CITYABILITY LTD v. TREASURE SPOT INVESTMENTS LTD

HCA 1604/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1604 OF 2007

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J U D G M E N T

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1.  This is an action for reinstatement of easements and rights of way and for damages for interference with the same.

2.  The plaintiff is the owner of Regal Hong Kong Hotel (“the Hotel Building”) in Causeway Bay.  It entered into a management agreement with one Favour Link International Limited (“Favour Link”) and Favour Link became the owner of the hotel business operated in the Hotel Building.  The plaintiff however remains entitled to the profits of the hotel business by a rental arrangement with Favour Link. 

3.  The defendant is the owner of the land and building known as 68 Yee Wo Street (“68 YWS”) which is adjacent to the Hotel Building. 

History

4.  The Hotel Building and 68 YWS used to be owned by companies belonging to the same group.  68 YWS was built in two phases in 1984 and 1989 respectively.  Phase one comprised the basement to the 6/F.  Phase two comprised an office tower from the 7/F. to the 22/F.  The Hotel Building was built in 1992.  In October 2002, the shares of the company that owned 68 YWS were transferred to outside shareholders.  The two buildings then ceased to be owned by the same group of companies.

Geography of the two buildings

5.  The Hotel Building and 68 YWS together form an island site with the Hotel Building at the east and 68 YWS at the west.  They are bounded by Irving Street on the east and the south, by Pennington Street on the west and by Yee Wo Street on the north.  The tramway runs along Yee Wo Street.  There is a junction between Irving Street and Pennington Street at the southwest corner of this site.  Pennington Street runs from the south to the north and ends at its junction with Yee Wo Street.  That is at the northwest corner of the site.  Opposite to this corner and on the other side of Yee Wo Street is its junction with Sugar Street.  Sugar Street runs from this junction to the northeast and over to Victoria Park.

6.  There are several access ways connecting this island site with the rest of Causeway Bay.  To the east and right next to the Hotel Building is an elevated footbridge.  It leads to the driveway of the hotel and the main entrance of the Hotel Building.  The other end leads to the eastern part of Causeway Bay opposite Victoria Park. 

7.  The second access is right outside the northern exit from the ground floor of the Hotel Building.  It is a pedestrian crossing outside the northern façade of the Hotel Building.  It is guarded by traffic lights and cuts across Yee Wo Street.  This way leads to Victoria Park, Park Lane Hotel, Sugar Street, Sogo and its surrounding areas. 

8.  At the southwest corner of the site right outside the ground floor entrance of 68 YWS is another pedestrian crossing from one side of Irving Street to the other side.  It leads to the south of the site and is close to the entrance to 68 YWS, the driveway of and the main entrance to the hotel.  There is another pedestrian crossing on Pennington Street at the far side of its junction with Irving Street.  It leads to Jardine’s Bazaar, Lee Gardens, Times Square, Sogo and its surrounding areas.  These two crossings are guarded by traffic lights. 

9.  Lastly, there is a way going out from the northwest corner of the 1^st floor of 68 YWS.  It goes over a public footbridge.  It is an elevated circular footbridge which crosses Yee Wo Street.  It has three different landings on the ground.  Two of the landings rest on both sides of Sugar Street off its junction with Yee Wo Street and the last one lands on the southwest point of the junction of Pennington Street and Yee Wo Street.  This access way through the three ground level landings leads to the buildings on the other side of Pennington Street, Park Lane Hotel, Sugar Street, Sogo and its surrounding areas. 

The connection of the two buildings

10.  The Hotel Building and 68 YWS are interconnected at the G/F, 1/F, 3/F and 4/F. 

11.  The connection on the 1/F is at the southeast corner of 68 YWS.  That point is also an entrance to the 1/F. of the Hotel Building which at all material times has been used as a café called Rivoli Café.  Hotel guests can go from Yee Wo Street to the café and vice versa through the public footbridge and a right of way of the plaintiff on the 1/F of 68 YWS.  The right of way on the 1/F of 68 YWS used to lead from the entrance from the footbridge to the café.  Its course has been changed though it still connects the entrance from the footbridge and the entrance to the café.  The change to the routing of the right of way is one of the subject matters of this action.  There are other means for accessing the hotel and its various facilities including the café through the ways of access to the island site above-mentioned.  They do not go through the right of way in question. 

12.  Hotel guests can also go from Yee Wo Street to the G/F of 68 YWS via the same public footbridge and another segment of the right of way on the 1/F and an escalator down to the G/F of 68 YWS.  They could then go from the G/F of 68 YWS to the G/F of the Hotel Building.  This segment of the right of way has also been changed.

13.  The hotel has a Chinese restaurant on its 3/F.  Hotel guests could have access to and from this restaurant via the same public footbridge, the said right of way which led to the lift lobby of the 1/F.  This segment of the right of way has also been changed.  One of the lifts in this lobby serves the 1/F and 3/F, among other floors, of 68 YWS.  The guests can walk over to the restaurant from the 3/F of 68 YWS and vice versa. 

14.  The right of way previously enjoyed by the plaintiff on the 1/F of 68 YWS is shown in arrows on plan A annexed hereto.  It used to be guarded on both sides by shop fronts and partitions.  It was a well-defined way.

15.  The basement of 68 YWS used to have 16 parking spaces.  The driveway inside had a loop for access to some of the spaces.  It also facilitated the manoeuvring of vehicles out of the basement.  Members of the public, guests of the hotel and the valet service of the hotel were allowed to use these spaces at a fee.  They were then available on a first come first serve basis to all.  The car parks and the former driveway with the loop are shown on plan C annexed hereto. 

16.  According to Mr Fan of the plaintiff, the basement of 68 YWS has since July 1988 been used for parking of vehicles only.  This was done at that time in anticipation of the increase in the need for parking by the completion of phase 2 of 68 YWS at the end of 1989 and the Hotel Building in 1992.

17.  There are and were at all material times 92 parking spaces on the 4/F, 5/F and 6/F of 68 YWS.  Access to them is through three car-lifts serving the basement and these floors.  These spaces were and still are open to the public and the hotel on a first come first serve basis.

18.  The Hotel Building also has eight parking spaces on its 4/F podium.  Access to these spaces is from the basement of 68 YWS and through the three car-lifts.  Vehicles can be driven from the 4/F of 68 YWS to the 4/F of the Hotel Building.

The defendant’s works in 68 YWS

19.  In May 2007 to January 2008, the defendant carried out some construction works in the basement to the 2/F. of 68 YWS.  It demolished all partitions on the 1/F and made other alterations there.  These were done for the letting the whole floor together with the G/F and 2/F to a single tenant to operate a department store.  The tenant was called GOD Retail Limited.  According to Mr Allan Lee of the defendant, the works on the 1/F. were completed before 14 July 2007 and this floor was handed to GOD for fitting out works.  GOD’s fitting out works was apparently completed in January 2008.  As a result of these works, the right of way on the 1/F was revised and realigned.  The realigned right of way was no longer guarded by any partition as the whole floor was used for a department store.  This new right of way is shown on plan B annexed hereto. 

20.  This modified right of way was also licensed to GOD for use as part of its department store.  The licence of the new passage to GOD has now been and the original passage restored.  GOD is no longer operating on the 1/F of 68 YWS.

21.  The defendant had also carried out construction works at the basement in May to 15 September 2007 and the parking spaces were then closed.  The works cut out the loop and a number of parking spaces for the construction of a shop at the basement.  The basement after the construction works has eight newly arranged parking spaces and without the loop as shown on Plan D annexed hereto.

22.  At the start of the trial, the eight parking spaces were licensed to one Chan Yiu Wo and were not available to the public or the hotel.  From 21^st May 2009, three of them have been licensed to the plaintiff.  Three others had also been offered to the plaintiff, but the plaintiff declined them on safety ground.

The covenants

23.  The above rights of way and rights of access through car-lifts are governed by a number of covenants in a Deed of Covenant and Grant of Right of Way and Easement and Management Agreement (“the DCMA”) dated 13 May 1992 and made between the plaintiff and the defendant’s predecessor Athlone Limited (“Athlone”).  The defendant accepts that it is bound by these covenants. 

24.  The relevant covenants are:

“Easements Rights and Privileges

3.  (1)   full right and liberty for Athlone, its successors, assigns, agents, servants, visitors, customers, tenants and licensees (in common with all other persons having the like right) to go, pass and repass over and along and to use the Common Areas and the Common Facilities for all purposes connected with the proper use and enjoyment of Paliburg Plaza.

(2)   full right and liberty for Athlone, its successors, assigns, agents, servants, visitors, customers, tenants and licensees (in common with all other persons having the like right) to go, pass and repass over and along the passages as shown and coloured blue hatched black on the Floor Plans annexed to this Deed for all purposes connected with the proper use and enjoyment of Paliburg Plaza Subject to the right of Cityability to change, modify or otherwise re-arrange such passages provided that in the exercise of this right Cityability shall not materially interfere with the proper use and enjoyment of Paliburg Plaza …

(3) full right and liberty for Cityability, its successors, assigns, agents, servants, visitors, customers, tenants and licensees (in common with all other persons having the like right) to go, pass and repass over and along and to use the Common Areas and the Common Facilities for all purposes connected with the proper use and enjoyment of Regal HongKong Hotel.

(4)     full right and liberty for Cityability, its successors, assigns, agents, servants, visitors, customers, tenants and licensees (in common with all other persons having the like right) to go, pass and repass over and along the passages as shown coloured pink hatched black on the Floor Plans annexed to this Deed for all purposes connected with the proper use and enjoyment of Regal HongKong Hotel subject to the right of Athlone to change, modify or otherwise re-arrange such passages provided that in the exercise of this right Athlone shall not materially interfere with the proper use and enjoyment of Regal HongKong Hotel.

…

Common Areas and Common Facilities

5. Each of Athlone and Cityability covenants with the other party that: -

(1)     The Common Areas and the Common Facilities shall be jointly used and enjoyed by the parties hereto and their respective successors, assigns, agents, servants, visitors, customers, tenants and licensees for all purposes connected with the proper use and enjoyment of such part of the Building owned by such party.

…

(3)     For the purpose of sub-clause (1) above, it is hereby agreed as follows: -

(a)     Athlone shall at all material times keep and maintain such of the passages (which for identification purposes only) as shown coloured pink hatched black on the Floor Plans annexed hereto as reasonably free and unobstructed access to and from the Common Areas and the Common Facilities.

(b)        Cityability shall at all material times keep and maintain such of the passages (which for identification purpose only) as shown coloured blue hatched black on the Ground floor Plan and the 4^th Floor Plan annexed hereto … and the passage (which for identification purpose only) as shown coloured blue hatched black on the 1^st Floor Plan annexed hereto … as reasonably free and unobstructed access to and from the Common Areas and the Common Facilities.

(c)     Subject always as aforesaid, each party hereto shall have the right to change, modify or otherwise re-arrange any of the said passages which are on or at such part or the Building owned by it.

23. Each party shall have the right to amend, alter and/or change the approved Building Plans in respect of such part or the Building owned by it Provided Always that any such change, alteration, or amendment which would affect the part of the Building owned by the other party shall be subject to mutual agreement between the parties hereto.

24. If Cityability shall require Athlone to provide any areas and/or facilities situate on Paliburg Plaza for use by Cityability for purposes connected with the proper use and enjoyment of Regal HongKong Hotel, the parties shall enter into such agreement as may be necessary to govern the provisions of such areas and/or facilities and the rights and obligations of the parties therein.  In the event of dispute between the parties on the matters aforesaid and the parties are unable to come to agreement within 30 days of such dispute, then either party may after the expiration of the said 30 days period refer the dispute to arbitration in Hong Kong.  In such event, the parties shall appoint an arbitrator by mutual agreement and failing such agreement, the parties shall refer the matter to the then President of the Law Society of Hong Kong for the purpose of appointing an arbitrator.  The arbitrator so appointed shall be familiar with the matter in dispute and the decision of the arbitrator shall be final and binding on the parties hereto.  The costs for arbitration shall be borne by the parties equally.”

The pleadings

25.  The plaintiff claims that the defendant has breached these covenants by reason of the construction works above-mentioned.  The plaintiff therefore seeks the reinstatement of the rights of way on the 1/F and the loop and parking spaces in the basement of 68 YWS as per plans A and C.

26.   The defendant denies that it has breached the above covenants.  The defendant pleads that the changes made to the basement and the 1/F were all approved by the Buildings Department.  They did not affect the Hotel Building in which the hotel was operated and it was thus unnecessary to obtain the agreement of the plaintiff under clause 23 of the DCMA. 

27.  Regarding the right of way on the 1/F, the defendant pleads that the original way was dark and in a bad state of decorative repair.  It was hardly used by members of the public or hotel guests.  It further pleads that the new right of way is renovated, brighter and more appealing.

28.  Regarding the basement, the defendant pleads that it was entitled to effect changes to the passageway and the area of the basement and the changes did not interfere with the proper use and enjoyment of the Hotel Building.  It further pleads that the plaintiff’s right to go pass the right of way to access the common areas and common facilities under the covenant in clause 5 of the DCMA is subject to the defendant’s right to change the right of way.

29.  The defendant also pleads that the right of the plaintiff and hotel guests to use the car-lifts to go from the basement of 68 YWS to the plaintiff’s parking spaces on 4/F of the Hotel Building is unaffected by the changes in the basement.  The defendant also denies that the plaintiff or its guests have any right to use the parking spaces in the basement or on the 4/F to 6/F of 68 YWS.  It also pleads that the taking away of the loop in the basement does not materially affect the manoeuvring of vehicles in leaving the basement. 

30.  It finally pleads that even if it has breached the covenants, the court should still not order reinstatement because it would amount to destruction of good and substantial building works without material and/or sufficient countervailing benefit to the plaintiff.

31.  The defendant also has a counterclaim for the restoration of a right of way.  This right was over an area on the G/F of the Hotel Building.  It used to form part of the driveway coming out from the basement of 68 YWS to Irving Street.  The defendant’s access to this area is now blocked and part of this area now forms part of the driveway into the Hotel Building.

32.  The plaintiff in reply pleads that the defendant has failed to provide it with the approved building plans for the changes despite many requests.  It also seeks the restoration of the 1/F and the basement of 68 YWS on the ground that the works were without prior consultation with the plaintiff and the defendant knew of the plaintiff’s complaints to such works.  The defendant was thus in reckless disregard of the plaintiff’s rights in pursuing the works with speed in the face of the plaintiff’s complaints.

33.  Regarding the counterclaim, the plaintiff opposes it on the ground that the blocking of the defendant’s access was pursuant to an alteration of traffic flow on the G/F of the Hotel Building and the alteration was approved by the Buildings Department and the Transport Department.  The alteration of traffic flow and the cutting off of the defendant’s use of this right of way had been agreed to by the directors of the defendant’s predecessor Athlone which was a member of the same group to which the plaintiff belonged.  The blocking of the defendant’s use of the right of way also does not affect the proper use and enjoyment of 68 YWS.  The plaintiff further relies on laches and estoppel.

Site Visit

34.  A site visit was conducted in the afternoon of Wednesday, 10 December 2008.  There were over 10 persons in the party that included representatives from both sides.  The party entered the Hotel Building from its Irving Street entrance and walked over to the 68 YWS through the passage on the G/F outside the cake shop.  The party then went up the escalator to the 1/F of 68 YWS and went to the exit leading to the circular footbridge over Yee Wo Street.  The party then returned along the new right of way to Café Rivoli on the 1/F of the Hotel Building.  The party had no difficulty in walking through the whole way including the new passageway.  Despite it was two weeks before Christmas, there were not many customers in the department store on the 1/F and the place was not crowded at all.  The party then visited the 4/F of 68 YWS and inspected the plaintiff’s parking spaces.  Finally, the party went down by a car-lift to the basement and incidentally observed a wagon type private car backing out from a car-lift and made a 3-point turn in the manoeuvring area before driving away form the basement.  The driver did not appear to have any difficulty in the manoeuvring.

The plaintiff’s complaints of non-disclosure

35.  The plaintiff complained against the defendant for various non-disclosures.  They include the approved building plans for the works in the basement and the 1/F.  It also complained of delay in giving it the layout plans in May and June 2007.  It also complained that the defendant’s failure to inform it that the driveway and basement parking spaces would be closed.  It also alleged that he licence of the eight parking spaces in the basement to Chan Yiu Wo was a sham device.  It also complained that the defendant had failed to disclose to it that there was a licence between the defendant and GOD made in November 2007 that allowed GOD to use the new passageway on the 1/F as part of the department store.

36.  The defendant did suggest that the plaintiff had expressed that it had no objection to the works.  But this has not been established on the evidence.  I find that there was no prior consultation with the plaintiff on these works.  If the plaintiff can prove that the works were contrary to the covenants referred to above, then the defendant cannot argue that the works had been otherwise approved by the plaintiff beforehand.  The defendant’s failure to make prior disclosure of its plan of changes to the 1/F and the basement is relevant for the consideration of what relief should be given to the plaintiff if the plaintiff should succeed on liability.  I do not think the defendant can argue for damages to be paid in lieu of a mandatory injunction requiring restoration.  But the non-disclosure will not affect the resolution of the issue of liability.

Whether the defendant has exercised its right to change under clause 3(4) of the DCMA

37.  Despite the defendant’s right in clause 3(4) to change, modify or otherwise re-arrange the right of way, the plaintiff argued that the defendant had not validly exercised such right or pleaded in the defence that it had exercised such right.  If the defendant had not exercised the right to change, then the works would amount to infringement of the right of way.

38.  The plaintiff further submitted that the defendant had not specified what exactly was the new right of way that had been given to the plaintiff or the dimensions of the same.  Its stance is that a valid exercise of the right to change in clause 3(4) would require a new grant by a deed manifesting an unequivocal intention to exercise the right to change under this clause and clearly demarcating the new way.  That will provide certainty of the right of way and the plaintiff can enforce it in case of infringement.

39.  The defendant submitted that there is no stipulation of any formality or procedure in clause 3(4) for the defendant to exercise the right and the defendant could exercise the right simply by carrying out the alterations which it did.

40.  I do not agree with the defendant on this point.  I find that if the defendant would like to exercise the right to change, it should manifest its intention to the plaintiff in an unequivocal fashion and should indicate with certainty the location and dimension of the new way.  Otherwise, the plaintiff may encounter difficulty in enforcing it.

41.  The defendant further submitted that it had made known to the plaintiff the alterations to the passages and the plaintiff was aware of the same.  The defendant referred to the discussions between the parties before the works were implemented and to the plans given to the plaintiff from time to time which had the new passages clearly demarcated.  The defendant also submitted that its pleadings did refer to the defendant’s right to make changes under clause 3(4).

42.  I find that the defendant had indeed exercised the right to change under clause 3(4) regardless of whether it has gone beyond the permitted limit of change.  It has clearly manifested the intention to do so.  If it was not, I do not see any reason for it to have discussed the changes with the plaintiff or gave the plaintiff plans showing the changes albeit not prior to the commencement of the works.  I also find that the plaintiff was aware of the location of the new passages from the plans supplied by the defendant though the demarcations did not indicate the dimensions.  If the defence is read as a whole, the references to the right to make changes therein clearly indicate that the defendant was relying on such right in making the changes. 

43.  However, I find that the defendant had not exercised such right in a satisfactory manner.  If I should find that the plaintiff has not proved any breach by the defendant of clause 3(4) in respect of the changes to the rights of way in the basement and/or on the 1/F, I will require the new right of way to be properly documented in a form that can be registered at the Land Registry against 68 YWS.  I do not think I should treat the exercise of right by the defendant as a nullity though it was done in an unsatisfactory manner.

The agreement between the plaintiff and Favour Link,

44.  The defendant referred to the agreement between the plaintiff and Favour Link whereby the plaintiff leased its hotel business to Favour Link.  The consideration for the plaintiff is a base rent plus a variable rent which is calculated by reference to the profits but may or may not equate to the profits.  The defendant contended that Favour Link should be the plaintiff as the hotel business is run by Favour Link and it is Favour Link that needs the right of way.

45.  The plaintiff disagreed.  It is still the owner of the Hotel Building and hence the landlord of Favour Link.  It is entitled to sue as it is the owner of the dominant tenement of easement.  It also has the interest to ensure the proper use and enjoyment of the easement by Favour Link so that the plaintiff’s rental and the capital value of the Hotel Building are not adversely affected. 

46.  I think the plaintiff must be right.  The defendant’s argument is not meritorious.  I hold that the plaintiff is entitled to sue to enforce the right of way despite the Favour Link Agreement.

Construction of clause 3(4) of the DCMA

47.  The plaintiff submitted that under clause 3(4), the defendant is only entitled to re-arrange the right of way and the words “change” and “modify” are merely “species” of “re-arrange”.  I do not think the meaning of the clause is so narrow.  I think the intention of the clause is well served so long as the change, modification or re-arrangement does not materially interfere with the proper use and enjoyment of the Hotel Building.  I see no reason why the parties should have intended clause 3(4) to be read in the way contended by the plaintiff.  I see no reason why the defendant should be prevented from effecting any change or modification including abolition or removal of part of the right of way if it does not materially interfere with the plaintiff’s proper use and enjoyment of the Hotel Building.  I agree with the defendant that the words “change”; “modify” and “re-arrange” should be read disjunctively.

Applicable legal principle to determine if the defendant has breached clause 3(4)

48.  The plaintiff relied on B&Q Plc v Liverpool and Lancashire Properties Ltd (2001) 81 P&CR 246 at 255 to 257 for the general principle for determining an actionable interference:

“39.   What constitutes an actionable infringement of a right of way turns on well established principles.  They were most recently summarised by Mummery L.J. in West v. Sharp (already referred to) at p.332:

‘Not every interference with an easement, such as a right of way, is actionable.  There must be a substantial interference with the enjoyment of it.  There is no actionable interference with a right of way if it can be substantially and practically exercised as conveniently after as before the occurrence of the alleged obstruction.  Thus, the grant of a right of way in law in respect of every part of a defined area does not involve the proposition that the grantee can in fact object to anything done on any part of the area which would obstruct passage over that part.  He can only object to such activities, including obstruction, as substantially interfere with the exercise of the defined right as for the time being is reasonably required by him.’

…

45.     In my view … (1) the test of an actionable interference is not whether what the grantee is left with is reasonable, but whether his insistence on being able to continue the use of the whole of what he contracted for is reasonable; (2) it is not open to the grantor to deprive the grantee of his preferred modus operandi and then argue that someone else would prefer to do things differently, unless the grantee’s preference is unreasonable or perverse. …

…

47.     … (3) that if the grantee has contracted for the ‘relative luxury’ of an ample right, he is not to be deprived of that right in the absence of an explicit reservation of a right to build on it merely because it is a relative luxury and the reduced, non-ample right would be al that was reasonably required.

48.     In short, the test … is one of convenience and not necessity or reasonable necessity, provided that what the grantee is insisting on is not unreasonable, the question is: can the right of way be substantially and practically exercised as conveniently as before?”

49.  The defendant accepted the general principle, but further submitted that the issue in this action is not whether there was an actionable interference under the general principle, but whether the defendant had breached clause 3(4).  I agree with the defendant.  This case is not to be decided simply by reference to the general principle as clause 3(4) has its built in limit for the extent of change of the right of way.  The plaintiff, in order to succeed, must prove that the defendant’s works have produced a material interference with the proper use and enjoyment of the Hotel Building.

The plaintiff’s right under clause 24 and its effect on clause 3(4)

50.  Clause 24 provides that the plaintiff can require the defendant to provide any areas and/or facilities situate on 68 YWS for the plaintiff’s use for purposes connected with the proper use and enjoyment of the Hotel Building.  The plaintiff submitted that certain facilities of the hotel are located in 68 YWS.  The prominent ones are the car parks and car lifts.  It thus said that clause 24 was to ensure that such facilities could be used for the purposes of the Hotel Building.  But I note that there was no agreement between the parties that gave the plaintiff any preferential right to use any parking space in the basement of 68 YWS.  All parking spaces in the basement and the 4th to 6th floors used to be open to the guests and valet parking service of the hotel and members of the public on a first come first serve basis.

51.  The plaintiff contended that the “proper use and enjoyment of the Hotel Building” in clause 3(4) should extend to the plaintiff’s “proper use and enjoyment of the areas/facilities in 68 YWS as provided by the defendant under clause 24.  If this contention is correct, then any change to the right of way by the defendant pursuant to clause 3(4) should not result in a material interference with the plaintiff’s proper use and enjoyment of such areas/facilities despite they are inside 68 YWS. 

52.  The plaintiffcontended that the original parking spaces in the basement should have been provided to the plaintiff’s use under clause 24.  It therefore submitted that the removal of the circulation loop in the basement (which used to be part of the right of way) materially interfered with the proper use and enjoyment of these spaces.  It also said that some hotel guests drove long vehicles which could not get into the car lifts and had to use these spaces. 

53.  The plaintiff further submitted that the removal of the parking spaces increased the likelihood of cars using the car lifts to go upstairs and the potential of longer queues, longer waiting time and congestion.  It therefore submitted that the removal of the loop resulted in a material interference with the proper use and enjoyment of the Hotel Building.  This submission seems to say that irrespective of whether the original parking spaces in the basement should be available to the plaintiff under clause 24, the loop should not have been removed.  I will deal with this point later.  I now deal with the relationship, if any, between clause 3(4) and clause 24.

54.  Clause 3(4) expressly limits the change of the right of way to the extent that it shall not materially interfere with the proper use and enjoyment of the Hotel Building.  The definition of the Hotel Building does not extend to any areas/facilities within 68 YWS whether to be provided under clause 24 or otherwise.  By definition, the limit of change to the right of way does not cover the use and enjoyment of the areas/facilities within 68 YWS that may be provided under clause 24.  To extend the limitation in clause 3(4) to such areas/facilities will involve the re-writing of clause 3(4) and I will not do so.  Whether clause 24 can be upheld is an issue in this action.  If it can be upheld, it has its own machinery for the parties to reach reasonable arrangement for the proper use and enjoyment of the areas/facilities to be provided thereunder.  I therefore hold that the limit of change in clause 3(4) only applies to the use and enjoyment of the Hotel Building and not any areas/facilities that may be provided under clause 24, if any.

Construction of clause 24

55.  It is the plaintiff’s case that under clause 24, it can require the defendant to provide the parking spaces that were original in the basement for purposes connected with the proper use and enjoyment of the Hotel Building.  But the defendant submitted that this clause is merely an agreement to agree and is void.  The defendant alternatively submitted that there are implied terms to this clause and, by reason of which, the defendant’s works in the basement have not resulted in any breach of this clause.

56.  The plaintiff’ contention is that clause 24 requires the defendant to provide the areas/facilities “insofar as it is within the defendant’s power to do so”.  Other terms like rental and duration should be governed by the prevailing market and can be decided by arbitration.

57.  The defendant argued that this clause leaves a lot of uncertainties to be agreed upon and is therefore an agreement to agree.  The defendant submitted that there is no mention of the circumstances that the plaintiff may make the requirement to the defendant.  It further submitted that clause 24 could not have required the defendant to provide any areas or facilities at any time under any circumstances.  It also referred to instances where the areas/facilities may already be leased/licensed to third parties or used by the defendant for its proper operation or administration of 68 YWS.  It also referred to the situation in the basement where some parking spaces had been converted to a retail shop before the plaintiff had demanded the use of the parking spaces under clause 24.

58.  I do not think these arguments of the defendant are enough to make clause 24 void for uncertainty.  The circumstances under which a demand can be made must be where there is in existence a purpose of the plaintiff which is connected with the proper use and enjoyment of the Hotel Building or the hotel business therein as a tariff A hotel.  But it should not be connected with the business of the hotel as carried on in any areas/facilities in 68 YWS pursuant to clause 24.  Otherwise, clause 24 will spin off further needs by itself.  It should also not be for expansion of the hotel business like the opening of more restaurants or function rooms.  It has to be for a purpose that is necessary for the operation of the Hotel Building or the hotel business therein as a tariff A hotel.  Otherwise, the meaning of clause 24 will be too vague.

59.  Regarding the illustrations by the defendant, I think they can all be resolved by the implied term suggested by the plaintiff, namely the clause should be limited by “insofar as it is within the defendant’s power to do so”.  If the areas/facilities should be leased/licensed to third parties, the defendant should terminate the lease/licence as soon as it is lawfully practicable.  If the areas/facilities are used by the defendant for its own legitimate purpose in connection with its own operation or the administration of 68 YWS, then it need not satisfy the plaintiff’s demand.  I do not think clause 24 should require the defendant to sacrifice its own interest to facilitate the business of the Hotel Building.  The absence of reciprocal provision in the DCMA in favour of the defendant is not enough to warrant such interpretation.  The lack of reciprocity might be because of no anticipation of reciprocal need.  Furthermore, if before the plaintiff has made a demand, the defendant has already changed the construction and design of an area/facility in 68 YWS which changed its user, then the plaintiff cannot require the defendant to restore the previous user of the area/facility by restoring its construction and design.  Otherwise, the defendant’s right of ownership over 68 YWS would be unreasonably subordinated.  This is so even if the costs of restoration should be borne by the plaintiff.  I also do not think clause 24 would impliedly impose an obligation on the plaintiff to consult the defendant before proceeding with any change of user of its area/facility to prevent the need for restoration.  The purpose and intent of clause 24 cannot give rise to such onerous implied term.  Such term subordinates the defendant’s right as owner of 68 YWS and it is unreasonable to imply it.

60.  The defendant further argued that if clause 24 should be enforceable, it is only available to the plaintiff but not to Favour Link.  I do not agree.  I think the plaintiff can invoke clause 24 if there is a purpose that is connected with the proper use and enjoyment of the Hotel Building despite the hotel business being run by Favour Link.  The plaintiff has an interest to see that the hotel business is being run by Favour Link successfully as it stands to benefit from it.

61.  In the premises, I hold that the plaintiff cannot in November 2007 invoke clause 24 to require the defendant to restore the basement to what it was before the commencement of the works in May 2007.  I will consider below the separate question of whether the plaintiff can require restoration of the loop in the basement pursuant to clause 3(4) of the DCMA.

Construction and application of clauses 5(3)(a) and 5(3)(c)

62.  The plaintiff submitted that clause 5(3)(c) should be subject to clause 5(3)(a) and the defendant should keep the right of way as a reasonably free and unobstructed access to and from the common areas and common facilities.  Its position seems to be that the defendant cannot alter or remove any part of the right of way if it is an access to and from the common areas and common facilities, but the defendant must keep it reasonably free and unobstructed.  I think such construction of clause 5(3)(c) is unnecessarily restrictive. 

63.  The purpose of clause 5(3)(c) is to give the defendant the right to change, modify or otherwise re-arrange any part of the right of way so long as it keeps the access to and from the common areas and common facilities reasonably free and unobstructed.  I think the defendant under this clause can alter or remove any part of the right of way so long as there remains a reasonably free and unobstructed access to the common areas and common facilities.  However, it is possible to have an alteration or removal of part of the right of way that can satisfy clause 5(3)(c) but not clause 3(4) and vice versa.

64.  On the construction of clauses 5(3)(a) and 5(3)(c), I do not think the defendant’s works have infringed clause 5(3)(a) on the 1/F or the basement.  The access by the right of way to all the common areas and common facilities on both floors (including the car lifts in the basement) are still reasonably free and unobstructed after the defendant’s works although there are some changes in the routes and/or direction of access.

Construction and application of clause 23

65.  The plaintiff contended that the meaning of the Hotel Building should include the right of way owned by it in 68 YWS.  It sought support for this contention by referring to the interconnection and interdependence of the two buildings. 

66.  The plaintiff then built upon this contention and further submitted that if any change, alteration or amendment of the approved building plan for 68 YWS would affect the plaintiff’s right of way in 68 YWS, such change, alteration or amendment should also be subject to the plaintiff’s prior agreement under clause 23 regardless of whether they would result in any interference with the proper use and enjoyment of the Hotel Building.

67.  I think this construction requires the rewriting of the definition of the word “building” in the DCMA.  That is not permissible.  Clause 23 as drafted is only engaged if the change to the approved building plan for 68 YWS would affect the Hotel Building itself.  It will not be engaged if only the plaintiff’s right of way in 68 YWS is affected.  The plaintiff’s right of way in 68 YWS is not part of the Hotel Building. 

68.  I find that the changes, alterations and amendments to the approved building plans which were made by the defendant for the works at the basement and the 1/F of 68 YWS need not be consented to by the plaintiff under clause 23 regardless of whether they might have affected the plaintiff’s right of way in 68 YWS.  The reason being that they do not affect the Hotel Building.  The defendant has not breached this clause in not seeking the plaintiff’s prior agreement for these changes.

The plaintiff’s case on the works on the 1/F

69.  The plaintiff said that the right of way on the 1/F was intended to provide a well-defined access and passageway to the hub of the Causeway Bay shopping area.  It asserted that the access to the Hotel Building via the 1/F of 68 YWS is critical to the hotel business as it connects the hotel to the other side of Yee Wo Street which is the commercial and retail area of Causeway Bay.  The contemplated users of the way included the hotel guests.  It was a corridor clearly demarcated by shop fronts.

70.  The plaintiff therefore submitted that the parties did not intend that the defendant could emasculate the distinctiveness of the passage by incorporating it into an open shop or a supermarket.  It further submitted that as a result of the works and the occupation by GOD, the distinctiveness of the passage was eliminated completely.  It became a space between merchandises in an open plan store.  The plaintiff further referred to the reduction in area of the right of way by about 20% from approximately 249.70m² to approximately 199.97m².  The width of the way at one point next to the escalators was approximately 5.8 metres before the works.  But that was emasculated after the works.  The way after the works had a width of 2.4 metres at its widest and 1.11 metres at its narrowest as restricted by the merchandise placed there.  The plaintiff further said that there were also merchandise, display racks, counters, structures, mannequins, cabinets etc. as well as milling customers and sales and/or retail staff.  A defence witness Mr Yip of the building manager frankly agreed that there were frequently counters, racks, or mannequins or simply merchandise being placed somewhere along the new passage.  The width of the passage connecting the escalators and the entrance to Café Rivoli was at 2.05 metres.

71.  The plaintiff also referred to occasions of interviews of artistes and singers at the passageway.  The crowd gathered there and the equipment used for the event caused further blockage for 2.5 to 3 hours each time.  The plaintiff also complained that at the commencement of this action on 24 July 2007, part of the contemplated new passage was a very narrow fire escape route.  But I note that that was only a proposed route.  There is no evidence that the new passage indeed had to go through this five escape.  On 18 July 2007 the plaintiff was complaining that the 1/F was in an undesirable bare-shell condition as all hoardings had been removed.  The 1/F was also handed over to GOD on 14 July 2007 for internal fitting out works which took place until January 2008.  But the defendant had on 30 August 2007 already proposed a revised passage which had the additional straight passage of 2.05 metres wide linking up the escalators with Café Rivoli and running parallel to the fire escape.  It seems that when the new passage was completed, it did not have to go through the fire escape.

72.  I also note that in the course of the fitting out of the 1/F, the passage might have undergone some other temporary change as guarded by hoardings.

73.  The plaintiff’s executive director and senior vice-president for sales and marketing, Mr Siu gave evidencethat the guests of the hotel and in particular tourists had experienced difficulty in finding their way to and from the hotel and the elevated footbridge.  This was due to the cluttered layout of the shops and stalls then located in the passage.  Comparing with the situation before the works, he said it was much more confusing to direct the guests to go from the hotel to Sogo Department Store.  He also said that the effect of this was particularly pronounced for the hotel as many of its guests were from the Mainland who came here for shopping and eating.  A clear and convenient connection of the hotel with the retail heart of Causeway Bay was of particular importance for the hotel.  Mr Siu also referred to the figures of Mainland visitors to Hong Kong and the hotel guests from the Mainland.  He said the hotel’s performance fell badly from August 2007 onwards and he regarded the change of the passage on the 1/F as one of the reasons for this.  He also attributed part of the reasons for the reduction in patronage to Café Rivoli to the change in the passage and the reduction in hotel guests from the Mainland.

74.  The plaintiff thus submitted that the works on the 1/F had resulted in a material interference with the proper use and enjoyment of the Hotel Building.  The plaintiff also referred to the licensing by the defendant of the revised passage to the GOD for its use as part of the department store.

75.  The plaintiff submitted that as a matter of law, the defendant should be liable for the nuisance and obstruction by GOD as the defendant knew or ought to have known that the letting for use as a department store was likely to result in such obstruction or nuisance.

76.  Regarding the site visit, the plaintiff submitted that there were some frantic packing at and tidying up of the surroundings of the new passage before the visit.  Mr Yip of Savills, the building manager also admitted that whenever he was informed of a VIP visit, whether it be by his clients or by his senior management, he would ask his staff to ensure that the passages were clear and tidy.  The plaintiff thus submitted that what was revealed in the site visit was a set of deliberately sanitised surroundings which did not reflect the day-to-day situation as conceded to by Mr Yip and referred to above.

The defendant’s case on the works on the 1/F

77.  The defendant’s Mr Lee gave evidence that the original passage on the 1/F of 68 YWS was dark, in a poor state of decorative repair and hardly used by members of the public or hotel guests.  He said there were at a time a significant number of units on the G/F to 3/F and the office tower above that were unlet and the overall occupancy was low.  There was a renovation of the office lobbies in 2004 and the occupancy of the office tower improved.  But the occupancy for the podium was still unacceptably low.  It was at 38% in early 2007.  He also produced a chart on the occupancy of the podium from September 2003 to July 2007.  The situation from October 2006 onwards was indeed poor.  The defendant therefore wanted to upgrade 68 YWS to attract new tenants and to improve the income stream.  Another reason for the works was because of a tenancy with GOD for the G/F to 2/F of the podium.  GOD would renovate the podium to a high standard of finish. 

78.  The low occupancy of the podium before the works seems to be undisputed as one Mr Kwan of the plaintiff wrote to the defendant on 16 March 2007 and commented that:

“According to our observation, we do not see any new tenant taking up any of the vacant shops of the arcade in the past 12 months.  On the contrary, the vacancy problem with the arcade seems to have become worse. …

… sluggish demand for shops in 68 Yee Wo Street, as evidenced from the extremely long lasting void period of the vacant shops.”

79.  Mr Lee also said the works involved the rerouting of the passage and the conversion of the shopping arcade style layout to an open plan “life style” department store operated by GOD.  There were a number of passages leading to various retail and restaurant areas and other facilities. 

80.  The defendant submitted that the works did not result in a material interference with the proper use and enjoyment of the Hotel Building.

81.  The defendant referred to the reduction in the total area of the new passage which was 4% smaller than the original one.  The defendant submitted that the reduction was mainly due to the reduction of the length of the passage.  For the reduction in the minimum width, it was from 2.26 metres to 2.07 metres and was said to be insignificant.  The straight passage leading from the entrance of Café Rivoli to the escalators was at 2.05 metres and was unobstructed and in good and pleasant condition.  The large party of over 10 persons in the site visit did not find that the new passage had posed any problem, inconvenience or congestion. 

82.  The defendant also referred to the licence of the passage to GOD.  It was for GOD’s non-exclusive use and required GOD to observe and comply with the DCMA and any right of way to which the defendant was a party.  It also required the passages and corridors to be kept free from obstruction and not to hamper or obstruct access or use by others.  This licence had also been terminated on 19 May 2009.  Assuming that GOD would comply with the stipulation in the licence agreement, the new passage was just as good and convenient as the original one.

83.  The defendant further submitted that it was entitled under the DCMA to change the layout of the 1/F from a shopping arcade to an open plan store.  I think this must be right.

84.  Regarding the waiting area outside the lifts, they remained the same after the works except that the passage outside those lifts that did not open on the 1/F was blocked off.  I am of the view that the alteration, if any, to the lift lobby areas should have been approved by the Building Authority as it was a matter of flow of persons in the building and is a safety issue.  Furthermore, I do not think the defendant would have made the lift lobby inappropriately narrow or small as, apart from some hotel guests who may wait for lefts there, there are many people who would wait for lifts there for going to the other floors of the podium and the office tower above.  It is obviously in the defendant’s interest not to make the lift lobby narrow and small which may attract complaints from its tenants.  In any event, I do not think the plaintiff has really pursued any complaint about the mere reduction in waiting area at the lift lobby save by including the reduction in the calculation of the area in the new passage.

85.  The defendant then pointed out the lack of any concrete evidence from the plaintiff on the frequency of use of the 1/F passage by the hotel guests for accessing the elevated footbridge, Café Rivoli or other parts of the hotel prior to the works.  This is indeed true.

86.  The defendant further referred to the following to say that the access via the elevated footbridge to the hotel was not a significant one.  It referred to the various accesses to the hotel.  There is the main entrance facing Irving Street where there is also the vehicular entrance for private cars and tour coaches.  There is the entrance at the side of Yee Wo Street on the G/F which is opposite the main entrance.  There is an entrance from the ground floor of 68 YWS through the cake shop, there is then the entrance through the 1/F of 68 YWS to the back of Café Rivoli and the entrance from the 3/F of 68 YWS to the Chinese restaurant of the hotel.  There are a total of 5 access ways.

87.  For Café Rivoli, its main entrance is via a marble staircase coming up from the G/F.  Those who go there by car would normally use this way to go up to the café.  The reception desk of the café where guests wait to be seated by the hotel staff is at the main entrance.  For those who go through the 1/F of 68 YWS to the back of the café, they have to walk through the café to reach the reception desk in order to be seated.  The entrance to the café via 68 YWS is not well decorated and passes through toilet entrances.

88.  The building manager Savills also conducted a survey on 5 September 2007 to 12 September 2007 and from 3 October 2007 to 28 October 2007.  It showed that there were on average only about 11 guests per day entering the back of the café via 68 YWS.

89.  For those who work in the office tower of 68 YWS, they would of course know the way even after the rerouting.

90.  The guests to the café would generally be those who know where it is and intend to go there rather than those wandering in the area.

91.  The main access to the fine dining Italian restaurant Zeffirino on the 31/F of the Hotel Building would be via the hotel lobby and the hotel lifts especially for those who go there by car.

92.  For the Chinese restaurant of the hotel on the 3/F, access can be by the lifts and the hotel lobby, the lifts in 68 YWS and the escalator of 68 YWS.

93.  There is also a paper published by the Government on a public consultation between June to August 2004 on the pedestrian plan for Causeway Bay.  The Government paper stated that the usage of the elevated circular footbridge was low and its removal would:

“help to open up the visual corridor along Hennessy Road/Yee Wo Street, reduce long term maintenance costs for an under-utilised footbridge and help keep pedestrian movement at street level where there is better surveillance of activities”. 

The plaintiff has produced evidence to rebut the allegation that the Governmentintended to remove this footbridge, but the Government’s view that it is under-utilised has not been rebutted.

94.  The defendant also submitted that there is no credible evidence that a substantial number of hotel guests had used the elevated footbridge to access the centre of Causeway Bay or vice versa.  If one would like to use the footbridge, one would have to climb and descend a number of steps.  There are also many domestic helpers sitting on the side of the circular walkway during Sundays and public holidays and one has to navigate round them.  For the ground level crossings at Pennington Street and Yee Wo Street, there is no need to climb any step, but one has to wait at the traffic lights.  The defendant therefore submitted that it was merely a matter of personal preference on which way to use and the evidence of Mr Siu of the plaintiff that the footbridge was the only convenient, quick and safe crossing to the other side of Yee Wo Street is misleading.

95.  The defendant also submitted that the plaintiff had exaggerated the alleged difficulty of hotel guests to find their way to and from the elevated footbridge.  Regarding the enquiries by the hotel guests at the café or hotel lobby on how to get to the other side of Yee Wo Street or how to go from the footbridge to the hotel, the defendant submitted that these enquiries did not necessarily mean that the rerouted passage was any less convenient than the original one.  First time guests would have naturally enquired for the way as they would not be aware of the 1/F passage or the elevated footbridge or the access to the café via 68 YWS.  The Defendant also referred to the display board at the entrance of the footbridge showing the direction for the major facilities of the hotel.  There was also a sign above the passage showing the direction to the café and a glass directory on the side of the passage showing the whereabouts of the facilities of the hotel.

96.  Furthermore, with the open plan layout, it was easy for people coming in from the footbridge to see through to the escalators or the direct passage to the café.  The concierge of the hotel would also have provided maps to its guests to show the available routes to the shopping areas of Causeway Bay.

97.  The defendant thus submitted that the works which revised the original passage to the new passage did not materially interfere with the plaintiff’s use and enjoyment of the Hotel Building.

Analyses and findings on the works on the 1/F

98.  The plaintiff’s evidence on the importance of the way through the 1/F of 68 YWS is mostly by assertions.

99.  Though the plaintiff is not expected to have conducted any headcount of hotel guests using the various access ways before the works, the staff of Café Rivoli and the staff at the concierge or reception desk could have given more concrete and direct evidence on the preference of the guests.  The staff of the café could have said how many people would have come into the café at the back via 68 YWS.  The staff of the concierge/reception could have said how they had told the hotel guest to go from the hotel to Sogo before the works and which was the most or more preferred route of the guests, if any.  They could also have revealed what difficulty did the new passage create, if any, and how did they deal with it.  They could also say if the problem was resolved by the provision of maps or other means or whether it was unresolved and why or that the guests just used the crossing on the ground level of Yee Wo Street.

100.  I understand the plaintiff’s argument that it was entitled to a clear passage and the need for maps just showed that the interference was material.  That may be so.  But if the new passage indeed created a problem which had been resolved by maps or by advising the guest to cross Yee Wo Street to Sogo, then regardless of the plaintiff’s entitlement to restoration of the old passage, it would not have suffered the loss that had been allegedly caused by the new passage.  It is only when the problem could not be solved and some people were driven away from the hotel so that the hotel would suffer a loss in business.

101.  Mr Siu’s evidence is really too general and does not indicate the frequency of use of the access way on the 1/F of 68 YWS.  I also note that the plaintiff has called an attendant of the valet services of the hotel to give evidence on the issue of parking.  There is no explanation for not calling the staff of the café or the concierge/reception.

102.  There are several access ways to the island lot of the Hotel Building and 68 YWS.  The passage via the elevated footbridge involves the climbing and descend of stairs of the footbridge.  The other ways are all on the ground, but there are traffic lights which may require waiting.  The footbridge only goes to the Sogo area and is not a convenient way to the other shopping areas like Jardine’s Bazaar, Lee Gardens and the Time Square.  There is also the headcount taken by Savills in September and October 2007 which showed a small number of people going to Café Rivoli through the 1/F of 68 YWS.  The reception arrangement at the café was also not gear at guests coming in at the back through 68 YWS.  There is also the lack of reliable evidence on the preference of hotel guests to use the passage on the 1/F of 68 YWS.  On the whole, I find that the plaintiff has failed to establish that the original passage for the right of way via the 1/F of 68 YWS was a critical access to and/or from Café Rivoli and/or elsewhere of the hotel.

103.  I now consider whether the changing of the passage for the right of way had resulted in any material interference with the plaintiff’s use and enjoyment of the Hotel Building.

104.  There were three sections of the new passage.  One was a straight and unobstructed passage leading from the entrance of the back of the café to the escalators.  The width was about 2.05 metres.  There were some paintings hung on the sides by GOD.  They were for sale and would be taken down after the business hours of GOD.  This part of the passage was normally free and unobstructed.  The next section ran from the escalators straight to the west end of 68 YWS.  The last section was a shorter one that ran from the west end of the 2nd section northward to the exit of the building and onto the footbridge.  The 2nd and 3rd sections had a total length of about 41 metres as measured by the defendant’s valuers.  The new passage no doubt was not as distinctive as the old one which was guarded by shop fronts on both sides.  However, it was not a long or convoluted way. 

105.  I accept the plaintiff’s case as supported by the evidence of Mr Yip that there were at times merchandise, display racks, counters, structures, mannequins, cabinets as well as willing customers and staff of the department store present at or close to the new passage.  The department store was a life style store operated in an open plan.  But I do not think that all these things would be there at all time.  If that were the case, it would be difficult for the customers of the store to shop around and that would not benefit the store.  I think there must have been space for people to move around and to appreciate the merchandise.  I also do not think it difficult for one to find the way from the escalators to the exit to the footbridge.  It was a straightway from east to west followed by a right turn.  There were also direction signs and display boards.  I reiterate that there is no direct evidence from the hotel staff responsible for answering enquiries on what were the problems with the new passage, if any, and how did they solve it or why it could not be solved.

106.  I also do not think that the width of the new passage was not wide enough bearing in mind the low usage of the access to the café and the lack of evidence on the frequency of hotel guests go through it to Sogo.

107.  Regarding the promotion activities of GOD which attracted crowds around the new passage, they took place on only a few occasions each lasting for about three hours when the department store was opened in early 2008.  There is no evidence of likelihood of repetition.  The original way is now restored and the 1/F is no longer occupied by GOD.

108.  Regarding the photographs depicting the surroundings of the new passage in the morning of 10 December 2008 before the site visit and the subsequent clearance, Mr Yip of the building manager explained that there was a clearance sale by a consignment partner of GOD in the department store.  There were about 200 cardboard boxes to be moved to the 1/F and unpacked there for the sale.  This operation was shown in some photographs produced by the plaintiff.  I accept Mr Yip’s explanation.  What was depicted in the photographs was a scene with cardboard boxes all over the place.  It looked more like a warehouse than a department store.  I do not think a department store would have things organised in such manner.  I think it must have been a temporary situation and Mr Yip’s explanation is credible. 

109.  The plaintiff has also provided some other photographs taken at the 1/F at different times.  But many of them were taken with the use of a fish-eye lens that resulted in distortion of the situation.  They are therefore not a reliable means to depict the situation on the 1/F.

110.  I find that the new passage was not significantly more difficult to go through than the original one.  One might have to spend an extra minute to walk pass it.  But it was certainly easier to walk through than the crowded pavements in Causeway Bay particularly at the shopping areas.  I do not think those hotel guests who preferred the access through the 1/F of 68 YWS to Sogo would have avoided it simply because it was within part of the open plan department store and he could not walk through it briskly.

111.  I also do not think that those who would go to Café Rivoli through 68 YWS would be deterred by the new passage.  Most of these people should know the way already. 

112.  Regarding the licensing of the new passage to GOD, I find that the covenants were a proper way to ensure that GOD would keep the new passage relatively free and unobstructed.  The building manager which was also the DCMA manager also had the duty to ensure GOD’s compliance with the covenants.  I do not think it fair to find that the defendant knew or ought to have known that the licensing of the new passage to GOD in those terms would result in material interference with the plaintiff’s use and enjoyment of the Hotel Building.  This is particularly so given the low usage rate for access via the 1/F of 68 YWS to Café Rivoli and the lack of evidence on usage of this passage as a way to Sogo.  I therefore find that the works on the 1/F did not materially interfere with the proper use and enjoyment of the Hotel Building.

The plaintiff’s case on the works in the basement

113.  I have already held that the plaintiff cannot rely on clause 24 to demand restoration of the parking spaces in the basement.  I now consider whether the plaintiff can require restoration of the loop by relying on clause 3(4).  Mr Siu said that changes to the parking spaces at the basement affected significantly the à la carte dining business of the Chinese restaurant.  The figures he produced no doubt showed a 13.5% drop in 2008 in terms of food cover for à la carte service.  But he did not say that these changes had also affected the business of Zeffirino, the fine dining restaurant.  Zeffirino in fact recorded a 2.2% increase in food coverage and a 32.4% increase in total revenue.  The disparity between the increase of food coverage and that of total revenue may be the result of price hike in 2008 in Zeffirino.

114.  If à la carte dining in the Chinese restaurant should be affected by the cancellation of parking spaces at the basement, I cannot see why fine dining at Zeffirino should not have been adversely affected as well.  I also doubt whether the à la carte dining in the Chinese restaurant would indeed be significantly affected by the availability of parking at the basement as most people would consume some alcohol when they savour the delicacies at restaurants.  Alcohol would make them unfit to drive. 

115.  Furthermore, the parking spaces in the basement were open to the public, the hotel guests and the hotel valet service without priority to any one.  For the hotel, there were the Chinese restaurant, the Italian restaurant Zeffirino and Café Rivoli.  The total number of guests to these outlets in 2007 was 353,000 or an average of 967 persons per day.  But there were only 16 parking spaces for all these guests and the public.  Nevertheless, the average number of parking at the basement with the hotel coupons from January 2006 to April 2007, which was before the commencement of the works, was 2.4 only.  The total number of parking at the basement with the hotel coupon during the same period was at 1,158 whilst the total number of parking at the basement during the same period was 18,616.  Parking at the basement with hotel coupons only constituted 6.22% of the overall parking.

116.  There are some arguments on whether the parking charges paid by the plaintiff for the parking coupons were indicative of the number of hotel guests using the parking spaces in 68 YWS.  I accept the plaintiff’s argument that the hotel coupon policy was a flexible one for attracting guests and could be adjusted in accordance with the hotel’s marketing policy.  I therefore do not rely on the defendant’s evidence and argument as based on the parking changes incurred subsequent to the commencement of the works in May 2007.

117.  Since some of the parking spaces and part of the loop have now been converted into a shop.  Vehicles backing out from the car-lifts cannot drive into the loop and leave the basement from the other side.  They now have to back out and make a 3-point turn in front of the car-lifts before driving away.  That was what the site visit party had observed during the visit.

118.  It is possible that a less experienced driver may have to make a 5-point turn before driving away.  The plaintiff submitted that unlike the past when outgoing vehicles could have left quickly and incoming vehicle could get into the lifts without waiting for long.  After the works, an incoming vehicle may have to wait longer whilst an outgoing vehicle is making the turn.  The waiting can be longer if there are more than one vehicle leaving and/or coming in.

119.  The plaintiff further submitted that the situation is dangerous and inconvenient.  It also referred to an accident on 26 June 2008.  I do not think the situation is dangerous as the alteration in the basement has been approved by the Building Authority.  The Building Authority before giving the approval would have in accordance with its standard procedure consulted the Transport Department.  The accident also cannot by itself prove that the basement is dangerous.  The plaintiff’s valet service attendant, Mr Chan Yue Sheung, who used the defendant’s parking floors almost everyday, did not say that the situation was dangerous.

120.  The plaintiff also submitted that the use of the 8 newly arranged parking spaces together with vehicles getting in and out of the lifts and drivers/passengers going to and from passenger lifts would result in a dangerous situation.  Since the situation has been approved by the Building Authority, I do not think it is a dangerous one.  I also do not think any reasonable driver would drive fast or not to take heed of other vehicles/persons when manoeuvring in the basement.

121.  On the question of inconvenience, the plaintiff also referred to my provisional view after the site visit that at busier times, the new arrangement would create some material interference with car users as people may have to wait before getting into the lifts.

122.  Regarding the hotel valet service, the plaintiff relied on the evidence of Mr Chan Yue Sheung.  Mr Chan said that before the works, he could park a car in or retrieve one from the basement within 5 minutes.  If on rare occasions when he had to park or retrieve a car from upstairs, it would have taken no more than 10 minutes.  However, after the works and without any space in the basement, it took him more than 10 minutes to park or retrieve a car.  There were occasions that he had to spend 20 to 30 minutes for the task.  He had also received complaints from customers for the long wait for getting back their cars.  Some regular customers told him that they would not come back because of the long wait. 

123.  After the works and because of the elimination of the loop, he had to do a 3-point turn before he could drive away.  He needed 30 to 45 seconds to make this turn.

124.  The situation was worse during peak hours or functions or banquets in the hotel when all three car-lifts might be used and more cars were waiting to do the 3-point turn.  As a result, there were long queues of vehicles extending into Irving Street.  There was no such queue prior to the works.  Furthermore, without the basement spaces, long vehicles which could not get into the car-lifts would not be given valet service which resulted in customer dissatisfaction.

125.  The plaintiff thus submitted that the basement works had resulted in material inference with the use and enjoyment of the Hotel Building.  The plaintiff also produced two complaint letters from its customers dated 19 and 20 July 2007.

126.  The plaintiff also referred to certain measure taken by the building manager for driving in and out of the car lifts so as to improve the exit of vehicles from the car-lifts at the basement.  Such measure was later abandoned.  The plaintiff submitted that such measure was to create a false picture that the abolition of the loop only created limited impact.  I do not share this view.  I think it was just an attempt by the defendant and the building manager to see if the situation at the basement could be made better.  I do not think anyone collecting data of waiting time would just consider the waiting at the basement and ignore the waiting upstairs.

127.  The defendant also purportedly licensed all of the eight newly arrangement spaces at the basement to Mr Chan Yiu Wo, a member of its staff.  This resulted in the unavailability of the spaces to the public its tenants and the hotel (save perhaps the karaoke in 68 YWS).  The plaintiff said that the licence was a sham.  I think it may well be a sham as no payment was made by Chan Yiu Wo and he received nothing for the karaoke’s use of the spaces.  The defendant admitted that the purpose of the licence was to take the basement spaces out of service so as to reduce traffic overall.  This licence has been terminated on 19 May 2009 and three of the eight new spaces have now been licensed to the plaintiff.

128.  The plaintiff also referred to the refusal of the building manager to the collection of data at the basement by its traffic expert without prior notice.  The plaintiff submitted that such was to make sure that the situation could be made smooth before data was collected.

The defendant’s case on the basement works

129.  The defendant’s evidence is that even before the works, some drivers coming out from the car-lift nearest to the wall also had to do a 3-point turn before driving into the loop.  Mr Chan Yue Sheung of the plaintiff also accepted that such was necessary on some occasions.  The defendant also submitted that the evidence of Mr Fan of the plaintiff that the situation was deplorable and could deteriorated into a deadlock was unsupported by first hand knowledge and was grossly exaggerated.  I note that Mr Chan Yue Sheung’s evidence in cross-examination and re-examination in respect of the situation after the completion of the works certainly does not support Mr Fan’s assertions.

130.  For the situation before the works, Mr Fan also accepted that during weekdays, there were only seven to eight cars of hotel guests parked in 68 YWS.  Mr Chan Yue Sheung in cross-examination said he parked vehicles in 68 YWS three to eight times a day before the works.  The parking figures disclosed by the building manager also showed that between January 2006 to April 2007, there were an average of 2.4 cars parked at the basement and 4.5 parked upstairs by the hotel per day.  There were thus on the average about 7 cars parked there per day with more parked upstairs.

131.  The defendant also referred to the lack of complaint by hotel guests specifically on the removal of the loop or any problem in using the car park after works.  But I do not know if the guests were aware that they could make such complaint to the hotel when 68 YWS did not appear to be in common ownership or common management with the hotel.  Nevertheless, Mr Chan Yue Sheung only received three complaints.  The plaintiff also produced two complaint letters by customers.  They were dated 19 and 20 July 2007 and this action was started on 24 July 2007.  That was the time when the works were still in progress.  There was no further complaint letter.

132.  The defendant referred to Mr Chan’s evidence in cross-examination and re-examination.  Mr Chan said some regular customers of the Chinese restaurant and Zeffirino had not come back.  The defendant submitted that he did not know why the regulars did not come back and that they might have come back at times and by access that he was not aware of.  I also note that despite Mr Chan’s evidence, Zeffirino had an increase of 2.2% in cover in 2008 over 2007.

133.  For the three long queues described by Mr Chan, they all happened between June and September 2007 and Mr Chan was in one of them.  But he did not know and did not find out what caused the formation of the queues.  He could not say if it was because of congestion at the lifts or an accident or any other reason.  There were (and are) also seven waiting spaces on the ramp leading down to the basement for vehicles to wait.  Mr Yip of the building manager said he parked his vehicle in the basement three to four times per month and never saw any prolonged delays with cars waiting for the lifts whether as a result of the works or otherwise. 

134.  Mr Chan also agreed that blockage or congestion actually did not happen often.  He also admitted that the extra time required for him to retrieve a car was really because he could not park in the basement.  Mr Siu also agreed to this.  The defendant therefore submitted that even if the loop should be restored but without the parking spaces at the basement, the demand for parking upstairs would remain the same and the waiting time not shortened.

135.  Mr Chan also said in re-examination that the usage of the spaces upstairs was more or less the same before and after the works with a little bit more usage after the works as there was no more space in the basement.  But there was no problem of availability.  There are 92 spaces on the 4/F to 6/F.  Mr Chan’s evidence is in line with the figures on parking disclosed by the building manager.  The figures of the building manager in fact showed that there were slightly more parking per month from May to September 2007 (when no space was available in the basement) than the same months in 2006 (with parking in the basement included).  The numbers for October to December 2007 were slightly less than those for the same months in 2006.  It seems that the removal of the loop had little effect on the overall patronage of the parking spaces in the first five months after the removal.

Analyses and decision on the basement works

136.  Regarding the question of safety, I have already found against it.  On the evidence of Mr Chan Yue Sheung, I find that there were some occasional problems of congestion on parking at 68 YWS from about July to September 2007 when the works were being undertaken.  But such problems appeared to be quite occasional as Mr Chan only witnessed three such occasions.  There is no evidence of such congestion since October 2007 onwards.

137.  The two written complaints by the plaintiff were dated 19 and 20 July 2007.  There were no subsequent written complaints.  There were also only three oral complaints made to Mr Chan since July 2007.  According to both Mr Chan and Mr Siu, the longer waiting time was because of the need to wait for the lifts.

138.  Mr Chan also agreed that blockage or congestion was not often and there was no problem of availability.  That means the access to the car park upstairs was more or less the same as before when the loop was still there.  The removal of the loop therefore did not have a significant effect on waiting time.  It might have produced a short delay for driving out because of the need to do the 3-point turn.  But driving round the loop would also have required some time.

139.  I note that the eight spaces in the basement may be made available for parking as well.  But there is no evidence that the addition of these eight spaces will produce a material change in the traffic situation at the basement.  I do not overlook the purpose of the sham licence made by the defendant with Mr Chan Yiu Wo, but I cannot tell whether the situation would be significantly different without that licence and with the 8 spaces being made available for all users.

140.  Regarding the argument over data collection or the streamlining of the traffic condition before collection of data, I do not think this measure of the building manager had prevented Mr Chan Yue Sheung of the plaintifffrom giving an account of what he experienced everyday in the parking floors.  I do not think I need to comment further on this.

141.  Regarding the problem of long vehicles which could not get into the car-lifts, there is no suggestion that the car-lifts are particularly small.  It must be able to carry ordinary private cars.  For long vehicles, there are seven parking spaces at the hotel’s entrance which can accommodate them.  Mr Chan has not depicted how serious is the long vehicle problem.  There are really not too many of them.  Some of them are also chauffer driven. 

142.  On the whole, I find that the removal of the loop has not resulted in any material interference with the plaintiff’s use and enjoyment of the Hotel Building.

The plaintiff’s valuation evidence

143.  My findings above are sufficient for the disposal of the plaintiff’s claims.  However, for completeness sake, I would also consider the valuation evidence.

144.  The plaintiff’s valuation evidence is made up of three parts.  The first part is a report by a hotel consultant, Mr Summers, on the expected performance of the hotel.  Mr Summers concluded that both the room revenue and the F& B revenue did not perform up to his projection.  The second part is an exercise of attribution of loss to the possible causes.  It was done by a valuer, Mr Cullen.  The third part is done by another valuer, Mr Yu for capitalising the loss found by Mr Cullen in value of the hotel.  The second and third parts are presented in a joint report.

Projection of revenue of the hotel

145.  Mr Summers is a hotel consultant.  He gave expert evidence on the expected income after expenses of the hotel for the period from 1 July 2007 to 30 September 2008.  He conducted a Revenue Generating Index (“RGI”) analysis of the hotel’s previous performance.  He then calculated the expected net income of the hotel for the period in question on the basis that the hotel was operating under “normal” operating conditions during this period.

146.  The RGI analysis is frequently used for predicting the future income of a hotel.  The “normal” operating conditions for letting of rooms assumed in this analysis meant that the hotel was operating in the period in question in line with the historical operating performance trend comparing with other hotels in the Causeway Bay/Wanchai area. 

147.  For the analysis of the food and beverage (“F&B”) business, the “normal” operating conditions assumed in the analysis meant that the F&B outlets of the hotel were operating in the period in question in line with the historical operating performance trend comparing with all the restaurants in Hong Kong. 

148.  Mr Summers assumed that there were no change to the hotel’s operating conditions, management, business strategies, facilities, location strengths and weaknesses and the competitive hotel market generally.  If there was any change in the market in question, it was assumed that the hotel would have been affected by the same change in the same way. 

149.  Mr Summers compared the expected net income with the actual net income for the period and obtained the variance of the hotel’s business.  He did not investigate into the cause of the variance.  He said it was not part of his instructions.  The plaintiff also did not explain why the hotel consultant was asked to find out the cause of the variance.

150.  Mr Summers conducted the RGI analysis of the room revenue of the hotel by calculating the hotel’s room revenue per available room (“Regal’s RevPAR”) for a particular period.  This was done by multiplying the average room rate of the hotel at that particular period with the occupancy rate of the hotel for the same period.  Quoting the figures used in the report for the period from January to June 2007, the average room rate of the hotel was $1,115.86.  The occupancy was 90.75%.  The RevPAR of the hotel for this period was at $1,115.86 x 90.75% = $1,012.64.

151.  The next step was to calculate the average room revenue per available room in the market (“Market’s RevPAR”) for the same period.  For this analysis, Mr Summers used the figures obtained by the Hong Kong Hotels Association (“HKHA”).  HKHA has average room rate and average occupancy for hotels of different tariff classes in Hong Kong.  In addition, it also has average room rate and occupancy for hotels in different districts.  However, the district figure was the average of all participating hotels in the same district regardless of tariff class.  That means the figures were for the average of all participating hotels, including the more competitive ones and those for the affluent.

152.  For this exercise, Mr Summers used all the HKHA participating hotels in the Causeway Bay/Wanchai area as the market.  The average room rate and occupancy of this market from January to June 2007 were $1,119.63 and 83.27% respectively.  The RevPAR for this particular market during this period was $1,119.63 x 83.27% = $932.26.

153.  The RGI for the hotel for this period was $1,012.64 ÷ $932.26 = 1.086.  If the RGI for a hotel for a particular period is one, then the hotel is performing as good as the market against which the comparison is made.  If the RGI should be above one, then it has performed better than the market and vice versa.  Based on this approach, Mr Summers obtained the RGI of the hotel for 2002 to September 2008 as follows:

Historical RGI Levels for the Hotel in the Causeway Bay/Wanchi Market from 2002 to 2008 January – September

	Partial Year RGI Level	Full Year RGI Level
2002	1.061
2003	1.129
2004	1.098
2005	1.102
2006	1.073
2007
	January-June	1.086
	July-December	1.071
2008
	January-June	1.032
	July-September	1.000

The actual RGI for July to December 2007 did not change much over the previous half-year period.  However, the actual RGIs for January to June 2008 and July to September 2008 suffered bigger reductions.  He then chose the RGI for January to June 2007 at 1.086 for calculating the expected room revenue from July 2007 to September 2008.

155.  For the calculation of the expected F&B revenue, the Hong Kong Tourism Board (“HKTB”) only provided annual figures of the F&B revenues of hotels.  The figures for 2008 were not available when Mr. Summers prepared his report.  He therefore multiplied the hotel’s actual historical F&B revenues by the growth rates for restaurant receipts for the period in question as published by the Census and Statistics Department.  The growth rate of the restaurant receipts published by the department is the average growth rate for all restaurants in Hong Kong.

156.  The expected F&B income as calculated by Mr Summers and the actual income for the period studied is as follows:

157.  The results of the variance between the total expected incomes and the total actual incomes from July 2007 to September 2008 are as follows:

The total variance between total expected incomes and total actual incomes is $15,056,169.

158.  The figures show that for July to December 2007, there was an increase in room revenue and only a 4% drop in F&B revenue.  The works in the basement was from May 2007 to mid September, 2007 whilst the works on the 1/F lasted from May 2007 to January 2008.  If the hotel should be adversely affected by the works, one expects that its loss should be the biggest during this period.  However, the loss became bigger in the periods of January to June 2008 and July to September 2008.  One finds it difficult to understand why the hotel’s loss allegedly caused by the changes would have increased after the completion of the works and not become stable even after half a year. 

159.  In conducting this exercise, Mr Summers did not investigate the cause for the variance as he was not instructed to do so.  Regarding room revenue, he also did not study the national demographic distribution of the guests of this hotel or of the hotels in his chosen market.  He accepted that a surge in the number of rooms in the chosen market would bring down the Market’s RevPAR, but he did not think the addition of 50 rooms or 12% more rooms to Hotel Building in the beginning of January 2008 would affect the RGI of the hotel.  According to Mr. Siu, the 50 rooms were in fact added on 13 November 2007.  That could help explain why the actual room revenue for July to December 2007 was higher than the expected figure as the expected figure was based on 424 rooms only. 

160.  The market Mr Summers chose for the comparison was all the hotels in the Causeway Bay/Wanchai area which participated in the survey of HKHA.  There were about 17 to 22 participating hotels.  Some of them ranked in the Tariff A category like Regal Hotel.  Some of them ranked in the lower Tariff B category.  The rest were in the Medium Tariff category.  But Mr Summers did not know the ranking distribution of these hotels or which hotel in the Causeway Bay/Wanchai area was a participant in the survey.  Such information was kept confidential by HKHA.  Mr Summers also could not tell how many of the participating hotels were comparable to this hotel.

161.  He agreed in cross-examination that he should look for similar or comparable Tariff A hotels in the same area for comparison as hotels of similar characteristics would move more in tandem.  He also agreed that the most important factors for judging a hotel are its location and its quality or standard.  He also agreed that the RGI he chose was not very good for predicting the performance of this hotel.

162.  In assuming the RGI for this hotel would remain unchanged from July 2007 onwards, he assumed that its actual room rate did not go out of the market and the ratio of its average daily rate over the average daily rate of the market remained the same for the study period.  He did not know the actual room rate of this hotel. 

163.  In fact, Mr Siu said that its room rate was fixed at about $100 per day below its nearby Tariff A competitors.  In order to counter the drop of guests from the Mainland, he had further reduced the room rate by another $100 to $200 per day.  That is an extra 10% reduction of the gross revenue from the rooms.  I do not know if he had effected the same or similar reduction in the pervious years or he only did it in 2008.  This information was not known to Mr Summers and he could not have taken it into account in the calculation of RGI or the projection of expected room revenue.  Such reduction in price in itself should have brought down the RGI.  But if the occupancy should be increased to above its previous level, the RGI could come up again.  Without accurate information on the room rate and occupancy from time to time, the RGI cannot be correctly calculated.  Any projection of income based on an inaccurate RGI cannot be accurate. 

164.  Mr Summers also assumed that the ratio of its occupancy over the market’s occupancy remained the same in the study period.

165.  Regarding the increase of 50 rooms from early January 2008, he initially agreed that it might reduce the average occupancy of the hotel.  He however said that the hotel would fill up these rooms quickly as it was an established hotel.  He seemed to be assuming that the supply of rooms by this hotel could not meet the demand so that the additional rooms could all be filled up quickly.  But the occupancy of the hotel was not 100%.  It was only 90.75%.  Hence increasing the number of rooms would naturally bring down the occupancy.  If the occupancy were to be maintained, more guests would have to be attracted.  Therefore measures like reduction in room rate or the giving of other benefits would have to be adopted to attract more guests.  Such measures would again affect the RGI.

166.  Mr Summers further opined that one could argue for a higher RGI for this hotel in 2008.  His reason was that the new rooms were on a new 34^th floor and the expanded 32^nd and 33^rd floors and the rooms were newly decorated.  They could therefore command a higher daily rate.  But he did not know if higher rates had been charged for the new rooms.

167.  Regarding the calculation of the expected F&B income for the study period, he did not link it to the room revenue as F&B business in hotels are mainly driven by local demands.  He used the average growth rate of all eateries in Hong Kong regardless of standard of services or qualities.  He justified the use of such growth rate as the historical growth pattern of this hotel’s F&B revenue was in line with the average growth rate of all eateries in Hong Kong.  The chart he produced indeed showed a correlation for the three years of 2005 to 2007.

168.  He agreed that the increase in the average business in the market can be attributed to the increase in the number of restaurants in particular up-market restaurants, the increase in the number of restaurant goers and the increase in price generally.  However, there were only three restaurants in this hotel and there might be limited room for continuous increase.  Nevertheless, he thought that a growth rate of 15% per annum for July 2007 to June 2998, as achieved by the average performance of all eateries in Hong Kong, was not much and this hotel could catch up with it despite its limitations.  The growth rate he applied for July to September 2008 was a 31.61% increase from July to September 2006.

169.  The inflation for 2007 was below 3% and for 2008 was below 5%.  Therefore, he seemed to have thought that the hotel’s F&B outlets could, in addition to increasing the price to offset inflation, further increase the price by more than 10% for July 2007 to June 2008 and more than 20% for July to September 2008 and without affecting the level of patronage by customers.  But he did not give any reason why this would have been possible.  Counsel for the plaintiff suggested that there could be more turnover.  I do not understand how these F&B outlets could increase its turnover year after year.  It is not a new hotel but a hotel in operation since about 1992 or 1993.  Counsel also argued that there was no evidence that the outlets were close to capacity and the increase could be achieved by using the unused capacity.  But again there is no basis for one to assume that this established hotel would still have more than 10% to 20% unused capacity up to 2006 or 2007 which it could suddenly fill up in July 2007 to September 2008.  If the projected increase in income should be in line with inflation, the performance of the F&B outlets would have been close to expectation.  I therefore doubt whether this approach for projecting the performance of the F&B revenue of an established hotel is appropriate.  It is also not comparing like with like.  I do not think the performance of the F&B outlets in this hotel would always move in line with the average performance of all eating outlets in Hong Kong.  Different types or categories of eatery would respond differently to changes in market conditions.  The fact that Mr Summers could not have obtained better data for his comparison does not thereby make his analysis accurate.

170.  In re-examination, Mr Summers explained that he would not compare a 5-star hotel in central with another 5-star hotel in Kowloon because of different locations.  He emphasised the importance of the geographical location.  He further asserted that different hotels in the Wanchai market might have different driving factors.  However, the difference between hotels in Wanchai may not be as great as the difference between 5-star hotels in different districts.  He supported this assertion by referring to the nature of customers in different districts.  He gave an example that there was the same type of business travellers in Wanchai who would patronize hotels in this district. 

171.  He later revised his evidence that he did not assume that there was no change in the occupancy ratio.  He said a hotel would manipulate its level of occupancy vis-à-vis its room rate so as to get as high an RGI as possible.  I think this must be right.  Therefore, if he should have assumed that the RGI had remained at 1.086 for the periods under study, then he must have also assumed that Regal Hotel had performed just as well for the periods from July 2007 onwards in room revenue when compared with the Causeway Bay/Wanchai market.  Since he had also assumed that the average daily rate of this hotel over the average daily rate of this market had remained the same, then he must have assumed the ratio of occupancy also remained the same, otherwise the RGI would not remain at 1.086.  On the other hand he assumed that this hotel would have manipulated both the occupancy and room rate in this period so that the RGI would remain at 1.086.  Even if this hotel could indeed manipulate the RGI at its whim, such manipulation would change the ratio of occupancy of this hotel over that of the market and the ratio of its average daily rate over the market.  These ratios would not have remained constant as he had assumed.  Therefore, his explanations for this hotel to maintain the RGI at 1.086 are conflicting. 

172.  Mr Summers’ projection of room revenue showed that the hotel’s loss allegedly caused by the changes kept on increasing after the completion of the works and did not become stable even after half a year.  He did not think the addition of 12% rooms to the hotel on 13 November 2007 would have affected the RGI of the hotel.  The market he could use for comparison was some or all of the 17 to 22 hotels in the Causeway Bay/Wanchai area which participated in the survey of HKHA.  He did not know which of them had participated.  Through no fault of his, he could not have compared the hotel with Tariff A hotels in the same area or to compare like with like.  He did not know that Mr Siu had changed the actual room rate to raise the occupancy.  That affected his calculation of expected income.  His evidence on whether the ratio of occupancy of this hotel over that of the market would have remained constant was conflicting.  I find this projection of room and F&B revenue based on RGI unreliable.

Attribution of loss

173.  Mr Cullen is a valuer.  He has experience in cases of compensation for land resumption by the Government.  He had handled claims for loss of business due to resumption/disturbance.  However, this case is the most complex for him in his 30 years experience.  This is also the first time that he employed the attribution method as used in his report to find out the cause of loss.  In attributing the causes of loss and the extent of loss caused, he relied on his own judgment and experience.  His experience seemed to be that of haggling with Government valuers on the amount of compensation for business loss.  He did not elaborate on what expertise he had engaged in such haggling.

174.  He opined that for July to December 2007, the works in the basement and on the 1/F of 68 YWS had caused 30% to 50% of the shortfall to F&B revenue whilst the loss of parking space at the basement had caused another 30% to 60% of such loss.  As pointed out by the defendant, the broad range of the percentages prima facie weakens the reliability of the result.

175.  He applied the same percentages for F&B loss as caused by the loss of parking space at the basement in 2008.  The net average loss of cover in the F&B outlets in 2008 comparing with 2007 was about 128 covers per day.  But according to Mr Cullen, the number of covers for 2007 was already a low one as it had suffered the 30% to 50% loss since May 2007 as caused by the works and the loss of parking spaces.  Despite this low figure of total covers for 2007, which was at 400,000, there was a further drop to 353,000 covers or a further loss of 47,000 covers in 2008.  This means an average further loss of about 128 covers per day. 

176.  However, the parking figures of the building manager showed that before the commencement of the works, there were only an average of 2.7 cars parked at the basement by the hotel.  I accept that some hotel F&B guests might have parked their cars there without using any hotel coupon.  But there were only 16 spaces available and they were open to the public and the defendant’s tenants as well.  There must have been some members of the public parking their cars there when they visited the tenants of 68 YWS or Causeway Bay.  Hence, there could not have been too many cars of hotel F&B guests parked at the basement before the works.  In fact, from January 2006 to April 2007, the highest average daily number of cars parked in the basement was no more than 45.  That included all and sundry. 

177.  Furthermore, after the commencement of the works, there were more people parking in the upper floors for the first five months.  That means many of those who used to park their cars at the basement had gone upstairs after the commencement.  That would have included some hotel F&B guests who used to park at the basement but without using the hotel coupon.  Hence, the loss of park spaces at the basement would not have affected too many of the hotel’s F&B guests. 

178.  However, 30% of the average loss of covers at 128 per day as attributed by Mr Cullen for 2008 would mean 38.4 covers and 60% loss would mean 76.8 covers.  Such loss was in addition to those already suffered in 2007.  Such figures of attributed loss certainly appear to be much higher than the number of F&B guests who might have gone away because of the loss of parking at the basement.

179.  Mr Cullen’s attribution of 30% to 50% loss to F&B because of the works in the basement and on the 1/F is again problematic.  The head count by the building manager in September and October showed only about 11 persons going to Café Rivoli via 68 YWS.  If that were the result after the 50% loss, then there would have been 22% on average using that route every day before the works.  But the net loss of cover in Café Rivoli in 2008 over 2007 was 40,000.

180.  I have already pointed out that according to Mr Cullen, the figure in 2007 was already a low one because of the works since May 2007.  The further loss in 2008 was 109.58 covers per day on average.  Mr Cullen did not seem to attribute a large amount of the loss of F&B to the new passage on the 1/F.  If so, why did the café suffer the average further loss of 109.58 covers per day in 2008 after the loss in 2007?  From the figures and analysis above, Mr Cullen certainly cannot say that the loss of the basement parking space had caused such loss in the café.  In fact, Zeffirino had a gain of 2.2% in covers.  It increased from 15,922 in 2007 to 16,279 in 2008.  On the whole, I find Mr Cullen’s analysis arbitrary and unreliable.  His conclusions are also not compatible with the objective evidence outlined above.

The performance of the F&B outlets

181.  Café Rivoli had 183,000 covers in 2007 but only 143,000 covers in 2008.  It suffered a loss of 40,000 covers in 2008 over 2007.  If there was any loss in 2007 as caused by the works in the basement and the 1/F of 68 YWS, the 2008 loss was in addition to that loss.  The loss of 40,000 covers in 2008 constituted a 22% loss, but there was only a 9% loss in total revenue.  In 2007, the average revenue per cover was $147.00.  The average revenue per cover in 2008 was $171.32.  There was a 16.5% increase in revenue per cover.  It is therefore possible that the loss of cover might have been caused by price hike that exceeded the inflation rate by over 11%.  But the increase in revenue per cover did not result in similar increase in gross profit.  The gross profit per cover in 2007 was $45.90, but it was only $44.05 2008.  There was a 4% drop.

182.  Though the food cover in the café suffered a loss in 2008, there was an increase in covers for room service in the same year.  It increased by 40.5% from 6,077 in 2007 to 8,538 in 2008.  This resulted in a 40.8% increase in total revenue and 64.9% of gross profit.  It thus seems that there was no significant change in pricing for room service, but the costs were reduced which resulted in a higher percentage of profit.  The gross profit per cover increased from $58.11 to $68.22, an increase of 17.4%. 

183.  For the fine dining Italian restaurant Zeffirino, it had an increase of cover at 2.2% in 2008.  There was however an increase of total revenue by 32.4% and increase of gross profit by 21.2%. 

184.  There were also improvement in the business of the cake shop and the banquets for the Chinese restaurant, but a loss for à la carte in the Chinese restaurant.  There are still some other revenue figures that I do not intend to analyse.  All these show that some outlets have done well or very well whilst some have not done so well.  But the causes for making a profit or a loss are certainly not as simple and straightforward as presented by Mr Cullen.

Capitalization

185.  Mr Yu capitalized the loss in value of the hotel at two figures depending on whether the plaintiff is entitled to use the car parks at the basement of 768 YWS.  He concluded that the capital value of the hotel had gone down by $320 million if the plaintiff was entitled to demand the use of parking spaces at the basement.  If the plaintiff was not so entitled, then the loss in capital value would be $240 million. 

186.  Mr Yu used the conclusion of Mr Cullen for his capitalization exercise.  Mr Cullen in turn relied on the projection analysis of Mr Summers.  Since the works of both Messrs Summers and Cullen are unreliable, I do not think I can rely on Mr Yu’s conclusions.  In any case, I think the yields of 4.75% for room revenue and 4.85% for F&B revenue as used by Mr Yu in the exercise appear to be low.  The hotel in question is in tariff A class.  The extent for further improvement is limited.  I am inclined to agree with the defendant’s valuers that a yield of 6% is more reasonable. 

The defendant’s valuation evidence

187.  The defendant’s valuers considered the basement works and accepted the opinion of the defendant’s traffic consultants.  The traffic consultants were not called to give evidence.  The valuers quoted from the report of the consultants the following:

“the manoeuvring space after the basement works were perfectly acceptable and normal for car parks with a car lift system.  …

The adjustment in internal circulation/manoeuvring does not have any material effect on the operation of the carpark.  Based on the assessment of the car lift system, the 3 nos. of waiting spaces provided will adequately cater for the demand.  …

It can be clearly concluded that the impact of the renovation works on the operation of the carpark and the associated car lifts system at 68 Yee Wo Street is negligible.”

188.  Though the consultants were not called, their observation and conclusion sit comfortably with the evidence of the plaintiff’s Mr Chan Yue Sheung and what was observed in the site visit.  This is also in line with my findings above.

189.  Since there was no material impact on the internal circulation of traffic in the basement and the use of the car lifts, the accessibility to the plaintiff’s 8 uncovered parking spaces on the 4/F of the Hotel Building was not affected, the defendant’s valuers concluded that there was no material value impact on the market value of the Hotel Building due to the basement works.

190.  Regarding the works on the 1/F, the defendant’s valuers considered the new passage was in a reasonably good and unobstructed condition.  They opined that the 1/F works did not cause any negative impact to the business, operation and enjoyment of the hotel.  They therefore opined that there was no material value impact to the market value of the Hotel Building due to the 1/F works.

191.  In the light of my findings above, I think the conclusions of the defendant’s valuers are reasonable.

Counterclaim

192.  I now deal with the defendant’s counterclaim.  There is an area at the southwest corner of the G/F of the Hotel Building which used to be part of the vehicular exit from the basement of 68 YWS.  It is shown blue hatched black in a plan annexed to the DCMA (“the blue area”) and is prima facie subject to clauses 3(2) and 5(3)(b) of the DCMA.  Clause 3(2) gave the defendant a right of way over this area and clause 5(3)(b) required the plaintiff to keep it reasonably free and unobstructed to and from common areas.  The driveway coming out from the basement of 68 YWS is a common area and is adjacent to the blue area.  The access from the blue area to the driveway is now blocked off and the blue area is now used as part of the driveway into the Hotel Building.  The defendant says that the plaintiff has breached clause 3(2) in not allowing the defendant to use its right away over this area.  The defendant further submitted that the plaintiff has breached clause 5(3)(b) by blocking it from the adjacent driveway.

193.  The plaintiff pleaded in its re-amended defence to counterclaim that as a result of a change of traffic flow on the ground floor of the Hotel Building which was approved by the Transport Department on 25 March 1994, traffic going into the Hotel Building would go through the blue area in a west-east direction whilst traffic coming out of 68 YWS would not go through this area.  Such change in traffic had been approved to by the directors of Athlone, the defendant’s predecessor.

194.  The plaintiff further pleaded that such change did not interfere with the proper use and enjoyment of 68 YWS for the purposes of clause 3(2) and did not prevent reasonably free and unobstructed access to and from the common areas for the purposes of clause 5(3).  Furthermore, such changes had been implemented for over 13 years without any objection from Athlone or the defendant.  Athlone and the defendant had therefore expressly or impliedly consented and/or agreed to such change or have waived any complaint in relation to it.  Furthermore, by reason of the notification of such change by the plaintiff to Athlone in September 1994 and the consent and/or waiver of Athlone, Athlone had thereby represented to the plaintiff that it had no objection to the change.  The plaintiff in reliance of representation arranged its business by putting planters and parked vehicles at the blue area and/or not to procure Athlone to formally record its consent/agreement to such change before Athlone ceased to be in the plaintiff’s group in 2002.  The defendant only raised this issue after the commencement of this action. 

195.  On the above grounds, the plaintiff therefore pleaded that the defendant is estopped from objecting to the changes.  The plaintiff further relied on delay and laches.

196.  The evidence shows that when Mr Lee of the defendant inspected 68 YWS in 2004, the current arrangement over the blue area was already in place.  It had been in place since 1994.  But he made no complaint about it.  The planters that blocked off the blue area from the driveway of 68 YWS were put there to prevent vehicles going from the driveway over to the blue area as that could result in a collision.  The change in traffic effected by this arrangement was to ease the traffic in the Leighton Road area.  It did not create any inconvenience to the defendant at all in its use and enjoyment of 68 YWS as shown by the use of the arrangement for over 13 years.  The traffic from the basement of 68 YWS need not go into the blue area at all.  The common area of the driveway is also freely accessible though not directly from the blue area. 

197.  I also accept the evidence of Mr Ng of the plaintiff that this arrangement had been discussed and agreed to by the board of Athlone.  The evidence also shows that Athlone in September 1994 was aware of the plaintiff’s suggestion to change the traffic and the use of the blue area as it is.  I therefore agree with the plaintiff that this arrangement has not resulted in any breach of the DCMA. 

198.  I think the above evidence and the uninterrupted use of the current traffic arrangement over the blue area show that Athlone and the defendant have waived their rights to the right of way over the blue area.  I also hold that this right has been abandoned.  I also hold in favour of the plaintiff on laches. 

199.  I also think there has been unreasonable delay for the defendant to bring the counterclaim and in view of the delay, it is in all circumstances unjust to grant the relief sought.  To revert to the previous arrangement after 13 years will certainly result in inconvenience to the plaintiff as traffic arrangement is important to the operation of the hotel.  To revert to the previous arrangement would also prejudice the public as the traffic conditions in Leighton Road and Irving Street will both be adversely affected.  This is particularly so when a long tour coach is to get into the driveway of the Hotel Building in an east-west direction from Irving Street.

Judgment

200.  On the basis of my findings above, I dismiss the plaintiff’s claims and the defendant’s counterclaim. 

201.  Though the defendant has restored the passage on the 1/F as before, there has been a change to the right of way in the basement.  I take the view that the right as modified should be properly documented in a form that can be registered at the Land Registry against 68 YWS.  Just in case this cannot be sort out between the parties, I grant the parties the liberty to apply for formalizing the modification to the right of way by the works commenced in May 2007.

202.   I further make a costs order nisi that the plaintiff do pay the defendant the costs of this action and the defendant do pay the plaintiff the costs of the counterclaim.