KANTTA PROPERTY MANAGEMENT LTD. v. REGENCY LTD

CACV 218/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 218 OF 2002

(ON APPEAL FROM HCA NO. 15068 OF 1998)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a decision of Deputy High Court Judge Poon given on 24 April 2002. The decision was given on a preliminary point taken in an action which had come on for hearing between the Manager of a building and one of the co-owners of the building in respect of a complaint relating to the erection of signs on the exterior wall of the building. At the commencement of the hearing of the action the defendant sought leave to amend the defence in order to take the point that the plaintiff had no power or right or locus standi to commence these proceedings. At the conclusion of the hearing of this appeal the decision of this court was reserved and it was indicated that we would give our reasons in writing, which we now do.

Background

2. This action relates to signs erected outside two shops in Wearbest Building, Tokwawan Road, Kowloon. The plaintiff is the Manager of the building. Under the terms of the deed of mutual covenant one of the co-owners was to be the Manager of the building and there were provisions for the appointment of another Manager should the original Manager wish to resign. It is irrelevant for the purposes of the present decision, but it might be noted that it is part of the defendant's case that the present Manager, the plaintiff, is a closely related company to the co-owner which had initially been the Manager.

3. The Manager's duties are set out in the deed of mutual covenant and in particular in clause 2. Clause 2(d) provides that the Manager shall arrange for refuse disposal from the building and the common parts and for the lighting and ventilation of the common parts and the repair, renewal, maintenance and cleaning of the common parts and facilities. In clause 2(n)(iii), the Manager is given power and authority to remove any structure or installation in the building which is illegal or contravenes the terms of the deed of mutual covenant and to recover the costs of any such removal. Under clause 2(n)(viii) the Manager is given power to act as general agent of the owners for the time being in respect of the common parts and spaces in the services in the building. Under sub-clause (xiii) the Manager is given power to prevent any person occupying any of the common parts in the said building and under sub-clause (xv) the Manager is given power and authority to use its best endeavours to prevent any person detrimentally altering or injuring any part of the structure of the building. Under clause (xvi) the Manager is empowered to pay legal and other fees and costs which may be incurred in the carrying out of its duty.

4. The subject of the complaint is the erection of signs outside a supermarket and another store located in premises owned by the defendant. What is said, and for the present purposes there is no need to determine the validity of the complaint, is that the erection of the signs contravenes clause 2(o)(ii) which specifically prohibits the erection or fixing of signboards, brackets or other things to the exterior of the building as well as at least one other clause in the deed of mutual covenant and the provisions of the Building Management Ordinance.

5. The defendant's point is that any power or authority of the Manager to bring a legal action comes under the deed of mutual covenant. As such, the deed of mutual covenant is a form of power of attorney. There is no dispute between the parties that powers of attorney have to be strictly construed and the power to bring proceedings has to be express.

6. It is the defendant's case that the power to bring proceedings in court under the deed of mutual covenant is restricted to situations falling within clause 2(n)(i) and clause 14. Clause 2(n)(i) reads as follows:

"To demand and receive from each owner the contributions payable by each owner as hereinbefore specified and all such contributions shall without prejudice to any other remedy exercisable hereunder be recoverable by the Manager by civil action and the defaulting owner shall not be entitled to dispute the right of the Manager aforesaid to sue and recover the unpaid contributions."

And clause 14 reads:

"Any charge registered in accordance with the paragraph next hereinafter mentioned shall be enforceable as an equitable charge by action at the suit of the Manager of the said building for the time being for an order for the sale of the share or shares of the defaulting owner together with the right to the exclusive use occupation and enjoyment of the floor and roof (if any) held therewith."

7. It was said by Mr Ismail, who appeared on behalf of the defendant, that, in the first place, these two clauses are the only two clauses which related to court actions as opposed to arbitration proceedings. The special nature of clause 2(n)(i) was emphasised because it specifies that there should be no power to dispute the right of the manager to sue for the contributions. In effect, therefore, it is said on behalf of the defendant that the specific rights of action relate to the recovery of money sums.

8. In my view, however, clause 15 is very important. For convenience (disregarding brevity) I set that out:

"In particular and in addition to the rights of enforcement conferred by this Clause the Manager for the time being shall (irrespective of whether such Manager is the owner of any share in the said premises and building) be entitled to commence proceedings in its own name against any defaulting owner to recover any sum payable by such defaulting owner in accordance with the provisions of this Deed without first making payment of the moneys due by such defaulting owner if any as provided by the Clauses aforesaid and to register and enforce charges in respect thereof against the share or shares of any such defaulting owner and generally to enforce the observance and performance of the covenants conditions and provisions of this Deed and to recover damages for the breach, non-performance or non-observance thereof and the following provisions shall also apply to any such action or arbitration :-

(i) The expenses recoverable in any such proceedings as aforesaid shall not be in any way limited to the costs recoverable on taxation in accordance with the provisions of the Rules of the Supreme Court, 1967.

(ii) The Manager shall conclusively be deemed to be acting as the manager for and on behalf of all owners other than the defaulting owner and no owner sued by the Manager or otherwise under the provisions of this Deed shall raise or be entitled to raise any defence of want of authority or take objection to the right of the Plaintiff to sue or to recover such amounts as may be found to be due." (emphasis and italics added).

9. The interpretation of clause 15 is not without its difficulties. It is difficult to see how the clause constructed in the way it is with four syntactical clauses (i.e. those which commence with words in italics) all linked by the word "and", can commence with words indicating that something is additional to the rights conferred by that clause. Be that as it may, clause 15, in my view, is intended to confer upon the Manager rights of enforcement. Those rights of enforcement give the right to commence proceedings in the Manager's own name. The Manager is given the right to do that whether or not it is the owner of any share in the property. The Manager is thus empowered to commence proceedings to recover monies due from the owners, to enforce charges, to enforce observance and performance of the covenants and finally to recover damages for breach on non-performance of the covenants. Whereas reference to the recovery of monies and the enforcement of charges is also contained in other clauses, the right to commence proceedings is not specifically mentioned in other clauses, although, as referred to above, it is the Manager's duty to prevent relevant breaches of the covenants. In my view, the words "commence proceedings" should be given their natural and ordinary meaning. That would include proceedings in court. Obviously proceedings could include arbitration proceedings as well as actions in court. Indeed, the words "action or arbitration" in the clause makes that clear.

10. Reference has, of course, also been made to clause 18 which reads as follows:

"All disputes and questions which shall hereafter arise between the parties hereto touching these presents or the construction or interpretation thereof or whether these presents are still subsisting or not or touching any account or calculation to be made hereunder or as to any act deed or omission by any of the parties hereto or as to any other matter in anyway relating to these presents or the rights duties or liabilities of any person hereunder shall be referred to a single arbitrator in case the parties agree upon one otherwise to two arbitrators one to be appointed by each party to the difference and their umpire in accordance with and subject to the provisions of the Arbitration Ordinance 1963 and the decision of the arbitrator arbitrators or umpire as the case may be on any of the matters and things aforesaid shall be final and absolutely binding upon the parties hereto."

11. Reliance is placed upon this clause on the basis that apart from the provisions of clause 2(n)(i) and clause 14 this is said to be the only clause which empowers commencement of proceedings. That, on my reading of the deed of mutual covenant is not, however, correct since clause 15 also specifically confers rights of enforcement by commencement of proceedings upon the Manager. Clause 18 is clearly an arbitration clause. Mr Warren Chan SC, who appeared on behalf of the plaintiff, conceded, at least for the purposes of this appeal, that it might have been an enforceable arbitration clause were it not for the fact that the matter had proceeded long beyond the time when a stay of proceedings could have been sought on the basis of an arbitration clause.

12. Much emphasis was placed by Mr Ismail on the point that powers of attorney, particularly where they give rights of action, should be strictly construed. That is, of course, true and, as noted above, is not disputed. It does not, however, mean that the words of the document must be construed in a strained sense to the exclusion of the true sense of the document. As Lord Hoffmann said in Jumbo King Limited v Faithful Properties Limited and Others [1999] 2 HKCFAR 279 at 296:

"The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it is concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant they have not expressed themselves very well."

13. In my view, the construction of the deed of mutual covenant leads to the conclusion that it was intended that the Manager should have the right to sue in respect of breach of covenants. Apart from other places, that emerges from clause 15, which, in my view, should not be restrictively interpreted. Sight must not be lost of the fact that there are a number of important negative covenants imposed upon the co-owners. The Manager is given responsibility to enforce those covenants. Given the fact that the Manager is a body corporate, a natural way of enforcing negative covenants is by action in court. Injunctions cannot be granted in arbitration proceedings. Moreover, clause 15 should not, in my view, be interpreted in a way which gives different meanings to the word "proceedings" depending upon which of the four different categories are referred to. Taking the document as a whole, if the Manager were to take proceedings against an owner to enforce one of the covenants, clearly that owner might be in a position to rely upon clause 18 and seek a stay of the proceedings pending arbitration. However, if the owner does not seek a stay at the initial stage the choice to do so will probably be lost. That is what has happened in this case. I would therefore allow this appeal, set aside the decision and order below and remit the matter to the Court of First Instance for trial of this action.

Hon Le Pichon JA:

14. I agree.

Hon Rogers VP:

15. There will therefore be an order as set out in paragraph 13. There will be an order nisi that the costs of the appeal will be to the plaintiff.