YICK FUNG HOLDINGS LTD v. SANDWOOD LTD

DCCJ 1355/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1355 OF 2007

(transferred from High Court Action No. 2231 of 2006)

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JUDGMENT

1.  This action concerns Wah Tat Industrial Centre, an industrial development in Kwai Chung, New Territories.  It comprises 3 blocks – A, B and C – on a podium.  Yick Fung (the Plaintiff) was the developer and the first owner.  Yick Fung is still the owner of, among other parts, the external walls of the 3 blocks of the Centre.  Sandwood (the Defendant) is the owner of a unit on the 2/F of Block B of the Centre.  Sandwood had cut open part of the external wall of its unit under the windows and built a pair of doors.  Yick Fung says Sandwood did that without its consent and in breach of the deed of mutual covenants governing the Centre (DMC).  Yick Fung claims an injunction to compel Sandwood to reinstate the relevant part of the external wall to its original condition.

2.  Sandwood does not dispute the cutting open of the external wall and the building of the doors.  However, it raises the defence of estoppel and acquiescence.  It also contends that the present action was commenced out of ulterior motive.

3.  Prior to this trial, but at a time in dispute, Sandwood reinstated the external wall of his unit.  Yick Fung proposed to discontinue this action shortly before this trial.  Sandwood disagreed.  This gave rise to the preliminary issue of whether there should be a trial for the purpose of determining costs in the present case.

PRELIMINARY ISSUE

4.  I ruled at the beginning of the trial that the costs issue could not be properly resolved without a trial in the circumstances of this case.  I now give my reasons.

5.  Mrs Chan for Yick Fung submitted that there was no reason to proceed to an idle trial.  On the contrary, Miss Lam for Sandwood submitted that the parties’ rights have to be determined by way of trial as they are relevant to costs.  Neither Yick Fung nor Sandwood seemed to concede on costs.

6.  In case the plaintiff does not acknowledge defeat or likely defeat while the defendant also does not submit to the claim, the only way to determine whether the plaintiff can recover its costs (as the defendant refuses to pay them) is to bring the action to trial for the purpose of doing so: see Ta Tung China v Fontana Restaurant Ltd [1999] 1 HKLRD 404 at 407F; 408G-J, per Godfrey JA (citing Burgess v Hill (1858) 26 Beav 244 at 249); Ch’ing Poh v Cheng Yeung & Co [1998] 3 HKC 643 at 652E-H, per Liu JA; Lee Tak Yan v The Prudential Enterprise Ltd, HCA 4225/2001, 21 May 2005, at paras.18-21; 24-25, per Chu J; Re Super Deluxe International Limited, HCCW 186/2001, 3 June 2003 at paras.6-13; see also Hong Kong Civil Procedure 2008 at 62/2/12.

7.  The original Defence was homemade in Chinese.  While Sandwood pleaded that it would restore the external wall at the end of that month, it also pleaded the essential factual basis for its defence of estoppel and acquiescence.  This was later substituted by the Amended Defence.  Apart from reiterating the defences of estoppel and acquiescence, Sandwood deleted the reference to reinstatement.  As such, the fact that the external wall was reinstated may mean that the injunctive relief is no longer required.  Yet Yick Fung’s entitlement to sue for the relief remains contested.

8.  Further, Sandwood would also seek to argue that even assuming that the pleaded defence fails, Yick Fung was or ought to be aware of the reinstatement of the external wall and therefore Yick Fung should not be entitled to proceed further and thus the costs of continuing the action since then.  Whether Sandwood would be entitled to so argue and, if yes, when such reinstatement took place, is again in dispute.

9.  Without adjudicating these disputes, which involves both questions of law and fact, I am in no position to properly adjudicate on the costs issue.  The trial could not be dispensed with.

10.  For determining costs, a trial normally concerns limited issues.  But in the present case, this would not differ much from a trial of this action.

BACKGROUND

11.  The Centre was completed in 2 phases in 1985 and 1988 respectively.  Sandwood acquired its unit in 1993.  By then, some of the owners in the Centre had done alterations to the appearance of the external walls of their units by installations such as air-conditioners and various kinds of metal frames as well as cutting open up part of the external walls under the windows to make pairs of doors.

12.  In October 1997, Sandwood decided to do the same.  It wrote to the then manager of the Centre, Fu Shing Management Company Limited (Fu Shing), applying for permission to do so.  This was to allow the lifting of machinery for its printing business directly from outside the block into the unit.  Such alteration to the external wall was carried out.

13.  In 2003, the Incorporated Owners of the Centre (the IO) sued Yick Fung in respect of the rights over various parts of the Centre (HCA 4580/2003).  The external walls of the 3 blocks in the Centre were one of the subject areas in dispute.  Yick Fung counterclaimed.

14.  In February 2006, judgment in HCA 4580/2003 was handed down.  The court found in favour of the IO in respect of the subject areas except for the external walls.  The court declared that Yick Fung is indeed entitled to the exclusive possession of the external walls of the 3 blocks in the Centre.  But the balance of the counterclaim was dismissed.  Yick Fung had to pay the costs of the action.  Yick Fung appealed part of the judgment.  The appeal was dismissed towards the end of June 2006.

15.  Two things happened after the judgment in HCA 4580/2003 was handed down in February 2006.  First, in March 2006, the Building Authority (BA) issued building orders to Yick Fung, declaring that the external walls and common parts of the Centre were liable to become dangerous.  The BA identified specific rectification works to be completed in 3 months from the end of June 2006, at the latest.  Second, in August 2006, Yick Fung through solicitors started to send letters to individual owners demanding reinstatement of the external walls of their units which had been altered.  These included the letter to Sandwood demanding the reinstatement of the external wall.

16.  The present action was commenced in October 2006.  In November 2006, Sandwood filed its defence.  As mentioned above, while Sandwood denied the claim, it pleaded its intention to reinstate the external wall.  In January 2007, Sandwood, now legally represented, amended the defence.  Besides essentially reiterating its defence, Sandwood deleted the reference to reinstatement.

17.  However, in their statements filed in June 2007, Sandwood’s witnesses stated that the external wall of its unit was already reinstated on 20 November 2006 (mistakenly typed as 2007).  On 17 September 2007, Yick Fung through its solicitors requested for proof of the alleged reinstatement.  Sandwood then disclosed a letter from the then manager of the Centre, Main Shine Development Limited (Main Shine) and an architect certificate, both apparently procured after Yick Fung’s request.  Main Shine confirmed that the external wall of Sandwood’s unit was reinstated on 20 November 2006 and the architect confirmed that this was done in accordance with the building regulations.

18.  In early October 2007, Yick Fung’s architect inspected and also certified the reinstatement of the external wall of Sandwood’s unit.  Yick Fung then invited Sandwood to vacate the trial.  The argument between the parties as to whether the trial should nevertheless proceed then began.

19.  I find the above background to be the facts.

THE CAUSE OF ACTION

20.  In its solicitors’ letter of demand to Sandwood in August 2006, Yick Fung complained about trespass (or wrongful occupation) of the external wall.  In its pleading, Yick Fung claims that Sandwood altered the external wall in breach of the DMC and without prior consent of Yick Fung.  Trespass was not explicitly pleaded.

21.  Specific provisions of the DMC were pleaded.  Clause 4 provides that the owners are bound by and shall observe and perform the covenants, provisions and restrictions set out in the 4^th Schedule.  Clause 8 of the 4^th Schedule relates to the erection of racks or lines for drying laundry on the external wall and windows.  Clause 14(a)(i) of the DMC relates to the erection of sign, signboard or advertisement on the external wall.  Neither of these clauses, properly construed, affords Yick Fung with the appropriate cause of action in the present case.

22.  What remains as pleaded is clause 13 of the 4^th Schedule.  In her closing submissions (para.28), Mrs Chan confirmed that Yick Fung’s cause of action is indeed breach of this clause (Clause 13).  This provides that owners are

“not to alter the colour or the shape of the exterior walls of the said Building except in accordance with a resolution passed under clause 10 of this Deed” (i.e., a resolution in the owners’ general meeting)

23.  There is no dispute that in opening up the external wall and building the door under the window, Sandwood did not have the sanction of a resolution in the owners’ general meeting.

THE WITNESSES

24.  Li, the operation manager of Yick Fung, gave evidence.  So did Yao, director and shareholder of Sandwood, and Poon, his administrative assistant.  The other director of Sandwood has also filed his statement, but he was eventually not called.  Mrs Chan for Yick Fung submitted that adverse inference should be drawn from this witness’ absence.  I disagree.  This witness’ evidence, according to his statement, would have been almost identical to that of Yao.  There would have been no point calling a witness to repeat the evidence anyway.

25.  Witnesses were added during the trial.  Siu, a manager of Yick Fung, was called to give evidence on a specific area raised in the statements of Sandwood’s witnesses.  Chui of Main Shine attended the trial under a subpoena.  The calling of Chui as a witness was controversial.  The subpoena for Chui was issued just before the trial.  However notice of intention to call Chui was not given to Yick Fung until after the trial has begun.  Mrs Chan for Yick Fung complained about the surprise so caused.  Even up to her closing submissions, Mrs Chan persisted in criticising this as an ambush and much was said about the conduct of litigation on the part of Sandwood’s legal representatives.

26.  Miss Lam for Sandwood conceded that the lack of notice was an oversight.  At that juncture, Mrs Chan for Yick Fung was, as she should be, offered the opportunity of considering if any adjournment was necessitated.  She opted for a short one and the trial continued.  Eventually, Mrs Chan also had the opportunity of cross-examining Chui at some length.

27.  Short of condemning the legal representatives of Sandwood as strongly suggested by Mrs Chan, I would say this: Apart from the likely costs implication of any adjournment entailed, practitioners should know what fairness requires, particularly when a witness is called under a subpoena issued just before the trial.  This calls for an initiative to supply to their opponent the information stated in O.38, r.2A(5) of the Rules of the District Court prior to the trial.

28.  I now turn to consider the major dispute between the parties – whether Yick Fung was not entitled to sue and to the injunctive relief, by reason of the defences raised by Sandwood.

ESTOPPEL

29.  The case of estoppel is built on the basis of what was allegedly said to Yao by the agent at Yick Fung’s sales office in the Centre in 1993.  The sales agent allegedly represented to Yao that cutting open the external wall and building the doors were and would be approved.  Miss Lam for Sandwood submitted that: (1) insofar as this was a promise or assurance of approval to be given, this constituted promissory estoppel; and (2) insofar as this was a representation of the fact that there was such approval, this constituted estoppel by representation.  In either case, Yick Fung was allegedly bound.

30.  There is no dispute as to the principal elements of promissory estoppel: see Chitty on Contracts (29^th ed) at paras.3-085-3-086; Halsbury’s Laws of Hong Kong, Vol.11(2) at para.170.120 and those of estoppel by representation: see Halsbury’s Laws of Hong Kong Vol.11(2) at para.170.005.  In my view, it matters not precisely which kind of estoppel is being relied on by Sandwood.  The questions remain:

(1) whether the alleged representation was made;

(2) whether Yick Fung was bound by such representation;

(3) whether Sandwood relied on such representation and, if yes, whether such reliance was reasonable; and

(4) whether Sandwood has altered its position as a result.

The representation

31.  According to Yao, the alleged conversation took place when he and Lau (the other director of Sandwood) were at the Centre to view the units in 1993.  The representation was made by whom Yao understood to be a sales agent at the sales office then situated on the Ground Floor of the Centre.  Yao raised the concern about the lifts which were too small for accommodating the printing machines used in Sandwood’s business.  The sales agent represented to Yao that Sandwood could open up an entrance through the external wall by way of building a pair of doors under the window frame of the unit.  Effectively the machine could then be lifted and moved into the unit from the outside directly.

32.  During this conversation, Yao’s attention was drawn to the various similar openings then existing on the external walls of the Centre.  The sales agent emphasized that such practice was approved or else there would not have been those openings on the walls then.  When asked, the sales agent said that formal approval would not be necessary.

33.  While there is no evidence to really contradict Yao’s version of what was said between himself and the sales agent in 1993, I have reservation in the inherent plausibility of the evidence that the sales agent went so far to say that the existing openings on the external walls were the results of approval by Yick Fung.  In saying that otherwise there would not have been those openings already existing, the sales agent was not representing to Yao anything more than his own inference at most.  I also do not believe the sales agent went so far to say anything about the formal approval which did not seem to be within his business to know.

34.  Subject to that, I find that such conversation took place between Yao and the sales agent as described by Yao.

Whether Yick Fung was bound

35.  Yick Fung would be bound by the representation if: (1) the sales agent was at the time of the representation the agent of Yick Fung; and (2) the representation was made within the agent’s authority.

36.  Yao was not able to recall the name or surname of the sales agent.  He was the only staff from the sales office to speak with Yao.  The sales agent produced to him a business card bearing the names of Yick Fung and its parent company, the Chinachem Group.  There could be no real dispute about the agency capacity of the sales agent.

37.  Whether Yick Fung would be bound by the sales agent’s representation depends on the agent’s authority at the time. There is no proof of express authorisation by Yick Fung to the agent to make such representation.  Li in court denied such express authority given by Yick Fung.  The question is the extent of the agent’s implied authority or, more importantly, his authority as apparent to Yao.  In court, Yao said that he did not actually think about the extent of the sales agent’s authority at the time.  The question has to be approached objectively.

38.  An agent has implied authority to do whatever necessary for, or ordinarily incidental to, the effective execution of his express authority in the usual way: see Boustead on Agency (18^th ed) at para.3-018.  While there should be little doubt that a sales agent has the implied authority to make representation for the purpose of promoting the sale of the units of the Centre, this is not to say that his principal would be bound by whatever the agent might choose to say in furtherance of that purpose.  No authority was cited which suggests that a sales agent has usual authority in the course of promoting sales to make representation other than regarding the condition of the property and the terms of sale.

39.  Consideration of the sales agent’s ostensible authority does not lead to a different conclusion: see Boustead at 8-013.  The sales agent was placed there and clothed with the authority as such to promote the sale of Yick Fung’s units.  The fact that the sales agent was the only person posted there did not amount to holding out by Yick Fung that the sales agent was its sole and full representative so as to bind Yick Fung to anything the sales agent chose to say apparently on its behalf.

Reliance

40.  The representation that there was the practice of owners to cut open the external walls was nothing more than an observation.  Yao was in as a good position to make that observation without having to rely on the sales agent.  Therefore there is no real issue of the agent’s authority to make such representation or Yao’s purported reliance on such representation.

41.  Even assuming that the sales agent represented to Yao that approval for making the openings and doors had always been or would be granted, the basis for Yao’s reliance, as he agreed in court, was again nothing more than the fact that he too saw these openings on the external walls at the time.  Not knowing what might have been required or accounted for the alleged approval in respect of the openings he saw then, it was hardly reasonable for him to rely on any representation by the sales agent that his case would be approved if he acquired the unit.  Yao also admitted in court that from his experience, he was aware that the owners’ rights in multi-storey buildings would normally be governed by deeds of mutual covenants.

Alteration of position

42.  Miss Lam for Sandwood submitted that by relying on the representation, her client’s position was altered in 2 ways.  First, Sandwood altered its position by agreeing to purchase the unit.  Mrs Chan for Yick Fung did not argue much about this.  Secondly, Sandwood further prejudiced itself by proceeding to open up the external wall and to build the pair of doors.  In my view, this cannot be correct.

43.  Sandwood made the opening and built the pair of doors on the external wall only in 1997.  Sandwood did not proceed on the basis of what the sales agent said to Yao some 4 years ago.  Instead, Sandwood applied to the then manager, Fu Shing, for approval (as mentioned above).  Work started after Sandwood complied with the conditions imposed by the manager.  As Yao admitted in court, he had no idea whether there was communication between the manager and Yick Fung regarding Sandwood’s proposed work on the external wall.  I doubt very much whether Sandwood even thought about whether Yick Fung’s approval was required at the time.  In any event, it is artificial to still refer to the alleged representation by the sales agent, the effect of which on whether Sandwood decided to make the opening must have lapsed by then.

Conclusion

44.  In my judgment, the defence on the basis of the alleged estoppel by representation of the sales agent prior to Sandwood’s purchase of the unit in 1993 is neither substantiated nor material to Sandwood’s decision to make the opening in the external wall of its unit in 1997.

ACQUIESCENCE

45.  It has been said that acquiescence is no more than an instance of the law of estoppel by words or by conduct: see Halsbury’s Laws of Hong Kong, Vol.11(2) at 165.246.  But in the present case, the defence of estoppel and acquiescence are premised on different factual bases.  The defence of estoppel, as analysed above, is based on the alleged representation of Yick Fung’s agent to Yao prior to Sandwood’s purchase of its unit in 1993.  The defence of acquiescence is however based on a much wider span of time and events since the occupation of the Centre in the 1980’s until 2006 when Yick Fung issued its letter of demand to Sandwood.

46.  The starting point of Sandwood is that the openings of the external walls of the Centre, similar to what Sandwood did, have existed for years.  Yet no enforcement action has been taken until 2006.  Equity therefore does not allow Yick Fung to be heard to complain of such act.

47.  Mrs Chan for Yick Fung submitted that Yick Fung could not be taken to have acquiesced the breach when (1) it did not know the act of breach; (2) it was uncertain about its right over the external walls; (2) it could not have permitted such breach; and (4) the breach was against the statute.

Knowledge of the act of breach

48.  One cannot acquiesce in conduct of which one is ignorant.  Proof of such knowledge is essential: see AG v Fairfax Ltd [1997] 1 HKC 17 at 20E.

49.  Yick Fung denies knowledge about the opening and installation of the pair of doors on the external wall of Sandwood’s unit.  Li, who joined Yick Fung in June 2004, said in court that Yick Fung came to know about it in about July 2006.

50.  As mentioned above, Sandwood applied to Fu Shing, the then manager of the Centre, for making the opening in the external wall in 1997.  Yao and Poon said that the manager inspected the work after it was finished.  The said that Yick Fung would therefore know through the manager.

51.  Mrs Chan for Yick Fung said much about the last-minute correction by Sandwood’s witnesses of their reference in their statements to the name of the manager involved – from Hop On to Fu Shing.  I accept that this was the witnesses’ mistake, as the witnesses have always been referring to Fu Shing in the paragraphs preceding the corrected part of their statements.  This is not crucial as there is no question of imputed notice to Yick Fung through either manager.  I therefore do not accept that Yick Fung knew about this through the manager, when Yao and Poon acknowledged that they actually had no idea whether the manager ever informed Yick Fung of this or not.

52.  Mrs Chan for Yick Fung also drew my attention to the fact that there are altogether over 1,000 units in 3 blocks of 22 floors each on the podium of the Centre.  According to Li, Yick Fung’s various representatives would visit the Centre only to attend the monthly meeting of the owners’ committee on the Ground Floor.  It was suggested that no attention could be paid to Sandwood’s opening of the external wall of its unit.

53.  In my view, it matters not whether it is proved that Yick Fung was aware of the particular opening made by Sandwood.  Yick Fung is not seeking to enforce a covenant merely between it and Sandwood.  Clause 13 is a covenant in the DMC applying to all owners.  Breach of Clause 13 took many forms.  Opening up the external walls and building the doors was one of them.  If it is proved that Yick Fung was aware of these forms of alterations but no action has been taken, equity would not assist Yick Fung simply because it did not know the particular breach by Sandwood, particularly when Sandwood’s breach did not differ from the others in both form and gravity.  In my view, what matters is whether Yick Fung was aware of this kind of breach in the Centre, the opening made by Sandwood in 1997 being merely one of these instances.

54.  In considering whether Yick Fung knew the breach, I must take a realistic view of the circumstances of this case, bearing in mind that the Centre has been occupied for about 20 years since its completion.  In fact, Yick Fung’s presence could be found in the Centre throughout the years.

55.  According to the judgment in HCA 4580/2003 (at para.7), Yick Fung boarded up the passageway near the main entrance of the Centre for its own use in about 1985 (when the first block of the Centre was completed).  Yick Fung had placed 2 booths there including one for collecting car-parking fees.  Yick Fung had operated the car park on the G/F and 1/F of the podium since 1985.  According to Li, as at the time of his statement in May 2007, Yick Fung still owned the over 120 parking spaces of the car park.  Apart from parking, Yick Fung also provided loading and unloading services to the owners and occupiers of the Centre.

56.  The judgment in HCA 4580/2003 (at para.8) also recorded that part of the BTM Room of the Centre had been occupied by Yick Fung to the exclusion of the other owners.  This was where Yick Fung’s sales office was.  The sales office was also used for issuing tickets to the car park users.  According to Li’s statement in May 2007, Yick Fung was still the owner of over 60 factory units in the Centre.

57.  The operation of the car park booth and the sales office at the Centre ceased only when the court ordered in February 2006 for their removal and the delivery of vacant possession of these areas to the owners.

58.  Hop On was the first appointed manager of the Centre.  This is a sister company of Yick Fung sharing the same business address with Yick Fung (see 1^st Schedule of the DMC).  While I do not agree with the suggestion of Miss Lam for Sandwood that Hop On, in the capacity of the manager, was the agent of Yick Fung so that knowledge of Hop On of these openings on the external walls must be imputed to Yick Fung, the presence of Hop On during the relevant period of time when the IO was yet to exist to take part in the management of the Centre (in mid-1995) remains one of the circumstances I could take into account in drawing inference.

59.  As the judgment in HCA 4580/2003 records (at paras.17-19), Yick Fung had been spending on the maintenance, repair and cleaning of the external walls since 1985.  In his statement, Li stated that the external walls have been used and occupied by the owners of the Centre as if they were common parts.  In court, Li suggested it was difficult to see but there were about 10 such openings on the external walls of each block of the Centre throughout the years.

60.  According to Yao, he counted about 50 of them when the sales agent of Yick Fung escorted him to view the units in 1993.  Yao and Poon confirmed such observation after Sandwood has moved into its unit.  Yao said that these openings could be seen when viewed from the podium.  The photographs of the external walls of the blocks in the Centre produced during the trial (though apparently taken in recent years) somehow show this.  The various forms of alteration of the appearance of the external walls must be obvious to anyone having a glance upwards.  I also believe that making such openings and doors or closing them on the external walls must have entailed works which could hardly go unnoticed at all over the past years.

61.  Mrs Chan for Yick Fung submitted that inference of knowledge about the act of breach requires overwhelming proof, relying on what was said in Fairfax (above).  In my view, Mrs Chan’s reading of Fairfax being suggestive of a requirement of overwhelming evidence is not accurate.  The facts in that case were such that the proof of the Crown’s knowledge of the wholesale development of the lot of land in question contrary to the building covenant in the Crown Lease over the years was overwhelming.  This was however not to lay down any test that evidence must be overwhelming before knowledge of the act of breach is proved: see Fairfax at 20E-I.  Each case still has to be considered on its own facts.

62.  In my judgment, the scale and prevalence of the practice of the owners of installing features such as air-conditioners and metal frames as well as opening up the external wall of their units to make access for machinery should be sufficiently notorious in the Centre throughout the past 2 decades.  In the circumstances mentioned above, I find that it is not realistic for Yick Fung to deny knowledge about such practice in the past years, irrespective of whether it is proved that Yick Fung came to be aware of such practice through a particular servant or agent or whether it was aware of the particular opening made by Sandwood in 1997.

Uncertainty about its legal right

63.  There is no dispute that one cannot be deprived of his legal rights without knowing the same.  Yick Fung’s case is that the inaction until 2006 was the result of uncertainty or lack of clarity in Yick Fung’s rights over the external walls.  It was contended that this was not made clear until the judgment in HCA 4580/2003 was handed down in February 2006.

64.  By virtue of the reservation clause in the first assignment, exclusive possession of the external walls was reserved to Yick Fung.  However Mrs Chan for Yick Fung referred to clauses 8(g), 13, 14(a) and the 4^th Schedule of the DMC which were said to be inconsistent with Yick Fung’s exclusive possession of the external walls.

65.  Similar argument was raised in HCA 4580/2003.  However the primary case of Yick Fung in HCA 4580/2003 was actually to assert exclusive right to possess the external walls.  The fact that the owners have apparently been using them as if they were common parts became the basis on which Yick Fung claimed mesne profit from the other owners.  The court eventually held (at paras.71-74 of the judgment) that the reservation clause in the first assignment clearly conferred exclusive possession of the external walls on Yick Fung.  The DMC provisions referred to by Yick Fung, properly construed, merely qualify how such rights of Yick Fung should be exercised or enjoyed.

66.  The learned Judge also held (at para.76 of the judgment) that the mere fact that some owners had installed air-conditioners at the external walls outside their units or had used the external walls in a way inconsistent with Yick Fung’s exclusive possession is not sufficient to render the external walls for common use.  Yick Fung did not seem to accept that it has lost its rights over the external walls to the owners either.

67.  It is common ground that the DMC was drafted by Yick Fung: see para.4 of the Amended Reply.  Therefore it was Yick Fung which chose to bind itself to those provisions, including what have allegedly rendered its rights over the external walls uncertain.  The IO did not come into existence until mid-1995.  The dispute between Yick Fung and the IO does not explain Yick Fung’s inaction during the almost 10 years since 1985 before the IO came to exist.  Attributing the inaction on the part of Yick Fung to the alleged uncertainty or lack of clarity about its exclusive possession of the external walls, whether subjectively or objectively, is not an appealing argument.

68.  Even if I am wrong, but is the certainty of exclusive possession of the external walls crucial in Yick Fung’s claim against Sandwood?  I think not.  As Mrs Chan for Yick Fung confirmed (see para.28 of her submissions), the present claim of Yick Fung is based on the breach of Clause 13.  The complaint was that what the owners did to the external walls were without approval by resolution in the owners’ general meeting.  Being a contracting party to the DMC, Yick Fung always has a contractual right (by virtue of clause 4 of the DMC) to see that this clause is complied with by the other owners, irrespective of whether Yick Fung has exclusive possession of the external walls.  No uncertainty or lack of clarity about such contractual right under the DMC has ever been or could be suggested.

69.  Yick Fung might probably take the view that it was the manager or the IO (since mid-1995) which has failed to enforce Clause 13 on behalf of the owners.  However, nothing prevented Yick Fung, as an owner, from exercising its own contractual right by compelling the manager or the IO to act (on behalf of all the owners) accordingly.  Again, there is no suggestion of uncertainty about such right.

Incapable of acquiescing the breach

70.  Mrs Chan for Yick Fung submitted that Yick Fung could not have granted expressly to Sandwood the right to alter the external wall which was something within the power of the owners’ meeting under Clause 13.  What cannot be done expressly cannot be done impliedly.  Therefore, equity will not hold Yick Fung to be bound by acquiescence to allow something which it could not have allowed.  Mrs Chan cited The Incorporated Owners of Hoi Luen Industrial Centre & Anor v Ohashi Chemical Industries (Hong Kong) Ltd [1995] 2 HKC 11 at 12H-13F in support.

71.  The basis for the principles set out in the Hoi Luen case was that it was the incorporated owners which was seeking to enforce the deed of mutual covenants on behalf of all the owners.  It would have been both their right and statutory duty to do so.  They were not only entitled but were also bound to take proceedings for such purpose.  Therefore the incorporated owners or the manager could not be bound by acquiescence to allow breach of the covenants which neither of them could have allowed.  This was effectively applied in another recent case cited by Mrs Chan, namely, Wing Ming Garment Factory Limited v The Incorporated Owners of Wing Ming Industrial Centre & Anor, HCA 8805/1993, 5 November 2007 at paras.4-6.

72.  On the contrary, Yick Fung is claiming on its own behalf as the owner have exclusive possession of the external walls and, as mentioned above, the contractual right as a party privy to the DMC to see that Clause 13 is complied with.  Unlike the incorporated owners and the manager, Yick Fung has no duty or obligation to enforce the DMC on behalf of the owners.  The basis for what the court stated in Hoi Luen (above) does not exist here to assist Yick Fung in arguing that it cannot be held to have acquiesced or waived its own right.

Against statute

73.  Mrs Chan for Yick Fung argued that Yick Fung was not capable of acquiescing breach which effectively entailed infringement of the law or public policy.  Mrs Chan relied on Kok Hoong v Leong Choeng Kweng Mines Ltd [1964] AC 993 and other authorities which are actually summarised in Spencer Bower, The Law Relating to Estoppel by Representation (4^th ed) at 161-163.  Essentially, the court will consider whether illegality outweighs the desirability of avoiding injustice by allowing estoppel as a defence.  There seems to be no reason why the same consideration would not be relevant to the question of whether equity should allow acquiescence as a defence in similar circumstances.

74.  Mrs Chan referred to Hebei Peak Harvest Battery Co Ltd v Polytek Engineering Co Ltd [1998] 1 HKC 676 at 683A-E as example.  But really in the context of enforcing DMC covenants in multi-storey building management, Mrs Chan relied on Wong Ming Garment Factory Limited (above). There the incorporated owners apparently sought an injunction against the owner for breach of covenant not to use its property in contravention of the Occupation Permit or the Conditions of Sale for the building.  The infringing owner resisted and argued that all the other owners in the building in question had been allowing their units to be used in ways contrary to these conditions of government grant.  The court rejected this argument.  One of the reasons (see para.7 of that judgment) was that neither the owners nor the incorporated owners can deliberately or inadvertently authorise something which is illegal.  Neither of them can deliberately or inadvertently grant rights which are not in their power individually or jointly to grant.  Neither of them can deliberately or inadvertently authorised breaches of the Conditions or Sale imposed by the Government as landlord at the time of granting the land, nor authorise violation of the Occupation Permit.

75.  In the context of the present case, Mrs Chan for Yick Fung referred to the building orders and the Building Construction Regulations, Cap.123B which prescribe the thickness of the concrete or reinforced concrete exterior walls.  She submitted that Sandwood is effectively asking the court to invoke equity to stop the building orders from being carried out or to negate the effect of the regulations.  Equity, she submitted, would not allow that.

76.  Specifically the building orders required: (1) the removal of loose cracked and otherwise defective concrete from the reinforced concrete structure of the building, the cleaning of existing exposed steel bars of loose rust and foreign matter, provision and secure fixing of additional steel bars as necessary and reinstatement; (2) removal of all loose and defective external rendering; and (3) repair, securing or replacement of all loose and defective window frames and glazing.  However insofar as Yick Fung’s complaint against Sandwood is concerned, the issue (according to the pleading and Miss Chan’s submission) is only that the alteration to the external wall was without the owners’ sanction in general meeting.  If an injunction is to be granted, it would be on the basis of breach of Clause 13, rather than whether the condition of opening is liable to be dangerous or an infringement of the regulations.

77.  In other words, unlike the cases referred to by Mrs Chan for Yick Fung, including Wing Ming Garment Factory Limited (above), illegality is not what Sandwood needs to rely on in setting up its defence of acquiescence in the present case.  The defence of acquiescence in the present case is set up in respect of the particular breach which Sandwood has committed, namely, that under Clause 13.  What Yick Fung was said to have acquiesced is the alteration of the shape and colour of the external wall without consent of the owners’ meeting and not alteration without the approval of the BA or alteration in contravention of the regulations: see Cheung Yuet & Anor v Incorporated Owners of Oriental Gardens [1977-79] HKC 168 at 172A-E; 173I-174B.

Inaction throughout the years

78.  Li stated that the record showed that it has long been the policy of Yick Fung to refuse and object to what the owners did to the external walls.  But I find no documentary evidence of such record or policy.

79.  In court, Li also said prior to the judgment in HC 4580/2003, an owner would approach the manager for such intended work on the external walls.  He said some had applied to the manager but he had no idea whether the manager had permitted.  The relevant application form for permission to carry out scaffolding work on the external walls of the Centre was produced.  The upper part of the form contained the conditions which the owner had to comply.  The conditions were dated 6 January 2006, i.e., prior to the dispute in HCA 4580/2003 was resolved.  The lower part of the form was to be filled in by the owner applying, who had to accept those conditions.

80.  The minutes of the IO’s meetings since July 2006 recorded that after its appeal from HCA 4580/2003 was dismissed, Yick Fung requested the IO to notify the owners that any work on the external walls would require its consent.  Yet what the manager did afterwards was forwarding the application form submitted by the owner to Yick Fung to follow up.  The same application form and conditions mentioned above were used even in August 2006.  In its letter in September 2006, Yick Fung complained to the manager that the manager had no authority to set those conditions.  Yick Fung then set out its conditions (10 in total) on which its consent for work on the external walls should be sought.

81.  There is no evidence that the practice of the owners altering the appearance of the external walls was ever raised in the owners’ general meetings or the IO’s meetings prior to 2006 which Li said Yick Fung’s representatives attended.  There is also no evidence that any record or policy of Yick Fung, if established by then or known to the manager or the IO (since 1995), was ever referred to in the IO’s meetings since 2006.  Quite on the contrary, Yick Fung found it necessary to set out its conditions only in September 2006 and requested the same to be made known to the owners.

82.  In his evidence and the judgment in HCA 4580/2003 (at para.76), there was mention of Yick Fung sending letters to the owners in relation to their use of the external wall which infringed Yick Fung’s rights.  No such letter was produced.  The first letter of demand to Sandwood was sent in August 2006.  No action was taken.

83.  In my judgment, there is proper basis in the circumstances of this case to infer acquiescence: see Fairfax (above) at 20C citing Hepworth v Pickles [1900] 1 Ch 108 at 110, per Farwell J.

84.  Miss Lam for Sandwood, probably out of caution, accepted in her submission that the court should be cautious in finding waiver, acquiescence or estoppel.  What caused her to say that was what the Lands Tribunal said in Taikoo Shing (management Ltd) v Trillon (HK) Ltd [1997] 4 HKC 304 at 310G-I.  But what caused the Tribunal to say that was its readiness to understand the caution exercised by the manager who did not go to court until the situation became out of control and the practical limit on the resources such as funding for legal services and litigation available to the manager for the purpose of enforcing the deed of mutual covenants.  No such consideration is in issue in the present case.

85.  Considering the above circumstances, I find that on balance, it would not be equitable for Yick Fung to take issue and for the court to grant an injunction now in favour of Yick Fung for what Sandwood did to the wall without the sanction of the owners’ meeting in 1997.

RESUMPTION OF RIGHTS

86.  Miss Lam for Sandwood made an alternative submission.  She submitted that if acquiescence is established, there might still be consideration of whether Yick Fung is entitled to insist on its strict legal rights upon provision of reasonable notice.  Again, Yick Fung has not actually pleaded such stance.

87.  In any event, the authorities referred to by Miss Lam concerned the suspensive effect of waiver of a positive convenant to repair (Chitty on Contracts (29^th ed) at para.3-096 which refers to Hughes v Metropolitan Ry (1877)) or positive obligation to pay compensation (Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd [1955] 1 WLR 761 at 785) which the covenantee could insist upon by reasonable notice to the covenantor.  The breach in the present case was however one of restrictive covenant once and for all.  Therefore there is no resumption of rights as such.

88.  But if the question of resumption of rights is relevant, the question is whether reasonable notice has been given to Sandwood.  Mrs Chan for Yick Fung submitted that Sandwood should know even before its letter of demand in August 2006.  The notice came in the form of the building orders dated March 2006.  There is much dispute as to when the owners came to know about the building orders.  I have explained above the relevance (or the irrelevance) of the building orders.  But considering the evidence of the witnesses and the minutes of meeting of the IO, I do not find that this happened before early 2007.  In fact, the manager had to obtain a copy of that order from the authority and to table it in the IO’s meeting in March 2007.  It was resolved that a copy of the order would be supplied to each owner.  Having said that, I consider that Yick Fung nevertheless sent the letter of demand in August 2006.  I do not agree with Miss Lam that this notice would have unreasonable.  Yao said in court that the reinstatement took 2 to 3 weeks.  Yet he chose to wait to see if the IO might negotiate with Yick Fung.  This was reflected by the record of discussion in the minutes of the IO’s meeting in early September 2006.  Yick Fung commenced the present action another month later.

ULTERIOR MOTIVE

89.  For completeness, I proceed to consider the remaining defence of Sandwood.

90.  According to Sandwood, the ulterior motive of Yick Fung behind the commencement of the present action was two-fold: (1) as vengeance for the IO’s action against it in HCA 4580/2003; and (2) as a means to exert pressure on the other owners to accept responsibility to maintain the external wall.  Therefore, equity should not assist Yick Fung.

91.  The basis for alleging that the present action was an act of vengeance is that Yick Fung was said to have lost on all fronts to the IO in HCA 4580/2003 and therefore it targeted the members of the IO committee for lodging claims like the present case.  Sandwood was one of the IO committee members at the material time.  Other examples were listed during the trial.

92.  Much was said about how Yao and Poon of Sandwood came to conclude that Yick Fung lost to the IO on all fronts in the HCA 4580/2003.  It became clear from their evidence in court that they had no clear idea about the details of the claims by the parties to that action.  How Yao and Poon described the result in the HCA 4580/2003 is perhaps not strictly accurate.  This is however not to say that Yick Fung achieved any significant degree of success in that action, if one considers the basis on which the court there declared that Yick Fung is entitled to exclusive possession of the external walls of the Centre and the fact that Yick Fung was ordered to bear the costs of the action.

93.  The complaint about the IO committee members being targeted by Yick Fung was in fact raised soon after Yick Fung issued letters of demand in August 2006.  The complaint was recorded in the minutes of the IO’s meeting in early September 2006.  At the same meeting, Li of Yick Fung apparently already explained that letters of demand to the other owners would follow.  The fact was that they did; and some were followed by legal action.  The fact that they were sued before the others, in my view, did not amount to capricious or arbitrary enforcement.

94.  Yick Fung did not deny that it had offered to transfer its right over the external walls to the other owners.  In fact, such offer was recorded in the minutes of the meeting of the IO committee in early July 2006.  In that meeting, Yick Fung proposed a series of actions consequential upon the judgment in HCA 4580/2003.  While asserting its right over the external walls, Yick Fung also offered to transfer its rights over the external wall and the common parts to the owners at the nominal consideration of HK$1.  Otherwise, the same would be sold to another named company.

95.  There is really no evidence that this offer was followed up either by the IO or Yick Fung.  Nor is there sufficient evidence to found the conclusion that Yick Fung’s legal actions against the owners, including the present one, were concerted towards exerting pressure on the owners to accept this offer or responsibility in respect of the external walls or the common parts.

96.  The defence of ulterior motive fails.

REINSTATEMENT

97.  The relevance of when Sandwood reinstated the external wall is in dispute.  Miss Lam for Sandwood argued that even if all the defences raised fail and therefore Yick Fung should have costs of this action, such entitlement should effectively stop at the time when Yick Fung became aware of the reinstatement of the external wall.  In view of my above finding, this dispute becomes immaterial.  To do fairness to the serious arguments put forward by both parties on this, I proceed to consider this for completeness.

98.  Mrs Chan for Yick Fung submitted that Sandwood cannot have it both ways.  On this, I agree with Mrs Chan.  The stance of Sandwood is clearly that the reinstatement was not submission to the claim.  There is no question of whether Yick Fung should have proceeded further after Sandwood has satisfied the claim.  Yick Fung had no alternative but to proceed.  Sandwood could not revert to a position as if the reinstatement was satisfaction of the claim.

99.  Even if the reinstatement were relevant, it would be Sandwood’s burden to inform Yick Fung and to show reinstatement of the external wall to its original condition.  Not being an issue since the Amended Defence was filed, reinstatement was also not referred to any more by Sandwood until it filed the statements of its witnesses in September 2007.  When asked, Sandwood produced a letter from Chui of the manager to certify that the reinstatement took place on 26 November 2006.  This letter was obviously procured only upon Yick Fung’s request.  It has little evidential value.

100.  Chui testified.  He admitted that he did not have personal knowledge of the reinstatement.  He referred to the manager’s record of the photographs of the external wall of Sandwood after the reinstatement.  He relied on the indication from the computer where the file of the photographs was stored to come to his belief about the date of the input and therefore the date of the photographs.  Strangely, the manager did not take the photographs.  A former member of the IO’s management committee allegedly did.  There is no documentary evidence which would have easily evidenced the date of reinstatement, for instance, quotation or invoice for the reinstatement work or record of the manager of the work.

101.  In the circumstances, I too have the scepticism which Mrs Chan for Yick Fung had on such evidence that the wall was reinstated on 26 November 2006.

102.  The only direct evidence in this regard came from Yao and particularly Poon.  She said she informed Siu of Yick Fung of the completed reinstatement and asked to discuss settlement with Yick Fung.  Siu, who gave evidence, confirmed the telephone conversation with Poon then about the present action but had no impression of any conversation about reinstatement.  Whether the reinstatement was mentioned or not, there is no dispute that Siu declined to discuss the matter but asked Poon to contact Yick Fung’s solicitors.  I see nothing unreasonable about this, when Yick Fung’s solicitors clearly had the conduct of this litigation.  Poon or Yao chose not to do so.  Sandwood instructed their solicitors instead.  As mentioned above, Sandwood subsequently amended its pleading and even removed the reference to reinstatement at all.

103.  It was argued that upon being informed of the reinstatement, Yick Fung should have arranged inspection of the reinstated wall, if it wanted to.  I do not accept that.  On the basis that Sandwood was in breach but this was remedied, it would be the burden of Sandwood to satisfy Yick Fung that the wall was reinstated to its original condition.  This was not shown until its architect certified this in September 2007 at the earliest.

FURTHER TRESPASS

104.  There was suggestion that Sandwood’s reinstatement of the external wall amounted to further trespass and breach of Clause 13.  Much was said about how the reinstatement was carried out and whether Yick Fung ought to have known.  In the absence of further or alternative cause of action on the basis of the reinstatement, I find that these arguments are irrelevant to the determination of the real issues.

COSTS

105.  The defences of estoppel and ulterior motive fail.  However, for the acquiescence or in any event equity consideration, I would not have granted the injunction to Yick Fung.  Yick Fung confirmed not to pursue the claim for damages.  In the circumstances, Yick Fung’s claim would have failed whether Sandwood has reinstated the external wall or not.

106.    This is a trial for determining costs and all relevant arguments, partly upon my specific invitation, should have already been ventilated.  The above outcome entails that costs of the action up to this trial should be to Sandwood.  During closing submissions, parties drew my attention to a series of correspondence both prior to and during this trial, including some without prejudice negotiation.  I do not read any exchange between the parties which would have caused me to consider that it was unreasonable for Sandwood to press for or to continue this trial at any stage.  Sandwood should also have costs of this trial.

107.  However, as mentioned earlier on, a short adjournment on the third day of the trial (24 December 2007) was occasioned by the admitted failure of Sandwood to notify Yick Fung of the calling of Chui as a witness under a subpoena.  In her submissions, Miss Lam for Sandwood conceded the costs so thrown away.

108.  I order that Sandwood shall have the costs of this action up to the commencement of this trial.  I also order that save that Yick Fung shall have the costs of the adjournment during the trial mentioned above, Sandwood shall have the costs of this trial as well.  All costs shall be taxed, if not agreed.  I certify the engagement of counsel. 

Representation: