HOLIDAY RESORTS (MANAGEMENT) CO. LTD. v. CHAN MEI LING

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.4978, 17643, 20857 OF 1998 AND
9502 AND 9516 OF 2000

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HCA4978/1998

(Consolidated by the Order of Deputy Judge Tong of the Lands Tribunal dated 30 July 1999)

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J U D G M E N T

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Judgment

1. These consolidated actions arise out of disputes between two factions of the owners of apartments at Sea Ranch, a housing development on Lantau Island. Other litigation is in progress.

Background

2. In about 1979, Holiday Resorts (HK) Ltd ("HK") was incorporated by the developer, John D Hutchison & Co. Ltd for the purpose of selling the apartments at Sea Ranch. In 1979, Holiday Resorts (Management) Co. Ltd ("Management") was incorporated to provide management services to the apartment owners and the Sea Ranch Estate and Holiday Resorts (Transport) Ltd ("Transport") was incorporated to provide a ferry service between Sea Ranch and Hong Kong Island. A Deed of Mutual Conditions ("DMC") was executed on 31 July 1979 under which the plaintiff had the right to manage Sea Ranch and to collect management fees and other payments, including those for the operation of the ferry service, from the apartment owners. In particular, Clause 6 appoints the plaintiff as manager and provides for its remuneration; Clause 7 sets out its powers as manager; and Clause 8 regulates the payment of management expenses and enforcement provisions. Clause 8(e) gives the plaintiff the power to take legal action against a defaulting owner, as agent of the other owners, for recovery of management fees and other payments.

3. The development did not make money, and the original developer sold out the clubhouse, common parts of the Sea Ranch and unsold apartments to the existing apartment owners for a nominal sum. A holding company, Holiday Resorts Holding Ltd ("Holding") was incorporated in about 1984 to hold shares in the existing companies. Each apartment owner was issued one share in Holding. Subsequently, some owners sold their apartments but retained their shares in Holding. The directors of Holding and the subsidiary companies were all apartment owners.

4. The Incorporated Owners of the Sea Ranch ("IO"), the defendant in HCA4978 of 1998 was set up in about 1980. For a long time, the directors of the plaintiff and the members of the Management Committee of the IO were common. In effect, there was no supervision of the plaintiff's management by any independent body. Some of the owners were not satisfied with the plaintiff's performance as manager. In particular, they complained of a non-functioning sewage treatment plant, the deteriorated condition of the pier, improperly maintained clubhouse premises, and general deterioration in the quality of the Sea Ranch. They also complained that no summary of accounts had been sent to the owners as required under the DMC.

5. In the years 1996 and 1997, the plaintiff had declared itself a dormant company. In effect, its accounts were consolidated with those of HK. The latter company collected the management fees.

6. In December 1996, a Mr George Chong Lap Fu, the owner either personally or through companies controlled by him of several apartments, and some other apartment owners were elected to the board of directors of the IO. They ousted the directors who had formerly controlled it. A struggle ensued between the new board of the IO and the board of directors of the plaintiff and its related companies, for control of the management of Sea Ranch.

7. In July 1997, the IO issued a writ in HCA7953 of 1997 against the plaintiff and HK seeking a declaration that the right of the plaintiff to manage the Sea Ranch under the DMC had expired on 31 July 1997. This action was settled on 25 September 1997 by a settlement agreement. Under that agreement the IO agreed that the plaintiff had the right to collect management and ferry fees in accordance with the DMC, and that it should continue its management of Sea Ranch. The plaintiff agreed to provide the correspondence addresses of all the registered owners of the apartments.

8. In February, 1998 the IO held an extraordinary general meeting at which it resolved to collect the management fees from all the apartment owners. On 26 February HK wrote to the owners to the effect that despite this resolution the IO had no authority to collect management fees which were payable to the plaintiff under the DMC. On 9 March 1998, the IO sent a circular to the registered apartment owners informing them that it had taken over the responsibility of collecting the management fees and a further circular instructing them to disregard any demand notices from the plaintiff with effect from 1 March 1998. It also invited the plaintiff to contact it to work out a system whereby the IO would reimburse the plaintiff with the management fees collected.

9. Some owners thereafter paid management fees and other charges to the IO. Those concerned in this case had, it appears, all been in default in payment to the plaintiff before March 1998. A few of the defaults dated back to 1995.

10. On divers dates between 18 March and 24 June 1998, the plaintiff, pursuant to its entitlement under clause 8(f) of the DMC, registered charges in the Land Registry against the apartments whose owners were in default.

11. By a letter dated 1 September 1999, the IO purported to terminate the plaintiff's management of Sea Ranch as from 10 December 1999 under Paragraph 7 of the 7th Schedule of the Building Management Ordinance, Cap.344. I am advised that this is being challenged by HK in HCA19084 of 1999, though it is not now in dispute that the plaintiff has at least in part ceased to function as the manager of Sea Ranch. The evidence is that it now only manages those apartments which are owned on a "term" or time-share basis. These were unsold apartments originally taken over by the holding company.

The actions

12. In HCA4978 of 1998 the plaintiff on 30 March 1998 issued a writ seeking an injunction against the IO interfering in the relationship between it as manager and the individual owners, and damages for interfering with contracts of the plaintiff and the owners. On 31 December 1998， Suffiad J granted an interlocutory injunction and ordered the defendant to pay to the plaintiff the sum of $846,190 being fees paid by some of the owners to the defendant up to 30 November 1998.

13. The plaintiff no longer seeks a final injunction against the IO which is now in control of the management of Sea Ranch, through a professional estate management company. It seeks interest on the sum of $846,190 from the date of the writ to the date of the interlocutory injunction. It is suggested that this be at half the judgment rate. It also seeks its costs which, it is argued, should be awarded on the indemnity basis or at least on the solicitor and own client basis. The defendant does not proceed with its defence that the plaintiff, by reason of declaring itself a dormant company, had breached the conditions of the DMC. It does not object to paying interest at the rate suggested if it is found liable but it disputes the basis of the costs sought. Liability is disputed on the grounds mentioned below.

14. The other consolidated actions started in the Lands Tribunal in 1998. They were issued on divers dates between February and September of that year. In them, the plaintiff claimed against the individual owners for management and other charges under the DMC, including the costs of the charges and registration thereof, and a collection charge.

15. The plaintiff has provided a very clear and helpful schedule setting out its claims in tabular form. Liability for these claims is also disputed on the grounds mentioned below. There is no dispute as to the figures set out therein. However the defendants argue that the contributions to management expenses were never agreed; that the costs of the registered charges should not be included as damages but as the costs of the actions and are therefore in the discretion of the court; and that the collection charges are not payable because the plaintiff has adduced no evidence to show that any work was done in incurring them.

Dispute on liability

16. Originally, the defendants all pleaded that the plaintiff had breached the conditions of the DMC by declaring itself dormant in 1995 but they no longer persist in this defence. By a summons dated 31 October 2000, which was adjourned for hearing by the trial judge, the defendants applied to dismiss the actions on the ground that the plaintiff's appointment as agent of the owners had terminated on 10 December 1999 and therefore it had no locus standi to bring or continue these actions on the owners' behalf.

17. I heard the summons before the commencement of the trial. The plaintiff argued that since the management fees, ferry charges and the like had never been sufficient to cover expenses, it had advanced sums to pay for them. It was therefore not, by the current actions, collecting what was due to the owners, but what was due to itself. I allowed amendment of the pleadings to cover (as an alternative) this change of position, which had in fact been known to the defendants for some time.

18. As I have indicated, there is no real dispute that the IO, through a management company, is now managing Sea Ranch except for the term owners' apartments, none of which is concerned here. The plaintiff has not raised the issue of validity of termination in these proceedings nor has it been suggested that these proceedings be stayed until that matter is dealt with. Nor indeed has there been any argument that the agency has not been validly terminated. For the purposes of this judgment, I have to take it that it has.

19. There is, therefore, no dispute that the various defendants were in arrears of payment. The only dispute is as to who can now collect those arrears. The issue for trial is now quite simply whether the plaintiff made the advances, so that the sums claimed from the various defendants represent partial reimbursement to it of what it has paid out on the owners' behalf.

Evidence

Evidence for the plaintiff comes from Madam Leung Lo Ming, Diana, Madam Ip Mo Yin, Mona, and Madam Lo Wing See, Cynthia. Madam Leung is currently the plaintiff's manager and has been since August 1998. Madam Ip is a director of the plaintiff, and the owner of an apartment at Sea Ranch. Madam Lo is a qualified accountant, and the audit manager of Glass Radcliffe Chan and Wee, who are the plaintiff's auditors. The defendants called no evidence.

20. Madam Leung's evidence was contained in her statement dated 16 March 2001. She said that for years, the management fees and ferry service charges received by the plaintiff from the apartment owners had not been sufficient to cover the expenses properly incurred for the management and ferry services of the Sea Ranch. The management funds established under the DMC, from which such expenses could be met, were exhausted. The plaintiff had to make advances to cover the deficits. It could not recover its own remuneration which was included in the management fees and ferry service charges. The audited financial statements of the plaintiff showed that as at March 1999 the plaintiff was carrying an accumulated deficit of $1,556,608.00. Therefore, the various actions were brought by the plaintiff, not as agent but in its own right and interest.

21. She also said that the plaintiff's position was that the termination of its management was not valid in view of the claim by HK in HC Action no. 19084 of 1999.

22. From cross-examination it appears that Madam Leung started work as the plaintiff's manager in August 1998. Before that she had no knowledge of the plaintiff's affairs. She also said that she did not do the accounting work herself, though she would know what sums were received and what were not, and what was surplus and what deficit.

23. Madam Ip's evidence came in the form of various witness statements and affidavits which she adopted. I do not need to go into the earlier affidavits. The important one for these proceedings is that dated 4 December 1998, as well as a statement dated 2 September 1999 confirming it. In it she referred to a set of management income and expenditure statements for 1 April to 31 October 1998 a total of which showed a total of $1,900,000 unpaid management fees and ferry service charges. She said that in order to maintain the management services of the plaintiff, Holding had advanced a short term loan of $1,600,000 to the plaintiff since June 1998.

24. The management income and expenditure statements referred to showed a deficit of income over expenditure for the first quarter of $677,836.26 and those for the second quarter a deficit of $988,642.05. In October the deficit was $238,389.64. Significant components of the total deficits were the deficits on the ferry services, of, respectively, $181,867.03, $282,609.56 and $122,700.04.

25. In her oral evidence, Madam Ip said that she had been a director of the plaintiff from 1992 to 1997 and again became a director in 1998. She said that as far as she knew, the income of the management company could never cover expenditure, except for one or two months in 1996 when it was the summer vacation, and many staff members of the corporations owning the apartments came to Sea Ranch for holidays. As a result, there was more income from ferry fares. The company could break even for about two months but apart from that it could never make ends meet.

26. She also gave evidence that as early as the AGM for 1994/1995 there had been a resolution of the IO that the owners should pay an additional contribution of up to $10,000, depending on the size of the apartment, to cover management expenses. She had put her signature to a letter to the owners dated 3 November 1996 calling for payment of 50% of these contributions, resolved at an AGM on 31 October 1996. She had written that the remaining 50% was to be discussed and confirmed at a resumed AGM in another 3 to 4 weeks. She did not agree with a letter sent in by one owner to the effect that only the 50% had been resolved at the AGM. She said that what had been agreed was that the contribution should be paid in two lots; what was undecided was when the second lot should be paid.

27. In fact, her letter of 3 November 1996 also asks those who did not pay the contributions for 1994/95 to note that "this resolution was reaffirmed at the meeting on 31 October 1996."

28. Cross-examined, Madam Ip agreed that she had just been a volunteer as director. She had no personal knowledge of the accounting or bookkeeping and she had not checked the accuracy of the accounts she referred to. She did not resile from her position on the contribution called for at the AGM. Actually, no minutes of that meeting or the 1995 meeting have been produced, and she could not now remember in detail what happened at the meeting.

29. I asked her about the short term loan, and she explained her memory of it. She said that there had been a share allotment as a result of which Holding had money. Also a shareholder had provided a loan of about $500,000. She believed that she had, in her capacity as a director of Holding signed a cheque in favour of the plaintiff.

30. In fact it is not in dispute that 64 shares were allotted at $20,000 per share after May 1998. Unfortunately, however, there are no documents to show a specific transfer of funds.

31. The third witness, Madam Lo, was, as I have indicated, the auditor. She said that she had audited the accounts of Holiday Resorts for the account years ending March 1988 and March 1999. In the course of her work she had reviewed financial statements going back to 1992, because the plaintiff had been dormant in 1995 to 1997. She said that the directors had told her that in 1996 to 1997 they were of the opinion that to save costs, all transactions should go through the books of HK.

32. She referred to various sets of accounts. In particular, she referred to the annual report and financial statements of the plaintiff for the year ended 31 March 1996. Another auditor had audited these, but they had been accepted by the directors. The balance sheet showed a net amount due to general cost pool fund (i.e. not including the term owners' apartments) of $9,907,741 and an amount due to ultimate holding company of $2,074,600. This latter figure was brought forward from 1995.

33. The auditor's report showed under the heading "Fundamental Uncertainty" that :

"The financial statements have been prepared on a going concern basis. In view of the significant accumulated losses and net liabilities as at 31 March 1996 continuance in business as a going concern is dependent upon the financial support of the ultimate holding company and fellow subsidiary companies and/or attaining future profitable operations".

34. This was echoed in the auditor's reports on the plaintiff for the year to 31 March 1998 and the year to 31 March 1999, prepared by Madam Lo herself. In 1998, the same amount was due to the ultimate holding company. In 1999, it had increased to $3,454,784; there was a figure of $4,008,393 due to a fellow subsidiary company and there were accrued expenses and sundry creditors of $1,551,616.

35. It appears that the basis of the accounts was changed in the year 1998/1999 to allow for the fact that Management had been wrongly shown as dormant, and the accounts combined in previous years. Figures were apportioned between the companies in the ratios which had applied before the combination. This was advanced to account for the differences in figures in the 1999 accounts.

36. Madam Lo's evidence was technical, lengthy and complicated and much concerned with refuting comments made by the defendants' accountant, Mr Chow Suk Ping, who did not himself give evidence. Much of that refutation was contained in a letter signed by a partner of her firm, which she said she had drafted. I do not propose to try to paraphrase her evidence here. I will, however, reproduce one passage of cross-examination, from my note which I think it encapsulates what the tenor of her evidence on the question of advances, as follows :

"Q: See the statement of Diana Leung, at para. 5. "In order to finance the management and the ferry service of the Sea Ranch, the plaintiff had to make advances to foot the deficits for such expenses". Can you say from auditing if this is right or not?

A: For the group, the most significant expenses are two, the motor vessel rentals and the staff salaries. These two items have been accounted for in the owners' accounts. In order to pay them, the plaintiff must have money to settle them. You can see from the balance sheets, Management does not have it. Advances, according to the balance sheets came from the ultimate holding company and sundry creditors. I say this because if you delay payment to the vessel owner, there won't be a cash payment out, so I agree with Diana Leung that Management is financing the owners' accounts from advances from ultimate holding company or other companies in the group."

Evaluation

37. Counsel for the defendants argues that it is for the plaintiff to prove that all the management fees in issue represent advances made by it to meet the management expenses. This is particularly so since the plaintiff was the agent of the owners and owed them a fiduciary duty to say nothing of the provisions of the DMC which required them to keep proper accounts and produce all such accounts and supporting vouchers. There are no vouchers; all we have are the accounts. The witnesses' evidence is of little value because it is vague and in any event any advances made in 1998 would not necessarily cover the management fees in issue. The accounting evidence highlights the deficiencies in the accounting systems and that casts serious doubt on the reliability of the financial statements. The evidence is too general and vague, and part of it is hearsay. The timing of the alleged advances does not match with the relevant time in respect of the bulk of its claims.

38. Now I accept that the plaintiff's evidence is somewhat vague and there is a lamentable lack of vouchers. However, there is no evidence to contradict it. Further, the accounts show consistently, over the period from 1995 onwards, that the plaintiff was running at a tremendous loss and was consistently, over the years, owing money to its holding company.

39. The internal income and expenditure accounts show that the plaintiff did indeed have to pay out more in salaries, and in payments to the ferry company to which it contracted out its ferry service, than it was taking in, month by month. I accept that the auditor did not regard these accounts as auditing evidence; no doubt that is right, because she would want to look at the vouchers behind them; and I accept that they are hearsay, but there is no allegation that they are fraudulent, and no evidence to suggest that they are inaccurate. They were made in the ordinary course of business and there is no reason to think that they would not be reliable.

40. What is clear is that the plaintiff was running at a loss over a long period and it was necessary for Holding and HK (and one has to bear in mind that the directors were common to all of them) to prop it up throughout.

41. I accept the evidence that a specific advance of about $1.6 million was made in 1998 by the holding company to the plaintiff. This would tally at least in part with the fact of Holdings having taken in some $1.28 million from the share allocations. I do not see why it should be necessary for the advance to match, in time, the debts due by the defendants.

42. Part of the claims for management fees must have been referable to the plaintiff's own remuneration under Clause 6 of the DMC. The remuneration was to come from the fees. We do not know how much the remuneration should have been in the relevant period but there is evidence that the plaintiff never actually received it because there was not enough money coming in to cover it.

Finding

43. It seems to me that the only inference I can draw from the evidence is that the plaintiff did in fact pay out money, which it got from Holding or HK, to supplement the shortfall in what it took in from the owners, and particularly to pay for salaries and the ferry services. It does not seem to have been paying for some other things that it might otherwise have paid for, e.g. repairs to the sewage plant and pier. That was the basis of the owners' complaints in the first place.

44. The amounts owed by the plaintiff were well in excess of what they now claim from the defendants. It seems to me that the only inference is that in attempting to recover management fees and other charges from the defendants the plaintiff is seeking to recover, not what is due to the owners, but what is has advanced to keep the Sea Ranch running, as well as what is due to it by way of its own remuneration.

Contribution to management expenses

45. Madam Ip gave evidence that contributions were agreed at the meeting for 1994 to 1995 and at the meeting in 1996. There is nothing to gainsay her evidence, even if no minutes of the meetings have been produced. Even the letter of the defendant Grandcorp Ltd dated 22 July 1997 does not take issue with the fact that contributions of $5,000 were agreed at the later meeting. I also note from the plaintiff's schedule that in only three cases is a contribution of more than $5,000 sought. In all these cases the relevant periods of default go back to 1995.

46. I do not doubt that at contributions of at least $5,000 were agreed at the meeting in October 1996 and that contributions for the previous year had also been agreed.

Collection charge and costs of the registered charges

47. The plaintiff's claims against each defendant include a collection charge of $300 and legal costs of $4,000 plus registration fee of $210 for registration of the charge. The defendants argue that there is no evidence of any work done to justify the collection charge and that this $4,000 represents litigation costs and should not be claimed as damages. They rely for the first point on Discovery Bay Services Management Ltd v. Buxhaum [1995] HKDCLR 7 and for the second point on GTE Directories (HK) Ltd v. Mo Yung Kwok Wah [1985] 1 HKC 485. It is also argued that the plaintiff can only invoke clause 8(e) of the DMC, which deals with costs, if it is properly claiming arrears of management fees as an agent. This has no application to its claim based on reimbursement of advances.

48. The relevant parts of Clause 8 of the DMC read as follows:

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

(2) A collection charge of $300 or such lesser sum as the Management Company may agree to cover the cost (other than legal costs of proceedings as hereinafter mentioned) of the extra work occasioned by the default.

(e) All amounts which may be or become payable by any owner responsible for making such payment in accordance with the provisions of this Deed together with interest thereon as aforesaid and the said collection charge and all at the expenses incurred in or in connection with recovering or attempting to recover the same shall be recoverable by civil action at the suit of the Management Company. The claim in any such action may include a claim for the solicitor and old client costs of the Management Company and the defaulting owner shall in addition to the amount claimed in such action be liable for such costs. In any such action, the Management Company shall conclusively be deemed to be acting as the agent or agent for and on behalf of all the owners other than the defaulting owner and no owner sued under the provisions of this Deed shall raise or be entitled to raise any defence of want of authority or take objection to the right of the Management Company as plaintiffs to sue or to recover such amounts as may be found to be due.

In the event of any owner failing to pay any sum due and payable by him in accordance with the provisions of this Deed within seven days of the date on which the same become payable, the amount thereof together with interest as aforesaid and the said collection charge and all costs and expenses which may be incurred in recovering or attempting to recover the same including the legal expenses referred to in paragraph (e) above and in registering the charge hereinafter referred to, shall be charged on the share or shares of the defaulting owner in the said land and the said Sea Ranch and the apartment held therewith and the Management Company shall be entitled without prejudice to any other remedy hereunder to register a Memorial of such charge in the District Land Office, Islands against the share or shares of the defaulting owner. Such charge shall remain valid and enforceable as hereinafter mentioned notwithstanding that judgment has been obtained for the amount thereof provided such judgment has not been satisfied."

49. There is indeed no evidence of extra work occasioned by the default but obviously some work was necessary to get the papers together and send them to the solicitor. $300 is a small amount and seems reasonable as a genuine pre-estimate of an item of damage caused to the plaintiff by the default. It is a proper item of liquidated damages provided for by the Deed and I do not see why the plaintiff should not have it.

50. As to the costs of registering the charges, it is clear that the "expenses in registering the charge hereinafter referred to" are quite separate and distinct from the litigation costs referred to in paragraph (e). They are not litigation costs at all. The case cited has no relevance here. These costs are item of expense met by the plaintiffs on behalf of the owners, in the same way as were the management expenses and the plaintiff is entitled to recover them on the same basis.

51. I note that the Memorials consist of three pages. The first page consists of recitals and is identical in each case. The second page shows the name of the owner and the description of the property to be charged and the third page sets out the sums due. Producing these Memorials and getting them registered is simple clerical work and one might ask whether the solicitor is reasonable to charge $4,000 for each one. I can see why the defendants would want this item to be subject to taxation. However, it is not an item of costs but an item of damages and the question of whether the plaintiff might have been able to mitigate the damages by negotiating a cheaper rate with its solicitors, or instructing a cheaper solicitor, if such exists, has not been raised.

Costs

52. In all the consolidated actions, the plaintiff seeks costs on the indemnity basis. It is argued that the history of the litigation between the two factions shows that the actions of the defendants were scandalous and vexatious. They were all part of an ongoing plan to get rid of the plaintiff as manager. Further, it is argued that the plaintiff was doing its duty as agent in pursuing the actions and should not suffer thereby. In the recovery actions, the plaintiff relies on the general indemnity provided to it as manager under Clause 7(d) of the DMC. Alternatively, it relies on the provision in counsel relies on the provision in Clause 8(e) for costs on the solicitor and own client basis.

53. Clause 7(d) reads:

"(d) The Management Company shall not be liable to the owners or any of them or to any person or persons whomsoever whether claiming through, under or in trust for any owner or otherwise, for or in respect of any act, deed, matter or thing done or omitted in pursuance of purported pursuance of the provisions of this Deed not being any act or omission involving criminal liability or dishonesty or wilful negligence and the owners shall fully and effectually indemnify the Management Company from and against all actions, proceedings, claims and demands whatsoever arising directly or indirectly out of or in connection with the management of the said land and the said Sea Ranch and the operation of the ferry services or any act, deed, matter or thing done or omitted as aforesaid and all cost and expenses in connection therewith and not involving criminal liability, dishonesty or wilful negligence on the part of the Management Company."

54. For the defendants, it is argued that the defendants had real and genuine grievances concerning the management. The accountant confirmed that over the years, proper records were not kept. The financial system was a mess. The owners' queries were never answered. Ultimately, they were able to oust the plaintiff as manager. Most owners were happy to pay what was due by them and paid it to the IO who in turn told the plaintiff that they would pay over what they had collected, on production of proper evidence of the expenses. Once the action was started the defendants behaved properly and the IO complied with the order for injunction and payment.

55. There is no dispute that costs are ultimately in the discretion of the court and that I have jurisdiction to award costs on the indemnity basis. Costs on that basis may be awarded where there are some unusual or special features in the case. Such an award may be appropriate where

"the proceedings were scandalous or vexatious, had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner"

per Godfrey J (as he then was) in Overseas Trust Bank v. Coopers and Lybrand [1991] 1 HKLR 177 at 183. However, these examples are not to be taken as limiting the discretion; Sung Foo Kee Ltd v. Pak Lik Co. (A Firm) [1996] 3 HKC 578.

56. I have found that plaintiff was running at a loss over a long period and it was necessary for Holding and HK to prop it up throughout. That means that the plaintiff did not do its job properly. So the defendants did have a genuine grievance. However, they went about redressing their grievance by the wrong means. They should either have sought to vote out the directors at a general meeting of Holding or else they should have done what they ultimately did and terminate the plaintiff's appointment under the provisions of the Buildings Management Ordinance.

57. The IO should not have collected management fees from the owners and withheld them from the plaintiff particularly following the settlement of HCA7953 of 1997 by which the IO agreed that the plaintiff had the right to collect management and ferry fees in accordance with the DMC, and that it should continue its management of Sea Ranch. For a party to such an agreement to sue, in defiance of the agreement, would be an affront to the court. The IO is the defendant and it now appears that apart from the fact of the agreement it never had any real defence because the defences of dormancy and fundamental breach were not maintained.

58. Another consideration is that the plaintiff was, when it instituted the proceedings, acting as agent of the owners. It may no longer be the agent of the owners; but any costs it has to pay must come, ultimately, from Holding; and the shareholders of Holding are, in the main, the owners. This is not the usual situation where the management company is a subsidiary of the developer. Any shortfall between the costs awarded and the costs the plaintiff has to pay must come ultimately from the owners. It is difficult to see why the owners should now be penalised.

59. For these reasons, I consider that indemnity costs in the action between the plaintiff and the IO are appropriate.

60. As to the individual owners, it now appears that they never had a real defence either. That must have been obvious to them, if not from the outset, at least once Suffiad J ordered the interlocutory injunction and ordered the IO to pay to the plaintiff the money it had collected.

61. It seems to me that the same considerations apply. I do not see why the other owners should pay any part of the costs of recovery from a defaulting owner. That is no doubt why the DMC provides for solicitor and own client costs. Such costs, incidentally, are not now provided for in Order 62 of the Rules of the High Court. Under the rules as they stand a taxing master cannot tax on that basis.

62. For these reasons, there will be indemnity costs against the individual defaulting owners also.

Judgment

63. In HCA4978 of 1998, there will be judgment in favour of the plaintiff for interest at half the judgment rate on the sum of $846,190 from the 30 March to 31 December 1998.

64. The defendant's counterclaim be dismissed.

65. Costs of the action including the reserved costs of the interlocutory injunction be to the plaintiff to be taxed on the indemnity basis if not agreed.

66. In the remaining consolidated actions, in each case there will be judgment in favour of the plaintiff against the defendant, for the sum shown against the defendant's name in the chart below :

67. These figures include interest to the date of the application. So as to avoid awarding interest on interest, Counsel has asked me to award interest on the "balance of management fees etc. outstanding" at the judgment rate from the date of the application. The DMC provides for interest at1% for every 30 days. The equivalent annual rate is a little more than the judgment rate. In each case, therefore, there will be an award of interest at the judgment rate on the figure shown as "Balance of management fees etc. outstanding" from the date of the application.

68. In each case, costs of the action will be to the plaintiff to be taxed on the indemnity basis if not agreed. In the case of LDBM163/1998 (H.C. Action No.9502/2000) the defendant, Chan Mei Ling, has paid up so the costs will be restricted to those incurred before the date of final payment.