FUTURE DRAGON LTD v. FU LAM INVESTMENT COMPANY LTD

HCMP 401, 402 & 403/2023
(Heard together)

[2024] HKCFI 2720

HCMP 401/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 401 OF 2023

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AND

HCMP 402/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 402 OF 2023

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________________

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AND

HCMP 403/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 403 OF 2023

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(Heard together)

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D E C I S I O N

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1.  The plaintiffs in these 3 sets of proceedings are related and so are the defendants. Their disputes are identical in nature. The plaintiffs are the property management companies managing different portions of a shopping plaza and the defendants are the registered owners of some shops in the shopping plaza. In each of these proceedings, the plaintiff took out an Originating Summons to apply for an order that the shop premises of the defendant charged under a Memorandum of Charge be sold to defray outstanding management expenses under O.31 and O.88 of the Rules of High Court (“the RHC”).

2.  In each of these 3 sets of proceedings, the defendant took out a summons pursuant to O.28 r.8(1) of the RHC to apply for conversion of the proceedings into a writ action on the ground that there are serious factual disputes about the computation of the outstanding management expenses calling for a trial.

3.  Mr Deng appeared for all the plaintiffs and Mr Pang appeared for all the defendants at the hearing.

4.  The applications are in essence case management matters. For the purposes of these applications, it is not necessary to delve much into the historical background. The following account mostly taken from the skeleton submissions of Mr Deng and Mr Pang should, albeit very much simplified, suffice.

5.  These proceedings concern a commercial property known as Kingswood Richly Plaza located in Kingswood Villas, New Territories (“the Estate”). The Estate is divided into 3 different portions by the Sub-DMC and one of them is known as the Joylane Arcade. Pursuant to the Deed of Allocation and Grant registered in the Land Registry by Memorial No. YL771775 in respect of the Estate dated 28 July 1997 (“the DOAG”), the plaintiffs were appointed the Communal Areas Manager of the communal areas of the Joylane Arcade.

6.  The Joylane Arcade consists of, among other things, G/F of Portion B and 1/F of Portion B. The undivided shares of the Joylane Arcade are set out in the DOAG.

7.  The first floor of the Joylane Arcade known as Unit A was sub-divided by a deed poll and the Harajuku Zone is one of the sub-divided parts. The Harajuku Zone is governed by the Sub-Sub DMC-Hara.

8.  By the Deed Poll dated 30 September 2011, part of the Harajuku Zone was further sub-divided and the “New Attitude Square” came into being. Shops C are located within the New Attitude Square subject to the Sub-Sub-Sub DMC – Shop C.

9.  The defendants are the registered owners of several shops in the Joylane Arcade.

10.  The details of the parties and the shops of the defendants in these proceedings (taken from the 2^nd Affirmation of Ip Sze Wai) are set out in the table below:

Action No.	Property concerned	Plaintiff/Manager	Defendant /Owner
HCMP 401/2023	Shops A139-141 in part of Portion B on G/F of the Estate and Shops A168 and 193, A172, A189, A190, A191 and A192 in Portion B on G/F of the Estate (“401 Shops A”)	Future Dragon Limited (“FDL”)	Fu Lam Investment Company Limited
HCMP 402/2023	Shops C23 and C24 on 1/F of the Estate (“Shops C”)	Pacific Rising Limited (“PRL”)	Nanan Industries Limited
HCMP 403/2023	Shops A1, A2, A10, A11, A12, A13 and A42 in Portion B on G/F of the Estate (“403 Shops A”)	FDL	Fu Lam Finance Company Limited

11.  PRL, the plaintiff in HCMP 402/2023, is the first owner of the 1/F of the Estate and is appointed as the manager of the New Attitude Square covering Shops C.

12.  Jones Lang LaSalle Management (“JLL”) is the management agent of the respective managers in respect of various parts of the Joylane Arcade including the plaintiffs. JLL handles and supervises the building management of the Estate. One of its duties is to prepare three different budgets for (1) the Joylane Arcade, (2) the Harajuku Zone and the New Attitude Square (i.e. the remaining portion of Unit A on the first floor) and (3) another part on the ground floor of the Joylane Arcade known as the A91 Wet Market.

13.  Clause 12 of the DOAG stipulates the procedures and rules relating to the preparation and approval of the budgets for the management expenses of the communal areas of the Joylane Arcade (“Communal Areas Management Expenses”).

14.  Insofar as the budgets for the Joylane Arcade are concerned, under the DOAG, the plaintiffs, as the Communal Areas Managers, are required to prepare an annual budget for each financial year showing the estimated Communal Areas Management Expenses and the remuneration of the plaintiffs for the purpose of determining the contribution payable by the shop owners of the Joylane Arcade. Such annual budgets are to be prepared in consultation with the Owners’ Committee of the Joylane Arcade (“the JOC”).

15.  The draft annual budget once completed by the plaintiffs shall be open for inspection and comments by the shop owners of the Joylane Arcade. The plaintiffs shall post the draft annual budget at a prominent place in the communal areas (as defined in the DOAG) (“the JA Communal Areas”) for a period of 14 days. The plaintiffs shall also send a copy of the draft annual budget to the JOC for comment.

16.  After the end of the 14 days’ period, the plaintiffs shall prepare the annual budget (“the JOYA Budget”) specifying the proposed expenditure for that financial year and the contributions to the Communal Areas Management Expenses be made by the shop owners of the Joylane Arcade. The plaintiffs shall send a copy of the annual budget to the JOC and display a copy at a prominent place in the JA Communal Areas.

17.  Each shop owner of the Joylane Arcade shall be entitled to a copy of the annual budget upon payment of a reasonable charge. Each shop owner of the Joylane Arcade shall be deemed to have notice of the amount of contributions to the Communal Areas Management Expenses payable by him stated in the annual budget.

18.  It is drawn to my attention that the defendants all along had representatives in the JOC from 2015 to 2021. In some years, their representatives even assumed the positions as treasurer and secretary.

19.  On the other hand, the preparation of the budgets for the Harajuku Zone is governed by Clause 4 of Section VIII of Sub-Sub DMC-Hara.

20.  The annual budgets of the Harajuku Zone (“the HARA Budget”) shall include and cover the budgets of the New Attitude Square pursuant to Clause 2 of Section VIII of the Sub-Sub-Sub DMC – Shop C.

21.  Since February 2016, the defendants have refused to pay the management fees demanded by the plaintiffs. Instead, they have merely paid the amount they consider to be adequate in accordance with their own calculation.

22.  The plaintiffs then registered in the Land Registry the Memorandum of Charges against the defendants’ properties in December 2021 for the outstanding management fees. The defendants have done nothing to remove or discharge such Memorandum of Charges.

Relevant legal principles

23.  The relevant legal principles relating to this kind of applications are not in dispute. Both counsel refer to Industrial and Commercial Bank of China (Asia) Limited v Tse Ching [2022] 5 HKLRD 284. The relevant principles were explained by Chow JA at §28,

“Under Order 28, r 8(1) of the Rules of the High Court, a judge has a discretion to order any cause or matter begun by originating summons to be continued as if the cause or matter had been begun by writ if it appears to him that the proceedings should for any reason be so continued. The usual reason for invoking the power of the court under this rule is that there are genuine, substantial factual disputes between the parties that cannot be resolved on affidavit evidence alone. Even in such a situation, the judge is not bound to convert the proceedings into a writ action, because it may, depending on the circumstances (eg where the relevant factual dispute is a narrow one), be sufficient to direct the deponents or relevant deponents who have filed affidavits/affirmations on the disputed facts to attend court for cross-examination. There is no express limitation in Order 28, r 8 on the sort of reasons which a judge may regard as a sufficient reason for exercising his powers to convert an action begun by way of an originating summons into a writ action. Nevertheless, there must be some good or sound reason(s) before it would be justifiable for the judge to make such an order.”

Discussion

24.  Mr Pang advances three grounds to support the defendants’ applications in his skeleton submissions. They are:

(1)  Wrongful inclusion of two items in the JOYA Budget, namely, Item 7 “Maintenance for Lifts and Escalators” and Item 22 “Improvement works for upgrading washroom facilities” (“Wrongful Inclusion Issue”).

(2)  Failure to take into account rental income received from retail units on the 1/F footbridge (“Rental Income Issue”).

(3)  Unreasonable attribution and apportionment of management expenses in the budgets (“Unreasonable Attribution and Apportionment Issue”).

25.  I shall assess the merits of these issues in turn.

Wrongful Inclusion Issue

26.  At the hearing, Mr Pang makes oral submissions on this issue only.

27.  In the affirmation of Leung Kan Lam dated 2 January 2024 (§21-22), it is complained that the maintenance fees for lifts and escalators (Item 7) and the improvement works for upgrading washroom facilities (Item 22) should be borne by owners in other portions of the Estate and not the shop owners of the Joylane Arcade. The defendants believe that these two items should be excluded from the JOYA Budget.

28.  In the reply affirmation of Ip Sze Wai, the preparation and the adoption of the JOYA Budget is explained in detail. With reference to the plans annexed to the Sub-DMC, it is explained that there are indeed lifts, escalators and washrooms in the JA Communal Areas. There is no dispute that these facilities are communal in nature. There is no reason why their maintenance costs should not be included in the JOYA Budget and shared by the defendants.

29.  Having seen the evidence of the plaintiffs, Mr Pang at the hearing clarifies that the objection is not about the inclusion of Items 7 and 22. Instead, he complains about the allocation of such expenses. He submits, albeit without evidential basis, that the same contractors should provide such services to the entire Estate and charge a lump sum. There are lifts, escalators and washrooms outside the Joylane Arcade. He submits that there is no reason given for the allocation of such expenses to the Joylane Arcade and at least the creator of the JOYA Budget should be cross-examined and give an explanation for such allocations.

30.  In my view, Mr Pang is merely grasping at straws in advancing this new argument. He is not entitled to shift the goalposts. The alleged factual issue does not arise on the evidence filed by the parties and indeed there is no evidential basis for such an argument to be advanced.

Rental Income Issue

31.  Next, the defendants complain that the pedestrian bridge linking to the first floor of the Estate is managed by JLL and JLL should have received rental income from the 9 stalls sub-divided from the first floor pedestrian bridge since or about late 2011. Yet such rental income is not reflected in the relevant budgets.

32.  The short answer of the plaintiffs to this is that they have received no rental income from such stalls at all. Only a part of the pedestrian bridge is within the Joylane Arcade and it is owned by Richly Future International Limited. In other words, the pedestrian bridge does not form any part of the common area of the Joylane Arcade managed by the plaintiffs. This is evidenced by the Sub-Sub-Sub DMC – Shop C.

33.  The defendants are unable to adduce any contrary evidence. The complaint is wholly untenable and requires no cross-examination for its disposal.

Unreasonable Attribution and Apportionment Issue

34.  Lastly, the defendants complain about the huge differences between the budget for ground floor of the Joylane Arcade and the budget for the first floor of the Joylane Arcade. They say that there is no explanation given for the differences.

35.  The defendants set out such alleged differences in a table showing much larger expenditures were incurred for the ground floor of the Joylane Arcade.

36.  As pointed out by Mr Deng, this complaint is misleading. The JOYA Budget in fact covers both the ground floor and the first floor of the Joylane Arcade. There are no separate budgets for the ground floor and the first floor. The figures purportedly representing the expenditures of the ground floor actually are taken from the HARA Budget. The comparison is meaningless.

37.  There is simply no answer from the defence. I find no substances in this complaint in the circumstances.

Conclusion and order

38.  For the reasons given above, I am unable to agree that there are genuine factual disputes arising from the evidence filed by the parties which call for cross-examination. A trial with viva voce evidence is not necessary. The apportionment of management charges should be capable of being determined on affidavit evidence.

39.  The defendants have failed to convince this court that these proceedings should be continued as if they were begun by writ. None of the issues bears scrutiny. Accordingly, I dismiss all the three summonses.

40.  There is no reason why costs should not follow the event. I order on a nisi basis that each of the defendants do pay costs of and occasioned by the summons including all costs reserved to the respective plaintiffs, to be taxed if not agreed.

41.  Lastly, I thank Mr Deng and Mr Pang for their assistance in this matter.