KU'S INVESTMENT CO., LTD v. THE INCORPORATED OWNERS OF LANDWIDE COMMERCIAL BUILDING

LDBM 296/2016

[2018] HKLdT 73

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 296 OF 2016

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J U D G M E N T

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1.  In its Re-Amended Notice of Application, the applicant sought the following relief (the alternative relief sought are not set out as the applicant no longer relies on the alternative position):

1)  A declaration that the respondent has a duty to keep the external wall and roof in good repair and condition;

2)  A declaration that under Clause 11(d) of the deed of mutual covenant of the Building (“the DMC”) the Contract Amount (as defined in paragraph 2(3) of the Re-Amended Notice of Application) shall be apportioned amongst the owners in the proportion set out in Clause 11(c) of the DMC;

3)  A declaration that the Demand Notice is invalid as being contrary to Clause 11(d) of the DMC;

4)  An order the respondent do within 14 days of the order withdraw the Demand Notice and reissue a new demand for contribution against the owners of the Building in accordance with Clause 11(d) of the DMC;

5)  An order that the respondent to refund to the applicant the sum of HK$1,008,659.44;

6)  Interest pursuant to sections 12B and 12C of the Lands Tribunal Ordinance (“LTO”); and

7)  Costs. 

2.  The relief sought at paragraphs 1(2), (4) to (6) were settled on the first day of trial by way of a consent summons. I indicated that I would give my decision on whether I would approve of the consent summons in this judgment with reasons.

3.  The only outstanding issues left to be decided at trial were as follows:

1)  Whether the respondent has the duty to keep the external wall and roof of the Building in good repair and condition;

2)  Whether the declarations sought in the Notice of Application and in the consent summons should be granted;

3)  At what rate interest should be awarded at; and  

4)  Whether an order for indemnity costs should be made against the respondent in respect of the Request for Further and Better Particulars and the 2^nd and 3^rd witness statements.

A. BACKGROUND

4.  The undisputed facts of the case are set out below.

5.  The applicant is the registered owner of Shops No 1 and No 2 at Landwide Commercial Building, Nos 118 – 120 Austin Road, Kowloon, Hong Kong (“the Building”) and of the external wall of the Ground Floor of the Building as coloured in pink in the Indenture between the First and Second Owner (the applicant is the successor of the Second Owner). The Indenture shows that only the front façade of the external wall of the Ground Floor belongs to the applicant.

6.  Mr Koo Fung Cheung (“Koo”) is the director of the applicant and served as the Chairman of the 2^nd and 3^rd Management Committee of the respondent. 

7.  The Building is divided into 1000 shares, of which the external wall and roof of the Building have been assigned 1 undivided share. Mr Lam Kam Fai (“Lam”), the successor of the First Owner, now owns the 1 share assigned to the external wall and the roof of the Building. The parties have been unable to contact Lam or locate his whereabouts.

8.  By a letter dated 26 September 2014, the Buildings Department required the respondent to carry out mandatory inspections pursuant to the Mandatory Building Inspection Scheme and the Mandatory Window Inspection Scheme.

9.  The respondent invited tenders for the mandatory inspection works and the overall repair works of the Building. On 31 March 2016, the respondent passed various resolutions including authorizing the repair, replacement, and renovation works to be carried out by Shun Sun Construction Company Limited (“Shun Sun Construction”).

10.  The respondent and Shun Sun Construction entered into a contract on 27 April 2016. The contract included repair works to be done to the whole of the external wall (except the parts owned by the applicant) and to the roof (“the repair works”). There is no dispute there are water tanks and other common facilities on the roof that service the whole Building. Furthermore, there are no structures erected by Lam or his predecessors on the roof for private use.

11.  On 4 May 2016, the respondent, through its solicitors, issued a demand notice (“the Demand Notice”) to all owners asking for contributions to be made for the repair works. The contributions were apportioned according to the proportion of undivided shares allocated to each unit in the Building.

12.  At the owners’ meeting held on 22 September 2016, a number of owners expressed their disagreement to the method of apportionment adopted and questioned whether the duty to maintain and repair the roof and external walls should rest with Lam. Koo attended the meeting in his capacity as an owner and suggested the costs of the repair works should be apportioned in proportion of the undivided shares of each unit. He further raised concerns about the possible costs and legal implications if the repair works were suspended pending the resolution of the apportionment matters.

13.  On 28 December 2016, the applicant filed the Notice of Application. In its 1^st witness statement, the applicant explained it was now of the view the costs of the repair works should be apportioned in proportion to the units of the Building instead of the undivided shares (as previously suggested by Koo). This change in position was as a result of having sought legal advice on the matter.

14.  On the first day of trial, the respondent produced and sought to rely on the latest legal advice received from a new firm of solicitors only 2 days before the trial. By reason of the reasoning set out in the latest legal advice, the respondent accepted the apportionment method set out in the Re-Amended Notice of Application as being the correct apportionment method and conceded to the relief sought at paragraphs 1(2), (4) to (6) hereinabove.

15.  As to the question of who should be responsible for maintaining and repairing the external wall and the roof, the respondent explained there was no consensus amongst the owners on the matter and therefore it was not in a position to make any concessions. However, in light of the latest legal advice obtained by the respondent and to avoid incurring unnecessary costs, the respondent would not actively defend the applicant’s application. Consequently, the respondent did not call any witnesses at trial, nor did it extensively cross-examine the applicant’s witnesses.

B. THE PROPER INTERPRETATION OF THE DMC

16.  The declaration sought by the applicant in its Re-Amended Notice of Application pertaining to the external wall and roof (as set out in paragraph 1(1) hereinabove) should more properly be considered as 2 separate declarations, framed as follows:

1)  A declaration that the respondent has the duty to keep the external wall in good repair and condition; and

2)  A declaration that the respondent has the duty to keep the roof in good repair and condition.

17.  I shall first determine whether the respondent bears the responsibility of maintaining the external wall and the roof and then proceed to determine whether I should grant the declarations sought by the applicant.

(I) The External Wall

18.  The DMC sets out the right of the First Owner (Lam’s predecessor) to exclusively use the external wall, subject to the rights of the Second Owner (the applicant’s predecessor) to use the external wall of the Ground Floor: see Clause 3(a) of the DMC[1].

19.  There is no clause in the DMC which designates the First Owner and its successors as having the sole responsibility of maintaining or repairing the external wall.

20.  Clauses 9(d)(5) and (6)[2] of the DMC set out the responsibility of the management company or the management committee as follows:

1)  To repair and keep in good repair and condition the fabric of the building; and

2)  To paint, whitewash, or treat with cement wash the exterior and common parts of the building.

21.  As submitted by Mr Wong for the applicant, it is well settled that the “fabric of the building” includes the external wall of a building: see 鄭惠娟訴永利中心業主立案法團及另一人(unrep., CACV 137/2006).

22.  Although the exclusive use of the external wall was assigned to the First Owner, the responsibility of maintaining and repairing the external wall was not assigned or designated to the First Owner or its successors.

23.  I note Clause 14 of the DMC[3] requires the owner entitled to exclusive use and possession to keep the interior of each unit in good and tenantable repair. However I am of the view this clause is not applicable to the external wall because Clause 14 refers to the interior of a unit. The description of an “interior of a unit” cannot be a reference to an external wall as the external wall is neither a unit as such nor can one keep the interior of the external in good tenable condition as described in Clause 14 of the DMC.

24.  In respect of whether s.34H of the Building Management Ordinance (“BMO”) is applicable, I am of the view, the present case is akin to the case of Incorporated Owners of Hong Leong Industrial Complex & anor v HL Resources Ltd & anor [2010] 4 HKC 463. The Court of Appeal observed the 1^st defendant’s right to use the external wall was subject to the manager’s power to permit others to use the exterior wall for purposes of affixing signs on the external wall. Hence the Court of Appeal opined that on reading the deed of mutual covenant as a whole, the 1^st defendant did not have exclusive possession or the exclusive right to use and enjoy the external wall as understood in s.34H BMO and therefore s.34H BMO did not operate to place the duty on the 1^st defendant to maintain or repair the external wall.

25.  In adopting the same analysis in the present case, I am of the view that s.34H BMO does not operate in this case to place the duty to maintain the external wall on Lam. On a proper reading of Clause 3(a) of the DMC, Lam only has the exclusive right to use the wall for advertising purposes or affixing signs. The right of Lam to use the external wall is specifically limited and the right is not a general right to use the wall to the exclusion of all other owners. Furthermore, Lam’s use of the external wall is subject to the manager’s authority to grant permission to other owners to attach or put up radio or television serial on the exterior of the building: see Clause 16(r)[4] of the DMC. On a true reading of the DMC, Lam’s exclusive right to use the external wall is not the exclusive right to use, occupy or enjoy the external wall to the exclusion of all other owners as understood in s.34H BMO.

26.  This interpretation is supported by the fact Clauses 9(d)(5) and (6) of the DMC specifically places the duty of general maintenance of the external wall on the respondents. There is no other clause in the DMC which negates or qualifies this responsibility.

27.  In such circumstances, I find the respondent has the responsibility of repairing the external wall and keeping the same in good repair and condition.

   (II) The Roof

28.  Clause 3(b) of the DMC[5] permits the First Owner or its successors to have right to use the roof of the Building subject to the owners’ right to use the roof for fire escape and to maintain repair renew or to service any equipment or apparatus of the Building. The same clause expressly stipulates the responsibility of the First Owner or its successors to maintain the roof of the building.

29.  From a reading of Clauses 3(b) and 9(d)(5) of the DMC, it is evident that the responsibility of maintaining the roof is to be divided between the First Owner and the respondent as follows:

1)  The First Owner is generally responsible for maintaining the roof, subject to the specific obligations of the respondent to maintain those common parts and facilities; and

2)  The respondent is responsible for repairing and keeping in good repair and condition those parts of the roof which are for common use. The respondent is also responsible for repairing and keeping in good repair and condition the Building’s equipment, apparatus or services that are erected on the roof.

30.  Mr Wong argues that since Lam has never erected any private structures on the roof, the whole of roof was available for common use and therefore the respondent has the responsibility of maintaining the entire roof. With respect to Mr Wong, I do not accept his submission.

31.  The fact that Lam has chosen not to erect any structures on the roof has no bearing on whether Lam’s responsibility under the DMC to maintain the roof has extinguished. Although the reality of the situation may be that most of the roof has been used for the placement of common facilities and services, Lam continues to have the proprietary right to use the roof or to erect structures in the future. So long as the proprietary right to erect such structures continues to exist, Lam’s general responsibility of maintaining the roof pursuant to the DMC also continues to exist. 

32.  In so far as there are common facilities erected on the roof and the parts of the roof that are for common use, I accept the maintenance and repairs of those parts and facilities must fall within the responsibility of the respondent. Hence, the repair works carried out by Shun Sun Construction on the roof relating to the Building’s common facilities and/or common areas on the roof must be the responsibility of the respondent.

C. WHETHER THE DECLARATIONS SOUGHT SHOULD BE GRANTED

33.  The factors to be considered when deciding whether discretion should be exercised in granting a declaratory relief are set out in the case of曾婉玲 v 兆隆苑業主立案法團 (unrep., LDBM 199/2001) at paragraphs 19 and 22 of the judgment. In particular, I remind myself that a declaration would generally not be granted if it would not serve any practical or useful purpose.

34.  In summary, Mr Wong submitted the declarations sought will serve as guidance and clarify for the parties their respective rights and obligations under the DMC as pertaining to the external wall, roof and apportionment matters. The respondent agrees with the submission and hopes the declarations sought will shed light on the cases which have been stayed pending the outcome of this present case.

35.  Having considered the submissions made, I am not minded to grant the declarations sought, save and except the declaration agreed between the parties in the consent summons. The declaration set out in the consent summons will be dealt with in the next section of this judgment.

36.  In respect of the declaration sought on the external wall, I have set out my reasoning in full and I fail to see how a declaration would serve any additional useful purpose in offering guidance on the relevant provisions of the DMC.  Furthermore, I do not find it appropriate to make declarations for the purposes of pre-empting litigation involving those whom are not parties to the present case.   

37.  As for the declaration relating to the roof, I am of the view the declaration sought in respect of the roof, as worded in the Re-Amended Notice of Application, is only partially correct. For reasons I have already given in this judgment, the responsibility of maintaining and repairing the roof is divided between the First Owner and the respondent. It does not rest entirely with the respondent. Hence I refuse the applicant’s application for the declaration sought as pertaining to the roof.

38.  In respect of the declaration relating the validity of the Demand Notice, I refuse to grant the declaration as set out in the Re-Amended Notice of Application. The respondent now concedes the apportionment set out in the Demand Notice is wrong and agrees the correct apportionment of the costs of the repair work should be in proportion to the number of units. The respondent also agrees to withdraw the Demand Notices and to reissue a new demand notice in observance with Clause 11(d) of the DMC. By reason of the matters agreed to in the consent summons, I do not see any useful purpose to be served by granting an additional declaration declaring the Demand Notice invalid. I therefore refuse to grant the same.

D. THE ORDERS SET OUT IN THE CONSENT SUMMONS DATED 15 AUGUST 2018

39.  I have considered whether it is appropriate to approve of the orders set out in the consent summons. In particular, I have reminded myself that this Tribunal should not grant a declaration merely because the parties have consented to it being granted. It is imperative that the merits of the case be examined before deciding whether the declaration should be granted or not.

40.  For reasons set out hereinabove, I am of the view the respondent is responsible for repairing and maintaining the external wall and the roof (in so far as the works relate to common areas on the roof and common facilities placed on the roof). Hence it follows that the owners will be liable for the costs of the repair works in so far as it relates to the external wall, and the common area and common facilities on the roof.  

41.  I have considered Clause 11(d) of the DMC[6]. I am of the view Clause 11(d) of the DMC is the correct clause to be applied when considering apportionment of the costs of the repair works on the roof and external wall. Furthermore, the plain wording of the said clause requires that the repair costs be apportioned in proportion to the number of units in the Building and not in proportion the undivided shares allotted to each unit.

42.  In such circumstances, I am satisfied the declaration is correct and consistent with the DMC. Having considered the history of the case, the dispute amongst the owners, and the different legal advice received by the respondent, I am satisfied that the declaration set out in the consent summons will serve to clarify the proper method of apportionment of the costs of the repair works as between the parties. I am therefore of the view I should exercise my discretion in granting the declaration as proposed in the consent order.

43.  I therefore approve of the consent summons and grant the orders sought therein.

44.  As for interest to be awarded on the sum of contributions overpaid by the applicant in respect of the repair works, the applicant seeks interest on the sum of HK$1,008,659.44 (the sum of contributions overpaid by the applicant in respect of the repair works) at pre-judgment rate pursuant to s.12B of the LTO and interest thereafter at judgment rate pursuant to s.12C LTO.

45.  The conventional practice in awarding pre-judgment interest is to adopt the pre-judgment rate of 1% over prime rate: see Waddington Ltd v Chan Chun Hoo Thomas & ors (unrep., CACV 10/2014, 20 May 2016). I adopt the same rate accordingly.

E. SUMMARY OF ORDERS

46.  By reason of the matters set out above, I make the following orders:

1)  Order in terms of paragraphs 1 to 3 of the consent summons[7] dated 15 August 2018 as amended (see footnote); and

2)  Interest on the sum of HK$1,008,659.44 at a rate 1% over prime rate for the period from 28 December 2016 (date of filing the Notice of Application) until the date of this order, and thereafter at judgment rate.

F. COSTS

47.  The applicant asks for the costs of the Request for Further and Better Particulars, and the applicant’s 2^nd and 3^rd witness statements be awarded to the applicant on an indemnity basis for the reasons as summarized below:

1)  The respondent has made unsubstantiated allegations against the applicant such as misrepresentation and conflict of interests; and

2)  The respondent refused to accept the applicant’s proposal made before and at the pre-trial review hearing to resolve the dispute solely on arguments of law without the need to call witnesses of fact. Had the respondent accepted the proposal, the trial would have been fixed for 1 day only. As a result of the respondent’s refusal to accept the proposal and given the change in the respondent’s stance, the 3 days reserved for trial were not fully utilized.

48.  I have considered the cases of Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 and Xu Zhiqiang and others v Ng Kwok On and others [2018] HKCFI [274] as cited by the applicant. I have also considered paragraph 62/App/12 Hong Kong Civil Procedure 2018, Vol 1. 

49.  Having considered the overall circumstances surrounding this case, I am not satisfied the respondent’s conduct was in any way scandalous, vexatious, oppressive or in any way improper so as to warrant an order of indemnity costs against it. I am of the view the respondent, in light of the latest legal advice, adopted a sensible and prudent approach in deciding not to actively defend the case to avoid any further unnecessary costs. Given the respondent had only received the latest legal advice only days before the trial hearing, I am of the view the respondent’s choice of not agreeing to forgo its right to call factual witnesses could not be criticized, especially when it became unrepresented only 3 days before the pre-trial review.

50.  As for the applicant’s complaints about the allegations of misrepresentation and conflict of interest on Koo’s part, I am of the view that any costs spent on the Request for Further and Better Particulars can be adequately compensated by a costs order taxed on a party and party basis. Having considered the background of the case and the circumstances leading up litigation, I can see no evidence of any ulterior motive, mala fides, or oppression on the respondent’s part in making the allegations.

51.  Having considered the overall conduct of the case and the unfortunate circumstances that have surrounded the litigation, I decline to make any indemnity costs order against the respondent.

52.  Although I have refused to grant various declarations for reasons set out above, I have basically agreed with the applicant’s position on the liability of repair costs and the respondent’s responsibility on the external wall and roof. In such circumstances, the applicant is still, in effect, successful in its application. Hence I am of the view costs should follow the event.

53.  Having regard to the complexity of the case and the sum of overpaid contributions claimed by the applicant, I accept costs of the applicant should be taxed on the High Court Scale but shall grant certificate for one counsel only.

54.  I therefore make a costs order nisi that the respondent do pay the applicant’s costs of this action to be taxed on the High Court Scale if not agreed, with certificate for one Counsel. Unless any party applies to vary the costs order within 14 days hereof, the costs order shall become an order absolute.