THE INCORPORATED OWNERS OF SOUTHORN DEVELOPMENT v. DURRANT SIMON PATRICK MICHAEL

DCMP 2266/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS No. 2266 OF 2012

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DECISION

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1. This is an application of the defendant by his summons dated 2 January 2014 (“the Summons”) for leave to appeal against my order made on 30 December 2013 (“the Order”) whereby I affirmed the order of Master Yip with some modifications with costs in favour of the plaintiff. The defendant further applies for a stay of the order pending his intended appeal.

2. The parties came before me on 3 January 2014 for the purpose of the Summons. Understandably, the plaintiff’s solicitors were not sufficiently ready for argument given a new legal point raised by the defendant in his affirmation filed shortly before the hearing. I could only adjourn the hearing of the Summons to a later date so as to enable the parties to deal with the Summons properly. In doing so, I also allowed the defendant further time to pay the plaintiff (HK$10,154.30 plus interest) so that a compulsory sale of his flat pursuant to the Order could be avoided. The new deadline falls on 22 January 2014.  

3. Section 63A of the District Court Ordinance, Cap.336 provides that leave to appeal shall not be granted unless this court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice that the appeal should be heard. A reasonable prospect of success means an appeal with prospects that are more than “fanciful” but which do need to be shown to be “probable”: SMSE v KL [2009] 4 HKLRD 125 at §17 per Le Pichon JA.

4. I shall refer to my Reasons For Decision handed down on 31 December 2013 for the background facts, which I would not repeat here. Here, I also adopt the abbreviations used therein.

New evidence

5. Altogether the defendant has made three affirmations to support his applications. To the one dated 3 January 2014, the defendant exhibited a letter issued by MTR dated 26 May 2011 (“the MTR Letter”). The MTR Letter was actually referred to the defendant’s affirmation dated 6 December 2013 as “attachment a”. However, the MTR Letter was missing from the said affirmation. In the premises, this is not really a piece of new evidence and with the consent of Mr Cheung appearing for the plaintiff, I admit the same into evidence of the defendant.

6. The defendant also exhibited a demand note of MTR dated 1 January 2014 to support his application. The demand note is to show that the MTR and not the plaintiff demands the defendant to pay management fees and hence the plaintiff can have no claim against the defendant for outstanding management fees.

7. I refuse to admit this demand note as new evidence on the ground of irrelevancy, as explained below. Mr Cheung agrees that the fact that the MTR (and not the plaintiff) collects management fees from individual owners of Building including the defendant is not in dispute.

8. On the other hand, the plaintiff also tries to adduce three new documents by way of attachments to the Skeleton Submissions of Mr Cheung. They include the MTR Letter. Apart from the MTR Letter, I refuse to take into account the new documents again on the ground of irrelevancy and lack of a proper application to adduce the same.

Proposed Grounds of Appeal

9. In his affirmations, the defendant makes several complaints about my Reasons for Decision. I shall deal with each of them in turn.

10. The defendant complains that I ignore his two external independent valuations concerning his Property, which underpinned his assertion that his Property is now worth more than HK$10 million.

11. The two valuations referred to by the defendant were made through the websites of two local banks. The basis of their valuations was not known. As one of them expressly stated in the on-line valuation report, the accuracy of such valuations cannot be assumed to be fit for any purposes. I do not think they can be acted upon to contradict the expert valuation evidence adduced by the plaintiff. In any event, the differences of the market value of the Property is immaterial.   

12. The defendant further reiterates the root cause of his non-payment of management fees being the alleged assault by a security guard in May 2010 (but he started being in arrears with payment in March 2010). He complains that I should have held that the alleged assault did take place.

13. In the first place, I should point out that the MTR Letter now available to me did not really contain an admission of the assault as alleged by the defendant. The MTR merely referred to another complaint about another staff of the management lodged by the defendant.

14. In addition, actually in paragraph 22 of my Reasons for Decision, I expressly stated that my analysis was made on the basis that I accept that the defendant was assaulted by the security guard as alleged. The complaint of the defendant is unmeritorious.

15. The defendant next complains that this court should apply the doctrine of unclean hands and deny the plaintiff the equitable reliefs claimed. The defendant says that the plaintiff was guilty of inaction over his complaint about the alleged assault and hence in breach of the fiduciary duties owed to him and the DMC. In this regard, the defendant relies on Perfect China International Limited v Chan Yat Siu and Anor., unreported, LDBM 24/2011, 20.7.2012 to show that the equity maxim did apply to building management cases.

16. There, Deputy Judge Kot refused both parties their respective claims for a mandatory injunction pursuant to the DMC in question on the ground that both of them were in breach of the DMC and had illegal structures in their respective flats. The deputy judge held that both parties did not come with clean hands and hence refused to grant them any equitable reliefs.

17. I actually accept that the equity maxim is applicable to the cases involving enforcement of a DMC. I merely find that the complaints of the defendant, even if established, cannot have sufficiently immediate and necessary relationship to the reliefs claimed by the plaintiff.

18. I believe the correct analysis is as follows. The defendant has not appealed against the Award. Nor has it taken any step to remove the MOC after its registration on 6 May 2011. There is no challenge to the validity of the MOC. The alleged assault and the subsequent action/inaction on the part of the plaintiff could not hinder the enforcement of the MOC in the circumstances.

19. Further, as stated in §24 of the Reasons for Decision, the defendant makes no counterclaim in these proceedings. I refuse to accept that the defendant can have an equitable set-off against the plaintiff’s claim by virtue of the alleged assault and the alleged breach of the DMC by the plaintiff.

20. Going back to the maxim of unclean hands, Sakhrani J in Pleasure International Limited and Ors. v Kao Wai Ho Francis and Anor., unreported, HCA 1753/2008, 25.6.2009 had this to say (at §87):

“It is well settled that the court declines to intervene by granting equitable relief only if the inequitable conduct in question is shown to have “an immediate and necessary relation” to the relief sought, and the grant of relief is accordingly unconscionable (Spry on “The Principles of Equitable Remedies” 7^th Edn at page 410). The maxim must not be taken too widely (paragraph 5-15 Snell’s Equity 31^st Edn.[1]).”

21. Further, as pointed out by Deputy Judge Wong Yan Lung SC in Hin Fai Limited trading as Sun Food Seafood v Longrace Development Limited and Anor., unreported, HCA 1788/2003, 18.7.2003 (at §43), there must be “an immediate and necessary” relations between the alleged “depravity” of the plaintiff and the “equity” being sued for and that the cleaniness required is to be judged in relation to the relief sought.

22. In the present case, the plaintiff seeks to enforce the MOC, created on the strength of the Award. The Award concerns the management fees in arrears. Under paragraph 4(1) of Part III of the DMC, each owner of the Building including the defendant shall pay a due proportion of the management expenses. Paragraph 2(w) of Part III of the DMC empowers the manager of the Building to demand and collect all amounts payable by the owners under the DMC. The management fees collected by the MTR are obviously not for the mere purpose of paying the salary of the security guard allegedly having assaulted the defendant. Management fees are common fund to pay for the management expenses and expenditures set out (not exclusively) in paragraph 4 of Part III of the DMC.

23. Le Pichon J (as she then was) in Grace International Ltd. v Incorporated Owners of Fontana Gardens and Ors. [1996] 4 HKC 635 dealt with a similar complaint by an owner refusing to pay management fees. Her ladyship had this to say (at p.661A):

“Assuming that the defendants have not discharged their duty to effect necessary repairs to the common parts of the buildings, would this fact debar them from recovering management fees? Bearing in mind that effecting repairs was not the only duty of the defendants and in respect of which management fees are paid, I am not prepared to hold that because of this breach they are not entitled to any management fees. Nor would it be either feasible or realistic to apportion the fees.”

24. By the same token, the MTR should still be entitled to collect management fees from the defendant despite his allegations of the plaintiff’s breach of the DMC. It follows that there is no immediate and necessary relation between the alleged unclean hands of the plaintiff (the depravity) and the enforcement of the MOC created on account of the defendant’s arrears in payment of management fees (the equity). I thus conclude that the plaintiff should not be denied the reliefs claimed notwithstanding the defendant’s allegations.

25. Lastly, the defendant raises a new challenge to the plaintiff’s entitlement to the reliefs claimed. The defendant points out that the parties to the Award were the MTR (and not the plaintiff) and the defendant himself. The MOC was created by the MTR and not the plaintiff. Only the MTR and not the plaintiff was entitled to create the MOC pursuant to the DMC. Therefore, the defendant argues that the plaintiff does not have the locus to enforce the MOC.

26. I do not have the benefit of Mr Cheung on this point. Nevertheless, I do not think there is any substance in this argument.

27. The MTR was appointed as Manager of the Building under the DMC. Paragraphs 1(d) and (e) of Part III of the DMC provides that each of the owners thereby appoints the MTR irrevocably as attorney to enforce the provisions of the DMC and that the MTR shall be deemed to be acting collectively for all the owners (other than for the owner in default or against whom the action is brought).

28. One of the duties of the MTR under the Deed is that it shall enforce the due observance and performance by the owners of the terms and conditions of the DMC by way of legal proceedings if necessary and registration and enforcement of charges: paragraph 2(cc) of Part III of the DMC.

29. Paragraph 5 of Part III empowers the MTR to create charges including the MOC against defaulting owners.

30. Under section 18(1) of the Building Management Ordinance, Cap. 344 (“the BMO”), the plaintiff has a statutory duty to do all things necessary for the enforcement of the obligations contained in the DMC for the control, management and administration of the building. Further, section 18(2) empowers the plaintiff, in its discretion, engage and remunerate staff for any purpose relating to the powers or duties of the plaintiff under the BMO and the DMC.

31. Section 19(1) provides that if a deed of mutual covenant provides that if an owner fails to pay any sum payable under the deed of mutual covenant, a person may sell that owner’s interest in the land or register a charge against such interest in the Land Registry, then notwithstanding the provisions of the deed of mutual covenant, the IO may, to the exclusion of such person, exercise such power of sale or register such charge in the same manner and subject to the same conditions as if it were the person referred to in the deed of mutual covenant.

32. It cannot be disputed that the MTR manages the Building for and on behalf of the plaintiff to discharge the latters’ statutory duties under the BMO. In doing so, the MTR is the agent of the plaintiff.

33. The unchallenged evidence of the plaintiff is that it was the plaintiff who caused the registration of the MOC: paragraph 8 of the Affirmation of Choi Kwok Lam. It is clear that the plaintiff is entitled to cause the MTR to act on its behalf to register the MOC and now itself apply to enforce it by way of sale of the Property under section 19(1) of the BMO. I have no doubt about the locus of the plaintiff accordingly.

Application for Stay of Execution

34. Having formed the dim view on the defendant’s intended appeal, I do not think there is any valid reason to allow the defendant’s application for stay of execution, thereby further deny the plaintiff the fruit of the judgment.

35. Though the lack of merit of the defendant’s intended appeal alone would already justify my refusal to grant him a stay, I should also point out that there is no evidence (and not just the defendant’s bare assertion during the hearing) that the plaintiff could not return to the defendant the sum of about HK$11,000 if his intended appeal turns out to be successful. Nor such a payment would cause any hardship to the defendant, who claims to be the owner of a magazine publishing company in Hong Kong and in sound financial condition. As the defendant admits, he refuses to pay any management fees merely as a matter of principle. He should take the consequences of his decisions. I fail to see why this court should allow him a stay in the circumstances.

Conclusion and Orders

36. For the foregoing reasons, I come to the conclusion that none of the matters advanced by the defendant shows that his intended appeal has a reasonable prospect of success. Nor do I find any other reason in the interests of justice that his intended appeal should be heard. I further find his application for a stay of execution groundless.

37. In the circumstances, I dismiss the defendant’s Summons. Costs should normally follow the events and I fail to see why there should be a departure from the normal course.

38. As a preliminary argument before my dismissal of the Summons, the defendant contends that the plaintiff should not be entitled to costs in any event because Mr Cheung refused to have his application for leave to be dealt with in one go when I dismissed his appeal on 30 December 2013. The defendants contends that if Mr Cheung had agreed to do so, the hearings on 3 January 2014 and today could have been avoided.

39. I would agree with Mr Cheung that this court could not have deal with the defendant’s application for leave to defend on 30 December 2013. At the conclusion of the hearing on that day, I only made an order to dismiss the defendant’s appeal with reasons to be handed down on the following day. Hence, the defendant could not have made a proper application for leave to appeal in the absence of my reasons for my Order. It was only right for Mr Cheung to object to the course suggested by the defendant on 30 December 2013 however frustrated he was with my Order.

40. Mr Cheung submits his statement of costs for my reference in the event that the Summons is dismissed. Having perused the same and taking a broad-brush approach, I accept that this matter should have taken 3.5 hours of the professional time of Mr Cheung at most. Accordingly, I allow the plaintiff to recover from the defendant costs of and occasioned by the Summons in the sum of HK$7,000, adopting an hourly rate of HK$2,000 as in my previous costs orders.