TAI FAT DEVELOPMENT (HOLDING) CO LTD v. THE INCORPORATED OWNERS OF GOLD KING INDUSTRIAL BUILDING

HCA 104/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 104 OF 2006

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D E C I S I O N

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1.  This is an appeal by the plaintiff against the dismissal by a master of its summons for summary judgment on 26 June 2006.  The plaintiff also has a summons to amend its statement of claim.

2.  The plaintiff’s claim is straightforward.  It relied on a tenancy agreement dated 25 November 2004 which was made between the plaintiff as the landlord and the defendant as the tenant.  The subject matters of the tenancy are 12 parking spaces and a storeroom in Gold King Industrial Building.  The parking spaces are those numbered 1 and 2 on the first floor and those numbered 4, 5, 11, 12, 13, 14, 20, 37, 38 and 39 on the third floor.  The storeroom is the space between the parking spaces numbered 32 and 33 on the third floor.

3.  The plaintiff pleaded that the defendant has failed to pay the rental of $55,000 per month since 1 September 2005 and has thereby breached the tenancy agreement.  The plaintiff therefore forfeited the tenancy by a letter of 14 December 2005.  In this action, the plaintiff seeks the payment by the defendant of $275,000 as arrears of rent and mesne profits up to the issue of the writ on 16 January 2006 and further mesne profits at $55,000 per month thereafter.  It also seeks an order for delivery up by the defendant of the parking spaces and the storeroom.

AMENDMENT OF THE STATEMENT OF CLAIM

4.  There is an error in the statement of claim.  It pleaded that all the parking spaces are on the second floor.  In fact, the numbering of the car parks is not repeated on different floors.  The 38 car parks in the building are numbered from 1 to 38.  It is thus not necessary to refer to the car parks by the floor. 

5.  Despite this error, which was repeated in the summons for summary judgment and the affirmation in support of the summons, the defendant has not been misled.  One Mr. Kwan made an affirmation in opposition for the defendant.  He spelt out the locations of the parking spaces clearly and correctly by reference to the floors as well as their numbers.  Therefore, this slight error in the statement of claim has not prejudiced the defendant at all.

6.  The plaintiff’s summons to amend referred to above is for leave to delete the words “on the second floor” from the description of the parking spaces in paragraph 1 of the statement of claim.  I also refer to the case of Tong Nai Kan v Cheung King Fung Francis [2005] 2 HKC 249 at paragraph 23.  I see no reason not to accede to this summons.  I give leave to the plaintiff to amend the statement of claim by deleting those words and dispense with the service of the amended statement of claim.  The costs of this summons are to the defendant.  I also grant leave to the plaintiff to effect similar amendment to the summons for summary judgment.  There is no need for a fresh affidavit to verify the amended statement of claim as there is already one filed on 26 June 2006. 

SUMMARY JUDGMENT

7.  Before I deal with the merits of the application for summary judgment, I would make it clear that the plaintiff is not the owner of these parking spaces and the storeroom.  They belong to the first owners of the building.  The plaintiff is, however, authorised to deal with them for the first owners.  I now deal with the appeal by way of a re-hearing. 

8.  Despite the service of the summons for summary judgment on 13 February 2006 and the provision in Order 18 Rule 2(2) of the Rules of the High Court, the defendant still filed a defence and counterclaim on 7 March 2006.  The defendant pleaded that the plaintiff was not the landlord because the 12 parking spaces were part of the common areas of the lot and the building and they were for the use and occupation of all the owners.  This argument is based on the definition of “common areas” in the DMC which I will refer to below.  I would, however, note here that the defendant was aware of this argument prior to entering into the tenancy with the plaintiff.  It was raised fairly and squarely in a letter dated 6 September 2004 by the defendant’s then solicitors.

The Storeroom

9.  The defence and counterclaim has not raised any defence on the storeroom.  I will therefore deal with it.  Clause 1 of Sub-Section A of section II of the deed of mutual covenant (“the DMC”) provides:

“A. Mutual Grants

1. The First Owner shall at all times hereafter subject to and with the benefit of the Crown Grant, have the full and exclusive right and privilege to hold use occupy and enjoy to the exclusion of the First Purchaser the whole of the Land and the Building Together with the appurtenances thereto and the entire rents and profits thereof save and except that portion of the Building described in the Second Schedule hereto and save and except the Common Areas and Common Service Facilities.”

10.  The storeroom is an area coloured green in a plan annexed to the DMC.  Clause 3 of section V of the DMC provided for its use as follows:

“Rights and privileges excepted and reserved unto the First Owner

The First Owner and its successors and assigns of such of the exclusive rights hereinafter mentioned shall have the following rights so long as the First Owner or such successors and assigns of the First Owner shall retain a share: -

(3) Without prejudice to clause 1 of Sub-Section A of Section II of this Deed and to the generality of the foregoing, the exclusive right and privilege to hold use occupy and enjoy all those areas as shown coloured green on the Plan hereto annexed.”

11.  Despite the lack of any defence pleaded for the storeroom, Mr Tsang, counsel for the defendant, in his skeleton submissions argued that this place was included as part of the parking spaces in the approved building plan and it could not be used as a storeroom.  He further argued that if no approval had been given for change of user, the storeroom would be an unauthorised structure.  The tenancy would thus be tainted with an illegality of user of the storeroom.

12.  I have considered the approved plan as produced.  The storeroom is no doubt a space on the third floor and that floor has many parking spaces, but no parking space has been drawn on this space.  It was not stipulated for parking purpose.  There is no evidence to show that it cannot be used as a storeroom.  In any case, this argument of illegality cannot be a defence to a claim for recovery of possession upon forfeiture of the tenancy and for arrears of rent and mesne profits.

13.  In the course of submissions, Mr Tsang also relied on the terms of third schedule of the standard assignment by which the first owners and the developer assigned some of the shares of the lot and the exclusive right to occupy individual units to the purchasers.  The third schedule reads:

“THIRD SCHEDULE

EXCEPTING AND RESERVING unto the Vendors and each of them and their respective successors and assigns other than the Purchaser: -

1.    The exclusive right to hold use occupy and enjoy each and every part of the Land and the Building other than the Property (that is the unit the exclusive occupation right of which that has been sold) save and except such areas (if any) as may be designated as common areas in the Deed of Mutual Covenant or are intended for common use including (but without prejudice to the generality of the foregoing): -

(a) the external walls, main roof and flat roofs of the Building (unless otherwise specifically included in the Property);

(b) all areas within the Land not covered by any building and all open areas under any building which are not included in the specific reservations contained in the following sub-clauses of this Clause;

(c) all those areas as shown coloured green on the plan annexed to the deed of mutual covenant;

(d) all the/other units in the Building; and

(e) all the/other parking spaces in the Building;”   

(emphasis supplied)

14.  Mr Tsang says that the word “including” has included the area marked green and referred to in sub-paragraph 1(c) of the Third Schedule as part of the common areas.  However, this clause can also mean that the green area was included as part of the land and the building reserved unto the vendors.  If the words from “save and except” to “common use” are kept in parenthesis, there would be no ambiguity.  In any case, if one considers the areas described in (a) and (b) and the units and parking spaces in (d) and (e) of that clause, there can be no doubt as to which of the two interpretations should be the correct one.  The areas described in (a) and (b) have been reserved unto the first owners by the DMC whilst the units and parking spaces in (d) and (e) have been retained by the first owners for themselves or for disposal or sale to others.  They cannot be parts of the common areas.  It is thus clear that the word “including” has included the areas referred to in (a) to (e) unto the vendors and not as common areas.  There is thus no defence for the storeroom.

The parking spaces

15.  I am asked to consider the following definitions in the DMC.

“‘Common Areas’  shall, subject as hereinafter provided, mean and include:

(a) the entrances, staircases, landings, lift lobbies, passages and other spaces of the Building which are intended for common use and not for the exclusive use, occupation and enjoyment by an Owner as hereinafter specified,

(b) loading and unloading areas, hoisting platforms, common roadways and driveways,

‘Management shares’  shall mean the shares or units allocated to the Units and the Parking Spaces as set out in the First Schedule hereto for the purpose of sharing and contributing towards the Management Expenses and Managers’ Remuneration by the Owners. 

‘Parking spaces’  shall mean all of the spaces in the Building for the parking of lorries or private cars as the case may be as defined in the first Assignments of such Parking Spaces, and “Parking Space” shall mean each of those spaces intended for separate use and ownership. 

‘Share’  shall mean an equal, undivided 4,989th share of and in the Land and the Building, and ‘his Shares’ in relation to any Owner or ‘the Shares of an Owner’ means the Share or Shares held by that Owner together with the exclusive right and privilege to hold use occupy and enjoy his Unit or Parking Space.

‘Unit’  shall mean a part of the Building (each including where applicable the flat roof, roof or storeroom held therewith) intended for the exclusive use occupation and enjoyment by an Owner, and ‘his Unit’ in relation to an Owner means the Unit or Units in respect of which that Owner has the exclusive right and privilege to hold use occupy and enjoy and shall not include a Parking Space (unless the context otherwise requires).”

(emphasis supplied)

16.  The first schedule of the DMC sets out the number of shares of the lot and the building against the individual units, storerooms and parking spaces.  After dealing with the individual units and storerooms, the first schedule goes on to provide as follows:

“Floor                   Unit		No. of Shares	No. of Management Shares
Parking space No. 3 on the 2nd floor		4	1
Parking spaces Nos. 7, 8, 9, 10, 15, 16, 17, 18 and 21 on the 3rd floor		45	18
		(9 x 5 shares each)	(9 x 2 shares each)
Parking spaces Nos. 6, 19, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34 and 35 on the 3rd floor		64	16
		(16 x 4 shares each)	(16 x 1 share each)
Loading and Unloading Areas:
Parking Spaces Nos. 1 and 2 on the 1st floor		10	-
		(2 x 5 shares each)
Parking spaces Nos. 4, 5, 11, 12, 13, 14, 20 and 39 on the 3rd floor		40	-
		(8 x 5 shares each)
Parking spaces Nos. 36, 37and 38 on the 3rd floor		12	-
		(3 x 4 shares each)
Common areas		1	-
External Walls		1	-
Total:		4989	4042”

17.  The parking spaces are dealt with in two categories.  Those that are used as parking spaces are listed separately from those that are intended for exclusive use as loading and unloading purposes.  These spaces are of two sizes.  The bigger ones are given five ownership shares and the smaller ones four ownership shares.  For parking spaces that are in the same category, of the same size and on the same floor, they are included in the same group.  Therefore, there are two groups of ordinary parking spaces on the third floor, one for the bigger spaces and one for the smaller spaces.  There are likewise two groups of loading and unloading parking spaces on the third floor.  The common areas and external walls are listed as individual entries, each allocated with one share.  The share allocated to the common areas must be owned by all the owners. 

18.  I have considered the approved building plan and the sales brochure produced by the parties.  I note that apart from some parking spaces which were listed under the heading of “Loading and Unloading Areas,” there were also other loading and unloading areas inside the building.  They were close to the lift lobbies.  These areas had not been clearly delineated and no share of the lot and the building had been allocated to them.  The question is whether the 13 parking spaces listed under the heading of “Loading and Unloading Areas,” which included the 12 spaces under consideration, are parts of the common areas (as defined) or they are parking spaces owned by the first owners. 

19.  If these 13 parking spaces were intended to be part of the common areas, I do not think the drafter would have listed them independently as a group.  It would also have been unnecessary to allocate any share to any one of them.  They can simply be listed under “Common Areas” and to share the one share allocated for all common areas.  The total number of shares of the lot and the building can be reduced by 62. 

20.  Even if the drafter should have intended to give these parking spaces the same number of shares as have been given to the other parking spaces, these 13 spaces together with their 62 shares should still be listed under and form part of the common areas.  The total number of shares for the common areas would become 63.

21.  To list these 13 spaces together under a separate category indicated that they belonged to another category and did not form part of the common areas.  If the drafter was contented to give one share to the common areas, then the common areas would not include the 13 parking spaces or the 62 shares allocated to them.

22.  The defendant has also referred to the conditions of grant which required the provision of a minimum number of parking spaces and loading and unloading areas.  I do not find that requirement useful for this exercise of construing the DMC.  That requirement did not say anything about the ownership or right to exclusive occupation of such spaces or areas.  Even if it can be argued that the loading and unloading areas were intended for the use and benefit of all the owners, it could still be for the first owners to own their exclusive right of occupation and the first owners could share such right with other owners by letting or otherwise.  It seems that the first owners somehow would have to share the use of these spaces with the other owners as the conditions of grant do not permit these spaces to be used for any purpose other than loading and unloading.

23.  The number of parking spaces under the “Loading and Unloading Areas” are also more than the number of such parking spaces marked in the approved plans.  Hence, the provision in the conditions of grant does not help the defendant. 

24.  The defendant also refers to the lack of any management shares for these 13 parking spaces and argues that they should form parts of the common areas.  However, there is also no management share for the external walls which have been expressly reserved in the DMC for the first owners.

25.  The plaintiff has also referred to the change of sales strategy which caused the reservation of the 13 parking spaces unto the first owners.  There is no evidence that this was known to the defendant or any other owner apart from the developer and the first owners.  I therefore place no weight on this.

26.  In the premises, I hold that the definition of “common areas” properly construed only includes those loading and unloading areas for which no share has been allocated.  The 13 parking spaces listed in the first schedule under the heading of “Loading and Unloading Areas” and for which 62 ownership shares have been allocated do not form part of the common areas. 

DECISION

27.  I therefore find for the plaintiff and order that the defendant do deliver up vacant possession of the 12 parking spaces and storeroom in question to the plaintiff.  Secondly, I also order the defendant to pay the plaintiff $275,000, being arrears of rent and mesne profits from 1 September 2005 to 31 January 2006 with interest at the judgment rate from the issue of writ to the date of payment.  Thirdly, I order the defendant to pay the plaintiff mesne profits at the rate of $55,000 per month from 1 February 2006 to the date of delivery up of vacant possession of the parking spaces and storeroom.  I also order the defendant to pay the plaintiff costs of this action.

28.  The defendant has a counterclaim for repayment by the plaintiff of all rental it has received previously.  It is based on the same ground as in the defence.  Mr Tsang agrees that the counterclaim should stand or fall with the defence to the claim.  I therefore accept the plaintiff’s undertaking to file a summons to strike out the counterclaim and hereby strike out the counterclaim with costs of the counterclaim be to the plaintiff.

29.  The plaintiff has also relied on the argument of estoppel by convention.  Since I have already found for the plaintiff on interpretation and construction, I do not think it necessary for me to deal with that issue.

(Discussion re order of the Master)

30.  I also set aside the order of the Kwan and order the costs before the master to be paid by the defendant to the plaintiff as well.