THE INCORPORATED OWNERS OF HOI LUEN INDUSTRIAL CENTRE AND ANOTHER v. OHASHI CHEMICAL INDUSTRIES (HK) LTD.

1993, No.A5450

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H E A D N O T E

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ACQUIESCENCE AS DEFENCE TO CLAIM FOR M MANDATORY INJUNCTION NOTICE OF EXPRESS PROHIBITION - REASONS FOR NOT PROCEEDING AGAINST OTHER OWNERS OF STRUCTURES IN BREACH OF DEED OF MUTUAL COVENANT - INJUNCTION GRANTED

1993, No.A5450

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The 1st plaintiff and the 2nd plaintiff are respectively the incorporated owners and the manager of the building known as Hoi Luen Industrial Centre at No.55 Hoi Yuen Road, Kowloon, ("the building").

2. The defendant is, and was at all material times, one of the co-owners of the building, having the exclusive right to use and occupy the premises known as Workshop Unit 3 on 1st Floor of the building ("the premises"). There is no dispute that the defendant is bound by a deed of mutual covenant dated 9th September, 1985 ("the DMC").

3. It is also not disputed that at some time before the commencement of this action the defendant erected a cooling tower on the external wall of the premises. It is the plaintiffs' case that the installation of the cooling tower was in breach of various provisions of the DMC and this is not denied by the defendant. The plaintiffs claim, inter alia, a mandatory injunction to order the defendant to remove the cooling tower. The defendant alleges that the plaintiffs have been estopped from enforcing the DMC against the defendant as a consequence of the plaintiffs' acquiescence to similar breaches on the part of other co-owners.

4. The building was built in 1988 and comprises two blocks of factory units, 579 in all. Three types of air-conditioning plant are in use: window air-conditioners, split-level air-conditioners and cooling towers. Clause 18 of the DMC provides:

"18. No Owner shall do or permit to be done any act or thing which may or will alter the external appearance of the Building without the prior consent in writing of the Manager and no Owner shall erect, affix, install or attach or permit or suffer to be erected, affixed, installed or attached in or on external part of or to be displayed from any Unit any advertising or other sign of any description without the previous written approval of the Manager. Any such approval may be given subject to such conditions as the Manager may specify and shall be subject to revocation on reasonable notice. Provided that each owner may place outside the entrance door of his unit a name plate giving the name of the owner or occupier thereof and such name at the main entrance and the lift lobby will be provided by the Manager at the expense of such owner."

5. Tenants are encouraged to install window units, but in 1991 the plaintiffs became concerned at the increasing use of cooling towers. Not only were they ugly in appearance, they posed a possible threat to passers-by in the event of structural failure. No owners had been given permission to install these towers. A notice dated 25th July, 1991, ("the July notice") was consequently circulated to all owners and posted on the notice boards of both blocks. It was in these terms:

" GOODWELL PROPERTY MANAGEMENT LTD.

Reference: GBM/HL2414/91

Illegal Installation

Dear Sirs,

Upon inspection, it has been discovered that some owners of this building have unilaterally installed air conditioner cooling towers on the exterior walls of this building. Such conduct is not only a breach of the Deed of Mutual Covenant of this building, it also constitutes a threat to the structure and safety of this building and would be prosecuted by relevant government department. Having consulted with your management committee, it was resolved to give this notice. Please take notice that you are requested to remove the above-mentioned illegal installation and reinstate the affected exterior walls at your own expenses within 6 months from the date of this letter. Otherwise, the management office will take legal action against you or refer the case to the relevant government department for the removal of the illegal installation and you will be liable for all costs incurred therefor. Your co-operation in this regard is appreciated. To: Each occupier / owner of Hoi Luen Industrial Centre

Signed by Mr Ho Chi Seung, the Assistant Estate Manager of Goodwell Property Management Ltd.

25th July, 1991"

6. The defendant became the occupier of the premises in March, 1992. The company had also owned A809/810 since 1986. Mr Lee Ngoh, a director, says he never saw the July notice until his solicitor showed it to him. When he occupied the premises, he replaced the old cooling tower. He received no formal communication from the 2nd plaintiff, but he was warned by two members of the staff, neither of whom have given evidence, that his cooling tower was obstructing cranes operating from the Ground Floor premises of a member of the committee of the 1st plaintiff. When Mr Lee pointed out that his cooling tower was above 1st Floor level, he received no further complaints.

7. Only three writs have been issued by the plaintiffs in respect of the many similar breaches of Clause 18 of the DMC. Two of these actions have resulted in the removal of the cooling towers by the owners. Mr Lee complains, not only of unfair discrimination because of the complaint by the Ground Floor owner, but that he was misled by the failure of the plaintiffs to take action against those owners whose cooling towers were already in place at the time of the July notice.

8. The defence has led evidence from another owner, Mr KOO Man-hung, who moved from A210 to B801 in May, 1992. He also never saw the July notice. There was a cooling tower outside B801, but it was unsuitable for Mr Koo's purposes and he replaced it as soon as he moved in. He has received no letter of protest from the plaintiffs.

9. The former chairman of the 1st plaintiff, Mr Chung Wei-cheung, has given an explanation why proceedings have been taken against the defendant and not against other owners such as Mr Koo. He concedes that, in spite of the many cooling towers in existence in 1991, which led to the July notice, not one of these owners has been sued. He says this is largely a matter of money: there are too many of them. It was decided to proceed against those who had erected cooling towers in 1992 in defiance of the notice. He admits that the intention was to make an example of those who he considered were more culpable than those who had erected cooling towers in 1991 or earlier. Of the three selected, only the defendant has defended the proceedings. The result of this case will determine whether or not the plaintiffs proceed against those other owners who still maintain cooling towers and split level air-conditioners on the exterior of the two blocks.

10. Mr Chik, for the defendant, on whom rests the burden of proof on this issue, submits that the defendant was misled in February, 1992. Although he denies that Mr Lee was on notice that such cooling towers should not be erected, Mr Chik says Mr Lee was entitled to assume, the clearly stipulated threat contained in the July notice not having been carried out, that the defendant would not be sued.

11. This belief, says Mr Chik, was reinforced by the fact that the defendant's cooling tower was at a lower level and was newer than the others. There was therefore less of a threat to pedestrians below. There has fortunately to date been no accident to any of the exterior installations.

12. There is a conflict of evidence as to whether the owners - and in particular the defendant - were served with various notices issued by the 2nd plaintiff, indicating that the erection of exterior cooling towers without consent was prohibited.

13. In this respect I accept the evidence of Mr Kuo Ping-fei, an employee of the 2nd plaintiff, who had no reason not to comply with an order to deliver the July notice to each mail box. I also accept his evidence that he noticed scaffolding outside the premises in February, 1992, and that he was told a cooling tower was being erected. I believe Mr Kuo's evidence that he then pointed out to the workers that they were wasting their time and that they should notify the new owner accordingly. Mr Kuo says that, next day, he gave a copy of the July notice to a female employee of the owner of A809, who was also owner of the premises.

14. The defence called Miss Ho Shuet-ying, who was in charge of the defendant's office administration at that time. She says it was the duty of the receptionist to receive such a document and that, had it been delivered as Mr Kuo testified, the receptionist would have made a record of its receipt and had no authority to refuse to accept it. Miss Ho was asked if she had brought the record book and her reply was that she was not aware that it was required. The receptionist is no longer employed by the defendant. There is thus no evidence to contradict Mr Kuo. I also accept his evidence on this point.

15. I find therefore that the defendant was aware at the time of the construction of the cooling tower outside the premises that it was, in the view of the 2nd plaintiff, in contravention of the DMC. Can it be said in these circumstances that the defendant was misled?

16. Mr Lam, for the plaintiffs, submits that a mandatory injunction should be granted to enforce a negative covenant unless the breaches complained of are formal or trivial in nature. He accepts that a covenantee may be precluded from asking for an injunction to enforce a negative covenant by acquiescing in prior similar breaches, but argues that the true basis for the defence of acquiescence is estoppel by implied representation. The plaintiffs' case is that the defendant had had notice of an express objection and cannot say that it was in any way misled to believe that the relevant provisions of the DMC would not be enforced.

17. In Chatsworth Estates Company v. Fewell [1931]1 Ch 224 Farwell J. said at p.231 :

"Now, as stated in many authorities, the principle upon which this equitable doctrine rests is that the plaintiffs are not entitled to relief if it would be inequitable to the defendant to grant it. In some of the cases it is said that the plaintiffs by their acts and omissions have impliedly waived performance of the covenants. In other cases it is said that the plaintiffs, having acquiesced in past breaches, cannot now enforce the covenants. It is in all cases a question of degree. It is in many ways analogous to the doctrine of estoppel, and I think it is a fair test to treat it in that way and ask, "Have the plaintiffs by their acts and omissions represented to the defendant that the covenants are no longer enforceable ....."

18. Mr Chik relies on Cheung Yuet & Another v. The Incorporated owners of Oriental Gardens [1979] HKLR 536, where the headnote reads:

" The appellants, who owned and occupied flats in Oriental Gardens, had extended their sitting rooms beyond the authorized building line at the front side of the building and had enclosed the extensions by means of walls in which windows had been set. It was not denied that these structures constituted breaches of covenant. Many of the other owners in Oriental Gardens had committed similar breaches of covenant by adding slightly less noticeable rooms to their flats.

In the court of first instance, the respondent was granted mandatory injunctions which required the defendants to demolish the extensions. On appeal, the appellants contended that the respondent had acquiesced in the breaches of covenant in respect of which the injunctions were granted. On the other hand, the respondent argued that it was not open to the appellants to rely upon acquiescence, because the structures complained of were erected in breach of the Buildings Ordinance."

It was held:

1. It was necessary to consider the whole nature of the breaches committed by the appellants and by the other owners.

2. The breaches of covenant committed by other owners in adding rooms were no less grave than the breaches committed by the appellants and could reasonably have been considered by the appellants as a representation that the addition of a room of equivalent size would be tolerated.

3. The respondent had acquiesced in the particular kinds of breach which the appellants had committed and it would be inequitable to compel the appellants to remove their extensions at the instance of the respondent.

4. In setting up their equitable defence, the appellants did not have to rely upon an illegality because what the respondent had done was to acquiesce in the erection of extensions and not to the erection of extensions without the approval of the Building Authority.

19. Mr Chik points out that there are 102 cooling towers, some bigger than that of the defendant; these breaches are no less grave than the defendant's breach. The owners of the split units are also in breach of the DMC. He also observes that the defendant need not rely on a right of re-entry by Government: there has been no such threat.

20. Mr Lam would distinguish Cheung Yuet on the basis that here the estoppel arises by virtue of express objection. That was not the case in Cheung Yuet. As Leonard J. (as he then was) said at 541:

" The basis of the appellants' claim is the Deed of Mutual Covenant. Its essence is mutuality and it cannot be enforced by mandatory injunction capriciously against one to the exclusion of others."

21. There is no question here of capricious enforcement. I accept Mr Chung's evidence that the only reasons that the plaintiffs have not proceeded against all owners in breach of the DMC are financial reasons. That makes perfect sense to me. Nor do I consider that it is a matter for criticism that the plaintiffs should have singled out those owners who installed cooling towers in 1992. It is not unreasonable that proceedings should have been taken against them, rather than against owners whose cooling towers may have been in place for several years and before they were put on notice that they were in breach of the DMC.

22. It is in my judgment reasonable that the plaintiffs should test the water, so to speak, by taking action against the defendant and the other two owners before proceeding against the owners of the other cooling towers and split level air-conditioners. I am satisfied that this is their earnest intention should they succeed in this case and are able financially to maintain suit against recalcitrant owners.

23. These matters go only to the issue whether it would be inequitable to enforce the terms of the DMC by way of injunction, not whether the plaintiffs are estopped from doing so. That depends on the state of the defendant's mind in February, 1992: in effect Mr Lee's mind. Whether or not subsequent notices came to his attention is irrelevant. When he erected his cooling tower in February, 1992, he was well aware that he was acting contrary to an express prohibition. He must have realised he was proceeding at his own risk. The fact that the July notice had not been enforced - one month after the expiry of the stipulated six months' grace period - does not persuade me that he was misled into believing that he could go ahead with impunity and that the DMC would not be enforced. I find that the defendant has not proved that the plaintiffs acquiesced in his erection of the cooling tower.

24. As I have already indicated, I find that the plaintiffs were justified in their decision to tackle this problem step by step. They had a legitimate concern but limited means. A disaster was likely to bring about swift Government action. Nor, I am persuaded, will an injunction be a useless remedy, as Mr Chik submits. It is unlikely, I believe, that other owners of cooling towers will resist similar action by the plaintiffs. I have no doubt that it is the intention of the plaintiffs to proceed against all the other owners who remain in breach of the DMC.

25. I am satisfied that it would not be unfair to grant the injunction sought. There will therefore be judgment for the plaintiffs with costs. Stay of execution pending appeal.