THE INCORPORATED OWNERS OF WING MING INDUSTRIAL CENTRE v. MANTEX SUPPLIES CO LTD AND OTHERS

 HCA1505/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1505 OF 2007

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J U D G M E N T

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1.  This is the plaintiff’s application for summary judgment be entered against the defendants for injunctive relief relating to the use of the ground floor and cockloft of Wing Ming Industrial Centre (“the Building”) situated at No.15 Cheung Yue Street, Kowloon, Hong Kong.

Background facts

2.  The plaintiff is the Incorporated Owners of the Building, which is a multi-storey building.

3.  Wing Ming Garment Factory Limited (“Wing Ming”) is the registered owner of the ground floor and cockloft of the Building. By a tenancy agreement dated 30 March 2007 (“D1’s tenancy agreement”), Wing Ming let the ground floor and cockloft (“the Premises”) to the 1^st defendant for a term of two years commencing from 1 April 2007 at a monthly rent of $120,000.

4.  By clause 2(k) of D1’s tenancy agreement, the 1^st defendant covenanted not to do anything in contravention of the negative or restrictive provisions of the Deed of Mutual Covenant and the Government Lease under which Wing Ming holds the Premises. Clause 2(m) further provides that the 1^st defendant shall not use or permit to be used the Premises or any part thereof for any purpose other than light industrial purpose only.  In addition, clause 3 of the Annex to the tenancy agreement, which is in Chinese, provides, inter alia, that the Premises can only be used for industrial purpose, if the 1^st defendant were to use the Premises for other commercial purpose, it must apply to the government at its own costs (依照現狀交吉及依地契用途，只可作工業性質用途。租客若經營其他商業用途，必須要向政府申請，一切費用由租客自付。). 

5.  The 2^nd defendant has been permitted by the 1^st defendant to occupy and use part of the ground floor, an area that the parties have referred to as Portion A.

6.  The 1^st defendant has also allowed the 3^rd defendant to occupy and use part of the ground floor and the entire cockloft, an area that the parties have referred to as Portion B. 

7.  Portions A and B had been coloured pink and green respectively on the plan attached to the Statement of Claim.

8.  The 2^nd defendant operates on Portion A what is called “The Original Chinese Medical Clinic” (本元中醫診所).  According to the Business Registration return filed by the 2^nd defendant, the nature of the business is Chinese medical clinic.

9.  Portion B is used by the 3^rd defendant for its business, which according to the description given in the Business Registration return filed by the 3^rd defendant, is trading of children wear.

10.  The nature and character of the use and occupation of Portions A and B by the 2^nd and 3^rd defendants respectively is a matter of dispute between the parties, an issue that I shall return to deal with in the latter part of this Judgment.

11.  It is common ground between the parties that the Building is subject to a Deed of Mutual Covenant dated 2 March 1991 (“the DMC”).  Clauses 12, 30(a) and 34 in Section IV of the DMC are relevant to this application. They provide:

Clause 12
“	No Owner shall use or permit or suffer any part of the Building owned by him to be used except in accordance with the Conditions of the Grant and the law of regulations applicable to Building or other Regulations or any Government or other permit, consent or requirement from time to time applicable thereto and in particular no Owner shall use or permit or suffer any part of the Building for any offensive noxious or unhealthy manufacturing purpose or heavy industry.”
Clause 30(a)
“	No Owner shall use any Unit for any purpose other than that as permitted by the Grant and the Occupation Permit of the Building (in particular, shall not use any unit for or in connection with any trade that is now or may hereafter be declared to be an offensive trade under the Public Health and Municipal Services Ordinance, or any enactment amending the same or substituted therefor) and shall not use any unit for such purpose as mentioned in Clause 34 of this Section.”
Clause 34
“	No Owner shall use or cause or suffer or permit to be used any Unit of the Building for godown purposes connected with the storage of any dangerous goods, kerosene, or other inflammable goods or materials or for any illegal, unlawful or immoral purpose or any purpose which contravene the Grant.”

12.  The Building stands on New Kowloon Inland Lot No.5491, which is held under Conditions of Sale No.10715 as varied or modified by two modification letters registered with Memorial Nos.1197335 and 2711336 (collectively referred to as “the Land Grant”).   Special Condition No. (3)(a) restricts the user of the Lot as follows:

“	The lot shall not be used for any purpose other than for industrial or godown purposes or both excluding any trade that is now or may hereafter be declared to be an offensive trade under the Public Health and Urban Services Ordinance, or any enactment amending the same or substituted therefore”.

An exception is provided for in Special Condition (3)(e) for the operation of a canteen or canteens, which is not relevant to the present proceedings.

13.  The occupation permit of the Building (“the OP”) was issued on 14 November 1978. The material part of it states:

“	I hereby permit the occupation of the new building … for the following purposes:-
	…
	Ground Floor:	1 transformer room, 1 switch room, 1 store, foyer, car parking area, 1 cockloft for store & 1 package room for non-domestic use.
	…  ”

14.  Previously, the ground floor of the Building was let out by Wing Ming and was used as an estate agency office.  The use was ceased after the plaintiff made an interlocutory injunction application in HCA No. 8805 of 1993 to restrain Wing Ming from permitting the ground floor to be used as an estate agency in breach of the DMC. Subsequently, Wing Ming gave an undertaking to include in future tenancy agreements for the ground floor provision prohibiting its use for purposes other than that allowed by the Land Grant.

15.  By letter dated 13 June 2007 to Wing Ming’s solicitors, Messrs Huen Wong & Co (“HW”), the plaintiff objected to the use of the Premises as a Chinese medical clinic and babies’ clothing showroom.

16.  On 15 June 2007, HW wrote to the defendants’ solicitors herein demanding the 1^st defendant to cease using the Premises for any purpose other than for light industrial purpose.

17.  On 25 June 2007, the 1^st defendant’s solicitors replied by drawing Wing Ming’s attention to clause 3 of the Annex to D1’s tenancy agreement. The letter further stated that the 1^st defendant had, at the signing of the tenancy agreement, informed Wing Ming that it intended to use the Premises for purposes other than light industrial purpose and that Wing Ming had agreed to it provided that the 1^st defendant should at its own costs apply to the government for permission to change the user. The letter went on to say that the 1^st defendant had instructed a surveyor company to study and make application to the government.  

18.  On 26 June 2007, Wing Ming commenced HCA No. 1348/2007 against the 1^st defendant claiming for possession and an order for indemnity on the ground that the use of the premises as a Chinese medical clinic and babies’ clothing showroom is in breach of the user clause in D1’s tenancy agreement and the DMC.              

19.  By three letters dated 5 July 2007 to the 1^st, 2^nd and 3^rd defendants respectively, the plaintiff through its solicitors herein demanded the defendants to cease using the Premises as a Chinese medical clinic and showroom for babies’ clothing.

20.  The 1^st and 2^nd defendants through their solicitors replied by letter dated 10 July 2007. The letter made several points. First, they are aware of the provision of Special Conditions (3). Second, they had instructed Trusty Surveyors (HK) Limited (“Trusty”) to study and apply to the government to change the permitted use of the Premises. Third, at the signing of D1’s tenancy agreement, Wing Ming had been informed that the Premises would be used for purposes other than light industrial purpose, and Wing Ming had agreed to this provided that the 1^st defendant would at its own costs apply to the government to change the permitted use. Fourth, as Wing Ming had already commenced legal proceedings against the 1^st defendant, it is unnecessary for the plaintiff to commence fresh proceedings. The plaintiff was asked to withhold further action pending the outcome of Wing Ming’s action and the 1^st defendant’s application to the government for change of permitted use.  

21.  On 12 July 2007, the plaintiff commenced this action against the 1^st to 3^rd defendants. 

22.  On 24 July 2007, the plaintiff issued the summons for summary judgment.

23.  In the meantime on 20 July 2007, Trusty on behalf of Wing Ming made a temporary waiver application to the Lands Department in respect of the user of the Premises. The result of this application is yet to known. 

Wing Ming’s request to withhold handing down of this judgment

24.  Before dealing with the present application for summary judgment, it is necessary to mention Wing Ming’s request to withhold the handing down of this Judgment. The request was made by HW’s letter dated 24 September 2007, at a time when the summons was heard and adjourned to 3 October 2007 for judgment.

25.  In the letter, Wing Ming requested, inter alia, that the judgment be withheld pending its application to be joined as a defendant in these proceedings.  At the court’s request, Wing Ming elaborated on its reasons for the request by letter from HW dated 24 September 2007. In essence, Wing Ming made three points. First, it had engaged solicitors (not HW) to hold a watching brief at the hearing of the plaintiff’s summary judgment. The plaintiff as well as the defendants had omitted to disclose to the court relevant matters that would afford “very strong arguable defence to the plaintiff’s claims against the 1^st to 3^rd defendants”. Second, the outcome of the present summary judgment application might be prejudicial to Wing Ming’s interest, including the claim between the plaintiff and Wing Ming in HCA 8805/1993, which is scheduled for hearing on 5 November 2007. Third, if the judgment on the plaintiff’s summary judgment application were to be handed down before Wing Ming’s joinder application and if the summary judgment application were allowed, Wing Ming might be forced to set aside or appeal against the judgment resulting in wastage of costs and time. On the other hand, there is no urgency in the plaintiff’s application for judgment.

26.  Wing Ming’s request is opposed by the plaintiff on the basis that Wing Ming is seeking to improperly influence the outcome of the summary judgment application when the application simply does not concern it. The defendants on the other hand do not oppose the request. Wing Ming’s summons to be joined as a defendant herein had been adjourned by Master de Souza and is fixed to be heard before me on 8 October 2007.

27.  I am not persuaded that Wing Ming has made out any ground for asking this court to withhold the judgment on the plaintiff’s application. First, the application is only directed against the 1^st to 3^rd defendants. Wing Ming is not a party to this action. All the parties to the application had completed their submissions on the application. Wing Ming is in no position to request the judgment to be withheld and/or to be heard on the summons. Second, if Wing Ming wishes to be heard on the summary judgment application, it is incumbent upon it to act promptly. Any perceived prejudice caused by the judgment being handed down as scheduled could have been avoided if the joinder application was made earlier. In fact, even at the hearing of the plaintiff’s summons, the court had not been informed that Wing Ming’s legal representative was in attendance. Third, Wing Ming has not indicated what relief it seeks by applying to be joined. It would appear that the joinder application was made for the sole purpose of enabling Wing Ming to be heard on the summary judgment application against the 1^st to 3^rd defendants. This is most unusual having regard to Wing Ming’s stance as indicated by HW’s letter to the defendants’ solicitors and the claim in HCA1348/2007.      

The claim

28.  I now turn to deal with the application before the court. The plaintiff’s claim is primarily based on breach of the restrictive covenant of the DMC which prohibits the Premises to be used for purposes other than those permitted by the Land Grant and the OP. Other than costs, the only relief sought is three injunctions to restrain the respective defendants from using the Premises for purpose not permitted or allowed under the Land Grant and the OP.  

The defence

29.  The defendants have yet to file a Defence. From the affidavit evidence and counsel’s submissions, the intended defence can be summarized as follows:

(1)	There is no breach of the OP in that the OP merely restricts the use of the Premises to non-domestic use.
(2)	The use of Portions A and B by the 2nd and 3rd defendants respectively is either industrial or as a godown. There is thus no breach of the Land Grant.
(3)	The discretion of the court should be exercised against the granting of injunctions. The defendants are in the process of applying to the relevant authorities to change the permitted use of the Premises. Further, even if the defendants are in breach of the OP and Land Grant, there is no loss to the plaintiff. Further, any loss or damage can be adequately compensated by an order for damages.

30.  I will deal with these defences in turn.

The OP

31.  Mr Lui’s arguments on the OP are that it permits the Premises to be used for non-domestic use. The reference to “1 transformer room, 1 switch room, 1 store, foyer, car parking area, 1 cockloft for store & 1 package room” is merely descriptive of the ground floor and cockloft and do not constitute the permitted use or restriction on the use of the Premises. It is also Mr Lui’s argument that the Building Authority who issued the OP is only concerned with the safety of the Building. Accordingly, it suffices for it to stipulate the use as domestic or non-domestic. He suggested that it would pose no problem even if, for example, the switch room were to be converted into industrial use.  

32.  I am unable to accept this submission and the construction that Mr Lui puts on the OP. It is trite that an occupation permit prescribes the approved or permitted user of the various parts of the building to which it relates. In the present case, the OP prescribes the use of the ground floor as “1 transformer room, 1 switch room, 1 store, foyer, car parking area, 1 cockloft for store & 1 package room for non-domestic use”.  It is not the case that any non-domestic use is permitted: see Wonderful Investments Ltd v. Young King Asia Ltd [1996] 4HKC 238, Max Smart Ltd v. First Super Investment Ltd [1999] 1HKLRD 519. Had this been the case, there would be no need for the OP to specify in details the user of each and every floor of the Building.

33.  Plainly, irrespective of whether the 2^nd and/or the 3^rd defendants’ present occupation is or is not for industrial or godown purpose, their use of Portions A and B is not permitted by the OP. It follows that there is a breach of clause 30(a) of Section IV of the DMC. There is no arguable defence to the claim.

The use of Portions A and B

34.  The defendants also dispute the 2^nd and 3^rd defendants’ uses of the Premises is other than for industrial or godown purposes and amount to breach of the Land Grant.  In Fung Sau Ying’s Affirmation, she described Portion A as being used for some manufacturing processes like the manufacturing of Chinese herbs, boiling of Chinese medicine and vacuum packaging of the medicine, and also for storage of the Chinese medicine. It is also said that some research is also carried out in the clinic. As for Portion B, the affirmation said that it is used as a workshop for manufacturing, developing and storing of the 3^rd defendant’s products, which include babies’ clothing, bedding and other accessories. Specifically, it said that the designing of the products and the production of samples are done on Portion B. Admittedly, the manufacturing of the products take place in factories located elsewhere, but the semi-finished and finished products will be kept in Portion B. There is an office and also a showroom, where retail activities also take place, at Portion B. 

35.  There are before the court a number of photographs showing the conditions and use of Portions A and B. They are not controversial. What is in issue is the inferences to be drawn from them as to the activities that are being carried out.

36.  In the case of Portion A, notwithstanding the eloquent submissions of Mr Lui, it is evident from the photographs that it is no more than an ordinary Chinese medical clinic where in addition to consultation service, Chinese or herbal medicine soup will be prepared or boiled for the patients or customers. It is an exaggeration to suggest that there is on the premises manufacturing of Chinese medicine amounting to or similar to an industrial undertaking.  The photographs show that herbal soup packs are packed and displayed for sale in the clinic. But that is far from manufacturing or production of Chinese or herbal medicine. The only facilities shown in the photographs are several small electrical soup boilers and a machine for cleansing Chinese herbs. They hardly support the defendants’ case of Portion A being used primarily for industrial purpose and that the retail and consultation services are merely ancillary.

37.  As submitted by Mr Mak, the layout plan supplied by the defendants is also quite telling. It does not, for instance, identify any part of Portion A as being used for manufacturing purpose. What stand out from the plan are the several consultation rooms.

38.  The Affirmation filed on behalf of the defendants also does not show what manufacturing processes are involved or conducted on the premises. There is also no evidence as to the scale of the undertaking. Against this is the fact that 2^nd defendant had described the business as a Chinese medical clinic in its Business Registration return, which is indicative of its perception of the activities on the premises. In my view, the defendants have not discharged their burden to show that the use of Portion A is not in breach of the Land Grant.      

39.   As for Portion B, the evidence is clear it is used for a variety of activities, ranging from office, retail showroom to workshop for production of samples and storage of products.  As in the case of Mexx Consolidated (Far East) Ltd v. Attorney General & Anor [1987] HKLR 1210,1215 & 1219 where there are both elements of user (i.e. commercial and industrial), it will be wrong to look at the activities in isolation. What is important is the cumulative effect of the activities and not their individual characteristics. In the present case, the cumulative effect of the activities on Portion as described in the affirmations and depicted in the photographs is that it is more in the nature of trading than industrial. However, this being an Order 14 application, it would not be appropriate for the court to resolve an issue like this on affidavit evidence. It is also arguable as a matter of law whether the primary use is industrial having regard to the sort of activities carried on at Portion B. Therefore, purely on the use of Portion B and subject to the foregoing analysis on breach of the OP, I will accept that there is a triable issue as to whether the 3^rd defendant’s use amounts to a breach of the Land Grant.      

Court’s discretion on the grant of injunctive relief

40.  I turn finally to the defence that the court should not grant the injunctions sought as they are discretionary remedies. The defendants had led expert evidence from Mr Patrick Lau, who is an Authorized Person and Chartered Building Surveyor employed by Trusty.  Mr Lau stated that despite the restriction as to user in the Land Grant, an owner (i.e. Wing Ming) could apply to the Lands Department for temporary waiver and to change the user. If the proposed user is not a permitted use under the relevant outline zoning plan, a separate application for approval of use has also to be made to the Town Planning Board. In Mr Lau’s experience, the whole process will take 5 to 7 months and each case will be decided on its own merits.

41.  In the present case, under the Draft Cheung Sha Wan Outline Zoning Plan No.S/K5/29 that governs the Building, the present uses of the Premises do not fall within either Column 1 or Column 2 permitted uses for industrial buildings. Mr Lau’s evidence is silent on whether any application had been made to the Town Planning Board.

42.  Mr Lau further stated that where there is any change of use of land without a short term waiver, the Lands Department will issue a warning letter and also impose on the occupier a “forbearance fee”. It is pointed out that the forbearance fee is the liability of the occupier and will not affect co-owners in the same building.

43.  The evidence of Mr Lau does not afford the defendants with a defence to the claim. On the contrary, it is clear that the defendants have not yet secured approval from the Lands Department to change the permitted use. Unless and until the necessary approval and the short term waiver is given, the defendants’ uses of the Premises are contrary to the Land Grant. It is of significance to note that it is Mr Lau’s evidence that the present uses do not constitute breach of the Land Grant.

44.  It should also be noted that in Fung Sau Ying’s Affirmation filed on behalf of the defendants, it was said that application for change of permitted use and short term waiver will usually be entertained and approved by the Lands Department and that the defendants were confident of Wing Ming’s pending application. Madam Fung is a shareholder in all the defendants and a director of the 1^st and 3^rd defendants. She is however not an expert witness and is therefore not in a qualified position to express these opinions. Her evidence is in fact contradicted by Mr Lau who said that such applications were dealt with on a case by case basis and depending on the merits of the case.

45.  As to the matter of forbearance fee, it is not Mr Lau’s evidence that the only consequence of an unauthorised change of user is the payment of a forbearance fee.  It is trite that the government is entitled to take enforcement action against the land, including the right of re-entry, where there is a breach of the Land Grant. It is therefore irrelevant that the other co-owners of the Building are not liable for the forbearance fee.

46.  In Fung Sau Ying’s Affirmation, it was said that a number of the occupiers of the Building are using their units for commercial purposes rather than industrial or godown purposes and the plaintiff had tolerated or condoned this. This is refuted by the plaintiff. In any event, this affords no defence to the defendants. Firstly, the plaintiff as an incorporated owners cannot grant an owner or occupier the right to act in contravention of the deed of mutual covenant. Secondly, no waiver or estoppel can be set up against the plaintiff for condoning other occupier’s breach because equity would not bind the plaintiff to allow something which it could not have allowed by express grant: see The Incorporated Owners of Hoi Luen Industrial Centre & Anor v. Ohashi Chemical Industries (Hong Kong) Ltd [1995] 2 HKC 11, at 12G-H and 13C-E.

47.  The defendants also argue that as any breach by them will cause no loss to the plaintiff and there is no urgency, the injunctions should not be granted. As Mr Mak points out, the plaintiff has a statutory and contractual duty to manage the Building and to enforce the DMC. Whether any loss will occasion to the Owners Incorporation is quite irrelevant. What is plain that the defendants’ breach may affect the other owners’ rights to peaceful enjoyment and use of the Building. Whether there is or is not urgency is also irrelevant to an application for summary judgment. In the same vein, the suggestion that damages will be an adequate remedy also missed the point.          

48.  The defendants also say that if the injunctions were granted, the 2^nd and 3^rd defendants would have to close down their businesses, entailing considerable hardship to them. As pointed out by the plaintiff, the defendants are well aware of the restriction on the user of the Premises. It is their own choice to use the Premises for purposes not authorised by D1’s tenancy agreement, the OP and the Land Grant. They had also chosen not to seek the relevant approval to change the user until after the present claim is brought against them. Any hardship that they may suffer cannot afford them with a defence to the claim nor move the court’s discretion in their favour.   

Conclusion

49.  For the above reasons, the plaintiff’s application is allowed. There is judgment for the plaintiff against each of the defendants as claimed together with costs of the action, including this application, to be taxed if not agreed.