NG YUI TONG v. TAIKOO SHING (MANAGEMENT) LTD

CACV 594/2021

[2023] HKCA 297

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 594 OF 2021

(ON APPEAL FROM LDBM NO 116 OF 2019)

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J U D G M E N T

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Hon Chow JA (giving Judgment of the Court):

INTRODUCTION

1.  The question for determination in this appeal is whether it was within the management powers or functions of the Respondent, as building manager of Taikoo Shing, to organize various activities of a recreational or social nature for residents of the estate which have been approved by the Management Liaison Council constituted by the representative owners of the estate. The answer to this question depends on the true construction of the deed of mutual covenant for Stage III of Taikoo Shing.

BASIC FACTS

(i)  The parties

2.  Taikoo Shing, a large private residential and commercial development, covers an area of some 53 acres in the Eastern District of Hong Kong Island, and is home to over 12,000 families living in 61 residential towers. It was developed in 12 Stages, with Stage I being completed in 1976. Each Stage of Taikoo Shing consists of a number of tower blocks, and has its own deed of mutual covenant and management agreement in similar form and with similar terms.

3.  The Respondent is the manager of the whole of Taikoo Shing, and has been acting as such since 1976.

4.  Stage III of Taikoo Shing, comprising 8 residential towers, was completed in about 1978.

5.  The Applicant has been a registered owner of Flat H, 10^th Floor, Fu Shan Mansion, in Stage III of Taikoo Shing since 1997. He was a member of the “Representative Committee” of Stage III (more particularly described in §10 below) between 2006 and 2017, and also a member of the Management Liaison Council (more particularly described in §11 below) between 2009 and 2014.

(ii)  The Deed of Mutual Covenant

6.  The deed of mutual covenant for Stage III (“the DMC”) is dated 9 January 1978. In the DMC, the Respondent is referred to as the “Management Company”. The following provisions of the DMC are relevant for the present purpose.

7.  Recital (5) to the DMC states that the parties thereto have agreed with the Respondent for it to -

“undertake the management, operation, servicing, maintenance, repair, renovation, replacement, security, and insurance of the said Land and the buildings thereon and their equipment services and apparatus (all or any of which activities are hereinafter included under the word ‘management’) …”

8.  Clause 6A(i) provides that the management of Stage III shall be undertaken by the Respondent from the date of issue of the first occupation permit until terminated by the Respondent giving to the owners not less than six months’ notice in writing to terminate the same.

9.  Clause 6A(iii) states that it is intended that the Respondent, in addition to managing “the said Land and the buildings thereon” (ie Stage III), will be the manager of the entire Taikoo Shing Estate.

10.  Clause 6B provides for the establishment of a “Representative Committee” for Stage III comprising 18 members appointed by secret ballot at a meeting of the owners (with 2 representatives from each tower block and 2 representatives from the owners of the shops in Stage III), with the function of, inter alia, representing the owners in all dealings with the Respondent through the Management Liaison Council.

11.  Clause 6C provides for the establishment of the Management Liaison Council for all completed buildings in Taikoo Shing. The Management Liaison Council is required to hold meetings not less than 8 times a year[1], and each Representative Committee (of the 12 Stages) shall elect from their number not more than 3 persons to serve on the Management Liaison Council. In addition, a representative of the Respondent shall be a member of the Management Liaison Council and ex officio its Chairman. The functions of the Management Liaison Council include:

(1)  liaising with the Respondent in respect of all matters dealing with the management of Taikoo Shing as a whole; and

(2)  reviewing the annual budget prepared by the Respondent.

12.  Clause 7 sets out the powers and functions of the Respondent. Clause 7(a) states generally that the Respondent shall be responsible for and shall have full and unrestricted authority to -

“do all such acts and things as may be necessary or requisite for or in connection with the said Land and any of the buildings thereon and the management thereof including …”

13.  Clause 7(a) then sets out, in 28 sub-paragraphs, a list of specific powers (without prejudice to the generality of the foregoing) of the Respondent covering a wide range of matters pertaining to the management of Stage III such as management and control of car parking spaces, insurance, lighting, repairs and maintenance of common parts, common areas and common facilities, refuse collection, security, keeping of accounts, etc. Clause 7(a)(24) states that the Respondent shall have power to -

“do all such other things as are reasonably incidental to the management of the said Land and the said buildings”.

14.  Clause 7(b) provides that all acts and decisions of the Respondent arrived at in accordance with the provisions of the DMC shall be binding in all respects on all the owners for the time being of undivided shares in Stage III.

15.  Clause 8(a) provides that for the purpose of fixing the contributions payable by the owners, an annual budget showing the estimated expenditures for the ensuing year shall be prepared by the Respondent for review by the Management Liaison Council. Such budget shall be divided into four parts. The first part covers expenditures for the benefit of all owners as essential or required for the proper management, cleansing, security and maintenance of common areas and facilities common to Taikoo Shing as a whole; the second part covers expenditures referable to the shops, schools, school playgrounds and offices in the buildings; the third part covers expenditures referable to the flats or roofs of the buildings; and the fourth part covers expenditures referable to the car parking spaces. Clause 8(b) provides that such budget shall be reviewed by the Management Liaison Council, and in the light of such review the Respondent may, but is not obliged to, alter the same. Clause 8(c) further provides that the Respondent shall fix the amount to be contributed to the annual budget by each owner in accordance with various principles, the details of which it is not necessary to set out in this judgment.

(iii)  The activities objected to by the Applicant

16.  Since or about 2006, the Respondent has organized various activities of a social or recreational nature with the approval of the Management Liaison Council. Those activities include:

(1)  dragon boat race;

(2)  anniversary dinners;

(3)  activities for senior residents, including but not limited to elderly health check programme;

(4)  special coach to Wo Hop Shek Cemetery at Fanling during Ching Ming Festival;

(5)  tower festive decorations and Mid-Autumn variety shows;

(6)  Chinese New Year tour and Easter tour; and

(7)  summer activities for 2013 and various workshops (hereinafter collectively referred to as “the Activities”).

17.  Further, the expenses for organising the Activities are included in the budgets prepared by the Respondent and reviewed by the Management Liaison Council. The amounts involved are relatively insignificant. For example, for the year 2013, the amount spent on community services comprised only approximately 0.5% of the overall management expenditure.

18.  The Applicant objects to the organising of the Activities by the Respondent, contending that they are unrelated to and not requisite for the management of the estate. He has persistently voiced his objections to the Activities being organized by the Respondent since no later than 2013, including instructing solicitors to write letters dated 4 June 2013 and 19 July 2013 to demand the Respondent to refrain from organising or holding any further activities of a social or recreational nature, and provide full information regarding the Activities organized by the Respondent (including the number of staff involved and the salaries/wages/overtime pay/subsidies incurred or paid, details of all other payments incurred in respect of the Activities, and the profits/remuneration derived by the Respondent from the Activities).

19.  On the other hand, the Respondent considers that the Activities are for the benefits of the residents of the estate, and are necessary or requisite for the management of the estate, falling within the ambit of what it is empowered to do under Clause 7(a) of the DMC. The Respondent highlights that since 1976 when Stage I of Taikoo Shing was completed, there has been a history of community activities being undertaken. They have traditionally been regarded as being a way of fostering and reinforcing community spirit and promoting harmonious neighbourhood in the estate.

20.  As a matter of fact, the number of community activities organized by the Respondent has significantly decreased not least because of the Applicant’s commencement of legal proceedings below. Of the various activities mentioned in paragraph 16 above, most of them have been abandoned due to the litigation (full details of which are set out in §21 of the judgment of the Lands Tribunal the subject of the present appeal).

(iv)  The Action

21.  On 26 July 2013, the Applicant commenced an action in the High Court (HCA 1383/2013) against the Respondent. The Applicant contended that:

(1)  the Activities are not necessary or requisite for or in connection with or reasonably incidental to the management of the land and the buildings, hence in breach of Clause 7(a) of the DMC;

(2)  the expenses on the Activities exceeded the scope of the annual budget as prescribed under Clause 8(a) of the DMC, hence in breach of the said provision;

(3)  the Activities do not serve the common interest or benefit of all the owners of the estate, hence the Respondent does not have lawful authority to hold the same;

(4)  by reason of the foregoing, the Respondent is not entitled to withdraw, use or seek reimbursement of monies or expenditures incurred in the Activities out of the management fund of the estate;

(5)  the Respondent stands to unjustifiable gain and profit by receiving remuneration and management supervision fee at 5% of all expenses and expenditures attributable to organising the Activities under Clause 8(a)A(iv) of the DMC;

(6)  the Respondent is estopped from denying that they have no authority to hold the Activities because that was the conclusion reached by their own legal advisors;

(7)  the Respondent stands in the position of a trustee with regard to the management fund and therefore owes a fiduciary duty and/or duty of utmost good faith to properly apply the management fund; and

(8)  if the Respondent purports to exonerate its obligations or breaches by reliance upon the DMC provisions, such provisions are unconscionable, oppressive and unreasonable and should not be applied in the Respondent’s favour.

22.  The Applicant claimed, inter alia, an injunction order against the Respondent to restrain it from organising or holding the Activities or such other activities as are not necessary, requisite or reasonably incidental to the management of Stage III of Taikoo Shing, a declaration that the Activities are not necessary, requisite or reasonably incidental to the management of the estate and the Respondent shall not pay for or subsidise the Activities out of the management fund of the estate, damages, and other relief.

23.  The action was subsequently transferred to the Lands Tribunal (and became LDBM 116/2019), and consolidated and tried together with two other actions (LDBM 191 & 196/2018) brought by the Applicant against the Respondent relating to other aspects of the management of Taikoo Shing.

THE JUDGMENT

24.  On 5 March 2021, Deputy District Judge Michelle Soong gave a written judgment (“the Judgment”) dismissing all the Applicant’s claims in the consolidated action.

25.  In relation to LDBM 116/2019, the Judge held that the organising or holding of the Activities by the Respondent fell within the power of the Respondent as being things “reasonably incidental to the management” of Stage III, or acts or things “in connection with the said Land … and the management thereof”, under Clauses 7(a) and 7(a)(24) of the DMC (§§47 & 54-55 of the Judgment).

26.  The Judge’s reasons for coming to these conclusions are set out in §§36-68 of the Judgment, which may be summarised as follows:

(1)  The DMC envisages the Respondent to have the overall management responsibility over the entire Taikoo Shing. It shall manage the estate in consultation with the Management Liaison Council which is a body substantially composed of owners’ representatives to represent the interests of all the owners and to exercise budgetary control.

(2)  The Management Liaison Council has 6 sub-committees which specialise and focus on different aspects of the affairs of the estate. Of particular relevance to the present case is the “Recreational Sub-committee”.

(3)  The Respondent is actually not the decision-making body that decided whether to hold or not to hold certain activities for the residents. The owners’ representatives in the Management Liaison Council, or more specifically the Recreational Sub-committee, seem to be the one that makes the decision while the Respondent is more a facilitator to provide administrative support in the execution of the Management Liaison Council’s decision.

(4)  The Applicant has never challenged the power of the Management Liaison Council or the Recreational Sub-committee to consider, discuss and resolve matters concerning recreational activities on behalf of the residents. In any event, it falls within the power and function of the duly elected residents’ representatives (to be collectively exercised through the Management Liaison Council and/or the Recreational Sub-committee) to decide whether and what recreational activities should be held and to recommend the same for the Respondent’s execution.

(5)  Although the holding of recreational activities is not acts and things strictly “necessary or requisite for” the management of the estate, Clause 7(a)(24) of the DMC clearly empowers the Respondent to “do all such other things as are reasonably incidental to the management of the said Land and the said buildings”.

(6)  Where the body of duly elected owners’ representatives (i.e. the Management Liaison Council) have discussed, deliberated and resolved that a modest fraction of the owners’ money shall be spent on providing community activities for the benefits of the residents as a whole, and where such expenditure has been properly approved through the budget approval procedure laid down in the DMC, the Respondent’s offering of managerial support to execute such decision should fall within “things reasonably incidental to the management” of the estate within the meaning of Clause 7(a)(24) of the DMC.

(7)  The phrase “reasonably incidental to the management” in Clause 7(a)(24) requires some degree of reasonableness and relevance in the exercise of such power. The question of reasonableness is fact sensitive but there is no need for the court to embark on this topic because the Applicant’s case is not about the reasonableness of the decisions to hold the Activities. The Applicant’s case is that the Respondent has simply no power to hold recreational or community activities at all.

(8)  The relevant clauses in the DMC should be interpreted having regard to the overall context of the deed. The completion of the first tower block in Taikoo Shing, in December 1976, marked the beginnings of a complex that spreads to 53 acres, and is home to over 12,000 families, living in 61 residential towers. Taikoo Shing was and remains the largest private residential development on Hong Kong Island.

(9)  With such scale of development, it is unlikely that the developer and the draftsman of the DMC intended the deed to be drawn up in such a way to give the Respondent very restricted powers to do only things that are “necessary” or “requisite” for the management of the estate (such as structural repair and maintenance as suggested by the Applicant) so as just to meet the basic management needs of the residents but not anything else beyond that primary level.

(10)  The aspiration of the developer of Taikoo Shing is to provide an integrated environment for working, living and leisure to the residents. To create such a living environment, the provision of some community activities to the residents should be within the scope of what could be done by the Respondent.

(11)  The Applicant’s narrow construction of the relevant clauses in the DMC to give the Respondent only very restricted management powers could hardly achieve the particular style of property management as intended by the developer and the draftsman of the DMC. That narrow construction may even bring about nonsensical results by forestalling activities (such as basic health checkup for elderlies, refuse recycling project or exchange of second-hand items) simply because they are not “necessary” or “requisite” to the management of the estate despite these activities may be non-costly and beneficial to the residents. That does not make sense.

(12)  The court is not laying down any general rule that the manager of every building or estate must provide community activities or services for the benefit of the residents. Every case must be decided on its own facts with the particular terms of the DMC, the features of and any uniqueness in the subject estate taken into account. There may be situations where the estate or building is small with limited funds and resources and under such circumstance, the provision of recreational activities may well not be justified.

(13)  However, what the court is concerned with in the present case is a large urban housing development comprising over 12,000 residential units and the amount spent on community services represents approximately only 0.5% of the management expenditures of the estate. These may be relevant if one is to assess whether the extent of community activities provided and the expenditure thereon are excessive or just in moderation. But the court does not have to explore this area further as these proceedings are not about the reasonableness of the quantum of expenditures having been spent on community activities but are about whether the Respondent has the power to provide such activities as a matter of principle.

27.  Accordingly, the Judge dismissed the Applicant’s claim in LDBM 116/2019 with costs to the Respondent.

THE APPEAL

28.  The Applicant was not satisfied with the Judgment, and on 1 April 2021 applied to the Judge for leave to appeal against the Judgment. On 27 May 2021, the Judge dismissed the Applicant’s application for leave to appeal.

29.  By a summons issued in the Court of Appeal on 15 June 2021, the Applicant renewed the application for leave to appeal against the Judgment.

30.  On 23 December 2021, the Court of Appeal (constituted by Chu JA (as she then was) and Au JA) granted the Applicant leave to appeal against the Judgment, but limited to the following ground of appeal (“the Construction Ground”) only:

“The Judge erred in law in finding that the [Respondent] was not in breach of the DMC in organising the Activities and in including those expenses in its respective budgets, as on a proper construction, the Activities did not fall within the meaning and scope of clauses (5) of the Preamble and 7(a) and 7(a)(24) of the DMC”.

31.  The Court of Appeal also expressly excluded from the leave to appeal granted to the Applicant his challenge to the “Tower Festive Decorations” (mentioned in §16(5) above)[2].

DISCUSSION

32.  It is clear from the way in which the Construction Ground is framed by the Court of Appeal that the answer to the question of whether the Respondent acted in breach of the DMC in organising the Activities and in including the relevant expenses in its respective budgets depends on the true construction of the DMC, in particular, Recital (5) and Clauses 7(a) and 7(a)(24) thereof.

33.  As in relation to any question concerning the construction of a written instrument, the true construction of the DMC should take into account its context and purpose, as well as the language used in the document.

34.  The purpose of the DMC and the purpose of the particular provisions under consideration should not be controversial.

(1)  The purpose of the DMC is set out in Recital (5), which states as follows:

“The Parties hereto have agreed with the Management Company for the Management Company to undertake the management, operation, servicing, maintenance, repair, renovation, replacement, security and insurance of the said Land and the buildings thereon and their equipment services and apparatus (all or any of which activities are hereinafter included under the word ‘management’) and the parties hereto have agreed to enter into this Deed for the purposes of making provisions for such management and of defining and regulating the rights interests and obligations of themselves and all subsequent owners in respect of the said Land and the buildings thereon.”

It is clear that the DMC serves two main purposes: (i) making provisions for the management of the estate, and (ii) defining and regulating the rights, interests and obligations amongst the owners of the estate. In respect of the first purpose, Clause 6A(i) of the DMC vests the general power of management of the estate primarily in the Respondent, with support from the Representative Committee and the Management Liaison Council under Clauses 6B and 6C.

(2)  The purpose of Clause 7(a) is to set out the powers and functions given to the Respondent to manage the estate.

35.  When considering the question of the limit or scope of the management powers or functions that is given to a building manager, the factual context in which the question arises is significant. The acts or things which may properly be regarded as falling within the “management” of a building/estate depend, amongst other matters, on the type of building/estate in question as well as the facilities available. For example, if one is talking about a single-staircase low-rise building, the management may consist of just some basic or primary services such as cleaning and lighting of the common area, refuse collection, etc. There may not even be space to provide for a watchman, and many functions or activities in a large residential estate (eg maintenance and operation of lifts, car parks and clubhouse, security, insurance, gardening, etc), which undoubtedly would be regarded as falling within the umbrella of “management”, would simply not be relevant.

36.  The context in the present case concerns the management of a huge residential estate housing tens of thousands of residents across the whole spectrum of the population. Although the DMC concerns only Stage III of Taikoo Shing, as stated in Clause 6A(iii) of the DMC, the Respondent is intended to be the manager of the entire Taikoo Shing (with each Stage having a similar deed of mutual covenant). Thus, the Management Liaison Council referred to in Clause 6C of the DMC, being the main bridge of communication between the residents and the Respondent in respect of matters concerning the management of Taikoo Shing, is a representative body of residents of not just Stage III, but all 12 Stages of Taikoo Shing. Hence, when one considers the question of what powers or functions of management have been entrusted with the Respondent under the DMC, one should not be focusing on the management of only 8 residential towers in Stage III, but should consider what powers and functions of management are intended to be given to the manager of the entire Taikoo Shing.

37.  Insofar as the language is concerned, Clause 7(a) of the DMC gives the Respondent full and unrestricted authority to do all such acts and things as may be necessary or requisite for or in connection with the land and the buildings thereon and the management thereof, while Clause 7(a)(24) gives the Respondent general powers to do all such things as are reasonably incidental to the management of the land and the buildings thereon. Three points are of note arising out of the language used in these provisions.

38.  First, it is the clear intention of the DMC to give the Respondent wide powers of management by granting to it “full and unrestricted authority” to do the acts and things referred to in Clauses 7(a) and 7(a)(1)-(28).

39.  Second, the powers given to the Respondents are not limited only to the management of the estate, but extends to acts and things “in connection with”, or “reasonably incidental” to, the management of the estate.

40.  Third, the word “management” is not a word of precision. The meaning of the word permits a degree of elasticity around its edge depending on the context in which it is used.

41.  It may also be noted that the word “management” is not defined exhaustively in Recital (5) to the DMC, because the definition appearing in that recital is an inclusive one (“all or any of which activities (ie management, operation, servicing, maintenance, repair, renovation, replacement, security, and insurance of the said Land and the buildings thereon and their equipment services and apparatus) are ... included under the word ‘management’”). Further, the definition is a somewhat circular one, because it defines the word “management” to include “management” as well as other forms of activities.

42.  The Activities under consideration in the present case are essentially social or recreational in nature (see §16 above). It is incorrect, however, to say categorically that organizing social or recreational activities would necessarily fall outside the management powers or functions of a building manager. If, for example, a housing estate has a gym, swimming pool, tennis court, basketball court, etc, organising relevant classes or competitions for the residents using such facilities may, depending on the circumstances, properly be regarded as acts or things done within the management powers or functions of the manager. Similarly, if the estate has a restaurant, it may be that the manager may properly organise cooking classes, wine tasting events, or festive dinners for the residents without acting beyond its powers or functions. While these activities would be carried out within the estate utilizing the estate’s facilities, it does not seem to us that, as a matter of principle, a strict line must necessarily be drawn by reference to whether the relevant activity is carried out within the estate, or involves the use of the estate’s facilities.

43.  On a strict view, the Activities may not be necessary for the management of the estate, in the sense that without those activities, the management of the estate can still continue, and the residential units can still be comfortably used and occupied by the residents as their dwelling places. However, a residential estate like Taikoo Shing provides more than just a dwelling place. As found by the Judge, the developer’s aspiration is to provide an integrated environment for working, living and leisure to the residents (§59 of the Judgment). Taikoo Shing may properly be viewed as a local community within the larger city of Hong Kong. Further, the Activities were approved by the Management Liaison Council, a body comprising elected representatives of the residents across all 12 Stages of Taikoo Shing. The Activities were for the benefit or well-being of the residents, and the expenses involved were relatively insignificant in the overall scale of the management expenditures. It has also not been shown that the Respondent acted unreasonably in organizing one or more of the Activities.

44.  Taking all these matters into account and looking at the matter broadly, we consider that the Judge reached the right conclusion that it was within the management powers or functions of the Respondent to organize the Activities, in that they were acts or things done “in connection with”, or “reasonably incidental to”, the management of the estate under Clauses 7(a)/7(a)(24) of the DMC. In coming to this conclusion, we would emphasise, as did the Judge, that the court is not laying down a general rule that the Respondent may organise any social or recreational activity that it wishes. The question of reasonableness could be a relevant consideration. However, as pointed out by the Judge, the present case is not about the reasonableness of the Respondent’s conduct. We are also satisfied that the Respondent acted reasonably in organising the Activities with the approval of the Management Liaison Council on the facts of the present case.

45.  We shall now briefly deal with some specific points raised by the Applicant in support of his appeal.

46.  First, the Applicant complains that the Judge failed to take into account 2 legal opinions obtained by the Respondent which opined that it was beyond the Respondent’s powers to organise the Activities. As earlier mentioned, the question raised in the present appeal concerns the true construction of the DMC and is a question of law. The legal opinions obtained by the Respondent is not relevant, or admissible as an aid to the proper construction of the DMC.

47.  Second, the Applicant alleges that the Respondent’s conduct in organising the Activities despite his objection or opposition was unreasonable. However, as pointed out by the Judge at §48 of the Judgement, the Applicant’s case was not about the reasonableness of the Respondent’s decisions to hold the Activities. His case was that the Respondent had no power to hold recreational or community activities at all. For reasons mentioned above, we do not accept the Applicant’s argument that the Respondent has no power whatsoever to hold recreational or community activities. Neither do we accept the Applicant’s contention that the Respondent’s conduct was unreasonable in the circumstances of this case.

48.  Third, the Applicant alleges that the Respondent is guilty of “dishonesty or willful negligence” within the meaning of Clause 7(c) of the DMC. Strictly speaking, this allegation is outside the scope of the ground of appeal on which leave to appeal was granted by the Court of Appeal. In any event, as mentioned by the Judge, the Applicant failed to particularise or adduce evidence of “criminal liability, dishonesty or willful negligence” (§75 of the Judgment). In our view, the Applicant’s allegation of dishonesty or willful negligence against the Respondent is without basis.

49.  Lastly, the Applicant relies on the “contra proferentem rule” in support of his contention that the DMC should be given a restrictive interpretation against the Respondent. Since we do not consider that there is any ambiguity in the DMC which is required to be resolved in order to answer the question raised in this appeal, we do see that there is scope for the application of the contra proferentem rule in the present case.

DISPOSITION

50.  The Applicant’s Notice of Appeal is dismissed with costs to the Respondent (including the costs of the application to the Court of Appeal for leave to appeal), to be taxed if not agreed, with certificate for Solicitor Advocate (if necessary or required).

51.  This judgment is written in English in view of the fact that the pleadings and judgment below are all written in English. If required, the Applicant may make an appointment with the clerk to this Court for this judgment to be orally interpreted to him in Punti in the Court’s premises.