J & V LTD v. ISS EASTPOINT PROPERTY MANAGEMENT LTD AND ANOTHER

LDBM 242of2009

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION

NO. 242 OF 2009

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J U D G M E N T

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1.  The Applicant is the registered owner of the property situated at Workshop A and B, 2/F (by usage known as 3^rd Floor) of Fook Cheong Building (“the Premises”). The 1^st Respondent is the Manager whilst the 2^nd Respondent is the Incorporated Owners of Fook Cheong Building (“the Building”).

Undisputed Facts

2.  On 9 March 2005, a legal action was brought against the 2^nd Respondent by Sun Fook, an owner of the Building (“the Sun Fook Proceedings”).  At the Owners’ Meeting held on 20 December 2005, a resolution was passed for a sum of $2 million (“Litigation Fund”) to be raised to cover the litigation cost for the Sun Fook Proceedings with details of collection to be decided by the Management Committee.  It is resolved at the Management Committee Meeting held on 30 December 2005 for the Litigation Fund to be collected fromallowners bywayof 2 equal instalments based on the owners’ undivided shares in the Building.  It is further resolved on 9 January 2006 that the contribution will be collected on 23 January 2006 and 15 March 2006.  The Applicant became the owner of the Premises on 28 December 2005.

3.  The 1^st Respondent had sent out 2 demand notes to the Applicant for the contribution of Litigation Fund on 20 February 2006 and 15 March 2006 respectively asking for a sum of $88,106.00 in each demand.  On request, the 1^st Respondent had also provided the Applicant with the document in support of the demand.  By a letter dated 10 October 2006, the Applicant denied its liability to pay for the Litigation Fund on the ground that the contribution was in breach of the Deed of Mutual Covenant (“DMC”) which stipulated that legal costs should be covered and collected by way of monthly management fee and computed not in accordance with the undivided shares but the proportion stated in Clause D of the DMC.   

4.  Meanwhile, the Applicant requested and had been supplied with budgets of the expenditure of the Building for 2006, 2007 and 2008 (“the Budget”).  After perusal of the budgets and as advised by lawyer, the Applicant by a letter dated 31 May 2008 raised the issue of monthly management fees (“MF”) and air-conditioning charges (“AC”) being wrongly levied by the Respondents in breach of the ratio stipulated in Clause D of the DMC and not based on the Budgets prepared.  The Applicant indicated in the letter that this had resulted in an overpayment by the Applicant and such should be set offagainstthe contribution by the Applicant to the Litigation Fund.  Since June 2008, the Applicant paid the MF and AC according to the computation under Clause D based on the proposed expenditure in the 2008 Budget.

5.  At the Owners’ Meeting held on 9 July 2008, it is resolved that balance of the Litigation Fund should be refunded to all owners.  And at the Management Committee Meeting held on 5 August 2008, the 1^st Respondent reported that the existing MF and AC paid by the owners are not computed in accordance with the DMC and a revision is necessary.  As a result, it is resolved at the Owners’ Meeting on 2 September 2008 that the MF and AC will be levied in accordance with the DMC with effective from 1 January 2009.  At the Management Committee Meeting on 3 November 2008, the issue as to the refund of the whole Litigation Fund to the owners is being raised and discussed.   

6.  The 1^st Respondent had sent out a Final Notice to the Applicant on 6 April 2008 demanding for the payment of the share of the Litigation Fund on or before 19 April 2008, failing which, a Memorandum of Charge will be registered in the Land Registry.  By reply letter dated 16 April 2008, the Applicant denied its liability towards the Litigation Fund and also raised the objectionthatthe calculation of MF and AC for January to April 2009 is still in breach of the DMC, resulted in an overpayment by the Applicant again.  Since May 2009, the Applicant paid the MF and AC in a sum according to his own computation pursuant to Clause D of the DMC.  It is agreed at this hearing that the applicable ratio for the Applicant’s share for MF should be 1950/29152 and for AC should be 5800/58000 according to Clause D(1) of the DMC.

7.  On 12 June 2009, a Charge is registered at the Land Registry against the Premises (“the Charge”) by the 1^st Respondent.  Upon discovery of the same on 9 July 2009, the Applicant sent a letter to the 1^st Respondent on 13 July 2009 asking for the Charge to be vacated.  Such request being declined, the Applicant tookout this application at the Lands Tribunal on 13 August 2009.  The Respondents filed their Notice of Opposition and Counter-Claim on 10 November 2009.

The Claim

8.  The Applicant is claiming for :-

a.  an order compelling the 1^st Respondent to vacate the registration of the Charge against the Premises;

b. an injunction restraining the 1^st Respondent from registering the Charge against the Premises;

c.  an injunction restraining the 1^st Respondent from interfering, trespassing, infringing the right and title of the Applicant over the Premises and the reasonable occupation or enjoyment of the Applicant;

d. an order against the 2^nd Respondent to pay or refund to the Applicant the sum of $225,441 and interest thereon being overpayment of MF and AC from 1 January 2006 to July 2009; and

e.  damages.

9.  The 2^nd Respondent counterclaims against the Applicant :-

a.  for payment of outstanding MF and AC since June 2008 tillNovember 2009in the sum of $45,089.64 and for the same to be set off from over-payment of MF and AC by the Applicant;

b. for a declaration that the Applicant is not entitled to the refund of overpayment for the period from 1 January 2006 to 31 May 2008 in the sum of $80,547.21;

c.  for a declaration that the Applicant is obliged to pay to the 2^nd Respondent the contribution towards the Litigation Fund in the sum of $176,212 and an order for this to be paid.

The Relevant Provisions of the DMC

10.  For easy reference, the relevant provisions of the DMC are copied herein.

11.  Clause D    Management Expenses

(1) Each owner shall contribute, by way of payment of the monthly maintenance fee and the monthly air-conditioning charges in the proportions respectively specified in the 3^rd and 4^th Columns of the Table of Clause 2 of this Sub-section, towards the costs, expenses and outgoings incurred in relation to the maintenance and management of the Building whether or not the Manager be obliged hereunder to incur such expenditure, including without limiting the generality of the foregoing the following :-

(a)   ...

(b)   …

(c)    …

(d)   All reasonable professional fees and costs incurred by the Manager including :-

(i)   ...

(ii)  Solicitors and other legal fees and costs,

(iii)         ... (page 65-66 Bundle C1)

12.  Clause F     Security for and recovery of moneys due

(4)     In the event of any Owner failing to pay any sum due and payable by him ... 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 Clause 3 of this Sub-section and in registering the charge hereinafter referred to, shall stand charged on the share or shares of the defaulting Owner and the Manager shall be entitled without prejudice to any other remedy hereunder to register a Memorial of such charge in the District Land Office against the share or shares of the defaulting Owner.  (page 72 Bundle C1)

Whether the Applicant is liable to contribute to the Litigation Fund

13.  The Applicant contends that the 2^nd Respondent is not entitled to raise the Litigation Fund by way of a lump sum contribution but such should be done by way of monthly management fees which covers the expenses of legal costs in accordance with Clause D(1)(d) of the DMC.  And the contribution should be in a ratio in line with Clause D(2) of the DMC instead of the owners’ undivided shares.  Furthermore, the Litigation Fund is not urgent and unexpected and should be considered as a special fund instead of a contingency fund.  But the requirement for the raising of a special fund under Paragraph 4 of Schedule 7 of the Building Management Ordinance (“BMO”) had not been complied with, i.e. the apportionment was not being determined at an Owner’s Meeting.  Hence, theraising of the Litigation Fundby the 2^nd Respondentis invalid andunlawfuland the Applicantshould not be liableto payfor the same. 

14.  The 2^nd Respondentcontendsthat the Litigation Fund is being raised as a contingency fund, not under the DMC but under Section 20(2) of BMOas acknowledged in the case of Chi Kit Co Ltd v Lucky Health International Enterprise Ltd [2000] 3 HKC 143.  Since the solicitor fee mentioned under Clause D(1)(d)of DMC is not catered for urgent needs, the 2^nd Respondent is entitled to raise a sum to meet the legal costs of theSun Fook Proceedingswhich isnotaregular or recurrentexpenditurebutof an unexpected or urgent nature.  According to Section 22(2) of BMO, since the DMC had not provided for the same, such contribution should be fixed in accordance with the respective shares of the owners. And according to Section 22(1)(b) of BMO, it is for the management committee to determine the manner such contingency fund are to be collected. So the raising of the Litigation Fund is authorised by the BMO and the Applicant should be liable to pay.

15.  It is not in dispute that the Litigation Fund had to be raised from the owners of the building.  It all turns on whether the 2^nd Respondent should do so by relying on the terms of the DMC or provisions of the BMO which are the only source that empowers such an exercise.  The Applicant is saying that the 2^nd Respondent is bound by the wordings of Clause D(1)(d) of the DMC and this is the only means such a Litigation Fund can be raised whilst the 2^nd Respondent said the provisions of the BMO should be applicable.  It is trite law that should there be provisions in the DMC to provide for such an exercise, the DMC should be followed.  And it is only when the DMC failed to provide for such an exercise, then one should look to the BMO. 

16.  Is Clause D(1)(d) of the DMC catered for the Litigation Fund raised or just for the legal fees incurred for routine legal service? From the wordings of Clause D(1), all the heads of expenses to be covered by the monthly management fee are mostly routine outgoings.  Applying the ejusdem generis rule, I found that the “solicitors and other legal fees and costs” mentioned therein is also intended for routine expenses like engagement fee as legal adviser of the corporation.  The Litigation Fund is an expenditure of an unexpected and urgent nature, in the sense that it is not a routine expenditure.  I accept the 2^nd Respondent’s contention that the monthly management fees collected are intended for the routine daily operation needs instead of an unexpected litigation on urgent basis like the legal costs incurred in the Sun Fook Proceedings.  Given the fact that the monthly management expenses are at fixed sum and although Clause D(2) of the DMC allows for revision and adjustment of the monthly sum by the manager, such has to be done by giving the owner at least 3 months’ prior written notice.  I found this cannot be intended to meet urgent needs like the Litigation Fund.  Having found that the terms of the DMC did not provide for the raising of the Litigation Fund in this case, the 2^nd Respondent is entitled to look to the provisions in the BMO.

17.  Sections 20(2) of the BMO empowered a corporation to establish and maintain a contingency fund “to provide for any expenditure of an unexpected or urgent nature.”  The 2^nd Respondent can rely on this provision for the Litigation Fund to be raised.  The method adopted by the 2^nd Respondent in the determination of the contribution by respective owners is also in line with the provision under Section 22(2) of BMO.

18.  I found the raising of the Litigation Fund by the 2^nd Respondent is valid under the provisions of the BMO and the Applicant is liable to pay its respective contribution as demanded by the 1^st Respondent. 

19.  The Applicant is trying to rely on the fact that a resolution had been passed at the Management Committee meeting on 3 November 2008 for a refund of the whole of the Litigation Fund to the owners so the Applicant should not be liable to pay for the same.  I found the Applicant’s contention to be misconceived.  From the minutes of the meeting of 3 November 2008 (page 134 Bundle C1), a refund of the whole of the Litigation Fund was only a suggestion proposed by the Management Committee which was to be tabled before the Owners’ Meeting for a resolution to be passed, yetthis had never been materialised.  So, there is no resolution for the refund of the whole of the Litigation Fund and the Applicant cannot rely upon this to deny its liability to pay the same.

20.  And even if there is such a resolution, the Applicant’s liability to pay arises on the payment deadline stated in the demand note issued by the 1^st Respondent.  Any subsequent decision to refund will not discharge the Applicant’s liability but only a decision on the part of the 2^nd Respondent to waive its right to enforce the debt.

21.  I found the Applicant is liable and should pay the Litigation Fund in the sum claimed by the 2^nd Respondent.

The Charge

22.  It is the Applicant’s case that since theraising of the Litigation Fund isunauthorisedand theApplicant is not liable to pay for the same, there is no legal basis for the 1^st Respondent to register the Charge.  In view of my ruling above, the Applicant must fail on this ground.

23.  But the matter does not stop there.  It is also the Applicant’s case thatthe registration of a charge is being stipulated under Clause F of the DMC.  Contribution to a contingency fund is not canvassed by Clause F so it is not chargeable under the DMC.  Even if the Applicant is liable to payforthe same, the 1^st Respondent, not being the creditor, is not entitled to register the Charge for the 2^nd Respondent, the actual creditor.  And from the wordings of the Charge itself, the outstandingMFandAChad never been mentioned nor had the1^stRespondent ever issued any demand note for the same.

24.  The1^stRespondent, on the other hand, contends that Clause F of the DMC should also cover legal costs raised by way of contingency fund.  And the Charge covers not only the Litigation Fund but also the outstandingMF and ACas well since the wordings of the Charge said “the said sum of HK$178,382.00 remains wholly outstanding and unpaid and as such the same together with (if applicable) further arrears of the contribution and other sum payable under the said Deed (if any) stand charged or constitute a charge on the said Owner’s said shares …”  As for the locus of the 1^st Respondent in registering the Charge, Clause F(4) of the DMC specifically provided for the fact that the Manager do have such a power and the Manager referred tothereinmust mean the 1^st Respondent.

25.  Clause F(4) of the DMC is the provision empowering the registration of a charge.  It clearly stipulated that only the sum due and payable in accordance with the provisions of the DMC is chargeable.  It is not in dispute that the sum due and payable under the DMC is the MF and AC.  I see no room for the 1^st Respondent to argue that Clause F(4) covers the non-payment of the Litigation Fund raised under the BMO.

26.  Furthermore, I found the argument by the 1^st Respondent that the Charge did include the outstanding MF and AC owed by the Applicant, hence the Charge is a valid one, unsubstantiated.  The Memorandum of Charge (page 142 of Bundle C1) contains a chart detailing the outstanding sum under the Charge.  Only the Litigation Fund had been mentioned and not a word on the MF or AC.  Should it be the 1^st Respondent’s case that the outstanding MF and AC were to be included in the Charge, such should also be detailed in the Memorandum itself.  From the fact that such information had been missing, the only reasonable inference to be drawn is that the Litigation Fund is the only subject of the Charge.

27.  I found the Litigation Fund is not a sum due under the DMC, hence not chargeable under Clause F(4) of the DMC.  Given this finding, the Charge registered by the 1^st Respondent must be vacated and the 1^st Respondent should also be restrained from registering the Charge against the Premises.  As for the injunction restraining the 1^st Respondent from interfering, trespassing, infringing the right and title of the Applicant over the Premises and the reasonable occupation or enjoyment of the Applicant, I found no evidence to show that the 1^st Respondent had done anything of this kind by registering the Charge.  The Applicant’s application in this regard must fail.

28.  For completeness, I shall deal with the Applicant’s contention as to the locus of the 1^st Respondent in registering the Charge.  There is no argument that the 2^nd Respondent is the creditor as far as the Litigation Fund is concerned.  But the 1^st Respondent derived the capacity to register the Charge under Clause F(4) which stipulated that “the Manager shall be entitled … to register a Memorial of such charge”.  And “the Manager” is being defined in the DMC as “shall mean the Management Company or any other manager for the time being appointed as manager of the Building pursuant to this Deed.” (page 32 Bundle C1).  The Applicant’s contention that the 1^st Respondent is not entitled to register the Charge must fail as well.

Claim for Damages

29.  The Applicant submits that theregistration of theChargecausedinjury toitstitle. Relying onthe case of Strand ElectricAnd Engineering Co. Ltd. V Brisford Entertainments Ltd(1952) 1 All ER 796, the Applicant is asking for damages even though there is no loss suffered. Initially the Applicant is claiming damages in terms of injury to the value of the Premises as well as loss of rental income. Yet, the Applicantchanged its stance andis prepared to accept nominal damages or any damages the court thinks fit to be awarded.

30.  The1^stRespondent contends that there is no evidence to show that the Applicant had suffered any damages as a result of the registration of the Charge.  And even if there are damages, the Applicant had failed to establish a causal link between the wrong and the damages claimed.

31.  I accept the 1^st Respondent’s submission.  The Applicant has failed to show that it has suffered any loss or damage and how the title of the Applicant had been injured.  I did not accept the contention that the case of Strand Electric (supra) supports the argument that damages can be awarded when there is no loss shown.  On the contrary, it is stated by Denning L.J. in the said case that the Applicant can only recover the loss suffered by way of damages (page 800 at C).  It is stated in the said case that “where a defendant has obtained a benefit from his wrongdoing he is often made liable to account for it even though the plaintiff has lost nothing and suffered no damage.” (page 800 between D & E)   So, unless the Applicant can establish the fact that the Respondents had obtained a benefit by registering the Charge which I found none, in the absence of any loss proved, the Applicant should not be entitled to any damages.

32.  As for nominal damages, Earl of Halsbury LC stated in the case of The Mediana [1900] AC 113 that :-

“Nominal damages is a technical phrase which means that you have negative anything like real damage, but that you are affirming by your nominal damages that there is an infraction of a legal right which, though it gives you no right to any real damages at all, yet gives you a right to the verdict or judgment because your legal right has been infringed.”

33.  In this case, the Applicantis alreadyentitled to a mandatory injunctionand the vacating of the Charge, which by itself is an acknowledgment of the legal rights being infringed.  The Applicant does not need nominal damagesto signify the correctness of bringing the proceedings.  Thus, awardofany nominal damagesis not justified.

Management Fees & Air-conditioning Charges

34.  The Applicant contends that computation of MF and AC by the 2^nd Respondent before 2009 is not in accordance with Clause D(1) of the DMC, i.e. not in a ratio stipulated in the 3^rd and 4^th Columns of the Table of Clause D (2).  Furthermore, the computation of MF and AC for all these years (even after January 2009) is wrong since the 2^nd Respondent had adopted the total income in the Budget as basis for calculation instead of adopting the proposed expenditure as required by Paragraph 1(1) of Schedule 7 BMO. And the tabulation of AC should be based on the expenses for air-conditioning system only and not the total proposed expenditure.  This had resulted in an overpayment by the Applicant from January 2006 to July 2009 in the sum of $225,441.  Furthermore, the Budget for 2006 to 2008 had not been approved by the Management Committee whilst the Budget for 2009 was prepared by adding 6% to the 2008 Budget and included a sinking balance in it.

35.  The 2^nd Respondentaccepts that there is a wrong tabulation for the period between January 2006 and May 2008.  But there is a dispute as to how much had been overpaid and this turns on the different methodsadopted by the parties.  As for the period between June 2008 and November 2009, the2^ndRespondent contends that the Applicant hadin factunderpaidMFandACin the sum of $45,089 which should be set offagainstthe overpayment by the Applicant. 

Basis of Tabulation

36.  For the period between January 2006 and May 2008, the 2^nd Respondent agreed there is an over-payment and the issue is how much had been overpaid and this turns on the different basis adopted by the respective parties in the calculation of the MF and AC.  The same issue is also relevant as to whether there is over-payment or under-payment for the period between June 2008 and November 2009. 

37.  According to Paragraph 1(1) Schedule 7 BMO, “the amount of management expenses payable by the owners during any period of 12 months adopted by the manager of a building as the financial year in respect of the management of that building shall be the total proposed expenditure during that year” as specified by the manager in the budget he had to prepare each year under Paragraph 1(2).  And Paragraph 1(8) defines expenditure to “include all costs, charges and expenses to be borne by the owners, including the remuneration of the manager.”  Section 20(1) BMO required a corporation to establish and maintain a general fund to defray day-to-day expenses and to pay Government rent, premiums, taxes or other outgoings including any outgoings in relation to any maintenance or repair work.  Section 20(2) allows a corporation to establish and maintain a contingency fund to provide for unexpected or urgent expenditure or to meet the expenses of the kind under general fund which is insufficient to meet them.  Paragraph 4(1) of Schedule 7 BMO imposed a duty on the manager to “establish and maintain a special fund to provide for expenditure of a kind not expected by him to be incurred annually” and for a corporation, the amount to be contributed to the special fund shall be determined by a resolution of owners (Paragraph 4(2) refers).

38.  The 2^nd Respondent, in determining the monthly MF and AC to be contributed by respective owners, adopted the figure appeared in the item ‘Total Income’ on the Budget as the basis for the calculation instead of just using the total proposed expenditure.   This is in fact a figure reflecting the total of routine expenditure plus a surplus on the Budget.  It is the 2^nd Respondent’s case that the surplus is in fact a contingency fund raised under Section 20(2) BMO to avoid a deficit budget.  The Applicant however argued that this is a wrong basis in contravention of Paragraph 1(1) of Schedule 7 whilst the surplus should be raised by way of special fund but such had not been determined by a resolution of owners in accordance with Paragraph 4(2) of Schedule 7.

39.  I accept that the surplus which is analogous to a sinking fund had been included in the Budgets by the 2^nd Respondent in this case as money being set aside to meet contingencies, including supplement of the general fund in case there is deficit.  This is in line with the contingency fund provided under Section 20(2) and is not being raised as a special fund under Paragraph 4(1) and (2) of Schedule 7.  Section 20 of BMO allowed for 2 funds, general and contingency, to be maintained and there is no requirement for the two to be separated.  So the surplus (for the year 2006-2008) and the sinking fund (for 2009) included in the total proposed expenditure is not against the provisions of  Paragraph 1(1) of Schedule 7 as alleged by the Applicant. 

40.  The Applicant argued that sinking fund should be raised as special fund under Paragraph 4 of Schedule 7 instead of contingency fund.   From the wordings of Paragraph 4 of Schedule 7, I found special fund are not catered for expenses of unexpected and urgent nature or for supplement of the general fund.  Special fund are for planned items that will be necessary at some time in future and emergency required speedy action and cannot wait for an extraordinary owners’ meeting to be convened.

41.  There is also a dispute as to how the AC should be levied.  The Applicant contends that only the 3 items appeared in the Budgets under the heading of ‘Central Air-Conditioning System’ should form the basis for the respective owner’s share to be determined whilst the 2^nd Respondent had adopted the total amount of management expenses particularised in paragraph 39 above in the calculation.  The 2^nd Respondent’s justification for so doing is that the AC also involved property management and staff services.

42.  The owner’s obligation to pay AC should not be mixed up with that of MF because not all owners are liable to pay AC according to Clause D(2) of the DMC.  If the 2^nd Respondent’s contention is to be accepted, specific details as to the amount of management expenses incurred for the AC should be included under the heading for AC.  There is nothing to support the 2^nd Respondent’s way of tabulation as far as the AC is concerned.  I accept the Applicant’s stance that the owners’ share in AC should only be calculated based on the 3 items under the heading of ‘Central Air-Conditioning System’ on the Budget. 

Validity of the Budgets

43.  The Applicant raised challenge as to the Budgets including (i) the Budgets for 2006 to 2008 had not been approved by the Management Committee or published to the owners in breach of Paragraph 1(2) of Schedule 7, (ii) 2 Budgets had been prepared for the year 2006 and 2009 and (iii) the 6% adjustment in the 2009 Budget.  Albeit so, the Applicant submits that this will not affect the validity of the Budgets prepared and invite this court to adopt the figure of proposed expenditure on these Budgets as basis for calculation.  But should the court find the Budgets cannot be relied upon as a result of the breach mentioned above, the Applicant contends that ‘actual management expenses” stipulated in Paragraph 1(3) of Schedule 7 should be the actual management expenses incurred for the previous year.

44.  There is no dispute that the Budget for 2006-2008 had not been published to the owners and also had not been approved by the management committee.  It is the case of the 2^nd Respondent that since the amount of MF and AC had been the same for the last 10 years and was sufficient to cover all expenses, so the MF and AC were not calculated according to the Budgets.  But even if there is a breach of Paragraph 1(2) of Schedule 7, the 2^nd Respondent is still entitled to charge MF and AC in line with Paragraph 1(3) of Schedule 7, where the actual management expenses must mean actual management expenses payable by the owners for the previous year.

45.  Paragraph 1(2) of Schedule 7 stipulated the procedure to be adopted by the manager in the preparation of the annual budget including  sending the draft budget to the owners’ committee and by Section 34K of BMO, where a management committee had been appointed, the members of the management committee shall be deemed to be the owners’ committee; send or display the draft budget to owners for comment and for the budget to be sent to the management committee and displayed. Paragraph 1(3)(a) of Schedule 7 provided that should the manager fail to comply with Paragraph 1(2), the total amount of the management expenses for that year shall be deemed to be the same as the total amount of management expenses for the previous financial year.

46.  It is clear from the statutory provision of Paragraph 1(3) of Schedule 7 that the failure to comply with Paragraph 1(2) will not deprive the right of the 2^nd Respondent to levy MF and AC.  Since the Budget for 2006-2008 had not been approved and published, it is not a Budget accepted by the owners or the Corporation, hence cannot be relied upon to work out the management expenses payable by the owners.  This is the only conclusion to be drawn otherwise Paragraph 1(3) of Schedule 7 will be redundant.

47.  I found the Budgets of 2006-2008 prepared by the 1^st Respondent cannot be relied upon in the calculation of MF and AC in view of the fact that Paragraph 1(2) of Schedule 7 had not been complied with.  But the challenge by the Applicant, even successful, will not affect the 2^nd Respondent’s right in the levying of MF and AC.  But the question is in what amount?

48.  I found the wordings of Paragraph 1(1) and 1(3) of Schedule 7 are different in that Paragraph 1(1) referred to “total amount of management expenses payable by the owners” whilst Paragraph 1(3) mentioned total management expenses of the previous year”.  Given the fact that two different description had been used, the intention must be two different kinds of expenses are involved.  Paragraph 1(1) specifically mentioned management expenses payable so if what the 2^nd Respondent contends is correct, the wordings of Paragraph 1(3) should be the same as Paragraph 1(1).  This is clearly not the case.  From the different wordings used, I found Paragraph 1(3) should be referring to actual management expenses incurred.  This allows the corporation to carry on with its management by levying an amount equals to the actual amount spent last year even without a budget prepared.

49.  For completeness and in case my ruling on the validity of the Budget is wrong, I shall also deal with the other 2 challenges by the Applicant towards the Budget even though this has become academic in view of my ruling above in paragraph 48.

50.  Upon the request of the Applicant, the 1^st Respondent had provided 2 sets of Budget for the year 2006 (page 117 and page 119 of Bundle C1).  The Applicant had adopted the one on page 117 as basis for calculation whilst the 2^nd Respondent adopted the one on page 119.  I found the Budget for 2006 on page 119 should be used in the calculation.  The one on page 119 is titled “Management Budget 01/01/2006-31/12/2006” whilst the one on page 117 is titled “First Year Monthly Budget for Management Expenses”.   The one on page 119 had more detailed items on it when compared to the one on page 117.  To adopt the one on page 117 clearly cannot reflect the whole picture of the annual budget.

51.  As for the 2 sets of Budget prepared for 2009 (page 161 of Bundle C1 and page 381 of Bundle C2), I accept the evidence of Mr. Hung of the 1^st Respondent and not that of Madam Kwok of the 2^nd Respondent.   Mr. Hung’s evidence is more certain that the Budget on page 381 is the finalised version for 2009 since the management committee rejected the one on page 161.  I found the Budget for 2009 as appeared on page 381 of Bundle C2 is the one approved by the management committee.

52.  For the Budget of 2009, the Applicant also challenged the fact that it was prepared by adding 6 % to the 2008 Budget but not according to the total proposed expenses.  The 2^nd Respondent reiterated that the 6% adjustment was approved by the management committee at their meeting on 30 September 2008.

53.  Clause D(2) of the DMC does allow for the adjustment of the monthly MF and AC to be adjusted.  Section  21(1A) of BMO also allow the management committee to adjust the amount to be contributed by the owners towards the general fund and the contingency fund except the adjustment should not exceed a sum equivalent to 150% of the preceding amount.  It is not a case that the 2009 Budget only added 6% onto the 2008 Budget but a detailed break-down of the expenses are spelled out.  It is clear from the minutes of the management committee meeting held on 30 September 2008 that there were anticipated increase of expenses plus the need for a sinking fund, hence the adjustment.  I found the allegation by the Applicant in this regard unsubstantiated.

54.  Having made the above findings, I found the MF and AC for the year 2006 to 2008 should be levied based on the actual management expenses incurred for the previous year.  In the evidence adduced so far, the 2^nd Respondent had only provided the actual management expenses incurred for the year 2007 (page 121 Bundle C1) whilst there is no evidence adduced for the year 2005 and 2006. 

55.  The 2^nd Respondent submits that it is for the Applicant to establish an overpayment and if there is no evidence before the court to ascertain the actual amount to be levied, the Applicant had failed to discharge its burden of proof and the matter should end there.  I found this to be absurd.  The 2^nd Respondent concedes there is overpayment and the only issue is how much being overpaid.  So this must be resolved at this trial and this court cannot allow a disputed issue to be left unanswered.  The 2^nd Respondent had a duty to prepare and keep an annual financial statement each year so this should be available for the actual management expenses to be ascertained.  I shall give directions for parties to work out and agree on the MF and AC to be levied for 2006 and 2007 based on the actual management expenses incurred for 2005-2006 with liberty to apply.

56.  As for the year 2008 and 2009, the MF and AC to be levied and the share of the Applicant is listed out in the Appendix attached to this judgment.  From the tabulation, I found there is an over-payment by the Applicant for January to May 2008 and January to April 2009 whilst underpaid for June to December 2008 and May to November 2009.

Should there be a refund

57.  The2^ndRespondent contends that even if there isanoverpayment, the Applicant should be estopped from claiming for a refund sinceithad acquiesced inthe wrong calculation bypayment ofMF and AC as demandedwhich amounts to a waiver.  And in reliance upon such acquiescence, the2^ndRespondent had spent the sum receivedin the management expenseshence there is an alteration of position in good faith on the part of the2^ndRespondent.  Furthermore, the doctrine of estoppel by convention should also be applicablepreventing the Applicant from enforcing its right.

58.  The Applicantcontends that since the Applicant only discovered the unlawfulness of the calculation in May 2008 upon receipt of the Budgets, the Applicant had right away raisedanobjectionand theduty to enquire should only arise when there is suspicion. Sothe Applicant cannot be said to have acquiesced in thewrong calculation.  The 2^nd Respondent should refund the overpaid amount to the Applicant since there is a total failure of consideration.

59.  Furthermore,sincethe2^ndRespondent had adopted the figure of expected income to calculate the sum to be charged which generated a surplus in the account, the2^ndRespondent cannot be said to be acted in good faith.  Nor had there been a change of position on the part of the2^ndRespondent since the money paid and received from the Applicant should still be in the bank account of the2^ndRespondentas reflected from the bank balance in the account.  And there is no common assumption between the Applicant and the2^ndRespondent to raise the doctrine of estoppel by convention.

Acquiescence

60.  The first issue is whether there is acquiescence on the part of the Applicant.  The Applicant said that there cannot be acquiescence when it had no knowledge of the breach by the 2^nd Respondent in failing to comply with Clause D(1) of the DMC in the calculation of the MF and AC.  The 2^nd Respondent on the other hand says that the Applicant could have discovered the mistake if it had taken reasonable steps.

61.  I found the case of Wong Pun-man v. Incorporated Owners of Tung Fat Industrial Building [1996] 1 HKDCLR 32 relied upon by the 2^nd Respondent is directly relevant on the argument of knowledge.  Judge Cruden had said the followings in the judgment :-

“Acquiescence is a long established equitable doctrine. It amounts to a waiver of a party’s rights and raises an equitable species of estoppels, preventing him from later enforcing those rights. The modern approach of the courts is to determine whether it would be unconscionable for a party to deny that which, knowingly or unknowingly, he has allowed or encouraged the other party to assume, to his detriment. So it would not necessarily be fatal to establishing acquiescence, that owners may for many years have paid fees, without having actual knowledge that they were not levied, strictly in accordance with the proportions specified in the DMC…The law is well settled that failure to object to a known defect within a reasonable time, may be regarded as an unequivocal indication by the injured party not to insist on his strict legal rights. Chitty at page 213, goes on to observe that the same position appears to arise where a non-objecting party, without actual knowledge of a contractual defect, could have discovered it if he had taken reasonable steps. So even if the respondent had relied on forbearance, I would have further held that the owners could have discovered the varied basis of the levy, if they had taken the very reasonable steps of familiarising themselves with the contents of the DMC.”

62.  Applying this judgment to the present case, the Applicant became aware of the fact that the MF and AC are not levied according to the provisions of the DMC upon reading of the DMC and the Budgets.  The DMC is available to the Applicant upon his purchase of the Premises in December 2005 and being an owner, the Applicant is entitled to ask for a copy of the Budgets (as what it did in May 2008).  I found the Applicant could have discovered the mistake in the calculation had it taken reasonable steps upon his purchase of the Premises.  Yet, the Applicant had not done so till May 2008 and had been paying the MF and AC from January 2006 till May 2008 as and when demanded.   

63.  The Applicant had tried to argue that the case of Wong Pun-man can be distinguished in that the Applicant in this case cannot discover the mistake by just reading the DMC like the scenario in Wong Pun-man, but required the availability of the Budgets too.  I found this contention not substantiated. The Budgets, as I found above, is a document which the Applicant is entitled to ask for a copy.  Upon reading the provisions of the DMC, it should be reasonable for the Applicant to ask for a copy of the Budgets in order to ascertain whether the MF and AC are being levied on the correct basis.  I found the Applicant could have discovered the correct basis of the levy if it had taken the very reasonable steps of reading the DMC as well as asking for a copy of the Budgets.  I found the Applicant had acquiesced in the levy.

64.  To succeed in establishing acquiescence, the 2^nd Respondent must also prove that it had acted to its detriment as a result of the acquiescence by the Applicant.  I found as a fact that the money received as MF and AC had been used for defraying the operation expenses of the Building.  From the figure of actual expenses appeared in the Budgets for the year 2007, 2008 and 2009, the MF and AC received had in fact been used up with little surplus for 2006 and 2008 and a deficit for 2007.  Even if there is a surplus, I do not accept that this is an act on the part of the 2^nd Respondent for gain and not in good faith.  The Applicant is trying to establish that the 2^nd Respondent, being well aware of the terms of the DMC, had deliberately collected more MF and AC than allowed.  It is clear from the evidence of Madam Kwok of the 2^nd Respondent that this is not the case and I accept her evidence that the 2^nd Respondent is not aware of the breach until raised by the Applicant.

65.  I also found the Applicant’s contention that the money paid by it was still sitting in the bank account of the 2^nd Respondent so there is no change of position on the part of the 2^nd Respondent unfounded.  The bank balance is a cumulative figure for all the years since incorporation and one should look at the actual expenses of each year instead of the bank balance to tell whether the money received had been spent.  The fact that there is little or no surplus for the year 2006-2008 tended to support the fact that the MF and AC levied for the year had already been spent.  I found there is a bona fide change of position on the part of the 2^nd Respondent who gained no benefit whatsoever in the over-payment by the Applicant and the fact that the 2^nd Respondent had been in fault in failing to comply with the DMC is irrelevant in considering whether there is a change of position in good faith (Dextra Bank & Trust Co Ltd v Bank of Jamaica [2000] 1 All ER (Comm) 193).  As for the surplus included in the Budgets, I repeat my ruling in paragraph 39 above.  I found this to be in line with the provisions of BMO and did not support the allegation of bad faith on the part of the 2^nd Respondent.

66.  Had it not been for the Applicant’s acquiescence, the 2^nd Respondent would not have managed the building relying upon payment of the levied fees.  It would be unconscionable for the Applicant to deny that it had allowed or encouraged the 2^nd Respondent to act to its detriment.  I found the Applicant had acquiesced in the MF and AC being levied in proportions different to the provisions of the DMC which amounts to a waiver of their rights to a strict compliance of the DMC.  Under such circumstances, the Applicant should be denied its right of a refund.

Estoppel by Convention

67.  As for the defence of estoppel by convention, Ribeiro PJ had, in the case of Unruh v. Seeberger [2007] 2 HKLRD 414 (CFA) stated the 4 elements of estoppel by convention, namely :-

(i) a common assumption of fact or law;

(ii) persons acted upon such assumption enter into a transaction;

(iii) an attempt by one party to depart from the common assumption which departure would be unjust; and

(iv) the other party would suffer detriment.

68.  The common assumption may arise “where 2 parties independently (and often by mistake) make and then deal with each other upon the same assumption” (as per Ribeiro PJ at paragraph 134 of Unruh v Seeberger).  It is apparent that both the Applicant and the 2^nd Respondent had the common assumption that the MF and AC are being levied in accordance with the provisions of the DMC before June 2008.  The Applicant tried to argue that it was misled into holding such an assumption by the demand of MF and AC from the 1st Respondent. Given my finding above about the Applicant’s right to discover the same and the fact that the 2^nd Respondent was not acted in bad faith, I also found the Applicant had not been misled into the assumption.

69.  In reliance of this common assumption, the 1^st Respondent had demanded and the Applicant had paid the amount.  Since the 2^nd Respondent had spent the money and suffered detriment as particularised in paragraph 64 above, coupled with the fact that other owners of the Building had made their respective contribution, the Applicant’s attempt to depart from the common assumption and asked for the refund of the overpayment would be unjust and unconscionable.

70.  Applying the principle of estoppel by convention, I also found that the Applicant should not be entitled to a refund. 

Unjust Enrichment

71.  The Applicant argued that it is not liable to pay more than what is required under the DMC and the excess ought to be returned due to a total failure of consideration.   

72.  The common law cause of action for money had and received where consideration has totally failed is generally regarded as a species of claim for restitution based upon principles of unjust enrichment.  In essence, to say that a payee has been unjustly enriched by the receipt of payment is to say that the payee has no right to receive it.

73.  In Barclays Bank Ltd v WJ Simms (Southern) Ltd [1980] QB 677, 695-6, Robert Goff J (as His Lordship then was) stated the following principles which I found to be relevant to the present case:

(i) If a person pays money to another under a mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under a mistake of fact;

(ii) His claim may however fail if the payee has changed his position in good faith, or is deemed in law to have done so.

74.  I found the Applicant must fail in this regard given my ruling in paragraph 65 above that the 2^nd Respondent had changed its position in utilising the money received in the management expenses and done so in good faith.

The Order

75.  It is ordered that :-

a.  The Charge against the Premises should be vacated forthwith by the 1^st Respondent;

b. An injunction restraining the 1^st Respondent, whether by itself or its servant or agents from registering the Charge concerning the Litigation Fund to be contributed by the Applicant ;

c.  The Applicant should pay the 2^nd Respondent its contribution towards the Litigation Fund in the sum of $176,212;

d. Parties to work out and agree on the MF and AC to be levied for 2006-2007 based on the actual management expenses incurred for 2005-2006 with liberty to apply;

e.  The underpayment by the Applicant for MF and AC be set off from the overpaid MF and AC;

f.    A declaration that the Applicant is not entitled to a refund of the overpaid MF and AC after set off, if any;

g.  All other claims are dismissed;

h. There be no order as to costs, this is an order nisi to be made absolute upon expiry of 14 days.