YU MUN SANG v. THE OWNERS INCORPORATED OF FU TOR LOY SUN CHUEN- STAGE 1

IN THE LANDS TRIBUNAL OF

THE HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. BM 10 of 1998

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J U D G M E N T

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1. The Applicant (A) is the owner of shop unit No.16 (the unit) on the first floor of the shopping arcade of Fu Tor Loy Sun Chuen -Stage 1(the building). The Respondent is the Incorporated Owners of the building ( R).

2. The A claimed that because of the R's failure to perform its duties under the Deed of Mutual Covenant (DMC), and under the Building Management Ordinance (BMO), the A suffered losses in the sum of $72,587. A asked that R should repay her this sum and her costs.

3. The R counter-claimed the amount of $31,747, being the management fees from March 1995 to November 1997 at $13,076, air-conditioning fee from March 1995 to November 1997 and contribution of $770.

4. A rented the unit to a tenant (the tenant) in 1994, at $4,000 per month, exclusive of management and air conditioning charges charges. A alleged that from January to September 1995, the tenant complained to A that there was persistent leakage from a waste water pipe or drain (the drain) outside the unit. In September 1995, the tenant informed the A that the problem of water leakage had intensified, causing damage to the tenant's copier and fax machine. Mr. Yu Mun Sang(AW1) returned to Hong Kong from the United States of America to attend to the matter.

5. The application was for a total sum of $72,587, comprising the claim for a sum of $4,800 for repairs to the drain, $4,000 compensation paid to the tenant, loss of rent from October 1995 to September 1996 at $48,000, loss of management fees from March 1995 to September 1996 at $7,420 and air conditioning charges of $9,367. The last three items of losses arose because the tenant quitted the unit before the end of the tenancy term.

6. AW1 gave evidence as to the approximate time when, and how, complaints were received from the tenant while he was in the USA, his return to Hong Kong to deal with the complaint, and his subsequent actions to bring the problem to the attention of the management company, the Concord Management Services Co., Ltd. (CMS), through Mr. Li Fat, a staff of CMS, and AW2 MR. Chow Hoi , to the R. AW1 issued two letters dated 12th October 1995 and 24th October 1995 demanding repairs and damages. AW1 was warned against carrying out his own repairs to the drain which was common property. Subsequently, AW1 caused the drain funnel trough to be enclosed, and the drain repaired.

7. AW1 agreed that the management fees, air-conditioning fee and contribution as counter-claimed by R had not been paid. In his statement, AW1 alleged that the amount had been set-off against the amount owing to A from R. Thereafter, A began to pay the charges again in January 1998. In his evidence in court, AW1 said that he had not pay the charges because of the water leakage. A only started to pay again when, in 1998, a management committee was set up for the shopping arcade, and R released management powers to the elected representatives. AW1 maintained that his evidence in court on this point was the correct version, and not that the amount was deducted to set-off A's claim.

8. AW1's evidence was that he complained about the leaking drain to Mr. Li Fat (Li), the person in charge at the management office at the building, on 26th September 1995, when he returned to Hong Kong. On receiving no satisfactory reply, AW1 wrote the two letters dated 12th October and 24th October 1995 to the management company (CMS), copied to R, the management committee of the shopping arcade, the management office and his tenant. AW1 further gave evidence that he was told that R had decided against rectifying the situation. AW2 Chow Hoi informed him that the R's vice chairman, Wong Yung Wah and Mr. Lee Kui had told AW2 that R would not repair the drain, nor was AW1 allowed to do it. AW1 then instructed a contractor to repair the drain at $3,800. The receipt was written on R's notepaper, borrowed from Li. Shortly afterwards, A's tenant left, having obtained a reduction of $4,000 off the rent for September 1995. The tenant did not inform A of his departure. AW1's evidence was that despite putting the unit out for rent again, he was not able to find another tenant for the rest of the original tenancy term which still had a year to go. He was only able to rent out the unit on 1st August 1998. AW1 considered that since the tenant moved out presumably because of the leakage problem, he could not sue the tenant for breach of contract. AW1 conceded that two months deposit was retained. He confined A's claim for damages within the tenancy period. AW1 also contended that he did not take action against R earlier because he was not always in Hong Kong, and his education level was low. As the tenancy agreement provided that the tenant should pay the management fees and air-conditioning fee, A also claimed for those items.

9. AW1 did not call A's tenant to give evidence, although he agreed that the tenant had returned to another unit on the same floor in the building. AW1 was not aware of the exact type of the tenant's machines which were alleged to have been damaged by waste water from the leaking drain. There was no evidence produced to prove the extent of damage, nor the cost of replacement or repairs to the machines. He agreed to deduct $4,000 from the rent in September in order to keep a good tenant.

10. AW1 obtained a quotation dated 31st October, at $6,500, for installing a new drain, through Kam Lung, the air-conditioning contractor for the arcade. He gave it to Li Fat. He was later informed that R would not effect any repairs, he then instructed his own contractor to carry out repairs, installing a new drain trough, at the sum of $3,800. A receipt dated 10th November 1995 was recorded on R's note paper.

11. AW2 Mr. Chow Hoi, is the owner of another unit on 1/F of the shopping arcade at the building. He was a representative of the shopping arcade. His evidence was that he had gone to inspect the leakage at the end of September 1995, and found that the leakage was like rain. He received AW1's complaint letter on 12th October and 24th October. He referred the matter to Wong Yung Wah, a vice chairman, as he was not able to attend the relevant committee meeting. He was informed that R decided against any repairs. AW2 took no further heed of the matter.

12. AW2 could not explain why there was no signature of the other secretary Lee Kin Fun on the R's original computer printed copy of a minutes of meeting dated 28th February 1998, when A's claim was discussed. The signatures of AW2 and Lee Kin Fun appeared on A's photocopy of the minutes. AW2 was of the opinion that the hand written record kept by R under that hand of Lee Kin Fun was not a complete as the typed copy.

13. RW1, Mr. Fong Kok Sang, was with the management company, Concord Management Services Co. Ltd. (CSM) in 1995, and oversaw the management of the building among his other duties. His evidence was that the staff in charge of the day to day management of the building, Li Fat, kept a record book for his own reference in relation to problems arising, and for follow up work. It was up to the person in charge to decide what had to be recorded. There was no strict requirement as to what should or should not be recorded in the record book which was only a personal record kept by Li. There was no record of any complaint from AW1, though there were records of other complaints of blockage and leakage from various drains, and of the remedial measures taken. RW1 agreed that some things which should be noted might not be written down in the record book. Li was said to be no longer in Hong Kong, and not available as a witness.

14. RW1's evidence was that, because the building was over 10 years old, many pipes and drains were decaying, especially in the shopping arcade. Drainage pipes from the residential blocks pass from a podium through the arcade. If a horizontal drain should become clogged, then there would be flooding or overflow from the open drain trough, one of which was over the doorway of A's unit. RW1's evidence was that flooding or overflow from drains occurred from time to time. The management staff would attempt to unclog the drains, and if unsuccessful, to ask for the service of a contractor. This would be paid for out of the building's expenses, and shown on the buildings income and expenditure accounts.

15. RW1 agreed that two letters were received from A complaining of the leakage, damage caused to A's tenant, and demanding for compensation. RW1 spoke to the building's staff in charge, but was given to understand that the person in charge, Li Fat, had not received any such complaint before. RW1 contacted R, which management committee held a meeting on 26th October 1995, when the A's complaint was discussed. The matter was asked to be referred to the management company and its solicitors. On 2nd November 1995, the matter was discussed again during a meeting. R decided that it would not accept responsibility for the damage to A's tenant's machines. The drain leaked again on 10th November 1995. As it would cost some $6,500 to enclose the drain trough, CMS tried to arrange for unclogging the drain instead. AW1 then had the trough changed and enclosed by his own contractor. RW1 did not speak to AW1 directly, nor did he ever inspect the drain in question. RW1 considered the matter of leakage and enclosure of the trough to be a minor matter.

16. RW2 Ms. Tsang Zhang Li Qi, the Chairman of the R, gave evidence as to the receipt of the two letters of complaint from AW1. She went with other committee members of the R's management committee to inspect the drain twice, on 26th October 1995 and again on 2nd November 1995. On both occasions she saw no leakage form the enclosed trough, as it was not raining then. RW2 did not carry out follow up inspection when it did rain. She was of the opinion that if the door to A's unit was properly closed, there should be no damage caused to any machines inside the unit by the leaking drain. It was decided during the meeting in November 1995, that R would not bear responsibility for the damage to A, because the management committee agreed that shopping arcade owners should carry out their own repairs to ensure no damage would be caused by leaking drains. She agreed that money was spent almost every month on unblocking drains, and that if there were too much water on the podium, the water would splash out from the open trough as the rainwater could not drain off fast enough. Her evidence was that if an open trough was enclosed, then water from the podium would not be able to drain off properly. In 1995, R received works order to conduct major repairs to the drains.

17. RW2 agreed that she had, through others, made an offer to settle the matter with AW1 at $8,180. However, on AW1's return to Hong Kong, the offer was withdrawn because the committee in its meeting disagreed to such payment.

18. I find RW1 and RW2 to be basically truthful and honest witnesses and accept their evidence in general.

19. There is no dispute that the drain and trough in question, outside A's unit, are in the "common parts" of the building, defined in the Deed of Mutual Covenant (DMC) as "all parts of the Building and the said premises except the Units", that is, the individual shops and residential units . This is found as a fact of the case.

20. There is also no dispute that under the Building Management Ordinance (BMO) Cap.344 Section 18 (1) (a) and (c), R as the corporation of owners had a duty to maintain the common parts in a state of good and serviceable repair and clean condition, and to do all things reasonably necessary for the enforcement of the obligations contained in the DMC for the control, management and administration of the building.

21. It was submitted on A's behalf that R, after knowing of the leakage, was in breach of it duty to repair common facilities, thereby causing losses to A, and the fact that A decided not to pursue her remedies against her tenant for breach of contract should not adversely affect the present application. It was said that A tried to mitigate her losses by seeking a new tenant, but to no avail. It was only in August 1998 that the unit was rented out again.

22. R's contention was that prior to the two letters from AW1, R was never informed as to the complaint of leakage or claim for compensation from either A or A's tenant. However, there is only indirect evidence on this point, as the person in charge of the day to day running of the management of the building, Mr. Li Fat, is not available to give evidence. Furthermore, it was submitted that while R was under a duty to maintain common parts in good and serviceable repair, it was not obliged to act as an insurer, and the duty was not an absolute one. (Lo Yuk Chu v Hang Yick Properties Management Ltd. [1996] 4 HKC 278 ) It was also submitted on R's behalf that since R had appointed CSM as the management company, it had fulfilled its duty under S.18 (1) (a) (c) of Cap.344. Since CSM was the "Agent", or "the person for the time being managing and providing services in respect of the building" as defined in the DMC, there should be no liability on R to effect repairs on common parts, and R was not the correct party. R relied upon the record book kept by Li Fat, the person in charge of the day to day management of the building, and the minutes of R's meetings to show that there was no prior complaint before the receipt of the two letters from AW1, and that R had done its duty under BMO and the DMC. It was, however, agreed that the record book and the minutes might not contain all that should be recorded. In any event, neither R nor its Agent should be responsible for unforeseen extraordinary repairs.

23. It was further submitted that A had no substantiated proof of how and which of her tenant's machines were damaged. A never mentioned that her tenant had left the unit because of the leaking drain, until the present proceedings. The tenant was not called to give evidence on A's behalf, though his whereabouts is now known.

24. Having perused all the available documents, the evidence of witnesses and having considered the submission of behalf of the parties, the Tribunal accepts and finds as a fact that the drain in question is within the "Common Parts and ... drains ...therein" for which the Agent was obliged to pay the cost of "repairing renewing maintaining" as provided in the DMC Third Schedule paragraph 4 (a) and (d). It is also accepted and found as a fact that there had been leakage from the drain, resulting in its repairs by AW1 at a cost of $3,800. RW2 agreed that there had been repairs effected to the drain by AW1, subsequent to the receipt of AW1's complain letters. While R had appointed CMS as the Agent, it still remain liable as the principal, as the Agent could only act in accordance with R's instruction, where special expenses were involved. The Agent could not act contrary to the express instructions of R,. when R had decided not to meet A's demands.

25. There is no proof which the Tribunal can find to substantiate the losses suffered by A from the alleged breach of A's tenant of the tenancy agreement, in respect of the damaged machines, loss of rent, management fees and air-conditioning charges. The application for these items is dismissed.

26. There is no defence against the R's counter-claim for the management fees, air-conditioning charges and contribution. A agreed that the amount as counter-claimed to be outstanding. A as the owner of the unit is bound to "observe and perform the covenants provisions and restrictions in the Third Schedule "of the DMC, under clause 4 of the DMC. Under paragraphs 8 to 14 of the Third Schedule of the DMC, each owner shall pay the management fees, contribution and air-conditioning charges, notwithstanding that the unit is "let to a tenant and notwithstanding that as between the owner and his tenant it has been agreed that such contributions shall be paid by the tenant." (Paragraph 13 of Third Schedule)

27. There is judgement for A in the sum of $3,800 for repairs to the drain.

28. There is judgement to R on its counter-claim in the sum of $31,747.

29. Costs to R to be taxed if not agreed.