KAYWAY INVESTMENT LTD v. FOCUS WINNER LTD AND ANOTHER

HCA 967/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL ACTION NO. 967 OF 2013

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D E C I S I O N

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Background

1.  This is the Plaintiff’s application for summary judgment for liability against the 1^st and 2^nd Defendants for trespass to part of the exterior wall owned by the Plaintiff with damages to be assessed.  

2.  The Plaintiff is the owner of the exterior wall (“Exterior Wall”) of Kaiser Estate 2^nd Phase in Kwun Tong (“the Building”) since 16 February 2012.  The exact extent of the Plaintiff’s ownership rights in the Exterior Wall is in dispute.

3.  The 1^st Defendant is a company incorporated in Hong Kong and has since 30 June 2009 been the registered owner of Units J, K and L on the ground floor of the Building (“the Shop”).  The 2^nd Defendant is another company incorporated in Hong Kong trading under the name of “D2 Jewellery”.  It operates a jewellery business in the Shop and uses its address as its business address as well as its registered address.  The 1^st and 2^nd Defendants are held by the same sole shareholder, D2 Limited.  Chung Wai Tong Teddy (“Chung”) is a director of both companies.  He and his secretary, Gan Ching Yan (“Gan”) filed affirmations in opposition to the application. 

4.  The Building was presumably developed by Eldex Investment Company Limited (“Eldex”) in about 1979.  On 3 January 1979, Eldex entered into a deed of mutual covenant (“DMC”) as the First Owner with the first purchaser of Unit O on the ground floor as the Second Owner.  Under the Second Schedule of the DMC, the parcel of land on which the Building was built was divided into 5,000 equal undivided shares, of which one share was allotted to the Exterior Wall.  The term ‘Exterior Wall’ is not defined in the DMC.

5.  On 27 August 2004, Eldex sold its interest in the Building including the Exterior Wall to Sky Rich Enterprises Limited (“Sky Rich”).  On 30 June 2009, the 1^st Defendant acquired the Shop from Sky Rich.  According to the 1^st Defendant, when it acquired the Shop, part of the exterior walls on the ground floor had been removed to enable the premises to be used as an open showroom which had been rented to 3D-Gold between December 2001 and April 2008 and then left vacant until they were acquired by the 1^st Defendant.  What is left of the exterior wall on the ground floor is the existing wall as it now stands and as coloured pink in the plan marked ‘A’ attached to the Amended Defence (“the Existing Wall”).  That Existing Wall is, without doubt, part of the Exterior Wall.  The 1^st Defendant would be able to call one of its employees who used to work for 3D-Gold during the material time as a witness.  The evidence that part of the exterior wall had been removed by Eldex leaving only the Existing Wall as it now stands before the sale to Sky Rich and thence to the 1^st Defendant seems to be incontrovertible.

6.  On 16 February 2012, after two successive changes in ownership to Wise Elite Holdings Ltd and then to East Surplus Investment Limited, the Plaintiff acquired ownership of the Exterior Wall at a consideration of $325,000.

7.  The parties are in dispute as to the nature and extent of the Plaintiff’s interest in the Exterior Wall owned by the Plaintiff.  The Plaintiff’s case is that it covers the entirety of the exterior wall of the Building from ground floor to the top floor, whereas the Defendants’ case is that it only covers the exterior wall on the ground floor of the Building, ie the Existing Wall.  The 2^nd Defendant’s further case is that its signboard trespassed part of the exterior wall on the first floor and the Existing Wall on the ground floor.  On that basis, it admits liability for trespass in respect of the area coloured yellow and hatched as shown in the plan marked ‘B’ annexed to its Amended Defence, ie part of the Existing Wall.  The 1^st Defendant denies liability in total.

8.  The issues raised by this application are (1) whether on the true construction of the DMC, the 1^st Defendant is entitled to exclusive possession of the entirety of the exterior wall, including that on the first floor; and (2) whether the 1^st Defendant is liable along with the 2^nd Defendant for trespass as joint tortfeasor.  There appears to be some argument as to whether the 2^nd Defendant could be liable for trespass in respect of part of the Exterior Wall on the ground floor which had ceased to exist.  That is a red herring as the Plaintiff has no evidence of any acts of trespass over any area formerly occupied by that part of the wall which no longer existed.

Meaning of ‘Exterior Wall’ under the DMC

9.  The DMC does not provide a definition for ‘Exterior Wall’.  Mr Lam, counsel for the Plaintiff, argues that it means the entirety of the wall covering the external part of the Building and suggests that one has to ascertain what was assigned to the Plaintiff by reference to the building plans.  These plans were plans approved by the Building Authority showing the east elevation and south elevation of the Building where the act of trespass is committed.  These plans were not incorporated into the DMC.   Neither does the DMC refer to the plans.  I think the building plans bear no reference to the meaning of ‘Exterior Wall’ in the DMC.

10.  Mr Chain, counsel for the Defendants, argues that all owners are co-owners of the whole land and building and to ascertain their rights to exclusive use of any part of the land or building, one looks to the DMC.  I agree with his suggested approach. The meaning of ‘Exterior Wall’ raises a question of construction of the DMC.  The usual rule of construction of documents applies to construction of the DMC.  The meaning of the DMC, rather than the dictionary meaning of the individual words, is to be ascertained by reading the DMC as a whole.  The meaning is that meaning which reading the document as a whole conveys to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.  See: Investors Compensation Scheme Ltd and West Bromwich Building Society[1]; and Jumbo King Ltd v Faithful Properties Ltd & Ors[2].

11.  Mr Chain referred to the Second Schedule and argues that it is important to note that reference to ‘Exterior Wall’ appears in the second and not the first column.  The Second Schedule allotted the undivided shares to the various parts of the Building.  For what Mr Chain’s argument is worth, part of the Second Schedule is reproduced hereunder:

“The said 5000 equal undivided parts or shares of and in the said premises are allotted and made up in the following manner:

FLOOR	UNIT	SHARES
13th Floor	G	90
	H	46
	J	50
	K	58
	L	55
12th Floor	G	91
	H	56
	J	53
	K	52
	L	57
…	…	…
4th Floor	G	94
	H	56
	J	53
	K	52
	L	57
4th Floor
Flat Roof	J	29
	L	24
…
2nd Floor	G	94
	H	61
	J	96
	K	73
	L	101
2nd Floor
Flat Roof	K	2
1st Floor	G	87
	H
	61
	J	93
	K	77
	L	107
Ground Floor	G	34
	H	34
	J	6
	K	106
	K1	7
	K2	1
	L	8
	M	5
	N	11
	O	6
	Exterior Wall	1
Lower Ground )	72 @ 2 shares	144
Floor/Ground )	(Nos G1-G33 on Ground
Floor Car Park )	Floor & Nos. B1-B39 on
	Lower Ground Floor)
Lorry Park on	4@ 3 shares	13
Ground Floor	(Nos. L1-L4)	_____
		5,000
		====

12.  Mr Chain referred to column 1 of the schedule which contains a description of the various floors of the Building and in the corresponding position in column 2 against each floor in column 1 is listed the various units within that particular floor.  He then submits the fact that ‘Exterior Wall’ is listed under column 2 just below the various units in the ground floor instead of under column 1 suggests that ‘Exterior Wall’ is that exterior wall which forms part of the ground floor.

13.  The visual impact looking at the schedule with the exception of the horizontal rows showing ‘2^nd Floor Flat Roof’ and ‘4^th Floor Flat Roof’ supports Mr Chain’s submission.  But looking at the schedule as a whole including the two horizontal rows I mentioned above, a wholly different picture emerges.   The flat roofs attached to a particular unit on a particular floor are clearly identified in column 1, with the units to which they are attached identified in column 2.  The schedule shows that the ‘Exterior Wall’ is not attached to any particular unit on the ground floor.  It therefore suggests that it refers to the exterior wall of all the floors, ie the entire Building.

14.  As I said, the DMC has to be read and construed as a whole.  The Second Schedule only allotted the shares.  The First Schedule is more important for the purpose of imparting exclusive possession of any particular part of the Building to a co-owner.  The first column in the First Schedule identifies the First Owner and the Second Owner.  The second column lists out the various parts of the Building to which the First Owner or  Second Owner  gives  exclusive  possession  to  the  other.   The second column sets out all the parking spaces, all the units on the floors, all the flat roofs and lastly, the exterior wall, describing it as:

“AND the Exterior Wall of the said Kaiser Estate 2^nd Phase”.

This description puts it beyond all doubts that the ‘Exterior Wall’ is an item on its own, not attached to any unit on any floor or to any particular floor.  It is the entirety of the external wall covering the entire Building.

15.  Mr Chain also referred me to other provisions in the DMC which he argues would support his construction.  In particular, he referred to clause 17(d)(1) which defines “Common Parts”:

“ “Common Parts” means the following parts of the Building and the said premises subject to Clause 17(g) hereof.

1. The entrances, lobbies, staircase, landing, corridors and passages in the said Building and the walls enclosing the same.”

(Emphasis by Mr Chain underlined)

Mr Chain argues that the ‘walls enclosing the same’ effectively means the Exterior Wall which encloses the entire Building.  The Exterior Wall therefore forms the Common Parts of the Building to which the 2^nd Defendant is entitled to use and enjoy along with other co-owners.

16.  Mr Lam argues that by no reading could the words ‘the same’ be construed to mean ‘the Building’.  He submits that ‘the walls’ in that clause means the walls enclosing the entrances, lobbies, staircase, landings, corridors and passages.  I agree with Mr Lam.  This is particularly so because the Exterior Wall was allocated a share under the Second Schedule and its owner was given exclusive possession of it under the First Schedule.  To turn it into Common Parts is inconsistent with the main purpose of the DMC. The submission by Mr Chain, plainly, does not make sense.

17.  Mr Chain also referred to other provisions in the DMC, such as clause 9(d), 9(j), and clause 7(h), 7(m), 7(q) and 10(b) of the Third Schedule attached to the DMC.  These provisions impose restrictions on the use of the Exterior Wall.  Mr Chain argues that most if not all of these provisions will be otiose, unnecessary or meaningless if the whole of the exterior wall belongs to an individual owner.  I do not find it necessary to quote these provisions and construe them.  They may be consistent with Mr Chain’s argument and may suggest that the Exterior Wall forms the Common Parts of the Building.  These are usual provisions in a deed of mutual covenant under which co-owners submit to restrictions in their use and enjoyment of the premises to which they are given exclusive possession for the better enjoyment of their premises and those of the other co-owners as a whole.  For example, it is common for co-owners to submit to restrictions in the use of their premises for certain obnoxious businesses to preserve the value of their premises as a whole.  It is also very common for co-owners to submit to restrictions in the use of their premises or the external wall, whether it is common part or belongs to a particular individual, which may affect the external appearance of the building.  Such provisions are more consistent with restrictions for the better enjoyment of the Building by the co-owners as a whole and preservation and enhancement of its value for the benefit of all the co-owners.  Read as a whole, these provisions do not support Mr Chain’s construction.      

18.  In conclusion, I am satisfied that on a proper construction of the DMC, “Exterior Wall” means the entirety of the external wall enclosing the Building.  This issue of construction is a crisp issue which could be properly disposed of summarily.  The Defendants have put forth all they could have argued by competent counsel.  A full trial is not going to make any difference.  On the facts, the 1^st Defendant has clearly trespassed and is continuing to trespass on the Exterior Wall owned by the Plaintiff, or to use the more precise term as used by Mr Chain, to which the Plaintiff is entitled to exclusive possession under the DMC.  The 2^nd Defendant has partially admitted liability for trespassing part of the Existing Wall.  On my construction of the DMC and on the basis of incontrovertible evidence, it has trespassed and is continuing to trespass on the part of the Exterior Wall outside the first floor.  It is appropriate that summary judgment on liability be entered.

The 1^st Defendant’s liability

19.  The 1^st Defendant’s defence is a bare denial.  At the hearing, it resists the application for summary judgment on the basis of its separate corporate personality.  It relies on paragraphs 9 and 10 of Gan’s 1^st Affirmation filed on behalf the Defendants.  There Gan says:

“9. The Defendants are associate companies and the 1^st Defendant is a property holding company and the owner of the property in question. I crave leave to refer to the land search and the assignment produced.

10. The 1^st Defendant allows the 2^nd Defendant which is a trading company to use the 1^st Defendant’s premises [the Shop].  The 2 signboards are those of, and were put up by the 2^nd Defendant.”

Presumably, the 1^st Defendant is saying that the signboards were installed by the 2^nd Defendant and not by the 1^st Defendant or by the 1^st Defendant allowing the 2^nd Defendant to operate in the Shop.

20.  Mr Chain argues that despite the 1^st and 2^nd Defendants have a common sole shareholder, the two companies are real companies, each having its own function.   The 1^st Defendant is a property holding company and the 2^nd Defendant is a trading company.  The signboards were put up by the 2^nd Defendant for its business purpose.  This was not a joint act with the 1^st Defendant.  The 1^st Defendant is not a joint tortfeasor.  Mr Chain submits, quoting China Ocean Shipping Co v Mitrans Shipping Co Ltd[3], that the use of separate corporate structure to avoid incurring legal obligation is not objectionable.  He argues that this is not an appropriate case for lifting the corporate veil, though there is no plea to do so by the Plaintiff.

21.  Mr Lam argues that such defences are not bona fide.  No plea in the Amended Defence or evidence in the affirmations filed has been proffered as to the basis upon which the 2^nd Defendant was allowed by the 1^st Defendant to enter into possession of the Shop.  There is no evidence of any tenancy agreement, licence agreement or terms of any casual arrangement under which the 2^nd Defendant was allowed to enter into possession of the Shop.  The 1^st Defendant did not give any response to the Plaintiff’s solicitors’ letter before action to disclaim liability or to dissociate itself from the trespass committed by the 2^nd Defendant.  Lastly, Mr Lam argues that since the two companies have the same shareholder and is under the same management, it is a clear sham to evade liability and the corporate veil should be lifted.

22.  The question at this stage is whether there is a credible defence.  It is important to note that the defence is just a bare denial.  Other than asserting that the 1^st Defendant allowed the 2^nd Defendant to use the Shop and that the signboards were put up by the 2^nd Defendant, there is no positive defence.  Even if these assertions are believed, they do not amount to a complete defence without more.  Gan’s affirmation is totally silent as to the terms on which the 2^nd Defendant was allowed to use the Shop.

23.  More importantly, on the undisputed facts of this case and in the absence of a positive defence, or at least in the total absence of the terms on which the 2^nd Defendant was allowed possession of the Shop, some inference that the 1^st Defendant is a joint tortfeasor could be drawn. 

24.  The two companies have a common sole shareholder, common director and company secretary.  They share the same registered office and business address.  In the circumstances, it is difficult to imagine, for example, when Chung authorised the installation of the signboards, he would have said to himself “this is my act as director of the 2^nd Defendant and had nothing to with the 1^st Defendant”.  He could not turn a blind eye to the trespass.  He cannot on the one hand authorise and instruct the installation of the signboard and on the other hand say to himself, “as director of the 1^st Defendant, I know nothing about that”.  

25.  Another important fact is that this is not a case of a shareholder holding two separate companies which has nothing to do with one another.  This is not a case of a person owning a property holding company holding a rental property at one address and owning another retail business operating on another address.  On Gan’s affirmation, these are associate companies.  The 1^st Defendant holds the Shop and allowed the 2^nd Defendant into possession of that Shop to operate a jewellery business.  They must be pursuing common interest in the 2^nd Defendant’s jewellery business for which the signboards were installed.   

26.  On the peculiar facts of this case, even without lifting the corporate veil, the inference that the act of trespass is a joint act of both Defendants could be readily drawn from the fact of common sole shareholder, common director, common registered office, common business address and, most important of all, common interest.

27.  The defence is one of bare denial.  There is no positive defence for me to consider if it is credible.  The facts asserted by Gan are neutral.  They are neither here nor there.  There are no assertions of facts which are material to a good defence for me to consider if they are credible.  There is really no defence.  But as the Plaintiff’s case is based on inference, I would give the 1^st Defendant the benefit of conditional leave to defend upon payment of such damages as are not in dispute and such interim payment until removal of the signboards or determination of the matter against the 1^st Defendant, whichever the earlier.

Conclusion

28.  For the above reasons, I enter judgment against the 2^nd Defendant.  As the trespass has been continuing since 2012, it is appropriate to order interim payment pending final assessment of damages.  The amount of interim payment shall be the monthly rental value as assessed by the Defendants’ own expert, ie $24,000 per month.  Accordingly,  I make the following order against the 2^nd Defendant:

(1) judgment on liability be entered with damages to be assessed;

(2) removal of the trespassing structure and delivery of vacant possession of the trespassed area to the Plaintiff within three months from the date of this judgment;

(3) interim lump sum payment to the Plaintiff in the sum of $24,000 per month from 16 February 2012 until the date of this judgment, ie the sum of $936,000 ($24,000 x 39) within 14 days;

(4) interim monthly payment in the sum of $24,000 thereafter on the 16^th day of each month until conclusion of the assessment of damages or removal of the trespassing structure whichever the earlier; and

(5) costs of this application to be taxed if not agreed.

29.  I grant the 1^st Defendant leave to defend this action on the following conditions:

(1) the 1^st Defendant shall pay or cause to be paid to the Plaintiff interim lump sum payment in the sum of $936,000 mentioned in paragraph 28(3) above within 14 days from the date of this decision;

(2) the 1^st Defendant shall pay or cause to be paid to the Plaintiff interim monthly payment in the sum of $24,000 thereafter on the 16^th day of each month until conclusion of the assessment of damages or removal of the trespassing structure whichever the earlier; and

(3) upon default in compliance with either of the above conditions, judgment be entered against the 1^st Defendant jointly and severally with the 2^nd Defendant in terms of sub-paragraphs (1), (2) and (4) of paragraph 28 above, and in terms of sub-paragraph (3) of paragraph 28 if the interim lump sum payment had not been paid.

I also make an order that the 1^st Defendant shall pay the Plaintiff’s costs of this application, to be taxed if not agreed.