PUN KWOK KEI v. THE INCORPORATED OWNERS OF MERIT INDUSTRIAL CENTRE AND ANOTHER

LDBM 25 OF 2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 25 OF 2003

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J U D G M E N T

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1. The Applicant is the owner of a flat on the top floor of an industrial building. Not long after the renovation of the waterproofing work on the roof-top by the Respondent owners incorporation, leakage problems started to emerge inside the flat of the Applicant. The Respondent passed on the problem to a contractor who had been employed to undertake the renovation work and who had given a 10-years guarantee. Some minor remedial work was done to the roof. However the problem persisted and manifested itself during rainy days. There is not much dispute in this regard. In any event I have no hesitation in accepting the evidence of the Applicant and the architect called by him. As to date the Respondents have no plan or intention to undertake any work to remedy the problem on the roof. The Applicant is seeking damages and a mandatory injunction compelling the Respondents to do the necessary repair work.

Liability of the second Respondent

2. The second respondent is a management company who has been employed by the first Respondent, the owners incorporation, under a management contract. The second Respondent contended that it is not the building manager as defined in the deed of mutual covenant or within the meaning of the Building Management Ordinance. It claims that it is merely a servant or agent of the owners incorporation.

3. In the circumstances of the case, it does not serve any useful purpose to draw a distinction between a "building manager" or a service agent. The practical question to ask is the scope of its duty and power. Under the terms of management contract, the second Respondent's power to contract on behalf of the owners incorporation is severely restricted. On the true construction of the provisions of the Building Management Ordinance and the management contract, the terms in question are binding upon the second Respondent. It is not the intent of the Building Management Ordinance to leave the matters of repairs and other building management matters to the hands of the building manager alone and without regard to the will of the owners incorporation. Quite on the contrary, the intent of the legislature is not to restrict unnecessarily an owners incorporation's freedom of contract. An owners incorporation has the same duty and power concerning the building management. It is not necessary for the good management of a building to tamper with the freedom of its owners incorporation in defining the scope of contractual duty of the management company it employed. After all it is the owners incorporation which would benefit from good building management. Restricting the power of the manager it employs, an owner incorporation in effect assumes the concurrent responsibility which has been taken away from the manager by the restrictions and which would otherwise have been imposed on the manager by the Ordinance. In actual practice the employed management company would invariably act on the advice of the owners incorporation in matters involving substantial expenditure. I am of the view that the terms restricting the power of the second Respondent are valid and consistent with the Building Management Ordinance and binding.

4. It cannot be disputed that the work envisaged for the repairing of the defects complained of is way beyond the power of the second Respondent to undertake without the approval of the owners incorporation according to the terms in the management contract. The Applicant and the owners incorporation did not suggest that the second Respondent should provide or spend their own funds on the required repairs.

5. If the second Respondent is not a manager within the meaning of the Ordinance, it would simply a servant of the first Respondent. As a servant it could only have acted on the instructions of the first Respondent. That being the case, it would certainly not be liable for not undertaking the remedial work involving expenditure it had no authority to spend without the approval of the first Respondent. Likewise, even if it is a manager, its authority to expend money is restricted under the management contract. Further as a manager it is entitled to rely on the exemption clause provided in the DMC. Because of this constraint as to budget, it has not been guilty of wilful negligence or default and the exemption clause applies. Therefore whether or not the second Respondent is a manager, as long as the terms restricting its power to spend money in the management contract are valid, it is not liable. As I have ruled that these terms are valid, the second Respondent is not liable. The action against the second Respondent must fail.

Liability of the first Respondent

6. It is not in dispute that the roof of the building is the common part of the building. Keeping it in good repairs and condition is the duty of first Respondent. Counsel for Respondents argued that the Applicant had to prove what the actual problems about the waterproofing in the roof were. In particular she raised two points of argument. First the architect's evidence is generally not reliable and his expertise is in doubt. Secondly as there is no evidence as to the exact locations of defects on the roof and therefore there is nothing that can be done and the first Respondent is not liable.

7. I find that it is within the architect's expertise in diagnosing the leakage problem in the instant case. I find he is a reliable witness. His evidence and the evidence of the Applicant I accept. The architect identifies a number of possible sources of leakage. To identify the exact location and source of leakage, he said further tests were required. It is true that he cannot be sure which one or more sources should be responsible for the leakage. However the totality of evidence indicates clearly that the water must have come through the roof or its joint with the external wall to the flat of the Applicant. The conclusion I draw is that waterproofing work on the roof is defective. Counsel for the Respondents argued that as the architect could not pinpoint the location through which water leaked into the flat of the Applicant he failed to prove his case. I disagree. The Applicant has proved that the waterproofing on the roof is defective. The nature of defects is serious, so serious that allowing its state to constitute is a failure to maintain the roof 'in a state of good and serviceable repair'. It is not the Applicant's duty to find out the exact location of defects. The necessary investigation is part of the maintenance work. It is a wrong contention that the Applicant has to prove in this case what work should be required to rectify the defects. It is the duty of the first Respondent to maintain the common parts 'in a state of good and serviceable repair'. The leakage problem here is not something which cannot be rectified by engaging competent professionals. In any event it is not the argument of the Respondents that such defects cannot be rectified. They only suggest that it may be costly. The question of cost of repair without more is no defence to this case.

8. I have found that the first Respondent has been in breach of its duty imposed on them by the Building Management Ordinance. Counsel for the Respondent did not raise the point in the pleadings or at the trial that the duty is not absolute. Nor did she raise the similar point that not every breach of its duty would give rise to a cause of action against an owners incorporation. It has been a longstanding practice and for good reasons that a point not raised in the pleadings or at the trial should not be considered, especially when both parties are legally represented. However the practice is not without exception. In the case of 陳偉連，梁麗貞V 香港房屋委員會 (CACV925/2001) an appeal from District Court, the Court of Appeal remitted the case back to the trial judge to re-consider a mixed question of fact and law which had not been raised at the trial at any stage or had been included in the grounds of appeal. The simple reason given by the Court of Appeal is that it is a fundamental point. The other reason in the mind of the Court of Appeal must be to prevent injustice done to the Hong Kong Housing Authority, the defendant appellant. As the result of the order, one of the parties had to apply to District Court for amending the pleadings. Strangely enough the application was not dealt with by the trial judge. Fortunately the parties managed to settled the case, presumably an amicable settlement, before listing the case for hearing before the trial judge for his reconsideration. Applying the same principle, I should consider the absolute duty point or the cause of action point in order to avoid remitting the case back on appeal and which course must involve onerous legal costs.

9. In The Incorporated Owners of Greenland Villas V Wong Sui Fung and anr this Tribunal ruled that the duty of an owners incorporation to enforce the provisions of the DMC is not absolute and that not every breach of statutory duty would bring about a cause of action. Although in that case the kind of breaches complained of is different, the principle should be followed. Applying the principle to the instant case, in determining whether the first Respondent is liable one must not lose sight of the fact that a sole owner can maintain his property in whatever way and to whatever standard he likes or he can afford. In the case of plural ownership in a building, a balance must be struck between the right of minority owners and that of the majority. To take an extreme case, an owners incorporation of a dilapidated building might have a good defence or reason for not undertaking the renovation if it is not viable, for instance, the cost of renovation far exceeds the rebuilding cost and the value of the building after renovation is much less than the renovation cost. The building should be pulled down if common sense prevails. In such case, the minority owners cannot compel their counterpart to renovate the building to its original state simply to satisfy their nostalgic impulse. Another analogy is that very often it is more reasonable to write off a badly damaged car and obtain a new one than to have it repaired.

10. Except that it is suggested that rectification work could be costly, no other suggestion was made even when prompted by the tribunal why it was not viable to rectify the defects. Apart from holding the contractor to its guarantee and taking out recent proceedings against it, the first Respondent did not do anything to address the problem in the waterproofing work on the roof. Not only did it not seek professional advice, it attempted to obstruct the investigation of the architect employed by the Applicant. A sole owner of the whole building in a similar situation would certainly have taken measures to rectify the defects to protect its property. A fortiori in a case like the present one where the interest of minority owners on the top floor are adversely affected, the owners incorporation would have failed its duty to maintain the roof and to protect its property. There first Respondent is liable for its neglect of duty and this neglect is actionable on the particular facts of the case.

11. Injunction relief is discretionary. I am urged by counsel for the Respondents not to grant any injunction because the terms of injunction in the pleadings are not detailed and certain enough to enable the Respondents to know what to comply with. Difficulty in working out the terms of an injunction should not deter the court in granting one in appropriate case. In a proper case I can vary the terms in order to do justice. I disagree with counsel for the Respondents that technical details like those in a tender document for the project should be spelt out in the injunction order. In this case injunction is an appropriate relief. The appropriate terms should not too difficult to work out taking into account the concern raised by the first Respondent.

Damages

12. The first Respondent was doing its duty when it employed the contractor to do the waterproofing work. However when defects started to emerge it had to see to it that the defects be remedied within a reasonable time. Merely waiting for the contractor to honour its guarantee is not sufficient, especially when it was clear to it that the contractor was not prepared to honour it. The first Respondent is liable to the Applicant for the damages. The loss in rental is an appropriate measure of damages.

13. There is no evidence that the first Respondent has been negligent or otherwise at fault in employing the contractor. It should not be responsible for the damages caused by the defective work. It only has the duty to rectify the defects once they emerged. However reasonable period should be allowed for the first Respondent to rectify the defects. In respect of this reasonable period, the loss of rental or damages are not caused by the first Respondent. The first Respondent is therefore liable for damages only in respect of the period of delay. The delay continues up to today for which period the rental loss in the proper measure of damage.

14. The Applicants claims that $7500 per month is the rental loss. I accept that $7500 is the market rental of the flat without leaky condition. However short term measures were offered to him but were refused. Also he has made no reasonable attempt to rent out the flat at the condition as it was. He has failed his duty to mitigate his loss. In any event the correct measure of loss is the reduction in rental if the flat was let out with temporary measure in place. A flat with such unsatisfactory condition with the risk of leakage occurring anytime can only fetch a rental substantially lower than $7500. There is no evidence of market rental of a flat in such condition. I have to resort to guess work. I am of the view that $4,000 reduction in rental is appropriate.

Orders

15. To give a round sum for damages, I award $68,000 damages (from 1 March 2003 to 31 July 2004, at $4000 per month) for the Applicant against the first Respondent together with interest thereon at half judgment rate from date of Application to today and at full rate thereafter.

16. Also granted is an injunction ordering the first Respondent to rectify the defects on the waterproofing work on the roof within 6 months to the satisfaction of an authorised person, or other competent professional, jointly appointed by the Applicant and the first Respondent but solely at the expenses of the first Respondent. There be liberty to apply.

17. All claims against the second Respondent be dismissed. I also make an order nisi that the first Respondent do pay the costs of the Applicant and the second Respondent on High Court Scale with certificate for counsel.