Winland Finance Ltd v. Profit Fine Ltd and Another
Read the full judgment text of HCA 1045/2005 on BabelCite. This High Court CFI judgment was delivered on 10 January 2006.
1. The plaintiff (“Winland”) is the mortgagee of premises on the 2 nd floor of a building in Kwai Chung. The 1 st defendant (“KCNH”) and the 2 nd defendant (“Unicon”) are respectively the tenant and the landlord of premises on the ground and first floor of the building where KCNH operates an “elderly home”, i.e. an home for the elderly, or an old people’s home. Winland’s claim is for an injunction to restrain the defendants from operating the home and for damages and other relief. Winland now
Cited by 6 cases · Cites 2 cases
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HCA1045/2005 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.1045 OF 2005 ------------------------------ BETWEEN
--------------------- Before : Deputy High Court Judge Muttrie in Chambers Date of Hearing : 29 December 2005 Date of Judgment : 10 January 2006 ------------------------ J U D G M E N T ------------------------ 1.The plaintiff (“Winland”) is the mortgagee of premises on the 2nd floor of a building in Kwai Chung. The 1st defendant (“KCNH”) and the 2nd defendant (“Unicon”) are respectively the tenant and the landlord of premises on the ground and first floor of the building where KCNH operates an “elderly home”, i.e. an home for the elderly, or an old people’s home. Winland’s claim is for an injunction to restrain the defendants from operating the home and for damages and other relief. Winland now applies for summary judgment. 2.The parties’ relations within the building are regulated by a Deed of Mutual Covenant (“DMC”) dated 20 March 1975. Winland claims that KCNH operates the old people’s home in breach of the terms of the DMC and that, as evidenced in the First Schedule of the tenancy agreement between Unicon and KCNH, Unicon agreed with and allowed KCNH to do so, and that by reason thereof Winland has suffered loss and damage. 3.KCNH’s defence is that there was no breach of the terms of the DMC. If there was any breach, Winland or its mortgagor through the Incorporated Owners (“IO”) of the building waived its rights to enforce the DMC. Further, Winland is estopped from relying on the relevant term of the DMC, by reason that it knew that KCNH had been running the old people’s home since May 2002, and took no action until it issued the Statement of Claim, and by reason of a representation by the Chairman of the IO that it would permit KCNH to operate the old people’s home, as a result of which representation KCNH spend over $2.5 million to start the elderly home. 4.Unicon’s defence is that Winland is not a mortgagee in possession and therefore has no locus to sue under the DMC. Further, KCNH is in fact a nursing home, and its operation is not contrary to the DMC. In addition, Winland is estopped from enforcing its right, if any, under the DMC by reason of representations made by the Chairman of the IO, on which Unicon acted to its detriment; and finally, that Unicon itself never authorised any breach of the DMC. Background 5.The registered owner of the property at Flat No. 7 on the 2nd floor of Po Kai Mansion, 12 Wo Yi Hop Road, Kwai Chung is Best Profit International Ltd. By a legal charge to secure general loan facilities, dated 9 January 1998 and registered on 22 January 1998, Winland became the mortgagee of that property. 6.Unicon purchased Shop No. 12 on the ground floor and Flat No. 2 on the 1st floor of the same Po Kai Mansion in 2002. It completed the purchase and became the registered owner of those properties on 31 July 2002, and by a tenancy agreement dated 26 June 2002, it leased them to KCNH for a term of three years commencing on 1 September 2002. Since late 2002 KCNH has been carrying on its business in those premises. Evidence 7.Winland’s executive officer, Mr Tang Sik Ho, affirms the correctness of the pleadings. He says that it came to Winland’s attention that KCNH was wrongfully operating the old people’s home in breach of the terms of the DMC. He inspected the old people’s home on 6 January 2005 and was told by the person in charge that it housed 60-odd old people, though it was not at full capacity, and that these persons were provided with four meals a day. There were 13 staff including two who performed night shift work. The monthly charge to the inmates was about $5,000 per month which included the rent for living there as well as the provision of meals. 8.Mr Tang exhibits a pamphlet put out by KCNH which says, inter alia, that 24-hour high quality professional nursing services are provided. Professionals like registered doctors practicing western medicine and registered nurses are arranged to visit the elderly regularly. Daily schedules are formulated and nursing procedures are administered based on individual needs. Any of the elderly aged 60 or above, requiring no hospitalised treatment and without any infectious disease are welcome. 9.It is not clear when Winland discovered that an old people’s home was being operated in the building. Winland’s director, Ms Hui Kit Wai, in answer to affirmations filed on behalf of the defendants, says that neither the IO nor the defendants notified Winland of the intention to do so. Nor did Winland know of any dealings between the IO and the defendants. It did not receive any notice from the IO regarding the operation of the home, or any consultation between the co-owners about it. However the witnesses do not say in terms that Winland did not know, from any source, of the operation of the old people’s home prior to a particular date or occurrence. 10.While Winland pleads that it has suffered loss and damage to be assessed, there is no evidence as to the basis of such loss and damage. Presumably Winland, not being a domestic occupier of the domestic premises concerned, is not affected by any inconvenience which might arise from having a number of old people on the floors below; whatever inconvenience that might be. In fact the old people’s home does not appear to be directly below Winland’s property. Perhaps Winland perceives some diminution in the value of the property because of the presence of the old people’s home, but this is not stated. 11.Evidence for the defendants comes from their respective directors, Mr Cheung Shu Chan and Mr Lo Chin Fai. KCNH’s director, Mr Cheung, affirms that KCNH spent about $2.5 million on renovation and decoration of the property. The IO knew about its operation all along, never objected to it, and accepted management fees from KCNH. None of the other owners in the building had objected to the operation either. Winland should have known about the operation of the old people’s home as well, because conspicuous signboards had been put up at the building. 12.Unicon’s director, Mr Lo, affirms that by the tenancy agreement, KCNH agreed with Unicon that the property would be used by the 1st defendant trading as KCNH; that KCNH is obliged not to breach the terms of the DMC, and to indemnify Unicon for any breach; and that KCNH is also obliged not to cause, suffer or permit noise, nuisance, annoyance or damage to Unicon or any tenants or occupiers in the adjacent or neighbouring premises. 13.Mr Lo says that the primary use of the property was nursing, and that the provision of food and accommodation is incidental and affiliate to this primary use. How, as a layman, he is supposed to know this, I am not sure; but it is the basis for counsel’s arguments on the point which will appear below. He also says, foreshadowing the legal arguments, that there was no breach of the terms of the DMC, and he raises the issue of estoppel. 14.He further says that the IO and particularly its chairman, a Mr Chung, were informed of the defendants’ intentions. The IO held a committee meeting to discuss the matter and obtained legal advice. A letter from Messrs Lau, Kwong and Hung, solicitors, to the IO is exhibited. The solicitors advise that the operation of an elderly person care home (residential) would not be permitted under the DMC. It is said that this legal advice was distributed to the IO’s management committee, but they did not object to the intended business being carried on in the property. Mr Chung informed the defendants of this in November 2002, and told them that the IO would not object, provided that the defendants, or either of them would take steps to avoid or reduce noise and inconvenience to other owners. 15.Mr Lo says that acting on this representation, between June 2002 and December 2003, Unicon engaged an architect, obtained Building Authority approval and carried out various building works to the premises, incurring costs of $258,000. The building works included the completion of an internal staircase, so that the old people would not have to use the common passenger lifts in the building. 16.A memorandum from the IO dated 6 April 2005, confirming a resolution of the committee meeting on 7 September 2002 and the circulation of the legal advice to the committee members is also exhibited. The relevant provisions of the DMC 17.Clause 4 of the DMC provides that each owner shall be bound by and shall observe and perform covenants, provisions and restrictions there set out. Clause 4(n) provides :
Clause 18 of the DMC, on which Winland relies, provides that :
Issues 18.The following issues are raised. For the purpose of these Order 14 proceedings, the defendants say that they are triable issues; and the plaintiffs say they are not.
19.There is also the question of the court’s general discretion to grant or withhold an injunction. The defendants did not raise it, as providing “some other reason for trial”. Mr Maurellet, counsel for the plaintiff, raised it, in an exercise of thoroughness, in order to argue that, while the court has such a discretion, an order to restrain the breach of a negative contract may be obtained almost as of right. That is of course the effect of the authorities, but it is not an absolute, and I think the point needs consideration also. Winland’s locus to sue 20.Winland pleads that it is the mortgagee in possession of the property on the 2nd floor, having exercised its right as mortgagee to enter possession on 15 October 1998. KCNH admits this in its defence, but Unicon pleads that it is not admitted. The only evidence on the matter comes from Winland’s Mr Tang, who generally affirms the accuracy of the pleadings. There is no evidence on the point from either defendant. 21.Counsel argued that no mortgagee action had been taken; if there had been one, the judgment would have been registered. Judgments in favour of the Commissioner of Inland Revenue against the mortgagor had been registered in 2000 and 2001. These would necessarily be for government rates. This indicated that Winland must not have accepted the rights and duties of the mortgagor because if it had done so, it would have paid the rates; or the Government would have claimed against it, rather than the mortgagor, for payment. 22.Possession must, in my view, start with physical possession. A mortgagee can take possession without obtaining a court order, if this can be done peaceably. Here there is evidence, albeit sketchy, that Winland did take possession; and there is nothing to contradict it. All we have is a bare denial. No one says that the mortgagor, or a tenant, or a squatter, or anyone else is in possession. There is no evidence as to what the Commissioner’s judgments were for, or why they were taken against the mortgagor; all we have are the entries in the land search. I do not see that there is enough here to raise a triable issue as to whether or not Winland is a mortgagee in possession. 23.In any event, although the point was not taken, I note that by Clause 18 the term “owner” is taken to include both the mortgagor and the mortgagee. There is no dispute that an owner has the right to enforce the terms of the DMC; therefore both the mortgagor and the mortgagee should have the same right. The proviso only excludes the mortgagee from voting rights, if he is not in possession or in receipt of rents or profits. It does not exclude his right to enforce the terms of the DMC. 24.Winland, therefore, appears to have the necessary locus to sue. Why it wants to is another question, and one not covered by evidence. Normally it is not the business of one owner, in a multi-storey building, to make other owners toe the line with regard to the terms of the DMC. That is the business of the owners’ incorporation. If an owner sues another owner to enforce the terms, as here, one expects to see some real claim for nuisance which would found in damages; otherwise the game is not worth the candle. I will return to this point below. Breach of the DMC 25.I am obliged to counsel for their long and scholarly written submissions, particularly on this point. 26.The part of Clause 4(n) concerned here is the part which prohibits the use of premises as “an inn, hotel, boarding house, apartment house, lodging house, dancing hall, bath house or girl barber shop or for the purpose of any similar business”. Really the question here is whether the parties to the DMC intended to also to prohibit the operation of an old people’s home, either because such a business comes within one of those specifically prohibited, or because it is within the same genus. 27.Mr Maurellet relies primarily on two Hong Kong cases. The first of these is Park Kit Investment Ltd v. Cheung Wan Ping, HCA No. 5349 of 1998. The case involved a residential care home for elderly persons. The issue was whether Part IV or Part V of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7 applied. Sakhrani J held that the premises were used as a boarding house as well as a lodging house, and as such, the use was other than as a dwelling within the meaning of section 115A of Cap. 7. 28.The second case was Aberdeen Shopping Plaza Ltd v. Incorporated Owners of Aberdeen Na King Mansion, HCA No. 9319 of 2000. The defendants counterclaimed against the plaintiff for injunctive relief against the plaintiff and its tenants, the operators of an old people’s home, for breach of a clause in the DMC which prohibited various types of business, in particular that of a boarding house. Suffiad J, after considering various authorities, held that the old people’s home was a boarding house within the meaning of that word as used in the DMC. 29.Ms Wong, who appears for KCNH, adopts the arguments put forward by Mr Chong and Mr Leung who appear for Unicon. In addition, she argues that Clause 4(n) is intended to prevent occupiers of the building from creating nuisance or carrying out offensive trades. The clause is divisible into four parts. The second, which concerns us here, prohibits use as “an inn, hotel, boarding house, apartment house, lodging house, dancing hall, bath house or girl barber shop or for the purpose of any similar business”. This is intended to prevent the provision of short-time accommodation establishments. It is very common in Hong Kong for such establishments to operate as vice establishments. The intention of the parties to the DMC was to prohibit illegal or immoral business; that too is stated in the clause. So the words “boarding house”, “lodging house” and “any similar business” should be construed restrictively and distinguished from the nature of the business of an old people’s home. 30.Mr Chong cited various English authorities on the meaning of “inn”, “hotel”, “boarding house”, “apartment house” and “lodging house” and deduced that the one thing in common in all of them is that their primary purpose is that of accommodation. However, he referred to the evidence for Unicon that KCNH provided and provides nursing for persons suffering from infirmity and that their primary use was nursing, with the provision of food and accommodation being incidental thereto. 31.It is argued that the premises are in fact a nursing home, as defined in section 2 of the Hospitals, Nursing Homes and Maternity Homes Registration Ordinance, Cap. 165. In fact I do not see that this definition assists. The section defines a hospital as an “establishment for the care of the sick, injured or infirm or those who require medical treatment, including a nursing home” and excludes public hospitals. There is no separate definition of a nursing home and as far as I can see, for the purposes of registration, a nursing home is equated to a hospital. Here, however, KCNH’s pamphlet expressly seeks to exclude persons requiring hospital treatment or suffering from infectious disease. In any event there is no suggestion that KCNH’s business is registered as a nursing home. 32.Mr Chong’s main point is that in considering the activity in the premises the court should look at the primary use of the premises. He relies on Mexx Consolidated (Far East) Ltd v. Attorney General & Anor[1987] HKLR 1210 at 1219. In that case the issue related to a user covenant in a Crown lease and deed of variation, which restricted the use of the premises to industrial and godown purposes. The Crown contended that the real nature of the activities carried on was commercial and not industrial. Deputy High Court Judge Cruden held that the primary user of the premises must be for industrial purposes before compliance with the covenant could be achieved, and the cumulative effect of all the tenant’s activities on the premises had to be taken into account in deciding whether it was. 33.It is also argued that the parties to the DMC must have known that there were such things as nursing homes, given that registration of them had been required since the relevant Ordinance was passed in 1937. A conscious decision must have been made to exclude “nursing home” as one of the prohibited businesses in Clause 4(n). 34.So far as the cases decided by Sahkrani J and Suffiad J are concerned, Mr Chong argues that these were decided without any consideration of the “primary user” principle in Mexx Consolidated, and they are wrong in law and should not be followed. 35.With respect, I cannot agree. A boarding house is a place where persons are accommodated and provided with food. The provision of food distinguishes it from a lodging house; but that does not matter here, because both are prohibited by Clause 4(n). In this case, the inmates received accommodation and food. So prima facie an old people’s home is kind of boarding house, albeit one restricted to persons over 60 years of age. 36.In Aberdeen Shopping Plaza Ltd Suffiad J held, at paragraph 41, as follows :
and I would respectfully adopt this view. 37.I realise that it is said in evidence that the primary user was nursing, and that the provision of food and accommodation was secondary. Now I can envisage a situation where the primary user of premises might be for nursing, such as an intensive care unit in a hospital, or even a hospital generally. Here, however, the service was restricted, not only to the old, but to those who did not require hospital treatment or suffer from infectious disease. As I see it, that would exclude anyone in need of any real nursing care, as distinct from the usual kind of thing provided in an old people’s home, such as assistance, if and when necessary, with washing, dressing and movement within the home. I do not see how, in the circumstances, it can seriously be argued that the inmates were primarily there for the nursing, and that their accommodation and four meals a day were only incidental to that. 38.As to the arguments put forward by Ms Wong, I accept that it is well known that vice activities may go on in an inn, hotel, boarding house, apartment house, lodging house, dancing hall, bath house or girl barber shop. In fact it seems to me difficult to include the dancing hall, bath house and girl barber shop in the same genus as the others, which are for accommodation. However, it seems to me that if the parties to the DMC had wanted to prohibit the operation of vice establishments in such premises they could have said so, in more specific terms than their general prohibition of illegal or immoral activities. In any event if, as I think is right, an old people’s home is simply a kind of restricted boarding house, there is no need to consider whether it is something else but of the same genus. 39.One must, also, not lose sight of the fact that the defendants themselves, on their own evidence, dealt with the IO on the basis that what they were going to do was in breach of the DMC, but the IO was prepared to allow it. The defendants did not obtain their own legal advice but the IO did, and the defendants seem to have accepted it. I find it difficult to see how they can now realistically argue that they were not in breach of the DMC. 40.I do not, therefore, see that there is a triable issue on this point. Whether Unicon permitted the breach 41.Unicon’s argument is that by Clause 2(j) of the tenancy agreement between it and KCNH, the later covenanted not to use the premises except for the purposes stated in Part V of the First Schedule. The user there stated is simply “For Profit Fine Limited Trading as Kong Chak Nursing Home only”. But by Clause 2(q), KCNH also covenanted “not to cause or suffer or permit …a breach of …the said Deed of Mutual Covenants (if any) governing the building and to indemnify the landlord against any such breach…”. Therefore, though KCNH may be liable for a breach of the DMC, Unicon cannot be liable. 42.This is an argument which, while sounding logical, simply disregards the facts. Unicon’s own evidence is that, acting on the representations of the chairman of the IO, it expended money on the premises, particularly to put in an internal staircase, so that the occupants would not have to use the common passenger lifts and to avoid or reduce noise and inconvenience to owners and tenants of other units. Clearly, on Unicon’s own evidence, it spent money in making the premises better adapted for KCNH to carry on its business of running an old people’s home. Obviously, by doing so, Unicon in fact permitted KCNH to breach the DMC. So there is nothing in this argument. Estoppel 43.The fact here is that Winland was in the position of an owner before the old people’s home started its operations. Winland was in a position to know when it started them, even if it did not receive any communication on the matter from the IO. One might expect a reasonably prudent finance company, and mortgagee in possession, to check from time to time on the state of its property, which is after all its investment, or all it has left of its investment, by which it might recoup debts owed by the mortgagor. There is certainly no evidence to say specifically that Winland did not know, until some time in 2004, that the old people’s home was in operation, or why it did not know that. 44.There is also the fact that the IO have not sought to enforce the provisions of Clause 4(n), having notified all the committee members of the position. There is no evidence that all the other owners in the building were notified. However, there is no evidence that any other owner objected, either to the IO or to the defendants, to the breach of Clause 4(n). 45.The defendants do not say that the IO could waive the rights of the other owners. However, they say that the IO and its committee consented to the premises to be used as a nursing home on behalf of all the owners of the building and this gives rise to estopped. 46.The right of an individual owner to enforce the terms of a deed of mutual covenant arises from section 41(3) of the Conveyancing and Property Ordinance, Cap. 219. However, the individual owner is not under a duty to enforce the terms of the deed; as with any other contract, he may enforce it or not, as his own interests dictate. 47.By section 18(1)(c) of the Building Management Ordinance, Cap. 344, an owners’ corporation is required to :
I do not take this, incidentally, as placing an absolute duty on an owners’ corporation to chase down every breach of every obligation in a deed of mutual covenant. Such a deed is a contract, and does not itself have statutory authority. If a majority of owners were content to stand by and allow a breach, I doubt that it would be reasonably necessary for the owners’ corporation to seek an injunction. After all, why should it expend money, to enforce a right that most of the owners do not want enforced? But that is by the way. 48.I accept that an owners’ incorporation is not an agent of the individual owners. SeeIncorporated Owners of Block F1-F7 Pearl Island Holiday Flats v. Incorporated Owners of Pearl Island Garden & Anor[1997] 4 HKC 424. 49.It is also right that an owners’ corporation cannot acquiesce to a breach of a deed of mutual covenant, because of its statutory duty of enforcement; and the equitable defence of acquiescence could not be held against such corporation. See The Incorporated Owners of Hoi Luen Industrial Centre v. Ohashi Chemical Industries (Hong Kong) Ltd [1995] 2 HKC 11. 50.In the circumstances, therefore, I cannot see that any representation made by the IO could be regarded as binding on Winland so as to estop Winland from enforcing its right under the DMC. 51.However, the fact remains that Winland effectively let the defendants carry on and set up the old people’s home and took no action until late 2004; and there is no explanation as to why it did this. Although its director says, “we were never told”, there is no evidence to say “we never knew”; and I have indicated above my view that a reasonably prudent mortgagee in possession might be expected to check the property from time to time. 52.Mr Chong, relying on dicta of Lord Denning and Scarman LJ in Crabb v. Arun District Council [1976] 1 Ch. 179 says that it would be unconscionable now for Winland to be allowed to insist on its rights. In effect, acquiescence is relied on. Mr Maurellet argues that mere silence or inactivity does not amount to acquiescence, but there must be some duty to speak, protest or interfere. He relies on Taylors Fashions Ltd v. Liverpool Trustees Co. [1981] 2 WLR 576 at page 589 where Oliver J said that the duty to speak, protest or interfere could not normally arise in the absence of knowledge or at least a suspicion of the true position. That is no doubt right, but, as I have indicated, there is no evidence that Winland did not know what was happening, and circumstances to infer that it ought to have known. 53.It is also argued that mere inactivity is not enough to amount to an unequivocal representation that Winland would not enforce its strict legal rights. See Allied Marine Transport Ltd v. Vale do Rio Doce Navegacão SA (The Leonidas D) [1985] 1 WLR 925. 54.It must be remembered, however, that these are proceedings under Order 14. For judgment to be granted, it would be necessary to show that Winland’s inactivity could not under any circumstances amount to an unequivocal representation that it would not enforce its legal rights. It seems to me that this cannot be established without knowing what Winland’s own state of knowledge was. 55.It follows that there must be a triable issue as to whether Winland acquiesced, or is otherwise estopped by its own inaction from enforcing its legal rights against the defendants. Discretion 56.It is indeed right that an order to restrain the breach of a negative contract may be obtained almost as of right; see Snell’s Equity, 2000 Edn at §45-15. Mr Maurellet relies on Doherty v. Allman (1878) 3 AC 708 where Lord Cairns LC held at page 720 that :
57.He also relies on a dictum of Stamp J in Woollerton and Wilson Ltd v. Richard Costain Ltd [1970] 1 WLR 411 at 413 that :
58.The effect of these authorities is indeed that, in almost every case, a negative covenant will be enforced, or a nuisance abated, by means of injunction, and the court will not allow the wrongdoer to buy his way out by paying damages. However, this is not an absolute. In Shelferv.City of London ElectricLighting Co.[1895] 1 Ch. 287, it was held that a person who has the benefit of a restrictive covenant is, as a general rule, entitled to an injunction on the trial of the action as distinct from an award of damages unless :
This was accepted by the Court of Appeal in Hong Kong in Lo Yu Chu v. Kam Fu Lai Development Co. Ltd [1994] 3 HKC 18. 59.In the present case, there is no evidence as to the extent of the injury to the plaintiff’s rights. We are not concerned with noise and vibration from large engines, as in Shelfer, or noise from air-conditioners, as in Lo Yu Chu. In effect, we do not know what Winland’s real problem is. 60.Clause 4(n) is intended to prevent an owner carrying on a business which will cause nuisance, annoyance, damage or inconvenience to other owners. It is difficult to imagine an old people’s home causing any of these, but in any event there is no evidence on the point. The fact that the IO has, rightly or wrongly, purported to allow the defendants to operate, and that there is no evidence of complaint from any other owner is also relevant here in that it infers that there is no inconvenience, because if there were, the IO or some other owner would have taken action. Nor is there any evidence of any diminution in value of the plaintiff’s property. As to oppression, the defendants do not say in terms that an injunction would be oppressive to them; but it would obviously put them to the expense of moving out and setting up elsewhere, to say nothing of the inconvenience to the elderly inmates. 61.In my view, it is not clear that this is necessarily a case where the court would order an injunction after trial. It may be one of the rare cases in which damages would be appropriate. It seems to me, therefore, that even if I am wrong that there is a triable issue on estoppel, there are other reasons for trial, for the purposes of Order 14, rule 3, and that summary judgment is not appropriate for this reason. Result 62.The defences relying on estoppel were pleaded. Winland knew that the defendants relied on at least one contention with would entitle them to unconditional leave to defend. I therefore order that the plaintiff’s summons be dismissed under rule 7 with costs (nisi) to the defendants, to be taxed if not agreed.
Mr J.A. Maurellet, instructed by Messrs Fan and Fan, for the Plaintiff Ms Emma Wong, instructed by Messrs Lo, Chan & Leung, for the 1st Defendant Mr K.M. Chong, instructed by Messrs Lo, Chan & Leung, for the 2nd Defendant |
Cases cited in this judgment