383HK LTD v. THE INCORPORATED OWNERS OF TAK BO BUILDING

HCA 1333/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1333 OF 2011

________________________

________________________

________________________

JUDGMENT

________________________

1.  The Tak Bo Building is a 22 storey block situated opposite the MacPherson Playground on Nelson Street, Mong Kok.  The 5^th to 22^nd floors are residential.  This case concerns the ground floor, in particular Shop 17.  The ground floor is an arcade of 35 small shop premises.  About 15 of the shops (including number 17) have frontages on the streets around the building.  The remainder are in the corridors which form a T-shaped arcade inside the ground floor.

2.  The central issue in this case concerns the supply of fresh water and drainage facilities to the ground floor.  The occupation permit for the building was issued in 1979 and 30 years later, in 2009, the plaintiff purchased Unit 17, with vacant possession.  The sole witness as to factual matters for the plaintiff has been its director, referred to as “Mrs Chan”.  The plaintiff has been represented at trial by Mr Simon Chiu, leading Mr Kenneth Chung.

3.  The defendant is the incorporated owners of the building (“the IO”).  Two witnesses as to fact were called on their behalf, the first being its chairman at the material time (2010 – 11) Mr Chan Kit Yan who has been a resident in the building since it was built and is now 75 years of age.  Mr Ambrose Ho SC, leading Ms Becky Wong, were the IO’s counsel at trial.

4.  When the building was designed and built in the late 1970s, there were no provisions or facilities included for fresh water and drainage pipes to the individual shop premises on the ground floor.  If shop owners required water they went to the toilets which formed part of the ground floor.  There are approximately 10 toilet units in one particular area inside the arcade.  The toilets are connected to the building’s main fresh water pipe and drainage pipe.

5.  The general nature of the type of small commercial premises which have done business in the Tak Bo shopping arcade since the early 1980s is, no doubt, partly due to the fact that the units are not connected to the building’s water and drainage main pipes.  A survey done in 2013 describes about 50% of the shops as “printing” shops, others include car accessories, sports wear, etc.

Mrs Chan’s ownership of Unit 17

6.  The plaintiff became the registered owner of Unit 17 in September 2009.  It was purchased as an investment.  In evidence Mrs Chan said that she had noticed some other shop units had water pipes to their premises. Mrs Chan believed that having water and drainage in her shop would increase its rental value.  At that time she had no particular tenant lined up.  The evidence, in fact, showed that 4 of the 35 shops had some such piping.  One of the 4 was a hairdressing shop so it may be assumed that the water was actually used.  Whether it was used in the other 3 was not clear.  Two of them were described as “printing shops”, the other “car accessories”.  In any event, these pipings were not recent installations (even in 2010) but had been there some time.  It was the IO’s case that none of them had resulted from consent being sought from the IO, none of them had been approved and none of them were legal.  The plaintiff on the other hand submitted that the IO’s inaction in regard to these particular pipes provided weight to its argument that the IO’s refusal to consent to Mrs Chan’s request for fresh water and drainage was unreasonable.

7.  On becoming the registered owner Mrs Chan asked the IO for its consent to such an application.  The IO considered the request but refused it stating:

“ The members unanimously agreed that shops can use the water supply in toilet and that the installation of independent water meters would involve too many issues on the unified management of the building. Therefore, the Incorporated Owners rejects the application from your company for installation of independent water meter. We hope you can respect our decision.”

8.  The plaintiff was not satisfied and 3 months later, in December 2009 wrote as follows:

“ This is to notify the Incorporated Owners (the ‘Incorporated Owners’) that Shop No. 17 believes its installation of fresh water meter will not affect the interest of other owners and such installation is base on practical need and within the rights given to an owner. Therefore, we, Shop No. 17, have already applied to the Water Supplies Department for installation of water meter. The installation work will be conducted in near future. We shall be grateful if the Incorporated Owners can provide necessary assistance in the course of such work.”

9.  Thus, the plaintiff’s request had become a notification that the work would proceed regardless.  Further, the plaintiff had, in fact, not applied to the Water Supplies Department (“WSD”) as stated in the above letter.  The WSD informed the IO of this fact on 24 December 2009.

10.  When Mrs Chan did make an application to the WSD in January 2010 it was refused.  Later in the year, in June 2010, the WSD did give its approval, but for a water metre only.  Consent and approval for pipes was still lacking.

11.  By February 2010 the matter was in the hands of solicitors.  By a letter of 8 March 2010 the IO’s position was stated as follows:

“ We are instructed that a water tap has been installed in the lavatory on the Ground Floor for supplying water to the owners and/or their occupiers. Having considered that the water tap at Ground Floor has been installed for supplying water to owners and/or their occupier of Ground Floor and your client is allowed to reasonable use for the water tap installed in the lavatory on the Ground Floor without interruption, out client does not accept your client’s application for installing water pipe(s) and/or its ancillary at the common parts of the Building.

Apart from that, we would like to draw your attention to section 34I of the Building Management Ordinance (Cap.344) that no owner is allowed to convert the common part into his own use without the prior consent of the management committee of our client. Hence, our client has a right to refuse your client’s application.

We are instructed that if your client insists on installing water pipe(s) on the common parts or any part thereof, our client has no alternative but to commence legal proceeding against your client for tresspass. Our client also reserves its right to claim any loss and damages arising therefrom without further notice.”

12.  The matter came to a head in August 2010 when Mrs Chan engaged a licensed plumber to install water and drainage pipes to Unit 17 to be connected up with the building’s main water and drainage pipes which were at the rear of the building.

13.  This work involved drilling two holes (one 40 mm in diameter for the drainage and one 25 mm in diameter for the fresh water and about 15 mm apart) through the concrete canopy which ran around the outside of the building at the ceiling level of the ground floor shops.  The plan was then to run the pipes along the surface of the canopy to the main pipes across the common areas of the building.

14.  It is agreed that these works commenced without the consent of the IO, without the consent of the WSD and without the consent of the Buildings Department (“BD”).  It is further agreed by the plaintiff that, at the time, consent and approval by the BD was a requirement.  It was also contrary to a circular which had been sent to all the owners in the building on 20 January 2010 which, inter alia, stated:

“ 2. It has been resolved by the Management Committee that, starting from 20 January 2010, pipes for seawater and fresh water shall not pass through the exterior wall.”

and faced the risk of legal proceedings referred to in the earlier solicitor’s letter.

15.  Unfortunately, the licensed plumber’s work was not completed because he inadvertently, in the course of his work, shut down all the water supply to the commercial premises in the upper floors.  This caused immediate complaints and even the police were called.  The work stopped, the plumber left the site and, later, Mrs Chan apologized for the inconvenience but nonetheless asked the IO to reconsider its application.  The IO’s consent was not forthcoming and in 2011 it removed the piping that had been installed on the canopy but left the two pipes that had been installed through the drill holes in the canopy above the plaintiff’s shop having sealed them up.

The situation in 2017

16.  In July 2011, after obtaining permission from the WSD, Shop 17 was connected to the public water supply, described by the plaintiff as being “nearby” in Nelson Street.  Thus, the plaintiff has enjoyed a fresh water supply since July 2011 but still has no provision for drainage.

The relief sought

17.  The plaintiff claims that on a proper construction of the Deed of Mutual Covenant (“DMC”) it has a right to access the main pipes of the building for water and drainage.  It concedes that such an entitlement would be conditional upon no damage being caused to the building or inconvenience, nuisance or annoyance being caused to other occupiers.  The plaintiff seeks a declaration to this effect.  The prayer in the Amended Statement of Claim also seeks an order directing the IO to give its written consent to the works and an injunction preventing the IO from interfering with the installations.

18.  A number of provisions in the DMC, which dates from 1980, are pleaded. The following are the key provisions:

Clause 3(c):

“ 3. Each owner shall hold his part of the said building and the said premises subject to and with the benefit of the following rights privileges and obligations namely:-

…

(c)   The free and uninterrupted passage and running of water sewage gas and electricity from and to his part of the said building through the sewers, drains, watercourses, cables, pipes, pumps, tanks and wires which now are or may at any time hereinafter be in under or passing through the said premises and building or any part or parts thereof.”

Clause 4(t)(ii):

“ (t) The Common parts services and facilities referred to in this Deed shall include the following:

…

 (ii)  the sewers gutters drains watercourses, cables, wells, pipes,pumps,tanks,wires,sanitaryfittings,fire fighting and refuse disposal equipment and other apparatus and equipment used or installed for the benefit of the said building as part of the amenities thereof and not by any individual owner for his own use or purposes.”

Clause 10(b), (c) and (e):

“ 10. Each party hereto hereby covenants with the other as follows:-

…

(b) Not to make any alteration to the water or gas pipes electrical wiring or plumbing which may cause such damage or inconvenience as aforesaid.

(c) Not to cut or injure the cement concrete flooring columns beams external walls or girders of the said building or do anything whereby the structural strength thereof may be affected.

…

(e)   Not to use his part of the said building for any illegal or immoral purposes nor do or permit anything therein or thereupon which may create unnecessary noise or may be a nuisance or annoyance to or may cause damage or inconveniencetotheotheroccupiers of the said building.”

19.  In short, the plaintiff claims that the IO is in breach of the DMC by unreasonably withholding its consent to the proposed works (it being an implied term of the DMC that consent may not be withheld unreasonably).

The issues

20.  The plaintiff has listed 9 issues, which can be reduced to 6 following submissions at trial.  They are:

Issue 1 — Whether the plaintiff was entitled to obtain water and discharge waste water into the Main Pipes of the Building (i) on a proper construction of the DMC, and/or (ii) based on the implied term of the DMC.

Issue 2 — Further or alternatively whether the defendant is estopped from denying the plaintiff is entitled to obtain fresh water and discharge water into the Main Pipes through pipes installed on the common part of the Building.

Issue 3 — If the piping has to go through or utilize the common part of the Building and the consent of the defendant is required, whether there is an implied term that the defendant must not withhold its consent unreasonably.

Issue 4 — Whether in the event that transpired prior to the commencement of the action, the defendant had in all the circumstances refused its consent unreasonably to the plaintiff’s applications such that it amounted to a breach of the implied term.

Issue 5 — Whether the works that were carried out in August 2010 which then required the consent of the BD would still require such consent now in view of the introduction of new statutory regimes (post 2010) designating “minor building works” and “designated exempt works” which may be carried out without such consent.

Issue 6 — Damages.

The IO’s case

21.  Briefly, the IO contends that:

(i)   the DMC does not confer a right on the plaintiff (whether absolute or conditional) to connect up to the building’s main pipes for water and drainage by piercing the canopy and laying pipes around the common parts of the building;

(ii)   that if the plaintiff has a right as pleaded subject to the IO’s consent, such consent was not withheld unreasonably;

(iii)   the 9 August 2010 installation works were in contravention of section 34I of the Building Management Ordinance (“BMO”); in contravention of clauses 10(a), (b) and (c) of the DMC; did cause damage to the building; were commenced without approval or consent and were illegal;

(iv)   if carried out today the work would not be “minor works” and/or “designated exempted works”; and

(v)   in any event the plaintiff suffered no loss.

Issue 1:  Whether the terms of the DMC and/or the implied term conferred even a conditional entitlement on the plaintiff?

22.  I start with clause 3(c) of the DMC.  In my judgment reading this clause as a whole and not in a vacuum and keeping in mind the factual matrix (including the situation in 1980 in which the building was constructed with no water or drainage supply to the shop owners) its true and unambiguous meaning can be derived by summarizing the clause in the following way:

“Each owner” (including Mrs Chan and her predecessors in title) has “the benefit of … running water … to his part of the building through … pipes [etc] … which”

(i) “now are” (in 1980) or (ii) “may at any time hereinafter” be … “passing through the … building”.

23.  In my judgment the expression “may at any time hereinafter” can only refer to the possibility that in the future the owners of the building (or the IO) decides to put in new piping, for whatever reason, anywhere in the building.  Only then might the ground floor have the “benefit of running water” through pipes etc.  Absent such new piping there are no pipes etc from which the plaintiff can “benefit” to access a new water supply.

24.  Running water cannot be regarded as an “essential service” as over 90% of the shops have functioned perfectly well without water for 37 years.

25.  Both counsel referred the court to a number of authorities on this issue, including:

•   Leung Nai Hang v The Incorporated Owners of Success Industrial Building   HCA 1570/2010;

•   The Incorporated Owners of Yee Fung GardenvBasicTechLtd   CACV 40/2003;

•   Cogi Enterprises Ltd v The Incorporated Owners of Malahon Apartments   HCA 816/2004 and CACV 108/2010;

•   Lucky Hing Shing Estate Co Ltd v The Incorporated Owners of Genius Court  HCA 2048/2015

26.  Mr Ho relied on, inter alia, the Success case above in which Zervos J was dealing with a situation concerning, in similar circumstances to the present case, the supply of natural gas to an entire building which at the time had no such supply.  Mr Chiu sought to distinguish that case on the ground that in our case the building already had a water supply, whereas in Success there was no (gas) supply at all.  I agree with Mr Ho that this is not a valid distinction.  The proper comparison is between the whole building (in Success) and the whole of the ground floor (in the present case).  The plaintiff in our case is seeking a construction of the DMC which would confer the same right (albeit, as Mr Chiu carefully emphasised, which could be conditional) on the whole of the ground floor.  Thus, it is the general principle in Success which is important and therefore useful to cite herein a lengthy extract:

“ 70. The key issue in this dispute is the construction of the meaning and effect of Clause 3. This requires considering the language of the clause in the context of the purpose and provisions of the DMC. In the context of the present case, gas is specifically mentioned as an essential service that an owner is entitled to have connected to his unit. However, connection of gas to the unit which is to be free and uninterrupted, is to be provided through the existing pipes or pipes which are subsequently installed on the Land or Building. I interpret this provision to mean that an owner will be guaranteed the free and uninterrupted passage of essential services through the existing or subsequent system in place for the supply or passage of the service. It is required, therefore, that the system in place should provide the owner free and uninterrupted supply or passage of the service whether existing or subsequently installed. Where there is no system in place, it still requires the incorporated owners to decide on a system to be installed in accordance with the decision making process as provided under the DMC. Once a system of pipes for the supply of gas has been decided to be and is installed, the plaintiffs are [then] entitled to the free and uninterrupted connection of gas under the system in place whether now or in the future, but this still requires the incorporated owners to agree a system for the connection of gas to the units of the Building. It does not entitle an individual unit owner to connect gas to his unit, unless a decision of the incorporated owners has been made for that to happen in accordance with the provisions of the DMC. It entitles an individual unit owner the guarantee of free and uninterrupted passage of gas through the system put in place whether now or in the future. It does not in my view guarantee as of right an individual unit owner the supply of gas through his own and exclusive system of pipes on or over common areas of the Building, unless it is in accordance with the provisions of the DMC.

71. It comes to this.  The plaintiffs wish to have gas connected to their unit.  There is no system in place for the free and uninterrupted passage and supply of gas.  A system needs to be put in place which requires to be decided through the decision making process as provided under the DMC.  It is fundamental that the collective ownership of the units involves collective responsibility and decision making.  Without this collective responsibility and decision making, it would mean that each owner could install his own system to supply gas to the individual unit on or over common areas which would undermine the very purpose of the DMC and its provisions.  As the present case illustrates, the farcical situation would arise where each of the 122 unit owners could install their own system for the supply of gas.”

27.  The “Clause 3” referred to was effectively the same as clause 3(c) in the current case.  An almost identical clause was also in issue in the Cogi case (above).  In that case the parties were reversed as it was the IO making the application.  Nonetheless the same principles were adopted.  The Court of Appeal cited Sakhrani J’s remarks with approval:

“ As a matter of the proper construction of the DMC I am unable to accept that in 1967 when the developer was wishing to sell units in the building the first purchaser was agreeing to permit the developer or the manager of the building to run sewage pipes which were not there at the time through her property but could do so at any time thereafter. …

…. under the DMC there is a right to run drainage and sewage pipes through the building or any part thereof which were in existence at the time of the DMC but it does not give an unrestricted right to subsequently install new sewer and drainage pipes in different locations in shops offices and flats which have been assigned to purchasers. …

…. on a proper construction of the DMC as a whole it seems to me that there was no right in the developer to install new pipes not in existence at the time of the DMC in premises the exclusive use and occupation of which have been assigned. It does not give the developer any right to change the routing of the pipes if it involves going through premises the exclusive use and occupation of which have been assigned.

… It would be absurd in my judgment to construe clause 4 of Part A of the First Schedule as giving a right to the IO an unreserved right to reroute the passage of sewage pipes in the building to go through premises which have been assigned with an exclusive right to occupy the same. Mr Wright submitted that the nature of the obligation imposed does not include an obligation to allow additional pipes (which were not present at the time of the DMC) to be installed which would run through premises which have been assigned with an exclusive right to occupy.  I accept Mr Wright’s submissions.”

28.  These principles when applied to the factual matrix in our case (particularly that (i) the building plans specifically excluded water to the shop units, (ii) it is unknown and unclear how or when Shops 19, 21, 30 and 31 may have acquired a water supply, (iii) the installation at Shop 17 in 2010 was illegal and (iv) any such piping would inevitably encroach on the common areas of the building) must lead to the same conclusion.

29.  Zervos J’s references to “to be decided through the decision making process as provided under the DMC” and “collective ownership … involves collective responsibility and decision making” is a natural consequence of section 34I of the BMO which provides that:

“ (1) No person may—

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners’ committee (if any);

(b)   use or permit to be used the common parts of a building in such a manner as unreasonably to interfere with the use and enjoyment of those parts by any owner or occupier of the building; …”  [Emphasis added]

30.  Thus the BMO does not contemplate a situation where a plaintiff acquires a right to encroach on the common part of the building.

31.  To conclude on this issue the plaintiff has failed to establish that on a proper analysis the DMC provides for or entitles the plaintiff to the right contended for.

Issues 2 and 3

32.  Mr Chiu has largely abandoned issue 2 but I shall deal with it briefly (as it retains some relevance with regard to issue 4) in the context of the implied term issue.

33.  The plaintiff submits that a term should be implied into the DMC that a shop owner such as the plaintiff has the ‘right’ contended for, namely, a right to water, drainage and the installation of pipes for the same, with the consent of the IO not being unreasonably withheld.

34.  As a starting point, the fact that the DMC does not specifically provide for or entitle the plaintiff to a water and drainage supply does not, of itself, preclude or prevent the IO from agreeing to such an arrangement if it considers it to be consistent with the good management of the building.

35.  In the pleadings both parties argue for an implied term: the plaintiff for a term that the consent to an application for water and drainage should not be unreasonably withheld; the defendant for a term that no consent should be given to any installation that is either illegal or in contravention of the DMC. 

36.  In my judgment the appropriate way of resolving these competing submissions is to deal with the last point first; namely, was the IO’s refusal to consent, in fact, unreasonable.  If it was not unreasonable further analysis becomes unnecessary.  If it was unreasonable it will become necessary to consider the legal consequences.

37.  Issue 2 (estoppel) can be first disposed of briefly by reference to Mr Chiu’s concession as follows:

“ Having reviewed the evidence given by the parties, and in particular the admission by Ms. Woo that before purchasing Shop 17, she had consulted her lawyer Mr. Wong who informed her that she should be able to have the water facilities installed under the DMC …, it is very difficult to reasonably argue that she had separately relied on the representation of the IO through the latter’s inertia or acquiescence over the removal of the pipes in other shops which she observed to find an independent equitable right of estoppel to install the water and drainage pipes. Accordingly we will not make further submission under this head.”

38.  He adds, correctly, that the evidence on this matter is nonetheless relevant to the question of “unreasonableness”.  It should be noted exactly what that “evidence” is.  The high water mark is that Shops 19 and 21 are believed to have installed a water pipe (when is not known) and Shops 30 and 31 have connected water and drainage pipes through the wall of the shops to the toilets.  The only shop which it can be safely inferred has used its water supply is Shop 31 which is (or at least was in 2013) a hairdressing salon.  There is no factual evidence that any of these pipes are connected to the building’s main pipes.  It is also a fact that the IO did not consent to or approve of any such piping and there is no evidence that they were ever asked.  Finally, it is agreed that the uncompleted works carried out by the plaintiff in August 2010 were illegal works.

Issue 4: Unreasonableness?

39.  The parties agree that the burden is on the plaintiff to show that the IO’s refusal to consent to the plaintiff’s request was unreasonable.  The authority for this proposition is BG Global Energy Ltd v Talisman Sinopec Energy UK Ltd [2015] EWHC 110 (Comm).

40.  As to the correct test to be applied Mr Chiu refers the court to Ashworth Frazer Ltd v Gloucester City Council [2001] 1 WLR 2180 as an authority for the proposition that the IO’s reasonableness or otherwise must be measured in the light of what was stated at the time of refusal and that the IO is not permitted to rely on grounds which surface subsequently.  In particular, in the present case, Mr Chiu submits that the IO cannot rely on the fact that the 2010 works in fact required the BD’s consent and were therefore illegal, because this came to light later and was relied on by the defence after its consistent refusals in 2009 and 2010.

41.  If Ashworth is being cited as authority for the proposition that the illegality of the 2010 works cannot be relied on, I do not agree.  The Ashworth case concerned a dispute under the Landlord and Tenant Act 1988 in the UK, where consent or refusal was governed by the terms of the statute.  Moreover, even within that strict statutory regime (which does not apply to the facts of the present case) the judgment recognized the need for some latitude saying:

“ … Had the respondents continued the correspondence and elaborated their application in the light of the council’s reply, then the council might well have developed their thinking in more detail. Of course, once the landlord has stated in writing the ground on which he refuses consent, he cannot later rely on any other ground. But that does not mean to say that, when seeking to show that it was reasonable for him not to consent on the stated ground, he is confined to what he has said in his letter. Section 1(6)(c) contains no such restriction. And rightly so. Otherwise, instead of being a straightforward practical document, the notice containing the landlord’s reasons for withholding consent would soon become a battleground for litigants and an increasingly sophisticated playground for conveyancers. Such cannot have been the intention of Parliament in enacting the legislation.”

42.  The judgment had earlier set out the overriding principles including:

“ … in any case where the requirements of the first principle are met, the question whether the landlord'’ conduct was reasonable or unreasonable will be one of fact to be decided by the tribunal of fact.”

and

“ … the landlord’s obligation is to show that his conduct was reasonable, not that it was right or justifiable. …. one ‘should read reasonableness in the general sense’. There are few expressions more routinely used by British lawyers than ‘reasonable’, and the expression should be given a broad, common sense meaning in this context as in others.”

43.  Accordingly, the legality of the proposal must be a crucial factor.  I reject Mr Chiu’s submission that if the works are later found to be illegal the remedy is the repudiation of the consent by reason of mistake of law and the subsequent removal of the offending works.  In my judgment the plaintiff fails to discharge the burden on it to prove that the IO was unreasonable when the request was for an illegal installation and was supported by an inaccurate plan.  The only plan submitted at the time was prepared by the licensed plumber which showed the proposed pipes joining the building main pipes whereas, in evidence at trial, it was said that the new pipes went directly and independently into the gutter next to the main drainage pipe.

44.  Also, as earlier stated, the application contained more inaccuracies than merely in the proposed plan.  The plaintiff had stated that an application to the WSD had been made when it had not and, later, that the WSD had approved, when it had not.

45.  In addition to the above matters the following are factors which existed at the material time and when taken together amount to the IO’s decision being a reasonable one:

 (1)   The plaintiff made 4 or 5 requests prior to commencing the works in August 2010.  All were refused.  Save for the final one (which included the plumber’s drawings) none contained any detail as to exactly what was intended.

 (2)   The IO was concerned about the safety of the canopy.  Any layman would be concerned about the drilling of holes in concrete cantilevered canopy at 1^st floor level above the street.

 (3)   It could not possibly be known whether or not other shop units with street frontages would follow suit having seen consent been granted to Unit 17.  Expecting the IO to deal with each application on a case-by-case basis is unrealistic.  Such a piecemeal approach would have been poor administration and management of the building by the IO.

 (4)   The nature of the commercial enterprises at ground floor level had operated successfully since 1980.  I do not regard it as unreasonable for the IO to decide that it was in the building’s interest for similar enterprises to rent the units in the future.  In 2013, 17 were printing shops, 5 sold car accessories, 5 sold sportswear and 3 sold bus tickets.

 (5)   For all practical purposes it was impossible to install a system of the type envisaged without running pipes across the common areas, in this case, on the cantilevered canopy.

 (6)   The possible illegality of the proposal was alluded to by the IO in its letter dated 12 July 2010 in which it reminded the plaintiff of clause 10(b) of the DMC (not to make alterations which may cause damage) and clause 10(e) (not to use the building for an illegal purpose).  The letter also re-iterated its position that the installation of any pipes over the common area would lead to legal proceedings.

 (7)   The plaintiff’s second witness of fact, Mr Wu Kun Wa, gave evidence of the Committee’s discussions through the minutes of its meetings.  It is clear that any holes in the canopy would be opposed because of safety concerns. The committee members were clearly unwilling to give their approval to a scheme which lacked detail, which was not ‘in keeping’ with the established nature of the arcade’s business, which was a “one off” application and which involved a plumber drilling holes in the canopy.

Mr Chiu submits that all the above (and other) matters were most unreasonable both individually and collectively.  I am not persuaded that it has been proved to be unreasonable.  On the contrary, an understandable degree of caution would be a better description.

Issue 5:  Would the August 2010 works require the consent of the BD if carried out now?

46.  The plaintiff has asked the court to make a ruling on this question.  I will accede to the request but nonetheless regard it as somewhat academic.  Should the same or a similar situation arise again any prudent applicant would be well advised to submit detailed plans to the BD and ask the question “do we need your consent for these works or do they fall within the ‘minor works’ regime or ‘designated exempted works’”.  In this case I have heard expert evidence from two helpful and well qualified structural engineers who hold opposite opinions on the matter.

47.  Making the ruling necessarily involves rejecting the evidence of one of the two experts.  It would in my judgment be imprudent to reject the evidence of the expert who opines that BD consent is still required if the effect would be to usurp the function of the BD.  In any event such a ruling would only be pertinent to the exact works which were in fact carried out in 2010.  Thus, the ruling which would not bind the BD in any event is confined to the drilling of two holes, one 40 mm in diameter and one 25 mm, in the canopy above the plaintiff’s shop.

48.  The plaintiff’s expert was Mr Paul Kong Ming of Paul Kong & Partners Ltd, Design and Planning Consultant Engineers.  He wrote 2 reports totalling 40 pages with 110 pages of exhibits. The defendant called Professor Fan Siu Kay, a registered structural engineer and Authorised Person, whose report was 43 pages with 150 pages of exhibits. They also produced a joint report in which there was minimal agreement.  Their reports covered wider areas than the discrete question being addressed in this judgment.

49.  At the beginning of 2011 a new statutory regime came into operation in which certain building works were exempted from the necessity of BD consent.  Mr Chiu has helpfully set out the two areas of disagreement under the new regime, between the experts as follows:

   (1)   Whether the drilling of the holes in the canopy above Shop 17 meet the conditions set out in Part 2, item 1 in Schedule 2 to the Building (Minor Works) Regulations (Cap 123N) which states:

“ Part 2

List of Designated Exempted Works

Description of building works

1. Formation of any opening in a slab, provided that—

(a) the works do not result in any additional load to any cantilevered slab;

(b) the works do not involve the alteration of any other structural elements;

(c) the distance between the 2 points that are farthest away from each other within the area of the opening is not more than 150 mm; and

(d) if there is already an opening in the slab, the distance between the centre of the opening to be formed and any other opening in the slab is not less than 450 mm.”

so that it is “Designated Exempted Works” (“DEW”) and thereby exempted from consent under section 41(3B) of the Building Ordinance (Cap 123).  It is agreed that for this provision to apply all four conditions, (a), (b), (c) and (d), must be satisfied.

   (2)   Whether the drainage pipe work would meet the conditions set out in Part 3, item 3.23 of Schedule 1 to the Building (Minor Work) Regulation so that it is a Class III Minor Works and also exempt from Building Authority’s consent (under section 14AA of Cap 123).  Item 3.23 states:

“ 3.23. Erection, repair, alteration or removal of any aboveground drain, provided that—

(a) the works do not result in any additional load to any cantilevered slab;

(b) the works do not involve any main pipe, other than the replacement of components at existing junctions;

(c) the works do not involve any embedded pipe, other than a pipe that passes through a wall or slab; and

(d) the works do not involve any repair or replacement of an internal branch pipe or sanitary fitment.”

50.  Guidance as to the proper approach to deciding whether an exemption applies in this context is found in Mariner International Hotels Ltd v Atlas Ltd (2007) 10 HKCFAR 1 per Bokhary PJ at p 26:

“ …. Mr Sumption submits that the exemption has to be construed narrowly in a manner consistent with the statutory scheme of which it forms a part. I accept that submission. A purpose, if not the purpose, of the approval scheme of our building legislation is to protect the public by subjecting the matter of structural acceptability to the scrutiny of the Building Authority. To widen the exemption would be to reduce such scrutiny. In my view, Mr Sumption is right in his submission, on the first requirement, that building works added to a building involves its structure if they serve a structural function or are capable for some reason of affecting the integrity of the structure. That is to be derived from purpose. And it is also to be derived from linguistic consideration, for I think that Mr Sumption is right in characterizing the word ‘involving’ as one of the broadest words of association known to the English language. Perhaps only phrases like ‘in relation to’, ‘relating to’ and ‘with respect to’ are wider.”

   (1)   The drilling of holes in the canopy

51.  Professor Fan’s starting point was that the exemptions could never apply to a cantilevered slab.  His reasoning being that it was impossible not to affect the “load” on a cantilevered slab if a hole is drilled through it.  He said quite simply that this legislation does not apply to cantilevered slabs. There is some logic to this opinion on the basis that it is unlikely that the BD intended to permit the drilling of holes in concrete slabs which protrude over busy pavements without their approval.  On the other hand there is some force in Mr Chiu’s submissions that “cantilevered” slabs are not excluded.  He points out that if, for the purposes of the legislation, the definition of “slab” meant all slabs other than cantilevered slabs, then it would have been easy for the legislature to say so in the definition section. Also, what 1(a), above, must mean is that to be a DEW on a cantilevered slab it must suffer no additional “load”.  Professor Fan’s point is that an additional “load” is inevitable.

52.  The experts also disagreed on how the word “load” should be construed.  Both experts gave detailed consideration to this and many other issues.  In my judgment it would serve no useful purpose in setting them out at length.  The question posed to the court is a narrow one.  A decision must be made. Adopting a cautious approach, I prefer Professor Fan’s opinion.  “Load” should not be interpreted as extra weight, i.e. an increased physical load but in the sense of stress resulting from openings being made through the concrete.  I accept that a reduction in the structural strength of the canopy must follow as a result of holes being drilled through it and that, in turn, redistributes and increases the “stress” or “load” on the canopy.

53.  Thus, I am not satisfied that the plaintiff can safely say that 1(a), above, in the Minor Works regime has been satisfied.  If 1(a) is not satisfied, then neither is 1(b).  Mr Kong agreed with this.  However, even if the plaintiff’s submissions as to the meaning of “slab” and “load” are right the matter does not end there.

54.  1(c) and 1(d) deal with restrictions on drilling holes in slabs.  In support for his opinion Professor Fan, inter alia, referred to the Guidance Notes (PNAP[1] APP-68) to be followed when “cantilevered reinforced concrete structures” were being built in the first place.  In particular:

“ Every endeavour should be made to avoid penetration or embedment of pipes in cantilevered structures, especially slab elements. If unavoidable, consideration must be given to any local reduction in structural strength affected by the surface drainage system or embedded service pipes and ducts. In this regard, AP/RSE are reminded to make reference to PNAP APP-105 on the requirements and guidelines of embedment of water-borne pipes inside reinforced concrete beams and slabs.”

55.  That safety is a paramount consideration of the BD was illustrated by reference to a recent letter written to the IO of Tak Bo Building which included the following:

“…. Together with other factors, such as thickening the cement layer of the floor slab on the top of the canopy, improper waterproof layer and problem with the water discharge system, erecting or attaching unauthorized works to the canopy, etc., the risk of canopy collapse will increase. Therefore, we strongly advise you toappointconstruction professionals to conduct regular inspection of the canopy and carry out the necessary repair work as soon as possible in order to ensure that the canopy is safe and there is no unauthorized structure erected on it.”

56.  The two holes drilled in the slab have a space of 15 mm between them. 1(d), above, states that there should be a gap of 450 mm between a drilled hole and a hole which is already there.  Professor Fan, construing this provision narrowly, was of the opinion that once a hole is drilled in the slab a second hole must be 450 mm away.  The second hole in the present case was a mere 15 mm away.  Or, if measured from the outside edge of each hole it is still only 80 mm.

57.  Mr Kong’s opinion was that when two holes are drilled at the same time they should constitute a single hole and they must be at least 450 mm away from any hole drilled on a previous occasion.  A flaw in this approach is what if a third, fourth or fifth hole is drilled on the same occasion? Would 1(d) still be satisfied?

58.  Construing 1(d) strictly, I think Professor Fan’s opinion should prevail.  Condition 1(d) is not satisfied.

(2)   The drainage pipe

59.  As stated earlier, the plaintiff connected her shop to the public water supply in Nelson Street in 2012.  We are only concerned now with the drainage pipe which ran from the opening in the canopy along the surface of the canopy to the main drainage pipe at the rear of the building.

60.  Mr Ho, for the defendant, submits that the proposed works do not satisfy 3.23(b), above, namely that “the works do not involve any main pipe, other than the replacement of components at existing junctions”.  Mr Kong accepted that if the proposed drainage pipe was to be connected to the main drain it could not be an exempted work.  The original plan showed that to be the intention.

61.  In the event this academic point became even more academic as a result of a concession made by Mr Chiu after careful consideration of section 41 of Cap 123 headed “Part 5   Exemptions”.  I set out sections (3B) and (3C)(a) and (b):

“ (3B) Designated exempted works that are prescribed in the regulations are exempt from sections 4, 9, 9AA, 14(1) and 21.

(3C) Drainage works (other than minor works) in any building are exempt from sections 4, 9 and 14(1) if the works do not involve—

(a) the structure of the building;

(b) any drain or sewer into which there is discharged, or into which it is intended to discharge, any trade effluent, chemical refuse, waste steam, petroleum spirit, carbide of calcium, acid, grease or oil;”

62.  The bulk of the expert evidence centred on whether (3C)(a) applied to the present case.  Opinions differed.  Mr Chiu does not concede that (3C)(a) is fatal to his case, he submits that the drainage pipes once secured to the building would not “affect its structure”.  However, he very fairly acknowledges that (3C)(b) would apply to the plaintiff’s proposed works.

(3)   Did the installation works cause damage to the building?

63.  In the course of Professor Fan’s investigations a crack in the concrete was noticed running from near the drilled holes to the outer extremity of the canopy; in other words about 1 metre in length across the canopy.  Mr Kong had not noticed it beforehand.  The competing opinions as to its cause were that, according to Mr Kong, it was likely to be a thermal crack unrelated to the installation and that, according to Professor Fan, it was likely to have resulted from the installation works.  I consider a ruling from the court on this issue to be neither advisable nor possible.  All that can be said is that given its location it would be risky to exclude Professor Fan’s opinion.

64.  In conclusion on Issue 5, the considerable volume of exhibits and the length of the experts’ reports demonstrates the comprehensive nature of their investigations and the thoroughness and care in forming their respective opinions, much of which has not been touched on in this judgment.

65.  The above matters however are sufficient, in my judgment, to answer the question posed in Issue 5 in the affirmative.

Issue 6: Damages

66.  In view of the court’s finding hitherto this issue is also academic.  I nonetheless consider it appropriate to, for the sake of completeness, make some findings which would have formed the basis of my calculation of damages had the plaintiff been successful in its claims.

67.  Again both sides called expert evidence.  Mr Leo S D Cheung was the plaintiff’s expert and Mr Keith L H Siu the defendant’s.  Again, the report and exhibits were voluminous and again, there was only sparse areas of agreement.

68.  The basic facts were that the plaintiff became the owner of a vacant unit in September 2009.  (I shall use round figures throughout the following assessments.)  The previous tenant had been paying $72,000 per month.  The property remained vacant until 2012 when it was rented out at $82,000 per month (apart from a period of 10 months when Mrs Chan’s husband used the unit for storage in connection with his business and paid $30,000 a month).  In 2014 the property was let again for $98,000.  Mrs Chan had connected up to the public water supply in Nelson Street in August 2011. For all practical purposes therefore the lettings were with water but without drainage.

69.  The questions to be addressed are:

(a)   What rent might have been achieved when the property was empty had it had water and drainage?

(b)   For how much of the vacant period should the defendant be liable in damages?

(c)   Since August 2011 how much more rent would the plaintiff have received over and above the actual income, had the unit had the benefit of drainage in addition to the water which was then being supplied?

The experts

70.  In order to answer these questions both experts used the direct comparables method.  However their bases for selecting comparables were very different.  Mr Siu for the defendant used location as the key factor whereas Mr Cheung chose comparables on the basis of the dates of the rental transactions.  In other words with Mr Cheung’s comparables the leases commenced at the material time but their locations were further afield and there was a greater variation in the nature of the businesses conducted in the different shops.  Each expert then made numerous adjustments for a variety of factors including the size of the property, the age of the building, whether it has street frontage, the location and the nature of the business.  The percentage adjustments varied from 0% to as much as 50%.  It was accepted that the comparables exercise generally is a subjective one based on knowledge and experience.

71.  Mr Cheung studied more comparables than Mr Siu.  For the early period he selected 5 premises in Mong Kok and for the post 2012 period a different 6 premises.  He explained that the new 6 comparables were necessary because of his basic method of choosing leases at the material time rather than based on location.  Mr Siu chose 5 premises based on location.

72.  Criticism of Mr Cheung’s method was made, inter alia, because of the big differences in rents in some of the properties.  One was being let at $200,000 a month and was 42 square metres in size, another was considerably larger but the rental was only $50,000 per month.  Even after the adjustments were made it was submitted that they provided only minimal assistance in answering the questions in issue.

73.  In any event, Mr Cheung’s comparables produced figures for rent (with water and drainage) for 2009 – 2012 at $95,000 per month and post 2012 at $123,000 per month.  Mr Siu’s figures were $65,000 and $92,000 respectively.

74.  In cross examination Mr Cheung confirmed the accuracy of a different exercise designed to gauge the accuracy of the comparables results, as follows.

75.  The best indicator of the subject property’s rental potential, with water, was the rents that were actually agreed (assuming they were arm’s length’s transactions) namely $82,000 in 2012 and $98,000 in 2014.  Using these figures as benchmarks it is then possible to calculate what a fair rent would have been at either an earlier date or a later date by multiplying the benchmark figure by the appropriate multiplier in the Government’s “Private Retail — Rental and Price Indices”.  The Indices for December 2009, August 2012 and May 2014 were 117.3, 154.4 and 173.0 respectively.  Thus by way of example if the rent in 2012 was $82,000 the rent in 2009 would have been 82,000 ÷ 154.4 × 117.3 = $62,000.  Similarly if $98,000 is the benchmark for 2014 the same calculations for 2009 and 2012 are $66,000 and $87,000 respectively.  Alternatively one could start with the earlier tenant’s rent (in 2009) of $72,000.  Going forwards that produces figures of $94,000 for 2012 and $106,000 for 2014.  All these figures would have to be adjusted downwards by a small amount to reflect rent free periods at the commencement of a lease.

76.  It was submitted, and I agree, that even making a further allowance for a drainage supply Mr Cheung’s figures of $95,000 in 2009 and $123,000 for 2012 were unrealistically high.

77.  Mr Cheung further agreed that there was a correlation between a property’s rateable value and its rental value although he said it would not always result in an accurate figure.  Nonetheless the rateable value of the subject premises in 2015 was $876,000 or $73,000 per month in rent; a vastly different figure from Mr Cheung’s $123,000 in 2012.

78.  With all these figures, methods, adjustments and calculations in mind, it seems to me that the loss of rent due to the property being empty was approximately $70,000 per month.  Between September 2009 and August 2011 the property was empty for 13 months and rented for 10 months at $30,000 per month.  In my judgment Mrs Chan could have let it out, albeit without water and drainage, for some of this period but she did not do so because she chose to wait, optimistically, for the water and drainage supply rather than mitigating her loss whilst the issue was being debated.  In my judgment she became preoccupied with the water issue rather than maximizing her investment. I would have allowed a loss of rent for a 12 month period at $70,000 per month less $300,000 (the rent received) = $540,000.

79.  Finally, there is scant evidence that potential tenants of the ground floor units in the Tak Bo Building who would require water and drainage, such as a hairdresser or foot massage parlour, would pay more than the 30+ tenants in the arcade doing printing business or selling sports shoes.  The pool of potential tenants to this particular building would be reduced but the nature of the arcade suggests that the reduction to that pool would be small.  Equally the difference in rental potential between the reduced pool and the maximum pool is likely, on the available evidence, also to be small.  Mr Cheung’s figure of $123,000 in 2012 for the unit with water and drainage seems unrealistic.  The actual rent achieved, with water, was $82,000.  Mr Cheung’s figure represents a 50% increase because of additional drainage. Two years later, in 2014, Mrs Chan was receiving $98,000 a month.  This is clearly in the same general range as Mr Siu calculated to be appropriate.  It should nonetheless be recognized that the unit with drainage is worth more than without.  Thus, a small, possibly even token, increase would have been added to reflect this.

Counterclaim

80.  In the course of the hearing the value of the defendant’s counterclaim was pared down from a small sum to a tiny sum.  All that is now claimed is $1,600 for the cost of dismantling the illegal pipework installed in 2010.  Mr Chan’s evidence (for the IO) concerning this invoice was unclear.  I dismiss the counterclaim with no order as to costs.

Conclusion

81.  There will be judgment for the defendant on the claim with a costs order nisi in the defendant’s favour and a certificate for two counsel.