TIN FOO INVESTMENT CO LTD v. PREVIGOR DEVELOPMENT LTD AND ANOTHER

HCA 1675/2014

[2018] HKCFI [2873]

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1675 OF 2014

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J U D G M E N T

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Introduction

1.  The plaintiff is the owner of a duplex apartment known as Flat C2 in Altadena House, a well-known high-end development on Barker Road, the Peak.

2.  The 1^st defendant is the owner of another duplex apartment immediately above Flat C2, known as Flat C3.

3.  The 2^nd defendant was at all material times and still is one of the directors of the 1^st defendant, who at all material times resided at Flat C3 with his family.

4.  Both of these apartments are roughly of the same size, ie around 4600 square feet.

5.  One of the rooms (“Subject Room”) in Flat C2 is immediately below the kitchen and balcony of Flat C3.

6.  Since March 2013, there were water stains appearing at various locations at the ceiling of the Subject Room.  The affected ceiling area was around 2.00 m × 1.2 m.

7.  As will be discussed in further detail below, there is now no dispute that these water stains were caused by water leakage in Flat C3.

8.  When the water stains first appeared in March 2013, Flat C2 was let to a tenant, one Mr Kavvathas.

9.  It is convenient at this juncture to set out the relevant history of Mr Kavvathas’s occupation of Flat C2:

(1)  He had been a tenant since April 2011, and, on 8 March 2013, renewed the tenancy for a term of six months from 1 April 2013 to 30 September 2013.

(2)  On 15 October 2013, Mr Kavvathas further renewed the tenancy to 28 January 2014.

(3)  On 28 February 2014, Mr Kavvathas moved out of Flat C2.

10.  There is no dispute that after the water stains were discoveredin March 2013, the plaintiff made a report to the manager of Altadena House.  It could be seen from an event log of the manager that on 25 March 2013, a complaint was made on behalf of the plaintiff by one Miss Tam.

11.  Things progressed rather expeditiously at the beginning.  According to this event log, on 26 March 2013, the manager replied to Miss Tam and indicated that they would follow up on the matter.

12.  The next day, on 27 March 2013, according to this event log, the manager notified Mr Tam that the owner of Flat C3 had agreed to the conduct of certain tests.  It appears that originally those tests were to be conducted on 31 March 2013, but ultimately that did not happen.

13.  On 2 April 2013, upon being told that the originally scheduledtests did not happen, Miss Tam suggested that the matter be handed over to“FEHD”.  This refers to the special task force established by the Buildings Department and the Food and Environmental Hygiene Department for investigating and handling water seepage problems (“the Joint Office”).

14.  It appears that the Joint Office conducted investigations in April and May 2013.  There is no dispute that the defendants cooperated with the Joint Office in this round of investigations.

15.  Unfortunately, the Joint Office never came to a definite conclusion on the cause of the seepage.

16.  The parties’ solicitors engaged in various correspondence.  Ina letter dated 29 July 2013, the defendants’ solicitors, Messrs Lo & Lo (“LL”), stated that the defendants intended to “engage an independent professionalsurveyor to carry out a full inspection/test to find out the source/cause of the water leakage and to prepare a report with recommended solution.”  The plaintiff’s cooperation was requested.

17.  In cross-examination, the 2^nd defendant (who gave evidence for the defendants) said that:

(1)  An inspection of both Flat C2 and Flat C3 by an “expert” instructed by the defendant did take place on 1 August 2013.

(2)  However, this “expert” only took some photographs without conducting any tests; stayed only for a short time; and left without seeing much.

(3)  Also, this “expert” never produced report.

(4)  Further, somewhat bizarrely, the defendants never followed upwith this “expert”, and the 2^nd defendant cannot even remember the name of this “expert”.

18.  The plaintiff’s solicitors, Messrs Hon & Co (“HC”) followed upby letter dated 21 August 2013, and asked about the result of the defendants’ surveyor’s conclusions.  There was no reply.

19.  HC next followed up some seven months later by another letter dated 19 March 2014.  In that letter, HC observed that since the earlier letter of 21 August 2013, the matter went to sleep, yet the seepage situation had not been remedied.  It further observed that the defendants had yet to revert to the plaintiff on the result of the inspection of the defendants’ expert.  It again demanded a copy of the report of this inspection.

20.  It appears that HC followed up in March 2014 because Mr Kavvathas moved out in February 2014.  Further, as stated in HC’s letter of 19 March 2014, the plaintiff engaged contractors to undertake decoration works to Flat C2 in anticipation of a new tenant.

21.  The timing of these renovations is not entirely clear:

(1)  I have been shown a number of invoices and bills in respect of the renovation undertaken by the plaintiff, which contain various dates in 2014.

(2)  But it was said on behalf of the plaintiff that those dates might not accurately indicate the date of the renovation works, because the invoices might have been issued much later than the completion of the works.

(3)  There was also a suggestion in the witness statement of the plaintiff’s witness, Dr Cheung Lik Ching David (who was and is one of the directors of the plaintiff), that the renovation started shortly after February 2014.

22.  Ultimately, I regard the oral evidence given by Dr Cheung under cross examination as to the dates of the plaintiff’s renovation to be most reliable.  It appears that in closing submissions, both parties’ counsel were content to proceed on that basis.

23.  Dr Cheung said in cross examination that the plaintiff’s own renovation works of Flat C2 commenced in around May 2014, and such works took between 3 to 6 months.  In other words, such works would have been completed between August to November 2014.

24.  It is also important to note that Dr Cheung accepted in cross examination, and as is apparent from the breakdown in one of the invoices issued by one of the plaintiff’s contractors (one Sip Bow Kee Painting & Decoration Ltd) dated 30 October 2014, that one of the things the plaintiff caused to do in its renovation works to Flat C2 was to repaint the bedrooms. 

25.  Dr Cheung accepted in cross examination that after the renovation works undertaken by the plaintiff, the water stains in the Subject Room were no longer visible.  Further, Dr Cheung’s evidence is that after the water seepage problem was solved in January 2015, the plaintiff did not do any further painting works to the Subject Room before Flat C2 was successfully rented out.

26.  As will be discussed in further detail below, these are important facts to my determination of whether the claimed loss of rental income can be made out.

27.  As mentioned above, HC sought a copy of the report of the defendants’ “expert” by letter of 19 March 2014.  There was no reply to this letter.  By letter dated 15 April 2014, HC stated that the plaintiff had instructed its own expert (Mr Edmund Chiu) to ascertain the cause of the seepage.  An inspection by Mr Chiu of Flat C3 was requested.

28.  The defendants cooperated.  An inspection of both Flat C2 and Flat C3 took place on 28 April 2014.

29.  At the request of the defendants, the Joint Office issued a letter to the 2^nd defendant dated 23 May 2014 (“the Joint Office Letter”).  In that letter, it was said that the Joint Office had not been able to find out the exact cause of the water seepage.

30.  I must point out, however, that the 2^nd defendant’s own evidence is that the Joint Office had in early 2014 requested another round of testing to be done in Flat C3, but the defendants had refused to consent to such tests.

31.  On 9 June 2014, HC sent the report of Mr Chiu to LL.  That report stated the view that the seepage had two causes, namely (i) defectivedraining pipe in Flat C3; and (ii) failure of waterproofing work at the balcony of Flat C3.

32.  By letter dated 23 June 2014, LL indicated the defendants’ refusal to accept the conclusions of Mr Chiu.  The main reason cited was that those conclusions were contrary to Joint Office Letter.

33.  I do not regard this as a sound reason.  My reading of the Joint Office Letter is that the Joint Office was reporting that they were unable to determine the cause of the seepage.  They were not saying that they had reached a positive conclusion that the cause of the seepage could never be determined by anybody.  Hence I would not regard Mr Chiu’s conclusions as being “contrary” to the Joint Office Letter.

34.  On 26 August 2014, the plaintiff commenced the present proceedings.

35.  Meanwhile, it can be seen from visitor records of Altadena House that from September 2014 onwards, there were visits from estate agents to Flat C2.  It is therefore clear that during this time, the plaintiff had sought tenants for Flat C2.

36.  It was only in November 2014 that the defendants instructed their own expert Mr Lee Hoi Tat Nathan, who concluded in his report of 12 December 2014 that the cause of the seepage was the defective draining pipe in the kitchen of Flat C3.

37.  In the course of the trial, counsel agreed that there was no need to call either of the experts to give evidence of the precise cause of the seepage, because it is common ground that the cause was from Flat C3, ie premises owned by the 1^stdefendant and occupied by the 2^nd defendant.

38.  After Mr Lee had rendered his report, in January 2015, after a failed mediation in these proceedings, on a “without admission of liability” basis, the defendants engaged contractors nominated by the plaintiff to carry out remedial works.

39.  It is common ground that after these works, the problem was solved and there was no further seepage into the Subject Room.

40.  However, Flat C2 remained vacant for a considerable amount of time after the seepage problem was solved.  It was only let out by the plaintiff in July 2016, ie some 18 months after the remedial works.

41.  In the Statement of Claim, it is said that but for the seepage issue, the plaintiff could have earned rental income in the sum of $238,000 per month since March 2013.

42.  In the light of the evidence, it is plain that this claim cannot be sustained, because Mr Kavvathas actually remained a tenant of Flat C2 until February 2014, and that there were renovation works conducted by the plaintiff between May 2014 lasting 3 to 6 months.

43.  In the opening submissions, Mr Paul Wong (appearing for theplaintiff) sought damages for a shorter period, namely between April 2014 to January 2015.  This claim likewise suffers from the problem that it seeks damages for loss of rental income within the period of the plaintiff’s own renovation works, and for a period where there is no visitor record showing that the plaintiff had earnestly sought a tenant.

44.  In his oral opening, and also his written closing submissions, Mr Wong suggested that he would focus on the period between September 2014 and January 2015.

45.  I should mention here that I think it is reasonably plain that Mr Wong is not claiming for loss of rental income arising out of Mr Kavvathas’s departure.  He is not putting his case on the basis that butfor the water seepage, Mr Kavvathas would have remained in Flat C2 all the way up to January 2015, and beyond.  I do not think there is sufficient evidence supporting such a contention anyway. 

46.  Rather, Mr Wong’s case is that but for the water seepage, Flat C2 would have been let out to another tenant in the period between September 2014 and January 2015.

47.  The plaintiff’s valuation expert opined that the monthly rent forFlat C2 in that period was $231,000.  The parties have agreed that there isno need for the valuation expert to be called to give evidence.  Accordingly, I proceed on the basis that this figure it is not challenged.

The issues

48.  In my view, there are two issues in this case:

(1)  First, I will have to determine whether the defendants are liable for breaching the Deed of Mutual Covenants (“DMC”) of Altadena House and/or has committed nuisance or negligence in respect of the water seepage.

(2)  If so, whether the plaintiff has proved the damages claimed.

Liability of the defendants

49.  Mr Wong relies on three causes of action, ie the breach of the DMC, common law nuisance and negligence.

50.  I would first make clear that only the 1^st defendant (but not the 2^nd defendant), being the registered owner of Flat C3, is a party to the DMC.  In other words, whilst the 1^stdefendant can be liable for breach of the DMC, I do not think the 2^nd defendant can be so liable.

51.  However, the 2^nd defendant is an occupier of Flat C3, and hence can be liable for nuisance or negligence.

52.  It is also to be noted that the 2^nd defendant is a director of the 1^stdefendant.  But there is no plea or submission that he should not be independently liable because he only committed the torts alleged against him in his capacity as an officer of the 1^stdefendant company.

53.  In respect of the DMC, the Second Schedule contains the following provisions:

(1)  Clause 3(a) requires 1^stdefendant “to keep the interior … in good repair and condition and to maintain the same in a manner consistent with the preservation of the said premises [meaning the land on which Altadena House stands] and building as a high class residential estate ….”

(2)  Clause 6(a) requires the 1^st defendant “not to … cause or permit or suffer to be done any act or thing in [Flat C3] … which may be or become a nuisance or annoyance to or cause damage to other owners and occupiers of the said premises and building.”

54.  In respect of common law nuisance, Mr Wong relies on 張秀玲 v 鄭禮莊 (CACV 268/1998, 9 April 1999) for the propositions that: 

(1)  An owner of premises from which water seepage occurred is liable in nuisance if he has notice that the seepage came from his premises and has failed to take reasonable steps to rectify the seepage within reasonable time.

(2)  For these purposes, the owner has notice if he has actual knowledge, or if he would acquire actual knowledge if he had applied usual and reasonable diligence.

55.  Regarding negligence, Mr Wong drew my attention to Clerk & Lindsell on Torts (22^ndedn, 2018) §22-40, where it is said that:

“ If the defendant knew or ought to have known that in consequenceof his conduct harm to his neighbour was reasonably foreseeable, he is under a duty of care to prevent such consequences as are reasonably foreseeable. In such case the defendant is liable because he is considered negligent in relation to his neighbour, and here nuisance and negligence coincide. Whether his liability is described as falling under one legal rubric or the other would seem to be only a difference of words.”

56.  In respect of occupiers, in §22-42, it is said that:

“ If the occupier knows or ought to know of such a nuisance, and the possibility of damage occurring in consequence is a real risk, he must take such positive action as a reasonable person, in his position and circumstances, would consider necessary to eliminate the nuisance.”

57.  I do not understand these principles to be disputed by Mr Philip Chan (who appeared for the defendants alongside Mr Andy Mak).

58.  Mr Wong also made clear that his case is that the defendants had notice that the water seepage originated from Flat C3 because they failed to apply reasonable diligence after March 2013.  It is not part of his case that allowing Flat C3 to fall into disrepair was in itself wrongful.

59.  The question, therefore, is whether the defendants had notice of the fact that the water seepage came from Flat C3 before January 2015.

60.  The pleaded case of the plaintiff is that the defendants had committed nuisance and negligence since March 2013.

61.  I, however, do not think that the defendants had acted unreasonably since as early as March 2013:

(1)  As mentioned above, when the seepage issue was first drawn to their attention in March 2013, the defendants cooperated in arranging inspections by the Joint Office.

(2)  But the Joint Office never came to a definitive view as to the source of the seepage.

(3)  Indeed, as mentioned above, in July 2013, the defendants took the initiative to suggest that an expert be instructed to inspect both Flat C2 and Flat C3, and that inspection took place on 1 August 2013.

62.  I am of the view that the defendants acted unreasonably since the inspection on 1 August 2013:

(1)  By that date, the defendants had (in my view rightly) formed the view that an expert ought to be instructed to see whether the seepage came from Flat C3.

(2)  The defendants went so far as instructing an “expert” and organising an inspection of both properties.

(3)  However, according to the 2^nd defendant’s evidence, the “expert” he found undertook the most perfunctory inspection, and produced no report whatsoever.

(4)  Yet, inexplicably, the defendants did not follow up with the “expert”, despite repeated requests for a report by HC.  The 2^nd defendant even said in cross examination that he had forgotten the name of the “expert”.

(5)  In sum, although the defendants had by 1 August 2013 realisedand appreciated the real possibility that the seepage came fromFlat C3, and hence an expert should be instructed to ascertainwhether that was so, they failed to act reasonably in following up on the matter.

(6)  Indeed, as mentioned above, after it became apparent that the defendants were not going to produce any report from this “expert”, the plaintiff arranged for their own expert to inspect the two properties.

(7)  Yet, although the defendants cooperated in the inspection, andalthough they were sent the plaintiff’s expert report in June 2014,they did not accept those conclusions, and only instructed their own expert in November 2014.

(8)  Further, the defendants did not undertake, or cooperate in the undertaking of, remedial works until January 2015.

(9)  As discussed above, I am not persuaded that this inaction was justified by the Joint Office Letter.

63.  For these reasons, I am of the view that:

(1)  The 1^st defendant had acted in breach of the DMC from 1 August 2013 to January 2015.

(2)  Both defendants had committed nuisance and were negligent from 1 August 2013 to January 2015.

64.  As will be discussed in further detail in the next section, I am however of the view that the plaintiff has not been able to show substantial pecuniary damage arising out of the above.

65.  There is no dispute that a breach of DMC (being a breach of contract) can be made out despite the absence of proof of substantial damage. In such a case, nominal damages will be awarded for breach of contract.

66.  Mr Wong submitted that this is the same for the torts of nuisance and negligence.  He referred me to Born Chief Co v George Tsai [1996] 2 HKLRD 188, where the Court of Appeal awarded nominal damages for nuisance and negligence (overturning the trial judge's order for damages to be assessed by a master).

67.  Mr Wong submitted, and I agree, that where it is obvious that some damage has been caused, but the plaintiff has failed to prove the actual figure to be attributed to this damage, then the correct conclusion is that liability is established, but only nominal damages should be awarded.

68.  Mr Wong submitted, and again I agree, that in the present case, the water seepage has caused damage to the plaintiff at least to the extent of damaging the ceiling of the Subject Room in Flat C2.  The plaintiff has not attempted to put a monetary figure on this damage, but this does not mean that no damage is caused.

69.  For these reasons, I award nominal damages of $10 to the plaintiff against both defendants.

Loss of rental income

70.  Both parties agree, I think rightly, that the plaintiff bears the burden of proof that the wrongs complained of caused the loss claimed.  In other words, the plaintiff has to show that but for the water seepage, it would have been able to earn the rental income claimed between September 2014 to January 2015.

71.  In my judgment, the plaintiff has failed to do that.

72.  As noted above, Dr Cheung’s evidence is that the plaintiff had undertaken renovation works to Flat C2 from May 2014 to sometime between August and November 2014.

73.  I am of the view that during this period of renovation works, undertaken at the plaintiff’s own initiative to improve the quality of its property, it cannot be said that on the balance of probabilities, if there was no water seepage, the plaintiff would have been able to secure a tenant.

74.  After these renovation works, as noted above, Dr Cheung’s evidence is that the water stains had been painted over, and hence the signs of water seepage would not have been visible to any prospective tenant coming to inspect Flat C2.

75.  So how could the water stains or the water seepage affect the plaintiff’s ability to rent out Flat C2?

76.  Dr Cheung said that he believed that prospective tenants would have been able to find out about the water seepage problem despite the fact that it was not visible.  He speculated that the prospective tenants would have asked the caretakers of Altadena House whether there were previous problems about Flat C2.

77.  But there is absolutely no evidence to this effect.  Indeed Dr Cheung accepted that he had not even enquired with the caretakers of Altadena House to see whether any such enquiries had been made by prospective tenants.

78.  In closing submissions, Mr Wong invited me to take judicial notice of the fact that prospective tenants would normally ask estate agents about previous problems of a property.  I refuse to do so:

(1)  First, although it is possible for the court to take judicial noticeof commonly known matters without evidence, I do not think the fact that prospective tenants would ask estate agents about potential problems with a property is something that is so commonly known that I can simply assume without evidence.

(2)  Secondly, there is not even evidence that any estate agent had enquired with the plaintiff as to whether there were previous problems with Flat C2.  Indeed, there is no evidence coming from any estate agent.  If enquiries had been made by prospective tenants with an estate agent, one would have thought that the estate agent would have asked the owner (rather than just the management office) whether there were previous problems with Flat C2 worth mentioning.

(3)  Thirdly, Dr Cheung’s evidence was that before the water seepage problem was remedied in January 2015, there was oneperson who was interested in renting Flat C2.  But there is no evidence that the water seepage problem was known to this person, or that it featured in any discussion between him/her and the plaintiff in any way.

79.  Another powerful factor against the plaintiff is that even after the problem was remedied in January 2015, it took another 18 months before Flat C2 was let out.

80.  When this point was put to Dr Cheung, he said that rental was not a simple matter, he was not expert in leasing properties, and he could only set a target but one does not find a tenant every day.  That, to me, would mean that it cannot be said with any degree of confidence that Flat C2 could have been let out between September 2014 and January 2015 if the water seepage problem did not exist.

81.  In these circumstances, I am not satisfied that the plaintiff hasdemonstrated on the balance of probabilities that without the water seepage, it would have been able to secure a tenant for Flat C2 between April 2014 or September 2014 and January 2015.

Conclusion

82.  For the above reasons, I would order that the defendants do pay nominal damages of $10 to be plaintiff.

83.  I would give the following directions for parties to submit on the proper costs order:

(1)  The defendants do file written submissions on costs within the next 14 days.

(2)  The plaintiff do file written submissions on costs within 14 days thereafter.

(3)  The defendants do file reply submissions on costs within 7 days thereafter.

(4)  Unless the court otherwise directs, the costs order will be settled by the court on paper.

84.  It remains for me to thank counsel for their assistance.