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

LDBM 103/2019

[2022] HKLdT 56

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 103 OF 2019

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JUDGMENT

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Background

1.  The applicant is the incorporated owners of Sun Hing Building (Sun Hing Building called “the Building” and the applicant “the applicant” or “IO” hereinafter).

2.  The Building 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 basements, shops on the ground floor, and 26 floors of various units. The dispute herein concerns some shops and common parts on the ground floor of the composite tower.

3.  The 1^st respondent is the registered owner of Shops 11-17 and Shops 18-23 on the ground floor of the composite tower of the Building (collectively called “the Shops”). The 2^nd respondent is the current tenant of the Shops.

4.  I refer to Plan 1 attached to the Notice of Application which shows the original layout of the Shops coloured pink. Between Shops 11-17 and Shops 18-23, there is a common corridor which is coloured yellow on Plan 1 (“the original corridor”). The original layout is not disputed and it is the applicant’s case that the original corridor was and is a common part of the Building and it is the case of the respondents, that it was a common part of the Building until the execution of a Chinese Agreement that I am coming to immediately. This is the first agreed issue in dispute between parties -

“Accepting the original corridor forms part of the common parts of the Building before signing the Chinese Agreement, after signing the Chinese Agreement, whether the original corridor remains part of the common parts of the Building.”

The original corridor was used by the occupier and owners of the Building, in particular, this was the entrance to the Building from Soy Street.

5.  In or about 2001, the owner of the Shops is one Concord Star Trading Limited (“Concord Star”). The Shops were let to Fairwood Fast Food Limited (“Fairwood”), a fast food chain restaurant. Though the shop units are divided by glass partition, Fairwood could not combine all the Shops as one single unit as the Shops was divided by the original corridor. The Shops could only be merged into 2 areas for operation.

6.  And there was suggestion that the customers would be moving from shop area on one side of the original corridor to shop area on the other side, carrying with them the food and drink. There was suggestion that this created safety hazards to other users of the original corridor as food and drink might be dropped or spilled onto the ground. Yet there was no evidence of any accident happened in the original corridor area causing claim against the IO.

Execution of the Chinese Agreement

7.  By early 2001, Fairwood closed the fast food restaurant and returned possession of the Shops to Concord Star. By a Provisional Tenancy Agreement between Concord Star with one Fuk Chan Tai Lee Mahjong Company (“Fuk Chan”) dated 1 May 2001, the Shops with the original layout was let to Fuk Chan, who intended to run a mahjong parlour. Fuk Chan failed to obtain approval for the necessary licence to operate the mahjong parlour at the Shops, because they could not be converted to one single unit.

8.  According to the case of the 1^st respondent, Concord Star had in or around 2001, proposed a scheme of exchange of corridors to the management committee of the IO. Part of the area within Shops 18-23 shall be converted into a new common corridor (“the converted corridor”) in exchange for the right to use the original corridor. By the scheme, Concord Star would be able to convert the remaining portion of Shops 18-23, the original corridor and Shops 11-17 into one single unit.

9.  There is a resolution of the Management Committee of the IO dated 30 October 2001 (“MC Resolution”) which approved the exchange of corridors. The relevant resolution paragraph 8.3 is as follow –

“有關G11-23號地舖業主書面向法團申請更改G11-23號舖中間之公共通道，法團經審閱過由有關業主交來之圖則後，一致通過有關申請，而改通道費用將由該業主負責。改建後的通道還可向法團提供位置作廣告箱用。該通道如需還原時，該業主將負責使此通道恢復原狀。細節問題將由管理處與該業主商討。管理公司建議，須徵詢法團聘用之法律顧問及物業顧問「安建行」就有關改動上述公共部份之專業意見。”

10.  The written application from Concord Star has not been produced. And subsequently, there is another owners’ meeting of the IO when a resolution was passed (“Owners’ Resolution”) which approved the exchange, and the detail of the resolution is set out below –

“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。”

11.  On or about 28 June 2002, the IO and Concord Star signed a Chinese document called, 公共通道改位協議書 (“the Chinese Agreement”). The terms of the Chinese Agreement are 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。”

(The effect of the terms of the Chinese Agreement would be considered in detail later.)

12.  It appears that the Chinese Agreement is the document referred to in the Owners’ Resolution. And the terms of the Chinese Agreement basically repeated the matter agreed in the Owners’ Resolution.

13.  I refer to Plan 2 attached to the Notice of Application which shows coloured in yellow the location of the converted corridor. The remaining portion of Shops 18-23, the original corridor and Shops 11-17 having been converted into one single unit (“the Conjoined Shop”) is coloured pink.

14.  There is another Chinese agreement signed between the management company of the Building with Concord Star on the same day and in identical terms (“second Chinese Agreement”). I consider the document adding nothing to the Chinese Agreement. Although the 1^st respondent refers to this document in the pleadings, in the closing, Mr. A Wong, senior counsel for the 1^st respondent, agrees that the second Chinese Agreement does not add another right above the Chinese Agreement.

15.  It is not disputed that the Chinese Agreement was executed between IO and Concord Star.

16.  After the Chinese Agreement has been entered, the documents produced by parties shows that Fuk Chan on 5 July 2002 had required Concord Star to seek the approval of IO for an exchange of the corridors. And by a letter dated 8 July 2002 from Concord Star to Fuk Chan, Concord Star confirmed that it had obtained the agreement with IO for the exchange and formally transfer the right to the original corridor to Fuk Chan for its use during the term of the tenancy. It also stipulated in the letter that Fuk Chan had to modify a portion of Shops 18-23 into the converted corridor for use by IO and the public (歸大廈法團用及公眾人仕使用).

17.  Pursuant to the Provisional Agreement, Concord Star has entered into a formal lease with Fuk Chan on 31 July 2002 for a term of 42 months from 1 September 2001 to 28 February 2005. It is noted that in the lease document, the area of the leased property is designated on a plan by reference to the original location/layout of the Shops. I can safely assume the lease should be read with the said letter dated 8 July 2002 and the right to use the original corridor by Fuk Chan is so transferred.

18.  By an assignment dated 23 April 2004 (“the Assignment”), the 1^st respondent acquired the Shops from Concord Star subject to the lease with Fuk Chan. It is claimed by the 1^st respondent that by the Assignment, it has acquired all interests, benefits and entitlements in the Shops as well as the right to the original corridor. I presume by the Assignment, the 1^st respondent can only acquire the interest then hold by Concord Star, and as set out in the Assignment. It is material to my consideration later as to the property and proprietary rights being assigned under the Assignment by referring to the description of the property in the Assignment –

“The Property: -

(a) Lot number, sections, undivided shares, description and address etc.:

ALL THOSE 4,068 equal undivided 62,639^th parts or shares of and in ALL THOSE pieces or parcels of ground registered in the Land Registry as KOWLOON INLAND LOT NO.7983 and KOWLOON INLAND LOT NO.7335 And of and in the messuages erections and buildings thereon now known as SUN HING BUILDING ( 新 興 大 廈 )(“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THOSE SHOPS NOS. G-11, G-12, G-13, G-14, G-15, G-16, G-17, G-18, G-19, G-20, G-21, G-22 and G-23 all on the GROUND FLOOR of the Building (which said Shops Nos. G-11, G-12, G-13, G-14, G-15 and G-16 are respectively shown on the Ground Floor Plans all annexed to an Assignment registered in the Land Registry by Memorial No.555140 and thereon respectively coloured Pink and marked G-11, G-12, G-13, G-14, G-15 and G-16 and the said Shops Nos. G-17, G-18, G-19, G-20, G-21, G-22 and G-23 are respectively shown on the Plans Nos. 2-8 (both numbers inclusive) all annexed to an Assignment registered in the Land Registry by Memorial No.564782 and thereon respectively coloured Pink and marked G-17, G-18, G-19, G-20, G-21, G-22 and G-23 (the said Assignments Memorial Nos.555140 and 564782 are hereinafter collectively called “the said Assignment) as varied or modified by a Resolution of the Management Committee of Sun Hing Building passed on 30^th October 2001 so far as the same is valid and subsisting. [my highlight for later consideration]

(b) Exception and reservations, etc.:

(i) Except and reserved as in the Government Lease is excepted and reserved; and

(ii) All exceptions and reservations as more particularly described, mentioned and/or referred to in the said Assignment.

(c) Easements and other appurtenant rights the benefit of which is assigned with the Property:

All rights rights of ways (if any) and other rights and all privileges easements and appurtenances as more particularly described, mentioned and/or referred to in the said Assignment.

(d) Easements and other appurtenant rights to which the Property is subject:

All subsisting rights, rights of way and easement to which the Property is now subject.”

19.  I note that the description of the Shops in the Assignment refers to the MC Resolution. There is no reference to the Owners’ Resolution, or the Chinese Agreement, or the said letter dated 8 July 2002. And there is no mention of the original corridor in the description.

20.  After the Assignment of the Shops to the 1^st respondent, the Fuk Chan had exercised the option to renew in 2005. On 24 October 2007, Fuk Chan entered into a new tenancy agreement with, inter alia, the 1^st respondent for a lease of the property composing of the Shops and some office space on upper floor of the Building which does not concern this case. The identification plan attached to the tenancy shows that the Shops are located at the original layout. No further document was signed between the 1^st respondent and Fuk Chan on the right to use the original corridor. Yet it is not disputed that Fuk Chan continued to use the original corridor and provided the converted corridor for use by the IO.

21.  And on 1 August 2009, Fuk Chan enter into a new tenancy agreement with, inter alia, the 1^st respondent for lease of the Shops for 10 years from 1 October 2009 to 30 September 2019. Again, the plan of the Shops in the tenancy agreement refers to the original layout and Fuk Chan continued with the exchange of corridor arrangement. I am confirmed by Mr. M Wong, counsel for the 2^nd respondent that there is no letter or document from 1^st respondent on the use of the original corridor being granted to Fuk Chan or the 2^nd respondent as the one dated 8 July 2002 mentioned hereinabove.

22.  According to the evidence of Chan Chung Keung, the witness for the 2^nd respondent, in 2017, there were changes in the partnership of Fuk Chan. And on 16 August 2017, Fuk Chan entered into an agreement with the 1^st respondent to surrender the Shops to the 1^st respondent, and the 1^st respondent entered into a new tenancy with the 2^nd respondent for a term of 20 years, in effect running the same mahjong parlour business. It is noted that the description of the premises let to the 2^nd Respondent is different from the previous tenancy agreements/leases, namely, “[the Shops] which Shops for identification purpose only are shown on Plan 1 hereto annexed and thereon coloured Pink as varied and modified by [MC Resolution]; [Owners’ Resolution]; and [the Chinese Agreement] as far as the same are valid and subsisting.” The draftsman did not use the same description for the Shops used in the Assignment between Concord Star and the 1^st Respondent. The plan as attached is the same plan with the original layout.

The Applicant’s case and the pleading

23.  This is a claim by the applicant for “reinstatement” of the original corridor and for it to be used according to the DMC hereinafter referred. It is the case of the applicant that the Chinese Agreement is a mutual grant of licence in respect of the original corridor and the converted corridor. There is no specified terms or duration. The applicant claims that the Chinese Agreement is not perpetual and must be determinable. Accordingly, there should be an implied term in the mutual grant of licence “that the same and the licence granted can be terminated/revoked by reasonable notice being given by the applicant.” (See paragraph 16 of the Notice of Application.)

24.  Pausing here, the Chinese Agreement was signed between IO and Concord Star. The applicant and the 1^st respondent agrees that the Chinese Agreement is binding between the IO and the 1^st respondent. I do not have to rule on this issue.

25.  By around 2012, the management committee of IO had resolved to recover possession of the original corridor. Demand letter has been issued by the then solicitors for the IO for reinstatement of the original corridor. The 1^st respondent responded by letter setting out the objections, including the claim that if a notice of termination is to be given, the termination shall be effective only upon the expiration of the current tenancy. No legal action has been taken by the applicant until 2018. The applicant claims that upon receiving the response from the 1^st respondent, they take into account their suggestion giving allowance for the existing tenancy to expire before reinstatement.

26.  According to the case of the applicant, the management committee of IO further resolved in the meeting on 27 June 2018 that notice of termination shall be given to the 1^st respondent to terminate the mutual grant of licence and terminate/revoke the licence granted to the 1^st respondent to use and occupy the original corridor. The delay in taking action is a matter relied upon by the respondents to claim estoppel which I shall come to later in the 1^st respondent’s case and pleading.

27.  It is not disputed that a 6 months’ notice has been served on the 1^st respondent on or about 28 June 2018, which according to the applicant, do terminate the licence granted for the 1^st Respondent to use the original corridor and the 1^st respondent is required to reinstate the original corridor and Shops 18-23 to their original state and condition on or before 31 December 2018. A separate notice has been served on the 2^nd respondent on or about 29 March 2019 asking it to vacate the original corridor.

28.  It is the case of the applicant that after the termination on 31 December 2018, the respondents have no further right to occupy the original corridor, and/or the occupation is in breach of section 34I of Building Management Ordinance (“the Ordinance”) and/or Clause 8 of the second schedule of the Deed of Mutual Covenant of the Building (“the DMC”) which reads –

“8. Not to make any structural alteration to any portion of the said building of which he is the owner which would in any way interfere with or affect the use and enjoyment of any other portion of the said building, nor cut, main injure, damage, alter or interfere with or affect the use and enjoyment of any other portion of the said building, nor cut, main injure, damage, alter or interfere with any part or parts of the said premises or building in common use or any of the sewers, drains, watercourse, conduits, pipes, cable, wiring, fixtures, equipment apparatus or services of the said premises and building.”

29.  The 1^st and 2^nd respondent refused to deliver up possession of the original corridor or to reinstate the corridors. The applicant brings this action to reinstate the original corridor. Or strictly according to the Notice of Application, the following reliefs are claimed –

a.  An Order that the 1^st and 2^nd respondents do forthwith demolish and remove all the existing structures and objects erected at the [original corridor] and vacate the same and reinstate the same to its original state and condition at the 1^st and 2^nd respondents’ own costs;

b.  In so far as may be necessary, an Order that the applicant be at liberty to proceed with carrying out the demolition and reinstatement works …;

c.  An injunction restraining the 1^st and 2^nd respondents whether by themselves, their servants or agents or employees or licensees or otherwise howsoever from using and occupying the [original corridor] to the exclusion of the applicant and the other owners and occupiers of [the said Building];

d.  Further and/or alternatively, damages to be assessed;

30.  As no evidence for damages has been introduced, I do not have to consider the claim on damages.

1^st respondent’s case and pleading

31.  The 1^st respondent pleaded in the Notice of Opposition the aforesaid background that when the Shops were used by Fairwood, serious safety hazards were created by the staff and the customers. On the other hand, Fuk Chan could not obtain approval for the licence to operate the mahjong parlour. In view of the background, Concord Star made a proposal to the IO in around 2001 (“the Proposal”). The Proposal (as pleaded in the Notice of Opposition) was made by Concord Star as follows –

(a)  The registered owner of the Shop (i.e. Concord Star at the time) shall –

(i)  At its own costs convert part of Shops G-18 to G-23 into the [converted corridor], …

(ii)  Grant permission for the [converted corridor] to be used as a passageway by owners, tenants, residents, and customers, etc. in place of the [original corridor];

(iii)  Grant further permission to the IO to rent out the supporting wall of the [converted corridor] close to Nam Wah Cinema as an advertising board;

(b)  In exchange-

(i)  The right to the exclusive use, possession and enjoyment of the [original corridor] shall be absolutely assigned to the registered owner of the Shops;

(ii)  The registered owner of the Shops shall be entitled to convert the [original corridor], Shops G-11 to G-17, and the remaining parts of Shops G-18 to G-23 into an interconnected shop space, i.e. [the conjoined shop], and be at liberty to use, occupy and/or enjoy the same as a single large shop; and

(c)  The registered owner of the Shops shall remain as the registered owner of the [converted corridor]. Should the registered owner of the Shops subsequently find it necessary to reverse the aforesaid changes and/or arrangement, it shall be fully responsible for all costs of reinstatement.

32.  The letter of proposal has not been produced. It is claimed that the Proposal was accepted by the IO and in the owners’ meeting, which was recorded in the MC Resolution and Owners Resolution. And later the accepted Proposal was reduced into the Chinese Agreement. It is sufficient for me to note that the terms of the Chinese Agreement do not resemble all the Proposal by comparing the wordings.

33.  It is noted that according to its pleaded case, Concord Star only proposed to give permission to IO and the owners and occupiers of the Building to use the converted corridor when the legal title to the same is retained by Concord Star. In exchange it claims to have the exclusive possession of the original corridor. This is a matter I have to take into consideration when determining the nature of the arrangement.

34.  It was originally pleaded that the Chinese Agreement constitute an absolute equitable assignment of the original corridor to Concord Star. This contention has been abandoned by the 1^st respondent through Mr. A Wong.

35.  Further, the 1^st respondent pleaded that the Chinese Agreement (and the second Chinese Agreement) constitute specifically enforceable contracts under which Concord Star as the registered owners of the Shops obtained an immediate equitable interest in the original corridor with the option exercisable by the registered owners of the Shops (or alternatively by mutual consent) to reverse the arrangement at the costs of the registered owner of the Shops. Hence according to the pleaded case of the 1^st respondent, the mutual grant or the permit granted is terminable, but only at the initiation of the owner of the Shops, or by mutual agreement. The 1^st respondent has counterclaimed for some declaratory relief, including a claim that it is entitled to the exclusive use, possession and enjoyment of the original corridor under an irrevocable and assignable licence.

36.  In the alternative, if this Tribunal found that the Chinese Agreement is a licence to use and occupy the original corridor granted to Concord Star, the licence was contemplated to be used and was granted in conjunction with and/or in aid of the interest to use, occupy and enjoy the Conjoined Shop as a single large shop and is assignable by Concord to its successor-in-title and irrevocable by the IO without the consent of the registered owner of the Shops. Or alternatively, the licence granted is assignable by Concord to its successor-in-title and irrevocable by the IO without the consent of the registered owner of the Shops.

37.  The above issues are covered by the 2^nd and 3^rd agreed issues in dispute, namely –

“Whether, on true and proper interpretation of the [MC Resolution] dated 30 October 2001, [the Owners’ Resolution] dated 17 December 2001 and [the Chinese Agreement and the second Chinese Agreement], a mutual licence (通道使用權) (“the Mutual Licence”) was granted by the Applicant and [Concord Star] to each other over the [original corridor] and the [converted corridor] as referred to in the plans annexed to the [Chinese Agreement]; or

Whether there was an assignment by the applicant of an absolute/immediate equitable interest over the [original corridor] to [Concord Star] or the registered owner of [the Shops] together with the right to the exclusive use, occupation and enjoyment thereof on a permanent basis, to the effect that the [original corridor] has ceased to be a common part of [the Building], coupled with an option exercisable only by [Concord Star] or the owner of the Shops to reverse the arrangement as set out in the [Chinese Agreement], at the costs of [Concord Star] or the owner of the Shops.”

And the 3^rd agreed issue in dispute –

“If a licence was granted by the Applicant over the [original corridor], whether there is an implied term in the licence agreement and the licence granted by the applicant over the [original corridor] that it can be terminated/revoked by the applicant by giving reasonable notice to the 1^st respondent; or

Whether the licence granted over the [original corridor] to [Concord Star] as registered owner of the Shops and/or the 1^st respondent is an irrevocable licence coupled with an interest or an irrevocable contractual licence and thus cannot be terminated without the consent of the registered owners of the Shops or both the registered owner of the Shops and the Applicant.”

38.  The 1^st respondent also claims that the IO had by words and/or conduct unequivocally represented to Concord Star that it should be assigned the original corridor and shall acquire the right to exclusive use, possession and enjoyment. I do not repeat the particulars of representations as set out in paragraph 24 of the Notice of Opposition as Mr. A Wong confirmed in the closing that the 1^st respondent is not relying on the matters pleaded in paragraph 24 to 29. He is not relying on this set of representation.

39.  The 1^st respondent also claims that the right of Concord Star in the original corridor passed to the 1^st respondent with the Assignment. As mentioned above, this is not clear from the description of the Shops in the Assignment. As mentioned, it is not disputed that the Chinese Agreement is binding on the applicant and the 1^st respondent. I only have to note here that the right of Concord Star under the Chinese Agreement should be fixed at the time when it was signed. I have to assess the right acquired then by Concord Star which was later assigned to the 1^st respondent.

40.  Starting from paragraph 37 of the Notice of Opposition, the 1^st respondent pleads certain facts after it acquired the Shops in 2004 that make it unconscionable for the applicant to recover possession of the Shops. In gist, the 1^st respondent claims that the IO has allowed the 1^st respondent and its tenant to use the original corridor and it has permitted the IO and the owners and occupiers of the Building to use the converted corridor according to the terms of the Chinese Agreement. The IO has raised no objection over the years. And based on the representation, the 1^st respondent has acted on the bases that the Chinese Agreement is effective and irrevocable, including entering into lease with Chan Fuk and the 2^nd respondent over the years.

41.  Another line of representation relied upon by the 1^st respondent is that in around 2012, the IO has engaged a firm of solicitors to issue various letters to the 1^st respondent (as mentioned above), demanding the 1^st respondent to reinstate the original corridor. The 1^st respondent had replied and stated its position that the 1^st respondent was entitled to the exclusive use possession and enjoyment of the original corridor and the IO was not entitled to unilaterally revoke the same, and any notice should lapse with the term of the tenancy. The last letter issued by the IO’s solicitor was dated 20 November 2012 and no further action has been taken against the 1^st respondent until June 2018. Mr. A Wong submits that by its prolonged inactivity from 2012 to June 2018, the IO has by its conduct unequivocally represented or let the 1^st respondent to believe that the IO has accept the 1^st respondent’s position and the 1^st respondent shall continue to have the right to exclusive use possession enjoyment of the original corridor.

42.  The 1^st respondent denied that there is an implied term that the Chinese Agreement that the licence granted can be terminated or revoked by reasonable notice of the IO. The 1^st respondent also claims that the term “業主” in the Chinese Agreement does not only refer to Concord Star but to the registered owner of the Shops (including the successor-in-title to Concord Star).

43.  The 1^st respondent counterclaims for (according to the written submission of Mr. A Wong) –

a.  A declaration that the 1^st respondent’s use and occupation of the original corridor was not in breach of Section 34I of the Ordinance and/or Clause 8 of the second schedule of the DMC;

b.  A declaration that the 1^st respondent (or its tenants from time to time) is entitled to the exclusive right to use, occupy and enjoy the original corridor as part of the Conjoined Shops under the Chinese Agreement;

c.  In the alternative to b., a declaration that the 1^st respondent (or its tenant from time to time) is entitled to the exclusive right to use, occupy and enjoy the original corridor as part of the Conjoined Shops by virtue of estoppel.

44.  It is noted that the wordings of the last 2 declarations are slightly different from the Notice of Opposition. The variation may be necessitated by the abandonment of the claim that the original corridor being assigned to Concord Star. And the declarations are denied by the applicant.

45.  And at the hearing, I have raised the issue that, if the declaration is to be granted, should all the co-owners be joined? I shall deal with this at the end of this judgment.

The 2^nd respondent’s case and pleading

46.  Mr. M Wong, counsel for the 2^nd respondent agrees that the case of the 2^nd respondent would rise and fall with the position of the 1^st respondent.

47.  The scheme of the conversion and exchange between the IO and Concord Star has been repeated in the Notice of Opposition of the 2^nd respondent. I do not repeat save that there is a plead that the right to the exclusive use, possession and enjoyment of the original corridor shall be absolutely assigned to the registered owner of the Shops. There is the reference to the Chinese Agreement (and the Second Chinese Agreement) and the MC Resolution and Owners’ Resolution. Mr. M Wong has not addressed further on the claim for absolute assignment of equitable interest in the original corridor and I can safely presume this has been abandoned upon the 1^st respondent having abandoned the claim as aforesaid.

48.  Further, the 2^nd respondent relies on the pleaded case of the 1^st respondent which I presume to support the claim of the 1^st respondent to use the original corridor and hence may allow the 2^nd respondent, either by way of tenancy or otherwise to use the corridor.

49.  It also pleaded that in around 2017, for the stable development of the mahjong parlour, an extra-long term lease with the 1^st respondent was entered into using the 2^nd respondent as the corporate vehicle (“2017 Lease”) to continue to operate the mahjong parlour. The term runs from 1 October 2017 to 30 September 2037. At the hearing, Mr. M. Wong confirmed that I could treat the chain of tenants operating the mahjong parlour as one entity.

50.  It is pleaded that before entering the 2017 Lease, the 2^nd respondent was provided with the MC Resolution and the Owners’ Resolution and the Chinese Agreement. And in around late August 2018, pursuant to clause 4(5) of the 2017 Lease and in detrimental reliance on the representations from the MC Resolution, the Owners’ Resolution and the Chinese Agreement, the 2^nd respondent carried out at its own costs further refurbishment and/or repair works to the converted corridor.

51.  It is pleaded that it is unconscionable for the IO to defeat the expectation that the 2^nd respondent shall have exclusive use possession and enjoyment to the original corridor during the 2017 Lease.

52.  The 2^nd respondent also denies that only a licence has been granted to the 1^st respondent by the IO. In the alternative, if only a licence has been granted, it is denied that it is terminable by reasonable notice of the IO.

53.  And on issue of reasonable notice given, Mr. Ng, counsel for the applicant raised one interesting point on pleadings. He observed that while the respondents dispute that there is an implied term that the licence may be terminated by the applicant upon giving reasonable notice, there is no contention that the length of notice given is unreasonable or insufficient. And the respondents shall not be entitled to argue on the reasonableness of the notice if I found that there is an implied term that the licence may be terminated by serving reasonable notice.

Other Issues in Dispute

54.  There are a total of 14 agreed issues in dispute and I have set out the first 3 hereinabove. Issues 4 and 5 are on estoppel which I have set out their respective pleadings and I do not repeat. Issue 6 is the interpretation of section 34I of the Ordinance and Clause 8 of the Second Schedule of the DMC which I would come to later. I do not consider it necessary to go through each of the remaining issues which would in any way be covered by my judgment.

55.  Having heard all the evidence, and the submission from counsel, I believe this case really turns on the interpretation of the Chinese Agreement. There is suggestion by the parties that this has to be read together with the MC Resolution and the Owners’ Resolution. The oral evidence may not be particularly helpful, since the applicant’s and the 1^st respondent’s witnesses do not have firsthand information on the negotiation of the Chinese Agreement and any related matter in 2001-2002.

56.  I shall consider the evidence adduced by the parties.

The Applicant’s Witness

57.  The Applicant has called one factual witness, 麥錫坪先生 (“Mr. Mak”). He adopted his witness statement dated 3 September 2019, supplemental witness statement dated 26 November 2020 and the 2^nd supplemental witness statement dated 6 May 2021 as his evidence-in-chief.

58.  Mr. Mak is the current chairman of the management committee of the IO. He confirms the establishment of the IO, and produces the DMC.

59.  Mr. Mak said the IO is not the owner of the original corridor. The original corridor should be part of the common parts of the Building according to the definition of the Ordinance, as the area has not been specified or designated in any instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner. It is a passage for use by owners and occupiers of the Building to enter the Building.

60.  Mr. Mak also produced the Chinese Agreement. He said in his witness statement –

“根據一份日期為2002年6月28日由法團與[the Shops] 的前業主[Concord Star] 簽訂名為“公共通道改位協議書” 的協議(以下簡稱“互相給予許可協議”) ，法團與Concord Star同意互相“交換”“G-18-G23號鋪”及“該公共通道”的使用權。即是法團將“該公共通道” 給予Concord Star與“G-11至G-17號鋪” 一同使用，並合併及改建成為一個單一大鋪......，而Concord Star將部份原為“G-18至G-23號鋪” 的地方(面積與“該公共通道” 相若) 給予法團使用，並改建成為一條公共通道……給予新興大廈所有業主及居住者進出他們於新興大廈的單位。”

61.  Mr. Mak also produced the layout plans before and after the exchange, which are the plans I referred to hereinabove. There is no dispute on these layouts.

62.  Mr. Mak also said, irrespective of the title given to the document, only a licence was granted by the Chinese Agreement to Concord Star to use and occupy the original corridor so that Concord Star may use it with Shops 11-17 and the remaining part of Shops 18-23 as a single unit. As there is no duration specified, there is an implied term that the licence is revocable or terminable upon given reasonable notice.

63.  Mr. Mak also mentioned that by a resolution passed in a management committee meeting on 27 June 2018, the IO resolved to give notice to the 1^st respondent to terminate the licence on 31 December 2018. And he produced the letter dated 28 June 2018 from Messrs. Lam & Partners, solicitors then acting for the IO, notifying the 1^st respondent that the licence shall be terminated on 31 December 2018.

64.  The 1^st respondent failed to return possession of the original corridor to the IO on 31 December 2018 and continued to let the original corridor with the Shops to the 2^nd respondent. As a result, the owners and occupiers of the Building cannot use the original corridor. Mr. Mak produced a letter dated 29 March 2019 from Messrs. Lam & Partners to the 2^nd respondent demanding it to stop using the original corridor and to return the original corridor to the IO. The 2^nd respondent has also failed to return possession of the original corridor.

65.  In his supplemental witness statement, Mr. Mak supplemented that there is no share in the land, upon which the Building is erected, having been allocated to the common parts. He also avers that as the original corridor belongs to the common parts of the Building, the applicant does not have exclusive possession of the original corridor.

66.  Mr. Mak also refer to the extraordinary general meeting of the owners on 30 August 2011. The majority resolved to take legal action to recover possession of the original corridor. The representative of the 1^st respondent said the Shops had been let out and had to continue to use the original corridor. After some exchange of correspondence, the IO accepted the request of the 1^st respondent to use the original corridor until the end of the lease. It is not disputed that this has not been communicated to the 1^st respondent until the Notice of Termination served in 2018.

67.  Mr. Mak also explained that the rationale for terminating the licence and reinstating the original corridor is to safeguard the interest of the Building. One of the concern of the IO is whether the 3^rd party insurance does cover the converted corridor and/or the original corridor. He refers to the Ordinance which provides that the IO shall arrange 3^rd party insurance for all common parts and failure to do so by the management committee may be subject to penalty. It is reasonable for the IO to take action to recover the original corridor.

68.  Mr. Mak made other legal submission which I would consider with the submission of Mr. Ng.

69.  That is the applicant’s case.

The Respondents’ Factual Witnesses

70.  The 1^st respondent calls Madam Lau Mei Chin (“Madam Lau”) to give evidence. She adopted her witness statement dated 20 April 2022 as her evidence-in-chief. It is noted that before she gives her witness statement, the 1^st respondent had arranged 梁偉業先生(“Mr. Leung”) to give evidence for the 1^st respondent, and he has prepared 2 witness statements dated 6 July 2020 and 28 December 2020 respectively. He left the employment of the 1^st respondent before trial and by leave of this Tribunal, Madam Lau is to be the factual witness of the 1^st respondent. She adopted the contents of the 2 witness statements of Mr. Leung as part of her evidence-in-chief, together with all the documents attached to the witness statements of Mr. Leung.

71.  It is noted that both Madam Lau and Mr. Leung are not involved in the arrangement and execution of the Chinese Agreement. Their evidence is from documents and conversation with the former director of Concord Star hereinafter mentioned.

72.  According to the witness statement of Mr. Leung (being adopted by Madam Lau as her evidence), he read the documents and came to know that the existing layout of the Shops was modified in 2002, when the owner was Concord Star. And Mr. Leung had an interview with張偉強先生(“Mr. Cheung”), the former director of Concord Star. He was informed that when Concord Star acquired the Shops in 1998, the Shops had been let to Fairwood. There were tables and chairs for customers in shops 11-17 and shops 18-23. The 2 areas were separated by the original corridor.

73.  As the corridor was a main entrance to the Building, there were many users who were not customers to Fairwood. The traffic on the corridor was busy. And customers would be carrying with them food and drinks to move from one area of shops to the other area, passing through the original corridor. Some food and drink might be dropped onto the corridor.

74.  It is said in the witness statement of Mr. Leung that he also checked the document and came to know that Concord Star had signed a provisional tenancy agreement with Fuk Chan in May 2001. But for the original corridor divided the Shops into 2 areas, and Fuk Chan could not obtain the mahjong licence. Because of the difficulty of Fuk Chan, and to prevent the hassle created by the Fairwood customers, Concord Star presented to the IO an application for modification and rebuilding of the corridor (“該改建申請”). After the modification, the hassle was reduced and the converted corridor is more spacious.

75.  Mr. Leung refers to the two corridors which we had considered, and the MC Resolution and the Owners’ Resolution. I do not repeat.

76.  In the witness statement of Mr. Leung, he said that before acquiring the Shops, Concord Star had confirmed to the 1^st respondent that according to the MC Resolution, the right whether to reinstate the arrangement rest with the owner of the Shops. And the Assignment made reference to the MC Resolution. I would come to the interpretation of the MC Resolution when hearing the closing submission of Mr. A Wong.

77.  Mr. Ng cross-examined Madam Lau on the acquisition of the Shops by the 1^st respondent from Concord Star. Madam Lau confirmed that she participated in the acquisition. She knew about the Chinese Agreement and the MC Resolution and Owners’ Resolution. She agreed with Mr. Ng that the “使用權” is not meant to be permanent. But she disagreed the suggestion by Mr. Ng that it could be terminated unilaterally.

78.  Madam Lau also agreed with Mr. Ng that she had considered who would be responsible for the costs of reinstatement before the 1^st respondent agreed to acquire the Shops.

79.  There were letters issued by Messrs. Or, Ng & Chan on behalf of the 1^st respondent in relation to the acquisition of the Shops. Madam Lau confirmed that they were issued with the approval of the 1^st respondent.

80.  That’s the case of the 1^st respondent.

81.  There is one factual witness for the 2^nd respondent, Mr. Chan Chung Keung (“Mr. Chan”). He adopted his witness statement dated 6 July 2020 as his evidence-in-chief.

82.  Mr. Chan said he had been in the mahjong business for over 20 years. He used to work for one 揚威發展有限公司(“Yeung Wai”) and now for the 2^nd respondent. And from 2002 to 2013, Yeung Wai has been assisting in the operation of Fuk Chan and he was familiar with the background of the tenancy of the Conjoined Shop.

83.  It is his evidence that Fuk Chan approached Concord Star to rent the Shops for the business of mahjong parlour. The Shops was then separated by the original corridor. Mr. Chan said Fuk Chan was informed by Concord Star that it had applied to the applicant for the exchange of corridors. After the conversion, part of the Shops shall become the new corridor. And the original corridor would no longer exist and be part of the Conjoined Shop. Only with the conversion, Fuk Chan could succeed in applying for the licence to operate the mahjong parlour.

84.  Around May 2001, Fuk Chan signed a provisional tenancy agreement with Concord Star and started using the Shops in September 2001. Upon receiving the approval of the exchange and conversion of corridors, Yeung Wai represented Fuk Chan to prepare the conversion and applied for the Mahjong licence. The first formal tenancy agreement was signed on 31 July 2002.

85.  Mr. Chan said there are strict regulations with the licence on the operation of the mahjong parlour. The tables have to be arranged strictly with the approved plan. If they have to move to another premises, the licence would be considered afresh and may not be approved.

86.  That is the case of the 2^nd respondent.

Discussion and Ruling

87.  As Mr. Ng submits, the case turns on the interpretation of the Chinese Agreement, namely, whether it is a licence (as claimed by the applicant) or a contract that transfer equitable interest (as claimed by the 1^st respondent). And if it is a licence, is there an implied term that the applicant may terminate by serving reasonable notice.

88.  The 1^st respondent added an additional issue that the Chinese Agreement is an enforcible contract that passed equitable interest to the 1^st respondent. While supporting the claim of the 1^st respondent, the 2^nd respondent bases its argument and defence mainly on the basis that Chinese Agreement is a licence.

89.  As review above, Mr. Mak and Madam Lau (or Mr. Leung) are not involved in the arrangement for the exchange of corridor. Mr. Chan had some information, but again he was not directly involved with the exchange arrangement. At best, Mr. Chan has some hearsay evidence on the discussion between IO and Concord Star. I have to do the best from the documentary evidence before me. The MC Resolution and the Owners’ Resolution are also relevant.

90.  I would first deal with the argument of the 1^st respondent on equitable interest. As elaborated by Mr. A Wong in his closing submission, the 1^st respondent contends that the Chinese Agreement constitutes a specifically enforcible contract under which the owners of the Shops obtained an immediate equitable interest in the original corridor with the option exercisable by such owner, or alternatively with mutual consent, to reverse the changes under the Chinese Agreement at the costs of such owner. And by the immediate equitable interest, Mr. A Wong refers to the exclusive right to use, occupy and enjoy the original corridor by the owner of the Shops.

91.  There appears to be no dispute that the Chinese Agreement is an enforcible contract. The question is what right and interest pass by the contract. I have asked Mr. A Wong at the closing what is the equitable interest that he is referring to. I am given to understand that he is referring to the exclusive right to use, occupy and enjoy the original corridor.

92.  Mr. A Wong submits that “the Chinese Agreement involves a bilateral arrangement of ‘exchange’. In a non-technical sense, it involves a ‘land exchange’.” But what he tries to suggest is that, before the exchange, the original corridor was used by the co-owners. And after the exchange, the original corridor was to be exclusively used by the owners of the Shops and the co-owners of the Building are allowed to use the converted corridor.

93.  For the additional contention of the 1^st respondent on transfer of equitable interest, or the extent of the terms of the mutual grant of licence contended by the applicant, I believe I have to analyze the right of the IO in the original corridor. It must be noted that the Chinese Agreement was signed between Concord Star with the IO, and not all the co-owners of the Building. The Owners’ Resolution is a resolution at the general meeting of the IO. It only represents the IO as provided by the Ordinance.

94.  The right of the IO to common area derives from the Ordinance, and I would start with section 16 before I come to section 34I relied on by Mr. A Wong. Section 16 reads –

“16. When the owners of a building have been incorporated under section 8, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by, and the liabilities of the owners in relation to the common parts of the building shall, subject to the provisions of this Ordinance, be enforceable against, the corporation to the exclusion of the owners, and accordingly—

(a) any notice, order or other document which relates to any of the common parts of the building may be served upon the corporation at its registered office; and

(b) any proceedings in the tribunal in respect of any of the common parts of the building may be brought and pursued by or against the corporation.”

95.  One may argue that by section 16, all the rights, powers, and privileges of a co-owner in relation to the common parts is to be exercised and performed by the IO. This could not be correct if the co-owner would have to have the consent of the IO, for example, to go pass any common corridor. This is the submission of Mr. A Wong on the effect of section 34I of the Ordinance. I would look at the terms of section 34I –

“(1) No person may—

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners’ committee (if any);

(b) use or permit to be used the common parts of a building in such a manner as—

(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or

(ii) to cause a nuisance or hazard to any person lawfully in the building.

(2) Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building.”

96.  Mr. A Wong submits when the IO approves an owner to convert part of the common parts to his own use, it is for his exclusive use. This overrides the individual owner’s right to use the common parts that he enjoys under the DMC.

97.  Mr. Ng submits that the common parts (including the original corridor) are co-owned by all the co-owners of the Building. Without the consent of all the co-owners, common parts cannot be permanently converted to become privately-owned land. He refers to Re Sng Allan, also known as Sng Hock Seng [2021] HKCA 1847 at paragraph 15 when Barma JA stated the following principles on interpretation of statutes -

(1)  When considering the context of a statutory provision, the court must have a holistic regard to the entire legislative and sub-legislative framework which the provision forms part of, as well as its legislative history (see Li Yiu Kee v The Chinese University of Hong Kong (unreported, CACV 93/2009, 23 July 2010, at [73] per Stock VP (as he then was)).

(2)  In the course of ascertaining legislative intent, the court may have regard to a variety of background legislative materials, such as Law Reform Commission reports leading to the legislation, and the explanatory memoranda of legislative bills (see HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568, at [14] per Li CJ).

(3)  Interpretation of a statutory provision should, as far as the wording allows, accord with common sense (see Cathay Pacific Airways Ltd v Kwan Siu Wa (2012) 15 HKCFAR 615, at [20(1)] per Ma CJ).

(4)  The court should lean against a construction that creates an absurdity, an anomaly, or otherwise produces an irrational or illogical result (see Jade City International Ltd v Director of Lands [2002] 3 HKLRD 33, at [50] per Mayo VP).

98.  Mr. Ng submits that if permanent conversion of common parts is possible without the consent of all the co-owners, then any dissatisfied co-owner can institute legal proceedings against the management committee to seek the appropriate relief. This would increase conflicts among the co-owners and is contrary to the fundamental principle governing the construction of the Ordinance, i.e. to reduce conflict among the co-owners. He invites this Tribunal not to follow such approach in reading the Ordinance.

99.  Mr. Ng also relies on paragraph 4.81 of Malcolm Merry’s Building Management in Hong Kong (3^rd edition) when the learned author suggests that section 34I of the Ordinance “does not give power to the committee to approve the permanent conversion of common parts into exclusive areas, for that would amount to an amendment of the DMC.”

100.  The effect of section 34I has been considered by the Court of Appeal in a judgment given in 383HK Limited v The Incorporated Owners of Tak Bo Building [2018] HKCA 164. In the judgment of Hon Andrew Cheung CJHC (as he then was), section 34I has been considered in details. At paragraph 18, it is mentioned that the common law right of a co-owner to use and enjoy each and every part of the land under co-ownership is subject to, first the question of ouster. Secondly, the right may be limited by the deed of mutual covenant. And thirdly, by section 34I of the Ordinance. I refer to paragraph 19 of the judgment –

“19. The position, as a matter of law, appears to me to be this. The common law right described above is of course subject to the provisions of the DMC and of the Ordinance. As between the DMC and the Ordinance, if the DMC provides for a right to do the thing in issue on or over the common parts of the building, the co‑owner may do so accordingly. Section 34I(1)(a) does not stand in the way because in the scenario under discussion, the management committee would be bound under the DMC (as a contract between all co‑owners for the time being) to give its consent. There is therefore no contradiction between the DMC and section 34I(1)(a) even though section 34C(2) says that in the event of any inconsistency between provisions contained in Part VIA of the Ordinance (where section 34I is found) and a DMC, that part shall prevail. If the matter is not empowered under the DMC, section 34I(1)(a) is determinative of the issue and everything turns on whether a resolution by the management committee authorising the act in question can be obtained. To this extent, section 34I(1)(a) modifies the common law on ouster, as a resolution passed by a simple majority of the votes of the members of the management committee present at a meeting (per section 34D(2)) can now approve what under common law cannot be done without unanimous agreement of all co‑owners.” [my emphasis]

101.  The judgment of Hon Andrew Cheung CJHC partly supports the submission of Mr. A Wong to the extent that, if the matter is not empowered by the DMC, section 34I(1)(a) provides that the management committee may by a resolution authorizes the act over the common area. But if the DMC has provision over the use of the common area, then the management committee would be bound to give the consent in accordance with the terms of the DMC. Hence, while I agree with Mr. A Wong that Section 34I may in some cases has overriding power on the right of the co-owners, but that is restricted to such right that is not empowered by DMC.

102.  And in the present scenario, the co-owners have right under the First Schedule of the DMC to use the common corridor. The IO would have to give consent to individual co-owner, as of right. The power given to the IO under Section 34I has restriction and should not conflict with the expressed provision of the DMC. Such restriction has to be considered when interpreting the Chinese Agreement.

103.  Section 16 does not add any to the above guidance on the power of the IO and control over common parts. Reading Section 16 as a whole, it is more an enabling section that the IO may exercise the right and privileges on behalf of all the co-owners, such as to take action against trespasser within joining all the co-owners. The section also provides for claims against the co-owners for liability in relationship to the common parts by suing the IO instead of suing all the co-owners. Hence the section must be read in such a context.

104.  Accordingly, the IO only have such rights provided by the Ordinance over the original corridor as I analysed. I cannot see any proprietary right in the original corridor given to the IO and that the IO may transfer to the 1^st respondent. And if Mr. A Wong submits that it is the right to exclusive use, possession, and enjoyment of the original corridor, it is the permit to use the original corridor, and is more a form of a licence. Any right that may be granted by the IO including such right granted by the Chinese Agreement (reading with the MC Resolution) would be considered with the restriction I analysed. That would be the effect of the Chinese Agreement I am coming to immediately. I rule against Mr. A Wong on the suggestion of the passing of equitable interest by the Chinese Agreement as the IO does not have proprietary interest in the common parts.

105.  The highest of Mr. A Wong’s argument may be the one set out in his opening. He argues that the licence granted is one coupled with interest. He submits that there is not a close category of the kind of “interest” which would qualify to couple with such a licence. I would come back to this “interest” point later when discussing the question of licence.

106.  During the trial, Mr. A Wong on behalf of the 1^st respondent confirmed that it will not be advancing a case that there is an absolute equitable assignment of the original corridor. The answer to the first agreed Issue in Dispute is the original corridor has to remain a common part of the Building subject to the right granted under the Chinese Agreement, if any. The crux of the argument is still on the nature of the Chinese Agreement, and whether there is an implied terms that it is terminable and by what means.

107.  Mr. Ng submits that it is a licence, and the fallback position of Mr. A Wong is it is a licence. I agree with Mr. Ng for the following reason. First, there is no interest or share in the land assigned to the original corridor. Secondly, the Chinese Agreement covers “使用權”. It is clearly understood to refer to the right to use. And thirdly, even on the 1^st respondent’s case, they are providing the IO with a “permit” to use the converted corridor. I am sure parties must be exchanging similar right. Mr. Ng calls this a mutual licence, and Mr. A Wong said it is a “land exchange” in the loose sense.

108.  That would be sufficient for me to rule that the Chinese Agreement is a licence.

109.  I also adopt what Mr. Ng observed. When Concord Star obtained the Chinese Agreement, Fuk Chan as tenant of the Shops asked for the right to use the original corridor. And Concord Star transferred the right to Fuk Chan to use the corridor during the term of the tenancy, but the area of the corridor has not been included in the tenancy agreement. So there is a different treatment on this piece of area and I agree with Mr. Ng that both Concord Star and Fuk Chan must know that they have only a licence to use the original corridor. I believe it is trite that a licence is a permit granted to allow a person to use one’s land which otherwise would be trespass. The 1^st respondent did not include the original corridor in the later tenancy agreements signed. And the 1^st respondent could not have better right than Concord Star under the Chinese Agreement.

110.  Even with the latest agreement between the 1^st and 2^nd respondents, the plan attached is the one with the original layout with the added description of the property by referring to the Chinese Agreement, the MC Resolution and the Owners’ Resolution, the right that the 1^st respondent may pass could not be better than what it has acquired from Concord Star. It is questionable that the original corridor has been let to the 2^nd respondent. There may at best have a permit to use the original corridor.

111.  And the MC Resolution is at the highest a resolution under section 34I of the Ordinance approving Concord Star to use the original corridor with the limitation that I have analysed above. Taking all matters into consideration, it reinforces my finding that the Chinese Agreement includes a licence granted by the applicant to Concord Star, now enjoyed by the 1^st respondent, to use the original corridor.

112.  That bring me to the consideration if the licence is terminable and if there is an implied term that the licence may be terminated by notice.

113.  I do not think that it is disputed by the 1^st respondent that the licence is terminable. Madam Lau in her oral evidence agrees that the licence is not perpetual. And on the case of the 1^st respondent, the licence is terminable by the owner of the Shops or by mutual consent.

114.  Mr. A Wong argues that there are no specific pleadings by the applicant on implied terms of termination. The only assertion is business efficacy. Taking all the matters pleaded, I agree with Mr. Ng that the applicant has pleaded sufficiently.

115.  Mr. Ng refers to Megarry & Wade, The Law of Real Property (9^th edition) and submits that “if the contract makes no express provision for determination, the court will imply a term that is appropriate in the circumstances” and that “with most contractual licences the court usually implies a term that reasonable notice shall be given.”

116.  I refer to a few more paragraphs in the book –

“33-007

At common law, a licence, unless coupled with an interest, was always revocable, for the licensee had no estate or interest in the land that would entitle him or her to remain there. However, this simple position has been modified in important respect.

33-008

(a)  Revocability a matter of construction. Except in those cases which are governed by statute, then whether or not a contractual licence is revocable is a question of construction of the contract. If the contract makes no express provision for determination, the court will imply a term that is appropriate in the circumstances …… With most contractual licences the court usually implies a term that reasonable notice shall be given [and the author cites as an example the case of Winter Garden Theatre (London) Ltd v. Millennium Productions Ltd [1948] AC 173]. If the licensor purports to terminate the licence without giving reasonable notice, that notice will be effective, but only after a reasonable time has elapsed. …”

117.  I do not think Mr. A Wong or Mr. M Wong has objection to the principle set out by the learned author. Mr. A Wong however refers to Kensland Realty Ltd v Whale View Investment Ltd & Anor (2001) 4 HKCFAR 381 and the judgment of Bokhary PJ. I set out paragraph 23 relied on by Mr. A Wong –

“23. In my view, any term to be implied in this context must comply with the conditions stated by Lord Simon of Glaisdale when delivering the advice of the majority in the Privy Council case of B.P. Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1978) 52 ALJR 20 at p.26:

“(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.””

118.  Mr. A Wong submits that the implied term as contended by the applicant that it may terminate the licence by given reasonable notice (1) at its whim (2) at any time (3) unilaterally, does not reach the above requirement.

119.  As rightly pointed out by Mr. Ng, Kensland’s case is on the implied terms for completion of a sale and purchase of land. When considering the term that should be implied, the nature of the contract is a starting point. And as stated in Megarry & Wade para. 33-008, “… whether or not a contractual licence is revocable is a question of construction of the contract. If the contract makes no express provision for determination, the court will imply a term that is appropriate in the circumstances.” The above general principle on considering implied terms must be considered in light of the nature of the Chinese Agreement, which I have ruled is a licence, and all relevant facts leading to the signing of the Chinese Agreement between the IO and Concord Star. I consider the position of the parties would be fixed at the time of signing, and the 1^st respondent would only be stepping into the shoe of Concord Star.

120.  In this particular case, there is no fixed term for the licence. There is no suggestion that the licence is not terminable. As the 1^st respondent pleaded, it is terminable at the election of the owners of the Shops. Hence, the question I ask is when the licence was entered, was it contemplated by IO and Concord Star that either the IO or the owners of the Shops may terminate the licence? The issue is more a question of interpretation or construction of the Chinese Agreement.

121.  Mr. Ng relied on Winter Garden Theatre’s case in support of the applicant’s case that the licence is subject to an implied term of termination by reasonable notice. I accept that this is not of general application but an example of construction of the contract that formed the licence, in light of all relevant facts.

122.  Looking this way, there is good reason for Concord Star to reserve the right to terminate the licence. If for any reason, no one is interested in taking up the lease of the Conjoined Shop, it makes commercial sense to reinstate the Shops to individual units for sale or lease. And in such situation, the original corridor would be important as it is the shop front of the individual unit of the Shops. And on reinstatement, there is no reason why the owner of the Shops has to maintain the converted corridor for use by the IO.

123.  Similarly, the IO must cater for the situation that some owners would require the right to use the original corridor and which by law (as analysed above) it is bound to allow. It makes commercial sense that such terms be implied to the licence to ensure that the IO may comply with its duty under the DMC and the Ordinance.

124.  Mr. A Wong argues that it would create absurdity if the IO is allowed to terminate the licence at any time. If they serve notice of termination the day following, say the completion of the converted corridor, it would create great injustice as Concord Star and/or Fuk Chan have to return possession of the original corridor after incurring costs to build the converted corridor.

125.  If that is the concern of Concord Star, I would be surprised that the parties have not included a minimum term for the licence. I accept that there is such risk but the same could be compensated by agreement, and is balanced further by the provision of reasonable notice.

126.  The respondents seek to suggest that the notice of termination should end with the term of the tenancy. I shall deal with this argument on the issue of reasonable notice.

127.  As analysed above, there is every reason why the 1^st respondent would reserve the right to terminate the licence. And I see no reason why they should be the only party in this arrangement to terminate the licence. Hence it is fair and reasonable to imply a term that each licence granted may be terminated by reasonable notice.

128.  Mr. A Wong argues that this is a licence coupled with an interest. There is no proprietary interest as pleaded or proved. And the best is as stated in the Notice of Opposition that the licence was granted and contemplated to be used in conjunction with/or in aid of the interest to use, occupy and enjoy the Conjoined Shop as a single large shop. No authority has been provided to show that this is an “interest” granted to Concord Star that made it a licence coupled with an interest. Mr. A Wong has not identified the interest at the closing. The rights of the parties are sufficiently covered by the Chinese Agreement. And as far as the terms of the Chinese Agreement (and the MC Resolution), it only provides the right to exchange the corridor. I am not persuaded that the IO has agreed with Concord Star to use the Conjoined Shop as one unit or that it could be implied.

129.  Hence I reject the argument that the licence is coupled with an interest.

130.  In conclusion, and having considered all the argument raised by the parties in their submission, I rule in favour of the applicant for an implied term that the licence is terminable by reasonable notice. That leads to 2 other questions. Is 6 months’ notice reasonable, and if there is any ground of estoppel established against issuance of the notice.

131.  Mr. M Wong however added that for a licence acted upon, it cannot usually be revoked. And he refers to paragraph 33-012 of the said book on Law of Real Property –

“33-012

It has already been explained that it is a long established rule of the common law that a licence once acted upon (in the sense that the licensee has completed their use) cannot usually be revoked. [my emphasis]

“If A gives authority to B for the doing of an act on A’s land, and the act is done and completed, then, whatever be the strict description of the authority…it is, generally speaking at any rate, too late for A, who give the authority, to complain of it.”

132.  The principle is similar to the equitable doctrine of proprietary estoppel. It is a matter I have to consider if the Court should prevent a licensor from exercising the right to terminate the licence. Mr. M Wong also submits that both the respondents have incurred expense in reliance on the Chinese Agreement. But this is just to comply with the terms of the Chinese Agreement.

133.  The building and maintenance could not be a supporting factor for licence acted upon. As analysed above, the Chinese Agreement only provides a licence to Concord Star to use the original corridor. The point that I rule in favour of the applicant is that there is an implied term of termination by reasonable notice. The argument of Mr. M Wong is not helpful to deny the implied terms which come with the Chinese Agreement.

134.  Mr. Ng also raised the objection that the issue of licence acted upon has not been pleaded. I agree. I refer to my decision on this point given in Luck Most Limited and others v Good Movement Limited, LDCS11000 of 2020 and I would quote my remarks at paragraph 20 -

“20.  As a remark, parties must be familiar with the principle that the Notice of Application and Notice of Opposition are strictly speaking not pleadings, but serve the purpose of letting the other parties know the issues and evidence that he would be facing. However, in Grand Power International Ltd v Chan Sing Hoi Enterprises Ltd and others, [2020] 2 HKLRD 142, the Court of Appeal held that the Judge below is clearly in error in supposing that no real prejudice would be occasioned to the applicant in allowing the respondent to run an unpleaded case. The Notice of Application and Notice of Opposition were prepared with such details in no way different from a pleading. Even if the Notice of Opposition is not to be treated as a pleading, it can hardly be regarded as giving “fair indication” of the issues likely to be raised. And the Judge below should not allow the respondent to run an unpleaded case. ….”

135.  And that remains the argument on estoppel or acquiescence.

136.  The main argument of the 1^st respondent is that the applicant has not taken action to recover possession of the original corridor after the letter of demand in 2012. As submitted by Mr. A Wong, between the letter from IO’s then solicitors dated 20 November 2012 and the letter from the manager dated 25 April 2018, the applicant did not demand the 1^st respondent to reinstate the original corridor. The 1^st respondent and Fuk Chan continue to have exclusively use occupy and enjoy the original corridor. No legal action was taken out by the applicant then.

137.  Mr. A Wong submits the letter from the manager dated 25 April 2018 mentioned for the first time that the IO gave indulgence to the 1^st respondent, such intention has not been communicated to the 1^st respondent before. Any objective bystander would take the complete inaction by the IO between 20 November 2012 and 25 April 2018 as the IO’s acquiescence or assurance of the 1^st respondent’s right to use, occupy and enjoy the original corridor, which would only be terminated with 1^st respondent’s consent.

138.  And further, on the faith of the said belief, the 1^st respondent entered into a new lease with the 2^nd respondent. If the applicant is allowed to enforce its right to seek reinstatement, the 1^st respondent would suffer significant financial detriments. It is therefore unconscionable for the applicant to enforce the right of reinstatement.

139.  The argument of Mr. A Wong is that of waiver or acquiescence on the part of the applicant not to enforce the implied terms of termination by reasonable notice, and indirectly to waive its right under section 34I to retain possession of the common parts. I am not convinced that the delay is sufficient to stop the applicant from taking action. And for the new lease, the 1^st respondent has to establish by evidence that the applicant knew of the new lease and stood by before it could establish acquiescence. There is no evidence in support.

140.  I conclude that the 1^st respondent fail to establish acquiescence or waiver on the part of the applicant which prevents the applicant from proceeding to take action to recover possession.

141.  Finally, on reasonable notice, Mr. Ng submits that the respondents are not entitled to challenge whether the notice served is reasonable as this has not been pleaded. It is not disputed that the respondents have not pleaded that the notice period is unreasonable.

142.  Mr. M Wong submits that it is for the applicant to establish that the notice period is reasonable. In case when they are not sure, they could serve notice on the respondents for they to comment before they decide what amounts to a reasonable notice.

143.  I believe the applicant bears the burden to prove that the notice served is reasonable. But since the respondents have not raised any particular factors that I have to take into consideration, why 6 months would not be sufficient for the respondents to reinstate the original corridor? That may involve the building of new walls or partition to enclose the original corridor.

144.  Mr. M Wong agrees with me that if the notice is insufficient, it is not defective but the Tribunal would ensure that sufficient time be provided to the respondents to comply with the notice. And in this case, when the action has been instituted in May 2019, 11 months have expired since the notice was served. And as from today, the notice has been served more than 4 years. I fail to see how this could not be reasonable notice.

Conclusion

145.  Having considered all the argument, I conclude that the Chinese Agreement only provide a licence to the 1^st respondent to occupy the original corridor which is terminable by reasonable notice which has been served. Accordingly, the applicant should be entitled to the relief as claimed. I repeat the relief –

a.  An Order that the 1^st and 2^nd respondents do within 28 days from today demolish and remove all the existing structures and objects erected at the original corridor and vacate the same and reinstate the same to its original state and condition at the 1^st and 2^nd respondents’ own costs;

b.  An Injunction restraining the 1^st and 2^nd respondents whether by themselves, their servants or agents or employees or licensees or otherwise howsoever from using and occupying the original corridor to the exclusion of the applicant and the other owners and occupiers of the Building save for the purpose of complying with the demolition order aforesaid;

146.  In the event that the 1^st and 2^nd respondents fail to comply with the order, there be liberty to apply for further relief. As mentioned, there is no evidence on damages and I make no order.

147.  In light of my finding, I would also dismiss the counterclaim of the 1^st respondent.

148.  In any event, I should not entertain the declaratory relief as counterclaimed by the 1^st respondent. Reading the declaration claimed as set out in paragraph 43 above, if granted, the right and interest of all the co-owners of the Building would be affected. They are not parties to these proceedings and do not have a chance to oppose. In the circumstances, it is unfair to them for this Tribunal to grant such reliefs without hearing them. Hence I would not allow those declaratory reliefs in any event.

149.  And for costs, I would give an order nisi that the 1^st and 2^nd respondents do pay the applicant costs of the application with certificate for one counsel. The 1^st respondent do pay the applicant costs of the counterclaim with certificate for one counsel. If parties cannot agree the amount, the costs shall be taxed on District Court Scale. The order nisi shall become absolute within 14 days unless any of parties apply to vary the same by summons.

150.  And finally, I have to think all counsel, and their juniors for their detailed skeleton and able submission.