ADDITECH LTD v. TAI CHEUNG MANAGEMENT CO LTD

LDBM 224/2018

[2019] HKLdT 48

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 224 OF 2018

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Decision
(Leave to Appeal)

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Background

1.  The respondent’s striking out summons filed 3 December 2018 (“striking out application”) was dismissed by me with oral reasons delivered on 12 June 2019 and now the respondent applies for leave to appeal by summons filed 24 June 2019 annexed with the draft Notice of Appeal.

2.  I recorded my oral decision of the striking out application in my Written Reasons for Decision handed down on the same date of this decision pursuant to rule 28(2) of the LTR and will adopt the same nomenclatures used in the said Written Reasons for Decision for the sake of convenience.   

3.  By consent of the parties, the Tribunal shall dispose of this application for leave to appeal on paper without oral hearing.

Legal Principles

4.  Section 11AA (6) of LTO provides that:

“Leave to appeal shall not be granted unless the Tribunal, the Court of Appeal or the registrar hearing the application for leave is satisfied that –

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

5.  In this regard, it is trite that a “reasonable prospect of success” means more than just an arguable or fanciful case without having to show the appeal will probably succeed[1].

Discussion

6.  The main issue in the striking out application is whether it is plain and obvious that the applicant shall be barred from claiming damages for the respondent’s breach of clauses 5, 9(A)(d), 9(B)(35), paras. 3, 5 and 9 of the Second Schedule of the DMC (“the Consent Clauses”) by the respondent’s unreasonably withholding the consent to the Works (“Damages Claim”).

7.  In other words, the question is whether for the purpose of the striking out application, the Damages Claim discloses no reasonable cause of action against the respondent.

8.  Mr Chan for the respondent submitted, which I agree, that the key provision is para. 3 of the Second Schedule, which reads: -

“3. Subject to relevant government authorities’ approval and the consent of the Manager, not to make any structural alteration to any part of any floor, Unit (including the Refuse Collection Point), shop or office of which he is the Owner which may damage, or affect or interfere with the use and enjoyment of any other part of the Building whether in separate or common occupation or use, nor cut, injure, damage, alter or interfere with any part or parts of the Building including but not limiting the main walls or beams or floor thereof or any of the sewers, drains, water-courses, conduits, pipes, cables, wiring, fixtures, equipment apparatus or services of the Building…” (Emphasis added).

9.  Mr Chan for the respondent mainly relied on the landlord and tenant cases in the English and Irish jurisdictions to support his proposition that the lessee (or the covenantee) cannot claim and recover damages for the lessor’s (the covenantor’s) unreasonable withholding of the requisite consent to sublet, conduct alteration works or assign should not extend to apply to the other negative contractual obligations qualified by “without the consent of …” or qualification alike[2].  Mr Chan accepted that there is no directly binding Hong Kong authority as to whether a DMC clause like the Consent Clauses, breach of which by the manager or the incorporated owners would give rise to a right to seek damages by the innocent owner.  That is to say, there is no direct Hong Kong authority supporting his proposition that the Damages Claim discloses no reasonable cause of action in the building management cases particularly. 

10.  In my view, the DMC and the tenancy agreement are totally two different kinds of contract, in which the duties of the manager or the incorporated owners under the DMC is not the same as that of the landlord under the tenancy agreement in many aspects.  For the instance, the manager or the incorporated owners under the DMC (who is not the owner of the multi-storey building with individual shares) have the positive duty to manage, maintain or administer the said building, in particular the common parts thereof whilst the landlord (the owner of the subject premises) usually is obliged to provide, say quiet enjoyment with the tenant.  I fail to see how the tenancy law in the case when the landlord is in breach of his duties can be strictly applied in the building management cases, in which the manager/incorporated owners breaches its duties.

11.  Furthermore, the Hong Kong courts have to apply the English and Irish authorities with great caution since the tenancy laws in the UK and Ireland may not be exactly the same as those in Hong Kong, which may be governed by entirely different statutes.

12.  In 383HK Ltd v IO of Tak Bo Building [2017] 4 HKC 142, I agree that, in view of the plaintiff’s failure in proving any breach of DMC, it was only an academic exercise to consider the issue of damages by DHCJ Burrell, the finding of which should not be treated as the ratio decidendi of the decision but could only be non-binding obiter.  Nonetheless, when this case went to appeal, Cheung CJHC (as he then was) did not disapprove DHCJ Burrell’s assessment of damages made in case the plaintiff was successful.  Neither did His Lordship say any word to the effect that the plaintiff in the 383HK’scase would not be entitled to claim damages as a matter of law and principle if the incorporated owners would have been found in breach of the DMC in withholding consent.

13.  I am of the view that if DHCJ Burrell would have been fundamentally wrong in principle regarding an owner’s legal entitlement to damages for breach by the incorporated owners and/or the manager of a building of a term of a DMC by withholding consent, Cheung CJHC (as he then was) would not have kept silent and left the deputy judge’s obiter dictum as it was, in particular when His Lordship had expressly mentioned in para. 16 of the Court of Appeal judgment the assessment of damages made by the deputy judge.  Cheung CJHC (as he then was) also considered that, under the DMC in the 383HK’s case, it was justified to imply the requirement of reasonableness when the incorporated owners or the manager has to exercise the discretion to allow or disallow the individual ownerto repaint or redecorate or alter the appearance of the exterior of the building etc.  His Lordship had this to say:-

“34. I would make two observations. First, what was said by his Lordship was in relation to the exercise of a discretion specifically conferred on the incorporated owners under the DMC. In the present case, an example of such a discretion granted to the manager can be found in clause 4(p) of the DMC (not to repaint or redecorate or alter the appearance of the exterior of the building etc without the manager’s written consent). As a matter of contractual interpretation, one can see the good sense and justification for implying the requirement of reasonableness into the exercise of the discretion vested in the incorporated owners or manager under the DMC.

35. However, in the present case, where the DMC does not even provide for the right of an individual owner to install water or drainage pipes over the common parts of the building, the question of obtaining written consent does not even arise.  There is, therefore, no place for implying, as a matter of contractual interpretation of the DMC, a term to the effect that the incorporated owners or the management committee must not unreasonably refuse or fail to allow the individual owner to do so.” [Emphasis added]

14.  Similar to the present case, I am of the view that as a matter of construction of para. 3 of the Second Schedule, there is justification for implying into the DMC a term that the respondent’s consent should not be unreasonably withheld[3].  If after trial, it is found as a fact that the respondent was totally unreasonable to withhold the consent, I fail to see why it should not be liable to pay damages for breach of this implied term subject to the proof or mitigation by the applicant[4]; otherwise the incorporated owners and/or manager may abuse their powers granted by the DMC easily.  At least, it cannot be said that for the purpose of the striking out application, the Damages Claim discloses no reasonable cause of action against the respondent.  

15.  Having carefully consider all grounds of intending appeal submitted by the respondent, I do not think that the appeal has a reasonable prospect of success or there is some other reason why the appeal should be heard, and hence, I refuse to grant leave to the appeal.

Costs

16.  Since costs shall follow event, there is no reason why the respondent should not pay costs of this application.  As to the scale, I have made the costs order to be taxed on the High Court scale for the striking out application as Mr Chan accepted the complexity of such application.  In the circumstances, I consider that I should exercise my discretion to allow the High Court scale for this leave to appeal application.  I now order that the respondent do pay costs of this application on the High Court scale.

17.  As to the quantum, parties have lodged their statements of costs.  The applicant is claiming costs of $186,105.  I am of the view that the solicitors’ costs for $36,105 are very reasonable whilst the counsel fee for $150,000 is excessive as some of the arguments and authorities have been made and discussed in the striking out application and repeated here.  I therefore reduce the counsel fee to $120,000.  Costs of this application be summarily assessed at $156,105 payable forthwith.