HOLAKE (HONG KONG) LTD. v. HOLIDAY RESORTS (MANAGEMENT) CO. LTD.

CACV 410/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 410 OF 2001

(ON APPEAL FROM DCCJ 13702/2000)

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J U D G M E N T

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Hon. Rogers, VP:

1. This is an appeal from a decision of His Honour Judge Li sitting in the District Court. It comes to this Court by leave. The application before the Judge below was an application by the defendant against the 3rd party for judgment in respect of a claim by the plaintiff, which the defendant had to meet.

2. The plaintiff's claim was for $62,520, being the outstanding charges on a lift maintenance contract which the defendant had entered with the plaintiff for the maintenance of lifts at Sea Ranch. At the time the defendant entered into that contract, it was the management company appointed under a Deed of Mutual Covenant. It remained the management company until some time in December 1999, its appointment having been terminated in September 1999. Whether or not that termination is effective is a matter of dispute between the parties in other proceedings.

3. The Judge gave the 3rd party leave to defend the proceedings. In his judgment, he set out a number of grounds which it is unnecessary to go into, for this reason: at the time that the Judge heard the application under Order 14, there was no defence filed to the 3rd party proceedings and the Judge gave leave to file the defence. When the application for leave to appeal was made in March, the Judge had before him the defence which had been drafted. When he saw that, he had this to say in his judgment:

"For the reasons outlined above, on 31 January 2001, I refused to give judgment for the defendant. Instead I gave leave to the 3rd party to file and serve a proper defence. I did also, on that occasion, hint to solicitors for the 3rd party that they ought to obtain a higher standard of professionalism in the conduct of the 3rd party's case. I did not, however, tell them in explicit terms how the 3rd party's case could be pleaded on the materials already available.

When the parties came before me on 6 March on the defendant's application for leave to appeal against my decision of 31 January 2001, the 3rd party had filed and served its defence to the 3rd party notice and counterclaim against the defendant. I regret to say that that piece of pleading is a disappointment and does not really further the 3rd party's cause. I could not discern from the defence filed on behalf of the 3rd party a solid answer to the claim by the defendant. the 3rd party's potential case has not been particularly and effectively pleaded in the subsequent defence. Whereas the Court has a paramount duty to see that justice will be done, the Court cannot foist upon the 3rd party grounds of defence which the 3rd party does appear to want to continue to rely upon.

In the circumstances, I felt that the only proper thing for me to do was to give leave to appeal and order costs of the application for leave be costs in the appeal. So I did."

4. It is quite clear from those paragraphs at the end of the Judge's judgment that, having seen the defence that had been filed by the 3rd party, the Judge appreciated that there was in fact no defence to the defendant's claim against the 3rd party.

5. Mr Lam, who appears on behalf of the 3rd party today, is not the counsel, or is not the person, who drafted the defence and counterclaim to the 3rd party notice. He has, however, manfully struggled as best he could with this document. He has frankly admitted he cannot support many parts of the document. Indeed, he did not seek to support paragraph 2 of the defence which pleaded that the lift maintenance contract had been entered contrary to the provisions of section 20A of the Building Management Ordinance, Cap. 344.

6. The other material defence which appears from the defence which has been filed is in paragraph 3. That reads:

"By reasons of paragraph 2 above, the 3rd party avers that the defendant had acted ultra vires and/or improperly by signing the lift maintenance agreement with the plaintiff under anomalous circumstances. The 3rd party avers that there were wilful negligence and/or dishonest misconduct on the part of the defendant."

As regards the first sentence, again Mr Lam did not pursue any arguments and could not explain how the lift maintenance contract was supposed to be ultra vires, or that the defendant had acted improperly.

7. As regards the pleading in relation to wilful negligence and dishonest misconduct, this is an echo of paragraph 7(d) of the Deed of Mutual Covenant in relation to Sea Ranch Properties. But the first and most important thing which must be noted about this pleading is that there are no particulars. It is essential, where negligence is pleaded, that it must be pleaded properly and particulars must be given. All the more that applies in relation to a plea of dishonest misconduct. Courts cannot allow allegations of dishonesty which are wholly unparticularised to remain in pleadings. In those circumstances, this pleading clearly falls to be struck out.

8. As a matter of discretion, if it were clearly obvious that there were matters of negligence and perhaps misconduct which could be pleaded, the Court may consider them but would require that an amendment to the pleadings be made. However, the allegation of wilful negligence, which was pursued, was said to lie in the fact that the defendant, which was the management company at the time, should have consulted the 3rd party, that is the incorporated owners, in respect of the lift maintenance contract before it was entered into, or at least at the time it was entered into. I do not see that. The lift maintenance contract was not of such an amount which would have attracted the requirements of section 20A of the Building Management Ordinance. It was not of an extraordinary amount. Indeed, the total bill for the lift maintenance of $72,520 does not appear to me to be of such an amount that, in relation to the management of the whole of Sea Ranch, it was a contract of a nature of which the management company should have consulted the incorporated owners prior to entering.

9. The other matters of complaint which the 3rd party makes before this Court is that it is said that the management company had at its disposal sums of money which it could have used to discharge the amount owing to the lift maintenance company. Our attention was drawn to the fact that there were, in the accounts, sums relating to fire services maintenance. Indeed, it does seem that the levies which the management company had made upon the owners of Sea Ranch did include amounts which would have led to something in the order of $500,000 or more being accumulated in that account.

10. However, it has to be said that these proceedings are not by any means the only proceedings between these two parties. There has been extensive litigation, unfortunately, between not only these parties but also involving the individual owners of houses and apartments in Sea Ranch and the management company. Indeed, the incorporated owners, on the one hand, and the management company on the other, seem to reflect different groups within the owners of various apartments.

11. In a judgment of Deputy Judge Muttrie given in the Court of First Instance on 18 May between a number of the owners and the defendant, being the management company, and also involving the 3rd party, it would appear that it was the Judge's conclusion that, as of March 1999, the management company had an accumulated deficit of over $1,500,000.

12. From the accounts which we have been shown and from the various documents, I am by no means satisfied that the management company had at its disposal any sums of money which could have been used to defray the outstanding amount of $62,520 which was left after $10,000 had been paid in respect of the total bill.

13. The other complaint which the 3rd party makes is that the management company, the defendant, never provided them with a copy of the agreement with the lift management company until it was exhibited in an affidavit on 1 December of last year. That, it seems to me, is a valid complaint. The plaintiff commenced its proceedings on 8 September of last year. The 3rd party notice was issued on 3 October, but it was not until 1 December that the 3rd party was given the basic contractual document which gave rise to the claim which was being made against it.

14. In my view, the 3rd party is correct in making this complaint. It should have been provided that document straightaway and it was not. In my view, it was entitled to a reasonable time to consider the claim which the defendant made against it. Had the 3rd party conceded the defendant's claim after that time then, in my view, it may well have been entitled to resist any claim in respect of indemnity as to costs or any costs in these proceedings against it. But it did not do so.

15. In those circumstances, it seems to me that the defendant would be entitled to its costs up to a reasonable time after a copy of the contract was provided to it and that, for purposes of simplicity, I would take to be 1 January of this year. Thereafter, it has proceeded, as best it could, to defend this claim by the defendant. Unfortunately, in my view, it has failed to do that. The ordinary incidence of costs thereafter and the liability in respect of the plaintiff's claim against the defendant should follow.

16. Before concluding this judgment, I would say this: that the hostility between the parties and the various owners of Sea Ranch has given rise to a multiplicity of litigation. This can be of no benefit to anybody except the lawyers. The costs of this litigation are obviously escalating at a considerable rate. It seems to me that the differences between the parties have to be sorted out. Sooner or later there will have to be an account taken as to what is due to or from the management company. There may be issues as to whether the management company's contract has been properly terminated but it would seem that, sooner or later, the incorporated owners would be in a position, if they wanted to, to terminate that management contract. The bulk of the dispute between the parties is thus clearly an accounting exercise and the sooner that is done without resort to a multiplicity of litigation, in my view, the better.

Hon. Le Pichon, JA:

17. I agree.