THE INCORPORATED OWNERS OF MAJESTIC APARTMENTS v. WONG KWOK LEUNG AND ANOTHER

LDBM 366/2005

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 366 of 2005

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JUDGMENT

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Background

1. The Applicant is the owners’ corporation of the building known as Majestic Apartments, No. 313 King’s Road, North Point, Hong Kong (“the Building”).  The Respondents are the owners of Shop 11 on the Ground Floor of the Building (“Shop 11”).  On a date unknown, a side shop was built adjacent to Shop 11 at the corridor on the Ground Floor of the Building (“the Side Shop”).

2. The Applicant’s case is that the Side Shop was built on the common parts of the Building and has been rented out by the Respondents to their tenants in breach of the Deed of Mutual Covenant of the Building (“the DMC”) and the Building Management Ordinance, Cap. 344 (“the BMO”).  The Applicant therefore claims against the Respondents for orders that the Respondents do reinstate, as well as stop occupying, obstructing and renting out the common parts in question.  The Applicant also claims for mesne profits against the Respondents from August 2005 to the date of surrender of the common parts.

3. The Respondents’ case is that when they purchased Shop 11 in 2003, the purchase was subject to the then tenancy (“the 1^st Tenancy Agreement”) in respect of the Side Shop.  The 1^st Tenancy Agreement was made between the previous owner Hui Cham Man as landlord and one Chong Ching Kwan as tenant, and the monthly rent was $7,500.00.  It was expressly provided in Clause 17 of the 1^st Tenancy Agreement that the tenant is responsible to pay the Applicant $3,000.00 per month as the fees for using the common parts.

4. On 5 December 2004, the 1^st named Respondent entered into a new tenancy agreement with the tenant Chong Ching Kwan (the 2^nd Tenancy Agreement”), which was in fact a renewal of the 1^st Tenancy Agreement.  The term of the tenancy for the Side Shop was extended from 1 February 2005 to 31 January 2006 and the tenant continued to pay the fees of $3,000.00 per month for using the common parts to the Applicant.  The tenant, however, surrendered the tenancy on 31 July 2005.

5. On 24 June 2005, the 2^nd named Respondent entered into a new tenancy agreement with another tenant Chan Yuen Pui for the Side Shop (the 3^rd Tenancy Agreement”).  The term of the tenancy was for a period of 2 years from 8 August 2005 to 7 August 2007.  The monthly rental payable to the landlord was $8,000.00, but it was also stated in the 3^rd Tenancy Agreement that the tenant is responsible to pay the Applicant $3,000.00 per month as the fees for using the common parts.

6. The Respondents raise 6 specific defences as follows:-

(1)	The Respondents do not admit that the Side Shop forms part of the common parts.
(2)	The Applicant had granted a contractual licence to the Respondents in respect of the use of the Side Shop for a term of 2 years under the 3rd Tenancy Agreement, and by reason of the conduct of the Applicant and/or its agent Hui Chi Kak prior to the 2nd named Respondent entering into the 3rd Tenancy Agreement, a licence arose by way of estoppel.
(3)	As the Applicant had granted the licence by contract and/or by estoppel, the Respondents had not acted in breach of the DMC or the BMO, and hence the Applicant is not entitled to mesne profits.
(4)	It is unjust and inequitable in the circumstances of the case to grant mandatory injunction.
(5)	Prohibitory injunction is unnecessary as the Side Shop is no longer in use or occupied.
(6)	The Respondents abandon the defence of estoppel and acquiescence pleaded in the Amended Notice of Opposition, but contends that the Applicant’s acquiescence and its active participation in licensing out the common parts for years are relevant in considering whether a mandatory injunction should be granted.

7. However, the Respondents make 2 concessions as follows:-

(1)	The Respondents are willing to surrender the Side Shop to the Applicant.
(2)	The Respondents agree to pay the Applicant a sum of $72,000.00 as licensing fees calculated at $3,000.00 per month for 2 years in which the Respondents occupied the Side Shop.

8. I shall deal with the Respondents’ defences in turn below.

Common parts

9. There is no dispute that the corridor on the Ground Floor forms part of the common parts of the Building.  The dispute is simply whether the Side Shop is situated within the boundary of Shop 11 or at the corridor.  The Applicant calls a surveyor, Mr. Kays Wong, as its expert to give evidence on the location of the Side Shop.  Mr. Wong gave his opinion that the Side Shop is located at the corridor outside the boundary of Shop 11.  Although the Respondents had an expert report prepared before trial, they withdrew the expert report and chose not to call their expert to give evidence at trial.  The Respondents simply attacked the credibility of Mr. Wong by way of submissions.

10. Despite all the criticisms made against him, I am of the view that Mr. Wong is a truthful and reliable witness.  His conclusion that the Side Shop lays outside the boundary of Shop 11 is absolutely correct.  I had the opportunity to have a site visit at the Building together with the parties during the trial.  At the site visit, I could see that there is clearly a concrete column at the front corner of Shop 11 next to the corridor.  This column is marked in the building plan produced by the Applicant (Exhibit “A2”).  As can be seen from the building plan, the corridor is situated immediate beyond the edge of this concrete column facing the corridor.  The Side Shop was built exactly along this edge of the concrete column in the area of the corridor.  It is absolutely illogical to suggest that the Side Shop is situated within Shop 11 when the evidence is so clear that it is situated outside.  There is also no justification to suggest that the concrete column might not be in the right position.  The building plan was approved by the Building Authority for the Building to be built in accordance with this plan.  In the absence of any evidence to the contrary, one should simply assume that the concrete column is in the right place, as it is part of the main structure of the Building and its position would not be altered without the approval of the Building Authority.

11. Thus, it is my finding that the Side Shop is situated at the Ground Floor corridor, a common part of the Building, and is outside the boundary of Shop 11.

Licence by contract and/or estoppel

12. The Respondents seek to argue that the Applicant has the authority to license out the common parts of the Building for monthly payment.  It is not the Respondents’ case that the Applicant had granted an irrevocable contractual licence to the Respondents for an infinite period of time.  The Respondents, however, contend that the Applicant had granted a contractual licence to the Respondents which was recoverable not at will of the Applicant but only upon termination of the 3^rd Tenancy Agreement.

13. The Respondents also contend that there was a licence by estoppel if the Applicant had encouraged a belief or expectation on the parts of the Respondents that they could occupy and rent out the Side Shop as long as a monthly payment of $3,000.00 was made, the Respondents had acted in reliance in that belief or expectation as a result of which their position was changed and it was unconscionable for the Applicant to deny proper fulfillment of the Respondents’ belief or expectation it had previously encouraged.

14. Nevertheless, the contentions of both contractual licence and licence by estoppel are not supported by the 1^st named Respondent’s oral evidence at the trial.  The 1^st named Respondent was the only witness called by the Respondents at the trial and he clearly admits that the Applicant had the right to increase the fees for using the common area.  He also admits that the Applicant, through its agent Mr. Co Chi Ke, had requested the Respondent to pay half of the rent received by the Respondents from the tenant, but there was no agreement reached in this regard.  When the Applicant had the right to increase the fees and no agreement was reached, there was clearly no contractual licence created.  When the Respondents knew that the Applicant had the right to increase the fees and failed to secure an agreement with the Applicant before entering into the 3^rd Tenancy Agreement, the Respondents cannot say that they had the belief or expectation to continue to rent out the Side Shop at $3,000.00 per month, and the Applicant had not done anything to encourage the Respondents to have that belief or expectation.

15. Thus, the defence of contractual licence and/or licence by estoppel must fail.

Mesne profits

16. The Respondents contend that the Applicant is not entitled to mesne profits as it had granted the licence by contract and/or estoppel to the Respondents to use the Side Shop and the Respondents were not trespassers.

17. In view of my finding above that there was no licence by contract and/or estoppel, the Respondents are clearly trespassers.  The Respondents have not raised any dispute as to whether the DMC and the BMO were breached when no licence by contract and/or estoppel were found.  However, I think I should deal with this scenario as well. 

18. The Applicant alleges that the Respondents were in breach of Clauses 9(c) and (e) of the DMC and section 34I of the BMO.  Clauses 9(c) and (e) read as follows:-

“	Each party hereby covenants with the other and others of them:-
	…
	(c)	Not to … do, or permit or suffer to be done in the said Shop(s) or Flat(s) or in the said building anything which may be or become a nuisance of annoyance to the other parties or the other occupiers of the said building or adjoining premises.
	…
	(e)	Not to place or leave in the entrances staircases landings and passages of the said building any boxes furniture or obstruction of any kind…”

19. Section 34I of the BMO stipulates that:-

“	(1)	No person may –
		(a)	convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners’ committee (if any);
		(b)	use or permit to be used the common parts of a building in such a manner as –
			(i)	unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or
			(ii)	to cause a nuisance or hazard to any person lawfully in the building.”

20. In order to establish a breach under Clause 9(c) of the DMC and section (1) (b) of the BMO, the Applicant has to prove that there are nuisance or annoyance caused to the other occupiers, or their use and enjoyment were unreasonably interfered with.  However, there is no such evidence adduced by the Applicant.  Thus, I do not find that the Respondents were in breach of Clause 9(c) of the DMC or section 34I(1)(b) of the BMO.  However, it is clear that the Respondents were in breach of Clause 9(e) of the DMC and section 34I(1)(a) of the BMO when the Side Shop was built at the corridor, a common part of the Building.

21. As the Respondents were in breach of the DMC and BMO as aforesaid, they are liable to pay damages to the Applicant for the breaches.  The damages in question would be the mesne profits sought by the Applicant for wrongful occupation of part of the corridor.  The amount would be $11,000.00 per month, as such an amount was obtained by the Respondents in open market at the material time.  It would not be just the amount that was going to be shared with the Applicant had the Applicant gave the consent to the renting.  The period for calculating the mesne profits should be from 8 August 2005 until delivery of vacant possession of the common part in question.

Mandatory injunction

22. The Respondents contend that it would be unjust and inequitable to grant the mandatory injunction in the circumstances of the case.  The factors for consideration as raised by the Respondents are that there would be hardship caused to the Respondents, there was unreasonable delay on the part of the Applicant in enforcing the DMC, the Applicant has condoned similar breaches by other owners and licensed out the common parts, and no inconvenience caused to the other owners and occupiers.

23. I do not see how these factors are relevant in the circumstances of this case.  The Applicant had permitted the Respondents or their predecessors to use the Side Shop in the past, but even the Respondents agree that the licence is not irrevocable.  So when the licence ends, surely the Respondents have to reinstate the position.  Although there is no concrete evidence on who built the Side Shop, the chances are that the Respondents’ predecessors had built it for the use of their tenants.  The Respondents are liable for what their predecessors did.  There is nothing unjust or inequitable for the Respondents to demolish the Side Shop now.

24. The Respondents’ main concern is whether they should reinstate the partition wall between Shop 11 and the corridor, and they even allege that there was no such partition wall at the location.  However, I accept the evidence of Mr. Wong that there should be a partition wall between Shop 11 and the corridor.  It is shown in the building plan that there was such a partition wall as indicated by double lines at the location in question.  During the site visit, I could also see that there was a wall like structure from the ceiling along the boundary between Shop 11 and the corridor, even though there was no wall like structure at the bottom.  There were in fact an iron structure and a cabinet built along this boundary.  From the evidence, it is clear to me that there was a partition wall which was demolished to build the iron structure and the cabinet as well as the Side Shop.  I see no reason why the Respondents should not reinstate the wall.

25. The Respondents are prepared to surrender the Side Shop to the Applicant.  Just like a landlord and tenant situation, when the tenant surrenders the leased property to the landlord, the tenant is liable to reinstate the premises.  So in the present case, when the licence ends, the Respondents are also required to reinstate the common parts.

26. There is also no difficulty in finding out how to reinstate the wall, as part of the wall is still there near the ceiling.  The Respondents can also ascertain from the Building Authority as to how the wall should be reinstated in accordance with the building plan.  The wall does not seem to be a structural wall or was made of concrete. If it were such kind of wall, the Respondents’ predecessor would not be able to remove it without approval from the Building Authority.  In fact, Mr. Wong’s evidence is that it should simply be a partition wall.  It should not cost too much to reinstate such a partition wall.

27. Thus, it is justified to grant the mandatory injunction.

Prohibitory injunction

28. The Respondents submit that it is not necessary to grant the prohibitory injunction because the Side Shop is no longer in use or occupied, the Respondents agree to surrender the keys for the Side Shop to the Applicant and the Respondents can undertake not to commit further breaches of the DMC.

29. I do not agree with the Respondents’ submission in this regard at all.  The Respondents contend that the Side Shop was not within the common parts of the Building and argue that they were not in breach of the DMC and the BMO.  Clearly, without my judgment on these matters and without any injunctive orders, the Respondents can still argue these matters with the Applicant later on.  I do not think that an undertaking is good enough in situations like this, especially when the issues have to be determined after trial.

30. I therefore find that it is necessary to grant the prohibitory injunction as sought by the Applicant.

Conclusion

31. As aforesaid, all the defences raised by the Respondents fail, and I find that the Respondents were in breach of the DMC and the BMO, and they are liable to pay mesne profits to the Applicant.

32. Thus, I order as follows:-

(1)	The Respondents do within 28 days from today demolish and remove the Side Shop from the corridor of the Building and reinstate the partition wall along the side of Shop 11 which is adjacent to the Side Shop.
(2)	The Respondents whether by themselves, their servants or agents be restrained from occupying or obstructing the corridor of the Building.
(3)	The Respondents whether by themselves, their servants or agents be restrained from renting out the corridor of the Building to any person.
(4)	The Respondents do pay the Applicant mesne profits for the wrongful occupation of the corridor of the Building at the rate of $11,000.00 per month from 8 August 2005 until delivery of vacant possession of the part of the corridor occupied by the Side Shop.
(5)	Costs order nisi: The Respondents do pay the Applicant costs of the application to be taxed on District Court Scale with certificate for counsel if not agreed.  If there is no further application on costs within 14 days from today, the costs order nisi shall become absolute.