THE INCORPORATED OWNERS OF TSUEN WAN GARDEN v. PRIME LIGHT LTD

HCA1516/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1516 OF 2003

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REASONS FOR JUDGMENT

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Background

1. The defendant was and still is the registered owner of the following units of Tsuen Wan Garden, namely :

(1) Shops Nos. 1, 6, 8, 9, 10, 11 and 19 on the upper ground floor; and

(2) the 1^st floor and the entrance and exit of the upper ground floor leading to the said 1^st floor;

(“the Property”)

2. The plaintiff is the incorporated owners (“IO”)of Tsuen Wan Garden having been duly registered on 26 October 1995.

3. Since then up to 31 January 1996 the plaintiff had retained one “Kanic” Property Limited as its building manager. 

4. Since 1 February 1996 the plaintiff retained one “Sky Pacific” Property Consultants Limited (“天怡”) as its building manager.

The claim

5. The plaintiff alleged that for the period from 1 February 1996 to 28 February 2003, the defendant should be liable to pay the management fee for the Property in the sum of $3,379,322.00.

6. The defendant during that period of time had admittedly paid $1,069,033.20.  Thus the plaintiff is now claiming the sum of $2,310,288.80, being the outstanding management fees for that period of time.

7. There is another claim for the defendant’s contribution to one WR2 works in the sum of $241,788.20.  This is however admitted by the defendant at the trial.

The dispute

8. The plaintiff’s claim is based on the Deed of Mutual Covenant (“DMC”) which is binding on the defendant as one of the owners. 

9. The defence alleged that the DMC should also be read together with a management agreement (“MA”) signed and dated on the same date of the DMC on 3 March 1981. 

10. The plaintiff submitted that the DMC and the MA were inconsistent and therefore the provisions in the MA should be void and unenforceable.  They relied on the judgment of Deputy Judge H.S. Lee in the case of the same plaintiff, i.e. The Incorporated Owners of Tsuen Wan Garden v. Sky Pacific Property Consultant Limited (i.e. the same manger herein) in LDBM 102/2000.  The case was decided on 2 August 2000.  Deputy Judge Lee decided that :

“21.   The DMC made [no] reference to the MA.  It does not operate under the constraint of the MA.  The MA, by its wordings, operates under the provisions of the DMC.

22. The MA is a contract between the developer, the owners and the manager.  It takes effect with reference to the DMC.

23. Under the MA, the manager is to enforce the DMC and the MA.  The owners are to pay the management charges primarily with reference to Clause 5 of the DMC.  All the relevant clauses of the MA are subject to the DMC.

24. It is clear that DMC should prevail over the MA.”

11. It should be noted that in the aforesaid case before Deputy Judge Lee as the presiding officer in the Lands Tribunal, the IO was represented by counsel whereas the manager respondent did not even appear.  The tribunal was only assisted by one side. 

12. Further, it is incorrect to say that “the DMC made no reference to the MA” which shall be more apparent later on herein.  It was not surprising that in a latter case decided on 24 October 2002 by Deputy Judge Wong in LDBM 472, 473, 558 and 559/2001 in荃灣花園業主立案法團訴梁振鴻及李瑞群, Deputy Judge Wong said LDBM 102/2000 was a deliberate arrangement of the IO and Sky Pacific to achieve the desired result.  This undoubtedly, as the defence herein submitted, would affect the rights conferred on the defendant herein by the MA but the IO did not join the defendant as a party thereto.  Deputy Judge Wong said as follows :

「10.  LDBM102/2000一案其實是申請人與天怡刻意案排，要求土地審裁處頒令澄清管理費應否根據公契，還是管理合約計算。由於該案中的法官已經裁決了該屋苑的管理費應該根據公契計算，而本席亦同意該裁決，因此本席不再在此詳述管理費的計算方法，但本席重申管理費必須根據公契計算攤分。」

13. It should also be noted that the decision of Deputy Judge Wong was not concerned with the relationship between the DMC and the MA and in particular how the two documents could be relied on by the plaintiff or the defendant in the calculation of the management fees payable.

Provisions of the DMC and the MA

14. Before analysing the submissions of the parties, I shall state the various provisions of the DMC and the MA in order to indicate the differences between the parties herein.  The first assignment, the DMC, and the MA were all executed on the same date i.e. 3 March 1981. 

15. In the assignment to the defendant in respect of the Property dated 5 August 1988, clause 1 provides that :

“… SUBJECT to and with the benefit of the Deed of Mutual Covenant and Management Agreement registered in the District Land Office Tsuen Wan by Memorial Nos. … ”

16. It is not true to say “the DMC made no reference to the MA.”  The DMC provides that :

(a)  clause (k) of the Preamble—

“Simultaneously with the execution of the said Deed of Assignment the parties hereto also entered into with the Company a Management Agreement in the form approved by the Secretary for the New Territories.”

(b) clause 8—

“The Management of TSUEN WAN GARDEN shall be carried out by the Manager in accordance with the provisions of the said Management Agreement and each and every owner of TSUEN WAN GARDEN thereof shall be bound by and observe and perform the provisions of the said Management Agreement.”

(c) clause 12(a)—

“It is HEREBY DECLARED that :–

(a) The covenants provisions and restrictions in this Deed as well as of the said Management Agreement shall be binding on the parties hereto and their respective executors administrators successors in title and assigns and the benefit and burden thereof shall be annexed to every undivided part or share of and in the said Land and TSUEN WAN GARDEN.  The Law of Property (Enforcement of Covenants) Ordinance and any statutory amendment modification or re-enactment thereof for the time being in force shall apply to these presents.”

17. In short the management of Tsuen Wan Garden is governed by the DMC and the MA.  The only question is whether the DMC and the MA are inconsistent with each other (as submitted by the plaintiff) or the MA only qualifies the DMC (as submitted by the defendant).

18. In this case the defendant relies on two clauses of the MA in order to minimise its liability for management fees.  They are :

(i)  clause 3—

“The Owners and each of them shall :–

…

(c) Pay to the Manager in advance on the first day of each calendar month his due proportion of the costs charges and expenses to well and sufficiently manage repair and maintain TSUEN WAN GARDEN as referred to in Clause 5 of the said Deed of Mutual Covenant such due proportion to be as follows :–

OWNERS PLOT ‘A’	COSTS, CHARGES AND EXPENSES
Owners of Shop units on the Lower Ground Floor and the Upper Ground Floor, Entrance and Exit on the Upper Ground Floor	HK$65.00 per calendar month per undivided part or share of and in the said Land registered in the Owners’ name
Owners of Commercial units on 1st Floor	HK$11.00 per calendar month per undivided part or share of and in the said Land registered in the Owners’ name

…

  Provided That each such sum may be increased at the option of the Manager the first of such increase may not be made earlier than 12 months after the date of the Occupation Permit for TSUEN WAN GARDEN and any subsequent increase may not be made earlier than 12 months after any of such last increase And Provided Further that each such increase shall not be greater in percentage than the percentage which the total deficit suffered by the Manager during the year immediately before such increase bears to the total of all such sums collected by the Manager during that year; and

(d) Pay to the Manager in advance on the first day of each calendar month a fee of HK$3.00 per calendar month per undivided part or share of and in the said Land registered in his name Provided That such fee may be increased at the option of the Manager on the same days and in the same proportion and manner as provided in Clause 3(c) above.

PROVIDED ALWAYS and it is hereby EXPRESSLY AGREED and DECLARED that the Owner for the time being of the COMMUNAL AREAS shall not be required to pay or deposit any money fees or charges whatsoever to or with the Manager AND PROVIDED FURTHER that as long as the First Floor of Podium ‘A’ referred to in the said Deed of Mutual Covenant continues to be used and enjoyed as one single unit the owner for the time being thereof shall also not be required to pay or deposit to or with the Manager any money fee or charges for the maintenance and management of the Common Parts of Podium ‘A’ but is nevertheless required to pay and deposit the money fee or charges for the maintenance and management of the COMMUNAL AREAS.”

(ii)  clause 4—

“It is HEREBY DECLARED that :–

(a) The Owner whose unit is unoccupied for one or more complete calendar months shall nevertheless be required to pay the whole of the Management Fee payable under Clause 3(d) above and one half of the monthly payments payable under Clause 3(c) above during the period the unit is not occupied;

…”

19. In short the defence of the defendant raised two points namely :

(1) the 1^st floor and together with the entrance and the exit on the upper ground floor which were leading to the 1^st floor unit had always been owned and occupied by the defendant as one single unit and according to the proviso to clause 3 of the MA, the owner is only required to pay and deposit the money fee or charges for the maintenance and management of the communal areas but not for the common area; and

(2) under clause 4(a) whenever a unit is unoccupied by one or more complete calendar month, the owner is only required to pay the whole of the management fee under clause 3(d), i.e. $3.00 per calendar month per undivided part or share and subsequent increase thereafter but only one half of the monthly payment under clause 3(c), i.e. $65.00 per calendar month per undivided part or share and subsequent for the shop owner of the entrance and exit on the upper ground floor or $11.00 per calendar month per undivided part or share for the commercial unit on the 1^st floor.

20. It is agreed by both parties herein that there were certain periods when the shops and the commercial units on the 1^st floor had not been occupied.

21. The plaintiff submitted that the MA is inconsistent with the DMC and therefore in the calculation of the total maintenance fee payable by the defendant during the aforesaid relevant period, it had ignored these two provisions in the MA.

Construction of the DMC and the MA

22. Apparently both parties agreed as to the principles applicable to the construction of the DMC and the MA.  In this respect I accept the defendant’s submission that the DMC and the MA intertwined with each other with express cross-referencing.  Thus the parties to these two deeds which bind all owners of the building, intended the mechanism of management fees contribution should be governed by both the DMC and the MA. 

23. The following are the cross-referencing and operation of the two deeds as submitted by the defendant, namely :

(a)  DMC clause 5 refers to the DMC Third Schedule for management fees contribution.  Column 1 of Part I of the Third Schedule lists out the “costs, charges and expenses for maintaining and insuring” different parts of Tsuen Wan Garden.  Part II of the Third Schedule in the DMC expressly states that “the costs, charges and expenses referred to in clause 5 of [the DMC] and payable under the said [MA] are those set out therein, thus linking clause 5 of the Third Schedule of the DMC with the MA.

(b) In turn, as aforesaid, clause 4(a) of the MA made reference to clauses 3(c) and 3(d) which in turn made express reference to clause 5 of the DMC.

(c) In other words the DMC clause 5 and its Third Schedule, MA clause 4(a) and MA clauses 3(c) and 3(d) are tied together.

24. I also accept the defendant’s submission in respect of the principles that are applicable to the construction of clauses 4(a) and 3(c) of the DMC.

25. Applying those principles to the interpretation of the DMC and the MA, clauses 3(c), 3(d) and 4(a) of the MA are consistent with clause 5 and the Third Schedule of the DMC.  The former only qualifies the latter.  They are therefore reconcilable and the latter MA did not “destroy” the DMC at all. 

26. In other words as submitted by the defendant, clause 5 is a general clause listing out the specific provisions which together form the mechanism of management fees contribution among the owners.  It expressly provides as follows :

(i)  The question of “who should pay” is specified in Column II, Part I, Third Schedule.

(ii)  The question of the “due proportion” to pay, i.e. the apportionment, is specified in Column III, Part I, Third Schedule.

(iii)    The question of “what to pay”, i.e. what count as the “costs and expenditure”, is described in Column I, Part I, Third Schedule; and set out in Part II therein.

27. Accordingly Part II of the Third Schedule is the provision setting out what costs and expenses any owner should be liable to pay.  In doing so Part II clause 1 refers to such costs and expenses as those payable under clause 5 of the DMC and the MA.  In turn, clause 4(a) of the MA provides that an owner would be entitled to the deduction if the condition therein (i.e. the unit being unoccupied for one or more complete calendar months) is satisfied.

28. The deduction specified in clause 4(a) of the MA is not directly mentioned in clause 5 of the DMC but this does not support the argument that the two are inconsistent.  It is only that clause 5 of the DMC and then Part II of the Third Schedule thereof made the aforesaid provisions for payment of management fee, but finally clause 4(a) of the MA condensed into particularity.  In the end clause 5 of the DMC can be read together with clause 4(a) of the MA in that the latter provides a condition, upon the satisfaction of which the general obligation to pay management fee is qualified, rather than abolished.

29. The plaintiff in its reply just pleaded that the MA is inconsistent with the DMC and it is void and unenforceable.  No particulars were given thereunder.  In the final submissions of the plaintiff, it just stated that the DMC should override the effect of the MA.  They relied heavily on the decision of Deputy Judge Lee in LDBM 102/2000 as stated hereinbefore.  However in a subsequent decision of Deputy Judge Wong in 2002 as aforesaid it was stated that that case was a deliberate arrangement (刻意安排) between the incorporated owners and the manager.  There was no adversarial argument to the contrary before Deputy Judge Lee as the manager Sky Pacific did not even appear.  The evidence given in the case before me gave me impression that the two parties were actually acting in concert to obtain a ruling from the Lands Tribunal to the effect that the manager could ignore the MA and just refer to the DMC. 

30. Although Deputy Judge Wong in his judgment on 24 October 2002 also decided that the manager should calculate the management fees contribution according to the DMC and expressed his agreement with the judgment of Deputy Judge Lee, this judgment has not dealt with the effect of the MA in the calculation of the management fees.  For the aforesaid reason I consider that the DMC should be read together with the MA in the calculation of the management fees.

31. In the end the plaintiff’s calculation of the defendant’s liability for management fees cannot succeed when the plaintiff has ignored the effect of the MA. 

32. It has been conceded by the defendant that the dismissal of the IO’s claim herein for management fees does not mean that the IO is forbidden from suing the defendant in the future for whatever management fees the defendant is liable as long as the calculations are in accordance with the DMC and the MA, and the IO has complied with the relevant provisions in the Building Management Ordinance, Cap. 344.

Further consideration

33. In the course of the trial the defendant had prepared a table (“A”) of management fees by taking into account the defence of the 1^st floor used and enjoyed as one single unit.  This table A alone shows that the defendant should not be required to pay any management fees for the common parts of Podium A.  Those figures come up to $1,224,558.00.  This is a little bit more than the amount actually admittedly paid by the defendant in the sum of $1,069,033.20.  However the plaintiff had not made any distinction between the respective portions of the management fees for the common parts of Podium A and the communal area under clause 3 of the MA.  

34. The plaintiff’s counsel in her last reply submission pointed to a column in a plaintiff’s document that the plaintiff has a column for “公眾地方”.  Sometimes she called it common parts and sometimes she called it communal areas.  There was no evidence given to explain this column.  I cannot at the eleventh hour accept the contention that those various figures listed in that column would be the communal areas for which the plaintiff should be liable but not for the common parts of Podium A.  In any event there was no alternative claim of the plaintiff clearly stating the amount to be payable by the defendant if the two main defences of the defendant (i.e. the single unit of the 1^st floor and the unoccupied periods of various units) would have to be taken into account. 

35. Further apart from the aforesaid Table A there was a Table B made by the defendant taking only into the account of those units being unoccupied for more than one complete calendar month pursuant to clause 4(a) of the MA.  The total amount calculated was $2,822,292.00 which is short of the total amount calculated by the plaintiff in its sum of $3,379,322.00. 

36. By taking Tables A and B together into account, the defendant would not be liable to any outstanding management fee at all.

37. In the end I refused at the eleventh hour to recalculate the actual amount payable by the defendant if these two defences were taken into consideration. 

38. This should be the end of the matter before me.  But in deference to the efforts of counsel for the defence in dealing with the other defences, I shall consider them hereinbelow.

Non-compliance with the BMO in fixing the amount of management fees

39. The defence alleged that the manager and the IO had not complied with the provisions in the Building Management Ordinance (“BMO”) in that no budget were prepared, passed by the management committee, nor posted up for the comments of the owners. 

40. I shall start with Mr Lai’s witness statement.  In paragraph 8 thereof he said that :

“… A copy of the budgets for the years from 1996 to 2003 is [sic] annexed to as ‘Annexure II’ to show the budgets of Tsuen Wan Garden.” 

There were 81 pages of documents produced as in B/10-90.  The impression created by the aforesaid contention is that those “budgets” exhibited thereto were all created contemporaneously. 

41. However under cross-examination Mr Lai admitted that some of those documents were not created contemporaneously.  They are : B/10, B/12-22, B/23, B/25-35, B/36, B/38-48, B/49, B/51-61, B/62-63, and B/64-74.  In fact there are a number of them admittedly not part and parcel of the contemporaneous budget.

42. Further the same paragraph 8 is to support the allegation in paragraph 6 of the Re-Amended Statement of Claim in which the IO pleaded that :

“During the period from 1^st February 1996 to 28^th February 2003, the Plaintiff was retaining Sky Pacific Property Consultants Limited as its building manager to manager the Estate.  Since 1^st February 1996 the Plaintiff through Sky Pacific Property Consultants Limited had prepared the annual budgets for determination of the amount to be contributed by the Defendant under Sections 20, 21 and 22 of the Ordinance as the management fees to be payable by the owners of the Estate.  The amount of contribution as the management fees to be paid by the Defendant to the Plaintiff was fixed by the Management Committee of the Plaintiff in accordance with the provisions of the Deed.”

43. However it was admitted by Mr Lai under cross-examination that :

(a)  the calculation and apportionment of the budgets he prepared before 2002 were not in accordance with the DMC.  More particularly it was before August 2002 when the judgment of Deputy Judge Wong was delivered as aforesaid; and

(b) the collection of management fees before 2002 was not in accordance with the DMC.

44. In fact Mr Lai also admitted under cross-examination that paragraph 6 of the Re-Amended Statement of Claim is incorrect.  No notice before the year 2000 was produced.

45. Eventually the plaintiff in its closing submission conceded that Mr Lai admitted that when Sky Pacific recalculated the management fee in about 2000/2001, he used the wrong total undivided shares as the basis to apportion the management fees to the owners.  The aforesaid admission of Mr Lai should be read together with his admission in paragraph 14 of his supplemental witness statement that the purported budget for the year 2000 had not been approved in any meeting of the management committee. 

46. The defence also pointed out that the plaintiff had in the past used various amount of purported outstanding management fees and they were :

(1)  the amount when the original Statement of Claim was served in the year 2003 in the amount of $3,279,935.20;

(2)  the different amounts when Mr Ku Lap Fun for the plaintiff made an affirmation in support of an Order 14 summary judgment application thereafter;

(3)  the red amendment in December 2005 when the sum was $3,379,322.00.

(4) The plaintiff in its confusing state made a mistake as to the total amount of the management fees actually paid by the defendant during those eight years and eventually in the green amendment the outstanding management fee was $2,378,613.72.  This amount was further reduced at the opening of the trial to $2,311,288.80 as aforesaid. 

47. The green amendment in December 2004 was a result of the decision of the Lands Tribunal by Presiding Officer Lo in LDBM 16/2004 on 9 September 2004.  Mr Lai then said the amounts shown in the Re-amended Statement of Claim is the correct fees payable by the defendant to the plaintiff for the period from February 1996 to February 2003 (i.e. “those eight relevant years”).

48. However in the plaintiff’s supplemental opening, it was said that the calculations of management fees for the years 2002 and 2003 were based on the purported budgets (i.e. at B/76 and B/78).  The plaintiff’s case is that those purported budgets are contemporaneous.  However since the concession in the plaintiff’s closing submission, those purported budgets could not have been contemporaneous. 

49. It is also noted that the purported budgets for the year 2002 and 2003 were annexed immediately after the notices dated 28 January 2002 and 25 February2003 respectively (at B/75 and B/77).  I agree with the defendant’s submission that the impression sought to be created must be that these two purported budgets were the one posted with the notices.  However as a result of the previous concession in the plaintiff’s closing submissions, any suggestion that those were purported budgets for the year 2002 and 2003 were contemporaneous must be wrong.  

50. Further Mr Ku Lap Fun in his aforesaid affirmation filed on 28 October 2003 stated a different amount claimed by the plaintiff for the period of four years from 2000 to 2003.  They are different from the amount now claimed by the plaintiff in their Re-amended Statement of Claim for the same period.  This would support and confirm the defendant’s case that these purported budgets could not be contemporaneous.

51. Further even up to now the plaintiff failed to disclose the contemporaneous budgets for the years 2002 and 2003.  It would render the allegations of Mr Lai in his supplemental witness statement that he had posted the purported budget for the year 2000 at the lobby of the Tsuen Wan Garden and that he had submitted the purported budget for consideration by the management committee in its meeting on 17 March to be incredible.  Whatever budgets were being referred to they could not be those appearing in B/76 and B/78. 

52. For the aforesaid reasons I accept the defendant’s submission that those budgets at B/62-63 purportedly for the year 2000, B/189 purportedly for the year 2001, B/190 purportedly for the year 2002 and B/191 purportedly for the year 2003 were not the contemporaneous budgets for those four years and the original budgets for those four years, if in existence at all, have not been disclosed by the plaintiff even up to this day. 

53. Consequently the irresistible inference is that the contemporaneous budgets for those four years have not been posted up by the IO in accordance with the provisions of the Seventh Schedule of the BMO.

54. Further, whilst the IO and/or Sky Pacific had determined the amount payable by the owners of different parts of Tsuen Wan Garden in accordance only with the DMC, the contemporaneous budgets, if any, must be invalid. 

55. Furthermore there is a fundamental difference in format between the purported budgets before and after the year 2000.  Those budgets before 2000 were not apportioned between owners of different parts of Tsuen Wan Garden whereas the purported budgets after 2000 were so apportioned.  

56. In the end the claim of the plaintiff for outstanding management fee should also be dismissed on this alternative ground of non-compliance with the provisions of the BMO. 

Conclusion

57. For the aforesaid reasons I have dismissed the plaintiff’s claim for outstanding management fees from the defendant. 

58. I accept the plaintiff’s claim that the defendant is liable to pay its WR2 share of contribution in the sum of $241,778.20 upon the defendant’s admission and judgment is therefore entered for the plaintiff in this amount together with interest at 8% from the date of the Writ to the date of judgment. 

59. In respect of costs, parties revealed to me there and then that there was a payment into court in the sum of $910,000.00.  The defendant therefore asked for costs of the action and there was no resistance from the plaintiff’s counsel.  Thus there is an order of costs of the action to the defendant including any costs reserved to be taxed if not agreed.