LEE ON MANAGEMENT LTD v. PO HING LAUNDRY LTD

1987, No. A2342

IN THE SUPREME COURT O OF HONG KONGg

HIGH COURT

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JUDGMENT

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1. The plaintiff company which is the manager of the Lee On Industrial Building in Hung To Road, Kwun Tong, seeks a declaration and mandatory injunctions against the defendant company, the owner of units A and B comprising the entire 3rd floor of the building.

2. The relief sought relates to the installation of certain plant and equipment and to modification to the building performed by the defendant in connexion with a laundry business that it operates on its premises.

3. The building which is in the heart of industrial Kwun Tong was completed in 1978 and consists of a ground floor and 13 upper floors. The lower four floors consist of two units each whereas the 4th to 13th floors have only one unit on each floor.

4. The developer of the building was a company named Chung Kin Investment Co. Ltd ("Chung Kin") of which the majority shareholder is a Mr. Leung. Chung Kin eventually sold all but four units which it retained for itself. By the deed of mutual covenant relating to the building the plaintiff company, of which Mr. Leung is the managing director, was appointed as the manager of the building for a period of three years after the date of the issue of the occupation permit. The deed further provided that thereafter the manager was to be appointed by the owners of the various units in a specified manner.

5. It is plain from the evidence that after the expiration of the three year period no action was taken under the deed either to reappoint the plaintiff or to appoint anyone else as manager of the building and that the plaintiff continued to carry out the duties of manager. It appears that ever since then the owners of the various units have continued to treat it as the manager.

6. Shortly before it issued the writ the plaintiff company, which has instituted this action on the basis of its claim to be the manager of the building under the deed of mutual covenant, suddenly became aware of the fact that the requirements of the deed that it be re-appointed after the expiration of the first three years had not been complied with. In order to regularise its position it therefore instructed its solicitors to draft a written resolution for signature by the other owners of units in the building. The resolution was framed in the following terms:

 

"That the appointment of Lee On Management Limited as the Manager of Lee On Industrial Building ("the Building") pursuant to Clause 7(b) of the Deed of Mutual Covenant in respect of the Building be confirmed."

7. There is no dispute that the resolution was signed by owners who in the aggregate had vested in them more than one half of the shares in the building and that therefore the resolution cannot be challenged on the basis that an insufficient number of owners signed it. As Mr. Mumford for the defendant readily concedes, the objection he takes to its validity is highly technical. He submits that by virtue of the use of the word "confirmed", the resolution merely purports to confirm an act that has not been performed and as such is meaningless. He argues that for the resolution to be valid it should have been worded "The undersigned owners hereby resolve that Lee On Management Limited be appointed as the Manager etc." or words to that effect.

8. He also submits that because the document embodying the resolution did not disclose the precise day in April 1987 on which the resolution was passed the Plaintiff has not established that it was passed prior to the date of the issue of the writ, namely, 24th April 1987.

9. A solicitor, who had at the relevant time been engaged as an articled clerk in the Plaintiff's solicitor's firm, testified that he had sent the document to the Plaintiff on 2nd April for signature by the other owners in the building and that it had been returned to him on about 10th April bearing the signatures of the owners. He explained that he had left blank the space in which the day of the month on which the resolution was passed should have been inserted because he had been told that the owners had not all signed on the same day and that therefore he did not know what day of the month to insert. Although he was unable to produce any covering letter to support his claim that the document had been returned to him on or about 10th April, I am completely satisfied that his recollection is reliable. Despite the fact that he has admittedly handled many documents since that time I have no doubt that, because of the necessity to have the resolution signed before the action was commenced and the urgency with which it had been sent to the Plaintiff, he would have had no difficulty in remembering that it had been returned to him before the commencement of proceedings. Indeed, it is inconceivable that he would have permitted the writ to issue before he had received the resolution back from the plaintiff.

10. I am also of the view that there is no substance in the other basis of objection. It seems likely that the plaintiff's solicitors worded the resolution in the way they did with the object of formally validating all prior acts performed by the plaintiff over the years during which it had been treated by the occupants of the building as the manager. However that may be, I do not think it is appropriate to approach the interpretation of this document as if it were a statute. I am satisfied that I should give it a purposive interpretation. The technical objection must therefore fail. Having disposed of that matter I now turn to a consideration of the substantial issues in this case.

11. Although the evidence does not disclose the precise date, it appears that shortly before or in August 1986 a Mr. Ng, who is one of the three shareholders in the defendant company, looked over the building with a view to deciding whether there were available any suitable premises in which he could operate a laundry and dyeing business.

12. Eventually, in August, he agreed to purchase the two units comprising the third floor but was unable to enter into occupation immediately. However, he instructed surveyors to prepare plans for the installation of two boilers and for the erection a chimney to run up the outside of the building from the premises to the roof.

13. Mr. Ng agreed that when he purchased the two units he had been made aware of the terms of the deed of mutual covenant of which the relevant provisions are as follows:

THE SECOND SCHEDULE ABOVE REFERRED TO COVENANTS, PROVISIONS AND RESTRICTIONS

hereinbefore referred to:-

4.         Not to make any structural alteration to any Unit of which he is the owner nor cut, maim, injure, damage, alter or interfere with any part or parts of the building or any of the sewers, drains, watercourses, conduits, pipes, cable, wiring, fixtures, equipment, apparatus or services of the said premises and building.

 

6.         Not to use or permit or suffer any Unit of which he is the owner to be used for any illegal or immoral purpose nor to cause or permit or suffer to be done any act or thing in any such Unit which may be contrary to any relevant Ordinance, Regulation or byelaw or to the terms and conditions on which the said premises are held from the Crown or which may be or become a nuisance or annoyance to or cause damage to other owners and occupiers of the said premises.

 

7.         Save and except the Vendor NOT to exhibit in or upon any Unit or upon any other part of the said building or the exterior walls of the building any name, writing, drawing, signboard, neon sign, plate, advertisement or placard of any kind PROVIDED that this Clause shall not apply to the exhibition of the owner's or occupier's name in the places (if any) specifically provided therefor in the entrance halls and outside each unit.

 

12.         Save and Except the Vender NOT To ADD to, substract from, repair, redecorate, improve or relegate the facade or exterior walls or alter the appearance of the exterior of the said building or any part thereof.

 

13.         NOT TO INSTALL any furnace, boiler or other plant or equipment without the consent in writing of the Manager or use any fuel that might in any circumstance produce smoke or any equipment which might produce excessive noise, vibration or heat without first obtaining permission in writing from all necessary Government Department. It is apparent from these provisions that there is nothing in the deed that specifically prohibits the use of any part of the premises as a laundry or dyeing factory or the installation of boilers, drainpipes or chimneys as such. The prohibition relates to altering or interfering with any part of the building and to doing any act or thing which may be or become a nuisance or annoyance to or cause damage to other owners and occupiers of the building.

14. Clause 13 of the schedules while not prohibiting the installation of boilers and other plant and equipment, requires that they not be installed without the consent in writing of the Manager. It seems to me that notwithstanding the usual general prohibition against altering or interfering with any part of the building, the average layman would conclude from a reading of the deed that, provided the Manager was satisfied that the installations posed no threat to safety and would not be likely to become a nuisance or annoyance to the other occupiers of the building, there would be no obvious reason for the manager to withhold consent.

15. It is also noticeable that the provision relating to the restriction concerning the use of fuel that might produce smoke and to equipment that might produce heat unless in each case permission is first obtained from all necessary Government Departments, does not impose a further requirement that the permission of the Manager is to be obtained.

16. Moreover, although clause 13 of the schedule does not specifically refer to chimneys, it seems likely that a reasonable layman would conclude from it that provided all necessary safety and environmental conditions were complied with there would he no obvious reason why the Manager would refuse permission for the erection of a chimney to funnel off the smoke produced by combustion of the fuel. Indeed, had the intention been to prohibit the installation of boilers and chimneys absolutely the deed would have been drafted accordingly.

17. When Mr. Ng inspected the building prior to purchasing the two units, he observed that the owner of another unit had already installed a chimney which ran up the rear wall of the building and terminated above roof level. After the dispute between the parties arose, Mr. Ng took a photograph of this chimney. He also measured its diameter and found that it was 23 inches. There is no dispute that after the issue of the writ this chimney was removed. It was therefore not available for inspection when the court visited the building during the course of the trial. During the course of the visit, however, the court observed that a third chimney, which although substantially smaller than 23 inches in diameter, ran for some considerable distance down the side of the building from the roof.

18. During his preliminary inspection of the building, Mr Ng also noticed that part of the floor of the 12th floor premises had been thickened by the addition of more concrete or cement.

19. According to him he had not been sure whether it was necessary to obtain the authority of the Buildings and Lands Department in order to erect a chimney. However, he entrusted to his engineers and surveyors the task of obtaining all requisite consents. On 27th October 1986 the Environmental Protection Department gave its consent for the installation of the proposed boilers and chimney, and some twenty days later, on about 16th November, Mr. Ng's Contractors began to erect the chimney. He also made arrangements for the purchase of two boilers.

20. During the process of its erection a Mr. Fung, who is the supervisor of the caretakers employed by the plaintiff at the building, informed Mr. Ng that chimneys were not permitted.  Mr. Ng then instructed his solicitors to approach the plaintiff concerning the matter, and on 26th November they wrote to the plaintiff informing it that the defendant would move into the 3rd floor premises when the existing tenancy expired in December 1986, and that it had obtained a certificate of approval for the installation of a "furnace, chimney and flues" at those premises. This was presumably a reference to the consent granted by the Environmental Protection Department.

21. The plaintiff's solicitors replied to this letter on the same day. Without making any specific reference to the chimney, they drew attention to clause 13 of the 2nd schedule to the deed forbidding the installation of "any furnace boiler or other plant or equipment without the consent in writing of the Manager". They went on to state that if the defendant were to make an application to the plaintiff it would consider the matter and decide whether or not it would give its consent. The letter concluded with a request that the defendant be advised "not to install any furnace, boiler or other equipment unless and until consent in writing has been obtained from [the plaintiff] pursuant to clause 13 of the Deed of Mutual Covenant."

22. On 5th December the defendant's solicitors replied and formally applied for consent to the "installation of boiler". They enclosed copies of the layout plans for the proposed installation which, notwithstanding the apparently inadvertent earlier use of the singular rather than the plural, clearly show two boilers, flues and the chimney.

23. On 16th December the plaintiff's solicitors replied that after careful consideration and having obtained the views of the other owners in the building, the plaintiff refused to give consent to the installation of the boilers "as proposed by your clients". The letter again concluded with a request that the defendant be advised not to commence any installation work on the boilers and added that if the warning was ignored, the plaintiff would have no alternative but to commence legal proceedings against the defendant. Again there was no express mention of the chimney.

24. No doubt encouraged by the words "as proposed by your clients", the defendant's solicitors on the 16th December requested the plaintiff's solicitors to inform them of the grounds of objection to the "proposed installation of boiler" and to advise whether the defendant could make a modification that would meet with the plaintiff's approval.

25. On 29th December the plaintiff's solicitors replied and stated the following grounds of objection:

Then, with reference to the defendant's solicitors' request for advice as to whether the plaintiff might approve a modification of the proposal that had been rejected, the letter concluded by stating that the plaintiff would reconsider the matter if the defendant put forward its modification.

26. On about 18th January 1987 the defendant accepted delivery of the two boilers at the premises. On 20th January the plaintiff's solicitors notified the defendant's solicitors that the plaintiff was aware of the arrival of the boilers and requested them to advise the defendant not to install them. They added that if the defendant failed to accept that advice the plaintiff would commence legal proceedings and "ask for a punitive order as to costs".

27. The defendant's solicitors responded with two letters, the first of which informed the plaintiff's solicitors that they were taking instructions; the second, dated 28th January, notified them that the defendant had given instructions to its architect and that a proposal for modification would be sent "for the plaintiff's reconsideration as soon as it is ready".

28. On 2nd April the plaintiff's solicitors wrote to the defendant's solicitors and complained that despite the plaintiff's refusal to give consent to the installation of the boilers, the defendant had installed them and had begun to operate them to the inconvenience of other owners in the building. It was in this letter that for the first time the plaintiff made an explicit objection to the chimney. It was a specific complaint in that it stated that on or about 14th December 1986 the defendant had "erected two chimneys/flues attached to an exterior wall of the building and extending from the 3rd floor level to the roof of the building in breach of paragraphs 4, 6 and 12 and each of them of the Second Schedule of the Deed of Mutual Covenant in respect of the building". They demanded that the "boilers chimneys/flues" be removed within 10 days failing which the plaintiff would commence legal proceedings against the defendant.

29. On 8th April the defendant's solicitors requested the plaintiff through its solicitors to specify what inconvenience had been caused and to let them know whether the plaintiff had any suggestions for improvement.

30. On 13th April the plaintiff's solicitors again wrote to the defendant's solicitors. On this occasion they ignored the requests made in the letter of 8th April and complained that in addition to the installation of the two boilers and the erection of the chimney and flues, the defendant had

"1.     displayed their name on the external part of their self contained units in breach of clause 4(d), paragraphs 7 and 12 of the Second Schedule and each of them of the Deed of Mutual Covenant;

2.      erected a drainage pipe attached to an exterior wall of the building and extending from the 3rd floor level to the Ground Floor of the building in breach of paragraphs 4, 6 and 12 and each of them of the Second Schedule of the Deed of Mutual Covenant; and

3.     erected a 10 inches thick concrete floor covering about 40% of the floor area of the units (measuring 35' x 109' , x 9') in breach of clause 4(e) (i); paragraphs 4 and 6 of the Second Schedule and each of them of the Deed of Mutual Covenant."

31. The letter concluded with a warning that unless the defendant removed the display of its name, the drainage pipe, the concrete floor, the boilers, the chimney and flues within the next ten days legal proceedings would be commenced.

32. On 21st April the defendant's solicitors requested that the plaintiff give its consent to the alterations and additions referred to in the letter of 13th April. The plaintiff's response was to issue a writ on 24th April which had the effect of bringing negotiations to an end. I have set out the substance of all the correspondence between the parties so that their conduct may by seen in its proper context.

33. Mr. Leung testified on behalf of the plaintiff that the defendant's chimney is about 4 feet in diameter, that each character on the defendant's sign on the face of the building outside the defendant's premises is about 3½ feet in height and that one half of the floor area on the 3rd floor had been thickened by 10 inches of concrete. Mr. Ng, however, testified that the diameter of the chimney is 29½ inches, that the height of each character is 2 feet and that although the floor had been thickened by the addition of about 10 inches of concrete in one part it had been deliberately tapered away to facilitate drainage. He explained that the concreting had been done in order to overcome what he considered to be the completely groundless fear expressed in the letter of 29th October that there would be flooring due to the alleged inadequacy of the existing drainage system in the building.

34. It was not until difficulty was experienced in comprehending Mr. Ng's testimony concerning the varying thickness of the concrete on the floor and the area affected by it that a decision was made to visit the locus in quo.

35. It was readily apparent from a visual examination of the chimney, the thickened floor and the characters that Mr. Leung had been guilty of gross exaggeration and that the dimensions given by Mr. Ng much more closely approached reality.

36. Mr. Ng explained that, apart from thickening the floor, he had installed the drainpipe from his premises so that in the event that any water escaped from his machinery it would flow down the slope created by the tapering thickened floor into two channels from whence it would be directed down the new drainpipe into the Government drainage system below the lane at the rear of the building. This arrangement effectively bypassed the existing drainage system in the building and thus the twin objections that that system was inadequate to deal with the quantity of water the defendant was likely to use in operating his laundry, and was not of a suitable material and design to cope with the flow of chemicals and hot water, had both been overcome.

37. Mr. Ng emphasised that he regarded the thickening of the floor and the installation of the drainpipe to have been unnecessary precautions and that the water discharged from his laundry was neither hot nor contained any chemical that would have any adverse effect on the drainage system in the building. He simply felt constrained to take these measures to allay what he considered to be the groundless fears expressed by the plaintiff.

38. In this connexion no evidence was adduced by the plaintiff to indicate either that the drainage system of the building was inadequate to cope with the water discharged or that the effluent from a laundry and dyeing factory was hot or contained chemicals that would have a deleterious effect on that system.

39. Mr. Leung sought to demonstrate the danger of thickening the floor by asserting that he had been told by an architect and officers of the Building and Lands Department that the floor loading capacity was 150 pounds per square foot. As objection was justifiably taken to this testimony on the ground that it constituted hearsay evidence I ignore it.

40. He further testified that the chimney generated heat which penetrated the wall of the building and caused discomfort by raising the temperature in the stairway. The visit to the scene, however, established beyond any doubt that this claim was completely without foundation. Although the unchallenged evidence of Mr. Ng was that only one boiler was operated at any one time, the parties agreed that both boilers should be operated simultaneously at full output so that the court could determine for itself what effect was produced. After both boilers had been operating for some time while the court inspected the other relevant parts of the building it was noticeable that one could comfortably place one's hands not only on the boilers, but on the flues leading from the boilers to the chimney, and on the base of the chimney itself.

41. Whilst it was true that the temperature in the boiler room was higher than that felt in that part of the defendant's premises immediately outside that room, it was not unduly uncomfortable. Furthermore, by standing in the stairway adjacent to the wall up which the chimney ran, it was impossible to detect any heat emanating from the chimney. The temperature of the wall was noticeably cool. I find myself unable to attach any weight to Mr. Leung's testimony in this regard.

42. On 8th December Mr. Leung wrote a letter of complaint to the Building and Lands Department about the erection of the chimney. Officers of the department later visited the building and, according to Mr. Fung, posted at the entrance to the 3rd floor a notice which stated that unapproved construction work was being carried out on the roof and that as the structure concerned had contravened the Building Regulations it was illegal. It requested the person responsible to remove the structure, and threathened that if this was not done the Building Authority would issue an order requiring that it be removed and that prosecution proceedings might be commenced.

43. The notice did not specify the nature of the construction work to which it related and no evidence was called from the Buildings and Lands Department to indicate either what work the notice referred to or the attitude that the Department now took with regard to it. Assuming that the notice referred to the defendant's chimney and not to scaffolding that had been erected to assist in its installation or to any other structure, it is plain that no action has been taken between December 1986 and the hearing of this case to have the defendant's chimney removed or to prosecute the defendant. Indeed, an architect, engaged by the defendant in November 1987 to make submissions on its behalf to the Building and Lands Department for approval of the erection of the chimney, testified that the approval of the Fire Services Department and the Environment Protection Department had already been obtained and that as the Building and Lands Department was the central processing body which forwarded to the other two departments all plans submitted for the approval of the installation of chimneys, he was confident that no difficulties would arise.

44. Mr. Fung, who was the only other witness for the plaintiff, gave vague and confusing testimony. Part of his confusion may have arisen owing to difficulties in interpretation but I am satisfied that although he was an honest witness trying to do his best, his recollection of events, dates and conversations was quite unreliable.

45. He admitted that he had never read the deed of mutual covenant and was not familiar with its terms. According to him, he would take action if he received a complaint from an occupant of the building that a breach of covenant had occurred. On one occasion the owner of the 11th floor had complained of vibrations from machinery on 12th floor and as a result of Mr. Fung's intervention the owner of the 12th floor thickened the floor under his machinery in order to overcome the problem. Mr. Fung conceded that he had had dealt with the matter without reference to Mr. Leung.

46. It is plain that during the course of his duties and his many visits to the roof he had become aware of the other two chimneys or exhaust vents leading up the side of the building.  Despite this, however, he had apparently made no complaint to Mr. Leung about their presence. Indeed, Mr. Leung professed to be ignorant of the existence of any other chimney for he said that even, when he visited the roof to examine the defendant's chimney, he did not notice the large chimney or exhaust vent that ran from the 12th floor to above roof level. Such testimony is incredible for in order to approach the defendant's chimney from the entrance to the roof one must pass by that structure.  It is inconceivable that any person who had chimneys on his mind could fail to have seen it in such circumstances.

47. I have no doubt that the plaintiff had invested Mr. Fung with authority to deal with complaints by occupiers and that he had at least apparent authority to make decisions on behalf of the plaintiff as to whether a breach of the deed of mutual covenant would be tolerated. I am satisfied that the plaintiff had been well aware of the existence of breaches of covenant by other occupiers such as the erection of the other two chimneys or vents, the thickening of the floor on the 12th floor, and the erection of a large roofing structure over the otherwise uncovered open area in front of the units on the 4th floor. While I accept that tolerance by the plaintiff of a number of breaches by other occupants does not debar it from calling a halt to further breaches, such restraint is capable of being interpreted by occupants of the building, as it was by the defendant, that the deed would not be strictly enforced against them.

48. Mr. Leung claimed that he had not initiated the complaints against the installation of the chimney and boilers by the defendant but that he had responded to complaints made by the owners of other units in the building. He insisted that he had adopted a fair and impartial attitude in dealing with the matter and that had the other occupants been willing to tolerate the defendant's breaches of covenant he would have been content to abide by their decision. He admitted, however, that he had written the letter of complaint to the Buildings and Lands Department before consulting the oher occupants as to their attitude towards the erection of the chimney.

49. None of the other occupants testified on behalf of the plaintiff. It was, of course, not incumbent on the plaintiff to call any of them as witnesses but as I have serious reservations about the testimony of both Mr. Leung and Mr. Fung, particularly that of Mr. Leung, I am left in considerable doubt that the complaints had been instigated by the other occupants. I am left with the distinct impression that Mr. Leung played a far more prominent part in organising opposition to the defendant's activities than he was prepared to admit.

50. Whether his stance against the defendant was motivated by a conscious decision that there had already been sufficient tolerance of prior breaches and that it was time to call a halt to further breaches is difficult to say. It is plain, however, that his allegations concerning the heat generated by the chimney was completely without foundation. As to the allegation that the boilers had produced heat via what was described as a steam box such as to give rise to complaints from other occupants of the building, it was noticeable, even when standing close to the steam box in the new location, that it gave off no heat. I accept Mr. Ng's testimony that any complaints that may have been made about the steam box were completely unjustified.

51. The defendant pleaded that, because the plaintiff failed to take action in respect of earlier breaches of covenant by other occupants of the building and because of what Mr. Fung had said to Mr. Ng in a conversation at the end of July 1987, the plaintiff is estopped from claiming any relief against it. I will deal with the conversation first.

52. Mr. Fung's testimony in this connexion was extremely confusing. However, a fair summary of his account of the conversation is that, as a result of complaints from the owners of the other floors in the building as to the heat generated from the so called steam box, he approached Mr. Ng in his office and told him that conditions would have to be improved by removing the steam box as water was spurting from it and it was producing heat. He told Mr. Ng that it was not good to have other people making complaints and that once a solution was found there would be no complaints about the heat. He then requested Mr. Ng to relocate the steam box as a temporary measure and to alter the direction of the duct connected to it so that it would face away from the building and not blow directly at the occupants of the 4th floor.

53. Mr. Ng replied that he hoped that gradual improvement could be made and that although there was no solution to the problem he would give it some thought. Mr. Fung then told him that he had found another location for the box. Mr. Ng accepted this proposal and obliged Mr. Fung by installing another steam box at the new site. According to Mr. Fung there were no further complaints after the new box and ducting had been installed.

54. Mr. Ng's version of the conversation was that Mr. Fung had not informed him that there had been any complaints about heat from the steam box but had told him that he wanted him to improve the surroundings and had said "Let's not have disputes". Mr. Fung then took Mr. Ng outside and said "I've found a place for you to locate the steam box and exhaust duct quickly". On being shown the suggested site Mr. Ng agreed to Mr. Fung's proposal and immediately commenced work to instal a new steam box and ducting at a cost of $75,000..

55. Mr. Ng interpreted Mr. Fung's remarks to mean that if he carried out the proposed work the proceedings which had already been commenced in this action would be discontinued. He explained that had he thought that changing the location of the steam box and the installation of new ducting had been proposed as temporary measures only and that the proceedings against him were to continue, he would not have undertaken such expenditure.

56. Whilst I prefer Mr. Ng's account of the conversation to that given by Mr. Fung and do not accept that Mr. Fung had said that the proposal was merely a temporary measure, I am satisfied that, even on Mr. Ng's version, the plea made by Mr. Fung that there be no disputes clearly related to the steam box and that nothing said by Mr. Fung amounted to an undertaking that if Mr. Ng adopted his proposal the action would be discontinued or that the plaintiff would tolerate any of his breaches of covenant.

57. A Madam Tsoi, who was employed by the defendant and was present during the course of this conversation, testified that she had not heard Mr. Fung tell Mr. Ng that any complaints had been made about the steam box. She said however that he had asked Mr. Ng whether it would be possible to improve the surroundings by moving the box and the exhaust duct to the roof, and had mentioned that it was pointless having further disputes. I found her to be a good witness and although she not lend support to much of Mr. Fung's account of the conversation, it is equally true that her version of what Mr. Fung said reinforces my conclusion that he made no promise or undertaking, either expressed or implied to Mr. Ng.

58. I am entirely satisfied that, in the difficult situation in which he found himself, Mr. Ng became a victim to wishful thinking and genuinely concluded that Mr. Fung was in effect giving him that undertaking and that it was in that false belief he went ahead and expended $75,000 in carrying work that he thought would appease the plainitff. Such a mistaken belief generated by hope is not capable of creating a representation where none is made.

59. Moreover, I believe that his installation of the chimney and boilers, the affixing of the name sign outside his premises and the thickening of the floor were not calculated acts of defiance but that he geniunely thought that he would either not be met with any objections or that, if objections were raised, they would easily be overcome.

60. He had instructed his engineer surveyors to obtain the necessary consents from Government for the erection of the chimney, and, as I have already said, the evidence discloses that the Environmental Protection Department and the Fire Services Department gave their consent. I would add that it was apparent from the visit to the building that it is situated in the heart of industrial Kwun Tong and that chimneys abound in that area.

61. Knowing that his boiler system did not create heat that would cause discomfort to other occupants of the building Mr. Ng believed that the manager would consent to its installation. When to his surprise he learnt that permission had been refused on the grounds set out in the letter of 29th December from the plaintiff's solicitors, he set about overcoming these objections by thickening the floor and installing a separate drainage pipe that would bypass the drainage system in the building. He also arranged for a separate supply of water to be connected to his premises

62. Although the objection stating that the other owners in the building had indicated that they would not give their consent is set forth in that letter as a third reason, it does not seem unreasonable to me that Mr. Ng would conclude that this was not a separate reason but merely an indication that all the owners were opposed to the boilers on the basis of the two other reasons given.

63. He explained that because Fire Services Department requirements concerning category 5 dangerous goods required him to erect a sign to indicate that he was storing diesel fuel on the premises, he placed a sign to that effect together with his company's name on the face of the building. However, the relevant regulation governing the storage of such goods requires that the notice be painted on the entrance of any store in which the goods are kept. The notice should therefore have appeared on the door to the premises where the diesel fuel was kept and not on the front of the premises facing the street.

64. The defendant also pleaded that, by stating in the letter from its solicitors of 29th December that it would reconsider its refusal to permit the installation of the boilers if the defendant "would put foward [its] modification", the plaintiff well knew or ought to have known that the defendant would rely on this promise and be induced thereby to solve the possible problems concerning water supply and drainage. In the alternative the defendant further pleaded that this promise induced the defendant to believe that consent would be given in due course provided these problems were solved and that in reliance on the promise, the defendant acted to its prejudice and incurred expense in installing the separate water supply system and drainage pipe and in thickening the floor.

65. I am unable to accept the submission that this letter created an estoppel. It contained no promise that if certain works were carried out the plaintiff would consent to the installation of the boilers. It really informed the defendant that the plaintiff would reconsider the matter if the defendant "put forward its modification". Clearly this was not an invitation to the defendant to perform whatever works it thought would overcome the plaintiff's objections. Not only did the plaintiff make it plain that it required the defendant to submit a proposal for the modification of the existing layout but there was no undertaking that such proposal, if submitted, would be approved. The promise was simply that the matter would then be reconsidered.

66. Likewise I do not accept that there any substance in the defendant's pleading that, because the plaintiff made no complaint in the letter of 29th December from its solicitors concerning the erection of the chimney, the defendant was thereby induced into believing that the only matters which concerned the plaintiff were those referred to in the letter and that this gives rise to an estoppel. Because it was a specific reply to a letter requesting the plaintiff to provide the grounds of objection to the installation of boilers, this letter did not purport to catalogue all the plaintiff's objections to works that had been done by the defendant.

67. I do not think that this specific reply to a specific query concerning boilers is capable of giving rise to an estoppel in relation to the chimney or any of the other breach of convenant.

68. Even though I conclude that Mr. Ng had not acted in wilful defiance of the deed of mutual covenant or in flagrant disregard of the wishes of the plaintiff and the other owners of units in the building but had genuinely thought that there would be no opposition to his installations, there is no doubt that he failed to seek and obtain the permission of the manager to the installation of the boilers before he commenced work on the erection of the chimney and had purchased the boilers. The boilers were the heart of the entire installation. Mr. Ng should not have proceeded on the basis that, as there were no logical reasons apparent to him for opposition to the boilers, the manager would not raise any objection to them. Indeed the plaintiff and the owners of the other units in the building were under no obligation to provide any reason for objecting to breaches of the deed of mutual covenant or for refusing consent to the installation of the boilers. Furthermore, while I accept that he acted with the best of intentions in taking measures to overcome the stated objections to the boilers, he should have submitted a proposal for modification of the installation when the plaintiff had indicated that it would reconsider the matter if such a proposal were put forward.

69. Notwithstanding that the manager had tolerated the existence of similar installations such as the other two chimneys and the thickening of part of the floor of the unit on 12th floor, and accepting that this had contributed to Mr. Ng's belief that there would be no objection to his installations, I do not accept the submission that this display of tolerance gave rise to an estoppel which would have the effect of debarring the plaintiff from taking action against the defendant for having committed breaches of covenant.

70. There was no evidence that the plaintiff had previously tolerated the installation of a boiler by any other occupant of the building. By seeking to install two boilers the defendant was going considerably further than any occupier had previously gone. I cannot think that the manager was not justifiably entitled to take the view there was a limit to its tolerance of breaches of covenant.

71. An additional feature of this case is that the plaintiff did not seek interim relief to prevent the erection of the chimney or the installation of the boilers. Although counsel for the plaintiff concedes that it had had ample opportunity to apply for an interlocutory injunction, he suggested that there were two reasons for it not doing so. First, the balance of convenience might have favoured the rentention of the chimney until the matter was fully argued at the trial and, secondly, a cross undertaking in damages was a deterrent in that the plaintiff feared that, if the matter was ultimately resolved in favour of the defendant, the plaintiff might find itself liable to pay a large sum by way of compensation for the defendant's loss of profits for the period during which the interim injunction was in force.

72. These reasons were not stated by Mr. Leung during the course of his testimony but were simply advanced by counsel in his closing address. There was therefore no evidence before the court concerning this matter. However, the fact that, having commenced the action, the plaintiff deliberately refrained from seeking the assistance of the court in preserving the status quo, is by no means fatal to its claim for a mandatory injunction. It is equally true that a plaintiff does not have an automatic right to have everything demolished and removed that was erected or installed after the issue of the writ. It is plain that had the plaintiff acted promptly in seeking the assistance of the court whenit had become apparent that the defendant was commencing to erect the chimney, there would have been little, if anything, for the defendant to have been required to dismantle. Moreover, the cross undertaking in damages, is an inevitable requirement in applications for interim relief by way of an injunction in cases such as this. If that factor alone were to be considered a sufficient reason for not seeking interim relief it seems that the failure to do so would be of no relevance in deciding whether the court should grant a mandatory injunction at the hearing of the action.

73. In Isenberg v East India House Estate Co. Ltd. (1863) 3 De G J & Srn 263 Lord Westbury said, at page 271:

"The jurisdiction of this court, so far as it partakes of the nature of a preventive remedy, that is, prohibition of further damage or an intended damage, is a jurisdiction that may be exercised without difficulty, and rests upon the clearest principles. But there has been superadded to that the power of the court to grant what has been denominated a mandatory injunction, that is, an order compelling a defendant to restore things to the condition in which they were at the time when the plaintiff's complaint was made. The exercise of that power is one that must be attended with the greatest possible caution. I think, without intending to lay down any rule, that it is confined to cases where the injury done to the plaintiff cannot be estimated and sufficiently compensated by a pecuniary sum. Where it admits of being so estimated, and where the evil sustained by the plaintiff may be abundantly compensated in money, there appears to me to be no necessity to superadd the exercise of that extraordinary power by this court."

74. There can be no doubt that the plaintiff, as his counsel readily concedes, is not entitled to a mandatory injunction "as of course", and that every case must depend on its own particular facts and circumstances.

75. Having stated that the grant of a mandatory injunction is entirely discretionary and unlike a negative injunction can never be granted "as of course", Lord Upjohn in Morris v Redland Bricks Ltd. ⁽¹⁾ went on at page 665 to set out certain general principles for its application:

"1. A mandatory injunction can only be granted where the plaintiff shows a very strong probability upon the facts that grave damage will accrue to him in the future.  As Lord Dunedin said 1919 it is not sufficient to say "timeo." [Attorney-General for the Dominion of Canada v. Ritchie Contracting and Supply Co. [1919] A.C. 999, 1005, P.C.] . It is a jurisdication to be exercised sparingly and with caution but in the proper case unhesitatingly.

2.    Damages will not be a sufficient or adequate remedy if such damage does happen. This is only the application of a general principle of equity; it has nothing to do with Lord Cairns' Act or Shelfer's case [1985] 1 Ch. 287.

 

3.    Unlike the case where a negative injunction is granted to prevent the continuance or recurrence of a wrongful act the question of the cost to the defendant to do works to prevent or lessen the likelihood of a future apprehended wrong must be an element to be taken into account:

 

(a)    where the defendant has acted without regard to his neighbour's rights, or has tried to steal a march on him or has tried to evade the jurisdiction of the court or, to sum it up, has acted wantonly and quite unreasonably in relation to his neighbour he may he ordered to repair his wanton and unreasonable acts by doing positive work to restore the status quo even if the expense to him is out of all proportion to the advantage thereby accruing to the plaintiff. As illustrative of this see Woodhouse v. Newry Navigation Co. [1898] 1 I.R. 161;

 

(b)    but where the defendant has acted reasonably, though in the event wrongly, the cost of remedying by positive action his earlier activities is most important for two reasons. First, because no legal wrong has yet occurred (for which he has not been recompensed at law and in equity) and, in spite of gloomy expert opinion, may never occur or possibly only upon a much smaller scale than anticipated. Secondly, because if ultimately heavy damage does occur the plaintiff is in no way prejudiced for he has his action at law and all his consequential remedies in equity.

 

So the amount to be expended under a mandatory order by the defendant must be balanced with these considerations in mind against the anticipated possible damage to the plaintiff and if, on such balance, it seems unreasonable to inflict such expenditure upon one who for this purpose is no more than a potential wrongdoer then the court must exercise its jurisdiction accordingly. Of course, the court does not have to order such works as upon the evidence before it will remedy the wrong but may think it proper to impose upon defendant the obligation of doing certain works which may upon expert opinion merely lessen the likelihood of any further injury to the plaintiff's land. Sargant J. pointed this out in effect in the celebrated "Moving Mountain" case, Kennard v. Cory Bros. & Co. Ltd. [1922] 1 Ch.265 at the foot of p.274 (his judgment was affirmed in the Court of Appeal [1922] 2 Ch.1).

 

4.    If in the exercise of its discretion the court decides that it is a proper case to grant a mandatory injunction, then the court must be careful to see that the defendant knows exactly in fact what he has to do and this means not as a matter of law but as a matter of fact, so that in carrying out an order he can give his contractors the proper instructions."

76. The plaintiff has not established that there is a very strong probability that grave damage will occur to any of the owners of the units in the building in the future. Indeed, I am not satisfied on the evidence that there was ever any real likelihood that they would he exposed to danger of damage or nuisance. Moreover, the defendant has taken precautionary measures to reduce any risk of danger to the minimum. Its conduct in not adopting the proper procedure to obtain the plaintiff's consent before embarking on the installations was not defiant or deliberately unreasonable but at most misguided.

77. If the defendant were required to dismantle his installations and reinstate the building to its former condition it would mean that in addition to incurring the expenditure of carrying out this work, it would have to meet the cost of setting up new installations including the chimney, boilers and flues and a considerab1e number of washing machines and drying machines in another building. In the meantime it would be likely to have great difficulty in holding on to its staff and would certainly lose income.  Moreover, neither the plaintiff nor the other owners of units in the present building have suffered any damage of a financial nature as a consequence of the defendants acts.

78. I have come to the conclusion that I should decline to grant mandatory injunctions in respect of all those breaches of which complaint has been made other than the name sign, which can be removed without affecting the operation of the defendants installations, and that there should be an award of damages in respect of those breaches.

79. In taking this course I should make it plain that I have done so in the light of all the circumstances of this case and that this decision should not be interpreted as being the likely outcome in all cases involving breaches of covenant.

80. Mr. Mumford submitted that the damage suffered by the plaintiff and the other owners in the building was only nominal and that therefore the action should be dismissed altogether. I do not think that that would be the proper course to adopt in a case such as this. Indeed in Wrotham Park Estate Co. Ltd. V Parkside Homes Ltd.⁽²⁾, a case that also concerned the breach of a covenant, Brightman J, as he then was, made an award of damages notwithstanding his finding at page 811 of the report that "no damage of a financial nature has been done to the plaintiff by the breach of the lay-out stipulation."

81. Having reviewed at pages 812 to 814 the approach adopted by the courts in a variety of cases, the learned  judge said at page 815:

"      In the present case I am faced with the problem what damages ought to be awarded to the plaintiffs in the place of mandatory injunctions which would have restored the plaintiffs' rights. If the plaintiffs are merely given a nominal sum, or no sum, in substitution for the injunctions, it seems to me that justice will manifestly not have been done.

 

        As I have said, the general rule would be to measure damages by reference to that sum which would place the plaintiffs in the same position as if the covenant had not been broken. Parkside and the individual purchasers could have avoided breaking the covenant in two ways. One course would have been not to develop the allotment site. The other course would have been for Parkside to have sought from the plaintiffs a relaxation of the covenant. On the facts of this particular case the plaintiffs, rightly conscious of their obligations towards existing residents, would clearly not have granted any relaxation, but for present purposes I must assume that it could have been induced to do so. In my judgment a just substitute for a mandatory injunction would be such a sum of money as might reasonably have been demanded by the plaintiffs from Parkside as a quid pro quo for relaxing the covenant."

82. Brightman J then embarked on a consideration of what sum the plaintiff would reasonably have required as a percentage of the defendants anticipated profit on the project as a price from the relaxation of the covenant.

83. In the present case the position is rather more difficult to resolve. Mr. Merry submitted on behalf of the plaintiff that if the court were to conclude that an award damages is the proper remedy, then the appropriate measure of damages would be the value of a commercial licence to install the equipment and fittings and perform the work that would otherwise be carried out in breach of the covenants in the deed.  He suggested that in arriving at this value the court should base its calculations on the position that existed in early January 1987 shortly after the letter of 29th December in which the plaintiff refused to give consent to the installtion of the boilers. His reason for selecting this time is that it was at a stage when the plaintiff, knowing that the defendant was in a desperate plight as a result of having committed itself so heavily to the venture, was in a strong position to exact a heavy license fee for giving its consent.

84. Mr. Merry suggested that, having painted itself into a corner, the defendant would have been prepared to pay between 10 and 20 per cent of the total of five years of its annual average net income of $420,000. This would mean a sum between $210,000 and $420,000. The reason for his selection of the period of five years is that, as the defendant had indicated that, if permitted, it proposed to continue to operate as a laundry and dyeing factory in the premises for as long as possible, it was logical to assume that it would remain there until the expiration of the Crown lease on 31st June 1997. Accordingly, using the analogy of awards in personal injuries claims where account is taken of the award of a lump sum instead of periodic payments, a multiplier of five would be appropriate.

85. Mr. Mumford, while vigorously resisting an award of damages, initially suggested that, if an award was to be made, a lump sum in the range of $5,000 to $20,000 would be sufficient. Later in his final address he submitted that an award of $34,500 would be appropriate. He based this figure on a rental of $250 a month for that part of the external wall up which the chimney has been erected calculated over the period of 11½ years from the date of its erection to the date of the expiration of the Crown lease .

86. I have no doubt that damages in lieu of an injunction against breach of a covenant are assessed by reference to what the covenantee might reasonably have damanded as a license fee for a relaxation of the covenant. I do not agree with Mr. Merry that that licence fee should be calculated on the basis of what the plaintiff would have been able to extract from the defendant in his disadvantageous position in January 1987 but should be the fee that would have been negotiated when the defendant was proposing to buy the two units in the building.

87. In my opinion the appropriate licence fee in this case would he one which the plaintiff, feeling reluctantly obliged to grant the defendant permission to do what it has in fact done, could demand us a reasonable quid pro quo for relaxing the covenants. Such a fee must not be so high that it would have deterred the defendant from deciding to carry out his enterprise in that building and have caused him to look clsewhere.

88. I have heard no evidence as to what sums have been negotiated in comparable cases. This is probably due to the inherent difficulty of obtaining such evidence. Bearing in mind that the defendant's net profit from its business varies from $30,000 to $40,000 per month and taking into account the measures it has adopted in an attempt to eliminate every risk of damage, inconvenience and nuisance to the plaintiff and the other owners in the building, I have come to the conclusion, doing the the best I can, that a reasonable licence fee would be one in sum of $40,000.

89. I therefore order that the defendant do forthwith remove its name in chinese characters from the external wall of the front of the building and; in substitution for mandatory injunctions, I award the sum of $40,000 in damages to the plaintiff in respect of the other matters of which complaint has been made.

90. I will also grant a declaration in appropriate terms after I have heard submissions from counsel in that regard.

(1)    [1970] AC 652

(2)    [1974] 1 WLR 798