Harbour City Management Ltd. v. Finstar Ltd.

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

LDBM No.249 of 1998

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Judgment

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Background

1. The applicant is the manager of a building consisting of two towers of offices standing on a podium. By these proceedings the applicant seeks an injunction restraining the respondent from committing or further committing the breach of the deed of mutual covenant (the "DMC"), or alternatively damages in lieu. The alleged breach concerns the encroaching on the common area designated as corridor on the floor, the offices on which floor are all owned by the respondent. It is alleged that the two corridors on the floor in question are narrower than designated under the DMC. The total area of encroachment as pleaded is 317.24 sq.ft.

Area of Encroachment

2. The burden of proof is on the applicant to prove the size of area encroached upon. There had been no evidence as such until this Tribunal allowed the applicant to re-open its case by calling a further witness. He is an architect who, during an adjournment of the trial, conducted the relevant survey on the partitioning on the floor in question and the other floors in the same tower. He came to the conclusion that the total area of encroachment was 23.97 sq. m. i.e. about 262 sq. ft. This Tribunal does not doubt his veracity or his competency. His evidence has to be analysed in two parts. As to the present state of partitioning on the floor in question and the widths of the two existing corridors, his evidence is not challenged and this Tribunal accepts this part of his evidence. The other part of his evidence which relates to the proper widths of the corridors is challenged. One of the documents he relied on is the Record Calculation Sheet drawing. It should be noted that the floor plan in the DMC contains no dimensions regarding the corridors. Mr. Thomson, counsel for the respondent contended that this document should not be looked at in determining the dimensions of the corridor as it had not been incorporated into the DMC. He further submitted that the parties measured their contractual obligations on the DMC and on the DMC alone. As there was no evidence any other documents had been incorporated into the DMC, he argued, they should not be looked at. Mr. Szeto, counsel for the applicant, suggested no direct answer to this point and this Tribunal cannot find any assistance on this point in his argument about encroachment.

3. Mr. Thomson's approach is too narrow. On the one hand, the issue is whether there is a breach of the DMC, but on the other, the rights of the respondent to partition the floor the way as it has done is under examination. The rights of the respondent cannot be fully ascertained without looking at the title deeds. The way the respondent acquired the premises is no different from the common conveyance practice. Through its predecessor it has acquired the exclusive right to use, enjoy and occupy the premises on the 9th floor subject to and with the benefit of the DMC. The DMC is expressly referred to in assignments through which the respondent acquired the ownership of the premises. In this sense, the DMC has been incorporated into the assignments. In another sense the bundle of rights of the respondent to enjoy the premises it owns and the common parts of the building is relevant to the allegation of breach of the DMC and therefore the assignments can be looked at. There are two assignments. Through the second assignment, the respondent acquired its title from its predecessor. Layout plans referred thereto are not included in the bundle of documents. However as the assignee can derive no better title than its assignor, for all useful purposes of this case, it can be presumed that they should be no different from those layout plans annexed to the first assignment through which the predecessor acquired its title from the developer vendor. Unfortunately, there are no dimensions regarding the corridors in those plans. To extend Mr. Thomson's argument, one can argue that the Calculation Sheet drawing has not been incorporated into the assignments and therefore one may not look at it, even if one can look at the assignments. Of course the general principle of construction of a contract is that extrinsic evidence should not be admitted if the written contract embodies all the terms. The present case can be distinguished. The parties intended to convey property which can be ascertained. The relevant floor plan annexed to the first assignment clearly shows there are corridors which are not conveyed to the exclusive use, enjoyment, occupation of the respondent. The boundary of the various units are meant to be certain. It would be absurd to find otherwise. The Record Calculation Sheet drawing included in the set of building plans as approved by the Building Authority is a public document. In the absence of evidence that the developer has re-partitioned the 9th floor, and in the particular circumstances of this case, the Record Calculation Sheet drawing can be admitted to show the dimensions of the various premises conveyed to the respondent. As a result the dimensions of the corridors can be ascertained by looking at the same document. The Tribunal is of the view that it is permissible for the architect to look at the Record Calculation Sheet drawing in arriving at his conclusion as to the proper dimensions of the corridors. Apart from this point, there is no challenge to his evidence. The Tribunal accepts his conclusion and find that there has been encroachment on corridors and the total area of encroachment is about 23.97 sq.m. or about 262 sq.ft.

Defence/Facts

4. The Tribunal accepts the evidence adduced by the respondent. In 1989, shortly after the respondent had become owner of all the units on the 9th floor, it had the floor renovated and re-partitioned. It instructed Jone Lang Wotton, ("JLW") to oversee the project. Plans for re-partitioning were submitted by JLW to the predecessor of the applicant for approval and work was carried out and completed according to the plans as approved. From the totality of evidence, it is a reasonable inference, and it is the inference that this Tribunal draws that as a professional manager of the building the predecessor of the applicant must have inspected the work on its completion and given its approval. Similarly at the early stage since taking over the management of the building, the applicant must also have been aware of the physical condition of the partitioning on the floor and in particular the widths of the corridors and the fact that they are narrower than those in other floors. The respondent has made no further encroachment since the aforesaid renovation and re-partitioning work in 1989. Further it cannot be disputed that at all material times it is within the knowledge of applicant and predecessor that the units are leased out to different tenants.

Defence/Estoppel/Discretion

5. The defence of estoppel is pleaded in the notice of opposition but Mr. Thomson has not pursued it nor its kindred defence, waiver. Now that the Tribunal has found that there has been encroachment, the only defence left for consideration is whether a mandatory injunction or other reliefs should be granted.

Injunction/Other reliefs

6. Mr. Szeto submitted that approval given by the predecessor was no bar to the applicant to bring the action on behalf of all owners to enforce a term of the DMC. He further argued that as approval was no bar, equally would be acquiescence. He cited in support the authority of The Incorporated Owners of Hoi Luen Industrial Centre & anor V Ohashi Chemical Industries (Hong Kong) Ltd. [1995] 2 HKC 11 The passage in the judgment of Godfrey J.A. at P.13 he relied on is as follows:

" It follows that in the instant case the plaintiffs were not only entitled but bound to take proceedings for the enforcement of these covenants. It follows, too, that they could not have granted expressly to this defendant or any other owner of any unit in the building the right to act in contravention of the deed of mutual covenants as this defendant has done. What cannot be done expressly cannot be done impliedly. Although equity will sometimes retrain a plaintiff in the exercise of his legal rights, equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant."

7. Clearly the learned judge did not say an injunction was no longer a discretionary remedy. In an earlier case, Incorporated Owners of Dragon View V Nalpak Ltd. [1989] 1 HKC 549, also involving a breach of a deed of mutual covenants, the learned judge, Godfrey J., as he then was, refused to grant a mandatory injunction and held that it was open to a defendant to show that it would be unjust and inequitable to restore the position. If his lordship wanted to overrule or disapprove his earlier decision, or to change this well settled principle, he would have done so in more explicit terms in Ohashi. This Tribunal is of the view that an injunction still remains a discretionary remedy. In exercising its discretion, the court is entitled to look at all circumstances, including acquiescence, and those which might support a defence of estoppel or waiver, irrespective whether each of such defences by itself is available, or made unavailable by the authority of Ohashi's case.

8. Mr. Thomson did not seek to distinguish the present case from Ohashi. In the present case, clause 7(A) of the DMC provides:

"After consultation with the Manager the Registered owner shall have the unrestricted right and privilege:--

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(b) to designate any part or parts of the Common Areas (except the Roofs and Flat-roofs of the Building) to be shops or offices ... prior to the first assignment of such part or parts... Provided that...and that the part or parts of the Common Areas on any floor so designated to be shops or offices shall not in the aggregate exceed 20% of the total area of the Common Areas...on that floor

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(d) to deal and part with or to grant any part or parts of the Common Areas to any owner...the right, privilege and permission for the sole benefit of such owner... "

Clause 7(B) provides that:

"(b) Notwithstanding the provision of (A) above, the reservation by the Registered Owner of the Common areas and the rights and privileges therewith shall not in any way:

(i) interfere with or prejudice any owner's right to hold, use, occupy and enjoy...

(ii) ...

(iii) unreasonably impede or obstruct any owner's or his tenants', licensees', occupiers' and customers' reasonable access to its shop or offices."

9. Clause 7(B) imposed restrictions on the exercise of the rights reserved to the Registered Owner. None of restrictions is applicable to the present case as the respondent owns all the units on the floor. In fact it is not disputed that by clause 17(c), the respondent, as a single owner, would have been entitled to use the corridor as it has done if it did not lease out the units to its own tenants. There would have been no breach of the DMC if the respondent had occupied all the units. Therefore it is within the power of Registered Owner in consultation with the manager to grant such right or to permit the respondent to partition off part of the corridors before first assigning the common areas if the area of corridors so partitioned off did not exceed 20% of the total area of the common areas on that floor. There is no evidence that the Registered Owner developer has ever assigned the common areas or when if it ever has at all. According to the Calculation Sheet drawing, the total area of the two corridors is 115.6 sq.m (57.8 X 2). 20% of the total area of the corridors would be 23.12 sq.m. which is slightly less than the area of encroachment of 23.97sq.m. by 0.85 sq.m. As can be seen in the floor plan annexed to the DMC (at page 436 of the common bundle) the total area of the common area is much greater than the area of the corridors. It follows that without doing the tedious calculation, it can be easily seen that the encroachment is much less than 20% of the total area of the common areas on the floor. As a result, in all likelihood the Registered Owner could have the power to expressly grant the right or permit the respondent to partition off part of the corridors then existing as the respondent did. On this ground the present case could have been distinguished from the Ohashi case. It is not Mr. Thomson's fault not to pursue this point. The Tribunal believes it is because of the twists and turns in the trial. As has been said, the applicant only succeeded in adducing evidence of the dimensions of corridors as they are and as they should be at a very last stage. The respondent was entitled to an adjournment but Mr. Thomson rightly took the reasonable course not to ask for one but to proceed with the case.

10. Now that this Tribunal has no sufficient materials, or has heard arguments whether in the circumstances, the then Manager had in fact granted such right or approval on its behalf and on the behalf of the Registered Owner. or that the then Manager had impliedly done so. In any event that is not the defence relied on. However the fact that the respondent could have obtained express grant from the Registered Owner and the then Manager is a factor to be taken into account in the exercise of discretion. There is also merit in the respondent's contention that it has suffered prejudice because of the delay through the loss of papers and correspondence over the years. Who knows that the lost papers might not throw some light on the point of express grant or implied grant? The likelihood of prejudice cannot be ruled out.

11. Furthermore, the conduct of the respondent was impeccable in the re-partitioning of the floor. The Registered Owner and the then Manager, were related companies. Seeking the manager's approval for the project is necessary and which approval was given unequivocally. Relying on the manager's approval is nothing but reasonable. No other reasonable steps could have taken by the respondent than those already taken. None was suggested by the Applicant.

12. Clause 17(c) permits the respondent as a single owner to partition the corridor the way it had done if it was the single occupier of the floor as well. Therefore looking at the breach from this point of view, it can be said that the respondent was in breach of leasing out the units to its tenants. As such this Tribunal failed to see how other owners of the building could have been affected in the use of their units.

13. Taking all the above factors into account, this Tribunal did not think it right and equitable to grant the mandatory injunction.

14. There is no evidence as to damages and it would not be appropriate to award damages in all circumstances of the case.

15. In his closing submission, Mr. Szeto asked the Tribunal to grant a declaration as an alternative remedy. No such relief had been pleaded or intimated at an earlier stage, nor the terms of declaration suggested. Should it be made a declaration that the respondent has been in breach of the DMC by leasing out the units it owns to tenants? It is clearly inappropriate and serves no useful purpose. Should a declaration be made that the respondent has been in breach by encroaching on the corridors since 1989? Again this Tribunal fails to see any useful purpose. In any event declaration is also a discretionary relief and for the same reasons for refusing an injunction, this Tribunal refuses to grant such remedy.

Costs

16. Mr. Szeto argues that the applicant has a right to bring these proceedings on behalf of and on the authority of the resolution of the Owner's Committee and that the Owner's committee should not be prejudiced as it is within their right to bring the present proceedings. However the Tribunal should not only look at the position of the Owner's Committee. The conduct of the respondent is impeccable. As to the Owner's Committee, their decision to bring the proceedings should not be mechanical. Merits of the application should be considered. If they have been made fully aware of the full circumstances of the case and which circumstances should be within the knowledge of the applicant, they should not have initiated the present proceedings. For these reasons, the respondent is entitled to costs and this Tribunal so orders with certificate for counsel to be taxed if not agreed.