海怡閣(成和道)業主立案法團 v. 泓璟集團有限公司及另一人

LDBM 64/2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 64 OF 2011

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J U D G M E N T

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1.  The Applicant is the incorporated owner of Happy Court, 39E-39G Sing Woo Road, Happy Valley, Hong Kong (“the said Building”). The 1^st Respondent is and was at all material times the registered owner of Shops 1-6, 1^st Floor of the said Building (“the said Shops”). The 2^nd Respondent is at the material time a tenant of the 1^st Respondent.

The background

2.  It is not disputed that the 1^st Floor of the said Building consists of the said Shops, and some common areas of the said Building.  The common areas include a corridor immediately outside the said Shops, a lift lobby, an open yard, 2 toilets, and a side staircase leading from street level to the 1^st Floor.  The said common areas are hereinafter referred to as the “1^st Floor common areas” and for identification purpose coloured pink in the 1^st Floor Plan attached to the Amended Notice of Application.

3.  Counsels confirm that their respective clients agree that the 1^st Floor common areas are common area of the said Building, and the said 1^st Floor Plan shows the layout of the 1^st Floor.  The 1^st Respondent is only entitled to exclusive possession of said Shops.  And according to the Building Management Ordinance, possession of the First floor common area vest with the Applicant.

4.  The said Building and all the owners are subject to the terms and covenants of a deed of mutual covenant dated 25 June 1993 and registered at the Lands Office by memorial number 5713355 (“the DMC”). 

5.  It is not disputed that, by a lease dated 1 August 2007, the 1^st Respondent let the said Shops to the 2^nd Respondent at a monthly rental of $100,000 (“the 1^st Lease”) who operated a foot message business during the term.  The 1^st Lease is for the term of 3 years, ending on 31 July 2010.  By a further agreement dated 9 August 2010, the lease was renewed for another term of 2 years at the new monthly rental of $117,000 (“the 2^nd Lease”).  The 2^nd Lease is for the term of 2 years ending on 31 July 2012.

The unauthorized occupation dispute

6.  According to the Amended Application filed herein, it is the case of the Applicant that in or about 2008, the 1^st and the 2^nd Respondent, their employees, agents or tenants and sub-tenants or one of them has wrongful occupied the 1^st Floor common areas, being in breach of the DMC.

7.  Further, the 2^nd Respondent has installed 4 air conditioning units and one compressor on the eave at 1^st Floor level of the said Building.

8.  The Applicant claims for vacant possession of the 1^st Floor common areas, and an injunction against the 1^st and 2^nd Respondents to restrain them from using or occupying the 1^st Floor Common Area, and an injunction that the Respondents do remove the said air-conditioners.  Further, the Applicant claims against the Respondents damages for wrongful occupation of the 1^st Floor common area and the eave of 1^st Floor for the period from 1 November 2008 to 31 October 2011.   This is the period which I understand is the period that damages is claimed.  But at the closing submission, Mr. Wong, counsel for the Applicant claims damages from 1 August 2007, when the 1^st Lease commenced, or 30 September 2007 when the renovation is completed, until 8 March 2012 when the Building Orders have been complied with.  At this stage, I only note that the expert evidence on the market rental of the common areas in issue only cover the period from 1 November 2008 to 31 October 2011.

9.  The 1^st Respondent does not deny that the 1^st Floor common areas have been occupied.  They dispute liability on the ground that this is the act of the 2^nd Respondent without their consent.  They only have notice of the alleged breaches when they received the notice from the Applicant on or about 20 December 2010.

10.  The 2^nd Respondent’s case is that when the 1^st and 2^nd Respondent negotiated for the 1^st Lease, all the partition walls between the said Shops, and the corridor had been removed.   The entire 1^st Floor had been converted into one unit, and the side staircase was covered with a canopy before they took up the 1^st Lease.  The encroachment on the 1^st Floor common area, which is not denied, was caused by the 1^st Respondent and/or its agent’s misrepresentation of the lettable area before the 2^nd Respondent entered the 1^st Lease.  And the 1^st Respondent had acquiesced with 2^nd Respondent to place the air conditioners in the eave.

11.  It is not disputed that the 2^nd Respondent had returned possession of the said Shops to the 1^st Respondent on or about 31 October 2012, and had removed the air conditioners.  It would serve no purpose to impose an injunction against the 2^nd Respondent in any event.

12.  And the major dispute is whether the 1^st Respondent and/or 2^nd Respondent are liable to the Applicant for mesne profit for occupying the 1^st Floor common area, and the quantum.

The BO Dispute

13.  Further, the Applicant claims that the Respondents have:

a.  caused to be removed 3 fire protected lobbies on the 1^st Floor;

b.  installed a wooden sliding door at the rear staircase;

c.  installed a glass door with lock at the exit of the rear staircase;

d.  installed a cover to the rear staircase.

14.  The Building Department has issued 3 sets of order demanding the Applicant and all owners of the said Building to rectify the alternation.  The Applicant claims that the above works are in breach of the DMC or the Building Management Ordinance and seek an order for their rectification.

15.  The 1^st Respondent claims that these are breaches committed by the 2^nd Respondent and they should not be liable.

16.  The 2^nd Respondent claims that the entire 1^st Floor had been made into one unit before the terms of the 1^st Lease, and the side staircase had been covered.

17.  As the evidence shows, these breaches have been purged in or about March 2012.  The Applicant claims that the 2^nd Respondent was still using the corridor for their business until they moved out.  At the closing, the only order sought by the Applicant is an order for the Applicant to enter the said Shops and to reinstate the common areas to its original condition with costs to be jointly born by the 1^st and 2^nd Respondents.

The signboard dispute

18.  The Applicant also complains that the Respondents have erected 2 large signboards outside the windows and external wall of the 1^st Floor, and thus wrongfully occupied the external wall of the said Building which is common part.  The Applicant claim for an order that the Respondents do remove the signboards and for damages.

19.  Again, the 1^st Respondent claims that the signboards are put up by the 2^nd Respondent and they should not be held liable.

20.  The 2^nd Respondent claims that the 1^st Respondent acquiesce with the 2^nd Respondent to put the signage or signboard on the external walls of the 1^st Floor.

21.  Parties agree that the external walls are part of the common area.  But the Respondents deny that the windows are part of the external wall or common area.  Anyway, these signboards have been removed.  The remaining issue is the question of damages.  Parts of the signboards are built over window panes, which are not common area.  The Respondents argue that if they are liable for wrongfully putting up the signboards, damages should be assessed by reference to the area of the signboards over external wall only, and not the parts over the window panes, which would substantially reduce the damages.

22.  Again, expert evidence has been introduced on the quantum of damages for the period from 1 November 2008 to 31 October 2011.

23.  I would start with the evidence of the Applicant.

The Applicant’s case

24.  The 1^st witness for the Applicant is Mr. Chan Chi Keung, who is an assistant manager of the management company of the said Building.

25.  Mr. Chan produced the Rules for Decoration applicable to the said Building and produced a form signed by the 2^nd Respondent and its contractor confirming that they would comply with the Rules.

26.  He further explains that in December 2007, his company has received complaints from owners of the said Building that the wooden door and glass door constructed by the 2^nd Respondent obstructed fire exit.  He wrote to the Fire Service Department for their investigation.  On investigation, the Fire Service took no action but suggested that there may be breach of the Building Ordinance and the matter was referred to the Building Department.  As a result, 3 orders all dated 15 October 2008 were issued against the Applicant identifying the matter as set out in paragraph 13 hereof and requested the Applicant to rectify.

27.  On cross examination, Mr. Chan agrees that after completion of the renovation, the management company only checked if there was any rubbish left, or any damage to common facilities, and they would return the deposit.  He denies that he knew about the trespass or breach of DMC.  He explains that the management company would not instruct an authorised person to check if all renovation works comply with the Building Ordinance or the DMC, or it would be too expensive.

28.  Mrs. Daley, counsel for the 1^st Respondent also put to Mr. Chan that only by letter dated 20 December 2010 (issued by Applicant’s solicitor), when the Applicant first complained of the placing of the air conditioners.  Mr. Chan cannot confirm.

29.  Mr. Chung, counsel for the 2^nd Respondent put to Mr. Chan that the former tenant of the said Shop was also a foot message shop.  And there was a cover to the side staircase.  Mr. Chan cannot comment as he had not entered the said Shops before August 2007.  But when invited to look at 2 photographs of the former tenant’s business, Mr. Chan agrees that it looked correct.

30.  The 2^nd witness for the Applicant is Madam Chan Po Chuen.  She is a supervisor of the management company.  She produced some relevant documents for the Applicant, including the DMC, the Land Office record of the owners of the Shops, a set of photographs showing the unauthorized structure, and the signboards.

31.  Madam Chan also informs the Court that the 2^nd Respondent commenced building work to comply with the Building Orders on or about 10 October 2011. The Building Department confirmed that the breach has been purged on 8 March 201.

32.  As a result of the renovation work, the sliding door, the glass door and the cover over the open staircase have all been removed.  The air-conditioners and the signage have also been removed.  The 3 fire protection doors have been reinstated.  But the external wall of 1^st and 2^nd Floor, and the staircase have not been reinstated.

33.  She has also produced a number of photographs taken after the renovation, which shows that the 2^nd Respondent is still occupying the corridor by placing a number of furniture or utensils thereat.

34.  Madam Chan also noted that there should be 4 hose reels at 1^st Floor. Only one is left.  And after the renovation in October 2011, the 2^nd Respondent has replaced the signboards by sticking signage or banner on the window.

35.  Madam Chan agrees with Mrs. Daley that the glass belong to the individual owners who have the duty to repair.

36.  That is the Applicant’s case.

The 1^st Respondent’s case

37.  The 1^st Respondent called Madam Cheung Yuet Mei, who is a manager of the company.  She said the 1^st Respondent acquired the said Shops on 29 April 2000.  They had not removed any fire protection doors.

38.  Madam Cheung confirms that the said Shops were let to the 2^nd Respondent, first on 1 August 2007 for a term of 3 years, and on 9 August 2010 for a further term of 2 years.  And they have made provision in the Lease for the 2^nd Respondent to comply with the terms and condition of the DMC.  The 1^st Respondent is not aware of the breaches committed by the 2^nd Respondent until they are notified by the Applicant.  They immediately served notice on the 2^nd Respondent demanding them to purge the breach.

39.  She also confirms that when the said Shops were let to the 2^nd Respondent, there was no partition walls between the said Shops and the corridor.  But she said the 1^st Respondent only let the said Shops to the 2^nd Respondent.

40.  On cross examination, Madam Cheung agrees that before letting to the 2^nd Respondent, the said Shops were let to another foot message business.  But she was not involved with that tenancy.  She was only involved with the tenancy of the 2^nd Respondent.

41.  She agrees that before signing the 2^nd Lease, she had visited the said Shop.  She agrees that she noticed that the 2^nd Respondent was using some common area.  She asked the 2^nd Respondent to comply with the Orders.  She said the 2^nd Respondent agreed to follow up with the Orders and therefore the Applicant agreed to grant the 2^nd Lease.

42.  Madam Cheung also cross-examined by Mr. Wong that, when the 2^nd Respondent returned possession of the said Shop to the 1^st Respondent, had the 1^st Respondent requested the 2^nd Respondent to re-install the partition wall between the said Shops and the corridor.  She agreed that they had not.

43.  The 2^nd witness for the 1^st Respondent is Madam Chan Choi Har.  Madam Chan is the secretary to the directors of the 1^st Respondent, Mr. David Hughes and his son Mr. Dave Hughes.

44.  Madam Chan was involved in a pre-tenancy meeting between Mr. David Hughes, Mr. Fung, the real estate agent of the Applicant and Mr. Leung of the 2^nd Respondent.  She denies hearing any discussion in the meeting that the 2^nd Respondent might use the common area or install any air-conditioners or signage at the external wall of the said Building.

45.  When asked if the advertisement of Knight Frank had the consent of the 1^st Respondent, she said she did not know, but said that it might be with the consent of her employer.

46.  And on the meeting with the 2^nd Respondent, she did not remember if Mr. Leung of the 2^nd Respondent had mentioned in the meeting that a shop with 3,000 odd square feet was difficult to get.

47.  The third witness for the 1^st Respondent is Mr. Fung Ouk Chung.  He is an estate agent in the employ of Messrs. Knight Frank Hong Kong Limited (“Knight Frank”).  Knight Frank was commissioned by the 1^st Respondent to let out the said Shops.

48.  According to Mr. Fung, in or about mid July 2007, he made arrangement for an estate agent Mr. Yip Kam Ho of Centaline Property Agency Limited, and his customer to inspect the said Shops.  Mr. Yip came with Mr. Leung and Mr. Chu of the 2^nd Respondent, and one person called Benson.  Mr. Fung’s colleague Mr. Tang is also present in the inspection, who is not a witness.

49.  Mr. Fung said he had brought along with him the 1^st Floor layout plan for examination by the 2^nd Respondent.  He denies having told Mr. Leung that the whole floor is for letting, or all areas within sight are lettable.  He denies having said that the side staircase is part of the area to be let.  He said he had pointed out the common area from the plan.

50.  Mr. Fung also denies that he discussed with Mr. Leung on putting up signage, or installing air-conditioners.

51.  Later, a meeting had been arranged between the 1^st Respondent, represented by Mr. David Hughes and Ms. Chan Choi Har, and the 2^nd Respondent represented by Mr. Leung.  The discussion is only related to letting of the said Shops.  There was no discussion on the size of the area, signage, and passageway or corridor.  He said since the 2^nd Respondent has their own estate agent, he has no duty to explain or guarantee on any technical details about the said Shops, such as the lettable area.

52.  Mr. Fung also produced a letter from Centaline dated 25 July 2007 when Centaline on behalf of their client and offer (subject to contract) to let shops 1 to 6 on 1^st floor  Happy Court.  There is no mention about letting of the whole floor, or anything about the external wall or signboards or the staircase.

53.  Mr. Fung also agrees in his evidence that all the partition walls for the said Shops have been taken down.  He also agrees that on the date of inspection, the side staircase had a cover.

54.  He was cross examined on an advertisement put up by Knight Frank on the window of the said Shops which states that

“全層1/F商舖出租 約3,192平方呎”

55.  Mr. Chung put to Mr. Fung that the area of the said Shop is about 144.12 square meters (or about 1,600 square feet) only.  Mr. Fung said he had used the measurement of building area and the figure came from either the 1^st Respondent or sales brochure.  He denies that the area on the advertisement included common areas.

56.  That’s the case for the 1^st Respondent.

The 2^nd Respondent’s case

57.  The first witness for the 2^nd Respondent is Mr. Leung Man Keung, one of its directors.  He had inspected the said Shop in mid July with Mr. Yip of Centaline, his father, Mr. Chu and Benson.  They met with Mr. Fung and his colleague Mr. Tang at the said Building.

58.  Mr. Leung said Mr. Fung represented that the 1^st Floor had very few pillars with sufficient spaces for building small rooms.  The whole of 1^st Floor including any area in sight could be used.  And the former tenant used the whole 1^st Floor.  And there is no need to separate out the common areas/corridor.  And Mr. Fung said otherwise, it would be very difficult to find tenant.

59.  He also said Mr. Fung represented that the side staircase is part of the lettable area. The other occupiers of the said Building would not use the side staircase as they would use the lift at 1^st Floor to go to ground level.  And the former tenant had built a cover to the side staircase to improve the appearance of the premises.  By then, the canopy was still there.

60.  And Mr. Fung also represented to him and promised that the 2^nd Respondent could put up 2 huge sign boards outside the windows.  Mr. Leung asked Mr. Fung if additional rent had to be paid.  And Mr. Fung said it was included in the rent.

61.  Mr. Leung had also enquired with Mr. Fung on where to place the air conditioners. Mr. Fung said he could put them on the eave of the 1^st Floor, and pointed to air conditioners put by other occupiers at the eave.

62.  On the meeting with Mr. Hughes and Madam Chan,  he said the 1^st Respondent had not mentioned that the structure of the said Shops had been varied or requested him to reinstate the common area when carrying out the decoration.

63.  When he carried out decoration, the management company of the Applicant did not require him to submit the decoration plan.  They only asked for deposit.  And during the construction stage, the caretaker of the management company had inspected the said Shop and they had not raised any complaint for occupying common areas.

64.  And after decoration, Madam Chan of the 1^st Respondent had inspected the said Shop, and the signboards.  The 1^st Respondent had not raised any complaint on occupation of common areas.

65.  On cross examination, Mr. Leung said on the day of inspection, Mr. Fung repeated the whole of 1^st Floor could be let.  He admits that he had been shown the floor plan by Mr. Fung.  He only glanced at it.  But Mr. Fung did not point out where are the common areas.

66.  He agrees with Mrs. Daley that the tenancy agreement had not provided for the right to put up the sign boards on external wall or to use the common areas. He explains that he had not clarified with his agent, Mr. Yip, because it was stated on the advertisement that the area was 3,000 odd square feet, and he confirmed it himself on inspection.

67.  Mrs. Daley also put to Mr. Leung that Mr. Fung did not say that the common areas could be used.  He agrees.

68.  Mrs. Daley also put to Mr. Leung that Mr. Fung did not say that the 2^nd Respondent could put up sign boards.  To that Mr. Fung disagrees.

69.  The second witness for the 2^nd Respondent is Mr. Chu Kwok Ming.  He went with Mr. Leung for the said inspection of the said Shop.

70.  Mr. Chu said the agent of the 2^nd Respondent, Mr. Yip informed him that the 1^st Floor had been used formerly for foot message business.  The space would be big enough for the 2^nd Respondent’s business.

71.  On inspection, he noticed that the 1^st Floor had no partition wall. One could not distinguish between the said Shops and the common area.  And the lift at 1^st Floor was locked and the tenant/occupier had to use the rear staircase for entrance and exit.

72.  He said the 1^st Respondent or the 2 estate agents from Knight Frank promised him and Mr. Leung that sign board could be installed outside the 1^st Floor in an L-shape manner.  And the former tenant kept the same sign board.

73.  On cross examination, Mr. Chu denies that he had received the floor plan.  He said they had to have signboard to do business.  And he reiterated that Mr. Fung told them that the sign boards could be installed at the window area.

Discussion and Ruling on Liability

74.  Before I move on to the expert witnesses, I would first deal with the issue of liability.

75.  I believe there is no dispute that the 1^st Floor common areas are common area of the said Building.  According to the Building Management Ordinance, the right to use and control the common areas vests with the Applicant.  And there is no dispute that the 2^nd Respondent had used and occupied the 1^st Floor common areas as part of its business.

76.  I do not believe it is disputed that the eave are part of the common area of the said Building.  Hence the air conditioners had been installed at common area.

77.  It is not disputed that the signboards are built on the external wall of the 1^st Floor.  The Respondents argue that the windows are not common area.  Only the concrete walls between the windows panes are common areas.

78.  Mr. Wong submits that even though the window panes are owned by the 1^st Respondent, assessment should be what was the value to the 1^st/2^nd Respondents (the value to the trespassers) of having external signage covering an entire strip of the exterior of the said Building.  I need not mechanically separate the wall and window surfaces for the purpose of assessment.

79.  Since Mr. Wong accepts that the window panes were owned by the 1^st Respondent, I need not make any finding and I would proceed on the basis that the window panes are not common areas in the control of the Applicant.

80.  As to whether I need to distinct between the wall and the panes, this is a matter for assessment of damages that I would come back later.

81.  The next question is whether the 1^st and/or 2^nd Respondents are trespassers to the said common areas, including occupying the 1^st Floor common areas, for putting up the sign boards and installing air conditioners on the eave.

82.  Mr. Chung in his closing submission states that the tenancy granted to the 2^nd Respondent included the 1^st Floor common area and the right to put up signboards and air conditioners.  The 1^st Respondent, the landlord, was the party who caused the encroachment of the common areas and rented the whole 1^st Floor with the staircase to the 2^nd Respondent, and unlawfully permitted the installation of the signboards and the air-conditioners.  The 2^nd Respondent has no knowledge of the unlawful encroachment and trespass until they are informed by the Applicant.  And as soon as they are informed, the 2^nd Respondent instructed contractor to carry out rectification works.

83.  I suppose Mr. Chung is not suggesting that when the 2^nd Respondent rented the common areas from the 1^st Respondent, they would not be liable to the Applicant for trespass.  If that is his submission, I cannot agree.

84.  “It is no defence that the trespass was due to a mistake of law or fact, provided the physical act of entry was voluntary.” (Clerk & Lindsell on Tort, 20^th Ed para. 19-06).  The use and encroachment of the 1^st Floor common area must be a voluntary act of the 2^nd Respondent, and so must be the putting up of sign boards and air conditioners.  That the 2^nd Respondent may be misled by the 1^st Respondent is no defence.

85.  And the 2^nd Respondent has been shown the layout plan by Mr. Fung.  They must be aware that some of the areas they use are common areas.  It is bad for them to suggest they have no knowledge of the lawful encroachment.

86.  It is of course a defence for the 2^nd Respondent to plead and prove that it has a right to the possession of the material common areas at the material time, or that he acts under the authority of some person having such a right.  (see Halsbury’s Laws of Hong Kong 2^nd Ed, vol 47 page 729).  Though the 1^st Respondent is a co-owner in the said Building, it does not have exclusive possession of the 1^st Floor common area. It is not disputed that these are common areas of the said Building, and by section 41I of the Building Management Ordinance, no owner may convert any part of the common parts of a building to his own use unless approved by a resolution of the owners’ committee, nor to allow his tenant to use it otherwise then in accordance with the terms of the DMC.  No one suggests that the 1^st Respondent has the right to permit the 2^nd Respondent to use the 1^st Floor common area exclusively.  And there is no evidence to show that the 1^st or 2^nd Respondent may use the eave or install the signboards.   The 2^nd Respondent would be held a trespasser.

87.  There is a plea of implied permission by the Applicant in the 2^nd Respondent’s Grounds of Opposition.  It is pleaded that the Applicant has impliedly permitted the canopy over the side staircase, which is an open staircase, and the placing of the air-conditioners.  Mr. Chung, counsel for the 2^nd Respondent has not submitted on this point in his closing submission.  I do not need to give a finding.  Mr. Wong has set out in his closing submission the reason why there is no implied permission and I would adopt his reasoning if a finding has to be made, that there is no implied permission.

88.  I believe the main argument of the 2^nd Respondent is on quantum, which I shall come to later.

89.  The more difficult question is whether the 1^st Respondent should be liable.

90.  Mrs. Daley submits that the Applicant has only pleaded breach of the DMC and not trespass and hence the Applicant is not entitled to claim any damages against the 1^st Respondent under the tort of trespass.  I agree with Mr. Wong that it has been pleaded.  I only need to refer to paragraph 6 of the Amended Notice of Application when it is pleaded, in Chinese, that the 1^st and 2^nd Respondent occupied the 1^st Floor common area.  It is also pleaded that the 1^st and 2^nd Respondent had installed the air-conditioners on the eave and the sign board outside the said Shops.  I agree that the pleading is sufficient.  In any event, at the Lands Tribunal, the procedure is informal.  And the above is sufficient for the 1^st Respondent to know the case they have to answer.  I take it that there are 2 causes of action against the 1^st Respondent, that of breach of contract, and trespass. 

91.  Mrs. Daley’s main argument is the 2^nd Respondent should be liable for its own act.  And she submits that the 1^st Respondent is only aware of the breach of the 2^nd Respondent when they received the letter dated 20 December 2010 from the Applicant.  The 1^st Respondent wrote to the 2^nd Respondent on 19 January 2011 demanding them to rectify the breaches.  She submits that the 1^st Respondent has done everything a landlord should have done and should not be liable.  Or if liable, it should only be held liable from 2 February 2011 (14 days after the warning letter to 2^nd Respondent).  Mrs. Daley also submits that her client had not misrepresented the 2^nd Respondent, nor turned a blind eye or consented to its breach.

92.  I would first refer to Clerk & Lindsell of Torts at paragraph 19-01, “trespass to land consists in any unjustifiable intrusion by one person upon land in the possession of another.”  For the present case, there is no overt act of taking possession of the common area by the 1^st Respondent.  The case of the Applicant is that the 1^st Respondent had consented or otherwise suffered or allowed the 2^nd Respondent to use and have possession of the 1^st Floor common area which is sufficient to amount to an intrusion of the possessory right of the Applicant in the common areas. 

93.  Mr. Wong invited me to draw the inference of intrusion from a number of facts.  He first relies on the undisputed fact that all the partition walls at 1^st Floor had been taken down before the inspection by Mr. Leung and Mr. Chu.  He submits that the said Shops have been formerly used by another foot message business.  If the 1^st Respondent is minded to let or allow the new tenant to use only the said Shops, there is no reason why the partition wall with the corridor had not been reinstated.  And at no stage the 1^st Respondent, either through Mr. Hughes or its staff asked the 2^nd Respondent to reinstate the said Shops, particularly when the said Shops were returned to the 1^st Respondent in October 2012, they did not chase after the 2^nd Respondent to reinstate the said Shops. 

94.  And secondly, he relies on the advertisement of Knight Frank given on behalf of the 1^st Respondent claiming that the lettable area to be 3,192 square feet.  He submits that the area put on letting must include the 1^st Floor common area as it appears from the floor plan that the lettable area of the said Shops would be around 1,600 square feet.  Only by taking into account the 1^st Floor common area when a figure of 3,000 more square feet could be arrived.  He notes in particular that Mr. Fung said in evidence that the figure was given to him by his client (referring to the 1^st Respondent) or from the floor plan.  I shall come to the explanation of Mr. Fung later.

95.  According to the measurement of the experts, the said Shops only have a saleable area of about 1,600 square feet.  Mr. Fung explains that it is the building area.  But he has not explained how he arrived at a figure doubling the gross area of the said Shops.  And if one takes a very rough measure of the 1^st Floor by reference to the layout plan, it is indeed about 3,000 square feet.  The point of Mr. Wong is noted.

96.  Mr. Wong also relies on the evidence of the 2^nd Respondent’s witnesses. I believe I should start with Mr. Leung.  It is the evidence of Mr. Leung that Mr. Fung told him that all area on the 1^st Floor could be used.  But I remind myself that it is also his evidence that he has received the 1^st floor plan from Mr. Fung.  And on cross examination, he agrees that Mr. Fung did not say that the common area may be used.

97.  And further, Mr. Leung said in his witness statement, Mr. Fung told him that there is no need to partition into 6 shops and common area/corridor (“…馮先生向本人表示…….，並無需要間回6個舖位及分隔出公用地方/走廊通道。….馮先生表示如果間回6個舖位就好難找到租客租用。”)

98.  And on the meeting with Mr. Hughes of the 1^st Respondent, Mr. Leung said there is no mention about the alternation made to the 1^st Floor, nor had Mr. Hughes requested the 2^nd Respondent to reinstate the partition wall.  

99.  It is the evidence of Mr. Chu that the Mr. Fung promised the 2^nd Respondent that they could put on 2 large signboards.  But this has not been stated in the Lease.

100.  Mr. Wong submits that Mr. Leung and Mr. Chu’s evidence should be adopted.

101.  It is a convenient time to turn to the evidence of Mr. Fung.  He denies the evidence of Mr. Leung or Mr. Chu.  He seeks to explain that the area on the advertisement come from a sale brochure which has not been produced, or from the owner.  He also explains that the area refers to the building area but he has not really explained how he arrived at his figure. 

102.  Mr. Wong submits that Mr. Fung is evasive and is not a reliable witness.  I agree.  Throughout his evidence, Mr. Fung tries to paint a picture that since the 2^nd Respondent had their own estate agent, it could make enquiry on a lot of details from their agent.  But I would be surprised that, if he had indeed told the 2^nd Respondent that the corridor are to be excluded, it must be obvious to the 2^nd Respondent or its agent that the lettable area would be less than 50% of the area on the advertisement. 

103.  It cannot be disputed that Mr. Leung agrees that Mr. Fung has provided the floor plan to the 2^nd Respondent.  It is obvious Mr. Fung is aware that the issue of common area has to be discussed.  But he had not explained if he had requested the 2^nd Respondent to reinstate the partition wall, or not to use the common area.  As the agent for the 1^st Respondent, I believe he would be concerned to clarify the exact locate that was letted.  Mr. Fung has been evasive in his evidence, and is not reliable.

104.  I found that Mr. Leung is a reliable witness.  I accept his evidence that Mr. Fung has informed him that all the area could be and he does not have to partition into the said Shops and the common area.  I accept the evidence of Mr. Leung that while Mr. Fung did not expressly say that the common area could be use, but the totality of his statement is a representation to Mr. Leung that the whole of 1^st Floor could be used.

105.  I note that the 1^st Lease only cover Shops 1 to 6.  I agree there is no documentary evidence that the 1^st Respondent has let the common area to the 2^nd Respondent.  But the representation of Mr. Fung (as recalled by Mr. Leung) is clear evidence that the 1^st Respondent permits and/or consent to the 2^nd Respondent to use the 1^st Floor common area.  It has not been pleaded, or said in evidence that Mr. Fung’s statement given to Mr. Leung and the 2^nd Respondent as claimed do not represent the position of the 1^st Respondent.  By permitting its tenant the 2^nd Respondent to use the common area, it is a clear intrusion of the possessory right of the Applicant in the common area.

106.  And according to the evidence of Mr. Leung, Madam Chan had inspected the said Shops after the decoration during the 1^st Lease.  It must be apparent to anyone to notice that the common areas/corridor had been encroached.  There is no explanation on why she raised no complaint, if they never agreed to or permitted the 2^nd Respondent to use the common area. 

107.  Mr. Wong has also submitted that Mr. Hughes is a key witness to give evidence on the exact area to be let, and/or whether permission had been given to the 2^nd Respondent to use the said common areas.  He has not given evidence on the area that the 1^st Respondent let to the 2^nd Respondent and I should draw adverse inference against the 1^st Respondent it permitted the 2^nd Respondent to use the common areas in issue.  I agree.

108.  I also accept the evidence of Mr. Leung and Mr. Chu as mentioned above that Mr. Fung has represented to them that the 2^nd Respondent could put up 2 signboards outside the said Shops.  And it must be obvious that there are 2 huge sign boards installed outside the said Shop, as anyone on the street could notice them.  So was the cover to the side staircase.  Again there is no complaint, or action taken by the 1^st Respondent until the Applicant has served their first demand letter.  It supports the inference that the 1^st Respondent must have consented and/or permitted the 2^nd Respondent to use the said common areas, and to put up the signboards on the external wall, which is common areas.

109.  In summing up, the irresistible inference must be 1^st Respondent consented or permitted the 2^nd Respondent to convert the 1^st Floor common area for their use, which permit or consent that they are not entitled to give, and which amount to an act of trespass.  I found the 1^st Respondent and shall be equally liable to the Applicant for trespass to land.

110.  It is true that on the Lease, only the 6 Shops have been let.  But I do not have to go as far as to find that the 1^st Respondent let to the 2^nd Respondent the material common areas.  It is sufficient for the Applicant to prove their case when it is established that the 1^st Respondent has permitted, as above found, the 2^nd Respondent to use the 1^st Floor common areas, to put up the signboards, and the air-conditioners.  And I have so found.

111.  Alternatively, the 1^st Respondent may be in breach of the covenant in the DMC by permitting or consenting to the 2^nd Respondent to encroach upon the material common area.  Mr. Wong has not submitted on the clauses in the DMC that the 1^st Respondent failed to comply and I presume he relies mainly on the trespass claim.

112.  I should now move on to consider the damages payable by the 1^st and 2^nd Respondents.

113.  And on assessing quantum, is only such area of the wall that is covered by the sign board to be counted as occupied area and accountable for mesne profit in favour of the Applicant?  Ms. Daley and Mr. Chung’s argument is that, for the window, they are property of the 1^st Respondent and there is no breach in putting up an advertisement on the window.  Alternatively, the Applicant could not have suffered any loss as the window does not belong to it.

114.  I agree with Mr. Wong that I need not make such a distinction.  What happened is that 2 sign boards are put up by the 2^nd Respondent on the external wall which they are not entitled so to do.  And the damages would be the benefit of the 2^nd Respondent in having such a sign board.

115.  They may have a point if the signage is divided into parts, so that some is inside or on the window, and some parts are on the external wall.  This is what the 2^nd Respondent has done after the renovation were carried out to comply with the Building Order.  But for the 2 sign boards in L-shape, no such distinction is required.

116.  I shall now move on to consider the expert evidence on quantum.  There are 3 experts in this case.

The experts’ evidence

117.  Before I consider the experts’ evidence, it is the submission of Mrs. Daley and Mr. Chung that the 1^st Floor common area cannot be let out by the Applicant in any event.  Hence the Applicant suffers no loss and I should not award any damages.

118.  Mrs. Daley submits that damages is to compensate party for loss caused by a breach. The Applicant is not supposed to be put in a better position by an award of damages.  She refers to Building Management in Hong Kong by Malcolm Merry & Paul Kent, 2^nd Edition.  She also refers to another passage in the Book referring to the case Incorporated Owners of Tak Cheong Bulding (Battery Street) v. Tong Wai Tak and anr [1999] 1 HKC 238 when the author said “the Court of Appeal held that damages will not be awarded for breach of covenant if the plaintiff cannot prove monetary loss resulting from the breach.”  But the authors also said “this does not apply to claims in trespass.”

119.  I have checked with the judgment of Court of Appeal and I believe the above quote is from the judgment of the first instant judge, HH Judge Yung.  But there is no detail discussion on how the decision was arrived at.

120.  Mr. Wong does not dispute that the 1^st Floor common area should not be let.  But he submits that the assessment of damages should be on what benefit the Respondents had obtained.  He refers to the judgment of Megaw LJ given in Swordhealth Properties v. Tabet [1979] 1 WLR 285

“Where the defendant has by trespass made use of the plaintiff’s land the plaintiff is entitled to receive by way of damages such sum as should reasonably be paid for the use. It is immaterial that the plaintiff was not in fact thereby impeded or prevented from himself using his own land either because he did not wish to do so or by any other reason.”

121.  I refer to a judgment by HH Judge M. Wong given in LDBM59/2011 which deal with the same issue, and I have the benefit of adopting his reasoning and conclusion

Having considered the submissions of both parties carefully, I am of the view that the applicant is entitled to mesne profits as claimed.  Lord Nicholls’ judgment in Attorney General v Blake and Another, supra, has in fact succinctly set out the common law principle as follows:-

“So I turn to established, basic principles. I shall first set the scene by noting how the court approaches the question of financial recompense for interference with rights of property. As with breaches of contract, so with tort, the general principle regarding assessment of damages is that they are compensatory for loss or injury. The general rule is that, in the oft quoted words of Lord Blackburn, the measure of damages is to be, as far as possible, that amount of money which will put the injured party in the same position he would have been in had he not sustained the wrong: Livingstone v. Rawyards Coal Co. (1880) 5 App. Cas. 25, 39. Damages are measured by the plaintiff’s loss, not the defendant’s gain. But the common law, pragmatic as ever, has long recognized that there are many commonplace situations where a strict application of this principle would not do justice between the parties. Then compensation for the wrong done to the plaintiff is measured by a different yardstick. A trespasser who enters another’s land may cause the landowner no financial loss. In such a case damages are measured by the benefit received by the trespasser, namely, by his use of the land. The same principle is applied where the wrong consists of use of another’s land for depositing waste, or by using a path across the land or using passages in an underground mine. In this type of case the damages recoverable will be, in short, the price a reasonable person would pay for the right of user: see Whitwam v. Westminster Brymbo Coal Co. [1892] 2 Ch. 538, and the ‘wayleave’ cases such as Martin v. Porter (1839) 5 M. and W. 351 and Jegon v. Vivian (1871) L.R. 6 Ch. 742. A more recent example was the non-removal of a floating dock, in Penarth Dock Engineering Co. Ltd. v. Pounds [1963] 1 Lloyd’s Rep. 359.

This principle is established and not controversial.  More difficult is the alignment of this measure of damages within the basic compensatory measure. Recently there has been a move towards applying the label of restitution to awards of this character: see, for instance, Ministry of Defence v. Ashman [1993] 2 E.G.L.R. 102, 105, and Ministry of Defence v. Thompson [1993] 2 E.G.L.R. 107.  However that may be, these awards cannot be regarded as conforming to the strictly compensatory measure of damage for the injured person’s loss unless loss is given a strained and artificial meaning.  The reality is that the injured person’s rights were invaded but, in financial terms, he suffered no loss.  Nevertheless the common law has found a means to award him a sensibly calculated amount of money.  Such awards are probably best regarded as an exception to the general rule.”

The above judgment shows clearly that the respondent, as trespasser to the applicant’s property, is liable to pay damages to the applicant measured by the benefit received by the respondent, ie by its use of the external wall of the Building, even though the applicant suffered no financial loss.  The measure of damages in this type of cases is not compensatory but based on the price a reasonable person would pay for the right of user.  As mesne profits do represent the price a reasonable person would pay for the use of a property, it is the right damages that the applicant is entitled to recover from the respondent (see also Clerk & Lindsell on Torts (20^th ed), paragraph 19-73, HSBC Private Trustee (Hong Kong) Ltd v Au Yeung Chung, HCA 1662 of 2001 and The Incorporated Owners of Tai Tat Building v Leung Koon, HCA 1931 of 2002).

122.  I agree with Mr. Wong that the measure of damages for trespass is the benefit to the 2^nd Respondent, and not the loss to the Applicant.  And in assessing the damages, the benefit to the 2^nd Respondent would be the rental it has to pay if the common areas are let to it.  The Applicant is entitled to mesne profit which is to be determined by the market rental for the 1^st Floor common area, the sign boards, and the space on the eave occupied by the air conditioners.

123.  The different opinion of the 3 experts have been summarized by Mr. Chung in his Closing Submission, which I adopt –

	Common Area	Sign boards	Air conditioners
Keith Siu of RHL Internation	$1,693,467	$359,397	$94,356.90
Brian Law of Prudential Surveyors	$0	$10,076	$6,134
Kenneth Cheung of Citiland	$0	$14,983.56	$7,297.92

124.  The reason for Mr. Brian Law (expert nominated by the 1^st Respondent) and Mr. Kenneth Cheung (expert nominated by the 2^nd Respondent) to assess the damages for the 1^st Floor common area at nil is because of the view that the area cannot be let out.  I have rejected this argument.

125.  The 3 experts have a joint statement setting out the areas that they agreed and disagreed.  First disagreement is how to calculate the area of the 1^st Floor common area.

126.  Mr. Siu of RHL (the expert nominated by the Applicant) is of the view that saleable floor area should be used.  His argument is since they assessed the rental of the comparable by using saleable floor area, they should use the same unit rates for the common areas.

127.  The other 2 experts used the actual area of the common areas to calculate the mesne profit.  But if the rental per square meter of the comparable is calculated by saleable floor area, I agree with Mr. Siu that in assessing the mesne profit for the area wrongfully occupied by the Respondent, saleable floor area should be used for assessment purpose. 

128.  All three experts agree that the best comparables is the Lease of the said Shops.  Mr. Siu and Mr. Cheung based their assessment purely on the 1^st Lease. And Mr. Law finds another comparable in another building in Sing Woo Road (“comparable no.2”).  The market rental under the 1^st Lease is $610 per square meter (after adjustment) according to Mr. Cheung’s table.

129.  I agree with the opinion of Mr. Cheung that comparable no. 2 is at a different location.  It is not practical to be used as a comparable as a lot of adjustment has to be used, and is sufficient to use the Lease of the said Shops as comparable.  Mr. Siu also used the 1^st Lease as the comparable.

130.  The main difference between Mr. Cheung and Mr. Siu on the assessment of the market rental for the common area is the discount given to the open space in the said Shop.  Mr. Siu gives 50% discount and comes to $675 per square meter.  Mr. Cheung gives 83% discount and comes to $633.47 per square meter.

131.  Though the fact that the common area cannot be let out is not a matter that should deprive the Applicant of damages, the potential of letting out the common area is a matter would I should take into consider.  I am more inclined to adopt a lower figure, as the experts explains in Court that the corridor has no view. Very few people would let the corridor, unless they are the tenant of the said Shops.  And the side staircase could call for a lower rental, as after all, it is only a passage way.  Balancing all the factors, I would adopt the figure of $600 per square meter to assess the mesne profit for the 1^st Floor common areas.

132.  Mr. Wong submits that the period of occupation should be determined by me.  If the Applicant is to claim for a longer period then the 36 months as set out in the expert reports, that should be evidence on the period of occupation that the Applicant would claim damages.  For the time being, we have no concrete evidence on when the occupation commenced.  It is the case of the Applicant that the 1^st and 2^nd Respondent occupied the common areas in 2008.  And more importantly, there is no evidence on the market value of the common areas beyond these 36 months.  How does the Applicant expect this Tribunal to assess the damages?

133.  Given the above finding, I do not accept the submission of Mrs. Daley that the 1^st Respondent should only be liable for mesne profit from February 2011.

134.  Anyway, it is not disputed that renovation to purge the breach commence in October 2011 and the benefit of using the common areas for business could lapse immediately when renovation started, or shortly thereafter.  Taking into account there could be some period of occupation when the 2^nd Respondent is doing renovation before its business commenced, it is not unfair to allow only 3 years’ mesne profit as damages for the Applicant against the Respondents.

135.  In summing up, for the occupation of the 1^st Floor common area, I would allow damages to the Applicant against the 2^nd Respondent at ($600 x 69.69 x 36) $1,505,304.

136.  As for the signboard, the experts cannot find any comparable.  Mr. Cheng suggests that he presumes the signboard is installed inside the said Shop, namely, as a narrow piece of board running along the 2 walls of the Shops facing Sing Woo Road and Yuen Yuen Street respectively.  He assessed the floor areas that would be occupied by this board and took the market rental of such area as mesne profit of keeping the signboards.  I see no basis for this formula of assessment and Mr. Cheng has not referred me to any academic reference in support of his formula.

137.  The other experts adopted the surface areas of the sign boards and give an assessment of 10% of the market rental as market rental for the right to put up the sign board.  I accept this is the correct approach.  But I do not agree that no damages are to be award for the area of the signboard covering the window for the reason I have given.  Accordingly, the damages for the sign board would be [(6.57 + 64.87) x $60 x 36] $154,310.40.

138.  Finally, on the air-conditioners, the area occupied is 4 square meter.  Mr. Cheng adopted the same market rental of $675/sq m.  I do agree that an area on the eave call for the same rental as the said Shop.  I adopt the formula of Mr. Siu and Mr. Law and assess the mesne profit at $60/sq m and the damages is (4 x $60 x 36) $8,640.

139.  I also give an order nisi that the Applicant do have interest on the judgment sums at the rate of 1% over the best lending rate quoted by the Hongkong and Shanghai Banking Corporation from time to time, such order to become absolute within 14 days.

140.  Lastly, Mr. Wong also asks for an order that the Applicant may be allowed to enter and reinstate the common area to its original condition.  I presume he wants to reinstate the wall to the side staircase.  And there is complaint of one or two missing fire heels.  I am inclined to order the 1^st and 2^nd Respondent to reinstate the said Shops and the 1^st Floor common areas to its original state.  I would leave this open for the parties to agree on the items that has to be reinstated and I believe the parties could agree on an undertaking by the 1^st and 2^nd Respondent to reinstate the premises.  And failing agreement, a short hearing can be fixed before me to identify the matter to be purged and the exact terms of the injunction.

141.  As to costs, I believe the Applicant should be entitled to costs with certificate for counsel against both Respondents and I grant an order nisi on cost accordingly in favour of the Applicant, such order to become absolute in 14 days.  This may be an appropriate case for costs be taxed at High Court scale but I leave it to the agreement of the parties, or the Applicant may apply within 14 days.