The Incorporated Owners of Freder Centre v. Gringo Ltd and Another

CACV 161/2015

CIVIL APPEAL NO 161 OF 2015

(ON APPEAL FROM LDBM 290 OF 2013)

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REASONS FOR JUDGMENT
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Hon Chu JA (giving the Reasons for Judgment of the Court):

1.This is the 1^st and 2^nd respondents’ appeal against the judgment given on 9 December 2014 by Deputy District Court Judge Tracy Chan (“the Judge”) sitting as a Presiding Officer of the Lands Tribunal ([2015] 1 HKLRD 362). After hearing counsel, we allowed the appeal and ordered the applicant to pay the respondents their costs here and below together with certificate for counsel for the proceedings in the Lands Tribunal. We now give our reasons for judgment.

The facts

2.The applicant is the owners’ incorporation of Freder Centre (“the Building”), which is a commercial building situated at Nos. 3, 3A & 3B Mok Cheong Street, Nos. 62-68 Sung Wong Toi Road and Nos. 210-230 Kowloon City Road, Kowloon.

3.The Building was completed in 1979.  It has three frontages, facing respectively Mok Cheong Street. Sung Wong Toi Road and Kowloon City Road.

4.The rights and obligations of the owners of the Building are governed by a deed of mutual covenants dated 21 September 1979 (“DMC”).  There is also a supplemental deed of mutual covenants dated 30 September 1980 (“Supplemental DMC”) which relates to the owners of the units in the basement and on the ground floor.  By reason of clause 5 of the Supplemental DMC, the covenants in the DMC, insofar as they are not inconsistent with the terms of the Supplemental DMC, shall apply equally to the Supplemental DMC. 

5.Under clause 14 of the Third Schedule of the DMC (“Clause 14”), the owners and occupiers of the Building covenanted that:

“Subject to sub-clause (15) hereof not to affix or exhibit or paint or cause permit or allow to be affixed or exhibited or painted on any window or any external part of the said building or any part of the common entrances staircases and landings lifts or passages therein any name or business notice or advertisement whatsoever except only in the space assigned for that purpose bearing only the name of the factory or occupier.”[1]

6.The 1^st respondent has since 1981 been the registered owner of units B and C in the basement of the Building (“the Premises”).  The 1^st respondent also owns shop 9 on the ground floor and also units 3, 3A and 3B of the Building.

7.The 2^nd respondent is the 1^st respondent’s tenant.  Since 1998, the 2^nd respondent has been occupying shop 9 on the ground floor for operating a retail business under the name of “香港免稅店”.  The 2^nd respondent has also since 2000 occupied the Premises and units 3, 3A and 3B of the Building for operating two other businesses under the names of “香港國際免稅批發” and “(免稅) 國際百貨”.

8.On the 2^nd respondent’s evidence, it has for more than 14 years put up signboards for its businesses on the external walls of the Building.  In November 2012, the 2^nd respondent additionally affixed its trade name “香港免稅店” (“the Trade Name”) on the part of the external wall that is above the ground floor doorway of the Building facing Sung Wong Toi Road.    

9.It is common ground that the external wall on which the Trade Name is affixed forms part of the common parts of the Building.

10.On 22 March 2013, the applicant, through it solicitors, wrote to the 1^st and 2^nd respondents demanding them to remove the Trade Name within 14 days on the ground that this was a breach of Clause 14 and section 34I of the Building Management Ordinance, Cap. 344 (“BMO”).  The latter provides:

“(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.”

11.This was followed by another letter dated 24 April 2013 from the applicant’s solicitors giving final warning and threatening legal action.  The respondents did not comply with the demand.

LDBM290/2013

12.On 6 November 2013, the applicant filed an Application in the Lands Tribunal against the 1^st and 2^nd respondents claiming that the 2^nd respondent acted in breach of Clause 14 by affixing the Trade Name on the Building’s external wall and had thereby converted the external wall to its own use contrary to section 34I of BMO, and that the 1^st respondent was liable to indemnify the applicant for the 2^nd respondent’s breach.  The applicant sought a mandatory injunction to compel the respondents to remove the Trade Name and to reinstate the external wall, and a prohibitory injunction restraining the respondents from affixing or exhibiting business name, notice, sign, signboard or advertisement on the external wall of the Building. 

13.The respondents opposed the application, contending firstly, they have not been in breach of the DMC or the BMO in that the Trade Name was affixed in the space assigned for that purpose within the meaning of Clause 14.  Secondly and alternatively, the respondents said that the applicant has acquiesced in the breach in that all the other owners or occupiers of the ground floor and basement units of the Building have for a long time affixed or exhibited on the external walls of the Building signs or signboards bearing their trade names, and the applicant has never taken enforcement action or proceedings against them.  Thirdly, the respondents said this was arbitrary enforcement and that the Tribunal should exercise its discretion against granting injunctive relief.

The Judge’s judgment

14.There were broadly three issues at the trial, namely, (1) whether the Trade Name is affixed at a space assigned for that purpose within the meaning of Clause 14; (2) if the affixing of the Trade Name is a breach of the DMC and/or section 34I of BMO, whether the applicant has acquiesced in it; and (3) whether it is just and equitable to grant the injunctions sought by the applicant.

15.On the first issue, the Judge found there was no evidence to show that the part of the external wall on which the Trade Name is affixed has been assigned for that purpose.  The Judge was further of the view that such a space could only be assigned expressly and unequivocally and not impliedly.   

16.As to the issue of acquiescence, the Judge noted the applicant’s concession that it has power to acquiesce in a breach of section 34I (1), but rejected the applicant’s argument that because it has never exercised its power to approve an owner’s conversion of a common part to his own use, the applicant had no power to approve or acquiesce in the affixing of the Trade Name by the 2^nd respondent.  Having regard to the nature of the breach, which did not involve any illegal structure, the Judge was of the view that the breach was within the applicant’s power to approve and therefore to acquiesce.    

17.The Judge next considered whether the applicant had in fact acquiesced in the respondents’ breach.  In paragraph 20 of the Judgment, the Judge set out the relevant facts on this question:

“20. The next question is whether in fact the breach in the present case had been acquiesced. It is not disputed that with the exception of one shop on ground floor, all other units on the ground floor and the basement had affixed or exhibited shop names or name signboards or product brand-names on the external walls close to their respective units. Some of these trade names or signboards came into existence as early as in 1982. It was not denied by the Applicant that except the present proceedings no enforcement action had been taken against any owners. Mr Tang, witness for the Applicant, said that as the manager in control of management of the centre, he did report to the Applicant at various management meetings the existence of such trade names and signboards. There was no dispute that during the installation of the Trade Names in November 2012, the Applicant did not issue any warnings or to take any enforcement action against the respondents.”

18.The Judge went on to hold that the applicant had not acquiesced in the 2^nd respondent’s breach.  She was of the view that the four months’ lapse between the affixing of the Trade Name on the external wall and the issue of the first warning letter from the applicant’s solicitors was insufficient to establish acquiescence.  The Judge also took the view that the fact that other basement and ground floor units have also affixed or exhibited their trade names, signboards or advertisements on the external walls is irrelevant.  She set out her reasoning in paragraphs 22 to 27 of the Judgment, which read:

“22. The Trade Names were put up in or about November 2012. It was not disputed that warning letters demanding their removal had since been issued by the Applicant’s lawyer on 22 March and 24 April 2013. The time lapse between the installation and the warning was about 4 months’ time.

23. The defence of acquiescence arises if a party lies by and knowingly permits another to incur an expense in doing an act under the belief that it would not be objected to, and so a kind of permission may be said to be given to another to alter his position, he may be said to acquiesce.

24. As far as the Trade Names are concerned, it is difficult to say that the Applicant did lie by. There was no evidence as to the duration taken to affix the Trade Names. But, so soon, in about 4 months’ time, after they were affixed, the Applicant objected to their presence. I am of the view that such time lapse itself could not have pointed to acquiescence. Further there was no evidence put forth to say how the Respondents had altered their position or suffered detriment.

25. Moreover, I do not agree that the Respondents could rely on other trade names or advertisements exhibited at various places at the Centre in support of their assertions of acquiescence. Those other signboards and trade names were put up at different times and at different locations. As mentioned above the Trade Names were opposed to promptly. In Wing Ming Garment Factory Limited v. The Incorporated Owners of Wing Ming Industrial Centre and Others [2007] 5 HKC 410, Reyes J as he then was said in paragraph 8 that:

‘The Incorporated Owners have an obligation to enforce the covenants in the DMC. If Wing Ming believes that the Incorporated Owners is not performing its proper duty, it can apply to the Court for an Order of specific performance requiring the Incorporated Owners to enforce relevant obligations under the DMC. What Wing Ming is not entitled to do is to say, because other owners are flouting the DMC, it can too.’

26. Further, whether the other signboards had been acquiesced was not an issue for trial at the present hearing. The fact that they had been in existence for a long time itself may not necessarily be successful in raising a defence of acquiescence in other actions.

27. The allegation that the Applicant had unfairly exercised their power as they only took enforcement action against the Respondents must fail because in the present application the Applicant only asked for an order for the removal of the Trade Names and not those two other groups of trade names exhibited by the Respondents in other parts of the external walls. This is consistent with what Mr Tang had told the Tribunal that due to financial constraint, enforcement action would be taken against those recently installed fixtures for the time being.”

19.On the third issue, the Judge weighed up the 2^nd respondent’s need to exhibit its trade name and the respondents’ obligation to comply with the DMC and the BMO, and concluded that the discretion should be exercised in favour of granting the injunctive relief sought by the applicant.

20.The Judge accordingly granted a mandatory injunction compelling the respondents to remove the Trade Name and to reinstate the external wall, and a prohibitory injunction restraining the respondents from affixing or exhibiting business name, notice, sign, signboard or advertisement on the external wall of the Building.  The Judge also ordered costs against the respondents.

The grounds of appeal

21.With leave granted by this Court[2], the respondents appeal to this Court against the orders of the Judge.  The notice of appeal raises three main issues, namely,

(1) Whether the Judge was correct in holding that a space for affixing or displaying trade name or sign can only be assigned expressly and not impliedly.

(2) Whether the Judge was correct in holding that the applicant has not in fact acquiesced in the respondents’ breach.

(3) Whether it is just and equitable to grant the injunctive relief sought by the applicant.

The respondent’s notice

22.The applicant has filed a respondent’s notice in which it seeks to affirm the Judge’s decision on two additional bases.  First, it is said that there is no evidence adduced at the trial to prove that the part of the external wall on which the 2^nd respondent affixed the Trade Name is a space impliedly assigned to the 2^nd respondent for that purpose and within the meaning of Clause 14.  Second, the applicant seeks to withdraw from its concession by contending that the respondents’ breach is not within the applicant’s power to acquiesce.      

Our reasons for judgment

23.The first issue of, whether for the purpose of Clause 14, a space for affixing or displaying trade name can be assigned impliedly can be disposed of shortly.  The respondents have simply not identified the basis and evidence on which it can be said that the part of the external wall on which the Trade Name is affixed has been impliedly assigned by the applicant for that purpose.

24.In our view, the core issue in this appeal is whether the applicant has acquiesced in the respondents’ breach.  We do not agree with the applicant’s argument in the respondent’s notice that it is not within the applicant’s power to acquiesce in the breach.  It is implicit in Clause 14 that the applicant may assign spaces for the owners or occupiers to affix or exhibit their trade names.  Similarly, it is also implicit in section 34I (1) (a) of BMO that the applicant can give approval to an owner to convert a common part to his own use: see the Court of Appeal’s judgment in Hollywood Shopping Centre Owners Committee Ltd v. Wing Wah Building Mongkok Kowloon (IO) [2011] 4 HKLRD 623 at §§67-69.  It is thus within the applicant’s power to give approval to an owner or occupier to affix his trade name on the Buildings’ external wall.  There is also no suggestion that any illegality is involved.  The Judge is therefore correct in holding that the respondents’ breach is within the applicant’s power to acquiesce.

25.As to whether the applicant has in fact acquiesced in the respondents’ breach, there is no disagreement between counsel on the relevant legal principles.  As stated by Thesiger LJ in De Bussche v. Alt (1878) 8 Ch D 286 at 314, the defence of acquiescence arises:

“If a person having a right, and seeing another person about to commit, or in the course of committing an act infringing upon that right, stands by in such a manner as really to induce the person committing that act, and who might otherwise have abstained from it, to believe that he assents to its being committed, he cannot afterwards be heard to complain of the fact.”

26.Hence, to succeed in a defence of acquiescence, it must be shown firstly, there was on the part of the plaintiff, an assent or lying by in relation to the acts of another person; and secondly, in view of the assent or lying by and consequent acts it is unjust in all the circumstances to grant the relief in question: see Spry, Equitable Remedies, 9^th edition, p.56.

27.In concluding that the applicant has not acquiesced in the respondents’ breach, the Judge had focused only on the lapse of four months between the affixing of the Trade Name and the issue of the solicitors’ letter, which she considered was insufficient to amount to acquiescence. The Judge had disregarded as irrelevant the objective fact that all, except one, owners or occupiers of the basement and ground floor units have for years affixed or exhibited shop names or signboards or product brand names on the external wall close to their units.  In some instances, the names or signs have existed since as early as 1982. 

28.In our view, the fact that nearly all the other owners or occupiers of basement and ground floor units have for many years committed similar breaches, and the applicant has never taken any enforcement action or proceedings against them suggests that the breaches are prevalent and have over the years been tolerated by the applicant.  This is directly relevant and germane to whether there is assent or lying by on the part of the applicant and whether it is unjust to grant the injunctive relief against the respondents.  Equally relevant and important is the fact that the 2^nd respondent has admittedly for some 14 years affixed or exhibited two business signs on other parts of the Building’s external walls, to which the applicant has taken no objection or enforcement action.  It should also be borne in mind that on the evidence given by Mr Tang, the applicant’s witness, the applicant through reports given by Mr Tang at management meetings must have knowledge of similar breaches committed by the other owners or occupiers or by the 2^nd respondent before November 2012. 

29.In Cheung Yuet & Anor v. The Incorporated Owners of Oriental Gardens [1979] HKLR 536, the appellants had breached the covenant of the deed of mutual covenants by adding enclosed extensions to their sitting rooms.  At the same time, many other owners in the building had committed similar breaches of covenant by adding slightly less noticeable rooms to their flats.  The trial judge granted mandatory injunctions requiring the appellants to demolish the extensions.  In allowing the appeal, the Court of Appeal held that the breaches of covenant by the other owners were no less grave than the breaches committed by the appellants, and could reasonably have been considered by the appellants as a representation that the extensions would be tolerated.  It concluded that the incorporated owners had acquiesced in the particular kinds of breach which the appellants had committed and it would be inequitable to compel the appellants to remove their extensions at the instance of the incorporated owners.            

30.The facts of the present case are similar to those in Cheung Yuet & Anor v. The Incorporated Owners of Oriental Gardens.  Mr Koo, who appeared with Mr Cheung for the applicant, argued that there is a substantial difference between basement units such as the Premises and the ground floor shop units, in that the latter have shop frontages and the part of the external wall above the shops prima facie forms part of the shops and is not a common part of the Building.  What Mr Koo sought to advance is that the owners or occupiers of the ground floor shops have not committed breaches of the DMC and/or the BMO.  The submission is untenable and must be rejected for two reasons. 

31.Firstly, not only is there no finding by the Judge that the owners or occupiers of the ground floor shops have not breached the DMC or BMO by affixing or exhibiting trade names or signs on the external wall of the Building, but also such suggestion is directly at odds with the evidence and the Judge’s findings.  In paragraph 24 of his witness statement, the applicant’s witness, Mr Tang, said that the applicant has been paying close attention to the trade names, notices, signs, signboards and/or advertisements affixed or exhibited on the external walls by the owners or occupiers of the ground floor and basement units.  He went on to say that owing to limited resources, the applicant could only deal firstly with those that were recently affixed or exhibited, such as the one put up by the 2^nd respondent in November 2012. He further said that the applicant would in due course deal with the other trade names, notices, signs, signboards and/or advertisements on the external walls.  Mr Tang’s evidence is a clear acknowledgement that other owners or occupiers of the ground floor and basement units have committed breaches similar to the breach committed by the respondents, although he also attempted to explain the applicant’s inaction on the basis that it has limited resources.  Mr Tang’s evidence was accepted by the Judge: see paragraphs 20 and 27 of the Judgment.  The respondent’s notice has not sought to challenge this. It is simply not open to the applicant to argue on appeal that the trade names or signs exhibited or affixed by the ground floor shop units involve no breach of the DMC or the BMO.  Secondly, even if accepting the ground floor shops may stand in a different light, what about similar breaches committed by the owners or occupiers of the other basement units?       

32.Mr Koo also argued that the Judge was correct to disregard similar breaches committed by other owners or occupiers because the other trade names or signs were put up at different times and on different parts of the external walls.  We are unable to see the relevance of this. The kind of breach committed by the other owners is not a single act, but is continuous in nature.  As noted above, there is no doubt that the applicant is well aware of the similar breaches committed by the other owners or occupiers.  It is therefore immaterial that the other trade names or signs were put up at different times and at different locations.    

33.In our view, the Judge fell into error in disregarding as irrelevant that for a long time there have been similar breaches by the owners or occupiers of the other basement and ground floor units, and the applicant has taken no enforcement proceedings or actions against them.  Had this and the fact that the 2^nd respondent has exhibited two other business signs at other parts of the external wall been taken into account, the Judge ought to have found that there has been lying by on the part of the applicant, and that it could reasonably be taken by the respondents as representation that exhibiting or affixing trade name or business sign on the Building’s external wall would be tolerated by the applicant.  The Judge ought therefore to have held that, in the circumstances, it would be inequitable to grant the injunctive relief sought by the applicant.

34.Accordingly, the Judge erred in holding that the applicant has in fact not acquiesced in the breach committed by the respondents, and in granting the injunctions sought by the applicant.

Disposition

35.For these reasons, we have allowed the appeal, set aside the orders made by the Judge and ordered the applicant’s Application in the Lands Tribunal be dismissed. 

36.Applying the normal rule of costs follow event, we also made an order that the applicant pays the 1^st and 2^nd respondents their costs of the appeal and of the proceedings in the Lands Tribunal, to be taxed if not agreed.  We accepted the submission of Mr Wu, who appeared with Mr Chan for the 1^st and 2^nd respondents, that it was appropriate for the respondents to appear by counsel in the Lands Tribunal in view of the issues of law involved, and granted a certificate for counsel for the proceedings in the Lands Tribunal.

Mr Ernest Koo and Mr Jay Cheung, instructed by Huen & Partners,for the Applicant (Respondent)

Mr Paul Wu and Mr Albert Chan, instructed by Damien Shea & Co, for the 1^st and 2^nd Respondents (Appellants)

[1] Sub-clause (15) is not relevant to this appeal.

[2] The order of Lam VP and Kwan JA given on 17 March 2015 in HCMP324/2015. The respondents’ previous application for leave to appeal and stay of execution was refused by the Judge.