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HCA 561/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 561 OF 2006
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BETWEEN
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THE INCORPORATED OWNERS OF COMMERCIAL CENTRE |
Plaintiff
VINCENT |
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and |
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FANINGTON COMPANY LIMITED |
1st Defendant |
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LINSON COMPANY LIMITED |
2nd Defendant |
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VINCENT LIMITED |
3rd Defendant |
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WING SHEUNG LAND INVESTMENT COMPANY LIMITED |
4th Defendant |
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Before: Deputy High Court Judge To in Court
Dates of Hearing: 13 - 16, 19 - 20 May 2008 and 10 June 2008
Date of Judgment: 22 September 2008
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J U D G M E N T
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INTRODUCTION
1. This is an action by the incorporated owners of 21 Hillwood Road (the land and/or the building standing thereon is referred to as “HWR21”) for contribution to its building management expenses for the use of its common areas and facilities by the adjacent owners of No 23 Hillwood Road (the land and/or the building standing thereon is referred to as “HWR23”) and other injunctive and declarative relief. The 1st Defendant was the developer of HWR21 and HWR23. The 2nd Defendant is the owner of some staircase spaces of HWR21. The 3rd Defendant was the owner of the ground, 1st and 3rd floors of HWR21 between 15 June 2001 and 14 October 2005. The 4th Defendant is the owner of the ground, 1st and 3rd floors of HWR21 and the entire HWR23 since 14 October 2005. The Defendants are associated companies.
2. HWR21 and HWR23 are adjoining lots of land on which two five-storey old buildings used to be erected. There were two common staircases, one at the front and the other at the rear of the two buildings, which stood partly on each of the two lots. The 1st Defendant acquired HWR21 on 6 October 1986 and started to redevelop it. The 1st Defendant also had in mind acquiring and redeveloping HWR23 as an extension of HWR21 and as one integral building at a later stage. It took certain measures to cater for the later redevelopment of HWR23, which included preserving the two common staircases. A new wall was built against the old party wall and the common staircases from the ground floor to the fifth floor of HWR21 (“1st Wall”). The 1st Wall stood within the boundary line of HWR21 with HWR23. The external wall of HWR21 adjoining HWR23 from the sixth to the fifteenth floors (“2nd Wall”) was built along the boundary line of the two lots. The redevelopment of HWR21 was completed in 1987 with the erection of a fifteen-storey building. The 1st Defendant completed acquisition of HWR23 on 19 August 1992.
3. The 1st Defendant anticipated that openings would have to be made on the 1st Wall and the 2nd Wall or that some of those walls would have to be demolished so as to connect HWR21 with HWR23 and so that the buildings on the two lots could be merged into one integral building. In anticipation of that eventuality, by an assignment dated 25 May 1988 (“Assignment”) the 1st Defendant assigned to its associated company, the 2nd Defendant, the entire part of the common staircases standing within HWR21 and the party wall adjoining them (“Staircase Spaces”) together with the right to demolish the wall and the staircases and had such rights written into the Deed of Mutual Covenant of HWR 21 of the same date (“DMC”). The DMC was entered into between the 1st Defendant as the First Owner, the 2nd Defendant as the Second Owner and Asian Harbour Company Limited (“Asian Harbour”) as the Management Company which undertook to manage HWR21 on the terms and conditions of the DMC. Asian Harbour was also an associated company of the 1st Defendant. After that, some of the units in HWR21 were sold to various owners. The 1st Defendant remained as the owner of the ground, 1st and 3rd floors of HWR21 until those units were transferred to the 3rd Defendant in 2001 and then the 4th Defendant in 2005.
4. Between the acquisition of HWR23 and its redevelopment, the height restriction in the locality was relaxed which resulted in unused plot ratio for HWR21. This unused plot ratio could not be used by HWR21 unless the entire building thereon was demolished and redeveloped, but could be used by HWR23 if HWR23 was redeveloped as an extension of HWR21, which was what the 1st Defendant already had in mind. Through Asian Harbour, the 1st Defendant negotiated with the then owners of HWR21 for the purchase of the unused plot ratio of HWR21 to be used in redeveloping HWR23. On 29 September 1994, Asian Harbour representing the owners of HWR21 executed a Deed of Grant assigning the unused plot ratio to the 1st Defendant in consideration of a sum of $3,516,543.78. Under the Deed of Grant, the 1st Defendant covenanted to observe all the covenants in the DMC and to indemnify the owners of HWR21 against non-performance of the said covenants. About two years later, the Plaintiff was incorporated by the co-owners of HWR21 on 28 June 1996.
5. The redevelopment of HWR23 proceeded. A twenty-four storey building was completed and occupation permit was issued on 1 May 1997. The two old common staircases were demolished and floor slabs were built connecting the two buildings and providing additional floor areas with access from HWR23. Two sets of wall openings were made. One set was at the 1st Wall and the 2nd Wall connecting the lift lobbies from ground floor to 14th floor (“1st Openings”). The other set was within the staircase of HWR21 from 1st floor to 4th floor and from 13th floor to 14th floor (“2nd Openings”). There is no staircase within HWR23 save from 15th floor to the roof. The staircase of HWR21 therefore serves both HWR21 and HWR23. In addition, in early 1997, the 1st Defendant installed a glass curtain wall on the external wall from the 1st floor to 4th floor of HWR23 which extended to and covered that of the 1st floor to 4th floor of HWR21. Some of the common facilities of HWR21 were relocated to HWR23 and new facilities were installed to serve both buildings. HWR23 was also managed by Asian Harbour. As an integral building, HWR23 uses some of the common areas and facilities of HWR21 and vice-versa. The common boundary between HWR21 and HWR23 became indistinguishable and meaningless. In 1998, the 1st Defendant demolished the remaining part of the 1st Wall on the 1st floor of HWR21 thereby connecting it with the 1st floor of HWR23 so that the two floors could be let out as one unit. The 1st floor of HWR21 was then assigned to the 3rd Defendant on 15 June 2001.
6. All went well while the two buildings were under the management of Asian Harbour. On 30 September 1999, at a meeting of the management committee of the Plaintiff and Asian Harbour, it was agreed that the cost of managing the common areas and facilities of HWR21 used by the owners of HWR21 and HWR23 in common shall be shared in accordance with the ratio of the building areas of the two buildings, i.e. 43.21 to 56.79 (“43/57 Ratio”) while the cost of managing the common areas and facilities of HWR21 which were not to be used by the owner of HWR23 shall be borne by the owners of HWR21.
7. Presumably feeling that Asian Harbour, being a related company of the Defendants, was not acting to the best interest of the Plaintiff, the Plaintiff terminated the appointment of Asian Harbour as manager of HWR21 and replaced it with Pacific Rich Management & Consultants Limited (“Pacific Rich”) on 30 September 2000. Upon the advice of Pacific Rich, the Plaintiff took the stance that the owner of HWR23 should contribute to the cost of managing all the common areas and facilities of HWR21 and not just limited to the cost of managing the common areas and facilities used by the owner of HWR23 in common with owners of HWR21. The Plaintiff demanded additional contribution from the Defendants. The Defendants refused to accede to the demands. On 30 August 2005, the Plaintiff through their solicitors wrote to the Defendants to complain for the first time about the wall openings and related works. With the conviction fuelled by Pacific Rich and those advising them that they were entitled to restrain the Defendants from using the common facilities of HWR21 unless the Defendants meet their demand, the Plaintiff commenced the present proceedings.
Dramatis Personae
8. The Plaintiff is the incorporated owners of HWR21. It was registered under the Building Management Ordinance, Cap 344 of the Laws of Hong Kong on 28 June 1996.
9. Ms Cheong Hing Hing, also known as Mrs Fong (“Cheong”) is a director and majority shareholder of Fill Joy Limited which acquired the 9th floor of HWR21 from the 1st Defendant on 25 May 1988. She has been actively involved in the management of HWR21 and was the first chairman of the Plaintiff from 1996 until 2003. Thereafter she assumed the office of treasurer of the Plaintiff until 2008. Currently, she is the secretary of the Plaintiff. She was one of the first-hand purchasers of units in HWR21 from the 1st Defendant.
10. Mr Lui See Chung (“Lui”) is a director of V Made Holdings Co Ltd which acquired the 12th floor of HWR21 from the 1st Defendant. Lui has been the chairman of the Plaintiff since 2003, vice Cheong.
11. Pacific Rich Management & Consultants Limited (“Pacific Rich”) is the manager of HWR21 appointed by the Plaintiff since 30 September 2000.
12. The 1st Defendant was the developer of HWR21 and HWR23 and the former registered owner of HWR23.
13. The 2nd Defendant is the registered owner of the Staircases Spaces of HWR21.
14. The 3rd Defendant was the former registered owner of the ground, 1st and 3rd floors of HWR21 between 15 June 2001 and 14 October 2005.
15. The 4th Defendant is the registered owner of HWR23, the ground, 1st and 3rd floors of HWR21 since 14 October 2005.
16. Asian Harbour Company Limited (“Asian Harbour”) is a company related to the 1st to 4th Defendants. Until 30 September 2000, it was the common manager of HWR21 and HWR23. Thereafter, it remained as the manager of HWR23 until September 2003.
17. Mr Woo Wing Fai (“Woo”) is a director of the 1st to 4th Defendants. He is the person in control of the Defendants.
18. Mr Leung Ip Shing Dominic (“Leung”) was a manager of Asian Harbour and the Defendants. Sometimes, he represented Asian Harbour and sometimes he represented the Defendants as owners of the ground, 1st and 3rd floors of HWR21.
19. Miss Yeung Wing Mui (“Yeung”) was formerly a staff of Asian Harbour.
20. Mr Yip Pui Lam Benjamin (“Yip”) has been a practising architect and authorised person in Hong Kong since 1999 and 2000 respectively. He is a member of the Hong Kong Institute of Arbitrators and Charter Institute of Architect. He made a site survey report on HWR21 and was called by the Plaintiff as an expert witness.
21. Mr Shun Lok Nin (“Shun”) has been an engineer and authorised person in Hong Kong since 1974. He is a member of the Institute of Structural Engineers and Institute of Civil Engineers. He was the authorised person in respect of the later stage of development of HWR21 and the authorised person in respect of the entire development of HWR23.
The parties’ case
22. The Plaintiff’s case is as follows:
(1) In 1996, the 1st and 2nd Defendants encroached on HWR21 by demolishing the old party wall, the 1st Wall and the old common staircases and by building new concrete slabs therein creating new floor areas for HWR23 within HWR21 (“the encroachment claim”);
(2) In around 1996, the 1st Defendant trespassed HWR21 by installing a glass curtain wall onto the external wall of HWR21 from the 1st to the 4th floors without the consent or authority of the owners of HWR21 (“the glass curtain wall claim”);
(3) In around 1996, the 1st Defendant caused various wall openings to be made to the lift lobbies of HWR21 from the ground to the 14th floors connecting them with the lobbies of HWR23 (“the lift lobby wall openings claim”);
(4) In around 1996, the 1st Defendant made wall openings within the staircase of HWR21 from the 1st to the 4th floors and from 13th to 14th floors so as to enable the owner of HWR23 to use the staircases of HWR21 (“the staircase wall openings claim”);
(5) The 1st and 3rd Defendants demolished the external wall of the 1st floor of HWR21 such that the 1st floors of HWR21 and HWR23 became one unit (“the 1st floor wall claim”);
(6) The 1st, 2nd and 4th Defendants are liable to the Plaintiff in respect of contributions to the cost of managing the common areas and facilities of HWR21 in accordance with clause 2(b)(i) of Part 1 of the DMC or clause 3 of the Deed of Grant, which amounted to $1,479,757.43 for the period from October 2000 to April 2005 (“the contribution claim”); and
(7) As a result of the 2nd Defendant’s breach of clause 2(b)(i) of Part 1 of the DMC to see to or to secure the payment of contribution by the 1st Defendant, the Plaintiff was entitled to revoke the rights granted under clause 2(b)(i) of Part 1 of the DMC (“the revocation claim”).
The Plaintiff claims an injunction requiring the Defendants to demolish and remove such part of HWR23 that had encroached and built on HWR21; seal the wall openings and reinstate the walls; remove the glass curtain wall; not to allow their servants or agents from entering or using the common areas and facilities of HWR21. It also claims the said sum of $1,479,757.43, damages and a declaration that the Plaintiff is entitled to revoke the rights granted to the 2nd Defendant under clause 2(b)(i) of Part 1 of the DMC and other alternative relief.
23. The Defendants’ case is as follows:
(1) On the encroachment claim, the Defendants’ defence is that the 2nd Defendant had the right to demolish the old common staircases and party wall under clause 2(b)(iii) of Part 1 of the DMC and those structures were demolished with the consent and knowledge of the 2nd Defendant who has the proprietary right and exclusive possession to Staircase Spaces therein;
(2) On the glass curtain wall claim, the Defendants’ defence is that the works were executed with the consent of the co-owners of HWR21 or Asian Harbour in its capacity as the manager of HWR21. They further rely on the defence of waiver and estoppel;
(3) On the lift lobby wall openings claim, the Defendants’ defence is that the openings were made with the consent of the Plaintiff and/or Asian Harbour as manager of HWR21;
(4) On the staircase wall openings claim, the Defendants’ defence is that they were made with the consent of the Plaintiff and/or Asian Harbour as manager of HWR21;
(5) On the 1st floor wall claim, the Defendants’ defence is that it is an internal partition wall between HWR21 and HWR23 as one integral building which the 3rd Defendant as its owner was entitled to demolish and the works were carried out with the consent of Asian Harbour as manager of HWR21;
(6) On the contribution claim, the Defendants’ defence is that on a proper construction of the DMC and the Deed of Grant, the Defendants are only liable to contribute a due proportion of the cost of managing those common areas and facilities in HWR21 the use of which had been granted by the 2nd Defendant and which are indeed used or enjoyed by the owner of HWR23; and that there was a resolution of the management committee of the Plaintiff in which the 43/57 Ratio of contribution was agreed and that only certain items of the cost are to be shared; and
(7) On the revocation claim, the Defendants’ defence is that the 2nd Defendant has no obligation to secure the 1st Defendant and/or the 4th Defendant to make any contribution and there is no legal basis for the claim.
Insofar as the Plaintiff’s claim for injunctive and declaratory relief, the Defendants rely on laches, hardship and other matters relevant to the court’s exercise of discretion.
The issues
24. The issues raised by the pleadings are:
(1) On the encroachment claim, whether the 1st and 2nd Defendants had trespassed HWR21 depends on whether the 2nd Defendant has acquired proprietary interest in and the right to exclusive possession of the Staircase Spaces under the DMC.
(2) On the glass curtain wall claim:
(i) whether the Plaintiff had consented to the installation of the glass curtain wall;
(ii) whether consent to the installation had been given by Asian Harbour and if so whether the consent was binding on the Plaintiff; and
(iii) whether the Plaintiff’s claim is barred by waiver and estoppel.
(3) On the lift lobby wall openings claim, the staircase wall openings claim and the 1st floor wall claim:
(i) whether the 2nd Defendant had the right to execute the works complained of by virtue of the Assignment and clause 2(b)(i) of Part 1 of the DMC;
(ii) whether the openings were made with the consent of the Plaintiff;
(iii) whether the openings were made with the consent of Asian Harbour and if so whether such consent was binding on the Plaintiff; and
(iv) whether the Plaintiff’s claim is barred by waiver, acquiescence and estoppel.
(4) On the contribution claim:
(i) whether the 1st, 2nd and 4th Defendants are liable to pay contribution to the Plaintiff in respect of the cost of managing all the common areas and facilities; and
(ii) if yes, whether the claim of the Plaintiff for $1,479,757.43 is correct.
(5) On the revocation claim, whether the 2nd Defendant was in breach of clause 2(b)(i) of Part 1 of the DMC and if so whether the breach entitled the Plaintiff to revoke the said clause.
(6) In respect of the injunctive and declarative relief sought, whether the claim is defeated by laches, hardship and other discretionary considerations.
25. The Plaintiff’s case is badly pleaded and difficult to understand. Last minute amendments to the Amended Statement of Claim were objected to and disallowed. Despite that, the factual witnesses attempted to raise new issues in their evidence. The factual witnesses’ evidence is inconsistent with their expert’s. It appears that they have run out of concert with their legal team. With respect to those representing the Plaintiff, the Plaintiff’s case is disorientated. The following non-issues were raised by the Plaintiff.
26. Lui was equivocal as to the ownership of the glass curtain wall but asserted that the 1st Defendant has the responsibility to maintain it. That assertion is inconsistent with the Plaintiff’s expert evidence that the Plaintiff has sole control over the external wall including the glass curtain wall and hence the responsibility of its maintenance and repairs. The glass curtain wall was also described in the report of Pacific Rich of April 2005 as an improvement. The responsibility for the maintenance of the glass curtain wall has not been pleaded. I shall not deal with it.
27. Mr Cheung, counsel for the Plaintiff, sought a last minute amendment to the Amended Statement of Claim to plead the invalidity of the Deed of Grant. That application was refused. Despite that, Cheong maintained her equivocal challenge to the validity of the Deed of Grant. She alleged that she did not know what was the underlying transaction under the Deed of Grant and was misled by Asian Harbour into agreeing to the transaction, despite that she attended the meeting when the sale of the surplus plot ratio of HWR21 was agreed and she subsequently received the monetary consideration of $200,000 odd.
28. Mr Cheung raised another un-pleaded issue that the 2nd Defendant encroached on an open space directly outside the old common staircase on the ground floor of HWR21. That was objected to by Mr Li, counsel for the Defendants, as being an un-pleaded issue. The objection was quite unnecessary as it was obvious from the building plan annexed to the DMC that the space was also assigned to the 2nd Defendant under the Assignment and to which the 2nd Defendant was given exclusive possession under the DMC. I disallowed the issue as a matter of principle.
29. Cheong said she was induced into consenting to the wall opening works because of representations made to her by Leung and various other staff of Asian Harbour. The Plaintiff’s pleaded case is that it never consented and not that it consented as a result of representations made by Asian Harbour. Accordingly, this issue is also disallowed.
Credibility of witnesses
30. This is a case which is heavily documented. There is little room for witnesses to traverse outside the incontrovertible and contemporaneous documents. There are some factual disputes between the parties but those disputes can be resolved by reference to those documents which deserve greater weight.
31. In respect of the Plaintiff’s witnesses, I find Lui gave evidence in a half-hearted manner. He was unable to provide answers to a number of questions while under cross-examination. He was evasive. I find Cheong a very protective witness. She said she was not explained about the DMC by her lawyer and had no knowledge about the peculiar provision of clause 2(b) of Part 1 of the DMC. Most of her evidence is inconsistent with the contemporaneous documents. I find her incredible. As for the Defendants’ witnesses, their evidence is consistent with the contemporaneous documents. I find them credible. But as I said, this finding is not crucial as this is a case which is heavily documented.
32. As for the Plaintiff’s expert witness, despite his qualification as an architect and authorised person, I have found Yip not qualified to give expert evidence on structural aspects of the building on HWR21 due to his lack of qualification in structural engineering. That apart, his evidence is in general agreement with the Defendant’s expert, Shun, who was the authorised person in respect of the later stage of development of HWR21 and the entire development of HWR23. This is a case which has to be resolved on the basis of the rights and obligations of the parties under the DMC. The experts’ evidence on architectural and engineering aspects of the building on HWR21 has little bearing towards the outcome of this case.
The Assignment
33. Central to this dispute is the 2nd Defendant’s rights and obligation under the Assignment and DMC. It should be recalled that the redevelopment of HWR21 was completed with the two old common staircases remaining intact and enclosed by the 1st Wall within HWR21. After completion of the building and before the sale of any of the units therein, the 1st Defendant assigned the Staircase Spaces to the 2nd Defendant by the Assignment dated 25 May 1988. In the preamble to the Assignment, it was stated that HWR21 was notionally divided into 921 shares of which 10 shares were allocated to the property to be assigned which is more particularly described in the Schedule. The property is described in paragraph 1(a) of the Schedule in the following terms:
“(a) Description and address:
the exclusive right to hold use occupy and enjoy ALL THOSE Staircase Spaces adjoining No. 23 Hillwood Road from the ground floor to the 5th floor (both inclusive) as more particularly coloured pink and pink hatched black on the plan annexed hereto for reference only of Vincent Commercial Centre (永勝商業中心) No.21 Hillwood Road, Kowloon, Hong Kong together with the sole and exclusive right as the owner of such Staircase Spaces
(i) to grant to the owner or owners of any adjoining building or buildings the rights in common with the co-owners of the Property and the Building to use the areas in the Building and the facilities therein (including the lifts thereof) the use of which has not been reserved unto any particular owner Provided the owner or owners of such adjoining building or buildings shall bear a due proportion of the costs of managing such common areas pro rata to the respective gross floor areas of the Building and such adjoining building or buildings;
(ii) to amend the plans of the Building approved by the Building Authority in any lawful manner so long as the exclusive right of possession of the other co-owners to the other Units in the Building with reasonable access and other rights thereto are not unreasonably adversely affected;
(iii) to demolish such of the walls of the Building the exclusive possession of which is vested in the owner of the Staircase Spaces Provided such demolition is otherwise lawful and the owner of such Staircase Spaces or the owner of the adjoining building shall be responsible for such demolition cost and to make good all damage or injury whether to the Building or to any other building or property or to any person caused by or on account of such demolition;
(iv) to relocate the cable ducts coloured yellow hatched black on the plans annexed to the Deed of Mutual Covenant …”
34. In the context of the Assignment, the word “Building” means the building on HWR21, whereas the word “Property” referred to in the preamble of the Assignment and as defined in the Schedule and referred to in the plan annexed to the Assignment means (i) the two old common staircases; (ii) the connecting old party wall and (iii) an open and un-built space within the boundary line of HWR21, which probably served as part of the patio for the two old buildings.
The Deed of Mutual Covenant
35. On the same day of the assignment of the Staircase Spaces to the 2nd Defendant, the 1st Defendant as the First Owner entered into the DMC with the 2nd Defendant as the Second Owner and Asian Harbour as the Management Company. Clauses 2(b), 7(b), 8(a) of Part 1 and clauses 1(b) and 5 of Part 2 of the DMC are relevant.
36. Clause 2(b) of Part 1 of the DMC is an exact replication of paragraph 1(a) of the Schedule to the Assignment. Under clause 2(b), the 2nd Defendant was granted the sole and exclusive right as the owner of the two old staircases with rights which were precisely worded in the same terms as those contained in sub-paragraphs (i) to (iv) of paragraph 1(a) of the Schedule to the Assignment. But, in the context of the DMC, the word “Property” referred to in the preamble of the DMC and as defined in the Schedule means the land and building on which HWR21 is situated, whereas the word “Building” means the building on HWR21. Effectively, the words mean the same thing. Despite this, the difference between the meaning of the word “Property” in the Assignment and in the DMC has no difference in effect on the rights and obligations of the 2nd Defendant under the two documents. Under both documents, the Staircase Spaces were allocated 10 of 921 equal and undivided shares in HWR21. It was pursuant to this clause that the 2nd Defendant granted to the owner and occupiers of HWR23 the right to use some of the common areas and facilities of HWR21.
37. The other relevant clauses under Part 1 of the DMC are as follows:
“7. (b) Each owner shall not make any alterations (whether structural or otherwise) to or additions to the exterior of his Unit without the consent of the Manager and shall not make any window or other aperture in any part of the wall dividing his Unit from the parts of the said Building in common use.”
“8. Subject to Clause 2(b) hereof the owner or owners for the time being of each undivided share in the Property and the said Building shall at all times during the subsistence of this Deed be bound by and observe and perform the covenants and conditions hereinafter contained, namely:-
(a) Not to make any addition or alteration to the said Building or any part thereof nor to the Unit of which he is the owner nor to make any window or other aperture in any part of the wall dividing his Unit from the parts of the said Building in common use nor to damage, injure or interfere with any part of the said Building it equipment apparatus and services.”
38. Clauses 1(b) and 5 of Part 2 of the DMC provide as follows:
“1. (b) All acts and decisions of the Managers in accordance with the provisions of this Deed in respect of any of the matters aforesaid shall be binding in all respects on all the owners for the time being of undivided shares in the Property and the said Building.”
“5. The Managers shall be the Attorney for and on behalf of all owners in respect of all matters concerning the Common Areas for which the Managers are herein authorised to act.”
It is beyond argument that despite the incorporation of the Plaintiff on 28 June 1996, Asian Harbour as the Management Company of HWR21 was the attorney for and on behalf of the Plaintiff and all owners of HWR21 in respect of matters concerning the common areas and facilities of HWR21 until 30 September 2000. Until then, their acts and decisions in respect of those matters were binding on the Plaintiff.
The Deed of Grant
39. The Deed of Grant was entered into on 29 September 1994 between Asian Harbour representing all the then owners of HWR21 as grantor on the one part and the 1st Defendant as grantee on the other. The then owners of HWR21 were effectively the Plaintiff’s predecessor in title. Under clause 1 of the Deed of Grant, the then owners of HWR21 assigned to the 1st Defendant the unused plot ratio of HWR21. Under clause 2, the then owners of HWR21 covenanted with the 1st Defendant that the conditions of the Crown lease in respect of HWR21 and the DMC were valid and that the terms and the Crown rent payable and conditions contained in the Crown lease and DMC had been paid or performed. Under clause 3 of the Deed of Grant, the 1st Defendant covenanted with the then owners of HWR21 as follows:
“3. AND the Grantee hereby covenants with the Grantor that the Grantee will in the exercise of the rights hereunder perform and observe all the covenants terms and conditions contained in the Conditions and the Deed of Mutual Covenant and indemnify the Grantor against the non-performance of the said covenants terms and conditions.”
By this clause, the 1st Defendant covenanted with the then owners of HWR21 that it will observe all the covenants terms and conditions contained in the Conditions and the DMC and indemnify them against the non-performance of the said covenants, terms and conditions when exercising the rights under the Deed of Grant. The claim against the 1st Defendant is partly made pursuant to this clause.
The approach to the construction of the Assignment and the DMC
40. The rights and obligations of the parties depend significantly on the construction to be given to the Assignment, the DMC and the Deed of Grant. Mr Cheung submits that construction of such documents must be done in the context and using a purposive approach. He also submits that there are no limits as to what can be regarded as the background but that previous negotiations of the parties and declaration of subjective intents are excluded. He argues that the evidence of the Defendants’ intention of developing HWR21 and HWR23 as one integral building must be excluded from the factual background. He quoted Ng Chun Kong and First Star Development Ltd [2007] 3 HKLRD 281 at paras 27 to 28 and National Bank of Sharjah v Dellborg and Others QBCMF 96/0431/B in support of his proposition.
41. I have no doubt about the correctness of the proposition of the law as quoted by Mr Cheung. It is consistent with the leading cases on construction of documents such as the House of Lord’s decisions in Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 and Investors Compensation Scheme Ltd and West Bromwich Building Society [1998] 1 WLR 896 and the Court of Final Appeal’s decision in Jumbo King Ltd and Faithful Properties Ltd & Others [1999] 4 HKC 707 at 726 to 727. Construction of a contract is the ascertainment of the meaning which the contract would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. The background or factual matrix, as it is often called, includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. Thus in the passage in Ng Chun Kong and First Star Development Ltd, relied on by Mr Cheung, Le Pichon JA quoted Lord Wilberforce’s speech in Reardon Smith Line Ltd v Hansen-Tangen at 995H-996A:
“No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as “the surrounding circumstances” but this phrase is imprecise; it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.”
It is here that I disagree with Mr Cheung’s submission when applying the above principle of construction to the facts of the present case.
42. Despite that HWR23 was developed after a lapse of nine years since the completion of HWR21, an important feature in this case is that it was the undisputed intention of the 1st Defendant as the developer of the two buildings to develop the two buildings as one integral development. For that purpose, various measures were planned and executed in connection with the later development of HWR23.
43. Firstly, the 1st Wall was built against the old party wall and the old staircases from the ground to the 5th floors of HWR21 so as to minimize the disturbance to the occupiers of HWR21 when the old building in HWR23 and the old party wall standing on HWR23 were to be demolished.
44. Secondly, the 2nd Wall, i.e. the external wall of HWR21 from the 6th to the 15th floors adjacent to HWR23 was built along the boundary line. It is the common view of the experts on both sides that the part of this wall which adjoined the building on HWR23 lost its character as an external wall of HWR21 and became an internal partition upon completion of the redevelopment of HWR23.
45. Thirdly, provisions were written into the Assignment and clause 2(b) of Part 1 of the DMC so that the 2nd Defendant as assignee of the Staircase Spaces was given the right to grant to the owner of HWR23 the rights in common with the other co-owners of HWR21, i.e. to access and use the common areas and facilities of HWR21; to amend the building plans of HWR21 and to demolish the old party wall and the old common staircases standing on HWR21. To grant a co-owner the right to allow adjacent owners to use the common areas and facilities in a building is a most peculiar provision to be found in a deed of mutual covenant.
46. Apart from the above factual circumstances, the parties to the Assignment were the 1st Defendant as the assignor and the then owner of the entire interest in HWR21 and the 2nd Defendant as assignee. The parties to the DMC were the 1st Defendant as the First Owner, the 2nd Defendant as the Second Owner and Asian Harbour as the Management Company. All the three parties were and are associated companies of which Woo was the directing mind. The parties knew they were planning an integral building to be built on HWR21 and HWR23. They made structural provisions to enable the future development of HWR23 as one integral building with HWR21. With that in mind, they instructed their lawyers to prepare the DMC making the necessary legal provisions to enable that end to be carried out. The DMC is a commercial contract. The parties, being associated companies, must have knowledge of the genesis of the transaction and the background under which the DMC was drawn up. What was the subjective intention of Woo must also be the common intention of all the parties to the Assignment and the DMC of whom Woo was the controlling mind. It is just contrary to common sense and legal principle to exclude from the factual matrix what the parties knew and intended to be the purpose of the Assignment and the DMC.
47. With the genesis of the DMC in mind and adopting a purposive approach, it is plainly obvious that the common and practical object intended to be achieved by the Assignment and the DMC is to enable HWR23 to be developed as an extension of HWR21. In this connection, it should be recalled that it is also the evidence of the Defendants’ expert, Shun, who was the authorised person for the development on HWR23 that there was no point to acquire the unused plot ratio of HWR21 by the Deed of Grant if HWR23 was not developed as an extension of HWR21. It must therefore be within the contemplation of the parties to the Assignment and the DMC that in order to achieve that purpose, some walls would have to be demolished or wall openings made so that the buildings on the two lots would merge into one integral building and the buildings on the two lots would share in the use of some common facilities. It must also be foreseen that those works would be carried out when the development on HWR23 is completed. The Assignment and DMC must be construed against the above background.
The construction of clause 2(b) of Part 1 of the DMC
48. The provisions in clause 2(b)(ii), (iii) and (iv) of Part 1 of the DMC are obviously drafted in such a way as to give effect to the above common intention of the parties. Clause 2(b)(ii) gave the 2nd Defendant the right to amend the plans of HWR21. The only limitation was that the exclusive right of possession of the other co-owners in HWR21 and their access to their units were not unreasonably adversely affected. Clause 2(b)(iii) gave the 2nd Defendant the right to demolish such of the walls of the old common staircase and adjoining party wall the exclusive possession of which was vested in the 2nd Defendant itself. That right was only subject to the 2nd Defendant’s obligation to make good any damage or injury caused to the building or other persons. Clause 2(b)(iv) gave the 2nd Defendant the right to relocate the cable ducts in the common areas of HWR21 subject to the obligation of making good all damage or injury to the building or other persons. Those rights were exercisable by the 2nd Defendant as a co-owner of HWR21 even without seeking consent from the Plaintiff or the co-owners of HWR21 who were and are bound by the terms of DMC thus entered into between the 1st Defendant as the First Owner and the 2nd Defendant as the Second Owner. But it should be noted that this clause does not empower the 2nd Defendant to make the various wall openings or to install the glass curtain wall. There is no dispute between the parties about the construction of the above sub-clauses.
49. The focal point of counsel’s argument is on the proper construction of clause 2(b)(i) of Part 1 of the DMC. Under this sub-clause, the 2nd Defendant may grant to the owner of HWR23 the rights in common with the co-owners of HWR21 to use the common areas and facilities subject to their bearing “a due proportion of the cost of managing and maintaining such common areas pro rata to the respective gross floor areas” of the buildings on HWR21 and HWR23. Mr Cheung contends that as Asian Harbour’s duty to manage HWR21 under Part 3 of the DMC is a very wide one, including management, operation, servicing, maintenance, repair and insurance of HWR21, on a common sense construction of clause 2(b)(i) of Part 1 of the DMC, the obligation of the co-owner of HWR23 to contribute to the cost of managing the common areas of HWR21 pro rata must mean the cost of managing all the common areas and facilities of HWR21 irrespective whether the common areas and facilities were used by the co-owner of HWR23 or whether the 2nd Defendant has allowed them to be used by the co-owner of HWR23. He further argues that as the 2nd Defendant wanted the co-owner of HWR23 to have the rights in common with the co-owners of HWR21 to use the common areas and facilities of HWR21, it must mean the rights to use all the common areas and facilities of HWR21 and to contribute to the cost of managing all the common areas and facilities.
50. With respect, that broad brush approach is inconsistent with common sense. The obligation of the owner of HWR23 is to bear “a due proportion” of the cost of managing and maintaining such common areas. The words in quote are significant. Those words can be deleted in their entirety without affecting the language of that clause. If those words were deleted, it will give the meaning contended by Mr Cheung, i.e. the owner of HWR23 shall bear the cost of maintaining such the common areas and facilities of HWR 21 pro rata to the gross floor areas of the two buildings. Those words could not have been included in the clause for no reason. The only possible reason is that they were to limit the contribution to an appropriate proportion of the cost of managing the common areas and facilitiesthe use of which was granted by the 2nd Defendant to the owner of HWR23 as against all the common areas and facilities. This construction is consistent with the word “such” preceding the words “common areas”. It is reasonable and makes good sense. On the other hand, Mr Cheung’s construction gives rise to grotesque and unreasonable results. One may obviously ask why the owner of HWR23 has to pay for festive decoration, repair and maintenance of the external walls of HWR21. If the words are capable of giving rise to two constructions, it is trite law that the court will prefer the one which yields a more reasonable result than the other. The reason is simple. The court will generally adopt an objective approach, that is to say it will consider what would have been the intention of reasonable persons in the position of the actual parties to the contract: see Lewison, The Interpretation of Contracts, paragraph 2.05. In my opinion, on the proper construction of clause 2(b)(i) of Part 1 of the DMC, the obligations of the owner of HWR23 is to contribute to the cost of managing the common areas and facilities which the owner of HWR23 is authorised by the 2nd Defendant to use, whether in fact they are used or not. The amount of contribution is pro rata to the respective gross floor areas of the two buildings, i.e. the 43/57 Ratio. It may be increased or decreased, if the 2nd Defendant seeks to vary the extent of the use of the common areas and facilities it would wish to grant to owner of HWR23.
51. Mr Cheung argues that the grant by the 2nd Defendant to the owner of HWR23 of the right to use the common areas and facilities in HWR21 was only made once sometime after 1 May 1997 and there is no evidence of a similar grant to the 4th Defendant when it became the owner of HWR23 on 14 October 2005 and hence the 4th Defendant and its occupiers and/or licensees have been trespassing on HWR21 when using the common areas and facilities of HWR21. Whether the 2nd Defendant has granted the right to the 4th Defendant is a matter between the 2nd and the 4th Defendants. There is no issue between them that the 4th Defendant has not been granted such right. It is not an issue before this Court. Mr Cheung’s argument does not assist the Plaintiff’s claim.
52. Then, Mr Cheung argues that there is no mechanism for the Plaintiff to monitor and ascertain what has actually been granted by the 2nd Defendant to the owner and occupiers of HWR23 and such further grant from the owner and occupiers of HWR23 to their licensees. Thus the Plaintiff has no way to exercise an effective control on the access to such of its common areas and facilities which are effectively turned into a public place. I fail to see how such argument could assist the Court in preferring the construction in favour of the Plaintiff. There is nothing to prevent the Plaintiff from ascertaining from the 2nd Defendant the nature and extent of its grant to the owner of HWR23. HWR23 is principally being used as offices. The problems raised by Mr Cheung are just matters of practical enforcement, which in any event is difficult for commercial buildings with tenants engaged in the sort of services, such as private bars and clubs, operated by the co-owners and tenants of HWR21.
53. The above construction applies equally to paragraph 1(a)(i) to (iv) of the Assignment which is worded in identical terms. Having dealt with the construction of the Assignment and the DMC, I now turn to the various claims of the Plaintiff.
The encroachment claim
54. As submitted by Mr Li, the Plaintiff’s encroachment claim is convoluted and difficult to understand. The Plaintiff made two encroachment claims against the 1st and 4th Defendants, one in respect of the demolition of the old common staircase and the adjoining party wall and one in respect of the wall openings. The claim is made against the 1st Defendant as the developer of HWR21 and HWR23, which is understandable. But the claim against the 4th Defendant who became the owner of the ground, 1st and 3rd floors of HWR21 since October 2005 is utterly incomprehensible.
55. In respect of the demolition of the old common staircase and the connecting party wall, I have already found that the space occupied by those structures, i.e. the Staircase Spaces, were assigned to the 2nd Defendant under the Assignment. The plans annexed to the Assignment and the DMC show clearly that the space assigned included both the staircase walls and the old party wall between the two staircases. They were shown coloured red and red hatched black on the plan annexed to the DMC. Mr Cheung argues that the plan annexed to the Assignment was stated to be “for reference only” and not for identification. Be that as it may, the plan has been incorporated into the conveyance. The property stated to be assigned under the Schedule to the Assignment clearly described it as “more particularly coloured pink and pink hatched black on the plan annexed hereto”. There is nothing to suggest that the plan is inconsistent with the above description. The areas coloured pink and pink hatched black covered the two old staircases and the old connecting party wall between them. It also covered a small open un-built areas within the boundary line of HWR21 immediately adjoining the steps at the rear staircase which probably served as a patio for the old building. The Staircase Spaces were converted into floor areas on each of the floors delineated by the 1st Wall inside HWR21 which are not accessible from HWR21 but are accessible from HWR23 (except on the 1st floor of HWR21 because of the removal of that part of the 1st Wall on that floor). Under clause 2(a) of Part 1 of the DMC, the 2nd Defendant was given exclusive possession of those spaces. Clause 2(b)(ii) gave the 2nd Defendant the right to amend the plans of the HWR21 in any lawful manner so long as the exclusive right of possession of the other co-owners of HWR21 were not unreasonably adversely affected. Clause 2(b)(iii) specifically gave to the 2nd Defendant the right to demolish the walls the exclusive possession of which was vested in the 2nd Defendant as owner of the Staircase Spaces assigned to it under the Assignment. It is the common view of the experts that the demolition work was in accordance with the amended building plans and was lawfully executed. There is no argument or evidence that the other co-owners of HWR21 had been unreasonably adversely affected by the demolition. There is no requirement that the 2nd Defendant had to obtain prior consent from the Plaintiff for such demolition and construction work. The demolition of the old staircases and the old connecting party wall as well as the construction of the floor slabs were what the 2nd Defendant as owner of the Staircase Spaces is entitled to do under the Assignment and the DMC which is binding on the co-owners of HWR21. The 2nd Defendant as the owner of the Staircase Spaces is perfectly entitled to allow the 1st Defendant to execute the demolition and construction works and to allow the 4th Defendant whether as a co-owner of the ground, 1st and 3rd floors of HWR21 or as the owner of HWR23 to use the areas constructed from the Staircase Spaces. There is no encroachment of HWR21 by the owner of HWR23 or by anybody at all.
56. In respect of the wall openings, it is difficult to understand how and why the wall openings can constitute an encroachment on HWR21. As submitted by Mr Li, there simply cannot be an ouster of possession of any part of HWR 21 by the openings made on the walls. My comment here is without prejudice to the Plaintiff’s other claims in respect of the openings.
57. Accordingly, the Plaintiff’s claim against the 1st and 4th Defendants for an injunction to demolish and remove the structures built in the old common staircase assigned to the 2nd Defendant must be dismissed.
58. For the same reasons, the Plaintiff’s claim against the 1st, 2nd and 4th Defendant for damages for trespass and demolition of the old party wall and common staircases of HWR21 must also be dismissed.
59. The Plaintiff’s alternative claim against the 1st and 4th Defendants is for a declaration that the ground and additional space obtained as a result of the demolition of the old common staircases and the adjoining party wall are the property of all the co-owners of HWR21 and form the common areas of HWR21. The ground and additional spaces were the Staircase Spaces the exclusive possession of which were given to the 2nd Defendant under the Assignment and clause 2(b) of Part 1 of the DMC. They are not common areas of HWR21. The Plaintiff cannot have a valid claim against the 2nd Defendant. It is also impossible to understand the basis on which the claim is made against the 1st and 4th Defendants who have no proprietary right to the space or the right to exclusive possession of the space. This alternative claim is absurd and must be dismissed. The Plaintiff’s further alternative claim to a declaration that the 1st and 4th Defendants are in breach of the DMC and/or section 34I(1)(a) of the Building Management Ordinance must also be dismissed for the same reason.
The glass curtain wall claim
60. The Plaintiff’s claim is that the glass curtain wall was installed by the 1st Defendant on the external wall of HWR21 without the consent of the co-owners of HWR21 and that the Plaintiff has no obligation to maintain the glass curtain wall which is now in disrepair. The primary issue here is whether the Plaintiff or Asian Harbour as the Management Company of HWR21 had consented to the installation of the glass curtain wall.
61. The circumstances leading to the installation of the glass curtain wall were as follows. By 1996, nine years lapsed since the completion of the building on HWR21. The external wall of the building on HWR21 fell into disrepairs. At the time, the development of HWR23 was near completion. The 1st Defendant was contemplating installing a glass curtain wall on the external wall on the 1st to 4th floors of the building on HWR23. In September 1996, Woo in his capacity as director of the 1st Defendant, discussed with Leung representing Asian Harbour as the Management Company of HWR21, about installing a glass curtain wall on the 1st to 4th floors of HWR21 which would merge with the glass curtain wall to be built on the building on HWR23. The 1st Defendant offered to contribute $200,000 to the owners of HWR21 for the project. Asian Harbour issued a notice to convene an extraordinary meeting of the owners of HWR21 to discuss the proposal.
62. At the extraordinary meeting held on 11 November 1996, Leung tabled the proposal for renovation work which included, inter alia, installing a glass curtain wall on the front and right side of HWR21 adjacent to HWR23. The estimated cost was about $1,350,000. According to the minutes of the meeting, Cheong felt that the cost of renovation was high and wished the 1st Defendant, as the developer, would provide some financial assistance. It was then resolved not to consider the installation further until the 1st Defendant had offered financial assistance. Paragraph 2.4 of the minutes of the meeting recorded as follows:
「法團主席方太謂按上項預算計，每層業主最少負擔$135,000 (不計分層電梯大堂裝修)，此費實不菲，故希望發展商考慮能否對永勝商業中心提供若干優惠。在發展商未有提出有關優惠予業主/法團考慮前，A及D項暫不作深入討論。」
Then according to Leung, after discussing the matter with Woo, the 1st Defendant agreed to undertake the installation of the glass curtain wall on the front side of HWR21 only. The glass curtain wall was installed with the full cooperation of the owners and tenants of the 1st to 5th floors of HWR21. Some signage and air conditioners had to be cleared and removed. The cost of demolition of the unauthorised structures were paid by the owners and tenants of the 2nd floor of HWR21.
63. According to Leung, at the extraordinary meeting held on 11 November 1996, the co-owners of HWR21 had agreed in principle to the project save that Cheong had asked Asian Harbour to request the 1st Defendant for more financial incentive. But Cheong denied any agreement having been reached at the meeting.
64. Mr Li submits that Cheong’s evidence is not to be believed. That I agree. Cheong is an utterly unreliable witness. However, Leung’s evidence that agreement in principle to install the glass curtain wall was reached at the meeting was inconsistent with the minutes of the meeting. Mr Li submits that the meeting was only attended by a handful of members of the management committee of the Plaintiff and was not conducted in a formal manner. Hence, he draws the analogy from company law on informal consent and submits that recording of resolutions passed in a formal manner is not to be expected in such an informal meeting but that agreement was indeed reached. I also have difficulty with that submission. The meeting was not a meeting of the management committee or an informal meeting between the Plaintiff and Asian Harbour as the Management Company. It was an extraordinary meeting of the Plaintiff which was properly and formally convened by Asian Harbour. The meeting was attended by seven representatives of the owners, including Leung representing the owners of the ground and 1st floors; by a representative of the 2nd Defendant and Yeung with another member of Asian Harbour. Yeung was the person who wrote the minutes. If there was an agreement in principle reached, she would have so recorded. If she had missed it, Leung would have corrected it. The unequivocal conclusion recorded in the minutes was that the Plaintiff in general meeting resolved not to discuss the matter further until the 1st Defendant had come up with an offer of financial assistance. By no reading of those minutes can it be said that any agreement on the installation of the glass curtain wall had been reached with Asian Harbour or the 1st Defendant or that the Plaintiff consented to the installation to be carried out. However, the tone of the minutes suggests that though no express agreement or approval for the installation was given by the Plaintiff, there was nevertheless no objection to or prohibition against the installation. That was perhaps interpreted by Leung as an agreement in principle. In any event, Leung’s evidence, put to the highest, was that the Plaintiff reached agreement in principle. In my view, an agreement in principle is an agreement to agree which is short of a concluded agreement or consent.
65. It never was Leung’s evidence that following his discussion with Woo, he reported the new offer to the Plaintiff or its management committee or Cheong. There was not a single piece of documentation showing that the Plaintiff was informed about the new offer or the execution of the installation work. The work was executed with the cooperation of the owners and tenants of the 1st to 5th floors. The 1st and 3rd floors were at the time owned by Wrencrest Estates Limited which was also an associated company of the Defendants. Thus, what probably happened was that Leung thought the Plaintiff had no objection to the installation if the 1st Defendant would provide some financial assistance. With the problem of finance being wholly resolved by the 1st Defendant agreeing to pay for all the cost of installation, he assumed Asian Harbour had authority to give consent on behalf of the Plaintiff to the 1st Defendant to execute the work. The owners of the 1st to 5th floors might have consented to the work. But they have no authority to give such consent as the external wall was part of the common areas of HWR21, which those owners did not have the right to exclusive possession.
66. Mr Li seeks to rely on the clauses 1(b) and 5 of Part 2 of the DMC which provide respectively that the decisions of the Management Company in respect of the management of the building is binding on all the owners and that the Management Company shall be the attorney for and on behalf of all owners in respect of all matters concerning the common areas for which the Management Company was authorised to act. Leung knew the Plaintiff had not given express consent to the installation work. Leung being a common staff of Asian Harbour and the 1st Defendant, his knowledge must be attributed to the 1st Defendant. Despite that, there was nevertheless no express prohibition against the installation. It never was the Plaintiff’s case that it prohibited the installation. There is nothing to suggest Leung or Woo were acting in bad faith in executing the installation works. Indeed, even according to the report of Pacific Rich, the glass curtain wall was an improvement to HWR21. The future cost of maintenance apart, the glass curtain wall was a benefit to HWR21. In consenting to the installation of the glass curtain wall, Asian Harbour was acting in the Plaintiff’s interest and within clause 1(b) of Part 2 of the DMC. Accordingly, that consent was binding on the owners of HWR21 under clause 5 of Part 2 of the DMC.
67. Lastly, Mr Li submits that there has been acquiescence or waiver on the part of the Plaintiff or that the Plaintiff should be estopped from raising objection. Cheong said she did not object to the installation works because she had been misled by Leung and Yeung that the 1st Defendant had authority to install the glass curtain wall under the DMC and the Deed of Grant. That allegation was never pleaded. In any event, I reject her evidence. The Plaintiff averred in its Reply to the Defence that the 1st Defendant suffered no detriment as the cost of installation was part and parcel of the 1st Defendant’s construction cost for developing HWR23. That plainly could not be correct as material and labour were spent on installing that part of the glass curtain wall on HWR21, which had nothing to do with the construction cost of HWR23.
68. The Plaintiff suggested that there was no waiver because the Plaintiff did not have legal advice about breaches of the DMC until 2005. The fact is that since the appointment of Pacific Rich in 2000, the Plaintiff had been informed of alleged breaches of the DMC. Furthermore, on the Plaintiff’s case, the installation was a blatant act of trespass. It hardly lies in the Plaintiff’s mouth to argue that it did not know its right had been infringed when the glass curtain wall was being installed.
69. The principle of law on acquiescence has been succinctly stated by Thesiger LJ in De Bussche v Alt, 8 Ch D 314 as follows:
“If a person having a right, and seeing another person about to commit, or in the course of committing, an act infringing upon that right, stands by in such a manner as really to induce the person committing the act, and who might otherwise have abstained from it, to believe that he assents to its being committed, he cannot afterwards be heard to complain of the act. This, as Lord Cottenham said in Leeds v Amherst, 16 LJ Ch 5, is the proper sense of the term ‘acquiescence’, and in that sense may be defined as quiescence under such circumstances as that assent may be reasonably inferred from it, and is no more than an instance of the law of estoppel by words or conduct.”
70. The Plaintiff knew about the 1st Defendant’s proposal to install the glass curtain wall on HWR21 so as to merge with the glass curtain wall to be built on the building standing on HWR23. Though short of an agreement or express consent, the Plaintiff indicated no objection to the installation but wanted it to be partially financed by the 1st Defendant. The installation was properly designed and approved by the Building Authority. The works were carried out openly and with cooperation of the owners of the 1st to 5th floors. Substantial cost had been incurred by the 1st Defendant on the installation. The Plaintiff had full knowledge of all the circumstances surrounding the installation of the glass curtain wall and the cost involved. Cheong admitted that she had knowledge of the installation at the time but raised no objection. The glass curtain wall was allowed to be installed there since 1997 for at least eight years without any objection. The Plaintiff or at least some of the co-owners had the benefit of the glass curtain wall. The installation was described as an improvement by Pacific Rich in its report of April 2005. Undoubtedly, the value of the HWR21 was enhanced.
71. Not only that the Plaintiff watched by with full knowledge of all the circumstances when its rights were being infringed, it had the benefit of the glass curtain wall for eight years. It adopted the tort. It is only when the cost of maintenance and repair of the glass curtain wall and the present dispute arose that it raised objection about the installation. I am satisfied that the Plaintiff had with full knowledge waived its right against the 1st Defendant and is therefore estopped from raising the objection to the glass curtain wall now.
72. Mr Cheung referred to the case of The Incorporated Owners of Hoi Luen Industrial Centre and Anor v Ohashi Chemical Industries (Hong Kong) Ltd [1995] 2 HKC 11 and argues that the defence of waiver, acquiescence and estoppel is not available in proceedings between co-owners and the incorporated owners. He relies on the fact that the 1st Defendant then was and the 4th Defendant now is the owner of the 1st floor of HWR21. In that case, the incorporated owners of a building obtained an injunction compelling one of the co-owners to demolish and remove an air-conditioning cooling tower erected in breach of the deed of mutual covenant. The co-owner appealed alleging that it was unfair and unjust that it should be singled out and ordered to remove its cooling tower while other owners had done the same had not been called upon to do so. The Court of Appeal dismissed the appeal. Godfrey JA held at 13:
“It follows that in the instant case the plaintiffs were not only entitled but bound to take proceedings for the enforcement of these covenants. It follows, too, that they could hot have granted expressly to this defendant or any other owner of any unit in the building the right to act in contravention of the deed of mutual covenant as this defendant has done. What cannot be done expressly cannot be done impliedly. Although equity will sometimes restrain a plaintiff in the exercise of his legal rights because it would be inequitable and unjust in all the circumstances to allow him so to exercise those legal rights, equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant.”
73. Mr Li argues that the above decision is inapplicable to the present case because the glass curtain wall was installed by the 1st Defendant in its capacity as the developer of HWR23 and not as a co-owner of HWR21. The minutes of the extraordinary meeting on 11 November 1996 showed that it was the Plaintiff who requested for financial assistance from the 1st Defendant as developer of HWR23 to install the glass curtain wall. There is no dispute that the installation of the glass curtain wall was financed by the 1st Defendant as developer of HWR23 and not as a co-owner of HWR21. I agree with that submission. Clearly, this is not a case of a co-owner breaching the DMC, but an alleged act of trespass by the developer of HWR23 who happened also to be a co-owner of HWR21. This cannot turn an act of trespass into a breach of the DMC. The Plaintiff’s claim of breach of the DMC by the 1st Defendant is simply misconceived. So too is its claim against the 4th Defendant who was neither a co-owner at the time of the breach nor the party who installed the glass curtain wall. The 4th Defendant only became the owner of the 1st floor of HWR21 in 2005.
74. Mr Li further submits that despite the decision in Hoi Luen Industrial Centre case, the defences are still available. He argues that what was decided in that case and the line of cases which followed it was that the fact that some other co-owners were also in the same breach could not make it inequitable and unjust to restrain a plaintiff from exercising its legal rights. He referred to Hong Yip Service Co Ltd v Candela Co Ltd [1997] 1 HKC 273 and submits that in granting an injunction against the co-owner, Le Pichon J (as she then was) only ruled the defence to be unavailable by reason of the scale and prevalence of the breaches and she did not castigate the defence simply on the basis of Hoi Luen Industrial Centre case. I do not think that is a correct interpretation of the decision in Hong Yip case. The basis of that decision was that the court found, at 285I to 286A, that the incorporated owner had neither waived its rights to enforce the covenants under the deed of mutual covenant nor acquiesced in their breach and the point whether such defences were available to a co-owner did not fall for consideration. I do not think Mr Li’s submission is a correct interpretation of the Hoi Luen Industrial Centre case. Godfrey JA’s dicta are unequivocal, at least as far as the defence of acquiescence is concerned. I consider I am bound by Hoi Luen Industrial Centre case, but for reasons as I have explained that case is distinguishable from the present one.
75. Accordingly, the Plaintiff’s claim for an injunction requiring the 1st and 4th Defendants to demolish and remove the glass curtain wall and the alternative claim for declaration that the 1st and 4th Defendants are in breach of the DMC and/or section 34I(1)(b)(ii) of the Building Management Ordinance must be dismissed.
The wall openings claim
76. The Plaintiff claims against the 1st and 4th Defendants for an injunction requiring them to seal the various wall openings made at the lift lobbies and staircases of HWR21 for the purpose of connecting HWR21 with HWR23. This does not include demolition of the wall on the 1st floor of HWR21 adjoining HWR23 against the 3rd Defendant, which I shall deal with separately.
77. The Defendants’ case is that it was authorised by clause 2(b)(ii) of Part 1 of the DMC to amend the building plans approved by the Building Authority so long as the exclusive right to possession of the other co-owners to the other units in the building with reasonable access and other rights thereto were not unreasonably adversely affected. There is no evidence that the rights of any co-owners were unreasonably adversely affected. There is also no dispute that the various wall openings were made in accordance with amended plans approved by the Building Authority. Even the Plaintiff’s own expert, Yip, confirmed that the alteration works were legitimate and did not contravene any provisions in the Building Regulations. The only issue is whether the works were carried out with the consent of the Plaintiff.
78. According to Woo, some time before July 1996, which was at about the same time as the incorporation of the Plaintiff, the 2nd Defendant gave consent to the 1st Defendant to carry out the wall opening works. At another meeting between him and Leung representing Asian Harbour, Asian Harbour, as the Management Company of HWR21, gave consent to the 1st Defendant to execute the works. Asian Harbour duly obtained consent from the management committee of the Plaintiff for the execution of the works and informed the management committee of the progress.
79. There is an abundance of documents in support of Leung’s evidence. On 24 July 1996, the management committee of the Plaintiff, including Cheong, attended a meeting with Yeung at Cheong’s office in which the management committee agreed to the execution of works in principle. A note of the meeting was prepared and signed by Yeung. That was followed by another meeting of the management committee on 2 August 1996 attended by Cheong and three other members of the management committee in which the progress of works was discussed. A works schedule containing details of the works to be executed, the place and time of execution of works was tabled and agreed to by the management committee. The works included relocation of fire services installation, installation of a new generator, sprinkler system and telephone services and the wall openings in the various lobbies and staircases. It was recorded that the management committee agreed in principle to the arrangement subject only to Asian Harbour liaising with the co-owners affected by the works arrangement. The minutes of the meeting was signed by Cheong. The minutes showed that the works were executed with the knowledge, consent and cooperation of the management committee and co-owners of HWR21.
80. In her evidence, Cheong did not dispute the management committee had consented to the works, but said that she did not object to the works because it had been represented to her by Yeung that the Defendants had authority under the DMC to carry out the works and the works had been approved by the Building Authority. Hence the management committee was solely concerned with the steps to be taken to minimise the disturbance and inconvenience caused by the works to the co-owners of HWR21. Mr Li submits that Cheong’s evidence raised an un-pleaded issue that the consent was obtained by misrepresentation and that such evidence should be excluded. I would not take that submission too seriously because Cheong had disclosed the allegation, albeit very briefly, in her witness statement dated 5 July 2007 and if necessary leave could be granted to the Plaintiff to re-amend the Amended Statement of Claim. However, I find Cheong incredible. Her allegation was never mentioned in any of the correspondence or minutes of the meeting or in the pleading. She adamantly insisted that she had told her lawyers about the representation but could not explain why her lawyers would have missed it.
81. Furthermore, at the time Asian Harbour’s appointment as the Management Company of HWR21 had not been revoked by the Plaintiff. Pursuant clause 5 of Part 2 of the DMC, it was the attorney for and on behalf of all the owners in respect of all matters concerning the common areas for which the Management Company was authorised to act. Under clause 1(b) of Part 2 of the DMC, their acts and decisions in respect of those matters were binding on all the co-owners of HWR21. Though Asian Harbour was an associated company of the Defendants, there is nothing to suggest that it acted otherwise than in good faith when granting consent to the 1st Defendant to execute the works. The 2nd Defendant had the right to amend the building plans of HWR21 under clause 2(b)(ii) of Part 1 of the DMC. Bearing in mind the factual background and the purpose which the DMC was intended to achieve, it must be an implied term of the DMC that the co-owners’ consent to execute the works pursuant to the amended building plans will not be unreasonably withheld. Thus, even if I were to hold that the consent given by the management committee ought to be set aside by reason of misrepresentation, the consent given by Asian Harbour was nevertheless valid and binding on the Plaintiff. In the circumstances, it would be futile to allow the Plaintiff to amend its Amended Statement of Claim.
82. Mr Cheung contends that even if consent had been given to the 1st and 2nd Defendants to execute the works, the consent was only a licence at will which was revoked by the Plaintiff’s solicitors’ letter dated 30 August 2005. This contention is not supported by any evidence from the Plaintiff’s witnesses. There is no evidence as to the terms of the licence. The contention is not even fully developed in argument.
83. Accordingly, the Plaintiff’s claim for an injunction requiring the 1st and 4th Defendants to seal the various openings at the walls of HWR21 adjoining HWR23 must be dismissed.
The 1st floor wall claim
84. As for the demolition of the wall on the first floor of HWR21 adjoining the 1st floor of HWR23, the Plaintiff’s case is that the wall was the external wall of HWR21 which was vested in the Plaintiff, which the 3rd Defendant demolished in breach of clause 8(a) of the DMC and section 34I(1)(a) of the Building Management Ordinance.
85. It is the common expert opinion of both Yip and Shun that the external wall on the 1st floor of HWR21 adjoining HWR23 became an internal partition upon completion of the building on HWR23. Mr Li quoted paragraph 11.13 of Kim Lewison QC, The Interpretation of Contracts, 3rd ed:
“11.13 A grant of part of a building will be presumed to include both sides of any external wall bounding it, and also anything fixed to the wall.
In Hope Brothers Ltd v Cowan, [1913] 2 Ch 312, Joyce J said:
“speaking generally in the case of a demise of one floor of a building, or of a room on any floor which is bounded or enclosed on one or more sides by an outside wall, unless the outside wall be excepted or reserved or there be some context which leads to a contrary conclusion, prima facie the premises demised comprise the whole; that is to say both sides of the outside wall.”
So in the absence of a reservation, a landlord may be restrained from maintaining an advertisement on the walls enclosing the demised property, Re Webb’s Lease [1951] Ch 808.”
Hence Mr Li argues that the ownership of the internal partition wall belongs to the owner of the 1st floor of HWR21, i.e. the 3rd Defendant at the time, and that the Plaintiff has no interest in the wall.
86. Mr Cheung argues that the external wall at the 1st floor is part of the common areas of HWR21. He submits that for terms statutorily defined such as “external wall”, “party wall” and “common areas”, one must take the statutory definition from the Building Management Ordinance and the Buildings Ordinance. “Common parts” is defined in section 2 of the Building Management Ordinance as follows:
“ “common parts” means -
(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.”
External wall is one of the items specified in Schedule 1 of the Ordinance. On the other hand, “common areas” is defined in the DMC to include an areas coloured yellow and yellow hatched black in the plan annexed to the DMC, which does not include the wall in question. I assume the term “common parts” and “common areas” means the same thing. The definition in the DMC is inclusive and not exhaustive. I therefore consider the statutory definition applicable despite the definition under the DMC. Mr Cheung has referred me to section 54 and Schedule 2 of the Buildings Ordinance but not to any statutory definition of “external wall”. I can only adopt a common sense meaning for that term, i.e. a wall which is exposed on the outside of the building.
87. However, I fail to see how Mr Cheung’s argument can assist the Plaintiff. According to facts in this case, the wall in question was not an exposed wall. It was described as the 1st Wall which was built against the two old common staircases and the old party wall adjoining the two staircases. It was built behind another wall within the lot boundary of HWR21. The side of the wall adjoining HWR23 was never exposed to the outside. It was inaccessible to any co-owners of HWR21. The other side of the wall was within the space to which the 3rd Defendant had exclusive possession and was equally inaccessible to any co-owners of HWR21. There was simply no external wall on that side of the building. It is more appropriate to call it an internal partition. It is just impossible to see how this wall could have formed any common parts or common areas for which the Plaintiff has any proprietary interest or control. Though the assignment in respect of the 1st floor of HWR21 has not been produced, on the evidence before me, I think it is beyond dispute that the wall in question is not part of the common areas or common parts of HWR21. To hold otherwise would effectively deprive the 3rd Defendant of its right to exclusive possession of the 1st floor of HWR21. Lastly, whatever this wall is called, it is the common opinion of the experts on both sides that with the completion of the development in HWR23, it is just an internal partition wall.
88. Furthermore, according to Woo and Leung, sometime around 20 April 1998, Leung, on behalf of Asian Harbour, gave consent to the 1st Defendant to demolish the wall so as to enable the 1st floor of HWR21 to be used together with the 1st floor of HWR23 as one unit for letting purpose. At the time, Asian Harbour was the common manager of HWR21 and HWR23. The Plaintiff was not yet incorporated. Asian Harbour as attorney of the then existing co-owners of HWR21 and the Management Company had authority to give such consent pursuant to clauses 1(b) and 5 of Part 2 of the DMC.
89. Accordingly, the Plaintiff’s claim against the 3rd Defendant for an injunction requiring it to reinstate the wall on the 1st floor of HWR21 adjoining HWR23 and damages for breach of the DMC must also be dismissed.
Contribution claim
90. Central to the parties’ dispute is the Defendants’ contribution to the cost of managing the common areas and facilities of HWR21. The Plaintiff’s case is that the Defendants should pay a share of all the cost of managing the common areas and facilities of HWR21 according to the 43/57 Ratio. On that basis, the Plaintiff claimed a liquidated sum of $1,479,757.43 for the period from October 2000 to April 2005. The Defendants say that they are only liable to contribute a due proportion of the cost of managing the common areas and facilities which the owner of HWR23 was actually authorised by the 2nd Defendant to use.
91. On a proper construction of clause 2(b)(i) of Part 1 of the DMC, I agree with the Defendants’ construction. Mr Li submits that as the Plaintiff’s claim is on a liquidated sum based on a purported calculation which is wrong then this claim must be dismissed. Furthermore, the 1st Defendant has been making contributions to maintenance of the fire services system which the Plaintiff has failed to take account of. The contributions were of substantial amounts. There are also numerous other claims of expenses which obviously were solely incurred for the benefit of the owners of HWR21 which the Plaintiff could not claim any contribution from the Defendants. These include meal expenses of the Plaintiff, printing cost, decoration cost and solicitors’ fees, to say a few. In view of the claim being a liquidated one, I do not find it necessary to adjudicate on which of the items the Defendants should contribute nor is there sufficient factual evidence for me to make the adjudication. The Plaintiff’s claim against the 1st, 2nd and 4th Defendants must be dismissed.
The revocation claim
92. The revocation claim against the 1st, 2nd and 4th Defendants is premised on the Defendants’ failure to contribute to the cost of management of the common areas and facilities. The Plaintiff complains that the Defendants were deliberately delaying payment of contributions. However, the contribution claimed was made on the wrong basis and without taking into account contributions received. As such, the claim must be unreasonable. In fact there was an agreed 43/57 Ratio for paying contribution reached on 30 September 1999. It was the Plaintiff who sought to revoke that agreement. In view of the unreasonable demand made by the Plaintiff and their failure to properly account for what they demand, I do not think the steps taken by the Defendants to ensure that they only pay what they are liable to pay under the DMC can be considered as unreasonable. In the circumstances, the Plaintiff’s claim for revocation must also be dismissed.
Other remedies
93. The Plaintiff claims an injunction restraining the 1st and 4th Defendants from entering or using the common areas and facilities of HWR21 and damages for wrongful use of such common areas and facilities. These claims are based on the Defendants’ failure to contribute to the cost of managing the common areas and facilities. The contribution claim having been dismissed, these claims must also stand to be dismissed.
Conclusion
94. The Plaintiff failed in all its claims against all the Defendants. They launched their action on the wrong basis and in total disregard of the Assignment and the DMC. Accordingly, the Plaintiff’s action is dismissed with a costs order nisi that the Plaintiff shall pay costs of all the Defendants.
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( Anthony To )
Deputy High Court Judge |
Mr. Alexander H.F. Cheung, instructed by Messrs Tso Au Yim & Yeung, for the Plaintiff
Mr. C. Y. Li, instructed by Messrs Vincent T. K. Cheung, Yap & Co., for the Defendants
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