Donora Co Ltd v. The Incorporated Owners of Tsuen Kam Centre

CACV 345/2021

[2023] HKCA 33

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 345 OF 2021

(ON APPEAL FROM LDBM NO 176 OF 2018)

________________________

BETWEEN

________________________

Before:  Hon Cheung, Yuen and Chow JJA in Court

Date of Hearing:  30 November 2022

Date of Judgment:  30 November 2022

Date of Reasons for Judgment:  13 January 2023

________________________

REASONS FOR JUDGMENT

________________________

Hon Chow JA (giving the Reasons for Judgment of the Court):

INTRODUCTION

1.The principal issue which arises for determination in this appeal is whether the external walls (“the External Walls”)  of the development known as Tsuen Kam Centre, 300-350 Castle Peak Road, Tsuen Wan, New Territories (“the Building”)  are:

(1)  “common parts” of the Building, as contended by the Applicant (“the Developer”); or

(2)  subject to the provisions of the Deed of Mutual Covenant (“the DMC”)  relating to the Building, for the exclusive use, occupation and enjoyment of the Developer, as contended by the Respondent (“the IO”),

for the purpose of determining which part(ies)  is/are responsible for the maintenance, repair and/or renovation costs of the External Walls under the DMC/Building Management Ordinance, Cap 344 (“the BMO”).

2.At the conclusion of the hearing of the appeal on 30 November 2022, we allowed the IO’s appeal with costs, with reasons to be given later, which we now do.

BASIC FACTS

(i)  The parties

3.The Developer, a wholly-owned subsidiary of Sun Hung Kai Properties Limited (“SHKP”), is the developer of the Building erected on Tsuen Wan Town Lot No 293 (“the Lot”).

4.The IO is the corporation for the Building registered under s 8 of the BMO on 6 January 2009.

(ii)  The Building

5.The Building is a mixed-use commercial and residential complex located beside the Tsuen Wan MTR Station.  It comprises two residential towers (Blocks 1 and 2, the “Domestic Blocks”)  resting on a garden podium (“the Podium”), which consists of the Basement, Ground Floor, First Floor, Second Floor, and Third Floor.

6.The Ground Floor and Second Floor of the Building are for commercial use (“the Commercial Development”), while the First Floor is for car parking use (“the Car Port”).

7.The Developer is currently the registered owner of Shop A on the Ground Floor of the Building as well “The Arcade & Escalator”[1], while another member of the SHKP group (Classic Best Investments Limited, “Classic Best”)  is the registered owner of the whole of the First and Second Floors of the Building.

(iii)  The First Assignment

8.The first assignment of the Building dated 10 June 1986 (“First Assignment”)  was made between the Developer as the “Vendor” and Lee Law Cheong (“the First Purchaser”)  as the “Purchaser” of Flat E, 26/F, Block 1 of Tsuen Kam Centre (“Flat 26E/Block 1”). Under the First Assignment, the Developer assigned to the First Purchaser the property (“the Property”)  described in the Schedule thereto, namely, All Those 11 equal undivided parts or shares of and in the Lot and the Building together with the sole and exclusive right and privilege to hold use occupy and enjoy Flat 26E/Block 1.  The Schedule to the First Assignment also expressly excepted and reserved -

“unto the Vendor and its successors and assigns (other than the Purchaser):-

(i)  the right to the exclusive use occupation and enjoyment of:-

(a)  The outer walls of the Building (unless otherwise specifically included in the Property);

…

(ii)  the exclusive right to use affix to and thereafter maintain on the external walls of the Building one or more chimneys or flue pipes;

(iii)  the exclusive right to use the external walls of the Building for advertising purposes.”

(iv)  The Deed of Mutual Covenant

9.Also on 10 June 1986, the Developer as the “Registered Owner”, the First Purchaser and Hong Yip Service Company Limited (“the Manager”)entered into the DMC for the purpose of “defining and regulating the rights, interests and obligations of the Owners in respect of the Lot and the Building and to provide for a due proportion of the common expenses of the Lot and the Building to be borne by the Owners” (Recital (5)).

10.The DMC contains a number of provisions which are relevant to the question of whether the External Walls should properly be regarded as common parts of the Building.

11.In Recital (1)(a)  of the DMC:

(1)  “The Building Common Areas” is defined to mean a list of specified areas in the Building (which do not include the External Walls)  and “All other parts of the Building which have not been specifically assigned to the Owners and which have not been specifically reserved by the Registered Owner in accordance with this Deed”.

(2)  “The Car Port Common Areas” is defined to mean the “Driveway from Ground Floor access ramp to 1^st Floor and driveway on 1^st Floor Car Port”.

(3)  “The Commercial Common Areas and Facilities” is defined to mean a list of specified areas in the Building (which do not include the External Walls)  and “All other areas and facilities intended for common use of the Commercial Development”.

(4)  “Domestic Blocks Common Areas and Facilities” is defined to mean a list of specified areas in the Building (which do not include the External Walls)  and “all other areas and facilities intended for common use of the Domestic Block[s]”.

12.Recital (4)  of the DMC refers to the First Assignment, and states that the Developer assigned unto the First Purchaser All Those 11 equal undivided 9,000^th parts or shares of and in the Lot and the Building together with the full and exclusive right and privilege to hold use occupy and enjoy Flat 26E/Block 1.

13.Clause 1 of Section I of the DMC provides that:

“The [Developer] shall at all times hereafter subject to and with the benefit of the [Crown Lease of Tsuen Wan Town Lot No 293] insofar as they relate hereto have the full and exclusive right and privilege to hold use occupy and enjoy to the exclusion of the First Purchaser the entire Building save and except All Those premises more particularly described in Recital (4)  hereof together with the appurtenances thereto and the entire rents and profits thereof.”

14.Clause 2 of Section I of the DMC goes on to provide as follows:

“(a)  The Building Common Areas shall be deemed to be common areas for the benefit of the Owners of the Building which areas may, subject to the provisions hereof, be used by each Owner in common with all other Owners and occupiers of the Building or any part thereof.

(b)  The Commercial Common Areas shall be deemed to be common areas for the benefit of the Owners of the Commercial Development which areas may, subject to the provisions hereof, be used by each Owner of the Commercial Development in common with all other Owners and occupiers of the Commercial Development or any part thereof.

(c)  The Domestic Blocks Common Areas shall be deemed to be common areas for the benefit of the Owners of the Domestic Blocks which areas may, subject to the provisions hereof, be used by each Owner in the Domestic Blocks in common with all other Owners and occupiers of the Domestic Blocks or any part thereof.

(d)  The Car Port Common Areas shall be deemed to be common areas for the benefit of the Owners of the Car Port which areas may, subject to the provisions hereof, be used by each Owner of the Car Port in common with all other Owners and occupiers of the Care Port or any part thereof.”

15.Clause 9 of Section I of the DMC provides that there are reserved unto the Developer, inter alia, the following rights and privileges:

“(d)  the exclusive right to erect one or more flue pipes or smoke stackes or chimneys at the rear exterior wall or walls of any of the Blocks and/or the Podium from the ground floor or any other level to the Roof thereof together with the right to maintain, replace or remove the same provided that such erection, maintenance, replacement or removal shall not unnecessarily interrupt the enjoyment by the Owners of the Building.

(e)  the exclusive right to use all the external walls of all of the Blocks and/or the Podium for advertising purposes and to display, install, erect, affix or permit to be displayed, installed, erected or affixed thereon and thereto such advertising signboards placards, posters and other advertising signs or structures whatsoever (whether illuminated or not)  subject to the approval of the [Director of Lands] or other Government Authorities concerned and with the right to remove, repair, maintain, service or replace the same provided that the same shall not unnecessarily interrupt the enjoyment by the Owners of the Building.”

16.Sub-section A (Provisions Applicable to All Owners)  of Section IV (Covenants, Provisions and Restrictions to be Observed and Performed by the Owners)  of the DMC provides, inter alia, that:

“19. No Owner shall be entitled to connect any installations to any aerial installed by the Manager except with the written permission of the Manager and in accordance with any Building Rules relating to the same. No Owner shall affix or install his own private aerial on the exterior of any of the Building except with the written consent of the Manager.

20. Except as herein mentioned, no flags, banners, poles, cages, shades, sculptures or other projections or structures or other advertising devices whatsoever extending outside the exterior of the Building shall be erected, installed or otherwise affixed to or projected from the Building or any part thereof except with the written consent of the Manager.

21. No Owner shall do or permit to be done any act or thing which may or will alter the external appearance of the Building subject to the provisions herein mentioned without the prior consent in writing of the Manager.

26. No clothing or laundry shall be hung anywhere in the Building Commons Areas or outside the Building or any part thereof other than in the spaces specifically provided therefor.

27.  No Owner shall install through the windows or external walls of the Building air-conditioning units or plants or any other fixture without the prior written consent of the Manager.”

(v)  The Administrative and Budgetary Treatment of the External Walls

17.Since at least October 2007, the Manager has, as a matter of administrative and budgetary treatment, subdivided the External Walls into four categories:

(1)  the external walls of the Commercial Development, including the parapet wall of the Podium, as falling under the Commercial Common Areas and Facilities (“Commercial Walls”);

(2)  the external walls of the Car Port as falling under the Car Port Common Areas (“Car Port Walls”);

(3)  the external walls of the Domestic Blocks as falling under the Domestic Blocks Common Areas and Facilities (“Domestic Walls”); and

(4)  the remaining parts of the External Walls of the Building as falling under the Building Common Areas (“Building Common Walls”).

18.The current uses and responsibilities for the repair and maintenance of the External Walls are as follows:

(1)  The Developer uses the Commercial Walls for advertising purpose.  It also decorates the Commercial Walls to ensure a coherent style across the Commercial Development.  It has been solely responsible for their repair and maintenance, while the owners of the Domestic Blocks have not contributed any funds to the upkeep of the Commercial Walls.

(2)  The Developer also uses the parapet wall of the Podium (“the Parapet Wall”)  for advertising purpose, and has been solely responsible for its repair and maintenance.  The owners of the Domestic Blocks have not contributed any funds to the upkeep of the Parapet Wall.

(3)  The Car Port Walls are maintained by Classic Best (the sole owner of the Car Port).  There is no advertising on the Car Port Walls.  The owners of the Domestic Blocks have not contributed any funds to the repair or maintenance of the Car Port Walls.

(4)  The Domestic Walls are maintained by the Manager, and the funds for such maintenance have been shared by the owners of the Domestic Blocks only.  The Developer has never sought to place any advertisements on the Domestic Walls.

(5)  Lastly, the Building Common Walls are maintained by the Manager, and the funds for their repair and maintenance are shared by all of the owners of the Building in accordance with the budget prepared by the Manager.

(vi)  The dispute

19.The budgetary treatment of the External Walls by the Manager with regard to the costs of their repair and maintenance has been disputed by the IO since about 2009.  In particular, the IO considers that the Developer has the exclusive right to use the whole of the External Walls (including the Domestic Walls)  for advertising and should be solely responsible for the costs of repair and maintenance of the whole of the External Walls (including the Domestic Walls).

THE APPLICATION

20.On 15 August 2018, the Developer made an application (“the Application”)  against the IO in the Lands Tribunal to determine the respective responsibilities of the Developer and other owners of the Building for the repair and maintenance of the External Walls.

21.In the Notice of Application dated 15 August 2018, the Developer seeks the following declaratory relief:

(1)  A declaration that on the proper interpretation of the DMC and the BMO, the Developer’s exclusive rights under Section I Clause 9(e)  of the DMC only impose on it an obligation to repair and maintain such part of the External Walls to which it has exercised its right of advertising and does not make it responsible for the repair and maintenance of all the External Walls, including the external walls of the Domestic Blocks over which it has not exercised any right for advertising purposes (“Declaration (1)”).

(2)  A declaration that on the proper interpretation of the DMC and the BMO, the External Walls are sub-divided into the following categories:

(a)  those falling under the Domestic Blocks Common Areas and Facilities;

(b)  those falling under the Commercial Common Areas and Facilities;

(c)  those falling under the Car Port Common Areas; and

(d)  those falling under the Building Common Areas,

which costs for the repair and maintenance should accordingly be charged to the relevant account maintained for each category (“Declaration (2)”).

(3)  Or alternative to Declaration (2), a declaration that on the proper interpretation of the DMC and the BMO, all the External Walls are Building Common Areas and the costs for the repair and maintenance should be charged to the account for the Building Common Areas and the Building Common Facilities (“Declaration (3)”).

(4)  A declaration that on the proper interpretation of the DMC and the BMO, the Parapet Wall is part of the External Walls, being an extension of the External Walls falling under the Commercial Common Areas and Facilities (“Declaration (4)”).

22.On the other hand, the IO contends, in the Amended Notice of Opposition dated 16 September 2020, that:

(1)  all the External Walls are for the exclusive use, occupation and/or enjoyment of the Developer, and are not common parts of the Building; and

(2)  accordingly, the Developer should solely bear and pay for the maintenance, repair and/or renovation costs of the External Walls.

THE JUDGMENT

23.The Application was heard by the Judge on 29 and 30 October 2020.  In his judgment (“the Judgment”)  given on 22 March 2021, the Judge found in favour of the Developer and held that:

(1)  upon the true construction of the DMC, the External Walls are common parts of the Building;

(2)  the External Walls should be sub-divided into 4 categories as defined in the DMC, ie Domestic Blocks Common Areas and Facilities, Commercial Common Areas and Facilities, Car Port Common Areas, and Building Common Areas; and

(3)  the Parapet Wall should be regarded as an extension of the External Walls falling under the category of Commercial Common Areas and Facilities.

24.In respect of the holding that the External Walls are common parts of the Building, the essential reasoning of the Judge is as follows (see §§30-92 of the Judgment):

(1)  The starting point is to look at the statutory definition of “common parts” under the BMO or the former Multi-Storey Buildings (Owners Incorporation)  Ordinance (“the Predecessor Ordinance”). In both Ordinances, common parts are defined to mean -

(a)  the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Office/Land Registry as being for the exclusive use, occupation or enjoyment of an owner; and

(b)  unless so specified or designated, those parts specified in the First Schedule/Schedule 1.

(2)  The First Schedule/Schedule 1 to the BMO and the Predecessor Ordinance specify common parts to include “External walls and load bearing walls, foundations, columns, beams and other structural supports”.

(3)  Thus, to exclude the External Walls from the definition of common parts, the IO has to demonstrate that the External Walls are for the exclusive use, occupation or enjoyment of the Developer by pointing to a specification or designation in a registered instrument.

(4)  Such “registered instrument” would have to be the DMC, and not the First Assignment.  That is because it is the DMC, not the First Assignment, which serves the function of designating the common parts of a building.  Even if the First Assignment seeks to reserve a particular part of the building to the developer, once the developer enters into the DMC, the DMC governs whether that part of the land reserved by the developer has been designated as a common part.

(5)  Section I Clause 1 of the DMC, which provides that the Developer shall have the exclusive right to use, occupy and enjoy the entire Building except the unit held by the First Purchaser, must be read together with Section I Clause 2 of the DMC which provides that “Building Common Areas”, “Commercial Common Areas”, “Domestic Blocks Common Areas” and “Car Port Common Areas” shall be deemed to be common areas for the benefit of the relevant owners of such areas.

(6)  The External Walls clearly fall within the definitions in the DMC of “Building Common Areas”, “Building Common Facilities”, “Car Port Common Facilities”, “Commercial Common Areas and Facilities”, and “Domestic Blocks Common Areas and Facilities”, which all contain words expressly covering areas which have not been specifically reserved to the Developer or any particular owner, or are intended for common use, as the External Walls are plainly intended for the common use and benefit of the co-owners of the Building or relevant parts of the Building.  As held by the Court of Appeal in Kong Wai Hsien v The Incorporated Owners of Tai Wai Glamour Garden [2019] 5 HKLRD 672 (at §40), the external walls of a building serve the functions of (i)  holding and supporting the building; (ii)  preventing damage to the building’s interior; and (iii)  enabling the co-owners to have peaceful enjoyment of their respective individual units of the building.

(7)  The IO’s reliance on Section I Clauses 9(d)  and (e)  of the DMC to suggest that by those provisions, the Developer has reserved to itself the exclusive right to use the External Walls is squarely against a series of Court of Appeal and Court of First Instance decisions: Incorporated Owners of Goa Building v Wui Tat Co Ltd [2004] 1 HKC 348; Incorporated Owners of Shatin New Town v Yeung Kui [2010] 2 HKC 241; 聯基新樓業主立案法團 v Yan Yan Motors Ltd (unreported, HCSA 7-13/2015, 18.9.2015); and Kong Wai Hsien. The point of principle derived from those authorities is that when the deed of mutual covenant only accords exclusive right to affix flues, pipes etc on the external walls, or the exclusive right to erect and affix advertising signs or structure on the external walls to the developer, such specific rights do not comprise all the rights which would amount to exclusive possession or exclusive right to use, occupy or enjoy the external walls.  There can be other rights in relation to the use and enjoyment of the external walls which are not exclusively reserved to the developer.

(8)  Section IV(A)  Clauses 19, 20, 21, 26 and 27 of the DMC confer a wide range of rights to the co-owners of the Building in relation to the use of the External Walls, in particular the right to put aerials on the external walls and the right to install on the external walls air-conditioning units or plants or any other fixture, with the approval of the Manager.  Consent of the Developer is not required.  This is plainly against any suggestion that the DMC designates the exclusive right of use, occupation and enjoyment of the External Walls to the Developer (Incorporated Owners of Hong Leong Industrial Complex v HL Resources Ltd [2010] 4 HKC 463, at §16).

(9)  No undivided shares have been allocated to the External Walls (see Recital (3)  of the DMC).  Section I Clause 6 of the DMC provides that the right to the exclusive use, occupation and enjoyment of any part of the Building shall not be sold or assigned or otherwise dealt with separately from the undivided share with which the same is held.  Reading Section I Clause 6 together with Recital (3), there is a clear indication that the External Walls (which are not allocated any undivided share and hence impossible to be sold or assigned)  were intended to be common parts under the DMC.  It would be extremely odd for areas of the Building to be reserved to the Developer when it cannot be sold or assigned independently.

(10)  The core function of a first assignment in the context of a sale and purchase of a unit in a multi-storey building is to assign and transfer the proprietary interest in the undivided share(s)  of the building to the first owner.  The first assignment does not have to reserve any rights of possession to the assignor.  This is because the assignor and assignee would execute a deed of mutual covenant at the same time, which would modify the “unity of possession” between the co-owners (who are tenants-in-common in law)  and give the right to the exclusive use, occupation and enjoyment of different parts of the building to individual co-owners.  The parts in respect of which no individual owner has been given the right to such exclusive use, occupation and enjoyment would be common parts or common areas. When subsequent purchasers seek to ascertain what are the common parts of a building, they go to the deed of mutual covenant, and not to the first assignment (or any assignment).  It would wreak complete havoc to conveyancing practice to require subsequent purchasers to look at the first assignment and other subsequent assignments to discover what the common areas are in a building.  As a matter of principle, the First Assignment has no or very limited relevance in deciding whether the External Walls are common parts of the Building.  The designation of common areas in the DMC would supersede whatever reservation as may be found in the First Assignment (which would very often, if not always, reserve all parts of the building except the first unit to the developer anyway): Tai Fat Development (Holding)  Co Ltd v Incorporated Owners of Gold King Industrial Building, unreported, HCA 104/2006, 15.1.2014).  The First Assignment was drafted in a somewhat imprecise manner, and it was not intended that it would provide the guide to what the common areas should be.  If the right to exclusive use occupation and enjoyment of the External Walls was reserved to the Developer exclusively under Clause 1(c)(i)(a)  of the Schedule of the First Assignment, it would not be necessary to say in Clause 1(c)(ii)  and (iii)  that the Developer should have the exclusive right to affix chimneys / flue pipes and to advertise.

(11)  For the above reasons, the External Walls are common parts or areas of the Building, and they are not for the exclusive use, occupation and/or enjoyment of the Developer.  The Developer should not be solely responsible for the repair and maintenance of the External Walls or to bear the costs thereof.

25.In respect of the holding that the External Walls should be sub-divided into 4 categories as defined in the DMC, ie Domestic Blocks Common Areas and Facilities, Commercial Common Areas and Facilities, Car Port Common Areas, and Building Common Areas, the Judge’s reasoning is as follows (see §§93-105 of the Judgment):

(1)  The Domestic Walls, the Commercial Walls, and the Car Port Walls were physically separated, and they were intended for the common use and benefit of the Domestic Blocks, the Commercial Development and the Car Port respectively.  The other parts of the External Walls (Building Common Walls)  would fall under the Building Common Areas/Facilities.

(2)  As regards the IO’s suggestion that the External Walls are meant to support the entire Building, and therefore the 4 categories of the External Walls are not for the common benefit of the relevant parts of the Building, one must look at how the Building actually looks like.  Taking the Domestic Walls as example (the costs of renovation of which are the subject-matter of this dispute), it is plain that the Domestic Walls do not support the Commercial Development beneath them.  In other words, demolishing the 2 Domestic Blocks can in no way affect the structural integrity of the Commercial Development. Given the physical configuration of the Building, it is not obvious how the Commercial Walls or the Car Port Walls can provide support to the Domestic Blocks.

(3)  In any event, given the express provision of the 4 types of common areas and common facilities in the DMC, one should adopt a construction consistent with their context and purpose, ie that there must be some areas which fall under the specific categories of Domestic, Commercial and Car Port.

(4)  As the External Walls can be further sub-divided into Domestic Blocks Common Areas and Facilities, Commercial Common Areas and Facilities, Car Port Common Areas and Building Common Areas, the costs of their repair and maintenance should be charged to the relevant account maintained for each category of common areas/facilities.

26.Lastly, in respect of the holding that the Parapet Wall should be regarded as an extension of the External Walls falling under the category of Commercial Common Areas and Facilities, the Judge’s reasoning is as follows (see §§109-111 of the Judgment):

(1)  There is no dispute that the Parapet Wall should be regarded as part of the External Walls.  The dispute is whether the Parapet Wall should be regarded as an extension of the External Walls falling under the Commercial Common Area and Facilities (ie an extension of the Commercial Walls).

(2)  As the IO contends that the External Walls should not be classified into the 4 categories, it considers that the Parapet Wall should be not regarded as an extension of the External Walls falling under the category of Commercial Common Areas and Facilities.

(3)  Since (as held by the Judge)  the External Walls should be classified into the 4 categories, it follows that the Parapet Wall should fall under the Commercial Common Areas and Facilities.

27.On the basis of the above holdings, the Judge granted Declarations (1), (2)  and (4)  as sought by the Developer.

THE PRESENT APPEAL

28.The IO was not satisfied with the Judgment, and obtained leave to appeal from the Judge on 6 July 2021.

29.Two grounds of appeal are raised in the IO’s Notice of Appeal dated 12 July 2021:

(1)  The Judge erred in law in the construction and interpretation of the DMC that the External Walls are common parts or areas of the Building, such that the Developer should not be solely responsible for the repair and maintenance of the External Walls or to bear the costs thereof (“Ground 1”).

(2)  Alternatively, should the External Walls be held to be common parts of the Building, the Judge erred in law in concluding that they should be notionally divided into 4 parts, namely, the Domestic Walls, the Commercial Walls, the Car Port Walls and the Building Common Walls, and the costs of the repair and maintenance of those parts should accordingly be charged to the relevant account maintained for each category of common areas/facilities (“Ground 2”).

GROUND (1): WHETHER THE EXTERNAL WALLS ARE COMMON PARTS OF THE BUILDING

30.As correctly pointed out by the Judge, the starting point is the statutory definition of “common parts” under the BMO/Predecessor Ordinance.  The expression “common parts” is defined to mean -

“(a)  the whole of a building, except such parts as have been specified or designated in an instrument registered in the [Land Office/Land Registry] as being for the exclusive use, occupation or enjoyment of an owner; and

(b)  unless so specified or designated, those parts specified in [the First Schedule/Schedule 1].”

31.As a matter of ordinary construction of paragraph (a)  of the statutory definition, “an instrument” registered in the Land Office/Land Registry is not restricted to a deed of mutual covenant, or any particular type of instrument.  There is no reason in principle why a registered assignment may not qualify as “an instrument registered in the [Land Office/Land Registry]” for the purpose of paragraph (a).

32.In the present case, there is an instrument registered in the Land Registry, namely, the First Assignment, which specifies or designates the External Walls as being for the exclusive use, occupation or enjoyment of the Developer (see §8 above).  Hence, even though “external walls” are specified in Schedule 1 to the BMO, paragraph (b)  of the statutory definition has no application to the present case.  Prima facie, the External Walls should be not regarded as common parts of the Building under the BMO.

33.On behalf of the Developer, Mr Bernard Man, SC argues that the core function of the First Assignment is to assign and transfer the proprietary interest in the undivided share(s)  of the Building to the First Owner such that the assignor (ie the Developer)  and the assignee (ie the First Purchaser)  could execute the DMC, and it is the DMC (not the First Assignment)  which serves the function of designating what the common parts of the Building are[2]. While we would accept that a core function of the First Assignment is to assign a number of undivided shares in the Building (in this case, 11 equal undivided 9,000^th parts or shares of and in the Building and the Lot)  to the First Purchaser, we do not accept such function to be the core, or the only, function of the First Assignment.  In the present case, the First Assignment also serves the function of giving to the First Purchaser the sole and exclusive right and privilege to hold use occupy and enjoy Flat 26E/Block 1, as well as expressly excepting and reserving to the Developer (and its successors and assigns other than the First Purchaser)  the right to the exclusive use occupation and enjoyment of (inter alia)  the “outer walls”[3] of the Building.  Further, although the designation of common parts of a multi-storey building is often found in a deed of mutual covenant, there is no principle of law that we are aware of which mandates that such designation must necessarily be done by a deed of mutual covenant.

34.Mr Man further argues that a specification or designation of a part of a building as being for the exclusive use, occupation or enjoyment of the developer in a first assignment may be superseded by a deed of mutual covenant.  This we accept as a matter of principle.  The critical question in the present case is whether, upon the true construction of the DMC, the specification or designation of the External Walls as being for the exclusive use, occupation or enjoyment of the Developer in the First Assignment has been so superseded.

35.As mentioned in §14 above, the DMC expressly provides that the “Building Common Areas”, “Commercial Common Areas”, “Domestic Blocks Common Areas” and “Car Port Common Areas” shall be deemed to be common areas for the benefit of the owners of the Building, Commercial Development, Domestic Blocks and Car Port respectively and may, subject to the provisions of the DMC, be used by each owner thereof in common with all other owners and occupiers of the relevant parts of the Building.  The expressions “Building Common Areas”, “Commercial Common Areas and Facilities”, “Domestic Blocks Common Areas and Facilities” and “Car Port Common Areas” are also defined in the DMC.  Those definitions do not refer to the External Walls specifically, although:

(1)  the definition of “Building Common Areas”, after referring to a list of specific areas, contains a catch-all provision which refers generally to “[a]ll other parts of the Buildings which have not been specifically assigned to the Owners and which have not been specifically reserved by the Registered Owner in accordance with this Deed”;

(2)  the definition of “Commercial Common Areas and Facilities”, after referring to a list of specific areas, contains a catch-all provision which refers generally to “[a]ll other areas and facilities intended for common use of the Commercial Development”; and

(3)  the definition of “Domestic Blocks Common Areas and Facilities”, after referring to a list of specific areas, contains a catch-all provision which refers generally to “all other areas and facilities intended for common use of the Domestic Block[s]”.

36.In relation to the catch-all provision in the definition of “Building Common Areas”, the reference is to other parts of the Buildings which have been not specifically assigned or reserved “in accordance with”, not “under”, this Deed.  As pointed out by Yuen JA in the course of the hearing, the parties to a deed of mutual covenant contract as covenantor and covenantee, and do not “reserve” anything (see Jumbo King Ltd v Faithful Properties Ltd & Others (1999)  2 HKCFAR 279, at 296C-D).  On the other hand, Clause 1 of Section I of the DMC expressly provides that the Developer (as the Registered Owner)  shall … have the full and exclusive right and privilege to hold use occupy and enjoy to the exclusion of the First Purchaser the entire Building save and except the premises more particularly described in Recital (4), ie Flat 26E/Block 1, and that recital expressly refers to the First Assignment.  It will also be recalled that in the First Assignment, the Developer expressly excepted and reserved unto itself and its successors and assigns (other than the First Purchaser), inter alia, the outer walls of the Building.  Read in this light and in the proper context, we consider that the External Walls should properly be regarded as falling outside the scope of “other parts of the Building … which have not been specifically reserved by the Registered Owner in accordance with this Deed” in the definition of “Building Common Areas” in the DMC.  In other words, the External Walls do not form part of the “Building Common Areas” as that expression is defined in the DMC.

37.In so far as the catch-all provisions in the definitions of “Commercial Common Areas and Facilities”/“Domestic Blocks Common Areas and Facilities” are concerned, there is nothing in the DMC which provides that the External Walls, or the relevant parts of the External Walls, are intended for the common use of the Commercial Development/Domestic Blocks.  In particular, although the owners are given some limited rights to use the External Walls such as for the installation of aerials, erection, installation or affixing of flags, banners, poles, etc, or installation of air-conditioning units or plants under Clauses 19, 20 and 27 of Section IV of the DMC, such use is subject to the written consent of the Manager.

38.It may also be noted that the expression “Car Port Common Areas” is defined to mean only the “Driveway from Ground Floor access ramp to 1^st Floor and driveway on 1^st Floor Car Port”.  That definition does not contain any catch-all provision similar to those for “Building Common Areas”, “Commercial Common Areas and Facilities” and “Domestic Blocks Common Areas and Facilities”.  Hence, it is clear that the external walls of the Car Port on the First Floor of the Building do not fall within the definition of “Car Port Common Areas” in the DMC.  For the sake of completeness, we should mention that there is also a definition for the expression “Car Port Common Facilities” which does contain a catch-all provision (“All other facilities installed for the use and benefit of the Car Port”)  after referring to a list of specific facilities.  It is not in dispute, however, that the External Walls cannot be regarded as a facility of the Building.

39.Mr Man submits that the External Walls were plainly intended for the common use and benefit of the co-owners of the relevant parts of the Building, as they serve the functions of (i)  holding and supporting the Building; (ii)  preventing damage to the Building’s interior, and (iii)  enabling the co-owners to have peaceful enjoyment of their respective individual units of the Building (Kong Wai Hsien, at §40)[4]. While we have no difficulty in accepting that the External Walls do serve those functions, it does not follow that the External Walls must therefore be “common parts” of the Building for such functions to be served.  As we see it, the specification or designation of the External Walls in a registered instrument as being for the exclusive use, occupation and enjoyment of the Developer and the fulfilment of the aforesaid functions of the External Walls are two separate matters.

40.In all, we do not find anything in the DMC which supersedes the specification or designation of the External Walls as being for the exclusive use, occupation or enjoyment of the Developer in the First Assignment.

41.We shall now deal with various reasons given by the Judge for holding that, upon the true construction of the DMC, the External Walls are common parts of the Building.

42.At §33 of the Judgment, the Judge expressed the view that for the purpose of paragraph (a)  of the statutory definition of “common parts”, the relevant registered instrument would have to be a deed of mutual covenant.  For the reasons stated in §31 above, we do not agree with this view of the Judge.  Neither do we read the judgment of the Court of Appeal in Kong Wai Hsien (at §30(4)), referred to by the Judge at §34 of the Judgment, as laying down any such proposition of law.  There, the Court of Appeal was setting out certain general principles on construction relating to a deed of mutual covenant.  The question of whether a registered instrument for the purpose of paragraph (a)  of the statutory definition of “common parts” could be an assignment or some instrument other than a deed of mutual covenant simply did not arise in that case.

43.At §41 of the Judgment, the Judge held that the External Walls clearly fell within the definitions in the DMC of “Building Common Areas”, “Building Common Facilities”, “Car Port Common Facilities”, “Commercial Common Areas and Facilities”, and “Domestic Blocks Common Areas and Facilities” as the External Walls were plainly intended for the common use and benefit of the co-owners of the Building or relevant parts of the Building. Reliance was also placed on the judgment of the Court of Appeal in Kong Wai Hsien which discussed the functions of the external walls of a building. We have already dealt with these points in §39 above.

44.At §§44-52 of the Judgment, the Judge rejected the IO’s reliance on Clauses 9(d)  and (e)  of Section I of the DMC, which provided that the Developer was entitled to use the External Walls for various purposes (namely, the erection of flue pipes or smoke stackes or chimneys, or for advertising purposes subject to the approval of the Director of Lands or other Government authorities), to argue that the Developer had reserved to itself the exclusive right to use the External Walls.  As pointed out by the Judge at §45 of the Judgment, the Court of Appeal has repeatedly held that exclusive rights reserved by the developer for specific limited purposes in respect of the external walls of a multi-storey building do not give the developer an exclusive right of possession or use, occupation or enjoyment of the same (Incorporated Owners of Goa Building; Incorporated Owners of Shatin New Town; and Kong Wai Hsien).  The Judge’s rejection of this argument of the IO is correct.  This having been said, the above cases are plainly distinguishable because they do not concern the situation where there is an express specification or designation of the external walls in a registered instrument as being for the exclusive use, occupation and enjoyment of the developer.

45.At §§53-54 of the Judgment, the Judge held that Clauses 19, 20, 21, 26 and 27 of Section IV(A)  of the DMC, which conferred a range of rights to the co-owners of the Building in relation to the use of the External Walls, in particular the right to put aerials on the External Walls and the right to install on the External Walls air-conditioning units or plants or any other fixture, with the approval of the Manager and without the need for any consent of the Developer, plainly militated against any suggestion that “the DMC designates the exclusive right of use, occupation and enjoyment of the external walls to the [Developer]”.

46.In our view, the question of whether the DMC has designated the exclusive right of use, occupation and enjoyment of the External Walls to the Developer is off focus, because the relevant designation in the present case is to be found in the First Assignment instead of the DMC. Further, we do not see that there is any inconsistency between (a)  the Developer reserving to itself the exclusive right to the use occupation and enjoyment of the External Walls, and (b)  the Developer covenanting with the individual co-owners that they may be permitted to use the External Walls for some limited purposes subject to the consent of the Manager.

47.The Judge considered that the aforesaid clauses “must have conferred on the other co-owners the ability to make some use of the external walls in the ways stated in those clauses, [and] … must mean that the [Developer] does not have exclusive possession of the external walls” (§57 of the Judgment).  In coming to this view, the Judge referred to and relied upon the judgment of the Court of Appeal in Incorporated Owners of Hong Leong Industrial Complex.  In that case, the right to the exclusive use and enjoyment of the outer walls of the building was expressly reserved to the developer in the deed of mutual covenant.  However, there were other provisions in the deed of mutual covenant to the effect that the exclusive right that the developer had was subject to anything that the manager may permit the co-owners to do in relation to the external walls.  Rogers VP (with whom the other members of the Court of Appeal agreed)  stated the following at §§14-16 of the judgment of the Court of Appeal -

“[14] … when proper consideration is given to the DMC as a whole it can be appreciated that the exclusive right to use of the external wall is not an exclusive right as normally understood, particularly under Section 34H of the Ordinance. Importantly clause (k)  of the Fourth Schedule provides that the owners have bound themselves not to put anything on the external wall or outside part of the building ‘… except with the written approval of the Manager and subject to such conditions as the Manager may impose’.

[15] That provision, in itself, would demonstrate that whatever possession and right to exclusive use that the [developer] had in relation to the external wall, it necessarily was subject to anything that the Manager may permit. In this respect it can be observed that although the [Manager] was in the same control as the [developer], that would not inevitably be so and was not a requirement of the DMC.

[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 [developer] 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.”

48.In our view, it is clear that the Court of Appeal’s conclusion in Incorporated Owners of Hong Leong Industrial Complex was based on a reading of the deed of mutual covenant in that case.  That judgment cannot, in our view, be read as establishing a general proposition of law that whenever the individual owners of a multi-storey building are permitted to use the external walls of the building for some limited purposes in some defined circumstances, the external walls must then necessarily be regarded as common parts of the building.

49.At §59-61 of the Judgment, the Judge expressed the view that since no undivided share was allocated to the External Walls, they could not be sold or assigned or dealt with independently (by virtue of Clause 6 of Section I of the DMC), and it would be extremely odd for areas of the Building to be reserved to the Developer when it cannot be sold or assigned independently.  The short answer to this point is that there is no legal requirement that the right to the exclusive use, occupation and enjoyment of a specified part or area of a multi-storey building given to a co-owner (whether by the DMC or otherwise)  must be linked to some undivided share(s)  being allocated to that part or area of the building, or must be capable of being sold or assigned or dealt with independently (see Jumbo King Ltd v Faithful Properties Ltd & Others (1999)  2 HKCFAR 279, at 290E-H & 298D-H). As noted in §7 above, the Developer has retained undivided parts or shares of and in the Lot and the Building.

50.At §§75-85 of the Judgment, the Judge held that the core function of a first assignment in the context of a sale and purchase of a unit in a multi-storey building was to assign and transfer the proprietary interest in the undivided share(s)  of the building to the first owner, and it was the deed of mutual covenant which would give the right to the exclusive use occupation and enjoyment of different parts of the building to individual co-owners. The Judge further expressed the view that the First Assignment has no or very limited relevance in deciding whether the External Walls are common parts, and that the designation of common areas in the DMC would supersede whatever reservation as might be found in the First Assignment.  We have already dealt with these points in §§33 and 34 above.  We would add the following:

(1)  It is incorrect to suggest that it is necessarily the deed of mutual covenant which would give the right to the exclusive use occupation and enjoyment of different parts of the building to individual co-owners (§78 of the Judgment).  In the present case, the right of the First Purchaser to the exclusive use occupation and enjoyment of Flat 26E/Block 1 was given to him by the First Assignment, and this right was “recited” in Recital (4)  of the DMC.  Similarly, the right of the Developer to the exclusive use occupation and enjoyment of various other parts or areas of the Building was “reserved” by the Developer in the First Assignment, although such right could be, and indeed was, qualified or modified by the DMC.

(2)  As for the Judge’s suggestion that “[i]t would wreak complete havoc to conveyancing practice to require subsequent purchasers to look at the first assignment and other subsequent assignments to discover what are the common areas in a building” (§80 of the Judgment), we would observe that in so far as the First Assignment is concerned, it is expressly mentioned in the DMC, and is plainly a relevant document which should be looked at in order to properly construe the DMC, in particular those provisions concerning the common areas and/or facilities of the Building.  On the other hand, the subsequent assignments, which came into being after the execution of the DMC, would generally be inadmissible as an aid to the construction of the DMC, and thus would generally not be required to be looked at.

(3)  In relation to the Judge’s observation that “[i]f the right to exclusive use occupation and enjoyment of external walls was to be reserved to the applicant exclusively under Clause 1(c)(i)(a)  of the Schedule of the First Assignment, it would not be necessary to say in [Clause 1(c)(ii)  and (iii)][5] that the applicant should have the exclusive right to affix chimneys / flue pipes and to advertise” (§85 of the Judgment), as the Judge mentioned at the beginning of that paragraph, the First Assignment was drafted in a somewhat imprecise manner.  In any event, we are unable to see that the specific reservations of the rights to affix chimneys / flue pipes and to advertise on the external walls of the Building under Clause 1(c)(ii)  and (iii)  of the Schedule to the First Assignment can negate the general reservation of the right to the exclusive use occupation and enjoyment of the outer walls of the Building under Clause 1(c)(i)(a)  of the same Schedule.

51.For the above reasons, we are of the view that the Developer, subject to the provisions of the DMC, has the exclusive right to the use, occupation or enjoyment of the External Walls, and they are not “common parts” of the Building for the purpose of the BMO.

52.Section 34H of the BMO provides as follows:

“Duty to maintain property

(1)  Where a person who owns any part of a building, has the right to the exclusive possession of any part of a building or has the exclusive right to the use, occupation or enjoyment of that part, as the case may be, but the deed of mutual covenant in respect of the building does not impose an obligation on that person to maintain the part in good repair and condition, that person shall maintain that part in good repair and condition.

(2)  The obligation in subsection (1)  shall be deemed to be an obligation owed to all owners of the building under the deed of mutual covenant.”

53.It follows that the Developer is under an obligation to maintain the External Walls in good repair and condition regardless of whether it has exercised its right over the External Walls for advertising purposes.

54.Accordingly, Declarations (1)  to (4)  sought by the Developer should all be refused.

GROUND (2): WHETHER THE EXTERNAL WALLS SHOULD BE SUB-DIVIDED INTO 4 CATEGORIES OF COMMON AREAS

55.Having reached the above conclusion, Ground (2)  does not arise for consideration.

DISPOSITION

56.The IO’s appeal is allowed and the Judgment is set aside.  The Developer shall pay the IO’s costs of the appeal, to be taxed if not agreed, with certificate for 2 counsel.

Mr Bernard Man SC & Mr Jonathan Ng, instructed by Mayer Brown, for the Applicant

Mr Denis Chang, SC, Ms Teresa Wu & Mr Tommy Cheung, instructed by Chan, Wong & Lam, for the Respondent