THE INCORPORATED OWNERS OF TUNG LO COURT v. LEUNG MAY CHUN ALISON ALIANCE

CACV 52/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 52 OF 2014

(ON APPEAL FROM DCMP NO. 1381 OF 2011)

_______________________

________________________

J U D G M E N T

________________________

Hon Lam VP:

1. I agree with the judgment of Yuen JA and for the reasons given therein, there shall be an order in terms of paras 40-42.

Hon Yuen JA:

2. This is the plaintiff’s appeal from a judgment of Deputy District Judge R Lai given on 29 May 2013 in which the judge found the plaintiff liable to the defendant on her counterclaim for breach of a deed of mutual covenant and for nuisance. The judge ordered the plaintiff to pay nominal damages in the total sum of $20 but ordered the plaintiff to pay 90% of the defendant’s costs of the counterclaim. 

Background

3.1.  The plaintiff is the Incorporated Owners (“IO”) of Tung Lo Court (“the Building”), a residential building erected more than 50 years ago. 

3.2.  The defendant (“Madam Leung”) owns 6 car parking spaces (“the Spaces”) in the car park, which is situated in the basement of the building (“the Basement”).  Access to the Spaces is gained through common parts. 

3.3.  The last time Madam Leung used the Spaces herself was in 2005/6.  The last time she rented them out was in 2006/7.  Since then, they had lain vacant.

4. The judge recorded that the parties “have no dispute that the Basement was in such a dilapidated state in October 2010 that [it] needed repairs and renovation” (para. 119).  It can be seen from the photographs which were before the judge that in 2010 (at the latest) some of the concrete on the ground and in the ceiling was in such a poor state that pipes and steel bars embedded in the concrete had become exposed.

5. On 30 May 2010 the owners in general meeting resolved to carry out repairs and renovation.  A tender submitted by Tat Hing Construction Co Ltd (“the Contractor”), out of a total of 10 tenderers, was accepted.  The judge found that the decision to “carry out repairs and renovation to the Building including the Basement was reasonable and within the authority of the owners’ general meeting” (para. 120).

6. Works in the Basement started in August 2010.  At that stage, the Basement was not closed.

7. On 30 September 2010 the Contractor issued a notice, warning owners and occupiers to take care to avoid slipping on sand and rubble caused by the breaking up of concrete.  The notice also contained a schedule for cars to be removed from the car parking spaces by batches, starting from 4 October 2010 and ending on 25 October 2010.  The estimated date for completion of works for the last batch of spaces was 28 October 2010.

8. However the Basement became flooded with underground water.  In the middle of October 2010, the IO received written confirmation of the effect of the unexpected flooding.  There was a letter from the Contractor, as well as written advice from the consultant engineer, advising clearance and closure of the Basement for 4 months for dredging and improvement works to the underground water system to be undertaken (for convenience, referred to hereafter as “the additional works”). 

9. As a result, after all the cars had been removed from the Basement in mid-November 2010 (para.122), the Basement was closed from the evening of 14 November 2010 to 14 March 2011.

10. The Basement was re-opened on 15 March 2011.  The IO put in place

(a)  a security system using smart cards for entry and exit of vehicles, and

(b)  a registration system for the vehicles to be parked in the Basement.

11. Madam Leung was not issued with smart cards, because she refused to pay management fees and to contribute to the repair and renovation expenses.  As will be seen later, she also objected to the registration system. 

Proceedings

12.1.  The IO commenced proceedings in the District Court against Madam Leung, seeking to enforce 18 memoranda of charges by the sale of her Spaces.

12.2.  Madam Leung counterclaimed for damages on the ground that the closure of the Basement was in breach of the DMC and constituted nuisance.

13. Prior to trial, there was a settlement of the IO’s claim.  Accordingly the IO was prepared to issue smart cards to Madam Leung.

14. On 23 January 2013 however, Madam Leung would only sign for the smart cards under protest, as she objected to the registration system.  As a result, the smart cards were not issued to her. 

15. At trial, the issues for determination by the judge were (in short):

(1)  whether the closure of the Basement for the 4 months from November 2010 to March 2011, and the security and registration systems put in place afterwards, were in breach of the DMC and/or constituted nuisance?  And if so, what damages did Madam Leung suffer?

(2)  whether the IO’s refusal to issue smart cards to Madam Leung before she settled the IO’s claim was in breach of the DMC and/or constituted nuisance?  And if so, what damages did Madam Leung suffer?

(3)  whether the IO’s condition for the issue of the smart cards to Madam Leung on 23 January 2013 (ie that she complies with the registration system) was in breach of the DMC and/or constituted nuisance?  And if so, what damages did Madam Leung suffer?

Judgment

16. In his judgment, the judge held that the closure of the Basement for the 4 months was in breach of the DMC and/or constituted a nuisance (paras. 93-133).  The judge found “it may be quicker and cheaper to carry out the Works with the Basement being closed but the IO failed to satisfy me that the closure was necessary” (para. 132).  I shall come back to this point later.

17. The judge however held that the IO was entitled to install the security system (paras. 134 - 143) and to impose the registration system (paras. 135-152). Consequently Madam Leung’s counterclaim in relation to these issues failed.

18.1.  In respect of the period from 15 March 2011 (re-opening of the Basement) to 23 January 2013 (offer of smart cards to Madam Leung), the judge held that the IO was not entitled to refuse to issue smart cards to Madam Leung on the ground that she had failed to pay management fees and to contribute to repair and renovation expenses (paras. 153- 160).  Accordingly the IO was liable for breach of the DMC and/or nuisance for that period.

18.2.  However the judge held that the IO was not liable to Madam Leung after 23 January 2013, because the condition that she comply with the registration system was a reasonable one to impose as a House Rule (paras.161-167).

18.3.  Pausing here it would appear that when the judge made his finding of liability in para. 18.1 above, he did not consider the point that even if Madam Leung had been offered the smart cards, she would still have refused to accept the condition that she comply with the registration system, as discussed in para. 18.2 above.  However this point is not relevant to the appeal and I say no more about it.

19. As far as damages were concerned, the judge ordered nominal damages in the total sum of $20 only, as Madam Leung had not used the Spaces for many years. 

20. The judge however held that the IO had to pay Madam Leung 90% of the costs of the counterclaim to reflect her success on para. (iii) of the counterclaim, which is a claim for loss of use of the Spaces from 15 November 2010 onwards.

Appeal

21. Leave to appeal was granted on 6 March 2014 by this court, differently constituted, only in respect of the judge’s finding that the IO had no authority to close the Basement for 4 months. 

Discussion

22. There is no dispute that the IO had authority under the DMC and the BMO to repair the common parts of the Building including those in the Basement.  The only issue before this court was whether the judge was entitled on the evidence to find that it was not “reasonably necessary” to close the Basement for 4 months for works to take place. 

23. As mentioned above, there was unexpected flooding in the Basement and additional works had to be undertaken.  The Basement was then cleared and closed.  The judge accepted that the closure of the Basement would make construction work quicker and cheaper, but he found that it was not necessary to close the Basement during the works (para. 132).

24. Miss Lau for Madam Leung argued that this was a finding of fact by the judge and that an appellate court should not interfere with it unless it was plainly wrong.  This is of course correct as a matter of principle.

25. However, with respect to the judge, in this case that high threshold has been met.  As will be discussed below, a crucial finding of the judge was not justified by the evidence and his finding was inconsistent with the evidence in two contemporaneous documents.

The Contractor’s letter

26. First, the letter dated 15 October 2010 from the Contractor made it clear that it was encountering unexpected flooding from underground water, which caused it to stop work.  It reported this to the consultant engineer, who proposed the additional works (dredging and improvement of the water drainage system). However for the additional works to be done, the Basement had to be cleared and closed for 4 months, not only because the additional works involved the use of heavy machinery and because the Contractor required space for construction materials, but also to prevent injury to users and damage to vehicles in the Basement.

27. The letter from the Contractor said:

“本公司現以書面請求貴法團封閉停車場，現解釋進行工程之必要性及有關之前期工作討論。

於2010年10月頭，本公司匯報黃鄺建築師有限公司有關停車場車路之防滑鋼沙工程，修補車路地台石屎及明渠工程受停車場之地下水不斷湧上而影響不能開展工程，因為發現不斷有地下水湧上停車場地面，而當時已損毀之行車路嚴重隆起明顯受地下水壓影響，有部份石屎地台底之土壤亦流失。本司曾在地台嘗試打鑿已損毀之石屎，但打鑿一個小孔亦導致地下水不斷湧上地面，故此，遇上這不可預見之困難下，本司暫停停車場工程要求顧問公司勘察給予進一步指示。

其後，按顧問公司指示要求本司報價為停車場公眾位置進行改善地下水之疏水工程，疏水工程須要動用風砲、挖泥機、挖深坑、裝置疏水管、安排位置放泥、放置石屎鋼筋疏水管等等物料，亦要為湧上之地下水安排3台抽水泵抽水，重新落車路石屎地台，因為考慮到車路須要完全封閉，地下水湧上亦會浸過車位影響停泊的車輛及車位之財物以及施工之安全問題，該報價單以停車場須清場為前提，本工程之保險公司曾視察停車場，當時保險公司評估後知會本司，如車場有任何非工程人員或車輛於車場發生事故，概不包括於保險承保範圍，本司為保障業主認為有必要清場才可進行工程，所以報價之先聲明工程以業主駛走車輛及封閉停車場以便進行工程的方式來報價及要封閉四個月才可完成工程。”

28. The relevant parts may be summarized as follows.

28.1.  First, the Contractor had to temporarily stop work because of continuous flooding from underground water, which had caused the roadway to buckle, and the loss of soil from beneath the surface of the ground. 

28.2.  The Contractor had reported this unexpected state of affairs to the consultant engineer, who asked for a quotation for dredging to be done, and for undertaking improvements to the underground water system (“the new quotation”).

28.3.  The Contractor said the dredging works would involve the use of pneumatic jack hammers, excavators and pumps; and deep troughs would have to be excavated for the laying of pipes.  Arrangements would have to be made for space to place materials such as soil, concrete, steel bars and pipes. 

28.4.  The pre-condition for the new quotation was that the Basement would be completely closed, as the floodwater would spread to the car parking spaces and may damage parked vehicles.  There was also the question of safety while the works were being undertaken.

28.5.  The Contractor also said that after its insurance agent inspected the Basement, he had advised that the policy did not cover accidents to non-workers or vehicles in the Basement. 

28.6.  Accordingly the Contractor considered that for the protection of the owners, the Basement had to be completely cleared and closed for the works to be undertaken.  The new quotation would be provided on that basis and the works would require closure of the Basement for 4 months. 

29. In the judgment, the judge said he did “not accept that the alleged outburst of underground waters as stated in the letter of Tat Hing dated 15 October 2010 was sufficient evidence to show that the repairs could not be carried out without complete closure of the Basement” (para. 123).  He read the letter as saying that the repairs could still be carried out without closure, but the contract price would be higher and the insurance cover would have to be extended “probably at an added premium”.  He concluded: “the fact that allowing the owners to access to their car parking spaces during the Works might cause some inconvenience to the Works and might make the Works cost more is no justification to deprive the owners of their private property right” (para. 124).

30. The judge therefore seemed to think that there were only financial reasons for closing the Basement.  With respect, that showed a failure to understand the letter. 

31. At the risk of repetition, the letter showed clearly both physical and legal reasons for the closure.

31.1.  First, the physical reason.  The scope of works in the Basement had been enlarged because the unexpected flooding had given rise to a need for the additional works, ie dredging and improving the underground water system.  This required heavy machinery to be brought on site, and for space to be provided for construction materials.  All this was on top of unexpected, continuous flooding from underground water in a basement that was already in a dilapidated state.  The conditions were ripe for injury to users and damage to vehicles if they were allowed to share the use of the construction site.  The letter never referred to “inconvenience” as the judge seemed to think.  It expressly referred to “safety”.   

31.2.  Secondly, the legal reason.  With the extended scale of the additional works, there was a risk of injury to users of the car parking spaces and damage to any vehicles parked there, which risk was not included in the Contractor’s insurance policy. As for the judge’s consideration that the IO could have extended its public liability insurance policy to cover risks not covered by the Contractor’s policy (para. 127), the legal complications that would be created are obvious.  One can foresee that if an accident occurs, a dispute could easily arise between the IO and the Contractor as to whose policy covered the damage or injury.   

32.1.  I now come to the judge’s crucial finding.  The letter stated clearly that the closure was the pre-condition for the Contractor’s provision of a new quotation for the additional works.  But the judge seemed to think that that meant the same works could be done, albeit at a higher cost, if the Basement was not cleared. 

32.2.  With respect, the letter does not say that.  Nor was expert evidence adduced by Madam Leung to contradict the Contractor’s letter that the additional works were necessitated by the unexpected flooding, or to suggest that they could have been done safely without clearance of the Basement.

32.3.  There was therefore no evidence to justify the judge’s crucial conclusion that the same works could be done, albeit at a higher cost, if the Basement was not cleared.

33.1.  Miss Lau for Madam Leung sought to support the judge’s finding by reference to the Contractor’s letter of 30 September 2010.

33.2.  However that was written before the Basement was flooded by underground water (at the beginning of October 2010) which necessitated the additional works.

34.1.  Miss Lau also referred to para. 122 where the judge said that the evidence of Mr Lam, the secretary of the IO, showed that certain areas of the common parts in the Basement could also be used as parking spaces and that this “might” provide alternative parking to the owners affected by the repairs, and therefore there was no need to close the Basement.  Presumably this is a reference to Mr Lam’s oral evidence as there was nothing in his witness statements to that effect. 

34.2.  Be that as it may, even if some space could be carved out of the common areas, enough in terms of area to serve as one or more alternative parking spaces, the opinion of a lay person such as Mr Lam could not override the Contractor’s professional opinion that it was not safe to have non-workers and their vehicles sharing the use ofa construction site. 

Consultant engineer’s recommendation

35. I then come to the written advice dated 15 October 2010 from the consultant engineer who also recommended the closure of the Basement in order to avoid damage and injury to vehicles and users of the car parking spaces. 

36.1.  The judge disregarded this advice on the basis that “no particulars were given to substantiate their recommendation” (para. 126).

36.2.  With respect, the consultant engineers had referred to the fact that the underground waterproofing membrane of the common parts had been punctured, that there was water seeping onto the surface, and that large-scale excavators were needed for excavation and the laying of pipes for the water to be discharged (para. 2). 

36.3.  More importantly, the engineers explicitly stated that for reasons of safety, to protect the vehicles, owners and users of the car parking spaces, it was necessary (必須) to close the Basement for 4 months, to facilitate the smooth undertaking of works as well as to ensure safety (para. 11).

36.4.  Faced with such clear advice from professional advisers, the IO was obviously justified in taking the view that the closure of the Basement was necessary.

37. The letter from the Contractor and the advice from the consultant engineer were contemporaneous documents, and the advice was not challenged by expert evidence from Madam Leung.  In my view, they point only to one conclusion: that it was necessary for the Basement to be closed during the time when works were being undertaken there.  There was no expert evidence from Madam Leung to challenge the extent of works or the time necessary for their completion.   

38.1.  Further, taking one step back and assuming (as the judge found) that the IO’s reason for closing the Basement was purely financial (for the works to be undertaken in a quicker and cheaper way), in my view that still did not make the closure unnecessary. 

38.2.  The undisputed evidence was that the Basement was dilapidated.  Nevertheless some owners, including Madam Leung herself, objected to repair works on the basis that they were costly.  One can reasonably infer that if the IO opted for a course of action which meant that the works would take longer and be more expensive, it would clearly run into even more objections. 

38.3.  Of course the closure meant that Madam Leung (the only counterclaimant in this litigation) could not use the Spaces, but then she had not been using them anyway for many years before the works were undertaken, and she suffered no substantial loss from the closure.

38.4.  Accordingly I would have thought it was reasonably necessary, even if only from a financial point of view, for the IO to close the Basement to effect quicker and cheaper works, rather than to expose the owners to lengthier and more costly works. 

39. By reason of the matters discussed above, the judge was, with respect, plainly wrong to have found that it was not reasonably necessary for the Basement to have been closed for the 4 months.  That was the only issue on appeal and there was no respondent’s notice.

Order

40. I would order the following:

(1)  the appeal be allowed;

(2)  the judge’s order that judgment be entered for the defendant in part of the counterclaim (payment of a nominal sum of $10 by reason of the closure of the Basement from 15 November 2010 to 14 March 2011) be set aside;

(3)  the judge’s order for costs be set aside and be replaced with an order that the defendant pay the plaintiff two-thirds of the costs of the counterclaim;

(4)  the defendant’s counterclaim in respect of the closure of the Basement from 15 November 2010 to 14 March 2011 be dismissed with costs; and

(5)  there be an order nisi that the defendant do pay the plaintiff’s costs of the appeal to be taxed if not agreed (subject to the disallowance of the costs set out in the following paragraph).

Costs to be disallowed

41. The handling of the appeal by the plaintiff’s solicitors left much to be desired.

-  They filed 7 bundles of documents which were not referred to at all in the course of the appeal by either side.

-  They filed a “Non-Agreed Bundle” containing materials that had not been placed before the trial judge.  Yet no application was made for leave to adduce fresh evidence on appeal.

-  Egregiously, they included some of the fresh materials in the Core Bundle without indicating that they were fresh materials.

42. In the circumstances, as indicated at the hearing, these costs should not be allowed, and this court will consider making a costs order against the plaintiff’s solicitors personally, unless they undertake within 21 days that they would not charge their clients for these costs and inform their clients of this undertaking.  Should they not be prepared to give this undertaking, directions will be given.

Hon Kwan JA:

43. I agree with the judgment of Yuen JA.