THE INCORPORATED OWNERS OF TONE KING BUILDING v. TOPGLEE LTD AND ANOTHER

HCMP 1463/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 1463 OF 2016

(ON AN INTENDED APPEAL FROM LDBM NO 266 OF 2014)

_________________

__________________

JUDGMENT

__________________

Hon Yuen JA:

1. This is the 2^nd respondent’s application for leave to appeal from a Judgment of Deputy Judge Tracy Chan, Presiding Officer of the Lands Tribunal given on 29 March 2016 (“the Judgment”) in which it was ordered (among other things) that the 1^st and 2^nd respondents remove 27 air conditioners with supporting frames from the external walls of Tone King Building (“the Building”). The judge refused leave to appeal on 27 May 2016 but gave a conditional stay of execution pending an application to this court.

Background

2. The Building was erected in 1990, providing space for shops on the ground floor, a restaurant on the 1^st floor, a cinema on the 2^nd floor, and residential flats on the 3^rd to 26^th floors.  The present case involves the 1^st floor.

DMC

3. Clause 11 of the Third Schedule of the Deed of Mutual Covenant (“DMC”) stipulated as follows:

“No air conditioning or other units shall without the prior written consent of the Manager be installed through any window or external wall of the Building other than at places designated for such purpose ...”. (Emphasis added).

Condition of the Building

4.1.  In 2010/2011, various defects (including spalling of concrete) were found in the Building including the external walls¹.

4.2.  On 6 September 2013, the Building Authority declared the Building “dangerous” and a Building Order under s.26 Buildings Ordinance Cap 123 was issued.  This required remedial works to be completed by 5 January 2014².

The 1^st floor

5. On 22 January 2014, the 1^st respondent which was the owner of the 1^st floor (“the owner”) rented it to the 2^nd respondent (“the tenant”) for a period of 3 years from 2 April 2014 (with an option to renew).  The tenant intended to operate a hot pot restaurant there. 

Attachment of air conditioners (with supporting frames) to external walls

6.1.  In March 2014, a representative of the management company of the Building (“the management company”) had a meeting with a representative of the owner, during which the latter was informed that air conditioners and metal frames should not be attached to the external walls in case that led to loading problems with the external walls.

6.2.  Nevertheless, the tenant began works to attach 25 air conditioners with supporting frames to the external wall at the front of the Building along Castle Peak Road, as well as 2 air conditioners to the rear external wall.  I shall refer to all 27 air conditioners (whether or not they had supporting frames) as “the a/c devices”. 

6.3.  On 3 and 5 May 2014, the management company issued two warning emails to the respondents. 

7. Nevertheless the a/c devices were found to have been installed on or by 8 May 2014³.  

8.1.  It is not disputed that, contrary to Clause 11,

(1) the a/c devices were not installed “at places designated for such purpose”; and

(2) there was no prior consent, written or otherwise, from the manager.

8.2.  On 12 May 2014, a warning letter was issued on behalf of the Incorporated Owners (“the IO”) to the respondents. 

9.1.  On 11 July 2014, the IO resolved to commence legal proceedings against the respondents.

9.2.  On 27 August 2014, a letter before action was issued to the respondents requiring them to remove the a/c devices within a week (ie by 3 September 2014).  That was not complied with.

5^th September email

10. On 5 September 2014, an email was sent by the owner to the management company (“the 5 September Email”). It said⁴:

“Mr Yuen⁵,

Please open attachment contents:

1) Guarantee from the tenant Dai Chung Wah⁶

2) Third party insurance policy document⁷

3) Buildings Department Notice and Certificate of Completion of Class III Minor Works under the simplified requirements.

A separate quotation for removal of all the air conditioning etc equipment will be given to you later”.

11.1.  The document listed as (3) in the email was a form addressed to the Building Authority and signed by a registered contractor. 

11.2.  The form listed various items of “completed minor works”, item 3.27 of which was “erection of metal frames supporting a/c units attached to the external walls”. 

11.3.  In the form, the registered contractor certified that the works had been carried out in accordance with the Buildings Ordinance.  However

-  the registered contractor confirmed in the form that the works had commenced on 12 July 2014, which is after the date of the installation of the a/c devices on 8 May 2014;

-  one of the two drawings which related to item 3.27 (drawing MW-03) referred to only 19 a/c devices along Castle Peak Road, not 25. 

As no one from the registered contractor’s company gave evidence before the Tribunal, these discrepancies were not explained. 

12. Be that as it may, Mr Yuen’s evidence was that he did not open those attachments at the time.

Proceedings

13. It would appear that the respondents provided no further materials⁸ before 29 September 2014 when the IO issued an application in the Tribunal for a mandatory injunction for the removal of the a/c devices, together with other reliefs.

Communications after commencement of proceedings

14.1.  After the proceedings began, the parties had a meeting and a few days later, on 14 October 2014 the owner sent an email to the management company saying, among other things, that a licence fee had been mentioned at the meeting as “one of the possible solutions” and asking the IO to propose a preliminary figure for its side’s reference.

14.2.   The next day (15 October 2014) the management company replied by email saying, in respect of the licence fee, that the IO had no experience in that respect and needed time for a detailed examination, and that the owner could provide a proposal first for the IO to consider whether it was acceptable.

14.3.  On 23 October 2014, the owner sent an email to the management company asking only if the IO had a preliminary proposal for its side’s reference.

14.4.  The next day (24 October 2014), the management company replied by email saying that in respect of all the a/c devices and not just those on the Castle Peak Road side, it was for the owner to propose a viable plan for the IO’s consideration.  The management company asked the owner to follow up the matter.  There was a chaser from the management company about a week later. 

14.5.  However it was accepted by Miss Connie Lee counsel for the tenant⁹ that there was no evidence that further materials were in fact provided to the IO.  This is important to one of the grounds of appeal¹⁰. 

Hearing

15. The hearing in the Tribunal took place over the course of 5 days between 27 July 2015 and 10 December 2015.  Amongst the witnesses who gave evidence was Mr Yuen. 

Disputes between parties at hearing

16. The disputes between the parties at the hearing were formulated as follows:

(1) Whether the tenant had made any application “pursuant to Clause 11” of the DMC since installation of the 27 a/c devices?  (Emphasis added).

(2) If the answer to (1) is yes, whether consent was reasonably withheld by the IO; and

(3) If there was breach, whether injunctive relief should be granted.

17. Before I summarize the presiding officer’s decisions on these disputes, it should be noted that strictly speaking, the tenant had not made an application “pursuant to Clause 11”.  That is because clause 11 prohibits the installation of air conditioners without the “prior written consent” of the management company. Therefore if the tenant were to apply for consent pursuant to Clause 11, that should have been done before the installation was completed on 8 May 2014.  Once installation was completed, it was too late to apply for “prior written consent” pursuant to Clause 11. 

18. So analysed, the questions were really as follows:

(1) Whether the tenant had made a substantiated request to the IO to waive the breach of Clause 11 of the DMC;

(2) If the answer to (1) is yes, whether the IO had acted properly within the exercise of its discretion in not waiving the breach; 

(3) Whether injunctive relief should be granted¹¹.

19.1.  In connection with this legal analysis of a “post-breach” application, Miss Lee referred this court to Lee Yin Hong v Serenade Cove (IO) [2011] 5 HKLRD 660, where the DMC prohibited the keeping of dogs in a building “without the prior written consent of the manager”.  After the IO issued a notice to occupants requiring them to remove their dogs, the appellants made an application to it for permission. 

19.2. Although it would appear from the report that the appellants had already been keeping dogs before applying for permission, the judgment only dealt with the issue “whether the IO’s refusal to give permission was reasonably made”¹². 

19.3.  However it is clear from the report that the parties did not argue - and hence the court did not decide on - the analysis of the clause requiring “prior written consent”. The court therefore did not discuss the question whether the post-breach application was a request for a waiver and whether that would affect the IO’s considerations. In any event, it would have made no difference to the result in that case as the court decided that the IO was entitled to refuse permission.   

The Judgment of the presiding officer

20.1.  Returning to the Judgment, the presiding officer found, in relation to questions (1) and (2):

(a) “the purpose of the 5 September Email was for the purpose of obtaining permission from the IO” (para. 29);

(b) “there was still information pending from the Respondents even on their case” (para. 29);

(c) “the IO was perfectly entitled to ask the Respondents to prove that the 27 [a/c devices] would not put an unbearable loading on the Building and thus imposing an impact on the safety of the Building. This had been considered at the July Resolution.  As events developed Mr Yuen was still waiting for other information and a proposed workable plan to be provided by the Respondents for the IO to consider” (para. 30); 

(d) “I agree that it was for the Respondents to put up a workable plan for the IO to consider and not for the IO to work out a plan for them” (para. 32);

(e) “I am of the view that in the present case, the application made by the 5 September Email had not yet been made complete for the IO to consider” (para.34).

20.2.  In relation to question (3), the presiding officer found that injunctive relief should be granted for all the reasons given in paras. 38 - 50, which I shall not summarize here.

Application for leave to appeal

21.1. The tenant, but not the owner, applied for leave to appeal and a stay of execution of the Judgment pending appeal.

21.2.  After a hearing on 16 May 2016, the presiding officer gave a decision on 27 May 2016 refusing leave but granting a stay on condition that the tenant should apply for leave from this court within 14 days.

21.3. The present application was duly filed on 10 June 2016. 

Requirements for appeal from Tribunal

22.1.  Section 11(2) of the Lands Tribunal Ordinance Cap 17 provides:

“Subject to section 11AA ..., any party to proceedings before the Tribunal may appeal to the Court of Appeal against a judgment, order or decision of the Tribunal on the ground that such judgment, order or decision is erroneous on point of law”.

22.2. Section 11AA stipulates that leave is required.  It is well-established that leave would only be granted if there were reasonable prospects of success.  So the tenant needed to persuade this court that there is a reasonable prospect of it succeeding on an error of law in the Judgment. 

The tenant’s submissions

23. Counsel for the tenant submitted that there were the following “errors of law”:

(1) “... the Tribunal had not exercised the discretion judicially and had not properly investigated and/or evaluated Rs’ case that:-

(1) The IO had not exercised the discretion under the DMC or had not exercised the same reasonably for [the tenant’s] installation of the air-conditioners; and

(2) In all circumstances, it is inequitable to grant the mandatory injunction”¹³;

(2) “the Tribunal failed to consider and make a finding that the [IO] had a duty to consider an application for consent subsequent to a breach”¹⁴.

24. Miss Lee submitted in respect of “error” (1)(1) and “error” (2) above that the Tribunal had not exercised its discretion judicially in that the following evidence of Mr Yuen had been disregarded¹⁵:

- relevant materials were supplied to the management company, albeit subsequently;

- when asked what was outstanding, Mr Yuen only repeated that no application had been made prior to the installation of the a/c devices;

- “Mr Yuen’s admission that the parties failed to come to terms regarding the installation of the air conditioners solely because the parties could not agree on the precise amount of the licence fees”. 

25. It was further submitted that an “irresistible inference” could be drawn that the IO had failed to exercise its discretion under the DMC or had failed to exercise it reasonably, as:

- “Mr Yuen’s own evidence was that the IO could retrospectively consider an application for consent”; 

- “the IO selectively opted or indicated to charge licence fees against [the tenant] and not any other owners simply because unlike other owners, no prior application for consent was made by [the tenant]”.

Discussion

26. Miss Lee’s submissions on “error” (1)(1) and “error” (2) can be dealt with together.  Counsel submitted that relevant materials were, contrary to the presiding officer’s understanding, supplied to the management company, albeit subsequently.  Miss Lee relied on Mr Yuen’s evidence at p.38 of the Transcript. 

27.1.  Having read Mr Yuen’s evidence in its entirety, it is clear to me that Mr Yuen was confirming that an engineer’s report and materials on electrical work had not been provided, but that materials on air conditioning loading were provided subsequent to the completion of the installation¹⁶. This was confirmed at p.102 of the Transcript when he confirmed that no calculation data, whether from an engineer, structural engineer, or authorized person, had been provided. 

27.2. In my view, the presiding officer was entitled, on that evidence, to make the findings set out at para. 20.1 above. She had heard Mr Yuen’s evidence developed in examination-in-chief, cross-examination and re-examination, she had questioned him herself when his evidence appeared unclear, and as such she was in a better position to understand the totality of his evidence than an appellate court reading a transcript. 

28.1.  The burden was on the respondents to prove that their request to the IO to waivethe breach of Clause 11 was fully supported by all necessary materials to verify the safety of the installation of all 27 a/c devices and their impact on this particular building in its then condition.  In this connection, the lack of evidence of any further materials being provided after the 5 September Email is significant.

28.2.  It is only after all necessary materials are provided that the IO could be expected to deal with the request.

28.3.  In my view, this is fatal to the tenant’s proposed appeal.

29. Further, even if (contrary to the above), Mr Yuen’s evidence should have been understood to mean that the IO had received all pertinent materials (albeit subsequently), and the IO was “retrospectively” considering the matter, I am not persuaded that the proposed appeal enjoys a reasonable prospect of success.

30.1.  Even setting to one side the ramifications of the external walls being common parts, it is clear from Mr Yuen’s evidence¹⁷ that one of the matters directing the IO’s decision was that the respondents had not made any application for permission prior to installation¹⁸.  In my view, that was a legitimate consideration.  When an IO is called upon to consider whether to grant a waiver of a breach, its considerations may properly extend beyond those when it is called upon to consider only whether to give permission pre-breach. 

30.2.  Here, oral and written warnings from the management company were given at an early stage but the tenant had persisted in installing a large number of a/c devices on the external walls of a building which were either still suffering from spalling of concrete, or which had only very recently been repaired.  This was not a case of an occupant committing a breach in error or ignorance, but with knowledge of the IO’s objections, deliberately and egregiously.

30.3.  As for the submission pertaining to the licence fees discussion, it is clear from the evidence that the parties were merely exploring this as one option.  In any event, it is a matter for the IO whether or not to pursue this option, and on what terms.  As the court held in Serenade Cove (para. 11),

“The court’s task is to adjudicate whether there has been a breach of the contractual terms [in the DMC] and not to exercise a supervisory function over the decision of the IO as if it is hearing a judicial review application on whether a discretionary power by a public body or tribunal has been lawfully exercised”.

31. As for the final submission raised by Miss Lee in this area, it is clear that the IO was acting consistently with its approach when it gave permission to owners who had made prior applications for permission, but not to the tenant.  I cannot see how that could be regarded as an unreasonable exercise of discretion on its part.

32. As for “error” (2), dealing with the grant of injunction, Miss Lee submitted that damages would have been an adequate remedy as the IO was open to a discussion of licence fees. 

33. This submission must be tested against well-established legal principles, succinctly summarized below¹⁹:

“Accordingly in order to establish that, on the ground of hardship to the defendant, a mandatory injunction²⁰ should be refused, the defendant must ordinarily be able to show that the plaintiff, by being confined to damages, will be caused relatively little injury or inconvenience as against the disproportionate inconvenience or expense that would fall on him if the relief sought by the plaintiff were granted. Here, moreover, it will also be found to be relevant to enquire whether the defendant has acted, not in error, but rather contumaciously or deliberately in breach of the rights of the plaintiff or at least with knowledge of his objections ...”²¹. (Emphasis added).

34.1.  As noted above, this was a building which was either still suffering from spalling of concrete, or which had only very recently been repaired.  The submission that the Building Order had been imposed before the tenant attached the 27 a/c devices to the external walls does not assist it at all.  The IO’s concerns about safety were clearly legitimate, and the tenant did not provide sufficient materials to allay those concerns.  The argument that the burden was on the IO to show that the a/c devices rendered the Building unsafe is clearly untenable.  These were devices belonging to the tenant which it had caused to be attached.  Clearly the burden of showing that the attachment did not render the Building unsafe (or more unsafe) was on the respondents. 

34.2.  Further, the evidence²² showed that licence fees were only one of a number of options (supplementing the “viable plan” the IO was seeking from the tenant) which was being discussed tentatively between the parties.

35. In conclusion, the presiding officer’s decision in the exercise of her discretion to grant the injunction was clearly unimpeachable. 

Order

36. For the reasons set out above, I would dismiss para. 1 of the 2^nd Respondent’s summons filed on 10 June 2016.  It follows that the stay of execution lapses with the handing down of this Judgment.  As for costs, having considered both parties’ statements of costs, I would make an order nisi that the 2^nd Respondent pay the Applicant’s costs assessed at $72,000.

Hon Poon JA:

37. I agree.