THE INCORPORATED OWNERS OF HIP WO HOUSE v. DAILY TREND LTD AND OTHERS

LDBM 95 OF 2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 95 OF 2003

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J U D G M E N T

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1. The Applicant is the owners incorporation of a building. The Respondents are owners of shops on the ground floor of the building. Certain repair and renovation work was approved at a corporation meeting and the same has been carried out. Part of the work was necessary in order to comply with building orders issued against the Applicant. The Respondents refused to pay their shares of contribution towards the renovation costs. The Applicant by the present proceedings is seeking to recover the outstanding contributions. One of the Respondents paid eventually and the Applicant had discontinued the action against him before the trial commenced. Another Respondent had paid part of the amount claimed. Some of the remaining Respondents are represented by counsel, Mr. Leung.

2. The total cost for the repair project amounts to 5.98 million and this total sum is not in dispute. The only dispute is on the allocation of the cost to different clauses of the deed of mutual covenant ('the DMC'). Different allocation would result in substantially different consequential apportionment among owners. The apportionment depends on the correct interpretation of a number of clauses in the deed of mutual covenant ('the DMC'). The ultimate issue is which part of the repair cost should fall under Clause 10 and which part should fall under Clause 8.

3. Clause 10 provides that:

" The following expenses namely (a) the Crown Rent in respect of the said premises and (b) the cost of keeping in good and tenantable repair and condition the foundation, the side walks, main walls, supports, beams, gutters, fences, drains, wells, water tanks, electric pumps, pipes, conduits and all plumbing, fire fighting and other apparatus (if any) intended for the general service of the said Building (except as regards damage caused by or resulting from any act or default or negligence of any of the owners for the time being of the said premises and the said building their respective servants or agents or tenants or licensees for which damage that one of the owners shall be solely responsible and so that each of the owners shall be responsible for the acts and defaults of their servants agents tenants and licensees ) 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"

The Respondent's short answer to the claim is that the whole of the repair costs should fall under Clause 8 and none of it should fall under Clause 10. Mr. Leung contended Clause 10 should be struck down as it offended against the user-pay principle commonly found in deeds of mutual covenants including the one in question and that Clause 10 was written into the DMC by mistake. He cited a number of authorities in support (Schuler A G V Wickman Machine Tools Sales Ltd. [1973] 2 Lloyd's Rep 53, [1974] AC 235; Permtek Ltd. V China Resources Machinery & Equipment Co. Ltd.[1989] 2 HKLR 349; First Shanghai Enterprises Ltd. V Dahlia Properties Pte Ltd. [2002] 3 HKLRD 461; Attica Sea Carriers Corporation V Ferrostaal Poseidon Bulk Reederei G.M.B.H. [1976] Lloyd's Rep. 250). I do not find these authorities support his argument, nor do I find that there in such an overriding and general principle of "user-pay" at common law or provided in any ordinance which would enable me to strike down Clause 10. In my judgment, Clause 10 of the DMC is binding on all parties. That fact that at one time the repair cost was apportioned without referring to Clause 10 when the Applicant could have done so did not change the matter. The Applicant could not reopen the account now for the mistake committed some years back when it did a similar exercise in apportioning renovation cost among owners but nothing prevents them to do the apportionment among owners correctly this time, applying and complying with the provisions of the DMC and the Building Management Ordinance. In the instant case which items should be governed by which clause is a matter of interpretation and Clause 10 should be looked at along with the other clauses.

4. I agree with Mr. Chun, counsel for the Applicant, that the test for allocation for each item of repair is whether the description of the items falls into the definitions of Clause 8 or Clause 10. As the primary contention of the Respondents is that all the repair costs should be apportioned according Clause 8, the issue in this case can be resolved by looking at the disputed items.

5. Clause 8 provided that:

"The owner of the said premises are the said Building shall on demand pay to the Service Agent the due proportion hereinafter mentioned of the costs and expenses for or in connection with the maintenance, operation, cleaning, repairing, services and apparatus of and other charges and expenses payable for or in connection with the said Building. Such expenses shall include but not limited to:

a. rates for water consumed on the said Building, charges for electricity used in connection with the common pumps and the lighting for lifts corridors passages staircases, landings, and all other common areas of the said Building and the cost of keeping in good and tenantable repair and condition the common entrance-hall, staircases, landings, passages and the lifts and the conveniences thereof.

b. Management fees.

c. Remuneration for watchmen, cleaners, attendants and the like.

d. The cost of garbage disposal.

Two of the complaints about the painting of external walls contained by the Respondent are that it is an improvement and that the repainting of the wall did not benefit the ground floor shop owners to the same extent as the flat owners above them. For these reasons, Mr. Leung argued, the Respondent shop owners should not be required to pay for it. The paintwork on the external enhances the good appearance of the building which would benefit every single owner, flat owners and shop owners. Mr. Leung did not elaborate how the new paintwork on these walls could not have benefited the shop owners to the same extent. In any event the so called 'user-pay' principle which Mr. Leung propounded fervently as a cardinal one had no application in this case. Further I do not accept his argument that the paintwork did not benefit the shop owners or that it only benefited them to a lesser extent.

6. The fact that these walls were repainted did not mean the paintwork was an improvement. The test for improvement is an objective one. In this particular case, the new paintwork was merely replacing the old one, which had become dilapidated or worn out, albeit by something of a modern version and therefore was not an improvement. (see Morcom V Campbell-Johnson [1956] 1 QB 106 115). The fact that the paint applied was not of the cheapest type is quite beside the point. The paintwork is not an improvement in law and in fact.

7. Even if the paintwork on the external walls is an improvement, the same has been authorised by a resolution at the corporation meeting. As there was no provision in the DMC for the apportionment of the cost of improvement, the Building Management Ordinance provides that it should be apportioned according to the shares. The end result was the same as that arrived at by the Applicant. The Responds should not have any cause for complaint in that regard.

8. The cost of wall repairs was apportioned between the two Clauses, 8 and 10. The ratio adopted by the Applicant was 30% to Clause 8 and 70% to Clause 10. The Respondents contended for a different apportionment ratio but did not call any evidence to support the ratio proposed by them. Mr. Leung claimed that it was not necessary and indicated he was content with relying on the evidence called on behalf of the Applicant. The Applicant called evidence to support the ratio it had adopted. Although it might not be a very scientific estimate and was a very rough estimate indeed. In the absence of any contradiction in these proceedings before me and in the absence of any other materials before the Applicant at the time, it is not unreasonable for the Applicant to rely on the estimate there and then obtained. The Respondents have failed to demonstrate to what extent the estimate was inaccurate and they cannot complain about its reasonableness. I have not lost sight of the fact that the Applicant's witness regarded the walls surrounding the light well as external walls when he arrived at the apportionment ratio. This is crux of criticism by Mr. Leung about the accuracy of the estimate. Mr. Leung argued that the walls facing and surrounding the light well were not external walls and should not fall within the definition of 'main walls' in Clause 10 and therefore the estimate given by the witness should not be used. With respect to Mr. Leung's able argument, I disagree entirely with him. The walls in question fall plainly and squarely within the definition of 'main walls' in Clause 10. Furthermore Mr. Chun was right in submitting that the walls also fell within the meaning of the word 'well' in Clause 10. The word 'Well' must include light well. The walls formed an integral part of the light well. What would a light well be without the walls enclosing it? I find the ratio of apportionment adopted by the Applicant to is reasonable and the Applicant is entitled to use it for apportioning the cost between the two Clauses.

9. The other complaint about the cost of wall repairs was that part of the cost of renovating the walls should be borne by individual owners in default and therefore the Respondents should not be asked to contribute to it. The walls in question contained various defects which required rectification before general repair and painting work could be done. Most of them, if not all, I accept, had been caused at different times by defaults of individual owners. The Respondents complained that no evidence was called to show any effort made by the Applicant to recover from these owners who were responsible for these defects. Mr. Leung argued that before the Applicant made any attempt to compel the culprits to repair them or to recover from them the cost of repair, it should not ask the Respondent to contribute to the cost. The defects were obvious but one could not tell the history of these defects by visual examination. It is doubtful that the current owners could be held responsible for the act of their predecessors in title, acts like injuring the external walls by drilling holes on them. The external walls are common areas. An owner who damaged the common property or common areas would certainly be held personally liable. However it is not clear that his successor in title would without more be held liable for it. The only evidence before me about these defects are the photographs depicting the same. It should be obvious that the defects had been there for quite some time. The task of finding the real culprit might be tedious and costly and the Applicant cannot be blamed for not attempting it. Furthermore to do so would have taken quite some time and it would be most inconvenient in view of the imminence and nature of the project of renovation of the building.

10. In fact whether the Applicant should or should not, or whether the Applicant could or could not sue for all practicable purpose the culprit owners or ex-owners for causing the defects begs the question. The real question should be asked is whether or not the Respondents or the other owners should be held responsible for the cost of repairing those defects. Clause 10 clearly makes an exception of this type of repair costs. To charge the Respondents under Clause 10 for this type of cost is inappropriate.

11. On the other hand there is no dispute that the Applicant was under the duty and had the power to undertake the renovation work relating to the walls including rectifying the defects made by individual owners. There was no provision in the DMC for apportionment among owners for this kind of remedial work in this situation (unless Clause 10 can be invoked), therefore similar to the paintwork on the external walls, the Applicant can rely on Section 22(2) of the Building Management Ordinance. The result is the same, namely the Respondents should contribute to the cost according to the shares they held.

12. Furthermore the Respondents failed to quantify the defects or the cost for their rectification. The defects were trivial as compared to the scale of the renovation project and can be conveniently rectified by the contractor. It has not been shown that these defects would inflate the overall cost of renovation. I accept the evidence of the witnesses that the contract with the contractor was a lump sum contract and that the existence of these defects on the walls did not make any difference on the price.

13. Under these circumstances, the Applicant cannot be criticised for not making allowance for these defects in apportioning the cost of renovation of the walls.

14. In the premises all points of defence raised failed. I enter judgment for the Applicant against each and every Respondent, except the 12th Respondent, for the amount or amounts as claimed with interest thereon at the rate and for the period as claimed and I enter judgment against the 12th Respondent for the sum and interest thereon as claimed in prayers (12)(ii). I also give costs to the Applicant on High Court Scale with certificate for counsel.