The Grande Properties Management Ltd v. Bolex Investment Co Ltd

DCCJ021517/2001

DCCJ21516 & 21517/2001
(Consolidated)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 21516 OF 2001

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 21517 OF 2001

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(Consolidated pursuant to the Order of
His Honour Judge Lok dated 10th January 2003)

Coram: Deputy District Judge Marlene Ng in Court

Dates of Hearing: 21, 22, 23, 24, 25, 28, 29 and 30 July 2003

Date of Judgment: 13 October 2003

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J U D G M E N T

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Introduction

1.The Plaintiff ("P") was and is the manager of The Grande Building ("Building") at Nos. 398-402 Kwun Tong Road, Kwun Tong, Kowloon pursuant to a deed of mutual covenant dated 14th May 1982 and a supplemental deed of mutual covenant dated 13th July 1982 (collectively, "DMC"). Siegont Limited ("D1") and Bolex Investment Company Limited ("D2") were the owners of Factory B, and Factory A and carpark no.4 respectively on the ground floor of the Building ("Factory B" and "Factory A").

2.P claimed that a resolution was passed at the meeting of owners of the Building on 26th September 2001 ("September Owners' Meeting") to raise funds for recouping the deficit for payment of renovation works and to establish the special fund account in the sum of HK$2,800,000.00 ("Total Deficit") to be paid on 26th October 2001 ("Resolution No.5"). P therefore issued debit notes dated 27th September 2001 ("2nd Debit Notes") to D1 and D2 in the respective sums of HK$90,032.00 and HK$166,559.57. The 2nd Debit Notes were unpaid and P now claimed for such sums.

3.D1 and D2 in their respective Defence and Counterclaim denied liability and claimed that the Total Deficit was "incurred unreasonably and improperly under obscure conditions with no details or reasons being shown to all the owners of the Building. In particular [P] has persistently failed to observe the requirements of clause 2(2) of the Seventh Schedule to the Building Management Ordinance, Cap.344 ("BMO")".

4.D1 and D2 also raised a counterclaim/set off that P, by its letter dated 21st May 1997 ("1997 Letter") and debit notes dated 21st May 1997 ("1st Debit Notes") calling on D1 and D2 for payment of their contributions of HK$19,300.00 and HK$35,705.00 respectively for a building improvement project of the Building, negligently misrepresented that the said project was undertaken pursuant to resolutions made by the owners in meeting on 28th April 1997 ("1997 Owners' Meeting"). D1 and D2 claimed inter alia that by reason of P's negligence and breach of duty of care, the 1997 Owners' Meeting was improperly convened and held, and the contract works of the project were not awarded through tender process which was in breach of BMO and the Code of Practice issued by the Secretary for Home Affairs in 1993 ("Code"). D1 and D2 counterclaimed for the refund of the sums of HK$19,300.00 and HK$35,705.00 respectively.

5.P initially claimed for outstanding management fees as well but D1 and D2 have since paid the same.

6.D1 and D2 have in their Defence and Counterclaim challenged the jurisdiction of this court to deal with this matter and claimed that the Lands Tribunal has exclusive jurisdiction. Mr Chow, counsel for D1 and D2, no longer pursued this argument at the trial.

7.Mr Chow agreed that there was no dispute that the September Owners' Meeting was held and that Resolution No.5 was passed at that meeting. Indeed, there was no dispute that D1 and D2's representative attended and voted at the meeting. There was on the pleadings no dispute that the 2nd Debit Notes were received and that D1 and D2 did not pay the same. In the circumstances, the basic elements of P's claims were not disputed and D1 and D2 carried the burden of proof on the positive case raised in the Defence and Counterclaim. When invited by the court (in light of Order 35 rule 7(1) and (6) of the Rules of the District Court), Mr Chow had no objection to D1 and D2 opening their case first.

8.Both counsel agreed to the admissibility and authenticity of the documents included in the trial bundle which have been helpfully listed by Mr Chan, counsel for P, as follows : P (pleadings bundle), W (witness statements bundle), A (documents bundle), B1 and B2 (contractor's documents bundles), C (correspondence bundle) and D (Defendants' bundle).

9.D1 and D2 called Mr Leung Kin Sing ("Leung"), their sole witness, to give evidence. Ms Sham Ching Yi ("Sham") and Ms Lai Fung Ming Brenda ("Lai") gave evidence on behalf of P. All witnesses adopted their witness statements as their evidence in chief.

Issue estoppel

10.It was apparent from the witness statements that there were another set of proceedings in the Lands Tribunal LDBM313 & 314/2001 ("LT Proceedings") involving the same parties in relation to calls on contributions pursuant to a resolution passed at the meeting of owners held on 12th December 2001 ("December Owners' Meeting"). The learned Presiding Officer handed down judgment on 2nd July 2003 ("LT Judgment"). Since the LT Proceedings dealt with the same Building, the same DMC and the same parties and also referred to the September Owners' Meeting, I raised with counsel whether any issue estoppel arose from the LT Judgment.

11.Mr Chow confirmed during his opening submissions that D1 and D2 no longer claimed that P had no power under the DMC to proceed with renovation works of the Building. In his closing submissions, Mr Chow confirmed that D1 and D2 no longer adopted the argument that P had any ulterior motive in undertaking the renovation works, namely, that P (a member of the Grande Group of companies) accommodated the Grande Group's need (not shared by non-Grande Group owners) to upgrade the Building. In the circumstances, the concern over any potential issue estoppel fell away.

12.The witness statements also revealed that there was a further set of proceedings in the High Court between P and Sun Wah Ornament Manufactory Limited ("Sun Wah"), the owner of the 2nd, 3rd and 5th floors, 4th floor and flat roofs, and various carparks of the Building. Those proceedings are pending and counsel assured me that those proceedings had no bearing on the present case.

Pleadings

13.This case is beset with problems with pleadings with consequent implications on the claim/counterclaim, the evidence adduced or not adduced and on the question of costs. It is also necessary to scrutinise the pleadings to ascertain the pleaded matters in contention between the parties.

14.Hong Kong Civil Procedure 2002 Vol.1 at para.18/12/1 at pp.284-285 and para.18/12/27 at p.290 sets out a useful reminder on the purpose of pleadings as follows :

"In Aktieselskabet Dansk Skibsfinansiering v. Wheelock Marden [1994] 2 H.K.C. 264 Bokhary J.A. said at 269E-270E that the functions of properly particularised pleadings are as follows :

(1)	to inform the other side of the nature of the case that they have to meet as distinguished from the mode in which that case is to be proved;
(2)	to prevent the other side from being taken by surprise at the trial;
(3)	to enable the other side to know with what evidence they ought to be prepared and to prepare for trial;
(4)	to limit the generality of the pleadings, the claim and the evidence;
(5)	to limit and define the issues to be tried, and as to which discovery is required;
(6)	to tie the hands of the party so that he cannot without leave go into any matters not included (although if the opponent omits to ask for particulars, evidence may be given which supports any material allegations in the pleadings).

It is not the function of particulars to take the place of necessary averments in the pleading ......

Whenever either party is imputing fraud, negligence, or misconduct to his opponent, the facts must be stated with especial particularity and care ......"

"Particulars must always be given in the pleading, showing in what respects the defendant was negligent. The statement of claim "ought to state the facts, upon which the supposed duty is founded, and the duty to the plaintiff with the breach of which the defendant is charged" ...... Then should follow an allegation of the precise breach of that duty, of which the plaintiff complains. And lastly, particulars of the injury and damage sustained."

The above is trite law. It is against these principles that I now turn to the Defence and Counterclaim.

(1) Defence

15.The pleaded defence of D1 and D2 as set out in paragraph 3 above is not a model of clarity; it did not condescend to particulars. But P did not seek further and better particulars of the Defence and instead filed a substantive Reply. A party's failure to apply for further and better particulars would be regarded as a waiver of such particulars and he cannot at the trial exclude specific evidence in support of a general allegation (see Jacob and Goldrein, Pleadings : Principles and Practice (1990) pp.169-170 and The Supreme Court Practice 1999, Vol.1, para.18/12/2 at p.327).

16.However, since this case was already at the trial stage, I invited Mr Chow to clarify what were the issues in contention as raised by the pleaded defence set out in paragraph 3 above. Mr Chow explained as follows :

(a)	The defence that the Total Deficit was incurred "unreasonably" meant that the works were unnecessary in terms of scope and amount.
(b)	The Total Deficit was incurred "improperly" because the works which caused the Total Deficit were not duly authorised and not properly executed by P.
(c)	The Total Deficit was incurred "under obscure conditions" as there was a lack of information due to P's non-disclosure to all the owners on, for example, what works had been done, when they were done and what had been included in the project, etc.
(d)	Further, no details or reasons for the works were shown to the owners of the Building.

17.D1 and D2's witness statements and consequently, P's witness statements as well, raised a large number of issues arising from the aforesaid general defence allegation. Many of these issues were canvassed in evidence from witnesses called by both P and D1 and D2. However, Mr Chow informed the court in his closing submissions that a number of these matters would not be relied on by D1 and D2. Mr Chow confirmed that he would no longer argue that the scope and amount of the renovation works were unnecessary or unreasonable. As regards the allegation that the Total Deficit was "improper", save and except that D1 and D2 maintained that the renovation works were in breach of the Code, Mr Chow abandoned any other arguments that P had not properly executed the renovation works. Further, Mr Chow also informed the court that he would not rely on the argument that there was insufficient disclosure or non-disclosure of relevant information related to the renovation works by P to the owners (including D1 and D2). Mr Chow also no longer relied on the alleged breach of paragraph 2(2) of the Seventh Schedule of BMO ("7th Schedule"). It therefore becomes immediately apparent from the above that the sole factual issue in respect of D1 and D2's defence as pleaded was whether the renovation works were duly authorised.

18.I elicit the following from Mr Chow's closing submissions as matters he submitted were in contention between the parties :

(a)	whether P was entitled to demand contributions from owners for the renovation works from 1997 to 2001 without any meeting of owners authorising the same;
(b)	whether the renovation works from 1997 to 2001 were in breach of the Code and if so, the consequences arising therefrom;
(c)	whether P was entitled to incur costs for such renovation works under BMO and the DMC, ie the scope of P's power to spend;
(d)	whether Resolution No.5 passed at the September Owners' Meeting was defective in that it was retrospective in nature.

19.Whilst issues (a), (b) and (c) can be broadly categorised as issues pertaining to the general allegation that the renovation works were not proper or duly authorised, it is difficult to see how issue (d) came within the pleaded defence of D1 and D2 as set out in paragraph 3 above or in the expanded clarification by Mr Chow in paragraph 16 above. Although Mr Chow raised issue (d) in his closing submissions, he did not apply to amend the Defence and Counterclaim to plead the material facts to raise the issue. I will return to this matter in my analysis below.

(3) Counterclaim

20.In contrast to the Defence, the Counterclaim is pleaded with more particularity. D1 and D2 did not dispute that owners holding 300 undivided shares attended the 1997 Owners' Meeting and a resolution was passed to the effect that all owners do contribute HK$2,500,000.00 in 1997 and HK$2,000,000.00 in 1998 totalling HK$4,500,000.00 ("97/98 Contribution") for the 97/98 Renovation Works (see below) ("1997 Resolution"). There was also no dispute that the 1st Debit Notes were issued to D1 and D2 and they paid the same.

21.In his written closing submissions, Mr Chow submitted that such payments were the subject of D1 and D2's counterclaim in that "P was negligent in demanding contribution from [D1 and D2] when the [1997 Resolution was] void and invalid". However, in his oral closing submissions, Mr Chow clarified that he was not relying on an independent claim in negligence (which was not pleaded) but rather on the pleaded claim of negligent misrepresentation. D1 and D2 would rely on P's alleged negligent conduct in support of the contention that P's representation as pleaded in paragraph 13 of the Defence and Counterclaim was negligent.

22.According to the Defence and Counterclaim and noting Mr Chow's abandonment in his closing submissions of arguments relating to renovations in respect of the roof and external walls of the Building, the particulars of falsity remaining in issue were whether : (a) the 1997 Owners' Meeting was improperly convened and held, P having failed to serve D1 and D2 (and some other owners of the Building) the notice of meeting for the 1997 Owners' Meeting ("1997 Notice" dated 18th April 1997) or any notice at all pursuant to paragraphs 9 and 10 of the Eighth Schedule of BMO ("8th Schedule"), and (b) the 97/98 Renovation Works (see below) were not awarded through tender process or a proper tender process in breach of section 20A(3) and paragraph 5 of the 7th Schedule and the Code. Particulars of P's negligence as pleaded were (i) P's failure to exercise care that the 1997 Owners' Meeting was properly convened and held and the resolutions were not void or invalid before issuing the 1997 Letter and 1st Debit Notes, and (ii) P's failure to observe BMO and the Code.

23.It is apparent that D1 and D2 had pleaded their counterclaim with some particularity and indeed Mr Chan in his closing submissions held them to their pleaded case. However, I elicit the following from Mr Chow's closing submissions as matters in contention raised by D1 and D2 in respect of the Counterclaim :

(a)	whether the 1997 Notice was properly served;
(b)	whether the 1997 Notice in failing to set out a proposal for the 1997 Resolution was insufficient and in breach of the requirements under the DMC and the BMO;
(c)	whether P had power to commit major renovation works prior to the 1997 Owners' Meeting;
(d)	whether the 1997 Notice was insufficient in that it failed to disclose that The Grande Group (Hong Kong) Limited ("Grande Hong Kong") derived benefit under the renovation works;
(e)	whether the 1997 Resolution passed at the 1997 Owners' Meeting was defective in that it was retrospective in nature;
(f)	whether the 1997 Resolution passed at the 1997 Owners' Meeting was void by reason of all or any of the above;
(g)	whether the 97/98 Renovation Works were in breach of BMO and the Code;
(h)	whether P breached its duty of care and was negligent in representing to D1 and D2 by the 1997 Letter and 1st Debit Notes to pay the 1997 Contribution for the 97/98 Renovation Works.

Mr Chow confirmed that other arguments in the pleadings, witness statements and evidence raised by D1 and D2 were no longer relied by them in these proceedings.

24.On reading the aforesaid issues against the pleaded Counterclaim, it becomes clear that the material facts in respect of issues (b) to (f), and issue (g) insofar as it relates to issues (b) to (f) have not been pleaded at all. Mr Chow raised these issues in his closing submissions (not even having canvassed them in his opening submissions) but he did not seek to amend the Counterclaim. It is bad law and practice to shrug off failure to plead material facts as a mere pleading point. The corollary to such approach adopted by D1 and D2 was that, not having expressly pleaded these matters in the pleadings nor applied for specific discovery of the relevant evidence, they could not be heard to complain of insufficient evidence or criticise P for not adducing relevant evidence on these contentions. I will return to these matters in my analysis below.

25.In light of Mr Chow's abandonment of a number of matters in his closing submissions, I will not deal with the factual background or evidence in relation to these abandoned matters save insofar as they are relevant to the issues at hand and/or to costs.

D1 and D2's case

(1) 1997 Owners' Meeting

26.Leung was D1 and D2's director and one of the "bosses" of these companies in 2001. D1 and D2 became the owners of Factories B and A respectively in or about 1984. As Leung started to become involved in active management of D1 and D2 in about 1995, he was not clear what happened to these factory premises between 1984 and 1995. These factory premises were let as shops/showrooms.

27.In about 1995 Leung started to visit Factories A and B about twice or thrice a month. He became aware of the notice board (about 3 A4 pieces of paper in size) on the ground floor of the Building next to the staircase leading from the ground floor to the 1st floor ("Notice Board"). The Notice Board was there throughout the years with papers posted thereon all the time about building operations, such as propaganda leaflets from the Home Affairs Department. The papers changed from time to time but Leung was unclear about the nature of the replacement documents. He agreed that if a visitor went straight to the elevator on the ground floor, he might miss the Notice Board. The visitor would have to turn away from the elevator towards the staircase to read the Notice Board but that was just a short distance. Although Leung had no business to visit the lift lobby area, he said there was no toilet on the ground floor and he had to use the staircase to go to the first floor toilet whenever he visited the Building.

28.Leung said that he first observed renovation works being carried out at the Building in 1997. Since 1995, he was aware that D1 and D2 as owners could have a say in any renovation works of the Building and he expected D1 and D2 to be notified in respect of such renovation works. However, he said that he was not in a position to make any enquiries as he did not have documentation in relation to the renovation works he observed in 1997.

29.Leung was not aware of any meeting of owners prior to 2001. He said if it were otherwise, he would have attended such meeting on D1 and D2's behalf. His father would have asked him to do so as his father was quite old. Leung said that if a notice of a meeting of owners were posted on the Notice Board, the chance of his missing it was not that great. He said he was in Hong Kong in April 1997 and he visited the Building on about 26th April 1997. He recalled that visit because his first child was born in June and he went to Wan Tung Furniture Shop at either Factory A or B prior to June to look for a baby cot. He did not see any notice of meeting of owners on the Notice Board on that occasion. In his witness statement dated 21st February 2003, Leung said that even if the notice of meeting was posted on the Notice Board, it was an improper means of convening the 1997 Owners' Meeting.

30.Leung was subsequently aware of the 1997 Owners' Meeting. In May 1997, D1 and D2 received the 1st Debit Notes (C/1128 and 1136) calling for contribution of their share of the 97/98 Contribution for the renovation works of the Building. In his 2 witness statements dated 13th June 2002, Leung said that D1 and D2 received the 1997 Letter demanding payment of their respective shares of "the apportioned contribution for a building improvement project ...... to be undertaken [at the Building]". He said that the 1997 Letter stated that the total cost of the 1997 and 1998 renovation works of the Building ("97/98 Renovation Works") were HK$4,500,000.00 and were "purportedly performed pursuant to resolutions adopted by the owners of the [Building at the 1997 Owners' Meeting]". The 1997 Letter had not been produced in these proceedings.

31.Leung said he gave instructions for D1 and D2 to settle the 1st Debit Notes (C/1129-1129/01 and 1137) although he was aware that there had been no meeting of owners. He believed that P was trustworthy or had acted properly and he thought that the 97/98 Renovation Works were proper, which he now realised was a mistake. He denied that at that time he was unconcerned about the 1997 Notice or the 1997 Owners' Meeting; after all D1 and D2 had 2 premises in the Building and the renovation works exceeded HK$4,000,000.00, not a small sum.

32.However, in his 2 witness statements dated 13th June 2002, Leung stated he was busy with his business and did not pay attention to whether (a) P had issued any notice to D1/D2 for the 1997 Owners' Meeting, (b) the 1997 Owners' Meeting was properly convened, held and attended by all owners who wished to attend had they been notified, (c) the resolutions passed at the 1997 Owners' Meeting were proper and valid, (d) the 97/98 Renovation Works were genuinely required for the maintenance and/or improvement of the Building, and (e) P had properly discharged its duty in a fair and impartial manner. Leung said he was not suspicious because he had other properties in Lai Chi Kok and Sham Shui Po, and the performance of the property managers thereat gave him confidence. In any event, he was too busy with his business to pay attention to routine matters such as property maintenance.

33.When asked under cross-examination as to what was the alleged impropriety of the 1st Debit Notes and D1 and D2's contribution for the 97/98 Contribution, Leung could only think of P's failure to inform D1 and D2 of the 1997 Owners' Meeting.

34.In 1997, The Grande Properties Limited ("Grande Properties") was the owner of lavatories A and B on the ground floor, 1st floor Block A, 6th-10th floors, 12th floor and roof, the external wall and various carparks of the Building (A/197 and 199). After 1997, Grande Properties acquired the 1st floor Block B and the 11th floor and a carpark of the Building from Batts Far East Limited ("Batts"). By 2001, Grande Properties together with other Grande Group companies (ie Lafe Computer Magnetics Limited ("Lafe Computer") and Lafe Holdings Limited ("Lafe Holdings")) became majority owners of the Building.

35.Only owners holding 300 undivided shares (ie Grande Properties, Lafe Computer, Lafe Holdings and Feedback Limited) were actually present at the 1997 Owners' Meeting. Leung claimed in his witness statement dated 21st February 2003 that Grande Properties should know that if all owners were present at the 1997 Owners' Meeting, the minuted resolutions would not have been passed. From that Leung inferred that no notice of meeting was given to the non-Grande Group owners in order to conduct the 1997 Owners' Meeting behind closed doors and attended by the Grande Group owners only. Leung in his witness statement dated 21st February 2003 stated that P had negligently failed to consult all owners even if it acted impartially and honestly (which was denied). However, Mr Chow disclaimed any reliance of any allegation of ulterior motive.

36.Under cross-examination, Leung explained that as the renovations were substantial and costly and the situation in 1997 not stable, most owners would not have agreed to make a big contribution for renovation costs. Sun Wah, D1 and D2 would have voted against the resolutions had they attended the 1997 Owners' Meeting. Although the Grande Group companies did not command a majority in 1997 since Batts and Chung Ming Enterprises Company Limited ("Chung Ming"), non-Grande Group companies, were also owners, Leung knew that Batts had paid its share of contribution and had never complained nor sought recovery of such payment. He also knew that Chung Ming also had never sought recovery as well and the only opposing owners up to the present were Sun Wah, D1 and D2. Leung accepted that had he attended and voted against the 1997 Resolution, it would have been passed if the majority voted for the same.

37.In fact the 1997 Notice (A/239) stated that "to improve and maintain the condition of [the Building]", P invited all owners to attend the 1997 Owners' Meeting 'to discuss issues concerning improvement work for "The Grande Building"'. The minutes of the 1997 Owners' Meeting (A/240-243) noted that "[n]otice has been given to all owners of [the Building]". It was reported that the Building was getting old with many facilities and interior deteriorating and to prevent further deterioration, P suggested certain improvement projects. A budget for such projects was tabled, showing the remaining funds as at 31st December 1996 of HK$204,288.00 ("1996 Surplus") and the 97/98 Renovation Works of building improvement work, inspection and testing of electrical installation, lift retrofit and replacement of lifts nos.1-4. As the remaining funds were insufficient for the projects, P suggested calling for funds from all owners in the sums of HK$2,500,000.00 and HK$2,000,000.00 (totalling HK$4,500,000.00) for 1997 and 1998. The precise total of the 97/98 Contribution as shown in the annexed schedule was HK$4,499,924.00. It was unanimously resolved inter alia that all owners of the Building would contribute funds as proposed by P and that P as manager be authorised to take all necessary actions to carry out the resolutions.

38.Mr Chow abandoned the following arguments raised by Leung in his evidence and his witness statements (save insofar that the 1997 Notice failed to disclose the 5% supervision fee paid to Grande Hong Kong) although much trial time was spent on these issues :

(a)	P initiated substantial renovation works when there were no government demands for renovation for safety reasons and when there was no urgency, and without regard to the affordability of the non-Grande Group owners;
(b)	P allowed itself to become a vehicle of Grande Properties or the Grande Group to carry out extensive renovations and to upgrade the lobby and the Building beyond the needs of an industrial building in order to complement the design of the Grande Group's corporate headquarters and at various floors owned by Grande Properties (some of which floors were used as offices in breach of the user specified in the government lease);
(c)	P failed to provide information in respect of staff stationed in the lobby area;
(d)	P attributed the external wall renovations to the common owners when the external wall was owned by Grande Properties;
(e)	P incurred the installation cost of the golden metallic words "GRANDE GROUP" above the front main entrance facing Kwun Tong Road;
(f)	P included the 5% supervision fee in favour of Grande Hong Kong in the renovation charges (see below); and
(g)	P carried out some renovation works which were merely cosmetic.

(2) 2001 Owners' Meeting

39.Leung first attended a meeting of owners of the Building held on 17th January 2001 ("2001 Owners' Meeting"). He said his father informed him of the meeting although he did not know how his father knew of the meeting. However, in his 2 witness statements dated 13th June 2002, Leung said that on or about 2nd January 2001, he received a notice of the 2001 Owners' Meeting. He was surprised to find that the agenda (see agenda dated 2nd January 2001, supplemental agenda dated 9th January 2001 and their appendices) (collectively, "2001 Agenda" - A/225-232) included a proposal to raise a sum of HK$5,500,000.00 from all owners to pay for further renovations so shortly after the 97/98 Renovation Works.

40.The 2001 Agenda provided for inter alia the following : (a) to approve the financial statement for the year ended 31st December 2000, (b) to approve the budget for the year ended December 2001 (copy annexed thereto), (c) to discuss building renovation and improvement works (schedule with renovation expenses for 2001 estimated to be HK$3,180,000.00 annexed thereto), (d) to discuss and where appropriate to approve the appointment of property management company, (e) where appropriate to approve the building renovation and improvement works referred to above, and (f) where appropriate to approve the raising of HK$5,500,000.00 partly to cover the then deficit and partly to finance the aforesaid works (schedule annexed thereto showing carried forward deficit of about HK$2,315,972.00 (or about HK$2,300,000.00) ("January 2001 Deficit") and the estimated costs of further renovation works of HK$3,180,000.00 and proposing to raise funds of HK$5,495,972.00 or about HK$5,500,000.00). The sum of HK$5,495,972.00 together with Sun Wah's shortfall for the 97/98 Contribution of HK$1,548,099.00 would bring the aggregate deficit to HK$7,044,071.00 (A/231).

41.Leung decided to attend the 2001 Owners' Meeting. He was delayed on the ground floor when staff stopped to check his identification. Leung said the process was slow and deliberately designed to prevent him (and Sun Wah's Mr Ho and their solicitor Mr Tai too) from joining the meeting in time. By the time he arrived, the meeting has concluded. Leung demanded that it be recorded in the minutes that he did on behalf of D1 and D2 attend the meeting (A/237-238). He asked P's manager Mr Wong Moon ("Wong") (ie Billy Leung's predecessor) about the meeting and Wong promised to send him the minutes. Leung agreed that he did not refer to Wong at all in his 3 witness statements.

42.In his 2 witness statements dated 13th June 2002, Leung said that after being denied attendance to the 2001 Owners' Meeting, he became suspicious of P's behaviour and had a discussion with Sun Wah's Mr Ho. He then discovered that the 97/98 Renovation Works were carried out under dubious circumstances and his previous assumptions about the propriety of P's performance, the 1997 Owners' Meeting and the 97/98 Renovation Works were immediately called into question. When Leung returned to his office, he conducted a search of his files and concluded that what Mr Ho told him were true. He found out that D1 and D2 had not received any notice for or minutes of the 1997 Owners' Meeting nor any detailed information of the 97/98 Renovation Works. Leung also learnt that Grande Properties was P's related company. He therefore suspected that in collecting management fees from all the owners of the Building P did not act in an impartial and fair manner or in the best interest of all owners. However, Mr Chow confirmed that he would not rely on the argument that P favoured Grande Properties in making the proposal for renovations. Leung also learnt that Sun Wah refused to pay its share of the 97/98 Contribution and P had commenced legal proceedings against Sun Wah.

43.Even so, Leung said in his evidence that he made no further enquiries thereafter and it was at the September Owners' Meeting that he became aware that no resolution was passed at the 2001 Owners' Meeting. Leung agreed that from 1997 to September 2001, apart from asking Wong to provide the minutes of the 2001 Owners' Meeting as aforesaid, he personally took no initiative to enquire about renovation matters.

44.The minutes of the 2001 Owners' Meeting (A/233-238) showed that Grande Properties, Lafe Computer and Lafe Holdings, together holding 367 (ie more than 50%) out of 622 undivided shares, attended the meeting. It was further stated that P and P's solicitors were also present. It was recorded that Chung Ming was absent and, as stated above, representatives of Sun Wah, D1 and D2 turned up after the meeting was concluded. The proposed resolutions to approve the financial statement for the year ended December 2000 and the budget for the year ended December 2001, to discuss and where appropriate to approve the increase in management fees, and to discuss and where appropriate to approve the renovation and improvement works and the raising of funds were adjourned to the next owners' meeting. It was unanimously resolved that P's appointment as manager of the Building be confirmed and ratified.

45.By correspondence between P and D2 (ie Leung) from 4th June to 10th August 2001 (C/1147-1151), D2 requested for building income and expenditure statements and related information. P acknowledged BMO provided for D2's right as owner to inspect the books and records of accounts and to request for copies after inspection upon payment of copying charges, and offered inspection of such books and records by D2. Mr Chow confirmed he would no longer take issue in respect of the provision of financial accounting records.

(3) September Owners' Meeting

46.Leung said he had not seen any building management budget for the years from 1997 to 2000. On or about 1st September 2001 when P sent a notice of meeting ("September Notice") (A/203) and the agenda and supplemental agenda for the September Owners' Meeting ("September Agenda") (A/204-211), Leung saw the enclosed 2001 budget. In fact, item 2 of the September Agenda called for the approval of the 2001 budget (see Appendix D thereto), and the September Notice and a further notice dated 6th September 2001 (A/202) requested comments on the 2001 budget. The September Notice further invited the owners to attend the September Owners' Meeting to discuss and where appropriate decide on and resolve the items in the September Agenda.

47.Item 1(a) of the September Agenda proposed to resolve that the owners of the Building do pay to P their respective shares of the 97/98 Contribution of HK$4,499,924.00. It was noted that all owners except Sun Wah had paid their shares of the 97/98 Contribution. Therefore items 1(b) and (c) of the September Agenda (see also Appendices A and B thereto) proposed to resolve that credit be given to the owners who had paid their shares in the total sum of HK$2,951,825.00 and that Sun Wah do pay its share with interest thereon in the total sum of HK$2,581,481.67.

48.Item 1(d) of the September Agenda proposed the establishment of a special fund account of the Building by P upon payment by Sun Wah of its share of the 97/98 Contribution, and P should remit to the special fund account the sum of HK$348,585.00 ("Surplus") being the surplus of the 97/98 Contribution over the actual amount incurred for the 97/98 Renovation Works. Item 1(e) of the September Agenda proposed that the owners be accredited with having contributed a pro rata share of the Surplus in the special fund as set out in Appendix C thereto. Item 1(f) of the September Agenda proposed to resolve that the Surplus be maintained exclusively as a special fund for non-recurring expenditure as provided in BMO.

49.Item 4 and Appendix E of the September Agenda proposed a resolution to approve prospective renovation and improvement works of HK$4,712,450.00 ("Original 2002 Renovation Cost") to be carried out in 2002, which was pared down to HK$1,300,000.00 at the September Owners' Meeting ("Reduced 2002 Renovation Cost"). D1 and D2's contribution for such works were the subject of the LT Judgment in favour of P and irrelevant to these proceedings.

50.Item 5 of the September Agenda called for a resolution to approve the raising of funds of HK$7,400,000.00 to recoup the January 2001 Deficit, to pay the Original 2002 Renovation Cost and to establish the special fund account, to be made in 2 instalments, ie on 26th October 2001 and 26th February 2002.

51.When he received the September Notice and Agenda, Leung thought the substantial amount of the deficit absurd. Leung understood that the HK$7,400,000.00 deficit was due to Sun Wah's failure to pay its share of the 97/98 Contribution with interest thereon and the cost of the prospective renovation works to be carried out. However, no breakdown was provided by P and Leung made no enquiries prior to the September Owners' Meeting. In his 2 witness statements dated 13th June 2002, Leung said that he contacted Sun Wah's Mr Ho and they decided to attend the September Owners' Meeting to express their dissatisfaction and to oppose the proposed resolutions.

52.Leung attended the September Owners' Meeting on behalf of D1 and D2. According to the minutes, the meeting was attended by all owners, including Grande Properties, Lafe Computer and Lafe Holdings (who together held 367 (ie over 50%) of the total undivided shares), Sun Wah's representatives (including their solicitor Mr Tai) and Chung Ming's Mr To. P's representatives, P's former solicitors and Chesterton Petty Ltd's representative were also present.

53.Billy Leung, P's property manager who conducted the meeting, proposed inter alia that funds be raised (a) to recoup the Total Deficit in the sum of HK$2,800,000.00 for renovation works which had been carried out and to establish the special fund account to be paid on 26th October 2001, and (b) to approve the prospective renovation works to be carried out in the sum of HK$1,300,000.00 (see item 5 of the minutes of the September Owners' Meeting (A/216)). Billy Leung explained that the Total Deficit comprised the deficit arising from Sun Wah's failure to contribute its share of the 97/98 Contribution and interest thereon, and the costs of further renovation and/or maintenance works of the Building for the past few years.

54.Mr Chan put to Leung in cross-examination P's breakdown of the deficit and Leung did not disagree with the calculation of the same. There was the 1996 Surplus of HK$204,288.00 as at 31st December 1996 (A/242). The 1997 Resolution at the 1997 Owners' Meeting called on the owners to pay the 97/98 Contribution of HK$4,500,000.00 (or more precisely, HK$4,499,924.00 - A/243) for the 97/98 Renovation Works. All owners except Sun Wah (whose share was HK$1,548,099.00 - A/243) paid their shares, thus creating a shortfall. The actual cost of the 97/98 Renovation Works was HK$4,151,339.00 (A/176/90-176/92). In 1999 and 2000, P carried out further renovation works ("99/00 Renovation Works") without approval by owners in meeting and paid HK$2,868,849.00 to contractors (A/176/93-176/95). Thus, by January 2001 there was the January 2001 Deficit of HK$2,315,976.00 (ie the actual cost of the 97/98 and 99/00 Renovation Works less (a) the 1996 Surplus and (b) assuming that Sun Wah would pay its share, the 97/98 Contribution).

55.Item 4 of the minutes of the 2001 Owners' Meeting tabled at the September Owners' Meeting noted that P informed the owners in meeting the January 2001 Deficit of HK$2,315,976.00 and the cost of the then prospective renovation works of HK$3,200,000.00 (the latter of which is not relevant to these proceedings). The 2001 Agenda therefore included an item to approve the raising of HK$5,500,000.00. Appendix 5 of the 2001 Agenda (A/231) revealed the January 2001 Deficit of HK$2,315,972.00, the estimated cost of renovation works of HK$3,180,000.00 and the shortfall by Sun Wah of HK$1,548,099.00.

56.Leung said in evidence that he did not know the composition of the January 2001 Deficit from the 2001 Agenda or from the 2001 Owners' Meeting (despite having received the relevant notice of meeting). He said he arrived after the 2001 Owners' Meeting was finished. At first Leung said Billy Leung did not show the attendees of the September Owners' Meeting the breakdown of Total Deficit. However, under cross-examination, he said he became aware of the breakdown of the January 2001 Deficit when the minutes of the 2001 Owners' Meeting and the 2001 Agenda were explained to him at the September Owners' Meeting. Leung also learned at the September Owners' Meeting that P also spent HK$453,521.00 for renovation works in 2001 without approval by the owners in meeting ("2001 Renovation Works"). Thus the January 2001 Deficit and the cost of the 2001 Renovation Works would result in the Total Deficit of about HK$2,800,000.00. Leung said Billy Leung made the aforesaid explanation to Leung and other owners present at the September Owners' Meeting. Leung agreed that Billy Leung appeared to be frank and forthcoming and did try to explain the deficit on behalf of P.

57.The September Owners' Meeting commenced at 9:00 am and concluded at 11:35 am. Leung could not recall how much time was spent at the meeting discussing the Total Deficit. According to the minutes of the September Owners' Meeting (A/212-217), the resolutions proposed in item 1(a)-(e) of the September Agenda were passed by majority despite opposition from Sun Wah, Chung Ming, D1 and D2. Leung on behalf of D1 and D2 reserved their rights against P and stated that if the procedures followed by P were inappropriate they would recover their shares of the 97/98 Contribution paid to P. Leung said this showed his concern over the past renovation works. The 2001 budget (item 2 of the September Agenda) and Resolution No.5 were passed by majority with Sun Wah, Chung Ming, D1 and D2 voting against these resolutions. Leung said he had not received sufficient supporting information in respect of Resolution No.5 at the material time. However, had he received all the information he required, he would still have voted in the same manner, ie against Resolution No.5.

58.Leung said that Billy Leung disclosed (and Leung first became aware) at the September Owners' Meeting that a 5% supervision fee payable to Grande Hong Kong was built into the cost of the past renovation works from 1997 to 2001. Leung understood that the supervision fee was required for supervising the renovation works carried out by several contractors. He accepted that a supervising agent was required for major building renovations but he challenged the rate of 5% as too high. However, Mr Chow no longer complained of the rate of the supervision fee in his closing arguments.

59.Leung had the impression from Billy Leung's explanation at the September Owners' Meeting that the 5% supervision fee was charged on all previous renovation works. After the September Owners' Meeting, he attended Billy Leung's office to inspect documents but did not see any document referring to such supervision fee. However, when Mr Chan referred him to a summary table of the renovation works and their costs (B1/244-246) and the primary supporting documents for the summary table (B1 and B2), Leung realised that the 5% supervision fee was only charged on some renovation works, that some renovation costs were charged to all owners at actual cost without any supervision fee and that for some renovation items, only part of the costs were charged to all the owners of the Building. Leung said Billy Leung did not explain in such detail. However, Leung accepted that he might have looked at the summary tables (A/176/90-176/96) at his solicitors' office but he had not formed a deep or clear impression of the same.

60.Leung contended that no primary supporting documents evidencing the previous renovation works were made available at the September Owners' Meeting or at a later meeting when he attended Billy Leung's office in October/November 2001 (although Leung made no mention of the latter meeting in his witness statements). Leung further said that the renovation-related documents were only subsequently obtained through the efforts of D1 and D2's solicitors after correspondence passed between them and P's solicitors from 9th September 2002 to 18th February 2003 (D/368-379). Part of the trial hearing was spent canvassing this issue but ultimately Mr Chow confirmed in his closing submissions that he would not rely on the non-availability of the primary information and supporting documents at the September Owners' Meeting or thereafter. In fact, correspondence between P and D2 from 12th December 2001 to 5th January 2002 revealed that P referred D2 to the September Agenda for financial information on the 97/98 Renovation Works and P also informed D2 that the file on details of the 97/98 Renovation Works had been prepared and was ready for inspection at P's office (C/1152 and 1146).

61.Leung queried P's refusal to disclose or give timely provision of full information of P's staff and their salaries, P's borrowings from and interest payment to The Alpha Capital Limited ("Alpha Capital"), a Grande Group company, to finance the Total Deficit, the benefit to Grande Properties by letting P rent 2 carparks at inflated rates, the installation of aluminium checker plates at various parts of the Building, the cosmetic nature of some renovations, the works carried out on the external walls and part of the ground floor lobby (both owned by Grande Properties), and P's failure to include certain renovation works as normal repair and maintenance work. It was also pointed out that other than the 97/98, 99/00 and 2001 Renovation Works totalling HK$7,473,709.00, the income and expenditure accounts for 1996 to 2000 also showed an aggregate expenditure of HK$1,229,504.00 (D/220 and A/80, 86, 92, 98) on repair and maintenance. Leung doubted the need to spend a total sum of about HK$9,000,000.00 on renovations from 1997 to 2001. However, Mr Chow did not pursue these points any further in his closing submissions.

62.Given his experience as chairman of the incorporated owners of a building at Castle Peak Road which had recently undergone major renovations, Leung accepted that matters concerning a building (including expenditure for renovations) should be dealt with at owners' meetings under the DMC. However, he objected to Resolution No.5 passed at the September Owners' Meeting.

(4) Post-September Owners' Meeting

63.Leung confirmed that D1 and D2 received the 2nd Debit Notes (C/1124 and 1132) in September 2001 (see cover letter dated 28th September 2001 from P to D1 - C/1129/02) in the sums of HK$90,032.00 and HK$166,559.57 respectively to cover the Total Deficit. Despite reminder letters from P to D1 and D2 both dated 31st October 2001 (C/1130 and 1138) and demand letters from P's former solicitors dated 22nd November 2001 (C/1144 and 1145), D1 and D2 did not pay the 2nd Debit Notes because Leung considered the Total Deficit improper.

64.P issued the notice for the December Owners' Meeting dated 26th November 2001 (A/177) enclosing the relevant agenda and minutes of the September Owners' Meeting. The minutes were approved at the December Owners' Meeting (A/189-193).

65.Chung Ming tendered payment of HK$4,501.61 being its share of the Total Deficit under cover of Mr To's letter to P's former solicitors dated 24th October 2001 but Chung Ming reserved its rights insofar that if the procedures followed by P were inappropriate, Chung Ming would recover the sum paid (D/71-72).

66.Leung also complained that periodic summary of income and expenditure for the Building (A105-176 and D/218-221) had not been displayed before 2001. He had never been notified of the availability of the income and expenditure accounts and balance sheets of the management of the Building. Again, Mr Chow no longer pursued this argument in his closing submissions.

67.Leung said Billy Leung left P in or about the latter part of 2002.

P's case

68.To avoid repetition, undisputed documentary evidence referred to above will not be repeated in setting out P's case.

(1) Sham and Lai

69.Sham in her witness statement dated 30th January 2003 stated she was P's property manager and commenced employment with P in August 2002. However, in her witness statement in the LT Proceedings dated 12th May 2003 (D/426-460), she clarified that she was employed by Grande Hong Kong since October 2001 and was seconded to P as its property manager in August 2002 (pending Billy Leung's departure) for 5 months until the arrival of the new property manager. Sham was Billy Leung's supervisor in July/August 2002 until Billy Leung left. Sham remained with P for a while until after the arrival of the new property manager for proper handover. Sham was at the time of the trial still with Grande Hong Kong.

70.Sham had personal knowledge of matters in respect of the Building during her secondment with P. Prior to that, she was not personally involved, but she perused P's files and documents for events in the earlier period. Billy Leung also reported to Sham the dispute between P and D1 and D2 before he left. Sham was not present at the September Owners' Meeting and only met Leung after Billy Leung left. She said Lai would be more knowledgeable on the repair and maintenance works.

71.It was put to Sham in cross-examination that her witness statement was almost identical with the 2 witness statements of Billy Leung dated 17th and 24th June 2002. Sham said she had not made a comparison but she was not surprised because she might have given the same answer as Billy Leung did when P's former solicitors put the same question to them.

72.Lai in her witness statement dated 30th January 2003 stated she was P's repair and maintenance officer and commenced employment with P on 4th December 2000. However, in her witness statement in the LT Proceedings dated 12th May 2003 (D/461-467), she clarified that since December 2000 she has been employed by Grande Hong Kong. She had never been P's repair and maintenance officer nor employed by P in any capacity. She specifically pointed out that her reference to her employment with P in her witness statement dated 30th January 2003 in the present proceedings was an inadvertent mis-description. In her evidence Lai clarified that she first worked for Grande Group some time ago and left in 1993. She returned in June 1999 to join Grande Hong Kong first as an executive assistant and later as repair and maintenance officer on 4th December 2000.

73.Lai had a BBA degree and 8 years of working experience in the field of repair and maintenance. She had 4 technicians working for her in the repair and maintenance department ("RMD"). She was responsible for and supervised repair and maintenance works for the Building to comply with government regulations and to maintain the condition of the Building. Apart from the Building, Grande Hong Kong's RMD also served the Grande Group. Lai's work also included the handling and compilation of renovation related documents. She was presently the most knowledgeable person in relation to the renovation works of the Building.

74.Sham said before 1997 P did not have its own RMD but only 1 technician who did minor repair works. The technician would check and report on what items that required repair and maintenance. Staff from P's management office would confirm the necessity of the works. For more complicated works, P had to seek outside assistance. Lai said that prior to the year 2000, if there was any work concerning repairs as reported by P's technician, Grande Hong Kong's RMD would send staff to check on the reported problem. Their technicians would carry out repairs if they could fix the problem; otherwise, they would contract the work out to others. From 2001, P had no technician, so Grande Hong Kong's RMD would be responsible for the repair and maintenance of the Building and would charge 5% supervision fee for contract out works.

75.Lai said that the RMD was quite busy. She had to read all documents concerning repair and maintenance and supervise the staff. If there were contract out works, she would have to ask for and review/compare quotations and draw up job specifications. For P's works, Lai had to send out relevant documents for P's approval, and upon such approval, arrange for commencement of work and assign technician to oversee progress. She would also check 2-3 times a day and after completion she would inspect the works for defects and request rectification (if required). When the job was completed, she would sign the job order to approve the completed works and arrange for payment.

76.Lai was cross-examined as to why she knew P's account so well as she had never worked for P. She explained that they had a close working relationship and there were constant meetings with P. During the meetings, P would explain their operating practice and during the September Owners' Meeting Billy Leung also explained the account to Lai and others present.

(2) 1997 Owners' Meeting

77.The Building was erected in 1982 and P was the manager of the Building since 1991. D1 and D2 were the registered owners of Factories B and A respectively, which were used as shops for selling electrical appliances.

78.Sham in her witness statements said that P noted that the condition of the Building had deteriorated over the years. Despite arranging for minor repairs and maintenance for the Building from time to time, there were frequent lift breakdowns, and electrical, plumbing and sewage problems. Sham said she was able to observe this for herself during her secondment to P without any need for any one to tell her. She also checked the minutes and logbooks on breakdowns and repairs done.

79.Sham explained that in order to set up a RMD, there must be an electrician, plumber and other technical staff. From a management point of view, it was a costly affair to set up a RMD for the Building when compared with the small amount of management fees collected. She accepted that there was money from the management fees (and hence a budget) for minor repairs and maintenance. Sham could not remember whether she had seen the budget(s) for the years from 1997 to 2000; but she had looked at the budget(s) for certain years but she was not sure which years. She had seen the budget for 2001 (A/209).

80.In her witness statement, Sham explained that the 97/98 Renovation Works, including the lift retrofit and other major renovations, were carried out from 1996 to 1998. P began to explore the feasibility of renovation works on the Building from mid-1996 and started to obtain quotations from various contractors. By December 1996, P estimated that the costs for the renovation works (excluding the 1996 Surplus) would be in the region of HK$4,720,000.00, of which HK$3,800,000.00 was related to lift maintenance and repairs. P had asked for a lift survey report from Otis (sighted by Sham) and consulted Hitachi and Ryoden. So further funds of about HK$4,500,000.00 were required (A/242) for the building improvement works (HK$520,000.00), inspection and testing of electrical installation (HK$300,000.00), lift retrofit (HK$100,000.00) and replacement of lifts (HK$3,800,000.00). P also estimated it would take the contractors 2 years to complete the 97/98 Renovation Works. Therefore P decided to split the funds to be called into HK$2,500,000.00 for 1997 and HK$2,000,000.00 for 1998, both amounts subject to adjustments. As the funds to be called in 1998 related to lifts, D1 and D2 were not required to make such contributions.

81.Sham said P convened the 1997 Meeting by posting up the 1997 Notice (A/239) on the Notice Board for 10 days. Sham said there was record on P's files that the 1997 Notice was so posted up although she did not know who wrote it. She had provided such record to P's former solicitors. She agreed under cross-examination that the 1997 Notice only asked for discussion of issues concerning improvement works for the Building and there was no mention of asking all owners to contribute the 97/98 Contribution. She further agreed that there was also no mention that one of the Grande Group companies received or was receiving a 5% supervision fee from the 97/98 Renovation Works.

82.At the 1997 Owners' Meeting, owners holding 300 undivided shares unanimously resolved that all owners shall pay the 97/98 Contribution of about HK$2,500,000.00 in 1997 and HK$2,000,000.00 in 1998 (subject to adjustments) for the 97/98 Renovation Works. Sham disagreed that if all owners were present at the 1997 Meeting, the resolutions would not have carried. Sham pointed out that other than D1 and D2, Batts chose not to attend the 1997 Owners' Meeting but paid its share without protest although she accepted that there was no positive information that Batts actually knew of the 1997 Owners' Meeting. Lai said that the budget for the 97/98 Renovation Works (A/242) was tabled at the meeting. After the 1997 Owners' Meeting, P sent minutes of meeting to those owners who were present at the meeting. Sham was not clear why only the owners who attended the meeting were sent the minutes.

83.Between April 1997 and March 1999, P appointed Grande Hong Kong's RMD to act as supervisor for some of the 97/98 Renovation Works. Sham said Grande Hong Kong was more flexible and accommodating in meeting P's requests than a third party supervisor. It was therefore more beneficial to the owners to appoint Grande Hong Kong to supervise the renovations. For much needed repairs and maintenance, Grande Hong Kong would pay the contractors first and then issue a debit note to P. Grande Hong Kong would charge P a supervision fee of 5% of the invoiced amount for each item of work they acted as supervisor and would issue monthly debit notes to P (C/1123/01-1123/31). Such supervision fee applied to only some items of the 97/98, 99/00 and 2001 Renovation Works (A/176/90-176/96). Sham considered this reasonable as normally such supervisory work could attract a 10% supervision fee. However, Mr Chow no longer took issue on the rate of the supervision fee in his closing submissions.

84.P supervised some of the renovation works themselves. P did not have sufficient professional expertise to supervise complicated works but P would monitor progress of the project. For example, although P "supervised" lift improvement works, it only monitored progress but would not be in a position to check the quality of Otis' work. However, P could supervise simple repairs (eg replacement of broken water pipe or loading bay lighting). Under cross-examination, Sham denied that it was reasonable for P to set up a RMD to supervise major renovations. She pointed out that not even Grande Hong Kong would be able to handle the lift renovations done by Otis. She also denied it was group policy to appoint Grande Hong Kong for the supervisory work. Grande Hong Kong and P had independent finance and management.

85.Under cross-examination, Sham accepted that P did not strictly follow the guidelines under section 20A(3) of BMO, Clause 5 of the 7th Schedule and/or the Code in respect of the 97/98 Renovation Works. The 97/98, 99/00 and 2001 Renovation Works were not subject to tender process. P considered that for safety and technical reasons some works (eg lift renovations) should be carried out by nominated maintenance contractors. Had the guidelines been fully complied with, more administration/supervision, and more time (for tendering process) and cost (such as attendance time) would be incurred. There were 16 contractors for the 97/98 Renovation Works. Sham said that P was justified in not following the guidelines strictly.

86.For the 97/98 Contribution, D1 and D2 were required to pay HK$19,300.00 and HK$35,705.00 respectively but they need not contribute towards the costs for the lift replacement. D1 and D2 paid such sums pursuant to the 1st Debit Notes. By November 1998, all owners except Sun Wah had paid the contribution funds. Therefore, there was a shortfall of HK$1,548,090.00.

87.Lai explained the summaries of the 97/98, 99/00 and 2001 Renovation Works prepared by her (A/176/90-176/96). The job order reference in the summaries shows the year in which the job order was made. The summaries did not show when the invoices were paid and for each item of work, Lai had chosen to list only the most representative invoice(s) out of all invoices for that item. She also accepted that there might be inadvertent errors in the summaries. However, after a job was committed and about to begin, notice would be placed on the Notice Board. She said that P would put up a notice even for suspension of flush water. These notices had not been discovered in these proceedings. However, it was a long time ago and there was a possibility that the notices would have been thrown away.

88.Under cross-examination, Sham agreed that for the 1st 7 items and some other items of works as listed in the summary for the 97/98 Renovation Works (A/176/90-176/92), the invoices were issued before the 1997 Owners' Meeting on 28th April 1997 with some issued in 1996. She also accepted that the invoices for some items in the summary might be after 28th April 1997 but the job order dates for the relevant items as shown in B1 and B2 might be before 28th April 1997. Hence, although the 1997 Owners' Meeting referred to renovation works to be carried out and to calling for funds for that purpose, part of the 97/98 Renovation Works had in fact been carried out before 28th April 1997. Sham accepted that for the job orders committed, carried out or invoiced prior to the 1997 Owners' Meeting, there was no notice to the owners before the issuance of the 1997 Notice.

89.By March 1999, the 97/98 Renovation Works were completed. By August 1999, P had paid the sum of HK$4,151,339.00 to contractors for the 97/98 Renovation Works which were all done on the common areas of the Building (A/176/92). Except for the granite wall and logo at the main entrance and the replacement of the granite tiles of the wall at the building front, there was no improvement/maintenance of the external wall/roof. Sham and Lai gave evidence in some detail on renovations to the external wall, the lobby and the logo, but Mr Chow indicated in closing submissions that he would not be pursuing these points. Indeed, evidence was led from Sham and Lai on the provision of staff at and the renovation of the lobby of the Building. Again, Mr Chow confirmed that these matters would not be relied on.

(3) 2001 Owners' Meeting

90.Sham said that in 1999 and 2000, to comply with government regulations and to renovate the Building to prevent further deterioration, P carried out the 99/00 Renovation Works to maintain its condition. P still did not have a formal RMD and again appointed Grande Hong Kong's RMD to act as supervisor to monitor progress of the 99/00 Renovation Works. P supervised some of the works itself. Sham agreed under cross-examination that there was no prior meeting of owners to approve the 99/00 Renovation Works nor were the 99/00 Renovation Works subject to the tender process.

91.By December 2000, the 99/00 Renovation Works were completed and by January 2001, P made payments in the total sum of HK$2,868,849.00 for the works which were in respect of the common areas of the Building. P made a calculation of its funds and even assuming that Sun Wah paid its contribution of HK$1,548,099.00, there was the January 2001 Deficit. P funded the deficit by borrowings from Alpha Capital. Mr Chow no longer took issue on such borrowings.

92.In January 2001, for necessary maintenance and repair of the Building and compliance with government regulations, P proposed to carry out further renovation works in the estimated sum of HK$3,180,000.00. Therefore, in the 2001 Notice and 2001 Agenda, it was proposed to discuss and approve the raising of funds of HK$5,500,000.00 at the 2001 Owners' Meeting. The 2001 Notice and the 2001 Agenda were served on D1 and D2 by leaving the same at Factories A and B and by posting up at the Notice Board. Sham said service of the notice of meeting of owners by posting the notice on the Notice Board was sufficient service on the owners under the DMC. The January 2001 Deficit of HK$2,315,972.00 and the estimated costs of the then proposed renovations of HK$3,180,000.00 and hence the need to raise funds of HK$5,495,972.00 (ie about HK$5,500,000.00) as well as Sun Wah's shortfall of HK$1,548,099.00 (hence the possible need to raise the larger sum of HK$7,044,071.00 if Sun Wah's shortfall remained unpaid) were all referred to in Appendix 5 of the 2001 Agenda.

93.At the 2001 Owners' Meeting, P informed the owners present of the costs of the 97/98 and 99/00 Renovation Works, the 1996 Surplus, the 97/98 Contribution, and the January 2001 Deficit. The owners present resolved that the proposed resolution to raise HK$5,500,000.00 be adjourned. Sham said that according to the minutes of the 2001 Owners' Meeting, the owners present could actually pass the resolutions by majority but the chairperson considered that the owners should be supplied with more information. Lai was present at the 2001 Owners' Meeting which was held on the 11th floor of the Building. She said the representatives of Grande Properties, Lafe Computer and Lafe Holdings were present. She said that the other owners had the right to attend the meeting and no one should prevent them from doing so. But some of the other owners only turned up after the meeting.

94.Notwithstanding, P carried out the 2001 Renovation Works being maintenance, urgent repair and additional renovation works in the sum of HK$453,521.00. Sham confirmed that the 2001 Renovation Works had not been approved by prior meeting of owners and were not subject of any tender process. Sham said these were not major renovations but just accumulated minor repairs. When asked as to why these items were not included in the annual repair and maintenance budget, Sham explained that there were not enough funds in 2001 irrespective of whether they were included as separate renovation works or as part of an annual budget with consequent need to increase management fees. Lai also said that whether the renovations were classified as major renovations or normal repair and maintenance, they would have to be paid by the common owners.

(4) September Owners' Meeting

95.By August 2001 the deficit increased to HK$2,769,497.00 or about HK$2,800,000.00, ie the Total Deficit being the January 2001 Deficit and the deficit for the 2001 Renovation Works of HK$453,521.00. Sun Wah failed to pay its share of the 97/98 Contribution so P had to borrow to pay for the renovations. On 31st August 2001, Billy Leung told Lai that P would convene the September Owners' Meeting to inter alia recoup the Total Deficit.

96.The September Notice and the September Agenda were served on the owners not less than 21 days before the meeting. In particular, it was served on D1 and D2 by post to their registered office, by leaving at Factories A and B and by posting up the same on the Notice Board. Item 5 of the September Agenda proposed to approve the raising of funds of HK$7,400,000.00 to cover the January 2001 Deficit of HK$2,315,976.00, the incurred costs of the 2001 Renovation Works of HK$453,521.00 and the Original 2002 Renovation Cost of HK$4,712,450.00 (this item being irrelevant to the present proceedings).

97.At the September Owners' Meeting, all owners of the Building were present. Lai was also present as one of P's representatives. Sham was not present. Lai gave evidence to the effect that the supporting documents for the 97/98, 99/00 and 2001 Renovation Works and the January 2001 Deficit were available for inspection at the meeting but none of the owners inspected the same. Much evidence was led in chief and in cross-examination on this subject but Mr Chow confirmed in his closing submissions that he would not be relying on arguments as to the non-availability of such documents at the meeting.

98.Lai said the meeting first discussed Sun Wah's shortfall, then the 2001 budget, the proposed increase in management fees and the prospective renovations. After the discussion on prospective renovation works were finished, Lai said Billy Leung explained in detail the composition of the Total Deficit although there was no record of breakdown of such sum in the minutes. No owners queried the breakdown of the aggregate deficit of HK$2,800,000.00. The calling of funds for the Total Deficit (which was not part of the annual repair and maintenance item) comprising the January 2001 Deficit and the costs of the 2001 Renovation Works of HK$453,521.00 was approved at the meeting. After the meeting, the minutes were circulated to all attendees.

99.Lai confirmed that the special fund account referred to and approved at the September Owners' Meeting was to be the first special fund account to be established for the Building. As regards the 2001 budget, Lai said it was first referred to at the 2001 Owners' Meeting but it was not approved then. Since there was no meeting of owners until the September Owners' Meeting, the 2001 budget was approved only at the September Owners' Meeting.

100.Lai said she herself did not speak with Leung on the 5% supervision fee. But Billy Leung did talk with Lai on the supervision fee as someone had asked him about the supervision fee. Lai could not be sure whether Billy Leung talked with Leung on the same. She had not heard Billy Leung say Leung complained that 5% supervision fee was too high.

(5) Post-September Owners' Meeting

101.On 27th September 2001, P sent the 2nd Debit Notes to D1 and D2 pursuant to Resolution No.5. On 22nd November 2001, P's former solicitors issued demand letters to D1 and D2. But D1 and D2 failed to pay the amounts claimed.

102.After the September Owners' Meeting, several owners including D1 and D2, Chung Ming and Sun Wah also requested to inspect P's accounting records and financial statements for the 97/98 Renovation Works which Sham said P fully satisfied. Sham said the renovation-related documents were ready prior to the September Owners' Meeting but there was no formal request for them. Sham and Lai said that in fact prior to the September Owners' Meeting, ie around June/July 2001, Leung requested for information related to the management of the Building, eg income and expenditure statements, but not renovation related documents and P had satisfied those requests by making available documents for inspection. There was no record of any meeting between Billy Leung and Leung in October/November 2001. By a letter dated 5th January 2002 to D2, P invited D2 to inspect the file on renovation details (C/1146). Sham was not aware of the invitation having been taken up.

103.From 1996 to 2001, P had prepared a summary of income and expenditure for the Building for every month (A/105-176) and since January 2001 a copy of each monthly summary had been displayed at the Notice Board. However, if any owner wished to inspect the financial statements prior to January 2001, they would be made available. P denied that it had persistently failed to observe clause 2(2) of the 7th Schedule. It was said that even if P's handling of the monthly summary of income and expenditure amounted to such failure, D1 and D2 did not suffer any loss or damage.

Counterclaim : 97/98 Contribution

(1) P's alleged representation

104.Leung said that the 1997 Letter and the 1st Debit Notes represented to D1 and D2 that the 97/98 Renovation Works were carried out pursuant to the resolutions passed at the 1997 Owners' Meeting. On their face, the 1st Debit Notes merely demanded payment and did not make the alleged representation. As regards the 1997 Letter, P admitted in its Amended Reply and Defence to Counterclaim that the 1st Debit Notes were sent under cover of a letter dated 21st May 1997, but denied D1 and D2's allegations in relation to the 1997 Letter. However, the 1997 Letter was not produced in evidence and neither Sham nor Lai gave evidence on the same. In light of P's admission of the existence of the 1997 Letter and Leung's evidence which was not rebutted by P's witnesses, I find on the balance of probabilities that the 1997 Letter did make the representation as alleged. Mr Chan argued that even so, the 1997 Letter did not say that the 1997 Owners' Meeting was properly convened or the 1997 Notice was proper. However, it must also be inherently implicit by such representation that the said resolutions were effective resolutions.

(2) Alleged negligence and falsity of the representation : service of the 1997 Notice

105.The first issue (which has been pleaded) is whether the 1997 Notice has been properly served. Mr Chow submitted that Leung testified that he had not seen the 1997 Notice. Since Sham's evidence to the effect that there was record that the 1997 Notice was posted on the Notice Board was multiple hearsay and Lai was not with the Grande Group at the material time, he submitted that P failed to prove that the 1997 Notice had been posted up as alleged.

106.Mr Chow acknowledged that this issue related to the Counterclaim. That being so, the burden of proof is on D1 and D2 and not on P to prove the material averments of the Counterclaim on the balance of probabilities.

107.As no other mode of service was claimed, the sole issue here is whether the 1997 Notice was posted on the Notice Board. However, I do not find Leung's testimony reliable or credible on this issue. I have borne in mind his confessed nervousness in giving evidence in court and warned myself of the possibility that a witness may be less than convincing where he was simply nervous in a court environment. Even so, I come to the conclusion that his evidence in relation to the subject is not reliable or credible. I base my conclusion not only on his demeanour in the witness box but also on the inherent improbabilities of his version of events. I do not propose to set out all the reasons for such finding but the main reasons were :

(a)	The posting up of the 1997 Notice or failure thereof happened 6 years ago. It was not a special event; the question was whether Leung passed by the Notice Board and noticed the 1997 Notice if it were so posted up. No convincing reason has been put forward for Leung to have a special memory over this, particularly as he made no mention of the same at all in his witness statements of June 2002 and February 2003 even though his witness statements dealt with the matter of service of the 1997 Notice. This "improvement" in Leung's recollection is implausible.
(b)	Indeed, Leung's witness statements made no mention that he visited the Building at all. It is clear Factories A and B were let as shops/showrooms for selling electrical appliances. In his evidence, Leung gave no evidence why he had to visit the Building once or twice/thrice a month. As director of D1 and D2, it was unlikely (and there is no evidence) that he was responsible for the collection of rent. However, other than Factories A and B which were rented out and not occupied by D1 and D2, there was no other apparent reason for Leung to go to the Building on such regular basis. On the balance of probabilities, I do not accept that he did so.
(c)	Leung in his evidence gave a very specific date for visiting the Building, ie 26th April 1997. However, his reason for such precise memory is, I find, implausible. The birth of his child in June 1997, doubtless a fond and strong memory but an event that was a month or so after the alleged visit, and his need to buy a baby cot before his child was born are, in my view and in light of the other matters referred herein, extremely unlikely to bring to mind such a precise date of visit. I find his evidence on this aspect unbelievable.
(d)	Even more perplexing was Leung's statement in his 2 witness statements dated 13th June 2002 that he was busy with his business and did not pay attention to whether P had issued any notice to D1/D2 for the 1997 Owners' Meeting or whether such meeting was properly convened. This was in direct contradiction with his viva voce evidence that as he was concerned with meeting(s) of owners of the Building, he would not have missed any such notice had it been posted on the Notice Board. I find on the balance of probabilities that Leung at the material time never gave a thought and did not pay attention to the Notice Board or any notice or document posted up thereat.
(e)	The minutes of the 1997 Meeting (A/240-241), a contemporaneous document and agreed as to admissibility and authenticity by the parties, expressly stated that notice has been given to all owners of the Building.
(f)	In the circumstances, I find on the balance of probabilities (and I would so find even if the burden of proof is on P) that Leung did not regularly attend the Building and that he did not visit the Building on or about 26th April 1997 as he alleged. In fact, I find that in 1997 he did not pay attention to and was not concerned as to whether any notice of meeting of owners of the Building was issued or served whether by posting up on the Notice Board or otherwise.

108.Even assuming that the burden of proof is on P, I further find on the balance of probabilities that the 1997 Notice was properly served by posting up on the Notice Board as prescribed by Clause 17 and also Clause 2 of the 5th Schedule of the DMC. This is consistent with the minutes of the 1997 Owners' Meeting as aforesaid. I note that Mr Chow did not challenge P's compliance of the notice period. Further, I find Sham an honest and reliable witness. Although her evidence on this aspect was hearsay, I believe her and in this respect I have borne in mind the considerations in section 49 of the Evidence Ordinance Cap.8.

109.In light of the aforesaid findings, I also find that it has not been shown on the balance of probabilities that the other owners had not been properly served with the 1997 Notice.

(3) Alleged negligence and falsity of the representation : contents of the 1997 Notice

110.Mr Chow next submitted that the 1997 Notice merely stated that the 1997 Owners' Meeting was "to discuss issues concerning improvement work for [the Building]" without giving notice of the 1997 Resolution which was passed at the 1997 Owners' Meeting. Mr Chow submitted that the 1997 Notice was in breach of the DMC and BMO and therefore defective.

111.Unfortunately, this argument or the material facts in relation to this argument were not pleaded for the only pleaded material fact of impropriety of the 1997 Notice was that it had not been properly served. That was the basis of Mr Chow's opening on D1 and D2's case and it was consistent with Leung's evidence that his sole complaint in respect of the 1997 Owners' Meeting was the non-service of the 1997 Notice. Although Sham and/or Lai had been cross-examined on the contents of the 1997 Notice, this argument was first raised in closing submissions. Mr Chow did not apply to amend the pleadings. In the circumstances, D1 and D2 should not be allowed to rely on this contention without pleading the same (Hong Kong Civil Procedure 2001, Vol.1, para.18/7/7 at pp.267-277). Nevertheless, I shall deal with it for completeness.

112.Mr Chow relied on Clause 10(i) of the 5th Schedule of the DMC which provides inter alia that any resolution on any matter concerning the Building passed by a majority of the owners present in person or by proxy and voting at a duly convened meeting shall be binding on all the owners provided that the notice convening the meeting shall have specified the intention to propose a resolution concerning the same. Hence the 1997 Notice was said to be defective and void in the absence of reference to the 1997 Resolution.

113.Mr Chow also relied on paragraph 9 of the 8th Schedule which provides inter alia that a notice of meeting of owners shall specify the resolutions (if any) that are to be proposed. However, it should be noted that the applicability of the provisions in the 8th Schedule is governed by section 34F(1) of BMO which provides that such provisions shall "to the extent that they are consistent with the deed of mutual covenant, be impliedly incorporated (a) into every deed of mutual covenant made on or after the date; and (b) as from the material date, into every deed of mutual covenant made before that date".

114.I drew Mr Chow's attention to Clause 10(ii) of the 5th Schedule of the DMC which provides that "any resolution purported to be passed at such meeting concerning any other matters shall not be invalid" (my emphasis). It is clear from section 34F of BMO that paragraph 9 of its 8th Schedule does not override or extinguish the said Clause 10(ii). Mr Chow did not dispute this but sought to argue that Clause 10(ii) only applies to matters following from a properly notified resolution and given the substantial amount of the 97/98 Contribution, strict compliance with Clause 10(i) of the 5th Schedule of the DMC was necessary.

115.I find that I cannot ascribe to Mr Chow's interpretation. It is plain on reading Clauses 10(i) and (ii) of the 5th Schedule of the DMC that Clause 10(ii) dealt with resolutions passed at meetings which were other than as prescribed in Clause 10(i). The adoption of the phrase "purported to be passed" in Clause 10(ii) clearly referred to resolutions which had not been properly notified to the owners or where Clause 10(i) had not been complied with. Obviously, Clause 10(ii) was included in the DMC as a saving provision. Further, on reading Clauses 10(i) and (ii) together, the subject matter of any resolution covered by Clause 10(ii) should be other than the subject matter of resolution referred to in Clause 10(i), otherwise the words "any other matters" will have no useful meaning. I see no basis for reading into the plain words of this provision Mr Chow's qualification that the "other matters" must be restricted to matters following from resolutions passed under Clause 10(i) or matters not involving substantial sums. Had it been the intention, it would have been expressly stated in the DMC. In the circumstances, I find Clause 10(ii) of the 5th Schedule of the DMC sufficient to uphold the 1997 Resolution. In any event, even if Mr Chow's qualification were right, the 1997 Resolution clearly was a follow up to the discussion and confirmation of the carrying out of the 97/98 Renovation Works of about HK$4,720,000.00 referred to in the 1997 Notice and endorsed at the 1997 Meeting.

(4) Alleged negligence and falsity of the representation : pre-1997 Owners' Meeting contract works

116.Mr Chow next argued that it was evident from the documents (and Sham admitted) that some of the 97/98 Renovation Works were commenced, carried out or invoiced in as early as 1996 and before the 1997 Owners' Meeting without the approval of the owners in meeting. He submitted that although the DMC gave P power to carry out renovations, such power was not unlimited. If it were otherwise, such unlimited power would be inconsistent with the need to prepare an annual budget and to establish a special fund to deal with non-recurring expenditure (paragraphs 1 and 4 of the 7th Schedule which were mandatory terms applicable to the DMC). Mr Chow further submitted that P (as distinct from owners in meeting) was restricted from committing major expenses in respect of the Building, particularly as P had no borrowing power.

117.It is unclear from Mr Chow's arguments how the above contention on P's allegedly restricted powers or even breach thereof invalidated the 1997 Resolution passed by the owners in meeting. In my view, it cannot be disputed that if the 1997 Resolution was valid and effective, P had the duty as manager to call for the 97/98 Contribution.

118.Further, this contention or the material facts thereof have not been pleaded at all. This issue was not dealt with in the witness statements or even in Mr Chow's opening submissions. Whilst Mr Chow did cross-examine P's witnesses on this matter, this argument was not raised until closing submissions. As Mr Chow chose to stand on D1 and D2's pleadings without amendment, I find that I should not allow D1 and D2 to rely on this argument. However, I shall deal with this for completeness.

119.In my view, Mr Chow's contention confused 2 separate powers. We need to consider, first, P's power to carry out renovation and improvement works of the Building and to commit contracts under the DMC and BMO and secondly, the power of owners in meeting to call for payment of such works.

120.In relation to the first power, I find that P had power under the DMC not only to maintain but to improve the common areas and facilities of the Building without reference to the owners in meeting (see Clause 8(a) and (b)(i) and also Clause 6(e), (f), (n) and (o) of the 4th Schedule of the DMC). However, paragraph 5 of the 8th Schedule (which applied to the DMC pursuant to section 34F of BMO) provided inter alia that the manager shall not enter into any contract that involves an average annual expenditure of more than 20% of the budget or revised budget for that financial year unless the contract complies with the Code.

121.The budget for the year ended December 1997 was not produced in evidence. Mr Chow in his written closing submissions stated that Sham admitted there was no budget for 1997. This is incorrect. Sham had seen the 2001 budget. She said she was not clear whether she had sight of the 1997-2000 budgets but she had seen budget(s) of certain years although she could not remember which years those budget(s) were for (transcript at 25th July 2003 from 10:22:34 to 10:30:11 hours). Mr Chow submitted that it was implausible that Sham could not remember whether the 1997 budget existed. However, it will be noted that Sham was only seconded to P for 5 months in 2002 and there is no evidence that any issue was raised in respect of the 1997 budget at the material time. D1 and D2 did not seek specific discovery of the 1997 budget. Indeed, it was not pleaded or raised as a live issue between the parties until Mr Chow's closing submissions. D1 and D2 were hardly in a position to complain of Sham's lack of specific memory of a 6-year old document that was not contentious prior to her giving evidence. Given the existence of the budgets for 2001 and 2002, the monthly income and expenditure accounts that P prepared from 1996 to 2001 as disclosed and Sham's evidence that she had seen various budgets, I am of the view that it is highly probable that the 1997 budget did exist. On the balance of probabilities, I do not accept Mr Chow's contention that the 1997 budget did not exist.

122.In the circumstances, D1 and D2 failed on the balance of probabilities to show that the contract(s) committed by P in relation to the 97/98 Renovation Works prior to the 1997 Owners' Meeting on 28th April 1997 involved an annual expenditure of more than 20% of the 1997 budget. Thus, D1 and D2 were unable to show on the balance of probabilities that paragraph 5 of the 8th Schedule of BMO restricted P's powers to commit contract works prior to 28th April 1997 or P's renovation powers under the DMC.

123.In relation to the owners' power to call for contributions for renovation works, Clauses 1 and 4 of the 7th Schedule dealt with the determination of the total amount of management fees and contribution to the special fund. These provisions do not restrict P's power under the DMC to carry out renovations and improvements or, more importantly, the power of the owners in meeting to call for contributions for renovations quite apart from management fees and the special fund. It was also Leung's understanding that renovation matters should be dealt with at owners' meetings. Indeed, the owners in meeting had authorised the 97/98 Contribution on 28th April 1997.

124.The owners' power to call for contributions as in the 1997 Resolution must be contrasted with P's power as manager to carry out repairs and renovations/improvements, which power it exercised in carrying out part of the 97/98 Renovation Works prior to 28th April 1997 (discussed above), and which the owners at the 1997 Owners' Meeting must have implicitly endorsed by passing the 1997 Resolution calling for payment for contribution to cover the deficit for the whole project.

(5) Alleged negligence and falsity of the representation : 5% supervision fee

125.Mr Chow next argued that the 1997 Notice was defective as it failed to disclose that Grande Hong Kong, which like P, Grande Properties, Lafe Computer, Lafe Holdings and Feedback Limited were part of the Grande Group, derived 5% supervision fee from the 97/98 Renovation Works as early as from 1996, ie prior to the 1997 Owners' Meeting (A/176/90). Again, this argument or the material facts thereof have not been pleaded nor raised in Mr Chow's opening submissions. The issue of the 5% supervision fee as raised in the witness statements was not in the context of the alleged invalidity of the 1997 Notice but rather to paint a picture of partiality on the part of P (which argument Mr Chow abandoned). Again, Mr Chow did not seek to amend the pleadings and I find that I cannot allow reliance on this argument. Mr Chow argued that this was a point of law. I disagree; it is at most a question of mixed fact and law. The legal issue cannot exist in a factual vacuum where the material facts have not been pleaded. However, I shall also deal with it as a matter of completeness.

126.Mr Chow referred to Incorporated Owners of Beverley Heights v Kwok Yui Sun [1996] 1 HKC 499 where the respondent was a duly appointed member of the management committee of the incorporated owners. The incorporated owners paid a sum to a firm of secretarial services provided by the respondent. In fact, he was the sole proprietor of the firm. The incorporated owners applied to recover the sum paid and the respondent argued that the management committee passed a resolution to appoint the firm. The learned Presiding Officer at p.502 of the judgment said,

"Furthermore, it is trite law, and taken as conceded by the respondent in his grounds of opposition, that a person being a member of a body to deliberate on a matter in which that person has a private interest must disclose to the body his interest. In my view, this duty to disclose interest should be handled in the same manner as the duty to notify any proposed resolution, ie disclosure should be in the notice of meeting so that persons entitled to raise questions or object may decide whether to attend the meeting. See Young v Ladies Imperial Club [1920] 2 KB 523. Obviously in this case, there was no disclosure of interest in the notice."

127.Mr Chan submitted that the proposition in the Incorporated Owners of Beverley Heights' case (supra) had not been fully argued and Young's case (supra), dealing with issues of whether the omission to give notice of meeting to an absent member of the committee invalidated the proceedings and whether the notice did not state the object of the meeting with sufficient particularity, was in fact not supportive of the proposition on disclosure of private interest of members. Mr Chan submitted that there was no legal requirement that demanded prior notification of any private interest in the notice of meeting.

128.P's witnesses did not dispute that Grande Hong Kong charged for and was paid 5% supervision fee for some of the 97/98 Renovation Works. However, it should be noted that Mr Chow's criticism was directed to the inadequacy of the 1997 Notice and not in respect of any lack of disclosure at the 1997 Owners' Meeting. As P and not the Grande Group owners issued the 1997 Notice, the question is whether P should make such disclosure in the 1997 Notice. In the circumstances, the proposition laid down in the Incorporated Owners of Beverley Heights' case (supra) in respect of the duty of disclosure by "a member of a body to deliberate on a matter" (my emphasis) is not directly relevant.

129.However, in a corporate setting, if the directors have an interest in the passing of a resolution, it must be disclosed in the notice calling for a meeting of members issued by the directors. The question is whether such requirement can be transposed to a meeting of owners under a deed of mutual covenant and BMO. Further, if such requirement could be so transposed, the next question is to what extent would such disclosure be required.

130.P is not entitled to vote at the meeting of owners but as manager and/or agent of the owners, it was bound to disclose information which would be material to the owners' deliberations. There is no question of P's integrity in this matter as Mr Chow expressly abandoned any complaint of ulterior motive. I accept Sham's evidence that the finances and management of P and Grande Hong Kong were entirely independent and separate and there is no evidence to suggest that P would gain any part of the 5% supervision fee. Mr Chow did not suggest otherwise.

131.The only available evidence was that Grande Hong Kong was P's "related" company and that P, Grande Hong Kong, Grande Properties, Lafe Holdings, Lafe Computer and Feedback Limited were part of the Grande Group. But Mr Chow was unable to state how they were "related". The corporate details/company search records of Grande Hong Kong had not been produced. There is no information as to whether Grande Hong Kong was a wholly or partly owned subsidiary or parent company of P and/or any of the other Grande Group owners and whether, consequently, through such corporate structure, P and/or the other Grande Group owners would derive any interest or pecuniary benefit. This is a very different situation from the Incorporated Owners of Beverley Heights' case (supra) where the member of the body himself (being the sole proprietor of the secretarial services firm) stood to gain the pecuniary benefit directly.

132.I accept that P worked closely with Grande Hong Kong in respect of the renovation works. But, on balance, that should not be sufficient to elevate such relationship to P's "private interest". P did not have any pecuniary or other benefit and there is no evidence of the extent of common ownership or relation of the various companies. I also find that there is no obligation on P as manager to investigate the relationship of the owners of the Building with Grande Hong Kong or their common ownership (if any) to make disclosure in the 1997 Notice. I therefore find on balance that it has not been established that P had any sufficient interest that required declaration in the 1997 Notice.

(6) Alleged negligence and falsity of the representation : alleged retrospective nature of the resolutions

133.Mr Chow next submitted that as the 1997 Owners' Meeting was allegedly held on 28th April 1997 and it was not disputed that some of the 97/98 Renovation Works were committed, carried out or invoiced prior to that day without the approval of the owners in meeting at the material time, the 1997 Resolution was retrospective in nature and impermissible as ruled in So Chun Man Paul v Incorporated Owners of Chee On Building [2000] 1 HKC 732. He submitted that the DMC and BMO did not allow the 1997 Owners' Meeting to purportedly legitimise the 97/98 Renovation Works done before that date. Again, this has not been pleaded. Even the basic material fact that job orders were issued/committed prior to the 1997 Owners' Meeting has not been pleaded. This was not raised in Mr Chow's opening submissions nor in the witness statements. This argument should not be allowed. However, I will deal with it for completeness.

134.The 1997 Resolution called for funds to be paid after the 1997 Owners' Meeting to cover the then existing (if any) and prospective deficit. The 1997 Resolution took effect on 28th April 1987 when passed by the owners in meeting, not retrospectively. Indeed, with the 1996 Surplus, it was highly doubtful whether on 28th April 1997 there was any deficit since the invoices issued by that date were for limited amounts. Mr Chow's submissions ignored the existence of the 1996 Surplus and I cannot accept his contention.

135.This is to be contrasted with the resolution in So Chun Man Paul's case (supra) where the management committee of the incorporated owners of the building convened an annual general meeting in which a resolution proposing to increase management fees was passed. The respondents being owners of the building subsequently wrote to the management committee pointing out that the resolution was of no effect. The management committee therefore convened an extraordinary general meeting in which a resolution was passed to ratify the earlier resolution. It was held that as the earlier resolution was by virtue of the provisions of BMO of no effect and hence invalid, it could not be "revived" by another resolution nor could it be relied upon to support the second resolution. This is because the second resolution would have retrospective effect and there is no power under BMO to pass resolutions with retrospective effect.

136.As I understand the judgment and the reasoning of the learned Presiding Officer as upheld by the Court of Appeal in So Chun Man Paul's case (supra), the second resolution was retrospective in nature because it purported to validate and "revive" the earlier resolution (which had no effect) so that once revived it would take effect from the earlier annual general meeting. Here, there was no "backdating" of the 1997 Resolution; it called for the 97/98 Contribution to cover the then existing (ie even if the 1996 Surplus was not enough to cover the pre-28th April 1997 commitments and there is no sufficient evidence of this) and future deficit to be paid after the meeting. I cannot accept Mr Chow's arguments in this regard. In any event, D1 and D2 could not complain of any retrospective disturbance of accrued rights and liabilities because they had been owners of Factories A and B at all material times.

(8) The Code

137.Mr Chow submitted that the purpose of the code of practice issued by the Home Affairs Department under section 44 of BMO was "to publicize standards of management and maintenance of the common parts of buildings for compliance by" the parties involved in building management (see paragraph 1.2 of the Code of Practice on Building Management and Maintenance - D/246-262). In fact, paragraph 3.7 and Appendix B referred to the Code, ie the Code of Practice on Procurement of Supplies, Goods and Services issued by the Home Affairs Department under section 44 of BMO. Such Code provides inter alia that any supplies, goods or services the value of which exceeds or is likely to exceed HK$100,000.00 or the sum which is equivalent to 20% of the annual budget of the corporation or such other percentage in substitution therefore as may be approved by the corporation by resolution passed at a general meeting, whichever is the lesser, shall be procured by invitation to tender. Where there is no corporation, there is a similar requirement for the manager in respect of entering into any contract that involves an annual expenditure of more than 20% of the budget or revised budget for that financial year.

138.Mr Chow submitted that the Code is the industry standard serving as a guideline for managers. It was not disputed that the 97/98 Renovation Works were not subject to the tender process. Section 44(2) of BMO and paragraph 1.2 of the Code went on to say that the Code itself would have no direct enforcement effect. If owners' corporations or owners failed to meet the standards stipulated in the Code, they would not be subject to any criminal proceedings under BMO but such failure might, in any proceeding whether civil or criminal, be relied upon as tending to establish or to negative any liability which was in question in those proceedings.

139.Mr Chan referred to Pokfulam Development Co Ltd and ors v Incorporated Owners of Scenic Villas LDBM70/2000, Presiding Officer H H Judge Chow (unreported, 15th May 2001) and Incorporated Owners of Million Fortune Industrial Centre v Jikan Development Ltd and anor HCA14915/1998, Deputy Judge To (unreported, 13th October 2001) which held that the codes of practice were not rules of law. He submitted that sections 20A and 44 of BMO did not impose any statutory obligations for P to comply with. In his closing submissions, Mr Chow accepted the above propositions and conceded that a breach of the codes of practice did not lead to the direct consequence that D1 and D2 had no liability to pay the 97/98 Contribution. He submitted that P's breach of the codes of practice lent weight to the suggestion that P acted negligently and Mr Chow's prime contention was still on P's negligent misrepresentation.

140.There was no dispute that the codes of practice were not complied with in that there was no tender process. But Mr Chow on behalf of D1 and D2 did not otherwise challenge that the 97/98 Renovations were unreasonable or improper in amount or scope. In the circumstances, I cannot see any practical adverse consequence flowing from the non-adoption of the tender process nor how such breach by P would invalidate the 1997 Resolution passed by the owners in meeting. Further, in light of this observation and Mr Chow's stance on the consequence of breach of the codes of practice, I do not find that such breach had any material effect on the issue of P's alleged negligent misrepresentation.

(8) Alleged negligence and falsity of the representation : service of Supply of Services (Implied Terms) Ordinance

141.Mr Chow further submitted that P owed a duty of care to the owners of the Building as it was engaged in the provision of building management services to the owners. Section 5 of the Supply of Services (Implied Terms) Ordinance Cap.457 provides inter alia that in a contract for the supply of a service where the supplier is acting in the course of a business, there is an implied term that the supplier will carry out the service with reasonable care and skill. I do not doubt that P as manager and agent of the owners owed a duty of care to the owners to carry out its duties with reasonable care and skill. However, in light of the aforesaid analysis, I do not find that the resolutions of the 1997 Owners' Meeting (including the 1997 Resolution) were void or of no legal effect and hence P had not been negligent in issuing the 1997 Letter and the 1st Debit Notes.

142.This is sufficient to dismiss the Counterclaim. However, I will deal with the issues on reliance and damages for completeness.

(9) Alleged reliance

143.Mr Chow submitted that as a result of P's negligence in sending the 1997 Letter and 1st Debit Notes based on resolutions of the 1997 Owners' Meeting which were void and of no effect, D1 and D2 were induced into paying their share of the 97/98 Contribution to P. However, I find on the balance of probabilities that they did not so rely on the alleged representation and I reject Leung's assertions in his evidence in this regard. I do not consider his evidence in this respect reliable.

144.Under cross-examination Leung said that since 1995 when he became actively involved in the management of D1 and D2, he knew that as owners D1 and D2 could have a say in any renovation works of the Building and he expected that D1 and D2 would be notified of and attend owners' meeting on any renovation works. If such assertion were right, he could not have failed to note upon receipt of the 1997 Letter and the 1st Debit Notes (which stated that the building management project was undertaken pursuant to the resolutions of the 1997 Owners' Meeting) that (a) the demands for contribution were for renovation works of the Building, (b) a meeting of owners had been held, (c) D1 and D2 had not been notified of such meeting, (d) he had not attended such meeting (since he and not his father would be the relevant delegate to attend owners' meeting) and (e) D1 and D2 never had a say in the renovation works (contrary to his belief); in short, the representation was not in accordance with his understanding of the usual or proper practice or at the very least, his expectation. Even on Leung's case, there could not have been reliance when he gave instructions to settle the 1st Debit Notes. In this respect I have reminded myself that the burden of proving that Leung was not deceived by the representation was on P.

145.On the other hand, in his 2 witness statements dated 13th June 2002, Leung said he did not pay attention to whether the 1997 Notice was properly issued or whether the 1997 Owners' Meeting was properly convened, held and attended by all owners or whether the resolutions were valid. He was simply too busy with his business to pay attention to routine matters such as property maintenance. I find that on balance this is a more plausible explanation than the one proffered by Leung in his viva voce evidence referred to above and I further find the representation in the 1997 Letter and 1st Debit Notes had never exercised his mind when payment was made. He did not pay attention to them at all and just gave instructions to settle the same. I find on the balance of probabilities that when payment was made, Leung was not concerned with the propriety or otherwise of the 1997 Owners' Meeting, the resolutions passed and/or the renovation works at the material time. The representation did not operate on his mind and he was not influenced by it.

146.Although I do not rely on Leung's subsequent conduct to come to this conclusion, his subsequent conduct as alleged was consistent with this finding. According to Leung's witness statements, even when he had his suspicions of P's "misconduct" confirmed and when he became aware that he has not been notified of the 1997 Owners' Meeting or the 97/98 Renovation Works upon discussion with Sun Wah's Mr Ho after the 2001 Owners' Meeting, no action was taken by D1 and D2 until they reserved their rights during the September Owners' Meeting. Leung further agreed in viva voce evidence that from 1997 to September 2001 he took no initiative to enquire about renovation matters apart from asking Wong for the minutes of the 2001 Owners' Meeting. Had Leung been duped by the representation in the 1997 Letter and the 1st Debit Notes and then discovered P's "misconduct" in January 2001 as alleged, his subsequent inaction or lack of enquiry until the September Owners' Meeting has not been sufficiently explained.

147.The aforesaid conclusion is again sufficient to dismiss the Counterclaim. However, I will deal with the issue of loss and damages for completeness.

(10) Loss and damages

148.In the Defence and Counterclaim, the particulars of damage as pleaded were the sums of HK$19,300.00 and HK$35,705.00 being D1 and D2's share of the 97/98 Contribution paid pursuant to the 1st Debit Notes. P denied the same.

149.But it is clear from the resolutions passed at the September Owners' Meeting to the effect that :

(a)	all owners do pay P their respective shares of the 97/98 Contribution being the total amount called for by P in respect of the 97/98 Renovation Works;
(b)	credit shall be given to those owners who have made advance payments to P for their respective shares of the 97/98 Contribution;
(c)	upon payment by Sun Wah of its share of the 97/98 Contribution, P would establish the special fund account and remit thereto the Surplus from the 97/98 Contribution, and the owners would be credited with a pro rata share of such surplus,

that the owners at the September Owners' Meeting by majority endorsed P's call for the 97/98 Contribution and went further to designate the uses of the 97/98 Contribution. D1 and D2 are bound by such resolutions duly passed by the majority under the DMC. I therefore cannot see how D1 and D2 could demand for the return of their contribution.

The claim : September Owners' Meeting and the Total Deficit

(1) Absence of meeting of owners

150.Mr Chow submitted that Sham admitted that there were no meeting of owners held to approve the 99/00 and 2001 Renovation Works. He agreed that under the DMC, P had power to undertake renovation works but P's power to spend was not without restraint.

151.Section 34E of BMO provides that the provisions in the 7th Schedule were impliedly incorporated into the DMC. Mr Chow submitted that paragraph 1 of the 7th Schedule refers to management expenses, ie recurring expenditure (whether capital or revenue) for which P had to prepare a budget before the commencement of each financial year so that the owners could be aware of their financial liability and to monitor expenditure throughout the year. Paragraph 1(3) of the 7th Schedule provides inter alia that where in respect of a financial year the manager has not complied with the preparation of the budget as prescribed under paragraph 1(2) before the start of that financial year, the total amount of the management expenses for that year shall 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, and 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.

152.Paragraph 4 of the 7th Schedule also provides for a special fund which covered non-recurring expenditure. But there was no special fund for the Building until the same was to be established pursuant to the resolutions of the September Owners' Meeting.

153.Mr Chow in his written submissions stated that Sham admitted that there was no budget for management expenses for 1997 to 2000 and the budget for the year 2001 was "only taken out by P at the [September Owners' Meeting] as can be seen at paragraph 3 of the minutes". He therefore argued that the 2001 budget produced 9 months into the financial year could not be said to comply with paragraph 1 of the 7th Schedule. On this basis, he submitted that the management expenses for 1997 to 2001 should be based on the total expenditure of the Building in 1996, namely HK$3,035,880.00 (A/116). Therefore, P was "not entitled to demand contributions from the owners of the Building for the renovations purportedly done between 1997 to 2001 without the authorisation of any validly held owners meeting" (paragraph 45 of Mr Chow's closing submissions) (my emphasis). Further, by reason of the retrospective nature of Resolution No.5, there was no valid authorisation by the owners to call for contribution for the Total Deficit (see below).

154.In light of my findings and conclusion in respect of the 1997 Resolution and the 1997 Owners' Meeting above, there was no sufficient challenge to the propriety or proper authorisation of the 97/98 Renovation Works by owners at the 1997 Owners' Meeting. This leaves the question of the 99/00 and 2001 Renovation Works.

155.Mr Chow's arguments did not distinguish between the power of owners in meeting to demand contributions for renovation works (if any), and P's power to demand payment of management fees.

156.Contributions for renovation works (which may include substantial renovation and improvement) are not regular management expenses. For example, lift retrofit or lift replacement should not be regarded as part of annual maintenance and expenses. Although it was initially suggested that some items of the 97/98, 99/00 and 2001 Renovation Works should be included in the normal repair and maintenance budget, this contention was abandoned by Mr Chow in his closing submissions. Clause 13 of the DMC gives broad power to owners in meeting to discuss and decide on matters concerning the Building, which must include renovation works and calls on contribution for such works.

157.In the present case, P did not on its own call for contributions for the Total Deficit; it did so as agent for the owners pursuant to Resolution No.5 passed by the owners at the September Owners' Meeting. P also did not on its own call for any increase in management fees; the owners at the September Owners' Meeting passed a resolution to that effect. Section 34E and paragraphs 1 and 4 in the 7th Schedule cited by Mr Chow (including the budgeting process) do not curtail the power of owners in meeting under the DMC to call for contributions other than management expenses and special fund. Further, even if P failed to comply with the budgeting process, I cannot see how any cause of action against P for non-compliance (if any) would avoid Resolution No.5 passed by the owners in meeting.

158.As there is no further claim for management fees in this case, I do not propose to deal with P's power to demand management fees. Further, Mr Chow's arguments hinged on the claimed admission by Sham that there was no budget for the years from 1997 to 2000. As discussed above, that is incorrect and I have found on balance that there were budgets for 1997 to 2001. Since this point was not expressly raised (in the Defence) until Mr Chow's closing submissions, D1 and D2 cannot be heard to complain that such budgets were not produced in evidence.

159.There is no or no sufficient evidence that the process in paragraph 1(2) of the 7th Schedule had not been complied with. I also cannot understand Mr Chow's reference to the alleged non-compliance with paragraph 1(3) of the 7th Schedule. Even if the budget was not prepared in accordance with the prescribed budgeting process at the beginning of the year, paragraph 1(3)(b) specifically provided that if the budget was subsequently compiled, the total management expenses would be that as specified in the budget. In the present case, as I have found that the budgets for 1997 to 2001 do exist, the relevant yardstick was the proposed expenditure provided in those budgets for the relevant years rather than the 1996 total expenditure of the Building. The problem was that the budgets were not produced in evidence to sustain this argument.

(2) Retrospective nature of the resolutions

160.Relying on the arguments set out above and in particular that the 97/98, 99/00 and 2001 Renovation Works were carried out prior to the September Owners' Meeting, Mr Chow submitted that Resolution No.5 calling for contributions to pay for the deficit for such works was retrospective in nature. I repeat my analysis above and I find that such resolution was not retrospective in nature. Resolution No.5 was not intended to take effect from a past date but to take effect from its being passed at the September Owners' Meeting. The resolution called for contributions of a then existing and current deficit and for payment of such contributions at a future date. There was nothing retrospective about the resolution. In any event, as D1 and D2 remained owners of Factories A and B holding the same number of undivided shares throughout the relevant period.

(3) The Code

161.I have dealt with this argument above. In respect of P's claim, Mr Chow extended his argument on this aspect to cover not just the 97/98 Renovation Works but also the 99/00 and 2001 Renovation Works. I cannot see (and Mr Chow did not point to any) circumstances in respect of the 99/00 and 2001 Renovation Works that distinguished them from the 97/98 Renovation Works insofar as the application of the Code or codes of practice is concerned. In the circumstances, I adopt my conclusions above and find that any breach of the Code does not affect the validity of Resolution No.5.

162.I am satisfied that Resolution No.5 is valid and binding on D1 and D2. I also adopt the salutary observations of the learned Presiding Officer in the LT Judgment in respect of the December Owners' Meeting as follows :

"The Grande Group Owners as majority owners were entitled to vote in their own interests. The law equally protects their interests. They followed all the procedures and the requirements under the DMC to secure the resolution. The other owners just could not complain when the outcome of the voting was against them. As in any kind of voting mechanism, the minority has to follow the wishes of the majority. [P] as the Manager must follow the decision of the majority, or else it would be in breach of its duty under the DMC too. So [P] cannot be criticised at all when the majority owners were simply exercising their rights under the DMC."

163.Clause 16(a) of the DMC provided that in relation to a defaulting owner failing to pay any sum within 15 days, P as manager shall be at liberty to demand interest on the sum due calculated at the rate of HK$1.50 for every HK$100.00 or part thereof for each period of 30 days or part thereof for which it remains unpaid. I am also satisfied that P is entitled to claim for interest on D1 and D2's unpaid contributions of the Total Deficit pursuant to such provision. However, as Resolution No.5 provided that the contributions be due on 26th October 2001 and taking into account 15 days' grace as provided in this clause, I consider that interest should be calculated from 11th November 2001.

Conclusion

164.I therefore grant judgment to P against D1 for the sum of HK$99,050.20 and interest thereon at the rate specified in Clause 16 of the DMC from 11th November 2001 to the date of judgment and thereafter at judgment rate until payment. D1's counterclaim against P is dismissed.

165.I also grant judgment to P against D2 for the sum of HK$166,559.57 and interest thereon at the rate specified in Clause 16 of the DMC from 11th November 2001 to the date of judgment and thereafter at judgment rate until payment. D2's counterclaim against P is dismissed.

166.There is no reason why costs should not follow event. I therefore grant a costs order nisi that D1 and D2 shall pay P's costs of the consolidated action and their respective counterclaims (and including all costs reserved) to be taxed if not agreed with certificate for counsel.

Postscript

167.It is evident from this judgment that D1 and D2's pleadings left much to be desired. D1 and D2 also put in issue a number of matters which were abandoned at the close of the trial. However, much trial time and pre-trial effort (eg discovery and witness statements) had been spent on those matters. Further, new issues were raised in closing submissions. Therefore, even if D1 and D2 were wholly successful in their defence and counterclaim, I would have displaced the usual costs order for costs to follow event and would have ordered D1 and D2 to pay P two-thirds of the costs of the proceedings with certificate for counsel.

Representation:

Mr Maurice Chan instructed by Messrs Kennedys for the Plaintiff.

Mr Chow Hung Fat instructed by Messrs Rowdget W Young & Co for the 1st and 2nd Defendants.