Central Management Ltd v. Light Field Investment Ltd and Another

CACV30/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 30 OF 2010

(ON APPEAL FROM HCA No. 440 OF 2008)

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BETWEEN

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Before : Hon Rogers VP, Le Pichon and Cheung JJA in Court

Date of Hearing : 8 December 2010

Date of Judgment : 8 December 2010

Date of Reasons for Judgment : 15 December 2010

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REASONS FOR JUDGMENT

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Hon Rogers VP :

1.I agree with the Reasons for Judgment of Cheung JA.

Hon Le Pichon JA :

2.I agree with the Reasons for Judgment of Cheung JA.

Hon Cheung JA :

The facts

3.The defendants are the registered owners of two adjoining flats, namely, Flats 53A and 53B on the 53^rd floor of a high-rise residential building situated at No. 41D Stubbs Road, Hong Kong and known as the Highcliff.  There is no dispute that as the owners of the two adjoining flats, the defendants were and still are entitled to remove a designated part of the partition wall (‘the permitted opening’) constructed between the two units so as to connect the two flats internally.  The permitted opening is made of bricks and is non-structural in nature. 

4.The defendants after acquiring the two flats proceeded to demolish part of the partition wall and created an opening between the flats. The intended opening went beyond the area of the permitted opening. 

5.The plaintiff who is the manager appointed under the Deed of Mutual Covenant (‘DMC’) of Highcliff applied for an injunction to restrain the defendants from proceeding with the work on the ground that that part of the partition wall which the defendants intended to remove beyond the permitted opening belonged to the common parts (‘the Common Areas and Facilities’) of Highcliff which the defendants were not allowed to interfere with.  The plaintiff also sought a declaration to that effect.

The judgment

6.Deputy High Court Judge Louis Chan having heard the case found for the plaintiff.  He also dismissed the defendants’ counterclaim and their claim against the third party (who was the developer of Highcliff) for damages on the alleged basis that the third party had been guilty of misrepresentation made before the sale of the units that the whole of the partition wall could be removed so as to turn the two units into a single one.

The appeal

7.The defendants appealed against the judgment.  They have since restored the partition wall to its original position.  After hearing the appeal, this Court dismissed the appeal.  I now give the reasons.

The Assignment

8.Briefly, the developer completed Highcliff in 2004 and assigned the first unit to a purchaser in January 2005 (‘the 1^st Assignment’). The sale to the defendants of the flats took place in 2007, each by a ‘Provisional Agreement for Sale and Purchase’ dated 23 July 2007 and followed by a Formal Agreement dated 6 August 2007.  The Assignment took place on 21 September 2007.  Apart from the two flats the defendants also acquired car parks which are not relevant for the purpose of this case.

9.Under Clause 1 of the Assignment of Flat 53A the property that was to be assigned to the defendant is :

‘ the property described in Part I of the Second Schedule hereto (“the Property”) EXCEPTING AND RESERVING unto the Vendor such rights as set out or referred to in paragraph (B) (b) of Part I of the said Second Schedule TO HOLD the same unto the Purchaser (in the case of the Purchaser being more than one person in such type of ownership as may be specified in paragraph 1 of the said First Schedule) for the residue of the term of years created by the Lease referred to in Part II of the said Second Schedule SUBJECT to the payment of the due proportion of the yearly rent reserved by and the covenants conditions and provisos contained in the said Lease AND SUBJECT to and with the benefit of the Deed of Mutual Covenant and Management Agreement (“the Deed of Mutual Covenant and Management Agreement”) as set out in Part III of the said Second Schedule so far as the same relates to or affects the Property.’ (emphasis added)

10.The relevant part of the description of the property in the Second Schedule of the Assignment is as follows :

‘ The Property :-

(A) Description, Address, Lot Number and Undivided Shares etc. :- 

ALL THOSE 473 equal undivided 83,646^th parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry as THE REMAINING PORTION OF INLAND LOT NO. 8290  And of and in the messuages erections and buildings thereon now known as “HIGHCLIFF (曉廬)” No. 41D Stubbs Road, Hong Kong (“the Development”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THOSE FLAT A on the FIFTY THIRD FLOOR and PARKING SPACES NOS. 47 and 48 on the SIXTH FLOOR of the Development (which said Flat and Parking Spaces are shown on the Floor Plan(s) annexed hereto and thereon coloured Pink).

(B)   Exceptions and Reservations :-

(a)  Except and reserved as in the Lease hereinafter described is excepted and reserved; and

(b)  Excepting and reserving unto the Vendor its successors and assigns other than the Purchaser the right to the exclusive use occupation and enjoyment of the whole of the Development save and except :-

(i)    the Property; and

(ii)   such areas and facilities (if any) as may be designated as common areas and common facilities in the Deed of Mutual Covenant and Management Agreement or are intended for common use.’

11.Apart from the description of the flat, the terms of the Assignment for Flat 53B are the same.

12.The developer had by another assignment dated 14 January 2005 assigned the Common Areas and Facilities (as defined in the DMC and Management Agreement) to the plaintiff. 

The defendants’ case

13.The defendants contended that the partition wall was assigned to them as part of the assignment of two flats for their exclusive use and possession and it does not form part of Common Areas and Facilities of Highcliff.  Mr. Fung SC (who only appeared in this appeal) together with Mr. Yeung as counsel for the defendants, argued the appeal on a narrow compass.  Relying on the statement in Jumbo King Ltd v. Faithful Properties Ltd & Others [1999] 3 HKLRD 757 at page 774 that the Court may consider the terms of the First Assignment of a unit in a development for the purpose of ascertaining the intention of the parties, they referred to the plan attached to the 1^st Assignment and argued that the intention of the developer was to assign to the defendants the partition wall as well.

14.The 1^st Assignment was in respect of Flat 36A on the 36^th floor.  Apart from the number of the flat, the description of this property is exactly the same as the two units in the present case.  Counsel relied on the legends shown on the plan. There are three legends.

1)   The first is in respect of the area coloured pink and marked as ①.  The description of this part is ‘Elements of construction between different occupancies at odd numbers floors only (except 33/F) shall not be removed/altered unless Flat A and Flat B are in same occupancy’.

2)   The second is in respect of the area coloured yellow and marked as ②.  The description of this part is ‘Elements of construction between different occupancies at even numbers floors only shall not be removed/altered unless Flat A and Flat B are in same occupancy’.

3)   The third is in respect of the part marked by thick black lines and the description is ‘Structural or other elements of construction shall not be removed/altered unless and until it is approved by the Building Authority’.

15.The areas marked ① and② are the areas known as the permitted area in the partition wall of respectively odd and even numbered floors which can be opened up by a common owner of two adjoining flats.

16.Counsel then argued that the third legend in fact shows that the intention of the developer was to allow the first owner of the unit to remove the partition wall which is a ‘structural or other elements of construction’ if consent of the Building Authority is obtained.  In the present case, the Building Authority had given consent to the defendants to demolish part of the partition wall to create a larger opening between the two units.  The plan annexed to the 1^st Assignment is the floor plan for the even numbered floors from the 12^th to 66^th floors.  A similar plan is annexed to each of the assignment of the two units in this case.  It is for the odd numbered floors from the 11^th to 65^th floors.  The legends on these two plans are identical.  Hence for the same reasoning the intention of the developer was also to assign the partition wall to the defendants.

My view

17.Whether the partition wall is within the ambit of Common Areas and Facilities is a matter of construction of the terms of the title documents.  I disagree with the defendants’ argument for the following reasons :

1)   I do not regard the third legend as an indication by the developer that it had intended to assign the partition wall to the defendants. A more likely interpretation which is more consistent with giving sense to the wording of the assignment, is that it is used to indicate that, apart from the permitted opening represented by areas ① and② which can be opened by the same occupier of the two adjoining flats without further qualification, the rest of the areas shown on the plan as indicated by the thick black lines are the structural parts of Highcliff or consist of elements of construction which can only be altered with the approval of the Building Authority.  It is a long way from this description to say that the partition wall was also assigned to defendants and that it can be removed if they have obtained the approval of the Building Authority.  It would be most odd if something as important as the rights and obligations of the owners is found on a legend in the plan and not in the body of the assignment and clearly expressed in words.  I do not regard the third legend as showing that the developer had chosen not to reserve the partition wall to itself (and subsequently assigned to the plaintiff as part of the Common Areas and Facilities) and had, instead, assigned the same to the defendants.

2)   Further the third legend on the plan cannot be construed alone.  The whole of the 1^st Assignment (and likewise the Assignments in the present case) together with other documents of title such as the DMC must be considered as well.  Under Clause 1 of the Assignment, the assignment of the property is clearly said to be subject to the DMC which was executed contemporaneously with the 1^st Assignment although the latter might have come into existence first.

3)(1)   Under the DMC, the term ‘Common Areas and Facilities’ means and includes ‘….. load bearing walls, foundations, columns, beams and other structural supports of the Development….’ and ‘….. such areas within the meaning of “common parts” as defined by section 2 of the Building Management Ordinance[‘BMO’] (Cap. 344)….’ (emphasis added)

(2)   Under the BMO, Section 2 provides that “ ‘common parts’ means – (a) the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner; and (b) unless so specified or designated, those parts specified in Schedule 1”.  Schedule 1 to the BMO expressly includes, among other things - “1. External walls and load bearing walls, foundations, columns, beams and other structural supports”. 

4)   Under the terms of the DMC the owners are prohibited from interfering with the Common Areas and Facilities.  This appears clearly by Clause 1 of the Fourth Schedule of the DMC :

‘ No Owner or the Manager shall make any structural alteration to any part of the Development owned by him (including but not limited to the external walls, structure or facade of the Development or any installation or fixture therein) which may damage or affect or interfere with the use and enjoyment of any other part or parts of the Development whether in separate or common occupation (in particular the supply of water, electricity, gas or other utilities) nor shall any Owner use, cut, injure, damage, alter or interfere with any part or parts of the Common Areas and Facilities or any equipment or apparatus on, in or upon the Lot not being equipment or apparatus for his exclusive use and benefit.’ (emphasis added)

5)   Similar provisions are found in the BMO.  Section 34I(1) provides that – “No person may – (a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners’ committee (if any)…”.

6)   The construction of a document is an attempt to discover what a reasonable person would have understood the parties to mean.  And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve (per Lord Hoffmann NPJ at 726 in Jumbo King).  Highcliff is a high rise development with multiple ownership.  The removal of a structural part situated between two units clearly will have an impact on the structural stability of the development as a whole.  Hence, as one would expect, for the management of such a development, the structural elements are designated as common parts not within the exclusive right of an individual owner.  The interpretation placed by the defendants would create an absurd result, if, despite the clear words in the DMC that an owner cannot injure a structural part of the development (of which the partition wall is one), the owner can do precisely the opposite so long as the approval of the Building Authority is obtained.  This cannot be the intention of the parties when the DMC has not created such an exception.

Other arguments

18.The defendants also relied on the following in support of their case on construction :

(1)  Colour on plan

19.The DMC stated that the Common Areas and Facilities are to be marked yellow on the annexed plan and yet no part of the wall is coloured yellow on any of the plans.

20.There is a short answer to this.  Under the DMC, the definition of ‘Common Areas and Facilities’ is concluded by the following words :

‘ Such Common Areas and Facilities (if and where capable of being shown on plans) are shown coloured yellow on the plans annexed hereto as certified by the Authorised Person;’

21.The qualification is ‘if and where capable of being shown’.  Since all the structural parts identified on the plan are marked by the thick black lines, they therefore cannot be marked yellow.  It does not mean they are not within the ambit of ‘Common Areas and Facilities’.

(2)  Saleable area

22.In the Formal Agreements which have the same plans annexed to them, Saleable Area was defined as ‘in relation to a unit enclosed by walls, the floor area of such unit, measured from the exterior of the enclosing walls of such unit except where such enclosing walls separate two adjoining units in which case the measurement shall be taken from the middle of those walls, and shall include the internal partitions and columns within such unit ….’  The defendants argued that by such a description the partition wall was included in the two units assigned to the defendants under the Formal Agreements.

23.Again this does not assist the defendants.  The definition of Saleable Area is to show how the saleable area is to be measured for the purpose of calculating the sales price of the units.  As to what was actually assigned one looks to the whole of the title documents to ascertain the intention of the parties.

(3)  Exclusive control of owners

24.As delineated on the plans, the partition wall forms part of and is bounded by Flats A and B.  No owner other than the defendants can have access to or use or control the wall. Accordingly the partition wall should be considered differently from the other structural elements of the development and is not part of the Common Areas and Facilities under the DMC.

25.The fact that the partition wall is situated between the two units which the defendants have exclusive use and possession does not mean that the partition wall is also excluded from the ambit of ‘Common Areas and Facilities’.  The partition wall is a structural part of the development as well.  Ultimately it is a matter of construction of the terms of the title documents to see whether it is part of the Common Areas and Facilities or not.

(4)  Non-exclusive control of managers

26.Section 41 of the DMC provides that the Common Areas and Facilities shall be under the exclusive control of the Manager.  Since the Manager does not have exclusive control of the partition wall inside the two units, it does not form part of the Common Areas and Facilities.

27.Again this is a matter of construction of the terms of the title documents.

Misrepresentation

28.The misrepresentation that was relied upon by the defendants at trial was in the nature of oral misrepresentations.  This was not pursued on appeal.  However they still maintained that there was misrepresentation by the terms of the Assignment and plan. 

29.In view of the interpretation that I have placed on the title documents, there is no room for argument on this issue.

Costs

30.The Judge ordered the defendants to pay the plaintiff and the third party the costs of the action.  In respect of the plaintiff, costs were awarded on an indemnity basis.  This is said to be pursuant to Clause 47 of the DMC which provides that,

‘ 47. Each Owner shall be responsible for and shall indemnify the Manager and the other Owners and occupiers against the acts and omissions of all persons occupying any Residential Unit or Parking Space of which he has the exclusive use with his consent, express or implied, and to pay all costs, charges and expenses incurred in repairing or making good any loss or damage to the Development or any part or parts thereof or any of the Common Areas and Facilities therein or thereon caused by the act, neglect or default of all such persons. In the case of loss or damage which the Manager is empowered by these presents to make good or repair, such costs, charges and expenses shall be recoverable by the Manager and in the case of loss or damage suffered by other Owners or occupiers for which the Manager is not empowered by these presents or for which the Manager has in its reasonable discretion elected not to repair or make good, such costs, charges and expenses together with all other damages recoverable by law shall be recoverable by the person or persons sustaining the loss or damage.’

31.I do not construe Clause 47 in the same way as the Judge.  Although the word ‘indemnify’ is used, it does not mean that the basis of taxation of costs must be on an indemnity basis.  In my view express and clear words must be used in order to exclude the Court’s discretionary jurisdiction in matters of costs.

32.However, in my view, the plaintiff is nevertheless entitled to indemnity costs because of the failure of the defendants to respond to the plaintiff’s sanctioned offer proposing to enter judgment by consent against the defendants with no order as to costs in full and final settlement of the parties’ claim and counterclaim.  The Judge, apart from entering judgment against the defendants, further penalized them with costs.  Accordingly the judgment against the defendants is more advantageous to the plaintiff than under its sanctioned offer.  In such a situation, under the terms of Order 22, rule 24(4), the Court shall order costs on an indemnity basis.  It has not been shown that it is unjust to make such an order in the present case.

Costs of the appeal

33.The Court ordered the defendants to pay the plaintiff and the third party the costs of the appeal on a party to party basis.

Mr. Chan Chi Hung SC and Mr Jeremy S K Chan, instructed by Messrs JSM, for the Plaintiff and the Third Party

Mr. Patrick Fung SC and Mr. Yeung Ming Tai, instructed by Messrs Tong Chan & Co., for the 1^st and 2^nd Defendants