THE INCORPORATED OWNERS OF SUN HING BUILDING v. JOIN PROFIT (HONG KONG) LTD AND ANOTHER

CAMP 68/2023 & 69/2023

[2023] HKCA 500

CAMP 68/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 68 OF 2023

(ON AN INTENDED APPEAL FROM LDBM NO 103 OF 2019)

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CAMP 69/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 69 OF 2023

(ON AN INTENDED APPEAL FROM LDBM NO 103 OF 2019)

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J U D G M E N T

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Hon G Lam JA:

1.  There are before me applications made by the 1^st respondent, Join Profit (Hong Kong)  Ltd (“Join Profit”), and the 2^nd respondent, Glory River Development Ltd (“Glory River”), respectively, for leave to appeal from the judgment of the Lands Tribunal dated 21 October 2022 (“Judgment”)[1] and for stay of execution of the judgment pending appeal.

2.  The question in the litigation concerns whether the two respondents should be required to vacate from certain common parts which they have been using or occupying on the ground floor of Sun Hing Building (“Building”)  on the basis of an agreement dated 28 June 2002 between Join Profit’s predecessor-in-title and the Incorporated Owners of the Building (“IO”), and to reinstate those parts to their original state, i.e. a common corridor.  In the proceedings below brought by the IO, Deputy District Judge Roy Yu (“the judge”), sitting as the Presiding Officer of the Lands Tribunal, held against the respondents.

Background

3.  The Building, located in Nos. 603-609 Nathan Road, Kowloon, is a two-towered building comprising of a theatre tower (formerly the Nam Wah Cinema)  which is now a shopping arcade called Tokyo Town, and a connected composite tower comprising two basement floors, shops on the ground floor, and 26 floors above ground.

4.  In the original configuration of the ground floor, there is between Shops 11-17 and Shops 18-23 (“Shops”)  a corridor (“original corridor”), which was a common part and the entrance to the Building from Soy Street.  In 2001, Concord Star Trading Ltd (“Concord Star”), then owner of the Shops, proposed a scheme of exchange to the IO, whereby part of the area within Shops 18-23 would be converted into a new corridor for common use (“new corridor”)  and, in exchange, Concord Star would have the right to use the original corridor.  This would enable Concord Star to use (i) the remaining areas of Shops 18-23, (ii) the original corridor, and (iii) Shops 11-17, together as a combined unit.

5.  On 30 October 2001, the Management Committee of the IO approved the proposal.  On 17 December 2001, an owners’ meeting was held at which Concord Star’s proposal was approved. Concord Star’s proposal document is not in the evidence but the minutes of the meeting are available and read as follows:

「 4.1  法團主席向與會業主表示收到地下G11-23號舖之業主書面申請，要求改變舊有G11-17及G18-23舖間之公共行人通道位置以相同面積交換近豉油街靠近「南華戲院」之G18-23舖內部份位置作為新公共行人通道。

4.2  上述舖位業主表示，若有關申請得到批准，將可於新行人通道近「南華戲院」邊牆身提供廣告位予法團，供商戶租用，可增加法團收益。

4.3  有關業主願意承擔更改通道及日後如有需要還原通道之全部費用。

4.4  法團就更改通道徵詢「安建行」之專業意見，「安建行」代表劉先生認為可行及符合法例之要求。

4.5  [決議四]通道地下G11-23號舖間之公共通道改位事宜。

  投票結果如下:

  贊成:  30,979.33份

  反對:  0份

  棄權:  1,496份

  廢票:  0份

  決議獲大會通過，更改G11-23號舖間公共通道及還原費用全數由有關業主承擔，並須與法團簽署協議書。由管理公司負責跟進。」

6.  It will be noted that although condition (2)  places the burden of the cost of reinstatement on Concord Star, there is no provision in the Agreement as to how the arrangement may be terminated and reinstatement required.

7.  Half a year later, on 28 June 2002, the IO and Concord Star entered into a short agreement (“Agreement”)  written in Chinese as follows:

「 公共通道改位協議書

茲 根據二零零一年十二月十七日本大廈業主大會通過之『決議四』，通過地下G11至G23號舖間之公共通道改位; 由原來位置更改為貼近南華戲院位置（見附圖一及附圖二）。 當日投票結果以 30,979.33份贊成，0份反對，一致通過。

條件為:

(1)  業主須將原本於貼近南華戲院 G18 至 G23 號舖內之相約面積，改建為公共通道，以交換原有之公共通道改位。而交換改位後，貼近南華戲院之通道使用權，歸大廈業主立案法團，而原有之中間通道使用權，則歸 G18 至 G23 號舖位之業主。

(2)  業主須全數負責該通道之更改及還原費用。

(3)  貼近南華戲院之牆身，無條件提供廣告位置予大廈立案法團使用。

(4)  貼近業主出租物業之牆身，無條件由業主使用。」

8.  By a letter dated 8 July 2002, Concord Star informed its then tenant of the Shops, Fuk Chan Tai Lee Mahjong Company (“Fuk Chan”), of the Agreement, and transferred to Fuk Chan the right to the original corridor for its use during the term of the tenancy.  On 31 July 2002, Concord Star entered into a new lease with Fuk Chan for a term of 42 months from 1 September 2001 to 28 February 2005. 

9.  It is common ground that works were done to create the new corridor and to integrate the remaining parts of Shops18-23, the original corridor and Shops 11-17 into one single unit.  The combined unit has since been used as a mahjong parlour called “濠江麻雀館”.

10.  By an assignment dated 23 April 2004, Concord Star assigned the Shops, subject to Fuk Chan’s tenancy, to Join Profit.  It is not in dispute in these proceedings that all the rights and interests Concord Star had under the Agreement were also transferred to Join Profit, and that since then the Agreement has had effect between the IO and Join Profit.

11.  It appears that starting from late 2009, certain owner(s)  of the Building had proposed reinstating the original corridor and contacted Join Profit for that purpose. Eventually, an owners’ meeting on 30 August 2011 resolved that the original corridor should be reinstated.  On 17 May 2012, solicitors acting for the IO wrote to Join Profit demanding that the Shops and the original corridor be reinstated to their original condition.  On 8 June 2012, Join Profit replied that the IO could not cancel or vary the Agreement without its consent.  In addition, Join Profit pointed out that the area had been leased out for a term lasting until 30 September 2019, and stated that even if it consented, the reinstatement should only be implemented after the tenancy came to an end. Further correspondence was exchanged, but no steps were taken to make any alterations to the ground floor.

12.  Meanwhile, Fuk Chan’s tenancy was extended by subsequent agreements, with the last one being for a term of 10 years to 30 September 2019.  Due apparently to changes in its partnership, on 16 August 2017, Fuk Chan surrendered its lease and, in its place, Glory River as tenant entered into a new tenancy with Join Profit for a term of 20 years to 30 September 2037.  The same mahjong parlour business continued to be run from the combined unit.

13.  On 25 April 2018, the management company wrote to remind Join Profit of the owners’ meeting resolution of 30 August 2011 for reinstatement.  It said that pursuant to Join Profit’s statement in its letter of 8 June 2012 that its premises had been leased until 30 September 2019, the IO had decided not to require reinstatement until the lease came to an end.

14.  On 28 June 2018, solicitors wrote on behalf of the IO to Join Profit, stating that the Agreement was an agreement for the mutual grant of licence and terminable by reasonable notice.  They gave notice that the Agreement and the licence to use and occupy the original corridor would be terminated on 31 December 2018 and that Join Profit was required to vacate and reinstate the original corridor at its own cost.  

15.  When Join Profit and its tenant, Glory River, failed to vacate, the IO issued an application in the Lands Tribunal on 27 May 2019 against them for orders for possession and reinstatement.  On 6 and 7 July 2020, Join Profit and Glory River filed a Notice of Opposition respectively.

16.  Join Profit’s pleaded case was that:

(1)  the Agreement constituted an “absolute equitable assignment” of the original corridor to Concord Star as the registered owner of the Shops, with an option exercisable by the registered owner of the Shops (alternatively, with mutual consent)  to reverse the arrangements at the cost of the registered owner of the Shops;[2]

(2)  alternatively, the Agreement constituted a specifically enforceable contract under which Concord Star, as the registered owner of the Shops, obtained an immediate equitable interest in the original corridor, with the same option;[3]

(3)  in the further alternative, if only a licence to use and occupy the original corridor was granted to Concord Star, it is, as a matter of law and/or on the true construction of the Agreement, assignable by Concord Star to its successor-in-title and irrevocable by the IO without the consent of the registered owner of the Shops;[4]

(4)  the IO had by words and/or by conduct represented to Concord Star that it shall be assigned the original corridor and shall acquire the right to exclusive use, possession and enjoyment over the same; there was detrimental reliance on such representation; the IO is estopped from denying that Concord Star had been absolutely assigned the original corridor and acquired the right to its exclusive use, possession and enjoyment and that Join Profit has the same rights;[5] and

(5)  by its inactivity from 2012 to June 2018, the IO had by conduct represented to or led Join Profit to believe that the IO had accepted Join Profit’s position that it was entitled to the exclusive use, possession and enjoyment of the original corridor and the IO was not entitled unilaterally to demand reinstatement; there was detrimental reliance on such representation; it is unconscionable for the IO to defeat Join Profit’s expectation.[6]

17.  It is unnecessary to describe Glory River’s pleaded case since it was accepted that its case stood or fell with the position of Join Profit.[7]

18.  At the trial, Join Profit abandoned the contentions in (1)  and (4)  above.[8]  The judge ruled against the contention in (2)  above.[9] The judge held that the Agreement constituted the mutual grant of licence,[10] rejected the contention that there was a licence coupled with an interest,[11] and held that there was an implied term that each licence may be terminated by reasonable notice,[12] thus rejecting Join Profit’s contention in (3)  above.  Finally, the judge also rejected the estoppel or acquiescence argument in (5)  above.[13]

19.  In its draft Notice of Appeal, Join Profit has not sought to raise the contentions in (1), (2)  and (4)  again.  Three intended grounds of appeal are advanced:

(1)  that the judge erred in holding there is an implied term in the Agreement that the licence to use the original corridor may be terminated by the IO by reasonable notice;

(2)  that the judge erred in holding that the 6 months’ notice served by the IO is reasonable notice; and

(3)  that the judge erred in rejecting the estoppel defence.

20.  In addition to grounds similar to Join Profit’s first two grounds, Glory River has advanced an additional ground that the judge erred in ruling that even if the original 6 months’ notice was insufficient, as 11 months had passed since the notice when proceedings were begun by the IO in May 2019 and more than 4 years had passed by the time of judgment in October 2022, there was reasonable notice.[14]

21.  Under section 11(2)  of the Lands Tribunal Ordinance (Cap 17), an appeal against a judgment of the Lands Tribunal lies to this court only on the ground that it is erroneous in point of law.  Further, leave to appeal is required and, by section 11AA(6), leave shall not be granted unless the appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal should be heard.

22.  In his decision dated 31 January 2023,[15] the judge refused leave to appeal.  The respondents have renewed their application for leave to appeal in this court based broadly on the same grounds.

Implied term for termination by reasonable notice

23.  On the basis that the licence is a contractual licence (as opposed to a licence coupled with an interest), Join Profit’s case below was that it is terminable by mutual consent or unilaterally by it as the Shops’ owner.[16] The IO’s case was that it is terminable by either side unilaterally with reasonable notice.

24.  In referring to the Agreement as a mutual grant of licence, the word “licence” is used in a loose sense.  This is not a situation where permission is given for a stranger to do what would otherwise be a trespass.  Here, Concord Star was an owner in the Building and, as such, had in common with other owners a right of possession over the original corridor which was a common part.  What seems to have been granted to it by the Agreement was permission to enclose the original corridor, incorporate it as part of the combined unit, and use it to the exclusion of all the other owners, which would otherwise be presumably a breach of the Deed of Mutual Covenant (“DMC”)  (though that document has not been placed before me)  and an ouster by one co-owner of the others.

25.  Similarly, the new corridor is part of the Building in which all owners have any interest, though under the DMC Concord Star had by covenant a right of exclusive possession of that area as part of Shops 18-23.  By the Agreement, Concord Star gave permission for the other owners (including their licensees)  to enter and use that area as a common corridor which would otherwise be a breach of covenant against Concord Star, in effect waiving its exclusive right under the DMC so that the other owners can resume the exercise of their right as tenants-in-common.

26.  In relation to this ground, Join Profit submits, inter alia, that the judge erred in holding that there was an implied term that the licence granted to it under the Agreement can be terminated unilaterally by the IO by reasonable notice, without finding that such a term is necessary.  It is submitted that there is no necessity for a term to be implied giving the IO an unfettered right unilaterally to terminate the Agreement at any time by reasonable notice.

27.  It is submitted that, given that the cost of the initial conversion and any subsequent reinstatement is borne by the Shops’ owner, it would be unreasonable and inequitable for the IO to be able to terminate the Agreement unilaterally at any time.  It is said that that would be absurd, as the Shops’ owner and its tenant would suffer significant financial loss, and that the judge’s response that the parties could have included a minimum term for the licence and any loss could be compensated by agreement, when there are no such agreed terms, is erroneous.

28.  Further, it is submitted that the judge’s conclusion is tainted by an erroneous understanding of the power of the management committee under section 34I(1)(a)  of the Building Management Ordinance (Cap 344)  and of the decision in 383HK Limited v The Incorporated Owners of Tak Bo Building [2018] HKCA 164. 

29.  It seems to me that the first intended ground is arguable and passes the threshold for obtaining leave to appeal, though this is not to say that I have formed the view that these contentions are probably correct.  It is unnecessary and indeed undesirable to go any further into the merits.  In the circumstances of this case and in the interest of time, it seems to me appropriate to give leave to appeal on the grounds put forward in the draft notices of appeal.  The notices of appeal should be filed and served within 4 working days.

Stay of execution

30.  Join Profit submits that its appeal would be rendered nugatory without a stay, referring to the observation in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at §9(1)  that: “where, as in the present case, the relevant order is one for the possession of premises, again it can readily be appreciated that without a stay of execution, more often than not, it is likely that an appeal would be rendered nugatory”.  It is said that if execution of the judgment below is not stayed, substantial, expensive and time-consuming works will have to be carried out for reinstatement.  Quotations obtained suggest that the demolition / reconstruction works alone would take 75 to 90 days and cost $820,000 to $1,125,150, and the entire works could last substantially longer.  There would be nuisance and disruption caused by the works to the users of the Building and the businesses there.  If the appeals are successful, the works may have to be done all over again, though in the reverse direction.  Further, the existing combined shop space occupied by Glory River would have to be split into two in order to reinstate the original corridor.  There is evidence that this would cause Glory River immediately to lose the licence for the Mahjong parlour it has been running and that there is no guarantee that a new licence can be obtained even if the appeals succeed.

31.  The IO opposes the stay applications simply on the basis that if the applications for leave to appeal are dismissed, then the stay applications should also be dismissed.

32.  In all the circumstances, I consider that an order for stay of execution pending the appeals should be granted against an undertaking by each of Join Profit and Glory River to prosecute its appeal expeditiously and with diligence.  The actual order will be granted after receipt of such undertakings, to be given by solicitors’ letters within 4 working days.

[1]  [2022] HKLdT 56.

[2]  paragraph 21 of the Notice of Opposition.

[3]  paragraph 22 of the Notice of Opposition.

[4]  paragraph 23 of the Notice of Opposition.

[5]  paragraphs 24-29 and 34-36 of the Notice of Opposition.

[6]  paragraphs 41-45 of the Notice of Opposition.

[7]  Judgment, §46.

[8]  Judgment, §§34 & 38.

[9]  Judgment, §104.

[10]  Judgment, §§105-111.

[11]  Judgment, §§128-129.

[12]  Judgment, §§112-127.

[13]  Judgment, §§135-140.

[14]  Judgment, §144.

[15]  [2023] HKLdT 8.

[16]  Judgment, §113.