DCCJ 6155/2006

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					A                                                                           A


B                                                       DCCJ 6155/2006      B


C                IN THE DISTRICT COURT OF THE                               C


D
        HONG KONG SPECIAL ADMINISTRATIVE REGION                             D
                   CIVIL ACTION NO. 6155 OF 2006
E                                                                           E
                           ------------------------

F   BETWEEN                                                                 F
                THE INCORPORATED OWNERS OF                      Plaintiff
G                      YUE TIN COURT                                        G


H                                 and                                       H


I
                    LIU HUA AND ZHOU LIMIN                  Defendants      I
                                                           st
                                                         (1 Defendants)
J                                                                           J
                           ------------------------

K                                                       DCCJ 6156/2006      K


L                                                                           L
                 IN THE DISTRICT COURT OF THE
M       HONG KONG SPECIAL ADMINISTRATIVE REGION                             M

                   CIVIL ACTION NO. 6156 OF 2006
N                                                                           N
                           ------------------------
O                                                                           O
    BETWEEN
                THE INCORPORATED OWNERS OF                      Plaintiff
P                                                                           P
                       YUE TIN COURT

Q                                 and                                       Q


R                       CHANG SHENG KAI                     Defendant       R
                                                           nd
                                                         (2 Defendant)
S                                                                           S
                           ------------------------
T
     (By Consolidation Order of Master R. Lai dated 24th October 2007)      T


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                                          -2-
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B   Coram:          Deputy District Judge Raymond Tsui in Court                B

    Date of Trial:        22nd— 23rd April & 6th May 2009
C                                                                              C
                                                 st
    Date of Handing Down Judgment:            21 December 2009
D                                                                              D

                                 ------------------------
E                                                                              E

                                    JUDGMENT
F                                                                              F
                                 ------------------------
G                                                                              G


H   1.       I am dealing with an action consolidated from two cases and       H

    they are DCCJ 6155/2006 and DCCJ 6156/2006. The Incorporated
I                                                                              I
    Owners of Yue Tin Court (the “Incorporated Owners”) is the Plaintiff
J   in both actions that are instituted against the Defendants who are         J


K
    registered owners of two units in Yue Tin Court. By orders of Master Lai   K
               th
    dated 24        October 2007, the two actions are consolidated, with the
L                                                                              L
    Defendants Liu Hau (“Liu”) and Zhou Limin (“Zhou”) in DCCJ

M   6155/2006 as the 1st Defendants of the consolidated action and the         M

    Defendant Chang Sheng Kai (“Chang”) as the 2nd Defendant of the
N                                                                              N
    consolidated action.
O                                                                              O

    2.       Major repair and renovation (the “Renovation Work”) were
P                                                                              P
    carried out to Yue Tin Court in or about 2006. The Incorporated Owners
Q   asked, pursuant to the Deed of Mutual Covenants (the “DMC”), for           Q

    contributions from the owners of Yue Tin Court. The dispute arose when
R                                                                              R
    the Defendants refused to pay contributions towards the costs of the
S   Renovation Work. Memoranda of Charge were registered against the           S


T                                                                              T


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                                         -3-
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B   units owned by the Defendants. For various defences put forward, the         B

    Defendants counterclaim removal of the registration.
C                                                                                C


D   The Evidence                                                                 D

    3.      Mr Ngai Hok Yan (“Ngai”), who is the Chairman of the
E                                                                                E
    Management Committee of the Incorporated Owners, gave evidence for
F   the Incorporated Owners.                                                     F


G                                                                                G
    4.      Ngai said in his evidence that because of its age, Yue Tin Court
H                                                                                H
    was in need of renovation as there were spalling concrete on the external

I   walls, blockage if drainage pipes, leakage and bursting of pipes. On 21 st   I
    April 2005, the Incorporated Owners received an advisory notice from
J                                                                                J
    the Buildings Department, requesting repairs to be carried out to the
K   spalling concrete and the mosaic tiles on the external walls (the            K

    “External Wall Repair”).
L                                                                                L


M   5.      At a general meeting held on 26 th November 2004, a resolution       M

    was passed to conduct the tender for the External Wall Repair and the
N                                                                                N
    sewage pipe repair together.
O                                                                                O

    6.      On 4th May 2005, the Incorporated Owners published notice of
P                                                                                P
    tender in the Oriental Daily News.
Q                                                                                Q

    7.      The Management Committee formed two standing groups, a
R                                                                                R
    Tender Group and an Engineering Group (the “Two Groups”). At a
S                                                                                S
    general meeting of the Incorporated Owners held on 10th June 2005, it

T   was reported that the Tender Group was responsible for analysing the         T


U                                                                                U


V                                                                                V
                                       -4-
A                                                                               A


B   prices and the Engineering Group was responsible for analysing details      B

    of the work. Based on recommendations of the Two Groups, contractors
C                                                                               C
    were selected and tenders of the selected contractors would be put
D   forward at a general meeting to be voted on.                                D


E                                                                               E
    8.       When submitting their tenders, the contractors were requested to
F   divide their tenders into two parts: (1) the tender documents listing the   F

    prices in different items; and (2) the work proposal and company
G                                                                               G
    information. A total of 35 tender bids and 32 proposals were received.
H                                                                               H
    All the names of the tenderers and the names of the members of the Two

I
    Groups were posted in the lobby of all the blocks of Yue Tin Court.         I


J                                                                               J
    9.       After several interviews, 3 contractors were selected by the
K   Management Committee and put forward to the general meeting of the          K

    Incorporated Owners for decision. The 3 selected contractors were
L                                                                               L
    allowed to exhibit their models and explain their works by setting up
M   exhibition stalls in Yue Tin Court. A question and answer session was       M

    organized and the full tender documents of the selected contractors were
N                                                                               N
    posted for the reference of the owners. The 3 selected contractors
O   submitted their final bids after the question and answer session.           O


P                                                                               P
    10.      At the extra general meeting (the “EGM”) of the Incorporated
Q   Owners on 18th November 2005, the final tenders of the selected             Q

    contractors were exhibited so that the owners could fully understand the
R                                                                               R
    tenders put forward. Owners were allowed to choose one of the 3
S                                                                               S
    selected. They could also choose the 4th option of “re-tendering”. By a

T   majority, Sun Cheong Construction Co Ltd (“Sun Cheong”) was                 T


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                                       -5-
A                                                                                 A


B   selected as the contractor. It was also voted by the general meeting that a   B

    sum of HK$ 8 million would be allocated from the surplus of Yue Tin
C                                                                                 C
    Court to the costs of the Renovation Work. After further negotiation with
D   Sun Cheong attended by the Management Committee and other owners,             D

    Sun   Cheong     agreed   to   further   reduce   the   contract   sum to
E                                                                                 E
    HK$75,166,095.40.
F                                                                                 F

    11.     At the EGM, Ngai informed the meeting that the owners could
G                                                                                 G
    apply to the Buildings Department for Building Safety Loan. If the
H                                                                                 H
    application of an owner was accepted, the Buildings Department would

I
    release the approved loan by no more than 3 instalments to be paid            I
    directly into the renovation fund account of the Incorporated Owners in
J                                                                                 J
    accordance with the progress of the Renovation Work. At the negotiation
K   session with Sun Cheong (the “Consultation Meeting”), Ngai told the           K

    owners present that if they had already made application for the Building
L                                                                                 L
    Safety Loan, the Buildings Department would directly transfer funds to
M   the Incorporated Owners and they did not have to be concerned about           M

    instalment payments. But they had to make timely applications.
N                                                                                 N


O   12.     For those owners who did not apply for the Building Safety            O

    Loan, they would have to pay the contributions towards the costs of the
P                                                                                 P
    Renovation Work by 3 instalments.
Q                                                                                 Q

    13.     Ngai stressed that since the Building Department would make
R                                                                                 R
    stage payments based on different criteria, the 3 payment dates of the
S                                                                                 S
    release for those who had applied for the Building Safety Loan would be

T                                                                                 T


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                                              -6-
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B   different from the 3 instalment dates set by the Incorporated Owners for        B

    the owners who did not apply for the Building Safety Loan.
C                                                                                   C


D   14.        The 3 instalment dates for the owners who did not apply for the      D

    Building Safety Loan were 15th February 2006 (which was later changed
E                                                                                   E
          st                th                      th
    to 1 March 2006), 15 May 2006 and 15 August 2006.
F                                                                                   F

    15.        Initially, the 2nd Defendant did not apply for the Building Safety
G                                                                                   G
                     st
    Loan and the 1 Defendant did not provide sufficient information so that
H                                                                                   H
    his application could not be processed. Proceedings against the 2nd

I
    Defendant for the recovery of the 1st instalment payment of                     I
    HK$16,005.00 were commenced on 30th March 2006 in the Small Claims
J                                                                                   J
    Tribunal. As the 2nd Defendant agreed to pay, the proceedings in the
K   Small Claims Tribunal were adjourned sine die.                                  K


L                                                                                   L
    16.        The Incorporated Owners received notice from the Buildings
M   Department on 20th July 2006 that the 1st and 2nd Defendants were among         M

    the owners approved for the Building Safety Loan.
N                                                                                   N


O   17.        In or about late July 2006, the Incorporated Owners received         O

    notice from the Buildings Department and from owners that some of the
P                                                                                   P
                            st           nd
    owners (including 1          and 2        Defendant) requested the Buildings
Q   Department to withhold the release of the Building Safety Loan until the        Q

    whole of the renovation had been certified complete in which event the
R                                                                                   R
    loan would then be released in one payment. This was not acceptable to
S   the Incorporated Owners as it would not be able to make stage payments          S


T
    to the contractor.                                                              T


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                                                -7-
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B                                                                                           B

    18.      Demand letters were then issued to the 1 st and 2nd Defendants in
C                                                                                           C
                               th                                         st           nd
    July 2006 and on 9               November 2006, requesting the 1           and 2
D   Defendants to notify the Buildings Department to release payment to                     D

    clear all outstanding payments.
E                                                                                           E


F   19.      Up to 8th December 2006, there were still no payments from the                 F

    1st and 2nd Defendants. The Incorporated Owners caused to be registered
G                                                                                           G
    a Notice (Memorandum of Charge) at the Land Registry against the units
H                                                                                           H
    of the 1st and 2nd Defendants. For the registration of the Notice and the

I
    release of the same, the 1st and 2nd Defendants had to each pay                         I
    HK$5,100.00. The Incorporated Owners also commenced recovery
J                                                                                           J
    proceedings in the District Court as the amount of the claim has
K   exceeded the jurisdiction of the Small Claims Tribunal.                                 K


L                                                                                           L
    20.      After the present action had been commenced and on 19 th
M   December 2006, the Incorporated Owners received from the Buildings                      M

    Department     the   1st        and   2nd   payments   of HK$23,904.00        and
N                                                                                           N
                                st        nd                  rd
    HK$23,912.00 for the 1 and 2 Defendants. On 23 February 2007, the
O   Incorporated Owners received from the Buildings Department the last                     O

    instalment payment of HK$24,096.00 and HK$24,103.00. Thus, after the
P                                                                                           P
                                                                     st
    commencement of the proceedings, save for HK$15.00, the 1 Defendant
Q   had paid his share of contribution to the renovation costs through the                  Q

    payments made by the Buildings Department. As regards the 2nd
R                                                                                           R
    Defendant, his contributions to the renovation costs were all settled by
S   the Buildings Department. Interests had, however, accrued because of the                S


T
    initial refusal of the 1st and 2nd Defendants to pay.                                   T


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                                      -8-
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B                                                                                B

    21.     The Incorporated Owners claims interest pursuant to Clause 6(d)
C                                                                                C
    of the DMC which provides as follows:
D                                                                                D

          “(d) In addition to the rights of the [Housing] Authority under
E                                                                                E
          paragraph (c) above if any owner shall fail to pay any amount
F         payable hereunder within seven days from the date on which             F

          payment is due or the demand for payment of which is served on
G                                                                                G
          him he shall further pay to the [Housing] Authority ---
H                                                                                H
                (i)   interest calculated at the rate of $1 for each $100 or

I
                      part thereof of the amount unpaid for each period of       I
                      30 days or part thereof for which it remains
J                                                                                J
                      unpaid …”
K                                                                                K

    22.     Up to 23rd February 2007, interests on the alleged late payments
L                                                                                L
    accrued to a sum of HK$3,755.80 and stopped accruing after the said
M   date as a result of payment by Buildings Department.                         M


N                                                                                N
    23.     It should be noted that Yue Tin Court is notionally divided into
O   29,761 undivided shares, of which 385 shares are held by the Housing         O

    Authority. In calculating the contributions payable by the owners of Yue
P                                                                                P
    Tin Court, the shares held by the Housing Authority had been excluded.
Q   Ngai explained that as the renovation did not cover the facilities of the    Q

    Housing Authority, it was not known whether the Housing Authority
R                                                                                R
    should be liable to contribute. The shares of the Housing Authority were
S   thus first excluded. If the Housing Authority agreed to pay, it would then   S


T
    be unnecessary to ask the owners of Yue Tin Court to contribute again        T


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                                       -9-
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B   for the costs of the project management which was estimated to be in the   B

    region of HK$ 1 million and would be roughly the amount to be
C                                                                              C
    contributed by the Housing Authority should it agree to contribute.
D                                                                              D

    24.       Subsequently, the Housing Authority agreed to contribute.
E                                                                              E


F   25.       In cross-examination, Ngai pointed out that at the general       F

    meeting of the Incorporated Owners held on 26th November 2004, it was
G                                                                              G
    explained to the owners of Yue Tin Court that there would be an
H                                                                              H
    Engineering Group and a Tender Group for the Renovation Work and

I
    owners might join the Two Groups which had been authorized by the          I
    Management Committee at its meeting. The meeting of the Management
J                                                                              J
    Committee referred to by Ngai was held on 24 th May 2005. This
K   Management Committee meeting could not be the one authorizing the          K

    Two Groups as it was held after the said general meeting of the
L                                                                              L
    Incorporated Owners.
M                                                                              M

    26.       The tenders submitted were assessed by the Two Groups. Based
N                                                                              N
    on various criteria, the Two Groups would award points to the tenders.
O   Ngai said that there was report on how the assessments were made. It       O

    turns out that by “report”, he meant the assessment results. He agreed
P                                                                              P
    that the analysis relating to the assessment had not been given to the
Q   owners for their perusal. He explained that the Management Committee       Q

    was responsible for choosing the contractors for the owners and would
R                                                                              R
    submit the same to the general meeting of the Incorporated Owners for
S   voting.                                                                    S


T                                                                              T


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                                      - 10 -
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B   27.     It should be noted that Ngai said in paragraph 14 of his witness     B

    statement that “after the signing of the renovation contract and at the
C                                                                                C
    request of certain owners, the [Incorporated Owners] allowed any owners
D   to inspect all 35 tender bids.” He seemed to resile from this statement in   D

    the course of cross-examination by suggesting that only notices relevant
E                                                                                E
    to the information of the bids were issued to the owners. He further
F   suggested that owners could look at the contents of the bids after signing   F

    confidentiality agreements. Such confidentiality agreements had not been
G                                                                                G
    produced.
H                                                                                H


I
    28.     Ngai also confirmed that the payment dates for the contributions     I
    had not been put to the general meeting of the Incorporated Owners for
J                                                                                J
    confirmation. He explained that the Management Committee had the
K   power to decide.                                                             K


L                                                                                L
    29.     It was pointed out to Ngai that he informed the owners that
M   those who “would apply”, as opposed to those who “had applied”, for the      M

    Building Safety Loan did not have to worry about payment schedule as
N                                                                                N
    payments would be made by the Buildings Department directly.
O   Reference was made to paragraph 4.3 of the minutes of the Consultation       O

    Meeting with Sun Cheong held on 27th November 2005. But Ngai said
P                                                                                P
    that what it meant was that if the owners had successfully applied for the
Q   Building Safety Loan, they did not have to worry about the payments to       Q

    the Incorporated Owners. It was also put to Ngai that the Incorporated
R                                                                                R
    Owners had not passed any resolution setting down any deadline for the
S   owners to apply for the Building Safety Loan. Ngai, however, explained       S


T
    that different owners would have different situations and some would         T


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                                      - 11 -
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B   apply early and some would apply late. There thus could not be any            B

    deadline.
C                                                                                 C


D   30.     It is not in dispute that the 1st and 2nd Defendants had in July      D

    2006 requested the Buildings Department to withhold the release of
E                                                                                 E
    payments from the Building Safety Loan to the Incorporated Owners.
F   Ngai agreed that before the issue of the Writ of this action on 14th          F

    December 2006, the Incorporated Owners knew that the 1st and 2nd
G                                                                                 G
    Defendants had agreed to resume payments to the Incorporated Owners
H                                                                                 H
    by the Building Department as evidenced by a letter dated 13th November

I
    2006 from the Buildings Department. He said that on the date of the           I
    issue of the Writ of this action, the manager did enquire with the
J                                                                                 J
    Buildings Department whether the payments could be released to the
K   Incorporated Owners. The Buildings Department replied in the negative         K

    and said that it had received instructions to release the instalment
L                                                                                 L
    payments but if the owners further instructed to withhold the payments,
M   the Buildings Department would follow the instructions. He was asked          M

    why, since there was no instruction to withhold payments as at the date
N                                                                                 N
    of the Writ, the Incorporated Owners still issued the Writ. He replied that
O   it was because it did not know whether the 1 st and 2nd Defendants would      O

    change their minds again.
P                                                                                 P


Q   31.     It should be noted that even after 23 rd February 2007 when the       Q

    contributions had been made by the 1st and 2nd Defendants, the
R                                                                                 R
                                                                         st
    Incorporated Owners still proceeded with the claims against the 1 and
S   2nd Defendants for the contributions as late as 2 nd November 2007 when       S


T
    it amended the Statement of Claim. Ngai said that the Incorporated            T


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                                      - 12 -
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B   Owners had considered transferring the case to the Small Claims               B

    Tribunal. But it was thought that there might be a counterclaim by the
C                                                                                 C
    Defendants and costs that had already been incurred by the Incorporated
D   Owners. No action was thus taken to transfer the case to the Small            D

    Claims Tribunal. Ngai confirmed that by the time when the Incorporated
E                                                                                 E
                                       st          nd
    Owners received notice that the 1 and the 2 Defendants had paid the
F   contributions, the legal costs incurred and the interests accrued had not     F

    reached HK$50,000.00.
G                                                                                 G


H                                                                                 H
    32.     Ngai further suggested that in order to recoup the legal costs

I
    already incurred, the only way was to fight the case to the very end. I       I
    digress to note that this, of course, must be wrong. The way to do it is to
J                                                                                 J
    crystallize the cost position by withdrawing the claims for the
K   contributions once notice of payment was obtained. The cost position          K

    could, prima facie, be protected, subject to different situations in
L                                                                                 L
    different cases. Generally speaking, legal costs incurred in prolonging
M   the litigation unnecessarily would not have been reasonably incurred and      M

    could not be recovered.
N                                                                                 N


O   33.     Ngai agreed that there had been a request by 5% of owners             O

    demanding Sun Cheong to stop the Renovation Work.
P                                                                                 P


Q   34.     In the course of the oral evidence of Ngai, I granted leave to the    Q

    1st and 2nd Defendants to amend their Defence and to the Plaintiff to file
R                                                                                 R
    its consequential amendments as I was of the view that there was nothing
S   new appearing from the amendments of the Defendants. At one stage, the        S


T
    Incorporated Owners considered applying for an adjournment. This idea         T


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                                         - 13 -
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B   was given up later. At the end, I allowed the Incorporated Owners to             B

    recall Ngai to deal with matters arising from the amendments. I also
C                                                                                    C
    made the order that costs of and occasioned by the amendments be to the
D   Plaintiff in any event with certificate for counsel to be taxed if not agreed.   D

    The total time spent on the application was 40 minutes.
E                                                                                    E


F   35.      The consequential amendments to the Re Amended Reply and                F

    Defence to Counterclaim are in the following terms:
G                                                                                    G


H                                                                                    H
          “24A. Paragraphs 25(3), 27(2), 30 and 40A are denied. The

I
                 Plaintiff avers that even if, which is denied, the 1 st and 2nd     I
                 Defendants were not liable to pay a Contribution in the
J                                                                                    J
                 amount of HK$48,015.00. [sic] The 1 st and 2nd Defendants
K                were each liable to pay to the Plaintiff as follows:-               K


L                                                                                    L
                 (1) As against each of the 1st and 2nd Defendants, a
M                   Contribution    of    HK$47,393.84     (i.e.   21/29,761    x    M

                    HK$67,166,095.40) by 3 instalments.
N                                                                                    N


O                (2) As against the 1st Defendant, interests pursuant to clause      O

                    6(d) of the DMC which amounted to HK$3,562.93 as at
P                                                                                    P
                       rd
                    23 February 2007.
Q                                                                                    Q

                 (3) As against the 2nd Defendant, interests pursuant to clause
R                                                                                    R
                    6(d) of the DMC which amounted to HK$3,547.75 as at
S                   23rd February 2007.                                              S


T                                                                                    T


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                                    - 14 -
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B         25A. Paragraph 40A is denied. The Plaintiff repeats paragraph       B

                24A hereinabove.”
C                                                                             C


D   36.     Ngai then further explained that and the renovation did not       D

    cover the area owned by the Housing Authority and it was not known
E                                                                             E
    whether the Housing Authority would be willing to pay. There were also
F   the project manager charges not known yet. Subsequently, the Housing      F

    Authority did pay a total amount of HK$984,724.06 as could be seen
G                                                                             G
    from two Remittance Advices in Exhibit P1.
H                                                                             H


I
    37.     Ngai said that the calculation for contribution was based on      I
    29,376 undivided shares. This number of undivided shares excluded the
J                                                                             J
    385 undivided shares owned by the Housing Authority. Owners were
K   required to contribute HK$48,014.98. But the project management fees      K

    had not yet been taken into account but were at the end covered by the
L                                                                             L
    contribution from the Housing Authority. If the undivided shares of the
M   Housing Authority were included for the purpose of calculation, the       M

    project management fees would then be put into the calculation with the
N                                                                             N
    renovation costs too.
O                                                                             O

    38.     Although, if all the undivided shares were included in the
P                                                                             P
    calculation, the contribution to the renovation costs payable to Sun
Q   Cheong would be reduced to HK$47,393.84, the owners would have to         Q

    contribute to the project management fees in the sum of HK$673.42. The
R                                                                             R
    total contribution of the owners would be HK$48,067.26 each. Thus
S   even though the calculation adopted by the Incorporated Owners            S


T
    excluded the undivided shares of the Housing Authority, the owners        T


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                                     - 15 -
A                                                                              A


B   would actually be required to contribute less. He also pointed out that    B

    contribution of the Housing Authority was calculated on the basis of the
C                                                                              C
    number of all the undivided shares.
D                                                                              D

    39.     Ngai also confirmed that the exclusion of the undivided shares
E                                                                              E
    of the Housing Authority in the calculation had not been put to the
F   general meeting of the Incorporated Owners. Nor had the owners been        F

    informed or explained that the calculations for contributions for the
G                                                                              G
    owners and the Housing Authority were based on different number of
H                                                                              H
    undivided shares. But then Ngai changed his evidence and said that he

I
    had informed the EGM that a smaller number of undivided shares would       I
    be used in the calculation and the Incorporated Owners had so far
J                                                                              J
    received no complaints from the owners. I have reservation on this
K   change of evidence. No doubt, the use of a different number of undivided   K

    shares is a very important matter that I would have thought would have
L                                                                              L
    been put to vote. What is more surprising is that there is no mention of
M   such a matter in the minutes of the EGM. I reject this part of Ngai’s      M

    evidence.
N                                                                              N


O   The 1st Defendant                                                          O

    40.         Mr Liu Hua (“Liu”), the first-named defendant of the 1st
P                                                                              P
                                      st
    Defendant gave evidence for the 1 Defendant.
Q                                                                              Q

    41.     Liu said that the Incorporated Owners had informed the owners
R                                                                              R
    that 35 tenders had been received. But the tenders had never been made
S                                                                              S
    available to the owners of Yue Tin Court. At the EGM, only 3 tenders

T
    were put to the owners. One of those tenders was that of Sun Cheong.       T


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                                      - 16 -
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B   Liu said that Sun Cheong was not connected with the listed company that     B

    bore the same name. He also complained that the Management
C                                                                               C
    Committee unlawfully delegated its power to the Tender Group to choose
D   3 contractors to be submitted to the owners.                                D


E                                                                               E
    42.     In the course of the Renovation Work, workers from Sun
F   Cheong were owed their wages and formed a picket line, trying to stop       F

    other workers from entering the site area. Sun Cheong was even stopped
G                                                                               G
    by the Labour Department from proceeding with the Renovation Work
H                                                                               H
    because of unsatisfactory safety measures. At the general meeting on 19th

I
    May 2006, there were disputes among the owners which subsequently           I
    required the attendance of police. These matters formed the background
J                                                                               J
    whereby Liu asked the Buildings Department to withhold the release of
K   the loan to the Incorporated Owners.                                        K


L                                                                               L
    43.     Liu said that he was informed that if he applied for the Building
M   Safety Loan, he did not have to follow the payment schedule of the          M

    Incorporated Owners. After he had received demand for payment, he
N                                                                               N
    enquired with the management office and was told that if he applied to
O   the Buildings Department for the Building Safety Loan, the Buildings        O

    Department would pay the contributions for him. He also explained that
P                                                                               P
    it was up to the Buildings Department to determine when the loan
Q   agreement between him and the Buildings Department was to be signed.        Q

    It was explained to him by the Buildings Department that there were
R                                                                               R
    about 500 initial applicants from Yue Tin Court for the loan and the
S   Buildings Department needed to meet with each applicant. Much time          S


T
    was thus taken up. He also said that the terms of the loan agreement,       T


U                                                                               U


V                                                                               V
                                      - 17 -
A                                                                                A


B   including the dates of the release of the loan, were all determined by the   B

    Buildings Department.
C                                                                                C


D   44.      Liu applied to the Buildings Department for the Building Safety     D

    Loan in April 2006 and, due to the approval process, his application was
E                                                                                E
                                                                       th
    only allowed in July 2006. The loan agreement was signed on 20 July
F   2006. By a letter dated 24th July 200, Liu instructed the Buildings          F

    Department to withhold release of the loan to the Incorporated Owners.
G                                                                                G
    Liu further said that once he had received the notice from the
H                                                                                H
    Incorporated Owners dated 9th November 2006 threatening registration

I
    of Memorandum of Charge against his unit at Yue Tin Court, he                I
    immediately instructed the Buildings Department to release the loan to
J                                                                                J
    the Incorporated Owners. This is confirmed by a letter dated 4 th January
K   2007 from the Buildings Department to Liu in reply to Liu’s enquiry.         K


L                                                                                L
    45.      Liu said that some owners were not allowed to inspect the 35
M   tenders. He, however, admitted in cross-examination that he only heard       M

    this from other owners. He was also found to be incorrect in respect of
N                                                                                N
    his allegations that the tender did not stipulate the submission closing
O   time and that the tenders were not opened in the presence of 3 members       O

    of the Management Committee. He also confirmed that no one had said
P                                                                                P
    the contract price could at least be reduced by 10% as opposed to what
Q   he had stated in his witness statement.                                      Q


R                                                                                R
    46.      Liu said that the message he had from the Incorporated Owners
S   was that owners who had applied or who planned to apply for the              S


T
    Building Safety Loans did not have to follow the payment schedules set       T


U                                                                                U


V                                                                                V
                                       - 18 -
A                                                                                  A


B   down by the Incorporated Owners. He could not point to any documents           B

    that gave him such an impression. On the contrary, there was a notice
C                                                                                  C
                                                   th
    issued by the Incorporated Owners dated 20 February 2006 informing
D   the owners that the first payment would be deferred to 1 st March 2006         D

    and those owners who had applied for the Building Safety Loan could
E                                                                                  E
    ignore that notice. Liu explained that after he had received this notice, he
F   enquired with the Management Office and was told that he could still           F

    apply for the Building Safety Loan as quite a number of owners were still
G                                                                                  G
    in the process of applying for such a loan. I note that such an explanation
H                                                                                  H
    could not be found in his witness statement. Liu further said that he had

I
    also enquired with the Management Office one day before the first              I
    payment was due whether he had to apply for the loan, he was given the
J                                                                                  J
    reply that he did not have to make the application. Again, such an
K   enquiry is not mentioned in his witness statement.                             K


L                                                                                  L
    47.      In Liu’s witness statement, it is stated that the Incorporated
M   Owners registered with the Land Registry against his unit in Yue Tin           M

    Court a Memorandum of Charge even though it knew that it had already
N                                                                                  N
    received payment from him. In cross-examination, he retracted from this
O   position and stated that the registration was done with the knowledge that     O

    the Incorporated Owners “would receive” payment not “had received”
P                                                                                  P
    payment.
Q                                                                                  Q

    48.      Liu explained he instructed the Buildings Department to
R                                                                                  R
    withhold release of the Building Safety Loan to the Incorporated Owners
S   because he had reservations over the Renovation Work and the whole             S


T
    screening process relating to the Renovation Work. There were also a           T


U                                                                                  U


V                                                                                  V
                                      - 19 -
A                                                                                 A


B   number of incidents that made him feel insecure if he simply handed over      B

    the money. He feared that if anything went wrong, he might have to pay
C                                                                                 C
    again. Simply put, he did not have confidence in Sun Cheong.
D                                                                                 D

    49.     As to the demand letter from the solicitors for the Incorporated
E                                                                                 E
                    th
    Owners dated 9 November 2006, Liu explained that he had complied
F   with the demand of instructing the Buildings Department to release the        F

    Building Safety Loan. But he could not comply with the demand for
G                                                                                 G
    payment of interest and legal costs as the sums thereof were not stated.
H                                                                                 H


I   The 2nd Defendant (Chang)                                                     I
    50.     Chang gave evidence first by adopting his witness statement and
J                                                                                 J
    then by giving oral evidence. It turns out that the contents of his witness
K   statement were told to him by some other persons. He did not seem to          K

    remember the events relating to the Renovation Work. He did not attend
L                                                                                 L
    the EGM or pay attention to the notice of the prices of the 3 contractors
M   who had been chosen which were posted in the lobby. All he could say          M

    with any certainty is the reasons for withholding the payment to the
N                                                                                 N
    Incorporated Owners. He said that he withheld the payment because Sun
O   Cheong was once forced to stop work and that there were no engineers          O

    supervising the work. He had no confidence in Sun Cheong.
P                                                                                 P


Q   Credibility of Witnesses                                                      Q

    51.     None of the witnesses impressed me in their evidence. The
R                                                                                 R
    evidence of Chang was clearly unreliable. I reject his evidence. Liu had
S                                                                                 S
    on various occasions been found to have resiled from his previous

T
    allegations and to be incorrect in his evidence. I do not accept his          T


U                                                                                 U


V                                                                                 V
                                       - 20 -
A                                                                                 A


B   evidence either. Although Ngai’s evidence was largely supported by            B

    documents, as noted above, he had also at times changed his evidence. I
C                                                                                 C
    do not think I could rely on his evidence.
D                                                                                 D

    52.      Thus unless there is any specific finding, I would have to rely on
E                                                                                 E
    the written documents to determine the facts of the present case. In any
F   event, however, I do not think the determination of the present case turns    F

    on the credibility of the witnesses in any substantial way.
G                                                                                 G


H                                                                                 H
    The Defence

I
    Procedural Irregularity in the Tender Process                                 I
    53.      Mr Chang, counsel for the Defendants, contended that the tender
J                                                                                 J
    process was in breach of the Code of Practice on Procurement of
K   Supplies, Goods and Services (the “Code”) in that the Incorporated            K

    Owners failed, inter alia, to put forward all qualified tender bids for
L                                                                                 L
    voting at the general meeting of the Incorporated Owners.
M                                                                                 M

    54.      The Code was issued pursuant to section 44 of the Building
N                                                                                 N
    Management Ordinance, Cap. 344 (the “BMO”). It reads as follows:
O                                                                                 O

          “(1) The Authority may from time to time prepare, revise and
P                                                                                 P
          issue Codes of Practice giving guidance and directions as to-
Q               (a)    the procurement of supplies, goods and services            Q

                       required by a corporation including such procurement
R                                                                                 R
                       by invitation to tender and the tender procedure in
S                                                                                 S
                       respect thereof;

T               …                                                                 T


U                                                                                 U


V                                                                                 V
                                      - 21 -
A                                                                                  A


B                                                                                  B

          (2)   A failure on the part of any person to observe any Code of
C                                                                                  C
          Practice issued under subsection (1) shall not of itself render that
D         person liable to criminal proceedings of any kind but any such           D

          failure may, in any proceedings whether civil or criminal including
E                                                                                  E
          proceedings for an offence under this Ordinance, be relied upon as
F         tending to establish or to negative any liability which is in question   F

          in those proceedings.”
G                                                                                  G


H                                                                                  H
    55.     Section 20A of the BMO, as then in force, is also relied on by

I
    the Defendants and it reads as follows:                                        I


J                                                                                  J
          “(1) The procurement of all supplies, goods or services required
K               by a corporation in the exercise of its powers and the             K

                performance of its duties under the deed of mutual covenant
L                                                                                  L
                (if any) or this Ordinance shall comply with such standards
M               and guidelines as may be specified in a Code of Practice           M

                relating to such procurement.
N                                                                                  N
                …
O         (3)   The procurement by invitation to tender for any supplies,          O

                goods or services under subsection (2) and the tender
P                                                                                  P
                procedure in respect thereof shall comply with such
Q               standards and guidelines as may be specified in a Code of          Q

                Practice   relating   to   such   procurement     and    tender
R                                                                                  R
                procedures.”
S                                                                                  S


T
    56.     Paragraph 8 of the Code provides as follows:-                          T


U                                                                                  U


V                                                                                  V
                                     - 22 -
A                                                                               A


B                                                                               B

          “Tenders of a value exceeding –
C                                                                               C
          (a)   the sum of $200,000 or such other sum in substitution
D               therefor as the Authority may specify by notice in the          D

                Gazette; or
E                                                                               E
          (b)   the sum which is equivalent to 45% of the annual budget of
F               the corporation or such other percentage in substitution        F

                therefor as any be approved by the corporation by resolution
G                                                                               G
                passed at a general meeting,
H                                                                               H
          which is lesser shall be submitted to the corporation which may, by

I
          a resolution passed at a general meeting of the corporation, accept   I
          or reject them.” (Underline added)
J                                                                               J


K   57.     The evidence of Ngai was that the contents of the tenders were      K

    kept confidential. He said in his witness statement that the owners were
L                                                                               L
    allowed to inspect the tenders after the renovation contract had been
M   signed with Sun Cheong. In cross-examination, he said that the owners       M

    were allowed to inspect the tenders upon signing a confidentiality
N                                                                               N
    agreement. This is not mentioned in his witness statement. As mentioned
O   above, no such agreement has been produced. I do not accept such            O

    evidence.
P                                                                               P


Q   58.     The Defendants complained that there was no owners’                 Q

    resolution authorizing the Two Groups to vet the submitted tenders
R                                                                               R
    without going through the owners. This argument would only be valid if
S   the Two Groups were not open to the owners to participate. Ngai said        S


T
    that owners could join the Two Groups. This is supported by the various     T


U                                                                               U


V                                                                               V
                                       - 23 -
A                                                                                A


B   minutes of meetings of the Management Committee since 19th August            B

    2004. If the owners were allowed to join the Two Groups, it means all of
C                                                                                C
    them had access to the tenders and would be entitled to vote on the
D   tenders to be put forward to the general meeting of the Incorporated         D

    Owners, no matter what the criteria for selection were. If the owners
E                                                                                E
    chose not to join the Two Groups, they could not now turn around and
F   complain that they had not been provided with the information of the         F

    tenders. I reject this contention of the Defendants.
G                                                                                G


H                                                                                H
    59.      Another complaint of the Defendants is that they did not have

I
    the option of voting for any contractors other than those 3 shortlisted by   I
    the Management Committee. The first 3 options at the EGM were the 3
J                                                                                J
    shortlisted contractors while the 4th option at the EGM was for re-tender.
K                                                                                K

    60.      It was held by the Court of Appeal in 景發工業中心業主立案
L                                                                                L
    法團 及 何振聲 (CACV No. 47/2006) that, according to paragraph 8 of
M   the Code, all tenders must be submitted to the general meeting of the        M


N
    incorporated owners for consideration and voting. The general meeting        N
                                                             th
    may or may not accept the tenders. In our case, the 4 option has the
O                                                                                O
    effect of excluding the owners from voting on those tenders other than

P   the 3 shortlisted. The option of “re-tender” means that the owners have to   P
    go over the tender exercise again but could not choose from the rest of
Q                                                                                Q
    the tenders. I am of the view that the Incorporated Owners was in breach
R   of paragraph 8 of the Code.                                                  R


S                                                                                S


T                                                                                T


U                                                                                U


V                                                                                V
                                       - 24 -
A                                                                                  A


B   61.      The Court of Appeal in 景發工業中心業主立案法團, however,                         B

    declined to rule what the consequences would be in the event of non-
C                                                                                  C
    compliance with the Code as it was not necessary for determination.
D                                                                                  D


E
    62.      Mr Chang argued that the Code had force of law and cited in           E
    support the case Wong Tak Keung Stanley v Management Committee
F                                                                                  F
    of the Incorporated Owners of Grenville House [2004] 2 HKC 194 in

G   which there was an application for striking out on the ground that the         G
    applicant had failed to disclose a reasonable cause of action. Yuen JA
H                                                                                  H
    held that it was highly arguable that paragraph 1 and paragraph 9 of the
I   Code, which were incorporated into section 20A (under sections 20A(2)          I

    and (4)) were intended by the legislature to have the force of law. Where
J                                                                                  J
    the word “shall” was used, the natural and proper meaning was that a
K   “peremptory mandate was enjoined” [203C]. It was arguable that where           K

    the intended consequence of the failure to comply was not stated in the
L                                                                                  L
    legislation, the thing done under statute was invalidated. But whether the
M   thing done was void or voidable would depend on the circumstances.             M


N                                                                                  N
    63.      It was argued for the Defendants that since paragraph 8 set out
O   how paragraph 1 was to be decided by the owners, it must be similarly          O


P
    construed as having the force of law. I do not think this necessarily          P
    follows. In fact one may argue that the fact that the legislature has chosen
Q                                                                                  Q
    not to incorporate paragraph 8 into legislation shows that paragraph 8 is

R   not intended to have the force of law.                                         R


S                                                                                  S
    64.      Section 18(2A) of the BMO requires the Incorporated Owners,
T   in the performance of its duties and exercise of its powers under section      T


U                                                                                  U


V                                                                                  V
                                       - 25 -
A                                                                                   A


B   18, “shall have regard to and be guided by Codes of Practice issued from        B

    time to time under section 44(1)”. (Underline Added) The underlined
C                                                                                   C
    words appear to me to be more directive than mandatory. I would have
D   thought that if the Codes of Practice were intended to have legal force,        D

    stronger words such as “shall comply with” would be used.
E                                                                                   E


F   65.      The effect of non-compliance with the Code is set out in section       F

    44(2) of the BMO quoted above.
G                                                                                   G


H                                                                                   H
    66.      This section is vague, to say the least. It only deals with the

I
    liability of the person who has failed to comply with the Codes of              I
    Practice but is silent on the status of the thing done in non-compliance
J                                                                                   J
    with the Code of Practice. But if the Codes of Practice were intended to
K   have legal force the breach of which would certainly tend to establish or       K

    negative the liability the person who has failed to comply with the Codes
L                                                                                   L
    of Practice, such a consequence would have been clearly stated. Viewed
M   in that light, the silence seems to show the reluctance of the legislature to   M

    confer on the Codes of Practice legal force.
N                                                                                   N


O   67.      Two cases were cited by Mr Tsoi, counsel for the Incorporated          O

    Owners. They are Chan Chee Shum v The Incorporated Owners of
P                                                                                   P
    Gold Mine Building (LDBM o. 226/1998) and Chau Chun Wai v
Q   Incorporated Owners of Joyful Villas (LDBM No. 177/1995). Both                  Q

    held that the Codes of Practice were not rules of law. It was commented
R                                                                                   R
    by HH Judge Li in Chau Chun Wai at paragraph 9 that “the Code of
S                                                                                   S
    Practice only seeks to prescribe a fair procedure for determining whom

T   should be awarded a contract for the provision of supplies, goods and           T


U                                                                                   U


V                                                                                   V
                                        - 26 -
A                                                                                  A


B   service. It does not go into the matter of jurisdiction for an expenditure     B

    nor the liability of individual owners for contribution towards such
C                                                                                  C
    expenditure.” I note that these two cases were decided before paragraph
D   1 of the Code was incorporated into section 20A(2) of the BMO. But I do        D

    not think this would affect my view expressed above.
E                                                                                  E


F   68.        Thus, in my view, safe those paragraphs that have been              F

    incorporated into statute, I do not think the Code has legal force.
G                                                                                  G


H                                                                                  H
    69.        Another case cited by Mr Chang was Incorporated Owners of

I   Hip Wo House v Gallant King Development Ltd (CACV No.                          I
    429/2006) which was concerned about section 20A(2). There was a
J                                                                                  J
    failure to invite tender before the services of a firm of solicitors were
K   engaged. It was held by Le Pichon JA that “[g]iven the nature of the           K

    provision and its purpose, it is more probable than not that non-
L                                                                                  L
    compliance would render the contract voidable rather than void ab
M   initio.”                                                                       M


N                                                                                  N
    70.        Thus, even if I were wrong on the conclusion of the lack of legal
O   force of the Code, Incorporated Owners of Hip Wo House v Gallant               O

    King Development Ltd suggests that breach of section 20A(2) would
P                                                                                  P
    more probably than not render the contract voidable. As part of the
Q   arrangement subsequent to the invitation of tender dealt with by section       Q


R
    20A(2), I am of the view that any breach of paragraph 8 of the Code            R
    would at best render the contract voidable. It is trite law that until a
S                                                                                  S
    voidable contract is set aside, it remains valid. There has been no attempt

T   on anyone’s part to set aside the contract with Sun Cheong. All owners         T


U                                                                                  U


V                                                                                  V
                                       - 27 -
A                                                                                   A


B   are therefore liable to contribute to the renovation work in accordance         B

    with the terms of the DMC.
C                                                                                   C


D   71.      Whether Sun Cheong’s work is up to standard or requirement             D

    does not affect the liability of the owners to contribute to the costs of the
E                                                                                   E
    Renovation Work. That right of challenging the quality of the work of
F   Sun Cheong could only be exercised by the Incorporated Owners.                  F


G                                                                                   G
    No authority to set the 3 instalment dates
H                                                                                   H
    72.      Mr Chang argued that since the Management Committee had at

I
    its meeting on 7th October 2005 resolved that the “payment method” for          I
    the Renovation Work was to be determined at the EGM, it could not
J                                                                                   J
    subsequently renege on its binding resolution and decide the instalment
K   dates. He argued that “payment method (繳款方法)” meant whether the                 K

    contributions to be paid by instalments, the number and the dates thereof.
L                                                                                   L
    I am not convinced by this argument. As a matter of construction of the
M   words used, “payment method” are so general that it could mean one, or          M

    all, of the meanings put forward by Mr Chang. The Incorporated Owners
N                                                                                   N
    could equally argue that “payment method” only meant whether the
O   payment was to be made by instalment. As a matter of intention, even Mr         O

    Chang recognised that the dates for instalment payment could not be
P                                                                                   P
    determined at that time as the contractor had yet to propose project
Q                                                                                   Q
    milestones. The rhetorical question to be asked is: how would the

R
    Management Committee intend to ask the owners to determine the dates            R
    of payments if members of the Management Committee themselves had
S                                                                                   S
    no idea what the progress would be?
T                                                                                   T


U                                                                                   U


V                                                                                   V
                                           - 28 -
A                                                                                 A


B   73.      Furthermore, I do not see why the Management Committee               B

    could not, to use the work of Mr Chang, “seize back” the power to
C                                                                                 C
    determine the dates for instalment payment. Section 22(1) of the BMO
D   expressly confers the power to determine the timing of such instalment        D

    payment on the Management Committee. Either the Management
E                                                                                 E
    Committee had the power or it did not have the power. If the BMO has
F   expressly conferred such a power on it, I do not see any reasons why it       F

    could not use it after the resolution passed at its meeting on 7 th October
G                                                                                 G
    2005. There was no suggestion of estoppel. Nor could I find any estoppel
H                                                                                 H
    arising from the facts of this case.

I                                                                                 I
    74.       I reject this argument.
J                                                                                 J


K   Error in Calculation of Share of Contribution                                 K

    75.      In calculating the contributions to be made by the owners, the
L                                                                                 L
    Incorporated Owners excluded the undivided shares owned by the
M   Housing Authority. As a result, the amount of contribution based on the       M

    reduced number of undivided shares would be larger than that if all the
N                                                                                 N
    undivided shares were used as the denominator in the computation.
O                                                                                 O

    76.      Ngai explained that it was because the stance of the Housing
P                                                                                 P
    Authority was not known. This is neither here nor there. The stance of
Q   the Housing Authority is irrelevant. If it were liable to contribute under    Q

    the DMC, then it had to contribute.
R                                                                                 R


S   77.      Ngai explained that the total renovation costs payable to Sun        S


T
    Cheong was HK$75,166,095.00. The owners were to contribute                    T


U                                                                                 U


V                                                                                 V
                                     - 29 -
A                                                                               A


B   HK$67,166,095.00 whilst HK$8,000,000.00 would come from the                 B

    maintenance fund of Yue Tin Court. I note that the Housing Authority
C                                                                               C
    had not contributed to this maintenance fund as a result of certain
D   arrangement between it and the Incorporated Owners.                         D


E                                                                               E
    78.      Ngai had compiled a table showing the calculations in exhibit
F   P1. It could be seen that where all the undivided shares were used in the   F

    calculation, the owners would have to each contribute HK$47,393.84.
G                                                                               G
    Where, as what the Incorporated Owners had done, the undivided shares
H                                                                               H
    of the Housing Authority were excluded, the amount of contribution

I
    would be increased to HK$48,014.98.                                         I


J                                                                               J
    79.      Ngai further explained that the project management supervision
K   costs were HK$954,366.67. Subsequently, the Housing Authority agreed        K

    to contribute. The total contribution made by the Housing Authority was
L                                                                               L
    HK$984,724.23 (which is slightly different from the sum shown by the 2
M   remittance advices in exhibit P1), part of which went to the maintenance    M

    fund while the rest went to the project management. He said that as a
N                                                                               N
    result of this arrangement, the owners actually paid less than they
O   otherwise would have. It was because if the undivided shares were used      O

    in the calculation, the owners would have to share all the project
P                                                                               P
    management costs and each would have to contribute a further sum of
Q   HK$673.42, thus making a total contribution of HK$48,067.26. By using       Q

    the present calculation, each owner would be saved a sum of about
R                                                                               R
    HK$50.
S                                                                               S


T                                                                               T


U                                                                               U


V                                                                               V
                                      - 30 -
A                                                                                A


B   80.     The fact that the owners actually paid less is only fortuitous.      B

    When the amount of contribution was calculated, the project
C                                                                                C
    management costs were unknown and they could be much larger which
D   in turn led to a much larger contribution from the owners in this respect.   D

    The correct approach must be an examination of the rights and
E                                                                                E
    obligations under the DMC and the BMO.
F                                                                                F

    81.     There is no dispute that the Memorandum of Charge and the
G                                                                                G
    calculation of interest payable were based on the contribution computed
H                                                                                H
    by excluding the undivided shares of the Housing Authority. It is also not

I
    disputed that there was no resolution of the general meeting of the          I
    Incorporated Owners authorizing the exclusion of the undivided shares
J                                                                                J
    of the Housing Authority in the computation.
K                                                                                K

    82.     Clause 3 of the DMC requires all owners of undivided shares to
L                                                                                L
    observe and perform the covenants, provisions and restrictions under the
M   Second Schedule. Clause 1 of the Second Schedule requires owners to          M

    pay the “due proportion” of all costs charges and expenses payable in
N                                                                                N
    connection with the management of Yue Tin Court. Clause 1(g) of the
O   Second Schedule explains such costs include costs of repairing renewing      O

    cleansing all buildings and all sewers and pipes thereof.
P                                                                                P


Q   83.     Section 22 of BMO provides as follows:                               Q


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


T                                                                                T


U                                                                                U


V                                                                                V
                                         - 31 -
A                                                                                A


B               (a) fixed by the management committee in accordance with         B

                     the deed of mutual covenant (if any);
C                                                                                C
                (b) payable at such times and in such manner as the
D                    management committee may determine.                         D


E                                                                                E
          (2)   If there is no deed of mutual covenant, or if the deed of
F               mutual covenant does not provide for the fixing of               F

                contributions, the amount to be contributed by an owner
G                                                                                G
                towards the amount determined under section 21 shall be
H                                                                                H
                fixed by the management committee in accordance with the

I
                respective shares of the owners.”                                I


J                                                                                J
    84.     There is no dispute that section 22 applies to the present case.
K                                                                                K

    85.     Section 2 of the BMO defines “share” as “the share of an owner
L                                                                                L
    in a building determined in accordance with section 39”. Section 39
M   provides that:                                                               M


N                                                                                N
          “An owner’s share shall be determined-
O               (a) in the manner provided in an instrument including a deed     O

                     of mutual covenant (if any) which is registered in the
P                                                                                P
                     Land Registry; or
Q               (b) if there is no such instrument, or the instrument contains   Q

                     no such provision, then in the proportion which his
R                                                                                R
                     undivided share in the building bears to the total number
S                    of shares into which the building is divided.”              S


T                                                                                T


U                                                                                U


V                                                                                V
                                      - 32 -
A                                                                                 A


B   86.     Section 2 of the BMO further defines “owner” as “ a person who        B

    for the time being appears from the records at the Land Registry to be the
C                                                                                 C
    owner of an undivided share in the land on which there is a building”.
D   There is no question that the Housing Authority is an owner for the           D

    purpose of the DMC and the BMO.
E                                                                                 E


F   87.     The DMC does not provide for the fixing of the contribution.          F

    Section 22(2), therefore, applies. The share of contribution of an owner
G                                                                                 G
    should thus be calculated by reference to the proportion of an owner’s
H                                                                                 H
    undivided shares to the total number of undivided shares of Yue Tin

I
    Court. The exclusion of the undivided shares of the Housing Authority         I
    was a breach of the DMC.
J                                                                                 J


K   88.     There were some disputes as to whether the Incorporated               K

    Owners should amend the Statement of Claim instead of putting the
L                                                                                 L
    alternative claim in the Amended Reply. Mr Chang argued that a
M   claimant could not plead a cause of action in the Reply. Mr Tsoi              M

    countered that by submitting that he could rely on the alternative scenario
N                                                                                 N
    raised by the Defence, citing Poon Hau Kei v Hsin Chong
O   Construction Co Ltd [2004] 2 HKLRD 442 in support. I think the                O

    problem in the approach of Mr Tsoi is that the claims of the Incorporated
P                                                                                 P
    Owners include the contribution and the interest accrued in default of
Q   payment. But the alternative scenario pleaded by the Defendants in their      Q

    Re Amended Defence only relates to the contribution. As far as interest
R                                                                                 R
    is concerned, the entitlement of the Incorporated Owners is still disputed.
S                                                                                 S
    There is no averment in the Re Amended Defence that the Incorporated

T   Owners is entitled to interest on the basis of the alternative case of        T


U                                                                                 U


V                                                                                 V
                                      - 33 -
A                                                                                A


B   contribution. The entitlement to interest is denied by the Defendants (see   B

    paragraph 30 of the Re Amended Defence). But since the Defendants
C                                                                                C
    have paid their contributions, the only issue left, as far as liability is
D   concerned, is entitlement and calculation of interest. There is thus no      D

    effective alternative claim pleaded on the interest charged under the
E                                                                                E
    DMC and there is no alternative case pleaded in the Amended Defence
F   that could be relied on by the Incorporated Owners.                          F


G                                                                                G
    89.     Another issue that is relevant is whether the Incorporated
H                                                                                H
    Owners was entitled to register the Memoranda of Charge against the

I
    properties of the Defendants. Mr Chang submitted that the amount of          I
    contributions demanded by the Incorporated Owners was wrong and was
J                                                                                J
    ultra vires. Because of the wrong amount demanded, the Defendants
K   were entitled to refuse to pay. The Incorporated Owners was thus not         K

    entitled to charge interest, register the Memoranda and commence the
L                                                                                L
    present action. Mr Tsoi argued that the Defendants were not entitled to
M   completely refuse to contribute towards the renovation costs solely          M

    because the computed amount was wrong. He also submitted that the
N                                                                                N
    Incorporated Owners was still entitled to register the Memoranda
O   because under Clause 6(f) of the DMC if the owner failed to pay any sum      O

    under the DMC.
P                                                                                P


Q   90.     First of all, I agree with the submission of Mr Chang that the       Q

    basis of the Memoranda was wrong. In my view, where the amount
R                                                                                R
    demanded by the Incorporated Owners was incorrect, it means that the
S   Incorporated Owners was not entitled to make that demand in the first        S


T
    place. Owners were entitled to refuse to pay unless and until a demand       T


U                                                                                U


V                                                                                V
                                       - 34 -
A                                                                                 A


B   for a correct amount was made. The Incorporated Owners was not                B

    entitled to register the Memoranda.
C                                                                                 C


D   91.      Mr Tsoi sought to rely on the words “any sum” in Clause 6(f) as      D

    justification for the registration of Memoranda as there was no doubt that
E                                                                                 E
    the Defendants were liable to contribute even though the amount
F   demanded might not be correct. I do not agree. Clause 6(f) actually           F

    provides that the charge could only be registered if the owner fails to pay
G                                                                                 G
    “any sum due and payable”. It is clear that the sum demanded was not the
H                                                                                 H
    sum due and payable.

I                                                                                 I
    92.      What is more important is that Clause 6(f) provides the
J                                                                                 J
    mechanism whereby a memorandum could be registered against the
K   property of an owner. Clause 6(f) provides:                                   K


L                                                                                 L
          “(i)   the Authority may serve upon that owner a notice specifying
M                the amount due which shall include any interest payable          M

                 thereon up to the date of the notice and any collection charge
N                                                                                 N
                 and all costs and expenses which may be incurred in
O                recovering or attempting to recover the same including the       O

                 legal expenses referred to in paragraph (e) above.
P                                                                                 P
          (ii)   Upon the service of a notice under (i) above the owner upon
Q                whom such notice has been served shall be deemed to have         Q

                 entered into an agreement for a charge in favour of the
R                                                                                 R
                 Authority for the amount specified in the notice together
S                with interest thereon at the rate stated and upon the terms      S


T
                 and conditions therein are set forth.                            T


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V                                                                                 V
                                       - 35 -
A                                                                                 A


B         (iii)   The Authority may register in the District Land Office Sha      B

                  Tin a copy of the said notice against the undivided share and
C                                                                                 C
                  interest in the said land of the owner upon whom the notice
D                 has been served and the said agreement to enter into a charge   D

                  shall remain valid and enforceable as hereinafter mentioned
E                                                                                 E
                  notwithstanding that judgement may be obtained for the
F                 amount thereof unless such judgement has been fully             F

                  satisfied.”
G                                                                                 G


H                                                                                 H
    93.      Although the word “may” is used in sub-paragraph (i), all the

I
    deemed legal effects stated in sub-paragraphs (ii) and (iii) are predicated   I
    upon the service of the notice. The Incorporated Owners was in effect
J                                                                                 J
    given no choice but had to serve the notice. When it served the notice, it
K   must provide the information specified in sub-paragraph (i), including        K

    the amount due, the interest and the collection charges. The demand
L                                                                                 L
    letters issued by the Incorporated Owners in July and November 2006
M   did not comply with sub-paragraph (i). The Incorporated Owners could          M

    not rely Clause 6(f) of the DMC which is the provision that allows it to
N                                                                                 N
    register the Memoranda.
O                                                                                 O

    94.       It should also be noted that the demand letters issued by the
P                                                                                 P
    Incorporated Owners to the Defendants in July 2006 requested the
Q   Defendants to instruct the Buildings Department to release the Building       Q

    Safety Loan, but not for immediate payment of the contributions. The
R                                                                                 R
                                                  th
    demand letters issued to the Defendants on 9 November 2006 made the
S   same demand and gave 7 days to the Defendants to comply. The demand           S


T
    letters also requested the Defendants to pay interest and legal costs which   T


U                                                                                 U


V                                                                                 V
                                      - 36 -
A                                                                                A


B   had not been set out in the demand letters. According to the letter from     B

    the Buildings Department dated 4th January 2007, the Defendants, on 11th
C                                                                                C
    November 2006, instructed the Buildings Department to release the
D   Building Safety Loan to the Incorporated Owners. In other words, the         D

    Defendants had complied with the demand of the Incorporated Owners
E                                                                                E
    save the part relating to payment of interest and legal costs with which,
F   in my view, the Defendants were in no position to comply as they had not     F

    been informed of the amount.
G                                                                                G


H                                                                                H
    95.     The said letter of the Buildings Department also confirmed that

I
    it had informed the Incorporated Owners on 13th November 2006 of the         I
    instructions of the Defendants by fax and by post. There is no suggestion
J                                                                                J
    from the Incorporated Owners that it had not received the said letter from
K   the Buildings Department. Yet, it registered the Memoranda of Charge         K

    on 8th December 2006. The Incorporated Owners further commenced the
L                                                                                L
    present proceedings on 13th December 2006. As a result, quite apart from
M   the failure to follow the procedures in Clause 6(f) of the DMC, there was    M

    no basis for the Incorporated Owners to register the Memoranda of
N                                                                                N
    Charge. The Incorporated Owners could not rely on the fact that the
O   Defendants had once instructed the Buildings Department to withhold          O

    payment and claimed that it feared the Defendants would do the same
P                                                                                P
    again. Such fear was without any factual basis. Thus, when the
Q   Incorporated Owners knew that the Defendants had instructed the              Q

    Buildings Department to release the Building Safety Loan, the only claim
R                                                                                R
    against the Defendants would be for interest and legal costs, the total
S   amount of which was confirmed by Ngai during cross-examination to be         S


T
    not more than HK$50,000.00. As such and assuming that the                    T


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V                                                                                V
                                     - 37 -
A                                                                               A


B   Incorporated Owners could claim interest against the Defendants, the        B

    claim would be within the exclusive jurisdiction of the Small Claims
C                                                                               C
    Tribunal.
D                                                                               D

    Applicants did not have to follow Payment Schedule
E                                                                               E
    96.      Mr Chang relied on the minutes of the consultation meeting held
F   with Sun Cheong and submitted that those who had applied for the            F

    Building Safety Loan needed not follow the payment schedule. Mr
G                                                                               G
    Chang also pointed out that as at the Consultation Meeting, there could
H                                                                               H
    not be any owners who had “already” applied for the Building Safety

I
    Loan. Mr Tsoi on the other hand argued that applications for the            I
    Building Safety Loan must be made in a timely fashion.
J                                                                               J


K   97.      Assuming that Mr Tsoi was right and that the Defendants were       K

    in breach of the DMC by failing to pay the contributions which was itself
L                                                                               L
    a breach of contract, the fact that the Incorporated Owners issued a
M   demand letter on 9th November 2006 and allowed the Defendants to have       M

    7 days to comply means that it did not accept the breach. When the
N                                                                               N
    Defendants instructed the release of the Building Safety Loan, the
O   Defendants had in fact seized the opportunity to perform again. There       O

    was thus no breach (save that there might be delay in payment which is
P                                                                               P
    dealt with below) upon which the Incorporated Owners could rely to start
Q   the present action.                                                         Q


R                                                                               R
    98.      Going back to the issue of the words were used at the
S   Consultation Meeting, the plain meaning of the instructions given to the    S


T
    owners as recorded in the minutes of the Consultation Meeting is that       T


U                                                                               U


V                                                                               V
                                     - 38 -
A                                                                              A


B   those who apply for the Building Safety Loan do not have to worry about    B

    the payment schedule as the Buildings Department would release the
C                                                                              C
    money to the Incorporated Owners. I accept that the said minutes are the
D   accurate record of the matters as presented. The argument of Mr Tsoi       D

    would carry more weight had a deadline been set down.
E                                                                              E


F   99.     Mr Tsoi relied on a notice of the Incorporated Owners dated 20th   F

    February 2006 in which it states that those who have applied for the
G                                                                              G
    Building Safety Loan may disregard the notice. The existence of the said
H                                                                              H
    notice and the words used therein do not preclude the fact that the

I
    representations as recorded in the minutes of the consultation meeting     I
    had been made. The Incorporated Owners could not change the rules less
J                                                                              J
    than 10 days before the first instalment was due. Mr Tsoi suggested that
K   the Incorporated Owners had to pay interim payment to Sun Cheong.          K

    This is not disputed. But the average owners would not know these
L                                                                              L
    financial arrangements with Sun Cheong. All they cared was their
M   payment dates and the message they received was that if they applied for   M

    the Building Safety Loan, they did not have to follow the payment
N                                                                              N
    schedule of the Incorporated Owners.
O                                                                              O

    100.    Mr Tsoi further pointed out that Chang (i.e. the 2nd Defendant)
P                                                                              P
    admitted during cross-examination that he knew that he had to make
Q   contributions in accordance with the payment schedule of the               Q

    Incorporated Owners. As I said, I do not accept his evidence. He simply
R                                                                              R
    did not have any idea of these matters in dispute. In any event, his
S   subjective understanding of his obligations could not overrule the         S


T                                                                              T


U                                                                              U


V                                                                              V
                                       - 39 -
A                                                                                A


B   objective meaning of the words used in the minutes of the Consultation       B

    Meeting.
C                                                                                C


D   Interest not payable under Clause 6                                          D

    101.     In view of my ruling above that the claim of interest, assuming
E                                                                                E
    sustainable, should have been commenced in the Small Claims Tribunal,
F   and the absence of an alternative claim on interest in the Statement of      F

    Claim, it is strictly not necessary for me to deal with this argument. But
G                                                                                G
    for the sake of completeness, I shall deal with it in the following
H                                                                                H
    paragraphs.

I                                                                                I
    102.     Mr Chang argued that payment of interest is compensatory in
J                                                                                J
    nature and if, as in the present case, the Incorporated Owners had not
K   paid any interest to Sun Cheong, it was not entitled to claim interest       K

    against the Defendants. He suggested that the Incorporated Owners was
L                                                                                L
    not entitled to the contributions paid by the owners as the contributions
M   were back-to-back payments to Sun Cheong. The Incorporated Owners            M

    was only a conduit between the owners and Sun Cheong. I do not agree
N                                                                                N
    with this argument. There are two contracts in question, one being the
O   DMC and the other being the one with Sun Cheong. The obligation to           O

    pay interest arises from the DMC and has nothing to do with whether the
P                                                                                P
    Incorporated Owners was obliged to pay any interest to Sun Cheong. The
Q   owners are not asked by the DMC to indemnify the loss of the                 Q

    Incorporated Owners in any interest payments. They are asked to pay
R                                                                                R
    interest because they are late in their payments.
S                                                                                S


T                                                                                T


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V                                                                                V
                                       - 40 -
A                                                                                  A


B   103.     Having said that, however, bearing in mind my ruling that those       B

    owners who had applied for the Building Safety Loan did not have to
C                                                                                  C
    follow the payment schedule, if at the time when the Buildings
D   Department was due to release the Building Safety Loan to the                  D

    Incorporated Owners according to the loan agreements between the
E                                                                                  E
    Defendants and the Buildings Department there were no instructions
F   from the Defendants to withhold the release, the Defendants should not         F

    be treated as being late in payment. I believe in our case, both
G                                                                                  G
    Defendants had instructed the Buildings Department to release payment
H                                                                                  H
    before it was due to release payment. In other words, no late payment

I
    interest has accrued.                                                          I


J                                                                                  J
    104.     There were also some arguments as to whether the present claim
K   was unreasonable. But I think these arguments would only be necessary          K

    if I find in favour of the Incorporated Owners. Given my ruling above, I
L                                                                                  L
    do not think I need to deal with these arguments.
M                                                                                  M

    105.     I, therefore, make the following orders:
N                                                                                  N


O          (a)   the claim of the Incorporated Owners be dismissed;                O

           (b)   the Counterclaim of the Defendants is allowed and there
P                                                                                  P
                 shall be a declaration that the Notices as set out in paragraph
Q                (1) of the prayer of the Counterclaim be null and void;           Q

           (c)   the Incorporated Owners shall forthwith file or caused to be
R                                                                                  R
                 filed a Notice (Memorandum of Discharge) at the Land
S                Registry to discharge the Notices as set out in paragraph (1)     S


T
                 of the prayer of the Counterclaim;                                T


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V                                                                                  V
                                      - 41 -
A                                                                                  A


B         (d)   there shall be a cost order nisi that save the costs relating to   B

                the application for amendments by the Defendants during
C                                                                                  C
                the trial, costs of the consolidated action be to the
D               Defendants with certificate for counsel, to be taxed if not        D

                agreed;
E                                                                                  E
          (e)   the cost order shall become absolute in 14 days.
F                                                                                  F


G                                                                                  G


H                                                                                  H


I
                                                     (Raymond Tsui)                I
                                                   Deputy District Judge
J                                                                                  J


K                                                                                  K

    Representation:
L                                                                                  L
    Mr. Benson Tsoi instructed by Messrs S. T. Cheng & Co. for the Plaintiff.
M   Mr. Jonathan Chang instructed by Messrs Chiu, Szeto & Cheng for the            M

    1st & 2nd Defendants.
N                                                                                  N


O                                                                                  O


P                                                                                  P


Q                                                                                  Q


R                                                                                  R


S                                                                                  S


T                                                                                  T


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