THE INCORPORATED OWNERS OF TROPICANA GARDENS v. CHEONG MING INVESTMENT CO LTD

HCSA19/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 19 OF 2006

(ON APPEAL FROM SCTC 076167 OF 2005)

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 J U D G M E N T

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1. The problem arising from the repair and maintenance of external walls of a building is not rare and uncommon.  On each occasion, the ultimate question to be decided is usually who has the responsibility to repair and maintain.  The same question is asked again in this case.

Background

2. The claimant/respondent is the incorporated owners of Tropicana Gardens (“Tropicana”) in Chuk Yuen, Kowloon.  The defendant/appellant is the developer of Tropicana.

3. Tropicana was completed in or about 1985.  It consists of three commercial floors (G/F, L1 and L2, previously known as First, Second and Third Ground Floors), two car park floors (L3 and L4, previously known as first and second floors) and three residential multi-storey buildings on top (from 3^rd to 27^th floors, Blocks A, B and C).  At the material times, the defendant remained the owner of part of the commercial floors and car park floors.

The Deed of Mutual Covenant (“the DMC”)

4. The DMC was executed on 23 October 1985 between the defendant as the First Owner on the first part, the Management Company of Tropicana on the second part and the first purchaser as the Second Owner on the third part.

The 1/5864^th share

5. In the First Schedule of the DMC, Tropicana is divided into 5864 shares.  The 3 commercial floors, 2 car park floors and the residential units form 920, 143 and 4800 shares respectively.  The remaining 1 share there and then was held by the defendant in respect of :

“The Exterior Walls, Trans. Rm. Switch Rm. Staircases Spaces Underneath, Common Parts, The Lift Halls, The Machine Room, Water Tank, Pump Room Stairs, Generator Room, Entrance Halls, Arcade (Roof)”

Clause 3 of DMC

6. Clause 3 of the DMC gives the owner of the commercial units the exclusive right to do certain acts as follows :

“3.     The First Owner [i.e. the developer] its successors and assigns who are the registered owner for the time being of the Commercial unit of the said Building shall have the exclusive right to erect construct install or affix or permit any person or persons occupying the said First Ground Floor Second Ground Floor and Third Ground Floor to erect construct install or affix any sign or signboard of such size design and at such position on the external walls of the said Building as the First Owner shall think expedient or desirable and to exhibit or paint or permit any person or persons to exhibit or paint any advertisement whether illuminated or otherwise on the external walls of the said First Ground Floor Second Ground Floor and Third Ground Floor or any part thereof of the said Building and to erect install or fix up or permit any person or persons occupying the said commercial unit or units to erect install or fix up one or more chimneys on such part of parts of the open spaces and the external wall at the rear or side or both the rear and side of the said Building as the First Owner shall at its discretion think fit and have right to remove repair maintain service or replace the same PROVIDED that such erection and construction shall be subject to the approval of the Public Works Department or other Government Authorities concerned and shall not obstruct any window space of the said Building.”

7. In summary, subject to the approval of the relevant government authorities of those acts which shall not obstruct any window space, the owners of the commercial units have the exclusive right to do the following acts :

(1)     to erect construct install or affix any sign or signboard on the external walls of Tropicana (i.e. the whole building) or permit any persons occupying the commercial floors to do the same;

(2)     to exhibit or paint any advertisement on the external walls of the three commercial floors or permit any persons to do the same; and

(3)     to erect install or fix up chimneys on the open spaces and the external wall at the rear and/or side of Tropicana or permit any persons occupying the commercial floors to do the same.

The Sale and Purchase Agreement of Shop No.1 to RHKJC

8. In the written submissions of Mr Simon Lam, counsel for the claimant, he submitted that the defendant is and at all material times was the registered owner of the Residual Share (which, in his definition, refers to the 1/5864^th share of Tropicana under the aforesaid First Schedule of the DMC).  As a matter of fact, this is not entirely correct.  In the land records (pp. 74-76), the 1/5864^th share was owned by the defendant which is however subject to an incumbrance, namely, a Sale and Purchase Agreement dated 14 November 1985 entered into between the defendant as the vendor and The Royal Hong Kong Jockey Club (“RHKJC”) as the purchaser.

9. By this agreement, the defendant sold Shop No.1 on Ground Floor (“the Shop”) and one car park space on L3 to RHKJC together also with the exclusive right to hold use occupy and enjoy the exterior wall of the Shop facing Lung Cheung Road Kowloon.

10. Obviously, in light of the said Sale and Purchase Agreement, only RHKJC now has and at the material times had the exclusive right to hold use occupy and enjoy the exterior wall of Shop No.1 on Ground Floor facing Lung Cheung Road.

The claim

11. In August 2005, some tiles at the external wall outside L3 and above the entrance of Block B of Tropicana fell off.  The defendant first covered the defective area with scaffoldings but later said that they had no responsibility to repair and hence dismantled the scaffolds in September 2005.  The claimant therefore carried out the repair work at a cost of $8,000.

12. The claimant then made a claim against the defendant in respect of the repair costs.  The claim was made upon the basis that section 34H of Building Management Ordinance (Cap. 344) required the defendant to maintain the external wall in good repair and condition.

13. Section 34H of Building Management Ordinance provides that :

“(1)    Where a person who owns any part of a building, has the right to the exclusive possession of any part of a building or has the exclusive right to the use, occupation or enjoyment of that part, as the case may be, but the deed of mutual covenant in respect of the building does not impose an obligation on that person to maintain that part in good repair and condition, that person shall maintain that part in good repair and condition.

(2)     The obligation in subsection (1) shall be deemed to be an obligation owed to all owners of the building under the deed of mutual covenant.”

14. The claimant submitted that since the defendant was the owner of the external wall and had the right to the exclusive possession or the exclusive right to use, occupation or enjoyment of the external wall, the defendant was obliged to maintain the external wall in good repair and condition.

15. The Adjudicator made an award in the claimant’s favour on 21 April 2006.  He approached the issue by considering whether the external walls are common parts; he was of the view that if they were, the defendant would not be liable and vice versa.

16. The Adjudicator accepted that the DMC did not state that the defendant had the exclusive right to use the external walls.  Nonetheless, he still concluded that for most parts of the external walls, only the defendant had the actual right to use, the external walls were therefore not common parts and the defendant is responsible for its maintenance.

The appeal

17. The defendant appealed to this court against the award made by the Adjudicator on 6 grounds which could be divided into 3 areas as follows :

(1)     the learned Adjudicator erred in holding that the defendant was responsible for the maintenance of the external walls (Grounds 1 to 4);

(2)     even if the defendant is responsible for maintaining the external walls, there is no provision in DMC which entitles the claimant to carry out works thereon and to seek reimbursement from the defendant (Ground 5); and

(3)     the learned Adjudicator ought to distinguish the external walls themselves and the inside and outside surfaces thereof, both in regard to ownership/possession and the right to use (Ground 6).

Discussion

18. In my view, the starting point of considering the defendant’s liability is section 34H of Building Management Ordinance.  By this section, the defendant has the responsibility to maintain the part of the external wall whereon the repair was done if the defendant :

(a)      owns that part of the external wall;

(b)     has the right to the exclusive possession of that part of the external walls; or

(c)     has the exclusive right to the use, occupation or enjoyment of that part.

Ownership, exclusive possession or exclusive right to use, occupy or enjoy

19. It can be seen from the First Schedule of the DMC, the exterior walls form part of the 1/5864^th share of Tropicana.  The land records clearly show that except for the part of external wall on Shop No.1 on Ground Floor facing Lung Cheung Road, the external wall has been owned by the defendant.

20. Further, such ownership is also supported by the Sale and Purchase Agreement with RHKJC.

The important Sale and Purchase Agreement

21. As mentioned earlier, by the Sale and Purchase Agreement, the defendant sold the Shop and one car park space on L3 to RHKJC together also with the exclusive right to hold use occupy and enjoy the exterior wall of the Shop facing Lung Cheung Road.  From this Agreement, there is a clear indication that before the Sale and Purchase Agreement was executed, the defendant had had the exclusive right to hold use occupy and enjoy the exterior wall of Shop No.1 on Ground Floor facing Lung Cheung Road, or at least, it was the defendant’s position that it had such right.  If otherwise, the defendant would not have the right to assign the same to RHKJC.

22. In this context, the “exclusive right to hold” enjoyed by the defendant prior to the execution of the Sale and Purchase Agreement, in my view, cannot mean anything else other than ownership and/or exclusive possession.  In other words, the Sale and Purchase Agreement shows that the defendant owned and/or had the exclusive possession and/or had the exclusive right to use occupy or enjoy the part of the external wall of Shop No.1 on Ground Floor facing Lung Cheung Road.

23. The importance of this assignment of exclusive right in the present case was also acknowledged in Wong Lai Kai v. Incorporated Owners of Lok Fu Building, Yuen Long [2000] 3 HKC 633.  InLok Fu case, the plaintiff was injured while walking outside a shop when the awning erected on the external wall to the shop of Lok Fu Building collapsed.  He sued the owners of the shop (1^st to 4^th defendants), the tenant of the shop (the 5^th defendant) and the incorporated owners of Lok Fu Building (6^th defendant) for personal injury damages.

24. The trial judge held that the 4^th defendant, being the occupying tenant, is solely liable for the accident.  The plaintiff appealed.  The appeal was dismissed by the Court of Appeal.  Keith JA said at 642H–643A that :

“The importance of the assignment

          The judge found as a fact that the awning had been attached to the external wall of the building at a height below the ceiling level of the ground floor.  There is no challenge to that finding of fact.  Accordingly, the question is whether the judge was right to conclude that the external wall of the building at thatheight was not part of the common parts of the building, but was part of the shop which the 1^st to 4^th Defendants had had the exclusive right to occupy before letting the shop to the 5^th Defendant.”

25. At 643A–C and 645G–I, Keith JA further said the following which is very relevant to our present case :

“… Whether that part of the external wall was part of the shop which the 1st to 4th Defendants had had the exclusive right to occupy depended on what was originally assigned to them or their predecessors-in-title.  Unfortunately, that assignment was not before the judge.  What was before the judge was the Deed of Mutual Covenant defining the rights and obligations of the various co-owners of the units in the building as between themselves.  Butwhatever the Deed of Mutual Covenant may have said about what parts of the building constituted the common parts, the Deed of Mutual Covenant could have been no substitute for what was actually assigned to the 1^st to 4^th Defendants or their predecessors-in-title.”  (643A-C) (Emphasis added)

“Thus, in the absence of the production to the judge of the instrument by which the unit was assigned to the 1^st to 4^th Defendants or their predecessors-in-tile, there was, in my opinion, no material on which the judge could have found that that part of the external wall to which the awning had been attached was part of the common parts of the building which had not been assigned to the 1^st to 4^th Defendants or their predecessors-in-title.  …”  (645G-I)

26. In our present case, the right to hold use occupy and enjoy the part of the external wall of Shop No.1 on Ground Floor facing Lung Cheung Road was assigned to RHKJC by the defendant.  Following Lok Fu case, that part of the external wall was therefore part of the Shop No.1 and RHKJC now had the exclusive right to occupy that part of the external wall.

27. From the evidence before me, I see no reason to distinguish the exterior wall of Shop No.1 Ground Floor facing Lung Cheung Road on the one hand and other parts of the exterior wall on the other.  If the defendant had had the exclusive right to hold use occupy and enjoy the exterior wall of Shop No.1 Ground Floor facing Lung Cheung Road, the defendant must also have the exclusive right to hold use occupy and enjoy all other parts of the exterior wall, including the part where the tiles fell off.  It follows that the defendant is under a duty to maintain those parts of the exterior wall in good repair and condition under section 34H of Building Management Ordinance.

28. In my opinion, the above is sufficient for my decision herein.  For the sake of completeness, I shall deal with other arguments put forward by Mr Benjamin Chain, counsel for the defendant.

Paragraph 1(i) of Third Schedule

29. Mr Chain submitted that paragraph 1(i) of the Third Schedule imposed a duty on all the owners of Tropicana to pay the costs of repairing and maintaining the exterior walls.

30. Clause 6 of the DMC reads as follows :

“6      The Owner or Owners for the time being of each equal undivided part or share of and in the said Land and the said Building shall at all times hereafter be bound by and shall observe and perform the covenants provisions and restrictions set out in the Third Schedule hereto.”

31. Paragraph 1(i) of the Third Schedule reads as follows :

“1.     To pay the due proportion of all costs, charges and expenses which may be or become payable for or in connection with the maintenance and management of the said Land and the said Building in accordance with the provisions of this Deed including but not limited to :

(i)      The costs of improving, maintaining, repairing, renovating and replacing all or any exterior walls, roofs, and flat roofs, staircases, landings, areas, open spaces, yards, paths, roads (including all access roads) and grounds of an in the said Land and the said Building all structures, equipments and amenities therein and thereon.”

32. On the face of them, the above provisions appear to be inconsistent with my aforesaid decision that the defendant has a duty to maintain the part of exterior wall whereon the tiles fell off.  However, upon examining the DMC as a whole more closely, one will see that paragraph 1(i) should be subject to an implied proviso that some owner who has an exclusive possession or exclusive right to hold use occupy and enjoy some part of the building is solely responsible for repair and maintenance of that part of the building.

33. Two examples which can illustrate this point are in respect of roofs and flat roofs.  The aforesaid paragraph 1(i) of Third Schedule also imposes a duty on owners to pay the costs of repairing and maintaining the flat roofs and roofs.  However, does it mean that no matter who has an exclusive possession or exclusive right to use hold occupy and enjoy the flat roofs and roofs, all the owners will have to bear the repair and maintenance costs thereof?

34. The answer is obviously no.  Clauses 6(a) and 6(b) of the DMC read as follows :

“6(a)  The respective portions of the said flat roof(s) adjoining to the Third Floor flats of the said Building (as shown on the respective Assignment plans of such flats) shall be for the exclusive use of the respective owners of such flats and shall be deemed to be part(s) thereof.  The costs and expenses for the repairing and maintaining such portions of the said flat roof(s) shall be borne solely by the respective owners thereof.

6(b)   The owners for the time being of the flats on the 27^th floor of the said building shall have the exclusive right to hold use occupy and enjoy the respective portions of the main roofs of the said Building immediately above their flats (save and except he is the owner thereof and also subject to the restriction as provided in Clause 8 of the said Sixth Schedule) and shall be solely responsible for the repair and maintenance thereof.”

35. The above provisions provide that the costs of maintaining and repairing the flat roofs and roofs are to be borne by the owners who have the exclusive right to use hold occupy and enjoy of the same.  Therefore, in reading the DMC as a whole, paragraph 1(i) of Third Schedule of DMC is not conclusive in the sense that the duty to pay maintenance and repair costs should be subject to the question whether any owner who has the exclusive right to use hold occupy and enjoy that part of the building.  In other words, in my view, notwithstanding paragraph 1(i) of the Third Schedule, those owners who have exclusive right to use hold occupy and enjoy any part of the building are responsible for repair and maintenance of that part of the building.

36. Even if I am wrong in the above analysis on paragraph 1(i) of Third Schedule of DMC, section 34C(2) provides that Part VIA of the Building Management Ordinance (which includes section 34H) shall prevail over any terms of the DMC in the event of any inconsistency between the two.  Section 34C(2) reads as follow :

“(2)    In the event of any inconsistency between this Part and the terms of a deed of mutual covenant or any other agreement, this Part shall prevail.”

The Goa case

37. Mr Chain also seeks to rely on Incorporated Owners of Goa Building v. Wui Tat Co. Ltd [2004] 1 HKC 348 to support that the defendant does not have an exclusive right to use the external wall.  It is useful for me to cite the head notes of this case for its background :

“The respondent was the original developer of the subject building who retained ownership of the mezzanine floor and three shops on the ground floor.  The applicant incorporated owners made a claim to the Lands Tribunal under s 34H of the Building Management Ordinance (Cap 344) against the respondent for maintenance costs of the external walls.  The Lands Tribunal gave judgment for the applicant and ordered the respondent to bear the costs of maintaining the whole of the external wall of the building.  The respondent appealed against that decision.”

38. Rogers VP, in his judgment, allowed the appeal.  Since this judgment has an important bearing on the issue whether the developer has the exclusive right to use occupy or enjoy the external wall, I shall quote the following paragraphs of the judgment :

“3.     A claim could thus be made against the respondent if it were shown that it had the right to the exclusive possession of any part of the building or had the exclusive right to the use, occupation or enjoyment of that part of the building or had the exclusive right to the use, occupation or enjoyment of that part.  Any such rights would inevitably stem from the deed of mutual covenant.  In this respect reference has to be made to cl 1.01 thereof I shall set out in full.

‘The Vendor shall for the residual of the term of years set out in the said Schedule have the sole and exclusive right and privilege (A) … (B) Subject to any necessary approval of the Government Authority or Department to erect, construct, install, affix, fit up, paint and maintain any signs, signboards, advertisements, placards, posters or any other structures whatsoever of such size and design whether illuminated or otherwise and at to or on such position or positions of the external walls of the said Building and of any part of the said Building in common use as the Vendor shall in its absolute discretion think expedient or desirable … (C) Subject to any necessary approval of the Government Authority or Department to erect, construct, install, affix or fit up one of more flu pipes or smoke stacks or chimneys at to or on such part or parts of the open yard or yards and of the external walls of the said Building as the Vendor shall in its absolute discretion think fit ...’ 

4.       It is important to note that although the respondent (ie the vendor) was given rights in respect of various matters such as the erection of signs and signboards and flu pipes, it was not given either the exclusive possession of the external walls or the exclusive right to the use, occupation or enjoyment thereof.  Indeed, such rights as cl 1.01 gave the respondent extended not only to the external walls but also to any part of the building that was in common use. (Emphasis added)

…

6.       In my view, it was clear that the rights accorded to the respondent under cl 1.01 did not comprise all the rights which would amount to the exclusive possession or the exclusive right to the use, occupation or enjoyment of a part of the building.  The rights accorded by cl 1.01 were merely part of the rights which might be enjoyed by an owner but were not the full and exclusive rights.  As a result, I consider that the conclusion which was arrived at by the deputy judge in para 11 of his judgment that ‘Clause 1.01 of the DMC confers on the respondent the exclusive right to the use, occupation and enjoyment of the wall’ was wrong.  Indeed, as was pointed out during the course of argument, it is impossible to ignore the fact that cl 1.01 refers not only to the external walls but also to the parts of the building in common use.  To suggest that the common parts of the building were thus either in the exclusive possession of the respondent or that the respondent had the exclusive right to the use, occupation or enjoyment thereof would be self-contradictory and absurd.” (Emphasis added)

39. In my view, Goa case is distinguishable from the present case.  Each case depends on its own facts.  In Goa case, I cannot see any evidence from the judgment that the developer owned the external wall whilst in our case there is such land record from the Lands Registry.  The Court of Appeal also did not have the evidence as clear as the Sale and Purchase Agreement in the present case so as to say that the developer respondent had the exclusive right to hold use occupy and enjoy the external walls.

40. Another crucial difference between Goa case and the present case is that in Goa case, the developer did not only have the right to do certain acts on the external walls but also any part of the building that was in common use, whilst in the present case, the defendant’s right to do the acts was only limited to the external walls.  This is important because the extension of right to common part of the building was one of the considerations of Court of Appeal in Goa case when interpreting the relevant provisions in the DMC.  In paragraph 6 of the judgment of Goa case, as quoted above, Rogers VP expressly acknowledged this fact which he found impossible to ignore and said that :

“… To suggest that the common parts of the building were thus either in the exclusive possession of the respondent or that the respondent had the exclusive right to the use, occupation or enjoyment thereof would be self-contradictory and absurd.”

41. The decision of Goa case was reached under the light of the extension of exclusive rights to the common parts of the building, which is not the case here.

42. In any event, the Sale and Purchase Agreement with RHKJC is so clear that one cannot deny that the external wall was not common part.  On the other hand, the DMC is never conclusive as to what constitutes common parts, as said by Keith JA in Lok Fu case :

“… whatever the Deed of Mutual Covenant may have said about what parts of the building constituted the common parts, the Deed of Mutual Covenant could have been no substitute for that was actually assigned to the 1^st to 4^th defendants or their predecessors-in-title.”

43. The Adjudicator was correct in finding that the external wall was not a common part.  I hold that the defendant is responsible for the maintenance of the exterior wall except those part assigned to RHKJC (the maintenance of which is the responsibility of RHKJC).

Ground 5

44. As to Ground 5 of the appeal, namely, there is no provision in DMC which entitles the claimant to carry out works thereon and to seek reimbursement from the defendant, I cannot agree with that submissions of Mr Chain.  The fact is the defendant, having the responsibility to repair and maintain the external wall whereon the tiles fell off, still refused to carry out the repair.  This refusal obviously caused an immediate danger to the occupiers of the building and the public.

45. Section 18(1)(c) of Building Management Ordinance provides that :

“(1)    The corporation shall …

          (c)  do all things reasonably necessary for the enforcement of the obligations contained in the deed of mutual covenant (if any) for the control, management and administration of the building.”

46. Clause 8(e) of the DMC provides that :

“8(e)  The Management Company shall have power to enforce the due observance and performance by the Owners of the covenants terms and conditions of this Deed and to take action in respect of any breach thereof or in respect of the enforcement of any of the rights of the Owners against a defaulting Owner or Owners including the commencement conduct and defence of legal proceedings and the registration and enforcement of charges hereinafter mentioned…”

47. Therefore, in my view, there is sufficient legitimate reason for the claimant to carry out the repair work upon the defendant’s refusal to do the same and seek reimbursement of the repair costs incurred (the reasonableness of this amount is not in dispute) from the defendant.  Further and alternatively, the repair work is done by the claimant for the sake of safety of the occupiers of the building and the public and should not be discouraged.  Rather, such attitude and prompt action should be appreciated.  There is, at least, sufficient policy reason for me to refuse Mr Chain’s submission in this respect.

Ground 6

48. The final ground of the appeal is that the learned Adjudicator ought to distinguish the external walls themselves and the inside and outside surfaces thereof, both in regard to ownership/possession and the right to use.  In this case, we are only concerned with the outside surface of the external wall from whereon tiles had fallen off.  Thus this issue does not arise in this case.

Conclusion

49.     Accordingly, the appeal is dismissed.  Costs follow the event.  I make an order nisi that the claimant shall have the costs of the appeal, to be taxed if not agreed.