SINO CHANNEL HOLDINGS LTD v. VAST FAITH INVESTMENT LTD

CACV 123/2019
and CACV 130/2019
[2020] HKCA 311
(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 123 OF 2019

(ON APPEAL FROM LDBM 211/2015)

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AND

CIVIL APPEAL NO 130 OF 2019

(ON APPEAL FROM LDBM 117/2016)

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(HEARD TOGETHER)

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J U D G M E N T

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Hon Lam VP (giving the Judgment of the Court):

Introduction

1.  The central issue in these appeals is the proper interpretation of the phrase “exterior side walls” in a Deed of Mutual Covenant (“DMC”), in particular whether the phrase refers to the external walls (i) only on the two sides of the building but not the front and back, as contended by the Appellants or (ii) all four sides of the building, as contended by Sino Channel Holdings Limited and as found by the Lands Tribunal below.

Background

2.  This case concerns a building called Grandmark (“Building”), formerly known as Prosperity House, which is situated at 10 Granville Road, Tsim Sha Tsui, Kowloon, Hong Kong.  The Building was completed in about 1973 and its DMC was executed on 16^th June 1973.  The original developer of the Building was one Prosperity Land Development Company Limited (“Developer”).

3.  The Building has 4 sides:

(a)  The northern side, where the entrance is and which abuts Granville Road, will be referred to in this judgment as the “front” or “façade” of the Building.

(b)  The southern side, facing Cameron Road, will be referred to in this judgment as the “back” of the Building.

(c)  The eastern side is currently adjacent to Granville Building and faces Carnarvon Road.

(d)  The western side is currently adjacent to Kwun Fai Building and faces Nathan Road.

4.  The DMC contains, among others, the following provisions:

(a)  Clause 1:

“ Each of the parties hereto for himself and his executors administrators and assigns hereby grant unto each of the other parties hereto their or his respective executors administrators and assigns the full right and privilege to the exclusive use occupation and enjoyment and the rents and profits of the part of the said building and the said premises set out in the Second Column of the First Schedule hereto opposite to the respective names of the grantees as set out in the First Column of the said First Schedule TO THE INTENT that each of the parties hereto shall be entitled to the exclusive use occupation and enjoyment and the rents and profits of the part of the said building and the said premises so set out opposite to his name as aforesaid”

(b)  The First Schedule:

NAMES, ADDRESSES AND DESCRIPTIONS OF THE PARTIES HERETO	PART OR PARTS OF THE BUILDING ALLOTED
PROSPERITY LAND DEVELOPMENT COMPANY LIMITED [i.e. the Developer]…	The exterior side walls of the [Building] and the area and space lying between the western exterior wall of the [Building] and the adjoining lot…

(c)  Clause 4:

“ Each owner shall be bound by and shall observe and perform the covenants provisions and restrictions set out in the Third Schedule hereto.”

(d)  Clause (f) of the Third Schedule:

“ The owner of the Ground Floor Unit shall have the exclusive right (i) to erect and affix one or more signs signboards and or advertisement, whether illuminated or not, on the façade and the exterior of the Ground Floor Unit, (ii) to decorate or repaint the façade and front and the appearance of the exterior of the Ground Floor Unit or any part thereof.”

(e)  Clause (p) of Third Schedule provided that the Developer might acquire the adjoining lot at the western side of the Building and erect a new building on it.  It was not the usual kind of clause one finds in a DMC and it was specifically drafted for this DMC.  Under (A) of that clause, the Developer reserved the following right:

“ Full and free right and privilege at all times hereinafter to rest the adjoining new building against those exterior walls of the said buildings specified in the Second Schedule hereto which adjoin or face the adjoining lot or any part of such exterior walls AND also to erect scaffolding against the exterior walls of the said building specified in the said Second Schedule or any part thereof for the purpose of erecting the adjoining new building and to use such scaffolding during the erection of the adjoining new building for all usual building purposes …”

(f)  Clause (r) of the Third Schedule:

“ [The Developer] and its successors and assigns and all persons authorised by it shall have the right to the exclusive use occupation and enjoyment of the following:- …

(ii) The area and space lying between the western exterior wall of the said building and the adjoining lot.”

(g)  Clause (s) of the Third Schedule:

“ [The Developer] and its successors and assigns and all persons authorized by it or them shall have the exclusive right to display or affix signs (whether illuminated or otherwise) on the exterior side walls of the [Building] provided that the signs shall not protrude to or below the second floor level.”

(h)  Clause (t) of the Third Schedule:

“ Except as herein specifically mentioned no owner shall affix any sign structure installation or thing on the exterior of the building.”

5.  The “exterior side walls” of the Building – the exclusive use, occupation and enjoyment of which was initially granted to the Developer under the First Schedule of the DMC – were through a series of transfers ultimately acquired by Sino Channel Holdings Limited (“Sino Channel”) by an assignment dated 11^th June 2013 (“Assignment”).

6.  In August 2015, Sino Channel commenced an action in the Lands Tribunal (LDBM 211/2015) against the registered owner of the 3/F of the Building, Vast Faith Investment Limited (“Vast Faith”), alleging that Vast Faith had installed various unauthorized structures viz air-conditioners and their associated pipes and duct works at the exterior wall of 3/F.  Sino Channel sought (i) a declaration that it is entitled to the exclusive use occupation and enjoyment of all four sides of the exterior walls of the Building and (ii) an injunction to restrain Vast Faith from installing any unauthorized building works on the “exterior side walls” of the Building.

7.  In its defence, Vast Faith argued that (i) the building works in question were only installed on the front of the Building to which Sino Channel has no interest or entitlement and (ii) in any event, Sino Channel’s entitlement in respect of the front of the Building is only limited to “the external surface area of the columns protruding from the individual window housings” and the building works did not encroach upon such area.

8.  In June 2016, the Incorporated Owners of Grandmark (“the IO”) (which was registered on 15 December 2010) commenced an action in the Lands Tribunal (LDBM 117/2016) against Sino Channel, alleging (among other things) that Sino Channel had attempted to install signboards on the front of the Building.  The IO sought a declaration that the exterior walls facing Granville Road and Cameron Road (i.e. the front and back of the Building) are part of the common parts of the Building.  Sino Channel counterclaimed for (among other things) essentially the same declaration as the one sought in LDBM 211/2015.

The Judgment

9.  Both actions were heard together by Deputy District Judge Lui as the Presiding Officer of the Lands Tribunal (“the Judge”) in December 2017.

10.  The Judge handed down his judgment (“the Judgment’) in December 2018, ruling in favour of Sino Channel and granting the relief sought by Sino Channel.  His reasoning is set out in §§56-62 of the Judgment.  In short, he held that the arguments of Vast Faith and the IO focused too much on the technical analysis of the drafting of the DMC but failed to take sufficient account of the poor quality of drafting and the factual matrix at the time when the DMC was executed.  He took the view that the DMC was “drafted by a number of persons over a period of time” and that account for the inconsistencies in the document.  In particular, he adopted an approach set out by him at §57:

“ 57.  In my judgment, it appears from the style of drafting of the DMC that the document was not drafted by one person, perhaps by a number of persons over a period of time.  The language, and in particular certain words used as mentioned by counsel in their submissions, in the document are so inconsistent.  Although I agree with [counsel for Vast Faith] that a court, like this Tribunal, is not supposed to “cure” the defects of the document, it is the task of this Tribunal to find the true meaning of the document, namely the DMC, as reflected by the words they chose.  In other words, I have to ascertain the objective meaning of the language which the parties to the DMC have chosen to express in the document.  There is no dispute that this is not a literalist exercise focused solely on the parsing of several words.  This Tribunal must consider the DMC as a whole and, depending on the nature, formality and quality of drafting, give appropriate weight to elements of the wider context of the words in reaching its view as to that objective meaning.  In striking a balance between the different meanings given by the language, this Tribunal must consider the quality of drafting.  Both [Vast Faith] and the IO obviously failed to take the quality of drafting into consideration sufficiently.  They unreasonably assumed that if the documents were drafted by professionals, namely lawyers, the drafting must be good.  This is wrong.  They also followed the rules of construction mechanically disregarding the objective factual matrix at the time when the DMC was drafted.”

11.  In the application of that approach, he had regard to the commercial value of the façade facing Granville Road at §60:

“ 60.  I agree with [counsel for Sino Channel] that it is really self-defeating to try to ignore the fact that the terms of the DMC were actually dictated by the Developer.  There was simply no negotiation as such.  In reserving the ownership and rights of any exterior walls of the Building, the facade facing Granville Road was obviously the most valuable to the Developer.  I am unable to see any evidence which could offer a sensible explanation, why in reserving the ownership and rights of the walls of the Building, the Developer, at that point of time back in 1973, would have any reason to exclude the facade from the meaning of “exterior side walls”.   For similar reasons, although not as valuable as the facade, the back wall facing Cameron Road direction (to the south), would also not have been excluded by the Developer too.”

12.  On 6 March 2019, the Judge granted both Vast Faith and the IO leave to appeal against the Judgment.

13.  The appeals were originally scheduled to be heard on 27 March 2020.

14.  By reason of the public health risk arising from the COVID-19 pandemic, the courts were generally closed with cases generally adjourned (“GAP”) from 29 January 2020.  GAP was subsequently extended and on 22 March 2020, it was extended to 5 April.  On 24 March 2020, this Court gave directions to the parties to consider alternative modes for processing the appeals.  Pursuant to such directions, parties agreed to have the appeals determined on the papers.

15.  On 27 March 2020, upon the parties’ consent, it was ordered that the appeal would be disposed of on paper.  Supplemental submissions were lodged accordingly.

The grounds of appeal

16.  The grounds of appeal as set out in the Notice of Appeal in CACV 130 of 2019 can broadly be summarized as follows:

(a)  The Judge erred in placing undue weight to the commercial value of the façade facing Granville Road and the back wall facing Cameron Road to the Developer in construing the DMC;

(b)  The Judge failed to give effect to the word “side” in the phrase “exterior side walls” when the DMC draws a distinction between that expression and “exterior walls” or “exterior”;

(c)  The physical state of the front elevation renders it more properly described as a façade rather than exterior side wall;

(d)  Clause (f) of the Third Schedule would be contradictory to Clause 1 of the DMC on the construction of “exterior side walls” adopted by the Judge;

(e)  The Judge erred in proceeding on the basis that the inclusion of the word “side” in that phrase was inadvertent, attributable to poor drafting and not a deliberate choice of words;

(f)  There is no basis for the Judge to accept that “exterior side walls” in Clause (s) should be construed as having the same meaning as “exterior” in Clause (t).

17.  The grounds of appeal set out in the Notice of Appeal in CACV 123/2019, though prepared by a different team of lawyers, raised in substance similar grounds concerning the proper construction of “exterior side walls”.  In respect of the physical state of the façade facing Granville Road, it was contended that the Judge overlooked the fact that the Developer’s primary commercial objective back in 1973 was to maximize the selling prices of units of the Building.  The possibility of advertisement being erected on the façade would be against such objective as windows would be blocked and overall appearance of the Building would be negatively affected.

18.  An additional alternative ground was raised in CACV 123/2019 that in any event exterior side walls should be limited to the external surface of the architectural fins of the Building and should not include windows.  

Our Analysis

19.  The general principles governing the construction of documents are well established and not in dispute.  For present purposes, it suffices to refer to some dictum from the highest judicial authorities.  In Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279, Lord Hoffmann NPJ said at 296D-I:

“ The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement - evidence of such negotiations is inadmissible - and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.” (emphasis added)

20.  In Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351 at [15], Ma CJ emphasized the importance of context in an exercise of construction.

“ We have been referred to the very well-known statement of principle regarding the construction of contracts contained in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, to which can be added the judgment also of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd.  What emerges from these cases – and other authorities on contractual interpretation – is the overall importance of context when construing contractual terms.  The statements of principle in Investors Compensation Scheme and in Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed.  It is in my view not particularly helpful in most cases to refer to the “ordinary and natural meaning” of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words.  The surer guide to interpretation is context.  Here, I would just add that in the area of statutory and constitutional interpretation, it is context that is key; context is the starting point (together with purpose) rather than looking at what may be the natural and ordinary meaning of words.”

21.  In Wood v Capita Insurance Services Ltd [2017] AC 1173 in which Lord Hodge JSC at [13] said:

“ Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance” (emphasis added)

22.  Applying these principles, we are of the view that the Judge’s conclusion was incorrect and that “exterior side walls” should comprise the eastern and western external walls only.  The front façade facing Granville Road and the back wall facing Cameron Road do not come within that expression in the context of the First Schedule and Clause (s) of the Third Schedule.

23.  We arrive at such conclusion by construing the meaning of the phrase in the context of the DMC as a whole and the relevant statutory and factual background (which forms part of the context) to the execution of the DMC.

24.  If the draftsman had intended to refer to all 4 external walls, the most natural choice of expression would be “external walls”, “exterior walls” or “exterior”.

25.  The Court can take judicial notice that such expressions were commonly used in DMCs in Hong Kong.  The statute which provided for the management of multi-storey buildings in Hong Kong in the 1970’s and subsequent decades (until its title being amended in 1993 to the Building Management Ordinance (“BMO”) with many provisions added) was the Multi-Storey Buildings (Owners Incorporation) Ordinance Cap 344.  The ordinance was first enacted as Ordinance 62 of 1970.  Section 2 of that ordinance defined (and it is still so defined under the BMO) common parts in this way:

“ 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 Office 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.”

26.  Under the First Schedule in that ordinance (and it is still the case under the First Schedule in the BMO), the first item refers to “external walls”.  Thus, the relevant legal background to the execution of the DMC is that unless there is specific or designated exclusion (by way of a provision specifying or designating the walls or parts thereof for the exclusive use, occupation or enjoyment of a particular owner in a DMC or similar instrument), the external walls of a building were taken to be the common parts of the building.    

27.  Hence, with respect to the submissions of Mr Wong SC (who made submissions with Mr Cheung on behalf of Sino Channel), the starting point should not be asking whether the Developer had any commercial reasons for reserving only two sides of the exterior instead of four.  The default position, under the statutory scheme, was that without any specification or designation in the DMC as provided under Section 2, the external walls would be common parts.

28.  The Judge appears to have made the same error at §60 of the judgment.  He failed to have regard to the default position under the statute and he did not examine carefully the differentiation between “exterior side walls” and “exterior walls”/ “exterior” in the overall scheme of the DMC.

29.  The draftsman of the DMC was plainly aware of these expressions since he used the expression “exterior wall” in Clause (p)(A) and the expression “exterior” in Clauses (f) and (t) of the Third Schedule.  As a lawyer who prepared a DMC against the background of the Multi-Storey Buildings (Owners Incorporation) Ordinance, he must have had regard to the definition for common parts in Section 2 and the reference to external walls in the First Schedule.  The plainest means to exclude all the external walls from the scope of common parts is to use the same expression as Schedule 1, viz “external wall”.  The fact that the draftsman chose to use a different expression “exterior side walls” is therefore a strong indication that they were referring to a different concept from those other expressions.

30.  As submitted by Mr Pao SC (for the IO) and Mr Lee (for Vast Faith), in construing the expression “exterior side walls”, one must give effect to the word “side” as qualifying the walls at the exterior in question.  Given the facing of the façade of the Building (where the main entrance is), only the eastern and western walls fit the description of “exterior side walls”. 

31.  The scheme of the DMC itself points to this conclusion. 

32.  It is clear from Clause (f) that the owners of the Ground Floor Unit (who were not the Developer) could make use of the façade and the exterior of the Ground Floor Unit for erecting or affixing signs, signboards or advertisements and for decoration of the same.  The right under Clause (f) is exercisable without the approval of the Developer and it is a right to use and enjoy the façade and exterior facing Granville Road.  Such right is inconsistent with the exclusive right to use occupation and enjoyment of all four sides of the exterior walls of the Building being reserved to the Developer as contended by Mr Wong. 

33.  In this connection, we reject counsel’s submission that such inconsistency can be resolved by the proviso in Clause (s).  Though Clause (s) restricts the right of the Developer to affix or display signs above the second floor level, it does not cut down the exclusive right to use and enjoy conferred under Clause 1 of the DMC and the First Schedule.  Hence, if the exterior side walls include the walls at the façade, the exclusive right of the Developer would be inconsistent with a right to use the same being given to someone else under Clause (f).

34.  Again with respect to Mr Wong’s submissions, this is not a surplusage argument.  Instead it is a very clear pointer against his construction.

35.  The Judge did not provide any answer to this argument.  He dodged the issue at §§57 and 58 by attributing inconsistencies or defects in the DMC to bad drafting.  He did not make any attempt to explain how on his construction of the DMC the exclusive right of the Developer over the façade could accommodate the right of the owners of the Ground Floor Unit under Clause (f) and still be regarded as exclusive. 

36.  On the other hand, the construction advocated by the IO and Vast Faith could account for the co-existence of the exclusive right of the Ground Floor Unit owners under Clause (f) and the exclusive right of the Developer over the exterior side walls under Clause 1 and the First Schedule. 

37.  Further as submitted by Mr Pao, we cannot see any evidential basis for the Judge’s surmise at §57 that the DMC was drafted by a number of persons over a period of time.  Likewise, there is no evidential basis for the Judge’s holding that the DMC was subject to poor quality drafting.  

38.  If, as submitted by Mr Wong, the exterior side walls refer to all the walls on the four “sides” of the Building, then by virtue of Clause 1 and the First Schedule of the DMC, only the Developer had the right to use, occupy and enjoy the same.  The Developer’s right to display or affix signs would be governed by Clause (s) in the Third Schedule.  As Mr Pao and Mr Lee submitted, Clause (t) would be otiose.

39.  Mr Wong contended that Clause (s) is a specific exception to Clause (t) and Clause (f) is another exception.  The three clauses supplement each other and none of them is redundant.

40.  We have already explained the problem with Clause (f) on Mr Wong’s construction.  Examining the position with regard to Clauses (s) and (t), Mr Wong’s analysis did not take account of the effect of Clause 1 and the First Schedule.  If the Developer had exclusive right to occupy, use and enjoy all the walls on the four sides, and such use is already governed by Clause (s), there is no need to have Clause (t).

41.  Mr Wong further submitted that this is a surplusage argument which is of little value in the construction exercise, citing Total Transport Corp v Arcadia Petroleum Ltd [1998] 1 Lloyd’s Rep 351 at 357; Beaufort Developments (NI) Ltd v Gilbert-Ash (NI) Ltd [1991] 1 AC 266 at 274; ENER-G Holdings Plc v Hormell [2012] EWCA Civ 1059 at [59]; Antigua Power Co Ltd v The Attorney General of Antigua and Barbuda [2013] UKPC 23 at [38].

42.  Counsel also relied upon some observations that in conveyancing documents the argument is particularly weak as a “torrential style”[1] of drafting was traditional, citing the discussion in Kim Lewison, Interpretation of Contract 6^th Edn para 7.03.  The rationale for such observations was set out in a dictum from Norwich Union Life Insurance Society v British Railway Board [1987] 2 EGLR 137 at p.138F cited in that discussion:

“ Draftsmen frequently use many words either because it is traditional to do so or out of a sense of caution so that nothing which could conceivably fall within the general concept which they have in mind should be left out.”

43.  On the other hand, Mr Pao submitted that the DMC is a bespoke contract and the presumption against surplusage is relevant, see Achieve Goal Holdings v Zhong Xin Ore Material Holdings [2020] HKCA 51 at [16(6)].

44.  In our judgment, as highlighted by Lord Hodge[2], the extent to which a particular tool may be useful in ascertaining the objective meaning of the language in an instrument will vary according to the circumstances of the particular instrument.  Thus, in Achieve Goal Holdings v Zhong Xin Ore Material Holdings, supra, at [16] Kwan VP emphasized that construction of document is a unitary exercise involving an iterative process.  

45.  The cases cited by Mr Wong are mostly judgments concerning the construction of standard form contracts or commercial documents.  We respectfully agree with Kwan VP’s view at [16(6)] of Achieve Goal Holdings v Zhong Xin Ore Material Holdings, supra, that the presumption against surplusage can carry greater weight in a bespoke contract in the context of a clause designed to meet the exigencies of a particular arrangement.  

46.  In the present appeals, we are concerned with a special arrangement concerning the exclusive right to use occupy and enjoy of all four sides of the exterior walls of a multi-storey building.  As we have seen, the default position under the general law as laid down in the Multi-Storey Buildings (Owners Incorporation) Ordinance was that the external walls would form the common parts of the building.  Thus, special arrangement had to be made to reserve such walls (or some of them) to the exclusive use occupation and enjoyment of the Developer. 

47.  There is no suggestion (and there is no evidential basis for such a suggestion) that the draftsman who undertook the task of drafting this specific reservation was modelling on standard form wordings when he adopted the expression “exterior side walls”. 

48.  As far as the choice of this expression is concerned, it is plain that it is not attributable to drafting in a “torrential” style.  As we have explained above, the expressions commonly used are without the word “side”. 

49.  There is also no basis to suggest that the draftsman meant to refer to all 4 external walls and added the word “side” simply out of a sense of caution.  Indeed, the addition would cause much confusion when a simple reference to “exterior walls” or “exterior” or “external walls” would serve the purpose.  The addition (which served no useful purpose if Mr Wong’s construction were adopted) is even more inexplicable when the draftsman did use such simple references in other parts of the DMC.  Some of these other clauses like Clauses (p) and (r) containing such references are not standard clauses but clauses specifically drafted for the purpose of this DMC. 

50.  Further, the reference to the façade of the Building at Clause (f) was also uncommon.  

51.  In the circumstances, having regard to all these features in the DMC, we agree with Mr Pao and Mr Lee that the proper conclusion is that the draftsman deliberately used different terms in the DMC to describe different aspects of the outside of the Building.  This reinforces the point that the word “side” in the phrase “exterior side walls” was not meant to be redundant and was intended to carry a distinct meaning.

52.  Mr Wong himself also relied on the presumption against surplusage in his submissions by reference to the proviso in Clause (s).  Counsel said the proviso was inserted to ensure that the views of the units below the second floor would not be blocked by the Developer’s signs.  Since the units below the second floor only had a view on the front of the Building (as the views from the other 3 sides were all blocked by adjoining buildings), the proviso would make no or little sense if the phrase “exterior side walls” in Clause (s) were confined to the eastern and western walls only.

53.  With respect, we cannot find any evidential basis for suggesting that the restriction in the proviso in Clause (s) was inserted to ensure that the views of the units below the second floor would not be blocked by the Developer’s signs.  There was no specific finding by the Judge to such effect although it was an argument run by Mr Chain in the court below. 

54.  Actually, if that were the purpose, the erection of signs at level above the second floor on the façade would block the views of the units behind such signs which had windows there.  On the evidence, as shown by the front and elevations of the Building and photos of the same, there were windows at every level.  There was simply no reason why the proviso in Clause (s) should be confined to the units below the second floor.  In this respect, it is Sino Channel’s case that the expression “wall” in the context of the First Schedule and Clause (s) is not confined to the architectural fins as contended by Vast Faith (in its fallback argument) but encompass the entire façade.  Thus, there is force in Mr Lee’s submissions that it was unlikely that the owners entering into the DMC intended that the Developer could have the right to erect advertisement signs at the front and back of the Building blocking the views and light source and air ventilation from such windows.  Though by itself not determinative, it is another pointer against the construction advocated by Sino Channel.

55.  Mr Wong made the point that the conferment of such right on the Developer does not necessarily mean that such right would be exercised in respect of the façade.  He further said that such right could enable the Developer to prevent other owners from using the façade in a manner that would harm or diminish the commercial value of the Building. 

56.  With respect, we cannot accept this submission.  As analysed above, the default position without any reservation of right to the Developer over the façade was that it would constitute a common part.  Further, subject to Clause (f), no individual owner could erect any sign there by reason of Clause (t).  There was simply no need to have such reservation to achieve the purpose postulated by Mr Wong. Moreover, as it had happened, the Developer was at liberty to assign its rights under the DMC to others and the dispute between the IO and Sino Channel arose from the intended use of the façade by the latter.

57.  With reference to the use of the expression “western exterior wall” in the First Schedule and Clause (p)(A), Mr Wong submitted that had the draftsman intended to reserve only two of the exterior walls to the Developer he could easily replace the more generic phrase of “exterior side walls” with the specific description of “western and eastern exterior walls”. 

58.  Again we are not impressed by this submission.  In light of the common usage of various expressions to describe all the external walls, we are of the view that “exterior side walls” is not a generic phrase.  The expression of “western exterior wall” was used in the First Schedule and Clause (p)(A) and Clause (r) because in the context of those provisions, only the “western exterior wall” was relevant instead of both “exterior side walls”.  Mr Wong’s argument did not address the reason for adding the word “side” in the phrase.  In the context of the issue raised in these appeals, a bald assertion that “exterior side walls” is a generic phrase for the four exterior walls contribute nothing to the debate. 

59.  Coming back to the Judge’s main reason for holding in favour of Sino Channel set out at [60] of the judgment below, we agree with Mr Pao that the Judge erred in focusing on the common value of the façade to the Developer only.  There was no evidence on the actual intention of the Developer at the time of the execution of the DMC. It was wholly speculative on the part of the Judge to assume that because the retention of the right over the façade would be of great commercial value to the Developer, then it must have been the intention.  Apart from it being at best a surmise, the Judge failed to have regard to how unattractive and unreasonable such proposition would be to the owners purchasing the units from the Developer in light of the analysis at [54] above. 

60.  Further, as observed by Kwan VP at [16(3)] of Achieve Goal Holdings v Zhong Xin Ore Material Holdings, supra,

“ Reliance placed on commercial sense and surrounding circumstances should not be invoked to undervalue the importance of the language of the provision which is to be construed. Except in a very unusual case, the parties have control over the language they use in a contract and must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision. A court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. (Arnold v Britton at §§17 and 20, per Lord Neuberger of Abbotsbury, PSC)”

61.  It is all the more so in the present case when the Judge only relied on commercial sense of one party, viz the Developer as perceived by him on a speculative basis.  On analysis, it was an unduly narrow view of commercial reality.  The Judge did not have regard to rather exceptional (and also objectionable) consequences over the use of the façade that the construction advocated by Sino Channel would lead to.  For all we know, such consequences might well be a consideration adopted by the Developer in confining its reservation to the two side walls as contended by the IO and Vast Faith.  Thus, it is unprofitable for the Judge to speculate as he did.

62.  With respect, we agree with Mr Pao that in so doing the Judge had impermissibly strayed outside the proper scope of the interpretative exercise and substituted his own subjective view of what the Developer would have done to maximize the benefit from the retention of rights under the DMC.

63.  For all the above reasons, we come to the clear and firm conclusion that the phrase “exterior side walls” in the First Schedule and Clause (s) does not include the front and back of the Building.  Having coming to this conclusion, it is not necessary for us to address argument based on the application of the contra proferentem maxim.  Nor is it necessary for us to address the fallback argument of Vast Faith.

Disposition

64.  We will therefore allow the appeal, set aside the Judge’s orders, dismiss Sino Channel’s claims (in LDBM 211/2015) and counterclaims (in LDBM 117/2016).  We would further grant a declaration (in LDBM 117/2016) that the exterior walls facing Granville Road and Cameron Road (i.e. the front and back of the Building) are part of the common parts of the Building.

65.  In terms of costs, we will order on a nisi basis that Sino Channel shall bear the costs of the IO and Vast Faith in these appeals and below, to be taxed if not agreed.