South China Amusement Co. Ltd. v. The Incorporated Owners of Sun Hing Building

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. LDBM106 OF 2000

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Ruling on Preliminary Issue

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1. The Applicant was at all the material time the owner of a set of theatre premises (the theatre) in the Sun Hing Building, 603-609, Nathan Road, Kowloon (the building). The Respondent on the other hand was the incorporated owners of the building. The Respondent had resolved to carry out some substantial renovation and maintenance works on the building and sought contributions from individual owners of the building for this purpose. The Applicant refused to pay and maintained that a proviso in the form of 7 sub-clauses under clause 9 of the said building's deed of mutual covenants exempted it's liability of paying the contribution now being sought by the Respondent. In the present proceedings, the Applicant seeks a declaration from the tribunal to reassure its stance. Without calling evidence at the beginning of the trial, both parties agreed that it would be prudent to first invite the court to rule on a preliminary issue. And the issue is: on a fair construction of the proviso in Clause 9, what kind of contribution to the expense in the management of the said building could the Applicant be exempted of paying.

2. In his submission for the applicant, I was urged by Mr. Leung to interpret the relevant provisions by first deciding on the literal meanings of the words used therein. Then, I should look at the circumstances surrounding the deed. Finally, I should bear in mind the objectives that the deed and that I should construe the deed as a whole. I accepted that this was the correct approach I should adopt and indeed Mr. Lin for respondent took no issue in this approach so suggested.

(I) The Applicant's Submission:

3. Mr. Leung had placed much emphasis on the following circumstances and said that the theatre had all along been treated as an entity different from the other parts of the building:

(a) Both the assignment of the theatre and the DMC of the building gave the applicant exclusive rights to use the theatre premises which included a part of the external wall of the building. As the developer --- the Sun Hing Realty Limited under clause 3(a) of the DMC had retained its exclusive right in using the other parts of the external wall of the building, other parts of the external wall was not within the meaning of common area of the building even the developer company had already been wound up many years ago.

(b) The physical layout of the theatre and the other parts of the building was such that persons in the theatre could not have internal access to other parts of the building. One must first go into the street before one could gain access to other parts of the building. AND

(c) The applicant was the first one who got an assignment of any interest from the developer. Hence, the applicant had a somewhat different position as those held by other owners of the building. The applicant's status was also specifically dealt with in the fourth schedule in the DMC.

Mr. Leung further submitted that the deed of mutual covenants had also been treating the theatre differently in that:

(a) There is a proviso in the form of 7 sub-clauses in clause 9 in exempting the owner of the theatre in paying expenses specified in those sub-clauses.

(b) The owner of the theatre was exempted from being bound by the house rules made by management committee pursuant to clause 16 (2)(h).

4. Mr. Leung argued that the word "service" in sub-clause (vii) of clause 9 covers the meaning of "operation, servicing, maintenance and repair" in clause 11. In the end, Mr. Leung submitted that any renovation works to be done on the lift outside the theatre premises would be covered by the exemption under sub-clause (iv) of clause 9 and in any event, as the renovation work presently proposed all fell outside the theatre premises, the exemption in sub-clause (vii) of clause 9 applied. As a result, the applicant would not be liable for any contribution at all.

(II) The Respondent's Submission:

5. Mr. Lin for the respondent first pointed out that the applicant under the DMC was no different from any other co-owners of the building. As the owner of 6093 shares out of the total 62639 shares of the building, the applicant was just an owner of a very large shop in the building. Like other owners, the applicant was entitled to use other common areas of the building under clause 8 and schedule one of the DMC. Also under clause 13 (1)(b)(mm) of the DMC, a resolution duly passed by the annual general meeting convened by the management committee shall be binding on all owners of the building including the applicant.

6. On the interpretation of the 7 sub-clauses in the proviso of clause 9, Mr. Lin submitted that the first 6 sub-clauses dealt with specific instances in which the applicant was exempted from paying contribution. All those instances, according to Mr. Lin dealt with the day to day running of the building and did not extend to situation where repair or renovation as substantial as those proposed by the respondent on this occasion. In particular, Mr. Lin said the exemption granted to the applicant in sub-clause (iv) only related to "expenses of operating and maintaining the lifts in the said building" and not replacing the lift concerned. To illustrate this point, Mr. Lin had drawn the court's attention to clause 4 which said:

"The right to the exclusive use and enjoyment of the lift No. 2 of the said building (.....) shall belong to the owner or occupier for the time being of the 6th and 7th floors of the said building and the expense of operating maintaining repairing and replacing the said lift shall be borne by the owner or occupier for the time being of the 6th and 7th floors of the said building."

7. Mr. Lin argued that the omission of the word "replacing" in sub-clause iv of clause 9 lend weight to his contention that the sub-clause only exempted the applicant from paying expenses for the daily operation and maintenance of the lifts but not substantial repair or replacement of the same in the building.

8. As for the interpretation of sub-clause (vii) of clause 9, Mr. Lin submitted that it only related to "expenses to be incurred by the management for the time being ..........." Since the proposed renovation works were approved by the owner's general meeting, the expenses were incurred by the owners as opposed to the management committee or the manager of the building. Hence, the expenses of the proposed renovation were not covered by the exemption under sub-clause (vii). Alternatively, Mr. Lin submitted that as all the first six sub-clauses deal with day to day running of the management's business, then as a rule of interpretation, sub-clause (vii) should also be interpreted in the same manner. Hence the word "service" in sub-clause (vii) could only mean service rendered to the building on a day to day basis. The very substantial repair work proposed on this occasion was not covered by the exemption granted to the applicant under sub-clause (vii) of clause 9.

9. On the issue of whether the external walls over which the developer --- the Sun Hing Realty Limited --- had the exclusive right of usage under clause 3(a) of the DMC had become part of the common area of the building, Mr. Lin submitted that since the Sun Hing Realty Limited had not disposed of its right over the external wall on its being wound up, the provision in the Building Management Ordinance applied and that the external wall thus become the part of the common area of the building over which all the owners, including the applicant, had a proprietary interest.

(III) My Ruling:

(a) The Starting Point:

In my judgment, the starting point in this case must be that the applicant, as all the other individual owners of the building, was only one of the owners of a number of undivided shares amongst the total shares of the whole building. As such, the applicant had an interest in and thus the liability to maintain and repair in all the other areas of the building unless those interest and liability were modified by the deed of mutual covenants.

(b) The Exemptions Under Clause 9:

The applicant had relied on sub-clause (iv) to resist paying contribution for renovation work for the lift and sub-clause (vii) to resist paying contribution for renovation work for the other parts of the building not related to the theatre premises. I had read the 7 sub-clauses in the proviso under clause 9 carefully and found that the first 6 of them respectively exempted the applicant from paying the expenses incurred for those area other than the theatre premises in respect of (i) cleaning of the building, (ii) lighting of the building, (iii) provision of air-conditioning to the building, (iv) operation and maintaining the lifts in the building, (v) operating and maintaining the escalators outside the theatre and (vi) employing watchman for the building. In my judgment, the nature and extent of works specified in all these 6 sub-clauses only related to the daily routine of the management work of the building. As for sub-clause (vii), it exempted the applicant from contributing to

"any expenses to be incurred by the management for the time being of the said premises and building in connection with service relating wholly and exclusively to the said building other than the theatre premises."

10. The word "service" was not defined in the DMC. However, I agreed with the respondent's submission in that the first 6 sub-clauses were able to provide the reader of the document the ambit of how far sub-clause (vii) should cover in the circumstances. Hence, the word "service" should only be given its meaning as expenses incurred by the management for the time being for its day to day service rendered to the building other than the theatre premises. It then follows that the works involved on this occasion was also not covered by sub-clause (vii) of clause 9. The end result was that the applicant would not be exempted by virtue of this sub-clause for paying the required contribution.

(c) Relevance of the Grace International Ltd vs Incorporated Owners of

Fontana Gardens' case [1996] 4 HKC 635

11. This decision of the Court of First Instance of the High Court was cited to me by counsel for both parties. In my judgment, the most relevant part of the decision in the context of this case was that the Court of First Instance had decided where the DMC of a particular building only authorized repair work to be carried out by the manager who instead commissioned improvement or upgrading work to be done, the individual owners of the building would not be liable to pay contribution to such work unless all the owner endorsed such work to be done. Here, the work over which the owners were liable to pay contributions were listed in clause 1 (g) of the second schedule of the DMC i.e.

"The cost of repairing, renewing maintaining, cleansing, painting, or decorating the structure and exterior of the said building or any part or parts thereof other then the roof or other areas which are the personal responsibility of any one or more owners, and all sewers, drains water-courses, cable, pipes wires or services therein and all the apparatus equipment and convenience thereof in common use."

12. Hence, provided the proposed renovation work did not aim at substantially improve the facilities of the building but just at "repairing, renewing or decorating the common area of the same, the owners of individual units would be under an obligation to pay contribution.

(d) Status of the External Walls:

13. According to the DMC, all owners own the external walls of the building. Also according to the relevant assignment and the DMC, exclusive rights to use part of the external walls were conferred on the applicant. The exclusive right to use other parts of the external walls were retained by the developer --- the Sun Hing Reality Ltd --- in the DMC. It was agreed that on the winding up of the developer, no disposal was made on this particular right by the developer. Mr. Leung submitted that the right still some how survived the developer's liquidation. I disagreed because such right under clause 3(a) of the DMC could not subsist in a vacuum. The successor of such right, as required by clause 3(a), must also "be the owner of one or more undivided share or shares in the said premises and building." For this reason, the government could not rely on the doctrine of "bona vacantia" for the government owned no shares in the building. In my judgment, the exclusive right to use those parts of the external wall of the building simply extinguished following the liquidation of the developer. All the owners of the undivided shares would no longer be subject to such exclusive right of the developer. As a result, since there was no longer any effective provisions in the DMC providing for the use of those parts of the external walls, paragraph (b) under the definition of "common parts" in section 2 of the Building Management Ordinance steps in. According to paragraph (1) in Schedule one of the Ordinance that those parts of the walls would become part of the common areas of the building.

(e) What Benefits the Applicant may derive from his Contribution:

14. Naturally, the applicant may not be happy in learning my present ruling. However, if the applicant could just imagine how the renewed out look as well as the good maintenance of other parts of the building including those parts in the adjacent shopping arcade might help in attracting pedestrian flows to the cinema it ran, it might feel that its contribution would not be worthless after all. Or, if the applicant felt this benefit I mentioned to be remote and far fetching, I am sure the applicant could still remember its $1,596,366 contribution made in 1998 to settle a personal injury claim arose from the dilapidate state of the building. Had the repair and renovation work proposed here been completed 5 years earlier, the Plaintiff in that case might not have sustained any injuries at all and the contribution could have been avoided altogether.

15. In view of the forth going, my ruling on the preliminary issue is that the 7 sub-clauses in the proviso of clause 9 does not exempt the applicant from paying his contribution to works resolved to be carried out by the owner's meeting on 26th October, 1999. I shall hear the parties' application on cost at the restoration of the proceeding.