Tech Focus Ltd v. Austria Property Management Ltd and Another

DCCJ 5777/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5777 OF 2006

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BETWEEN

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Coram: H.H. Judge E. Yip in Court

Dates of Hearing: 10^th December 2008, 11^th December 2008,

17^th to 20^th November 2009, 11^th to 13^th May 2010

Date of Handing Down of Judgment: 9^th July 2010

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JUDGMENT

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A. Introduction

1.The Plaintiff (“P”) was the owner of a rooftop flat.  The 2^nd Defendant (“D2”) was the incorporated owners of the building and the 1^st Defendant (“D1”) its building manager.  For convenience’s sake, I simply refer to them as “Ds” as there is no dispute that their liability, if any, shall be concurrent.  There was water seepage into the ceiling of the bedroom, among other areas, of P’s flat.  P said it rendered the flat uninhabitable.  P claimed against Ds in a prior civil action.  The Court made an order by consent for, among other reliefs, Ds to commission and carry out the re-roofing and repair works [“repair”]. 

2.It took quite some time for Ds to do so.  P complained that the delay was inexcusable.  Ds sought to justify the delay by two main reasons.  The first was the need to comply with the legal requirements for sufficient length of notice for tendering procedures and meetings held by incorporated owners.  The second was P’s refusal to cooperate, until the Court intervened, to remove its own metal structure affixed in the way of the repair.  After the repair, there was no longer any water seepage.

3.On the ground of delay, P claimed against Ds in the present action damages for loss of rent.  P has a list of further or alternative claims based on the Deed of Mutual Covenant (“DMC”), nuisance, negligence and the breach of section 18 of the Multi-storey Buildings (Owners’ Incorporation) Ordinance (“MBO”).  Ds originally had a counterclaim for certain legal and expert costs but have decided to abandon the counterclaim and have such costs dealt with upon conclusion of the present action among other costs issues. 

B.  P’s case

4.P alleges that the consent order dated October 2004 (“Consent Order”) was a cause of action analogous to contract.  The duty to repair was expressed as “forthwith”.  Any delay caused by Ds’ indoor management, even if pursuant to legal requirements or contingencies, was no defence.  As a result of the delay, P had suffered loss of rental income for twenty odd months up to November 2006.   

5.Alternatively, if P cannot rely on the Consent Order, P seeks to its expert report dated 2002, and his joint report dated 2004 made with Ds’ expert, to prove water seeping down from the rooftop, a common part of the building, hence Ds’ liability.  There would be no need to determine the issue of “forthwith” repair as any loss suffered by P before completion of the repair would be quantified as damages.    

C.  Ds’ case

6.Ds rely not on the joint report but its other expert, Allan Li, who made a report dated 2009, which suggested other possibly concurrent causes, such as the overloading of the horizontal beam due to P’s own appendages, hence opening up structural cracks in the middle part of the beam for water to seep in, and perhaps a damaged water pipe embedded into the rooftop.  It is for P to prove loss suffered as a result of Ds’ failure to complete repair before October 2006.   

7.In the event that there was a duty to repair under the Consent Order, Ds seek to justify the delay by their need to conduct affairs in compliance with legal requirements and deal with various contingencies.  Ds had tried their best to comply with the Consent Order. 

D.  Chronology of events

8.I have compiled a chronology of events at the end of this Judgment. 

E.  Witnesses

9.PW1 Jacqueline Loh (“Loh”) is the director and shareholder of P. PW3 Damien Laracy (“Laracy”) later purchased the Flat from Loh.    PW2 Samson Wong (“Wong”) is P’s expert.  DW1 Chan Man Fu Helen (“Chan”) is the secretary of D2.  DW2 Allan Li (“Li”) is Ds’ expert.  Each gives oral evidence.  Their witness statements and reports are adopted as their evidence in court.       

F.  Facts not in dispute

10.Since November 1999, P had been the owner of a rooftop flat, namely Flat A, 12^th Floor, Yee Fung Building, 1 Village Road, Happy Valley (“Flat”).  The building was over 30 years old.  It commanded a clear view of the racecourse.  The Flat consisted of a living/dining room, a kitchen, a bathroom, a study room, and a bedroom, which led onto an open area.   

11.In August 2000, P discovered water seepage into the ceiling of the bedroom, among others.

12.In February 2002, Ds engaged a contractor, which carried out some waterproofing works but with no lasting effect.

13.In April 2002, P commenced proceedings for damages, due to apparently the same problem resurfacing, in Small Claims Tribunal, later transferred to District Court as DCCJ 5287/2002.

14.From December 2002 to March 2004, various tests were conducted by an expert for each party, who wrote his report and a joint report.  At pages 402 – 434 of the Trial Bundle [“402 – 434”] is the joint expert report made by P’s expert (Wong) and Ds’ expert (Cheung).  The joint expert report considered the defective roof works above the flat to be the cause of water seepage into, among others, the ceiling of the bedroom. 

15.Consent Order was granted on 29 October 2004 [12 – 13].  Part of its wording as follows was significant to the present case:

D’s undertaking to the Court and to P

i)         Ds do forthwith commission and carry out the necessary [repair] on the roof above the [flat]. (My emphasis in bold)

16.The Flat had been rented out to tenants or later occupied by Loh.   There was only one bedroom.  Loh could no longer occupy the Flat on the ground, which is not admitted by Ds in the present trial, that the water seeping into the ceiling and dripping onto the bed in the bedroom, had made the Flat uninhabitable. 

17.The repair was completed in October 2006, 2 years after the Consent Order.  In November 2006, Laracy purchased the Flat from Loh.  Renovation was done between December 2006 and February 2007.  He rented out at $20,000 per month.  His tenant complained of a couple of minor water leakage spots [137-2 para. 1].  Nothing suggested any major or unsightly water leakage anywhere or into the ceiling.  Only one minor spot required a fix.  The tenant did not ask for further fixings and was willing to pay $22,000 per month for renewal of the tenancy.     

18.In case P’s loss has to be assessed, P and Ds agree that the monthly rent would have been $15,800 from January to November 2005, and $16,600 from December 2005 to November 2006. 

G.  Breach of Consent Order

P’s argument on effect of Consent Order

19.P refers to Hong Kong Civil Procedure 2010 42/5A/4 for the proposition that a consent order is generally considered to be contractual in nature, and will only be set aside in exceptional circumstances.  To enforce its terms, P does not have to prove the reason behind a contract or the Consent Order.  

Ds’ counter-argument on effect of Consent Order

20.Ds’ first submission is that the Consent Order did not refer to any express admissions of liability on Ds’ part, so P had to prove the reason behind Ds’ making the Consent Order.  The purpose for Ds to make the Consent Order was merely for P to discontinue the 2002 proceedings upon receipt of the $116,780, which was duly paid subsequently by Ds. 

21.Ds’ second submission is that P had a part of its own to repair.  It also pointed to both parties being at fault for certain part of the water seepage problem. 

My view on effect of Consent Order

22.Firstly, I think a consent order is, in simple terms, an agreement made by both parties in court.  P says that it is enforceable as much as a contract is and there is no need to look into or prove the reason behind making the contract or the consent order.  P’s argument is supported by authorities whereas Ds’ is not.  Ds have no authorities that to enforce a contract or a consent order, there must be express admissions of liability, either.   

23.Secondly, Ds would not suffer any loss whether P carried out any interior repair.  P was the aggrieved party.  After Ds’ repair was completed, Ds would not be liable to P.  The Consent Order would have been as good whether P’s obligation to do the repair inside the Flat had or had not been stated.  It does not shed light on the implications of the Consent Order.   

H.  Delay in compliance with Consent Order

(1)  P’s argument on “forthwith” commissioning

24.P criticizes the excessive time taken, 2 years, by Ds to complete the repair.  Ds cannot put up the excuse of having to comply with the procedures or deal with the contingencies as they were Ds’ indoor management problem.  P shall recover loss due to Ds’ delay.  Ds should not have agreed to the Consent Order if Ds had not been ready to engage a contractor to commence the repair immediately. 

25.The case in point is HB Electronics Ltd v Telemate Telesystems Inc [1993] 2 HKC 47.  The plaintiffs owned certain moulds for manufacturing telephones and answering machines.  In a contractual arrangement, the defendants took possession of such moulds on terms set out in an “entrusting letter”.  They contained an express term that for the moulds “shall be returned to [the plaintiffs] forthwith upon demand at any time”.  Later the harmonious working relationship between the parties came to an end.  The plaintiffs gave notice for the return of such moulds.  The defendants failed upon demand.  The plaintiffs obtained summary judgment against the defendants.  The defendants appealed.  Counsel for the defendants argued that the said term meant the plaintiffs had to wait for the defendants to complete pending orders before returning such moulds.  The Court of Appeal rejected the argument.  Litton JA said, at 53 G-H:

“If reasonable time was to be read into the meaning of the words “forthwith upon demand at any time”, it must simple mean such time as would have enabled the defendants to comply with the demand. Nothing in the entrusting letters say that, in making the demand, the plaintiffs must have regard to the defendants’ reasonable expectations of profit or their manufacturing processes or anything of that kind. The terms of the entrusting letters place no duty on the plaintiffs to have regard to the defendant’ interests at all. In so construing the terms of the entrusting letters, we are not ignoring the “commercial purpose” of the transaction or “the surrounding circumstances” in which the transaction came about: see Lord Wilberforce in Reardon Smith Line v Yngvar Hansen-Tangen [1976] 1 WLR 989, 995 H. but whatever the nature of the surrounding circumstances, the court cannot give to the words in the contract an effect contrary to their ordinary meaning. “Forthwith upon demand at any time” cannot mean “such time as suits the defendants’ convenience”; far less can it mean “such time as best suits the defendants’ commercial advantage”.

(2)  Ds’ counter-argument on “forthwith” commissioning

Ds say they had to be aided by professionals

26.Chan explains that, including herself, most of the flat owners of Yee Fung Building were old and infirm retirees, who knew little about the repair or the tendering procedure.  They had to rely on professional people such as the consultant company to prepare the tender procedure and monitor the repair.  She is dissatisfied with P’s attitude because P never took part in the management committee meetings to discuss with Ds.  Instead P would cause solicitors’ letters to be issued to Ds right away.     

Ds say they had to comply with legal requirements

27.Ds argue that D2 was a body of incorporated owners.  The Consent Order was made with D2, which was known to P as a body of incorporated owners.  The term “forthwith” shall be construed in this context.  P had to accommodate Ds’ need, hence the time inevitably taken, for D2 qua incorporated owners to comply with legal requirements to commission a contractor.  There were proper procedures undertaken by Ds to issue notices, convene meetings, handle tenders and collect contribution from the owners (as set out in more detail in the Chronology at the end of this Judgment) as follows:

(1)	Inability to get sufficient quorum of management committee members to pass resolution in several instances as all committee members were sitting on a voluntary basis.
(2)	Insufficient notice at law to convene a management committee meeting in one instance.
(3)	The consultant company, Richly, had misconducted itself in the tendering procedure which led to its consultancy contract being terminated by Ds.
(4)	Ds had to look for another contractor, which transpired to be Prudence, because the six tenders received were either too expensive or inexperienced.
(5)	It took time to prepare the scheme of amounts of contribution from each owner.
(6)	Some owners failing to pay up their amounts of contribution to the repair in time.
(7)	Ds not given entry by P into the flat to inspect and take photographs for pre-repair condition.
(8)	P’s delay in removing the metal coping of the glass structure framework prior to the commencement of the repair.

(3)  My view on delay in complying with Consent Order

28.I would like to comment on the issue of the metal coping raised by Ds [(8) hereinbefore].  There appears to be the need to remove it for the repair, as seen in Ps concession in Court in January 2006.  However, I do not think P should be accused of any delay on its own part.  As stated by Chan in her evidence, between the time when this issue was first raised by Ds (on 6 July 2005) and the time P removed it (on 16 January 2006), Ds were having discussions on re-tendering, terminating Richly’s contract, engaging Prudence (another consultant company) and preparing for the repair.  Ds were not yet ready with the repair throughout the currency of the metal coping issue. 

29.Water seepage was here an ongoing problem.  The damages paid by Ds were only up to the date of the Consent Order.  Whilst the legal requirements for incorporated owners had to be complied with, Ds could and should have convened meetings to complete all steps, including but not limited to the selection of a consultant, invitation and award of tenders, and collection of contribution by each owner prior to the making of the Consent Order, not after it.  It is true that the contingencies took time to resolve.  But they only featured in the course of Ds’ compliance of the legal requirements.   

30.To apply Litton JA’s observations (in HB Electronics Ltd v Telemate Telessystems Inc above), P was not expected to have regard to Ds’ convenience.  It might be inconvenient to Ds or the owners to arrange for the repair or even make an advance contribution for the contract fee prior to the Consent Order.  In my judgment, however, it could have been done prior to the Consent Order. 

I.  P’s alternative claims

(1)  P’s argument on cause of water seepage

31.P also pleads a list of furtheror alternative claims based on the breach of DMC, nuisance, negligence and the breach of section 18 of MBO.  P refers to the following reports:

(1)	P’s Wong’s report dated 16 December 2002 [318 – 345.9];
(2)	P’s and Ds’ joint expert report made by Wong and Cheung (who was Ds’ expert) dated 30 March 2004 [402 – 434];
(3)	P’s Wong’s supplementary report dated 10 March 2009 [217.102 – 217.138].

32.P says the surveys and tests conducted by the said experts pointed to the defective roof works as the cause of the water seepage.  There were no other identifiable causes.  As the roof was a common part of the building, Ds had a duty to do the repair.  P can claim loss and damage for Ds’ failure or delay. 

(2)  Ds’ counter-arguments on proof of cause of water seepage

33.Ds refer to Li’s report dated January 2009 [217.1 – 217.101], which suggested 2 other possible causes.

First possible cause: Ds’ theory of overloaded beam

34.Li suggests that there was overloading of the top horizontal beam (“Beam”) situated over the air-conditioner unit in the bedroom as a result of the P’s appendages affixed there.  He came up with this suggestion after his inspection of the Flat in 2009.  Although there was no longer any damp patches in 2009, he could tally the positions of the damp patches on the wall above the air-conditioner unit (as seen in Photo no. 4 of the joint report in 2004 [424]) with the dry water patches (as found in his inspection in 2009).  He regards the dry patches suggestive of water seepage into the structural crack lines of the Beam into the ceiling.  The water patches were made dry only because of the renovation apparently done some time before his inspection in 2009.  The Beam was not built for support of such extra weight [217.17].  P’s predecessor had appendages such as the air-conditioner condenser, the concrete eave, the timber trellis, the awning, the covered glass structure, etc. affixed to the Beam.  The weight of these appendages, in particular that of the air-conditioner condenser whenever it was switched on and vibrating, had caused the Beam to sag and crack at its centre point.  This impacted the wall near and below the Beam.  A lot of crack lines could thus be spotted. 

35.Li sought to draw support for this theory from the calculations [217.93 – 217.96] proffered by a structural engineer, Cheng, who is not called as a witness.  It transpired, as accepted by Ds to be common ground, that the calculations were based on a mistake of how the various appendages were affixed so that the loading was not as much as the calculations reflected.  In other words, he cannot draw any support for his theory from such calculations [217.105].  Despite that and the want of evidence, he is still prepared to assume that the crack lines and dry water patches found there in the Flat in 2009, can suggest overloading as a possible cause of water seepage.  When asked where the structural cracks were, he cannot give any direct answer.  His highest case is that it was a possibility. 

36.When asked how water seepage had, in 2004, defied gravity and traveled up the wall of the bedroom and across quite a length of the ceiling to inflict the extensive damp patch as shown in the photos, such as Photo 4 [424], Li explains with the aid of sketches in Court [Exhs. D3, D4 and D5].  He seeks to demonstrate that water can go up a bit [Exh. D5] but he has not explained clearly why water could go so high up and far into the ceiling as seen in the photos such as Photo 4 [424].  

37.I do not find Li’s explanation cogent.  I find Wong’s reports and the joint reports much more convincing.  It had been stated clearly in such reports that the defective waterproofing works done by the contractor of 2002 were the only identifiable cause of water seepage into the ceiling of the bedroom in 2004.  I am satisfied that their surveys, the tests and the analysis were credible and reliable.     

Second possible cause: Ds’ theory of  damaged water pipe

38.Li regards that part of a water pipe on the roof had been embedded into the waterproofing layer by the contractor of 2002 (as seen in Photo 15 [217.78]).  The water pipe was embedded into the waterproof layer directly above the ceiling of the bedroom.  It might have been damaged so that water had seeped into the ceiling.  He accepts that this cause is only “speculative” [217.20].  I think his speculation does little to throw doubt on Wong’s reports or the joint report. 

J.  Time taken to carry out repair

39.P accepts in its Opening [para. 29] that it would take 90 days to comply with the Consent Order.  The repair on site was commenced on 3 August 2006 and completed on 17 October 2006.  Ds do not suggest it should take longer than that. 

K.  P’s loss due to Ds’ delay

40.Whether one shall put it as a breach of the Consent Order, or a breach of DMC, nuisance, negligence or a breach of section 18 of BMO, Ds was dilatory in the repair.  The loss suffered by P had continued alongside the delay.  If P sues on the Consent Order, I shall take 90 days as the time required for the commissioning and the carrying out of the repair together.  It had taken Ds 24 months from Consent Order (in October 2004) to complete the repair (in October 2006).  Allowing for the said 90 days of repair, the delay had been 21 months (i.e., 24 – 3).  If P sues on the further or alternative claims, the loss had continued for 24 months.  On the basis of the lesser amount claimed pursuant to the Consent Order, the loss of rent would cover 21 months:

41.The Flat had been rented out to various tenants or occupied by Loh before the water seepage problem became acute.  There was no dispute of the market rent per month during this period as follows:

(1)	From January 2005 to November 2005 - $15,800;
(2)	From November 2005 to October 2006 - $16,600.

The total would be $340,600 for the 21 months between January 2005 and October 2006 as follows:

(1)	$15,800 for 10 months;
(2)	$16,600 for 11 months.

L.  Conclusion

42.P’s claim succeeds in the sum of $340,600.  The parties shall file submissions on costs within 28 days from today.

Mr. Edward ALDER, instructed by M/s. Weir & Associates for the Plaintiff.

Miss Abigail WONG, instructed by M/s. T.C. Foo & Co for the 1^st and 2^nd Defendants.

Chronology of Events