HOLIDAY RESORTS (MANAGEMENT) CO. LTD. v. CHAN MEI LING

DCCJ 20079/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 20079 OF 2001

(Consolidated by the Order of Acting Registrar S. Kwang of District Court dated 6th December, 2001)

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REASONS  FOR  JUDGMENT

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1. These are applications for summary judgment heard before me on 14 June 2002. After hearing the submission, I granted: (i) interlocutory judgment for the Plaintiff for part of the claim relating to expenses incurred by the Plaintiff on or before 9 December 1999; and (ii) unconditional leave to the Defendants to defend the remaining part of the claim in respect of the ferry service charges incurred after the said date. I now give my reasons in writing.

2. There are altogether four actions before me, two of which are consolidated actions, and they all have a bitter history. The Plaintiff is the former management company of an estate known as Sea Ranch ("the Estate"), and each of the Defendants of these actions are the owners of various units in the Estate. The Estate was in the remote part of the Lantau Island, and the Plaintiff also managed a ferry service for the residents in the Estate. According to the Plaintiff, the Defendants had failed to pay monthly management fees and ferry service charges, and so the former brought the present actions against 4 owners of 6 flats in the Estate. The Plaintiff also claims for the collection charges, interest and costs of registering a memorandum of charge arising out of their failure to make the above payment.

3. The parties concerned have already been involved in a number of legal actions, and there are still some more pending at the moment. Deputy Judge Muttrie had already outlined the history of the dispute between the parties in his judgment in Holidays Resorts (Managemnt) Co. Ltd. v The Incorporated Owners of the Sea Ranch & Ors. HCA No. 4978, 17643, 20857 of 1998 and 9502 and 9516 of 2000 (unreported, decision of Deputy Judge Muttrie on 18 May 2001), and I do not want to repeat the same here.

4. For the present purpose, the following background information is relevant. By virtue of the provisions of the Deed of Mutual Covenants of the Estate ("the DMC"), the Plaintiff had been the management company of the Estate since the date of its completion in or about 1979. Since then, there had been a series of disputes between the Plaintiff and the owners. In August 1999, the Incorporated Owners of Sea Ranch ("the Incorporated Owners") passed a resolution terminating the Plaintiff's appointment as the management company of the Estate. The Incorporated Owners then served a 3 months' notice on the Plaintiff, terminating the latter's appointment on 10 December 1999 ("the Termination Date").

5. After the serving of the said notice, the Plaintiff's holding company, Holidays Resorts (H.K.) Ltd, commenced an action in the High Court, High Court Action No. 19084 of 1999, against the Incorporated Owners and the members of its management committee, in which it sought a declaration that the resolution mentioned in the last paragraph was invalid. The action was defended and is still pending at the moment. For the purpose of the present applications, I have to put the Defendants' case at the highest and treat the termination as a lawful one.

6. In another High Court action, the one that was mentioned in paragraph 3 above, the Plaintiff claimed against a number of owners of the Estate, including the Defendants in the present actions, for, inter alia, outstanding management expenses incurred at an earlier period. Deputy Judge Muttrie, after a trial of 5 days, found that the defendants therein did owe the Plaintiff the management fees as claimed, and judgment was therefore granted in favour of the Plaintiff. During the trial, the defendants had also issued a summons to dismiss the Plaintiff's claim. As the appointment of the Plaintiff as the management company had been terminated on 10 December 1999, the defendants argued that the Plaintiff had already ceased to be agent of the owners of the Estate, and so it no longer had any locus standi to bring or to continue the actions against the defendants for the management expenses. In his ruling, the learned judge held that although the Plaintiff ceased to be a party to the DMC, it nevertheless could maintain the actions in its own right for the expenses incurred, and he therefore dismissed the application and allowed the Plaintiff to amend its pleadings to bring the actions in its own right. In view of such ruling, the Defendants are not challenging the Plaintiff's locus standi to sue in the present applications.

7. The Plaintiff's primary claim consists of the arrears of management expenses and ferry service charges. In the hearing, Mr. Mcleish for the Defendants concedes that the Plaintiff is entitled to claim for such expenses incurred before the Termination Date. However, he argues that the Defendants should be given the opportunity to obtain all the vouchers, invoices and receipts for the management expenses account, and the Defendant is entitled not just to accept the accuracy of the audited financial statements without the production of all the supporting documents. Indeed, the Defendant had made an application for discovery of the documents prior to the O. 14 applications, but the master adjourned the application pending the final determination of the O. 14 applications. Both parties in fact accept that this is a legitimate request, and so the proper order for the court to make is to enter interlocutory judgment for all the expenses incurred prior to the Termination Date, with damages to be assessed later. I therefore so ordered. The wordings of this part of the order have indeed been drafted and agreed by both parties.

8. The Plaintiff also waives the claim for any management expenses for the period after the Termination Date.

9. The main dispute between the parties now relates to the claim for ferry service charges after the Termination Date. The Plaintiff had made a contract with a third party to provide ferry services to the residents of the Estate for a period of 3 years from 1 March 1998 to 28 February 2001 ("the Ferry Service Contract"). The contract did not provide for any early termination at the option of the Plaintiff, and hence, after the Plaintiff's termination as the management company of the Estate, the Plaintiff was bound to pay for the minimum ferry services provided by the contractor, and the Plaintiff sought to recover the same from the Defendants pursuant to the indemnity clause in the DMC. It is also common ground that: (i) the Plaintiff had not sought the approval of the Incorporated Owners before the making of the Ferry Service Contract; and (ii) the new management company replacing the Plaintiff did provide the ferry services to the residents after the Termination Date.

10. In opposition to the Plaintiff's claim, the Defendants argue that the agreement to provide ferry services was part and parcel of the management agreement under the DMC, and hence, as the Plaintiff's appointment as the management company was terminated, the Plaintiff had no right to run any services after the Termination Date and to recover the costs thereof from the Defendants. Further, the Plaintiff, as the management company, had a duty to protect the owners' interest by insisting to have a right to terminate the ferry services with 3 months' notice, which is the same period for the giving of a notice to terminate the contract with the management company under the Seventh Schedule of the Building Management Ordinance, Cap. 344. As the Plaintiff was in breach of its duty in this regard, the Plaintiff should not be allowed to recover the costs of the ferry services after the Termination Date.

11. In reply to the Defendants' argument, Mr. Lau for the Plaintiff very sensibly concedes that there was a duty on the part of the Plaintiff to negotiate for a reasonable ferry service contract for the owners. However, at the time of the making of the Ferry Service Contract in 1998, there was nothing to indicate that the management agreement with the owners would be terminated in the near future. Further, 3 years was not a long period of time, and so the Ferry Service Contract was a reasonable contract. Further, Mr. Lau maintains that the Incorporated Owners had no right to terminate the agreement contained in the DMC for the provision of ferry services by the Plaintiff, which was separate from the management agreement itself.

12. However, in my judgment, Mr. Lau's argument cannot be right. Firstly, assuming that it was a separate agreement to provide the ferry services under the DMC, then such agreement cannot be said to be covenants "touching upon" the land. In such circumstances, such kind of covenants did not run with the land and the Plaintiff cannot enforce the same against any person other than the original party of the DMC. That would in fact put the Plaintiff in a very awkward position. In my view, the agreement on the part of the Plaintiff to provide the ferry services is arguably part and parcel of the management agreement under the DMC. Hence, the Plaintiff's appointment as the management company and provider of the ferry services were both terminated on the Termination Date, and the Plaintiff therefore has no right to charge anything for the management services, including the provision of the ferry services, after such date.

13. Furthermore, in my judgment, as the Ferry Service Contract did not provide for any option of early termination of the services by the Plaintiff or the Incorporated Owners, it is quite arguable that such contract was not a reasonable one. In such circumstances, the Plaintiff was in breach of his duty. As I see it, whether the Ferry Service Contract was a reasonable one or whether the Plaintiff had discharged its duty in negotiating for a reasonable contract is something which can be decided by me at this stage without a proper trial. In this regard, I am of the view that the Defendants had already discharged their burden of raising an arguable defence to the claim for ferry service charges after the Termination Date, and unconditional leave to defend should therefore be given.

14. Although I granted interlocutory judgment in favour of the Plaintiff for part of the claim, I am of the view that the proper order for costs should be costs be reserved. Apart from the possibility of payment made into court, it is also possible that the Plaintiff may only obtain nominal damages after the assessment. By reserving the question of costs to be decided at a later stage, the judge or the master hearing the assessment would have greater flexibility to decide on such issue.

15. These are the reasons I give in relation to the Plaintiff's application for summary judgment. However, I would like to repeat the observation of Rogers, VP in paragraph 16 of the judgment in Holake (Hong Kong) Limited v Holiday Resorts (Management) Co. Ltd. CACV 410/2001 (unreported, decision of Rogers, VP and Le Pichon JA on 19 July 2001). These never-ending litigations can be of no benefit to anybody except the lawyers, and I hope that the parties can come to some senses and resolve the remaining differences between themselves without the need of further litigation.