INCORPORATED OWNERS OF PO LOK BUILDING v. LEUNG KOON AND OTHERS

[English Translation – 英譯本]

CACV 194/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 194 OF 2005

(ON APPEAL FROM LDBM NO. 332 OF 2004)

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BETWEEN

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JUDGMENT

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Hon Yeung JA (delivering the judgment of the Court):

Background

1. Po Lok Building (hereinafter “the Building”), which is situated at Nos. 154-164 Woosung Street, Kowloon, comprises 17 storeys. The Ground Floor is designated for commercial use and consists of 8 shop premises. The 1^st to 3^rd Floors are also designated for commercial use, whereas the 4^th Floor and above comprise residential premises. Each of the commercial portion from the Ground to 3^rd Floors and the residential portion from the 4^th Floor upwards has its own ingress and egress, and there is no passageway connecting the two portions.

2. Following the completion of construction of the Building in 1973, individual units in the residential portion from the 4^th Floor upwards were sold to various owners. As for the commercial portion, apart from Shop No. 4 which was sold in 1974, all the remaining premises from the Ground to 3^rd Floors were solely owned by one person. The rights and duties of the owners of the Building are governed by a deed of mutual covenant dated 23 June 1973 (hereinafter “the DMC”).

3. Under the DMC, the Building consists of 330 equal undivided shares, which are allocated as follows: each of the 8 shop premises on the Ground Floors has 6 shares, totalling 48 shares; each of the 1^st to 3^rd Floors has 15 shares, totalling 45 shares; the 4^th to 16^th Floors have a total of 231 shares; and the roof has 6 shares.

4. In 1981, the owner of the Ground to 3^rd Floor (except Shop No. 4) of the Building named the commercial portion “Bowring Commercial Centre” (hereinafter “the BCC”). The BCC comprises more than 100 re-constructed shop premises and certain areas and facilities which had been converted to “common” use. Those 100 odd re-constructed shop premises have been sold to various owners.

5. Upon establishment of the BCC, in order to define the rights and duties of the owners of all the shop premises and to regulate the areas and facilities within the BCC which had been converted to “common” use, the relevant persons entered into a sub-deed of mutual covenant dated 21 September 1981 (hereinafter “the sub-DMC”). Under the sub-DMC, apart from the 6 shares in Shop No. 4 on the Ground Floor, the remaining 87 shares in the commercial portion is, as a matter of figure, divided into 2,313 equal undivided shares, all of which has been allocated to the owners of the shops at the BCC.

6. The sub-DMC only affects the owners of the BCC and has nothing to do with the owners of the residential portion of the Building, the reason being that the DMC does not confer upon the residential owners any right to use and enjoy any part of the BCC.

7. Pursuant to the DMC, an owners’ incorporation (hereinafter “the Corporation”) has been established for the Building in order to manage the common areas as defined in the DMC. An owners’ committee called Bowring Commercial Centre Owners’ Committee (hereinafter “the Committee”) has also been set up for the BCC pursuant to the sub-DMC.

8. The Committee has hired a management company to assist in managing the “common” areas and facilities at the BCC. The Committee also collects management fees and deposits from the owners of the shops at the BSS in accordance with the sub-DMC, for the purpose of meeting the expenses of managing the BCC.

9. The Applicant in the present case is the current Corporation, whereas the Respondents are the current members of the Committee (hereinafter “the Members”) and the management company hired by the Committee to manage the BCC (hereinafter “the Manager”).

10. In January 2004, the Corporation commenced proceedings in the Lands Tribunal against the Members and the Manager and sought the following declarations from the Lands Tribunal:

(1)   That the Committee be dissolved as from 31 August 2004, so that neither the Committee nor the Manager is entitled to manage the BCC or to collect management fees from the owners of the shops at the BCC;

(2)   That only the Corporation has the right to manage the BCC (including all common parts thereat), including the right to collect management fees and deposits from the owners of the shops at the BCC.

11. The Corporation also requested the Committee and the Manager to withdraw from the management of the BCC and hand over the right of management to the Corporation.

12. The Corporation alleged that, at an owners’ meeting held in 1985, it was resolved that 5 owners be elected from the Building and the BCC to form a Management Group for the BCC (hereinafter “the Group”) and that the Group be responsible for managing the BCC in accordance with the sub-DMC. However, the Committee took over management of the BCC without the approval of the Corporation.

13. The Corporation further alleged that, at an owners’ meeting held on 31 August 2004, it was resolved that the right of management of the Group be revoked and that the BCC be managed directly by the Corporation. It was also resolved that the appointment of the Manager be revoked and that the Members and the Manager were to hand back to the Corporation the right of managing the BCC and all relevant matters.

14. The ground of opposition raised by the Members and the Manager was very simple. Their case was that the BCC was used, occupied and enjoyed exclusively by the owners of the Ground to 3^rd Floors of the Building and had nothing to do with the owners of the 4^th Floors and above. They also said that neither the BCC nor any part thereof was a common part of the Building, and therefore the Corporation had no right to manage the BCC or inquire into any matter relating to the management of the BCC.

15. The Members further submitted that they had been elected by the owners of the BCC in accordance with the sub-DMC and had been authorized to exercise the right of managing the BCC, including the power to hire the Manager to manage the BCC.

16. The Members and the Manager also pointed out that, according to rulings made by the Lands Tribunal in other relevant cases, the Committee and the Manager were entitled to collect management fees from owners of individual shops at the BCC in accordance with the sub-DMC.

17. The case was heard by Presiding Officer Yung of the Lands Tribunal in March and April 2005.

18. On 31 May 2005, the Presiding Officer delivered his ruling, by which the Corporation’s application was dismissed and the Corporation was ordered to pay costs to be taxed on the High Court scale.

19. The Corporation now appeals against the ruling, seeking to set aside the Presiding Officer’s ruling and seeking the declarations as stated in paragraph 10 above. We are also asked to vary the costs order made by the Presiding Officer.

The Presiding Officer’s ruling

20. The Presiding Officer held that the establishment of the Committee by the owners of the BCC pursuant to the sub-DMC had nothing to do with the Corporation, and that the Corporation had no power to dissolve the Committee. If the Committee did not perform satisfactorily, it was open to the owners of the BCC to dissolve the Committee by convening a general meeting of the owners of the BCC in accordance with the sub-DMC.

21. As representatives of the owners of the BCC, the Members had to discharge the duties imposed by the DMC on the owners of the BCC as a whole, failing which the Corporation could claim against the owners of the BCC. However, the Corporation was not entitled to take the place of the Members and manage the common areas and facilities of the BCC in accordance with the sub-DMC.

22. The Presiding Officer stressed that the common areas and facilities in question were for the exclusive use by the owners of the BCC and that other owners of the Building were not entitled to use and enjoy those common areas and facilities as of right.

23. The Presiding Officer agreed with the Corporation’s contention that, following establishment of the BCC, the common areas and facilities thereat were no longer used exclusively by a single owner but were instead shared by two or more owners, and hence those common areas and facilities became common parts within the meaning of the Building Management Ordinance.

24. Having said that, the Presiding Officer rejected the Corporation’s contention that only the Corporation had the right to manage those common areas and facilities.

25. The Presiding Officer also rejected the contention that the Corporation was entitled to prohibit the Committee from being established or from exercising the powers conferred upon it by the sub-DMC.

Grounds of appeal

26. Mr Mak, Counsel for the Corporation, begins by emphasizing that the Presiding Officer’s ruling that the “shared” areas and facilities at the BCC were “common parts” within the meaning of the Building Management Ordinance is correct.

27. Mr Mak points out that there is nothing in the Building Management Ordinance prohibiting the conversion of parts of a property used, occupied and enjoyed exclusively by one owner to common parts. Therefore, although the shared areas and facilities at the BCC were originally used exclusively by one owner prior to the establishment of the BCC, that owner no longer owned any part of the BBC (including the remaining parts which were not allocated) when the shares in the BBC held under his name were entirely allocated to the various owners of the BCC. As those remaining parts are not specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation and enjoyment of an owner, they are common parts of the Building as defined under the Building Management Ordinance.

28. Mr Mak contends that the “shared” areas and facilities at the BCC have also become “common parts” as defined in the Building Management Ordinance.

29. Mr Mak points out that, by virtue of Clause 9 of the DMC, the owners of the Building are entitled to engage a single manager to manage and maintain the common parts of the Building, including the lifts, pumps, wells, water tanks, water pipe installations, waste disposal equipment, fire fighting equipment and lighting apparatus. Therefore, the shared areas and facilities at the BCC should be managed by the Corporation and not by the Committee.

Respondents’ position

30. By serving a Respondents’ Notice, the Members and the Manager take issue with the Presiding Officer’s ruling that the “shared” parts and facilities at the BCC have become common parts of the Building.

31. In his supplemental skeleton submissions, Mr Hung, Counsel for the Members and the Manager, attempts to offer various interpretations of the Presiding Officer’s ruling. Mr Hung submits that the Presiding Officer’s statement that “these places within the BCC have become common parts as defined in the Building Management Ordinance only by virtue of the sub-deed of mutual covenant” is inaccurate and that “it is more accurate to say that these places within the BCC have become common parts among the owners of the BCC only by virtue of the sub-deed of mutual covenant”.

32. Mr Hung stresses that the Committee has been established in accordance with the sub-DMC and is a manifestation of the right and freedom of association of the owners of the BCC. As such, the Committee is not liable to be dissolved by the Corporation. Mr Hung reiterates that the Corporation is not in a position to represent the owners of the BCC in challenging the Committee’s decision to collect management fees from them. Nor can the Corporation institute legal action on behalf of the owners of the BCC.

33. Mr Hung contends that the Presiding Officer wrongly held that the “shared” areas and facilities at the BCC had become common parts as defined in the Building Management Ordinance by virtue of the sub-DMC. Mr Hung submits that the Presiding Officer should instead have held that the “shared” areas and facilities at the BCC were not common parts of the Building and did not fall within the governance of the Corporation.

Discussion

34. The relationship among the owners of the Building is a contractual relationship (which is being sustained by reason of the right over land); each individual owner of the Building is bound by the DMC. The owners of the shop premises at the BCC (except Shop No. 4 on the Ground Floor) are jointly and severally bound by both the DMC and the sub-DMC.

35. As the Presiding Officer rightly pointed out, the owners of the BCC enjoy the right and freedom of association. They have the right to enter into the sub-DMC and establish the Committee in accordance with the sub-DMC. They also have to perform their contractual obligations as set out in the sub-DMC, including the obligation to pay the relevant management fees.

36. As a matter of contract, the sub-DMC arrangement only concerns the owners of the BCC and has nothing to do with the other owners of the Building. As long as the owners of the BCC as a whole perform their obligations under the DMC, the Corporation has no right to interfere with whatever arrangements they may make pursuant to the sub-DMC.

37. However, the owners of the BCC are subject to the provision in the DMC that the sub-DMC that they enter into cannot contravene the terms of the DMC, or they will be in breach of the DMC. In fact, a number of provisions in the sub-DMC (Clauses 1, 9, 14, 15(18)) make express reference to the DMC and provide that the owners of the BCC must comply with the terms of the DMC.

38. Furthermore, the rights and duties of owners of multi-storey buildings are not only governed by contract but are also defined by the Building Management Ordinance (hereinafter “the Ordinance”). The provisions of the Ordinance may even override the terms of the agreement.

39. However, even if a deprivation of an individual’s property rights by means of the Ordinance does not contravene the Basic Law, such deprivation must be made in express and unambiguous terms.

40. Mr Mak contends that the shared areas and facilities at the BCC are common parts as defined in the Ordinance. The definition is set out below:

(a)     the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner; and

(b)     unless so specified or designated, those parts specified in Schedule 1;

41. Mr Mak submits that, prior to the establishment of the BCC, the commercial portion was used exclusively by one owner. When that owner allocated all the shares in the BCC under his name to the owners of individual shop premises without reserving any share for himself, the shared areas and facilities at the BCC were no longer “specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner”. In this case, Mr Mak argues, the shared areas and facilities at the BCC have become common parts of the Building and hence fallen within the exclusive governance of the Corporation.

42. As stated above, the Building consists of 330 equal undivided shares, 87 of which are allocated to the BCC (except Shop No. 4 on the Ground Floor). Under the sub-DMC, those 87 equal undivided shares are converted to 2,313 shares, all of which are allocated to the owners of the shops at the BCC in accordance with Schedule 1 to the sub-DMC. The BCC does not have any unallocated remaining shares.

43. The above 2,313 shares include the shared areas and facilities at the BCC. It follows that the “common” areas and facilities at the BCC are “specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner” and hence are not common parts of the Building.

44. Although the wording in the Building Management Ordinance is “use … of an owner”, section 7(2) of the Interpretation and General Clauses Ordinance, Cap. 1 of the Laws of Hong Kong, provides that “[w]ords and expressions in the singular include the plural and words and expressions in the plural include the singular”. For this reason, “an owner” may include two or more owners (for example, property jointly owned by a married couple). The crucial question is whether the relevant part of the building is for their exclusive use, occupation or enjoyment, notwithstanding that they are jointly using, occupying and enjoying that part.

45. The shared areas and facilities at the BCC as derived from the “sub-DMC” are to be used, occupied and enjoyed exclusively by the owners of the shop premises at the BCC. Although those areas and facilities are jointly enjoyed by the owners, they do not form the common parts of the Building. Furthermore, Clause 2(b) of the DMC only allows the owners of the 1^st to 3^rd Floors to use the public areas on those floors and only requires them to bear the expenses incurred in managing those common areas.

46. In our judgment, Mr Mak’s basic argument cannot be sustained.

47. In respect of the “shared” areas and facilities at the BCC as derived from the “sub-DMC”, their use and management fall within the domain of the whole body of owners of the shop premises at the BCC and have nothing to do with the other owners of the Building. The Corporation has no right or duty to deal with such use and management, which are not governed by the DMC.

48. Those areas within the BCC that are designated by the DMC as common parts are of course still within the governance of the Corporation.

49. The Presiding Officer ruled that the “shared” areas and facilities at the BCC became common parts as defined in the Building Management Ordinance after the BCC was established. This ruling is incorrect. On the other hand, we see no basis for varying the Presiding Officer’s decision, which was correctly made, that the Corporation had no right to manage the “shared” areas and facilities at the BCC and had no right to prohibit the Committee from being established or from exercising the rights conferred upon it by the sub-DMC.

50. The Presiding Officer’s order that the costs to be borne by the Corporation were to be taxed on the High Court scale is a matter well within his discretion, and we have no reasons for interfering with the exercise of such discretion.

Conclusions

51. For the above reasons, we dismiss the Corporation’s appeal and order it to pay costs of the appeal, to be taxed if not agreed.

52. The above costs order is an order nisi which will become absolute after 14 days of the delivery of the Judgment.