The Incorporated Owners of Wah Fat Industrial Building v. Lap Shing Investment (HK) Ltd.

DCCJ2620/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2620 OF 2001

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J U D G M E N T

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1. The plaintiffs are the Incorporated Owners of the Wah Fat Industrial Building which, as the name suggests, is an industrial building situated at Kwai Chung, New Territories, they having been registered as a corporation on 11 September 1987 under the Building Management Ordinance.

2. The Hop On Management Company Limited who have managed this building since 1980 were re-appointed by the plaintiffs to manage it under an agreement and memorandum dated 22 December 1990 as from 1 January 1991 with all the rights, benefits, duties and obligations originally given to them under the Deed of Mutual Covenant dated 25 March 1980 ("the DMC") on the occasion of their first appointment as managers of the building. At all times that are material to this action, the defendant company has been and continues to be the registered owner of a workshop, No. 2, on the ground floor of these premises.

3. This is an Order 14 summons by which the plaintiff seeks judgment against the defendants for non-payment of management fees from March 1998 to June 2001 in the sum of $87,200 being $2,180 per month for 40 months and for building maintenance charges of $103,704 being $1,365 per undivided share for 76 shares, making a total of $190,940.

4. The defendant seeks to justify non-payment on a basis of a proposed amended defence and counterclaim which complains of a number of alleged breaches of the DMC by the plaintiff, which I can conveniently set out here. They are the following:

(i) a refusal and/or failure to remove the defendant's refuse and to provide watchman services;

(ii) a failure to maintain and repair the building as required in the DMC, more particularly the following:

(a) a failure to maintain the common parts, in this case the common roadway or passage up to the 1st floor car park of the building, the defendant's workshop being on the ground floor, as a result of which it is said that this passageway became damaged through use by vehicles passing over it, it being directly above the defendant's premises. Such damage is said to have caused rain water to enter into the defendant's workshop through the ceiling;

(b) a failure to maintain and repair the drains, gutters and water courses adjoining the defendant's property resulting in an overflow into its property causing further water damage.

It is said that by virtue of these breaches the defendants have suffered damage in excess of $750,000 being the cost of removing refuse, providing watchmen and effecting repairs to its premises by virtue of the plaintiff's failure to maintain the building and the estate in accordance with the DMC.

5. Mr William Wan who appears for the defendants submits that where the counterclaim is so well documented by invoices, quotations for repairs and so forth, that his clients must have done more than enough to raise triable issues which can only be determined conventionally by live evidence properly examined and cross-examined to so that I ought to give the defendants unconditional leave to defend the action.

6. Mr Hout for the plaintiff submits that it is not sufficient for the defendants to make these allegations and thereby get leave to defend. He says that once the court examines these allegations, at their highest they will be seen to be without foundation so that he should have judgment, or at worst these alleged defences should be viewed as so shadowy that the defendant should be required to bring the entire claim into court as a condition of being able to defend.

7. Both parties have filed a considerable amount of evidence, the court's bundle containing a little less than 400 pages. I propose to examine the individual issues separately.

8. Firstly, refuse collection. The defendant's case is that from September 1995 until April 2001, this service has not been provided. As a result, the defendants have had to provide their own refuse contractors at a cost of $251,300. This allegation first appears in Mr Wan's affirmation of 10 May 2001 at pages 67 to 69 of the bundle and is repeated in the affirmation of Mr Law Kwong-chuen of 21 June 2001, paragraph 6, page 298.

9. The plaintiff's answer to this allegation first appears in the substantial first affirmation of Mr Choi Yuen-ying, the chairman of the management committee, affirmed on 23 May this year which starts at page 77. Mr Choi has dealt with this issue in a most comprehensive way. At paragraph 10, page 81, he explains that with an industrial building as opposed to a residential building the volume of refuse will vary greatly from unit to unit, depending on its size and the nature of the business. In the management of such buildings it is common practice not to include refuse disposal charges. These charges will be fixed at a rate commensurate to the size of the particular unit and the amount of refuse generated by the occupant. The obligation to arrange for refuse disposal does not extend to providing a free service which is included in the management charge.

10. When the defendants purchased the property on 10 August 1995 they were invited to use the refuse disposal service which would have been separately charged for, but declined to do so. All the occupiers of the building use this service except the defendant and the other ground floor unit, No. 1. Mr Choi makes the point that unit 1, who provide their own refuse disposal, pay their management fees to the plaintiff. Mr Choi has followed this issue up in his second affirmation dated 16 July at page 323 where he particularises the various charges paid by the individual units.

11. I am entirely satisfied on the totality of Mr Choi's evidence that this is an issue which can properly be decided on paper. It is clear that what has happened is that the defendants have preferred to use their own refuse contractors. It is simply not credible that the plaintiffs have come along and said that they would not provide this service when they have been doing this for the other occupants save for unit 1, ground floor. I am disposed to find for the plaintiffs on this issue.

12. The next issue relates to the alleged failure by the plaintiffs to provide a watchman service for the defendants. This first appears in paragraph 9, page 69 of Mr Wan's affirmation of 10 May. Mr Choi's reply comes in his first affirmation at paragraph 14, page 84. Again, I find his explanation comprehensive and compelling. He says that 18 watchmen were employed, the cost of which is included in the management fee paid by each unit. He explains that it would be inconceivable and impossible that any industrial building could be effectively managed without employing such persons. Mr Choi has explained at page 85 the precise arrangements, particularly after hours when the defendant's premises would be secured in such a way that even the watchmen could not have access to them. But notwithstanding that, the watchmen would perform patrols outside the premises.

13. At paragraph 14(6) Mr Choi relates that the defendants, who are the owners of seven parking spaces within the curtilage of their property, would let those spaces out for profit. Cars would be parked there overnight. The defendants required the plaintiff to employ an additional watchman whose task would be to stand permanent guard outside their premises and guard the parked vehicles. The plaintiffs were willing to do this, but required the defendant to bear the additional cost for this. They refused and proceeded to employ two of their own watchmen to carry out this duty.

14. Mr Choi says that the plaintiffs continued to provide security and patrol cover for the whole building, including the defendant's unit, and the fact that they have chosen to employ additional guards does not absolve them from paying their proper share for watchmen and security which form part of the management fee. Again, on this issue I am persuaded of the correctness of what Mr Choi has to say. The evidence on this issue clearly favours the plaintiffs.

15. The next issue is a substantial one relating to the allegation that the car park and the driveway up to it has not been properly maintained with the result that the surfaces of these areas are admitting rainwater through the ceiling of the defendant's workshop which has resulted in much damage and necessitated expensive repairs. This first appears at page 73, paragraph 18 of Mr Wan's affirmation. It is said that the regular stresses placed on the road surface by vehicles, including heavy lorries, has caused vibration and has even caused pieces to fall from the defendant's ceiling as well as an ingress of rainwater.

16. Mr Choi's first response to this matter appears in his first affirmation starting at page 91. He has affirmed to, with supporting quotes and invoices, the repair works carried out by the plaintiff to these areas with particular reference to water leaks. These repairs cost in excess of $400,000, paid for out of the general management fund (see his Exhibits CYY-21 and CYY-22). He also draws attention to major works carried out by the defendants within their unit, including the construction of a whole mezzanine floor which he says may be the cause of some stress to the ceiling of the defendant's unit. As to this latter point, it is not possible for me to come to any firm view as to the effect of these works on the defendant's unit. This would need to be examined by an expert such as a surveyor or a structural engineer. Nevertheless, I am entirely satisfied that a great deal of work has been done to carry out repairs, funded from the general management fund contributed to by all of the occupants of the building save, of course, for the defendants.

17. That having been said, the defendants have put in evidence many quotations and invoices which purport to show works of repair and renewal to their premises. Whether these really are for repairs caused by leaks for which the plaintiff should be held responsible, notwithstanding $400,000 of repairs done by the plaintiffs, or they are unconnected to this allegation cannot be resolved at this stage.

18. Nevertheless, the fact that the plaintiffs have carried out extensive repairs and for other more general reasons which go to diminish the credibility of the defendant's case, and which I will refer to presently, I am of the view that this part of the defence and counterclaim is properly to be described as shadowy with consequences that I will relate in a moment.

19. The next allegation by the defence relates to a failure to maintain gutters and drains. The allegation is first raised at paragraph 20 of Mr Wan's first affirmation (see page 74) but is elaborated on in his second affirmation at paragraph 6, page 182. He says the gutters have been blocked through lack of maintenance causing the defendant's unit to become flooded, resulting in $65,900 worth of repairs, and this is supported by invoices for this work.

20. Mr Choi explains in paragraph 6 of his second affirmation, page 382, that if this is so, these drains were those constructed by the defendant's predecessors who operated a dying factory from the premises. They required and consumed a lot of water there as well as electricity. Consequently, the previous owners constructed a separate transformer room on the property as well many drains, sewers and sand wells which are not covered by the DMC or the Building Management Ordinance.

21. This is an issue which cannot be conclusively decided on paper, but the general tenor of the defence and counterclaim in the face of an impressive answer to this allegation by Mr Choi has led me to the view that this also forms part of a shadowy response to a highly credible claim.

22. I come now to more general matters which have led me to conclude that the plaintiff's case is based on firm foundations and the defence is not. Firstly, the response to the writ and to this summons has been piecemeal, slow and really put together at the last moment. As a matter of indulgence, I allowed the defendant to put in a late affirmation from Mr Law exhibiting the counterclaim which is still not fully particularised and which has grown as the case has progressed from just over $500,000 to $775,000. My reasons for allowing the late filing of the affirmation by Mr Law appears in my ruling of 19 June.

23. The leisurely and inattentive approach of the defendant's management to the litigation does not inspire confidence in the rightness of their cause. But more importantly, allegations have been made against the plaintiffs which have been demonstrated to be false. It shows a disregard for a careful and accurate representation of the facts. I refer in particular to paragraph 11 of Mr Wan's first affirmation, page 70, where no doubt on instructions he alleges that the defendants have had no notice of meetings when resolutions concerning repairs and services were voted on and passed. Technical points are taken as to whether the meetings had the necessary quorum and that the charges have never been explained or justified. This, in my judgment, is shown to be completely false by having regard to paragraphs 15 and 16 of Mr Choi's first affirmation (see pages 86 to 90). I am satisfied that the requisite notices were sent out to all the occupiers of the building and what is particularly significant is that Mr Law, who presumably has been giving Mr Wan his instructions and is vice-chairman no less of the management committee, was present at the meetings. He signed the minutes and was party to the resolutions that carried out a very extensive programme of repairs and maintenance works totalling $2.5 million. All of this is impressively set out in the pages that I have just referred to of Mr Choi's first affirmation.

24. I get the firm impression that the plaintiffs are conscientious and responsible managers of this building. I am bound to view the defendant's allegations which go to support their defence and counterclaim with the utmost scepticism. This all smacks of a late attempt to cobble together something of a smokescreen in order to avoid a longstanding liability that continues to accumulate. I had thought that I ought to enter judgment and leave the defendants to pursue their counterclaim, but on further reflection I am bound to give some weight to allegations such as damage due to leaks from the ceiling and leaks from drains which I cannot finally resolve on paper but which, for the reasons that I have already given, I consider to be shadowy.

25. In my judgment, this is a shadowy defence. I propose to reflect that view by only giving the defendants conditional leave to defend and directing them to pay into court the entire amount claimed in the amended statement of claim which is $190,940 within 42 days, failing which there must be judgment to the plaintiffs in this amount with interest which can be separately applied for, but which judgment will not be executed until after the trial of the counterclaim.

26. I shall now give directions as to the conduct of the claim and the counterclaim, which directions will stand for the counterclaim only in the event that the amount is not paid into court and the judgment is consequently entered on the claim.

27. So let me deal with the directions. The defendants will have to bring the claim into court within 42 days. Discovery by list, 14 days, inspection 7 days thereafter. Witness statements to be filed and exchanged 42 days after inspection and that the affirmations filed herein may stand as the witness statements with any supplemental statements as may be required. Adjourned for a pre-trial review to be applied for within 56 days, so you have to apply to have such a pre-trial review within that time.

28. Costs in the cause in these directions.

(Discussion re costs of Order 14 summons)

29. I think the appropriate order where I have expressed a strong view as to the merits of the defence here and put the defendant on terms is to say plaintiff's costs in the cause.