HUGE DRAGON CORPORATION LTD v. THE INCORPORATED OWNERS OF LUNG MUN OASIS

HCA 524/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 524 OF 2010

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D E C I S I O N

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Application

1.  This is an application by the Plaintiff for summary judgment regarding part of its claim.

Background

2.  Lun Mun Oasis (龍門居) (“the Estate”) is a large estate in Tuen Mun, New Territories.  The Estate comprises of 16 residential blocks, a commercial development (consisting of shops, supermarket, wet market and kindergarten) as well as a car parking building.

3.  The Plaintiff acquired 16 units in the wet market of the Estate between 2005 and 2007.

“ (i) October 6, 2005 for M20, 21, 27, 57, 65 and 19

(ii) October 31, 2005 for M36

(iii) November 4, 2005 for M15, 16 and 17

(iv) November 10, 2005 for M52

(v) March 31, 2006 for M18

(vi) April 12, 2006 for M38 and 51

(vii) November 15, 2007 for M59 and 62.”

(Amended Statement of Claim dated 23 December 2011)

4.  The Defendant was incorporated in March 2001 and is the Owners Corporation of the Estate at all material times.

5.  On 15 April 2010, the Plaintiff commenced the present proceedings against the Defendant.  By the Amended Statement of Claim dated 23 December 2011, it complained that the management fees for the wet market units had been wrongly calculated and overpaid because, inter alia, that:

(a)       expenditure of the commercial development was incorrectly included in the wet market budget, and/or

(b)       they were not levied according to the relevant provisions of the Deed of Mutual Covenants (“DMCs”) . Instead of applying the “ratio approach”, the Defendant has been wrongfully using the “fixed rate approach”.

6.  The Defendant contested the proceedings.

7.  On 20 April 2012, the Plaintiff took out the present application seeking summary judgment on the complaint as per paragraph 5(b) above.

8.  Parties appeared before me on 27 July 2012 for the substantive argument.  Mr C Y Li, SC acted for the Plaintiff and the Defendant was represented by Mr K Chan of Counsel.  Having heard from them, I reserved my decision to be handed down and do so now.

Decision and Reasons

9.  Upon consideration of all the evidence authorities and submissions before me, I have decided to grant unconditional leave for the Defendant to defend for the claim in dispute before me.  My reasons appear in below.

10.  First, I remind myself of the legal principles relating to summary judgment. For the present purpose, it suffices to recap that the burden lies on the defendant to show triable issue or some other reason for a trial. The court asks 2 questions. Is what the defendant says believable? Even so, does it amount to an arguable defence in law?

11.  Second, I also look at the relevant pleadings. Paragraphs 29A of the Amended Statement of Claim dated 23 December 2011 herein states the followings.

“29A. (a) Without prejudice to the matters aforesaid, even if which is denied, the Management Budget does not suffer from the problems identified in paragraphs 20(a), (b) and (d) above, the Plaintiff says that the Defendant has acted in breach of clauses 7(1)(a) and (c) of Sub-Section D of Section VI of the Principal Deed, Third Schedule of the Sub-Deed, clause 4(b) and Column (3) of Second Schedule of the Sub-Sub-Deed as mentioned above by not having the contribution of the owners of the Commercial Units of the Wet Market towards the Management Expenses under the Commercial Management Budget (covering Estate Management Expenses to be contributed by the owners of the Commercial Units) to be determined by way of apportionment based on the Management Shares but instead has since 1998 and if not since 2005 fixed the sum to be HK$23.82 per Management Share as mentioned in paragraph 18 above.

Particulars of breach

(i) With reference to the aforesaid provisions of the Principal Deed, the Sub-Deed and Sub-Sub-Deed, the Estate Management Expenses contributed by the owners of the Commercial Units to the Estate Management Budget based on the Management Shares as allocated to the Commercial Units and the Estate should be in the ratio or proportion of 4,219:108,682.

(ii) Also with reference to the aforesaid provisions of the Principal Deed, the Sub-Deed, the Sub-Sub-Deed, the Management Expenses contributed by the owners of the Commercial Units of the Wet Market to the Commercial Management Budget based on the Management Shares as allocated to the Commercial Units and the Wet Markets should be in the ratio or proportion of 1,001:4219.

(iii) On the aforesaid apportionment for contribution by the owners of the Commercial Units of the Wet Market towards the Management Expenses under the Commercial Management Budget (covering Estate Management Expenses to be contributed by the owners of the Commercial Units), it had been confirmed in a letter dated 8^th July 2009 from Synergis to the Plaintiff that “each management share possesses by the Commercial owners had to make HK$23.82 contribution to the Commercial portion according to the year 1998 Budget and this figure has not been altered since then. Hence, owners of the Wet Market portion have to contribute HK$23,843.82 (HK$23.82 x 1,001) to the Commercial portion monthly”.

(iv)      ……”

12.  The Defendant pleaded in its Amended Defence dated 15 February 2012.

“ 29. Paragraph 29A and all its sub-paragraphs of the Amended Statement of Claim are denied and the Defendant avers:

a.) at all material times that the contribution of the owners of the Commercial Units of Wet Market towards the Management Expenses is apportioned on the basis of the number of Management Shares allocated to each Wet Market Commercial Unit.

b.) It is denied that the Defendant has breached any provisions of the DMCs in the making of the Wet Market budget or wrongly calculated the contribution of the owners of Commercial Units to the Management Expenses of the Commercial Development.

c.) It is denied that the Defendant has overcharged the owners of the Commercial Units of the Wet Market, including the Plaintiff, as alleged or at all.

d.) The Defendant avers that it has been complying with the BMO in preparing the budget of the Wet Market in particular the Schedule 7 of the Ordinance.

  30. ……”

13.  Third, at the hearing, Mr. Chan told me to consider 3 issues.

(a)  Did the Defendant have or arguably have the discretion in deciding the management fee of the wet market units?

(b) Did the Defendant reasonably or arguably reasonably exercise its discretion in the circumstances?

(c)  (Even if the Plaintiff was entitled to the partial judgment sought) Should the Court grant the order sought by the Plaintiff at the present stage?         

14.  Upon consideration, I rule against the Defendant in the above three issues.

(a)  Both Counsel spent quite some time before me arguing various provisions under the DMCs as to whether they would allow the Defendant discretion to levy the management fees for the Wet Market.

(i) DMC: Section VI B Powers and Duties of Manager: paragraph 1.(a)

“B. Powers and Duties of Manager

1.(a)     The Manager shall manage the Estate save and except the Government Accommodation in a proper manner and in accordance with the provisions of this Deed and any Sub-Deed and, except as otherwise herein expressly provided, the Manager shall be responsible for and shall have full and unrestricted authority to do all such acts and things as may be necessary or requisite for the proper management of the Estate.”

(ii) DMC: Section VI D Management and Other: Expenses: paragraph 9

“9. In case where this is any doubt as to the application of the provisions of this Clause 1 of Sub-Section D of SECTION VI, the Manager shall have the discretion (which discretion shall be reasonably exercised) to attribute any costs and expenses to either Estate Management Expenses, Residential Management Expenses, Commercial Management Expenses or Garage Management Expenses or Day Nursery Management Expenses or partly to the one and partly to the other or others Provided That nothing herein shall prejudice the rights conferred upon F.S.I. in Clause 8 of Sub-Section D of SECTION VI in respect of the determination of and liability for Management Expenses herein provided.”

(iii) Sub DMC: Section VII Additional Powers and Duties of the Manager: paragraphs 1 and 2

“ 1. The Manager shall be responsible for and shall have full and unrestricted authority to do all such acts and things as may be necessary or requisite for the proper management and maintenance of the Non-Residential Development or any part thereof, ……

    2.    In addition to the items set out in Clause 4 of Sub-Section D of SECTION VI of the Principal Deed, the Management Expenses to be borne by the Commercial Owners or the Car Park Owners as the case may be shall include but not be limited to the followings: -

(a) ……

(b) ……

(c) any other items of expenditure which the Manager considers to be necessary for the proper management of the Non-Residential Development.”

With respect to Mr. Chan, Mr Li, SC must be right in his interpretation that the above provisions. They might be relevant to another dispute (i.e. paragraph 5 (a) above) of the parties but not herein. These provisions do not allow or authorize the Defendant and/or the Manager to deviate from the formula stated by the DMCs to determine the relevant management fees.  Further, the Building Management Ordinance (Cap.344) does not help the Defendant as it is trite law that the same will only apply if there is no DMC or that the DMC does not provide the formula as to calculation of the management fees.

(b)Having accepted that the DMCs do not give any discretion to the Defendant or the Manager to levy the management fees, their good intention of keeping the financial position of the Estate healthy and so forth will not amount to a defence at law in any event.

(c)  If the Plaintiff successfully proves that the Defendant has miscalculated the management fees of the wet market unit in a particular way, I see no reason why it should not be corrected right way. The fact the Defendant might be further held at fault after trial in some other aspects (i.e. the disputes as per paragraph 5 (a) above) of the calculation should not be a good reason to delay the putting right of the present dispute upon adjudication by the Court.

15.  Having stated the above, should I not grant the summary judgment sought by the Plaintiff? It appears so. However, upon review of the papers during the adjournment, I note that parties appeared to agree that the Defendant had been adopting a “fixed sum approach” rather than the “ratio approach” as stated in the DMCs.  It is premised in the letter dated 8 July 2009 issued the Manager of the Estate.

“(2) (a) We could not derive any reason for your conclusion on this issue, given that Clauses 3(a) & (b) of the Sub-Sub-Deed of Mutual Covenant had already stated the requirement to have a Wet Market Budget prepared.

(b) With reference to the comment of the legal advisor in 2004, the Wet Market forms part of the Commercial portion in accordance with the Sub-Deed of Mutual Covenant. The Third Schedule of the Sub-Deed of Mutual Covenant revealed that the Wet Market had to bear 1,001 management shares out of the total 4,219 management shares of the Commercial portion. It was further stated in Clause 4(b) of the Sub-Sub-Deed that each Commercial owner of the units of the Wet Market shall pay the management expenses of the Commercial unit of the Wet Market as contribution to the management expenses of the Commercial portion according to the 3^rd column of the Second Schedule of the Sub-Sub-Deed of Mutual Covenant.

It was further elaborated that each management share possesses by the Commercial owners had to make HK$23.82 contribution to the Commercial portion according to the year 1998 Budget and this figure has not been altered since then [emphasis added]. Hence, owners of the Wet Market portion has to contribute HK$23,843.82 (HK$23.82 x 1,001) to the Commercial portion monthly.

                 ……”

16.  A closer look at the evidence nonetheless tells another story. Although charging $2,382 on each share each year, the Defendant has still been following the “ratio approach” stipulated under the DMC, i.e. 1,001:4219. 

Budget year	Share of management fee from wet market	Total management fee (wet market + commercial)	Ratio
2005	23,843	23,843 + 76,653	1,001:4,219
2006	23,843	23,843 + 76,653	1,001:4,219
2007	23,843	23,843 + 76,653	1,001:4,219
2008	23,843	23,843 + 76,653	1,001:4,219
2009	23,843	23,843 + 76,653	1,001:4,219
2010	23,843	23,843 + 76,653	1,001:4,219

17.  In other words, what the Defendant and/or the Manager have been doing is to keep a surplus budget (not a break-even or deficit) every year.  By so doing, all the wet market owners and commercial owners have been required to pay more than the expenses anticipated, but the payments were and are still proportional to their respective management shares as set out in the DMCs.

18.  I have further gone through the DMCs and am unable to locate any clauses prohibiting the Defendant and/or the Manager from doing a surplus budget. Indeed, it might be the most common way as to how the management fees of the multi-storied buildings in Hong Kong are determined.  It echoes with my question raised at the hearing with the parties that the management fees might vary from year to year if the way suggested by Mr Li, SC would have been adopted.

19.  In my decision as aforesaid, the partial claim raised by the Plaintiff under the present application for summary judgment not only cannot succeed but also is more likely to fail.  However, I believe that I need not go so far and it suffices for me to be satisfied that there is a triable issue or a good reason to be a trial. As such, unconditional leave for the Defendant to defend the part of the claim.

Costs

20.  There will also be an order nisi that costs of the application, including certificate of counsel for the hearing on 27 July 2012, be in the cause.