XCHRX JLW MANAGEMENT SERVICES LTD. and Another v. CHARTER DRAGON DEVELOPMENT LTD.

1994, No. A6837

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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The Dispute

1. This dispute concerns the seventh floor of the Lippo Sun Plaza building in Tsimshatsui. The first plaintiff manages the building. The seventh floor of the building consists of eighteen office units set around the outside perimeter, with lifts, lift lobbies, staircases and toilets in the centre. The second plaintiff is the owner of office 715 on the floor and the defendant owns offices 706 to 714.

2. In March 1994, the defendant enclosed part of the passageway on the seventh floor (the disputed area) to include it as part of its premises. The plaintiffs say that this was done in breach of deeds of mutual covenant governing the use of the seventh floor. The defendant admits that it so enclosed the disputed area, but says that it was entitled to do so.

3. Under Order 29, rule 1 and Order 14, rule 1, the plaintiffs apply for final judgment against the defendant, claiming injunctions requiring the defendant to restore the disputed area, an indemnity, damages to be assessed and costs.

The Background

4. On 3 October 1991, a company called Intro Asia Limited became the owner of the whole of the seventh floor of the building. The deed of mutual covenant governing the use of the building was entered into on the same date.

5. On 28 May 1993, Intro Asia sold the whole of the seventh floor to Gosam Limited. On 30 September 1993, the units I have mentioned were assigned to the second plaintiff and the defendant. On the same day, the owners of the units on the seventh floor, including the second plaintiff and the defendant, entered into a sub-deed of mutual covenant governing the use of the seventh floor. That sub-deed described how the units of the seventh floor were vested in each of the parties "together with the exclusive right and privilege to hold use occupy and enjoy such portion of the Office more particularly specified herein" and referred to the deed of mutual covenant I have mentioned. The sub-deed defined the "Office Common Area" as the portions coloured yellow in a plan. The disputed area forms part of the Office Common Area. The parties covenanted -

"Each owner and all persons authorised by him shall in common with the others having the like right whether under the Deed of Mutual Covenant or otherwise have the full, free and uninterrupted right and liberty at all times to go pass and re-pass over through along and upon the Office Common Area . . ."

6. A clause in the assignment to the defendant dated 30 September 1993 says that the assignment was -

"Subject to and with the benefit of :

(i) . . . .

(ii) the exclusive right and privilege to hold use and occupy and enjoy in common with the other owner or owners having the same right the other areas or portions (save and except the other self-contained office units) on the said 7th Floor of the said Lippo Sun Plaza."

The Situation Thus Far

7. Thus far, in my view, nothing could be clearer; the defendant is in breach of the sub-deed of mutual covenant. It agreed to the use of the disputed area as Office Common Area and has now taken it for its exclusive use. But there is a complication.

The Licence

8. The complication is what the defendant calls an irrevocable contractual licence granted to it by Gosam Limited to occupy the disputed area. This licence is contained in a letter from Gosam Limited to the defendant dated 21 September 1993. It says -

"Dear Sirs,

We refer to the Sub-Deed of Mutual Covenant of the above premises whereby, inter alia, the area hatched black on the plan annexed hereto (the "Hatched Area") is defined as Office Common Areas in respect of which we have the right to pass and re-pass under the said Sub-Deed.

In consideration of your agreeing to clean repair and maintain the hatched area at your own costs and expenses and to indemnify us of all losses and claims arising out of your use of the same hereinafter described, we hereby agree that for so long as you own and/or use all of the Offices 707 to 711, we will permit you to have the right to use and enjoy the Hatched Area to the exclusion of us.

9. This letter bears a stamp: "Received 22 Nov 1993" and has annexed to it a plan showing the disputed area as hatched.

10. For the purpose of these proceedings, I must accept that this licence was granted according to the terms of the letter. It was not registered, and there is no suggestion that the plaintiffs knew of this letter at the time of the deed or sub-deed of mutual covenant. Indeed, it appears from a letter by the defendant's solicitors dated 24 November 1993 and earlier correspondence that the defendant itself was unaware of it until shortly before that letter was written. This letter said -

" We have been informed by our client that your client has given our client a written permit to use and enjoy [the disputed area].

In view of your client's permission aforesaid, the Sub-Deed of Mutual Covenant has to be duly rectified incorporating an architect's amended plan. We should therefore be grateful if you can take your client's instruction confirm as soon as possible we can proceed to have the Sub-Deed of Mutual Covenant so rectified."

Does the Licence Make a Difference?

11. The defendant's agreement of sale dated 24 September 1993 binds the defendant to execute a sub-deed of mutual covenant "to define the rights and liabilities of the [defendant] and the other co-owners of the 7th Floor of the Building". The agreement refers to a pro forma sub-deed of mutual covenant annexed. I am told that the plan of the seventh floor which should be annexed to this pro-forma sub-deed cannot be found.

12. The situation we have is that the defendant purchased undivided shares in the property with the exclusive right to occupy certain office units on the seventh floor. It agreed to execute a sub-deed of mutual covenant to govern a modus vivendi with other owners on the seventh floor. It took assignment of the undivided shares subject to using the areas in respect of which it does not have exclusive use in common with the other owners. It executed the sub-deed of mutual covenant as it undertook to do, and this clearly defines the disputed area as common area. The second plaintiff purchased its undivided shares without notice of the licence. Is it possible that an unregistered licence granted to the defendant to use the disputed area exclusively, of which the other owners had no kind of notice whatsoever, can exclude the other owners from the disputed area, which they all and the defendant solemnly agreed would be open to use in common by them? The answer to that question must be that it cannot. The licence may well have bound Gosam itself, but once the other owners purchased without notice of the licence and, what is more, were led by the defendant to believe by its execution of the sub-deed of mutual covenant that they would have the use in common of the disputed area, the licence could not have effect to exclude them from that area.

13. Mr Ismail, who appears for the defendant, has been unsparing in his efforts to find some way in which it could be argued that the defendant has the right that the sub-deed of mutual covenant says it does not have.

14. In spite of what is said quite clearly in the sub-deed, Mr Ismail seeks to found several arguments on the premise that the second plaintiff did not acquire any right to use the disputed area. These arguments are founded on the plan of the seventh floor attached to the main deed of mutual covenant. This plan does indeed seem to include the disputed area as part of the office units. But, of course, it was never the purpose of the main deed to define the office units and the common areas on the seventh floor, and it did not purport to do so. There was no need for this; at the time of the execution of the deed, Gosam was the equitable owner of the whole of the seventh floor. Because the main deed did not provide for the allocation of the space on the office floors, Clause 5 of that deed provides for the designation of "such necessary portion or area within such particular floor to be used as lift lobbies and common corridor and passageway for use by the occupiers within that particular floor", and, of course, that is precisely what the owners did in the sub-deed. And the question arises: If the second plaintiff does not have any rights in the disputed area, who does? All the undivided shares were sold; there were none left over to which the rights to the disputed area might be attached. Clearly, the second plaintiff had as much right to the disputed area as any other owner.

15. Mr Ismail suggests that one might find a constructive trust under which the defendant is entitled to exclusive use of the disputed area. It is said that the second plaintiff's conscience is affected, and that it would be inequitable to deny it the exclusive use of disputed area to the defendant. I can see no way in which it can possibly be said that equity should intervene and give the defendant a right which it accepted that it did not have in a formal sub-deed of mutual covenant. There is no basis at all for suggesting that the second plaintiff's conscience should be affected in the circumstances of this case.

16. Next, Mr Ismail argues that there has been a mutual mistake of fact in the sub-deed. This cannot be so. It is totally unarguable that the parties to the sub-deed shared the same mistake about the subject matter of the sub-deed. They were spelling out, amongst other things, the common areas. How can it possibly be said that the other owners were mistaken in designating the disputed area as common area? There is no basis for this at all.

17. Unilateral mistake is also raised. This is equally untenable. Even assuming that the defendant was in some way mistaken when agreeing to the disputed area being designated as common area, which it was not, there is no basis for suggesting that the other parties knew or ought to have known of this mistake.

The Locus Standi of the First Plaintiff

18. The defendant says that the first plaintiff has no locus standi in this matter. It is not, it is said, a party to the sub-deed. That is so. But there is no dispute that the first plaintiff has the right to enforce the provisions of the deed of mutual covenant to which it is a party. The sub-deed is said to be subject to the main deed and the parties to the sub-deed undertook to perform all the obligations of the main deed. In any event, as a successor in title, the defendant is bound by the main deed. One of the obligations contained in the main deed undertaken by the defendant is to "use any of the said lift lobbies, corridors and passageway . . . in a good and orderly manner and shall not cause any damage thereto and shall not make or cause any obstruction or inconvenience to other occupiers within that particular floor. . .". By assuming exclusive possession of the disputed area, which was part of the "corridors and passageway" mentioned above, the defendant has breached this obligation, and the first plaintiff is entitled to enforce compliance.

The Conclusion on Liability

19. I find that the defendant has no arguable defence to the plaintiffs' claims.

The Remedies

20. The defendant is doing what it undertook not to do, and, on the face of it, the plaintiffs are entitled to ask me to order them to stop doing what it undertook not to do. This is not a case of a covenant requiring a party to do something, and the court being asked to order it to do so. The injunctions asked for are framed both as mandatory and prohibitory injunctions, but they are essentially prohibitory in nature. I am asked to order that the defendant undo what they have done and not to repeat the breach. The effect would be the same if I were to order the defendant not to occupy the disputed area. The defendant would be required to retreat into the area in respect of which it has exclusive rights. And what I am asked for are final orders, so the authorities quoted by Mr Ismail regarding the reluctance of the courts to grant interlocutory injunctions do not apply here. Of course, an injunction is a discretionary remedy, but it is one that should be granted where the defendant is continuing to breach an obligation undertaken in a deed of mutual covenant unless there are good reasons not to. In this case, there do not appear to me to be any such good reason. Mr Ismail argues that no one else, particularly the second plaintiff, has any need to use the disputed area. This may be so, but I do not see this as a reason for allowing the defendant to continue to use exclusively a significant area of valuable office space. The defendant has no more right to this space than any other owner. Mr Ismail submits that the second plaintiff should be deprived of the remedy because it has behaved badly. He says that the second plaintiff has refused to negotiate reasonably over permitting the defendant to use the disputed area, as the other owners did. The second plaintiff asked for an unreasonably large amount of money as its price for allowing the defendant to continue to use the space. It is true that, having the defendant "over a barrel", the second plaintiff was attempting to extract the maximum amount possible from the situation. I may think this was morally wrong, but I do not believe it entitles me to say that I should exercise my discretion against the second plaintiff. In any event, this factor does not, of course, affect the first plaintiff at all. The first plaintiff has a duty to enforce the covenants. It is not suggested that the first plaintiff has been guilty of any conduct that might deprive it of a discretionary remedy, and it is not affected by anything the second plaintiff might have done. It would serve the defendant in no way to restrict the second plaintiff to a remedy for damages, but to grant the injuctions to the first plaintiff.

The Result

21. I make an order in terms of the summons of 6 August 1994.