Incorporated Owners of So Tao Centre v. Lam Kong Wan

DCMP 4250/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 4250 OF 2004

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Coram: Deputy District Judge R. Cheung in Chambers

Date of Hearing: 18^th January 2007

Date of Handing down Decision: 23^rd January 2007

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DECISION

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1.I have come to the view that I should grant the Plaintiff's application for leave to appeal, solely as the appeal may clarify a matter of public interest, and not for any other reasons. I am aware that the principles that guide my decision to grant leave or not are given in Smith v. Cosworth Casting Processes Limited (1977) 1 WLR 1538. I do not propose to repeat them here. I am not persuaded that the Plaintiff has a realistic prospect of success in the appeal.

2.I take it to be desirable for me to give some reasons for my decision.

3.The Plaintiff seeks leave to appeal mainly against my decision that the Plaintiff should be entitled to about two years of Default Interest. At the hearing of the application for leave to appeal, Counsel for the Plaintiff and Counsel for the Defendant proceeded on the erroneous assumption that I have made the above decision in the exercise of a discretion. That cannot be right. The trial herein engaged the Court in resolving a multitude of law points, but clearly one of the main focuses at trial was whether the provision for Default Interest in the subject Deed of Mutual Covenant is unenforceable as being a penalty clause. The Plaintiff contended that it was enforceable. The Defendant contended that it was not, on the grounds of, inter alia, acquiescence. "The term "laches" is sometimes used to denote acquiescence" see para 28-137 of Chitty on Contract, 29th edition. I found the provision for Default Interest not to be a penalty clause but I went on to hold that the Plaintiff is not entitled to recover Default Interest beyond a two years period, on a rough basis, on the ground of laches on the Plaintiff's part. There is no room for the exercise of discretion here: "If a plaintiff is entitled to interest by statute or statutory instrument (such as O.13, r.1), or by contract, the plaintiff is entitled to interest as of right, unless in a contract case he falls foul of the provisions of the Money Lenders Ordinance (Cap. 163) as to exorbitant interest in consumer contracts (ss.24-25)." Hong Kong Civil Procedure 2007, para 6/L/9 refers.

4.But for laches, the Plaintiff would have been entitled to Default Interest as of right at 18% p.a. on the overdue management fees up to the date of Judgment. After that, by reason of the doctrine of merger, the Plaintiff would only be entitled to interest at Judgment rate.

5.Because of laches, the Plaintiff got only about two years of Default Interest on each default in payment of management fees by the Defendant, at 18% p.a., on a rough basis.

6.Each default in payment of management fees is a continuing default until payment is made. In the present case, the first default in payment of management fees occurred sometime in December 1995 (for the management fee due payable for that month) whereas the last default occurred sometime in November 1997 (for the management fee due payable for that month). The two years of Default Interest as reckoned from the date of default would end on a date around December 1997 in respect of the first default and on a date around November 1999 in respect of the last default.

7.In the exercise of my discretion under Section 49 of the District Court Ordinance, I have awarded discretionary interest to the Plaintiff reckoning from the date of Writ (8 December 2004) to the date of Judgment (20 December 2006), for slightly more than two years on (1) the overdue management fees in the sum of $33,936.00, (2) the Default Interest in the sum of $12,217.00, and (3) the collection charge of $200.00.

8.Section 49(5) of the District Court Ordinance provides "Interest in respect of a debt shall not be awarded under this section for a period during which, for whatever reason, interest on the debt already runs". The award of discretionary interest on the amount of overdue management fees does not offend Section 49(5), supra, as Default Interest on the overdue management fees had already ceased to run from sometime around November 1999, at the latest. See paragraph 6 above.

9.The principles upon which the Court should exercise its discretion to award interest (when such award is a discretionary matter) is set out in para 6/L/9 of Hong Kong Civil Procedure 2007. I do not propose to repeat the contents here.

10.I did not state the reasons for awarding discretionary interest to the Plaintiff between Writ and Judgment in my Judgment handed down herein on 20 December 2006. The Plaintiff contended that it was entitled to Default Interest on contractual basis at the trial but never raised or made any submission on the fall back position of interest on a discretionary basis. The Plaintiff's written submissions say nothing about when such discretionary interest should start to run, for what period and at what rate. Is it the practice of the Court to give reasons in awarding discretionary interest in such circumstances? I consider the award of discretionary interest to be a proper exercise of my discretion.

11.I had made no attempt to calculate the proper amount of discretionary interest between Writ and Judgment with actuarial accuracy. Among other things, in awarding the discretionary interest I took into account that the Plaintiff had already got two years of Default Interest at 18% per annum on the overdue management fees. And, in applying the rate of 1% over prime rate as the rate of discretionary interest, I had in mind that it is a rate lower than the Judgment rate, and hence it should provide some incentive for a Plaintiff to expeditiously bring the proceedings to a conclusion. The Plaintiff being disentitled to Default Interest at 18% per annum by reason of laches, the sooner the Plaintiff obtains Judgment, the sooner the Plaintiff will be entitled to interest at Judgment rate, which is higher than the discretionary interest at 1% over prime rate. Annexed to the Opening Submission of the Defendant is a schedule showing the Hong Kong Dollar Interest Rates from 1971 to 2006, covering time deposit rates, savings deposit rates and best lending rate.

12.I would now return to what I have stated in the beginning, that I would grant leave to appeal as the appeal may clarify a matter of public interest. The Deed of Mutual Covenant is very much a part of life in Hong Kong. Well drafted Deeds of Mutual Covenant almost invariably contain provisions for payment of Default Interest. Some apply a rate as high as 5% per month. It is not correct at law and it is undesirable as a matter of policy to strike down such Default Interest clauses as penalty clauses. The position of individual owners of flats is in many ways comparable to consumers in respect of the management services provided. Should laches come to their aid? It is with this in mind that I have decided to grant the Plaintiff's application for leave to appeal. I would grant such leave accordingly.

13.I would make an Order Nisi that the costs of this application for leave to appeal shall be in the cause of the appeal. Unless an application to vary this Order Nisi is made, it shall become absolute in 14 days. There will be Certificate for Counsel.

Representation:

Miss Yvonne Fong, instructed by Messrs. Patrick K.H. Lam & Co., for the Plaintiff

Miss Emma Wong, instructed by Messrs. Shea & Co., for the Defendant