特廣有限公司 v. 華都中心業主立案法團 AND OTHERS

HCMP 1063/2019

[2022] HKCFI 493

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1063 of 2019

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J U D G M E N T

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Background Dispute

1.  The present proceedings really should have been avoided.

2.  The Applicant 特廣有限公司 (“Owner”) was at the material times the registered owner of Shop Nos. 30 to 60 on the second floor of the building known as Waldorf Centre (“Building”). The 1^st Respondent 華都中心業主立案法團 (“IO”) was the incorporated owners of the Building.  The 2^nd to 8^th Respondents were respectively the Chairman, the Secretary, the Treasurer, and 4 other members of the IO.

3.  The parties had a dispute over how management fees should or could be calculated according to the Deed of Mutual Covenant dated 22 March 1989 (“DMC”).

4.  In a nutshell, the IO was levying management fees on owners of units in the commercial podium part of the Building at a higher rate than on owners of units in the residential and other part, on the alleged rationale that the commercial podium took up more management resources.  Owner disagreed, pointing to clause 11(e) of the DMC which made no distinction between units.

5.  Owner commenced LBDM No. 27 of 2017 before the Lands Tribunal against the IO.  By a judgment dated 13 August 2018, Her Honour Judge Kot found in favour of Owner.

6.  Judgment was sealed and entered bearing the same date (“LT Order”) in terms as follows:

“IT IS ADJUDGED that:-

1. A declaration that the Respondent’s apportionment of management fees is inconsistent with and in breach of the Deed of Mutual Covenant;

2. A declaration that it is unlawful for the Respondent to charge $2.18 per management shares to each of the owners of the Commercial Podium;

3. A declaration that each owner of the Building should pay the management expenses by reference to the proportions in accordance with the management shares assigned under 5^th Schedule of the Deed of Mutual Covenant;

4. The Respondent should be restrained from levying from the applicant the adjusted management fees at $2.18 per management share;

5. There be a mandatory injunction against the Respondent to rectify the breach in the levying of management fees within 14 days; and

6. Costs of these proceedings be to the applicant …”

7.  The IO applied for leave to appeal to the Court of Appeal.  The learned judge refused.  The IO renewed its application in CAMP No. 167 of 2018 before the Court.

8.  At the end of a hearing on 21 December 2018, the Court per Lam VP and Au J (as they then were) itself raised that clause 11(e) should be read subject to clause 11(f)(i) on expenses in connection with the central air conditioning system.  According to the clause, such expenses should be charged to only the commercial units.  It appeared that the IO had indeed been charging for air conditioning separately.  Counsel for the IO pointed to one other exception in clause 11(f)(ii) which concerned car parking units.

9.  The Court gave an ex tempore decision:

“… Having heard submissions and read the earlier written materials, we are of the view that there is no reasonable prospect of success in overturning the tribunal’s construction of the DMC with regard to the obligation to pay management expenses by the owners.

In our judgment clause 11(e) of the DMC clearly provides that the general rule is that the management fee for the management expenses has to be borne by each owner according to the management shares allocated to their units, subject only to the exception provided for in subparagraph (f). In relation to the commercial podium, there would be an exception for the central air-conditioning system, which has to be borne and paid for by the owner for the commercial podium only.

As for the other items in subparagraph (f), they are also exceptions. But the general rule is still to be governed by the first two sentences of subparagraph (c). The latter part of subparagraph (e) just provides for the situation in the first financial year. We are not persuaded by Mr Ko that it is reasonably arguable that it is meant to be a qualification or alteration of the clear meaning of the first two sentences.

In the circumstances, it is not necessary for the court to speculate whether the $1,343 in the formula for the first financial year is just the sum for the air-conditioning expenses or for something else. There is simply no evidence in that regard. But that part of the cost being not relevant for present purposes in light of what we have explained before, it would not have any bearing on the outcome of the matter.

So there is no basis for the IO to charge the residential units a different rate of management fee from those in the commercial units, subject to what is provided for in subparagraph (f) specifically. So in the light of that decision – in the light of our construction of the DMC which is in line with that of the judgment, we are not minded to give leave to appeal subject to our misgivings about the sealed judgment.

As highlighted in the course of today’s hearing, we have great misgivings about paragraph 5 in the sealed judgment, the mandatory injunction, which is not properly formulated and does not give specific guidance as to what the respondent has to do in order to comply with that injunction.

Another misgiving we have is about paragraph 3, which did not provide for the exceptions in subparagraph (f) of the DMC. At today’s hearing, Mr Pang, on behalf of the applicant very properly agreed that paragraph 3 should be read as being subject to subparagraph (f) in the DMC. That being the case, that should not be a problem.

As regard paragraph 5, my understanding is that Mr Pang’s client is only concerned with getting the overcharge back from the IO.  In light of our decision refusing leave, we see no reason why the IO should not refund to the applicant the amount that have been overcharged.  Of course, there has to be a process to work out the amount and the IO should be given reasonable time to work out the amount.  But perhaps we will hear from Mr Ko to see whether his client is prepared to give some form of cross-undertaking to Mr Pang’s client or to this court, so that Mr Pang’s client will have some assurance that the amount will be refunded and they should not be bothered by paragraph 5. Because otherwise, just to have an appeal for paragraph 5 to be set aside would be a waster of time and money.”

10.  After the Court gave decision, Owner through Counsel gave an undertaking:

“not to enforce paragraph 5 save and except through separate legal proceedings for recovery of any excess … so that we wouldn’t be coming to the court for any committal or anything like that, just on this paragraph 5.”

11.  The IO through Counsel also gave an undertaking:

“to calculate the amount to be refunded within 28 days and the amount to be refunded within another 28 days.”

12.  The Court noted these undertakings on record, dismissed the IO’s application for leave to appeal, and awarded and summarily assessed Owner’s costs.

13.  The Order dated 21 December 2018 (“CA Order”) stated in terms as follows:

“… AND UPON the Respondent’s undertaking to the Court that it will provide the Applicant with a calculation of the amount of management fee to be refunded to the Applicant within 28 days hereof and the amount to be refunded within 28 days thereafter, IT IS ORDERED that the summons … be dismissed with costs …”

14.  There is a slight difference in wording between how Counsel for the IO verbally confirmed the IO’s undertaking and how the CA Order recorded it in writing.  Further, Owner’s undertaking is not recorded in the CA Order.

15.  It is not clear whether the IO had an opportunity to see a draft of the Order.  If so, it did not raise any issue at the time.  Indeed, after the Order was sealed with a penal notice and served or re-served on the IO and R2-8, no issue was taken about its wording.

16.  Regrettably, the dispute did not end.

Further Dispute

17.  Twenty-eight days from the hearing before the Court and its Order would be 18 January 2019.  Another 28 days thereafter would be 15 February 2019.

18.  The IO allegedly sent a letter to Owner dated 7 January 2019 which stated that, the IO “after consulting with solicitors and Counsel” had calculated the management fees under clause 11(e) and “exceptional fees” (例外費用) under clause 11(f)(iv), and the total fees due from Owner were HK$2.716 per management share.

19.  On the available evidence, this was the first time the IO ever referred to clause 11(f)(iv).  Even its Counsel, who made some ingenious arguments about construction of clause 11 as a whole before the Court of Appeal, did not mention clause 11(f)(iv).

20.  The IO says it sent the above letter on 7 January 2019.  Owner says it received only on 19 January 2019.

21.  Owner through solicitors sent two letters to the IO’s solicitors on 23 and 25 January 2019.  The IO allegedly sent a letter to Owner on 28 January 2019.  In that letter, the IO purported to have consulted solicitors and then substantially revised the management fees due from Owner down to HK$1.42 per management share. Subtracting the amount due from the amount already paid, the IO informed Owner of a refund in the amount of HK$181,022 as due to Owner.

22.  It is not clear whether the parties dispute when the IO sent and when Owner received this letter.  The undisputed evidence is that the IO’s solicitors replied to Owner’s solicitors on 30 January 2019, with copies of the IO’s letters dated 7 and 28 January 2019.

23.  Correspondence ensued in February and March, even lasting to June 2019. In short, Owner sought explanations and particulars of how the IO calculated its figures.  The IO refused, saying it had not undertaken to do so in its Undertaking.

24.  Further, the IO proposed and the owners at a general meeting on 27 February 2019 voted to substantially increase the fees on owners of the commercial part, and to set up a fund which those owners would have to contribute to before receiving any refund of excesses already paid.  The IO’s stated rationale was that it continued to believe owners of commercial part and residential part should not be treated equally, and that expenses of the two parts (including the refund to Owner) should form different pools.

25.  The IO issued adjusted notice and payment advices to Owner on 1 March 2019 increasing the management fees with effect from 1 April 2019.  But it also sent Owner a cheque for HK$181,022 on 20 March 2019 for the amount of refund which it had calculated as due to Owner.

26.  To date, the bases and calculations on/by which the IO arrived at its various figures remain unclear and, indeed, on the available evidence, rather suspicious and unconvincing.

Application for Committal

27.  By an ex parte application and a statement dated 15 July 2019, Owner applied for leave to apply for committal.  By an Order dated 29 July 2019, Lok J granted leave.  With the parties’ consent, Au-Yeung J directed on 14 August 2020 that these proceedings be conducted by way of written submissions.

28.  It is trite that an applicant for committal is held strictly to the terms of his application and statement.  Here, Owner asserts that the IO had neglected or failed to comply with (1) paragraph 3 of the LT Order; and (2) the IO’s undertaking to the Court of Appeal.  Owner’s case against R2-8 is that each of them aided and abetted the IO to breach the LT Order and its undertaking and/or is personally liable for the contempt committed by it.

Noncompliance with LT Order

29.  I shall deal first with the alleged neglect or failure to comply with paragraph 3 of the LT Order.

30.  As I have quoted earlier, paragraph 3 of the LT Order is and is in terms of a declaration.  I cannot see how any party can be said to have neglected or failed to comply with a declaration.

31.  A declaration is a pronouncement of legal positions, usually rights and obligations.  It does not require anything to be done.  By itself it does not require any compliance.

32.  Consequential reliefs can be sought upon a declaration.  Such reliefs would be consequential, not inherent, to the declaration.  See: RHC O15 r 16 (the court may make binding declarations of right “whether or not any consequential relief is or could be sought”).

33.  What Owner is really complaining about is that the IO has not respected the Labour Tribunal’s pronouncement of the IO being bound by and bound to follow clause 11(e) of the DMC.

34.  Counsel for the IO in these proceedings again make ingenious arguments about how, Owner having agreed before the Court of Appeal that paragraph 3 of the LT Order should be read as subject to clause 11(f) of the DMC, the IO could invoke clause 11(f)(iv) in calculating fees.

35.  The arguments are unconvincing.

(1)  The IO had not mentioned or invoked clause 11(f)(iv) before.  I cannot see how it can use clause 11(f)(iv) in calculating past fees due from Owner.

(2)  Clause 11(f)(iv) speaks of portion of the Building and portion which is separately occupied.  It is unclear whether the clause can be invoked to apply to the entire commercial podium and all the units therein.

(3)  As the Court of Appeal pointed out, the general formula is in clause 11(e).

(4)  The sequence and nature of events suggest that the IO may be just looking for an excuse to ignore or get around the findings and pronouncement of the learned judge.

(5)  In the above regard, I note in particular that:

(a)  On the IO’s evidence, the letter purported of 7 January 2019 was issued without the owners’ approval (which was only given at a meeting on 17 January 2019).

(b)  On the IO’s own admission, the total figure in the letter dated 7 January 2010 was based upon and comprised a figure for management fee which was “unlawful”.

(c)  Again on the IO’s own evidence, its solicitors’ letters to Owner’s solicitors were to explain the IO’s “position” – in other words, not to explain how it had arrived at its figures in its letter dated 28 January 2019.

(d)  Moreover, the IO flatly refused to engage on, let alone explain, the further increased figures per the resolution on 27 February 2019 and its letter dated 1 March 2019.

(e)  The IO expressly stated at the owners’ general meeting on 27 February 2019 that the purpose of increasing the fees for and establishing a fund for the commercial part was exactly to treat the owners of the commercial part and residential part differently.

(f)  Even if (which I do not decide) clause 11(f)(iv) can be applied to carve out certain items as chargeable only to owners of the commercial part, the same would apply to other items for owners of the residential part.  If such an approach is to be pursued, it would behoove the IO to share and explain its bases and calculations in detail.

36.  Whilst one may understand at a common sense level that the expenses of two parts of a building may be best kept separate, there may be practical difficulties.  Moreover, it is not the general principle stated in clause 11(e) of the DMC and binding on all the owners of the Building.  It is questionable whether clause 11(f)(iv) as an exception can be applied in a way which may in effect circumvent the general principle.

37.  It is not the function of these proceedings to determine the true meaning and effect the DMC.  In any event, the parties’ affidavit evidence and arguments do not suffice for such a determination.  There needs to be a proper analysis and a proper exercise in construction.

38.  For present proposes, I would only express my dismay at the uncooperative behaviour of the IO.

39.  The fact remains, however, that paragraph 3 of the LT Order is a declaration.    I do not know why relief was sought and/or granted in such terms.  Perhaps, as the Court of Appeal remarked at its hearing, “… for these sort of proceedings [in the Lands Tribunal] … the main point is to clarify what is the proper way of calculating the management expenses.” One tends to assume that parties, especially a committee with a community function, will abide by its obligations once they are clarified.

40.  In any event, where one party is bent on a course, and the other party is unwilling to accept it, if the party which has relevant data does not share and explain, dispute is likely inevitable.  Here, the IO and Owner and perhaps other owners may have to litigate the proper construction of clause 11(f)(iv) and the fees consequential thereon.  The court or tribunal seized of that litigation will again have to take the parties’ behaviour into account when determining that matter and deciding on costs.

41.  Paragraph 3 of the LT Order being what it is, non-adherence is not a breach or any failure to comply.  It would require fresh proceedings to enforce the legal rights and obligations as pronounced.  I must conclude in these proceedings that the IO has not committed contempt in respect of paragraph 3 of the LT Order.

Noncompliance with the Undertaking

42.  I turn next to the IO’s Undertaking.  The IO clearly breached its Undertaking in several respects.

43.  First, by the Undertaking, the IO undertook to provide Owner “with a calculation of the amount of management fee to be refunded to the Applicant [on or before 18 January 2019]” (underlining added).  The IO’s letter dated 7 January 2019 stated only the management fees (the IO said were) due.  It made no calculation of any amount to be refunded – not even a reference to whether any refund was (said to be) due.

44.  Counsel of the IO submitted to the Court that the IO undertook “to calculate the amount to be refunded within 28 days”.  As I have noted above, no issue was taken about the slightly different wording in the CA Order.  In any event, even under Counsel’s wording, the IO had to inform Owner of the amount to be refunded.  The letter dated 7 January 2019 did not do that.

45.  Second, as it transpired, the figure of HK$2.716 total fees per management share was in fact based on and included the figure of HK$2.16 management fees per management share.  The latter figure had been ruled excessive and incorrect by the learned judge and the Court of Appeal.  To use it could not have been an innocent mistake.  The IO had no good reason to continue to use it other than as a blatant disregard of its legal obligations under binding judicial determinations.

46.  It lies ill in anyone’s mouth to claim that a calculation based on a figure already ruled and known to be incorrect would be a calculation in compliance with the Undertaking.  Put another way, an undertaking to calculate and to provide a calculation cannot be fulfilled by a half-hearted – or, worse, a deliberate or knowingly wrong – calculation. 

47.  Third, the IO undertook to provide Owner with “the amount to be refunded [on or before 28 January 2019]”.  It only did so on 1 March 2019.

48.  These breaches were, however, cured by 28 or 29 January and 20 March 2019.

49.  Owner’s further complaint is that even the IO’s letter dated 28 January 2019 only purported to have calculated the management fees due, and subtracted it form the fees already paid, to arrive at a purported amount of refund. Owner wants, in its words in these proceedings, a “substantive calculation” of the management fees.  By this, Owner means the IO should arrive at the correct amount of fees and, moreover, justify with details how it has done so.

50.  I can well understand why Owner thinks this way.  After all, it has already had to litigate for some time, at two levels of court, to obtain a judicial ruling that the IO had wrongly calculated the management fees.  To be faced with a counterparty who at heart refuses to following the ruling and wants to look for ways around it must be frustrating.

51.  Even to date, the IO has not shown how it arrived at the figures and how the figures are (said to be) correct.  One would have thought if the IO had a defensible set of calculations, they would have been more than willing to share and explain.  Indeed, it would have been in their interest to do so in these proceedings.

52.  However much I am inclined to infer that the IO’s figures are incorrect or even indefensible, that is not the issue properly raised in these proceedings.

53.  The wording of the Undertaking requires the IO to provide “a calculation of the amount of management fee to be refunded”.  It does not require details and does not speak of calculations in the plural, which may denote a set of calculations reaching down to underlying calculations.  The subject “management fee to be refunded” also suggests that the amount to be calculated and provided is the ultimate amount, and not necessarily the antecedent numbers.

54.  However sensible it would be for the IO to provide details and further calculations to justify its ultimate amount and save endless dispute, I cannot stretch the wording of the Undertaking to require so, especially in the context of contempt proceedings.

55.  I thus have to conclude that, save potentially in a few respects which I have noted earlier, the IO has not committed contempt in breaching its Undertaking.  As for the few respects, as I have also noted earlier, those breaches have been cured.

56.  I repeat my dismay at the behaviour of the IO and will return to this when considering costs.

The Members of the IO

57.  Counsel for the IO and R2-8 in his written submissions make one argument specifically on behalf of R2-8.  Under s29A of the Building Management Ordinance (Cap. 344), members of a management committee are not personally liable if acting in good faith and in a reasonable manner.  Counsel submits that R2-8 “were acting in good faith and in a reasonable manner, by following the legal advice they have received”.

58.  The legal advice is a seven-page document dated 19 February 2019 which Counsel appearing for the IO before the Court of Appeal and in these proceedings provided on instructions from the solicitors who acted for the IO before the Lands Tribunal and the Court of Appeal.

59.  Without speaking to the correctness of the advice, suffice it to point out that the advice is dated 19 February 2019.  It cannot serve as any excuse for the failure to provide a calculation on or before 18 January 2019 and to provide the refund on or before 15 February 2019.

60.  However, as I noted earlier, the relevant breaches were cured by 28 or 29 January and 20 March 2019.  This raises an issue about date of service of the LT Order and the CA Order on R2-8.

61.  According to Owner’s own statement dated 15 July 2019:

“5(c) Both the Orders … have been duly served on all the Respondents on 11^th June 2019 with penal notice duly endorsed, notwithstanding that a failure to comply with an undertaking given to the Court does not require service of the Court of Appeal’s Order to the 1^st Respondent and an endorsement of a penal notice thereon.”

62.  Thus, by the time R2-8 were duly served with the CA Order, the breaches of the Undertaking had been cured.  I cannot find R2-8 liable.

Conclusion, Sanctions, and Costs

63.  In sum, I find the IO to have breached its Undertaking and to have committed contempt in respect thereof.

64.  The relevant breaches were cured relatively soon after.  I will not impose any sanctions beyond costs.

65.  The fact that the breaches were cured before these proceeding were commenced may have suggested that Owner should not be entitled to costs.

66.  However, as I have made clear and explained, I am appalled by the IO’s behaviour.  The present proceedings were avoidable.  Even if litigation may be inevitable, the IO could have been more cooperative and transparent such that Owner or its legal advisers would have to realize the proper avenue to resolve the substantive dispute lies outside of contempt proceedings.

67.  Moreover, I note that the IO’s defence has focused on arguing that clause 11(e) of the DMC is subject to clause 11(f), in particular clause 11(f)(iv) as the IO alleges it to mean.  The former is never in controversy.  The latter is questionable.  In any event, this argument is not the basis on which I have found in favour of the IO (where I have done so).

68.  Similarly, R2-8’s defence has focused on purported reliance on legal advice.  As I have explained, this is irrelevant to the breaches.  I concluded in R2-8’s favour for a procedural reason, i.e., that they were not personally served with the CA Order until after the breaches were cured.

69.  In all the circumstances, I make an Order nisi that the IO shall pay Owner its costs on a party to party basis, to be taxed if not agreed.  For the avoidance of doubt, there is no order as to costs between Owner and R2-8, and Owner does not need to separate out any costs as incurred against R2-8 when recovering its costs from the IO.

70.  These being committal proceedings, there should be no need for a certificate for counsel.  For the avoidance of doubt, I grant a certificate.

71.  It would be far from ideal to incur more costs to argue about costs. But if either side wishes to do so, it shall make written submissions within 21 days hereof (limited to 4 pages, double spaced lines, and 14 point font) and the other parties shall make written reply submissions within 14 days thereafter (limited to the same).