The Incorporated Owners of Wah Ha Factory Building v. Wah Ha Realty Co Ltd

Read the full judgment text of HCA 1576/1977 on BabelCite. This High Court CFI judgment was delivered on 12 April 1979.

1. The plaintiffs in this action were incorporated on 28th August 1975, under the provisions of the Multi-Storey Buildings (Owners Incorporation) Ordinance Cap. 344 for the purpose of managing the Wah Ha Factory Building which is situate at No. 8, Shipyard Lane in Quarry Bay. The defendant was originally the registered owner of the ground upon which that factory building is erected and was responsible for its erection. I had before me by way of agreed documents the following:

Cited by 2 cases

Case No.HCA 1576/1977[1979] HKLR 242
Court
High Court CFI
Date12 Apr 1979
Judge
Case Document
100%Judiciary

HCA001576/1977

IN THE HIGH COURT 1977 No. 1576

BETWEEN
The Incorporated Owners of Wah Ha Factory Building Plaintiffs

AND

Wah Ha Realty Company Limited Defendant

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Coram: Leonard, J.

Date of Judgment: 12 April 1979

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JUDGMENT

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1. The plaintiffs in this action were incorporated on 28th August 1975, under the provisions of the Multi-Storey Buildings (Owners Incorporation) Ordinance Cap. 344 for the purpose of managing the Wah Ha Factory Building which is situate at No. 8, Shipyard Lane in Quarry Bay. The defendant was originally the registered owner of the ground upon which that factory building is erected and was responsible for its erection. I had before me by way of agreed documents the following:

(1) An agreement for sale and purchase dated the 23rd September 1971 (which I will call "the Agreement");
(2) A deed of assignment dated the 4th April 1972 between the defendant and purchasers of the factory flats erected on the lot (which I will call "the Assignment");
(3) A deed of mutual covenant between the Hong Kong & Shanghai Banking Corporation as mortgagee of the first part, the defendant of the second part and the purchasers of the third part dated also the 4th April 1972. (This I will refer to hereafter as "the Deed of Mutual Covenant").

2. The building consisted of several factory units and the defendant had entered into a number of similar transactions, each involving an agreement, an assignment and a deed of mutual covenant, with several persons who wished to purchase flats in the building, it had sold all the flats in the building, with the exception of one and was at all material times and still is the owner of 19 equal undivided parts or shares of the land and building, the land and building being notionally divided to 1,800 equal undivided parts or shares. Each purchaser acquired an appropriate number of equal undivided parts or shares in the land and building presumably proportionate to the value or cost of the flat the right to occupation of which he also acquired. In addition to remaining the owner of one flat and the 19 equal undivided parts or shares the defendant was appointed as professional managers of the building for the purpose of carrying out the duties of a management committee set up by the Deed of Mutual Covenant for a term of three years commencing from the 15th March 1972. This appointment was not renewed on its expiry.

3. The action concerned itself on the pleadings with alleged breaches by the defendant of the terms of the Deed of Mutual Covenant. The plaintiffs claimed

(a) A declaration that a watchman's room and canteen had been let out by the defendant and are held by all the owners of the 1,800 equal undivided parts or shares in the said land and the said building in tenancy in common;
(b) An account of all rental incomes and profits received by the defendant or by any other person on its behalf or account in respect of the letting out of the said watchman's room and canteen, and of what is due from the defendant to each of the said other owners of the said land and the said building in respect of such rental incomes and profits;
(c) Payment by the defendant to the plaintiffs to hold on trust for each of the said other owners of the said land and the said building of any sum found due to such said other owners upon taking such accounts;
(d) An account of all monies received and the expenditures in relation to the management of the said building during the said period from 15th March 1972 to 30th October 1975 and delivery of all vouchers and/or books and/or other documents supporting the said account; and
(e) All further proper accounts, inquiries and directions.

4. When the case came before me it was conceded that the plaintiffs were entitled to the relief claimed in these prayers. I gave judgment by consent and ordered that the question of the taking of various accounts which I have mentioned be adjourned to the Registrar in chambers.

5. There was a further claim for an injunction restraining the defendant and/or its servants or agents from letting and/or hiring out the surfaces of the external walls of the said building for the exhibition of advertisements without the prior written consent of the plaintiffs. This claim was resisted it being contended on behalf of the defendant that the defendant was the owner of the external walls and was entitled to use them for advertisement as it thought fit.

6. It was common case that the plaintiffs had taken over the management of the building and that the defendant had let out or permitted the external walls to be used for advertisement without the permission of the plaintiffs, the management committee of the building or any professional managers and claimed to be entitled so to do in the exercise of a proprietary right. No evidence was called before me but the three documents which I have mentioned were agreed to be representative of similar documents entered into by each of the purchasers of the factory flats in the building each being identical in its terms save in relation to the number of undivided parts or shares to be acquired and the description of the flat to be occupied.

7. In order to appreciate the nature of the dispute it is necessary for me to indicate and deal with he relevant terms of these three documents. The Agreement which is dated the 23rd September 1971 was made between the defendant (therein called "the Vendor") and the purchasers. Having recited that the defendant was the registered owner of the parcel of ground in question, that it had caused plans and specifications to be prepared for its development by the erection of a new factory building, that these plans had been duly approved and that the building was to comprise 78 units it being intended that the land and building should be divided into 1,800 equal undivided parts or shares to be allocated to each of the units in manner and number therein described, it went on to provide that the defendant would

"sell and the Purchasers shall purchase as Tenants in Common in equal shares ALL THOSE eighteen equal undivided 1,800th parts or shares of the Vendor's estate right title and interest of and in ALL THAT" (the land in question) "TOGETHER with 18 like parts or shares of and in the said building .... AND TOGETHER with the full right and privilege to hold use occupy and enjoy to the exclusion of the Vendor or other person or persons claiming under or in trust for the Vendor ALL THAT FACTORY FLAT D on the EIGHTEENTH FLOOR of the said building which said portion of the said building is more specifically shown and marked on the Plan hereto attached and thereon coloured Pink (hereinafter called 'the said premises')."

It is clear that by the description "the said premises" the draftsman intended to encompass not only Factory Flat D but also the 18 undivided 1,800 parts or shares for by Clause 2 the price of "the said premises" was fixed. Having covered various matters irrelevant to my considerations the Agreement went on to provide by Clause 18 that

"On the date of the execution of the said Assignment to the Purchaser the parties and the other co-owners of the said building shall enter into a Deed of Mutual Covenant in the form adopted by and available for inspection at the office of the Vendor's Solicitors for the sale of industrial premises by flats which shall provide inter alia that the Purchaser shall have the full right and liberty to hold use occupy and enjoy to the exclusion of the Vendor and others claiming under it the said premises with the right without reference to the Vendor or making the Vendor and its assigns a party thereto to let, lease, sell, mortgage or otherwise deal with the said premises such Deed of Mutual Covenant to be prepared at the joint expense of all the Purchasers of the said building. Alternatively the Purchaser may accept the Assignment subject to a Deed of Mutual Covenant as provided in Clause 34 hereof."

Clause 34 reads as follows:

"If on completion of the sale and purchase of the said premises the Vendor has already entered into a Deed of Mutual Covenant with the Purchaser of any other share or shares in the said land and the said building the Assignment of which has been completed, the Assignment to the Purchaser shall be subject thereto PROVIDED THAT nothing therein contained shall restrict prejudice or affect the Purchaser's sole and exclusive right to the use possession and enjoyment of the said premises."

Clause 21 of the Agreement is of some importance for from it stems the defendant's claim to be entitled to use the exterior walls of the building for advertising. It is in the following terms:

" 21. The Vendor or its assigns shall retain the exclusive use of the roof (save and except the water tanks erected thereon) and the exterior walls of the said building for advertising or other lawful purposes PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED that after the Vendor shall have assigned all its right title interest property and demand of and in all its 1,800 parts or shares of and in the said land any portion or portions of the said building the exclusive use occupation and enjoyment of which shall not have been granted or assigned by the Vendor to a Purchaser of one or more of the said 1,800 parts or shares of and in the said land shall form common parts or spaces of and in the said land and shall be used and enjoyed accordingly."

8. The deed of Assignment is dated the 4th April 1972. It is made between the defendant ("the Vendor") of the one part and the purchasers of the other part. Having recited the Crown leases and that

"(inter alia) 18 equal undivided 1,800th parts or shares of and in all that portion hereinafter more particularly described of the said premises and of and in the Factory Building and other erections and buildings (hereinafter referred to as 'the Factory Building') erected thereon are now vested for the respective residues of the said terms" (of the Crown leases) "in the Vendor who hath agreed with the Purchasers for the sale thereof to the Purchasers Together with the right to hold use occupy and enjoy the hereinafter described portion of the Factory Building for the price of $221,400.00"

goes on in its operative words to assign unto the purchasers

"ALL THOSE 18 equal undivided 1,800th parts or shares of and in ALL THAT piece or parcel of ground situate at Quarry Bay aforesaid .... and of and in the Factory Building now known as WAH HA FACTORY BUILDING .. TOGETHER with .... and all the estate right title interest property claim and demand of the Vendor therein and thereto except and reserved as in the said Crown Leases are excepted and reserved ... TO HOLD the said hereby assigned premises unto the Purchasers as Joint Tenants ... SUBJECT ... to the existing lettings and tenancies thereof (if any) AND SUBJECT to the payment of the due proportion hereinafter mentioned of the rents and the observance and performance of the covenants by the Lessees in the said Crown Leases respectively reserved and contained so far as they relate to the hereby assigned premises."

The deed of Assignment further witnesses that

"In pursuance of the said Agreement (a) the Vendor in consideration of the grant next hereinafter contained HEREBY GRANTS unto the Purchasers full right and privilege to hold use occupy and enjoy to the exclusion of the Vendor and others the co-owners (if any) from time to time of the said Subsection 6 of Section E of Quarry Bay Marine Lot No. 2 and the Extension Thereto ALL THAT portion of the Factory Building being FACTORY FLAT B on the TWELFTH FLOOR which portion more particularly shown and coloured Pink on the Plan hereto annexed to the intent that the Purchasers shall have in all respects the rights of an absolute owner thereof and (b) the Purchasers in consideration of the grant hereinbefore contained HEREBY GRANT unto the Vendor and others the co-owners (if any) (other than the Purchasers) from time to time of the said premises full right and privilege to hold use occupy and enjoy to the exclusion of the Purchasers ALL THOSE remaining Factory Flats Open yards main Roof and Flat Roofs (if any) and exterior walls comprised in the Factory Buildings and its appurtenances save only the portion hereinbefore granted by the Vendor to the Purchasers and those parts designed and intended for the common use and enjoyment of the owners and occupiers of the said Factory Building to the intent that the Vendor shall have in all respects the rights of an absolute owner thereof."

It is unnecessary for me to quote further from the Assignment. Suffice it to remark at this stage that it was clearly the understanding of its draftsman that the Vendor had an interest in the external walls which he was granting to the Vendor and co-owners and that each of the co-owners in accepting their respective grants would make reciprocal grants to the Vendor and the co-owners in their turn.

9. The Deed of Mutual Covenant is also dated the 4th April 1972. Unlike the Agreement and the Assignment it is tripartite. It is made between the Hong Kong & Shanghai Banking Corporation as "Mortgagee" of the first part, the defendant therein called "the Vendor" of the second part and the purchasers therein called "the Flat Owner" of the third part. This document recites firstly that

"The Vendor and the Flat Owner are in possession of the premises more particularly described in the Fourth Schedule in the following proportionate parts or shares that is to say 975 equal undivided 1,800th parts or shares in the Vendor subject to an Indenture of Mortgage dated the 14th day of January 1971 made between the Vendor of the one part and the Mortgagee of the other part and to the repayment of all monies due thereunder in respect of General Banking Facilities granted by the Mortgagee to the Vendor and interest thereon thereby secured by the Vendor as to 807 equal undivided 1,800th parts or shares thereof in the Vendor free from incumbrances and as to the remaining 18 equal undivided 1,800th parts or shares thereof in the Flat Owner free from incumbrances."

I pause to remark that the premises described in the Fourth Schedule consist of the parcel of land in question so that where the phrase "the said premises" occurs in this document it refers to that parcel of land and not to any undivided part or share of it. It goes on to recite that there have been erected on "the said premises" a new Factory Building containing several factory units known as the Wah Ha Factory Building (thereinafter called "the said building") and thirdly recites that:

" 3. The said premises and building have been notionally divided into 1,800 equal undivided parts or shares which are intended to be assigned to the parties having the exclusive right to use occupy and enjoy factory units or other self-contained portions of the said building in the following manner."

and there follows a table under the headings "Floor", "Units", "Shares per Unit" and "Total Shares". It further recites that

"In order to provide for the proper management operation servicing maintenance repair and insurance of the said premises and building the parties hereto have agreed to enter into this Deed for the purposes of defining and regulating the rights interests and obligations of themselves and all subsequent owners in respect thereof."

Having made these recitals the Deed provided in Clause 1

" (a) The Mortgagee doth hereby grant and the Vendor doth hereby grant and confirm unto the Flat Owner the full right and privilege to hold use occupy and enjoy to the exclusion of the Mortgagee and the Vendor the premises set out in Part One of the Fifth Schedule hereto to the intent that the Flat Owner shall have in all respects the rights of an absolute owner thereof.
(b) The Mortgagee and the Flat Owner do and each of them doth hereby grant unto the Vendor the full right and privilege to hold use occupy and enjoy to the exclusion of the Mortgagee and the Flat Owner the premises set out in Part Two of the Fifth Schedule hereto to the intent that the Vendor shall have in all respects the rights of an absolute owner thereof.
(c) The Flat Owner doth hereby grant unto the Mortgagee and the Vendor the full right and privilege to hold use occupy and enjoy to the exclusion of the Flat Owner the premises set out in Part Three of the Fifth Schedule hereto to the intent that the Mortgagee and the Vendor shall have in all respects the rights of an absolute owners thereof SUBJECT so far as the Vendor is concerned to the said Mortgage Memorial No. 791083 and to the repayment of all monies due and payable thereunder or at any time due and payable thereunder in respect of General Banking Facilities granted by the Mortgagee to the Vendor and interest thereon and to all rights and powers conferred on the Mortgagee thereunder which said Mortgage shall remain in full force and effect as regards the whole of the premises other than the premises set out in Part One and Part Two of the Fifth Schedule hereto."

Clause 3 of this Deed of Mutual Covenant provides that each undivided 1,800th part or share in the premises and the full and exclusive right and privilege to hold use occupy and enjoy each factory unit shall be held by the person entitled thereto "subject to and with the benefit of the easements, rights, privileges and obligations set out in the First Schedule hereto." Clause 4 obliged the owners of each factory unit "observe and perform the covenants provisions and restrictions set out in the Second Schedule" and provided for meetings of the owners for the time being of undivided shares in the premises and the manner in which such meetings should be conducted. Clause 7 provided for the establishment of a management committee and the powers of the management committee, the constitution and the election of its members, its functions and duties including its power to make, revoke and amend house rules, regulating the use operation and maintenance of the said premises, and for the appointment of professional managers, manner of dealing with management funds. The only one of the "covenants, provisions and restrictions set out in the Second Schedule" which is of importance in relation to this action is No. 8. It reads:

"Not to exhibit in or upon any factory unit or upon any other part of the said building any name, writing, drawing, signboard, plate, advertisement or placard of any kind without the consent of the Management Committee or the professional manager in writing first had and obtained PROVIDED that this clause shall not apply to the exhibition of the owner's or occupier's name in the places specifically provided therefor in the entrance halls and outside each factory unit."

As has already been indicated the Fifth Schedule to this document is divided into three parts: Part One specifies the flat to which the individual purchaser to which the deed refers has become entitled by virtue of the deed of Assignment made in his favour. It reads:

"ALL THAT self-contained portion comprised in the said messuages or building known and being FACTORY FLAT B on the TWELFTH FLOOR of the said building."

Part Two reads:

"ALL THOSE self-contained portions comprised in the said building known and being FACTORY FLATS B on the GROUND FLOOR; A, B and C on the THIRD FLOOR; A, B, C and D (including the Flat Roofs to the units respectively) on the FOURTH FLOOR...." etc.

totalling in all some 38 factory flats described by reference to letter and floor. Part Three of this Schedule reads:

"ALL THOSE remaining factory flats the main roof the flat roofs (if any) and other portions (not otherwise intended to be used for the common enjoyment of the co-owners and co-occupiers for the time being of the said messuages or buildings) comprised in the said building other than those mentioned in Part One and Part Two of the Fifth Schedule hereto."

The plaintiffs in their statement of claim relied solely on the Deed of Mutual Covenant as entitling them to the injunction which they now claim. Paragraph 7 of the amended statement of claim reads:

"By Clause 4 of the said Deed of Mutual Covenant the Defendant covenanted to be bound by and shall observe and perform the covenants provisions and restrictions set out in the Second Schedule hereto."

Paragraph 11 of the statement of claim reads:

"Sometime in February, 1976, the Defendant had, in breach of Clause 8 of the said Second Schedule of the said Deed of Mutual Covenant and in breach of its duty as the Professional Managers of the said building, let out and/or caused to be let out the surfaces of the external walls on the side of Flat A the said building for the exhibition of advertisement and have been and still is receiving rental incomes therefrom."

The injunction claimed is one"

"restraining the defendant and/or its servants or agents from letting an/or hiring out the surfaces of the external walls of the said building for the exhibition of advertisements without the prior written consent of the plaintiffs."

Paragraph 8 of the defence admits that the defendant allowed or permitted advertisements to be put up on the external wall on the side of Flat A of the building but claims that it is entitled so to do

"by virtue of its ownership of the said external wall by virtue of the said Sale and Purchase Agreement and the subsequent Assignment thereof between the Defendant as the Vendor and the first purchaser of each factory unit or flat of the said building."

It is because of these averments and because of the way in which the argument before me progressed that I have thought it necessary to make such lengthy reference to the three documents concerned. As will be appreciated it is common case that the plaintiffs had taken over the management of the factory building and that defendant in allowing the external wall to be used for the purpose of advertising did so without the permission of the plaintiffs, the management committee or any professional manager. It is also common case that the defendant continues to be the owner of 19 equal undivided parts or shares of the land and building coupled with the right to occupy one factory flat therein. It is the owner of a factory unit and by Clause 4 of the Deed of Mutual Covenant bound by and obliged to observe and perform the covenants provisions and restrictions set out in Paragraph 8 of the Second Schedule to that deed.

10. Even if the defendant remains the owner of the external walls or retains their exclusive use it has covenanted not to exhibit

"in or upon any factory unit or upon any other part of the said building ... any advertisement ... without the consent of the Management Committee or the Professional Manager in writing first had and obtained."

One may retain ownership or the exclusive use of premises and at the same time agree with one's neighbours not to exercise some of one's rights of ownership or use without the consent of a third party. That to my mind is sufficient to dispose of this matter since the plaintiffs are entrusted with the duty and power of enforcing the Deed of Mutual Covenant.

11. Counsel for the defendant has argued that this cannot have been the intention of the parties and suggests that the Deed of Mutual Covenant exists for two reasons only - firstly to provide for the management of the building and to set up the management committee and secondly to define and regulate rights already granted. I do not consider that the Deed of Mutual Covenant can be so narrowed down. The Agreement upon which the defendant must rely to succeed itself suggests otherwise in Clauses 18 and 34. No such limitations are to be found in the Agreement. Clearly, however, these are the principal reasons for the existence of the Deed of Mutual Covenant. What then are the rights already granted? By the terms of the several assignments executed by the defendant as Vendor each purchaser is granted an assignment of undivided shares or parts of the land, various rights of way etc. to hold absolutely or as joint tenants and is further granted full right and privilege to hold use occupy and enjoy to the exclusion of the defendant and other co-owners a specified portion of the Factory Building and in return grants to the defendant and other co-owners full right and title to hold use occupy and enjoy to the exclusion of the purchasers the remaining factory flats open yards and exterior walls save only the specified portion earlier granted to each. There is therefore reserved to each purchaser the "portion" over which the right and privilege to hold use and enjoy was originally granted to him. This must include the exterior walls to that portion (KOO Cheuk-son v. TANG Wai-chun(1) and Sturge v. Hackett(2)). Mr. Bleach suggests that this cannot be so, if I understand him aright, because of Clause 21 of the Agreement. This clause reserves a right to use and not a right of ownership (as pleaded). No right to hold the external walls is reserved to the defendant by it; the right to hold the external wall enclosing the "portion" allocated to each purchaser is by the Assignment reserved to such purchaser. There is however a clear conflict between the Agreement and the Assignment in that in the one the right to use the external walls in their entirety is reserved to the defendant, while in the other the right to hold use and enjoy the external wall enclosing his "portion" is reserved to the purchaser. As I see it in such a conflict the Assignment must prevail over the Agreement it being the more formal document in that it is under seal and later in point of time, supersedes the Agreement (Millbourn v. Lvons(3)). There is no counterclaim for rectification of it so the Assignment must stand.

12. Mr. Bleach argues that a difficulty arises because of conflict not only between the Agreement and the Assignment but also between the Assignment and the Deed of Mutual Covenant. In the Assignment there are as I have noted grants by the defendant to the purchasers of the right to hold use occupy and enjoy specified portions and a grant back by each purchaser, to the defendant and the co-owners, of the remaining portions, exterior walls being expressly mentioned in the description of those remaining portions but as I have pointed out there is no grant back of the "portion" allocated to the individual purchaser and that portion includes the external walls enclosing the particular flat. In the Deed of Mutual Covenant on the other hand the Mortgagee and Vendor grant to each individual Flat Owner the right to hold use occupy and enjoy a specified self-contained premises described by flat number to the intent that the Flat Owner shall have the rights of an absolute owner the Mortgagee and Flat Owner grant to the defendant the right and privilege to hold use occupy and enjoy a number of other self-contained premises similarly described to the intent that the Vendor shall have the rights of an absolute owner and the Flat Owner grants to the Mortgagee and the defendant still other and different self-contained premises similarly described and to the intent that the Mortgagee and Vendor shall have the rights of an absolute owner. I do not see that there is any conflict between these grants. The introduction of a Mortgagee makes the drafting more complicated but each purchaser (Flat Owner) gets the right to occupy his own flat and gives the right to occupy others just as in the Assignment he gets the same right to occupy his "portion". The right to enjoy the external walls of his particular flat is given in both documents. I see no necessity to consult any other document to assist in the interpretation or construction of these two documents even if they be regarded as executed contemporaneously. They are reconcilable with one another even if they are not easy to reconcile with Clause 21 of the Agreement. That clause as I see it relates to a matter, namely enjoyment of the external walls, which is dealt with by both the Assignment and the Deed of Mutual Covenant so that Hissett v. Reading(4)has no application. I therefore hold that the defendant is not entitled to allow or permit advertisements to be put on the external wall by virtue of its ownership or otherwise. He as an owner for the time being of a factory unit is in any event bound by the Deed of Mutual Covenant and even if he were entitled to the ownership of the external wall is still obliged to obtain the consent of the management committee or the professional manager before exhibiting any advertisement on it.

13. There must be judgment for the plaintiff for the injunction claimed with costs.

(P.F.X. Leonard)
Judge

Representation:

Mr. M. Mok (Maurice Lee * Co.) for plaintiff.

Mr. J. Bleach (P.H. Sin & Co.) for defendant.

(1) (1963) H.K.L.R. 891 at page 901.

(2) (1962) All E.R. 166 at page 172.

(3) (1914) 2 Ch. 213.

(4) (1970) 1 All E.R. 122.