Wong Chun Kei Johnny and Others v. Poon Vai Ching and Others
Read the full judgment text of HCMP 4322/2002 on BabelCite. This Court of First Instance judgment was delivered on 6 January 2005 before Recorder Fok SC.
Property law – co-ownership – Partition Ordinance (Cap.352) – sale of land – section 6(1) and section 6(3) – section 2(c) power to refuse to make any order – Villa Splendour, 9-12 Chun Fai Terrace, Hong Kong – four three-storey blocks of 12 flats built in 1964 – co-owned by 12 owners as tenants in common in equal undivided 1/12th shares under a Deed of Mutual Covenant dated 23 June 1964 – physical partition impracticable under section 4(2) because the buildings are not self-contained – nine plaintiffs (75% of shares) applied for an order for sale – 1st and 2nd defendants opposed – 3rd defendant neutral – whether order for sale should be made – whether co-owners can sell individual flats under the Deed of Mutual Covenant – whether the Land (Compulsory Sale for Redevelopment) Ordinance (Cap.545) 90% threshold is a relevant benchmark – The court's jurisdiction under the Partition Ordinance – three separate and distinct powers under section 2: partition under section 4, sale under section 6, or refusal to make any order under section 2(c) – per Trainor J in Pun Jong Sau v. Poon Wing Kong [1980] HKLR 662, the primary intention of the legislation is to enable an unwilling co-owner to rid himself of the shackles of co-ownership – test for refusing to make any order: interests of all parties better served by continuing to remain co-owners, or where making an order would result in very great hardship to one co-owner (Fook Sun Enterprises Co. Ltd v. Cromwell Investment Co. Ltd; Chow Doi Kwai v. Chan Cho Yuk; Ip Sau Shu v. Sham Lai Hing; Beautiglory Investment Ltd. v. Tang Moon Sum & Ors) – burden lies on the opposing co-owners to show that sale will not be beneficial to all – the property is in a state of disrepair with water seepage, corroded concrete and reinforcement, outdated electrical and plumbing systems, with estimated renovation costs of about HK$356,250 per owner – the nine plaintiffs entered conditional sale and purchase agreements with Fully H.K. Investments Limited (the Developer) for prices between about HK$11.18 million and HK$12.9 million per flat and received non-refundable deposits of 20% of the purchase price – the Developer's valuation of the site for redevelopment was HK$275.5 million – open market value of individual renovated flats: HK$6.985 million to HK$8.55 million; unrenovated: HK$2.96 million to HK$3.98 million – court accepted that the plaintiffs, with their non-refundable deposits, have the means to fund the renovation and substantially increase the value of their flats – clause 10 of the Deed of Mutual Covenant permits each owner to sell their flat individually without reference to the other owners – this is a very weighty factor against ordering sale – 2nd defendant (Sawlani family) occupies its flat as a family home and does not wish to move – forcing sale would cause very great hardship – detriment is not confined to pecuniary benefit but includes practical detriment such as being forced to leave one's home (per Deputy Judge Muttrie in Beautiglory) – the Land (Compulsory Sale for Redevelopment) Ordinance (Cap.545), which requires 90% majority for compulsory sale, was treated as a useful benchmark supporting the view that a very high proportion of owners should be in favour of a sale before a court would order one in a multi-owner development of flats subject to a DMC – the plaintiffs' financial gain of about HK$2 million to HK$2.3 million per flat from a court-ordered sale is outweighed by the very great hardship to the Sawlani family and, to a lesser extent, the 1st defendant – plaintiffs' application dismissed – court exercises power under section 2(c) to refuse to make any order – costs ordered against the plaintiffs with a certificate for two counsel.
Legal issues: Whether to order sale of jointly-owned property under section 6(1) of the Partition Ordinance · Whether the ability of co-owners to sell individual flats under the Deed of Mutual Covenant deprives the court of jurisdiction to order sale
Outcome: Plaintiffs' application for an order for sale under the Partition Ordinance dismissed; the Originating Summons is dismissed and the court exercises its power under section 2(c) to refuse to make any order.; Plaintiffs' Originating Summons dismissed; Order nisi that the plaintiffs pay the defendants' costs of the Originating Summons, to be taxed if not agreed; Such costs to include the costs of the hearing of 12 July 2004 reserved by Deputy Judge Saunders; Certificate for two counsel
Cited by 68 cases · Cites 4 cases
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HCMP4322/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO.4322 OF 2002 --------------------------- BETWEEN
------------------- Before : Recorder Fok SC in Court Dates of Hearing : 6-10 and 14 December 2004 Date of Judgment : 6 January 2005 ----------------------- J U D G M E N T ----------------------- The Property 1.Villa Splendour, 9-12 Chun Fai Terrace, Hong Kong (“the Property”) was built in the early 1960’s and completed in 1964. The Property is situated on a piece or parcel of ground lying and being at Tai Hang, Hong Kong and registered in the Land Registry as Section A of Inland Lot No.3565. The Property consists of four blocks of flats, each block having three floors with one flat on each floor, making a total of 12 flats. The flats range in size from 1,587 square feet to 1,822 square feet. 2.The Property is arranged in an “L”-shaped configuration with Blocks 1 and 2 (which are Nos.11 and 12 Chun Fai Terrace) sharing a common staircase between the two flats on each floor, and Blocks 3 and 4 (which are Nos.9 and 10 Chun Fai Terrace) sharing another common staircase between the two flats on each floor. Access to the property is via a sloping driveway off Tai Hang Road. Block 1 (No.12) is at the lowest point of the driveway and the driveway climbs in a right-hand curved direction until it reaches Block 4 (No.9) at its highest point. Due to the topography of the site, the ground floor flats of Blocks 3 and 4 are at the driveway level whereas the ground floor flats of Blocks 1 and 2 are at the 1st floor level with a carport situated underneath. 3.The plaintiffs and the defendants co-own the Property, as tenants in common, with each owner having an equal and undivided 1/12th share of the property. Each owner has the exclusive right to the use, occupation and enjoyment of one of the 12 flats, and also, with one exception, one of the carparking spaces demarcated at the carport below the flats, under a Deed of Mutual Covenant dated 23 June 1964. The following table identifies the parties and the flats and carparking spaces owned by each :
The Application 4.The plaintiffs, who were represented at the hearing by Mr Patrick Fung SC leading Mr P.Y. Lo, seek an order under section 6(1), alternatively under section 6(3), of the Partition Ordinance (Cap.352) for the sale of the Property and for directions pertaining to such sale. The 1st and 2nd defendants, who were represented at the hearing by Mr Kevin Egan leading Ms Jay Ma, oppose the application for an order for sale. The 3rd defendant, who was not represented at the hearing and did not attend, indicated by correspondence that it did not intend to take part in the hearing but did not oppose the relief sought by the plaintiffs. 5.The papers in this matter were duly served on the Director of Lands as required under section 3(2) of the Partition Ordinance. In response, by letter dated 25 November 2002, the Director of Lands stated :
6.By a further letter dated 23 November 2004, the Director of Lands indicated that the Government’s position remained unchanged from that stated in the letter of 25 November 2002. The Secretary of Justice has not applied to be joined as a party under section 3A of the Partition Ordinance, nor has the Director of Lands filed a memorandum under section 3B of the Ordinance. Relevant provisions of the Partition Ordinance (Cap.352) 7.The following provisions of the Partition Ordinance are relevant to the discussion of the issues in this matter :
The basis of the application 8.It is common ground between the parties that the Property cannot be partitioned under section 4(1) of the Partition Ordinance because, for various reasons that I need not set out, the buildings making up Villa Splendour are not self-contained and the court could not partition the Property without offending the provisions of section 4(2) of the Ordinance. 9.Given that partition of the Property is impracticable, the plaintiffs seek an order for sale of the Property on the basis that, considering objectively all relevant factors, it cannot be shown that an order for sale of the Property will not be beneficial to all the co-owners. On the contrary, say the plaintiffs, an order for sale of the Property will be beneficial to all the co-owners for the following reasons (as set out in the plaintiffs’ written opening submissions) :
The conditional sale and purchase agreements entered into by the plaintiffs 10.As adverted to in the reasons relied upon by the plaintiffs for an order for sale of the Property, the nine plaintiffs each entered into conditional sale and purchase agreements between January and April 2002 with Fully H.K. Investments Limited (“the Developer”) whereunder they agreed to sell their flats to the Developer for prices of between about $11.18 million and $12.9 million. Under the terms of the conditional sale and purchase agreements, the plaintiffs as vendors were to receive an initial deposit of $100,000 with the balance of the sale price being payable on completion. Completion was to be postponed to enable the co-owners who had entered into conditional sale and purchase agreements to apply to the court for an order for sale of the Property under the Partition Ordinance. The plaintiffs undertook to institute proceedings seeking an order for sale under the Partition Ordinance at the Developer’s request. The Developer agreed to bear all legal expenses incurred in relation to the legal proceedings. 11.A further agreement dated 23 July 2004 was entered into between the Developer and the nine plaintiffs whereunder the conditional sale and purchase agreements were varied. It is sufficient for the purposes of this judgment to note that the effect of this agreement was that the deposit payable to each of the plaintiffs was increased to 20% of the purchase price for their individual flats under their respective conditional sale and purchase agreements and was to be paid on or before 30 July 2004. That increased deposit of 20% of the purchase price would be non-refundable even in the event that the plaintiffs were to be unsuccessful in the present application for an order for sale under the Partition Ordinance. The court’s jurisdiction under the Partition Ordinance (Cap.352) 12.The court’s jurisdiction when proceedings are brought under the Partition Ordinance is set out in section 2. Where any property in land is held by two or more persons, whether as joint tenants or tenants in common, the court may (i) order a partition of the property under section 4, (ii) order a sale of the property under section 6, or (iii) refuse to make any order. 13.Where land is held by two or more persons as joint tenants or tenants in common, any person interested in the property may institute proceedings under the Partition Ordinance by way of an action for partition or sale : section 3(1). In any such proceedings, whether an application for partition under section 4(1) or for sale under section 6(1), the court has jurisdiction to consider exercising any of the three powers conferred on it by section 2. These are three separate and distinct powers and the inter-relationship between sections 2, 4(1), 6(1) and 6(3) is clearly and helpfully set out in the judgment of Trainor J in Pun Jong Sau v. Poon Wing Kong [1980] HKLR 662 at 670 :
14.In Pun Jong Sau, Trainor J examined the history of the development of the law pertaining to partition in England and Hong Kong in order to ascertain the intention behind the legislative scheme under the Partition Ordinance. He noted that partition was a common law right that was extended by Act 31 Henry VIII c.1 to joint tenants and tenants in common in freehold estates of inheritance. By Act 32 Henry VIII section 32, the right was further extended to include co-owners whose interest was in a life estate or a term of years, but that Act provided that partition would not be ordered if it were prejudicial to persons who were not parties to the proceedings. Whilst the rigidity of the right to seek partition was relaxed in England by the Partition Act 1868, which provided that a sale might be ordered instead of partition if that appeared to the court to be more beneficial to the parties interested in the property, and also by the Partition Act 1876, these developments did not apply to Hong Kong. Hence, at p.665 of Pun Jong Sau, Trainor J observed :
15.Having examined the history of the development of the law in England, Trainor J then considered the enactment of the Partition Ordinance in Hong Kong in 1969. He concluded that, under the law applicable in Hong Kong prior to 1969, a partition of land was compellable by a co-owner, but that when the Ordinance was enacted in 1969 and in order to mitigate the consequences of partition or sale being compellable, the court in Hong Kong was given power to refuse to make an order, be it for partition or sale. At p.667-668, Trainor J said :
And further, at pp.668-669, Trainor J said :
16.As to the circumstances in which the court will exercise its power under section 2(c) of the Partition Ordinance to refuse to make an order for partition or sale, the test is that set out in the judgment of Briggs CJ, sitting at first instance, in Fook Sun Enterprises Co. Ltd v. Cromwell Investment Co. Ltd & Ors [1973-1976] HKC 335 at 337H-I :
17.Although the decision in Fook Sun was overturned by the Full Court, see [1976] HKLR 1, none of the judges suggested that this approach to section 2(c) was wrong. It has since been endorsed by Yam J in Chow Doi Kwai v. Chan Cho Yuk [2000] HKLRD 235 at 237D-G and by Deputy Judge Poon in Ip Sau Shu v. Sham Lai Hing [2003] 4 HKC 528 at 540 §36. It was also endorsed, in substance, by Deputy Judge Muttrie in Beautiglory Investment Ltd. v. Tang Moon Sum & Ors, HCMP531/1989, 10 December 2003, unrep. at §43. 18.These passages from the cases cited above were relied upon by Mr Fung SC to support the following propositions, namely :
19.Subject to adding the qualifications, “if he has no other remedy,” before the words “ask for an order for partition or sale” in proposition (1), and “or that it will result in very great hardship to one co-owner” to the end of proposition (2), I am satisfied that these propositions fairly and accurate state the law as regards the court’s jurisdiction when faced with an application for partition or sale under the Ordinance and I shall proceed in this judgment to apply those propositions in resolving the plaintiffs’ application. The witnesses and evidence 20.Directions were given on 26 April 2004 that the evidence of witnesses by affidavit or affirmation filed in the proceedings and the reports of the experts should stand as the evidence in chief of the deponents and makers of the reports, subject to their being made available for cross-examination at the substantive hearing. 21.The plaintiffs filed affirmations of the following :
22.The plaintiffs also filed the following expert reports :
23.By summonses dated shortly before the commencement of the hearing, the plaintiffs applied for leave to adduce (i) a supplemental report of Mr Liu, (ii) a supplemental report of Mr Dennis Pho, (iii) two affirmations of Mr Shuen Seen Hoi, Kevin, relating to the service of papers in these proceedings on the Director of Lands and the position of the latter in respect of the plaintiffs’ application. In addition, at the commencement of the hearing, the plaintiffs applied for leave to file a 2nd supplemental report of Mr Liu, and witness statements of Mr Mak Chun Wah, David and Madam Chow Chun Lai. For its part, the defendant sought leave at the commencement of the hearing to adduce the statement of Poon Yiu Chung, Eugene by way of hearsay evidence. None of these applications being objected to, I gave leave accordingly. 24.At the hearing, both sides called witnesses of fact and expert witnesses. For the plaintiffs evidence of fact was given by (i) Mr Mak Chun Wah, David, (ii) Madam Chow Chun Lai, and (iii) Madam Wong Fung Yee. 25.The plaintiffs also called expert evidence from (i) Mr Dennis Pho Tjie Tjao, an Authorized Person and Registered Structural Engineer, formerly an associate of Wong Pak Lam & Associates and now operating a building construction consultancy, (ii) Mr Wong Chun Fat, of Widnell Ltd, a quantity surveyor, and (iii) Mr Liu King Tong of K.T. Liu Surveyors Limited, a chartered surveyor and property valuer. 26.The defendants called one witness of fact, Mr Yeshma Gobindram Sawlani, a director of the 2nd defendant, the owner of G/F Block 3, and one expert witness, Mr Michael R. Mann, of MRM Consultants Limited, a chartered surveyor and property valuer. The expert evidence 27.The general thrust of the plaintiffs’ expert evidence was that Villa Splendour is in a state of disrepair and that major renovation works would be required to bring it back to an acceptable standard. 28.Mr Dennis Pho assisted his Managing Director to prepare the report of Wong Pak Lam & Associates. He gave evidence that the state of the property was similar to other buildings built about the same time. He inspected the property in May 2002, and in general he found Villa Splendour to be very lacking in maintenance and noticed quite severe leakages of water in the roof and concrete defects in the carpark floor as well as the roof. He found the piping and the electrical wiring to be in quite poor condition. He described four specific tests that he had caused to be carried out following his inspection of the property :
29.When asked what parts of his observations in his report that he wished to emphasise, Mr Pho said that when he went to inspect the building most parts were covered by decorative material so it was not possible to see what was behind these decorations. There were signs of seepages and of damp. He presumed from this that the problematic areas were larger than what he could discern from a visual inspection. Mr Pho gave evidence about a severely corroded concrete beam in 2/F Block 4. Having seen the beam he recommended to the owners that they immediately put up a support for the beam as it was in a very dangerous state. He said that there was a risk of the beam collapsing. Mr Pho emphasized the long term and widespread water leakage which would be difficult to remove from the concrete and would cause the reinforcing bars to rust, in turn causing spalling of the concrete. Waterproofing material would be a short term method of repair but would not be for the long term. 30.Mr Pho was referred to the Parsons Brinckerhoff (Asia) Ltd survey report on the electrical installation and plumbing and drainage installation and said that he basically agreed with it and that it was consistent with his own observations. That report made various recommendations for the electrical installation and plumbing and drainage installation, including the replacement of the flushing water system. 31.Mr Pho explained that his supplemental report was responding to that of the defendants’ expert Mr Michael R. Mann. It also referred to letters issued to the owners of Villa Splendour in 2003 and 2004 concerning suspected defective storm water drains, and also to correspondence with Hong Kong Electric Co. Ltd. He made the point that Mr Mann’s report was based solely on a visual inspection and not on specific laboratory tests, as his was. The condition of the property on his second inspection was similar to what he observed during his first inspection two or three years before. He indicated that the state of the retaining wall at the rear of Villa Splendour, adjacent to Dragon Garden, was a matter of concern to him. He said that the cracks on the retaining wall and the dislocation of the facing stone signified danger and recommended that the owners carry out investigative work and analysis for the maintenance of the wall. He referred to letters that had been issued by the Buildings Department concerning the drainage system. Whilst this was not a major operation, it was possible that if there was leakage from the manholes and the slope was shown to be unstable because of that, any slope damage might be made the responsibility of the owners of Villa Splendour. If the stability of the slope was affected, this was a serious problem as the slope could collapse without warning. Another concern of Mr Pho’s was a further retaining wall beside Block 3 at the top of the private road leading around Chun Fai Terrace. He noticed some recent cracks and settlement in the cement. On checking, Mr Pho discovered that there was a recommendation by the Government’s Geo-technical office that a dangerous hill order be issued in respect of this retaining wall. Although the slope was the responsibility of the owners of an adjacent lot, Mr Pho said this was liable to become dangerous and that the owners of Villa Splendour needed to carry out investigations of the cracks and settlement on the road in their property. 32.Mr Pho remained of the opinion that the conclusions and recommendations in his first report remained valid. He emphasized that because Mr Mann’s report was just visual, it was not possible to tell the extent of deterioration. Mr Pho gave evidence that the list of repair works which Widnell Ltd had based their measurements of quantities was prepared by him. 33.In cross-examination, Mr Pho acknowledged that the retaining wall at the rear of Villa Splendour, adjacent to Dragon Garden, was being monitored by the Government and that was why it had issued the order to repair the drainage. As regards Mr Mann’s report, Mr Pho acknowledged that he and Mr Mann were quite close in some senses as regards their observations as to the condition of Villa Splendour. Both agreed that Villa Splendour was an old building that had not been well maintained in recent years. He accepted that the people who had asked him to comment on the state of the dilapidation were the ones who by their inaction had contributed to the dilapidation in the first place. He confirmed that in the recommendations in his first report he set out the list of things that needed to be done to bring the building up to standard. He stated that the normal design life for a building like Villa Splendour was about 50 years. When re-examined, he stated that a building’s life expectancy depended on whether there was a major refurbishment and continuous regular maintenance but assuming this a reasonable life would be about 60 years. This did not mean that the building would meet modern standards and he gave the example of the need to change the flushing water system from fresh water to salt water to meet modern Government regulations. 34.Mr Wong Chun Fat gave evidence that he produced the preliminary costs estimate report of Widnell Ltd. based on the expert reports of Wong Pak Lam & Associates and Parsons Brinckerhoff (Asia) Ltd. His report indicated a total of $4.275 million for those repair works. He said that in his experience the actual costs would be higher than the preliminary cost estimate but would not go up by too much. He considered that his cost estimate of $4.275 million should be adjusted upwards by about 5% for inflation to about $4.5 million. 35.Mr Wong was asked to comment on the differences between his estimates and those of Mr Mann. Mr Mann’s report indicated total costs of $2.345 million for the repair works assuming only a portion of the roofs were reconstructed, and a total of $3.185m if all four roofs were reconstructed. Mr Wong reconciled the differences by reference to individual items that were excluded from Mr Mann’s second alternative and arrived at a figure which was only $89,000 less than Mr Wong’s total. Mr Wong’s evidence was that the amount the each owner would need to spend would be $356,250. In cross-examination, Mr Wong accepted that the basic difference between his estimate and that of Mr Mann was that he had calculated the cost of the repairs that Wong Pak Lam & Associates and Parsons Brinckerhoff (Asia) Ltd had told him needed to be done. If the items that Mr Mann had excluded were added back to his second alternative calculation, the difference between him and Mr Wong was only $89,000. 36.Mr Liu King Tong gave evidence based on this three valuation reports for the property :
37.In his oral evidence, Mr Liu opined that it would take time in the present market to achieve the revised values for the units in Villa Splendour that he set out in his second supplemental report because the property is in a dilapidated state with leakage. He considered that banks would be reluctant to lend against a mortgage of the property due to its age. Mr Liu also gave evidence, by reference to a newspaper advertisement, about the adjacent development of Tiger Balm Garden next to Villa Splendour. This would be a large development consisting of four blocks with a total of 376 flats ranging in size from 1,500 to 2,000 square feet and with some units of 3,000 to 3,800 square feet and duplexes of 4,000 to 7,000 square feet. The flats would commence on the 17th floor of the development and the floors below that would consist of the carparking floors and clubhouse facilities. 38.In cross-examination, Mr Liu accepted that the sole reason for the downward adjustment in the open market value of the individual units between his November 2004 report and his December 2004 report was the instruction that he consider the consequences of the owners not carrying out the recommended repair works. Based on that single variation in the valuation criteria, the values of the properties went down by between $4 million and $4.5 million. He accepted the evidence of the plaintiffs’ expert that what each of the owners would have to spend to bring the premises up to a top category of refurbishment was $356,250 and that the effect of his evidence was that because the individual owners were not prepared to spend $356,250 they reduced the value of their properties by between $4 million and $4.5 million. 39.The defendants’ expert Mr Mann accepted that the decorative appearance of Villa Splendour was rather shabby and that there had obviously been no overall maintenance programme in existence on behalf of all the owners. However, he found that the overall condition of the four buildings to be much better than he had expected, having read the plaintiffs’ experts’ reports prepared in 2002. Although the property was old, its main fault had been the lack of regular maintenance which over the years had resulted in the weather-beaten looking appearance the development now had. He was confident that this could be successfully upgraded at a reasonable cost to the owners. His estimate of the costs of the works he considered to be necessary was a total of $2.345 million or $195,420 per owner (if the roofs were not to be replaced) or $3.185 million or $265,420 per owner (if the roofs were to be replaced). 40.In his oral evidence, Mr Mann accepted that he was not far apart from the plaintiffs’ experts in terms of the scope of work envisaged. He agreed, by reference to a vehicular analogy that was put to him by Mr Egan, that the plaintiffs’ experts’ recommendations were to refurbish the property to a luxurious standard, whereas his recommendations were to refurbish on the basis of doing what needed to be done. The difference between the plaintiffs’ experts’ estimate of $356,250 per owner and Mr Mann’s $265,420 per owner was mainly the result of the work to upgrade the water supply, which was an area he had not envisaged being done. It was his opinion that the original quality of the structure was good and the real problem was the lack of maintenance. If it had been regularly and properly maintained, it would not be in the condition it was now. He said it was correct to assume that the building was not in a state that it was likely to be condemned any time in the near future. His opinion was that the life expectancy of the building was between 60 to 80 years. He considered that if the repair works were done to the standards recommended by the plaintiffs’ experts, this would add to its life expectancy but only if in addition to the refurbishment there was regular maintenance in which case it could go on 15, 20 or even 30 years. 41.In cross-examination, Mr Mann accepted that his inspection was only visual. He accepted that the four tests employed by Mr Pho were quite commonly used but not for a general survey. He would only have suggested them if he found the building to be in exceptionally poor condition or dangerous, but he did not see anything in the plaintiffs’ experts’ reports to indicate they thought that to be the case. Mr Mann considered that it was not the case that rusting of the concrete reinforcing bars was extensive because there was no sign of spalling. He maintained that the only structural defect he saw was in 2/F Block 4 where a support had been erected. Elsewhere he found the concrete to be in pretty good condition. He agreed that many parts of the premises he inspected were covered by wallpaper but based on his experience he felt able to say that he could discern defects behind wall coverings. He agreed with the observations in Mr Pho’s supplemental report about the conditions of the various flats. As to the difference between his costs estimate and that of Mr Wong’s, he agreed with Mr Wong’s reconciliation of the difference as being that he had not taken into account the beam in the top floor of Block 4 because he had thought that it was for the individual owner to repair rather than the incorporated owners as a whole. He also agreed with the plaintiffs’ experts that the basic problem of the property was that there had been a lack of maintenance on a long term basis. The factual evidence 42.The factual evidence dealt principally with the history of Villa Splendour, the management of the property and to a lesser extent, its condition and value, which was the subject matter of the experts’ evidence. 43.Mr Mak gave evidence that he had lived at 1/F Block 2 since 1964. Prior to the establishment of an incorporated owners association, each owner took it in turns to manage the property for a period of three months. Basically, this involved collecting management fees, paying the watchman, and paying the communal charges for water, electricity and the telephone. An elderly person was responsible for collecting rubbish from the 12 occupants and the occupants were each individually responsible for his fees. Prior to 1993, all the property owners were willing to take turns to manage the property for three months. In 1993, the owner of the G/F Block 3, surnamed Tang, sold his property to the 2nd defendant and a Mr Gary Sawlani and his family moved into the property. As from that time, the owners responsible for managing the property in turn encountered difficulties in obtaining payment of the management fees from Mr Sawlani. This situation lasted for almost three years until 1996. At that point, the other 11 owners met to discuss the problem and concluded that a solicitor’s letter should be sent to chase for payment from Mr Sawlani and that the owners should set up an incorporated owners association. Mr Mak explained that Mr Sawlani opposed the other owners’ application to the Lands Tribunal to establish an incorporated owners association. Eventually, in 1997 an incorporated owners association was formed and Madam Chow Chun Lai became the first chairperson until 1999 when Mr Mak was elected to replace her. Mr Mak gave evidence that on one occasion, the incorporated owners required permission to enter Mr Sawlani’s flat to carry out drainage work relating to the common parts of the property but Mr Sawlani refused access to his property and the work was not done. 44.Mr Mak gave evidence that relatively little external maintenance work was done at the property because some of the property owners disagreed and when there was a disagreement they could not carry out the works. Mr Mak explained that several months after setting up the incorporated owners association, the owners engaged a property management company to carry out the management of the property. The management fees were currently $1,700 and the management company employed only a night watchman, there not being sufficient money to employ a watchman for the daytime as well. As regards the payment of management fees by the 2nd defendant in respect of G/F Block 3, since becoming chairman of the incorporated owners association, Mr Mak said that basically when they chased the owner they were able to collect it. He explained that the management company had told him that the 2nd defendant was generally two months behind in its payments of management fees. 45.Mr Mak gave evidence that the owner of G/F Block 1, the 1st defendant, was in arrears of over six months in the payment of management fees. He testified that he had not seen Mr Eugene Poon once this year and did not think that Mr Poon lived in the flat which was occupied by two Filipino domestic helpers. Mr Mak was shown in cross-examination a letter dated 8 December 2004 from a firm of solicitors acting for the 1st defendant indicating that a cheque for $11,900 had been issued in favour of the management company of Villa Splendour to clear the arrears of management fees. During a short adjournment, he was able to confirm with the management company that what he believed was this cheque had been received by it. 46.Mr Mak gave evidence that the incorporated owners association had commenced legal proceedings against the 2nd defendant in respect of an illegal structure which had enclosed a part of the common area at the podium level at the rear entrance of block 3. These proceedings were taken when the 2nd defendant refused to remove the enclosure that had been erected in response to a letter sent in 2002. Mr Mak referred to a letter from the 2nd defendant asking for time to demolish the structure and undertaking to do so by 31 December 2007. The incorporated owners association did not agree to this request. 47.Mr Mak also gave evidence about an occasion in 1999 when Hong Kong Electric Co. Ltd had requested the incorporated owners association to carry out repairs to the electrical wiring and installations in the common areas of the property. However, this work was never done because the sum of $18,500 that was required from each owner could only be collected from 10 of the 12 owners. Mr Mak accepted in cross-examination that the 2nd defendant had been one of the owners who had contributed its share of $18,500 for the repairs of the communal electrical installations at Villa Splendour in August 1999 and that the 2nd defendant’s cheque had been returned to it because of other owners’ refusal to contribute and the consequent need to abort the electrical repairs. 48.Mr Mak also testified that in around 2001 there was a letter from the Buildings Department requesting the owners of Villa Splendour to carry out repair works to a storm water drain under the driveway belonging to Dragon Garden. After initial resistance, repair works were carried out on behalf of the incorporated owners association on the smaller of the two drainage pipes. Since then, the Buildings Department have written to the incorporated owners requiring them to carry out further work involving the drainage at two manholes. Inspection works have indicated work may need to be carried out but Mr Mak was not clear about the extent of the work required. If major work had to be done, Mr Mak anticipated difficulties in collecting the costs from the owner of 1/F Block 1. 49.Mr Mak had not decorated his flat in over 10 years because when he last considered doing so, two years ago, his decorator indicated that there was water seepage and mould on his walls caused by leaks in the external walls of the property and that it was not worth his while to decorate the interior of his flat because unless major external repairs were carried out, water would continue to leak into his flat. Mr Mak also gave evidence that after heavy rain, water would leak into the staircase landing outside his flat. 50.In cross-examination, Mr Mak confirmed that most of the illegal structures complained of in respect of G/F Block 3 had in fact been erected by the previous owner, a Mr Tang. Whilst he disputed that the other owners had consented to Mr Tang erecting the enclosures he had, he confirmed that no one had taken proceedings against Mr Tang to have the structures removed. The proceedings against the 2nd defendant were commenced in 2004. Equally, he accepted that the area enclosed by G/F Block 4 was probably common area but that there was no discussion in the management committee concerning that enclosure and it had been erected long before 1994. At no stage did the management committee or the incorporated owners association ever write to the 3rd defendant to demand that it pull down the illegal structures and quit occupying the common areas it had enclosed. Mr Mak disagreed with the suggestion that the reason there were proceedings against the owner of G/F Block 3, the 2nd defendant, but not the owner of G/F Block 4 was that the plaintiffs regarded the 2nd defendant as the reason why the property could not be sold to the Developer at a high price and that the whole purpose of the proceedings was to put pressure on the owner of G/F Block 4 to sell. 51.Mr Mak was referred in cross-examination to the sale and purchase documentation between the plaintiffs and the Developer. He confirmed that he had received a non-refundable deposit of $2.5 million which he could keep even if the action was unsuccessful and a sale of the property was not ordered. He also confirmed that all the costs of this action were being underwritten by the Developer on an indemnity basis so that none of the plaintiffs had to incur any costs for this action. It was suggested to him that it would be a simple and affordable matter for him now to spend the $356,250 that the plaintiffs’ experts said was required to refurbish the property and thereby increase the value of his flat, with which suggestion he disagreed. When he was re-examined, he expanded at some length on the reasons why he disagreed with this. The gist of his answer was that there were three reasons why it was not a simple and affordable matter for the owners to spend the money to refurbish the property. First, Villa Splendour is a 40-year-old building and it would not be reasonable to spend a large sum of money to renovate it because the structure would remain an old building and new problems would continue to occur. Second, many of the occupants are elderly retirees with no income who do not want to spend their money renovating the building and possibly having to incur further expenditure to continue to maintain it. Moreover, the other three owners who had not entered into agreements with the Developer that would provide them with a non-refundable deposit might not be willing to contribute and from his past experience it would be difficult to secure their co-operation in making payment. Third, the refurbishment would involve an onerous management responsibility for the owners, as they could not simply rely on the management company to oversee the work. From his experiences as chairman of the incorporated owners association, he would not want to shoulder responsibility for the refurbishment programme, nor did he think that Madam Chow or any of the other owners would be willing to do this. 52.Madam Chow gave evidence that she and her husband purchased 1/F Block 4 in 1994. After moving in, she made inquiries of Madam Wong Fung Yuen, the owner of G/F Block 2, who explained that the owners took it in turns for three months at a time to be responsible for the collection of management fees. When she moved in the management fees were about $300 per month and when she became the chairperson of the incorporated owners association, the management fees were increased to $400 per month. Madam Chow and her husband became responsible for collecting the management fees from the owners and to take care of the expenses of the owners from these fees. She explained that after she moved into Villa Spendour in 1994 her experience was that the owner of G/F Block 3, which was occupied by Mr Sawlani, would not pay the monthly management fees and that he was eventually in arrears in the payment of management fees to the tune of $36,000. Madam Chow said that Mr Sawlani evaded her attempts to discuss the matter with him and she eventually spoke to his wife sometime after the formation of the incorporated owners association. This led to an agreement by Mr Sawlani to pay half of the outstanding sum, $18,000. Madam Chow said that the other half of the outstanding sum was simply written off by the other owners. 53.Madam Chow described the establishment of the incorporated owners association, which she initiated in 1995 or 1996. She explained that when the application was made to establish the incorporated owners association, Mr Sawlani objected and the matter had to go to the Lands Tribunal. She said that as a result of the objection, the other owners incurred legal costs of $18,000 which they were never able to recover. However, the incorporated owners association was formed. After the formation of the incorporated owners association and the payment of $18,000 by Mr Sawlani, it was still necessary to chase for payment of the management fees from him. 54.In 1999, Madam Chow moved out of Villa Splendour for about a year and she and her husband rented out their flat. She had engaged a management company to manage Villa Splendour and she persuaded Mr Mak to take over the incorporated owners association as chairman. She understood that for the first month or two after Mr Mak took over the owner of G/F Block 3 did not pay the management fee and that solicitors’ letters chasing for payment had to be sent. 55.Madam Chow described the occupant of G/F Block 1, an elderly man named Mr Poon. She said that after Mr Poon passed away, his grandson Mr Eugene Poon moved in for a very short period of time. She described an occasion at around midnight on the eve of the Lunar New Year when she was alerted by the watchman to flooding in the lobby area of Block 1. She said that after knocking at his door for some time, Mr Eugene Poon came to the door and went with her to the main switch to turn off the water supply to his flat, from whence the leaking was coming. Madam Chow said that Mr Eugene Poon simply returned to his flat and left her and the watchman to clean up the flooding in the lobby which took until about 3 o’clock in the morning. 56.Madam Chow gave evidence about a meeting that took place in 1999 at which the possible sale of Villa Splendour to a developer for redevelopment was discussed by 10 of the owners. She said that Mr and Mrs Sawlani both attended. At the meeting, the owners apparently resolved to sell. Madam Chow said that Mr and Mrs Sawlani indicated that if everyone was willing to sell then they too would be agreeable to a sale. However, Mr and Mrs Sawlani later refused to sell. 57.Madam Chow said that she had tried to sell her flat in the past but that when she put her property on the market potential purchasers made no counter-offers after having viewed the property. She produced as exhibits various photos showing the condition of the property and the proximity of Villa Splendour to the neighbouring developments. She also produced a sample of material through which tap water from the pipes at Villa Splendour had been run to show the discolouration of the water. Madam Chow testified that it would be difficult to collect a sum of as much as $200,000 to $300,000 from each of the owners to undertake major renovation works. 58.In cross-examination, Madam Chow agreed that there was nothing to stop her and the other owners from selling their individual flats at any time if they found a willing buyer. She disagreed, however, that the plaintiffs were using these proceedings to force the reluctant defendants to sell so that the owners could make more money out of a sale for redevelopment rather than individual sales. She was taken through the terms of her sale and purchase agreement with the Developer and confirmed that the agreement obligated her to commence the present action seeking an order for sale under the Partition Ordinance. Having been reminded of the provisions of the agreement, she recalled that she was not required to pay any costs towards the conduct of this action. She confirmed that she had received an initial non-refundable deposit of $100,000 and that by way of a supplemental agreement the non-refundable deposit for each of the nine plaintiffs was increased to 20% of the sale price and had been paid. In her case, she had received $2.236 million. She disputed that the owners were now in a position to carry out the refurbishment of the property because she did not think that the incorporated owners would use their powers under the Buildings Management Ordinance to force unwilling owners to contribute to the costs of the refurbishment. 59.Madam Wong Fung Yee gave evidence that she had lived at G/F Block 2 since May 1964. She confirmed that in the period between 1964 and 1993 the property was managed by the owners taking turns to be responsible for the management for a period of three months. She said that prior to 1993 there were no problems encountered in the collection of management fees. After 1993, when Mr Sawlani moved into G/F Block 3, he refused to pay the monthly management fee and the man who collected the rubbish told her that Mr Sawlani refused to pay him as well. Madam Wong told Madam Chow about the problem and she pursued the arrears of $36,000. Madam Wong said she had decorated her unit over 20 years ago and that it was discovered then that there was a problem with water seeping into her flat from the wall next to her front door. She also described how the concrete fell off the ceiling in her flat exposing the steel reinforcing bar and causing the chandelier to fall down. She said she had not thought about selling her flat before 2002, despite having been offered $20 million for it in 1993. She said she signed the sale and purchase agreement in 2002 because the building was in a dilapidated state and it was dangerous to go on living there. She gave evidence of having been burgled once in October 2002. In cross-examination, Madam Wong confirmed that she had received a non-refundable deposit of $2.52 million under the sale and purchase agreement she had entered into with the Developer. 60.Mr Yeshma Gobindram Sawlani (“Mr Sawlani Jr”) gave evidence that he was a director of the 2nd defendant, the owner of G/F Block 3. He said that the property was purchased in 1993 as a family home. He lived there with his father and step-mother and his step-brother and step-sister. His father and step-mother were still living there although his step-brother and step-sister were studying in Australia. He had moved out about eight years ago when he bought his own flat but, having recently sold that property, he was planning to move back in March next year. When cross-examined, Mr Sawlani Jr claimed that he did not get involved in relation to the management fees and was not aware that at one stage a sum of $36,000 was in arrears in respect of G/F Block 3. He was vague in his knowledge of the corporate structure of the 2nd defendant and said that he did not know who were the beneficial owners of the two corporate nominee shareholders of the 2nd defendant. However, his evidence was that the company was set up by solicitors acting on his father’s instructions to hold the flat for the family. He claimed not to be aware of the fact that the 2nd defendant had objected to the formation of the incorporated owners association. He was not present at the meeting amongst the owners in 1999 to discuss the possibility of a sale of Villa Splendour to a developer for redevelopment. 61.Mr Eugene Poon’s witness statement was short and explained that G/F Block 1 had been his late grandfather’s property, which he had inherited under his grandfather’s will. He said that since 1990 it was his only home in Hong Kong and that he had a great sentimental attachment towards it. He claimed that his grandfather had requested that he should not sell the property but keep it in the family. He claimed that he was prepared to pay his rateable share of the costs for repairing the development as a whole. Discussion 62.In the plaintiffs’ written closing submissions, Mr Fung SC stressed the following facts in support of the application for an order for sale :
The age and condition of the Property 63.It was not really in dispute that the Property is, by Hong Kong standards, relatively old and that it has seen better days. The photographs attached to the experts’ reports, as well as those produced by Madam Chow, do show that the Property is clearly in a state of disrepair and dilapidation. This was borne out in detail in the experts’ evidence and I do not propose to repeat the substance of that evidence, which is summarized above. There can be no doubt that the Property is in a very poor condition. In addition, the present development of the Tiger Balm Garden site will have an impact on the environment around the Property, although in a densely built-up city like Hong Kong the close proximity of neighbouring buildings is a fact of life. 64.Mr Fung SC did not, however, submit that the Property was in a state in which it was liable to be condemned or that it was not habitable. In Madam Chow’s statement, she stated that of the 12 flats, five of them are empty for most of the time but the other seven are occupied. Although Mr Pho, the plaintiffs’ structural engineer, gave evidence as to the defective state of the Property, his evidence was that if the repairs he recommended were carried out and the Property was thereafter regularly maintained, the Property could last beyond its design life of 50 years. The thrust of Mr Wong’s evidence was to quantify the cost of the repairs and renovations that were recommended by Mr Pho and by Parsons Brinkerhoff (Asia) Ltd. It is reasonable to assume that the plaintiffs’ experts will have made all recommendations that they felt proper to make in upgrading the fabric of the Property. Therefore, one can safely assume that the $4.275 million total cost figure which Mr Wong arrived at is at the upper end of the scale of estimates for the work that might be reasonably required to restore the Property. 65.The estimate of the defendants’ expert, Mr Mann, was that the individual owners would need to spend either $195,000 or $265,000 depending on the extent of the roof repairs. The difference between the parties’ experts was not as large as the difference in the figures would suggest. Mr Mann fairly accepted that his estimate did not take into account the need to repair the beam in 2/F Block 4 and therefore his estimate would have to be revised upwards. Mr Wong’s reconciliation of Mr Mann’s estimate by reference to the items omitted resulted in a final figure that was only $89,000 less than his estimate of $356,250 for each owner. I think Mr Egan’s vehicular analogy was probably a fair one : the plaintiffs’ experts estimates of the necessary work and costs are probably at the upper end of the quality scale whereas Mr Mann’s are probably somewhat nearer the middle. There would be room for argument as to what standard of renovations might be reasonable but I propose to proceed to consider the application on the footing that the costs to each owner of renovating and refurbishing the Property will be approximately $356,250. 66.All this shows, in my view, that the Property is not beyond its “sell-by date” and that it still has a reasonable number of years’ use to give to its owners if it is refurbished and then properly maintained. To use another vehicular analogy, the Property is not by any means a “write off”: the expenditure of $356,250 per owner will result in substantially increased values of between $6.985 million and $8.55 million for the individual flats. I have already referred to Mr Pho’s evidence as to the life expectancy of a property such as Villa Splendour. Mr Mann’s evidence was that, if the Property were refurbished and then regularly maintained, it could go on 15, 20 or even 30 years. Even taking the lowest of those estimates, the Property is far from at the end of its useful life. The costs of renovating the Property 67.As I have indicated in the preceding section, the expert evidence indicates that the costs of renovating the Property to bring it up to a good standard of repair will be in the region of $356,250 per owner. This is plainly not an insubstantial sum of money. Given that Mr Liu’s evidence was that the open market value of each of the flats in their present unrenovated state is between $2.96 million and $3.98 million, the expenditure of $356,250 on each flat is a significant cost. 68.However, I do not think that I can overlook the fact that Mr Liu’s evidence was that, if renovated, the flats would be worth between $6.985 million and $8.55 million. Nor can I overlook the fact that the nine plaintiffs have each received a non-refundable deposit under the conditional sale and purchase agreements as varied so that each of them has received a sum of between $2.236 million to $2.58 million. From this non-refundable sum, each of the nine plaintiffs should have no difficulty in funding renovation works in the sum of $356,250. 69.I did not understand Mr Fung SC to suggest that I should not take into account the fact that the plaintiffs have received this sum of money. Instead, it was submitted that there was no guarantee that each of the plaintiffs would be willing to use that money to fund the renovations. That may well be so, but I do not think I can ignore the fact that the plaintiffs have it in their power to renovate the Property and that by doing so they will, on Mr Liu’s valuation evidence, increase the value of their individual flats by between $4 million and $4.5 million. 70.It was submitted that the defendants have not received any such non-refundable deposits and so there is no certainty that they will be able to afford to contribute to the renovations if they are to be carried out. It is certainly true that the defendants have not received the same non-refundable deposits that the plaintiffs have, but this does not mean that they cannot afford to make their proportionate contribution to the renovations. Simply taking the existing value of their properties as estimated by Mr Liu, and comparing the value of those properties as estimated by Mr Liu if they are renovated, it is not unreasonable to infer, in my opinion, that even if the defendants do not have funds immediately available to afford their share of the renovations, they could raise such funds on the security of their properties. In any event, in purely economic terms, the plaintiffs between them have the funds available from their non-refundable deposits to pay for the entirety of the renovation works in advance which they could then recoup from any of the defendants who do not contribute by way of proceedings to enforce the Deed of Mutual Covenant or under the Building Management Ordinance, Cap.344. The unco-operative and obstructive attitude of the 1st and 2nd defendants 71.It will be apparent from the summary of the factual evidence set out above that a major plank in the plaintiffs’ case was that the present dilapidated state of the Property is the result of the unco-operative attitude between the co-owners of the Property and in particular the attitude of the 1st and 2nd defendants. 72.It is clear that the relations between the co-owners of Villa Splendour has not been entirely harmonious in the past. The plaintiffs’ witnesses of fact attempted to paint the 1st and 2nd defendants as the sole cause of the difficulties in the past. Thus, in the case of the 2nd defendant, emphasis was placed on its opposition to the establishment of the incorporated owners association, its tardiness in the payment of management fees, the large outstanding sum of arrears half of which had to be written-off, its continued lack of co-operation with the other owners in respect of the management of the Property by reason of its lateness in payment of management fees and its resistance to the proceedings requiring the removal of an allegedly illegal enclosure. In the case of the 1st defendant, emphasis was placed on the fact that Mr Eugene Poon, who had inherited G/F Block 1, is absent from Hong Kong and does not live in the flat full-time, that Mr Poon had acted with indifference when a water leak from his flat had resulted in the flooding of the common parts of Block 1, and that payments of management fees for the 1st defendant’s flat were erratic and often in arrears. 73.As regards the 2nd defendant, the evidence of Madam Chow and Mr Mak, echoed by Madam Wong, was uncontradicted by Mr Sawlani Jr as regards the fact that the 2nd defendant fell into arrears of management fees to the tune of $36,000 and that Madam Chow negotiated a compromise on behalf of the other owners whereby only half of this sum was eventually paid by the 2nd defendant. The evidence that the 2nd defendant had objected to the formation of the incorporated owners association was also uncontradicted by him. As regards the payment of management fees since 1999, the plaintiffs’ evidence was that the 2nd defendant was generally about two months behind in its payment of management fees. 74.Clearly relations between the 2nd defendant and the other co-owners of Villa Splendour are not good. But I am far from convinced that the Sawlani family, whom I accept own the 2nd defendant company beneficially, were the villains they were painted to be by Madam Chow, Mr Mak and Madam Wong. For example, in respect of the project to repair the electrical wiring and installations in 1999, the 2nd defendant was not one of the owners who refused to contribute to these costs thereby causing the project to have to be aborted. As regards the allegedly illegal structure which is the subject of on-going proceedings between the incorporated owners and the 2nd defendant, it is clear on the evidence that most of the structure was put in place before the 2nd defendant purchased G/F Block 3 and was not the subject of any proceedings until relatively recently. I think it is fair to infer that the recent proceedings in relation to the allegedly illegal structure have been brought with a view to demonstrating the extent of disagreement between the plaintiffs and the 2nd defendant, particularly in view of the absence of similar proceedings against the 3rd defendant. That there is disagreement over an issue like this is not uncommon in blocks of flats in Hong Kong. As regards current management fees, Mr Sawlani Jr’s evidence that the management fees for G/F Block 3 for November 2004 had been paid by a cheque which was mailed to the management company on 1 December 2004 and presented for payment on 6 December 2004 was not challenged. 75.As regards the 1st defendant, I accept that Mr Eugene Poon, the ultimate beneficiary of the G/F Block 1, is not residing on a full-time basis in that flat. I also accept that the evidence demonstrates that the 1st defendant fell into arrears in the payment of management fees. However, these arrears have now been cleared, although I suspect that the pursuit of this litigation may have been a major reason for this. On the other hand, the 1st defendant is the executrix of the estate of the previous owner and, given the fact that the flat is occupied only by two domestic helpers, the lack of communication and forwarding of correspondence may have played a part in the 1st defendant falling into arrears in the payment of management fees. The complaint regarding the unco-operativeness of the 1st defendant and Mr Eugene Poon by reference to the incident involving the burst pipe seems to me to have been over-stated. I do not dismiss Madam Chow’s sense of indignation at the fact that Mr Poon did not assist in any way to clear up the aftermath of the burst pipe but I think it is right to view this single incident in proportion and simply as an example of rude or anti-social behaviour. 76.Personality clashes between neighbours is a regrettable fact of life. I think it would be right in the present case to keep in mind that the animosity borne by the plaintiffs’ witnesses of fact towards the Sawlani family and Mr Eugene Poon must in no small way be attributable to the fact that they have, by refusing to sell their flats to the Developer, jeopardized the ability of the plaintiffs to complete the sale of their flats to the Developer. The 1st and 2nd defendants may yet prove to be difficult neighbours in any number of respects. The plaintiffs are not, however, without legal redress either under the Deed of Mutual Covenant or the Building Management Ordinance. Whilst I therefore consider that the history of the relations between the plaintiffs and the 1st and 2nd defendants is a factor to take into account, I do not think it is a particularly weighty or significant factor. The age and incapacity of the other co-owners and their attitude towards renovating the Property 77.Mr Fung SC’s submission was that the current state of dilapidation and disrepair of the Property is attributable in part to the fact that many of the co-owners are old and incapacitated and that they were unwilling either to incur the expenditure necessary to maintain the Property or to become involved in the management of any renovation works. 78.It is quite apparent from the present condition of the Property that little or no maintenance has been done over the years. This must, to some extent, demonstrate that the owners have not been willing or able to co-operate to manage their own development in a way that would maintain the value of their individual properties. It is quite obvious that instead of taking pro-active steps to manage the Property and to keep it in a good state of repair, the Property has been managed on the basis that minimal expenditure will be incurred on renovations and maintenance. This is borne out by the low management fees collected by the owners when they were taking turns to manage the Property themselves and then later when they had formed the incorporated owners association and engaged a management company to manage the Property on their behalf. Even now, the total management fees for the Property are $20,900 ($1,700 x 12 flats) per month, which is unlikely to leave a significant, if any, reserve of funds after paying recurring expenses. 79.Mr Egan was inclined to submit that the plaintiffs had deliberately brought about the dilapidated condition of the Property. To some extent, this was true but I do not think the evidence goes so far as to demonstrate, as I perceived him to suggest, that all of the present defects in the Property had been caused by the plaintiffs’ deliberate choice not to carry out any maintenance work since 1999 when the owners of Villa Splendour were first approached by a developer to purchase the entire Property. Clearly, the present state of the Property is the result of years of neglect and not just neglect in the period since 1999. 80.At the end of the day, it seems to me that the age and unwillingness of the co-owners of the Property to carry out the renovations is a factor to be taken into account but not a particularly weighty one. One of the reasons why they are unwilling to renovate must simply be because they have agreed to sell their flats to the Developer and they therefore have no incentive to carry out the work that needs to be done. If the management of the Property is an onerous responsibility for any particular owner such as Madam Wong, Madam Chow or Mr Mak, the solution would seem to lie in the owners engaging a management company that is more pro-active in pursuing delinquent owners who fail to pay management fees on time and in investigating the fabric of the Property and putting in place a more aggressive programme of maintenance. In short, I do not accept that the Property cannot, as a matter of fact, be renovated and refurbished to the high standard recommended by the plaintiffs’ experts. The financial benefits of an order for sale 81.The argument based on the financial outcome of a sale of the Property seems to me to be the strongest argument for the plaintiffs. If the court orders a sale by public auction with a reserve price of $275.5 million, as sought by the plaintiffs, the consequences of a sale at that price will be that (i) the plaintiffs will be able to complete their conditional sale and purchase agreements with the Developer and they will each then respectively receive between $11.18 million and $12.9 million, and (ii) the defendants will receive a 1/12th share of the price achieved at the auction, which will amount to approximately $22.9 million on the assumption the Property is sold at the reserve price of $275.5 million. It should be noted, in this context, that an additional consequence of a sale at the reserve price will be that the Developer will retain the balance of the price achieved at the auction after the respective payments are made to the plaintiffs and the defendants. In reality, therefore, it is the Developer, who is neither a party to the proceedings nor an owner of any part of the Property at this time, who stands to gain the most by an order for sale. 82.However, to put the financial outcome of an order for sale into context, it is necessary to look at the position if the court does not order a sale of the Property. In that case, the plaintiffs will be left with the 20% non-refundable deposits under the conditional sale and purchase agreements as varied of between $2.236 million and $2.58 million each. The flats in the Property will be worth between $2.96 million and $3.98 million if nothing is done to renovate the Property. If, however, the Property is renovated at a cost of $356,250 per owner, the flats will be worth between $6.985 million and $8.55 million. For the reasons set out above, I do not consider that the difficulties or inconvenience of funding or managing the renovations to the Property are so significant that I should disregard the potential outcome of the renovations in terms of the increased value of the individual flats. 83.Taking the lowest value flat, which the Developer has agreed to purchase for $11.18 million, if the court does not order a sale, the owner of that flat has received $2.236 million by way of non-refundable deposit. After spending $356,250 on renovations, that flat has been valued to be worth $6.985 million. The owner will also have the balance of the non-refundable deposit after paying for the renovations, a sum of $1,879,750. Together with the enhanced value of the renovated flat, the owner will have an asset and cash of $8,864,750. The difference between that figure and $11.18 million is $2,315,250. 84.Taking the highest value flat, which the Developer has agreed to purchase for $12.9 million, if the court does not order a sale the owner of that flat has received $2.58 million by way of non-refundable deposit. After spending $356,250 on renovations, that flat has been valued to be worth $8.55 million. The owner will also have the balance of the non-refundable deposit after paying for the renovations, a sum of $2,323,750. Together with the enhanced value of the renovated flat, the owner will have an asset and cash of $10,873,750. The difference between that figure and $12.9 million is $2,026,250. Is an order for sale under the Partition Ordinance the only way to bring the co-ownership to an end? 85.Bearing in mind that the primary intention of the legislative scheme under the Partition Ordinance is “to enable an unwilling co-owner to rid himself of the shackles of co-ownership and to have either a physical division of the property into aliquot parts among the co-owners or a division of the proceeds of its sale” (per Trainor J in Pun Jong Sau, supra at p.668), it is relevant to consider whether partition or sale is the only way for the plaintiffs to rid themselves of the shackles of co-ownership of the Property. 86.I have already referred to the fact that the Property is held by each of the plaintiffs and the defendants in equal undivided shares. Each of the owners of the Property owns their respective flats subject to a Deed of Mutual Covenant dated 23 June 1964. As well as imposing liabilities on each of the owners for the communal expenses of maintenance and repair of the Property, that Deed of Mutual Covenant gives each owner the exclusive right to the use, occupation and enjoyment of their respective flats. In addition, clause 10 of the Deed of Mutual Covenant provides as follows :
87.In my judgment, the plaintiffs are not in a situation in which they are forced to remain unwilling co-owners of the Property. They have the ability to unshackle themselves from the incidents of co-ownership. The only real reason they choose not to exercise this option is because of the financial advantages that have been offered to them by the Developer. It is telling that in Pun Jong Sau at p.672, Trainor J said :
88.Mr Egan submitted that the words emphasized in the quotation in the preceding paragraph indicated that, if a party was able to alienate his co-owned interest in the property by way of a direct sale of his particular share of the property, then no order for partition or sale should be made. He submitted that the plaintiffs in this case could rid themselves of the shackles of the co-ownership by simply selling their flats individually without a court order or the consent of the defendants. 89.I do not think that the mere fact that the plaintiffs can sell their flats individually means that the court lacks jurisdiction to make an order for partition or sale under the Partition Ordinance. Again, in Pun Jong Sau, when commenting on the introduction of the novel feature of the power given to the court to refuse to make an order, Trainor J gave as an example of why this was necessary the following situation (at p.668) :
90.The fact that Trainor J considered that the power to refuse to order partition or sale was required to cater for that situation indicates, in my opinion, that he accepted that there was no reason in principle why a number of owners of flats in a building consisting of many flats could not seek an order for partition or sale under the Partition Ordinance. So the mere fact that a flat owner might have the right to alienate his interest in his flat under the terms of a deed of mutual covenant does not deprive the court of jurisdiction to make an order under the Ordinance if it thinks it right to do so. In my judgment, the fact that the plaintiffs are able to sell their flats individually is a factor to be taken into account but does not of itself deprive the court of jurisdiction to make any of the orders available under section 2 of the Partition Ordinance. 91.Mr Fung SC accepted that the fact that the plaintiffs were each at liberty to alienate their equal undivided share in the Property by selling their own particular flat was a factor that the court should take into account in considering whether or not to order partition or sale under the Partition Ordinance. He submitted, however, that the court must consider whether this would result in a party being forced to sell at a much lower price than could be fetched for the Property if sold as a whole. 92.It is true that the plaintiffs, if they choose to sell their flats individually, will only be able to secure prices in the range of $6.985 million to $8.55 million (assuming the necessary renovations are carried out), although they will also have the balance of the non-refundable deposits. As set out in paragraphs 83 and 84 above, the net result is between about $2 million to $2.3 million less than the range of prices of between $11.18 million to $12.9 million, which the Developer has conditionally agreed to pay for their flats. Should the court order a sale of the Property in the present case or refuse to make an order? 93.The factual situation in the present case is unlike any of the cases cited by counsel in the course of their respective submissions :
94.As will be seen from a review of the cases cited by the parties, none of the cases involving residential property concerned a multi-owned block of flats, still habitable and occupied in fact, which was owned by parties subject to a deed of mutual covenant that allowed each individual party to alienate their own equal and undivided share in the property. That factor seems to me to be a very significant factor when the court is considering what order to make under the Partition Ordinance. The purpose of the legislation is to enable unwilling co-owners to terminate an unwanted co-ownership: see Pun Jong Sau, supra, passim. In the Beautyglory case, Deputy Judge Muttrie said at §43 :
95.The suggestion of being “locked into a property right that he does not want to keep” clearly echoes the comments of Trainor J as to the legislative purpose of the Partition Ordinance being to allow an unwilling co-owner to terminate an unwanted co-ownership. Where, therefore, the unwilling co-owner can terminate his co-ownership otherwise than by way of partition or sale, the court must, in my judgment, give considerable weight to that factor. 96.There is a further reason why, in my opinion, the ability of the plaintiffs to sell their flats without an order for sale under the Partition Ordinance is a weighty factor against ordering a sale. 97.Under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap.545, there is a legislative scheme to enable persons who own a specified majority of the undivided shares in a lot to make an application to the Lands Tribunal for an order that the sale of all of the undivided shares in the lot for the purposes of the redevelopment of the lot. Under section 3(1) of that Ordinance, the specified majority has been fixed at 90% of the undivided shares in a lot. Although, under section 3(5), the Chief Executive in Council may by notice specify a lower percentage than 90% in respect of a particular lot, section 3(6) stipulates that no percentage may be specified in a notice under section 3(5) which is less than 80%. To date, no such lower percentage has been specified by the Chief Executive in Council in respect of any property. 98.Mr Egan submits that the legislative scheme in the Land (Compulsory Sale for Redevelopment) Ordinance was introduced specifically to cater for a situation such as the present case. Because the plaintiffs in the present case represent only 75% of the owners of the Property, no order for sale under the Partition Ordinance should be made. He refers to the speech of the Secretary for Planning, Environment and Lands when moving the second reading of the Land (Compulsory Sale for Redevelopment) Bill in the Provisional Legislative Council where the Secretary stated that, in response to suggestions that the 90% threshold stipulated in the Bill should be lowered, it was felt that it was very important to strike a balance between facilitating urban redevelopment and protecting individual owner’s rights. 99.Mr Fung SC submits that the Land (Compulsory Sale for Redevelopment) Ordinance is a completely separate and distinct legislative scheme to that under the Partition Ordinance. He makes the point that it would be wrong to construe the Partition Ordinance by reference to a piece of legislation enacted in 1999, 30 years after the enactment of the Partition Ordinance. He refers to the fact that in some of the cases cited, a sale of the property in question has been ordered even though the party seeking the sale has owned less than 90% or even 80% of the shares. 100.I agree with Mr Fung SC that one cannot construe the Partition Ordinance by reference to a subsequently enacted ordinance. The true legislative intent of the Partition Ordinance must have been ascertainable at any time prior to the enactment of the Land (Compulsory Sale for Redevelopment) Ordinance. However, in my opinion, I consider that in a situation such as the present, the Land (Compulsory Sale for Redevelopment) Ordinance provides a useful benchmark as to the circumstances in which, even prior to its enactment in 1999, a court might have been persuaded to order a sale under the Partition Ordinance in respect of a multi-owner development of flats owned individually and subject to a deed of mutual covenant. If it was thought that a sale could be ordered under the Partition Ordinance in such a situation where less than 90% of the owners agreed to a sale, one might reasonably have thought that the Land (Compulsory Sale for Redevelopment) Ordinance was redundant. In my opinion, even before the enactment of the Land (Compulsory Sale for Redevelopment) Ordinance, a court would have required a very high proportion of the owners of such a property to be in favour of a sale before it would have been prepared to order a sale. 101.Therefore, whilst I do not go so far as to hold that the Land (Compulsory Sale for Redevelopment) Ordinancesets an absolute benchmark of the percentage of owners in a multi-owner development of flats when the court is considering an application under the Partition Ordinance, it does lend support to the contention that the ability of any of the co-owners of a particular property to dispose of their interests by an individual sale is a factor to which considerable weight should be given. 102.I have already identified the test that has been applied in the cases when determining whether or not the court should exercise its power to make no order under section 2(c) of the Partition Ordinance, that the interests of all the parties would be better served by their continuing to remain co-owners, or where the facts show that to make such an order would result in very great hardship to one co-owner. 103.In the present case, Mr Fung SC submits that the facts all support an order for sale. He says that all the co-owners will be better off if there is a sale. He submits that the relevant benefit is to be measured in pecuniary terms, relying on Drinkwater v. Ratcliffe (1875) 20 LR Eq 528 at 533 where Sir George Jessel MR said :
104.That case concerned a property consisting of a farmhouse and buildings and thirty acres of land divided into 36 shares, 15 being vested in eight persons who desired a sale, six of them being entitled to 1/36th share each; the remaining 21 being vested in a married woman, living apart from her husband. She was living in the property and opposed the sale but, although she was willing to undertake to purchase the other parties’ shares, her husband was not willing to join in the undertaking. The court ordered the sale of the property having regard to the nature of the property and the number of the parties interested, and because in the opinion of the court a sale would be more beneficial for the parties interested than a division among them. It was not, of course, open to the court to refuse to make one or other of those orders. 105.I do not think the particular circumstances of Drinkwater v. Ratcliffe, where the issue was whether or order a partition or sale, assist me in determining the appropriate order to make in this case. I accept that the benefit of a sale should be measured in pecuniary terms but that, in a sense, is stating the obvious because the result of a sale is the conversion of the property into money. I understand the significance of the comment of the Master of the Rolls in that case to be that the benefit is to be measured in financial terms as opposed to subjective considerations such as sentimental attachment. 106.Reverting to the present case, the 2nd defendant is presently occupying G/F Block 3. I have already indicated that I find that the Sawlani family owns the flat beneficially. They are presently living in it and do not wish to move out. Whilst they will clearly obtain a benefit from a sale of the Property for the reserve price of $275.5 million, as will the other defendants, I think I am entitled to take into account that the effect of an order for sale will be to force the Sawlani family out of their home and to have to find another place to live, there being no evidence that they own any other property into which they could move. The same applies to the 1st defendant, although I think the hardship is considerably less in the case of Mr Eugene Poon because, on the evidence, he is clearly not resident in Hong Kong on a full-time basis. The 3rd defendant is neutral as regards the outcome of the case and I do not think that there is sufficient evidence for me to find, one way or the other, who is in occupation of G/F Block 4 and on what basis. 107.Nevertheless, notwithstanding the fact that a sale of the Property would be financially beneficial to the plaintiffs to the extent of between $2 million to $2.3 million, I am persuaded that an order for sale in the present circumstances would cause very great hardship to the Sawlani family and also, to a lesser degree, to the 1st defendant. Detriment in this sense is not, in my opinion, confined to pecuniary benefit and I respectfully agree with Deputy Judge Muttrie’s observation in Beautiglory at §40 :
108.In my opinion, being forced to move out of one’s home and to find another home is a very real detriment and in the context of this case, where the unwilling co-owners are not locked into their co-ownership, it would constitute very great hardship to force the Sawlani family or the 1st defendant to give up their flats, notwithstanding that this would be in return for an attractive price. Balancing the interests of the defendants against the plaintiffs, I have no doubt that the just result is to decline to order the sale of the Property. Conclusion 109.For all the above reasons, I decline to order a sale of the Property under section 6(1), or section 6(3), of the Partition Ordinance. Instead, I exercise my jurisdiction to refuse to make any order under section 2(c) of the Ordinance. 110.In light of my decision, the plaintiffs’ Originating Summons must be dismissed. I make an order nisi that the costs of the Originating Summons are to be paid by the plaintiffs to the defendants, to be taxed if not agreed, such costs to include the costs of the hearing of 12 July 2004, which were reserved by Deputy Judge Saunders. There will be a certificate for two counsel.
Mr Patrick Fung, SC leading Mr P.Y. Lo, instructed by Messrs Tsang, Chau & Shuen, for the 1st to 9th Plaintiffs Mr Kevin Egan and Ms Jay Ma, instructed by Messrs Massie & Clement, for 1st and 2nd Defendants 3rd Defendant in person, Kwai Hung Realty Company Limited, being absent for the trial | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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