Kong Wai Hsien and Others v. The Incorporated Owners of Tai Wai Glamour Garden and Others

CACV 455/2018

[2019] HKCA 1229

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 455 OF 2018

(ON APPEAL FROM HCA 1442 OF 2013)

________________________

BETWEEN

________________________

Before:  Hon Kwan VP, Chu and Au JJA in Court

Date of Hearing:  16 July 2019

Date of Judgment:  16 July 2019

Date of Reasons for Judgment:  8 November 2019

________________________

REASONS FOR JUDGMENT

________________________

Hon Au JA (giving the reasons for judgment of the court):

A.  INTRODUCTION

1.The plaintiffs are the registered owners of the respective shops at Ground Floor of Tai Wai Glamour Garden, Nos 1 - 5 Chik Fai Road, and Nos 22 - 26 Mei Tin Road, Tai Wai, Shatin, New Territories (“the Building”).  The 1^st defendant is the incorporated owners (“IO”) of the Building.

2.In the court below, the plaintiffs brought a claim against the IO for alleged breach of duties in using the fund contributed by the owners of the Building, including each of the plaintiffs, to pay the costs of the repair and maintenance works carried out to the “common areas and exterior of the building”.  The works were carried out pursuant to a building order issued by the Building Authority (“the BA”).

3.The principal basis of the plaintiffs’ claim is that the entirety or majority of the expenditure incurred for complying with the building order was attributable to works on the external walls (“the External Walls”) of the Building, which they said were not part of the common parts.  The plaintiffs contended that it was the developer who had the exclusive right to use the External Walls.  In the premises, the costs for repairing and maintaining the External Walls should be borne by the developer instead of all the owners, including the plaintiffs.

4.By way of the judgment dated 15 August 2018 (“the Judgment”), Deputy High Court Judge M Ng (as she then was) (“the Judge”) dismissed the plaintiffs’ claim after trial.

5.This is the 2^nd plaintiff’s appeal against the Judgment.

6.The 2^nd plaintiff raised three grounds of appeal in the Notice of Appeal dated 12 September 2018.  The IO has also filed a respondent’s notice.

7.At the end of the hearing on 16 July 2019, we dismissed the appeal with costs, and indicated that we would hand down our reasons later.  This is what we do now.

B.  BACKGROUND

8.The background of the matter is not in controversy and has been summarized by the Judge at paragraphs 1 - 15 of the Judgment.  For the present purposes, we only need to highlight the following.

9.Briefly stated, the developer, Avante Company Limited (“the Developer”), acquired Sha Tin Town Lot No 226 (“the Land”) and erected on it the Building, a single multi-storey building with 20 shops on the ground floor and a total of 192 residential units on 2^nd to 25^th floors.

10.The Land and the Building were divided into 2,320 equal undivided shares which were then allocated to the shops and residential units respectively as stipulated in the Second Schedule of the Deed of Mutual Covenant dated 31 January 1986 (“the DMC”). A remaining portion of 20 equal undivided shares were allocated to the “Common Parts” in the Second Schedule and were held by the Developer (“Common Parts Shares”).

11.Subsequently, the Developer and the IO executed an assignment on 19 April 2010 (“the 2010 Assignment”) whereby the Developer assigned the Common Parts Shares to the IO, together with “the sole and exclusive right and privilege to hold use occupy and enjoy ALL THOSE COMMON PARTS of the Building”.

12.“Common Areas” are defined under Section I of the DMC to include the External Walls, while “Common Parts” are defined to be the “Common Areas” except the Flat-roofed areas.  In other words, in the DMC, the Common Areas and Common Parts are defined to include the External Walls.

13.Prior to the 2010 Assignment, the BA issued a building order to the Developer on 31 March 2009 requiring repair and maintenance works to be carried out to the “common areas and exterior of the building” (“the 1^st Order”).  The Developer did not comply with the 1^st Order.  Subsequent to the 2010 Assignment, on 28 October 2010, the BA issued another order (“the 2^nd Order”), the content of which was similar to the 1^st Order except that the 2^nd Order was addressed to the IO with a different commencement and completion date.

14.The IO complied with the 2^nd Order and paid a total sum of around $5,348,400 and a consultancy fee of $97,000.  The sums were said to include not only the requisite works of the 2^nd Order but also repair and maintenance works of the common areas, common parts and common facilities of the Building. Afterwards, the IO sought contributions from all owners of the Building, including the plaintiffs.

15.The plaintiffs commenced the action against the IO on 5 August 2013[1].

C.  THE JUDGMENT

16.The action was tried before the Judge.

17.The plaintiffs’ case before the Judge was effectively that (a) on a proper construction of the DMC, the External Walls were not part of the Building’s common parts as the Developer was vested with the Common Part Shares and had reserved to itself the exclusive right to use, occupy and enjoy the External Walls, (b) however, by entering into the 2010 Assignment, the IO purportedly acting as the trustee for the benefit of all the owners had been assigned the Common Shares and all the Developer’s exclusive right and privilege to hold use occupy and enjoy, among others, the External Walls, (c) in so doing, the IO had breached its duty of care owed to the plaintiffs as owners, as this had exposed them to the burden and liabilities of having to bear the expenses for the renovation and maintenance of the External Walls.[2]

18.The plaintiffs sought various declarations to the effect that the IO was in breach of its duties owed to the plaintiffs, an order for discovery of the IO’s books and accounts, and an order that the IO should claim and recover the sums and expenses incurred in carrying out the works attributable to the External Walls from the Developer.

19.The IO denied any liabilities.

20.The Judge identified the following three issues for determination at paragraph 16 of the Judgment:

(1)  Whether on proper construction of the DMC and the Building Management Ordinance (Cap 344) (“the BMO”), the External Walls formed part of the common parts of the Building (“External Walls Issue”);

(2)  Whether the 1^st defendant as IO owed any duties to the plaintiffs as individual owners in relation to (i) the renovation works carried out in respect of the External Walls and (ii) taking up the ‘Common Parts’, ‘Common Parts Shares’ by way of the 2010 Assignment, and if so, what duties were owed and whether such duties were breached (the “Duty Issue”);

(3)  Whether the plaintiffs were entitled to the reliefs sought, and if so the scope of those reliefs (“Relief Issue”).

21.For the External Walls Issue, after reviewing various authorities relating to interpretation of contract (and specifically deeds of mutual covenant) and adopting the well-established principles of construction, the Judge concluded that on a proper construction of the DMC and the BMO, the External Walls formed part of the common parts of the Building: [29] to [77] of the Judgment.

22.In particular, the Judge (a) ruled that the External Walls were expressly defined as a “Common Area” and “Common Parts” of the Building under paragraph (k) of section I of the DMC, and (b) rejected the plaintiffs’ contentions that, notwithstanding the said definition, clauses 8(b) - (c) of section II of the DMC expressly gave or reserved exclusive right over the External Walls to the Developer and hence the External Walls were not part of the common parts: [58], [67 - 95] of the Judgment.

23.Thus, the Judge concluded that the External Walls were common parts of the Building and the Developer was merely the legal owner of the Common Parts Share without having any exclusive possession or exclusive right over the External Walls. The plaintiffs therefore failed under the External Walls Issue.

24.As the Duty Issue and Relief Issue stood and fell with the External Walls Issue, the Judge proceeded to deal with the Duty Issue on the assumption (without making any findings of law or facts) that the IO owed the duties[3] to the plaintiffs.

25.After weighing the witness statements against the documentary evidence before her, the Judge accepted the evidence from the IO and found the complaints from the plaintiffs unsustainable.  She concluded that the IO did not fail to carry out its duties in not demanding and collecting payment contributions from the Developer in relation to the repair and maintenance of the External Walls: see [99] - [135] of the Judgment.

D.  THIS APPEAL

D1.  Grounds of appeal

26.In its Notice of Appeal, the 2^nd plaintiff has advanced three grounds in support of this appeal.  They are:

(1)  The Judge erred in the construction of the DMC by holding that the External Walls are common parts of the Building and not the developer’s “exclusive use area” (“Ground 1”);

(2)  On the basis that Ground 1 succeeds, the Judge failed to hold that in law the 1^st defendant owed the 2^nd plaintiff (and/or all owners of the Building) those duties as pleaded in paragraphs 16A - 16B of the Re-Amended Statement of Claim (“Ground 2”);

(3)  On the basis that Grounds 1 and 2 above succeed, the Judge failed to hold that in fact and in law that the 1^st defendant has acted in breach of those duties set out in Ground 2 above (“Ground 3”).

27.Mr Paul Lam SC for the 2^nd plaintiff[4] has fairly pointed out that this appeal turns centrally on Ground 1.  If the 2^nd plaintiff fails under Ground 1, Grounds 2 and 3 simply do not arise and should also be dismissed.

28.We now turn to look at Ground 1.

D2.  Ground 1

29.Under this ground, the question is whether the Judge is correct in determining that, on a proper construction of the DMC, the External Walls are the common parts of the Building.  This in turn depends on whether, on a proper construction, the Developer has been given exclusive right to the use, occupation and enjoyment of the External Walls under the DMC.  As stated by Mr Lam when he opens the appeal, this is purely a question of construction, which is incapable of having lengthy submissions.

30.Relevant for the present purposes, the general principles on construction relating to deed of mutual covenants are well established and not in dispute.  They have been summarized by Mr Lam in his skeleton as follows:

(1)  The construction of a document is not a game with words.  It is an attempt to discover what a reasonable person would have understood the parties to mean.  And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve: Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279 at 296.

(2)  The legal background of the DMC, like any other deeds of mutual covenant, is not in dispute.  Co-owners in a multi-storey building are tenants in common of the land where the building is situated.  Each of them is prima facie entitled to exercise rights of possession over every part of the building in common with the other co-owners.  However, this “unity of possession” is modified by a deed of mutual covenant, under which, as a matter of contract among the co-owners, individual co-owners are given the right to exclusive use occupation and enjoyment (something just short of exclusive possession in law but no different from exclusive possession in practice) of certain parts of the building (most notably, the individual units).  Common parts or common areas are merely convenient labels to describe any part or area in the building in respect of which no individual owner has been given the right to such exclusive use occupation and enjoyment.  See: Hollywood Shopping Centre Owners Committee Ltd v Wing Wah Building Mongkok Kowloon [2011] 4 HKLRD 623 at 636-7, paragraphs 45 - 48.

(3)  Section 2 of the BMO (and its predecessor ie, the Multi-storey Buildings (Owners Incorporation) Ordinance), provides that “common parts” means the whole of a building, “except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation and enjoyment of an owner”; and “unless so specified or designated”, those parts specified in Schedule 1, which includes “External Walls” (paragraph 1).  

(4)  Hence, unless there is an express or implied term in the relevant deed of mutual covenant conferring the right to exclusive use occupation and enjoyment of the external walls to any of the co-owners, the external walls would be part of the common parts of the relevant building.

31.In this respect, Mr Lam has further acknowledged that under Section I of the DMC, “Common Areas” is defined as including the “External Walls of the Building” except “where the context otherwise requires”[5].

32.As rightly submitted by Mr Lam, given the above general principles and the definition of “Common Areas” in the DMC, whether the External Walls are the common parts of the Building depends on whether and what rights to the use and enjoyment of the External Walls have been given to the Developer:

(1)  If the Developer is given or has reserved to its own exclusive rights to all the use and enjoyment of the External Walls, the External Walls are not common parts notwithstanding Section I of the DMC.

(2)  If the Developer is however only given or has reserved to itself some prescribed limited rights for specific purpose to use them, that would not be exclusive rights and enjoyment to use the External Walls.  They are therefore common areas of the Buildings.

33.To answer these questions, Mr Lam says the 3^rd Schedule and clauses 8(b) and (c) of Section II of the DMC are relevant.

34.Under the relevant part of the 3^rd Schedule, the Developer is given the right to exclusive use, occupation and enjoyment of “All Those the Shops, Flats and self-contained portions and other portions (not otherwise intended to be used for the common enjoyment of the co-owners and co-occupiers for the time being of the Building) comprised in the Building other than those portion exclusively held used occupied and enjoyed by the Covenanting Owner as next hereafter mentioned.”  (emphasis added)

35.At the same time, clauses 8(b) and (c) respectively provide:

(1)  Clause 8(b):

“the exclusive right to install in or affix to and use (or permit any person or corporations to install in or affix to and use) any part of the Building to which no Owner(s) has the exclusive right to occupy including the external walls … such flues, pipes conduits, chimneys, serials, plant machinery and other apparatus as the [Developer] shall think fit, together with the right to repair, maintain, service, remove or replace the same” (emphasis added)

(2)  Clause 8(c):

“the exclusive right to use or grant the right to use all the external walls … of the Building or any part of parts thereof with the necessary right or support on any part of the flat roofs of the Ground Floor and the First Floor thereof and the Main Roof and Upper Roof for advertising purposes and to display, install, erect, affix or permit to be displayed, installed, erected or affixed thereon and thereto such advertising signs or structure whatsoever (whether illuminated or not) and with the right to remove, repair, maintain, service or replace the same provided that the same shall not unnecessarily interrupt the enjoyment of any unit in the Building” (emphasis added)

36.Mr Lam contends that the two specific rights (“the Prescribed Rights”) which have been expressly reserved to the Developer under clauses 8(b) and (c) constitute all the rights that a co-owner could have had in relation to the use and enjoyment of the External Walls.  In support of this contention, counsel has advanced six propositions.  They are as follows:

(1)  The right is not meant to be a personal right to the Developer only, as it covers assignees and successors.

(2)  The word “exclusive” is used expressly to describe the right, showing that it is intended to be an exclusive right.

(3)  In relation to the Prescribed Rights mentioned in the clauses, the Developer is given the right to allow other parties to use those rights and to grant the rights to any third party to use.

(4)  There is no requirement that in exercising these rights, the developer must do so to advance the common interest of the co-owners, or to account to those co-owners any benefits it derives from the use of those rights.

(5)  Applying common sense, the Prescribed Rights as expressly provided therein (ie, in relation to apparatus and advertising) are the only use that can be made of the External Walls, practically and realistically.

(6)  Under the DMC, apart from these two clauses, there are no other clauses under which any other co-owners have been given any rights to use the External Walls in whatsoever manner.

37.In the premises, Mr Lam says as a matter of construction, the Developer has been given and reserved to itself exclusive rights to all the use and enjoyment of the External Walls.  The External Walls are therefore not common parts of the Building notwithstanding the definition in Section I.

38.The plank of Mr Lam’s above contentions is premised on the fundamental proposition that practically and realistically, the Prescribed Rights (which have been given exclusively to the Developer) constitute the rights in relation to all the use and enjoyment of the External Walls.  In other words, other than those uses as prescribed under clauses 8(b) and (c), there are no other uses and enjoyment that could be made of the External Walls.

39.We are however unable to agree with this fundamental proposition.

40.As pointed out by Kwan VP at the hearing, other than the prescribed uses, the External Walls by providing the external framework to the Building also serve to hold and support the Building and prevent damage to its interior.  All the co-owners or occupiers of the Building have the right to enjoy such use.  Chu JA has also observed that it is with the External Walls that all the co-owners would be able to have peaceful enjoyment of their respective individual units of the Building.

41.Against these observations, Mr Lam has raised the following submissions.

42.First, he says the meaning of “use and enjoyment” in the context of the DMC should not be given such a wide meaning to include the physical and structural use of the External Walls.  Otherwise, counsel submits, it would also mean that the internal partition walls and the floor slabs of the individual shops and units of the Building should also be regarded as common parts (as they will also invariably provide structural support to the entire Building), which could not have been so intended.

43.With respect, this submission is misplaced.

44.As mentioned above, whether certain parts or areas of the Building constitute common areas is a question of construction of the DMC. In this respect, “Common Areas” are defined under Section I of the DMC.  As a start, unlike the External Walls, which have been expressly included in the definition, the partition walls and the floor slabs are not so included in this definition.  They are therefore not defined as “Common Areas” of the Building in the first place.

45.Further, the definition of section I(l) specifically further provides that “Common Areas” are all those areas of the Land and the Building which comprise “[t]hose other parts of the Building the right to use of which is given and/or reserved by [the DMC] to more than one Owner” (emphasis added).  However, the relevant partition walls and floor slab of each individual shop or unit of the Building are parts of the respective shop or unit to which undivided shares have been allocated under the Second Schedule of the DMC.  The DMC has further given and reserved to the individual owner of those undivided shares the “full and exclusive right and privilege to hold use, occupy and enjoy” that particular shop or unit[6].  The right to use these parts of the Building is therefore not given or reserved by the DMC to more than one Owner[7].  In the premises, as a matter of proper construction, there is no question that the partition walls or floor slab of each individual shop or unit of the Building would be regarded as part of the “Common Areas” of the Building.

46.Second, in aid of his contention that the court should adopt a narrower meaning of “use and enjoyment” in the context of the DMC, Mr Lam has drawn our attention to the case of Incorporated Owners of Hong Leong Industrial Complex v HL Resources Ltd [2010] 4 HKC 463 (CA).

47.In that case, the incorporated owners as plaintiffs brought a claim against the developer (1^st defendant) and the manager of the building (the 2^nd defendant) alleging that sums had been wrongly used from the management funds on maintaining and repairing the building’s roof and the external walls.  They said those costs should have been borne by the developer and the manager as, on a proper construction of clause (j) of the deed of mutual covenant and the relevant sections of the BMO, (a) the water proofing system of the roof was not a common part; and (b) the developer had exclusive right to use the external walls.  The first instance judge rejected the plaintiffs’ claim and found that (a) on the facts, the water proofing system of the roof was a common part; and (b) clause (j) of the deed of mutual covenant on a proper construction did not confer exclusive right to the use, occupation or enjoyment of the external walls.

48.The plaintiffs appealed to the court of appeal.  The court of appeal dismissed the appeal and upheld the judge’s decision that water proofing system of the roof and the external walls were common parts.

49.Notwithstanding this conclusion, Mr Lam refers us to paragraph 16 of the judgment where Rogers VP observed the following in relation to the question of whether the external walls were a common part of the building in that case:

“16. Equally importantly, clause 12(a) and (b) give the Manager the power to absolve an owner from a restriction on placing signs or signboards or advertisements on the external walls. Hence, it was said that whatever interest the first defendant might have in the outer or external walls, it did not have the exclusive possession and the exclusive right to use and enjoy that part of the building because the Manager could permit others to make use of the external walls. In this respect, it is pertinent to observe that under clauses 2(a)(i) and (ii) of the DMC it would seem that, as a matter of practical reality, the only use which could be made of the external walls would be for putting signs, signboards or advertisements on the walls, or for erecting a chimney up the side of the building.” (emphasis added)

50.Mr Lam fairly accepts that question of construction is specific to the relevant document in each case, and hence Rogers VP’s above observation does not in any respect bind this court in the present case.  Counsel however submits that the above italicized quoted part of Rogers VP’s observation supports his contention that the court should construe the meaning of “use and enjoyment” in the DMC in the present case narrowly.

51.With respect to Mr Lam, for the following reasons, we do not think this case assists him:

(1)  Notwithstanding Rogers VP’s above observation, the court of appeal, in upholding the judge’s decision, indeed decided that the developer did not have exclusive right to the use and enjoyment of the external walls.

(2)  Further, on a fair reading of paragraph 16 of the judgment, Rogers VP’s comments that putting signs, signboards or advertisements or erecting a chimney were in reality the only practical use which could be made of the external walls were referring to the “use” which the Manager could permit others to make use of the external walls as provided in clauses 12(a) and (b) of the relevant deed of mutual covenant.  This does not mean Rogers VP was saying that all the uses that could be made of the external walls were limited to only those identified uses.  This is particularly so as the question of whether the external walls also served the use of providing an external frame to the entire building to enable the owners and occupies to have peaceful enjoyment of their units was simply not before the court in that case.

52.We therefore reject Mr Lam’s arguments that the meaning of “use and enjoyment” in the DMC cannot include the structural and physical use of the External Walls.

53.In the premises, notwithstanding that the rights to the prescribed uses of the External Walls have been exclusively given to the Developer by way of clauses 8(b) and (c) of the DMC, the right to the other important and practical use and enjoyment of the External Walls as pointed out above has not been given or reserved to the Developer.  On a proper construction, the Developer does not have exclusive rights to all the use and enjoyment of the External Walls.  They are therefore the common parts of the Building.

54.The Judge’s conclusion in this respect is therefore correct, and we reject Ground 1.

D3.  Grounds 2 and 3

55.As the merits of Grounds 2 and 3 depend on the success of Ground 1, we will similarly reject them.

56.Given that we have rejected all the grounds of appeal, it is unnecessary for us to deal with the respondent’s notice.

E.  CONCLUSION

57.For these reasons, we have dismissed the appeal with costs to the IO, to be taxed if not agreed.

Mr Paul Lam SC and Mr Ernest CY Ng, instructed by KB Chau & Co, for the appellant (the 2^nd plaintiff)

Mr Allen Lam, instructed by SH Chan & Co, for the respondent (the 1^st defendant)