Hong Yip Service Co Ltd v. The Incorporated Owners of Fair Way Garden
|
DCCJ 3835 OF 2005 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 3835 OF 2005 _____________________ BWTWEEN
__________________________ Coram: H. H. Judge YUNG
___________________________ J U D G M E N T ____________________________ Liability to Indemnify the Plaintiff 1.The Defendant Incorporated Owners employed the Plaintiff to manage its estate (“ the Building ”) for two years from July 2002. The management contract was not renewed by the new management committee of the Defendant. After the termination of the agreement in July 2004, and the final account was settled, the Plaintiff claimed from the Defendant reimbursement of $107,332.54. The Plaintiff alleged that this amount represented amount of expenses incurred on behalf of the Defendant. The claim is based on Clause 8 of the Management Agreement between the parties and alternatively on common law that an agent is entitled to reimbursement on expenses incurred on behalf of its principal. 2.The Defendant invokes Clause 6 and Clause 7 of the management agreement as a complete defence. What the Defendant contends and what his counsel, Mr. Lok, argues is simply that on the true interpretation of these two clauses, the Plaintiff is simply not entitled to reimbursement of expenses incurred for and on behalf of the Defendant. 3.Clause 6 provides that:
4.Mr. Lok simply invoked these two clauses without much elaboration, if at all, in his argument. He did not refer to other Clauses of the Management Agreement. Nor did he draw to my attention any special circumstances which would support his contention. 5.Mr. Lok construed the two clauses out of context. If we look at the two clauses in the context of the agreement, especially Clause 8 and Clause 1, we can see immediately that the argument by Mr. Lok cannot stand at all. Furthermore Mr. Lok did not deal with the contention of Mr. Chan, counsel for the Plaintiff. I accept Mr. Chan’s argument. It runs like this. Firstly Clause 8 clearly spells out obligation of the Defendant to indemnify the Plaintiff for expenses properly incurred in the management of the Building. Clause 1 and 1.16 prescribe the duty of the Plaintiff empowering it to incur expenses and recouping the same from the operation fund. 6.I cannot see any proper reason for Mr. Lok to construe Clause 6 and Clause 7 without reference to the other provisions of the same agreement. Even if his approach is adopted, the two clauses do not have the effect the defence contends. The two clauses simply give the Plaintiff protection in case of failure to provide services because of lack of fund. They do not carry the meaning that if the Plaintiff chose to incur expenses when the fund was currently exhausted, it could not recover the same from the Defendant later on. 7.Even if the two clauses are to be interpreted independently of other provisions, Clause 6 and Clause 7 are only empowering the Plaintiff to stop paying for various managing expenses. On its literal interpretation, these two clauses do not, individually, or collectively, have the effect of disentitling the Plaintiff to reimbursement of management expenses under Clause 8 and at common law. 8.Mr. Lok has not adopted the purposive approach. To use this approach, one has to look at other provisions of the agreement and the particular nature of the agreement. A management company appointed by an owners incorporation very often finds itself in an awkward position. While very often the management company was given a duty and obligation as extensive as that of a building manager. Sometime it is not clear at all whether the management company or its employer is the building manager within the meaning of the Building Management Ordinance. A lesser management company with limited bargaining power and anxious to obtain a contract might find itself entering into agreement taking upon itself the onerous duty of a building manager but with severely restricted access to fund. These companies might find themselves in trouble when they could not carry out their duty, say urgent repairs, because of lack of fund. The lack of fund might not be a valid reason to exonerate them, especially when there is no explicit contractual provision to protect them. 9.As usually the case with a management company, the Plaintiff was under a contractual duty as provided by other clauses of the management agreement to manage the common area, common facilities, and perform various duties under the deed of mutual covenant and the provisions of the Building Management Ordinance. Clause 6 and Clause 7 were intended to provide for the situation when the operation fund was exhausted and the Plaintiff was unwilling to advance its own money. The clauses would provide the Plaintiff some protection. Whether it was effective in every case is not the issue in the present proceedings. Suffice for me to say Clause 6 and 7 were not intended to prohibit the Plaintiff from incurring proper expenses or to prevent it from recovering the same from the Defendant. 10.Mr. Lok’s argument on this main defence is nothing more than a bare assertion. Neither the literal nor purposive interpretation of Clauses 6 and Clause 7 can give the meaning asserted by Mr. Lok. I find no merit in this argument of Mr. Lok. This main defence therefore fails. On the true interpretation of the Management Agreement, and at common law, the Defendant is liable to indemnify the Plaintiff of the expenses properly incurred. Other Defence and Counter-claim 11.The Plaintiff prepared its final accounts after termination of its contract with the Defendant. The accounts form the factual basis of the main claim. The Defendant challenged the account. The Defendant also challenged previous accounts alleging an overpayment of $471,947.46. The Defendant is counter-claiming the overpayment and raised the defence of set-off. Evidence and Witnesses 12.The Plaintiff called four witnesses. The first was Ms Man, a practising accountant of the accounting firm which audited the Plaintiff’s disputed accounts and prepared a report. She explained the methodology in preparing the audit report and the findings therein. Her veracity and expertise is hardly challenged, if at all. Instead the defence challenged the authenticity of the documents and sought to discredit the audit report on the basis that she could not confirm the authenticity of various documents. 13.The second witness was Ms Tang, the Assistant Accountant of the Plaintiff who assisted in the preparation of the audit report. With the books and accounts kept by the Plaintiff, she confirmed that a sum of $170,000 had been advanced to the Defendant and that after final adjustment a sum of $107,322.54 was indebted to the Plaintiff. 14.The third witness for the Plaintiff was the Area Manager, Mr. Wong. He was in a position to explain the daily expenses on account of the Defendant. He was cross-examined at length about those specific items in the counter-claim. I find he was not shaken in cross-examination. It should also be noted that he confirmed in cross-examinations that all the bills and expenses which the Defendant disputed had in fact been paid. After the assertion, the defence did not pursue the matter further. 15.The last witness for the Plaintiff was Mr. Lo, a Senior Administrative Officer of the Plaintiff. He was in charge of daily management of the Building. He explained how daily expenses were incurred. Incidentally he confirmed in cross-examination that the management committee of the Owners Incorporation were fully aware of the financial situation and that at no time did the management committee challenged the Plaintiff. In any event the defence was unable to make such challenge in view of the voluminous minutes of management meetings supporting the witness’s contention. 16.The Defendant called only one witness, Ms Din. She was no longer an owner of the Building. She was the Treasurer of the management committee which succeeded the one who had been working harmoniously with the Plaintiff. Even if she might not have been the instigator of the present dispute as portrayed by Mr. Chan, counsel for the Plaintiff, she must have been the driving force behind the new management committee. She was a bookkeeper and must have some experience in bookkeeping and accounting. She did not appear to trust the Plaintiff at all. She went over the accounts of the Plaintiff and did not trust them. For no good reasons she and her management committee refused to examine the books and supporting documents when they doubted the Plaintiff’s accounts. She even signed the Auditors Report. 17.Ms Din was an evasive witness. She wanted to avoid answers not to her advantage unless she was pressed. She said she did not want to sign the undertaking not to divulge privacy data of the other building and people and therefore refused the Plaintiff’s offer to inspect its accounting records. I do not believe that this could be the genuine reason. Such undertaking should be normal and reasonable. I cannot see any difficulty for her or others assisting her to give the undertaking. She did not even bother to explain why she did not want to give such undertaking. Instead she said she had a full time job and could not have spared the time. I do not believe she had given the real reasons. 18.In any event Ms Din had nothing to offer to support her allegation that many of the documents were forged. The authenticity of these documents had long been dealt with before masters in pre-trial hearings. It would be futile for her or for the defence to make such bare assertions. She also did not offer to explain why the Defendant refused to conduct an audit on the accounts. 19.Apart from the oral evidence of its witnesses, the Plaintiff has many pages of documentary evidence. Those accounts, books, bills were part of its usual business record. They themselves have evidential value. Furthermore, the old management committee was fully aware of the income and expenditure situation. 20.Looking at the documentary evidence, evidence of the witnesses including the expert, I find the Plaintiff has proved on the balance of probabilities that they had advanced the sum of $170,000. Subject to challenges the defence raised in respect of some of the items, the Plaintiff has proved their account. 21.The next issue, is the final sum owed by the Defendant after final adjustments. The final sum owing, if any, is tied to the counter-claim. The defence queried a number of items and my findings in respect each of them are set out in the following paragraphs. Items Challenged by the Defence 22.$1,300 for satellite television maintenance---The contract was terminated in April, yet the Plaintiff still charged the Defendant $1,300. I accept that this amount has been adjusted and that it was not included in the final account. Incidentally, that might be the reason why the defence witness, Ms Din, did not mention this claim in evidence. 23.$279,805.86 overpayment for staff salary---The total salary for the staff of the Plaintiff that worked in the Building is less than the total amount as shown in monthly income and expenditure accounts. She based the finding on a schedule she prepared. Admittedly the materials and accounts she used were incomplete and her calculation is therefore subject to error. She admitted it in evidence. She knew too well that the Plaintiff was always willing to explain to her the query, but she never asked. I find there is no substance in the allegation that there was an overpayment in this regard. 24.$57610.31--Expenditure relating to Mandatory Provident Fund---The defence alleged that the amount from income and expenditure account and the total sum from payment slips did not tally. What Ms Din did not know was that there were other two provident schemes the staff had joined. She only counted one scheme. Even on the scheme she counted she made a slight error. I accept the evidence of Mr. Wong who explained the various schemes and payments in respect thereof. I find there was no such alleged overpayment of $57,610.31 25.$38,956.51 ---Terminal payments for dismissed staff members---The defence alleged that the plaintiff could re-deploy them to other Buildings it managed instead of dismissing them. It was under the clear direction of the Defendant that they were dismissed. The charging of termination payment was in accordance with the management contract. In respect of one of the dismissed staff, the Plaintiff was taken to court resulting in his re-instatement and re-deployment. His termination payment was adjusted in the account. I accept Mr. Wong’s explanation. There was no basis for the defence’s claim for this item. 26.$8533.30---Severance payment for a staff member who had not worked in the Building for over two years---. Ms Din had no knowledge of the matter. This should dispose of the matter. The defence alleged that the Plaintiff failed to prove this claim. This is not quite accurate. There is documentary evidence as explained by Mr. Wong and I accept his explanation. The claim by the defence for this item must fail. 27.$2,944.92---Holidays compensation for a staff member--- The Defendant alleged that he had worked for less than 13 months in the Building, and the Defendant should not be responsible for 14 days’ holiday compensation. This member had worked for the Plaintiff for a long time entitling him to the minimum benefit of 14 holidays under the Employee Ordinance. Under the management agreement the Defendant was responsible for such payments. This claim by the defence failed. 28.$4,614.90 Overpayment for Mandatory Provident Fund--- In respect of a staff member who had only worked for two months in the Building, the Defendant allegedly paid on request of the Plaintiff Mandatory Provident Fund contribution for 11 months. There was no evidence adduced in support. Ms Din did not refer to this claim, nor did she refer to any document to support this claim. Mr. Wong believed that the defence might have misunderstood some documents but did not know which. According to Mr. Wong, the record of the Plaintiff only showed two month’s payment. This claim by the defence fails. 29.$6,375--- Insurance premium for employee insurance for the period from August to November--- Ms Din was not even asked about this. As a result, no evidence as given as to basis of this claim. It is true that the management contract terminated in August. Mr. Wong had an explanation which was not challenged at all. It is perplexing that defence still insisted on this claim. I accept Mr. Wong’s explanation. The insurance premium was paid in one lump sum for the whole year form November to November. The pro rata amount appeared monthly in the income and expenditure account. This accounting practice should be clear to the old management committee. It is not difficult at all for the new management committee to have their queried clarified. This accounting practice of spreading a yearly expenditure over the months is normal and reasonable and should be clearly anticipated and appreciated by Ms Din who had at least some experience in bookkeeping. The claim by the defence for this item failed. 30.$37,096.28---The amount in respect of expenses in the Plaintiff’s headquarter, such as instalments for photocopiers, and uniform of the staff working there--- Mr. Lo and Mr. Wong had explained that all these charges related to work done for the Building. As the Plaintiff was managing other buildings as well. They worked out a way to split the charges among these buildings for their use of the common equipments. It was not unfair or unreasonable. The defence did not dispute that these charges related worked done for the Defendant. . The only criticism by the defence was that no documents were produced to prove these expenses. The Defendant refused to go up to the Plaintiff’s office to inspect the documents. The Defendant did not seek an order for specific discovery. To the Plaintiffuch discovery was not necessary or reasonable in view of the tenor of complaint in the pleadings. The Defendant’s complaint was that the Plaintiff charged it expenses not connected with the management of the Building. The Defendant should have asked for specific discovery if it intended to pursue the line of defence adopted at the trial. As it stands, the evidence adduced by the Plaintiff, which I accept, support the Plaintiff’s claim that these charges were properly charged to the Defendant’s account. 31.$31,490---The amount charged for wages of staff in the Building for August when the Plaintiff was no longer manager of the building--- Ms Din did not refer to this item. She might have known the explanation given by Mr. Wong. It was quite common for adjustments to be made in the books and accounts, especially when the amount was not yet know within the accounting period. The explanation given by Mr. Wong is reasonable and I accept it. In any event the defence did not pursue this claim in its closing submission. 32.$3,569.48---Compensation to Mr. Ho Chi Kit ---It is true that such should be covered by employee insurance. There has been adjustment for this item and refund was made in the account. This was reflected in the audit report. There is no ground to pursue this item. Conclusion 33.In the premises the counter-claim is dismissed and judgment is entered for the Plaintiff for the sum of $107,322.54. I will hear the parties on costs on 1st June 2010 at 3:30 pm and other matters, if any. Parties need not attend if they can reach agreement on costs and have no other applications to make.
Mr. C.W. Chan of M/S Chung & Kwan for the Plaintiff. Mr. T.B. Lok of M/S Huen & Partners for the Defendant. |