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

CACV 185/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 185 OF 2010

(ON APPEAL FROM HCA NO. 1582 OF 2007)

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Before: Hon Kwan, Chu JJA and Lam J in Court

Date of Hearing: 22 June 2011

Date of Handing Down of Judgment: 4 August 2011

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JUDGMENT

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Hon Kwan JA:

1.This is the plaintiff’s appeal from the judgment of Recorder Yuen, SC handed down on 16 August 2010. The dispute concerned the use of an external concrete canopy (“the Canopy”) in the shape of a flat platform between the Ground Floor and Mezzanine Floor of the Wing Wah Building (“the Building”), which is situated at the junction of Sai Yeung Choi Street South and Shan Tung Street in Mongkok, Kowloon.

2.The relevant background matters, taken largely from the judgment of the Recorder, may first be stated as follows.

The background

3.The Building was completed in the late 1950s and is a mixed commercial and residential building.  The commercial units are located on the Ground Floor, Mezzanine Floor and 1^st Floor.  The residential units are on the 2^nd to 10^th Floors.  The Canopy in the shape of a flat platform protrudes from the external walls of the Building facing Shan Tung Street and across the entire façade of the Building along Sai Yeung Choi Street South.  There is a void or air space between the underside of the floor slab of the 2^nd Floor and the Canopy which is between the Ground Floor and Mezzanine Floor.

4.The developer, Tang Kai, and all the then owners of units in the Building entered into a deed of mutual covenant (“the DMC”) on 1 October 1966.  There is no specific reference to the Canopy in the DMC.

5.The defendant, being the incorporated owners of the Building, was incorporated on 15 April 1971 and was appointed the manager of the Building under the DMC for the management and maintenance of the residential units.  The defendant had not engaged any professional property company to manage the Building until 2006.

6.Tang Kai passed away in 1982.  The undivided shares in the Building previously owned by him were first passed on to his two sons, one of them being Peter Tang Kam Wah.  Peter Tang later acquired his brother’s interest and has since remained the sole owner of the undivided shares previously owned by his father.  He had served as a member of the management committee of the Building in the 1980s and is the present chairman of the defendant.

7.In 1979, two shops on the Ground Floor and all the shops on the Mezzanine Floor and 1^st Floor of the Building were assigned to a company Gladford Ltd. which re-organised the premises into a shopping arcade known as the Hollywood Shopping Centre (“the Shopping Centre”).  On 23 May 1980, a sub-deed of mutual covenant (“the Sub-DMC”) was made between Gladford Ltd. and the owner of one of the shop units 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 procured the incorporation of the plaintiff, the Hollywood Shopping Centre Owners Committee Ltd., and the plaintiff was appointed the manager of the Shopping Centre.

8.According to the evidence of the plaintiff’s officer Cheng Kan Kwong, the plaintiff first made limited use of the Canopy in around 1985 when it put up light boxes along the Canopy. The ledgers and receipts produced by the plaintiff contained references to the light boxes since January 1988.  From the time the light boxes were first put up by the plaintiff until around 2000, the total number of light boxes did not exceed seven.  Before 2000, there were other light boxes along the Canopy put up by parties who operated their businesses at the Building.  This was done without the plaintiff’s consent and without the payment of fees to the plaintiff.

9.In April 2000, an advertising company approached the defendant with a proposal requesting an exclusive right to put up advertisements at the Building with an arrangement to share the profits derived.  This was not actively followed up and no deal was concluded with the defendant.

10.Since a date between late 2000 and early 2001, huge advertisement boards (“the Advertisement Boards”) were affixed at the Canopy, enclosing the entire air space or void between the underside of the floor slab of the 2^nd Floor and the Canopy. The Advertisement Boards sat on the Canopy and were supported by brackets and steel bars mounted against the external wall of the Mezzanine Floor and 1^st Floor.

11.The defendant made no inquiry or complaint about the Advertisement Boards until it had appointed a professional property company to take over the management.  On 1 February 2007, the defendant’s solicitors wrote to the plaintiff asserting for the first time that the external wall including the Canopy was part of the common parts of the Building, that the Advertisement Boards were put up in contravention of s 34I of the Building Management Ordinance, Cap. 344 (“the BMO”), and asking the plaintiff whether it had entered into any contract with advertising companies.  The plaintiff did not reply to this letter.

12.In June 2007, the defendant obtained a copy of a contract dated 1 December 2006 (“the EAAL Contract”) made between Easy Advertising Agency Ltd. (“EAAL”) and the plaintiff by which the plaintiff appointed EAAL as the sole advertising agent in respect of the Advertisement Boards for two years from 1 December 2006 to 30 November 2008.  At the trial in September 2009, it transpired that the EAAL Contract had been renewed for another two years (“the Renewed EAAL Contract”).

13.The defendant’s solicitors wrote to the plaintiff and EAAL on 26 June 2007 demanding them to admit liability for trespass.  Messrs. John Ip & Co. wrote on the plaintiff’s behalf on 3 July 2007 stating that the Canopy and the fixtures thereon did not form part of the common parts of the Building, and that at all times the Canopy and the spaces enclosed were only physically accessible to and from the Mezzanine Floor and 1^st Floor and the Canopy was for the use and enjoyment of the shops in the Shopping Centre to the exclusion of the owners of the residential units or the defendant.

14.On 23 July 2007, the plaintiff issued the writ in this action for declaratory relief, alleging that it had acquired title to and ownership of the Canopy by adverse possession under the Limitation Ordinance, Cap. 347.  It claimed a declaration to this effect, a declaration that it was and is entitled to receipt of all the income and fees derived from the licence and use of the Canopy since June 1985, and a declaration that the Canopy did not form part of the common parts of the Building.

15.The defendant disputed the claim for adverse possession.  In the defence and counterclaim, it was pleaded that on a proper construction of the DMC, the external wall and the Canopy were the common parts of the Building, and that the plaintiff had converted the common parts in contravention of s 34I of the BMO.  The defendant counterclaimed for an order that the plaintiff should demolish and remove the Advertisement Boards from the Canopy, an injunction to restrain the plaintiff from placing or permitting third parties to affix advertisement boards or any objects to the external wall and Canopy, an account of all sums due to the defendant in respect of profits that the plaintiff had derived from the wrongful acts as alleged, and an order for payment on the taking of the account.

16.In the amended reply and defence to counterclaim, the plaintiff asserted that the defendant knew of the advertisements and signage erected by the plaintiff and had made no objection or complaint from 1985 to 2005.  The plaintiff relied on acquiescence, waiver and laches to preclude the defendant from equitable reliefs if the Canopy were held to be part of the common parts of the Building and the plaintiff were in breach.

The judgment of the Recorder

17.At the commencement of the trial, counsel for the plaintiff (not its present counsel on appeal) informed the Recorder he had just received formal instructions insofar as the issue of the Canopy was concerned, it was the plaintiff’s position that it is a common area of the Building.  And although counsel was not expressly abandoning the adverse possession point, he informed the judge that this claim would not be vigorously pursued.

18.In the light of this indication by the plaintiff’s counsel, the Recorder formulated the issues for his determination as follows: (1) whether the claim for adverse possession could be sustained; and (2) if the claim for adverse possession should fail, (a) whether the plaintiff was nevertheless entitled to put up the Advertisement Boards at the Canopy, or whether this was in breach of s 34I of the BMO; (b) if the plaintiff was in breach, whether the defendant was precluded by acquiescence, waiver or laches from maintaining its counterclaim against the plaintiff; and (c) what remedies should be granted if the defendant should succeed on its counterclaim.

19.The judge found on the evidence the plaintiff had plainly failed to establish adverse possession.  The plaintiff’s occupation and use of the Canopy could be divided into two stages, the first period was from the 1980s to 2000 when only light boxes were put up, and the second period was from the time the Advertisement Boards were affixed.  There was no exclusive control or occupation of the Canopy by the plaintiff before 2000.  As there was insufficient length of time to establish adverse possession, this claim was bound to fail.  Furthermore, the plaintiff had agreed with the defendant in December 2000 to bear half of the costs for remedial works to the Canopy pursuant to an order of the Building Department.  This showed that the plaintiff did not have the requisite mental element for adverse possession.  So the plaintiff’s claim for adverse possession was dismissed.

20.Turning to the counterclaim, the judge remarked that once it was 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.  By allowing advertising companies to put up the Advertisement Boards at the Canopy for profit, the plaintiff had plainly converted the Canopy, being part of the common parts of the Building, to its own use.  Such conversion had not been approved by a resolution of the owners committee.  He held that the plaintiff was in breach of s 34I(1)(a), and consequent upon that there was also a breach of the DMC as provided for in s 34I(2)[1].

21.On the issue of acquiescence, waiver or laches, the defendant contended that such a defence is bad in law as it is the defendant’s statutory duty to enforce the DMC.  As the defendant could not have expressly granted to the plaintiff or the owner of any unit in the Building the right to act in contravention of the DMC, it could not do so impliedly by acquiescence, waiver or laches.  The judge considered two lines of relevant authorities[2] and came to the view that the cases could be reconciled as they dealt with different types of breaches and thus the outcome of the decisions was different.  The position at law was summarised in paragraph 65 of his judgment 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.”

22.The judge referred to clause 14 of the DMC, which vested the right to put up advertisements in any part of the Building in the developer Tang Kai.  He found that this personal right was extinguished upon Tang Kai’s death in 1982 and was reverted to common ownership under the control of the defendant as the incorporated owners of the Building.  He held that the breach by the plaintiff was a breach within the defendant’s power to acquiesce.

23.The judge found on the evidence that the defendant had acquiesced in the plaintiff’s conduct during the second period of user when the Advertisement Boards were put up in late 2000 or early 2001, until the time when the first complaint letter was sent by the defendant’s solicitors in February 2007.  By then, the EAAL Contract had been made and it would be inequitable to deprive the plaintiff of the benefit conferred until its term expired on 30 November 2008.  He held that the plaintiff had established requisite knowledge on the defendant’s part and that it would be unjust in all the circumstances to grant the specific relief sought by the defendant up to 30 November 2008.

24.In respect of the plaintiff’s breach after 30 November 2008, the judge came to a different decision. Well before the EAAL Contract expired in November 2008, the plaintiff had become aware of the defendant’s objection.  There was the letter of complaint in February 2007 and the defendant’s counterclaim was filed in September 2007.  He held that no defence of acquiescence, laches or waiver could be set up in respect of the Advertisement Boards put up pursuant to the Renewed EAAL Contract. 

25.The judge therefore granted relief to the defendant in respect of the breach that took place after 30 November 2008.  He made a declaration that the plaintiff is entitled to keep all the revenue derived from the Advertisement Boards up to 30 November 2008.  The plaintiff was required to disclose on affidavit the terms and conditions of the Renewed EAAL Contract including the exact expiry date. An injunction was granted to restrain the plaintiff from putting up any advertisement boards and signage at the Canopy with effect from 14 days after the said expiry date, unless with the defendant’s consent.  The plaintiff was ordered to demolish the Advertisement Boards within 14 days from the said expiry date.  An account was to be taken of all sums due from the plaintiff to the defendant in respect of the net profit the plaintiff had derived from the Advertisement Boards pursuant to the Renewed EAAL Contract since 30 November 2008 with an order of payment to the defendant.  The plaintiff was ordered to pay the defendant 80% of the costs of the action.

The issues on appeal and cross appeal

26.The principal legal arguments advanced by the plaintiff on appeal bore no resemblance to its arguments in the court below.  Notwithstanding the grounds in the re-amended notice of appeal, the plaintiff did not pursue its claim for adverse possession on appeal and merely sought to overturn the judgment on the counterclaim.  It asked for leave to withdraw the concession made by its previous counsel at trial that the Canopy is a common part of the Building, and sought to raise an entirely new point that its uninterrupted user of the Canopy for more than 20 years since 1985 was capable of constituting a prescriptive right based on the doctrine of lost modern grant. 

27.The defendant cross-appealed to set aside that part of the judgment granting a declaration that the plaintiff is entitled to keep all the revenue derived from the Advertisement Boards up to 30 November 2008. 

28.The issues on the appeal and cross appeal may be stated as follows:

(1) if the plaintiff should be permitted to withdraw its concession that the Canopy is a common part of the Building;

(2) if the answer to (1) is yes, whether the Canopy is a common part of the Building;

(3) if the plaintiff should be permitted to raise the issue of easement which was not canvassed at trial;

(4) if the answer to (3) is yes, whether the plaintiff had acquired a prescriptive right to use the Canopy based on the doctrine of lost modern grant;

(5) in the event the plaintiff was in breach of the DMC, if the waiver by the defendant in respect of the use of the Canopy should be regarded as permanent;

(6) if the plaintiff should be permitted to rely on a change of position defence in respect of the Renewed EAAL Contract; and

(7) if waiver, acquiescence and laches could be relied on by the plaintiff in respect of its breach from about 2000 to 30 November 2008.

Withdrawing the concession

29.The plaintiff’s solicitor Mr John David Ip filed an affidavit to explain how the concession came to be made, when it was pleaded in the plaintiff’s pleadings that the Canopy did not form a common part of the Building.  Notwithstanding Mr Ip’s written instructions to counsel to conduct the plaintiff’s case as pleaded, counsel at trial took a firm view it was difficult to argue that the Canopy did not form a common part and advised against maintaining this position.  Mr Ip decided to accept that advice, as he had not been able to find any decided case in support of his view, which was different from counsel, from his earlier researches.  After judgment was given, he came across the case of Incorporated Owners of Po Lok Building v. Leung Koon & Others, CACV 194 of 2005, 4 May 2006, which he claimed would lend support to the plaintiff’s case that the Canopy was not a common part of the Building.

30.Where a party has omitted to take a point at the trial and then seeks to raise that point on appeal, he will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken at the trial (Flywin Co. Ltd. v. Strong & Associates Ltd. (2002) 5 HKCFAR 356 at para.38).  Whether the Canopy is a common part of the Building is a matter of law.  Mr Jeremy Cheung, who appeared with Ms Candy Tang, submitted for the plaintiff that although the Flywin principle would apply to the withdrawal of a concession made at trial on appeal, the appeal court cannot be bound by a concession regarding a question of law which it holds to be erroneous (Paquito Lima Buton v. Rainbow Joy Shipping Ltd. Inc. (2008) 11 HKCFAR 464 at para. 11).

31.Mr Paul Lam, who appeared for the defendant, was not opposed to permitting the plaintiff to withdraw its concession on appeal, even though he did not accept the concession was in any way erroneous.

32.I would permit the concession to be withdrawn, in view of the fact that this concerned a question of law and there is no dispute on the documentary evidence which formed the factual basis of the concession. 

Is the Canopy a common part of the Building

33.The plaintiff’s latest argument that the Canopy is not a common part of the Building went through a number of twists and turns and was not entirely easy to follow as the various permutations were not pleaded in the plaintiff’s pleadings.

34.What was tolerably clear, at least, was that in his written submission in reply, Mr Cheung accepted that the statutory definition of “common parts” should have no application to this case, as the DMC was executed on 1 October 1966, before the predecessor of the BMO, namely the Multi-storey Buildings (Owners Incorporation) Ordinance, was enacted on 19 June 1970.  Of the many cases cited by Mr Cheung, a number of authorities would have no relevance at all as the discussion in those cases was based on the statutory definition or the definition in a particular conveyancing document considered by the court.  Mr Cheung also abandoned reliance on the case of Incorporated Owners of Po Lok Building v. Leung Koon & Others, mentioned in the affidavit of his instructing solicitor.  I would agree with him that case could not possibly provide support for the plaintiff’s argument that the Canopy is not a common part.

35.In his initial submission, Mr Cheung relied on the alleged exclusive use of the Canopy by the plaintiff, as representing all the owners of units in the Shopping Centre, to contend that by this usage the Canopy could not be regarded as a common part.  This argument was problematic, for a number of reasons as submitted by Mr Lam.

36.Firstly, the mere fact that the plaintiff had exclusive use and occupation of the Canopy is not good enough, assuming this was established on the evidence.  The question is whether the plaintiff had the right to exclusive use and occupation.  The Canopy cannot be arrogated unilaterally to the exclusive use of a particular owner or owners of the undivided shares in the land and building.  There is no question here of the unilateral acquisition of a possessory title of the Canopy as the plaintiff’s claim for adverse possession was dismissed by the judge.

37.Secondly, on the plaintiff’s argument, it is not clear who was or were entitled to the right to exclusive use and occupation of the Canopy, whether it was the plaintiff, which was a separate legal entity, or the owner or owners of any particular unit in the Shopping Centre.

38.Thirdly, on the evidence, it was the judge’s finding that the plaintiff did not have exclusive control or occupation of the Canopy in the first period from 1985 to about 2000 (when the plaintiff put up no more than seven light boxes on the Canopy and there were other light boxes by other parties) or in the second period from 2000 (when there were other signage or advertisement boards put up at or along the Canopy by other parties).  Further, the claim that the plaintiff enjoyed exclusive use of the Canopy was inconsistent with its agreement with the defendant in December 2000 to pay half of the costs for remedial works to the Canopy pursuant to a building order, as found by the judge.

39.Fourthly, assuming there was evidence of exclusive use and occupation of the Canopy by the plaintiff, post-agreement conduct and statements of the parties are not generally relevant (Marble Holdings Ltd. v. Yatin Development Ltd. (2008) 11 HKCFAR 222 at para. 22).  None of the cases cited by Mr Cheung would support his contention that the factual usage of the Canopy was somehow relevant to the construction of the DMC.

40.Mr Cheung changed tack in his written submission in reply.  He argued that on a proper construction of the first assignment of the Mezzanine Floor between the developer Tang Kai and the purchaser Fung Yue Tea House Ltd. dated 21 July 1959, the Canopy was assigned to that purchaser.  Quite apart from the fact that this is a completely new point not been pleaded by the plaintiff, it is inconsistent with his earlier argument that it was the plaintiff, not the owner of the Mezzanine Floor, which had or should have the exclusive use of the Canopy.

41.Mr Cheung relied on Hope Brothers Ltd. v. Cowan [1913] Ch D 312 at 316 and Sturge v. Hackett [1962] 1 WLR 1257 at 1265 for the proposition that it is “well-settled law that in the absence of provisions to the contrary in a lease a demise of a part of a building divided horizontally or vertically includes the external walls enclosing the part so demised”.  Hence, he argued that the external wall of the Mezzanine Floor was part and parcel of the premises demised to the purchaser under the first assignment of the Mezzanine Floor, and as a reasonable person would conclude that the external wall should include the Canopy, the Canopy was likewise demised to the purchaser under the first assignment.  In further support of this, he pointed to the fact that a number of areas on the Mezzanine Floor were designated as common areas by different colours and the Canopy was not so designated.

42.There is no merit in this argument.  The Canopy is not a structure “enclosing the part so demised”, the proposition in Hope Brothers is plainly not applicable.  Further, as stated by Le Pichon JA in Incorporated Owners of Elite Garden v. Profit More Co. Ltd. [2002] 2 HKLRD 518 at 523F, para. 10,  Hope Brothers “is of no assistance when one is here dealing with the system of landholding in multi-storey buildings, which is peculiar to Hong Kong.  When analysed, what is owned are undivided shares in the land with exclusive possession to a particular unit.  True it is that the respondent is the owner of the surface of the exterior walls, but that is not to be equated to the exterior walls themselves.”

43.The first assignment of the Mezzanine Floor could not be construed as having demised the Canopy to the purchaser.  Under the assignment, the purchaser was given the “exclusive use occupation and enjoyment of ALL THAT “Mezzanine Floor” of the said Wing Wah Building as shown and coloured Pink hatched Red on the said plan” annexed to the assignment.  The Canopy was not coloured pink hatched red on the plan annexed.

44.The correct legal position regarding the Canopy is as submitted by Mr Lam and may be stated as follows.

45.Co-owners in the Building held their proprietary interests in the land and building as legal tenants in common.  The proprietary right of each co-owner was to an equal undivided share in the land and building, with each of them prima facie entitled to exert rights of possession over every part of the land and building, in common with the other co-owners.  Merely taking an assignment of undivided shares without more, would have entitled each co-owner to the use and possession of the Building by virtue of their co-ownership.  Hence, this principle of “unity of possession” was regulated by the DMC, by which the co-owners defined their mutual rights, interests and obligations, and by means of which the rights of exclusive possession to individual portions were marked out and common parts were designated.  See Jumbo King Ltd. v. Faithful Properties Ltd. (1999) 2 HKCFAR 279 at 290E to F, 295G to H; Leung Tsang Hung & Anr. v. Incorporated Owners of Kwok Wing House (2007) 10 HKCFAR 480 at para. 68; Kung Ming Tak Tong Co. Ltd. v. Park Solid Enterprises Ltd. (2008) 11 HKCFAR 403 at paras. 18, 19 and 34.

46.Under clause 1 of the DMC, the co-owners were given the right to exclusive use occupation and enjoyment of the flats or shops as specified in the 3^rd column of the 1^st schedule.  Fung Yue Tea House Ltd. was entitled to, among other shops or flats, the Mezzanine Floor as shown pink hatched red on the plan annexed to the first assignment of the Mezzanine Floor.  As mentioned above, the Canopy was not coloured pink hatched red on the plan.

47.Unless there is an express or implied term in the DMC conferring the right to exclusive use occupation and enjoyment of the Canopy to any of the co-owners, the Canopy must be part of the common parts of the Building.  There is no specific reference to the Canopy anywhere in the DMC.  The clauses in the DMC to which the court’s attention was drawn could not support the contention there was such an implied term.  To the contrary, they tended to support the defendant’s position that the Canopy was and is a common part.

48.Clause 3(b), which provided that each of the co-owners shall pay his due proportion of the costs of keeping in good repair and maintaining “the Building its fixtures and fittings and all other structures on the premises … and whitewashing … the exterior of the same …”, would be wide enough to include the Canopy.  Clause 14 provided that the developer shall be at liberty to allow advertisements to be put up “in any part of the Building” and collect and receive fees for this. Again, this would be wide enough to cover the putting up of advertisements at the Canopy.  This was a limited personal right granted to the developer and was extinguished upon his death, as held by the judge.  It would not have been necessary to expressly provide for this personal right to the developer, if the Canopy was not intended to be a common part.

49.There is no basis to impugn the judge’s finding that the plaintiff had committed a breach of s 34I(1)(a) of the BMO in permitting the putting up of the Advertisement Boards at the Canopy.

Raising a new point of easement on appeal

50.The plaintiff sought to argue a new point on appeal that its uninterrupted enjoyment of the Canopy since 1985 was capable of constituting a prescriptive right, which, said Mr Cheung, was a “quasi-easement used in the Wheeldon v. Burrows[3] sense based on the doctrine of lost modern grant”.  He submitted that although this point was not canvassed at trial, relevant evidence on this had been taken adequately as the evidence would be the same as the evidence relating to the claim for adverse possession.  So there would be no reasonable possibility that the state of the evidence relevant to this new point would have been materially more favourable to the defendant if this new point had been taken at trial.

51.Mr Lam did not agree with this and opposed leave to allow the new point to be argued.

52.Unlike the withdrawal of the concession, the plaintiff faced a number of difficulties here.

53.Firstly, this new point on easement, as pointed out by Mr Lam, was in conflict with the plaintiff’s own pleading.  In the amended reply, it was pleaded that “no grant of any easement, right of way or right to use or occupy or any other right in relation to the Canopy was made by the Developer, either under the DMC or otherwise to any other parties to the DMC or at all”.  This new point cannot be pursued without amendment of the plaintiff’s pleadings.  The plaintiff did not apply to amend its pleadings, nor did it address the need for amendment raised in Mr Lam’s submission.  For the need of amendment of pleading where a new point is raised, see Cathay Pacific Airways Flight Attendants Union v. Director-General of Civil Aviation & Anr. [2007] 2 HKC 393 at 412A.

54.Secondly, this new point is not a pure point of law.  Issues of mixed law and fact are involved.  If the plaintiff was seeking to establish a quasi-easement in the Wheeldon v. Burrow sense, it would be relevant to consider the state of the Canopy and its use when the first assignments of various units were made by the developer, before the DMC was executed in 1966.  There was no evidence on these matters.  I cannot be satisfied there is no reasonable possibility the state of the evidence relevant to the new point would have been materially more favourable to the defendant if this new point had been taken at trial.

55.I would not allow the new point to be raised on appeal.

The easement point

56.In any event, the plaintiff’s arguments on the easement point are unsustainable in law.  As we had permitted the parties to address us on this matter de bene esse, I would just dispose of the arguments succinctly for the sake of completeness.

57.The plaintiff does not have locus standi to claim any easement or quasi-easement.  It has never been a co-owner.  Mr Cheung’s argument that the corporate veil of the plaintiff could be lifted so as to “identify the proprietary interest of each individual owner of the Shopping Centre” is untenable.  His reliance on authorities (such as Leung Tsang Hung & Anr. v. Incorporated Owners of Kwok Wing House) regarding the lifting of the corporate veil of incorporated owners incorporated under the BMO was misplaced, as the plaintiff is not an incorporated owners under the statute and does not have the legal attributes of such an entity.

58.Moreover, by describing the prescriptive right the plaintiff was seeking to establish as a “quasi-easement used in the Wheeldon v. Burrows sense based on the doctrine of lost modern grant”, Mr Cheung would appear to have mixed up different legal principles.

59.A quasi-easement in the Wheeldon v. Burrows sense could not be established here due to the lack of evidence as mentioned above.  There is no room for the implication of such a quasi-easement unless it is clear that a “continuous and apparent quasi-easement” exists which, after severance of the land and creation of the two tenements, would be “necessary to the reasonable enjoyment of the property granted” (Kung Ming Tak Tong Co. Ltd. v. Park Solid Enterprises Ltd., at para. 47).  There was no evidence at the time of the first assignments it was apparent that any one had actually used the Canopy by affixing advertisement boards or signage or that such use could be regarded as necessary to the reasonable enjoyment of the relevant units.

60.Mr Cheung informed us his primary position was to establish an easement by the doctrine of lost modern grant on the basis that the plaintiff had uninterrupted usage of the Canopy for over 20 years and he would rely on China Field Ltd. & Anr. v. Appeal Tribunal (Buildings) & Anr. (2009) 12 HKCFAR 342.  This authority does not assist him, as it was concerned with the creation of a real easement, whereas a co-owner in a multi-storey building cannot have a real easement over the common parts, as one cannot have a real easement over one’s own property (Jumbo King Ltd. v. Faithful Properties Ltd., at 297D; Kung Ming Tak Tong Co. Ltd. v. Park Solid Enterprises Ltd., at para. 22).

Is there permanent waiver

61.Mr Cheung contended that the plaintiff’s uninterrupted use of the Canopy since 1985 for more than 20 years with the acquiescence of the defendant was sufficient to make out a case of “notorious and avowed acquiescence” to give rise to a proper inference that the defendant had long since abandoned any legitimate interest in the enforcement of s 34I(1)(a) against the plaintiff, in other words the acquiescence and waiver had become a waiver for all time.  As an example of permanent waiver, he cited Fairfax Ltd. v. Attorney General [1995] 2 HKC 617 and [1997] 1 HKC 17, in which breaches of covenant had subsisted for over 40 years.  He also submitted that the judge was in error in dividing the plaintiff’s occupation and use of the Canopy into two stages.

62.Whether a case of abandonment or permanent waiver is made out would depend on the facts in question.  There is no error in the judge’s approach of treating the use and occupation of the Canopy in the earlier period as different from the latter period after the Advertisement Boards were put up.  The limited nature of the use and occupation in the earlier period was insufficient to affix the defendant with the requisite knowledge to establish acquiescence.  The latter period for which acquiescence was made out lasted a little over 6 years.  This is plainly insufficient to give rise to proper inference that the defendant had abandoned its right to enforce s 34I(1)(a) against the plaintiff, quite apart from the consideration that the principle of abandonment in Fairfax Ltd. v. Attorney General was held inapplicable in the context of an incorporated owners exercising its statutory duty as manager under the BMO to enforce obligations in a deed of mutual covenant, as that would strike at the concept of mutuality which underpins the deed and would have the effect of extinguishing the co-owners’ rights under the deed (Kwok Mo Kai Doris v. The Incorporated Owners of Karin Court, CACV 267 of 2005, 8 June 2006, paras. 3, 16 and 24).

The change of position defence

63.Mr Cheung’s contention here was that the plaintiff should not be liable to pay to the defendant the fees it received under the Renewed EAAL Contract as it could rely on a change of position defence.  As I understand his argument, he asserted that the plaintiff had derived no monetary benefit in granting a licence to put up the Advertisement Boards because the revenue received was used to discharge the management expenses of the Shopping Centre.  And as the plaintiff was committed to using the revenue in this way, he claimed that this was a bona fide change of position on its part.  Even though the defendant had already raised the counterclaim seeking remedies against the plaintiff for its breach of s 34I before the Renewed EAAL Contract was entered into, and there was a risk that the basis on which the plaintiff acted was incorrect, Mr Cheung argued that it was nonetheless entirely proper for the plaintiff to proceed on the assumption it could enter into the contract.  He also submitted that the detriment suffered by the plaintiff was irreversible.

64.The above arguments, which Mr Cheung sought to back up with quite a number of authorities, are untenable.

65.A change of position defence may arise in restitution claims, as where there is a payment by mistake or unjust enrichment.  That is not the situation here.  Even assuming that such a defence may be raised in this case where the defendant sues the plaintiff for an account of the profits derived from the Renewed EAAL Contract entered into in breach of s 34I, there was no reliance, let alone reasonable reliance, on the plaintiff’s part of any action or inaction of the defendant after the complaint letter in February 2007 that it could continue to grant a licence for the use of the Canopy.  And it could not be said that any change of position on the plaintiff’s part was in good faith, given that the plaintiff had by then ample warning of the defendant’s claim and proceedings had been brought against the plaintiff for some time to enforce the defendant’s rights.

66.As all the arguments advanced by Mr Cheung in support of the plaintiff’s appeal are rejected, the appeal must be dismissed.

The cross appeal

67.I turn to consider the defendant’s cross appeal against the judge’s ruling that there was acquiescence by the defendant of the plaintiff’s breach from about 2000 to the end of the EAAL Contract.

68.Mr Lam argued the judge had erred in law in holding that the plaintiff’s breach of s 34I(1)(a) was a type of breach within the power of the defendant to acquiesce in.  Under that statutory provision, “no person may 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).” Hence, a resolution of the owners’ committee is the only lawful means to avoid a breach of that provision (Gallium Development Ltd & Ors. v. Winning Properties Management Ltd. & Anr., CACV 186 of 2003, 17 September 2004, paras. 35 to 38, 83, 86 to 87).  The defendant, which is the incorporated owners, cannot be equated with the owners’ committee, so the plaintiff’s breach was not within the defendant’s power to acquiesce in and the prohibition against conversion of the common parts had become absolute.

69.I would reject the above argument.  In s 34D of the BMO, for the purpose of Part VIA of the ordinance, “owners’ committee” in relation to a building means “the committee of owners (howsoever named) formed under or in accordance with the deed of mutual covenant in respect of the building.” In s 34K, it is provided that “where a management committee in respect of a building is or has been appointed under section 3, 3A, 4 or 40C, the members of the management committee for the time being shall be deemed, for the purposes of the deed of mutual covenant in respect of that building, to be the owners’ committee…”.  In the witness statement of Peter Tang, he mentioned that before his election as the chairman of the defendant, he was involved in the management of the Building as a member of the management committee.  By virtue of s 34K, there was apparently an owners’ committee of the Building that was capable of exercising its power under s 34I(1)(a) and could have acquiesced in the plaintiff’s breach.

70.Mr Lam’s fallback position was to contend that the judge had erred in fact in holding there was acquiescence.  He pointed to the evidence of the plaintiff’s officer Mr Cheng to the effect that the plaintiff did not consult the defendant before signing any agreement with advertising agencies for putting up the Advertisement Boards, as the plaintiff had always believed it had the right to use the Canopy.  He argued that on the evidence, the plaintiff had failed to prove that its belief was induced by any action or inaction of the defendant, and encouragement or allowance by the defendant of the plaintiff to believe something to its detriment is essential to the defence of acquiescence (Jones v. Stones [1999] 1 WLR 1739 at 1745A).

71.The judge had considered a similar submission from Mr Lam and rejected it, for the reasons given in para. 85 of the judgment.  He took the view that during the period when no objection was raised by the defendant, it was “understandable” that the plaintiff would be under the apprehension it could lawfully allow the advertising companies to put up the Advertisement Boards.  Notwithstanding Mr Cheng had testified that he never thought about the basis of the plaintiff’s belief as it had been using the Canopy all along, his evidence should be looked at in the light of the objective circumstances.  The plaintiff managed the Shopping Centre while the defendant managed the residential units and the Canopy was physically within the boundary of the Shopping Centre.  When light boxes were put up by the plaintiff in the 1980s, the defendant raised no objection.  When the Advertisement Boards, which were huge and very eye-catching, were put up, there was again no objection from the defendant.  In those circumstances, the judge came to the view that it was “understandable” that the plaintiff simply proceeded to discuss with the advertising companies and allow them to put up the Advertisement Boards at the Canopy. 

72.I do not think the judge’s reasoning can be faulted.

73.Mr Lam also argued that the judge was in error in holding that the plaintiff had suffered detriment in that the revenue collected had been used to meet the management expenses of the Shopping Centre and the plaintiff had been organising its affairs on the basis that the advertising revenue would form 50% of its income, at least until the complaint letter in February 2007.  There is no basis to disturb the judge’s ruling, which plainly accords with common sense.

74.As for the argument that in considering whether it was unjust or unconscionable for the defendant to assert its right against the plaintiff, given that the defendant had not appointed a professional property company to manage the Building until 2006, the judge had considered this aspect and dismissed it for the reasons given in para. 87 of the judgment.  I agree with the judge that the defendant’s inaction regarding the huge Advertisement Boards for more than 6 years went well beyond what one would reasonably expect of incorporated owners in the circumstances, whatever doubts the defendant might have at some stage if there had been a breach of the DMC.

Orders and costs

75.For the above reasons, I would dismiss the appeal and the cross appeal.  Instead of making separate costs orders for the appeal and cross appeal, I propose to make an order nisi that the plaintiff is to pay the defendant 80% of the costs of this appeal, to be taxed if not agreed.

Hon Chu JA:

76.I agree.

Hon Lam J:

77.I agree.

Mr Jeremy Cheung and Ms Candy Tang, instructed by Messrs John Ip & Co., for the Plaintiff/Appellant

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