THE INCORPORATED OWNERS OF TUEN MUN HUNG CHEUNG INDUSTRIAL CENTRE (PHASE I) v. UNITED HONG KONG LTD.

HCMP 2991/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2991 OF 1998

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J U D G M E N T

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Background

1. The Plaintiff is a corporation registered under the Building Management Ordinance ("the Ordinance") and is the incorporated owners of the building known as Hung Cheung Industrial Centre (Phase I), No.12 Tsing Yeung Circuit, Tuen Mun, New Territories ("the Building"). The Defendant is the registered owner of Unit E on the Ground Floor of the Building.

2. The owners of the Building are bound by a Deed of Mutual Covenant dated 8th June 1982 ("the DMC"). Clause 10(a) of the DMC provides that the owners are :

"Not to make any structural alternations in his part of the said Building which may damage the other parts thereof or cause any inconvenience to the other occupiers and not to make any alteration to the water or gas pipes, electrical wiring or plumbing which may cause such damage or inconvenience as aforesaid and not to cut or injure the cement concrete flooring columns, beams or girders of the said Building or do anything whereby the structural strength thereof may be affected."

Clause (s) of the Third Schedule of the DMC provides that :

"No owner shall make any structural alterations to the flat roof or roofs of the said Building or to the exterior of his unit and shall not repaint or redecorate the exterior of the said Building except with the written consent of the Manager and the Government Departments concerned and as part of a general scheme for repainting or redecorating the exterior of the said Building."

The Plaintiff contends that the Defendant in April and May 1998 had demolished two external walls of Unit E, and installed two roller gates in place of the external walls without the written consent of the Plaintiff. The external walls were removed so that there would be direct access from the street level to the two units. The Plaintiff is seeking a permanent injunction to restrain the Defendant from, among other things, demolishing the external walls of the Building and also a mandatory injunction requiring the Defendant to reinstate the walls that had been demolished to their original state.

The Defendant's case

3. The Defendant had sub-divided its unit into two sub-units, namely, Units E1 and E2. The external wall to Unit E1 in fact was demolished in March 1995. After demolishing the external wall, the Defendant let out Unit E1 to a tenant who operated a garage at the premises from May 1995 onwards. The Plaintiff began to raise objections to the removal of the external wall in December 1995. In January 1996, the Defendant reached an agreement with the Plaintiff that it would allow the removal of the external wall of the premises.

4. In April 1998, the Defendant removed the external wall of Unit E2. It did not inform the Plaintiff of the removal because it claimed that the removal work did not affect the structure of the Building, and also prior approval for the removal had been granted to the Defendant in January 1996. The Defendant argued that because of the prior approval, the Plaintiff is estopped from withdrawing its approval and asking for the restoration of the external wall.

The principles

5. The principles regarding the duties of incorporated owners are clear :

(1) Under the Ordinance, incorporated owners are required, under statutory duty, to enforce the DMC.

(2) When the incorporated owners found that there is a breach of covenant by one of the owners, it is not only their right but the duty to seek to enforce the covenant.

(3) Incorporated owners could not have granted expressly to any owner of any unit in the building the right to act in contravention of the DMC.

(4) What cannot be done expressly cannot be done impliedly.

(5) 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.

See Incorporated Owners of Hoi Luen Industrial Centre & Another v. Ohashi Chemical Industries (Hong Kong) Ltd. [1995] 2 HKC 11 and Hong Yip Service Co. Ltd. v. Candela Co. Ltd. [1997] 1 HKC 273.

Breach of DMC

6. The first question to be asked is whether there was a breach of the DMC by the Defendant. In my view, there clearly was. The Defendant relied on a letter dated 12th January 1996 in which an architect stated that the demolition of the external wall on Unit E1 "had no effect on the structure" of the Building. It is not clear what the architect meant by the words "effect on the structure". To put the Defendant's case to the highest that the alteration had no effect on the safety of the structure, it does not mean that there had been no breach of the DMC.

7. Clause (s) of the Third Schedule is breached if an owner carries out structural alterations to the exterior of his unit. Under its term, it is not necessary to show that the alteration causes damage to the structure of the building. In Granada Theatres Ltd. v. Freehold Investment (Leytonstone) Ltd. [1958] 2 All ER 551, Vaisey J was considering the terms of a tenancy agreement in which the landlord agreed to "... repair, maintain and keep the main structure walls roofs and drains of the demised premises in good structural repair and condition." The judge held that "structural repairs" means repairs of, or to, a structure. As to the meaning of a "structure", the judge held that "We are dealing here with (i) the roof, and (ii) one of the main walls of a cinema, and surely those are parts of the structure of the building".

8. The Defendant relied onChung Kwok Yiu v. Leung Chi Shing, HCMP No.2489 of 1985 ([1996] HKLY 921) and argued that a structural alteration is something that only an architect can determine. That case was about the dispute between the vendor and purchaser in the sale of a flat where certain internal walls had been removed. An architect had certified that the alterations were not structural and the judge found that the requisitions on title were answered. The issue was about the possible enforcement by the Building Authority of work carried out without its prior approval and whether the vendor had shown a good title to his property.

9. In my view, in construing the terms of the DMC, one should take the ordinary literal meaning of the words. After all, the incorporated owners are required to enforce the terms of the DMC. It would be imposing an impossible burden on their task if every time when they see alterations to the building, they have to consult an architect first to ascertain whether the altered part forms part of the structure of a building before they could commence proceedings which very often have to be made on an urgent basis. Chung Kwok Yiu does not support the Defendant's argument that the opinion of an architect must be obtained first. In the context of the DMC, structural alteration clearly means alteration to the structure of the Building. The external walls which enclose the Building clearly form the structure of the Building.

Earlier breach

10. In considering the remedies available to the Plaintiff for the breach by the Defendant of the DMC, a distinction must be drawn between the work that was carried out in 1995 and those carried out in 1998. In relation to the earlier work, it is clear that the Plaintiff had decided not to take actions on the breach. For the equitable doctrine of promissory or equitable estoppel to operate :

"... there must be a legal relationship giving rise to rights and duties between the parties; a promise or a representation by one party that he will not enforce against the other his strict legal rights arising out of that relationship; an intention on the part of the former party that the latter will rely on the representation; and such reliance by the latter party. Even if these requirements are satisfied, the operation of the doctrine may be excluded if it is, nevertheless, not 'inequitable' for the first party to go back on his promise." : Chitty on Contracts, 28th Ed, Vol.1, Para 3-081.

11. Despite the forceful arguments of Mr Edward Shum, Counsel for the Plaintiff, that it is not inequitable for the Plaintiff to require the Defendant to reinstate the wall that was demolished as early as 1995, in my view, it is unfair and inequitable to do so. The Plaintiff had full knowledge of the breach when it agreed not to take action. The situation has remained the same for the past four years. The Defendant has conducted its affairs on the basis of the approval. The Plaintiff is seeking a mandatory injunction, the issue of fairness and equity clearly needs to be considered : Incorporated Owners of Dragon View v. Nalpak Ltd. [1989] 1 HKC 549. The Plaintiff is not entitled now to require the Defendant to reinstate the wall.

Demolition in April 1998

12. A different consideration, however, applies to the demolition in April 1998. Shortly after the demolition work was carried out, the present proceedings were commenced in July 1998. Although no interlocutory injunction was sought, clearly the Plaintiff, by commencing the present proceedings, wished to enforce the terms of the DMC against the Defendant. There was no acquiescence by the Plaintiff. The defence of acquiescence arises if two conditions are satisfied: first, there must, on the part of the plaintiff, be an assent or lying by in relation to the acts of another person; and second, in view of that assent or lying by and consequent acts it must be unjust in all the circumstances to grant the specific relief that is in question : The Principles of Equitable Remedies by Spry, 5th Edition, page 440. These conditions are not satisfied in this case.

13. It is apparent from the minute of meeting of the Plaintiff dated 19th January 1996, the Plaintiff did not give any general permission to carry out alteration work in the future. On the contrary, the minute stated that in future, if the owners of the units wish to carry out alteration and repair, they must obtain the approval of the management company before the alteration; there must be certificates from the architect confirming that the DMC would not be breached, and the alteration would not affect the structure of the Building and the owners would be responsible for all legal liabilities after the alteration. The minute further provided that the resolution did not encourage owners to alter the DMC at their own will and the Plaintiff would seriously pursue matters which affect the structure of the Building and public safety. The minute was exhibited to the affirmation of the Defendant. It must be known to the Defendant that the Plaintiff had not given a general approval for future demolition to the external wall.

14. The Defendant relied on two matters. First, in July 1996, the external walls of Units B and C on the Ground Floor of the Building were also removed and the Plaintiff raised no objection to the removal. The Plaintiff did not adduce any rebutting evidence on this. Second, all the ground floor units, namely, Units A1, A2, B, C, D, F1, F2 and F3 of the Building had their external walls removed.

15. In my view, what the Defendant had said would not preclude the Plaintiff from obtaining its relief relating to the latter breach. The Building is a 13-storey building with 104 units. The Defendant is only able to show that six (or nine, if all the subdivided units are counted as well) out of these 104 units had their external walls removed. Although these units are all on the ground floor, the Defendant is unable to demonstrate that the Plaintiff has acquiesced in the particular kind of breach.

16. The Defendant relies on Cheung Yuet & Another v. The Incorporated Owners of Oriental Gardens [1979] HKLR 536 in which the Court of Appeal set aside the injunction requiring the defendants to remove the structures erected at their flat in contravention to the deed of mutual covenant. That was an exceptional case in that only one unit in the many flats in the Oriental Gardens did not have extensions. The Court of Appeal held that the plaintiff had acquiesced in the particular kind of breach which the defendants had committed.

17. Further, as far as the Defendant is concerned, it must have known that prior permission must be sought from the Plaintiff before it could carry out the removal work. If the reinstatement would involve the Defendant committing a breach of its tenancy agreement with the tenant in Unit E2, then it is something that it had brought upon himself.

18. As to the Defendant's argument that it was unfairly singled out by the Plaintiff, the Plaintiff had explained that this is a test case. Although the argument by the Defendant is superficially attractive, ultimately, the case depends on whether the Plaintiff has a proper cause of action against the Defendant. In my view, it has. It is the duty of the Plaintiff to enforce the terms of the DMC.

19. The Defendant also relies on s.34I of the Ordinance which provides that no person may convert the common parts of the building to his own use unless such conversion is approved by a resolution of the owners' committee (if any). Whatever was the position regarding Unit E1, no approval had been given for the conversion of Unit E2. Further, a distinction must be drawn between the conversion of a common part and the demolition of the common part. This section is of no assistance to the Defendant.

Conclusion

20. Accordingly, the Plaintiff is entitled to the order restraining the Defendant from removing the external wall of the Building. However, the Defendant is only required to reinstate the external wall of Unit E2 and not Unit E1. The Plaintiff is entitled to have costs nisi of the action.