Hang Yick Properties Management Ltd v. Chan Yeung Kei

DCCJ 5205/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5205 OF 2006

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BETWEEN

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Coram:   Deputy District Judge R. Cheung in Chambers (open to public)

Date of Hearing: 25^th May 2007

Date of Handing down Decision: 11^th June 2007

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DECISION

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1.This is an appeal against a Master's decision on an application for Summary Judgment. The Master gave Judgment for the Plaintiff on 27th March 2007. The Defendant appealed.

2.I am satisfied that the Plaintiff's application does come under Order 14.

3.I am satisfied that the Plaintiff's application has complied with the preliminary requirements set out in para. 14/1/3 of Hong Kong Civil Procedure 2007, viz: (1) that the Defendant has given a notice of intention to defend; (2) the Statement of Claim has been served on the Defendant; and (3) the Affidavit in support of the application has complied with Order 14, Rule 2 of the Rules of District Court.

4."The machinery of O.14 works on the basis that if the plaintiff's application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed." See Hong Kong Civil Procedure 2007, para. 14/4/1. I am of the view that the Plaintiff's application is so properly constituted.

Background

5.I would note the background to the present disputes. These background matters are either not in dispute or indisputable.

6.There is no dispute that the Plaintiff is the Manager of an Industrial Building known as Hang Wai Industrial Centre ("the building") and appointed under a Deed of Mutual Covenant dated 28th September 1981 ("the Deed of Mutual Covenant"). The Defendant is at all material times the registered owner of Workshop Unit 6 on the 13th Floor of Block B of the building ("the subject premises"). The present claim is for outstanding management fees and default interest.

7.It is not in dispute that the Defendant has by virtue of an Assignment dated 17 August 1988 become the registered owner of the subject premises. The assignment of the subject premises was subject to and with the benefit of inter alia the Deed of Mutual Covenant.

8.Clause 11(h) of the Deed of Mutual Covenant provides inter alia that an owner who defaults in payment of any sum payable thereunder shall pay a Default Interest at the rate of $1.50 for each $100.00 that remains outstanding for each period of 30 days or part thereof. I take that to be about 18% per annum.

9.On 11 October 1999, the Plaintiff filed a claim in the Small Claims Tribunal claiming against the Defendant for the outstanding management fees for the period from January 1999 to August 1999 inclusive as well as for the corresponding Default Interest. On 10 December 1999, the Plaintiff obtained an ex-parte Award against the Defendant in his absence. That Award has never been set aside.

10.On 21 March 2000, the Plaintiff registered a Memorandum of Charge against the subject premises for the accrued outstanding management fees and other charges.

11.On 1 November 2001, the Plaintiff issued a demand letter to the Defendant putting the Defendant on notice of the registration of the Memorandum of Charge and demanding the Defendant to make payment of the accrued outstanding management fees and Default Interest.

12.On 26 August 2005, the Plaintiff issued a demand letter to the Defendant demanding the Defendant to make payment of the accrued outstanding management fees and Default Interest.

13.On 7 February 2006, the Plaintiff issued a similar demand letter to the Defendant.

14.On 20 February 2006, the Plaintiff filed a claim in the Small Claims Tribunal (Claim No. 10985/2006) claiming against the Defendant for the outstanding management fees for the period from September 1999 to May 2003 and the corresponding Default Interest.

15.On 17 March 2006, the Plaintiff filed another claim in the Small Claims Tribunal (Claim No. 17344/2006) claiming against the Defendant for the outstanding management fees for the period from June 2003 to March 2006 and the corresponding Default Interest.

16.On 22 May 2006 the Plaintiff discontinued the two claims filed in the Small Claims Tribunal in 2006 (presumably because they were regarded as "split claims").

17.The Plaintiff subsequently commenced this action in the District Court. The Writ with Statement of Claim herein was filed on 19 October 2006. The claim is for the sum of $108,165.40.

18.The Defendant filed his Acknowledgment of Service on 20 October 2006 giving notice of his intention to defend.

19.The Plaintiff filed its Summons for Summary Judgment on 8 November 2006. The Plaintiff on the same date also filed the 1st Affirmation of Fung Kin Wah.

20.The Defendant filed a home-made Defence on 15 November 2006. In essence, the Defence avers that the Plaintiff is in breach of the Deed of Mutual Covenant in that it has allowed the major owner of the building to erect and maintain illegal structures on the Podium of 3rd Floor, Block C of the building for over 10 years. It also avers that the Plaintiff has not given a calculation of the amount of its claim.

21.The Plaintiff filed the 2nd Affirmation of Fung Kin Wah on 8 December 2006.

22.The Defendant has filed two Affirmations in opposition to the Plaintiff's application thereafter. The first one was filed on 22 December 2006 and the second one was filed on 26 February 2007.

23.The Plaintiff has filed the 1st Affirmation of Poon Kwok Fai on 12 February 2007 to correct an error made in the 2nd Affirmation of Fung Kin Wah. The Plaintiff also filed the Affirmation of Lam Hung Chau on 12 March 2007. The Plaintiff also filed the 2nd Affirmation of Poon Kwok Fai on 28 March 2007.

24.So much about the background.  

Has the Defendant shown cause?

25.In his 1st Affirmation in Opposition filed on 22 December 2006, the Defendant said that the Plaintiff has not in its Statement of Claim explained the period to which the alleged outstanding management fees relate and the manner in which the Default Interest is calculated. The Defendant is clearly entitled to such particulars. Judgment should not be entered on a defective Statement of Claim. A defective Statement of Claim cannot be cured by Affidavit evidence. However, it is clear that the lack of such particulars does not render the Statement of Claim defective. Also, in fairness, in the 2nd Affirmation of Fung Kin Wah the Plaintiff has already given its explanation as to how the amount of its claim is arrived that. It is shown that the claimed outstanding management fees relate to the period from September 1999 to September 2006. The calculation of the entire amount of the claim is also set out therein. The amount of the claim in the sum of $108,165.40 is made up by $65,348.00 being the outstanding management fees and $42,817.40 being the corresponding Default Interest calculated up to 30 September 2006.

26.In his 2nd Affirmation in Opposition filed on 26 February 2007, the Defendant complained of the Plaintiff's allowing other tenants or owners of the building to place miscellaneous items in the common areas of the building causing obstruction. He complained of the Plaintiff's allowing certain tenants or owners of the building to erect illegal structures at the Podium on the 3rd Floor of the building. He said that the parent company of the Plaintiff was the owner of those illegal structures which occupied an area of about 5,000 square metres. He said that the occupants of such illegal structures were getting the benefit of the Plaintiff's management services without having to make payment of management fees. He said that the miscellaneous items place on the Podium of the building affected the sanitation condition of the building. He said that the Plaintiff had been in breach of the Deed of Mutual Covenant.

27.The Defendant's assertion that the Plaintiff had allowed other tenants or owners of the building to obstruct the common areas is lacking in particulars. The Plaintiff has by a letter dated 11 April 2006 denied that it had allowed any tenant/owner to cause such obstruction. So there is a factual dispute on this issue. Of course, such factual dispute cannot be resolved by Affidavit evidence. I am not prepared to say that the Defendant's such assertion is unbelievable. But, even if such a factual situation does exist, the Defendant has not shown that the obstruction has caused him any loss or damage. At law, it is open to the Defendant to contend that there is a breach of duty on the Plaintiff's part (whether under the Deed of Mutual Covenant or the Building Management Ordinance or otherwise) which has caused him to suffer loss or damage and hence he is entitled to damages which may be set off against the Plaintiff's claim. Had the Defendant raised such a contention, it would have availed him of an arguable Defence. However, on my reading of his Affirmations, I cannot accept that he has raised such a contention. There is therefore no arguable Defence of set-off.

28.The same may be said of the Defendant's contentions in relation to the illegal structures and the sanitation condition of the building. Whether or not there are illegal structures and whether or not there are problems with the sanitation condition of the building are matters that cannot be resolved by Affidavit evidence alone. I am not prepared to say that the Defendant's such assertions are unbelievable. But again, even if such facts do exist, the Defendant has not shown that the Plaintiff's breach of duties in that connection has caused him any loss or damage. There is no arguable defence of set-off. 

29.The sole issue raised by the Defendant is that it is exonerated from his obligation to make payment of the management fees and Default Interest by reason of the breaches of duties on the Plaintiff's part. Even assuming that the Plaintiff has indeed been in breach, the Defendant's contention is wholly without merit:  Grace International Ltd. v. The Incorporated Owners of Fontana Gardens, HCA 13338/1995, 23 May 1996 applied.

30.I am of the view that t he Defendant has raised no triable issue and shown no arguable defence in his Affirmations. Apart from matters specifically raised by the Defendant, perhaps I should make some comments on certain points of law that may be of some concern in the Plaintiff's case.

Default Interest

31.As regards the Default Interest claimed by the Plaintiff, I am satisfied that the contractual provision of Default Interest in the Deed of Mutual Covenant does not amount to a penalty clause.

32.The law relating to penalty clauses is a familiar subject and has been succinctly set out in Chitty on Contract, 29th edition, Volume 1, paras. 26-109 to 26-133.

33.In deciding whether the above Default Interest is a genuine estimate of damage, there are matters within the province of judicial notice for which no proof is required.

34.In 1981 when the Deed of Mutual Covenant was executed, no doubt it was envisaged that its provisions would continue to govern the management affairs of the building for many years to come and a host of individual owners would become parties to the agreement at different times.

35.No doubt, it was then difficult if not impossible to predict the future borrowing or lending interest rates offered by the banks in the many years ahead. They fluctuate.

36.No doubt, it was then envisaged that there might be multiple defaults in the payment of management fees rendering the accounts of the Plaintiff in the red and leaving the Plaintiff with no viable alternatives but to seek to borrow, or that, being unable to obtain credit, the Plaintiff might be unable to honour its existing legal obligations thus giving rise to legal liabilities.

37.The default interest at the rate of 5% every 30 days (about 18% per annum) is on the high side but it is not an exorbitant rate of interest. Default interest at the rate of 5% per month has been upheld by the Court in the past: see The Incorporated Owners of Winner Building v. Wai Mau Sze & Others, HCA20180/1998 & HCA 7564/1999, 2 June 2006.

38.It is relevant to consider if there is an element of oppression. Chitty on Contract, 29th edition, Volume 1, para. 26-109 cited the following dictum with approval: "the power to strike down a penalty clause is a blatant interference with freedom of contract and is designed for the sole purpose of providing relief against oppression for the party having to pay the stipulated sum. It has no place where there is no oppression". In the present case, there is no oppression whatsoever.  Quite to the contrary, every non-paying owner is taking an unfair advantage of the paying owners.

39.The law relating to the Deed of Mutual Covenant is peculiar and of importance to livelihood in Hong Kong. The Deed of Mutual Covenant is a multilateral contract quite unlike the agreements under examination in most of the authorities cited in Chitty, supra. The distinctive feature of the agreement lies in its mutuality. Every owner enters into the same covenants with the other owners. I am not aware of any local authority striking down a Default Interest provision as a penalty clause.

40.There is therefore no triable issue that the provision for Default Interest in the Deed of Mutual Covenant is unenforceable as being a penalty clause.

Acquiescence or Laches

41.I have considered whether the long delay on the Plaintiff's part in taking legal action against the Defendant would constitute acquiescence or laches that would defeat the Plaintiff's claim. There is certainly no acquiescence. The Defendant has never been under the notion that the Plaintiff would waive or had waived its claim for the outstanding management fees and the Default Interest.

42.As for laches, one formulation would be as follows: "the essence of the doctrine of laches is that if the claimant has not been reasonably diligently in seeking relief, and in consequence the position of the defendant has been prejudiced or it would now be unjust or unreasonable to grant the relief, the claimant will be debarred from pursuing his remedy on the ground of laches. What amounts to reasonable diligence and what circumstances will render it inequitable to grant the relief will vary with the type of relief sought and the facts of the particular case" Chitty on Contract, 29th edition, Volume 1, para. 28-137 refers. 

43.However, the Default Interest at about 18% per annum although on the high side is not an exorbitant rate of interest. Apart from mere delay in taking legal action against the Defendant, the Plaintiff has done nothing to encourage the Defendant to continue in his default. The Defendant took the assignment of the subject premises subject to and with the benefit of the Deed of Mutual Covenant. He had notice of his obligation to pay Default Interest. The Plaintiff's right to Default Interest is a legal right. I do not consider that there was anything dishonest or unconscionable on the part of the Plaintiff. Promptitude is a good thing but it is not the function of the Court to punish a manager of a building for this kind of delay. I find no triable issue that the Plaintiff's claim may be defeated by laches.

44.I am of the view that the Master's decision is correct and I have to uphold his decision. The Defendant's appeal is thus dismissed.

45.As to the costs of this appeal, I would make an Order Nisi that the Defendant is to pay the Plaintiff's costs of and incidental to this appeal on a party-and-party basis to be taxed if not agreed. For the avoidance of doubt, this includes the costs for the hearing on 8 May 2007. There will be Certificate for Counsel. Unless there is an application to vary this Order Nisi, it will become absolute in 14 days.

Representation:

Mr. Victor Luk, instructed by Messrs. K.B. Chau & Co., for the Plaintiff

The Defendant:  appearing in person