SUNTERLY LTD v. THE INCORPORATED OWNERS OF FAR EAST MANSION

HCA 1049/2019

[2019] HKCFI 2917

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1049 OF 2019

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REASONS FOR DECISION
AND
DECISION ON COSTS

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1.  On 19 August 2019, I dismissed the plaintiff’s application for interlocutory injunction against the defendant.  I now give my reasons.  I would also decide the outstanding issue of the consequential costs, which is in dispute.

Background

2.  Far East Mansion was erected on Kowloon Inland Lot No 6443RP or Nos 5-6 Middle Road, Tsimshatsui, Kowloon (“the Building”).  There are 36 shops on each of the Ground and the First Floors of the shopping arcade of the Building.  The plaintiff (“Sunterly”) was at the material time and still is the owner of Shops Nos 1 and 36 on the Ground Floor.  The defendant is the incorporated owners of the Building (“IO”).

3.  Historically, pursuant to a deed of mutual grant of right of way dated 18 February 1960 (“the DMG”) between the owners of the Building and those of the adjoining building erected on Kowloon Inland Lot No 6444 or No 26 of Nathan Road (“the Adjoining Building”), an escalator was built, maintained and shared between the owners of the two buildings.  The escalator was constructed on the premises of the Adjoining Building.  In 1998, the Adjoining Building was demolished and the DMG was spent.  Likewise, the escalator went down with the demolition.

4.  The dispute between the parties started in mid-June 2018, when it was alleged that the tenant of Shop No 1 informed Sunterley that part of the corridor on the Ground Floor of the Building was blocked off, and an escalator was being installed there connecting the Ground and the 1^st Floor of the Building.

5.  According to Sunterly, it then first came to realise that the IO had resolved at an annual general meeting (“AGM”) on 16 May 2017 to install the escalator in question (“the Resolution”).  Sunterly denied any notice of such AGM and denied the validity of the Resolution.

6.  According to Sunterly, the IO has ignored its written requests to sort out their differences during the period between August 2018 and May 2019.  Meanwhile, wooden hoardings were seen put up enclosing the area of the construction work between the Ground and the 1^st Floor of the Building (“the Site”).

7.  On 14 June 2019, Sunterly commenced the present action.  It contends that the construction of the escalator at the corridor:

(1)  unreasonably interferes with its use and enjoyment of the corridor in breach of section 34I of the Buildings Management Ordinance, Cap 344 (“BMO”);

(2)  constitutes obstruction to the common passage of the Building in breach of the deed of mutual covenant dated 4 November 1963 (“DMC”); and/or

(3)  the Resolution is invalid for lack of notice and in breach of the DMC and/or the BMO.

8.  By its statement of claim, Sunterly claims, amongst other relief:

(1)  a mandatory injunction ordering the IO to cease forthwith the work and properly repair and reinstate such parts of the Building affected by the same to their original state and condition;

(2)  a declaration that the IO was in breach of DMC and section 34I of the BMO in causing and permitting such work;

(3)  a declaration that the Resolution was invalid, null and void;

(4)  a declaration that the costs and expenses of and incurred by the IO in arranging and obtaining the approval from the Building Department and carrying out of all related pre-work costs and having to properly repair and reinstate the affected portions of the Building to their original state be not borne by the owners of the Building but solely by the owners and/or the management committee members who approved and passed the Resolution.

9.  According to Sunterly, workers were seen commencing work at the Site on 16 July 2019.  It alleges that after the service of the statement of claim in the present action on 20 July 2019, work at the Site sped up.

10.  On 23 July 2019, Sunterly filed its summons for interlocutory injunction in the following terms:

“Until the determination of these proceedings after trial, or by a further order of the Court, the [IO] be restrained from undergoing or permitting building and construction works of and relating to an escalator at the common parts of the Ground Floor [the Building], more particularly coloured yellow and marked “ARCADE RIGHT-OF-WAY” on the Plan attached herewith”.

11.  Sunterly proceeded to fix its summons to be heard before the Summons Judge on 26 July 2019. The summons was served on the IO’s solicitors at around 4 pm on 23 July 2019.  However, Sunterly did not come up with its affirmation in support of the summons until the following day and therefore less than two clear days prior to the hearing.  Whilst the IO complained about the defect of Sunterly’s summons, it managed to come up with an affirmation of its solicitors in opposition of the summons on the day before the hearing.

12.  The summons came before this court on 26 July 2019.  I adjourned the summons to 19 August 2019 for substantive argument, and gave directions for the filing of further affidavit evidence in the interim.

The principles

13.  The principles were not in dispute.  There must be serious questions to be tried in respect of the plaintiff’s claim, and without the interim protection by way of an injunction, damages would not be adequate remedy for the plaintiff even if the plaintiff’s claim succeeds at the end of the day.  The court will balance the inconvenience to the parties if an injunction in the interim is or is not granted.  When all the factors appear to be evenly balanced, the court may consider maintaining the status quo by an appropriate interim injunction.  See American Cyanamid Co v Ethicon Ltd [1975] AC 396.

On 26 July 2019

14.  The tactic of Sunterly to secure a hearing before the Summons Judge by lodging the summons just in time without an affirmation in support is questionable.  That was the least expected even in an urgent ex parte application with notice.  That the IO managed to cause its solicitors to come up with an affirmation in opposition just before the hearing did not mitigate that.

15.  I gave direction for the further proceedings in Sunterly’s inter partes application.  The remaining question before this court on that day was whether or not an interim interim injunction should be granted pending the determination of the summons.  In terms of the summons, Sunterly asked for an order calling the construction work to a halt.

16.  Considering the dispute between the parties and the materials before this court then, I was satisfied that there are serious questions to be tried in the claim, namely:

(1)  the validity of the Resolution;

(2)  the authorization of the commencement of the construction work;

(3)  the alleged breach of the DMC and the BMO; and

(4)  the alleged loss.

17.  It was really the balance of convenience and the status quo pending the determination of the dispute, or for the purpose of the first hearing on 26 July 2019, pending the determination of the inter partes application for the injunction, that needed to be addressed substantially.

18.  According to the affirmation filed on its behalf, Sunterly complained about the follows:

(1)  Between July 2018 and May 2019 when the parties were engaged in correspondence, the construction work was put to hold.  It was only after the commencement of the present action, and in July 2019, that construction work at the Site sped up.

(2)  Besides the alleged breach of the DMC and the BMO, the major complaint of Sunterly was the obstruction of the common part of the Ground Floor of the Building by the escalator being constructed.  In practical terms, it narrowed down the corridor in question, and blocked part of what used to be the view open to Sunterly’s shops along the corridor.

(3)  The loss that Sunterly allegedly suffers is the impact of the obstruction mentioned above to the business of its tenants and ultimately the commercial or rental value of its shops.

19.  Sunterly claimed that it did not grasp the exact stage of the construction work at that time. According to the affirmation filed on behalf of the IO, the construction of the escalator had proceeded over the previous three months and was by then close to completion.  The IO also produced the contractor’s certificate to that effect. Sunterly claimed that was exaggeration.

20.  Notwithstanding the dispute as to the precise stage of the construction of the escalator, the photographs produced by Sunterly show that the escalator had by the time of its application already been installed between the two floors through an opening on the Ground Floor ceiling and First Floor floor.  The photographs taken by the contractor reinforced such observation.  What seemed to be not in dispute was that the Site was still hoarded, which would be expected to remain presumably until the construction work has reached a stage near completion.

21.  As mentioned, the major complaint of Sunterly, in practical terms, was the obstruction and interference with the common part of the corridor created by the construction work.  As at the time of the application and the first hearing, the injunction was not sought to prevent the commencement of the construction work at the Site[1], which would be expected to cause such obstruction.  The reality of the situation was that the escalator had already been installed between the two floors, though the exact stage of completion of the work was in dispute.  Unless the construction work was either removed and the Site reinstated[2] or alternatively completed, and when it would be safe to remove the hoarding, the Site would be expected to remain an obstruction in the same way and to the same extent.

22.  In other words, whilst Sunterly argued that without an interim injunction, it would be exposed to loss resulting from the obstruction that would be difficult to quantify for compensation in due course, the interim injunction in terms as sought by Sunterly, namely to bring the construction of the work to an interim halt, would not serve its purpose of preventing such alleged loss.

23.  Part of the claim of Sunterly is for a declaration that the financial obligation arising out of the construction and, if its claim succeeds, demolition of the escalator and the reinstatement of the relevant part of the Building should be borne by the owners responsible for sanctioning the commencement of the construction work.  There was no material that suggested that short of the collective membership of the IO that the IO represent as the defendant named, such owners would be incapable of meeting such obligation.

24.  In the circumstances, in terms of balance of convenience (or actually inconvenience) or preserving the status quo (which Sunterly should hardly desire), there did not seem to a strong case for the granting of an interim interim injunction in terms as sought during the first hearing.  No such injunction was granted on that occasion.  However, I adjourned the application to an early date for substantive argument.

On 19 August 2019

25.  The parties had filed further affirmation evidence for the purpose of the substantive argument of Sunterly’s inter partes application.

26.  Whilst counsel for Sunterly seemed to have doubt as to whether the injunction in terms as sought would still serve its purpose at that stage, she eventually confirmed to press ahead with the application.

27.  Considering the further contentions and arguments in respect of the alleged breach of the DMC and the BMO, I maintained my judgment that the claim involves serious questions to be tried.

28.  The IO deposed that the two shops of Sunterly were empty even before the commencement of the construction work, and the alleged irreparable loss resulting from the construction of the escalator was not envisaged.  In principle, I was not prepared to accept that as a fair argument, as Sunterly also complained about the impact of the obstruction to the business and thus the commercial value of the shops, which could be prospective.

29.  The IO also complained about delay on the part of Sunterly.  Besides the duration, delay itself, for the present purpose, must always be considered against the background and in the circumstances of the matter.  The evidence showed that the parties had been engaged in correspondence through their then solicitors in the latter half of 2018 in respect of the construction of the escalator.  At one stage, the construction work was thought to have been put on hold.  According to Sunterly, it discovered that the construction work somehow “re-commenced” or at least sped up in late May 2019.  Hence its commencement of the present action in mid-June 2019.  Sunterly denied inordinate delay in the circumstances.

30.  However, delay should also be viewed from the practical perspective in the present case, in view of the nature and terms of the interim relief being sought.  For Sunterly, the effective interim relief would have been to restrain the IO from taking any step that would cause or aggravate the obstruction of the common part, namely the corridor of the Ground Floor shopping arcade.  That would have been possible only if Sunterly had acted in a timely fashion.  It was in the interest of Sunterly to pay close attention to the situation.  As explained, by the time of the present application and its first coming to the court, the state of affairs concerning the relevant part of the corridor had passed that stage.  The circumstances were such that irrespective of whether Sunterly was to blame for any delay, the affairs had in fact developed to a stage where the interim relief in terms as sought would no longer be effective in serving Sunterly’s purpose.

31.  By the further affirmation evidence, the IO confirmed that the construction work commenced in or about July 2018.  The contractor reported that the escalator was at the testing stage, after which the Electrical and Mechanical Service Department would be notified.  The escalator would be tested by the Department before the permit would be issued.  Upon that, the Building Department would be informed of the completion of the construction work.

32.  The IO argued that the balance of convenience tilted against calling the construction work to a halt, as the completion of the work and putting the escalator to use would only be expected to improve the customer flow and thus benefiting both floors of the shopping arcade.  Specific to Shop Nos 1 and 36, the complaint of Sunterly, namely, obstruction of the corridor would actually be mitigated by the removal of the hoarding and the operation of the escalator.

33.  More photographs were produced depicting the state of the affected part of the corridor at the end of July 2019 mentioned above.  The photographs produced by Sunterly, that were said to be taken during the first week of August 2019, further show that the hoarding at the Site had already been removed from the corridor.  Objectively, the obstruction of the corridor in terms of the occupation of the floor space and the openness of the view to and from Sunterly’s shops on the Ground Floor was noticeably improved.

34.  Counsel for Sunterly emphasized that this court should not effectively lend his hands to the breach on the part of the IO, which was continuing on a daily basis.  However, this court already accepted that there are serious questions to be tried in respect of whether there was such breach on the part of the IO or else there would have been no basis for considering the present application any further.  Sunterly asked for the interim injunction on the basis that damages would not be adequate remedy even if it succeeds in its claim, if the IO was allowed to continue the alleged breach. Damages might not be adequate not because Sunterly might consider that its legal rights under the DMC or the BMO would not be sufficiently manifested, but because its loss consequential upon the alleged breach would become difficult to quantify[3]. When the consideration, as in any given case, involves a question of balancing the convenience to the parties if the relief in terms as sought is granted or not, it is always the reality of the situation before the court that matters most.

35.  Merely calling the construction work to a halt would not remove the obstruction that Sunterly complained about.  Such call, even if made, would not address the question of inadequacy of damages as its remedy because the obstruction would simply remain.  The potential advantage to the shopping arcade as a whole by having the construction work completed, though a mere probability projected by the IO, would not be ignored.

36.  Sunterly also mentioned noise and air pollution caused by the construction work.  Such complaint about nuisance during the construction might be categorized as a possible allegation covered by its pleaded case.  However, there was no submission to that effect during the first hearing on 26 July 2019.  In fact, the factual allegation to that effect was never made in evidence until its 2^nd affirmation filed after the first hearing.  Further, such evidence was no more than a single liner in the affirmation[4].

37.  Whilst nuisance during the construction work perhaps should not be ruled out as a matter of common sense, the comparison between the condition of the Site merely according to the photographs taken before the first hearing and those taken in August 2019 did not suggest any basis for believing that the condition would likely worsen from that point of time onwards.  I was certainly not impressed that the shops in the vicinity would be better off with the current condition being left like that as depicted in the latest photographs taken by Sunterly.

38.  Sunterly is claiming that the owners responsible for sanctioning the commencement of the construction work, not all the owners as a whole that the IO on the face represent, should bear the financial consequence of the outcome of this lawsuit, if it succeeds in its claim.  In that case, it would be no concern of Sunterly, if it succeeds in its claim, that it would be affected by the financial burden of the eventual demolition and reinstatement, whether or not the work stopped immediately.

39.  All circumstances considered, including those specifically discussed above, I refused to grant the interlocutory injunction in terms as sought so as to call the construction work to a halt pending the determination of the dispute in the present action.  As Sunterly pressed on with the present application, I had to dismiss it.  So I did.

Costs

40.  The court has broad discretion as to costs, which applies equally in the context of application for interlocutory injunction: see Super Trend Lighting Limited v Hi-Light Lighting Limited & Anor, HCA 1896/2002 (31 January 2004) at §§4-14; Re Smart Land investment Limited, HCCW 96/2016 (30 April 2018) at §7.

41.  As discussed above, the application was taken out on the basis that Sunterly allegedly could not be adequately compensated by way of damages if its major complaint, namely obstruction of the common part of the corridor in terms of access to and egress from its shops and the open view to and from its shops at the corridor, was not addressed in the interim.  It was for Sunterly to decide whether and, if yes, in what terms an interim injunctive relief, should be sought for its purpose.

42.  However, the interim injunction in terms as sought, which would have had the effect of preserving the very obstruction, would not address its complaint.  In view of the evidence available to Sunterly, it should have been known by the time when the application was taken out.  That Sunterly was suggested to have been misled by the IO to wait before the commencement of action, be it true or not, did not change the state of affairs known to it by the time when the application was taken out.  In the circumstances prevailing then, it is strange for Sunterly to take out the present  application “merely seeking to preserve the status quo and hold the ring”[5] which would hardly address its complaint in the interim.

43.  Sunterly had the opportunity of assessing the situation after the first hearing, particularly when this court refused to grant an interim interim injunction in terms of the interlocutory injunction on that occasion.  After the 2^nd affirmation has been filed on behalf of the IO, Sunterly proceeded to file its affirmation in reply.  During the hearing of the substantive argument, Sunterly pressed on with the application.  For the above reasons, it failed.

44.  Whether a plaintiff was justified in taking out an application for interlocutory application may depend on the outcome of the dispute determination.  In such case, the court may consider it appropriate to reserve the costs of the application or order costs of the application to be in the cause, whilst an order adverse to a party losing the substantive argument may be limited to the costs of the hearing.  The present application was different.  The fact that the interlocutory injunction in terms as sought would not actually serve Sunterly’s purpose as an interim measure should be known to it prior to the taking out of the application.  In the circumstances, the appropriate exercise of discretion in the present case should be to grant the IO its costs of the application, including any costs reserved.

45.  On the same day when it filed its affirmation in reply, ie, 15 August 2019, Sunterly, through its solicitors, wrote to the IO’s solicitors and suggested that given the development of events, it appeared that it was no longer meaningful for it to pursue the interlocutory injunction.  Sunterly proposed to vacate the hearing on 19 August 2019 with no order as to costs.

46.  The IO, through solicitors, disagreed on the ground that Sunterly should have realized much earlier that there was no real benefit for both parties to proceed with the substantive argument of its application.  Not only did Sunterly not seek to prevent the filing of further affirmation evidence, but it also filed its affirmation in reply making even more allegations against the IO.  Brief to counsel had already been delivered to counsel for the IO by then.  The IO proposed that leave be given to Sunterly to withdraw the summons, and the hearing on 19 August 2019 be vacated.  The IO further proposed that issue of costs would be further argued by way of written submissions and ruled by the court on paper only.

47.  The above without prejudice correspondence between the parties in this respect does not change my primary view of how discretion in respect of costs ought to be exercised in the circumstances of this case as mentioned above.  It does not appear to be unreasonable for the IO to have delivered brief to counsel by the time of Sunterly’s letter.  Nor was it unreasonable for the IO to disagree.

48.  In the circumstances, Sunterly cannot successfully resist the costs consequence.  Adopting a broad brush approach in considering the IO’s statement of costs, I order that Sunterly shall pay the IO’s costs of the present application, summarily assessed at the sum of HK$110,000, within 14 days.