THE INCORPORATED OWNERS OF WING MING INDUSTRIAL CENTRE v. MANTEX SUPPLIES CO LTD AND OTHERS

HCA1505/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1505 OF 2007

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DECISION

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1.  On 3 October 2007, I entered summary judgment for the plaintiff against the defendants. By the judgment, an injunction was granted against each of the defendants restraining them to use the ground floor and cockloft of Wing Ming Industrial Centre (“the Premises”) for purposes not permitted under the Deed of Mutual Covenant.  On 9 October 2007, the defendants filed a Notice of Appeal against the judgment. By summons filed on 10 October 2007, the defendants applied for a stay of execution of the judgment. The application is opposed by the plaintiff.

The relevant principles

2.  The starting point in considering the application is Order 59 Rule 13(3), which provides that a pending appeal does not operate as a stay. 

3.  The relevant principles governing the exercise of discretion on a stay application have been discussed and set out in Star Play Development Ltd v Bess Fashion Manufacturing Co Ltd (unreported) HCA No. 4726 of 2001, an authority relied on by both counsel. The court starts off from the basic premise that a successful party is not to be deprived of the fruits of its success. A stay will only be granted if there are good reasons to justify it.  A strong appeal will usually constitute a good reason for a stay.  By “strong appeal”, it means that something has grievously gone wrong with the process of law in the court below: per  Litton JA (as he then was) in World Trade Centre Group Limited & Anor v Resourceful River Limited & Anor (unreported) Civ. App. No. 70 of 1993, see also Wendon Engineering Service Company Limited v Lee Shing Yue Construction (unreported) HCCT No.90 of 1999 at paras.6-8.  Conversely, a mere arguable appeal is by itself insufficient.  The applicant will have to provide additional reasons to justify the stay.  What it means therefore is that the court has to form a preliminary view of the grounds and the merits of appeal.  If the appeal will be rendered nugatory without the stay, that would provide a good reason justifying the grant of a stay of execution.  Where it is suggested that without a stay, the applicant will suffer financial ruin or serious financial consequences, then good evidence is required.  Bare assertion would be insufficient.

The context

4.  With these principles in mind, I turn to deal with the application. At the outset, it is important to put the application in context by noting the following: First, the Premises are rented premises.  The 1st defendant is the tenant; the 2nd and 3rd defendants are merely permitted by the 1st defendant to have the use of the Premises (i.e. Portions A and B).  The tenancy is for two years, starting on 1 April 2007 and will expire on 31 March 2009 with an option on the landlord’s part to terminate by six months’ notice, an option which is exercisable any time nine months after the commencement of the tenancy agreement.  As Mr Mak rightly points out, this means the tenancy agreement may come to end on 30 June 2008 at the earliest.

5.  Second, the injunctions granted against the 1st to 3rd defendants are restrictive in nature.  They are to enforce a negative covenant in the Deed of Mutual Covenant (“DMC”).  By the injunctions, the defendants are prohibited from using the Premises for purposes not permitted by the negative restriction in the DMC.  This restriction has always been the 1st defendant’s obligation under his tenancy agreement.  Likewise, it is an obligation that all defendants are subject to by reason of the DMC. 

6.  Third, it is wrong to say that the injunctions are in effect similar to a mandatory injunction because the defendants are required to carry out positive acts of bringing about the removal of the unauthorized use and making alternative arrangement to accommodate the unauthorized use. No analogy can be drawn with a mandatory injunction.   

Merits of the intended appeal

7.  Dealing with the strengths of the intended appeal, the Notice of Appeal contains several grounds. It is the defendants’ case that they constitute very strong grounds of appeal with high prospect of success.  It would not be appropriate nor necessary for me to dwell into the merits of the appeal or the arguments underlying it. It suffices for me to indicate my preliminary view and to give an outline of the reasons. 

8.  On the materials before the court, I am not persuaded that this is a strong appeal in the sense as explained by the authorities.   

9.  In respect of the construction of the Occupation Permit or the uses permitted under it, this is essentially a point of law. The cases of Leung Wai Fong v Lau Chun Hong & Anor (unreported) HCMP No. 1568 of 1996 and Summit Investment Limited v Shia Ning Enterprise Limited [1999] 2 HKLRD 798, on which the defendants place great reliance, are both cases of Vendor and Purchaser summonses.  The discussions on the consequences of non-compliance with or inconsistency with the use permitted under an occupation permit were in the context of conveyancing transactions. The observations that an occupation permit does not by itself impose a restrictive covenant and that the Buildings Ordinance did not contain provision specifying the consequences of a use that is inconsistent with an occupation permit is, in my view, not determinative of the issue in this case. This is because the plaintiff’s claim is not for breach of the Occupation Permit simpliciter.  It is a claim for breach of negative restriction in the DMC. I do not read the authorities relied upon by the defendants as dictating how the Occupation Permit shall be construed or demonstrating that the contents in it are only descriptive. The point made by P Chan J (as he then was) that an occupation permit cannot be modified does not assist the defendants because an occupation permit, though may not be modified, can be amended.  The reference to section 25 of the Buildings Ordinance is similarly misplaced.

10.  As to the use of portion A constitutes a breach of the DMC, the arguments raised in the intended appeal had been argued at the Order 14 hearing and fully considered. In fact, the second Affirmation of Fung Sau Ying merely repeated what had already been said in her first Affirmation: see paragraph 9.  As such, I need only point out and reiterate the following:

(1)	The defendants have a duty to condescend upon particulars in opposing an Order 14 application.
(2)	The court is not bound to accept bare statements.
(3)	The court is also entitled to consider bare statements against other evidence before the court.
(4)	The fact that the court does not conduct a mini-trial on affidavits at Order 14 stage is not the same as saying that the court is bound to accept everything that are asserted in an affidavit.
(5)	The Judgment on the summary judgment application had set out the reasons for concluding that the use of portion A does not comply with the OP and the Land Grant, therefore amounting to breach of the DMC.

11.  I turn next to the discretion to grant or refuse injunctions, which, apart from costs, are the only remedy sought by the plaintiff in the claim. It is suggested that the evidence of Mr Patrick Lau, the defendants’ expert, is that the only practical consequence of the breach of government lease was payment of forbearance fee by the defendants alone.  It is said that the plaintiff does not dispute that -- a matter that I am in doubt. I do not read Mr Lau’s evidence as stating this.  Mr Lau only stated that a forbearance fee would be imposed if there were a change of user without prior approval.  He did not say this was the only consequence or the only practical consequence.  In any event, this is an irrelevant consideration because the Incorporated Owners is under a duty to enforce the DMC.

12.  The defendants also suggest in the Notice of Appeal that the claim was brought in bad faith in that they were being singled out for action when other owners’ or occupiers’ breach of the DMC relating to user is not pursued. The allegation of bad faith is however not borne out by the evidence before the court.  In terms of the argument that it is unfair or unjust to grant the injunctions, it is important to remember that the restriction on user in the DMC was made known to at least the 1st defendant right from the beginning.  The letter from the 1st defendant’s solicitors in response to the complaint from the plaintiff’s solicitors points strongly to the fact that, despite the knowledge, the 1st defendant had intended to use the Premises for purposes other than the permitted use.  Yet, they chose to apply for approval only after being sued by the plaintiff. The application for approval is also indicative of the recognition that the current uses are not permitted use.  

13.  As in the case of The Incorporated Owners of Hoi Luen Industrial Centre & Another v. Ohashi Chemical Industries (HK) Ltd [1995] 2 HKLR 450, at 454-455, the defendants realized that they were proceeding at their own risk and were not misled by the plaintiff’s alleged failure to act, it is not unfair to grant the injunctions.

14.  In short, I would only proceed on the basis that the intended appeal is arguable such that the defendants have to show there are other good reasons to justify the stay. In this regard, it appears the defendants’ main reason is that the appeal will be rendered nugatory.  It is said that the injunctions will cause the defendants’ businesses to be closed down and their staff to lose their jobs and that the health of the patients of the Chinese medical clinic operated by the 2nd defendant will be affected.

15.  As the plaintiff points out, these submissions are hard to reconcile with the defendant’s defences and primary case that there is no breach of the DMC in that there is no breach of the Occupation Permit or the Land Grant.  So far as portion A is concerned, the 1st and 2nd defendants’ stance is that the area is being used for manufacturing and production, packaging and storage of Chinese medicine as well as research, all of which constitute industrial use. In the case of portion B, the defence is that the area is used for production of samples, storage of finished and semi-finished products and design work, all of which fall within the permitted use.  The other activities on Portions A and B are only ancillary.  The injunctions only restrict uses that are not permitted under the DMC. If the defendants’ contentions as to the use they have put to portions A and B are correct, the injunction would not have brought about cessation or closure of the businesses of the 2nd and 3rd defendants or caused the staff to be dismissed.  As to the patients, the injunction would not prevent them from having supply of Chinese medicine from the 2nd defendant.  It is difficult to understand the point about their health being affected unless it is a reference to the fact that they cannot receive consultations at the Premises.

16.  On the point about the staff, Reyes J had in Top Talent Development Limited v. Top System Investment Limited (unreported) HCA No. 3120 of 2003 para.27, made the point that there was a choice of retaining the staff pending the final resolution of the matter. It is of course a commercial decision for the defendants to take.  The point remains that if the defendants’ defences are correct, viz. the uses they put to Portions A and B are industrial in nature, then there is no question of the defendants being forced to give up the Premises. It has therefore not been demonstrated that the intended appeal would be rendered nugatory in this sense. 

17.  In any case, the 1st defendant’s tenancy agreement will only last for two years.  Presently, there is another 18 months to go.  It is possible that the tenancy will not be renewed upon expiry, in which case one would expect the 2nd and 3rd defendants to seek alternate accommodation instead of to close down their businesses. In the same vein, the injunctions will at the most only mean the defendants are compelled to look for alternate accommodation. It is exaggerating to suggest that their businesses would have to cease altogether as a result of the injunctions, entailing all the consequences of severe financial loss, loss of jobs to the employees and or risks to patients’ health.  After all, only the 1st defendant is the tenant; the 2nd and 3rd defendants are only permitted by the 1st defendant to use the Premises.

18.  As to the argument that a stay will not cause prejudice to the plaintiff, this submission overlooks the fact that the plaintiff in the normal course should not be deprived of the fruit of the litigation. Further, as an Incorporated Owners, the plaintiff is charged with a statutory duty to enforce the DMC and to properly manage the building.  And as the plaintiff points out, the injunctions or the judgment may become futile given that the 1st defendant’s tenancy agreement will expire on 31 March 2009 and there is the possibility of an early termination by the landlord.

19.  Finally, Mr Lui had in his written submission made the point that in building management cases, the usual practice is to grant a stay of execution pending appeal. I am not aware of this practice.  No authority has been put forward in support of this submission.  The case of The Incorporated Owners of Hoi Luen Industrial Centre & Another v Ohashi Chemical Industries (HK) Ltd, op cit, does not in any way support this proposition.

Conclusion

20.  For the above reasons, the application for stay is refused. The summons is dismissed with costs to the plaintiff, to be taxed if not agreed.