COGI ENTERPRISES LTD AND OTHERS v. THE INCORPORATED OWNERS OF MALAHON APARTMENTS

CACV 108/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 108 OF 2010

(ON APPEAL FROM HCA NO. 816 OF 2004)

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BETWEEN

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Hon Tang Ag CJHC:

Introduction

1.  The Defendant is the incorporated owners of Malahon Apartments ("the IO").  Malahon Apartments is at Jaffe Road in Causeway Bay, Hong Kong.  The occupation permit for the building was issued on 21 October 1966.  It is a multi-storey building consisting of commercial and residential units.  The commercial part of the building comprises the basement to the 2^nd floor and the residential part comprises the 3^rd to 18^th floors. 

2.  Malahon Investment Company Ltd ("Malahon") was the developer and the first owner of the building.  A Deed of Mutual Covenant for the building was executed on 12 September 1967 between Malahon as the first owner and Tam Bok Man as the second owner ("the DMC").

3.  By an assignment dated 6 June 1972 ("the 1972 assignment") Malahon assigned shop numbers 2, 2A, 3, 4, 7 and 8 on the ground floor and other parts of the building to Chin Kam Development Ltd ("Chin Kam").

4.  Shop 2A was assigned by an assignment dated 11 February 1988 ("the 1988 assignment"), to Cogi (the 1^st Plaintiff). 

5.  At trial, the parties were concerned with several disputes, however, on appeal, we were only concerned with certain pipeworks which were coloured yellow and shown in the revised plan marked Revised B ("the revised B plan") in the re-re-amended statement of claim (“the RRASC”).  They are the soil and waste pipes which discharge the sewage from the floors above the ground floor.  They pass along the ceiling of shop 2A after which the sewage is discharged into the government sewers at the rear lane of the building. 

6.  In relation to the pipeworks, Sahkrani J has made the following order:

"(1) … a mandatory injunction to compel the [Defendant] to remove the pipeworks and to reinstate the walls in Shop 2A where the pipeworks pass through by 5^th November 2010 with liberty to the parties to apply in case there is difficulty in complying with this order. … (paragraph 126 of the Judgment)."

7.  At trial, in relation to these pipeworks, the IO had relied on two matters, which remained relevant on appeal.  First, that the pipeworks were common parts and as such the IO were entitled to cause them to run across the ceiling of Shop 2A.  Secondly, in any event, the Plaintiffs should be debarred from any relief because of acquiescence on the part of Mr Chang Ping Kay ("Mr Chang"). 

8.  Mr Kenneth Chan who appeared for the IO in the appeal but not at trial concentrated his effort on the defence of acquiescence, which I will deal with first.

Acquiescence

9.  Mr Chang gave evidence at trial and the transcript of his cross-examination ran to about 140 pages.  His evidence, relevant to this appeal was accepted by the learned judge who said:

"16. … I have no hesitation in accepting the rest of the evidence of Chang. … Both Chang … gave truthful and reliable evidence in my view."

10.  Mr Chang's evidence was that he only became aware of the pipeworks when he showed Shop 2A to a potential buyer in 2003.  Mr Kenneth Chan accepted that unless he succeeded in overturning the learned judge's acceptance of Mr Chang's evidence, the Defendant's case on acquiescence must fail.  However, he submitted that the learned judge had erred in not appreciating that Mr Chang's testimony at trial was plainly incredible and/or inherently improbable, and/or unreliable.

11.  An important factual issue at trial was when the pipeworks were installed. 

12.  The learned judge rejected the IO's primary case that the pipeworks had been installed when the occupation permit for the building was issued on 21 October 1966.  He said:

"34. I reject the IO’s primary case that the pipeworks were installed by Malahon, Chin Kam or Cogi."

13.  The learned judge went on to say:

"42. Chang gave evidence that he did not know when and how the pipeworks were installed.  He said that he first became aware of the pipeworks when Cogi put shop 2A together with other premises for sale and he saw the pipeworks during a visit with potential purchasers in 2003.  I believe him and accept his evidence.  It seems, and I so find, that Chang only became aware of the pipeworks in 2003."

14.  Unfortunately, the approved drainage plans were not available.  However, according to the evidence of the IO's expert, Mr Norman Yiu Wai Cheung, the ground floor plan approved in 1974 showed the pipeducts running all the way down to the basement.  The learned judge said:

"47. … that it is likely that the sewage and drainage pipes serving the premises in the 1^st floor and above ran vertically through pipeducts A, B, C and D into the basement before the installation of the pipeworks."

15.  The learned judge also took the view (para 41) that it was also highly unlikely that Chin Kam or Cogi installed the pipeworks because they do not serve shop 2A nor any of the premises owned by Chin Kam.  Indeed, the fact that they ran through shop 2A would diminish the value of Shop 2A.  He also accepted that:

"58. … the IO did not pay for the installation of the pipeworks and that the owners who gave evidence were not asked to pay for the installation of them. …"

16.  The learned judge also pointed to the fact that Wellcome Company Ltd ("Wellcome"), a supermarket, became a tenant of, inter alia, Shop 2A on 8 November 1990.  He said that it was highly unlikely that the pipeworks were installed after Wellcome leased the premises including Shop 2A, because

"43. … Wellcome would not have given permission for the pipeworks which discharge sewage to run through the ceiling of their supermarket where food is sold." 

17.  The learned judge then concluded:

"56. … the pipeworks were installed sometime after the 1974 approved building plan (exhibit P2) but before Wellcome leased the premises including shop 2A in 1990.

57. It seems to me that it is likely that the pipeworks were installed sometime in the 1980s as UPVC became popular at that time as a material for pipes." 

18.  Mr Kenneth Chan relied on what Ribeiro PJ said in Tradepower (Holdings) Ltd v Tradepower (HK) Ltd [2010] 1 HKLRD 674 at para. 24:

"… Inconsistencies between the testimony of a witness and other items of evidence have to be evaluated as part of the overall process of assessing credibility.  It is not satisfactory first to form the view that the witness is generally credible and then to carve out exceptions in areas where inconsistencies with other evidence are found.  Such an approach casts doubt on the initial assessment of credibility."

19.  But I have endeavoured to show that although the learned judge had stated at the beginning of his judgment that he accepted the evidence of Mr Chang, (hence Mr Chan's complaint), the learned judge had gone on to carefully evaluated the evidence.

20.  Mr Kenneth Chan also relied on a letter dated 27 December 2002 by Deacons (presumably for the Plaintiffs) which stated:

"… our client previously raised concern that the present drainage services system of Malahon Apartments might be installed contrary to the relevant plans approved by the Buildings Department, …"

21.  Mr Kenneth Chan submitted that the letter indicated that the Plaintiffs or Mr Chang was aware of the pipeworks prior to 2003.

22.  Mr Colin Wright, for the Plaintiffs, submitted that the letter itself is ambiguous, as its subject was "Toilets on Ground Floor of Malahon Apartments".  But, more importantly, Mr Chang was never cross-examined on the letter.

23.  Mr Kenneth Chan also submitted that it was inherently improbable that the installation of the pipeworks had not been noticed by Mr Chang.  But, as Mr Colin Wright pointed out, unless Mr Chang was present at the premises at the time when the pipeworks was installed, he would have been unaware of the installation.  Moreover, since the pipeworks were installed without authority in the Plaintiffs' exclusive use area, it was probable that whoever installed the pipeworks would not wish expressly to draw the fact to Mr Chang's attention.

24.  Mr Kenneth Chan also complained of the fact that the learned judge drew an adverse inference against the Defendant because the Chairman of the IO, Mr Au Yee Ming ("Mr Au"), had not given evidence.  The IO's failure to call Mr Au to give evidence was unexplained, and as Chairman, he could be expected to have first-hand knowledge of many of the relevant events since he had been involved in the operations of the buildings since about 1988.  Be that as it may, Mr Chan has not been able to show how this affected the learned judge's finding that he accepted the evidence of Mr Chang.

25.  I have no doubt that the learned judge's acceptance of Mr Chang's evidence could not be regarded as erroneous, and he had rightly rejected the defence of acquiescence.

Common parts

26.  I turn to the first point, namely, that the pipeworks were common parts and as such the IO was entitled to cause them to run across the ceiling of Shop 2A.  We had no oral submission on this point, Mr Kenneth Chan was content to rely on his skeleton submission. 

27.  The IO had not challenged the learned judge's findings that the pipeworks had been installed without prior approval of the Buildings Department; and were unauthorised building works because they were in contravention of the Buildings Ordinance (Cap 123).  Nor that the Buildings Department had served notices requiring the pipeworks to be demolished; and that the IO had failed to demolished the pipeworks.

28.  With respect, I am in full agreement with the learned judge on the issue who said:

"78. … The IO relies on clause 3 of the DMC where the full and exclusive right and privilege to hold use and occupy each shop was 'subject to and with the benefit of the easements rights privileges and obligation set out in the First Schedule hereto'.  These are set out in Part A of the First Schedule.  Clause 4 of Part A gives

'The free and uninterrupted passage and running of water sewage gas and electricity from and to the shop office or flat through the sewers drains water-courses cables pipes and wires which now are or may at any time hereafter be in under or passing through the said land and building or any part or parts thereof.'

79. Clause 1 of Part B imposes obligations on the owners to allow

'Full right and liberty for the Manager appointed hereunder with or without agents surveyors workmen and others at all reasonable times on giving reasonable notice (except in case of emergency) to enter into and upon each shop, office or flat for the purposes of rebuilding repairing renewing maintaining cleaning painting or decorating the said building or any part or parts thereof or any sewers drains water-courses cables pipes wires or services therein or any other apparatus and equipment used or installed for the benefit of the said land and building as a whole.'

80. … for the IO that there was an easement of free passage given to the manager by the DMC.  By relying on the words 'which now are or may at any time hereafter be in under or passing through the said land and building or any part or parts thereof' it was submitted that it mattered not if the pipeworks were diverted through shop 2A after the execution of the DMC.  It was submitted that so long as the pipeworks were common drainage pipes for the benefit of the building there are easement rights given to pass the pipeworks through the exclusive area of shop 2A even though the pipeworks were not in existence at the time of the DMC.

81. It was submitted by Mr Wright that under clause 3 of the Second Schedule of the DMC the owners of the building must not make any structural alteration which may affect or interfere with the use and enjoyment of shop 2A.  He submitted that the presence of the pipeworks in shop 2A to which the plaintiffs have the right to exclusive occupancy is a breach of their rights under clause 3 of the DMC.

82. Whether or not there is a right to run the pipeworks through shop 2A must depend on a proper construction of the DMC.  The DMC must be construed as at the time it was executed in 1967.  The DMC was executed between the developer and Malahon and the first purchaser Tam Bok Man.

……

84. As a matter of the proper construction of the DMC I am unable to accept that in 1967 when the developer was wishing to sell units in the building the first purchaser was agreeing to permit the developer or the manager of the building to run sewage pipes which were not there at the time through her property but could do so at any time thereafter.

85. By clause 1(b) of the DMC Malahon as the first owner expressly reserved for itself the right to erect or install, inter alia, pipes, fittings, apparatus and equipment in or upon any part of the building 'other than the shops offices and flats therein the exclusive right to hold use occupy and enjoy the same shall have been assigned' by the first owner.  Although there is a right reserved to the developer to install pipes it clearly does not give a right to do so in the shops offices and flats which have been assigned to the first owner and to subsequent purchasers.  I accept Mr Wright's submission that under the DMC there is a right to run drainage and sewage pipes through the building or any part thereof which were in existence at the time of the DMC but it does not give an unrestricted right to subsequently install new sewer and drainage pipes in different locations in shops offices and flats which have been assigned to purchasers.

86. The words 'or may at any time hereafter' is explained by reference to clause 1(b) of the DMC.  It contemplates that the developer might subsequent to the execution of the DMC install e.g. pipes in the building for the benefit of the owners of the building.  However, on a proper construction of the DMC as a whole it seems to me that there was no right in the developer to install new pipes not in existence at the time of the DMC in premises the exclusive use and occupation of which have been assigned.  It does not give the developer any right to change the routing of the pipes if it involves going through premises the exclusive use and occupation of which have been assigned. Clause 4 of Part A of the First Schedule is subject to the rights of the first owner as set out in clause 1(b) of the DMC and clause 4 of Part A has to be construed by reference to clause 1(b) of the DMC. 

87. It would be absurd in my judgment to construe clause 4 of Part A of the First Schedule as giving a right to the IO an unreserved right to reroute the passage of sewage pipes in the building to go through premises which have been assigned with an exclusive right to occupy the same.  Mr Wright submitted that the nature of the obligation imposed does not include an obligation to allow additional pipes (which were not present at the time of the DMC) to be installed which would run through premises which have been assigned with an exclusive right to occupy.  I accept Mr Wright's submissions.

88. Cogi was given the exclusive right and privilege to hold, use and occupy shop 2A.  Cogi did not consent to the installation of the pipeworks.  As the pipeworks ran through shop 2A this was a breach of the exclusive right and privilege to hold use occupy and enjoy shop 2A.  

89. It is plain, and I so find, that the pipeworks constitute a breach of the obligations in the DMC.  By section 18(1)(c) of the BMO the IO was under a duty to enforce the obligations contained in the DMC.

90. It seems to me that if an owner of other parts of the building had installed the pipeworks the IO would have been under a duty to enforce the obligations contained in the DMC and to remove the pipeworks.  The IO has failed to do so."

29.  For the above reasons, I have dismissed the appeal with costs on party-and-party basis.

Hon Fok JA:

30.  I agree with the reasons given by Tang Ag CJHC for dismissing the appeal.

Hon Chu JA:

31.  I agree and have nothing to add.