ADDITECH LTD v. TAI CHEUNG MANAGEMENT CO LTD

CAMP 204/2019

[2020] HKCA 902

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 204 OF 2019

(ON AN INTENDED APPEAL FROM LDBM 224 OF 2018)

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REASONS FOR JUDGMENT

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Hon Au JA (giving the Reasons for Judgment of the Court):

A.  Introduction

1.  The applicant is the owner of the 1^st to 8^th floors (“the Applicant’s Property”) of Peninsula Square (“the Building”) at Sung On Street, Kowloon.  The respondent is the Manager of the Building.

2.  On 19 October 2018, the applicant filed a Notice of Application in the Lands Tribunal, claiming against the respondent for its breach of the deed of mutual covenants dated 27 August 1993 (“the DMC”) in failing to grant consent sought by the respondent to carry out alteration works within the Applicant’s Property.

3.  On 3 December 2018, by way of a summons (“the Striking Out Summons”), the respondent applied to strike out part of the applicant’s claim in relation to its claim for damages.

4.  On 12 June 2019, after hearing the parties, H H Judge S Lo (“the Judge”) dismissed the Striking Out Summons with oral reasons.  The respondent then applied by summons dated 24 June 2019 for leave to appeal against the Judge’s dismissal of the striking out application.

5.  On 13 August 2019, the Judge further handed down his written reasons for the decision to dismiss the Striking Out Summons (“the Written Reasons for the Decision”).  On the same date, the Judge also handed down his decision refusing to grant the respondent leave to appeal.

6.  By way of summons dated 23 August 2019, the respondent renewed its leave application before this Court.

7.  On 15 July 2020, we directed that there would be an oral hearing for a rolled-up hearing of the respondent’s leave application.  After hearing the parties on 6 August 2020, we refused to grant leave to the respondent with costs to the applicant.  We gave brief reasons for our decision at the end of the hearing, and indicated that we would give our detailed written reasons in due course.  This is what we do now.

B.  Background

8.  As mentioned above, the applicant is the registered owner of the Applicant’s Property of the Building.

9.  Pursuant to paragraph 3 of the Second Schedule to the DMC, the applicant needed to obtain consent from the respondent to carry out its planned alteration works to convert part of the 8^th floor from car parking purpose into office use.

10.  It is the applicant’s case that it first applied to the respondent for the necessary consent on 24 August 2011, and over the course of seven years, it had continued to pursue the application on 7 May 2014, 16 June 2017 and 25 May 2018 after addressing all the concerns raised by the respondent each time. Notwithstanding this, the respondent had, in breach of its duty under the DMC, still failed to give the consent as sought.  It is also apparently the case that the respondent has never formally refused the consent application.  Indeed, at the hearing, upon the court’s inquiry, we were informed by the parties that the latest position of the application was that the respondent had asked the applicant itself to seek to convene an owners meeting to discuss its application.

11.  In light of the above, the applicant commenced its action in the Lands Tribunal on 19 October 2018, claiming that the respondent in breach of its duty under clauses 9(A)(d) and 9(B)(35) of the DMC had failed to grant the consent.  The applicant claims for a declaration that (a) it is entitled under Paragraph 3 of the Second Schedule of the DMC to carry out the subject alteration works; (b) the respondent has a duty to grant the consent as sought.  It also claims, among other things, for damages to be assessed, which includes the loss of rental income that it could have received from the converted offices if the respondent had discharged its properly duty by granting the consent as sought[1].

12.  On 3 December 2018, the respondent applied to strike out the applicant’s claim for damages.

C.  The Written Reasons for Decision

13.  As stated at [12] of the Written Reasons for the Decision, the respondent’s striking out application was premised principally on the contention that, even if it was in breach of its duty under the DMC in failing to give the consent as alleged, as a matter of legal principle it was not liable for damages.

14.  The Judge disagreed and dismissed the striking out application for the following reasons:

(1)  He rejected the respondent’s submissions that the applicant was not entitled to claim damages against the respondent even if the respondent was found to be in breach of the DMC.  He applied 383 HK Ltd v IO of Tak Bo Building [2017] 4 HKC 142 and held that the incorporated owners is liable for damages suffered by an owner of a building if such owner can prove the breach on the part of the incorporated owners or managers and the actual loss suffered: see [12] - [15] of the Written Reasons for the Decision;

(2)  The Judge also found that the majority of the authorities cited by the respondent’s counsel were irrelevant to the issues of the present proceedings and counsel had failed to cite any direct binding Hong Kong authorities to support his contention: see [16] of the Written Reasons for the Decision;

(3)  In any event, the Judge considered Great Source Enterprise Ltd v Sino Estates Management Ltd (CACV 253/2003, unreported, per Cheung, Yeung and Yuen JJA, 7 May 2004) at [14], and held that the informal nature of the Lands Tribunal proceedings provided a more fundamental reason for the claim for damages not to be struck out: [17] of the Written Reasons for the Decision.

D.  The intended grounds of appeal

15.  Section 11AA(6) of the Lands Tribunal Ordinance (Cap 17) (“the LTO”) provides that leave to appeal should not be granted unless the court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.

16.  In the Draft Notice of Appeal, the respondent advanced the following grounds of appeal:

(1)  The Judge erred in law in holding that, in the event that the respondent is to be found by the Lands Tribunal in breach of clauses 9(A)(d) and 9(B)(35) of the DMC by unreasonably withholding the consent (if any) from the applicant, the applicant would be entitled to damages (“Ground 1”);

(2)  The Judge erred in law to hold that the striking out application should be dismissed by reason of the informal nature of proceedings at Lands Tribunal in reliance of section 10(5) of the LTO and thereby unduly fettered his discretion to allow the striking-out application (“Ground 2”);

(3)  There are other reasons in the interests of justice that the appeal should be heard (“Ground 3”).

E.  Discussion

17.  In support of all these proposed grounds of appeal, the fundamental plank of the contentions advanced by Mr Chan (together with Mr Fan) for the respondent is this.  Counsel submits there is a principle in law (established in landlord and tenant context) that, where there is covenant in the lease prohibiting the lessee from subletting the premises or assigning the lease without first obtaining the lessor’s consent (I will refer this as an “alienation covenant”), and where it is further provided that the lessor shall not withhold its consent unreasonably, the lessee would have no right in law to claim for damages against the lessor even if the latter does indeed withhold consent unreasonably.  This is so as such an alienation covenant does not create an independent positive obligation on the lessor not to withhold consent unreasonably and thus does not give rise to an action for damages.  Mr Chan conveniently refers to this principle in his submissions as the “No Damages Doctrine”, and says this is well established and supported by a line of authorities (principally, Treloar v Bigge (1874) LR 9 Ex 151, Ideal Film Renting Co Ltd v Nielsen [1921] 1 Ch 575, Meager v Luke Healy Pharmacy Ltd [2010] 3 IR 743, Taylor Marine Ltd v Taylor Marine (Brokers (2005) Ltd) [2007] 3 NZLR 413, Rendall v Roberts 175 EG 265, and Rose v Gossman 201 EG 767).

18.  Mr Chan then further submits that this principle should apply equally in the context of the DMC.  Consequently, those clauses in the DMC now relied on by the applicant in this action relating to consent as a matter of law do not create an independent obligation on the respondent not to withhold consent unreasonably.  The applicant therefore does not have a right to damages even if it can show that the respondent had withheld consent unreasonably as alleged.  This part of the claim is unsustainable and should be struck out.

19.  In light of the “No Damages Doctrine”, Mr Chan says that it must at least be reasonably arguable that the Judge erred in law in refusing to strike out the applicant’s claim for damages for the respondent’s alleged breach of the DMC.

20.  In any event, given that there is no direct authority in Hong Kong that has considered the No Damages Doctrine, it is in the interests of justice that leave to appeal should be granted for that to be clarified by the Court of Appeal.

21.  Given Mr Chan’s above contentions, it is plain that whether the respondent’s proposed grounds of appeal have arguable merits depend fundamentally on whether Mr Chan is correct in saying that those authorities establish (or arguably establish) the purported principle in law that bars the applicant from claiming damages against the respondent in this action.

22.  In our view, properly reading those authorities, they do not lay down such a principle of law.  We will explain why.

23.  We will first look at Treloar v Bigge, which Mr Chan relies on heavily in support of the so-called “No Damages Doctrine”.

24.  In Treloar, the plaintiff as tenant entered into a deed with the defendant as landlord where by the subject premises was demised to the plaintiff for twenty-five years.  In the deed, the plaintiff covenanted that he would not assign the lease or part with the premises without the written consent of the respondent.  The covenant provided as follows:

“And the said [plaintiff] doth covenant with the said [defendant] that he shall not nor will assign this present lease, or let, &c., or otherwise part with the premises hereby demised, or any part thereof, without the consent in writing of the said [defendant], such consent not being arbitrarily withheld.” (emphasis added)

25.  Subsequently, the plaintiff applied to the defendant for consent to sub-let part of the premises to a company.  The defendant had however refused to grant consent.  The plaintiff brought an action against the defendant for damages.  It was the plaintiff’s case that under the covenant, the defendant had covenanted (thus had an obligation) that he would not arbitrarily withhold the consent when the same was reasonably required.  The plaintiff said the defendant was in breach of the covenant in arbitrarily refusing to grant the consent, and thus he was entitled to damages for the breach.

26.  The core issue before the court (Kelly CB, Pollock B and Amphlett B) was whether the subject alienation covenant imposed a positive and independent obligation on the defendant lessor not to withhold consent arbitrarily, the breach of which would give the plaintiff a right to damages.

27.  The court concluded that, on a proper construction, the covenant in question did not amount to a separate undertaking by the defendant lessor not to withhold consent arbitrarily.  Rather, the phrase “such consent not being arbitrarily withheld”, taken grammatically, was part of the same sentence concerning the lessee’s obligation and was thus merely to qualify the lessee’s obligation to obtain consent.  In the premises, there was no covenant, whether express or implied, by the defendant lessor not to refuse his consent arbitrarily.  Consequently, there was no right for the plaintiff to claim for damages, and all that the plaintiff was entitled to do when the defendant unreasonably refused to grant consent was for the plaintiff to seek a declaration that he was at liberty to assign the lease without the lessor’s consent.

28.  Kelly CB (Pollock B agreeing) explained this at pp 154 - 155 as follows:

“Two questions arise in this case, the first being whether certain words introduced in the clause prohibiting assignment, and whereby the plaintiff covenants not to assign without licence in writing, amount to an absolute covenant on the part of the lessor not to withhold his consent arbitrarily. I am of opinion that they do not constitute a covenant on which the lessee can sue, but are words, the only effect of which is to qualify the generality of the phrase into which they are introduced. The plaintiff covenants that he will not assign the lease or the premises demised ‘without the consent in writing of the said T. E. Bigge’ (the defendant) ‘first had and obtained,’ and if the words stopped the tenant’s covenant would be absolute, but they are qualified by the words ‘such consent not being arbitrarily withheld.’ Now the rule of law, no doubt, is that any words in a deed which impose an obligation upon another amount to a covenant by him; but the words must be so used as to shew an intention that there should be an agreement between covenantor and covenantee to do or not to do a particular thing. I cannot find any such intention here. The words, taken grammatically, do not seem to me to amount to an undertaking by the lessor, but are a part of the same sentence as that containing the lessee’s covenant, and qualify its generality. They prevent that covenant operating in any case of arbitrary refusal on the part of the lessor, that is, in any case where, without fair, solid, and substantial cause, and without reason given, the lessor refuses his assent. I have known in my own experience several cases in which actions have been brought for the arbitrary withholding of consent by a landlord. But in all (as in the case of Sheppard v. Hong Kong and Shanghai Banking Corporation⁶ ) there was a covenant in express terms, so as to give the lessee a right of action. In the present case, for the reasons I have given, I think there was no such covenant.

Then it is contended that a covenant is contained in the proviso, and it is quite possible that if the words there used, and on which reliance is placed, had been used in another part of the deed, they might have been properly construed as amounting to a covenant. But the two clauses which follow each other must be taken together. The language is somewhat varied in the proviso, but substantially is to the same effect as that used in the covenant. It shews the description of refusal which is to give the right of re-entry. The qualified covenant not to assign is followed by the qualified covenant for re-entry.” (emphasis added)

29.  Amphlett B also said this at 156 - 157:

“The first question in this case is whether the lessee any right of action on the covenant declared upon, and I am of opinion that he has not. It may be that the words themselves might, if it were necessary to carry out the intention of the parties, be sufficient to raise a covenant by implication in the lessor. But no such obligation ought to be implied if the true intention of the parties can be carried out by adopting a literal and natural construction. Now, looking at the place in which the words relied on occur, I think they ought to be construed as a qualification on the covenant of the lessee. That covenant is in derogation of his common law rights, and it is more convenient and reasonable to hold that the words were introduced to limit the generality of the covenant than to hold them to impose an obligation on the lessor. The true interpretation of the words, I think, is to release the plaintiff from his covenant not to assign without the plaintiff’s assent, if that assent is arbitrarily withheld. If that be so they cannot be construed as creating a cross liability. They either qualify the tenant’s covenant, or they create a covenant on the landlord’s part. They cannot do both. If they create a covenant the result would be that, even although there was an arbitrary refusal, the lessee would be unable to assign without incurring a forfeiture. If he did assign he would be liable to eviction, and yet would have an action accrued to him against his landlord in respect of the arbitrary refusal. Such a construction would be highly inconvenient, and there is nothing in the words which renders it necessary so to construe them. The other construction is the more convenient. The lessee may assign, if the lessor arbitrarily refuses his assent, without any assent, and the arbitrary refusal would be an answer to any proceedings which might be taken against him. The lessor, on the other hand, would escape a continual liability to a cross action. Upon the second question I feel some doubt. It has been fully discussed by my Lord; but as it is unnecessary to our decision, I do not desire to express any opinion upon it.” (emphasis added)

30.  In the premises, properly read, all that Treloar is saying is that, as in any other contractual claim cases, whether an innocent party has a right to damages in the case of breach is essentially a question of construction as to the nature of the obligations imposed by the covenant on the parties in question.  If on a proper construction, the contractual clause does impose, either expressly or impliedly, an independent and positive obligation on the lessor not to withhold consent unreasonably, it could well give rise to a right to damages in case of breach.  This case is therefore not an authority in support of the general principle of law as submitted by Mr Chan.

31.  To the contrary, as Kelly CB has further observed in Treloar at 155, that the lessee indeed would have a right to damages against the lessor if there was an express covenant undertaken by the lessor in the deed not to withholding consent unreasonably:

“I have known in my own experience several cases in which actions have been brought for the arbitrary withholding of consent by a landlord. But in all (as in the case of Sheppard v Hong Kong and Shanghai Banking Corporation) there was a covenant in express terms, so as to give the lessee a right of action.” (emphasis added)

32.  Thus, in Ideal Film v Nielsen, it was indeed held that a similar but materially differently drafted alienation covenant of an underlease did, on proper construction, provide the lessee plaintiff a right to damages if it could be shown on the facts that the lessor did withhold the consent unreasonably.  The subject covenant under consideration provided: “[the [tenant plaintiff] will not assign, underlet, or part with the possession of the said premises, or any part thereof, without the previous consent in writing of the lessor, but the lessor covenants with the company not unreasonably to withhold such consent in the case of a respectable and responsible assignee or under-tenant” (emphasis added).

33.  In interpreting this, Eve J held that a breach of this covenant by the lessor defendant would entitle the plaintiff lessee a right to damages as well as the right to assign the subject premises without consent (although he later held that on the facts, there was no unreasonable withholding of consent by the lessor).  He explained this at pp 581 - 582:

“[after stating the nature of the claim and reading the covenants in the underleases, continued:] The first question is, ought I to read the two covenants as separate and distinct covenants, or is the first one to be regarded as qualified by the second? It is established beyond controversy that if the covenant on the part of the lessee not to assign without consent is merely qualified by a proviso that the consent of the lessor is not to be unreasonably withheld, there is no implied covenant by the lessor that he will not unreasonably withhold his consent, and in the absence of an express covenant to that effect no action will lie against him for unreasonably withholding it. But even so the lessee is not left wholly without remedy, for if in fact the consent is unreasonably withheld he can effectually assign without consent. In these leases there is a qualification introduced, not by way of proviso in the lessee’s covenant, but in the shape of an express covenant by the lessor not to withhold his consent. Does the fact that the qualification takes this form put the lessee in a worse position than if it had been introduced by an express qualification of his own covenant? I do not think it does. The course adopted gives the lessee a further remedy against the lessor, but it also in my opinion qualifies his own covenant, and if consent is unreasonably withheld the lessee can, in my opinion, assign without it and also bring an action for breach of the lessor’s covenant. That brings me to the substantial question I have to decide: Has the consent of the defendant been unreasonably withheld to the making of these assignments? ...” (emphasis added)

34.  The other authorities relied on by Mr Chan mentioned above also do not assist him.

35.  Rendall v Roberts, Rose v Gossman and Taylor Marine Ltd v Taylor Marine Brokers are all decisions that involved the same or very similarly drafted alienation covenant to the one considered in Treloar. Hence, they all followed Treloar and decided that, as a matter of construction, a breach by the lessor of that covenant in the relevant lease or deed in unreasonably withholding consent did not give the tenant a right to claim for damages against the lessor:

(1)  In Rendall v Roberts, the subject covenant in the underlease provided relevantly: “The lessee will not assign, transfer, underlet or part with the possession of the said premises or any part thereof without the previous consent in writing of the lessors and the superior lessors but so that such consent shall not be unreasonably withhold to an assignment …”.  Salmon J, held that the covenant under construction was not a covenant by the defendant lessor.  The learned judge therefore regarded himself to be bound by Treloar, and held at pp 3 - 4 that the failure of the defendants to give consent, albeit unreasonably withheld, was not a matter which afforded the plaintiff any right in law to claim damages.

(2)  Similarly, in Rose v Gossman, the subject alienation covenant provided that the lessee shall “[n]ot to assign sublet or part with the possession of the demised premises or any part thereof without the consent in writing of the lessor and superior lessor such consent not to be unreasonably withheld.”  The plaintiff lessee claimed damages against the defendant lessor for the latter’s alleged breach of this covenant in unreasonably withholding consent.  This damages claim was struck out at first instance.  The plaintiff appealed the decision to the court of appeal.  The court of appeal allowed the appeal on the basis that the striking out application was made too late and should not have been entertained.  But it is pertinent to note the observation of Denning MR at p2 that, although he would have come to a different conclusion if free from authority, the court was however bound by Treloar on the construction of this similarly drafted covenant given that it had been followed in a long line of authority.  The learned Master of Rolls said this:

“This is not by any means an easy point. If I were left to construe this document without the aid of previous authority, I confess I would be inclined to say that the landlord promised not unreasonably to withhold his consent. But, as against this view, there is a line of authority going back to Treloar v. Bigge (1874), L.R. 9 Exch. 151, including some oservations by Romer, L.J., in F.W. Woolworth & Co. v. Lambert, [1937] 1 Ch. 53, and finally the decision of Salmon, J., in Rendall v. Roberts & Stacey, Ltd. (1960), E.G. 265. These show that is has been accepted for nearly a hundred years now that with a lessee’s covenant in this form, the words ‘such consent not to be unreasonably withheld’ are only a qualification on the lessee’s covenant. If the landlord unreasonably refuses consent, the tenant is entitled to assign or sublet without consent. But it does not give the tenant a right to damages. Mr. Samuels says he wishes to challenge that view. I cannot say that he has much chance of success in doing so, for it has stood so long.

Apart from this point, however, there is the question whether at this stage of the proceedings this statement of claim should be struck out. I think it is far too late. The proper time to apply to strike out is before delivering defence. The defendant should apply then if he is going to do it. He can, of course, apply later, but the longer he delays the more difficult it is for him to get it struck out. In this case, seeing that he delayed until the case was ready for trial, I think he comes too late. ...”

(3)  In Taylor, the relevant alienation covenant provided that the lessee “… shall not assign or transfer this Lease without the prior written consent of the Lessor PROVIDED that the Lessor will not unreasonably withhold its consent to an assignment…”  Upon the lessor’s refusal to give consent to the lessee for assigning the premises, the lessee claimed against the lessor for damages for breach of this covenant.  Again, following Treloar, Cooper J of the New Zealand High Court held that the proviso in the covenant merely qualified the alienation covenant and therefore did not entitle the lessee to sue for damages in the case of breach.  It was however also pointed out by the learned judge that, unless a separate covenant was expressly created, a proviso was not to be construed so as to take effect as a positive covenant, breach of which would give rise to a claim for damages by the lessee (see: [85] - [92], [102] and [106]).

36.  In the premises, for the same reasons explained above in relation to Treloar, these authorities do not support Mr Chan’s contentions.

37.  Denis Meagher also does not take Mr Chan’s submissions any further.

38.  In that case, the covenant concerned was an absolute covenant by the tenant “[n]ot to assign the said premises or any part thereof without the previous consent in writing of the lessor first had and obtained”.  Further, under the Landlord and Tenant (Amendment) Act 1980 in Ireland, it was provided that such covenant shall be subject to a proviso that the consent shall not be unreasonably withheld.  The plaintiff landlord first brought an action in the Irish High Court against the defendant lessee seeking an injunction for compliance with the repairing covenant.  The lessee however counterclaimed damages against the landlord for breach of contract and statute in unreasonably withholding consent to allow it to assign the lease.  The first instance judge found that the landlord had acted unreasonably in refusing consent and awarded the lessee damages.  The landlord appealed to the Supreme Court.

39.  The Supreme Court allowed the appeal.  After going through the line of authorities of Treloar, Ideal Film, Rendall v Roberts and Rose v Gossman, Finnegan J (Fennelly and O’Donnell JJ agreeing) held that[2] (a) most such consent covenant found in leases were in qualified form, the restriction normally being followed by a clause “such consent not to be unreasonably withheld”, (b) it was a matter of construction as to whether such a covenant amounted to a positive undertaking by the lessor not to withhold consent unreasonably or it was only a qualification of the lessee’s undertaking not to assign without consent, (c) the 1980 Act was not intended by the legislature to affect the court’s construction of such covenants, and (d) in the premises, following Treloar, the subject covenant on proper construction was only a qualification of the lessee’s obligation not to assign without consent, and thus the lessee had no right to damages even though the landlord had withheld consent unreasonably in that case.

40.  Thus, Meagher again is decided on the proper construction of the effect and meaning of the relevant covenant in question, but is not laying down a general principle of “No Damages Doctrine” as submitted by Mr Chan.  It is pertinent to note that Finnegan J had also clearly said in his conclusion at [30] that a lessor could be found to be liable for damages if there was a covenant by the lessor not to unreasonably withhold consent:

“…It is, of course, open to the parties to a lease to include a covenant by the lessor not to unreasonably withhold consent the breach of which would give the lessee a right of action for damages. Absent such a covenant no such right arises.” (emphasis added)

41.  It is therefore clear that all these authorities show that whether a lessee has a right to damages if a lessor unreasonably withholds the relevant consent under an alienation covenant depends on the proper construction of the relevant covenant or covenants in question.  If the provision that lessor should not withhold consent unreasonably amounts only to a qualification to the lessee’s obligation not to alienate the premises under the covenant, the lessee will not have a right to damages even if the lessor withholds consent unreasonably.  The remedy in such circumstance is that the lessee can proceed to do what is prohibited by the covenant even without the consent.  However, if on a proper construction, the lessor had (expressly or impliedly) taken on a positive or separate obligation in the relevant covenant not to withhold the required consent unreasonably, its breach will give rise to a right to damages for the lessee[3].

42.  There is therefore no principle of law, as submitted by Mr Chan, that there cannot be a claim for damages if the lessor unreasonably withholds to give a consent which is required to be obtained by the lessee in an alienation covenant before he could proceed to do something.  It all depends on the proper construction of the relevant covenants in question.

43.  In the premises, in the present case, the merits of the respondent’s striking out application depend on whether on a proper construction of the relevant clauses in the DMC, they amount to the respondent’s own separate and positive undertaking not to unreasonably withhold consent.

44.  As mentioned above, the applicant relies on the following relevant clauses in the DMC in support of its claim for damages.

45.  Under paragraph 3 of the Second Schedule, the applicant is required to obtain the respondent’s consent to carry out alteration works to convert a part of the 8^th floor from car parking purposes into office use.  Paragraph 3 reads as follow:

“Covenants, provisions and restrictions referred to in clause 5 of this Deed.

…

3. Subject to relevant government authorities’ approval and the consent of the Manager, not to make any structural alteration to any part of any floor, unit (including the Refuse Collection Point), shop or office of which he is the Owner which may damage, or affect or interfere with the use and enjoyment of any other part of the Building whether in separate or common occupation or use, nor cut, injure, damage, alter or interfere with any part or parts of the Building including but not limiting the main walls or beams or floor thereof or any of the sewers, drains, water-courses, conduits, pipes, cables, wiring, fixtures, equipment apparatus or services of the Building. No owner shall be prevented from taking legal action against another owner in this respect.” (emphasis added)

46.  At the same time, clauses 9(A)(d) and 9(B)(35) of the DMC provide respectively as follows:

(1)  9(A)(d):

“The Manager shall be bound by and shall observe and perform all of the conditions, duties and obligation herein provided and shall have all the rights and privileges herein granted to the Manager.”

(2)  9(B)(35):

“except as otherwise herein expressly provided, the Manager shall be responsible for and shall have full and unrestricted authority to do all such acts and things as may be necessary or requisite for the proper management of the Building save and except the Refuse Collection Point and without in any way limiting the generality of the foregoing:

…

(35) to grant consent under this Deed if required by any Owner and many charge such Owner (save and except F.S.I) a sum for the granting of such consent. Provided that such sum shall be paid into the management account and the Manager is entitled to charge and retain a reasonable administrative fee for processing such consent”. (emphasis added)

47.  We are of the view that clauses 9(A)(d) and 9(B)(35), when read and construed in proper context and with the other relevant clauses in the DMC, impose a positive and separate obligation on the respondent as manager to exercise its power to, among others, grant consent as required under the DMC, which power should be exercised in a reasonable manner.  Our reasons are as follows.

48.  First, clauses 9(A)(d) and 9(B)(35) expressly provide that the Manager “shall … perform all of the conditions, duties and obligations herein provided” and “shall be responsible for … all such acts and things as may be necessary or requisite for the proper management of the Building”, which includes the duties and obligations to “grant consent under this Deed if required by any Owner”.  These are plain and unequivocal words, which objectively expressly impose positive and separate obligations and duties on the respondent as the manager to manage the Building.  They also expressly state that one of these management obligations and duties is to decide whether or not to grant consent when requested by the owners.

49.  Second, clauses 9(A)(d) and 9(B)(35) are set out in the DMC as separate and independent clauses, which do not form part of the other specific clauses (for example, as in Treloar).  Further, the nature and scope of the obligations and duties imposed on the respondent by these clauses are various and general (as the respondent is required to do all such acts and things as may be necessary for the proper management of the Building), which are also not specifically directed to or referable to other specific provisions in the DMC.  As such, properly and objectively read, the imposition of these obligations and duties cannot be intended to merely qualify the owner’s obligation not to alter its property without the respondent’s prior consent as provided in Paragraph 3 of the Second Schedule.

50.  Third, these clauses expressly provide for and impose on the respondent obligations and duties to do all such necessary or requisite acts and things for the management of the Building.  Under this context of general management, it must be an obvious implication (and Mr Chan is not contending otherwise) under these clauses that the respondent shall perform these obligations in a reasonable manner.  In other words, insofar as granting consent is concerned, the respondent has an obligation to consider it in a reasonable manner when such consent is sought from an owner pursuant to the DMC, which must include not withholding consent unreasonably.

51.  For all these reasons, we are of the clear view that if it can be shown that, in breach of these clauses, the respondent had unreasonably withholding consent, the applicant would have a right to claim for damages for the breach.  Whether the applicant can on the facts show such breach is of course a matter for trial at the Lands Tribunal.

52.  This is therefore not a case that the applicant plainly has no cause of action for damages as submitted by Mr Chan.  The striking out application is untenable, and the proposed grounds of appeal are not reasonably arguable, nor is there any reason in the interests of justice that the intended appeal should be heard.

53.  For these reasons, we dismissed the leave to appeal application with costs.

54.  The applicant in its updated statement of costs dated 3 August 2020 sets out the amount of costs incurred for this application to be HK$727,149.  Mr Chan for the respondent has raised only one form of objection to this statement of costs: Counsel submits that the costs has included various items of professional works which are stated to have been carried out by two fee earners[4]. Mr Chan says as this is a renewed leave application which concerns pure questions of law, it is unreasonable and unnecessary for those works to be carried out by two solicitors.  Mr Chan however accepts that in relation to those items of work, it is the handling partner’s costs that should be allowed, while all the duplicated costs incurred by the more junior solicitor (in the total amount of HK$23,200) should be disallowed.  We agree with Mr Chan.  After taking that into account, and rounding it up, we would therefore grossly tax the applicant’s costs on a gross sum basis in the amount of HK$700,000[5].