THE INCORPORATED OWNERS OF WING MING INDUSTRIAL CENTRE v. HONG KONG QUALITY BRANDS ALLIANCE LTD

HCA 947/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 947 OF 2014

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DECISION
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1.  The plaintiff, the incorporated owners of a building, have brought this action against the sub‑tenants of the ground floor premises of the building. It alleges breach by the defendant of the Deed of Mutual Covenant, the Land Grant and the Occupation Permit in that whereas the use of the premises is limited to a transformer room, switch room, store, foyer, car parking area, cockloft for storage and package room (all for non‑domestic use), the defendant has used the premises as a shop and/or storeroom.

2.  The alleged breach is now, belatedly, conceded and it is clear from the photographs of the exterior of the premises that it is being used as a shop and/or showroom.

3.  The proceedings were commenced in late May 2014 with the Defence being served on 10 July 2014.  The plaintiff took out its summons for judgment under Order 14 on 18 July 2014, almost 11 months ago.

4.  It is important to note the form of the Defence as pleaded.  The allegation of breaches of the covenant, etc., were denied and it was positively averred that the premises were being used as storage of merchandise.  Given the strength of the plaintiff’s case it was hardly surprising that it opted to proceed for summary judgment for an injunction.

5.  Matters took an odd twist on 27 May of this year when the defendant took out a summons to strike out the plaintiff’s claim under Order 18, rule 19 on the ground that it was frivolous or vexatious and/or an abuse of the process of the court.

6.  When the matter came before me, there was in fact a total of four applications: the plaintiff’s application under Order 14 and three applications by the defendant.  The other two concerned a proposed Amended Defence (with Counterclaim) and a supplemental statement by the person who, so far, appears to be the only witness for the defendant.

7.  These then are the bare bones of this matter.  A closer examination of the defendant’s stance is called for.

8.  The Defence was affirmed in these terms: “the Defendant believes that the facts stated in this Defence are true”.  That attestation was signed by Joan Au on behalf of the defendant’s Board of Directors.  If she genuinely believed those facts to be true, a matter of some concern, then Leung Lai May, stated in an affirmation in mid‑October 2014 — three months later — that, in essence, they were not true because in paragraphs 31 to 37, she repeats that the premises were and are a showroom and that the plaintiff had “confirmed that it could be used [as such]”, “requested … the colour and appearance of [it] … tally with the exterior …”, “approved the setting up of [it]” and “represented … that the … premises could be used [as such] without objection”.  Furthermore at the “grand opening of the showroom in January 2013 … it was greeted by many persons” included the chairman of the plaintiff and “many members” of the Incorporated Owners. 

9.  The Defence was therefore a nonsense and one is left wondering how it came about: so the veracity of the defendant’s servants or agents has become an issue.  It remained in that false form until shortly before this hearing when Mr Jin Pao’s amended version was produced — nearly 11 months later.

10.  Mr Jin Pao, for the defendant, and I are agreed that it is an “unhappy” document.  This is legal/judicial euphemism for a pleading which is both embarrassing, ill‑considered, and wrong.  It may not be the lawyer’s fault (and certainly not Mr Jin Pao’s as he has only recently been encumbered with the case) since there is the statement as to its truth.  As I have said this raises the serious credibility issue at the outset which the defendant has to face.  If the whole Defence is now based upon the acceptance that there has been the breach but that the plaintiff has encouraged, approved, confirmed, etc., the defendant’s change of use, together with a reliance upon laches, acquiescence and estoppels, etc., why was there this dishonest denial and allegation that there was no breach of permitted use?

The defendant’s application to strike out

11.  There is no merit in this whatsoever and Mr Jin Pao realistically conceded this.  The plaintiff’s claim is well‑founded in law and it does not have the power to grant exemptions to the requirements of the DMC, the Grant and the Occupation Permit.  Accordingly this application is dismissed.

The defendant’s application for leave to file a further affirmation by Leung Lai May

12.  The last such application was refused.  To some extent this is a back door tactic. It contains hearsay material which, if it has any real value and it appears to relate to significant aspects of the defendant’s new case, needs to be covered by affirmations/statements from the witnesses concerned, not from Ms Leung. For the purposes of this hearing I have admitted it “de bene esse”, and for no other purpose.

The defendant’s proposed Amended Defence and Counterclaim

13.  The new case is clearly set out albeit eight months after Ms Leung’s revelatory affirmation.  If the defendant succeeds in resisting the plaintiff’s application for summary judgment then it is agreed that the application to amend should be allowed.  In that event the plaintiff will need provision for a Reply and Defence to the Counterclaim which should follow as a matter of course.

The plaintiff’s Order 14 summons

14.  Mr Jonathan Chang set out his case admirably in his written submissions reinforced by his succinct oral argument.  In essence his argument is that the breach is now conceded, and the Incorporated Owners have a duty to enforce the DMC, and as they do not have the power to vary the covenant or waive any right to enforce compliance or acquiesce in any breaches.  The defendant is liable for his breach and its consequences and cannot pray in aid any equitable relief.

15.  He cites a number of cases in which courts in Hong Kong, at various levels, have considered the matter of equitable defences available to defendants being sued for varying breaches of their covenants.  As one would expect the factual matrix of each case is different but it is the principled approach of the courts which is of importance though sometimes there emerges something of a conflict in the approach.

16.  Le Pichon JA in Kwok Mo Kai Doris v The Incorporated Owners of Karin Court, CACV 267/2005 (8 June 2006, unreported), is a case on appeal in which she asserted the statutory obligation which may not be varied or negated, so that the concept of mutuality which underpins the DMC extinguishes a co‑owner’s assertion of waiver, estoppel and/or acquiescence.  “The court”, she said, “should not allow such a claim”. On the face of it that makes the defendant’s claims untenable.

17.  The position appears to be exemplified by Godfrey JA in The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd [1995] 2 HKC 11 (at page 13C‑D):

“It follows that in the instant case the plaintiffs were … bound to take proceedings for the enforcement of these covenants. It follows too, that they could not have granted expressly to this defendant or any other owner of any unit in the building the right to act in contravention of the deed of mutual covenant … What cannot be done expressly cannot be done impliedly. … Equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant.”

Godfrey JA however went on to quote the trial judge as follows:

“I find that the defendant has not proved that the plaintiffs acquiesced in its erection of a cooling tower.”

Before going on to say himself:

“That being so, no question of injustice or unfairness arises at all, no case for the intervention of equity has been established. … The defendant has no case; having failed to prove acquiescence, it has no ground for asking us to interfere with the judge’s exercise of his discretion.”

18.  It will thus be apparent that, on the face of it, there is, with due respect to the learned judge, a conflict of approach.  On the one hand there is a conclusion that acquiescence, even if proved, cannot bind a plaintiff seeking to enforce a covenant which he cannot expressly or implied allow.  On the other he is indicating that a judge at trial has the discretion where acquiescence is proved to allow equity to intervene.  In that case, incidentally, other unit owners had installed cooling towers but not been called upon to remove them — at least not yet.  It was clear that the Court of Appeal did not regard that circumstance as affording that defendant any reasonable argument.

19.  That latter circumstance was similarly dismissed by Chu J (as she then was) in Incorporated Owners of Wing Ming Industrial Centre v Mantex Supplies Company Ltd, HCA 1505/2007 (unreported, 3 October 2007).  It was also an application for summary judgment.  The judge rejected the argument that since the plaintiff had tolerated a number of similar breaches by other tenants who had used their premises for commercial use instead of the covenanted industrial or go‑down use, this entitled them, to do likewise on the basis of tolerance or condonation.  The judge rejected this following Godfrey JA’s decision in the case cited.  However the ambit of the defence case which Chu J rejected was very limited and had the case of this defendant been so predicated, ie “I am only doing what you have allowed others to do with impunity”, I would have had no hesitation in being similarly dismissive. However there is another side to the coin.

20.  In his equally admirable and succinct written submissions buttressed by oral argument, Mr Jin Pao has relied upon the recent material from the defendant upon which he settled the Amended Defence, as setting up a detailed case of acquiescence, approval, encouragement, etc., with laches thrown in.  To lend force to his argument he has relied upon, in particular Recorder Fok SC’s (as he then was) judgment in Hollywood Shopping Centre Owners Committee Ltd v Incorporated owners of Wing Wah Building, HCA 1582/2007 (23 April 2007) and the judgment of the Court of Appeal (Ma CJHC as he then was) in Incorporated Owners of Hong Kong House v Senfield Limited, CACV 117/2003 (12 November 2003, unreported).

21.  The former decision was concerned with an Order 14 application for summary judgment. The offending structures were advertising hoardings on a canopy which had been in existence for many years.  Recorder Fok considered Godfrey JA’s judgment as well as that of Ma CJHC and concluded that on an application for summary judgment it was not right to exclude such defences as estoppel, waiver, acquiescence, etc., as available equitable relief (see paragraph 47 of his judgment).

22.  Ma CJHC was considering a factual matrix far removed from the one in the case before me and did not have the judgment of Godfrey JA cited to his court but at paragraphs 14 and 17, he unequivocally expresses the view that these “equitable” defences should be properly considered in a full trial and that they could not “easily or comfortably be resolved” in the context of proceedings for summary judgment.

Conclusions

23.  Although I have serious reservations, not to say misgivings, about the nature and veracity of the content of the defendant’s affirmations/pleadings it would be wrong to try these issues on documents.  Having said that, if a situation disclosed inconsistencies, contradictions and dubious pleadings, one can readily envisage a state of play where, if the plaintiff’s case was unanswerable in law and only equitable intervention could aid the defendant, then the Defence could be regarded as unsustainable.

24.  Having recognised that Mr Jin Pao has managed to salvage the defendant’s case, albeit by a narrow margin, I give leave to defend.  It follows that the application to amend the Defence should be allowed but with costs to the plaintiff.  The supplemental statement of Ms Leung will not be allowed in its present form and an application will have to be made to the trial judge, if leave is sought to file and serve a properly constituted statement.

25.  The plaintiff shall also have the costs of and occasioned by the defendant’s application to strike out.

26.  Finally there is the matter of the costs of the plaintiff’s application under Order 14.  Having given this some consideration, I have concluded that the proper order should be plaintiff’s costs in the cause.  The essential reason for this is that the defendant’s stance, pleaded Defence and delay, has encouraged the plaintiff to proceed with this application.  Not until a few days ago did a Defence come to light which changed the case it sought to put forward.  This order is a nisi one because there had not been any argument on this aspect.  If, and I stress, if, the defendant seeks to argue against my nisi order becoming absolute, it should submit written reasons by 4 pm, Friday, 26 June 2015.  I do not encourage such a course.