XCHRX UNILAND INVESTMENT ENTERPRISES LTD. v. THE INCORPORATED OWNERS OF SEA VIEW ESTATE AND ANOTHER

HCA 20920/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL JURISDICTION

ACTION NO. 20920 OF 1998

____________________

D E C I S I O N

____________________

Introduction:

1. The plaintiff is the owner of the outer wall and flat roof of Sea View Estate in North Point, Hong Kong. The 1st defendant is the incorporated owners of the building, while the 2nd defendant is the manager of the building appointed under a service contract by the 1st defendant. A Building Order No. D52/HK/98 dated 7.4.1998 was served on the plaintiff requiring it to carry out certain repair works on the outer wall and flat roof. Prior to that, another Building Order No. DA 49/HK/96/P2 dated 11.6.1996 had also been served on the 1st defendant and registered with the Land Office, requiring the 1st defendant to carry out repair works for the external areas and common areas of the building including, inter alia, all the work required to be done under the Building Order served on the plaintiff.

2. The plaintiff claimed for damages against both defendants for breach of the covenant to repair under the deed of mutual covenant (DMC) and further and alternative declarations. In the meantime, the plaintiff and the 2nd defendant each issued an Order 14A summons against the other parties seeking certain questions of law to be determined. At the hearing of the summonses, all parties agreed that the entire action should be heard and disposed of as there is no dispute as to facts.

Liability under the DMC:

3. Under Recital (3) of the DMC the building is divided into 95,000 equal undivided shares. The outer wall and flat roof was allocated one share which was originally held by the developer and is now acquired and held by the plaintiff.

4. Under Clause 1(i) of the DMC, the plaintiff has the full and exclusive right and privilege to hold, use, occupy and enjoy the outer wall and flat roof in so far as the same have not been assigned to any other owners. Hence, the outer wall and flat roof do not form part of the common areas of the building. However, under Clause 3, the plaintiff's exclusive right is subject to the easements and rights set out in the Second Schedule. These easements and rights include "the free and uninterrupted passages and running of water, sewage, gas and electricity from and to the units" and the right of the Management Company to enter upon to effect rebuilding and repairing, etc. Clause 17(i) also imposes other restrictions on the plaintiff's exclusive right to use and enjoy the outer wall and flat roof. The plaintiff has, in the enjoyment of its exclusive right, licensed parts of the outer wall and flat roof to others for various purposes.

5. Clause 7(a) of the DMC imposes on the Management Company the responsibility of repairing and maintaining the outer wall and flat roof. Clause 8 requires the Management Company to budget for the maintenance of the building, including specifically the outer wall and flat roof and to recover contributions from the owners. But Clause 8(i) specifically exempts the owners of the dangerous goods stores, sub-terranian level tank and outer wall and flat roof from having to make such contribution. Thus in effect, the plaintiff as owner of that one share is entitled to exclusive possession, use and enjoyment of the outer wall and flat roof, subject to certain easements and rights of other owners, while the Management Company shall be responsible for its maintenance at no costs to the plaintiff. The costs are to be shared by the other owners of the building. This interpretation is not disputed by counsel for the 1st and 2nd defendants.

6. The building was occupied 1982 and has since been managed by the Management Company in accordance with Recital (5) of the DMC until the incorporation of the 1st defendant in 1995. Clause 28(ii) of the DMC provides that in the event of incorporation of the owners, the corporation shall be vested with all the right, duty and obligations imposed on the Management Company. It is not disputed by the 1st defendant that the provisions of the DMC which previously were binding on the Management Company are now binding on the 1st defendant as the incorporated owners.

Effect of sections 34H and 34C(2) of the BMO:

7. The most crucial issue in the present dispute is whether the provisions of the DMC as to liability for maintenance of the outer wall and flat roof has been rendered void by the combined effect of sections 34H and 34C(2) of the Building Management Ordinance (BMO). This Ordinance has its origin from the Multi-storey Buildings (Owners Incorporation) Ordinance which was amended in 1995 by a change in the long title and the introduction of Part VIA, and some other amendments with which the present litigation is not concerned. This new part regulates or modifies the rights and obligations as between building owners under the DMC. These two sections provide as follow:

34C Application

(1) This Part, except where otherwise expressly provided, applies only to a building in respect of which a deed of mutual covenant is in force whether that deed came into force before or after the material date.

(2) In the event of any inconsistency between this Part and the terms of a deed of mutual covenant or any other agreement, this Part shall prevail.

34H Duty to maintain property

(1) Where a person 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.

8. Mr. Chan, S.C., submitted firstly that the purpose of section 34H was to make sure that there would be someone responsible to maintain every part of a multi-storey building even though there is no express provision in the DMC to specify who should maintain a particular part of the building. He submitted that it would not be against the purpose of section 34H if, say for instance, the DMC should provide that every owner is to be responsible for the maintenance and repair of every part of the building even including those parts of the building which are designated for the exclusive use and occupation of any one of the owners.

9. Mr. Chang, S.C., on behalf of the 1st defendant disagreed. He submitted that such argument contradicts the plain meaning of section 34H. If the purpose of the Ordinance is to make sure that someone would maintain a particular part of the building, it would have provided, "...... but the deed of mutual covenant in respect of the building does not impose an obligation on any person to maintain ......" Instead, the section used the words, "but the deed of mutual covenant does not impose on that person to maintain .......".

10. I agree with Mr. Chang, S.C. In my judgment, the inclusion of that phrase, or the use of the words "that person" is specifically aimed at redressing the situation where a developer creates for itself, its successor, or anybody, in the DMC a right to exclusive possession of any part of the building without a corresponding obligation to maintain that part of the building. If the section is merely to ensure that someone would maintain any specific part, it would have used the words "any person" instead of "that person".

11. Secondly, Mr. Chan, S.C., submitted that section 34H is concerned with the responsibility for maintenance and repair, and not the expenses for the maintenance, which is governed by Clause 8 of the DMC. In other words, while the plaintiff is under a statutory duty to maintain, he may recover the cost of maintenance from all the other owners under the DMC. I consider that a very strained argument. As Mr. Chang, S.C., put it, the obligation to pay in discharge of one's duty goes with that duty. To divorce from the obligation to maintain, the inherent obligation to pay for the costs of discharging that obligation would be straining common sense beyond its limits and render the obligation to maintain meaningless. Further, under section 34H(2), the obligation is deemed to be an obligation that is owed to all the owners. To divorce from the obligation to maintain the obligation to pay for the discharge of that obligation would render that sub-section nugatory, if the owners to whom the obligation is owed have to pay for the discharge of that obligation. It would require very strong and clear words in the legislation to enable one to come to such a conclusion. In my judgment, the words of section 34H do not admit of the interpretation as put forward by Mr. Chan, S.C.

12. Mr. Chan, S.C., sought to draw support from section 34G which makes the owner of any unsold units (i.e. the developer) liable to pay for management expenses, while the duty to maintain rests on another party. This section deals with the abuses where the DMC required the flat purchasers to shoulder management expenses of the unsold flats. In fact, the inference to be drawn from this section supports my view that section 34G, like section 34H, or vice versa, are aimed at redressing the imbalance or inequity built into the DMC by the developer. It would not be difficult for developers to introduce unfair terms in the DMC as the first buyers are usually associated with the developers or are speculators who are indifferent as to the terms of the DMC; while the other buyers are automatically bound by the DMC and have no freedom of contract.

13. Thirdly, Mr. Chan, S.C., submitted that even if section 34H(1) were to impose on the plaintiff as owner the obligation to maintain the outer wall and flat roof, that is not inconsistent with the provision in the DMC that the Management Company was to be responsible also. Again, if the section envisages co-existence of a parallel contractual obligation, it would not have included the phrase, "but the deed of mutual covenant does not impose on that person to maintain ......" It is amply clear that the purpose of the section is to impose on the owner, occupier or user of a particular part of the building the obligation to maintain that part of the building, even if he is released from such obligation under the provisions in the DMC.

14. Mr. Chan, S.C., submitted that as the plaintiff's exclusive right to use and enjoyment of the outer wall and flat roof is subject to various easements and rights of other owners, it is reasonable that the Management Company assumed the responsibility to maintain and repair the outer wall and flat roof. As I am now concerned with statutory interpretation, it is not for me to pass a value judgment on whether the contractual obligation to maintain is a sufficient quid pro quo for the easement over the outer wall and flat roof or whether one share of the interest in land in respect of the outer wall and flat roof is a good investment.

15. In my judgment, reading Part VIA as a whole and adopting a purposive approach, I find that section 34H imposes on the plaintiff as owner, occupier or user, the obligation to maintain the outer wall and flat roof, notwithstanding that under the DMC the obligation falls fairly and squarely on the shoulders of the Management Company and hence the 1st defendant upon its incorporation. The provision to that effect in Clause 8 of the DMC is therefore void as being inconsistent with section 34H.

Conclusion:

16. Mr. Chan, S.C., very properly conceded that if I am to rule against him on the interpretation of section 34H, the plaintiff's claim against both defendants must fail. As I have found that the 1st defendant's duty to maintain the outer wall and flat roof under Clause 8 of the DMC has been displaced by section 34H, no such duty could have been passed onto the 2nd defendant. Accordingly, I dismiss the plaintiff's claim against both defendants. The 1st defendant's counterclaim is also dismissed as I do not consider it appropriate in the circumstances to grant the order and declarations sought by the 1st defendant and no damages have been proved.

17. I also make an order nisi that the plaintiff shall pay the defendants' costs in this action with certificate for two counsels in respect of the costs of the 1st defendant and with certificate for one counsel in respect of the costs of the 2nd defendant.