SHUN LUNG INVESTMENT LTD v. THE INCORPORATED OWNERS OF LEE ON BUILDING

DCCJ4806/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4806 OF 2011

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JUDGMENT

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Introduction

1. The plaintiff is and was at all material times the registered owner of the property known as Shop B (“Shop B”) on the Ground Floor of Lee On Building (the “Building”), Nos 56-62 Argyle Street and Nos 100B & 102 Fa Yuen Street, Kowloon, Hong Kong.

2. The defendant is and was at all material times the Incorporated Owners of the Building and as such, is bound by the covenants, provisions and restrictions contained in the Deed of Mutual Covenant (“DMC”) of the Building.

3. The Building is situated at the junction of Argyle Street and Fa Yuen Street consisting of shops on the Ground Floor and residential flats on the 1^st to 11^th Floors.  It has two entrances with one on Argyle Street and another on Fa Yuen Street.

4. Shop B is situated on the side of Argyle Street with its own entrance.  This action concerns the partition wall dividing Shop B and the passageway (the “Passageway”) leading to the lift lobby of the Building from its entrance on Argyle Street (the “Partition Wall”).

5. On 14 August 2007, it was resolved by the owners of the Building at an owners’ meeting that major renovation works were to be carried out.  In so far as this action is concerned, the renovation works included the replacing of new wall tiles and the installation of a notice board, letterboxes as well as an intercom system (collectively “the Items”) onto the side of the Partition Wall facing the Passageway.

6. The plaintiff’s claim is premised upon the following bases:--

(1)  The plaintiff was (and still is) the registered owner of Shop B;

(2)  The Partition Wall, including the side facing the Passageway, forms part of Shop B.  In the plan (the “Plan”) attached to the assignment dated 14 November 1959 from the developer of the Building to the plaintiff's predecessor-in-title (the “Assignment”), the Partition Wall was coloured pink and thus forms part of Shop B;

(3)  The plaintiff is entitled to the exclusive use, occupation and enjoyment of its own premises;

(4)  The Items were caused to be affixed and/or installed onto the side of the Partition Wall facing the Passageway by the defendant without the consent of the plaintiff; and

(5)  It therefore amounts to a trespass to Shop B.

7. In resisting the plaintiff’s claim, the pleaded case of the defendant is as follows:--

(1)   The colouring in the Plan is not accurate, and the Partition Wall was falsely coloured pink.  The entire Partition Wall or its side facing the Passageway in fact forms part of the common parts of the Building;

(2)  The placement, erection or installation of the Items was approved by the owners of the Building;

(3)  By virtue of the doctrines of proprietary estoppel and/or estoppel by convention, the plaintiff is estopped from denying that the Partition Wall is a common area of the Building; and

(4)  Further, the plaintiff has been unjustly enriched at the defendant’s expense by the defendant’s acts of cleaning, maintaining, and repairing the Partition Wall.

8. Very significantly, at the outset of the trial, the defendant abandoned its defence that the Partition Wall (or any part thereof) formed part of the common parts of the Building.  Accordingly, the ownership of the Partition Wall is no longer a life issue.  However, it should be noted that the defendant had maintained its previous position right up to the beginning of the trial.

Evidence of the witnesses

9. Madam Lam Lai Yee (“Madam Lam”) gave evidence at trial for the plaintiff; and Mr Poon Yui Man (“Mr Poon”) and Mr Tsui Kwok Wah (“Mr Tsui”) gave evidence on behalf of the defendant.

10. It should be noted that the evidence-in-chief given by Mr Poon and Mr Tsui, whether by way of adoption of their witness statements or oral testimony in the witness box, has neither been challenged by the plaintiff through cross-examination nor contradicted by the evidence of Madam Lam.

11. Mr Poon has given the following evidence:--

(1)  He became an owner in the Building in 1990 and was elected the chairman of the management committee of the defendant in 2009;

(2)  Clause 4(b) of the DMC of the Building provides that each party thereto shall pay “its due proportion for the cost of cleansing, keeping in good and tenantable repair and maintaining the building its fixtures and fittings and all other structures on the premises…intended for the general service of the said Building and the common entrance, halls, staircases, landings and passages thereof”;

(3)  The defendant has not and would not utilize its funds to carry out repairs to private areas belonging to individual owners;

(4)  The defendant had installed on the Partition Wall (near the main entrance of the Building) an iron gate, letterboxes and notice board.  The defendant has repaired and maintained these items in good condition;

(5)  The defendant has paved tiles on the Partition Wall, and has carried out cleansing on the Partition Wall;

(6)  An owners’ meeting was held on 14 August 2007 for owners to vote on the proposed renovations to the Building (“2007 Renovation”).  Minutes of the meeting was distributed to all owners and posted up at the Building;

(7)  All owners were notified that a copy of the contract for the 2007 Renovation was placed at the management office for all owners’ perusal;

(8)  The management committee of the defendant did duly disclose to all owners details of the 2007 renovation, and no objection was received from the plaintiff; and

(9)  He has never heard that the predecessor-in-title of Shop B (i.e. Mr Lam Ko) has ever objected to the defendant’s use of the Partition Wall.  He has not seen Mr Lam since he moved into the Building.

12. Mr Tsui has given the following evidence:--

(1)  He has resided in the Building since 1961, except for the period in 1983-1990 when he had moved out.  He has been a member of the management committee of the defendant from 2002 to 2006;

(2)  The defendant has repaired the main entrance of the Building in good condition, a notice board has been hung on the Partition Wall since the 1970s;

(3)  An iron gate was installed at the main entrance in 1967.  Letter boxes have been installed on the Partition Wall and mosaic tiles have been paved thereon since he lived in the Building;

(4)  An owners’ meeting was held on 14 August 2007 for owners to vote on the 2007 Renovation.  Before the commencement of the renovation, owners were notified that a copy of the contract for the 2007 Renovation was placed at the management office for all owners’ perusal, and he did read it there;

(5)  Another major renovation of the Building had been carried out in 1990 (“1990 Renovation”);

(6)  In each renovation, the contractors would remove the old and loosen plaster from the Partitioning Wall and carry out re-plastering works to keep the Partition Wall in good and tenantable condition;

(7)  The side of the Partition Wall facing the lobby has been used for the benefits of all owners of the Building for at least 52 years.  The defendant has all along been responsible for the up-keeping, maintenance, repair and improvement of the Partition Wall;

(8)  In particular, the defendant would regularly cleanse the Partition Wall, and re-painted it or painted it with “cement water” every 3-4 years or during festive times like Chinese New Year;

(9)  Nobody has objected to the defendant’s use of the Partition Wall until the recent complaint by the plaintiff.  He personally knew Mr Lam Ko, and he has never heard Mr Lam Ko raising any objections as to the defendant’s use of the Partition Wall; and

(10)  There are two entrances to the Building, one facing Argyle Street, and the other one facing Fa Yuen Street.  However, the one facing Argyle Street (where the Partition Wall is situated) has been more frequently used by owners as the other entrance would be locked at night (until recent years).

13. On the other hand, Madam Lam gave the following evidence:--

(1)  The Plan shows clearly that the Partition Wall forms part of Shop B ;

(2)  As there was a dispute between the tenant of Shop B and the defendant in March 2008 in the Lands Tribunal, she then obtained the title deeds, perused the Plan and discovered that the Partition Wall belonged to the plaintiff;

(3)  She does not know if Mr Lam Ko has objected to the defendant’s use of the Partition Wall or not;

(4)  The plaintiff bought Shop B from its own directors, Madam Lam and Mr Lam King Leung in their capacities as administrators of Mr Lam Ko’s estate.  Shop B was assigned to the plaintiff by an assignment dated 25 March 1998.  The said assignment was signed by, inter alios, Madam Lam;

(5)  She did not take the initiative to understand the contents of the probate documents and the relevant assignment (“冇去刻意了解”);

(6)  Mr Lam Ko and his family, including Madam Lam has resided in the Building.  Madam Lam herself has lived in the Building from 1970 to 1983;

(7)  She has seen letterboxes being hung on the Partitioning Wall when she resided in the Building;

(8)  The defendant has issued a notice dated 27 July 2007 to owners informing them of the owners’ meeting where the 2007 Renovation would be voted upon;

(9)  The defendant has issued a notice dated 9 August 2007 to owners informing them of the details about the 2007 Renovation to be voted upon.  The notice did state that the 2007 Renovation would include renovations to the interior of the lobby;

(10)  The plaintiff could have objected to the 2007 Renovation before the owners resolved to carry it out at the owners’ meeting on 14 August 2007;

(11)  The contractors have issued a questionnaire to owners prior to commencing the 2007 Renovation, and the plaintiff could have voiced its concerns about the works to the Partition Wall;

(12)  The 2007 Renovation contract is available for owners’ perusal, and if she had read item 9.0 thereof, she would have known that there would be works carried out on the Partition Wall;

(13)  During the 2007 Renovation, she was aware that works were done to the Partition Wall, including the installation of the intercom device, but the plaintiff did not raise any objections;

(14)  The plaintiff’s representative attended the owners’ meeting on 19 September 2008, where the contractor reported on the progress of the 2007 Renovation.  The plaintiff did not raise any objections;

(15)  The plaintiff’s representative attended the owners’ meeting on 30 July 2009, where the contractor reported on the remedial works for the 2007 Renovation. Again, the plaintiff did not raise any objections;

(16)  The plaintiff first formally raised objections about the defendant’s use of the Partition Wall in January 2010, and it had orally raised its objections earlier in 2009;

(17)  On the other hand, even up to now, the plaintiff has not objected to the defendant carrying out regular maintenance and cleansing of the Partition Wall;

(18)  The 2007 Renovation cost around HK$3.8 million.  Since the plaintiff owned two units in the Building (i.e.  Shop B and Flat 7E, taking up 2 out of the 78 management shares), the plaintiff had to contribute around HK$100,000 (being 2/78 of the total renovation cost); and

(19)  The plaintiff has borne its share of all the defendant’s expenses, including those for the daily maintenance and cleansing of the Partition Wall.

Consent by the plaintiff or its predecessor-in-title

14. In properly analyzing the present case, it is, I think, crucial to bear in mind the way the defendant had conducted its defence right up to the commencement of trial.  In particular, the defendant had all along held a mistaken belief that the Partition Wall formed part of the common parts of the Building.  This is indeed very clear from paragraph 6 of the Witness Statement of Mr Poon, which can be found at page 33 of the trial bundle where he stated as follows: “As mentioned above, according to the DMC, the partition wall, which is made of brick, facing the lobby at the main entrance of the Building is part of the common area”.

15. In cross-examination, Mr Poon also fairly accepted this to be the case until seeing the findings of the joint experts.  As previously mentioned, such a defence was only abandoned on the first day of trial.

16. Given that the defendant was under a mistaken apprehension that the Partition Wall was part of the common parts of the Building, it would be inconceivable for the defendant to have made any attempts to obtain the consent to use the Partition Wall from the plaintiff and/or its predecessor-in-title in the circumstances.

Proprietary estoppel: by “acquiescence” or “standing by”

17. The historical requirements for proprietary estoppel by “standing by” are:--

(1)  C must have made a mistake as to his legal rights;

(2)  C must have incurred detriment in reliance on the mistaken belief;

(3)  D must have known the existence of his own rights;

(4)  D must have known of C’s mistaken belief; and

(5)  D must have encouraged C either directly or by abstaining from enforcing his legal rights.

[See: Snell’s Equity, 32nd edition,paragraph 12-018 at page 388]

18. It is now clear that it is unnecessary for C to satisfy all five tests although the extent of D’s knowledge is likely to be a highly material factor in giving rise to the equity.  Normally the claimant for the estoppel must prove that the person alleged to be estopped knew that the property was his, or that his property was being improved, or that he was entitled to interfere.  In these improvement cases it is this knowledge which creates the conditions for recovery rather than any promise, representation or assurance by the person alleged to be estopped or detrimental reliance.

19. The fundamental criterion is that of knowledge.  The defendant submits that estoppel by “standing by” can be fulfilled by “Nelsonian Knowledge” or that there is a lack of certainty as to the true position of his legal rights.

20. In relation to “Nelsonian Knowledge”, I agree with Mr Lee Shu Wun, counsel acting for the plaintiff at trial, that this standard is in fact higher than simply that the plaintiff “should have known” or “reasonably known”.  The principle is in fact commonly used in proceedings for dishonesty for breach of trust, where a party deliberately or recklessly fails to make the enquiries that an honest, reasonable man would make in circumstances where that party’s suspicions were aroused.  In other words, “the court will treat a person as having constructive knowledge of the facts if he wilfully shuts his eyes to the relevant facts which would be obvious if he opened his eyes, such constructive knowledge being usually termed (though by a metaphor of historical inaccuracy) ‘Nelsonian knowledge’” [see: Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden [1991] 1 HKLR 63 (CA), at 66C].

21. As to the second limb of the defendant’s submissions, the requirement for “lack of certainty as to the true position of his legal rights” is more than merely both parties being equally ignorant of their respective rights.  The standard for “lack of certainty” is where the silent party fails to assert his rights over which, as he is aware, there is legal doubt, but knowing that the other party is prejudicially altering his position in the belief that the silent party does not have, or will not exercise those rights [see: Spencer Bower, The Law Relating to Estoppel by Representation, 4th edition, page 52, note 11].

22. I agree with Mr Lee that the facts of this case clearly fall short of any such knowledge or wilful blindness on the part of the plaintiff that would invoke a duty to speak.  From the evidence of Madam Lam summarized in paragraph 13 above, I am not able to infer that the plaintiff had actual or constructive knowledge of its legal rights over the Partition Wall or that there was a lack of certainty as to the true position of its legal rights.

Proprietary estoppel: by representation

23. The general requirements for proprietary estoppel by representation are:--

(1)  A representation or assurance made to C;

(2)  Reliance on it by C; and

(3)  Detriment to C in consequence of his (reasonable) reliance.

24. The defendant’s submissions are that the plaintiff and its predecessor-in-title have made representations by conduct by (i) contributing to the expenses incurred by the defendant in respectively the 2007 Renovation and the 1990 Renovation and (ii) contributing to the regular maintenance and cleansing of the Partition Wall.

25. Where conduct is relied upon, the onus is on the defendant to establish the precise acts and conduct alleged, and, further, to show that the acts and conduct were of such an unequivocal nature as to involve the particular representation relied upon as the foundation of the estoppel.  [See: Spencer Bower, The Law Relating to Estoppel by Representation, 4th edition, page 44, paragraph III.3.2]

26. In this regard, I agree with Mr Lee that the conduct on the part of the plaintiff and its predecessor-in-title relied upon by the defendant is not sufficiently unequivocal.  The plaintiff and its predecessor-in-title were bound by the DMC in any event to pay the management fees and their share of the renovation cost once the same were approved by a valid resolution of the owners of the Building.  In other words, the act of complying with a valid resolution of the owners cannot be “conduct” giving rise to an estoppel or implied consent.

27. Furthermore, I find that there is insufficient evidence of detrimental reliance by the defendants on the alleged representations by the plaintiff and/or its predecessor-in-title.

28. Even if it is accepted that the plaintiff's contribution had amounted to a representation (which I do not), it must have induced the defendant to act to its prejudice or detriment to be actionable.

29. The defendant must be able to show that the representationcaused the relevant change of position by the defendant (actual inducement) and it was intended that the defendant act on the representation, or was reasonably so understood by the defendant (intention to induce).  [See: Spencer Bower, The Law Relating to Estoppel by Representation, 4th edition, page 89, paragraph V.1.2]

30. Regarding actual inducement, the burden of proving inducement depends on whether the representation, in the particular context, is such that the court would expect it to induce the relevant conduct - if it is not, reliance will need to be proved by the defendant.  [See: Spencer Bower, The Law Relating to Estoppel by Representation, 4th edition, page 92, paragraph V.2.4]

31. I agree with Mr Lee that in the present case, there is nothing in the plaintiff's conduct which had encouraged the defendant to believe that they could renovate the Partition Wall to any greater extent than they had already decided to do so.  The defendant had formed its own view that the Partition Wall formed part of the common parts of the Building (see: paragraphs 14 and 15 above).  Indeed, the defendant has maintained its claim right up to the commencement of trial, notwithstanding the protest made by the plaintiff since 2010.

Estoppel by convention

32. Estoppel by convention arises where both parties to a transaction act on a common assumption of facts or law, the assumption being either shared by both or held by one and acquiesced in by the other.  The principles of this estoppel have been summarized by the Court of Final Appeal in Unruh v Seeberger (2007) 10 HKCFAR 31 at pages 78-86.

33. A critical element of an estoppel by convention is the requirement that the assumption of the relevant fact or proposition as to the parties’ rights must be expressly or impliedly communicated between them.

34. It may be sufficient that one party communicates his assumption to the other and the other acquiesces in it: whether the latter has thereby impliedly communicated that he shares the assumption will depend on whether such assent is, in the circumstances, to be inferred from his conduct, or, alternatively, is to be inferred from his silence.  The question whether the former is entitled to infer assent to the relevant proposition from the latter’s failure to correct it, or from the latter’s conduct, should be determined on the same principles as the question whether one party has made to another a representation by silence or conduct.  [See: Spencer Bower, The Law Relating to Estoppel by Representation, 4th edition, page 185, paragraph VIII.3.3]

35. If conduct is relied on by the defendant, the question is whether the assent to the relevant proposition is necessarily implied by the relevant conduct [see: Spencer Bower, The Law Relating to Estoppel by Representation, 4th edition, page 185, paragraph VIII.3.4].  For the reasons stated in paragraphs 25 and 26 above, this element is not satisfied in the present case.

36. If mere silence is relied on, the question is whether the silent party was under a duty to tell the mistaken party that he did not assent to the relevant proposition [see: Spencer Bower, The Law Relating to Estoppel by Representation, 4th edition, page 185, paragraph VIII.3.5].  As discussed in paragraphs 19 to 22 above, the plaintiff could not have been under a duty to speak, as it lacked the requisite knowledge of the true facts.

37. Furthermore, for a transaction that is of a “non-contractual” nature (which is the position in the present case since there is no contractual relationship between the plaintiff and the defendant), the person alleging an estoppel by convention must establish that he in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter [see: Revenue and Customs Comrs v Benchdollar [2010] 1 All ER 174, paragraph 52].  For the reasons stated in paragraphs 27 to 31 above, this element is also not satisfied in the present case.

38. In the circumstances, the defendant has also failed in establishing estoppel by convention.

Unjust enrichment

39. The test for unjust enrichment are:--

(1)  Was the plaintiff enriched?

(2)  Was this enrichment gained at the defendant’s expense?

(3)  Was the plaintiff's enrichment at the defendant’s expense unjust?

[See: Goff & Jones, The Law of Unjust Enrichment, 8th edition, paragraph 1-09]

40. In this regard, I agree with Mr Lee that the plaintiff was not unjustly enriched, based on the lack of benefit to itself and detriment to the defendant in the renovations.  The only possible benefit was the maintenance of the Partition Wall, which was not unjust as the defendant’s expenditure was solely for its own use of the wall over the years as part of the common area of the Building.

41. Furthermore, even if the plaintiff is found to have been unjustly enriched by the defendant, the remedy would be by restitution, namely, restoring the value received by the plaintiff to the defendant.  The only benefit received by the plaintiff was for the maintenance of the Partition Wall. The Items were of no benefit to the plaintiff.  The proper remedy would be repayment of the maintenance cost - on which there lacks any evidence as to the actual value.

Conclusion

42. As stated above, the defendant had all along, on its own judgement, held the mistaken belief that the Partition Wall formed part of the common parts of the Building.  With such a mistaken belief, the defendant could not have relied on any kind of representation insofar as the Partition Wall is concerned.  As already pointed out, the plaintiff’s protest back in 2010 was in fact ignored by the defendant.  The defendant continued to hold such a mistaken belief only until the expert evidence has shown otherwise, and the defendant's position based on the mistaken belief was only abandoned at the commencement of trial.  In the circumstances, the defendant’s defence against the plaintiff’s claim must fail and the plaintiff is entitled to judgment against the defendant.

Order

43. I give judgment in favour of the plaintiff against the defendant for the following order:--

(1)  A declaration that the placement or erection or installation of the Items on to the Partition Wall is in breach of the DMC of the Building.

(2)  An order that the defendant whether by its servants, agents or otherwise:--

(a)  be restrained from acting in breach of the DMC of the Building and/or trespassing to the Partition Wall; and

(b)  do forthwith remove the Items and reinstate the Partition Wall to its original state.

(3)  If there is no compliance by the defendant of (2)(b) above within 1 month from the date hereof, an order that the plaintiff whether by its servants and/or agents be at liberty to remove the Items and reinstate the Partition Wall to its original state at the expense of the defendant.

(4)  An order that the defendant’s counterclaim herein be dismissed.

44. The plaintiff shall have the costs of this action and the counterclaim against the defendant, including any costs reserved (if any).  Such costs shall be taxed, if not agreed, with certificate for counsel.

45. The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

46. Lastly, I thank counsel on both sides for their helpful assistance in this matter.