Lucky Hing Shing Estate Co Ltd v. The Incorporated Owners of Genius Court

HCA 2048/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2048 OF 2015

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JUDGMENT
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I. INTRODUCTION

1.The plaintiff (“P”) is a co-owner of Genuis Court, No 18 Fuk Lo Tsun Road (“Road”), Kowloon (“Building”). The defendant (“IO”) is the incorporated owners of the Building formed under section 8 of the Building Management Ordinance Cap 344 (“BMO”). Unless otherwise stated, references below to sections are references to sections in the BMO and references below to developer, first owner, co-owners, manager, external wall, exterior and other locations are in respect of the Building completed in/about September 2002 with 30 floors of residential flats, commercial shops and carparking spaces.

2.The relevant background facts are as follows :

(a) P is the developer and First Owner under the DMC referred to in (d) below;

(b) the front of the Building faces the Road and its rear faces a rear lane (“Rear Lane”);

(c) the commercial shops on the G/F and 1/F consist of a single commercial shop on 1/F (“Shop 4”) and 3 shops on G/F (“Shops 1, 2 and 3”);

(d) P (First Owner), the first purchaser, and Park-ho Properties Management Company Limited (first manager and P’s related company,[1] “Park-ho”) entered into a Deed of Mutual Covenant and Management Agreement with coloured plans (“DMC Plans”) dated 16 December 2002 (“DMC”),[2] and all co-owners are subject to and enjoy the benefits of the DMC;

(e) in/about September 2008 Park-ho has ceased to be the manager, and since 1 January 2009 Guardian Properties Management Limited (“Guardian”) has become and is now the manager;

(f) P is the owner of the Fan Room on 2/F (a long/narrow room above Shop 4 that has been part of the Car Park Area and described as “ventilation room for car park” in the DMC Plans, “Fan Room”);

(g) P has sold Shops 1 and 2, and Shop 1 is now occupied by a property sales agency whilst Shop 2 is subdivided into 2 shops now occupied by a restaurant and a bank;

(h) P formerly owned Shops 3 and 4 (collectively, “Shop”);

(i) by a tenancy agreement dated 19 September 2002 (“2002 TA”), The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) has rented the Shop from P for a term of 3 years from 19 September 2002 to 18 September 2005 subject to and with the benefit of the DMC, and HSBC has agreed inter alia to obey, observe, comply with and perform the DMC that relates to the Shop;

(j) the 5^th schedule of the 2002 TA provides inter alia as follows:

“[P] shall contribute a lump sum of HK$285,000.00 towards the A/C provision (which is payable to [HSBC] on or before the Commencement Date) and [HSBC] shall at its own costs to install and maintain A/C system for the said premises. The Landlord shall designate sufficient space on 2/F for [HSBC’s] installation of the outdoor units.”

(k) by another tenancy agreement dated 9 November 2005 (“2005 TA”), HSBC has rented the Shop from P for a term of 3 years from 19 September 2005 to 18 September 2008 on similar terms;

(l) by another tenancy agreement dated 28 October 2008 (“2008 TA”), HSBC has rented the Shop from P for a term of 3 years from 19 September 2008 to 18 September 2011 on similar terms;

(m) on 25 July 2008 EC Harris for HSBC has written to P to (i) suggest additional installation of split-duct type air-conditioning system since air-conditioning/ventilation inside the Shop has been poor/insufficient, and (ii) request for P’s approval to install 1 set of outdoor condensing or air-conditioning unit (“Unit”) with refrigerant piping at the external wall;

(n) on 8 August 2008 P has granted approval subject to inter alia that HSBC will reinstate on expiry of the tenancy;

(o) on 18 January 2010 P sold the Shop to First Fortune Limited (“Shop Owner”) subject to and with the benefit of the DMC and the tenancy granted to HSBC, and the Shop Owner has covenanted to perform, observe and comply with the DMC;

(p) by 2 licence agreements dated 20 December 2011 and 17 September 2014, P let HSBC inter alia use the Fan Room to install air-conditioning system for the Shop and control switches for the external signboxes;

(q) according to the DMC, DMC Plans and House Rules,[3] the residential flats have designated openings for air-conditioners, and the House Rules state “[air-conditioners] shall be installed at openings originally provided for such purpose” and “[no] air-conditioners shall be installed through any external walls or windows without the prior written approval of the Manager” (my emphasis); and

(r) the commercial shops do not have similar designated openings for installing air-conditioners.

3.Below is a brief account of various events since March 2015 up to the current state of the present action:

(a) on 11 March 2015 The Jardine Engineering Corporation, Limited has written to tell Jones Lang Lasalle Ltd the cooling performance of “the existing VRV [variable refrigerant volume] A/C system [for the Shop] has been adversely affected by the site constraints”,[4] and to recommend consideration/plan for early replacement/modification to maintain continuity and reliability of air conditioning services (“JECL Report”);

(b) on/about 7 April 2015 Guardian has told P HSBC has requested access to the Fan Room to carry out inspection for the reason that the Shop’s air-conditioning has not been cool enough;

(c) on/about 8 April 2015 P has noticed HSBC has erected scaffoldings on the rear external wall, and on/about 24 June 2015 such scaffoldings have been removed to reveal metal cages, Units and/or other projections/structures (“Cages, Units and Projections”) that extend outside the rear exterior and/or have been erected, installed or otherwise affixed to or projected from the Building;

(d) P considers the erection/installation of the Cages, Units and Projections to be in breach of Clauses V/4, 9 and 10;

(e) on 30 June and 10 July 2015 P’s solicitors have written to Guardian and the IO to request them to rectify such breaches of the DMC by demanding HSBC to remove the Cages, Units and Projections and to reinstate the external wall to its original position;

(f) on 31 July 2015 the IO’s solicitors have replied by (i) saying the IO has been investigating into the matter and a meeting of the IO will be held in the middle/end of August 2015 to discuss the matter and (ii) urging P to withhold further action pending their reply after the meeting;

(g) on 10 August 2015 Guardian has replied by saying inter alia it has referred P’s concerns to the IO;

(h) on 19 August 2015 P’s solicitors have written to the IO’s solicitors asking inter alia whether the IO has approved HSBC’s exterior erection/installation of the “air-conditioning ventilation pipes and fans”, and whether they have instructions to accept service of proceedings;

(i) on 21 August 2015 P’s solicitors have written to the IO’s solicitors to say the Cages, Units and Projections affixed/ erected at the exterior are in breach of inter alia Clauses V/4, 9 and 10, and to request D to undertake to forthwith take action, including legal action, against the Shop Owner and HSBC to require them to remove the Cages, Units and Projections and to reinstate the external wall to its original position (“Requested Undertaking”) within 14 days;

(j) on 24 August 2015 the IO’s solicitors have replied by reiterating there will be a meeting on 25 August 2015 and a material reply will be given within 7 days thereafter;

(k) on 2 September 2015 the IO’s solicitors have further replied by claiming it has been resolved “at the meeting of the management committee [“MC”] of [the IO] held on 25 August 2015[5] …… that letter be issued to HSBC and the [Shop Owner] requiring the removal of the structures and/or projections and the reinstatement of the external wall of the Building to its original position”, and they have been “instructed by [the IO] to, which [they] will, issue the relevant demand letters to HSBC and the [Shop Owner]”;

(l) on 2 September 2015 P’s solicitors have written to the IO’s solicitors noting inter alia that (k) above fails to state (i) when the IO will issue the demand letters to the Shop Owner and HSBC, (ii) whether the IO will require the Shop Owner and HSBC to complete the removal/reinstatement works within a specified timeframe, and if so what is that timeframe, and (iii) if the Shop Owner and HSBC fail to comply with the IO’s demand, whether the IO is prepared to commence legal action to compel them to carry out the removal/reinstatement works, and if so, when the IO will issue such legal action, so they urge the IO to give the Requested Undertaking on/before 4 September 2015;

(m) there is no reply to (l) above;

(n) on 7 September 2015 P has commenced the present action for an order that the IO do forthwith take action, including legal action, against the Shop Owner and its tenant as are necessary for (i) removal of the Cages, Units and Projections from the external wall, and (b) restraining, prohibiting and/or preventing the Shop Owner, its tenant or anyone else from erecting, installing or otherwise affixing or projecting (or causing or permitting) any Cage, Unit and/or Projection from the external wall (“Relief”);

(o) on 17 September 2015 the MC has held its 1^st special meeting attended by inter alia representatives of the owner and tenant of Shop 1, the Shop Owner, HSBC and P (“MC 1^st Meeting”);

(p) on 23 September 2015 the MC has held its 2^nd special meeting attended by inter alia representatives of the owner of Shop 2 and HSBC (“MC 2^nd Meeting”);

(q) on 30 September 2015 P has filed a summons for summary judgment in terms of the Relief (“Summons”);

(r) notwithstanding the Summons, the IO has filed its Defence on 17 October 2015;

(s) on 20 November 2015, the MC has held its 3^rd special meeting attended by inter alia representative of the owner of Shop 2 (“MC 3^rd Meeting”);

(t) P has filed the 1^st and 2^nd supporting affirmations of its director Ho Ka Po Shirley (“Ho”) on 30 September 2015 and 13 January 2016 respectively (“Ho 1^st and 2^nd Affs”);

(u) the IO has filed the affirmation of its chairman Kong Ka Ming (“Kong”) on 2 December 2015 in opposition (“Kong Aff”); and

(v) the Summons has been heard by this court on 17 March 2016 (“Hearing”).

4.P says the IO should not have filed its Defence prior to disposal of the Summons. I agree it is unnecessary to do so, but since it has been verified by statement of truth and exhibited to the Kong Aff, I prefer to deal with the substantive rather than procedural debate.

II.  LEGAL PRINCIPLES ON SUMMARY JUDGMENT

5.A plaintiff may invoke the procedure under Order 14 of the Rules of the High Court (“RHC”) where there is no valid defence to his claim or otherwise a triable issue. The rationale is set out in Hong Kong Civil Procedure 2016:[6]

“ …… The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in case in which the defendant clearly has no defence to the plaintiff's claim …… When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court. …… The machinery of O.14 works on the basis that if the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed. ……”

6.In Ng Shou Chun v Hung Chun San,[7] Godfrey J notes it is not appropriate to embark on a mini‑trial on affidavit evidence. The court should ask itself the question whether what the defendant says is credible or believable. If so, he must have leave to defend; if not, the plaintiff is entitled to summary judgment. Hong Kong Civil Procedure 2016 goes on to say that:[8]

‘ “In considering whether there are triable issues the Court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence. But what the Court should not do is to conduct a mini‑trial on complicated factual issues.” …….

…… The defence set up need only show that there is a triable issue or question or that for other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law such as could have been raised on the former demurrer to the plea and no possibility of a real defence on the question of fact ……’

III.  P’s CLAIM

7.Breach of DMC  I start to see whether P has established a prima facie case. The rear external wall is a common part,[9] and clearly the erection/ installation of the Cages, Units and Projections are in breach of Clauses V/4 and 9 as they are “projections or structures whatsoever extending outside the exterior of the Building …… or any part thereof …… erected, installed or otherwise affixed to or projected from the Building or any part thereof” (Clause V/9), and they involve “use, cut, injure, damage, alter or interfere with any part or parts of the Common Areas and Facilities” (Clause V/4). After all, the Cages holding the Units have to be bolted or affixed to the external wall.[10] Subject to any “prior written consent of the Manager” discussed in Part IV(c) below, the Cages, Units and Projections also “alter the façade or external appearance of the Building” in breach of Clause V/10.[11] Indeed, Mr Poon, counsel for the IO, accepts the erection/installation of the Cages, Units and Projections are in breach of the DMC.

8.IO’s duty P claims the IO has a mandatory duty under section 18(1)[12] to enforce inter alia Clause V/4, 9 and 10, and a duty under the DMC to procure Guardian to do all matters in inter alia Clauses V/31(8), 31(12), 31(22) and 31(23) to (a) remove/impound any structure, article or thing that causes unauthorised obstruction of a common part, (b) remove any structure/installation in/on the Building or any part thereof that contravenes the terms of the DMC, (c) take action to remedy any breach of the DMC by any owner/occupant, and (d) enforce the due observance/performance by the owners of the terms and conditions of the DMC and take action (including legal action) in respect of any breach thereof.

9.P’s capacity  The effect of section 16 is that when the owners of a building have been incorporated, no individual owner has the right to bring a derivative/minority action in relation the common parts of the building, so proceedings are to be brought exclusively by/against the corporation. The Court of Appeal has said in See Wah Fan v Incorporated Owners of Ki Tat Garden (Phase I)[13] that where the incorporated owners have unreasonably or unjustifiably refused to bring a claim against a prima facie wrongdoer, a dissatisfied owner can seek relief from the court to compel them to take action, including (where appropriate) legal action. In Incorporated Owners of Hoi Luen Industrial Centre & anor v Ohashi Chemical industries (Hong Kong) Ltd,[14] the Court of Appeal has said as follows:

“When, then, the incorporated owners find that there is a breach of covenant being perpetrated by one of the owners, it is not only their right but their duty to seek to enforce the covenant. ……

……

It follows that in the instant case the plaintiffs were …… bound to take proceedings for the enforcement of these covenants. It follows, too, that they could not have granted expressly to this defendant or any other owner of any unit in the building the right to act in contravention of the deed of mutual covenant …… What cannot be done expressly cannot be done impliedly. …… Equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant. ……”

10.Action by the IO  P has raised objections about the Cages, Units and Projections to the IO, but despite P’s requests the IO has not taken legal action against the Shop Owner and HSBC to rectify such breaches of Clauses V/4, 9 and 10. Even though the IO’s solicitors claim the MC has resolved in meeting on 25 August 2015 to issue demand letters to the Shop Owner and HSBC to require removal of the Cages, Units and Projections and to reinstate the external wall to its original state, and the IO further claims in its Defence that such demand letters have been issued on 5 September 2015, the IO’s current stance appears to be reflected in Mr Poon’s written submissions as follows:

“46. It is important to note that at the earlier stage when [the IO] wrote the incorrect stance in [the letter by the IO’s solicitors dated 2 September 2015], by stating that [the IO] would order the removal of the ACs. But in subsequent letters after further investigations, [the IO] corrected its stance, this does not mean that [the IO] has failed its duty.”

This is echoed by the Kong Aff that denies any breach of duty by the IO and seeks to justify/endorse such stance by asserting Guardian has given consent for HSBC to install the Cages, Units and Projections on the external wall and such giving of consent is reasonable/necessary. So it appears the IO’s current position is that no further action against the Shop Owner and/or HSBC vis-à-vis the Cages, Units and Projections is required. In the circumstances, subject to the discussion in Part IV below, I am satisfied P has established a prima facie case for its claim.

IV.  TRIABLE ISSUE/ARGUABLE DEFENCE?

11.Has the IO made out any triable issue or arguable defence that is credible and/or believable? The Kong Aff suggests there are triable issues or arguable defences that show the IO is not in breach of its duty under the DMC and BMO:

(a) the façade of the Building is not affected as the Cages, Units and Projections are erected/installed at the rear external wall that faces the Rear Lane (“Façade Defence”);

(b) Guardian is empowered under Clauses V/10 and 22 to give consent to alter the façade or external appearance of the Building and to let owners/tenants install Units and ancillary racks/erections on the external wall other than at places designated for such purpose as being necessary/expedient for or in connection with the management of the Building, and Guardian has in fact given consent to HSBC for the erection/ installation of the Cages, Units and Projections on the external wall (“Consent Defence”);

(c) the consent given by Guardian to HSBC is reasonable/ necessary since the Cages, Units and Projections (in particular the Units) cannot be relocated to other common areas, and if removed the Shop will not have sufficient air-conditioning such that the Shop Owner and HSBC will be deprived of proper use and enjoyment of the Shop, but it cannot be the DMC’s intention to deprive an owner of proper use and enjoyment of its commercial shop (“Use/Enjoyment Defence”);

(d) the IO has acted reasonably and has taken necessary action to properly discharge its duties under the DMC and BMO after it has received P’s complaint, so P has no right to require the IO to take action against the Shop Owner forthwith (“Reasonable Action Defence”); and

(e) P does not come with clean hands since P has previously authorised/permitted HSBC to install Units on the external wall (“Clean Hands Defence”).

12.Mr Poon in his written submissions has also alluded to a number of miscellaneous arguments and the defence of acquiescence/waiver (“Acquiescence Defence”). The discussion below shows that most of these contentions are not triable/arguable, so the Acquiescence Defence, which I have particularly asked Mr Liu, counsel for P, to address in his reply, takes on significance. But I shall first deal with the other arguments.

(a)  Façade Defence

13.Kong suggests that since the Cages, Units and Projections on the rear external wall that faces the Rear Lane will not attract the sight/attention of pedestrians walking on the Road, the façade or external appearance “of the front of the Building is not altered or interfered”. I disagree since the prohibition against alteration of the “façade or external appearance of the Building” (my emphasis) in Clause V/10 does not distinguish between the front and rear of the Building. The IO also argues Guardian has given “prior written consent”. But as explained in Part IV(c) below, I am not satisfied the IO has raised any triable issue or arguable defence in this respect.

(b)  Use/Enjoyment Defence

14.IO’s case  Kong says P has allowed HSBC to install Units in the Fan Room and has connected them via pipes to multiple indoor units to form a VRV condensing system[15] to provide air-conditioning to Shop 4 (but the piping is not long enough to reach Shop 3). The JECL Report and Kong’s enquiries with Dai-Kin Electronics show that due to site constraints the temperature in the Fan Room causes “over-heating”, so replacement/ modification works have been recommended to maintain reliable air-conditioning. Mr Jason Li (HSBC’s engineer) at the MC 1^st Meeting also says HSBC realises it is not ideal to store Units indoors.

15.Kong says “[if] the Fan Room is shut down in the future” then Shop 4 will have no air-conditioning and HSBC will not be able to carry on business. If the IO takes action to remove the Cages, Units and Projections on the rear external wall, the Shop Owner and/or HSBC will be unreasonably deprived of the right of proper use/enjoyment of the Shop because (a) the Units cannot be relocated to other common areas or the Fan Room (which is too small and has reached maximum temperature tolerance), and (b) Shop 3 will have no air conditioning (since the Fan Room does not have power/ capacity to supply sufficient air-conditioning for Shops 3 and 4). Hence, Guardian’s consent for HSBC to erect/install the Cages, Units and Projections is reasonable and necessary as it cannot be the intention of the DMC to deprive an owner of a commercial shop of its proper use/enjoyment of such shop, and in giving such consent the IO has acted reasonably and has taken necessary action to properly discharge its duty under the DMC and BMO. On such basis, the IO contends there is no breach on its part.

16.P’s case  Ho disagrees, and says any potential purchaser/tenant may inspect the DMC before purchasing/renting the Shop. HSBC and the Shop Owner have rented/bought the Shop subject to and with the benefit of the DMC (including the DMC Plans), so they are aware of the structure of the Shop and are bound to observe the restrictions in the DMC. The absence of any designated spaces in the Shop for installing Units does not per se allow HSBC to breach the DMC by erecting/installing the Cages, Units and Projections on the external wall. In any event, the approved building plans show there are windows for ventilation/sunlight on 1/F at the rear elevation that faces the Rear Lane and at the front elevation that faces the Road, so the Shop Owner or HSBC may install Units through such windows with Guardian’s prior written consent under Clause V/22. Ho accepts HSBC may replace/ modify the Units in the Fan Room, but notes the JECL Report only “highly recommend [HSBC] to consider and plan for replacement and modification work” without suggesting that Cages, Units and/or Projections be installed on the external wall.

17.Discussion  There are 2 distinct concepts: (a) a co-owner’s duty to comply with a covenant in the deed of mutual covenant and/or an obligation under the BMO, which may be unqualified (eg Clauses V/4 and 9) or qualified (eg Clauses V/10 and 22 with the proviso “without the prior written consent of the Manager”) (“Co-owner Duty”), and (b) the IO’s duty under the BMO and deed of mutual covenant to enforce such covenant/ obligation and/or to remedy any breach thereof against the defaulting co-owner as explained in paragraph 8 above (“IO Duty”).

18.I agree a purposive construction and common sense application should be adopted in construing the scope of the Co-owner Duty under an unqualified covenant[16] in the context of the entire deed of mutual covenant and BMO,[17] and such Co-owner Duty is not absolute as the co-owner is only required to do what is reasonably required in the given circumstances. This is illustrated by the cases cited by Mr Poon although they concern the duty of the incorporated owners and/or managers to comply with covenants under the deed of mutual covenant.[18] In Silver Triumph Holdings Ltd v Guardian Property Management Ltd, Kwan JA has held “the rights of parties under a deed of mutual covenant are ‘not absolute and must as a matter of construction be subject to an element of reasonableness and also must coexist with other provisions in the DMC unless specifically excluded’ ……”[19]

19.But a qualified covenant allows a co-owner not to comply with such covenant if the qualification (eg “the prior written consent of the Manager”) is applicable. In this example, the manager’s decision whether or not to grant “prior written consent” turns on whether there is proper justification to excuse the co-owner from compliance. If granted, there is simply no breach by the co-owner in carrying out the otherwise prohibited act, so the Co-owner and/or IO Duties become irrelevant.

20.But where there is a breach of the DMC by a co-owner as explained in paragraph 18 above, then See Wah Fan and Ohashi Chemical Industries (Hong Kong) Ltd make clear the incorporated owners are bound to enforce the covenant and to remedy the breach, and such IO Duty is non-discretionary as mandated by section 18(1). So putting aside for the moment the Consent and Acquiescence Defences, given my conclusion and Mr Poon’s acceptance that the Cages, Units and Projections are in breach of the DMC, the IO in performing the mandatory IO Duty under section 18(1) has little basis to consider the individual needs of the defaulting Shop Owner (and/or its tenant HSBC) for the use/enjoyment of the Shop being its own exclusive/private property[20] (irrespective of the relevance or otherwise of such considerations to the anterior question of whether or not there has been breach of the Co-owner Duty). So if the Consent and Acquiescence Defences are put aside for the moment, I am not satisfied the Use/Enjoyment Defence raises any arguable defence or triable issue.

(c)  Consent Defence

21.IO’s case  Kong says in/about March 2015 HSBC has asked for the Shop Owner’s permission to upgrade its then Units on the external wall, and the Shop Owner has “obtained the consent/permission from [Guardian][21] to upgrade the [Units] on the External Wall and to erect scaffoldings to perform such works”. Guardian’s logbook shows HSBC has 10 Units erected on the external wall that supply air-conditioning to Shop 3 and additional air-conditioning to Shop 4.[22] Kong claims the MC 3^rd Meeting has been held on 20 November 2015 to pass a resolution to permit Units to be erected on the external wall of the Building.

22.P’s case  Ho says despite P’s earlier request for information on any possible approval/consent given for erecting/installing the Cages, Units and Projections, the IO has never said the IO/Guardian have granted any consent to the Shop Owner or HSBC until for the first time it avers (without particulars) in the Defence that “…… the scaffoldings were erected by …… HSBC upon the external wall of the rear of the building with the consent of [Guardian] ……”,[23] and “…… the scaffoldings were removed and six hanging-type [Units] with ancillary racks and installation were erected on the external wall of the rear of the Building with the consent of [Guardian] ……” On 2 December 2015, the Kong Aff (again without particulars) asserts that “[the Shop Owner] obtained the consent/permission from [Guardian] to upgrade the [Units] on the External Wall and to erect scaffoldings to perform such works” and “…… [Guardian] …… continued to allow the air conditioners to be erected on the rear external wall ……”

23.Discussion  I find the IO has not been able to raise any triable issue or arguable defence that Guardian has given any “prior” “written” “consent” prescribed by Clauses V/10 and 22. Even on the IO’s case, the Shop Owner’s application to Guardian for consent cannot have been earlier than March 2015, but by 30 June 2015 P has complained to the IO about the Cages, Units and Projections and by 19 August 2015 P has enquired whether the IO has approved their erection/installation. The IO and Guardian (a professional management company) must have been alive to the significance of “prior written consent of the Manager” under Clauses V/10 and 22, and it should have been a simple matter for the IO to give particulars/copy of such “prior written consent”. The pre-action correspondence is silent on this and

no copy has been exhibited to the Kong Aff, but more significantly no explanation has been offered for such reticence despite the IO’s reliance on Guardian’s consent as its defence. The Defence sadly lacks particulars in this respect, and Kong does not state the source of his information or ground of his belief that Guardian has given consent/permission.[24]

24.The MC 2^nd Minutes record HSBC’s representative to have said HSBC “於安裝冷氣機散熱器設備時，已辦理有關手續，包括取得大廈經理人的同意，同時亦已符合政府要求，遵循小型工程監管制度作出申請”, but there is no sufficiently arguable basis to infer that any consent is “prior” and/or “written”, especially when there is no confirmatory letter/ affidavit from HSBC, the Shop Owner and/or Guardian. It is also unsafe to infer, as Mr Poon suggests I should, from Guardian’s logbook that only records the number/type of Units on the external wall attributable to inter alia HSBC (but without any date or other information) and from the bare assertion that Guardian has received deposit money for each such Unit that Guardian must have given “written” consent “prior to” HSBC’s erection/installation of the Cages, Units and Projections.

25.This lacuna is surprising since Guardian’s “prior written consent” is the IO’s positive defence case in respect of which it has to condescend upon particulars to properly raise a triable issue, but regrettably the Consent Defence rests on nothing more than bare assertion. Further, the minutes of the MC 2^nd and 3^rd Meetings on 23 October and 20 November 2015 do not show, as Kong alleges, any resolution has been passed to permit Units to be erected/installed on the external wall. In the circumstances, I am not persuaded the Consent Defence is arguable. I will now turn to Mr Poon’s various miscellaneous arguments.

(d) Clause III/3

26.Mr Poon suggests “Other services” in Clause III/3 include air-conditioning service, so the Shop Owner is entitled to the benefit of “free and uninterrupted passage” of air-conditioning “from and to his premises”. But Clause III/3 refers to “free and uninterrupted passage and running of water, sewage, gas, electricity and any other services” “through the sewers, drains, watercourses, cables, pipes, wires which now or may at any time hereafter be in under or passing through his premises or the building …… for the proper use and enjoyment of [the co-owner’s] premises”. I cannot agree with Mr Poon’s suggestion. Plainly, “water, sewage, gas and electricity” are public utilities that passed into or out of the Building from/to outside services, and not from/to equipment installed by a co-owner within the building (eg Units erected/installed on the external wall). Consequently, I am unable to see how The Incorporated Owners of Yee Fung Garden v Basic Tech Limited[25] that concerns the installation of a gas pipe for use/enjoyment of restaurant premises (when the deed of mutual covenant expressly allows the free and uninterrupted passage of gas through pipes passing through the lot/building) is of assistance. I am also unable to discern the relevance of The Incorporated Owners of Summit Court v Full Surplus Investment Ltd & anor (No 2),[26] which deals with communal water supply system (with water tanks, pipes, mains and pumps) located on the main roof owned by the 1^st defendant that supplies water to individual units of the blocks, when HSBC here has erected/installed the Units on the external wall which is a common part. I do not see that Mr Poon’s proposition can amount to any triable issue.

(e)  Sale of the Shop

27.Mr Poon questions “whether P can avoid liability for his breach of the DMC after having sold Shops 3 and 4 to [the Shop Owner]”, and suggests “P, being the former owner, cannot avoid liability for his own breaches after selling its property”. Mr Poon has not elaborated on this contention in his oral submissions, and it is uncertain what breaches on P’s part he has in mind.[27] Mr Poon cites The Incorporated Owners of Pokfulam Gardens & anor v Metrogain Development Limited.[28]In that case, the incorporated owners have disallowed split-type air‑conditioners, and the co-owner has removed them. Subsequently, the co-owner has been notified that the deed of mutual covenant does not permit such air-conditioners on external walls or flower beds, but the co-owner has re-installed such air-conditioners only to dismantle them later. It later sells the flat, but remains in dispute with the incorporated owners over the issue of costs. It has been held that the offending air-conditioners “alter the external appearance” of the building and are in breach of the deed of mutual covenant, and there has been no waiver/ acquiescence as the incorporated owners’ position is clear that such air-conditioners should not be installed. Nothing in the case turns on whether or not the co-owner has sold the flat. I am unable to ascertain any triable issue or arguable defence on Mr Poon’s proposition.

 (f)  Conversion to own use

28.Sections 34C(2) and 34I(1)(a) provide as follows:

“34C. Application

……

(2) In the event of any inconsistency between this Part and the terms of a deed of mutual covenant or any other agreement, this Part shall prevail.

34I. Common parts

(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); ……”

29.Mr Poon suggests whether “the present case can be resolved if the [MC] pass a resolution to rectify the breaches and convert the external wall for the use of all shop owners” is a triable issue. I disagree as there is no evidence the MC has passed or intends to (and will be able to) pass such resolution. Anyway, “convert …… to his own use” does not refer to physical conversion but refer to appropriation of certain common parts/areas by an owner for his own exclusive use.[29] But the IO asserts the Shop Owner and/or HSBC have sought Guardian’s consent and Guardian has given consent for the Cages, Units and Projections, so I cannot see how the IO can say the Shop Owner and/or HSBC has converted the external wall to their own use to bring themselves within section 34I(1)(a).

(g)  New common facility

30.Mr Poon submits there is a triable issue as to whether over time the external wall (which at the signing of the DMC has not been designated for the commercial shops to erect/install Units) has become a new “common facility” to be used for the benefit of the shop owners for erecting/installing Units. He refers to Leung Nai Hang and Fan Wai Yu both trading as Tai Sum Yuen Roasted Meat v The Incorporated Owners of Success Industrial Building (Sheung Hei Street)[30] where the co-owner wants to install gas pipes to their unit on/over common areas on the basis that the deed of mutual covenant expressly allows the uninterrupted supply of gas through gas pipes either existing at the time of or installed after the signing of such deed for proper use/enjoyment of the unit. Zervos J has found the co-owner is entitled to passage of gas via a system to be put in place by the incorporated owners in accordance with the decision-making process as provided in the deed of mutual covenant.

31.But this case does not aid Mr Poon’s proposition because Zervos J says the deed of mutual covenant does not guarantee a co-owner’s right to the supply of gas through his own exclusive system of pipes on/over the building “unless it is in accordance with the provisions of the DMC”, and “[a] system needs to be put in place which requires to be decided through the decision making process as provided under the DMC. It is fundamental that the collective ownership of the units involves collective responsibility and decision making”.[31] This demonstrates any new common facility does not grow out of mere evolution or simple metamorphosis over time, but is subject to the collective concern of co-owners under a mechanism provided in the deed of mutual covenant. By failing to establish any arguability in respect of the Consent Defence or to produce any relevant resolution of the IO/MC, I am not satisfied the IO has raised any triable issue by this argument.

(h)  Clean Hands Defence

32.P’s case  On 8 August 2008, P qua landlord (without legal advice) has granted approval for HSBC to install an additional Unit on the rear external wall but HSBC has to re-instate the same on expiry of the tenancy. Ho says this was the only time P has given such approval without realising it is in breach of the DMC. Ho says the IO cannot use this to excuse non-performance of its mandatory IO Duty, but it can take any action as it deems fit, and P is willing to compensate HSBC if the IO requires HSBC to remove the 1 Unit P has approved and HSBC adduces satisfactory evidence of having suffered consequential loss. Ho also says whether P “targets” the Shop (and not Shops 1 and 2) is irrelevant because “targeting” does not alleviate the clear IO Duty. P as licensor of the Fan Room has legitimate commercial reasons to be concerned with the Cages, Units and Projections that HSBC and/or the Shop Owner have installed on the external wall, which is why P focuses on the Shop, but P has no objection if the IO is ordered to take action (including legal action) against all shops.

33.IO’s case  Kong says P has come to court with “unclean hands” because as the First Owner and landlord of the commercial shops it has advised, authorised, permitted and/or allowed its tenants to install Units on the rear external wall:

(a) P being the developer and First Owner has failed to design/ provide designated places for the commercial shops to install the Units, and since 2002 has “advised, authorized, permitted and/or allowed its tenants to erect [Units] on the external wall at the rear of the Building. [Park-ho] allowed and consented to this arrangement. When [Park-ho] resigned and [Guardian] was appointed, [Guardian] understood the Commercial Shops’ pre-existing air conditioning situation and taking into account the reasonableness, necessity and provisions in the DMC continued to allow [Units] to be erected on the rear external wall, even after the commercial shops were on various dates sold by [P] to the current owners of the commercial shops”. P’s permission in 2008 to install 1 outdoor Unit on the external wall is an example.

(b) “[Space] on 2/F” in “[the] Landlord shall designate sufficient space on 2/F for Tenant’s installation of the outdoor units” in the 5^th schedule of the 2002, 2005 and 2008 TAs means the Fan Room and the external wall because the Fan Room does not have sufficient space to store $285,000 worth of Units, so P must have impliedly advised, authorised, permitted and/or allowed HSBC to install Units on the 2/F rear external wall.

(c) P targets the Shop even though Shops 1 and 2 also have Units erected on the external wall. Mr Poon suggests (but there is no supporting evidence) Shops 1 and 2 do not have a supporting fan room, “so the only alternative was to install [Units] on the external wall”.

34.Legal principles  In respect of the maxim “he who comes into equity must come with clean hands”, Snell’s Equity says that “…… the question is not whether any general moral culpability can be attributed to B, the party seeking relief, but is rather whether relief should be denied because there is a sufficiently close connection between B’s alleged misconduct and the relief sought. The maxim is therefore applicable only in relation to conduct of B which has ‘an immediate and necessary relation to the quity sued for’, and is not balanced by any mitigating factors.” [32]

35.Discussion  I will first deal with a few short points. First, there is no merit in suggesting “space on 2/F” in the 5^th schedule of the 2002, 2005 and 2008 TAs means the Fan Room and the external wall of the Building. The Fan Room owned by P is on 2/F and is used by HSBC to store Units, but the rear external wall at the exterior of 2/F is a common part and not P’s exclusive property that it can “designate”/“license”. Hence, the reference to P designating “sufficient space on 2/F” necessarily means the Fan Room (outside the Shop) for HSBC to install “outdoor” Units. As Ho has reminded, there is no evidence HSBC has ever alleged there has been general permission under the 2002, 2005 and/or 2008 TAs to erect/install Units on the external wall, and instead HSBC has to ask for permission in 2008 for installing 1 Unit on the external wall.

36.Secondly, the IO avers in paragraphs 17(c)-(e) of the Defence that P has wrongfully agreed with or permitted HSBC to install its marble façade, logo, crest signs and to construct a brick wall to alter the façade and external appearance of the Building, and to install additional fire exits onto public or communal areas. But other than exhibiting a copy of the Defence, the Kong Aff is silent on these matters, and the IO has not produced evidence in support of such allegations. Plainly, the IO has failed to condescend upon particulars to raise any arguable defence or triable issue.

37.Thirdly, paragraphs 17(h)-(i) of the Defence suggest P has derived personal advantage by procuring the 2002, 2005 and 2008 TAs as a result of “dishonest” act/conduct in paragraph 33 above, and commencing the present action to seek the Relief. It has been said that since the Fan Room (licensed to HSBC) is fully occupied by HSBC’s air-conditioning equipment for the Shop, if HSBC cannot have “the six hanging-type [Units] and ancillary racks and installations on the external wall of the rear of the Building”, P can increase the Fan Room’s rent (or licence fee) to an unreasonably high amount or force the Shop Owner to purchase the Fan Room at any unreasonably high price, which shows P has acted “unfairly and dishonestly”. But other than exhibiting a copy of the Defence, the Kong Aff is silent on these matters. There is simply no affirmation evidence that P wants to increase the licence fee of the Fan Room or to sell it. The current licence agreement only expires on 18 September 2017,[33] but there is an option to renew for a further term of 3 years at a revised monthly licence fee fixed at $73,920.00. I am unable to see how P can arguably be said to have been unfair or dishonest. I see no merit in this contention.

38.I also see nothing in the tentative/implicit suggestion that P as the developer and/or First Owner of the Building is somehow at fault or its hands are “unclean” because the original design of the Building has designated places for Units at the residential flats and not at the commercial shops. In effecting the tenancy with HSBC or sale of the Shop to the Shop Owner, the layout of the Shops as shown in the DMC Plans and DMC is there for all to see (and both HSBC and Shop Owner take subject to the DMC), and pursuant to schedule 5 of the 2002, 2005 and 2008 TAs and the licence agreements HSBC has used the Fan Room to store Units both before and after the sale of the Shop. There is no suggestion the impugned design is not in accordance with the approved building plans. I cannot see how the design of the commercial shops amounts to “unclean hands”.

39.Mr Poon then argues the events in paragraph 33(a) above show P has first contravened the DMC by allowing Units to be erected/installed on the external wall, and over the years this has created a bandwagon effect by encouraging other commercial shops to install Units until there are now 31 Units on the rear external wall, hence the “dirt” that has accumulated on P’s hands “has an immediate and necessary relation to the equity sued for”.

40.But Mr Liu says the Clean Hands Defence must be viewed against the mandatory IO Duty. Since no one (including P and the IO) can consent to breach of the DMC, any personal approval granted by P qua landlord to HSBC is irrelevant as it has no direct relation to (and does not avoid) the mandatory IO Duty under the BMO and DMC for the benefit of all co-owners of the Building. But even if P’s personal approval qua landlord is relevant, P has only consented to the installation of 1 Unit in 2008. As the true purpose of sections 16 and 18 is to ensure proper maintenance of the common parts in accordance with the DMC for the benefit of all co-owners/occupiers by placing the rights/obligations of doing so on the IO, Mr Liu submits it is contrary to the DMC/BMO if the IO fails to maintain the common parts in accordance with the DMC and seeks to justify breaches of the DMC, which is the very mischief to be avoided by the legislation.

41.Mr Liu submits the Clean Hands Defence has no place in the present case, and cites Au Lung (No 1) v Lam Ho Ling & anor[34] in support. In that case, the tenant and sub-tenant have concealed from the superior landlord the unlawful sub-letting of the premises to the sub-tenant so the superior landlord will not resort to “the provisions of section 20 of the [Landlord and Tenant Ordinance Cap 255]”. It has been held the sub-tenant’s conduct has an immediate and necessary relation to the equity sued for as the concealed transaction goes to the very root of his claim for an injunction to restrain the tenant from excluding him from use/occupation of the premises. Mills-Owen has said at p 440 that:

“…… the Court is not to put itself in the position of punishing persons whom it is the object of the law to protect; in effect of reversing the provisions of the Ordinance in the endeavour to uphold an equitable principle …… I consider that in circumstances such as those before us a Court of equity may, by taking into account the self-evident objects of the Landlord and Tenant Ordinance, thus come to the conclusion that although the conduct of a party is tainted, nevertheless, for the avoidance of the mischief contemplated by the law, he may be afforded relief.”

Given the mandatory IO Duty, Mr Liu submits it is unnecessary and irrelevant to consider whether P has “targeted” the Shop and not Shops 1 and 2.

42.Whilst the Clean Hands Defence is conceptually different from the Acquiescence Defence (and indeed acquiescence, waiver and estoppel are themselves different concepts), the underlying factual premise for these arguments are similar and I propose to set out the parties’ respective position on the Acquiescence Defence before returning to the arguments in paragraphs 39-41 above (if necessary).

(i)  Acquiescence Defence

43.Kong says paragraph 33(a) above suggests Units have been erected/installed on the rear external wall for some time. Paragraph 7 of the Defence admits that after removing the scaffoldings in March/April 2015, “six hanging-type [Units] with ancillary racks and installation were erected on the external wall of the rear of the Building……” Guardian’s logbook shows 10 out of 31 Units on the external wall belong to HSBC, which suggests HSBC has erected/installed 4 Units on the rear external wall before March/April 2015. P has admitted its approval of the erection/ installation of 1 Unit on the rear external wall in 2008, and paragraph 17(f) of the Defence avers P has wrongfully permitted, allowed and authorised HSBC to install 3 hanging-type Units on the rear external wall during the currency of the tenancy agreements for HSBC.  Indeed, this is corroborated by (a) the Kong Aff which says that in/about March 2015 HSBC has asked for the Shop Owner’s permission “to upgrade its current [Units] on the External Wall ……” (my emphasis), and (b) the photograph annexed to P’s letter dated 8 August 2008 to EC Harris giving approval for the installation of 1 Unit at the external wall which shows there is already a Unit on the rear external wall at that time.

44.The minutes of the MC 1^st Meeting also record “陳慧蘭委員表示，發展商為成龍居的前管理公司，而十多年前已有商户於大廈外牆位置安裝冷氣設備，質疑發展商為何於當時不提出，……” and “楊俊華委員表示，發展商發展成龍居，……而發展商為成龍居前管理公司，十多年前已有商户於大廈外牆位置安裝冷氣機設備，如果現時須要清拆，則懷疑發展商涉及誤導商户，本廈法團處理後，商户應向發展商追討” (my emphasis). The minutes of the MC 2^nd Meeting record that the owner of Shop 2 states that “[P]將[Shop 2]出售時，當時有關商户已於告票內所示的後巷位置安裝冷氣機設備，故不能理解為何[P]會提出訴訟。另外，於後巷安裝冷氣機並無騷擾業主” (my emphasis).

45.Mr Poon submits the background as to the erection/installation of 31 Units on the rear external wall since 2002 appears to be quite complex and deserves to be investigated at trial, so it is inappropriate to grant summary judgment. Although the IO’s case could have enjoyed more particularity, the matters in paragraphs 33(a) and 43-44 above do raise arguable basis for the following contentions: (a) at least 1 Unit belonging to HSBC was on the rear external wall with P’s permission since 2008, (b) at least 1 other Unit was on the rear external wall before 8 August 2008, but HSBC probably has altogether 4 Units on the external wall before March 2015, (c) even before P’s sale of Shop 2 its occupant has installed Unit(s) on the rear external wall, and (d) some commercial shops have erected/installed Units on the rear external wall more than 10 years ago.

46.On such factual foundation, is it arguable to suggest the IO has acquiesced in the erection/installation of Units at the rear external wall and/or waived breaches of the DMC and/or is estopped from taking action against the co-owners including the Shop Owner (and its tenant HSBC) in respect of the Cages, Units and Projections? At the Hearing, I have particularly asked for assistance on this matter. Mr Liu and Mr Poon have referred me to Hollywood Shopping Centre Owners Committee Limited v The Incorporated Owners of Wing Wah Building Mongkok Kowloon,[35] a case involving the disputed ownership of an external concrete canopy. In that case, the incorporated owners counterclaims that the co-owner has breached the deed of mutual covenant by converting the canopy to its own use for advertising purpose. The co-owner relies on the equitable defences of acquiescence, waiver and/or estoppel. Mr Recorder Yuen SC has drawn a distinction between matters over which the incorporated owners have power to acquiesce in and those over which they have no such power. The case has gone on appeal, and Kwan JA has summarised (and has not disapproved) the learned judge’s conclusion as follows:

“21. On the issue of acquiescence, waiver or laches, the defendant contended that such a defence is bad in law as it is the defendant’s statutory duty to enforce the DMC. As the defendant could not have expressly granted to the plaintiff or the owner of any unit in the Building the right to act in contravention of the DMC, it could not do so impliedly by acquiescence, waiver or laches. The judge considered two lines of relevant authorities[36] and came to the view that the cases could be reconciled as they dealt with different types of breaches and thus the outcome of the decisions was different. The position at law was summarised in para.65 of his judgment as follows:

(1) whether or not acquiescence can be set up as a defence to a claim for breach of mutual covenants (whether express or implied by reason of section 34I(2) of the BMO) depends on the nature or type of breach in question;

(2) if the breach of mutual covenants in question is within the power of the incorporated owners to acquiesce, acquiescence can be a valid defence provided all the requisite elements giving rise to acquiescence are established; and

(3) on the other hand, if the breach of mutual covenants in question is beyond the power of the incorporated owners to acquiesce, the defence of acquiescence will not be available since the incorporated owners cannot acquiesce in acts which they in law cannot do.”

47.The first question is what amounts to a “breach of mutual covenants in question [that] is beyond the power of the incorporated owners to acquiesce”. Mr Liu takes a narrow view and says the IO cannot acquiesce breaches of unqualified covenants in the DMC, ie those covenants that do not contain proviso for the incorporated owners or manager to relieve compliance, and can only acquiesce breaches of qualified covenants, eg covenants that allow the incorporated owners or manager to give “prior written consent” not to comply with such covenants.  But a consideration of the cases cited in footnote 36 above (discussed in more detail in paragraphs 52-62 in Mr Recorder Yuen SC’s judgment) does not necessarily support such narrow construction.

48.It is perhaps interesting to refer to Wing Ming Garment Factory Ltd v Wing Ming Industrial Centre (IO)[37] which concerns inter alia clauses IV.4 and IV.18 of the relevant deed of mutual covenant[38] that are quite similar in wording to Clauses V/4 and 10 of the DMC herein.  Godfrey Lam J has held that the incorporated owners can acquiesce in structures erected in breach of covenant. In that case, the alterations to the external wall in the mid-1990s are obvious to anyone entering/leaving the Building, and have been the subject of discussion by the incorporated owners in meeting in July 1994. So the incorporated owners have known enough to investigate and challenge the alterations if they so wish, but they have never raised any complaint until their pleadings are filed in September 2006. The learned judge has found it unjust to grant a mandatory injunction to require the alteration to be reversed since inter alia the incorporated owners have knowingly let the plaintiff carry on incurring further expenditure on such works, and there is no suggestion the alterations are unsafe or in breach of any laws/regulations. More importantly, Godfrey Lam J said at p 83 as follows:

“140. Even if the IO is correct in contending that the Manager’s written consent was unsufficient to authorise any alteration to the external wall, and that DMC cl.IV.4 is the overriding provision, my conclusion on acquiescence would have been the same because a breach of that clause was simply a breach of covenant that could be acquiesced in by the IO, which is the embodiment of the owners in relation to their rights in respect of the common parts.”

This plainly suggests there is arguable basis to contend (a) the criterion for acquiescence as equitable defence is not necessarily whether the covenant in the DMC is qualified or unqualified, and (b) there can be acquiescence of a breach of Clause V/4 (an unqualified covenant).

49.It is also interesting to refer to The Incorporated Owners of Wing Ming Industrial Centre v Hong Kong Quality Brands Limited[39] in which DHCJ Seagroatt with some reluctance has declined to grant summary judgment. In that case, the sub-tenant of G/F premises are in breach of the deed of mutual covenant, the land grant as well as the occupation permit by using it as a shop/showroom, and the incorporated owners have commenced proceedings to enforce the covenant. The learned judge has held that “the [incorporated owners’] claim is well-founded in law and it does not have the power to grant exemptions to the requirements of the DMC, the Grant and the Occupation Permit”. But his review of the authorities suggests breaches of the deed of mutual covenant, whether admitted or proved, do not ipso facto constitute an absolute bar to equitable relief.  In a subsequent decision delivered on 15 September 2015, DHCJ Seagroatt has granted leave for the incorporated owners to appeal against his decision. After further discussing the authorities, the learned judge explains his decision to grant leave to appeal as follows:

“34. I am not trying this case on the papers or the limited evidence. I have expressed already my reservations or misgivings about the defendant’s case but this is far from saying the defence is incredible.

35. I take the view however that the plaintiff’s arguments in law should be considered by the Court of Appeal, particularly in the light of the three earlier decisions of the court.[40] Although each case, based on upon breach of the Deed of Mutual Covenant, has its own discrete facts, it is not clear in my view that equitable relief will automatically be available to the party occasioning the breach, or that there are types of breach which may constitute an unarguable state of affairs in which there is no defence, because the Incorporated Owners are in law, not permitted, expressly or impliedly, to allow breaches of the Deed of Mutual Covenant.

36. Mr Chang [counsel for the incorporated owners] relies on the approach of Recorder Rimsky Yuen SC in the Hollywood case in which …… he drew a distinction between breaches of the Deed of Mutual Covenant which the Incorporated Owners were empowered to tolerate and those in which the Incorporated Owners were precluded from tolerating or acquiescing in and to which the co-owners could not set up any of the equitable defences. This approach by the Recorder reflected the varying decisions and sets of circumstances of the earlier decisions to which he has referred. I bear in mind that I have been dealing an application for summary judgment and the criteria to be adopted in that context.

37. Mr Jin Pao [counsel for the co-owner] has argued, equally succinctly, that the authorities leave open clearly, at least at the stage of an Order 14 hearing, that the equitable defences are available to the defendant in respect of the now conceded breach of the Deed of Mutual Covenant.

38. I consider that the plaintiff has a reasonable prospect of persuading the Court of Appeal that where the Deed of Mutual Covenant provides for a specific user of the premises which the co-owner has undertaken to honour – “The concept of mutuality which underpins the DMC” applying the terminology of Le Pichon JA – the equitable defences raised are not available to justify a breach of such.

39. The decisions of the Court of Appeal so far do not specifically exclude the consideration of such equitable defences in that context, and if there is any inconsistency in the existing decisions, they should be clarified or rationalised with specificity.”

50.I respectfully refer to the decision at some length because it usefully highlights several matters. First, as here, DHCJ Seagroatt is concerned with an Order 14 application in which the defendant is only required to raise an arguable defence or triable issue. Secondly, like here, breaches of the DMC have been admitted/proved. Thirdly, the incorporated owners and co-owner in that case have deployed arguments similar to those run by the IO and P here. Fourthly, the learned judge considers the law is not so clear-cut as there are legal contentions going either way to support the parties’ respective stance such that it is not appropriate to grant summary judgment but appropriate to grant leave to appeal.

51.It is clear “leave to defend should be given where a difficult question of law is raised”.[41] Here, such question of law is raised because although breaches of the DMC have been shown, there is some factual basis to suggest there have been Units on the rear external wall for some time, some possibly before 2008 or even more than 10 years ago. Mr Poon says the facts are suggestive of acquiescence on the part of IO, Park-ho and/or Guardian. I accept the evidence in relation to Park-ho is not strong on the present affirmation evidence, but there is evidence Guardian as manager has collected deposits for the Units. The Units on the rear external wall have been there for all to see such that it may be arguable the IO could have taken action previously had it wished to do so. I think there is just enough factual foundation coupled with the legal issues to suggest the Acquiescence Defence, which is one of mixed fact and law, is triable and ought to be left for trial. In coming to this view, I bear in mind the discussion by DHCJ Seagroatt on Kwok Mo Dai Doris v The Incorporated Owners of Karin Court,[42] Ohashi Chemical Industries (Hong Kong) Ltd and The Incorporated Owners of Hong Kong House v Senfield Limited[43] that explains why these authorities do not necessarily preclude the raising of the Acquiescence Defence. There is no need for me to repeat them here.

52.Since Mr Liu relies on Hollywood Shopping Centre Owners Committee Limited, it may be useful to highlight DHCJ Seagroatt’s reminder that such case has gone before Recorder Fok SC (as he then was) for summary judgment, but the learned judge has declined to grant summary judgment on the basis there is an arguable case based on waiver, estoppel, laches and acquiescence even though it has not been pleaded at that time. He has also noted some apparent inconsistency between Ohashi Chemical Industries (Hong Kong) Ltd and Senfield Limited, and has identified that Godfrey JA’s judgment in Ohashi Chemical Industries (Hong Kong) Ltd is premised on the trial judge’s finding that the defendant has not proved the plaintiffs have acquiesced in the relevant breach of covenant, which reinforces “the need to ascertain all the circumstances in order for the court to make an appropriate decision in the exercise of its equitable jurisdiction”. Recorder Fok SC (as he then was) has found it to be a relevant consideration in dealing with the summary judgment application that the plaintiff says the defendant has known for many years of the existence of the advertising boards on the canopy and has done nothing about enforcing its alleged rights under the deed of mutual covenant, so it is at least arguable the equitable defences relied upon are available as a matter of law, and if they are available as a matter of law, it is clear that there are triable issues as to whether they are made out on the facts of the case.

53.I now turn to the even more recent decision of the Court of Appeal in The Incorporated Owners of Freder Centre v Gringo Limited & anor,[44] which is an appeal from the judgment of DDJ Tracy Chan in Freder Centre (IO) v Gringo Ltd.[45] In that case, the co-owner and its tenant have installed trade names on external wall of the building to which the incorporated owners have not objected, but warning letters have been issued 4 months later demanding them to take down the trade names. The incorporated owners seeks a mandatory injunction on the basis the deed of mutual covenants provides that the trade names can only be affixed “in the space assigned for that purpose” being the main lobby and car park entrance directory boards.[46] The co-owner/tenant say no enforcement action has been taken against other shops which from 1982 have affixed trade names or signboards on external walls near their units. Indeed, the co-owner/tenant themselves have first exhibited their trade names on other parts of the external walls in 2005 and 2007. DDJ Tracy Chan notes the incorporated owners has conceded it has power to acquiesce in a breach of section 34I(1), and the trade names were not illegal structures:

54.The Court of Appeal has laid emphasis on the objective fact that all except 1 owner/occupier of the basement and G/F units have for years affixed or exhibited shop names or signboards or product brand names on the external wall close to their units, some of which have existed since as early as 1982, and the fact the incorporated owners have tolerated such situation without taking enforcement action is “directly relevant and germane to whether there is assent or lying by on the part of the [incorporated owners] and whether it is unjust to grant the injunctive relief against the [co-owner and tenant]. Equally relevant and important is the fact that the [tenant] 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”. There is also evidence that through reports at management meetings the incorporated owners must have knowledge of similar breaches committed by other owners/occupiers before November 2012. Taking these matters into account, the Court of Appeal has held it will be inequitable to grant the injunctive relief sought by the incorporated owners who has acquiesced in the breaches by the co-owner and tenant.

55.Whilst each case turns on its own facts and on the terms of the relevant covenants, these authorities (and Mr Liu’s acceptance that the IO has power to acquiesce in a breach of Clause V/10) suggest there is arguable basis, notwithstanding the IO’s Duty, that the IO can acquiesce in breaches of Clauses V/4, 9 and 10, and there is sufficient factual basis to leave the matter to trial to explore/resolve the factual and legal viability of the Acquiescence Defence. I find the IO has raised a triable issue and/or arguable defence in this respect.

56.The Acquiescence Defence does not turn on whether P’s hands are clean or unclean, or whether P itself has committed any breach of the DMC although one can envisage either party may in due course wish to marshal relevant facts to support or discredit this defence at trial. Since the Clean Hands Defence necessarily relies on the history of the Units on the rear external wall (similar to the Acquiescence Defence) but goes further as it has to touch on P’s role as the First Owner and Park-ho’s role as manager (of which there is presently not much evidence before me) and to cross the hurdle of demonstrating an immediate and necessary correlation between the alleged “dirt” on P’s hands and the equity sued for, I do not propose to consider the Clean Hands Defence in any further detail when I have found there is arguable basis to put forward the Acquiescence Defence save to say this is not a matter that ought to be tried on limited evidence, and it ought to be left for trial.

(j)  Reasonable Action Defence

57.The IO contends that by reason of its or its solicitors’ conduct as explained in paragraph 3 above, it has reasonably/properly responded to P’s complaints/demands and has promptly/properly discharged its duty under the DMC and BMO by taking all reasonable and necessary actions. The IO also says P has no right to demand the Requested Undertaking or to seek the Relief. On the other hand, P says that in failing to give the Requested Undertaking and to take action against the Shop Owner and HSBC (including legal action) to compel compliance with Clauses V/4, 9 and 10 and to rectify breaches of such covenants, the IO has failed to discharge the IO Duty and to take reasonable action as required under the DMC and BMO. P also complains the IO has changed its stance from initially agreeing to issue (and admitting to have issued) demand letters to the Shop Owner and HSBC to now resiling from that position. In my view, the propriety/ sufficiency of the steps taken by the IO will depend on the vitality of inter alia the Acquiescence Defence at trial, and I cannot say now the Reasonable Action Defence has no arguability.

(k) Relief

58.Mr Poon further refers to Incorporated Owners of Dragon View v Nalpak Ltd[47] to suggest that any grant of mandatory injunction is inappropriate in the present case.[48] In that case, the incorporated owners have requested the defendant to remove air-conditioners erected on the external wall and to reinstate the external wall, but in fact over the years the co-owners have with/without consent installed air-conditioners on the external wall. Godfrey JA at p 552 says that in such circumstances to “…… arbitrarily …… restrain one owner from doing what so many others have done in the past, whether, with or without consent, or indeed with or without knowledge of the management committee, could lead to an unfair result”, and as the alteration has been made over 3 years ago without harm to anybody, and no damage has been suffered by any other owner or by the incorporated owners, “[although] I disapprove of the defendant’s conduct, to grant a mandatory injunction, in the circumstances to which I referred, would be unjust and inequitable; and I refuse to do so”.

59.Mr Poon submits that since no one (inclusive of P) has suffered any damage from having Units erected on the rear external wall, and the facts shown so far demonstrate likelihood that Units have been erected/ installed on the external wall for a while, it is unjust and inequitable to now require removal of the Cages, Units and Projections. In my view, whether the Relief is appropriate will ultimately turn on inter alia the Acquiescence Defence (or perhaps the Clean Hands Defence), and again I am not able to discount the arguability of this contention at this stage.

V.  CONCLUSION

60.I therefore grant the IO unconditional leave to defend. Pursuant to Order 14 rule 6(1) of the RHC, I grant the following directions:

(a) retrospective leave be granted to the IO to file/serve its Defence on 17 September 2015;

(b) leave to the IO to amend its Defence and to file and serve its Amended Defence within 21 days from the date of this judgment;

(c) leave be granted to P to file/serve its Reply (if so advised) within 21 days thereafter.

I also grant a costs order nisi that costs of the Summons be costs in the cause.

Mr Liu Man Kin, instructed by Tai, Tang & Chong, for the plaintiff

Mr Darren Poon, instructed by Kenneth C C Man & Co, for the defendant

Schedule