Pakatower Ltd v. The Incorporated Owners of Transport City Building
Read the full judgment text of LDBM 75/2019 on BabelCite. This Lands Tribunal judgment was delivered on 3 March 2025.
1. This is a building management case concerning Transport City Building, which is situated at 1-7 Shing Wan Road, Tai Wai, Shatin, New Territories (“Building”).
Cites 13 cases
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LDBM 75/2019 [2025] HKLdT 7 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION BUILDING MANAGEMENT APPLICATION NO 75 OF 2019 ___________________
___________________ IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION BUILDING MANAGEMENT APPLICATION NO 151 OF 2020 ___________________
___________________ IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION BUILDING MANAGEMENT APPLICATION NO 152 OF 2020 ___________________
___________________ (LDBM 75/2019, LDBM 151/2020 and LDBM 152/2020 are consolidated and thereafter be carried on as one action by name of LDBM 75/2019, pursuant to the Order made by His Honour Judge M Wong on
_________________ J U D G M E N T _________________ BACKGROUND 1.This is a building management case concerning Transport City Building, which is situated at 1-7 Shing Wan Road, Tai Wai, Shatin, New Territories (“Building”). 2.The disputes between the parties involve various utilities rooms, accommodations, spaces under staircases and the external walls of the Building, which have (together with various other parts of the Building) been grouped under a single “Unit” described as “Others” (“Others Unit”) in the First Schedule (“First Schedule”) of the Deed of Mutual Covenant of the Building dated 1 November 1982 (“DMC”). 3.The applicant (“Pakatower”) became the registered owner of the Others Unit in 1994 and is, at present, the registered owner of some parts of the Others Unit, which will be elaborated further below. 4.The respondent (“IO”) is the incorporated owners of the Building which:-
THE BUILDING 5.The Building is an industrial building comprising of ground floor to ninth floor and a roof. Occupation Permit of it was issued on 14 July 1982. On 15 September 1982, Kent Long Investment Limited (“First Owner”) acquired the Building from the developer and became the sole registered owner of the entire Building. 6.By an assignment dated 1 November 1982 (“First Assignment”), the First Owner assigned one individual unit of the Building (“First Sold Unit”) to its first purchaser (“First Purchaser”). On the same day, the First Owner, the First Purchaser, the then manager of the Building, and the then mortgagee of the Building entered into the DMC. By then, the Building was not designed with and did not have any refuse collection station, security station or management office room. 7.Of particular relevance to these proceedings are two approved building plans of the Building, the building plans approved on 12 May 1982 (“1982 Approved Plans”) and the amended building plans approved on 11 April 1984 (“1984 Approved Plans”). DMC 8.The DMC contains the following provisions which are of particular relevance to the present proceedings:-
THE ASSIGNMENTS PAKATOWER’S OWNERSHIP-OTHERS UNIT 9.In the First Assignment, the First Owner had explicitly reserved for itself and its successor the Others Unit, which is separately listed out in the reservation schedule. 10.IO was incorporated on 4 August 1993. 11.In January 1994, as part of its offer for sale, the First Owner posted up at the Building a document entitled the Declaration of Title (“業權聲明書”) (“Declaration of Title”) outlining the status and history of its privately-owned Others Unit. It urged IO to continue renting the Others Unit from it after the expiry of the 10-year tenancy (for the period from 1983 to 1993) (“1983-1993 Tenancy”), which was entered between the First Owner and the then Manager. 12.On 3 March 1994, the First Owner and Pakatower entered into a Chinese agreement for the sale and purchase of the Others Unit (as supplemented by a supplemental sale and purchase agreement dated 6 April 1994). 13.IO took over the management of the Building on 15 April 1994. 14.By an Assignment dated 31 August 1994 (“Pakatower Assignment”), the First Owner, for the price of HK$1,400,000, assigned to Pakatower the 1,920 undivided shares pertaining to the Others Unit, together with the sole and exclusive right and privilege to hold, use, occupy and enjoy the Others Unit, but excepting and reserving unto the First Owner its successors and permitted assignees the advertising right of the external walls (“External Walls”) and the Roof. 15.Thereafter, by a Deed Poll and Memorandum of Re-Allocation of Undivided Shares dated 28 December 1994, Pakatower repartitioned the Others Unit into separate units, with the 1,920 undivided shares allocated to each of the said 20 units. Two of the re-partitioned units are the subject of the present dispute:-
16.In other words, Pakatower was by then the registered owner of:-
17.By an Assignment dated 3 May 2018, Pakatower assigned the Unit 13 Staircase Space to a purchaser at HK$270,000. It also sold the other 18 repartitioned units over the years from 1995 to September 2014[1]. At present, the Disputed Premises and the External Walls are the only parts of the Building currently held by Pakatower. IO’S OWNERSHIP- ROOF UNIT 18.On 24 July 1996, IO entered into a tenancy agreement with the First Owner for renting the Roof Unit for the period between 25 July 1996 and 25 June 2047 at the monthly rent of HK$2,000 for the first 10 years, to be increased by 50% for every 10 years thereafter. 19.By an Assignment dated 12 October 2012, IO purchased[2] the Roof Unit from the First Owner for HK$438,000, thereby acquiring the 2,300 undivided shares together with “the sole and exclusive right and privilege to hold use occupy and enjoy all those the whole roof including the Machine Rooms, Pump House, Pump Room, Water Tanks, Fuel Tank, Generator Room, Cooling Towers (if any), and other utility room or accommodation (if any) therein or therein of the Building.” 20.The First Owner was dissolved and deregistered on 20 May 2016. THE TENANCIES 21.In 1983, the then Manager of the Building entered into a 10-year tenancy concerning the Others Unit for the period between 1983 and 1993 with the First Owner. 22.In order to continue using certain parts of the Others Unit, IO entered into a 3-year tenancy agreement (“1994 Tenancy Agreement”) with Pakatower on 15 April 1994 for renting Spaces B to E of the Others Unit from 1 May 1994 to 30 April 1997. The Disputed Premises were not included therein. 23.In or around 1996, Pakatower realized that the utility rooms forming part of the Others Unit which were occupied by IO had not been included in the 1994 Tenancy Agreement. Disputes arose between them over IO’s use of those utility rooms and whether Pakatower needed to make contribution to certain repair charges of the Building. Upon the expiry of the 1994 Tenancy Agreement, IO neither delivered vacant possession of the rented premises nor entered into any new tenancy agreement with Pakatower. Litigations ensued (“1996-1997 Disputes”). 24.On 11 April 1997, IO issued a notice concerning the Others Unit. In that, IO recognized that the Others Unit was exclusively owned by Pakatower and IO had been renting certain parts of the Others Unit from Pakatower for the Building was not designed with any refuse collection station, security station or management office room. 25.The 1996-1997 Disputes eventually came to be settled. In or around June 1997, in global settlement of all disputes relating to the Others Unit, Pakatower agreed to discontinue all the legal proceedings against IO, and IO agreed to pay costs of the proceedings and :-
26.The 1997 Tenancy Agreement (for 8 years from 1 May 1997 to 30 April 2005) is the first agreement for renting the Disputed Premises between IO and Pakatower. The said two tenancy agreements were renewed from time to time. IO has, between 1 May 1997 and 30 April 2015, continuously rented the Disputed Premises and/ or other parts[3] of the Other Unit for 18 years. During the period, IO had expressed its desire to purchase the Others Unit[4] . 27.The last tenancy agreement for renting the Disputed Premises and the Unit 13 Staircase Space between IO and Pakatower was a Chinese agreement dated 24 April 2014 (“Last IO Tenancy Agreement”). It contains, inter alia, the following terms:-
28.Since the expiry of the Last IO Tenancy Agreement on 30 April 2015 (“Expiry Date”), IO has not entered into any further tenancy with Pakatower. It rejected Pakatower’s offer to rent. 29.Disputes arose. Pakatower complained IO to have refused to renew the tenancy agreement but wrongfully failed to return the Disputed Premises to Pakatower despite repeated requests. In or after September 2018, IO complained Pakatower to have defaulted on payments of management fees and contributions to repair expenses. 30.No agreement could be reached. Pakatower commenced action LDBM75/2019 on 15 April 2019, followed by two actions started by IO at the Small Claim Tribunal (“SCT”) on 3 May 2019, which were subsequently transferred to the Lands Tribunal and became actions LDBM151/2020 and LDBM152/2020. PROCEDURAL HISTORY 31.LDBM75/2019 was for determination of Pakatower’s rights over the Disputed Premises whereas LDBM151/2020 and LDBM152/2020 were for determination of Pakatower’s liabilities to the alleged outstanding management fees and contributions to the repair expenses of the Building. 32.Pursuant to the Order of HHJ M Wong dated 16 November 2020, the three actions were consolidated into the present action and the parties filed the following documents: -
33.At trial, Pakatower arranged its director, Ms Kelly Pou, (“Pou”) and its valuation expert, Mr David Cheung (“Cheung”) to give evidence for it. IO arranged its Chairman, Li Wai Keung (“Li”) and its valuation expert, Ms Ng Hung Mui (“Ng”) to give evidence for it. CONSENT ORDERS 34.Subsequent to the commencement of the trial, IO admitted two of Pakatower’s claims concerning the Unit 13 Staircase Space and the External Walls, and this Tribunal is invited to make an order in terms of the two draft consent orders in this Judgment as follows:-
PAKATOWER’S CLAIM 35.Pakatower’s remaining claims focus primarily on seeking IO’s delivery of vacant possession of the Disputed Premises, which can be categorized into three categories for analysis purposes as follows: -
36.In the CNOA, Pakatower complains that IO has, since the Expiry Date, : -
37.Accordingly, it prays for, other than costs and interests, the provision of the Gate Keys, the delivery of vacant possession of the Disputed Premises and the related declaratory relief, injunctive relief, damages for wrongful occupation of them since 1 May 2015. 38.Pakatower made it clear that for the order for delivery of vacant possession of the Housing Premises, the Subject Facilities can remain therein providing that they are regarded as the Common Facilities under the DMC and that they were installed and kept therein upon the execution of the DMC. IO’S COUNTERCLAIMS 39.IO denies all Pakatower’s claims. It says that: -
40.IO also counterclaims for: -
LIST OF ISSUES 41.In essence, the issues in dispute are:-
FACTUAL DISPUTES THE PRE-IO TENANCIES 42.As a start, several disputes on facts require determination. It is noteworthy that at the beginning, IO has not admitted (but notably could not deny with solid evidence, and subsequently changed to admit) the existence of the tenancies regarding the Others Unit between 1983 and 1997 as alleged by Pakatower. I have no reason not to believe Pakatower’s case in this area which is consistent with the background facts and is well-supported with documentary evidence. Indeed, almost all the tenancy agreements disclosed by Pakatower bore the IO’s letter head (with the exception of the one for the period from 1 May 2013 to 30 April 2014) and were obviously prepared by IO and supplied to Pakatower. 43.Indeed, it is highly unlikely that IO will have no knowledge of such important tenancies and have kept no record of them. In particular, such tenancies involved many written agreements, minutes and accounts records. Li has been the Chairman of IO since March 2014. It is his own evidence that his father, Mr Lee Chiu Fat, had been a committee member and/ or Chairman of IO from 1998 to 2012, and that he had discussed with his father from time to time about the management of the Building. His father was also heavily involved in the settlement of the 1996-1997 Disputes and the formation of the tenancy agreements in 1997. 44.Besides, the tenancy agreements from 2006 to 2015 were signed by the same IO member[6], who was the vice-chairman of the IO when the present actions were consolidated. The IO’s meeting minutes also show that at least 6 of the IO members who approved the tenancy in 2013 and 2014 were still the IO members when the present proceedings were consolidated. 45.Further, I share the view with Pakatower that IO’s contention of “there was no tenancy at all over the [Housing Premises] when the Building was ready for occupation on 14 July 1982 until the start of the 1983 - 1993 10 year-Tenancy in 1983” tends to be misleading. The First Owner only acquired the Building from the Developer on 15 September 1982. It only sold the First Sold Unit on 1 November 1982 and the DMC was executed on the same day. Prior to that, the Building was in single ownership and no tenancy for the Disputed Premises was necessary. According to the 1984 Approved Plans, the layout of the Building was finalized only on 9 May 1983. Most of the Units in the Building were only assigned away by the First Owner after May 1983. As the First Owner was liable to make up the shortfall of management fee under clause 56 of the DMC, it had no reason to arrange any tenancy for very few occupants in 1982. 46.Besides, IO’s contention that the Housing Premises were not covered by the 1983-1993 Tenancy is again, on balance, unlikely to be true. In the Declaration of Title (which IO also adopted as the background fact), the reference to the Others Unit was followed by “管理所需用之房間及空間（例如大廈入口看更亭、工具放置室、清潔員工休息室及垃圾收集站等)”. The four rooms and spaces were expressed to be listed just for examples only, and in no way can be interpreted as the only parts of the Others Unit being rented out. IO’s contention also contradicts to its own case that the Housing Premises were “管理所需用之房間及空間” and that the Disputed Semi-circle Area (being described by IO as “清潔員工休息室” “Cleaners’ Room”) was not part of the Other Units. SUBJECT FACILITIES 47.The evidence shows that Pakatower has never had access to the Housing Premises. From 15 April 1994 (prior to its acquisition) to the Expiry Date, IO had the Exclusive Occupation Rights of the Housing Premises under a series of tenancy agreements. After the Expiry Date, IO continued to lock the Housing Premises up and deny Pakatowers’s access to them. 48.Despite Pakatower’s repeated requests, the documents disclosed by IO in these proceedings were flimsy and most of the relevant meeting minutes were not produced. What exact objects are currently stored inside the Housing Premises and the spaces they occupy remain unknown. Li admitted in court that the Subject Facilities listed in his witness statement was not a complete list. Under cross-examination and finally, in the closing submission, IO admitted that not all the Subject Facilities are the Common Facilities and not all of them existed upon the execution of the DMC. 49.It is beyond dispute that some of the Subject Facilities are not Common Facilities, some were installed after the execution of the DMC and some were installed not for the use and benefit of the whole Building. Just to name a few examples: -
50.Further, IO cannot deny, still less of solid evidence to argue, that it is not uncommon[7] for the Common Facilities to be relocated to other places. What is required is just a reasonable period of time for relocation. HOUSING PREMISES CONSTRUCTION ARGUMENT 51.I should first deal with the Construction Argument relating to the Housing Premises. IO does not dispute its exclusive occupation and use of the Housing Premises to the exclusion of Pakatower after the Expiry Date but contends that it is entitled to do so irrespective of whether there was any tenancy. It says that since the Building was ready for occupation in or about 1982, the Housing Premises have been housing the Subject Facilities therein. On the proper construction of the DMC, the Subject Facilities and the Housing Premises are regarded as the Common Facilities and/ or the Common Areas under the DMC, giving rise to the Exclusive Occupation Rights to IO. Its argument runs as follows:-
52.The applicable principles of construction are agreed. The construction of a document involves the ascertainment of the meaning that the document would convey to a reasonable person having the background knowledge available to the parties at the time of the document. The court reads the document as a whole, giving the words used their natural and ordinary meaning in the context of the document, the parties’ relationship and all the relevant circumstances known to them: Jumbo King Ltd v Faithful Properties Ltd & others (1999) 2 HKCFAR 279, 296 (“Jumbo King”). 53.The principles governing the interpretation of a deed of mutual covenant have been recently summarized in Donora Co Ltd v Incorporated Ownership of Tsushima Kam Centre [2024] HKCFA 3 (“Donora”). It is the deed of mutual covenant which should have primacy as the instrument regulating the common parts and the rights and obligations between the co-owners in the management of the building. Clauses in the deed of mutual covenant and the first assignment which give an owner full and exclusive right and privilege to hold the entire building except for the part assigned must be read together with other provisions of the DMC. 54.The crucial question is whether the first assignment and the DMC when read together manifest a common intention to specify or designate a part as being for the exclusive use, occupation or enjoyment of an owner. The documents should be construed contextually and purposively in a coherent fashion, paying regard to the overall context of the transaction and other relevant provisions in the instruments effecting the same transaction. 55.Applying the principles of construction to the facts of the present case, I am not persuaded that the DMC can be read as granting IO the Exclusive Occupation Rights over the Housing Premises. Nor am I convinced that the Housing Premises are regarded as the Common Facilities or Common Areas under the DMC. 56.It is noteworthy that IO’s pre-consolidation case[8] on construction was different and did not contend for the very extensive Exclusive Occupation Rights it now seeks. Initially, it only asserted a right of way which is no different from the Manager’s Right of Access save that it also asserted the rights to “improve” and “install” facilities in the Housing Premises. It was only in the ACNOO IO then changed to argue that the Housing Premises are regarded as the Common Facilities and/ or Common Areas under the DMC and accordingly, it has the Exclusive Occupation Rights over the Housing Premises. It nevertheless is not able to refer to any clear wordings in the DMC, other than the Catch-all Provisions, for support. 57.In my view, IO’s construction runs counter to the express intention and wordings of the DMC. The DMC has drawn a sharp distinction between the Common Areas, the Common Facilities and the Unit. I should first start with their definitions under the DMC. Under the “Definition” section, the three terms are separately defined. In the definitions of the Common Areas and the Common Facilities, there is no mention of the Housing Premises or that the Common Facilities must be housed in the Common Areas. 58.The Unit is specifically defined as not limited to workshops and car parking spaces, but includes “such other accommodation space facilities or parts of and in the Building to which undivided shares have been allocated”. There is no mention of the Common Areas or Common Facilities. The allocation of undivided shares to each of the Unit is fully listed out in the First Schedule. In contrast, no undivided shares were allocated to the Common Areas or the Common Facilities. The Unit, with undivided shares allocated, tends to indicate an intention for exclusive possession, occupation and use of an Owner. The allocation of the undivided shares to the Unit but not the Common Areas” or “Common Facilities” is a sharp distinction between them. 59.In the First Schedule, the Others Unit, which includes the Disputed Premises, is individually listed as a “Unit” of the Building and is allocated with 1,920 shares. The description of the Others Unit includes not only those named utility rooms, but also all “other utility room or accommodation (if any)” from the ground floor to the eighth floor. It also includes various empty spaces as those underneath the staircases and by the side of driveway. Apparently, the sharp distinction among the three definitions is deliberate and should not be lightly disregarded. 60.It is clear that the First Owner had strived to reserve to itself all the usable spaces for its own use and treat them separately as an individual “Unit” with undivided shares allotted to them, purposively avoiding them falling into common use and aiming at maximizing its potential gains from them. In reality, the First Owner leased out several parts of the Others Unit shortly afterwards and subsequently sold them out. 61.The intentional distinction is further illustrated by the obligations to pay management fees, which is another indication of the owners’ rights to exclusive occupation, use and enjoyment of the related property. In the Third Schedule, management fees are levied on the Unit, but not the Common Areas or Common Facilities. If the Housing Premises are regarded as the Common Areas or Common Facilities, the owner of the Other Unit should unlikely be made liable to pay the management fees for the Other Unit, which it cannot occupy, use or enjoy. 62.I am not convinced that because the number of management shares allocated to the Others Unit are fewer than the undivided shares allocated to it, this indicates that some parts of the Others Unit are not privately-owned but are Common Areas or Common Facilities. Not knowing how and on what basis the undivided shares and the management shares were allocated to each Unit under the DMC, IO is not in a position to make sensible comparison between them. Mere speculation does not take IO any further. It should note that there are also other cases that have similar number of undivided shares but different number of management shares[9]. To me, if no management payments are levied on the Housing Premises, the draftsman should not have troubled himself by adding the Housing Premises in the Third Schedule. 63.The fact that the draftsman did not intend the Housing Premises to be the “Common Areas” and “Common Facilities” is amplified by Clauses 46(4)(a) and 46(4)(c). The clauses prescribe each Owner shall pay and contribute to, inter alia,
64.Such clause provides that the maintenance costs of the Others Unit and the Common Facilities contained therein are to be borne in common, but in doing so, after mentioning various parts of the Others Unit, clause 46(4)(c) specifically recognizes the owner’s exclusive occupation right over the Others Unit and the payment arrangement will have no impact on such right. There is no provision which qualifies or restricts such right. 65.Besides, the fact that the draftsman took the trouble to list the Others Unit as well as the Common Areas and Common Facilities separately in two sub-clauses, clauses 46(4)(c) and 46(4)(a) strongly militates against IO’s construction that the Housing Premises are the Common Areas or Common Facilities under the DMC. COMMON AREAS 66.The definitions of the “Common Areas” and the ”Common Facilities” also illustrate that the draftsman did not intend the Others Unit to be the “Common Areas” or “Common Facilities”. Both of them are not assigned with undivided shares. The whole definition of the “Common Areas” is expressed in one single sentence. In that, the subject matters specified in the first part are areas of halls, driveways, staircases, landings, ramps, corridors, passages, loading areas. They are of the same nature and are unenclosed, open spaces of the Building that all the Owners will pass through and over for the enjoyment of their properties. 67.The list of the specified open spaces is immediately followed by a catch-all provision of “and other parts designed for common use and enjoyment.” with a conjunction word of “and” to join them together. The catch-all provision is undoubtedly the continuation of the list with the underlying theme of the list be carried forward to the catch-all provision to cover the other designated unenclosed, open spaces of the Building that all the Owners will pass through and over for the enjoyment of their properties. 68.It is illogical that the draftsman would have used the catch-all provision to cover something of a completely different nature as the Housing Premises, which are enclosed, self-contained and privately owned rooms or accommodation and not for all the Owners to pass through and over. It will be odd for the draftsman to have such drastic change of expression and intention without setting it out clearly. 69.Coupled with the exclusion of some open spaces (which are part of the Others Unit) from the definition of the “Common Areas”[10], it is clear that the draftsman had the Others Unit in mind when the definition of the “Common Areas” was drafted. The draftsman nevertheless chose not to include the Others Units in the definition of the “Common Areas”. The intention that the Housing Premises do not form part and partial of the Common Areas is clear. COMMON FACILITIES 70.Likewise, IO’s contention that the Housing Premises per se (not the Common Facilities contained therein) can also be regarded as the “Common Facilities” under the DMC is far from convincing. The definition of the “Common Facilities” is expressed in one single sentence. It started with a list that, other than the “first aid room (if any) and caretakers’ and/ or watchmen’s rooms (if any)” (collectively, “Exceptions”) which were specifically described with uncertainty as to their existence, all the items listed therein are equipment and apparatus being installed for serving the whole Building and for the use and benefit of all Owners as lighting, sprinkler systems, water pipes, drains, wires, cables and firefighting equipment, lifts, not landed areas, still less of enclosed, self-contained and privately-owned rooms. 71.The list is followed by the catch-all provision of “and other facilities installed for the use and benefit of the Building and not for the use and benefit of a particular unit”, with the conjunction word “and” to join the two parts. Not only that the catch-all provision is clearly the continuation of the list with the underlying theme of the list be carried forward to the catch-all provision to cover only facilities being installed, but also that the catch-all provision expressly confines only to “other facilities installed”. 72.The use of the word “installed” is clearly a deliberation to confine the “other facilities” to equipment and apparatus which required installation and have already been installed, notwithstanding the Exceptions were listed in the first part. The choice of words was deliberate. Hence, the Common Facilities could not have intended to cover the Housing Premises, which are not equipment or apparatus and could not be installed. 73.Further, clause 1 (a) lends further support to my analysis. It empowers the Owner to “go, pass and repass over and along such of the Common Areas and use such of the Common Facilities” for all purposes connected with the proper use and enjoyment of the Unit owned by the Owner. From the use of the words “go, pass and repass over and along” for the “Common Areas” and the word “use” for the “Common Facilities”, it is clear that the “Common Areas” only cover non-enclosed open areas for the Owners to pass over and the “Common Facilities” confine to equipment and apparatus for the Owners to use. They could not have covered the enclosed, self-contained Housing Premises, which can neither be gone, passed and repassed over and along nor be installed and used. 74.My analysis is further supported by clause 1(d) of the DMC, which provides the Manager with the Manager’s Right of Access “to enter into and upon each Unit or other part of the Building for the purposes of examining, maintaining and repairing such Unit or any part or parts of the Building or any Common Facilities therein….” at all reasonable time on notice (except in case of emergency). Clause 1(d) features four salient points as follows:-
75.Clause 1(d) is the only operational and empowering provision which specifically stipulates how the Manager can deal with the Common Facilities kept inside the privately-owned Unit. It empowers the Manager to enter into the privately-owned Unit for specified purposes and on notice. Such clause undermines IO’s argument. If the premises housing Common Facilities are regarded as the Common Areas and Common Facilities, such carefully drafted clause is totally a surplusage. 76.Indeed, Clause 1(d) makes perfect sense with my construction of the other provisions of the DMC as elaborated above. It sits comfortably with the definitions of the Common Areas, the Common Facilities and the Units. It also sits well with the operational provisions regarding the rights and obligations of the Owners and the IO. It goes hand in hand with the charging provisions of the management expenses. 77.In contrast, IO’s construction in effect completely removes the Exclusive Occupation Rights over the premises housing Common Facilities from their owners. That is a drastic and arbitrary measure. It is unlikely that the draftsman would have expressed such unusual intention in such an ambiguous way. Not only that there are no direct and clear wordings on this in the DMC, but also that IO’s construction will render almost all the provisions which provide the Owner with the Exclusive Occupation Right over their privately-owned Unit housing the Common Facilities as well as the Manager’s Right of Access redundant. That cannot be the intention of the draftsman. 78.Further, IO’s construction has wrongfully conflated the Common Areas, Common Facilities and the Unit housing Common Facilities. It is difficult to accept that was the intention of the draftsman who took the troubles of separating the three items in the definition section, operational provisions and schedules of the DMC. It goes without saying that there can be no implied terms which are inconsistent with the express terms of the DMC. 79.In reality, IO’s construction is inconsistent with the factual background. The Housing Premises are enclosed and self-contained rooms which have been locked up all the time. They cannot be the Common Areas or the Common Facilities as they can neither be passed over and along nor are they facilities being installed to be used. 80.Besides, the Common Facilities cover various equipment and apparats (for water supply system, drainage system, sprinkler system, wires and cable, etc.) which are not just kept in the Housing Premises but were installed all over the Building, even in some private workshops. According to IO’s wide construction, almost the whole Building will be regarded as the Common Areas or Common Facilities and it will be impossible to delineate the difference between the privately-owned Unit and the Common Areas and Common Facilities. That could not be the draftsman’s intention. 81.A further problem with the IO’s construction is that it does not have general and consistent application but arbitrarily singles out only the Housing Premises. There is no provision in the DMC which allows IO to selectively treat the Housing Premises differently from other privately-owned Unit housing Common Facilities, bearing in mind that the Common Facilities located all over the Building and the Housing Premises only make up a part of the Disputed Premises. 82.In this aspect, IO fails to provide any valid explanation as to why it has the power to apply different standards to different premises housing the Common Facilities. Notwithstanding that the utility rooms and water tank of the Roof Unit and those of the Other Unit are subject to the same First Assignment and the DMC as well as are all being marked on the same Approved Building Plans as containing Common Facilities, IO apparently applied different construction of these documents and by itself had the practice of using the utilities rooms and water tanks of the Roof Unit for its own purposes as privately-owned owners (ie as meeting room) other than housing the Common Facilities. 83.The inconsistency in the IO’s approach is further illustrated by IO’s treatment to the Cable & Meter Room on the first floor. It is IO’s pleaded case that that room housed some Common Facilities therein. IO however adduced witness evidence that that room was sold to and privately owned by a third party and IO had no control to it. IO’s expert also gave evidence that that room was a “private area owned by the owner of Unit 2 on 1st Floor” and she was not able to inspect it during her two visits even though she was accompanied by IO’s staff because the owner concerned was unable to get back to open the door for her. She also said that it was her understanding that prior approval of that owner was required before one could enter into that room. 84.It is unclear whether that room still houses any Common Facilities. As contends by Mr Kwong, Counsel for the Applicant, by either way, it is contradictory to the IO’s case. If it houses some Common Facilities, it shows that IO actually knows that the DMC does not empower it to have the Exclusive Occupation Right over the premises housing the Common Facilities but only the Manager’s Right of Access and that IO does not virtually need the Exclusive Occupation Right for management of the Common Facilities. On the contrary, if that room is no longer houses the Common Facilities, it shows that the Common Facilities, even being “designated” in the Approved Building Plans for placing Common Facilities, can still be relocated. 85.Thus analyzed, the intention of the draftsman in the DMC is clear. It gives no room for IO to bring in further arguments on the dictionary definition of the “common facilities” and “common areas” or the definition of the “common parts” under section 2 and schedule 1 of the Building Management Ordinance, Cap. 344. DMC & FIRST ASSIGNMENT 86.In the First Assignment, the First Purchaser was given the Exclusive Occupation Right over the First Sold Unit, save that the First Owner had reserved to itself the “full and exclusive right and privilege to hold use occupy and enjoy” the whole of the Building to the exclusion of the First Purchaser. This (when read together with the clauses giving each Owner the right relating to the Common Areas and the Common Facilities) effectively retained for the First Owner the Exclusive Occupation Right of all the Others Units. 87.Reading the DMC and the First Assignment together, it is obvious that the First Owner deliberately designated various parts of the Building that were valuable as the “Unit” and reserved them to itself aiming at maximizing its financial gain in future. Such demonstrated intention also sits well with the background fact that the First Owner had obtained a substantial mortgage loan for the whole Building with a bank, which was also a party to the DMC as Mortgagee. 88.Looking at all the relevant matters in the round, I accept Pakatower’s construction that the Others Unit, including the Housing Premises, are neither the Common Areas nor the Common Facilities. The presence of some Common Facilities in the Housing Premises does not turn the Housing Premises into the Common Areas or Common Facilities. The Housing Premises as part of the Others Unit are intended for sole and exclusive occupation, use and enjoyment of their Owner. IO does not have the Exclusive Occupation Right of them. It only has the Manager’s Right of Access over them. 89.The reality is the First Owner, shortly after the execution of the DMC, rented out the Others Unit to the then Manager from 1983 to 1993 and then sold it to Pakatower thereafter. Its assertion of its Exclusive Occupation Rights over the Others Unit was also well-documented in the Declaration of Title. EXTERNAL WALL 90.It is noteworthy that the DMC has differentiated the Disputed Premises, being private sole and exclusive areas, from the External Walls, being common parts (as now conceded by IO) because:
MANAGEMENT REASONS 91.IO further argues that the DMC must have intended to treat the Housing Premises as the Common Areas or Common Facilities in order to provide IO with full power to effectively manage the Common Facilities and to avoid Pakatower selling, leasing out or allowing unauthorized access into the Housing Premises, so as to ensure safe supply of essential services to the Building. 92.Such argument has again conflated the Housing Premises per se and the Common Facilities therein. It cannot be accepted for the reasons set out above. It is also in conceptual confusion that IO’s management power must be overriding and presiding over all the rights of an owner. Indeed, the Manager’s power of control over the common areas and facilities is not overriding, but should rather, be construed consistently with other provisions of the deed of mutual covenants, including the rights of individual owners: Silver triumph Holdings Ltd v Guardian Property Management Ltd HCMP 566/2012, unreported, 18 May 2012 at §14. 93.As Mr Kwong rightly points out, the DMC has given extensive powers to IO to manage the Common Facilities but not the premises housing the Common Facilities. Clauses 20 and 29 apply only to the “Common Facilities”, and where applicable, the “Common Areas”, but not to a privately-owned “Unit” in which “Common Facilities” are located. Clause 25 applies merely to the general “maintenance and condition of the Building”. Clause 33 applies to “the electrical wiring from the Switch Room on the Ground Floor to any Unit” only and provides that the expenses for such electrical wiring are not to be borne in common, but to be borne by the Owner of that particular Unit. All these clauses reflect the nature of the Housing Premises as a privately-owned “Unit”, as the restrictions imposed by them, which equally apply to the Owners of the other Units, can be complied with by an Owner without requiring the Housing Premises to be converted into the “Common Areas”. 94.Clauses 42(4), (5), (8), (11), (19) and (29) of the DMC are expressly qualified by the phrase “subject as herein otherwise specifically provided”. Clause 46(4)(c) requires each owner to contribute the costs for management of the utility rooms and accommodations but specifically recognizes the Exclusive Occupation Rights of the Owners. Hence, the DMC does not give IO the same extensive Exclusive Occupation Rights over the Housing Premises, but only gives the Manager’s Right of Access. 95.Further, there are provisions under the DMC safeguarding the supply of essential services to the privately-owned Units. Amongst them, clause 1(a) provides each owner with the right to use the Common Facilities. Clause 1(c) guarantees “the free and uninterrupted passage and running of water, sewage, gas electricity from and to the Unit”. The operation of these clauses does not depend on whether the Housing Premises are the Common Areas or Common Facilities or not. 96.Hence, it does not matter whether the Housing Premises will be leased or sold by Pakatower as Pakatower and its successors are all bound by the DMC. They are subject to the same obligations of an Owner under the DMC and are duty bound not to disrupt the supply of the essential services. The fact that the change of ownership or right of occupation will not discharge such duties renders IO’s argument futile. 97.IO further argues that the Housing Premises should be regarded as the Common Areas and Common Facilities in order to allow installation and connection to the Common Facilities by service providers and individual owners. However, IO is unable to refer to any provisions of the DMC for support. It also fails to justify how and why Pakatower has a duty to provide its own properties free of charge to facilitate those profit-making service providers to generate profits or to those individual owners to install some equipment for their own use and enjoyment. 98.Indeed, it is open to IO, as it is not uncommon in Hong Kong as illustrated by many decided cases, to acquire (as it did for the acquisition of the Roof Unit), to rent the Housing Premises (as it did with Pakatower for the past years) or to relocate the Common Facilities to other places, so that it can solely and exclusively manage the Common Facilities as it wishes. It however cannot insist to manage the Common Facilities in the way it likes by arbitrarily taking over the Exclusive Occupation Rights of the Housing Premises from Pakatower. 99.Suffices it to say that IO’s contention is unsupported by any clauses of the DMC. In reality, there have been a number of cases which recognize the owners’ Exclusive Occupation Rights over their privately-owned utility rooms as designated in the deed of mutual covenant[12]. BUILDING PLANS 100.Mr Kwong complains that IO’s argument on construction has further evolved at trial. In IO’s oral opening submissions, it was further suggested that the Housing Premises should be “Common Areas” because they were so “designated” in the Approved Building Plans and actually used as Housing Premises. 101.Such argument is misconceived. While I have no disagreement that the Approved Building Plans are relevant as part of the factual matrix, which show the architectural layout of the Building, the mere fact that a particular room has been marked on the Approved Building Plans as a utility room is not determinative of the true designation of it, it must be considered together with the DMC. This is illustrated by Wui Fung Lee Investment Co Ltd v. The Incorporated Owners of Hong Kong Mansion, Causeway Bay HCA2197/2013 unreported 12 November 2019 where the “Bloom Store (non-domestic)” as marked on the approved building plan was held not to be a common part. 102.That decision was upheld by the Court of Appeal [13]. The Court of Appeal gave the ruling that architectural design intention does not necessarily equate to conveyancing intention. The description of a space in the approved building plan does not impose a user restriction or user requirement. The plan cannot show how the developer wishes to sell the building even at the time the plans were drawn and cannot be used alone to challenge the construction of the DMC. The building plans and the physical configuration of the Building will be taken into account only as part of the background for construing the first assignment and the deed of mutual covenant but in no way conclusive for it would be for the developer to decide how it intended to divide up and allocate the space. A particular room, which was “actually used” for housing facilities at the time of the deed of mutual covenant does not mean that the room must be common area. It is possible for a utility room to be designated for exclusive occupation. 103.Viewed in this light, IO’s contention cannot be substantiated bearing in mind that the building plans are not concerned with ownership, right of occupation and use, or distinction between privately-owned units and common areas[14] . 104.In fact, the 1982 Approved Building Plans were approved on 12 May 1982 before the First Owner acquired the Building from the developers on 15 September 1982. These plans alone cannot show how the First Owner wished to sell the Building at the time of the DMC (dated 1 November 1982). Hence, IO cannot merely derive from such building plans what would be the Common Areas or Common Facilities regardless of the carefully drafted definitions and clauses of the DMC, which excluded various parts of the Building from the Common Areas and the Common Facilities. 105.Properly construed, in both the First Assignment and the DMC, the First Owner reserved the Exclusive Occupation Rights over the Disputed Premises to itself and singled out the Disputed Premises for allocation of undivided shares. Coupled with the sharp distinctions between the definition, the use, the management, the powers and duties relating to the “Unit”, “Common Facilities” and “Common Areas” in the DMC, there is no basis for this Tribunal to ignore the clear intention behind the First Assignment and the DMC that the Housing Premises are not regarded as the Common Facilities or Common Areas under the DMC. 106.Indeed, the IO’s argument is inherently problematic. It is the IO’s case as confirmed by its Counsel, Mr Cheng, in court that if no such designation in the Approved Building Plans, then a room is not the Common Area or Common Facilities. Coupled with the confirmation of the IO’s expert during cross-examination that the Meter Rooms on the second floor to the eighth floor are not designated as “Meter Rooms” in the 1982 Approved Building Plan, the Meter Rooms of the Housing Premises, even on the IO’s case, are not “Common Areas”. 107.In the present case, the architectural design intention of the 1982 Approved Building Plan plainly does not equate to conveyancing intention of the First Owner. Hence, IO’s contention which based merely on the design of Approved Building Plans without proper regard to the DMC is therefore bound to fail. COMMONLY CONTEMPLATED FUNCTION AND USE 108.Much reliance has been placed by IO, in the closing submission, on the case of 黎偉雄 v 信和物業管理有限公司 [2020] HKCA 448 to argue that the Housing Premises should be considered in view of their “commonly contemplated function and use”. Such reliance is misplaced. The commonly contemplated use of an area can be a relevant factor in the construction process. It nevertheless cannot be the sole determining factor by plainly making reference to the actual layout and function as opposed to the intention of the DMC. 109.The case of 黎偉雄 involved a different factual scenario which lends little reference to the present case. It concerned a public pedestrian way but not enclosed rooms. The scheme of deed of mutual covenant was in variance. In that the common areas were allocated undivided shares (as required by the government lease), which were held by the Manager on trust for all owners. The “corridors and passages” were defined as common areas. The public pedestrian way was required to be made available for free public use under the government lease to which the deed of mutual covenant was subject. 110.It was only in such peculiar circumstances that it was held, given the “commonly contemplated use” of the public pedestrian way as a mean of access, it should be regarded as common areas. No doubt the peculiar features aforesaid are missing in the present case. Due regards should also be given to the reminder of the Court of Appeal at §19 and 49 that each deed of mutual covenant has to be construed against its own scheme and factual matrix and that marking on the approved building plan alone may not be determinative. 111.After all, IO fails to justify how the application of the “commonly contemplated use” theory will render my analysis above invalid. Suffice it to say that even if the Housing Premises are contemplated to house some Common Facilities, the mere presence of some Common Facilities will not necessarily convert the Housing Premises to the Common Areas or Common Facilities. Indeed, IO’s argument is self-defeating as illustrated by the fact that even on IO’s own case, the utility rooms and water tanks of the Roof Unit, which have similar “commonly contemplated use” as the Housing Premises, are now privately owned by IO for its own use. PRACTICAL NEEDS 112.For the reasons aforesaid, IO’s another suggestion that IO has been in sole occupation and use of the Housing Premises for decades does not take IO’s position any further bearing in mind that such occupation was derived from a series of tenancy agreements, not to mention that the acts after the execution of the DMC would generally be inadmissible as an aid to construction of the DMC. 113.Attempts have been made to rely on paragraph 5.14(d) of the Codes of Practice for Minimum Fire Service Installations and Equipment and Inspection, Testing and Maintenance of Installations and Equipment[15] (“FS Code”) to justify it’s locking up of the Housing Premises. According to the FS Code, a “Fixed Fire Pump” should be “housed in pump room used for no other purpose than housing fire protection water supplies and equipment” and “such pump room shall be clearly marked in English and Chinese characters FIXED FIRE PUMP” (消防泵)”. 114.However, there is indeed no evidence to suggest that the pumps in the Housing Premises are “fixed fire pumps”. Rather, as confirmed by Li, neither the Pump Room nor the Fire Service Sprinkler Pump Room houses the “消防上水泵” (transfer pump), “咸水泵” (flushing water pump) , “食水泵” (potable water pump), nor do they so marked. The evidence also shows that the Pump Room is not exclusively used for housing fire protection water supplies equipment. 115.Similarly, IO’s reliance on paragraph 4F (1) of the Code of Practice for the Electricity (Wiring) Regulations[16] for its locking up of presumably the Transformer Room is misplaced. It does not stipulate that the relevant rooms must be common parts or that they must be under the sole control of IO. Rather, with no lease in place, it appears that Pakatower (as the registered owner) should be regarded as the “owner” of an electrical installation under section 2 of the Electricity Ordinance, Cap 406, and be imposed with the legal obligations under the ordinance. Pakatower may also be regarded as an “occupier” under the Occupiers Liability Ordinance, Cap 314. It is difficult to see why Pakatower would be “unauthorized” person under the said regulations as IO contends. 116.In any event, whatever the practical advantages of having the Housing Premises be exclusively occupied and used by IO could be, IO cannot act contrary to the provisions of the DMC. Indeed, IO is not left without alternatives. It retains extensive powers under the Manager’s Right of Access. It is also open for IO to consider locking up certain parts of the Common Facilities, relocating them, renting or purchasing the Housing Premises as it finds fit. What it cannot do is to act in contravention to the DMC by depriving Pakatower of its Exclusive Occupation Rights. IMPROVEMENT OF FACILITES 117.At trial, IO further contended that absent any provision in the DMC to restrict its power to improve the Common Facilities, it is free to enter into the Housing Premises to do whatever improvements on the Common Facilities as it wishes. I do not agree. 118.The only clause in the DMC which mentions about “improvement” to the Common Facilities is clause 42(19). This clause, however, is subject to an owner’s Exclusive Occupation Rights of his own Unit (as recognized in clause 46(4) (c)) as well as to the other provisions in the DMC, especially clause 42(19) is expressly qualified by the phrase “subject as herein otherwise specifically provided” and clause 42 is also limited by the phrase “as may be necessary or requisite for the management of the Building”. 119.In further consideration of clause 1(d) which provides IO with the Manager’s Right of Access, which does not confer power of installation of the Common Facilities, I take the view that IO’s right is limited to “improve” the Common Facilities existed at the time of the execution of the DMC. Such right is subject to Pakatower’s Exclusive Occupation Right and cannot be interpreted to expand IO’s power to effectively take over extra space and areas of the Housing Premises as it wishes. It goes without saying that the “improvement” should be limited to the Common Facilities but no other facilities or objects for use or benefits of particular owners. 120.Even though clause 1(c) provides “The free and uninterrupted passage and running of water, sewage, gas, electricity from and to the Unit owned by the Owner through the sewers, drains, watercourses, cables, pipes, air-ducts and wires which now are or may at any time hereafter be in under or passing through the Property and the Building for the proper use and enjoyment of the Unit owned by the Owner”, it lends no support to IO’s argument, in particular the phrase “or may at any time hereafter be”, does not mean that IO can install additional facilities or change the routing of the facilities, which were not present at the execution of the DMC, at the premises which have been assigned with an exclusive right to occupy[17]. 121.Other than cables, pipes, air-ducts and wires, clause 1(c) does not cover any of the Common Facilities. Where the facilities are not even covered by clause 1(c), there are no other clauses in the DMC which give IO, not to mention the other co-owners, the right to install the same in a privately-owned Unit. Hence, they are not allowed to make any new installations in effect occupying additional space of the Housing Premises. 122.Thus considered, I accept Mr Kwong’s submission that the IO’s construction is incorrect, incoherent in approach and unworkable in practice. IO’s exclusive and rent-free use of the Housing Premises after the Expiry Date is arbitrary and unjustified. QUASI-EASEMENT & DEROGATION OF GRANT 123.IO’s Quasi-easement Argument and Derogation Argument run as follows: -
124.To start with, IO’s arguments should be considered in the context that Pakatower has accepted to have the Common Facilitates which were present at the time of the execution of the DMC to remain in the Housing Premises. Thus, IO’s claim for the Exclusive Occupation Right targets at solely the Housing Premises but not the Common Facilities contained therein. QUASI-EASEMENT ARGUMENT 125.There is no disagreement that the leading case in this area is Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd [2008] 5 HKLRD 441. Applying the well-established legal principles to this case, IO’s arguments must fail for the follow reasons. First, it is difficult to see how the Exclusive Occupation Rights are capable of existing as easement. To ask for full and absolute rights for sole and exclusive occupation and use of the Housing Premises to complete exclusion of the owner plainly go beyond the scope of an easement or quasi-easement which is recognized in law. 126.The legal position that an easement cannot deprive the owner of its occupation, control and use of its own land has been summarized by Mr Kwong as follows: -
127.I am slow to accept the Scottish case of Moncrieff v Jamieson as an authority for establishing the general principle that an easement can completely deprive the servient land owner of occupation, control and use of its own land as IO now suggests. The issue in that case was whether the right of way granted to the respondent to stop and drive on the appellant’s land also translated into a right to park there. That was in that peculiar circumstances that found the rights ancillary to the express grant of a right of access in favour of the dominant tenement including a right to park vehicles on the servient tenement. In the present case, IO fails to point to any unusual circumstances that can give rise to the right as extensive and arbitrary as the Exclusive Occupation Rights. 128.The right sought in that case was not as extensive and arbitrary as IO now seeks, but rather, on the basis that as long as the servient owner still retained possession and control. Further, not only that the views IO now seeks to rely on is purely obiter, but also that IO’s argument neglects the views of both Lord Neuberger and Lord Scott that an easement cannot deprive the servient owner of possession and control of its own land, which is the essential requirement of an easement[18]. The House of Lords expressly recognized that easement should always be exercised without amounting to complete exclusive possession and control over the servient land. 129.In any event, even if the Exclusive Occupation Rights are capable of existing as quasi-easements (I do not so find), IO fails to provide valid basis to justify such an unusual and arbitrary right. Given IO is provided with the extensive Manager’s Right of Access to enter the Housing Premises to manage the Common Facilities therein, IO has not satisfied the requirement that the rights sought is “obviously necessary for the reasonable enjoyment of the land conveyed”[19]. Besides, its different treatments to the other premises housing (or “designated” to have housing) the Common Facilities also render its arguments unconvincing. 130.Further, the concept of quasi-easement involves implying an intention to convey by the grantor to the grantee, as part of the relevant grant, those continuous and apparent quasi-easements which are at the time of the grant obviously necessarily for the reasonable enjoyment of the land conveyed, given the purpose of which the land is to be used. As elaborated earlier, right from the very beginning, the Exclusive Occupation Rights over the Housing Premises (not the Common Facilities installed therein) by IO (or even the then Manager) were derived from a series of tenancy agreements. There is indeed no solid evidence for proof of any grant or assignment of the Exclusive Occupation Rights to IO (or the then Manager) other than having such rights derived from a series of tenancy agreements. There is simply no evidence to suggest that the then Manager was not only provided with the Manager’s Right of Access upon the execution of the DMC. 131.Besides, it is trite that the contractual undertakings by the co-owners in the DMC do not amount to grants between the co-owners, an argument which was rejected in Kung Ming Tak Tong §§27-34. At any rate, as the matter also involves a question of construction of the DMC, IO actually runs into the same difficulties on construction of the DMC as set out above. In further consideration of the Manager’s Right of Access over the Housing Premises as provided in the DMC, there is no room to imply a quasi-easement in favor of IO under such circumstances. DEROGATION ARGUMENT 132.IO’s another argument is that to preclude IO from continuing to exercise the Exclusive Occupation Rights would cause each Unit to become unfit for the purpose which they were assigned, and therefore be a derogation from the grant. It argues that it must have been within the contemplation of the parties to the DMC for IO to have the Exclusive Occupation Rights over the Housing Premises. 133.Such argument is flawed on multiple levels. First, IO’s reliance on the principle of non-derogation from grant is misplaced for the simple reason that the principle cannot have turned the privately-owned properties, which are designated for exclusive possession, occupation, use and enjoyment of its owner, into the Common Areas to the complete exclusion of their owner. 134.Second, the Manager’s Right of Access makes it unnecessary and unreasonable for IO to have the Exclusive Occupation Rights for management of the Common Facilities, leaving no room for the implication of the right sought, not to mention that a term should not be implied to deal with the same subject matter as the express term has already dealt with. 135.Third, it is also wrong to suggest that the absence of the Exclusive Occupation Rights over the Housing Premises will render the Units of the Building become unfit for the purpose which they were assigned. Such argument is again, mistakenly conflating the Housing Premises with the Common Facilities as well as neglecting the Manager’s Right of Access as elaborated above. 136.Fourth, absent any solid evidence for proof of the grant of the Exclusive Occupation Rights at the very beginning, there is plainly no evidence to challenge Pakatower’s evidence that the Exclusive Occupation Rights only came into existence as a result of the tenancy agreements, and prior to that, the then Manager only had the Manager’s Right of Access as provided by the DMC. Thus, there is plainly no evidence to show that the Owners should have known that the grant made by the First Owner should possibly have included the Exclusive Occupation Rights over the Housing Premises. The principle is what is necessarily implicit to a grant is to be “considered in the light of the circumstances subsisting at the time the transaction was entered into” and one has to take into account the surrounding circumstances at the time of the grant as known to the parties: Kung Ming Tak Tong § 63. 137.For reasons aforesaid, arguments based on quasi-easement and non-derogation from grant are unsubstantiated. I come to the conclusion that only the Common Facilities in existence upon the execution of the DMC should be allowed to remain in the Housing Premises and that since the Expiry Date, IO should only be entitled to exercise the Manager’s Right of Access over the Housing Premises. 138.Pakatower agreed that should IO be ordered to deliver vacant possession of the Housing Premises to Pakatower, the Common Facilities, which existed at the time of the execution of the DMC, should be allowed to remain therein. That said, both parties agreed that no list of items to be removed will be necessary. Pakatower suggests to allow 6 months for delivery of vacant possession of the Housing Premises. Absent any solid evidence to suggest otherwise, I find such suggestion reasonable and should be adopted. TWO STAIRCASE SPACES 139.Each of the Two Staircase Spaces is a small space at the bottom of an individual staircase of the Building, approximately 20 square feet and 35 square feet. Next to each of them is a small common area which is open onto the public street with a metal gate built at the entrance in between the small common area and the public street to avoid people getting into the Building from the street. DELIVERY OF TWO STAIRCASE SPACES ARGUMENT 140.The dispute on whether IO had delivered the Two Staircase Spaces to Pakatower on the Expiry Date is a question of fact, and depends on whether IO has ceased to have possession and control of the Two Staircase Spaces as well as manifested a clear intention to so doing, so that Pakatower can occupy them without difficulty or objection. Formal notice as to the person to whom possession is to given is not required: Merton London Borough Council v Jones [2009] 1 WLR 1269 §§25, 28, 47-52. 141.In the CNOO filed on 7 April 2021, IO took no issue that the Two Staircase Spaces form part of the Disputed Premises and Pakatower has the Exclusive Occupation Rights over them. It also alleged that it had delivered the vacant possession of them to Pakatower on or around the Expiry Date. However, for the following reasons, I form the view that such allegation is an afterthought at the time of the execution of the CNOO. It actually knew that it had not delivered vacant possession of the Two Staircase Spaces to Pakatower. 142.First, there is no solid evidence to show that IO had ever manifested its intention to deliver the vacant possession of the Two Staircase Spaces to Pakatower prior to the filing of the CNOO. In contrast to IO’s giving of written notification for the return of the Unit 13 Staircase Spaces and asked Pakatower to inspect the same in 2016, IO could neither produce any documentary proof in support, nor could it actually account for how it had manifested its intention to deliver the vacant possession of the Two Staircase Spaces. 143.On the contrary, its reiterations that the Two Staircase Spaces were open spaces which did not necessitate any actual steps for delivery of vacant possession supports Pakatower’s case that IO had virtually taken no step to manifest its intention to deliver the vacant possession of the Two Staircase Spaces to Pakatower. 144.Second, prior to the filing of the CNOO on 7 April 2021, IO had all long displayed intention to the contrary by expressly challenging Pakatower’s right of occupation and use of the Disputed Premises (including the Two Staircase Spaces). It had continuously disputed Pakatower’s claim for the vacant possession of the Disputed Premises. In fact, IO only resolved not to renew the tenancy with Pakatower on 3 June 2015. 145.Further, in IO’s solicitor’s letter dated 17 December 2015, it was alleged that (apart from the spaces above the entrance halls) “Property (2)” which included all parts of the Disputed Premises (including the Two Staircase Spaces) were “for the common use and enjoyment of the said Building pursuant to the definition of ‘Common Areas’ under the DMC”. 146.In another letter dated 15 January 2016, it was again alleged that “all area and space of” the Disputed Premises were “Common Areas” and “Common Facilities” under the DMC. While laying claims over all parts of the Disputed Premises without excluding the Two Staircase Spaces, IO apparently had the occupation and use of the Two Staircase Spaces by that time. 147.Throughout 2017 and 2018, despite multiple emails from Pakatower demanding for mesne profits of the Disputed Premises, IO had never clarified that the Two Staircase Spaces had already been returned to Pakatower. It adopted the same stance in the pre-consolidation NOO filed in LDBM 75/2019 on 13 June 2019. No distinction or different treatments between the Two Staircase Spaces and other parts of the Disputed Premises had ever been mentioned. 148.Throughout the years until around the filing of the CNOO, not a single word about the return of the Two Staircase Spaces had been mentioned. Rather, IO clearly treated the Two Staircase Spaces as of the same status as the other parts of the Disputed Premises. The inference should be drawn that IO had continuously used the Two Staircase Spaces in the same manner as the other parts of the Disputed Premises. It was only until around the filing of the CNOO that IO’s change of position surfaced for the first time. 149.Third, IO’s continuous use of the Two Staircase Spaces was demonstrated by the photos. The photos taken on 12 January 2016 show that there were waste materials placed at the Unit 10 Staircase Space. Besides, the photos taken on 5 August 2022 also show that objects as ladder, plastic water bottle, mug and some tools were placed thereat. There was also a white plank and two long iron strips placed at the Unit 6 Staircase Space. The same objects as the white plank were also depicted in the photo taken by IO’s expert on 18 July 2022 or 18 August 2022. Given the small size of the Two Staircase Spaces, the objects placed therein, including wooden plank, wooden ladder, piles of miscellaneous tools and items, have occupied a significant area of the two spaces and cannot be regarded as de minimis. They also show IO’s practice of using those areas for its own purpose. 150.Li’s evidence that IO would always ask the relevant persons to remove the objects placed at the Two Staircase Spaces is unbelievable. Such allegation was undermined by the depicted objects shown in the photos. Logically, if the Two Staircase Spaces had already been returned to Paktatower, IO would not have been able to verify whose objects they were without approaching Pakatower, unless those objects were placed there with IO’s consent. Worst still, IO, in its closing submissions, advanced a self-defeating position to contend that “there is no evidence at all as to when the depicted items were placed there and who placed them there.”. Such sudden change of positions is self-contradictory. 151.Taking into account of the fact that the Building was under IO’s management, that it was the only party who was in control of the Gate Keys and the direct access to the Two Staircase Spaces, that it is unlikely that some other parties (without the Gate Keys) would choose to go through all the twists and turns just to place those objects at the Two Staircase Spaces, that IO has the duty to enforce the due observance and performance by the owners and occupants under clauses 18, 28 and 42(25) of the DMC and BMO, I believe, on balance, that those objects were placed there by IO’s staffs, servants or agents. They had the practice of using the Two Staircase Spaces for their own purposes with the consent and knowledge of IO even after the filing of the CNOO. 152.I am slow to regard the CNOO as indicating an intention to give vacant possession of the Two Staircase Spaces to Pakatower, bearing in mind that it was an allegation of disputed fact that vacant possession had already been delivered on or about the Expiry Date. In any event, the fact that some significant objects have still been placed at the Two Staircase Spaces renders any suggestion of delivery of vacant possession of the Two Staircases Spaces to Pakatower unsubstantiated. The fact that the objects could be easily removed is irrelevant. Hence, I do not believe that IO had already delivered vacant possession of the Two Staircase Spaces to Pakatower on the Expiry Date or anytime thereafter (not even after the serving of the CNOO on Pakatower). GATE KEYS ARGUMENT 153.As to the Gate Keys argument, it is Pakatower’s case that each of the Two Staircase Spaces can only be directly accessed from the public street through the Two Gates. The Two Gates are not locked at the inside of the Building but they are locked at the outside. IO has however refused to provide the Gate keys to it. It therefore complains IO to have interfered with its right to pass and repass through the Two Gates (which were installed at the Common Areas) for the purposes of its proper use and enjoyment of the Two Staircase Spaces under Clause 1(a) of the DMC. 154.IO denies. It argues that the Gate Keys should not be provided to Pakatower for it was IO’s management decision that the Two Gates should be locked outside to keep trespassers from entering into the Building. Even though the Gate Keys were not provided, Pakatower still enjoys free access to the Two Staircase Spaces through various routes. 155.The starting point is Pakatower takes no issue with the installation of the Two Gates at the present locations and have them locked up. There is no dispute that the Gate Keys are kept only and centrally by the caretakers of the Building, but not any of the owners. At present, there are three ways for Pakatower to enter into the Building to gain access to the Two Staircase Spaces:-
156.In the circumstances, the real question to be determined is whether, in light of Pakatower having the aforesaid routes to gain access to the Two Staircase Spaces, IO’s refusal to provide the Gate keys to Pakatower amounts to a breach of Clause 1(a). Such question should be considered in view of the Owner’s access right and IO’s management power, which are co-existed under the DMC. 157.Under Clause 1(a), Pakatower, as an owner of the Two Staircase Spaces, has the right to go, pass and repass over and along such of the Common Areas for all purposes connected with the proper use and enjoyment of the Two Staircase Spaces it owns. On the other hand, under clauses 42(11) and (17) of the DMC, IO has the management power and duty to prevent and remove any person from unlawfully occupying or using any of the Common Areas of the Building as well as to maintain the security of the Building. 158.It is not in dispute that in a building management context, the rights of parties under a deed of mutual covenant are not absolute and must as a matter of construction be subject to an element of reasonableness and also must co-exist with other provisions in the DMC unless specifically excluded: Silver Triumph Holdings Ltd v Guardian Property Management Ltd HCMP566/2012 unreported 18 May 2012 at §§16-17. It is necessary to look at the whole picture in which some of the individual factors, even look at in isolation, appears to be compelling, in fact they are not. 159.Taking into account all the relevant matters, I form the view that IO has not been in breach of the DMC on this issue. The crucial facts remain that Pakatower has various routes to gain access to the Two Staircase Spaces. The Two Gates are just one of them. The Gate Keys are keys to the side doors but not the main entrance. Even for going through the Two Gates, Pakatower has complete free access to go out of the Building to the public street without the Gate Keys. The only inconvenience is Pakatower needs to contact the caretaker to open the Two Gates for it when gaining access to the Two Staircase Spaces from the public street. Apparently it only brings in a slight inconvenience for the contact arrangement, which most likely can be done easily by a phone call. 160.Viewed in this light, Pakatower’s claim is bound to fail. Pakatower is not being shut out from the Building if the Gate Keys are not provided to it. Nor is it prohibited from going through the Two Gates. Instead, it has a choice of choosing which route to adopt. The fact that for gaining access to the Two Staircase Spaces through the main entrance or other entrances, it has to go through some twists and turns or ups and downs, or it has to approach the caretakers to open the Two Gates when entering from the public street, does not amount to interference of its access right. Indeed, the former routes are determined by the design of the Building and IO could not be blamed for that. As to the latter route, IO has arranged caretakers to open the Two Gates upon request. The only slight inconvenience to Pakatower is just to contact the caretaker for gate-opening. 161.IO’s decision and practice of keeping the Gate Keys only to the 24-hours service caretakers are within IO’s management power under clauses 42(11) and (17) of the DMC. No other Owners were provided with such keys and Pakatower is just one of them. IO explained that is a security measure aiming at preventing trespassers from entering into the Building through the Two Gates, especially at night. 162.On the evidence before me, I believe the centralized keeping of the Gate Keys is a management policy for security purpose. It is noteworthy that even though Pakatower complains that the trespassers can still get into the Building through several ways other than the Two Gates, Pou confirmed in court that she also agreed that the Two Gates should be locked up and not all the Owners should be provided with the Gate Keys apparently for security purpose. 163.Further, IO also explained logically that the Building is an industrial building with more than 100 shops, the activities in the Building focus on daytime. That is why the lifts only operate during normal business hours and the needs to control the entrances increase at night and during non-business hours. In fact, some of the ways through which the outsiders can get into the Building during daytime are not accessible due to non-operation of the lifts and the relevant shops at nighttime. The fact that there are no caretakers stationed or CCTV installed at the Two Gates necessitating the installation of the Two Gates and the centralized keeping of the Two Keys. 164.Plainly, the control and management of the entrances of the Building is strictly within IO’s management power. Locking the Two Gates up and keeping tight control of the Gate Keys for security purpose is clearly a valid reason for such management decision. The fact that the security policy is not perfect but with weakness is not a valid reason to remove IO from its management power. 165.I do not ignore the fact that the centralized control of the Gate Keys policy has treated all the Owners equally. No owners have been provided with the Gate Keys and Pakatower is just one of them. IO’s concern about entertaining Pakatower’s request will lead to the same requests of other owners, ending up with IO losing control of the Two Gates, is not unreasonable. Its decision that Pakatower should not be taken as an exception privileged with the possession of the Gate Keys cannot be regarded as a decision not made within its management power. 166.So long as IO lawfully exercises its power, the Tribunal is not in a position to take over its management power solely because the Building can be better managed in some other ways. The owners of the Building can always improve IO’s management policies through the owners’ meetings and the management committees. 167.The case of Silver Triumph Holdings Ltd v Guardian Property Management Ltd HCMP566/2012 unreported 18 May 2012 lends no support to IO’s argument. I agree with Mr Cheng that the facts of that case are at variance. That case concerned the owner of the car park was required, from time to time, to have prompt access to a machine room to carry out maintenance and repairs to car-lifting machines, and to gain access to the subject machine room, the only way was to pass through the building’s refuse storage chamber, which was locked by the manager of that building. Given that was the only way to gain access to the owner’s property and that access was within the internal part of the building, it is understandable that the court considered that security would not be compromised by giving a duplicate key to that owner. 168.Contrary to that case, the Two Gates are directly accessible by the outsiders from the public street. They are not the only route to gain access to the Two Staircase Spaces and they can be easily opened by contacting the caretaker. The considerations are sharply different. By reason of matters set out above, Pakatower’s claim for the Gate Keys shall be dismissed. DISPUTED SEMI-CIRCLE AREA ARGUMENT 169.As to the Disputed Semi-circle Area Argument, the dispute is whether the Disputed Semi-circle Area forms part of the Others Unit as a matter of construction of the DMC. Pakatower avers that, upon the execution of the DMC, the concrete structure (the Disputed Room) inside the Semi-circle Area was planned to be used as a water storage tank for the purpose of a central air-conditioning system for the Building. Even though the intended installation of the air-conditioning system had not been completed and the said water tank had become defunct prior to the Pakatower Assignment, the Disputed Semi-circle Area falls within the scope of the Others Unit. It therefore complains IO to have wrongfully refused to deliver the vacant possession of them after the Expiry Date but continued to occupy and use the Disputed Room as a cleaning room, containing a resting area and changing room, for the cleaning contractors. 170.IO argues that the Disputed Semi-circle Area is part of the Common Area under the DMC and/ or common parts under section 2 of the BMO because both the Semi-circle Area and the Disputed Room are not covered by the Others Unit. Much reliance has been placed on the plans annexed to the DMC (“DMC Plans”) and the current physical condition of the area. It argues that the Semi-circle Area is only a blank space with no structure marked on the DMC Plans and that it is just an open-air space, which is at the bottom of the internal light well and surrounded by the driveway and cannot be regarded as “room” or “accommodation”. Such reliance is misplaced. 171.The applicable legal principles require the DMC to be construed by not only reading the DMC Plan alone, but together with the textual description, and to be considered in light of the relevant context and factual matrix, which includes the physical state and layout of the Disputed Semi-circle Area as depicted in the Approved Building Plans. All relevant evidence considered, I believe, at the time of the execution of the DMC, the Disputed Semi-circle Area was intended to be a self-contained area to house a water storage tank (the Disputed Room) and the related facilities (including various kinds of pipes[20]) for the purpose of a central air-conditioning system. 172.I accept Mr Kwong’s submission that upon the execution of the DMC, the Approved Building Plan was apparently not updated. The number and layout of the utility rooms had yet been finalized. The evidence shows that the layout of the Building was finalized only on 9 May 1983. In particular, two utility rooms, namely the approved “D.G. Store” and “BTM Rm” were added to the Approved G/F Building Plan on 18 February 1983, although such approved utility rooms were then omitted from the said Building Plans on 9 May 1983. 173.As it would take months to draw up and to obtain approval for an amended building plan (for addition of the said utility rooms together with the revised size and layout of Unit 9 on the ground floor), such alterations should have been in contemplation upon execution of the DMC on 1 November 1982. Pending the approval of the amended plans, the First Owner was understandably could not have marked all the utility rooms in pink on the DMC Plans but relied on the textual description of the utility rooms and accommodations in the DMC to cater for the intended changes. 174.Reference can also be made to the DMC Plans for the omission of the layout of the facilities (except lifts) and the lavatories for all Units on the ground floor except Unit 3, which obviously needed to be completed before occupation. Besides, there was no DMC Plans for the ninth floor, which could mean that the entirety of the ninth floor was not exclusively-owned. All these also support Pakatower’s case that the DMC Plans were not updated and the Building was not ready for occupation until after 9 May 1983. 175.Other than the water tank structure (the Disputed Room) in the Semi-Circle Area, the other water tanks inside the pump room and the fire service sprinkler pump room were also not marked in the DMC Plans despite they were all marked on the Approved Building Plans. Thus viewed, the absence of any marking of the water tank structure inside the enclosed Semi-circle Area in the DMC Plans is not conclusive evidence. Besides, it is apparent that spaces “A” to “E” are marked in pink on the DMC Plans because they are unpartitioned spaces out of the open space on the ground floor, and cannot be precisely identified unless marked in pink. This is also how they are referred to in the definition of the “Others” Unit under the First Schedule of the DMC. 176.Accordingly, the DMC Plans should be considered in this context and should not be taken as the only source for determination of the matter. It needs to be read together with the contextual description of the DMC as well as the factual matrix. The true position of the Disputed Semi-circle Area as gathered from all the relevant evidence is that:
177.Besides, the fact that the Disputed Room was intended to be used as water tank is obvious despite it was not so marked on the DMC Plans: -
178.I also take the view that the Disputed Semi-circle Area falls into the scope of the textual description of “other utility room or accommodation (if any) on the Ground Floor” of the DMC. The layout of the Semi-circle Area, that it was designed with a door and contained a rectangular structure marked “25000 LITRES STORAGE WATER TANK FOR A/C” therein, was detailed in the Approved G/F Building Plans. As the Semi-circle Area which was designated with a door accommodating the structure intended for a water tank, there is no reason why it should not be an “other utility room or accommodation on the Ground Floor” (or “安放處” as referred to in the Declaration of Title) simply because it was without roof, bearing in mind that “accommodation” is specifically mentioned and the First Owner’s apparent intention to reserve all the usable spaces on the Ground Floor to its own use. 179.Mr Kwong also refers to the Code of Measuring Practice published by the Hong Kong Institute of Surveyors[22] to illustrate that "yard” is recognized as an “ancillary accommodation 附屬地方”. Likewise, there is no reason that the Semi-circle Area should not also be regarded as an “accommodation” as contended by IO while both of them share similar characteristics and were not roofed. 180.Similar to the 1982 and 1984 Approved G/F Building Plans, the Semi-circle Area is also marked as an enclosed accommodation with a door in the DMC Plan. It therefore was not a “Common Area” where an Owner could go, pass and repass to access his own Unit as defined in the DMC. 181.Given the Disputed Semi-circle Area housing the concrete structure, which was planned to be used as a water tank, it falls into the scope of the Housing Premises. There should be no different treatment from the water tank in the pump room or that in the fire service sprinkler pump room on G/F. 182.Other than the water tank, there were communal pipes in the Disputed Semi-circle Area as shown in the photos. Some ducts and machinery (of the planned central air-conditioning system) were also found leading from the water tank to the Pump House on the ground floor. Logic dictates that such ducts, machinery and associated equipment and fittings would have been necessarily “accommodated” by the Semi-circle Area, being the space between the pump house and the Disputed Room on the execution of the DMC. Indeed, as seen in the 1982 G/F Approved Building Plan, there were also two “drilling wells” in the Semi-circle Area[23]. Hence, the IO’s argument that there were no utilities inside the Disputed Semi-circle Area is unattractive. 183.Thus considered, I am not convinced that purely no such room designated in the DMC Plan is fatal to Pakatower’s claim. I cannot ignore the fact that the Others Unit has been given a very wide meaning. It covers not only all those spaces as shown in pink on the DMC Plans, but also the utility rooms and various spaces and accommodations. The First Owner’s intention to reserve to itself as many valuable areas as it could is obvious. The Disputed Semi-circle Area, which was specifically marked on the relevant plans with a door which housed a concrete structure, planning to be used as a water tank for a central air-conditioning system, falls squarely into the meaning of the Others Unit. 184.I remind myself that post-DMC acts should not be used as an aid for construction of the DMC. The fact-finding below is just to verify the background facts of the original plan to build a central air-conditioning system at the time of the execution of the DMC. I should not repeat my analysis on the Approved Building Plans and the DMC Plans above. The fact that various components of the planned central air-conditioning system had been installed even though the system has never come into operation is evidenced by the following matters: -
185.IO resorts to an argument that the central air-conditioning system has never “came to fruition at the time of the DMC”. Such argument is hopeless. The question is not whether the air-conditioning system had been built but what should have been intended at the time of the execution of the DMC. On the evidence aforesaid, I form the view that the intention at the time of the execution of the DMC was for the Semi-circle Area to house a water tank together with the related equipment and machinery for building the central air-conditioning system. 186.I should add that as IO’s arguments on the Housing Premises should be regarded as the Common Areas or Common Facilities have been rejected for the reasons set out earlier, it will not have any impact on Pakatower’s Exclusive Occupation Right over the Disputed Semi-circle Area. After all, it is IO’s own stance that neither the Semi-circle Area nor the Disputed Room has contained any Common Facilities. 187.Lastly, I should also deal with IO’s “quasi-pleading” argument. It complained the issue relating to the Disputed Semi-circle Area was not pleaded by Pakatower in the CNOA, but only in the ACRDC. That is a futile attempt for the obvious reason that such issue only arose from the ACNOO in that IO sought to contend that the Semi-circle Area (referred to as “G/F Lightwell Space” therein) and the Disputed Room did not form part of the Disputed Premises (which was contrary to its pre-consolidation position). At any rate, given the issue has been sufficiently set out in the ACRDC, IO has been alive to the issue and was provided with sufficient chance to deal with it. The complaint is unjustified. 188.Thus considered, I form the view that the Disputed Semi-circle Area, which was intended for housing a water tank, being part of the central air-conditioning system for the Building at the time of the execution of the DMC, was strictly a utility room or accommodation of the Building. It falls squarely into the scope of the Others Unit. It is wrong for IO to refuse to deliver vacant possession of it after the Expiry Date. DAMAGES ARGUMENT 189.The two experts have been asked to assess the value of occupation of the Disputed Premises for the period from 30 April 2015 until the date of the expert reports. Both experts accepted that the value of occupation is the open market rent, which a hypothetical tenant would pay in a competitive market, taking into account every intrinsic quality of the tenement, all relevant circumstances, and what the hypothetical landlord and hypothetical tenant would agree upon after “higgling of the market”. 190.The total internal floor areas of the Disputed Premises (955 sq ft) together with Unit 13 Staircase Space taken by IO is 1,145 sq ft whereas Pakatower takes it as 1,065 sq ft. The value of occupation as assessed by the experts is summarized as follows:-
191.Upon IO’s concession to Pakatower’s claim on the Unit 13 Staircase Space, the value as assessed by Cheung was accepted. Ng’s valuation of it is no longer relevant. NG’S OPINION 192.I accept that the valuation of the market value of a property must take into account the intrinsic qualities of that property and the intrinsic circumstances[24] by the valuer. The Disputed Premises, being a bundle of different parts of the Building with most of them are utility rooms and spaces are not as valuable as a workshop in an industrial building as agreed by both experts. That said, it is immediately apparent to me that Ng’s opinion, which regarded the Disputed Premises has merely nominal occupation value is unjustified and unrealistic. Such valuation was proceeded on the wrong basis that the Disputed Premises were common parts, and that problematic comparable were adopted. 193.The problems with Ng’s valuation are obvious. She adopted the market approach with only 3 comparable. Further, her 3 comparable were all sale transactions (but not rental transactions) and of some “common parts” of other buildings (but not privately-owned premises), which were all transacted at HK$1, which she adopted in full without making any adjustment and without counter-check with other valuation methods. 194.Ng failed to sensibly explain how her 3 comparable were proper comparable for the Disputed Premises other than saying that they contain “similar bundle of facilities”. She failed to justify how the sale price of the “ownership interests” could reflect the value of occupation. In further consideration of her own statements that there was no available rental comparable for the Disputed Premises, she virtually had no valid basis to adopt the market approach as she did, still less of not making any counter-check with other valuation method. 195.Ng also failed to prove those three single-dollar transactions were arm’s length transactions. It is her own admission under cross-examination that the assignees of two of those transactions were the incorporated owners of the relevant buildings, the subject matters of the assignments were all common parts appear to be inter-related and “the respective transactions could be related to facilitate maintenance responsibility”. 196.Amongst the three transactions, one transaction was an assignment from a management company to the incorporated owners “on trust for the benefits of all owners for the time being of the Building”. The other transaction was an assignment from two companies to the incorporated owners “for efficient and effective management of the Development” and that the property “shall be held by the [incorporated owners] on trust for all the owners”. For the remaining transaction, the assignor was the same company of the vendors in the other transaction. Indeed, the vendors in all three transactions had the same registered office and all three assignments were signed by the same director. 197.Thus viewed, the three transactions were apparently related transactions for building-management purpose. They could not be regarded as arm’s length sales transaction in the open market and would not have the same referential value as three completely independent sales in the open market as Ng sought to portray. 198.Ironically, when it was suggested to Ng that the sale of the Unit 13 Staircase Space to an unrelated third party by Pakatower on 3 May 2018 for HK$270,000 is a strong indication that the said space could fetch a market value, Ng disagreed for the reason that the “market transaction does not necessarily relate to rental valuation, given that the property has some unauthorized structure”. She however could not reconcile her different approach in adopting her three comparable in her valuation as those three sale transactions, in her logics, do not relate to rental valuation, especially two of them were burdened with outstanding building orders and other encumbrances. 199.For no proper reasons, Ng neither conducted any cross-check to her valuation, nor did she make any reference to the Last IO Tenancy Agreement notwithstanding that that was exactly a rental transaction of the Disputed Premises. Her explanation for not adopting it was that she had been told by IO that such tenancy agreement was made under a mistake that the Disputed Premises were not the Common Areas. Such explanation is illogical. IO’s own belief at present could not have rendered the rental value of the Last IO Tenancy, which was entered at arm‘s length in 2014, unsuitable to be adopted as a comparable. 200.In justifying why the Disputed Room was not valued separately from other portion of the Disputed Premises, Ng emphasized that her valuation was based on the “authorized usage” according to the Approved Building Plans, and the “actual usage” of the premises was irrelevant. However, when it was suggested to her that the meter rooms on the second to the eight floor are not designated as utility rooms in the Approved Building Plans and the said plans only show the cable ducts inside the areas, she prayed in aid of the actual usage of those rooms[25]. This is another example of her self-defeating and inconsistent assessment approach. 201.Indeed, Ng’s valuation that the Disputed Premises has minimal occupation or rental value does not sit well with the fact that for the 18 years preceding the Expiry Date, IO had been renting the Disputed Premises at meaningful rents and that several spaces and accommodations of the Building which are of the same or substantially the same types are of actual value as illustrated in a number of transactions: -
202.Besides, Ng has valued the Two Staircase Spaces as part of the Disputed Premises, at a total value of HK$1. However, she changed to suggest, in cross-examination, that her valuation of the Unit 13 Staircase Space could also apply to the Two Staircase Spaces, without valid justification or independent analysis. Such sudden change of position illustrates her opinions given in the present case were not the result of proper analysis and obviously unreliable. 203.Even for her new opinion, she failed to logically explain what adjustments should be made for the purpose of valuing each of the Two Staircase Spaces. Instead, she gave another self-conflicting opinion by initially saying that only the first 2 adjustment factors as location and no frontage would apply to the Two Staircase Spaces, but then changed to say, in re-examination, that all 3 adjustment factors would apply without sensible reasons. 204.Thus analyzed, Ng’s opinion is inconsistent, unjustified and unreliable. The three transactions are not suitable comparable. Her valuation is accordingly rejected. CHEUNG’S OPINION 205.As to Cheung’s opinion, in principle, Cheung has adopted the market approach, being direct comparison method, and in certain aspects, supplemented by the depreciated replacement costs method (“DRC”). The valuation was based on the assumption that a tenancy would be renewed for every 2 years. He has valued the unit rate of the Disputed Premises at around HK$5.9-6.9 per sq ft. for the period of 1 May 2015 to 2021. 206.For his analysis, Cheung separated the Disputed Premises into 3 groups:-
207.However, as pointed out by Mr Cheng, Cheung’s opinions are also problematic and unreliable. Regarding Group 1 premises, all of the comparable adopted were normal workshop or factory units in industrial buildings. They are clearly not suitable comparable in light of the intrinsic qualities and circumstances of the Two Staircase Spaces without proper adjustments made (except Comparable TA4) to account for the disadvantages of the Two Staircase Spaces. 208.Cheung failed to give sufficient regard to the intrinsic qualities of the Two Staircase Spaces which tend to push the value of occupation down as the Two Staircase Spaces are: -
209.Hence, Cheung’s valuation which was carried out on the assumption that the properties were “connected to main services and sewers which are available on normal terms” (as stated in his report) is clearly unhelpful. Further, despite he has discounted all areas with headroom lower than 2m, the valuation is still unsatisfactory bearing in mind that 2m is still significantly lower than the usual head room of industrial buildings. The Building itself has headroom of 5.59m on the ground floor and the first floor; and of 4.7m on the second to the ninth floor. Obviously, the Two Staircase Spaces are just two unenclosed ancillary storage places with very limited usage, probably just for storage of some objects without significant value. 210.Cheung’s assessment of both Group 2 and Group 3 premises also contains fundamental errors. The analysis is wholly based on the wrong footing, which goes contrary to the agreed fact of both parties that the entirety of the Disputed Premises and the Unit 13 Staircase Space were covered under the Last IO Tenancy Agreement[27]. Not only that for those premises which were erroneously taken out of the Last IO Tenancy Agreement and valued as Group 2 premises amounted to double-counting, but also that the “average unit rate on monthly rent” for the Group 3 premises (with their internal floor area erroneously reduced) would be grossly inflated, not to mention the peculiar intrinsic qualities of each area has not been properly evaluated as a result. 211.Further, Cheung has not given sufficient regard to the unfavourable intrinsic qualities and circumstances of the Disputed Premises. According to the Approved Building Plans and agreed by Cheung, the Housing Premises were primarily designated for use as utility rooms. They should have contained facilities inside which would have been taking up space and operating. Such factors take them out of the normal usage and value of the industrial buildings, which tend to push the value of occupation significantly down. Therefore, his value of occupation should be significantly reduced and any valuation involving comparable chosen from normal industrial properties, such as workshop or godown units or enbloc industrial buildings will be bound to produce incorrect results. 212.Likewise, Cheung’s selection of the sale transactions for calculation under DRC is again problematic. The adoption of the transactions of enbloc industrial buildings in the New Territories without proper adjustment is clearly inappropriate. Cheung agreed in cross-examination that within those enbloc industrial buildings, a very substantial portion of the floor areas would consist of normal workshop and factory units, and that those portions would be intrinsically much more valuable than utility rooms. He nevertheless only adopted a “time” adjustment without any other adjustments (ie usage) to reflect the significant differences between the Disputed Premises and the comparable adopted. 213.Further, given Cheung was not aware of what exactly were installed in the Housing Premises and the spaces being occupied, neither his valuation basing on the direct comparison method nor the DRC is realistic or reliable. ASSESSMENT 214.In the premises, both experts’ analysis is problematic, unjustified and unreliable. Their valuations cannot be adopted. The best evidence before me is the Last IO Tenancy Agreement, which Cheung also adopted as the only comparable for the direct comparison method for the Group 3 Premises. Unfortunately, his analysis on it was tainted with the many problems as elaborated above and cannot be accepted. Given Ng’s explanation of not adopting the Last IO Tenancy Agreement is invalid for the aforesaid reasons, on the limited evidence before me, the best I can do is to adopt the Last IO Tenancy Agreement as the starting point for assessment. 215.The Last IO Tenancy Agreement is the best evidence before me for its rental consideration was for exactly the same rooms and accommodations with the same bundle of facilities and the same willing parties. All intrinsic qualities and circumstances should have been taken into account. There is no evidence to show that it was not an arm’s length transaction. Absent any other suitable comparable, the rental consideration for the subject premises itself takes on more importance. 216.According to Clause 3 of the Last IO Tenancy Agreement, IO, for its use and occupation of the rented Disputed Premises and the Unit 13 Staircase Space during the term of the tenancy (1 May 2014 to 30 April 2015), has to make two sets of payments to and for Pakatower: -
217.To assess the value basing on HK$3,600 under Clause 3A, a deduction of HK$638 should be made to reflect the mesne profit of the Unit 13 Staircase Space as agreed by the parties for the year commencing on 1 May 2015 (which will be separately dealt with in the order), making up a total of HK$3,307. I have no evidence about what happened to the rental values for this type of accommodations and spaces in the locality from the Expiry Date until now. There is no evidence to suggest that the values has increased significantly. 218.I find it appropriate to apply a time adjustment in reference to the “rental indices” of the “Private Flatted Factories – Rental and Price Indices” published by the Rating and Valuation Department for the period from 1 May 2015 to the date of vacant possession of the Disputed Premises. There is no valid challenge to the suggestion that such reference has all along been regarded as the most reliable indicator in reflecting the overall sale and rental transaction market condition of industrial premises in Hong Kong. 219.The best I can do is to order that from 1 May 2015 onwards, IO has to pay a monthly sum of HK$3,307, which is subject to yearly assessment, to Pakatower until the date of vacant possession of the Disputed Premises. I set out a few figures for illustration:
220.Regarding the value basing on Clause 3B, Pakatower confirms that IO has settled all those payments for it. It had never made any payment for those items in the past and had never been asked for that save and except those which now form the subject of the counterclaim. As a result, it has suffered no loss or damages in this regard so far. 221.I however cannot ignore the fact that at the time of the formation of the Last IO Tenancy Agreement, Clause 3B is part and parcel of the rental consideration. Hence, it should also form the basis and part and parcel of the mesne profit to be borne by IO from 1 May 2015 to the date of the vacant possession of the Disputed Premises. IO’S COUNTERCLAIM CONTRIBUTION ARGUMENT 222.IO’s counterclaim against Pakatower is based on clauses 46 and 48(a) of the DMC as well as section 21, schedule 5 and schedule 7 of BMO. It consists of two parts: -
223.Regarding the Management Fees, IO claims that:-
224.For Repair Contributions , it avers that:-
225.Given my ruling that the Disputed Premises are not the Common Areas or Common Facilities and Pakatower has the Exclusive Occupation Rights over the Disputed Premises, Pakatower does not dispute that as an owner, it should be under a duty to pay Management Contributions under the DMC. It however disputes IO’s claims for the Alleged Outstanding Management Contributions on three grounds:
CONTEMPORANEOUS BUDGET 226.It is noted that IO only claims for Management Fees since 1 September 2018, allegedly to be basing on the resolutions respectively dated 28 June 2018 and 26 July 2018 that Pakatower needed to pay monthly management fees for the Pakatower Premises from September 2018. Prior to that, Pakatower had never been asked to pay Management Fees. 227.September 2018 is also the month from which a 15% increase in the Management Fees was implemented, as the result of the purported resolution passed on 28 June 2018 at an IO meeting for such increment, and for the Manager to follow up and inform all the co-owners (“Increment Resolution”). 228.As a matter of law, a co-owner is not liable to pay management fees which are not fixed in accordance with the requirements and procedures set out in the DMC and BMO. The determination of the amount of management fees shall be in compliance of Schedule 5 and paragraph 1(2) of Schedule 7 of BMO, which stipulates that the amount shall be fixed basing on a budget prepared by the management committee for the period specified. 229.Under section 34E and paragraph 1 of Schedule 7 of BMO, an increase in the amount of the management fees for any financial year must be based upon a draft budget specifying the total proposed expenditure for that financial year. Paragraph 1(2) of Schedule 7 of BMO provides the procedures as follows:
230.On the evidence before me, IO’s claim for the Alleged Outstanding Management Fees is bound to fail. Not only because IO has put forward self-contradictory cases regarding the fixing of the Alleged Outstanding Management Fees, but also due to its non-compliance of the requirements and procedures as prescribed in the BMO and the DMC. 231.To start with, IO’s allegation about the Increment Resolution is in direct contradiction to its pleaded case at ACNOO at §38 that the projected monthly figure (on which the Alleged Outstanding Management Fees were allegedly based) had not changed since 1 April 2018. 232.Further, solely on Li’s admission in his witness statement that no budget for the determination of management fees had been prepared on the passing of the Increment Resolution, the Increment Resolution is strictly in contravention to schedule 5 and schedule 7 of the BMO and unenforceable. 233.Ironically, contrary to its original position, IO has lately, by way of Li’s supplemental witness statement dated 9 March 2022 (filed on 21 April 2022), alleged that a budget for the period from April 2018 to March 2019 (“Alleged 2018/2019 Budget”) had been belatedly prepared in around July 2018 and posted up for at least 2 weeks at the lobby of the Building. All co-owners were therefore given a chance to review the budget and make objections and IO had not received any objections from the co-owners. 234.However, IO’s claim cannot be salvaged by this new allegation. First, even on IO’s own case, the determination of the management fees was grossly deviated from the requirements and procedures stipulated in the BMO. The passing of the Increment Resolution (with 15% increment of the Management Fees) was admittedly not supported by a budget (as required by paragraph 1 of Schedule 5 and paragraph 1(2) of Schedule 7 of BMO). 235.Even for the Alleged 2018/2019 Budget, it was prepared after the passing of the Increment Resolution and accordingly, depriving all the owners of a fair chance to consider, discuss and vote before passing the said resolution. Further, there had been admittedly never any notice posted up or sent out inviting each owner to send comments on the draft budget within a period of 14 days (as required under paragraph 1(2)(c) of Schedule 7 of BMO). The subsequently prepared budget had never been discussed or approved by the Management Committee, still less of the owners. 236.Further, there is no credible evidence for proof that the Alleged 2018/2019 Budget supported a 15% increase over the budget of the preceding year, that it had been discussed or approved by the Management Committee, that there was a resolution approving the Alleged 2018/2019 Budget and that it was properly displayed as required. 237.Second, I do not believe that the Alleged 2018/ 2019 Budget was in existence in July 2018 as alleged. IO has not produced any document corroborating the date of the Alleged 2018/2019 Budget. Not only that no minutes approving the said budget or the notice inviting owners to give their comments was produced, but also that the Alleged 2018/2019 Budget was mysteriously undated and unsigned. 238.Third, the Alleged 2018/2019 Budget only sets out the total budgeted costs and expenses for the management of the Building for the 12-month period starting from 1 April 2018, without any delineation of expenses which shall not be shared by all co-owners equally under the proviso to clause 46(4) of the DMC. It does not itself provide any details which would have been necessary for the consideration and comments of the co-owners. The basic information as the proposed increase in the monthly management fees, the increment percentage, and the proposed effective date of the new management fees was unaccounted for. 239.Fourth, the amounts claimed by IO is not calculated according to the Alleged 2018/2019 Budget. Basing on the Alleged 2018/2019 Budget, the monthly amounts claimed should be HK$1,206, making reference to the budgeted monthly sum of HK$410,874 (HK$410,874 / 80,432 x 300 x 1510/1920 = HK$1,206). Contrary to this, the monthly amounts payable by Pakatower was fixed at HK$1,266 in the IO’s Minutes dated 26 July 2018 (by then the Alleged 2018/2019 Budget should have existed as alleged). On 2 August 2018, Pakatower was demanded to pay the same amount of HK$1,266 in the notice issued by IO. 240.By a letter dated 22 August 2018, in response to the enquiry by Pakatower as to how the HK$1,266 was calculated, IO explained that, because of the management fees have since the DMC been increased by 5.37 times, the amount of HK$1,266 was calculated by the formula of 5.37 x 300 x 1510/1920 = HK$1,266. This is wrong. The management fees would have been increased by 5.11 times, instead of 5.37 times. 241.The explanation given in the said letter (which included an actual formula) unequivocally shows that the calculation of the HK$1,266 was not based on the Alleged 2018/2019 Budget, or any budget at all. Rather, it would appear that IO was then not even aware that the determination of the management fees was required to be based on a budget. Thereafter, Pakatower was continuously asked to make monthly payment of HK$1,266 for the period from September 2018 to April 2019, leading to IO’s claim against Pakatower for the Alleged Outstanding Management Fees in the SCT. 242.It was only on 5 July 2019, in the witness statement filed for IO in the SCT, IO had, for the first time, mentioned the figure of HK$410,874, and the monthly sum claimed was changed to HK$1,206. Such change was made long after the period covered by the Alleged 2018/2019 Budget (April 2018 to March 2019) had expired. Even by then, only the figure of HK$410,874 was mentioned without the production of the Alleged 2018/2019 Budget. 243.Fifth, the non-existence of the Alleged 2018/2019 Budget is further indicated by the fact that despite Pakatower’s repeated requests for discovery of the annual budgets and the relevant meeting minutes for the year of 2017, 2018, 2019, 2020 and 2021, none was produced. Instead, IO formally responded by the letter of its solicitors dated 28 July 2021 (“Reply Letter”) that “Annual budgets and any relevant meeting minutes for 2017, 2018, 2019, 2020 and 2021. The [IO] confirms that none was issued during the said period.”. 244.Such a reply was provided after the filing of Pakatower’s CRDC on 3 June 2021, in that Pakatower expressly complained about IO’s failure in supplying the relevant budgets to Pakatower despite repeated requests. Therefore, IO had no reason not to provide the Alleged 2018/2019 Budget but instructed its solicitor to confirm the non-existence of it in a formal letter. 245.Even though IO contends that its witness in the SCT action has already mentioned about the figure of HK$410,874, the fact is the Alleged 2018/2019 Budget only first appeared as an annexure to the witness statement of Li dated 9 March 2022 (filed on 21 April 2022). Neither sensible explanation on IO’s change of position as to the existence of the said budget, nor the circumstances under which the said budget came into existence (and being located) was accounted for. The allegation that the departure of an accounting staff in 2021 had made it difficult for IO to locate its documents is unconvincing. It was the management company that prepared the budget and IO was unable to reasonably explain how the budget was finally retrieved. 246.On 16 May 2023, Pakatower amended its pleading to take issue that the Alleged 2018/2019 Budget was not a contemporaneous budget, but was only retrospectively prepared by IO for the purpose of this litigation, and is therefore invalid and/or in breach of the BMO. It was only in Li’s supplemental witness statement filed on 14 July 2023 that IO, alleged for the first time, that the Alleged 2018/2019 Budget was prepared in July 2018. 247.When being cross-examined on the contradictory position as stated in the Reply Letter, Li sought to explain that he had by that time misunderstood the documents sought as being budgets which had been approved and the minutes of the meetings in which the relevant budgets were approved. Li’s evidence is unbelievable in light of the clear wordings of the documents and the circumstances under which such documents were sought, not to mention that both parties were assisted by legal professionals all along. 248.Thus considered, I believe, on the balance of probabilities, that the Alleged 2018/2019 Budget had not existed until some time between 28 July 2021 and 9 March 2022, when IO came to realize that its claim for management fees had to be supported by an actual budget. No doubt, the Alleged 2018/2019 Budget which was prepared retrospectively for the purpose of this litigation does not satisfy the statutory requirements under Schedule 7 of the BMO: The Incorporated Owners of Tsuen Wan Garden v. Prime Light Ltd HCA 1516/2003 unreported at §§39-53. 249.In the circumstances, the determination of the Management Fees since September 2018 seriously derail from the BMO and is invalid. The claim for the Management Fees, and the associated interest and collection charges should be dismissed on this ground alone. APPORTIONMENT RATIO 250.In parallel, Pakatower also argues that IO’s claims for the Management Fees from February 2020 onwards and the Repair Contribution for the Second Stage Repair must fail on the ground that the Revised Ratio applied was not fixed in accordance with the ratio prescribed by the DMC. 251.I accept Pakatower’s submissions. First, section 22(1)(a) BMO provides that the amount to be contributed by an owner shall be fixed by the management committee in accordance with the DMC if there is a DMC setting out the apportionment method. Such method takes precedence and IO is not allowed to depart from it and adopt some other contribution ratio even if it is perceived to be fairer by the IO: Kwok Mo Kai Doris v The Incorporated Owners of Karin Court CACV267/2005 unreported 8 June 2006 (“Kwok Mo Kai Doris”). Given there is no provision in the DMC which empowers IO to alter the apportionment ratio in the way it did, the Revised Ratio is invalid and unenforceable. 252.Second, clause 46 of the DMC stipulates that the contributions to the management expenses should be made in accordance with the apportionment ratios as set out in the Third Schedule and where the contributions are insufficient, the Manager is only entitled to adjust “the contributions payable by all Owners by [a] percentage”, but not to alter the apportionment ratios. Hence, the Revised Ratio is a departure from the apportionment ratio in the DMC, which is impermissible as a matter of law: Kwok Mo Kai Doris at §§13-15. 253.Third, the IO’s counterclaim for the Alleged Outstanding Management Contributions is premised on clauses 46 and 48(a) of the DMC. However, in so far as the counterclaim relates to the share of the expenses arising from IO’s ownership of the Roof Unit, IO can only rely on clause 48(a) but not clause 46. 254.Under the DMC, 2,300 undivided shares were allocated to the Roof Unit and clause 12 particularly provides that no Owner, other than the Owner of the Roof to whom the right of exclusive possession thereof has been specifically assigned, shall have the right to use the Roof, and the maintenance and repair responsibility of the Roof rests with the Owners of the Roof. In law and in reality, IO is a separate legal entity and the Roof Unit is its privately-owned asset, which cannot be regarded as the Common Area under the DMC. 255.IO did not exist upon the execution of the DMC and its acquisition of the Roof Unit would not have been within the contemplation of the DMC, hence, Clause 46 could not have catered for the expenses arising from IO’s ownership of the Roof Unit. The acquisition of the Roof Unit by the IO did not have the effect of rewriting the DMC, nor converting the Roof Unit into the Common Areas or Common Facility for the purpose of the DMC. Thus, IO’s expenses attributable to the ownership of the Roof Unit are not the costs in respect of the Common Areas nor Common Facilities and accordingly, does not cover by clause 46 of the DMC. 256.Therefore, IO cannot rely on clause 46 of the DMC to demand Pakatower to contribute to IO’s share of the Management Fees and Repair Contributions relating to the Roof Unit, nor can IO rely on clause 48(a) for associated interest and collection charges. Any matter which is in breach of the DMC cannot be approved by the owners’ committee. IO has no power to alter the apportionment ratio of the DMC. 257.IO also seeks to argue that even if there were no alteration of the apportionment, IO’s share of the Management Contributions for the Roof Unit would have to be ultimately shared by all co-owners in accordance with their original management shares, and accordingly, the revised apportionment did not make any actual difference to the contributions that each co-owner was liable to make, because the change was only to apportion the Management Contributions to be borne by IO in respect of the Roof Unit to all other co-owners. 258.Such argument is unsound. The problems caused by IO’s alteration of the apportionment ratio are real and significant. I do not neglect the fact that the acquisition of the Roof Unit was completed on 12 October 2012 but the apportionment ratio was only adjusted on 7 January 2020. Despite the Roof-share Resolution was purportedly resolved on 7 January 2020, IO nevertheless continued to demand from Pakatower, in its letter dated 16 October 2020, the same amount of the monthly management fee of HK$1,206 for the period from May 2019 to October 2020, which was different from the amount now counterclaims by IO for the period from February 2020. No sensible reasons were offered. 259.As accepted by IO in the ACNOO, the Roof-share Resolution had the effect of altering the apportionment ratio of the Management Contributions payable by each co-owner of the Building, resulting in Pakatower’s sharing ratio was changed from 235.9375/80,432 to 235.9375/76,743. The monthly Management Fees as claimed against Pakatower were then increased from HK$1,206 (for January 2020 and before) to HK$1,262 (for February 2020 onwards). 260.Therefore, IO’s argument runs counter to the fact that since February 2020, Pakatower had been asked to pay more Management Contributions. As recorded in the IO’s meeting mintues, without the Revised Ratio, the Management Contributions of the Roof Unit would be paid out of IO’s reserve funds. As Pakatower was only first asked to pay Management Fees from September 2018, its contributions to those reserve funds should be less than the other co-owners. 261.As Mr Kwong points out, even if it is correct that the co-owners shall contribute to the IO’s share of Management Contributions for the Roof Unit, the Revised Ratio actually made a difference to such amounts. As it is a new ratio which was not provided in the DMC and had not existed before, the monetary difference in the contribution can be illustrated by taking the First Stage Repair Contributions attributable to the Roof Unit of HK$154,569 (which was carried forward to form part of the Second Stage Repair Contributions totaling HK$3,266,187). Basing on the original apportionment ratio in the DMC, Pakatower’s share would be HK$154,569 x 235.9375/80,432 = HK$453.41. In contrast, basing on the Revised Ratio, its share would be HK$154,569 x 235.9375/76,743 = HK$475.20, resulting in an increment of 4.8%. 262.As IO fails to prove, on a balance of probabilities that, its demands of the management fees were based on a valid budget prepared and finalized in accordance with the requirements of BMO, its claim for the Alleged Outstanding Management Fees must fail. In further consideration of the fact that IO had no power to alter the apportionment ratio, its claim for the Alleged Outstanding Management Fees and the Repair Contribution to the Second Stage Repairs are bound to fail. COLLATERAL AGREEMENT 263.I also accept Pakatower’s submissions that IO’s counterclaims for the Alleged Outstanding Management Contributions are unmeritorious by the operation of the Alleged Collateral Agreement. The Last IO Tenancy Agreement was a Chinese agreement. Clause 3B of it provided that IO shall be responsible for the management fees, rates, insurance, repair and other expenses in relation to the rented premises during the term of tenancy. In addition, under the supplementary conditions (附帶條件) of the agreement, Clause 4B provides that during the period when IO is occupying the Disputed Premises, Pakatower shall not be responsible for any expenses of the Building (“乙方於使用甲方物業期間，甲方不須負責任何本大廈之任何費用。”」. 264.As evidenced in the Last IO Tenancy Agreement, it has been agreed between IO and Pakatower by virtue of Clause 4B that during the period of IO’s occupation of the Disputed Premises, Pakatower shall not be responsible for any expenses of the Building. Clause 4B was separately agreed and made in addition to Clause 3B, notwithstanding that Clause 3B had already provided that Pakatower should not be responsible for some specified expenses during the term of the tenancy. 265.The co-existence of the two clauses in the same document entered by the same contracting parties at the same time but in separate context made it clear that Clause 4B was written with deliberation to impose extra obligation on IO in addition to the duty under Clause 3B and in no way can be treated as inoperative or surplus. It is apparent that Clause 4B, which was made in consideration of Pakatower entering into the Last IO Tenancy, amounts to a collateral agreement, which is binding on the contracting parties and survives the term of the tenancy. Any obligations arising from the collateral agreement are binding on IO in the capacity of a tenant, on top of the primary obligations. The collateral agreement remains in full force and effect despite the expiry of Last IO Tenancy Agreement. 266.As a matter of fact, Pakatower had never been asked or paid any Management Contributions to IO on the Pakatower Premises prior to September 2018. Absent any solid evidence to suggest otherwise, I believe that, on balance, such arrangement was due to the Alleged Collateral Agreement. Such agreement explains why, even after the Expiry Date, Pakatower had not been asked to pay the Management Contributions until the issuance of the monthly payment advices to Pakatower for the period from 1 September 2018. IO fails to mount any serious challenges or adduce any credible evidence to challenge the existence or enforceability of the Alleged Collateral Agreement. 267.IO seeks to rely on Pou’s evidence that the IO’s agreement of Pakatower “needed not pay any management expenses was part of the rent and outgoings” to disavow the existence of the Alleged Collateral Agreement. I am not persuaded. Pou’s answer should not be taken out of context. She was not asked with reference to the Alleged Collateral Agreement or to particular timeframe. Her answer was apparently related to Clause 3B which applied during the term of the tenancy, bearing in mind her detailed account of the history and the rational of Clause 4B and Clause 3B since the first 27/6/1997 Tenancy Agreement. At any rate, her answer does not have the effect of precluding the formation of the Alleged Collateral Agreement. 268.IO’s another argument that it has no power to “exempt” Pakatower from paying the Alleged Outstanding Management Contributions is misconceived. It is wrong to regard it as an “exemption”. Given IO has been continuing to occupy and use the Disputed Premises after the Expiry Date, its obligation flowing from the Alleged Collateral Agreement persists. IO would not be exempting Pakatower from paying the Alleged Outstanding Management Contributions but rather, IO would have to pay them under the obligation of the Alleged Collateral Agreement for its continuous occupation of the Disputed Premises as the actual occupier, in the same way as a tenant or licencee could be asked to bear the management expenses of the property leased or licensed to it. 269.Such obligation is governed by the Alleged Collateral Agreement but not the DMC. IO has been binding by it as the contracting parties. It does not involve any exemption of the Management Contributions in its capacity as the incorporated owners under the DMC. As such, the case of Incorporated Owners of Hoi Luen Industrial Centre and Anor v Ohashi Chemical Industries (Hong Kong) Ltd [1995] 2 HKLR 449 lends no support to IO. That case did not concern any binding contractual rights, but rather, concerning the question of acquiescence by an incorporated owners, to which principles in equity applied. 270.Thus analyzed, Pakatower should not be liable to pay the Alleged Outstanding Management Contributions which are not determined or calculated in accordance with the DMC or BMO, and are in any event not enforceable against Pakatower due to the operation of the Alleged Collateral Agreement. Therefore, IO’s counterclaims for the Alleged Outstanding Management Contributions should be dismissed. 271.For sake of completeness, I should add that even if Pakatower is liable to pay the Alleged Outstanding Management Contributions (which I do not so find for the reasons set out above), such sums will have to be set off with my assessment of the mesne profit as elaborated above. Besides, the calculation of interest in ACNOO §48 is incorrect. Mr Cheng sensibly confirmed that even if Pakatower is ordered to pay interest (which I do not so find), the interest should only accrue starting from one month after the due date of payment; and interest shall only be accrued on the Alleged Outstanding Management Contributions starting from the date on which the correct amounts were communicated to Pakatower, ie the date of the CNOO. NEW RELIEF SOUGHT 272.In their respective written closing submissions, both parties have inconceivably brought in some new reliefs sought, which had not been prayed for. Such practice should not be encouraged. IO’S NEW REQUEST 273.IO submitted that even if IO’s claim for the Alleged Outstanding Management Contributions are dismissed, the Tribunal should still “make a suitable order/ruling confirming Pakatower’s liability as a co-owner to contribute to management expenses under the DMC”. Such request will not be entertained. Not only that it has not been prayed in the counterclaim, but also that it serves no practical purpose and is unjustified with valid reasons. 274.Given Pakatower has never disputed (and even confirmed) that it has a duty “as a co-owner to contribute to management expenses under the DMC”, IO does not need an order to state the obvious or to reiterate a matter that is not in dispute. What is the real dispute in this case is that Pakatower claims to have three legitimate reasons not to be liable to the Alleged Outstanding Management Contributions. Ultimately, it has succeeded in justifying all those reasons and defending the IO’s counterclaims. Hence, there is no basis for this Tribunal to entertain IO’s new request. PAKATOWER’S NEW REQUEST 275.In its written closing submissions, Pakatower made a fresh request for a declaration that “the IO be responsible for the payment of management fees, repair contributions, government rent, rates and any other outgoings chargeable on the [Disputed Premises] for the period from 1 May 2015 until delivery of vacant possession” (“New Relief Sought”). Despite the New Relief Sought was not prayed in the prayer of the CNOA, Pakatower insists that an order should still be made for reasons that (1) the issue of whether IO should be responsible for paying the “Outgoings” of the Disputed Premises for the “holding over period” has been sufficiently pleaded; and (2) as a matter of law, unpleaded declaratory relief can still be granted. I am not convinced. 276.Pakatower seeks support from section 10(5) of the Lands Tribunal Ordinance, Cap.17 and Practice Direction no. 4 to assert that it is not bound by the normal rules of pleading for such rules are not applicable in the proceedings at this Tribunal. 277.However, such provisions should not be misread as giving a carte blanche for a party to slip in new claim, issue or relief sought at the closing submission stage when all witnesses have finished giving evidence and productions of documents have completed. IO’s argument also ignores paragraph 5 of Practice Direction 4, which demands that the issues which are likely to be raised have to be indicated in the Notice of Application. Due regard should be given to the rationale of the Court of Appeal in Grand Power International Ltd v Chan Sing Hoi Enterprises Ltd and Others [2020] 2 HKLRD 142 at §§40-42 as follows:-
278.Similarly, in the present case, both parties have engaged full legal team from the very beginning and have all along been conducting their cases in a rigorous manner. Pakatower has undergone several amendments and stated its case in details in the Notices, which are in no way different from formal pleadings, but nevertheless did not pray for the New Relief Sought. Further, it also did not include the New Relief Sought in the Agreed List of Issue for trial. Accordingly, Pakatower has no excuse not to be bound by its Notice of Application and the Agreed List of Issue as they now stand. 279.Further, I am not persuaded that the New Relief Sought has been sufficiently stated in Pakatower’s CNOA to give a fair indication of the issues which are likely to be raised. Nor am I satisfied that there would be no real prejudice occasioned to IO. Pakatower now seeks to contend that the New Relief Sought is based on the Alleged Collateral Agreement and the claim for it is premised on paragraphs 22, 24, 28 of CNOA. On such basis, it argues that the issue has already been stated and the only deficiency is that “a declaration to such effect” has not been prayed for. In my view, such argument is an oversimplification that cannot be accepted. 280.In the CNOA, Pakatower’s claim is that by reason of “the IO has since 30 April 2015 wrongfully and in breach of the DMC and/ or in trespass of the [Disputed Premises] continued to exercise exclusive use occupation and enjoyment of the [Disputed Premises] to the exclusion of Pakatower and/ or laid claim to the ownership of or otherwise challenged and interfered with Pakatower’s right to the exclusive use and occupation of the [Disputed Premises]…” and accordingly asks for loss and damages giving the particulars of, inter alia, : -
281.As Mr Cheng rightly points out, the claim as framed in the CNOA is strictly confined to a claim for special damages flowing from the breach of the DMC and/ or in trespass but no more. Given special damages must be specifically pleaded with particulars and proved, and, neither particulars nor evidence have ever been given by Pakatower to support item (c), allegedly to be claimed under Clause 4B, it turns out, Pakatower simply failed to prove such claim under item (c). 282.Besides, given my assessment of the mesne profit aforesaid, the value of the Clause 3B expenses has already been considered and provided for, there is no room for bringing in a new claim for the New Relief Sought. Further, the New Relief Sought is in the form of an extensive declaratory relief which was not prayed for in the CNOA. In particular, the wordings used are different from those of Clause 3B or Clause 4B, ie certain items and the alleged “Outgoings” had not been mentioned, raising doubt on what are the legal and factual basis of the New Relief Sought and what are the definition and the scope of them. The immediate problem is IO is completely deprived of the chance to deal with such new claim for the New Relief Sought. 283.I am not persuaded that by simply mentioning several items of expenses together with Clause 4B under the heading of “loss and damage” can give rise to an indication of the New Relief Sought. A claim for loss and damages flowing from the breach of DMC is different from a claim for declaratory relief basing on a breach of and an enforcement of a collateral agreement. 284.Further, even if taking into account of Pakatower’s defence to counterclaim in the ACRDC, the Alleged Collateral Agreement basing on Clause 4B was only raised as a defence to IO’s counterclaim for the Alleged Outstanding Management Contributions. The issue therein was limited. It was confined to whether the Alleged Collateral Agreement could pose as a shield to IO’s counterclaim, which was limited to the scope of the Alleged Outstanding Management Contributions. It cannot be taken to expand and change to pose as a positive claim against IO and for a declaratory relief which covers a wide variety of different items of costs, expenses, charges and “outgoing”, not to mention that those items have not been properly defined and some were even not mentioned in Clause 4B. 285.Unfortunately, Pakatower has, in its supplementary closing submissions dated 18 April 2024, put forward another completely new argument contending that “there is a separate question (as pleaded in the CNOA) of whether the IO as the holding over tenant should as a matter of law be responsible for the Outgoing of the [Disputed Premises] during the Holding Over Period”. 286.Such argument is hopeless. No such claim has been put forward in the CNOA or at trial. It is no good answer to the many procedural problems and deficiency of the Pakatower’s stated case in the CNOA as set out above. 287.Worst still, the New Relief Sought, be that basing on the alleged collateral agreement (not as a defence but as a positive case) as raised in the closing submissions or that on the alleged “holding over tenant’s responsibility” as subsequently advanced in its supplementary closing submissions, has never been raised or canvassed at trial. 288.Not only that the cause of action has not been established for such New Relief Sought, but also that the crucial elements of what are the definition and scope of “the payment of management fees, repair contributions, government rent, rates and any other outgoings chargeable on the [Disputed Premises]”, of how Clause 4B can be interpreted as covering such items, of how such items can be regarded as loss and damages in such new alleged causes of action have never been raised or canvassed at trial. IO’s obligation to pay such undefined “outgoings” have never been touched on. The wordings of the New Relief Sought are different from Clause 4B (or even Clause 3B). No evidence has been adduced at trial for such purposes. 289.It is misfortunate that Pakatower would see fit to set out various sets of allegation of facts in its written closing submissions. It goes without saying that the trite law precludes such new allegations from the bar table to be admitted as evidence. Pakatower is not allowed to slip in such a fresh claims at this very late stage. I accept Mr Cheng’s submission that IO is completely taken by surprise and will be seriously prejudiced if such new claims are allowed. 290.In the premises, I do not accept this is just a mere technical omission of pleading a prayer. Pakatower is virtually advancing some new claims at this late stage. Such new claims have never been taken as live issues in these proceedings. The unfair prejudice occasioned to IO is obvious and significant. I refuse to entertain such last minute unfair and unjustified request. CONCLUSION 291.Having considered all the evidence and submissions of both parties, I make an order that: -
COSTS 292.Given the outcome of this case and having considered all the relevant circumstances, Pakatower is the overall winner. It succeeds in almost all of its claims as well as in resisting all of the IO’s counterclaims. It only loses a minor claim for the provision of the Gate Keys, which did not take up much time and efforts of the present proceedings. 293.Looking at all the matters in the round, I make a costs order nisi that IO do pay Pakatower the costs of the present proceedings, including the main claim and the counterclaim and all costs reserved, with certificate for counsel, on a party and party basis, to be taxed on the District Court Scale, if not agreed. 294.This Order Nisi shall become absolute in the absence of application to vary by filing of Form 1 within 14 days from the date hereof. 295.I thank both Counsel for their able assistance.
Mr Jeremy Kwong, instructed by MinterEllison LLP, for the Applicant Mr Henry Cheng, instructed by CW Chan & Co, for the Respondent [1] i.e. Pump House and Yard and Space A for HK$500,000, Space B for HK$448,000, the unenclosed Space C on the Ground Floor, which is marked as “loading and unloading area” in the 1982 Building Plan and was used as the collection station of scrap iron by IO under the 1994-1997 Tenancy was sold to Lee Chiu Fat (the father of IO’s witness Li Wai Keung), on 1 May 1997 for HK$250,000. [2] The sale and purchase agreement was reviewed by the members of IO’s management committee, including, Lee Chiu Fat and Wong Choi Wai. [3] IO also rented other parts of the Others Unit, i.e. the Unit 13 Staircase Space, Space B and Spaces E1 and E2, from Pakatower. [4] By two letters respectively dated 29 March 2001 and 12 February 2006, IO expressed its desire to purchase the Others Unit. [5] referred by Pakatower as the “Defunct Air-Con Water Tank Room” whereas referred by IO as the “Cleaner’s Room”. [6] Mr Wong Choi Wai [7] Rule 208.3 of the CLP Supply Rules caters for a customer’s request for its facilities as transformer, meters to be relocated. [8] the Notice of Opposition filed by IO on 13 June 2019 [9] ie Unit 10 and Unit 11 on ground floor, Unit 4 on first floor and the roof unit, their undivided shares are respectively 2367, 2312, 2323, 2300 whereas their management shares are 790, 1053, 1422, 368. [10] i.e. “the spaces above the entrance halls” (which are reserved as part of the “Others” Unit in the First Schedule) is specifically excluded. Similarly, the ramps, corridors, passages, loading and unloading platforms or areas on the 9th Floor are specifically excluded because those parts have been reserved as part of the 9/F Unit in the First Schedule. [11] (1) The Owner of each Unit on the ground floor has the right to affix signboards on the external wall of his Unit, subject to the approval of the Manager (clause 14(b) of the DMC ); (2) No co-owner (including the First Owner and Pakatower) is allowed to erect signboards or other structures whatsoever on the External Walls. No air-conditioning units or other fixture shall be installed through the External Walls without the consent of the Manager (clause 9); (3) The Manager has the right to permit any person to affix signboards and advertisements on the External Walls (clause 14(a)); to affix signboards or signs on the External Walls to exhibit the name of the Building (clause 14(c)); to choose the colour and type of façade of the Building and to give consent for alteration of the external appearance of the Building (clause 15); and to paint or whitewash or treat the exterior of the Building (clause 42(12)). [12] Donora made it clear that it was possible for “the exclusive right to occupy part of a building (like a utility room) with some less intrusive rights (like the right of passing through it for specified purposes) grafted onto it by way of quasi-easement”. In Wui Fung Lee Investment Co Ltd v. The Incorporated Owners of Hong Kong Mansion, Causeway Bay [2021] 1 HKLRD 408 at §33, possession of the transformer room was reserved by the developer as expressly stipulated in the DMC. In Wing Hong Investment Co Ltd v Fung Sok Han and Ors [2016] 1 HKLRD 1, the transformer room and meter room were not common parts. In Chan Kwok Hing and Anors v The Incorporated Owners of Che Wah Industrial Building CACV49/2010 unreported 26 November 2010, the developer had reserved to itself the exclusive right to use occupy and enjoy a first aid room. [13] In Wui Fung Lee Investment Co Ltd v. The Incorporated Owners of Hong Kong Mansion, Causeway Bay [2021] 1 HKLRD 408 [14] Chan Kwok Hing & Anor v The Incorporated Owners of Che Wah Industrial Building DCCJ3781/2008 unreported 2 October 2009 at §31, 38-56; 62-67. The decision was affirmed on appeal: CACV 49/2010 unreported 26 November 2010 [15] issued by the Fire Services Department, September 2022 version [16] (2020 Edition) [17] Cogi Enterprises Ltd and The Incorporated Owners of Summit Court v Full Surplus Investment Ltd and Anor [2007] 3 HKLRD 351 para 43. [18] §§143-144 per Lord Neuberger and §59 per Lord Scott. Lord Neuberger expressly qualified his dicta by saying that he was making no decision on the broader question not least because the more general principle had not been fully addressed in submissions. [19] Kung Ming Tak Tong at §51 [20] as illustrated in photos at [C3/894, 896, 897] [C8/1972]. [21] According to the 1982 Approved G/F Building Plan, there was no addition of “YARD” after 12 February 1981, i.e. the date when the 25000L storage water tank was added . Obviously, the “YARD” was designated before 12 February 1981. [22] (1st Edition March 1999) ,as referred to in the Joint Report [B/307/ footnote 1] and Cheung’s report [B/339/paragraph 1]. [23] each shown as a circle inside a square with the words “PROPOSED … DRILLING WELL POSITION” immediately above and below the water tank structure in dotted rectangle) which were designed to come with a “CONTROL CABINET”. [24] The Hong Kong Electric Co Ltd v Commissioner of Rating and Valuation LDGA 224/2004 unreported 30 November 2009. [25] She said that (1) the marking in the building plan might not be that clear; (2) based on her inspection, there were cable ducts in those rooms and the room were currently used as meter rooms; and (3) that was why she needed to visit the site to see the existing condition and considered what was the current use. [26] Each of spaces E2 on the third and fifth floor was rented at a monthly rental of $800 for the period from 1 May 1997 to 31 July 1997. Spaces E1 and E2 were gradually sold to unrelated parties over years 1997 to 2012 at prices ranging from $60,000 each to $184,000 each. Space C (another unenclosed space on the ground floor) was sold for $250,000 on 1 May 1997. The pump house and space A on the ground floor together with the adjacent yard were sold for $500,000 on 31 May 1995. [27] the dispute only goes to whether the Semi-circle Area and the Disputed Room are included in the Others Unit under the DMC. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under LDBM 75/2019