Grand Power International Ltd v. Chan Sing Hoi Enterprises Ltd and Others

CACV 116/2019

[2020] HKCA 133

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 116 OF 2019

(ON APPEAL FROM LDBM NO 329 OF 2014)

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Before:  Hon Kwan VP, Chu JA and Au JA in Court

Date of Hearing:  21 January 2020

Date of Judgment:  21 January 2020

Date of Reasons for Judgment:  11 March 2020

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

1.This is an appeal against the judgment of His Honour Judge S Lo, presiding officer of the Lands Tribunal, given on 1 November 2018 after a six-day trial. The judge dismissed the applicant’s claim. The appeal was brought with leave granted by the judge on 8 March 2019. At the conclusion of the hearing, we allowed the appeal of the applicant. These are the reasons of the court.

Background

2.The subject matter of the litigation concerned a glass wall and three signages of a building (“the Building”) constructed in the 1960s in a central location in Causeway Bay.  The Building is divided into nine shop units on the ground floor and 84 domestic units on the 1^st to 8^th floors.  In the deed of mutual covenant of the Building (“the DMC”), the premises and building have been notionally divided into 93 equal undivided parts or shares and one share has been allocated to each of the 93 units of shop and domestic premises.  The Building does not have incorporated owners and no agent has ever been appointed under the DMC to undertake the management.

3.The judge held, and there is no appeal against this holding, that the external wall of the Building falls within the definition of “common parts” in section 2 of the Building Management Ordinance, Cap 344 (“the BMO”) and is a part of the common areas within clause 2 of the DMC, so also are the soffits or underside of the balcony of the 1^st floor of the Building^[1].

4.The applicant, Grand Power International Limited, purchased and became the registered owner of two units in the Building in June 2013, being “3/F No 70” and “5/F No 72”.  5/F No 72 has been left vacant since it was acquired.  The main purpose for the purchase of these units is commercial redevelopment.  There exists an “acquisition campaign” over the Building and a few of the adjoining buildings.  The judge found that the applicant participates in the campaign^[2].

5.The 1^st respondent, Chan Sing Hoi Enterprises Ltd, is the registered owner of four units, being “G/F No 72” (since September 2000), “G/F No 74” (since November 2004”), “1/F No 74” (since June 2005) and “1/F No 76” (since July 2005).

6.In June 2009, the 1^st respondent converted the external wall enclosing 1/F No 74 and 1/F No 76 into a glass wall extending from the floor of the 1^st floor to its ceiling (“the Glass Wall”).  Building approval for the Glass Wall was obtained from the Buildings Department.

7.Since 11 August 2009, the 2^nd respondent, Sa Sa Cosmetic Co Ltd, has been the tenant of the four units of the 1^st respondent and remains its current tenant.  It occupies the largest shop in the Building.  After the commencement of its tenancy, there were erected on the external wall three signages (“the 3 Signages”), each bearing the 2^nd respondent’s trade name and/or logo: “No 72 Signage” (adjacent to the shop front of G/F No 72 hanging from the soffit of the balcony of the front portion of 1^st floor No 72 Percival Street); “No 74 Signage” (adjacent to the shop front of G/F No 74 hanging from the soffit of the balcony of 1/F No 74); and “1/F Signage” (attaching to the surface of the external wall enclosing 1/F No 76).  The approval of the Buildings Department was obtained for the 1/F Signage as minor works.

8.As there are no incorporated owners of the Building, no consent could be obtained from the incorporated owners for the conversion of those parts of the external wall to the own use of a particular owner as regards the Glass Wall and the 3 Signages.  No express consent was ever obtained from all of the other co-owners of the 89 units in the Building.

9.Prior to the completion of the purchase of its two units, the applicant became aware that the Building has no incorporated owners.  The applicant’s representative never thought about whether the external wall where the signages were attached belonged to the common parts of the Building and did nothing to verify if the Glass Wall and the 3 Signages were approved by the other owners of the Building^[3].

10.In January and March 2014, the applicant through its solicitors raised objections concerning the unauthorised signages in the Building including the 3 Signages.  The present proceedings were brought in the Lands Tribunal in November 2014 against the 1^st and 2^nd respondents^[4] as regards the Glass Wall and the 3 Signages, seeking declarations, mandatory and restrictive injunctions, and damages for unauthorised conversion, nuisance and trespass.

11.In the course of the trial, the applicant and the 2^nd respondent reached a settlement on 4 September 2018 and an order by consent was made for the applicant to withdraw the proceedings against the 2^nd respondent with no order as to costs between them upon the applicant’s undertaking, insofar as the 2^nd respondent remains the tenant of the four units of the 1^st respondent or any part thereof, not to enforce before 31 December 2022 any injunction compelling the 1^st respondent to demolish the Glass Wall and the 3 Signages, and against an indemnity given by the 2^nd respondent to the applicant in respect of any liability the 3 Signages may occasion to the applicant.  In practical terms, this means that the Glass Wall and the 3 Signages could remain in place until 31 December 2022 or until the 2^nd respondent ceases to be the 1^st respondent’s tenant, whichever is sooner.

The judgment below

12.Notwithstanding the judge held that the Glass Wall and the 3 Signages were conversion or unauthorised alterations of parts of the common area, he dismissed all the applicant’s claims against the 1^st respondent for the following reasons:

(1)  In respect of the 3 Signages, they were put up by the 2^nd respondent and the applicant has withdrawn its claims against the 2^nd respondent.  The 1^st respondent has not used or permitted to be used the common parts concerned for erecting the 3 Signages and cannot be held to have committed trespass, nuisance or breaches of the BMO or DMC^[5].  Clause 10 of the DMC, properly construed, would only hold the 1^st respondent liable for the 2^nd respondent’s acts relating to the erection of the 3 Signages if those acts were committed with the 1^st respondent’s consent, express or implied^[6].

(2)  As for the Glass Wall, the defences of acquiescence and waiver are established against the applicant’s predecessors‑in‑title^[7] in that there was inaction of all the co‑owners for at least four years from 2009 to 2013 and this is sufficient to give rise to an inference of an implied representation which encouraged the 1^st respondent to believe that it is entitled to construct the Glass Wall or that the Glass Wall will be tolerated^[8]. The circumstances have made it inequitable for the applicant’s predecessors-in-title to enforce the DMC to demolish the Glass Wall especially at the time when the 1^st and 2^nd respondents decided to renew the tenancy in July 2012 or before the expiry of the remaining terms of the subsequent tenancy agreements.  Some sort of detrimental reliance has been shown^[9].

(3)  The applicant is bound by the defences of acquiescence and waiver established against its predecessors-in-title in that the 1^st respondent is entitled to a licence coupled with interest or proprietary interest to use the Glass Wall as against the applicant’s predecessors-in-title.  Such interest binds the applicant regardless of whether it does or does not have notice of the interest^[10].

(4)  The applicant has constructive notice that the Glass Wall is unauthorised under the DMC as well as constructive notice of the 1^st respondent’s defences of acquiescence and waiver as the applicant ought to know that no co-owners of the Building have taken any action against the 1^st respondent for the Glass Wall.  Hence the applicant has failed to establish that it is a bona fide purchaser for value without notice.^[11]

(5)  Even if the 1^st respondent fails to establish the defences of acquiescence and waiver, the court would not exercise its discretion to grant the declarations and injunctive reliefs sought by the applicant.  The judge is not satisfied that the declarations would serve any useful purpose^[12]. It is not just and equitable to grant the mandatory injunction to demolish the Glass Wall and reinstate that part of the external wall^[13].

This appeal

13.The applicant raised five broad grounds of appeal.

14.First, the judge erred in the proper construction of clause 10 of the DMC. He should have held that by this clause, the 1^st respondent is liable for the acts and defaults of its tenant the 2^nd respondent, even if those acts and defaults were committed without the 1^st respondent’s consent.

15.Second, the judge erred in holding that the defences of acquiescence and waiver are established against the applicant’s predecessors-in-title for four independent reasons, each of which is sufficient: (i) the factual basis of these defences has not been pleaded by the 1^st respondent; (ii) the 1^st respondent has failed to adduce evidence of the alleged inaction on the part of the co-owners; (iii) any such evidence of inaction is insufficient to give rise to waiver and acquiescence; (iv) the judge was wrong to hold that there was sufficient detrimental reliance to make it inequitable in the circumstances for the applicant’s predecessors‑in-title to enforce the DMC.

16.Third, the judge erred in law in holding that a successfully raised defence of acquiescence and waiver against the applicant’s predecessors-in-title would bind the applicant.

17.Fourth, the judge erred in law in holding that the applicant had constructive notice of the Glass Wall and the 1^st respondent’s defences of acquiescence and waiver, with the result that the defence of bona fide purchaser for value without notice was not available to the applicant.

18.Fifth, the judge was wrong in holding that there is no useful purpose for the declarations sought and erred in his approach in refusing the mandatory injunctions.

19.The grounds of appeal will be considered in the order raised above.

Ground 1: proper construction of clause 10 of the DMC

20.Clause 10 of the DMC provides as follows:

“Each of the parties hereto shall be responsible to all other parties for the act, negligence or default of all persons occupying or using the same with his consent, express or implied, the Unit of which he is entitled to the exclusive use occupation and enjoyment and to pay all costs charges and expenses incurred in repairing or making good any loss or damage caused by the act negligence or default of all such persons and to indemnify all other parties against all actions, proceedings, claims and demands whatsoever arising out of or in respect of any loss or damage to any person or property caused by the act negligence or default of all such persons.” (Italics supplied)

21.Mr Alex Fan, who appeared for the 1^st respondent here and below, submitted that the words in italics “with his consent, express or implied” should be construed to qualify and describe “the act, negligence or default” instead of qualifying the act of “occupying or using” the 1^st respondent’s unit.  The judge accepted his submission and construed clause 10 accordingly.

22.This construction is plainly wrong.  As a matter of grammar, the words italicised are found between “occupying or using the same” and “the Unit”.  It is clear that they qualify the occupation and use of the Unit.  The words italicised cannot be used grammatically to qualify “the act, negligence or default”.  There is no ambiguity.

23.Furthermore, it makes no sense to construe those words as qualifying “the act, negligence or default” of persons occupying or using the Unit.  If the owner of the Unit had indeed given express or implied consent to “the act, negligence or default” of such persons, he would be liable in law for such act, negligence or default.  It is unnecessary and otiose to provide for this legal consequence in the DMC.  The plain meaning and effect of clause 10 is to impose liability on the Unit owner for any “act, negligence or default” of persons occupying or using the Unit “with his consent, express or implied”, even though the act, negligence or default was committed without his permission.

24.The judge did not find it necessary to hold whether the 3 Signages involved trespass and/or a breach of section 34I(1)(a) of the BMO because of his erroneous construction of clause 10 of the DMC to the effect that the 1^st respondent could not be held liable for the 3 Signages which were not erected with its express or implied consent.

25.In the event we hold against his construction of clause 10, Mr Fan did not dispute that the 3 Signages amounted to conversion of the common parts and breach of section 34I(1)(a).  Quite clearly, the 3 Signages amounted to trespass and a breach of section 34I(1)(a) because they involved conversions of those parts of the external wall and the soffit to which the signages are attached, such that no other owners could use those parts.  It is not necessary to find if there was breach of any other provision in the DMC or any other provision in the BMO.

Ground 2: whether acquiescence and waiver are established against the applicant’s predecessors-in-title

26.Mr Bernard Man, SC, who appeared for the applicant throughout^[14], put forward four independent reasons why the judge was in error in holding that acquiescence and waiver are established against the applicant’s predecessors-in-title owing to inaction of all the co-owners from 2009 to 2013.

27.First and foremost, Mr Man submitted that the factual basis for which the defences of acquiescence and waiver were upheld has not been pleaded by the 1^st respondent, and the judge was wrong in principle to allow the 1^st respondent to run an unpleaded case.  He had raised his objection in his closing submission before the judge^[15], when it became apparent from the 1^st respondent’s written closing submission that a rather different case was advanced for the defences of acquiescence and waiver. He referred us to the relevant part of the transcript^[16] where he had drawn the attention of the judge earlier during the cross-examination by Mr Fan of the applicant’s witness that the questioning would appear to have departed from the case of common assumption as pleaded.

28.The pleading objection is a point of importance, because if the 1^st respondent should not be allowed to run the defences of acquiescence and waiver which were upheld, it would have no substantive defence to the case of trespass and breach of section 34I(1)(a) made out by the applicant in respect of the Glass Wall and the 3 Signages.  All that is left is whether the court should exercise its discretion to grant or refuse the reliefs as sought by the applicant.

29.The amended notice of opposition filed by the 1^st respondent was signed by its solicitors and set out its case in considerable detail.  The relevant paragraphs are from paragraphs 49 to 57, and they are headed “Acquiescence, waiver and estoppel”.  We do not propose to set out all those paragraphs verbatim.

30.The central theme of these paragraphs is that there have long been common assumptions among all the co-owners of the Building and/or their predecessors-in-title.  These “Common Assumptions”, as defined, are as follows: (1) the external walls or the exterior parts of the units on the ground floor, the first floor or on the other floors do not form part of the common parts of the Building; (2) the respective owners and/or their predecessors-in-title of the individual units are entitled to exclusive use, occupation and enjoyment of the part of the external walls adjoining their respective units and the exterior part of their respective units; (3) the respective owners and/or their predecessors-in-title of the individual units are entitled to make any alteration to their respective units.

31.It is pleaded that pursuant to and in reliance on these Common Assumptions, the 1^st respondent acquired four units on the ground floor and 1^st floor between 2000 and 2006 with a view to leasing them for rental income, earning income by granting lease or licence over the external walls or the exterior part of the four units, and making alteration to the four units to accommodate the use of the 1^st respondent, its tenants or licensees.

32.The amended notice of opposition went on to state that if the 1^st respondent had known any of the Common Assumptions were mistaken or untrue, it would not have purchased the units and that it would suffer detriment arising out of having acquired the ownership of the units on the Common Assumptions.  It averred that to date, no co-owner apart from the applicant has taken any step or action to alter or challenge the Common Assumptions, and it would be unjust in the circumstances for the applicant to depart from the Common Assumptions.

33.There is this ending paragraph which reads as follows:

“56 Further or alternatively:-

(1) if (which is denied) the external walls or the exterior part of the units on the ground floor and on the 1^st floor form part of the common parts of the Building, the Applicant (and/or its predecessor-in-title) has waived their rights to enforce the DMC pursuant to section 34I(2) of the Ordinance or has acquiesced to the 1^st Respondent’s contravention of the same.

(2) the Applicant (and/or its predecessor-in-title) has waived their rights to enforce Clauses 2, 7 and/or 8 of the DMC or has acquiesced to the 1^st Respondent’s breach of the same.”

34.It is fair to say that the facts upon which the defences of acquiescence and waiver are founded as upheld by the judge (that there was inaction of all the co-owners for at least four years from 2009 to 2013, that the inaction encouraged the 1^st respondent to believe it is entitled to make the unauthorised alterations or that such alterations would be tolerated, that it would be inequitable for the applicant’s predecessor‑in‑title to enforce the DMC when the 1^st and 2^nd respondents decided to renew the tenancy in July 2012 or before the expiry of the remaining terms of the subsequent tenancy agreements) have not been pleaded in the amended notice of opposition.  It is fairly clear that the factual basis for those defences as upheld is different from the factual basis for those defences as pleaded.

35.The ending paragraph in paragraph 56 cannot be read in isolation but must be read with what was pleaded before to ascertain the material facts upon which the defences are said to rest.  The mere mention of waiver of rights to enforce the DMC or acquiescence to breach of the DMC does not assist.  The pleaded case of “Acquiescence, waiver and estoppel” founded on the Common Assumptions was rejected by the judge on the evidence, he found as a fact that the Common Assumptions do not exist^[17].

36.On a proper analysis of the amended notice of opposition, we do not agree with the judge that the defences of acquiescence and waiver based on a representation inferred from inaction have been properly pleaded as he has held^[18]. The judge went on to hold that in any event he would exercise his discretion to allow the 1^st respondent to run the defences of waiver, acquiescence and estoppel, as he could see no real prejudice suffered by the applicant.  He took the view that as the 2^nd respondent has run similar defences of waiver, acquiescence and estoppel even including laches, so the applicant should have been fully prepared to oppose such defences whether raised by the 1^st or 2^nd respondents and should not be taken by surprise^[19].

37.We do not think this can be right.  The notice of opposition of the 2^nd respondent^[20] has not been placed before us, though we were informed by Mr Man that the 2^nd respondent has never pleaded the state of mind of the 1^st respondent which gave rise to the alleged equities.  Even assuming the 2^nd respondent’s notice of opposition has adequately pleaded the defences of acquiescence and waiver on the basis of inaction and implied representation as held by the judge, it cannot be said that the applicant would have suffered no prejudice in allowing the 1^st respondent to run this unpleaded case.  The 2^nd respondent had dropped out of the picture on the second day of the trial, having reached a settlement with the applicant.  Whatever preparations the applicant would have made to meet the 2^nd respondent’s defences (assuming they were raised), that would be of little relevance once the 2^nd respondent ceased to be a party to the litigation.  Mr Man informed us that he had successfully objected to the photographs adduced in the witness statement of the 2^nd respondent’s witness being admitted as evidence after the applicant withdrew its claim against the 2^nd respondent.  In this situation, it is fair to say that evidence relevant to meeting the unpleaded basis of acquiescence and waiver would not be adduced by the applicant and the cross-examination of the 1^st respondent’s witness would be conducted somewhat differently.

38.Mr Fan pointed to a question put to the 1^st respondent’s witness in cross-examination if anyone had complained about the Glass Wall,^[21] to support his contention that the applicant had not been deprived of the opportunity to cross-examine on relevant topics.  This is to no avail, as it cannot be said that the cross-examiner was focused on the unpleaded basis of acquiescence and waiver in putting that question to the witness.  Similarly, we do not think other parts of the cross-examination of the 1^st respondent’s witness^[22] referred to by Mr Fan would assist him, as the questioning was premised on the Common Assumptions as pleaded. We do not agree with Mr Fan that prejudice suffered by the applicant is fanciful.

39.We bear in mind that the Lands Tribunal has discretion to decide whether a point not set out in a notice of opposition could be relied on at the trial and it is a case management discretion which the appeal court will not interfere with unless the Tribunal has gone clearly wrong in the exercise of that discretion.  The discretion must be exercised judicially depending on the circumstances of the case and the court must do what is just between the parties (莫炎熙v 香港房屋委員會, CACV 147/2015, 17 August 2015, §§29 and 30(a)).

40.We also have regard to section 10(5)(a) of the Lands Tribunal Ordinance, Cap 17, which provides that “the proceedings of the Tribunal shall be conducted with as much informality as is consistent with attaining justice”, and Direction No 4 given by the President of the Lands Tribunal on 1 July 1986 which states, inter alia, that presiding officers should not regard Notices as in the nature of pleadings by which parties are bound, but as an indication of the issues which are likely to be raised.

41.In this particular instance, all the parties have engaged counsel early on and litigation has been conducted in a fairly rigorous manner.  As the judge has stated^[23], this is not a classic building management dispute. The notice of application and the notice of opposition set out the respective cases of the applicant and the 1^st respondent with such details that are in no way different from a pleading.  The 1^st respondent even insisted on the applicant filing a notice of reply to plead its reliance on bona fide purchaser for value without notice, instead of merely mentioning this in the solicitors’ letter.  Even if the amended notice of opposition is not to be treated as a pleading by which the 1^st respondent is strictly bound, it can hardly be regarded as giving “fair indication” of the issues likely to be raised.

42.The judge is clearly in error in supposing that no real prejudice would be occasioned to the applicant in allowing the 1^st respondent to run an unpleaded case.  Exercising the discretion afresh, we think that justice would best be served in these circumstances by refusing to allow the 1^st respondent to rely on the defences of acquiescence and waiver based on inaction and implied representation.

43.Having arrived at this conclusion, it is not strictly necessary to deal with the other grounds of appeal in detail before we come to the question of reliefs.  We do not propose to discuss each and every one of them and would only deal with the more important ones succinctly.

44.We would mention that insofar as the complaint of no evidence of inaction of the co-owners is concerned, this brings out the importance of adequate pleadings.  Because of the way in which the defences of acquiescence and waiver were pleaded, the 1^st respondent did not adduce evidence to substantiate the allegation of inaction of the applicant’s predecessors-in-title from 2009 to 2013 (the evidence of the 1^st respondent’s witness that he did not know if anyone had complained about the alterations to the external wall^[24] is not sufficient), nor did the applicant adduce evidence to refute any allegation of inaction of the co‑owners during the material period.  There is similar problem with the lack of evidence on detrimental reliance, as no evidence was adduced by the 1^st respondent of its state of mind when it negotiated with the 2^nd respondent to renew the tenancy in July 2012 or the subsequent tenancies^[25].

45.For all the above reasons, the judge is wrong to hold that the defences of acquiescence and waiver are established against the applicant’s predecessors-in-title based on their inaction and implied representation from 2009 to 2013.

Ground 3: whether the applicant is bound by the acquiescence and waiver established against its predecessors-in-title

46.This ground is unnecessary for our decision.  We would like to say a few words nevertheless as the judge has made an error in law in holding that the applicant is bound by the acquiescence and waiver established against its predecessors-in-title by reference to a proprietary interest.

47.Acquiescence and waiver can only give rise to defences which are personal in nature to the person who acquiesced and his heirs.  Except in special circumstances, they cannot give rise to any proprietary interest capable of binding successors in title in that a personal contract relating to land does not run with the land (Brown v Baty (1957) SC 351 at 354). Similarly, in the context of laches, this is treated as a personal disqualification on the part of the particular plaintiff and not a stigma on the title to land which, once impressed, necessarily affected all succeeding owners (Nwakobi v Nzekwu [1964] 1 WLR 1019 at 1024).  The same applies to estoppel by convention, which does not avail a stranger to the agreement of an assumed state of facts (In re Goldcorp Exchange Ltd [1995] 1 AC 74 at 93G to H; TLC Trade Land Co Ltd v Samuel N & Co Ltd [2005] 2 HKLRD 756 at §106).  An estoppel will bind a successor to property only if it is an estoppel which the court will satisfy by the grant of a right in the property.  If the antecedent equity is not satisfied by the grant of a proprietary interest, then the equity was purely personal and will not bind successors, even with notice, unless their consciences are affected (Spencer Bower: Reliance-Based Estoppel (5^th ed), §§6.35 and 6.37)^[26].

48.The judge apparently accepted the principles of law as stated above.  He also acknowledged that a mere contractual licence to occupy land is a personal right only and is incapable of binding a successor in title, even with notice, unless the conscience of the successor is affected so as to justify the imposition of a constructive trust (Chen Tek Yee & Ors v Chan Moon Shing & Anr, CACV 136/2015, §34)^[27].  Notwithstanding all the above, he took the view that the equity arising from acquiescence and waiver is not just a contractual licence but should be satisfied by the grant of a proprietary interest, having taken into account these matters: the expenses incurred by the 1^st respondent for the construction of the Glass Wall; that a contractual licence may be revoked by the co-owners on reasonable notice and the 1^st respondent may be held liable to the 2^nd respondent in that situation; the costs for reinstatement on termination of the licence and the loss of rental to the 1^st respondent during the period of reinstatement.

49.We agree with Mr Man that the matters taken into account by the judge, whether separately or cumulatively, are not sufficient to require the equity to be satisfied by the grant of a proprietary interest in the land.  The defences of acquiescence and waiver upheld by the judge can at most amount to a consent of the applicant’s predecessors-in-title in permitting the 1^st respondent to alter and occupy parts of the external wall.  This is not a situation of proprietary estoppel arising from acquiescence, unlike the case of E R Ives Investment Ltd v High [1967] 2 QB 379 that was cited to him, and an interest in property is not the subject of the acquiescence and waiver.  There is nothing to give rise to a reasonable expectation that the personal disqualification on the part of the applicant’s predecessors-in-title should be treated as a stigma on the title to land affecting all succeeding owners.  We fail to see why the equity arising in this instance (assuming that such an equity is established) should not be satisfied by a contractual licence to the 1^st respondent to use and occupy those parts of the external wall which were altered.  The judge is wrong to hold that the 1^st respondent is entitled to a “licence coupled with interest or proprietary interest”^[28].

Ground 4: whether the applicant can rely on the defence of its being a bona fide purchaser for value without notice

50.This ground is also not necessary for our decision.  We would only mention that the doctrine of constructive notice (that the purchaser is treated to have constructive notice of all that he would have discovered if he had investigated the incumbrance) is confined to matters which necessarily affect the title of the property in some way (Snell’s Equity (33^rd edition) §4-030).  We have reservations if constructive notice is applicable to an equity in respect of the common parts of the Building which does not affect the title to the units purchased by the applicant.

Ground 5: whether reliefs should be granted

51.Assuming that the 1^st respondent had failed to establish the defences of acquiescence and waiver, the judge went on to consider if the declarations and injunctions sought by the applicant should be granted and he refused to exercise his discretion to grant any relief.  His reasons were as follows.

52.He took into account the matters he mentioned earlier in holding that 1^st respondent is entitled to a proprietary interest in the Glass Wall^[29]. There was no evidence that nuisance or inconvenience has been caused by the Glass Wall to the applicant or other co-owners, or that any of them has suffered real loss and damage.  The demolition and reinstatement of the Glass Wall will cause disproportionate hardship to the 1^st respondent in view of the expenses.  The approval of the Buildings Department has been obtained for the works, there is no imminent danger or urgency to order demolition.  In light of the acquisition campaign, the Building is likely to be demolished one day.  If the mandatory injunction is granted, it will not be enforced by the applicant prior to 31 December 2022 or until the 2^nd respondent ceases to be the 1^st respondent’s tenant, whichever is sooner.  By that time, the applicant may be able to acquire sufficient ownership of units in the Building to initiate a compulsory sale and it will be redundant to order the Glass Wall to be reinstated.  There is no evidence and no submission from counsel as to any useful purpose of the declarations sought^[30].

53.We are satisfied that the judge has erred in law and principle in exercising his discretion in the way he did.  Relevant principles and guidance in this context have been given in two decisions: Incorporated Owners of Dragon View v Nalpak Ltd [1989] 1 HKC 549; and Billion Star Development Ltd v Wong Tak Chuen [2012] 2 HKLRD 85.

54.In Incorporated Owners of Dragon View v Nalpak Ltd, having declined to grant a mandatory injunction, and it was not necessary to grant a prohibitive injunction in light of the voluntary undertakings given by the defendant, Godfrey J (as he then was) had this to say as to whether a declaration should be made at 553C, F to H:

“What, then, is the court now to do? In my judgment, the correct course is for the court to declare that in respect of each of the matters complained of by the plaintiff, the defendant is in breach of the relevant provisions of the deed of mutual covenant. … I wish this judgment to be read as vindicating the plaintiff to the extent that it comes to the court in order to establish the principle. It has failed … to obtain the mandatory injunctions for which it has asked. But since it may be generally believed in Hong Kong (as the defendant suggested) that deeds of mutual covenant are meant to be honoured more in the breach than in the observance, it is, I think, important that all parties to such deeds should know that its provisions are there to be observed, not flouted.”

55.In Billion Star Development Ltd v Wong Tak Chuen at §38, Au J (as he then was) set out these pertinent principles relating to the granting of an injunction in the context of unlawful interference of a right of way and trespass^[31]:

“(3) The injunction (permanent or interlocutory) will be prima facie granted and will be denied only if special circumstances exist (which may include circumstances that damages are an adequate remedy for the wrong, in that where the expected injury to land is small and the grant of an injunction would cause disproportionate hardship to the defendant).

(4) However, damage suffered is not a prerequisite to the grant of an injunction in such a case, nor is the triviality of the interference alone sufficient reason to justify a departure from the general rule of granting injunctions.  In a case concerning trespass to land (in particular for threats of trespass and acts of trespass in the future), the court is concerned with the protection of a property right, which, if not protected by an adequate remedy, becomes diminished.”

56.It seems to us the judge has taken irrelevant and speculative matters into consideration, and failed to take into account relevant matters. His exercise of discretion is in error and it falls on us to exercise the discretion afresh.

57.The vindication and protection of property right is an important consideration.  That nuisance or inconvenience has not been caused by the unauthorised alterations to the applicant and other co-owners is not in itself sufficient to justify a departure from the prima facie entitlement to relief where there is unlawful interference with a property right.  The judge did not find on the evidence any improper motive of the applicant in commencing these proceedings, even though the 1^st respondent has accused the applicant of dirty tactics in the acquisition campaign^[32].

58.As for the expenses incurred in the construction of the unauthorised alterations and the expenses to be incurred by the 1^st respondent if a mandatory injunction is granted requiring demolition and reinstatement in respect of the Glass Wall and the 3 Signages, it was accepted by the witness of the 1^st respondent that such expenses would be more than offset by the benefit the 1^st respondent has reaped from the use of the Glass Wall and the 3 Signages over the years (from 2009 to 2018, and up to December 2022)^[33].  Disproportionate hardship is not made out.

59.Mr Fan pointed out that notwithstanding that the applicant’s solicitors had issued a batch of pre-action letters in March 2014 to “all the then signage users” including the 2^nd respondent, the applicant did not sue occupiers and owners of other units that had converted parts of the external wall to their own use with the erection of signages and a glass wall^[34]. He submitted that this amounted to arbitrary enforcement of the DMC and could lead to an unjust and unfair result, citing Incorporated Owners of Dragon View v Nalpak Ltd at 552H to I; Freder Centre (IO) v Gringo Ltd [2016] 2 HKLRD 190 at §33.

60.It is necessary to consider the question of arbitrary enforcement in context.  Here, the party seeking to enforce the DMC is not the incorporated owners and there are no incorporated owners for the Building. The applicant only acquired its interest in two units of the Building in June 2013 and raised objections to unauthorised signages in the Building about six months later.  As the applicant’s representative has explained in cross-examination, the applicant has to focus its resources on the costly proceedings against the respondents, the 2^nd respondent occupied the largest shop and it was thought that the pursuit against the 2^nd respondent would have positive effects on other signage users^[35].

61.Given these circumstances, we are inclined to think there are valid reasons not to require the applicant to bring legal proceedings all at once against those other owners and occupants.  It is not unreasonable for the applicant to adopt a stance of wait and see until the conclusion of the present proceedings.  We do not think it would lead to an unjust and unfair result if reliefs are granted against the 1^st respondent.  Nor do we think it would be sufficient merely to grant the declarations and decline injunctive relief as contended by Mr Fan.

62.For all the above reasons, we find it appropriate to grant the declarations and injunctions sought, with the alterations we indicated to the parties.

Conclusion and orders

63.For the above reasons, we have allowed the applicant’s appeal and set aside the judge’s decision. In lieu thereof, we made the following orders:

(1)  A declaration be made that:

(a)  the external walls of the Building and the soffits of the balcony (“the soffits”) of the 1/F Units are common parts of the Building;

(b)  the Glass Wall is a structural alteration made by the 1^st respondent in breach of clauses 7 and 8 of the DMC;

(c)  the erection of the 3 Signages on the external wall of the Building and the soffits of the 1/F Units amounts to an unauthorised conversion of the common parts of the Building, for which the 1^st respondent should be responsible, contrary to section 34I(a) of the BMO and the DMC; and

(d)  the conversion of the wall of the 1/F Units into the Glass Wall amounts to an unauthorised conversion of the common parts of the Building by the 1^st respondent, contrary to section 34I(a) of the BMO and the DMC.

(2)  Subject to the terms of the applicant’s undertaking as recorded in the Order made by the judge on 4 September 2018 (“the applicant’s undertaking”), the 1^st respondent be compelled to demolish the Glass Wall and to reinstate the parts of the external wall of the Building and the soffits of the 1/F Units where the Glass Wall originally stood to their original condition to the satisfaction of the applicant and at the cost of the 1^st respondent.

(3)  Subject to the terms of the applicant’s undertaking, the 1^st respondent be compelled to demolish the 3 Signages and to reinstate the parts of the external wall of the Building and the soffits of the 1/F Units where the 3 Signages are erected to their original condition to the satisfaction of the applicant and at the cost of the 1^st respondent.

(4)  Subject to the terms of the applicant’s undertaking, the 1^st respondent, its servant or agent be restrained from doing, procuring, causing, authorising or permitting any of the following acts:

(a)  erecting signages on, obstructing or in any way trespassing the external wall of the Building or the soffits of the 1/F Units;

(b)  making structural alterations to any part of the Building without authorisation by co-owners of the Building.

64.We set aside the costs order of the judge.  There is no dispute that costs of the proceedings here and below should follow the event.  We made an order that the applicant should have the costs in the Tribunal to be taxed on the High Court scale and the costs of this appeal.  We granted a certificate for two counsel for the proceedings throughout, and taxation is to be on a party and party basis.

Mr Bernard Man SC and Mr Jason Lee, instructed by H Y Leung & Co LLP, for the Applicant (Appellant)

Mr Alex Fan, instructed by Hon & Co, for the 1^st Respondent (Respondent)