THE INCORPORATED OWNERS OF HONG LEONG INDUSTRIAL COMPLEX AND ANOTHER v. HL RESOURCES LTD AND ANOTHER

   CACV 189/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 189 OF 2009

(ON APPEAL FROM HCA NO. 2572 OF 2005)

BETWEEN

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of Sakhrani J given on 28 July 2009 wherein the judge dismissed the claims by the plaintiffs against the defendants. The claims by the plaintiffs were for damages against the developer and the previous management company of a building known as Hong Leong Industrial Complex at 4 Wang Kwong Road, Kowloon (“the building”) for breach of the Deed of Mutual Covenant (“DMC”) and breach of statutory duty. The claims arose out of the repair of the waterproof layer and system at the top of the building and the maintenance and repair of the walls of the building.

2.  At the conclusion of the hearing of this appeal, this court dismissed the appeal with costs, with reasons to be handed down in writing.

Background

3.  The building is an 8 storey industrial building comprising workshops and godowns. The building was completed in 1987 but the first plaintiff was only incorporated in 2002. The second defendant had been the manager of the building prior to 1 November 2002. The second plaintiff is the owner of a workshop on the ground floor of the building. Apparently it acquired its interest in April 1997. It brought this action on behalf of itself and all the other owners of the building except the first and second defendants. The first defendant was the developer of the building.

4.  The dispute in this case arose because the plaintiffs alleged that the second defendant had wrongly used sums of $2,180,000 and $121,000 out of the management funds for the repair and maintenance of the roof and external walls of the building. Put very shortly, the judge held that the first sum, namely $2,180,000, had been expended on repairing the waterproofing layer or system. He said, at paragraph 58 of the judgment, that he was satisfied that the waterproofing layer or system was an installation intended for the use and benefit of all the owners generally within the meaning of item 10 in Schedule 1 of the Building Management Ordinance Cap. 344 (“the Ordinance”). The judge went on to say that the waterproofing layer was designed to and did protect the building from rainwater seeping inside, in particular into the units in the floors below the roof. It also protected the lift shafts, which were, of course, for the benefit of all the owners of the building. As such the judge held that the waterproofing layer or system was a common part of the building. In those circumstances the judge did not need to consider whether the first defendant was the owner of the roof, because the repairs which caused the expenditure in dispute were expended on what was a common part of the building and hence, quite simply, under clause 6(ii)(e) of the DMC, the second defendant, as the manager, was empowered to use the management funds for that expenditure.

5.  In respect of the walls of the building, at the hearing below the plaintiffs had abandoned all other arguments and simply had relied upon clause (j) of the Fourth Schedule of the DMC as a basis for saying that the first defendant, as the First Owner of the building, was the owner of the external walls of the building and, hence, was responsible for any maintenance thereof. The judge had little difficulty in holding that clause (j) did not confer exclusive right to the use, occupation or enjoyment of the external walls on the first defendant.

This appeal

6.  On this appeal Mr Lam, who did not appear in the court below, sought to challenge the judge’s conclusions in respect of both matters.

The waterproofing system

7.  The primary argument advanced by Mr Lam as to why the first defendant should be responsible for maintenance of the waterproofing layer or system was that it formed part of the roof. In that respect he relied upon Regulation 48 of the Building (Construction) Regulations Cap. 123 which provides that “Every roof shall be weatherproof”.

8.  Before considering that provision it is appropriate to refer to the reasoning of the judge which had led him to conclude that the waterproofing layer or system was separate from the surface of the roof. He referred to the uncontested expert evidence which was contained in the affirmation of Cheng Lai Fai. He cited the material part of that. From that it is clear that the waterproofing system is a carefully constructed multilayer system which is underneath the surface of the roof. It is a continuous layer or system.

9.  In relation to Regulation 48, the judge held that it was simply a requirement as regards the construction of a building that the roof should be weatherproof. That Regulation did not deal with whether the waterproof layer in a roof slab is or is not a common part of a building. In my view he was quite correct. The judge then went on to refer to 2 cases namely Kung Shing Investment Ltd v The Sunbeam Manufacturing Co. Ltd (DCCJ 4093 of 2002, 28 October 2004, Judge Chow) and Tai Fong Trade Ltd v The Incorporated Owners of Nos 167 and 169 Hoi Bun Road and another [2009] 2 HKC 399.

10.  The conclusion reached by the judge depended on a question of fact. The judge decided that question of fact on the basis of considering undisputed expert evidence as to what constituted the waterproofing layer or system. As such, the waterproofing layer or system clearly constituted an installation “intended for the use and benefit of all the owners generally..”. Accordingly, that would bring it within the definition of “Common Parts” specifically as defined in item 10 of Schedule 1 of the Ordinance. The judge also held the waterproofing layer or system was a fixture used in connection with the enjoyment of any other flat or other portion of the building within the meaning of item 11 in Schedule 1 of the Ordinance. In this respect, the conclusion reached by the judge that the waterproofing layer or system was part of the Common Parts of the building was the same conclusion as had been reached in the two cases referred to above. There was no dispute that if the waterproofing layer or system was part of the Common Parts that the defendants indeed had been correct in using the common funds to maintain it.

The external walls

11.  On this appeal Mr Lam sought to resurrect an argument which had been abandoned during the course of the trial below. Mr Lee, who appeared on behalf of the defendants, did not object to that course but chose to deal with the argument as now presented and to reserve his position, if necessary, as to costs.

12.  In addition to the argument based on clause (j), Mr Lam sought to rely on clause 2(b)(i) of the DMC. That reads:

“The First Owner hereby reserve for themselves their respective assigns and all persons authorised by them the right…. to the exclusive use and enjoyment of the following so long as the First Owner retains a share in the said land and the said building:-

(i)  The outer walls roof upper roof (if any) and/or flat roof (if any) of the said building (unless otherwise specifically included in the said premises);”

13.  His argument proceeded on that basis that the first defendant was bound by Section 34H of the Ordinance, which provides :

“  (1)  Where a person who owns any part of a building, has the right to the exclusive possession of any part of a building or has the exclusive right to the use, occupation or enjoyment of that part, as the case may be, but the deed of mutual covenant in respect of the building does not impose an obligation on that person to maintain the part in good repair and condition, that person shall maintain that part in good repair and condition.

(2)  The obligation in subsection (1) shall be deemed to be an obligation owed to all owners of the building under the deed of mutual covenant.”

14.  Whilst that argument was, at first sight, attractive, Mr Lee pointed out that when proper consideration is given to the DMC as a whole it can be appreciated that the exclusive right to use of the external wall is not an exclusive right as normally understood, particularly under Section 34H of the Ordinance. Importantly clause (k) of the Fourth Schedule provides that the owners have bound themselves not to put anything on the external wall or outside part of the building “… except with the written approval of the Manager and subject to such conditions as the Manager may impose”.

15.  That provision, in itself, would demonstrate that whatever possession and right to exclusive use that the first defendant had in relation to the external wall, it necessarily was subject to anything that the Manager may permit. In this respect it can be observed that although the second defendant was in the same control as the first defendant, that would not inevitably be so and was not a requirement of the DMC.

16.  Equally importantly, clause 12(a) and (b) give the Manager the power to absolve an owner from a restriction on placing signs or signboards or advertisements on the external walls. Hence, it was said that whatever interest the first defendant might have in the outer or external walls, it did not have the exclusive possession and the exclusive right to use and enjoy that part of the building because the Manager could permit others to make use of the external walls. In this respect, it is pertinent to observe that under clauses 2(a)(i) and (ii) of the DMC it would seem that, as a matter of practical reality, the only use which could be made of the external walls would be for putting signs, signboards or advertisements on the walls, or for erecting a chimney up the side of the building.

17.  In my view the judge was quite correct in his conclusion in respect of the external walls and the plaintiffs can do no better by relying in this court on the arguments that they abandoned in the court below.

Hon Kwan JA:

18.  I agree.

Hon Stone J:

19.  I agree with the reasons for judgment of the Vice-President.