HOLLYWOOD SHOPPING CENTRE OWNERS COMMITTEE LTD v. THE INCORPORATED OWNERS OF WING WAH BUILDING MONGKOK KOWLOON

HCA 1582/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1582 OF 2007

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J U D G M E N T

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1.  The Plaintiff has been using an external canopy at the mezzanine and first floors of a building for the purposes of affixing advertising boards.  It has brought an action claiming declaratory relief on the basis it has acquired title to the canopy by reason of its adverse possession of it.

2.  The Defendant counterclaims that the Plaintiff does not have the title to the canopy nor the right to use it as it has done.  It claims an order for the removal of the advertising boards and other injunctive relief and an account and inquiry in respect of the Plaintiff’s profits from the use of the canopy for the advertising boards.

3.  This is an application by the Defendant for summary judgment on its counterclaim against the Plaintiff under Order 14 rule 5.

Background facts

4.  The Defendant is the incorporated owner of a building at the junction of Sai Yeung Choi Street South and Shan Tung Street in Mong Kok known as Wing Wah Building, which consists of commercial units on the ground, mezzanine and first floors and residential units from the 2^nd to 10^th floors (“the Building”).

5.  The Building was completed in 1966 by a Tang Kai, as developer, and a Deed of Mutual Covenant (“DMC”) was executed on 1 October 1966 allocating the undivided shares in the Building and the right to exclusive possession of the individual units in it.

6.  On 22 February 1980, Fujisash Aluminium Limited assigned to Gladford Limited 26 undivided shares out of the 144 shares in the Building with the exclusive right to the commercial units on the ground, mezzanine and first floors.

7.  Gladford consolidated the commercial units into a shopping arcade known as Hollywood Shopping Centre and divided the shopping centre into 1,000 shares out of its 26/144 undivided shares in the Building.

8.  On 23 May 1980, Gladford and various other parties executed a Sub-Deed of Mutual Covenant (“SMC”) in respect of the shopping centre.  

9.  An owners’ committee of the shopping centre was formed under the SMC and, upon its incorporation in June 1985, the Plaintiff was appointed by the owners’ committee as its agent and manager of the shopping centre.

10.  There is an external canopy which extends horizontally from about the floor level of the mezzanine floor and vertically between the mezzanine and first floors (“the Canopy”), which is shown marked on the plan annexed to the SMC.  The Canopy is presently being used for the affixing of certain advertising boards pursuant to a written agreement dated 1 December 2006 by which, in return for the payment of a fee, the Plaintiff appointed Easy Advertising Agency Limited as sole advertising agent in respect of the advertisement boards affixed to the Canopy.  The Defendant’s case is that advertising boards have been affixed to the Canopy since a date not earlier than 2000, whereas the Plaintiff says that this has been the case since June 1985.

11.  The Building Authority has served notices under s.24 of the Buildings Ordinance (Cap.123) dated 20 September 2007 in respect of the advertising signboards affixed to the Canopy requiring their demolition.  Three such notices have been served: one on Hollywood Shopping Centre (Mongkok) Limited, the manager of the shopping centre; another has been served on Easy Groups Limited; and a third has been served on Amorepacific Hong Kong Co. Limited.

The Plaintiff’s claim

12.  The Plaintiff commenced the action, in the face of the intimation in pre-action correspondence of a claim against it by the Defendant for breach of the DMC, claiming that it has acquired title to the Canopy to the exclusion of the Defendant and has become the rightful owner of it by reason of its adverse possession of the Canopy since June 1985 and by virtue of ss. 7, 13 and 17 of the Limitation Ordinance (Cap.347).

The Defendant’s counterclaim

13.  The Defendant counterclaims that under the Building Management Ordinance (Cap.344), the Defendant is under a statutory duty to enforce the DMC.  The Defendant says that the Plaintiff, on its own case and in fact, was and is an occupier of the Building and is therefore bound by the DMC by reason of s.41(3) of the Conveyancing and Property Ordinance (Cap.219).  The Defendant claims the Plaintiff has committed a breach of the term implied in the DMC by s.34I of the Building Management Ordinance by converting the Canopy, which forms a part of the common parts of the Building, to its own use.

14.  The Defendant therefore counterclaims for an order for the demolition of the advertising boards, an injunction restraining the Plaintiff from affixing any advertising boards to the Canopy and an account and inquiry of all sums due from the Plaintiff to the Defendant by reason of its conversion of the Canopy.

The Plaintiff’s asserted defences to the counterclaim

15.  The Plaintiff contends, through its counsel, Mr Jonathan Wong, that there are the following triable issues:-

(1)     Whether the counterclaim is time-barred under s.4(3) of the Limitation Ordinance (Cap.347), being an action arising under enactments or, by virtue of the proposition set out in Incorporated Owners of Million Fortune Industrial Centre v. Jikan Development Ltd. & Anor. [2002] 4 HKC 33 at §28, being an action based upon a breach of the DMC.  In either case, says the Plaintiff, the limitation period is 12 years.

(2)     Whether, on the available material, there are triable issues in relation to the defence of acquiescence, waiver and/or estoppel.

16.  I note that neither of these defences has been pleaded by the Plaintiff in its Reply and Defence to Counterclaim.

17.  Mr Wong also pointed out that there are clearly disputes disclosed on the face of the pleadings.  The Defendant has pleaded that ss.7, 13 and 17 of the Limitation Ordinance are invalid and unconstitutional as being contrary to Article 105 of the Basic Law.  It has also pleaded a denial of the fact that the Plaintiff has been in possession of the Canopy since June 1985 or a period of 20 years or more prior to the counterclaim.

18.  As to these disputes on the pleadings, the Defendant’s counsel, Mr Paul Lam, indicated that the Defendant would not advance any argument on those points in this application.

19.  Mr Wong submitted that implicit in this approach must be an acceptance on the Defendant’s part that there are triable factual issues as regards, first, whether the Plaintiff has converted the Canopy since June 1985, and second, whether the Plaintiff had the requisite intention to possess the Canopy and to exclude the world at large.

The relevant principles on an Order 14 application

20.  There was no dispute between the parties as to the relevant principles.

21.  On an application for summary judgment on a counterclaim, unless the Court dismisses the counterclaim, the burden rests on the Plaintiff to satisfy the Court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of the counterclaim.

22.  It is also trite that the underlying policy of the summary procedure under Order 14 is to prevent a defendant from delaying a plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff’s claim: see Hong Kong Civil Procedure 2008 at Note 14/4/1 (p.188).

23.  On the other hand, unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, Order 14 ought not to be applied.  Order 14 is for clear cases, that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise: see Hong Kong Civil Procedure 2008 at Note 14/4/9 (p.191).

The application for summary judgment

24.  The Defendant applies for final judgment for the various injunctive relief claimed, including the demolition of the advertising boards, and interlocutory judgment on its claim for an account and inquiry in respect of the Plaintiff’s profits from the use of the Canopy.

25.  Mr Lam’s submission on this summary judgment application is as follows:-

(1)     The Canopy forms a part of the common parts of the Building;

(2)     It is clear that the Plaintiff has committed a breach of s.34I of the Building Management Ordinance;

(3)     In law, the Plaintiff cannot claim any adverse possession of the Canopy as a defence to the Defendant’s claim; and

(4)     In the circumstances, the Plaintiff has no arguable defence to the counterclaim.

26.  It is not clear whether the Plaintiff accepts that the Canopy was part of the common parts of the Building.  In paragraph 4 of the Reply, the Plaintiff asserts that at no time did the Canopy form a common part of the Building.  Instead, it appears to be the Plaintiff’s case, as explained in the affirmation of Mr Cheng Kan Kwong, one of its directors, that the Canopy is a “no man’s land” for which no specific disposition or any alienation was made by the developer and no provision was made in the DMC.

27.  The Defendant contends that the Canopy must be part and parcel of the common parts of the Building since under the DMC, no individual co-owner has been granted the right to exclusive possession of the Canopy.  There is simply no mention of the Canopy in the DMC.  Furthermore, clause 3(b) of the DMC requires all owners to pay the costs of maintaining, amongst other things,the exterior of the Building.

28.  For its part, the SMC does not purport to grant the exclusive right to exclusive possession of the Canopy to any individual owner or owners.  Nor could it, since it is subordinate to the DMC.

29.  It would appear to be clear, therefore, that the Canopy forms part of the common parts of the Building and I shall proceed to deal with this application on that basis.

30.  The question is whether, as the Plaintiff contends, it has acquired a title to the Canopy by reason of its alleged adverse possession.

31.  Mr Lam submitted, relying on the decision of the Court of Appeal in Incorporated Owners of Man Hong Apartments v. Kwong Yuk Ching [2001] 3 HKC 116, that adverse possession is not a viable defence in law to a claim brought by the incorporated owners for breach of s.34I of the Building Management Ordinance.

Is there a triable issue as to limitation?

32.  In response, Mr Wong submitted, relying on s.4(3) of the Limitation Ordinance, that a claim on a specialty, which would include a claim under a contract and an obligation arising under a statute, is time-barred after 12 years.  He submits that s.4(3) was not considered in Incorporated Owners of Man Hong Apartments v. Kwong Yuk Ching.

33.  In answer to this, Mr Lam referred to s.4(7) of the Limitation Ordinance, which provides that:-

“This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment contained in the Limitation Act 1980 (1980 c.58 U.K.) is applied in the English Courts.”

34.  He also pointed out that this provision was expressly referred to by Mayo VP in Incorporated Owners of Man Hong Apartments v. Kwong Yuk Ching at p.123H-I, where he held:-

“Equally s.4(7) specifically excludes actions for injunction and other equitable relief from the operation of the section.

There also can be no question of the statutes of limitation having any application by analogy as the claim here for breach of the terms of the DMC are in no way equivalent to any common law right of action.”

35.  It is clear, submitted Mr Lam, that the Court of Appeal rejected any limitation defence based on s.4 of the Limitation Ordinance.

36.  Furthermore, Mr Lam submitted that the Defendant’s claims in paragraphs (a) to (c) of the prayer for relief in the counterclaim were in the nature of claims for injunctive relief and that its claims for an account and inquiry in paragraphs (d) to (g) of the prayer were claims for equitable relief in the circumstances.  Hence, he submitted, s.4(7) of the Limitation Ordinance must apply and there is no question of the counterclaim being time-barred.

37.  I think Mr Lam is correct in his characterisation of the nature of the Defendant’s counterclaims as being equitable.  Although Mr Wong submitted that the action for an account of profits was developed by the common law, it is clear that equity also recognised this concept and, in order to determine the nature of a claim for an account, it is necessary to look at the underlying right which has been violated.  Here, the Defendant’s claim is for breach of the DMC and, on the authority of Incorporated Owners of Man Hong Apartments v. Kwong Yuk Ching (see the passage quoted at paragraph 34 above and see also p.122E of the judgment), that is an equitable claim.

38.  In any event, as for the account and inquiry, even if the 12-year limitation period prescribed by s.4(3) of the Limitation Ordinance does apply to that part of the Defendant’s counterclaim, it would not appear that any part of the counterclaim would, on the Defendant’s case, be in respect of a period more than 12 years before the action was brought.  This is because, on the Defendant’s case, the advertising boards have been affixed since a date no earlier than 2000.

39.  If the Plaintiff’s limitation defence were the only point raised on this application, I would be disinclined to refuse summary judgment on the basis of that argument alone.

Are there triable issues as to estoppel, waiver, acquiescence or laches?

40.  Mr Wong relied on the case of Sun Wen Hsiung & Ors. v. The Incorporated Owners of Gallant Garden Mansion, DCCJ 1141/2006, 24 August 2007, for the following propositions:-

(1)     Inaction by the incorporated owners for only two years may give rise to a defence of waiver, estoppel or laches, the determination of which is not suitable for disposal at an interlocutory stage;

(2)     The delay on the part of the incorporated owners could be relevant to the court’s exercise of discretion to grant an injunction which is an equitable remedy.

41.  Mr Wong submitted that these propositions were applicable in the present case since:-

(1)     There is admittedly a triable issue as to whether the Plaintiff converted the Canopy since 1985 and, in any event, on its own case, the Defendant acquired knowledge of the Plaintiff’s alleged conversion since 2000; and

(2)     No action was taken by the Defendant in respect of the Plaintiff’s alleged breach until February 2007.

42.  In response to this, Mr Lam submitted that it was not open to the Defendant to raise such a defence.  He relied on the judgment of Godfrey JA (as he then was) in The Incorporated Owners of Hoi Luen Industrial Centre v. Ohashi Chemical Industries (Hong Kong) Ltd. [1995] 2 HKC 11 at 13D-E where he held:-

“It follows in the instant case the plaintiffs were not only entitled but bound to take proceedings for the enforcement of these convenants [in the relevant deed of mutual convenant].  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 as this defendant has done.  What cannot be done expressly cannot be done impliedly.  Although equity will sometimes restrain a plaintiff in the exercise of his legal rights because it would be inequitable and unjust in all the circumstances to allow him so to exercise those legal rights, equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant.”

43.  Mr Lam pointed out that in Sun Wen Hsiung & Ors. v. The Incorporated Owners of Gallant Garden Mansion, Leung DJ relied on the judgment of the Court of Appeal in The Incorporated Owners of Hong Kong House v. Senfield Limited, CACV 117/2003, 12 November 2003.  In that case, the Court of Appeal refused to grant summary judgment of a claim for breach of a deed of mutual covenant and one of its reasons was that there was an arguable defence of estoppel, waiver, acquiescence or laches.

44.  In that case, Ma CJHC held (§17):-

“In these circumstances and with no evidence that the structure causes any danger or that its removal has been insisted on by the relevant Government authorities, it is arguable that the plaintiff may be estopped from now complaining about the sign or may have waived its right to do so.  Acquiescence and laches may also feature since the remedy sought is again an injunction to have the structure removed. …”

45.  Mr Lam sought to distinguish The Incorporated Owners of Hong Kong House v. Senfield Limited on two bases:-

(1)     First, he noted that The Incorporated Owners of Hoi Luen Industrial Centre v. Ohashi Chemical Industries (Hong Kong) Ltd. had apparently not been cited to the Court of Appeal.

(2)     Second, he drew attention to the fact that Ma CJHC in that case had specifically referred to the absence of any enforcement action by the Government in respect of the relevant structure.  In the present case, by contrast, s.24 notices under the Building Ordinance have been issued.

46.  I take due account of the fact that this line of defence has not been pleaded.  Mr Wong acknowledges as much and submits that, if leave to defend is granted, a direction be granted to enable the Reply and Defence to Counterclaim to be amended to plead the matters relied upon in his skeleton argument.

47.  I am not persuaded that it would be appropriate to determine on this summary judgment application that the defences of estoppel, waiver, acquiescence or laches are not open to the Plaintiff as defences to the Defendant’s counterclaim for equitable relief as a matter of law.  It is true that there appears to be some inconsistency between on the one hand the judgment of Godfrey JA in The Incorporated Owners of Hoi Luen Industrial Centre v. Ohashi Chemical Industries (Hong Kong) Ltd. and the judgment of the Chief Judge in The Incorporated Owners of Hong Kong House v. Senfield Limited.  However, Godfrey JA’s judgment in the former case does specifically refer to the fact that “equity will sometimes restrain a plaintiff in the exercise of his legal rights because it would be inequitable and unjust in all the circumstances to allow him so to exercise those legal rights”.

48.  Furthermore, Godfrey JA’s judgment was on an appeal following a trial, in which the trial judge had found that the defendant had not proved that the plaintiffs acquiesced in the relevant breach of covenant in that case.  As Godfrey JA said (at p.13F-G):-

“Even if I were wrong so far, I would still be in favour of dismissing this appeal because, as the judge thought, there was no good ground why, in the exercise of his discretion, he ought to refuse the injunction the plaintiffs claimed in order to secure compliance on the part of the defendant with the negative covenants contained in the deed of mutual covenant.”

49.  In my view, Godfrey JA’s comments in that case, which was an appeal after a trial, reinforce the need to ascertain all the circumstances in order for the court to make an appropriate decision in the exercise of its equitable jurisdiction.  Here, the Plaintiff says the Defendant has known for many years of the existence of the advertising boards on the Canopy and has done nothing about enforcing its alleged rights under the DMC.

50.  Similarly, in his judgment in The Incorporated Owners of Hong Kong House v. Senfield Limited, Ma CJHC held (at §14):-

“I should also deal with another reason why the dispute on this claim should only be resolved at trial.  According to the plaintiff, the unlawful connection of the Water Tanks to the defendant’s fire sprinkler system took place between 9 August 2000 and 6 September 2000.  Yet it was not until January 2002 when a solicitor’s letter was sent to the defendant that the plaintiff appears to have taken any action.  Whether this can give rise to any defence of waiver, estoppel or laches, is another matter that cannot easily or comfortably be disposed of now.  The possibility is also to be borne in mind that such delay as may be found to exist in the present case could feature in the court’s discretion whether or not to grant an injunction, which is of course an equitable remedy.  I appreciate that the defence (which is drafted by a layman) does not plead any of this, but the plaintiff’s position and conduct (as well as that of the defendant) over the relevant period involve matters that ought to be further investigated at trial.  This provides in my view ‘some other reason’ for a trial:- see RHC Order 14 rule 3(1); Hong Kong Civil Procedure 2002 Vol.1 at paragraph 14/4/10.”

51.  These comments of Ma CJHC as to the difficulty of disposing of matters which go to the exercise of the Court’s discretion and the need to investigate the circumstances at trial also apply in the present case and reinforce, in my view, the need for a trial.

52.  If Mr Lam’s primary submission were correct, it is surprising that the Court of Appeal in The Incorporated Owners of Hong Kong House v. Senfield Limited considered the defences of estoppel, waiver, acquiescence or laches to be viable at law in that case.

53.  In short, I think Mr Wong is right in his submission that it is at least arguable that the defences relied upon are available as a matter of law.  If they are available as a matter of law, it is clear that there are triable issues as to whether they are made out on the facts of the case.

54.  As for the s.24 notices, these are not issued to the Defendant, so a delay in the resolution of its counterclaim will not have any direct effect on it.  Those notices have been served on other parties and it is a matter for them to consider their positions in respect of them.

Conclusion

55.  For the above reasons, I grant the Plaintiff leave to defend the counterclaim.

56.  As requested, I make a direction that the Plaintiff have leave to amend its Reply and Defence to Counterclaim within 14 days to plead the matters referred to in Mr Wong’s skeleton argument.  The Defendant will have 14 days thereafter to plead a Reply to Defence to Counterclaim if so advised. 

57.  I make an order nisi that the costs of this summary judgment application be costs in the cause.