XCHRX KUNG MING TAK TONG CO. LTD. v. PARK SOLID ENTERPRISES LTD. AND ANOTHER

HCA 1926/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1926 OF 2001

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R U L I N G

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1. The Plaintiff applies for the continuation in a slightly amended form of the injunction granted ex parte by Suffiad J on 28 April 2001 until judgment in this action or further order.

2. The injunction now sought is in the following terms: that the 1st and 2nd Defendants whether acting by themselves, their directors, officers, servants or agents or any of them or otherwise howsoever be restrained until judgment or further order from interfering with, obstructing or interrupting the pedestrian right of way by the construction of any structure or partition in the existing entrance lobby at the first floor of Fou Wah Centre, 210 Castle Peak Road, Tsuen Wan, New Territories as referred to and coloured yellow and annexed to the writ of summons herein or permitting others to do so.

3. The injunction sought relates to what has been described as the "existing entrance lobby" on the first floor of Fou Wah Centre, 210 Castle Peak Road, Tsuen Wan.

4. Fou Wah Centre is situated just beside the Tsuen Wan MTR Station Complex in the heart of Tsuen Wan. Its first four storeys consist of commercial premises with its upper floors consisting of domestic premises. There are shops on the ground floor. There is a first floor of small shops, facing out to the busy walkway surrounding the building which is connected to the walkway which leads from the MTR station. There is one floor (2nd floor) of restaurants (including branches of Pizza Hut and Café de Coral) and one floor (3rd floor) used as a book shop accessible via common stairs off the walkway.

5. The "existing entrance lobby" is significant to the businesses conducted on the 2nd and 3rd floors as it provides the most important access to those floors. It is also of great significant to the business being conducted by Tin Tin Vegetarian Food Company Limited at part of Shop 2B known as Shop 2B(B) on the 1st floor. That business has a narrow doorway of 29" facing onto the walkway and an open counter running for 13' 3" along the inside of the existing entrance lobby. Its customers gain access to this counter by using the existing entrance lobby.

6. The Plaintiff is now the owner of inter alia Shop 2B on the 1st floor, which comprises both the Shop 2B(B) to which I have referred and which it lets to the Tin Tin Vegetarian Food Company Limited ("Tin Tin") and Shop 2B(A), which is let to the Standard Chartered Bank for an ATM machine, and also the 2nd and 3rd floors.

7. The Plaintiff purchased Shop 2B and the 3rd floor of Fou Wah Centre from the 1st Defendant on 24 January 2000. One month later, on 24 February 2000, it purchased the 2nd floor from the 1st Defendant. At the time of these purchases the 1st Defendant was also owner of the existing entrance lobby on the 1st floor. It retained its ownership of this lobby.

8. When the Plaintiff purchased Shop 2B it was already in its present form, namely divided into two premises, Shop 2B(A) and Shop 2B(B), with Shop 2B(B) having the counter 13' 3" long facing the existing entrance lobby. The Plaintiff bought Shop 2B(B) subject to the existing tenancy to Tin Tin. There is evidence (see affirmation of Kung Hing Chi) that at the time Tin Tin first rented Shop 2B(B) from the 1st Defendant in 1988, Mr John Chan Wai Leung (John Chan) who was then representing the 1st Defendant (who now deposes that he is also a director of the 2nd Defendant) agreed that Tin Tin could use the open counter facing the existing entrance lobby to display its products and conduct its business and that the public could have access to the counter over the existing entrance lobby.

9. On 12 March 2001, Just over a year after the 1st Defendant had sold Shop 2B and the 2nd and 3rd floors of the Fou Wah Centre to the Plaintiff it assigned the "existing entrance lobby" to the 2nd Defendant for a consideration of $100,000.

10. Mr Lo Tsz Fung, a director of Tin Tin, was informed by Mr John Chan of the 1st Defendant of this sale to the 2nd Defendant and that the 2nd Defendant intended to partition another shop space out of the existing entrance lobby immediately next to Shop 2B(B). This proposed shop would close off the whole length of the 13' 3" counter which Tin Tin now uses to conduct its business. Since John Chan had said that work would start in one or two days (see para. 13 of the affirmation of Kung Hing Chi) the Plaintiff made its application ex parte to Suffiad J.

11. The Plaintiff's contention is that the construction of another shop space in the existing entrance lobby would contravene an easement of a right of way over the lobby to Shop 2B(B) and to the 2nd and 3rd floors which arose when Shop 2B and the 2nd and 3rd floors were assigned by the 1st Defendant to the Plaintiff. While an easement would not arise while the existing entrance lobby and Shop 2B and the 2nd and 3rd floors were owned by the same person, the 1st Defendant, it did arise when Shop 2B and the 2nd and 3rd floors were transferred into different ownership, namely that the Plaintiff. It is not the Plaintiff's case, and I accept that it was not suggested to Suffiad J, that the existing entrance lobby constituted "common parts" of the building under the Deed of Mutual Covenant. For the purpose of the present proceedings, in the light of the terms of the endorsement on a writ when it started this application, the Plaintiff relies upon its alleged rights in relation to Shop 2B(B) rather than those in relation to the 2nd and 3rd floors, although it does contend that access to those floors is relevant to the court's assessment of the balance of convenience.

12. There is evidence suggesting that the sale of the existing entrance lobby to the 2nd Defendant was at undervalue. There is also evidence suggesting a close connection between the 2nd and the 1st Defendants. They share the same Registered Office and two of the 2nd Defendant's directors are directors of the 1st Defendant. John Chan, who represented the 1st Defendant, now deposes that he is manager of the 2nd Defendant. Even after the assignment of the existing entrance lobby to the 2nd Defendant, the 1st Defendant's solicitors were writing to the Plaintiff and Tin Tin (on 15 and 21 March 2001 respectively) claiming that the entrance lobby was the property of the 1st Defendant (see exhibit JC-2). This is relevant as it tends to suggest that the 2nd Defendant was not a bona fide purchaser for value without notice of the Plaintiff right. It is also relevant to whether the Plaintiff is justified in seeking this injunction not only against the 2nd Defendant, the existing owner of the entrance lobby, but also against the 1st Defendant.

A serious question to be tried

13. The Plaintiff's case is that access to the 13' 3" counter of Shop 2B(B) was at the time Shop 2B(B) and the existing entrance lobby were in the common ownership of the 2nd Defendant a quasi-easement which became an easement when the 1st Defendant disposed of Shop 2B and the 2nd and 3rd floors.

14. The Plaintiff argues that the easement of a right of way was either express or implied. In so far as an express easement is concerned it points to Clause 1(C) of the 2nd schedule of the assignment of Shop 2B and 3rd floor to the Plaintiff which describes the property as including "Easements and other appurtenant rights (if any) together with and subject to (if any) such rights of way privileges, easements and appurtenances as set out in the assignment and together also with and subject to all other rights of way privileges, easements and appurtenances (if any) as at present existing and/or subsisting". The Plaintiff also relies upon the rule in Wheeldon v. Burrows and contends that the 1st Defendant should not be allowed to derogate from its grant.

15. I am satisfied that easements or quasi-easements can arise by implication when those easements or quasi-easements are necessary to the reasonable enjoyment of the property granted when prior to the assignment of that part of the property, such easements or quasi-easements were used by the entirety of the property for the benefit of the part granted.

16. Thesiger LJ in Wheeldon v. Burrows (1879) 12 Ch D. 31 said:

"...on the grant by the owner of a tenement of part of that tenement as it is then used and enjoyed, there will pass to the grantee all those continuous and apparent easements (by which, of course I mean quasi-easements), or, in other words, all those easements which are necessary to the reasonable enjoyment of the property granted and which have been and are at the time of the grant used by the owners of the entirety for the benefit of the part granted."

17. It is therefore necessary to look at the situation at the time of the grant of Shop 2B to the Plaintiff. There is no apparent dispute that at that time customers of Tin Tin would approach the counter of Shop 2B(B) by way of the existing entrance lobby in order to do business at Tin Tin's counter which faced the existing entrance lobby. Even though customers of Tin Tin may have in practice used the existing entrance lobby as a means of access to Shop 2B(B) there could be no right of such access to Shop 2B(B) unless it was "necessary to the reasonable enjoyment" of Shop 2B(B). This broadly corresponds with the terms of the lease on Shop 2B(B) granted by the 1st Defendant to Tin Tin on 14 November 1998 which gave the tenant the right to use inter alia entrances and passages in the building "in so far as the same are necessary for the proper use and enjoyment of the premises".

18. There is evidence before the court that there was a 29" doorway to Shop 2B(B) from the walkway. The Defendants contend that that as a result access by way of the existing entrance lobby is not reasonably necessary for the enjoyment of the premises. The evidence of Lo Tsz Fung, director of Tin Tin on the other hand is that if the open frontage of Shop 2B(B) is wholly blocked it would not be possible to do business at the premises. In so far as this question is concerned there appears to me clearly to be a serious issue to be tried.

19. That is not an end of the matter. Easements or quasi-easements are said to arise by implication because it is presumed that that is what the parties intended. The principle to which Thesiger LJ referred is based on the presumed intention of the parties. That is the principle upon which the maxim that a grantor cannot derogate from his grant is based. The court must therefore look at the terms of the grant to see if the right that would otherwise arise by implication is expressly excluded.

20. The Defendants contend that it is excluded. Clause 1 of the assignment of inter alia Shop 2B by the 1st Defendant to the Plaintiff assigns that property "subject to and with the benefit of the Deed(s) and instruments or matters (if any) set out in the second schedule hereto". The deed in question included the Deed of Mutual Covenant and Sub-deed of Mutual Covenant. Clause D-11 and the 1st schedule thereto provide that each of the owners agrees to grant to each of the other owners "the full right and privilege to the exclusive use occupation and enjoyment and the rents and profits of such shop or shops are set out in the second column of the first schedule". The existing entrance lobby falls within the definition of "shop" in Clause B1-1 and the second column of the first schedule expressly states that the existing entrance lobby is exclusively used and enjoyed by the owner. By Clause 3 of the assignment the Plaintiff as purchaser covenanted to perform and observe all the covenants and conditions in the Deed of Mutual Covenant and the Sub-Deed of Mutual Covenant.

21. To these arguments, Mr Shipp for the Plaintiff points out that there is a distinction between a grant and a deed of mutual covenant which is simply an agreement between the owners. Although the grant may refer to the Deed of Mutual Covenant and Subdeed of Mutual Covenant the terms of such covenants should not be looked at in isolation but as a whole. He points out the terms of Clause E1(a) of the Sub-Deed of Mutual Covenant which provide that the owners agree

"Not to make or suffer or permit to be made any structure alteration or addition to any Shop except with the prior written consent of the Manager and not to damage or affect or interfere with the use and enjoyment of any other part of the Ground to Third Floors."

22. He contends that the 2nd Defendant's proposal alterations to the existing entrance lobby would be in breach of that clause. He argues that the exclusive possession which the owners agree the 2nd Defendant should have over the existing entrance lobby is subject to the rights of other owners to the use and enjoyment of their premises including a right of way. He relies upon the words of Lord Hoffman NPJ in Jumbo King Limited v. Faithful Properties and others (FACV 7 of 1999)

"The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard not merely to the individual words they have used but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents in which people may be supposed to have chosen their words with care one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other."

23. It is not for this court to comment on the relative strength of the arguments advanced by both sides. I would only comment that it appears to be at least arguable that if for instance the evidence shows that Shop 2B(B) cannot be used as a shop without a right of way over the existing entrance lobby then any term in the Sub-Deed of Mutual Covenant as to exclusive possession must be read as subject to such a right.

24. I find there is a serious question to be tried.

25. I am satisfied that if the court were to find there was the right of way for which the Plaintiff contends, the construction of an additional shop within the existing entrance lobby effectively blocking off the sales counter of the Plaintiff's tenant Tin Tin would constitute a substantial interference with that right. It would also more than halve the area over which the customers of the Plaintiff's tenant's restaurants and bookshop could approach the main staircase leading to those premises.

Balance of Convenience

26. The potential seriousness of the effect on the Plaintiff and the difficulty of quantifying such loss satisfies me that damages would not been an effective remedy if it was found that the erection of the additional shop violated the Plaintiff's right of way.

27. I am satisfied that the balance of convenience lies in favour of granting an injunction.

28. If a court was subsequently to find there was no such easement or quasi-easement, the 2nd Defendant would have been deprived of the opportunity to develop its property in the intervening months. The lobby is however property which on the evidence before me, the 2nd Defendant appears to have acquired at a very substantial undervalue from its apparently associated company the 1st Defendant which has owned the existing entrance lobby for many years without choosing to develop it. According to the affirmation of John Chan, the 2nd Defendant intends to let the proposed shop space to earn rent. If the Plaintiff fails in the action it would be a relatively uncomplicated exercise to assess the loss of rent caused to the 2nd Defendant by delay and construction of such a relatively small shop space. The Plaintiff appears to have substantial assets to meet such damages.

29. The Plaintiff on the other hand runs a risk of losing well-established and/or well-known tenants including Tin Tin, Pizza Hut, Café de Coral and the Joint Publishing Company as well as facing possible legal proceedings from its tenants if the construction were to go ahead. The loss of such tenants of large premises and the expense resulting from possible legal proceedings would be very difficult if not impossible to quantify.

30. The status quo should be maintained until the trial of this action.

Non-disclosure

31. The 1st Defendant argues that nonetheless I should discharge the injunction of Suffiad J and refuse to regrant it because of material non-disclosure in the application of the ex parte injunction.

32. The first ground is that the Plaintiff failed to disclose that the existing entrance lobby was not common parts of the building. It is true that the Plaintiff did not expressly say so in so many words but it was made clear that the 1st Defendant had assigned the existing entrance lobby to the 2nd Defendant on 12 March 2001 (see para. 13 of the affirmation of Kung Hing Chi). Although the Plaintiff's skeleton argument made an ambiguous reference to common parts, I am satisfied that it was not intended to mislead and is consistent with the Plaintiff's position of accepting that the lobby was not common parts but arguing that such an argument is irrelevant.

33. The second ground is that the Plaintiff failed to disclose that there was an alternative 29" access door from the walkway. There is no substance in this ground. In paragraph 10 of the skeleton argument put before the Learned Judge this was brought to his attention.

34. I find there is no justification for discharging the ex parte injunction and refusing to grant a new one.

Should the injunction be granted against the 1st Defendant as well as the 2nd Defendant

35. I have considered Mr Lam's submissions in this regard. I consider that the Plaintiff is justified in seeking an injunction against the 1st Defendant as well as the 2nd Defendant notwithstanding that the property has been assigned to the 2nd Defendant. There is the evidence to which I have referred pointing to a close connection between the two companies and its personnel and indicating that this was not a transaction at arm's length and indeed suggesting that the 1st Defendant might well be behind the 2nd Defendant's attempt to develop an additional shop space. Moreover the 1st Defendant, which would be liable in damages for delegating from its ground if the Plaintiff is successful in establishing a right of way, has not maintained the position of neutrality between the Plaintiff and the 2nd Defendant. In such circumstances an injunction should be granted against both Defendants.

36. I have also considered the suggestion by Mr Wong on behalf of the 2nd Defendant that I should grant a more restrictive injunction than that sought by the Plaintiff; in particular that I should allow an open fronted L-shaped partition to be constructed. If the premises enjoy a right of way however, it is to approach the premises from anywhere in the existing entrance lobby; for instance from the bottom of the staircase from the 2nd and 3rd floors as much as from the walkway. Such a L-shaped partition would obstruct the right of way.

37. I am satisfied that I should continue the injunction granted by Suffiad J in the following terms, namely that the 1st and 2nd Defendants whether acting by themselves, their directors, officers, servants or agents or any of them or otherwise howsoever be restrained until judgment or further order from interfering with obstructing or interrupting the pedestrian right of way alleged by the Plaintiff by the construction of any structure or partition in the Existing Entrance Lobby at the first floor of Fou Wah Centre, 210 Castle Peak Road, Tsuen Wan, New Territories as referred to and coloured yellow and annexed to the writ of summons filed herein or permitting others to do so.

Costs

38. I have considered Mr Shipp's submission regarding the practice in relation to costs in the Chancery Division in England and Wales.

39. Nonetheless, unless persuaded otherwise, I am satisfied that justice would be best served in this case by ordering that the costs of this application, the ex parte application and the carrying out of the ex parte application should be costs in the cause.

40. This order as to costs is to take effect unless within 14 days any party applies to the court to be heard on the question of costs.