VINEBERG PROPERTY MANAGEMENT LTD v. LEE CHUN FAI

DCMP 2444/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2444 OF 2015

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JUDGMENT

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1.  The plaintiff is the manager of a composite estate known as Nan Fung Sun Chuen (“the Estate”).  The defendant is the registered owner of a unit in the Estate, namely Flat G on the 20^th Floor of Tower Block No 4, No 38 Greig Road of the Estate (“the Property”).  The plaintiff is suing the defendant under the deed of the mutual covenant of the Estate (“the DMC”) for certain sums and for an order that the Property be sold to satisfy the debts owed by the defendant.

Lifting the legal aid stay

2.  On 28 September 2017 in the late afternoon, this court received a memorandum from the Director of Legal Aid notifying the court that the defendant had made an application for legal aid.  That being the case, by the operation of Legal Aid Regulations r 7A, unless otherwise directed by the court, there would be an automatic stay of all the proceedings herein for 42 days, which means that the substantive hearing on the originating summons cannot proceed today and has to be vacated.  Accordingly, the first question requires my determination is whether I should lift the legal aid stay.  In my view, the answer is clearly in the affirmative.

3.  It is pertinent to note the following:-

(a) At all times in these proceedings, both the plaintiff and the defendant are legally represented.  Even up to now, the defendant is legally represented and his solicitors have provided skeleton submissions to this court on 29 September 2017.

(b) By a consent summons filed on 9 May 2017, the plaintiff and the defendant jointly sought a direction to set down the originating summons for substantive arguments on a date to be fixed by the parties in consultation with the parties’ diaries before a judge in court with 3 hours reserved, and the court granted a consent order in terms of the consent summons on 12 May 2017.  In other words, the hearing today was fixed by the parties in consultation with their respective diaries.

(c) The originating summons was issued on 11 September 2015.  By now, more than 2 years have elapsed.  The plaintiff is entitled to have the originating summons to be heard and determined sooner rather than later.

(d) The defendant has not provided any explanation by affirmation as to why he made the legal aid application shortly before the substantive hearing of the originating summons, let alone satisfactory explanation.

4.  In my judgment, the substantive hearing of the originating summons is the trial in these proceedings.  In the post-CJR era, the trial dates are milestone dates and may not be varied unless there are exceptional circumstances justifying the variation. See Rules of the District Court, Order 25 rule 1B(2) and (3), and PD5.2 §42.  The matters set out above clearly in favour of having this substantive hearing to be heard as scheduled.  There is simply no reason postponing the substantive hearing.

5.  I order that the automatic stay of 42 days as a result of the defendant’s legal aid application be lifted.  I proceed to hear submissions on the originating summons.

The plaintiff’s case

6.  The plaintiff’s case is as follows:-

(a) Notwithstanding the numerous demand letters sent to the defendant, the defendant has still failed to pay the management fees, his contribution to the major renovation expenses of the Estate, and interest, the total of which is HK$81,739.31.  As a result, the plaintiff has caused a memorandum of charge being registered against the Property on 22 November 2010 to secure the aforesaid indebtedness pursuant to the DMC.

(b) Subsequently, the defendant has also failed to pay the management fees, interest and a collection charge (provided in clause 11(a)(ii) of the DMC), the total of which is HK$72,905.18.  As a result, the plaintiff has caused a memorandum of charge being registered against the Property on 3 June 2015 to secure the said indebtedness pursuant to the DMC.

(c) The total of the indebtedness secured by the aforesaid 2 memoranda of charges calculated up to 9 April 2015 is HK$154,644.49.

(d) On 30 May 2016, the defendant through his solicitors paid HK$87,295.00 to the plaintiff.  The defendant refuses to pay the remaining HK$67,349.49.

(e) The defendant is liable to pay the said HK$67,349.49 and HK$13,745.98 (being the interest on the outstanding management fees and the outstanding contribution to the renovation expenses at the rate of 1.2% per month from 10 April 2015 to 30 May 2016) to the plaintiff.

(f) A mortgage dated 8 December 1992 (“the 1992 Mortgage”) in favour of a bank (“the Bank”) was registered against the Property on 31 December 1992.  The plaintiff’s solicitors have contacted the Bank to try to find out the indebtedness secured by the 1992 Mortgage, but the Bank refused to reveal the same.

(g) The Property is now vacant and no one is residing therein.

(h) The rateable value of the Property in the financial year 2015/2016 was HK$146,400.00.

(i) The estimated market value of the Property on a vacant possession basis was HK$5,880,000.00 as at 13 July 2015.  The plaintiff has produced a valuation report in support of this valuation.

(j) The plaintiff claims that in the event that the Property has to be sold in order to satisfy the indebtedness owed by the defendant to the plaintiff, the sale price of the Property should not be less than HK$5,880,000.00, the estate agent’s commission should not exceed 1% of the sale price, and the legal costs for handling the conveyance transaction (excluding disbursements) should not exceed HK$9,000.00.

7.  The plaintiff seeks an order in terms of the draft (“the draft order”) provided by the plaintiff’s solicitors.

The defendant’s case

8.  The defendant has filed an affirmation in opposition, in which he says:-

(a) He started to pay the management fees by autopay in about 2000. Unbeknown to him, his bank stopped the autopay in 2004.  He only became aware of the cessation of the autopay after 2005.  Had the plaintiff informed him that the autopay had been stopped, he would have had arranged autopay from another bank.

(b) In about 2004 or 2005, the plaintiff arranged some major renovation works for the whole Estate.  At that time, since the defendant was living with his family in Shenzhen, he did not stay in the Property every night.  The defendant suspects that the plaintiff assisted some contractors or workers to enter his Property and live or stay in the Property, and thereby causing damage to the Property and his personal belongings therein.  The defendant also says that the plaintiff has given his mobile phone number to some contractors or workers without his consent.  The defendant has made a complaint to the police but the police did not accept his complaint.  The defendant says that due to possible collusion between the plaintiff’s staff and the contractors or workers, he was afraid and did not return to live in the Property even after the renovation was completed in about 2005 or 2006.

(c) The defendant has given his contact phone number to the plaintiff when he became the owner of the Property in 1978.  He gave an additional phone number to the plaintiff in 2000.  He also gave the plaintiff his another address.  Notwithstanding all these, the plaintiff only sent the demands for management fees to the Property.  The defendant was not aware of these demands.

(d) By the aforesaid reasons, the defendant should not be liable to pay the interest, the collection charge and the legal costs incurred by the plaintiff in chasing the defendant for payment.

9.  Apart from the above, the matters set out in the plaintiff’s case are not disputed.

Discussion

10.  The defendant does not dispute that he has the liability to pay the renovation expenses and the management fees under the DMC.  He is disputing that by the reasons set out in his affirmation, the plaintiff is not entitled to charge him any interest, legal costs and collection charge.  Having considered the defendant’s case, I am of the view that his challenge is without merit.

11.  The relevant clauses of the DMC are as follows:-

“(9) The following costs charges and expenses shall be borne and paid by the owners of the said Buildings in proportion to the. monthly contribution payable by each of such owners on. account under the table of contribution in Clause (10) hereof, namely:-

…

(d) The cost of repairing, renewing, maintaining, cleansing, painting or decorating the said Buildings or any part or parts thereof and all water pumps, tanks, pipes, sewers, drains, watercourse, cable, wires or services therein and all the machines apparatus equipment including all fire prevention or fighting or security equipment: apparatus and conveniences thereof.

…

10. Subject to the provisions in the preceding sub-clause (a) each owner shall pay monthly in advance to the Manager on account of his share of the said costs charges and expenses such sum as is applicable to his flat or car park of the said Buildings as set out under the following tables.

…

11. (a) If any owner shall fail to pay and amount payable hereunder within 30 days of the due date for payment thereof, he shall further be liable to pay and the Manager shall have the right to collect from him:-

(i) Interest calculated at the rate of $1.20 for each $100.00 or part thereof of the amount unpaid for each period of 30 days or part thereof for which it remains unpaid.

(ii) A collection charge as the Manager shall decide to cover the cost (other than legal costs of proceedings as hereinafter mentioned) of the extra work occasioned by the default.

(b) All monies paid to the Manager by way of interest and collection charges shall be applied towards t:he management expenses of the said Buildings and the repair maintenance and preservation of the common facilities in such manner as the Manager may from time to time decide.

(c) All amounts which may be or become payable by any owner for time being of any undivided share in the said Land and all buildings thereon in accordance with the provisions of this Deed together with interest thereon as aforesaid and the said collection charge and all other expenses incurred in or In connection with recovering or attempting to recover the same shall be recoverable by Distraint or civil action at the suit of the Manager (and the claim in any such action may include a claim for the solicitor and own client costs of the Manager in such action and the defaulting owner shall in addition to the amount claimed in such action be liable for such costs) in accordance with the provisions of the said Ordinance hereinafter referred to and/or these presents and the Manager shall conclusively be deemed to be acting as the agent or agents for the owners and no owner sued under the provisions of this Deed shall raise or be entitled to raise any defence of want of authority or take objection to the right of the plaintiff to sue or to recover such amounts as may be found to be due.

(d) In the event of any owner failing to pay any sum due and payable by him in accordance with the provisions of this Deed within 30 days of the date on which the same become payable, the amount thereof together with interest as aforesaid and the said collection charge and all costs and expenses which may be incurred in recovering or attempting to recover the same including the legal expenses referred to in sub-paragraph (c) above and in registering the charge "hereinafter referred to, shall be charged on the share or shares of the defaulting owner in the said Land and the said Buildings thereon and the Manager shall be entitled without prejudice to any other remedy hereunder to register a Memorial of such charge in the Land Office against the share or shares of the defaulting owner.  Such charge shall remain valid and enforceable as hereinafter mentioned notwithstanding that judgment has been obtained for the amount thereof provided such judgment has not been satisfied.

(e) Any charge registered in accordance with the last preceding paragraph shall be enforceable as an equitable charge by action at the suit of the Manager for an Order for the sale of the share or shares of the defaulting owner together with the right to the exclusive use occupation and enjoyment of any unit, car parking space flat/and roof or area held therewith and the provisions of paragraph (c) of this Clause shall apply equally to any such action.  Any such equitable charge shall rank in priority to any legal or equitable charge given or made by the owner in respect of such unit, car parking space flat/and roof or area held therewith notwithstanding that such other charge shall have been created and registered prior to such equitable charge.”

12.  In respect of the major renovation in about 2004 or 2005, no doubt that the defendant was aware of the renovation at that time.  No doubt he is liable to contribute to the renovation expenses under clause 9 of the DMC.  As to the allegations made by him as summarized in §8(b) above:-

(a) The defendant only suspects that the plaintiff assisted some contractors or workers to enter his Property.  Mere suspicion cannot be sufficient evidence.

(b) The defendant says that the plaintiff has given his mobile phone number to some contractors or workers without his consent.  However, he does not explain on what basis he says so.

(c) Even if there is any truth in these allegations, this cannot extinguish or diminish his liability to contribute to the renovation expenses under clause 9 of the DMC.

(d) The defendant has never made any claim against the plaintiff on the basis of these allegations.  Any claim based upon these allegations have been time-barred by now.

(e) Accordingly, there is no merit in the matters raised by the defendant as summarized in §8(b) above.

13.  In respect of the management fees, the defendant has the obligation to pay the same “monthly in advance to the Manager” under clause 10 of the DMC. The obligation is not conditional upon any prior notice or demand given by the plaintiff to the defendant.  Accordingly, what has been said by the defendant as summarized in §8(a) and (c) above cannot be any excuse for the defendant’s failure to pay the management fees on time.  By failing to pay the management fees on time, the defendant has to pay interest, the collection charge and the costs incurred by the plaintiff in the process of recovering the management fees.

14.  The defendant’s solicitors have raised some factual allegations in their skeleton submissions, for example, water seepage to the Property due to unsatisfactory renovation works done by the plaintiff, water supplied to the Property being diverted to other place(s) due to the plaintiff’s mismanagement.  These factual allegations have not been raised in the defendant’s affirmation.  It is inappropriate for the defendant’s solicitors to raise all these in the absence of any evidence.  As there is no evidence on these factual allegations, I decline to consider the same.

15.  Accordingly, in my judgment, there is no defence to the plaintiff’s claim.  The plaintiff is entitled to have the interest and costs claimed.  The plaintiff may have interest at the rate of 1.2% per month pursuant to clause 11(a)(i) of the DMC. Further, the plaintiff may have costs on solicitor and own client basis by the operation of clause 11(c) of the DMC.  I would award these to the plaintiff.

16.  The plaintiff may also claim a collection charge pursuant to clause 11(a)(ii) of the DMC.  The plaintiff is now claiming a collection charge of HK$150.  This is a reasonable claim and I would allow the same.

17.  For the reason above, I would allow the 2 sums claimed by the plaintiff as set out in §6(e) above, ie HK$67,349.49 and HK$13,745.98.

18.  The plaintiff further seeks the order for sale (with vacant possession) mentioned above so that the plaintiff may sell the property to recover the debts if the defendant fails to pay the same eventually.  I would also grant the order for sale sought by the plaintiff.  I am satisfied that the plaintiff is entitled to have this order under clause 11(e) of the DMC.  The conditions of the order for sale would be those proposed by the plaintiff.  As the rateable value of the Property was below HK$240,000 at the time of commencement of these proceedings (see Gainfield Investment Ltd v Lam Yi Lai [2016] 3 HKLRD 771), I am satisfied that this court has the jurisdiction to make the order for sale under ss 35, 36 and 37(1)(c) of the District Court Ordinance.

19.  Clause 11(e) of the DMC provides that a charge in favour of the plaintiff pursuant to the DMC shall rank in priority to any legal or equitable charge given or made by the owner.  If that is the case, the 2 memoranda of charges would rank higher than the 1992 Mortgage.  I doubt whether such a result can be achieved by clause 11(e) of the DMC, for it may not sit comfortably with s 54 of the Conveyancing and Property Ordinance (“CPO”), which provides:-

“54. Application of money received

Any money received by a mortgagee or a receiver from the sale or other dealing with the mortgaged land or any security comprised in the mortgage shall be applied according to the following priority—

(a) in discharge of all rent, taxes, rates and other outgoings due and affecting the mortgaged land;

(b) unless the mortgaged land is sold subject to a prior incumbrance, in discharge of that prior incumbrance;

(c) in payment of the receiver’s lawful remuneration, costs, charges and expenses and all lawful costs and expenses properly incurred in the sale or other dealing;

(d) in payment of mortgage money, interest and costs due under the mortgage,

and any residue shall be paid to the person who, immediately before any sale or other dealing, was entitled to the mortgaged land or authorized to give a receipt for the proceeds of the sale of that land.”

20.  However, I note that in the draft order, the plaintiff’s solicitors propose that the proceeds obtained from the sale of the Property be applied according to the priority as set out in s 54 of the CPO. I am of the view that this is a proper proposal and I accept the same.

21.  Having heard submissions on costs, I am of the view that the general rule of costs following the event should apply.  Costs of these proceedings would therefore be to the plaintiff.  As said above, I would order that those costs be paid on solicitor and own client basis.  I summarily assess those costs at HK$50,000.

Conclusion

22.  For the reasons above, I give judgment to the plaintiff and make an order in terms of the draft order as amended.

23.  Lastly, it remains for me to thank Ms Lee and Mr Tse for the assistance provided to this court.