XCHRX LEEPORT MACHINE TOOL CO. LTD. v. MAY YUEN BLEACHING & DYEING FACTORY LTD.

HCA 13732/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13732 OF 1999

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J U D G M E N T

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1. The plaintiff is and was at all material times the owner and occupier of Units 1 and 3 on the 1st floor of the Wealthy Industrial Building in Kwai Chung, where it carries on business as a trader of machines, machine tools and parts.

2. The defendant was at all material times the owner and occupier of Units 1 and 3 on the 2nd floor of the same building, namely immediately above the plaintiff's premises, where it has been carrying on business as a bleaching and dyeing factory.

3. The dispute in this case stems from the fact that since 1995 water has from time to time seeped through the ceiling of the plaintiff's premises, into the storage space below where the plaintiff stored its machines and machine tools.

4. The plaintiff alleges that the source of the seepage has been the defendant's dyeing operations which, there is no dispute, have been carried out immediately above the plaintiff's affected premises, and which do involve the use of water as an integral part of its operations. The plaintiff alleges that such seepage has been caused by the defendant's negligence in failing to take adequate measures to prevent it occurring; further and alternatively that the seepage constituted a nuisance which was caused or permitted by the defendant and its servants and agents; and further that in permitting such seepage to occur the defendant has been in breach of the governing Deed of Mutual Covenant, Clause 4 of which enjoins each owner in the building to use its premises "in a careful manner and shall not do anything which shall or is likely to cause damage or injury thereto or inconvenience to other owners"; and Clause 10(a) which provides, inter alia, as follows:

"Each party hereto hereby covenants with the others as follows:

(a) Not to make any structural alterations in his part of the said building which may damage the other parts thereof or cause any inconvenience to the other occupiers ..."

5. The defendant does not dispute that since about 1995 water and/or liquid have seeped through the plaintiff's ceiling into various parts of its premises, and that the plaintiff has complained of such seepage both to the defendant and to the management company of the building, requiring the matter to be remedied.

6. The defendant, however, denies that its dyeing and bleaching operations have been the cause or source of the seepage, and avers that, bearing in mind that the building is over 20 years old, deep cracks have developed in parts of the ceiling of plaintiff's premises simply as a result of the age of the building materials, and fair wear and tear; further that the cracks were aggravated by the plaintiff's own actions in installing heavy-weight metal frames and racks into its ceiling as a means of lifting and transporting machinery around its premises, since the forces generated by the use of such frames and racks pulled and dragged on the concrete of the plaintiff's ceiling; that water was seeping into the plaintiff's ceiling through such cracks aforesaid, for which the defendant bears no responsibility; and further that the source of the water seepage could well have been rain water percolating from the external walls of the building into the plaintiff's ceiling and then through the aforesaid cracks into the plaintiff's premises.

7. Mr Lui Kin Fai testified that he has been employed for many years as the godown manager of the plaintiff's premises. He said that water seepage problems occurred in 1995 which caused great inconvenience to the plaintiff, whereupon the plaintiff wrote a letter dated 20 September 1995 to the management company of the building asking for its assistance in getting the matter remedied.

8. By letter dated 13 April 1996 the management company wrote to the defendant, copied to the plaintiff, to the effect that following several inspections of the defendant's premises, "We find that the cause of water seepage may be related to the accumulation of water on the floor slab of your unit over a long period of time."; and further that although the defendant had been requested on several occasions to rectify the situation, nothing had been done and the problem had become more serious. The defendant was again asked to rectify the problem.

9. Mr Lui testified that the defendant did nothing to attempt to rectify the problems, which continued, and in September 1996 the plaintiff contracted the Hong Kong Macau Water Proof Company Limited to attempt to waterproof the plaintiff's ceiling by injecting water-proofing chemicals into it, at a cost to the plaintiff of $15,138. These measures were successful for a while, and no further seepage occurred into the plaintiff's premises until early 1998, when seepage did reoccur, on one occasion involving the seepage of a blue-coloured liquid into the plaintiff's premises.

10. On 17 January 1998 the management company again wrote to the defendant informing it that it had received several complaints from the plaintiff that bleaching and dyeing water had seeped through its ceiling onto the plaintiff's goods stored below; and that following a further inspection of the defendant's premises on 13 January 1998 they found that the seepage was caused by the accumulation of water on the defendant's floor slab over a long period of time, and again calling on the defendant to rectify the problem.

11. The plaintiff then put the matter in the hands of its solicitors, who by letter dated 20 February 1998 wrote to the defendant repeating the complaints and requesting the defendant to rectify them.

12. Mr Lui testified that no response was received from the defendant and no steps were taken by it to rectify the problem. He said that approximately 25%, or 3,000 square feet out of the total area of 12,000 square feet of the plaintiff's premises had been rendered unusable by the seepage problems, and the plaintiff was compelled to look for alternative premises at which to store its sophisticated machinery and calibration tools, in substitution for the area of the suit premises which had been thus rendered unusable. Such alternative premises were leased, with effect from 1 June 1998, on the ground floor of Kinway Industrial Building, 136 to 138 Tai Lin Pai Road, Kwai Chung, consisting of a total area of 2,600 square feet, at a rental of $28,000 per month.

13. Mr Lui was cross-examined to the effect that there were empty units available in the Wealthy Industrial Building at a cheaper price than the alternative premises which the plaintiff had leased. Miss Lisa Marie Tan, a director of the plaintiff, testified that it was not a practical option for the plaintiff to seek to lease alternative storage space elsewhere in the Wealthy Industrial Building, since the lift in the building was not able to accommodate the large and heavy machines which the plaintiff sometimes had to store. The plaintiff had in fact had the windows in its 1st floor premises especially enlarged to allow such large machines to be lifted into the premises by fork lift.

14. The plaintiff engaged Vigers Hong Kong Limited to carry out a survey of the water seepage problem in its premises, to diagnose the causes if possible, and to estimate the costs of rectifying any identified damage, and also of rectifying the source of the seepage problems.

15. Mr Kay Sui Hung, a chartered surveyor who was employed by Vigers at the time and who conducted the survey, testified that he had carried out his inspections on 26 November 1999, and subsequently compiled a Survey Report which he produced in evidence.

16. He first of all inspected the plaintiff's premises, and observed damp patches with stains in the ceiling, and particularly in the central portion of the ceiling where there were some damp patches marked with suspected dye, and also patches of peeling-off paint and defective paint work, as well as spalled areas on the ceiling and beams.

17. He also inspected the defendant's premises, where he observed that the main bleaching and dyeing area was situated directly above the plaintiff's premises and mainly at the centre of the premises. Raised screeding had been laid on the original floor slab with concrete channels for disposing of surplus water; however he noted irregular cracks on the surfaces of the raised floor screeding. While he was there, a worker was conducting the dyeing process and splashing water directly onto the floor, and coloured water was constantly running through the channels. Washing machines had been installed along the north east side, none of which were in operation, and additional layers of floor screeding and channels had also being installed there. Water ponding was noted underneath the washing machines, as also on the floor where the boilers were located on the north west side.

18. From his inspections he concluded that the source of the water which had caused the damp patches and concrete spalling on the ceiling of the plaintiff's premises was probably the prolonged water ponding caused by the bleaching and dyeing process which was conducted daily on the 2nd floor of the defendant's premises. The floor of the defendant's premises did not appear to be water-proofed, and the irregular cracks in the screeding constituted weak points through which water seepage could occur. The correspondence of the damaged areas in the plaintiff's premises with the water-usage areas in the defendant's premises further illustrated that the defendant's operations were the likely source of the water seepage.

19. Furthermore, in his view there was no evidence to suggest that the installation or use of the metal racks in the plaintiff's ceiling had caused any deterioration to the structure of the ceiling, or had contributed in any way to the water seepage; nor was there any evidence to suggest that the seepage was rain water from the exterior wall.

20. Miss Yip Wai Koon testified on behalf of the defendant that she had worked for the defendant since May 1991. She testified that the defendant had ceased its business with effect from 31 December 2000, since which date no further operations had been carried out on the premises in the Wealthy Industrial Building. The defendant had sold the premises to a new owner who had in turn leased them to a company called New Red Company, by whom she was now employed, and which also carried on a dyeing and bleaching business; however the dyeing and bleaching processes were carried out at their factory in China, and the premises on the 2nd floor of the Wealthy Industrial Building were used purely as an office space.

21. Mr Ngai Chin Chung testified that after the plaintiff had complained of seepage problems in 1994, he had inspected the plaintiff's premises, and in the interests of good neighborliness and without admitting that the defendant's operations were the cause of the seepage, he had agreed that the defendant would share 50 to 60 % of the expenses of remedying the problem. Remedial works were carried out and the plaintiff and defendant split the expenses evenly between them.

22. Furthermore, in order to forestall any such future problems occurring, the defendant built a podium with a water-resistant layer on the bottom of it, and also installed a drainage system with better water evacuation capacity, in order to prevent water from ponding and seeping through into the plaintiff's premises; in addition he was specifically designated to oversee the defendant's operations with a view to ensuring that water was efficiently and properly diverted and evacuated. These measures effectively resolved the water seepage problem as far as the defendant was concerned.

23. When the plaintiff again complained in 1998 of further seepage problems, the matter was discussed between them and the defendant offered to bear 30% of the costs of whatever further remedial works were necessary to stop the seepage. However, the negotiations broke down as a result of the plaintiff's unreasonable demands that the defendant should bear the full cost of the remedial works as well as the cost of fixing all the cracks inside the plaintiff's premises, and should also guarantee that there would be no further water seepage.

24. In October and November 1999, after the plaintiff had commenced these proceedings, Mr Ngai had engaged engineers to conduct site inspections, and had accompanied them on inspections of both the plaintiff's and defendant's premises. During such inspections of the plaintiff's premises he only saw one spot where water was dripping, which was being caught with a small bucket; furthermore, the plaintiff appeared to be utilizing virtually the whole area of its premises to store its goods.

25. Mr Ngai confirmed that the defendant had ceased doing business with effect from 31 December 2000, and that since that date no dyeing or bleaching operations had taken place at the premises in question. In support he produced a water bill which shows that no water was consumed at the premises between 1 January and 31 March 2001.

26. He said that the defendant has huge debts, and is intending to apply to be wound up.

27. Under cross-examination he stated that there were three shareholders of the defendant, consisting of himself as a 30% shareholder, his father as a 30% shareholder and one other.

28. He further admitted that he is a 30% shareholder and a director of New Red Company Limited which now leases the defendant's old premises at units 1 and 3 on the 2nd floor of the Wealthy Industrial Building; that another company, New Fu International Limited is also a director of New Red Company Limited, and that he is also a shareholder and director of New Fu International Limited. He denied that the sale of the defendant's premises in December 2000 was a sham to evade the relief sought against it in these proceedings by the plaintiff.

29. The defendant did not call any expert evidence to counter the evidence given by Mr Kay for the plaintiff, or to establish any other possible sources of the water seepage through the plaintiff's ceiling. Mr Kay was a good witness, and his conclusions impressed me as logical and compelling.

30. I am satisfied that the probable cause of the seepage of water through the plaintiff's ceiling in the suite premises over the years has been the water which was used by the defendant in its dyeing and bleaching operations on the 2nd floor immediately above the plaintiff's premises. (I should mention that Mr Ngai repeatedly submitted that the plaintiff had not conclusively proved that the defendant's operations were the source of the seepage problems. It is sufficient, however, for the purposes of these proceedings that the plaintiff has proved it on a balance of probabilities.)

31. I am further satisfied that the defendant has thereby been in breach of its obligations under Clause 4 of the Deed of Mutual Covenant; that its dyeing and bleaching operations have caused a nuisance to the plaintiff; and that although the defendant has made some effort to tackle the problem, it has been negligent in failing to adopt the measures necessary to properly remedy it.

Injunction

32. I accept the evidence to the effect that the defendant has, since 31 December 2000, ceased its dyeing and bleaching operations at the premises on the 2nd floor of the Wealthy Industrial Building. It follows that there are currently no activities being conducted in those premises which have a potential to cause a re-occurrence of the seepage problems in the plaintiff's premises. However I agree with Mr Yip that the fact that the infrastructure for the dyeing and bleaching operations remains intact, and that Mr Ngai remains involved as a shareholder and director in the dyeing and bleaching company which is presently leasing the premises - he was evasive about his involvement with this company - do create a suspicion that the defendant has not fully and bona fide divested itself of its former interest in the business, and do create a real potential for the dyeing and bleaching activities to recommence at the premises at some time in the future, resulting in further water seepage into the plaintiff's premises. In these circumstances, in my view, the plaintiff is entitled to the injunction which it seeks.

Damages

33. As far as damages are concerned, the plaintiff is clearly entitled, in my view, to be reimbursed the costs which it incurred in 1996 (in the sum of $15,138) in retaining the Hong Kong and Macau Water Proofing Company to at least temporarily waterproof its ceiling, thus preventing any further seepage into its premises until early 1998.

34. The plaintiff is also entitled to the reasonable costs of repairing any damage which was done to its premises by the water seepage. Mr Kay's estimate of such costs was $148,000, which was not challenged, and which I accept.

35. The largest part of the plaintiff's damages claim is its claim to be reimbursed the cost to it of renting the alternative premises from 1 June 1998 to 31 March 2001, in the total sum of $897,000, in substitution for the 25% of its premises which it alleges were rendered unusable by the water seepage.

36. I note that the plaintiff did not apparently give notice to the defendant that it would be compelled, by the seepage problems, to seek alternative premises in which to store its goods, and that it would hold the defendant responsible for the cost of leasing such alternative premises if the defendant failed to rectify the seepage problems.

37. Nevertheless I accept that a portion of the suite premises were rendered unusable by the seepage problems which occurred; however I am not satisfied on the evidence that the portion was as high as the 25% claimed by the plaintiff.

38. No evidence was led to establish the extent of the problems which had been created when leaks had occurred. A single leak, or even a few leaks which might have occurred at any particular time, would not have rendered more than the area(s) directly affected by the leak(s) unusable for storing its machines. The 25% which the plaintiff claims has been rendered unusable is, as I gather, the total area which has been affected by all the leaks which have occurred at different times.

39. Miss Tan testified that the plaintiff dare not take the risk of storing its machines anywhere in the affected area, since it cannot predict when or where a leak will next occur. I accept that there is some force in this observation, but I do not accept that a full 25% of the storage area was thus rendered unusable. No evidence has been led to show that damage was caused to any of the plaintiff's machines or machine tools by the leaks which did occur: if such damage had been sustained it would no doubt have formed a part of the plaintiff's claim for damages in these proceedings.

40. Since the leaks in question occurred sporadically, and not all at the same time, it is not correct, in my view, for the plaintiff to say that 25% of its storage area has been rendered unusable. The plaintiff is obliged to mitigate its damages, and in my view it is not entitled to be reimbursed the full costs to it of leasing the alternative premises - which consist of an area equivalent to 25% of the suite premises - during the period in question.

41. It is not possible to make an accurate assessment, on the evidence which has been presented, of the area of the plaintiff's premises which have been rendered unusable. Doing the best I can on the evidence which has been led, I would allow 50% of the plaintiff's claim under this head, namely in the sum of $448,500.

42. The plaintiff is not entitled, in my view, to the further damages which it seeks in the sum of $25,000 per month with effect from 1 January 2001 to cover the ongoing cost of renting the alternative premises, since the dyeing and bleaching activities on the 2nd floor have ceased since that date.

43. In the event I grant the following orders:

(1) An injunction to restrain the defendant by itself, or its servants, employees or agents or otherwise howsoever from allowing, causing or permitting water or liquid to seep from the premises at Units 1 and 3 on the 2nd floor of the Wealthy Industrial Building into the plaintiff's premises;

(2) Damages in the following sums:

(a) $15,138;

(b) $148,000;

(c) $448,500.

44. I make an order nisi that the defendant is to pay the plaintiff's costs of these proceedings, in a sum to be taxed if not agreed.