Wing Ming Garment Factory Ltd v. The Incorporated Owners of Wing Ming Industrial Centre and Another
Read the full judgment text of HCA 8805/1993 on BabelCite. This High Court CFI judgment was delivered on 20 December 2007.
1. Since 1993 the owners of the Wing Ming Industrial Centre have been locked in bitter dispute about almost all aspects of the building’s management.
Cited by 1 case · Cites 1 case
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HCA 8805/1993 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 8805 OF 1993 ____________ BETWEEN
____________ Before: Hon Reyes J in Court Dates of Hearing: 11-13 and 17 December 2007 Date of Judgment: 20 December 2007 _________________ J U D G M E N T _________________ I. INTRODUCTION 1.Since 1993 the owners of the Wing Ming Industrial Centre have been locked in bitter dispute about almost all aspects of the building’s management. 2.On one side of the dispute is Wing Ming. It was the building’s original developer and retains an interest in some units within the building. On the other side are all other owners. They are here represented by the Incorporated Owners. 3.In these proceedings, Wing Ming claims against the Incorporated Owners for breach of the building’s Deed of Mutual Covenant (DMC). 4.By the DMC Wing Ming reserved a right to construct a loft in the air space over Car Parking Spaces 2, 3, and 4 as indicated in a plan annexed to the DMC. Wing Ming contends that in breach of that right, without authority from Wing Ming, the Incorporated Owners permitted New Gas in August 1993 to install a fire services pipe which entered into and ran through the length of such air space. Wing Ming says that, as a result, its plans to construct a loft in the air space and to rent out the same once constructed were delayed. Wing Ming claims damages arising out of such delay. 5.Wing Ming also claims that, to construct the pipe, New Gas must have entered into the air space. Such entry not having been authorised, Wing Ming wants damages against New Gas for trespass. 6.The Incorporated Owners and New Gas deny liability. 7.They say that there has been no encroachment on any air space over Car Parking Spaces 2, 3 and 4 shown in the DMC plan. They argue that Wing Ming unilaterally re-designated common area (marked “VOID” in the DMC plan) as Car Parking Spaces 2, 3 and 4. Wing Ming (according to the Incorporated Owners) then constructed a loft over the true Car Parking Spaces 2, 3 and 4 and the adjacent re-designated Car Parking Spaces 2, 3 and 4. Wing Ming also erected a wall below this loft and thereby enclosed the true Car Parking Spaces 2, 3 and 4. This caused those parking areas to be separated from the re-designated Car Parking Spaces 2, 3 and 4. 8.All this (the Incorporated Owners and New Gas contend) was unlawful, being contrary to the DMC and Conditions of Sale relating to the building. 9.In any event, the pipe (the Incorporated Owners and New Gas contend) merely runs through the length of the space above the re-designated Car Parking Spaces 2, 3 and 4. When installing the pipe, New Gas never entered the space over the true Car Parking Spaces 2, 3 and 4. Since the re-designated Car Parking Spaces 2, 3 and 4 are in fact common area which Wing Ming wrongly arrogated to itself, there could not (the argument runs) have been any breach of any air space right held by Wing Ming. 10.The Incorporated Owners counterclaim against Wing Ming for arrears of management fees. This is because, citing various reasons, Wing Ming has not paid its share of management fees since at least 1994. 11.The Incorporated Owners additionally seek an injunction directing Wing Ming to demolish the wall enclosing the true Car Parking Spaces 2, 3 and 4. The Incorporated Owners say that the wall was built on top of a hole or opening which serves as the only means of access to an overflow water tank in the Basement of the building. 12.Wing Ming’s principal response to the Counterclaim is that the management fees claimed are excessive and unparticularised. Wing Ming asserts a set-off of any damages due to it against any management fees payable. Wing Ming denies the existence of any hole under the wall. 13.Apart from the main claims just summarised, there are 3 subsidiary claims. 14.New Gas as a contractor of the Incorporated Owners claims an indemnity against the latter for any damages payable by New Gas to Wing Ming. The indemnity is said to arise because New Gas installed the pipe on the Incorporated Owners’ orders. 15.The Incorporated Owners claim against Essman, the original manager of the building, by way of third party proceedings. Essman is related to Wing Ming. Mr. Yuen Man is a director of both companies and gave evidence on behalf of both. 16.According to the Incorporated Owners, as manager in August 1993, Essman should have supervised the installation of the pipe by New Gas. This duty of supervision would have been owed to owners of units in the building. If New Gas trespassed onto Wing Ming’s air space, that would only have been due to Essman’s lack of supervision. Essman should thus compensate the Incorporated Owners for any liability on the part of the latter to Wing Ming arising out of Essman’s faulty supervision. 17.Essman denies liability. In turn, it has counterclaimed for unpaid management fees said to be due from the Incorporated Owners. 18.Essman initially alleged that its tenure as manager had been wrongfully terminated by the Incorporated Owners. But that last claim was dropped at the start of trial. 19.Finally, there was an issue between the parties as to whether Wing Ming had wrongly allowed its units in the building (in particular, the Ground Floor and loft) to be used by tenants in breach of the Special Condition (3) of the Conditions of Sale. Special Condition (3) provides that the building shall not be used other than for “industrial or godown purposes”. Just before trial, Wing Ming’s counsel (Mr. Lee Yee Hung) indicated that he would not resist a permanent injunction against Wing Ming on this issue. II. BACKGROUND 20.Wing Ming leased the land on which the building is situated from the Government in September 1974. The lease was subject to Conditions of Sale. 21.Wing Ming then erected the building (consisting of 11 storeys) on the land. It notionally divided the building into 1,323 equal undivided shares allocated among various units in the building. 22.In March 1991 Wing Ming assigned certain units in the building to Superkind. At the same time it entered into the DMC with Superkind and Essman. 23.DMC clause I.C.4(i) gave the owner of the Front Portion of the Ground Floor the right to construct a loft over that part of the Ground Floor identified as the “Southern Half Portion” in the Ground Floor Plan annexed to the DMC. Such right was subject to approval by the Building Authority of any proposed loft. 24.DMC clause I.C.5 reserved to the owner of the Front Portion of the Ground Floor a right to construct a loft over Car Parking Spaces 2, 3 and 4. This right was subject to the Building Authority giving approval and to a head room of at least 7 feet 6 inches being left to Car Parking Spaces 2, 3 and 4. 25.DMC clause V.A.2 appointed Essman as manager of the Building for 6 years and afterwards until determination by 6 months’ notice. 26.In May 1991 Wing Ming divided the Front Portion of the Ground Floor into 2 parts which Wing Ming identified as Portions V1 and V2. 27.In February 1992 Wing Ming assigned Car Parking Space 2 on the Ground Floor to Sanwa. 28.In March 1992 Wing Ming assigned Portion V1 to Hung Tak. 29.In May 1992 Wing Ming assigned the Container Space and Car Parking Space 10 on the Ground Floor to Hung Tak. 30.In April 1993 Wing Ming engaged Li & Partners to supervise the construction of a loft in the air space over Car Parking Spaces 2, 3 and 4. This construction was to be pursuant to plans which Wing Ming had been submitted and approved by the Building Authority in late 1991. 31.Li & Partners submitted structural plans for its project in April 1993. The Building Authority approved these in July 1993. 32.In May 1993 the Incorporated Owners were established. 33.There is no dispute that the fire services in the building had to be repaired. The Incorporated Owners engaged New Gas to do this. As part of such work, on 7 or 8 August 1993 New Gas installed the fire pipe, including that part which Wing Ming says encroaches on its air space. 34.As at August 1993, within the building, Wing Ming retained the Basement, the Storeroom at the rear of the Ground Floor, the Southern Half Portion of the Ground Floor, Portion V2, Car Parking Spaces 3 and 4, the 10th Floor, the Roof Floor (also known as the 11th Floor) and the Upper Roof. Wing Ming also held a right to build a loft over Car Parking Spaces 2, 3 and 4 under DMC clause I.C.5. 35.At Annex I to this Judgment is a Ground Floor plan of the building. The plan is taken from the Incorporated Owners’ written opening submissions. The following may be noted:-
36.The pipe has been the subject of various interlocutory judgments. Wing Ming sought an interim injunction for the removal of the pipe. That application failed at first instance and on appeal. Eventually, without prejudice to the parties’ contentions, the pipe was re-routed in July 1995. 37.At the time when the fire pipe was installed by New Gas there was no loft over Car Parking Spaces 2, 3 and 4 as shown in the DMC. 38.There is at present a loft over Car Parking Spaces 2, 3 and 4 as marked in the DMC. The loft is not confined to the space over Car Parking Spaces 2, 3 and 4 but extends into the space above the “VOID” areas marked out in the DMC plan in front of Car Parking Spaces 2, 3 and 4. 39.Immediately below the loft a wall now separates Portion V2 and the areas marked as Car Parking Spaces 2, 3 and 4 in the DMC plan on the one hand from Portion V1 and the areas marked as “VOID” in front of Car Parking Spaces 2, 3 and 4. Lines have been painted on the latter “VOID” areas so as to divide the same into car park spaces. These last spaces have then been re-designated as Car Parking Spaces 2, 3 and 4. 40.If a 40 foot container were parked in the Container Space shown in the DMC plan, Sanwa would not be able to park a vehicle in the re-designated Car Parking Space 2 assigned to it. Lines marking off the Container Space in the Ground Floor have consequently been painted so as to extend no further than the edge of Portion V1 abutting Sanwa’s car Parking Space 2. III. DISCUSSION A. Whether breach of Wing Ming’s right to air space over Car Parking Spaces 2, 3 and 4 41.It will be apparent that the impugned section of the pipe does not run anywhere near the space over Car Parking Spaces 2, 3 and 4 as set out in the DMC. The impugned section simply runs along the length of the areas marked “VOID” in front of Car Parking Spaces 2, 3 and 4. 42.Those “VOID” areas in front of Car Parking Spaces 2, 3 and 4 can only be “Common Areas and/or Common Facilities” as defined in the DMC. This is because the “VOID” areas have to be kept clear in order to enable vehicles to drive in or out of Car Parking Spaces 2, 3 and 4. In the words of the DMC definition of “Common Areas,” the “VOID” areas must be “roadways and driveways”. 43.Such conclusion is self-evident if one considers the original Car Parking Space 2 in the DMC plan. If a container and its prime mover occupy the space designated “CONTAINER”, it will be impossible to drive in or out of Car Parking Space 2 unless the “VOID” areas in front of Car Parking Spaces 2, 3 and 4 are kept clear. 44.It follows that, contrary to Wing Ming’s allegation, in erecting the fire pipe, New Gas did not trespass onto any air space belonging to Wing Ming. Nor could the Incorporated Owners have authorised or caused New Gas to commit any trespass. 45.There has consequently been no breach of the DMC by the Incorporated Owners. 46.Wing Ming was not entitled to shift “Car Parking Spaces 2,3 and 4” into the “VOID” areas in front of those Car Parking Spaces shown in the DMC plan. 47.Wing Ming did not obtain the approval of the any other owners to vary the terms and definitions of the DMC so as to enable the “VOID” areas to be re-designated as Car Parking Spaces 2, 3 and 4. 48.Even if all owners agreed, the terms and definitions of the DMC (including the Car Parking Space designations) could still not be altered. The written permission of the Government would be required. 49.This is because by Special Conditions 9 and 10 of the Conditions of Sale for the land:-
50.The approved Car Park Layout Plan for the building is similar to the DMC plan. In particular, the approved Layout Plan (like the DMC plan) does not include the “VOID” areas within the boundaries of Car Parking Spaces 2, 3 and 4. 51.It follows from the Conditions of Sale that Car Parking Spaces 2, 3 and 4 may only be shifted forward to the “VOID” areas with the permission of the Director of Public Works or his successor. 52.The post of Director of Public Works has not existed for some time. By the 1990s the functions of the Director of Public Works had either been assumed by the Building Authority or the District Lands Office. Wing Ming never specifically applied to either entity for permission to move Car Parking Spaces 2, 3 and 4. 53.Wing Ming pleads that, the necessary permission was implicit in the Building Authority’s approval of its plans to build a loft over the “VOID” areas. But this cannot be right. 54.Without signalling any deviation from the DMC plan or approved Car Park Layout Plan, these building plans submitted by Wing Ming simply labelled the “VOID” areas as car Parking Spaces 2, 3 and 4. The Building Authority approved the plans. Asked by the Building Authority for any comments on the building plans, the District Lands Officer said that he had none. It is these circumstances that (Wing Ming’s pleading claims) constituted an “approval” to the shifting of Car Parking Spaces 2, 3 and 4 by the Government. 55.There is no merit to the argument in the pleading. 56.Buildings Ordinance (Cap.123) s.14(2) expressly states that the Building Authority’s mere approval of building plans for the purposes of proposed construction work cannot confer title to land or act as a waiver of any term in any lease. The Building Authority’s approval of Wing Ming’s intended construction works cannot be regarded as a waiver of the requirements imposed by the Conditions of Sale. 57.Nor can the absence of comment from the Districts Lands Officer in relation to the building plans be treated as a permission to change the Car Parking Spaces set out in the approved plan. This must be the case where Wing Ming’s building application nowhere explicitly stated that it was somehow seeking permission to alter the layout in the approved plan. 58.If Wing Ming wished to change the parking layout, it should have made specific application to do so before the relevant Government body. 59.In oral submission, Mr. Lee said that he did not have to rely on the right to build a loft reserved by DMC cl.I.C.5. Instead, Mr. Lee argued that Wing Ming could build a loft over the re-designated Car Parking Spaces 2, 3 and 4 by reason of the definition of Car Parking Space in the DMC. 60.The DMC defines “Vehicle Parking Space(s) and/or Car Parking Space(s)” to mean “all of the spaces in the Building for parking vehicles (coloured green on the Ground Floor Plan)”. 61.Since (Mr. Lee argues) in the DMC plan the “VOID” areas in front of Car Parking Spaces 2, 3 and 4 are coloured green, it follows that the areas form part of Car Parking Spaces 2, 3 and 4. If so, Wing Ming must have been entitled to build a loft over the “VOID” areas and the fire pipe would have wrongfully encroached upon such space over the “VOID” areas. 62.But there is no warrant to Mr. Lee’s argument. 63.Plainly, not all areas coloured green on the Ground Floor Plan attached to the DMC are Car Parking Spaces. For instance, the “STORE ROOM 8 ft. ABOVE” appears on the DMC’s Ground Floor Plan coloured green. But obviously the store room was never intended to be a car parking space and it would be practically impossible to park cars there. 64.The DMC definition has to be read in context. The definition of Car Parking Spaces only makes sense if it is construed as referring solely to those spaces within the area coloured green on the Ground Floor Plan which are specifically identified and delineated on such plan as “Car Parking Spaces”. 65.It follows from the DMC definition, properly understood, that the “VOID” spaces within the area coloured green on the Ground Floor Plan are not “Car Parking Spaces”. Not being “Car Parking Spaces”, they could not have formed part of “Car Parking Spaces 2, 3 and 4”. 66.I add that, where there is ambiguity, a grant is normally construed against a grantor. 67.Here Wing Ming as developer and First Owner was in the position of grantor. If there is vagueness in the definition of Car Parking Spaces in the DMC, that ambiguity should therefore be construed against Wing Ming. If it is unclear whether the “VOID” areas constitute Car Parking Spaces reserved by Wing Ming to itself or form part of the building’s common area, the latter construction of the DMC should be preferred. 68.In light of the foregoing, Wing Ming’s claim against the Incorporated Owners for breach of the DMC and against New Gas for trespass in connection with the installation of the fire pipe fails. B. Whether Wing Ming entitled to damages for alleged DMC breach or trespass 69.Given my conclusion in Section III.A, Wing Ming is not entitled to damages for lost rental. 70.But, for completeness, I will briefly state my views on issues raised by Wing Ming in relation to its damages claim. 71.Assume then that the impugned section of the pipe constituted some sort of encroachment onto air space over which Wing Ming held rights. 72.Wing Ming applied to the Building Authority to do construction work in relation to the Basement, the Ground Floor, the loft and the 11th floor. It says that such work constituted one indivisible project which was slowed down by the construction of the pipe. It claims lost rental arising from the delay. 73.First, I am not persuaded that the impugned section of the pipe caused any delay to the project. 74.Note that the impugned section does not include that part of the pipe coloured blue in Annex 1 to this Judgment. That is because the part coloured blue runs above portion V1. By August 1993 (when the fire pipe was installed), Wing Ming had assigned V1 to Hung Tak. 75.Wing Ming claims that the presence of the impugned section hindered construction because the I-beams for the loft could not be moved by chain blocks. The chain blocks (it is alleged) risked interfering with the fire pipe. 76.Such claim was not established by the evidence. Mr. Yuen asserted the difficulty of using chain blocks in the witness box. But Mr. Yuen cannot be regarded as having any construction expertise. On the other hand, Wing Ming’s building expert (Mr. Patrick Lau (a surveyor)), frankly admitted that he did not know what a chain block was and did not regard himself as having any deep construction expertise. 77.Thus, I am unable to conclude that the use of chain blocks would have been too costly or otherwise impractical merely because of the presence of the impugned section. I cannot infer that the project intended by Wing Ming was delayed in any significant way as a result of the impugned section of pipe. 78.Second, I am not convinced that the project was an indivisible one. If the impugned section was truly an impediment to construction of the loft, I see no reason why the 11th floor could not have been proceeded with and rented out separately in advance of the Ground Floor and loft works. 79.Wing Ming claims that it was not possible, without incurring huge delay and cost, to separate out the 11th floor from the entire works approved by the Building Authority. I do not accept this. If there really was any problem, an obvious commonsense solution would have been to apply to the Building Authority to hive off the 11th floor works as an amendment to the originally approved building plans. Here I think that the Incorporated Owners’ building expert (Mr. Robin Howes) is correct that such an application to amend would have been dealt with expeditiously as merely a minor change to already approved plans. 80.Wing Ming says that it acted reasonably in not applying to amend the building plans. This is because, rightly or wrongly, it was advised in 1993 that amendment of the plans was not feasible. I do not think that this can be any good reason when the Building Authority itself raised with Wing Ming the possibility of hiving off the 11th floor as separate works. 81.Third, Wing Ming has suggested that the Basement had rental value for which it should be compensated. Wing Ming (the argument goes) could rent out the Basement for storage as a package deal with the Ground Floor and newly-constructed loft. I disagree. I think that it is clear from the Occupation Permit that the Basement cannot be used for storage. For this reason, in my view the Incorporated Owners’ valuation expert (Mr. Eric Yeung) rightly valued the Basement as having $0 rental value. 82.Fourth, on the whole, I prefer the evidence of the Incorporated Owners’ valuation expert. Where there is any conflict with Wing Ming’s valuation expert (Mr. Gareth Williams), I would prefer the lower values of the Incorporated Owners. 83.Wing Ming’s valuation expert assumed that, if the Occupation Permit did not expressly state that a use was prohibited, such use was permissible. I do not think that approach was right. The Occupation Permit here is plainly an exhaustive list of the permissible uses for the individual floors of the building. 84.Further, Wing Ming’s valuation expert misread paragraph 20 of the “Code of Practice for the Provision of Means of Escape in Case of Fire” (1996 edition). This led to a wrong conclusion as to the number of exits needed in the Basement if it were to be used for storage. 85.The result of these errors was that Wing Ming’s suggested rental values were generally higher than what they should have been. C. Whether New Gas liable to Wing Ming for damages or Incorporated Owners liable to New Gas for indemnity 86.It follows from my conclusion in Section III.A that Wing Ming’s claim in trespass against New Gas fails. 87.In further consequence, New Gas’ claim against the Incorporated Owners for an indemnity falls away. D. Whether Wing Ming liable for management fees 88.In support of its case on management fees, the Incorporated Owners have produced a certificate signed by Mr. Luk Siu Kai as “Chairman of the Management Committee” of the Incorporated Owners. The certificate states that Wing Ming is liable for outstanding management fees of $5,515,254.34 for the period from 1 October 1991 to 30 November 2007. 89.The certificate was issued under Building Management Ordinance (Cap.344) (BMO) s.22(4). That provides that:-
90.Mr. Lee attacks the certificate on a number of grounds. 91.First, Mr. Lee complained that the Incorporated Owner have not produced a resolution confirming Mr. Luk’s appointment as chairman. But a resolution dated 8 August 2005 to that effect has now been produced. 92.Second, Mr. Lee argues that Mr. Luk has never been (and could never be) the chairman of the Management Committee. That is because (Mr. Lee explains) Mr. Luk is a natural person and all owners having units in the building are corporations. The owners (according to Mr. Lee) could only have appointed a corporation (that is, one of themselves) as chairman of the Management Committee under BMO Schedule 2, paragraph 5(2). 93.I do not think that the argument is right. 94.As Mr. Horace Wong SC (appearing for the Incorporated Owners) points out, under BMO Schedule 2, paragraph 11 a corporate unit-owner may appoint an individual “to act as its representative ... for the purposes of this Ordinance as if the authorized representative were a member of the management committee in his own right”. 95.Mr. Luk is the representative of Conwan Development Ltd., a unit-owner in the building. Consequently, he may be treated as a member of the management committee in his own right, with the capacity to be appointed as chairman. 96.Third, Mr. Lee notes that the Management Committee has never prepared any budget in relation to the management fees sought to be collected from Wing Ming. This (Mr. Lee suggests) is contrary to BMO Schedule 5. The absence of any budget (Mr. Lee submits) is thus fatal to the Incorporated Owners’ claim. 97.I am unable to accept the submission. 98.It is inaccurate to suggest that budgets covering the relevant period were not prepared. Mr. Lee relies on a letter from the Incorporated Owners’ solicitors stating that “no annual budget has been prepared by our client since 1993”. Whatever such statement might mean, it is confined to the Incorporated Owners. They may not have prepared any budget during the period, but other entities might have. 99.Easyknit succeeded Essman as manager of the building in mid-1994. Easyknit remained as manager until about 1999 when it became insolvent. There is evidence (in the form of actual budgets) that Easyknit complied with the requirements of BMO Schedule 5. 100.From 2000 onwards, the owners of the building determined management fees by increasing or decreasing a previous year’s management fees by a certain amount or percentage. From minutes of their meeting, the owners appear to have simply based themselves in a given year on the last budget prepared by Easyknit (for the year 1995) and to have raised or decreased the amounts payable as managements fees in that budget by a percentage or amount. 101.I would have thought that the natural implication of this was that the owners were adopting Easyknit’s last budget with a proportionate adjustment in individual items to reflect the agreed overall percentage increase or decrease in management fees. Thus, although the Incorporated Owners may not have prepared any new budget themselves, this does not mean there was no budget. 102.The method which the Incorporated Owners adopted may be regarded as rough-and-ready. Nonetheless, it may be practical in terms of the time and cost of preparation. The point is that, despite its robustness, I do not think that the method contravenes BMO Schedule 5. 103.Mr. Lee complains that management fees were set by owners’ meetings. This (Mr. Lee suggests) was contrary to BMO s. 21 and Schedule 5 which refer to the Management Committee of a building preparing budgets and determining contributions. 104.I do not think that there is anything in this point. Although management fees may have been here determined from time to time by the owners in general meeting, it is apparent (among other things from the certificate) that the contributions so determined have been ratified by the Management Committee. 105.This is hardly a surprising outcome on the facts of this case. 106.In actuality, there are only a small number of unit-owners in the building. To all intents and purposes, there is little (if any) significant difference between a meeting of owners and a meeting of the Management Committee of the building. The owners in general meeting and the Management Committee comprise practically the same (if not identical) membership here. In the circumstances, it would be odd if a resolution by a meeting of unit-owners would somehow turn out differently if put to the building’s Management Committee. 107.Fourth, Mr. Lee complains, on the basis of certain minutes of owners’ meetings, that demands for management fees have been based on a unit rate per sq. ft. That (Mr. Lee says) is wrong. Fees should be based on undivided shares in the building held by an owner. 108.Here I accept Mr. Wong’s response. Despite what the minutes say on their face about management fees being based on a rate per sq. ft., it is clear from breakdowns of resultant fees found in the same minutes that management fees were actually charged by reference to undivided shares. 109.Fifth, Mr. Lee contends that over the years the Incorporated Owners’ demands for outstanding management fees have been inconsistent and inflated. 110.Mr. Lee has referred me to the Incorporated Owners’ financial statements, especially for the years 1995 to 1997 when Easyknit was still manager. These show expenses (Mr. Lee notes) which are significantly lower than the totality of management fees charged to unit-owners. The expenses in the financial statements (Mr. Lee concludes) do not justify the level of management fees being claimed. 111.I do not think that it is appropriate to evaluate the reasonableness of the management fees by reference to the financial statements. 112.The evidence is that the financial statements on which Mr. Lee relies were drawn up after the fact. Such ex post facto reconstruction was necessary because Easyknit took away a substantial number of the building’s accounts and other documents when Easyknit ceased to be manager. Despite request, these materials were never returned to the Incorporated Owners by Easyknit (which became insolvent). 113.The reconstructed financial statements were consequently prepared based on the cash which the Incorporated Owners had at hand and on such documents as might have been available. The statements were drawn up without the benefit of income and expenditure records kept by Easyknit. 114.It is therefore far from clear that these ex post facto statements deal with management fees paid to and expenses incurred by Easyknit. On the contrary, the financial statements appear on their face simply to concern monies in the hands of the Incorporated Owners. 115.It follows that the financial statements are no reliable guide to what reasonable management fees ought to have been in (say) 1995 to 1998. 116.For example, when the building was managed by Essman, annual expenditure already exceeded $1.25 million. During Easyknit’s tenure on the other hand, monthly expenditure for the building in mid-1997 ranged between $148,000 and $162,800. It is hard to believe then that in (say) 1998 total expenditure for the building would only have been $116,762 for the whole year. Yet $116,762 (of which $100,000 is said to be “Repair & maintenance” is the figure which appears in the reconstructed financial statement of the Incorporated Owners for the period from 1 January to 31 December 1998. The financial statement figures are just far too low. 117.Sixth, Mr. Lee submits that an “adjustment” in management fees was agreed between Wing Ming and the Incorporated Owners at some time in 2002. 118.For this, Mr. Lee relies on the minutes of the Fourth Meeting of the Management Committee on 28 February 2002. The minutes state:-
119.On 6 March 2002 the Incorporated Owners wrote to Wing Ming (Attention: Mr. Yuen Man) as follows (in translation):-
120.Mr. Lee contends that the above documents show that the Incorporated Owners and Wing Ming agreed to set-off Essman’s claim for unpaid management fees of $1,391,011.15 against the Incorporated Owners’ claim for outstanding management fees as at early 2002. The result of this “adjustment” (Mr. Lee says) is that only $476,669.25 in management fees can be considered due from Wing Ming as at early 2002. 121.I am unable to accept the submission. No “adjustment” was ever agreed and Wing Ming never considered a set-off as having been agreed. This is clear from Wing Ming’s letter to the Incorporated Owners dated 14 July 2003. 122.That letter reads (in translation):-
123.Mr. Wong objects to Mr. Lee’s use of the 6 March 2002 letter. He says that such letter constituted a part of without prejudice negotiations towards the settlement of the proceedings before me. As such, Mr. Wong submits that the correspondence is inadmissible as evidence. 124.Mr. Wong may or may not be right on the admissibility of the letter. It is unnecessary for me to decide the point as, even if admissible, the letter does not assist Mr. Lee. 125.All of Mr. Lee’s attacks against the certificate have proved untenable. Accordingly, I accept the certificate as evidence of what is due and owing from Wing Ming to the Incorporated Owners in respect of management fees. 126.That leaves the question of interest. Some management fees certified have been outstanding since the early 1990s. Others have only been more recently due. I think that some interest should be payable, given the long period that a portion of the management fees have been left unpaid by Wing Ming. 127.I think that the best the Court can do is to proceed in an averaging or rough-and-ready manner. I would award interest on half of the total outstanding management fees of $5,515,254.34 at one-third of the HSBC prime rate from time to time. Such interest will run from the date of the Counterclaim (29 November 1993) until date of judgment. Thereafter interest will run on the whole of the management fees awarded by me at the judgment rate until payment. E. Whether Wing Ming liable to demolish wall 128.The wall blocks access to the original Car Parking Spaces 2, 3 and 4 in the DMC. Wing Ming uses the space enclosed by the wall for purposes other than parking cars. 129.Consequently, the wall breaches DMC cl.IV.28. This is because the wall prevents the use of Car Parking Spaces 2, 3 and 4 for parking and facilitates the use of the enclosed space for purposes other than parking. It also breaches Special Condition 9 of the Conditions of Sale for similar reason. 130.Further, photos of the wall show a hole directly underneath. That hole was first blocked up and then unblocked. It currently is covered by an aluminium panel. 131.There is overwhelming evidence that the hole leads to the overflow tank in the Basement. Only Mr. Yuen Man contended otherwise. He denied that there was any hole. But it is difficult to give that evidence credence when even Wing Ming’s expert Mr. Patrick Lau accepts that there is a hole which leads to the water tank in the Basement. 132.Mr. Lee faintly suggested that the hole did not exist because it does not appear on the building plans submitted by Wing Ming to the Building Authority for the wall. In any event, Mr. Lee says that the Building Authority was unlikely to have approved the plans if it had noticed that there would be a hole under the proposed wall. 133.I do not find the argument persuasive. The existence of the hole cannot be denied. The building plans submitted were not necessarily prepared as a comprehensive depiction of everything on the Ground Floor. No evidence has been adduced to suggest that the plans were so drawn up. Nor is it clear how closely (if at all) the Building Authority inspected the Ground Floor of the building before approving the plans. 134.I can therefore deduce nothing from the absence of the hole in the plans. 135.The overflow tank is a common facility of the building. The wall interferes with the opening which is the only means of access to the tank. For this reason, the wall also breaches various provisions of the DMC prohibiting interference with access to common facilities. 136.In the circumstances, it is appropriate for there to be an order for the wall presently enclosing Car Parking Spaces 2, 3 and 4 to be demolished. F. Whether Essman liable to Incorporated Owners 137.It follows from Section III.A that the Incorporated Owners’ claim for an indemnity against Essman falls away. G. Whether Incorporated Owners liable to Essman 138.In January 2006 Essman counterclaimed for unpaid management fees of $1,391,011.15. The amount is said to be reimbursement for what Essman had expended on behalf of the owners of the building prior to ceasing to be manager in June 1994. 139.In the normal course of events, whatever its merits, more than 6 years having elapsed since 1994, the counterclaim would be time-barred. 140.But Essman claims that there was an acknowledgement of the debt by the Incorporated Owners in 2002. It relies on the letter of 6 March 2002 mentioned above as such acknowledgment. 141.Limitation Ordinance (Cap.347) (LO) s.23(3) provides that limitation shall run from the date of any acknowledgment by a debtor of a debt. 142.LO s.24 defines what constitutes an acknowledgment. It states:-
143.I have difficulty reading the letter of 6 March 2002 as any acknowledgment within the terms of LO ss.23(3) and 24. 144.First, the letter is not addressed to Essman. It is addressed to Wing Ming. Although they are related companies, Wing Ming is not Essman’s agent. 145.Mr. Lee suggests that, since the letter was addressed to Mr. Yuen and Mr. Yuen was a director of both Wing Ming and Essman, the letter may be regarded as having been sent by the Incorporated Owners to Essman’s agent. 146.I disagree. The letter is addressed to Wing Ming. It is marked to Mr. Yuen’s attention, simply because he was the relevant officer of Wing Ming dealing with the subject matter of the letter. The letter is not marked to the attention of Mr. Yuen as an officer or agent of Essman. 147.Second, I am unable to construe the text of the letter as any acknowledgment of a debt due from the Incorporated Owners to Essman. By the letter the Incorporated Owners simply express a willingness “to undertake the outstanding management fees owed by the former registered owner of the 4th floor to Essman”. That is a far cry from acknowledging a debt by the Incorporated Owners to Essman which is alleged to be outstanding since 1994. 148.Mr. Lee points out that the tables attached to the letter evidence sums described as “Management fee payable by Incorporated Owners to Wing Ming Garment Factory” which add up to the $1,391,011.15 claimed by Essman. 149.That may be so. But I do not see how, read in conjunction with the body of the letter, such fact somehow transforms the letter’s text into an acknowledgment of debt to Essman. 150.Mr. Lee has drawn my attention to a handwritten schedule relating to management fees payable to Essman by the Incorporated Owners. That was apparently received by Essman by post in June 2001. However, that document is unsigned. It therefore does not meet the requirement in LO s.24. 151.Neither the letter of March 2002 nor the Schedule of June 2001 can be read as an acknowledgment of a debt by the Incorporated Owners within the terms of LO s.24. It follows that Wing Ming’s counterclaim is now time-barred and must fail. IV. CONCLUSION 152.The following are dismissed:-
153.There will be an Order on the Incorporated Owners’ counterclaim against Wing Ming as follows:-
154.There will be liberty to apply. 155.There will be a Costs Order Nisi as follows:-
156.In relation to the costs of the third party proceedings, I observe the following:-
Mr. Lee Yee Hung, instructed by Messrs Huen Wong & Co., for the Plaintiff and the Third Party Mr. Horace Wong, SC and Mr. Paul Mak, instructed by Messrs Hampton Winter & Glynn, for the 1st Defendant Mr. Godwin Ng, instructed by Messrs Wong & Co., for the 2nd Defendant Appeal dismissed: see CACV27/2008 dated 27 June 2008 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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