HANG YICK PROPERTIES MANAGEMENT LTD v. THE INCORPORATED OWERS OF TUEN MUN KAR WAH BUILDING

CACV 355/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 355 OF 2004

(ON APPEAL FROM DCCJ NO. 1419 OF 2004,
TRANSFERRED FROM HCA NO. 11051 OF 1996)

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J U D G M E N T

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Hon Woo VP :

Introduction

1. This is an appeal by the plaintiff against the decision and order made on 19 October 2004 by Judge Wong in the District Court on two summonses taken out respectively by the plaintiff and the defendant.  The plaintiff’s summons was for summary judgment under Order 14 of the RDC against the defendant in respect of its claim for re-imbursement of the management expenses paid by it on behalf of the owners of Tuen Mun Kar Wah Building (“the Building”) prior to the incorporation of the defendant, whereas the defendant’s summons was pursuant to Order 33 of the RDC for determination of a preliminary issue to the effect as to whether the claim is a liability enforceable against the defendant under s 16 of the Building Management Ordinance, Cap 344 (“the Ordinance”).  The judge held that the defendant was not liable to the plaintiff’s claim insofar as the expenses were incurred prior to the incorporation and that the defendant was only liable for such of those expenses as were incurred after the incorporation.  He awarded costs on the Order 33 summons to the defendant.  He entered summary judgment for the post-incorporation portion of the plaintiff’s claim, in the amount agreed at $20,307.73, plus interest, and made no order as to costs.

2. Having obtained leave from the judge, the plaintiff now appeals against the judge’s decision on the preliminary issue.

Background

3. The claim involves relatively simple facts.  The plaintiff had been the manager of the building appointed under the Deed of Mutual Covenant (“DMC”) since 1982.  On 11 August 1995, the defendant was incorporated under the Multi-Storey Building (Owners Incorporation) Ordinance then in force, as succeeded by the Ordinance.  After its incorporation, the defendant terminated the appointment of the plaintiff as manager of the building, effective on 1 February 1996.  The plaintiff’s claim is for accumulated deficit of management expenses in the sum of $851,859.67 incurred from time to time during its managership until 29 February 1996.  It instituted proceedings to make the claim on 27 September 1996.

4. The judge held that the defendant is not liable to the plaintiff for the deficit that had been incurred before the defendant’s incorporation.  He relied on Hang Yick Properties Management Ltd v Incorporated Owners of Winner Building [1993] 3 HKC 574 and Koo Sun Yiu v Victorison Delivery Ltd & Ors [1996] 4 HKC 152, and held that

(1)	There was no contractual relationship between the plaintiff and the defendant prior to the incorporation because the defendant did not exist until after it was incorporated.
(2)	No agency relationship existed between the plaintiff and the defendant before or after its incorporation.
(3)	Neither s 16 nor any other provision of the Ordinance contains provisions specifically dealing with the liabilities of incorporated owners prior to its incorporation.
(4)	The DMC created a contractual relationship only between the plaintiff and the existing owners at the time the debt was incurred and the plaintiff had a right and duty to enforce the DMC and sue the respective defaulting owners.
(5)	The sums claimed were liabilities incurred by some owners before the incorporation of the defendant, and the plaintiff should go after such individual owners who defaulted in payment.

5. Regarding the effect of s 16 of the Ordinance, the judge also referred to the observation of Litton NPJ in Jikan Development Ltd & Anor v The Incorporated Owners of Million Future Industrial Centre (2003) 6 HKCFAR 446 at para 56 that there is no question retrospectively applying s 16. 

The parties’ arguments

6. For all intents and purposes, it is common ground between the parties that the provisions of the Ordinance apply to the issue before us.  Their arguments revolve around the effect of s 16 and other relevant provisions of the Ordinance, as well as the judicial pronouncements on them in the above cases cited by the judge and other authorities on the subject. 

7. It is convenient at this stage to set out the relevant statutory provisions before going into the authorities.

The relevant statutory provisions

8. S 2 of the Ordinance provides:

“2.	Interpretation
In this Ordinance, unless the context otherwise requires—
‘owner’ (業主) means—
	(a)	a person who for the time being appears from the records at the Land Registry to be the owner of an undivided share in land on which there is a building;  …”

9. S 8 of the Ordinance provides:

“8.  Incorporation
(1)	The Land Registrar shall, if satisfied that the provisions of section 3, 3A, 4 or 40C and section 7(2) and (3) have been complied with, issue a certificate of registration in such form as may be specified by the Authority from time to time.
(2)	With effective from the date of issue of the certificate of registration under subsection (1)—
	(a)	the owners for the time being shall be a body corporate with perpetual succession and shall in the name of the corporation specified in the certificate of registration be capable of using and being sued and, subject to this Ordinance, of doing and suffering all such other acts and things as bodies corporate may lawfully do and suffer; …”

10. Ss 16 and 17 of the Ordinance provide:

“16.  Rights etc. of owners to be exercised etc. by corporation
When the owners of a building have been incorporated under section 8, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by, and the liabilities of the owners in relation to the common parts of the building shall, subject to the provisions of this Ordinance, be enforceable against, the corporation to the exclusion of the owners, and accordingly—
	(a)	…; and
	(b)	any proceedings in the tribunal in respect of any of the common parts of the building may be brought and pursued by or against the corporation.”
“17.  Enforcement of judgments etc. against a corporation
(1)	If a judgment is given or an order is made against a corporation, execution to enforce the judgment or order may issue--
	(a)	against any property of the corporation; or
	(b)	with leave of the tribunal, against any owner.
(2)	An application for leave under subsection (1)(b) shall be made by summons served personally upon the owner against whom execution is sought.”

11. No argument is advanced against the fact that the defendant is a corporation under s 8 of the Ordinance. 

12. The main argument advanced by Mr Benjamin Yu SC, for the plaintiff, is that on the proper and purposive construction of s 16 of the Ordinance, any liability that the owners for the time being of the Building have in respect of contribution to management is enforceable against the defendant to the exclusion of the owners.  The purpose of the Ordinance is to facilitate the incorporation of owners and an objective of the Ordinance as enshrined in s 16 is to eradicate the problem arising from multiplicity of suits.  He submits that the decision of the Court of Final Appeal in Chi Kit Co Ltd v Lucky Health International Enterprise Ltd (2000) 3 HKCFAR 268 has now made clear that the liability of an owner in respect of the common parts of the building is a liability which goes with the ownership of the unit and binds successive owners.  Thus, Koo Sun Yiu and Incorporated Owners of Winner Building must be reconsidered, and Mr Yu submits that these two Court of First Instance decisions construed s 16 too narrowly.  Mr Yu further argues that the plaintiff as an agent is entitled in law to be reimbursed all its expenses and to be indemnified against all losses and liabilities incurred by it in the execution of its authority.  That right was the right that the plaintiff had as agent against all the owners of the Building for the time being.  It subsisted as at the date of incorporation of the defendant, and by virtue of s 16 of the Ordinance, is enforceable against the defendant to the exclusion of the owners.  Mr Yu relies on Jikan Development where the Court of Final Appeal held that the right against the manager to account was a continuing right of the owners for the time being and vested in the incorporated owners upon incorporation, not a question of retrospectively applying s 16 (per Litton NPJ at para 56).  He submits that the same logic should apply to the mirrored situation as in the instant case, ie a claim by the manager for reimbursement of management expenses against the incorporated owners, which was a liability owed by the owners as a whole before incorporation and which is a liability enforceable against the defendant after incorporation.

13. On behalf of the defendant, Mr Malcolm Merry emphasises on the separate legal personality of an incorporated owners.  He submits that the legislature when passing the Ordinance must be taken to have known the elementary legal consequences of the incorporation of owners of a building that an incorporated owners is a person distinct from its members and can incur liabilities only from the time that its exists as a legal person.  He argues that s 17 of the Ordinance, enabling the Lands Tribunal to allow a judgment obtained against an incorporated owners to be enforced against any individual owner, has specifically overridden or qualified one of those consequences.  In the conspicuous absence of any reference to pre-incorporation liabilities in s 16, he maintains that it cannot have been intended that the normal consequences of incorporation should not apply or that such an absence was a legislative oversight.  He also argues that s 8(2)(a) of the Ordinance indicates a positive legislative decision to adopt the common law position that a corporation cannot be bound by events prior to its incorporation unless the contrary is specifically enacted.  He draws on Koo Sun Yiu and Incorporated Owners of Winner Building for support.  He argues that neither the reasoning in Chi Kit nor that in Jikan Development has any bearing on his analysis of the proper interpretation and ambit of s 16 of the Ordinance.

The proper interpretation of s 16

14. I consider that s 16 of the Ordinance, and similar to other provisions of the Ordinance, should be construed as a whole and understood in its context, applying the purposive approach: see Town Planning Board v Society for the Protection of the Harbour Ltd (2004) 7 HKCFAR 1 at paras 28 and 29, and Medical Council of Hong Kong v Chow Siu Shek (2000) 3 HKCFAR 144, 154B-C. 

15. The preamble to the Ordinance states:

“To facilitate the incorporation of owners of flats in buildings or groups of buildings, to provide for the management of buildings or groups of buildings and for matters incidental thereto or connected therewith.”

16.  The express object of the Ordinance is “to facilitate the incorporation of owners of flats in buildings”, and an objective, as adumbrated in s 16, is to eradicate the problems that would arise from the multiplicity of suits and parties.  In Grenville House Ltd & Ors v Incorporated Owners of Grenville House [1978] HKLR 235, the preliminary issue for the Court of Appeal’s decision was whether the incorporated owners of a building was entitled to maintain an action either on its own or on behalf of the owners of flats in the building.  The action was brought by the incorporated owners for damages resulting from negligence and breach of statutory duty causing landslides that had occurred after the incorporation affecting the common parts.  Giving the judgment of the court, McMullin J (as he then was) at p 241 described the right of the incorporated owners to sue and maintain action as an exceptional statutory right, and continued:

“The corporation is the persistent persona of all the owners of the premises at any moment of time but in respect only of one part of all possible actionable damage which might derive from a tort affecting the common parts.  In regard to that type of damage the right of suit is vested permanently in the corporation.  That type of damage would include any pecuniary loss suffered by all the individual owners in common deriving from damage to the common parts.”

17. His Lordship elaborated at p 243:

“Under section 16 the rights and duties of the corporation in matters of suit touching the common parts of the property as limited to circumstances which concern all the owners as a result of their joint interest in the due maintenance management and control of those parts. 

For those limited purposes the body of the owners may be said to consist of every individual who ever has been a constituent of the corporation.  It matters not that at the time of issuing the writ the body of the constituents is not the same as it was at the time of accrual of the action any more than it would matter that that body is not the same at the time of judgment even though it had been the same at the time of issue of the writ.  In pursuing those purposes it is serving the interests of all including those who are no longer constituents but have been damnified and those who are now constituents and have never been damnified.  For a major purpose of the incorporation of the owners is to facilitate convenience in suit. …”

18.  It is plain that a major purpose of the incorporation of owners of flats in buildings at which the Ordinance expressly aims to facilitate is to provide convenience in suit and to avoid the problems that might arise from the multiplicity of parties and suits involving such owners which may be numerous.  S 16 is specifically designed for such purpose, so that after incorporation under the Ordinance, the rights, powers and privileges of the owners in relation to the common parts of the building shall be exercised and the duties of the owners in relation thereto shall be performed by the corporation to the exclusion of the owners, and that the liabilities of the owners in relation thereto shall be enforceable against the corporation to the exclusion of the owners.  The corporation is intended to be the sole representative of all the owners regarding matters within the ambit of s 16.

19. The owners are no longer liable to be sued for their liabilities in relation to the common parts; only the corporation is so liable.  As the owners are not liable to be sued under s 16, their liabilities in relation to the common parts, as enveloped in s 16, have been eliminated save where the court grants leave pursuant to s 17 of the Ordinance for any judgment against the corporation to be enforced against any individual one of them.  

20. But are the liabilities of the owners in relation to the common parts limited to those incurred by them after incorporation or do they include those incurred before incorporation?  The contentions of the parties before us are diametrically opposed.  I consider that the answer depends on the facts of each particular case.  Sometimes, the liability of an individual owner in relation to the common parts is personal, and thus such liability should not be covered by s 16, or else the other owners would be unfairly prejudiced by the corporation being sued and if the suit is successful, for the judgment being enforced against them or each of them pursuant to s 17.  This kind of personal liability, depending on the facts of each case, can be tortious or contractual in nature, it matters not.  But where the liability is that owed by the owners as a whole, then the liability of suit passes onto the incorporated owners.  This is clear from the words “owners” in the plural used in s 16, as opposed to the singular.

21. There is no question that s 16 covers the liabilities of the owners as a whole in relation to the common parts after incorporation: see Grenville House and the observation of Litton NPJ in Chi Kit at p 277B-C.  The parties do not argue against this proposition.

22. In Koo Sun Yiu, the plaintiff sustained serious injuries on the common parts of a building.  The owners were incorporated five months after the accident.  Cheung J (as he then was) held that s 16 does not enable the corporation to be sued.  He considered that an incorporated owners should only assume liabilities incurred prior to incorporation if the Ordinance expressly so provides.  The main basis for his decision was the separate legal personality of the incorporated owners with the legal consequences that follow: where liability was incurred prior to incorporation, the corporation does not assume such liability without taking any step such as ratification.  I have some reservation as to this reasoning.  Taking a purposive approach to the construction of s 16 (see paragraphs 18, 19 and 20 above), I consider that a distinguishing feature of Koo Sun Yiu is that the plaintiff’s claim was one in negligence, vicarious liability and/or on occupiers’ liability, and as such the liabilities of the owners relating to the common parts in which the plaintiff suffered his personal injuries must relate to the person who was negligent or his employer or principal or the occupiers of the common parts at the material time.  Such a person or occupiers may well not be the same as those who were owners at the time of the incorporation.  The liability towards to the plaintiff was personal in nature and there is nothing in the judgment to show that it ran with the land against successors in title of those owners who were owners at the time of the accident.  The decision that s 16 of the Ordinance did not entitle the plaintiff to sue the corporation was therefore correct. 

23. Incorporated Owners of Winner Building relates to a claim for the deficit of costs and expenses incurred by the manager of a building, as agent of the owners, against the defendant which was incorporated after such deficit had been incurred and before the termination of the plaintiff’s managership by the defendant.  The facts are similar to those in the case before us.  Beeson J apparently followed the reasoning in Koo Sun Yiu and held that s 16 did not assist the plaintiff.  She also relied on the separate legal personality of the corporation and that unless there was specific legislative provision requiring the defendant corporation to assume responsibility for pre-existing debts, the defendant should not be liable for those debts.  In my judgment, that view was too narrow a construction of s 16. 

24. I do not think that the legal consequences of incorporation, as alluded to in Koo Sun Yiu and Incorporated Owners of Winner Building, should affect the clear intention of s 16 of the Ordinance.  The incorporated owners of any multi-storey building represents all the owners for the time being at the time of incorporation and thereafter in suit regarding the owners’ rights, duties and liabilities in relation to the common parts.

25. Now I come to the two decisions of the Court of Final Appeal, in Chi Kit and Jikan Development, which have a significant bearing on the outcome of this appeal.

26. Chi Kit related to a claim brought by the purchaser of units in a building against the vendor who knew of an action for a very substantial amount of damages for personal injuries that had been brought against the incorporated owners of the building, the cause of action of which arose after the incorporation, without disclosing it to the purchaser.  The Court of Final Appeal held that the action, which had eventuated into a judgment before completion, was a defect in title entitling the purchaser to rescind the sale.  Litton PJ came to the conclusion that there was a “blot on title” by reason of the effect of s 17(1)(b) and s 22 of the Ordinance.  He stated at p 279C:

“A liability which attaches to an owner for the time being is one which binds successive owners and thus runs with the property.”

27. After referring to s 17(1)(b) of the Ordinance, the joint judgment of Bokhary PJ and Sir Anthony Mason NPJ also dealt with the common law position at p 281:

“Although the liability is not a charge on the unit itself, it is a liability which goes with ownership of the unit.  It is a liability which is imposed in virtue of ownership of the unit.  … Although the liability of the unit owner to meet a contribution is not charged on the unit, it binds the unit and therefore it can constitute a blot on the title or an incumbrance.  …

“It is not a liability which is merely personal to the owner at a given time.”

28. Their Lordships also stated at p 284G:

“The defect relates to the title of the property sold, because the potential liability to contribute to the funds of the corporation and satisfy the judgment is an inseparable incident of the ownership of the undivided shares.”

29. Chi Kit was not concerned with pre-incorporation liability.  However, it demonstrates that a tortious liability can, by the operation of the provisions of the Ordinance or otherwise, become an inseparable incident of the ownership of the undivided shares, and thus affects the successors in title or the owners for the time being as a liability when the claim is instituted and when the judgment on it has to be satisfied.

30. Jikan Development concerned the conversion of common parts to be car-parks by one of the owners of undivided shares.  The manager had collected the parking fees for the use of such car-parks and paid them to that owner.  After incorporation, the incorporated owners sued the owner and the manager for an account and reimbursement of such fees.  Rogers VP rejected the argument of the defendants that if parking fees which should have been paid into the management sink fund were otherwise diverted, the right of action lay in each individual owner.  His Lordship opined that such fees were impressed with a trust, and continued at 462H-I:

“At the date of incorporation of the plaintiff, the owners for the time being of the Building enjoyed a right to enforce reimbursement of the parking fees which had been passed to the first defendant.  In those circumstances, the incorporated owners clearly had the right to take action on behalf of the owners collectively.”

31. In the Court of Final Appeal, Litton NPJ, with whom the other judges agreed, affirmed Rogers VP’s view, and observed at para 56 that there is no question of retrospectivity in applying s 16.  Litton NPJ analysed the situation in the following words:

“57.  The owners as a body had the right to say, right up to the moment of incorporation: We want an accounting for the parking fees now.  This right then passed to the corporation and became exercisable by the corporation, in terms of s. 16.  It is as simple as that.”

32. Mr Yu relies on Jikan Development to say that as an incorporated owners can seek an account for the owners in respect of matters occurring prior to incorporation, it makes perfect sense for this court to clarify that, likewise, the defendant in the case before us must, as from the date of incorporation, be responsible for the liability of the owners albeit incurred pre-incorporation.  On the other hand, Mr Merry submits that Jikan Development does not have any bearing on the issue before us because the Court of Final Appeal declined counsel’s invitation to hold that Koo Sun Yiu and Incorporated Owners of Winner Building were wrongly decided.  Indeed Litton NPJ observed at para 66:

“In my view, the present case affords no opportunity to his Court to re-visit those judgments: Properly understood, the cause of action here is wholly different from the causes of action in those two cases.”

33. It seems to me that a distinction can be drawn between Jikan Development, which involved liability towards the owners as a whole, and the liability that Cheung J dealt with in Koo Sun Yiu that was not shown to be that owed by the owners collectively, as distinct from one or more of the individual owners.

34. Mr Merry submits the Court of Final Appeal in Jikan Development held that since the DMC provided that parking charges were to be deposited into the management sink fund they were impressed with a trust for benefit of all owners from time to time, ie that owners had a property, not just a contractual, interest in the money.  This trust could be enforced by owners by demanding the equitable remedy of account both before and after incorporation.  The manager’s duty to account for the trust money continued past incorporation in the sense that prior to incorporation the owners, as then constituted, had a right to an account and that after incorporation there arose in the incorporated owners, as representative of post-incorporation owners (who had become the new beneficiaries), a fresh and immediate right to an account.

35. I find Mr Merry’s argument attractive.  However, that does not save his client’s position in the present appeal. 

The present appeal

36. Clause (4) of the DMC dated 29 October 1982 made between the developer, the first purchaser and the plaintiff provides as follows:

“The parties hereto have agreed with the Manager [ie, the plaintiff] for the Manager to undertake the management, operation, servicing, maintenance, repair, renovation, replacement and security of the Land and the buildings thereon and their equipment services and apparatus and the parties hereto have agreed to enter into this Deed for the purposes of making provisions for such management and of defining and regulating the rights interests and obligations of themselves and all subsequent owners in respect of the land and the buildings thereon.”

37. Under the DMC, “owners” is defined as to include the owners or owners for the time being of undivided shares.  The owners shall be bound by and shall observe and perform the covenants, provisions and restrictions therein contained and the benefit and burden thereof shall be annexed to every part of the land and the estate and the undivided share or shares held therewith; the Law of Property (Enforcement of Covenants) Ordinance and any statutory amendments, modifications or re-enactments thereof for the time being in force shall apply to those presents (Section I, clause 4).  Each owner shall promptly pay and discharge all existing and future … outgoings of every kind and description for the time being assessed or payable in respect of that part of the estate owned by him (Section IV A, clause 2).  Each owner shall pay to the manager on the due date the manager’s remuneration and management expenses therein provided (Section IV A, clause 3). 

38. S 41 of the Conveyancing and Property Ordinance, Cap 219, which succeeded the Law of Property (Enforcement of Covenants) Ordinance referred to in the DMC provides:

“(3)  Notwithstanding any rule of law or equity but subject to subjection (5) [which has no relevance to this appeal], a covenant shall run with the land and, in addition to being enforceable between the parties, shall be enforceable against the occupiers of the land and the covenantor and his successors in title and persons deriving title under or through him or them by the covenantee and his successors in title and persons deriving title under or through him or them.

(4)  (a)  For the purposes of the enforcement of a covenant, the following remedies shall be available—

(i)   …

(ii)   an action for money due under the covenant; …

(9)  A covenant in an instrument registered in the Land Registry under the Land Registration Ordinance (Cap. 128) against the land affected by the covenant shall bind the successors in title of the covenantor and the persons deriving title under or through him or them whether or not they had notice of the covenant.”

39. It is thus clear that the DMC binds all the owners for the time being as successors in title of the parties to the DMC, and they are obliged to pay management expenses incurred by the plaintiff on their behalf as manager of the building in relation to the common parts.  The covenant to pay runs with the land and the undivided shares held by the owners for the time being.  The covenantor and his successors in title are bound by the covenant to pay the management fees to the plaintiff as the covenantee.  This justifies the liability of each of the owners of the undivided shares in a building being passed onto his successor in title, and if the liability is one that is owed by the owners as a whole, that liability is justifiably passed onto their successors, ie owners for the time being of the undivided shares.

40. Subject to the claim being qualified as being a liability owed by the then existing owners as a whole, who had the deficit incurred for them by the plaintiff prior to the incorporation of the defendant, they were obliged to pay the same to the plaintiff, but even after incorporation, the owners for the time being are also obliged to pay.  But the individual owners for the time being post-incorporation are not liable to be sued for such a liability by virtue of s 16 of the Ordinance, which constrains the plaintiff to take action against the defendant alone.

41. In my judgment, therefore, the liability to pay the deficit as claimed by the plaintiff, on the premise that it is a liability owed by the owners as a whole, is to be enforceable against the defendant, and the judge was wrong in determining the preliminary issue in the way that he did.

Facts yet to be ascertained

42. However, the facts in the present case are not so clear as to entitle the plaintiff to summary judgment of the entirety of its claim against the defendant.

43. One of the defences raised by the defendant is that the deficit was incurred because some of the owners at the material time failed to pay the plaintiff their share of contribution.  If so, the liability to pay would be personal to those owners and not all the owners as a whole.  Although the affirmation evidence adduced by the defendant has not been specific in identifying which owners were in default, yet the defendant’s case is that the plaintiff had the duty to collect all contributions for management expenses and it is for the plaintiff to provide a full account whereby such defaulters could be ascertained.

44. Another defence raised by the defendant is that the plaintiff was duty-bound to collect contributions towards management fees from each of the owners, and insofar as the plaintiff failed to collect from some of the owners, it had failed in its duty.  This gives rise to a claim for breach of contract or duty and is thus an arguable defence to the plaintiff’s claim.

45. The plaintiff denies having breached its duties towards the owners and counters by relying on a provision in the DMC (Section V B, clause 4) to exempt itself from any liability for acts done or omitted in pursuance or purported pursuance of the provisions of the DMC not being an act or omission involving criminal liability or dishonesty or wilful negligence.

46. All these issues are fact-sensitive which cannot be decided on this appeal.  However, the judge seemed to have made some findings.  He said:

“15.  The sums claimed were liabilities incurred by some owners before the incorporation of the Owners Incorporated, the Plaintiff should go after the individual owners who defaulted in payment.  According to Sec V Cl B1(25) the Plaintiff had the duty to collect and receive all amounts payable by owners.  It would not be right to shift its responsibilities to the Defendant.  The individual owners have duty to pay towards the Manager’s Remuneration and Management Expenses under the DMC.”

47. If that which was stated by the judge purported to be findings of fact, I am unable to discern the evidential basis for such findings.  Notwithstanding, that to which the judge referred clearly demonstrates that he had in mind the defences raised by the defendant, and this is obviously not an apt case for summary judgment. 

Conclusion

48. For the reasons given above, I would allow the appeal and set aside the decision of the court below save that I would not disturb the summary judgment in the sum of $20,307.33, the amount of which was agreed by the parties to be post-incorporation. 

49. I would further make an order nisi that the plaintiff is to have the costs of this appeal and the costs upon the defendant’s Order 33 summons.  I would not disturb the order for costs regarding the plaintiff’s Order 14 summons.

Hon Yeung JA:

50. I agree with the judgment of Woo VP.

Hon Stone J:

51. I too agree that this appeal should be allowed.  In deference to the argument I would add a few words of my own.

52. Section 16 of the Building Management Ordinance, Cap 344, mandates that, as from the date of incorporation, the liabilities of the owners in relation to the common parts of the building “shall … be enforceable against the corporation to the exclusion of the owners”.

53. Thus, as Mr Yu submitted, as from the date of incorporation, any liability accruing to the owners for the time being in respect of management contributions henceforth is to be enforceable against the defendant to the exclusion of the individual owners.

54. In my view, however, it does not follow, as is contended by the defendant, that by reason of this assumption by the defendant, upon incorporation, of the liability of the owners for the time being for such management expenses as have been incurred, that any such liability which arose prior to incorporation remains irrecoverable save by suit against the individual owners.

55. Depending upon the circumstances in any given case this approach potentially would be to subject the plaintiff – which as the manager agent has incurred expenses on behalf of its principal, the unincorporate body of owners, and thus is entitled to indemnity against all expenses reasonably and properly incurred – to a multiplicity of suit which it is precisely the object of the Ordinance so to avoid.

56. Indeed, within the framework of the present argument the fact of incorporation strikes me as a conceptual red-herring.

57. The right of indemnity vested in the erstwhile manager is a right which it enjoyed against all the owners for the time being.  Such right does not cease to subsist merely by reason of the incorporation of the unincorporate body of owners into the entity now intituled ‘the incorporated owners’.

58. All that has changed is that, upon such incorporation, the manager seeking appropriate reimbursement has the advantage of one defendant within its litigation sights rather than many.

59. Conversely, upon incorporation the undoubted right of the owners qua principals to proceed against their manager agent for an account, if such were to be necessary, becomes a right vested in the ‘incorporated owners’ as opposed to such right hitherto residing in, and being enforceable by, the owners individually.  Once again, such right simply does not evaporate upon incorporation of the body of owners; it now vests in ‘the incorporated owners’.

60. For this reason, I was entirely unable to accept Mr Merry’s ingenious efforts to drive a wedge between the ‘body of owners unincorporate’ on the one hand and the ‘incorporated body of owners’ on the other.

61. All that has occurred is that the agent manager’s erstwhile unincorporate principals, that is, the body of individual owners, has assumed a single corporate identity.

62. The respective rights and liabilities continue, but there is a fundamental alteration in terms of the mode of pursuit and enforcement of such rights and liabilities by virtue of the mechanism established within the Ordinance.

63. If and in so far as individual owners for the time being default in their respective financial obligations relating to expenses incurred in management of the common parts, then the entity now known as ‘the incorporated owners’ has the right itself to pursue such defaulters.

64. This, however, is not the focus of the present argument, which is but a single point appeal, namely whether, on its true construction section 16 of the Ordinance operates so as to relieve the Incorporated Owners of Tuen Mun Kar Wah Building of liability to reimburse the plaintiff agent for expenses incurred prior to such incorporation.

65. The learned judge below concluded that it does.  In my judgment he was in error in so holding, and the plaintiff’s contrary argument upon this appeal is correct.

66. Accordingly this appeal falls to be decided in favour of the plaintiff/appellant.

67. I agree that the order of the court should be in the terms adumbrated by the Vice-President.