SHL COMPONENTS MARKETING LTD v. NGAN YUK SHU AND ANOTHER

DCCJ2010/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2010 OF 2013

--------------------

--------------------

--------------------

JUDGMENT

--------------------

1. By way of an ex-parte application heard on 3 June 2013, Deputy District Judge SP Yip (the “Judge”) granted the following order to the plaintiff:-

(1)    The defendants whether by themselves or by any person acting on their behalves or instructions be restrained to carry out any work which involves breaking the wall partitioning the void over the plaintiff’s property known as Shop Portion C on Ground Floor, Fu Shin Building, Nos 72-74 Fu Shin Street, Tai Po, New Territories and the defendants’ property known as Cockloft, Fu Shin Building, Nos. 72-74 Fu Shin Street, Tai Po, New Territories, until further order of the Court (the “injunction”);

(2)    Liberty to the defendants to apply on notice for discharge or variation of this Order;

(3)    The plaintiff do on or before the 10^th day of June 2013 take out and serve on the 1^st and 2^nd defendants an Inter-Partes Summons; and

(4)    Costs reserved.

2. A Writ of Summons together with Statement of Claim (“SOC”) was filed by the Plaintiff on 3 June 2013 and the Inter-Partes Summons (the “Summons”), seeking the continuation of the prohibitory injunction, was issued on 5 June 2013.  Directions in relation to filing of evidence by each party were given by Deputy District Judge Eric Tam on 18 June 2013.  The Summons was then returned before me.

3. As clarified at the outset of the hearing, Mr Joe Chan (counsel for the plaintiff) accepted that the plaintiff no longer seeks a continuation of the injunction as granted by the Judge – the plaintiff does, however, seek an injunction in amended form (at paragraph 4 of Mr Chan’s written submission).  The defendants (through its counsel Ms Queenie Ng) seek the discharge of the injunction.

Background

4. The plaintiff and defendants own neighbouring properties in Fu Shin Building in Tai Po.  The Ground Floor, from what I understand, consists of retail shops.

5. The rights of the registered owners of the properties of Fu Shin Building, as against each other, are governed by the Deed of Mutual Covenant and Grant dated 12 May 1987 and registered in the Land Registry with Memorial No TP268167 (the “DMC”). 

6. Before 1992, a single shop took up the entire space of the Ground Floor of Fu Shin Building.  This single shop was later partitioned (in August 1992) into four smaller shops (Shops A, B, C and D) and sold off to different parties.

7. The defendants own Shop D on the Ground Floor.  In addition to Shop D, the defendants also own a Cockloft (between the Ground Floor and 1^st Floor of Fu Shin Building) which can be reached by way of a staircase extending up from the Ground Floor within Shop D.

8. The Cockloft area comprises a space that stretches across the areas above Shop D, Shop C (which is the plaintiff’s property) and Shop B.  The defendants became the registered owners of both Shop D and the Cockloft by virtue of an Assignment dated 18 September 1992.

9. The plaintiff owns Shop C on the Ground Floor (the “plaintiff’s property”).  The plaintiff became the registered owner of the plaintiff’s property by virtue of an Assignment dated 29 November 2010.

10. The instant application concerns the defendants’ Cockloft which is, as pleaded at para (3) of the SOC, located “immediately over and on top of the plaintiff’s property” (the “defendants’ property”).

11. Another relevant aspect of the properties for the purposes of the instant application is a “void space” which is literally an empty space located, as can be seen from the Cockloft Plan, at the top edge of that floor (as viewed on the plan) and which extends across the upper parts of Shop C and Shop D into the space adjacent to the Cockloft area.  This void space used to be enclosed by way of a concrete slab that extended from the defendants’ property over Shop C (the “Structure”) but the Structure has now been removed.  I understand that the purpose of the Structure was to serve as a partition between the properties owned by the plaintiff and defendants, which the metal railing (as appears in the Cockloft plan) was in place to do before.

12. Whilst the approved Cockloft plan does show the existence of the metal railing, unsurprisingly it does not show the existence of the Structure.  I was informed at the hearing by counsel that the metal railing had been removed by the time the defendants were assigned its property in 1992 and that the Structure had, by that time, been erected in the void space extending from above Shop D and which “intruded over the upper space void in (Shop C) … thereby covering the void at (Shop C)”.

13. The approved Ground Floor plan does not show any partitions between what are now Shops A, B, C and D.  Counsel agreed that it did not appear that any of the existing actual partitions between these shops were authorised works.

14. In any event, soon after the plaintiff became the owner of Shop C, it sought the defendants’ approval to remove the Structure, having been advised by its building consultant that it was an unauthorised building work (“UBW”).  It was said that the reason for this was that the plaintiff had found a Tenant to lease Shop C to run a food business (sales of fresh meat) from the premises.  According to the plaintiff, the Food and Environmental Hygiene Department (“FEHD”) required removal of the Structure but also required that the plaintiff’s property and the defendant’s property be adequately separated (points 22 and 23 of YMS-20) before a provisional Fresh Provision Shop Licence (the “Fresh Meat Licence”) could be issued.  I will come back to this later.

15. The matter even reached a stage whereby the plaintiff issued a writ against the defendants (DCCJ 2453/2011) seeking a mandatory injunction that the defendants “do dismantle the Structure and reinstate the space covered by it to its original state as approved by the Government”.

16. The dispute was resolved by way of a consent order on 8 May 2012 and the manner in which the dismantling work would be carried out was encapsulated in a Chinese Agreement dated 4 June 2012, the key clauses being (the translation having been set out in Mr Chan’s written submission):-

(a)  After dismantling the Structure and the tenant of the plaintiff’s Property was granted the necessary permit to carry on business in the plaintiff’s Property, to reinstate the Structure to its original state (Clause 1.1 & Clause 2.4); and

(b)  Where there are conflicts between the Chinese Agreement and the laws of Hong Kong, the Chinese Agreement should be amended in accordance with the laws of Hong Kong (Clause 3.3).

17. The Structure was duly dismantled by the plaintiff, as had been agreed.  After the dismantling of the Structure, the plaintiff caused a three-sided concrete wall to be built in its place but which, as Ms Ng contends, also encroached over the defendants’ property.  The three-sided wall was described by the plaintiff as “… partitioning the void over the plaintiff’s property (Shop C) and the defendants’ property (Cockloft)” and is depicted at Appendix 3 of the Survey Report at NHC-4 (the “Wall”).  The reason for the Wall being built was to enable the plaintiff to tick the remaining box as far as the FEHD’s requirements were concerned (ie point 23), as the Structure had already been dismantled by that time (point 22).

18. Indeed, after the Wall was built the Fresh Meat Licence was issued to the Tenant by the FEHD and Shop C was subsequently leased to the tenant (from 15 July 2012).  Once the Fresh Meat Licence was granted, the Chinese Agreement called for the original state to be returned by the plaintiff (counsel told me that this was to reinstate the Structure).  According to the defendants, the plaintiff had failed to dismantle the Wall, which was a necessary part of the Chinese Agreement, so they decided to dismantle the Wall on their own.

The injunction

19. From the ex parte papers, I note that it was alleged by the plaintiff that it had received news from an estate agent on 22 May 2013 that the defendants were seeking to “carry out reinstatement works, including dismantling the Wall.”  Mr Yap Man Shao of the plaintiff replied to the defendants that it had already applied to the Buildings Department (“BD”) for approval to carry out the reinstatement works and objected to the defendants unilaterally deciding to carry out such reinstatement works, including dismantling of the Wall.  The plaintiff was informed by letter dated 28 May 2013 from the BD that its application to reinstate to the pre-dismantling of the Structure status was “fundamentally unacceptable”.  The defendants, according to the plaintiff, continued to press to carry out the reinstatement works themselves, including the dismantling of the Wall.

20. The basis of the plaintiff applying for the ex parte injunction was that “the defendants will proceed to dismantle the Wall, in that event the tenant will not be able to carry on its business there, and the plaintiff will not be able to secure or use its Property then” (para (19) SOC). Mr Chan stated in Court that the injunction was also sought to stop the defendants from carrying out the reinstatement works (which is the next step after the dismantling of the Wall), however, I note that this was never part of the order sought before or granted by the Judge.  Indeed, Mr Chan agreed that the injunction did not address the reinstatement works at all.

21. The injunction was granted (in the terms set out above) on 3 June 2013.

The grounds

22. The plaintiff seeks to continue the injunction, not as granted but amended as follows (underlined):-

“The defendants whether by themselves or by any person acting on their behalves or instructions be restrained to carry out any work which involves breaking the wall partitioning the void over the plaintiff’s property known as Shop Portion C on Ground Floor, Fu Shin Building, Nos. 72-74 Fu Shin Street, Tai Po, New Territories and the defendants’ property known as Cockloft, Fu Shin Building, Nos. 72-74 Fu Shin Street, Tai Po, New Territories, until further order of the Court, unless such works are approved by the Government and a lawful enclosed partitioning between the plaintiff’s Property and the defendants’ Property is installed”

23. The defendants, however, seek a discharge of the injunction.  Their main ground is that the plaintiff has failed to make full and frank disclosure of all material facts before the Judge.

Applicable principles

24. There does not appear to be any dispute as to the applicable principles that need to be considered in relation to the grant of an interlocutory injunction (where the plaintiff seeks to continue the injunction) or the discharge of an ex parte injunction (as contended for by the defendants)

(a) Granting of interlocutory injunction

25. The principles laid down in American Cyanamid v Ethicon Ltd [1975] AC 396 are applicable.  The applicant has to show a serious issue to be tried, that damages are not an adequate remedy and the balance of convenience is in favour of the grant of the injunction.

(b) Discharge of an ex parte injunction

26. It is imperative that an applicant for an ex parte injunction must make full and frank disclosure of all the material facts … where the applicant fails to (do so) the orders may be set aside without regard to the merits: HK Civil Procedure 2013 at para 29/1/51.

(a)(i) Serious issue or question to be tried

27. Ms Ng argues that there is no serious question to be tried between the parties given that the only relief which the plaintiff seeks by way of its SOC is that the defendants be restrained from dismantling the Wall until further order of the Court – indeed, no losses are claimed by the plaintiff.  As stated above, the plaintiff’s position is now (as per its amended draft) that there should be a temporary reprieve in order for Government approval to be obtained before the Wall is subsequently dismantled.  Should the Wall be dismantled on the basis of the plaintiff’s case (which the plaintiff accepts must be dismantled eventually) or on the basis that the injunction is to be discharged, there is actually no issue to be tried for which an injunction is necessary.  For example, no other relief or claim is being sought, says Ms Ng.  She argues that since there is no serious issue to be tried, the injunction should fall at the first hurdle.

28. Although Mr Chan did not seek to disagree with this contention in reply, the SOC appears to be founded on the Chinese Agreement (although very loosely and certainly lacking in particulars). Certainly Mr Chan’s written submission appeared to supplement the detail that is lacking in the SOC as to the connection between the injunction and the perceived cause of action.

29. Although the plaintiff does not claim damages, I do not accept that even though there is no additional relief claimed by the plaintiff, save for the injunction itself, that there is no real issue to be resolved between the parties.  I note that in American Cyanamid [1975] AC 396, at 407 the Court set a very low threshold in respect of this ground namely that “the Court must be satisfied that the claim is not frivolous or vexatious…”  Although I can understand that there is no wider relief sought by the plaintiff I am of the view that, as far as the claim is currently pleaded, there is at least some issue to argue between the parties.

(a)(ii) Damages not adequate

30. Once the Court is satisfied that there is a serious question to be tried, the next consideration is whether the applicant could adequately be compensated by damages if the injunction is not granted and it eventuates at the trial that it should have been.  In other words, will damages be an adequate remedy for the loss sustained by the applicant? (Para 2.047, Commercial Litigation in Hong Kong).

31. Neither Counsel addressed me to a great extent on this ground.  I note that the plaintiff has given an undertaking as to damages before the Judge which has been made part of his order.  At the same time, however, I accept that, given that the injunction is directed at restraining the defendants from dismantling the Wall which serves as a partition between the properties (which if lifted will no longer restrain them as such), if the Wall were dismantled, then considerations such as property rights, security and privacy arise between the parties.  In the circumstances, I am prepared to accept that damages would not be an adequate remedy.

(a)(iii) Balance of convenience

32. I repeat the oft-cited passage from Lord Diplock in American Cyanamid:-

“The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action … but the plaintiff’s need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his legal rights for which he could not be adequately compensated under the plaintiff’s undertaking in damages … The court must weigh one need against another and determine where the ‘balance of convenience’ lies (at p 406)”

33. The key consideration in relation to balance of convenience is as to whether the status quo should be preserved, ie whether the Wall should be kept in place until eventually dismantled after Government approval has been obtained.  First, counsel were unable to tell me how long such dismantling would take.  Second, Ms Ng submitted that there was a safety issue in relation to the Wall (referring to the defendants’ survey report) and that this pointed against the status quo being preserved.  Mr Chan argued that the survey report did not make any findings on safety.

UBW and safety of the wall

34. The plaintiff now accepts that the Wall is a UBW and the law requires it to be dismantled.  Mr Yap argues, however, that albeit being an illegal structure, he believes that “the Wall would not constitute any cogent and present danger that would require immediate remedial works”.

35. I am of the view that the survey report does, indeed, question the safety of the Wall.  For example, it highlights that there is an absence of “connection/supporting details between the block walls and the existing void at cockloft”.  The Wall is of questionable integrity/safety.  No evidence was produced to contend otherwise.  At best, the safety issue is unresolved.  The fact that the Wall is a UBW, an illegal structure, is an important consideration.

Necessary partition

36. A further argument in favour of the status quo, as argued by the plaintiff, is that “without the Wall, there will be no enclosed partitioning.”

37. It must not be forgotten that the approved plans of Fu Shin Building do not show any partitions between the properties of the plaintiff and defendant, simply a metal railing at the Cockloft.  The fact that the Wall is now in place and provides a partition between the plaintiff’s property and defendants’ property, given its illegal nature, weighs very little in the “scales”.  Similarly the fact that the partition is necessary, as submitted by Mr Chan, or desirable does not take away from the fact that it is admittedly a UBW and arguably unsafe.

38. Upon considering all the evidence presented to me, I am of the view that the balance of convenience lies against preserving the status quo and that the injunction should be discharged on this ground.

(b) Material non-disclosure

39. The relevant principles, as set out in New Asia Energy Ltd v Concord Oil (Hong Kong) Ltd [2000] 2 HKC 681 at 685F-686B (per Keith JA) were not disputed:-

“THE ALLEGATION OF MATERIAL NON-DISCLOSURE

Against that background, I turn to the allegation that New Asia had failed to disclose material facts to Suffiad J. The law is well established, but it is sensible to remind oneself of those principles which are relevant to the issues raised in the present appeal. I take them from Gee, Mareva Injunctions and Anton Piller Relief (4th Ed) pp 128 and 131:

The duty extends to placing before the court all matters which are relevant to the court’s assessment of the application, and it is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the court, the decision would have been the same. The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence it is no excuse for the applicant subsequently to say that he was genuine unaware, or did not believe, that the facts were relevant or important. All matters which are relevant to the ‘weighing operation’ that the court has to make in deciding whether or not to grant the order must be disclosed …

The plaintiff must also identify any defences, which, although not yet taken, would have been available to be taken by the defendant had he been present at the application, provided that:

(1) the defence is one which can reasonably be expected to be raised in due course by the defendant;

(2) the defence is not one which can be dismissed as without substance or importance …

Although these observations were made in the context of ex parte applications for Mareva injunctions and Anton Piller orders, they apply to all ex parte applications, and in my view they represent the current state of the law both in England and in Hong Kong. To take two local cases as examples, in Citibank NA v Express Ship Management Services Ltd & Anor [1987] HKLR 1184, Fuad JA (as he then was) said at 1190C-E:

The cases show what are to be regarded as material facts in this context: ‘all facts that are relevant to the weighing operation which the court has to make in deciding whether or not to grant the order’: per Browne-Wilkinson, J. (as he then was) in Thermax v. Schott Industrial Glass [1981] FSR 289, 298. His test has been applied in several cases. I find the decision of Goulding, J. in Wardle Fabrics Ltd. v G. Myristis Ltd. [1984] FSR 263 to be particularly helpful for in that case the judge emphasized that the correct test is not simply whether, if the non-disclosure had not occurred, the ex parte judge would, nevertheless, have made the order, but whether the facts not disclosed, being relevant, should have been in the scales.

And in Fenn Kar Bak Lily v Goh Kim Lay & Anor [1995] 3 HKC 313, Mortimer JA (as he then was) said at 317B-C:

… the plaintiff must put before the judge the grounds for his claim, the amount of the claim and any obvious matters of fact or law which could be raised by the defendant against the making of an order.”

40. It was accepted by Mr Chan that, at the time of making the ex parte application, the Judge was not informed that the Wall that the defendants were seeking to dismantle was also a UBW. This is a very important piece of evidence, says Ms Ng, as it would have gone into the ‘weighing operation’ of the court.  She questioned whether the court would still have granted the injunction if it were directed at preventing a UBW from being dismantled.

41. I agree with Ms Ng that this is a material point that ought to have been mentioned to the Judge.

42. Mr Chan’s explanation was that the plaintiff did not think that the Wall was a UBW at the time.  The plaintiff, says Mr Chan, all along believed that the Wall was actually a legal structure given that it was to be installed at the request of and sanctioned by the FEHD.

43. Ms Ng refutes this contention.  Further she states that the court ought also to have been provided the background as to how the Wall came to be installed in the first place (without BD approval, which the plaintiff must have known at the time of making the application on 3 June 2013 given that the plaintiff itself had constructed it).  This, Ms Ng says, was also material.

44. I have no hesitation in accepting the submissions of Ms Ng.  Whilst it is clear that the FEHD, by its letter dated 18 July 2012, required the tenant (and thereby the plaintiff who is the owner of Shop C) to carry out certain tasks before the provisional Fresh Meat Licence could be issued to the tenant (see notably point 23: “the cockloft shall be completely segregated from ground floor by brick walls or other substantial to the satisfaction of the Director of Food and Environmental Hygiene”), I am of the view that this cannot mean that the FEHD was stepping into the shoes of the BD and “sanctioning” whatever structure that was built as being automatically legal.

45. I am reinforced in this view by, for example, the following reference in the Standard and Non-Standard Requirements appended to the 18 July 2012 FEHD letters (“YMS-20”): “the grant of a licence does not exempt you from complying with the requirements or legislation administered by other Government departments such as… the Buildings Department.” This must be the position of the FEHD and I would have been surprised if it were said to be otherwise.  It is clear that the mandate of the FEHD in relation to Shop C was to ensure that the premises were modified up to the FEHD’s expected strict standards before the Fresh Meat Licence could be issued.  Hence the detailed Standard and Non-Standard Requirements.

46. I agree with the defendants that the fact that the FEHD granted the Fresh Meat Licence to the tenant is neither here nor there as to the plaintiff’s obligations in obtaining proper authorisation in relation to the Wall.

47. As a result, I find that the following were material non-disclosures on the part of the plaintiff:-

(a) failing to disclose the fact that the Wall was a UBW; and

(b) failing to provide the background in relation to how the Wall came to be constructed.

48. On the basis of the above grounds, namely that I consider that the balance of convenience lies against preserving the status quo as well as that there were material non-disclosures on the part of the plaintiff, I discharge the injunction which is currently imposed against the defendants. 

Amended order

49. Although the injunction (in the original form) has been disposed of, the plaintiff has sought an amended form of order.  I consider the plaintiff’s amended position in terms of whether I should make a fresh order.

50. I am not minded to grant a fresh order along the lines of the amended draft.  As stated, the plaintiff is not averse to the Wall being dismantled but, as stated in the amended draft, only once “such works are approved by the Government and a lawful enclosed partitioning … is installed.”  Mr Yap states that if the Wall were to be dismantled, “the parties must consider what should be installed in its place so as to form a lawful enclosed partitioning.”

51. Practically speaking, once the restriction currently imposed on the defendants to proceed to dismantle the Wall has been lifted (as it is now by this Judgment), it may be thought desirable for such dismantling to be done in a methodical and legal manner, as suggested in the amended wording.

52. However, a fresh injunction is simply not necessary given that Ms Ng has provided the court with the plan that the defendants propose to take going forward, namely:-

(a) seeking the approval of the BD in relation to “small scale construction works”; and

(b) engaging an approved contractor to carry out the works.

53. Indeed, Mr Chan had stated in reply that the plaintiff was happy that the defendants had already taken some steps in this regard, although this had only come to light during Ms Ng’s oral submissions before the court.  I note, however, that the plaintiff did not seek to re-amend the amended draft by removing any reference to an “injunction” remaining in place.  The plaintiff maintains, therefore, that a restraint on the defendants is necessary (albeit temporarily).

54. Given the defendants’ position (through Ms Ng) to carry out the dismantling as envisaged above, which the plaintiff appears to accept, I do not believe that any further order of the court is required.

55. As a result, I do not grant a fresh order.

Conclusion

56. The Summons is dismissed.

57. Given that the defendants have succeeded in discharging the injunction, I make an order nisi that costs be paid by the plaintiff to the defendants, to be taxed if not agreed.  In the absence of any application within 14 days to vary, the costs order nisi shall become absolute.  I also grant a certificate for counsel.