SOUTH CHINA COLD STORAGE & INDUSTRIAL CO. LTD AND OTHERS v. THE INCORPORATED OWNERS OF GOLD KING INDUSTRIAL BUILDING AND ANOTHER

DCCJ 3471/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3471 OF 2009

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JUDGMENT

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1.  The plaintiffs are the registered owners of the common parts of Gold King Industrial Building, 35-41 Tai Lin Pai Road, Kwai Chung, New Territories (“the Building”).

2.  The 1^st defendant is the Incorporated Owners of the Building (“the IOC”) and the 2^nd defendant is an agent engaged by the IOC to manage the Building.

3.  In or about June 2008, the IOC caused a watchman shed/ security room to be erected on a private road which formed part of the common parts of the Building (“the structure”).  The structure was erected without the prior consent or permission of the Building Authority.

4.  On 1 November 2008, the Building Authority served a building order on the 1^st defendant under s 24(1) of the Buildings Ordinance to demolish the structure within 30 days.  The 1^st defendant lodged an appeal against the order on 5 November 2008, the appeal was withdrawn on 21 January 2009.

5.  On 19 February 2009, the Building Authority served a fresh order on the plaintiffs as the owners of the common areas ordering the plaintiffs to remove the watchman shed/security room within 30 days ie on or before 20 March 2009 (“the superseding order”).

6.  On or about 19 to 23 February 2009, the plaintiffs consulted Messrs Kenneth CC Man & Co (“the plaintiffs’ solicitors”) for advice and action on the superseding order.

7.  On 25 February 2009, the 2^nd defendant wrote to the Building Authority for an extension of time of 3 months.  The Building Authority (“BA”) granted an extension of 3 months on 11 March 2009.  Upon the enquiries of the plaintiffs, the BA withdrew the extension order on 20 March 2009.

8.  The defendants tendered out the demolition contract and the structure was removed on 8 April 2009.  The BA certified the compliance of the demolition order on 14 April 2009.

9.  On the first day of trial, the defendants through their counsel, Miss Hong, conceded that the defendants were in breach of the Deed of Mutual Covenant (“DMC”). Consequently, it is no longer necessary to determine whether the 1^st defendant was entitled to install the structure at the said private road.

10.  The issues remaining for the court to determine are:

(a)  whether the plaintiffs are the owners of the private road?

(b)  whether the plaintiffs are entitled to recover the legal costs incurred; and if so,

(c)  the quantum recoverable.

The plaintiffs’ case

11.  The plaintiffs’ witness is Mr Chan Yue Shun, he is a director of the 3 plaintiff companies and was authorised to give evidence on the plaintiffs’ behalf.

12.  The plaintiffs were the developers and the original owners of the land the Building was erected on.  Under the DMC, one share was allotted to the common parts/areas and one share was allotted to the outer walls of the Building.  After the sale of all the units in the Building, the two shares allotted to the common areas and the outer walls remained in the ownership of the plaintiffs on 15 May 1986 (p 293-294 of the bundle).

13.  Under a DMC executed on 16 April 1987 with the first owner of the Building, provisions regulating the management, maintenance, insurance and services of the land, the Building, the rights, interests and obligations of the owners in respect of the land and the Building and the due proportion of the common expenses of the land and the Building to be borne by each owner have been set down binding all owners of the Building (p 98-101 of the bundle).

14.  The IOC was incorporated under the DMC and under the terms of the DMC, the IOC appointed the 2^nd defendant to manage and control the Building including the common areas.

15.  In or about March to May 2008, the IOC resolved to erect a traffic control device and security structure at the private road at the entrance of Tai Lin Pai Road to replace the old facilities.  Work commenced in April 2008 and the structure was completed in June 2008.

16.  On 17 and 28 July 2008, the plaintiffs wrote to the 2^nd defendant enquiring if the 2^nd defendant’s work complied with the Buildings Ordinance.  The 2^nd defendant replied on 8 August 2008 informing the plaintiffs the IOC had approved and resolved the replacement of the old security room and installation of the new facilities.  The letter failed to address the query of the plaintiffs.

17.  On 1 November 2008, the defendants received a notice served by the BA ordering the defendants to remove the security/ watchman room (“the said structure”) under s 24(1) of the Ordinance within 30 days on the ground it was an unauthorised structure (“the building notice”).  The defendants lodged an appeal of the building notice on 5 November 2008.

18.  As the defendants failed to remove the said structure, the plaintiffs wrote to the IOC demanding compliance with the building notice on 18 December 2008.

19.  On 29 February 2009, the BA served a superseding order on the plaintiffs ordering the plaintiffs to demolish the said structure within 30 days as the owner of the common areas of the Building.

20.  The plaintiffs consulted their legal advisers, it resulted in the issuance of a letter from their solicitors Messrs Kenneth CC Man & Co on their behalf demanding the defendants to comply with the superseding order within 10 days on 23 February 2009.  Meanwhile, the plaintiffs obtained a quotation from a contractor to demolish the said structure.

21.  On 25 February 2009, the 2^nd defendant wrote to the BA informing it that the 1^st defendant was the beneficiary of the common parts of the Building and it had been entrusted the follow up maintenance of the Building that it is in the process of obtaining a contractor for the demolition work.

22.  On 4 March 2009, Messrs Kenneth CC Man & Co wrote to the 2^nd defendant and again demanded the 1^st and 2^nd defendants to remove the illegal structure within 3 days.  The BA informed the plaintiffs by letter dated 11 March 2008 that a time extension had been granted for compliance of the order until 20 May 2009.

23.  On 20 March 2009, Mr Chan called up the BA informing the BA that 2^nd defendant was not his representative.  The BA therefore withdrew the extension of 11 March 2009.

24.  The plaintiffs was unhappy with the IOC and 2^nd defendant’s delay in the removal of the structure.  On 14 April 2009, the plaintiffs were informed by the BA that a completion order had been issued.  The plaintiffs then notified the IOC and the 2^nd defendant that they would be reserving the right to claim for the recovery of the damages arising from the failure of the IOC and the 2^nd defendant in complying with the BA’s demolition order on 24 April 2009.

The defence case

25.  The IOC claimed that it has the exclusive right to control, manage and administer the private road under the DMC.  In order to better manage and control the traffic in to and out of the Building and the car ports in the Building, a decision was made to upgrade the Building’s traffic control by the installation of a security room with ancillary facilities and approved by the IOC’s management committee at meetings held on 10 March and 28 May 2008.  As a result, the security room was installed and put in operation on 1 September 2008.  The IOC believed it was justified to do so under sections 6 and 34I of the Building Management Ordinance Cap 123 and under the DMC.

26.  On 1 November 2008, the IOC was served an order to demolish the structure by the BA, it having infringed s 24(1) of the Ordinance.

27.  The IOC lodged an appeal against the order on 5 November 2008.  However, after consulting its legal adviser, it later resolved to withdraw the appeal in January 2009 after a meeting of the management committee on 21 January 2009. It further resolved to demolish the structure.  The 2^nd defendant was instructed to take follow up action.

28.  The IOC claimed that the plaintiffs’ representative was present at the management committee’s meeting on 21 January 2009 and the plaintiffs should have knowledge of the IOC’s decision and action would be taken to demolish the structure.

29.  On 29 February 2009, the IOC was informed by the plaintiffs’ solicitors Messrs Kenneth CC Man & Co that the plaintiffs were served a superseding order by the BA requiring the plaintiffs to remove the structure within 30 days on 19 February 2009.

30.  The IOC, on 19 February 2009, wrote to the BA informing the BA that the IOC was the beneficial owner of the common areas of the Building; that tendering had begun for the demolition work on the security room requesting for a 3 months extension for the work to be completed.  The plaintiffs were informed by the 2^nd defendant of the contents of its letter to the BA on 20 February 2009.

31.  The BA informed the plaintiffs it has extended the time for compliance of its superseding order for 2 months on 11 March 2009, and the defendants’ solicitors wrote to the plaintiffs’ solicitors on 14 March 2009 suggesting that the plaintiffs should lodge an appeal against the superseding order.

32.  In response, the plaintiffs’ solicitor replied by letter asking the IOC’s solicitors if they have instructions to accept service on the defendants’ behalf.  The IOC’s solicitors then wrote to the plaintiffs’ solicitors querying the reason for the plaintiffs’ intention to issue legal proceedings against the defendants when they well knew the IOC was working on the removal of the structure.  They further made it clear to the plaintiffs there was no dispute on liability.

33.  After the 2^nd defendant reported to the BA the progress of the proposed demolition work on 18 March 2009, the plaintiffs notified the BA that the 2^nd defendant did not act as the plaintiffs’ representative.  As a result, the BA withdrew the time extension granted on 11 March 2009.

34.  On 8 April 2009, the structure was removed and the BA issued a certificate of compliance on 14 April 2009.

35.  The defendants therefore claim that the plaintiffs are not entitled to the legal costs incurred by the plaintiffs.

Findings

(a) Whether the plaintiffs are the owners of the private road?

36.  The dispute of liability had been conceded by the defendants on the first day of trial.  I shall nevertheless go through the basis of the plaintiffs’ ownership and the defendants’ authority in managing the Building.

37.  Under section 1 of the DMC, “common areas” are defined in full, namely, under (a) and (b) they included:

“(a) the entrances, staircases, landings, lift lobbies, passages and other spaces of the Building which are intended for common use and not for the exclusive use, occupation and enjoyment by an owner as hereafter specified,

  (b)   loading and unloading areas, hoisting platforms, common roadways and driveways, …..”

(p 100 of the bundle)

38.  Under the First Schedule of the DMC, the common areas (other than the parking spaces) have been allotted one share (p 138 of the bundle).

39.  Section IIB1 of the DMC provides:

“1. The common areas shall be deemed to be common areas for the use and benefit of the owners and their respective servants, agents, invitees and licensees subject to the provisions of this Deed and of the House Rules;”

40.  Section VII of the DMC provided that:

“the management of the Building shall be undertaken by the manager and the management company was appointed manager for the management of the Building.”

(p 115 of the bundle).

41.  The aforesaid clearly showed that though the plaintiffs are technically the owners of the common areas of the Building, the common areas are for the use of all owners, their servants or agents and invitees.  The IOC have been entrusted the management and control of the private road which forms part of the common areas of the Building, deriving its authority from the DMC.  The plaintiffs being a party to the DMC had agreed to allow the IOC and the management company appointed by the IOC to manage the Building.  Under s 18 of the Building Management Ordinance Cap 344, the IOC is duty bound to do such work at the common areas in exercise of the powers conferred by law.

42.  On the other hand, the IOC cannot regard itself the beneficial owner of the common areas even though the Ordinance conferred to it the power to use, maintain and manage the Building.

43.  Under the powers conferred to it by the DMC and the Ordinance, it is the IOC’s duty to install such equipments and facilities for the proper management of the Building.  It does not, however, mean the IOC is allowed to install a structure at any part of the common areas without first seeking permission of the BA. Its duty is to exercise the authority conferred to it lawfully.

44.  In the present case, the IOC failed to obtain the permission of the BA before it caused the structure to be erected at the private road of the Building.  Either because of its poor location or because of its size, the plaintiffs claimed its walls were dented by passing vehicles.  During this time, the plaintiffs asked the 2^nd defendant if the structure had the approval of the BA but received no satisfactory response from the 2^nd defendant.

45.  Miss Yip, counsel for the plaintiffs, submitted that it is the IOC’s duty to ensure the statutory duties were carried out, she relied on the case of the Incorporated Owners of Hoi Luen Industrial Centre v Ohashi Chemical Industries (Hong Kong) Ltd [1995] 2 HKC 11 where Godfrey JA held at p 13 that:

“When, then, the incorporated owners find that there is a breach of covenant being perpetrated by one of the owners, it is not only their right but their duty to seek to enforce the covenant.”

46.  In that case, the Incorporated Owners of Hoi Luen Industrial Centre obtained a mandatory injunction compelling one of the owners of the building to remove an air conditioning cooling tower erected in breach of the DMC.  The Court of Appeal held that the incorporated owners were not only entitled but bound to take proceedings for the enforcement of the covenants.

47.  Miss Yip further relied on the case of Lo Yuk Chu v Hang Yick Properties Management Ltd [1996] 4 HKC 278 where the Court of Appeal held the overall duty imposed on the incorporated owners by the DMC is one of proper management.  That such management entails doing all that is reasonably required of a manager in the circumstances.

48.  To do what is reasonably required of a manager is no doubt what the 2^nd defendant should do.  It is incumbent on the IOC to make sure what is done by the manager complies with the law.

49.  Section 24(1) of the Buildings Ordinance stated:

“24 Order for demolition, removal, or alteration of building, building works (other than minor works commenced under simplified requirements) or street works

(1) Where any building has been erected, or where any building works or street works have been or are being carried out in contravention of any of the provisions of this Ordinance the Building Authority may by order in writing require –

(a) the demolition of the building, building works, or street works; …..

and in every case specify the time within which the demolition, alteration or work required by such order shall be commenced and the time within which the same shall be completed.”

50.  The consequence of non-compliance with the order is provided at s 24(3) and (4):

“(3) If an order made under subsection (1) is not complied with, the Building Authority may demolish or alter or cause to be demolished or altered such building, building works or street works.

(4) Subject to subsection (4A), the cost of any demolition or alteration under subsection (3) in relation to the building, building works or street works to which the order relates shall be recoverable from –

(a)     if the order had been served on the owner of any land or premises in accordance with subsection (2)(a) or (c)(iii), that owner;”

51.  While I appreciate the plaintiffs would feel anxious that their ownership of the common areas of the Building should not be disturbed by the IOC’s failure to demolish the structure before the expiry of the time specified by the BA, I failed to understand why the plaintiffs should have caused the BA’s withdrawal the time extension for compliance.  The plaintiffs’ Mr Chan might be correct in calling up the BA to clarify that the defendants were not authorised by the plaintiffs when they made the extension application, it is inconsistent for the plaintiffs not to obtain an extension of time to enable the IOC and the management company to instruct a contractor to remove the structure.  This is particularly so when Mr Chan’s brother Mr Chan Lup Mau was present at the 10 November 2008 management committee meeting when the meeting discussed the demolition order served on the IOC and resolved that the structure had to be removed.  The meeting also resolved that the matter of renovation of the old security room would be followed up by the management committee.

52.  That being the case, it is difficult to understand why the plaintiffs would feel there is a need to obtain legal advice to the extent of giving instructions to issue proceedings against the IOC and the management company.  The plaintiffs may wish to seek independent legal advice on the s 24(1) order if they are not satisfied with the answer from the BA on the demolition order or the advice of the IOC’s legal adviser, it is a different matter for the plaintiffs to instruct their own solicitors to engage counsel to take out injunctive proceedings against the IOC and the manager.  It is doubtful if the plaintiffs understood what the proceedings were about for Mr Chan was clearly unsure when he gave evidence in court.  The Ordinance clearly stated the consequence of non-compliance of the order is demolition by the BA and the owner will be required to bear the costs.

53.  Furthermore, the plaintiffs well knew the IOC is in charge of the management of the Building under the DMC and under the Building Management Ordinance.  Even though BA may have served the superseding order on the plaintiffs, the IOC is bound by the DMC and the law to enforce the demolition order.  The Court of Appeal had made it clear that was the IOC’s duty in the Incorporated Owners of Hoi Luen Industrial Centre case and the Lo Yuk Chu case (see paras 45-47 above).

54.  The quotation the plaintiffs obtained from their own contractor for the demolition was only $7,500, it seems unreasonable to spend $67,510 on legal costs to achieve a similar result.  The plaintiffs have a duty to mitigate their loss and not to take up unnecessary litigation.

55.  For the aforesaid reasons, I dismiss the plaintiffs’ claim for damages.  I find the plaintiffs have failed to act prudently or co-operate with the IOC that resulted in incurring legal expenses unnecessarily, it was self-induced.

56.  I grant an order nisi that the plaintiffs shall pay the costs of the defendants to be taxed if not agreed.  Unless there is an application on costs within 14 days, the order will be made absolute.