THE INCORPORATED OWNERS OF GOLDEN COURT v. FLYWAY INVESTMENT LTD

LDBM 122/2020

[2026] HKLdT 32

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 122 OF 2020

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D E C I S I O N

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1.  The Respondent seeks leave to appeal against my judgment dated 16 October 2025 (“Judgment”) on the grounds stated in the draft Notice of Appeal exhibited to the 2^nd Affidavit of Ong Ngai Wa dated 22 January 2026. The application was dealt with on paper.

2.  The Respondent is represented by Mr Damian Wong, Ms Hannah Tang and Ms Sabrina Lau, who lodged Skeleton Submissions for the Respondent dated 4 February 2026 (“R Skel”) and a Reply for the Respondent dated 10 March 2026 (“R Reply”). The Applicant (“IO”) is represented by Mr Danny Tang, who lodged Written Submissions for the IO dated 24 February 2026 (“IO Skel”).

DECISION

3.  The Judgment determined, inter alia, that certain areas of Golden Court, Nos 22-52 Electric Road, Tin Hau (“Building”), referred to as the “Staircase Wall” and the “Cover Yard” were common parts. An opening in the Staircase Wall was found to comprise unauthorised building works and the Respondent was ordered to reinstate the Staircase Wall area.

4.  The Cover Yard was occupied by the Respondent and contained structures and alterations (“Structures and Alterations”) that were not in accordance with building plans and contrary to the Deed of Mutual Covenant (“DMC”). The Respondent failed to establish that the IO had acquiesced in the Structures and Alterations and the Respondent’s wrongful occupation of the Cover Yard. As the Cover Yard was a common part the Respondent was found to be a trespasser. The draft grounds of appeal relate to the Cover Yard, not the Staircase Wall.

5.  The Respondent was ordered, inter alia, to demolish the Structures and Alterations and to reinstate the Cover Yard to its original condition. The Respondent was ordered to pay mesne profits for trespass or wrongful occupation of the Cover Yard. The quantum of mesne profits was determined by Order dated 28 November 2025, being HK$647,801.48 plus interest, for the period from 9 September 2014 to 16 October 2025, (date of Judgment) and thereafter mesne profits at the annual rate of HK58,934.22 plus interest until compliance with the orders in respect of the Cover Yard and delivery of vacant possession to the IO: Judgment §258.

6.  The background facts relied upon by the Respondent are:

(1)  Since 15 November 2007, the Respondent has been the registered owner and occupier of Shop Nos. 35 to 37 on the ground floor (“Shops 35 to 37”) and Flats A to H on the first floor (collectively the “Premises”) of the Building;

(2)  Ms Cheung Wan Ling Cathy for the Respondent said that the first floor of the Building has been used to operate Chinese dim sum restaurants since the 1990s;

(3)  The IO had long regarded the Cover Yard, adjacent to Shops 35 to 37 on the ground floor, as a unit for exclusive use and occupation of its registered owners Ho Ying Chaw and Young Chi Wan (“Developers”);

(4)  It was not until 9 September 2020 that the IO commenced proceedings claiming the Cover Yard is a common part of the Building.

7.  Other material facts found include that the Building’s Occupation Permit was granted on 14 November 1958 and the DMC was entered into on 10 October 1961: Judgment §§3,5. Walls were removed to create an enclosed area comprising Shops 35 to 37 and part of the Cover Yard, which was used as an office space: Judgment §13. The Respondent stored items such as chairs and rubbish bins in the other part of the Cover Yard, which also had a basin and previously toilets: Judgment §14.

DRAFT GROUNDS OF APPEAL

8.  The Respondent’s three draft grounds for leave to appeal are essentially against the findings that the Cover Yard is a common part (Ground 1), that the IO had not acquiesced in the Respondent’s trespass on the Cover Yard (Ground 2) and the period of mesne profits (Ground 3). The draft grounds and the IO’s reasons why leave to appeal should be refused, may be summarised as follows.

Ground 1 – common part

9.  The Presiding Officer (“PO”) erred in law and fact by failing to properly consider relevant evidence when determining whether the Cover Yard is a common part. The PO only used one paragraph, Judgment §60 for discussion.

10.  The IO considers that the reasons for the finding that the Cover Yard was a common part were plain. As made clear at Judgment §§43–60 (and not just §60), it followed from the fact that the Cover Yard Staircase was a common part under Schedule 1 of the Building Management Ordinance (Cap. 344) (“BMO”) and Clauses 2 and 15 of the DMC. The new arguments to the contrary now raised are either irrelevant, or not taken below and hence barred, or both.

Ground 2 - acquiescence

11.  The PO erred in law and fact by failing to properly consider and apply the equitable defence of acquiescence to the IO’s claim for mesne profits based on trespass. Contrary to the findings, the IO had the requisite knowledge and the Respondent had suffered detriment.  

12.  The IO considers the finding that there was no acquiescence in the Respondent’s trespass on the Cover Yard unassailable. The knowledge required for acquiescence is not only knowledge that the Respondent was occupying the Cover Yard, but also that such occupation was wrongful. For detriment, it is clear that the benefit derived from use of the Cover Yard could also negate any detriment suffered, for which there is no plea and no evidence.

Ground 3 – mesne profits

13.  Without prejudice to Ground 2, the PO erred in law and fact by failing to take into account the issue of acquiescence when determining the amount of mesne profits payable by the Respondent to the IO.

14.  The IO submits that apart from the fact that there was no acquiescence, the suggestion that acquiescence may operate to partly reduce the mesne profits which it is liable to pay (by limiting the period) is unfounded in law.

LEGAL PRINCIPLES ON LEAVE TO APPEAL

Lands Tribunal Ordinance, Cap. 17

15.  Sections 11(2) and 11AA (1) and (6) of the Lands Tribunal Ordinance, Cap 17 provide:

11.  Decisions of Tribunal final

(2)  Subject to section 11AA and the provisions of any Ordinance relating to appeals from the Tribunal, any party to proceedings before the Tribunal may appeal to the Court of Appeal against a judgment, order or decision of the Tribunal on the ground that such judgment, order or decision is erroneous in point of law. (Amended 3 of 2008 s. 39) …

11AA.  Leave to appeal

(1)  Subject to subsection (2), no appeal may be made under section 11(2) unless leave to appeal has been granted by the Tribunal or the Court of Appeal. …

(6)  Leave to appeal shall not be granted unless the Tribunal, the Court of Appeal or the registrar hearing the application for leave is satisfied that—

(a)  the appeal has a reasonable prospect of success; or

(b)  there is some other reason in the interests of justice why the appeal should be heard. …

16.  The Respondent relies upon the legal principles on leave to appeal from the Lands Tribunal summarised in The Incorporated Owners of Grenville House v. Wong Tak Keung Stanley and Claudia Canepa Wong, LDBM 199/2020, 16 August 2024, §§12-15 as follows: 

“12.  Under s.11(2) of Lands Tribunal Ordinance (LTO), any party to proceedings before the Tribunal may appeal to the Court of Appeal against a judgment of the Tribunal on the ground that such judgment is erroneous in point of law.

13.  S.11AA(1) of the LTO requires leave to be granted by the Tribunal or the Court of Appeal before an appeal under s.11(2) can be made. S.11AA(5)(a) of LTO provides that leave to appeal may be granted in respect of a particular issue arising out of the judgment. S.11AA(6) of LTO further provides that leave to appeal shall not be granted unless the Tribunal is satisfied that:

(a)  the appeal has a reasonable prospect of success; or

(b)  there is some other reason in the interests of justice why the appeal should be heard.

14.  Such criterion of “reasonable prospect of success” was described in SMSE v KL [2009] 4 HKLRD 125 at [17] by Le Pichon JA (as she then was) as involving the notion that the prospect of succeeding must be “reasonable” and therefore more than “fanciful” without having to be “probable”.

15.  Even if it is not demonstrated that the appeal has any reasonable prospect of success, there may be many reasons why leave should still be granted in the interests of justice. For example, the issue may be one which the court considers should in the public interest be examined by appellate court or the court may take the view that the case raises an issue where the law requires clarifying: Ma Bik Yung v Ko Chuen [2009] 3 HKC 359, 361B-C.” (bold emphasis in the judgment)

17.  The IO relies upon the principles applicable to the grant of leave to appeal summarised in Hui Wing Sze v Chiu Ka Keung [2026] HKCA 198 by Au JA at §§20–22:

(1)  To meet the threshold of a reasonable prospect of success, it must be shown that the prospect of succeeding is more than fanciful, without it having to be probable.

(2)  The appellate court will only interfere when it is satisfied that the judge had erred in principle and/or that the findings are “plainly wrong”.

(3)  Under the “plainly wrong” test, the Court has to be satisfied that the trial judge had fallen into palpable error in their finding of fact, such as where the finding was one: (1) which there was no evidence to support; (2) which was based on a misunderstanding of the evidence; (3) where the judge had taken into account irrelevant evidence or failed to take into account relevant evidence; or (4) which no reasonable judge could have reached. The threshold faced by an appellant is very high indeed.

(4)  The assessment and weight of evidence is generally and primarily a matter for the trial judge. It is neither a proper ground of appeal nor the purpose of an appeal to allow a second attempt by the appellant to re-run submissions with the hope that the appellate court may come to a different view.

(5)  In reviewing the findings of fact by a trial judge, the Court of Appeal’s role is limited. It will not conduct a re-assessment of the evidence simply because the appellant submitted that more weight should be given to one piece of evidence as opposed to another.

GROUND 1 The PO erred in law and facts in failing to properly consider the relevant evidence when determining whether the Cover Yard is a common part or not

Failure to give reasons

18.  Ground 1 first, is that the PO failed to give sufficient and/or clear reasoning for the conclusion that the Cover Yard is a common part.

Law

19.  The applicable principles are stated in Oriental Daily Publisher Ltd v Commissioner for Television and Entertainment Licensing Authority (1997–98) 1 HKCFAR 279 by Li CJ at §§290–291:

(1)  What amounts to adequate reasons for the decision would depend on the circumstances of the case in question and the context in which the decision-maker is operating.

(2)  The reasons given should show that the tribunal has addressed the substantial issues before it and show why the tribunal has come to its decision. There may not be any need to address every single issue.  But the reasons should show that issues that arise for serious consideration have been considered.

(3)  The reasons may not require great elaboration and they may be brief.  It is only when they are defective in substance that they should be considered inadequate. Ultimately, what are adequate reasons in the circumstances of a particular case has to be approached sensibly.

20.  Where reasons and analysis were advanced on either side, a judge had to enter into issues canvassed and explain why he preferred one case over the other. The lack of sufficient reasoning alone constitutes a good ground of appeal: Flannery v Halifax Estate Agencies Ltd (2000) 1 WLR 377 p381G-382C. The principles and duty to give sufficient reasons were upheld in an appeal against a property dispute in Zhuo Cui Hao v Ting Fung Yee [1999] 3 HKC 634, 634F-635G.

21.  The Respondent considers that after setting out the law at §§40 to 42 and the parties’ cases at §§43-59 of the Judgment, I used only one paragraph (§60) for discussion. From that paragraph the following reasons were relied on to reach the conclusion that “there can be no reasonable doubt that the Cover Yard is a common part”:

(1)  The Cover Yard was expressly and obviously intended to be used by the owners of the flats and the shops;

(2)  This was a DMC, likely to be professionally drafted. It may be taken that the drafters had chosen their words with care;

(3)  The ordinary meaning of the words make sense in relation to the rest of the document and the factual background, including the layout and intended use; and

(4)  The textual indications clearly point to the Cover Yard being a common part.

22.  The Respondent considers the paragraph offered little analysis and failed to address, fully or at all, the majority of its arguments:

(1)  There was no explanation on why there was an obvious intention that the Cover Yard was to be used as a common area. On the contrary, the undisputed fact is that neither the IO nor owners had regarded the Cover Yard as a common area since the occupation of the Building by flat and shop owners in 1962 and the Cover Yard had always been reserved for exclusive use. It was not until 2020 (almost 60 years later) that the IO was told that the Cover Yard was a common area. In light of the undisputed facts, it is unclear how the “obvious intention” was found;

(2)  That the DMC was likely professionally drafted is at most neutral as the Cover Yard is not mentioned in the DMC;

(3)  Clauses 2 and 15 of DMC, which concern the access and management of common part respectively, also do not mention the Cover Yard. It is unclear why the PO held the view that “the ordinary meaning of the words make sense in relation to the rest of the document and the factual background” and “the textual indications clearly point to the Cover Yard being a common part”.

23.  I followed the approach set out in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, 296D-I: Judgment §42. The Respondent appears to refer to paragraph headings rather than content, to conclude that only §60 contained my reasons for the finding that the Cover Yard was a common part. Whereas, in the preceding paragraphs, I had conducted the Jumbo King exercise for construing a document, taking into account and considering the arguments of the respective parties.  

Adequacy of reasons

24.  The IO replies that the Respondent’s basis for contending that the reasons given for the Cover Yard common part finding are inadequate, that only one paragraph discusses the issue, is demonstrably false. A cursory reading of the Judgment shows otherwise. The Judgment §§43–49 and §§50–59 are headed “IO’s case” and “Respondent’s case” respectively, but they also contain the Tribunal’s reasoning and commentary on the parties’ respective cases. For instance:

(1)  §44: “I accept that the above provisions of the DMC and BMO put the matter beyond doubt insofar as the Staircase, Staircase Wall, and Cover Yard Staircase are concerned”.

(2)  §45 “The starting point is that the Cover Yard, Partition Walls, and Cover Yard Wall are common parts of the Building by virtue of section 2 of the BMO”.

(3)  §49: “Logic aside…”. That the Cover Yard Staircase is a common part is “certainly a factual indication that the Cover Yard was also intended to be a common part”.

(4)  §53 The Respondent relies on Jumbo King “not only for construction principles, but also prays in aid the facts …”.

(5)  §54: “In my view these textual pointers are clearly against the Respondent's construction”.

(6)  §57: “I agree that the fact that the Cover Yard Staircase serves as a fire escape would militate in favour of it, and by extension the Cover Yard, being a common part.”

25.  The conclusion expressed at §60 is the summation of the points referred to previously. For example, the IO’s “logic” argument was not sufficient: Judgment §49. The reference to “the Respondent’s construction” at §54, which the textural pointers were against, is that recorded at Judgment §§51–53, namely that it is unlikely for developers to intend owners of “residential flats” to have rights over the Cover Yard because it was a “commercial part” of the Building. The “textual pointers” against the Respondent’s construction at Judgment §54 are: (1) Clause 13 of the DMC, which stipulates that the First Floor itself (the owner of which, the Respondent says, is entitled to exclusive possession of the Cover Yard) is for “dwelling purpose”; and (2) Clause 2, which also provides that occupants of residential and commercial parts of the Building have “equal rights” to access and use its common parts. This must be contrasted with the factual position in Jumbo King where the new building consisted of two self-contained parts, one commercial and one domestic: Jumbo King at 286F per Litton PJ. The allocation of space within the commercial portion was of no conceivable interest to the first purchaser of a domestic unit: Jumbo King 288D per Litton PJ. Lord Hoffmann NPJ at 296J-297B found that “The factual background to the DMC was, as its third schedule said, that the Building was new and consisted of two self-contained parts. … Why should the parties have intended that Mr Cheng in his flat on the sixth floor should have rights of occupation in the commercial portion of the building?”. Whereas the Respondent sought to rely on Jumbo King  factual findings which are clearly distinguishable, given the Building was not so divided with the parts self-contained, while occupants of the residential and commercial parts expressly have equal rights: Judgment §53.

26.  The IO correctly points out that §60 of the Judgment, which the Respondent castigates, is simply the conclusion following my reasoning for accepting or rejecting the parties’ various arguments. That reasoning is expressed in the commentary on the parties’ cases at §§43–59.

27.  Given this, the IO submits that the criticisms of §60 of the Judgment at R Skel §6 also fall away. The obvious intention of the DMC was that the Cover Yard should be a common part because Clauses 2 and 15 of the DMC expressly designated “staircases”, which would include the Cover Yard Staircase, as common parts, and there was nothing to suggest that the Cover Yard should be treated differently. This was the point made the IO, which was accepted at §§49 and 57 of the Judgment. I did not conflate the Cover Yard Staircase and the Cover yard. I was well aware of the distinction.

28.  Under inadequacy of reasons, R Skel §6(1) submits that the Judgment “failed to address” the “undisputed fact” that the parties did not regard the Cover Yard as a common part since the occupation of the Building began in 1962. The IO calls this a bad point. The Tribunal did not address such matter because the Respondent did not raise it at trial. Long possession, including of the Respondent was one of the facts and taken into account. I do not consider there was a failure to address the present point, because it was not a matter that the Respondent relied upon. The IO adds, and rightly so, because post-agreement conduct is not generally admissible or relevant to construction of a DMC: Judgment §55; Li Chun Bon v China Mobile Hong Kong Co Ltd [2026] HKCA 88 §48 (Cheung JA).

Reasons adequate

29.  In my view the reasons given are at least “adequate”: Oriental Dailly Publisher Ltd at §§290-291. They show I considered and addressed the issues raised by the parties and why I came to my decision. Therefore, lack of sufficient reasoning does not constitute a ground of appeal with a reasonable prospect of success.

Failure to take evidence into account 

30.  The issue of whether the Cover Yard is a common part turns upon interpretation of the DMC and ascertaining the intention of the parties. The Respondent submits that whilst the PO referred to Jumbo King for the guiding principles, the PO had failed to consider or take into account the following undisputed evidence when construing the DMC:

(a)  The Developers were (and still are) owners of shops and flats of the Building as private owners at the time of executing DMC;

(b)  The Cover Yard had for a long time been exclusively possessed by the Developers adjacent to the units exclusively possessed by them.

(c)  Neither the IO nor any of the owners had interfered with the Developer’s commercial enjoyment of the same by renting it out with units on the first floor.

31.  In addition, the PO erred in law by failing to consider and/or give proper weight to other relevant and crucial evidence when determining whether the Cover Yard is a common part of the Building.

32.  The Respondent says that the fact that there is no mention of the Cover Yard in the Schedule to the DMC which sets out the areas attached to which co-owners have exclusive rights is by no means conclusive. I did not find the point conclusive, however it was a weighty factor in favour of the IO’s construction.

33.  The Respondent’s valuation expert Mr. Li Chi Ho (“Mr Li”) in his Expert Rental Valuation Report dated 29 September 2024 (“Valuation Report”), records that Shop 29A (where 1 share was allotted) was registered under the name of the Developers but Shop 29A was also not included in the part of the Schedule of the DMC relating to the Developers. The Respondent’s argument is that it could not possibly have been the common intention of the parties to the DMC, that Shop 29A is a common area. If “any area absent” from the Schedule must be a common area, it would follow that Shop 29A is also a common area intended for common use by all owners of the Building. Such interpretation is so absurd that it could not have been what a reasonable person would have understood the parties to mean: Jumbo King, at 296D-E. I did not find any area absent from the Schedule must be a common part.

34.  The Respondent seeks to rely on subsequent documents referred to by Mr Li in his Valuation Report and conduct of the Developers, on the basis that where information contained in a land instrument is unclear or ambiguous, extrinsic evidence including subsequent conveyance plan or conduct of the parties is admissible to ascertain true intent of the parties to the transaction: Watcham v Attorney General of East Africa Protectorate [1919] AC 533; Haycocks v Neville [2007] EWCA Civ 78 §31; Landtown Garden Ltd v The Incorporated Owners of Fu Ning Garden (DCCJ 569/2019, 22 November 2024) §89.

No failure to take evidence into account

35.  Mr Tang summarises the various other points that the Respondent claims should have led me to conclude that the Cover Yard is a common part as follows:

(1)  The Developers owned certain shops and flats when they executed the DMC: R Skel §8(a).

(2)  The Cover Yard had been exclusively possessed by the Developers, who had rented it out alongside the first floor units: R Skel §§8(b)–(c), 15.

(3)  That the Cover Yard was not mentioned in the Schedule to the DMC, which sets out the parts to which individual owners have exclusive rights, is not conclusive: R Skel §10.

(4)  According to the Respondent’s valuation expert Mr Li, an assignment dated 26 November 1962 (“1962 Assignment”) and the plans annexed thereto (“1962 Assignment Plan”) indicate that the Cover Yard is not a common part: R Skel §§13–15.

(a)  Developers owned flats and shops / DMC Schedule not conclusive

36.  The IO takes the first and third points together. Although the fact that the Cover Yard was not mentioned as for exclusive use in the Schedule to the DMC is not necessarily conclusive, it is certainly relevant. The Respondent does not suggest otherwise. While I did not find the point conclusive, the legislative and DMC provisions point heavily in favour of the IO’s construction. This was a particularly weighty consideration, and that is why I considered it the starting point: Judgment §45. That staring point was not displaced by other indications to the contrary.

37.  I agree with the IO that the fact that the Developers owned other shops and flats when they executed the DMC, which were expressly mentioned in the Schedule as being parts to which they were entitled to exclusive possession if anything, is a point firmly against the Respondent. I considered it relevant that this is a DMC and likely professionally drafted: Judgment §60; Jumbo King 296F-G. Therefore it may be taken that the drafter was aware that the starting point is that an owner of the Building owned by tenants in common, only had exclusive use of a part that was expressly attached to an owners share designated for exclusive use set out in the Schedule otherwise it would be a common part and aware of both the purpose of the Schedule and the provisions of the BMO.

38.  R Skel §§10–11 refer to Shop 29A being registered in the name of the Developers but not included in the Schedule to the DMC but that it could not have been intended to be a common part, therefore the Cover Yard should also not be a common part. The IO considers this wrong first, because a “Cover Yard” is different from a “Shop”. Secondly, there was no evidence before the Tribunal to show that Shop 29A was in fact in existence at the time of the DMC, as opposed to being carved out subsequently. The Valuation Report only referred to the fact Shop 29A was also registered in the name of the Developers based on “land search exercise”, which was conducted on 14 October 2024. It may well be that at the time of the DMC it formed part of Shop 29, exclusive use of which was reserved to the Developers in the Schedule. This is especially so given that the existence of Shop 29A is not indicated in the 1962 Assignment Plan.

39.  The IO says such evidential difficulty makes this point a point which was not taken at trial (albeit noted obliquely in Mr Li’s Valuation Report) that should be barred by the “state of evidence” bar: Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 §38 (Bokhary PJ).

40.  The absence of any mention of Shop 29A, also its designation as Shop “29A”, with the letter “A”, suggest to me that it has been carved out of Shop 29 subsequent to the original consecutive numbering of the shops and the DMC. This raises a new point on which factual evidence may have been adduced by the IO, had it been raised before the trial. Had the point been argued as now on the state of the evidence at trial it would still not have changed my construction. And the IO may have been able to adduce evidence to fortify its position.

(b)  Subsequent leasing of Cover Yard with first floor

41.  The Respondent then asserts there was “undisputed evidence” as to the Developers’ conduct in exclusively possessing the Cover Yard and leasing it out alongside the first floor following the execution of the DMC. The IO replies that this is both wrong and irrelevant.

42.  First, there is not “undisputed evidence” of this. The fact that the Developers had leased out the Cover Yard with the first floor, and when, is far from clear. The evidence comes from the Respondent’s Valuation Report where Mr Li refers to a lease supposedly registered on 25 July 1962.  Mr Tang said quite apart from the fact that it is inappropriate for factual evidence which has nothing to do with valuation to be adduced by way of a valuation expert report, this lease is not even in evidence.

43.  Mr Li then refers to plans which were supposedly signed four months before the 1962 Assignment (i.e. July 1962), which formed part of this lease. These are produced at Appendix 5 of his report. Yet these plans are dated 10 November 1962, not July 1962 as Mr Li claims. They are not evidence of what was leased out in July 1962. That the Cover Yard is coloured pink and hatched red in those plans is not an indication that it has been leased out. The entirety of the first floor is coloured and pink and hatched red, notwithstanding that Flat B of the first floor had already been sold to another buyer in 1960.

44.  Secondly, the Developers’ subsequent conduct is inadmissible and irrelevant to the construction of the DMC. It falls foul of the bar on using evidence of subsequent conduct to construe the DMC: Li Chun Bon §48. Subsequent conduct is only admissible in limited circumstances where a conveyance of land is ambiguous, and “subject always to that evidence being of probative value in determining what the parties intended”: Haycocks §31. The IO says neither condition is satisfied. The DMC is clear, for the reasons discussed in Judgment §§43–60.

45.  Regardless, the Developers’ conduct is at best evidence of the Developers’ subjective understanding of the DMC. Evidence of a party’s own understanding — as opposed to evidence of subsequent conduct showing that a particular fact was in existence at the time of the contract — is of limited probative value. It simply begs the question of whether that understanding was well founded: Siu Chi Tat v Land Zone Ltd [2023] 3 HKC 44 §47 (Au-Yeung J). I accept that it would not be probative so inadmissible. It is not evidence of what the parties objectively intended at the time of the DMC.

46.  The IO also contends that whether the Developers purported subsequently to lease the Cover Yard can make no difference to the proper construction of the DMC, because the Developers cannot thereby convey something which they were not entitled to convey: see Chow Sai Ping & Another v Chan Yam King [2013] 2 HKLRD 280 §9 (Barma JA); Landtown Garden Ltd §89. The Developers’ subsequent entry into a lease of the Cover Yard — even if true — is irrelevant. It sheds no light on whether they were entitled to do so under the DMC. R Reply says that the Respondent’s case on leasing was not seriously challenged. However, the evidence was limited, was not relied upon as now and would not change my construction.

47.  I accept the submissions of the IO that the lease does not assist on the construction of the DMC for the reasons given. Even if there was a lease adduced at trial, subsequent leasing by the Developers would not be evidence of the parties objective intent at time of execution of the DMC.

(c) 1962 Assignment

48.  Mr Li’s Valuation Report refers to the 1962 Assignment dated 26 November 1962 with memorial no. 384572, and exhibited the plans annexed to the 1962 Assignment, which consisted of “Plan A” (showing the first floor) and “Plan B” (showing the ground floor) as “Appendix 4” of his Valuation Report. That “Plan B” was also produced by the IO as Annex 3 in its Notice of Application.

49.  It was the evidence of Mr Li that:

(1)  The 1962 Assignment covered bulk sale of properties, including a major part on the ground floor and first floor by the Developers, and colour separations are made for identification;

(2)  The 1962 Assignment listed the common areas to include (a) the staircases and landing; (b) the passage way and corridors; (c) the open yards (if any); and (d) the lift. These common areas are shown and coloured yellow and blue on Plan A and Plan B;

(3)  On Plan B, the Cover Yard was coloured pink and hatched red, which is the colour to mark the areas for exclusive use and enjoyment of the owner.

50.  The Respondent asserts that it is undisputed that the Cover Yard had never been regarded by the IO or any owner as a common area since the occupation of the Building or since 1962, and there had never been any objection to the Developers to reserve it for its exclusive use or to rent it out with the first floor units, which is disputed. This is said to sit well with the interpretation that the Cover Yard is not a common area.

51.  The Respondent submits that I failed to consider any of the above “undisputed or undisputable facts” when interpreting the DMC, contrary to the approach recently upheld in Donora Co. Ltd v Tsuen Kam Centre (IO) (2024) 27 HKCFAR 166 that the documents should be construed together contextually and purposively in a coherent fashion: Donora §39. The Respondent relied upon Jumbo King did not Donora, however in my view it makes no difference. The Court of Final Appeal determined the proper construction of section 2 of the BMO statutory definition of “common parts”. In Donora the document to be considered with the DMC was the 1^st Assignment. Donora upheld the primacy of the DMC. Lam PJ held at §53 “ … with the predominance of the practice of executing deeds of mutual covenant, the above analysis on the primacy of the deed of mutual covenant should provide a guide as to the application of the statutory definition in most of the cases.”

52.  The Respondent says that where the “open yard (if any)” is expressly designated in the 1962 Assignment as a “common part” while the Cover Yard is not, the reasonable inference is that the Cover Yard is not a common part, when both share the same attributes. When “the true and only reasonable conclusion contradicts” the determination appealed against, the determination is open for appeal on the ground of an error of law; Kwong Mile Services Limited v Commissioner of Inland Revenue [2004] 3 HKLRD 168 §31. I do not accept that the 1962 Assignment, however construed, can establish an error in my construction of the DMC. Even assuming the evidence was admissible and before the Tribunal this argument is, at best for the Respondent, a neutral point because the Cover Yard was not designated for exclusive use. It would have to be considered with all facts and matters and does not cancel out the other indicators. However, the Respondent now relies upon the 1962 Assignment when the document to be given primacy is the 1961 DMC.

53.  The Respondent concludes that the “undisputed or undisputable” evidence, strongly supports the interpretation that the Cover Yard is not intended to be a common area. And had I properly considered the above evidence, the only reasonable conclusion I could have reached is that the Cover Yard is not a common area. I disagree.

54.  Further, the Respondent relies on section 2 of the BMO. The argument is that I erred in failing to find that, by virtue of the 1962 Assignment and section 2 of the BMO, the Cover Yard is “such parts as have been specified or designated in an instrument registered in the Land Registry [i.e. the 1962 Assignment] as being for the exclusive use, occupation or enjoyment of an owner” and therefore not a common area.

55.  The IO’s objections to reliance on the Developers’ alleged subsequent leasing are applied also with more force, to the Respondent’s reliance on the 1962 Assignment Plan and claim that the Cover Yard could not have been a common part because it was coloured pink and hatched red on the 1962 Assignment Plan. The text of the 1962 Assignment, “the instrument”, is not even in evidence. Mr Tang makes five points.

56.  First, the Respondent’s argument relies on the evidence from Mr Li a valuation expert, who was only granted leave to adduce his valuation opinion on quantum and who is wholly unqualified to opine on the question of whether the Cover Yard is a common part on the proper interpretation of the DMC. However, the Respondent still attempts to make construction arguments based on the 1962 Assignment and Mr Li’s view including that “In light of this Assignment, the intention of the seller and purchaser is to treat the covered yard (the Property) and four light wells for exclusive use by subsequent owner”. Mr Li is only referring to the intention of the “seller and purchaser”.

57.  Second, any suggestion that the Cover Yard is not a common part because it is coloured pink and hatched red and was thereby assigned under the 1962 Assignment is misconceived, because there is no dispute that the Cover Yard was never assigned.

58.  Third, any point based on the 1962 Assignment is barred by the Flywin “state of the evidence” bar. As with Shop 29A, this is a point which relies on new evidence and was not taken at trial, even if the 1962 Assignment was mentioned by Mr Li when giving his opinion on the mesne profits from September 2014.

59.  Fourth, the 1962 Assignment Plan has zero probative value. It relates not only to a subsequent conveyance which has no bearing on the interpretation of the DMC but worse, to a subsequent conveyance which does not even convey the Cover Yard. It is not a material transaction.

60.  Fifth, the suggestion that the 1962 Assignment is an “instrument registered in the Land registry” for the purposes of section 2 of the BMO is wrong in law and disregards the primacy of the DMC. As explained in Donora §§51–54 by Lam PJ:

“51. … in the application of the statutory definition of “common parts” in s.2 of the BMO, the statutory definition should not be applied by simply asking if there is any clause in a registered instrument which stipulated that the exclusive use, occupation or enjoyment of a particular part of the building be given to an owner. One must pay regards to the overall context of the transaction and the other relevant provisions in the instruments effecting the same transaction. Otherwise, a provision like Section I cl.1 would have the effect of excluding the entire building from the statutory definition of common parts.

52. Construing the statutory definition purposively, the specification or designation in an instrument referred to in that definition must refer to the relevant and effective specification or designation in the transaction. A specification or designation in the First Assignment which was not intended by the parties to reflect the overall position could not be a relevant and effective specification or designation for the purpose of that definition.

53. In this connection, the statutory definition refers to an instrument registered in the Land Registry instead of a deed of mutual covenant because at the time when the definition  was first introduced in 1970 there were buildings for which no deed of mutual covenant had been executed and the relevant mutual covenants were contained in other instruments. Since then, with the predominance of the practice of executing deeds of mutual covenant, the above analysis on the primacy of the deed of mutual covenant should provide a guide as to the application of the statutory definition in most of the cases.

54. With respect, the Court of Appeal fell into error by failing  to pay sufficient regard to the primacy of the DMC as the instrument regulating the common parts and the rights and obligations between the co-owners in the management of the Building. Such erroneous approach led the Court to hold that the Judge was off focus by examining whether the DMC has designated the exclusive right of use, occupation and enjoyment of the external walls to the Appellant …”

No failure to take evidence into account

61.  The Respondent was granted leave for Mr Li to give opinion evidence on mesne profits from September 2014. His Valuation Report refers to documents that the Respondent now relies upon. Mr Li sets out that he was instructed to assess mesne profits and / or market value of the Property from 9 September 2014 to 8 September 2020 (the Valuation Period). Despite this Mr Li does not constrain himself to giving his opinion on valuation or mesne profits. Mr Li gives his opinion on construction issues including that “… it is questionable to conclude the Property is common area” (page 10 of 32). Mr Li does acknowledge that “Since we are only instructed to assess the mesne profit / market rent of the covered yard. (sic) The issue on the common area determination is outside our scope of service for comments”. That did not stop Mr Li commenting extensively on the construction issue that is for the Tribunal.

62.  The Respondent would be entitled to make arguments on documents adduced at trial, but Mr Li did not attach complete documents now referred to. Material parts were not in evidence. It would be most unjust to the IO to have to meet construction arguments on incomplete or absent documents, which were available and could have been produced, if the Respondent wished to rely on them at trial. Were subsequent instruments to become material the IO may have adduced others.

63.  I accept the above points made by the IO. First, Mr Li’s opinion on proper construction of the DMC is not admissible. Secondly, the Cover Yard was never assigned, so being the same colour as an assigned area on a plan does not assist the Respondent. Thirdly, new evidence should be disregarded on Flywin grounds. Fourthly, the 1962 Assignment lacks probative value, relating as it does to a subsequent assignment and one that does not assign the Cover Yard. Fifthly, the section 2 of the BMO definition provides common parts means the whole of the building “except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner”. The Cover Yard was not designated for exclusive use. The 1962 Assignment is not an instrument within the meaning of section 2 of the BMO. It was not in evidence. Even if it were, with the 1962 Assignment Plan, this does not answer the question of whether the Cover Yard is a common part under the DMC. The section 2 BMO reference to parts specified or designation in an instrument must refer to a relevant and effective one. The 1962 Assignment is not a relevant and effective transaction for the purposes of the section 2 BMO definition. It is a subsequent transaction which does not even assign the Cover Yard. I do not accept that the DMC was ambiguous. The legislative provision, section 2 of the BMO provides the answer to any question. The Cover Yard was not specified or designated as being for the exclusive use, occupation or enjoyment of an owner, therefore it is a common part. There were no contra-indications weighty enough to displace that position.

Assessment and weight of evidence

64.  I do not see any error in principle, as I followed the Jumbo King approach. I do not consider the “plainly wrong” test satisfied because there was evidence to support my finding, it was not based on a misunderstanding of the evidence, I took into account the evidence the parties relied upon and I could not have failed to take into account the new matters now relied upon. The complaint is really as to my assessment of and weight to be attached to the evidence. Therefore, the Respondent has not shown a reasonable prospect success on this basis.

65.  Given my view that there is no merit in the inadequacy reasons and also the failure to take evidence into account arguments, I am not satisfied that the Respondent has shown that Ground 1 has a reasonable prospect of success on appeal. I refuse leave to appeal on Ground 1.

GROUND 2 The PO erred in law and fact by failing to properly consider and apply the equitable defence of acquiescence to the IO’s claim for mesne profits based on trespass

Acquiescence as a defence to mesne profits for trespass

66.  Acquiescence may be a defence to trespass by giving rise to an estoppel: Raingate Ltd v. Bee Cheng Hiang (Hong Kong) Ltd [2017] 6 HKC 472 at §17 per G Lam J (as G Lam JA then was). The Respondent refers to the legal principles and authorities on acquiescence, that were applied, as being highly relevant, namely:

(1)  Acquiescence is shown if (a) the IO has assented to or lay by the Respondent’s acts, and (b) in view of the assent or lying by and consequential acts, it is unjust in all the circumstances to grant the relief claimed by the IO; Freder Centre Incorporated Owners v Gringo Ltd & Another [2016] 2 HKLRD 190 at §26; Judgment §217; and

(2)  The paramount question relates to the justice or injustice of granting the particular relief that is sought and the degree of knowledge required in any situation must depend on all other circumstances; Yick Fung Holdings Ltd v Sandwood Ltd [2009] 4 HKC 43 at §28; Judgment §123.

67.  The IO describes Ground 2 as essentially a re-run of the arguments on acquiescence which were considered and rejected in the Judgment at §§117–221, save that they are repackaged in the form of an argument on acquiescence to Respondent’s trespass only, as opposed to its breach of the DMC. This repackaging cannot advance the Respondent’s case, when the facts which the IO is said to have acquiesced in, namely: (1) the Respondent’s occupation and use of the Cover Yard (2) when it was not entitled to do so, are materially identical. The Respondent disputes that Ground 2 is mere re-packaging of the acquiescence arguments. Rather, in gist it is to view acquiescence per se as a defence to the claim for trespass apart from the DMC claims and that the PO failed to apply the right test of knowledge required in such context: Raingate at §17.

Knowledge

68.  The Respondent submits that I referred to Freder Centre (IO) in discussing acquiescence in the context of defences available to breaches of the DMC but erred in law by conflating the knowledge requirement applicable to acquiescence in that context, with the knowledge requirement where acquiescence was raised as a defence to a claim for mesne profits for trespass: Judgment §117: Golden Industrial Building (IO) v Yee Lim Investment Co Ltd [2023] HKCFI 3314, cited Judgment §137; Raingate at §17. I disagree. I fully accept that acquiescence may be a defence to trespass. Beyond that Raingate is authority on the element of detrimental reliance, rather than knowledge. Raingate was an appeal by the plaintiff against grant of unconditional leave to the 2^nd defendant to defend a claim of trespass. At §17 of Raingate the Court of Appeal accepted as arguable that if an estoppel can be established by the 2^nd defendant, then it can give rise to a valid defence to the claim for trespass. There was no plea or evidence that the 2^nd defendant relied on the plaintiff’s acquiescence or representation to its detriment. It was difficult to see what detriment the 2^nd defendant could be said to have suffered. There was no suggestion that expensive works were carried out on the basis of a representation. On the facts alleged, the bare assertion of an estoppel by acquiescence did not give rise to a triable issue: Raingate §18.

69.  In my view the Respondent fails to identify how the acquiescence knowledge requirement differs in the context of trespass from breach of DMC as a matter of law or in application, particularly when the breach comprises unauthorised use or occupation of a common part and trespass. Knowledge of the Structures and Alterations is of a different fact than of the facts constituting trespass, but the legal test for acquiescence remains the same.

70.  The knowledge required for acquiescence to bar the IO’s claim for trespass is said to be established on the evidence before the Tribunal. The relevant standard of knowledge is whether the IO was aware of the facts constituting the title to relief, not whether the IO had full legal understanding of the rights possessed: Yick Fung at §28. That was appreciated: Judgment §§123, 155. The degree of knowledge required is significantly lower than that required for waiver, which necessitates knowledge of the right to forgo the claim; Lau Chung v Hui Keng Yee and Another [2025] HKCFI 359 at §27: Judgment §121.

71.  The Respondent submits that full knowledge as discussed in §§154-155 of the Judgment, relating to the issues of the nature of the UBW and common parts, is irrelevant to the fact of trespass and the IO’s awareness thereof. R Skel focus on the fact of possession and the word “full”, rather than the actual findings material to trespass, so that it may suggest too high a burden was placed on the Respondent or that the requirements for acquiescence were misapplied. Rs Reply at least focuses on trespass. I found that the IO was under a mistaken belief that the Cover Yard was under the exclusive use of an owner, so not a common part: Judgment §§154-155. I was not merely making findings on the Structures and Alterations. The findings go to the IO’s lack of knowledge of the trespass.  The IO was not only mistaken as to the true legal position. It did not have knowledge of the facts giving rise to its right to take action.

72.  The Respondent argues that it is sufficient, and that the knowledge requirement is satisfied when, the IO was aware of the Respondent’s exclusive possession and use of the Cover Yard: R Skel §24. Further, that such awareness is established by (1) the extensive, open and notorious use of the Cover Yard as a restaurant by the Respondent and its predecessors-in-title over a prolonged period and (2) the IO’s pursuit of management fees against the registered owners of the Cover Yard.

73.  The IO replies that those two matters do not show that the IO knew of “the fact of trespass” and do not assist the Respondent: R Skel §§24–25. I agree. First, that the Cover Yard had been openly used as a restaurant for a prolonged period is insufficient because knowledge of the physical state of the premises, as opposed to awareness of an infringement, is insufficient. Second, I accepted that the IO’s pursuit of the Developers for the management fees of the Cover Yard is clear evidence that the IO believed that the Cover Yard had been exclusively possessed by the Developers and was completely unaware that the Respondent had been wrongfully trespassing on the Cover Yard: Judgment §154.

74.  I found that merely being aware of possession or use was not sufficient, when the IO did not know or suspect that such possession or use was wrongful: Judgment §156. There was no open and notorious use of the Cover Yard as a restaurant in so far as it formed part of an office, was used for storage including of rubbish bins and had a basin or toilets.

75.  There is no dispute that what is required for acquiescence is a party’s knowledge of the “facts constituting the title to relief” or the “facts or matters that gave rise to his right to equitable relief”. This means that the party must be aware of sufficient matters to raise in their mind a doubt whether an infringement of their rights has taken place, even if they may not have fully understood, as a question of law, the rights they possessed: Yick Fung §28.

76.  The Respondent says that the “facts constituting the title to relief” only include the Respondent’s exclusive possession and use of the Cover Yard: R Skel §24. The IO maintains (as found) this is wrong. The constituent elements of trespass also require that the possession, or occupation, be wrongful. The “facts constituting the title to relief” must also include the fact that the exclusive possession was wrongful.

77.  The IO tests the matter in this way. Could the IO have brought a claim in trespass against the Respondent simply by pleading that the Respondent was in exclusive possession of the Cover Yard (which, in any event, could only have been pleaded after the IO realised that it was the Respondent rather than the Developers who had been occupying the Cover Yard)? The answer is clearly “no”. An additional necessary fact which the IO must plead is that the Respondent was not entitled to exclusive possession of the Cover Yard, which the IO did not know until 2020.

78.  The IO says nor does it assist that acquiescence does not require a party fully understand the “rights possessed”: R Skel §23. As made clear at Yick Fung §28(1), this only means that a party need not fully understand that they possessed a “right to relief” for acquiescence to arise. This does not mean that acquiescence can arise also where a party is not even aware of the anterior fact that their rights are being infringed in the first place. For trespass there must be wrongful possession/ occupation.

79.  The Respondent replies that IO Skel §§40- 41 suggestion that the “facts constituting the title to relief” must also include the fact that the “exclusive possession was wrongful” show that the IO supports Ground 2. First, the IO does not suggest that its “knowledge” of the “wrongful nature” of the act of trespass is incidental to its claim for trespass. Second, the IO agrees that its mistaken belief as to the “nature” of the Respondent’s trespass did not make the act any less of a trespass. These are red herrings.

80.  In my view what is required for acquiescence is knowledge that the Respondent has no right to excusive possession of the Cover Yard or may be trespassing, or at least be aware of sufficient matters to raise doubt as to whether there was an infringement. Yick Fung §28.

81.  This can be seen in Jade Assets Ltd & Others v East Sun Industrial Centre, New East Sun Industrial Building and East Sun Industrial Building (IO) [2020] HKCFI 2880 §§69-75, which is a trespass case: Judgment §135. It is insufficient to know of the physical state of the premises. In that case it was the installation of a ramp and metal railings which encroached on the plaintiffs’ car parking spaces. The plaintiffs also had to know of the infringement, namely the fact of encroachment.

82.  Whereas R Reply says Jade Assets at §54 defined the “anterior” fact material for a case of trespass to include unjustifiable intrusion by one person upon land in the possession of another where the physical act was voluntary and that trespass is actionable per se.

83.  Mr Wong says that in Jade Assets, the defence of acquiescence was rejected due to lack of evidence of “approval of encroachment” when the plaintiff did not even know the very act of encroachment (rather than the wrongful nature of the encroachment). Therefore, Jade Assets can be distinguished from the Premises. It follows from Jade Assets that the anterior fact depends only on the “very act of trespass”, rather than the landowner’s knowledge that such “possession of land” is legally wrong or that it gives rise to a legal right to relief to the landowner. However, here there was not evidence of approval by the IO. Trespass requires an unjustifiable intrusion upon the land. I found that the IO did not know of the unjustifiable intrusion because it believed the Cover Yard was part of a unit to which exclusive possession was granted to an owner, namely the Developers. The IO did not know the possession was unjustifiable because it believed the possession was by owners exercising their right to exclusive possession, so entirely justified.

84.  The Respondent appears to misconstrue the IO’s submissions or is not distinguishing between the elements of trespass and of acquiescence, when the knowledge in issue is that for acquiescence. Mr Wong submits that acquiescence to trespass can readily be found when the “anterior” fact was known to the IO, “and” that the IO “had tolerated such ‘anterior’ fact”. It matters not whether such act of trespass subsisted under a common, mutual or unilateral mistake. This proposition is said to be in line with Yick Fung line of authorities.

85.  R Reply §20(e) states that the anterior fact was known to the IO “and” that the IO had “tolerated such anterior fact.” Whereas, I found that the IO had no knowledge of “very act of trespass” which the Respondent says is the anterior fact. The Respondent’s case also requires that the IO had at least “tolerated such ‘anterior’ fact”. The IO could not have been tolerating or putting up with the intrusion or trespass because of the mistaken belief that the Developers were entitled to exclusive possession of the Cover Yard. Yick Fung held that a party must be aware of sufficient matters to raise in their mind a doubt whether an infringement of their rights had taken place. No doubt was raised as to whether there was an infringement, so the IO could not have been tolerating the trespass.

86.  The IO adds that here the requisite knowledge for acquiescence must be absent because there is no appeal against the factual findings at Judgment §§154–155 that:

(1)  The IO was under the mistaken belief that the area was a unit of the Building under the exclusive use of an owner so not a common part, in other words whoever had been using the Cover Yard was entitled to its exclusive use; and

(2)  The IO had no knowledge of the Structures and Alterations.

87.  Contrary to R Skel §25, these findings are not confined to the question of the IO’s awareness of the Respondent’s breach of the DMC. The Judgment §154 findings that the IO was under the mistaken belief that the Cover Yard was under the exclusive use of the Developers mean that the IO did not know that the Respondent had been in wrongful occupation, and that the IO could not have possibly acquiesced in any trespass. I found that the IO did not know of the facts giving rise to its right to take action. This is distinguishable from cases where the mistake is only as to the legal right or legal consequences of known facts: Judgment §§155, 156.

88.  The Respondent submits further or alternatively, assuming some degree of knowledge of the “wrongful nature” is required to establish acquiescence, such knowledge need not be the conclusive knowledge of the wrongful nature of the Respondent’s physical possession of the Cover Yard. It is sufficient for the IO to have been “put on suspicion”: Yick Fung §28. R Reply adds as an example Chan Suk Ying (Aka Chan Shock Ying) v Lee Wai Ling Celine the Personal Representatives of the Estate of Peter Li Chak Ming & Others [2023] HKCFI 3085 at §25 per Recorder Victor Dawes SC, where the Court found that the “certain level of knowledge” was met when the plaintiff had been put on suspicion and should have possessed the necessary knowledge. Mr Wong says that the IO should have possessed the necessary knowledge at all material times when the DMC (which gave rise to its rights to enforce over the Cover Yard) was readily available to the IO since day one. I found otherwise.

89.  Yick Fung at §28 held that the degree of knowledge required in any situation must depend on all the circumstances. On my findings the IO did not in fact suspect and was not put on suspicion. The argument then boils down to whether the IO “ought” to have been put on suspicion and whether that suffices for acquiescence. Further, whether the test is entirely objective. The Respondent had argued, in respect of the Structures and Alterations, that what it called Nelsonian knowledge was sufficient. It was submitted that the IO was willfully turning a blind eye, that the IO was not merely negligent and that I should find willful blindness. While the IO said there was not even negligence, much less willful blindness and that Nelsonian knowledge is not a proper test. In my view the IO had to know, be aware of, have a doubt or at least suspect wrongful occupation, before the knowledge element was satisfied. I found that the IO was under a mistaken belief that the Cover Yard was not a common part and that the Respondent had failed to establish that the IO had the material knowledge in respect of the Cover Yard to satisfy an essential element of the defence of acquiescence: Judgment §§154-156. There is no appeal against the findings of fact in respect of mistaken belief. The Respondent says that the IO ought to have known of the trespass because it had access to the DMC. I did not consider that sufficient. It is not simply an issue of breach of the DMC. Acquiescence is an equitable defence and the Tribunal must consider all of the circumstances, and the IO’s position, as well as that of the Respondent.  It must depend on the facts. The IO did not in fact know or suspect and there was no additional fact or matter to be coupled with the DMC to show objectively that the IO ought to have known.

Knowledge and unconscionability    

90.  To succeed on the defence of acquiescence the Respondent must have shown first, that there was on the part of the IO, an assent or lying by in relation to the acts of the Respondent, and secondly that “in view of the assent or lying by and consequent acts it is unjust” in all the circumstances to grant the relief: Freder Centre (IO) §26. Acquiescence arises where a reasonable person would expect the IO against whom the estoppel is raised, “acting honestly and responsibly”, to bring the true facts to the Respondent known to him to be under a mistaken belief as to their rights and obligations: Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985 at §8.2 per Cheung JA. The principles were set out in the Judgment at §§117-119. It is because of an assent or lying by and “in view of” the assent and consequent acts, that it may be unjust to grant relief.

91.  Applied to the facts found there was no assent or lying by on the part of the IO to the Respondent’s trespass. The IO did not know that the Respondent was under a mistaken belief. In the circumstances a reasonable person would not expect the IO acting honestly and responsibly to bring the true facts to the Respondent, knowing that it was under a mistaken belief. In light of the IO’s state of knowledge there was no lack of probity on the part of the IO that required equity to come to the assistance of the Respondent. The conduct of the IO could not be impugned such that it would be unconscionable to allow it to enforce its rights.  

92.  I maintain my view that the Respondent failed to establish that the IO had the requisite knowledge to have acquiesced in the trespass by the Respondent on the common part.

Detrimental reliance and unconscionability

93.  The next claimed error is the finding of lack of detriment, because it is “wrong in principle” to hold that the Respondent’s profits derived from the use of the Cover Yard negated the potential detriment: R Skel §§26–27. I disagree. It cannot be wrong in principle, although it may be an error on the facts, but here it cannot even be an error of fact given the evidence, or lack thereof, at trial.

94.  The Respondent submits that I erred in principle by adopting a narrow approach in negating the element of unconscionability in finding that the Respondent’s profits derived from the use of the Cover Yard negated the element of “detriment”. The legal test for detriment must be approached by a broad inquiry into whether repudiation would be unconscionable. The Respondent relies on Mak Ho Fung v Mak Kai & Others (unrep., 05/12/2013, CACV246/2011) at §28, citing Gillett v Holt [2000] 2 All ER 289 at 308c-e where Robert Walker LJ (as he then was) explained that detriment:

“…is not a narrow or technical concept. The detriment need not consist of the expenditure of money or other quantifiable financial detriment, so long as it is something substantial. The requirement must be approached as part of a broad inquiry as to whether repudiation of an assurance is not unconscionable in all the circumstances”

95.  R Skel §27 states that “the detriment suffered by the Respondent (including substantial expenditure on setting up and running the premises over a prolonged period in reliance on the IO’s lying by)” should have been weighed against the overarching question of unconscionability. I must say immediately that the Respondent did not plead, adduce evidence, nor submit at trial, that the detriment suffered by the Respondent included “substantial expenditure on setting up and running the premises over a prolonged period in reliance on the IO’s lying by”. The detriment relied upon at trail focused on the Staircase Wall Opening, rather than the Cover Yard. The Respondent’s case was that if the Staircase Wall Opening were to be closed, the Respondent’s restaurant licence would be revoked, it would be unable to obtain a fresh licence, subject to reduced seating capacity or additional expense or could not operate the restaurant from the Premises: Judgment §159.

96.  The Judgment refers to the Respondent’s pleaded case of detriment that the alteration of the Staircase Wall was necessary to provide a means of fire escape for the restaurant, without which the Respondent would lose its restaurant licence, however, “No detriment is suggested in relation to the Cover Yard. This is at best an argument which relates only to the Staircase Wall”: Judgment §178. There is no appeal against the findings that “the evidence is that the Cover Yard Structures do not impact on the availability of a restaurant licence”: Judgment §169. That may explain why the Respondent is now shifting to trespass, as distinct from breach of the DMC by reason of the Structures or Alterations, and claiming substantial expenditure on setting up and running the Premises over a prolonged period in reliance on the IO, as an additional detriment to loss of restaurant licence, but which is an assertion absent evidence of “substantial detriment”. Detriment in relation to the Cover Yard, as distinct from the general statement regarding the Premises as a whole, is still not addressed. Nor is there any crossing the line to show reliance on the IO.

97.  The IO points out that the authorities cited by the Respondent show that it is not wrong in principle to hold profits may negate detriment. I agree that they affirm that benefits derived from unlawful use can negate any detriment which has otherwise been suffered, even if detriment is to be approached as part of a broad inquiry as to unconscionability:

(1)  In Mak Ho Fung at §28 Chu JA (as she then was) found:

There is also no dispute that in assessing whether substantial detriment has been suffered, the court should take into account any countervailing benefit received by the plaintiff. It is accepted by [the parties] that the court should approach the issue by conducting a broad inquiry as to whether the repudiation of the promise or assurance is unconscionable …

(2)  As explained in Unity Profit Ltd v. Lee Ching Lam [2024] HKCFI 3178 at §153 by Tsui J:

On the issue of detriment, where a claimant enjoys the benefit of using the land during the period of occupation and makes a profit, it has been held that he is not suffering from any detriment … The court in general takes into account any countervailing benefits that the claimant has received. There will be cases where the court takes the view that the countervailing benefit has outweighed the detriment which the claimant has occurred. In those cases, the requirement of detriment is not satisfied. However, it must be borne in mind that detriment is not a narrow or technical concept and it is not a mere matter of balancing financial gains and losses. It forms part of the “broad inquiry” which the court should undertake: Megarry and Wade, The Law of real Property (9^th ed) at para 15-018.

98.  The complaint is that the Tribunal ought to have balanced the benefits derived by the Respondent from its wrongful use of the Cover Yard against “detriment suffered” by the Respondent, including “substantial expenditure on setting up and running the premises over a prolonged period in reliance on” the IO’s lying by, as part of its broad inquiry: R Skel §27. However, the IO submits, correctly, that:

(1)  There is no such plea of detriment: Judgment §210; pleas at ANOO §12(iv).

(2)  There is no evidence or particulars of such “substantial expenditure” — when the burden is on the Respondent to make good its defence of acquiescence.

(3)  This issue of “substantial expenditure” was not even raised by the Respondent at first instance.

99.  In the circumstances, the IO concludes that the Tribunal could not have been expected to address — let alone have committed an error by failing to address — a point which was neither pleaded nor supported by adequate evidence. That must be right.

Evidence of detriment or unconscionability

100.  I generally accepted the evidence of Ms Cheung for the Respondent: Judgment §37. Her evidence included that the Premises had served as a dim sum restaurant since the 1990s, the Respondent acquired the Premises and its lease in 2007 when it was operated as a dim sum restaurant under the name “Viking” by the tenant and, after expiry of the lease, the Respondent operated the dim sum restaurant “Royal Legend” from the Premises. There was no evidence that the Respondent incurred substantial expenditure in setting up the restaurant or, for example, invested in new kitchens or renovating, rather than just taking over fittings or fixtures of the previous restaurant tenant. Ms Cheung stated that the Respondent did not undertake any construction work to enlarge the area of the Cover Yard since the Premises was purchased. A wooden door that had over time deteriorated was replaced with an iron gate, but she says that the replacement was simply a maintenance measure: Judgment §36(3). That could not constitute substantial detriment.

101.  I appreciated that detriment is not a narrow or technical concept and need not be financial or consist of expenditure. However, the Respondent did not discharged its burden of identifying and proving any detriment, which I referred to as “potential” detriment. The only facts proved did not establish any substantial detriment, but on the Respondent’s evidence there was benefit to running the restaurant and it was claimed that reinstating the Staircase Wall would have an adverse impact on the business. The Tribunal was entitled to take countervailing benefits into account. The benefit of running the restaurant would outweigh the unevidenced detriment which the Respondent is now claiming.

102.  In my view, in the absence of any adequate evidence to the contrary, the Tribunal was entitled to infer that the profits made by the Respondent from operating the Restaurant (with help from its occupation of the Cover Yard for storage or otherwise) negated any “potential” detriment. The IO submits that this is a finding of fact which was well within the remit of the Tribunal. There was not a failure to take evidence into account. I consider that the finding was supported by the evidence and not plainly wrong.

No acquiescence

103.  In Raingate there was no plea or evidence that the 2^nd defendant relied on the plaintiff’s acquiescence or representation to its detriment. The bare assertion of an estoppel by acquiescence did not give rise to any triable issue: Raingate §18. Here, even on the present assertions the Respondent has not made out a defence of acquiescence by estoppel.

104.  The Respondent had to prove each of the elements of knowledge and detrimental reliance to raise unconscionability in order to establish acquiescence by estoppel. For a successful appeal under Ground 2 I must have erred both in respect of knowledge and detriment giving rise to injustice. Even if, say the knowledge requirement for acquiescence were entirely objective, and satisfied, but there was no detriment or reliance by the Respondent on the IO, there could be no acquiescence. In my view the Respondent has not identified any error with regard to the findings in respect of the elements of knowledge and detriment making it unconscionable, nor shown why the IO ought to have been found to have acquiesced in trespass. Ground 2 has no reasonable prospect of success. Therefore, I refuse leave to appeal on Ground 2.

GROUND 3 Without prejudice to Ground 2, the PO erred in law and in fact by failing to take into account the issue of acquiescence when determining the amount of mesne profits payable by the Respondent to the IO

105.  The Respondent now argues alternatively, even if “unconscionability” could not dismiss the IO’s claim for trespass in its entirety, acquiescence is, as a matter of law, a relevant equitable consideration in quantifying the amount of mesne profits payable for trespass.

106.  Ground 3 is that acquiescence can operate as a partial defence to restrict the quantum of mesne profits payable by the Respondent to that accruing after the IO filed its Notice of Application on 9 September 2020.

107.  The Order dated 28 November 2028 materially provided that, (a) the Respondent do pay mesne profits in the sum of HK$647,801.48 and interest for the period from 9 September 2014 to 16 October 2025 (date of Judgment) and (b) mesne profits at the annual rate of HK$58,934.22 from date of Judgment until full compliance with the Judgment (regarding reinstatement) and delivery of vacant possession of the Cover Yard to the IO, together with interest.

108.  The valuation expert directions provided the valuation period for assessment of mesne profits. Mr Li assessed mesne profits from 9 September 2014 to 8 September 2020 in his Valuation Report. Ms Sat, for the IO, assessed mesne profits for the period from 9 September 2014 to 18 February 2025 in her report. The present case, that mesne profits should only be payable from September 2020, differs from that advanced at trial.

109.  The Respondent submits that while the PO relied on §§238-239 of Wing Ming Garment Factory Ltd v Wing Ming Industrial Centre (IO) [2014] 4 HKLRD 52 in relation to mistaken belief and waiver, the PO failed to consider §§236-243 of Wing Ming: Judgment §131). There G Lam J (as he then was) expressly confirmed that justice could be achieved by making allowance in favour of the trespasser for the costs of constructing and dismantling structures erected over the trespassed areas, such that the incorporated owners might reasonably expect to receive only the prevailing open market rent less such expenses. Therefore, the PO ought to have treated acquiescence as a relevant equitable consideration in determining the quantum of mesne profits to do justice between the parties.

110.  The IO replies that in Wing Ming that cost was deducted from the damages payable because this was the proper measure of negotiating damages, in that a hypothetical negotiation between the plaintiff and the defendant for permission to use the relevant space would have taken into account such costs. As explained at §243:

In any event, justice can in my view be done by making allowance in favour of Wing Ming for the cost of constructing the Part Loft in 1994–5 and of dismantling it now in the assessment of the monetary relief which I deal with below.  This can be achieved because in the hypothetical negotiation between the IO and Wing Ming for permission to use the space (see [216] above), the parties, acting reasonably, would take into account the need for Wing Ming to incur expense to construct the Part Loft at the outset and to remove it at the end of the licence. This assumes that the hypothetical negotiating parties enjoy not the benefit of hindsight (which is probably impermissible), but reasonable commercial foresight … The amount that the IO might reasonably expect to receive in return would, in my view, be the prevailing open market rent less such expenses.

111.  The IO continues that Wing Ming is irrelevant for 3 reasons. First, it was concerned with a reduction in negotiating damages for breach of a DMC, because such a reduction would have been agreed. It was not concerned with a claim for mesne profits for trespass, which is a reasonable rent for wrongful use without any deduction for expenses or what the parties would have negotiated: Inverugie Investments Ltd v Hackett [1995] 1 WLR 713, 718–719 (per Lord Lloyd of Berwick); see user principle at 718B-C. Secondly, the reduction in negotiating damages case was not due to  acquiescence. Thirdly, it provides no support for the Respondent’s suggestion that the mesne profits it is liable to pay should be restricted to those which “accrued after” the application was commenced.

112.  The Respondent considers the attempt to distinguish Wing Ming ill-conceived. The mesne profits payable by Wing Ming to the IO were expressly reduced “by the costs of constructing and dismantling” the Part Loft. The deduction stemmed from the Court’s consideration of various equitable defences raised by Wing Ming, including laches (at §237), acquiescence and delay (at §240). The Court expressly set out its approach to “achieving justice” in that context at §243.

113.  The IO’s reliance on Inverugie Investments is said to be misplaced. While the legal principle in Inverugie Investments is only marginally relevant, the case is however an example of the Court ordering the total amount of mesne profits “less deduction for expenses and ground rent attributable to the apartments” during “the tolerated period” of trespass: the Privy Council at 714A and 719B-E affirmed deductions set off against the rental, including ground rent, costs of maintaining and refurbishing the common areas, electricity and repairs.

114.  I consider both cases distinguishable on the facts. The facts in Wing Ming included the IO having installed a pipe encroaching on the area and discussions around building of the loft. Here the Respondent did argue at trial that it should not be responsible for removing the Structures and Alterations and reinstating the Cover Yard because it did not make the changes. The argument was rejected: Judgment §§226-229. Ground 3 is not that the cost of removing the Structures and Alterations, or reinstatement, should be deducted from the mesne profits, that the total due should be “less” that cost, of which there was no evidence. In Wing Ming justice was done by awarding the prevailing market rent less expenses because the parties would have taken in to account the need for Wing Ming to incur the construction and removal costs. Unlike Wing Ming the hypothetical negation would unlikely include an allowance for setting up a restaurant because the Premises were already operating as a restaurant.

115.  The Respondent did not argue that the period of mesne profits should commence from filing of the Notice of Application. No reason has been proffered as to why the period should commence from issue of the proceeding, rather than for the period of the trespass, save that acquiescence may be a relevant equitable consideration in quantifying mesne profits. If the basis is that issue of the Notice of Application gave notice that the IO no longer tolerated the trespass, the Respondent had to prove acquiescence before that date.

116.  The Respondent also relies on 永樂大廈業主立案法團 v 林穎欣經營珠珠找換店 [2023] HKLdT 31 where the PO rejected all equitable defences raised by the respondent trespasser but held that the period of mesne profits should start to accrue from the commencement of the application but not earlier. According to §106 this was because of the position of and a demand made by the applicant. The IO submits that the basis on which mesne profits was restricted was not clear but had nothing to do with acquiescence as that defence was rejected: §103, R Skel §30.

117.  Wing Ming and 永樂大廈業主立案法團, turn on their own facts. They do not support the claim that acquiescence should operate to reduce the quantum of mesne profits payable for trespass to be only for the period after issue of proceedings.

118.  I found that the Respondent failed to prove acquiescence. Yet the Respondent submits the framework for making allowance in favour of the trespasser “after prolonged period of acquiescence” is not a rigid one. Ground 3 is advanced “notwithstanding Ground 2” and “alternatively”. It appears that the Respondent requires that I had regard to acquiescence even if the defence was not made out. Mr Wong still says that the real concern for the Tribunal is the question of what justice requires to be done when equitable defences are “raised”. If it is suggested that merely raising an equitable defence, say in a pleading, even if not proved the Tribunal is required to have regard to that defence when it comes to the relief or remedies, I reject the suggestion. Presumably were acquiescence established the Respondent’s position is that there should be no mesne profits at all. Or not until the IO gave notice to vacate, latest by the Notice of Application. Yet it relies on acquiescence regardless of Ground 2.

119.  Mr Wong continues that the Wing Ming analysis inherently recognised the confluence of (i) the trespasser’s infringement of the plaintiff IO’s rights and (ii) the plaintiff IO’s “assent/ acquiescence to such infringement” and (iii) that it became unjust to grant the relief claimed against the respondent/ trespasser. The case therefore supports a “proportionate reduction for expenses expended on the Cover Yard during the prolonged period of trespass”, and in the Premises, proper consideration should be given to the issue of acquiescence when determining the amount of mesne profits. That analysis requires part (ii), the IO’s “assent/ acquiescence to such infringement”, but there was no assent to the infringement.

120.  There are cases where allowance should be made for expenses incurred and that the mesne profits may be less such expenses. If the facts and evidence establish the actual expenses or at least that expenses were incurred, the Tribunal may be in a position to consider whether it would be unconscionable not to make a deduction or whether justice required an allowance for that expenditure. That is all well and good as a matter of principle. Each case obviously turns on the evidence adduced.

121.  Here draft Ground of Appeal 3, paragraph 19 provides that “the PO should have held that the mesne profits should not be payable before the issuance of the writ”. The reason given for that delayed date for mesne profits to commence is that justice requires an allowance for expenditure. The Respondent does not assist as to the expenditure incurred so that the Tribunal may consider that sum against the amount of mesne profits due for the period before issue of the Notice of Application and determine whether it would be unconscionable to allow recovery for the full period or what justice requires be done.

122.  Whereas R Reply submits that a “proportionate reduction for expenses expended on the Cover Yard during the prolonged period of trespass” should have been considered. The Respondent wholly failed to adduce evidence, much less prove any “expenses expended on the Cover Yard”. Ms Cheung’s evidence was to the contrary. The Tribunal was in no position to consider what a “proportionate reduction” for such expenses would be. There was no way to assess whether it would be unconscionable not to have regard expenses. Much less to assess whether a just and proportionate award would be to disallow mesne profit for the entire period before issue of the Notice of Application on 9 September 2024. Therefore, what justice required to be done was have regard to the period of wrongful occupation and assess mesne profits on that basis.  

123.  I fully accept that in relation to equitable defences the Tribunal must have regard to, inter alia, unconscionability with a view to achieving justice. There may be cases where for procedural reasons, conduct of an applicant, delay or on the evidence the Tribunal is required to consider whether the period for which mesne profits may be recovered should be less than the entire period of the trespass. However, no such procedural or evidence based reasons have been given to do so in this case.

124.  Further, this is an argument raised far too late. Had there been a basis to limit the period, the Respondent should have raised it before or at trial. The Respondent had a further opportunity to seek to curtail the period of mesne profits after the trial, because the Judgment gave directions for the quantification to be agreed (including the period), in light of the findings, failing which the parties had leave to revert to the Tribunal on any matter arising in respect of the mesne profits sum: Judgment §§253-254. Further still, had the Respondent wished to recast its case it could have applied for a review and sought to adduce evidence of expenditure or have quantum reconsidered before an appeal. The Respondent did not. In any event, I do not consider this ground has merit.

125.  In my view the prospects of success are not more than fanciful. There is no reasonable prospect of success on Ground 3, so I refuse leave to appeal on Ground 3.

Disposition

126.  For the above reasons I find that the Respondent’s draft Grounds of Appeal do not have a reasonable prospect of success. I do not consider that there is any other reason in the interests of justice why the appeal should be heard. Therefore, I dismiss the Respondent’s application for leave to appeal to the Court of Appeal.

Costs

127.  I make a costs order nisi that the Respondent do pay the IO the costs of the application, with certificate for counsel, to be taxed on the District Court scale. Either party may apply to vary the costs order nisi within 14 days hereof, failing which the nisi order shall become absolute.