CHOW TAK LAM, the executrix of the estate of CHAU HAU TAK, deceased v. CHEUK MING INVESTMENT COMPANY LTD

DCCJ 2336/2021

[2025] HKDC 184

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2336 OF 2021

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BETWEEN

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JUDGMENT

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A. INTRODUCTION

1.  This Trial concerns whether the Defendant is entitled to charge certain management fees and other charges concerning a property known as Lot No. 2006 in Demarcation District 449 in Tsuen Wan, New Territories (also known as Nos. 100 and 102 Chung On Street, Tsuen Wan 荃灣眾安街100及102號) (“the Property”). As the parties agreed, the following issues are before the Court:

(a) Whether in around the end of December 2013, Mr Chau Hau Tak alias Chow Hau Tak (周厚德) (“the Deceased”) agreed to increase the management fee to be charged by the Defendant from 2.5% to 10% of the rental income of the Property (“Issue 1”); and

(b) Whether the Defendant could lawfully charge the Deceased with the charges pleaded in §9B of the Amended Statement of Claim (“ASOC”) (“Issue 2”).

2.  The Plaintiff, Madam Chow Tak Lam (周德琳) (“Madam Chow”), is the daughter of the Deceased. The Deceased passed away on 30 May 2018. On 15 January 2019, Madam Chow was appointed the executrix of the Deceased’s estate (“the Estate”).

3.  Since 20 September 1960, the Deceased/the Estate has been holding one-third share as tenant-in-common in the Property. A six-storied building has been erected on the Property and rented out for income.

4.  From 20 September 1960 to 15 September 1997, the remaining two-third ownership of the Property belonged to the Deceased’s cousin-brother, Mr Chow Hau Cheong (周厚昌) (“Mr Chow HC”), and the Deceased’s stepmother, Madam Ng Mui Heung (吳梅香) (“Madam Ng”). On 15 September 1997, the above individuals transferred their shares to Dialis Company Limited (“Dialis”), a company incorporated in Hong Kong.

5.  The Deceased is and was at all material times a 40% shareholder of the Defendant. Mr Chow Tak Wai (周德煒) (“Mr Chow TW”), the son of Mr Chow HC, and Mr Ho Hing Yuen (何興源) (“Mr Ho”) are and were at all material times two of the directors of the Defendant.

B. THE PARTIES’ CASE

B1. The Plaintiff’s Case

6.  The Plaintiff’s case can be summarised as follows.

7.  Since 1990, by an agreement made orally and/or evidenced in an unsigned Chinese handwritten document entitled “Agreement” (協議書) (“the Document”, “the 1990 Agreement”), the Defendant has been appointed by the owners of the Property to manage the tenancies of the Property on their behalf.

8.  The Document states the following:

“ 協議書

位於荃灣眾安街100及102號之物業

業權人： 周吳梅香、周厚德、周厚昌（每人各佔三分之一業權）經各人商議，一致決定委託「卓明置業有限公司」負責管理該物業之各項事務。包括：代收租金、代繳差餉、樓宇維修及什費；並代招租、聯絡租客、辦理簽約手續及有關文件等。由本年九月份起，所有該物業每月租金之收入，除支付應繳之支出外，業權人每月須付租金總收入之2.5%（百份之二點五）管理費給予「卓明置業有限公司」（以下稱管理公司）。

管理公司定於每月最後一日截數，將收支結算後，把1/3淨收租金撥回周厚德先生，2/3撥回其餘兩位業權人。管理公司須將物業收支表詳細報告三位業權人審閱備案。

另特註明： 該物業之物業稅必須各業權人自行支付本身應繳之物業稅款。

此協議書一式四份，三位業權人各持一份，管理公司持一份。

業權人簽名：

卓明置業有限公司”

9.  The 1990 Agreement contains, inter alia, the following terms:

(a) The Defendant shall collect rents on the owners’ behalf;

(b) The Defendant shall pay rates and rents to the government on the owners’ behalf;

(c) The Defendant shall be responsible for maintaining and repairing the Property and miscellaneous expenses;

(d) The Defendant shall be responsible for the tenancy matters of the Property, including signing tenancy agreements and related documents;

(e) The owners shall pay the Defendant a management fee of 2.5% of the rental income;

(f) On the last day of each month, the Defendant shall, after deduction of the expenses and fees payable to the Defendant, distribute 1/3 of the rental income to the Deceased and 2/3 to the other tenants-in-common (and to Dialis after 15 September 1997);

(g) The owners shall be responsible for paying by themselves their own respective property taxes.

10.  Dialis is and was at all material times a company under the control of Mr HC Chow and Madam Ng. Since the change of the 2/3 owners of the Property, the terms of the 1990 Agreement have applied mutatis mutandis amongst the Deceased, Dialis and the Defendant.

11.  By reason of the 1990 Agreement, the Defendant is a fiduciary to each of the owners of the Property in respect of the Property including the tenancy matters of the Property. As the fiduciary, amongst other things:

(a) The Defendant owes a duty to allow each of the owners of the Property to see documents in the Defendant’s custody, possession or power relating to the Property, including all the tenancy agreements and documents evidencing the tenancy agreements of the Property;

(b) The Defendant shall not impose or collect any charges from any of the owners without his/its authorisation; and

(c) The Defendant shall exercise its rights and powers and discharge its duties bona fide in the best interest of each of the owners.

12.  On 2 December 2019, after the Plaintiff’s demands, the Defendant eventually provided the Plaintiff with the monthly statements of the rental income and expenditure of the Property for the period between April 2001 and September 2019.

13.  The Plaintiff discovered from the above monthly statements that since December 2013, the Defendant has made charges under various headings without the Deceased or the Plaintiff’s knowledge or consent, as pleaded in §9B of the ASOC, with the table (“the Table”) reproduced herein:

No	Period	HK$
		Commission	Service fee (collect rental)	Employee Wage	Service fee (tenancy matter)	Management Fee [at 10%]
(1)	2012-2013	60,000.00	-	-	-	-
(2)	2013-2014	392,400.00	278,043.00	40,000.00	-	-
(3)	2014-2015	4,900.00	303,177.50	120,000.00	4,000.00	-
(4)	2015-2016	7,700.00	317,287.50	120,000.00	39,000.00	-
(5)	2016-2017	9,000.00	343,306.70	120,000.00	14,100.00	-
(6)	2017-2018	21,400.00	364,061.20	120,000.00	40,600.00	-
(7)	2018-2019	8,950.00	371,692.50	120,000.00	3,200.00	-
(8)	2019-2020	13,150.00	-	-	4,800.00	510,916.45
(9)	2020 (up to October)	70,000.00	-	-	7,800.00	289,660.00
(10)	Total：	587,500.00	1,977.568.40	640,000.00	113,500.00	800,576.45

14.  As shown in the Table, the charges comprise:

(a) “Commission” in the total of amount of HK$587,500;

(b) “Service fee (collect rental)”, in the total amount of HK$1,977,568.40;

(c) “Employee wage” in the total amount of HK$640,000;

(d) “Service fee (tenancy matter)” in the total amount of HK$113,500; and

(e) “Management fee [at 10%]”, meaning management fee at 10% of the rental income instead of 2.5% of the rental income as agreed in the 1990 Agreement, the disputed amount being HK$600,432.34 (i.e. HK$800,576.45 X 75%).

15.  The total amount of the above charges was HK$3,919,000.74 (HK$587,500 + HK$1,977,568.40 + HK$640,000 + HK$113,500 + HK$600,432.34). Being one of the three co-owners of the Property, the loss suffered by the Deceased/the Estate is HK$1,306,333.58 (i.e. HK$3,919,000.74/3) (“the Sum”).

16.  At the Trial, the Plaintiff confirmed that if this Court finds in favour of her claim, she will seek damages/equitable compensation against the Defendant in the Sum, and will not pursue the same amount based on trust and tracing.

B2. The Defendant’s Case

17.  The Defendant’s case can be summarised as follows.

18.  The Defendant does not admit that Dialis is a company under the control of Mr Chow HC or Madam Ng. It does not admit that the 1990 Agreement remains in force mutatis mutandis after the 2/3 ownership of the Property was transferred from Mr Chow HC and Madam Ng to Dialis.

19.  The Defendant admits that it is a fiduciary to all Property owners with respect to tenancy matters under the 1990 Agreement, and is thus liable to account to the owners of the Property and to allow each of them access to relevant documents in the Defendant’s custody, possession or power in relation to the Property.

20.  The Defendant agrees that from 1990 until 31 December 2013, it managed the Property according to the 1990 Agreement. However, there have been changes in the arrangement since January 2014.

21.  In or around the end of December 2013, Mr Ho on behalf of the Defendant reached an agreement with the Deceased to raise the management fee from 2.5% to 10% of the rental income of the Property (“the Alleged Agreement”). At around the same time, the Defendant reached the same agreement with Dialis. The above increase has taken effect since January 2014.

22.  As for the other charges, the Defendant contends that they were authorised and/or justified and/or properly incurred. The Defendant says that:

(a) The “Commission” represents estate agency commissions in relation to new tenancy agreements entered into;

(b) The “Service fee (tenancy matter)” represents (1) leasing service fees in relation to the signing of new leases and the renewal of existing tenancies; and (2) meeting service fees incurred when the Defendant had to attend various meetings and/or to emergency matters;

(c) The “Service fee (collect rental)” and “Employee wage” represents the additional 7.5% of the management fee which the Defendant was entitled to charge pursuant to the Alleged Agreement (i.e. the difference of 10% and 2.5% of the rental income of the Property).

(d) The “Management fee [at 10%]” represented the management fee of 10% of the rental income of the Property, which the Defendant is entitled to pursuant to the Alleged Agreement.

23.  During cross-examination, Mr Ho admitted that the Defendant did not provide the Deceased (or subsequently the Plaintiff) with any statement or information regarding the rental income and expenses of the Property for the period from December 2012 to December 2019.

C. ANALYSIS

C1. Issue 1: Whether the Alleged Agreement exists

24.  For the reasons below, I find that the Alleged Agreement does not exist. Hence, the Defendant is not entitled to charge the increased management fee (i.e. from 2.5% to 10% of the rental income of the Property), the “Service fee (tenancy matter)” or the “Employee wage” against the Deceased or his Estate.

25.  First of all, there is no documentary evidence of the Alleged Agreement, whether in the form of an agreement signed by the Deceased, or in the form of a note recording the said agreement.

26.  This is to be contrasted with the 1990 Agreement, where the agreement was recorded in the Document. Further, by a handwritten note dated 19 October 1990, the Defendant asked the Deceased to give comments and to sign on the Document to acknowledge agreement. While the Deceased eventually did not sign the Document, there were at least some written records evidencing the existence of the 1990 Agreement.

27.  The lack of any documentary evidence of the Alleged Agreement is also to be contrasted with the arrangement between the Defendant and Dialis concerning the increase in the management fee from 2.5% to 10%. For the Defendant and Dialis, there was a note issued by the Defendant to Dialis dated 16 December 2013, in which the Defendant informed Dialis that the management fee would be increased from 2.5% to 10% with effect from 1 January 2014, and an additional staff cost of HK$10,000 would be charged for the management service provided in December 2013. In the same note, Dialis indicated its agreement to the above arrangement with Mr Ho countersigning on it on behalf of Dialis. No such note was issued by the Defendant to the Deceased, let alone the Deceased signing on such note.

28.  I do not accept Mr Ho’s explanation during cross-examination that no similar note was issued by the Defendant to the Deceased to record the increase in management fee as the Alleged Agreement was reached orally over the telephone and Mr Ho and the Deceased were on good terms back then. I do not see any good reason for the Defendant to adopt different practices for the Deceased and Dialis in recording agreed increases to its management fee (if any). Regardless of whether the personal relationship between Mr Ho and the Deceased was cordial at the time, the Defendant is a company and it would be prudent for proper documentation to be kept with respect to important matters such as increases in management fees.

29.  It is in fact doubtful whether by the time of December 2013, the Deceased and the Defendant maintained a cordial relationship:

(a) On 31 March 2011, the Deceased, in his capacity as a shareholder of the Defendant, issued a letter to Mr Chow Tak Wai, the son of Mr Chow HC and a director of the Defendant (“Mr Chow TW”). In the letter, the Deceased demanded the Defendant to provide him with the 2008-2009 audited financial statements and/or tax returns for review. On 12 April 2011, Madam Chow on behalf of the Deceased forwarded the same letter to Mr Ho and demanded him to follow up with the Deceased’s request (“the April 2011 Letter”);

(b) On 6 December 2013, Madam Chow as the lawful attorney of the Deceased through Messrs Kenneth CC Man & Co issued a letter to the Defendant (to the attention of Mr Ho and Mr Chow TW) (“the Dec 2013 Letter”), demanding the Defendant to deposit the Deceased’s share of the net rental income into a designated bank account of the Deceased and provide the monthly rental income and expenditure statements for the Deceased’s record. In the same letter, it was stated that the Deceased only received the monthly rental up to and including September 2013 and that the Deceased only received the monthly rental income and expenditure statements up to December 2012.

30.  Given the above demand letters from the Deceased and Madam Chow, the Defendant should have been aware latest by December 2013 that its relationship with the Deceased was not cordial and that the Deceased was at least not satisfied with its delay in providing him with the monthly rental income and expenditure statements of the Property. Hence, if the Deceased had agreed to any increase in the Defendant’s management fee in December 2013, it is more likely than not that the Defendant would have recorded the same in writing.

31.  Second and relatedly, as Mr Ho admitted, during the period from December 2012 to December 2019, the Defendant did not provide any information about the rental income and expenses of the Property to the Deceased or the Plaintiff. It is unlikely that the Deceased would have agreed to any increase in the Defendant’s management fee without being provided with the said information.

32.  Third, the Defendant’s case as to the circumstances under which the Alleged Agreement was reached is internally inconsistent, casting serious doubt on the existence of such an agreement.

33.  In the Defence dated 2 December 2019 (amended on 7 June 2021 and reamended on 16 March 2023) at §6.9[1], the Alleged Agreement was pleaded as follows “In or around the end of December 2013, [Mr Ho] reached an agreement with the deceased to raise the management fee to be charged by the Defendant from 2.5% to 10% of the rental income of the Property. The raise has been taken into account since January 2014”.

34.  In the Answer to Request for Further and Better Particulars of the Defence dated 22 January 2020 at Answer §(2) (“the FBP”), the Defendant stated that:

“(a) [The Alleged Agreement] was made in a telephone conversation between [Mr Ho] and the deceased. [Mr Ho] was in the office of the Defendant when he had the telephone conversation with the deceased.

(b) [Mr Ho], acting for and on behalf of the Defendant, called the deceased to seek his agreement to an increase of the management fee to be charged by the Defendant from 2.5% to 10% of the rental income of the Property. [Mr Ho] explained in details to the deceased in the telephone conversation that the management of the Property, which includes dealing with the tenants round the clock, negotiation for terms of new and renewed tenancy agreements, collection of rent, calculation of share of utilities bills payable by each individual tenant of the sub-divided units, correspondence, dealing with government departments … requires substantial resources of the Defendant. To cover the cost and to reflect the work performed by the Defendant, the Defendant demanded that its management fee be paid at an amount equivalent to 10% of the rental income receivable in respect of the Property. The deceased said to [Mr Ho] that he understood and agreed to this increase of the management fee in the telephone conversation.

(c) Staff were around in the office where [Mr Ho] had the telephone conversation with the deceased” (Emphasis added)

35.  In Mr Ho’s Witness Statement dated 6 December 2022 at §7, Mr Ho only stated that “Then, in or around the end of December 2013, I (for and on behalf of the Defendant) reached an agreement with the Deceased to raise the Defendant’s Management Fee from the said 2.5% to 10% of the rental income received of the Property. The Defendant reached the same agreement with Dialis at or around the same time. The raise took effect since January 2014”. There was no mention at all that the Alleged Agreement was reached over a telephone call when Mr Ho was in the office of the Defendant or that staff were in the office when Mr Ho had the said telephone call.

36.  During cross-examination, Mr Ho stated that the Alleged Agreement was made over a telephone call with the Deceased in mid-December 2013. Mr Ho said that during the said telephone call, he explained to the Deceased that the Defendant’s work had increased after the units in the Property have been subdivided and there had been an increase in the number of tenants. In response, the Deceased said that he would agree to the increase if Mr Ho considers that to be reasonable.

37.  When being asked by the Plaintiff’s counsel as to the details surrounding the telephone call, Mr Ho initially stated firmly that he did not make the telephone call in the Defendant’s office, and that the conversation was not heard by any staff of the Defendant as no one was next to him. The above was inconsistent with the FBP, in which the Defendant pleaded that the Alleged Agreement was reached in a telephone call made by Mr Ho when he was in the Defendant’s office and surrounded by staff of the Defendant.

38.  When the inconsistency was pointed out to Mr Ho, he changed his answer and said that he might have gotten the details wrong. He said that there were some staff in the Defendant’s office when he made the telephone call, but as he was sitting in a separate cubicle, the staff may not be able to hear the conversation.

39.  Fourth, during cross-examination, Mr Ho claimed that the Defendant sought to break down the 10% management fee in the monthly rental and expenditure statements under the headers “Service fee (collect rental)” and “Employee wage” from December 2013 to March 2019, but only recorded a 10% management fee in the said statements from April 2019 onwards because litigation has started in 2019 and he thought that the breakdown is no longer required. Mr Ho’s above explanation is difficult to understand. One would have thought that when litigation arises, it would be all the more important for a clear breakdown and detailed records of expenses.

40.  Fifth, when being asked during cross-examination as to why the management fee charged by the Defendant in the month of December 2013 was around 4.65% of the rental income of the Property of that month[2] (higher than 2.5%, but lower than 10%), Mr Ho claimed that as the Alleged Agreement was reached sometime in December 2013, the Defendant allocated HK$10,000 as additional management fee for December 2013 on rough pro-rata basis. However, the above answer is contradictory to the Defendant’s pleading and Mr Ho’s Witness Statement that the increase in the management fee to 10% shall only take effect from January 2014: see §§33 and 35 above. Given the arbitrary manner in which the Defendant charged the increase management fee and recorded the same in the monthly statements, it appears to me that such fee was increased unilaterally against the Deceased without his knowledge or agreement.

41.  Lastly, only as an additional factor, I accept Madam Chow’s evidence that during the time when she was living with the Deceased from 2012 to 30 May 2018, the Deceased had discussed with her about the rental issues of the Property from time to time and had asked her to assist him in handling the above affairs. I also accept Madam Chow’s evidence that the Deceased has never informed her about the Alleged Agreement. This is a further indication that the Alleged Agreement has never been reached.

42.  I do not agree with the Defendant that Madam Chow was “clueless” about the rental matters of the Property:

(a) The April 2011 Letter and the Dec 2013 Letter show that Madam Chow was involved in handling the Deceased’s affairs concerning the Defendant as well as the Property;

(b) While the letter which Madam Chow sent through her solicitors on 27 March 2019 to Dialis (“the March 2019 Dialis Letter”) contains incorrect assertions/requests, e.g. Dialis collected and kept the rentals as it is the owner of 2/3 of the shares in the Property, Dialis failed to account the rentals of the Property to the Plaintiff, I accept Madam Chow’s explanation that as the March 2019 Dialis Letter was sent to the same address as the Defendant and addressed to Mr Chow TW, who was also a director of the Defendant, Madam Chow’s intention was to exhaust all means to obtain information about the rental condition of the Property as well as the financial condition of the Defendant. In any event, Madam Chow had correctly addressed the assertions to the Defendant in a subsequent letter from her solicitors dated 12 August 2019.

C2. Issue 2: Whether the Defendant could lawfully charge the Deceased with the charges pleaded in §9B of the Amended Statement of Claim

43.  Given my findings under Issue 1 that the Alleged Agreement does not exist, the Defendant is not entitled to charge “Service fee (collect rental)”, “Employee wage” or the increased portion of the “Management fee [at 10%]” (i.e. 7.5% of the rental of the Property) as listed in the Table against the Deceased/the Estate.

44.  What remain in the Table are “Commission” and “Service fee (tenancy matter)” (“the Other Charges”).

45.  In order for the Defendant to charge the Other Charges, it is incumbent on the Defendant to show that they were authorised by the Deceased. However, the Defendant has failed to do so.

46.  There is nothing in the 1990 Agreement which says that the Defendant would be entitled to charge the fees for “Commission” or “Service fee (tenancy matter)”. In the 1990 Agreement, it was anticipated by the parties that the 2.5% management fee would cover the various work of the Defendant in managing the Property, including offering the Property for lease, signing of tenancies and liaising with the tenants.

47.  During Mr Ho’s oral evidence, he alleged that in the telephone conversation in which the Alleged Agreement (concerning the increase of the management fee to 10% of the rental income of the Property) was reached, the Deceased further gave a consent to the Defendant to make “reasonable charges”, even though he did not authorise the charges individually.

48.  I reject Mr Ho’s above evidence as being incredible. This new allegation was only mentioned for the first time in Mr Ho’s oral evidence. It was not pleaded in the Defendant’s Defence nor was it included in Mr Ho’s Witness Statement. Save for Mr Ho’s new assertion, there is no documentary record of the alleged blanket authorisation given by the Deceased. I find that the Deceased has not given any authorisation to the Defendant to make the Other Charges. Given such finding, I do not need to consider whether the Other Charges were “reasonable” as alleged by the Defendant.

C3. The Plaintiff’s loss

49.  For the reasons set out above, I find that the Plaintiff has suffered loss in the Sum of HK$1,306,333.58 and the Defendant is liable to pay the Sum to the Plaintiff.

50.  In the Defendant’s written closing submissions dated 7 August 2024, the Defendant relied on its solicitors’ letter dated 12 November 2020 and suggested that there was an incorrect calculation in the “Commission” and “Service fee (collect rent)” for the 2013 to 2014 period, such that the total amount payable to the Plaintiff should be HK$1,214,615.58 instead of the Sum.

51.  I do not accept the calculation put forward by the Defendant. The suggested calculation was not pleaded in the Defendant’s Defence nor was it put to Madam Chow during her evidence. The Defendant should be liable to pay the Plaintiff the full Sum.

D. COSTS AND DISPOSITIONS

52.  Costs should follow the event, and the Defendant should pay the Plaintiff for the costs of the action (including all costs reserved). Having considered the parties’ submissions, I decline to order the Plaintiff’s costs to be taxed on an indemnity basis. While I have rejected the Defendant’s Defence and Mr Ho’s evidence, I do not consider there to be any unusual or fraudulent feature in the Defendant’s conduct. Similarly, while the Defendant may have been wrong or misguided to have resisted the Plaintiff’s claim for provision of the tenancy agreements of the Property in the beginning, I do not consider the Defendant to have acted with a high degree of unreasonableness in the present case to warrant costs to be taxed on an indemnity basis.

53.  I therefore make the following orders:

(a) The Defendant do pay the Plaintiff the Sum of HK$1,306,333.58;

(b) Interest on the Sum at 1% above the prevailing HSBC prime rate from 2 September 2019 until the date of judgment, and thereafter at judgment rate until full payment;

(c) Costs of the action (including all costs reserved) be to the Plaintiff, to be taxed if not agreed, with Certificate for Counsel.

54.  I thank Counsel for their helpful assistance.