Hollywood Shopping Centre Owners Committee Ltd v. The Incorporated Owners of Wing Wah Building Mongkok Kowloon

HCA1582/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1582 OF 2007

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Before : Mr. Recorder Yuen, SC in Court

Dates of Hearing : 11, 14 and 17 September 2009

Date of Judgment : 16 August 2010

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J U D G M E N T

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1.This is a dispute concerning the use of a canopy at Wing Wah Building (“Building”) for advertising purpose. The issues involved include adverse possession and the equitable defences of waiver, acquiescence and laches.

BACKGROUND

2.There is not much dispute between the parties regarding the factual background that leads to this action.  Nor is there any real dispute over the credibility of witnesses.  The defendant fairly accepted that both witnesses were honest and trying their best to assist this court.  For the purpose of illustrating the parties’ dispute and explaining the decision of this court, the relevant background can be summarized as follows.

3.The Building is located at the junction of Sai Yeung Choi Street South and Shan Tung Street in Mongkok, which is one of the popular shopping areas in Kowloon with heavy traffic of both pedestrian and vehicle.  It is a mixed commercial and residential building.  The commercial units are located on the Ground Floor, the Mezzanine Floor and the First Floor, while the 2^nd to 10^th Floors are for residential use.

4.The Building was completed in 1966.  It was developed by a Mr. Tang Kai. On 1 October 1966, Mr. Tang Kai and certain owners of the Building entered into a Deed of Mutual Covenant (“DMC”).  I shall deal with one of the provisions in the DMC in the discussion below.  At this stage, it is only necessary to point out that there is no specific reference to the Canopy in the DMC.

5.On 15 April 1971, the defendant was incorporated under the then Multi-Storey Buildings (Owners Incorporation) Ordinance.  Following its incorporation, the defendant was appointed as the manager of the Building under the DMC for the management and maintenance of the residential units.

6.As a result of several transactions that took place during the 1960’s to around 1979 (the details of which are not material for the present purpose), Shops A1 and C on the Ground Floor, the whole of the Mezzanine Floor and the First Floor of the Building were re-organized into a shopping arcade known as “Hollywood Shopping Centre” (“Shopping Centre”).  This Shopping Centre comprises shops on the Mezzanine Floor and the First Floor, as well as an external concrete canopy (“Canopy”).  The Canopy, in the shape of a flat platform, is situated between the Ground Floor level and the Mezzanine Floor.  It protrudes from the external wall of the Building facing Shan Tung Street and across the entire façade of the Building along Sai Yeung Choi Street South.  The exact location of the Canopy can be seen from two plans annexed to the Sub-DMC referred to below.  Besides, paragraph 6 of the Statement of Mr. Tang Kam Wah Edwin Peter (“Mr. Peter Tang”) filed on 26 November 2008 also contains a diagram depicting the Canopy and also the Advertisement Boards referred to below.

7.On 23 May 1980, a Sub-Deed of Mutual Covenant was made (“Sub-DMC”) for the purpose of regulating the rights and obligations of the co-owners of the Shopping Centre.  Pursuant to the Sub-DMC, an Owners Committee of the Shopping Centre was set up.  In 1985, the Owners Committee of the Shopping Centre procured the incorporation of the plaintiff and the plaintiff was then appointed as the manager of the Shopping Centre.

8.Like many other buildings in the area, signage or advertisement boards were and still are put at various parts of the Building including the Canopy.  As will be further discussed below, light boxes with signage were affixed to the Building since the 1980s, if not earlier.  In around April 2000, Convey Advertising Co. Ltd (“Convey”) approached the defendant with a business proposal.  In short, Convey requested for an exclusive right to put up advertisements at the Building and also put forward an arrangement as to how to share the profit so derived.  As will be discussed in further detail below, the proposal was not actively followed up and no deal was concluded between the defendant and Convey. 

9.Since a date between late 2000 and early 2001, huge advertisement boards were affixed at and perpendicular to the Canopy (“Advertisement Boards”).  Examples of such Advertisement Boards can be seen from the photographs annexed to the Defence and Counterclaim as well as the other photographs produced during the trial or included in the trial bundles. Given the huge size of these Advertisement Boards, they are very conspicuous. There is no question that the defendant would not have noticed them.  Such a state of affairs continued and it is not disputed that the defendant raised no complaint or enquiry with the plaintiff until early 2007.

10.The first complaint or enquiry came in the form of a letter dated 1 February 2007 from the defendant’s solicitors Messrs. Woo Kwan Lee & Lo (“WKLL”) to the defendant.  According to this letter, the defendant was aware that the Advertisement Boards were put up in around 2000 shortly after Convey approached the defendant.  The defendant asserted that the external wall of the Building (which would include the Canopy) was part of the common parts of the Building.  Further, the defendant made enquiry, amongst others, as to whether the plaintiff had entered into any contract with advertising companies.  The plaintiff, however, did not reply to this letter.

11.After further investigation, the defendant commenced HCA860/2007 against Easy Groups Limited (“EGL”) on 27 April 2007 on the basis that the latter held itself out as the exclusive agent in respect of the Advertisement Boards. 

12.By a letter dated 6 June 2007 to WKLL, EGL’s solicitors stated that their client had nothing to do with the matters complained of in HCA860/2007.  In support, the letter enclosed a copy of a contract (entitled “Agency Contract of Advertising Board Location A situated at the outer wall of the 1^st and 2^nd Floors of Hollywood Shopping Centre, Nos. 14-24 Sai Yeung Choi Street, Mongkok”) (Contract No. 061220-A) made between Easy Advertising Agency Limited (“EAAL”) and the plaintiff dated 1 December 2006 (“EAAL Contract”).  The term of this EAAL Contract was for two years, commencing from 1 December 2006 and expiring on 30 November 2008.  At the trial, it transpired that the EAAL Contract was renewed for another two years (“Renewed EAAL Contract”).  The details of the renewal are not clear, and the plaintiff has not produced any documents relating to this renewal.

13.Having obtained a copy of the EAAL Contract, WKLL wrote to EAAL and the plaintiff on 26 June 2007 demanding them to admit liability for trespass.  Messrs. John Ip & Co. (“JI”), acting on behalf of the plaintiff, responded by a letter to WKLL dated 3 July 2007 asserting that the Canopy and the fixtures thereon (which of course include the Advertisement Boards) did not form part of the common parts of the Building.  The letter also indicated that the plaintiff would issue proceedings for declaratory relief.  Following a reply dated 4 July 2007, the plaintiff commenced the present action on 23 July 2007.

THE DISPUTE AND ISSUES

14.The focus of the parties’ dispute concerned the use of the Canopy.  The plaintiff asserted that it was and is entitled to allow advertising companies to put up Advertisement Boards at the Canopy.  The defendant contended that the plaintiff’s conduct was and is in breach of the DMC.

15.The plaintiff’s pleaded case can be summarized as follows :

(1)     The plaintiff has assumed full management and control of the Shopping Centre and has been in exclusive use and possession of the Canopy since around June 1985 following its appointment as a manager of the Shopping Centre.

(2)     From time to time since around June 1985, the plaintiff has erected or granted licence to others to erect signage or signboards at the Canopy for advertising purpose and has been deriving income therefrom.  This was done without the defendant’s consent and without accounting to the defendant the income so derived.

(3)     On this basis, the defendant sought to invoke sections 7, 13 and 17 of the Limitation Ordinance (Cap. 347) and asserted that the plaintiff has acquired the title to and/or right of ownership of the Canopy to the exclusion of the defendant and has thereby become its rightful owner.

16.In the prayer pleaded in the Statement of Claim, the plaintiff sought the following relief :

(1)     a declaration that the plaintiff has acquired the title to and/or the right of ownership and is the rightful owner of the Canopy;

(2)     a declaration that the plaintiff was and is entitled to receive all the income and fees derived from the license and the use of the Canopy at all times since June 1985; and

(5)     a declaration that the Canopy did not and does not form part of the common part of the Building.

17.The defendant disputed the plaintiff’s claim for adverse possession in respect of the Canopy.  On the basis that the Canopy was part of the common parts of the Building and relying on section 34I of the Building Management Ordinance (Cap. 344) (“BMO”), the defendant contended that the plaintiff has converted the Canopy for its own use and thus counterclaimed against the plaintiff :

(1)     an order that the plaintiff shall demolish or procure the demolition of the advertisement boards affixed to the Canopy and reinstate the area into its original state;

(2)     an order that in the event the plaintiff fails to demolish and remove the advertisement boards from the Canopy, the defendant be entitled or at liberty to demolish and remove the same with reinstatement at the costs of the plaintiff, to be assessed by the court if the amount cannot be agreed;

(3)     an injunction to restrain the plaintiff from placing or affixing or causing and permitting any third party to place or affix advertisement boards or any objects to the Canopy;

(4)     an account of all sums due from the plaintiff to the defendant in respect of the profits that the plaintiff has derived from its wrongful act; and

(5)     an order for payment by the plaintiff to the defendant of all sums found to be due from the plaintiff to the defendant upon the taking of the account.

18.In December 2007, the defendant took out an application for summary judgment in respect of its counterclaim.  The application was heard before Mr. Recorder Fok, SC (as he then was) in April 2008.  At the hearing, the plaintiff contended that there were two lines of defence.  The first one is a limitation argument based on section 4(3) of the Limitation Ordinance, which has since become irrelevant as the plaintiff no longer pursues the point.  The second is the defence of acquiescence, waiver, estoppel and laches.  By his judgment dated 23 April 2008, Mr. Recorder Fok, SC (as he then was)refused summary judgment on the ground that the second line of defence was an arguable, although it was at that time not pleaded. 

19.After summary judgment was refused, the plaintiff amended its Reply and Defence to Counterclaim and pleaded the defence of acquiescence, waiver and laches in the event the Canopy is part of the common parts of the Building.

20.At the commencement of the trial, Mr. Jonathan Wong, counsel for the plaintiff, informed this Court as follows :

(1)     although he did not have express instructions to abandon the claim for adverse possession, such a claim would not be vigorously pursued; in other words, paragraph (1) of the prayer to the Statement of Claim (see paragraph 16(1) above) would not be vigorously pursued; and

(2)     the plaintiff accepted that the Canopy was and is part of the common parts of the Building, and thus the declaration set out in paragraph (3) of the prayer to the Statement of Claim (see paragraph 16(3) above) would not be pursued.

21.In light of this helpful indication by the plaintiff’s counsel, the core disputes that call for determination are :

(1)     whether the plaintiff’s claim for adverse possession of the Canopy can be sustained;

(2)     if the plaintiff’s claim for adverse possession fails :

(a)   whether the plaintiff was nevertheless entitled to put up the Advertisement Boards at the Canopy, or whether such conduct was in contravention of section 34I(1) of the BMO and thus in breach of the DMC;

(b)  if the plaintiff is in breach, whether the defendant is precluded by acquiescence, waiver or laches from maintaining its counterclaim against the plaintiff;

(c)    if the defendant’s counterclaim succeeds, what remedies should be granted by this court to the defendant.

PLAINTIFF’S CLAIM FOR ADVERSE POSSESSION

22.Although the plaintiff’s counsel had very sensibly indicated that he would not vigorously pursue the claim for adverse possession, the claim has not been formally abandoned.  It thus remains necessary for this court to deal with this claim.

23.The defendant disputed the plaintiff’s claim for adverse possession on two grounds.  First, the defendant argued that as a matter of law, the principle of adverse possession is inapplicable in the present context since the defendant’s claim is not a claim for recovery of any land.  Second, the defendant contended that the plaintiff failed to establish adverse possession on the evidence.  For the reasons set out below, I find on the evidence that the plaintiff has plainly failed to establish adverse possession.  Hence, it is not necessary to deal with the defendant’s legal objection, although I have some reservation about the arguments advanced on behalf of the defendant.

24.It is trite that two elements have to be established before a claim for adverse possession can be made out, namely, the factual element of possession and the mental element of possession (the animus possidendior an intention to possess).  Factual possession means an appropriate degree of physical control, while an intention to possess means that the party claiming possession intended in his own name and on his own behalf to exclude the world at large.  See, eg., Incorporated Owners of San Po Kong Mansion v Shin Empire Ltd (2007) 10 HKCFAR 588 (at para. 7).  Both elements involve questions of fact and the burden of establishing them rests with the plaintiff. 

25.As submitted by Mr. Paul Lam, counsel for the defendant, the plaintiff’s occupation and use of the Canopy can be divided into two stages.  The first stage is the period from the 1980’s when only light boxes with signage were put up at the Canopy.  The second stage is the period since the Advertisement Boards were put up. 

26.The light boxes can be seen from the various photographs produced at the trial. Besides, Mr. Cheng Kan Kwong (“Mr. Cheng”), the only witness called by the plaintiff, also dealt with these light boxes in his testimony.  According to Mr. Cheng, the plaintiff first put up light boxes along the Canopy in around 1985.  He, however, fairly accepted that the documentary evidence (in the forms of ledger and receipts) produced by the plaintiff only contained references to light boxes since January 1988. After cross-examination of Mr. Cheng at the end of the first day of this trial, the parties had jointly considered the relevant documentary evidence. On the following day, it was agreed by the parties that at all material times (i.e. from the time when light boxes were first put up by the plaintiff along the Canopy up until around 2000), the total number of light boxes does not exceed seven.  This shows the limited extent to which the plaintiff had made use of the Canopy. 

27.Further, as accepted by Mr. Cheng, there were other light boxes along the Canopy even before 2000.  These other light boxes were put up by parties who operated their businesses at the Building without the plaintiff’s consent and without paying any fees to the plaintiff.  In the circumstances, it can hardly be said that the plaintiff had exclusive control or occupation of the Canopy before 2000.  That being the case, irrespective of whether the plaintiff is able to establishexclusive possession of the Canopy after 2000 (i.e. the second stage referred to in paragraph 25 above), its claim for adverse possession is bound to failsince there would not be sufficient length of time of adverse possession.

28.As stated above, the Advertisement Boards were only put up in around late 2000 or afterwards.  Indeed, on the evidence, the only conclusion that can be drawn is and I so find that the Advertisement Boards were only put up after the approach by Convey (first to the defendant and then the plaintiff) in 2000.  However, as shown by the relevant photographs and as accepted by Mr. Cheng, there were other signage or advertisement boards put up or caused to be put up at or along the Canopy by parties other than the plaintiff even after 2000.

29.There is another relevant event that took place during the period from 1988 to 2004.  By an order no. INVO 256/K/98 dated 27 October 1998 (“Building Order”), the Building Department demanded the defendant to investigate and report on the structural integrity of the Canopy and to submit proposals for remedial work if necessary.  By a letter dated 9 December 2000 from the plaintiff to the defendant, the plaintiff agreed to share 50% of the costs to be incurred for complying with the Building Order.  Apart from the fact that the plaintiff agreed to bear 50% of the costs, this letter from the plaintiff is significant in a number of aspects.  First, it appears from this letter that there had been prior communications between the plaintiff and the defendant over the Building Order.  Second, in the letter, the plaintiff sought to blame the defendant for the lack of progress in dealing with the Building Order.  Third, the plaintiff did not suggest in the letter that the Canopy had all along been managed by them and thus they should take charge of the matter. 

30.Following the plaintiff’s letter of 9 December 2000, the defendant engaged Wide Project Construction (HK) Limited to perform the necessary work so as to comply with the Building Order.  It is not in dispute that the plaintiff did contribute to the costs so incurred for complying the Building Order and documentary evidence has been adduced by the defendant to show such contribution.

31.In its Amended Reply and Defence to Counterclaim, the plaintiff simply admitted that it had agreed to bear half of the costs for complying with the Building Order but did not explain why it so agreed.  When asked during cross-examination, Mr. Cheng said that the plaintiff thought that it made use of the top of the Canopy but the underneath thereof was used by others and thus the plaintiff should only bear 50% of the costs.

32.In Pavledes v Ryesbridge Properties Ltd (1989) 58 P&CR 459, the plaintiff’s claim for adverse possession was rejected.  One of the reasons is that the plaintiff did not have the requisite mental element as he had previously asked the freehold owner to repair the fencing surrounding the land in question to keep out trespassers and vandals.  Knox J observed as follows (at pp. 480-481) :

“Secondly, so far as the necessary mental element is concerned, in my judgment, Mr. Pavledes [the plaintiff] cannot be heard to claim that he was in adverse possession as against the GLC in respect of periods when from time to time he actually called on the GLC to do its duty as the person entitled to possession to keep out trespassers. ... ... Possession is indivisible, we are told. It seems to me that Mr. Pavledes cannot validly claim himself to be in adverse possession as against persons whom he actively requested to shoulder the responsibilities that possession has. ... ...”

33.The reasoning of Knox J is applicable here.  The fact that the plaintiff agreed to share 50% of the costs for complying with the Building Order, coupled with the contents of the letter dated 9 December 2000 and the answer given by Mr. Cheng during cross-examination, all go to show that it did not have the requisite element of possession.

34.Apart from the Building Order made in 1998, further building orders were issued in September 2007.  I need not deal with that aspect in any detail. It is suffice to say that the plaintiff’s stance towards those further building orders was evasive and inconsistent with its claim for adverse possession. 

35.For these reasons, I dismiss the plaintiff’s claim for adverse possession of the Canopy. 

PLAINTIFF’S USE OF THE CANOPY

36.This brings us to the defendant’s counterclaim against the plaintiff for breach of DMC by reason of section 34I of the BMO.  Relying on clause 14 of the DMC and the decision of The Incorporated Owners of Haiphong Mansion v Convey Advertising Co. Ltd, unrep., HCA9973/2000 (6 April 2001) (Deputy High Court Judge Woolley), the plaintiff sought to argue that the DMC did not prevent it from making use of the Canopy for advertising purpose.  For the reasons discussed below, I am of the view that the plaintiff did not and does not have any entitlement or right to put up (or to allow any third party to put up) the Advertisement Boards at the Canopy.

37.Clause 14 of the DMC stipulated as follows :

“The Subsequent Owners hereby jointly and severally appoint the Vendor [i.e. Mr. Tang Kai referred to above] to act as managing agents for and on behalf of the Subsequent Owners and agree and declare that the appointment is irrevocable as long as the Vendor remain [sic] a co-owner of the said premises for the purposes of maintaining in good condition and repair all staircases and landings ... provided that the Vendor shall be at liberty to allow advertisements to be put up in any part of the Building by any person or persons, firm or company and collect and receive from any such person, firm or company the advertising fees therefor ... ...” [emphasis added]

38.Looking at clause 14 of the DMC, it is plain that the right to put up advertisements at any parts of the Building (including the Canopy) was vested in Mr. Tang Kai.  The defendant’s only witness at the trial, Mr. Peter Tang (who gave the witness statement referred to in paragraph 6 above), is the son of Mr. Tang Kai.  According to Mr. Peter Tang, Mr. Tang Kai passed away in 1982.  The undivided shares in the Building previously owned by Mr. Tang Kai was first passed on to Mr. Peter Tang and his brother.  Subsequently, Mr. Peter Tang acquired his brother’s interest and has since remained the sole owner of the interest previously held by Mr. Tang Kai.

39.In the circumstances, there can only be two possibilities.  First, Mr. Tang Kai’s right to put up advertisements at the Building has lapsed since his death and that such a right has reverted to common ownership under the control of the defendant.  Second, the right has been passed on to Mr. Peter Tang as successor to Mr. Tang Kai.  I shall deal with this issue in further detail below.  At this juncture, it is sufficient to say that in either scenario, the plaintiff did not and does not have any right to put up (or to allow any third party to put up) advertisements at the Canopy.  Indeed, once it is accepted that the Canopy is part of the common parts of the Building, it is difficult to see how the plaintiff could have any legal right to use the Canopy.

40.The plaintiff also referred to the provisions in the Sub-DMC.  The first is paragraph 5 of the recital to the Sub-DMC, which reads as follows :

“The parties hereto have agreed to enter into this Deed for the purpose of making provision for the management, operation (including inter alia but not limited to cause advertisements of the Hollywood Shopping Centre as a whole to be advertised), insurance, servicing, maintenance, repair, renovation and replacement of the Hollywood Shopping Centre ... ... and for the purpose of defining and regulating the rights interests and obligations of themselves and all subsequent owners in respect of the said premises and the Hollywood Shopping Centre.” [emphasis added]

41.The second reference is clause 15(c)(25) of the Sub-DMC, which reads as follows :

“... ... the Manager shall have the following powers, namely :

... ...

(25)     To cause advertisements of the Hollywood Shopping Centre as a whole to be advertised in whatsoever form including promotions in radio, television and newspapers, signboards etc. as the Manager may in its absolute discretion deem fit from time to time.” [emphasis added]

42.Although these two provisions in the Sub-DMC expressly refer to advertisement, they do not assist the plaintiff’s case.  First, not all the owners of the Building were made parties to the Sub-DMC.  Thus, as the defendant’s counsel rightly submitted, the Sub-DMC can only regulate the rights and responsibilities amongst the owners of units in the Shopping Centre and cannot override the rights and responsibilities set out in the DMC.  Second, upon the proper interpretation of the two provisions in the Sub-DMC quoted above, they only enable the manager of the Shopping Centre to promote the Shopping Centre as a whole by way of advertisements.  Those two provisions do not deal with the present situation, viz., allowing third parties to place individual advertisements not relating to the Shopping Centre as a whole but relating to individual companies, products or services.

43.As it is accepted that the Canopy is part of the common parts of the Building, section 34I of the BMO applies.  Section 34I states as follows :

“(1) No person may ---

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners committee (if any);

(b) use or permit to be used the common parts of a building in such a manner as ---

(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or

(ii) to cause a nuisance or hazard to any person lawfully in the building.

(2)    Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building.”

44.As observed by Cheung JA (delivering the judgment of the Court of Appeal) in Incorporated Owners of No. 27A Chatham Road, Kowloon v Mr. Lee or Unlawful Occupier (Lee Kai Kong, Lo Hung Cheong), unrep., CACV2238/2001 (2 August 2002), the meaning of section 34I(1) of the BMO cannot be simpler and clearer.  By allowing advertising companies (such as Convey or EAAL) to put up the Advertisement Boards at the Canopy in return for profit, the plaintiff has plainly converted the Canopy, being part of the common parts of the Building, to its own use.  Such conversion has not been approved by the requisite resolution of the defendant.  The plaintiff did not consult the defendant before allowing the Advertisement Boards to be affixed to the Canopy.  Plainly, the plaintiff has acted in breach of section 34I(1)(a) of the BMO, although I do not think the evidence established a contravention of section 34I(1)(b)(i) or (ii).  There is no suggestion or evidence of any nuisance or hazard being caused by the Advertisement Boards.  Indeed, Mr. Peter Tang accepted that is the case.  Consequential upon a breach of section 34I(1)(a), there were also a breach of the DMC as provided for in section 34I(2).

45.The decision in The Incorporated Owners of Haiphong Mansion v Convey Advertising Co. Ltd (above relied on by the plaintiff does not assist the plaintiff’s case insofar as the breach of section 34I or the DMC is concerned.  (As will be dealt with below, the position is different when it comes to the question of waiver, acquiescence or laches).  In that case, the plaintiff incorporated owners sought an order requiring the defendant occupier to remove advertising signs on the external walls of a building.  When opposing an application for summary judgment, the defendant raised the defence of not only acquiescence but express permission by the plaintiff.  The agreement relied on by the defendant in respect of the advertising sign was not disputed by the plaintiff.  It was against such a background that Deputy High Court Judge Woolley observed as follows (at para. 16) :

“However, both parties’ argument overlook the fact that the plaintiff is not precluded totally by the DMC, and consequently by statute, from exercising a right to display advertisements on the exterior walls of the building, nor of granting that right to others. As I have observed above, the developer having reserved such rights to itself by clause 17 of the DMC, those rights reverted to common ownership, under the control of the plaintiff, upon the liquidation of the developer ... ... It must therefore at least be arguable that the plaintiff had the power to assign or grant those rights to others, and further arguable that, by the clear acquiescence referred to above, that they had impliedly done so in respect of the 1994 signs. ... ...”

46.It is clear that the learned Deputy Judge refused summary judgment on the ground that the undisputed express agreement gave rise to an arguable defence.  Such a decision is perfectly justified.  The right to put up advertisement in that case was vested in the incorporated owners, who did not dispute that it had agreed to allow the defendant to put up the advertising sign.  It was in such circumstances that the learned Deputy Judge stressed that the deed of mutual covenants did not prevent the plaintiff (the incorporated owners of the entire building, as opposed to someone in the position of the defendant in the present case) from exercising a right to display advertisement or to grant such a right to others.  In the present case, the plaintiff has no entitlement under the DMC or the Sub-DMC to put up advertisements at the Canopy.  Thus, unless there was an express agreement (which is not asserted by the plaintiff here) or acquiescence, wavier, estoppel or laches (which will be discussed below), the plaintiff could not and cannot put up or allow a third party to put up Advertisement Boards at the Canopy.

WAVIER, ACQUIESCENCE AND LACHES

47.The next key question is whether the plaintiff can establish waiver, acquiescence or laches on the part of the defendant.  The plaintiff relied heavily on the lapse of time between the time Advertisement Boards were first put up (around late 2000 or early 2001) and the time the defendant first raised query or objection with the plaintiff (i.e. WKLL’s letter of 1 February 2007). The plaintiff argued that it is inequitable to allow the defendant to assert the claim for breaches of mutual covenant.  On the other than, the defendant’s case is two-fold.  First, the defendant contended that the defence of waiver, acquiescence or laches is bad in law since it is the defendant’s statutory duty to enforce the DMC.  Second, the defendant argued that the plaintiff in any event failed to establish this defence on the evidence.

(1)     Analysis of the Legal Position

48.Issues of waiver, acquiescence and laches can be set up as a substantive defence to a claim or raised as grounds for opposing the grant of discretionary equitable relief.  The discussion at this stage concentrates on whether the plaintiff can rely on waiver, acquiescence or laches as a substantive defence.  The question of remedy will be dealt with in the latter part of this judgment.

49.The defendant contended that such a defence is bad in law since the defendant, by reason of section 18 of the BMO, was at all material times and still is under a statutory duty to enforce the DMC.  The defendant relies on decisions including The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd  [1995] 2 HKC 11, The Incorporated Owners of Chungking Mansion v Shamdasani, unrep., Civ.App.No. 199 of 1991 (26 February 1993) and The Incorporated Owners of Champion Court v Pang Ping Fan Peter, unrep., CACV317/2006 (23 May 2008).

50.The plaintiff contended to the contrary and relied on the decisions including Yick Fung Holdings Ltd v Sandwood Ltd [2009] 2 HKLRD 573, The Incorporated Owners of Hong Kong House v Senfield Ltd, unrep., CACV117/2003 (12 November 2003) and The Incorporated Owners of Haiphong Mansion v Convey Advertising Co. Ltd (above). 

51.Both sides’ counsel drew to my attention to paragraph 47 of the judgment dated 23 April 2008 delivered in respect of the defendant’s application for summary judgment on its counterclaim (referred to in paragraph 18 above) where Mr. Recorder Fok, SC (as he then was) pointed out that “there appears to be some inconsistency” between the judgment of Godfrey JA in The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd (above) and the judgment of Ma CJHC in The Incorporated Owners of Hong Kong House v Senfield Ltd (above). Besides, the defendant’s counsel sought to highlight that the former decision was apparently not considered in the latter decision.

52.As the parties’ counsel identified, there are the two lines of relevant authorities; one in support of the defendant’s stance and the other in support of the plaintiff’s argument.  On the face of them, there does appear to be some inconsistency between those two lines of authorities.  However, for the reasons discussed below, I am of the view that those two lines of authorities dealt with different types of breaches and thus the court’s decisions were different.

53.I shall first deal first with the cases relied on by the defendant.  In The Incorporated Owners of Chungking Mansion v Shamdasani (above), the appellant claimed that he was entitled to continue in possession or occupation of certain units by reason of the respondent’s (the incorporated owners)’s conduct or inducement.  The units in question were parts of the common parts of the building.  They did not appear in the relevant plans and no undivided shares were allotted to those units in the deed of mutual covenant.  After ruling that the facts did not support the appellant’s claim, Godfrey JA (giving the judgment of the Court of Appeal) made the following observation (at p. 9) :

“In any case, just as it would have been unlawful for the respondent to contract to allow anybody the exclusive use of units carved out of the common parts of the building (because so to do would be a breach of statutory duty) so also it would have been impossible for the respondent to bring about the same result by making representations which might otherwise have given rise to an estoppel ... ...” [emphasis added]

54.The next case is The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd (above).  In that case, the plaintiffs (who were the incorporated owners and manager of the building) obtained an injunction compelling the defendant (the owner of one of the units in the building) to demolish and remove an air-conditioning cooling tower which is erected in breach of the deed of mutual covenant.  It is pertinent to note that under the deed of mutual covenant, no owner was permitted to do what the defendant had done (at p. 12G).  The judge rejected the defendant’s plea of acquiescence and the defendant appealed.  When dismissing the appeal, Godfrey JA expounded as follows :

“It has to be remembered that almost every multi-storey building in Hong Kong, residential and industrial alike, operates under a system of local law, being the rules prescribed for its management by a deed of mutual covenant. So important is this aspect of Hong Kong life that the legislature has been compelled from time to time to intervene. In particular, it passed in 1972 the Multi-storey Buildings (Owners Incorporation) Ordinance (Cap 344), under which incorporated owners are placed under a statutory duty to do all things reasonably necessary for the enforcement of the obligations contained in the deed of mutual covenant : see s 18(1)(c). When, then, the incorporated owners find that there is a breach of covenant being perpetuated by one of the owners, it is not only their right but their duty to seek to enforce the covenant… (pp. 12H-13B)

“It follows that in the instant case the plaintiffs were not only entitled but bound to take proceedings for the enforcement of these covenants.  It follows, too, that they could not have granted expressly to this defendant or any other owner of any unit in the building the right to act in contravention of the deed of mutual covenant as this defendant has done.  What cannot be done expressly cannot be done impliedly.  Although equity will sometimes restrain a plaintiff in the exercise of his legal rights because it would be inequitable and unjust in all the circumstances allow him so exercise those legal rights, equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant.  ...  ...” (p. 13C-E) [emphasis added]

55.The reasoning in these two decisions was adopted in The Incorporated Owners of Champion Court v Pang Ping Fan Peter (above), a case concerning illegal alternation to a roof, where Yuen JA said (at para. 17) as follows :

“... ... incorporated owners cannot acquiesce in the retention of illegal structures is by now well-established. The rationale is that since it is not within the power of incorporated owners to expressly permit illegal structures to the constructed, it is consequently not within their power to acquiesce in their retention, … ...” [emphasis added]

56.It is of crucial importance to note that in all these three cases in paragraphs 53 to 55 above, the court were dealing with breaches of mutual covenant of the type that the incorporated owners simply did not have power to approve,waive or acquiesce.  This, in my view, is the key to understanding these three cases properly.

57.However, not every breach of a mutual covenant is beyond the incorporated owners’ power to approve, waive or acquiesce.  There are breaches of mutual covenants that an incorporated owners can and does have power to approve, waive or acquiesce.  Section 34I(1)(a) of the BMO contemplates such one of such situations as it refers to approval of conversion of common parts by way of resolution of owners’ committee.  Further, in The Incorporated Owners of Champion Court v Pang Ping Fan Peter (above), Yuen JA observed as follows (at para. 15) :

“In any event as the judge rightly pointed out, it is the statutory duty of the Plaintiff to enforce the provisions of the DMC and unlike the breach of a covenant which incorporated owners are capable of acquiescing (e.g. painting the lift lobby outside an owner’s flat in a colour of the owner’s choice), the Plaintiff cannot acquiesce in the retention of illegal structures.” [emphasis added]

58.Understandably, the result isdifferent in cases where the court was dealing with breaches of covenant that the incorporated owners were in a position to approve, waive or acquiesce.  If a party cannot do an act expressly, he cannot do it impliedly or consent to have it done by someone else.  On the other hand, if a party can do an act expressly, there is in principle no objection as to why he cannot do it impliedly or (in the absence of any law preventing delegation of power) allow some other party to do it. 

59.This explains why Ma CJHC held that the defence of acquiescence or waiver was arguable in The Incorporated Owners of Hong Kong House and Senfield Ltd (above) (at paras. 14 and 17).  In that case, the breaches concerning the water tank and the neon sign complained of were breaches that were within the power of the incorporated owners to tolerate.  It is true that the neon sign in that case was an authorized structure and thus was in contravention of the Buildings Ordinance (Cap. 123).  However, as held in Yick Fung Holdings Ltd v Sandwood Ltd (above), it is necessary to focus on the cause of action relied.  If the pleaded claim concerned breaches of mutual covenants, the fact that illegality (such as a breach of the Buildings Ordinance) emerged as part of the background did not preclude a party from raising the defence of acquiescence (paras. 18, 23 and 24).

60.The decision of The Incorporated Owners of Haiphong Manson v Convey Advertising Co. Ltd (above) helps to illustrate this point further.  Having considered Godfrey JA’s above-quoted remark in The Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd (above, at para. 13), Deputy High Court Judge Woolley made the observation (at para. 16) which has been quoted in paragraph 45 above, where the learned Deputy Judge : (1) drew the distinction between a breach which was totally precluded by the deed of mutual covenants and a breach which was not so precluded; and (2) held that acquiescence could be an arguable defence where the act was not totally precluded by the deed of mutual covenants.

61.In Yick Fung Holdings Ltd v Sandwood Ltd (above), the plaintiff was the developer of an industrial centre and owned certain units therein.  Under the deed of mutual covenants, the plaintiff was entitled to exclusive possession of the external walls.  However, many owners altered the external wall of their units.  The plaintiff’s claim for breach of mutual covenants against the defendant was met with the defence of acquiescence.  In response, counsel for the plaintiff, relying on Yuen JA’s observation in paragraph 17 of her learned judgment in The Incorporated Owners of Champion Court v Pang Ping Fan (above) (quoted in paragraph 55 above), advanced a social policy argument to the effect that certain statutes were not susceptible to waiver by contract or estoppel because of public policy considerations (at paras. 19 and 20).  On that basis, the plaintiff contended that it was not within the plaintiff’s power to acquiesced in a breach of the deed of mutual covenants. Le Pichon JA rejected this social policy argument and observed as follows (at para. 21) :

“… … the position of the incorporated owners is very different because they are under a statutory duty to enforce the DMC. The incorporated owners are not in a position to acquiesce in breaches of the DMC because of the duties imposed on them by s.18(1)(c) of the Building Management Ordinance (Cap 344). The plaintiff, as the owner of private rights, namely, the exclusive possession of the exterior walls, is at liberty to waive any infringement of its rights and there is nothing to prohibit it from so doing. In my view, the general social policy argument does not arise on the facts and, certainly, no case has been made out for extending the policy considerations behind s 18 of the Building Management Ordinance to private parties.”

62.Read properly (especially bearing in mind the context of the case and the arguments advanced), the decision of Le Pichon JA does not have the effect of precluding a party from raising the defence of acquiescence against incorporated owners in all cases :

(1)     Le Pichon JA held that the breach in question was within the plaintiff’s power to acquiesce and thus the defence of acquiescence was upheld.  This shows that the availability of the defence of acquiescence depends on whether the breach in question is or is not within the relevant party’s power to acquiesce. 

(2)     When Le Pichon JA stated that the incorporated owners are not in a position to acquiesce in breaches of deed of mutual covenants because of the duties imposed on them by section 18 of the BMO, the learned Judge was making a general observation with reference to Yuen JA’s observation in The Incorporated Owners of Champion Court v Pang Ping Fan (above, para. 17).  The issue of whether there were breaches of mutual covenants that could be acquiesced by an incorporated owners was not relevant to the dispute in that case and Le Pichon JA made no ruling on such an issue.

63.Support for the above analysis (i.e. the need to distinguish between breaches that are within or beyond incorporated owners’ power to waive or acquiesce) can also derive support from similar branches of law. One such branch is the law of estoppel, as there have been suggestions that acquiescence can be regarded as a form of estoppel.  See : Wilken & Villiers, The Law of Waiver, Variation and Estoppel, 2^nd edn., (OUP) para. 6.24 & 6.25; Dandenong Estate Co. Ltd v Yu Kai To t/a Sze Hing Loong Metal Co. [1989] 1 HKC 587, per Deputy High Court Judge Bokhary, QC (as he then was), at pp. 588I-589A; and Patrick Parkinson, The Principles of Equity, 2^nd edn., (Law Book Co.), para. [768] at p. 289. 

64.It is well established that no estoppel can be set up against a party if the effect is to compel that party to perform an act which he does not have power to do.  A contract beyond the powers conferred on a statutory body cannot be validated by the application of an estoppel.  Similarly, no estoppel can confer upon a company power that goes beyond those conferred by its memorandum of association.  On the other hand, if the act in question is within a company’s power to perform, it is trite that an estoppel can be validly set up as a defence.  See : Spencer & Bower, Estoppel by Representation, 4^th edn., para. VII.1.1, VII.2.1 & VII.6.1; and Patrick Parkinson, op. cit., paras. [720] to [721] at pp. 241 to 243.

65.In summary, the position can be stated as follows :

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

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

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

66.Before I move on further, I should add this.  The above discussion is confined to the defence of acquiescence.  The plaintiff’s case also covered waiver and laches. As correctly observed by the defendant’s counsel in his closing submissions, the plaintiff did not distinguish these similar, but technically different, lines of defence.  However, insofar as the question of whether the defence of waiver, acquiescence or laches is available as a defence in the present case is concerned, I am of the view that the position is ultimately the same in the present case, viz., adopting the analysis discussed above, they are in law available to the plaintiff by way of defence to the defendant’s counterclaim for breaches of mutual covenants provided the facts can support them.

(2)     Is the breach in this case within the defendant’s power to acquiesce?

67.It follows that the next question that calls for determination is whether the breach by the plaintiff in the present case is within or beyond the power of the defendant to acquiesce.

68.As discussed above, clause 14 of the DMC vested the right to put up advertisements at the Building in the developer, Mr. Tang Kai. However, as mentioned above, Mr. Tang Kai passed away in 1982.  Thus, as discussed in paragraph 39 above, there can only be two possibilities.  First, Mr. Tang Kai’s right to put up advertisement at the Building has lapsed since his death and that such a right reverted to common ownership under the control of the defendant.  Second, the right has been passed on to Mr. Peter Tang as successor to Mr. Tang Kai.  As between these two possibilities, I am of the view that the first one is the correct answer in the present case.

69.In the decision of Incorporated Owners of Cheong Wang and Cheong Wai Mansion v HKSAR [2001] 1 HKC 57, the developer reserved to itself the exclusive right to fix notices to the outside wall of the building.  Upon the liquidation of the developer, Deputy High Court Judge Woolley held that the developer’s right that it had reserved under the deed of mutual covenants was extinguished, but was reverted to the common owners of the building (at p. 61E-H).  As noted above, the learned Deputy Judge made the same point in his subsequent decision in The Incorporated Owners of Haiphong Manson v Convey Advertising Co. Ltd (above, at para. 17) (quoted in paragraph 45 above). 

70.By parity of reason, the right to put up advertisements at the Building, which was originally vested in Mr. Tang Kai under clause 14 of the DMC, was extinguished upon his death and such right reverted to the common ownership under the control of the defendant as the incorporated owners of the Building. In other words, once Mr. Tang Kai passed away, the right to put up advertisements at the Building (including the Canopy) was and remains vested in the co-owners of the Building and managed by the defendant.

71.Further, Mr. Peter Tang throughout the trial did not assert his right as a successor of Mr. Tang Kai. By giving testimony in support of the defendant’s case including its counterclaim, Mr. Peter Tang necessarily accepted that the right to put up advertisements at the Building has been vested in the defendant once his father passed away. Otherwise, Mr. Peter Tang would have applied to join in this action and intervene in the defendant’s counterclaim. Not only did Mr. Peter Tang participate in this action and elect not to assert any right to put up advertisements at the Building, he indicated during cross-examination that the defendant might consider liaising with advertising companies in respect of the use of the Canopy for advertising purpose in the event the defendant’s counterclaim succeeds.

72.For completeness sake, I should mention that one may venture to suggest a third possibility, viz., the right to put up advertisement at the Building has simply extinguished upon the death of Mr. Tang Kai and since then no one has any right to put up advertisements at the Building.  Not only is this suggestion contrary to the two above-cited decisions by Deputy High Court Judge Woolley, it is not open to the defendant.  As noted above, the defendant’s own witness Mr. Peter Tang indicated that the defendant might consider allowing advertising companies to put up advertisements at the Canopy if its counterclaim is upheld.  This shows that the defendant’s own stance is that it has the right to put up (or to grant licence to third parties to put up) advertisements at the Canopy.

73.Once this conclusion is reached, it follows that the breach by the plaintiff is a breach that is within the defendant’s power to acquiesce.  As the defendant has the right to put up advertisements at the Canopy, it certainly has the right to grant licence to any third party, be it an advertising company or some other third party such as the plaintiff, to put up advertisements at the Building. (See again per Deputy High Court Judge Woolley in The Incorporated Owners of Haiphong Mansion v Convey Advertising Co. Ltd (above) at para. 16, quoted in paragraph 45 above.) As the defendant has the right to permit a third party to put up advertisements at the Canopy, it certainly has the power to acquiesce in such activity being carried out in the absence of an express permission.  When cross-examined, Mr. Peter Tang very fairly accepted that the Advertisement Boards at the Canopy have not created any nuisance or hazard.  Besides, the defendant has not sought to argue at this trial that the Advertisement Boards are illegal structures in the sense that they contravene the Buildings Ordinance.

74.In the circumstances, I am of the view that it is in law open to the plaintiff in this action to run acquiescence as a defence to the defendant’s counterclaim provided the facts support such a defence.

(3)     Is the defence of waiver, acquiescence or laches proved

75.In De Bussche v Alt (1878) L.R. 8 Ch.D.286, Thesiger LJ expounded as follows (at p. 314) :

“If a person having a right, and seeing another person about to commit, or in the course of committing an act infringing upon that right, stands by in such a manner as really to induce the person committing that act, and who might otherwise have abstained from it, to believe that he assents to its being committed, he cannot afterwards be heard to complain of the act. This, as Lord Cottenham said ... ... is the proper sense of the term acquiescence, and in that sense it may be defined as quiescence under such circumstances as that assent may be reasonably inferred from it ... ...”

76.In Spry, The Principles of Equitable Remedies, 8^th edn., the learned author explained (at p. 440) that the defence of acquiescence arises if two conditions are satisfied : first, there must, on the part of the plaintiff, be an assent or lying by in relation to the acts of another person; and secondly, in view of that assent or lying by and consequent acts it must be unjust in all the circumstances to grant the specific relief that is in question. 

77.As discussed in paragraph 25 above, the plaintiff’s use of the Canopy for the purpose of advertising can be divided into two stages.  The first stage concerns the putting up of light boxes. This stage can be dealt with briefly. It is not disputed that the defendant raised no complaint about the plaintiff’s conduct in respect of the light boxes. However, the defendant’s counsel submitted that even if the defendant has acquiesced in the putting up of light boxes by the plaintiff, it does not mean that the defendant has acquiesced in the putting up of the Advertisement Boards which are breaches of a much more serious magnitude. The decision of Dandenong Estate Co. Ltd v Yu Kai To t/a Sze Hing Loong Metal Co. (above) was cited in support of this submission. I agree. The breach constituted by the putting up of the Advertisement Boards is of a wholly different scale.

78.As regards the second stage concerning the putting up of Advertisement Boards, I am of the view that the defendant had acquiesced in the plaintiff’s conduct at least during the period when they were first put up until the time when the first complaint letter was sent by WKLL in February 2007.

79.As can be seen from the various photographs produced at the trial and as is not disputed by the defendant, the Advertisement Boards put up at the Canopy were huge in size and very eye-catching.  There is no question, as indeed accepted by Mr. Peter Tang, that the defendant must have noticed the existence of the Advertisement Boards once they were put up in late 2000 or early 2001. 

80.The Building is located in one of the prime shopping areas in Mongkok.  It is a matter of common sense that substantial revenue would or could be derived from the putting up of advertisements such as those in the form of the Advertisement Boards at the Canopy. This is not, and in any event cannot be, disputed by the defendant. 

81.After the Advertisement Boards were put up, the defendant must necessarily know that the same was done without its consent since it had not allowed any party to do so. At the time (and up till now), the plaintiff and the defendant were the only two incorporated bodies dealing with the management of the Building. The Advertisement Boards were put up at the Canopy, which was physically within the boundary of the Shopping Centre. In such circumstances, it would just be natural for any party in the position of the defendant to infer, or at least suspect, that the plaintiff was involved in the putting up of the Advertisement Boards. In any event, it would not be difficult to find out whether the plaintiff was involved in the putting up of the Advertisement Boards. Yet, nothing much, if at all, was done until 2007. 

82.According to Mr. Peter Tang, the matter was left to be dealt with by a Mr. Fung Hin Bill (“Mr. Fung”). Mr. Fung was at all material times until 2006 a full time staff of the plaintiff, who provided secretariat support to the management committee and other managerial duties including collection of management fees and coordination of all other building matters.  Apart from Mr. Fung, security attendants or watchmen were also employed and were apparently supervised by Mr. Fung. However, Mr. Fung apparently did not do much, if any, to follow up with the matter.  More importantly, despite such failure on the part of Mr. Fung, the defendant chose not to take any follow up actions. There is no suggestion, let alone evidence, that Mr. Fung had been instructed by the defendant to contact the plaintiff or otherwise make enquiry as to the putting up of the Advertisement Boards.  Nor had the defendant seen fit to instruct some other persons (such as a member of the management committee of the defendant) to follow up the matter in light of Mr. Fung’s blatant inaction.  Further, as is not in dispute, the defendant did not make any complaint until the first complaint letter sent on its behalf by WKLL in February 2007. In short, the defendant had allowed Advertisement Boards to be put up at the Canopy and to remain there for about six years without taking any steps before the first complaint letter was issued. 

83.In Yick Fung Holdings Ltd v Sandwood Ltd (above), Le Pichon JA dealt with the issue of knowledge for the purpose of establishing acquiescence and expounded as follows (at para. 28) :

“As to requisite knowledge, Ms Lam helpfully and accurately set out the following propositions, distilled from the authorities, with which I agree:

(1) It is sufficient that at the relevant time the party concerned knew of the facts or matters that gave rise to his right to equitable relief, even although he may not have fully understood, as a question of law, the rights that he possessed. The paramount question relates to the justice or injustice of granting the particular relief that is sought and the degree of knowledge required in any situation must depend on all other circumstances ... ...

(2) It is thus sufficient that the party knew the facts ‘constituting the title to relief’ ... ...

(3)    It is ordinarily sufficient that the plaintiff has been put on suspicion, that is, that he is aware of sufficient matters to raise in his mind a doubt whether an infringement of his rights has taken place.  ...  ....”

84.Applying these principles in this case, I am satisfied that the plaintiff has established the requisite knowledge on the part of the defendant to set up the defence of acquiescence. As discussed above, there cannot be any doubt that the defendant was aware of the fact of the breach (i.e. the putting up of Advertisement Boards at the Canopy). Equally, the defendant must be aware that the putting up of the Advertisement Boards amounted to unauthorized use of the common areas of the Building and thus a breach of mutual covenants. The matter was so obvious that any person in the position of Mr. Peter Tang (or his fellow management committee members) must be in a position to know. In addition, as discussed above, it would not be difficult to infer, or at least the defendant would have suspected, that the plaintiff was involved in the putting up of the Advertisement Boards. Yet, nothing was done until 2007.

85.During the period when as no objection was raised by the defendant, it is understandable that the plaintiff would be under the apprehension that it could lawfully allow the advertising companies to put up Advertisement Boards. In this regard, counsel for the defendant had cross-examined Mr. Cheng as to why the plaintiff believed it was entitled to make use of the Canopy for advertising purpose. Mr. Cheng simply said he did not think about it that much as the plaintiff had all along been using the Canopy. Counsel for the defendant submitted that Mr. Cheng failed to put forward a satisfactory explanation. I do not agree. In my view, one should consider Mr. Cheng’s answer together with the objective circumstances. The plaintiff at the time managed the Shopping Centre, while the defendant managed the residential units. The Canopy was physically within the boundary of the Shopping Centre. When light boxes were put up by the plaintiff, the defendant raised no objection. When the Advertisement Boards were subsequently put up, again the defendant did not object. In such circumstances, it is understandable that the plaintiff simply proceeded to discuss with the advertising companies and allow them to put up Advertisement Boards at the Canopy. 

86.Counsel for the defendant sought to rely on the following observation made by Deputy Judge Yung, sitting as Presiding Officer of the Lands Tribunal, in The Incorporated Owners of Hamilton Mansion v Yu Kiem Chiu [1998] 1 HKLRD 62 (at p. 69D-F) :

“... ... I should also take into consideration that an owners incorporation of a multi-storey building in Hong Kong can only be as efficient as the management committee which runs its management. Those who sit in the committee are not professional building managers, and they can only utilise their spare time for the committee work. If it does not employ any professional firm to manage the building, certain amount of tardiness and laches in enforcing the DMC is to be expected. One also must not lose sight of the fact the applicant is under a statutory duty to enforce the DMC. A reasonable man and ordinary person should not too readily come to conclude that the applicant would not carry out this statutory duty. ... ...”

87.I agree with the observation by Deputy Judge Yung.  However, while it may be reasonable to give a certain degree of latitude to people like Mr. Peter Tang who did not deal with the management of the Building on a full-time basis, a balance has to be struck and the latitude to be allowed is not without limit. In the present case, even taking into account the observation by Deputy Judge Yung, I am of the view that the inaction on the part of the defendant is well beyond what one would expect of an incorporated owners in the circumstances. The defendant simply left the matter to Mr. Fung without any supervision.  When Mr. Fung failed to discharge his duties, no follow-up action was taken.  In the circumstances, the first condition in the test expounded in Spry, op. cit. (See paragraph 76 above) is satisfied.

88.Is it unjust in all the circumstances to grant the specific relief sought by the defendant (the second condition in Spry, op. cit.)?In my view, the answer is in the affirmative. 

89.As Mr. Cheng testified, the revenue derived from the Advertisement Boards accounts for around 50% of the plaintiff’s total income.  The balance of the plaintiff’s income is derived from management fees collected from units in the Shopping Centre.  The advertising revenue has been used to discharge the management expenses.  In other words, the income was collected and spent. 

90.Viewed thus, at least up till February 2007 when the plaintiff received WKLL’s letter (being the first letter of complaint from the defendant), the plaintiff would be organizing its affairs on the basis that the advertising income would form part, if not a significant part, of its income. Although there is no direct evidence, a natural and logical inference from the primary evidence is that the plaintiff had been operating on the basis that there would be advertising income during the six years from around late 2000 or early 2001 up till February 2007.  Another natural and logical inference, which is no more than a corollary of the first, is that the amount of management fees collected from the individual owners of the Shopping Centre during those six years was fixed after taking into account the potential advertising revenue.  If the defendant is now allowed to assert its claim for breach of mutual covenants, it would be difficult, if not impossible, for the plaintiff to deal with the situation.

91.At this juncture, I should perhaps deal with the submission by the defendant’s counsel that the plaintiff failed to plead the necessary elements of the defence of acquiescence, laches or waiver. If one solely looks at the plea in paragraph 10A of the Amended Defence to Counterclaim alone, the submission may appear arguable (although I doubt if it is necessary to plead in as detailed a manner as submitted in paragraph 7.18 of the defendant’s closing submissions, especially when one is dealing with acquiescence or laches). However, while a party has to plead his case properly and sufficiently, the pleadings should be looked at as a whole in their proper context and one should not be over-technical in respect of pleadings especially where no prejudice is suggested. Ultimately, the objective of pleadings is to inform the opposing party the issues that he needs to address. In this case, paragraph 10A of the Amended Defence to Counterclaim should not be read alone, but should be read together with paragraph 10 which referred to paragraphs 8 to 11 of the Statement of Claim. In paragraph 11 of the Statement of Claim, the plaintiff pleaded its use of the Canopy as well as the granting of licence to others for the purpose of putting up Advertisement Boards in return for fees. Hence, although the point could have been made clearer, it is reasonably clear that the plaintiff intended to rely on the matters pleaded in paragraph 11 of the Statement of Claim to support its defence of acquiescence, wavier or laches. Besides, there is no suggestion that the defendant did not know what case it had to meet. The defendant was not prejudiced even if any criticism can be made in respect of the way the plea of acquiescence, wavier and laches is set out in the plaintiff’s pleadings. 

92.In the circumstances, I am satisfied that the plaintiff has established acquiescence in respect of the putting up of Advertisement Boards at the Canopy up to at least the time the first complaint letter was sent in February 2007. 

93.What about the plaintiff’s breach after February 2007?The position is, in my view, different.  According to Mr. Cheng’s testimony and as is reviewed in the letter dated 6 June 2007 from EGL’s solicitors to WKLL (see paragraph 12 above), the plaintiff entered into the EAAL Contract in December 2006. As noted above, the EAAL Contract was for a term of two yearsfrom 1 December 2006 to 30 November 2008.  According to Mr. Cheng, this contract was renewed for two further years from November 2008 (although details of the renewal were not before this court), i.e. the Renewed EAAL Contract.

94.Before the EAAL Contract expired in November 2008, the plaintiff was already aware of the defendant’s objection.  By then, not only had the plaintiff received the letter dated 1 February 2007 from WKLL, the defendant’s counterclaim had already been lodged.  Thus, while the plaintiff might not be able to terminate the EAAL Contract before its original term expired in November 2008 without serious consequences, the defendant surely cannot rely on acquiescence when it renewed the EAAL Contract for another two years from 30 November 2008.  By then, the defendant had made its position crystal clear.  Accordingly, I am satisfied and do find that the Advertisement Boards put up pursuant to the Renewed EAAL Contract amounted to a breach of the DMC and appropriate relief should be granted to the defendant.

95.The above discussion is confined to the defence of acquiescence.  As far as laches is concerned and after having considered the relevant authorities (such as Snell’s Equity, 31^st edn., para. 5-19, adopted in Incorporated Owners of Man Hong Apartments v Kwong Yuk Ching [2001] 3 HKC 116, per Mayo VP at pp. 123I-124E; and Chitty on Contracts, 30^th edn., Vol. 1, para. 28-137), I am of the view that the ultimate result in the present case should the same although the test for laches have been put in slightly different terms.  (For instance, in Nelson v Rye [1996] 1 WLR 1378, the test is where in all the circumstances the balance of justice lies; in Frawley v Neill, Times (5 April 1999), the court held that it is relevant to consider whether it would in all the circumstances be unconscionable for a party to be permitted to assert his rights.)  On the facts of this case and for the reasons discussed above, I am of the view that it would be inequitable and unconscionable to allow the defendant to assert any claim against the plaintiff in respect of the breaches that took place before the first complaint letter sent by WKLL in February 2007.

96.As regards the defence of waiver, I do not find it necessary to deal with it in any detail.  Once the defence of acquiescence or laches is accepted, the result will not be different irrespective of whether the plaintiff’s defence of waiver is or is not to be upheld as well.  Suffice it to say that if necessary, I will likewise uphold the defence of waiver.

97.In summary, I find and rule as follows :

(1)     the Advertisement Boards put up or allowed to be put up by the plaintiff at the Canopy since around late 2000 or early 2001 constituted a contravention of section 34I(1) of the BMO and a breach of the DMC;

(2)     however, given the total inaction on the part of the defendant, the plaintiff succeeds in its defence of acquiescence, laches or waiver up till the time the original term of the EAAL Contract expired on 30 November 2008; (although the defendant complained by letter in February 2007, by then the EAAL Contract had been made and it would be inequitable to deprive the plaintiff of the benefit conferred by the EAAL Contract since the EAAL Contract was entered into at a time when there was no complaint from the defendant); and

(3)     from the time the original term of the EAAL Contract expired on 30 November 2008, no defence of acquiescence, laches or waiver could be set up by the plaintiff since by then the plaintiff should be clearly aware of the defendant’s position; in other words, the defence failed in respect of the Advertisement Boards put up pursuant to the Renewed EAAL Contract.

RELIEF AND ORDER

98.The last key question to be dealt with is that of relief.  In light of my above ruling and having considered the parties’ submissions on the relief to be granted, I am of the view that the defendant should only be granted appropriate relief in respect of the plaintiff’s breaches that took place after 30 November 2008 but not before.  Further, since third parties’ interests are involved (such as those of EAAL or those customers who had paid for the advertisements to be placed on the Advertisement Boards), I would exercise this court’s discretion to tailor the relief in such a way as to avoid any undue impacts on the third parties. 

99.Having considered all the relevant factors, I make the following order :

(1)     the plaintiff’s claim for adverse possession in respect of the Canopy is dismissed;

(2)     there be a declaration that the plaintiff is entitled to keep all the revenue or income derived from the putting up of Advertisement Boards at the Canopy up to 30 November 2008;

(3)     the plaintiff do file and serve an affirmation or affidavit (through one of its director or officer) within 21 days from the date of the Order disclosing details of the Renewed EAAL Contract including, but not limited to :

(a)   the exact expiry date of the term under the Renewed EAAL Contract (“Relevant Date”);

(b)   all the terms and conditions of the Renewed EAAL Contract including those terms that touch on the payments payable to the defendant;

(4)     unless with the consent of the defendant and with effect from the expiry of 14 days after the Relevant Date, the plaintiff (whether by itself, its officers, agents or otherwise) be restrained from putting up or allowing any other party to put up any advertisement boards, signage, notices or any other objects at the Canopy on or after the Relevant Date;

(5)     the plaintiff shall (within 14 days from the Relevant Date) demolish or procure the demolition of all the Advertisement Boards that were put up or allowed to be put at the Canopy pursuant to the Renewed EAAL Contract and that remain on or after the Relevant Date, failing which the defendant shall be at liberty to so demolish or procure such demolition and any reasonable costs so incurred shall be paid by the plaintiff to the defendant (to be assessed by a Master if the amount cannot be agreed by the parties);

(6)     unless the amount can be agreed by the parties, an account to be taken of all sums due from the plaintiff to the defendant in respect of the net profit that the plaintiff has derived from the putting up of Advertisement Boards at the Canopy pursuant to the Renewed EAAL Contract since 30 November 2008;

(7)     the plaintiff do pay to the defendant all the sums found to be due upon the taking of the account ordered in (6) above, together with interest as provided for in (8) below;

(8)     there be interest on the sums payable by the plaintiff to the defendant after the taking of account at the rate of 1% over the Hong Kong dollar prime rate as published by the Hongkong and Shanghai Banking Corporation Ltd from 1 December 2008 until the date of this order, and thereafter at judgment rate; and

(9)     liberty to apply in the event further directions are necessary for the carrying out of this order.

100.Although I have ordered an account to be taken but in view of the underlying objective of the Civil Justice Reform that parties should co-operate and should try to settle as much as possible, I would encourage the parties to try to agree on the amount payable.  While it is not appropriate for this court to make an order at this stage, I would suggest the plaintiff to make full disclosure of documents (including accounts) to the defendant so that the amount of advertising revenue can be ascertained with a view to facilitating an agreement on the amount payable by the plaintiff.  The sooner the relevant documents are disclosed, the sooner the parties can put their heads together to ascertain the amount payable and thereby, hopefully, reduce further legal costs. 

101.Although the plaintiff was partially successful, the defendant remained on the whole the successful party of this action. Besides, the plaintiff’s claim for adverse possession is dismissed and it only accepted that the Canopy is part of the common parts of the Building on the first day of the trial.  After considering all the relevant factors, I also make an order nisi that the plaintiff do pay to the defendant 80% of the costs of this action (including costs previously reserved, if any) on a party-to-party basis to be taxed if not agreed.

102.Lastly, I thank both counsel for their able assistance throughout this trial.

Mr. Johnathan Wong, instructed by Messrs. John Ip & Co., for the Plaintiff

Mr. Paul Lam, instructed by Messrs. Woo, Kwan, Lee & Lo, for the Defendant

Plaintiff's appeal dismissed by Court of Appeal. Please refer to CACV185/2010 dated 4 August 2011