WING MING GARMENT FACTORY LTD v. THE INCORPORATED OWNERS OF WING MING INDUSTRIAL CENTRE AND ANOTHER

CACV 27/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 27 OF 2008

(ON APPEAL FROM HCA NO. 8805 OF 1993)

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J U D G M E N T

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Hon Le Pichon JA:

1.  This is the plaintiff’s appeal from a judgment dated 20 December 2007 of Reyes J in proceedings between the plaintiff who was the original developer of a building known as Wing Ming Industrial Centre and who still owns several of its units and all the other owners represented by the Incorporated Owners (“the first defendant”).  The plaintiff claimed that the first defendant had breached the Deed of Mutual Covenant (“the DMC”) by permitting the second defendant to install a fire services pipe through airspace the plaintiff owned and sought damages.  The judge dismissed the plaintiff’s claim against the first defendant, ordered the plaintiff to pay the first defendant the sum of $5,515,254.34 for outstanding management fees up to 30 November 2007 with interest and dismissed the third party’s counterclaim of approximately $1.39 million for “management fees”.  The judge also granted a mandatory injunction requiring the plaintiff to demolish the wall currently enclosing the original car parking spaces 2, 3 and 4 and to restore the same to that shown on the car park layout plan.

Background

2.  The disputes between the parties have a long history.  They first arose in August 1993 with the plaintiff’s objection to a fire services pipe being constructed which, it was claimed, encroached onto its property.

3.  The land upon which the building was erected was held under a Crown Lease dated 13 September 1974 and Conditions of Sale governed its development.  Of particular relevance to the trespass issue in the present case are special conditions (9) and (10) relating to “the parking, loading and unloading spaces” required to be provided and the requirement of an approved layout car parking plan (“the approved plan”) to be registered at the Land Office.  Special condition (10) further stated

“The purchaser shall maintain the parking, loading and unloading spaces in accordance with the said approved plan and shall not alter the layout except with the prior written consent of the Director of Public Works.”

The approved plan which was approved in 1978 showed a container parking space and 11 car parking spaces.  The car parks designated on the approved plan are hereafter referred as “the original car parks”.

4.  Until 2 March 1991 the plaintiff was the sole owner of the building consisting of 11 storeys.  Shortly before 2 March 1991 in anticipation of a sale the building was notionally divided into 1323 shares or parts and a draft of the DMC prepared.  By an assignment dated 2 March 1991 (“the first assignment”), the plaintiff assigned 210 equal undivided 1323rd shares or parts together with the sole and exclusive right to the sixth and seventh floors and car parking spaces 6 and 7 on the ground floor “ (shown and coloured Green on the Plans) ” to Super Kind Investment Ltd. (“the second owner”) subject to and with the benefit of the DMC to be executed immediately after the assignment.

5.  So, contemporaneously with the assignment, the plaintiff and the second owner executed the DMC with the third party who was appointed manager of the building.  By clause 5 of the DMC, there was reserved to the plaintiff (who was the owner of the front portion of the ground floor) the right to construct a loft “over Car Parking Space Nos. 2, 3 and 4” provided those car parking spaces were left with a clear minimum headroom of at least 7’6” and the construction had the relevant Government approval.  For practical purposes, the ground floor plan of the building annexed to the first assignment and the DMC are identical.

6.  In the DMC, “Vehicle Parking Space(s)” and/or “Car Parking Space(s)” is defined as meaning “all of the spaces in the Building for parking of vehicles (coloured Green on the Ground Floor Plan)”.  However the area shown coloured green in the DMC ground floor plan in relation to car parks 2 to 10 (inclusive) not only included the original car parks but also an area immediately adjoining the relevant car park which is shown marked “VOID” on the DMC plan and which lies between each of those car parks and the driveway on the ground floor of the building.

7.  In October 1991, the authorised person then acting for the plaintiff submitted general building plans for certain additions and alterations works (the “works”) to the Building Authority.  Those works involved, inter alia, the construction of a mezzanine floor to form a loft area, the demolition of an internal wall and the building of a new wall enclosing an area comprising the original car parks 2, 3 and 4.  Although approval was obtained on 5 December 1991, the plaintiff did not carry out the works until August 1993 at about the time when, on the instructions of the first defendant, the second defendant installed a fire service pipe which entered into and ran through the airspace of the areas marked “VOID” adjoining car park spaces 2 through 10.

8.  In August 1993, the plaintiff wrote to complain of the “the illegal encroachment” of the pipe on the plaintiff’s property.  The plaintiff’s complaint was directed at only one section of the pipe, namely, that which ran through the airspace in the areas marked “VOID” adjoining the original car parks 2, 3 and 4.  That section is shown coloured red on the plan attached to the judgment below which, for ease of reference, is also attached to this judgment.

9.  The plaintiff commenced proceedings for various injunctions and damages for trespass in January 1994 but interim relief was refused both at first instance and on appeal on 13 July 1994.  In 1995, on a ‘without prejudice’ basis, the parties reached an agreement for the demolition of the alleged infringing pipe.  The action then progressed at what can only be described as a snail’s pace and eventually came on for hearing in December 2007, after an unsuccessful attempt by the defendants in 2005 to strike out the action for want of prosecution.

This appeal

10.  The plaintiff and the third party challenge

(1) the judge’s dismissal of its claim for loss of rental (in respect of the ground floor, the loft and the 11^th floor all of which were covered by the works) due to the pipe’s presence in the loft;

(2) the mandatory injunction granted to demolish the enclosing wall and to restore the original car parking spaces 2, 3 and 4;

(3) the order to pay management fees to the first defendant of approximately $5.5 million with interest; and

(4) the dismissal of the third party’s counterclaim against the first defendant of approximately $1.39 million for “management fees”.

Loss of rental -- liability

11.  The question of loss of rental involves two issues, liability and quantum.  The first matter to consider is that of liability.  Unless the areas marked “VOID” adjacent to the original car parks 2, 3 and 4 belonged to the plaintiff so that the pipe that had originally been installed through that space encroached on the plaintiff’s property, no liability for damages could arise.  The judge held that those areas constituted the common parts of the building.

12.  Mr Mok SC who appeared for the plaintiff submitted that the judge had overlooked the clear terms of the first assignment which are pertinent to the construction of “common areas”.  It was said that so far as car parking spaces 6 and 7 were concerned, what was conveyed encompassed the entire area shown coloured green on the plan, namely the original car parks 6 and 7 plus the areas marked “VOID”.  Whilst Mr Mok accepted that the owner could only park its cars within the original car parks 6 and 7 and not in the “VOID” areas because of the mutual covenants of the plaintiff and the second owner in the DMC to comply with the conditions of the land grant, he submitted that each of the areas marked “VOID” shown by the dotted lines on the plan plainly had been carved out and therefore is distinguishable from the common areas such as the driveway that runs through the ground floor of the building and must therefore mean something that is distinguishable from the common area.  To re-inforce this point, the court was referred to the assignment to Hung Tak (Ko’s) Development Limited (“Hung Tak”) in May 1991 involving, inter alia, car park 10 where the adjoining “VOID” area was not coloured green, apparently because it was adjacent to the switch room which had to be accessible and was obviously part of the common area.  I would make two observations: first, the substantive description of what was conveyed was no different from that in the first assignment, i.e. the “car parking space” bearing the relevant number; and second, even if the areas marked “VOID” could have been and were conveyed to the second owner that is not decisive of the question whether the areas marked “VOID” adjacent to original car parks 2, 3 and 4 were capable of being conveyed.  That would depend on whether there are circumstances peculiar to those areas.

13.  Mr Mok relied on clause A1 of the DMC which reserved to the First Owner (i.e. the plaintiff)

“THE WHOLE OF THE BUILDING (including all the units in therein and the flat roofs held therewith, if any) SAVE AND EXCEPT the Common Areas and Common Facilities and AND (sic) SAVE AND EXCEPT the said Sixth and Seventh Floors and Car Parking Space Nos. 6 and 7 of the Building assigned to the Second Owner …”

He argued that the plaintiff who, prior to the first assignment, was the owner of the entire building was thus in a position to convey the “VOID” areas.  The correctness of that submission is premised on those areas not being “Common Areas” or “Common Facilities” for the purposes of the DMC.  In the DMC, “Common Areas” and/or “Common Facilities” are defined to mean

“(i)   the entrances, staircases, lift halls, lift shafts, lift pits, stairways, landings, passages and other spaces of the Building which are intended for common use (other than the Floor Reserved Areas) and not for the exclusive use occupation and enjoyment by the First Owner or Second Owner as hereinafter specified,

(ii)   the loading and unloading spaces, roadways and driveways (if any)

…”

The DMC definition of “Car Parking Space” has already been set out.  See§ 6 above.  Significantly, it is defined as a space for the “parking” of vehicles.

14.  In this connection, the special conditions of the land grant are of relevance in determining whether the “VOID” areas are “Common Areas and/or Common Facilities”.  Special condition (9) contained very specific requirements relating to the provision of space “for the parking, loading and unloading of the vehicles”.  Specific dimensions were prescribed in paragraph (d) for such “spaces” to be provided, including the extent of the turning circle of radius of the different types of vehicles to be accommodated.  Paragraph (e) made it clear that the “space” was to accommodate not only the parking of the vehicle but also “for simultaneous loading and unloading” and their respective proportions were stipulated.  For these reasons, the laying out of the “original car parks” in the approved plan also served to define the uses for which the space of the original car parks was designed and to which it could be put.

15.  If it were necessary to decide whether the areas marked “VOID” adjacent to car parking spaces 6 and 7 had been assigned by the first assignment, having regard to the special conditions, I would be inclined to conclude that what was conveyed consisted of the original car parks 6 and 7 only although as I have said that is not an issue that needs to be decided by this court.

16.  What falls for decision on this appeal is whether the areas marked “VOID” adjacent to car parks 2, 3 and 4 constitute common areas.  Given the location of the original car park 2 in relation to the container space on the approved plan, as the judge remarked in § 43 of his judgment, it is self-evident that those areas are areas that have to be kept clear so that the original car parks can be accessed and used.

17.  In my view, the judge was clearly right in holding that the areas marked “VOID” adjacent to car parking spaces 2, 3 and 4 are common areas.  Accordingly, the claim in trespass must fail and, consequently, the plaintiff’s claim for loss of rental must also fail.

Loss of rental -- quantum

18.  Given my view on the question of liability, the second issue -- quantum -- does not arise.  Nevertheless, a few brief points can be made to dispose of that issue if I were wrong on the liability issue.

19.  Assuming (contrary to my view) that the section of the pipe complained of did encroach on the plaintiff’s property, in order to recover loss of rental, the plaintiff must establish that the presence of the pipe caused the loss.  The loss of rental the plaintiff claims relates to premises comprising the ground floor, the loft area and the 11^th floor all of which were within the scope of the works.  In respect of the 11^th floor, the judge took the view that the 11^th floor could and should (by way of mitigation) have been hived off as a separate project by way of amendment to the original application for the works and the relevant acknowledgement of completion of works obtained separately.  The plaintiff has (belatedly) conceded this but maintains that the loss (if any) would nevertheless relate to the four months from May through August 1994.

20.  But the evidence is that as early as October 1993 the Building Authority had already suggested to the plaintiff that it could hive off the works of the 11^th floor from the rest of the works by amending the relevant building plans.  Had the plaintiff heeded that suggestion by making the amendment application reasonably promptly, say within a month or so, according to expert evidence adduced at the trial, that application would have been dealt with within 30 days thereafter.  On that basis, the plaintiff would have been in a position to let the 11^th floor by early 1994.  The claim for loss of rental for the 11^th floor for the months of May through August 1994 is thus unsustainable.

21.  As regards the loss of rental in respect of the ground floor and the loft, it was contended that the presence of the pipe prevented the plaintiff from applying for the relevant acknowledgement for the period from May 1994 when (it was said) construction of the loft was completed to July 1995 when the pipe was removed.  The ostensible reason given by the plaintiff’s architect in his letter of 10 May 1994 for not applying for the acknowledgement any earlier was the ‘headroom issue’, that is to say that the presence of the pipe had reduced the headroom to below that required by the Buildings (Planning) Regulations, Cap. 123F.

22.  Under rule 24 of those regulations, there is a headroom requirement that only arises where the use is for an office or habitation.  In the present case, unquestionably, the only approved use of the loft was for storage.  Rule 24 is therefore not engaged.  Further, the plaintiff’s own expert accepted in cross-examination that rule 24 is not contravened even when it is engaged where the pipe runs along a wall.  That is because it would not affect the means of escape.  That is precisely the case with the section of pipe complained of, as distinct from, and to be contrasted with, the section of pipe situated within Portion V1 which does not run along a wall and so would have affected the means of escape.  However, here we are not concerned with that section of the pipe since the first defendant is not the owner of Portion V1.

23.  During the hearing, Mr Mok sought to change his tack by disclaiming reliance on rule 24 and, instead, placing reliance on rule 41(1) of the regulations which requires that

“Every building shall be provided with such means of escape in case of emergency as may be required by the intended use of the building.”

I cannot see the relevance of this rule in the context, whether or not it is read in conjunction with paragraph 8(2) of the “Code of Practice on Provisions of Means of Escape in Case of Fire” which requires the means of escape by way of access to the street to be “unobstructed”.

24.  That effectively disposes of this part of the quantum claim and it is unnecessary to deal with additional points made by Mr Wong SC who appeared for the first defendant to show that the evidence at trial clearly established that by the time the pipe was removed in July 1995, the plaintiff would not have been able to obtain the acknowledgement for reasons wholly unconnected with the presence of pipe.

Removal of existing wall and reinstatement of the original car park layout

25.  The works undertaken by the plaintiff in 1993 included the erection of a wall enclosing the original car parking spaces 2, 3 and 4.  The enclosed space is being and has been used by the plaintiff for purposes other than for the parking of cars and what had been the areas marked “VOID” in front of those original car parking spaces have been redesignated by the plaintiff as car parks 2, 3 and 4 (“the new car parking spaces”).  The judge found that not only had the plaintiff not obtained the approval of the other owners to vary the DMC so as to enable the “VOID” areas to be redesignated as the new car parking spaces, the building of the wall and the consequent changes to the layout of the car parks had been done without the permission of the Director of Public Works or his successor.

26.  The judge ordered the demolition of the wall for two reasons: first, the relevant consent had not been obtained: not only was there no consent from the Government, there was no consent from the other co-owners for the changes to the DMC; second, it interfered with the opening on the ground which provided the only means of access to the overflow tank in the basement.

27.  It is apparent from the last sentence of special condition (10) (set out in § 3 above) that changes to the layout on the approved plan required the “prior written consent of the Director of Public Works”.  As the judge noted in § 52 of his judgment, the post of Director of Public Works has not existed for some years and that his functions have been taken over either by the Building Authority or the District Lands Office.

28.  By letter dated 29 October 1991 addressed to the Buildings Ordinance Office, the plaintiff’s architect submitted “7 sets of general building plans …for …approval.”  It should be noted that the architect was representing the plaintiff only and not also the other owners of the building.  On 5 December 1991, P Tam “for Building Authority/for Director of Buildings and Lands” issued a standard form approval letter but also indicated that comments from District Lands Officer, amongst others, would be forwarded in due course.  The only evidence this court was referred to in that regard was the second statement of Mr Yuen, the managing director of the plaintiff, to the effect that “no adverse comments or objections …had at any stage been made by the District Lands Officer or any other Government departments.”  It would therefore appear that the District Lands Officer had not offered written comments to indicate that he had no objection.

29.  Mr Mok submitted that the approval letter amounted to “prior written consent” required by special condition (10), emphasising that the letter had been signed on behalf of both the Building Authority and the Director of Buildings and Lands and criticized the judge for failing to state this fact in the judgment.  However, it would have become apparent from the preceding paragraph that when the approval letter was signed in a dual capacity as it were, it was contemplated that “comments” would be forthcoming from the District Lands Officer and that these would be forwarded in due course.  In that sense, when the approval letter was sent, it was not meant to be ‘final’ and there was no subsequent inquiry by the plaintiff as to the comments said to be forthcoming.

30.  The judge rejected the plaintiff’s plea below that the necessary permission was implicit in the approval of its plans by the Building Authority because of the provisions of section 14(2) of the Buildings Ordinance, the effect of which was summarised in paragraph 5 of the approval letter, namely, that approval should not be deemed to confer any title to land or to act as a waiver of any term in any lease or licence.  What is now being suggested is that because the letter was signed also on behalf of the Director of Buildings and Lands, that was sufficient and amounted to the requisite consent.

31.  There are several difficulties with this line of argument:

(1) Given my conclusion that the areas marked “VOID” in front of the original car parking spaces 2, 3 and 4 were common parts for the purposes of the DMC, the plaintiff does not even get to first base in view of the judge’s unchallenged finding that consent from the other owners of the building to any alteration of the DMC had not been obtained.  Even if Government approval had been obtained by the plaintiff, it would not have had the effect of dispensing with the consent of the other co-owners.

(2) The layout changes involved, inter alia, a significant truncation of the length of the container space which was owned by Hung Tak.  While Mr Mok relied on a preliminary sale and purchase agreement with Hung Tak containing a provision that the container space should give way to facilitate vehicles at new car parking space 2, that agreement was never registered and would have been superseded by the subsequent assignment which does not contain such a provision.  Moreover, Hung Tak’s managing director gave evidence at trial to the effect that Hung Tak did not agree to the change of the car parking layout that resulted in a substantial truncation of its container space.

(3) The plaintiff never made any specific application for consent to alter the layout in the approved plan.  For my part, I agree with the judge that consent cannot be inferred from the building approval.  Nor would it be reasonable or appropriate to treat the absence of comment from the District Lands Officer as the requisite permission to satisfy special condition (10).  In my view, where consent has to be obtained under the provisions of the land grant for alterations to an approved layout plan, in the absence of any specific application where the intended changes are clearly spelt out, it would be well-nigh impossible to infer the relevant consent.  The architect’s letter submitting general building plans “for approval” plainly was not such an application.

32.  In the circumstances, the making of the order for the demolition of the wall and for reinstatement of the original car parks 2, 3 and 4 was amply justified.

33.  The issue relating to access to the overflow tank would not affect that conclusion.  As to that issue, the judge found that a hole did exist at the time the wall was erected and that, currently, it is covered by an aluminium panel.  It would appear that pursuant to the requirements of the Building Authority made in February 1996 following an inspection for the purpose of issuing an acknowledgement of completion of works, the hole was sealed up.  At a subsequent date, the hole was reopened although there is no evidence as to who was responsible for that.  The judge also found (and it is not challenged) that there is no alternative access to the overflow tank which is undoubtedly a common facility.  As I understand it, what is now being suggested is that the order requiring the plaintiff to demolish the wall might lead to difficulties with the Building Authority.  But should difficulties arise in implementing the court’s order, the plaintiff can always apply to the judge for directions.  Indeed, there is a ‘liberty to apply’ provision in the judgment below.

34.  In so far as it is suggested that the demolition order was inappropriate in that, instead, the judge should have ordered that the wall be reconfigured to allow access to the overflow tank, that is misconceived because to do so would simply focus on the issue of the ‘hole’ and ignore the consent issue altogether.

Management fees

35.  The first defendant counterclaimed from the plaintiff outstanding management fees (“recurrent management charges”) and other management expenses and contributions (“non-recurrent contributions”) for the period from 1 October 1991 to 30 November 2007 in the sum of $5,515,254.34.  The total amount appears in a certificate dated 8 December 2007 issued pursuant to section 22(4) of the Building Management Ordinance, Cap. 344 which was signed by Mr Luk Siu Kai as “Chairman of the Management Committee” of the first defendant.

36.  The plaintiff accepts that it owns 314 of the 1323rd undivided shares of them in the building.  Notwithstanding the fact that it has never paid any management fees, whether recurrent management charges or non-recurrent contributions, the plaintiff sought hard to avoid liability by challenging the accuracy and reliability of the certificate on a host of grounds none of which found favour with the judge.

37.  In his opening, Mr Mok (who did not appear below) re-argued some of the points that had been taken below which, it was said, cast doubt on the amount of the counterclaim.  It would suffice to deal with the main points made:

(1) The absence of any budget prepared by the management committee

The judge addressed this issue in § 96 to 106 of his judgment.  Mr Mok has not shown any error in the judge’s reasoning.

(2) The expenses shown in the financial statements especially for the years 1995 to 1997 do not justify the level of recurrent management fees being claimed

The judge held that it was not appropriate to evaluate the reasonableness of the management fees by reference to the financial statements.  He explained why this was so in § 112 to 116 of his judgment.  Again, Mr Mok has failed to demonstrate why it was not open to the judge to reach that conclusion.

(3)   The 2002 Table

The minutes of the fourth meeting of the management committee of the first defendant on 28 February 2002 recorded that

“MANAGEMENT FEE DUE FROM WING MING GARMENT FACTORY LIMITED

   It was tabled on the meeting a statement of balances with Wing Ming Garment Factory Limited.

(a)	Amount due by Wing Ming Garment Factory Limited	$1,867,680.40
(b)	Amount claimed by Wing Ming Garment Factory Limited	$1,391,011.15
		$476,669.25

It was resolved that recovery action for the net amount of HK$476,669.25 shall be taken and that request for payment letter should be sent by registered mail.”

On 6 March 2002 the first defendant wrote to the plaintiff.  In pertinent part the letter read:

“Arrangement for accounts between Essman, owners Committee and Wing Ming Garment Factory Limited

…

At this meeting, there was an ad hoc motion.  That was one related to the arrangement for accounts between Essman, Incorporated Owners and Wing Ming Garment Factory Limited.  In this connection, our chairman, Mr. Ko already sought your opinion last year.  You proposed that there be a set-off between the accounts of the three parties -- i.e. the Incorporated Owners were to undertake the outstanding management fees owed by the former registered owner of the 4th floor to Essman.  This would then be used to set off the management fees and the repair costs owed by Wing Ming Garment Factory Limited to the Incorporated Owners.  When Mr. Ko proposed this at the meeting this was agreed by all the other owners.

We now enclose details of accounts for your reference.  It is appreciated that you have various business engagements.  In order to simplify the procedure, if you do not reply in writing to the Incorporated Owners by 30 March 2002, this means that you have agreed to the set-off arrangement.  After adjustment, you still owe to this Incorporated Owners in total HK$476,669.25.

The accounting problem has remained unresolved for a long time.  All owners hope that this matter can be resolved amicably as soon as possible.  This would facilitate the plan for further developments of the building and would enable all of the owners to acquire the largest benefit.”

Attached to the letter was a Table (“the 2002 Table”) consisting of two parts: the first was headed “Management fee payable by Incorporated Owners to Wing Ming Garment Factory” and the second, “Management fee and maintenance fees be paid by Wing Ming Garment Factory to Incorporated Owners”.  The judge rejected the submission that those documents show that the first defendant and the plaintiff had agreed to set off the third party’s claim for unpaid management fees against the first defendant’s claim for outstanding management fees as at early 2002.

Perhaps to obviate the need to upset the judge’s finding, Mr Mok contended that the figures in the 2002 Table were not settlement figures but “detailed figures” calculated for the purpose of making a “request for payment” by way of the demand letter.  It would appear that he regarded the letter of 6 March 2002 as a “demand letter” but as explained in the next section under the heading “The third party’s counterclaim”, the letter is nothing more than an offer of settlement which was never accepted and therefore not binding in any way on the first defendant.

Mr Mok submitted that as shown in appendix submitted together with his skeleton, the amount claimed by way of management fees from 1994 to March 2002 in the counterclaim do not tally with the figures shown in the 2002 Table.  That fact has no relevance unless the figures in the Table are somehow binding on the first defendant in terms of the amount of management fees owed by the plaintiff.  Given the judge’s rejection of any concluded agreement, the figures are obviously not binding.  Describing those figures as “detailed figures” does not advance matters any further.

For these reasons, I do not consider that any of the re-argued points has any substance and they fall to be rejected.

38.  The components of the first defendant’s counterclaim as at the date of the re-re-amended counterclaim (1 March 2007) are summarised in Appendix C to that pleading:

“  APPENDIX C

Items			Amount
Outstanding Management Fee for the period from Oct 91 to Nov 93			240,000.00
Outstanding Management Fee for the period from Mar 94 to Nov 2006, being:
	Management Fee payable for the period from Mar 94 to Nov 06, as set out in Chart A	4,809,762.44
Less	Amounts of Management Fee received from tenants of the Plaintiff, as set out in Chart	1,865,260.57
Less	Deductions in management fees for the period from Jan 99 to July 00, as set out in Chart	211,015.34	2,733,486.53
Management Expenses and Contributions payable for the period from Mar 94 to Nov 06, as set out in Chart B			1,256,659.20
Total Net Outstanding Amount			4,230,145.73”

Particulars for the period from March 1994 to November 2006 are set out in Charts A to D of that appendix.  The certificate not only shows the net figures of the components of Appendix C, it also updates the recurrent management charges through to November 2007 and the non-recurrent charges through to October 2007.

39.  The written submissions for the first defendant clarified how the amount set out in the counterclaim and reflected in the certificate was calculated: (a) for recurrent management charges, it was on the basis of 310 of 1319th of the total management fees for the period covered less all management fees paid by the plaintiff’s tenants; and (b) for non-recurrent contributions, it was on the basis of 314 of 1323rd shares of the total management contributions for the period covered.  Mr Wong explained that for recurrent management charges, the DMC stipulated that the 4 shares allocated to the upper roof (owned by the plaintiff) should not be included in reckoning the total number of undivided shares unless and until a penthouse had been built (which has not yet occurred).  He illustrated the methodology by reference to the debit note for March 1997 issued to Sanwa Trading (H.K.) Ltd, the owner of 105 of 1319th shares of and in the building.  Based on a monthly budget of $148,000, the amount attributable to each undivided share would be $112.21 and 105 shares would yield $11,781.65 as shown on the debit note.

40.  The only seemingly ‘arguable’ point raised in relation to management expenses did not emerge in Mr Mok’s opening.  In reply he took a point to the effect that the first defendant’s methodology in calculating the recurrent management charges undermined (rather than support) the accuracy and reliability of the budgets relied on by the first defendant.  It was said that although the first defendant claimed that the budget for 1.9.94 to 31.8.95 was $148,000 per month, Sanwa’s debit notes for September and October 1994 (in the sum of $8,861.53 each), demonstrably, were inconsistent with that budget.  If the budget had been $148,000, Sanwa’s share should have been ($148,000 x 105/1319) $11,781.65 rather than $8,861.53 for each of those months.

41.  I regret to say that the point taken is thoroughly bad.  If the counterclaim is read with a modicum of care, it will be seen that (1) the counterclaim is not made on the basis that the budget of $148,000 per month applied prior to November 1994.  See the first page of Chart A to Appendix C to the counterclaim (the third column of which helpfully sets out the amount attributable to each undivided share); (2) as can be seen from the third column of the first page of Chart A, for the period of eight months from March through October 1994, the amount per undivided share was significantly lower, in approximate terms by about as much as a third; (3) for that same period of eight months, the amount claimed from the plaintiff was based on a rate of $84.65 per undivided share which would appear to be $0.25 per undivided share per month more than the rate at which it was being given credit in respect of recurrent management fees paid by the plaintiff’s tenant for the 10^th floor and car parks 3 and 4.  (See Chart C.)  The plaintiff’s tenant paid management fees at the rate of $84.396 per undivided share, which also appears to be the rate used for the Sanwa debit notes on which the plaintiff relied.  The “error” results in a discrepancy of less than than $250 for that period which is de minimis.

42.  Mr Mok did not challenge the accuracy of the amount sought by way of non-recurrent contributions.  Having satisfied myself by random crosschecks on individual items constituting the non-recurrent contributions, I accept Mr Wong’s submission that the amount sought is fully supported by contemporaneous documentary evidence.

43.  Mr Mok also did not challenge the amount of $240,000 due and owing by the plaintiff for the period from October 1991 to November 1993.  Again, Mr Wong has provided the rationale in arriving at that amount which I accept.

44.  I would conclude by observing that to raise the point referred to in § 40 by way of reply is to be deplored because it deprived the court of assistance from Mr Wong and caused this court to spend time on undertaking an analysis that should have been carried out by the plaintiff in the first place and had that been done the point could never have been raised.

The third party’s counterclaim

45.  The third party who was the original manager of the building is related to the plaintiff in that the plaintiff’s managing director Mr Yuen is a director of both companies.

46.  As pleaded, the counterclaim was for damages for loss and damage suffered as a result of the unlawful termination by the first defendant of the third party as manager in June 1994.  The loss particularised included “management fees collected by the first defendant but not paid over to the third party” amounting to $1,391,011.15.  The trial appeared to have been conducted on the basis that that was the amount that the third party had expended on behalf of the owners of the building prior to June 1994 when it ceased to be the manager.  As the counterclaim was only made in January 2006, not surprisingly, limitation was raised as a defence.

47.  At the trial below, the third party contended that the first defendant had acknowledged the debt and relied on the letter of 6 March 2002 (set out in § 37(3) above) as evidence of such acknowledgement.  Notwithstanding the total absence of pleadings on the issue of acknowledgement, the judge entertained the point.  He held that the letter was not an acknowledgement within the terms of section 24 of the Limitation Ordinance and that the claim was time-barred.

48.  Section 24 provides as follows:

“ (1)  Every such acknowledgment ... shall be in writing and signed by the person making the acknowledgment.

(2)  Any such acknowledgment ... may be made by the agent of the person by whom it is required to be made under section 23, and shall be made to the person, or to an agent of the person, whose title or claim is being acknowledged ...”

49.  The letter relied on which bore the first defendant's letterhead was addressed to the plaintiff for the attention of Mr Yuen.  It was headed “Arrangement for accounts between Essman, Owners Committee and Wing Ming Garment Factory Limited”.  Its admissibility was in issue at the appeal hearing but it transpired that this letter appeared in Schedule 1, Part 1 of the first defendant’s list of documents.  In those circumstances, it is admissible in evidence as any objection to production would have been waived.

50.  Mr Mok submitted that given the subject matter of the letter, the judge ought to have held that Mr Yuen received the letter in his capacity as officer or agent of both the plaintiff and the third party.  But the plain fact is that the letter was addressed to the plaintiff only and not also the third party.  While Mr Yuen is a director of both companies who are necessary parties to any settlement, I do not consider it sufficient to justify an inference of agency when the letter is addressed to only one of those companies.

51.  In any event, the plaintiff faces the hurdle of showing that the letter amounts to an acknowledgement for the purposes of section 24.  A proposal to settle a longstanding dispute relating to management fees on a certain basis is very different in nature from an acknowledgement that a stated amount is due and owing to the recipient of the proposal.  If the proposal is not accepted (as in the present case), it comes to nothing.

52.  Then it was said that the judge had overlooked the explanation and breakdown in the 2002 Table.  The first part was described as “Management fee payable by Incorporated Owners to Wing Ming Garment Factory”.  This part tabulated the management fees in respect of the fourth floor that were outstanding (and which, as part of the settlement proposal, the first defendant was prepared to take over) and also monthly amounts described as “Management fee received on its behalf” during the period from May 1993 to May 1994.  Mr Mok suggested that the heading should be read as referring to the third party rather than the plaintiff and the document construed accordingly.  He pointed out that the total amount shown under that part of the 2002 Table corresponded exactly to the amount of management fees claimed by the third party and invited the court to draw the appropriate inference.

53.  I do not agree for one moment that the explanation and breakdown had been overlooked.  I am not persuaded that when read together with the 2002 Table the substance of the letter ceases to be a mere proposal of settlement and becomes an acknowledgement of debt to the third party.

54.  The present case highlights the difficulties that confront the court when there are no pleadings to define precisely each party’s case on a particular issue.  The parameters appear to be at large which is entirely unsatisfactory.  In the court below, the letter was said to constitute the acknowledgement.  In this court, Mr Mok appeared to also place reliance on the resolution recorded in the minutes of the fourth management committee meeting of the first defendant held on 28 February 2002 that “recovery action for the net amount of …shall be taken and that request for payment letter should be sent by registered mail”.  But these minutes were not an enclosure to the letter and there is no evidence that it was ever sent to the third party.  It is unclear how these minutes can assist the third party.

55.  I would affirm the judge’s rejection of the third party’s counterclaim.

The application to admit fresh evidence

56.  Finally, I should add that although the plaintiff filed a summons on 29 May 2008 for leave to adduce further evidence consisting of two box files of documents, no application was made for leave at the outset of the appeal.  Very late into Mr Mok’s opening he sought to refer to the fresh evidence on the question of whether Easyknit Properties Management Ltd. who had succeeded the third party as manager became insolvent in mid-1999 and ceased to be the manager of the building.  When the court queried the relevance of that in the appeal, Mr Mok did not press the matter and professed to be content to proceed without referring to the fresh evidence.  While the court did not consider it necessary to make any formal order since the application was not pursued, it was incumbent on Mr Mok at that stage to make an application for leave in relation to fresh evidence on any other issue he wished to adduce or, at least, to reserve his position.  That he did not do.  During his reply speech the following morning on the subject of the mandatory injunction to demolish the wall, Mr Mok sought to refer to a document in the fresh evidence bundles for which no leave had either been sought or granted.  It was simply too late for him to do so.

Order

57.  Mr Ng for the second defendant did not make any separate submissions but was to content Mr Wong’s submission in resisting the appeal.

58.  I would dismiss this appeal.  I would propose that there be an order nisi of costs (including costs thrown away in relation to the summons to adduce fresh evidence) in favour of the defendants.

Hon Suffiad J:

59.  I agree with the judgment of Le Pichon JA and have nothing to add.

Hon Sakhrani J:

60.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

61.  Accordingly, there will be an order in terms of paragraph 58.