Great Tower Development Ltd v. The Incorporated Owners of Luso Apartments

DCCJ 2308/2017

[2021] HKDC 1138

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2308 OF 2017

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BETWEEN

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Coram: His Honour Judge H. Au-Yeung in Court

Dates of Hearing: 26 – 28, 31 May and 1, 2 and 25 June 2021

Date of Judgment: 8 September 2021

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JUDGMENT

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BACKGROUND

1.In this action, the plaintiff, owner of the property known as Flat D71, 7^th Floor, Luso Apartments, 5 Warwick Road, Kowloon Tong, Hong Kong (“the plaintiff’s Flat”), claimed against the Incorporated Owners of Luso Apartments for negligence and breach of the Deed of Mutual Covenant of Luso Apartments (“the DMC”) in, among other things, failing to maintain the common parts of Block D of Luso Apartments (“Block D”), such that water had seeped into the left bottom corner of the wall of the dining room of the plaintiff’s Flat (“the Subject Seepage Problem”). The plaintiff claimed for the cost of repairing the parts of the plaintiff’s Flat which had been damaged and for damages for loss of use/enjoyment of the plaintiff’s Flat.

2.By its counterclaim, the defendant claimed against the plaintiff for the management fees which the plaintiff had failed to pay for the period between June 2005 and December 2018.

3.The claim and the counterclaim are totally unrelated. I will deal with them separately in the Judgment below.

THE PLAINTIFF’S CLAIM – WATER SEEPAGE

Source of water

4.It is undisputed that there was water seepage found at the left bottom corner of the dining room of the plaintiff’s Flat. Such seepage had caused damage to the wall in that the paint of a “L” shape area thereof had peeled off.

5.The first issue which this court has to resolve is the source of the water seepage. While both parties agreed that the water which seeped into the plaintiff’s Flat was rainwater, they differed in their respective cases on how rainwater could find its way into the plaintiff’s Flat:

(1) The plaintiff alleged that rainwater went through the defective external wall;

(2) On the other hand, the defendant alleged that rainwater permeated through the defective waterproofing materials around (i) the window frames of the dining room of unit D81 (i.e. the flat which was located immediately above the plaintiff’s Flat) (“Unit D81”) and then found its way down to the plaintiff’s Flat through the slab between the two flats; and (ii) the window frames of the dining room of the plaintiff’s Flat.

6.To support their respective cases, the plaintiff has adduced the expert evidence of Mr Lam Wai Keung Andrew whereas the defendant has nominated Mr Chung Wai Hoi as its expert witness.

7.It seems from the experts’ evidence that there was no other possible source of water apart from those suggested above. I accept this conclusion. The question is therefore whether the damage to the left bottom part of the wall of the dining room (in the form of a “L” shape) was caused by water coming (i) through the external wall; (ii) via the bottom and/or side(s) of the window frames of the dining room in the plaintiff’s Flat and/or (iii) via the bottom and/or side(s) of the window frames of the dining room in Unit D81.

8.Having considered the expert evidence adduced, it is my finding that the damage at the L-shape area found at the left bottom corner of the wall located at the subject dining room was caused by rainwater permeating through the external wall, and had nothing to do with the window-frames of either the plaintiff’s Flat or Unit D81.

9.My reasons are as follows:

(1) The location of the “L-shape” damage at the left bottom corner of the wall of the dining room is very far away from the dining room windows. It is unlikely that the water which seeped through the window frames could travel for such a long way as alleged.

(2) According to Mr Chung, the defendant’s expert, 95% of the water that went into the concrete or interior of a flat would be going through the base of rather than 2 sides of the window. That being so, if the “L-shape” part of the left bottom corner of the wall could be damaged so seriously as such, one would expect that the part of the wall which is located immediately below the window sill would have been seriously damaged too. However, it can be seen that only a small part thereof was damaged, and such damage was much less serious than the “L-shape” area.

(3) Mr Chok for the defendant had drawn this court’s attention to the water mark which seemed to be leading from the bottom left hand corner of the window to the bottom of the wall. However, I note that the paint along that water mark did not peel off at all. The extent of moisture is also very much different from that of the L-shape area: the moisture readings of the points along such a water mark had always been below 35. I therefore conclude that it is more likely than not that this water mark had nothing to do with the damage of the L-shape area.

(4) I have not lost sight of Mr. Chung’s explanation that the density of different parts inside the concrete wall would not be exactly the same. However, it was also his evidence that such density within the same wall would not differ too much. Therefore, his theory on the route of seeped water cannot be supported by the absence of serious damage in the area between the “L-shape” area and the window.

(5) If the damage of the “L-shape” area could not be caused by the water coming into the plaintiff’s Flat via the window on 7/F, it is even more remote to say that the damage was caused by water coming through the window at the dining room in Unit D81. As a matter of fact, there is no evidence that the grouting (the waterproofing material) at the base of the window frame thereat was damaged as seriously as that of the plaintiff’s Flat as alleged. All Mr Chung could say was that the grouting on one side of the window of Unit D81 was damaged. That is not enough, as he admitted that only limited water could go into Unit D81 via the location of such damaged grouting.

(6) It must be borne in mind that Mr Chung did not, in his expert report done in 2017, conclude that the seepage problem was caused by the defective window frame grouting of Unit D81. He explained during cross-examination that he did not mention that at that time because he did not expect that the water was coming from Unit D81. I think he must be right at that time. The water causing the problem did not travel for such a long way as alleged.

(7) Furthermore, if the defendant’s case on Unit D81 is accepted, it would necessarily mean that water would have to travel from the top of the dining room wall down to the left bottom corner of the wall. In my view, if that really happened, the whole wall would have been affected by the water seepage problem. However, it is evident that the moisture content of the middle of the wall was quite low[1]. There was no sign of the paint thereat peeling off. That shows that the “L-shape” damage was not caused from water coming from Unit D81.

(8) Mr Chung explained that the moisture content level of the middle part of the wall was low because water had already seeped down to the bottom part of the wall. This explanation is rejected, because this theory cannot explain why, for example, the moisture content at the upper part of the dining room wall on 11 May 2018 was much higher than that of the middle part of the same wall, whereas the moisture content of the lower left hand corner of the same wall was also higher than that of the middle part of the wall.

(9) Mr Chung’s expert evidence was that he had used the method of elimination in excluding the possibility that it was the rainwater coming through the external wall which was causing the problem. However, with respect, there are problems with Mr Chung’s elimination:

(i) First of all, there is problem with his logic: when he was asked in court why he did not do infrared test to see whether the seepage problem was stemmed from the external wall, he said there was no need to do so because he had already found the source of water, namely, via the base of the window. In my view, his elimination of the external wall is pre-mature;

(ii) Further, Mr Chung stated that he had excluded the external wall because he could find no sign of crack or gap outside the external wall after he had done a visual inspection. However, at the trial, he accepted that water could go through cracks at the external wall which naked eyes could not see.

(10) It is noted that the moisture content of the top left hand corner of the dining room wall was very high on 11 May 2018[2]. It could not be caused by the alleged seepage through the base of the window of the plaintiff’s Flat because the location of the wetness was at a higher level. Neither could it be caused by the water allegedly seeped through the window of Unit D81 because it was simply too far away. This supports the finding that the water came from the external wall.

(11) The finding that the water actually came through the external wall is consistent with the fact that the subject building is an old building which was built more than 50 years ago.

(12) My conclusion above is not affected by the inability on the part of Mr Lam (the plaintiff’s expert) to identify positively the exact location of water entry point at the external wall. In my view, it does not matter even if he could not pinpoint such exact location. In the circumstances of the present case, the plaintiff’s burden is to prove that it was the external wall outside the plaintiff’s Flat which caused the water seepage problem. This burden can be satisfied even though the exact entry point at that part of the external wall is unknown. I should also add that the fact that Mr Lam seemed to have added more possible entry points while he was cross-examined did not affect my finding that it was the external wall which was the source of the problem.

(13) The plaintiff’s expert attempted to establish that there was a “large black gap in the tile grouting”[3] at the corner of the external wall[4] by pointing out that the grouting there appeared to be in black. He further alleged that once that grouting had turned black, it could not perform its waterproofing function any further (either because it had become defective or fallen off altogether). The defendant’s expert disagreed, and opined that it was not a gap, but was black sealant material. I cannot decide from just looking at the photographs as to whether that was indeed a gap as alleged. The plaintiff has therefore failed to prove that there was a gap as such. Having said that, by reason of my ruling above, such a failure would not affect my conclusion that rainwater did seep through the external wall and found its way into the plaintiff’s Flat.

10.Mr Lam’s reliability was also challenged by Mr Chok by reference to the adverse comments made by HH Judge Andrew Li against Mr Lam in Lam Ting Kwan v Teamwell Corporation Ltd (DCCJ 17/2016, unreported, 26 November 2019). On my part, I would not place much weight on it. After all, the most important matter which I have to consider is whether Mr Lam’s expert evidence herein is supported by sound reasoning.

Reasonable steps

11.The defendant does not dispute that the external wall of Block D forms part of the common parts of the building.

12.Section 18(1)(a) of the Buildings Management Ordinance (Cap.344, Laws of Hong Kong) (“BMO”) provides that:

“18(1) The corporation shall –

(a) maintain the common parts and the property of the corporation in a state of good and serviceable repair and clean condition;”.

13.In Lau Chun Wing Rod v The Incorporated Owners of Po On Building (CACV 20/2007, unreported, 1 November 2007), Rogers VP had the following to say on the above provision:

“This sub-section does not provide an insurance to the extent that if some part of the building becomes in disrepair the Incorporated Owners automatically and necessarily become liable. Nevertheless, liability may arise if there is fault. It also arises if, having been made aware of a defect which requires remedy, the Incorporated Owners fail to take appropriate steps […].

In view of the way in which the appeal was presented, it was pointed out that the judge had not held that the defendant was liable simply because there was some defect that became apparent in the premises. He held the defendant was liable because it failed to act effectively when it should have taken action. What is required to be done in carrying out the duty will differ according to the circumstances […]”

(at paragraphs 12 – 13)

14.Hence, the next question which this court has to consider is whether the defendant had taken appropriate steps in remedying the situation after having been informed about the Subject Seepage Problem.

15.To answer this question, I will first of all set out matters which are either undisputed or which can be elicited from the documents placed before the court.

16.Mr Tam Wai Cheung Roger, a director and shareholder of the plaintiff, first discovered the water seepage problem at the left bottom corner of the wall of the dining room of the plaintiff’s Flat sometime in early 2015. While he said he would have liked to resolve the matter as soon as possible, it had taken him more than a year to seek advice from certain professionals before approaching the defendant on this matter. In order to gather sufficient proof in support of his intended request to be made to the defendant for a joint inspection of the plaintiff’s Flat, Mr Tam engaged CBRE Limited (“CBRE”) as the plaintiff’s expert and instructed CBRE to prepare an expert report.

17.CBRE then conducted an inspection at the plaintiff’s Flat on around 11 December 2015.

18.The plaintiff’s solicitors then wrote to the defendant for the first time in relation to the Subject Seepage Problem by letter dated 2 November 2016 (“the Nov 2016 Letter”). The said letter reads:

“[…] We are instructed that while the water leakages (the “Old Leakages”) as set out in survey report prepared by Mr. F. W. Loader of Jones Lang Wootton Building Consultancy dated 18 November 1998 (“the “Old Report”) might have been ceased (which our client still reserves his right to claim all the losses and damages that have been incurred / to be incurred arising from the Old Leakages), there is new water leakage at the corner of the wall at the dinning (sic) room of Flat D71 (the “New Leakages”).

In this connection, we send you herewith a true copy of a report prepared by CBRE Limited concerning Flat D71 of June 2016 (the “New Report”) for your consideration […]

As mentioned in the New Report, the New Leakages are due to defective external wall. Since the external wall forms part of the common area, your goodself has duty to repair the same. We are instructed to urge your goodself to cause immediate repairing works be conducted at the relevant part of the external wall and the main roof of the relevant building and to make further on-site investigation so as to cure the New Leakages and should be grateful if you would confirm whether you would do so within the next 14 days. Otherwise, our client shall assume that you would not conduct any repairing works to resolve the New Leakages and shall take out relevant steps, including but not limited [to] legal proceedings, to protect his interest in D71 without further notice. In that event, you will also be liable to all the expenses to be incurred therein.

Meanwhile, all our client’s rights, including his right to claim against you for recovery of all losses and damages that have been incurred / are to be incurred due to the New Leakages, are hereby reserved.”

19.Attached to the Nov 2016 Letter was an expert report prepared by Mr Lam Wai Keung Andrew of CBRE (the plaintiff’s expert in this trial) dated November 2016[5]. The following excerpts of the said report are relevant for our present purpose:

“5.9 Moreover, I discovered a new damp patch at the corner of the wall at Dining Room. The moisture content of the damp patch is up to 81% (see to (sic) Photo 27 and 60).”[6]

“6.4 For the new damp patches noted at dining room, I opine that the source of water seepage was likely come from rain water seep through defective external wall and/or defective waterproofing layer on main roof which further seep down via hollow render and/or crack at the external wall to the subject premises.”[7]

“7.4 For the new damp patches at dining room, the owner are (sic) advised to seek assistance from management office or incorporated owners (IO) for further water seepage investigation as they own the maintenance responsibility of common area of the building including external wall and main roof.”[8]

20.The defendant replied by letter dated 29 November 2016 and requested to inspect the plaintiff’s Flat. The defendant agreed to use its best endeavours to do the repair if any common parts are found to be defective.

21.The plaintiff’s solicitors replied by letter dated 6 December 2016 as follows:

“[…] Given the observation and explanation as set out in the expert report attached to our letter of 2 November 2016, it is beyond doubt that the cause of the water leakage must be at the common area of the building. Therefore, our client doubts the purpose of the inspection proposed under your letter of 29 November 2016. Our client does not understand how the inspection of the interior of Flat D71 by your officers and/or staffs would assist the resolution of the problem, in particular on your determination as to whether the cause of the water leakage is at the common part of the building.

Having said that, our client intends to resolve the matter amicably and thus is willing to consider further your request for inspection of the interior of Flat D71 if you would let us know the following information: -

1. How such intended inspection could assist in determining whether the cause of the water leakage is at the common parts of the building;

2. The name of your staffs / officers who would attend the intended inspection of Flat D71;

3. The relevant experience and qualifications of your staffs / officers who would attend the intended inspection of Flat D71;

4. How long would you be able to let us have your substantive reply on letting our client have your substantive proposal as to how to resolve the water leakage problem and the timetable thereof; and

5. The inclusion of this subject as a matter for discussion during the forthcoming AGM of the Incorporated Owners of Luso Apartments on 9 December 2016.

Further, assuming that the intended inspection will be productive and provide meaningful results, we should be grateful if you would suggest two dates and times that you intend to conduct the inspection. In this connection, please note that Mr. Tam of our client will be on trip during part of the ensuing month. For the avoidance of doubt, the seeking of your proposed dates for your intended inspection shall not be construed as our client’s consent to your intended inspection.

We look forward to receiving your substantive reply to all of the aforesaid within 7 days from the date hereof. Otherwise, we shall take out legal proceedings against you without further notice.

Meanwhile, all our client’s rights are hereby reserved, including but not limited to the right to claim all the expenses incurred in proving your liability in this matter, in particular the expenses on the said expert report.”

22.The defendant replied on 20 December 2016 as follows:

“本業主立案法團收到 貴律師行2016年12月6日來函有關處理滲水問題。因收到 貴律師行來函前已發出業主大會議程通知，故未能增加議程議決通過處理單位滲漏事宜，但12月9日當晚大會上管理委員會仍有向出席業戶提出商討上述事宜，經商討後，管理委員會決定將聘用合資格人士就單位滲水事宜進行勘察及測試 ，稍後有進一步資料會再與 貴律師行聯絡 ，並希望單位業戶可安排時間給予工作人員到單位內進行勘察及測試。”

23.The plaintiff’s solicitors replied by letter dated 12 January 2017:

“We refer to your letter dated 20 December 2016, which we received on 24 December 2016.

Since the above matter and our client’s expert report have been brought to your attention by our letter dated 2 November 2016 and our client intends to resolve the water leakage problem before the rainy reason of 2017 so as to avoid any further damage to Flat D71 due to the water leakage, we should be grateful if you would let us know on or before 23 January 2017 your proposed arrangement on inspection, including the intended dates of the inspection, the name and qualification of the professional to be engaged by you for the inspection as well as what kind of examination would be conducted at the inspection. Otherwise, our client shall have no alternative but to institute legal proceedings against you without further notice.”

24.By letter dated 23 January 2017, the defendant informed the plaintiff’s solicitors that:

“本業主立案法團將安排兩間公証行到和域臺D71單位內進行視察及報價， 希望貴單位業主可給予日期及時間讓工作人員進單位內跟進。”

25.The plaintiff’s solicitors then replied by letter dated 23 February 2017:

“We refer to your letter dated 23 January 2017, which we received on 27 January 2017.

We regret that a month has been passed, but neither our firm nor our client has heard anything further from you in respect of our client’s enquiries made under our letter of 12 January 2017. Should you fail to substantively answer our client’s enquiries as said within the next 7 days, our client shall have no alternative but to assume that you are applying delaying tactics in the matter (since the expert report of our client was brought to your attention by our letter dated 2 November 2016) and shall institute legal proceedings against your client without further notice.”

26.The defendant then stated by letter dated 27 February 2017:

“本業主立案法團將安排兩間公証行到和域臺D71單位內進行視察及報價，兩間公証行分別為「香港公証行」及「香港驗樓及結構診斷有限公司」，希望貴單位業主可給予日期及時間讓工作人員進單位內跟進。”

27.The plaintiff’s solicitors answered the defendant’s said letter by another letter dated 6 March 2017 as follows:

“We refer to your letter dated 27 February 2017, which we received on 4 March 2017.

1. Since the matter has been brought to your attention in the summer of 2016, our client is deeply disappointed by the delay on your part in handling the matter. The report of CBRE of June 2016 was also forwarded to you on 2 November 2016. It is very obviously that you had a duty to repair the relevant common parts of the building to resolve the water leakage problem at issue.

2. Having said that, since you have requested for a detailed inspection at Flat D71 by you or your agent under your letter of 29 November 2016 in order to be convinced on your part, our client by way of our letter dated 6 December 2016, in principle agree to such inspection if there is information suggesting that such inspection would be productive and would provide meaningful result and asked you to suggest the intended date and time for your intended inspection.

3. By a letter from you dated 20 December 2016 (which we received on 24 December 2016), you related to us that you would engage professional to perform the intended inspection and testing and would contact us further. However, despite our letters of 23 January 2017 and 23 February 2017, you only by way of 27 February 2017 informed us you intended to seek quotation from two surveyor firms and asked our client for time to visit Flat D71 for quotation purpose only. There was no indication as to when the surveyor would be engaged and when the detailed inspection would be carried.

4. In short, there has been substantial delay on your part. We trust you understand that the repairing works must be performed before the rainy season of this year. As such, we are instructed to put forth a strict timetable for your intended inspection of the matter, particulars are set out as follows: -

(a) Stage 1 – Fee Quotation Inspections (“Stage 1 Inspections”)

We are instructed that our client will be able to arrange inspection on 13, 14, 20 or 21 March 2017. We trust that there will only be two short inspections. Kindly let us know the date and time of these two short inspections on or before 10 March 2017 at 4pm.

(b) Stage 2 – Detailed Inspection and report prepared by your surveyor

We trust that the detailed inspection and testing and the resultant report of your surveyor should be performed and completed within 35 days from 21 March 2017 (i.e. 25 April 2017). A full copy of the report of your surveyor should be delivered to us receiving on behalf of our client by 28 April 2017.

5. As for the arrangement of the detailed inspection and testing, we suggest you would let us have the means of contact of your surveyor and the name of the responsible person of your surveyor so that our client and your surveyor could liaise directly in that regard.

6. As a matter of privacy, our client would request the names of all personnel who intend to visit Flat D71 at least 2 days in advance and that there be no more than 3 persons for each visit. Also, pictures and videos taken in Flat D71 would only be taken at the affected areas at the same.

Kindly let us know whether the aforesaid arrangement is agreeable to you on or before 10 March 2017 at 4pm. Otherwise our client shall assume that you are applying delaying tactics and shall take out legal proceedings without further notice. Lastly, we request you to communicate to us by fax and by post so as to avoid any delay in communication between you and our firm.”

28.By letter dated 7 March 2017, the defendant informed the plaintiff’s solicitors that the two loss adjustor firms would inspect the plaintiff’s Flat on 20 March 2017 at 3pm and 3:30pm respectively.

29.By letter dated 14 March 2017, the plaintiff solicitors stated that:

“We refer to our letter dated 6 March 2017 and your letter dated 7 March 2017 (which was received by us on 9 March 2017).

Since you have not expressed any disagreement to the arrangement proposed under our letter dated 6 March 2017, we assume that that you agree to the same.

We are instructed that date and time for visit by the two surveying firms for quotation purpose as mentioned in your letter dated 7 March 2017 (“the Quotation Visit”) are agreeable to our client.

We should be grateful if you would, on or before noon of 16 March 2017, let us have the name and telephone number of the responsible person of your goodself as well as the telephone number of the staff of the said two surveying firms who would perform the Quotation Visit so that there could be direct communication between them and our client in case of need for convenience sake.

Meanwhile, all our client’s rights are hereby reserved.”

30.The defendant then provided the identity and contact details of the representatives of the 2 loss adjustors as requested on 15 March 2017.

31.On 27 March 2017, the plaintiff’s solicitors sent another letter to the defendant. Having put on record of some matters unrelated to the present case, the solicitors continued:

“Meanwhile, we should be grateful if you would let us know the following within 7 days from the date hereof: -

(a) The identity of the expert that you decide to engage for the matter;

(b) Two different sets of date and time of detailed inspection to be conducted by your expert at Flat D71 for our client’s consideration. In this regard, please note that our client will contact your expert directly on the date and time of the detailed inspection and our client requires prior notice of at least 2 working days for him to arrange the inspection.

Meanwhile, all our client’s rights are hereby reserved.”

32.According to its meeting minutes, the management committee of the defendant had had a meeting on 31 March 2017, in which it was resolved to engage 香港驗樓及結構診斷有限公司 to look into the Subject Seepage Problem.

33.The defendant then sent another letter dated 22 April 2017 to the plaintiff’s solicitors as follows:

“本業主立案法團於2017年3月31日會議中議決動過聘用「香港驗樓及結構診斷有限公司」就D71單位反映外牆滲漏事宜進行檢查及測試，並暫定於2017年5月8日下午三時或2017年5月9日下午三時到單位內測試，希望D71業主盡快回覆所選日期讓檢驗人員進入單位進行測試。”

34.The plaintiff’s solicitors replied 4 days later on 26 April 2017:

“We refer to your letter dated 22 April 2017, which we received on 25 April 2017.

We regret that you have annoyed the deadline mentioned in our letter of 27 March 2017. Worse still, notwithstanding that you already on 31 March 2017 decided to engage 香港驗樓及結構診斷有限公司 (Hong Kong Building Inspection and Structural Diagnostic Limited) (“HKBISD”) to do the investigation, it took you a full 3 weeks to liaise with HKBISD and revert to us on the proposed dates for the detailed inspection. Further, despite our request, you still fail to fax your correspondence to us resulting in unnecessary delays repeatedly. As mentioned before, the rainy season is approaching and thus the matter must be resolved in good time.

Notwithstanding that, our client still intends to attempt to resolve the matter amicably, Mr. Tam of our client would be available to arrange inspection by HKBISD on one of the following dates and time:-

(a) 2 May 2017 (between 2.15pm to 4pm); or

(b) 4 May 2017 (between 2.15pm to 4pm)

Kindly revert to us on the above at the earliest.

Further, as the matter must be resolved in good time and there should be no further delay on the matter, please note that our client will commence legal action against you without further notice if our client does not receive a full report on the relevant water seepages as mentioned in our previous correspondence by 16 May 2017 and claim costs against you. In this regard, we trust you understand our client has strong case in this matter and the only reason why our client withholds taking out legal action against you is that our client intends to settle the matter amicably with you without litigation. Further, upon review, we note that our client’s surveyor’s report of June 2016 was sent to you under our letter dated 2 November 2016 and we are instructed that Mr. Tam of our client has changed his travel plans a few times to accommodate your inspection request since January 2017. There is clearly substantial delay on your part in the matter and our client has shown its every goodwill in the matter. Please note that our client has given us instructions and we are now preparing the necessary papers for the possible litigation of this matter.

Meanwhile, all our client’s rights are hereby reserved.”

35.By letter dated 26 April 2017, the management office of the defendant replied as follows:

“本署於2017年4月26日收到貴司傳真回覆，本署根據信中所要求的日期及時間與「香港驗樓及結構診斷有限公司」商議後，暫定於2017年5月4日星期四下午三時，到單位內進行檢驗，希望貴單位業戶屆時安排時間給工作人員進內檢查，以便檢查工作順利完成。”

36.An inspection by the defendant’s surveyor did take place at the plaintiff’s Flat on 4 May 2017 as scheduled. According to Mr Tam of the plaintiff, he was informed by the defendant’s surveyor during the said inspection that another inspection had to be done for the purpose of compiling an investigation report. Because he did not have any trust on the defendant, he decided not to wait for such a surveyor report, and commenced the action herein on 19 May 2017.

37.While Mr Tam of the plaintiff had given evidence and was cross-examined on certain follow-up action done by the defendant’s contractor (for the purpose of some other work) in late 2017, both counsel agreed during closing submissions that the “cutting-off point” in considering the reasonableness of the defendant’s action in the handing of the plaintiff’s complaint in relation to the Subject Seepage Problem should be the time when the plaintiff issued the writ herein (i.e. 19 May 2017). Therefore, for the purpose of considering this issue, I will disregard what happened after 19 May 2017.

38.I would now consider whether the defendant had taken reasonable steps in dealing with the Subject Seepage Problem upon its receipt of the plaintiff’s complaint by letter dated 2 November 2016. In this regard, Mr Lam, the plaintiff’s counsel, made the following submissions:

“58. It is submitted that D did not take reasonable steps to address the Damp Patch in D71. The simple truth is that D has not fixed the defective external wall.

58.1 In addition, the correspondence since 2 November 2016 demonstrated that D did not actually resolve the complaint of water seepage. What D has done instead was to hold meetings (to which P was not invited and not part of) and to obtain quotations. Eventually, after rounds of correspondence, an initial site visit took place at the suggestion of P in March 2017.

58.2 It was not until 4 May 2017 that Mr Chung [the defendant’s expert] conducted his first inspection. The gap between D having knowledge of the seepage and the inspection was half a year. It is submitted that there was an excessive delay. Thus, P was entitled to issue proceedings without waiting any longer. As Mr Lam [the plaintiff’s expert] confirmed in cross-examination, his 2016 report was not compiled in contemplation of litigation. P genuinely wanted to resolve the issue, save that D did not take reasonable steps within the 6 months’ period.

59. Another criticism was P’s willingness to wait [for] 11 months in 2015, but not for Mr Chung in 2017. Such argument is without merit. The fact is, P has already waited [for] 6 months and D took no remedial action. In the correspondence, P made clear its intention to issue proceedings in absence of remedial action. Accordingly, D was ‘caught by surprise’[9] when P decided not to wait any longer.

60. Finally, even if (which is denied) there was delay, D suffered no substantial prejudice. Thus, it would not be inequitable to allow P to bring the water seepage claim against D.”

39.These submissions are rejected. In my view, the correspondence and other evidence adduced in court show that the defendant had taken reasonable steps in dealing with the plaintiff’s complaint in relation to the Subject Seepage Problem:

(1) It is reasonable for the defendant to request the plaintiff for permission for an inspection at the plaintiff’s Flat upon its receipt of the complaint, rather than engaging a surveyor (or a contractor) immediately.

(2) It is evident that upon the receipt of the plaintiff’s complaint, the defendant’s management committee had discussed this matter in its meeting held on 9 November 2016, in which it was resolved that the matter be referred to be dealt with by its solicitor. While no such solicitor was engaged (Dr Albert Woo, the defendant’s Chairman, said it was probably because of question of costs), the defendant replied shortly thereafter by letter dated 29 November 2016 and made the request for inspection. The defendant also raised the matter to be discussed in the AGM on 9 December 2016 as requested by the plaintiff, and it was agreed thereat that professionals shall be engaged so as to conduct tests. There was nothing unreasonable in the approach adopted by the defendant. Indeed, while Mr Lam for the plaintiff initially took the stance that “the defendant was expected to accept the plaintiff’s expert report dated November 2016 so long as a layman could not reasonably suspect the correctness of the content and conclusion of the report”, he subsequently abandoned this argument. In my view, it was wise for Mr Lam to abandon this argument, because even the plaintiff’s expert told the court in his oral evidence that the report dated November 2015 was prepared after only preliminary investigation was done, and further investigation was required.

(3) It is most unfair for the plaintiff to submit that there was “excessive delay” for the inspection by the defendant’s surveyor to take place only on 4 May 2017. Such a submission had totally ignored the fact that it was reasonable for the defendant to obtain quotations from different surveyors (and it would take time for quotations to be obtained) and that the plaintiff had also contributed to such alleged “delay” (for example, when the defendant informed the plaintiff by letter dated 23 January 2017 that a loss adjustor had been engaged and requested the plaintiff to suggest a date for inspection, the plaintiff did not answer until 23 February 2017, and, most surprisingly, failed to propose such a date, which rendered it necessary for parties to send more letters to each other for liaison purpose). Taking into account all the letters exchanged between the parties, I am of the view that there was no unreasonable delay as such on the part of the defendant.

(4) It is undisputed that the defendant’s surveyor had inspected the plaintiff’s Flat on 4 May 2017 for the purpose of preparing an investigation report on the Subject Seepage Problem. It was not unreasonable at all for the defendant to wait for such a report first before deciding what the next step should be. As aforesaid, the plaintiff’s expert only opined in his report dated November 2016 that the plaintiff should approach the management office or the defendant for further water seepage investigation (see paragraph 7.4 of the report as quoted above). However, the plaintiff did not wait, but commenced these proceedings around 2 weeks later. It was the plaintiff who was adopting an unreasonable approach in the matter.

(5) According to Mr Tam’s evidence referred to above, the defendant’s surveyor had informed him during the inspection on 4 May 2017 that another inspection would have to be conducted so as to ascertain the source of the seepage. Hence, it cannot be said that it was the defendant which was unreasonably delaying the matter.

40.By reasons of the aforesaid, it is my finding that the defendant has not breached its duty at all even though rainwater did seep through the external wall of Block D.

Conclusion

41.The plaintiff’s claim against the defendant is therefore dismissed.

Damages

42.In case I were wrong above, I will deal briefly with the issue of quantum.

43.The plaintiff has pleaded 2 heads of claim in its Amended Statement of Claim:

(i) Cost of repairing the parts of the plaintiff’s Flat that has been damaged by the Subject Seepage Problem and to be damaged or further damaged by the said problem;

(ii) Loss of use/enjoyment of the plaintiff’s Flat or its relevant part due to the damages caused by the Subject Seepage Problem and/or the carrying out of the rectification works in relation to the said seepage.

44.As far as the cost of repair are concerned, it is noted that the parties’ respective experts agreed that such costs would be around $15,000.

45.Mr Lam for the plaintiff submitted in his closing submission that since the Subject Seepage Problem is still unresolved, the plaintiff may continue to incur further losses in terms of expenses for further internal renovations and/or repairs. He therefore asked for an order that further damages shall be assessed.

46.While it is true that the plaintiff has pleaded “to be assessed” as the quantum of “cost of repair”, there has never been any order for split trial. Without such an order, I am of the view that the court should decide on the quantum of damages at one go at this trial. The plaintiff has itself to blame if it has not adduced any evidence in support of its claim. I therefore will not accede to Mr Lam’s request.

47.Hence, I would only have awarded $15,000 as the cost of repair should liability have been established.

48.For the damages for loss of use/enjoyment, it is noted that:

(i) The plaintiff’s Flat had been used for storage purpose since around 1996/1997;

(ii) As aforesaid, the Subject Seepage Problem first appeared in early 2015;

(iii) It appears from an email sent by a person known as “Fiona” to Mr Tam of the plaintiff that the plaintiff had attempted to rent the plaintiff’s Flat out in around January 2016. The aforesaid “Fiona” did not rent the plaintiff’s Flat at the end of the day because “there [were] many spots showing signs of water seepages and stains plus spalding ceiling concrete”;

(iv) The plaintiff had caused the plaintiff’s Flat to be renovated for around 3 months since November 2018, and has successfully rented it out since around November 2020.

49.It must be emphasized that the plaintiff is not claiming for loss of rental herein.

50.That being so, it is irrelevant for the plaintiff to refer to the letter of “Fiona” as mentioned above.

51.There is no evidence that the plaintiff’s use of the subject flat as a storage place had been affected by the Subject Seepage Problem. Neither was there any evidence saying that Mr Tam would have used the plaintiff’s Flat as his residence but for the Subject Seepage Problem.

52.In these circumstances, I am of the view that the plaintiff had failed to prove that there was any loss of enjoyment/use of the plaintiff’s Flat as such, and its claim under this head must be dismissed, even if the defendant had failed to take reasonable steps in dealing with the plaintiff’s complaint on the Subject Seepage Problem.

THE DEFENDANT’S COUNTERCLAIM – MANAGEMENT FEES

Introduction

53.In its Counterclaim, the defendant claimed against the plaintiff for outstanding management fees which were payable for the period between April 2005 and December 2018. However, at the beginning of the trial, Mr Chok for the defendant recognised that the limitation period for the claims in relation to the months of April and May 2005 has already expired by the time when the counterclaim was made. He therefore confirmed that the defendant would only claim management fees for the period between June 2005 and December 2018 in the total sum of $215,800.

Overview of the plaintiff’s grounds of defence

54.The plaintiff contended that the defendant had breached the BMO and the DMC from April 2005 to December 2018 in the following ways[10]:

(1) Failing to prepare or display any “draft budget” or “budget” or “revised budget” concerning the proposed expenditure for the relevant financial year (“Ground 1”);

(2) Failing to properly prepare a separate budget in setting out “common expenses” of the entire estate in accordance with paragraph 1 of the Fifth Schedule of the DMC in which each owner shall pay 1/117 of the total budgeted amount (“Ground 2”);

(3) Failing to properly prepare a separate budget in setting out the expenses exclusively pertaining to Block D in accordance with paragraph 5 of the Fifth Schedule of the DMC in which each flat owner of Block D shall pay 1/57 of such budgeted amount (“Ground 3”);

(4) Failing to send “summary of accounts” or “annual budget” (save from 2006 to 2009, 2012 and 2015) together with the “notice conveying each Annual General Meeting” to each owner before the commencement of each AGM/EGM (“Ground 4”);

(5) No “annual budget” was actually approved by the owners during the AGM/EGM in the relevant financial year (“Ground 5”);

(6) No valid resolution was passed by the defendant to approve any alleged “budget” and the defendant wrongfully continued its defective practice as admitted in LDBM 375/1999 by “adjusting” an overall figure from the previous year when determining the amount of “monthly management fees” in the relevant financial year (“Ground 6”);

(7) Any resolution to “approve the amount of monthly management fees for each owner in each block” passed in the AGM/EGM of the relevant financial year was void and ineffective as such purported resolution was not set forth in the agenda of the notices convening such AGM/EGM or was not ancillary or incidental to any other resolutions set forth in the said Notice (“Ground 7”);

(8) The amount of “monthly management fees” purportedly resolved to be payable by each owner in each AGM/EGM of the relevant financial year was determined arbitrarily, and had no nexus with the “total proposed expenditure” stated in the budget of the relevant financial year (if any) (“Ground 8”).

55.Pausing here, Mr Tam of the plaintiff had in his evidence emphasized that while he is defending the defendant’s claim on management fees, it was not his intention to escape liability from such payments, and that it was only because of the defendant’s failure to comply with various legal requirements that he refused to make such payments. I do not think this is a relevant matter which the court should take into account. In my view, the court should only consider:

(1) Whether there was any breach of duty as alleged; and

(2) If so, whether such breach(es) would justify the plaintiff’s refusal to pay management fees.

Statutory provisions and the DMC

56.As various provisions in the BMO are often referred to in the arguments and/or are relevant in the consideration of the plaintiff’s defence, I will set them out first at this juncture:

14. Powers of corporation generally

(1) Subject to this Ordinance, at a meeting of a corporation any resolution may be passed with respect to the control, management and administration of the common parts or the renovation, improvement or decoration of those parts and any such resolution shall be binding on the management committee and all the owners.

21. Contributions to funds

(1) Subject to subsection (4), a management committee shall determine the amount to be contributed by the owners to the funds established and maintained under section 20 during such period—

(a) in the case of the first such period after the date of registration of the corporation, not exceeding 15 months; and

(b) in any other case, not exceeding 12 months,

as the management committee may determine.

(1A) Subject to subsection (3), any amount (subsequent amount (其後的款額)) determined by a management committee under subsection (1) after the first such amount (so determined under that subsection) shall not exceed a sum equivalent to 150% of the preceding amount (so determined under that subsection) unless that subsequent amount is approved by the corporation by a resolution passed at a general meeting.

(2) Subject to section 14(1) and to subsection (3), a management committee shall not increase the amount determined in accordance with subsection (1).

(3) A management committee may increase the amount required to be contributed by the owners to the extent to which the funds established and maintained under section 20 are insufficient to meet any payment due by the corporation in respect of the cost of complying with—

(a) an order of the tribunal; or

(b) any notice, order or other document served upon the corporation in relation to the common parts by a public officer or public body under any Ordinance.

(4) Schedule 5 shall have effect with respect to the amount to be determined under subsection (1), the preparation of budgets by the management committee for such determinations and the supply of copies of any documents in respect of those budgets.

(5) In the event of any inconsistency between this section (which shall be construed to include Schedule 5) and the terms of a deed of mutual covenant or any other agreement, this section shall prevail.

22. Recovery of contributions from owners

(1) The amount to be contributed by an owner towards the amount determined under section 21 shall be—

(a) fixed by the management committee in accordance with the deed of mutual covenant (if any);

(b) payable at such times and in such manner as the management committee may determine.

(2) If there is no deed of mutual covenant, or if the deed of mutual covenant does not provide for the fixing of contributions, the amount to be contributed by an owner towards the amount determined under section 21 shall be fixed by the management committee in accordance with the respective shares of the owners.

(3) The amount payable by an owner under this section shall be a debt due from him to the corporation at the time when it is payable.

(4) A certificate in writing signed by the chairman of the management committee stating the amount to be contributed under this section by an owner and when it is payable shall be admissible in evidence in any proceedings as prima facie evidence of the facts stated therein without further proof.

34K. Management committee to replace owners’ committee

Where a management committee in respect of a building is or has been appointed under section 3, 3A, 4 or 40C, the members of the management committee for the time being shall be deemed, for the purposes of the deed of mutual covenant in respect of that building, to be the owners’ committee and shall—

(a) to the exclusion of any other persons have all the functions, powers and duties of the owners’ committee under the deed of mutual covenant; and

(b) in relation to those functions, powers and duties be subject to Schedule 2, even if that Schedule is inconsistent with the deed of mutual covenant.

Schedule 3

Meetings and Procedure of Corporation

3(7) No resolution passed at any meeting of the corporation shall have effect unless the same was set forth in the notice given in accordance with paragraph 2 or is ancillary or incidental to a resolution or other matter so set forth.

Schedule 5

Annual Budget

1. The amount to be determined by the management committee under section 21(1) shall be based upon a budget prepared by the management committee for the period specified by the management committee under that subsection.

2. The budget referred to in paragraph 1 shall set out the sums which in the opinion of the management committee will be reasonably necessary to meet payments of the kind specified in section 20(1) and shall, if a contingency fund is established under section 20(2), set out the sums which in the opinion of the management committee will be reasonably necessary to meet payments of the kind specified in that subsection.

3. A revised budget may be prepared if the management committee is of the opinion that any sum set out in a budget in respect of which the revised budget is to be prepared is insufficient to meet the proposed expenditure which that sum was intended to meet.

4. If the tenants’ representative, an owner, a registered mortgagee or any person duly authorized in writing in that behalf by an owner or registered mortgagee requests in writing the corporation to supply him with copies of any budget referred to in this Schedule, the treasurer shall, on the payment of such reasonable copying charge as the management committee may determine, supply such copies to that person.

5. The treasurer shall, if requested by the Authority or an authorized officer and without raising any charge, supply the copies referred to in paragraph 4 to the Authority or that officer.

Schedule 7

Mandatory Terms in Deeds of Mutual Covenant

1. Determination of total amount of management expenses

(1) Subject to subparagraphs (3), (5), (6) and (8), the total amount of management expenses payable by the owners during any period of 12 months adopted by the manager of a building as the financial year in respect of the management of that building shall be the total proposed expenditure during that year as specified by the manager in accordance with subparagraph (2).

(2) In respect of each financial year, the manager shall—

(a) prepare a draft budget setting out the proposed expenditure during the financial year;

(b) send a copy of the draft budget to the owners’ committee or, where there is no owners’ committee, display a copy of the draft budget in a prominent place in the building, and cause it to remain so displayed for at least 7 consecutive days;

(c) send or display, as the case may be, with the copy of the draft budget a notice inviting each owner to send his comments on the draft budget to the manager within a period of 14 days from the date the draft budget was sent or first displayed;

(d) after the end of that period, prepare a budget specifying the total proposed expenditure during the financial year;

(e) send a copy of the budget to the owners’ committee or, where there is no owners’ committee, display a copy of the budget in a prominent place in the building, and cause it to remain so displayed for at least 7 consecutive days.

(3) Where, in respect of a financial year, the manager has not complied with subparagraph (2) before the start of that financial year, the total amount of the management expenses for that year shall—

(a) until he has so complied, be deemed to be the same as the total amount of management expenses (if any) for the previous financial year;

(b) when he has so complied, be the total proposed expenditure specified in the budget for that financial year, and the amount that the owners shall contribute towards the management expenses shall be calculated and adjusted accordingly.

(4) Where a budget has been sent or displayed in accordance with subparagraph (2)(e) and the manager wishes to revise it, he shall follow the same procedures in respect of the revised budget as apply to the draft budget and budget by virtue of subparagraph (2).

(5) Where a revised budget is sent or displayed in accordance with subparagraph (4), the total amount of the management expenses for that financial year shall be the total expenditure or proposed expenditure specified in the revised budget and the amount that owners shall contribute towards the management expenses shall be calculated and adjusted accordingly.

(6) If there is a corporation and, within a period of 1 month from the date that a budget or revised budget for a financial year is sent or first displayed in accordance with subparagraph (2) or (4), the corporation decides, by a resolution of the owners, to reject the budget or revised budget, as the case may be, the total amount of management expenses for the financial year shall, until another budget or revised budget is sent or displayed in accordance with subparagraph (2) or (4) and is not so rejected under this subparagraph, be deemed to be the same as the total amount of management expenses (if any) for the previous financial year, together with an amount not exceeding 10% of that total amount as the manager may determine.

(7) If any owner requests in writing the manager to supply him with a copy of any draft budget, budget or revised budget, the manager shall, on payment of a reasonable copying charge, supply a copy to that person.

(8) For the purposes of this paragraph, expenditure (開支) includes all costs, charges and expenses to be borne by the owners, including the remuneration of the manager.

57.The following provisions of the DMC are also relevant and/or have been quoted in argument:

Clause 7(ii)(c)

For the purpose of financing the management, the Management Committee shall prepare an annual budget showing the estimated expenditure for the ensuing year on a Block by Block basis including suitable provision for periodical renovations and replacements but excluding items payable directly by each owner in respect of his own apartment or apartments as herein provided and each owner shall deposit and maintain a Deposit at all times with the Management Committee of $100 as security against his liabilities under this Deed.

Clause 7(ii)(d)

The owner of each 117^th undivided share shall pay the due proportions as provided in the Fifth Schedule hereto of the annual budgeted amount referred to in sub-paragraph (ii)(c) of this Clause such payment to be made by equal monthly payments in advance on the 1^st day of each month in every year. In addition thereto, each such owner shall pay on demand, a due proportion of any further amounts in respect of any of the above matters which may be incurred or may become payable over and above the amounts of the said monthly payments calculated in accordance with the said annual budget.

Clause 7(v)(a)

All monies collected by the Management Committee in the exercise of their powers and duties hereunder (save and except sufficient petty cash for day to day requirements) shall be paid into a separate bank account and the Management Committee shall keep true and proper accounts of all such monies and the expenditure thereof and shall send to each owner a summary of such accounts together with a copy of the Annual budget for the ensuing year with the notice conveying each Annual General Meeting. The Committee shall further produce all such accounts and the vouchers supporting the same for the inspection of any Owner on reasonable notice being given. During such periods as Professional Managers are appointed hereunder it shall be sufficient compliance herewith if the Professional Managers retain the Management Funds (other than petty cash as aforesaid) in their banking account normally used for the retention of clients monies separately from their own monies.

5^th Schedule

1. Each Owner shall for each 1/117^th undivided share in the land owned by him pay and be responsible to pay 1/117^th of the Annual budgeted amount for the following expenses:

(a) All expenses in respect of the maintenance cleaning cultivating and repair of the roads and drives gardens, the shop and adjoining accommodations the fahwong/watchmen’s quarters, the adjoining Garden Lot and the Car Park spaces;

(b) The wages of any fahwong or watchmen;

(c) The fees payable for any professional manager;

(d) The Annual Crown Rent for the Lot;

(e) The sewers, pipes, drains and conduits not exclusively used by any one block;

(f) The cost of litigation and all other provisions incurred by the Management Committee in and about enforcing the provisions of this Deed and any matter herein contained save and except the specific matter covered hereafter in this Schedule;

And each owner shall bear a like proportion of any deficiency in the Annual budgeted amount for the above expenses.

2. Each Owner of a flat in Block A as shown and coloured green on the attached plan shall in addition to the sum payable under Clause 1 above pay and be responsible to pay for each flat in the said Block owned by him 1/20^th of the Annual budgeted amount for:

(i) All expenses in respect of the maintenance, cleaning and repairing and when necessary renewal and repainting of:

(a) The common spaces within the said Block A and all the exterior thereof;

(b) The water pipes, sewers, drains and conduits used exclusively for Block A but outside any flat therein;

(c) The lifts and water pumps (if any) in the said Block A.

(ii) The wages of any cleaners used to clean the common spaces within the said Block A or such proportion thereof as the Management Committee decide;

(iii) The cost of lighting the entrance hall, staircases and landings within the said Block A;

(iv) The electricity charges consumed by the lifts and water pumps within the said Block A;

And each owner shall bear a like proportion of any deficiency in the Annual budgeted amount for the above expenses.

3. Each Owner of a flat in Block B as shown and coloured yellow on the attached plan shall in addition to the sum payable under Clause 1 above pay and be responsible to pay for each flat in the said Block owned by him 1/20^th of the Annual budgeted amount for:

(i) All expenses in respect of the maintenance, cleaning and repairing and when necessary renewal and repainting of:

(a) The common spaces within the said Block B and all the exterior thereof;

(b) The water pipes, sewers, drains and conduits used exclusively for Block B but outside any flat therein;

(c) The lifts and water pumps (if any) in the said Block B.

(ii) The wages of any cleaners used to clean the common spaces within the said Block B or such proportions thereof as the Management Committee decide;

(iii) The cost of lighting the entrance hall staircases and landings within the said Block B;

(iv) The electricity charges consumed by the lifts and water pumps within the said Block B;

and each owner shall bear a like proportion of any deficiency in Annual budgeted amount for the above expenses.

4. Each Owner of a flat in Block C as shown and coloured Blue on the attached plan shall in addition to the sum payable under Clause 1 above pay and be responsible to pay for each flat in the said Block owned by him 1/20^th of the Annual budgeted amount for:

(i) All expenses in respect of the maintenance, cleaning and repairing and when necessary renewal and repainting of:

(a) The common spaces within the said Block C and all the exterior thereof;

(b) The water pipes, sewers, drains and conduits used exclusively for Block C but outside any flat therein;

(c) The lifts and water pumps (if any) in the said Block C.

(ii) The wages of any cleaners used to clean the common spaces within the said Block C or such proportion thereof as the Management Committee decide;

(iii) The cost of lighting the entrance hall, staircases and landings within the said Block C;

(iv) The electricity charges consumed by the lifts and water pumps within the said Block C;

and each Owner shall bear a like proportion of any deficiency in the Annual budgeted amount for the above expenses.

5. Each Owner of a flat in Block D as shown and coloured red on the attached plan shall in addition to the sum payable under Clause 1 above pay and be responsible to pay for each flat in the said Block D owned by him 1/57^th of the Annual budgeted amount for:

(i) All expenses in respect of the maintenance, cleaning and repairing and when necessary renewal and repainting of:

(a) The common spaces within the said Block D and all the exterior thereof;

(b) The water pipes, sewers, drains and conduits used exclusively for Block D but outside any flat therein;

(c) The lifts and water pumps (if any) in the said Block D;

(ii) The wages of any cleaners used to clean the common spaces within the said Block D or such proportion thereof as the Management Committee decide;

(iii) The cost of lighting the entrance hall, staircases and landings within the said Block D;

(iv) The electricity charges consumed by the lifts and water pumps within the said Block D;

and each Owner shall bear a like proportion of any deficiency in the Annual budgeted amount for the above expenses.

58.I will now turn to consider the plaintiff’s grounds of defence.

Ground 1

59.Under this ground, the plaintiff complained that the defendant had failed to prepare or display any “draft budget” or “budget” or “revised budget” concerning the proposed expenditure for the relevant financial years.

Draft Budget

60.Mr Chok accepted that the defendant had been in breach of paragraph 1(2)(b) of Schedule 7 of the BMO (which had been incorporated into the DMC by virtue of section 34E of the BMO) in that the defendant did not post up any draft budget at any place in Luso Apartments for owners’ comments[11].

61.With respect, I do not understand why this concession was made, because the requirement under paragraph 1(2)(b) of Schedule 7 of the BMO is that:

“In respect of each financial year, the manager shall send a copy of the draft budget to the owners’ committee or, where there is no owners’ committee, display a copy of the draft budget in a prominent place in the building, and cause it to remain so displayed for at least 7 consecutive days.” (emphasis added)

62.Section 34K of the BMO provides that:

“Where a management committee in respect of a building is or has been appointed under section 3, 3A, 4 or 40C, the members of the management committee for the time being shall be deemed, for the purposes of the deed of mutual covenant in respect of that building, to be the owners’ committee and shall—

(a) to the exclusion of any other persons have all the functions, powers and duties of the owners’ committee under the deed of mutual covenant; and

(b) in relation to those functions, powers and duties be subject to Schedule 2, even if that Schedule is inconsistent with the deed of mutual covenant.

63.In J & V Limited v ISS Eastpoint Property Management Limited & Another (LDBM 242/2009, unreported, 10 August 2010) (a case cited by Mr Chok himself), Deputy Judge Kot (as the learned Judge then was) explained the combined effect of section 34K and paragraph 1(2) of Schedule of the BMO as follows:

“Paragraph 1(2) of Schedule 7 stipulated the procedure to be adopted by the manager in the preparation of the annual budget including sending the draft budget to the owners’ committee and by Section 34K of BMO, where a management committee had been appointed, the members of the management committee shall be deemed to be the owners’ committee; send or display the draft budget to owners for comment and for the budget to be sent to the management committee and displayed […]” (at paragraph 45)

64.According to the evidence of Dr Woo (which I accept), in respect of all financial years, the defendant would prepare a budget for the discussion and approval of the management committee first, and the approved budget would then be laid before the owners in an extraordinary general meeting of owners (“EGM”) for consideration.

65.In my view, the budget which was placed before the management committee for consideration must be regarded as the “draft budget” for the present purpose.

66.Given the accepted fact that there was a management committee, in my view, it was not necessary for such draft budget to be posted up in any prominent place of Luso Apartments pursuant to paragraph 1(2)(b) of Schedule 7 of the BMO.

67.Mr Lam asked this court to draw adverse inference against the defendant because Dr Woo accepted that some “working” budgets (referred to as “草稿紙” at the trial) had not been disclosed in the present action. I do not agree to take this course. Firstly, I am of the view that those budgets are not really “draft budgets” (in the sense that they were not complete versions ready to be commented on by the management committee). Secondly, since I accept that all the relevant budgets had been approved by the management committee before they were placed before the EGM for approval, such “working” budgets are not relevant for our purpose.

Budget

68.The plaintiff has not made any submission as far as “budgets” are concerned.

69.As aforesaid, it is the defendant’s case (which is accepted by this court) that the management committee would approve a budget before the same was tabled before the owners in an EGM for approval.

70.That being so, the requirement under paragraph 1(2)(e) of Schedule 7 of the BMO must be regarded as satisfied.

Revised Budget

71.Paragraph 1(4) and (5) of Schedule 7 of the BMO provide that:

(1) Where a budget has been sent or displayed in accordance with subparagraph (2)(e) and the manager wishes to revise it, he shall follow the same procedures in respect of the revised budget as apply to the draft budget and budget by virtue of subparagraph (2).

(2) Where a revised budget is sent or displayed in accordance with subparagraph (4), the total amount of the management expenses for that financial year shall be the total expenditure or proposed expenditure specified in the revised budget and the amount that owners shall contribute towards the management expenses shall be calculated and adjusted accordingly

72.In my view, since there was a management committee at all material time, the compliance of the said paragraphs under Schedule 7 of the BMO was very straight-forward, so long as such revisions were approved by the management committee.

73.According to Dr Woo, all budgets which were to be tabled in the EGM had been approved by the management committee. I accept his evidence. In such a case, there cannot be any valid complaint that the defendant was in breach of the said paragraph 1(4) or (5) in relation to such revised budgets.

74.Even if there had been any breach on the part of the defendant in preparing and/or sending the budget pursuant to paragraph 1(2) of Schedule 7 as alleged (which I do not agree), that is not the end of the matter, for the court would then have to consider whether the defendant would still be entitled to demand the plaintiff for management fees in the light of the said breach.

75.Mr Chok submitted that the answer is “yes” by relying on two arguments.

76.Firstly, it was submitted that pursuant to paragraph 1(3)(a) of Schedule 7 of the BMO, where, in respect of a financial year, the defendant has not complied with paragraph 1(2) of Schedule 7 of the BMO before the start of that financial year, the total amount of the management expenses for that year shall be deemed to be the same as the total amount of management expenses for the previous financial year.

77.I agree that the effect of the above provision is that the management committee, when deciding on the amount of management fee for the coming financial year in respect of which no budget has been prepared, is entitled to rely on the actual amount of management expenses for the previous financial year as its budget. In my view, this means that the defendant is entitled to increase management fees if such increment is justified by the level of actual management expenses of the past financial year.

78.As far as this case is concerned, it is the plaintiff’s defence that the defendant was in breach of the BMO and/or DMC. Hence, the plaintiff has the burden to prove that the defendant did not set the amount of monthly management fees according to the aforesaid provisions in the BMO and DMC. However, the plaintiff has not made any submissions as to how it can be said that the defendant did not fix the monthly management fees pursuant to the said deeming provision.

79.Mr Lam also seems to be suggesting that if the management committee is minded to increase management fees under the circumstances where no budget has been prepared, owners’ approval has to be sought. With respect, I cannot find any such requirement in the BMO or the DMC. Further, in any event, as can be seen below, the management fees demanded by the defendant had indeed been approved in various general meetings of the owners of Luso Apartments.

80.Secondly, Mr Chok submitted that, in any event, management fees can be adjusted by way of a resolution passed at a meeting of owners pursuant to section 14(1) of the BMO.

81.This argument was met with the plaintiff’s objection. Mr Lam submitted that:

“23. It appears that only since D filed its Opening Submissions dated 20 May 2021, D sought to make a case that there is an alternative route to levy management fees against owners of the Estate, placing reliance on resolutions allegedly passed at AGMs/EGMs.

24. Whilst it is accepted by P that whether the resolutions passed by D were valid is a sub-issue to be considered in these proceedings, such sub-issue has to be considered within the context in which D pleaded its case, i.e. whether the management fees were charged and apportioned in accordance with the various requirements under the BMO and the DMC.

25. Insofar as D now puts forward an alternative case that management fees may be levied without compliance with the requirements under the BMO and the DMC (as D in Paragraph 139 seems to suggest that under the new alternative route, D does not have to comply with s.21 of the BMO and Clause 7 of the DMC), such change of case at such late stage of the proceedings is plainly not the pleaded case of D as could be seen from:-

25.1 This issue is not listed in the Agreed List of Issues; and

25.2 D’s new position is inconsistent with its pleaded case.”

82.These objections are totally unmeritorious for it was the plaintiff who in the first place raised the issue of whether there was any valid resolution passed by the defendant in approving the annual budget in paragraphs 7F.5, 7F.6, 7F.7 and 7F.8 of its Amended Reply and Defence to Counterclaim:

“7F.5 Notwithstanding the Notice of AGM/EGM since 2005 contained an agenda to ‘receive, consider and approve the annual budget for each individual block (for the ensuing year)’, no ‘annual budget’ was actually approved by the owners during the AGM/EGM of the Defendant according to limited minutes of AGM/EGM produced by the Defendant;

7F.6 Without prejudice to the above and as gathered from the certain purported minutes of the AGM/EGM of the Defendant since 2005 to 2018, 2012 and 2017 (and subject to further discovery from the Plaintiff), no or no valid resolution was passed by the Defendant to ‘approve’ any alleged ‘budget’. Instead, according to the said minutes, the Defendant wrongfully continued its defective practice as admitted to the Court in LDBM 375/1999 by purportedly passed resolutions in determining the amount of ‘monthly management fees’ payable by each owner in each block of the estate simply by way of ‘adjusting’ an overall figure from the previous year;

7F.7 Pursuant to para.3(7) of Schedule 3 of the BMO, any purported resolution(s) of the Defendant in its AGM/EGM of each financial year (since 2005 till present) to ‘approve the amount of monthly management fees for each owner in each block” was void and ineffective in any event as the such purported resolution was not so set forth in the agenda of various notice(s) given for the AGM/EGM and/or was not ancillary or incidental to any other resolutions so set forth in such notice;

7F.8 Contrary to the DMC and para.1(1) of Schedule 7 of the BMO, the amount of ‘monthly management fees’ as purportedly resolved to be payable by each owner (or the aggregate ‘total management expenses’ payable by all owners) in the purported AGM/EGM of each financial year was determined arbitrarily and was not based on (or having any meaningful connection with) the ‘total proposed expenditure’ of that ensuing financial year in any ‘budget’ (which is denied to be prepared properly, or at all). It is also averred that the ‘total proposed expenditure’ were also improperly prepared without reference to the DMC.”

83.To answer the above allegations, the plaintiff pleaded, among other things, in the Rejoinder as follows:

“16. Paragraph 7F.5 is denied. It is averred that the budget for each financial year during the Period was passed at its respective Annual General Meetings and Extraordinary Meeting of Luso Apartments held in every year during the Period (except for the year of 2014 for the reason set out in paragraph 11(b) above), which was recorded in the Minutes of Annual General Meeting and/or Extraordinary Meeting of Luso Apartments for each financial year (except for the year of 2014 for the reason set out in paragraph 11(b) above).”

“17. In relation to paragraph 7F.6:-

(a) It is denied that no or no valid resolution was passed by the Defendant to ‘approve’ any alleged ‘budget’. It is averred that as recorded in the Minutes of the Annual General Meetings and Extraordinary Meetings of Luso Apartments for each year during the Period (except for the year of 2014 for the reason set out in paragraph 11(b) above), the budgets for each financial year was submitted and approved at its respective Annual General Meeting and Extraordinary Meeting of Luso Apartments held during the Period.

(b) […]

(c) […]”

“18. Paragraph 7F.7 is denied. It is averred that in each of the Notice convening Annual General Meetings and Extraordinary Meetings of Luso Apartments held throughout the Period (collectively ‘the Notices”), the motion ‘to receive, consider and approve the annual budget for each individual block’ for the respective year was listed in the agenda of the said Notices.”

“19. Paragraph 7F.8 is denied. It is averred that the amount of ‘monthly management fees’ resolved to be payable by each owner (or the aggregate ‘total management expenses’ payable by all owners) in the Annual General Meetings and Extraordinary Meetings of each financial year throughout the Period was not determined arbitrarily. Prior to each Annual General Meeting and Extraordinary Meeting, the Management Committee of the Defendant would refer to the ‘Assets Flow’ Sheet of each respective year before drafting the budgets and ascertaining the proposed management expenses and fees for the upcoming year.”

84.In my view, the pleadings above have undoubtedly covered the issue which the plaintiff now alleges to be unpleaded.

85.The issue was also included in the Agreed List of Issues. Under Issue No.7, it was provided that:

“[…] whether such alleged liability to pay monthly management fees and the quantum of the monthly management fees to be paid (if any) would be individually and/or cumulatively affected by the breach(es) of any of the events stated in paragraph 6 above (if any) and whether the Defendant shall be excused from such breach(es) on the grounds that they were ‘technical’ in nature.”

86.Although the alleged resolutions passed in the EGM was not expressly referred to in the aforesaid Issue No.7, I do not think that creates any problem. In my view, the defendant is clearly entitled to make submission on the said issue by referring to those resolutions.

87.I now come back to consider the defendant’s reliance on the resolutions passed in the owners’ meetings.

88.It is the defendant’s case that the changes in management fees were approved by way of resolutions passed in various EGMs for the relevant financial years, as well as by resolutions of the management committee. It was submitted that if the resolutions were validly passed during a meeting of owners, the said resolutions would be binding on all owners and the management committee, and that section 21 of the BMO would in such situation have no role to play.

89.In support of his argument, Mr Chok for the defendant cited the case of 黃瑞珊及其他人訴同利工業大廈業主法團及其他人 (LDBM 33/2010, unreported, 24 January 2011), in which Deputy Judge Kot (as she then was) held that:

“29. 第二及第三答辯人則指稱，在2008年5月7日的業主會議中已決議從2008年6月開始將管理費上調10%，當時所有業主也有出席，亦未有擬備任何議程，因該大厦只有11位業主，故會議通知也只以電話進行，在電話中已知會當天會議將會討論大厦維修及調整管理費事宜，因該大厦的管理費十多年來也未作調整。當天的會議並無紀錄，後來申請人不承認及不肯支付上調管理費，故由第三答辯人草擬確認書，讓所有業主簽署確認2008年5月7日就管理費上調的議決。2008年9月26日立案法團成立後的管委會會議中亦再次提及2008年5月7日的議決案(有關的會議紀錄可參見文件冊第140頁)。

30. 在聽取過雙方的證供，及在平衡雙方證供可能性的標準下，本席接納第二及第三答辯人的證供。[…]

31. 本席接納答辯人的證供，就2008年6月開始管理費上調10% 的決定，確曾在2008年5月7日的業主會議上所通過，業主大會的議決對所有業主也有約束力。

兩次的管理費調整也未有擬備預算案

32. 申請人指稱兩次有關管理費上調的議決雖然在業主大會上通過，唯在過程中並未依據建築物管理條例(“該條例”)附表5及附表7的要求，在議定管理費的過程中擬備預算案，故而令致有關的議決案無效。

33. 答辯人承認在議決過程中未有擬備預算案，唯指出附表5及附表7的規定只是分別局限管理委員會及物業的經理人在決定管理費金額時需要預算案作依據，而該條例第14條第1款賦予業主可就公用部分的管理、行政事宜作出決議，而該決議對管理委員會及全部業主均具約束力；故業戶可以在業主大會上以議決案通過有關管理費的上調，這對所有業主也有約束力，而該條例並無規定由業主大會訂定的管理費須有預算案作依據。

34. […]

35. 就2010年6月8日的議決案而言，當時立案法團已然成立，亦設立了管理委員會，故該條例的附表5及附表7絕對適用於就管理費的議決。唯本席亦接納鄭大律師所指，附表5及附表7並不適用於由業主大會議決的管理費數目，且該條例的第14條第1節確實容許業主大會可就管理費的上調作出對所有業主及管理委員會也有約束力的決定。

36. 根據該條例第21條第2款的條文，『除第14(1)條及本條第(3)款另有規定外，管理委員會不得增加按照第(1)款釐定的款額』，由此可見管理委員會基本上沒有增加管理費的權力，除非依據該條例的第14條或第21條第3款的規定，後者並不適用於本案，唯第14條正正是有關業主大會的議決，管理費的增加誠然是涉及有關公用部份的管理及行政問題，從該條例第21條第2款的條文，增加管理費可依第14條的條款由業主大會以議決形式通過，亦未有規定必須有預算案作根據。

37. 故此2010年7月開始申請人應依據業主大會在2010年6月8日的議決，支付上調的管理費數額。”

90.Their applications for leave to appeal having been rejected by the learned Judge, the applicants in the above case then made a renewed application for leave to appeal before the Court of Appeal (HCMP 911/2011, unreported, 21 October 2011). In dismissing the application, Yuen JA referred to the learned Judge’s decision as follows:

“14. 至於反申索，立案法團承認兩次議決上調管理費都沒有根據附表5或7行事，但葛法官裁定2008年5月7日議決(即由2008年6月開始上調管理費)，是由業主大會通過，而當時立案法團還未成立，所以附表5或7都不適用。至於2010年7月開始上調管理費，立案法團已成立，但這議決是在2010年6月8日業主大會通過的，葛法官認為《建築物管理條例》第14條賦予業主大會作出上述議決，對所有業主有約束力。因此葛法官裁定申請人需支付上調的管理費。”

91.Her Ladyship then continued at paragraph 20:

“至於立案法團成立後2010年6月8日的業主大會，《建築物管理條例》第14(1) 條述明是 “除本條例另有規定外” ，但本庭認為決定那一條例可凌駕另一條例時，法庭必須考慮有關管理建築物的架構。管理委員會只是代表業主行事，所以業主大會的決定，必定是凌駕管理委員會根據上述條例第21條釐定業主需繳付款項的決定，而並非由第21條凌駕第14條。所以本庭認為申請人就反申索的上訴亦沒有成功機會。”

92.Mr Lam for the plaintiff submitted that the defendant’s reliance on the 黃瑞珊 case is wholly misconceived. He submitted that the case of 黃瑞珊 only concerned section 21(2) but not section 21(1) of the BMO, and that since the words “subject to section 14(1)” do not appear in section 21(1), the authority does not support the defendant’s proposition that owners may at owners’ meetings determine (as opposed to increase) management fees in breach of the DMC and/or the BMO.

93.In support of his argument, Mr Lam referred this court to the case of IO of Wah Lai Mansion, Marble Road v. Lee He Wan Eddy (LDBM 53/2001, unreported, 22 December 2001) and Chartpack Machinery Company Limited v. 達之路32, 32A, 34及34A 號業主立案法團 (LDBM 249/2014, unreported, 15 March 2017).

94.These arguments are rejected.

95.In my view, the Court of Appeal’s decision in 黃瑞珊, if properly understood, should be applicable no matter whether the court is dealing with determination or increment of management fees, because it is absurd to suggest that owners have no power to determine the level of management fees in owners’ meetings. If the plaintiff’s argument is correct, does it mean that owners can only resolve in owners’ meetings to increase but not decrease management fees?

96.While it was held in IO of Wah Lai Mansion, Marble Road (supra) that the management committee of an IO is under a duty to exercise its power pursuant to sections 21-22 of the BMO and that such a duty could not be discharged instead by the owners in an AGM/EGM, such a decision (which was handed down in 2001) could not survive the subsequent Court of Appeal’s decision in 黃瑞珊 (supra).

97.On the other hand, the case of Chartpack Machinery Company Limited (supra) can only assist the plaintiff if, for example, the owners have passed a resolution on the calculation of management fees contrary to the provisions in the DMC. I will discuss on this further in the Judgment below.

98.The Court of Appeal decision in 黃瑞珊 had since then been followed by learned Judges sitting in the Lands Tribunal.

99.In 曾毓輝 v. 恒隆銀行東區分行大廈業主立案法團 (LDBM 169/2014, unreported, 16 April 2015), His Honour Judge KW Wong, having referred to sections 20(1), 21, 22(1) and Schedule 5 of the BMO, had the following to say:

“23. 從上述的幾段看來，似乎該法例中的第20、21、22條另加上附表五，把釐定管理費水平的權力，交給法團的管理委員會。在這案，沒有任何證據顯示增加管理費的決議，曾在管理委員會內被通過，只有證據顯示，調整管理費的議決在業主大會通過。這樣看來，是否縱使業主大會通過後，由於管理委員會還沒有通過，所以調整是沒有效力呢?

24. 在Incorporated Owners of Evelyn Towers and Anor v Darlingford Ltd. and Ors [1987] 3HKC 127, 當時上訴庭要處理一個相似的問題。在該案，有關法團在特別業主大會(EGM)，按《多層建築物(業主法團)條例》(Multi-Storey Buildings (Owners Incorporation) Ordinance)，(即該條例的前身) 第14(1)條，通過了關於每月管理費及按金的數額，而這數額竟比該大廈公契所指定按金的數額為高，亦比同一發展項目其他大樓的管理費為多。當時上訴庭分析了該條例前身的有關條款，即第14(1)條，第21(1)及22(1)及(2)條，雖然文字具體不盡相同，但文意大致相同，上訴庭當時的結論，是一個法團的特別業主大會，沒有加諸任何業主一個付款的責任。

25. 由於特別業主大會是業主大會的一種，都是一個全體業主的會議，所以若引用 Incorporated Owners of Evelyn Towers 這案例，由於沒有任何管理委員會的議決，此案的調整應屬無效。

26. 但在黃瑞珊等v 同利工業大廈業主法團 HCMP 911/2011 (無彚報的案例，21/10/2011) 一案，上訴庭在處理一宗土地審裁處向上訴庭申請上訴許可時，對一個在業主大會通過的議決，與及在管理委員會按本條例第21條通過的議決，在該案第20段有一個清晰的說明，如下: […]

27. 本席十分同意上訴庭在黃瑞珊 案所闡述的法律原則，因為正如一家公司的運作，日常的事務是交董事會決定，但每當有重大的事宜時，一般是交股東在股東大會表決，這些議決，凌駕董事會議的議決，對公司的前路作出了最終的決定。本席認為，多層大廈業主立案法團的運作，在該條例的架構，亦是採納相同的原則。

28. 由於上訴庭在判決 Incorporated Owners of Evelyn Towers時的法律題文，與現時的該條例不盡相同，加上在該案例所述明的案情有限，相對於 黃瑞珊 案明確清晰的闡釋有所不同，所以本席採納 黃瑞珊 案的法律原則，而不採納 Incorporated Owners of Evelyn Towers一案所闡明的。

29. 該條例第21條對管理委員會調整管理費有嚴格的規定，管理委員會須按預算來釐定加減管理費，只有在幾個法例說明的例外情況下，才可不按常規加減。而有關的例外，包括為滿足土地審裁處的裁決令或由公職人員或公共機構根據任何法例送達法團的通知/命令/其他文件，並且說明除非根據剛說明的情況，與及該條例14(1)條外，管理委員會不能更改按第21(1)條釐定的數額。由此可見，該條例有說明第14(1)條(正是指業主大會議決)是明顯的例外，具凌駕性，這點在 黃瑞珊 案得到上訴庭的支持。

30. 該條例第14 (1) 條有以下的規定: […] 黃瑞珊 案，正是把這14(1)條的凌駕性，清晰的說明。14(1)條指出，如法團通過議決，而這議決與有關公用部份的管理及改善有關(管理費與公共地方的控制及管理有明顯有關)，當法團議決後，議決對管理委員會與及每一名業主，皆具約束力，而該條例第21(2)條，說明第14(1)條是禁止調整的例外情況。

31. 由於該條例第14 (1) 條業主大會的議決，並不受制於該條例的附表五，從這角度來看，申請人的立論不能成立。本席認為，光是這一點，已足夠把申請人的申請撤銷。”

100.The same approach was adopted in The Incorporated Owners of Mansion Building v Yip Kwok Ho and Another (LDBM 107/2018, unreported, 12 April 2019). In this case, the owners concerned argued that the duties stipulated under sections 21 and 22 of the BMO could only be exercised by the management committee but not the incorporated owners. In rejecting his argument, His Honour Judge M Wong stated that:

“42. 可是根據曾毓輝 訴 恒隆銀行東區分行大廈業主立案法團 (LDBM169/2014) 一案的判決，儘管該條例規定某些事情必須由管理委員會通過決議來決定，但基於管理委員會與法團的從屬關係，法團仍有權就該等事情於業主大會通過決議來決定。該案的《判決書》第25至30段內容如下:

[…]

43. 本席同意並引用上述曾毓輝一案的判決，裁定申請人作為法團可根據該條例第14(1)條賦予的權力在業主大會上決議有關維修費的所有事宜。因此，答辯人認為法團不能取替管理委員會作出有關維修費的決議並不正確。亦即是說申請人有權通過上述2017年11月2日業主大會的決議確認是次維修工程的集資總額及分擔方式。”

101.I therefore hold that Ground 1 has no merits.

Grounds 2 and 3

102.The issue under Ground 2 has been defined by the parties as “whether the defendant had breached the BMO and/or DMC from April 2005 to December 2018 on the following ground: Failure to properly prepare a separate budget in setting out ‘common expenses’ of the entire estate in accordance with para.1 of the Fifth Schedule of the DMC in which each owner shall pay 1 out of 117^th of the total budgeted amount”.

103.When answering requisitions raised by this court during closing submissions, Mr Lam for the plaintiff clarified that he would not insist that there should be 2 separate tables of budget as such, and that by “separate budget”, he only meant that the defendant had failed to separate expenses which fell under paragraph 1 of the 5^th Schedule of the DMC from those which fell under paragraphs 2, 3 and 4 of the said Schedule.

104.That being the case, I think Ground 2 and Ground 3 can be considered together. The complaint made by the plaintiff under Ground 3 is that the defendant had failed to properly prepare a separate budget in setting out the expenses exclusively pertaining to Block D in accordance with paragraph 5 of the Fifth Schedule of the DMC in which each flat owner of Block D shall pay 1/57 of such budgeted amount. Indeed, in the plaintiff’s closing submissions, these issues were dealt with in the same way.

105.It can thus be seen that the plaintiff’s complaint was that the allocation of expenses amongst owners of different blocks of Luso Apartments was not done pursuant to the DMC.

106.Before I proceed further, I should make it clear that I would not consider Mr Lam’s argument which was premised upon the complaint that income earned from renting out parking spaces had not been apportioned among different blocks in accordance with the DMC[12]. As I have summarised above, the issues under Grounds 2 and 3 of the agreed list of issues only concerned about expenses but not income.

107.Coming back to the pleaded complaints, it is noted the plaintiff has made the point that certain expenses which were incurred in respect of a particular block had not been treated in the budget as being borne by that particular block but by all owners of Luso Apartments. Mr Lam had quoted various examples, in particular, the “electricity charges consumed by lifts”. He said that whilst it is evident that the electricity charges incurred by the lifts at Block B were much higher than those incurred in the other blocks of Luso Apartments, the total electricity expenses were just divided by 117 (total number of flats in Luso Apartments) which was contrary to the 5^th Schedule of the DMC.

108.While I agree with Mr Lam that, on the face of the budget, the defendant seemed to have simply allocated such expenses equally among all owners of Luso Apartments, I do not accept that necessarily means that the defendant had breached the 5^th Schedule of the DMC for the following reasons:

(1) According to the evidence of Dr Woo (which I accept), the security guards’ common room was located at the roof of Block B, and as a result, security guards of Luso Apartments as a whole would have to take the lifts at Block B to the common room from time to time, which would lead to increased electricity charges in respect of those lifts. It is difficult to decide on the amount out of total electricity charges which should be attributed to the usage of security guards of those lifts for such a purpose. If the 5^th Schedule of the DMC is interpreted literally, an unfair result would be created in that owners of Block B would be subsidising the electricity expenses incurred by the usage of the Block B lifts by the security guards for access to the common room. In my view, that would be contrary to the original intention of the 5^th Schedule. Mr Lam suggested that a figure should nonetheless be calculated as the electricity charges incurred by the said access to the common room by security guards and only that sum should be borne by all the blocks. There is simply no evidence that the suggested approach could in reality be adopted. On the other hand, if the defendant had picked a rough figure, then the plaintiff might challenge that the defendant had “arbitrarily” come to such a figure.

(2) Further, Dr Woo gave evidence in court that for the items which could be clearly categorised as expenses incurred in relation to a particular block (such as replacement of CCTV cameras), even if it was budgeted as if the costs were simply divided by 117 (the total number of flats in Luso Apartments), at the end of the day, when any particular camera was replaced, the costs of the new camera would be debited from the account of the block concerned. That means the costs would only be borne by the block concerned rather than by all owners.

(3) Moreover, as can be seen from the budgets, the management fees proposed to be collected from the owners did not exactly match the budgeted expenditures. Indeed, Dr Woo gave evidence that if there was a large sum of reserve in respect of a particular block, the defendant might charge a small amount of management fees from owners of that block for a period of time so as to use up part of the unnecessary reserve. The defendant would also take into account the amount of income earned from, among other things, the renting out of carpark spaces. That being the case, and considering the matters in the preceding sub-paragraphs together, I am of the view that the plaintiff cannot jump to the conclusion that owners of Block D had been demanded to bear costs incurred in respect of other blocks unjustifiably.

109.It seems the plaintiff went as far as to suggest that the defendant would be acting contrary to the DMC if, when deciding on the level of management fees, it had taken into account the income (for example, monthly and hourly carpark rental) earned. With greatest respect, this submission must be rejected. This, in my view, also exposed the unreasonableness of the plaintiff’s literal approach in the interpretation of the DMC.

Ground 4

110.Under this ground, the plaintiff complained that the defendant had failed to send “summary of accounts” or “annual budget” (save from 2006 to 2009, 2012 and 2015) together with the “notice conveying each Annual General Meeting” to each owner before the commencement of each AGM/EGM in breach of Clause 7(v)(a) of the DMC.

111.As far as annual budgets are concerned, Dr Woo stated in paragraph 64 of his witness statement that:

“For each AGM and EGM that has taken place, the IO would attach at least an annual budget by individual block to the notice convening such AGM and EGM.”

112.Mr Lam did not cross examine Dr Woo on this part of his evidence at all. I will accept Dr Woo’s evidence in this regard.

113.What remains in this ground is in relation to “summary of account”.

114.On this matter, Dr Woo admitted in paragraphs 62 – 63 of his witness statement that:

“62. As far as I am aware, from 2005 to 2018, the IO did not attach any summary of account to the notices convening each AGM […]

63. In any event, from 2005 to 2019, at each AGM and EGM that have taken place (except for 2014 as explained in paragraph 41 above), the members of the IO would orally refer to the total income of all the blocks of the Estate, namely the monies collected by the IO, and the remaining balance from the preceding year in justifying the increase/decrease of management fee in a particular year. However, at those AGMs and EGMs, the IO might not have always prepared a hardcopy of that document to that effect.”

115.There is thus a breach of Clause 7(v)(a) of the DMC.

116.The next question is: what is the effect of such a breach?

117.It was Dr Woo’s evidence in court that although no summary of account had been attached to the “notice conveying each Annual General Meeting”, the relevant figures had been explained orally to the owners at the owners’ meetings. I accept his evidence.

118.In my view, despite the aforesaid breach of the DMC, the resolutions passed by the owners at the EGMs on management fees would not be invalidated. Indeed, Mr Lam has not drawn my attention to any provision of the DMC to support his argument that the aforesaid breach would justify the plaintiff’s refusal to pay management fees.

119.Furthermore, Mr Chok referred this court to the case of Peter Yip v Asian Electronics Ltd [1998] 2 HKC 96 in which Le Pichon J (as her Ladyship then was) discussed about the irregularity principle as follows:

“The irregularity principle really comes to this: the lawfulness of a decision taken by a meeting of members or board cannot be questioned if the only facts alleged to make it unlawful is a mere informality and irregularity and the intention of the meeting is clear. This is particularly so if there is no evidence that the decision of the meeting would have been different if the correct procedure had been observed.

120.While the Peter Yip case did not concern building owners’ meetings but board of directors’ meetings, the same principle should still be applicable to the present case.

121.There is no evidence that the decision of the owners’ meeting would have been different if the summary of account had been attached to the notice conveying each Annual General Meeting.

122.Therefore, the proving of this ground does not assist the plaintiff.

Ground 5

123.The next ground of the plaintiff is that no annual budget was actually approved by the owners during the AGM/EGM in the relevant financial year.

124.I must say, with greatest respect to the plaintiff and Mr Lam, this is a very desperate argument, and should not have been relied on at the trial upon their perusal of the defendant’s documents, because the relevant resolutions can be seen in the minutes of the EGMs concerned. I set out the relevant parts of the minutes as follows:

Dates of owners’ meetings	Resolutions
14 January 2005	提交及通過二零零五年度收支預算: 大會業主一致通過，A,B,C座管理費每月為$1,600，D座管理費每月為$1,400維持不變。
20 January 2006	提交及通過二零零六年度收支預算: 本年度起管理費每戶每月將調減$200, A,B,C座管理費每月為$1,400，D座管理費每月為$1,200,大會業主一致通過。
19 January 2007	提交及通過二零零七年度收支預算: 本年度管理費A,B,C座每月為$1,400， D座每月為$1,200維持不變, 全體員工在本年度加薪總額幅度3%, 大會業主一致通過。
11 January 2008	提交及通過二零零八年度各座收支預算: 本年度管理費A,B,C座每月為$1,400， D座每月為$1,200維持不變。業主一致通過。
16 January 2009	提交及通過二零零九年度各座收支預算: 本年度管理費A,B,C座每月為$1,400， D座每月為$1,200維持不變。業主一致通過。
22 January 2010	提交及通過二零一零年度各座收支預算: 本年度管理費A,B,C座每月為$1,400， D座每月為$1,200維持不變。業主一致通過。
25 February 2011	提交及通過二零一零(sic)年度各座收支預算: 本年度管理費A,B,C座每月為$1,400， D座每月為$1,200, 維持不變。月租車位泊車費2011年4月1日調整至$2,000業主一致通過。
25 May 2012	提交及通過二零一二年度各座收支預算: 主席講解預算內容及管理費之調整, 經提議及和議程序業主一致通過二零一二年度各座收支預算; 管理費將由2012年7月1日起單位管理費A,B,C座每月調整為$1,600， D座每月調整為$1,400, 月租車位泊車費維持不變。
23 August 2013	提交及通過二零一三年度各座收支預算: 主席講解預算內容及管理費之調整, 經提議及和議程序, 業主一致通過二零一三年度各座收支預算; 管理費將由2013年10月1日起單位管理費A,B,C座每月調整為$1,800， D座每月調整為$1,600, 月租車位泊車費維持不變。議決於二零一三年十月一日實行 眾通過
21 November 2014	提交及通過二零一五年度各座收支預算: 委員會常務會議商討後提議二零一五年之收支預算將不會有太大之改變。各項收費均維持去年之水平，沒有太大之變動。                                            眾通過
20 November 2015	提交及通過二零一六年度各座收支預算: 司庫缺席暫由秘書袁生解釋2016年度預算案 因2016年工資調整，預算管理費輕微調整每單位增加$200。 […] 建議2016年度預算案收費調整如下： 管理費各單位每月增加$200, A,B,C座調整至$2000，D座調整至$1800。 […] 2016年度預算案由袁生提議，D94鄒生和議，眾通過。
9 December 2016	提交及通過二零一七年度各座收支預算: 司庫袁先生解釋2017年度預算案 因2017年最低工資調整，各項設施保養費用亦受最低工資影響，預算A,B及C座管理費輕微調整每單位增加$150[…] 會上業主孫先生反映因C座仍有儲備，應無需調整管理費，委員會表示預算案是因應日常開支作出預算，因2017年政府將調整最低工資薪酬 ，各項設施保養費用亦受最低工資影響而上調，根據預算A, B, C座管理費收入未能應付2017年日常支出，因此需作出調整以應付日常開支，而大廈儲備應用作緊急用途，不可用作填補大廈日常開支。 會上出席業主投票，以64份業權份數贊成通過二零一七年度各座收支預算。
7 February 2018	提交及通過二零一八年度各座收支預算 因要應付來年法律費用, 每單位一律增加港幣$200。 D84提議, D15, D61和議, 一致通過由三月份開始徵收。

125.It is clear that the owners had approved both the budgets and the proposed management fees.

126.Mr Lam drew my attention to the “level of specificity and detail” of the minutes in relation to the owners’ discussions on some other topics in the owners’ meetings, whereas the same level of specificity and detail was not applied as far as the resolutions on annual budget and management fees are concerned. I am not prepared to accept this kind of argument at all. I have no hesitation to accept that the minutes of the owners’ meetings had recorded what resolutions had been passed by the owners at the material time.

127.Mr Lam then argued that in some of the years, owners’ meetings were not held within 12 months after the preceding meeting. For example, the owners’ meeting in 2014 was only held in November 2014, which was around 15 months after the owners’ meeting held in August 2013. Another problem is that there was no budget in 2014 at all. Relying on section 21 of the BMO, he argued that it is impermissible to have a budget for 15 months.

128.In my view, Mr Lam’s reliance on section 21 of the BMO is misconceived, because the resolutions on management fees were passed by owners in owners’ meetings rather than by the management committee, and section 21 only governs management committees.

129.Furthermore, given my acceptance that the owners did, at all material times, pass valid resolutions on management fees payable by each flat in the owners’ meetings, the plaintiff’s arguments on budget have become irrelevant.

130.This ground is therefore dismissed.

Ground 6

131.Under this ground, the plaintiff alleged that no valid resolution was passed by the defendant to approve any alleged budget and the defendant wrongfully continued its defective practice as admitted in LDBM 375/1999 by “adjusting” an overall figure from the previous year when determining the amount of “monthly management fees” in the relevant financial year.

132.In his closing submissions, Mr Lam confirmed that the plaintiff would not pursue the complaint about continuance of defective practice at this trial any further.

133.The only remaining complaint is that no valid resolution was passed by the defendant to approve any alleged budget. I have rejected this argument above, and nothing more is required to be said here.

Ground 7

134.Under this ground, it was argued by the plaintiff that any resolution to approve the amount of monthly management fees for each owner in each block passed in the AGM/EGM of the relevant financial year was void and ineffective as such purported resolution was not set forth in the agenda of the notices convening such AGM/EGM or was not ancillary or incidental to any other resolutions set forth in the said Notice.

135.There are 2 questions here:

(1) Whether the resolutions passed were included in the agenda of the notices of AGM/EGM; and

(2) Whether the resolutions passed were ancillary or incidental to what was stated in the notices of AGM/EGM.

136.Mr Chok referred this court to the case of Chartpack Machinery Company Limited v. 達之路32, 32A, 34及34A 號業主立案法團 (LDBM 249/2014, unreported, 15 March 2017), in which it was stated by HH Judge KW Wong in paragraphs 61 and 62 thereof that:

“61. 《建築物管理條例》附表3第3(7)條段有如下的規定:

‘法團會議通過的議決，除非議決已列載於按照第2段 [即管委會秘書須在法團會議日期至少14日前，向每一名業主及租客代表發出開會通知] 發給業主的通知內，或附加或附帶於列載的決議或其他事項，否則無效。’ (間線後加)

62. 雖然按本席在上段(見第40段至第53段)的分析，在考慮有關議決是否因沒有載列在會議通告內而變得無效時，法庭應採取一個寬宏、全面、整體及合理方法，以確保這條規則的運作，對全部業主都是公平而並不是只談技術性的。但本席同意，在引用有關的原則後，如有關的議決仍不符合該附表的第3(7)條因而變成無效，後果是嚴重的。”

137.In The Incorporated Owners of the Colonnades v Gordon Tso & Company Limited (CACV 131/2005, unreported, 23 December 2005), Yeung JA (as his Lordship then was) had the following to say:

“31. 香港多層住宅大廈受該條例的條款約束而大部份亦有公契監管各業主的權責。訂立該條例目的之一亦是為了有效管理多層住宅大廈和其他附帶及相關的事宜。

32. 有關公契和該條例的目的是確保大部份業主的意向獲得尊重及執行而非容許個別業主利用有關條例、條款及程序的空子，以達到不利於大多數業主權益的目的。

33. 考慮有關條例、條款及程序，包括業主大會決議時亦應將這點緊記。

34. 當然這不表示管理委員會能以大多數業主的權益為前提，而無需遵守有關條例和條款。正如上訴庭在蘇振文對置安大廈業主立案法團CACV 302/99案明確指出該條例的最終目的是保障大廈業主的權益，而非是為了方便管理委員會容易辦事，有關的規則亦需嚴格遵守及執行。

35. 但詮釋有關規則時，必須採納全面、整體及合理的方法，確保有關規則的運作對全部業主都是公平的。”

138.In paragraphs 51 and 52 thereof, Yeung JA continued:

“51. 該條例附表3第3(7)條列明：

‘法團會議通過的決議，除非決議已列載於按照第2段送達業主的通知內，或附加或附帶於如此列載 的決議或其他事項，否則無效。’

52. “附”有依傍、依從的意義（語文出版社）《現代漢語規範字典》第150頁，亦表示從屬《朗文中文高級新辭典》第485頁或依靠（商務印書館）《通用新字典》第126頁，如附件、附筆。因此附加或附帶決議不能獨自存在而需依附在主要決議上，並和主要決議有從屬或因果關係。”

139.In the present case, it was Dr Woo’s evidence (which I have accepted above as it was unchallenged) that:

“For each AGM and EGM that has taken place, the IO would attach at least an annual budget by individual block to the notice convening such AGM and EGM.”[13]

140.It is evident that:

(1) In each of the Notice of EGM concerned, there was an item on “to receive, consider and approve the annual budget”;

(2) the proposed amount of management fee had been stated in each of the annual budget.

141.Adopting a generous, comprehensive, holistic and reasonable approach in the consideration of the notices of EGMs, I am of the view that it must be taken as if the resolutions to determine the level of management fees (no matter whether the management fee was proposed to be increased or not) had been included in the notices of EGM, because it is reasonable to read the agenda in the notices of EGM and the annual budgets together.

142.Even if I were wrong above, I am of the view that the resolutions passed on management fees must be ancillary or incidental to the consideration and approval of the annual budget concerned.

143.This ground is therefore rejected.

Ground 8

144.The last ground relied on by the plaintiff was that the amount of monthly management fees purportedly resolved to be payable by each owner in each AGM/EGM of the relevant financial year was determined arbitrarily, and had no nexus with the total proposed expenditure stated in the budget of the relevant financial year (if any).

145.This ground can be dismissed right away by reason of the acceptance of this court of the validity of the resolutions passed by the owners in various EGMs on management fees.

Conclusion

146.By reasons of the aforesaid, the plaintiff is liable to pay management fees for the period between June 2005 and December 2018 to the defendant in the total sum of $215,800.

COSTS

147.I have dismissed the plaintiff’s claim and allowed the defendant’s counterclaim. I therefore make a costs order nisi that the plaintiff shall bear the costs of the defendant of the whole action (including all costs reserved, if any), with certificate for counsel, to be taxed if not agreed. The above order nisi shall become absolute in the absence of application to vary (which shall be made by letter, if any) within 14 days hereof. Any application to vary the costs order nisi shall, with the consent of the parties[14], be dealt with on papers.

Mr Abel Lam, instructed by Tsang, Chan & Woo & Notaries, for the plaintiff

Mr Brian Chok, instructed by Chiu, Szeto & Cheng, for the defendant