SPEEDY GAINER LTD v. THE INCORPORATED OWNERS OF MALAHON APARTMENTS AND ANOTHER

CACV 336/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 336 OF 2004

(ON APPEAL FROM LDBM NO. 248 OF 2004)

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REASONS  FOR  JUDGMENT

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Hon Tang JA (giving the reasons for judgment of the Court):

1.  This appeal is concerned with technicality and not with merit.  It is also principally about the costs of a two-day hearing in the Lands Tribunal.

2.  The applicant is the owner of certain shop premises on the ground floor of the Malahon Apartments in Jaffe Road, Hong Kong. 

3.  The 1^st respondent is the Incorporated Owners of the Building.  The 2^nd respondent is the manager of the Building within the meaning of section 34D of the Building Management Ordinance, Cap. 344 (“the Ordinance”).

4.  The application was brought to enforce the applicant’s right as owner to inspect the books or records of account and any income and expenditure account or balance sheet under para. 2(5) of the seventh schedule to the Ordinance.

5.  The provisions in the seventh schedule have been incorporated into the deed of mutual covenant by section 34E(1) of the Ordinance.  Section 34E(2) also makes those provisions binding on the owners and manager of the Building.

6.  In the notice of application, the applicant relied on certain requests for inspection made for and on behalf of Cogi Enterprises Ltd (“Cogi”), on 11 May and 25 May, which were sent to the 2^nd respondent and others dated 15 June, 6 July, 8 July and 9 July 2004 sent to the 2^nd respondent’s solicitors.

7.  It is the applicant’s case that Cogi made those requests as agent for the applicant.  Mr Law who appeared for the applicant submitted that the applicant was Cogi’s undisclosed principal.

8.  In the notices of opposition filed on behalf of the 1^st and 2^nd respondents, one of the points taken was that there had been no request for inspection prior to the commencement of the proceedings on 20 July 2004.

9.  The issues identified by Mr Law are:

(1) had requests been made by Cogi for the applicant as Cogi’s undisclosed principal;

(2) if not, whether a request was required before action;

(3) if so, whether the notice of application could be regarded as a request.

10.  Mr Law argued that the cause of action was complete without demand or request.

11.  We do not agree.  The cause of action against the 2^nd respondent is based on a breach of the Deed of Mutual Covenant (“DMC”), which was made binding on both owners and the manager.  Indeed, the notice of application has made clear that the applicant was seeking the enforcement of the terms and provisions of the DMC which included the provisions incorporated into it under the Ordinance.  In our opinion, there could be no breach of the manager’s obligation to permit inspection without a valid request or demand for inspection followed by a wrongful failure to permit inspection.

12.  Mr Law argued that to take such a view of the provision would be contrary to the presumption against inconvenient results in the interpretation of statues.  And he has referred us to Vol 44(1), Halsbury’s Laws of England, 4^th Edition in paragraph 1479.  We do not agree that our construction of the provision would have any such result.  Indeed, we believe that common sense and fairness require that the manager should not be exposed to any claim by an owner unless and until a valid request or demand has been made and the manager has wrongfully failed or refused to permit inspection.

13.  Nor do we agree with Mr Law that this only goes to the costs of the proceedings as opposed to the right to any relief.  We do not believe that the court should encourage premature or unnecessary proceedings.

14.  If request and refusal are required then the applicant must satisfy us that the request relied on by the applicant had been made on its behalf by Cogi, and that the manager had wrongfully failed to respond.

15.  We do not believe that Mr Law’s analogy with a contract made by an agent for an undisclosed principal is sound.  In such a case, a contract was entered into between A and B, but unbeknown to B, A was acting as agent for an undisclosed principal C.  Normally such a contract is enforceable by A or C.  Here, we are not concerned with a contract.  Nor is it Mr Law’s case that Cogi could have insisted on an inspection in its own right.

16.  More importantly we have also to consider whether the refusal to permit inspection was wrong.  It is accepted that the manager did not refuse inspection on the ground that Cogi was acting for an undisclosed principal.  Indeed, the manager was not aware that Cogi was supposed to be acting for an undisclosed principal.  It is not Cogi’s case that it was entitled to enforce the request or that it was entitled to make the request in its own right.  So, we must proceed on the basis that the request was made by someone who had no right to request inspection.  In other words, the request made was not a valid one.  In such circumstances, although the manager refused inspection for the wrong reason, namely, that the manager were not managers under section 34D, we believe that that did not matter.  There could be no wrongful failure to permit inspection in the absence of a valid request.

17.  Mr Law then argued that even if a request was required and that there was none prior to the proceedings, the notice of application was itself a request for inspection.  We do not agree that that is right.  We agree with the judge’s analysis of the situation in paras. 18-23 of his judgment. 

18.  It is clear from the passages from the transcript of the call-over hearing held on 6 September 2004 quoted by the judge as well as those cited to us by Mr Law that it was not the applicant’s case that the notice of application was the request, probably because of costs consideration. 

19.  We must say that we have the distinct impression that inspection was not the principal object of the proceedings.  Although it is clear that the respondents would permit inspection upon a valid request being made by the applicant, we were told that, up to the hearing of the appeal, no open request had been made for inspection.

20.  The 1^st respondent was the Incorporated Owners.  They were sued pursuant to section 18(1)(c) of the Ordinance which provides:

“(1)	The corporation shall:
…
	(c)	do all things reasonably necessary for the enforcement of the obligation contained in the deed of mutual covenant (if any) for the control, management and administration of the building.”

21.  In other words, they were sued for their failure to enforce compliance by the manager.

22.  Yet, the first request to the 1^st respondent to enforce compliance by the manager was sent by Messrs Deacons, ostensibly acting for Cogi, to the Chairman of the Incorporated Owners dated 9 July 2004 requiring confirmation by “1 p.m., Saturday, 10 July 2004 … that the relevant books and accounts … would be available for inspection …”.  The solicitors threatened that “[their] client would not await further and would commence legal proceedings against both the Building Manager and the Incorporated Owners seeking appropriate relief for inspection of the relevant documents with costs without further notice.”

23.  The Incorporated Owners did not respond until 3 August 2004, and then in Chinese, complaining of the unreasonably short time that it was given to respond, but it also made clear that in the event of the manager refusing to comply with a request, the Incorporated Owners would take appropriate steps to enable owners to exercise their rights.

24.  Proceedings were commenced on 20 July 2004. 

25.  As we have said no open request has been made so far.

26.  In all the circumstances, we believe the judge was right not to treat the notice of application as a request.

27.  Moreover, as we have said, no proceedings should be brought unless there has been a wrongful refusal to comply with a valid request for inspection.  In this case, even if the notice of application could be regarded as a request, there was no refusal prior to commencement of proceedings.

28.  For the above reasons, we have dismissed the appeal with costs.