PERFECT NAME LTD v. FUNG CHI MUI

DCCJ 1789/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1789 OF 2008

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JUDGMENT

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Introduction

1. The Plaintiff is the owner of a shop situate at Flat B, Ground Floor of On On Building in Tsuen Wan (“the Shop”).  The Defendant is the owner of the unit on the Mezzanine Floor immediately above the Plaintiff’s shop (“the M/F”).     

2. When On On Building was first built, the Shop and the M/F formed a single unit (“the Single Unit”). At that time, the mezzanine level of the Single Unit was a cockloft covering only part of the ground level and there was an internal staircase within the unit connecting the ground level to the cockloft. 

3. However, the structure of the Single Unit was later altered.  A concrete floor slab was built extending the cockloft to cover the whole ground level, the internal staircase was demolished and a doorway was opened at the side wall of the cockloft level through which it was accessible to the external common staircase of the building.  It is common ground that the said alterations were without approval from the Building Department and thus are illegal structures or unauthorised building works (“UBW”) under the Building Management Ordinance (“BMO”).

4. The alteration was obviously aimed to turning the Single Unit into two separate units.  And it requires no imagination to know that they are now representing respectively, the Shop and the M/F.  There is no direct evidence adduced as to exactly when the alteration was made.

5. By this action, the Plaintiff seeks a mandatory injunction to force the Defendant to demolish the extended floor slab and a prohibitory injunction restraining the Defendant from trespassing the Plaintiff’s land.  Apparently, by demolition of the floor slab, which is now the ceiling of the front portion of the Shop, the front portion of the Shop will have a higher level of ceiling and hence a higher commercial value.

6. The Plaintiff also alleges that the UBW has caused difficulties to it to secure a mortgage from the bank and claims against the Defendant for loss of rent and other consequential damages.

7. In her opening submission, Ms Yanky Lam, counsel for the Plaintiff, framed her case under 3 heads of causes of action, namely trespass in land[1], breach of Deed of Mutual Covenant (“DMC”) and nuisance.

8. In her defence, the Defendant pleads adverse possession and counterclaims for a declaration that she has acquired all rights and titles to the area enclosed by the extended floor slab.  She also maintains that the Plaintiff has lost its rights to enforce the DMC against her due to estoppel, acquiescence or waiver.  

9. At the end of the trial, Ms Lam no longer relied on the causes of action of trespass[2] and nuisance. Parties’ focus remained on whether there was a breach of the DMC by the Defendant and whether the Defendant can establish the defence to the breach, if any.

10. There is little dispute on facts.  Mr. Wong Hok Sum (“Mr. Wong”), a director of the Plaintiff, and the Defendant herself, gave evidence. 

The Properties

11. On On Building was built in or about 1964. According to a building plan dated 15 February 1964 and the occupation permit issued on 2 September 1964, the building was a 6 storeys building consists of 3 separate non-domestic shops with cocklofts on ground level and 5 separate domestic units on each floor from the first to fifth levels. 

12. On the building plan, the 3 shops and the 3 cocklofts were separately depicted by 2 different floor plans.  They were described as “Ground Floor Plan” and “Cockloft Plan” respectively.  As can be seen from the floor plans, both the shops and the cocklofts are rectangular in shape.  The cocklofts were 8 feet shorter than the shops from the front and the front portion of the cocklofts were described as “open” on the Cockloft Plan. The internal staircases can also be seen on the plans.

13. The 3 shops and 16 other units of the building were firstly owned by one Fu Ki Man (“Fu”).  Fu, together with the other 5 persons who owned the remaining units of the building, entered into a DMC dated 28 May 1965 as tenants in common of the whole building.

14. There was no specification of each party’s shares of the building in the DMC.  Under the First Schedule, “the Floor” to be exclusively used, occupied and enjoyed by Fu were “Flats A, B and C on the ground floor with their cocklofts, Flat D on the first floor, Flats C and D on the 2^nd floor, Flats A, B, C, D and E on the 3^rd floor, Flats A, B, C, D and E on the 4^th floor, and Flats B, D and E on the 5^th floor”.     

15. By an assignment dated 30 September 1967, Fu assigned the ground floor of Flat B to one Cheung Siu Chi (“Cheung”).  The property assigned was described as:

“ALL THAT the estate right title benefit and interest of the Vendor of and in ALL THAT one equal undivided thirty first part or share of and in ALL THAT said piece or parcel of ground … with its abuttals and dimensions … more particularly shown on the plan hereto annexed … Together with the exclusive right and privilege to hold use occupy and enjoy FLAT B on the GROUND FLOOR of the said building which flat is shown and coloured Pink on the said plan … AND SUBJECT ALSO to and with the benefit of a Deed of Mutual Covenant dated the 28^th day of May 1965…”

16. Annexed to the Assignment was a plan similar to the “Ground Floor Plan” mentioned in paragraph 12 above with “Shop B” shaded in pink.  There was nowhere mentioned about the cockloft of Shop B in the Assignment.

17. It is noted from the Assignment that the ownership of the building was split into 31 undivided shares.  By logical deduction, each shop together with the cockloft has been allotted 2 shares[3] and each of the remaining 25 units has been allotted 1 share.   

18. By an assignment dated 14 May 1968, Fu assigned the cockloft of the Single Unit to one Yu Kam Hing (“Yu”).  The property assigned was described as:

“ALL THAT the estate right title benefit and interest of the Vendor of and in ALL THAT one equal undivided thirty first part or share of and in ALL THAT said piece or parcel of ground … with its abuttals and dimensions … more particularly shown on the plan hereto annexed … Together with the exclusive right and privilege to hold use occupy and enjoy FLAT B on the MEZZANINE FLOOR of the said building which flat is shown and coloured Pink on the said plan … AND SUBJECT ALSO to and with the benefit of a Deed of Mutual Covenant dated the 28^th day of May 1965…”

19. The plan annexed to the Assignment was similar to the “Cockloft Plan” but the internal staircase was no longer there.  The whole cockloft was shaded in pink except the “open area”. 

20. By an assignment dated 18 February 1970, Yu assigned the cockloft to Madam Fung, the Defendant herein.  However, the annexed plan of the property assigned has not been exhibited as evidence at the trial.

21. The Plaintiff came relatively new to the picture.  By an assignment dated 31 October 2007, the Plaintiff became the owner of the Shop in consideration of a purchase price of HK$3.6 million. 

The Plaintiff’s case

22. It was all along the Plaintiff’s plan to acquire the Shop for leasing out to earn rental incomes.  According to Mr. Wong, no physical inspection to the interior of the Shop had taken place prior to and at the time of the acquisition as the Shop was not intended for self use.

23. In early November 2007, after the assignment of the Shop to the Plaintiff, the Plaintiff applied to the Shanghai Commercial Bank for a mortgage loan on the Shop.  To the Plaintiff’s surprise, the Bank demanded the Plaintiff to undertake to indemnify the Bank for any damages, losses, costs and expenses that may be suffered by the Bank caused by the unauthorized structures in the Shop.  In this connection, the Plaintiff instructed an architect to inspect the Shop and advise on whether there is any unauthorized structure. 

24. By a report dated 16^th November 2007, the architect gave his opinion that:

(a)  The Ground Floor shop front void had been covered by R.C. slab at cockloft level;

(b)The approved internal staircase leading from Ground Floor to Cockloft had been demolished and removed;

(c)  The Floor opening cockloft level had been covered with R.C. slab; and

(d)A door opening had been formed at the Main Staircase at cockloft level.

25. As mentioned in Paragraph 3 hereinabove, it is common ground that these are UBWs[4].

26. The DMC provided, inter alia, that:

(a)   Each of the parties hereto shall not make any structural alteration to the said buildings [On On Building] or to the floor 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 buildings. (“Clause 8”); and

(b)  Each of the parties hereto shall not use or cause or suffer or permit to be used the floor of which he is entitled to the exclusive use, occupation and enjoyment or any part thereof for any illegal, unlawful or immoral purpose and shall not do or cause or suffer or permit to be done anything therein or thereupon which may cause unnecessary notice or which may be or become a nuisance, annoyance or inconvenience to the occupiers of the other parts of the said buildings or of the premises in the neighbourhood.   (“Clause 10”)

27. It is the Plaintiff’s case that, by failing to set right the UBWs, the Defendant is in breach of Clause 8 and/or Clause 10 of the DMC.

28. The Plaintiff complained that because of the UBWs, the Shop has become stuffier and less spacious.  The original open space covered by the floor slab of the M/F cannot be used for putting shelves or displaying goods or decorative items.  The rental value of the Shop is substantially reduced for having a lower ceiling at the front.

29. Since acquisition of the Shop in October 2007, it has been the concern of the Plaintiff about the safety of the UBWs.  And in the event that the UBWs are ordered by the government to be rectified, the tenant might sue the Plaintiff for damages if the Shop were to be rented out.

30. According to Mr. Wong, it was due to the Plaintiff’s above mentioned concerns that the Shop was not rented out until 1^st January 2011 by a short term lease which has subsequently turned into an oral periodical monthly tenancy.  At the time of the trial, the said oral tenancy is still continuing with a monthly rent of HK$32,800, which was lower than the market rent of the Shop according to Mr. Wong’s evidence.

The Defendant’s case

31. Madam Fung, the Defendant, was 79 years old at the time of the trial.  She purchased the M/F in 1970 from Yu.  At the time when she first inspected the M/F in 1970, the layout of M/F was the same as now.  All UBWs were already there.  She did not realise that there were illegal structures.

32. Since her acquisition of the property in 1970, she has not received any complaints about any illegal structures in her property.  In particular, none of the previous owners of the Shop had ever mentioned to her about any illegal structures. 

33. The Building Department has in September 2009 ordered the Defendant to demolish the iron grille and wooden door installed at the entrance to the main stairs.  As the entrance was the only exit from the M/F, the Building Department did not require the Defendant to reinstate the structure by sealing off the entrance.  The Defendant was asked instead to install an approved fireproof wooden door.

34. It was the opinion of the Building Department that the UBWs post no immediate danger to the properties.

Discussion

Who made the UBWs?

35. There is no reason to doubt the evidence of the Defendant that when she acquired the M/F in 1970, the concrete floor slab of the cockloft level has already been extended to its present state.  In other words, the floor slab was extended either during the ownership of the property by Yu or Fu. 

36. In this regard, I find it is more probable that the extended floor slab, and all other UBWs, were made before the sale of the M/F to Yu, and even before the sale of the Shop to Cheung. 

37. The Shop was obviously intended to be sold and purchased in 1967 as a distinct and separate unit from the M/F as there was nowhere mentioned in the Assignment about the cockloft and the plan of the cockloft has not been attached to it.  Similarly, the UBWs were obviously built with a view to dividing the Single Unit into two.

38. If the alterations were not there before the sale, it would be against commonsense that Cheung would allow the UBWs to be made on his property which will adversely affect the value of it.  Furthermore, if Fu was minded to sell the Shop and M/F separately, there is no reason why he has to wait until after the sale of the Shop to do the alterations.

39. Equally, if the separate entrance from the main stairs was not built before the sale of the M/F to Yu, it would be strange that Yu would agree to purchase the M/F without a separate entrance.

40. Ms Lam submitted that there is no evidence as to whether Fu and Cheung or Yu were related and whether there were any special arrangements made between them regarding the properties. She asked this court not to draw the inference so readily that the alterations were made by Fu.

41. It is true that there is no such evidence. However, as mentioned above, commonsense dictates that the UBWs were made by Fu or caused to be made by him.  No other reasonable inference could be drawn based on the existing evidence.

What has been assigned to Cheung?

42. As mentioned above, the intention of Fu was clearly that the Single Unit was to be split into two and assigned to different persons. 

43. One of the two shares of the Single Unit had been assigned to Cheung by Fu.  Together with the share, Cheung had also been assigned the right to exclusive possession of the Shop. 

44. It is the submission of Ms Lam that the open area/void of the front portion of the Shop must have been assigned to Cheung also as a party having been assigned with a piece of land is entitled also to the exclusive use, possession and enjoyment of the air space immediately above that assigned piece of land.  Besides, Ms Lam submitted that the open area/void had not been assigned subsequently to Yu (predecessor-in-title of the Defendant) as the plan attached to the Assignment did not include the same.    

45. It is true that the plan attached to the Assignment of the M/F to Yu did not include the front portion[5]. However, it does not necessarily mean that the front portion of the M/F has been assigned to Cheung.

46. I have found as a fact that all the alterations were done before the assignment of the Shop to Cheung.  At the time of the assignment of the Shop, the front portion of it was covered by the concrete floor slab of the M/F and hence, it could not be the intention of the parties (Fu and Cheung) that the exclusive use, possession and enjoyment of the air space of the front portion above the floor slab of the M/F be also assigned to Cheung.  And there is no express provision as such in the Assignment of the Shop.

47. In that case, I find that Cheung, from whom the interest of the Plaintiff in the Shop was derived, did not enjoy at any time the right to use the air space, wall and ceiling of the front portion above the extended concrete floor slab of the M/F.  Hence, the Plaintiff, being Cheung’s successor-in-title, can have no right to complain that its use of the same has been disturbed[6].

48. I note that the Defendant had not specifically pleaded as her defence that there was no intention to pass the interest to use the air space of the front portion to Cheung by Fu.  However, as there was no admission to the contrary by the Defendant in her case and it is essential on the part of the Plaintiff to prove its entitlement to sue in this regard, in all fairness I do not think it is right to refrain from considering this in my judgment.

Nature of the interest assigned

49. During the trial, I raised the question as to what was the nature of the interest acquired by the Plaintiff and the Defendant as the respective owners of 2 separate units segregated from an originally single unit under the DMC, without any change in the respective covenanted rights to exclusive possession of the units by the owners under the DMC.  

50. As submitted by Mr. Hui, while Fu has the perfect right to assign and allocate his shares in On On Building to different persons in whatever proportions[7], it is questionable whether the covenanted rights to exclusive possession of a particular unit can equally be freely allocated or, as in the present case, segregated, without the consent of other covenanted parties. 

51. However, Ms Lam drew to my attention Clause 11 of the DMC which stipulated that “each of the parties of the DMC shall have the fullest right and liberty without any consent of or reference to the other parties hereto, and without the necessity of making the other parties thereof, to sell or otherwise dispose of or deal with his share and interest of and in the said premises and the floor of which he is entitled to the exclusive use, occupation and enjoyment”.

52. I am satisfied that Cheung and Yu had become tenants-in-common of On On Building with the right to exclusive possession of their respective units vis-à-vis themselves and all other owners of On On Building, subject to the DMC.

Breach of the DMC

53. It was at one stage submitted by Ms Lam that there was a breach of the DMC by the Defendant for infringing the Plaintiff’s right to exclusive possession of the Shop.  Quite apart from the fact that it is not pleaded in the Amended Statement of Claim, with my above finding that the right to use the air space of the front portion of the Shop has not been assigned to Cheung, this complaint is unsustainable.

54. As mentioned under Paragraph 28 herein, the main complaint of the Plaintiff is the extended concrete floor slab of the M/F at the front portion of the Shop.  It is the Plaintiff’s case that it caused the damages that it has suffered.

55. Regarding Clause 10, it is there to prevent an owner to use or permit the use of his unit for illegal or immoral purposes; or to do or permit to be done something so as to cause nuisance, annoyance or inconvenience to other owners. 

56. In my view, allowing the UBWs including the extended concrete floor slab to be there could hardly be regarded as permitting the unit to be used for an illegal purpose.  Similarly, it can hardly be said that in so allowing the Defendant has done or cause or suffer or permit to be done something causing nuisance, annoyance or inconvenience to the Plaintiff.  The literal and natural meaning of Clause 10 does not cover the situation where an owner allows or permits an unauthorised or illegal structure to remain in his premises.  The intention of Clause 10 is obviously aimed to deter any conducts or activities to occur within an owner’s property which are immoral, illegal or capable of causing nuisance, annoyance or inconvenience to other owners.

57. There is a specific provision under the DMC regarding structural alteration, i.e. Clause 8.  Clause 10 is simply not applicable regarding the Plaintiff’s complaints. 

58. Even if Clause 10 is applicable, I do not think the existence of the extended concrete floor slab has caused any nuisance, annoyance or inconvenience to the Plaintiff as an occupier. 

59. The nuisance, annoyance or inconvenience alleged to have suffered by the Plaintiff was that Mr Wong had become hesitant to lease out the Shop and the Shop was leased out at less favourable terms.  These so called nuisance, annoyance or inconvenience, are unrelated to the occupation of the Shop.  They affect only the interest of the owner rather than the occupier of the Shop.

60. Besides, the value of the Shop as acquired by the Plaintiff should not take into account of the air space above the extended concrete floor slab.  It cannot be said that the rental value of the Shop has been diminished by the extended concrete floor slab.

61. The Building Department has expressed their view that there was no imminent structural danger regarding the UBWs.  There was no real risk of any action to be taken by them.  No nuisance, annoyance or inconvenience is thereby caused to the occupier of the Shop.

62. While the extended concrete floor slab can be regarded as the floor slab of the M/F, it can equally be regarded as part of the ceiling of the Shop.  Bearing in mind that the function of the extended concrete floor slab was to segregate the Single Unit into two, the construction of which was originally for the benefit of both the units.   

63. Concerning this concrete segregation, it is unsure as to whether it is to be regarded as a structure of the Defendant’s unit or the Plaintiff’s unit.  In order to establish liability on the part of the Defendant in breach of Clause 8 of the DMC, the Plaintiff must prove that it is an alteration of the structure of the M/F but not the Shop.  Even if it is to be regarded as a structure common to both units, the Plaintiff would be itself also in breach of the DMC and therefore can have no locus to sue the Defendant upon the same breach. 

64. Furthermore, Clause 8 only prohibits “the making” by the owners of structural alteration.  The structural alteration was made by Fu but not the Defendant.  Only covenants but not the breaches thereof run with the land[8].

65. In my judgment, the Plaintiff has failed to make out its claim against the Defendant for breach of the DMC.   

Estoppel

66. Even if the Plaintiff can establish that the Defendant has been in breach of the DMC, the Plaintiff is in my view estopped from enforcing those terms of the DMC against the Defendant.

67. As submitted by Mr. Hui, waiver and estoppels binds successors-in-title.  The rationale being that the successors-in-title, whose interest and title on the property is derived from the person waiving the breach, cannot be in a position better than the predecessor-in-title.

68. Mr. Hui’s submission on this point is not challenged by Ms Lam.  In her submission, Ms Lam focused mainly on the lack of knowledge of the Plaintiff or Mr. Wong of the UBWs and submitted that the Plaintiff could not have waived or acquiesced to the Defendant’s breach without even having the knowledge of the existence of the breach.

69. The proposition of Mr. Hui is that, the Plaintiff’s title to the Shop was derived from Fu.  Fu, who was the undertaker of the UBWs and must not have the intention to enforce the DMC against himself, can be regarded as having waived or acquiesced or consented to the breach.  As the predecessor-in-title of Fu, the plaintiff is now bound by the waiver or acquiescence and estopped from enforcing the DMC against the Defendant.

70. In my judgment, although the proposition appears to be artificial, there is nothing wrong in principle in it.  It does not require the knowledge of the Plaintiff about the UBWs and Ms Lam can give no answer to it. 

71. Moreover, when Cheung and Yu acquired their respective unit, in my factual findings, they must have intended to acquire the units as they were, being two single units divided partly by the UBWs.  They, and their successors-in-title, had paid the value of the units as they were at the time of acquiring the units.  To allow one party now to retreat from the original understandings, by means of enforcing the DMCs or otherwise, would result in an unfair situation where the doctrine of estoppels shall come into play.

72. The UBWs have been there for over 4 decades. The original floor plans of the properties have been available to the owners all along.  The differences in appearance of the Shop with other shops of On On Building should be apparent.  It was readily open to the predecessors-in-title of the Plaintiff to form the view that there were illegal or unauthorized structures there and consider taking action to enforce the DMC. 

73. In my view, the inaction for over 4 decades of the predecessors-in-title of the Plaintiff can sufficiently constitute a waiver or acquiescence to bar the Plaintiff now to enforce the relevant clause(s) of the DMC against the Defendant, should there be any breach of the same by the Defendant.

Injunction

74. For completeness, I would add that should I need to consider whether to grant a mandatory injunction ordering the Defendant to reinstate the M/F to its original state, I would not exercise my discretion in the Plaintiff’s favour.

75. As I said, the UBWs have been there for over 4 decades. The parties had paid for the value of their respective unit as they were.  If the extended concrete floor slab is to be demolished, the value of the M/F will be substantially diminished.  On the other hand, the Plaintiff will be unjustly enriched.

76. Besides, it would be unfair to order just to demolish the extended concrete floor slab but not rectifying all other UBWs. If all the UBWs are to be rectified, which means that the internal staircase is to be rebuilt and an iron railing be reinstated at the edge of the mezzanine floor open to the front portion of the Shop, the private enjoyment of the units by the parties will no longer be possible.

77. It is the opinion of the Building Authority that the UBWs imposed no imminent danger. There is no urgency to order demolition of the same.

78. On balance, I would refuse to order a mandatory injunction against the Defendant.

Damages

79. The Plaintiff’s claim is that as a result of the UBWs, the Plaintiff was unable to lease out the Shop for income until 1^st January 2011, and thereafter received only a lower rent.  Ms Lam calculated the damages at HK$1,638,137 but indicated that the Plaintiff would confine the amount to HK$1,000,000 in view of the jurisdictional limit of the District Court.

80. In my judgment, as submitted by Mr. Hui, the failure to rent out the Shop before 1^st January 2011 was not caused by the UBWs.  According to the joint expert’s report, the Shop was marketable even with the UBWs.  It was the Plaintiff’s own decision not to attempt to lease out the Shop during the period.  In any event, the Shop was leased out on 1^st January 2011. There was insufficient reason to justify the Plaintiff’s decision not to seriously make the Shop available in the market as there was no imminent danger noted by the Building Department.

81. Regarding the allegedly lower rental received after 1^st January 2011, there is no evidence that the tenant paid the allegedly lower rent because of the existence of the UBWs.

82. I am of the view that the alleged loss of rental income was not caused by the Defendant’s breach of the DMC, should there be such a breach as claimed by the Plaintiff.

Conclusion and order

83. In the premises, all the Plaintiff’s claims are hereby dismissed.

84. Regarding the Defendant’s counterclaim, as my findings are that there was an intention to assign the relevant open space of the front portion of the Shop and hence neither the Plaintiff nor any its predecessor-in-title, except Fu, had acquired any interest thereof, no adverse possession can be claimed against the Plaintiff.  The Defendant’s counterclaim is also dismissed.    

85. I would make an order nisi that the Plaintiff is to pay 90% of the Defendant’s costs of this action to be taxed if not agreed, with certificate of counsel. This costs order nisi is to become absolute unless any party applies to vary within 14 days.

86. I thank counsel for their able assistance.