SAM WOO MARINE WORKS LTD v. THE INCORPORATED OWNERS OF PO HANG BUILDING

CACV 368/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 368 OF 2008

(ON APPEAL FROM LDBM NO. 179 OF 2008)

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REASONS FOR JUDGMENT

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Hon Tang VP:

1.  The applicant is the owner of a shop unit on the ground floor of Po Hang Building.  The respondent is the incorporated owners of Po Hang Building.  Po Hang Building is a multi-storey building which is erected on Nos. 2-8 Dundas Street and Nos. 43-49, Tung On Street, Kowloon.  It has shops on the ground and 1^st floors and residential flats on the 2^nd to the 25^th floor.  The land on which the building was erected was notionally divided into 14,922 shares.  Shop 1 has been allocated 963/ 14,992 shares. 

2.  The only issue in this appeal concerns the applicant’s liability to contribute to the costs and expenses in the repair and maintenance projects carried out in 1994 and 2007 (“the costs”).  The applicant’s case is that its liability to contribute is governed by clauses 3(h) and 3(i) of the Deed of Mutual Covenant dated 18 January 1983 (“the DMC”) and not according to its 963/14,992 shares in the land. 

3.  The answer depends on the construction of the following provisions in the DMC.  Clause 3(f) of the DMC provides:

“(f)    Each owner shall pay all costs charges and expenses which may be or become payable for or in connection with the management maintenance repair and improvement of the said premises in accordance with the provisions of these presents including but not limited to …”

It is accepted that the costs are covered by clause 3(f).  As may be noted each owner is required to pay those costs and expenses:

“(f)    … in accordance with the provisions of these presents …”

4.  The other provisions are clauses 3(h) and (i) which provide:

“(h)    Each owner shall pay to the Manager on account of his share of the said costs charges and expenses the following sum :-

(1) $1,000.00 for Shop 1 on the ground floor per calendar month payab1e in advance; …”

On this basis the applicant is liable to pay 1,000/57,990 of the costs.

“(i) If the total monthly payments payable to the Manager by the owners of the said premises under sub-clause (h) hereof shall be insufficient to cover all or any of the said costs charges and expenses then :-

(a) such owners shall make further contributions towards such expenses in the shares as provided in sub-clause (h) hereof: or

(b) pay to the Manager such revised monthly payment as the Manager shall think fit provided that such increase shall be in the proportion to the shares as provided in sub-clause (h) hereof.”

5.  The respondent contends that the applicant is liable to contribute as provided under clause 5 of the DMC which provides:

“5. Save and except as herein provided all monies payable by the owners under the provisions of these presents shall be in the proportion to the respective shares in the said land for the time being vested in them.”

6.  Mr Kelvin Leung, counsel for the respondent, relied on The Incorporated Owners of Hang Shun Building, Tonkin Street v Lee Chi Ming, CACV 321/2003, unreported, dated 3 September 2004.  In The Incorporated Owners of Hang Shun Building, Tonkin Street, clause 4(e) in the DMC provided that the relevant charges and expenses:

“shall be borne and paid by the owners by the said building in proportion to the respective shares in the premises for the time being vested in them”.

7.  However, the DMC went on to provide in clause 4(g) that each owner should pay certain sums on account of the share of such costs monthly, calculated in the way therein set out.  Then clause 4(h) provided as follows:

“(h)    If the total contributions payable under the last preceding paragraph shall be insufficient to cover all or any of the costs charges and expenses aforesaid then those owners liable to contribute towards the same as hereinbefore provided shall make further contributions towards such expenses in proportion to the monthly sums payable by them as provided in paragraph (g).”

8.  In the Hang Shun Building case, there was a conflict between clauses 4(e) of the one part and (g) and (h) of the other part, and the decision in that case turned on the resolution of that conflict.  The court resolved the conflict in favour of clause 4(e).  With respect, quite rightly so, since clause 4(e) was the charging provision and it stated clearly that the contributions were to be made in:

“proportion to the respective shares in the premises …”.

Clauses 4(g) and (h) which dealt with the mechanics of payment must be read subject to the charging provision.

9.  In the present case, clause 3(f) is the charging provision and it provided that the costs should be paid:

“(f)    … in accordance with the provisions of these presents …”

which I believe refers to clauses 3(h) and (i).  In any event, there is no inconsistency between clauses 3(f), (h) and (i). 

10.  Furthermore, I note that in clause 19 which deals with the expenses of central air-conditioning system for the ground and 1^st floor, clause 19(e) expressly provided that the contribution by the relevant owners should be:

“… in proportion to the respective shares in the said land …”

I believe clause 3(f) would have adopted the same language, if that had been the intention.

11.  Mr Leung relied on clause 5.  But clause 5 applies unless otherwise provided.  Clauses 3(f), (h) and (i) have provided otherwise.

12.  Ms Queenie W. S. Ng, for the applicant, relied on the judgment of Keith JA in The Incorporated Owners of Yee On Court v Li Zee Zing Hai, CACV 181/2000, unreported, 14 November 2000.  There the relevant clauses of DMC were:

“Clause 4

Each owner shall be bound by and shall observe and perform the following covenants provisions and restrictions :-

……

(d)   The following costs charges and expenses shall be borne and paid by the owners of the said building in proportion to the number of unit or units in the said premises for the time being owned by them, namely :-

……

(iv)  The costs of repairing, renewing, maintaining cleansing, painting, or decorating the building ……

……

(f)    Each owner shall pay to the Manager on account of his share of the said costs charges and expenses per Calendar month for each such shop, flat and car parking space payable monthly in advance the following sums :-

……

(8)   Shop No.7 on Ground Floor otherwise known as No.124M Argyle Street Ground floor; $40.00

……

(g)   If the total contributions payable to the Manager by the owners of the said building as aforesaid shall be insufficient to cover all or any of the said costs charges and expenses then such owners shall make further contributions towards such expenses in the shares as above provided.

……

(w)  The Crown Rent in respect of the said 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.”

13.  Keith JA said that the effect of clause 4(d) was that:

“(i) … someone who owns two flats in the building has to pay twice as much as someone who owns only one flat in the building.”

Thus, the owners were not required to contribute according to their undivided share in the land. 

14.  Then Keith JA made the following observations regarding clauses 4(f) and (g).

“In my judgment, the words ‘in the shares as above provided’ in clause 4(g) can only be a reference to the breakdown of shares in clause 4(f).  That is because the breakdown of shares in clause 4(f) was specifically for the purpose of identifying the contributions to be made (albeit on account and on a monthly basis) in respect of the ‘costs, charges and expenses’ referred to in clause 4(d).  The words ‘in the shares as above provided’ in clause 4(g) could not have related to the amount payable under clause 4(e) because the difference between the amount in any maintenance fund and the cost of the works may be greater than the $400.00 payable by each owner of a unit in the building under clause 4(e).  Nor could the words ‘in the shares as above provided’ in clause 4(g) have related to the number of undivided shares in the building attributable to each unit, because that breakdown (which appears in para. 3 of the Recitals and which is described as ‘notional’) is a breakdown only ‘[f]or the purpose of sale of units in the …. building’.  Moreover, when the Deed of Mutual Covenant wished to provide for contributions to be paid by reference to the number of undivided shares in the building attributable to each unit, it provides for that in express terms: see clause 4(w).”

15.  Keith JA’s judgment in The Incorporated Owners of Yee On Court supports Ms Ng’s submission.  In any event, I believe, as a matter of construction, Ms Ng is correct that the applicant’s liability to contribute is governed by clauses 3(f), (h) and (j), in other words, the applicant is liable to contribute only 1000/57990 of the costs.

16.  For the above reasons, I have allowed the appeal with costs.

Hon Cheung JA:

17.  I agree.

Hon Yuen JA:

18.  I agree with the Vice-President’s reasons.