PEARL ISLAND HOTEL LTD. v. INCORPORATED OWNERS OF PEARL ISLAND VILLAS EASTERN BLOCK (BLOCK B) AND ANOTHER

IN THE SUPREME COURT OF HONG KONG

HIGH COURT Action No. A1628/87, 7777-8/87

(Consolidated)

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JUDGMENT

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1. The Plaintiff is a company appointed as the professional manager of three blocks of buildings known as Pearl Island Villas Eastern Block ("Villas") under a deed of mutual covenant ("DMC") dated 31st August 1978 and of seven blocks of buildings known as Blocks F1 to F1 of Pearl Island Holiday Flats ("Holiday Flats") under a deed of mutual covenant ("DHC") dated 14th of Feburary 1971. The Incorporated Owners of the Villas are the 1st defendant and the Incorporated Owners of the Holiday Flats are the 2nd defendant.

2. Originally the plaintiff was the plaintiff in an action against both defendants in which it sought, first, an injunction to restrain the defendants both from collecting management fees from the flat owners in the various blocks of buildings and from interfering with the plaintiff acting as the manager of the Villas and the Holiday Flats, second, a declaration that the plaintiff was and still is the First Professional Manager of both those premises and, third, an account of all management fees that have been collected by the defendants from various flat owners in the villas and the Holiday Flats. The Plaintiff alleges that these management fees should have been paid to it but that the defendants unlawfully began collecting and retaining them from 11th February 1987.

3. Subsequently the defendants each commenced an action against the plaintiff in which they sought a declaration that as a consequence of notices served on the Management Committee of the Villas and that of the Holiday Flats in September 1987, some 6 months after the issue of the original writ by the plaintiff, the appointment of the plaintiff as the manager of the Villas and the Holiday Flats had been terminated on 1st November 1987 and 1st April 1988 respectively. The reason for the different dates of alleged termination is that the period of notice given was one month in one case and six months in the other. Both defendants claimed in the alternative a declaration that the appointment of the plaintiff as manager under each DHC was not valid on the ground that it was not within the power of the plaintiff to act as manager, and they each sought an order for the return of all remuneration received by the plaintiff under those appointments.

4. In the further alternative they each sought a declaration that the plaintiff is no longer the manager under the respective DMCs. They also sought both an injunction to restrain the plaintiff from being present on the respective premises, and an account of all management fees, remuneration, monies, profits and funds received by the plaintiff during the period in which it had purported to be the manager of the Villas and the Holiday Flats.

5. On 26th January 1988 a master ordered by consent that the two actions begun by the defendants be consolidated and tried at the same time as the original action instituted by the plaintiff.

6. The relevant provisions of the two DMCs are essentially the same. Pearl Island Investment Company as vendor, and the plaintiff in the stated capacity as manager, are parties to each deed. Under the DMC relating to the Villas the premises and buildings were notionally divided into 1,100 equal undivided 1,100th parts or shares of which 20 were allocated to each of the 48 flats, 1 to each of the 48 car parking, spaces, 1 to each of the 48 roofs, 42 to the garden and 2 to the external walls. The vendor assigned to each flat owner the 20 shares allocated to the flat and the one share allocated to the parking space assigned to that owner. Under the DMC relating to the Holiday Flats the premises and buildings were notionally divided into 474 equal undivided 474th parts or shares of which 2 were allocated to each of the 224 residential units, 2 to each of the roofs of the buildings and 12 to the portion of the garden situated at the south eastern part of the premises. Likewise the vendor assigned to the owner of each flat in the Holiday Flats two shares in the premises and building.

7. There are several provisions common to each DMC upon which both counsel laid particular emphasis. Unfortunately these are quite extensive.  In the interest of brevity I shall refer those in the DMC pertaining to the Holiday Flats as this was the DMC to which counsel referred during the course of the hearing.

"(6) The vendor and the Flat Owner have agreed with the Managers for the Managers to undertake the management, operation, servicing, maintenance, repair and insurance of the said premises and building (all or any of which activities are hereinafter included under the word "management") for the periods and on the terms and conditions hereinafter mentioned and the parties hereto have agreed to enter into this Deed for the purposes of making provision for such management and of defining and regulating the rights interests and obligations of themselves and all subsequent owners in respect of the said premises and building."

 

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"4.    The owner or owners for the time being of each two undivided 474th parts or shares in the said premises and building shall at all times hereafter be bound by and shall observe and perform the convenants provisions and restrictions set out in the Second Schedule hereto."

 

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"7.    There shall be a Management Committee which shall be responsible for and have full and unrestricted authority to bind the owners for the time being of all the undivided shares in the said premises and building in all matters relating to the management of the said premises and building except the matters to be determined by the owners in general meeting as provided in Clause 6 (ii)(a) and (b) hereof and the following provisions shall apply to the Management Committee and the exercise of its powers and duties, namely :-

 

 

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THE SECOND SCHEDULE ABOVE REFERRED TO

8. Covenants, provisions and restrictions referred to in Clause 4 of this Deed.

1.        To pay the due proportion of all costs, charges and expenses which may be or become payable for or in connection with the management, of the said building in accordance with the provisions of Clause (7) (ii)(c) and (d) of this Deed including but not limited to :-

9. The only material differences between the DMCs with regard to the above provisions are, first, that whereas the period of notice that the vendor is required to give to the management Committee on termination by the vendor of the plaintiff's management is 6 months in the case of the Holiday Flats, the period is one month in the case of the Villas and, second, the DMC relating to the Holiday Flats grants the plaintiff an option to continue to act as manager for a period of 15 years after the expiration of the initial term of appointment, whereas the DMC pertaining to the Villas grants an option to continue for a period of 10 years.

10. Although both DMCs provide that there shall be a management Committee there is no evidence that one was appointed under the terms of either deed. There is evidence, however, that Management Committees were appointed either under section 3 or section 4 of the Multi-storey Buildings (Owners Incorporation) Ordinance (Cap.344) in respect of both the Villas and the Holiday Flats. Under section 7 a Management Committee is required to apply within 14 days of its appointment for registration of the owners as a corporation under the Ordinance.

11. Although Mr. Choy Siu Ying ("Mr. S.Y. Choy"), who has been both the chairman of the Management Committee of the 1st defendant ever since its inception and the secretary of the Management Committee of the 2nd defendant since 1985, initially testified that the owners of the Villas had been incorporated in late 1985 or early 1986, he made it plain in cross examination that in fact they had become incorporated in early 1987 and that the Management Committee for the Villas was formed as a result of that Incorporation.

12. Indeed on 14th January 1987 Mr. S.Y. Choy as chairman of the 1st defendant sent a letter to the plaintiff informing it of the formation of the 1st defendant with Government approval.

13. There has been no discovery of any minutes of meetings held by the 1st defendant or its Management Committee. The 2nd defendant, however, has given discovery of minutes of meetings of its Management Committee as far back as 14th July 1985.

14. On 10th February 1987 both defendants through their solicitors sent a joint notice to the plaintiff purporting to terminate its appointment "with effect from and including 1st April 1987 for the reason that you have been in neglect of your duties in [the capacity as manager] and your performance and present constitution do not comply with the terms of the contract of appointment".

15. The notice also stated that "any representation by you will be given full consideration by us and counsel advising in the matters, but will not result in any restoration or reinstitution of your appointment in any event".

16. The obscure allegation concerning the plaintiff's constitution apparently refers to a separate limb of the defence, namely, that the plaintiff was not authorised by its memorandum and articles of association to carry on the business of manager. I shall return to this contention later.

17. The other part of the notice that I have quoted is difficult to understand. It appears to embody a contradiction. If the defendants did not intend to restore the plaintiff as manager there would seem to be no point in informing it that whatever representations it may make would be given full consideration. Counsel for the defendants attempted to explain this by suggesting that it meant that any representation made by the plaintiff for compensation for its dismissal would be considered. If, however, the plaintiff had been guilty of such neglect of its duties as to justify its dismissal the question of compensation does not appear to arise.

18. On the ex parte application of the plaintiff on 1st April 1987 Lui J granted an interim injunction restraining both defendants from collecting management fees from the flat owners and from preventing or otherwise interfering with the plaintiff's right to act and carry out its duties as the manager of the Villas and the Holiday Flats. The inter partes application was heard by Power J on 8th April. On 24th April he ordered that the injunction granted by Lui J remain in force until the trial of the action.

19. Notwithstanding this the 1st defendant, purporting to act pursuant to clause 7 (iv)(a) of the DMC, sent a notice by a letter dated 30th April 1987 to the plaintiff through its solicitors giving one month's notice of termination of its services as manager of the Villas. This notice was later formally withdrawn.

20. Then on 25th September 1987, almost 5 months after this notice had been issued and more than 6 months after the plaintiff had commenced the original action, both defendants purporting to act pursuant to clause 7 (iv)(a) of the respective DMCs sent separate letters to the plaintiff through its solicitors giving notice of termination of its services as manager of the Villas and the Holiday Flats respectively. In the case of the 1st defendant one month notice was given and in the case of the 2nd defendant the period of notice was six months.

21. It seems plain that the reason for the giving of these notices and the institution of separate actions against the plaintiff was that the defendants feared that the grounds on which they gave joint notice on 10th February 1987 of termination of services were not justified.

22. In their joint defence to the original action the defendants claim that "it is implied from the context" [of clause 7(iv)(a) of the DMC referable to the Villas] "that the Management Committee [of a defendant] may exercise the vendor's right to terminate the plaintiffs appointment as the First Professional Manager if not concurrent with the vendor then at least as and from the moment the vendor had disposed of all his interests in the land in question after consulting the collective wish of the owners at the [relevant] premises, provided that one month had expired between the ascertainment of the aforesaid wish and the termination, at least when the wish has been recorded in writing".

23. It is apparent that this claim relates to clause 7(iv)(a) of the DMC pertaining to the Villas because although the statement of claim deals separately with clause 7(iv)(a) under each DMC, the defence, by referring only to that paragraph in the statement of claim which concerns the DMC applicable to the Villas, must be taken to confine itself to clause 7(iv)(a) under that DMC. Moreover, paragraph 5 of the defence refers to the vendor's right to terminate the plaintiff's appointment by giving to the Management Committee not less than one month notice. As I have already observed, it is clause 7(iv)(a) of the DMC relating to Villas that prescribes a period of not less than one month notice whereas the corresponding clause concerning the Holiday Flats requires a period of not less than 6 months notice.

24. However, despite the fact that in this connection the defence refers only to clause 7(iv)(a) of the DMC relating to the Villas, paragraph 5 goes on to claim that this particular head of defence relates to the 2nd defendant.

25. At the commencement of the trial the court drew this and several other anomalies and ambiguities in the defence to the attention of counsel for the defendant so that if amendments to the defence were considered necessary or desirable they could be made at an early stage. Application was made to amend only one of these matters.

26. In the separate actions commenced against the plaintiff, long after it had issued the writ in the original action, the defendants claim that the right of the vendor to terminate the services of the plaintiff under clause 7(iv)(a) of each DMC passed to them upon the vendor assigning to the individual owners their respective undivided shares in the Villas and the Holiday Flats respectively. The basis of this claim is that each DMC provides that the expression "the vendor" "shall where the context so admits include its successors and assigns". Alternatively, the defendants claim that the vendor's right to terminate passed to the individual owners by virtue of section 39 of the Conveyancing and Property Ordinance (Cap. 219). According to the defendants the right thus passed to the owners then passes in respect of the common parts of the buildings to each defendant respectively to the exclusion of these owners as a consequence of section 16 of the Multi-storey Building (Owners Incorporation) Ordinance.

27. Each defendant in purported exercise of the right of the vendor that had allegedly passed to it served on its Management Committee, by way of a letter dated 25th September 1987, notice of termination of the plaintiff's services. The period of notice concerning the Villas was one of not less than one month and that concerning the Holiday Flats was one of not less than six months.

28. Mr. Allman-Brown, who appeared for the plaintiff, accepts that where the manager's failure to perform its duties is so serious that it amounts to a breach going to the root of the contract contained in each DMC, a defendant incorporated under the Multi-storey Buildings (Owners Incorporation) Ordinance is entitled to step in and exercise the plaintiff's functions as manager.

29. In this connexion I refer to a passage in the judgment of Mayo J in The Incorporated Owners of South Seas Centre, mody Road v South Seas Centre Management Company Ltd. in 1985 No. A1432 at page 6 :

"During the cause of his submission to me, Mr. Ronny Wong informed me that he was placing reliance upon the Defendants fundamental breach of their contract under the terms of the Deed of Mutual Covenant. He was not claiming that the Plaintiffs had been appointed as managers pursuant to clauses 5 & 12 of the Deed of Mutual Covenant. On reflection, this approach appears to be wise. Under clause 5, the 1st Defendants were appointed as managers for a period of 5 years. It would appear that the question of the appointment of a successor to the 1st Defendants can only arise after the expiration of this period. It would also appear that the Plaintiffs are placing reliance upon the provisions contained in the Multi-storey buildings (Owners Incorporation) Ordinance as their authority to manage the building. I think that if Mr. Ronny Wong is able to establish that there has been a breach of contract which goes to its root, he is right in his submission that the plaintiffs would have power under the said Ordinance to exercise functions as managers. Section 18(1)(c) of the Ordinance provides :-

 

30. However, I am unable to derive from clause 7(iv)(a) an inference that the defendants may avail themselves of the vendor's contractual right to terminate the management of the plaintiff by giving in writing to the Management Committee the period of notice specified in that clause. I pause here to observe that it appears that the reason for requiring the vendor to give a period of notice to the Management Committee is to provide the committee with sufficient time within which to engage a successor to the original manager appointed under the DHC.

31. In Pearl Island Hotel Ltd. v Li Ka Yu and anor Small Claims Appeal No. 46 of 1987 Deputy Judge Cruden was concerned with an appeal from a decision of an adjudicator in a case where the plaintiff in the present action sought to recover monthly management fees from the owners of a unit in the Holiday Flats. The learned deputy judge said at page 6 :

"In accordance with widespread Hong Kong practice, the DMC provided, under Clause 6, for the owners of the various flats to elect a Management Committee and under Clause 7 for the appointment of professional managers. Clause 7(iv) expressly appointed the appellant as the first manager for 10 years from 14th February L971 with a right of renewal for a further period of 15 years. It is common ground that the right of renewal has been exercised. Under the DMC the appellant is therefore the contractual manager of the buildings until 13th February 1996. The typical factual position has arisen where the developer, as the original owner, has appointed a manager of its choice for a very long period, in respect of a multi-owned residential building, of which it is no longer the owner. Further, only the developer and not any of the new flat owners, is given the contractual right to terminate the employment of the appellant as manager.

 

Clause 7(ii)(a) substantially reduces the apparent power of the contractual Management Committee elected by the several owners. For as the learned Adjudicator accurately observed, so long as the appellant or any other person is the manager, the Management Committee may not exercise any of the powers otherwise vested by the DMC in the Management Committee."

32. I respectfully agree.

33. In my view the extension of the meaning of the expression "the vendor" by the inclusion of the words "its successors and assigns" does not assist the defendants. The qualifying words "where the context so admits" clearly limit the circumstances under which the successors and assigns fall within the definition. It would be very strange indeed if the registered owners of units, being the successors and assigns of the vendor, were to be required to give notice to their own Management Committee, that is to say, effectively to themselves, that they have terminated the manager's services.

34. The defendants encounter the further difficulty that both DMCs disclose that certain parts of the premises such as the roofs, garden and external walls of the Villas and the roofs of the Holiday Flats and the garden in the south eastern part of those Premises did not pass to the owners of the individual units but were retained by the vendor. Moreover, a director of the vendor testified that these portions of both premises are still retained by it. I have no reason to doubt the truthfulness or reliability of this witness, and no evidence was adduced by the defendants to challenge her testimony.

35. In this connexion counsel for the defendants conceded that it was not possible for both the vendor and its successors and assigns to possess jointly the right under clause 7(iv)(a) to terminate the manager's services and to exercise that right independently of each other in respect of the same property.

36. I do not agree that section 39 of the Conveyancing and Property Ordinance gives any assistance to the defendants. That section simply provides that a convenant relating to any land of the convenantee shall be deemed, unless the contrary intention is expressed, to be made by the convenantor on behalf of himself, his successors in title and persons deriving title under or through him or them. But clause 7(iv)(a) is not a convenant. The convenants appear in the second schedule to each DMC.

37. Nor do I think that section 16 of the Multi-storey Building (Owners Incorporation) Ordinance Passes to the defendants the vendor's right to terminate under clause 7(iv)(a) of the DMCs. The relevant part of the section provides :

"When the owners of a building have been incorporated under section 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 ...... the corporation to the exclusion of the owners ........."

38. I do not understand this to mean that upon the incorporation of the owners they become empowered to exercise all the rights, powers and privileges of the vendor under the DMC. In my view it means no more than that once they are incorporated under the Ordinance such rights, powers and privileges that were common to them all and which they individually might have exercised in respect of the common parts of the building, become exercisable by the corporation itself. The section merely empowers the owners to exercise after incorporation such rights, powers and privileges as they individually possessed before incorporation. They may not exercise any right that they did not possess beforehand.

39. I cannot conceive that the legislature intended that a right conferred by a DMC on the vendor alone and is therefore exercisable only by the vendor and not the owners, would become exercisable by the owners collectively if and when they become incorporated under the Ordinance.

40. Counsel for the plaintiff again referred me to Pearl Island Hotel Ltd. v Li Ka Yu & anor where Deputy Judge Cruden held that, subject to any express statutory exceptions, the provisions of a DMC prevail over any conflicting statutory provisions in the Ordinance. Whilst I respectfully agree with the learned deputy judge, it is not necessary for me to rely upon this conclusion as it is my opinion that section 16 of the Ordinance does not have the effect of giving to the defendants the right of termination conferred exclusively by the DMC on the vendor. In short there is no conflict in this regard between the provisions of the DMC and those of the Ordinance.

41. Before I turn to a consideration of the claim on which the defendant's placed their greatest reliance there are two other contentions with which I must deal.

42. The first of these is that the appointment of the plaintiff as manager of the Villas and the Holiday Flats is void on the ground that its memorandum and articles of association do not empower it to act as manager. Counsel for the defendants placed so little reliance on this argument that in the course of his final address he stated he did not seek to address the court on it but that "in order to reserve [the defendants'] rights in the event of an appeal [he] would not expressly abandon it." Such lack of enthusiasm is not surprising for it is a particularly bad point and was effectively disposed of by Deputy Judge Cruden in the case to which I have referred. I do not propose to embark upon as elaborate an analysis of the matter as that undertaken by the learned deputy judge; suffice it to say that clause 3(p) of the plaintiff's memorandum of association confers on it the power to carry on the sole business of estate manager. It reads as follows :

"(p) to carry on business as agents, managers factors or brokers for any person or persons, firm or company in any part of the world and in particular but without in any way restricting the above powers to act as insurance, shipping, airline, transport and mercantile agents and managers."

43. Notwithstanding the absence of a clause providing that each paragraph of the objects clause is to be construed separately and independently of each of the other paragaphs, the final paragraph of clause 3 confers on the plaintiff power :

"(11) To do all such things as are incidental or conducive to the above objects or any of them."

44. The second contention is that it is implied term of the DMCs that the appointment of the plaintiff as manager of the Villas and the Holiday Flats respectively remains vaild for only as long as it retains land in the Villas and the Holiday Flats or in the vicinity of each continuously, and that, as it has failed to do so, its appointment in respect of each estate has been rendered invalid.

45. I find difficulty in following the somewhat incoherent submission made by counsel for the defendants on this point. The argument seems to hinge on the contention that clause 7(iv)(a) is a covenant. However, I have already observed that I accept counsel for the plaintiff's submission that this clause is not a covenant. I am unable to find any merit in this aspect of the defendant's case.

46. This brings me to the real matter in contention, namely, whether the plaintiff has been guilty of such neglect of its duties as to justify its dismissal by the defendants as manager of the Villas and of the Holiday Flats.

47. The precise point of time at which the friction between the plaintiff and the defendants that gave rise to this litigation actually began is obscure. Basically the defendants claim that there had been a progressive neglect of duties by the plaintiff that produced a wave of discontent among the owners and finally culminated in the issuance of the joint notice of termination of services on l0th February 1987. The plaintiff alleges that the owners were uncooperative and that it was due to a failure by a number of owners to pay their monthly management fees and to their unwillingness to advance funds to enable repair work to be carried out, that it was unable to undertake that work.

48. Although Mr. S.Y. Choy claimed that the owners in both estates had lost confidence in the plaintiff, he accepted that many owners had been defaulting in payment of the management fees and that the plaintiff had not been put in funds to enable it to carry out the repair work that formed a major part of the matters on which the defendants relied as constituting the plaintiff's allege neglect of duties. It is not without significance that Mr. S.Y. Choy explained that it was "a chicken and egg situtation". In effect he was unable to establish what precisely it was that had caused the difficulties which had arisen between the parties, for he admitted that he had no idea of when it was that individual owners had stopped paying their management fees.

49. It was his firm view, however, that a professional manager has a duty to perform all its responsibilities under a DMC even if the owner fail to pay the management fees or to provide funds for repairs. He contended that under those circumstances the manager is obliged to carry out the repairs at its own expense and subsequently recover from the owners the sum so expended.

50. He testified that the practice was that after the plaintiff had deducted his own fee or profit from the monthly management fee payable by each owner, the balance was paid into a fund to be used to meet expenditure and repairs. He accepted that if that fund is found to be insufficient to meet the cost of larger expenses, such as the repair of large cracks, the painting or white washing of the exterior walls of the buildings, the repair of drainage pipes or the relining or replacement of electricity cables, the owners are required to make an additional contribution to meet that expenditure. If they do not wish to make good the shortfall in one lump sum the payment may be spread by increasing the monthly management fee. According to Mr. S.Y. Choy this is the normal approach that is accepted by other professional managers.

51. No doubt this is a matter that each professional manager deals with in the light of the expenditure to be incurred, the extent of the shortfall and the arrangements made by the owners for the increase in monthly management fee. I think it highly unlikely, however, that a professional manager would commit itself to a large financial outlay if many of the owners were already failing in their obligation to pay the existing management fee. In those circumstances a decision by the Management Committee of the owners to increase that fee would hardly Committee of the owners to increase that fee would hardly be likely to instil any confidence in the manager that the owners would comply.

52. He accepted that although there should be a surplus in the fund to meet some of these larger expenses this was dependent on the management fees being duly paid. He also accepted that although the plaintiff had been pursuing individual defaulting owners in the Small Claims Tribunal and, where the arrears were more than $8000, in the District Court, the minutes of a meeting of the Management Committee of the Holiday Flats held on 1st June 1986 reveal that the committee considered that action in the District Court should be avoided wherever possible because of the legal fees involved and the delay in recovery. The committee requested the plaintiff to supply it with the names of owners who owed large amounts "so that it could study their cases and then decide to take actions".

53. Mr. S.Y. Choy agreed, however, that the committee had been unable to persuade defaulting owners to pay their management fees. Moreover, despite the fact that the plaintiff was forced to pursue defaulters in the District Court, Mr. S.Y. Choy is recorded in the minutes of the same meeting as having asked when the management fee could be reduced from $210 to $190 per flat.  The minutes of the same meeting disclose that the plaintiff's representative was complaining that the cost of repairs effected by the plaintiff on the undersides of staircases and exterior walls had not been recovered notwithstanding that a year had elapsed since the repair work had been performed.

54. At one stage during cross examination Mr. S.Y. Choy went so far as to assert that it was the duty of the plaintiff to carry out repairs at its own expense even if it knew that it would never be repaid by the owners.

55. He accepted that at the Management Committee meeting of 28th June 1986 the committee had agreed that each owner would advance $1600 so that repairs could be effected to downpipes and that work would not commence until 70% of the estimated repair cost had been collected. It is plain from elsewhere in his evidence that attempts by the committee to persuade defaulting owners to pay their management fees did not met with success. Indeed the minutes of the committee meeting of 18th July reveal that only 50% of the owners had paid the agreed $1600 fee.

56. He also agreed that the minutes of another management Committee meeting held on 14th July 1985 disclose that the committee required the plaintiff to seek the views and agreement of the majority of the owners through the Management Committee before it began any major repairs or maintenance work, and that this applied in particular to the replacement of and repairs to staircase railings, the painting of the exterior walls and the repair of all sewerage oil and drainage downpipes.

57. I am completely satisfied on the evidence before me that the failure of many owners to pay their management fees had placed the plaintiff in an impossible position and that repairs which it had wished to carry out were consequently delayed.

58. Why these owners had been so uncooperative is difficult to say. It is possible that as approximately 80% of them do not live permanently in their units but simply use them for holidays, payment of management fees for these premises ranks low on their list of priorities.

59. Mr. S.Y. Choy agreed that, bearing in mind the provision for attendance by proxy, the attendance of owners at owners meetings has been and still is very low. He attempted to explain that this was not a matter of any significance because, according to him the attendance of members at the annual general meetings of the American Chamber of Commerce, the Hong Kong Exporters and similar bodies is also low. Whether that is or not I do not know, but if the plaintiff had been so neglectful of its duties as is alleged it would seem not unreasonable to expect that a high percentage of flat owners would have attended meetings and have vociferously demanded an improvement in the standard of services offered by it. Despite being a member of the Management Committee of each defendant, Mr. S.Y. Choy conceded that he had met no more than 10% to 15% of the owners. Having considered everything that has been said I am left with the distinct impression that only a small proportion of the owners in both the Villas and the Holiday Flats are dissatisfied with the plaintiff's services and that the action taken by both defendants in the two consolidated actions has been instigated by a group of owners within that small minority.

60. Be that as it may, the evidence falls dismally short of satisfying me I that the plaintiff has been seriously neglectful of its duties under the DMCs. Whilst I accept that there have been instances of shortcomings that were not the consequence of the failure of owners to pay their management fees, I am satisfied that these were minor. Many of the allegations of neglect of duties are unreasonable or without foundation. Some have been made without a full consideration of all the relevant circumstances.

61. The particulars of neglect are stated as follows in the amended defence and counterclaim :

"The plaintiffs have allowed the premises in question to fall into disregard and dilapidation. There had been before 31st March 1987, habitual accumulation of rubbish and blockage lumps in common parts. There were cracks in the walls. Fire fighting equipment had been left unheeded, in a deteriorated condition with expiry date illegible. In the common parts, there were unrepaired drainage pipes and lighting and electricity utilites. Such a state of affairs habitually persisted up to and including 31st March 1987, constituting a danger to hygiene and human life. Despite repeated demand to improve, the plaintiffs showed no improvement. Further particulars of neglect exceeding 3 folios have already been tendered to the plaintiffs by 13th February 1987."

62. It is reasonable to assume that the particulars of neglect set out in the amended defence are those upon which the defendants principally rely. However, the following is a summary of the complaints made in the particulars of neglect exceeding 3 folios referred to in the amended defence :

63. Mr. Chow Yan Wei, who holds the controlling interest in the plaintiff, gave the following account of the situation at the Villas and the Holiday Flats. Ever since he became involved with the plaintiff in 1984 there has been a deficit in the management accounts of both estates due to owners of various flats not paying their monthly fees. This problem still exists notwithstanding that the plaintiff has been active in pursuing defaulters by means of court action.

64. He was informed in 1985 that the owners of the units in the Holiday Flats had decided that any proposals that he put forward for any major repairs or maintenance work had to be submitted to them and were not to be carried out until the approval of a majority of them was obtained. This instruction still remains in force. Often the Management Committee had requested Mr. Chow to carry out certain work but was unable to obtain a resolution from the owners to authorise him to begin that work. Mr. Chow, himself, had recommended that damaged staircase railings be replaced and repaired, that the exterior walls of the buildings be painted and that all damaged sewerage and drainage downpipes be replaced. The minutes of an EGM of the 2nd defendant confirm that it was decided that the Plaintiff was not to carry out those repairs or any major repairs or of the majority of the owners.

65. A letter to the plaintiff from the committee of the 2nd defendant dated 17th August 1985 stated that, although it had been proposed at that meeting to carry out those replacements and repairs, the resolution was not passed because there had been insufficient owners present at the meeting to constitute "the quorum required for business transaction". The committee went to request the plaintiff to draw up a repair specification and obtain a quotation from a number of contractors including those owners who were architects or civil engineers.

66. The plaintiff responded to this letter and informed the defendants that it had already submitted a detailed breakdown of the costs involved in effecting repairs to the seawall and sewerage system. It enclosed a list setting out the exact cost of repairing the staircases and external walls and pointed out that it had proposed effecting repairs to the staircases six months earlier but was still awaiting a resolution from the 2nd defendant. In the same letter the plaintiff also complained that despite having had numerous meetings with the representatives of the 2nd defendant "hardly one resolution could be passed in the meetings convened by you" and that there were insufficient funds in the account to meet the cost of repairs. It added that it was disappointed that some of the committee members of 2nd defendant had been encouraging other flat owners not to pay the management fees and that this was the main reason for there being insufficient funds. The plaintiff received no response to the letter and, although in light of the arrangement under which the Management Committee of the Holiday Flats had agreed that no work could be commenced on the repairs to the drainage system until 70% of the Cost had been collected from the flat owners, it was reasonable to assume that the funds would be raised, in fact they never were.

67. Mr. Chow accepted that there had been occasional complaints made to the caretakers prior to 1986 that there had been accumulations of rubbish on the premises. But he claimed that immediate action had been taken to rectify the situation and that no complaints of this nature had been made at any of the meetings held by the owners or Management Committee in 1986. Indeed the minutes a meeting of the Management Committee of 2nd defendant and Mr. Chow held on 27th April 1986 disclose that the committee agreed that the standard of cleaning at that time was quite good and that no owners had made complaints about it.

68. As to the incident concerning malicious damage to a car, Mr. Chow Pointed out that due to the vigilance of one of the plaintiff's watchmen the police had been given sufficient information to enable them to arrest the culprit. Moreover, the incident did not occur within the boundaries of the villas or the Holiday Flats nor did it form the subject of complaint at any of the meetings of the defendants. Likewise there is no record in the minutes or correspondence of the alleged incidents of burglary.

69. Mr. Chow denied that there was any substance in the allegation that there had been insufficent watchmen. He also maintained that the complaint that loose wiring in public parts of both the Villas and the Holiday Flats had caused danger was untrue. He had suggested that repair work be performed on the wiring but the owners would not agree to this unless the plaintiff paid for it first. In fact the wiring had been renewed and the old wiring was later removed as soon as a complaint had been made about its continued presence. However, it had never constituted a danger because the power to it had been disconnected.

70. He referred to photographs produced by the defendants which depicted damaged outdoor lamps. All of these had been replaced by new lamps. He agreed that some owners do place articles on the stairways and that this is a constant problem but the caretakers do all that they can by telling those responsible to remove these obstructions. Because the flats are mainly used on holidays there is difficulty in contacting the owners to find out whether they still require the articles concerned. Where the plaintiff is unable to reach the owners concerned it instructs its employees to remove these belongings. Indeed some of the offenders in this regard have been members of the Management Committee who, on being asked to cooperate, have refused to do so. When the plaintiff complained of their attitude to the committee it was told to tolerate the situation for the time being.

71. Mr. Chow also accepted that on one or two occasions the cleaners might have omitted to remove garbage to the downstairs collection point but firmly denied that this was a problem. He also denied that the main garbage bin had remained uncleaned for many months and that garbage was not collected on a daily basis. In this connexion he referred to the minutes of a meeting of 2nd February 1986 which disclose that the Management Committee of the Holiday Flats were satisfied that, despite some individual complaints, the overall standard of management was acceptable. He also referred to the favourable comment made by the committee in the minutes of the meeting of 27th April 1986 as to the standard of cleaning.

72. Mr. Chow claimed that the fire extinguishers were in good working order and that they had all been replaced. Mr. Ho Shan, the plaintiff's manager on Pearl Island, explained in the course of his testimony that originally the electrician employed by the hotel on an adjacent site had been responsible for overseeing the regular maintenance of the extinguishers and had marked each of them to indicate the next service date. After the hotel had closed down the notices issued by the company that serviced the extinguishers had not been redirected to the plaintiff. As consequence the plaintiff had not been alerted and there was a period of over a year during which no servicing had been carried out. Unfortunately this had also coincided with a period in 1985 when Mr. Ho was suffering from the effects of a stroke. However he had contacted the service company in 1986 and servicing was resumed. Moreover, no complaints had been made about the extinguishers by any of the owners or committee members, nor is there any comment in the minutes of meetings held in 1986.

73. Mr. Chow claimed that he had suggested on many occasions that the exterior walls of the Holiday Flats be whitewashed, that the staircases and the cracks along the exterior walls of two blocks of the Holiday Flats be repaired and that work be done on the drainage system. He explained that it was the responsibility of the owners to provide the very substantial funds necessary to perform the work and they had failed to do so.

74. He protested that the complaint that the plaintiff had failed to repair damage done by typhoon Ellen was completely untrue, and claimed that the work had in fact been completed but that a number of owners had still not paid their portion of the levy.

75. He declined to accept any responsibility for providing a centralised LP gas supply for the owners of units in the Holiday Flats. Indeed no evidence was adduced to establish that the plaintiff was responsible for the provision of any such service.

76. He denied that difficulty had been experienced by those seeking to make telephone contact with the plaintiff's office in Central District, and pointed out that the minutes of the meetings do not lend any support to this complaint. He said that, Mr. Ho Shan, the plaintiff's manager at Pearl Island, had been employed there for over 10 years and provides a link with the main office by making reports direct to it. Indeed, I was given no satisfactory evidence that it would have been cheaper or more efficient for the office to have been moved to Pearl Island. Mr. S.Y. Choy expressed the opinion that by moving the plaintiffs office from Central District to Pearl Island there would have been a substantial saving in overhead costs. But no proper costing exercise has been performed in this regard. I view Mr. S.Y. Choy's estimate as nothing, more than a guess made without a consideration of all relevant factors. Indeed he agreed that he really had no idea of what savings the plaintiff could have made by tightening up on expenditure in any respect.

77. Mr. Chow hotly denied that proper supervision had not been exercised over cleaners, gardeners and watchmen at the site. He conceded that several of the watchmen were "quite old" and had been employed at Pearl Island for many years but pointed out that no complaints about this matter appeared in any of the minutes of the meetings.

78. He referred to a complaint made in May 1987 by Mr. S.Y. Choy on behalf of the Management Committee of the Holiday Flats that due to the recent closing down of the nearby hotel the lights along the causeway and those outside the hotel had been extinguished and that this had caused inconvenience and danger to the residents of the villas and the Holiday Flats. It is plain that this was not due to any fault on the part of the plaintiffs it had no control over the lights which belonged to and had been operated for the benefit of the hotel.  However, despite this, the plaintiff made numerous contacts with the representatives of the hotel to persuade them to cooperate, and finally it succeeded in having the power restored by arranging for the lights to be connected to its own power source.

79. The defendants had taken a number of photographs with a view to illustrating the alleged failure of the plaintiff to perform its duties, and Mr Ho Shan was asked to comment on each of them. On careful scrutiny it is apparent that many of them are simply different views of the same scene but give the impression that the matters of which complaint has been made are more widespread than they really are. I don't propose to embark upon an exhaustive analysis of the scenes they depict other than to say that I am not in the least satisfied that they establish that the plaintiff has been guilty of such neglect as would justify termination of its services.

80. Certainly it is evident that various owners have been carrying out renovation work on the interior of their flats and that for this purpose building materials were been assembled outside the flat and the debris that was removed from the interior was deposited outside while work was in progress. According to Mr. S.Y. Choy the debris has in some instances remained for up to four days before it was eventually removed from the site. In his view it should not have been allowed to remain beyond three days. I confess that I find this to be a rather fine distinction.

81. There can be no doubt that the owners are perfectly entitled to renovate their premises. Indeed it has not been suggested otherwise. It is difficult to see how they would be able to perform this work without both assembling the building materials and depositing the debris outside their premises. I do not think that it is unreasonable that on occasion an owner may have allowed the debris to remain there for as long as four days.

82. Complaint was made about the erosion of several small areas of the external part of one of the buildings. I am satisfied, however, that repair of these defects should, as the plaintiff contends, logically be left until the whitewashing of the walls is carried out.

83. Mr. Choy Shui-wah, ("Mr. S.W. Choy"), who is the chairman of the Management Committee of the Holiday Flats, also testified on behalf of the defendants. He complained that about 4 years ago there was an unspecified period during which the plaintiff's workmen failed on numerous occasions to collect the garbage placed in the bin outside his flat. On one such occasion they failed to collect it for 4 or 5 days. According to him this occurred only occasionally in 1934 and that in late 1985 and early 1986 there were even less instances of this particular neglect. Apparently there has been no reason for complaint since then or Mr. S.W. Choy made no mention of it.

84. His only other complaint concerned security. He mentioned to the occasion to which I have referred on which criminal damage was done to a car, and to another incident when a robber had threatened a resident with a weapon and had committed a robbery in his flat. Mr. S.W. Choy said that in recent years he had noticed that some of the watchmen were over sixty years of age and had not been making patrols at regular intervals. During the last one or two years he had often checked on a security guard post at night and had found that the guard was absent. He had then walked around the area and sometimes was unable to find the guard on patrol. He agreed, however, that the guard was not obliged to remain at the guard box but was expected to go on patrol. Also there were occasions on which the guard in the guardhouse at the Villas appeared to be asleep. Mr. S.W. Choy agreed, however, that after the hotel had ceased business and therefore no longer provided a guard to the gate at the mainland end of the causeway, it became part of the duty of the security guard employed by the plaintiff at the guardhouse at the island end of the causeway to patrol down to the mainland gate.

85. I found the testimony of this witness to be vague and inconclusive. I am reluctant to conclude from it that the security guards have been derelict in their duties. As it is accepted that they should patrol the area under their supervision it is not surprising that they are not always to be found at a fixed location. Moreover, the remarkably few instances of breach of security that have actually occurred suggests that security was far from ineffective.

86. On a consideration of the evidence overall I am satisfied that the plaintiff's witnesses gave a reliable and truthful account of the general situation that has prevailed on the island during the relevant time. I gain the distinct impression that the defendants have sought to magnify any shortcomings out of all proportion to their real importance. I find it difficult to avoid the conclusion that the general apathy of the owners and the failure of many of them to pay their management fees and their portions of levies, that had to be imposed so that major repairs could be effected, are the real causes of the problems that have arisen. I am satisfied that at all times the plaintiff was willing to perform its duties and to carry out all necessary repair work, but that it did not receive the cooperation from the owners to which it was entitled. In this regard I do not accept the contention that, notwithstanding the existence of an admitted deficit due to owners defaulting in payment of their monthly management fees, the plaintiff was obliged to fund the of repairs out of its own resources. Moreover it is plain to me that the defendants have officiously meddled in the performance of the plaintiffs duties under the DMCs by placing restraints on and attempting to supervise its lawful actions.

87. As I have already indicated I accept that there may be justification in some minor complaints made by the defendants but I have no doubt that such shortcomings do not justify the termination of the plaintiff's services. Thus on a careful consideration of all the factors involved in this case I have come to the conclusion that the plaintiff must succeed. I therefore dismiss the defendants' counterclaim in the defendants' counterclaim in the first action and their claims in the consolidated actions.

88. I give judgment for the plaintiff. I declare that the plaintiff was appointed to be and still is the first professional manager of the premises and buildings of the Villas and the Holiday Flats pursuant to the terms of the two DMCs. The 1st and 2nd defendants by themselves, their servants or agents or otherwise are restrained from collecting management fees from the owners of the units in those premises and buildings and from interfering with the plaintiff in the performance of its duties as manager thereof. I further order that the 1st and 2nd defendants give an account of all management fees collected by them from the owners of the units in the Villas and the Holiday Flats.