The Incorporated Owners of Elite Garden v. Profit More Co. Ltd.

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. LDBM 344 of 1998

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J U D G M E N T

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Background

1. The Applicant was the Incorporated Owners of Elite Garden situated at 8A, Elite Garden, 11 Tsing Chun Path, Tuen Mun, New Territories. It instituted the present proceedings on 27th November, 1998 against the Respondent Profit More Company Limited which was, at all material time, the registered owner of the first floor of the said Elite Garden. The Applicant alleged that the Respondent had committed a breach of the deed of mutual covenants (hereinafter called the DMC) by opening windows on the external walls of the first floor. The Respondent denied the breach and alleged that on a true construction of the DMC, the Respondent was not prohibited from opening the windows. The Respondent further queried the locus standi of the Applicant in bringing these proceedings. There was no dispute that the Respondent was the owner of both the external and the internal walls on which the windows were opened. As such, the interest of the Respondent as well as those of the other owners of the building were unaffected by the act of the Respondent. Alternatively, the Respondent claimed that since the Applicant had never passed any resolution in its owners meeting nor its management committee meeting, the Applicant lacked the requisite authority to commence the present proceedings. Further on in the alternative, the Respondent pleaded that the Applicant was estopped from taking legal action against it. The Respondent alleged that in a lunch meeting which took place on 17th February, 1995, representatives of the Applicant confirmed that the Respondent was permitted to install the windows in the exterior walls. Finally, the Respondent claimed that a set of house rules distributed in an owners meeting held on the same date of but subsequent to the previously mentioned lunch meeting ultra vires the provisions of the DMC and hence of no effect in restricting the Respondent from opening the windows.

Facts not in dispute

2. Apart from the facts on which the Respondent relied in pleading estoppel, the parties had little disputes over the facts of this case. Firstly, it was common ground that the Respondent became the owner of the first floor in July 1992 and owned both the external and the internal walls of the premises. In 1994, the premises were leased out to a tenant who operated an old people's home there. A large number of windows were opened on the external walls of the first floor in 1994. In 1997, part of the first floor were used to run a fitness center and then a second old people's home and further windows were opened. All these windows on the first floor could be seen in the photograph bundle (exhibit A2).

Evidence given by witnesses in the case

3. Two witnesses were called by the Applicant. The first witness was Mr. LEUNG Ting-kwok. He was the secretary of the Applicant since February 1995. He adopted his witness statement as his evidence (exhibit A1) which concerned mainly on the undisputed facts. So far as the disputed facts were concerned, he said he was not present in the lunch meeting held between the Respondent and members of the management committee of the Applicant on 17th February, 1995. However, as far as he knew, no settlement had been reached between the Applicant and the Respondent in that meeting. Those undertaking of the Respondent recorded in the minute of the owners meeting of 17th February, 1995 (page 48 of exhibit A3) were not terms for settlement. When he was asked why the Applicant had delayed taking action against the Respondent until 1998, the witness gave two reasons. One was that the management committee had been focusing its attention in the major renovation works which took place during the interim period. The second reason was that in 1995, the Applicant was rather short of fund and only got around $100,000. By 1998, the financial status of the Applicant improved and the Applicant had a surplus of around $700,000. Hence, the management committee resolved to take legal action in a meeting held on 16th October, 1998 (see minutes of meeting at page 96 in exhibit A5). As for a set of house rules first distributed to the owner in the owners meeting held on 17th February, 1995, the witness testified that the rules were drawn up by him 2 weeks prior to the meeting. He had shown them to the committee members and they found no problem in it.

4. The second witness for the Applicant was Mr. LI Kwong Leong, Michael (AW2). He was the chairman of the Applicant from 1992 to 1999. He testified saying that he and two other committee members did attend the lunch meeting with Mr. WONG Shun on 17th February, 1995. He confirmed that in the meeting, Mr. WONG did promise him and other representatives of the Applicant those points as recorded in the minutes from (a) to (h) at page 48 of exhibits A3. However, the witness said those promises were not given by the Respondent in exchange for the Applicant's not taking legal action in relation to the breach of the DMC. Rather, they were given to pacify the residents of the building who had put up various posters to protest against the running of the old people's home. In his evidence, AW2 clearly distinguished the possible illegal running of the old people's home from the breach of the DMC by opening windows on the first floor. As for the delay in instituting the present legal proceedings, AW2 explained that it was because that the Applicant had to deal with the more urgent task of carrying out the renovation works for the building. Financial consideration was the other factor, according to AW2, accounting for the delay.

5. The Respondent had called only one witness and he was Mr. WONG Shun (RW1). Mr. WONG was a director of the Respondent company. He adopted his statement dated 30th October, 2000 as his evidence-in-chief (exhibit R1). He admitted that windows were opened on the first floor in November 1994 by the Respondent's tenant Fu Hong Home for the Elderly without prior permission from or notification to the Applicant. In relation to the agreement reached with those representing the Applicant, he said in his statement that the agreement was recorded in a note he made (the note was included in page 66 of exhibit A3). In paragraph 15 of his witness statement, Mr. WONG said "The essence of the agreement was that the Applicant would not issue legal proceedings. In addition, they would permit the old peoples' home to continue in business and would stop their protest campaign. In return, we agreed to do a number of things to accommodate the Applicant in respect of its complaints". The things to be done by the Respondent were later reported back to the owners meeting held in the same evening and were recorded in the minutes for that meeting (see page 48 of exhibit A3). Mr. WONG was also present in the owners meeting. He said in evidence that after the chairman had told the owners in the meeting what the Respondent had promised to do, the chairman recommended that no legal action was to be taken against the old people's home. As no one raised any objection in the owners meeting, the witness took it that meant that the owners meeting had accepted what had been agreed between himself and the management committee during lunch meeting. In 1997 when more windows were opened, one Mr. Li of the Applicant had asked him for the building plans. He then caused his architect to have a check on the works and he was later told by that architect that those works did not involved any structural changes to the building. However, Mr. Li never got back to him for the plans. Mr. WONG said that the Respondent's relationship with the Applicant had been harmonious until the end of 1998. By the end of 1998, Applicant was having a dispute with the Respondent on the amount of contribution to the renovation works to be shared by the Respondent and the witness had an impression that the Applicant revived the window issue as a means to take revenge on the Respondent.

Is there a breach of the DMC

6. The provisions in the DMC fall to be construed by this tribunal are reproduced below for analysis:

"5. The owner or owners for the time being of each undivided 1046th share in the said land and said Building shall at all times hereafter be bound by and shall observe and perform the covenants provisions and restrictions set out in the Second Schedule hereto.

THE SECOND SCHEDULE

Covenants, provisions and restrictions referred to in Clause 5 of this Deed.

3. (d) Not to make any structural alteration to any unit of which he is the owner nor cut, main, injure, damage, alter or interfere with any part or parts of the said Building or any of the sewers, drains watercourses, conduits, pipes, cable, wiring, fixtures, equipment, apparatus or services of the said land and the said Building Provided Always that each owner may take or install in his own unit at his own expense any additions, improvements, lights, fittings, fixtures or decorations which can be installed, fixed and removed without structural alterations or damage and each such owner shall have the right to remove the same at his own expense." (underline added)

17. There is reserved unto the Company its successors assigns and all persons authorised by it the following rights and privileges:-

(a) The Company and its assigns and all persons authorized by it shall have the right and privilege ( i ) to pain affix erect install exhibit or display any names sign-boards .................and (ii) to install construct erect or affix one or more chimneys on such part or parts of the exterior walls and canopy areas of the said Building without interference provided that no window on any such walls shall be constructed thereby. ....."(underline added)

7. The Applicant alleged that by opening the windows on the external wall of the first floor in 1994 and 1997, the Respondent had committed breaches of the provisions in the DMC reproduced above. The Respondent disputed saying that there was no breach because clause 17 was only a right reserving clause by nature. As such, clause 17(a)(ii) only reserve a right for the owner of the external wall to erect chimneys subject to the rider that no window could be opened by virtue of (meaning of the word thereby) such erection. Hence, clause 17, argued the Respondent, had no application to works which involved opening windows alone. As for paragraph 3(d) in the second schedule, the Respondent maintained that RW1 had given unchallenged evidence on this point. The evidence was that RW1 was told by his architect that the opening of the windows in 1997 did not involved any structural changes to the building, hence, the window opening works constituted no breach to the said paragraph.

8. There was no dispute that paragraph 3(d) prohibits structural alteration even on an owner's own unit. The key issue to be decided is thus whether the opening of the windows in 1994 and 1997 amounted to structural alteration. On this point, RW1 did give hearsay evidence in that he was told by his architect that the works in 1997 did not involve any structural alteration. However, there was still no evidence on whether or not the window opening works in 1994 involved structural alteration. Furthermore, though this tribunal was empowered to receive even hearsay evidence in its trials, I do have reservation in accepting RW1's evidence because of the reasons that I shall mention in the later part of this judgment. As a result, I attached no weight to this piece of hearsay evidence. The next question that follows is whether the Applicant, like most plaintiffs in a civil law suit, has to prove its case by adducing evidence to prove that the opening of the windows in 1994 and 1997 amounted to structural alteration.

9. As submitted by Mr. Chung for the Applicant, the interpretation adopted by His Lordship Cheung, J in the case The Incorporated Owners of Tuen Mun Hung Cheung Industrial Centre (Phase I) vs. United Hong Kong Ltd. HCMP 2991 of 1998 should be adopted. The incorporated owners plaintiff in that case sued the defendant owner of an industrial building ground floor unit for having committed a breach of the DMC by breaking open 2 external walls to install two roller gates as addition accesses to the unit. The question to be decided was whether those alterations amounted to structural alteration prohibited by the DMC in that building. The defendant in that case relied on an architect's letter stating that the opening of one of the walls "had no effect on the structure" of the Building. His Lordship took the defendant's case to the highest and found that at most those words meant that the alteration had no effect on the safety of the structure and that it did not mean that there was no breach on the DMC (see page 3 of the judgment). After going through the authorities, His Lordship had this to say in page 4 of the judgment:

"In my view, in construing the terms of the DMC, one should take the ordinary literal meaning of the words. After all, the incorporated owners are required to enforce the terms of the DMC. It would be imposing an impossible burden on their task if every time when they see alterations to the building they have to consult an architect first to ascertain whether the altered part forms part of the structure of a building before they could commence proceedings which very often have to be made on an urgent basis. Chung Kwok Yiu (a case cited by the defendant in that case) does not support the Defendant's argument that the opinion of an architect must be obtained first. In the context of the DMC, structural alteration clearly means alteration to the structure of the Building. The external walls which enclose the Building clearly form the structure of the Building. (italic added)

10. In my judgment, His Lordship's interpretation accorded with both legal and common sense and I respectfully adopted such interpretation in the present case. As a result, I found the opening of windows on the external wall in 1994 and 1997 constituted breaches on paragraph 3(d) of schedule 2 of the DMC. The fact that the Respondent was the owner of both the internal and external wall of the first floor does not change my conclusion for paragraph 3(d) clearly prohibits structural alteration work to be carried out even on an owner's own premises. In any event, I believe I should mention here that I agree with the Respondent's contention that clause 17(a)(ii) has no application in this case. Clause 17, being a right reservation clause by nature, mainly aims at reserving certain rights (e.g. right to put up signboards and erect chimneys) for the owners of the individual premises. The proviso in 17(a)(ii) was simply an attempt by the draftsman of the deed to reconcile the right to erect chimneys on the one hand with the prohibition of making structural alteration by opening windows on the other.

Does the Applicant has locus standi to sue?

11. The Respondent queried the locus standi of the Applicant in bringing these proceedings. It relied on the case of Incorporated Owners of Tak Cheong Building (Battery Street) v Tong Wai Tak & another [1999] 1 HKC 238 for its contention. In that case, the incorporated owners sued the respondents for having put up an advertisement board on the external wall of the building. The incorporated owners in that case alleged that such act constitute a breach of the DMC which prohibit an owner to "decorate" the building without the prior written consent of the manager. The Court of Appeal allowing the appeal brought by the respondents on two grounds. Firstly, the Court of Appeal held that the applicant in that case had no locus standi in bringing the proceedings under section 18(2)(g) of the Building Management Ordinance. Section 18 (2)(g) provides:

"18(2) A corporation may, in its discretion ---

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(g) act on behalf of the owners in respect of any other matter in which the owners have a common interest. (underline added)

12. As in that case, the parties agreed that the external wall on which the advertisement board was erected belong to the respondent, the Court of Appeal found no other owners nor the applicant had any interest which qualified the requirement of "a common interest" in section 18(2)(g). Secondly, the Court of Appeal found that the word "decorate" could no go so far as to cover the erection of an advertisement board. Hence the Court of Appeal found that there had been no breach committed by the respondent on the DMC in that case.

13. In my judgment, the Tak Cheung Building case is clearly distinguishable from this case. Their Lordship were only considering a party's locus standi in bringing proceedings under section 18(2)(g) which require "a common interest". That paragraph was only one of the 9 paragraphs under section 18(2). Section 18(1) also has 3 paragraphs providing for what the corporation MUST do. The phrase "any other matter" in that paragraph clearly contemplates the corporation's capability to act in the manner as provided for in the preceding paragraphs. In fact, section 18(1)(c) clearly provides that "the corporation shall 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." This provision alone will suffice the requirement of locus standi of the Applicant as the Applicant is under an obligation to enforce the DMC for the control of the building. Apart from statutory provisions, I also found that the Applicant's locus standi could be established under contract law. Clause 9(h) of the DMC thus provides:

"(h) The Managers shall further have power to commence proceedings for the purpose of enforcing the observance and performance by owner of any one or more undivided shares in the said land or said Building and any person occupying any unit through under or with the consent of any such Owner of the covenants, conditions and provisions of this Deed and of recovering damages for the breach non-observance or non-performance thereof. The provisions of paragraphs (e), (f) and (g) of this Clause shall apply to all such proceedings and to the recovery of any costs, damages or other moneys awarded therein."

14. Paragraph 18 in the Third Schedule also authorizes the Managers "to enforce the due observance and performance by the owners of the terms and conditions of this Deed and to take action in respect of any breach thereof including the commencement, conduct and defences of legal proceedings and the registration and enforcement of charges as hereinafter mentioned."

15. Definition in the DMC for the phrase "the managers" is wide enough to cover the Applicant. Clause 7(c) of the DMC spells out the definition as follows:

"(c) Reference in this Deed to "the Managers" shall mean the person, group of persons, firm, company or corporation for the time being undertaking the management of the said land and said Building."

16. In the end, I have no doubt at all in that the Applicant has the necessary locus standi in bringing these proceedings in the Lands Tribunal.

Dose the Applicant have sufficient authority to sue?

17. The Respondent contended that the resolution passed by the management committee on 16th October, 1998 (the original minutes of meeting was in Chinese (page 94 to 96 in exhibit A5) and an English translation was provided by the Respondent from pages 97 to 101 of the same) only authorize the issuing of a solicitors letter and not the present proceedings. As there were no resolution authorizing the present proceedings, the present proceeding had been instituted without authority.

18. The relevant resolution in item 11 of the minutes in Chinese is reproduced hereunder:

"委員會認為按照《大廈公契》，任何業主及租戶，未經法團批准，不能擅自在大廈外牆開窗。九四年期間，一樓老人院妄顧當年法團的反對，將一樓外牆加開很多大窗，違反《公契》條款，情節極之嚴重。隨後一樓的健身中心亦擅自開窗，亦未向法團申請。上述租戶的行為，必然受到某方面的默許才會鑿牆開窗，法團極度擔心此種違反《公契》之事，已為其他業主效法，公然破壞《公契》條款；更重要的是，此等租戶若結業遷出一樓商場，對本大廈鑿牆開窗構成的物業外觀的損害，將會無人承擔及彌補，法團今議決通過律師出信，不惜訴訟，要求一樓商楊業主盡快命令其租戶封窗，令大廈外牆結構回復舊觀，否則絕不罷休。"

19. One can see that the most crucial phrase "不惜訴訟" was translated into a full sentence as "The Committee will not hesitate to go to law for this." The location of the phrase has also been changed in that it was no longer placed behind "the issuing of the solicitor's letter" but was placed at the end of the whole sentence. In my judgment, not only was the translation of the phrase inaccurate, the relocation of it had also changed the tone and thus the meaning of the whole resolution. I am of the view that a more accurate translation for the material part of the resolution should be as follows:

"The corporation now resolves to issue a letter through a solicitor, to take legal action unsparingly, to demand the landlord of the shopping arcade to ........otherwise, the corporation will never give up."

20. In my judgment, the resolution in Chinese constituted clear authority for the corporation to take legal action in this Tribunal.

Was the corporation estopped from taking legal action?

21. In order to plead estoppel as a defence successfully, the Respondent has first to prove that there was a promise made by the Applicant to refrain from taking legal action against the Respondent and then the Respondent has, on the strength of such promise, altered its position to its own detriment. The parties have given very different evidence about that lunch meeting which took place on 17th February, 1995---the very same date on which an owner's meeting was held subsequently.

22. Two pieces of documentary evidence were produced; one from each side. They were the minutes of the owners meeting (pages 46 to 49 and translation from pages 52 to 56 of exhibit A3) held in the evening and the attendance note made by RW1 at the lunch meeting (pages 66 of exhibit A3). First of all, I found that the attendance note contain items similar to those mentioned in the minutes of meeting described as "the other party had agreed to the following demands put forward by us:". However, in that attendance note, no mention was ever made on any agreement having been reached with the incorporated owners. I have also considered the back ground against which this lunch meeting was held. There was no dispute between the parties that many owners of the building were very unhappy about the opening of the old people's home in December 1994. By February 1995, many posters had already been put up by the discontented owners in the vicinity of the old people's home. The content of the posters included allegation that the old people's home was being run without license and that it was paying no regard to the safety of the old people. It took little imagination before one could visualize how these posters could negatively affect the running of this newly established old people's home. The Applicant's case was that the promises made by the old people's home listed from a to h in page 48 of exhibit A3 were made by the Respondent to pacify the agitated mood of the owners. In my judgment, the most urgent thing that the old people's home hope to do at the time was of course the removal of the poster. Indeed, the minutes of the owners meeting showed that when the question on whether or not the posters should be removed was put to vote, it was prefixed with these words "As the other party is willing to negotiate to resolve the matter". And again, nowhere in the minute can I find any mentioning on the promise of not to sue offered by the corporation. In the end, I am of the view that the evidence given by the AW2 on what had happened in the lunch meeting is to be preferred to the evidence given by RW1 on the same. In fact, I found all 2 Applicant's witnesses to be honest and creditable witnesses and I attached full weight to their evidence. On the other hand, I found the RW1 to be less than forthcoming as a witness. Hence, whenever different versions exited in the evidence given by the Applicant's witnesses and the Respondent's, I prefer those given by the Applicant's. Finally, I find that the Applicant had never promised the Respondent that it would not institute legal proceeding against the latter. I accept the Applicant's evidence in that the delay of the taking of the present legal action was because the Applicant had been focusing its attention on the renovation works. No estoppel could operate against the Applicant in this case.

Conclusion

23. After having gone through the above analysis, I believe the present application can be disposed of already. As I have already found that the Respondent had committed a breach of paragraph 3(d) of the second schedule in the DMC, it would not be necessary for me to express my view over the legality of the house rules that had been distributed in the owners meeting on 17th February, 1995. Such rules prohibit, inter alia, the opening of windows without prior application made to the corporation. In my judgment, even if these rules were illegal and of no effect, that would not change the fact that the Respondent had committed a breach of the DMC. I give judgment to the Applicant and made the following orders:

1. By way of declaration, this tribunal hereby declares that the Applicant is entitled to enforce its rights against the Respondent under the provisions of the DMC.

2. By way of mandatory order, this tribunal hereby directs the Respondent to reinstate the exterior walls of the first floor of the building within 3 months.

24. I also grant a cost order nisi that the Respondent is to pay the Applicant's cost with counsel certificate on a party and party basis to be taxed if not agree. Such order is to become absolute if no application is made in 21 days. Both parties shall be at liberty to apply.