THE INCORPORATED OWNERS OF GOLDEN COURT v. FLYWAY INVESTMENT LTD

LDBM 122/2020

[2025] HKLdT 60

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 122 OF 2020

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J U D G M E N T

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1.  The Applicant (“IO”) is the Incorporated Owners of Golden Court, Nos 22-52 Electric Road, Tin Hau (“Building”). Since 15 November 2007 the Respondent has been the registered owner and occupier of Shop Nos 35 to 37 on the ground floor (“Shops 35 to 37”) and Flats A to H on the first floor (“First Floor Units”) of the Building (collectively, “Premises”). The Respondent owns and operates a Chinese dim-sum restaurant named “Royal Legend” (“Restaurant”) in the Premises.

2.  The IO is represented by Mr Danny Tang. The Respondent is represented by Mr Jack Hui.

3.  The application is brought by the IO in respect of the Respondent’s alleged breaches of the deed of mutual covenant dated 10 October 1961 (“DMC”) and the Building Management Ordinance (Cap. 344) (“BMO”).

4.  This case concerns two structures/areas in the Building:-

(1)  An opening on the wall at the staircase landing on the 1^st floor (“Staircase Wall Opening”); and

(2)  A covered yard on the ground floor of the Building and various structures thereon (“Cover Yard”).

(collectively, “Structures”)

Background

5.  The IO sets out the facts as follows. The Building’s Occupation Permit was granted on 14 November 1958, The IO was incorporated in 1972 pursuant to the BMO.

Staircase Wall Opening

6.  The general building plan for the Building was approved by the Building Authority on 8 September 1958 (“1958 Building Plan”). The latest building plan in respect of the first floor was approved by the Building Authority on 17 August 1962 (“1962 Building Plan”). No subsequent building plans in respect of the first floor have been approved since then.

7.  Under the 1958 Building Plan, a partition wall existed between the half-landing of the Staircase on the first floor and the First Floor Units (“Staircase Wall”). There was no access from the Staircase to the First Floor Units, or vice versa. This was unaffected by the 1962 Building Plan.

8.  At some point, an opening, with a width of 1.1m and a height of 2.2m, was formed on the Staircase Wall and a roller shutter was installed in the opening, allowing access from the Staircase to the First Floor Units.

9.  The IO says that all of this was done without the IO’s prior approval and the alteration was only discovered by the IO in 2017 when the IO was informed by Mr Cheung Wai Sum, a building inspector appointed by the IO under the Mandatory Building Inspection Scheme (“MBIS”).

10.  By a letter dated 13 March 2018 from Messrs Li, Kwok and Law (solicitors for the IO) (“LKL”) to the Respondent, the IO demanded the reinstatement of the Staircase Wall. However, the IO received no response until the present application was filed.

Cover Yard

11.  On the ground floor of the Building, adjacent to Shops 35 to 37, is an area known as the Cover Yard. The Cover Yard contained a staircase providing access to the First Floor Units (“Cover Yard Staircase”).

12.  Under the latest building plans in respect of the ground floor approved by the Building Authority on 17 April 1999 (“1999 Building Plan”):

(1)  Partition walls separated each of Shops 35 to 37 from the Cover Yard (“Partition Walls”).

(2)  The Cover Yard contained a partition wall with an opening in the middle (“Cover Yard Wall”).

13.  At some point, the Partition Walls were wholly (Shops 35 and 36) or partly (Shop 37) removed. Further, the Cover Yard Wall was replaced with a new wall (“New Cover Yard Wall”) whereby the opening in the Cover Yard Wall was filled up. All this created an enclosed area comprising Shops 35 to 37 and part of the Cover Yard, which was used by the Respondent as an office space.

14.  Various other alterations were also made to the remainder of the Cover Yard. A wash basin and toilets were installed, and a metal gate was also installed at the entrance to the Cover Yard (“Cover Yard Gate”), behind which the Respondent would store various items and objects, such as chairs and rubbish bins.

15.  The IO says that the Cover Yard Gate was at times closed, preventing access to and use and enjoyment of the Cover Yard and the Cover Yard Staircase. In effect, the entirety of the Cover Yard was converted to the Respondent’s own use. All of this was done without the IO’s prior approval. The IO’s case is that it had all along believed that the Cover Yard was a unit of the Building until 2020:

(1)  According to Land Registry records, the Cover Yard was allotted 1/590 undivided shares in the Building and its registered owners were Ho Ying Chaw and Young Chi Wan (“Registered Owners”). The IO therefore believed that the Cover Yard was a unit exclusively possessed by the Registered Owners.

(2)  In 2018, the IO filed an application in the Small Claims Tribunal against the Registered Owners in respect of the Building’s management fee with regards to the Cover Yard, which the Registered Owners had all along failed to pay. The Small Claims Tribunal ruled in favour of the IO.

(3)  By reason of the Registered Owners’ continued non-payment, the IO sought legal advice in 2020. Only then was the IO told that the Cover Yard was a common part of the Building and that the Registered Owners were developers of the Building.

16.  Upon the IO’s realisation that the Cover Yard was a common part of the Building which had been wrongfully occupied by the Respondent, by a letter dated 5 August 2020 from LKL to the Respondent the IO demanded the reinstatement of the Cover Yard to its original state.

17.  There are no material disputes on the above facts, save for the when the IO first had knowledge of the Structures. Save for the issue of knowledge or belief of the IO, which is addressed below, I find the above facts proved.

The pleaded cases

18.  The IO’s pleaded case in the Notice of Application dated 9 September 2020 (“NOA”) and Reply dated 16 November 2021 (“Reply”) in summary is that:

(1)  The Structures were alterations on common parts of the Building which were unauthorised by the IO and created/adopted by the Respondent.

(2)  As the IO of the Building, it now seeks to enforce against the Respondent the Building’s DMC. It also claims mesne profit for the Respondent’s trespass to the Cover Yard.

19.  The IO’s summarised its own case as follows:

(1)  The Staircase, Staircase Wall, Cover Yard, Cover Yard Staircase, Partition Walls, and Cover Yard Wall are common parts.

(2)  The Respondent has not adversely possessed the Cover Yard. In any event, any adverse possession does not affect the IO’s entitlement to enforce the terms of the DMC and BMO.

(3)  By making unauthorised alterations to the Staircase Wall, Cover Yard, Partition Walls, and Cover Yard Wall (collectively “Alterations”), the Respondent is in breach of Clause 8 of the DMC, as well as sections 34I(1)(a)–(b) of the BMO.

(4)  The IO is therefore entitled to an injunction requiring the Respondent to remove the Alterations and reinstate the Staircase Wall, Cover Yard, Partition Walls, and Cover Yard Wall to their original state.

(5)  The Alterations, insofar as they relate to the Cover Yard, also constitute trespass, for which the IO is entitled to claim mesne profits.

20.  The Amended Notice of Opposition dated 9 November 2023 (“NOO”) and Answer to Further and Better Particulars of the Notice of Opposition dated 10 October 2021 (“RFBPS”) set out the Respondent’s case. The Respondent’s case includes that:

(1)  The Respondent disputes whether the Cover Yard is a common area.

(2)  The Structures had long existed in their current state, at the least, since before the Respondent acquired the Respondent’s Premises.

(3)  The Alterations could not have been unauthorised alterations because they were made pursuant to building plans approved by the Buildings Authority.

(4)  Further, it had acquired possessory title to the Cover Yard by reason of adverse possession. This would bar any enforcement action by the IO in respect of the Cover Yard.

(5)  In any event, the IO knew of the Alterations and did not take action for many years, and is accordingly estopped from enforcing the provisions of the DMC and BMO by reason of acquiescence, waiver, and laches.

(6)  The Respondent did not make the Structures or Alterations.

21.  Pursuant to section 10(1) of the Lands Tribunal Ordinance (Cap.17) the Tribunal may adopt the practice and procedure of the Court of First Instance so far as it thinks fit. LTPD: CJR 1/2009 issued by the then President of the Lands Tribunal (as Lam PJ then was) gave directions and guidance as to the application of the Civil Justice Reform measures to the Tribunal, bearing in mind the variety of cases in the Tribunal. In respect of pleadings the Court of Appeal in Grand Power International Ltd v Chan Sing Hoi Enterprises Ltd [2020] 2 HKLRD 142 §40 (Kwan VP) referred to both section 10(5)(a) of the Lands Tribunal Ordinance (Cap.17), which provides that “the proceedings of the Tribunal shall be conducted with as much informality as is consistent with attaining justice” and also Direction No 4 dated 1 July 1986, that Presiding Officers should not regard Notices as in the nature of pleadings by which parties are bound, but as an indication of the issues which are likely to be raised. However, in that case counsel were engaged early and the litigation was conducted in a rigorous manner.

22.  While the degree of formality in Lands Tribunal proceedings may depend on the particular case, here the parties have been legally represented throughout. The NOA, NOO, RFBPS and the Reply, which I have been referred to as the pleadings, were all drafted and signed by solicitors. Both the Applicant and the Respondent were represented by counsel. Further, in opening counsel made reference to being bound by his pleadings in respect of one issue. Their attention was thus drawn to the pleadings. Had it been necessary to make amendment, or were any unpleaded matter to be advanced, that would have been the time, at the very latest, to give notice of the intent to do so, or make any necessary applications.

ISSUES IN DISPUTE

23.  The issues were narrowed at trial. The IO says that there is no dispute that the opening in the Staircase Wall is a breach of the DMC. There is also no dispute that the alterations to the Cover Yard and the Respondent’s occupation thereof are in breach of the DMC, if the Cover Yard is a common part.

24.  The IO accepts that the material area of the Cover Yard excludes an area of approximately 40 sq ft marked in purple in [F/42/425] and labelled “Light Well for Stair”, which has been used by the IO as a storage space.

25.  The NOO is wide ranging. Not all matters were advanced. Therefore, I shall adopt the issues as defined by the Respondent, with the addition of Issue 2 below. The issues in dispute are as follows:-

(1)  Whether the Cover Yard is a common part of the Building?

(2)  Whether the Respondent is in breach of the DMC or the BMO by reason of the Alterations and/or Structures?

(3)  Whether the Alterations and/or Structures are UBWs, in particular:-

(a)  Whether the Staircase Wall Opening is a UBW;

(b)  In relation to the Cover Yard:

(i)  Whether the demolition of partition walls or the Alterations constitute UBWs; and

(ii)  Whether the toilets and water basins constitute UBWs;

(4)  If the Structures constitute breaches of the DMC on the part of the Respondent, whether the IO has acquiesced in them;

(a)  Whether the IO has the requisite knowledge for acquiescence; and

(b)  Whether the Respondent has had any detrimental reliance and whether it is unconscionable and/or inequitable for the IO to enforce the DMC;

(5)  If the Structures constitute breaches of the DMC which have not been acquiesced in by the IO, what is the appropriate relief, in particular:

(a)  Whether an injunction should be granted against the Respondent or whether an injunction should be refused on the basis that it was not the Respondent who made the Alterations; and

(b)  The appropriate quantum of mesne profits for the Respondent’s conversion of the Cover Yard for its own use.

26.  Issue 1 turns on the construction of the DMC. The IO’s case is that the DMC clearly indicates that the Cover Yard was intended to be a common part. The Respondent’s case to the contrary is that a proper construction excludes the Cover Yard from the common parts.

27.  Issue 2, the IO says the Structures/ Alterations are in breach of the DMC and the BMO. The Respondent’s case is, inter alia, that if the Cover Yard is not a common area there is no breach of the DMC and the BMO.

28.  Issue 3, the IO says the Structures/ Alterations are not on the approved building plans and are UBWs, The Respondent’s case is, inter alia, that they are not UBWs and/or are exempted works under section 41(3) of the Buildings Ordinance (“BO”) and/or may fall under the Minor Works scheme.

29.  Issue 4, the Respondent’s case is that if the Structures are in breach of the DMC or the BMO, the IO has acquiesced in the same. The IO’s case is that the Respondent’s defence of acquiescence can also be dismissed.

30.  Issue 5, remedies:

(1)  The Respondent’s case is that it did not make the Alterations. The IO’s position is that is no basis to refuse an injunction. Courts routinely grant injunctions requiring owners to undo breaches of DMCs created by predecessors in title.

(2)  The quantum of mesne profits should be assessed by reference to the evidence of the valuation experts.

WITNESSES

Factual witnesses

31.  The factual witnesses called at trial were:

(1)  For the IO Mr Lam Siu Lung (“Mr Lam”).

(2)  For the Respondent Ms Cheung Wan Ling Cathy (“Ms Cheung”).

Expert witnesses

32.  On the issue of liability:

(1)  IO - Mr Kwan Kai Keing, Alexander Laurel (“Mr Kwan”).

(2)  Respondent - Mr Chong Yiu Shing Annie (“Mr Chong”) (collectively, “Architecture Experts”).

33.  On the issue of quantum:

(1)  IO - Ms Sat Wei Ling (“Ms Sat”).

(2)  Respondent - Mr Li Chi Ho (“Mr Li”)

(collectively, “Valuation Experts”).

34.  The factual witnesses’ witness statements and expert witnesses’ expert reports and Joint Statements, stood as their respective evidence in chief.

Factual Evidence

35.  The IO’s witness Mr Lam testified, inter alia, that:-

(1)  The 1962 Plans depict a wall where the Staircase Wall Opening now is. He was not aware of when the Staircase Wall Opening was created, and had thought it was the original design of the Building.

(2)  The 1962 Plans depict the Cover Yard as being in a different state than it is now. He was not aware of when the Cover Yard came to its current state. He and his colleagues did nothing regarding the state of the Cover Yard as he thought it was exclusively possessed by Ms Ho Ying Chaw and Mr Young Chi Wan (“Developers”).

(3)  He was not personally aware of, and had searched the records of the IO, and did not find any record of the IO’s approval of the creation of the Staircase Wall Opening or the Structures on the Cover Yard.

36.  The Respondents witness Ms Cheung testified, inter alia, the following:-

(1)  The ground floor of the Building consists only of commercial shops, whereas the 1^st floor has been used for the operation of Chinese dim sum restaurants since the 1990s.

(2)  The Respondent had not made any alteration to the Staircase Wall Opening and the state of it had been the same since it acquired the Respondent’s Premises in 2007.

(3)  Likewise, the Respondent had not made any alteration to the Cover Yard since it acquired the Respondent’s Premises in 2007, save that it had conducted necessary maintenance measures to a wooden door in the Cover Yard by replacing it with an iron gate.

(4)  The restaurant was operating from the Premises and the Respondent purchased the Premises to run a restaurant and has been doing so ever since.

Assessment of factual witnesses

37.  In assessing the credibility of the witnesses I have considered all the evidence given by the parties, both written and oral. I have considered all other matters in the round, including the documents and the specific matters which I have referred to. I have not found any witness to be dishonest. I accept the evidence of each Mr Lam and Ms Cheung, save where otherwise stated.

Expert Evidence

38.  The Architecture Experts’ evidence distilled in the Joint Expert Statement subject to cross-examination may be summarised as follows:-

(1)  Mr Kwan opines, inter alia, that:-

(a)  The Staircase Wall Opening is not compatible with the 1958 Plans and is unauthorised.

(b)  The structures on the Cover Yard are not compatible with the building plans of the Building approved in 1999 (“1999 Plans”) and are unauthorised.

(2)  Mr Chong opines, inter alia, that:-

(a)  The Staircase Wall Opening is not illegal or unauthorised building works (“UBWs”), as it is depicted in the 1999 Plans, the Licencing Layout Plan submitted in 2012 and the Licencing Ventilation Plans submitted in 2011 to the Department of Food and Environmental Hygiene and vetted by the Buildings Authority.

(b)  The structures in the Cover Yard are not illegal or UBWs. Particularly, the wall is in accordance with the 1962 Plans and the sealing of the opening shown in the 1999 Plans may be an Exempted Building Work. The wash hand basin, water closet are not subject to an Unauthorised Building Works Order and may be Exempted Building Works.

(c)  The reinstatement and/or demolition of the Structures would lead to the Respondent being unable to use the 1^st Floor of the Building to operate as a Chinese Restaurant due to failure to comply with licensing requirements.

39.  Quantum evidence is addressed below. The Valuation Experts, Ms Sat for the IO and Mr Li for the Respondent, disagree upon the following:

(1)  The size of the Cover Yard for the purpose of assessing mesne profits;

(2)  The user of the Cover Yard, for the purpose of assessing mesne profits;

(3)  The appropriate rental comparables and adjustments to be applied to the rental value estimates.

ISSUE 1 WHETHER THE COVER YARD IS A COMMON PART

40.  Section 2 of the BMO, defines common parts to mean:

(a) the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner.

(b) unless so specified and designated, those parts specified in Schedule 1.

41.  Schedule 1 of the BMO specifically designates staircases and staircase wall as common parts.

2. Walls enclosing passageways, corridors and staircases.

…

8. Passageways, corridors, staircases, landings, light wells, staircase window frames and glazing, hatchways, roofways and outlets to the roofs and doors and gates giving access thereto.

42.  Whether the Cover Yard constitutes a common part depends upon the proper construction of the DMC. The principles are set out in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 by Lord Hoffmann NPJ, at 296D-I:-

The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other.

Issue 1 Whether common parts – IO’s case

43.  The IO says that there can be no serious dispute that the Staircase, Staircase Wall, Cover Yard, Cover Yard Staircase, Partition Walls, and Cover Yard Wall are common parts of the Building.

44.  I accept that the above provisions of the DMC and BMO put the matter beyond doubt insofar as the Staircase, Staircase Wall, and Cover Yard Staircase are concerned. The Respondent has not.

45.  The starting point is that the Cover Yard, Partition Walls, and Cover Yard Wall are common parts of the Building by virtue of section 2 of the BMO. Again the Respondent has not suggested or produced any evidence to the contrary. Although the DMC does not expressly designate the Cover Yard as a common part, the IO submits that all indications in the DMC point to the Cover Yard being a common part.

46.  Under section 2 of the BMO, common parts include the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner. The Schedule to the DMC expressly allocates shares and sets out the areas attached to which co-owners have exclusive rights. There is no mention of the Cover Yard in the Schedule.

47.  The Cover Yard Staircase is a common part. Clause 2 of the DMC provides that:

Each of the parties hereto and his licensees shall in common with his co-owners of the whole of the said premises and their licensees have access to and be entitled to use the entrances staircases landings passages and elevators of and in the said building for all purposes connected with the proper use and enjoyment of the Flat or Shop of the said Building of which he is entitled to the exclusive use occupation and enjoyment and for the purpose of ingress to and egress from such premises.

48.  To similar effect is Clause 15 of the DMC, which appoints the Developers to manage the common parts of the Building, including the Cover Yard Staircase. It provides that:

The Subsequent Owners hereby jointly and severally appoint the Vendors to act as managing agents for and on behalf of the Subsequent Owners… for the purpose of maintaining in good condition and repair all staircases and landings, passageways entrance halls, elevators…

49.  The IO argues that given that the Cover Yard Staircase is a common part, it must follow that the Cover Yard is a common part. The Cover Yard is the only means of internal access to the Cover Yard Staircase from the Ground Floor of the Building. It would be illogical for a common part to only be accessible through an area of which an owner had exclusive possession. Logic aside, in reality there are buildings all over Hong Kong with common part areas that are only accessible through an area of which an owner has exclusive use. It is necessary to construe the DMC in question in context. However, that is certainly a factual indication that the Cover Yard was also intended to be a common part.

Issue 1 Whether common parts – Respondent’s case

50.  The Respondent accepts that adverse possession of a common part would not preclude an IO from enforcing the DMC. The issue is whether the Cover Yard is a common part of the Building. If not, the Respondent’s encroachment and/or use of the Cover Yard would be a matter only between the Respondent and the Cover Yard’s registered owners, and not a matter for the IO to interfere with. This issue turns upon the construction of the DMC and the intention of the parties to the DMC at the time of signing and whether the Developers had intended to reserve the Cover Yard for their own exclusive use. The mere fact that the Cover Yard had not been expressly reserved does not support the conclusion that the Cover Yard must be a common part of the Building. Instead, an inference is to be drawn having considered all the surrounding circumstances.

51.  The Respondent relies on the findings in Jumbo King to provide guidance. In Jumbo King, the building was divided into two self-contained parts, one for commercial use and the other for residential use. The CFA found that, despite not being specifically mentioned in the DMC, the developers did not intend for the owners of the residential flats to have rights over the commercial parts: per Litton PJ at 290I-291J and 296I-297B

52.  The Respondent argues similarly here the Building’s ground floor contains solely commercial shops, the 1^st floor being the Restaurant operated by the Respondent, and the higher-level flats being for residential use. The Cover Yard is located on the ground floor of the Building. Similarly, it is unlikely that the Developers intended for the owners of the residential flats to have rights over the Cover Yard, which is located at the ground floor alongside shops and connected to the 1^st floor, which consists of commercial flats.

53.  The Respondent relies Jumbo King not only for construction principles, but also prays in aid the facts to suggest that it is unlikely for developers to intend owners of residential flats to have rights over the commercial parts of the Building, or the Cover Yard, which is said to be a commercial part of the Building because it is located at the Ground Floor and connected to commercial flats on the First Floor.

54.  The IO replies, this argument ignores the terms of the DMC. Clause 13 of the DMC expressly provides that the use of the First Floor is for “dwelling purpose”. Clause 2 of the DMC also provides that occupants of the residential (“Flat”) and commercial (“Shop”) parts of the Building have equal rights to access and use its common parts. In my view these textual pointers are clearly against the Respondent’s construction.

55.  Mr Tang submits that contrary to the Respondent’s assertion, if it were the intention that the Cover Yard was to be reserved for the developers’ exclusive use, that would have been stated expressly in the DMC. The Respondent’s argument that the Cover Yard is somehow not a common part is contradicted by the terms of the DMC. Everything in the DMC points the other way. It is impermissible to rely on subsequent conduct or events for the purposes of construing the DMC.

56.  Further, Ms Sat, the IO’s valuation expert, is of the view that the Cover Yard Staircase is for the exclusive use of the Respondent for the purpose of fire escape and hence should not be included in the calculation of mesne profits. This is supported by the 1999 Plan which shows that the Cover Yard Staircase serves as the fire escape for the 1^st Floor only.

57.  The IO replies that fact that the Cover Yard Staircase currently serves as a fire escape exclusively for the First Floor or is depicted as such in the 1999 Building Plan, or that Ms Sat expressed a, does not assist in the construction of the DMC when it was entered into. The Respondent’s own plea is that the Cover Yard Staircase could initially be used to access higher floors of the Building but was subsequently sealed off. I agree that the fact that the Cover Yard Staircase serves as a fire escape would militate in favour of it, and by extension the Cover Yard, being a common part.

58.  The Respondent continues that evidence demonstrating the Developers’ intention to reserve the Cover Yard for its exclusive use is the fact that it was rented out alongside the 1^st Floor units by the Developers.

59.  The Respondent considers these to be strong ground to conclude that the Cover Yard is not a common part but reserved by the Developers for its own exclusive use. Any conversion of the Cover Yard to the Respondent’s own use is not a matter in which the IO has any standing to interfere, but instead should be handled between the Respondent and the Developers, as the registered owners of the Cover Yard.

Issue 1 Common part– Discussion

60.  Applying Jumbo King I construe the DMC as follows. What a reasonable person would have understood the parties to mean involves having regard, not merely to the individual words they have used. I have considered the DMC as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. In my view there can be no reasonable doubt that the Cover Yard is a common part. It was expressly and obviously intended to be used by the owners of the flats and the shops. This was a DMC, likely professionally drafted. It may be taken that the drafters had chosen their words with care. The Respondent does not suggest wrongly used words, but rather the absence of any express designation regarding the Cover Yard meant that it was not intended to be a common part. However, the ordinary meaning of the words make sense in relation to the rest of the document and the factual background, including the layout and intended use of the Building. The textual indications clearly point to the Cover Yard being a common part. I shall give effect to that language of the DMC. I draw the obvious inference and find that the Cover Yard is a common part of the Building. It is not disputed but that Stair Case Wall was a common part, and I so find.

ISSUE 2 – WHETHER THE RESPONDENT IS IN BREACH OF THE DMC OR THE BMO BY REASON OF THE ALTERATIONS/STRUCTURES

61.  Clause 8 of the DMC provides:

Each of the parties hereto shall not make any structural alteration to any part of the said Building or to the Flat or Shop of which he is entitled to the exclusive use, occupation and enjoyment and shall not make any alteration to any installation or fixture so as to affect or likely to affect the supply of water, electricity or gas and shall not cut or damage any of the main walls or beams or floors of the said Building.

62.  By virtue of section 34I of the BMO, the following terms are also implied into the DMC:

(1)(a) No person may 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).

(1)(b) No person may 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 these parts by any owner or occupier of the building; or (ii) to cause a nuisance or hazard to any person lawfully in the building.

Issue 2 Breach of DMC and/or BMO – IO’s case

63.  The IO submits that whether any of the Alterations are in accordance with any approved building plans of the Building is neither here nor there under Issue 2.

Breach of clause 8 of the DMC

64.  The Respondent has not raised any substantive defence to the plea that the Alterations constituted alterations in breach of clause 8 of the DMC, apart from the Respondent’s allegation as to adverse possession of the Cover Yard.

65.  The IO says clearly: (1) the alteration to the Staircase Wall; and (2) installation of wash basins and toilets in the Cover Yard breach clause 8 of the DMC.

66.  First, the alteration to the Staircase Wall is a “structural alteration” within the meaning of clause 8 of the DMC. A “structural alteration” is something which involves the fabric of the Building as opposed to the provision merely of a piece of equipment. It matters not whether the fabric in question is load-bearing or otherwise, if there is any substantial alteration, extension or addition to the fabric of the house. The word “structural” should be given its natural and ordinary meaning rather than some special or technical meaning: Elite Garden (IO) v Profit More Co Ltd [2002] 2 HKLRD 518 §§7–8 per Le Pichon JA.

67.  It has been held that the opening of a doorway in a wall enclosing a half-landing of a staircase is a structural alteration: Wing Ming Garment Factory Ltd v Wing Ming Industrial Centre (IO) [2014] 4 HKLRD 52 §296 per G Lam J (as he then was). This is precisely what has occurred in the present case.

68.  Second, the installation of a wash basin and toilets in the Cover Yard are self-evidently alterations “so as to affect or likely to affect the supply of water”, and therefore also in breach of clause 8 of the DMC.

Breach of implied terms in section 34I of the BMO and trespass

69.  The IO continues that neither has the Respondent raised any substantive defence to the pleas that:

(1)  The Alterations involved conversion of the common parts to its own use without prior approval by a resolution of the owners’ committee in breach of section 34I(1)(a) of the BMO.

(2)  The Alterations unreasonably interfered with the use and enjoyment of those parts by the owners and occupiers of the Building in breach of section 34I(1)(b)(i) of the BMO.

70.  This would necessarily follow from the finding that the Staircase, Staircase Wall, Cover Yard, and Cover Yard Staircase are common parts, and the IO’s uncontradicted evidence that none of the Alterations were ever approved.

71.  Although the Respondent alleged in its RFBPS that “there was a management committee in session not taking any action and consenting to the use of the Staircase and the Cover Yard”, this is entirely unsubstantiated.

72.  The IO submits that the Respondent has also wrongfully trespassed on the Cover Yard by, inter alia, installing the New Cover Yard Wall and the Cover Yard Gate, and by storing various items in the Cover Yard.

73.  Moreover, the alterations to the Staircase Wall would cause a hazard to any person lawfully in the Building, rendering the Respondent in further breach of the implied term in section 4I(1)(b)(ii) of the BMO.

74.  This is because the Restaurant has a seating capacity of 400 persons. Allowing a large number of the Respondent’s patrons and employees to access the Staircase through the opening in the Staircase Wall would, in the event of a fire or other emergency, pose a grave danger to occupants of higher floors of the Building intending to use the Staircase as a means of escape.

75.  The Respondent framed Issue 2 such that this also turns on the finding on Issue 1. In answer to Issue 2, I find that the Respondent is in breach of the DMC and the BMO by reason of the Alterations and/or Structures.

ISSUE 3 - WHETHER THE ALTERATIONS AND/OR STRUCTURES ARE UBWS

76.  The Respondent accepts that if an alteration is a UBW, the IO is incapable of giving consent and, hence, acquiesce in the alteration.

77.  However, not all structures that are inconsistent with the approved plans of a building constitute UBWs. Section 41(3) of the Building Ordinance, Cap 123 (“BO”) states that:-

(3) Building works (other than drainage works, ground investigation in the scheduled areas, site formation works or minor works) in any building are exempt from sections 4, 9, 9AA, 14(1) and 21 if the works do not involve the structure of the building. (Replaced 20 of 2008 s. 29)

78.  Building works subject to section 41(3) of the BO are referred to as “exempted building works”. They would not be shown on the building plans as they are not reported to the Buildings Authority. Both Mr Kwan and Mr Chong confirmed that does not mean these exempted building works are UBWs or illegal structures.

79.  To find that a building work falls under section 41(3) of the BO, the Tribunal has to be satisfied that the building works in question are both “in” the building and “do not involve the structure of the building”.

80.  The definition of being “in” the building has been determined by the Court of Final Appeal in Mariner International Hotels Ltd v Atlas Ltd (2007) 10 HKCFAR 1. A work is “in” the building if it is inside it so as to be protected from the elements: §52. There does not appear to be any dispute that the Structures all fulfil this element, as they are all inside the Building.

81.  Whether a building work goes to the structure is a matter of fact. The removal of mere partition walls has been readily held to be non-structural. For example Cheung Kwok-yiu, Ringo v Leung Chi-sing & Anor (unrep., HCMP 2489/1995, 3 January 1996).

82.  The IO refers to 803 Funds Ltd v Director of Buildings [2021] 2 HKLRD 1274 §17 (Chow J), explaining that building works are UBWs if either:

(1)  The works are carried out without the prior approval and consent of the Building Authority under section 14(1) of the BO and do not fall within the exemptions under section 41; or

(2)  The works are small-scale building works that are designated as minor works under the Building (Minor Works) Regulation (Cap 123N) and are carried out without complying with the simplified requirements of the Minor Works Control System.

83.  The experts Mr Kwan (the IO’s expert) and Mr Chong (the Respondent’s expert) gave evidence on the nature of the Alterations.

84.  Mr Kwan’s evidence included that:

(1)  The alterations to the Staircase Wall are not compatible with the 1958 Building Plan and had not been approved by the Buildings Authority under section 14 of the BO or under the Minor Works Control System.

(2)  The alterations to the Cover Yard are likewise incompatible with the 1999 Building Plan and unauthorised. Further, the scale of such alterations means that they cannot be accepted as exempted building works.

(3)  Licensing Plans in respect of the Restaurant approved by the Director of Food and Environmental Hygiene (“DFEH”) are not reliable indicators of approval by the Buildings Authority.

85.  Mr Chong’s evidence included that:

(1)  The removal of the Staircase Wall was approved by the DFEH in its Approved 2012 Licensing Layout Plan (“2012 Plan”) and Approved 2011 Licensing Ventilation Plan (“2011 Plan”). These should be “construed as acknowledged by the Buildings Authority”.

(2)  The current state of the Cover Yard Wall and/or New Cover Yard Wall is in accordance with the 1962 Building Plan, though not the 1999 Building Plan, which shows an opening in the Cover Yard Wall.

(3)  The wash basin and toilets installed in the Cover Yard may be categorised as exempted building works, which do not require prior approval of the Buildings Authority, because they were not subject to an Unauthorised Building Works Order.

Issue 3(a) Whether Staircase Wall Opening is a UBW – Respondent’s case

86.  It is not disputed that:-

(1)  The Staircase Wall Opening was not indicated on the 1962 Plan.

(2)  The Staircase Wall Opening is shown in the Licencing Layout Plan submitted in 2012 and the Licencing Ventilation Plans submitted in 2011, marked with “dotted lines”, which indicates an opening.

(3)  The 2012 Plan had been vetted by the Buildings Department.

(4)  “A Guide to Applications for Restaurant Licences” (“Guide”) is an official document released by the Food and Environmental Hygiene Department (“FEHD”) to guide restaurant licence applications.

(5)  Section 72 of the Guide states that the Director of the Buildings Department (“BD”) would assess the suitability for granting a restaurant licence with consideration of, inter alia, the existence of UBWs.

87.  The Respondent relies on Mr Chong’s evidence that:-

(1)  Both the 2012 Plan and the 2011 Plan would have been vetted by the BD, and the fact that the restaurant licence was granted despite the plans showing the Staircase Wall Opening means that the BD did not consider the same as a UBW and should be construed as having acknowledged the Staircase Wall Opening.

(2)  Further, in his professional opinion, the Staircase Wall Opening was an exempted building work as it concerns the removal of a non-structural wall.

(3)  The BD will take immediate action if they are aware of the existence of a UBW, particularly when they are made known of its existence when an application for a restaurant licence is circulated to them.

88.  On the other hand, Mr Kwan’s evidence is that:-

(1)  The 2012 Plan would have been vetted by the BD, but he has reservations about whether the 2011 Plan had been vetted by the BD, as it was only a ventilation plan.

(2)  He opines that the BD often does not take any action even if they know of the existence of a UBW due to, inter alia, costs and personnel constraints.

(3)  Further, Mr Kwan opines that the fact that a restaurant licence is granted does not necessarily mean the BD considers the premises in question to be free of UBWs.

89.  The Respondent submits that Mr Kwan’s basis for opining that the Staircase Wall Opening was a UBW, goes no further than the fact that the Staircase Wall Opening had not been approved by the BD. However, this is far from conclusive. Both experts agreed that as long as the building works are exempt from reporting pursuant to section 41(3) of the BO, it need not be reported to the BD, which means it would not be approved by the BD, but may still not be classified as a UBW. This was Mr Chong’s reasoning when he said the Staircase Wall Opening concerns a “non-structural” wall. No analysis or explanation was given by Mr Kwan. The Respondent invites the Tribunal to find that the Staircase Wall Opening does not constitute a UBW.

Issue 3(a) Whether the Staircase Wall is a UBW – IO’s case

90.  I accept regarding the Staircase Wall that:

(1)  There was no opening in the Staircase Wall in the 1958 Building Plan and the 1962 Building Plan.

(2)  Although the Building Authority approved certain alteration works in the 1999 Building Plan, the opening in the Staircase Wall did not form part of the alterations therein approved.

(3)  The opening in the Staircase Wall was never approved under section 14 of the BO.

(4)  The opening in the Staircase Wall was never approved under the Minor Works Control System.

91.  Despite this, Mr Chong and the Respondent maintain that the opening in the Staircase Wall is not a UBW on the basis that:

(1)  The opening was approved by the DFEH in its Approved 2012 Licensing Layout Plan and Approved 2011 Licensing Ventilation Plan, both of which were acknowledged by the Building Authority during the licensing process for the Restaurant. That the opening was acknowledged by the Building Authority during the licensing process means that it is an exempted work. This is because if the Building Authority were notified of a UBW, it would have taken immediate action.

(2)  Further, during the licensing process for the Restaurant, the Respondent would have submitted a certification that the premises were free of UBWs by an authorised person and registered structural engineer.

92.  The IO replies that this does not withstand scrutiny:

(1)  None of this takes away from the fact that the Building Authority never approved the opening in the Staircase Wall under section 14 of the BO. The fact that the opening in the Staircase Wall was approved by the DFEH does not mean that it was approved under section 14 of the BO.

(2)  The suggestion that the Building Authority would take immediate enforcement action against any UBW of which it was aware is implausible.

(3)  Rather, as Mr Kwan explained, the Building Authority adopts policies on priority of enforcement action and accords priority to certain classes of cases because of the limited resources available: see also 803 Funds §§19–21, 26. 803 Funds was a case where the Building Authority declined to take enforcement action against certain UBWs.

(4)  Mr Kwan opined that the granting of a licence to the Respondent does not necessarily indicate the absence of UBWs in the premises.

(5)  The certification supposedly submitted by the Respondent to the effect that the premises were free of UBWs is conspicuous in its absence – it has not been disclosed even to date. The Respondent would readily produce such documentation if it supported its case that the opening in the Staircase Wall was not a UBW. Yet the Respondent has not done so.

(6)  The Tribunal is invited to infer that the contents of such certification is adverse to the Respondent’s case, or at best simply does not address the Staircase Wall and sheds no light on the Respondent’s case: Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356, 365 (Le Pichon JA).

93.  The IO submits that Mr Chong suggestion that the opening in the Staircase Wall was exempted building works under section 41(3) of the BO because the Staircase Wall was in his view a non-structural wall was otherwise unexplained.

94.  It is also wrong. Under section 41(3) of the BO, “building works (other than drainage works, ground investigation in the scheduled areas, site formation works or minor works) in any building” are exempt from the requirements in section 14(1) of the BO if they “do not involve the structure of the building”. Building works involve the structure of the building if they “serve a structural function or are capable for some reason of affecting the integrity of the structure”: Mariner International Hotels §51 (Bokhary PJ).

95.  The IO submits in this regard, courts have readily found that openings in the walls enclosing fire escape staircases involve the structure of the building and are therefore UBWs: Wing Ming Garment Factory §§291–297 (G Lam J).

Issue 3(a) – Discussion – Staircase Wall Opening UBW

96.  The Staircase Wall Opening was not on the Building Authority plans. Therefore the burden is on the Respondent to establish that they were exempt under 43(3) of the BO or post 2011 works that fell under the Minor Works scheme. On the balance of probabilities the works were done before the Minor Works scheme was implemented in 2011. The material provisions are therefore sections 14 and 43(3) of the BO. I not am satisfied that the Staircase Wall Opening works would be exempt under section 41(3) of the BO. The works entailed opening a wall that separated a floor from a staircase that was a fire escape route for all the upper floors. As in Wing Ming Garment Factory the works involved a substantial opening in a wall onto a fire escape route and common area staircase.

97.  I find that the Respondent has failed to discharge the burden to show that the Staircase Wall Opening was exempted works. In answer to Issue 3(a), I find that the Staircase Wall Opening constituted UBWs.

Issue 3(b)(i) Whether the demolition of the Cover Yard partition walls and/or Alterations constitute UBWs – Respondent’s case

98.  The the current state of affairs is that Shops 35, 36, 37, and the “Store” part of the Cover Yard have been amalgamated into one space, which is currently used by the Respondent as an administrative office.

99.  Mr Chong is of the view that the demolition of partition walls may be an exempted building work under section 41(3) of the BO and hence not UBWs, as it merely involves the demolition of partition walls, as opposed to structural walls.

100.  The Respondent also relies on the opinion of Ms Sat, the valuation expert of the IO, that the Cover Yard is different from outdoor yards in the sense that it is covered and indoors. The evidence shows that the partition walls are internal walls which serve no purpose other than as partitions between the shops and between the shops and the Cover Yard.

101.  Whereas Mr Kwan described the effect of the demolition of the partition walls, the Store area and the Shops being amalgamated into one building and claimed that “[t]he magnitude and nature of the alteration … cannot be accepted as exempted building work”. The Respondent says however, it is difficult to understand how this demolition of partition walls is different from any other demolition of partition walls. The very effect and purpose of demolition of partition walls is that the areas once separated should be amalgamated into one bigger area. Mr Kwan’s conclusion that the demolition of the partition walls “cannot be accepted as exempted building work” lacks reasoning and basis.

102.  There was no suggestion that the partition walls were load-bearing or any explanation or suggestion that the partition walls have any structural importance to the building. Mr Hui submitted that there is nothing on the IO’s case to suggest that the removal of the partition walls constitutes a UBW other than bare allegations.

103.  Further, the current state of the Cover Yard has been shown in the building plan attached to Order No. C/CP/0003/98/HK issued by the Buildings Authority. This suggests that the Buildings Authority is well aware of its current state. However, there is no evidence of any prosecution or action taken out in relation to the Cover Yard.

104.  The Respondent also says that the Cover Yard Wall and/or New Cover Yard Wall, as it currently stands with the opening sealed, is in accordance with the 1962 Building Plan, and so no alteration had ever been made to the Cover Yard Wall.

Issue 3(b)(i) the Alterations are UBWs – IO’s case

105.  The IO replies that this allegation is unsustainable. The Respondent also accepts that the (latest) 1999 Building Plan indicates an opening in the Cover Yard Wall. The most the Respondent can say is that installation of the New Cover Yard Wall may be exempted building works not subject to the approval of the Building Authority. But this does nothing to address the requirement of approval from the owners’ committee.s

106.  The dispute is in relation to the demolition of the Partition Walls and the construction of the New Cover Yard Wall, all of which are inconsistent with the 1999 Building Plan.

107.  Mr Kwan’s IO evidence in this regard is that the scale of the alterations means that they cannot be categorised as exempted building works.

108.  Even Mr Chong admitted in cross-examination that the construction of the New Cover Yard Wall (or the sealing up of the opening in the Cover Yard Wall) would require permission under the Minor Works Control System, to the extent carried out from 2011 onwards. It is incumbent upon the Respondent to prove that these alterations were made before 2011 insofar as it seeks to argue that such permission was not required, even on Mr Chong’s evidence.

109.  The Respondent also says that the alterations to the Cover Yard cannot be UBWs as they were depicted in a building plan attached to Order No C/CP/0003/98/HK, which was issued by the Building Authority in 1998 for the removal of other UBWs on the Ground Floor of the Building (“1998 Building Plan”). In addition to being inconsistent with Mr Chong’s evidence, this must also be wrong. The 1998 Building Plan also depict two toilets in the Cover Yard. Yet there is no dispute that these toilets are UBWs.

Issue 3(b) – Discussion

110.  In answer to Issue 3 (b)(i), whether demolition of the Cover Yard partition walls constitutes UBWs is less obvious. Removal of a single or several partition walls within premises would not normally be structural works and may be exempt works under section 41(3) of the BO. The IO submits the works cannot fall into the exempt works category by reason of their sheer scale or magnitude. I accept that there may come a point where the scale of works that involve removal of partition walls crosses the line and can no longer be exempt. However, Mr Chong has not explained where that point is or provided reasons why, even if the Cover Yard works involved partition walls, they would not be exempted building works under section 41(3) of the BO.

111.  Given that the works are not approved by the Buildings Authority on the material building plans it is for the Respondent to establish that they were exempt under section 41(3) of the BO. Mr Chong agreed that they would require permission under the Minor Works scheme. If that is so, it would suggest that they were not exempted building works, before the Minor Works System came into place in 2011. The scheme introduced a simplified procedure that reduced the burden on the Buildings Authority, and the public in respect of submission for works that previously required approval, if they were of the prescribed nature that fall under the scheme. The difficulty for the Respondent is that if the works require permission in that they are of a nature that would require notification under the scheme, they are unlikely to have been exempted works prior to the Minor Works System which removed certain minor works from the ambit of section 14 of the BO. Generally works that were already exempt did not then have to be notified under the scheme. The Respondent did not explain or adduce evidence to show why previously exempt works now required permission under the Minor Works System. This inconsistency is unexplained.

112.  However, taking all of the facts into account on balance I accept that they are likely exempted building works. In answer to Issue 3(b)(i), the Cover Yard demolition of partition walls and/or Alterations do not constitute UBWs. However, they are still in breach of the DMC and the BMO.

Issue 3(b)(ii) Whether the toilets and water basin constitute UBWs

113.  The IO says that there is no dispute that the toilets and water basin in the Cover Yard constitute UBWs and must therefore be removed, insofar as this has not already been done. The Respondent accepts that Mr Chong said during cross-examination that the toilets and water basin are UBWs and should be removed. The evidence of Ms Cheung was that the toilets have already been duly removed, and only the water basin remains. Given the toilets and water basin in the Cover Yard constitute UBWs they must therefore be removed, insofar as this has not already been done

114.  In answer to Issue 3 (b)(ii) in relation to Cover Yard, whether the toilets and water basins constitute UBW’s, I find in the affirmative. I am not satisfied they were exempted works.

115.  If the Alterations are UBWs and therefore illegal, no question of waiver, acquiescence, estoppel, or laches can arise, and there would be no such defence for the Respondent. An IO cannot acquiescence in the construction or retention of illegal structures: Champion Court (IO) v Pang Ping Fan Peter [2008] 5 HKC 312 §17 (Yuen JA); Triumph Court (IO) v Law Ping Patsy [2020] 4 HKC 100 §29 (Yuen JA).

116.  The Respondent accepts the legal position that an IO is incapable of giving consent to, and ergo, could not be bound by acquiescence in respect of illegal structures. I hold that is the position in respect of the Staircase Wall Opening and the Cover Yard water basin and toilets.

ISSUE 4 IF THE STRUCTURES/ ALTERATIONS CONSTITUTE BREACHES OF THE DMC ON THE PART OF THE RESPONDENT, WHETHER THE IO HAS ACQUIESCED IN THEM:

Legal principles - Acquiescence, Waiver, and Laches

117.  In Freder Centre (IO) v Gringo Ltd [2016] 2 HKLRD 190 at §26, Chu JA (as she then was) sets out the principles in respect of the defence of acquiescence as follows:-

26. Hence, to succeed in a defence of acquiescence, it must be shown firstly, there was on the part of the plaintiff, an assent or lying by in relation to the acts of another person; and secondly, in view of the assent or lying by and consequent acts it is unjust in all the circumstances to grant the relief in question: see Spry, Equitable Remedies, (9th ed.), p.56.

118.  Acquiescence arises where a reasonable person would expect the person against whom the estoppel is raised, acting honestly and responsibly, to bring the true facts to the other party known to him to be under a mistake as to their respective rights and obligations: Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985 §8.2 (Cheung JA).

119.  An IO can acquiesce in breaches of a DMC. The principle derived from the authorities is that as long as the IO is capable of giving consent to a certain type of breach, it is equally capable of being barred by its acquiescence:

(1)  In Freder Centre (IO) at §33, the Court of Appeal found that the IO had the capacity to acquiesce in the trade names affixed to the wall by the respondent therein.

(2)  In Hollywood Shopping Centre Owners Committee Ltd v Wing Wah Building Mongkok Kowloon (IO) [2011] 4 HKLRD 623 at §§68-69 Kwan JA (as she then was), found that the IO had the capacity to acquiesce in the plaintiff’s conversion of the common parts to its own use.

(3)  In Wing Ming Garment Factory Ltd at §136, G Lam J (as he then was) found that the IO had the capacity to acquiesce in alterations made to the external walls.

120.  The Respondent accepts the legal position is that an IO is incapable of giving consent to, and could not be bound by acquiescence in respect of illegal structures.

121.  Waiver requires, as a minimum, a clear and unequivocal representation by a party either by words or conduct that it will forgo certain rights. The representation must be made with knowledge of: (1) the facts that give rise to the rights which are being forgone; (2) of the right to forgo these rights; and (3) the connection between the two: Lau Chung v Hui Keng Yee [2025] HKCFI 359 §27 (Au-Yeung J).

Knowledge

122.  A crucial requirement for both acquiescence and waiver is that the IO must have had full knowledge of both the facts giving rise to its rights and the rights themselves.

123.  Knowledge of the IO is required for acquiescence to debar the IO’s claim for breaches of the DMC. What amounts to knowledge in the context of acquiescence is set out in Yick Fung Holdings Ltd v Sandwood Ltd [2009] 4 HKC 43 at §28 by Le Pichon JA:-

(1) It is sufficient that at the relevant time the party concerned knew of the facts or matters that gave rise to his right to equitable relief, even although he may not have fully understood, as a question of law, the rights that he possessed. The paramount question relates to the justice or injustice of granting the particular relief that is sought and the degree of knowledge required in any situation must depend on all other circumstances. See Spry on Equitable Remedies, 6th ed, pp 440-442.

(2) It is thus sufficient that the party knew the facts ‘constituting the title to relief’. See Spry, p 431; Lindsay Petroleum Co v Hurd (1874) LR 5 PC 221 at 241.

(3) It is ordinarily sufficient that the plaintiff has been put on suspicion, that is, that he is aware of sufficient matters to raise in his mind a doubt whether an infringement of his rights has taken place. See Spry, p 431; Marquis of Clanricarde v Henning (1861) 30 Beav. 175, 54 ER 855.

124.  The Respondent submits that Nelsonian knowledge is sufficient to fulfil the knowledge requirement of acquiescence: CS Credit Ltd v Marspan Ltd [2021] HKCFI 3707, per Recorder Sit, SC, at §75(4). In other words, if an IO must have known or should have known of the breaches of DMC, acquiescence could be established.

125.  To show that Courts have readily found applicants to be barred by acquiescence where the breaches of the DMC were obvious, the Respondent relies on:-

(1)  Grand Power International Ltd v Chan Sing Hoi Enterprises Ltd [2018] HKLdT 86 where HHJ S Lo found that the construction of a glass door (replacing a glass wall) was in such a patent and obvious manner, that the applicant “must have been fully aware of R1’s breach (or at the very least the facts and circumstances in relation to R1’s breach)”: §95.

(2)  Flyway Investment Ltd v Golden Court (IO) [2023] HKLdT 17 which concerned an opening at the lift landing on the 1^st floor of the building and alleged alterations to the lift system so that it would stop at the 1^st floor: §91. DDJ Roy Yu found that “given the size of building work at 1/F and amendment to the lift system, I have no hesitation to accept … that this must have been approved by the [IO]”: §92.

Unconscionable

126.  The other element of acquiescence, and also an element of the equitable defences relied on, is unconscionability. The question is whether it would be unconscionable for a party to be permitted to deny that which they have allowed or encouraged another to assume to their detriment: Wong Koon Wah v All Persons in Occupation of Lot No 775 in Demarcation District 216 [2023] HKCA 1279 §99 (Cheung JA); Kam Luk Building (IO) v 吳靜燕 [2023] 1 HKC 683 §78; Kam Luk Building (leave to appeal) [2023] HKCA 1352 §16(2) (Au JA).

127.  Conversely, there will be no unconscionability and the equitable defences will fail if the Respondent had obtained benefits rather than suffered detriment as a result of the IO’s lack of enforcement: Kam Luk (appeal) §78; Kam Luk (leave to appeal) §16(2).

128.  For laches, mere delay is insufficient. The length of the delay and nature of the acts during the interval must be considered. The question is whether the lapse of time has given rise to circumstances that now mean it would be inequitable to deny relief: Unionward Investment Ltd v Yeung Foon Tai [2024] HKCFI 3684 §89 (Yeung J).

129.  At trial the Respondent was relying primarily on acquiescence, but also waiver and laches. The Respondent referred to estoppel by acquiescence. Some authorities relied upon also address other estoppels, including proprietary estoppel, which differs and has additional elements to acquiescence simpliciter.

Acquiescence – mistake

130.  The IO submits that the Respondent’s case on acquiescence, waiver, laches, and estoppel must fail. There was no delay on the part of the IO. Once it discovered that the Alterations were unauthorised, in 2017 for the Staircase Wall and 2020 for the Cover Yard, it promptly wrote to the Respondent to complain and demand reinstatement. Any inaction by the IO before 2017 in respect of the Staircase Wall and 2020 in respect of the Cover Yard is irrelevant.

131.  Any inaction, for however long, will not prevent enforcement of a DMC if it does not indicate an intention to waive any right but rather results from the IO’s mistaken belief as to its rights: Wing Ming Garment Factory §§238–239. The IO mistakenly believed that the alteration to the Staircase Wall was part of the original design of the Building until 2017; and mistakenly believed that the Cover Yard was a unit of the Building rather than a common part until 2020.

132.  On this issue, the Respondent seeks to distinguish Wing Ming Garment Factory where the IO’s mistaken belief originated from the colouring of the relevant area in the DMC which led to mistakes on both parties, including the Court on occasions: §241. This is different from the present case, where, even if the Tribunal accepts that there is a genuine mistake, the mistake is the result of the IO’s own failure to inspect or properly inspect the DMC and/or the plans.

Knowledge – Respondent’s case

133.  The Respondent submits that the IO has the requisite knowledge for acquiescence:-

(1)  The Structures have long existed in their current state, and their existence was well-known to Mr Lam of the IO and/or his colleagues and/or previous members of the IO;

(2)  The current state and/or existence of the Structures is in the wide open and glaringly obvious to anyone who may visit the Building and/or the Respondent’s Premises.

(3)  The Structures are inconsistent with the 1958 Plans and/or the 1962 Plans and/or the 1999 Plans; and

(4)  The registered owners of the Cover Yard namely the Developers were the “Vendors” named on the DMC.

The above are all the “facts or matters that gave rise to his right to equitable relief”. All these matters are readily available to the IO and/or the IO’s committee members had they exercised the bare minimum of diligence in inspecting the documents in order to fulfil the IO’s “obligation to enforce … the DMC”, which Mr Lam admittedly is well aware of. Any claimed ignorance of these facts could be no more than wilful blindness.

No knowledge – IO’s case

134.  The IO submits that acquiescence can only arise where there is actual knowledge. The doctrine of acquiescence operates on the basis that a duty to speak is imposed on a party in certain circumstances. Such a duty arises where the party “realised” the true position. If so, they will not be allowed to remain “deliberately silent”: Mo Ying §§8.2, 8.7, 11.8.

135.  Such knowledge is not merely knowledge of the physical state of the Staircase Wall and the Cover Yard. Knowledge of the physical state of the premises and the absence of follow-up action despite such knowledge is in itself insufficient to give rise to acquiescence: Jade Assets Ltd v East Sun Industrial Centre (IO) [2020] HKCFI 2880 §75 (Keith Yeung J).

136.  Rather, there must also be actual knowledge that the Respondent is in breach of the DMC. This is a necessary “fact or matter” which gives rise to the IO’s entitlement to enforce the DMC. Without knowledge of such a necessary fact, there can be no question of acquiescence: Yick Fung Holdings §28 (Le Pichon JA).

137.  The IO says it cannot acquiesce in breaches of DMC obligations comprising the wrongful use of common parts if it was under the mistaken belief that the relevant areas were not common parts (and therefore unaware of such a breach) in the first place: Golden Industrial Building (IO) v Yee Lim Investment Co Ltd [2023] HKCFI 3314 §56 (DHCJ Phoebe Man).

138.  The IO says it is clear that it did not have any relevant knowledge:

(1)  Mr Lam’s evidence that the IO was under the mistaken belief that the Cover Yard was not a common part until 2020 is unchallenged. This was why the IO brought proceedings against the Registered Owners of the Cover Yard for the payment of management fees.

(2)  Nor does the Respondent seem to seriously dispute that the IO was unaware that the opening in the Staircase Wall was a UBW and in breach of the DMC until 2017, when it was informed of such by a surveyor whom they had engaged under the Mandatory Building Inspection Scheme.

139.  It is common ground that neither party has any knowledge as to when and how the Structures came about:

(1)  Under cross-examination, Mr Lam said that he did not know of the state of the Staircase Wall Opening prior to 2017 and the state of the Cover Yard prior to 2020, respectively, as he had never been to the places during the whole time he had lived in the Building.

(2)  Ms Cheung stated in her witness statement and confirmed during cross-examination that the Structures were in their current state when the Respondent’s acquired the Premises.

140.  I accept that evidence of each Mr Lam and Ms Cheung.

141.  The IO considers that the Respondent’s case on knowledge boils down to three points:

(1)  First, the IO knew of the physical state of the Staircase Wall and the Cover Yard all along.

(2)  Second, the IO, and its current chairman Mr Lam, were wilfully blind to the fact that the Alterations were in breach of the DMC.

(3)  Third, this is because the IO failed to properly examine the DMC and the building plans of the Building, as they should have done.

142.  Seen in this way, the Respondent’s position is essentially that mere negligence, or the failure to perform a duty, can in itself amount to knowledge, and therefore acquiescence.

143.  The IO says that if a failure to properly examine the DMC or building plans are the facts on which the Respondent is relying to establish knowledge, these facts should have been pleaded, such that the IO would have a proper opportunity to address them, rather than being sprung a surprise in cross-examination. Yet they are nowhere to be seen in the NOO. A party cannot rely on unpleaded facts to infer knowledge: Pulse Mediatech Ltd v Ucan Technology Holdings Ltd (HCA 1157/2014, 2015.08.13) §8 (Recorder Winnie Tam SC).

144.  Further or alternatively, none of the cases cited in support by the Respondent actually support the Respondent’s position:

(1)  Yick Fung Holdings, properly understood, requires actual knowledge of a breach of the DMC, this being a necessary fact giving rise to the IO’s entitlement to relief. Although it also suggests that the IO need not be fully aware of its right to enforce the DMC (as opposed to the existence of a breach) before acquiescence is made out, that is neither here nor there.

(2)  CS Credit suggests that Nelsonian knowledge is sufficient. But this is normally understood to mean wilful blindness. Negligence cannot be equated with wilful blindness: Akai Holdings Ltd v Thanakharn Kasikorn Thai Chamkat (Mahachon) (HCCL 59/2004, 2008.05.26) §493 (Stone J).

(3)  Grand Power International is a case in which acquiescence was found on the basis of actual knowledge of the breach of DMC.

(4)  Flyway Investment is a case in which there was actual approval of the relevant alteration, and does not concern the threshold required for acquiescence at all.

145.  The Respondent replies that the evidence of Mr Lam shows that the IO must have had full knowledge of the breaches of the DMC or, at least, should have known about them, so had Nelsonian knowledge. Mr Lam was aware of the IO’s management committee’s duty to enforce the DMC, but he had never read the DMC himself. He did not read English, he had asked the management company for the DMC, but was told that it was of poor resolution/quality and he did not take action to ascertain the content of the DMC afterwards. When asked how he could fulfill his duty in enforcing the DMC without knowing its content, Mr Lam said that it was the duty of the chairman and there were only 2 years between the beginning of his chairmanship and the IO taking action regarding the Staircase Wall Opening. Mr Lam had never used the staircase nor seen the Staircase Wall Opening from moving into the Building in 1995 until 2017, being 22 years. Mr Lam had never been to the Cover Yard after he moved into the Building until 2015, when for the first time he entered the Cover Yard to deal with water pumping issues in his capacity as the chairman of the IO.

146.  The Respondent continues, in relation to the Cover Yard the IO’s mistaken belief stems from a misunderstanding of the law rather than one of the “facts or matters that gave rise to his right to equitable relief”:-

(1)  The IO was aware that the registered owners of the Cover Yard are the Developers, and it commenced proceedings against them to try to claim management fees against them.

(2)  After obtaining a default judgment against the Developers, the IO sought legal advice as to the enforcement and obtained advice, presumably, on the legal effect of a developer’s failure to specifically reserve an area’s exclusive use and enjoyment, whereupon they became aware the Cover Yard was, by operation of the law, a common part of the building.

In this situation knowledge could be established despite a mistake. The only mistaken belief is as to the legal principles, which explains why the IO became aware of the breach of DMC “after seeking legal advice”.

147.  The Respondent submits that as such, the IO assertion that it did not possess the requisite knowledge should not be accepted. Alternatively, there is adequate evidential basis to draw the requisite inference that the IO knew or should have known of the breaches long before they took any action.

148.  It is clear that all the circumstantial facts leading to the IO’s current case that the Structures are in breach of the DMC were readily available to Mr Lam, and would have been known to him had he put in the minimal effort to fulfil his duties as a member/chairman of the management committee of the IO, and his ignorance of them can be attributed to nothing but his willingly turning a blind eye.

149.  The issue of acquiescence does not simply concern the Respondent, being the current owner of the Premises, and the IO (in the current composition of its management committee). The Tribunal must draw an inference from available information as to whether the IO at the time when the Structures were created/altered had acquiesced in their existence.

150.  The Respondent says that the material facts are that:

(1)  The Structures are by no means minor alterations that could be carried out unnoticed both in terms of the size of the Structures and the works required. Although the parties have no knowledge of how they were actually carried out, reasonable inferences can be drawn.

(2)  The Staircase Wall Opening required demolition of a wall which likely involved relatively substantive building works. An opening in the wall allowing persons to walk through and the installation of a roller shutter is also of such a blatant nature that it could not reasonably be said that the IO at the time did not notice.

(3)  The Cover Yard works involved the demolition of walls, installation of pipes, toilet facilities and hand washing basins. Both the type of work and alterations are not the kind that could reasonably be ignored.

151.  As such, the Respondent submits that the Tribunal may draw a similar inference to that in Grand Power International, that such obvious and blatant alterations must have had the consent (implied or otherwise), or at the very least, must have been known to and acquiesced in by the IO.

Issue 4(a) Whether the IO had the requisite knowledge for acquiescence Discussion

152.  I have found that the Staircase Wall Opening is a UBW but will consider acquiescence in relation to all Structures on the basis there were no UBWs. I accept that Mr Lam was mistaken and believed that the Staircase Wall Opening alteration was part of the original design of the Building until 2017. The material knowledge is that of the IO, not merely Mr Lam personally. The Staircase Wall Opening would have required demolition to create a large opening in the wall. I accept the Respondents case that this would have involved relatively substantive building works. The opening is through a wall that would allow people to gain access into the staircase that was a common part connecting the upper floors to the ground. That staircase was a fire escape route for the upper floor of the Building. It could not have gone unnoticed at the time. There was also the installation of a large metal roller shutter that would be readily apparent and an obvious change to the Building. The IO must have had knowledge of the facts and matters that gave rise to its rights. I am satisfied that the IO must have known of the Staircase Wall Opening at the time of the works to break through the wall and the installation of the shutter as well as particulars of the DMC and original plans. The IO must have known it was not part of the original design of the Building.

153.  The Respondent’s case is the Cover Yard alterations were “in” the Premises. They were not outside or otherwise exposed to the eyes of the IO. The Respondent insists that they entailed mere movement of partition walls, would be exempt works or fall under the Minor Works scheme. The installation of the wash basins and toilets was also within the enclosed area.

154.  I am not satisfied that the IO must have known of the Cover Yard works, Alterations or Structures. I accept that the IO was under the mistaken belief that the area was a unit of the Building under the exclusive use of an owner, so not a common part. The IO did not consider it a common area over which it had common part management duties. There was no reason for the IO to pay special heed to the area as it believed it was a unit under exclusive use of an owner. The IO actually brought the claim for unpaid management fees under that mistaken belief. I accept the evidence of the IO in respect of the Cover Yard. It clearly shows the mistaken belief of the IO was genuine and persisted until it started to take steps against the Respondent.

155.  The IO was not only mistaken as to the true legal position. The IO did not have full knowledge of the facts giving rise to its and its rights to take action. The IO did not know of the Alterations or the Structures. It was unaware of the building works. The case may be distinguished from those where the mistake is as to legal right or the legal consequences of the facts or only the law. The IO did not know the facts that would give rise to the right to enforce the DMC. I find that the Respondent has failed to establish that the IO had the material knowledge in respect of the Cover Yard to satisfy an essential element of the defence of acquiescence.

156.  I answer Issue 4(a), whether the IO had the requisite knowledge for acquiescence in the negative. There is no question of the IO acquiescing in the Staircase Wall Opening. I have found that the Cover Yard Structures/Alterations constituted breaches of the DMC and BMO. The defence of waiver also requires knowledge of the facts that give rise to the rights forgone. In respect of the defences of acquiescence and also of waiver and laches must fail for want of the IO’s knowledge.

Issue 4(b) Whether there is detrimental reliance by the Respondent and/or whether it is unconscionable for the IO to enforce the DMC

157.  The other element of acquiescence is whether in all the circumstances, it would be unjust to grant the relief sought by the IO.

158.  Both parties consider another element of estoppel by acquiescence is detrimental reliance by the Respondent as a result of a representation made by the IO: Huang Meixia v Leung Hoi Shan [2021] HKCFI 3727 §44(5) (Wilson Chan J); CS Credit §75(2) (Recorder Eva Sit SC).

159.  The Respondent’s case is that if the Staircase Wall Opening is to be closed, the Respondent’s restaurant licence would be revoked, or it would be unable to obtain a fresh restaurant licence. The Respondent first seeks to establish detrimental reliance on a representaion, which is not an essential requirement of acquiescence, but if established it may satisfy the second element, that it would be unjust to enforce or that of unconscionablity.

Issue 4(b) detriment or injustice – IO’s case

160.  The IO submits that any detriment suffered must also be material and be suffered as a result of change of position in reliance on the representation, in that it must only be explicable by reliance on such representation. The twin requirements of causation and materiality must be met: United Overseas Bank Ltd v Gracewood International Ltd [2021] HKCFI 2950 §30.

161.  As to causation:

(1)  If there is no evidence that the Respondent would have taken a different course of action had the representation not been made, then detriment cannot be established: Steria Ltd v Hutchison [2007] ICR 445 §§123–127 (Neuberger LJ).

(2)  Action taken based on an independent belief as to the position will not suffice. Rather, there must be a causal connection between the IO’s representation and the action that causes detriment: Prince of Wales Road Rtm Co Ltd v Assethold Ltd [2024] EWCA Civ 1544 §67 (Falk LJ).

162.  As to materiality:

(1)  It is not sufficient to plead (or show) only a change in position. The Respondent must further clearly identify the detriment alleged to have been suffered: Kong Colin Chung Ping v Kong Wing On (CACV 69/2015, 2015.11.11) §§35, 37 (Kwan JA).

(2)  Detriment requires an objective state of affairs which leaves the Respondent in a substantially worse position than it otherwise would have been in, had the representation never been made: O’Neill v Holland [2021] 2 FLR 1016 §62 (Henderson LJ).

(3)  Harm merely as a result of being deprived of the promised advantage is insufficient. Otherwise, the requirement for detriment in an estoppel claim would be nugatory, because in every estoppel claim the claimant will, by definition, be better off if the estoppel is established than if it is not: Wilken and Ghaly, The Law of Waiver, Variation and Estoppel (3rd edn, 2012) §8.46; Steria Ltd §125.

163.  The IO submits that in light of the authorities, the Respondent’s case on detrimental reliance cannot even get off the ground. First, it is unpleaded. Second, it is also unsupported by evidence. The IO considers it most surprising for the Respondent to be insisting on the contrary, after its counsel’s concession in oral opening that he is bound by the state of pleadings and evidence on this issue.

164.  It is incumbent on the Respondent to clearly plead and prove that it has suffered detriment, in the sense that it was in a substantially worse position than it would have been in had the representation not been made. The Respondent alleges detriment in two ways.

165.  First, the Respondent’s unpleaded case is that “the Respondent would not have purchased the Respondent's Premises but for the IO's acquiescence”.

166.  However, there is no plea in the NOO as to any change in position. It is not pleaded that the Respondent would not have purchased the Premises but for the IO’s representation. The defence should be dismissed on this ground alone.

167.  The Respondent accepts that it was not pleaded in the NOO that the Respondent would not have purchased the Premises but for the IO’s acquiescence, however it invites the Tribunal to infer this from the available circumstances. Prior to the Respondent’s purchase, the 1^st Floor of the Building had been used to operate as a Chinese restaurant by the name of “Viking”. After the Respondent’s purchase and to date, the Premises have all along been used to operate a Chinese restaurant, now by the name of “Royal Legend”. As such, it must have all along been the Respondent’s intention and understanding that the Premises are suitable to be used for operating a Chinese restaurant, and it must have been pursuant to this understanding that the Respondent’s Premises were purchased. The Respondent submits that it did suffer detrimental reliance.

168.  The IO objects to any such inference being drawn.

169.  If the understanding and/or representation was to the effect that the Premises are suitable to be used for operating a Chinese restaurant, that would remain so, even if any Structure/Alterations were to be removed or reinstated. I cannot infer there would have been no purchase simply on that basis. The evidence is that the Cover Yard Structures do not impact on the availability of a restaurant licence. Even on the Respondent’s case an alternative available would be to operate a restaurant with a reduced seating capacity. That would affect profitability. There is no evidence of actual financial details. Much less evidence that a restaurant with such reduced seating capacity would not be a financially viable proposition, as distinct from simply less profitable, so that it may be inferred that there would have been no purchase.

170.  The IO says permitting the Respondent to advance a last minute unpleaded case of inference without giving any opportunity to the IO to respond would be unfair and impermissible: Chok Yick Interior Design & Engineering Co Ltd v Lau Chi Lun (HCA 1480/2008, 2010.06.21) §51 (Lam J).

171.  A failure to plead the material facts in support of causation and to prove such causation by evidence is fatal: Liu Hon Wong v Liu Chee Kwan [2023] HKCFI 1658 §122 (DHCJ MK Liu).

172.  The pleadings define the issues that define the scope of the evidence, and not the other way round. It is not acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced: Kwok Chin Wing v 21 Holdings Ltd (2013) 16 HKCFAR 663 §21 (Ma CJ).

173.  More fundamentally, there is a complete absence of evidence so any claim of detrimental reliance is in any event unsustainable as a matter of evidence. Nothing indicates that the Respondent had changed its position in reliance on any representation by the IO. The inference suggested by the Respondent cannot even be drawn in the first place. There is no evidence that:

(1)  The Respondent realised or suspected that the Alterations to the Staircase Wall and Cover Yard were breaches of the DMC and BMO, or made inquiries to ascertain the same. Nor is there evidence that the Respondent was led to believe that such breaches, which were not even contemplated, would not be an issue by reason of the IO’s inaction. There was no representation or reliance.

(2)  The Respondent would not have purchased the Premises but for any purported representation by the IO. The Respondent cannot demonstrate any change in position.

174.  The evidence of Ms Cheung is the opposite:

(1)  When the Respondent purchased the Premises, the Respondent had never given any thought to the possibility that the Alterations to the Staircase Wall and Cover Yard were potentially UBWs or in breach of the DMC.

(2)  The Respondent only realised that the alteration to the Staircase Wall was a breach of the DMC, and that the Cover Yard was a common part, when letters were sent by the IO to the Respondent in 2018 and 2020 respectively.

(3)  Rather, all along, the Respondent had purchased the Premises and operated it as a restaurant simply on the basis of her and her mother’s belief that the Premises would be suitable for the operation of a restaurant.

175.  Mr Tang submits that all of this evidence shows that the Respondent purchased the Premises and operated the Restaurant by reason of an independent belief unconnected with any representation by the IO. This is insufficient to give rise to detrimental reliance.

176.  The IO continues that even putting aside the evidential difficulties, how the purchase of the Premises would have left the Respondent in a worse position, let alone substantially worse position, than it would have been in had any representation not been made is not shown. The purchase of the Premises enabled the Respondent to operate the Restaurant on the Premises and profit from doing so for many years. Such profit prevents any detriment from arising: Kam Luk (appeal) §78; Kam Luk (leave to appeal) §16(2); Golden Industrial Building §51(6). There is also no evidence on how the purchase left the Respondent in a worse position. Nor evidence on the worth of the Premises relative to the purchase price. I find there is dearth of necessary evidence in this regard.

177.  The IO adds any suggestion that the Respondent would otherwise be in a better position because it would have purchased alternative premises in which to operate its restaurant without having to be concerned with UBWs and breaches of DMC or losing its restaurant licence, would be pure speculation. I find that there is no evidence as to what the Respondent would otherwise have done. The case now advanced is unpleaded, without evidence and would be speculative.

178.  Second, the Respondent’s pleaded case of detriment is that the alteration to the Staircase Wall was necessary to provide a means of fire escape for the Restaurant, without which the Respondent would lose its restaurant licence. No detriment is suggested in relation to the Cover Yard. This is at best an argument which relates only to the Staircase Wall. Whether reinstatement thereof would actually cause the Respondent to lose its restaurant licence is considered below.

179.  However, the IO says that the Respondent’s potential loss of its restaurant licence is not detriment resulting from any representation by the IO. The licensing conditions imposed by the DFEH or the Respondent’s potential breach thereof, if required to reinstate the Staircase Wall, are independent of any representation that the IO might have made.

180.  The IO postulates that the only way in which causation might be established would be to say that but for the IO’s representation, the Respondent would not have to worry about losing its restaurant licence because it would have purchased alternative premises. Yet this is the same speculation without any evidential basis as referred to above.

181.  Mr Tang adds such detriment from the Respondent potentially having to lose its restaurant licence as a result of having to reinstate the Staircase Wall would be insufficient. That is a classic example of potential harm merely as a result of being deprived of the promised advantages

182.  Properly analysed the representation that the Respondent alleges the IO to have made is that the IO would not enforce the DMC. Now the IO is enforcing the DMC and requiring the Respondent to reinstate the Staircase Wall, thereby depriving the Respondent of its expectation that it could continue to use the opening in the Staircase Wall for the purposes of operating the Restaurant. The alleged consequences that now flow from the loss of the opening in the Staircase Wall, such as the Respondent’s potential inability to operate the Restaurant, are nothing more than adverse effects as a result of the Respondent being unable to obtain the promised benefit. I accept that is insufficient to amount to detriment.

Issue 4(b) detriment or injustice – Respondent’s case

183.  The Respondent’s case is that if the Staircase Wall Opening is to be closed, the Respondent’s restaurant licence would be revoked, or it would be unable to obtain a fresh restaurant licence.

184.  The Architecture Experts gave evidence, in their reports and cross-examination, on the licencing requirements for the Restaurant. The Respondent’s case is as follows.

185.  It is not disputed that:-

(1)  Code of Practice for Fire Safety 2011 (“CoP 2011”) is the current in force Code regarding fire safety standards applicable to restaurants.

(2)  Table B2 of CoP 2011 requires that a restaurant accommodating 305-500 people shall have a minimum of 2 escape routes, and the minimum total width for the escape routes is 3000 mm (i.e. 3 metres) (“Width Requirement”).

(3)  Clause B8.1(b) of CoP 2011 states that:-

Where two or more exit routes (required by Table B2 to serve a storey) vary in width, any width of an exit route in such group in excess of 50% above the width of the narrowest exit route in such group should not be included in the calculation for the minimum total width of exit routes as required by column 4 of Table B2.

(4)  Note 3 to Table B2 of CoP 2011 states that:-

The width of a required staircase, staircase landing, passage or corridor comprising an exit route should be measured between the finished surfaces of the walls or of the inner sides of any balustrade and should not be decreased by the introduction of any projections other than handrails the projection of which should not exceed 90mm.

186.  Mr Chong opines that closing of the Staircase Wall Opening would lead to the Respondent losing its current restaurant licence:

(1)  He calculated the total width of the three escape routes of 1^st Floor of the Building, namely, the Cover Yard Staircase, the staircase which the Staircase Wall Opening leads to, and the “Main Entrance Staircase”, taking into account the effect of Clause B8.1(b) and concluded that, with all three fire escape routes currently available, the total width is 3.68 m, greater than 3 m and hence fulfilling the requirement under Table B2 of CoP 2011. However, in the event that the Staircase Wall Opening was blocked, the total width of all the escape routes would decrease to 2.63 m, less than the 3 m requirement stipulated in Table B2 of CoP 2011.

(2)  As such, the blockage of the Staircase would cause the Respondent to fail to fulfil the Width Requirement.

187.  The Respondent replies to Mr Kwan’s criticism of Mr Chong’s methodology and data thus:-

(1)  Mr Chong obtained the width of each escape route by measurements on site. His estimate of the widths of the escape routes is alleged to amount to “impossible interpretations of the building plans” as it was common practice in the industry to ascertain the widths of fire escape routes by reading building plans. However, that is against the clear wordings of CoP 2011, which requires the width to be “measured between the finished surfaces of the walls or of the inner sides of any balustrade …”. This can only be done on-site and not by reading building plans.

(2)  The criticism, that Mr Chong had made a “50% discount” to the Main Entrance Staircase, and “no basis for the suggested calculation can be found in CoP 2011” was a misunderstanding of both Mr Chong’s methodology and CoP 2011. He did not make a “50% discount” but, instead, excluded the width of the Main Entrance Staircase in excess of 50% above the width of the other two staircases, in compliance with Clause B8.1(b) of CoP 2011. Mr Chong’s reliance on Clause B8.1(b) was expressly stated in the footnote of [E/336], but was overlooked by Mr Kwan.

188.  The Respondent submits that the data and methodology of Mr Chong are correct, and the conclusions at [E/336] should be accepted by the Tribunal. I accept Mr Chong’s data and methodology, but not all of his conclusions. The Respondent contends that reinstating the Staircase Wall would debar the Respondent from operating the Restaurant on the First Floor Units by reason of fire safety and licensing requirements. While there are two possible solutions, either the Restaurant could be converted to have a maximum capacity of 300 persons or a new staircase could constructed, both would require substantial costs of at least HK$500,000.

189.  The Respondent submits that in all of the circumstances it would be unconscionable and inequitable for the IO to now seek to enforce the DMC against the Respondent.

Restaurant licence – IO’s case

190.  The IO submits that quite apart from the lack of detriment, it would in any event not be unconscionable for the Respondent to be required to reinstate the Staircase Wall.

191.  This is because the Respondent need not lose its restaurant licence, or be unable to renew it, as a result of having to reinstate the Staircase Wall. Rather, the Respondent would be able to retain its restaurant licence only with minor alterations.

192.  Mr Kwan opined that alterations could be made to allow the Respondent to maintain its restaurant licence. There are two ways in which the Restaurant could continue to comply with licensing requirements, even if it was required to reinstate the Staircase Wall such that Staircase No 2 would no longer be a viable fire escape route:

(1)  First, Staircase B, which is currently used as the main entrance and the corridor to the Restaurant, namely Main Entrance Staircase can be converted into a workable fire escape route through minimal alterations and the usage of fire-resistant materials (“Fireproofing Suggestion”); and

(2)  Second, the width of the external non-structural wall separating the Cover Yard Staircase from the scavenging lane, which is 9 inches thick (rather than 4 inches thick, as is the norm in modern construction), can be reduced widening the Cover Yard Staircase (“Widening Suggestion”).

193.  In Mr Kwan’s opinion Staircase B, can be used in lieu of the Staircase as an exit route. Staircase B was originally designed as a means of escape from the First Floor until alteration works were approved in the 1999 Building Plan, but can be re-converted into a fire escape staircase with a limited amount of construction and at a minimal estimated cost of HK$120,000–150,000.

194.  Mr Kwan also opined that the Building, having been built under a “previous version of the code”, is not subject to “part of [CoP 2011]” and the Buildings Authority “will not take action” or “require it to be altered” (“CoP Not Applicable point”).

195.  The Respondent replies that the Fireproofing Suggestion could not resolve the whole issue. Mr Kwan agreed during cross-examination that would not resolve the failure to comply with the Width Requirement. Even on Mr Kwan’s calculations, the total width of the escape routes after blocking the Staircase Wall Opening is only 2971.8 mm, less than the 3 m requirement. Applying Clause B8.1(b), on Mr Kwan’s calculation, it should be further reduced to 2857.5 mm, as the Main Entrance Staircase width exceeded 1.5 times the width of the Cover Yard Staircase. Fire proofing any part of the Main Entrance Staircase or corridor would not widen the total width of the escape routes.

196.  The Respondent replies to the Widening Suggestion that in Mr Chong’s opinion the widening of the Cover Yard Staircase is impossible due to the existence of a column and a beam that would obstruct the intended widening process. Further, Mr Kwan agreed reducing the thickness of an external wall likely requires the approval or consent of the IO. Whether the works to maintain the Respondent’s restaurant licence could be done is entirely at the discretion of the IO, and out of the Respondent’s control.

197.  The Respondent submits that the CoP Not Applicable point should not be accepted, and is irrelevant as it was not made by Mr Kwan, in his expert report or in the joint statement, but only raised for the first time during cross-examination. No basis or proof was provided by Mr Kwan in support. Therefore the Tribunal should not accept the point. Further, even if accepted, the point mainly concerns enforcement (or the lack thereof) by the Buildings Authority, rather than the licensing requirements of the FEHD. As such, it would have no bearing on whether the failure to abide by the Width Requirement would cause the Respondent to lose its restaurant licence.

198.  Now Mr Chong’s opinion is that if Staircase No 2 is excluded, the total width of the Cover Yard Staircase and the Main Entrance Staircase is 2.63m. This means that the Restaurant requires three fire escape routes in order to operate, including the Cover Yard Staircase, the Main Entrance Staircase, as well as Staircase No 2. The IO says that Mr Chong’s evidence should be rejected for the following reasons.

199.  First, yet again the Respondent’s attempts to slip in unpleaded points in evidence. The Respondent’s pleaded case is that only two fire escape routes were required for the Restaurant to operate. The Respondent cannot now say that three fire escape routes are required.

200.  Second, apart from being inconsistent with the Respondent’s pleaded case, it also proceeds from the false assumption that the requirements of the CoP 2011 are applicable in full in the present case. However, as explained by Mr Kwan in his oral evidence, the Building Authority does not require fire escape routes of existing buildings to be altered or updated in order to comply with new regulations or codes of practice.

201.  Therefore, so long as Staircase B is converted into a proper fire escape route in accordance with Mr Kwan’s proposals, the Respondent simply does not need Staircase No 2 in order to operate the Restaurant.

202.  The IO replies that this point was a response to an unpleaded point raised in Mr Chong’s evidence. If anything, the Respondent should be disallowed from running an unpleaded point through its expert. All buildings are not constantly required to do reconstruction works whenever new regulations or codes of practice enter into force.

Issue 4(b) Whether unconscionable or unjust to enforce the DMC

203.  I have found that the Staircase Wall Opening constitutes UBWs, so acquiescence is not available as a defence. However, if I be wrong I have determined whether the defences of acquiescence, waiver and laches have been established in respect of the Staircase Wall Opening in addition to the Cover Yard.

204.  On this issue I find that the IO’s pleading objections have more force. There is an absence of material averments. The absence of the essential pleading has put the IO at a disadvantage and is prejudiced. Further, the pleaded case differs from that advanced. This also undermines the Respondent’s case. A clear instance is the pleading on the fire escape routes. The NOO pleads that two are required. Whereas the Respondent’s expert gave evidence that three are required. The Respondent and the expert had all the necessary information prior to trial to prepare reports and could have amended the NOO. It did not. I cannot rely on the Respondent’s evidence in respect fire escapes routes and staircases. It is inconsistent and has changed over time.

205.  On the facts I have accepted Mr Chong’s methodology and data regarding the wall widths, but not his conclusions on whether the Respondent could maintain or obtain a restaurant licence. I accept Mr Kwan’s evidence that alterations could be made to allow the Respondent to operate a restaurant from the Premises. The present licence is granted on the basis of the plans and escape routes submitted. The Respondent would need to satisfy the FEHD that it may maintain the present licence, if necessary with modified escape routes. Alternatively, it would have to obtain a new licence on the basis of the modified plan or fire exit provisions.

206.  There are alternatives open to the Respondent. I find that the Main Staircase could be suitably altered and made into a workable fire escape route with the addition of appropriate fire resistant material. The Fireproofing Suggestion is feasible.

207.  Any construction works in respect of common parts would require the approval of the IO, so be at the discretion of the IO. The CoP point was properly raised by the IO and is an answer in respect of the existing licence. Buildings are not required to update according to all provisions of up dated codes from time to time. Those with retrospective effect are set out as mandatory. I accept the CoP Not Applicable point.

208.  The Respondent has emphasised that there is vetting by different Government departments, when it wanted to argue the licencing plans were as good as approved BD plans. The Respondent cannot dismiss the CoP point on the basis that it is a matter for the Building Authority not the FEHD. If modified or improvised fire escape plans and routes were acceptable to the FSD for a restaurant and the BD, the FEHD should also find matters in respect of escape routes from the Restaurant acceptable in respect of the existing licence.

209.  The Widening Suggestion may be adopted. The Respondent may be able to modify the Cover Yard Staircase to satisfy the FEHD. Even if the Width Requirement were applicable and could not be overcome by changes at the Building and/or a modified plan acceptable to the FEHD providing alternative viable escape routes, the Respondent still has two other alternatives. First, it could reduce the seating capacity to that which would be permitted according to the available fire exits after the Staircase Wall were reverted to the original state. Secondly, a new staircase to satisfy fire escape requirement could be built, albeit at a cost. There is no evidence on the financial position of the Restaurant, much less the impact of reinstating the wall. The costs of the alternatives proposed by the experts would be an additional expense but I am not satisfied that they would prevent the Respondent operating a restaurant in the Premises. If a new licence had to be applied for the FEHD may require the Respondent comply with the prevailing code, CoP 2011.

210.  The NOO does not provide a basis for the detrimental reliance case the Respondent now argues. There is a failure to plead material facts. There is no proper pleading of the facts relied upon to support causation. The evidence establishes that Ms Cheung and the Respondent did not consider the possibility of UBW or that the Structures were in breach of the DMC. The Respondent only realised there was a breach of the DMC after receiving the solicitors letters in 2018 and 2020. I find that the Respondent relied on its own belief as to the suitability of the Premises for a restaurant. The Respondent has been able to operate a Restaurant successfully for years. I infer that profits were generated that would prevent any detriment arising. There is no pleading or evidence of detriment, that the Respondent would be in a substantially worse position than it is in had material representation never been made.

211.  I find that there was no unequivocal representation that the Alterations would be tolerated by the IO despite their unauthorised nature, nor that the IO would not enforce the DMC.

212.  I find that the Respondent did not suffer any material detriment as a result of the lack of enforcement from 2007 up till now. I accept that it was to the Respondent’s advantage that it was able to utilise access to the Staircase in operating the Restaurant and, on its own case, in order to fulfil its licensing requirements and to occupy the Cover Yard, and thereby profit from operating the Restaurant.

213.  There is no evidence that the Respondent would have purchased other premises without the worry of UBW’s or breaches of the DMC instead and the possibility of losing the Restaurant licence. The Respondents case in this regard is unpleaded, speculative, devoid of any evidential basis and rejected.

214.  I accept that any adverse consequences that flow from the reinstating the Staircase Wall would be no more than the adverse effects of not being able to obtain the promised benefit. That does not constitute or amount to detriment for the purposes of the defences raised.

215.  The Respondent acknowledges that the reinstatement of the Cover Yard Staircase by removing the washing basin and toilets in the Cover Yard would not debar the Respondent from operating the Restaurant. Thus, nor would the Respondent suffer detriment sufficient to establish the defences from being required to remove the Alterations and reinstate the Cover Yard and those common parts of the Building.

216.  I answer Issue 4(b), whether the Respondent has had any detrimental reliance, in the negative. I hold that the Respondent has failed to establish detrimental reliance for the purposes of a defence of acquiescence, waiver or laches The absent detriment is sufficient basis to dismiss the Respondent’s defences. I also considered whether it may be unjust to the Respondent and thus, unconscionable for the IO to enforce the DMC.

217.  To succeed in a defence of acquiescence it must be shown first that there was an assent or laying by in relation to the breaches of the DMC and, secondly, in view of the assent or lying by and consequent acts it is unjust in all the circumstances to grant the relief sought by the IO: Freder Centre (IO) §26. I have found that the Structures and Alterations constitute breaches of the DMC on the part of the Respondent. First, I hold that the IO did not assent to and there was no laying by in relation to, the breaches of the DMC.

218.  The second element of acquiescence is unconscionably or injustice. I find it is not unconscionable to allow the IO to enforce the terms of the DMC. It would not be unjust to require the Respondent to reinstate the Premises. Therefore, the Respondent has failed to establish the defence of acquiescence.

219.  The defence of waiver required a representation. The Respondent has failed to establish a material representation by the IO. Therefore, the Respondent cannot rely on the defence of waiver. On the same evidence laches has not been proved.

220.  In so far as the defence of estoppel was raised, other than by way of acquiescence, the threshold is even higher in that there are more elements to establish. On the evidence the Respondent could not establish the necessary elements of proprietary estoppel as a defence.

221.  In answer to Issue 4(b), whether it would be unconscionable and/or inequitable for the IO to enforce the DMC the answer is “no”.

ISSUE 5 – RELIEF INJUNCTION AND/OR MESNE PROFITS

222.  The Respondent is liable for breaches of the DMC. The appropriate injunctive relief and the amount of mesne profits must be determined.

Issue 5(a) - Injunction

Legal principles

223.  Where there is a breach of DMC in the form of unauthorised alterations the IO is prima facie entitled to injunctive relief requiring demolition and reinstatement, unless special circumstances are shown to exist: Grand Power International §§53–62 (Kwan VP); Wing Fai Building (IO) v Chan Yun Choi [2023] HKLdT 65 §§108–110 DDJ SH Lee (as he then was).

224.  The IO maintains that no special circumstances have been advanced by the Respondent. No hardship would be caused to the Respondent, as any expenses incurred in relation to the Alterations and to be incurred, if a mandatory injunction is granted requiring demolition and reinstatement, would be more than offset by the benefit the Respondent has reaped from the use of the Alterations over the years operating the Restaurant: Grand Power International §58.

225.  Further, damages would be an inadequate remedy. The calculation of damages would require, inter alia, the assessment of the future rental value of the Cover Yard for an indeterminate period. This would be an impossible exercise. Denial of an injunction would allow the Respondent to continue to wrongfully convert and occupy the common parts of the Building in perpetuity to its own benefit.

226.  The Respondent opposes the grant of the mandatory injunction sought, on the basis that even if the Structures should be removed and/or reinstated there remains a question as to who should reinstate the Structures. It relies on the absence of evidence of who created the Structures. On the same factual basis DDJ Roy Yu refused the respondent’s counterclaim for an order requiring the applicant therein to reinstate the alterations to the lift landing in Flywin Investment Ltd §91.d The Respondent argues that the burden rests upon the party asking for the injunction to show who created the Structures: Flywin Investment §91.d. Here there is no evidence as to how the Structures came into existence. There is no evidence that the Structures were built/altered by the Respondent. Therefore, the IO has failed to discharge this burden.

227.  The IO replies that the fact that the Respondent did not make the Alterations themselves is not a reason to deny the grant of an injunction: Wing Fai Building (IO) §109(4). Particularly when the Respondent continued to use, adopted, and benefited from the breach.

228.  The Court has routinely granted mandatory injunctions requiring the demolition of alterations in breach of DMCs even where such alterations were made by a predecessor in title, for the simple reason that negative covenants in a DMC, such as the implied covenant not to make unauthorised conversions of common parts, run with the land and bind successors in title: Marina Cove (IO) v Chu Kam Tai [2012] 2 HKLRD 107 §8 (Cheung JA); Wah Fai Court (IO) v Lee Man Ho Joseph (LDBM 60/2010, 2013.02.26) §38 (DDJ Judge Kot).

Issue 5(a) Injunction – Discussion

229.  In my view who actually made the alterations in breach of the DMC and/or the BMO is not determinative. The Respondent is bound by the covenants in the DMC, and the BMO, which run with the land and bind successors in title. The Respondent continued to use, adopted and benefited therefrom. I accept that damages would not be an adequate remedy. The IO has satisfied the burden for grant of the mandatory and prohibitory injunctions sought. I make an order in terms of the injunction orders sought in the prayer of the NOA and set out below.

Issue 5(b) - Mesne profits for trespass

Legal principles

230.  The amount of damages for trespass is not measured by reference to the IO’s loss. The IO is entitled to mesne profits measured by reference to the benefit received by the Respondent, namely the price a reasonable person would pay for the right of user: Percival House (IO) v Fusion Advertising Solution Ltd [2012] 5 HKC 94 (HHJ Michael Wong) §§8–9.

231.  The mesne profits are to be assessed on the basis of a reasonable fee for the Respondent’s existing use. It is irrelevant that such use is prohibited by the DMC: Percival House §10.

232.  The valuation experts Ms Sat and Mr Li gave evidence on the quantum of mesne profits for the Respondent’s wrongful occupation of the Cover Yard. According to their reports, Ms Sat calculated the total market rent of the Cover Yard from 2014.09.09 to 2025.02.18 as HK$749,000. Whereas Mr Li calculated the total market rent of the Cover Yard from 2014.09.09 to 2020.09.08 as HK$108,000.

Quantum of mesne profit

Assessable area and size of the Cover Yard

233.  In calculating the quantum for mesne profits, first the actual size of the Cover Yard, which was converted to exclusive use by the Respondent must be determined. Ms Sat and Mr Li disagreed on the size of the Cover Yard for purpose of calculating its rental value. The Cover Yard as defined by the IO is the area coloured in yellow on the NOA plan, which, in other plans can be shown to contain a “Covered Yard” area and a “Store” area. The experts agreed that the Hong Kong Institute of Surveyors rules are that the internal area basis should be employed instead of the saleable area basis for calculation of ancillary areas, which includes the Cover Yard.

234.  By reference to the plans at [F/42/425] and [F/42/426], the Cover Yard, which is coloured in yellow in [F/42/426], can be divided into the following parts:

(1)  The area marked “Light Well for Stair” and coloured purple in [F/42/426], with an area of 40 sq ft. This area has not been used or occupied by the Respondent, but was used as storage space by the IO. Accordingly, there is no dispute that this should be excluded from the assessable area of the Cover Yard.

(2)  The area marked “Covered Yard” and left uncoloured in [F/42/425], with an area of 209 sq ft, 85 sq ft of which is taken up by the Cover Yard Staircase, which is hatched red in [F/42/426].

(3)  The area marked “Store” and coloured blue in [F/42/425], with an area of 161 sq ft.

235.  The Cover Yard Staircase should be excluded for the purpose of calculation of mesne profits as the Respondent is entitled to the use of the same. Ms Sat also agreed that, in view of the Light Well never being occupied or used by the Respondent, it should be excluded from calculating mesne profits as well.

236.  Ms Sat clarified her opinion in oral evidence, that the assessable area of the Cover Yard is 285 sq ft. Both the area marked “Covered Yard” and the area marked “Store” should be included.

237.  Mr Li’s calculated the assessable area of the Cover Yard as 209 sq ft. Only the area marked “Covered Yard” should be included. The area marked “Store” should be excluded if the Respondent was entitled to its exclusive use. However, it was not.

238.  I find that the assessable area of the Cover Yard is 285 sq ft for the purpose of assessing mesne profits.

Area	Size (sq feet)
Store (11 ft x 14 ft 8 in)	161
Covered Yard (11 ft x 19 ft)	209
Less: Cover Yard Staircase	(85)
Total area:	285 ===

Methodology

239.  Both valuation experts adopted the direct comparison method to assess the rental value of the Cover Yard. However, their methods differ.

240.  The IO’s Ms Sat’s methodology is as follows:

(1)  The best use of the Cover Yard is for it to be used in conjunction with adjoining shops, as is its current use. Therefore, it is appropriate to value the Cover Yard by applying a conversion factor to the value of Shops 35 to 37, which in turn can be assessed by analysis of comparables.

(2)  Adjustments to comparables should be made based on the differences between the reference unit Shop 35 and each comparable.

(3)  The conversion factor to be applied to the Cover Yard, being a covered space attached to the rear part of a shop and which can be adapted for rear use after alterations, should be 1/3. This is in between the conversion factors commonly adopted for cocklofts (1/4) and rear lavatories (1/2).

(4)  In assessing the annual rent of the Cover Yard, only the southern and eastern portion of the Cover Yard (then of approximately 350 square feet) should be given rental value. The northeast corner, accommodating the Cover Yard Staircase, was excluded.

(5)  The rent should be assessed by reference to leases for a term of three years, starting 2014.09.09, 2017.09.09, 2020.09.09, and 2023.09.09 respectively.

241.  The Respondent’s Mr Li’s methodology may be summarised as follows:

(1)  The direct comparison method should be adopted, and adjustments should be made to comparable rental transactions of other shops in the Building.

(2)  Because the Cover Yard is only accessible from the rear lane of the Building and is linked to the first floor by the Cover Yard Staircase rather than being connected to ground floor shops, a conversion factor of 1/8 should be applied.

(3)  Mr Li had opined that the area of the Cover Yard should be assessed at 209 square feet, being the area shown in the 1999 Building Plan.

(4)  The rent should be assessed by reference to leases for a term of two years starting 2014.09.09, 2016.09.09, and 2018.09.09 respectively.

242.  Their methods differ as follows:

(1)  Ms Sat adopts Shop 35 as the reference unit, and adjustments to comparable arcade shops are made on that basis. She then applies a further conversion factor of 33% to the calculated rental yield of Shop 35 to derive the rental yield of the Cover Yard.

(2)  Mr Li seeks to compare the Cover Yard directly with comparable arcade shops. He then applies, in addition to adjustments as to time:

(a)  Location discounts of 75%, 66%, and 50% respectively, on the basis that the Cover Yard “lies in the location near the inferior eastern side arcade of Golden Court at the rear of shop no. 38.”

(b)  A further discount of 25% for “scavenging lane access obstacle”, in that the Cover Yard can only be accessed through the scavenging lane of the Building rather than from any shop in front.

(c)  A conversion factor of 1/8 namely, a further discount of 87.5% on the basis that “the Yard is valued at 12.5% to main accommodation”, which is typically “the connected shop in front of the yard”.

243.  The IO submits that Mr Li’s approach is fundamentally flawed. It suffers from double-counting of discounts. The discounts applied by reason of the Cover Yard’s location and inaccessibility proceed from the basis that the Cover Yard itself is the anchor unit, and explained in cross-examination is little more than a rear space on the Ground Floor of the Building. In other words, these discounts go towards ascertaining the value of the Cover Yard in itself, rather than any reference anchor unit, such as Shop 35, as adopted by Ms Sat. At the same time, the reason why Mr Li applies a further conversion factor of 12.5% is because it is an ancillary area that would be less valuable than the anchor unit by reason (again) of its location and inaccessibility. However, the anchor unit selected by Mr Li is the Cover Yard itself. Location and accessibility discounts have already been applied on the basis of the features of the Cover Yard itself. To apply a further conversion factor to say that the Cover Yard is less valuable than itself because of its location and inaccessibility is plainly illogical.

244.  The IO maintains that in any event, the conversion factor of 1/8 is unjustified. A conversion factor of 1/3 as adopted by Ms Sat should be preferred. Mr Li agreed that a conversion factor of 1/6 in respect of open yards was reasonable. This was recognised as the norm in Sarford Development Ltd v Super Star Properties Ltd [2020] HKLdT 8 §53, which was a case cited by Mr Li himself in his report. In cross examination, Mr Li also agreed that a covered yard is more valuable than an open yard, because there were more ways in which such a space could be utilised, and therefore a higher conversion factor should be adopted. There is no dispute that wash basins and (at some point) lavatories were installed in the Cover Yard, and both Ms Sat and Mr Li agree that conversion factor of 1/2 was appropriate in respect of rear lavatories. Given this, there is no basis for adopting a conversion factor of 1/8 in respect of the Cover Yard. In Sarford Development itself, a conversion factor of 1/3 was adopted in respect of a covered yard, by reason of the very fact that it was covered rather than being an open yard. This was notwithstanding that the covering to the yard in that case was a UBW. A fortiori, a conversion factor of 1/3 is appropriate in this case when the Cover Yard was always covered to begin with.

245.  For the above reasons relied upon by the IO, I accept a conversion factor of 1/3 is appropriate for the Cover Yard.

Rental Value

246.  The Respondent submits that in relation to the (per sq ft) monthly rental value of the Cover Yard. While Mr Li and Ms Sat both used comparables and performed various adjustments to estimate the rental value of the Cover Yard their approaches differ in the following aspects:-

(1)  The basis for the assessment of rental value for Mr Li was the rental transactions of comparables, whereas Ms Sat used sale transactions of comparables as the basis.

(2)  The comparables chosen by Mr Li are street shops of the same building namely, the Building whereas Ms Sat chose arcade shops of different buildings.

(3)  Mr Li and Ms Sat applied different adjustments to the bases of assessment.

247.  The rental value estimates by Mr Li and Ms Sat are as follows:-

Period	Monthly Rental value   (per sq ft) (HK$)		Monthly Rental Value of the Cover Yard (285 sq ft) (HK$)
	Ms Sat	Mr Li	Ms Sat	Mr Li
9 Sept 2014 to   8 Sept 2015	16.7	6.7	4,759.5	1,909.5
9 Sept 2015 to   8 Sept 2016	16.7	6.7	4,759.5	1,909.5
9 Sept 2016 to   8 Sept 2017	16.7	7.7	4,759.5	2,194.5
9 Sept 2017 to   8 Sept 2018	17.6	7.7	5,016	2,194.5
9 Sept 2018 to   8 Sept 2019	17.6	7.2	5,016	2,052
9 Sept 2019 to   8 Sept 2020	17.6	7.2	5,016	2,052
9 Sept 2020 to   8 Sept 2023	16.9	N/A	4,816.5	N/A
9 Sept 2023 to   15 Feb 2025	17.1	N/A	4,873.5	N/A

248.  The Respondent submits that Mr Li’s approach is to be preferred to that of Ms Sat:-

(1)  As the approach of Ms Sat starts with the sale value of the shops in question, which is a figure much larger than the monthly rental value to be estimated, any error in the conversion process would be magnified. As the adjustments and estimations are based on the “retail market yield” published by the Rating and Valuation Office, the average data in the entire Hong Kong property market, errors are inevitable, and the issue is the magnitude of the errors.

(2)  On the other hand, Mr Li’s approach does not face the same problem as the basis of assessment is the rental value of other shops, which are figures much closer to the monthly rental value to be estimated. While errors are still unavoidable, the effect of such errors would be much smaller and the results more reliable.

(3)  Ms Sat failed to take into account factors that would adversely affect the rental value of the Cover Yard, which are not present in the arcades of comparables chosen:-

(a)  The unwelcoming environment of the arcade at the Building, with notices warning not to stay or to eat or drink at the arcade passageway, that would adversely affect business; and

(b)  The general poor physical environment of the arcade of the Building, with the entrance between shops 22 and 23 blocked.

249.  The IO’s answers the criticism of Ms Sat’s methodology, not using comparable rental transactions, but instead using comparable sales transactions to Shop 35 and deriving the rental value of each based on retail market yield data published by the Ratings and Valuation Department as follows. It is essentially just a complaint as to the potential margin for error. It is simply potential errors in the conversion and adjustment process, which would then be magnified because sales transactions involved much larger sums. The IO replies to the potential margin for error, that Mr Li’s analysis lacks logical incoherence and is plainly worse:

(1)  Comparables should generally be selected based on proximity in time to period of valuation. Mr Li did not dispute this in cross examination.

(2)  Yet Mr Li adopted the wrong valuation period by calculating the rental for the Cover Yard, merely from 2014.09.09 to 2020.09.08, rather than from 2014.09.09 to the present date as directed by §3 of the Order dated 2023.11.09, and selected his comparables on this erroneous basis.

(3)  Further, Mr Li’s comparables require location adjustments of up to 75%. The magnitude of the adjustments required simply means that no meaningful comparison can even be undertaken.

250.  The IO submits in short, Ms Sat’s methodology and calculations are far more reliable than Mr Li’s methodology. They should be adopted, subject to revisions on the basis of the assessable area of the Cover Yard and the duration of the Respondent’s unlawful occupation up untill the date of judgment.

251.  In any event, when an expert’s approach is rejected, the Tribunal is not bound to accept the evidence of the other expert in toto. If there are large variations between the assessment of the 2 experts, the Court is entitled to, on a broad-brush basis, make (minor) adjustments to the valuation of the expert which it finds more convincing: Yang Foo-Oi v Wai Wai Chen (HCA 1739/2010, 2016.11.29) §20 (A Chan J) §250.

252.  Therefore, if the Tribunal has any lingering reservations over the accuracy of Ms Sat’s assumptions or calculations, the proper approach is to adopt her valuations (given that her valuations and approach are eminently more correct than those of Mr Li), but apply a small discount to reflect those reservations. Alternatively, the Tribunal can direct her to come up with revised valuations based on its findings, especially when the matter is merely one of arithmetic: see e.g. Re Luk Fai Holdings Company Limited [2023] HKCFI 2268 §159.

Discussion – mesne profits

253.  Regrettably neither valuation is without flaws. Mr Li’s approach and treatment of the Cover Yard as a unit for the purposes of adjustments, but also as an ancillary area requiring application of a conversion factor is wrong in principle on the facts. It has resulted in an unduly discounted valuation. I agree with the Respondent that it is preferable to use rental comparables where available. However, Ms Sat’s valuation is sound. The only concern is the margin of error. I have considered both experts’ assessment. I accept Ms Sat’s approach and her adjustments. However, the size of the assessable area and the period requires revision so that the sum of mesne profits is accurately quantified in accordance with my findings above. Namely, adopting a conversion factor of 1/3, the determined assessable area of 285 sq feet and the period up to the date hereof.

254.  I give the following direction for the calculation of the precise sum due to date hereof. The Applicant shall provide the Respondent with the so quantified calculation of mesne profits within 14 days hereof. The Respondent shall agree the quantification of mesne profits with the Applicant within 14 days thereafter. Failing which, the parties shall agree and lodge into the Land Tribunal draft directions for determination of any matter arising, within 7 days thereafter.

255.  The parties shall also agree interest in accordance with the same timetable.

Determination

256.  The IO invites the Tribunal to allow the claim and grant the relief sought. While the Respondent invites the Tribunal to dismiss the IO’s claim. I find that the Applicant has proved its case as determined above. The Respondent’s defences are dismissed. I grant the Applicant relief in the terms set out herein.

Costs

257.  I see no reason to depart from the starting point that costs follow the event. I make a costs order nisi that the Respondent do pay the Applicant the costs of the proceedings, to be taxed on the District Court scale, with certificate for counsel, to be taxed if not agreed. Either party may apply to vary the costs order nisi within 14 days hereof, failing which the nisi order shall become absolute.

Order

258.  I make the following orders:-

(1)  The Respondent do within 28 days from the date hereof re-construct the Staircase Wall and reinstate the Area and all the common areas including the walls on the Staircase Landing back to their respective original states and conditions as shown in the plan Annexure 1 to the Notice of Application dated 9 September 2022 (“NOA”) and obtain all necessary approvals of all competent Government authorities to do so.

(2)  The Respondent do within 28 days from the date hereof and with the necessary approval of all competent Government authorities:-

(i)  Demolish the New Cover Yard Wall and re-construct the Cover Yard Wall at its original location;

(ii)  Re-construct the Partition Walls at their respective locations; and

(iii)  Reinstate each of the said areas concerned to their original states and conditions;

(3)  The Respondent do within 28 days hereof remove and demolish the Structures and all other structures, installations, fixtures, objects, articles and things whatsoever they have constructed, erected or placed or arranged or caused to be constructed, erected or placed in or upon the Cover Yard and obtain all necessary approvals of all competent Government authorities to do so.

(4)  An injunction restraining the Respondent whether by itself, its employees, agents, tenants, licencees, contractors or otherwise howsoever from constructing, erecting or placing or arranging or causing to be constructed, erected or placed any structure, installation, fixture, object, article and thing whatsoever in or upon the Cover Yard.

(5)  The Respondent do within 28 days from the date hereof reinstate the Cover Yard back to their respective original states and conditions as shown in Annexure 3 to the NOA and obtain all necessary approval of all competent Government authorities to do so.

(6)  The Respondent do pay the Applicant damages or mesne profits for trespass or wrongful occupation of the Cover Yard as set out in the judgment and subject to the following directions as to the precise quantum:

(a)  The Applicant shall calculate the total mesne profits in accordance with this judgment and provide the same to the Respondent for agreement within 14 days hereof.

(b)  The Respondent shall agree the total quantum of mesne profits to the date hereof within 14 days thereafter. Failing agreement the parties shall agree and lodge into the Land Tribunal draft directions for determination of any matter arising within 7 days thereafter.

(7)  Interest to be agreed at the same time and in accordance with the same timetable as the mesne profits.

(8)  The Respondent do pay the Applicant the costs assessed on the District Court scale with a certificate for counsel to be taxed if not agreed.

(9)  Liberty to apply.