THE INCORPORATED OWNERS OF NOS. 2, 4, 6 AND 8 HO TUNG ROAD KOWLOON v. ROTARY ENTERPRISES LTD AND ANOTHER

LDBM 72 of 2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 72 OF 2006

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JUDGMENT

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The Claim by the Applicant

1.  The building in question is and has always been managed by the Applicant incorporated owners (“the IO”) without engaging a management company.  At its lowest level there are a number of enclosed car parks. The Respondents jointly owned some of them.  It is not in dispute that no management fees were collected from the present owners or their predecessors for over 20 years.  Obviously those management fees outstanding for more than 6 years would have been time barred.  By these proceedings the IO is merely claiming management fees for 6 years immediately preceding the filing of this claim.

Defence to the Applicant’s Claim

2.  The Respondents allege that that there has been an understanding between the IO and the owners of the car parks in question since a meeting in 1981. Relying on this understanding they contend that the principle of estoppel by convention applies. Indeed if it applies, the IO should be estopped from claiming the management fees even if the Respondents are otherwise liable to pay.

3.  As a further and alterative defence, the Respondents contend in effect that the IO fails to establish the basis to levy the management fees claimed. It is alleged that the apportionment of management expenses is unfair to the Respondents.

Counterclaim by the Respondents

4.   To obtain electricity supply to their premises, the Respondents wanted to install electric meters in the common parts of the building.   They ran into difficulties with the IO.  No electricity meters had yet been installed at the time of trial. The Respondents are blaming the IO for this and are counterclaiming for reliefs to facilitate such installation and for damages and loss of rental income for the period when the car parks could not be let out because of lack of electricity supply.

Estoppel by Convention

5.  Mr. Lam, counsel for the Respondents, contends that the principle of estoppel convention applies in this case.  This principle has been clearly explained and defined in the Court Of Final Appeal Case of Unruh V Seeberger [2007] 2 HKLRD 414. I am indebted to Mr. Lam for a clear exposition of this dictum of the case. The IO is content to challenge the application of the principle to this case on facts alone. Before the IO is estopped there must be a common assumption shared by the parties. The IO simply denied that there has even been such common assumption alleged by the Respondents or at all.

The Common Assumption

6.  The common assumption alleged by the Respondents is to the effect that the Respondents had no right to get involved with management of the building and they that they did not have to the pay management fees.

7.  The source of this common assumption is a meeting between persons who are either dead or can no longer be traced. The deceased husband of the Respondents’ witness, Ms Au, allegedly took part in the meeting and he told Ms Au the result of the meeting.  She also heard the same from another previous owner of the car parks attending the same meeting, Unfortunately the husband passed away some time ago and the Respondents could not have called any other witness but Ms Au.  The IO is not very helpful in tracing its past minutes which might throw light on the existence or otherwise of this meeting or on the matter generally.  Incidentally I am not impressed with the evidence of Mr. Lau who was called to rebut the evidence of Ms. Au. As a owner living in the building for over 40 years, I would be surprised if he did not know more than he wished to say at the trial. He did not in any way categorically rule out there could have been a Mr. Lau at the meeting representing the IO (I note that he was not specifically asked about this.). Mr. Liu, counsel for the Applicant sought to rule this out. He argues that there was only one other Mr. Lau who had been a member of the management committee but he only became a registered owner some years after the alleged meeting. This argument must be looked at in the light of the not uncommon occurrence that a registered owner of a flat is a limited company which can participate in the management of the incorporated owner through a nominated representative. Whether there was such meeting and whether there was such representative of the IO surnamed Lau is a matter of inference from the totality of evidence.  

8.  I bear in mind that Ms Au is a party to these proceeding and has a vested interest in their outcome. Nonetheless I find her a truthful and honest witness.  I accept her explanation for the change of evidence about the name of Mr. Lau who took part in the meeting.  This is simply a change of view on the true identity of this mysterious Mr. Lau after hearing the evidence of the witness. This is nothing sinister on her part. She did not stand to gain any advantage naming the witness which could be easily called to rebut her evidence.  Her giving the full name of Mr. Lau is the result of her reading the documents and of course her reasoning has been at fault. On hearing the witness himself giving evidence, it was fair on her part to change her view.

9.  I accept her evidence that the husband came back from the meeting and told her about the result. These are all hearsay and should be looked at carefully before deciding the weight to be attached. For this purpose the history of the dealing between the parties is of utmost importance. Especially I do not expect Ms Au to be able to recount accurately word for word what her deceased husband told her over 20 years ago.  The gist of it and the salient points she would be able to remember.

10.  My finding is that there was in fact such meeting as alleged during which parties had reached certain agreement or understanding with regard to the management of the building.  I further find there the understanding or agreement was intended to be acted upon by the IO,  the then owners of the car parks, and that such agreement or understanding was in fact also acted upon by them and by the Respondents ever since they became registered owners of the car parks.

11.  The ambit of this understanding or agreement can be inferred from two factors. Firstly it is from what the deceased husband told her wife, Ms Au. As I have said Ms Au might not be able to give its accurate account though she was honest and truthful. Secondly and more importantly, it is from the history of the dealings of the parties. In particular the following facts and related circumstances, which I find established, are of particular assistance:

(i) no management fees paid or contributions made for over 20 years;
(ii) geographical features of the building;
(iii) in the past, the Respondents’ car parks being left out in renovation and upgrading work for the building;
(iv) private water consumption in individual flats paid for as management expenses of the building;
(v) running the management of the building in an informal manner.

12.  (i) No management fees paid or contributions made for over 20 years:---There is no dispute that no management fees were paid for over 20 years. No effort was made by the IO to recover there and then the outstanding management fees. The earliest reference to an attempt to recover outstanding management fees and other charges is contained in two documents so far disclosed.  One is a solicitor letter dated 2 November 1999 after registering a charge on the car parks of the Respondents. The other document is the memorandum of the said charge. Strange enough to note is that the Applicant has made no discovery of  documents relating to the operation of the management committee,  accounting documents, budgets or other documents relevant to this issue. It is of vital importance to disclose how the management committee has dealt with the outstanding charges all these years, and how these outstanding charges were treated in the balance sheet or other accounting documents. On instructions of the Applicant, its solicitors in the List of Documents and in the Supplemental List of Documents in effect represented to this Tribunal that these documents do not exist.  I should be slow in coming to the conclusion that the Applicant is withholding relevant documents. It is because the Respondent is content to leave the matter as it is. However it is clear that the IO must have at some time some accounting documents and documents of similar nature, relevant to the subject management expenses or other charges or else how could the IO gave instructions to its solicitors in 1999 to register a charge against the Respondents.    Looking at the way discovery has been made and considering the fact that the IO has all along been represented by solicitors, I am driven into the conclusion that the IO are withholding documents.  This greatly disadvantaged the Respondents in proving their case and the Tribunal has to take this into account.

13.  (ii) geographical feature of the building:---The car parks in question had independent access. Their owners does not need to go into the residential part of the building for the enjoyment or use of the car parks. The occupants of the car parks might use the toilet in the lobby of the residential part, but this is by way of permission of the caretaker, similar permission is required to gain entry to that part of the building for other purpose. 

14.  (iii) The Respondents’ car parks were left out in renovation work and  upgrading work of the building:---There are two specific instances which demonstrate the attitude of the management of the IO. Firstly in 1999 when upgrading work of electricity supply to the building was undertaken, the Respondents’ car parks were left out. This should have been a good opportunity to let the Respondents to consider whether or not to have supply of electricity to their car parks at their own expenses. In another instant when the IO undertook to paint the external wall, the painting job stopped right at the part where it would certainly benefit the Respondents by giving their car parks a better appearance. Incidentally if the painting work had extended by that much to completeness, it should also give a much better general appearance to the whole building. This the IO chose not to do and this action or omission clearly lends support to the conclusion that the IO had in mind to exclude the Respondents from the benefit of its management service.

15.  (iv) Private water consumption in the individual flats paid for as management expenses:---The water charges in the expenses account includes charges for water consumption in individual flats. Mr. Yuen reluctantly admitted that no individual water meters are installed in the building for the flats. In the minutes of a meeting which was included in the bundle, but which I have not been referred to, it appears that substantial expenses would have been incurred for such installation. Such option did not find favour in the meeting. It is a most unsatisfactory. It must be to the credit of all the flat owners who have gone along with the idea sharing among themselves equally with the water charges. It would be a different matter for the Respondents who did not consume any water at all in the car parks. The Respondents in fact had no idea of what these water charges covered. This point is something which has come up inadvertently in the evidence. If the Respondents took any interest in the management of the building or if they realised they were supposed to pay for these charges, they would have noted this unfairness and raised the objection long time ago. Mr. Liu sought to justify the water charges, but on the evidence and the close analysis of these charges by Mr. Lam, it is abundantly clear that it would be totally unfair to ask Respondents to contribute to them.  Similarly it can be said for the other items as submitted by Mr. Lam. It is clearly to the advantage of the IO if arrangement can be made to discourage the Respondents from intervening.

16.  (v) Running the management of the building in an informal manner:---The IO does not employ any management company to manage the building. What they hope to achieve is to let both ends meet. The monthly management fees, I understand from the evidence, oral and documentary, represent the recurrent expenditure.  Non-recurrent expenditures, like renovation costs and legal costs in the lost battle with a neighbouring building were raised separately. 

The Common Assumption

17.  The IO contests the case by discrediting and rebutting the hearsay evidence of Ms Au about the meeting.  It left a lot of matters in regard to the history of dealing with the Respondent unexplained. I do not see any difficulty for the IO to call evidence explaining the budget and the treatment of the so called outstanding management expenses. The inference I draw from the circumstances of the case is that there is indeed a common assumption that the IO is to exclude the Respondents from the management of the building. This is in the sense that the Respondents have no right to query the expenses incurred by the IO and in return the Respondents would not be asked to contribute to these expenses and further the managing the building is at the sole discretion of the IO to the exclusion of the Respondents. This assumption must have been known and passed on from one management committee to the next. Both parties have acted on it. It is my ruling that the estoppel by convention applies.

Extent of the Estoppel

18.  Mr. Liu argues that the estoppel should cease in 1999 when the IO registered a charge and its solicitors informed the Respondents of the charge. It is a question of fairness. Of course the IO can depart from this assumption if it has made it clear to the Respondents that they would no longer be bound by the arrangement and has conducted differently. In this case the IO should not continue to disregard the rights of the Respondents. The budget and apportionment should have be revised to reflect the full right of the Respondents under the DMC. Also, the IO should not have absolute and arbitrary discretion in refusing the installation by the Respondents of electricity meters. In this regard I find the proposed plan of installation has not been shown to be unreasonable. If I were to choose between the two I would have preferred the plan so proposed by the Respondents. However the point is that this conduct serves only to show that the IO still holds the Respondents to the common assumption.

19.  The extent of the estoppel should end at the service of the claim.  By then it is clear to both sides that each of them would insist on their respective legal rights and not on the common assumption.

Reliefs

20.  Mr. Liu is right in pointing out that because of the estoppel, the Respondents could not have legitimately complained about the lack of co-operation of the IO in refusing the proposed plan for installation of electricity supply. Therefore I dismiss the counter-claim for damages.

21.  As to counter-claim for removing the registered charge, in view of my findings on estoppel I find for the Respondents. The Respondents are entitled to succeed on two other grounds. Firstly, the registered charge was not made according to the provisions of the Deed of Mutual Covenant as no demands were actually made and no warning be given. Secondly, as the matter stands, according to state of discovery of documents by the Applicant, there is no evidence to prove on what the charges were based on. It amount to a bare assertion and I could not see how it could be properly made or enforced.

22.  Of the declarations counterclaimed by the Respondent, I need only made one in these terms: “ The Respondents is not liable to contribute to the expenses incurred, or to be incurred on such work done or services rendered as requested by the IO or on its behalf before the service of the claim”

23.  The Respondents succeed only partly in the counterclaim, the costs order should reflect this.  There be an order nisi for costs in these terms:--Costs to the Respondents on the main claim on High Court Scale with Certificate for counsel, to be taxed if not agreed and each party bear its own costs in the counterclaim. The order nisi be made absolute in 6 weeks.