THE INCORPORATED OWNERS OF MIRADOR MANSION v. DIAMOND STRONG HOLDINGS LTD AND ANOTHER

HCA50/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 50 OF 2010

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D E C I S I O N

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1.  The plaintiff, being the Incorporated Owners of Mirador Mansion, apply by Summons for interlocutory injunction against the defendants.

2.  The interlocutory injunction sought by the plaintiff is in respect of four signboards erected or affixed to the external wall of Mirador Mansion all bearing the name “Fanda” which is the trade names of the pharmaceutical business carried on by the 2^nd defendant.

3.  The terms of the orders sought by the plaintiff are as follows :

(1)     an Order that, until trial of this action, the 1^st and 2^nd defendants and each of them be restrained, whether by their directors, officers, servants, agents or otherwise howsoever from displaying or causing or permitting to be displayed any notices signs or any other things on the external wall or any other part of Mirador Mansion, 54-64 Nathan Road, Tsim Sha Tsui, Kowloon (“Mirador Mansion”) which is in common use; and

(2)     insofar as may be necessary, an Order that the 1^st and 2^nd defendants do forthwith take all steps and do all things as may be necessary to cause, induce and facilitate the removal of the signboards as described in paragraph 11 of the Affirmation of Lung Bing Kee filed on 13 January 2010 from the external wall of and/or any other common part adjacent to Shop 7 on the Ground Floor of Mirador Mansion.

Background

4.  Mirador Mansion is governed by a Deed of Mutual Covenant dated 28 April 1960 (“the DMC”) and registered in the Land Registry.  Clause 12 of the DMC provides :

“It is hereby agreed as follows :

(a) There shall be board or boards for name plates on some part of the ground floor in common use and the parties hereto shall be entitled to one space thereon for each unit…

(b) Each owner shall be entitled to display any notice on the exterior wall or door of his unit but all such notice shall be painted on or flush with the wall or door and shall not project into or over the corridor in common use.

(c)           Save as hereinbefore provided the parties hereto shall not display or cause or permit to be displayed any notices signs or any other things in the corridors staircases landings or any other part of the building in common use.”

5.  The 1^st defendant became the registered owner of Shop 7 of Mirador Mansion (“Shop 7”) in 2001.  Shop 7 is a ground floor shop which gives onto Nathan Road.

6.  Since 1993, the 2^nd defendant was in occupation of Shop 7 as a tenant and had at all times carried on the business of selling pharmaceutical products there under the style name of Fanda.  When the 1^st defendant became the registered owner of Shop 7 in 2001, that was subject to the existing tenancy of the 2^nd defendant.

7.  It would appear from the evidence that since the time when the 2^nd defendant carried on its business at Shop 7, there were signboards displaying the name Fanda on the external wall adjacent to the entrance of Shop 7.  There was also a larger signboard in front of Shop 7 which is attached to the external wall but extending out to and overhanging Nathan Road, also with the name of Fanda.

8.  The plaintiff’s solicitors by letters in July, August and September 2009 gave notices and warnings to the defendants for the removal of all their signboards displayed on or attached to the external wall of Mirador Mansion, but such notices or warnings were not heeded to by the defendants.

9.  The present action was commenced by the plaintiff and this application by Summons for interlocutory injunction taken out on 13 January 2010.

Plaintiff’s application for interlocutory injunction

10.  The plaintiff’s application for interlocutory injunction is based on the grounds that the defendants are in breach of Clause 12 of the Deed of Mutual Covenant and also that they are in breach of section 34I of the Building Management Ordinance (“BMO”).

11.  Section 34I of the BMO provides as follows :

“(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 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.

(2)     Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building.”

12.  Under section 2 and Schedule 1 of the BMO, external wall is defined as one of the “common parts” of the building unless specified or designated in an instrument registered in the Land Registry as being for the exclusive use of an owner.

13.  It is the plaintiff’s case that the external wall of Mirador Mansion have not been designated for the exclusive use of any owner and that there is no dispute that the four subject signboards are erected or attached to the common parts of the building.

Position of the 1^st defendant

14.  The 1^st defendant opposes the application on the basis that the signboards complained of by the plaintiff has been installed by the 2^nd defendant long before the 1^st defendant became the owner of Shop 7 in 2001. There is therefore substantial delay on the part of the plaintiff and who has failed to act promptly.

15.  Due to the delay on the plaintiff, there can be no urgency and no irreparable damage to the plaintiff if the order sought was not granted and the balance of convenience lies in favour of the defendants.

16.  In this respect, reliance is sought by the 1^st defendant on the decision of the Court of Appeal in King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785.

Position of the 2^nd defendant

17.  The 2^nd defendant opposes the plaintiff’s application for interlocutory injunction.

18.  The 2^nd defendant raises by way of substantive defence that by a circular in Chinese issued by the plaintiff on 29 November 1996 to all the owners and occupiers of Mirador Mansion (“1996 Circular”) in which it was stated that all signboards in existence before 4 March 1995 would be tolerated on the basis that the owners of these signboards would sign an undertaking/guarantee to accept liabilities and to have the signboards dismantled when they ceased to occupy the premises and also to pay a sum of $10,000 as security deposit for each signboard as removal costs.

19.  It is the case of the 2^nd defendant that in response to the 1996 Circular, the 2^nd defendant signed and returned the undertaking/guarantee and also paid security deposit of $20,000 to the plaintiff.

20.  Thereafter the 2^nd defendant has properly maintained the signboards and has even taken out liabilities insurance in respect of the signboards.

21.  In the circumstances, the 2^nd defendant says it has an arguable defence to the plaintiff’s claim.

22.  On that substantive defence put forward by the 2^nd defendant, the dispute at trial would be whether the plaintiff has agreed, based on the 1996 Circular and the acceptance of those terms by the 2^nd defendant, to allow the signboards to exist.

23.  Quite apart from the substantive defence put forward by the 2^nd defendant to the plaintiff’s claim, the 2^nd defendant submits that the plaintiff is not entitled to the interlocutory injunction it seeks by this application due to the inaction on the part of the plaintiff for well over 10 years which shows that there can be no urgency on the part of the plaintiff.

24.  On the point of urgency, the 2^nd defendant makes the further point that although at one time there was a Building Order made by the Buildings Department against the plaintiff in respect of the signboards of the 2^nd defendant, that Building Order made against the plaintiff has now been withdrawn by the Buildings Department.  In its place, the Buildings Department has issued a new Building Order but only against the 2^nd defendant but which is at present under appeal by the 2^nd defendant.

25.  It was submitted by the 2^nd defendant that because there is now no Building Order against the plaintiff, there is no urgency shown (on the basis of the Building Order) which would concern the plaintiff in making this application for interlocutory injunction.

26.  The present application in effect seeks for substantially the reliefs which the plaintiff can get if it succeeds at trial, but this is not an application for summary judgment under Order 14, and the court should not accede to this application without a full trial.

Response by the plaintiff

27.  In respect of the substantive defence of the 2^nd defendant relying on the 1996 Circular, the plaintiff points to the evidence relating to that substantive defence which is as follows.

28.  In putting forward this substantive defence, the 2^nd defendant has produced to the court the original of the 1996 Circular which can be seen to be a faded copy but with a round blue chop the wording on which purports to be a chop of the plaintiff.

29.  The plaintiff however, has not been able to locate a copy of the 1996 Circular in its documents and records but neither disputes the copy produced by the 2^nd defendant nor the chop thereon to be the plaintiff’s chop.

30.  The 2^nd defendant, however, has not been able to locate a copy of the undertaking/guarantee signed by it pursuant to the 1996 Circular.  Nor has the plaintiff been able to locate any copy of such an undertaking/guarantee signed by the 2^nd defendant from its record.  Moreover, the plaintiff says that from its records of signboard deposits received, there is no record that the 2^nd defendant has paid any deposits for the signboards.

31.  The plaintiff also points to the fact that in two of the letters from the 2^nd defendant’s solicitors to the plaintiff, it was stated that the 2^nd defendant had paid $10,000 as security deposit (for the signboards), but in the affirmation of Yip Kwok Keung, the security deposit paid was stated to be $20,000.  Furthermore, the reason given by Yip in his affirmation as to how he came to pay security deposits for only two of the four signboards is unbelievable.

32.  It was therefore submitted by the plaintiff that apart from the bare assertion by the 2^nd defendant that it has signed and returned the undertaking/guarantee and had paid security deposits for the signboards pursuant to the 1996 Circular, there is no evidence to support that allegation apart from the production of the copy of the 1996 Circular.

33.  On the point of delay, the plaintiff says that throughout the 10 odd years the plaintiff has consistently issued warnings, reminders and circulars to all of the owners and occupiers of Mirador Mansion as to the need to comply with the provisions in the DMC in so far as signboards are concerned.  This shows that the plaintiff has not simply “stood by” without doing anything and allowed or tolerated the breaches to be committed, which is a very different situation.

34.  The plaintiff was forced into bringing the present action and the application for interlocutory injunction due to the fact that the signboards of the 2^nd defendant was interfering and obstruction the progress of the general renovation to the whole building which ought to have been completed by November 2009 but has been delayed due to such obstruction.  The complaint by the contractor concerned as to the obstruction caused to the progress of the renovation works can be seen in the letter from the contractor to the plaintiff dated 12 February 2010 as well as in the Extracts of Progress Meetings (Exhibits “LBK-43” and “LBK-44”).

35.  It was further submitted by the plaintiff that while paragraph 1 of the summons makes it clear that the interlocutory injunction sought by the plaintiff is prohibitory in nature (and not mandatory), paragraph 2 of the summons is only corollary to paragraph 1 preceded by the words “insofar as may be necessary”.  In those circumstances, the plaintiff is only required to show a serious question to be tried and not a high degree of assurance of success at trial.

36.  As for the balance of convenience test, the plaintiff relies on 29/1/32 of the Hong Kong Civil Procedure 2010 and it was submitted by the plaintiff that in cases of applications to restrain a breach of an express negative covenant, that test has no application and the defendant’s promise is upheld irrespective of the balance of convenience.  For once the plaintiff establishes a serious question to be tried, the balance of convenience test becomes inappropriate.

Decision

37.  In the present case, the plaintiff’s claim is brought on the basis of breaches of the Clause 12 of the DMC and also section 34I of the BMO.

38.  On the other hand, the substantive defence relied on by the 2^nd defendant as to signing the undertaking/guarantee and the payment of the signboard security deposit by it pursuant to the 1996 Circular, if substantiated at trial, will show that the plaintiff had agreed to the signboards put up by the 2^nd defendant and in that sense will be a complete defence to the plaintiff’s claim.

39.  It must be accepted at this interlocutory stage the evidence relating to that disputed issue of the substantive defence raised by the 2^nd defendant is not complete.  That is possibly true for both sides since it involves documents and records well over 10 years ago.

40.  However, it seems to be common ground that not only the 1996 Circular exist but also that there exist a record kept by the plaintiff of security deposits for signboards.

41.  Given the existence of the 1996 Circular and also the plaintiff’s record of security deposits for signboards, even if that record does not show the 2^nd defendant to having paid the security deposit, a valid point made by counsel for the 2^nd defendant is that $10,000 of security deposit for each signboard is a very small amount when compared with the business turnover of the 2^nd defendant and chances are that the 2^nd defendant would have taken advantage of the 1996 Circular by entering into the undertaking and paying the deposits.

42.  As for the absence at this stage of other documentary evidence or record to show directly that the 2^nd defendant did sign the undertaking and did pay the security deposits for the signboards that must really be a matter for trial.

43.  In the circumstances, I am of the view that the 2^nd defendant has shown an arguable defence to the plaintiff’s claim in this matter based on the 1996 Circular.

44.  If the substantive defence based on the 1996 Circular can be made good by the 2^nd defendant at trial, then it follows that the warnings, circulars and reminders issued by the plaintiff to all the owners and occupiers as to unauthorized signboards are neither here nor there in so far as the defendants herein are concerned.

45.  On the other hand, if the substantive defence based on the 1996 Circular cannot be made good by the 2^nd defendant, that would appear to be the end of the defence case since no other basis has been put forward by way of defence of acquiescence or waiver.

46.  In short therefore the defence in this case stands or falls upon whether the 2^nd defendant can show at trial that it did take advantage of the 1996 Circular by complying with the requirements therein.

47.  It is therefore on this basis that I have to approach the present application for interlocutory injunction which is made upon contested facts.

48.  At this stage, it would be wrong for me to even attempt to resolve such disputed facts on affidavit evidence.  That can only be done after a full trial can be held with evidence and cross-examination being done.

49.  The object of an interlocutory injunction at this stage is to protect the plaintiff against injury by violation of his right for which he could not be compensated in damages at the end of the day.  However, such protection to the plaintiff will have to be balanced against the corresponding need of the defendants to be protected against injury resulting from their being prevented from exercising their own legal rights for which they could not be adequately compensated for by the plaintiff’s undertaking in damages if the defendants should succeed after trial.

50.  Applying that principle above to the present case, granting the interlocutory injunction sought by the plaintiff would effectively mean that the defendants would be compelled to remove the four signboards with the trade name of the 2^nd defendant outside Shop 7 at least for the interim period between now and the trial of this matter.

51.  Should it transpire after trial that the interlocutory injunction was wrongly granted, the effect of that on the 2^nd defendant would be that its goodwill, reputation and business would have been affected by its having to carry on its retail pharmaceutical business without being able to advertise its trade name or its business with the signboards.

52.  On the other hand, a refusal to grant the interlocutory injunction sought would have the effect of enabling the 2^nd defendant, during the interim period until trial of this matter, to continue exhibiting the four signboards complained of by the plaintiff on the external wall of Mirador Mansion.

53.  What then is the irreparable damage to the plaintiff one may well ask when, on the undisputed facts of this case, those signboards have existed in full view of the plaintiff, for well over 10 years and which the plaintiff has seen fit to tolerate for all that time without resorting to legal action to have them removed? 

54.  By the same token, what is the urgency in the matter such that the interlocutory order has to be made now rather than after trial?  On the question of urgency, I am not persuaded that the obstruction to the renovation works can amount to such urgency or even be regarded as irreparable damage.  If the 2^nd defendant’s substantive defence is established, then it must follow that the 2^nd defendant is entitled as of right to have the signboards there, whether or not renovation works are carried out on the external wall.  On the other hand, even if the 2^nd defendant’s substantive defence cannot be established, and that the signboards are in breach of the DMC, in so far as it may obstruct the renovation works, that can only be by way of an inconvenience rather than by way of irreparable damage. Moreover, the inconvenience is caused more directly to the contractor carrying out those works as opposed to irreparable damage to the plaintiff.

55.  Once that premise is reached, it cannot be clearer that on a balance of convenience, the justice of the case requires that the interlocutory injunction sought for by the plaintiff ought not to be granted at this stage.

56.  In coming to this conclusion, I find the words of Rogers VP in the case of King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785 at 792 to be aptly appropriate when he said in paragraph 20 of the judgment in that case :

“There has traditionally been a strong requirement when interlocutory injunctions have been sought, that the plaintiff must show that it has acted promptly and without delay. Promptly in the circumstances of interlocutory injunctions has been commonly understood to be a period of six weeks or so of unexplained delay and three months with an explanation given for the delay in making application for an injunction. Since the American Cyanamid decision the importance of irreparable damage in an application for an interlocutory injunction is paramount. If there is no irreparable damage demonstrated then the need for an interlocutory injunction has not been shown. This is important because of the approach that the courts take to interlocutory injunctions. They are not the trial of the action and the court is concerned with whether irreparable damage will occur before a trial can take place. It stands to reason that if a party is prepared to allow matters to proceed and takes no action with respect to matters which have been extant for lengthy periods, it lies ill in their mouth to say that there is likely to be irreparable damage and that is the case here.”

57.  The plaintiff also sought to rely on 29/1/32 of the Hong Kong White Book under the heading of “Express Negative Covenant” where it is stated that the balance of convenience test is not applied in the case of applications to restrain breach of express negative covenants as well as the decision of the Court of Appeal in Incorporated Owners of South Seas Centre, Mody Road v Great Treasure Development Ltd [1994] 1 HKC 197.

58.  In that case, the defendant had wanted to maintain a sign bearing the legend ‘Toy Centre’ on an external wall of the building which is in breach of the deed of mutual covenant to which the defendant is bound and the court was able to arrive at a provisional conclusion (albeit that the final conclusion must still await the trial of the action) that the maintenance of the defendant’s new signs on the external wall of the building without the plaintiffs’ consent did involve the defendant in a breach of the negative stipulations.

59.  In our present case, given the substantive defence raised by the 2^nd defendant, it would not be right at this interlocutory stage to come to even a provisional conclusion that the acts complained of would amount to a breach of Clause 12 of the DMC by the defendants without there being a full trial in the matter.

60.  In that sense, the present case, on its own facts, can be distinguished from the South Seas Centre case and that the passage in 29/1/32 of the Hong Kong White Book has to be read in that context.

61.  For the reasons given above, I am not prepared to exercise my discretion to grant the interlocutory injunction sought by the plaintiff and the plaintiff’s application is accordingly refused.

Costs

62.  In so far as costs is concerned, although there is a practice of making an order for costs to be the defendant’s costs in the cause where an application for interlocutory injunction made by a plaintiff is refused, however, on the facts of this case, there is ample scope for the view that the lengthy delay by the plaintiff makes it such that the application for interlocutory injunction is in effect a non-starter for the reasons given above.

63.  Given the circumstances, it would not be a wrongful exercise of discretion to make the costs order to follow the event.

64.  Accordingly, there will be a costs order nisi that the costs of this application for interlocutory injunction be to the defendant in any event.