RISEWAY PROPERTIES LTD v. STAR RIVER IMITATION ORNAMENTS LTD

DCCJ 6789/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6789 OF 2004

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JUDGMENT

1.  In 2004, Star River (the Defendant) sold to Riseway (the Plaintiff) part of its property in a building in Kowloon.  As part of the deal, Star River granted to Riseway a sole and exclusive licence to use certain external wall of the property sold while Riseway let part of the property sold back to Star River.  Dispute arose soon after the deal.  Riseway commenced the present action for compelling Star River to remove certain signboards on the external wall used by Star River and damages for the loss of use of the wall.  Riseway also claimed rent which Star River as tenant was said to have let in arrears.

BACKGROUND

2.  Prosperity Court is a multi-storey building in Shamshuipo, Kowloon.  Star River was the registered owner of the following parts of the building:

(1)	the Ground Floor;
(2)	the 1st Floor;
(3)	the 2nd Floor;
(4)	the retained area including all the external walls and the roof of the building; and
(5)	the staircases from the Ground to the 1st Floor and from the 1st to the 2nd Floor in the front part of the building (the reserved staircases) and the enclaves there under (the reserved entrance).

3.  In July 2004, Riseway and Star River entered into a provisional agreement for the sale and purchase of the following parts (the property):

(1)	the 1st  Floor;
(2)	the 2nd Floor;
(3)	the reserved staircases; and
(4)	the reserved entrance.

In other words, Star River was retaining ownership of the Ground Floor and the retained area (the external walls and the roof).

4.  The provisional agreement (by additional clause 14) incorporated an annex printed in Chinese.  Clause 1 of the annex provided that “……賣方及其承讓人同意容許買方及其承讓人及租客可免費獨享使用此物業面向欽洲街的外牆(包括現有之外牆招牌位)”.  This literally means Star River, and its assignee, agreed to allow Riseway, its assignee and tenant to have exclusive use of the external wall of the property facing Yen Chow Street (including where the existing signboard(s) is/are installed) free of charge.  Clause 2 of the annex specified the particulars of the existing tenancy subject to which Riseway agreed to purchase the property.  It also provided that upon completion, Riseway and Star River would enter into a tenancy agreement whereby the former would let the 1^st Floor back to the latter for 2 years on terms to be agreed.

5.  The formal sale and purchase agreement in August 2004 also incorporated the annex (by clause 33 and the 8^th Schedule).  Completion took place in September 2004.  As agreed, parties at the same time executed a deed of licence in accordance with the terms of the annex.  After some disagreement, parties also entered into the Chinese tenancy agreement in respect of the 1^st Floor.  The assignment, the licence and the tenancy agreement were all dated the date of completion.

6.  Pursuant to the tenancy agreement (additional clause 17), Star River might use the trade name of “山林” (Siam) to carry on its business on the 1^st Floor, now rented back from Riseway.  But the tenancy agreement (clause 8) provided that “……租客未經業主書面同意不得在該樓宇任何地方標貼或懸掛個人或團體之招牌，或具有宣傳性質之廣告。租客不得在該屋宇外裝置晒衣架、花架、霓虹光管招牌等，如租客不依約遵守，業主得僱人拆除之，一切費用租客必須負責“.  This means affixing and display of signboards and other articles on any part of the premises rented including their outer wall without Riseway’s written consent was effectively prohibited.

7.  Argument began in relation to parties’ respective rights over the external wall of the property, the walls along the reserved staircases between Ground Floor and the 1^st Floor as well as the sliding iron-gate at the reserved entrance.  The debate in respect of these issues was contained in the correspondence between the parties’ solicitors at the time.

8.  The present action was commenced by the end of December 2004.  As at the date of writ, Riseway complained about the following:

(1)	a signboard bearing the English and Chinese names of Star River affixed on the external wall of the 1st and the 2nd Floors facing Yen Chow Street;
(2)	a signboard bearing the English and Chinese trade names of Siam affixed on the external wall of the 1st and the 2nd Floors facing Yen Chow Street;
(3)	a signboard bearing the English trade name of Siam affixed on top of the reserved entrance facing Yen Chow Street;
(4)	various posters and boards bearing the English and Chinese trade name of Siam on the wall along the reserved staircases from the Ground to the 1st Floor; and
(5)	rent in arrears due on 23 December 2004.

9.  When the trial commenced, Mr Wang for Riseway informed this court that unknown to Riseway, the signboards and articles mentioned in paragraph 8(1), (2) and (4) above had been removed.  Mr Cheung for Star River confirmed this, though the same was never mentioned in the Defence filed in April 2006.  Riseway now sought an order for the removal of the remaining signboard on top of the reserved entrance (i.e. paragraph 8(3) above) and damages for loss of use the external wall prior to the removal of the other signboards.

10.  Regarding paragraph 8(5) above, it was pleaded in the Defence that on the day following the issuing of the writ, Star River paid the rent for that month.  Mr Wang for Riseway also confirmed this.

ISSUES

11.  Star River’s pleading raised quite a number of issues.  I shall discuss them in the following order:

(1)	Star River had reserved the use of certain signboard or part of the external wall.
(2)	The remaining signboard on the Ground Floor was neither part of the property sold to Riseway nor covered by the licence.
(3)	The licence was granted to Riseway and its tenant.  Star River, being the tenant of Riseway, was entitled under the licence to put up those signboards and articles.
(4)	Riseway had acquiesced the presence of the signboards and was estopped from alleging breach of the tenancy agreement or demanding their removal.
(5)	Star River did not require consent from Riseway for putting up the signboards.  In any event, it was an implied term of the tenancy agreement that Riseway’s such consent would not be unreasonably withheld.
(6)	Riseway could not demand the removal of the signboards for the purpose of letting any part of the wall out for profit.  Further, this would be against the deed of mutual covenants governing the building (DMC).
(7)	The licence was a mere licence personal to Riseway and did not create any estate or interest in land.  By notice in April 2006, Star River terminated the licence with effect from October 2006.  By its counterclaim, Star River sought a declaration to such effect.
(8)	Riseway fails to prove the loss and damage arising out of the loss of use of the external wall.
(9)	Riseway had never made any demand for the rent allegedly in arrears before action.

THE CAUSES OF ACTION

12.  In his closing submission, Mr Cheung for Star River also referred to paragraph 8 of the statement of claim.  He submitted that the pleaded causes of action are trespass and breach of clause 8 of the tenancy agreement.  He queried whether the pleaded causes of action support the relief claimed.  It is therefore logical for me to deal with this argument before discussing the other issues.

Trespass

13.  Mr Cheung submitted that Riseway’s claim in trespass is inappropriate.  He suggested that Riseway should have sued for breach of the licence or derogation from the licence.  Had Riseway’s claim been framed as breach of the licence, Star River, he submitted, might have considered its position differently in this litigation; it might have removed all the signboards long time ago or it might even have at the earliest stage moved the incorporated owners to object to Riseway’s erecting any signboard on the external wall.

14.  First, the query about the causes of action and the suggestions of what Star River might have done (had the claim been framed differently) had never been made before.  These suggestions were now made during counsel’s submission without any clear evidence, if at all, from Star River’s witness to such effect.  This is obvious when one reads the affirmations in the previous application for summary judgment in the present case, the pleading and the witness statements filed on behalf of Star River.

15.  Secondly, in view of the extensive pleading of the terms of the various agreements, the licence and the tenancy agreement, I do not agree that the pleading should be so narrowly read as to confine the claim as being framed by a single paragraph of the statement of claim.  I do not agree that by alleging trespass and breach of the tenancy agreement (in paragraph 8 of the statement of claim), Riseway was not substantially enforcing its rights under the licence or was prevented from doing so.  Mr Wang for Riseway did make the point during his opening submission that Star River was effectively derogating from the licence which equity should not allow in the circumstances of this case.

16.  Thirdly, I am not prepared to accept Mr Cheung’s submission that Riseway was definitely not entitled to remedy even if it only claims in trespass.  According to Mr Cheung, Riseway does not have the capacity to sue in trespass because being a licensee, Riseway never assumed possession of the external wall.  A mere right of property without possession is not sufficient to support the action in trespass: see Halsbury’s Laws of England (4^th ed) Vol.45 at paras. 1384, 1396 and 1397. 

17.  In reply, Mr Wang for Riseway submitted that possession does not have to be physical.  This is right.  But my reservation about Mr Cheung’s argument is really whether what he submitted, by referring to those passages of the 1985 edition of Halsbury’s, should be applied as a rule irrespective of the actual circumstances of the case in modern days.

18.  A licensee may yet have the sufficient right or effective control over the premises in question, whether this arises from title or only from contract.  The remedy to the licensee to claim possession against a trespasser may be necessary in order to vindicate and give effect to the contractual right of the licensee to occupy.  In each case, one has to consider the reach of the licensee’s right and whether the wrongdoer’s act violated such right: see the majority judgment in Manchester Airport plc v Dutton [1999] 2 All ER 675, 687a-c; 688c-689d (per Laws LJ) and 689j-690d (per Kennedy LJ).

19.  In the present case, the grant of the licence to Riseway was from inception an essential part of the deal whereby Riseway agreed to purchase the property.  Star River also agreed to be bound by clause 8 of the tenancy agreement which recognised the rights of Riseway as the landlord over the external wall of the 1^st Floor.  It is true that elementarily the licensee cannot exclude any occupier who has a claim to possession equal or superior to his own, say the owner and licensor like Star River.  But unlike the case of a non-exclusive user or occupier, Star River did grant a sole and exclusive licence to Riseway, its assignees and tenants.  In view of the peculiar features of the present case, I am of the view that denying the remedy being sought by Riseway (though suing in trespass) while the licence is said to be subsisting would be disreputable and unjust.

Breach of tenancy agreement

20.  Mr Cheung for Star River submitted that the tenancy agreement had expired.  The signboards touching the external wall of the premises rented (i.e., the 1^st Floor) had been removed by now.  The remaining signboard in question was the one on the external wall of the Ground Floor which was not covered by the tenancy agreement.  Therefore Riseway was not and could not be complaining about that signboard by relying on the tenancy agreement.

21.  The remaining signboard was not covered by the tenancy agreement but the other signboards and articles, which had been removed, were.  As at the date of the writ (28 December 2004), the tenancy agreement was subsisting.  Even Star River pleaded that it paid the rent for month commencing on 23 December 2004.  Though the signboards and articles covered the tenancy agreement had been removed after the writ, the entitlement of Riseway to commence this action is to be determined with reference to the causes of action available to Riseway as at the date of the writ.  The injunctive relief originally sought in respect of the signboards on that part of the wall might no longer be required.  I still have to consider such right of action for the purpose of determining the loss and damage allegedly suffered prior to their removal by Riseway as well as the costs of this action.

22.  I now turn to the other issues raised by Star River.

RESERVATION BY STAR RIVER

23.  There is no dispute that the signboards existed and were used by Star River even prior to the sale of the property.  Mr Li, director of Star River, stated that he had told Ms Wong of the estate agent prior to the provisional agreement which part of the wall or which signboard Riseway could use and which was reserved by Star River.  Effectively it was alleged that Riseway was only allowed to use one of the signboards and might be allowed to use another one.

24.  The licence was granted in line with the provisions of the annex to the provisional and the formal agreements.  The formal agreement contained an entire agreement clause (clause 30) whereby all previous agreements, oral or in writing, between the parties or their agents were superseded.  Notwithstanding that, Star River, though acting through solicitors, made no reservation whatsoever in the annex or the licence.  Mr Li of Star River now sought to effectively contradict the express terms of the written agreements.  Extrinsic evidence is generally inadmissible for such purpose: see Chitty on Contracts (29^th ed) Vol.1 at para.12-101; 12-104.

25.  It does appear that the licence seems to refer to a singular location where a singular signboard was installed (clause 1).  However, had the intention been to confine the licence as such, it would have been more specific than this.  The licence was entered into pursuant to parties’ agreement under the annex to the provisional and the formal agreements.  The preamble of the licence (para.(3)) made it clear.  The annex clearly provided no such restriction or reservation at all.

26.  Nor was this case of reservation made out by Mr Li’s evidence in court.  Ms Wong of the estate agent did not really corroborate his evidence.  During cross examination, Mr Li confirmed that the alleged conversation with Wong happened when Ms Wong brought to him the provisional agreement incorporating the annex already signed by Riseway.

27.  During closing submissions, Mr Cheung for Star River preferred not to take this point of which part of the external wall could or could not be used by Riseway any more.

THE REMAINING SIGNBOARD

28.  It was argued that the remaining signboard is on the Ground Floor which is the property of Star River.  It was neither part of the property sold to Riseway nor covered by the licence.

29.  Viewing what the reserved staircases and reserved entrance (which were sold to Riseway) are like in the building plan and the photographs, I find that the remaining signboard is on the external wall of the property sold to Riseway.  It is therefore covered by the licence.

DERIVING RIGHT UNDER THE LICENCE AS TENANT OF RISEWAY

30.  It was argued that the licence was granted to Riseway and its tenant.  Star River was the tenant of Riseway.  Therefore Star River had the same right of Riseway under the licence to put up those signboards and articles.

31.  Star River was the tenant of the 1^st Floor.  Any right for it to use the external wall of the 1^st Floor, being the rented premises, was derived from and governed by the terms of the tenancy agreement.  The privity necessary for Star River to claim Riseway’s rights under the licence against the licensor did not exist in the present case.  Accepting the circular reasoning of Star River’s argument would also mean ridicule, as the licensor was Star River itself.

ACQUISCENCE AND CONSENT

32.  It was alleged that the signboards on the external wall were not erected and affixed by Star River.  It might be the case.  But it was equally the fact that the signboards had since been used by Star River.  It was argued that Riseway was aware of the existence of the signboards.  Without raising any objection when entering into the tenancy agreement, Riseway was said to have acquiesced them on the external wall.

33.  Riseway could not acquiesce infringement of its right until it came to have such right by the agreements in the first place.  Of the agreements, the tenancy agreement was concluded after much disagreement between the parties.  But in both the draft tenancy agreement proposed by Riseway (clause 2(s)) and the draft tenancy agreement proposed by Star River (clause 8 thereof and which was finally adopted by the parties), specific covenant prohibiting the display of signboards outside the premises rented without the written consent of Riseway was proposed by both parties.  I therefore fail to see how Riseway would be understood to be acquiescing the continued display of the signboards at the same time.

34.  Alternatively, Star River relied on the implied term that the consent required under clause 8 of the tenancy agreement would not be unreasonably withheld.  The existence of such an implied term is probably not in dispute.  However there was no suggestion of any request ever made by Star River for such consent from Riseway at any time.  There was no factual basis to invoke the implied term.

PERMITTED USE OF THE EXTERNAL WALL

35.  It was alleged that the licence gave Riseway, its assignee and tenant the right to use the external wall for the sole purpose of displaying their trade names and did not extend to letting the same to outsider for profit.

36.  To begin with, how Riseway might intend to make use of the wall is irrelevant to its assertion of the right as the sole and exclusive licensee of the wall by demanding the removal of the signboards (the existence of which clearly interfered with such right).  Star River’s reference to the alleged permitted use of the wall was once again reading into the licence an extraneous qualification to the right of Riseway.

37.  It was argued that letting out the external wall would be in breach of the DMC.  There was no pleading of which provisions of the DMC Star River relied on in support of its contention.  Being part of the retained area, the external walls were excluded from the definition of common areas (Recital A(a); 1^st Schedule of the DMC).   Clauses 4, 7, 10 and 33 of the 4^th Schedule of the DMC restrict the alteration of the appearance and condition of the external wall.  While advertising on the external wall might turn out to be caught by the restriction, the restriction is not on the disposition of the external wall by letting.

38.  I will discuss more of this issue in relation to the alleged loss and damage for loss of use of the external wall.

REVOCATION OF THE LICENCE

39.  It was argued that the licence was merely personal to Riseway and did not create any estate or interest in land.  It was therefore terminable at will or by reasonable notice.  By its solicitors’ notice dated 20 April 2006, Star River sought to terminate the licence with effect from 22 October 2006.  Mr Wang for Riseway submitted that the licence granted was at least a contractual licence coupled with an interest in the building and was and is therefore irrevocable.

40.  Mr Wang for Riseway referred to Fast Forward Ltd v Magicsound  Co Ltd [1990] 2 HKC 494.  In that case, certain premises were assigned together with the exclusive right to use the surface of the main roof unaccompanied by the undivided shares allotted to the main roof.  It was argued that the right to use the main roof was a personal licence without any proprietary interest.  The licence was revocable at will and was revoked.  The court held (at 520F-521A) that the user right over the surface of the main roof granted by the agreement and assignment, insofar as it might be regarded as a licence, was contemplated to be used in conjunction with the proprietary right over the main roof.  In that sense, it was a licence coupled with a proprietary interest and was irrevocable.

41.  Mr Cheung referred to the report of that case on appeal in [1991] 2 HKLR 529.  I do not read the court of appeal decision to differ from the view expressed by the trial judge on the nature of the user right in issue.  Mr Cheung sought to distinguish Fast Forward Ltd from the present case.  He pointed out that the grant of the user right over the surface of the main roof in that case was in the first place tantamount to sale.  In the present case, there was undeniable reservation of ownership of the external wall from the outset.  In my judgment, this is not a material distinguishing factor.

42.  The right under the licence does not have to overlap with the proprietary interest being conveyed.  In James Jones & Sons Ltd v Earl Tankerville [1909] 2 Ch 440, the vendor entered into a contract with the purchaser for the sale and purchase of certain timber growing on the vendor’s property.  The purchaser was conferred the licence to enter upon the vendor’s property to cut and to carry away the timber sold.  The court held (at 442-443) that as soon as the purchaser has severed the timber, the legal property in the severed trees vests in him.  A licensee to enter a man’s property is prima facie revocable, but is irrevocable if coupled with or granted in aid of a legal interest conferred on the purchaser, and the interest so conferred may be a purely chattel interest or an interest in realty.  In that case, the legal interest was not in the land upon which the purchaser had the licence to enter but the timber which the purchaser cut from the land.

43.  In the present case, Riseway could not acquire just the external wall as there was only 1 undivided share allotted by the DMC to the retained area which also consisted of the roof.  To avoid having to sub-divide the share, the right to use the external wall of the property had to be granted by way of a licence.  Ms Lee of Riseway and Ms Wong of the estate agent gave evidence of such understanding at the time, which I accept.  By the annex to the provisional and the formal agreements (clause 1) as well as the licence (clause 3), the right to use the external wall was granted by the licensor, its successors in title and assign to the licensee, its successors in title, assigns and tenants.

44.  In the circumstances, the right to use the external walls was granted in conjunction with or in aid of the legal interest in the property which Riseway purchased from Star River.  This had to be the parties’ contemplation at the time of the agreements.  The licence is properly one coupled with an interest in realty.  The licence was and is irrevocable.  The case of Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] AC 173, cited by Mr Cheung for Star River, has no resemblance whatsoever to any of the peculiar features in the present case.

45.  Mr Li of Star River stated, and Mr Cheung submitted, that it was not right or fair for the licensee in the present case to be able to use and enjoy the external wall while the obligation to maintain the same remained with the licensor.  First, I see nothing unfair about Star River having to maintain the wall as the owner.  Secondly, commercial wisdom is not relevant when parties had the freedom to contract on terms of their choice in the first place.  Thirdly, saying that Riseway therefore had the licence for free may be a disregard of how parties came to agree on the contract price of the entire deal.  In this regard, Ms Lee of Riseway did explain in her evidence and I accept that.  Riseway actually claims damages for diminution of value of the property in the event that I find that the licence was revocable as alleged.

46.  In any event, even assuming that the licence were revocable and the alleged revocation by notice was effective, this would have no effect on Riseway’s entitlement to demand the removal of the signboards from the external wall and to claim damages on such basis while the licence was still subsisting.  That would have been the case until 22 October 2006.

LOSS AND DAMAGE

47.  During the subsistence of the licence, Star River’s refusal to remove the signboards from the external wall effectively deprived Riseway of the use of the same.  The question is how to measure such loss of use.  This is where the argument between the parties as to whether Riseway was entitled to let the external wall for profit becomes relevant.

48.  Mr Cheung for Star River submitted that Riseway could not let the same out against the proprietary right of Star River being the owner and licensor.  He argued that it would otherwise be contrary to commercial sense.  Mr Wang for Riseway submitted that the licence contained no qualification over the use and enjoyment permitted of the external walls.  Any attempt to read such qualification into the unambiguous wordings of the licence should not be allowed, relying on Chitty at paras.12-118 and 12-119.

49.  As mentioned above, it is difficult to see how one could read into the licence the qualification that the external wall could only be used to put up trade names and signboards of the licensee.  It would have been more compelling if it were suggested that parties contemplated that the relevant parts of the external wall might by virtue of the licence be used in connection with the business of the Riseway, its assigns and tenants.  Ms Lee of Riseway indeed emphasised the importance of securing the right to use the external wall for its future tenants, as the property was commercial premises.  Whether that necessarily means that the wall might not be let for advertising would depend on the actual circumstances such as the business of the occupier and the terms on which the so-called ‘letting’ of the wall is executed.  I do not have to conclude on this.  First, Riseway is not praying for a declaration of such right to use the external wall this particular way.  Secondly, there is actually insufficient evidence to substantiate the claim for loss of profits on such basis.

50.  According to Ms Lee of Riseway, they had not thought about letting out the external wall for profits at the time of the agreements and the licence.  Riseway approached the advertisement company in October 2004.  By letter from its solicitors in January 2005, Riseway named the advertisement company which suggested that their potential clients were interested in renting the external wall as soon as the signboards were removed.  Ms Lee said the potential monthly rental was said to be HK$10,000.  There is no other evidence.  There is also no evidence of any loss of rental receivable as a result of Riseway’s tenant not being able to use the external wall.

51.  In my judgment, this is far from being sufficient to form the basis for assessment of loss as a result of the loss of use of the external walls.  In closing, Mr Wang for Riseway was prepared to concede that for insufficient supporting evidence.  I am not prepared to make an award of nominal damages as an alternative as suggested.

RENT IN ARREARS

52.  Star River paid the rent claimed on the day following the issuing of the writ.  But it was alleged that Riseway had not issued demand for the rent pursuant to clause 3 of the tenancy agreement prior to commencing the present action.  Mr Wang for Riseway referred to the correspondence between the parties’s solicitors which show that Star River had previous experience of letting rent into arrears.  Riseway through its solicitors issued letter of warning in November 2004.

53.  Clause 3 of the tenancy agreement provides that “該樓之租金必須在每月租期之首日以上期形式繳納，不得藉詞拖欠……”.  This means the rent for each month shall be due and payable on the first day of the rental period, i.e., the 23^rd day of each month, in advance.  The obligation to pay the monthly rent was not subject to the condition precedent of demand.  The provision in the same clause referred to by Star River actually concerns the enforcement action which Riseway was entitled to take when the rent was already 10 days in arrears.  Therefore Riseway was entitled to claim for the rent in arrears as at the date of writ.

COUNTERCLAIM

54.  The counterclaim was for a declaration that the licence should be validly revoked with effect from 22 October 2006.  In view of my above finding, the counterclaim fails.

COSTS

55.  The signboards and articles complained about had been removed except for one.  The rent in arrears claimed had also been paid after the commencement of the present action.  Yet Star River did not do so in submission to the claim.  Its stance was quite the opposite.  Despite the failure to prove damages, Riseway is by any standard the successful party.  In the circumstances, I see no reason why Riseway should not have costs of this action upon proof of Riseway’s entitlement to claim against Star River.

ORDER

56.  I make the following order:

(1)	Star River do remove and dismantle the signboard now affixed and hanging on top of the reserved entrance facing Yen Chow Street within 30 days from the date of this order, failing which Riseway shall be at liberty to remove the same at Star River’s expenses.
(2)	The counterclaim is dismissed.
(3)	Star River shall pay Riseway’s costs of this action, including any costs reserved.  Costs shall be taxed, if not agreed, with certificate for counsel.  This costs order nisi shall become absolute in the absence of appointment to argue costs in 14 days.