CITYBASE PROPERTY MANAGEMENT LTD. v. SHA TIN PEACE EVANGELICAL CENTRE LTD.

HCA 8369/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8369 OF 2000

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J U D G M E N T

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1. The plaintiff in these 2 actions applied under Order 14A of the Rules of the High Court, Cap. 4, to determine 4 questions.

The background

2. The plaintiff was appointed to act as the manager responsible for the management of Wai Wah Centre, No. 11-17 Sha Tin Centre Street, Shatin ("the Estate") under a Deed of Mutual Covenant ("DMC") dated 15 August 1986 made by the plaintiff with Chanway Shatin New Territories Development Limited ("Registered Owner") and the first purchasers.

3. The defendant in Action No. A8369 of 2000 is the registered owner of Kindergarten A on Level 4 of the Estate and the defendant in Action No. A8370 of 2000 is the registered owner of Kindergarten B on Level 4 of the Estate. Mr Spencer Lee, solicitor for the plaintiff, and Mr Benjamin Chain, counsel for the defendants, told me that, for the purpose of the 2 Order 14A applications, there was no material difference between the 2 actions. In this judgment, except where the contrary appears, I shall deal only with the application in Action No. A8369, it being agreed that the application in the other action stands or falls with it.

The plaintiff's pleaded claim

4. On 21 August 2000, the plaintiff issued a writ against the defendant claiming that the defendant erected certain structures ("the Structures") in the common areas of the Estate and converted the common areas to its own use, in breach of the DMC and in breach of section 34I of the Building Management Ordinance, Cap. 344. The plaintiff's case as pleaded in its Statement of Claim is that:

"5 In breach of the covenants of the DMC, the Defendant erected or allowed or permitted or caused to be erected certain structure(s) with glasses affixed with air-conditioners (collectively referred to as 'the Structures') in the common areas in front of the Kindergarten ('the Common Areas') for private purpose without prior consent or approval of the Plaintiff. The locations of the Structures are marked in pink as per the plan attached hereto.

6. Further or alternatively,

(1) Section 34I of the Building Management Ordinance, Cap. 344 ('the Ordinance') restricts any owner or person from converting any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the Owners' Committee (if any);

(2) By virtue of (inter alia) Section 34C of the Ordinance, Section 34I shall prevail over any provision in a DMC which are inconsistent with the same.

(3) In breach of Section 34I of the Ordinance, the Defendant has never obtained approval from the Owner's Committee/Estate Owner's Committee of the Estate by way of a resolution or at all in regard to its conversion of the common parts of the Estate."

The Defence

5. By its Defence dated 16 September 2000, the defendant admitted that the Structures were located in the commons areas in front of the entrance to and the exit of the its kindergarten. Its substantive defence is pleaded in paragraph 5 as follows:

"5 Further or alternatively, the Plaintiff is estopped from claiming that the Structures were erected without the prior consent or approval of the Plaintiff by reason of express representations and/or promises made by and/or for the Plaintiff as the manager of the Estate to The Incorporated Trustees of the Peace Evangelical Centre, the Defendant's predecessor in title ('Predecessor'), with the intention that the Predecessor should act on such representations and/or promises, which the Predecessor did in fact do.

Particulars

(a) Chanway Shatin New Town Development Limited ('the Registered Owner') was the registered owner of the piece and parcel of land known as Shatin Town Lot No. 159 ('the Land') on which the Estate is built.

(b) By an agreement dated 17th August 1983 ('the Development Agreement') between the Registered Owner and Haynes Estates Limited ('the Developer'), the Developer, inter alia, agreed to develop the Land and build the Estate for the Registered Owner in consideration of the Developer's entitlement to certain percentages of the proceeds of units sold and the unsold units of the Estate.

(c) By clause 4 of the Development Agreement, Cheung Kong Real Estate Agency Limited ('Cheung Kong') was appointed as the sole sales agent of the Registered Owner and the Developer was 'given power to enter into valid enforceable agreements for sale and purchase' and 'exercise all the rights of the (Registered) Owner including the right to enforce or rescind any such agreements on behalf of the (Registered) Owner.'

(d) By the DMC which was dated 15th August 1986, the Registered Owner appointed the Plaintiff as the manager of the Estate.

(e) The Developer, the Plaintiff and Cheung Kong all had their registered office at 21st Floor, China Building, 29 Queen's Road Central. They are all subsidiaries and/or companies associated with or controlled by Cheung Kong Holdings Limited ('CK Holdings') situated at the same registered office.

(f) In late 1986 and early 1987, when the Predecessor first inspected the Kindergarten before its purchase of the same, the Structures in their skeleton form without any ceiling ('Skeleton Structures') were already there. The Skeleton Structures were first erected by the Registered Owner and/or the Developer with the consent of the Plaintiff in its capacity as the manager of the Estate before the sale of the Kindergarten by the Registered Owner to the Predecessor on or about 27th January 1987.

(g) During the negotiation for and prior to the purchase of the Kindergarten, the staff of CK Holdings including one Mr. Wong Chiu Yeung representing the Registered Owner, the Developer and the Plaintiff as the manager of the Estate at the office of CK Holdings, made the following express and oral representations and promises to the Predecessor:

(i) The areas enclosed by the Skeleton Structures could be used together with the Kindergarten permanently and exclusively by the Predecessor, as owner of the Kindergarten and future owners of the Kindergarten.

(ii) The Predecessor, as owner of the Kindergarten, was allowed to improve the Skeleton Structures including to build ceilings on the Skeleton Structures to protect students and teachers against dropping objects from units above the Kindergarten.

(h) Relying on the aforesaid representations and promises, the Predecessor had purchased the Kindergarten and improved the Skeleton Structures including erecting ceilings thereon. The portions of the common areas occupied by the Skeleton Structures (which now become the Structures) have remained unchanged ever since.

(i) Neither the Plaintiff, the Registered Owner, the Developer nor any owner of the Estate had raised any objection to the erection of the Structures since they were first erected in or about 1987 until late 1997.

(j) The Kindergarten was assigned by the Predecessor to the Defendant, the successor of the Predecessor, on 21st December 1998 subject to and with the benefit of the Structures and the Plaintiff's representations and promises pertaining thereto."

Substantial factual disputes

6. There is no Reply to the Defence and there is an implied joinder of issue on the Defence under Order 18 rule 14. On the defendant's case, it was the first owner of the kindergarten, i.e. the Registered Owner, or the Developer, and not the defendant, which converted the commons areas to its own use; and the defendant's predecessors in title purchased the kindergarten on the strength of the representations and promises said to be made on behalf of the Registered Owner, the Developer and the plaintiff that the converted areas would be the predecessors in title's and the predecessors in title was at liberty to improve on the skeleton structures. In the absence of any application to strike out the Defence whether on the ground that it discloses no reasonable defence or on the ground that it is obviously unsustainable or otherwise, these are substantial issues of facts to be decided at a full trial of the action, and determination of a question of law or construction will not resolve the factual disputes. In my judgment, the plaintiff's application is doomed to failure.

The Order 14A questions

7. Nevertheless, five and half months after service of the Defence, the plaintiff issued a Summons on 2 March 2001 asking for determination of the following "questions of law or construction" ("the Questions") and for judgment in the event of the Questions being answered in favour of the plaintiff:

"(1) Whether, upon the proper construction of the deed of mutual covenant of Wai Wah Centre ('the Estate') dated August 15, 1986 (Memorial No. 339888) ('the DMC') including, in particular, Clauses 4, 10, 13, of Subsection B of Section IV and Clauses (1), (15), (22), (23), (26), (34), (35) of Subsection B of Section V thereof, the Defendant is required to obtain written permission of the Manager of the Estate to install the Structure(s) in occupation of the common areas of the Estate;

(2) Whether Sections 34C and 34I of the BMO impose obligation(s) on owners of the Estate which override anything inconsistent with them, including but not limited to, inconsistent provisions in the DMC and/or inconsistent provisions in any other agreement, written or otherwise;

(3) Whether owner(s), if caught by Sections 34C and 34I, is/are obliged to obtain approval of the Owners' Committee of the Estate before it/they can convert any part of the common parts of the Estate to its/their own use;

(4) Whether in the absence of a written permission from the Manager of the Estate and a resolution of the Owners' Committee approving of such conversion, the Defendant is obliged to demolish and/or remove the Structure(s) in the Common Areas."

Order 14A

8. Order 14A provides that:

"1. Determination of questions of law or construction (O. 14A, r. 1)

(1) The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings where it appears to the Court that-

(a) such question is suitable for determination without a full trial of the action; and

(b) such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein.

(2) Upon such determination the Court may dismiss the cause or matter or make such order or judgment as it thinks just.

(3) The Court shall not determine any question under this Order unless the parties have either-

(a) had an opportunity of being heard on the question; or

(b) consented to an order or judgment on such determination;

(4) The jurisdiction of the Court under this Order may be exercised by a master.

(5) Nothing in this Order shall limit the powers of the Court under Order 18, rule 19 or any other provision of these rules."

Discretion under Order 14A - suitable for determination

9. I asked Mr Lee whether the Questions were suitable for determination under Order 14A. The only argument put forward by Mr Lee was that determination of the Questions would determine the action. I do not see how the mere fact that determination of a question will determine the entire cause or matter or any claim or issue therein can be or is a reason for saying that the question is suitable for determination under Order 14A. As Sakhrani J pointed out in Hondon Development Limited and another v Powerise Investments Limited and another, HC Action No. A1208 of 1998, 13 November 1998, unreported, the court has a discretion to determine a question if both (a) and (b) in Order 14A rule 1(1) are satisfied. In my judgment (a) cannot be satisfied merely because (b) is satisfied.

10. The defendant does not consent to an order or judgment on a determination under Order 14A. The facts are in dispute in this case. No facts are agreed. Except to the limited extent of facts admitted in the Defence, there are no admitted facts. I see no reason why I should give legal rulings in vacuo or on hypothetical or fictitious facts.

11. I am not persuaded that any of the Questions is suitable for determination under Order 14A and the plaintiff's application must fail.

Discretion under Order 14A - finally determine cause or claim or issue

12. Further, the Questions do not appear to me to be stated or formulated in clear, careful and precise terms. Nor am I satisfied that determination of the Questions will finally determine the entire cause or matter or any claim or issue herein.

Question (1)

13. Question (1) is a question in vacuo without any correlation with this case. Whether or not the defendant is now required to obtain written permission before any new "installation" is not the point. The "installation" of the Structures "in occupation of the common areas of the Estate" has already taken place. On the defendant's case, it was the first owner of the kindergarten, i.e. the Registered Owner, or the Developer, which converted the common areas to its own use, at a time when the defendant had not acquired the kindergarten and could not possibly be bound by the DMC. It is not clear what the plaintiff means by "install". On the defendant's case, it was the Registered Owner or the Developer or the predecessors in title, not the defendant, which "installed" the Structures.

14. Even if it should be determined that the defendant is in breach of the DMC, it does not follow that the plaintiff is entitled to judgment. Acquiescence, waiver, estoppel, and laches are well-known defences to claims for breaches of DMC. Mr Lee conceded that estoppel could be a defence to a breach of DMC claim. Paragraph 5 of the Defence raises defences which must be resolved at a full trial of the action.

Questions (2), (3) and (4)

15. Questions (2), (3) and (4) are further questions in vacuo.

16. Sections 34C and 34I were not added until 1993. They provide as follows:

"34C Application

(1) This Part, except where otherwise expressly provided, applies only to a building in respect of which a deed of mutual covenant is in force whether that deed came into force before or after the material date.

(2) In the event of any inconsistency between this Part and the terms of a deed of mutual covenant or any other agreement, this Part shall prevail.

34I Common parts

(1) No person may-

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners' committee (if any);

(b) use or permit to be used the common parts of a building in such a manner as-

(i) unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; or

(ii) to cause a nuisance or hazard to any person lawfully in the building.

(2) Any person who contravenes subsection (1) shall be deemed to be in breach of an obligation imposed on him by the deed of mutual covenant in respect of the building."

17. Section 34I(1) provides for 2 modes of contravention. While (b) may be a continuing breach, (a) may not be. The plaintiff's case as pleaded in paragraph 6(1) and (3) of the Statement of Claim and as formulated under Question (3) is one of conversion, not user, so that only section 34I(1)(a) appears relevant.

18. On the defence case, the conversion took place by early 1987. The real issue is whether sections 34C and 34I operate retrospectively to prohibit conversions already completed by the time when these 2 sections were added by amendment in 1993. Moreover, Mr Lee did not know if any "Owners Committee of the Estate" was in existence by early 1987.

19. Mr Lee contended that the words "any other agreement" in section 34C included the agreement pleaded under paragraph 5 of the Defence. That is not how Question (2) is framed. If "any other agreement" means "any agreement" as contended by Mr Lee, then the words "a deed of mutual covenant or ... other" in section 34C(2) are otiose.

20. Again, even if it should be determined that the defendant is in breach of sections 34C and 34I, it does not follow that the plaintiff is entitled to judgment. Acquiescence, waiver, estoppel, and laches may well be defences to claims for breaches of these 2 sections, which section 34I(2) equates with a breach of the DMC. Mr Lee also conceded that estoppel could be a defence to a breach of section 34I claim. Paragraph 5 of the Defence raises defences which must be resolved at a full trial of the action.

Other matters raised by Mr Lee

21. In the plaintiff's Skeleton Submission and Supplemental Skeleton Submission, Mr Lee submitted that:

(a) The plaintiff, on behalf of and as agent for, all the owners of the Estate is entitled to enforce the covenants in the DMC.

(b) The defendant is assumed to have constructive notice of the Common Areas.

(c) There is no time bar for the equitable relief sought by the plaintiff.

(d) The alleged oral permission pleaded in paragraph 5(g) of the Defence is not supported by affidavit evidence or a memorandum or note as required under section 3 of the Conveyancing and Property Ordinance, Cap. 219.

(e) The alleged oral permission is at best a personal right committed by the Developer's sales representative and is likely to be a trade bluff and can only be binding between the parties who have contracted such right.

(f) Such right, if any, is not enforceable between the contracting parties under section 3 of the Conveyancing and Property Ordinance.

(g) In any event, such agreement is not binding on the subsequent co-owners or successors in title.

(h) There is authority under the DMC for the plaintiff, as manager, to enforce the provisions of the DMC and sue in its own name.

(i) The plaintiff has the power and authority to commence the present proceedings as agent for and on behalf of the owners and in its own name to enforce observation of the DMC.

22. None of the above appears to be covered by any of the Questions. I am therefore not called upon to decide any of the above. The fact that Mr Lee canvassed them in his submission demonstrated that determination of the Questions will not determine the entire cause or matter or any claim or issue herein.

Order

23. For the reasons given above, I decline to determine any of the Questions. I see no reason why costs should not follow the event. This is hostile litigation between the plaintiff and the defendant. Any order on costs which I may make in favour of the defendant against the plaintiff will be defeated in part if the plaintiff pays out of, or reimburse itself from, any fund to which the defendant also contributes. Compare Holding & Management Ltd. v Property Holding & Investment Trust PLC [1989] 1 WLR 1313. I have no doubt that the plaintiff is keenly aware of section 34L which provides that:

"No provision in a deed of mutual covenant or other agreement shall operate to entitle the manager of any building to be indemnified by a corporation or by the owners of the flats in that building in respect of any legal costs, charges, expenses or fees relating to any civil or criminal proceedings (whether successful or otherwise) between or in respect of that manager and that corporation or those owners and any such provision shall be void and of no effect."

24. I order that:

(a) The summons dated 2 March 2001 in Action No. A8369 of 2000 be dismissed.

(b) The summons dated 2 March 2001 in Action No. A8370 of 2000 be dismissed.

25. I make the following order nisi on costs:

(c) The plaintiff do pay the defendant in Action No. A8369 of 2000 its costs of, incidental to and occasioned by the summons in any event. For the avoidance of doubt, it is declared that the plaintiff must not pay such costs out of, or reimburse itself from, any fund to which the defendant also contributes.

(d) The plaintiff do pay the defendant in Action No. A8370 of 2000 its costs of, incidental to and occasioned by the summons in any event. For the avoidance of doubt, it is declared that the plaintiff must not pay such costs out of, or reimburse itself from, any fund to which the defendant also contributes.