GALLIUM DEVELOPMENT LTD AND OTHERS v. WINNING PROPERTIES MANAGEMENT LTD AND ANOTHER

LDBM 121 OF 2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. LDBM 121 OF 2000

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Date Of Handing Down Judgment: 24 June 2003

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J U D G M E N T

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1. The Respondents are associated companies. The 1st Respondent is the building manager and the 2nd Respondent owns various units including all the units on the two basement floors and three floors of the shopping arcade. The two basement floors were let to Sogo Department Store. About 1996 the 1st Respondent undertook certain renovation and alteration works in these three floors of the shopping arcade. The Applicants are various owners of units on the office floors and they are complaining about three things. Firstly, they are deprived of the use of common areas which have been converted to the private use of the 2nd Respondent. Secondly, the sinking fund was improperly applied to finance the alteration works. Thirdly, the 1st Respondent overcharged its remuneration. By these proceedings they are seeking against the respondents various reliefs.

Conversion of common areas on the basement floors to private use

2. The conversion of common areas on the two basement floors or the letting of the same to Sogo has not been pleaded specifically in the Notice of Application. Yet relatively trivial matters such as installing a vending machine have been pleaded. The specific reference to this complaint was first made in the Applicants' architect report. This report was not served on the Respondents until the trial became imminent. Mr. Hingorani, counsel for the Respondents, seemed to suggest that there had been a departure from pleadings in respect of this allegation and he would object to it. Despite the objection Mr. Lau, counsel for the Applicants had made no application to amend the pleadings or expressly invited me so to do. Mr. Lau only dealt with the point of departure from pleadings generally. He did not make clear his position whether the scope of various reliefs the Applicants were seeking was or was not to include the rectification of the breach by converting the common areas on the basement floors.

3. Insofar as the Applicants intended, if they did, in seeking a relief based on the conversion of common areas on the basement floors, I accept Mr. Hingorani's analysis of the pleadings that this was a departure from pleadings. Looking at the history of dispute between the parties and of this case, it was clear that the dispute arose from alteration works not relating to the basement floors. This conversion of common areas on the basement floors must have been known to the Applicants when they initiated the present proceedings. If this was intended to be the basis of complaint, or one of the causes of action, I cannot see and I have not been told the reasons for not including this in the Notice of Application either as an item of facts or in the particulars of reliefs. Mr. Lau submitted generally that because of the many adjournments since the beginning of the trial, the Respondents had ample opportunity to prepare their case. I do not accept this argument. Adjournments during this trial were necessitated by the wrong estimate of trial time and because of counsels' diaries and the court's. The various time periods between these adjournments were not intended for the Respondents to prepare for any unexpected additional causes of action, or allegations of facts not pleaded. Of course I should consider whether the Respondents could have dealt with this matter during these adjournments but I should also consider the question of fairness. The Applicants initiated the present proceedings in April 2000. On two occasions amendments were made to it, the last one at the beginning of the trial. No one could say that the Respondents' conduct of defence in these proceedings would not have been affected had the Applicants made it known at an earlier stage that the conversion of common areas is intended to be relied upon as a cause of action. Under all these circumstances I agree with Mr. Hingorani that I must confine the Applicants' case to the issues set out in the pleadings or it would be most unfair to the Respondents. Consequently, relief based solely on the conversion of common areas or common parts on the basement floors is a non-issue.

Conversion of common areas on 1st,2nd, and 3rd floors

4. It is not in dispute that the 2nd Respondent has converted to its private use the two rooms, one on the 1st floor and the other on the 2nd floor, both room originally housing the air handling units. What is hotly disputed is the total reduction in common areas on these floors. The Applicants' architect concluded in his report that the reduction in common areas after the alteration works amounted to 46.32 m2 and 21.15m2 respectively on the 1st and the 2nd floor. On the 3rd floor he found there was an increase in common area of 10.89 m2. The net decrease in common areas of these three floors was 56.58 m2.

5. Mr. Hingorani submitted that the conclusion of the Applicants' architect should not be relied on for several reasons. Firstly, his assistant who took the site measurements of the existing layout of these floors was of unknown qualification and experience if he had any at all. Secondly his methodology was not satisfactorily explained. Thirdly, the process so described by him of scaling off the floor plans in the DMC was not possible according to the Respondents' architect.

6. If Mr. Hingorani meant his argument applied generally to an expert giving his opinion evidence in court, I cannot agree with him. An expert conducting certain examination process or scientific tests more often than not has to rely on his subordinate who under his supervision took some minor part in the process or tests. At the end of the examination or test, the expert is entitled to come to a certain conclusion in his opinion. This is opinion evidence. It is not incumbent upon the party calling the expert to call every one of his assistants before the expert's opinion can be relied upon. It all depends on the circumstances of a particular case. Equally an expert might not be able to explain his methodology to the understanding of the tribunal of fact. For instance, a nuclear bomb expert might encounter difficulty in making the court fully understand his process of examining an atomic device before he concluded that it is a nuclear bomb of a certain class. That alone does not prevent the court accepting his conclusion having satisfied with his expertise and credibility. Again it depends on all the particular circumstances of the case before the court. Lastly the fact that the methodology of an expert is criticised by another is a matter of difference of opinion to be resolved by the court. However under the particular circumstance in the instant case, these observations and criticisms of Mr. Hingorani are not without merits.

7. It is common ground that the reduction in common areas should be the difference between that as purportedly represented in the floor plans in the DMC and that after the alteration work and still existing. The accuracy of the estimate of the reduction in common areas must therefore depend on the site measurements. It is only common sense that any error or mistake in site measurements can affect the estimate. For example, if the widths of the corridors were understated by mistake or otherwise the Architect's estimate would have been affected. The lack of evidence of the qualifications or experience of the person who took the site measurements is a drawback and this must be taken into account in assessing the reliability of the final estimate by the Applicants' architect.

8. The Applicants' architect worked out the reduction in common areas by comparing floor plans obtained from site measurements and floor plans derived from the DMC after changing them to a different scale. The Applicants' architect described his methodology of obtaining floor plans of a different scale for his use from the DMC plans. However his description is intelligible. When pressed he said he forgot the process he used. The actual skill of accurately changing a floor plan from one scale to another requires certain training and expertise in draughtsmanship. The method to be used is a matter of practice for the draughtsman to decide. I have no doubt the Applicants' architect is an expert draughtsman. On the other hand whatever method he chose to use and no matter how tedious the process is, the accuracy and appropriateness of the method can be tested, and the other party is entitled so to do, against the elementary knowledge of high school trigonometry by a layman. When the accuracy of the estimate is challenged as Mr. Hingorani did, it is most undesirable that clear evidence in this respect is not forthcoming. The Applicants' architect was unable to tell exactly what the process was or to describe it by name or to tell us something about its nature. Neither did he tell us what tools he used or identify exactly what building plans he said he used. Under these circumstances, a tribunal of fact must be cautious in simply accepting his opinion evidence on the accuracy of his estimate. He gave a margin of error of 10%.

9. The Respondents' architect gave evidence that it is not possible to scale off a plan not to scale in so far as he could understand the evidence about the methodology of the Applicants' architect. If the Respondents called their architect for the purpose of attacking the veracity of the Applicants' architect, their attempt failed. I find that he genuinely did not remember the process of obtaining the scale plans from the DMC. That being the case criticisms by the Respondents' architect on such process did not carry the matter any further.

10. The ultimate question is how reliable is the estimate by the Applicants' architect in view of the above unsatisfactory features of his evidence. Mr. Lau submitted that it was not a coincidence that the calculations by the Rating and Valuation Department (the RV figures) also showed a reduction in common areas. Mr. Hingorani objected to the admissibility of these calculations. Mr. Lau in effect urged me to look at these calculations as corroborative evidence. Despite Mr. Hingorani's objection, I am prepared to relax the strict rule of evidence. I would look at these calculations to see to what extent, if any, they could corroborate the findings of the Applicants' expert.

11. The RV figures showed a decrease in shop areas of 8m2 on the 3rd floor. That must mean a corresponding increase in common areas. This calculation differed from the estimate by the Applicants' architect by 2.89m2 and the difference is not within 10% error of margin given. RV figures indicated decreases in common areas on the 2nd and 3rd floor. Repeating the same exercise for these floors. The differences are respectively 15.32 m2, and 12.15 m2. Both are way out of the margin of error of 10%. If the Applicants' architect is confronted with the RV figures, without more he must disagree with them. Therefore I conclude that the RV figures cannot serve to corroborate the accuracy of the architect's estimate. On the contrary the RV figures serve as another caveat against using the estimate by the Applicants' architect.

12. Both the RV figures and the architect's estimate indicated a decrease in common areas on the 1st and 2nd floor. This should hardly be surprising as the AHU rooms on these were relocated. Taking all the above factors into account, I accept the estimate of the Applicants' architect that there were decreases in common areas on 1st and 2nd floor and an increase in common areas on the 3rd floor. However his estimate cannot be relied to show exactly how much the reduction or increase in common areas on these three floors is.

13. There is no dispute about the layout of these three floors as represented by the floor plans produced by the Applicants' Architect. During the site visit I could not notice any discrepancy between the plans or and the actual layout nor any such discrepancy was drawn to my attention. Comparing the plans in the DMC and the ones produced by the architect in his report, one can easily see that after the alteration works and as the result of realignment of shops some common areas become included as shop space and vice versa. The AHU rooms were glaring examples.

14. Clause 4(a) (iii) of the DMC provides that:

" In the case of any portion or space---intended for the use in common by the owners of some of the units---and not for in common by-owners--- of the other parts-and in the case all such units being owned by the same owner(s) ---such portion or space shall be excluded as part of the Common Areas---"

This clause is not invoked by the Respondents to justify the conversion of common areas of these 3 floors on which the 2nd Respondent owns all of the units. On the contrary Mr. Hingorani in his submission that some of the Applicants did not come with clean hand argued that clause(a)(iii) is overridden by the Building Management Ordinance Cap. 344. Mr. Hingorani contended those Applicants requires the approval by a resolution provided in section34I. The only defence the Respondents raised to the conversion of common areas is that such conversion has been authorised by the written resolutions of the 2nd Respondent who own more than 75% shares in the Land.

Defence to conversion of common areas on 1st, 2nd, and 3rd floor

15. Mr. Hingorani argued that the Applicants failed in their pleadings. I do not agree. It is true that there is ample room for improvement as far as the pleadings of the Applicants are concerned. The conversion of common areas in these floors is a basic fact which has been set out. Their complain about deprivation of their right to enjoy and use has been made abundantly clear. Their basic contention is that the conversion of common areas has not been authorised according to the DMC and which authorisation requires the approval of all owners. On the other hand Mr. Hingorani argued that there were written resolutions of the 2nd Respondent approving the conversion and that the combined effect of the provisions in the Building Management Ordinance Cap. 344 and the provisions in the DMC made these resolution valid and binding upon all other owners.

16. Section 34I of expressly prohibits the conversion of common areas subject to the exception that the conversion is approved by a resolution of the owners committee. The definition of "owners committee" is provided in section 34D. Subsection(a) provides that if there is a management committee, owners committee means the management committee. What Mr. Hingorani relied on is subsection1(b) which provides in effect that

"Where no such management committee has been appointed, owners committee means the committee of owners (howsoever named) formed under and in accordance of the DMC. "

By this subsection, he argued that the written resolutions passed by the 2nd Respondent in pursuance to clause 27(l) of the DMC is therefore valid. Sections 34D and 34I are in Part VIA of the ordinance and which part prevails over the DMC in case of consistency. Mr. Hingorani did not dispute this. In fact he contended that those Applicants who converted common areas to their private use could not pray in aid of Clause4(iii) of the DMC and the approval stipulated under the Orinance is required. The clear wording of section 34I prohibits any one to covert the common areas to his private use. The only exception is that he has obtained the approval of owners committee. The term "meetings of owners" cannot by any stretch of meaning of the words means owners committee. In the ordinance these two terms have distinct and different meanings. In ordinary language and daily experience no one would refer to owners committee as a meeting of owners. Therefore a meeting of owners referred to in the DMC cannot be another name for the owners committee for the purpose of the ordinance. The written resolutions are not approvals by the owners committee within the meaning of section 34I. By section 34I(2) the 2nd Respondent is deemed to be in breach of the DMC and is also in fact in breach of the clauses of DMC the Applicants complained of. As there is no owners committee in the building, the conversion of common areas to private use must be by way of re-designation which is tantamount to rewriting the DMC. Mr. Lau is right in contending that to do so requires the approval of all owners.

Sinking fund and alteration works

17. Clause10 of the DMC gave the 1st Respondent full and restricted authority to do such acts and things as may be necessary and requisite for the management of the building. The sub-clauses set out the types of physical work mostly relating to repairs and maintenance of facilities and utilities. Therefore Mr. Lau argued that these sub-clauses in a sense restrict the ambit of the authority conferred. I disagree. Clause10 provides clearly these sub-clauses do not limit the generality of the authority conferred on the manager to do acts and things necessary and requisite for the management of the building.

18. To rely on this clause10 to justify the alteration works, the 1st Respondent has to show these works are necessary and requisite for the building management. No witness with the personal knowledge of the decision by the 1st Respondent at the time was called to justify the decision. Given the history of the matter and the relationship between the Respondents, I do not believe the 1st Respondent ever exercised an independent judgement as building manager in this matter. In any event there is no evidence they did. The evidence suggests they just followed the resolutions of the majority owners, namely the 2nd Respondent. If the 1st Respondent exercised its independent jugdement and came to wrong decision as to what is necessary and requisite within the meaning of clause10, it could have successfully relied on the exemption clause in the DMC although reliance on the exemption clause (clause12) has not been pleaded. It is a proper case for me to relax the strict rule of pleadings in this respect if necessary. There is no reliable evidence as to what the conditions and state of these floors actually were before the alteration works. That being the case I could not have concluded the 1st Respondent is guilty of criminal dishonesty or wilful negligence.

19. If the 2nd Respondent's resolutions can validly authorise the alteration works on these three floors, the 1st Respondent would have a complete defence. If the resolutions are not valid, the 1st Respondent can still rely on the exemption clause. Even if the resolutions were not valid, nonetheless they were purportedly passed in pursuance of the DMC. Clause12 exempts the building manager from liability for acts and things done in pursuance or purported pursuance of the DMC. It might be argued that the 1st Respondent was negligent in not taking proper legal advice, but it cannot be said that the 1st Respondent was wilfully negligent.

20. Mr. Lau argued that a meeting required two persons and cited in support Sharp V Dawes 2 Q B D 26. I accept that in its ordinary meaning a meeting requires two persons. The case cited by Mr. Lau did not lay down any such general principle. On the contrary the Court of Appeal was of the view that it is possible that the word "meeting" has a meaning different from the ordinary meaning. Therefore it is a question of construction of the DMC. Clause 27(l) clearly provides that the written resolutions can take the place of resolutions passed in a duly convened meeting. There is no justification to read words into this clause. The other point submitted by Mr. Lau is that the written resolutions offended sub-clause(j)(iii). I do not agree. Clause 27(l) begins with the words " notwithstanding sub-clauses (j) and(k)". Therefore the written resolutions are valid in so far as the provisions of the DMC is concerned.

21. However the provisions of Part VIA of the Building Management Ordinance prevail over the DMC. The resolutions purported to convert the common areas into private use offended the Ordinance and therefore they were invalid. Looking at the materials before me the alteration works, including those affecting the original common areas are of one project.

Sinking fund and management fund

22. A significant portion of trial time was spent on disputing which item of expenditure should be put into which fund. The accountant called by the Applicants was totally discredited by Mr. Hingorani. I can find no assistance in his evidence. Mr. Lau finally conceded that he was not tendering the accountant as an expert. Mr. Lau asked me to look at the relevant documents relating to the disputed items and judge whether they had been properly charged to one fund and not the other. Before I can do that I have to determine whether they are of capital nature etc. Without knowing exactly the nature of these items and other background information some of which must be very technical, any attempt to classify them must involve speculations and assumptions of facts well within the purview of experts. Furthermore the Applicants are in effect challenging the audited account. They have the burden of proof that they have some cause for concern for the audited account. They cannot just drag manager into court and there and then casting a wide net around it requiring justification for each and every item they found suspicious. What they should have done have been suggested by Mr. Hingorani. In this respect I entirely agree with him. As the matter now stands I accept the audited report and find no merit in these allegations of the Applicants.

Overcharging by 1st Respondent of its remuneration

23. The overcharging of remuneration by the 1st Respondent is another allegation without merit now that I accept the auditors report which was not disputed for a long time before the present dispute about alteation works began to emerge.

24. There are other complains by the Applicants which are not necessary for me to deal with. They are, or have become not relevant or have not been pursued in the final submission by Mr. Lau.

Reliefs

25. Mr. Hingorani submitted no equitable reliefs should be granted as some of Applicants do not come with clean hands. Be that as it may it does not affect the rights of other Applicants. The other point he made is that, as the other Applicants did not give evidence, no judgment can be given in their favour. He argued that Mr. Yip did not give evidence on behalf of other Applicants. This action is not what he described a representative action. This is a case of joinder of causes of action. I am entitled to give judgment in favour of other Applicants if the evidence so supports such judgment.

26. An mandatory injunction ordering the 2nd Respondent to restore the layout of 1st,2nd and 3rd floors to its original state would certainly cause undue hardship on the 2nd Respondent. Taking into account the extent of the breach, inconvenience suffered by the Applicants is minimal an award of damages against the 2nd Respondent is most appropriate and sufficient remedy. The award of damages the Applicants are entitled in any event. The damages should be the share of contribution they have made towards the costs of alteration works. I trusted that there is no dispute in the quantum. I give liberty to parties to apply in case of dispute. All reliefs sought against the 2nd Respondent are inappropriate under these circumstances. As parties wish to be heard on order for costs after my decision, I would defer making costs order to a later date.