SINCERE LUCK INVESTMENT LTD v. TANG MING YUI AND ANOTHER

DCCJ 4965/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4965 OF 2007

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J U D G M E N T

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Background

1.  This action is taken out by the Plaintiff to recover against the Defendants deficiency in management expenses in Kamease Garden.  Kamease Garden situate at Lot 476 in D.D. No. 104, Yuen Long, New Territories, consisting of 5 detached 3-storey houses, named Block A, B, C, D & E respectively.  Each Block has 2 carports.

2.  Kamease Garden has been completed in about 1998 and the first owner and developer is one Kamease Investments Limited, which is a company owned and controlled by Mr. Ngai Man (“Mr. Ngai”) and his wife Madam Choi Yin Chu (“Madam Choi”).  The Plaintiff is also a company owned and controlled by Mr. Ngai and Madam Choi. 

3.  Block E was assigned by Kamease Investments Limited to Madam Choi on 30 November 1998 together with carports nos. 9 & 10.  Madam Choi executed a Deed of Mutual Covenant and Management Agreement dated 30 November 1998 (“the DMC”) as the first purchaser with Kamease Investments Limited.  By the DMC, which was also signed by the Plaintiff, the Plaintiff was appointed as the Manager of Kamease Garden (I shall refer to the Plaintiff as “the Plaintiff or the Manager”).  The DMC is binding on all the owners of Kamease Garden, including the Defendants.

4.  Subsequently, Madam Choi was assigned Block B and carports nos. 3 & 4 on 2 December 1998.

5.  Block D of Kamease Garden was assigned by Kamease Investments Limited to one Ng Hung Yuen on 17 December 1998.  There were further assignments of Block D to new purchasers, and on 8 June 2001, Block D was assigned to the Defendants in DCCJ 4965/2007, Mr. Tang Ming Yiu (“Mr. Tang”) and Madam Mui Pik Ha (“Madam Mui”).

6.  It is the case of the Plaintiff that when they are managing Kamease Garden, management deficit has been incurred.  As at 31 December 2005, the deficit to be contributed by owners of Block D, namely Mr. Tang and Madam Mui is $140,243.05.

7.  Subsequently, Madam Mui and her son Mr. Tang Wing Man, Michael (“Mr. Michael Tang”) acquired and became the registered owners of Block E and carports nos. 9 &10 on 3 April 2007.  The Plaintiff said the management deficit payable for Block E as at 26 April 2007 was $75,392.48, and instituted DCCJ 4966/2007 to recover the deficit from Madam Mui and Mr. Michael Tang.

8.  While it is not disputed that the Plaintiff is and was at the material time the Manager of Kamease Garden, all the Defendants in both actions disputed the claims on the ground that the Plaintiff has provided no management service to Kamease Garden apart from collection of garbage.  It is also contended by the Defendants that the Plaintiff has never convinced annual meetings of owners, and hence no resolution could be passed to approve the expenditure or annual budgets. 

9.  The Defendants also claims that the Plaintiff has failed to keep any true and proper account of the management expenditures, or to display the monthly and quarterly accounts in a prominent place in the management office of Kamease Garden.  The accounts and audited accounts now produced by the Plaintiff are not contemporaneous documents.

10.  The 2 actions are listed for hearing before me at the same time.  No direction for consolidated has been applied for.  It is obvious that there are common issues in the 2 actions.  By consent, I have the 2 actions consolidated, but retained the 2 sets of separate pleading as the pleading in the consolidated action.  (I shall hereinafter call all the Defendants in both actions “the Defendants” and I shall refer to individual Defendant when necessary by their names.)

11.  I shall now proceed to consider the Plaintiff’s case.  It is helpful to start with the terms of the DMC.

12.  Section VI of the DMC sets out the power and duties of the Plaintiff as the Manager of Kamease Garden.  In particular,  Clause B 1 (ff) of Section VI provides that the Plaintiff has the power “to recruit and employ such staff as may from time to time be required to perform and discharge its duties hereunder on such terms as the Manager shall in its absolute discretion decide… ” 

13.  Clauses D 1 and D 2 of Section VI further provides that each owner shall, in such proportion as provided in the DMC, pay all costs expenses and outgoings incurred in relation to the management of the Kamease Garden as set out therein, which includes the costs of carrying out the duties of the Manager, the costs of employing staff directly involved with the management of the Kamease Garden, reasonable professional fees and costs incurred by the Manager in connection with the management of the Kamease Garden, water gas electricity telephone and other service charges except where the same is separately metered to individual Blocks, and others.  It also includes all items of expenditures relating to the management and maintenance of Kamease Garden which are in the discretion of the Manager necessary for good estate management of Kamease Garden. 

14.  And according to the 2^nd Schedule of the DMC, the management shares for Block A, B & C are 174 each; and the management shares for Block D and E are 132 each.

15.  It is also provided by Clause E 3 of Section VI that “all amounts which become payable by any Owner in accordance with the provision of [the DMC] together with interest thereon …..shall be recoverable by civil action at the suit of the Manager.  In any such action the Manager shall conclusively be deemed to be acting as agent or agents for and on behalf of the Owners as a whole…”

16.  Pausing here, I note that Section VI empowers the Plaintiff to carry out the management duties therein mentioned.  Clauses D 1 and D 2 set out the liability of the individual owners to contribute to the management expenses and Clause E 3 empowers the Plaintiff to collect costs incurred in the management of Kamease Garden from the owners by action if necessary.  I call Clauses D1, D2 and E3 “the contribution provisions”.  But there is additional provision for payment of management expenses in advance.

17.  Clause D 3 of Section VI of the DMC provides that each Owner shall pay to the Manager monthly in advance 1/12 of the total budgeted management expenses and manger’s remuneration payable for the unit he owns.  I call this “the monthly management fees provision”.

18.  The Plaintiff now claims against the Defendants for the deficits in respect of Block D and E as aforesaid.  Pausing here, it is the evidence of Mr. Ngai that $1,000 per month was collected from each Block as monthly management fees until October 2005. With effect from 1^st October 2005, the monthly management fees were increased to $2,700 per month.  These are the monthly management fees collected by the Plaintiff in advance for the relevant period. 

19.  I note firstly that the monthly management fees has not been determined according to the monthly management fees provision.  And secondly, the “deficits” now claimed is the difference between the actual management expenditure and the monthly management fees collected.  The deficit is recoverable under the contribution provisions. It would be necessary for the Plaintiff to prove that the items of expenditure had been used for the management of Kamease Garden and the cost is higher than the monthly management fees collected.  In support, the Plaintiff produced all the monthly, quarterly and annual statement with receipts or vouchers of the claimed management expenses.  The Plaintiff also produced 7 sets of notice, agenda and minutes of annual meetings of owners from 2001 to 2007 together with the annual budget for these years.  The Plaintiff claims that all the annual budgets have been approved in the meeting.   

20.  It is further provided by Clause D 3 of Section VI of the DMC that “in the event of a deficiency occurring or seeming to the Manager likely to occur ……the Manager may, in consultation with the Owners’ Committee, at any time and from time to time prepare a revised budget or budget, whereupon each Owner shall at the request of the Manager pay a due proportion of the deficiency by making further contribution to the Manager in accordance with the number of the management shares allocated [in the DMC] Provided that such amount shall become due and payable by each Owner immediately on the first day of the month immediately following the date of notification…”  Hence when a revised budget is prepared, the monthly management fees would be revised.  This clause only provides for increasing the monthly management fees payable in advance.  For some reason, this clause has been quoted in the Amended Statement of Claim in both actions. 

21.  At the closing, Mr. Koo, counsel for the Defendants, submitted that there is no revised budget.  But in his written submission, he also confirms that the Defendants are willing to pay the management expenses which are proven to be reasonable and truly incurred. 

22.  Mr. Yip, counsel for the Plaintiff submitted that under Clause D 3, the manager may issue revised budget.  It does not mean that the manager must issue revised budget before it could claim the deficiency in the management expenses.  I presume he is also relying on the annual budgets produced, which shows deficits.  And the better point is the deficit is recoverable under the contribution provisions.

23.  By the Amended Statement of Claim, at paragraph 6, the Plaintiff only says management fees deficits are outstanding.  It could mean both the deficiency refers to under Clause D 3 or just deficit.  Clause D 3 (a) is the provision for recovery of extra monthly management fees when the Manager found that the annual budget has underestimated the expenses.  But for recovery of expenses already incurred, it would be based on the contribution provisions 1 to recover expenses.  The revised budget point is neither here or there.  And this is not in the agreed issue in dispute nor a matter raised at the Pre-trial Review.

24.  The followings are the agreed Statement of Issue in Dispute –

a. Whether it had been provided for the management of Kamease Garden the services as that alleged by the Plaintiff;

b. Whether it had been incurred for the management of Kamease Garden the management expenses as that alleged by the Plaintiff;

c. Whether it had been convened meetings of owners of Kamease Garden as that alleged by the Plaintiff;

d.  Whether the Plaintiff had pursuant to Schedule 7 prepared any annual budgets, kept any true and proper accounts of all monies received in the exercise of its powers and duties under the DMC and all expenditure thereof;

e. Whether the Plaintiff had pursuant to Schedule 7 displayed or posted copies of the said annual budgets and accounts in a prominent place or at the management office of Kamease Garden;

f. Whether there was the management fees deficits as claimed;

g.  Whether it had been wrongfully included in the Plaintiff’s purported Account items of expenses which, if incurred, were unnecessary for and/or unrelated to the management of Kamease Garden and therefore should not be borne by any of the Defendants as owners of Kamease Garden.

25.  The annual budgets produced, if proved to be true, have stated the deficits and deficits carried forward.  Further and in the alternative, the issue is whether the expenses have been incurred and incurred as a management expense under the DMC.

26.  On the terms of the DMC, the Defendant avers that Schedule 7 of the Building Management Ordinance, Cap. 344 should be applicable and prevail over the DMC. 

27.  Section 34E of Building Management Ordinance provides that the terms in Schedule 7 shall be impliedly incorporated into every Deed of Mutual Covenant and bind the owners and the manager of the building.  The terms shall prevail over any other provisions in the Deed of Mutual Covenant that is inconsistent with them.  For completeness, Schedule 7 provides that –

1. Determination of total amount of management expenses

(1) Subject to subparagraphs (3), (5), (6) and (8), the total amount of management of a 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 accordance with subparagraph (2).

(2) In respect of each financial year, the manager shall-

(a) prepare a draft budget setting out the proposed expenditure during the financial year;
(b) send a copy of the draft budget to the owners' committee or, where there is no owners' committee, display a copy of the draft budget in a prominent place in the building, and cause it to remain so displayed for at least 7 consecutive days; (Amended 5 of 2007 s. 32)
(c) send or display, as the case may be, with the copy of the draft budget a notice inviting each owner to send his comments on the draft budget to the manager within a period of 14 days from the date the draft budget was sent or first displayed;
(d) after the end of that period, prepare a budget specifying the total proposed expenditure during the financial year;
(e) send a copy of the budget to the owners' committee or, where there is no owners' committee, display a copy of the budget in a prominent place in the building, and cause it to remain so displayed for at least 7 consecutive days. (Amended 5 of 2007 s. 32)

(3) Where, in respect of a financial year, the manager has not complied with subparagraph (2) before the start of that financial year, the total amount of the management expenses for that year shall-

(a) until he has so complied, be deemed to be the same as the total amount of management expenses (if any) for the previous financial year;
(b) when he has so complied, be the total proposed expenditure specified in the budget for that financial year, and the amount that the owners shall contribute towards the management expenses shall be calculated and adjusted accordingly.

(4) Where a budget has been sent or displayed in accordance with subparagraph (2)(e) and the manager wishes to revise it, he shall follow the same procedures in respect of the revised budget as apply to the draft budget and budget by virtue of subparagraph (2).

(5) Where a revised budget is sent or displayed in accordance with subparagraph (4), the total amount of the management expenses for that financial year shall be the total expenditure or proposed expenditure specified in the revised budget and the amount that owners shall contribute towards the management expenses shall be calculated and adjusted accordingly.

(6) If there is a corporation and, within a period of 1 month from the date that a budget or revised budget for a financial year is sent or first displayed in accordance with subparagraph (2) or (4), the corporation decides, by a resolution of the owners, to reject the budget or revised budget, as the case may be, the total amount of management expenses for the financial year shall, until another budget or revised budget is sent or displayed in accordance with subparagraph (2) or (4) and is not so rejected under this subparagraph, be deemed to be the same as the total amount of management expenses (if any) for the previous financial year, together with an amount not exceeding 10% of that total amount as the manager may determine.

(7) If any owner requests in writing the manager to supply him with a copy of any draft budget, budget or revised budget, the manager shall, on payment of a reasonable copying charge, supply a copy to that person.

(8) For the purposes of this paragraph, "expenditure" (開支) includes all costs, charges and expenses to be borne by the owners, including the remuneration of the manager.

28.  It is not disputed that Schedule 7 applies to the DMC.  The Defendants complain that no meeting has been convened, nor any resolution has been passed to approve the management budgets or accounts in accordance with Schedule 7.  But it is my understanding that Clause 1 (1) of Schedule 7 refers to proposed expenditure.  This again relates to the issue on how to determine management fees payable in advance. On deficit actually incurred, the owners have to refer to the provision in the corresponding Deed of Mutual Covenant to determine liability and quantum.

29.  The Defendants further claim that the Plaintiff fails to keep any true and proper account of all money received and expended.  And according to the submission of Mr. Koo, the main complaint is the accounts are not genuine and the expenses are not management expenses. This is a matter of evidence which I would consider at length later.

30.  At the Pre-trial Review on 20 September 2010, having discussed the case with both counsels, the following additional matters are agreed :- –

a.  It is not disputed that the DMC is binding on the parties;

b.  It is not disputed that the Plaintiffis the manager of Kamease Garden appointed under the DMC;

c.   Parties agree that the Defendants have to share the management expenses and monthly management fees have been paid.  But there are deficits and this action only concerns contribution to the deficits.  It is not disputed that the deficits have to be shared by the owners (including all Defendants) in proportion to the Management Shares in the DMC;

d.  For DCCJ 4965/2007, the deficits are incurred for the years 2001 to 2005.  For DCCJ 4966/2007, the deficit is incurred for the years 2005 to 2006;

e.   The main dispute by the Defendants is whether the expenditure incurred by the Plaintiff is properly incurred for the Estate, and the quantum of each justified expenditure.

31.  According, I would concentrate on the issue whether the expenditure is incurred for the Kamease Garden and whether the expenditure could be justified.

32.  At the Pre-trial Review, I further direct the Plaintiff to lodge and serve a schedule setting out all the items of expenditure as listed in the audited accounts or management account, as the case may be, with cross reference to the receipts or supporting documents in the Trial Bundle.  The Defendants are to comment on the items to narrow down the items in dispute.  I am grateful to the parties, as the Plaintiff has prepared a very detail table (“the Expenses Schedule”) and the Defendants have made their comments.  Though only a few items have been agreed, the Expenses Schedule assisted me very much in this ruling.

The Plaintiff’s Evidence

33.  I shall now proceed to consider the evidence of Mr. Ngai.  He has prepared 2 witness statements, one for each action.  He adopts his witness statements as his evidence in chief. 

34.  He said in Court that Kamease Garden is about 23,000 sq. feet in area.  There is about  5,000 sq. feet of common area.  There is no management office in Kamease Garden and a structure was built between the carports of Block B by Madam Choi.  Madam Choi let the structure, of about 300 sq. feet in area, to the Plaintiff at the monthly rental of $3,000, which was used by the Plaintiff as the management office.

35.  The relevant tenancy agreements have been produced.  (They were not stamped and the Plaintiff’s solicitors undertook to stamp the tenancy agreements, which were done before end of the trial.)  While all the tenancy agreements mentioned Block B, initially, the structure had not been built and could not be used. The Plaintiff with the permission of Madam Choi used Block E as the management office and paid the same amount of rental, until they moved into the structure at Block B.

36.  Mr. Koo also questioned if Kamease Garden needs a management office at all.  Mr. Koo put to Mr. Ngai that he used the management office as the office of the Plaintiff, which Mr. Ngai denied.  Mr. Ngai also said he only used the management office as the corresponding address of Kamease Investments Limited and the Plaintiff. He disagreed with Mr. Koo’s suggestion that no rental should be paid for the management office as he in fact used it as office for the Plaintiff and related companies.

37.  Mr. Koo suggested that the tenancy agreements are tailor-made for the litigation, which Mr. Ngai denied.  On cross examination, Mr. Koo said there was no signage being put up for the so called management office to show it being used as the management office of Kamease Garden.  Mr. Ngai agreed that the photographs of the management office in the Trial Bundles did not show a signage.  But he had put up signage before and some people had damaged it on more than one occasion.

38.  Mr. Ngai also said the Defendants knew about the position of the management office.  They had sent complaint letter to the Plaintiff at the management office.  It is included in the bundle a letter dated 23 September 2005 from Madam Mui to the Plaintiff asking for inspection of accounts with the address stated at G/F of Block B.  By another letter dated 9 November 2005, Madam Mui said having reviewed the statement of accounts, the request by the Plaintiff to increase the monthly management fees to $2,700 was unreasonable and she refused to pay.

39.  It is the Plaintiff’s case that its duties under the DMC include –

a. Maintaining security by patrolling Kamease Garden and monitoring CCTV;

b. Maintaining Kamease Garden in a clean sanitary and tidy condition;

c. Removal and disposal of all refuse from Kamease Garden;

d. Maintenance of the common sewers, drains, watercourse and pipes free and clean from obstructions;

e. Proper maintenance of the green area and common area;

f. Prevention of occupation or usage otherwise than in accordance with the DMC or the written permission of the Plaintiff in the capacity of manager of Kamease Garden.

g. Dealing with complaints and request of occupants as it arises.

40.  Mr. Ngai said he was employed by the Plaintiff to attend to all these duties.  He had to work 6 days a week, from 8 p.m. to 6 p.m.  Mr. Ngai said he was both the caretaker and manager.  His duties included monitoring Kamease Garden through the CCTV system in the management office, and to patrol Kamease Garden from time to time.  He had to ensure Kamease Garden was maintained in a clean sanitary and tidy condition.  And when necessary, he would engage employees or contractor to attend to the duties.  

41.  Mr. Ngai confirmed that he was employed by the Plaintiff at the monthly salary of $10,000 and his employment contract was produced. 

42.  Mr. Koo questioned if Mr. Ngai had been paid by the Plaintiff.  Mr. Ngai said the Plaintiff did not have enough cash flow from the management account of Kamease Garden.  And he was paid by setting off his salary against the management fees due for Block A, B or C.  The transfer vouchers were produced in the Bundle. He also produced his tax returns.  But the tax returns have been edited and not helpful.

43.  Mr. Koo also cross-examined Mr. Ngai on the annual general meetings of Kamease Garden and the related documents.  Mr. Ngai said the notices of annual general meetings, monthly quarterly and yearly statements of income and expenditure, annual budgets have been timely prepared and posted up on the notice board of the management office.  He also confirmed that all the notices of meeting had also been sent by posting, and insertion of letterbox to each block.  But the Defendants did not attend the meetings.

44.  Mr. Koo put to Mr. Ngai that all the budgets and account statements produced in the Trial Bundle had been tailor-made for this action, which Mr. Ngai disagreed.  Mr. Ngai also denied the suggestion that no budget has been posted up at the entrance of the management office.  Mr. Koo also suggested that there were no accounts kept for the management, which Mr. Ngai disagreed.  He said he had the accounts and had supplied them to the auditor to prepare the audited account.

45.  When being cross-examined on the monthly statements, Mr. Ngai said they are monthly budgets.  This is different from the evidence of the Ms. Ho Wai Fan (“Ms. Ho”), the account clerk of the Plaintiff, which I shall come to later.

46.  Mr. Ngai admitted that there was no separate bank account for the income and expenditure of Kamease Garden.  Mr. Koo also put to Mr. Ngai that the Plaintiff had other business.  Mr. Ngai agreed that the Plaintiff also managed the leasing business of Block A, B & C.  But it was managed solely by Madam Choi and he was not involved.  He concentrated with the management of Kamease Garden.  And there was no other business for the Plaintiff.

47.  Mr. Ngai had given some further explanation on the work he had to attend to.  He said replacement and maintenance for the common area was required from time to time.  The tiles covering the driveway would be damaged and cracked.  The Plaintiff had to maintain the drainage and to prevent blockage.  Contractors were engaged to attend to the matters.  The Plaintiff also engaged a gardener to maintain the garden of Kamease Garden.

48.  He also explained that the water meter for Kamease Garden used to be situated inside Block E.  In about 2002, it was removed to the common area and construction costs incurred.

49.  And in 2004, at the request of the Water Supply Department, they changed the supply pipe to Kamease Garden.  Construction costs were incurred.

50.  On the management expenditure, Mr. Ngai confirmed the items on the Expenses Schedule were the expenses incurred for the management of Kamease Garden.  Mr. Koo also questioned Mr. Ngai on the expenses incurred and suggested that they were not management expenses.  Mr. Ngai denied.  Mr. Koo cross examined Mr. Ngai quite extensively on all the expenses on the Expenses Schedule, and while Mr. Ngai could not answer all the questions, he did show he recall most of the expenses and the reasons. 

51.  The next witness for the Plaintiff is Ms. Ho.  She has prepared 2 witness statements for the 2 actions, which she adopts as her evidence in chief.  She confirms that she is and was the account clerk of the Plaintiff working at the Kamease Garden at the material time.  She was employed by the Plaintiff in 2004.  But since 2001, she had been helping Mr. Ngai to prepare the account and annual budgets of Kamease Garden, with no pay. 

52.  Ms. Ho said she prepared a monthly expenditure account every month, and a quarterly account every three months.  At end of the year, she would prepare an annual account that was presented to the auditor to prepare the auditor’s report.

53.  When first employed, Ms. Ho received a salary of $3,800 per month, and in January 2005, her salary was revised to $5,000 per month.  She had to work 5 days a week from 9 a.m. to 5 p.m. at the management office.  She was also responsible for handling correspondence with government departments, public utility companies, and occupants of Kamease Garden.  She also produced her employment contract, and the tax returns filed by the Plaintiff for various years of her service.

54.  She also confirmed that all notices of general meeting, monthly, quarterly and annual statements have been timely posted up at the notice board of the management office.  But the Defendants did not attend any of the general meetings held. She attended the meeting with Mr. Ngai.

55.  Ms. Ho also said the books and accounts, including bank statements, invoices and receipts had all been supplied to the auditor to prepare the auditors’ report.

56.  On cross-examination, Ms. Ho said she did not assist the Plaintiff to handle any other business.  She was only responsible for the works of the management office.

57.  Mr. Koo also put to Ms. Ho that none of the annual meeting of owners from 2001 to 2007 has been held, which Ms. Ho disagreed.  She said all the minutes were prepared by her about 2 weeks after each meeting.  And she had attended all these meetings.

58.  Mr. Koo pointed out to her that there was no signature on the minutes and Ms. Ho said she was not familiar with the procedures of the meeting.  She denied the suggestion by Mr. Koo that these minutes were prepared after 2007.

59.  That is the Plaintiff’s case.  It also relies on the auditors’ reports and all the documents in the Trial Bundle.

The Defendants’ Evidence

60.  Madam Mui gave evidence on behalf of all the Defendants. She had given 2 witness statements, one in each action, and she adopts  both as her evidence in chief.  She became the registered owners of Block D (with 2 car ports) with her husband Mr. Tang on 8 July 2001.  On 3 April 2007, she and her son Mr. Michael Tang became the registered owners of Block E (with 2 car ports).

61.  Madam Mui said the estate agent who assisted her to acquire Block D told her that no management fees were payable.  But she could not recall the name of the agent. And not until 2003, the Plaintiff had never requested or demanded for any management fees.  Madam Mui had not received any notice or invoice asking for payment of management fees for Block D, until December 2003 when she received a demand for arrears of management fees.  But the demand has been settled and not part of the claim herein.

62.  Madam Mui pointed out that until December 2003, the Plaintiff had not provided any management service to Kamease Garden.  Only after December 2003 when someone was arranged to collect garbage from Block D every day.  Prior to that, her maid had to bring the garbage to a nearby refuse collection centre at Man Yuen Chuen.  And apart from collection of garbage since December 2003, the Plaintiff had not provided any service for Block D & Block E.

63.  Madam Mui on cross-examination agreed that there was a cleaner at Kamease Garden.  But she said the cleaner only cleaned the management office and the office of Mr. Ngai’s tenants.

64.  Madam Mui also said there was no boundary wall or main gate for Kamease Garden, no security system had been installed and no lighting installed for the common area.  On cross-examination, and upon reading the photographs, she agreed that there were lightings for the common area, but she said there were only 2 lamps.

65.  Madam Mui also said that there was no management office for Kamease Garden.  The so called management office at Block B was in fact used as the registered office of Kamease Investments Limited and the Plaintiff, and served as a business place for Kamease Investments Limited.  For most of the time, it was locked up and attended by no one.  She also said she saw Mr. Ngai inside entertaining his friends in the management office on some occasions.

66.  On cross-examination, Madam Mui agreed that she had to go to work during the day.  Mr. Yip, put to Madam Mui that she could not know about the condition of the management office when she was not at home.

67.  On or about 1 October 2005, the Plaintiff unilaterally increased the monthly management fees to $2,700.  Madam Mui and other Defendants found it unreasonable and refused to pay.  Again, the increased management fees due to pay has subsequently been settled and it is not a matter before me.

68.  Madam Mui said before she bought Block E, she did enquire with the Plaintiff if there was any management fees deficit for Block E.  The Plaintiff replied on 2 March 2007 claiming a management deficit for $75,392.45.  And on or 10 April 2007, the Plaintiff sent to her and her husband a demand letter for management deficits for Block D.

69.  Mr. Yip put to Madam Mui that she knew about the deficit of Block E before she acquired the property. Madam Mui only agreed that she knew about the deficit on the date of completion.

70.  Madam Mui also denied that the Plaintiff had posted up the monthly accounts or statements at the entrance of the management office.  She also said she had never received any notice of annual general meeting of owners.  She never saw the alleged minutes of general meeting.  Mr. Yip put to Madam Mui that notice of meeting had been served but Madam Mui failed to turn up.  Madam Mui disagreed.

71.  Madam Mui also claimed that since she moved into Block D, she did not notice any renovation or repair work being carried out in the common areas of Kamease Garden, save that the Plaintiff had built at the back of Block B the management office, and next to Block C various toilet being used by tenants and visitors of  Block A, B & C only, and converted certain common area to become visitor car park used by tenants and visitors of  Block A, B & C only.

72.  On cross-examination, Madam Mui agreed that the tiles on the pavement needed repair and maintenance. She also agreed there was a garden in the common area but said it was small, of about 2 feet wide.  She had not seen anyone maintaining the garden. 

73.  That is the Defendants’ case. 

Discussion and Ruling

74.  I shall first consider the issue in dispute if management service has been provided to Kamease Garden by the Plaintiff. 

75.  It is the evidence of Madam Mui that the only service provided by the Plaintiff was the provision of garbage collection.  But it appears from the bundle that there were matters attended to by the Plaintiff, which cannot be disputed.  This included the payment of electricity for the common part, maintenance of the tiles in the common area and the correspondence with the District Land Office when the owner of Block E put up unauthorized structure.  And I agree with Mr. Ngai that if there is no management service, the common area of Kamease Garden would be covered with dirt and garbage.

76.  While I accept that some form of management service has been provided, the burden rests on the Plaintiff to prove that all the alleged expenses have been incurred and incurred for the management of Kamease Garden. 

77.  The second issue is whether the annual budgets and the expenditure have been approved by the meetings of owners.  The Defendants claim that no notice of meetings for owners has been given and therefore they have not attended any of the meetings. 

78.  Mr. Yip submitted that, according to the evidence of Mr. Ngai, he has served the notice on all owners.  Both Mr. Ngai and Ms. Ho were present in the meetings, and in particular, Ms. Ho confirmed that she prepared the minutes.  Though the meeting was not signed and there was no attendance record, the oral evidence of Mr. Ngai and Ms. Ho confirmed the contents of the minutes.  The minutes confirmed that the management budget for the next financial year has been approved.

79.  Mr. Koo questioned the credibility of Mr. Ngai and Ms. Ho.  Mr. Koo refers me to the answer given by Mr. Ngai when he said the monthly statements produced are monthly budgets.  It is an obvious mistake as the document is stated to be monthly statement.  I believe it is a genuine mistake on the document and would not affect my assessment of the credibility of Mr. Ngai.

80.  The main argument by Mr. Koo is that the Plaintiff as the Manager of Kamease Garden has the duty to keep true and proper accounts of all monies received and all expenditures incurred.  He questioned the genuineness of the monthly, quarterly and annual statement/account, annual budgets and the minutes of the general meeting.  Mr. Koo indeed submitted that they are forged.

81.  Mr. Koo submitted that they are forged documents prepared not earlier than the end of the corresponding years and after having taken into account the figures of the alleged yearly income and expenditure statement for the same years.  The reason he submitted is similar amount of expenditures have stated in the monthly statement in the same year.  He has prepared some comparison tables in his final submission to show that the documents could not be contemporaneous documents.

82.  Mr. Koo pointed out that the expenditure for each month in the same financial year is the same.  If I take the year of 2004 as an example, for all the months except for December, the expenditure for the same item is the same.  When Ms. Ho was asked why the expenses on each monthly statement could be so similar, she explained that the account is kept on accrual basis.  But there is no further explanation.

83.  Mr. Koo argued that these monthly statements cannot be contemporaneous documents and I should infer that the annual statement and annual budget are not contemporaneous documents.  I agree with Mr. Koo that there is doubt on correctness of the contents of the monthly statements prepared.  But I do not agree that I could speculate when they were prepared.  And if these monthly statements are not reliable, I do not agree that I could infer that there is no annual statement and budget presented to the meetings of the owners. 

84.  And it cannot be the case that there is no account available for inspection as suggested by the Defendants.  At least, in 2005, it was stated in the letter of Madam Mui that she has inspected the statement of account and she considered the increase in management fees was unreasonable.  It supports the evidence of Mr. Ngai and Ms. Ho that accounts had been kept.

85.  And there are a lot of receipts and vouchers produced.  As I would analyze further, I do not agree with Mr. Koo that these are all forged documents, or expenses incurred for purpose other than the management of Kamease Garden.

86.  It is true that all the minutes have not been signed by the owners’ representatives who attended. According to the minutes prepared, and the evidence of Mr. Ngai and Ms. Ho, what had been presented in the meetings was the management budgets and approved.

87.  I accept the evidence of Mr. Ngai and Ms. Ho that these meetings had taken place as recorded in the minutes.  I accept the evidence of Mr. Ngai that he had arranged for due service of the notice on all owners.  I believe the evidence of Mr. Ngai and Ms. Ho that the annual budgets had been approved in the corresponding annual meetings.  Accordingly, the Plaintiff has complied with the requirement of the DMC and the Schedule 7 to hold meetings. 

88.  But even if I were wrong and the Plaintiff has been in breach of Schedule 7 in failing to have the annual budgets approved in the meetings of owner, the effect of such a breach is that the Plaintiff cannot ask for management fees in advance.  But I see no reason why the Plaintiff may not recover the deficit incurred according to the DMC.  The provisions in the DMC for the owners to pay their shares of the management expenses incurred are not in conflict with Schedule 7 and are in addition to the terms thereof.  As I have analysed above, the claim by the Plaintiff is not a deficit as such under Clause D 3 (a) of Section VI.  It is to recover the deficit of management fees actually incurred.  Hence, if the Plaintiff cannot prove that the annual budgets have been approved in the meetings of owners in the preceding year, by Schedule 7, he is still entitled to recover the deficits pursuant to the DMC.  And I have set out the relevant provision above.

89.  Indeed, Mr. Koo is not arguing that the Defendants are not liable to pay the management expenses incurred in accordance with the DMC.  The main argument of the Defendants is the expenditure is not management expenses, and has been incurred for the benefit of the Plaintiff or its related companies.  I would proceed to consider the items of expenditure. 

90.  One of the main difficulties in this case is the number of documents produced on management expenses.  I am assisted by the Expenses Schedule prepared by the parties. Based on the Expenses Schedule, the expenses could be divided into the following categories: -

a.  Auditors’ remuneration;

b.  Cleaning charges;

c.   Electricity and water charges for the management office and the common area;

d.  Professional fees;

e.   Rent for the management office;

f.    Salary;

g.  Telephone; and

h.  Manager’s remuneration.

91.  Mr. Yip in his closing submission argued that the Plaintiff as the manager of the Kamease Garden appointed under the DMC “shall have full and unrestricted authority to do all such acts and things as may in its opinion be necessary or requisite for the proper management of Kamease Garden.”  He referred to Clause 1 under Section VIB of the DMC and submitted that the Plaintiff shall have the duties and powers to, inter alia, :-

(i)  Employ contractors and workmen to maintain any common facilities, the exterior and the landscaping of Kamease Garden at reasonable intervals (Clause 1(b) under Section VIB of the DMC);

(ii)  Keep Kamease Garden in a clean sanitary and tidy condition (Clause 1(g) under Section VIB of the DMC);

(iii)  To keep all the common sewers drains watercourse and pipes free and clear from obstructions (Clause 1(j) under Section VIB of the DMC);

(iv)  To keep all the common facilities in good and working order (Clause 1(k) under Section VIB of the DMC).”

92.  I believe there could be no argument that these are terms of the DMC and binding on all the owners of Kamease Garden.  It is also provided in the DMC under Clause 1(ff) of Section VI B of the DMC that the Plaintiff has power to recruit and employ such staff as it may from time to time be required to perform an discharge its duties on such terms as it shall in its absolute discretion decide. 

93.  I would start with the 2 most controversial items, namely, rental paid for the management office and salary to Mr. Ngai and Ms. Ho.

94.  Mr. Koo submitted that while rents are to be collected monthly in advance, the rental receipts showed that rents were paid once a year in arrears.  And there is no record of the cheque number showing payment.  Though the payment is not in accordance with the terms of the tenancy agreement, I am not convinced that no payment had been made. 

95.  In support of the Plaintiff’s case for payment of rent, the relevant tenancy agreements have been produced.  It is not disputed that they have not been stamped on the first day of the trial.  I do not accept the suggestion by Mr. Koo that I could infer that they were tailor-made for these proceedings.  And the relevant rental receipts have been produced.

96.  Mr. Ngai has also explained that initially, he had been using Block E as the management office, when the management office at Block B had not been built.  But only $3,000 per month was charged.  Mr. Koo questioned why as from the first tenancy agreement made on 17 December 2000, it set out Block B as the subject premises.  Taking the argument to the highest, the rental paid initial is not for Block B.  Given Block B is not available, there is nothing to prevent an arrangement be reached for Block E be used when the costs to the management expenses remain the same. It would be within the power of the Manager as provided in the DMC. 

97.  Mr. Koo also argues that the Plaintiff has failed to prove that the “management office” is truly a management office of Kamease Garden.  And maintaining a management office for such a small estate cannot be justified.  Mr. Koo also suggests that the office is indeed the office of the Plaintiff and its related companies.  In particular, the Plaintiff and Kamease Investments Limited have used the place as its registered office. 

98.  As a matter of fact, the DMC itself refers to “management office” and empowers the Manager to provide furniture fixture and appliance for the management office.  I believe it is anticipated by the developer that a management office would be used.  I cannot say that the Plaintiff has abused its power by renting an area as management office.  And if the other owners consider it too expensive, it would be a matter for the owners to resolve it among themselves in accordance with the terms of the DMC. 

99.  Madam Mui also gave evidence that the office is always locked.  She said there is no one working in the office.  But she left the Kamease Garden to work and it is doubtful if she could observe the position of the management office during all times.  Further, as Mr. Yip rightly pointed out, she tried to say that there is no management for the estate for years, which is exaggerating.  Having considered the evidence, I do not accept her evidence. 

100.  I accept the evidence of Mr. Ngai that they have used the management office to manage the Kamease Garden.  I accept his evidence that there were CCTV installed to monitor the common areas of the Kamease Garden.  And they have to have an office to keep the machine and other documents. 

101.  It is true that the documents show that Block B has also been used as the registered office of the Plaintiff and Kamease Investments Limited.  A registered office is different from a business office.  There is no evidence to show that the Plaintiff used the management office as its business office other than for management of the Kamease Garden.  There is no evidence to show that the Kamease Investments Limited or its related companies operated through the management office.  It is possible that it is a breach on the part of the Plaintiff in allowing Kamease Investments Limited and its related companies to use the management office as their registered office but it would be a separate claim by the incorporated owners or failing the incorporated owners all the owners of Kamease Garden against the Plaintiff and/or Kamease Investments Limited.  I make no further comments herein.

102.  I therefore conclude that the lease of the management office is a management expenses and has been incurred and paid.

103.  It is the case of the Defendant that the Plaintiff made up the employment of Mr. Ngai and Ms. Ho for the purpose of this action.  In fact, they worked for the Plaintiff, and/or its related companies.

104.  As rightly pointed out by Mr. Yip, under the DMC, the Plaintiff has the power to employ staff to discharge its duties under the DMC.  To start off with, they have to keep accounts and prepare monthly statement and other statement as aforesaid. I cannot see any reason why the Plaintiff may not employ an account clerk to attend to the matter.

105.  And the Plaintiff is a limited company, and it has to operate through human agent.  To attend to the daily management of Kamease Garden, it is not unreasonable for it to employ a manager.  Mr. Ngai had explained the duties he had to attend to daily, including patrolling and monitoring the CCTV. 

106.  Mr. Koo has tried very hard to prove that Mr. Ngai and Ms. Ho have not been paid.  From the record, they were not paid monthly.  Mr. Ngai’s salary was paid by setting off against the management fees payable by Madam Choi or Kamease Investments Limited for Block A, B & C.  The relevant vouchers have been produced.   

107.  While the payment of salary by set off may not be a satisfactory payment arrangement, but I am not convinced that it is not genuine payment arrangement.  It may be a better practice and procedure in the future for the owners to pay to the Plaintiff as Manager, and let the Plaintiff pays its staff.

108.  Ms. Ho said she was paid annually by cheque of  Plaintiff, the cheque was not produced.  But I am not convinced that Ms. Ho was lying.  The tax return further supports her evidence.  I found that she was paid according to the record.

109.  Mr. Ngai has also explained that while the Plaintiff attended to the tenancy matters of the Block A, B & C for Kamease Investments Limited and Madam Choi, such was handled entirely by Madam Choi and both Mr. Ngai and Ms. Ho did not assist.

110.  In summing up, I accept the evidence of Mr. Ngai and Ms. Ho that they were properly employed by the Plaintiff to work solely for the management of Kamease Garden.

111.  For the cleaning charges, it included the payment to the contractor who collected the garbage, and the salary of one cleaner.  The Defendants agreed to pay the garbage collector but rejected the wages for a cleaner.  For the year of 2001, the salary receipt has not been signed by the cleaner.  But for subsequent year, all wages receipts produced have been signed.  The Plaintiff proves the expenses except for the year of 2001 which should not be allowed. 

112.  The main argument by the Defendants is that the cleaner worked solely for the Plaintiff and the tenants of Block A, B & C.  But this is a bare assertion of Madam Mui.  The Plaintiff is the manager and it could engage a cleaner to clean the management office.  Further, the common area has to be cleaned and maintained.  I agree with Mr. Ngai that if there were no cleaner, the Garden would be covered by dust and dirt.  I accept the evidence of Mr. Ngai that the cleaner worked for the management office and common area.  There is no reason for disallowing such payment.

113.  For electricity charges, given that there is a management office, there would be electricity charges.  From the evidence, there are air-conditioners installed for the office.

114.  The Plaintiff had produced all the electricity bills for Block B (in 2002 – 2007) for reference. Part of the electricity was consumed by other tenants at Block B, including Ricacorp Properties and Fairview Veterinary Clinic which had not been taken into account.  The balance is charged against the management expenses.  The bills have been subject to cross-examination by Mr. Koo and I accept the evidence of Mr. Ngai and Ms. Ho to be correct.  For the electricity charges in 2001, it was the electricity charges of Block E.  As the Plaintiff used Block E as the management office, and Mr. Ngai confirmed that Block E had not been used for other purpose, such charges also should also be allowed.

115.  For the miscellaneous expenses, these include various items, from stationary and office machine for the management office to toilet paper.  Mr. Ngai confirmed that all the expenses are management expenses.  Mr. Koo has cross-examined Mr. Ngai on these expenses.  Except for the purchase of newspaper which Mr. Ngai agreed to withdraw, I accept the evidence of Mr. Ngai that these are expenses incurred for the running of the management office. The claim for buying newspapers should be deducted from management expenses of all the relevant years.

116.  And for the repair and maintenance expenses, Mr. Ngai confirmed that they are management expenses for Kamese Garden.  Again, Mr. Koo has cross-examined Mr. Ngai at length.  I accept that Mr. Ngai has failed to explain on some items.  But the overall picture is Mr. Ngai knows very well about the expenses and has kept the receipts.  Given the expenditure go back a period of 7 years, his evidence cannot be faulted.  I accept his evidence on the management expenses.

117.  And the last item is the audited accounts.  This is not required by the DMC and I believe it becomes necessary as part of the supporting evidence for the claim for deficits.  This may be part of the legal costs, I do not agree that it is part of the deficit and I would disallow the items.

118.  Since the parties have gone through all the relevant expenditure items, I do not consider it necessary to go through the audited account again.  The expenditure for each year as appearing on the Expenditure Schedule is very close to the figure in the audited account.

119.  In conclusion, I allow the Plaintiff’s claim against the Defendants with the following adjustment. First I found that the management expenses as set out in the Expenses Schedule proved to be correct subject to the reduction I mentioned above.  After deducting the management fees collected, that would be the deficit for Kamease Garden.  Should the parties fail to agree the figure within 14 days, the parties should fix a short hearing before me for clarification.

120.  For Mr. Tang and Madam Mui, they should be liable for 174/786 of the proven management deficit for the period from 30 June 2001 to 31 December 2005.  The Plaintiff has prepared a table appearing at page 913 of the Document Bundle for DCCJ 4965/2007 and the Plaintiff should make the amendment on the same basis of calculation. The Plaintiff shall have interest on the judgment sum.  The DMC provides that the interest shall be at the rate of 2% over prime rate.  I allow interest on judgment sum from date of writ (DCCJ4965/2007) to today at the rate of 2% over prime rate and thereafter at judgment rate until payment.

121.  And Madam Mui and Mr. Michael Tang shall be liable for 132/786 of the management deficit for the corresponding period from 2005 to 2007. The calculation appears from the schedule attached to a letter dated 19 April 2007 from Messrs. Ko & Chow to Messrs. Fairbairn Catley Low & Kong, which is page 592 of the Document Bundle for DCCJ 4966/2007.  The Plaintiff should make the amendment on the same basis of calculation. The Plaintiff shall have interest on the judgment sum at the rate of 2% over prime rate from date of writ (DCCJ4966/2009) to today and thereafter at judgment rate until payment.

122.  There be an order nisi that the Plaintiff do have costs of this action (together with all costs reserved) with certificate for counsel for the trial such costs to be taxed if not agreed.  The order nisi shall become absolute within 14 days.