XCHRX THE INCORPORATED OWNERS OF KIMBERLEY HOUSE v. PEACE BOOK CO. LTD.

HCA19452/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.19452 OF 1999

----------------------

-------------------------

J U D G M E N T

-------------------------

The Background

1. On 30 April 1997, the Building Authority, in accordance with the stipulations in the Buildings Ordinance, Cap.123, wrote to the co-owners of Kimberley House, situated at Nos.35 and 35A Kimberley Road, Kowloon ("the Building"). The Senior Structural Engineer, for the Building Authority, pointed out that he was of the opinion that the earth-retaining structure at the address, i.e. Retaining Wall No.11 NW-D/R50, was or was liable to become dangerous. In exercise of the powers under section 27A of the Buildings Ordinance, he ordered the recipient of the letter, as the owners of the structure, to submit remedial proposals before 25 September 1997 for approval.

2. On 29 June 1999, the Incorporated Owners of the Building held a meeting and decided to grant the contract of the remedial work to a certain contractor. One would say that the Incorporated Owners of the Building had acted promptly and responsibly. In the meeting, they also appointed a firm of solicitors to deal with the issue of the calculation of the share of contribution. The work had been duly completed and the total costs involved was $2,062,500. In terms of the share of contribution, the solicitors adopted the undivided share approach. By this method, the defendant, being the registered owner of Office A on the basement level, and Offices A and B on the ground floor, was required to contribute $636,900. This was so because the defendant actually held 386 equal undivided 1,250th parts or shares in the lot.

3. The defendant did not dispute the liability to pay its share of contribution. However, it argued that the basis of calculation was wrong as it should have been done in proportion to the payment of the management fees, as provided in the Deed of Mutual Covenant ("the DMC").

The Action

4. Having failed to obtain the full payment from the defendant, the Incorporated Owners issued the Statement of Claim on 21 December 1999 and the defendant filed the defence on 18 January 2000. Subsequently, both parties agreed to deal with the matter by way of Order 14A as the sole issue was how the contribution should be calculated. The Master approved this method and the case was transferred to the Court of First Instance to be before a judge. I must say that all parties concerned had acted very sensibly in this dispute. Instead of wasting time and costs on unnecessary interrogatory applications, all parties concerned had agreed on the most effective way to deal with the problem.

5. Counsel had very helpfully prepared skeleton submissions for the hearing. I am indebted to them for their concise and well prepared written submissions.

The plaintiff's case

6. The plaintiff pointed out that the main issue before the court depended on the construction of the DMC. The plaintiff stated that in the absence of any special provisions in the DMC, the plaintiff's calculation, by reference to the number of undivided shares held by each owner in the properties, would be the fairest and most natural way to deal with the matter. In this regard, the plaintiff sought to rely on section 22(2) of the Building Management Ordinance ("the BMO"), Cap.344.

7. The plaintiff originally argued that there was a difference between the role of the Incorporated Owners and the Manager as defined in the DMC. It was submitted that the Incorporated Owners would operate under the statute, i.e. the BMO, while the Manager would operate under the DMC, as the latter's duties and powers were derived from the DMC. The plaintiff made a further distinction between the Building and the land on which the Building was constructed. It was stated that clause 4 of the DMC, which defined the powers and duties of the Manager, only applied to the Building and not to the land, whereas the Retaining Wall was situated on the land, not in the Building.

8. To reiterate this Building and land distinction, the plaintiff referred to the wording in the recital of the DMC which appeared to describe the land as the premises as opposed to the Building itself. Having made this fundamental distinction, the plaintiff then argued that the common parts referred to in the DMC were not the same as the "common parts" referred to in the Ordinance. In the DMC, "common parts services and facilities" was defined in clause 4(s) and was therefore subject to the overall limitation in the ambit of clause 4, which was restricted to the services and facilities in the Building only. However, in the BMO, the concept of "common parts" as defined in section 2 went beyond the building and covered the land.

9. As I understand it, the result of these analyses by the plaintiff came to the simple point that this DMC was a self-contained document with a limited scope in its application : it was meant to deal with the management of the Building only, not the land; whereas the Ordinance had a much wider application which covered the management of the land. The

Retaining Wall was an area pertaining more to the land and not the Building, and as there were no provisions in the DMC specifically dealing with such expenses, the situation would be outside the ambit of the DMC and came within the scope of the BMO. Hence, the undivided shares method should be used by virtue of section 22(2).

The defence case

10. The gist of the defence's case was simply that the DMC had provided, by clause 4(h), the fixing of contributions and, therefore, section 22(2) would not operate. The defence refuted the point raised by the plaintiff regarding the distinction between the role of the Manager and the Incorporated Owners. It was argued that it should make no difference whether it was the Incorporated Owners or the Manager, who was seeking to recover the amount. In either case, the court's only concern should be whether the costs incurred fell within clause 4(h). I was given to understand that the plaintiff had discarded this argument subsequently.

11. The defence criticized the plaintiff's attempt to read into the DMC the distinction between land and building. While the recital in the DMC had indeed used the term "the said premises", the defence argued that it did not necessarily carry the implication as suggested by the plaintiff. The defence referred to clause 13 of the DMC as one of the examples illustrating that no such clear distinction was intended. The context of Clause 13 was about the management of the building but it also contained the term "premises". The defence submitted that "land" or "premises" required no maintenance. The only liability, which was peculiar to "land" or "premises", would be the payment of Government rent. In any case, the Retaining Wall was no more akin to "land" than it was to "building". The defence also raised the point that the term "building", as defined in the BMO, would include land.

12. The defence further argued that the definition of what constituted common parts in the DMC was not exhaustive, therefore one had to resort to the definition section in the BMO to ascertain whether an area was a common part. The Manager had a duty under the DMC to repair and maintain the common parts, and if the common parts included the Retaining Wall, then costs arising from its maintenance should also be shared on the same basis as provided for in clause 4(h) of the DMC. Apart from this line of argument, Counsel for the defence had suggested an alternative route, based on the interpretation of sections 18, 20, 21(3)(b), and 22 of the BMO and the various clauses in the DMC, to achieve the same conclusion that the costs of the remedial work should be calculated on the basis of clause 4(h).

Section 22 of the BMO

13. Having considered the submissions by both counsel, one could see that the core issue in the present dispute would be the applicability of the BMO in the interpretation of the DMC, particularly on the meaning of common parts. The starting point for analysis would be section 22 of the BMO.

14. Section 22 of the BMO states :

15. The important question to ask was whether the DMC had or had not provided for the fixing of contribution concerning the Retaining Wall. In my view, the answer to this question would depend mainly on the meaning of common parts.

The Common Parts: Under BMO and the DMC

16. According to the DMC, clause 4(s), the common parts shall include the following :

17. One might argue that when considering whether certain places was a common part, one should only look at the definition in the DMC and it would be inappropriate to immediately look beyond the DMC to apply the statutory definitions. I agree that if the DMC had provided a complete definition on the basic terms such as the common parts, one might not need to refer to the BMO. However, the contents of each DMC must be considered individually. Here, it was rather clear that the DMC had not provided an exhaustive list of the common parts. It said that the common parts "shall include" the following. It did not say that only the following shall be common parts. When one asked whether the Retaining Wall was a common part, there was no express answer in the DMC. In the circumstances, I took the view that with regard to the present DMC, it was necessary to turn to the definition in the BMO.

18. According to the BMO, the common parts are defined in the following way :

Common parts (公用部分) means -

19. In the First Schedule, item 15 states as follows :

20. It appeared that the Retaining Wall, described as "護土牆" in Chinese, had not been otherwise specified or designated in the DMC. Therefore, by definition under the Ordinance, it must be a common part.

21. The plaintiff had argued that a distinction was made between "the Building" and "the land" in the DMC. On this issue, I tend to agree with the defence that such a distinction was not too clearly drawn in the DMC. If indeed there should be such a distinction between the land and the Building, and whereas the DMC was not clear on this, I would think that the statutory meaning of the term "building" should apply when considering whether an area was part of the Building or otherwise. In the BMO, "building" is defined to mean :

Consequently, the Retaining Wall, as part of the land, would, by definition, be part of the Building and a common part of it.

22. The plaintiff had stressed that the statutory definitions should not be so readily imported to the DMC as that would affect its integrity as, after all, it was in effect a private agreement. However, one must bear in mind the purpose behind the legislation concerning the BMO. The legislature saw fit to implement the BMO obviously in view of the ambiguity and uncertainty found in many DMCs, especially the ones drafted a long time ago. The BMO was meant to facilitate the management of buildings and for matters incidental thereto. It must be the correct view that when a particular DMC was incomplete or unclear on the basic terms such as common parts, then the definitions in the BMO should apply.

23. Having established that the Retaining Wall was a common part of the Building, the next question would be whether the Manager was under a duty to maintain it.

24. Clause 4(p) of the DMC stipulated that the Manager shall have power and authority to do all or any of the following :

Furthermore, clause 4(f) provided that :

And in 4(h) of the DMC, the basis of calculation of the monthly contributions of management fees among the owners was provided for.

Conclusion

25. In my judgment, the fundamental point here was that the DMC definition of the term "common parts" was not meant to be an exhaustive one. It was necessary to rely on the statutory meaning as stated in the BMO to decide on the status of the Retaining Wall. The result was that the Retaining was a common area. On this basis, although the DMC had not expressly stated how the costs of the remedial work for the Retaining Wall should be shared, as part of the common area, its maintenance would logically be covered by clause 4(h) of the DMC, which was, as the defence argued, the management fees basis.

26. Even if this conclusion was wrong, and that the statutory definition of "common parts" or "building" did not apply for the purpose of calculating the expenses of the remedial work, I took the view that by a construction of the DMC, the same result contended for by the defence could be reached.

27. The DMC had provided 2 basic methods for calculating the contribution from the owners. For the management fees of the common parts, the method was stated in clause 4(h). The only other item of payment of which the DMC had assigned a different method, was in relation to the Government rent. Clause 5 stated that the Crown rent of the premises shall be borne and paid by the owners in proportion to the respective shares in the said premises for the time being vested in them. One could conclude that apart from this specific item of expenditure, the DMC had envisaged that the other expenses should generally be calculated by the management fees method. If the maintenance of the Retaining Wall were to be treated exceptionally, the DMC would have made it clear as in the case of the Government rent.

28. Furthermore, I would agree with the defence its the proposed alternative route would also achieve the same result.

29. In the premises, I would find against the plaintiff on this preliminary issue. I would give judgment to the defence. I would further grant parties liberty to apply for consequential orders as a result of this judgment, if any.

30. I shall make a nisi order for costs to the defence, to be taxed if not agreed. This order shall be made absolute after 14 days of this judgment.