中紀投資有限公司 CENTRE CHASE INVESTMENT LIMITED v. 青山道國際工業大廈業主立案法團 THE INCORPORATED OWNERS OF CASTLE PEAK ROAD INTERNATIONAL INDUSTRIAL BUILDING and STL COMPANY LIMITED

Press Summary (English)

Press Summary (Chinese)

FACV No 2 of 2026

[2026] HKCFA 26

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO 2 OF 2026 (CIVIL)

(ON APPEAL FROM CACV NO 96 OF 2021)

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J U D G M E N T

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Chief Justice Cheung:

1.  I have had the benefit of reading in draft the judgment of Mr Justice Lam PJ and that of Mr Justice Gummow NPJ, with both of which I respectfully agree.   I would simply add a few words of my own.

2.  There are two related but distinct questions.

3.  The first is whether, on the proper construction of section 18(1)(c) of the Building Management Ordinance,[1] an incorporated owners may waive, or acquiesce in, a breach of the DMC.[2] The second is whether, in proceedings by the corporation[3] against a defaulting co-owner, that co-owner may rely on waiver or acquiescence as a defence.

4.  The first question often arises where, as in the present case, a co-owner sues the corporation to compel it to perform its statutory duty under section 18(1)(c) to take enforcement action against a breach of the DMC.  Section 18(1)(c) provides that the corporation shall “do all things reasonably necessary for the enforcement of the obligations contained in the [DMC] for the control, management and administration of the building.” It must be read in its statutory context.  The enforcement of the DMC is not an end in itself.  It is a means directed to “the control, management and administration of the building”.  That purpose is critical.

5.  It follows that there may be situations in which it is not reasonably necessary to pursue enforcement to its logical conclusion by commencing proceedings and obtaining a final judgment.  What is reasonably required will depend on the facts.  In some cases, a measured or partial response may suffice.  In others, no immediate action may be justified.

6.  This interpretation is supported by section 34I(1)(a).[4] That provision permits the owners’ committee, by resolution, to approve a conversion of a common part to a co-owner’s own use.  Such a conversion would, absent approval, constitute an actual[5] or deemed[6] breach of the DMC.  There are, of course, breaches which do not involve any conversion of common parts,[7] with the result that section 34I(1)(a) does not apply.  It would, however, be a very strange reading of section 18(1)(c) to suggest that the extent of the corporation’s obligation or discretion should depend on whether the breach involves such a conversion.  Such a construction serves no discernible purpose from the perspective of the proper control, management and administration of the building, which is the ultimate purpose of section 18(1)(c).

7.  Rather, section 34I(1)(a) supports and reinforces the construction of section 18(1)(c) that it does not impose a rigid duty to enforce every breach to its fullest extent in all circumstances.  The duty is purposive.  It requires what is reasonably necessary, and no more.

8.  The second question is separate, though related.  It arises where the corporation takes proceedings against a defaulting co-owner for breach of the DMC.[8]

9.  It should be noted that, even if the corporation may waive or acquiesce in a breach under section 18(1)(c), that is so only where full enforcement is not reasonably necessary for the proper control, management and administration of the building. A different situation may arise where, perhaps owing to the dilatoriness of the management committee, the corporation has wrongfully failed to act as required under the section over a prolonged period. It may also have made unwarranted representations, whether by word or conduct, to the defaulting co-owner or to others in a similar position, to the effect that it would tolerate or acquiesce in the breach.

10.  If it later brings proceedings, can the defendant rely on waiver or acquiescence?

11.  The appellant has referred us to authorities[9] which suggest that, where a plaintiff is under a statutory duty, a defendant may not rely on waiver, estoppel or acquiescence to defeat the performance of that duty.[10] However, those cases concern duties imposed “for the benefit of a section of the public, that is, on grounds of public policy in a general sense.”[11]

12.  Section 18(1)(c) is of a different character.  It is not directed to the protection of the public at large.  It regulates the internal management of a private building owned by private co-owners.  In that context, where no public interest is affected, as may be the case where the breach does not concern illegal structures or matters of public safety or health, there is no compelling public policy to exclude the ordinary operation of defences such as waiver and acquiescence in appropriate cases.

13.  Accordingly, where the facts justify it, such defences may, in principle, be raised in proceedings between the corporation and a co-owner.  That is so even if the corporation’s earlier inaction amounted to a wrongful failure to perform its statutory duty.  The availability of those defences remains subject to the ordinary requirements of the law, and to any relevant public interest considerations of the kind described above.

14.  This being so, in returning to the case where a co-owner sues the corporation to compel enforcement of the DMC against a defaulting co-owner, a further point arises. There may be cases where it is evident that, if enforcement proceedings were commenced, they would be met with a successful defence of waiver or acquiescence.  As explained, that may be so even though the corporation’s prior inaction resulted from its wrongful failure to perform its statutory duty under section 18(1)(c).  In such circumstances, the Lands Tribunal may properly refuse relief on the ground that any enforcement action would be bound to fail.

Mr Justice Ribeiro PJ:

15.  I agree with the judgments of the Chief Justice, Mr Justice Lam PJ and Mr Justice Gummow NPJ.

Mr Justice Fok PJ:

16.  I agree with the judgments of the Chief Justice, Mr Justice Lam PJ and Mr Justice Gummow NPJ.

Mr Justice Lam PJ:

17.  This appeal provides an opportunity for this Court to review and state authoritatively the law in Hong Kong on waiver and acquiescence in the context of a claim by an owners’ corporation for a breach of a deed of mutual covenant. 

The factual background

18.  International Industrial Building (“the Building”) is an industrial building on Castle Peak Road. Like many multi-storey buildings in Hong Kong, the owners of the Building formed a corporation under the Building Management Ordinance (Cap. 344) (“the Ordinance”) to manage the common parts and facilities of the Building. The 1^st respondent (“the IO”) is the corporation which is the body incorporated by the owners.

19.  The 2^nd respondent, STL Company Limited (“STL”) is the owner of Unit 9A in the Building.  It was only joined as a party to the proceedings in the intermediate appeal[12]. Without prior approval from the management committee several mock window frames were installed on the external wall of Unit 9A (“the Window Frames”).  There were no openings at the Window Frames and they were installed only for feng shui purposes. Though they were unauthorised structures under the Buildings Ordinance (Cap. 123), and thus illegal, the 2^nd respondent regularized them by removing and then re-instating the same in accordance with the Building (Minor Works) Regulation (Cap.  123N), and a certificate of compliance had accordingly been issued. As held in the courts below, there was no question of illegality by the time the case was tried in the Lands Tribunal. 

20.  The appellant (“Centre Chase”) is the owner of Unit 2A.  It objected to the installation of the Window Frames and complained to the IO in April 2017. It raised several grounds of objection which had been addressed in the courts below[13]. Those complaints were rejected by the Lands Tribunal[14] and the Court of Appeal[15]. Since leave to appeal to this Court was only granted on the waiver and acquiescence issue, I will not address the other issues in this judgment. 

21.  I shall focus on the objection of Centre Chase based on the contravention of Clause 10 (e) and (g) of the Deed of Mutual Covenant of the Building (“the DMC”)[16] and Section 34I of the Ordinance. The relevant provisions in the DMC are as follows:

 Clause 10(e)

“Not to erect or affix or permit or suffer to be erected or affixed any signboard, signs, notices posters, signal, advertisement, illumination flag or sunshade bracket fitting or thing to the exterior of the said building or to common areas within the said building or any part thereof or to any exterior wall door or window of the said building.”

 Clause 10(g)

“Not to change the colour of the painting or alter the appearance of the exterior of the said building or any part thereof.”

Section 34I of the Ordinance prohibits the conversion of common parts of a building to someone’s own use and provides for approval of such a conversion by the owners’ committee.

34I. Common parts

“(1) No person may —

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

(b) use or permit to be used the common parts of a building in such a manner as -

(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or

(ii) to cause a nuisance or hazard to any person lawfully in the building.

(2)   Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building.”

22.  Section 34I is contained in Part VIA of the Ordinance which came into force on 8 May 1993. Section 34C(1) provides that Part VIA applies irrespective of whether a deed of mutual covenant came into force before or after that date. Section 34C(2) further provides that Part VIA prevails in the event of inconsistency between Part VIA and the terms of a deed of mutual covenant.

23.  There is no dispute that the external wall is a common part of the Building. Over the years, some owners have installed various structures at the external wall of the Building. Apart from the Window Frames, there were supporting frames for various air-conditioning units erected by owners of other units of the Building[17]. Against such a background, the management committee of the IO passed a resolution on 27 July 2017 pursuant to Section 34I(1)(a) (“the 2017 Resolution”) approving the affixing of the Window Frames and the supporting structures for air-conditioning units until the renovation of the external wall in the future. The 2017 Resolution was in Chinese:

“(九) 根據「物業管理條例34I – 公用部分」，管理委員會議決批准本大廈現有在外牆上的非結構性設施，包括冷氣架，例如9A單位外的裝飾窗框、等等，直至將來大廈外牆維修時，如決定統一大廈外觀，法團再作議決另行通知業主;

…

就上述事宜，管委會商討在大廈外牆上現有之設施及裝飾，如對大廈結構造成影響者必須還原，而非結構性者就可批准。

根據「物業管理條例34I – 公用部分」，管理委員會議決以6票贊成批准本大廈外牆上現有的非結構性設施，包括冷氣架，例如9A單位外的裝飾窗框、等等，直至將來大廈外牆維修時，由法團再作議決大廈外牆之外觀以及影響外牆外觀的設施及裝飾。”

Its certified translation reads:     

“(IX)     Pursuant to “section 34I of the Building Management Ordinance - Common Parts”, the Management Committee passed a resolution to approve the existing non-structural facilities on the external walls of the building, including supporting frames for air-conditioning units, for example, the decorative window frame outside Unit 9A and so on, until the future repair of the building’s external walls.  When it is decided to unify the building’s appearance, the IO will propose another motion and notify the owners accordingly. 

…

Regarding the above matter, the Management Committee had discussions regarding the existing facilities and decorations on the external walls of the building.  Those affecting the building structure must be reinstated, while non-structural ones may be approved. 

Pursuant to “section 34I of the Building Management Ordinance - Common Parts”, the Management Committee approved by a resolution with 6 votes in favour the existing non-structural facilities on the external walls of the building, including supporting frames for air-conditioning units, for example, the decorative window frame outside Unit 9A and so on, until the future repair of the building’s external walls.  At that time, the IO will propose another motion regarding the appearance of the building’s external walls as well as the facilities and decorations which affect the appearance of the external walls.”

24.  Centre Chase could not sue STL directly because of Section 16 of the Ordinance, which reads:

“When the owners of a building have been incorporated under section 8, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by, and the liabilities of the owners in relation to the common parts of the building shall, subject to the provisions of this Ordinance, be enforceable against, the corporation to the exclusion of the owners, and accordingly —

(a) any notice, order or other document which relates to any of the common parts of the building may be served upon the corporation at its registered office; and

(b)   any proceedings in the tribunal in respect of any of the common parts of the building may be brought and pursued by or against the corporation.”

25.  However, it was held in See Wah Fan v Incorporated Owners of Ki Tat Garden (Phase I)[18] that an owner could bring an action in the Lands Tribunal to compel an owners’ corporation to take action in respect of breaches of a deed of mutual covenant and the Ordinance. Thus, Centre Chase brought proceedings against the IO in the Lands Tribunal on 22 June 2017, seeking an order that the IO “do take action, including legal action, against STL for the removal of the Window Frames”.  As mentioned, STL was not joined as a party to the proceedings in the Lands Tribunal though it was added by the Court of Appeal as a party to the intermediate appeal to avoid multiplicity of proceedings. Whether a similar joinder would be appropriate in other proceedings involving common parts and what the implications of such a joinder would be are not questions before us. I would however make these observations.  Since the joinder is to avoid multiplicity of proceedings, it does not make sense for the court to confine its consideration to whether to grant an order compelling the IO to “take action” (without specifying what action is to be taken and leaving it open to the IO to decide what action is reasonably necessary[19]). An order in such a form, as prayed for by Centre Chase in the Tribunal and before us, creates an uncertain obligation on the IO and arguably offends the requirement of certainty in court orders[20]. As the joinder was made on the basis of the third-party procedure against the offending owner[21], provided that the latter has been given a fair hearing to defend such a claim, there is no reason in principle why relief could not be granted against that owner to resolve the dispute once and for all if the case against him is made out.       

26.  The Lands Tribunal dismissed the claim of Centre Chase and held that the 2017 Resolution was valid. Subsequently, the Court of Appeal dismissed the appeal of Centre Chase.

27.  Leave to appeal to this Court was granted by the Appeal Committee by reference to the following question:

“Besides breaches of a deed of mutual covenant involving illegality - for which there undisputedly can be no waiver or acquiescence - in what circumstances (if any) can waiver or acquiescence curtail the scope and/or excuse the discharge of the statutory duty imposed on a building’s incorporated owners by s.18(1)(c) of the Building Management Ordinance, Cap 344?”

The legal conundrum

28.  There are diverse authorities in Hong Kong concerning the power of an owners’ corporation to waive or acquiesce in breaches of a deed of mutual covenant. On the one hand, there are cases in which the courts have held that the principle of acquiescence is applicable in a claim by an owners’ corporation against an owner for a breach of a covenant. Cheung Yuet v The Incorporated Owners of Oriental Gardens[22] concerned a claim by an owners’ corporation for breaches of covenants arising from an unauthorized extension of the sitting room of a unit in a multi-storey building and the enclosure of the extended unit by means of walls in which windows had been set. The Court of Appeal dismissed the claim by upholding a defence of acquiescence on the basis that the corporation had failed to take any action regarding breaches in other units, and which were no less serious.

29.  On the other hand, starting from The Incorporated Owners of Chungking Mansions v Shamdasani[23]and The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd[24], there are authorities holding that an owners’ corporation could not waive a breach as a matter of law because it is obliged to enforce the deed of mutual covenant under Section 18 of the Ordinance. No reference to Cheung Yuet or Section 34I of the Ordinance was made in these two cases. Hoi Luen Industrial Centre was subsequently followed by the Court of Appeal in Yick Fung Holdings Ltd v Sandwood Ltd[25], although in the latter case, Le Pichon JA held that the defence was available in the case because the plaintiff was an individual owner instead of an owners’ corporation.

30.  In Incorporated Owners of Champion Court v Pang Ping Fan Peter[26],Yuen JA confined the application of this line of reasoning to the retention of illegal structures. The breaches in that case involved the making of an opening in the ceiling of a unit, construction of an internal staircase leading to the roof of the building, and extension of a drying shelter to the front of the building. A similar view was taken by G Lam J (as he then was) in Wing Ming Garment Factory Ltd v Wing Ming Industrial Centre (IO)[27]in connection with alterations to the external wall of a building. As mentioned, we are not concerned with illegal structures in the present appeal and it is common ground that breaches involving illegality cannot be waived or acquiesced in.

31.  The implication of Section 34I(1)(a) for acquiescence or waiver was brought into greater prominence by the judgments in Hollywood Shopping Centre Owners Committee Limited v The Incorporated Owners of Wing Wah Building Mongkok Kowloon[28]and Freder Centre (IO) v Gringo Ltd[29]. The Court of Appeal in Freder Centreconcluded that a defence of acquiescence was made out against an owners’ corporation in respect of the display of business signboards at the external wall of a building. As it is provided in Section 34I(1)(a) that an owners’ corporation can give approval to an owner to convert a common part to his own use, the court held that it was within the corporation’s power to acquiesce in such similar breaches. The court then applied the principle discussed in Cheung Yuet and found that the defence of acquiescence was made out on the facts.

32.  Hollywood Shopping Centre concerned advertising boards affixed to an external concrete canopy which was a common part of a building. The court found that the owners’ corporation had acquiesced in the breach up to a certain time. After examining the authorities, Recorder Yuen SC summarised the law at [65] of his judgment which was cited by the Court of Appeal[30]:

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

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

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

33.  In the present case, the Court of Appeal held that the courts had departed from the Hoi Luen Industrial Centre line of authorities and a new approach was adopted in Hollywood Shopping Centre and Freder Centre. Under the new approach, apart from breaches involving illegality, so long as the relevant covenant did not totally preclude an owner from doing the prohibited acts, the defence of waiver or acquiescence could be raised[31]. It further held that it was not valid to draw a distinction based on whether or not the covenant in question was qualified in applying the law on waiver and acquiescence[32].

34.  The rule of stare decisis in Hong Kong was recently discussed by the Chief Justice in Wong Chi Hung v Lo Wing Pun[33]. For the present purposes, the relevant rule is that our Court of Appeal is bound by its own previous decisions, subject to the “plainly wrong” exception as more fully explained in Solicitor (24/07)v Law Society of Hong Kong[34]. As mentioned above, Godfrey JA did not refer to Cheung Yuetin Chungking Mansions and Hoi Luen Industrial Centre. In Freder Centre, the Court of Appeal applied Cheung Yuet in holding that the defence of acquiescence was made out.  

35.  Since Hollywood Shopping Centre,the courts appear to have proceeded on the basis that the strict application of Godfrey JA’s reasoning could not be correct and a more flexible approach should be applied. This was the stance adopted by the Court of Appeal in the present case. But this is unsatisfactory in terms of stare decisis.

36.  As this Court is not bound by the earlier decisions of the Court of Appeal, it is not necessary for us to consider whether the plainly wrong test is applicable to justify any departure from these earlier authorities. Since this is the first time the issue of waiver and acquiescence by an owners’ corporation has come to this Court, we should examine it as a matter of principle in analysing the operation of waiver and acquiescence concerning a claim by an owners’ corporation in the light of the statutory context and purpose of the Ordinance.   

Can an owners’ corporation waive or acquiesce in a breach of a deed of mutual covenant?

37.  Centre Chase contended that the IO cannot waive or acquiesce in breaches of the DMC unless there are provisions in the DMC permitting such waiver or acquiescence. Mr Abraham Chan SC[35] relied on the statutory duty of an owners’ corporation under Section 18(1)(c) of the Ordinance and Hoi Luen Industrial Centre. Though he acknowledged the need for flexibility in the management of common parts and the need for managerial discretion in choosing the enforcement option to be adopted, counsel said that it is not open to a corporation to decide to do nothing or to give approval for a breach. He also submitted that the approach in Hollywood Shopping Centre as applied by the Court of Appeal in the present case is circular and does not provide a substantive and clear answer[36].

38.  The IO[37] contended that this Court should endorse the approach in Hollywood Shopping Centre as set out above[38], and uphold the decision of the Court of Appeal in the present case.

39.  STL also invited this Court to uphold the decision of the Court of Appeal. Mr Mike Lui SC[39] submitted that Section 18(1)(c) does not impose any constraint on an owners’ corporation in waiving or acquiescing in a breach. It can waive a breach if it reasonably came to the view that no enforcement is necessary. He acknowledged that in making such a decision, the corporation is accountable to the owners through corporate governance. Hence, the management committee needs to exercise the power to waive in good faith with due consideration of the relevant factors. But that is a separate question from the prior question which asks whether the corporation has the power to waive as a matter of law.

40.  Section 18 reads:

“The corporation shall –

(a) maintain the common parts and the property of the corporation in a state of good and serviceable repair and clean condition;

(b) carry out such work as may be ordered or required in respect of the common parts by any public officer or public body in exercise of the powers conferred by any Ordinance;

(c) do all things reasonably necessary for the enforcement of the obligations contained in the deed of mutual covenant (if any) for the control, management and administration of the building.”

41.  Since the debate focused on the proper construction of Section 18(1)(c) of the Ordinance, it is necessary to have regard to the context and purpose of the section.  Leung Tsang Hung v Incorporated Owners of Kwok Wing House[40] concerned the liability of an owners’ corporation for a collapsed canopy by way of public nuisance. Ribeiro PJ examined different categories of public nuisance and rejected a submission that the corporation is liable as a public authority[41]. His Lordship discussed the legal attributes of an owners’ corporation under the statutory scheme and highlighted the close identification of it with the owners collectively[42]. As indicated by its long title, the main purpose of the Ordinance is to “facilitate the incorporation of owners …  to provide for the management of the buildings”. The nature of the rights of the corporation was explained at [73] of that judgment:

“It is clear from the foregoing that an owners’ incorporation is the corporate embodiment of the co-owners collectively. The corporation is a separate legal personality capable of suing and being sued in its own name, not because it has or is given by statute any rights or liabilities separate from those that are vested in the co-owners, but to facilitate the exercise and enforcement of those very rights and liabilities, avoiding the cumbersome procedures previously required. It is through registration of the owners as a whole that the corporation is born. When it acts, it binds them all…”

42.  Given the identification of the rights of the owners with that of the corporation, I agree with Mr Lui that it is difficult to see any policy reason to differentiate between the two in terms of the operation of the defence of waiver and acquiescence under the general law. If long inaction amounting to a representation of toleration renders it inequitable for action to be taken by an owner, there is no principled reason why it would become less inequitable if the enforcement action is pursued by the owners’ corporation. The question is whether the construction of Section 18(1)(c) compels such a distinction to be made. 

43.  The statutory scheme of the Ordinance provides that the corporate governance of an owners’ corporation is subject to the majority rule. Section 8(2) of the Ordinance provides that upon incorporation, the owners for the time being of the building are a body corporate.  It further provides that the body corporate is capable of suing and being sued and, subject to the Ordinance, capable of doing and suffering all such other acts and things as bodies corporate may lawfully do and suffer. It is trite that under the general law a body corporate can waive its rights under a covenant if it deems fit to do so. 

44.  Upon incorporation, Section 16 vests the rights, powers, privileges and duties of the owners in relation to the common parts of the building on the corporation and such rights and duties shall be exercised by the corporation “to the exclusion of the owners”. Hence, the rights and liabilities of the owners in relation to the common parts fall to be addressed collectively through the corporation. The Ordinance establishes the corporate structure for doing so. Sections 14 and 29 set out the respective roles of the general meeting and the management committee of a corporation. In a nutshell, subject to any resolution of a general meeting with respect to the control, management and administration of the common parts passed under Section 14(1), the powers and duties of a corporation shall be exercised and performed by the management committee.   

45.  In terms of corporate governance, the composition of a management committee is governed by Schedule 2 of the Ordinance. Members of the management committee are appointed by the owners through a majority voting system laid down in paragraph 5(2B) of that schedule. Section 14(2) of the Ordinance also empowers the owners to remove a member of the management committee from office. This can be achieved by a majority vote, see Schedule 3 paragraph 3(3).

46.  At a meeting of the management committee, decision is made by a resolution passed by a majority of the votes of members present. In making decisions, subject to Section 29A of the Ordinance, members of the management committee owe fiduciary obligations towards the corporation and they are expected to be guided by the common interests in the proper management of the common parts.

47.  Thus, the design of the Ordinance is that the common parts should, upon incorporation, be managed by the owners collectively through majority decisions in a general meeting and the management committee.  

48.  The majority rule is important in the context of building management. Enforcement of the obligations in a deed of mutual covenant always involves a delicate balancing of priorities, having regard to, amongst other things, resource constraints, considerations of neighbourhood harmony and overall fairness between the competing interests of the owners and tenants in a multi-storey building. Practically speaking, an owners’ corporation depends on contributions from owners to fund its operation and it does not have unlimited human and financial resources to engage professional manager and lawyers to enforce every breach. Enforcement action, be it by way of litigation or otherwise, entails financial and human burdens which have to be borne by all the owners.  Management of the common parts of a building is therefore primarily a matter for the management committee which would make a collective decision for the owners. The court will not intervene in a manner that is tantamount to it taking the management of the building into its own hands, see Whole Grand Ltd v Bo Fung Building (IO)[43]; Lee Yin Hong v Serenade Cove (IO)[44].

49.  Section 18(1)(c) should be construed coherently with Section 34I. Section 34I(1)(a) of the Ordinance explicitly envisages that the management committee can approve the use of common parts by an owner, see Hollywood Shopping Centre; Freder Centre. In The Incorporated Owners of Sun Hing Building v Join Profit (Hong Kong) Limited[45], the owners’ corporation entered into an agreement to swap certain shop space with a common corridor and it was held that this was within the power of the management committee[46].  As Cheung CJHC (as the Chief Justice then was) put it in 383HK Ltd v Incorporated Owners of Tak Bo Building[47]:

“Section 34I(1)(a) makes life easier in that so long as the action is approved by the management committee by resolution passed by a majority present at a meeting of the committee, what cannot otherwise be done under common law can be done.”

50.  I reject Mr Chan’s submission that a management committee can only pass such a resolution under Section 34I(1)(a) if there are provisions in the deed of covenant authorizing the same[48]. That would render otiose the power-conferring part of that subsection. The conferment of power upon a management committee under Section 34I(1)(a) to approve conversion of common parts is inconsistent with an approach which imposes an absolute duty on an owners’ corporation or management committee to enforce a breach of deed of mutual covenant rigidly.     

51.  The duty and power under Section 18(1)(c) is to “do all things reasonably necessary” for the enforcement of the obligations contained in a deed of mutual covenant. That duty must be read in the overall context of the statutory design in the Ordinance. The text of the section caters for flexibility. First, it is not an absolute duty since there is a margin of discretion in deciding what is reasonably necessary. Mr Chan realistically accepted that it cannot be reasonably necessary to pursue a claim if such a claim is liable to be rejected by the court on the ground of waiver or acquiescence.

52.  Second, one does not take enforcement action simply for the sake of taking some action. Enforcement action must be taken with a view to achieving a solution to a problem generated by a breach. Depending on practical considerations, the appropriate response to a breach varies. Before a corporation takes any action to enforce a deed of mutual covenant, it needs to evaluate the different options available to it. Each option has its own different costs and benefits, which must be assessed by the management committee in considering what is reasonably necessary. Mr Chan acknowledged the need for flexibility in this context and highlighted the existence of some possible options other than litigation[49].

53.  Third, sometimes it would be sensible and desirable to achieve an agreed solution to address a breach by way of settlement. Compromise invariably involves “give and take” which may require at least partially waiving one’s perceived rights. Mr Chan quite properly accepted that an individual owner can waive a breach of a deed of mutual covenant[50]. But counsel said that this is not possible for an owners’ corporation. In other words, according to Mr Chan, the collective right of the owners to waive a breach is abrogated as a result of incorporation.  In the light of the flexibility in the text of Section 18(1)(c), I am not convinced that it should be construed as having such an effect.    

54.  Given the legislative design of the Ordinance and its context discussed in paras 47 to 53 above, the management committee should have full managerial discretion in choosing the best way to tackle a breach. The burden of any act of the corporation would have to be borne by the owners collectively. If an owner is to be saddled with the burden (like the costs of litigation or additional staff or management time to be engaged) of an enforcement option, it must be based on a collective decision made under the scheme of the Ordinance. 

55.  In Chungking Mansions, Godfrey J cited Western Fish Products Ltd v Penwith District Council[51] and drew an analogy between the owners’ corporation and a body exercising a power which serves the public interest. With respect, such an analogy cannot be made, as it is inconsistent with the analysis in Leung Tsang Hung v Incorporated Owners of Kwok Wing House[52] that an owners’ corporation is not a public authority. It also fails to pay proper regard to the private nature of a claim based on the breach of deed of mutual covenant even though the claim is brought by the owners’ corporation as the corporate embodiment of the owners collectively. In principle, if a breach of a deed of mutual covenant is an infringement of a private right capable of being waived by an individual owner or being subject to a defence of acquiescence, the claim remains a private one even though it is collectively exercised by the IO.

56.  Hence, the reasoning of Godfrey JA in Hoi Luen Industrial Centre and Chungking Mansions cannot be sustained and should not be followed.  In terms of the availability of the defences of acquiescence or waiver as matter of law, there should not be any distinction dependent on whether a claim for enforcement of a deed of mutual covenant is brought by an individual owner or an IO.

57.  In the light of this conclusion, it is not necessary to embark on drawing distinctions by reference to the specific type of breach in question. Apart from breaches involving illegality, the doctrines of waiver and acquiescence apply to a claim by an owners’ corporation in the same manner as to a claim advanced by an individual owner. Section 18(1)(c) of the Ordinance does not give rise to a special rule precluding these defences from being relied upon when a claim is brought by an owners’ corporation.  

58.  This conclusion does not mean that an owners’ corporation or a management committee can manage the common parts without regard to the covenants in a deed of mutual covenant. Members of a management committee must consider a complaint of breach conscientiously and reasonably. The type of breach and its seriousness have to be considered together with other relevant factors in deciding the appropriate option to tackle it. Section 29A of the Ordinance only confers protection if they act in good faith and in a reasonable manner.

59.  In the present case, the issues of reasonableness and good faith of the management committee are not before us. In any event, in the light of the prevalence of other items being affixed to the external wall[53], the 2017 Resolution (which granted approval for the support frames for air-conditioners) can hardly be regarded as unreasonable or being passed in bad faith. Not surprisingly, the stance of the IO was supported by a 75.7% majority of the owners in a resolution passed at a general meeting on 26 April 2018[54].   

60.  I would dismiss the appeal accordingly.      

Mr Justice Gummow NPJ:

61.  This case concerns the management of multi-storey buildings in Hong Kong occupied for residential or industrial purposes under the law provided by the Building Management Ordinance (Cap 344) (“the Ordinance”).

62.  Management deeds impose a range of obligations upon the owners of the building in question.  The issue before this Court is the extent (if any) for waiver and acquiescence to moderate enforcement of those obligations.

63.  It should be noted immediately that a management deed is concerned with private rights and does not create a public authority exercising public power and obliged to do so[55].

64.  Something should now be said of the terms of the governing legislation.  Section 8(2) of the Ordinance provides that the owners for the time being of the building are a body corporate.  This is generally referred to as the Incorporated Owners (IO).  Section 3 provides for the owners to appoint a “management committee”; this exercises the powers and duties of the IO.

65.  The rights, interests and obligations of owners among themselves are defined by a “deed of mutual covenant” (DMC).  Further, s 34I of the Ordinance provides that no person shall convert any part of the common parts of the building to his own use without a resolution of the owners’ committee and deems such activity to be a breach of the DMC.

66.  As indicated by the question before the Court and set out below in para 73, s 18(1)(c) of the Ordinance is an important provision for this appeal. Section 18(1)(c) of the Ordinance states:

“The corporation shall—

…

(c) do all things reasonably necessary for the enforcement of the obligations contained in the deed of mutual covenant (if any) for the control, management and administration of the building.” (Italic supplied)

67.  The use of “shall” may suggest an immediate imperative, but as Fok PJ put it in the leading judgment in HKSAR v Choy Yuk Ling:

“Depending on its context and purpose, the word ‘shall’ in a statutory provision may not be absolute.”^[56]

68.  Further, it has been emphasised that an element of reasonableness should be read into the provisions of the DMC, with some inherent flexibility.  In Whole Grand Ltd v Bo Fung Building (IO)[57] Godfrey Lam JA said:

“DMCs are subscribed to by owners in multi-unit buildings for the purposes of ‘regulating by contract their rights inter se regarding the exclusive use and occupation of the units allotted to their respective parcels of undivided shares, their use of the common parts of the building, as well as their mutual obligations on such matters as management charges’: Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd (2008) 11 HKCFAR 403, [19]. As a matter of general principle, the rights to the use and enjoyment of common areas and facilities ‘are not absolute and must as a matter of construction be subject to an element of reasonableness and also must coexist with other provisions in the DMC unless specifically excluded’: Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041, [14]; approved by this court in Silver Triumph Ltd v Guardian Ltd [2012] 3 HKC 391 (HCMP 566/2012, 18 May 2012), [17].”

69.  Section 18(1)(c) should be understood as obliging the corporation to do what in its opinion are all things reasonably necessary for the enforcement of any obligations in the deed of mutual covenant for the control, management and administration of the building.  That opinion of the corporation may favour waiver or acquiescence.  This indicates that the answer to the question before the Court favours the respondents’ position set out below.

70.  One now turns to the facts.  The second respondent, STL Company Limited (“STL”) is the owner of Unit 9A in the multi-storey Castle Peak Road Investment Industrial Building (“the Building”).  Several mock window frames were installed on the external wall of Flat 9A (“the Window Frames”).  This was done without approval under the management deed.  The Ordinance classifies external walls as “common parts” (Schedule 1, Item 1) held by the co-owners.  The Window Frames do not have any window openings behind them and appear to have been installed for a feng shui purpose.

71.  The appellant (“Centre Chase”) is the owner of Unit 2A.  It has sought unsuccessfully to have STL obliged to remove the Window Frames.  Indeed, on 27 July 2017 the management committee of the first respondent, which is the incorporated owners of the Building, known as the IO, approved the affixing of the Window Frames until the repair of the external wall of the Building, in the future.

72.  The Court of Appeal held that there may be a waiver of or acquiescence in such a breach of a management agreement[58].  It applied what had been said by the Court of Appeal in Hollywood Shopping Centre Owners Committee Ltd v Wing Wah Building Mongkok Kowloon (IO)[59].  This indicated that depending upon the nature of the breach in question acquiescence may be set up as a defence to a claim of breach of mutual covenants.

73.  This Court was satisfied that the following question put forward by the appellant merited the grant of leave to appeal:

“Besides breaches of a deed of mutual covenant (‘DMC’) involving illegality - for which there undisputedly can be no waiver or acquiescence - in what circumstances (if any) can waiver or acquiescence curtail the scope and/or excuse the discharge of the statutory duty imposed on a building's incorporated owners (‘IO’) by s.18(1)(c) of the Building Management Ordinance, Cap 344 (‘BMO’)?”

74.  The appellant maintains that the incorporated owners cannot waive or acquiesce in breaches of the DMC.  It relies upon decisions of Godfrey JA which are discussed below.

75.  The first respondent, the IO, asks in para 5 of its Case whether or not it makes sense for the IO to be empowered to depart from a particular restriction stated in the DMC, “bearing in mind the context of the particular DMC (in its entirety), the context of the relevant [Ordinance] provisions and the context of the particular building (its age, use and physical setting etc)”.

76.  STL, in para 4 of its Case submits that the issue of waiver or acquiescence “is fact-specific, to be decided on a case-by-case basis”, including “where the IO is reasonable in seeing enforcement as unnecessary”.

77.  For the reasons given below, the submissions of the first respondent and STL are to be preferred and those of Centre Chase not accepted.

78.  It is convenient now to consider the judgment of Godfrey JA in The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd[60]. The defendant in that case submitted that it was unfair and unjust to order it to remove its cooling tower while other owners had not been called on to do so.  Godfrey JA, with reference to his unreported 1993 judgment in The Incorporated Owners of Chungking Mansions v Shamdasani Murli Pessumal[61], referred to covenants in the deed of mutual covenant and to s 18(1)(c) of the Ordinance and continued[62]:

“It follows that in the instant case the plaintiffs were not only entitled but bound to take proceedings for the enforcement of these covenants. It follows, too, that they could not have granted expressly to this defendant or any other owner of any unit in the building the right to act in contravention of the deed of mutual covenant as this defendant has done. What cannot be done expressly cannot be done impliedly. Although equity will sometimes restrain a plaintiff in the exercise of his legal rights because it would be inequitable and unjust in all the circumstances to allow him so to exercise those legal rights, equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant.” (emphasis added)

79.  If that approach be accepted it would follow that STL could not delay or escape its obligation to remove the Window Frames by relying on waiver or acquiescence.  But the mandatory obligation favoured by Godfrey JA[63] should not be accepted.

80.  Godfrey JA did not refer to the 1979 Court of Appeal judgment in Cheung Yuet v The Incorporated Owners of Oriental Gardens[64].  This had held that a defence of acquiescence answered a claim by an IO for breach of covenants in the unauthorised extension of the sitting room of a unit and the enclosure of the extended unit by walls in which windows had been set.

81.  Godfrey JA drew an analogy from the position of a body obliged to exercise public power.  But as noted above in para 63, this was an imperfect analogy.

82.  As Lam PJ points out at para 48, enforcement of the obligations in a DMC by the IO involves the application of contributions from its owners and delicate balances of priorities having regard to resource constraints and considerations of neighbourhood harmony and overall fairness amongst the owners and tenants in a multi-storey building, and the provision by s 18(1)(c) of the Ordinance of the duty and power of the IO to “do all things reasonably necessary” for such enforcement must be read in that context.

83.  The reasoning of Godfrey JA in The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries and The Incorporated Owners of Chungking Mansions v Shamdasani should not be followed and the defence of waiver or acquiescence should be accepted.  In terms of the availability of the defences of acquiescence or waiver, there should not be any distinction whether a claim for enforcement of a DMC is brought by an individual owner or an IO.

84.  There is no need to draw a distinction for the availability of a defence of waiver or acquiescence to a defendant as a matter of law by reference to the specific type of breach in question. However, as Lam PJ points out at para 58, the type of breach and its seriousness would have to be considered by the management committee against other relevant factors in deciding the measures to be taken to tackle a particular breach.

85.  The question before this Court should be answered accordingly.        

Chief Justice Cheung:

86.  Accordingly, the Court unanimously dismisses the appeal and makes an order nisi that the appellant pay the respondents the costs of the appeal.  If any party seeks to vary the order nisi, written submissions shall be filed and served within 14 days of the date of this judgment.  Any written submissions in response shall be filed and served within 14 days thereafter.  The Court will determine the question of costs on the papers.