The Incorporated Owners of the Sea Ranch v. Holiday Resorts (H.K.) Ltd
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DCMP 1289/2023 [2025] HKDC 1572 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS PROCEEDINGS NO 1289 OF 2023 --------------------------------
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-------------------- IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS PROCEEDINGS NO 1290 OF 2023 --------------------
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-------------------- IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS PROCEEDINGS NO 1291 OF 2023 --------------------
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-------------------- IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS PROCEEDINGS NO 1292 OF 2023 --------------------
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-------------------- IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS PROCEEDINGS NO 1293 OF 2023 --------------------
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------------------------------------ JUDGMENT ------------------------------------ 1.The Sea Ranch consists of apartment blocks on the southern side of Lantau Island facing Cheung Chau and Shek Kwu Chau. 2.The Incorporated Owners of the Sea Ranch (“the IO”) is the common plaintiff in these 5 actions. 3.Holiday Resorts (HK) Limited (“Holiday Resorts”) is the common defendant in these 5 actions; the IO claims that Holiday Resorts is the owner of 5 apartments in the Sea Ranch. The 5 apartments are in the same block of building known as Beach Chalet No 5:-
4.I shall collectively refer to these apartments as “the 5 Apartments” in this Judgment. 5.The relief sought by the IO in these 5 actions is the same: it seeks to enforce the charges for outstanding management fees and contributions, registered against each of the 5 Apartments owned by Holiday Resorts, by an order for sale of these apartments. 6.The basis of the IO’s claim in these 5 actions are identical. The defence relied by Holiday Resorts is also identical across the 5 actions. I will take DCMP 1289/2023 as an example to set out the background relevant to the issues I am asked to resolve. DCMP 1289/2023 7.Holiday Resorts is the government lessee of Lot No 178 in Demarcation District 337, on which the Sea Ranch now sits. 8.As the developer, Holiday Resorts erected 20 apartment blocks, each of 4 storeys high, known as Chalets. Chalet No 1-9 are known as to the Beach Chalet. The other apartment blocks are known as the Mount Chalets or the Park Chalets. A clubhouse and other utility facilities were also constructed. 9.On each storey of a Beach Chalet there are 2 apartments, viz Apartment A and Apartment B. 10.A Deed of Mutual Covenant was executed on 31 July 1979 (“the DMC”) between Holiday Resorts, the management company, and the first owner. Under the DMC, the Sea Ranch was notionally divided into 608 equal undivided shares. For the purpose of disposing of the 5 actions before me, only the following allocation of shares are relevant:-
11.As common in deeds of mutual covenant in Hong Kong, the DMC set out the responsibilities of the owners of undivided shares in the Sea Ranch to pay management fees and other upkeep. For example, clause 6(c)(i) set out the remuneration payable to the management company: inter alia, HK$150.00 per month for each apartment in a Beach Chalet; and HK$75.00 per month by each of the apartments in a Park Chalet. 12.Clause 8(a)(i) set out the owners’ duty to pay for the management expenses of the Sea Ranch, the interpretation of which is a core dispute between the parties. I reproduce the full text as follows:-
13.Since the Developer’s share was excluded from the liability to pay contributions, the owner of each of the other subdivided shares had to pay 1/607 of the management expenses of the Sea Ranch. 14.I note that the term “the Developer’s Term” used in clause 8(a)(i) was not defined in the DMC itself. 15.Clause 8(d)(1) further set out that any management expenses or other contributions overdue for more than 7 days shall attract interest at the rate of HK$1 for each HK$100 (or part thereof) for each period of 30 days (or part thereof) that the same remained unpaid. Clause 8(d)(2) imposed a collection charge of HK$300.00 to cover the cost of the management company for the extra work occasioned by the default. 16.A Supplemental Deed of Mutual Covenant was executed on the same day as the DMC (“the SDMC”) between Holiday Resorts, the management company, and a Mr Cheung Ming as the first “Term Owner”:-
17.I think there is no serious dispute that, as described by Mr Wong Tak Wing (“Mr Wong”), the treasurer of the IO’s management committee and who deposed 2 affirmations in support of the IO’s case, that Holiday Resorts as the developer intended to operate the Term Apartments as vacation homes for individuals or corporations. Based on land search records, Holiday Resorts indeed managed to sell some terms to various individual or corporate entities. Mr Walter Lau, counsel for Holiday Resorts, has kindly prepared a table which shows that, for Apartment A on Beach Level of Beach Chalet No 5, Holiday Resorts owned 10 of the 26 terms, plus the half-share of another 3 terms[2]. 18.I should also mention that there was a Second Supplemental Deed of Mutual Covenant executed on 19 March 1980 (“the SSDMC”) between Holiday Resorts, the management company, and a Mr Christian Helmut Thomsen as a Term Owner. The SSDMC was said to be supplemental to both the DMC and the SDMC. In essence, the SSDMC imported a “floating term scheme”, by which the management company was authorized to issue licences to term owners who joined the scheme to occupy the Term Apartments for terms (including those owned by Holiday Resorts) which owners had joined the scheme. Hence, a Term Owner who joined the scheme would not be limited to the particular term they owned, but could enjoy any of the Term Apartments across the available terms. 19.The IO was incorporated on 2 July 1980. 20.The IO claims that Holiday Resorts has been in default of paying management fees and other contributions for the 5 Apartments since 1999, coinciding with the time Holidays Resorts stopped operating the Term Apartments as vacation homes. From a reading of the affirmation evidence Holiday Resorts has filed, there is no serious challenge on how the managements fees and contributions were calculated, and the fact that Holiday Resorts did not pay them. For Apartment A on Beach Level of Beach Chalet No 5 to which DCMP 1289/2023 relates, 2 charges were registered by the IO for outstanding management fees, contributions, and interest:-
21.In both Memoranda, it was stipulated that Holiday Resorts was the registered owner of 4/608th undivided shares in the Sea Ranch, and was entitled to the exclusive use and occupation of Apartment A on Beach Level of Beach Chalet No 5. 22.The IO argues that, unless Holiday Resorts pays the outstanding management fees, contributions and interest covered by the 2 charges, the apartment should be sold to realize proceeds to redeem the charges. The IO puts forward evidence showing that there is no objection from the encumbrancer ranking in priority to a proposed sale of the apartment, and the sale proceeds should be sufficient to discharge both the prior encumbrances and the 2 charges. 23.Holiday Resorts denies that it has the legal liability to pay the outstanding management fees and contributions as stipulated in the 2 charges. I think Mr Henry Cheng, counsel for the IO, has correctly summarized the defence in §7 of his written submissions, which I gratefully repeat below with minor stylistic amendments:-
DCMP 1290-1293/2023 24.Against each of the remaining 4 of the 5 Apartments, the IO has registered 2 charges for outstanding management fees, contributions, and interest on the same days as those relating to DCMP 1289/2023. The sums charged are also the same: for the Memoranda of Charge respectively dated 13 September 2005, each stipulated that Holiday Resorts failed to pay HK$230,634.00 plus interest; for the Memoranda of Charge respectively dated 30 December 2022, each stipulated that Holiday Resorts failed to pay HK$679,898.00 plus interest. Interpretation of the DMC 25.Mr Cheng set out the IO’s arguments as to why Holiday Resorts remains liable to pay the management fees and contributions covered by the various charges in §8 of his written submissions:-
26.Mr Cheng refers me to The Incorporated Owners of Po Lok Mansion v Richards Company Limited CACV 282/2004 (Cheung, Yeung JJA & Yam HJ; 5 May 2005). Yam J, giving judgment for the Court of Appeal, said the following at §11:-
27.Further, at §13:-
28.Mr Cheng submits that, following the reasoning of the Court of Appeal in Po Lok Mansion, the IO shall not be bound by the SDMC. Since Holiday Resorts was the owner of the 4/608th undivided shares allocated to each of the 5 Apartments in the DMC prior to the notional sub-division in the SDMC, it remained liable to pay the management fees and contributions for the 5 Apartments. 29.In my judgment, the correct interpretation of Clause 8(a)(i) of the DMC makes the present case distinguishable from Po Lok Mansion. I disagree with Mr Cheng that Holiday Resorts remained liable to pay the management fees and contributions in relation to the whole of the 5 Apartments. 30.I find it significant to first bear in mind that the DMC and the SDMC were executed at the same time. In my judgment, these 2 documents contemplated the existence of the other, and this should inform the court how to approach the interpretation of clause 8(a)(i) of the DMC. The SDMC obviously contemplated the existence of the DMC executed on the same day, as it was expressly executed to supplement the DMC. There were also provisions in the DMC that could only make sense by the contemporaneous execution of the SDMC:-
31.In light of the above, I agree with Mr Lau that “any portion thereof” following “the owner of each 1/608th undivided shares” in clause 8(a)(i) of the DMC[3] must have been intended to cover an owner of each 1/26th of 2/608th or 4/608th undivided shares as described by the SDMC. Since clause 8(a)(i) imposed the liability to pay management fee and other contributions on owners of the whole 1/608th undivided share and owners of a portion of such share in the alternative, I find that the DMC imposed a direct liability on a Term Owner to pay management fees and contributions due under it. 32.As a result of the above analysis, I do not agree with Mr Cheng that the present case is similar to Po Lok Mansion. The Court of Appeal’s decision is distinguishable because the DMC in that case was executed years before the Supplemental DMC regulating the commercial areas of the building only. Therefore, the DMC in that case could not be understood to be imposing a direct liability on the owner of a portion of the undivided share, the notional sub-division of which was done later by way of the Supplemental DMC. 33.With respect, Mr Cheng’s reliance on Godfrey J’s judgment in Lai Wing-ho and Anor v Chan Siu-fong [1993] 1 HKLR 319 at 324 is misplaced. All Godfrey J stated was the trite principle that an owner of any undivided shares in land cannot simply assign the exclusive possession of a part of the land without also assigning to the purchaser at least some undivided shares. Any such purported assignment of the exclusive possession of a part of the land alone would at best be a licence giving a personal right to the grantee enforceable against the grantor, but not against the other co-owners of the land. Godfrey J was plainly not discussing the effect for a case in which an undivided share in land was further subdivided notionally, which was the case for the SDMC here. 34.I also reject the other submissions made by Mr Cheng in support of the IO’s case. 35.Mr Cheng invites me to look at Clause 19(d), which provided that:-
36.Mr Cheng submits that since clause 19 mandated each apartment to be owned and occupied as single residence, it must mean that ownership of the same Term Apartment by different Term Owners was plainly not allowed by the DMC, and thus clause 8(a)(i) could not have imposed a direct liability of a Term Owner to pay management fees and contributions. 37.I disagree with Mr Cheng’s interpretation of clause 19. Clause 5 allowed the owner of any undivided share or a part thereof to sell, assign, mortgage, lease, licence or otherwise dispose of or deal with the share without reference to other owners. If Mr Cheng’s interpretation were right, clause 19 would be in apparent conflict with clause 5 as to the possibility of dealing with part of an undivided share. In my judgment, clause 19 only required owners to preserve the physical unity of an apartment, in that there should not be any physical partitioning into different parts. 38.That conveniently brings me to Mr Cheng’s submissions that the SDMC did not create any legal estate in land in the further divisions of an undivided share in the Sea Ranch. I cannot accept his submissions for the following reasons:-
39.In my judgment, Mr Lau is correct to submit that the IO had no recourse against Holiday Resorts for all outstanding management fees and contributions with respect to the 5 Apartments. I find that the Memoranda of Charge registered against each of the 5 Apartments were invalid in that they purported to charge the interest of Holiday Resorts as the sole owner of the 5 Apartments. Hence, an order for sale should not be granted to the IO. Alleged admission by Holiday Resorts 40.The IO claims that it is entitled to the relief sought in these 5 actions, because Holiday Resorts previously admitted to be the sole owner of the 5 Apartments, and dealt with them as such. 41.Mr Wong refers to 2 District Court actions that the IO commenced against Holiday Resorts in 2016, viz DCMP 2868/2016 and DCMP 2869/2016 (“the 2016 Actions”). In those actions, the IO’s claim against Holiday Resorts was basically identical as the present 5 actions; but the 2 apartments in question were 2 other Term Apartments in Beach Chalet No 5. 42.The IO obtained orders for sale in the 2016 Actions as Holiday Resorts did not object to the IO’s application. 43.Back then, a Mr Ng Chi Ping (“Mr Ng”), a then director of Holiday Resorts, filed an affirmation dated 17 January 2017 confirming that Holiday Resorts would not oppose to the IO’s application. In paragraph 5 of that affirmation, Mr Ng Chi Ping stated that Holiday Resorts needed to pay off the outstanding fees and interest. Therefore, Holiday Resorts decided to sell all of the Term Apartments, and would use the proceeds to pay the outstanding fees and interest sought by the IO in the 2016 Actions. Mr Ng then exhibited the board minutes of Holiday Resorts dated 2 December 2016. The minutes referred to the 2016 Actions relating to 2 of the Term Apartments. The board then resolved unanimously that:-
44.In short, the board recognized that the DMC stated that an owner had the duty to pay management fees and other contributions. But given the dire financial condition of Holiday Resorts, the board agreed to the IO’s sale of the properties by auction. 45.Mr Wong further refers to a letter signed off by Mr Chong Lap Fu George (“Mr Chong”), then a director of Holiday Resorts, on 17 August 2022. In this letter, Holiday Resorts acknowledged that the sale of the 2 Term Apartments relating to the 2016 Actions yielded proceeds of around HK$2.6 million. It agreed and authorized IO’s solicitors to apply the proceeds to partially repay the outstanding management fees owed by Holiday Resorts for the other 13 Term Apartments. 46.Thirdly, Mr Wong referred to some tenancy agreements signed by Holiday Resorts to rent out the 5 Apartments on a continuous basis in 2023 and 2024. The IO argues that this shows Holiday Resorts dealt with the 5 Apartments as the sole owner. 47.I am unable to accept that the IO is entitled to the relief sought in the present 5 actions based on the alleged admissions made by Holiday Resorts:-
48.In summary, I do not find the alleged admissions relied on by the IO sufficient to affect the outcome based on the interpretation of the DMC. Conclusion 49.I dismiss these 5 actions with costs to the defendant (with certificate for counsel). 50.On the court’s own motion, the IO is ordered to remove the Memoranda of Charge it registered against each of the 5 Apartments from the Land Registry forthwith at its own costs. 51.The defendant submitted its statement of costs for summary assessment at the end of the hearing. It claims HK$417,320.00 as the total costs for the 5 actions. I think some reduction is called for, in that (i) the hourly rate adopted by the handling solicitor is HK$4,000.00 rather than HK$3,860.00 as usually allowed in party-and-party taxation at the District Court; (ii) item C1 for attendance on client is, in my judgment, on the high side; (iii) item D for the professional work done by the handling solicitor looks excessive to me when there is significant duplication amongst the 5 actions. Together with other minor deductions I think reasonable, the defendant’s costs are summarily assessed at HK$320,000.00 (inclusive of counsel fees), to be shared equally amongst the 5 actions. 52.The above costs order (including the summary assessment) is nisi. Unless there is any application to vary it within 14 days of this Judgment, the costs order nisi shall become absolute. Any application for variation shall be disposed on paper.
Mr Henry Cheng, instructed by C W Chan & Co, for the plaintiff Mr Walter Lau, instructed by K B Chau & Co, for the defendant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Further hearings and rulings under DCMP 1289/2023