Top Talent Development Ltd v. Top System Investments Ltd
Read the full judgment text of HCA 3120/2003 on BabelCite. This High Court CFI judgment was delivered on 21 November 2003.
1. By a Summons dated 11 November 2003 the Plaintiff ("Talent") applied for Orders that the Defendant ("System"):-
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HCA003120/2003 HCA 3120/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 3120 OF 2003 ____________
____________ Coram: Hon. Reyes J in Chambers Date of Hearing: 21 November 2003 Date of Decision: 21 November 2003 Date of Handing Down of Reasons for Decision: 9 December 2003 ___________________________________________ REASONS FOR DECISION ___________________________________________ Background 1.By a Summons dated 11 November 2003 the Plaintiff ("Talent") applied for Orders that the Defendant ("System"):-
2.The Re-Amended Statement of Claim ("RAMSOC") defines "the Building" as "Lucky Centre situated at Nos. 165-171 Wan Chai Road, Hong Kong". RAMSOC defines "the Premises" as "the whole of First Floor to the Fourth Floor including the Ground Floor Entrance, the whole Basement including Ground Floor Entrance of the Building". I adopt those definitions in this Decision. 3.Talent is the owner of the Building (including the Premises). System has let the Premises from Talent for an initial period of 4 years commencing on 1 February 2003 with an option to renew for 2 further periods of 3 years each. 4.Clause 2 of the Tenancy Agreement dated 30 January 2003 between Talent and System provides as follows:-
5.Clause 11 of the Tenancy Agreement provides:-
6.Clause 20 of the DMC dated 15 January 1985 for the Building provides as follows:-
The words "the said Premises" in the DMC refer to the ground (registered in the Land Office as Subsections 1, 2, 3 and 4 of Section A of Inland Lot No.438) on which the Building is situated. 7.On 1 November 2003 System started to run a hotel, known as "Earl's Hotel," in the Premises. System also erected signs on the external walls of the Building with the name "Earl's Hotel" in English and Chinese. 8.RAMSOC seeks a final injunction to prevent System from using the Premises as a hotel in breach (Talent says) of Tenancy Agreement cl. 2(p) and DMC cl. 20(e). RAMSOC also seeks an Order that System remove any signs from the Building's exterior suggesting that a hotel business is being run from the Premises. 9.At the end of the hearing before me, I granted the interim relief sought by Talent. I briefly set out below my reasons for doing so. Discussion 10.Mr Liu (appearing for Talent) drew my attention to the following passage in Hong Kong Civil Procedure 2002 Note 29/1/32 (p. 483):-
11.The passage is supported by Incorporated Owners of South Seas Centre, Mody Road v. Great Treasure Development Ltd [1994] 1 HKC 197 (CA). There the plaintiff incorporated owners sought an interlocutory injunction to prevent the defendant (who had exclusive use of the 1st Floor of the relevant building) from erecting signs on the external wall of that building. The plaintiffs alleged that the defendant would be acting in breach of the DMC if it put up such signs. The defendant accepted that there was a serious question to be tried. 12.The Court (Nazareth, Mortimer and Godfrey JJA) formed a provisional conclusion that the maintenance of the defendant's signs outside of the owners' building without consent would be a breach of negative stipulations in the DMC. Citing Lord Cairns LC in Doherty v. Allman (1878) 3 App Cas 709 (at 720)1 and Megarry J in Hampstead & Suburban Properties Ltd v. Diomedus [1969] 1 Ch 248 (at 259)2, Godfrey JA then said:-
I shall apply the principles formulated by Godfrey JA to the facts of the present case. 13.Talent's claim is plainly a serious one. On the face of matters, by running a hotel in the Premises System is acting in breach of Tenancy Agreement cl. 2(p), incorporating the negative covenant in DMC cl. 20(e) not to suffer any part of the Premises to be used as a "boarding house" or "apartment". 14.System argues that a "hotel" is not the same thing as a "boarding house" or "apartment". Mr Lam (appearing for System) suggests that "boarding house" implies provision of food and lodging, while "apartment" connotes long-term (as opposed to short-term) accommodation. Here (Mr Lam says) System is only providing short-term hotel rooms without restaurant services. 15.I do not have to come to any settled view on the proper construction of the prohibition in DMC cl. 20(e). Suffice it to say that I have doubts about the validity of Mr Lam's argument. I think that the operation of a hotel falls squarely within the spirit and letter of the forbidden uses in DMC cl. 20(e). 16.Mr Lam argued that, in any event, the negative covenant in DMC cl. 20(e) can be ignored because the DMC had become null, void and of no effect. He said that, just as a restrictive covenant is extinguished when the ownership of a servient tenement which is subject to the covenant merges with the ownership of a dominant tenement which derives benefit from the covenant, so the covenants in the DMC were extinguished for all purposes (including that of binding System) when Talent became the sole owner of the Building. 17.This argument lacks substance. Regardless of whether the DMC is binding on any other person (and I should not be taken to be accepting Mr Lam's submission that the covenants in the DMC have been extinguished), System expressly agreed by cl. 2(p) of the Tenancy Agreement to be bound by the terms of the DMC, including cl. 20(e). 18.Mr Lam says that System should be allowed to operate a hotel because the Plaintiff itself intended to run such a business in the Premises. Talent denies that it ever had such intention as Mr Lam alleges. I have doubts whether the evidence supports Mr Lam's case. But assume that he is right that at some stage Talent harboured an intention to run a hotel out of the Premises. I do not see how, by itself, such an intention would absolve System from complying with its express obligations under the Tenancy Agreement. 19.Mr Lam applied to refer the Court to without prejudice correspondence between Talent and System which (Mr Lam said) showed that in reality Talent was amenable to System running a hotel in the Premises. I refused to look at such correspondence. I did not see how it could be material or helpful. Talent was entitled to explore on a without prejudice basis whether the parties could compromise on whether and (if so) to what extent and for what extra consideration (if any) System could operate a hotel out of the Premises despite the terms of the Tenancy Agreement. In the absence of a binding agreement to vary the terms of the Tenancy Agreement, I do not see how the mere fact that Talent was prepared to talk with System implies that System could disregard its contractual obligations. If System went ahead to convert the Premises into a hotel even though negotiations with Talent had not reached a conclusion, System must bear the risk that its renovation work will have to be undone. 20.Mr Lam argues that Talent is estopped from enforcing Tenancy Agreement cl. 2(p) and DMC cl. 20(e). Mr Lam says that, from at least July 2003, Talent must have been aware that System was converting the Premises into a hotel. But (Mr Lam continues) Talent did nothing to stop System's work. 21.The extent of Talent's knowledge (if any) of System's activities and the degree to which Talent represented (if at all) that System could safely proceed are matters which may well have to be investigated at the trial of this action. On the affirmation evidence currently before me, I am not persuaded that there has been a clear and unequivocal representation capable of giving rise to an estoppel. 22.As for maintenance of signs advertising the running of the hotel business outside the Building, System says that an interim mandatory injunction should only be imposed where the Court feels "a high degree of assurance that at the trial it will appear that the [interlocutory] injunction was rightly granted". In my view, an interim order for the removal of System's signage is the corollary of an interlocutory injunction to restrain it from acting in breach of Tenancy Agreement cl. 2(p) and DMC cl. 20(e). There is little point in announcing to the outside world by an external signboard that one is running a hotel business when in fact one is enjoined from doing so pending the trial of this action and further order. I do not think that the interests of justice would be served by allowing System's signage to remain when prima facie System is purporting to run a business from the Premises which it has agreed not to run. 23.In any event, on the evidence, Talent has never expressly consented to System displaying signs advertising a hotel business on the exterior walls of the Building. The maintenance of the signs would appear to breach Tenancy Agreement cls. 2(m) and 11. 24.I note that in Incorporated Owners of South Seas Centre, Mody Road the Court of Appeal overturned Yam J's refusal to grant an interim injunction and ordered the defendant not to maintain its signage outside the relevant building in breach of a negative covenant in the DMC prohibiting erection of signs without the plaintiff owners' approval. The case shows that, where there is a breach of a negative covenant (for example, not to put up signs), the Court may grant an interlocutory injunction to prevent the breach, even though the practical effect would be to require a person to perform a positive act (for example, to take down offending signs). 25.Finally, System suggests that the loss of income during the interim between the grant of any injunction and the hearing of the trial would cause it undue hardship, on the assumption that it should prevail in the end. It is claimed that the hotel earns about $3,600 daily on average with turnover anticipated to go up to $15,000 per day. System claims to have spent at least $2,132,216 in renovation works and hotel equipment. System also says that some 11 staff (6 cleaners, 1 cashier, 1 manager, 1 supervisor, 1 accountant and 1 clerk) earning a total of $90,100 per month may have to be laid off while the hotel is left idle pending trial. 26.In respect of lost income, that is quantifiable. There is evidence that Talent has sufficient resources from which, should System ultimately succeed, Talent can compensate System in damages. 27.The question of staff is more difficult. No one wishes to be made redundant needlessly. Certainly, System can retain its staff pending trial and claim as damages any non-productive portion of their wages attributable to the closure of the hotel business pending trial. The interim before trial should not be of long duration. A plaintiff is under an obligation, where an interlocutory injunction is granted, to proceed to trial with reasonable despatch. On the other hand, if Talent is right and System cannot run a hotel in the Premises, it would be little comfort to the staff concerned if an injunction were now refused on their account, only for them to be told after trial that their employment in the hotel cannot continue. On balance, I do not think that potential redundancy of System's hotel staff pending trial is a sufficient factor or special circumstance militating against the grant of an injunction. Conclusion 28.For the reasons set out above, I granted the interim injunctions sought by Talent. I also made an Order that Talent's costs be in the cause. 29.Finally, I record that there was evidence that System initially wanted to put up Chinese signs outside the Building calling the Premises an "hourly hotel" ( 時鐘酒店). Talent objected to such signs, not just because running any type of hotel was against the Tenancy Agreement, but also because in Cantonese an "hourly hotel" can connote an immoral establishment. Mr Lam pointed out that System had, at least for now, dropped its plans to place exterior signs describing the Premises as an "hourly hotel". Accordingly, I did not attach weight on this factor in deciding whether or not to grant an injunction.
Representation: Mr Liu Man Kin, instructed by Messrs Tai, Tong & Chong, for the Plaintiff. Mr Kelly Lam, instructed by Messrs Poon & Cheung, for the Defendant. 1 "If parties for valuable consideration, with their eyes open, contract that a particular thing shall not be done, all that a court of equity has to do is to say, by way of injunction, that which the parties have already said by way of covenant, that the thing shall not be done and, in such a case, the injunction does nothing more than give the sanction of the process of the court to that which already is the contract between the parties. It is not then a question of the balance of convenience or inconvenience, or of the amount of damage or of injury -- it is the specific performance, by the court, of that negative bargain which the parties have made, with their eyes open, between themselves." 2 "I accept, of course, that Lord Cairns' words [in Doherty] were uttered in a case where what was in issue was a perpetual injunction and not an interlocutory injunction. Indeed, the words seem to be obiter, for no negative covenant was present in that case. But these considerations do not preclude the words from having any weight or cogency in relation to an interlocutory injunction. Where there is a plain and uncontested breach of a clear covenant not to do a particular thing, and the covenantor promptly begins to do what he has promised not to do, then, in the absence of special circumstances, it seems to me that the sooner he is compelled to keep his promise, the better. In such a case, I do not think that the enforceability of the defendant's obligation falls into two stages, so that between the issue of the writ and the trial, the defendant will be enjoined only if that is dictated by the balance of convenience and so on, and not until the trial will Lord Cairns' statement come into its own. Indeed, Lord Cairns' express reference to 'the balance of convenience or inconvenience' suggests that he had not forgotten interlocutory injunctions. I see no reason for allowing a covenantor who stands in clear breach of an express prohibition to have a holiday from the enforcement of his obligations until the trial. It may be that there is no direct authority on this point; certainly none has been cited. If so, it is high time that there was such authority, and now there is." | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||