INCORPORATED OWNERS OF SO TAO CENTRE v. LAM KONG WAN

DCMP 4250/2004

 IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 4250 OF 2004

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JUDGMENT

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1. The Plaintiff is the Incorporated Owners of So Tao Centre. The Defendant is one of the owners of the building.

2. The Defendant had defaulted in the payment of management fees. The Plaintiff had registered a Memorandum of Charge against the Defendant's property. The Plaintiff now claims against the Defendant for the payment of the overdue management fees, collection charge, default interest and legal costs. The Plaintiff also claims for declaratory reliefs, an Order for possession and an Order for the sale of the Defendant's property.

3. The Defendant's contention is that there was a Settlement Agreement with the Plaintiff and hence she is not liable at all. The Defendant also relies on estoppel and the Plaintiff's delay in taking legal action. The Defendant has counterclaimed for the Memorandum of Charge to be declared void, and an Order that its registration be vacated.

4. The Plaintiff's case is that the alleged Settlement Agreement never existed.

5. The exercise of the Court's discretion in relation to the equitable reliefs sought will necessitate a careful consideration of the entire circumstances of the disputes between the parties.  Some of the background matters may not be of immediate relevance to the determination of the core disputes.

Events leading up to the alleged Settlement Agreement

6. So Tao Centre was built in 1990 as an industrial building. A Deed of Mutual Covenant was executed on 31 March 1990. The Defendant became the owner of Workshop No. C on 13/F of So Tao Centre ("Workshop 13C" or "the Defendant's property") on 15 August 1991. One Mr. Suen Lap Man has been the owner of the neighbouring Workshop No. D on 13/F of So Tao Centre ("Workshop 13D") since about April 1990.

He operated a moulding factory there from about June 1990 to November 1997, when he sold out his interest in the business. Since about March 1999, Workshop 13D has been leased to a tenant.

7. Upon her purchase of Workshop 13C, the Defendant leased Workshop 13C to her younger brother one Mr. Lam Hak Ching also know as John Lam. John Lam had a girlfriend called Miss Chu, and the two of them were occupants of Workshop 13C at the earlier stage of these disputes. At the earlier stages, the management of So Tao Centre used to deal with John Lam and Miss Chu direct, and knew little of the Defendant's identity or capacity. John Lam operated a watch design business at Workshop 13C. The agreement between the Defendant and John Lam was that the latter was to be responsible for the payment of the management fees for Workshop 13C.

8. Since about August 1991, John Lam had been making complaints to the management about the excessive noise and vibration emanating from Workshop 13D ("the nuisance complaint").

9. So Tao Centre has been under the management of different management companies in the past. One Selex Properties Management Company was the first Manager from about 1990. From about December 1995 to about November 1997, So Tao Centre was under the management of one Pan Win Property Management Ltd ("Pan Win"). Thereafter, one Knight Frank (Service) Limited ("Knight Frank") was its Manager until about April 2002. From then on, it was one Curtaman Property Management Ltd. who has been managing the building until now.

10. It is the Defendant's case that the nuisance complaint was not met with responsive action on the part of the management and no effectual step was ever taken to stop the nuisance. We are concerned with what has happened after the Plaintiff's incorporation. The Plaintiff was incorporated on 17 November 1994.

11. The management had referred the nuisance complaint to the government authorities.

12. As appears in a letter dated 25 July 1995 from the Environmental Protection Department, the Government had made an investigation and came to the view that the noise emanating from Workshop 13D did not constitute an offence under the Noise Control Ordinance.

13. As appears in a letter dated 8 August 1995 from the Labour Department, the Government had made an investigation and came to the view that the noise emanating from Workshop 13D did not constitute an offence under the Factories and Industrial Undertakings Ordinance.

14. On 27 December 1995, Pan Win held a meeting to deal with the nuisance complaint.

15. Thereafter the owner of Workshop 13D did take some remedial steps to reduce the noise and vibration emanating therefrom. The works were completed in January 1996.

16. Pan Win then sought legal advice concerning the prospect of success of taking legal action against the owner of Workshop 13D. The solicitors advised against taking such legal action.

17. On 29 April 1996, Pan Win wrote to John Lam to inform the latter that no legal proceedings would be instituted against the owner of Workshop 13D, while suggesting that John Lam might consider issuing legal proceedings himself.

18. In May 1996 and September 1996, the Plaintiff instituted two claims in the Small Claims Tribunal against the Defendant for overdue management fees. The first one was Small Claims Tribunal Claim No. 13618 of 1996 filed in May 1996. The second one was Small Claim No. 28021 of 1996 filed in September 1996. The overdue management fees relate to the period from December 1995 to September 1996. The Defendant through John Lam filed her Defence and Counterclaim. The two claims were dismissed for want of jurisdiction on 26 September 1996.

19. In early 1997, Pan Win requested the Hong Kong Productivity Council to conduct an investigation in relation to the nuisance complaint. The report by the Hong Kong Productivity Council did not clearly indicate a case of nuisance.

20. Further meetings were held by the Plaintiff in 1997 dealing with the nuisance complaint. There were discussions between the management and John Lam for procuring another expert report.

21. In September 1997, Dr. S.K. Tang ("Dr. Tang") of the Polytechnic University rendered the reports of his findings of the noise and vibration emanating from Workshop 13D to John Lam. The reports show, among other things, that the noise did constitute a nuisance.

22. John Lam gave the reports to the management.

23. The management fees for the period from December 1995 to November 1997 ("the subject management fees") were not paid. The outstanding amount was $1414 per month x 24 months = $33936.

Was there a factual basis to support the alleged Settlement Agreement?

24. On her witness statements, the Defendant's case about the Settlement Agreement is that in about November 1997, the Defendant and John Lam had a meeting with the then Chairman of the Plaintiff one Mr. So Hoi Pang and the then Secretary one Mr. Lai Kwok Wah. It was agreed that the Defendant and John Lam would abandon their claims against the Plaintiff for the latter's breach of its duty, and the Plaintiff would abandon its claim against the Defendant for the subject management fees.

25. I note that there was no positive evidence on the Plaintiff's side to contradict what the Defendant says about the alleged Settlement Agreement. As neither Mr. So Hoi Pang nor Mr. Lai Kwok Wah had testified to contradict what the Defendant said, it makes me easier to accept her evidence. Nothing of substance was done by the Plaintiff to enforce payment, whether directly or indirectly, after the dismissal of the two small claims in September 1996 until the registration of the Memorandum of Charge in August 2000. Payment of management fees was resumed after November 1997 and such payments were applied towards the management fees for Workshop 13C for the then current months, instead of towards the subject management fees. These factors weigh in the Defendant's favour in her contention that the alleged Settlement Agreement did exist.

26. However, in her testimony the Defendant alluded to a Settlement Agreement which was at variance with her pleadings and witness statements. The Defendant testified to a Settlement Agreement before Dr. Tang's reports were available, saying that it was agreed that if the report of Dr. Tang should show a case of nuisance, then the subject management fees would be waived.

27. There is no plausible explanation for the variance. The contents of the alleged Settlement Agreement in the Defendant's testimony were couched in vague and imprecise terms. John Lam was well able to articulate himself in writing or at least had the means of getting someone to do the writing for him, as appears in the rather detailed Defence and Counterclaim and statements he filed in 1996, in Small Claims Tribunal Case No. 13618 of 1996 (pages 359-391 of the Trial Bundle, hereafter "TB359-391", mutatis mutandis). He had knowledge and methods at his disposal. The Defendant is not illiterate, naïve or inexperienced in life. She runs a textile business. One would have expected to see the alleged Settlement Agreement reduced into writing or at least some memorandum evidencing a part of that agreement. There was none. Upon the Defendant's discovery of the registration of the Memorandum of Charge and upon the Plaintiff's denial of the existence of the alleged Settlement Agreement, one would have expected to see something in the nature of a written protest on the part of the Defendant, John Lam or Miss Chu alluding to the alleged Settlement Agreement. According to the Defendant, she and John Lam had sought the assistance of the District Office on the situation. There was no such protest in writing.

28. All circumstances considered, I am not prepared to find the existence of a Settlement Agreement whether as pleaded or as set out in the Defendant's witness statement or in her testimony.

29. I am prepared to find that there was discussion in a meeting involving at least the Defendant of the one part and Mr. So Hoi Pang and Mr. Lai  Kwok Wah of the other part, in late 1997.

30. I am unable to find for the Defendant that there was anything agreed with certainty on that occasion. I am not prepared to find that Mr. So Hoi Pang or Mr. Lai Kwok Wah had induced the Defendant to believe that the subject management fees would be waived. I would not discount the possibility that somehow the Defendant had formed the impression, albeit a vague and erroneous one, that there would be a remission of the subject management fees in the event that Dr. Tang's reports did support a case of nuisance. Equally, I would not discount the possibility that the payment of the subject management fees was deliberately withheld as a leverage to pressurize the Plaintiff into take tougher action against the owner of Workshop 13D.

Events that took place between the alleged Settlement Agreement and the registration of the Memorandum of Charge

31. There is a scarcity of documentary evidence as to what occurred in 1998, which was probably uneventful. Apparently, payment of management fees or Workshop 13C had resumed but was not at all times punctual.

32. In 1999, the Defendant instituted legal proceedings against the owner of Workshop 13D but had not pursued them. Payment of management fees for Workshop 13C had been again withheld on the ground that there were pending legal proceedings with the owner of Workshop 13D. The Plaintiff agreed to defer such payment for 6 months, as appears in a minutes of the meeting of the management committee of the Plaintiff held on 21 July 2000 (TB307-309). In the minutes, there was no mention of any Settlement Agreement with the Defendant in relation to the subject management fees.

33. Knight Frank did through its solicitors issue a demand letter to the Defendant before the registration of the Memorandum of Charge. In August 2000, the Memorandum of Charge was registered against the Defendant's property.

Events that took place  after the registration of the Memorandum of Charge

34. As appears in a minutes of meeting of the owners of So Tao Centre held on 16 January 2001 (TB312-313), some persons who were believed to be the tenant or owner of Workshop 13C, together with others had attended the meeting raising remonstrations about the registration of the Memorandum of Charge, and also insisted on the "cancellation" of outstanding management fees. The minutes did not record the intruders having made any assertion of a Settlement Agreement.

35. There is a scarcity of documentary evidence as to what happened in the years 2002 and 2003, save that by a solicitors' letter dated 15 November 2002, allegations were made that the Defendant and others had attended an owner's meeting held on 14 November 2002 and caused certain disruptions.

36. Apparently, the effort to collect the subject management fees gained fresh momentum in the latter half of 2004. The assistance of the Kwai Ching District Office was sought with a view to achieving an out of Court settlement with the Defendant, which was to no avail.

37. On 10 June 2004, an owners' meeting was held in which legal advice was given as to the viability of enforcing the Memorandum of Charge.

38. On 22 July 2004, the Legal Charge of the Defendant's property to Wing Hang Bank Ltd. was discharged. The Defendant's property then became free from other incumbrances.

39. An opinion survey was conducted among the owners of So Tao Centre with a view to obtain their opinion as to whether legal action should be taken to enforce the Memorandum of Charge. There was such a consensus.

40. A special meeting was held on 10 September 2004 in which the management and the Defendant were present. The minutes of that meeting recorded, for the first time, that allegations were made to the effect that Mr. So Hoi Pang had promised that if it were proven that Workshop 13D had generated excessive noise, then the outstanding management fees would be waived.

41. Further negotiation between the Plaintiff and the Defendant did not bear fruit, and on 8 December 2004 these proceedings were commenced by way of an Originating Summons.

42. At present, the Defendant uses Workshop 13C for her business.

Was there a factual basis to support the alleged subsequent ratification of the alleged Settlement Agreement?

43. The Defendant contended that there was subsequent ratification of the alleged Settlement Agreement. When there was no agreement in the first place, there was nothing to ratify. In any event, there was nothing enabling  a proper inference of ratification to be drawn, on facts.

Were the alleged Settlement Agreement in existence, would it have been binding at law in the first place?

44. On facts,  since there was nothing agreed with certainty, there can be nothing binding at law in the first place.

45. However, for the sake of good housekeeping, I would make the following observations as to whether the alleged Settlement Agreement could be binding, assuming that it did exist. This is relevant to the consideration of the Defendant's contention on the issue of acquiescence.

46. The Defendant has admitted in her pleadings that she was obliged to pay the subject management fees to the Plaintiff pursuant to the Deed of Mutual Covenant. By necessary implication, such payments are to be made to the Plaintiff.

47. Also, I am prepared to find that a good portion of the subject management fees were to be applied towards the maintenance and management of the common parts and facilities of So Tao Centre. This is a matter of common sense. The Manager of So Tao Centre had not only the right but also a duty under the Deed of Mutual Covenant to collect the subject management fees, as agent for the general body of owners. I am prepared to hold that such a right and duty are a right and duty in relation to the common parts of a building, so that, by virtue of Section 16 of the Building Management Ordinance, it has become the right and duty of the Plaintiff upon its incorporation.

48. Under Section 18 of the Building Management Ordinance, the Plaintiff is obliged to do all things reasonably necessary to enforce the Defendant's obligation to pay the subject management fees. If the Plaintiff had indeed entered into the alleged Settlement Agreement thereby abandoning its right and duty to collect the subject management fees, is the Settlement Agreement necessarily ultra vires and therefore, not binding?

49. In The Incorporated Owners of Hoi Luen Industrial Centre & Another v. Ohashi Chemical Industries (Hong Kong) Limited, CACV 3/1995, 2 March 1995, Godfrey, JA, thus stated:

" It has to be remembered that almost every multi-storey building in Hong Kong, residential and industrial alike, operates under a system of local law, being the rules prescribed for its management by a Deed of Mutual Covenant. So important is this aspect of Hong Kong life that the legislature has been compelled from time to time to intervene. In particular, it passed in 1972 the Multi-storey Buildings (Owners Incorporation) Ordinance, Cap. 344, under which incorporated owners are placed under a statutory duty to do all things reasonably necessary for the enforcement of the obligations contained in the Deed of Mutual Covenant: see s.18(1)(c). When, then, the incorporated owners find that there is a breach of covenant being perpetrated by one of the owners, it is not only their right but their duty to seek to enforce the covenant ……..It follows that in the instant case the plaintiffs were not only entitled but bound to take proceedings for the enforcement of these covenants. It follows, too, that they could not have granted expressly to this defendant or any other owner of any unit in the building the right to act in contravention of the Deed of Mutual Covenant as this defendant has done. What cannot be done expressly cannot be done impliedly. Although equity will sometimes restrain a plaintiff in the exercise of his legal rights because it would be inequitable and unjust in all the circumstances to allow him so to exercise those legal rights, equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant. "

50. I do not read the above authority to mean that an incorporated owner can never have the capacity to compromise. If a compromise is sensible and desirable, then it is not reasonably necessary to insist on the strict enforcement of a payment obligation. Indeed it would be unreasonable to seek to do so. Sections 8(2)(a) of the Building Management Ordinance provides inter alia that an incorporated owner may do and suffer things that a body corporate may lawfully do and suffer, subject to the Ordinance. Section 18(1)(c) provides inter alia that an incorporated owner shall do all things reasonably necessary to enforce the obligations in a Deed of Mutual Covenant. Section 18(2)(g) provides inter alia for an incorporated owner's discretion to act on matters of common interest.  The interplay of all these lead me to conclude that an incorporated owner does have the capacity to compromise if such a compromise does not result in a breach of Section 18(1)(c). To decide whether there is a breach of Section 18(1)(c), it would be relevant to consider if the owners have a common interest in the compromise. It would be difficult to prove that the compromise is not in breach of Section 18(1)(c) without a proper resolution either of the management committee or of the owners in a properly convened meeting endorsing the compromise. In the present case, there was none. Thus, if Mr. So Hoi Pang had indeed purported to make the alleged Settlement Agreement with the Defendant, I would have held the alleged Settlement Agreement ultra vires and therefore not binding on the Plaintiff.

51. Quite apart from the capacity of the Plaintiff itself, the authority and role of the alleged protagonists Mr. So Hoi Pang and Mr. Lai Kwok Wah will also be considered.

52. The Defendant has contended that there was authority, in particular implied authority, on the part of Mr. So Hoi Pang, to enter into the alleged Settlement Agreement. I am prepared to accept that at the earlier stage of these disputes, Mr. So Hoi Pang had indeed conduct himself in such a manner as if he personally were the Chairman of the Plaintiff. However, according to the register kept under Section 12 of the Building Management Ordinance (TB214-215), the actual Chairman was a company called Edinson Enterprises Ltd., with Mr. So Hoi Pang (Pan) acting as its representative.

53. I am content to apply the decision in Equal Property Management Limited v. The Incorporated Owners of San Po Kong Mansions, DCCJ 14835/2000, 17 September 2001 to hold that Mr. So Hoi Pang did not posses such actual, usual or ostensible authority to enter into the alleged Settlement Agreement. I am not prepared to find there was implied authority for Mr. So Hoi Pang to enter into the alleged Settlement Agreement, notwithstanding that he signed the Form of Claim in Small Claims Tribunal Claim No. 28021/1996 (TB357).  

Was there estoppel?

54. The Defendant has contended that there was estoppel. This can be dealt with shortly.  In the present case, in the discharge of its statutory duties, the Plaintiff  had to enforce payment of the subject management fees and was incapable of being so estopped. On facts, the Plaintiff never made the alleged Settlement Agreement. The Incorporated Owners of Hoi Luen Industrial supra, applied.

55. I find that estoppel was not established.

Was there acquiescence ?

56. One formulation of acquiescence is: "If a person having a right, and seeing another person about to commit it, or in course of committing, an act infringing upon that right, stands by in such a manner as really to induce the person committing the act, and who might otherwise have abstained from it, to believe that he assents to its being committed, he cannot afterwards be heard to complain of the act" Chitty on Contract, 29th edition, Volume 1, para 28-136.

57. As to the Defendant's contention that there was acquiescence, the first answer is that since the Plaintiff cannot be estopped from performing its statutory duty to enforce payment of the subject management fees, it likewise cannot acquiesced in such non-payment. It is reasonably necessary for the Plaintiff to enforce payment.

58. The second matter to consider is factual: did the Plaintiff stand by and induce the Defendant to believe that the Plaintiff had abandoned its right to collect the subject management fees? I am not prepared to make this finding. The Defendant had the first right to appropriate her payments towards the management fees of the current months when she made the payment, or towards the subject management fees. It is only when the Defendant did not exercise that right that the Plaintiff might make the appropriation. As to the period of time from about December 1997 to August 2000, there is no clear evidence as to who made the appropriation. If the Defendant was under the illusion that the Plaintiff had abandoned its right, it is a self-induced illusion. In any event, the Defendant would be under no illusion that the Plaintiff had the intention to abandon its right to collect the subject management fees upon the registration of the Memorandum of Charge.

59. I find that acquiescence was not established.

Was there laches?

60. One formulation of laches is as follows: "the essence of the doctrine of laches is that if the claimant has not been reasonably diligently in seeking relief, and in consequence the position of the defendant has been prejudiced or it would now be unjust or unreasonable to grant the relief, the claimant will be debarred from pursuing his remedy on the ground of laches. What amounts to reasonable diligence and what circumstances will render it inequitable to grant the relief will vary with the type of relief sought and the facts of the particular case" Chitty on Contract, 29th edition, Volume 1, paragraph 28-137 refers.

61. Applying the law to (1) the subject management fees, (2) the collection charge, and (3) the default interest should yield different results. The Defendant's liability in respect of the subject management fees and the collection charge is a static liability. The liability does not increase with the passage of time. Rather, it is quite possible that the liability actually diminishes with the passage of time if inflation is taken into account. The Defendant's liability in respect of the default interest is a growing liability. The default interest continues to accrue over time.

62. I find that the Plaintiff has not been reasonably diligent in enforcing payment of the subject management fees and the collection charge, but this delay has not caused the Defendant any prejudice and it is not unjust or unreasonable for the Plaintiff to enforce full payment now.

63. I find that the unreasonable delay has caused the Defendant prejudice in relation to the default interest. A portion of the default interest should be disallowed.

64. Generally speaking, an incorporated owner should not just sit on the matter when management fees are overdue. That only encourages more defaults. On the other hand, an incorporated owner who seizes upon every opportunity to takes swift legal action against a defaulting owner would be incurring legal costs that could otherwise have been avoided. An unduly litigious incorporated owner would provoke antagonism and its action might be seen as harsh and unreasonable.  Some patience is called for.

65. If timely legal action is taken and a judgment obtained, the Plaintiff's right to the contractual default interest would merge in the judgment. On a rough basis, I take it to be reasonable that the Plaintiff should have obtained judgment in about two year's time starting from each default. To allow the default interest to accrue beyond a two year period would be unjust or unreasonable, bearing in mind that the default interest of 18% per annum is well above the usual  commercial or investment interest rate. Two years of default interest would yield $33936 x 18% x 2 = $12217. This would be the award for default interest.

Is laches pleaded?

66. The Defendant did not specifically plead laches but paragraph 11A of the Amended Defence and Counterclaim is in the following terms:

"Further or in the alternative, it is denied that the Plaintiff is entitled to the sum set out in Paragraph 16 of the Statement of Claim by reason of the fact that the Plaintiff has failed to mitigate its loss and damages by delaying in instituting legal proceedings for its claim herein."

67. I am prepared to find that the reference to the delay does entitle the Defendant to rely on laches. I should add that I do not accept the Defendant's contention that the Plaintiff's duty to mitigate obliges it to take legal action against the Defendant.

Was the registration of the Memorandum of Charge valid?

68. By virtue of Section 19 of the Building Management Ordinance, the Plaintiff is entitled to exercise the rights of the Manager of So Tao Centre under Clause 18 of the Deed of Mutual Covenant in question. The Defendant was in default of payment of the subject management fees at the time of the registration of the Memorandum of Charge. It was therefore a valid exercise of that power.

Should there be an Order for sale? Should there be an Order for possession?

69. All relevant circumstances will have to be considered but it would be a futile exercise to attempt to set out everything here, nor do I propose to repeat here the same matters already canvassed in the other parts of this Judgment.

70. I have considered, among other things, whether the Plaintiff itself was in breach of its duty in not taking legal action against the owner of Workshop 13D. If the Plaintiff had acted in an unconscionable manner, it is something that I should take into account.

71. I do not think the Plaintiff was in breach of its statutory duty under Section 18 of the Building Management Ordinance. The duty is to do what is reasonably necessary. The Defendant is not precluded from taking legal action against the owner of Workshop 13D by reason of Section 16 of the Building Management Ordinance. Section 16 only reserves the right of action in relation to the common areas of the building to the Plaintiff exclusively. The Defendant has the right to sue. The nuisance complained of affected not the common areas, but the Defendant's enjoyment of her own premises. Even though the owner of Workshop 12C had also raised a similar complaint, it is not a matter which the general body of owners would share with the same degree of concern, and it is not unreasonable for the Plaintiff to give it a lower priority on the Plaintiff's agenda. The situation is quite unlike that of an owner of a Flat in a residential building operating a funeral parlour there in contravention of  a Deed of Mutual Covenant. Even though the reports of Dr. Tang did disclose a case of nuisance, it is a matter of judicial knowledge that experts of opposing parties are often at odds with each other. The costs of litigation would have to come out of the common funds of the owners. It is not unreasonable on the part of the Plaintiff to refrain from taking legal action against the owner of Workshop 13D by reason of the inherent risk in litigation and the consequential exposure to liability for costs.

72. I have considered the principles adumbrated in The Incorporated Owners of Greenland Villas v. Wong Sui Fung & Another, LDBM 321/2000, 15 June 2004 in relation to the above. The facts of that case is different. In the present case, I find that in not taking legal action against the owner of Workshop 13D, the Plaintiff has not failed to do what is reasonably necessary.

73. To order a sale is a discretion which I must exercise judicially. It has been held thus: "There is no doubt that the court has a discretion over whether to make a Charging Order absolute, or to enforce a Charging Order by sale. However, this discretion must be exercised judicially. It has been said in a number of cases that a judgment creditor is prima facie entitled to enforce his judgment by a Charging Order unless the debtor establishes some good reasons to the contrary …….. it was held that when a judgment creditor applies for an order for sale of a property subject to a Charging Order, the competing equities of the parties will be carefully weighed …….. at the end, there must be a good reason to justify why the Court should on the one hand grant an order in a party's favour but on the other refuse to enforce that very order …….. While the amount of judgment debt is a relevant factor in the weighing exercise, the Court also has to take into account other matters such as the conduct of the debtor."Union Finance Limited v. Leung Wai Ling, HCMP 3757/1999, 24 January 2000, per Chung J.

74. I find nothing reprehensible in the conduct of the Defendant. The disruption of the Plaintiff's meetings is hardly of relevance, and in any event on facts, I am not prepared to attribute the acts of the persons involved to her. There is no credible evidence that the Defendant herself had acted in any unruly, threatening or mischievous manner. Even if she had, it would be only of marginal relevance and little weight should be attached to it. As noted earlier, I am unable to find that the Defendant has obstinately refused to pay the subject management fees knowing that she was legally bound to pay. It is equally possible that the Defendant did believe, albeit on erroneous grounds, that there was a remission of the management fees. She was entitled to defend these proceedings. The fact that she had tried to, but without success, settle the matter with the Plaintiff out of Court, is something neutral.

75. The Defendant now occupies Workshop 13C for her business. The amount to be adjudged payable by the Defendant is small by comparison to the value of the Defendant's property. The forced sale value of the Defendant's property is significantly lower than that of a private sale in the open market. The market value is $650,000 but the forced sale value is $550,000 (TB353F). The Plaintiff is not a Judgment Creditor of the Defendant until this Judgment is pronounced. In the circumstances, the Defendant may properly be excused for not having indicated earlier that she was prepared to pay the Judgment sums or asking time to do so.

76. On the other hand, there is no indication from the Defendant that she is able and willing to satisfy the Judgment sum in the event the outcome of this trial is against her. In the negotiation between the Plaintiff and the Defendant in 2004, the Defendant attached conditions to her proposal for payment of the subject management fees, which the Plaintiff was perfectly entitled to reject.

77. I consider that there is nothing unconscionable or unreasonable even if it were shown that the Plaintiff had chosen to commence these legal proceedings to enforce the Memorandum of Charge only after the Legal Charge on the Defendant's property has been discharged. In any event, on facts it is equally possible that the timing was deliberate as it was a mere co-incidence.

78. Having weighed and balanced the competing factors, I consider  that justice is served if I would make an Order for the delivery up of vacant possession of the Defendant's property with a short stay of execution, and an Order for sale with a postponement, so that the Defendant may have the opportunity to satisfy the Judgment sum in the interval to avoid eviction and a forced sale.

Is the collection charge a penalty?

79. The collection charge of $200 is intended to cover the costs of the extra work occasioned by the default. It is settled law that a sum like this is not to be taken as a penalty: The Hong Kong Land Co. Ltd. v. Chau Kam & Another, HCSA2/1980, 1 May 1980, applied.

80. The Plaintiff is entitled to the collection charge of $200.

Is the default interest a penalty?

81. The default interest amounts to about 18% per annum.

82. The law relating to penalty clauses is a familiar subject and has been succinctly set out in Chitty on Contract, 29th edition, Volume 1, para 26-109 to 26-133.

83. In deciding whether the above default interest is a genuine estimate of damage, no account should be taken of the extra work occasioned by the default or the legal costs incurred in connection with recovery action. Such are the effects of Clause 18(a)(ii) and (b) of the Deed of Mutual Covenant.

84. In this connection, there are matters of judicial knowledge for which no proof is required.

85. In 1990 when the Deed of Mutual Covenant was executed, no doubt it was envisaged that its provisions would continue to govern the management affairs of So Tao Centre for many years to come and a host of individual owners would become parties to the agreement at different times.

86. No doubt, it was then difficult if not impossible to predict the future  commercial or investment interest rate offered by the banks in the many years ahead. They fluctuate.

87. No doubt, it was envisaged that there might be multiple defaults in the payment of management fees rendering the accounts of the Plaintiff in the red and leaving the Plaintiff with no viable alternatives but to seek to borrow, or that, being unable to obtain credit, the Plaintiff might be unable to honour its existing legal obligations giving rise to legal liabilities.

88. The default rate of interest at 18% per annum is on the high side but it is not an exorbitant rate of interest. Default interest at the rate of 5% per annum has been upheld by the Court in the past: see The Incorporated Owners of Winner Building v. Wai Mau Sze & Others, HCA20180/1998 & HCA 7564/1999, 2 June 2006.

89. It is relevant to consider if there is an element of oppression. Chitty on Contract, 29th edition, Volume 1, para 26-109 cited the following dictum with approval: "the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression". In the present case, there is no oppression whatsoever.  Quite to the contrary, every non-paying owner is taking an unfair advantage of the paying owners.

90. The law relating to a Deed of Mutual Covenant is peculiar and of importance to livelihood in Hong Kong. The Deed of Mutual Covenant is a multilateral contract quite unlike the agreements under examination in most of the authorities cited in Chitty, supra.I have yet to see a local authority striking down a default interest provision as a penalty clause. I would add that, with or without the considerations set out in this paragraph, I would have come to the same conclusion.

91. I find, accordingly, that the provision for default interest is not unenforceable as being a penalty clause.

92. As noted earlier, I find that the Plaintiff is entitled to two years of default interest in the sum of $12217.

Should the Plaintiff be entitled to the $900 legal costs?

93. The claim is made pursuant to Clause 18(b) of the Deed of Mutual Covenant which provides inter alia that the Defendant should be liable for legal costs on a solicitor and own client basis when the Manager seeks to enforce payment of management fees etc. The Plaintiff has pleaded $900 but adduced no evidence in the form of a solicitor's bill or any evidence of demand or payment. The claim is not established.

Should the Declarations be made?

94. The declarations sought for serves no useful purpose and they are refused.

Orders

95. In the premises, I would make the following Orders:-

(1) There be Judgment for the Plaintiff for the subject management fees in the sum of $33936 together with interest thereon from 8 December 2004 at 1% above prime rate until Judgment and thereafter at Judgment rate until payment.

(2) There be Judgment for the Plaintiff for the claimed default interest in the sum of $12217 together with interest thereon from 8 December 2004 at 1% above prime rate until Judgment and thereafter at Judgment rate until payment.

(3) There be Judgment for the Plaintiff for the claimed collection charge in the sum of $200 together with interest thereon from 8 December 2004 at 1% above prime rate until Judgment and thereafter at Judgment rate until payment.

(4) There be an Order for possession of the Defendant's property with a stay of execution for 28 days from today.

(5) There be an Order for sale of the Defendant's property such that the sale is to take place not earlier than 4 months and not later than 6 months from today.

(6) There be liberty to apply in relation to items (4) and (5) above.

(7) The rest of the Plaintiff's claim is dismissed.

(8) The Defendant's counterclaim is dismissed.

(9) There be an Order Nisi for the costs of this action for the Plaintiff with Certificate for Counsel, such costs to be taxed if not agreed. Unless there is any application against this Order for costs, the Order Nisi will be made Absolute in 14 days.