Tai Fat Development (Holding) Co. Ltd v. The Incorporated Owners of Gold King Industrial Building
Read the full judgment text of CACV 297/2006 on BabelCite. This Court of Appeal judgment was delivered on 17 September 2007.
1. This appeal concerns a multi-storey industrial building. As is normally the case, the rights and obligations of the co-owners are regulated by a deed of mutual covenants, in particular, governing the exclusive right to use different portions of the building. At the heart of the appeal is the question whether certain carparking spaces are common areas within the meaning of the deed of mutual covenants.
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CACV 297/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 297 OF 2006 (ON APPEAL FROM HCA NO. 104 OF 2006) ______________________ BETWEEN
______________________ Before : Hon Tang VP, Yuen JA and Lam J in Court Date of Hearing : 5 September 2007 Date of Judgment : 17 September 2007 ______________________ JUDGMENT ______________________ Hon Tang VP (giving the judgment of the Court) : Introduction 1.This appeal concerns a multi-storey industrial building. As is normally the case, the rights and obligations of the co-owners are regulated by a deed of mutual covenants, in particular, governing the exclusive right to use different portions of the building. At the heart of the appeal is the question whether certain carparking spaces are common areas within the meaning of the deed of mutual covenants. Background 2.By a tenancy agreement in Chinese dated 25 November 2004, the plaintiff as “全權代理人” of South China Building Materials Limited, Pickford Development Company Limited and South China Cold Storage and Industrial Company Limited (“the First Owner”), let to the defendant at the monthly rent of $55,000 the storeroom between parking spaces Nos. 32 and 33 on the 3/F of Gold King Industrial Building (“the Building”), together with 12 parking spaces on the 1st and 3rd floors for the term of 2 years, commencing 1 December 2004. 3.By letter dated 16 September 2005, Messrs Lau, Kwong & Hung, then solicitors for the defendant, asserted, inter alia, that:
4.By writ dated 16 January 2006, the plaintiff claimed possession, rents in arrear in the sum of $275,000 for the period between 1 September 2005 and 31 January 2006, and mesne profits at a rate of $55,000 per month from 1 February 2006. 5.The claim for possession is based on forfeiture for non-payment of rent as well as the defendant’s denial of the plaintiff’s title as landlord by the letter of 16 September 2005. 6.The plaintiff applied for summary judgment, but the application was dismissed by Master B Kwan on 26 June 2006. 7.On appeal, Deputy High Court Judge L Chan gave the plaintiff judgment as claimed. The judgment turned on the learned judge’s construction of the Deed of Mutual Covenants (“DMC”) governing the Building. The Deed of Mutual Covenants in question is dated 16 April 1987. The parties to the DMC were the First Owner, the First Purchaser Madam Wong Mei-kuen, and one Selex Properties Management Company Limited (“the Management Company”). 8.Essentially, the learned judge was of the view that neither the storeroom nor the 12 carparking spaces were part of the common areas of the Building. He held that the storeroom formed part of the areas coloured green on the plan annexed to the DMC … and by Section V(3) of the DMC, the First Owner was entitled to “the exclusive right and privilege to hold use occupy and enjoy all those areas as shown coloured green on the Plan hereto annexed”. There is no appeal against this part of the judgment. The appeal 9.The appeal is directed to the learned judge’s conclusion that the 12 carparking spaces were not common areas within the meaning of the DMC. If they were common areas then by Section II Subsection B of the DMC they “shall be deemed to be common areas for the use and benefit of the Owners … ”. 10.Section II of the DMC, where the mutual grants are to be found provides:
11.In other words the First Owner was entitled to the Building save and except Flat D on the 19/F of the Building which was to be assigned to the 1st purchaser:
12.In Section I of the DMC, common areas is defined:
The proviso in the definition is irrelevant. 13.As is normally the case, it was recited in the DMC:
14.Contrary to Mr K M Chong’s submission on behalf of the plaintiff, we attach no significance to the fact that the notional division was said to have been done “For the purposes of sale”, which in the context meant no more than that the notional division was made to facilitate sale. 15.After the allotment of various numbers of shares to different parts of the Building, the relevant part of the 1st Schedule went on to provide:
The management shares “mean the shares or units allocated to the Units and the Parking Spaces as set out in the First Schedule hereto for the purpose of sharing and contributing towards the Management Expenses and Manager’s Remuneration by the Owners”: Section I of the DMC. It is to be noted that all the Units in the 1st Schedule have been allotted management shares with the exception of the external walls, the common areas and the car parking spaces under the heading of “Loading and Unloading Areas”. 16.The external walls were assigned one share, and by Section V(1) of the DMC, the exclusive right to use the external walls was given to the First Owner. 17.This appeal concerns the parking spaces under the sub-heading or description of “Loading and Unloading Areas”. There are 13 such parking spaces. It will be seen 62 shares have been allotted to these parking spaces. 18.However, the tenancy agreement covered only 12 of the parking spaces. Parking space No. 36 has not been included. Nothing turns on this. It is the defendant’s case that such parking spaces under the sub-heading or description of “Loading and Unloading Areas” are part of the common areas, and as such under Section II Subsection B of the DMC, they were:
We will refer to these car parking spaces as the disputed car parking spaces. 19.Mr Mak, who appears for the defendant, also relied on Section VII Subsection B2(16):
The levying of charges for the use of the loading and unloading areas probably refers to the car parking spaces set aside for that purpose. The disputed car parking spaces are apt to be described as areas set aside for loading and unloading. Indeed, the plaintiff has not contended otherwise. 20.We turn to the reasons given by the learned judge for concluding that the disputed car parking spaces are not common areas. 21.The learned judge noted that from the approved building plan:
22.We derive little assistance from the approved building plans. It is true that, in the 1st floor plan, one could find indications that certain areas were meant to be used for loading and unloading, for example, the spaces outside the passenger cargo lifts, as well as a loading and unloading platform. But the fact that such loading and unloading areas are available does not show that no further parking spaces might be required for loading and unloading purposes. Nor that if car parking spaces have been reserved for such purposes, they should be disregarded. The Building has 26 storeys and each storey has 10 units. It is common sense that during certain hours of the day, many vehicles would be involved in loading and unloading and some such vehicles would have to wait their turn in parking spaces kept for such purposes. Some support for this view can be found in the conditions of grant, special condition 12 of which required that:
23.Moreover, in the 3rd floor plan, it appeared that car parking spaces Nos. 11, 12, 13, 14 as well as 4, 5, 39 were expressly designated for loading and unloading. 24.The learned judge observed:
25.As noted, in the 1st Schedule, parking spaces, presumably, depending on their size, were allotted 4 or 5 shares each. That being the case, it is difficult to understand why the disputed parking spaces should have been listed and dealt with separately from the other parking spaces. It seems to us that the most obvious answer is that the disputed parking spaces were meant to be part of the loading and unloading areas of the Building. If that is correct such loading and unloading areas would be part of the common areas. 26.We note the learned judge’s observation that common areas were allotted one share under the DMC. We agree with the learned judge that the 62 shares allotted to the car parking spaces under the subheading of “Loading and Unloading Areas” could have been allocated to the common areas but this cannot override the fact that the disputed car parking spaces came under the description or sub-heading of “Loading and Unloading Areas”. 27.It may be (and there is support for the view when one looks at the different versions of the sales brochures) that the First Owner did intend to reserve to themselves the exclusive use and occupation of the disputed parking spaces. But it is at least arguable that the First Owner has not succeeded in doing so in the DMC. 28.The learned judge also noted that no management share had been allotted to the disputed parking spaces. He further observed that no management share for the external wall had been allotted either, although it had been expressly reserved in DMC for the First Owner. However, there was no express reservation of the disputed parking spaces to the First Owner. Moreover, we can readily appreciate why no management shares had been allotted to the external walls since the owners of the external walls were unlikely to use the Building’s common facilities. We believe the fact that no management shares had been allotted to the disputed parking spaces supports the defendant’s case. 29.Mr K M Chong submitted that if it can be clearly shown that on the correct construction of the DMC, the First Owner was entitled to the exclusive use and occupation of these parking spaces, then summary judgment should be given in favour of the plaintiff. 30.We agree. But we are satisfied that it is likely that on the correct construction of the DMC, the disputed parking spaces form part of the common areas such that the First Owner is not entitled to the exclusive use and occupation of them. Since the matter will have to go trial, it is unnecessary for us and we do not come to a concluded view on the matter. 31.Mr Chong referred us to one of the first assignments. This was the assignment dated 11 June 1987, made by the First Owner in favour of a company called Giant Origin Company Limited, and the property to be assigned were Unit B, 26/F, together with storeroom, portion of flat roof, and portion of roof thereof, and parking space for lorry, No. 16 on 3/F. 32.The only relevant portion of the 1st assignment is in the 3rd Schedule which provided:
In other words, the exclusive right of the First Owner did not extend to the areas:
33.We do not find this assignment assists the plaintiff in any way. Tenancy by estoppel 34.Mr Chong sought to support the judgment by reliance on tenancy by estoppel. That is to say, even if the disputed car parking spaces are common areas and the defendant is entitled to the use and occupation of them on behalf of the owners as a whole, the defendant is estopped by the tenancy so to assert. 35.The answer can be found in Industrial Properties (Barton Hill) Ltd and Others v Associated Electrical Industries Ltd [1977] 1 QB 580. 36.The head notes to the report shows that the freehold of an industrial estate was owned by family trustees, who agreed to sell the industrial estate to the plaintiff company, the directors and shareholders of which were members of the family. For stamp duty reasons, no conveyance of the property was ever made although the purchase price was paid and the agreement for sale was registered as a land charge. The plaintiff and the defendant entered into a lease for 21 years determinable at the end of the first seven or 14 years. It contained a covenant by the lessee to keep the premises in good and tenantable repair and condition and so to yield them up at the determination of the term. There was a lessor’s covenant for quiet enjoyment. 37.The defendant gave up possession after giving notice to determine at the end of the first 7 years. By writ, the plaintiff claimed damages for breach of covenant to repair. In defence, the defendant contended that since they had gone out of possession they could deny the plaintiff’s title and their liability on the covenant. 38.This is what Lord Denning MR said in rejecting the defence at 596-7:
39.Roskill LJ (as he then was) was to similar effect at 607:
40.Lawton LJ’s observation at 612-3 is particularly apposite:
41.The essence of the estoppel is that it will not avail the tenant to say the property does not belong to you but to a third party. 42.But, we do not believe the tenant is estopped from asserting that he himself has the better title. The observation of Lawton LJ quoted above supports this view. Suppose the landlord was the mortgagor and the tenancy was not binding on the mortgagee, and the tenant has acquired the mortgage, we do not believe the tenant would be estopped from asserting that he was entitled to remain in possession because of his better title as mortgagee. It is at least arguable that he is not. 43.We are of the view that the judgment for possession must be set aside. It is highly arguable that the defendant is entitled to assert its better title to possession. 44.We turn to consider that the judgment for rent against the defendant. 45.Mr K M Chong’s submission is clear. There was a tenancy agreement under which the defendant agreed to pay rent. The tenancy agreement included the storeroom as well as parking spaces. It was not a divisible contract. The plaintiff was entitled contractually to such rent. 46.Mr Andrew Mak submitted that the plaintiff was not entitled to be paid because the plaintiff had warranted that the First Owner had title (in the sense the First Owner had the right to exclusive use) to the parking spaces. 47.There was no express warranty. As the judgment of Lord Russell CJ in Baynes & Co. v Lloyd & Sons [1895] 1 QB 820 at 825 shows no covenant for title is “considered annexed by reason of the relation of lessor and lessee, or landlord and tenant”. Lord Russell CJ had explained earlier at 824:
48.Nor do we find any representation that the First Owner was entitled to exclusive possession of the disputed car parking spaces. Moreover, even if there had been there was no clear evidence that the defendant had acted on it. As the learned judge said “the defendant was aware of (the argument over the definition of “common areas”) prior to entering into the tenancy with the plaintiff. It was raised fairly and squarely in a letter dated 6 September 2004 by the defendant’s then solicitors.” 49.We agree that there is no defence to the claim for rent. This is not a case where the defendant might be at risk of having to pay mesne profits to the true owner (being on the defendant’s case, the defendant) for the occupation of the parking spaces. So this part of the appeal is dismissed. However, the rent should only be calculated up to and inclusive of December 2005 because of the acceptance of repudiation by the letter of 14 December 2005, see paragraph 8 of the Statement of Claim. The judgment sum should be for $220,000 only. 50.The claim for mesne profits is different. The claim for mesne profits and for possession are likely to succeed or fall together. So we would also allow the appeal against the judgment for mesne profits. Costs 51.As for costs, we are of the view that in the circumstances, there should be no order as to costs. The plaintiff and the defendant have been partially successful in the appeal. It is true that more time was spent on the part in which the defendant succeeded, however, some of the reasons on the basis of which the defendant succeeded were supplied by the court and that may explain why less time was required. As for the costs before the learned judge, there the parties were each partly successful too. The learned judge seemed to have spent as much time on the storeroom as on the parking spaces. Moreover, this is a case where part of the plaintiff’s claim for summary judgment might have been dismissed under O. 14 r. 7. So we will also make an order that there be no order as to costs below. That applies to the application before Master B Kwan as well.
Mr. Andrew Mak, instructed by Messrs Chung & Kwan for the Defendant. Mr. K. M. Chong & Ms. Emma Wong, instructed by Messrs Kenneth C. C. Man & Co. for the Plaintiff. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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