Case Document

100%Judiciary

HCA 507/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 507 OF 2011

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BETWEEN

	ADD-FIELD INVESTMENT LIMITED	1^st Plaintiff
	CHENG SIU MEI	2^nd Plaintiff
	KWAN WAI HUNG	3^rd Plaintiff
	AND
	THE INCORPORATED OWNERS OF MEI SUN BUILDING TAI PO	Defendant
	(Original Action)

BETWEEN

	THE INCORPORATED OWNERS OF MEI SUN BUILDING TAI PO	Plaintiff
	AND
	ADD-FIELD INVESTMENT LIMITED	1^st Defendant
	CHENG SIU MEI	2^nd Defendant
	KWAN WAI HUNG	3^rd Defendant
	(Counterclaim)

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Before: Deputy High Court Judge B Chu in Court

Date of Hearing: 18, 19, 23, 24, 25 September 2013

Date of Judgment: 12 December 2013

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J U D G M E N T

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Introduction

1.The present action was taken out by owners of non-domestic units on the ground floor and the 1^st floor in a building called Mei Sun Building in Taipo (“Building”) against the Incorporated Owners (“IO”).

2.The plaintiffs sought, among other things, declarations that two resolutions passed at the general meetings of the IO in relation to contributions towards renovation expenses and management fees were null and void, being contrary to the Deed of Mutual Covenant (“DMC”). The defendant counterclaimed for shortfall in management fees for past 12 years from the plaintiffs.

3.The main disputes were in relation to the basis for calculating the contributions which should be made by individual owners towards renovation expenses and management fees of the Building and this would involve, among other things, the proper interpretation of the DMC.

Background

4.Development proposals for the Building commenced in 1979, although the actual construction of the Building began in about 1981. The developer of the Building was Dawkins Company Limited (“Dawkins”), which was incorporated on 18 January 1977. Mr Yiu Yan Che (“Yiu”) held 33%, his brother held 34% and another unrelated person held 33%. The three of them were also the directors of Dawkins. Yiu is now one of two directors and equal shareholders of Add-Field Investment Limited, the 1^st plaintiff herein (“P1”).

5.Building plans for the Ground Floor and the 1^st Floor were first approved on 24 May 1979, but were later amended on a number of occasions before the issue of the occupation permit, namely:

(i) 19 December 1979

(ii) 10 May 1980

(iii) 15 December 1980

(iv) 28 May 1981

(v) 10 June 1982

(vi) 11 May 1983

(vii) 29 March 1984

6.All the above plans, which were approved by the Building Authority (“Building Plans”), showed 2 shops on the ground floor and 1 office on the 1^st floor of the Building (“2&1 Version”).

7.KM Lai & Li (“KMLL”) were solicitors acting for Dawkins in the development and they were responsible for drafting all the necessary legal documents for the sale of units in the Building, including the DMC.

8.Dawkins started marketing the sale of the units in the Building in about 1982/1983, prior to completion of construction. At that time, Dawkins had produced a sales brochure and plans respectively for each of the ground floor, 1^st floor, 2^nd to 3^rd floor, 4^th floor, 5^th to 20^th floors, 21^st-24^th floors were attached thereto (“Sales Brochure Plans”)[1]. The Sales Brochure Plans showed the ground floor being partitioned into 29 shops and the 1^st floor being partitioned into 24 shops (“29&24 Version”).

9.For the purpose of obtaining consent from the Building Authority to the preliminary sale of the units of the Building, a partner of KMLL, Mr Lai, had made a declaration on 24 November 1981 (“Lai’s 1^st Declaration”) stating the then mortgagee to be Sung Hung Kai Finance Company and attaching thereto, among other things, a draft sale and purchase agreement (“1^st Draft SPA”)[2] and a draft DMC (“Draft DMC”)[3], architects’ certificates, and the building contract. The Draft DMC reflected the 29&24 Version and in particular in its third schedule, the number of units for the 1^st floor was stated to be 24, and that for the ground floor, 29, and the monthly contribution on account for maintenance was stated to be HK$30 per unit (“Draft 3^rd Schedule”)[4].

10.On 24 September 1983, Mr Lai made a supplemental declaration (“Lai’s 2^nd Declaration”) stating that the mortgagee had changed to HSBC and attached thereto was an amended form of draft sale and purchase agreement (“2^nd Draft SPA”)[5]. No other amended documents were attached.

11.Notwithstanding that the marketing for the sale started in about 1982/1983, the first flat, namely Flat 12H, was only sold in October 1983. The 1^stpurchaser signed a sale and purchase agreement with Dawkins on 1 October 1983 (“1^st SPA”). Later, a second flat, namely Flat 22 B, was sold on 7 May 1984. None of the units on the non-domestic floors, namely ground floor, 1^st to 3^rd floors were sold at that time.

12.The occupation permit was eventually issued on 8 May 1984 (“OP”)[6].

13.The DMC was first executed on 24 May 1984 and registered in the Land Registry on 16 July 1984. There are 3 schedules in the DMC (respectively called “1^st Schedule”, “2^nd Schedule”, and “3^rd Schedule”). According to the DMC[7]:

(i) The total number of equal undivided shares for the Building is 1,693;

(ii) The Building has 24 storeys;

(iii) The ground floor, 1^st to 3^rd floors are for non-domestic use, and the 4^th to 24^th floor are for residential use.

14.The 1^st Schedule sets out the number of undivided shares for each of the shops nos 1-29 on the ground floor and each of the shops nos 1-24 on the 1^stfloor of the Building, the whole of the 2^ndfloor, the whole of the 3^rdfloor and each of the residential flats A to H from 4^th to 24^th floor.

15.The 2^nd Schedule sets out the particulars of the Building and parcels of land on which the Building stands. The 3^rd Schedule refers to Clause 7 (a) of the DMC and sets out the amount of contribution to the maintenance of the Building of each unit. The numbers of units for respectively the ground floor and the 1^st floor in the 3^rd Schedule are, however, left blank/omitted in the DMC (“Omissions”).

16.The DMC also appointed a company called Chung Tung Investment Limited (“Chung Tung”) to be the 1^st Manager to undertake the management of the Building for a term of three years from the date of the OP. Chung Tung was incorporated on 8 August 1973 and Yiu and his brother were the only two directors and shareholders of Chung Tung, each holding 50%.

17.There was a miscalculation of the number of shares in the DMC, in that the total number of the shares in the 1^st Schedule thereof added up to 2,075 shares instead of 1,693. On 19 July 1985, a modified DMC was re-registered[8]. The modified parts were the undivided shares of 2^nd floor and 3^rd floor, which were reduced from 300 shares to 109 shares to make up the total of 1,625 shares. There were, however, no modifications or any amendments to the 3^rd Schedule.

18.After the appointment of Chung Tung, it collected management fees calculated in accordance with the units set out in the 3^rdSchedule, and for the ground floor and the 1^st floor, the calculations were in accordance with the 2&1 Version.

19.In about 1985/1986, the then mortgagee of the Building HSBC took possession of the remaining unsold units of the Building, including the ground and the 1^st to 3^rd floors of the Building, which were all unsold at that time. As mortgagee in possession, HSBC had let out the entire 1^st floor at a monthly rent of HK$45,000 to a billiards club which had been in occupation since 1 August 1985[9]. Under the tenancy agreement, the tenant was to pay the management fees, which was based on the 2&1 Version for 3^rd Schedule in the DMC adopted by Chung Tung.

20.The IO was established on 21 May 1986.

21.Subsequently, on 1 July 1988, P1 purchased the ground and the 1^st to 3^rd floors, totalling all 4 floors of the Building, and 699 of the 1,693 undivided shares from HSBC. Plans were attached to the assignment and registered in the Land Registry (“1988 Plans”)[10]. The 1988 Plans indicated the 2&1 Version for the ground floor and the 1^stfloor. P1 was incorporated on 6 August 1985, but at the time of the purchase, Yiu was not a shareholder, nor a director of P1, even though he should be related to then two shareholders and directors bearing the same surname, one of whom was said to be a nephew of Yiu who was/is living in the Building and was/is a member of the Management Committee.

22.Dawkins was subsequently ordered to be wound up on 17 July 1989 and liquidators were appointed to deal with Dawkin’s assets. They were eventually only released on 20 August 2001, when the winding up was completed.

23.After acquiring all the non-domestic floors, P1 had let them out, but pursuant to the 2&1 Version for the ground floor and the 1^st floor, in that the ground floor was never let to 29 tenants, nor the 1^st floor to 24 tenants.

24.On 11 December 1995, P1 entered into a formal tenancy agreement with Oi Kwan Care for The Aged Home (“Oi Kwan”) for the entire 1^st floor and the 2^nd floor of the Building for a period of 3 years from 1 December 1996 to 30 November 1999.

25.Later on 3 January 1997, P1 entered into a tenancy agreement with the Taipo Social Welfare Department of Hong Kong Government (“1997 Tenancy Agreement”) for part of the ground floor[11]. A second tenancy agreement was entered into between the same parties over the same space on 19 July 1999 (“1999 Tenancy Agreement”)[12]. A third one was entered into by the same parties over the same space on 3 September 2002 (“2002 Tenancy Agreement”)[13]. A copy of what appeared to be the Sales Brochure Plan for the ground floor was attached to each of the 3 tenancy agreements to indicate the space let, which was that area which included shop nos 13-29, part of corridor spaces and lavatory on the ground floor .

26.On 30 August 2000, P1 had executed a deed poll (“Deed Poll”) with a ground floor plan attached (“2000 Plan”)[14], with the purpose of further dividing and partitioning the original “Shop A”, which was described as “formerly known as Shop Nos 1 to 12 on the ground floor” on the 1988 Plan into :

(i) Shop A as coloured “pink”, which was allocated 125 out of the 1,693 undivided shares (“Shop A”);

(ii) Portion “A” as coloured “green”, which was allocated 3 out of the 1,693 undivided shares (“Portion A”).

27.The 2000 Plan indicated only 2 shop spaces, namely Shop B, described as “formerly known as shop nos 13-29” (“Shop B”) which had been coloured pink on the 1988 Plan, Shop A and a small Portion A being carved out of the original Shop A on the 1988 Plan, and which appeared to be a small area near the side lifts and staircase of the Building. On the 2000 Plan, Shop A was marked “Elderly Home” and appeared to be the space let to Oi Kwan. The 2000 Plan showed only two units, Shop B and Shop A (including Portion A), and there were clearly no 29 units on the 2000 Plan.

28.On 30 September 2000, P1 assigned its interest in Shop A on the ground floor and the entire 2^nd floor to Oi Kwan. Further, on the same day, P1 assigned its interest in the 3^rd floor of the Building to the then tenant Multi-Winner Investment Ltd (“Multi-Winner”)[15]. Also, on the same day, P1 assigned 5/7 of its interest in Portion A on ground floor to Oi Kwan and Multi-Winner as tenants in common, with 3/7 shares to Oi Kwan and the remaining 2/7 to Multi-Winner. The three owners then entered into a sub-deed of mutual covenant and agreement (“Sub-DMC”) to define their respective rights and obligations in relation to Shop A and Portion A on the ground floor[16].

29.It would appear that since December 1996, Oi Kwan had been occupying the 1^st floor and 2^nd floors. Oi Kwan later also rented Shop A on ground floor from P1 and appeared to be in occupation thereof until Shop A was sold to P2 and P3.

30.So far as Shop B on ground floor was concerned, it would appear that the tenancy to the Government continued until at least April 2004.

31.On 16 February 2006, Madam Leung Wai Yin (“Leung”) was appointed to be the Treasurer of the Management Committee of the IO (“Management Committee”). Leung has been residing in the Building since 1996.

32.In 2006, major electrical repair/maintenance works had to be carried out in the Building (“WR2 Works”).

33.Leung said it was when handling the contributions for the WR2 Works in early August 2006 that she discovered a discrepancy in the pre August 2006 management fee sharing ratio of the non-domestic units to the residential units with the one mentioned in the 3^rd Schedule[17].

34.To rectify the discrepancy, on 30 August 2006, the IO issued a notice to amend the amount of the management fees for each of the non-domestic units of 1^st to 3^rd floor from the then monthly amount of $3,700 to $3,933.50 and each of the units for the ground floor, ie Shop A and Shop B, from $1,800 to $1,966.70. In addition, the monthly contribution towards the fund for maintenance/renovation works (“Maintenance Fund”) was proposed to be increased from $150 to $1,000 for each non-domestic floor from 1 October 2006 until September 2008[18]. Notwithstanding these amendments, the collection of the management fees and the contribution towards the Maintenance Fund continued to be on the basis of 1:6.6667, or the 2&1 Version in the 3^rd Schedule.

35.During a general meeting of the owners on 16 September 2006, in relation to the WR2 Works, it was resolved that 50% of the cost of the WR2 Works was to be paid out of the Maintenance Fund, and the balance to be paid by owners, again, as per the ratio in the 3^rd Schedule in the DMC, ie 1:6.667 of the 2&1 Version.

36.It would appear that sometime after the tenancy agreement with the Government had terminated, Shop B on the ground floor was partitioned into 2 shops, namely Shop B1 and Shop B2. On 14 November 2006, P1 entered into a tenancy agreement with a tenant relating to Shop B2 on ground floor, and P1 later on 24 May 2008 entered into a tenancy agreement with another tenant relating to Shop B1.

37.Anyway, during a Management Committee meeting on 5 July 2007, Leung proposed a large-scale renovation (“Renovation Project”).

38.On 28 September 2007, Oi Kwan sold its interest in Shop A, ground floor to Madam Cheng Siu Mei (“P2”) and her husband Mr Kwan (“P3”), as joint tenants, who then came into the picture. After they purchased Shop A, they also partitioned Shop A into 2 smaller shops, A1 and A2, and had let them out to separate tenants.

39.In a Management Committee meeting on 29 May 2008, the matter of contribution for the Renovation Project was brought up and the members decided to seek legal advice from a Mr Kwan Cheuk Kui (“Kwan”) of a firm of solicitors Chan & Chan (“C & C”) in relation to the correct apportionment of the contribution among the owners.

40.An EGM of the IO took place on 21 June 2008. Kwan was present and he reported to the owners that the then contribution towards the Maintenance Fund had been based on the ratio set out 3^rd Schedule of the DMC which was the same ratio for the management fees, but there was ambiguity in the 3^rd Schedule, and the Omissions were pointed out. Kwan then advised writing to KMLL to seek an explanation in relation to the Omissions, and this was approved by the members.

41.C & C did write to KMLL on 18 July 2008[19], but there was no response at that time.

42.The annual general meeting of the IO took place on 9 August 2008 and Leung indicated that she would follow up with C & C since there had been no response. Members of the new Management Committee were elected, among which were P2, the representative of Oi Kwan and the representative of Multi Winner.

43.The next meeting of the IO took place on 21 February 2009. Kwan appeared to be present at the meeting and he explained that there had still been no reply to the letter written by C & C to KMLL and that prior to that meeting, Kwan had invited Yiu to communicate with KMLL in relation to the Omissions and that Yiu had agreed to do so. It was then resolved by the owners to wait for the result of Yiu’s communication with KMLL. During this meeting, the proposal to carry out the Renovation Project was in fact rejected. Further, due to the resignation of one member of the Management Committee, P1 was elected to take that vacancy. Thus, all the owners of the non-domestic floors became members of the Management Committee.

44.A meeting of the Management Committee was then held on 19 March 2009. P2 and the representatives of Oi Kwan, Multi-Winner were present. Yiu was also present as P1’s representative, but he had left this meeting before the item in relation to the contribution towards the Renovation Project was discussed. The result of Yiu’s enquiry with KMLL was thus not known and the item was again adjourned. During this meeting, the representatives of Oi Kwan and Multi-Winner had submitted a proposal from all the owners of non-domestic units for them to appoint a separate manager from that for the residential units. This proposal was adjourned pending legal opinion.

45.To cut the long story short, thereafter, Yiu was absent during the subsequent Management Committee meetings on 7 May 2009, 19 August 2009, and 21 September 2009 and during the September meeting, it was resolved that in the forthcoming AGM of the IO in October there would be a proposed resolution for the cost of the Renovation Project be contributed by reference to the undivided shares held by the owners.

46.The AGM of the IO then took place on 17 October 2009. P2, the respective representatives of Oi Kwan and Multi-Winner, and P1’s representative Yiu were all present. Still, no reply had been received from KMLL. Notwithstanding the objection from the owners of the non-domestic floors, a resolution was subsequently passed to authorize the calculation of the contribution for the Renovation Project were to be by reference to the number of undivided shares held by the individual owners of the Building, rather than in accordance with the 3^rd Schedule of the DMC (“2009 Resolution”)[20].

47.After the 2009 Resolution, a letter dated 9 November 2009 was sent to C & C by KMLL on instructions of the plaintiffs (“KMLL’s Letter”)[21]. This stated that the proportion of contribution to maintenance and repair of the Building was governed by the DMC and that at the time of the execution of the DMC the contribution of the 1^st floor was $1,000 per unit and for the ground floor was $500 per unit and according to the approved Building Plans, there were only 2 units on the ground floor and 1 unit on the 1^st floor, thus the total amount of monthly contribution paid by all the owners at the time of the DMC should be HK$29,200. KMLL’s opinion was that the proportion of contribution to the maintenance and repair of the Building borne by the 1^st floor should be 1000/29200 and borne by Shop A and Shop B of ground floor should each be 500/29200, namely pursuant to the 2&1 Version.

48.KMLL’s Letter was produced during the meeting of the Management Committee on 3 December 2009 and it was resolved that legal advice should be sought from Kwan. During this meeting, shop owners re-proposed separate management for the shops and for the residential units. An officer from the Home Affairs Bureau also attended this meeting and advised that such would need an amendment of the DMC, which would require unanimous approval of 100% owners and it was resolved that further legal opinion was to be sought from Kwan.

49.On 15 January 2010, the respective owners of Shops A and B of the 1^st floor, the 2^nd floor and the 3^rd floor instructed a firm of solicitors Lee & Co to write to the IO to object to the 2009 Resolution and to state that the meaning of “maintenance” in clause 7(b) of the DMC (“Clause 7(b)”) should cover repairing, renewing or renovating, and that the calculation of the sharing proportion of the repair and renovation costs of the Building, namely the cost of the Renovation Project, should be based on the sharing proportion of the payment of the management fees of each owner as specified in the 3^rd Schedule[22].

50.On 22 July 2010, another firm of solicitors acting for the respective owners of ground floor, 1^st, 2^nd and 3^rd floor wrote to the IO to demand the Management Committee to amend the 2009 Resolution and to declare it void and threaten legal action[23]. They referred to the Building Plans and stated that there were never any 29 shops on the ground floor nor 24 shops on the 1^st floor, and that the reference to the 29&24 Version in the 1^st Schedule was a mistake. This letter was raised for discussion during a meeting of the Management Committee on 5 August 2010 and it was resolved that Leung would arrange a meeting with Kwan and other owners to follow up on this letter.

51.Having received no response to the above letter, on 13 September 2010, Multi-Winner, the owner of the 3^rd floor, brought an action against the IO in the Lands Tribunal, LDBM 236 of 2010 (“LT Action”), to declare the 2009 Resolution null and void and that the contribution towards the Renovation Project should be in accordance with Clause 7(b) and 3^rd Schedule and the 2&1 Version.

52.On 11 January 2011, Yiu, on behalf of the plaintiffs, wrote a letter to the Management Committee[24] to state that according to the Occupation Permit and the Building Plans, there were only 2 units on ground floor and 1 unit on the 1^st floor, namely the 2&1 Version, instead of the 29& 24 Version. According to Yiu, the reference to the apportion of undivided shares in Schedule 1 in accordance with the 29&24 Version was probably based on a possible division into smaller units on a draft preliminary plan, and that if the IO was of the view that there was an ambiguity in the DMC, the IO could take out an application to the court to seek interpretation rather than cause confusion by insisting to adopt the 29&24 Version for the use of the IO’s calculation of management fees for the 3^rd Schedule.

53.Notwithstanding Yiu’s above letter, the IO issued a notice for an EGM to be held on 13 March 2011 to pass, among other things, a resolution for the payment of management fees in accordance with the 29&24 Version, and a resolution to claim back all outstanding management fees pursuant to the 29&24 Version for the past 6 years from the owners of the ground floor and 1^st floor, namely the plaintiffs herein.

54.The EGM duly took place on 13 March 2011, and a resolution was passed by majority to adopt the 29&24 Version for the calculation of management fees, and to authorise the Management Committee to commence legal proceedings against the plaintiffs for recovery of alleged outstanding management fees for past 6 years (“2011 Resolution”)[25].

55.This led to the plaintiffs issuing the writ in the present action against the IO on 25 March 2011, seeking, among other things, declarations that the 2009 Resolution and the 2011 Resolution were null and void and that the IO be restrained from calculating and collecting the fees for the Renovation Project and for the management fees pursuant to those 2 Resolutions, and a declaration that the true meaning of the DMC was that the contribution for the owners of the ground floor and the 1^stfloor should be pursuant to the 3^rd Schedule and the 2:1 Version be adopted for the ground and the 1^st floor. The plaintiffs also sought an order of rectification for the DMC in the alternative.

56.At the date of the writ, P1 was the registered owner of Shop B (both B1 and B2) on the ground floor and the entire 1^st floor of the Building. P2 and P3 were the registered owners of Shop A (both A1 and A2) on the ground floor. Oi Kwan was the registered owner of the 2^ndfloor, and Multi-Winner was the registered owner of the 3^rd floor. As for Portion A on the ground floor, P1, Oi Kwan, and Multi-Winner have remained tenants-in-common, in the proportions of 2:3:2. There have been no changes since the issue of the writ.

57.The IO filed a defence and counterclaimed, among other things, for declarations that the 2009 Resolution and the 2011 Resolutions were valid and that the 29&24 Version should be inserted in the 3^rdSchedule and for outstanding management fees calculated in accordance with the 29&24 Version for past 12 years since 1 July 1999. Such outstanding management fees for P1 would amount to about HK$17.5m and for P2 and P3, about HK$3.1m.

58.In December 2011, Multi-Winner and the IO agreed to postpone the LT Action pending the result of this action.

The Witnesses

59.As submitted by Mr Chan, Senior Counsel for the plaintiffs, the present case turns mainly upon the interpretation of the executed DMC, ie the parties’ intention as objectively ascertained from the executed DMC against the factual matrix, and in the circumstances little would turn upon the credibility of the witnesses.

60.Nevertheless, both sides had called witnesses and the witnesses were cross examined.

61.Yiu gave evidence on behalf of P1. The defendant’s Counsel, Mr Luk, had attacked Yiu’s credibility and further invited this court to draw adverse inferences against Yiu as he had failed to call Mr Lai of KMLL to give evidence on behalf of the plaintiffs.

62.Yiu was the only witness who gave evidence in relation to matters pertaining to the development and construction of the Building in the 1979 or early 1980s, the preparation of all relevant documents, and the progress of the sale of the flats etc.

63.There was no dispute that Yiu and his elder brother held the majority shares in Dawkins which was set up solely for the development of the Building. According to Yiu, his elder brother had passed away for some years, and further he had lost contact with the then third shareholder of Dawkins after the company was wound up.

64.Further, according to Yiu, he was the one among the three directors and shareholders of Dawkins who handled all relevant matters for the development of the Building and that they engaged and relied upon the expertise of various professionals instructed for the development, such as architects, engineers and lawyers.

65.For the preparation and drafting of the Building Plans, Yiu had instructed a firm called Chan Chai Keung Engineering and Associate Limited (“CCK”) of which a Mr Chan was Yiu’s contact. According to Yiu, Mr Chan had retired for years and further he had some serious health problems. Anyway, Mr Chan was not called to give evidence.

66.CCK initially submitted Building Plans for approval for construction of the Building in 1979, and at the time the intention of Dawkins was that there would be 2 units on the ground floor, and 1 unit on the 1^st floor, namely the 2&1 Version.

67.Then according to Yiu, in about 1981, the then market trend favoured the sale of smaller units, rather than a whole floor or half of a floor, and thus Dawkins decided to change the sales arrangement to a new one (“New Sale Arrangement”) and planned to partition the ground floor and the 1^st floor into smaller units to facilitate sale. Thus, the sales brochure was produced with the Sales Brochure Plans, and those for the ground floor and 1^st floor showed the partition of the ground floor into 29 smaller units and the 1^st floor into 24 units, namely the 29&24 Version. The New Sale Arrangement was, according to Yiu, adopted in order to test the market reaction (emphasis added).

68.In about November 1981, KMLL applied on behalf of Dawkins for consent to sell the various shops and flats before the issue of the OP. Insofar as the Land Registry’s record was concerned, it reflected the 29/24 Version but the Building Plans were not amended at that time, as according to Yiu, CCK had told Dawkins that such plans could be amended later after the New Sale Arrangement were confirmed. Thus, notwithstanding the New Sale Arrangement, there was no amendment to the Building Plans.

69.The Draft DMC was prepared and submitted for approval based on the New Sale Arrangement, and the then Draft 3^rd Schedule showed 29 units for the ground floor and each unit would pay HK$30 as contribution on account for expenses, and 24 units for the 1^st floor, and similarly each unit would pay HK$30 for the same. For the 2^nd and the 3^rd floors, each floor would have 1 unit, and would undertake payment of HK$600 per month as contribution on account.

70.Yiu’s evidence for the New Sale Arrangement was that for the period from about 1981 to 1984, the market response to the sale of the ground floor and the 1^st floor was extremely poor, and Dawkins did not manage to sell one single unit on the ground floor or the 1^st floor, and later at the time the OP was issued in May 1984, Yiu said it was his clear recollection was by then, he and his elder brother had already decided to abandon the New Sale Arrangement of partitioning and selling the ground and the 1^st floors by way of smaller units, and that was the reason why the approved Building Plans were never amended, nor was CCK instructed to amend them.

71.When the DMC was first executed in May 1984, there were the following changes to the 3^rd Schedule in relation to the contribution on account:

(i) Each domestic unit was to pay HK$150 per month;

(ii) Each of the 2^nd and 3^rd floors was to pay HK$1,000 per month (rather than HK$600) , and each floor contained 1 unit;

(iii) Each unit for 1^st floor was to pay HK$1,000 per month;

(iv) Each unit for ground floor was to pay HK$500 per month.

72.However, there were the Omissions, ie the number of units for the ground floor and the 1^st floor were left blank in the 3^rd Schedule and according to Yiu, he believed this was due to the oversight by KMLL, but since the first execution of the DMC, there had not been any controversy in that neither the ground nor the 1^st floor had ever been partitioned into smaller units. Since the issue of the OP until about 2009, there was no issue ever taken by the IO, which was incorporated in May 1985, that the contributions on account or management fees should be computed other than on the basis of the 2&1 Version for the 3^rd Schedule.

73.It was Yiu’s evidence that he was not clear about the contents of the DMC and that all such contents, including the allocation of shares, were prepared by KMLL, and that his solicitors did not explain to him. During the trial, Yiu had explained that so far as the monthly contributions were concerned, at the time, he had worked out a rough estimate for the total amount of expenses which he then informed KMLL, and left it to KMLL to make the necessary apportionment for each unit. Yiu further said he was not aware of the Omissions at the time when the DMC was executed, nor was he ever told by the employees of Chung Tung who were collecting the monthly contributions /management fees in early years, until about 2009 when he was informed by the IO. Yiu said his staff at Chung Tung only reported to him the total amount collected from each floor.

74.Yiu further said after the present disputes arose, he had approached KMLL for retrieval of the relevant documents, but he understood from them that as the relevant project took place over 15 years ago, the firm had not kept any documents for more than 15 years and that Mr Lai had no recollection of the development project of the Building.

75.Mr Luk complained that what Yiu had said in his witness statements and at the trial were contradictory and inconsistent.

76.Having considered Yiu’s evidence, I do not find that there were any material inconsistencies between Yiu’s oral evidence at the trial and his witness statements. Mr Luk submitted that it was highly probable that Yiu had all along been aware of the Omissions in the 3^rd Schedule. The IO appeared to be suggesting that the Omissions were deliberate and that there was some sort of conspiracy between Yiu, Dawkins and Chung On.

77.It was not disputed that Yiu first became involved in developing properties in 1968 and for the past 45 years he had been involved in the development of over 20 buildings, both large and small in the Taipo area. Yiu admitted that he was responsible for the whole development project of the Building and that he was hard working and handled everything himself. Dawkins was only a single project company. Although Yiu’s evidence showed that by 1979 or early 1980 he should already have some experience in property development, he was only educated to primary level and was not able to read any English. I find it entirely credible that Yiu would have left the details of the preparation and the drafting of all the necessary documents to the professionals he instructed for the various purposes, and that those professionals were responsible for carrying out the various checking of the relevant documents.

78.There was no evidence to contradict what Yiu had said that in the years from 1981 to 1984, the market response to the sale of the non-domestic units including the ground floor and the 1^st floor was extremely poor, and by the first execution of the DMC, no units, whether the 2&1 Version, or the 29&24 Version had been sold. In fact, it was not disputed that notwithstanding the preliminary sale commenced in about 1982/1983, by the time of the OP and the time of the execution of the DMC, only two residential units had been sold. I accept what Yiu had said, the sale progress was very slow at that time.

79.There was also no sufficient evidence that at the time of the execution of the DMC or later when the DMC was modified and re-registered, P1 would end up with the ownership of all the non-domestic floors. In fact, due to the very slow progress in selling, the evidence was that Dawkins was not even able to keep up with the mortgage repayments, so much so that in 1986, the mortgagee HSBC had to take possession and thus became the owner of all the remaining unsold units of the Building, including the ground floor and the 1^st floor. There was no evidence that HSBC’s lawyers had noticed the Omissions, nor was there any evidence that HSBC had any issue or query over the management fees collected at that time pursuant to the 2&1 Version.

80.Yiu also pointed that from 1 August 1995 to 31 July 1988, the tenant of the entire 1^st floor was a billiard club and the monthly rent was HK$45,000, exclusive of management fees and rates, which were to be paid by the tenant. According to the IO’s case, the management fees would be HK$24,000 per month at that time, and no reasonable purchaser or tenant would have been willing to pay such management fees.

81.Having considered Yiu’s evidence, I do not find that there was sufficient evidence to show that he indeed knew of the Omissions at the time of the execution of the DMC, or that the Omissions were deliberate on the part of Dawkins or Yiu There was further no sufficient evidence to support any alleged conspiracy.

82.As to why Mr Lai of KMLL was not called to give any evidence, Yiu’s evidence was that KMLL had not kept the file or any record of the development of the Building, as the project took place over 15 years ago, and that Mr Lai told him that he had no recollection of the matter. Further, at the trial, Yiu had said it was his belief that the Omissions were due to the oversight of KMLL.

83.Anyway, notwithstanding Mr Luk’s submissions, I do not find there was sufficient evidence to contradict what Yiu had said. Although the events in relation to the sale of the various units of the Building took place almost over 30 years, I find Yiu a credible witness.

84.Other than Yiu, P2 had also given evidence on behalf of herself and her husband P3.

85.P2 and P3 only acquired Shop A on ground floor in September 2007. According to P2, at that time, she and her husband had looked at other properties in the vicinity of the Building, and had they known that the amount of management fees was going to be about 12 times more than the monthly amount of HK$1,966.70 they were informed, they would not have bought Shop A, as they were looking for a property for rental income. They had to obtain a mortgage loan from the bank and the monthly repayment was about HK$120,000. The other expenses, including rates, government rent, and management fees were around HK$10,000 per month. The management fees had always been paid by the tenant, but the tenant had indicated that it would only be willing to pay those management fees according to the 2&1 Version, and this would mean that P2 and P3 would have to pay any shortfall if the court were to accept the IO’s case, and this would affect the net rental income.

86.Further, according to P2, prior to the completion of the purchase, their lawyers had written to the then Manager of the Building asking for an updated record of the amount of the monthly management fees payable and whether any outstanding amount was outstanding, and the Manager had stated that there was no outstanding amount of management fees and further the amount of the management fees payable was HK$1,966.70, which was calculated in accordance with the 2&1 Version.

87.P2 was a member of the Management Committee from 10 March 2008 and 27 September 2010. P2’s evidence was mainly in relation to matters at the time and after she and P3 purchased Shop A on ground floor and matters raised during meetings attended by her. Apart from a factual dispute as to what actually happened at the owners’ meeting on 13 March 2011 when the 2011 Resolution was passed, which was not really relevant to the main issues, there was no real challenge to most of the other part of her evidence. Having observed her in giving evidence, I find her generally a credible witness.

88.Leung was the only person giving evidence on behalf of the IO.

89.Leung’s 1^st witness statement consisted of about 120 pages and her 2^nd consisted of 55 pages. As pointed out by Mr Chan, witness statements should only contain matters of fact rather than opinions, still less arguments. Mr Chan had referred to the comments made by Carlson DHCJ in the case of Dah Sing Bank Ltd v Sing Hai Handbags manufactory Ltd & Ors [2007] 3 HKC 515, “the expressions used by lawyers can have no place at all in an affirmation or witness statement of a lay person who should provide an affirmation using every day words to express truthfully and accurately what he or she says happened or what he or she feels about any given relevant set of circumstances”[26].

90.Leung moved to her flat in the Building only in 1996 and she could not have any first hand personal knowledge of what happened before she moved in, and in particular, she would not have any knowledge as to what happened in 1979 or early 1980s when the Building was being constructed or when the DMC was executed. Leung became and remained the treasurer of the Management Committee since 2006 up until the date of the trial. She was not a lawyer and she was only to give factual evidence within her personal knowledge. It was not appropriate for her to make lengthy legal submissions or arguments and I will attach no weight to those parts of her witness statements which consisted of legal submissions or arguments. Although, generally speaking, I do not find her an untruthful witness, there were inaccuracies in her factual evidence, and she seemed to adopt a rather subjective attitude at times.

Main Issues

91.The main issues in relation to the validity of the 2009 Resolution and the 2011 Resolution are summarized as follows:

I. Whether the 29&24 Version or the 2&1 Version is correct for the ground and 1^st floors of the 3^rd Schedule, on the interpretation of the DMC and other relevant documents

II. Whether the contribution towards the Renovation Project should be determined on the basis of the respective shares of the owners

III. Whether the 2009 Resolution and the 2011 Resolution were null and void under sections 20 to 22 of the Building Management Ordinance Cap 344 (“BMO”)

Issue I: Whether the 29&24 Version or the 2&1 Version is correct for the ground and 1^st floors of the 3^rd Schedule

The Legal Principles

92.As submitted by Mr Chan, it is trite law that an executed deed of mutual covenant constitutes a contract between the original parties, binding on their successors in title. Thus, the general principles on the interpretation and construction of a contract would be similarly applicable in the case of construction of a deed of mutual covenant.

93.Lord Hoffman had provided a helpful summary of the general principles on the interpretation and construction of a document in the case of In Investors Compensation Scheme LtdvWest Bromwich Building Society [1998] 1 WLR 896[27] as follows:

“… I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds [1971] 1 WLR 1381, 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen [1976] 1 WLR 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded. The principles may be summarised as follows:

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact,’ but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] AC 749.

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in AntaiosCompania Naviera S.A. v. Salen Rederierna A.B. [1985] AC 191, 201:

‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”

94.Lord Hoffman had further said in Jumbo King Ltd v Faithful Properties Ltd & Or [1999] 2 HKCFAR 279[28] as follows:

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement-evidence of such negotiations is inadmissible-and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

95.As in any contractual provision, the object of the court is to give effect to what the contracting parties intended and to ascertain the parties’ intentions the court does not inquire into the parties’ subjective states of mind but makes an objective judgment based on the material already identified[29] (emphasis added).

96.I now turn to some of the Hong Kong cases referred to this court in relation to the interpretation and construction of a deed of mutual covenant of a building.

97.An earlier such case referred to this court by Mr Chan was the case of Chau Sau Heung and Chue Jen Investment Co Ltd, CACV 00060/1988, 13 September 1988. The issue in that case to be decided by the Court of Appeal was whether the plan of the premises annexed to the first assignment and referred to in the virtually contemporaneous deed of mutual covenant was the governing factor in the interpretation of the deed. Clough JA commented that the deed must be construed in the light of the circumstances on the ground in the relevant year in that case and that the plan was not to be treated as the governing factor[30] and that to begin with, the well settled and fundamental principle was that the deed was to be construed in accordance with the circumstances at the time of its execution[31] (emphasis added).

98.Mr Chan also referred the court to the case Growth Bright Limited and The Incorporated Owners of Grandview Building CACV 843/2000, 30 March 2000, where Leong CJHC (as he then was) said that when construing the intention of the relevant clause in the deed of mutual covenant in that case, the deputy judge at the Lands Tribunal was right to take into consideration the physical state of the building in the relevant year in that case and the construction of the building that separated commercial use from residential use[32](emphasis added).

99.Lord Hoffman’s passages quoted hereinabove were in fact quoted by Fung J and relied upon in his judgment in The Incorporated Owners of Odeon Building, Chan Yick Kwok, Chan Kock Kwun, Yeung Mei Mei and Chu Shui Yuk and Sky Field Development Limited HCA 217/2005, 28 August 2007, which concerned the construction of a deed of mutual covenant. As said by Fung J[33], he would approach the construction of the deed of mutual covenant not as a matter of semantics and labels, but having regard to the relevant factual and legal matrix of the transaction and the practical objects intended to be achieved, excluding the previous negotiations of the parties, arriving at a construction that would give the most commercial sense in the eyes of a reasonable beholder (emphasis added)

100.Although Mr Luk seemed to disagree that the construction should be one of the most commercial sense, there was no dispute that there should be to be a purposive construction and common sense should be adopted in the construction and interpretation of the DMC. As said by Chan PJ in the case of Grande Properties Management Ltd and Sun Wah Ornament Manufactory Ltd [2006] 9 HKCFAR 462, the provisions of the deed of mutual covenant and the BMO were usually aimed at facilitating the management of the building by reducing conflicts among co-owners on the one hand and preventing abuse by the manager and the majority owner on the other, and that most disputes were resolved by a purposive construction and common senseapplication of the relevant provisions of the deed and the BMO[34] (emphasis added).

101.As to whether a resolution can have retrospective effect will depend on whether such a resolution contradicts or is opposed to or inconsistent with any provision in the deed of mutual covenant, it being recognized by Chan PJ in the above case that however detailed and comprehensive the deed may be, it cannot cover all exigencies and there must be occasions where subsequent sanction or approval is necessary such as to correct mistakes, cure defects or remedy oversight[35].

The IO’s Case

102.It was the IO’s case that the number of units in the 3^rdSchedule should be the 29&24 Version, namely 29 units on the ground floor and 24 units on the 1^st floor, and this was based on the following reasons:

(i) The 1^st Schedule to the DMC had clearly set out that the there were 29 units on the ground floor with a total of 300 allotted undivided shares and 24 units on the 1^st floor with 181 allotted undivided shares. Applying the 29&24 Version, there would be a total of 223 units in the 3^rd Schedule which completely tallied with the number of units, ie 223 in the 1^st Schedule. If adopting the plaintiffs’ case, then there would only be 173 units in the 3^rd Schedule, and this would be irreconcilable with the 223 units in the 1^st Schedule.

(ii) The description of “$... per unit” in the 4^th column in the 3^rdSchedule would denote that each of the ground floor and 1^st floor would have multiple units, similar to those of the 4^thto 24^th floors, whereas for the 2^nd and 3^rd floors, there were no such descriptions.

(iii) There were other documents for the construction of the 29&24 Version in the 3^rd Schedule, namely:

(1) The 1^st SPA registered under Memorial No 215764[36];

(2) The land search record maintained at the Land Registry indicating each of the 29 units on the ground floor and the 24 units on the 1^st floor has its own land register[37];

(3) The Sales Brochures Plans clearly depicted the respective locations of shop nos 1-29 on the ground floor and shop nos 1-24 on 1^st floor;

(4) The 3 tenancy agreements made with the Hong Kong Government signed by Yiu for P1and in each, the description of the space let was shop nos 13-29, and the floor plans attached thereto set out 29 units and at least three corridors on ground floor;

(5) The Sub-DMC acknowledged that Shop A was “formerly known as shop nos 1-12 on the ground floor” and Shop B was “formerly known as shop nos 13-29 on the ground floor.

(iv) According to clause 13(b) of the DMC, ‘Common Parts’ refers to in the Ordinance and shall include the corridors on the ground and first floors but exclude the roofs”. The word “corridors” would indicate that there were more than one corridor on the ground floor and the 1^st floor, which would be consistent with the 29&24 Version.

The DMC

103.It was not disputed that the 1^st Schedule in the Draft DMC referred to the 29&24 Version in relation to the apportionment of the undivided shares. The 1^st Schedule of the executed DMC and the later modified version both contained the same 29&24 Version in relation to the apportionment of the undivided shares, although there was a mistake in the calculations of shares in the 1^st Schedule which was later amended in the modified DMC.

104.Clause 1 of the DMC states that “Each of the parties hereto hereby grants unto the other of them the sole and exclusive right and privilege to hold use occupy and enjoy such parts and units of and in the said building set out in the Second Column of the said First Schedule… TO THE INTENT that the grantee shall be entitled to the sole and exclusive right and privilege to hold use occupy and enjoy such parts and units of and in the said building so set out opposite to his name…”[38].

105.Notwithstanding what was stated in the above Clause 1 in relation to “parts and units”, the heading of the Second Column of the 1^stSchedule states “The floor of the said building to be exclusively used, occupied and enjoyed and the equal undivided part or share of the said premises possessed by the owner whose name appears in the First Coloumn directly opposite to the reference to such floor in this Column”. The description in the Second Column referred to “shops” for the ground and the 1^st floors and “flats” for the residential floors. The word “unit” did not in fact appear in the Second Column, or any where in the 1^stSchedule. There was no definition of a “shop” or “flat” in the DMC.

106.Mr Luk had regarded each shop or flat in the Second Column in the 1^st Schedule to be one “unit” and submitted that there was a total of 223 units in the 1^st Schedule, but if the 2&1 Version were to be adopted in the 3^rd Schedule, the total number of units in the 3^rd Schedule would be only 173 units, which would be irreconcilable with the 3^rd Schedule. Even assuming each shop or flat is a “unit”, the 1^st Schedule is only concerned with the allocation and apportionment of the undivided shares which the owner of each shop on the ground/1^st floor, or the owner of each of 2^nd/3^rd floors, or the owner of each flat on the residential floors is entitled to. I do not think that a 2&1 Version if adopted for the 3^rdSchedule would indeed be irreconcilable with the 1^st Schedule or cause any confusion, since the 3^rd Schedule only concerns contribution under Clause 7(b) of the DMC.

107.Mr Luk had also referred to the description of “$...per unit” in the 4^th column in the 3^rd Schedule and submitted that this would denote that each of the ground floor and the 1^st floor would have multiple units, since “per unit” did not appear for the 2^nd and the 3^rd floors. Mr Luk had further relied on the definition of “Common Parts” in the clause 13(b) in the DMC to say that the reference to “corridors” on the ground floor and the 1^st floor would be consistent with the 29&24 Version.

108.The Omissions were in the 3^rd Schedule. Although the heading of the 3^rd Schedule referred to clause 7(a), the provision in relation to the contribution for maintenance, management and operating expenses was in fact Clause 7 (b).

109.Clause 7(b) first appeared in the Draft DMC attached to Lai’s 1^st Declaration. The Draft 3^rd Schedule in Lai’s 1^st Declaration indicated clearly as follows[39]:

FLOOR UNIT NO OF UNITS MONTHLY CONTRIBUTION ON ACCOUNT

(1)
4^th to 24^th
H
21
$120.00 per unit

(2)
4^th to 24^th
G
21
$120.00 per unit

(3)
4^th to 24^th
A to F
126
$150.00 per unit

(4)
3^rd
1
$600.00

(5)
2^nd
1
$600.00

(6)
1^st
1 to 24
24
$30.00 per unit

(7)
Ground
1 to 29
29
$30.00 per unit

110.One could see from the above Draft 3^rd Schedule the total of the monthly contribution on account payable by all the non-domestic and residential units in the Building, under Clause 7(b) would come to about $26,730, calculated as follows:

FLOOR NO OF UNITS MONTHLY CONTRIBUTION ON ACCOUNT TOTAL

(1) 4^th to 24^th 21 x H units $120.00 per unit H $2,520

(2) 4^th to 24^th 21 x G units $120.00 per unit G $2,520

(3) 4^th to 24^th 126 units of
A to F $150.00 per units
A to F $18.900

4^th to 24^th Total of all units A to H

Each residential floor $2,520+$2,520+
$18,900=$23,940
$23,940÷ 21= $1,140

(4) 3^rd 1 $600 $600

(5) 2^nd 1 $600 $600

(6) 1^st 24 $30 per unit $720

(7) Ground 29 $30 per unit $870

Total $26,730

111.As seen from the Draft 3^rd Schedule, the contribution respectively for each of the non-domestic floors, namely the entire ground floor, the entire 1^st floor, the 2^nd floor and the 3^rd floor based on the then 29&24 Version was less than $1,000 each floor, while for the domestic floors, contribution for each floor was slightly over HK$1,000. Also, the contribution of the ground floor and the 1^st floor was about 5.95% of the entire monthly contribution for the whole Building. The intention as gleaned from the Draft 3^rd Schedule, would be the contribution for each residential floor would be the highest, and about 31% higher than the ground floor. Among the non-domestic floors, the contribution for the ground floor would be the highest, being 20% higher than the 1^st floor, which in turn would be 20% higher than the 2^nd/3^rd floor.

112.Further, based on the above calculations, this would mean that the total estimated monthly contribution on account for expenses under Clause 7(b) in November 1981 would be in the region of HK$26,730.

113.The Omissions then occurred in the 3^rd Schedule in the DMC. However, the monthly contribution on account per unit for those H and G on each of the residential floor and those for each of the non-domestic floors had been adjusted upwards. The 3^rd Schedule in the DMC stated as follows:

FLOOR UNIT NO OF UNITS MONTHLY CONTRIBUTION ON ACCOUNT

(1) 4^th to 24^th H 21 $150.00 per unit

(2) 4^th to 24^th G 21 $150.00 per unit

(3) 4^th to 24^th A to F 126 $150.00 per unit

(4) 3^rd 1 $1,000.00

(5) 2^nd 1 $1,000.00

(6) 1^st
$1,000 per unit

(7) Ground
$ 500 per unit

114.If one were to adopt the 2&1 Version as put forward by Mr Chan for the plaintiffs, and insert 2 units for the ground floor and 1 unit for the 1^st floor in the 3^rd Schedule, then the total monthly contribution would come to $27,140, as follows:

FLOOR NOOF UNITS MONTHLY CONTRIBUTION ON ACCOUNT TOTAL

(1) 4^th to 24^th 21 x H units $150.00 per unit H $3,150

(2) 4^th to 24^th 21x G units $150.00 per unit G $3,150

(3) 4^th to 24^th 126 units of A to F
Total of all units A to H
Each residential floor $150.00 per units A to F $18,900
$3,150+$3,150+$18,900=
$25,200
$25,200 ÷21=
$1,200

(4) 3^rd 1 $600 $600

(5) 2^nd 1 $600 $600

(6) 1^st 1 $1,000 per unit $1,000

(7) Ground 2 $500 per unit $1,000

Total $27,140

115.Based on the 2&1 Version, the monthly contributions of each of the ground floor and the 1^st floor would be adjusted to HK$1,000 per floor, with each of the residential floors adjusted to HK$1,200. The contribution for each of the residential floors would still be the highest and the contribution for each of the ground and 1^st floor would be the same. The contributions of the ground floor and the 1^st floor would come to about 6.85% of the total monthly contributions.

116.If, however, one were to adopt the 29&24 Version as put forward by D, and insert 29 units for the ground floor and 24 units for the 1^st floor, the total monthly contribution would escalate to $64,900, as follows:

FLOOR NO OF UNITS MONTHLY CONTRIBUTION ON ACCOUNT TOTAL

(1) 4^th to 24^th 21 H units $150.00 per unit H $3,150

(2) 4^th to 24^th 21 G units $150.00 per unit G $3,150

(3) 4^th to 24^th 126 units of A to F $150.00 per units A to F $18.900

4^th to 24^th Total of all units A to H
Each residential floor $3.150+$3.150+
$18,900= $25,200
$25,200÷21= $1,200

(4) 3^rd 1 $600 $600

(5) 2^nd 1 $600 $600

(6) 1^st 24 $1,000 per unit $24,000

(7) Ground 29 $500 per unit $14,500

Total $64,900

117.The 29&24 Version would therefore yield a great disparity between the ground floor and the 1^st floor on one part, and the other floors on the other. The contribution for the 1^st floor would become about 20 times more than each of the residential floors, and the contribution for the ground floor would be about 12 times more. The total contributions for the ground floor and the 1^st floor would become about 58.6% of the total monthly contributions of HK$64,900.

118.There were no amendments to the Draft DMC or the Draft 3^rdSchedule in Lai’s 2^nd Declaration and there was no evidence to show why there should be such a drastic increase of almost 250% in the total monthly contributions on account to HK$64,900 at the time when the DMC was first executed, which was only about 8 months after Lai’s 2^ndDeclaration.

119.This was also at a time when sale of the non-domestic units was very slow, which was apparent that by the time when the DMC was executed, there had only been one residential flat sold and there had been no sale at all of any of the non-domestic floors, and it did not seem to be logical or make any sense for Dawkins then to increase the monthly contribution for the ground floor and the 1^st floor by so many folds. This would be particularly so for the 1^st floor, as based on the IO’s case, the 29&24 Version would result in the 1^st floor paying HK$24,000 per month, ie HK$9,500 more than the monthly contribution of HK$14,500 for the ground floor. At that time of the execution of the DMC, Dawkins remained the owner of all the unsold units, and as submitted by Mr Chan, there was no reason why Dawkins would wish to burden itself with such substantial monthly contributions.

120.There was also no reason as to why the contribution for the 1^stfloor should be almost over 30% more than the ground floor. The Draft 3^rdSchedule in fact showed the opposite, namely the contribution for the 1^stfloor was to be about 20% less than that for the ground floor. Further, the area of the 1^st floor being the same as the 2^ndfloor and the 3^rd floor, and it did not seem to make any sense as to why the monthly contribution for the entire 2^nd floor of 15,140 sq ft would be HK$1,000, whereas the contribution for one out of the 24 shops/units on the 1^st floor of about 630 sq ft or less should also be the same amount. Even though management of smaller units may take up more time, it would not have in my view justified such a discrepancy.

121.Mr Luk had submitted that in fact the number of shares allocated to the 1^st floor was 181, whereas for 2^nd and the 3^rd floor, they were 109 each, and thus it was not against commercial sense for an owner with a higher stake in the land to pay a higher management fee. The shares of the 1^st floor were only 0.66 times more than the 2^nd/3^rd floor. Yet, if the court were to adopt the 29&24 Version as put forward by the IO, the contribution of the 1^st floor would be 24 times that of the 2^nd /3^rd floor. Anyway, based on Mr Luk’s submission, then the ground floor having 300 shares should pay more than the 1^st floor.

122.The physical state of the Building on the ground at the time of the execution of the DMC was that there were only 2 shops on the ground floor, and the 1^st floor was an entire floor, namely the 2&1 Version. There were simply no 29 shops on the ground floor, nor 24 shops on the 1^stfloor, and there never were. None of the non-domestic units floors were sold at that time and Dawkins remained the owner of all the unsold units. Looking at the factual matrix and surrounding circumstances at the time of the execution of the DMC, objectively speaking, I would think that intention of the contracting parties to the DMC would be to adopt the 2&1 Version for the ground and the 1^st floors of the 3^rd Schedule. Mr Luk had, however, also referred to other documents.

The Other Documents

123.The IO had relied in particular the Sales Brochure Plans. It was not disputed that the Sales Brochure Plans showed the ground floor being partitioned into 29 shops and the 1^st floor being divided into 24 shops, with passageways. It was, however, quite clearly stated at the bottom of each page of the Sales Brochure Plans that “All plans are subject to the amended plans approved by the Building Authority” [40](emphasis added).

124.The approved Building Plans showed only the 2&1 Version, and there was never any amendment to the Building Plans and in particular, the two finals ones approved on 29 March 1984, less than 6 weeks before the issue of the OP, showed only the 2/1 Version, 2 shop spaces on the ground floor, and one whole 1^st floor.

125.Mr Luk had submitted that the Building Plans were extrinsic evidence and that it would not be permissible for this court to take into account the Building Plans. He had referred to the case of the Incorporated Owners of Odeon Building referred to earlier on, but I did not interpret the judgment of Fung J to have this effect. In any event, the DMC had referred to the OP[41], which in turn bore the approved Building Plans reference numbers. Further, notwithstanding Mr Luk’s submissions, the IO was relying on the Sale Brochure Plans, and in such case, I am of the view that the court could take into account the Building Plans.

126.Leung had also exhibited a list of the sale prices of various flats/floors of the Building (“Sale Price List”) in her witness statement[42]. The date of this document was not quite clear. Although the price of the ground floor did not appear on the Sale Price List, the price for 1^st floor was stated to be HK$6,661,600 for the entire floor, and there was no price for any individual shop. Pursuant to the 29&24 Version, there should then have been a price for each of the 24 shops for the 1^st floor.

127.In the 1^st Draft SPA attached to Lai’s 1^st Declaration and in the 2^nd Draft SPA attached to Lai’s 2^nd Declaration submitted to the Building Authority for the approval of sale of units prior to OP being issued, “the Building” was defined to mean “the twenty four storeyed building now under construction on the land in accordance with the building plans…” and “the building plans” was defined to mean “the general building plans and specifications prepared by the Authorised Person and approved by the Building Authority under Reference No 2/9015/79 and include any approved amendments thereto” (emphasis added)[43]. It was further stated therein that the vendor, namely Dawkins, was to, among other things, “complete the Building in all respects in accordance with the building plans…”[44] (emphasis added).

128.The 1^st SPA subsequently entered into between Dawkins and the first purchaser and registered in the Land Registry again contained the above definitions and provisions.

129.As mentioned earlier, the OP clearly indicated the reference to the approved Building Plans which only indicated the 2&1 Version. On the OP, the purpose for the ground floor was stated to be “Shops, entrance lobby and ancillary accommodation for non-domestic use”. The purpose for the 1^st to 3^rd floors (inclusive) was stated to be “Office and ancillary accommodation per floor for non-domestic use”. The purpose for 4^th to 24^th floors (inclusive) was stated to be “8 flats per floor for domestic use”.

130.There was no reference to any 29&24 Version on the OP. In particular, the purpose for the 1^st floor was the same as the 2^nd and 3^rdfloor, and appeared to indicate only one office and ancillary accommodation “per floor”, whereas “8 flats per floor” was stated to be for each of the domestic floors.

131.Mr Luk had also relied on the 1^st SPA as indicating the 29&24 Version, and in particular clause 19(d) which had set out the then Draft 3^rdSchedule. Although clause 19(d) had set out the 29&24 Version, the monthly contribution set out was the then pre-adjusted amount of HK$30 per unit only.

132.Anyway, although clause 19(i) of the 1^st SPA had stated that on completion of the sale and purchase, the purchaser had to enter into a deed of mutual covenant, and that such deed of mutual covenant should follow closely the draft exhibited in Lai’s 1^st Declaration, ie the Draft DMC, it went on to state clearly that the Draft DMC was “subject however to such modifications as are necessitated by changes in the building plans, any adjustments of the undivided shares, a change in the management company and the like”[45].

133.Anyway, I am of the view that the Sales Brochure Plans and 1^st SPA do not really help the IO’s case.

134.Then Mr Luk referred to documents which Mr Chan pointed out were “subsequent documents”, being documents after the execution of the DMC, and that Mr Chan had submitted that they should not be admitted, relying on the case of James Miller v Whitworth where Lord Reid had said that subsequent documents and conduct were inadmissible[46]. I accept that subsequent documents should not be admissible. Nevertheless I will consider those “subsequent documents” relied on by the IO.

135.The first lot of “subsequent documents” referred to by Mr Luk were the 3 tenancy agreements, namely the 1997 Tenancy Agreement, 1999 Tenancy Agreement, and the 2002 Tenancy Agreement which had incorporated copies of the relevant Sales Brochure Plans. The words relied upon by IO in the 3 Tenancy Agreements were the descriptions of the space to be let, namely that “portion on the ground floor to be known as shops nos 13-29 and part of corridor spaces…”. As submitted by Mr Chan, those words relied upon by IO were subject to the delineation as shown in the plan” as attached to the agreements, and the delineation in the plan would prevail over the verbal description of the land, relying on the case of Green Park Properties Ltd v Dorku Ltd [2000] 2 HKLRD 400.

136.The 3 tenancy agreements attached what appeared to be a copy of the Sale Brochure Plans for the ground floor to show those portions indicated thereon to be let out, but as shown on the copy attached, the space to be let included not only the so called shops nos 13-29, but also the passages and corridors on the ground floor as delineated thereon, and in fact was the entire space of “Shop B” as indicated on the 1988 Plans.

137.Mr Luk had also relied on the Deed Poll and the Sub-DMC, which bore reference to the previous 29 shop numbers on the ground floor. In any event, the purpose of the Deed Poll was to further partition the original Shop A on ground floor, which was described as “formerly known as shop nos 1-12 on the ground floor”, into “Shop A” and “Portion A”.

138.The Sub-DMC, which was executed about one month after the Deed Poll, in its recital referred to two shops on the ground floor, namely Shop A, described as “formerly known as shop nos 1 to 12 on the ground floor and Shop B, described as “formerly known as shop nos 13-29 on the ground floor”.

139.I am not sure how the Deed Poll and the Sub-DMC would help the IO’s case, as all they indicated was that Shop A and Shop B were formerly described respectively as shop nos 1-12 and shop nos 13-29. In fact, Shop A and Shop B covered more than the 29 shops, as there was also passage ways and/or corridors. Mr Luk submitted that this was an acknowledgment by Yiu that there were 29 units on the ground floor and 24 units on the 1^st floor. Yiu never denied that the intention of Dawkins was at one stage to partition ground floor and 1^st floor into smaller units in order to sell them. I find these documents were consistent with the evidence of Yiu that there was to be the New Sale Arrangement which had been intended by the Dawkins at one stage but later abandoned and therefore the Building Plans had never been amended. I do not find those “subsequent documents” referred to by Mr Luk help the IO’s case, even if they were admissible.

140.The registration of the 29&24 Version at the Land Registry, namely each of the 29&24 shops having its own register again merely indicted the intended New Sale Arrangement when Dawkins started to market the sale, but the subsequent OP with the reference to the un-amended and approved Building Plans and issued pursuant thereto should, in my view, prevail. As I have said earlier, in May 1984, when the OP was issued followed by the execution of the DMC, physically there was only one entire shop/office on the 1^st floor and 2 shops on the ground floor.

141.Further, if one were to admit those “subsequent documents” referred to by Mr Luk, then one should perhaps also look at the 1988 Plans when HSBC assigned all the then unsold 4 non-domestic floors to P1. The 1988 Plans attached to that assignment clearly indicated only 2 shops/units on the ground floor and one office/shop/unit on the 1^st floor.

142.The IO seemed at one stage also be relying on the Revised Guidelines issued by the Legal Advisory and Conveyancing Office Circular Memorandum No 56[47], but as pointed out by Mr Chan, these were only issued in April 2006 and only applied to those deeds of mutual covenants approved from the date of that Circular Memorandum, and should not apply to the DMC.

The Rule of Contra Proferentum

143.In the IO’s amended defence, it contended that the executed DMCs ought to be construed contra proferentum against the plaintiffs.

144.As pointed out by Mr Chan, the DMC was first executed in May 1984, and there was no reason why any ambiguity should be construed against any of the plaintiffs, who were not involved in the drafting of the DMC at all.

145.Further, the DMC was drafted for Dawkins, which had already been wound up, and there was no reason why it should apply against P1, which was not even incorporated at that time. It only purchased the 4 non-domestic floors from HSBC in 1988, and at the time of the purchase, Yiu was not even one of the two shareholders/directors, although since the purchase, over the years at a date unclear, Yiu had become a 50% shareholder and so he remains at present.

146.Although Dawkins and P1 had common shareholders and directors at certain periods of time, the two companies were distinct corporate entities. There was also a third unrelated shareholder/director in Dawkins. There was no allegation that the corporate veil should be lifted, nor was there any evidence for doing so.

147.I accept Mr Chan’s submissions in this respect, the rule of contra proferentum should not apply as against any of the plaintiffs.

Conclusion on interpretation of the 3^rd Schedule

148.To conclude, I find that on the interpretation of the DMC, the intention of the contracting parties at the time of execution, as objectively ascertained from the DMC, could not be to adopt the 29&24 Version for the 3^rd Schedule. In the circumstances, I find the 2011 Resolution to be null and void.

Issue 2:Whether the contribution towards the Renovation Project should be determined on the basis of the respective shares of the owners

149.The IO’s case was also that Clause 7(b) would not applicable to the determination of contributions towards renovation expenses, namely it should not cover the costs of the Renovation Project, and that Clause 7(b) should only refer to “daily maintenance” of the Building[48].

150.Mr Luk submitted that Clause 7(b) should be interpreted as only covering costs incurred by daily maintenance works, rather than large-scale, irregular renovation works, and that the contributions made towards renovation would not be recurrent contributions, and would be a one-off expenditure for a one-off project. Further, the quotation for the Renovation Project (“2007 Quotation”)[49], particularly items 8, 9, 10 and 16 went beyond maintenance and repair work, and were “betterment” and “improvement”.

151.The issue here is thus not whether the contribution should be 2&1 Version, or 29&24 Version, but whether Clause 7(b) should cover costs of the Renovation Project.

152.Mr Luk had referred the court to the decision in the case of 南生大廈業主立案法團訴葉小燕及鄭成光 LDBM 152/2001[50]. This decision was in fact first referred to in the letter dated 15 January 2010 sent by Lee & Co, the then solicitors acting for all the owners for the non-domestic floors.

153.The above case concerned a building undergoing renovation works, and the incorporated owners of the building, as plaintiff, issued a claim for the share which should be borne by the defendants, in accordance with the undivided shares of each owner. In his judgment, Lam J (as he then was) had referred to sections 20, 21 and 22 of the BMO.

154.Section 20 (1) (a) and (b) of the BMO provides that:-

“A corporation shall establish and maintain a general fund-

(a) to defray the cost of the exercise of its powers and the performance of its duties under the deed of mutual covenant (if any) and this Ordinance; and

(b) to pay Government rent, premiums, taxes or other outgoings (including any outgoings in relation to any maintenance or repair work) which are payable in respect of the building as a whole.”

155.Section 20 (2) provides that:

“A corporation may establish and maintain a contingency fund-

(a) to provide for any expenditure of an unexpected or urgent nature; and

(b) to meet any payments of the kind specified in sub-section (1) if the fund established thereby is insufficient to meet them”.

156.Under Section 21(1), a management committee has the power to determine the amount to be contributed by the owners to the funds established and maintained under section 20 during the period stipulated. This is subject to s 21(5) which provides that in the event of any inconsistency between that section (which shall be construed to include Schedule 5) of the BMO and the terms of a deed of mutual covenant or any other agreement, this section shall prevail.

157.Section 22(1) and (2) then go on to provide:

“(1) The amount to be contributed by an owner towards the amount determined under section 21 shall be-

(a) fixed by the management committee in accordance with the deed of mutual covenant (if any);

(b) payable at such times and in such manner as the management committee may determine.

(2) If there is no deed of mutual covenant, or if the deed of mutual covenant does not provide for the fixing of contributions, the amount to be contributed by an owner towards the amount determined under section 21 shall be fixed by the management committee in accordance with the respective shares of the owners.” (emphasis added)

158.Lam JA had said in his judgment in the case of 南生大廈 that under common law, if there was no provision in the deed of mutual covenant in relation to the sharing of common expenses, then such expenses should be shared in accordance with the undivided shares of each owner and that this principle was reflected in the above s 22(2) of the BMO[51]. The main issue in that case was the interpretation of a clause 4(c) in the deed of mutual covenant of the building and the meaning of “maintenance fees” in the proviso of that clause.

159.There were various clauses in the deed in the case of 南生大廈providing for the payment of various expenses each owner had to pay as provided in the deed. After considering those clauses, Lam JA eventually concluded that the term “maintenance fees” in the proviso of clause 4(c) in the deed in the above case to be excluding the renovation expenses.

160.It was the IO’s case that as there was no provision in the DMC for the contribution towards the Renovation Project and therefore s 22(2) of BMO should apply. The DMC was executed prior to BMC came into effect, and as no one had referred to its predecessor, I shall assume the there were similar statutory provisions in effect then. In the present case, Clause 7(b) was the only clause in the DMC which referred to any contribution or payment.

161.Clause 6 of the DMC had set out the powers of the IO and/or the Management Committee, and in particular clause 6(a) states that the IO and/or the Management Committee shall have the “control management and administration of the common parts of the Building …”.

162.The powers were further set out in sub-clauses of clause 6, including the power to enter into and upon such part of the Building for the purposes of “restating replacing repairing renewing maintaining cleansing painting or decorating” the Building or any part or parts thereof or the common parts or any of them of the Building under clause 6(c).

163.Clause 7 then went on to state the covenants, provisions and restrictions which each party to the DMC should observe and perform and Clause 7(b) sets out as follows:

“The contribution to the maintenance of the building by each owner of the following sums which shall be payable by the Owner from the date of the Occupation Permit such amount as specified in the Third Schedule hereto in advance on the 1^st day of each month towards all management and operating expenses incurred or expended or to be incurred or expended by the said Corporation and/or Management Committee in respect of the said building PROVIDED FURTHER THAT if the total contributions receivable as aforesaid by the Manager shall be insufficient to meet the costs and expenses for such management then the owners will make good a due proportion of the deficiency by making a further contribution to the Manager; such further contribution being in the same proportion to the total deficiency as the contribution of the owners to the overall costs calculated as aforesaid bears to the total of such overall costs.”

164.There appears to be some words missing in Clause 7(b). Anyway, Clause 7(b) started off referring to “contribution to the maintenance of the building”, and later referred to “towards all management and operating expenses incurred or expended or to be incurred or expended” by the IO and/or the Management Committee in respect of the Building and the proviso then set out the obligation of the owners to make a further contribution in the same proportion in case of any deficiency.

165.IO had accepted that the Maintenance Fund was a fund established under Clause 7(b) and such would be a general fund within the meaning of section 20(1) of BMO[52]. In fact, 50% of the WR2 Project costs came out of the Maintenance Fund and the rest was by way of a further contribution in accordance with the 2&1 Version. I understand the WR2 Project concerned electrical maintenance works which had to be undertaken every 5 years. However, Mr Luk’s submission was that a fund to be set up for the Renovation Project would not be within the scope of the general fund within the section 20(1) of the BMO, but a “special” fund.

166.Mr Luk further submitted that the nature and scope of the Renovation Project goes “way beyond maintenance or repair”. Mr Chan had pointed out that it was not in fact pleaded in the defence and counterclaim that the 2009 Resolution was based on the 2007 Quotation, or that the 2009 Resolutions was in respect of contribution not just for “maintenance”, but also for “improvement” or “betterment”. Mr Chan also submitted that there was no credible evidence to support that the scope of works in the 2009 Resolution was for “betterment” or “improvement.

167.There was no specific reference to the 2007 Quotation in the 2009 Resolution. The 2009 Resolution was said to be for contribution for “major maintenance/repairs” (大維修) to be with reference to the shares of each owner, and in the minutes, it appeared that an amount of HK$10m was used as an example to show the calculations for owners’ reference.

168.Based on the example of HK$10m for the estimated costs of the Renovation Project, the various contributions would be:

Based on Clause 7(b) and 2&1 Version in 3^rd Schedule, as submitted by the plaintiffs Based on Clause 7(b) and 29&24 Version in 3^rd Schedule Based on the undivided shares of each unit as in 1^st Schedule, as submitted by IO

Shop A, Gd Fl $171,215.48 $913,152.68 $738,335

Shop B, Gd Fl $171,215.48 $1,293,632.96 $1,105,948.96

1^st Floor $342,482,32 $3,653,158.65 $1,074,171.11

2^nd Floor $342,482,32 $152,214.94 $651,424.11

3^rd Floor $342,482,32 $152,214.94 $648,890.14

4^th -24^th Floor $51,369,78 $22,831.31 Various ranging from $23,626.72 to HK$53,160.12, depending on shares of different units

169.As seen from the above, in IO’s case, the owner of the ground floor having the most of the undivided shares would end up paying the highest amount. Mr Chan, however, submitted that this could not have been the intention of the parties at the time of the execution of the DMC, and by way of example, he asked why should the ground floor owner need to pay much more than the rest when he would have the least use of the lift/lift lobby.

170.Mr Chan had referred this court to Sam Woo Marine Works Ltd v Incorporated Owners of Po Hang Building [2010] 1 HKLRD 92, and submitted that had the parties to the DMC intended to have 2 different yardsticks, such as (i) day-to-day expenses to be paid out from the monthly contribution collected under Clause 7(b), whereas the larger-scale or non-recurrent maintenance/betterment/improvement works are to be paid by reference to the undivided shares, one would expect that the DMC to contain such provisions , such as the exception in clause 7(m).

171.As pointed out by Mr Chan, Clause 7(l) states that all existing and future taxes rates property taxes assessment and outgoings of every description for the time being assessed or payable (Crown Rent excepted) in respect of any part or unit of the Building shall be borne by the owner of that particular part or unit. The only exception is in Clause 7(m) which states that notwithstanding any provision to the contrary in the then Ordinance the Government rent in respect of the land and the Building shall be borne and paid by all the owners thereof in proportion to the respective shares in the said land and the Building for the time being vested in them.

172.Unlike the relevant clause 4(c) in the deed in the case of 南生大廈, Clause 7(b) in the present case does not set out in detail the various items of costs charges and expenses to be paid thereunder. Clause 7(b) is drafted in much wider terms and there is no distinction as to whether the expenses are recurrent or non-recurrent. Also, there are no similar clauses in the present DMC as those other clauses in the deed referred to by Lam JA in the case of南生大廈.

173.The IO’s position seemed to be that the Renovation Project would be a “one-off” and “non-recurring” project, and it was not clear why this would be so, since although some works might not be needed every year, or every 5 years, with the Building getting older, some of the works in the quotation for the Renovation Project could very well become necessary again sometime in the future. As for those items in the 2007 Quotation which Mr Luk submitted went beyond maintenance, I accept that there was no sufficient evidence that they were “betterment” or “improvement”.

174.IO’s position would result in further disputes and difficulties in deciding which item would be recurring or non-recurring, which item would be maintenance and repair, and which item would improvement or betterment, particularly maintenance and repair would often result in improvement or betterment.

175.I accept Mr Chan’s submission that one should adopt a purposive and common sense interpretation, and the interpretation of the DMC should be an interpretation that facilitates the management of the Building.

176.Having considered the various clauses in the DMC, I come to the view that the intention of the contracting parties, objectively ascertained, is that all contributions for expenses incurred in the IO carrying out all its powers and duties under the DMC are to be in accordance with Clause 7(b) and the 3^rd Schedule, and that on my interpretation, Clause 7(b) is wide enough to include the cost of the Renovation Project. All contributions should be as set out in the 3^rdSchedule of the DMC adopting the 2&1 Version for the ground and 1^stfloors.

177.In the circumstances, I also find the 2009 Resolution to be null and void.

Issue 3: Whether the 2009 Resolution and the 2011 Resolution were null and void under sections 20 to 22 of the BMO

178.It was Mr Chan’s submissions that as the 2009 Resolution and the 2011 Resolution were only passed by the owners in a general meeting, they were null and void, as Mr Chan submitted under s21(1) and s22(1) of the BMO it should be the Management Committee which was to determine and to fix the amount of contribution. In this respect, Mr Chan had referred the court to the case of Darlingford Ltd and Others and The Incorporated Owners of Evelyn Towers and Others CACV 172 of 186.

179.In view of my conclusions above on the interpretation of the DMC, the 2009 Resolution and the 2011 Resolutions are null and void being contrary to the DMC, I do not really need to deal with this issue.

180.Anyway, according to Mr Luk’s submission, although s21(1) of BMO states that it should be the Management Committee to determine the amount of the contribution, but s21(1A) of BMO goes on to state that if any subsequent amount after the first such amount so determined shall not exceed a sum equivalent to 150% of the preceding amount unless that subsequent amount is approved by the IO by a resolution passed at a general meeting, and according to Mr Luk, since the quotation for the Renovation Project will exceed HK$10m, the approval must be by a resolution passed at a general meeting.

181.In my view, even if the 2009 Resolution and the 2011 Resolutions were defective under section 21(1) of BMO, these would be only technical defects, and proper resolutions could always be passed again.

Estoppel by Convention

182.The plaintiffs had also relied on estoppel by convention in their statement of claim, namely the IO was estopped from passing and/or implementing the 2009 Resolution and the 2011 Resolution, in that prior to the passing of those resolutions, there was a “common assumption” in relation to the contribution towards renovation expenses and management fees pursuant to the 2&1 Version in the 3^rd Schedule. It was the plaintiffs’ case that any departure from the common assumption was unjust and that the plaintiffs would suffer detriment as pleaded in their statement of claim.

183.Mr Chan in his first opening submissions had referred to the requirements of an estoppel by convention as set out in the case of Unruth v Seeber (2007) 10 HKCFAR 31.

184.Mr Luk had submitted that at the time that the DMC was executed, IO had not yet been incorporated and there could not be any common intention between the IO and the plaintiffs as alleged in their statement of claim and that the principle set out in the above case of Unruh is not applicable in the present case. Mr Luk then referred to the case of Ohashi Chemical Industries (HK) Ltd v The Incorporated Owners of Hoi Luen Industrial Centre [1995] 2 HKC 11 (CA), where Godgrey JA had stated that “Although equity will sometimes restrain a plaintiff in the exercise of his legal rights because it would be inequitable and unjust in all the circumstances to allow him so to exercise those legal rights, equity will not hold him bound by acquiescence to allow something which he could not have allowed by express grant ”[53].

185.The plaintiffs did not plead specifically in their statement of claim the equitable defences of waiver, acquiescence or laches, their position seemed to be that their pleading of estoppel of convention would be wide enough to include all such equitable defences. Anyway, I accept the evidence of Yiu and P2 in so far as factual matters pleaded.

186.Mr Chan had referred to The Incorporated Owners of Hong Kong House v Senfield Ltd (unrep) CACV 117/03, 12 November 2013, on the equitable defence of waiver, acquiescence and laches, and the three judgments in Hollywood Shopping Centre Owners Committee Limited and The Incorporated Owners of Wing Wah Building Mongkok Kowloon HCA 1582 of 2007.

187.The judgment at trial in the above case was given by Mr Recorder Yuen SC on 16 August 2010, and as pointed out by the learned Recorder therein, there seems to be two line of cases, the so called Ohashi line of cases, and the Senfield line of cases and the learned Recorder set out a detailed analysis of the apparently conflicting decisions.

188.After his analysis, the learned Recorder Yuen SC summarised the position as follows[54]:

“(1) whether or not acquiescence can be set up as a defence to a claim for breach of mutual covenants (whether express or implied by reason of section 34I(2) of the BMB) depends on the nature or type of breach in question;

(2) if the breach of mutual covenants in question is within the power of the incorporated owners to acquiesce, acquiescence can be a valid defence provided all the requisite elements giving rise to acquiescence are established; and

(3) on the other hand, if the breach of mutual covenants in question ia beyond the power of the incorporated owners to acquiesce, the defence of acquiescence will not be available since the incorporated owners cannot acquiesce in acts which they in law cannot do.”

189.The matter later went to the Court of Appeal: Hollywood Shopping Centre Owners Committee Ltd [2011] 4 HKLRD 623, CA. The appeal was dismissed and the Court of Appeal did not disturb the analysis made by the learned Recorder.

190.As also said by the learned Recorder, it is well established that no estoppel can be set up against a party if the effect is to compel that party to perform an act which he does not have power to do[55].

191.Here, there was no dispute that the collection of contribution towards management fees and renovation expenses was within the power and it was the duty of the IO to act in accordance of the DMC.

192.According to Clause 6(f) of the DMC, if any owner shall fail to pay any sum which is payable to the IO and/or the Management Committee under the DMC, the amount unpaid shall be a charge against the share and interest of the defaulting owner, and the IO and/or the Management Committee shall be entitled to register a memorial of such charge in the Land Office and further shall be entitled to enforce such charge in accordance with the provisions under that clause.

193.Clause 6(g) then went on to give the IO power to impose a surcharge on the arrears.

194.There did not appear to be any clear provisions in the DMC or the BMO which gave the IO power to exonerate any breach by non-payment of contributions, whether towards management fees or towards any renovation costs.

195.Upon considering the provisions of the DMC, it would seem that the estoppel by convention, or the equitable defences of waiver, acquiescence or laches may not be available to the plaintiffs as a defence. Anyway, the estoppel by convention was relied on by the plaintiffs only as a “safety net”.

Rectification

196.Again, in view of my above conclusions on the interpretation of the DMC, I do not need to deal with rectification.

Order

197.For reasons set out above, I enter Judgment in favour of the plaintiffs in terms of paragraphs (1) to (5) of their statement of claim. The defendant’s counterclaim is dismissed.

198.The defendant shall pay the plaintiffs’ costs, with certificate for two counsel. This is an order nisi, which shall be final after 21 days.

	(Bebe Pui Ying Chu)
	Deputy High Court Judge

Mr Warren Chan, SC and Mr Law Man Chung, instructed by K & L Gates, for 1^st, 2^nd and 3^rd plaintiffs (original action) and 1^st, 2^nd and 3^rd defendants (counterclaim)

Mr Victor Luk and Mr Ernest Cheung, instructed by Rowdget W Yound & Co, for defendant (original action) and plaintiff (counterclaim)

[1] CB1:142-147

[2] CB1:5-33

[3] CB1:34-66

[4] CB1:64

[5] CB1:112-139

[6] CB2:215

[7] CB2:216-252

[8] CB2: 253-287

[9] C1:2

[10] CB:2: 362-366

[11] CB2:367-378