MCDONALD'S RESTAURANTS (HONG KONG) LTD. v. THE INCORPORATED OWNERS OF SING SHING BUILDING and Another

1991 No. A9576

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. The Plaintiffs, whom I shall refer to as "McDonald's", were the lessees and occupiers of the 1st floor of Sing Shing Building at 102 Wo Yee Hop Road, Kwai Chung. Under the assignment which granted them the lease, they became parties to a Deed of Mutual Covenant the material part of which is set out quite clearly in the Statement of Claim. By that Deed, each party to it, which included McDonald's and both Defendants, undertook not to make any structural alteration to the building or his or her respective unit, nor any alteration to the pipes, conduits or plumbing, nor to do anything which might cause the flush system to be clogged or working inefficiently, and there existed obligations to make good at his or her own expense any damage resulting from any act or default or negligence, as well as undertaking to contribute to the cost and expense of maintaining in good and tenantable repair, the common parts and facilities which included, of course, all drains, pipes and conduits.

2. In early February of 1990, McDonald's found that some foul smelling water was running down the inside wall of their premises in an area immediately below the balcony of the premises which were leased to the 2nd Defendant, and water accumulated inside the false ceiling of McDonald's premises. This situation continued for several days and the consequence of this water intrusion was damage to McDonald's premises in the form of damage to ceiling panels, carpet, wooden partitions, fluorescent lamps and window frames and glass mosaic tiles.

3. Examination and investigation of the cause of this particular seepage from flooding revealed that it came from piping on the balcony section of the 2nd Defendant's unit. At some stage, the 2nd Defendant had either erected on the balcony of her premises a form of extension or other structure or had acquired the premises with such extension or structure already in position. Whatever its nature or purpose, it was clearly in breach of the terms and conditions of the Deed of Mutual Covenant which, of course, covered her as well as any other occupier of the premises. That structure had been erected over a section of drainage pipe or pipes, one of which was a horizontal extension of the vertical down pipe which drained from the third and higher floors, and the other was the drainage pipe emerging from her unit which appears to have dealt with the waste and soil from the toilet area. Although that structure had been in existence for sometime, it was not until 1988 or 1989 that the management on behalf of the incorporated owners of the building gave notice to the 2nd Defendant that she must remove it. The immediate reason for requiring her to remove it was the decision to replace the galvanized iron piping with PVC piping, and work to that effect was put in hand. It is agreed by Mr. Chan, on behalf of the 1st Defendants, that the 2nd Defendant in fact paid her contribution towards the overall cost of that pipe replacement, and time was extended to her to enable her to remove that structure.

4. Photographs show and this is confirmed by evidence that the replacement of the galvanized iron pipe by the PVC piping was carried out up to the point where the 2nd Defendant's balcony premises were reached. At that point, a join was effected between the PVC piping and the existing galvanized iron piping. One of the reasons, explained by Mr. Chan, for that decision was that the galvanized iron piping laid horizontally on the 2nd Defendant's balcony area was in good enough condition so that it was deemed not essential to replace it at that stage. But I think the most likely reason is that the structure on the 2nd Defendant's balcony had not yet been removed so as to afford access to that galvanized iron piping. Mr. Chan says that even after the structure was removed, the condition of the galvanized iron piping was such that it was quite satisfactory fulfilling its purpose and did not require immediate replacement. However, I accept the evidence of Mr. Choi, the loss adjuster, instructed by the Plaintiffs' insurance company to the effect that the galvanized piping he saw was badly worn, corroded and leaking. He also found on his inspection on the 6th February 1990 that dirty water was still seeping from the join area of the PVC piping and the existing galvanized iron piping.

5. That the piping was in fact causing leakage, and problems consequential upon that, was well known to the incorporated owners of the building, as is reflected by their minutes of the meeting on the 5th February 1990, where an entry refers to the blockage of the soil pipes above Tung Hing Metal Co. and a fee having been paid on the 20th January for that to be remedied. The blockage is recorded as having recurred after 5 to 6 days when another company was employed to clear the blockage, but that company said that it could not guarantee that another blockage would not result. However, it did result, as is clear from the later part of that minute, and it is recorded that after the waste pipes had been cleared, the demolition of the, what is described as "illegally constructed flower rack" on the 3rd floor of Block 4 led to blockage of water outlet pipes. It is apparent that this flower rack was none other than the structure on the 2nd Defendant's balcony.

6. In a record of a meeting on the 2nd April 1990 is recorded the replacement of the water pipes and down pipes for the 3rd floor of Blocks 3 and 4, and that includes the balcony of the 2nd Defendant. Moreover, on the 29th November 1990 the 2nd Defendant was written to by the 1st Defendant to this effect :

"Your demolition in January of this year of the illegal structure (flower rack) which was built over the space between Blocks 3 and 4 (this must mean her balcony) had caused damage to the soil pipes and waste pipes of the building resulting in leakage of water and required immediate repairs and replacement of pipes by plumbers."

7. There is one other document of significance emanating from the 1st Defendants, and that is dated the 30th May 1992 and is signed by Mr. Chan Tsang on behalf of the 1st Defendant. It is directed to all owners of the Sing Shing Building, i.e. all leaseholders, and refers to the proceedings commenced by McDonald's. It includes this particular section of para. 1 :

"Between November and December 1988 when the incorporated owners were replacing the drainage pipes of Sing Shing Building, due to the incorporated owners' chairman's failure to entirely remove the illegal structures on the 2nd floor, Unit 4 (this is the 2nd Defendant's unit) leaving part of the balcony unreplaced, causing blockage to the drainage pipes and foul smelling water flowed into McDonald's Restaurant."

In para. 4, there is this particular statement :

"Accordingly to information provided by the caretaker, Mr. Yung Ting Yang, the event of drainage blockage causing foul smelling water to reverse its flow happened on 1st February 1990. The plumbers were called in immediately but were unable to gain access to work on the site because decorative illegal structures of McDonald were higher than the balcony in addition to the illegal structures and drainage on 2nd floor, Unit 4."

8. It is clear from these documents that the 1st Defendants well knew that the failure to complete the replacement of the piping in particular on the balcony of the 2nd Defendant's unit had led to a backing up of the foul discharge, eventually causing it to overflow and affect McDonald's premises. Blame was being directed at the 2nd Defendant for the failure to remove the illegal structure. I will deal with the position between the 1st and 2nd Defendants in due course.

9. Mr. Chung (Mme. Lee's husband) and Mr. Khan (tenant of Mme. Lee at the material time) gave eivdence on behalf of both Defendants but that evidence was limited to the effect of some blockage of the toilet waste pipe, the exact position of which did not appear to be known, of the toilet inside the premises of unit, which led to an overflow of noxious liquid and material. It matters not precisely where the blockage was but it occurred on several occasions and may well have been responsible for the pressure and build up which exploited the shortcomings in the join and the corroded piping on the balcony and caused the leakage of the noxious liquid into McDonald's premises. Beyond that their evidence helped little. Neither at any time ever went on to the balcony and Mr. Khan said that in his six years of occupancy, he never looked out onto the balcony. He seems to have been totally uninterested in the removal of the structure by Mr. Ngai which took 1-2 days. Mr. Ngai also gave evidence limited to the demolition of the structure.

10. The position, however, is clearly this in my view. The 1st Defendants were in breach of the Deed of Mutual Covenant. Although they had intended to replace the obviously deteriorating galvanized iron piping, they had failed to remove a section of such piping across the floor of the 2nd Defendant's balcony with the consequence that there was noxious seepage from those pipes, either because those pipes themselves were corroded and inefficient, or because the joins between the PVC new piping and the old piping were defective or a combination of both. It is clear that the 1st Defendants took a risk in not completing the replacement of the piping, and made what can only be described as an inaccurate assessment of the state of the existing galvanized iron piping on that balcony. They have the right and the power to force the 2nd Defendant to remove that structure forthwith or indeed to remove it themselves, so as to comply fully and properly with their obligations under the Deed of Mutual Covenant. It was clearly foreseeable, in my view, that by failing to replace that section of piping, seepage was likely to occur by reason of its state and by reason of the join between the two types of piping. Quite apart from the breach of the Deed of Mutual Covenant, in my view, there was negligence and that negligence consists of the same features that I have just set out. Furthermore, by permitting piping of the nature and state to continue to try and meet the needs, they created a nuisance and allowed that to continue. In my view, the Plaintiffs must succeed against the Defendants for their loss and damage. I do not need to consider the position in Rylands & Fletcher.

11. What was the position of the 2nd Defendant in relation to the Plaintiffs? The 2nd Defendant is, of course, one of the owners of the Sing Shing Building. In erecting such a structure or allowing an already existing structure to continue on the unit, she was in breach of the Deed of Mutual Covenant. However, the 1st Defendants had allowed that position to continue for a substantial period of time and indeed when they decided to replace the piping instead of requiring the 2nd Defendant to remove the structure immediately, they allowed it to continue and acquiesced in the situation that resulted. Had they set out for the 2nd Defendant's consideration not only the need to replace the piping completely but the dangers that would result if it was not replaced, and indeed that if she did not comply with the request to remove the structure completely, she may be held liable for any damage that would result from any defective piping, I do not doubt she would have complied forthwith. However, the determining factor in this incident is, in my view, the failure of the 1st Defendant to complete the change and replacement of piping and by simply allowing the old galvanized piping to continue in place with a join with the new piping which itself would have required regular and effective maintenance. Their negligence is certainly greater than the fault on the part of the 2nd Defendant. In any event, as I have indicated, the 2nd Defendant is liable with all the other owners of the Sing Shing Building by reason of the Deed of Mutual Covenant. However by her failure to remove the structure and permit the replacement piping to be completed she was in breach of her obligations, and caused a nuisance from which damage and loss flowed. The Plaintiffs are entitled to judgment against her as well.

12. The 1st Defendants have claimed an indemnity or contribution from the 2nd Defendant. That claim for an indemnity is based upon her breach of the Deed of Mutual Covenant and an alleged failure on her part to comply with the request to remove the structure. However, when one looks at the defence of the 2nd Defendant and in particular para. 5, it is clear that the 2nd Defendant is contending that upon being asked to demolish the structure she set about arranging for that to be done and paid for a construction worker to do so. Furthermore, she paid her contribution towards the replacement of all the water piping of the whole building before it commenced in 1988. These were matters that I put to Mr. Chan who gave evidence on behalf of the 1st Defendant. He agreed that the payment for the cost and materials for the replacement had indeed been made by the 2nd Defendant, and furthermore, that although she had been requested to remove the structure, she was given a reasonable amount of time in order to do so. The dates are not entirely clear, but from the documents of the 1st Defendants, to which I have already referred, the structure was not removed until January of 1990, shortly before or about the time the leakage was first noticed. The 2nd Defendant's recollection is that the structure was removed in or about June of 1989. I am, however, satisfied that the pipe replacement had reached the level of the 2nd Defendant's balcony and was stopped there because the structure was still in situ and prevented easy access to the pipes underneath. The 1st Defendants therefore made a decision to leave the position for the reasons already indicated by Mr. Chan, i.e. the piping was in good order, until the structure was removed, but no further steps were made to accelerate its removal, and Mr. Chan's comment about the good state of the piping suggests that the 1st Defendants were content to leave the position until in due course the structure was removed.

13. In these circumstances, are the 1st Defendants entitled to a contribution from the 2nd Defendant over and above the equal contribution which she will have to make with other owners towards the loss and damage suffered by the Plaintiffs? I take the view on all the evidence that there was an acquiescence in the continuance of that structure. No attempt was made to point out to the 2nd Defendant the danger or risks which would be consequent upon the inability to replace the piping which laid across the floor of that balcony. And the considered decision of the 1st Defendants to rely upon the state of the galvanized piping and the ineffectiveness of the join between the two types of piping relieved the 2nd Defendant from any additional liability. It would be wrong in my view on these facts to hold the 2nd Defendant liable for failing to carry out that which the 1st Defendants are obliged to do, namely, the maintenance of all the piping, etc. of the common parts, and the failure to require the removal of any structures which were in breach of the Deed of Mutual Covenant. Her liability as between herself and the other owners is limited to an equal proportion with the other owners of the damages to be paid to the Plaintiffs. If she is called upon to meet and does satisfy the whole of the judgment in favour of the Plaintiffs, she is entitled to reimbursement from all the other owners of their equal share.

14. There is one matter which I should deal with before I conclude, and that is the belated allegation by Mr. Chan on behalf of the 1st Defendant, that McDonald's were in some way responsible for the leakage themselves. There is no evidence to support this.

15. There is no document passing between the parties which has ever raised such a suggestion, the only criticism of McDonald's being that they had erected some decoration or advertisement which was of such a height as to cause difficulty in gaining access to the balcony. This can only have been to the outside of the balcony, there being no suggestion that it prevented access to the balcony from the 2nd Defendant's unit itself. However, there was one part of Mr. Chan's evidence which in my view held the key to this idea and to his own misconception. He said he went to look at the damage to McDonald's premises and was informed by someone on those premises that any liability for the clearance of the blockage was that of the incorporated owners and that if such blockage had been cleared, water would not be running down the walls or through the ceiling. He made some reference to the air-conditioning machines, but I cannot see how this can in any way affect the position concerning the soil waste pipes which were positioned on the balcony floor and which were the ones which the 1st Defendant in due course intended to replace but on which they had put a degree of unfounded reliance as to their effectiveness.

16. There will be judgment for the Plaintiffs against the 1st and 2nd Defendants in the sum of $222,020.00, I have deducted the $900.00 excess charge referred to by Mr. Choi, together with interest at the appropriate rate with effect from the date of service of the writ. The Plaintiffs shall also have its costs on a party and party basis against both the Defendants. The 2nd Defendant is liable to indemnity the 1st Defendants to the extent of a proportion of the damages and costs payable to the Plaintiffs equal to the proportion payable by all the other owners/lessees at the material time.

(Conrad Seagroatt)

Judge of the High Court