INCORPORATED OWNERS OF SO TAO CENTRE v. LAM KONG WAN

cacv 158/2007

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 158 of 2007

(on appeal from DCMP NO. 4250 of 2004)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the reasons for judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  This was an appeal from part of a judgment of Deputy District Judge R Cheung dated 20 December 2006 relating to default interest on arrears of management fees provided for in the Deed of Mutual Covenant (the “DMC”).  At the conclusion of the hearing, the appeal was allowed with written reasons to be handed down which we now do.

Background

3.  On 8 December 2004 the incorporated owners of an industrial building in Kwai Chung (“the plaintiff”) issued proceedings against the owner of one of the workshops in the building (“the defendant”) for, inter alia,arrears of management fees and default interest.  The defendant’s share of the management fees was $1,414 per month.  As of 31 July 2000, the defendant had refused to pay management fees for the period of two years from December 1995 to November 1997 and for June and July 2000, a total of 26 months.

4.  In August 2000, the plaintiff registered a memorandum of charge against the defendant’s property as it was entitled to do under the provisions of the DMC.  Subsequent to that date and before the commencement of these proceedings the defendant paid the management fees for the months of June and July 2000.

5.  In the action, the relief sought by the plaintiff included default interest on unpaid management fees.  Clause 18(a)(i) of the DMC provides that an owner who fails to pay any amount due by way of management fee within seven days from its due date is liable to pay interest at the rate of 1.5% per calendar month on the amount unpaid.

The judgment below

6.  The judge refused to award default interest as provided for in the DMC on the basis that there had been unreasonable delay on the part of the plaintiff which had caused the defendant prejudice.  He further held that:

“

65.

If timely legal action is taken and a judgment obtained, the Plaintiff’s right to the contractual default interest would merge in the judgment.  On a rough basis, I take it to be reasonable that the Plaintiff should have obtained judgment in about two year’s time starting from each default.  To allow the default interest to accrual beyond a two-year period would be unjust or unreasonable, bearing in mind that the default interest of 18% and is well above the usual commercial or investment interest rate.  Two years of default interest would yield $33,936 x 18% x 2 = $12,217.  This would be the award for default interest.”

Although the defendant did not specifically plead laches, the judge was prepared to find that the reference in the amended defence and counterclaim to the plaintiff’s delay in instituting legal proceedings for its claim was sufficient to entitle the defendant to rely on it.

This appeal

Laches as a defence

7.  The plaintiff’s entitlement to default interest is governed entirely by the provisions of the DMC.  The substantive issue raised by the plaintiff is whether laches is available as a defence at all when the claim for default interest is a claim based on express provisions in the DMC.  For a document under seal which the DMC undoubtedly is, the relevant limitation period is 12 years.  The law is well settled that the equitable doctrine of laches has no application where there is an express statutory provision providing a period of limitation for the plaintiff’s claim: see In re Pauling’s Settlement Trusts [1962] 1 WLR 86, 115, affirmed [1964] Ch 303, 353.  As the claim was made within the statutory period of limitation, subject to the respondent’s notice considered below, the plaintiff must succeed on this point, and it would follow that there was no basis upon which the judge could have cut down the plaintiff’s legal entitlement default interest to a two-year period.

Interest from the date of the writ to judgment

8.  The judge ordered interest for this period to be calculated at 1% above prime, exercising his discretion pursuant to section 49 of the District Court Ordinance.  As the plaintiff’s claim is based on a contractual entitlement, it is entitled to that interest as of right and discretion under the District Court Ordinance does not arise.  See In re Sneyd (1884) 25 Ch D 338, 351.

The respondent’s notice

9.  A respondent’s notice had been filed by the solicitors previously acting for the defendant who appeared in person at this hearing.  The notice sought to impugn the provision for default interest on the ground that it constituted a penalty.  The judge found that although the rate of interest of 18% was on the high side it was not “an exorbitant rate of interest” and that, in the present case, not only was there no oppression, every non-paying owner was taking an unfair advantage over the paying owners.  I see no basis on which this court could interfere with the judge’s findings on this issue.  I am satisfied that the stipulated default interest was not a penalty.

The order

10.  As of 30 June 2005, the amount of default interest was $52,685.64 as shown in Schedule A to the re-amended statement of claim, a copy of which was provided to the court at the hearing.  As judgment was given some 17 months later in December 2006, the revised amount of default interest up to the judgment date is the sum of $61,339.32.

11.  This court therefore made the following order at the conclusion of the hearing:

“	Paragraphs 1 and 2 of the Order of 20 December 2006 be set aside and there be substituted therefor:
	1.	The defendant do pay the Plaintiff management fees in the sum of $33,936.00 and default interest in the sum of $61,339.32 and thereafter interest on the said sum of $95,275.32 at judgment rate from time to time prevailing until payment.
	2.	In the calculation of the interest payable under paragraph 1 hereof credit be given for the amount received from the payment in including interest thereon.”

12.  Counsel for the plaintiff referred this court to the order made by the judge on 9 January 2007 relating to the costs below.  That order had been made on the basis of a payment into court made by the defendant.  As the amount to which the plaintiff has been found by this court to be entitled exceeded the payment in, the costs order was set aside and an order was made giving the plaintiff the costs here and below.

Hon Stone J:

13.  I agree with the reasons for judgment of Le Pichon JA.