CENTRAL MANAGEMENT LTD v. LIGHT FIELD INVESTMENT LTD AND ANOTHER

HCA 440/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 440 OF 2008

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J U D G M E N T

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1.  This is an action by a building manager to restrain the owners of two adjoining flats of a multi-storey building from removing the structural parts of a partition wall between the two flats. 

2.  The defendants, who own the units, have also taken out third party proceedings against the developer of the building.  The basis of the third party proceedings is an alleged misrepresentation by the developer made before the sale of the units that the whole of the said partition wall could be removed so as to turn the two units into a single unit.

Background

3.  Each of the defendants entered into a provisional agreement on 23 July 2007 to purchase a unit in a building on Stubbs Road.  The two units are on the 53rd floor and are designated 53A and 53B.  They then entered into formal Sale and Purchase Agreements on 6 August and completed the purchases on 21 September 2007. 

4.  The two units are separated by a partition wall.  There was a small part of this wall which was made of bricks.  It was a non-structural part.  It could be and has in fact been removed to create an opening to link up the two units.  The opening so made is called a “permitted opening”.  Save this non-structural and removable part, the rest of the partition wall comprises of structural or other elements of construction and forms part of the structural support of the building.

The plaintiff’s case against the defendants

5.  In February 2008 the defendant discovered that the contractor of the defendants was executing works for the removal of the non-structural part as well as a portion of the structural part of the wall so as to create an opening larger than the permitted opening.  This portion of the structural part of the partition wall is called “the Wall”. 

6.  These works had, in fact, been approved by the Building Authority.  There was, therefore, no issue of safety or stability of the building.  However, the plaintiff did not think the defendants had the right to remove the Wall.  It took the view that the Wall was part of the “common areas and facilities” as defined in the Deed of Mutual Covenants (the “DMC”) of the building and within the meaning of “common parts” as defined in the Building Management Ordinance Cap.344, (the “BMO”).  The removal of the Wall by the contractor for the defendants would, in the plaintiff’s view, amount to a breach by the defendants of Clause 1 of the Fourth Schedule of the DMC and of section 31I(1) of the BMO.  These works were later abandoned and the Wall restored.  The two units are now linked up by the permitted opening and used as one accommodation unit. 

7.  The definition of common areas and facilities in the DMC:

“means and includes … low-bearing walls, foundations, columns, beams and other structural supports of the Development … and such areas within the meaning of common parts as defined in section 2 of the Building Management Ordinance (Cap. 344) … but EXCLUDING such areas within the Development the exclusive right and privilege to hold, use, occupy and enjoy which belongs to any particular Owner and such facilities within the Development serving only any particular Owner.  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 Authorized Person.”

8.  Clause 1 of the Fourth Schedule provides:

“(1) 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 façade 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 ...”

9.  “Common parts” are defined in section 2 and schedule 1 of the BMO as follows:

“(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

1. External walls and load bearing walls, foundations, columns, beams and other structural parts.  …”

10.  Section 31I further provides:

“(1) 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);

(b) use or permit to be used the common parts of a building in such a manner as-

(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of a building; or

(ii) to cause a nuisance or hazard to any person lawfully in the building;

(2) Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building.”

The defendants’ first argument

11.  The defendants argued that the Wall could be removed for various reasons.  The first argument in their written opening referred to the plaintiff’s basis for treating the Wall as common areas and facilities and common parts.  They said that the plaintiff’s basis is that the Wall is a load-bearing wall.  They then submitted that giving clause 1 of the Fourth Schedule its ordinary and natural meaning or, alternatively, the purposive meaning, the intention of the DMC must be to protect the Wall from any interference or damage so as to preserve its load bearing capacity.  They further submitted that since the works intended by the defendants had been approved by the Building Authority under the Buildings Ordinance, they would not result in interference or damage to the structural aspect of the building.

12.  Furthermore, no owner other than the defendants have any right of access to the Wall, which is wholly within the two units and possessed and enjoyed by the defendants to the exclusion of other owners.  If the structural safety of the building would not be affected, then no one’s right would be affected or diminished by the works or the removal of the Wall.  The use and enjoyment of any part of the building by the other owners would also not be damaged, affected or interfered with in terms of Clause 1 of the Fourth Schedule.

13.  For the same reason, the defendants submitted that the works would not result in any unreasonable interference with the use and enjoyment of the Wall as may be prohibited by section 31I of the BMO. 

Decision on the defendants’ first argument

14.  I think this argument only answers part of the plaintiff’s challenge.  It is an answer to the first prohibition in Clause 1 of the Fourth Schedule against damage or interference with the use and enjoyment by other owners of other parts of the building.  However, if the Wall is part of the common areas and facilities, this argument is no answer to the second prohibition in this clause against any cutting, injuring, damage, alteration or interference with any part of the common areas and facilities.

15.  Regarding the BMO, if the Wall should be within the meaning of “common parts”, then this argument is only an answer to the prohibition in Section 31I(1)(b), but not an answer to Section 31I(1)(a). 

The defendants’ second argument

16.  The defendants further argued that the Wall is not part of the common areas and facilities in the DMC but has been granted by the formal Sale and Purchase Agreements and the assignments to the defendants for their exclusive use and enjoyment.  They referred to the saleable areas of the units which are coloured pink in the plans annexed to the two formal agreements.  Each of these plans shows the two units A and B with the unit subject to the agreement coloured pink.  The two assignments had annexed to them the same plans coloured in the same way to show the units conveyed.  The same plans are also annexed to the Statement of Claim in the action as annex 1 and annex 2. 

17.  The partition wall is shown in the plans in solid black colour save a small rectangle in its middle.  Half of this rectangle to the side of the coloured pink unit is also coloured pink.  The remaining half of the rectangle is not coloured at all.  There is a legend to the rectangle which reads:

“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.” 

18.  There is another legend for the solid black colour part of the partition wall which reads:

“Structural or other elements of construction shall not be removed/altered unless and until it is approved by the Building Authority.” 

19.  The defendants asserted that the whole partition wall has been included in the saleable areas of the two units. 

Decision on the defendants’ second argument

20.  I think this assertion is not supported by the plans and the colouring.  I find that only the rectangle within the partition wall which was built of bricks had been assigned to the defendants as part of the two units.  The right to the exclusive use of the rest of the partition wall, which is a structural part of the building, had not been assigned to the defendants as it is not coloured pink. 

21.  Furthermore, saleable area is an indication (not the exact measurement) of the available accommodation area of the unit.  It is not correct to regard all features and areas within the saleable area as subject to the exclusive use and enjoyment of the owner of the unit.  There may be common areas and facilities within the saleable area.

The defendants’ third argument

22.  The defendants also relied on the legend for the solid black colour which applies to the Wall.  They said that once they obtained the approval of the Building Authority, they could remove the Wall in accordance with the legend. 

Decision on the defendants’ third argument

23.  However, the assignments and the plans annexed thereto are subject to the DMC.  Furthermore, these plans as annexed to the formal agreements and assignments are not for the purpose of showing the common areas and facilities.  They were prepared by the authorized person and not the drafter of the DMC.  They merely indicate what have been sold and conveyed to the defendants.  The legend to the solid black colour merely made it clear that such areas are structural parts which shall not be removed/altered without the approval of the Building Authority.  The legend does not and cannot override the DMC.  If any part shown in solid black colour should belong to the common areas and facilities, then the approval of the Building Authority alone is not enough for it to be removed/altered.  The right to its use and enjoyment belongs to all owners and not just the defendants. 

24.  I therefore hold that if the Wall should be part of the common areas and facilities in the DMC or the common parts in a BMO, then the defendants cannot remove/alter the same simply by relying on the approval of the Building Authority.

The defendants’ fourth argument

25.  The defendants then referred to the end of the definition of “common areas and facilities” in the DMC which reads:

“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 Authorized Person.” 

26.  Since the structural part of the partition wall has not been coloured yellow on the plans annexed to the DMC, the defendants argued that it is no part of the common areas and facilities.  They further submitted that if the developer should have desired to give a yellow colour to the structural part of the partition wall, the architect could have used a clear rectangle instead of solid black colour to represent it.  The clear rectangle could then be coloured yellow. 

27.  The plaintiff, however, pointed out that structural features in plans annexed to assignments are usually represented in solid black colour.  Regarding the 22 plans annexed to the DMC, all structural features including structural walls and columns and walls enclosing the lift shafts are all shown in solid black colour.  They include those in the floors for parking spaces.  These structural features must be common areas and facilities rather than exclusively used and enjoyed by any individual owner.  The reason for them not to be coloured yellow is because they are shown in solid black, as is the usual practice, and are therefore incapable of being coloured yellow. 

Decision on the defendants’ fourth argument

28.  I agree with the plaintiff.  I think this is the proper way to interpret the definition of common areas and facilities in conjunction with the plans.  The defendants’ contention will lead to the absurdity that all structural features including structural walls, columns and walls enclosing the lift shafts as shown on the plans are used and enjoyed exclusively by the developer or certain owner(s).  I see no reason whatsoever for the developer to have reserved all structural features to it or certain owner(s) rather than treating them all as common areas and facilities.  Clause 37 of the DMC gave the power and obligation to the plaintiff to manage and keep in good order and repair all common areas and facilities.  The defendants therefore fail on this point as well. 

The defendants’ fifth argument

29.  The last point of the defendants is that the common areas and facilities are supposed to be under the exclusive control of the plaintiff as the building manager under clause 41 of the DMC.  They said that the partition wall is bound by the two units and it could not be under the exclusive control of the plaintiff.  They therefore submitted that it should not form part of the common areas and facilities. 

Decision on the defendants’ fifth argument

30.  This argument can be disposed of by reference to clause 40 of the DMC which provides:

“40.   The Manager shall have power to enter … at all reasonable times on prior notice (except in case of emergency) into all parts of the Development including any Residential Unit … for the purposes of effecting necessary repair, replacement and maintenance (including without limitation the right to dismantle … partition wall, … and the like which is necessary to the works to be carried out) to any part or parts of the Development or the Common Areas and Facilities ...”

31.  Under this clause the plaintiff can enter the residential units to effect repairs and maintenance to and replacement of the structural part of the partition wall.  This part of the partition wall is therefore under the exclusive control of the plaintiff. 

Judgment on the plaintiff’s claim against the defendants

32.  Since the plaintiff has established that the Wall is part of the common areas and facilities in the DMC and of the common parts in the BMO and the defendants have failed in all their arguments, I therefore declare that the structural part of the partition wall separating unit 53A from unit 53B as shown in solid black colour on the plans in annex 1 and annex 2 to the Statement of Claim are common areas and facilities as defined in the DMC.

33.  I also grant an injunction restraining the 1st and 2nd defendants in the usual terms from removing, altering or making any opening in the structural part of the said partition wall.

34.  Since the defendants have restored the Wall, I do not think it necessary to make any order for restoration.  There is also no evidence of any loss or damage suffered by the plaintiff and I will make no order for damages.  I will leave the question of cost to the end.

Third party proceedings

The defendants’ evidence

35.  The defendants called a Mr Lee to testify on liability in the third party proceedings.  Mr Lee said sometime before 23 July 2007 his company wanted to invest in good quality properties.  They considered, among others, the units in this building on Stubbs Road.  He and others in his company studied the plans of the units in this building.  Most floors were partitioned into two units per floor.  There were, however, a few floors that had no partition and had only one unit per floor.  He was told by the property agents that the price for a large unit that occupied one whole floor was around $200 million whilst the total price for two smaller units that together occupied one floor was significantly lower.  (The total price eventually agreed for units 53A and 53B was $133 million). 

36.  Mr Lee then reported to his directors the result of his study.  The directors then decided to offer to buy two units on the same floor with a view to removing the partition wall and turn the two units into one unit.  The merger of the two units into one could result in substantial appreciation of the total capital value of the units.  Since his directors had decided to purchase two units for the purpose of merger, if merger was not permissible, he said he would not have signed the provisional agreements and commit to the purchase of the two units. 

37.  In cross-examination he confirmed that he had been in the business of properties for 25 years and had read numerous brochures for sale of properties.  He could also read English.  He had studied the brochure of this building as published by the third party before purchasing the units.  He had also studied the plans of the building in some websites of estate agents. 

38.  The plan for the floors including the 53rd floor showed the partition wall in the middle as in the assignment plans referred to above.  It was in solid black colour with two little rectangles inside.  One rectangle was coloured orange and the other purple.  The legend for the orange rectangle stated “structural opening on odd-numbered floors only”.  The legend for the purple rectangle stated “structural opening on even-numbered floors only”.  The orange rectangle was at the same position as the rectangle in the partition wall in the assignment plans with half painted in pink colour as referred to above.  The assignment plans referred to above are only for some odd-numbered floors including the 53rd floor, hence, the purple rectangle for even-numbered floors is not shown therein.

39.  Mr Lee knew from reading the plan that an opening could be made at the little orange rectangle, but the linking of the two units by such a small opening was not his idea of merger.  His company intended to offer to purchase the units through Midland Property Agency Limited (“Midland”).  He therefore inquired with a Miss Lee of Midland on whether he could only make a small opening at the little rectangle or he could make a large opening extending to the whole of the partition wall of about 20 feet long.  Miss Lee told him that he could make a large opening extending to the whole partition wall. 

40.  He then suggested having confirmation on this from the developer.  A meeting was then arranged at the developer’s office for this purpose.  Present at the meeting were a Mr Ho of the developer, a Mr Mok of Jones Lang LaSalle (“Jones Lang”), the lead agent for sale of the units in this building, Miss Lee of Midland, Mr Lee himself and a Miss Chan of his company. 

41.  Mr Lee raised the question of merger with Mr Ho.  He, however, merely asked Mr Ho if the partition wall could be removed and the two units merged.  He did not refer to the little rectangle inside the partition wall, nor did he ask Mr Ho whether he could make a large hole on the partition wall extending to beyond the rectangle.  He said Mr Ho replied that the two units could be merged so long as he could get an approval from the government.  Upon hearing this, he proceeded to enter into the provisional agreements on behalf of the defendants. 

42.  Since the purpose of the meeting was for him to seek confirmation from the developer’s representative on whether the opening of the partition wall would be restricted by what was represented by the rectangle, which was only 4 feet wide, he was therefore questioned on why he did not raise this very issue with Mr Ho.  But he could not provide any answer.

43.  He was also questioned on the alleged answer given by Mr Ho.  His directors wanted to buy the two units for merger into one.  But Mr Ho’s alleged answer was simply that it depended on the government’s approval.  There was therefore no certainty that the units could be merged.  He was asked why did he proceed to enter into the provisional agreements when he did not know if merger could certainly take place.  He again could not provide any answer.

The third party’s evidence.

44.  The third party called a Mr Ho and a Mr Mok.  Mr Mok is and was working for Jones Lang.  Mr Ho said that he received a phone call from Mr Mok on 23 July 2010.  Mr Mok told him that an agreement had been reached with a purchaser through Midland on the price for the two units at $133 million, but there was no apportionment of price for each unit.  Mr Mok further told him that the purchaser would like to meet the developer.  A meeting was therefore arranged in the afternoon.  There is no dispute on who attended the meeting. 

45.  At the meeting, Mr Ho learned that the purchaser would be using two companies to purchase the units.  He therefore apportioned the purchase price with one unit at 5% more expensive than the other.  He also asked for the insertion of a rider clause into the provisional agreements to ensure that both purchasing companies would complete the purchases.

46.  He asked Mr Lee why he used two purchasing companies rather than one.  Mr Lee replied that one unit was for self-use and the other for investment; hence two companies were used for the purchases.  Apart from this, the parties also chatted about luxurious properties in Hong Kong, but Mr Ho denied that there was any mention of merger of the two units in question. 

47.  Mr Ho thought that the purchaser asked for the meeting just to see if the price agreed was indeed the final or lowest price obtainable from the developer.  He also thought that the purchaser might have wanted him to impress upon the agents the need to keep the deal secret. 

48.  Mr Mok is a director of Jones Lang.  He said in evidence that before marketing the units in the building, Jones Lane had given full briefing to various estate agents, including Midland.  The agents were shown the show flat, the floor plans and other sales materials.  The agents were told that only the little rectangle in the middle of the partition wall could be removed to make an opening between adjoining units. 

49.  In the morning of 23 July 2007, Mr Mok received a phone call from Miss Lee of Midland who told him that the price for the two units had been agreed at $133 million.  Miss Lee said the purchaser wanted to meet the developer and asked him to arrange such a meeting.  Miss Lee did not say why the purchaser wanted such a meeting.  A meeting was then held at the developer’s office in the afternoon. 

50.  He learned at the meeting that the purchaser would use two companies to complete the purchases.  Mr Ho then wanted a rider to be inserted into the provisional agreements to ensure that the sale of both units would be completed. 

51.  Whilst he was preparing the provisional agreements, he heard Mr Lee telling Mr Ho that one unit was for self-use and the other was for investment.  He also heard Miss Chan, who was also representing the purchasers, telling Mr Ho that the purchases should be kept in low profile and should not be made known to the public.  But he did not think that the meeting was held for the purpose of secrecy.  He also denied that there was any mention of merger of the units in the meeting. 

52.  In cross-examination, he said he was not told about the purpose of the meeting.  He also did not ask Miss Lee for the purpose.  He agreed that merged units generally would command a higher price than the total price of two adjoining but not merged units.

Analysis and findings in third party proceedings

53.  Leading counsel for the defendant submitted that Mr Ho was not an honest witness.  Counsel referred to his evidence that the purpose of the meeting was to ensure secrecy of the purchases.  That was not corroborated to by Mr Mok.  Counsel also said that the other reason he gave for the meeting was for the purchaser to see if the price was indeed the final one, but this had not been mentioned in his witness statement and was only raised by him in his oral evidence.

54.  Counsel also said that it was surprising that merger was not mentioned in the meeting as the purchaser was purchasing two adjoining units at one price. 

55.  I do not accept that Mr Ho was an untruthful witness.  The purposes of the meeting as mentioned by Mr Ho were merely his perception.  If Mr Mok’s perception should be different, that does not mean that Mr Ho was lying.  As to Mr Ho’s second perceived reason for the meeting which he did not mention in his witness statement, I also do not think that it is an indication of dishonesty.  Though this reason was not mentioned in the witness statement, I think it is something that one can reasonably perceive.

56.  Regarding the issue of merger, I am not surprised that it was not mentioned as the use of two purchasing companies may indicate an intention of separate disposals in future.  I also say that the use of two purchasers does not necessarily mean the absence of any intention for merger.  The units after merger can always be restored into separate units and disposed of separately. 

57.  I find Mr Ho a clear and straightforward witness.  I accept his evidence.

58.  Regarding the evidence of Mr Mok, leading counsel for the defendants submitted that I should be skeptical about it.  Counsel said that Mr Mok is still employed by the lead agent and that is a good reason for him to give evidence (or false evidence) in favour of the defendants. 

59.  Counsel also said that Mr Mok accepted that merged units had a higher value, but he still denied that merger of the two units had been mentioned in a meeting.  Counsel also said that Mr Mok was concentrating in his drafting and might not have heard the conversation between Mr Ho and Mr Lee about merger.

60.  I disagree with these submissions.  I do not think Mr Mok’s employment by the lead agent is a good enough reason to suggest that he was not truthful.  I would rather consider his evidence and see whether it should be accepted.  I have already given reasons above on why I would not find it surprising if the issue of merger of units was or was not mentioned at the meeting.  I think there was equal possibility for it to have or not to have been raised.

61.  Lastly, despite Mr Mok was being engaged in his drafting, he said he still heard the discussions between Mr Ho on the one hand and Miss Chan and Mr Lee on the other.  According to Mr Lee, the conference room where the meeting was held was smaller than a hundred square feet.  Everybody was sitting around a conference table though he said he was seated close to one corner and Mr Lee was diagonally opposite to him.  Nobody suggested that it was a noisy meeting.  Neither Mr Mok nor Miss Lee of Midland appeared to have done much talking.  I am not surprised that Mr Mok could have heard the conversations whilst he was drafting the provisional agreements. 

62.  I also find Mr Mok a clear and straightforward witness and I accept his evidence. 

63.  Regarding Mr Lee’s evidence, I find it surprising that he did not ask Mr Ho whether the opening on the partition wall would be limited to the area represented by the little rectangle inside the partition wall as shown on the plan in the brochure.  The very purpose of the meeting was for him to have this matter clarified and confirmed by the developer.  I see no reason why he did not raise it if that was indeed the purpose. 

64.  He also said that his directors had decided to purchase the two units for merger.  That would enhance the value from about $133 million to about $200 million, but he committed to the purchases when, according to him, Mr Ho only said that the merger depended on approval by the government.  If his directors had indeed decided to buy the units for merger, I do not see why he would not have postponed the signing of the provisional agreements until after he had consulted a structural engineer on the chance or likelihood of the government approving the merger.  After all, if merger could take place, there would be an increase in value of over 30 per cent or some $60 million.

65.  There was also no evidence to suggest that he had to hurry with the purchases.  The units were not put in the market but were available upon application by potential purchasers. 

66.  For these two reasons I do not accept Mr Lee’s evidence insofar as it is at variance with that of Mr Ho and Mr Mok.

67.  I find that there was no misrepresentation by the developer to the defendants that induced the purchase of the said units.  Since the third party proceedings depends on the resolution of this issue and it has been resolved in favour of the third party, I therefore dismiss the third party proceedings.

Quantum

68.  I would also assess the quantum of damages payable by plaintiff or the third party to the defendants in case I were wrong in finding for them.  I find that a sum of $120,000 paid to the engineers Charterwealth Professional Limited for site co-ordination, inspection and meetings with clients and others has been wasted by the abortion of the works.  I also find that a sum of $275,605 paid to the contractor Kin Shing for the labour and materials utilized in the aborted works wasted.  Finally there is a sum of $27,900 incurred for disposing of the steel beam which has been wasted.  The total sum wasted is $423,505.  If the defendants should be allowed to carry out the works to remove the Wall again, they will have to incur the same or similar sums again.  I therefore find that this is part of the defendants’ loss if the plaintiff or the third party should be in the wrong. 

69.  In addition, the plaintiff or the third party should pay the defendant four months’ rental for the two units as that was the period of delay in the declaration works as caused by the execution and abortion of the works.  The agreed rental is $404,200 per month. 

Costs

70.  Since I have held against the defendants in both the main action and the third party proceedings, I therefore make a cost order nisi that the defendants do pay the plaintiff and the third party the costs of this action and of the third party proceedings. 

71.  Counsel for the plaintiff has in the opening submissions stated that the costs of the plaintiff should be taxed on the indemnity scale as this was provided in clause 47 of the DMC.  I find this suggestion reasonable as the plaintiff’s funds for litigation came from the management fee contributions of all owners and the plaintiff is merely the trustee for all owners in respect of the common areas and facilities.  I therefore order that the costs payable to the plaintiff be taxed on an indemnity scale.