THE INCORPORATED OWNERS OF SHUN CHI COURT v. CITI-PRO PROPERTY SERVICES CO LTD

HCA 2237/2019

[2023] HKCFI 911

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2237 OF 2019

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BETWEEN

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JUDGMENT

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1.  In this action, the plaintiff (“IO”) is the corporation of the owners of a residential estate while the defendant (“Citi-Pro”) was the management company of the estate at the material times. The IO claims against Citi-Pro for the latter’s alleged breach of the management service agreement during its 2-year term between July 2016 and June 2018. The IO claims for alleged liquidated damages or alternatively overpayment of service charges had and received by Citi-Pro.

BACKGROUND

2.  Shun Chi Court (“the Estate”) is situated at Nos. 1-10 Shun Chi Street, Kwun Tong, Kowloon. The Estate consists of 6 blocks or 12 courts with a total of over 1,500 residence units. The IO is the incorporated owners of the Estate.

3.  At the material times, Citi-Pro carried on the business of providing property management service for residential and commercial properties in Hong Kong.

4.  The written management service agreement between the parties was entered into on 24 June 2016 (“the Agreement”) after the owners of the Estate had considered 7 tenders including the one from Citi-Pro. Each tender consisted of quotations for 4 service package options. On 15 May 2016, the owners resolved to choose Citi-Pro’s tender and option 2 of its service package. The term of the Agreement was 2 years from 1 July 2016 to 30 June 2018.

5.  The covering document of the Agreement signed by the parties provided, amongst other things, that the terms of the Agreement were set out in the document as well as the tender document dated 2 February 2016 (“the Tender”) and various further documents submitted by Citi-Pro after the Tender. These further documents consisted of:

(1) the letter from Citi-Pro dated 9 March 2016;

(2) the supplementary documents and additional information regarding the Tender under the heading of “補充文件及其他資料要求 (一), (二) and (三)” issued by the IO and filled in, signed and returned by Citi-Pro to the IO (respectively “Supplement (1), (2) and (3)”);

(3) the letter from Citi-Pro dated 10 May 2016; and

(4) the letter from Citi-Pro dated 15 June 2016.

6.  The Tender contained, amongst others, the following term regarding the basis of the service charge under option 2 of the service package quoted by Citi-Pro:

“備註：職員及保安員薪金以包帳形式報價，包括一切勞工福利，例如：每月例假、年假、強積金、制服、勞工保險等。”

Essentially, the salaries of the management staff and attendants quoted in the Tender were all inclusive, ie already inclusive of all the employment benefits such as monthly leave, annual leave, mandatory provident fund, uniform and employees’ compensation insurance.

7.  It was followed by a table of the 47-member management staff force with the prescribed job positions, number of working days per week and number of working hours per day for each of those positions under option 2 of Citi-Pro’s service package:

本公司經閱讀及瞭解所有招標文件及附件後，每月服務費用報價如下:

職級		金額 HK$
駐苑管業經理：每週工作5.5天，每天7.25小時，長短週。	(共1人)	33,280
高級管業主任：每週工作5.5天，每天7.25小時，長短週。	(共1人)	23,040
管業助理：每週工作5.5天，每天7.5小時。	(共1人)	16,640
收費文員：每週工作5.5天，每天7.5小時。	(共1人)	15,360
物業主管 (日班)：每週工作6天，每天9小時。	(共1人)	13,329
物業主管 (夜班)：每週工作6天，每天9小時。	(共1人)	13,329
副物業主管 (日班)：每週工作6天，每天10小時。	(共1人)	12,979
副物業主管 (夜班)：每週工作6天，每天10小時	(共1人)	12,979
高級管理員 (日班)：每週工作6天，每天11小時。	(共2人)	25,260
高級管理員 (夜班)：每週工作6天，每天11小時。	(共2人)	25,260
管理員 (日班)：每週工作6天，每天11小時。	(共16人)	196,224
管理員 (夜班)：每週工作6天，每天11小時。	(共16人)	196,224
持電牌技工：每週工作6天，每天9小時。	(共1人)	20,480
維修技術員：每週工作6天，每天9小時。	(共1人)	19,200
花王：每週工作6天，每天8小時。	(共1人)	17,920
總駐苑人數：	合共：47人
其他收費	行政費	已包含在經理人酬金內
	經理人酬金	18,000
(請註明費用類別)
	合共總金額：	659,504

8.  The descriptions of the respective management staff positions correspond to those in the Attendance Records as follows:

駐苑管業經理	PM
高級管業主任	SPO
管業助理	PA
收費文員	Clerk
物業主管 (日班)	BS(D)
物業主管 (夜班)	BS(N)
副物業主管 (日班)	ABS(D)
副物業主管 (夜班)	ABS(N)
高級管理員 (日班)	SBA(D)
高級管理員 (夜班)	SBA(N)
管理員 (日班)	BA/SG(D)
管理員 (夜班)	BA/SG(N)
持電牌技工	LCM
維修技術員	TECH
花王	GDR

9.  The total monthly service charge of HK$659,504 was the summation of the charges for maintaining the above management staff force each month together with the agreed manager’s remuneration of Citi-Pro.

10.  Supplement (3) contained the following terms of the Agreement:

補充文件及其他資料要求 (三)
以下為法團日常可能遇到的突發事件及狀況
請貴司回覆對於該狀況將如何解決及處理
(1)	如有駐苑員工突然因身體不適／因家中事故的因素而必需馬上離開，貴公司能於多少時間內補充缺失職位?
回答：	半小時
(2)	法團召開業主大會時，除要求當值員工加班協助外，是否能提供額外人員到場協助?是否會有額外收費?
回答：	能提供額外人員到場協助，不需額外收費。
(3)	就投標方案 (一二三四) 中，每日實際駐苑員工人數?
回答：	(方案一) 41名、(方案二) 41名、(方案三) 49名、(方案四) 42名
(4)	法團有絶對權力在合約期內增加、修改或減少有關屋苑之管理工作及工作人員數量，任何因增減人員而引起的合約費用改變，均以貴投標商在回標報價細分項目中 (員工每月包薪金額) 的報價為準作出增減，投標商不可以任何理由或法例改變等原因，就相關費用要求法團作出增減修改。
	請問是否同意? 是  否 
	法團有絶對權力在合約期內就有關屋苑之管理員工缺勤一事上作出以下罰則：
	(a)	員工缺勤以其職位薪金 (日薪 x 1.5 倍) 作為罰款賠嘗 (sic)給法團
	(b)	如每月員工缺勤總數超過每月實際上班人數百份之五 (5%)，罰款將以 (日薪 x 3倍)。如上述情況超過3個月或以上仍未能改善，法團將對貴公司發出警告信，如情況持續惡化，法團將以上述為理由終止合約。
	請問是否同意? 是  否 
	如不同意，請在下列填寫原因或貴公司提出可接受的罰款方案
回答：

11.  Essentially, Citi-Pro agreed to the following specific proposed terms of the IO:

(1) In case a management staff member had to leave his position immediately for family or personal reasons, Citi-Pro undertook to fill up the position so left vacant within half an hour (clause 1).

(2) The number of management staff members actually stationed daily at the Estate (for option 2 of the service package) would be 41 (clause 3).

(3) The IO had absolute discretion during the term of the Agreement to vary the work and the number of members of staff required for the management of the Estate, and the service charge would be adjusted in accordance with the scale of the quoted service charge (clause 4).

(4) The IO had absolute discretion during the term of the Agreement to impose the following penalty on Citi-Pro for absence from duty on the part of the management staff (clause 5):

(a) 1.5 times of the daily wage of the absent staff member(s);

(b) 3 times of the daily wage of the absent staff members if the total absent members exceeded 5% of the present staff members.

(c) If the state of absence under (b) above continued for more than 3 months, the IO would issue letter of warning; and in the absence of improvement, the IO would be entitled to terminate the Agreement.

12.  Citi-Pro’s letter dated 10 May 2016 contained, amongst others, the following term:

“本公司如承接 貴苑管理及保安服務合約，會接受日後可加可減人手調整，並以本公司投標細分項目 (員工包薪) 為日後總費的調整指標。”

13.  Essentially, what Citi-Pro stated in the above letter reflects its answer under clause 4 of Supplement (3) mentioned above.

14.  There is dispute as to whether the owners were not satisfied with the service of Citi-Pro in terms of management manpower allocation. There is however no dispute that the 2-year term of the Agreement came to an end in June 2018 without renewal.

15.  There is also dispute as to whether Citi-Pro was obliged by the terms of the Agreement to provide periodical work report (referring to clause 2.2.5 of the Tender). That however was never advanced by the IO as a cause of its claim. What cannot be in dispute is that the IO must have at one stage requested Citi-Pro for the attendance records of the management staff for the 2-year term of the Agreement, which led to Citi-Pro’s provision of the same under the cover of its letter dated 2 August 2018 (“the Attendance Records”). What also cannot be in dispute is that apart from those, there is no allegation in pleading or evidence by way of witness statement in respect of the existence or disclosure of any other attendance records.

16.  On the basis of the Attendance Records, the IO studied and arrived at the result that Citi-Pro had allegedly failed from time to time to provide the agreed management manpower in accordance with the Agreement mentioned above.

17.  For the above complaint, the IO admittedly withheld payment of the last month’s balance of the service charge to Citi-Pro. This prompted Citi-Pro to commence action against the IO in the District Court for such balance in June 2019. Whilst the IO filed its intention to defend, the parties eventually settled the action. Upon the IO’s payment of the agreed sum, Citi-Pro discontinued the action in August 2019. Instead, the IO, through solicitors, issued formal demand to Citi-Pro in November 2019 for compensation for alleged breach of the Agreement as mentioned above. The commencement of the present action followed on 3 December 2019.

THE DISPUTE

18.  The claim for shortfall in management manpower during the term of the Agreement was particularized by way of schedule to the statement of claim (“the Schedule”). Based on the unit rates of the service charges for the respective management staff positions set out in the Agreement, the IO worked out the shortfall and an effective overpayment of HK$1,892,185.34 by the IO to Citi-Pro during the term of the Agreement. The IO seeks to enforce clause 5 of Supplement (3) and claims a sum of HK$5,649,601.30. Alternatively, it claims for the amount of overpayment as money had and received by Citi-Pro.

19.  Citi-Pro denies the alleged breach and thus the claim. By pleading, it raises the following issues:

(1) The Agreement did not require it to maintain 47 staff members on duty every working day. The agreed working days and hours were subject to the staff’s entitlements to holidays, sick leave and absence for acceptable reasons.

(2) Citi-Pro had in fact maintained a team of more than 47 staff members and on site more than 41 staff members in compliance with the Agreement.

(3) Clause 5 of Supplement (3) was not a fair or genuine estimation of the loss suffered by the IO; and there was no legitimate interest served by the contractual remedy. The clause was therefore a penalty, which is void and unenforceable.

WITNESSES

20.  On behalf of the IO, Mr Chu Wah Tak Takkie (“Chu”) gave evidence. Chu was an elected committee member of the IO since 27 January 2017, ie after the Agreement had been entered into.

21.  For Citi-Pro, its General Manager, Mr Chan Yui Tim Sunny (“Chan”) gave evidence. Chan was also responsible for entering into the Agreement, including signing the contractual documents constituting the Agreement, on behalf of Citi-Pro.

22.  Citi-Pro called as its witness Mr Yue Wai Cheung (“Yue”). Yue was the Chairman of the IO during the period from 2016 to early 2018. In his such capacity, he was involved in the entering into of the Agreement with Citi-Pro. Following the election of the management committee in early 2017, Yue ceased to have any role at the IO. In March 2018, Yue joined Citi-Pro as a repair technician and was still so employed by Citi-Pro at the time of the trial.

23.  The principles regarding the assessment of credibility of witnesses have been frequently repeated in the judgments of the court. Essentially, the evidence of the witnesses is to be tested essentially by reference to: (i) its inherent probability; (ii) material consistency with or contradiction against the other evidence which is undisputed or indisputable (iii) the witness having been discredited over one or more matters to which he has given evidence; (iv) to a lesser extent, the demeanour of a witness: see for instance Chiu Chi Tong v Lau Chong Sai & Anor, HCA 765/2002 (11 May 2005) at §28 and Conal Investment Limited & Anor v Yu Pun Hoi [2019] HKCFI 541 at §14 cited by counsel for the IO. Below is an overview of the witnesses.

24.  I am impressed that Chu was fair and straight forward in his evidence. To the extent he accepted during the trial that the true state of affairs differed from what he believed, he readily admitted that. In respect of where he found problems in the matters put to him during cross examination, he was patient enough to explain them. Reliable, I find, he is.

25.  One major manifestation of Chan’s evidence is his lack of objectiveness about the interpretation of the contractual obligation of his company under the Agreement both in his witness statement and in court. Another fundamental problem is that as much as the contentions of his company sought to be advanced at the trial, too much of his evidence in respect of specific assertions in support of his company’s positive case came about only at the trial in the absence of mention in his company’s pleading or his witness statement.

26.  As to Yue, putting aside possible scepticism about his independence in view of his background and association with Citi-Pro mentioned above, his evidence mainly relates to the circumstances surrounding the conclusion of the Agreement, which the contemporaneous documents already manage to tell. As far as oral evidence in this respect is concerned, Yue made clear in his statement essentially his endorsement of what Chan said.

THE AGREED MANAGEMENT MANPOWER

27.  It is common ground that the exact contractual obligation of Citi-Pro in respect of the management manpower is a question of construction of the relevant terms of the Agreement.

The principles

28.  No contrary submission is made in respect of the principles applicable to the construction of contracts set out by counsel for the IO. They start with what was said in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912H-913F:

“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749.

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191, 201:

‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’ ”

See also Eminent Investments (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFAR 487 at §§43-45; Jumbo King Ltd v Faithful Properties Ltd & Ors (1999) 2 HKCFAR 279 at 296D-I (cited by counsel for Citi-Pro).

29.  The primary source of understanding what the parties meant and intended is their language used in the contract documents: see BCCI v Ali [2002] 1 AC 251 at 269D-G. The factual matrix or background of the agreement known to the parties at the time of the agreement is relevant. However, that is not the same as introducing evidence of the subjective intention of the parties which has no place in the objective interpretation of contracts: see Lewison on the Interpretation of Contracts (7^th ed) at §3.166.

The terms

30.  There is no real dispute, and it also matters not, that the tender documents of the IO were prepared by the management company preceding Citi-Pro, namely ISS East Property Management Limited. What matters is that first and foremost, the intention of the IO has been clear from the conception of the terms of the tender being invited. This was not a case where tenders were invited for the provision of property management service generally at mere lump sum service charge. The terms of the tender were meticulous. Tenders were invited for 4 options of service package, with each of the first three of them prescribing different combination of management staff of specific number, positions as well as their respective daily and weekly working hours. The 4^th option was left open to the tenderer to come up with its own proposed combinations. The monthly service charge for each of the management staff positions was quoted. Coupled with Citi-Pro’s manager fee, the total service charge was arrived at for each option.

31.  The owners resolved to choose Citi-Pro and its service package option 2 for the 2016-2018 term. The total monthly service charge for this option was HK$659,504.

32.  As mentioned, by its letter dated 10 May 2016, Citi-Pro expressly agreed that:

“本公司如承接 貴苑管理及保安服務合約，會接受日後可加可減人手調整，並以本公司投標細分項目 (員工包薪) 為日後總費的調整指標。”

33.  This reflects its agreement to clause 4 of Supplement (3) which specifically required the tenderer to specify if it agreed that the IO would have absolute power to vary the management service and thus manpower required, and hence upward or downward adjustment of the service charge in accordance with the scale set out in the Tender mentioned above. Citi-Pro answered in the affirmative.

34.  In other words, the management manpower under the Agreement could be varied in the future, and the contractual service charge would be adjusted upward or downward in accordance with rates specified in the table in the Tender recited above.

35.  As mentioned, it was also the express term that:

“備註：職員及保安員薪金以包帳形式報價，包括一切勞工福利，例如：每月例假、年假、強積金、制服、勞工保險等。”

36.  In other words, the IO paid the contractual service charge for the service as set out in the package option comprising the specific numbers and working hours of each position of the management staff. It was solely the concern of Citi-Pro to enter into the necessary contracts and arrangements with required management staff as its employees in respect of their employment entitlements. Chan affirmed that in his evidence in court. As far as the IO was concerned, it was contractually entitled to see that the management manpower would be maintained and stationed in accordance with the Agreement irrespective of the employment arrangements between Citi-Pro and the staff.

37.  Further, clause 1 of Supplement (3) specifically required the tenderer to specify the time within which it could arrange replacement to take up the position and duties of the staff member who had to take urgent leave for personal or family reason. Citi-Pro answered that that could be done within half an hour. In other words, no position was supposed to be left vacant on a given working day even the absence could be explained.

38.  Citi-Pro by pleading as well as Chan in his witness statement and in court emphasized that the entitlements of the management staff members arising out of vacation or sick leave or other acceptable reasons were not factored into the specifications in respect of the management manpower allocation. In view of the terms of the Agreement, this must be rejected.

39.  Properly construed in context and together with all the terms, the Agreement provided no objective basis for any contention that so long as Citi-Pro managed to provide its service during the term of the Agreement, it matters not whether it provided its management manpower in accordance with the specifications contained in the Agreement. That could not be the reasonable understanding and intention of the parties when the Agreement was entered into.

40.  Likewise, it is not up to Citi-Pro to argue that so long as the specific type of management service was in fact provided, it matters not whether it was provided by the designated staff of such position. For instance, a staff of a designated position was on leave, and his duty was taken over by another staff of another designated position instead of a temporary replacement. Allocating one staff member on his original full time duty at the same time to double on full time duty as the staff member on leave could not be the intended contractual performance on the part of Citi-Pro. If an existing staff member was assigned to act in the vacant position left vacant by his colleague upon leave, his original position had to be filled up by another full time replacement.

41.  The consideration has a further qualitative dimension. It must be reasonably intended and understood that any replacement or deputy to take up a position left vacant due to leave or other so-called acceptable reasons must be qualified to do so. As an illustration, a property attendant would not be reasonably expected to be qualified to fill in the vacant position of a property manager. A gardener would not be reasonably expected to be qualified to fill in the vacant position of a property attendant. Establishing the maintenance of the management force in terms of mere head count does not suffice.

THE ALLEGED BREACH

42.  The actual management staff work force maintained by Citi-Pro for the Estate is supposed to be ascertained from the Attendance Records provided by Citi-Pro. That Chan in his evidence suggested that his company did not expect that the records would form the basis of the IO’s claim is neither nor there. Nor is his evidence that his company would not have provided those records, had it been aware of such intended use by the IO.

Last-minute disclosure of evidence

43.  However, on the day when the trial commenced, Citi-Pro sought to adduce newly disclosed documentary evidence for the purpose of, amongst others, suggesting that the Attendance Records were inaccurate or incomplete. For reasons explained in court, this court refused leave to Citi-Pro to do so. Those reasons were also reduced into writing ([2023] HKCFI 885) which will not be repeated here.

The Attendance Records

44.  As mentioned, the pleaded case of Citi-Pro is that it was under no contractual obligation or that it had either duly complied with or, if it was ever in breach, had remedied the same by providing the IO with the Attendance Records in August 2018. When it came to answer the IO’s contention with reference to the Attendance Records, Citi-Pro raised in its pleading issue in respect of the IO’s reading and understanding of the records but never their accuracy. No reference whatsoever has ever been made in its pleading to the existence or its production of any other attendance records to the IO. Nor suggestion of that sort hinted in Chan’s statement.

45.  That Citi-Pro nevertheless saw fit to lead oral evidence from Chan at the trial asserting that it had rendered to the IO some kind of attendance record other than the Attendance Records, notwithstanding the observations already made in disposal of its last minute attempt to disclose documentary evidence for similar purpose, is objectionable. Such assertions are rejected.

46.  In his evidence, Chu explained that the management committee of the IO, of which he was a member, was elected and came on board in January 2017. That was the time when the Estate was undergoing major renovation. That was also when Yue stepped down as the chairman of the IO. The situation and state of the Estate under the major renovation was described as chaotic, which attracted much of the new committee’s attention. Chu started to learn about (5 to 6) complaints about the management manpower deployed by Citi-Pro in early 2018. Then he would address those complaints mainly by relaying the same to Chan verbally. In other words, both the complaints and the manner of handling them sounded informal. Attendance records were requested for verification, but none was forthcoming. The IO eventually decided not to renew the term of Citi-Pro’s service when the same also ended at the end of June 2018.

47.  As mentioned, the discontent of the IO, including the discovery of the alleged failure of Citi-Pro to maintain and to station the agreed management manpower for the Estate during the 2016-2018 term, caused it to withhold the payment of the balance of the service charge to Citi-Pro. Hence the latter’s District Court action mentioned above. Acting on legal advice, the IO quickly decided to settle that action with a view to taking separate action to enforce what it believed to be its contractual rights. Indeed, its letter before action and the present action soon followed.

The Schedule

48.  The IO particularised its claim by the Schedule. It came about in the following manner.

49.  From the agreed management manpower allocation tabulated under the Agreement, the IO worked out the prescribed attendance of each staff position in terms of man-days every month. The Attendance Records contained the daily duty rosters of the various positions of management staff for the Estate over the 2-year term of the Agreement. From that the IO computed the actual monthly attendance in terms of man-days of each staff position. Comparing the two results, the IO ascertained whether or not Citi-Pro complied with the Agreement in terms of management manpower allocation and, if not, the extent of shortfall in terms of man-hours.

50.  Immediately apparently from the investigation conducted by the IO mentioned above are two things. First, the IO acknowledges that the Agreement did not require Citi-Pro to station 47 management staff members at the Estate daily. As mentioned, clause 3 of Supplement (3) indeed provided that the management staff members actually stationed at the Estate should be 41. Second, whilst the exercise also yielded the number of management staff in position on a given day, the focus for the present purpose is really whether there was shortfall in the attendance of the management staff in each position in terms of man-days every month. It was such findings which founded the claim in the present case.

51.  According to Chu, the Schedule was compiled with the assistance of the IO’s legal representatives. The basis and methodology behind was explained in his statement. In court, he confirmed that he did check its content before the same was incorporated as part of the IO’s pleaded case. Despite attempt by counsel for Citi-Pro to question him on the compilation and recollection of the details, I do not find him or his explanation to be unreliable. Nor do I find the basis and methodology, which are the relevant criteria in understanding the Schedule, irrational or extraordinary.

52.  As an example, the Agreement prescribed 1 Project Manager (PM) working for 5.5 days per week (7.25 hours per day) on an alternate long and short week basis. In July 2016, there should be in his position 21 working days (from Monday to Friday) and 3 working Saturdays. The total agreed man-days for this position in July 2016 should be 21 + 3 x 0.5 = 22.5 man-days.

53.  As another example, the Agreement prescribed 16 nightshift Building Assistant ((BA/SG)(N)) who were required to work 6 days a week (11 hours per day). There were 26 working days for him in July 2016. The total required man-days for this position in July 2016 should be: 26 x 16 = 416 man-days.

54.  Then came the IO’s calculation of effectively overpayment. The computation was the daily rate (printed by admitted mistake as the “monthly” rate in the Schedule) of service charge for each management staff position times the number of man-days short. The daily rate was the average of the agreed service charge for a management staff of a particular position over the required number of work days in a particular month. For example, in case of Project Manager (PM) mentioned above, the daily service charge in August 2016 was HK$33,280 / 31 days = HK$1,073.55 while that in September 2016 was HK$33,280 / 30 days = HK$1,109.33.

Issues taken by Citi-Pro

55.  Persistence on behalf of Citi-Pro in taking various issues concerning the accuracy and comprehensiveness of the Attendance Records continued during the oral evidence and closing submission. There is no argument about counsel’s submission in court that his client is entitled to question the IO’s proof of its claim. However, I expect equally no argument about the position that Citi-Pro may not ask the court to make findings in respect of a state of affairs tantamount to its positive assertions in the absence of proper pleading.

56.  In case of any contention that there existed any other records contradicting the state of affairs represented by the Attendance Records, Citi-Pro would have pleaded and disclosed them well before the commencement of the trial. Where any record of this nature would have had to come from Citi-Pro, any query about them would have been expected to come in the form of positive contention particularised and formulated as well as supported by positive evidence. Where Citi-Pro is supposed to have been in the position to, but failed to, do so, it could hardly expect inference nevertheless to be drawn in its favour for such purpose. On this note, the specific contentions of Citi-Pro are considered.

57.  In view of the contractual obligation of Citi-Pro in maintaining the prescribed management manpower as discussed above, its contention with reference to the staff having to taking leave or being absent for acceptable reasons is irrelevant from the perspective of the IO.

58.  Counsel for Citi-Pro argues that the labels of the respective management staff positions in the Attendance Records are inconclusive and unreliable. This was raised for the first time in Chan’s oral evidence in court. The typical problems arising out of such manner of raising factual issues in the trial already discussed above appear. Further, had there been any incorrect labelling or any explanation in respect of them, Citi-Pro would have been in a position to identify them so as to raise the issue properly by way of pleadings. There is now no proper basis for considering making any findings in this respect sought by Citi-Pro. Nor will it be fair to the IO to begin doing so in the circumstances.

59.  Much was said about the actual staff arrangement made by Citi-Pro. In cross-examining Chu, counsel for Citi-Pro suggested various scenarios which, if indeed asserted, would be factual and positive. For instance, it was suggested that the duties of a management staff position might be taken up by another staff; the staff members might have forgotten to type their attendance time cards; additional manpower might have been deployed on occasions; and the staff members might be absent because of leave compensation. In his own evidence, Chan also referred to the allocation of deputies or replacement with a view to suggesting that the required management staff force was at all times maintained by Citi-Pro. The above suggestions were then advanced by counsel in submission as if they were somehow borne out by any objective evidence of specificity or alternatively inference as suggested should be made.

60.  Insofar as the issues taken are positive assertions, they were never pleaded or mentioned in the witness statements. The basis for eliciting oral evidence in respect of these suggestions is lacking. Insofar as they were suggested as no more than possibilities, they do not advance the case of Citi-Pro in questioning the IO’s proof of its case.

61.  As the service provider in control of the actual staff arrangement in compliance with the Agreement, Citi-Pro is expected to be in a position to be specific instead of speculative, and to be prepared with the relevant evidential support disclosed properly. In his evidence, Chan sought to explain by reference of his company’s handover to the succeeding management service provider after the end of its term. However, the fact was that it was in a position to produce the Attendance Records in August 2018. In any event, had Citi-Pro been minded to advance its case in defence on the basis of any of these assertions, the question of discovery of the relevant documentary evidence, if any, would and should have been addressed by either, if not, both sides of the case well before trial.

62.  Further, as mentioned, attendance of the management staff was not a mere question of head count. Insofar as allegation of substitution or replacement is concerned, due contractual performance entailed the establishment of the propriety of the replacement in terms of qualification. There was no material or sufficient, if at all, pleading of such contention by Citi-Pro. This dimension was addressed only during the trial as matter of oral evidence.

63.  That said, the IO has shown in its study of the Attendance Records readiness to accept the proper deputy or replacement arrangement. For instance, PA (Property Assistant) was accepted as equivalent of PO (Property Officer). A staff was acceptable in taking up the duty of a junior position, for instance a PO or PA as Clerk. Any other specific arrangement objectively out of the ordinary or calling for explanation would very much be a matter for Citi-Pro to raise and to substantiate. If indeed done, that would have had to be done properly by way of pleading and relevant evidence.

64.  Suggestion was made, again for the first time in court, that Citi-Pro had in fact put in extra management manpower which the IO has not taken into account. To begin with, no blame should be put on the IO for failure to take into account any state of affairs alleged by Citi-Pro only in this manner. Insofar as extra manpower for the specific purpose of the owners’ meeting is concerned, clause 2 of Supplement (3) provided that the manpower would be on top of the prescribed manpower at no extra service charge. Insofar as extra manpower was said to have been deployed either in filling up positions left vacant for any reason or in addition to the prescribed manpower under the Agreement is concerned, it is assertion without specificity and evidential support which Citi-Pro is fairly expected to have been in a position to provide. Attempt to elicit oral evidence from either Chu or Chan to confirm that in vague terms at the trial will not suffice.

65.  Further, both clause 4 of Supplement (3) and paragraph 3 of Citi-Pro’s letter dated 10 May 2016 provided that variation in the management manpower from the contractual prescription was within the absolute power of the IO, which would entail upward or downward adjustment in the service charge payable to Citi-Pro. There is not even assertion or evidence that the management committee of the IO was ever put on notice of such alleged state of affairs either before or after the alleged arrangement. There is no contractual basis for Citi-Pro now to contend that the IO is somehow contractually obliged to give credit to the alleged extra or over time work of a particular staff position even across different months.

66.  Following from the above, it does not work in its favour for Citi-Pro, in the absence of proper pleading and properly disclosed relevant contrary evidence, to question the basis of the IO in working out the comparison in the Schedule. This is so particularly when the basis and analysis of the IO are prima facie rational and logical on the basis of the Attendance Records provided by Citi-Pro in the first place. Citi-Pro loses out on the balance of probabilities.

67.  In view of the matters discussed above, the adjustments proposed to the computation in the Schedule (in the form of Annex 2 to the submission of counsel for Citi-Pro) are unreliable as challenge against the comparison carried out by the IO. As an example, the exercise cannot be counting the names appearing on the Attendance Records without regard to whether or not he or she indeed attended duty on a given day. The flaw is particularly apparent when one refers to monthly duty roster for July 2016 where 12 out of the 28 names appearing on the roster were “替位” meaning replacement. These replacements attended duty only when and where the original positions were vacant for any reason, and could not be counted together the original staff being replaced to make up the alleged number of staff members in the manpower. The daily roster counters for each day of the month in the roster speak for themselves.

Admitted mistakes

68.  The IO admits 3 erroneous entries in the Schedule.

69.  The first is the entry for November 2016 in respect of the position of PM. The IO accepts that the actual man-days should be 22.5 and hence a shortfall of 0.5 man-days. The overpayment was a sum of HK$554.67 instead of HK$1,664.

70.  The second is the entry for April 2017 in respect of the position of PA. The IO accepts that there was no shortfall, and hence no overpayment.

71.  The third is the entry for August 2017 in respect of the position of BA/SG(D). The IO accepts that the actual man-days should be 389 and hence a shortfall of 43 man-days. The overpayment was a sum of HK$17,011.23 instead of HK$17,406.97.

72.  Other than the above conceded errors, the IO’s objections to the queries put forward (in the Revised Schedule to Citi-Pro’s closing submission) are not accepted for reasons explained above.

73.  Making the necessary adjustments, the amount of overpayment claimed should be reduced (from HK$1,892,185.34) to HK$1,888,738.94.

Conclusion

74.  Whether for the purpose of questioning the proof by the IO with reference to the Attendance Records and the Schedule or asserting its positive case, Citi-Pro is expected in the circumstances to have come up with properly asserted state of affairs by pleading and hence discovery of the relevant evidence. All the evidence considered, Citi-Pro fails so that the IO’s claim is accepted on the balance of probabilities.

CLAUSE 5 OF SUPPLEMENT (3)

75.  Use of the words “liquidated damages” or “penalty” by the parties in their agreement is never conclusive. The court must ascertain whether the stipulated payment under the contract is objectively a provision for liquidated damages or penalty: see Dunlop Pneumatic Tyre Company Limited v. New Garage & Motor Company Limited [1915] AC 79 at 86.

76.  In Ip Ming Kin v Wong Siu Lan, CACV 201/2012 (28 May 2013), the court had this to say:

“36. There is no reason in public policy why the parties to a contract should not enter into a sensible arrangement under which each would know in advance with a reasonable degree of certainty the financial consequence in the event of a breach by the other party, and the more difficult it is to prove and assess the loss, the greater the advantages to both of fixing by the terms of the contract a readily ascertainable sum to be paid, thereby avoiding litigation, and, if this is not possible, reducing the legal costs of proving the loss. The courts should not be astute to descry a clause in a contract which stipulates a sum to be payable by the party in breach (Robophone Facilities Ltd, at 1447B to E, and 1449D to E, per Diplock LJ), lest they impinge on the parties’ freedom to settle for themselves the rights and liabilities following a breach of contract (AMEV UDC Finance Ltd v Austin (1986) 162 CLR 170 at 193). See also the judgment of the Privy Council in Philips Hong Kong Ltd v The Attorney General of Hong Kong [1993] 1 HKLR 269 at 278 to 279, per Lord Woolf.

37. Because the rule about penalties is an anomaly within the law of contract, the courts are pre-disposed, where possible, to upholding contractual terms which set the level of damages for breach, especially in commercial contracts made between parties of comparable bargaining power (Alfred McAlpine Capital Projects Ltd v Tilebox Ltd [2005] Build LR 271 at para 48). As Lord Woolf has said in the Philips case at 280, “the fact that two parties who should be well capable of protecting their respective commercial interests agreed the allegedly penal provision suggests that the formula for calculating liquidated damages is unlikely to be oppressive.”

38. The onus of showing that a contractual provision is a penalty clause lies on the party who is sued upon it (Robophone Facilities Ltd, at 1447F, per Diplock LJ).”

77.  In his witness statement, Chan kept stressing that there was no real discussion between the parties in respect of clause 5 of Supplement (3). Such emphasis, in my judgment, is off the point.

78.  At the time when Supplement (3) was issued by the IO to Citi-Pro, the Agreement was yet to be entered into between the parties. As the form of the supplement expressly stated, Citi-Pro was given the options of agreeing or not agreeing. There is no suggestion that Citi-Pro somehow felt obliged to agree in the absence of free will. Rather, the evidence of Chan was that he agreed to the clause as he was keen at securing the contract. That was his conscious business decision.

79.  As to the lack of real discussion between the parties in respect of the incorporation of clause 5, that was probably true as a matter of fact. However, Citi-Pro fails to acknowledge how that was the case. The fact was that the IO continued in the form of Supplement (3) by requesting Citi-Pro to state:

“…

請問是否同意？…

如不同意，請在下列填寫原因或貴公司提出可接受的罰款方案

…”

80.  In other words, the IO never merely gave Citi-Pro the options of agreeing or not agreeing to the clause. In case Citi-Pro chose not to agree, it was requested to state its reasons and was invited to counter-propose penalty provision which would be acceptable to it. As much as its conscious business decision to agree to the clause, it was Citi-Pro’s decision not to counter-propose and to negotiate with the IO in this respect. Whether or not it was actuated by its eagerness to secure the appointment is the own concern of Citi-Pro, and hence its conscious decision.

81.  The real question is whether clause 5 contains a genuine pre-estimation of the potential loss and damage in the event of breach. All things considered, I think not.

82.  The breach contemplated was absence of management staff from duty. In his evidence, Chu referred to the possible consequence of that to the well-being of the Estate in terms of safety and convenience on a daily basis. Such consequence, I believe, would take the form of compromise of the quality of living environment or in more serious case loss or damage to property or even human life. In any of these cases, I am not impressed there would necessarily be genuine or practical difficulty in proving such consequential loss and damage. In the present case, there is no allegation or evidence of actual consequence upon such breach.

83.  In any event, the clause, properly read, does not impress me that it was conceived mainly, if at all, to cover the loss and damage as a result of breach. It was more probable than not conceived to prevent or more precisely to deter breach. The clause literally started as “法團有絶對權力在合約期內就有關屋苑之管理員工缺勤一事上作出以下罰則”. It specified that the power to impose the penalty (literally) for management staff absence was exercisable during the term of the Agreement. This is also an argument advanced by counsel for Citi-Pro.

84.  Counsel for the IO complains about the lack of pleading of that. Once again, this is true. The argument was raised for the first time when the case opened at the trial. Such conduct is not necessarily condoned. That said, in view of the above discussion in this respect, I am prepared to entertain such argument as incidental to the construction. The fact is that construction of the clause is inevitable for its application which the IO is seeking to invoke.

85.  As this court observes, clause 5 appeals to me as more in the nature of penalty serving the purpose of deterring breach, which had to be the situation prior to the expiration or, as the same clause also warned about, any early termination of the term of the Agreement. Further, to serve such purpose of clause 5, such contractual right must be understood and intended to be exercisable during the term of the Agreement. The provision under the same clause for the IO’s right if the situation of management staff absence continued without improvement lends weight to such construction. It provided that the IO would be entitled to issue warning letter and, in the absence of improvement, to terminate the Agreement. These must be intended to be the IO’s right during the term of the Agreement.

86.  There is no allegation or evidence of the exercise of such contractual right during the term of the Agreement. As mentioned, the formal demand came only after the term of the Agreement was let elapsed. That said, I should point out that the attempt of counsel for Citi-Pro to build his argument in this respect on the notion of condition precedent is inviting further justified criticism and in any event superfluous in the circumstances of this case.

87.  However, I do understand the circumstances where the IO was in fact unaware and unable to exercise its right under clause 5 during the term of the Agreement, as it came to have the necessary information basis only after the expiration of the term and August 2018. That however does not alter the proper construction of the clause. The IO did not lose its contractual right, only that any breach in terms of absence of management staff from work would entitled it contractually to claim for loss and damage. Indeed, the IO indeed puts forward the alternative claim for effective overpayment of service charge to Citi-Pro during the 2-year term of the Agreement.

88.  All matters considered, I am not satisfied that the IO is entitled to claim on the basis of clause 5 of Supplement (3).

THE ALTERNATIVE CLAIM

89.  The alternative claim, upon finding of breach on the part of Citi-Pro, is that for money had and received or effectively overpayment by the IO to Citi-Pro. Citi-Pro questions the basis for that.

90.  Counsel for Citi-Pro describes the IO’s claim as one for the difference in value of service as a result of breach on his client’s part. In that case, he argues that the court is entitled to take into account the objective intended to be achieved by the service actually provided, notwithstanding the breach. He argues that if the inferior or insufficient supplied cannot be proved to have been no less effective in securing the objective which the superior services contracted for were intended to achieve, the court might readily accept that the breach did not result in any diminution in the value of the services contracted for (citing from Giedo Van Der Garde v Force India Formula One Team Ltd [2010] EWHC 2373 at §436; Chitty on Contract (34^th ed) at 32-068 and 32-069).

91.  In my judgment, counsel misses the point in the circumstances of the present case.

92.  The actual terms of the Agreement discussed above refer. The starting point was that Citi-Pro was contracted to provide the prescribed combination of management manpower of specific positions and with specific working hours during the term of the Agreement. Not only did that have bearing in terms of quality of management service, but that also formed the agreed scale for fixing the service charge payable by the IO. The IO may not be in a position to assert and to establish as a matter of fact that the breach on the part of Citi-Pro has caused any property or human loss or damage to the owners. This however is not to say that the IO is not entitled in principle to claim for money had and received to the extent of its overpayment in accordance with the agreed scale for fixing the service charge. In other words, the breach is not merely technical.

93.  Against such starting point, it is, and as discussed, not legitimate for Citi-Pro to argue that so long as it “managed” to provide service without causing any loss and damage to the owners, it matters not whether it manned the prescribed management staff positions as agreed. Even assuming that the argument from the perspective of quality of the service provided by Citi-Pro is available in principle, the issue of no diminution in the value of the service contracted for or substantive performance of the Agreement should have been for Citi-Pro to raise properly for its adjudication.

94.  Not unrelated to the above argument, counsel also refers to the management or administrative service provided by Citi-Pro, and argues that management staffing was but one aspect of the service contracted for by the IO. Citi-Pro did provide such service, and as a package deal the IO obtained what it contracted for. In my view, mixing the issue of management staff in accordance with the agreed terms and Citi-Pro’s management and administration service leads it nowhere. This is particularly so, when Citi-Pro indeed charged and received a separate monthly sum for its administration service, which is not in issue in the present case.

95.  All matters considered, I see no sufficient reason for denying the IO’s entitlement to the return of the overpayment of the service charges to Citi-Pro on account of the shortfall in the management staff positioning in accordance with the terms of the Agreement.

CONCLUSION AND ORDER

96.  I therefore enter judgment in favour of the IO against Citi-Pro in the sum of HK$1,888,738.94 with interest thereon at HSBC best lending rate plus 1% per annum from the date of writ until judgment. Interest thereafter runs at the judgment rate until full payment.

97.  Following the event, Citi-Pro shall pay the IO’s costs of the action, including any costs reserved, to be taxed if not agreed. This costs order is nisi, and will become absolute without further order, in the absence of application in 14 days to vary.