THE INCORPORATED OWNERS OF ASIA HARVEST COMMERCIAL CENTRE v. GEARING DEVELOPMENT LTD

LDBM 263/2016

[2019] HKLdT 37

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 263 OF 2016

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J U D G M E N T

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1.  This is the applicant’s application for the following relief:

1)  A declaration declaring the end-wall on the right hand side of the building is a common part of the building;

2)  An injunction that the respondent by itself or its servants, agents, tenants, sub-tenants, licensees, or any of them or otherwise howsoever, be restrained from enveloping the said end-wall on the right hand side of the building; and

3)  Damages or mesne profits for the unauthorized occupation of the said end-wall; and damages for breach of the DMC and/or section 34I of the Building Management Ordinance Cap 344 (“BMO”).

A. BACKGROUND

2.  The applicant is the incorporated owners of the Asia Harvest Commercial Centre (“the Building”) situated at No. 324 Shau Kei Wan Road, Hong Kong. The applicant was incorporated on 5^th May 1999.

3.  The respondent is the owner of the shop on the Ground Floor, and the yard on the First Floor of the said Building (collectively referred to as “the Shop”).

4.  The occupation permit of the Building was issued on 15^th August 1995, and the deed of mutual covenant of the Building, dated 1^st September 1995, (“the DMC”) was registered in the Land Registry on 26^th September 1995.

5.  The Shop was assigned to the respondent by an assignment dated 30^th September 1995 (“the Assignment”).

6.  In summary, the applicant claims the respondent converted the end-wall adjacent to the Shop, located on right hand side of the Ground Floor of the Building (“the End-Wall”), for its own use since 2012. The applicant asserts the End-Wall is an external wall and is therefore a common part of the Building. Despite making repeated requests to the respondent and its tenants, the respondent and its tenants have refused to comply with the applicant’s request to clear the cladding and/or installations on the End-Wall.

7.  The respondent argues that the End-Wall is not an external wall and classifies it as part of the “shop front”. The respondent claims to have exclusive possession over the End-Wall and is not bound to seek the consent of the manager of the Building when decorating the End-Wall.

8.  At the trial hearing, the parties adduced expert evidence on the nature and function of the End-Wall. Both experts agreed the End-Wall is not a structural wall but a fire barrier wall built in compliance with the Code of Practice for Fire Safety in Buildings (“the Code of Practice”).

B. ISSUES IN DISPUTE

9.  The issues in dispute are set out as follows:

1)  Whether the End-Wall is a common part of the Building?

2)  Whether the respondent is in breach of the DMC and/or s.34I of the BMO?

3)  If so, has the applicant acquiesced to the breach of DMC and/or s.34I BMO?

4)  Is the applicant estopped from alleging the respondent is not entitled to the exclusive right to apply finishes and colour scheme to the End-Wall?

5)  Is the applicant entitled to damages or mesne profits?

C. WHETHER THE END-WALL IS A COMMON PART OF THE BUILDING

10.  The parties essentially adopt the opinion of their experts in the argument of whether the End-Wall is a common part.

11.  The respondent argues the End-Wall is not an external wall because it is not a structural wall. The respondent’s expert (“Mr Wu”) notes the End-Wall is included in the calculation of the gross floor area and there is a lack of cladding specification on the elevation plans. He further notes that both experts agree the End-Wall is only a fire barrier wall, which can be demolished and rebuilt at any time. Mr Wu therefore opines these factors, considered together, indicate the End-Wall belongs to the respondent.

12.  The applicant’s expert (“Mr Tse”) disagrees with Mr Wu and opines the ownership of the End-Wall must be ascertained by perusing the Sale and Purchase Agreement and the DMC. Mr Tse notes the elevation plan stipulates the wall cladding of the End-Wall is to be “finished by others.” Though Mr Tse admits he is unable to explain with certainty why this is so, he does not view this as being indicative of ownership.

13.  Mr Fong, counsel for the applicant, and Mr Lam, counsel for the respondent, both agree that question of whether the End-Wall is an external wall and therefore a common part, is a question of law. Both counsel agree that in so far as the ownership of the End-Wall is concerned, the experts’ opinion on the same cannot be determinative of the issue.

14.  I have considered the expert evidence and the submissions of counsel. I agree with the counsel that the experts’ respective opinion on ownership of the End-Wall is of limited value. The question of ownership of the End-Wall is one of law and is to be decided by this Tribunal after having considered the title documents.

15.  I therefore agree with Mr Tse that the important documents to consider in determining ownership of the End-Wall are the following: the sale and purchase agreement of the Shop, the Assignment, and the DMC.

(1) Title documents

16.  The sale and purchase agreement of the Shop to the respondent, dated 12^th September 1995, (“the S&P Agreement”) describes the property being sold as follows:

“The estate right title benefit and interest of and in ALL THOSE 91 equal undivided 2492^nd parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry as SHAU KEI WAN INLAND LOT NO. 721 and of and in the Building constructed thereon and intended to be known as “Asia Harvest Commercial Centre (潤民商業中心)” together with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT SHOP on the Ground Floor together with the Yard on the First Floor above the Transit Tank and Pump Room on the Ground Floor of the said Asia Harvest Commercial Centre which are more particularly shown and coloured pink and yellow respectively on the Ground Floor Plan and First Floor Plan attached hereto.”

17.  Similarly, the Assignment describes the Shop as:

“ALL THOSE 91 equal undivided 2492nd parts or shares of and in ALL THAT piece or parcel of ground registered in the Land Registry as SHAU KEI WAN INLAND LOT NO. 721 which for the purposes of identification is shown on the Block Plan attached hereto and thereon coloured Pink And of and in the messuages erections and buildings thereon known as “Asia Harvest Commercial Centre (潤民商業中心)” NO. 324 SHAU KEI WAN ROAD, HONG KONG (“the Building”) TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT SHOP on the Ground Floor together with the Yard on the First Floor (above the Transit Tank and Pump Room on the Ground Floor) of the Building as shown and coloured Pink and Yellow respectively on the Ground Floor Plan and First Floor Plan hereto attached.”

18.  There is no express clause in either the Assignment or the S&P Agreement which assigns a “shop front” or a “shop façade” to the respondent. Furthermore, there is no clause in either the Assignment or S&P Agreement which assigns or designates any right or interest in the End-Wall to the respondent howsoever.

19.  As for the Floor Plans and Block Plans coloured in Pink, I do not find those plans to be conclusive or even indicative of whether the End-Wall has been assigned to the respondent. The End-Wall is marked as a thick black line and are not marked Pink. The said plans are only 2 dimensional layout plans which do not show the shop front, the shop façade and/or the surface of the End-Wall. Hence the plans do not show whether the said End-Wall or the surface of it was intended to be marked pink.

20.  Having read the S&P Agreement and the Assignment, I do not find either of the documents to have assigned the right to exclusively use and possess the End-Wall to the respondent.

21.  I now turn to the DMC to determine whether the End-Wall is a common area.

22.  Having read the DMC, I am of the view that the End-Wall is a “Common area” as defined in the DMC for the following reasons:

1)  Firstly, there is no share allotted to the End-Wall. The Shop has only been allotted with 91 shares and there is no express mention of the End-Wall being included in the description of the Shop.

2)  Secondly, “Common Areas” are defined in the DMC to include external walls and “other areas and apparatus intended for common use.” The experts agree the End-Wall is a fire barrier wall. It is evident from the Code of Practice, the End-Wall is for the service of the building as a whole and not merely for the benefit of the Shop. The End-Wall protects fire from spreading from the adjoining building to the Building. Hence by definition, the End-Wall must be for common use and therefore a common area.

3)  Thirdly, I am of the view the End-Wall is an external wall and therefore falls within the DMC definition of “Common Areas”. Although the phrase “external wall” has not been defined in the DMC, by common sense it must be the wall that is on the exterior of the building[1]; one that encloses (whether wholly or partially) the interior of the building. The rationale for designating external walls as common areas is because the external wall functions for the benefit of the whole building and all the co-owners of the building.  Therefore, the responsibility of maintaining an external wall is shouldered by all co-owners.

I note Mr Wu opined the fact the End-Wall is not a structural wall is indicative of it not being an external wall. However, I disagree with his opinion. An external wall can still serve its function without necessarily having to be a structural wall. Moreover, I find no support in the DMC for the argument that the external wall, whether wholly or partly, must be a structural wall. There is no clause in the DMC which defines the external wall in accordance to whether it is a structural wall.  I therefore do not accept the respondent’s argument that only structural walls can be external walls.

23.  Having considered the title documents, I find the respondent does not have the exclusive right to use and occupy the End-Wall. I also find the End-Wall to fall within the definition of “Common Areas” as per the DMC.

(2) BMO

24.  I note that pursuant to section 2 of the BMO, “common parts” are defined 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;

(Amended 5 of 2007 s. 40)”

25.  Schedule 1 of the BMO lists the external walls of a building to be a common part.

26.  As stated above, the End-Wall has not been designated or specified in the title documents as registered in the Land Registry as being for the exclusive use, occupation or enjoyment of the respondent. Furthermore, for reasons already given, I am of the view the End-Wall is an external wall.

27.  Hence I find that the End-Wall is a common part as defined in the BMO.

(2) Gross floor area

28.  In so far as Mr Wu opines that the gross floor area is an important factor in considering the question of ownership, I do not accept his opinion. I am of the view the dictum of Cheung JA (as he then was) on saleable area in the case of Central Management Ltd v Light Field Investment Ltd [2011] 2 HKLRD 34 to be relevant.

29.  At paragraph 23 of the judgment of Central Management Ltd, Cheung JA opined:

“The definition of saleable area is to show how the saleable area is to be measured for the purpose of calculating the sale price of the units. As to what was actually assigned one looks to the whole of the title documents to ascertain the intention of the parties.”

30.  Similarly, the gross floor area is used to calculate the area of the unit in so far as required by various regulations. For example, gross floor area is used in the calculation of the permitted plot ratio of a building: see Regulation 21 of Building (Planning) Regulations (Cap 123F).

31.  Paragraph 1 of the Practice Note for Authorized Persons, Registered Structural Engineers and Registered Geotechnical Engineers (APP-2) reads as follows:

“Regulation 23(3)(a) of the Building (Planning) Regulations (B(P)R) stipulates that gross floor area (GFA) is the area contained within the outer surface of external walls of a building measured at each floor level. Any portions of this area not floored over should also be included in the GFA calculations.”

32.  If Mr Wu’s opinion is correct in that the gross floor area of any unit is indicative, if not determinative, of one’s ownership, then all owners of a unit in a building will own a portion of the external wall. This would leave the provisions in the BMO and the clauses of a deed of mutual covenant of any building redundant in so far as such provisions and/or clauses define an external wall to be a common part.

33.  I do not find Mr Wu’s opinion on gross floor area to be correct and I do not find the gross floor area to have any bearing on the ownership of the End-Wall. I therefore do not accept Mr Wu’s opinion in so far as he opines the gross floor area has bearing on the question of ownership of the End-Wall.

D. BREACH OF DMC AND/OR BMO

34.  For reasons stated hereinabove, I find the End-Wall to be a common part.

35.  Clause 8(j) of the DMC mandates that owners are not to “place anything in or to occupy to the exclusion of the other owners of the Building, any part of the Property and the Building intended for common use and not to use any such part of the Property and the Building otherwise than for the purpose for which it is designed.”

36.  Therefore, any act which converts the End-Wall to private use is in breach of the Clause 8(j) of the DMC and section 34I(1)(a) of BMO.

37.  Having considered the evidence, I accept the respondent and/or its tenants have converted the End-Wall to their private use, without the consent of the manager. I accept the respondent’s tenants have, since 2012, affixed various installations on the End-Wall, including light boxes, hangers and/or tubes, and wall-cladding. I also accept that during the time when the Shop was vacant, the Shop together with the End-Wall was enclosed by large metal roller gates of which only the respondent could unlock.   

38.  The respondent’s witness, Mr Kwok Ka Sing Raymond, claims that he knew little about the affairs of his tenants and therefore the respondent had no knowledge on the manner of use of the End-Wall by its tenants.

39.  Having considered the evidence, I am satisfied the respondent knew his tenants have converted the End-Wall for their private use, without the consent of the manager. It is clear from the correspondence shown the applicant sent various letters complaining of the use of the End-Wall to the respondent’s property management company, the respondent’s various tenants, and the respondent itself. Furthermore, the various installations on the End-Wall were in plain view to the public. It is unbelievable that the respondent would have no knowledge of the use of the End-Wall throughout the years. I therefore find that the respondent knew its tenants had used the End-Wall for their own private use and knew that such use of the End-Wall was without the authority of the manager.

40.  I therefore find the respondent in breach of Clause 8(j) of the DMC and section 34I(1)(a) of the BMO.

E. ACQUIESCENCE AND ESTOPPEL

41.  Mr Lam for the respondent indicated that though the respondent does not abandon such arguments, it does not seek to make further submissions after hearing the evidence.

42.  Having considered the evidence, I do not find the applicant to have acquiesced to the respondent’s breach of using the common part or to be estopped from making the present claim against the respondent. I set out my reasons below.

43.  During the time it was a tenant of the Shop (that is, from 15^th December 2006 to 14^th December 2009), HSBC used the End-Wall with the permission from the applicant by entering into a licence agreement with the applicant. After HSBC vacated the Shop in 2011, the respondent’s tenants began to use the End-Wall without the consent of the applicant. Since 2012 the manager of the Building repeatedly issued letters to the respondent’s tenants asking them to refrain from using the End-Wall in a manner that breaches the DMC. In 2014, the applicant made a complaint to the Buildings Department. At no time had the manager or any representative of the applicant indicated to the respondent it would consent to the End-Wall being used by the respondent and/or its tenants.

44.  Given the course of action and the timing of the manager’s response to the breaches of the DMC in so far as the End-Wall is concerned, I do not find there to be any acquiescence on the applicant’s part.

45.  For the similar reasons, I do not find the applicant to have said or done anything that would cause the respondent to believe it had any right to exclusively use the End-Wall. In view of the course of action taken by the manager, it is evident the applicant had all along made it clear they did not approve of the respondent’s use of the End-Wall and regarded the End-Wall as a common part. In such circumstances, I do not find the respondent’s allegation of estoppel to be made out.

F. DAMAGES AND MESNE PROFITS

46.  The applicant asks for damages and/or mesne profits in the sum of $202,500 (for the period from 1^st September 2012 to 31^st May 2019). The sum is calculated based on the licence fee of $2,300 per month HSBC previously paid to the applicant.

47.  Other than the 3 licence agreements, there is no other evidence adduced to support the claim of damages and/or mesne profits in the sum sought.

48.  I have considered the submissions of counsel and the evidence before me. Having considered the evidence, I am of the view the applicant is unable to prove the quantum of damages and/or mesne profits for the following reasons:

1)  There are 3 licence agreements signed between the applicant and HSBC for the installation of roundels. The first licence agreement, dated 28^th July 2008, was for the installation of 2 roundels. The licence fee was $2,000. It was expressly stipulated in the agreement that the fee was $1,000 per roundel. One roundel was placed on each side of the Shop entrance. This means only one roundel was installed on the End-Wall. The second licence agreement, dated 30^th October 2012, stipulated the licence fee to be $2,300 and was for the installation of one roundel only. This roundel was placed on the left hand side of the Shop entrance, not on the End-Wall. The third licence agreement, dated 19^th September 2016, was for the installation of 1 roundel at a licence fee of $2,800. The roundel in question is the same as the roundel referred to in the Second Licence Agreement. It is therefore unclear from the licence agreements what licence fee could be commanded by the use of the End-Wall itself; and

2)  There is no evidence adduced by the applicant to support the sum of $2,300 or $2,800 as “rental” or licence fee for the use of the End-Wall by itself. There is no evidence to support the End-Wall itself can command a licence fee or rental of $2,300 or $2,800.

49.  I therefore do not find the quantum of $202,500 to be made out.

50.  However, since I find the End-Wall to be a common part and find the respondent and its tenants converted the End-Wall for their own use without consent from the manager, the applicant should be entitled to damages, albeit a nominal sum.

51.  I accept the respondent and its tenants have used the End-Wall without the manager’s consent for a total period of approximately 80 months (counting from 1^st September 2012 until 3^rd April 2019 – the last day of trial). I take a nominal sum of $1,000 per month as the hypothetical licence fee that could be generated from the End-Wall and award nominal damages in the sum of $80,000.

G. RELIEF SOUGHT

52.  In light of what is set out in this judgment, I do not find it necessary to grant the declaration sought. I have set out my findings relating to the End-Wall in this judgment and have clearly stated the End-Wall is a common part.

53.  As for the injunctive relief, I am satisfied that such relief should be granted. However, since the proposed wording of the injunction is not clear, I shall grant the injunction in terms that are consistent with the DMC.

54.  By reason of the matters set out above, I grant the following orders:

1)  An injunction that the respondent by itself or its servants, agents, tenants, sub-tenants, licensees or any of them or otherwise howsoever be restrained from placing anything on or occupy or howsoever using to the exclusion of other owners of the Building the End-Wall without the prior written consent of the manager;

2)  The respondent to pay damages to the applicant in the sum of $80,000; and

3)  Interest on the said sum at judgment rate from the date of the filing of the Notice of Application (8^th November 2016) until full payment of the said sum.

55.  I order that costs should follow the event. I have considered whether summary assessment is appropriate. However, since the case has been ongoing for more than 2 years before it came to trial, and because both sides were legally represented all along, I am of the view the taxation of the costs would be more appropriate.

56.  I make a costs order nisi that the respondent shall pay the applicant’s costs of this action to be taxed if not agreed on the District Court scale, with certificate for Counsel. Unless any party applies to vary the costs order within 14 days hereof, the costs order shall become an order absolute.