THE INCORPORATED OWNERS OF HERTFORD MANSION (UN CHAU STREET) v. WONG SHING KWAN

DCMP 2924/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2924 OF 2016

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DECISION

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1.  This is a case on the enforcement of a memorandum of charge registered by the plaintiff pursuant to Order 88 of the Rules of the District Court, Cap 336H (“RDC”). It concerns with the construction of certain provisions in the deed of mutual covenants.

BACKGROUND

2.  The plaintiff is the registered Incorporated Owners of Hertford Mansion (Un Chau Street) (“the Building”), while the defendant is the owner of the property known as Flat A on the 1^st Floor and Flat Roof of Hertford Mansion (“the Premises”). 

3.  In or about early 2016, the plaintiff’s management committee decided that some major renovation works have to be carried out for the maintenance of the Building which was built and first occupied in 1986.

4.  At or about the same time, the plaintiff sought legal advice from the plaintiff’s solicitors on the interpretation of the Deed of Mutual Covenants of the Building (“the DMC”).  The plaintiff’s solicitors advised that the apportionment of the estimated sum of HK$1.2 million renovation fees (“the renovation fees”) should be shared by the owners of the respective units in accordance with the proportion stipulated in the Fifth Schedule of the DMC (“the Fifth Schedule”).

5.  On 29 January 2016, the plaintiff’s management committee resolved at its meeting (in the presence of the defendant) that the method of apportionment of the renovation fees would be by way of the shares with reference to the Fifth Schedule to the DMC, viz ground floor unit 250/1300; units A 110/1300; and units B 100/1300 (“the management shares”).

6.  On 2 March 2016, the plaintiff's solicitors attended an owners meeting of the Building to explain the apportionment in accordance with management shares. Again, the defendant was present at the meeting.

7.  Allegedly in breach of the DMC and despite repeated demands by the plaintiff, the defendant failed and refused to pay his share of the outstanding renovation fees.  The amount claimed in the originating summons is at HK$105,291 (plus interest to be calculated), consisting of the outstanding renovation fees, collection charge pursuant to Clause 13(d)(ii) and costs of the preparation and registration of a memorandum of charge.

8.  Pursuant to Clause 13(f) of the DMC, which provides that any amount due and payable by the defendant together with interest, collection charge, all costs and expenses which may be incurred in recovering or attempting to recover the same including legal costs (on a solicitor-and-own-client basis) together with the costs in registering the charge shall be charged on the shares of the defaulting owner, a memorandum of charge of the Premises was registered on 28 July 2016 in favour of the plaintiff (“the Memorandum of Charge”), in which the Premises stand charged with the total payment of the sum of HK$105,291 plus interest to be calculated.

9.  No other creditor or prior encumbrance other than the Memorandum of Charge have been registered against the Premises and the Premises have not been let out.

10.  The originating summons herein was filed on 26 September 2016.

11.  After the commencement of the present action, on 17 November 2016, the defendant visited the plaintiff’s solicitors office intending to pay HK$64,234 as full and final settlement of his share of the outstanding renovation fees but the offer was rejected. However, that did not stop the defendant from depositing HK$64,234 into the plaintiff’s bank account on the same day, which is the amount the defendant believed he owed to the plaintiff according to his own interpretation of the relevant provisions of the DMC.

Issues in dispute

12.  As can be seen from the evidence filed by the parties, there are no disputes as to the fact that a certain amount of renovation fees are owed by the defendant to the plaintiff.  The only dispute is as to the method of apportionment of the renovation fees, which hinges on the construction of the DMC.  In other words, if the court is with the plaintiff in relation to the construction of the relevant clauses in the DMC, it can be said that the Memorandum of Charge was validly registered and the plaintiff should be allowed to enforce it against the defendant.  On the other hand, if the court is with the defendant in his construction of the relevant clauses in the DMC, the share of the renovation fees will be calculated in accordance with the amount he had paid into the plaintiff’s account on 17 November 2016.

Relevant clauses of the DMC

13.  The plaintiff submits the following are the relevant provisions of the DMC:-

Clause 5

“5. The owners for the time being of undivided shares in the said land and the said building shall at all times hereafter be bound by and shall observe and perform the covenants provisions and restrictions set out in the Third Schedule hereto.” (emphasis added)

Clause 6

“6.    The owners of each unit shall pay to the Manager on account of his shares of the said costs and expenses (hereinafter called “the management fee”) the sum as stated in the Second Column of the Fifth Schedule hereto opposite to such his unit set out in the First Column of the said Fifth Schedule and the management fee shall be payable monthly in advance” (emphasis added)

The Third Schedule, clause (1)

“(1) To pay the due proportion hereinafter mentioned of all costs, charges and expenses which may be or become payable for or in connection with the management of the said building in accordance with the provisions of this Deed including but not limited to:-

……

(h) The cost of repairing, renewing, maintaining, cleansing, painting, or decorating the said building or any part or parts thereof and the approach roads, pavements and paths thereto and all sewers, drains, watercourses, pumps, water tanks, wells, cables, pipes, wires or services therein and all the apparatus equipment and conveniences thereof.

……

(i) The cost of improving, maintaining and repairing all the retaining walls, roads, footpaths, open spaces, yards and grounds of and in the said land and the said building and all structure, equipment and amenities therein and thereon.

…….

(k) All other charges which the Managers shall consider necessary or requisite for the proper management, operation and maintenance of the said land and the said building as a high class residential commercial building and for the improvement or maintenance of the services, amenities or facilities thereof.

The Third Schedule, clause (2)

“(2) If the total contribution payable to the Manager by the owners of the said building as aforesaid shall be insufficient to cover all or any of the said costs charges and expenses then such owners shall make further contributions towards such expenses in the proportion as above provided.” (emphasis added)

The Fifth Schedule

“Monthly management fee payable by the owners for their respective units:
Unit	Monthly management fee
Ground Floor and Cockloft	HK$ 250.00
Flat A and Flat Roof on the First Floor	110.00
Flat B and Flat Roof on the First Floor	100.00

……”

14.  The defendants submits that, in addition to the above, Clauses 13 & 14 of the DMC are also relevant:-

Clause 13

“13. PAYMENT OF MANAGEMENT FUNDS &
ENFORCEMENT PROVISIONS

(a) Each owner shall pay in advance on the 1^st day of each calendar month to the Managers by way of contribution to the management funds a due proportion of the annual budgeted amount in accordance with the budget prepared and circulated by the Managers to the owners. In addition, each owner shall on demand pay the like proportion of any further management expenses which may be incurred or become payable in accordance with the provisions of this Deed over and above the amounts of the said monthly payments. (emphasis added)

……

(d) If any owner shall fail to pay any amount payable hereunder within seven days from the date on which the demand for payment is served on him, he shall further pay to the Managers:-

(i) Interest calculated at the rate of 1.5 per cent on the amount unpaid for each period of 30 days or part thereof for which remains unpaid; and

(ii) A collection charge of $750.00 to cover the costs (other than legal costs of proceedings as hereinafter mentioned) of the extra work occasioned by the default.

……

(f) In the event of any owner failing to pay any amount due and payable by him in accordance with the provisions of this Deed within 7 days from the date on which the same becomes payable (whether formally demanded or not), the amount hereof together with interest as aforesaid and collection charge and all costs and expenses which may be incurred in recovering or attempting to recover the same including the legal costs referred to in paragraph (e) of this Clause and in registering the charge hereinafter referred to, shall be charged on the shares of the defaulting owner in the said land and the said building and the Unit held therewith and the Managers shall be entitled without prejudice to any other remedy hereunder to register a Memorial of such charge in the Land Office against the shares of the defaulting owner. ……

   (g) Any charge registered in accordance with paragraph (f) of this Clause shall be enforceable as an equitable charge by action at the suit of the Managers for an order for the sale of the shares of the defaulting owner in the said land and the said building together with the right to the exclusive use occupation and enjoyment of the Unit held therewith and the provisions of paragraph (e) of this Clause relating to legal costs shall apply equally to any such action.”

Clause 14

“14. MANAGEMENT FUNDS

(a) All monies collected by the Managers in the exercise of their powers and duties hereunder (save and except sufficient petty cash for day-to-day requirements) shall be paid into a separate bank account and the Managers shall keep true and proper accounts of all such monies and the expenditure thereof and shall send to each owner a summary of such accounts together with a copy of the annual budget for the ensuing year with the notice convening each Annual General Meeting. The Managers shall further produce all such accounts and the vouchers supporting the same for the inspection of nay owner on reasonable notice being given.

(b) Any person ceasing to be the owner of any undivided shares in the said land and the said building shall in respect of such shares thereupon cease to have any interest in the funds held by the Managers to the intent that all such funds shall be held and applied for the management of the said land and the said building as herein provided irrespective of changes in ownership of undivided shares therein Provided that –

(i) Any deposit paid by such owner and still held by the Managers may be refunded to him or transferred into the name of the new owner of such undivided shares; and

(ii) Upon the rights and obligations hereunder being released as provided in Clause 15(a) hereof or upon the said land reverting to the Crown and no renewal or regrant thereof being obtainable, any balance of the said funds shall be divided proportionately between the owners of the said undivided share immediately prior to such release or reversion.”

General principles in construction of DMC

15.  The general principles in relation to the construction of deed of mutual covenants are succinctly set out at pp 219-221 of Malcolm Merry on Building Management in Hong Kong (3^rd ed).  In particular, the following principle applies:-

“Where the ordinary meaning of the words is clear, the courts must give effect to them, even if they produce hard consequences, unless the transaction is illegal, immoral or otherwise contrary to public policy (the textual approach).” (emphasis added)

16.  Ms Stephanie Wong, counsel for the plaintiff, submits and I accept that, on a proper construction of the relevant clauses of the DMC, the renovation fees sought by the plaintiff against the defendant should be apportioned in accordance with the management shares as set out in the Fifth Schedule.  I agree with Ms Wong that this must be correct based on either a literal and purposive construction.

On a literal approach

17.  On a literal approach, I accept the plaintiff’s submissions that Clause 5 refers to covenant provisions set out in the Third Schedule which all owners are bound and obliged to observe and perform.  Clause 1 of the Third Schedule obliges the owner to pay the “due proportion” of all costs, charges and expenses which may be or become payable “for or in connection with the management of the said building in accordance with the provisions of this Deed ……” (emphasis added). 

18.  Clause 6, which is immediately following Clause 5, states that the owner of each unit shall pay the Manager (in this case the plaintiff) on account of his shares of “the said costs and expenses”, which has been defined and called “the management fee”, as stated in the second column of the Fifth Schedule.

19.  In my judgment, it is clear that all items stated in Clause 1(a) to (m) of the ThirdSchedule are related to the management of the Building.  Although the words “due proportion” has not been defined in the DMC, clause (l) of the ThirdSchedule clearly stated that those costs, charges and expenses are to be charged “in accordance with this Deed.”   And the only place where the due proportion of the expenses each owner should bear in relation to the management of the Building is set out in the FifthSchedule of the DMC.  Therefore, on a literal approach, I am of the view that the renovations fees must be borne by the owner of different units in accordance with the shares set out in the Fifth Schedule. 

20.  In 郭錦燊v 澤安閣業主立案法團, unrep, LDBM 357/2011 (Deputy Judge Yu (as he then was); 10/8/2012), similar wordings had been employed in the deed of mutual covenants in that case.  Clause 5(f) provides that “(E)ach owner shall pay all costs charges and expenses which may be or become payable for or in connection with the management maintenance repair improvement and renovation of the said premises in accordance with the provisions of this deed including but not limiting thereto” (emphasis added).  It went on to list out 23 items of chargeable works.

21.  The issue of that case turns on the construction of clause 5(f).  The learned judge referred to clause 5(g)(ii) which provides that each owner shall pay to the manager “on account of his share of the said costs charges and expenses such monthly payment as set out in the Schedule” and “shall be payable in advance in the first day of each and every month”.  And it was not disputed in that case that such payments are for the said costs and expenses referred to in clause 5(f).

22.  The respondent in that case argued that clause 5(g)(ii) was a payment on account provision and not the charging provision or the apportionment provision.  It relied on the judgment of the Hon Yeung JA (as the VP then was) in The Incorporated Owners of Hang Shun Building, Tonkin Street v Lee Chi Ming, CACV 321 of 2003 (“HangShun Building”) where there were 2 sets of charging provisions in the schedule of the DMC in that case.  Judge Yu was able to distinguish those provisions from clause 5(f) in his case.  He noted that in Hang Shun Building, clause (f) has expressly provided that the costs and expenses thereon set out are to be shared in proportion to the undivided shares.  However, Clause 5(f) of the DMC in his case, similar to Clause (1) of the Third Schedule in our present case, in defining the sharing formula only makes reference to the DMC itself.  Therefore, the learned judge in 郭錦燊, suprafound that the charge must be made in accordance with the “management shares”. 

23.  I would respectfully agree with the above analysis made by the learned judge in 郭錦燊, supraand I find the same approach of construction should apply in the present case.

24.  In 郭錦燊, supra the learned judge also referred to the judgment of the Tang VP (as he then was) in Sam Woo Marine Works Ltd v The Incorporated Owners of Po Hang Building, CACV 368 of 2008 (“Sam Woo Marine Works”).  The charging provisions in the DMC in that case were also very similar to his case, and hence by analogy, to ours.  Hon Tang VP had considered and distinguished Hang Shun Building by holding that there were 2 conflicting clauses in that case while in Sam Woo Marine Works there was only 1 charging provision.  It was held that clause 3(f) of the DMC in that case is a charging provision and the reference to “…… in accordance with the provisions of these presents ……”, is a referral to clause 3(h) and (i). His Lordship found that clause 5 in that case applies unless otherwise provided.  However, it has no application as clauses 3(f), (h) and (i) have provided otherwise.  Likewise, in our case, as there was only 1 charging provision which is contained in Clause (1) of the Third Schedule in relation to all those items of expenses concerning the management of the Building, I am of the view that those expenses should also be calculated “in accordance with the provisions of the Deed”, ie the DMC. 

25.  Judge Yu found in 郭錦燊, supra that while there was no express formula for the management charges, he noted that charges against each shop differed.  There were also different charges for different units in the upper floors.  Thus, there appeared to be a formula behind and the management shares were found not to be fixed arbitrarily.  Similarly, in my judgment, the management shares contained in the FifthSchedule of the DMC in our case also has a rational basis behind it and it was not fixed in an arbitrary manner.

26.  More importantly, I agree with the learned judge that, if the expenses are meant to be shared between the owners according to their undivided shares as in Chester Court in his case, this would be the easiest thing to state in the relevant clause.  This was how the charging provisions were drafted in Hang Shun Building: See §53 in 郭錦燊,supra.  However, as can be seen in the DMC in our case, Clause (1) of the ThirdSchedule only mentioned “due proportion” in accordance with the provisions of the DMC.  Nothing was mentioned in the DMC that such costs should be shared in accordance with the undivided shares of the Building.  And the only provision of how the “management fees” should be shared amongst the owners is contained in the Fifth Schedule. 

27.  Hence, based on the aforestated premises, in my judgment, on a literal approach, the renovation costs should be determined in accordance with the proportion as set out in the Fifth Schedule.

On a purposive approach

28.  On a purposive approach, the plaintiff submits that if the construction would produce an absurd result, then the court should try to avoid it as much as possible.

29.  It was held in Wong Chun Nam v Incorporated Owners of Yee Tiam Building, unrep (LDBM 49/2014, 26/6/2015) that an interpretation for renovation costs to be apportioned according to the number of units held by the owner would result in absurdity.  The interpretation for renovation costs to be apportioned based on the management shares “would avoid the absurdity which could otherwise be created namely that owners would be paying differently for contribution to payment of same nature and purposes depending on whether the contribution called for falls within the estimated expenses or being payment to cover insufficiencies, outside the budget in other words”.

30.  In my view, the clauses in Wong Chun Nam, supra are very similar to those involved in the present case.  In the present case, Clause 1 of the Third Schedule and the Fifth Schedule both concern costs and expenses in relation to management of the Building.  It is therefore, in my judgment, plain and clear that they are contribution to payment “of same nature and purposes” and it would be absurd if they are to be paid based on a different apportionment.

31.  Further, as held in 郭錦燊, supra at §55, in interpreting a deed of mutual covenants, the court should make sense out of it, being its common sense or business sense.  The tribunal found that even though there was no express formula for the management charges, the charges against each shop differs, showing that there was some formula behind it which the court should not speculate on and hence the management shares could not be said to be fixed arbitrarily.  In fact, management shares were created parallel to undivided shares for the sole purpose of apportioning the costs of management.

32.  Therefore, on a purposive approach, I also find that the defendant’s share of the renovation fees should be calculated to the management shares set out in the Fifth Schedule.

The defendant’s submissions

33.  The defendant’s principal submissions, which have been succinctly put forward by his solicitor Mr Patrick Hui at the hearing, basically contain 2 limbs:-

(1) If there was no mention of any method of apportionment of contribution, then the common law position applies, namely, such costs should be divided in accordance with the undivided shares: 南生大廈業主立案法團訴葉小燕及另一人, unrep., LDBM 152/2001 (HH Judge Johnson Lam (as the VP then was; 27/7/2001);

(2) In the DMC, besides the “management fee” mentioned in Clause 6, there was another charge on “management funds” contained in Clause 13 and Clause 14 which the plaintiff made no mention of in its submissions.      

34.  On the construction of the DMC, Mr Hui submits that the renovation fees do not fall within Clause (1) of the Third Schedule since they relate to “large-scale renovation”.  He submits that the scope of the items stated in Clause (1) of the Third Schedule is so wide that it may involve both routine and non-routine expenses such as renovation and repair costs of the Building.  He further submits that “all other charges” is so wide that it may include those large-scale renovation charges.  According to the defendant, that was the reason why the DMC contains Clause 6 and the obligation to pay “management fee” and to pay the “monthly fee” in accordance with the shares stated in the Fifth Schedule.  The defendant’s case is that the monthly management fees are to cover the routine and daily management expenses only and the large-scale renovation costs do not fall within the Fifth Schedule.

35.  Since the DMC has not provided for the apportionment of such contribution, the defendant submits therefore the default provisions under ss 21 and 22(2) of the Building Management Ordinance, Cap 344 (“BMO”) apply and the contribution should be fixed in accordance with the respective undivided shares of the owners. 

36.  Mr Hui further submits that due to the wide scope of the Third Schedule, one also needs to look at Clauses 13 & 14 of the DMC.  The defendant’s submission is that these 2 clauses require each owner to pay a monthly sum by way of a contribution towards the “management funds” in “due proportion” of the annual budgeted amount.  The defendant submits that the “due proportion” in the Third Schedule should be referred to the “due proportion” / “like proportion” in Clause 13, “simply because they are referring to the same matter, that is, the management fund”: (see §19 of the defendant’s skeleton submission).      

37.  With respect to Mr Hui, I would consider the defendant’s above submissions as fundamentally flawed and I have no hesitation to reject them for the following reasons:-

(1) Clause (1) of the Third Schedule provides for a non-exhaustive list of expenses in connection with the management of the Building.  The list of examples provided under Clause (1) are very wide in nature, including repairing, renewing, maintaining, improving the Building and all other charges which the Manager (ie the plaintiff) shall consider necessary or requisite for the proper management, operation and maintenance of the said land and the Building as a “high class residential commercial building and for the improvement or maintenance of the services, amenities or facilities thereof.” They would, in my view, definitely include the renovation works of the Building in question.

(2) There is no distinction whatsoever between “large-scale renovation” costs or other day to day running expenses in connection with management under the DMC as alleged by the defendant.  The plain and ordinary meaning is that the renovation costs concerned fall squarely within Clause (1) of the Third Schedule and the powers and duties of the Manager as set out at Clause 11(b) of the DMC.

38.  In my judgment, Clauses 13 & 14 of the DMC are irrelevant when it comes to the interpretation of whether the renovation fees should be paid in accordance with the “management shares” under the Fifth Schedule or according to the undivided shares of each of the owner.  Clause 13 deals with responsibility of each owner in making monthly payments towards the management funds in accordance with the annual budgeted amount and further management expenses which may be incurred or become payable.  Clause 14 deals with the establishment and running of the management funds and the circumstances and manners under which those funds could be refunded to the owners.  They do not deal with the situation of making contributions towards a special fund (at HK$1.2 million in this case) which has been set up specifically for the purpose of settling the renovation cost of a project which was the subject matter of the resolution passed at the owners meeting on 2 March 2016.

39.  Further, both Clauses 13 & 14 make no reference to the list of items of the repairs and maintenance works mentioned in Clause (1) of the Third Schedule which, in my judgment, the renovation works would fall under. Likewise, the Third Schedule makes no mention of the “management funds” which Clauses 13 & 14 deal with, indicating that the latter 2 clauses existed to deal with a different situation.

40.  However, even if one were to accept the defendant’s arguments for the moment, in my view, the references to “due proportion” and “like proportion” of the management funds or further management expense in Clause 13 still have to be paid “in accordance with the provisions of this Deed”, ie the DMC.In my judgment, it could only take us back to the due proportion as set out in the Fifth Schedule.

41.  Mr Hui in his written submissions referred to the court several authorities which he says would support his contentions. They include The Incorporated Owners of Kelly House v Law Han Ying, unrep., LDBM 224/2008 (HH Judge Leung, 6 May 2009) and 順豐大廈(嘉禾街)業主立案法團 訴香港仔街坊福利會有限公司, unrep., LDBM 16/2012 (Deputy Judge Yu; 30/12/2012) (“順豐大廈”).  He also informed the court that he is no longer relying on those cases referred to by the defendant in his affirmation which was filed while the defendant was still acting in person.

42.  Mr Hui submits that Kelly House is similar to the present case. In that case, it concerned with the construction of clause 4 of the DMC where there was no dispute that the renovation costs in question fell within.  Both parties in that case referred to Hang Shun Building, supra and 金冠發展有限公司及另五人 訴 建邦大廈業主立案法團, unrep., LDBM 119/2006 (22/12/2016) (“金冠發展”). HH Judge Leung in Kelly House found that Hang Shun Building could be distinguished from his case in terms of the wordings of the deed.  The stipulation that the cost charges and expenses should be paid in accordance with each owner’s undivided shares in the buildings, which existed in clause 4(e) of the DMC in Hang Shun Building did not exist in clause (f)(I) of the DMC in Kelly House.   In fact, as the learned judge observed, there was no stipulation as to how the costs and charges should be shared in clause 4(f)(I) in the DMC in Kelly House.  

43.  Judge Leung then referred to 金冠發展, supra.  He found that the crucial feature common to both Hang Shun Building and 金冠發展, supra was that there was actual stipulation in the respective deed as to how the ultimate responsibility for the cost charges and expenses should be shared and borne by the owners, while in Kelly House, clause 4(f)(I) was silent in this aspect.  On that basis, the learned judge found that s 22(2) of the BMO came into play and the renovation cost should be shared in accordance with the respective undivided shares in the building.    

44.  Thus, in my view, it is clear that Kelly House was decided based on the fact that there was no specific mention of how the renovation costs should be shared.  With respect to Mr Hui, it is not the situation with our present case here.  In our present case, it has been specifically mentioned in Clause (1) of the Third Schedule that the “due proportion” in relation to all the costs, charges and expenses in connection with the management of the Building would be charged “in accordance with the provisions of this Deed.” In my judgment, the wordings of the DMC in our present case are closer to those found in Hang Shun Building and 金冠發展than Kelly House.       

45.  順豐大廈, supra in my view can also be distinguished from the present case in that the learned judge found as a fact that clauses 11 (a) to (e) dealt with 2 very different situations, namely, management fees and special funds.  The tribunal found that if the special fund means to be charged according to the management shares, then it would be clearly stated in the DMC: (see §53 of judgment).  Due to the fact that clause 11(e), which dealt with special fund, was silent on the charging method, the “fall back” positon of s 22 of the MBO therefore applied.

46.  In the aforestated premises, I am not convinced that the authorities relied on by Mr Hui, namely, Kelly House and 順豐大廈would assist the defendant’s case. 

The District Court’s jurisdiction over the present dispute

47.  In the affirmations filed, the defendant raised the point that the present action should be adjudicated by the Small Claims Tribunal (“SCT”): (see his 2^nd Affirmation at §6), and asked the court to transfer the case to the Lands Tribunal or the SCT. 

48.  The issue was no longer perused by Mr Hui at the hearing.  Therefore, there is no need for me to deal with it here.  However, should I have to rule on the matter, I have little doubt that the District Court will have jurisdiction over the present dispute simply on the ground that (i) the present action is an action for enforcement of a memorandum of charge registered by the plaintiff pursuant to Order 88 of the RDC which the SCT has no jurisdiction; and (ii) when the claim was brought by the plaintiff by way of originating summons, the sum claimed was at HK$105,291 which is clearly within the jurisdiction of the District Court.  This would not change just because the defendant had paid part of what he thought he owed to the plaintiff in its bank account.

Plaintiff’s alternative case: the resolutions constituted establishment of “special fund”

49.  In the alternative to the above submissions on construction of the DMC, the plaintiff submits that the contributions resolved under the resolutions constitute the establishment of a “special fund” pursuant to paragraph 4 Schedule 7 of the BMO.  Section 34E(1) of the BMO provides that “…… the provisions in schedule 7 shall be impliedly incorporated to [every DMC].”  Further, pursuant to s 34E(2), such provisions shall prevail over any other provision in the DMC that is inconsistent with them.

50.  Paragraph 4 Schedule 7 of the BMO provides that:-

“4. Special Fund

(1) The manager shall establish and maintain a special fund to provide for expenditure of a kind not expect by him to be incurred annually.

(2) If there is a corporation, the corporation shall determine, by a resolution of the owners, the amount to be contributed to the special fund by the owners in any financial year, and the time when those contributions shall be payable.”

51.  I accept the plaintiff’s submissions that, the resolutions, which included a resolution passed at the owners' meeting, were valid under paragraph 4(2) of Schedule 7.  Since this provision has been impliedly incorporated in the DMC, I find the outstanding contribution from the defendant became a “sum due and payable” by him in accordance with the provisions of the DMC and hence the Memorandum of Charge registered was valid and cannot be challenged: see Incorporated Owners of Morlite Building v Asia Century Ltd (supra) at §§11-13, 16.

52.  I do not accept the defendant’s arguments on this issue for the following reasons:-

(1) I do not agree that the “management funds” have already included or served the purpose of a “special fund”.  In my view, they are 2 quite separate and distinct matters;

(2) I do not agree that the resolution of the owners’ meeting on 2 March 2016 only determined on the total amount to be collected from the owners and not for passing a resolution of accepting the calculation method.  One only needs to look at the context in which the resolution was passed, in particular paragraph 5 under “the contents of the meeting” (「會議內容」) as recorded in the minute to see that cannot be the case.

(3) Similarly, I do not agree the minute of the management committee meeting dated 29 January 2016 suggested any other basis than those based on the proportion mentioned in the Fifth Schedule as advised by the plaintiff’s solicitors.

(4) Lastly, I do not accept that both the committee and the owners had failed to make an “election” in their respective meetings as claimed by the defendant.  Judging from the contents of the minutes of the respective meetings, it is clear to me that both the committee and the owners had resolved to contribute towards the renovation costs by way of the proportion stated in the Fifth Schedule and as advised by the plaintiff’s solicitors.

Whether order for sale should be granted

53.  Lastly, I have to consider whether an order for sale should be granted in this case.  At first glance, this seems to be a rather draconian measure against the defendant for the failure in paying his share towards the renovation fees. This is particular so one may say when the defendant did pay part of those renovations fees at $64,234 on 17 November 2016 which he considered he was liable to pay according to his own interpretation of the DMC.    

54.  However, on mature consideration of the matter, I agree with the plaintiff’s counsel that the plaintiff is entitled to seek the relief of an order for sale of the Premises for the following reasons.  

55.  First, pursuant to Clause 13(g) of the DMC, any charge registered in accordance with Clause 13(f) “shall be enforceable as an equitable charge by action at the suit of the Managers for an order for the sale of the shares of the defaulting owner in the said land and the said building together with the right to the exclusive use occupation and enjoyment of the Unit held therewith and the provisions of paragraph (3) of this Clause relating to legal costs shall apply equally to any such action ……”

56.  Second, due written warnings had been given to the defendant on several occasions prior to the registration but were ignored by the defendant.  It should be emphasized that the plaintiff has already obtained and registered the Memorandum of Charge on 28 July 2016 and the originating summons was only issued almost 2 months later on 26 September 2016.  Hence, the defendant would have ample of notice. As a matter of law, it is prima facie entitled to enforce the charge unless the defendant establishes some good reason to the contrary: Union Finance v Leung Wai Ling [2002] 2 HKC 821 at 823G-824A; Incorporated Owners of So TaoCentre v Lam Kong Wan (unrep, DCMP 4250/2004, 20/12/2006) at §73.

57.  In Incorporated Owners of Morlite Building v Asia Century Ltd [2016] 2 HKC 173, the defendant in that case ran an argument similar to the defendant in our present to say that an application for order for sale with a view to pursuing merely a modest amount was disproportional and oppressive. However, since 14 days would be granted to the defendants to make payment and only when they still refuse to pay up that the order for sale shall take effect, the court found that there could be no possible oppression to the defendants: (see §20 of the judgment).

58.  Third, in my view, since there is no factual dispute between the parties in this case, issuing an originating summons, as contrast to a writ in the District Court or commencing a proceedings in the Lands Tribunal will be a more costs effective and time efficient way to resolve the dispute.   

59.  Fourth, I cannot agree with the defendant’s submission that this present dispute is only confined to a sum of $37,304, ie the difference between the parties’ calculations (which subsequently was increased to $41,057 after taking into account of collection charge, registration costs, etc.). In my view, it is clear that the amount to be obtained out of the sale proceeds do not limit to the outstanding amount.  Pursuant to Clauses 13(e) and 13(g), the plaintiff is entitled to also recover the legal costs incurred in the present litigation and the costs of the sale of the Premises, together with interests to be calculated. Hence, the final amount which the plaintiff will able to obtain if it succeeded in the application will definitely exceed the SCT’s jurisdiction.  Thus, it will not be appropriate to either commence or transfer the case to the SCT.  

60.  Last but not the least, I agree with the plaintiff that, after all, the court should look at all the relevant circumstances in determining how to exercise the discretion in ordering a sale of the Premises. In this case, they would include:-

(1) The plaintiff has no alternative recourse against the defendant for recovery of the outstanding renovation fees which has been long overdue.

(2) The defendant has been aware of the plaintiff’s stance in relation to the apportionment of renovation fees pursuant to the Fifth Schedule of the DMC since early on, as he was present at the management committee meeting on 29 January 2016 and owners’ meeting 2 March 2016, but never applied to set aside or discharge the Memorandum of Charge.  Such conduct should also be taken into account: Union Finance Limited, supra at 824C-E.

(3) The plaintiff sensibly asks for the money to be realized by the sale of the Premises be applied in a manner of priority with any surplus to be paid to the defendant.

(4) No other creditor or prior encumbrance other than the Memorandum of Charge have been registered against the Premises, and the Premises have not been let out, and therefore no prejudice to third party rights is involved.

(5) The plaintiff is now prepared to give a 28 day “grace period” for the defendant to settle all the outstanding sums owed before asking vacant possession of the Premises to be delivered.

CONCLUSION

61.  In conclusion, based on the matters discussed above, I am of the view that all the requirements under O 88 of RDC have been fulfilled and an order for sale should be made in this case.  I therefore will make an order in terms of the proposed draft order which has been submitted by the plaintiff at the end of the hearing with the following amendments.  In paragraph 1 thereof, there will now be 28 days instead of 14 days for the defendant to comply with the payment of the outstanding sum which should be at $41,057 (which had been mistyped as $44,807 in para 1(a) in the draft), together with the interests on various sums stated in para 1(b) to (e) thereof.  Further, as stated in §7 of the proposed draft order, I order that the defendant do pay the plaintiff’s costs of these proceedings, on a solicitors and own client based, to be taxed if not agreed, but with certificate for counsel.

62.  Lastly, I would like to thank both Ms Wong and Mr Hui for their very helpful assistance in this case.