DONORA CO LTD v. THE INCORPORATED OWNERS OF TSUEN KAM CENTRE

LDBM 176/2018

[2021] HKLdT 17

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 176 OF 2018

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J U D G M E N T

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Background

1.  The applicant, a wholly-owned subsidiary of Sun Hung Kai Properties Limited (“SHKP”), is the developer of the subject building known as Tsuen Kam Centre, 300-350 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong (“the Building”), erected on Tsuen Wan Town Lot No. 293 (“the Lot”).

2.  The Building is a mixed-use development comprising of two residential blocks, Blocks 1 and 2 (the “Domestic Blocks”), erected on the Podium, which in turn comprises the Basement, Ground, 1^st, 2^nd, and 3^rd Floors, with Shops A to D on the Ground Floor, Car Parks on the 1^st Floor and the whole of the 2^nd Floor for commercial use.

3.  The respondent was incorporated on 6 January 2009 under the Building Management Ordinance (Cap. 344) (“the BMO”) as the Incorporated Owners of the Building.

4.  The Deed of Mutual Covenant of the Building (“the DMC”) was made between (i) the applicant as the developer; (ii) the First Purchaser (namely, Lee Law Cheong); and (iii) the Manager, Hong Yip Service Company Limited (“Hong Yip”), undertaking the management of the Building, on 1 June 1986.

5.  Since the completion of the Building, SHKP’s subsidiary and/or associate companies have all along been holding the whole of the 2^nd Floor of the Building and renting out the respective commercial units therein.

6.  Since at least October 2007, Hong Yip has, as a matter of administrative and budgetary treatment, subdivided the external walls of the Building into four different categories as follows:-

(1)     the external walls of the Commercial Development falling under the Commercial Common Areas and Facilities (as defined in the DMC) and which include the parapet wall of the Podium (“Commercial Walls”);

(2)     the external walls of the Car Port falling under the Car Port Common Areas (as defined in the DMC) (“Car Port Walls”);

(3)     the external walls of the Domestic Blocks falling under the Domestic Blocks Common Areas and Facilities (as defined in the DMC) (“Domestic Walls”); and

(4)     the remaining parts of the external walls of the Building which fall under the Building Common Areas (as defined in the DMC) (“Building Common Walls”).

7.  The Commercial Walls are used by the applicant for advertising. Being the façade for the Commercial Development, the Commercial Walls are also decorated by the applicant to ensure a coherent style across the Commercial Development.  The owners of the Domestic Blocks have not contributed any funds to the upkeep of the Commercial Walls; the applicant has been solely responsible for their repair and maintenance.

8.  The parapet walls of the Podium are also currently used for advertising by the applicant.  The owners of the Domestic Blocks have not contributed any funds to the upkeep of the parapet walls of the Podium; the applicant has been solely responsible for their repair and maintenance.

9.  The Car Port Walls are maintained by the sole owner of the Car Ports, Classic Best Investments Limited (“Classic Best”).  Classic Best is a wholly-owned subsidiary of SHKP.  There is no advertising on the Car Port Walls.  The owners of the Domestic Blocks have not contributed any funds to the repair or maintenance of the Car Port Walls.

10.  The Building Common Walls are maintained by Hong Yip and the funds for their repair and maintenance are shared by all of the owners of the Building in accordance with the budget prepared by Hong Yip.

11.  The Domestic Walls are maintained by Hong Yip and the funds for such maintenance have been shared by the owners of the Domestic Blocks only.  The applicant has never sought to place any advertisements on the external walls of the Domestic Blocks.

12.  The budgetary treatment of the external walls with regard to maintenance has been disputed by the respondent since about 2009.  The respondent disagrees that the external walls can be categorized or divided into Commercial Walls, Car Port Walls, Domestic Walls and Building Common Walls.

13.  The applicant, the respondent, Hong Yip and all other owners of the Commercial Development executed a settlement agreement on 17 July 2018, by which all the disputes between the parties, aside from the issues to be determined in these proceedings, have been resolved.

14.  The applicant and the respondent have agreed not to seek costs against each other in these proceedings.

15.  Hong Yip will abide by any final decision of the court and would not be joined as a party to the proceedings.

16.  Although the parties have disagreement on some of the facts raised in the witness statements, they are not relevant to the issues in this case and hence it is not necessary for me to deal with them.

The reliefs sought in these proceedings

17.  The applicant applies in these proceedings the following declaratory reliefs:-

(1)     A declaration that on the proper interpretation of the DMC and the BMO, the applicant’s exclusive rights under Section I Clause 9(e) of the DMC only impose on it an obligation to repair and maintain such part of the external walls to which it has exercised its right of advertising and does not make it responsible for the repair and maintenance of all the external walls of the Building, namely, including the external walls of the Domestic Blocks which it has not exercised any right over those external walls for advertising purposes. (“Declaration (1)”)

(2)     A declaration that on the proper interpretation of the DMC and the BMO, the external walls are sub-divided into the following categories as more particularly marked and shown on the elevation plans certified by the Authorized Person and attached to the Notice of Application in Appendix 1 (the “Elevation Plans”):

(i)     those falling under the Domestic Blocks Common Areas and Facilities as marked and shown coloured yellow on the Elevation Plans;

(ii)    those falling under the Commercial Common Areas and Facilities as marked and shown coloured purple on the Elevation Plans;

(iii)    those falling under the Car Port Common Areas as marked and shown coloured green on the Elevation Plans; and

(iv)    those falling under the Building Common Areas as marked and shown coloured brown on the Elevation Plans,

which costs for the repair and maintenance should accordingly be charged to the relevant account maintained for each category.

(“Declaration (2)”)

(3)     Or alternative to Declaration (2), a declaration that on the proper interpretation of the DMC and the BMO, all the external walls of the Building are Building Common Areas and the costs for the repair and maintenance should be charged to the account for the Building Common Areas and the Building Common Facilities. (“Declaration (3)”)

(4)     A declaration that on the proper interpretation of the DMC and the BMO, the parapet wall as more particularly marked and shown coloured red on the Elevation Plans are part of the external walls, being an extension of the external wall falling under the Commercial Common Areas and Facilities.

(“Declaration (4)”)

18.  In its closing submissions, the applicant confirms that it no longer seeks the declaration under Declaration (3).  However, Declaration (3) is adopted by the respondent as its fall-back position.

The applicant’s case

19.  The applicant submits that in deciding whether to grant Declaration (1), the Tribunal will have to determine whether the external walls of the Building, including the Domestic Walls, are common parts of the Building.

20.  If they are common parts, the obligation to repair and maintain them will be on the respondent (see s.18(1)(a) of the BMO).

21.  If they are not common parts, and the applicant has exclusive right of possession or exclusive right of use, occupation and enjoyment of the external walls, the obligation of repair and maintenance falls on the applicant (see s.34H(1) of the BMO).

22.  Under the First Schedule of the Multi-Storey Buildings (Owners Incorporation) Ordinance, Cap 344 (which is the predecessor of the BMO) (“the Predecessor Ordinance”), the external walls are presumed to be common parts.

23.  There are binding authorities of the Court of Appeal to the effect that even if the developer has reserved exclusive rights in respect of the external walls for specific limited purposes (e.g. to erect pipes and put up advertisements), such rights do not give the developer an exclusive right of use, occupation and enjoyment of the external walls, and the external walls should still be regarded as common parts.

24.  The respondent’s argument that by the First Assignment, the applicant has reserved to it the exclusive right of possession of the external walls does not withstand scrutiny.  Where the First Assignment and the DMC are executed on the same date, despite the reservation clause in the First Assignment, it is the DMC which one should look to and construe in order to determine which parts of a building are common parts. On proper construction of the DMC, the external walls of the Building should clearly be regarded as common parts or areas.

25.  The respondent’s “quasi-easement” arguments are also unmeritorious.

26.  The relevant parts of the external walls satisfy the definition of the 4 categories of common areas/facilities under the DMC and they should be sub-divided as such.  Accordingly, the costs of the repair and maintenance of the external walls should be charged to the relevant account maintained for each category.

27.  As a matter of physical configuration of the Building, the parapet wall should be regarded as part of the external walls, being an extension of the external wall falling under the Commercial Common Area and Facilities.

The respondent’s case

28.  The respondent’s primary case can be summarised as follows:-

(a)     At the time of completion of the Building, the applicant as the developer was the only owner of the entire Building. After the execution of the First Assignment, the First Purchaser became a co-owner of the Building.

(b)     The applicant has effectively reserved for itself all the exclusive right to use, occupy and enjoy the external walls in the DMC. Such walls are not common parts of the Building:

(i)     As an important starting point, Section I Clause 1 of the DMC provides that the applicant shall have “full and exclusive right and privilege to hold use occupy and enjoy to the exclusion of the First Purchaser the entire Building save and except All Those premises more particularly described in Recital (4) hereof together with the appurtenances thereto and the entire rent and profits thereof.” (emphasis added)

(ii)    The DMC and the First Assignment were executed on the same date, ie on 1.6.1986.

(iii)    The terms of the First Assignment, especially the Exceptions and Reservations Clause in Paragraph 1(c)(i)(a) of the Schedule thereof, should be taken into account in the interpretation of the DMC. By such clause, the First Assignment (and also subsequently the Subsequent Assignment) reserved to the applicant “the right to the exclusive use, occupation and enjoyment” of the external walls, consistent with Paragraph 2 of Section I of the DMC.

(iv)    In addition to Section I Clause 1 of the DMC, there are other reservation clauses in the DMC reserving the external walls in favour of the applicant, such as Section I Clause 9(d) & (e) of the DMC.  The applicant’s reservation of full and exclusive right of the external walls to itself in the DMC as such essentially leaves behind no practical or useful use of the external walls.

(v)     The applicant, having the full and exclusive right of the external walls, grants other co-owners rights to use the external walls in the form of quasi-easements (see Section II(B)(3) and Section II(C)(2) of the DMC on “easements, rights and privileges”).

(vi)    Hong Yip exercises building management decisions over the Building including the external walls subject to the DMC, including covenants reserving to the applicant the exclusive right to use, occupy and enjoy the external walls.

(c)     It is the parties’ common ground that the parapet wall is part of and/or the extension of the external walls.

(d)     The applicant has to pay for the costs of renovation, repair and maintenance of both the external walls and the parapet wall pursuant to the DMC (see Paragraph 13 of Section IV(A) of the DMC).

(e)     The above position also makes perfect commercial sense:

(i)     The applicant is a wholly-owned subsidiary of SHKP.

(ii)    The original owner of the Lot, on which the Building situates, was one Fino Company Limited, also a wholly-owned subsidiary of SHKP.  By an Assignment dated 30.3.1985, Fino Company Limited assigned the Lot to the applicant to develop the Building.

(iii)    The applicant accepts that since the completion of the Building, SHKP’s subsidiary and/or associate companies have all along been holding the whole of the 2^nd Floor of the Building (ie the Commercial Development) and renting out the respective commercial units therein.  The current registered owner of the Commercial Development of the Building is Classic Best.  It also owns the whole of the 1^st Floor of the Building (ie Car Ports).

(iv)    It would be in the commercial interest of SHKP or its subsidiary and/or associate companies to keep the entirety of the external walls in good condition so as to attract quality tenants to take up tenancies of the Commercial Development of the Building and/or to enable SHKP or its subsidiary and/or associate companies to command decent level of rental income from the tenants.

(v)     According to the applicant, it has used the external walls outside the Commercial Development.  Such part of the external walls is decorated by the applicant to ensure a coherent style across the Commercial Development.

(vi)    Maintaining and/or renovating the external walls outside the Domestic Units in an appropriate manner (eg in a style with colour scheme etc matching or resonating with those of the external walls outside the Commercial Development) would help to highlight the advertisements and decorations posted on the external walls outside the Commercial Development by the applicant.

29.  Alternatively, if the respondent’s aforesaid primary case is not accepted by this Tribunal, and as a fall-back position, the respondent submits that the external walls would fall within the ambit of “Building Common Areas” and the costs for repair and maintenance of such areas should be charged to the account for the “Building Common Areas and the Building Common Facilities” as sought by the applicant under Declaration (3) for the following reasons:-

(1)     The definition of “common parts” under the Predecessor Ordinance and the BMO is the whole of a building, except such parts as have been specified or designated in a registered instrument.

(2)     Without admission, should the Tribunal take the view that the applicant has reserved to itself under the DMC only some prescribed limited rights for specific purposes, which are not tantamount to exclusive rights to all the use and enjoyment of the external walls, it would mean that such walls are common parts, namely, parts over which no individual owner has been given the right to exclusive use occupation and enjoyment.

(3)     By the operation of the principle of unity of possession under the common law and pursuant to the BMO, each and every tenant in common of the Building is entitled to the use and possession of the external walls making such walls common parts (see Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd, (2008) 11 HKCFAR).

(4)     The external walls fit in the description of “Building Common Areas” in the DMC, which enshrines the principle of unity of possession and the definition of “common parts” under the Predecessor Ordinance.  According to Paragraph 2(a) of Section I of the DMC, the “Building Common Areas” “shall be deemed to be common areas for the benefit of the Owners of the Building which areas, may, subject to the provisions hereof, be used by each Owner in common with all other Owners and occupiers of the Building or any part thereof”.

(5)     The applicant attempts to argue that such interpretation would leave the question of payment of the costs for repair and maintenance of such areas “unresolved” and cause some “practical” difficulty in real life.  Such argument is clearly misconceived, particularly so when the applicant seeks declaratory relief under Declaration (3).

(6)     The applicant’s attempt to apportion liability for the repair and maintenance of the external walls by dividing the external walls into 4 different “portions” or “categories”, namely the “Building Common Areas”, “Commercial Common Areas”, “Domestic Blocks Common Areas” and “Car Port Common Areas”, should be rejected. The applicant’s notional division of the external walls in such manner is contrary to reality (where there is no artificial physical stratification of the external walls) and the legal principle of unity of possession as well as the definition of common parts in the Predecessor Ordinance and the BMO.

(7)     The applicant’s notion “pay only when used” should also be rejected. Whether the applicant only displays advertising signs on the external walls outside the Commercial Development, but not other areas, is a matter of its own choice and is irrelevant to this Tribunal’s determination of the pertinent question in these proceedings.

(8)     As such, the declaration sought by the applicant in the terms set out under Declaration (1) should be rejected by the Tribunal.

Declaration (1)

30.  As submitted by the applicant, in deciding whether to grant Declaration (1), I have to determine whether the external walls of the Building are common parts of the Building.  The starting point is to look at the statutory definition of “common parts” under the BMO or the Predecessor Ordinance.  In both ordinances, common parts are defined to mean:-

(a)     the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Office/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 the First Schedule.

31.  The First Schedule of the BMO and of the Predecessor Ordinance specifies common parts to include “External walls and load bearing walls, foundations, columns, beams and other structural supports”. (emphasis added)

32.  Thus, to exclude the external walls from the definition of common parts, the respondent has to demonstrate that the external walls are for the exclusive use, occupation or enjoyment of the applicant by pointing to a specification or designation in a registered instrument.

33.  I agree with the applicant that such “registered instrument” would have to be the DMC, and not the First Assignment. That is because it is the DMC, not the First Assignment, which serves the function of designating the common parts in a building.  Even if the First Assignment seeks to reserve a particular part of the building to the developer, once the developer enters into the DMC, the DMC governs whether that part of the land reserved by the developer has been designated as common part.

34.  In Kong Wai Hsien and Fung Lai Sheung v Tai Wai Glamour Garden [2019] 5 HKLRD 672, the Court of Appeal approved the following principle:-

“Hence, unless there is an express or implied term in the relevant deed of mutual covenant conferring the right to exclusive use occupation and enjoyment of the external walls to any of the co-owners, the external walls would be part of the common parts of the relevant building.” (emphasis added)

35.  In its oral opening submissions, the respondent fairly conceded that in deciding whether a part of a building is common part, the DMC is the instrument to be looked at. The respondent, however, argues the First Assignment should be taken into account in construing the DMC.

36.  Thus, the next step is to discern whether the provisions under the DMC designate or specify the external walls to be exclusively used, occupied or enjoyed by the applicant.  

Section I Clauses 1 & 2 of the DMC

37.  The respondent first contends that Section I Clause 1 of the DMC, which in essence says the applicant shall have the exclusive right to use, occupy and enjoy the entire Building except the unit held by the first purchaser, is an “important starting point”.

38.  However, the reliance on this clause is wholly devoid of merit, as Section I Clause 2 of the DMC immediately goes on to set out that “Building Common Areas”, “Commercial Building Common Areas”, “Domestic Blocks Building Areas” and “Car Part Common Areas” shall be deemed to be common areas for the benefit of the relevant owners of such areas.  I agree with the applicant that these two clauses must be read together.

39.  It must be obvious from the definitions in Section I Clause 2 that Section I Clause 1 does not have the effect of reserving the entire building except the unit covered by the First Assignment to the developer.  Any contention to that effect is absurd and plainly does not represent the true construction of the DMC.

40.  In the definition section of the DMC, “Common Areas” or “Common Facilities” of different parts of the Building all contain words expressly covering areas which have not been specifically reserved to the developer (the applicant) or any particular owner, or intended for common use, as follows:-

(1)     “Building Common Areas” mean “… All other parts of the Building which have not been specifically assigned to the Owners and which have not been specifically reserved by the [applicant] in accordance with this Deed”.

(2)     “Building Common Facilities” mean “… for the service of the Building Common Areas and other facilities installed for the use and benefit of the Building and not for the sole and exclusive use and benefit of a particular Shop or a particular Flat or a particular Car Park”.

(3)     “Car Port Common Facilities” mean “… Any other facilities installed for the use and benefit of the Car Port”.

(4)     “Commercial Common Areas and Facilities” mean “... All other areas and facilities intended for common use of the Commercial Development”.

(5)     “Domestic Blocks Common Areas and Facilities” means “... all other areas and facilities intended for common use of the Domestic Block”.

41.  The external walls clearly fall within the above definitions, as they were plainly intended for the common use and benefit of co-owners of the Building or relevant part of the Buildings.  As held by the Court of Appeal in Kong Wai Hsien (supra), the external walls of a building serve the functions of (i) holding and supporting the building; (ii) preventing damage to the building’s interior; and (ii) enabling the co-owners to have peaceful enjoyment of their respective individual units of the building.  The relevant part of the judgment is as follows:-

“As pointed out by Kwan V-P at the hearing, other than the prescribed uses, the External Walls by providing the external framework to the Building also serve to hold and support the Building and prevent damage to its interior. All the co-owners or occupiers of the Building have the right to enjoy such use. Chu JA has also observed that it is with the External Walls that all the co-owners would be able to have peaceful enjoyment of their respective individual units of the Building.”

42.  Further, the respondent accepts that there are drains and pipes fixed on the external walls of the Building which can be seen by the naked eye.  These drains and pipes are clearly for common use and benefit of all the co-owners, and the same must be true for the external walls on which they are affixed.

43.  Even though the definitions of “Common Areas” or “Common Facilities” make no specific reference to external walls, the Predecessor Ordinance must be part of the background matrix in construing the DMC, which expressly provided that external walls should be presumed to be common parts.

Section I Clauses 9(d) & 9(e) of the DMC

44.  The respondent heavily relies on Section I Clauses 9(d) & 9(e) of the DMC to suggest that by these provisions, the applicant has reserved to itself the exclusive right to use the external walls.  This proposition is squarely against a series of Court of Appeal and Court of First Instance decisions: Incorporated Owners of Goa Building v Wui Tat Co Ltd [2004] 1 HKC 348; Incorporated Owners of Shatin New Town v Yeung Kui [2010] 2 HKC 241; 聯基新樓業主立案法團 v Yan Yan Motors Ltd (unreported, HCSA 7-13/2015, 18.9.2015); and Kong Wai Hsien (supra).

45.  The Court of Appeal has repeatedly held that exclusive rights reserved by the developer for specific limited purposes in respect of the external walls of a multi-storey building do not give the developer an exclusive right of possession or use, occupation or enjoyment of the same.

46.  In Incorporated Owners of Goa Building v Wui Tat Co Ltd [2004] 1 HKC 348, under the relevant part of the deed of mutual covenant, the developer shall have the exclusive right to erect signs, signboards, flue pipes, etc. on the external walls of the building as it thinks desirable.  The Court of Appeal held that this did not give to the developer the exclusive possession of the external walls or the exclusive use, occupation or enjoyment thereof.  The reasoning of the Court of Appeal can be found in the judgment of Rogers VP (with whom Le Pichon JA and Waung J agreed) as follows:-

“4. It is important to note that although the respondent (i.e. the Vendor) was given rights in respect of various matters such as the erection of signs and signboards and flu pipes, it was not given either the exclusive possession of the external walls or the exclusive right to the use, occupation or enjoyment thereof…

…

6. In my view, it was clear that the rights accorded to the respondent under clause 1.01 did not comprise all the rights which would amount to the exclusive possession or the exclusive right to the use, occupation or enjoyment of a part of the building. The rights accorded by clause 1.01 were merely part of the rights which might be enjoyed by an owner but were not the full and exclusive rights. As a result, I consider that the conclusion which was arrived at by the deputy judge in paragraph 11 of his judgment that "Clause 1.01 of the DMC confers on the respondent the exclusive right to the use, occupation and enjoyment of the wall" was wrong.” (emphasis added)

47.  The same conclusion was reached by the Court of Appeal in Incorporated Owners of Shatin New Town v Yeung Kui[2010] 2 HKC 241. In this case, the relevant deed of mutual covenant gave the developer the exclusive right to erect pipes on the exterior walls and also to use the exterior walls for advertising purposes. Cheung JA (with whom Stone & Lunn JJ agreed) approved the analysis in Goa Building that such rights did not comprise all the rights which would amount to the exclusive possession or the exclusive right to the use, occupation or enjoyment of a part of the building; they were merely part of the rights which might be enjoyed by an owner but were not the full and exclusive rights.

48.  Goa Building and Yeung Kui were approved and applied by the Court of First Instance in 聯基新樓業主立案法團 v Yan Yan Motors Ltd (unreported, HCSA 7-13/2015, 18.9.2015).  In his judgment, Chow J observed that while the relevant clauses in Goa Building and Yeung Kui were not the same as the relevant clause in the deed of mutual covenant before him, the consideration central to the decisions of the Court of Appeal was that the rights accorded to the developer did not comprise all the rights which would amount to exclusive possession or the exclusive right to use, occupy or enjoy the external walls.

49.  More recently, in Kong Wai Hsien (supra), where clauses 8(b) & (c) of Section II of the relevant deed of mutual covenant gave the developer the exclusive right to affix flues, pipes etc. on the external walls, and the exclusive right to erect and affix advertising signs or structure on the external walls.  The IO argued that the two specific rights constituted all the rights that a co-owner could have had in relation to the use and enjoyment of the external walls, practically and realistically.  This argument was rejected by the Court of Appeal, and as pointed out by Kwan V-P at the hearing, other than the prescribed uses, the external walls by providing the external framework to the Building also serve to hold and support the Building and prevent damage to its interior. All the co-owners or occupiers of the Building have the right to enjoy such use.  Chu JA has also observed that it is with the external walls that all the co-owners would be able to have peaceful enjoyment of their respective individual units of the Building. The Court of Appeal concluded that notwithstanding that the rights to the prescribed uses of the external walls had been exclusively given to the developer under the deed of mutual covenant, the right to the other important and practical use and enjoyment of the external walls had not been given or reserved to the developer.  Thus, on a proper construction, the developer did not have exclusive right to the use and enjoyment of the external walls, and they were therefore common parts of the building.

50.  The reasoning in the above cases is the complete answer to this case.  Quite apart from the plain correctness of the reasoning, these cases are also binding on me.  

51.  The point of principle derived from them is that when the deed of mutual covenant only accords exclusive right to affix flues, pipes etc on the external walls, and the exclusive right to erect and affix advertising signs or structure on the external walls to the developer (ie the rights conferred in Section I Clauses 9(d) & 9(e) in the present case), the two specific rights did not comprise all the rights which would amount to exclusive possession or exclusive right to use, occupy or enjoy the external walls. There can be other rights in relation to the use and enjoyment of the external walls which are not exclusively reserved to the developer as identified in Kong Wai Hsien (supra).

52.  It is therefore clear to me that the applicant cannot be said to have exclusive right of use, occupation and enjoyment of the external walls by simply having the limited rights to use under Section I Clauses 9(d) & 9(e).  Despite what the respondent has submitted, there is no discernible difference between the present case and Kong Wai Hsien (supra).

Section IV(A) Clauses 19, 20, 21, 26 and 27 of the DMC

53.  It is significant to note that Section IV(A) Clauses 19, 20, 21, 26 and 27 of the DMC confer a wide range of rights to the co-owners of the Building in relation to the use of the external walls, in particular the right to put aerials on the external walls and the right to install on the external walls air-conditioning units or plants or any other fixture, with the approval of Hong Yip.

54.  In this connection, consent of the applicant is not required. This is plainly against any suggestion that the DMC designates the exclusive right of use, occupation and enjoyment of the external walls to the applicant.

55.  In this regard, it is pertinent to consider the Court of Appeal’s decision in Incorporated Owners of Hong Leong Industrial Complex v HL Resources Ltd [2010] 4 HKC 463.  In that case, the right to the exclusive use and enjoyment of the outer walls of the building was expressly reserved to the developer in the deed of mutual covenant.  However, there were other provisions in the deed of mutual covenant to the effect that the exclusive right that the developer had was subject to anything that the manager may permit the co-owners to do in relation to the external walls. The Court of Appeal observed that:-

“whatever interest [the developer] might have in the outer or external walls, it did not have the exclusive possession and the exclusive right to use and enjoy that part of the building because the Manager could permit others to make use of the external walls.”

56.  The respondent is unable to provide any answer to this point. The only argument it puts up is that the co-owners’ right have to give way to the applicant’s exclusive right. This is a circular answer, as it pre-supposes that the applicant should have the exclusive right.  It also fails to deal with the binding authority of Hong Leong Industrial Complex (supra).

57.  I am of the view that Section IV(A) Clauses 19, 20, 21, 26 and 27 must have conferred on the other co-owners the ability to make some use of the external walls in the ways stated in those clauses, otherwise Hong Yip would not have the power to control such use by the co-owners. This must mean that the applicant does not have exclusive possession of the external walls.

58.  For example, if a co-owner has put a fixture (such as an air-conditioner) at somewhere on the external walls with Hong Yip’s approval, and the applicant wants to put up an advertisement at the same location, then the answer must be that the applicant would have no right to request the co-owner to remove the fixture on the external walls.  An exclusive right to put up advertisement does not logically mean that it can trump the other co-owners’ pre-existing lawful use of the external walls.  The “exclusive” right of the applicant should only mean that the other co-owners have no right to put up advertisement on the external walls.

Recital (3) and Section I Clause 6 of the DMC

59.  Further, it is not disputed that no undivided shares were allocated to the external walls (see Recital (3) of the DMC). Section I Clause 6 of the DMC provides that the right to the exclusive use, occupation and enjoyment of any part of the Building shall not be sold or assigned or otherwise dealt with separately from the undivided share with which the same is held.  Reading Section I Clause 6 together with Recital (3), there is a clear indication that the external walls (which are not allocated any undivided share and hence impossible to be sold or assigned) were intended to be common parts under the DMC.

60.  In response, the respondent refers to a passage in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279, namely “So long as the developer had the right of exclusive possession to the utility rooms and the roof spaces, he was able to pass such right to subsequent purchasers of undivided shares”.

61.  However, Section I Clause 6 has also indicated clearly that the part to which no undivided share is allocated cannot be sold or assigned or dealt with independently.  It would be extremely odd for areas of the Building to be reserved to the applicant when it cannot be sold or assigned independently. This feature is much more consistent with such areas being common parts.

Section V(B) Clause 4 of the DMC

62.  Section V(B) Clause 4 of the DMC provides that Hong Yip shall have the duty or power to “paint white-wash tile or otherwise treat as may be appropriate the Exterior Walls and the Building Common Areas at such intervals as the same may reasonably require to be done”. The respondent argues that this indicates that the external walls are not part of the Building Common Areas.

63.  However, this argument reads too much in Section V(B) Clause 4 and is incorrect. The term “Exterior Walls” here can mean the Domestic Walls, the Commercial Walls and the Car Port Walls, whereas the Building Common Walls are covered by the term “Building Common Areas”. Thus, under this provision, Hong Yip is obliged to “paint white-wash tile or otherwise treat as may be appropriate” all the external walls, together with the parts of the Building Common Areas (including but not limited to the Building Common Walls).

64.  In any event, Section V(B) Clause 4 should not be read in isolation from the overall context, purpose and language of other terms of the DMC.

Section II(A) Clause 2, II(B) Clause 3 and II(C) Clause 2 of the DMC; and the “quasi-easement” arguments

65.  Much effort has been spent by the respondent on the “quasi-easement” arguments.  However, I agree with the applicant that they are absolutely unmeritorious.

66.  The fallacy of the arguments is clear in that the respondent pre-supposes right at the beginning that the applicant has full and exclusive right to use occupy and enjoy the external walls.  It then says the applicant can therefore grant rights over the walls to the other co-owners of the Building by way of quasi-easement.

67.  But if the respondent can show that the applicant has exclusive right of use, occupation and enjoyment of the external walls, it has already won on the issue of whether the external walls are common parts.  It would be wholly unnecessary to delve into whether the applicant, having such exclusive right of possession, grants quasi-easements to other co-owners under Section II, or the legal niceties as between easements and quasi-easements (or profits a prendre).

68.  The respondent submits that the expression “easement” supports the argument that the applicant has the full and exclusive right to use occupy and enjoy the external walls.  However, it is impossible to see why this is so.

69.  Section II(A) Clause 2, II(B) Clause 3 and II(C) Clause 2 of the DMC read as follows:-

“A. Commercial Development

2. The right to subjacent and lateral support and to shelter and protection from the other parts of the Commercial Development and the right of subjacent and lateral support from the foundation and all other parts of the Building.

B. Domestic Blocks

3. The right to subjacent and lateral support from other parts of the Domestic Blocks and the right to subjacent and lateral support from the foundations and all other parts of the Building.

C. Car Park

2. The right to subjacent and lateral support from other parts of the Car Port and the right to subjacent and lateral support from the foundations and all other parts of the Building.” (emphasis added)

70.  The clauses expressly mention “foundation” or “foundations”, which are plainly not exclusively possessed by the applicant or any individual owner.

71.  “Other parts of the building” can also include load bearing walls, columns and beams which are not exclusively possessed by the applicant or any individual owner.

72.  Thus, even if the units of the Building derive support from the external walls being “other parts the Building”, it does not mean that they are exclusively possessed by the applicant.

73.  Simply put, there is no basis to assume from the mere use of the expression “easement” (as part of the expression “easements, rights and privileges”, ie as only one possibility of the nature of the rights mentioned in this Section) that there must have been a servient (or quasi-servient) owner, being the applicant, who has exclusive right to the relevant part of the Building.

74.  In other words, it is perfectly possible for the rights mentioned in Section II to fall within “rights and privileges” (being part of the same expression “easements, rights and privileges), which are simply rights conferred to individual owners by all owners by way of covenant.  It is after all a part of the DMC. 

First Assignment

75.  The respondent argues that in construing the DMC, it should “properly take into account the First Assignment which provides an important background and context for the construction of the DMC”.

76.  However, I agree with the applicant that the First Assignment, on proper analysis, does not assist the respondent’s case.

77.  First of all, it seems that the respondent premises its argument on the fact that the First Assignment was executed shortly after the DMC on the same date, such that the First Assignment would modify the effect of the DMC. This premise is clearly wrong. The First Assignment would have to be executed by the first purchaser before the DMC, such that the first purchaser can acquire the ownership status to execute the DMC (see Tai Fat Development (Holding) Co Ltd v Incorporated Owners of Gold King Industrial Building, unreported, HCA 104/2006, 15.1.2014).

78.  The core function of a first assignment in the context of sale and purchase of unit in multi-storey building is to assign and transfer the proprietary interest in the undivided share(s) of the Building to the first owner. The first assignment does not have to reserve any rights of possession to the assignor. This is because the assignor and assignee would execute a deed of mutual covenant at the same time, which would modify the “unity of possession” between the co-owners (who are tenants-in-common in law) and give the right to exclusive use occupation and enjoyment of different parts of the building to individual co-cowers.  The parts in respect of which no individual owner has been given the right to such exclusive use occupation and enjoyment would be common parts or common areas (see Kong Wai Hsien (supra)).

79.  Thus, as a matter of principle, the First Assignment has no or very limited relevance in deciding whether the external walls are common parts.

80.  When subsequent purchasers seek to ascertain what are the common parts of a building, they go to the DMC, and not to the first assignment (or any assignment).  It would wreak complete havoc to conveyancing practice to require subsequent purchasers to look at the first assignment and other subsequent assignments to discover what are the common areas in a building.

81.  The correct analysis is that even where the applicant reserved the external walls (alongside all other parts of the Building except the first unit) for its exclusive possession under the First Assignment, the applicant would subsequently enter into the DMC with the first purchaser to designate, by covenant, what should be the common areas. The designation by covenant in the DMC would supersede whatever reservation in the First Assignment (which would very often, if not always, reserve all parts of the building except the first unit to the developer anyway).

82.  In Tai Fat Development (Holding) Co Ltd v Incorporated Owners of Gold King Industrial Building (supra), the developer reserved all the parking spaces for its exclusive possession under the first assignment. The question before the court was whether some of such parking spaces were common parts.  Suffiad J held that:-

“But even if the First Owner did so intend to reserve all the 39 parking spaces for their own exclusive possession as they had claimed and furthermore, such intention had been achieved by the reservation clause in the First Assignment as between them and the First Purchaser, there is nothing to prevent the First Owner thereafter coming to an agreement with the First Purchaser in the DMC to have the 13 Parking Spaces to be common areas of the Building or for the common use by all the co-owners. Ultimately therefore, it is the DMC that has to be looked at to see if there was any such agreement therein between the First Owner and the First Purchaser for the 13 Parking Spaces to be the common areas of the Building or for common use by all the co-owners.” (emphasis added)

83.  It is accepted that the reservation clause in the first assignment in Gold King Industrial Building is worded differently from the reservation clause in the First Assignment of the present case, in that the former specifically stated that the reservation did not include those areas designated as common areas by the deed of mutual covenant.  However, the consideration central to the analysis remains whether the DMC has, by agreement superseding an earlier reservation, allocated the external walls as common parts.

84.  As aforesaid, the objectively manifested intention of the parties must be that the external walls are common parts or areas and the reservation clause of the First Assignment was superseded by the subsequent agreement in the DMC. The clearest example is that the applicant, by agreement under the DMC, agreed that the individual co-owners could put aerials or install air-conditioners/fixtures on the external walls with Hong Yip’s approval. It is unimaginable that in such case the applicant can be regarded to have exclusive possession of the external walls.

85.  It is also clear that the First Assignment was drafted in a somewhat imprecise manner, and it was not intended that it would provide the guide to what the common areas should be.  If the right to exclusive use occupation and enjoyment of external walls was to be reserved to the applicant exclusively under Clause 1(c)(i)(a) of the Schedule of the First Assignment, it would not be necessary to say in Clause 1(c)(iii) and (iv) that the applicant should have the exclusive right to affix chimneys / flue pipes and to advertise.

86.  Furthermore, it is unhelpful for the respondent to emphasise repeatedly that the DMC and the First Assignment were prepared by Messrs. Woo, Kwan Lee & Lo.  As said in Wood v Capita Insurance Services Ltd [2017] AC 1173, it is often the case that provisions in a professionally drawn contract lack clarity and it is more helpful to look at the factual matrix and purpose.

Subsequent Assignment

87.  The reliance on the Subsequent Assignment by the respondent is also wholly misconceived.

88.  First, it is trite law that matters subsequent to the contract are not admissible to its construction (see SNE Engineering Co Ltd v Chim Kee Machinery Co Ltd, unreported, CACV 101/2016, 11.7.2017).

89.  Secondly, the subsequent assignment was expressed to be subject to the benefit and burden of the DMC (Clauses 2 & 3).  When the external walls had been designated as common parts or areas under the DMC, the reservation clause in the subsequent assignment could not operate to reserve the exclusive right to the use, occupation and enjoyment of the external walls to the applicant.

90.  This is supported by the Court of Appeal’s decision in Incorporated Owners of Million Fortune Industrial Centre v Jikan Development Ltd [2003] 1 HKLRD 455.  In that case, the Court of Appeal was faced with a situation where the deed of mutual covenant did not give the developer any rights over the common parts, yet a subsequent assignment had purported to assign to the 1^st defendant the rights to the common parts.  It was held that notwithstanding the plain language of the assignment, it did not operate to assign the common parts.

Conclusion on whether the external walls are common parts

91.  In the premises, I agree with the applicant that the external walls are common parts or areas of the Building, and they are not for the exclusive use, occupation and/or enjoyment of the applicant.  The applicant should not be solely responsible for the repair and maintenance of the external walls or to bear the costs thereof.

92.  Thus, Declaration (1) should be granted.

Declaration (2)

93.  On the footing that the external walls are common parts, the next question is whether they should be sub-divided into the 4 categories of common areas as defined in the DMC (i.e. Domestic Blocks Common Areas and Facilities, Commercial Common Areas and Facilities, Car Port Common Areas/Facilities and Building Common Areas), or whether they should be generally regarded as Building Common Areas.

94.  More importantly, should the costs of the repair and maintenance of the external walls be accordingly charged to the relevant account maintained for each category, or should such costs be shared by all the owners of the Building?

95.  First of all, I accept that the external walls, being common parts of the Building, can be further sub-divided into Domestic Common Areas and Facilities, Commercial Common Areas, Car Port Facilities and Building Common Areas/Facilities as defined under the DMC. The Domestic Walls, the Commercial Walls, and the Car Ports Walls were physically separated, and they were intended for the common use and benefit of the Domestic Blocks, the Commercial Development and the Car Port respectively. The other parts of the external walls (Building Common Walls) would fall under Building Common Areas/Facilities.

96.  The respondent suggests that the external walls were meant to support the entire Building, and therefore the 4 categories of the external walls were not for the common benefit of the relevant part of the Building.

97.  In this regard, one must look at how the Building actually looks like. Taking the Domestic Walls as example (the costs of renovation of which are the subject-matter of this dispute), it is plain that the Domestic Walls do not support the Commercial Development beneath them.  In other words, demolishing the 2 Domestic Blocks can in no way affect the structural integrity of the Commercial Development.

98.  Indeed, given the physical configuration of the Building, it is not obvious how the Commercial Walls or the Car Port Walls can provide support to the Domestic Blocks.

99.  In any event, given the express provision of the 4 types of common areas and common facilities in the DMC, one should adopt a construction consistent with their context and purpose, ie that there must be some areas which fall under the specific categories of Domestic, Commercial and Carport.

100.  As the external walls can be further sub-divided into Domestic Common Areas and Facilities, Commercial Common Areas, Car Port Facilities and Building Common Areas/Facilities, I agree with the applicant that the costs of their repair and maintenance should be charged to the relevant account maintained for each category of common areas/facilities.

101.  S.34H(1) of the BMO provides:-

“Where a person who owns any part of a building, has the right to the exclusive possession of any part of a building or has the exclusive right to the use, occupation or enjoyment of that part, as the case may be, but the deed of mutual covenant in respect of the building does not impose an obligation on that person to maintain the part in good repair and condition, that person shall maintain that part in good repair and condition.” (emphasis added)

102.  Section I Clause 2 of the DMC provides that each category of common areas shall be deemed for the benefit of the relevant owners of each category of the Building, and may be used by such category of owners.  This would be an exclusive right granted to the relevant category of owners for the purpose of s.34H of the BMO.

103.  Otherwise, it would be unnecessary for rights of way to be granted in respect of different categories of common areas in favour of other categories of co-owners under Section II of the DMC as follows:-

“A. Commercial Development

The Owner of a Shop shall have the ...

1. Full right and liberty … to go pass and repass over and along and use the Commercial Common Areas and Facilities and Car Port Common Facilities and the Building Common Areas and Facilities for all purposes connected with the proper use and enjoyment of such Shop....

B. Domestic Blocks

The Owner of a Flat shall have the ...

2. Full right and liberty … to go, pass and repass over and along and use the Commercial and Domestic Blocks Common Area and Facilities, Car Port Common Facilities and Building Common Areas and Facilities for all purposes connected with the proper use and enjoyment of the Flat owned by the Owner

C. Car Park

The Owner of a Car Park shall have the …

1. Full right and liberty … to go, pass and repass over and along and use the Car Port Common Facilities and Building Common Areas and Facilities for all purposes connected with the proper use and enjoyment of the Car Park owned by the Owner” (emphasis added)

104.  As such, the costs of the repair and maintenance of the Domestic Walls, the Commercial Walls, the Car Port Walls and the Building Common Walls should be accordingly charged to the relevant account maintained for each category of common areas/facilities.

105.  I therefore agree that Declaration (2) should be granted.

Declaration (3)

106.  As aforesaid, the applicant no longer seeks Declaration (3), but it has become the respondent’s fall-back position.

107.  Since I accept that exclusive rights are granted to the relevant category of owners for the purpose of s.34H of the BMO as aforesaid, the respondent’s arguments based on unity of possession is not valid.

108.  Thus, the respondent’s fall-back position fails.  Declaration (3) is not granted.

Declaration (4)

109.  There is no dispute that the parapet wall should be regarded as part of the external walls.  The dispute is whether the parapet wall should be an extension of the external walls falling under the Commercial Common Area and Facilities (ie an extension of the Commercial Walls), as the respondent contends that the external walls should not be classified into the 4 categories.

110.  As I have ruled that the external walls can be classified into the 4 categories, there should be no dispute that they should fall under the Commercial Common Areas and Facilities.

111.  Thus, Declaration (4) should be granted.

Conclusion

112.  By reasons aforesaid, I hereby grant Declarations (1), (2) and (4) as sought by the applicant in its Notice of Application.

113.  As agreed by the parties, I also order that there be no order as to costs in these proceedings.