Archive for the ‘acquiescence’ Category

Waiver, mandatory injunctions and building schemes

August 18, 2018

Introduction

A building scheme (such as the scheme embodied in a Deed of Mutual Covenant) creates a local law for the estate it governs. The scheme may require owners of property within the scheme to obtain the consent of a common landlord (in a scheme established for leasehold properties) or of some other body (such as a Management Committee) before making alterations or additions to the property. This arrangement envisages the formal submission of plans as the start of a process leading to consent or refusal to give consent. Carrying work out without the requisite consent is a breach of covenant and can lead to an action for a declaration, damages and the grant of an injunction.

What if an owner makes alterations to property without obtaining the formal consent required but either: (a) the person or body with the capacity to give the consent knew of the work and failed to object to it; or (b) the person or body with the capacity to give consent has repeatedly failed to enforce the restriction with regard to alterations made to other properties within the scheme? Would it be inequitable either to allow the enforcement of the covenant or, if it is enforceable, to grant an injunction requiring the property to be reinstated?

These questions were considered by the Privy Council in Singh v Rainbow Court Townhouses Ltd ([2018] UKPC 19), on appeal from the Court of Appeal of the Republic of Trinidad and Tobago.

 

Singh v Rainbow Court Townhouses Ltd

Mrs. Singh owned a house in the Rainbow Court estate. She held the property under a lease for 199 years. The lease contained a recital to the effect that all of the units in Rainbow Court would be sold under a building scheme under which the covenants would be mutually enforceable. Rainbow Court Townhouses Ltd (‘the company’) was a company formed for the purpose of managing the development.

The lease contained a tenant’s covenant not to make any alteration or addition to the property without the prior written approval of the landlord and of the company. Mrs. Singh carried out works at her house without either consent. The company sought mandatory injunctions requiring Mrs. Singh to remove the alterations she had made.

 

Acquiescence or waiver

Mrs. Singh argued that the landlord and the company had acquiesced in the breach of covenant since: (a) (through its officers and employees) it knew of the work that was to be carried out for several days before it began and had not objected; and (b) the owners of ten other properties within the building scheme had carried out unauthorised alterations to their properties and neither the landlord nor the company had done anything to enforce the covenant against them.

On waiver, Lord Carnwath (with whom the other members of the Privy Council agreed) approved this statement:

‘It is in all cases a question of degree. It is in many ways analogous to the doctrine of estoppel, and I think it is a fair test to treat it in that way and ask, “Have the plaintiffs by their acts and omissions represented to the defendant that the covenants are no longer enforceable and that he is therefore entitled to use his house as a guest house.’

(Chatsworth Estates Co v Fewell [1931] 1 CH 224 at 231 per Farwell J.)

Lord Carnwath commented:

‘The issue was not whether breaches had been overlooked in individual cases but whether these omissions could be said to amount in effect to a representation that the covenants were no longer enforceable.’ ([32]).

The informal exchanges with the company’s employees and officers were not a waiver:

‘The mere failure of two officers to make immediate objection in October 2014 when notified of works due to start within in about a week, without any detailed information of their nature cannot be interpreted as a representation of any kind on behalf of the company.’ ([33])

The courts below had, however, failed to adequately investigate the allegations that the landlord and the company had not objected when other owners within the scheme had carried out unauthorised alterations:

‘On the face of the pleadings there was an arguable case that these were no different in kind to works which had been accepted without objection on other properties. Whether or not this gave rise to a case of waiver in the sense defined by Farwell J, they were at least arguably relevant to the scope of any mandatory order. It is difficult to see how fairness … would be served by an order which required the Appellant to carry out such works without any investigation of their significance, or how they compared to works accepted without objection on other properties on the estate.’ ([35])

The appeal was allowed and the case was remitted to the High Court.

Michael Lower

 

 

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Acquiescence: Is a history of non-enforcement of DMC terms relevant?

March 2, 2016

In Freder Centre (IO) v Gringo Ltd ([2016] HKEC 418, CA) the owners of units in a commercial building placed a sign with a trade name on part of the external wall of the building. This was a breach of a term of the DMC prohibiting the placing of signs anywhere on the building except in spaces assigned for that purpose (the sign was not in an assigned space). It was also a breach of the covenant implied by section 34I of the Building Management Ordinance not to convert any common part to private use without the consent of the owners’ corporation.

In its defence, the owner of the units relied on acquiescence. The terms were of such a nature that acquiescence was possible; the space could have been made an assigned space, the owners’ corporation could have consented to the private use of the common part. The question was whether there had been acquiescence. The owners’ corporation had informed the owner of the units of its objection as soon as it learned of the breach. Looking at the incident in isolation, they could not be accused of standing idly by when the breach was committed. Gringo Ltd, however, pointed to the fact that the corporation had a long history of tolerating such breaches. It was this history that it relied on as amounting to an acquiescence. The owners’ corporation said that its limited resources meant that it could not bring proceedings in respect of all of the past breaches at once; it had a policy of concentrating on recent breaches.

The owners’ corporation’s argument had succeeded at first instance but was rejected on appeal. Chu JA giving the Court’s judgment said:

‘In our view, the fact that nearly all the other owners or occupiers of basement and ground floor units have for many years committed similar breaches, and the applicant has never taken any enforcement action or proceedings against them suggests that the breaches are prevalent and have over the years been tolerated by the applicant. This is directly relevant and germane to whether there is assent or lying by on the part of the applicant and whether it is unjust to grant the injunctive relief against the respondents.’ ([28]).

There had been acquiescence and  it would be inequitable to grant the injunction sought.

Michael Lower

Common intention constructive trust arising on a family division

April 29, 2015

In Yip Chiu Fu v Ip Chiu Fat ([2015] HKEC 201, CFI) a family comprising three fongs owned a house in Shek O (‘the first house’). The family funds, beneficially owned by the entire family, were then used to buy another house in the village (‘the second house’) and a common intention was to be inferred from the source of the funds that the second house was held on trust for the entire family. There was a family division in the second world war. The first house was allocated to the first fong; the ground floor of the second house was allocated to the second fong and the first floor of the second house was allocated to the third fong. Legal title to the first house was now with representatives of the first fong. Legal title to the second house had been kept exclusively within the third fong.

Louis Chan J found that this family division gave rise to a common intention constructive trust that gave each fong beneficial ownership of the physical accommodation allocated to it ([223]). The detriment was the giving up by each fong of its claim to the area allocated to the other fongs ([224]).

Legal title to the second house passed from one generation to the next of the third fong with full knowledge of the beneficial entitlements so that they were not bona fide purchasers without notice ([226]). When the second fong complained, they were told that one of their representatives would be added to the legal title. This never happened but this failure had to be viewed against the background of the assurance of the third fong’s representative that the second fong’s rights would always be respected.

The second fong’s representative now sought a declaration that the third fong’s representatives held the ground floor of the second house on trust for them and that they had an exclusive right to the use and possession of it. She also sought an order vesting title to the property in her (as personal representative of the original head of the second fong). She obtained the orders that she sought.

The third fong argued that the claim was time-barred because of the failure to insist on compliance with the promise to include a representative of the second fong on the title deeds. This failed because this was not wrongful ([236]). In any event, s. 20(1)(b) of the Limitation Ordinance applies to constructive trustees and there is no period of limitation to recover trust property from a trustee ([239]).

Even assuming the failure to honour the promise as to the title to the second house to be wrongful, mere standing by after the breach had been completed could not amount to acquiescence ([243])

Michael Lower

Allegation that directors lacked authority to commit corporate landlord

June 18, 2013

In Hong Kong Hai Zhou Tong Xiang Association Ltd v Ngai Shun Wah ([2013] HKEC 739, LT) T’s tenancy expired in 2012. L sought possession on the basis that the fixed term had expired and that T had sub-divided the property in breach of covenant. T’s defences were that he had been granted a new lease until July 2016 and that L had known all along of the sub-division and had acquiesced. L responded that the directors who had countersigned the company seal lacked authority and that the seal that had been used was a fake. T succeeded on both counts.

First, even if the countersignatories lacked actual authority (the Tribunal thought they probably had actual authority) they had apparent authority ([15]). As for the seal, even if it were a fake (and the Tribunal was not persuaded of this) T could rely on the rule in Turquand ([21]). Further, L had cured any possible procedural irregularity: its acceptance of rent amounted to a ratification of the lease  ([23]).

L had known of and acquiesced in the sub-division and could not complain of it. In any event, it had not served the notice required by section 58 of the Conveyancing and Property Ordinance.

Michael Lower

Overpayment of management fees: acquiescence

November 20, 2012

In Wong Pun-Man v Tung Fat Industrial Building (IO) ([1996] 1 HKDLR 32, LT) a DMC provided for the payment of management fees by the owners of the shops and flats in the building. The flats initially paid management fees at a higher rate than the shops. The DMC provided for any increases to be ‘in like proportion’. The increases were unanimously agreed at annual owners’ meetings. Copy notices of the revised fees were then prominently displayed in the building and sent to each owner. For several years, the fees were not increased ‘in like proportion’ and the fee increases for the shops were steeper than for the flats. The shop owners made the payments demanded but then realised that the DMC had not been followed and sought to recover the over-payments. They failed; they had acquiesced in the over-payments. They knew (or must be taken to have known) of the terms of the DMC and had paid nonetheless. There had been detrimental reliance and it would be unconscionable to re-open the accounts.

The Tribunal left open the questions as to whether the effect of the acquiescence was merely suspensory (having no effect on future rights) and as to the impact of the (the new) Building Management Ordinance from 1994 onwards.

Breach of covenant? Can failure to enforce against others amount to acquiescence?

November 14, 2012

In Hoi Luen Industrial Centre (IO) v Ohashi ([1995] 2 HKLR 448, HC) D was the owner of a unit in an industrial building and was bound by the terms of the Deed of Mutual Covenant for the building. He erected a water cooling tower on the external wall of the building even though the incorporated owners had informed him that they regarded this as being a breach of the terms of the Deed of Mutual Covenant. There had been many such breaches and the management committee had delivered a notice to all owners in the building warning of the dangers of the unauthorised cooling towers and of their intention to take action to deal with this problem. The incorporated owners then began proceedings against D seeking a mandatory injunction.

D argued that the failure to take action in respect of earlier breaches amounted to acquiescence. This failed. Acquiescence was akin to estoppel. Here, the incorporated owners had made it clear to D even before he erected the tower that they objected to it and were prepared to take legal action in the event of breach. Nor was a mandatory injunction inappropriate: it was reasonable (given limited financial resources) for the incorporated owners to make an example of just some owners in breach and to choose those whose breach post-dated their notice of intention to bring proceedings.