Pak Fah Yeow Investment (Hong Kong) Co Ltd v. Proper Invest Group Ltd

HCA 2589 / 2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2589 OF 2007

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Coram:  Deputy High Court Judge Au in Chambers (Open to public)

Date of Hearing:       14 August 2008

Date of Handing Down Judgment:     12 September 2008

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JUDGMENT

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I.       Introduction

1. This action involves a dispute on the right to change the name of building at Gloucester Road.  The Plaintiff is the registered owner of the 11^th Floor of the building and the Defendant has since March 2004 been the registered owner of a car parking space and the external wall of the building. 

2. Before the present dispute arose, the building’s name was “The Sun’s Group Centre, 新銀集團中心”.   

3. In March 2007, the Defendant issued a notice (“the Notice”) to the owners of the building announcing that with effect from 11 August 2007, the building would be renamed as “Silver Base Centre 銀基中心”.   The Defendant says it has the right to issue the Notice pursuant to the naming right provided in the Deed of Mutual Covenant (“DMC”) of the building.

4. The Plaintiff opposed to the change of name, and has brought this action seeking an injunction to effectively restrain the Defendant from doing any act to cause the change of name.  It is the Plaintiff’s case that the original naming right provided in the DMC is no longer valid and does not bind the Plaintiff and the other owners of the building.  As such, according to the DMC, any change of name requires the blessing of the unanimous consent of all the owners of the building.

5. This is the hearing of the Plaintiff’s application for summary judgment, as well as the Defendant’s application to strike out the Plaintiff’s claim.  The Defendant also seeks an O 14A determination on the question of whether it has the right to issue the Notice and to change the name of the building without the consent of all its owners.

6. In light of the contentions between the parties, which I will elaborate below, there is effectively only one question that needs to be determined before me today:  Whether the naming right provided under the DMC is binding on all the owners now and can be exercised by the Defendant.

II.      Background

7. Unless otherwise stated, the following background facts are undisputed.

8. The building was built in about 1996, and has been subject to the DMC dated 1 March 1996.  The developer was one Fair Capital Properties Ltd (“Fair Capital”)

9. Clause 3 (“Clause 3”) of Section D of the DMC provides as follows:

“Rights of Second Owner

3.  The Second Owner shall during the residue of the term and any renewal thereof subject to the covenants and terms contained in the Crown Lease and in this Deed have:-

(i)       the full and exclusive right and privilege to hold, use, occupy and enjoy ALL THAT the CAR PARKING SPACE NO.28 on the SECOND FLOOR of the Building;

(ii)     the right to name the Development and to change the name thereof at any time and from time to time on giving all other Owners three months’ prior written notice without becoming liable to any Owner or other person having an interest in the Land and the Development for any loss damage claim compensation and expense resulting from or arising out of any such change of name or in any way connected therewith.”

10. Clause 13 (“Clause 13”) of Section J of the DMC on the other hand provides as follows:

“Resolution requiring unanimous consent

13.          Notwithstanding the provisions of Clause 9 of this Section and Subject Always to the rights of the Second Owner under Clause 3 of Section D, the name of the Development shall not be changed or removed without the unanimous consent of all the Owners of the Shares of the Development.” (emphasis added)

11. The term “2^nd Owner” was defined in the DMC as referring to Win Oriental investment Ltd (“Win Oriental”) and its successors and assigns.

12. Thus, at the time of the DMC, Win Oriental was the registered owner of car parking space no. 28, and under Clause 13, it was given the right to name and change the name of the building, as long as it gave three months’ prior written notice to the other owners of the building.

13. By an assignment dated 30 March 2004, Fair Capital assigned the external wall, roof, upper roof and the flat roof on the 4^th Floor of the building to the Defendant for $1 million.

14. Also by an assignment (“the Assignment”) dated 30 March 2004, Win Oriental assigned car parking space no. 28 to the Defendant.    Under the Assignment, Win Oriental also purports to (a) assign the naming right of the building reserved to Win Oriental under the DMC to the Defendant, and alternatively, (b) delegate to Win Oriental the right to exercise effectively the said naming right.

15. In April 2005, the Plaintiff purchased 11th Floor of the building.  At that time, the buiding was named as The Sun’s Group Centre (新銀集團中心). 

16. On 11 May 3007, the Defendant in purported exercise of the naming right provided under Clause 3 gave the Notice to all owners of the building informing them that the building would be renamed as “Silver Base Centre 銀基中心” with effect from 11 August 2007. 

17. In response to the Notice, an owners’ meeting was held on 21 September 2007 to consider the Defendant’s proposal to change the name of the building and it’s subsequent offer to keep the new name within the next 10 years and to pay for all the owners 2 months’ management fee. Albeit the Defendant was purporting to exercise its unilateral naming right provided under Clause 3, these offers were apparently made with the hope to secure the support of the owners for the change of name to avoid any dispute.

18. At the owners’ meeting, which was attended by owners representing about 58.6% of the total undivided shares of the building, the majority voted in favour of the Defendant’s proposals, including the name change.  The Plaintiff however opposed the resolutions.

19. Despite the passing of the resolutions by majority, the Plaintiff maintained its opposition to the change of name.  It is its position that, as a matter of law, upon the change of ownership of the various parts of the building from the original owners and parties to the DMC, the naming right under Clause 3 no longer binds the new owners, and thus the Defendant could only validly cause a change of the name of the building by securing a unanimous consent of all the owners pursuant to Clause 13. 

20. The Defendant has disregarded the Plaintiff’s objection.

21. On 18 May 2005, the Defendant submitted a Notice of Change of the Name of the Building to the Land Registry for registration under memorial number 07051802180454 (“the 1^st Notice of Change”).  On about 2 November 2007, the Defendant filed another Memorandum of Change of the Name of Building (“the 2^nd Notice of Change”) with the Land Registry under memorial number 07110202910014.  These Notices of Change all concern the above change of name of the building.

22. On about 24 November 2007, the Defendant caused the words “銀基中心 Silver Base Centre” to be inscribed in raised lettering at the entrance to, and on the façade of the building (“the Inscriptions”).  A plaque (‘the Plaque”) bearing the same name was also installed on the external wall of the ground floor of the building.

23. On 14 December 2007, the Plaintiff brought the present action against the Defendant seeking:

(1)  A declaration that the Defendant is not entitled to rename the building as “Silver Base Centre銀基中心”.

(2)  An injunction compelling the Defendant to obliterate the Inscriptions and to remove the Plaque at its own cost and expenses.

(3)  An injunction ordering the Defendant to withdraw the 1^st and 2^nd Notices of Change.

24. The Defendant no doubt maintains that it has a right to exercise the naming right to cause the change of the name of the building in the aforesaid manner.  Thus, other than defending the claim, the Defendant also counterclaims for the following reliefs:

(1)  A declaration that the Notice was valid and lawfully made.

(2)  A declaration that the 1^st and 2^nd Notices of Change lodged with the Lands Registry were valid and lawfully made.

(3)  A declaration that the Defendant was entitled to cause the Building to rename as “Silver Base Centre 銀基中心”.

(4)  A declaration that the name of the Building has been lawfully renamed as “Silver Base Centre 銀基中心” from 25 November 2007 onwards.

25. By its Summons dated 1 April 2008, the Plaintiff asks for summary judgment to be entered against the Defendant for the above reliefs. 

26. In response to the Plaintiff’s Summons, by its summons dated 28 April 2008, the Defendant seeks (a) to strike out the Plaintiff’s claim on the basis that it discloses no reasonable cause of action or that it is frivolous and vexatious, or (b) an O14A determination on the following questions:

(1)&  Whether by reasons of [the Assignment], the Defendant was entitled to issue [the Notice] in causing the name of [the building] to be changed to “Silver Base Centre銀基中心];

(2)&  If so, whether the Defendant is entitled to the declarations sought in the Counterclaim and consequent that this action be dismissed.

III.    The present applications

The Plaintiff’s case

27. In support of its claim, the Plaintiff’s case is a simple one.  It says as a matter of law, once there is a change of parties to the DMC from the original parties, by reason of change of ownerships of various undivided shares of the building, the naming right provided under Clause 3 no longer binds the new parties to the DMC.   It is so because:

(1)  As naming right is not a benefit (or burden) to the land or of a covenant that touches the land, it cannot therefore bind the subsequent owners of a building or parties to the DMC in law, equity or by way of s.41 of the Conveyancing and Property Ordinance (Cap 213) (“CPO”).

(2)  Further, since there is no privity to the agreement on the naming right between the new parties coming to the DMC (through their acquisitions from their respective predecessors in title of undivided shares of the building), the naming right does not bind them, unless there is anything to show that they have agreed afresh to this particular right when they acquired their respective properties and becoming a party to the DMC. 

28. In support of the above propositions, the Plaintiff relies on Lamaya Ltd v Supreme Honour Development Ltd [1989-91] CPR 116 (CA), 121D-123F per Cons VP; Incorporated owners of Nine Queens Road Central v Minkind Development Ltd  [2004] 1 HKC 270, paras 23-41 per Barnett J, and Yazhou Travel Investment Co LTd v Bateson [2004] 1 HKLRD 969, paras 70-82 per Deputy High Court Judge Muttrie.  See also:  Chitty on Contracts, Hong Kong Specific Contracts, paras 12-034 - 12-037.

29. As it is common ground in the present case that, since the date of the DMC, there have been various changes to the ownerships of different undivided shares of the building, including the change relating to the Plaintiff and the Defendant, it is thus clear (as submitted by the Plaintiff) that the naming right under Clause 3 no longer binds the new parties to the DMC. 

30. In the circumstances, the Plaintiff says the Defendant can only rely on Clause 13 to cause a change of the name of the building to by obtaining a unanimous consent from the owners.  Since the Defendant has failed to obtain such a unanimous consent to its proposed change of the name, the Defendant has no right to so change the name of the building.  Thus, the Notice issued by the Defendant is invalid, and all the consequential acts to effect the change of name are made in breach of the DMC, and should be properly restrained.

The Defendant’s case

31. For the present purpose, and in light of the Court of Appeal’s decision in Lamaya Ltd, the Defendant through Counsel accepts that, as a general principle:

(1)&  Clause 3, being a naming right clause, is one which does not touch upon the land and thus does not bind all subsequent owners of the building.  It however has expressly reserves its right to argue the same at the higher court.

(2)&  Unless it can be shown that purchasers of units in the building who came subsequent to the date of the DMC have agreed afresh to be bound by the naming right under Clause 3, the clause is not binding and enforceable against them as a matter of contract.

32. However, by way of their Defence and Counterclaim and through counsel’s submissions, the Defendant raises the following principal grounds to defend the Plaintiff’s claim and in support of its Counterclaim and the O.14A Summons.

33. First (which is the Defendant’s forefront contention), it says that as a matter of contract and proper construction, the Plaintiff (and the other owners of the building) are still bound by the naming right under Clause 3.  This is so because Clause 13 (which the Plaintiff accepts is binding on the parties as it seeks to rely on it) has “revived” the naming right under Clause 3, as it amounts to a new or “fresh” agreement between every new party to the DMC of the naming right.  Mr Chong, counsel for Defendant, relies on Tito v Waddle (No. 2) [1977] 1 Ch 106 at 289, 302 to 303F, and submits that the Plaintiff in taking the “benefit” of Clause 13 (i.e., its right to give consent and a right to require a unanimous consent), must also bear the “burden” imposed by that clause (i.e., always subject to the naming right provided under Clause 3). 

34. Mr Chong seeks to distinguish his present argument from those raised in Lamaya Ltd at 122C-123F (the pure contract argument raised by the appellant and rejected by the Court of Appeal); The Incorporated owners of Nine Queens Road Central at paras 35-41 (the pure principle argument raised by the defendant and rejected by the Court), and Yazhou Travel Investment Co Ltd, at paras 72-82 (the conditional right principle argument raised by third party and rejected by the Court). 

35. Counsel says, although these previous arguments (which were all advanced directly or indirectly based on the contractual principle of conditional benefits and independent obligations laid down by Megarry VC in Tito v Waddell (No. 2), at 290 and 302) had all been rejected by the courts, they were so rejected by reason of the particular drafting and wording of the subject clauses in the relevant deed of mutual covenant in each of those cases.  He submits that the present drafting of Clause 13 clearly permits and supports his arguments, since “the benefit and burden in the present case are narrowly and expressly identified and stated to be subject to each other under Clause 13.” 

36. Mr Chong thus further argues that, in the present case, if the Plaintiff demands unanimous consent, the Plaintiff must accept the reservation (i.e. subject to the right under Clause 3) stated in Clause 13, as the Plaintiff must have taken to have agreed to that reservation when it became a party (and thus agreed) to Clause 13.  Relying on Tito v Waddell, Mr Chong says rhetorically:  the Plaintiff cannot pick out the “good” and reject the “bad”. 

37. Secondly, Mr Chong submits that as Clause 13 is a clause relating also to naming right, it is thus similarly a clause not touching the land, and is not binding on all the subsequent parties to the DMC by reason of the decision in Lamaya Ltd.  In such a case, the Plaintiff also cannot rely on Clause 13.   All then is required is a majority resolution by the owners to approve the proposed name change, of which the Defendant has already obtained.   The Plaintiff has no right to object or complain.

38. Third, notwithstanding the various changes of parties to the DMC since its date, as the Plaintiff has in the past accepted Oriental Win’s exercise of the naming right to change the name of the building, it is now “estopped” from denying the validity of Clause 3.

39. Finally, the Plaintiff says the naming right under Clause 3 amounts to at least a “personal right” available to the Defendant.  The Defendant is therefore entitled to exercise its personal right, which is consented to by the other owners except the Plaintiff.  Since the exercise of the personal right does not in any material way affect the Plaintiff’s enjoyment of its own unit, the Plaintiff has no legitimate basis to complain.

The issues

40. Given the above contentions, the disputes between the parties involve no factual debate.  They turn on pure legal arguments and the proper construction of Clause 3 and Clause 13.  Further, the Defendant for the present purpose is not disputing the correctness of the decisions in the above three cases relied on by the Plaintiff, but argues that they are distinguishable from the present case in light of the way Clause 13 is drafted.  

41. In the premises, albeit that the Plaintiff seeks summary judgment, in light of the Defendant’s O.14A Summons (which the Plaintiff does not object to it being an appropriate procedure adopted for the determination of the present disputes[1]), I would have to determine conclusively one way or the other the questions posed by the Defendant in its Summons, instead of saying whether triable issues are raised.

42. This is what I propose to do below.

IV.    Discussion

The contractual arguments

43. In Lamaya Ltd, the defendant contended that, although the right to name a building was not an interest in land capable of passing directly by the assignment, the deed of mutual covenant enabled it to enforce the right against the plaintiff owner whether by virtue of s 41 of the CPO, or as a direct contractual obligation which the plaintiff assumed, as the assignment of the undivided shares was made subject to and with the benefit of the deed of mutual covenant. 

44. In dismissing the appeal, the Court of Appeal rejected both arguments raised by the defendant.  

45. After the defendant appellant conceded that a naming right was not an interest in land per se, the Court of Appeal in Lamaya Ltd affirmed that a naming right provided in the DMC did not benefit the exclusive occupation of any particular floor or the roof above the building.  It was thus not a covenant which was “expressed and intended to benefit the land of the covenantee…” as required under s 41(2)(c) of the CPO to render the clause running with the land (or building) and enforceable against all the occupiers of the land (or building).   Although without deciding it, the Court of Appeal further expressed the strong view that such a clause was also not a covenant which “touched or concerned the land” of the covenantee so as to render it running with the land and enforceable against its occupiers under the trite rule in common law and equity.  Cons VP, in giving the decision of the appellate court said at 121G to 122B as follows:

“In the event we do not find it necessary to express a concluded opinion on the point [as to whether s. 41(2) of the CPO had abroated the common law and equity rule on requiring a covenant which touched or concerned the land], for ultimately it seems to us that the crucial paragraph [of s. 41(2)] is not (a) but (c), which requires the covenant to be:

…expressed and intended to benefit the land of the covenantee…

We are unable to read the paragraph as requiring merely an intention that the benefit of the covenant should run with the land, as is provided with regard to the burden of the covenant in the preceding paragraph.  It refers not to the benefit of the covenant, but to the benefit of the land; and expression and intention are cumulative, not alternative.  These considerations lead inevitably to the conclusion that the covenant, if not actually required to touch and concern the land in the sense of the old phrase, must nevertheless benefit the land itself, which is a concept we find difficult to distinguish from the former.  But even if it be some lesser standard, we are not persuaded, despite [the defendant’s counsel’s] able argument, that it has been reached in the present instance.  We cannot accept that the right to name a building as a whole in any way benefits the exclusive occupation of any particular floor or the roof above it.  The commercial value is intrinsic in the right itself, and would remain the same whether the person holding it had the right to any occupation at all.” (emphasis added)

46. Then, in further rejecting the contractual argument raised by the defendant, the Court of Appeal said that there was nothing in the circumstances of the case which showed that the plaintiff had intended to enter into contractual obligations over and above the enforceable covenants contained in the deed of mutual covenant. At 122B to 123F, Cons VP explained as follows:

“Mr Tang supports his alternative approach via pure contract with three possibilities of an underlying legal analysis. The first is that:

... it is an implied term of the deed of mutual covenant that the parties thereto make a continuing offer to any subsequent assignee to enter into a contract with that assignee on the terms of the deed of covenant, with the purchaser's rights and duties under the DMC being identical to those of the original party from whom his title is derived.

Then, by accepting an assignment, the assignee accepts the continuing offer.

Alternatively the deed of mutual covenant contains:

... an implied grant of authority to each co-owner to agree on behalf of all of them a novation of the DMC with the person to whom he sold his interest, under which the purchaser would step into the shoes of the assignor.

Finally:     

... where parties to some relationship all intend that it should be governed by a particular set of terms, the law will give contractual force to that intention, even if the formation of the contract cannot satisfactorily be analyzed in terms of offer and acceptance.

For the first of the three possibilities Mr Tang relies on authorities relating to unincorporated associations and the well known case of Clarke v Dunraven default [1897] AC 59 where individual entrants to a yacht race were held to be contractually bound to each other to observe the racing rules; for the second possibility, he relies upon New Zealand Shipping v Satterthwaite default [1975] AC 154.

We accept that the original parties intended that the benefits and the burdens of the deed of mutual covenant should bind their successors in title. This is apparent, not only as Mr Tang suggests, from the provisions in the preamble that each party 'shall where the context so admits include the successors and assigns', but also from cl 27(a) which expressly provides:

The covenants and provisions of this deed shall be binding on the parties hereto and their respective executors, administrators, successors in title and assigns and the benefit and burden thereof shall be annexed to the undivided shares held by them and to each and every part of the building held therewith. The Law of Property (Enforcement of Covenants) Ordinance and any statutory amendments, modifications or re-enactment thereof for the time being in force shall apply to these presents.

But it is not easy to reconcile the words of this clause with a purely contractual intention of any kind. More particularly, we can find nothing in the circumstances of the assignment to the plaintiff which would indicate that it was then intending to enter into contractual obligations over and above the enforceable covenants contained in the deed of mutual covenant. We would respectfully agree with the observations of Dillon J in Lyus v Prowsa Developments Ltd default [1982] 1 WLR 1044 at 1051:

By contrast, there are many cases in which land is expressly conveyed subject to possible encumbrances when there is no thought at all of conferring any fresh rights on third parties, who may be entitled to the benefit of the encumbrances. The land is expressed to be sold subject to encumbrances to satisfy the vendor's duty to disclose all possible encumbrances known to him, and to protect the vendor against any possible claim by the purchaser ... . So, for instance, land may be contracted to be sold and may be expressed to be conveyed subject to the restrictive covenants contained in a conveyance some 60 or 90 years old. No one would suggest that, by accepting such a form of contract or conveyance, a purchaser is assuming a new liability in favour of third parties to observe the covenants, if there was, for any reason before the contract or conveyance, no one who could make out a title as against the purchaser to the benefit of the covenants.

Those observations are quoted with approval by the English Court of Appeal in Ashburn Anstalt v Arnold & Anor default [1989] Ch 1 at 25, the court adding for itself:     

The words 'subject to' will, of course, impose notice. But notice is not enough to impose on somebody an obligation to give effect to a contract into which he did not enter.

For these reasons, in our view, the contractual approach fails likewise and the appeal must be dismissed.”  (emphasis added)

47. Lamaya Ltd was applied and followed in The Incorporated Owners of Nine Queens’ Road Central.  In that case, the defendant owner sought to run the argument that, based on “the pure principle” observed in Tito v Waddell, the specifically drafted covenants (including the naming right covenant) provided in the subject deed of mutual covenant had brought home to every subsequent purchasers that they intended to take the benefit of those provisions in the deed of mutual covenant and at the same time also to assume the obligation to recognize the defendant’s naming right. 

48. This argument was rejected by Barnett J.  His Lordship discussed the rationale under the pure principle observed in Tito v Waddell, and came to the conclusion that he was not satisfied that the scheme provided in the subject deed of mutual covenant had the clear effect of rendering every subsequent purchasers expressly agreeing to the naming right assigned to the defendant by its predecessor in title.    

49. Although Barnett J accepted that in principle a properly devised scheme and drafting in the relevant deed of mutual covenant and/or the associated assignments could achieve the effect of bringing home to every co-owner of a building at any relevant point of time an enforceable naming right, it can only be so regarded to be the case if it is clear and certain, and the situation is likely to be rare.  On this, His Lordship said as follows:

“Contract

23. It was not in dispute that the covenant conferring the naming right is enforceable between the immediate parties thereto. Thus, it may be enforced against all the initial purchasers. The issue, therefore, is whether the subsequent purchasers are liable despite their lack of privity.

24. It is convenient to see how Mr Tang put his argument to the Court of Appeal and how the Court of Appeal dealt with it. At p 204 Cons VP who delivered the judgment of the court said :[quote]

25. Before me, Mr Tang stated that his case was that there was a contract between Innsbuck, the purchaser party to the DMC, and other initial purchasers. By the later assignments, the subsequent purchasers accepted an offer by those parties to become a co-owner on DMC terms. In other words, the subsequent purchasers joined the co-owners' club. That argument was the first argument raised in the Court of Appeal but, in advancing it, Mr Tang looks for support to New Zealand Shipping. That case involved a bill of lading, cl 1 of which provided, inter alia [quote].

…

29. Unlike the position in New Zealand Shipping, Mr Tang said that the documents in the present case show a much more real connection between the defendant and the existing owners. He pointed out that in the agreement between Anglo Arab and the defendant, there was the beginning of a scheme designed to try and ensure that all subsequent purchasers became bound to Innsbuck or its successors and assigns. This, however, proved impractical. Nonetheless, there are the express acknowledgments of the defendant's naming right in some of the subsequent agreements.

30. Overall, submitted Mr Tang, there was a clear intention to make the covenant enforceable against remote parties. He said that it is in everyone's interest that it should be enforceable. It would not be right simply because it was impractical to have subsequent purchasers covenant directly with Innsbuck or the defendant to leave the naming right in limbo.

31. It is clear to me that the draftsman of the documents I have reviewed was alive to the difficulties presented by the Court of Appeal's decision and was intent on trying to overcome them. He was not, however, overconfident in view of the disclaimers which he included. He was right to do so. His apparent solution came to nothing. There were other available solutions as Miss Audrey Eu QC for the plaintiffs suggested. It might have been possible to constitute the first purchaser as trustee for Innsbuck or the defendant of the subsequent purchasers' promise. Or an agency device might have been employed. Those solutions were not adopted or at least not contended for. But they were available, said Miss Eu and the fact that the defendant did not avail itself of them or at least carry through its original scheme should not be a reason for trying to force a contractual relationship out of the documents.

…

33. I accept that I must, if possible, give effect to the intentions of the parties short of writing a contract for them. Or put another way, I should try and force the facts however uneasily into the component parts of a bargain. The intentions of Innsbuck, Anglo Arab be the defendant and the initial purchasers are tolerably clear. Those of the subsequent purchasers vary. Some expressly acknowledged the naming right: That in itself does not make enforceable a covenant which does not otherwise run with the land. Other purchasers confined their acceptance of existing covenants to those 'relating to or affecting of the property', an echo of what was and is understood to be existing law concerning the burden of a covenant. As to the latter, Mr Tang acknowledged he was in difficulty. In my view, it was an insuperable difficulty because in effect if these purchasers have joined the co-ownership club, they have joined on terms perhaps different from other co-owners. In relation to a multi-storey building, that is a situation which is plainly unacceptable and unworkable.

34. In my judgment, this is not a case for forcing co-owners into a contractual relationship other than one plainly and clearly contemplated by all. There is, in my view, no warrant for displacing the existing law as set out in Lamaya, the effect of which would no doubt be far reaching. 

The pure principle

35. This principle was distilled by Megarry VC in Tito & Ors v Waddell & Ors [1977] 1 Ch 106. At p 290, he said: [quote]

…

39. Plainly, there are independent benefits and burdens in the present case. But I am unable to derive from the documents that the circumstances are such that the subsequent purchasers, at least those who acknowledged only covenants relating to the land, were not intended to take the benefit without also assuming the obligation to recognize the defendant's naming right. To apply the principle would, in effect, be to imply a contract. The second limb of Mr Tang's argument, therefore, seems to me almost indistinguishable from his first and is subject to the same criticisms.

40. However unsatisfactory it may be, the law relating to the burden of covenants has been clear for a long time. I do not think that the present case is one which is suitable for overthrowing that certainty. Indeed, it seems doubtful to me whether, in the absence of clear and direct privity of contract, there will ever be such a case. Rather, it is a matter for the legislature.

41. A naming right is undoubtedly important and valuable. To be enforceable, however, it must be brought home to every co-owner for the time being. That could be done by way of the scheme originally envisaged here. It is possible that some prospective subsequent purchasers might be deterred but, for the most part, I imagine purchasers are anxious to secure property in the right place at the right price and do not concern themselves over much with the name of the building.” (emphasis added)

50. In Yazhou Travel Investment Co Ltd, supra, another attempt was made to argue that a naming right provided in the subject deed of mutual covenant as drafted was binding on all subsequent purchasers.  This time, the argument was based on the “conditional rights” principle (instead of the “pure principle”) observed in Tito v Waddell. 

51. Deputy High Court Judge Muttrie also rejected this argument.  

52. Similarly, although His Lordship accepted as a matter of principle that a properly drafted deed of mutual covenant and/or assignment may achieve the objective to ensure that every subsequent purchaser owner intending to agree, and do so agree to, and be bound by, the naming right provided in the deed, the learned judge echoed the view of Barnett J and said that it would require very clear language to convince the court that the objective was achieved.  He explained in his judgment at as follows:

“75. The defendants having accepted that a naming right is neither an interest in land nor a covenant touching or concerning or benefiting land, argue that the scheme devised in the DMC was still operative to enable the owner to exercise the Naming Right free from objections from other co-owners of the building. They argue that the scheme was based on the 'conditional right' principle discussed by Megarry VC in Tito v Waddell (No 2) [1977] 1 Ch 106. At p 290, he said: [quote]

76. Mr Shieh SC says that he does not rely on the 'pure principle of benefit and burden' though he reserves the right to argue it elsewhere if need be. He expresses the situation under the 'conditional rights' principle, as he sees it, thus…

…

80. As Barnett J put it in Nine Queen's Road, for the naming right to be enforceable it must be brought home to every co-owner for the time being. In the case before him he was not satisfied that it had been. At the end of his judgment he said this:

However unsatisfactory it may be, the law relating to the burden of covenants has been clear for a long time. I do not think that the present case is one which is suitable for overthrowing that certainty. Indeed, it seems doubtful to me whether, in the absence of clear and direct privity of contract, there will ever be such a case. Rather, it is a matter for the legislature.

81. The difficulty will always be that, whatever the parties to the DMC may agree and however they may intend to bind their assignees, if one of those assignees for one reason or another assigns his property in such a way as is ineffective to assign the burden of the naming right, his assignee will take the property without it. Precisely because the burden does not run with the land there can be no guarantee that it will be passed on down the line. A conditional right may be passed on to one assignee but it cannot be guaranteed to pass on to the next one. That will depend on the terms of the assignment.

82. It seems to me that the criticism that the scheme is in effect purporting to create an interest in land is fatal. It may be that the third defendant in drafting cl 4.3 of the DMC, by which the parties agreed that the 'rights granted to the First Owner shall be deemed to be (i) granted for the benefit of and (ii) touching and concerning such Share as the First Owner may at any time own' had an eye to the reasoning of Cons VP in Lamaya that, for purposes of s 41(c) of the Ordinance, the covenant had to be 'expressed and intended to benefit the land of the covenantee' and that the court was 'unable to accept that the right to name the building as a whole in any way benefits the exclusive occupation of any particular floor or the roof above it'. Whether cl 4.3 could bring the Naming Right within s 41 can be argued elsewhere if need be. The Hong Kong system of title to multi-storey buildings and the use of the deed of mutual covenant to regulate the rights and duties of the common owners grew up in a situation vastly different from that which applied in England in the last century and it may be that there is still scope for extending the ambit of rights which run with the land. But as the law stands a naming right is not such a right and it cannot be made into one.”

53. Mr Chong for the Defendant however submits that the present Clause 13 carries the clear language to achieve that objective.   

54. He says that it must be the Plaintiff’s own case that Clause 13 is binding and valid amongst all owners at any one time (as the Plaintiff itself relies on it).  As such, since Clause 13 clearly provides that the “benefit” of the right to unanimous consent to change the name of the building is “always subject” to the naming right under Clause 3, Clause 13 should be construed to mean that these owners have also intended to agree, and have so agreed afresh, to the naming right “burden” provided in Clause 3.   

55. With respect, for the following reasons, I do not accept Mr Chong’s submissions.

56. Mr Chong’s submissions rely heavily on the words “Subject Always to the rights of the Second Owner under [Clause 3]” provided in Clause 13. 

57. However, the primary covenant in the DMC providing for the naming right to “the Second Owner” is Clause 3, not Clause 13.  Clause 13 only provides that it is “subject to” the rights under Clause 3.  Therefore, on a proper construction, Clause 13 only refers the reader to Clause 3, it does not per se validate or revive Clause 3, if it is by itself no longer valid or binding.

58. Given the weight of the Plaintiff’s authorities cited above, Clause 3 itself is clearly no longer binding on the subsequent purchasers (including the Plaintiff and the other new owners after the date of the DMC).  Mr Chong does not seek to submit otherwise, at least for the present purpose. 

59. In the premises, the reference in Clause 13 to “the rights of the 2^nd Owner under Clause 3” must be construed to mean a Clause 3 right insofar as it is enforceable by itself.  If the “rights of the 2^nd Owner” is no longer valid or enforceable as a matter of law, there is then nothing that the operation of Clause 13 needs to be “subject to”.   In construing these provisions, it must be borne in mind that they are drafted to cater also for the situation when the DMC was first created, and when there has not been any change of parties to it.  

60. I do not agree with Mr Chong’s submissions that the words “Always subject to the rights of the Second Owner under Clause 3” in Clause 13 show clearly that the parties agreeing to Clause 13 must have also intended to agree, and have so agreed, “afresh” to the naming right provided in Clause 3.    As said in Ashburn Anstalt v Arnold [1989] Ch 1 (CA) at 25, “the word  ‘subject to’ will of course impose notice.  But notice is not enough to impose somebody of an obligation to give effect to a contract into which he did not enter”[2].

61. For the above reasons, I conclude that these words do not clearly indicate that the parties agreeing to Clause 13 are also intending to enter into contractual obligations of the naming right under Clause 3, which in my view is something “over and above the enforceable covenants contained”[3] in the DMC.  They do not amount to any clear language to “impose somebody of an obligation to give effect to a contract into which he did not enter”.  

62. As said by Barnett J in The Incorporated Owners of Nine Queen’s Road Central at paragraph 34, I cannot force co-owners into a contractual relationship other than one plainly and clearly contemplated by all.

63. I therefore reject the Defendant’s contractual argument.  It does not support a valid defence against the Plaintiff’s claim.

Clause 13 is also not binding as it amounts to a naming right provision

64. I can deal with this quickly. I similarly reject this argument for the following reasons.

65. On a proper reading of Clause 13, it is simply a provision prescribing the kind of resolutions that requires a unanimous consent at the owners’ meetings.  It is a procedural provision governing the conduct of passing resolutions in an owners’ meeting. The mere fact that such resolutions concern the change of name of the building does not make it a provision conferring any naming right to any person.  This construction is consistent with (a) the marginal descriptions provided to this clause, and (b) the fact that the clause is included under Section J of the DMC, entitling “Meetings of the Owners”.  

66. I therefore do not find that Clause 13 is by nature a naming right covenant as submitted by the Defendant.  The clause is therefore binding on the parties and enforceable.   

67. The Defendant thus also fails to establish a valid defence under this ground.

The defence of estoppel

68. The Defendant submits that, if the Plaintiff’s contention on the non-binding effect of Clause 3 is correct, the Plaintiff is now estopped (further contended by the Defendant) from objecting to the Defendant’s present exercise of the same naming right.   This is so because the Defendant has not raised any objection to Oriental Win’s previous exercise of the naming right to change the name of the building. 

69. However, there is no evidence before me to suggest that (a) the Plaintiff had intended the Defendant to rely on its said conduct in not objecting to Win Oriental’s exercise of the naming right, (b) the Defendant had in fact relied on the said conduct, and (c) the Defendant is  now somehow inequitably prejudiced by reason of the Plaintiff’s alleged change of stance as to the exercise of the naming right.  As such, I cannot see how the Defendant can raise a valid and operative estoppel defence against the Plaintiff.  See:  Chitty on Contracts (29^th ed), paras 3-086, 3-093 - 3-094.

70. I must therefore also dismiss this as a valid ground of defence.

Defendant is only exercising a personal right

71. Mr Chong submits that if Clause 3 does not provide the Defendant with any right in the land or does not amount to a covenant that binds the parties in the DMC, the Defendant could still exercise it as a personal right.  Mr Chong further submits that the Defendant should be allowed to freely exercise that right as long as it does not affect the other owner’s enjoyment of their respective properties.

72. I cannot accept Mr Chong’s submissions.  As a party to the DMC, the Defendant cannot do anything which is in breach of the binding provisions in the DMC.  In unilaterally seeking to change the name of the building without having obtained the unanimous consent of all the owners, the Defendant has acted in breach of Clause 13.  It is thus amenable to an injunction restraining it from acting, and from continuing to act, in breach of the DMC.

73. In the circumstances, the Defendant has too failed to establish a defence under this ground.

The scope of injunction sought by the Plaintiff

74. In relation to the Plaintiff’s Summons, the Defendant contends that even if the Plaintiff is to succeed, the scope of the injunctive reliefs sought should be narrowed down, as any reliefs granted should not restrict or limit the Defendant’s free use of the external wall and the façade of the building, which are its properties.  In other words, Mr Chong submits the Defendant should not be restrained from putting the Inscriptions and the Plague on the façade or external wall of the building. 

75. I do not accept Mr Chong’s submissions.  The Defendant’s “free” use and enjoyment of its properties (the external wall and façade of the building) is subject to the limits and obligations provided in the DMC.   Insofar as its purported use of the external wall or façade amounts to an effective change of the name of the building without compiling with the procedures laid down in the DMC, the said use is in violation of the DMC and should be restrained.  In my view, the evidence (including the filing of the 1^st and 2^nd Notice of Change with the Land Registry) shows clearly that, in putting on the Plague and Inscriptions on the building’s external wall and façade, the Defendant is effecting a change of the name of the building, which is for the present purpose in breach of the DMC.  In such circumstances, the Defendant should be restrained from doing so.

V.      Conclusion

76. For the reasons given above, I am not satisfied that the Defendant has raised any valid defence to the Plaintiff’s claim. 

77. Accordingly:

(1)  In relation to the Defendant’s O.14A application, I will answer the two questions posted in its Summons in the negative.   I will also dismiss its application to strike out the Plaintiff’s claim.

(2)  I will further grant summary judgment in the terms of the Plaintiff’s O.14 Summons.

78. I further make an order nisi that:

(1)  Costs of the Defendant’s Summons be to the Plaintiff, to be taxed if not agreed.

(2)  Costs of the Plaintiff’s action and its Summons be to the Plaintiff, to be taxed if not agreed.

The nisi order will be made absolute within 14 days from today, unless any of the parties applies to vary it in writing.

Mr. Raymond Wai-Man LAU instructed by Messrs Woo, Kwan, Lee & Lo for Plaintiff.

Mr. Patrick K.C. CHONG, appearing together with Mr. Alan K.T. KWONG, instructed by Messrs Wong, Fung & Co. for Defendant. 

[1] Hong Kong White Book, paras 14A/2/4, 14A/2/5.

[2] Cited with approval in Lamaya, supra, at 123E-F.

[3] To quote the words of Cons VP in Lamaya, supra, at 123A-B.