The Incorporated Owners of Tone King Building v. Topglee Ltd and Another

LDBM 266/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 266 OF 2014

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J U D G M E N T

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1.The Applicant is the Incorporated Owners of Tone King Building (“the IO”) whose registered office is situated at 413 Castle Peak Road, Kowloon, Hong Kong (“the Building”).  TheNotice of Application (“the Application”) was taken out on 29 September 2014 pursuant to the Building Management Ordinance (“BMO”).  The IO asked for injunctive orders in respect of the unauthorised structures and/or unauthorised building works installed by the 1^st Respondent and/or 2^nd Respondent.  It was asked that they be removed.

2.The 1^st Respondent is the registered owner of the 1^stFloor of the Building (“the Premises”) while the 2^nd Respondent is the tenant thereof.  The tenancy agreement executed on 22 January 2014 (“the Tenancy Agreement”) was to commence on 2 April 2014 for a term of 3 years with an option to renew for 3 years.

3.The IO’s complaint was that the Respondents had installed structures without its prior consent as follows:-

(i)	5 air-conditioners found on the floor of the canopy outside the Suit Premises (“the 5 Air-Conditioning Devices”) (abandoned during trial);
(ii)	7 unauthorised supporting frames and the associated air conditioners  erected and/or installed on the external wall of 1st floor of the Building facing the rear lane (“the 7 Supporting Frames and Air Conditioners”) (“abandoned during trial”);
(iii)	25 new supporting frames for supporting air conditioners on the external wall of the Premises facing Castle Peak Road (“the 25 New Supporting Frames and Air Conditioners”);
(iv)	2 air-conditioning devices on the external wall facing the rear lane (“the 2 Air-Conditioning Devices”) (added during trial); and
(v)	Some drainage pipes at the external walls facing the rear lane (“the Drainage Pipes”) (abandoned during trial).

The Applicant’s Case

Background

4.In the Application filed, the IO set out some background information saying that they are relevant to the present proceedings.

5.In about 2010 or 2011, the Applicant discovered concrete spalling with steel reinforcement exposed (“the Defects”) at various parts of the Building including the external walls of the Premises.  On 6 September 2013, the Buildings Department (“the BD”) was of the view that the Building had become structurally dangerous, and on the same date BD served an order (“the 2013 Building Order”) pursuant to Section 26 of the Buildings Ordinance (Cap. 123) to the Applicant.

6.It was said that in order to comply with the 2013 Building Order and to safeguard the safety of the occupants and owners of the Building, the IO started to organise repairing works on the Defects shortly after the issue of the 2013 Building Order.  For the purpose of carrying out the repair works, the 7 Supporting Frames and Air Conditionermentioned at paragraph 3(ii) above should first be removed.  Since the Respondents had failed to remove the same notwithstanding repeated demands, the IO, allegedly, could not commence the repair works.

7.In early May of 2014, the 1^st Respondent, in breach of the deed of mutual covenant of the Building (“the DMC”), wrongfullypermitted the 2^nd Respondent to install the 25 New Supporting Frames and Air Conditionersmentioned at paragraph 3(iii) without prior authorization or consent from the Applicant.

8.It was further said that the 25 New Supporting Framesand Air Conditioners had unduly imposed additional loading to the Building and caused further deterioration of the Defects and thereby affecting the structural stability of the Building.

9.The complaint about the Drainage Pipes facing the rear lane was that they had caused blockage to the main drainage system of the Building.

10.The Applicant said that despite the issue of the demand letters by the Applicant, none of the Respondents removed any of the said unauthorised structures and reinstated or repaired the affected or damaged parts of the Building.

The Respondents’ Case

11.The 1^st Respondent’s case was that its director Mr Chow had already informed Mr Lee of the 2^nd Respondent that supporting frames and air-conditioners could not be put on the external walls before the Tenancy Agreement commenced.  Further Mr Chow had been carrying out negotiations between the Applicant and the 2^nd Respondent since the installation of the 25 New Supporting Frames and Air Conditioners with intent to work out a workable plan for both parties.                           

12.The 2^nd Respondent admitted that there was a breach of the DMC on its part as it cannot be disputed that there was no written consent obtained.  It was submitted by Mr Chan counsel for both Respondents that the breach was technical.  It was further said that the 2^nd Respondent had no choice but to put the 25 New Supporting Frames and Air Conditioners at the place where they could now be seen.  According to Mr Lee of the 2^nd Respondent the original plan was to have a water tower of the air-conditioning system built inside the Premises.  A layout plan for renovation had been drawn up by his renovation contractor.  It was later found not to be workable.  Reason being that due to alterations on a sewage pipe done not by the Respondents there was no sewage pipe (“the Missing Sewage Pipe”) to facilitate toilets to be built at its original position designed according to the building plan.  The 2^nd Respondent eventually decided to build the toilets at a place where they had planned to house the water tower.  It was said that that was the only place where the Drainage Pipes could be installed to join the common sewage drainage of the Building.  For this reason, the water tower could not be built inside the Premises according to the original design and the 2^nd Respondent had to change to use air-conditioning devices and to hang them on the external walls.

Development during Trial

13.Despite warnings given at call-over hearings for the Applicant to carefully identify the unauthorised structure for purpose of trial, on the first day of trial much time had been spent on identifying which unauthorised structures were put up by the Respondents.  On the second day of trial, counsel for the Applicant informed the Tribunal that they would not pursue the claim regarding the Drainage Pipes (paragraph 3(v)), the 5 Air Conditioning Devices (paragraph 3(i)) and the7 Supporting Frames and Air Conditioners (paragraph 3(ii)).  The only pleaded unauthorised structures left behind for determination are the 25 New Supporting Frames and Air Conditioners (paragraph 3(iii)); but they asked to re-amend the Amended Notice of Application to add 2 Air-Conditioning Devices (paragraph 3(iv)) to the list of unauthorised structures.  At the end, the unauthorised structures under trial became 27 (“the 27 Unauthorised Devices”).

14.At the conclusion of evidence and after final submissions had been lodged, parties reached settlement on the Counterclaim leaving matter for costs to be argued.

Issues

15.As the trial developed and as revealed by evidence, the disputes between parties had come to be as follows:-

(1)	Whether the 2nd Respondent had made any application pursuant to Clause 11 of the DMC since installation of the 27 Unauthorised  Devices;
(2)	if the answer to (1) is yes, whether consent was reasonably withheld by the Applicant; and
(3)	if there was breach, whether injunctive relief should be granted.

16.It is not disputed that the IO through Mr Yuen, manager of the management company hired by the IO, had stated their stance to the 1^st Respondent at a site conference that no metal frames or air-conditioners should be fixed on the external walls.  That was in March 2014 and that was before the Tenancy Agreement to commence.  The gist of discussion at the conference was that no unauthorised structures should be put on the external walls because of possible loading problem.  This was recorded in a letter dated 26 March 2014 sent to the 1^st Respondent by Mr Yuen together with relevant documents including minutes of owners’ meeting dated 19 January 2011, letter to the owner dated 24 March 2011 and copy of the 2013 Building Order.  Nonetheless, the 25 New Supporting Frames and Air Conditioners were found to have been installed on or by 8 May 2014.  In the course of installation, the IO had issued two warnings by emails on 3 and 5 May 2014.  The position of the IO was so firm that they had in fact made a report to police on 8 May 2014 for assistance and the matter was eventually referred to the Building Department for follow up.  As the Respondents did not accede to those warnings the IO issued a warning letter on 12 May 2014.

17.It is not disputed that the IO had an owners meeting held on 11 July 2014 and the resolution was that legal action be taken against the Respondents for unauthorised devices put outside the external walls of the Premises (“the July Resolution”). Pursuant to the July Resolution the IO instructed their lawyer to issue demand letters dated 27 August 2014 and 29 August 2014 to the two Respondents for the demolition of the same on or before 3 September 2014 (“Letter Before Action”).  The Application was taken out on 29 September 2014 in the Lands Tribunal when no remedial action had been taken before the time allowed.

18.Mr Lee of the 2^nd Respondent explained why they had to put air-conditioners on the external walls as paragraph 12 above.  He did not dispute that he was aware of the objection of the Applicant at least at the time of the installation in May 2014 when police was summoned to intervene during the course of installation.  He was however of the view that such objection was unreasonable first because the Applicant had failed to reconnect the Missing Sewage Pipe and toilets had to be relocated to the place planned to house the water tower inside the Premises; secondly, many other owners / occupants in the Building had put their air-conditioners on the external walls.

19.According to Mr Chow, witness for the 1^st Respondent, he had made a request to Mr Yuen that he should talk to the IO since the installation had taken place in in May.  Then there was the management committee meeting in July and the July Resolution was passed.  Mr Chow said since the July Resolution, he still had been having discussions with Mr Yuen.  According to him, Mr Yuen suggested that he should write a formal letter to the IO.  As he wanted to know more about the documents to be attached to the formal letter he was trying to contact Mr Yuen for further information.  However it was only until late August or early September that he could get hold of Mr Yuen.  After further discussion, he sent out an email on 5^th September (“the 5 September Email”) to Mr Yuen with the 3 attachments (“the Documents’):-

(i)	A guarantee from the 2nd Respondent to compensate all damages caused to the IO by the installation of 30 air-conditioners;
(ii)	A quotation on third party insurance with limit of liability at the limit of $10,000,000;
(iii)	A Notice and Certificate of Completion of Class III Minor Works under the Simplified Requirements.

20.In the 5 September Email it was also mentioned that a quotation on demolition of all air-conditioner was to follow.

21.Mr Yuen denied he had ever requested for a “formal letter” from the 1^st Respondent.  He further said during trial that he had not opened the Documents to see before the Application was taken out on 29 September 2014. 

22.The Respondents said that the 5 September Email was meant to be an application in the form suggested by Mr Yuen.  As Mr Yuen had not read the Documents it must be the case that the IO had failed its duty to consider their application.  It was submitted that, the IO had therefore unreasonably withheld permission by taking out the Application.

23.The IO said that despite of negotiations there was in fact no formal application made for the Applicant to consider.  Mr Yuen was adamant that the 5 September Email could not be regarded as a formal application.

24.After the Application was taken out, there was negotiation again.  The 1^st Respondent asked for a conference for all 3 parties to work out a resolution to the problem on 3 October 2014.  According to the record, a conference was held on 9 October 2014.  The 1^st Respondent wrote again on 14 October 2014 to follow up the discussion at the conference.  Relevant to the issues in the present hearing included that the 1^st Respondent asked for the full set of insurance documents relating to the Building and asked the Applicant to name an amount for license fees.  There was a reply from Mr Yuen on 15 October by which a copy of full set of insurance was provided but in turn Mr Yuen asked the 1^st Respondent to name an amount for the license fee.

25.On 23 October 2014, the 1^st Respondent wrote to Mr Yuen again asking whether there was any proposed plan in relation to the air-conditioners facing Castle Peak Road.  On the same day, Mr Yuen made a reply asking the 1^st Respondent to make a proposal instead.  He also mentioned again that the work to reinstate the Missing Sewage Pipe was still under negotiation since quotation had exceeded their expectation.

26.On 24 October 2014, Mr Yuen again wrote to the 1^st Respondent asking the 1^st Respondent to propose a workable plan for the IO to consider.  There were further correspondences between the 1^st Respondent and the Applicant on 29 and 30 October but they did not help make any real progress.  Parties were still asking for documents from the other side.  Mr Yuen requested for provision of “relevant document asked for earlier and proposal”.

27.The last correspondence on record was a reply from the 1^st Respondent made on 31 October 2014 saying that information would have to be gathered from the 2^nd Respondent and it was hopeful that he could return on or before 5 November 2014.  The 1^st Respondent also, like what he did in every email in the past, asked for the progress of the reinstating the Missing Sewage Pipe.  Then parties appeared before this Tribunal for 1^st call-over hearing on 18 February 2015.  There was meditation attempted since but to no avail.

Discussion

28.I shall first deal with the dispute between parties on whether the 5 September Email was an application submitted for the purpose of obtaining permission under Clause 11 of the Third Schedule of the DMC (“Application under the DMC”):-

“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 and all possible measures shall be taken to prevent excessive noise, condensation or dripping on to any part of the Building.”

29.As admitted by Mr Yuen there was no standard form for an application to be made.  I accept the evidence of Mr Chow that the 5 September Email was sent out upon the suggestion of Mr Yuen that he should write a “formal letter” and the Documents were sent as suggested by Mr Yuen.  I find that the purpose of the 5 September Email was for the purpose of obtaining permission from the IO through Mr Yuen.  But there was still information pending from the Respondents even on their case.

30.It was submitted for and on behalf of the Applicant that even if that was an application made by the 5 September Email the information given was not sufficient for a permission to be granted.  There was a concern about the structural safety of the Building because of the Building Order and the Applicant was of the view that the 27 Unauthorised Devices would unduly increase the loading of the Building.  In my view the IO was perfectly entitled to ask the Respondents to prove that the 27 Unauthorised Devices would not put on 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.  They will be discussed below.

31.As mentioned it was also submitted for and on behalf of the Respondents that since Mr Yuen had not read the Documents the IO when issuing the Application must have unreasonably withheld an application since the IO had not considered the application properly.  One must bear in mind that permission was not to be granted by Mr Yuen but by the IO.  It would have to be discussed and decided by the management committee.  Duty of Mr Yuen in this regard was to collate information in support and put them forward to the IO for consideration.  From the correspondences it is clear that in the view of Mr Yuen the information he had asked for had not been sufficiently prepared for the matter to be considered by the IO.  On 15 and 24 October 2014 he was still asking for a workable plan to be proposed by the 1^st Respondent for consideration.

32.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.  It was because there was already a breach not through the fault of the IO who had done what they could reasonably be asked of.  Warning had been given in March 2014 orally and followed up by emails and letters.  Installation was however carried out and completed in May 2014 without consent or permission.  The intervention of the IO was to no avail and then there was the July Resolution prior to issue of the Letter Before Action.

33.Negotiation after Application was taken out could not be taken for granted.  It only showed that Mr Yuen or the IO was not rigid or inflexible.  I find that neither Mr Yuen nor the IO should be criticized for not making any progress or for not having considered the application under the DMC.  From the evidence before me, there was nothing to suggest that had Mr Yuen opened the Documents to read, the IO would permit the application.  Quite to the contrary, parties took another month to work on the matter and it just ended up going not closer to an agreement. 

Whether Duty to consider Application Subsequent to a Breach

34.The question to be asked at this stage is whether the IO was duty bound to consider an application subsequent to a breach.  The purported application under the DMC was put in 4 months after installation of the 27 Unauthorised Devices.  The IO said they had no duty to consider an application after a breach especially when the conduct of the 2^nd Respondent was appalling and that to give them indulgence might open a floodgate for non-compliance by other owners.  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.  Obviously, Mr Yuen had been doing the go-between work.  But there was no formal application put forward to the management committee for consideration so far until conclusion of trial.  In the circumstances, I do not think that it is legitimate for the Respondents to raise the question on whether the IO was under a duty to consider an application subsequent to a breach.

Whether the Application Premature

35.The July Resolution was not challenged by any of the Respondents.  In my judgment it should not be challenged after all as there was no application made by the Respondents for permission prior to July 2014 not to mention before installation in May 2014.  Even I have found that it was Mr Yuen’s suggestion after the July Resolution that a formal letter be written there was no prompt follow-up by the 1^st Respondent. In the meantime however the Letter Before Action was issued on the 27 August 2013 setting out a deadline for the Respondents to carry out remedy work on or before 3 September 2014.  Yet the application did not come until 5 September by an Email, 2 days after the stated deadline.  From this course of action I do not agree that the commencement of proceedings was premature.

36.Further there was no suggestion from any of the Respondents that when Mr Yuen suggested that the Respondents should write a formal letter he had promised to withhold any legal proceedings.  When there was no action taken prior to 3September 2014, the deadline stated in the Letter Before Action, the IO was entitled to take out the Application on 29 September 2013 notwithstanding the 5 September Email.

37.What happened after 29 September i.e. issue of these proceedings, was irrelevant.  It only showed that the IO was willing to discuss the matter at the request of the Respondents. This is not relevant to the named issues but could show that the IO had not handled the matter capriciously.

Injunctive Relief

38.As to whether injunctive relief is to be granted, I have to consider the whole of the circumstances. From the evidence before the Tribunal there was a breach.  Injunction could be imposed.  The main concern of the IO is safety of the Building.  That is understandable.  I agree that this concern was real and not fanciful with the issuance of 2013 Building Order.  This concern had been repeatedly conveyed to the 1^st Respondent at least since March 2014.  It is therefore upto the Respondents to put the mind of the IO at ease.  Notwithstanding discussion and negotiations carried out after commencement of these proceedings, the Respondents had however not put forth a workable plan.

39.I have also considered the 2^nd Respondent’s case saying that they had no choice but to put the 27 Unauthorised Devices at the external walls (paragraph 11 above ).  After hearing Mr Lee’s evidence, even I accept that it was because of the Missing Sewage Pipe that they had to relocate the water tower, it had not been proved that the Respondents were therefore not required to obtain written consent.

40.Further from evidence of Mr Lee, it is not impossible for the water tower to be housed inside the Premises at other locations which might not be most cost effective or best suit the design of the restaurant.  In my view Mr Lee’s evidence was not clear on this point.  In his witness statement he had clearly indicated that the toilets had taken up the place for the water tower and therefore the 27 Unauthorised Devices were necessary.  Under cross examination, he agreed that on the revised plan showing the current layout, the place was not taken up by toilets but freezers.  He said that the drawing was not correct.  The place for the water tower should have been extended to the present location of the toilet for the disabled because the inner part now freezers were housed lacked sufficient headroom for water tower.  This could not assist the Respondents.  As could be seen from the revised plan, the toilet for the disabled took up not much space and could reasonably be built somewhere close to the other toilets.  I also notice that the alleged revised plan was very different from the alleged original plan in that the alleged revised plan had 5 VIP rooms where the alleged original plan had only open plan for tables.  In any event, I am of the view that Mr Lee’s evidence on why he had decided to put up the 27 Unauthorised Devices could not be accepted.  As I said earlier, even if I accepted his evidence, it did not mean that the Respondents did not have to ask for consent before they were put up.

41.The other complaint by the 2^nd Respondent was that others were also putting the air-conditioners and supporting frames at the external walls had no basis.  I accept Mr Yuen’s evidence that other owners had already obtained permission before hand. 

Whether Damages Sufficient Remedy for the Breach

42.Mr Chan also submitted that when money is sufficient compensation no injunction should be granted.  He relied on TJ Smith & Nephew v 3m United Kingdom PLC (1983) RPC 92  and submitted that where there is clear evidence of a willingness to accept a payment for license fee, then it may well entitle the court to infer that damages would be adequate.  Applying the principle Mr Chan said since Mr Yuen confirmed that the amount of licence fee was what had prevented the parties from reaching an agreement, this is evidence of a willingness to accept a payment as remedy and injunction should not be granted.

43.First, according to evidence of Mr Yuen and documents produced, safety had been a concern of the IO.  As mentioned, the last correspondence on record was that the 1^st Respondent had agreed to find out more information from the 2^nd Respondent and there was no further progress on the negotiation.  As mentioned, one must not forget that Mr Yuen could not give any consent.  It would be for the management committee to decide.  That was why Mr Chow said he had asked Mr Yuen to talk to the IO (paragraph 23 of his witness statement).  What Mr Yuen had been doing was to collect information to make the application under the DMC ready for the management committee to consider at the most.  There was no clear evidence for decision to accept money as remedy although such possibility might have been explored.  In fact, on the evidence of Mr Lee, he said he knew nothing about discussion of licence fee. 

44.Further I have considered the authority cited.  I find that the facts therein were quite different from those in the present case.  In TJ Smith, there had been an agreement on licence to be granted for payment to be made.  In the present case, not only there was no agreement reached on giving a licence for the Respondents to put the 27 Unauthorised Devices at the external walls, there had been warning letters and Letter Before Action issued to the Respondents.  In simple words, there was a breach on the part of the Respondents in the first place.  I do not agree that the principle set out in LJ Smith should apply. For this reason, I do not accept that this is a situation where money is adequate compensation.

Damages in Lieu of Injunction

45.It is pertinent to discuss damages in lieu of injunction.  In fact this was raised by me for parties to consider as an alternative remedy.  Both parties submitted that the present case was not a suitable case for damages to be awarded in lieu of injunction.  Mr Lau for the Applicant relied on Shelfer v City of London Electric Lighting Company [1895] 1 Ch 287.  In Shelfer the principle of granting damages in lieu of injunction was discussed.  In discussing the applicable principles Lindley LJ said:-

“But in exercising the jurisdiction thus given attention ought to be paid to well settled principles; and ever since Lord Cairns' Act was passed the Court of Chancery has repudiated the notion that the Legislature intended to turn that Court into a tribunal for legalizing wrongful acts; or in other words, the Court has always protested against the notion that it ought to allow a wrong to continue simply because the wrongdoer is able and willing to pay for the injury he may inflict. … Without denying the jurisdiction to award damages instead of an injunction, even in cases of continuing actionable nuisances, such jurisdiction ought not to be exercised in such cases except under very exceptional circumstances. I will not attempt to specify them, or to lay down rules for the exercise of judicial discretion. It is sufficient to refer, by way of example, to trivial and occasional nuisances: cases in which a plaintiff has shown that he only wants money; vexatious and oppressive cases; and cases where the plaintiff has so conducted himself as to render it unjust to give him more than pecuniary relief.”[emphasis added]

46.AL Smith LJ in Shelfer laid down the good working rule for the principle:-

“Many Judges have stated, and I emphatically agree with them, that a person by committing a wrongful act (whether it be a public company for public purposes or a private individual) is not thereby entitled to ask the Court to sanction his doing so by purchasing his neighbour's rights, by assessing damages in that behalf, leaving his neighbour with the nuisance, or his lights dimmed, as the case may be. In such cases the well-known rule is not to accede to the application, but to grant the injunction sought, for the plaintiff's legal right has been invaded, and he is prima facie entitled to an injunction… In my opinion, it may be stated as a good working rule that -

(1)	If the injury to the plaintiff's legal rights is small,
(2)	And is one which is capable of being estimated in money,
(3)	And is one which can be adequately compensated by a small money payment,
(4)	And the case is one in which it would be oppressive to the defendant to grant an injunction:-
then damages in substitution for an injunction may be given.”

47.Mr Lau said that when the issue is not only breach of DMC but safety of the Building was also a grave concern of the IO, it is not a case damages should be awarded in lieu of damages applying the working rule set out in Shelfer above.

48.Mr Chan on behalf of the Respondents submitted that damages either ought not be ordered or it must be nominal.

49.After considering the arguments, I agree with Mr Lau that this is not an appropriate case for damages to be allowed in lieu injunction.

Conclusion on Injunctive Relief

50.Having considered the whole of the circumstances, in particular my finding on the IO’s concern on safety of the Building being real and legitimate, that they had given ample warnings before hand against putting up of air-conditioners without prior consent, that damages would not be adequate compensation, and that it was not impossible for an air-conditioning system to be built inside of the Premises, I find no reason to exercise my discretion against granting of injunctive relief.

Damages

51.The Applicant asked for exemplary damages saying that this is only appropriate in view of the outrageous conduct on the part of the Respondents which showed a sheer willful disregard of the DMC.  I agree that the conduct of the Respondents could not be approved by the Tribunal that they paid no heed to rules and regulations.  Mr Chow admitted that he was given warnings against installation as early as March 2014.  He said he had passed the warning to the 2^nd respondent but did not insist that they should remove the Unauthorised Structure after installation.  Mr Lee had been evasive on whether he was aware of the prohibition.  I however could not accept that he know not of the prohibition in May 2014 at the latest when police was called to intervene.  The question is whether this justified exemplary damages.

52.The Court of Appeal has discussed this question in Allan v Ng & Co (a firm) [2012] 2 HKLDR 160.  In that case the Defendants, a firm of solicitors and one of its partners respectively were found to be guilty for breach of duty of confidence. On appeal, the award of exemplary damages in the sum of $2.14 million was set aside and substituted by $400,000.  Reasons set out by in the judgment are as follows:-

“Some matters of principle of exemplary damages

51. Before I turn to Mr McCoy’s criticism of the judge’s approach in his assessment of exemplary damages, it is relevant to have regard to some matters of principle about exemplary damages, which have been considered as an anomaly at law.

52. The rationale for exemplary damages is not to compensate, but to punish. They are additional to an award which is intended to compensate a plaintiff fully for the loss he has suffered, both pecuniary and non-pecuniary. See, for example: A v Bottrill, supra at para 29 per Lord Nicholls; Kuddus, supra at para 51 per Lord Nicholls, para 95 per Lord Scott. This extract from Lord Nicholls’ judgment in A v Bottrill at para 20 would suffice:

	“The starting point for any discussion of the limits of the court's jurisdiction to award exemplary damages is to identify the rationale of the jurisdiction. This is not in doubt, although different forms of words have been used, each with its own shades of meaning. For present purposes the essence of the rationale can be sufficiently encapsulated as follows. In the ordinary course the appropriate response of a court to the commission of a tort is to require the wrongdoer to make good the wronged person's loss, so far as a payment of money can achieve this. In appropriate circumstances this may include aggravated damages. Exceptionally, a defendant's conduct in committing a civil wrong is so outrageous that an order for payment of compensation is not an adequate response. Something more is needed from the court, to demonstrate that such conduct is altogether unacceptable to society. Then the wrongdoer may be ordered to make a further payment, by way of condemnation and punishment.” (emphasis by this Tribunal)
53. It is therefore important to distinguish the different roles of compensatory and exemplary damages. It may be easy to lose sight of this distinction if the court is to make a “combined award” of compensatory and exemplary damages.
54. The second important thing, which follows from the rationale, is that exemplary damages are a remedy of last resort. This is the “if, but only if” test mentioned by Lord Devlin in Rookes v Barnard, supra at 1228, in which he stated that when assessing damages in a case in which exemplary damages are available, the jury should be directed that:
	“ … if, but only if, the sum which they have in mind to award as compensation (which may, of course, be a sum aggravated by the way in which the defendant has behaved to the plaintiff) is inadequate to punish him for his outrageous conduct, to mark their disapproval of such conduct and to deter him from repeating it, then it can award some larger sum.”
55. The importance of this principle was emphasised by the House of Lords in Broome v Cassell & Co, supra at 1060A to D, 1082A to B, 1089D to E, 1104D to E, 1116C, 1121G to 1122A, 1126C to D. Applying the “if, but only if” test, the question the court should ask is whether the remedies available to it are inadequate to punish and deter the defendant. It is only if the available remedies are inadequate to punish and deter the defendant for his conduct that exemplary damages should be considered.
56. Thirdly, awards of exemplary damages are governed by a principle of moderation and restraint, see Lord Devlin in Rookes v Barnard, supra at 1227 to 1228. Exemplary damages are “analogous to a criminal penalty”, so “principle requires that an award of exemplary damages should never exceed the minimum sum necessary to meet the public purpose underlying such damages, that of punishing the defendant, showing that tort does not pay and deterring others.” (John v MGN Ltd [1997] QB 586 at 619F to G)”
“The measure of exemplary damages
69. I am in agreement with the judge that the reprehensible conduct of the 2nd defendant deserves special condemnation. This is a bad case of perjury and deceit practised by a solicitor on the court. If the plaintiff had proved his claim for compensatory loss or his claim for an account of profits in the proper way, I do not think the compensation or the quantum of restitution that would have been available would be an adequate remedy to punish and deter the defendants, even taking into account the disciplinary proceedings that would be brought against the 2nd defendant. This is an appropriate case for an award of exemplary damages.
70. I bear in mind the principle of moderation and restraint mentioned earlier, that an award should not exceed the minimum sum necessary to meet the public purpose underlying such damages. Awards of exemplary damages made in this jurisdiction are relatively few. I annex as an appendix to this judgment a table handed up by Mr Smith of cases on exemplary damages in Hong Kong. There are a total of 13 cases since 1976. Mr McCoy has come up with more or less the same cases. In a number of instances, the court had not differentiated the award made for exemplary damages from the awards of compensatory damages and only a global figure was mentioned. The combined award of $2.5 million made in Choy Bing Wing v Ng Yat Chi, supra, a libel case, would have included compensation for the substantial loss of profits suffered by the plaintiff, and it is not possible to tell what was the amount awarded for exemplary damages.
71. Insofar as separate awards were made, $200,000 was the highest amount awarded for exemplary damages, in Chan Kwok Wai v Secretary for Justice, HCPI 134/1999, 30 June 2000 (assault by a number of police officers in a police station), and Wong Kwai Fun v Li Fung [1994] HKLY 688 (loan shark who charged excessive interest threatened and assaulted the victim). The amount of $2.14 million awarded here is way above the level of exemplary damages awarded in the past, granted that the past awards were made in very different factual situations.
72. In arriving at an appropriate figure for exemplary damages, I have regard to the level of awards in the past. As the highest award of $200,000 was made more than ten years ago, it is appropriate to take into account inflation since then. I also take into consideration that the 2nd defendant will face disciplinary proceedings to be brought by the Law Society after this judgment, plus the fact that the defendants have, through Mr McCoy, offered an undertaking to this court (which we accept) that they will not seek to enforce against the plaintiff the costs orders made against him by Sears J in the interlocutory injunction application, any adverse costs orders against the plaintiff in relation to the charging orders, the examination of judgment debtor and the bankruptcy proceedings, and that the defendants will forthwith procure the discharge of the charging orders nisi and absolute made against a property registered in the plaintiff’s name. I have also borne in mind the factors mentioned in Whiten v Pilot Insurance Company, supra relevant to the proportionality of the award that had been considered by the judge.
73. In my judgment, an appropriate amount to be awarded as exemplary damages against the defendants is $400,000. These exemplary damages will be in addition to the nominal damages to which the judge held the plaintiff was entitled by way of compensation.”

53.On the list of cases where exemplary damages had been awarded as mentioned in paragraph 70 in the above judgment, I found Yeung Wah James v. Alfa Sea Limited [1993] 1 HKC440 relevant.  It was also referred to by the Appellant.  Deputy Judge Yeung, as he then was, awarded a sum of $50,000 as exemplary damages on top of an award of $50,000 for general damages.  He gave his reasons for the holding:-

“63. In dealing with the question of exemplary damages, it is important to determine the reasons for the defendant committing the wrongful acts in question. The facts as found by the court indicated that the defendant had decided to carry out the renovation works in question without obtaining or trying to obtain the consent of the plaintiff. The defendant carried out the works with no regard for the view of the plaintiff and without even letting him know about them beforehand. 64. The only reasonable and logical conclusion is that the defendant intended to create a situation whereby everything would be completed by the time the plaintiff became aware of the situation. If the defendant had wanted to notify the plaintiff, it could write to him directly or through the solicitors just like what was done in connection with the repair works required by the Building Authority in August/September 1991. After all, such earlier attempt resulted in positive response when Mr. Benny Cheung who took the trouble to open the door for the workers and supervise them when they were carrying out the earlier repair works. There was also evidence that the defendant or its agent was in possession of the pager number of Mr. Benny Cheung yet no attempt was made to contact him before carrying out the renovation works. Instead the defendant through its agent chose to break open the lock of the said premises to carry out the works. 65. If the defendant had not been acting mala fides, was it not reasonable that they should work out an acceptable arrangement with the plaintiff before carrying out the renovation works in December 1991 or January 1992. After all, there was no suggestion of any urgency in the matter. 66. The court cannot ignore that the appearance of the building after the renovation works and its effect had created a situation whereby the said premises can no longer be described as suitable as a domestic premises. 67.There had been previous unsuccessful attempts to persuade the plaintiff to give up the premises and clearly the value of the building would be significantly increased should the defendant be able to recover possession of the said premises from the plaintiff despite the denial by Mr. Liu Shing Moon on such matters. 68. The defendant might want to improve the appearance of the building and hence enhance its value. I am of the view that it was probable that the defendant also intended to harass the plaintiff with a view to evict him and in so doing had adopted a blatant and willful disregard for the right and interest of the plaintiff. 69. I am satisfied that the outrageous conduct of the defendant calls for punitive damages.”

54.In the light of the principles set out in the above and having considered the award of exemplary damages made in the past, I am of the view that this may not be the appropriate case for awarding exemplary damages although the conduct of the Respondents could not be approved.  The conduct complained of in the two cases cited above was much more serious.  They could by no way be permitted by the complainants.  In Yeung Wah James, it was close to a criminal offence. The breach in the present case did not amount to an exceptional situation that the Respondents should be punished to pay an exemplary award.  Further the possibility of their repeating the same misconduct could be deterred by an injunctive relief this Tribunal is going to grant.

Mense Profit

55.Further the Applicant also asked that the Respondent be ordered to pay mense profit for the unauthorised used of the external walls.  Not only that this had not been pleaded, there was no evidence adduced to prove the same.  I do not accept Mr Lau’s submission that directions should be given for the IO to file further evidence in this regard.  In any event, there was no evidence that there had been any plan of the IO to rent the external walls to others for a profit.  The Building was waiting to be repaired according to the IO.  I reject this head of claim. 

Costs on the Application

56.As mentioned above, the IO had abandoned about half of their claims on air-conditioners (2 items out of 4), although at early stage of trial I do not see why they should not bear costs on these items.  As to the 27 Unauthorised Devices, since there was a breach and I do not accept that such breach was technical as suggested by Mr Chan, I order that the Respondents do bear costs on those parts.  I take that the withdrawal of the claim on the Drainage Pipe was made upon undertaking given by the Respondents and I would order that costs be borne by the Respondents. On the whole I am of the view that the Respondents should pay half the costs of the Application, to be taxed at District Court Scale with counsel certificate if not agreed.  This is an order nisi to become absolute if no application is taken out to vary the same within 14 days.

Costs on the Counterclaim

57.As mentioned parties have reached settlement on item (i) the Counterclaim at the conclusion of trial leaving matter of costs to be decided.

58.The IO submitted that there be no order as to costs to item (i) of the Counterclaim.  It was said that that:-

(i)	the Respondents ought to have accepted the offer made by the Applicant on 19 August 2015; and
(ii)	in any event, Lift 1 was programmed to bypass first floor to ensure the security of the building.

59.The Respondents’ case is that they should have unfettered right to use Lift 1 as it was common facilities provided for use of all owners.  Nonetheless what they have asked for was that they should be able to use it for patrons with special needs and not generally.

60.Parties had not invited this Tribunal to revisit merit of the dispute when costs are to be determined.  In any event, conduct on these proceedings is a crucial factor to be looked at to determine costs as far as item (1) of the Counterclaim is concerned.  Conduct in the sense as suggested by the IO that the Respondents ought to have accepted the offer made by the Applicant on 19 August 2015.

61.The Respondents’ stance on this was that the Respondents should get costs because the IO had conceded to their proposal to remove a clause which the Respondents found to be unreasonable in a draft consent.  That happened on 30 November 2015.

62.I could not agree with the submissions of Mr Lau that the Respondents had acted unreasonably as it had failed to respond to the IO’s offer made on 19 August 2015.  It is noticed that in fact a draft had been sent to the IO on 28 July 2015, same day this Tribunal asked parties to further explore the opportunity to deal with the matter not only amicably but also in a way that both parties find it acceptable to work out together in future.  The IO did not respond.  When the same offer was reiterated in the Final Submission of the Respondents dated 18 August 2015, the IO responded on the following day but added one term thereto.  Parties came to settlement after this added term was removed.

63.Mr Lau did not argue that the Respondents should not be getting costs upto 19 August 2015.  He said that since the Respondents should bear costs after 19 August 2015, which I do not agree, the costs should be set off because according to Mr Lau, the legal costs incurred by both sides before 19 August 2015 and thereafter are almost the same and they could be set off.  I am afraid this is not a fair assessment on costs incurred.  The Counterclaim was taken out on 3 February 2015.  It was opposed.  Parties then filed witness statements in support of their respective cases.  During trial, Mr Chow and Mr Lee gave evidence and were cross-examined on this issue.  This topic was also included in the final submissions.  That was what happened upto 18 August 2015.  What happened after 19 August 2015 was virtually that the IO agreed to remove the cleaning clause added by it which was through no fault of the Respondents. What happened thereafter were 2 rounds of exchange of correspondence and nothing more.  I could not agree that the legal costs were more or less the same and could be set off.

64.For the above reasons, I find it fair that costs of item (i) the Counterclaim be borne by the IO, to be taxed if not agreed at District Court Scale, with counsel certificate.

65.Apart from the dispute on the use of Lift 1, there was a claim made by the 2^nd Respondent for a sum of $1,260,000 (item (ii) of the Counterclaim).  This was abandoned on the first date of trial.  I order that the 2^nd Respondent do bear costs on item (ii) of the Counterclaim upto the date it was abandoned.  Such costs are to be taxed if not agreed at District Court Scale, with counsel certificate.  Since parties had not been heard on this, the order I made is an order nisi.

Order

66.My order is as follows:-

Mr Stanley Lau Fai, instructed by Messrs. Hoosenally & Neo, for the Applicant

Mr Edward MH Chan, instructed by Messrs. Cham & Co., for the 1^st and 2^nd Respondents