JIKAN DEVELOPMENT LTD AND ANOTHER v. THE INCORPORATED OWNERS OF MILLION FORTUNE INDUSTRIAL CENTRE

FACV Nos. 2 & 3 of 2003

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NOS. 2 and 3 OF 2003 (CIVIL)

(ON APPEAL FROM CACV NOS. 381 and 503 OF 2001)

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J U D G M E N T

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Chief Justice Li :

1. I agree with the judgment of Mr Justice Litton NPJ.

Mr Justice Bokhary PJ :

2. I agree with the judgment of Mr Justice Litton NPJ.

Mr Justice Chan PJ :

3. I agree with the judgment of Mr Justice Litton NPJ.

Mr Justice Litton NPJ :

Introduction

4. This appeal is concerned with the management of a multi-storey industrial building in Tsuen Wan. A number of issues arise. Broadly, they are : (1) The right of an owner, to the exclusion of the co-owners, to charge fees for the use of an area within the lot boundaries for the purposes of parking; (2) the legal liability of the manager, arising from the Deed of Mutual Covenants ("DMC"), when that manager has, over a number of years, collected parking fees for that owner, and not accounted for those fees for the benefit of all the co-owners; (3) whether the owners' corporation, formed under the Building Management Ordinance, Cap.344, is entitled to enforce the rights of the co-owners arising prior to the date of incorporation.

Background Facts

5. The building in question is the Million Fortune Industrial Centre. It is a 26-storey industrial building in Tsuen Wan. It stands on a narrow site between two roads : Chai Wan Kok Street in front and Hoi Shing Road at the rear. The development of the site took place in 1988 and early 1989. The building had workshop units on each of the floors from the first floor to the twenty fifth floor. The ground floor was utilized for the following purposes : (i) the utility rooms serving the entire building, (ii) the entrance lobbies, lifts for cargo and passengers, and (iii) space for the ingress and egress of vehicles and pedestrians, the loading and unloading of lorries and the parking of vehicles. The 26-storey building was cantilevered on large columns erected on the ground floor.

6. The development was put up for sale before its completion. The scheduled date for completion was "on or before 31 May 1989".

7. The original building plans showed 11 car parking spaces and 7 lorry parking spaces on the ground floor.

8. By an agreement for sale and purchase dated 9 July 1988 the developer sold to a company called Grade Open Ltd part of the development, that is to say, all the workshops on the 1st to 11th floors (including a flat roof adjacent to the workshops on the 1st floor), and also the 11 car parking spaces as indicated on the building plans. This sale comprised a total of 7,493 shares out of the total of 17,180 undivided shares in the land and building. The agreement of 9 July 1988 expressly reserved to the developer, for its exclusive use and occupation, all areas within the site not covered by any buildings and all open areas under the buildings which were not "workshop units" and "carparking spaces" - "except such areas (if any) as may be designated as common areas in the Deed of Mutual Covenants or are intended for common use". The agreement then went on to reserve to the developer, for its exclusive use and occupation, "all other car parking spaces on the land" not sold to Grade Open Ltd under that agreement, and all other areas not designated as common areas by the developer. Grade Open Ltd in turn, by an agreement dated 25 November 1988, sold its interest in the development to Jikan Development Ltd (1st appellant in this appeal). Payment by the 1st appellant was to be in stages.

9. By another agreement dated 8 August 1988 the developer sold to Best Whole Investments Ltd all the workshops on the 12th to 25th floors and portions of the flat roofs. The total number of shares comprised in this sale was 7,493 (out of the total of 17,180 undivided shares). Best Whole Investments Ltd in turn, by an agreement dated 25 November 1988, sold its interest in the development to the 1st appellant. Payment under this agreement was, like the agreement referred to in para.8 above, by instalments.

10. At some stage in late 1988, after the November agreements had been signed (the evidence is unclear on this point) the 1st appellant also contracted to buy the 7 lorry parking spaces.

11. Thus, as can be seen, by the end of 1988, the 1st defendant had contracted to acquire virtually the whole development and was the equitable owner of a total of 17,154 shares out of the 17,180 undivided shares in the land and building. Only 26 undivided shares remained vested in the developer.

12. Under the agreement with Grade Open Ltd referred to in para.8 above, Grade Open Ltd undertook on completion to procure the developer to execute an assignment of the remaining 26 undivided shares : These were shares then provisionally allocated to the common parts and the external wall in the draft DMC. Grade Open Ltd also undertook on completion to appoint the 2nd appellant (or some other body nominated by the 1st appellant) to be the manager of the building. Grade Open further agreed to "render all reasonable assistance to [the 1st appellant] to locate sale office ... at the [site] to commence with sale of the same". It can thus be seen that the 1st appellant's intention was not to hold the development but to offer it for re-sale in sub-divided shares and units as soon as possible.

13. On 31 March 1989, the occupation permit in respect of the building was issued.

14. The DMC relating to the property is dated 29 April 1989, entered into between (1) the developer, (2) the first assignee of an undivided share in the land and building and (3) the manager, the 2nd appellant. The first assignee had bought a workshop unit on the 20th floor from the 1st appellant, acting as a confirmor, prior to the date of the DMC.

15. As mentioned earlier, there are large columns on the ground floor of the building, which obstructed to a considerable extent the manoeuvring of vehicles on that floor. Some time after 25 November 1988 (when the 1st appellant contracted to buy virtually the whole interest in the development) and before 29 April 1989 (the date of the DMC) the plan relating to the parking spaces on the ground floor, sold under the agreements referred to in para.8 above, were re-drawn for parking purposes, thereby increasing the number of car parking spaces by three.

16. Under the DMC the land and building were, consistent with the earlier sale and purchase agreements, notionally divided into 17,180 equal undivided shares. The bulk of the undivided shares were allotted to the workshop units on the various floors. By that time (29 April 1989), the car parking spaces marked on the ground floor had been increased to 14 and the agreement for sale with the 1st appellant was amended accordingly : In other words it took up the additional 3 car parking spaces. Under the DMC one undivided share was allotted to each of the 14 car parking spaces, leaving 23 undivided shares : As to these, one share each was allotted to the 7 lorry parking spaces, fifteen undivided shares were allotted to the common parts, and one share was allotted to the external wall of the building.

17. From May 1989 onwards, the 2nd appellant, acting on the 1st appellant's behalf, started collecting parking fees for all the parking spaces marked out on the ground floor : That is to say, not only the 14 car parking spaces and the 7 lorry parking spaces bought by the 1st appellant, but also spaces marked out for the parking of container trucks and large lorries in an open area leading to the ramp which served as exit onto Hoi Shing Road. This open space has, in the courts below, been referred to as the "Disputed Area". In this regard the 2nd appellant was acting simply as agent for the 1st appellant who was, in effect, asserting a right of exclusive use to those spaces.

18. By an assignment dated 7 July 1989 the developer conveyed to the 1st appellant, for the sum of $1.00, twenty-three undivided shares (out of the total of 17,180 shares) together with the right to hold (subject to the DMC) the Common Parts, the External Wall, and the 7 lorry parking spaces.

19. As mentioned in para.8 above, 11 car parking spaces had, in November 1988, been sold by Grade Open Ltd to the 1st appellant; this was, prior to 29 April 1989 (the date of the DMC), increased to 14. The deed of assignment in respect of those 14 car-parking spaces was not executed until 2 May 1996 : Some seven years after the completion of the building. Nothing turns on this delay, and no explanation has been offered for it.

20. The position as outlined in para.17 above continued for many years.

The co-owners started to complain

21. As time went on, more and more workshop units and undivided shares in the development were re-sold by the 1st appellant. From a schedule supplied by counsel during the hearing, produced from the records in the Land Registry, it can be seen that within less than one year of the issue of the occupation permit, the 1st appellant, acting as confirmor, had disposed of most of the workshop units in the building. From late 1993 onwards, the owners started to complain about the arrangement for the use of the Disputed Area. A gentleman, who subsequently became the chairman of the respondent, wrote many letters of complaint to the 2nd Appellant. The complaints were :

(i) that the income derived from parking in the Disputed Area, in spaces not belonging to the 1st appellant, was never accounted for by the manager and deposited into the Management Sink Fund, as required by the DMC;

(ii) that the expenses incurred in the management of the parking spaces which did belong to the 1st appellant were charged by the manager to all the co-owners.

As the Court of Appeal found, "the 2nd appellant, and through it the 1st appellant, had been alerted to the fact that the 2nd appellant itself and the 1st appellant were acting in breach of the DMC and were handling and receiving monies contrary to the provisions of the DMC."

The incorporation of the owners

22. There came a time when the co-owners, apart from the 1st appellant, had a sufficient majority to form a management committee and to apply to the Secretary for Home Affairs for the incorporation of the owners under the Building Management Ordinance, Cap.344. On 29 October 1997 the corporation, named as the Incorporated Owners of Million Fortune Industrial Centre, was registered.

The proceedings

23. On 3 September 1998 the corporation brought proceedings against the 1st and 2nd appellants. As against the 1st appellant the relief sought was for :

"A declaration that [the 1st appellant] has never had and does not have any exclusive right to hold, use, occupy and enjoy any of the Common Parts of ... Million Fortune Industrial Centre ... notwithstanding the terms of the Assignment ... dated 7 July 1989."

24. This, on its face, is an odd form of relief to seek : Perhaps necessarily so, because the terms of the Assignment dated 7 July 1989 were also odd. It begs the very question as to whether any portion of the Common Parts had been designated for the 1st appellant's exclusive use.

25. The deed of assignment, as will be recalled, conveyed to the 1st appellant 23 shares, of which 15 were allotted to the Common Parts, one to the external wall and 7 to the lorry parking spaces. As the lorry parking spaces had been bought by the 1st appellant in November 1988, and they had been designated as parking spaces on the ground by the developer, the assignment of the "exclusive right and privilege to hold, use occupy and enjoy" those spaces was, of course, proper and effective : There is no conflict here with the DMC. But the deed of assignment purported to do more : It purported to convey to the 1st appellant the exclusive right to use the whole of the Common Parts : To the exclusion, that is to say, of the co-owners. This was nonsensical. The assignment of 7 July 1989 was subject to and with the benefit of the DMC, and could never have had this effect.

26. As to whether a part of the Common Area, that is to say the Disputed Area, had been lawfully designated for the exclusive use of the developer prior to May 1989 (when the 2nd appellant started collecting the parking fees), and the right to such exclusive use could therefore have been effectively conveyed to the 1st appellant by the deed of 7 July 1989, that was essentially a question of fact. The answer is not to be found simply in the written instruments : The answer is to be found also in what actually happened on the ground. An attempt to construe the provisions of the DMC and of the assignment of 7 July 1989, divorced from the matrix of surrounding facts, was bound to lead to difficulties : But, unhappily, the courts below were given very few primary facts, and it was left to this Court, at the hearing of the appeal, to get the true story from counsel : Particularly from Mr Barlow for the 2nd appellant and Mr Kenneth Kwok SC for the respondent : Neither of whom appeared in the courts below.

27. Coming back to the writ issued by the corporation on 3 September 1998, one sees the further reliefs sought against both appellants :

(a) "damages in conversion" of the income derived from the parking of lorries and goods "for the convenience of the factories' occupiers of the building" (sic) and for breach of the terms of the DMC, and

(b) accounts and enquiries relating to that income.

As against the 2nd appellant, the corporation sought damages for breach of its duties as "manager and agent of the plaintiff".

28. The matter went before Deputy Judge To for hearing. By his order dated 9 February 2001 judgment was entered in the corporation's favour against the 1st and 2nd appellants, jointly and severally, in the sum of $3,531,301.25 with interest "at judgment rate" from the date of service of the writ until payment. The sum of $3,531,301.25 was made up as follows :

(i) The parking fees collected by the 2nd appellant for the period May 1989 to July 1999 amounting to $1,993,421, and

(ii) The "wasted staff cost" - that is to say, the employment of car park attendants by the 2nd appellant for the purpose of collecting parking fees for the 1st appellant - amounting to $1,537,880.25 for the period May 1989 to December 1998.

29. The appellants appealed against Deputy Judge To's judgment to the Court of Appeal (Rogers VP, Le Pichon JA and Stone J) who, by their judgment dated 25 July 2002, dismissed the appeal with costs. Hence the appeal to this Court.

Broad overview

30. Before embarking upon a detailed legal analysis of the transactions in this case, it is as well to conduct a broad overview. The position is this :

(1) The entire property right and interest in the development vested originally in the developer.

(2) When the developer first offered the development for sale even before the issue of the occupation permit and the execution of the DMC, there were building plans showing the workshop units and parking spaces (for cars and lorries) being offered for sale.

(3) When 7,493 shares (out of the total of 17,180 undivided shares) were sold to Grade Open Ltd in July 1988 together with the workshops on the 1st to 11th floors and the car parking spaces, the agreement gave to the purchaser the "right in common with the [developer] ... to use for the purpose of access to and egress from the premises the access road ..., driveway ... ramps, the lifts entrance hall staircases and landings in the building ... etc", but reserved to the developer (its successors and assigns other than the purchaser) the right to the exclusive use and occupation of "all open areas under any building ... which are not workshop units and car parking spaces ... save and except such areas ... as may be designated as common areas in the Deed of Mutual Covenant or are intended for common use". This was in anticipation of the DMC to be entered into later. The reservation went on to include "all other areas within the Land and the Building not designated as common area by the vendor".

(4) Thus, it was open to the developer to designate for its own exclusive use further areas on the ground floor, for the parking of container trucks and heavy lorries - so long as such designation did not interfere with the purchaser's right of "access to and egress from the ... driveways, ramps ... etc".

(5) The position as outlined above was prospective, and became crystallized upon the completion of the development and the execution of the DMC.

31. The expression "Common Parts" as used by conveyancers in Hong Kong means those parts of premises designated for the common use of the co-owners, and persons deriving rights under them. But this is not the end of the story. The DMC in a particular case may contain provisions whereby areas constituting the common parts might lawfully be re-designated for the exclusive use of individual owners. But where parts of premises have been designated as Common Parts it goes without saying that they cannot be arrogated unilaterally to the exclusive use of a sole owner. The DMC in this case, as can be seen later on, so provides; this is no more than a reflection of the provisions of s.34I of the Building Management Ordinance which says :

"34I. Common parts

(1) No person may -

(a) convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners' committee (if any);"

"The Common Parts"

32. Under clause 1 of the DMC the "Common Parts" are defined thus :

"1. Unless otherwise designated by [the developer] :

(i) All the entrance halls, lobbies, corridors (if any), passages, yards, staircases and landings for the common use of the [land] and the Building.

(ii) ...

(iii) The loading and unloading area (if any) and all the drive-ways (if any) and leading to and from all the entrances and exits on the Ground Floor ...

(iv) ...

(v) ...

(vi) ...

(vii) All such other spaces and areas (if any) as may be designated by [the developer] as Common Parts or rights of way."

The "Disputed Area" was, unless it had been designated otherwise by the developer, part of the "yard" or "passage" and came within the definition of "Common Parts" in clause 1(i) of the DMC. It also came within clause 1(iii).

33. Under clause 4(a) each owner of a workshop unit had the right to "go pass and repass over and along the driveways ... passages ..." within the property "for all purposes connected with the proper use and enjoyment" of the unit.

34. As regards parking spaces (whether for cars or lorries) these are defined in the DMC as spaces designated by the developer or the manager from time to time for parking purposes.

35. We then come to two provisions of the DMC which have loomed large on this appeal. They are :

Clause 5

"There are exclusively reserved unto the [developer] (including its successors and assigns of any such rights and privileges) the following rights and privileges :

(f) The absolute right to designate the exclusive use of the passages, corridors ways, landings which are not for the common use of the [land] and/or the Building."

Clause 8

"The Manager shall have the following powers :

(b)

(i) to allocate and designate the Common Parts on the Ground Floor or any part or parts thereof as Lorry Parking Space(s) and Car Parking Space(s) for the exclusive use of any owners, occupiers, licencees, tenants or visitors at such charges and on such terms and conditions as the Manager shall from time to time thinks fit subject to the approval of the First Owner and (ii) to lease from the Owner(s) for the time being the Lorry Parking Space(s) and Car Parking Space(s) at such terms and conditions as the Manager deems fit for the exclusive use of any Owner, Occupier, licencees, tenants or visitors at such charges and on such terms and conditions as the Manager thinks fit PROVIDED THAT any charges or consideration to be received by the Manager from the above shall be deposited to the Management Sink Fund."

36. At the hearing before us, Mr Barlow, counsel for the 2nd appellant, sought to argue thus : Having regard to the history of the development it must be inferred that, some time before May 1989, the developer and/or the 1st appellant had designated the Disputed Area for the parking of container trucks and heavy lorries, for the exclusive use of the developer or the 1st appellant, since it is common ground between the parties that, from the beginning of May 1989, the 2nd appellant started collecting parking fees for all the parking spaces on the ground floor on the 1st appellant's behalf; there is a presumption of regularity in this regard; it matters not whether the designation was by the developer or the 1st appellant, since the right to designate under clause 5(f) was a right reserved to the developer and passed to its successor in title; it follows that, once such designation was made, the Disputed Area was no longer within "the Common Parts" of the property.

37. Mr Kwok's response was this :

(i) clause 5(f) did not have the effect as contended for by Mr Barlow; and

(ii) in any case, the point was not open to Mr Barlow in this Court.

38. It would be convenient to deal with Mr Kwok's point (ii) first. As to this, it is necessary to look more closely as to how the matter proceeded in the courts below.

Statement of Claim

39. Stripped of distracting obscurities and with its misdirected claim for "damages for conversion" removed, what the statement of claim alleged was simply this :

(i) The Disputed Area was within the Common Parts of the premises, as defined in the DMC; hence the developer had no right of exclusive possession over it.

(ii) The assignment of 7 July 1989 did not have the effect of giving to the 1st appellant a right of exclusive possession over the Disputed Area.

(iii) Sometime in 1989 the 2nd appellant as manager designated the Disputed Area for hourly parking : Guards were employed for this purpose to collect parking fees : This was pursuant to the powers conferred on the manager under clause 8(b) of the DMC : para.12 of the Statement of Claim.

(iv) The 2nd appellant wrongfully gave to the 1st appellant the sums collected, rather than deposit them into the Management Sink Fund as required by clause 8(b).

(v) Despite repeated request by the respondent for an account of the monies, the appellants have wrongfully failed to account.

(vi) In relation to the car parking and lorry parking spaces belonging to the 1st appellant, the 2nd appellant wrongfully hired additional guards to collect parking fees for those spaces; despite the respondent's request to cease such mis-use of the 2nd appellant's resources as manager, the appellants wrongfully continued this practice.

(vii) The respondent claimed, among other reliefs, accounts and enquiries regarding the sums collected and an order that monies found due upon the taking of the accounts be paid over to the respondent.

The Defence

40. The 1st appellant's Defence is not easily intelligible. Paragraph 5(c) says :

"(c) The 1st defendant did not convert part of the Common Parts of the Building for own use but for the efficient and smooth running of loading and unloading of goods in the building management by all co-owners ..."

41. In para.7(b) the 1st defendant pleaded the assignment of 7 July 1989 and asserted that it thereby became "the owner of the Common Parts" with "exclusive right and privilege to hold use occupy and enjoy [the same] ...". This was, of course, nonsensical : That assignment could not possibly have over-ridden the rights and liabilities of the co-owners as regulated in the DMC with regard to the use of the Common Parts.

42. In regard to para.12 of the Statement of Claim, the 1st appellant said that the designation of hourly parking spaces by the 2nd appellant was "for the convenience of the owners, occupiers and visitors" and that such designation was by virtue of the 1st appellant having "obtained both title and exclusive possession of the Common Parts".

43. Stripped of the absurdity with regard to the claimed right of exclusive possession under the assignment of 7 July 1989, the Defence amounted to an admission of fact that the 2nd appellant did indeed exercise its power under clause 8(b)(i) of the DMC.

44. The 2nd appellant's Defence was even more explicit : Para.12 of the Statement of Claim was simply admitted.

Admission

45. There is no magic in the words "allocate and designate" used in clause 8(b)(i) : Nothing more was required than lines drawn on a plan or a simple marking out of the parking spaces on the ground. At trial it seemed to have been common ground that this was what the manager did. Nowhere does one see in the appellants' pleadings a reference to clause 5(f) : The clause Mr Barlow relies upon in this Court. In these circumstances it is plainly not open to Mr Barlow, for the first time in this Court, to argue that clause 5(f) applies; that it was not the manager, exercising its powers under clause 8(b)(i), but the 1st appellant or the developer who had marked out the parking spaces in the Disputed Area, thereby asserting a right of exclusive possession over those spaces. Further, as Mr Kenneth Kowk SC correctly pointed out at the hearing, if that indeed were the case, it would have been a simple matter for the developer and the 1st appellant to have made provisions for that in the assignment of 7 July 1989 : Such absence in the deed points strongly to the conclusion that no such designation had been made by them.

Clause 5(f)

46. In these circumstances, it is unnecessary to deal with the point in para.37(i) above : That is, the proper construction of clause 5(f). I would therefore simply say this : clause 5(f) is unhappily worded. On one view, the right to designate only arises when, at the time of its exercise, it can be shown that the "passages, corridor ways, landings" were no longer "for the common use of the Premises and/or the Building" : An example, cited in the course of the hearing, would be where a floor, having passages, landings etc, came into sole ownership : Designation of the passages, landings etc on that floor for the sole use of the owner of that floor might then have been a natural exercise. If this view be correct - it clearly has some weight - Mr Barlow would have failed in limine even if he was permitted to advance the point.

Exoneration

47. The arrangement for the collection of parking fees, on the 1st appellant's behalf, started from May 1989. Clause 8(b)(i) of the DMC says that it should be paid into the Management Sink Fund, on behalf of the owners as a body from time to time. The 2nd appellant was acting in breach of the DMC in failing to account to the owners for the monies, and paying those monies instead over the 1st appellant.

48. The trial judge found that the sums came to a total of $1,993,421.00 and ordered that it be paid with interest as from 17 September 1998 (the date of the service of the writ) to the respondent.

49. Mr Barlow, on the 2nd appellant's behalf, argues that, on the facts shown and as found by the judge, the 2nd appellant's omission involved no criminal liability or dishonesty or wilful negligence and hence should be exonerated under clause 9(cc) of the DMC which gives relief in those circumstances. He relies on the judge's finding that the 2nd appellant acted under the erroneous belief "as matter of law and fact that the 1st defendant was the owner of all the parking spaces and the Common Parts and was entitled to collect parking fees on the ground floor".

Counsel's objection

50. Mr Kenneth Kwok SC, on the respondent's behalf, objected to this point being raised at this late stage, it being neither pleaded nor argued in the courts below; had the point been raised there might well have been evidence called bearing upon the issue as to whether the 2nd appellant had been guilty of "dishonesty or wilful negligence". Furthermore, as Mr Kenneth Kowk SC pointed out, when it came to an appeal to the Court of Appeal, the 2nd appellant was content to rely on the indemnity given by the 1st appellant and incorporated in the judgment : the 2nd appellant raised no separate matter on appeal, relying simply on the 1st appellant to succeed in that court. Mr Kenneth Kwok SC further submitted thus : Whilst admittedly the trial judge did say that the 2nd appellant had acted under "the erroneous belief ... that the 1st defendant was the owner of all the parking spaces and the Common Parts and was entitled to collect parking fees ...", there is this countervailing point : From late 1993 onwards the 2nd appellant knew from letters of complaint received that what it was doing was under challenge : Had the question of exoneration under clause 9(cc) been raised, it was at least possible (as Mr Kenneth Kwok SC submitted) that no exoneration would have been ordered in relation to the fees collected from late 1993 onwards.

51. The principles applicable with regard to raising a fresh point on appeal in this Court are too well known to require repetition : See for example Flywin Co Ltd v. Strong & Associates Ltd (2002) 5 HKCFAR 356 at 368-9. In my judgment Mr Barlow has come nowhere near persuading us that the exoneration point should be entertained for the first time in this Court.

Right to sue

52. The major point taken on behalf of the 1st appellant, as the Court of Appeal said, was that "the plaintiff could not sue in respect of ... wrongs ... committed prior to its incorporation". It is here that the proceedings were particularly bedevilled by the awkwardness in presentation in the trial court.

53. As mentioned earlier (para.39 above), if one stripped the statement of claim of its verbiage and obfuscation, the respondent's case was simple : The 1st appellant received, through the agency of the 2nd appellant, sums representing parking fees which belonged in equity to the owners as a body from time to time; those sums should have been paid by the 2nd appellant into the Management Sink Fund for the benefit of the owners in relation to management expenses; this gave rise to a duty in equity to account. Full stop.

54. Section 16 of the Building Management Ordinance provides :

"16. Rights etc of owners to be exercised etc by corporation

When the owners of a building have been incorporated under s.8, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by, and the liabilities of the owners in relation to the common parts of the building shall, subject to the provisions of this Ordinance, be enforceable against, the corporation to the exclusion of the owners, and accordingly -

(a) any notice, order or other document which relates to any of the common parts of the building may be served upon the corporation at its registered office; and

(b) any proceedings in the tribunal in respect of any of the common parts of the building may be brought and pursued by or against the corporation."

55. As Rogers VP said : "All owners had bound themselves in such a way that the money could only be used for common purposes, namely management expenses. On ceasing to be an owner by sale of the relevant undivided shares [such] owner would cease to have any interest in that money. The money would remain in the Management Sink Fund, or be designated to be put in that fund, to the ultimate benefit of those who were future owners of the Building, in other words, owners of the undivided share".

56. Upon this analysis - correct, in my view - there is no question of retrospectivity in applying s.16. As Rogers VP went on to say :

"At the date of incorporation ... the owners for the time being of the Building enjoyed a right to enforce reimbursement of the parking fees which had been passed to the 1st defendant".

57. The owners as a body had the right to say, right up to the moment of incorporation : We want an accounting for the parking fees now. This right then passed to the corporation and became exercisable by the corporation, in terms of s.16. It is as simple as that.

58. If the case had been presented at trial in that way, then :

(i) There would have been an order to the defendants to account.

(ii) In relation to the 2nd defendant's expenses there would have been a disallowance of what the judge had categorized as "wasted staff costs", amounting to $1,537,880.25.

59. As things transpired, the trial judge in effect embarked upon an accounting exercise. There is nothing intrinsically wrong in that. Where the proceedings went off course was when the judge dealt with the case on the basis of tortious (and also contractual) liability allegedly accruing prior to incorporation; the judge erroneously categorized the claim as one in damages because that was the way counsel presented the case. In this regard he relied on two first instance decisions : Cheung J's judgment in Koo Sun Yiu v. Victorison Delivery Ltd and Ors [1996] 4 HKC 152 and Beeson J's judgment in Hang Yick Properties Management Ltd v. Incorporated Owner of Winner Building [1999] 3 HKC 574. In Koo Sun Yiu the plaintiff sued the corporation for damages in respect of injuries sustained in the common area of a building; the accident occurred five months before incorporation. Cheung J held, on the trial of a preliminary issue, that the plaintiff's right against the owners could not be enforced against the corporation. In Hang Yick Properties Management Ltd the question was whether a contractual claim which arose prior to incorporation could be enforced against the corporation. Beeson J, following Cheung J in the earlier case, said No.

60. Deputy Judge To, following those two cases, held that s.16 conferred no right of action on the corporation.

Section 18(2)(g)

61. If the corporation had no right to sue, how, then, did the judge nevertheless go on to enter judgment in the respondent's favour for $3,531,301.25 and interest? The answer is that he did what Mr Barlow categorized as an impermissible leap : He invoked the provisions of s.18(2)(g) of the Building Management Ordinance, which deals with the corporation's discretionary duties and powers. Section 18(2)(g) says :

"(2) A corporation may, in its discretion -

(g) act on behalf of the owners in respect of any other matters in which the owners have a common interest."

62. The trial judge had plainly erred in this regard. Section 18(2) deals with management matters such as the employment and remuneration of staff, the insurance of the building, acquisition of property for use in connection with the common areas, etc. It does not confer power where none existed. If a right of action against an owner, in relation to the common parts, was in law exercisable by the corporation in terms of s.16, then s.18(2)(g) empowers the corporation to engage solicitors to institute proceedings. But it begs the very question.

63. The Court of Appeal did not deal with this issue : As Mr Barlow's printed case says, the Court of Appeal side-stepped the point. It affirmed the judgment - though not the process of reasoning - by holding, correctly, that the right of the owners, at the time of incorporation, was a right to require the appellants to account, which therefore passed to the respondent under s.16 upon incorporation. On that basis the appeal was dismissed.

Juridical basis of judgment

64. Does it matter, then, that the Court of Appeal had affirmed the judgment upon a basis not articulated by the trial judge? As to this, it is worth noting that, from inception, the writ claimed, as one of the reliefs "all proper accounts and enquiries to ascertain the [income derived from parking] and an order that all monies found due upon the taking of the ... accounts and enquiries be paid to the plaintiff". This was repeated in the statement of claim, and that was how the matter went to trial. Nothing suggests that if, at the end of the day, there had been an accounting along the lines adumbrated in para.58 above, rather than the way the judge approached the case, the result would have been materially different : No submission was made to us by either counsel for the appellants to this effect.

Conclusion

65. As this Court has repeatedly stressed, it strives to achieve practical justice between the parties, not ideal justice on a theoretical basis. Upon the respondent's claim for an accounting for the monies wrongfully received, the judge took into consideration the relevant factors and arrived at the figure of $3,531,301.25. There is no basis upon which that judgment can now be disturbed in this Court.

66. At the hearing, an attempt was made by counsel to persuade us that Koo Sun Yiu and Hang Yick Properties Management were wrongly decided; that, in Koo Sun Yiu Cheung J should have held that the tortious liability of the owners incurred at the time of the accident passed to the corporation under s.16 and, in Hang Yick Properties Management Beesson J should have decided that the contractual liability likewise passed. In my view the present case affords no opportunity to this Court to re-visit those judgments : Properly understood, the cause of action here is wholly different from the causes of action in those two cases.

67. Having reached this point I would simply dismiss the appeal. As to costs, I would make an order nisi that the appellants should pay the respondent's costs on these appeals, to be made absolute unless, within 14 days of this judgment being delivered, either appellant should make written submission (copied to the respondent) as to why some other order should be made. In this event, the respondent should have 14 days to lodge its written reply.

Lord Millett NPJ:

68. I agree with the judgment of Mr Justice Litton NPJ.

Chief Justice Li :

69. The Court unanimously dismisses the appeal and makes the order nisi as to costs set out in the concluding paragraph of the judgment of Mr Justice Litton NPJ.