and later calling on them to suspend business until approval was obtained. At the same time the plaintiff instructed its own authorised person to draw up alternative plans in the hope of obtaining approval and also appointed fire safety consultants to assist in this task.

8. The then current Temporary Occupation Permit was due to expire on 9th March 1985. The Temporary Occupation Permit comprised the whole of Phase 1 which included more than 90 other shop tenants. The Building Authority, after inspection during March, extended the Temporary Occupation Permit to 10th June 1985. However, the permit continued to restrict the use of the premises to the original non-billiard room purposes. In addition, in a covering letter the Building Authority required the billiard tables to be removed, other unauthorised additions to be removed and drew the plaintiff's attention to Section 21(3) of the Buildings Ordinance. Section 21(3) empowers the Building Authority to revoke a temporary occupation permit for breach of any condition thereof by service of notice of revocation. This led the plaintiff's then solicitors to write to the defendants asking them voluntarily to cease using the premises as a billiard room in which event the plaintiff was prepared to discuss suitable terms for suspension of the lease and payment of rent.

9. The defendants solicitors replied that the plaintiff had represerted to them that the premises were suitable for a billiard room. The defendants had on that representation entered into the lease limiting their use to that specific purpose and had thereafter complied with the user covenant. The solicitors also alleged that the defendants had previously not known that such user was in breach of the Temporary Occupation Permit.

10. Both parties hopes of obtaining approval must have received a severe set back when on 24th May 1985 the Director of Fire Services wrote to the plaintiff's solicitors that it was "considered that no fire service installation is capable of alleviating such situation."  On 8th June 1985 the plaintiff applied for a further extension of the Temporary Occupation Permit. The Building Authority was obviously properly concerned at the continued operation of the billiard room. However, it was also conscious of the position of the other tenants who were complying with the existing user requirements. In the circumstances the Building Authority agreed to grant a short extension of 1 month in which to allow the position of the premises to be resolved. The Building authority also warned that failure to take immediate action to resolve the situation would result in action being taken under Section 25(2)(b). This section empowers the Building Authority in the case of a building net being suitable for its present or intended use, to require the owner or occupier to discontinue such use within 1 month.

11. The defendants maintained their position that they were strictly complying with the user provisions of the lease; had not previously known that such user was contrary to the conditions of the Temporary Occupation Permit; that on entering into the lease the plaintiff had made representations to them to the contrary. On 6th July 1985 the plaintiff issued the present action claiming an injunction in terms similar to the present summons. Three days later when the then current Temporary Occupation Permit was about to expire the Building Authority again inspected the premises. The billiard room was still operating but the commencement of the present action must have impressed the Building Authority for he wrote to the plaintiff's authorised person on 11th July 1985 in these terms:

12. At this interlocutory stage I am only concerned with the summons for interim injunction which raises two issues. First, is there a serious question to be tried at the substantive hearing? Secondly, if there is a serious question to be tried, does the balance of convenience lie in favour of granting the interim relief sought: As to the first issue, the unusual facts give rise to at least interesting and possibly even difficult questions of law. For example, here the landlord is endeavouring to restrain its tenant from carrying on business under the lease which expressly permits that particular business to be carried on. There are disputes of fact whether the defendants knew before entering into the lease or at least before incurring the expense of fitting out the suit premises, that the approval of the Building Authority had yet to be obtained. The defendants covenant in the lease as tenants to comply with all applicable Ordinances and not to use the premises for any illegal purpose may raise issues in relation to user contrary to the conditions imposed by the Temporary Occupation Permit. Another probable issue is the extent to which a purported exclusion clause may assist the plaintiff. On this summons it is not for me to attempt to arrive at any findings of fact or conclusions of law on the conflicting affidavit evidence and I expressly refrain from doing so. However, the affidavits do enable me to consider the apparent basis of each parties case. Having done so, I am well satisfied that a serious issue does exist, to be tried between the parties at the substantive hearing.

13. Secondly, I must now go on to determine, under the balance of convenience criteria, whether an interim injunction as sought should issue. In considering the factual matters relevant to this issue I do so in the light of the principles enunciated by the House of Lords in American Cyanamid Co. v. Ethicon Ltd. (1975) AC 396. Counsel for the plaintiff listed eight separate grounds which, in his submission, established that the balance of convenience was for issuing the interim injunction. These were that an injunction would recognise the inevitability that the non-approved user will be stopped by the appropriate authority; bring to an end a risk to life and limb of the public; minimise the risk of interruption to other tenants; the defendants would not be liable to pay rent while out of possession; the injunction would be without prejudice to any claim for damages against the plaintiff that might arise under the lease; the undertaking as to damages is by a plaintiff which is a substantial property owner conversely if no injunction were granted and the plaintiff had a right to damages the defendants are less likely to be in a position to meet damages; a Court should assist a party which is attempting to comply with two Ordinances both of which include penal provisions.

14. Counsel for the defendants at once took issue with the submission that the compulsory closure of the billiard room either by the Building Authority under the Buildings Ordinance or by the Director of Fire Services under the Fire Services Ordinance, Cap. 95 was inevitable. To date the Building Authority had been content to warn the plaintiff by letter. The Building Authority had taken no formal steps to exercise his penal powers. If he were to do so under Section 25 he was required to give I month's notice. Further where notice is given there are several remedies open to the receiver of the notice. Apart from other remedies I am aware that these may include an appeal to the Appeal Tribunal under Section 44 or to a Committee of Review under Section 50. The defendants also disputed that there was a fire hazard creating a danger to users of the premises. It was pointed out that basements down to a fourth level were a novel development in Hong Kong and that the Director of Fire Services had merely made a new blanket general practice ruling to meet this situation. The parties were currently preparing representations to the Director on this issue and there was a body of expert opinion to the contrary. In any event the primary responsibility for abatement of fire hazards rested on the Director who so far had been content to deal with the matter by letter and had yet to invoke his statutory enforcement powers under Section 9 of the Fire Services Ordinance.

15. The apparent major concern of the plaintiff not to have the occupancy of the other leased parts of the Prudential Centre nor its receipt of rents therefrom affected could, it was submitted, simply be met by two Temporary Occupation Permit being granted; one for the 4th Basement; the other for the remainder of the Prudential Centre. I am aware that the definition of " building" in Section 2 includes part of a building while the wording of Section 21 further recognises that a Temporary Occupation Permit may be issued for part only of a building. However, whether several permits should issue for different parts of the same building, is a matter within the discretion of the Building Authority and will no doubt depend en the factual circumstances of each case.

16. As to the financial consequences of the defendants business being suspended it was submitted that the contractual abatement of rent for that period would not compensate the defendants for the suspension. In effect the grant of an interim injunction would give the plaintiff the same relief as it sought in the action. The consequences to the defendants would not merely be to suspend their business but for practical purposes the business including its goodwill would be wholly extinguished. Damages would not be an adequate remedy nor was the possible stronger financial position of the plaintiff relevant.

17. In any event the plaintiff, it was submitted, was seeking equitable relief in circumstances where it had knowingly granted a lease for an unapproved purpose and was now seeking the assistance of equity to relieve it of contractual obligations deliberately entered into when it knew that approval for the sole use permitted under the lease had not been granted. The defendants denied that when they entered into the lease they also knew that the consent of the Building Authority to the change of use had not been granted. However, Counsel for the defendants submitted that even if the defendant had shared that knowledge, the plaintiff was still by its conduct, disentitled to the relief sought. I was referred to the judgment of the Privy Council in Sang Lee Investment Co. Ltd. v. Wing Kwai Investment Co. Ltd.  (1983)  HKLR 197 in support of the proposition that even where there are alleged improprieties on each side the Court is first concerned only with the conduct of the party seeking relief.  Lord Brightman at page 209 observed:

18. Counsel for the defendants submitted the same principle applies or an application for interim injunction. Finally, it was submitted for the defendants that it was premature to talk of penal provisions for neither of the two statutory officers charged with ensuring building and fire safety had yet elected to exercise any enforcement provisions or invoke any penal powers. In those circumstances it was not, it was submitted, for this court in civil proceedings to usurp the duties of the statutory officers.

19. In my view the most poserful consideration in support of the grant of an interim injunction is the question of public safety. Certainly a Court should pause long before declining to issue an injunction when a material consequence of the injunction would be to improve public safety and support current fire safety requirements. Conversely, it seems to me that the most compelling consideration advanced by the defendants is that the suspension of their business, in terms of the injunction sought, would have the practical effect not merely of suspending but probably of extinguishing their business. This, of course, would depend on the length of suspension. Both these competing considerations raise important issues. These and the parties supporting submissions are not only material but cumulatively result in the respective competing factors at least approaching a position of even balance.

20. In analysing and weighing these competing considerations I remind myself of the statement of Lord Diplock in American Cyanamid v. Ethicon Ltd. at page 408 that in such circumstances it is prudent to preserve the status quo:

21. One possible step which might give the plaintiff some relief would be to obtain a separate Temporary Occupation Permit for the 4th Basement. Indeed, well before this possibility was advanced by Counsel for the defendants, it was raised by the plaintiff's own solicitors in correspondence. However, Counsel for the plaintiff during this hearing, informed me from the Bar, that because of the relationship of the 4th Basement to the upper floors this alternative was not possible.

22. In relation to the parties past conduct I accept that I am not concerned with balancing past misconduct, I must look first at the conduct of the plaintiff. Having done so it is abundantly clear that the plaintiff with full knowledge that approval for change of use had not yet been granted by the Building Authority, at best foolishly, entered into a lease which stipulated that the only permitted contractual use thereunder was the use for which the plaintiff had yet to obtain approval. True the plaintiff's advisers intimated that approval could be anticipated but the plaintiff voluntarily elected to run the substantial risk of leasing premises for a purpose which it knew was as yet unpproved. On the affidavit evidence I am not prepared to make any finding whether the plaintiff earlier represented that the suit premises were suitable for a billiard room or whether at the time of executing the lease the defendants were similarly aware that approval had yet to be granted.

23. However, at this interlocutory stage I am prepared to assume, without deciding, that the plaintiff's past conduct has not disentitled it to the relief sought. The consequential crucial question is where does the balance of convenience lie. In relation to the important fire safety issue I record that whatever the outcome of the present summons, the position and powers of the Building Authority and the Director of Fire Services remain unaffected. Their statutory responsibilities exist and enure independently of any order a court may make in civil proceedings merely between lessor and lessee. Certainly those officers, quite apart from their statutory position, are far more able than this court to evaluate the important issue of public safety. Depending on their evaluation, they have comprehensive powers which they can unilaterally exercise to deal with any matter affecting public safety.

24. In these circumstances if the issue of public safety in relation to the instant facts is to be put into proper perspective, I am obliged to take into account that so far both the Building Authority and the Director of Fire Services have been content to deal with the present position by either negotiation or letter. Neither has yet elected to exercise his enforcement or penal powers. I appreciate that the new rule of practice affecting 4th level basements, may have been applied in Hong Kong for the first time in relation to these premises. The novelty of the situation and the representations of the plaintiff's own fire consultants to the contrary, may explain the Director's present stance. I appreciate too that the Building Authority has reasonably been concerned with the position of the non-offending other tenants and has also been influenced in granting a new Temporary Occupation Permit for a longer period that its predecessor by the plaintiff's recent activity in issuing the present action. However, the limited action of the authorities to date is a factor to be taken into account. I am reinforced in giving weight in these proceedings to that limited action by the fact that both the Building Authority and Director of Fire Services may unilaterally and at any time, fully exercise all the enforcement powers under their respective Ordinances, if they consider such action necessary or desirable.

25. Turning to the effect upon the defendants of the grant of an interim injunction it would, of course, change the status quo. The suspension of the business for any material time may even risk its extinguishment. At least it would require the defendants, if successful in the action, to attempt to re-establish a business prima facie dependent not merely on personal but no doubt also on site goodwill. On the other hand, if the interim injunction is not granted the status quo, as between the parties, would be preserved.

26. After taking all these factors into account and conscious of the fact that whatever the outcome of these proceedings, the powers of the Building Authority and the Director of Fire Services remain unaffected, I am satisfied and in the exercise of my discretion so find, that the balance of convenience is in favour of not granting the interim injunction sought. The plaintiff's summons is accordingly dismissed.

DATED this 18th day of September 1985