THE INCORPORATED OWNERS OF PO HANG BUILDING v. SAM WOO MARINE WORKS LTD

DCCJ 1271/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 1271 OF 2011

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REASONS FOR JUDGMENT

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1.  The Defendant Sam Woo Marine Works Limited (“Sam Woo”) is the registered owner of Shop 1 (“the Shop”) of the ground floor of Po Hang Building, Mongkok, Kowloon (“the Building”) and the Plaintiff is the Incorporated Owners of the Building (“the IO”). The Building comprises 2 residential blocks with shops on the ground and first floor and residential units on the 2^nd to 25^th floors. The IO brought this action to recover Sam Woo’s share of contribution in the sum of HK$211,407.00 towards the costs for the repair and renovation works of the Building together with a collection charge of HK$300.00 plus interest thereon.

2.  The IO applied for summary judgment against Sam Woo and the application was granted by Master Tracy Chan. Sam Woo appealed. At the conclusion of the hearing I dismissed the appeal with costs on a solicitor-and-own client basis to be paid by Sam Woo to the IO (summarily assessed at HK$40,000.00). My reasons appear below.

Background Facts

3.  Sam Woo became the owner of the Shop on 18 June 1992. The Building including the Shop is subject to and with the benefit of a Deed of Mutual Covenants dated 18 January 1983 registered in the Land Registry by Memorial No. UB2367937 (“the DMC”).

4.  On 17 January 2008, the IO held an owners’ meeting (“the Meeting”) to discuss a repair and renovation project, which was approved by an earlier owners’ meeting some eight months ago, according to the minutes of the Meeting.  At the Meeting, a number of resolutions were made in relation to the repair and renovation project. Various repair and renovation works were approved and it was resolved that Tak Po Construction Company Limited be engaged to be the contractor to carry out such works other than those concerning elevators. A resolution was passed to the effect that the repair and renovation charges (“the Charges”) were to be contributed by owners by 3 instalments and that late payment should carry interest pursuant to the DMC. It was further resolved that a retention money being 2% of the contract sum (HK$12,019,112.00) be collected from owners.  It was subsequently resolved that the due dates of the said 3 instalments would fall on 14 June 2008, 14 July 2008 and 14 August 2008.

5.  In April 2008, the IO and Sam Woo were at odds with each other about the share of Sam Woo towards the Charges. Sam Woo took out an application at the Lands Tribunal under LDBM 179/2008 to determine its share. The presiding officer ruled that it should be calculated in accordance with its undivided shares of the Building, i.e. 963/14,922.

6.  Upon the appeal of Sam Woo, the Court of Appeal set aside the ruling and held that Sam Woo was only liable to contribute 1000/57990 of the Charges in accordance with Clauses 3(f), (h) and (j) of the DMC (CACV 368/2008, unreported, 11.11.2009).

7.  In the light of the ruling of the Court of Appeal, the IO issued a demand notice dated 14 May 2010 to Sam Woo for the sum of HK$211,407.00.

8.  By letter dated 25 May 2010, Sam Woo agreed that the amount of HK$211,407.00 should be its share of the Charges but contended that there was a total over-payment of HK$272,100.00 over the years and hence Sam Woo was not liable for further contribution. I shall deal with this alleged over-payment or surplus as pleaded in the Defence, which was the main plank of the defence case, in greater detail below.

9.  After several rounds of correspondence, the IO commenced this action by writ issued on 1 April 2011. Clause 15 of the DMC provides for the Manager’s entitlement to interest at the monthly rate of 2% and a collection charge of HK$300.00 upon 7 days’ default of a payment. Hence, the IO claimed (1) HK$211,407.00 (2) HK$300.00 (3) interest on the sum of HK$211,407.00 and (4) costs.

The DMC

10.  In order to understand the defence case, it is necessary to set out the relevant provisions of the DMC relied upon by Sam Woo.

Clause 3(f)

“Each owner shall pay all costs charges and expenses which may be or become payable for or in connection with the management maintenance repair and improvement of the said premises in accordance with the provision of these presents including but not limited to:-

(i) - (v) …

(vi) The costs of operating maintaining repairing servicing replacing and renewing all the lifts in the said building PROVIDED ALWAYS that the owner or owners for the time being of the ground floor of the said building shall not be liable for payment of such expenses.

(vii) – (viii) …

(ix) The cost of repairing renewing maintaining cleansing painting or decorating the common parts of the said building or any part or parts thereof and all water pumps tanks pipes sewers drains watercourses generator machine cables busbars wires wells electric pumps fire fighting equipment sanitary fittings refuse disposal equipment or services therein and all the apparatus equipment and convenience thereof save and except the cost of repairing renewing maintaining cleansing painting or decorating the sprinkler system together with all the water tanks and pumps therefor which shall be borne and paid by the owner or owners for the time being of the ground and first floors of the said buildings.

(x) The costs of keeping in good and tenantable repair and condition the main structure foundations side walks main walls supports beams gutters fences entrance doors common entrance-hall staircases landings passages and all external parts of the said building and such parts of the interior as are for common use and all retaining walls and other structures equipment thereon including all fixtures and fittings thereto.

(xi) The costs of operating maintaining repairing servicing replacing and renewing the water pumps.

(xii) – (xiv) …

(xv) All other charges which the Manager shall consider necessary or requisite for the proper management operation and maintenance of the said premises and for the improvement and maintenance of the services amenities or facilities thereof.

(xvi) – (xviii) … ”

Clause 3(h)

“Each owner shall pay to the Manager on account of his share of the said costs charges and expenses the following sum:-

(1) $1,000.00 for Shop 1 on the ground floor per calendar month payable in advance;

(2) – (29) …

PROVIDED ALWAYS that such owner shall be personally liable to make such monthly payments whether or not his part of the said building is vacant or occupied and whether it has been let or leased to a tenant or is occupied by the owner himself or any other person.”

Clause 3(i)

“If the total monthly payments payable to the Manager by the owners of the said premises under sub-clause (h) hereof shall be insufficient to cover all or any of the said costs charges and expenses then:-

(a) such owners shall make further contributions towards such expenses in the shares as provided in sub-clause (h) hereof; or

(b) pay to the Manager such revised monthly payment as the Manager shall think fit provided that such increase shall be in the proportion to the shares as provided in sub-clause (h) hereof.”

Clause 3(j)

“If there should be any surplus after payment of all the costs charges and expenses then the surplus shall be held by the Manager in a bank account and shall only be applied by him in or towards payment of such costs charges and expenses thereafter to become due.”

Clause 3(k)

“Any person ceasing to be the owner of any undivided share in the said land shall in respect of the share or shares of which he ceases to be the owners thereupon cease to have any interest in the funds held by the Manager including the deposit paid under sub-clause (g) hereof to the intent that all such funds shall be held and applied for the management of the said premises as herein provided irrespective of changes in ownership of the undivided shares therein …”

Clause 13(k)

“Any resolution on any matter concerning the said premises passed at a duly convened meeting by a majority of the owners present in person or by proxy and voting shall be binding on all the owners PROVIDED that:-

(i) – (ii) …

(iii) No resolution shall be valid to the extent that it purports to alter or amended the provisions of these presents or is inconsistent herewith save as herein specifically provided.”

The Defence

11.  Ms. Ng, counsel for Sam Woo, succinctly summarized the defence as follows.  Ms. Ng submitted that on a proper construction of Clause 3(i) of the DMC, each of the individual owners’ accounts should be considered separately and if there is sufficient unused fund in his account, no further contribution should be demanded from him. Accordingly, due to the overpayment/surplus in the account of Sam Woo over the years, the IO was not entitled to demand any further contribution from Sam Woo towards the Charges under the DMC. The fall-back position was that in the event that the overpayment/surplus of Sam Woo did not suffice to cover its share, there was at least a defence of set-off available to Sam Woo and Sam Woo would only need to pay the balance. Lastly, those resolutions passed at the Meeting obliging Sam Woo to contribute to the Charges were invalid pursuant to Clause 13(k) of the DMC due to its inconsistency with Clause 3(i) of the DMC.

12.  Initially I had some concern about the term “overpayment” used by Sam Woo. It normally means that one has paid more than what he is obliged to pay and if the extra amount is paid under a mistake, he may have a common law claim to recover the amount overpaid. On the evidence of Sam Woo, however, it was not really a case of overpayment by mistake. Ms. Ng clarified that the amount alleged to have been overpaid only meant the monthly management charges previously paid by Sam Woo which has not yet been used by the IO.

13.  The case of overpayment/surplus was premised on the evidence of one Mr. Lee Fuk Lun adduced by the IO in the Lands Tribunal proceedings. Mr. Lee was the accountant of the IO. He made a witness statement with two tables annexed thereto. He also testified in the said proceedings.

14.  One of the tables sought to show the income and expenditure of the IO in respect of the 1^st floor to the 25^th floor for the period from October 1992 to August 2008. It did not concern Sam Woo as the Shop is located on the ground floor. Over the years, in some months there were surplus and in some months there were deficits.

15.  The other table sought to show the income and expenditure relating to Shop 1 for the period from October 1992 to August 2008. The expenditure for each year understandably varied. In each of the years covered, the total amount of monthly management fees Sam Woo paid was in excess of the total amount actually spent. The total amount said to be in excess over the said period stood at HK$162,939.00. Mr. Lee confirmed the accuracy of the figure of HK$162,939.00 in his oral testimony.

16.  This was relied upon by Sam Woo to build its case of overpayment/surplus. Sam Woo further computed the amount of overpayment/surplus for the period from February 1983 to September 1992 on a pro-rata basis and came up with a figure of HK$93,108. By the same method, another figure of HK$16,053 was produced for the amount of overpayment/surplus for the period from September 2008 to April 2010.

17.  Therefore, Sam Woo contended that the grand total overpayment/surplus for all these years would be HK$272,100.00 (162,939 + 93,108 + 16,053).

18.  It was highlighted to this court that the IO did not demur this plea by way of a reply. Nor did the IO deny the existence of the surplus. I do not think it is necessary for the IO to file a reply and there is an implied joinder of issue: Order 18 r.14(1) of the Rules of the District Court.

19.  Mr. Lee made an affirmation in support of the Order 14 application. He explained that the two tables were prepared for the sole purpose of showing that Sam Woo was never required to contribute any expenses relating to the elevators of the Building. He further explained that any surplus or deficit of the Building were calculated and reflected in the books and accounts of the Building as a whole and there was no individual surplus or deficit being apportioned to any individual units to the Building.

20.  Mr. Lee’s explanation being in accord with common sense and there being no contrary evidence, I accept his explanation and do not accept there was any individual surplus attributable to Sam Woo.

21.  Furthermore, Sam Woo’s calculation of the overpayment/surplus for the period from February 1983 to September 1992 and the period from September 2008 to April 2010 was simply baseless and speculative. It is clear that the Building incurs different amounts of expenditure every month. I cannot accept that there were such surpluses for those years on the evidence.

22.  Ms. Ng emphasized that “such owners” who are required to make further contribution in Clause 3(i)(a) cannot refer to “the owners” mentioned in Clause 3(h) and accordingly, so her argument ran, Clause 3(i) impliedly obliged the IO to keep separate accounts for individual owners instead of/in addition to a global management account for the entire Building and that only those individual owners whose accounts do not have sufficient surplus to cover any particular costs or charges should be required to make further contribution. I cannot agree with Ms. Ng’s construction of Clause 3(i) of the DMC.

23.  Clause 3(i) first sets out the condition under which further funds will have to be contributed by owners. It refers to the total monthly payments payable to the Manager by the owners of the Building under Clause 3(h). Clause 3(h) sets out the amount of monthly payment of each owner has to pay and it is applicable to all the owners. The total monthly payments payable to the Manager in Clause 3(i) clearly refers to the total amount of monthly payments payable by all the owners of the Building.

24.  Worthy of note in Clause 3(i) are the words “total”, “payable” and “under Clause 3(h)”. They clearly refer to the total monthly payments which are to be paid by all the owners under Clause 3(h). The construction advocated by Ms. Ng actually entails a substantial rewriting of Clause 3(i): “those unused portion of the total monthly payments payable which have already been paid by an ownerto the Manager by the owners.” The word “total” is then rendered otiose too. This cannot be right.

25.  The purpose of Clause 3(i) is very clear. If the manager finds that the total monthly payments payable by all the owners under Clause 3(h) is not sufficient to cover any costs, charges or expenses, he can make a collective fund-raising exercise by either (a) requiring all the owners to make further contributions in the shares as provided in Clause 3(h) or (b) revising the monthly payment payable to the manager by all the owners provided that such increase shall be in the proportion to the shares as provided in Clause 3(h). The obligation to provide further contribution by either way falls upon all the owners and not any individual owners.

26.  In fact, as submitted by Mr. Chang, counsel for the IO, Ms. Ng’s construction of Clause 3(i) would lead to an absurd result. If her construction were right, the IO must first exhaust the management fund contributed by an individual owner before he is required to contribute additional funds or even to continue to pay the monthly payment under Clause 3(h). If that is the case, there would be not much point in requiring the owners to make payments on a monthly basis and instead management fees should be collected on need basis only.

27.  This is for obvious reason unworkable in the real world. Of course the manager requires some surplus in the management fund to allow flexibility and cover all the possible contingencies. Moreover, Clause 3(j) plainly envisages surplus in the management fund and dictates how it should be applied. Similarly, Clause 3(k) prescribes how the unused portion of the management fund contributed by a former owner should be applied after he ceases to be an owner.

28.  Ms. Ng accepted that there was no provision in the DMC for the refund/release of any unused portion of management fees previously paid by an individual owner. Yet she contended that Clauses 3(j) and 3(k) dictate that any such surplus or unused fund must be held and applied for payment of all those necessary costs, charges and expenses by the manager. I accept for the present purpose there was indeed surplus in the management fund. Nevertheless, there is no suggestion, let alone evidence, that any surplus of the management fund would be applied for other purposes.

29.  As regards the resolutions passed at the Meeting, admittedly, as pointed out by Ms. Ng, the exact amount of shares by each owner was not specified therein. The purpose and effect of the resolutions were however clear. The owners by a majority agreed to incur the Charges and they were to contribute towards the Charges by 3 instalments. The Charges did fall within the ambit of Clause 3(f) and in accordance with Clause 3(i), the IO asked Sam Woo to make further contributions in addition to its monthly payments made under Clause 3(h) whilst any unused portion of the monthly payments previously made in the global management account will be used in accordance with Clause 3(j). I cannot see any merit in the contention that the resolutions were inconsistent with Clause 3(i) and hence rendered invalid by virtue of Clause 13(k) of the DMC.             

30.  For the reasons given, I found none of the matters raised by Sam Woo constituted a triable issue. Sam Woo is clearly liable to pay its share of the Charges even if there is surplus in the management fund of the Building. Summary judgment was in my judgment appropriate and so the appeal of Sam Woo fell to be dismissed with costs.