BUAPHAN WANLAYAPHOL AND ANOTHER v.THE INCORPORATED OWNERS of the FOREMOST BUILDING situate at 19-21 Jordan Road, Kowloon, Hong Kong AND ANOTHER

LDMP 12/2002

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Miscellaneous Proceedings Application No. LDMP 12 of 2002

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D E C I S I O N

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Background

1. This is an application made by the 1st and 2nd Applicants by way of Originating Summons dated 20 July 2002 ("the Summons") seeking leave from this Tribunal to enforce an judgment against the 2nd Respondent pursuant to section 17 of the Building Management Ordinance, Cap. 344 ("the Ordinance").

2. The 2nd Applicant and the late Buaphan Wanlayaphol ("the Deceased") were husband and wife, and they lived in Sweden. On 1 April 1996, while visiting Hong Kong and walking along a pedestrian pavement, the 2nd Applicant and the Deceased were hit by concrete and debris fell from the external walls at the Third Floor of Foremost Building at 19-21 Jordan Road, Kowloon, Hong Kong ("the Building"). The 2nd Applicant and the Deceased were seriously injured in the accident and the Deceased eventually died on 12 January 1999.

3. The Applicants claimed against the 1st Respondent, being the incorporated Owners of the Building, for damages for the death and injury of the Deceased and the 2nd Applicant respectively caused by the 1st Respondent's negligence and breach of duty in managing the Building in High Court Personal Injury Action No. HCPI 336 of 1998 ("the High Court Action"). Judgment on liability was entered against the 1st Respondent on 8 March 2001 and Final Judgment ("the Judgment") after assessment of damages in the sum of HK$3,997,047 together with interest and costs was entered on 3 May 2001.

4. By a letter dated 9 January 2002, the Applicants through their Solicitors served the Judgment on the 1st Respondent's Solicitors and demanded the 1st Respondent to settle the Judgment sum, but the 1st Respondent has failed and/or refused to satisfy the Judgment in full.

5. Instead of pursuing the matter further with the 1st Respondent, the Applicants now seek to enforce the entire Judgment against the 2nd Respondent, who is just the registered owner of the Ground Floor of the Building. The 2nd Respondent is however prepared to pay its own proportionate share in respect of the Judgment sum.

The Applicable Principle

6. Under section 17(1)(b) of the Ordinance, the Lands Tribunal may give leave to a judgment creditor to enforce a judgment against any individual owner of a building when the judgment was obtained against the corporation of the building.

7. In Golden Chance (Hang Cheong) Properties Limited v. The Incorporated Owners of Gold Mine Building, HCA No. 6749 of 1983, the plaintiff was the service company which had carried out management functions at the request of the management corporation. On default of payment for those services, the plaintiff obtained judgment, and sought to enforce it against individual owners. However, Power J (as he then was) held that section 17 should be read together with section 16 with the result that the action did not arise in respect of the common parts of the building and so could not be enforced against individual owners.

8. Power J. also gave the criteria to be applied in the exercise of the discretion as follows:-

"I am satisfied that the discretion is not so fettered that all the Plaintiff has to do to obtain a decision in his favour is to show that the corporation has no property and that the person against whom he is proceeding is an owner. Indeed, if this interpretation is correct, it would mean that a new owner, the day after his purchase, could be made liable for a crippling debt as the Court would have no power to refuse the grant of leave. If the legislature had wished to fetter the discretion in that way it could simply have said that in circumstances where the corporation has no property then the judgment may be enforced against any owner.

I am satisfied -

(a) that the onus is on the plaintiff, when making an application for leave under s.17, to establish that it is a proper case for the granting of leave;

(b) that to do so he must establish that justice requires the making of the order;

(c) that the Court is entitled to look at all of the circumstances of the parties when coming to its decision;

(d) that the Plaintiff's application must fail when the Court considers that greater injustice will be done to an owner if leave is granted that will be done to a Plaintiff if it is refused.

If the refusal of leave were to put the Plaintiff in the position where he was without any remedy this would be a powerful factor in his favour in the application."

9. In Vic Green Co. Ltd. v. Incorporated Owners of Hanley House & Ors. (1993) MP No. 2863/91, Mayo J. (as he then was) accepted the principles laid down by Power J. in Golden Chance. He however granted leave against certain specific owners because they were members of the management committee and their acts or omission could most readily be identified and proved as having been instrumental in causing the loss to the plaintiff.

10. In Vincent Ip & Associates Limited v. The Incorporated Owners of Kam Ming Court, CACV 143/99, a Chinese Judgment delivered by Chan CJHC, Leong and Wong JJA (as they then were) on 25 November 1999, Chan CJHC laid down the factors that the Lands Tribunal should consider in exercising its discretion as follows:-

(1) The steps that the creditor has taken against the incorporated owners to pursue and execute the judgment.

(2) The financial situation of the incorporated owners and the assets that they have.

(3) The services provided by the creditor to the building, whether a particular owner has benefited therefrom.

(4) The reason for choosing a particular owner but not others.

11. Furthermore, in Chi Kit Co. Ltd. v. Lucky Health International Enterprises Ltd. [2000] 3 HKC 143, Litton PJ said at page 153:-

"The Lands Tribunal is empowered under s 17(1)(b) to give leave to enforce judgment against an owner who becomes owner after the date when the original liability was incurred. The Tribunal's discretion is wide. Depending upon the circumstances of the case it might in its discretion limit the order in the first place to the owner's proportionate share in the land and building, leaving the balance (if any) to be recovered upon the winding up of the corporation. Conceivably, there might be circumstances where it would be proper to give leave for a larger proportion or even the entire judgment to be executed against one owner, leaving it to that owner to seek contribution from his co-owners."

12. Bokhary PJ and Sir Anthony Mason also said the following in the Chi Kit case at page 155:-

"There is no reason to think that leave under s 17(1)(b) would be refused if the corporation is unable to meet a judgment against it and the execution is limited to the proportionate share of the individual owner. If execution in a greater amount were sought against an individual owner, difficulties would arise. The Tribunal might require other owners to be joined or served and evidence given as to their financial situation. But in a case where some owners are unable to make good their proportionate share of the total liability, the Tribunal could grant leave to execute beyond the level of the proportionate share of an individual owner. After all, in a winding-up, unit owners are jointly and severally responsible for the amount necessary to discharge the corporation's liabilities."

13. From the above cases, the principles concerning section 17(1)(b) can be summarized as follows:-

(1) The application is related to an action in respect of the common parts of the building.

(2) Whether leave should be granted under section 17(1)(b) is a matter within the Tribunal's discretion.

(3) The leave procedure is there for the protection of both the creditors and individual owners.

(4) It is only in rare and clear cases when section 17(1)(b) may be invoked, and even in those cases, the application has to be supported with sufficient reasons, otherwise injustice could result.

(5) The discretion is not so fettered that all the applicant has to do is to show that the corporation itself has no property and that the person against whom he is proceeding is an owner.

(6) The onus is on the applicant to establish that it is a proper case for the granting of leave.

(7) The applicant must establish that justice requires the making of the order.

(8) The application must fail when the court considers that greater injustice will be done to an owner if leave is granted than will be done to an applicant if it is refused.

(9) When deciding how the discretion should be exercised, the court is entitled to look at all the circumstances.

(10) The relevant circumstances and considerations include:-

(a) whether the owner against whom the application is made is closely connected to the cause of action;

(b) whether the applicant may be left with no redress if leave is refused;

(c) the financial situation of other individual owners;

(d) the steps that the creditor has taken against the incorporated owners to pursue and execute the judgment;

(e) the financial situation of the incorporated owners and the assets that they have;

(f) the services provided by the creditor to the building, whether a particular owner has benefited therefrom; and

(g) the reason for choosing a particular owner but not others.

The issues

14. The parties do not have any dispute on the principles applicable in the present case as aforesaid. There are only two issues that I have to decide, i.e. whether the High Court Action concerns the common part of the Building and how I should exercise my discretion in the circumstances of the present case.

Common parts

15. Clause 3(b) of the Deed of Mutual Covenant of the Building ("the DMC") stipulates that "The First party hereto shall have the exclusive right to the use of all the external walls of the said building...as are not intended for common use and to take the rents and profits thereof." Since "the First party hereto" has the exclusive right to use the external walls, the 2nd Respondent contends that the external walls do not fall within the definition of "common parts" in section 2 of the Ordinance. As such, the Applicants have failed to discharge the onus incumbent upon them to show that the Judgment arose out of proceedings referred to in section 17(1)(b) of the Ordinance, and on this ground alone, the application ought to be dismissed.

16. Mr. Au for the Applicants, however, submitted that "the First party" in Clause 3(b) of the DMC could not be an owner within the definition of "owner" in section 2 of the Ordinance. Section 2 defines an "owner" to mean "a person who for the time being appears from the records at the Land Registry to be the owner of an undivided share in land on which there is a building." According to Mr. Au's interpretation, "the First party" was not the same as "the First Owner" in the Second Schedule of the DMC. Since the parties referred to in the Second Schedule of the DMC would have held all the undivided shares of the Building, "the First party" could not have held any more undivided share in the Building. If "the First party" did not have any undivided shares of the Building, it could not be an owner within the definition of "owner" in section 2 of the Ordinance.

17. Mr. Au further submitted that "if the First party" was not an owner, then the exception in the definition of "common parts" in section 2 of the Ordinance would not be applicable. The definition in section 2 referred to "the whole of a building, except such parts as have been specified or designated in an instrument registered in the Land Registry as being for the exclusive use, occupation or enjoyment of an owner" (underline added). Thus, even when Clause 3(b) of the DMC gave the exclusive use of the external walls to "the First party", the external walls were still common parts of the Building. Mr. Au submitted that the First Schedule of the BMO should apply and "external walls" were specified in the First Schedule as "common parts".

18. Despite Mr. Au's ingenuous arguments, I am unable to accept his contention that "the First party" in Clause 3(b) of the DMC refers to a party other than those listed in the Second Schedule of the DMC. No doubt the DMC does not give any definition for "the First party", and the parties in the Second Schedule are referred to as "the First Owner", "the Second Owner" and so on. However, if one looks at the whole of the DMC, it is not difficult for one to see that "the First party" must refer to the "First Owner" in the Second Schedule.

19. First of all, in the 1st page of the DMC, it is stated clearly that the DMC was made between "the several persons and companies or corporations whose respective names addresses and descriptions are set out in the First Column of the Second Schedule hereto (hereinafter called the Parties hereto"...)". So the parties to the DMC must all be contained in the Second Schedule of the DMC. There should be no other party to the DMC other than those listed in the First Column of the Second Schedule. Mr. Au's interpretation of "the First party" has in fact omitted the significance of the word "hereto" which immediately follows "the First party". I do not accept that "the First party" was a term used to describe a specific party not being a party to the DMC, or that, as submitted by Mr. Au, it refers to the manager of the Building. The word "hereto" clearly indicates that "the First party" is a party to the DMC. Since all the parties to the DMC are specified in the Second Schedule, I am of the view that it actually refers to "the First Owner" in the Second Schedule.

20. I do not accept that the use of the small letter "p" in "the First party" indicates a different party because "the Parties hereto" in the 1st page of the DMC uses a capital letter "P". In fact, as submitted by Mr. Yeung for the 2nd Respondent, the draftsman of the DMC did not use the capital letter "P" and the small letter "p" in any significant way, but in a loose manner. An example can be seen in Clause 4 of the DMC, where it is stipulated that certain expenses have to be borne by "the parties hereto". I do not think that any sensible reading of Clause 4 would give rise to an interpretation that "the parties hereto" in Clause 4 are parties other than the "Parties" in the Second Schedule simply because of the use of the small letter "p". There are many other similar examples in the DMC as submitted by Mr. Yeung. I do not find it necessary to list them all out here.

21. I also find that the use of the word "Owner" in "the First Owner", "the Second Owner" and so on in the Second Schedule of the DMC, instead of the word "Party" or "party", is an oversight by the draftsman, and the draftsman had used the words "Owner" and "party" interchangeably. An example can be found in Clause 7 of the DMC. Clause 7 stipulates that "Each owner shall pay to the first party hereto... the monthly service charge... PROVIDED that if any of the parties hereto shall fail to make such contribution and/or service charge... the first party hereto... shall be at liberty to disconnect all water supply to shop office or flat belonging to the defaulting party until such contribution and/or service charges shall have been paid." It is clear to me that "the defaulting party" should mean the "owner" who defaulted payment of the service charge. So there is no differentiation between "owner" and "party".

22. Mr. Au also submitted that the Judgment must be concerning common parts of the Building, because the claim in the High Court Action was based on the fact that the external walls were common parts of the Building. Mr. Au, however, conceded that there was actually no finding of facts made by the High Court in the High Court Action. So at the highest, it could only be inferred that the Judgment was entered based on the matters raised in the Amended Statement of Claim.

23. Mr. Yeung, however, submitted that since the Applicants had pleaded various alternative grounds, it was possible that the Judgment was based on any one of the alternative grounds. One of the grounds pleaded can be found in paragraph 15(b) of the Amended Statement of Claim, which reads as follows:-

"Further or alternatively, under Section 18(1)(c) together with Section 34H and 34I of the said Ordinance, failing to do all things reasonably necessary for the enforcement of its obligations for the control, management and administration of the building;"

24. Section 18(1)(c) of the Ordinance Stipulates that:-

"(1) The corporation shall --

........

(c) do all things reasonably necessary for the enforcement of the obligations contained in the deed of mutual covenant (if any) for the control, management and administration of the building."

25. Mr. Yeung argued that it was not necessary for a claim under section 18(1)(c) to have any connection with any of the common parts of the Building.

26. Since there was no finding of facts made by the High Court, I am unable to say one way or another upon which ground the Judgment was entered. I therefore agree with Mr. Yeung that the Judgment could be based on any one of the alternative grounds. I also agree with Mr. Yeung that section 18(1)(c) may not necessarily have connection with any common parts of the Building. Thus, the mere fact that the Judgment was entered by the High Court does not give any conclusion that the external walls were common parts of the Building.

27. Moreover, the 2nd Respondent was not a party in the High Court Action. So even assuming the High Court had found that the external walls were common parts of the Building, such a finding would not be finding on the 2nd Respondent. The onus still lies on the Applicants to satisfy me that the external walls were common parts of the Building. In view of Clause 3(b) of the DMC and the matters aforesaid, I am not satisfied that the Applicants have discharged this duty. On the contrary, it is my finding that the external walls were not common parts of the Building because they have been assigned to "the First party" or "the First Owner" to the DMC for their exclusive use.

28. There was also a question raised by Mr. Au concerning the names of "the First Owner". According to the Land Search Record (exhibit "R1"), the First Owner should consist of 5 persons, namely, Hua Loog-ven, Raymond Sung, Kwong Wing Kam, Pang Chiu On and Louies Ming Kui. However, only 3 of the said names were referred to as "the First Owner" in the Second Schedule. Mr. Au submitted that they were not the same party.

29. Nevertheless, from the Land Search Record, it is clear to me that Kwong Wing Kam and Louies Ming Kui had assigned their shares in the Building to Raymond Sung before the execution of the DMC. As Kwong Wing Kam and Louies Ming Kui no longer had any shares in the Building when the DMC was executed, it is not surprising that their names did not appear in the Second Schedule of the DMC. I do not think that the 5 names in the Land Search Record cast any doubt on who "the First party" was. As aforesaid, "the First party" should refer to the first party to the DMC, i.e. the 3 names referred to as "the First Owners" in the Second Schedule.

30. In view of my aforesaid finding that the external walls were not common parts of the Building, and based on the principle in the Golden Chance case, I rule that the Applicants cannot seek leave from this Tribunal to enforce the Judgment.

Discretion

31. Even assuming that the external walls were common parts of the Building, I will not exercise my discretion to grant the leave in the circumstances of the present case.

32. First of all, the Building is a 17-storey building, comprising of 60 units, most of them are separately and individually owned. The 2nd Respondent is only one of the many co-owners of the Building holding 7 out of the 116 undivided shares. The 2nd Respondent was not a party in the High Court Action. It has never been the Applicants' case that the 2nd Respondent was in any way culpable for the accident, or was involved in the conduct of the proceedings in the High Court Action on behalf of the 1st Respondent. It is also not the case that the 2nd Respondent had any representative on the management committee of the 1st Respondent. In fact, the present application was the very first time the 2nd Respondent was brought into the proceedings.

33. Unless there are good reasons to do so, I find it extremely unjust to ask a party who is not to be blamed for the accident to bear the entire Judgment sum, rather than its proportionate share. The Applicants sought to justify the application in 3 aspects:-

(1) The Applicants have taken reasonable steps to seek to enforce the Judgment against the 1st Respondent.

(2) The 1st Respondent has inadequate financial status.

(3) The 2nd Respondent as a bank is more "blameworthy" than the other owners in the Building.

Steps taken by the Applicants

34. The Applicants submitted that they had properly demanded the 1st Respondent to settle the Judgment. In the beginning of the High Court Action, the Applicants had even "reminded" the 1st Respondent the need to set up a common fund to be contributed by the owners for the purpose of satisfying any judgment to be entered against them. However, this was obviously disregarded by the 1st Respondent and their solicitors had by a letter dated 29 January 2002 made it clear to the Applicants that the 1st Respondent was not in a position to settle the Judgment. It was further stated in the said letter that the Management Committee of the 1st Respondent was of the opinion that it was "impracticable" for them to take legal steps to enforce the Judgment against those owners who were "dilatory". On the other hand, the 1st Respondent by the said letter suggested to the Applicants that they could seek to enforce the Judgment individually against those owners from whom the 1st Respondent had difficulty to seek contribution.

35. The Applicants submitted that it was absurd for the 1st Respondent to suggest that the Applicants could do what even the 1st Respondent itself could not achieve when the 1st Respondent was and should be in a much better position than the Applicants to do the same. The Applicants also submitted that winding up of the 1st Respondent would be costly and time consuming, and require the engagement of professional accountants. There was no certainly as to when this could be properly completed and there was no evidence to suggest that those "dilatory" owners were willing to co-operate with the liquidator even if one were to be engaged. So, there was no reason why the unfortunate and innocent Applicants, who were victims of poor management and maintenance of the Building, should be subject to this timely, costly and uncertain procedure.

36. I do not accept the Applicants' submission in this regard. The obvious step open to the Applicants is to wind up the 1st Respondent under sections 33 and 34 of the Ordinance. Once a winding-up order has been made, the rest will be in the hands of professional liquidators. There is no evidence to suggest that winding-up procedures must necessarily be time consuming and expensive. On the contrary, winding-up proceedings are well defined by the Companies Ordinance and can be pursued expeditiously. In fact, if the Applicants had started winding-up proceedings soon after they obtained the Judgment on 3 December 2001, the winding-up proceedings would have either been completed or in an advance stage by now. I do not think that there is any justification in not taking this step earlier or at all. After all, the Applicants are on legal aid, I do not think that costs should be a hindrance to the Applicants.

The Financial Status and Assets of the 1st Respondent

37. The Applicants submitted that they were not privy to any documents that showed the 1st Respondent's financial and assets status. However, since the 1st Respondent through their Solicitors had indicated clearly that it was not in a position to settle the Judgment in full, the 1st Respondent was clearly in a poor financial status, at least regarding the enforcement of the Judgment.

38. On the balance, I can accept that the 1st Respondent may not be in a good financial status. However, it still does not preclude the Applicants from taking out winding-up proceedings against the 1st Respondent. Once the winding-up order is made, all the owners of the Building would be liable to contribute towards the Judgment sum. There is no evidence to suggest that only the 2nd Respondent is in a position to pay the Judgment sum but not the other owners. If the other owners are also in a position to pay, there is no reason for the Applicants to forgo this step and insist on the 2nd Respondent to pay the full sum.

The Reasons for choosing the 2nd Respondent

39. The Applicants submitted that the reasons why the Judgment could not be properly and fully enforced and satisfied after more that 11/2 years and the Applicants were put into the present difficult position on enforcement of the Judgment were largely due to the failure on the part of the 1st Respondent in taking out public liability insurance for the Building. The 2nd Respondent, being a well established banking institute which has also been offering property mortgage services in Hong Kong, was clearly more aware of the importance to have proper management, repair and maintenance of the Building and public liability insurance for the Building than the other owners of the Building. The 2nd Respondent, as an owner of the ground floor of the Building for over 25 years up to the time of the accident, should be aware that no insurance policy had been taken out for the Building, and the maintenance and repair of the Building were in a poor state. However, the 2nd Respondent failed to alert the 1st Respondent to the necessity of insuring the Building against public liabilities and carrying out proper and reasonable management and repair of the common parts of the Building.

40. In the circumstances, the Applicants submitted that the 2nd Respondent, as compared with the other owners of the Building, was relatively more "blameworthy" for its inactivity and indifference as aforesaid.

41. I totally disagree with the Applicants' contention in this regard. There is absolutely no basis to suggest that a person should in effect be penalized for his experience and knowledge. If the Applicants' logic is correct, then a structural engineer, an insurance broker or a lawyer would be equally if not more "blameworthy" as the 2nd Respondent. I see no justification at all to determine one's extent of liability in respect of a building commonly shared by other owners by reference to his personal knowledge and experience. Such an allegation in fact ignores the effect of section 16 of the Ordinance (assuming that the external walls of the Building are common parts). Section 16 provides that "the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by... the corporation to the exclusion of the owners". So an owner, no matter how knowledgeable he is, is precluded from exercising such rights, powers, privileges and duties individually. Why should he then be more blameworthy than the other owners?

Conclusion

42. By reason of the matters aforesaid, I come to the following conclusions:-

(1) The Applicants have not taken all reasonable steps to seek to enforce the Judgment against the 1st Respondent.

(2) The Applicants should seek to wind up the 1st Respondent for the purpose of the enforcing the Judgment before requiring the 2nd Respondent to pay the Judgment sum in full.

(3) Even though the 1st Respondent is in poor financial status, when the 1st Respondent is wound up, all the other owners can contribute towards the Judgment sum. There is no evidence that the other owners other than the 2nd Respondent cannot pay the Judgment sum in full collectively.

(4) The 2nd Respondent is not more "blameworthy" than the other owners because of its knowledge and experience.

43. In the premises, I find that it is not a case justified for the exercise of my discretion to grant leave to the Applicants to enforce the Judgment against the 2nd Respondent, even assuming the external walls were common parts of the Building.

Orders

44. I therefore order that the Applicants' application by way of Originating Summons dated 20 July 2002 be dismissed.

45. As to costs, I am of the view that the High Court Scale should apply because the case involves a judgment sum of over $3 million, which should in fact be within the jurisdiction of the High Court, if there was no such requirement to obtain leave in the Lands Tribunal. The Applicants themselves also asked for costs to be taxed at the High Court Scale at the hearing on 17 February 2003. The case is also complicated enough to warrant the attendance of counsel. I therefore make a costs order nisi as follows:-

(1) The Applicants do pay the costs of the Application to the 2nd Respondent with certificate for counsel, to be taxed at the High Court Scale if not agreed.

(2) The Applicants' own costs be taxed in accordance with the Legal Aid Regulations.

(3) If there is no further application on costs within the next 14 days, the aforesaid costs order nisi shall become absolute.