The Incorporated Owners of Blocks F1 To F7 of Pearl Island Holiday Flats v. Fullwill Property Management Ltd.
Read the full judgment text of on BabelCite. was delivered on 28 August 2001.
1. The Applicant engaged the Respondent as manager for the management of Blocks F1 to F7 of Pearl Island Holiday Flats ["the Estate"] from 1st March 1997 to 30th June 2000. There were altogether 3 written management agreements, each for a different period. The last agreement was dated 14th August 1999 and covered the period from 1st July 1999 to 30th June 2000. The material provisions in the three agreements are essentially the same.
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LDBM000273B/2000 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Building Management Application No. LDBM 273 of 2000 _________________
Coram: H. H. Judge LAM Dates of Hearing: 16 August 2001 & 17 August 2001 Date of Judgment: 28 August 2001 ___________________ J U D G M E N T ___________________ 1.The Applicant engaged the Respondent as manager for the management of Blocks F1 to F7 of Pearl Island Holiday Flats ["the Estate"] from 1st March 1997 to 30th June 2000. There were altogether 3 written management agreements, each for a different period. The last agreement was dated 14th August 1999 and covered the period from 1st July 1999 to 30th June 2000. The material provisions in the three agreements are essentially the same. 2.I notice that in the first agreement dated 22nd January 1997 (reproduced at p.10 to 13 in the Applicant's Bundle), the period covered appears to be incorrectly stated at p.10 to be from 1st March 1996 to 28th February 1997. On the other hand, at p.13, it was stated that the Respondent took over management from 15th February 1997. At the hearing before me, it is not disputed that this was in fact the agreement for 1st March 1997 to 28th February 1998. 3.Further, there appears to be a time gap between the second agreement (which ended on 28th February 1999) and the last one (which commenced on 1st July 1999). No explanation has been given to me. At the hearing, submissions were advanced by both sides on the basis that during the whole period, viz. from 1st March 1997 to 30th June 2000, the contractual relationship between the parties were governed by similar provisions. In the light of that, I shall deal with the matter accordingly. The dispute between the parties 4.After the Respondent ceased to be manager of the Estate, the Applicant said that the Respondent failed to hand over the relevant documents. On 25th August 2000, the Applicant commenced the present proceedings. In its original form, the Application sought the determination of the following issue,
5.Subsequently, that paragraph was deleted and replaced by a reference to Paragraph 8(a) and (b) of the Seventh Schedule of the Building Management Ordinance. Apart from such general reference, the Form 29 gives no indication as to the matters which the Applicant seeks the adjudication of the Tribunal. 6.Paragraph 8(a) and (b) of the Seventh Schedule of the Building Management Ordinance reads as follows,
7.The Applicant alleged that the Respondent failed to comply with the requirements of the said Paragraph 8. As the factual basis of the allegation has not been set out in the Form 29, I sought clarification from Mr.Wei who appeared on behalf of the Applicant. 8.At my request, Mr.Wei produced a draft of the order which the Applicant sought from the Tribunal. According to that draft order, the relief sought are as follows,
The Applicant's case 9.Mr.Wei told me that the Applicant's case is that these documents should be produced by the Respondent to the Applicant in the discharge of its obligation under paragraph 8 of the Seventh Schedule. Mr.Wei also made it clear that the Applicant is not suggesting that the Respondent had to produce audited accounts. He accepted that under the contractual arrangement between the parties, the Respondent was not obliged to produce audited accounts. 10.With regard to the Income and Expenditure Accounts and Balance Sheet, Mr.Wei accepted that monthly Income and Expenditure Accounts and a document purported to be Balance Sheet have been supplied by the Respondent. However, Mr.Wei said that they did not comply with the requirements of paragraph 8 of the Seventh Schedule. He said the so-called Balance Sheet could not be regarded as Balance Sheet since it did not set out the assets and liabilities of the management account. As to the Income and Expenditure Accounts, he said that paragraph 8 requires one overall Income and Expenditure Account to be prepared for the whole period instead of several accounts for different periods. 11.With regard to the other documents, Mr.Wei said that they fell within the scope of Paragraph 8(b) of the Seventh Schedule and the Applicant was therefore entitled to the same. The Respondent's case 12.It is apparent from my summary of the Applicant's case that the points raised in the Notice of Opposition regarding the auditing of the accounts are no longer live issue since the Applicant accepted that this was not the responsibility of the Respondent. 13.As to the Balance Sheet, Miss Fong (who appeared for the Respondent) submitted that although the format of the Balance Sheet did not set out the assets and liabilities in accordance with the normal accounting standard, the necessary information could be derived therefrom. She further submitted that Balance Sheets in similar format tendered by the Respondent have been accepted by the Applicant in the past. 14.As to the Income and Expenditure accounts, Miss Fong said that notwithstanding that they were sent on a monthly basis, the Respondent has satisfied the requirement of paragraph 8. In this connection, she also relied on Clauses 2(1) and 4(4) of the management agreement (the provisions in all three agreements contained similar terms). 15.As to the debit notes and receipts, the Respondent's case is that the Respondents did not retain copies of the same as the records of the Respondent were kept in computer. 16.As to the bank statements and documents relating to the Hang Seng Bank Account, the Respondent said that that account was used for management of funds of other estates as well and therefore objected to production. My decision 17.During the course of the hearing, I have repeatedly sought clarification from the Applicant that the application is only for production of documents instead of the taking and vouching of account. Mr.Wei assured me that the Applicant appreciated the distinction between the two and was content to confine the present application to seek production of documents as set out in his draft order submitted to the Tribunal. 18.I raised this concern because if the Applicant wished to challenge some of the items set out in the accounts already produced by the Respondent, the proper way to proceed is to ask for vouching of the account. During the course of the evidence of AW1 Mr.Tse Hin Keung, the chairman of the Applicant, he said that there were entries in the Income and Expenditure accounts which were not properly incurred. That would be relevant to the vouching of the accounts rather than to the production of the accounts. 19.Despite such evidence, Mr.Wei told me that the Applicant only sought production. I therefore have to decide the application as it is. Hence, if I conclude that the requested accounts have been produced, that would be the end of the matter as far as this application is concerned. I could not and do not deal with the issues whether accounts produced are correct and whether expenditure recorded therein were properly incurred. If the Applicant wishes to pursue those issues, it has to be done by means of other proceedings. 20.Miss Fong accepted that her client was obliged to perform the duties under Paragraph 8 of the Seventh Schedule. The Seventh Schedule sets out the mandatory terms in a deed of mutual covenant. They were incorporated into the Deed of Mutual Covenant in the present case by reason of Section 34E(1) of the Building Management Ordinance. Section 34E(2)(a) further provides that the provisions so incorporated shall bind the owners and manager of the building. 21.Section34D(1) defines manager as the person who for the time being is, for the purposes of the deed of mutual covenant in respect of the building, managing that building. As such, it has been held in Universal Property Management Services Ltd. v. Incorporated Owners of Ying Ga Garden [1997] 4 HKC 349 that it did not include an ex manager. 22.However, the definition in Section 34D(1) only applies unless the context otherwise required (see the wording of that section). Clearly, the context of Paragraph 8 of the Seventh Schedule is dealing with an ex-manager. I am therefore satisfied that such definition should not be applied to the construction of paragraph 8 of the Seventh Schedule and Section 34E(2)(a) insofar as duty under paragraph 8 is concerned. 23.Further, the respective Clause 1(1) of all the management agreements incorporated the provisions of the Deed of Mutual Covenant as the duties of the Respondent including the mandatory provisions in the Seventh Schedule. Balance Sheet 24.I shall first deal with the Balance Sheet. The document produced by the Respondent is at p.130 of the Respondent's bundle. Instead of setting out the assets and liabilities regarding the management account, the document sets out the management fee received, prepayment, handling charges and other income received from 1st January 2000 to 30th June 2000. It also sets out the expenditure for the period and the surplus. It further sets out the outstanding management fee carried forward from 31st May 2000. 25.Miss Chung, who is the managing director of the Respondent, gave evidence on behalf of the Respondent. She explained that the document was prepared in this manner because the Respondent was not a professional accountant and the assets of the management account basically consisted of management fees only. She said that the necessary information can be worked out from the document. 26.I do not accept that explanation. Although not a professional accountant, the Respondent is a professional manager. Miss Chung said that the Respondent managed quite a number of estates in Hong Kong apart from the Estate. Since a manager has to deal with the accounts of the estate he manages, it is expected that a reasonably competent manager should know at least how to prepare a proper balance sheet. That is the underlying assumption of the scheme under the Building Management Ordinance and paragraph 8 of the Seventh Schedule. 27.It does not require much accounting knowledge to see that the document produced by the Respondent is not a Balance Sheet although it purported to be so. To start with, a Balance Sheet must show the assets and liabilities position of the relevant account as at a particular date. The requirement of Paragraph 8 is for a Balance Sheet as at the date when the appointment ended, viz. 30th June 2000 in the present case. In contrast, the document produced by the Respondent is said to be for the period from 1st January 2000 to 30th June 2000. 28.Further, the document did not show how the assets are distributed, viz. how much were cash in hand, how much were in bank accounts. Moreover, the document did not deal with the liabilities aspect of the account. A proper Balance Sheet should show how the assets are balanced against the liabilities. This document failed to satisfy these criteria. I therefore hold that the document supplied by the Respondent cannot be regarded as a Balance Sheet and in this respect the Respondent has not discharged its obligation under Paragraph 8(a)(ii) of the Seventh Schedule. 29.Another argument put forward by the Respondent is that similar "balance sheets" have been supplied previously to the Applicant and no objection has been raised. This is not an argument raised in the Notice of Opposition. Further, the Respondent did not produce any of the similar "balance sheets" as evidence during the course of the hearing. The allegation was not put to the Applicant's witness in cross-examination. I therefore hold that the Respondent cannot rely on point. 30.In any event, whatever the practice in the past, those "balance sheets" could not have been tendered pursuant to paragraph 8(a)(ii) as that obligation only accrued upon termination of the appointment of the Respondent. There cannot be any waiver by the Applicant in respect of the duty of the Respondent under that paragraph prior to the termination of appointment. Income and Expenditure Accounts 31.The next item I turn to is the Income and Expenditure Accounts. It is common ground that such accounts have been supplied on a monthly basis as required by the management agreements. The Applicant said that these were not sufficient as paragraph 8 (a)(i) requires one account setting out the position for the whole period. 32.I do not agree. Whilst paragraph 8(a)(i) does refer to "an income and expenditure account", one has to bear in mind Section 7(2) of the Interpretation and General Clauses Ordinance Cap.1 which reads as follow,
33.I cannot see any useful purpose being served by requiring a manager to compile another income and expenditure account for the whole period if he has already supplied such accounts for the same on a monthly basis. The Applicant cannot suggest any purpose for that exercise. Given that the aim of Paragraph 8 of the Seventh Schedule is to ensure that a manager should render proper accounts covering his period of management, I see no reason why such objective could not be achieved by means of monthly income and expenditure accounts provided that reading together, they cover the whole period of management. 34.In the present case, the management agreements required the Respondent to render such accounts monthly and the Applicant accepted that the Respondent had done so. In the circumstances, I hold that the Respondent has discharged its obligation under Paragraph 8(a)(i). Bank statements and related documents 35.I shall deal with the application with regard to bank statements and cheque stubs and pay-in slips together. The Respondent did not dispute that they have such documents in their possession, custody or control. Miss Fong objected on the ground that the bank account was also used by the Respondent for other transactions not related to the management of the Estate. 36.Although the name of the account holder in respect of Hang Seng Bank account No.267-185890-018 was "Fullwill Property Management Limited - Pearl Island", Miss Chung gave evidence that ever since it was opened in 1997 after the Applicant signed management agreement with the Respondent, it has also been used for purposes other than the management of the Estate. She agreed that at Pearl Island, they only managed the Estate. She said that the reference to Pearl Island was for indication and the Respondent would open one account when they undertook the management of one new building. That was to show how many buildings they were managing. However, she denied that the reference to Pearl Island in the name of the bank account was to show that this bank account was used exclusively for the management of the Estate. 37.Under Clause 2(1) of each of the management agreements, the Respondent was obliged to deposit the money collected from the owners of the Estate into a separate interest bearing account. The expenditure for each month would be paid from that account. 38.This is essential because under Section 20(3) of the Building Management Ordinance, the Applicant has to maintain an interest-bearing account and shall use that account exclusively in respect of the management of the Estate and under Section 20(4), money received in respect of the management of a building must be paid into such account without delay (subject to an approved amount for retention to cover expenditure of a minor nature). With the delegation of the management of the building to the Respondent, the Applicant relied on the Respondent to comply with this statutory duty by observing the said contractual provision. 39.Similar duty was imposed on a manager under Paragraph 3 of the Seventh Schedule. I reject the submission of Miss Fong that it is sufficient for the Respondent to keep the money separate from the money of the Respondent. It is a breach of these duties if the money collected from owner of the Estate was mixed with money collected from other estates. 40.It therefore reflects poorly on the Respondent for Miss Chung to say on its behalf that the bank account was not used exclusively for the management of the Estate. If this was true, the Respondent was acting in a wholly unprofessional manner with total disregard of its contractual as well as statutory duties. 41.Miss Chung tried to explain as follows : since the Applicant did not pay the Respondent any deposit, the Respondent could not open any interest bearing account exclusively for the management of the Estate. There was no stipulation under the management agreements which obliged the Applicant to pay such deposit. Further, that was in any event not a good excuse for the Respondent's failure to perform its statutory duty as manager. I see no reason why the Respondent could not open an interest bearing account exclusively for the management of the Estate with the management fees collected each month. 42.Strictly speaking, I do not need to decide whether Miss Chung was telling the truth when she said that the account was not used exclusively for the management of the Estate. Since the Respondent could not deny that the account had at least been partly used for the management of the Estate, the bank statements for that account come within the description "records of account, papers, documents and other records in respect of the control, management and administration of the building" and have to be produced under Paragraph 8(b) of the Seventh Schedule. 43.Copies of bank statements up to December 1999 were in fact supplied by the Respondent to the Applicant. Miss Chung said that they were wrongly supplied when she was on holiday. According to the Respondent's own documents, the bank statements for January to December 1999 were supplied to the Applicant on 26th January 2000. The Respondent actually prepared a list setting out documents sent to the Applicant and the bank statements were one of the item. It would appear that the bank statements for earlier period were sent earlier. If it was a mistake and bank statements for that account should not have been sent, one would expect that such mistake would be rectified shortly afterwards instead of being repeated. Yet, the Respondent specifically included these bank statements in the list of 26th January 2000. 44.I find Miss Chung's explanation as to why the words "Pearl Island" were added to the name of the account telling. She said that the name was to "indicate" this account, viz. to distinguish this account from the many accounts held by the Respondent for management of estates. The Respondent opened one account when they managed a new building. There was really no purpose in so doing unless each account was to be used for the management of a particular building. As a professional manager, the Respondent should be familiar with the requirements as to separate account under the Building Management Ordinance. The Respondent was also aware of its duty under the management agreements. 45.For these reasons, I do not believe Miss Chung when she said from the very beginning the account was intended to be used for mixed purposes, not only for the management of the Estate. I find as a fact that at least when the account was opened, it was intended by the Respondent to be used exclusively for the management of the Estate. That was the reason why the bank statements for the account were sent on more than one occasion to the Applicant. 46.Miss Fong asked me to compare the bank statement for December 1999 and the Income and Expenditure Account for January 2000. The figure brought forward in the latter document (at p.22 of the Respondent's bundle) was $134,028.60. That did not match the balance figure in the December 1999 bank statement (at p.223 of the Applicant's bundle). She submitted that this showed that the account was used for other purposes. 47.That may or may not be correct. Although the Respondent possess all relevant information with regard to these two documents, they have chosen not to produce any details nor any supporting documents to show that some of the entries in the bank statements were actually related to transactions other than the management of the Estate. Whilst the burden is on the Applicant to show that these bank statements related to the management of the Estate, the evidential burden is on the Respondent to show that they contained entries relating to other transactions in view of the fact that they accepted that at least some entries related to the management of the Estate. I am not prepared to conclude from a comparison of the two documents referred to by Miss Fong that the bank account was used for other purposes. 48.In any event, I hold that even if subsequent to the opening of the bank account, the Respondent actually used it for other purposes, that constituted a breach of the contractual and statutory duties of the Respondent. The Respondent cannot resist the application for production of bank statements on this ground. Since the account was opened in the name of the Respondent, the Applicant is only entitled to copies of the bank statements. 49.As to the related cheque stubs and pay-in slips, they would have to be produced only if they related to the management of the Estate. If the Respondent can show in respect of a particular entry that it was in fact related to funds of other buildings, they do not need to produce the cheque stub or pay-in slip for that transaction. I will qualify my order accordingly. If disputes shall arise about any entries, the parties can come back to the Tribunal for an adjudication on the question whether a particular entry did relate to the Estate. Debit notes and receipts 50.The dispute regarding these documents is whether the Respondent retained these documents or copies thereof. With regard to the Special Fund Contribution, the Respondent said that they had never issued any debit notes for the same as the contribution accrued prior to their management of the Estate. They said they had only issued reminder letters. The Respondent did not keep copies as the records were kept in computer. 51.The Applicant had no direct evidence that the Respondent kept these copies. AW1 Mr.Tse said that in respect of the Debit Note for management fees, they were issued in duplicate and only one was sent to the owners as a demand whilst the copy (in pink colour) was retained by the Respondent. He said he had never received the pink copy although he had obtained one from another owner and produced the same as evidence. 52.RW1 Miss Chung agreed that the Debit Note was issued in duplicate, one in white and the copy in pink. She said that both copies were sent to the owners when demand was made for payment. Some owners made payment together with the pink copy whilst some owners did not. In any event, the Respondent would not keep the pink copy since the record would be kept in the computer of the Respondent and even if the owner returned the pink copy, they would be destroyed. 53.There is a direct conflict in the evidence of these two witnesses as to whether the pink copy was sent to the owners or kept by the Respondent as record. Mr.Tse said he himself had never received the pink copy so it must be kept by the Respondent. However, on his own evidence, the copy he produced as exhibit "A1(b)" was obtained by him from an owner. This clearly showed that the Respondent did not rely on the pink copy as a record. Otherwise, Mr.Tse could not have obtained the same from an owner. Mr.Tse also said in his evidence that he knew that some owners had received the pink copy. 54.There is no challenge by the Applicant to the proposition that the Respondent kept computer records of these matters. In other words, there was no need for the Respondent to retain these pink copy whether they had been sent to the owners or not. Given the number of estates which the Respondent managed, it would require large storage space if they kept a copy of each and every debit note they had issued. With computer record in place, and in the absence of direct evidence that the pink copy were retained by the Respondent after the data were recorded in the computer, I find on the balance of probabilities that all pink copies insofar as they had been in the possession of the Respondent have been destroyed. 55.As to the Contribution to the Special Fund, Mr.Tse himself said initially in his evidence that a notice (通告) for the same was posted at the window of the unit concerned. He subsequently corrected himself and said he was referring to debit notes (通知書) for such contribution. It appeared to me to be a very odd practice to post a debit note at the window whilst it is not uncommon for reminder letter to be so posted. 56.On this issue, I accept the evidence of Miss Fong that the Respondent only issued reminder letters for these contribution and did not issue debit note. Mr.Tse was correct initially in saying that a notice was posted. In fact, even when Mr.Tse later maintained in his evidence that it was a debit note, he also said it was in the nature of a reminder chasing the defaulting owner to pay such overdue contribution. I note that the proforma debit note of the Respondent is not in the form of a reminder. Neither did the Applicant contest the assertion of the Respondent that these contribution accrued prior to the engagement of the Respondent. Against these background, it is in my judgment most unlikely that the Respondent would issue any debit notes for the contributions. I find on the balance of probabilities that the Respondent only issued reminder letters for the same. 57.Again, there was no reason why the Respondent would keep copies of these letters. I therefore hold that the Applicant failed in respect of its request for debit notes for Special Fund Contribution. 58.With regard to the receipts, by their very nature, the originals must have been sent to the owners when payment was made. The Applicant however asked for copies. Mr.Tse said the Applicant had copies. He did not explain on what basis did he say so. Miss Chung denied the Respondent retained any copies of the receipts. For the reasons given in Paragraph 54 above, there was no reason why the Respondent would keep copies of the receipts. I find on the balance of probabilities that the Respondent did not retain such documents. 59.It follows that I reject the Applicant's application with regard to debit notes and receipts. Orders 60.The order I make is therefore as follows,
61.On the question of costs, since the Applicant succeeded on some items but lost on the others, I will make an order nisi that each party bear his own costs with regard to these proceedings. Unless either party applies to vary that order within 14 days, the order nisi as to costs would become order absolute.
Representation: Mr. Mark WEI, Counsel instructed by M/S Daniel Wong & Partners, for the applicant Ms FONG Wai-yee of M/S Spencer Lee & Co., for the respondent |
Cases cited in this judgment