HUGE DRAGON CORPORATION LTD v. THE INCORPORATED OWNERS OF LUNG MUN OASIS

HCA 524/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 524 OF 2010

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BETWEEN

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J U D G M E N T

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1.  This is an appeal from the Decision of Master J Wong where he granted unconditional leave to the defendant to defend these proceedings.

2.  The application which was before the Master was made under Order 14 of the Rules of the Court.  It was an application for summary judgment of part of the plaintiff’s claim.

3.  The dispute between the parties relates to the construction of the terms contained in a Deed of Mutual Covenant and Sub-Deed of Mutual Covenant and a Sub-Sub-Deed of Mutual Covenant which provided for management fees of the wet market units in the Lung Mun Oasis which is a large estate in Tuen Mun in the New Territories.

4.  The estate comprises 16 residential blocks, a commercial development made up of shops, a supermarket, wet market and kindergarten and the car parking building.

5.  The plaintiff is the owner of 16 units in the wet market.

6.  The complaint made by the plaintiff in the Amended Statement of Claim is that the calculation of the management fees for the wet market units does not accord with the clear provisions contained in the relevant Deeds of Mutual Covenant. 

7.  The problem was that the expenditure of the commercial development was incorrectly included in the wet market budget.  Instead of applying the “ratio approach” the defendant has wrongly been adopting “the fixed rate approach”.

8.  The plaintiff’s position is set out in paragraph 29A of the Amended Statement of Claim.

“29A.(a) Without prejudice to the matters aforesaid, even if which is denied, the Management Budget does not suffer from the problems identified in paragraphs 20(a), (b) and (d) above, the Plaintiff says that the Defendant has acted in breach of clauses 7(1)(a) and (c) of Sub-Section D of Section VI of the Principal Deed, Third Schedule of the Sub-Deed, clause 4(b) and Column (3) of Second Schedule of the Sub-Sub-Deed as mentioned above by not having the contribution of the owners of the Commercial Units of the Wet Market towards the Management Expenses under the Commercial Management Budget (covering Estate Management Expenses to be contributed by the owners of the Commercial Units) to be determined by way of apportionment based on the Management Shares but instead has since 1998 and if not since 2005 fixed the sum to be HK$23.82 per Management Share as mentioned by paragraph 18 above.”

9.  Paragraph 29 of the amended defence amounts to little more than a bare denial.

“29. Paragraph 29A and all its sub-paragraphs of the Amended Statement of Claim are denied and the Defendant avers:

a.) at all material times that the contribution of the owners of the Commercial Units of Wet Market towards the Management Expenses is apportioned on the basis of the number of Management Shares allocated to each Wet Market Commercial Unit.

b.) It is denied that the Defendant has breached any provisions of the DMC’s in the making of the Wet Market budget or wrongly calculated the contribution of the owners of Commercial Units to the Management Expenses of the Commercial Development.

c.) It is denied that the Defendant has overcharged the owners of the Commercial Units of the Wet Market including the Plaintiff, as alleged or at all.

d.) The Defendant avers that it has been complying with the BMO in preparing the budget of the Wet Market in particular the Schedule 7 of the Ordinance.”

10.  It would appear that where the learned Master fell into error was where he entered into considerations as to what administrative convenience might dictate.  This was not the correct approach.

11.  The defendant is only able to levy a charge upon owners if it is in accordance with contractual rights conferred by the respective Deeds of Mutual Covenant or some legislative provision.

12.  No doubt there are other provisions contained in the various Deeds of Mutual Covenant which would enable the defendant to provide for a sinking fund for more major expenses.

13.  The situation in this case is not altogether different from the problems which were encountered in The Incorporated Owners of Yee On Court v Li Zee Zing Hai (unreported) being CACV 181/2000 where the court commented at page 6 of the judgment as follows:

“13. It makes a significant difference to Madam Li whether the cost of the work in question comes within the scope of the DMC. If it does not the amount payable by Madam Li is approximately four times as much.

14. This is on account of the fact that if the expenses are met by virtue of the provisions contained in the Building Management Ordinance, Cap. 344 the expenses would be shared on the basis of the notional division of the building into the undivided shares earlier referred to which is provided for in clause 3 of the recitals to the DMC. That is that Madam Li would have to pay 19/4152 of the costs.

15. From reading the judgment as a whole it would appear that the main rationale for the Deputy Judge coming to the conclusion that the work in question did not come within the ambit of clause 4 is that the fund was intended "for general day to day expenses".

16. With the greatest respect to the Judge I do not consider that there is any warrant for this conclusion.

17. If one takes as an example an expense such as painting the external parts it is obvious that you do not just do a small amount of painting every month. What you do is to provide for a sinking fund to meet expenditure as and when it arises. There is sufficient power vested in the manager to do just that.

18. What is clear is that managing a building requires anticipating future expenditure and the way this is done is to provide for a sinking fund. Any other approach would be a prescription for chaos.”

14.  This being the case this appeal must be allowed and I so order.

15.  The form of the order made in respect of the judgment which is entered is as follows:

“(1) A declaration that the Defendant has wrongly decided the contribution of the Owners of the Commercial Units of the Wet Market towards the Management Expenses under the Commercial Management Budget (inclusive of Estate Management Expenses to be contributed by the owners of the Commercial Units) by fixing it to be a sum of HK$23.82 per Management Share since 1998 instead of deciding the same according to the amount of the budget and the ratio or apportionment of the Management Shares of the Commercial Development and the Wet Market.”

16.  The plaintiff will have its costs both in the hearing before the Master and for this hearing also.  The plaintiff must furnish to the defendant a skeleton bill of costs within 3 days and the defendant must respond there to within a similar period of 3 days in an attempt to agree a lump sum amount and there will be liberty to apply.