THE INCORPORATED OWNERS OF MEI FOO SUN CHUEN - STAGE VII v. BROADWAY-NASSAU INVESTMENTS LTD

cacv 8/2008

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 8 of 2008

(on appeal from LDBM NO. 163 of 2006)

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J U D G M E N T

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Hon Rogers VP:

1.  This is an appeal from a judgment of HH Judge Yung, given on 20 December 2007.  It is a claim by the Incorporated Owners against the developers of Mei Foo.  In a nutshell, it turns on the question of whether the defendant in this case was entitled to adjust the percentage of the amount payable in respect of one of the shops under the supplemental DMC.

2.  There are three relevant clauses and everybody is agreed about that.  The first clause is Clause 13 of this DMC and that says that:

“In pursuance of the above, each unit owner shall pay to Mei Foo in advance on the 1st day of each calendar month for expenses incurred by him for proper maintenance of the Building and the sum for the time being payable in respect of each unit or shop space of which the owner is entitled (hereinafter called “the payable sum”).  The payable sum for each shop unit shall for the year 1981 be the sum set out opposite such unit:

Stage VII

Shop	%	Adjusted Management Fee	Net Area Sq. Ft.
N97	5.83	2,449	4,656
	100.00	42,000	”

3.  So one looks at that and in fact if one does calculations in respect of the other shops one finds that there is a rough correlation between the net area sq. ft. and the percentage which each shop has to bear.  It varies a bit.  No doubt it varies according to the particular location, the convenience of the shop, whether or not all its area is as usable as other areas and whether it is prominent and so on and so forth, but within a small margin they are all roughly equivalent.

4.  Clause 14 follows:

“Mei Foo shall in each year from 1981 onwards (hereinafter called “the current year”) establish a budget for the next following year (hereinafter called “the following year”) taking into account his estimated surplus or deficit for the current year and in his estimate of expenditure Mei Foo may make provision for amortisation or for repairs redecoration or reconstruction to be carried out in the future after the close of the following year and Mei Foo shall on the basis of such budget determine and notify each unit owner not later than the 1st day of December of the current year of the payable sum payable by each unit owner during the following year.”

5.  My view of that clause is perfectly clear.  What it is saying is that Mei Foo has a duty to work out its budget for each coming year and on the basis of how much it is going to spend, or how much the total budget is going to be, it then tells each of the shop-owners how much it is going to have to pay.  This clause in no way gives power to Mei Foo to adjust the percentages which a particular shop-owner can pay, and that has been mentioned by this court in the course of argument.  It is a matter of common sense.  One of the first things people who purchase property which is subject to a DMC look at is to see what percentage of the total cost they are going to have to pay each year.  That is one of the fundamental things that is contained in the DMC and if there were to be a power to vary that percentage, in my view, it would have to be spelt out in extremely clear terms.

6.  Mr Lin, who has argued as best he can this morning for a contrary construction, seeks to gain some comfort from Clause 15.  That reads:

“In the event of there being at any time such a substantial increase in utility or other charge as to procure or threaten to produce a larger deficit for the current year Mei Foo shall have the right forthwith to give each unit owner not less than one month’s notice in writing that the payable sum for the current year is to be increased by a sum sufficient to offset such increase in utility or other charges and upon the expiry of such notice such increased payable sum shall be payable by each unit owner.  Such increased payable sum shall be borne by all unit owners in the ratio of the percentage set out against each unit in clause 13 above.”

7.  Mr Lin has sought to say that because that final sentence is contained in Clause 15, and not in Clause 14, therefore Clause 14 should be construed as not subject to that restriction.  However, the more one considers such an argument one has to come to the conclusion that that would give rise to a nonsense construction because on that construction the percentage payable by each shop owner could be adjusted in respect of part of the costs incurred by the Incorporated Owners and that in respect of part of them but, if there was an increase during the year, the increase would have to be apportioned on the basis of Clause 13.  That, to me, would be nonsense.

8.  I regret to say that in my view the judgment in the court below was entirely correct and I can see no basis upon which this court could interfere with it.

Hon Le Pichon JA:

9.  I agree.

Hon Stone J:

10.  I respectfully agree with the judgment of the Vice-President.

11.  It seems to me that Mr Lin’s proposed construction of Clause 14, which ignores totally the percentages stipulated in Clause 13, would provide continuing potential for disagreement and dissatisfaction on the part of shop-owners against whom a disproportionately higher management fee has been levied, and more importantly, would provide a potential stimulus for litigation by owners dissatisfied with the sum levied upon them by the manager in the exercise of his unfettered discretion.

12.  With respect to his efforts to convince otherwise it strikes me that the point is unarguable.