THE INCORPORATED OWNERS OF FU TOR LOY SUN CHUEN STAGE 1 v. FOENG HOUW LIAM STEVEN AND ANOTHER

DCMP 467/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 467 OF 2014

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JUDGMENT

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INTRODUCTION

1. The plaintiff is the incorporated owners (“the IO”) of a development known as Fu Tor Loy Sun Chuen-Stage 1 (“the Development”).  The defendants are the registered owners (“the Owners”) of a unit in the development known as Flat A on the 12^th Floor of Block A (Fu Kam Building), No 5 Pok Hok Lane, Fu Tor Loy Sun Chuen-Stage 1, Kowloon, Hong Kong (“the Property”).

2. By the Originating Summons herein, the IO seeks the following reliefs:-

(a)  an order for payment of all money and interest due and owing to the IO under a memorandum of charge dated 13 November 2012 (“the Memorandum”) and registered against the Property in the Land Registry by Memorial No 12121102600014 (“the Order for Payment”); and

(b)  an order for sale of the Property (“the Order for Sale”) pursuant to s 19 of the Building Management Ordinance (Cap 344) (“BMO”) and consequential directions.

3. The Originating Summons is supported by the affirmation of Mr Lau Ming Sum Julius (“the Affirmation”), the Chairman of the IO, made on 31 December 2015.

4. I am satisfied that the IO has produced evidence to prove the due service of the court documents on the Owners, including the service of the Originating Summons and the Affirmation.

THE IO’S CASE

5. The IO’s case is as follows:-

(a)  The Owners have failed to pay management fees since 1 January 2012.  Such failure is in breach of Clause 14 of the DMC of the Development (“the DMC”).

(b)  Relying on Clause 14 of the DMC, the IO issued the Memorandum on 13 November 2012 and registered the same against the Property in the Land Registry on 11 December 2012.

(c)  The management fees covered by the Memorandum is the management fees from 1 January 2012 to 31 October 2012, the total of which is HK$5,810.00.  The Memorandum also covers the legal expenses incurred by the IO in relation to the recovery of the said management fees, and the total of the said legal expenses is HK$2,300.00.  In other words, the total of the sums covered by the Memorandum is HK$8,110.00.

(d)  As at 30 November 2015, the total of the outstanding management fees is HK$28,057.00.

(e)  The IO claims that they are entitled to have an order for the sale of the Property in these circumstances pursuant to s 19 of the BMO.

(f)  The IO has produced valuation evidence showing that as at 15 December 2015, the forced-sale value of the Property was HK$3,250,000.00.

(g)  The annual ratable value of the Property is HK$91,320.00.

ANALYSIS

Order for Payment

6. Clause 14 of the DMC is as follows:-

“If any Owner fails to pay any sum which is payable by him under this deed or in accordance with the Multi-Storey Buildings (Owners Incorporation) Ordinance within 14 days after the written notice from the Agent or the Management Committee or the other Owners or any of them calling upon him so to do then the amount so owing shall be a charge upon the share and interest of the defaulting Owner of and in the said premises and building and the person serving the notice aforesaid may register such charge in the Land Office by registering a memorandum with a copy of the notice annexed thereto and containing a statement that the amount specified therein remains unpaid.”

7. Having perused the Affirmation and the documents exhibited thereto, I am satisfied that the IO has proved the Owners’ failure to pay the management fees as from 1 January 2012, and the IO has duly issued the Memorandum and duly registered the same against the Property in the Land Registry pursuant to Clause 14 of the DMC.

8. Accordingly, I will make the Order for Payment as claimed by the IO in the Originating Summons.

9. However, the Order for Payment sought by the IO is to require the Owners to pay all money and interest due and owing to the IO under the Memorandum.  In the other words, the sums covered by the Order for Payment would only be the sums set out in the Memorandum.

Order for Sale

10. The IO relies upon s 19 of the BMO to claim for the Order for Sale.

11. S 19 of the BMO provides:-

“(1) If a deed of mutual covenant provides that if an owner fails to pay any sum which is payable under the deed of mutual covenant, a person may sell that owner's interest in the land or register a charge against such interest in the Land Registry, then, notwithstanding the provisions of the deed of mutual covenant, the corporation may, to the exclusion of such person, exercise such power of sale or register such charge in the same manner and subject to the same conditions as if it were the person referred to in the deed of mutual covenant.

(2)  The reference in subsection (1) to "fails to pay any sum which is payable under the deed of mutual covenant" shall be construed to extend to the failure by an owner to pay the costs incurred by the management committee in connection with the exercise by it of the powers conferred by section 40(1)(a)(ii) or (b).”

12. The meaning of the section is plain – in order to claim for an order for sale pursuant to that section, a condition precedent has to be satisfied, ie “if a deed of mutual covenant provides that if an owner fails to pay any sum which is payable under the deed of mutual covenant, a person may sell that owner’s interest in the land …”

13. There is no such provision in Clause 14 of the DMC, and there is no such provision in any other clauses of the DMC.

14. Accordingly, s 19 of the BMO is plainly inapplicable.

15. Mr Wong for the IO submits that the Memorandum can be enforced by an order for sale of the Property under Order 50 rule 9A as if it is a charging order made by the court.  Mr Wong relies upon Incorporated Owners of So Tao Centre v. Lam Kong Wan (DCMP 4250/2001, 20 December 2006) at [68] and [73] in support of his proposition.

16. With respect to Mr Wong, I am unable to accept this proposition.  In that case, the court mentioned in paragraph 68 of the judgment that the incorporated owners in that case was entitled to exercise the rights of the manager under clause 18 of the deed of mutual covenant in question by virtue of s 19 of the BMO, and hence the registration of the memorandum of charge was valid.  While the court made an order for sale at the end, it is not known whether the deed of mutual covenant in question authorized the sale of an owner’s interest in land.  I do not think that case support the proposition suggested by Mr Wong. 

17. Mr Wong’s alternative case is to enforce the Order for Payment by the Order for Sale.  Mr Wong submits that the IO can now apply for this pursuant to Order 50 rule 9A.

18. With respect to Mr Wong, I do not think so.

(a)  In order to obtain an order for sale under Order 50 rule 9A, the judgment creditor has to obtain a charging order in the first place.

(b)  A judgment creditor may enforce the judgment debt by applying for a charging order.  However, any order made on such an application shall in the first instance be an order to show cause.  The court would hear the judgment debtor before deciding to make the order absolute.  See Order 50 rule 1.

(c)  Accordingly, before giving an opportunity to the judgment debtor to show cause, the court would not make a charging order absolute.

(d)  The IO has not yet obtained any charging order absolute, and no court would grant a charging order absolute before giving an opportunity to the Owners to show cause.

(e)  Without having a charging order absolute, it would not be possible for the IO to obtain an order for sale under Order 50 rule 9A.

Costs

19. While costs should follow the event, most of the time in these proceedings (around 80%) is spent on the application for the Order for Sale, in which the IO fails.  It is obvious that s 19 of the BMO does not provide any basis for the said application.  In my view, that application should not be made at the very beginning.  I therefore would only award 20% of the costs of these proceedings to the IO.

20. Although the IO succeeds in getting the Order for Payment, the total of the sums covered by the Order for Payment is only HK$8,110.00.  That amount is well within the jurisdiction of the Small Claims Tribunal.  If the IO is targeting this amount, the claim should be made in the Small Claims Tribunal and not in this court.

21. I am of the view that in the circumstances described above, the IO should only be entitled to have costs on a scale similar to that of the Small Claims Tribunal.  See Cheung Yu Tin v. Ho Hon Ka [2006] 2 HKLRD 676.

22. Applying that scale, I summarily assessed that the costs be paid by the Owners to the IO at HK$1,000.00.

CONCLUSION

23. I make the following order:-

(a)  the Owners do forthwith pay HK$8,110.00 to the IO, being all the money due and owing to the IO under the Memorandum;

(b)  there be interest on the said sum from the date of the Originating Summons to the date of this judgment at 1% above the prime rate of the Hongkong Bank;

(c)  Costs of these proceedings be summarily assessed at HK$1,000.00, to be paid by the Owners to the IO forthwith.

24. I thank Mr Wong for the assistance provided to the court.