Simon Patrick Michael Durrant v. Incorporated Owners of Southorn Development

LDBM 230/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 230 OF 2013

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D E C I S I O N

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1.This is the application by the respondent to strike out the Notice of Application (“NOA”) filed by the applicant in this case on the ground that:

(a) it is pre-mature as no reasonable cause of action has accrued yet; and/or

(b) there is no reasonable cause of action or at all; and/or

(c) it is otherwise an abuse of process of the court; and/or

(d) it is otherwise scandalous, frivolous or vexatious.

Undisputed Facts

2.The applicant is the owner of Flat 4204 Southorn Gardens, part of the Southorn Development (“the Development”) and the respondent is the Incorporated Owners of Southorn Development (“IO”).

3.On 10 August 2013, the IO received a letter dated 8 August 2013 from the applicant (“A’s Letter”) requesting for an inspection of :

“the books of account of Southorn Development for the period from January 2010 to December 2012, … the books of account should, but not exclusivity (sic), include :

(a) the time cards for workers who worked directly for the MTR or indirectly as an employee of any contractor hired by the MTR to carry out any form of work at Southorn Development;

(b) any and all invoices and receipts issued by the MTR or IO for any work carried out, maintenance, purchases, sales, at Southorn Development;

(c) Any and all invoices and receipts received by the MTR or IO in relation to Southorn Development;

(d) Any and all work sheets, job orders, description of work ordered/carried out, maintenance records, plus confirmation of job inspected and carried out in Southorn Development;

(e) Details of any work the IO or the MTR instructed internal or external contractors to carry out in Southorn Development;

(f) Any and all records relating to Southorn Development not listed above;

(g)   Any and all records documents required to create such invoices, receipts, records as list above.”

4.In A’s Letter, the applicant asked for the documents requested to be “ready for inspection within 7 days of the date of this letter – i.e. the 15 August 2013”.

5.The management office, on the instruction of the IO, sent a reply letter dated 12 August 2013 to the applicant (“R’s reply”).  Contents of the letter reads :

“The matter is now being handled by us and we will keep you informed of the progress in due course. Should you have any enquiries, please do not hesitate to contact our Mr. James Lau, Senior Property Officer at …”

6.On 12 August 2013, the applicant filed the NOA in this case which was being served on the IO on the same day.  In the NOA, the applicant is asking for an order, pursuant to section 27(2) and Paragraph 2(5) Schedule 7 of the Building Management Ordinance (“BMO”), to inspect the books of account including but not limited to all the documents listed in paragraph 3 above as well as the following 2 additional document :

“(h) the visitor logs for flat 4204 on 27 October 2009 and for the full years 2010, 2011, 2012; and

(i) all the security footage from all the lobby security cameras on 18 May 2013 from 2pm to 6pm inclusive.”

7.By a summons dated 8 October 2013, the respondent asked for the NOA to be struck out.  At the hearing, it is Mr. Cheung’s submission that the NOA is pre-mature and the document itemised do not fall within document an owner is entitled to inspect under the relevant statutory provisions.

Relevant Statutory Provisions

8.The following provisions in the BMO are relevant in the consideration of this application.

9.Section 27(1) of the BMO stipulated that:

“a management committee shall maintain books or records of account and other financial records”.

10.Section 27(2) of the BMO provided that the management committee:

“shall permit … an owner … to inspect the books of account at any reasonable time”.

11.Paragraph 2(1) Schedule 7 of the BMO stipulated that:

“the manager shall maintain proper books or records of account and other financial records and shall keep all bills, invoices, vouches, receipts and other documents referred to in those books and records…”.

12.Paragraph 2(5) Schedule 7 of the BMO required the manager to:

“permit any owner, at any reasonable time, to inspect the books or records of account and any income and expenditure account or balance sheet”.

13.Paragraph 1 Schedule 6 required:

“all bills, invoices, vouchers, receipts and other documents referred to in the books or records of account and other records maintained under section 27(1) shall be kept by the management committee”.

14.Paragraph 1A imposed a mandatory duty that:

“the management committee shall -

(a) at the request of not less than 5% of the owners, permit those owners or any person appointed by those owners to inspect any bills, invoices, vouchers, receipts or other documents referred to in paragraph 1 at any reasonable time; and

(b)   permit any person authorized by the court to inspect any bills, invoices, vouchers, receipts or other documents referred to in paragraph 1 at any reasonable time.”

15.For the purpose of Paragraph 1A(b), Paragraph 1B Schedule 6 of the BMO provided that:

“an owner may apply to the court for an order authorizing the owner, or any other person named in the application, to inspect any bills, invoices, vouchers, receipts or other documents referred to in paragraph 1”.

16.And the court may make an order under Paragraph 1B if it is satisfied that :

“(a) the application is made in good faith; and

(b) the inspection applied for is for a proper purpose.”

17.To summarise from the above quoted legal provisions in the BMO, the incorporated owners is required to keep the books of account and other financial records, either by its management committee or its manager.  The documents which an incorporated owners is required to keep are different from the documents which the owners are allowed to inspect.  Whilst the management committee or the manager are duty bound to allow an owner to inspect “the books or records of account and any income and expenditure account or balance sheet” (“Financial Documents”), the “bills, invoices, vouchers, receipts and other documents” named in Paragraph 1 Schedule 6 (“Other Documents”) are not something which an owner is entitled to have an inspection as of right. 

18.Under Schedule 6, any owner who seeks to inspect the Other Documents must meet one of the following 2 requirements :

(a) he must have the support of not less than 5% of the owners; or

(b) he must be authorized by the court.

19.In order to be authorized by the court to inspect the Other Documents, the owner has to apply to the court for an order to inspect and the court must be satisfied that the application is made in good faith and for a proper purpose.

Pre-mature Application

20.It is the submission by Mr. Cheung for the respondent that from the sequence of event, it can be seen that the applicant had taken out the NOA in this case before the expiry of the deadline fixed in A’s Letter and there is no refusal on the part of the respondent to allow the inspection.  No cause of action has been accrued without any refusal to the applicant’s request (Speedy Gainer Limited v The IO of Malahon Apartments and another CACV 336/2004, 22 July 2005 refers).

21.The applicant in reply submitted that :

(a) the judgment of Speedy Gainer is not applicable since that is a case involving an application under the Deed of Mutual Covenant (“DMC”) and not under the BMO.  And Speedy Gainer is a case concerning an application under Schedule 7 of the BMO which had been incorporated into the DMC by virtue of Section 34E(1) of BMO whilst the application in this case falls within Paragraph 1B Schedule 6 of BMO; 

(b) there is nothing in the BMO that required an application before the Tribunal has to be made after a refusal by the IO; so there is nothing to prevent the applicant to take out the NOA alongside with the request;

(c) the IO had not allowed an inspection of the documents up till this moment and the IO’s attitude in not allowing the inspection can be seen from its letter dated 29 August 2013 informing the applicant that :

“as discussed in the Management Committee meeting held on 21 August 2013, the case would be referred to the Lands Tribunal for further judgment.”

This indicated the IO had never intended to reply before 15 August, the deadline set in A’s Letter.

Discussion

22.Judging from the statutory provisions, the request made by the applicant under the NOA should be considered by differentiating the documents into 2 categories, i.e. the books of account and the itemized documents stated in paragraph 3 and 6 above (collectively called the “Itemized Documents”).  The books of account is covered by Section 27 and Schedule 7 whilst the Itemized Documents does not fall within these 2 legal provisions.

Books of Account

23.These are documents which an owner is entitled to have an inspection under Section 27(2) and Paragraph 2(5) Schedule 7 of the BMO as of right.  On the face of it, there is nothing mentioned in these provisions that the entitlement of the owner to apply to the court for an order must be subsequent to a request to the IO which had been declined. But I found the case of Speedy Gainer is directly on the point.

24.Speedy Gainer is a case involving an application taken out at the Lands Tribunal by the owner of certain shop premises of Malahon Apartments against the Incorporated Owners and the Manager of Malahon Apartments to:

“enforce the applicant’s right as owner to inspect the books or records of account and any income and expenditure account or balance sheet under para. 2(5) of the seventh schedule to the Ordinance” (para. 4).

It is found by the Court of Appeal that :

(a)     “the cause of action … is based on a breach of the Deed of Mutual Covenant which was binding on both owners and the manager … seeking the enforcement of the terms and provisions of the DMC which included the provisions incorporated into it under the Ordinance” (at para. 11);

(b)    “there could be no breach of the manager’s obligation to permit inspection without a valid request or demand for inspection followed by a wrongful failure to permit inspection” (at para. 11);

(c)     “common sense and fairness require that the manager should not be exposed to any claim by an owner unless and until a valid request or demand has been made and the manager has wrongfully failed or refused to permit inspection” (at para. 12);

(d)    “we do not believe that the court should encourage premature or unnecessary proceedings” (at para. 13); and

(e)     “no proceedings should be brought unless there has been a wrongful refusal to comply with a valid request for inspection” (at para. 27).

25.It is beyond argument, judging from the findings of the Court of Appeal quoted above, that there must be a wrongful refusal on the part of the Incorporated Owners or the manager in allowing any owner to inspect the document named in the relevant provisions in the BMO before a cause of action accrued which the owner can take up with the Lands Tribunal.  This is because the wrongful refusal amounts to a breach of Section 27(2) or Paragraph 2(5) Schedule 7 and the cause of action arises from such breach.  If any owner is entitled to take out an application with the Lands Tribunal without any wrongful refusal and in fact the request had eventually been entertained, i.e. there is no breach, this is the kind of unnecessary proceedings which the Court of Appeal had envisaged and opined that this should not be encouraged. 

26.And the submission by the applicant in this case that Speedy Gainer is not applicable since the case concerned a breach of DMC and not the legal provisions under BMO is misconceived.  In paragraph 4 of the judgment, it is specifically mentioned that “the application was brought to enforce the applicant’s right under para. 2(5) of the seventh schedule to the Ordinance”. So it is crystal clear that the claim was one based on a breach of para. 2(5) Schedule 7 of the BMO.  It is further mentioned that Schedule 7 had been incorporated into the DMC and are binding on the owners and manager of the building which means that a breach of the provision of Schedule 7 amounts to a breach of the DMC.  So the findings in Speedy Gainer should be applicable to a breach of Schedule 7 as well as the DMC.  In any event, in the NOA filed in this case, it is stated that the claim is one based on Paragraph 2(5) of Schedule 7, this is on the same basis as in Speedy Gainer.  I fail to see how can it be said that the case of Speedy Gainer is not applicable.

27.The fact that there are legal provisions in the BMO imposing a mandatory obligation on the Incorporated Owners and the manager to allow an inspection of the Financial Documents upon request tends to support the requirement that there should be a request wrongfully denied before the accrual of any cause of action.  If an owner is entitled to apply to the court for an inspection without any prior request and/or wrongful refusal, the provision requiring the Incorporated Owners and the manager to allow an inspection is superfluous.  And since the legal provisions in Section 27 and Schedule 7 conferred on any owner the right to inspect the books of account as of right, any application under Paragraph 1B Schedule 6 which is subject to the court’s scrutiny under Paragraph 1C, is inconsistent with the unfettered right created under Section 27 and Schedule 7.  This can never be right and the only conclusion must be that a request for inspection of the books of account is not covered by Schedule 6.

28.So the applicant’s contention that the application for inspection under this head is one falls within Paragraph 1B of Schedule 6 must fail since the document envisaged by Paragraph 1B are “bills, invoices, vouchers, receipts and other documents referred to in the books or records of account” (my emphasis) and not the books of account itself. 

29.It is also the contention by the applicant that up till this moment, his request had not been answered by the IO and all circumstances pointed to the conclusion that the IO is not prepared to entertain his request.  Be that as it may, this Tribunal should only be considering the circumstances up to the time when the NOA was being taken out and not something after that in order to determine whether a cause of action had accrued at the time the NOA was being filed.  On 12 August 2013, there had not been any refusal on the part of the IO, least to say wrongful refusal.

30.Having considered the argument and the legal provisions including case law, the application in this case concerning the inspection of books of account must be pre-mature with no cause of action accrued at the time the NOA was filed. Hence, this part of the application must be struck out and dismissed.

Itemized Document

31.The respondent contends that the document an owner entitled to have an inspection are “books or records of account and other records maintained under section 27(1)” as stipulated in Paragraph 1 Schedule 6.  The “other records maintained under section 27(1)” are “books or records of account and other financial records”.  So the Itemized Document requested by the applicant in this case goes beyond what is being required by the BMO and the applicant is not entitled to ask for an inspection. 

32.Judging from the nature of the Itemized Documents, it is beyond argument that they are not subject of mandatory inspection under Section 27 or Paragraph 2 Schedule 7.  But these are not the only provision in the BMO which conferred on an owner the entitlement to inspect documents kept by the Incorporated Owners or the manager.  Schedule 6 is the other legal provision that an owner may rely upon for inspection.  But the scope under Schedule 6 is very limited, i.e. only confined to “bills, invoices, vouchers, receipts and other documents referred to in the books or records of account and other records maintained under section 27(1)”  (my emphasis).

33.So, unless these Itemized Documents falls within the kind of documents named under Paragraph 1 Schedule 6, the applicant being the owner of the Development is not entitled to ask for an order for inspection. 

34.It is only in plain and obvious cases that the court should exercise its summary powers to strike out any pleadings : Hong Kong Civil Procedure 2011 para 18/19/4.  It must be impossible for the claim to succeed before the court would strike it out.  There should not be a trial upon affidavit.  Disputed facts are to be taken in favour of the party sought to be struck out, i.e. the applicant in this case.  Where the legal viability of a cause of action is sensitive to the facts, an order to strike out should not be made.  The jurisdiction should not be exercised if it requires a minute and protracted examination of the documents and the facts of the case to see if the applicant has a cause of action.

35.I found the question as to whether the Itemized Documents falls within Schedule 6 can only be decided at a trial with evidence heard as to the nature of the documents and whether they are the kind of document referred to in records maintained under Section 27(1).  One cannot tell by merely looking at the description of the Itemized Documents as to whether they are documents referred to in the books of account.  This should be sufficient ground to decline the IO’s application for striking out the claim under this head.

36.Moreover, I also found the case of Speedy Gainer not applicable to an inspection under Paragraph 1A(b) Schedule 6, hence no prior request or wrongful refusal is required before any application to the court.  Documents named in Schedule 6 are not subject to mandatory inspection.  The IO is entitled to decline a request by an owner for inspection of documents under Schedule 6 since the owner is not entitled unless he/she is being authorized by the court.  Any refusal by the IO is not a wrongful refusal and not a breach unless there is already a court order empowering the owner to inspect the documents.  If the principle in Speedy Gainer is applicable, i.e. a wrongful refusal which amounts to a breach is required for a cause of action to accrue, the owner whose request for inspection of documents other than the Financial Documents had been denied can never have a cause of action to sue under Paragraph 1B. 

37.So Paragraph 1B Schedule 6 does in itself create a cause of action entitling the owner to take the matter to court for an order of inspection and it is the duty of the court to decide whether the request is justified, i.e. whether in good faith and for proper purpose.  The cause of action is not dependent upon any breach of the DMC or BMO.  As long as the owner had satisfied the court of the 2 requirements under Paragraph 1C Schedule 6 and granted the order sought, the IO is then duty bound under Paragraph 1A Schedule 6 to allow an inspection.      

38.I found the application in the NOA for inspection of the Itemized Documents should not be struck out since the applicant is entitled to take out the NOA under Paragraph 1B Schedule 6. 

39.Having said so, I had not ignored the fact that the NOA had been framed in a way that Schedule 6 had not been pleaded.  But the Itemized Documents had been specifically pleaded and the IO is well aware of the documents requested.  Section 10(5)(a) of the Lands Tribunal Ordinance (“the LTO”) empowered the President of the Lands Tribunal to give Directions as to the manner and form in which proceedings shall be conducted. Direction No. 4 issued on 1 July 1986 stipulated that:

“presiding officers should not regard Notices as in the nature of pleadings by which parties are bound, but as an indication of the issues which are likely to be raised. The remedy, if the documents filed by the party are so incomplete or misleading as to prejudice the other party, is to adjourn, not to dismiss the claim”.

The effect of this President’s Direction is that for proceedings at the Lands Tribunal, parties are not bound by their pleadings and the claim should not be dismissed just on a pleading point.

40.The failure by the applicant to plead Schedule 6 in the NOA should not be fatal and can be cured by an application to amend the NOA.  The applicant should take out an interlocutory application by way of Form 1 to seek leave to amend the NOA.

Costs

41.Since the respondent had only been partially successful in this striking out application, there should be no order as to costs.  This is an costs order nisi and unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.

The Order

42.It is ordered that :

(a) the application for inspection of the books of account in the Notice of Application be struck out and be dismissed;

(b) the application by the respondent to strike out the claim concerning the Itemized Documents named in the NOA be dismissed;

(c) no order as to costs for the respondent’s summons for striking out.  This is an costs order nisi and unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.

The applicant appeared in person

Mr. T. S. Cheung, of Messrs Cheung & Yip, for the respondent