THE INCORPORATED OWNERS OF GREENLAND VILLAS v. WONG SUI FUNG AND ANOTHER

LDBM 321 OF 2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 321 OF 2000

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J U D G M E N T

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1. Greenland Villas is an estate consisting of 9 houses built on a piece of land. As it is usually the case the house owners are joint owners of the Government Lease of the land, each owner holding an undivided share. The rights and obligations of the owners are governed by a deed of mutual covenants ("the DMC"). The owners of Greenland Villas were incorporated in July 2000. Shortly after its incorporation, the Applicant took out the proceedings against the Respondents, owners of House D, seeking to recover the outstanding management fees. The Respondents are counter-claiming against the Applicant for various injunctions and for damages for breach of statutory duty.

2. The Applicant amended the amount of management fees claimed before the trial. As a result the Respondents do not now contest the liability to pay the amended amount. Disputes at the trial mainly concerned the counter-claim and the question of costs in respect of the main claim.

General ground for counter-claim

3. The Respondents contended that there were breaches of the DMC committed by various house owners and that the Applicant failed to do its duty to put an end to these breaches. One of the reliefs the Respondents are seeking is a mandatory injunction compelling the Applicant to perform its statutory duty to stamp out these breaches. In respect of one of these breaches, the Respondents took upon themselves to take out legal proceedings against the house owner concerned. The Respondents won the case in this Tribunal and obtained mandatory injunction against the owner of House E. The case went on appeal and was settled. The other relief the Respondents are seeking is damages for breach of statutory duty. The amount of damages claimed is about $400,000 represented by legal costs they incurred in the legal proceedings against the owner of House E.

4. The evidence of the witnesses inadvertently referred to other breaches which have not been pleaded. The details of these breaches are lacking and their nature vague. The evidence of these breaches is of no assistance to any party to the issues at this trial apart from providing for the general background of the dispute. There are three breaches specifically alleged in the pleadings and in respect of which evidence was adduced with some particularity. These breaches related to House A, House J and House E.

Breach by House A

5. The terrace of the House A opens to the adjoining passageway. The passageway is common area. The Respondents alleged that the tiling of the terrace spilt over the passageway. No actual measurements have been made by a professional surveyor as to the extent of encroachment, if there is any at all. The Applicant alleged that when the present owner renovated the terrace she merely has old tiles replaced. The Applicant seemed to suggest that the new tiles covered the same area as the old tiles. Be that as it may, the important point is whether the tiles are on the common area. The mere fact that the old tiles encroached upon the common area did not excuse the present owner to continue the same encroachment by placing the new tiles on the same area. The initial breach by the previous owner cannot justify the subsequent breach by the present owner.

6. From various scale plans it can be seen that the passageway runs up to the point of the building line of House A. The photographs of the scene depicted that the tiles extended from House A beyond the house line. Accordingly if House A was built on the correct position as marked on the scale plans, the tiles would have encroached upon the passageway. One cannot of course assume that the house was built exactly on the same area as marked off on the scale plans. Some discrepancies should be allowed for. The Applicant is not contending that no tiles are on the passageway and merely contending that it is a trivial encroachment in terms of area. Looking at extent of the apparent encroachment shown in the photos, and allowing for the likelihood that the house was built off the marks, I find on the balance of probabilities the new tiles encroach upon the common area. One reservation is obvious and must be made is that actual area of encroachment cannot be ascertained without an on-site survey. That was not done and I can only assume that the area of encroachment is in fact a thin strip of passageway as what the Applicant believes.

7. The term of encroachment is used throughout the trial and it is rather unfortunate. It confuses the issue. If by the term of encroachment the Respondents mean simply encroachment in the physical sense, that the tiles are on the passageway, they have succeeded in proving just that as I have found.

8. However the natural meaning of encroachment is: an unlawful gaining upon the right or possession of another man (Stroud's Judicial Dictionary). There is no evidence that the owner of House A has intended or done anything to prevent others from stepping on to that thin strip of passageway tiled by her or to encompass that thin strip of passageway into the precinct of her house. The highest the Respondents could have put their case is that the natural consequence and effect of the tiling of the passageway could have been the extension of the boundary of the house site into the passageway. In this respect the Applicant has taken the step to ascertain the intention of House A owner. It is clear both parties do not know the exact boundary of the house with passageway. It is important to note that the House A owner did not contend to the Applicant when it took up the matter with her on the Respondents' complaint or at this trial that the boundary of her house lies where the tiling ends.

9. In the above latter sense of encroachment, the Applicant has already done what is reasonable and necessary in the circumstances. It has made sure that the boundary of House A, wherever it should be, is preserved intact and not extended by the spilled-over tiling. The right of the Applicant has been preserved as far as the right and possession of passageway is concerned. In future dispute of the boundary, the owner of House A and its successor in title cannot possibly claim that the present tiling is evidence of the boundary of the House A. Under the circumstances it is totally unnecessary and unrealistic to spend substantial sums of money to ascertain the actual boundary and, as the Respondents would have wanted or suggested, to mark it on the ground.

10. The Respondents emphasised on the mere fact of physical encroachment. They alleged that if people tripped on the tiled part of passageway, the Applicant would be liable. Not only this proposition is unclear, it is not supported by evidence. Furthermore, if the tiling had in fact caused any accident and the Applicant were to be held liable, I would have thought that House A owner would also be held liable. In any event I have not been told how House A owner could have escaped liability in these circumstances. The interest of the Applicant is not compromised.

11. The other reason as I understand it is that House A owner cannot simply have the common area tiled. The House A owner did infringe the strict legal rights of the Applicant tiling a small part of common area. However, that is quite besides the point. The issue is whether or not the Applicant has done its duty on learning the complaint by the Respondents. I think it has. The management committee members has visited the site and had a view on the problem and the committee came to a conclusion that no further action need be taken. This conclusion they are entitled to make. I do not see what benefit could have accrued to the Respondents and other owners to spend money on survey to ascertain the true boundary and then have the few tiles on the common area ripped of the tiling of that small part of common area. Perhaps the absurdity of the Respondents' concern about the encroachment can be seen if one considers the irrefutable fact that it is within the power of the Applicant to have the boundary tip of passageway tiled and it can use the same tiles as the House A.

12. More crucially the Applicant is entitled to its view that the tiling of a small part of the common area posed no danger or hazard or interfere in any way its enjoyment by other owners. I am of the same view. Therefore for whatever sense by the term encroachment the Respondents intend, with regard to the complaint about House A, the Applicant has taken reasonably necessary steps and has not been in breach of its duty under the DMC or its statutory duty under the Building Management Ordinance.

Breach by House J

13. House J has taken a short term lease with the Government for a small piece of land adjoining the house so that the garden of the house can be extended to the top of a slope. Under the conditions of grant she is under duty of repair to keep the retaining wall in the slope safe. There is a similar provision in the Government lease of the land on which Green Villas stands. The Applicant contends that the adjoining slope referred to in the lease is not the slope in question for the simple reason that the slope is not within the boundary of Green Villas. The second and alternative reason is that as the slope was in effect included in the short term lease which House J has taken from the Government, the Applicant would be under no duty to repair it.

14. First it is a matter of interpretation of the conditions of grant of the Government lease of Green Villas. To ascertain whether the provisions referred to the slope in question, no account should be taken whether the Government has leased to others the adjoining land where the slope is. It is also irrelevant whether the lease contains a condition imposing the same condition on the leaseholder of adjoining land. Green Villas stood on a piece of land with various slopes at its sides. Common senses dictated that the slope need be maintained and in particular the slope in question. The pieces of land between Green Villas and these slopes are narrow strips or of very small area as compared to Green Villas. The safety of the Green Villas and the adjoining small pieces of lands depends on the stability of these slopes. Green Villas benefit most if not all from the slopes as its very existence depends on them. It is only reasonable for the Government to provide in the conditions of grant that the duty to maintain the slopes is on the owners of Green Villas. In my judgment the condition of grant in the Government lease of Green Villas imposes a duty to maintain and repair the retaining wall of the slope in question. The Government imposing a similar duty on the owner of House J does not absolve or release Green Villas owners, i.e. the Applicant, from the obligations under the relevant covenant to repair in the lease.

15. However I simply fail to understand what defaults in duty on the part of the Applicant the Respondents are complaining about with regard to this retaining wall. There is no evidence or suggestion at any stage that the state of the slope might cause the subsidence of the land on top where Green Villas stands, nor any imminent danger of the kind. It is the maintaining of the retaining wall itself that caused the dispute. The nature of repairs and maintenance that would have been required if at all, were of minor and routine nature. Some patched up work has been done by House J owner. The Government has sent some officers to inspect the state of wall in the middle of the dispute. There has never been any warning or request at any stage by the Government to anyone that the wall requires repairs. There is nothing to suggest that the Applicant has failed in its duty in all circumstances of the case. In any event it is the Respondents' burden to prove clearly at what stage and what things the Applicant should have done but has failed to do. It is not for this Tribunal to give counsel of perfection to owners incorporation in running the management of the building. If an owner alleges any default, unless it is flagrant and obvious, he has to prove it. I find the Respondents failed to prove any default at any stage on the part of Applicant with regard to this retaining wall.

Breach by House E

16. The subject-matters of the complaint in the instant case in respect of House E have been raised in the previous proceedings between the owners of two houses. Deputy Judge Wong gave judgment in favour of the present Respondents in respect of the party wall between the two houses ordering the House E owner to re-instate the wall to its original state. The case went on appeal and it was settled after a day's hearing. I was told the reasons for settlement but which reasons I could not have repeated here without doing injustice to the Court of Appeal. In any event I do not think the reasons for the parties to settle the case on appeal is relevant in this case. The history of the previous proceedings leads to the allegation of abuse of process by the Applicant that the Respondents are attempting to have the same matters re-litigated in the instant proceedings. There is a fundamental flaw in this argument which goes unnoticed by the parties. To succeed in their claim for damages, the Respondents need not prove once again the House E have been in breach of the DMC. The ground for the Respondent's claim is that the Applicant failed to take over the proceedings initiated by him or started new proceedings against House E. The result of the actual proceedings is irrelevant and the real question to ask is whether the Applicant failed its duty in taking no legal action.

17. The Applicant itself attempted to re-litigate the issue about the party wall between the two houses. Strictly speaking the Applicant is entitled to do if it is relevant. The principle of res judicata or its kindred principle of issue estoppel does not apply here as the Applicant is not a party to those proceedings. The Applicant called expert evidence to rebut that of the Respondents. Of the two experts I prefer the evidence of the Applicant's Expert. Looking at the matter afresh, I have come to same conclusion about this wall as Deputy Judge Wong did. The House E owner has been in breach of the DMC. The breach also has injured the right of the Respondents. As I have said earlier in the particular circumstances of this case, this issue is not necessary. It is not in dispute that the Applicant is under a duty and has the right to enforce the provisions of the DMC. The Applicant refused to take any action only because it thought it was a private dispute between next door neighbours

Breach of statutory duty of the Applicant

18. It is convenient to consider together the scope of duty of an owners incorporation and its liability for breach of its statutory duty. Both counsels have made a detailed analysis of case law on the subject. Their submissions put together are quite exhaustive. However in my judgment it all boils down to the intent of the legislature and the peculiar nature of the owner incorporations incorporated under the Building Management Ordinance.

19. There are a few inappropriate points of defence raised to the claim for injections. First of all it is the clean hand principle. It is inapplicable in this case. It is not just for the private benefit of the Respondents that the injunction was sought. The court should look at the wider interests of all the owners and not just the conduct of the Respondents. Secondly the Applicant repeatedly and quite unnecessarily made the point that the Respondent only rectified some of their breaches just before the trial in order to show that they came with clean hand. Be that as it may. It is always better late than never. The Respondent should be given credits. The Applicant also raised the defence of acquiescence as if it was defending the House E owner. This defence is wholly misconceived. The acquiescence in issue is the Respondents' acquiescence vis-à-vis the Applicant, not the House E owner. Immediately after its incorporation, the Respondents pressed the Applicant for taking action against House E. There is no question of acquiescence. The acquiescence, if any, of the owners committee or the Respondent vis-à-vis the House E owner before the incorporation cannot be attributed to the Applicant. In fact the Respondent has successfully sued the House E owner.

20. The owners incorporation represents all owners in matters of common interests. They jointly hold the interest in land on which a building stands. Each of the owners can be trusted to take good care of those parts of the building of which he has excusive possession or enjoyment. It is the good and efficient management of the common parts of the building that the Building Management Ordinance is intended to provide for. The corporation exercises the rights etc. of the owners in relation to the common parts of the building. Liabilities of owners in respect of common parts can be enforced against the corporation to the exclusion of the owners. Of course, in effect all owners would have to bear the consequence of the proceedings. Indeed the owners are jointly and severally liable for the debts of the corporation on its winding up. Section 18(c) requires the corporation to do all things reasonably necessary for the enforcement of the DMC for the control, management and administration of the building. In this case the complaint by the Respondents is that the owners incorporation should have taken out legal proceedings against House E or at least taken over their proceedings against House E.

21. It is common ground that an owners incorporation can be compelled to take legal action against an recalcitrant owner in breach. The Court of Appeal expressed the same view on many occasions. With respect the injunction is not always an appropriate relief. First it is inappropriate if possible at all for the Tribunal to exercise any degree of control over the conduct of the resultant proceedings which an incorporation has been compelled by the Tribunal to take out. In fact there have been many building management cases in this Tribunal where the case of the incorporation is so poorly prepared and pursued that it leaves an impression that the incorporation simply does not want to win its case. Very often, the Tribunal has to beg the lay-man representative or advised them strongly to call witnesses or documentary evidence to support its case. On some occasions the representative would frankly admit that it is more or less a collusion and that it takes out the proceedings simply to pacify the owners who has complained about the breach. An owners incorporation unlike a public statutory body, simply cannot be trusted to conduct its case against the owners in breach. Lack of litigation funds, ignorance of law, are the usual excuses. There are many others. In short the purpose of the injunction can be defeated not necessarily through any deliberate disobedience to the injunction. In the instant case, for example, if the Applicant is compelled to sue the House E owner, I cannot compel the change of its expert. On the state of the report of its expert, the Applicant would lose the case. I cannot compel it to change counsel. If it does not change its counsel, I cannot stop counsel conceding the points he has raised in these proceedings in the defence of House E owner when the same points are mostly likely raised by the House E owner. It would be outrageous if I were to compel them to employ another counsel or another expert.

22. For the same reasons I do not think that taking legal action is a mandatory duty of an owners incorporation. It all depends on the circumstances. In the present case, the attitude of the Applicant is that it is a private dispute. There is on going animosity between Mr. Li of the Respondents and all other owners. It was somehow caused by the difference in opinion in running the estate and it would be impossible to lay the blame for such state of affairs at the door of any particular house. Two things are certain. Firstly, the Applicant has the right to take legal action against House E owner. Secondly, on learning the expert's evidence, a prudent and efficient manager would at least consider whether to take over the proceedings. This the Applicant has not done simply because it does not want to antagonise the House E owner. Now that these proceedings are not like judicial review, I am not here to review their decision process or its reasons for not taking any steps. The question is whether it is in breach of statutory duty. Technically it is. The Applicant argues that what it has done is not unreasonable. The real test is whether they had taken all reasonable and necessary steps. I find it has not. It should have either accepted the expert evidence obtained by the Respondents, or obtained a second opinion and then decided on whether to take over the proceedings. If the Applicant has considered the merits of the case, the risk of litigation and financial implications of going to court, and came to decision not to pursue the matter in court, it would be blameless. These steps the Applicant has not taken and has been in breach of its duty.

23. The breach of duty by the Applicant or by an owners incorporation is different from the cases of breach of statutory duty cited to me. First we must not lose sight of the nature of an owners incorporation. In exercise its duty and power, it is like a sole owner dealing with his own property. A sole owner has full liberty in the manner of managing his building, be it good or bad. He alone bears the consequence of his management. When the ownership in the building becomes diversified, the owners incorporation acts on the common interest of the owners. An owners incorporation must have retained some residual characteristic of a sole owner who can manage his building whatever manner he chooses to. This residual power and liberty can be exercised by resolutions at corporation meetings, or by resolutions of the management committee. One restriction is of course is that the minority should not be oppressed. One remedy for the oppressed minority owner is that he can take legal action to rectify the matter. The other remedy is to apply to the Tribunal for the appointment of an administrator.

24. When the building is owned by a sole owner there would have been no problem in managing the building. However when there are numerous owners in the building with conflicting and common interests under a DMC or without a DMC, management of the building might become impossible. The legislative intent of Building Management Ordinance is to enable the owners to exercise their rights as owners. It is not the intent of the ordinance to take away the aforementioned residuary right as an owner, subject to restriction that the minority owners should not be oppressed.

25. In the instant case the Respondents have not been oppressed by the other owners. His real cause for grievance is the isolated act and conduct of their neighbour changing the party wall. The public authorities concerned have been well aware of the matters and no action has been taken by them. It is not within the intent of the ordinance that under these circumstances the remedy is seeking damages for breach of the Applicant's duty. There are provisions in the DMC for compelling others to contribute to legal costs. The provisions have not been followed. The Applicant cannot claim damages under the guise of breach of statutory duty to recover their legal costs from the Applicant, i.e. all the owners.

26. To summarise, there is no absolute duty on an owners incorporation to take legal proceedings to enforce the provisions of the DMC. An owners incorporation has residuary right to manage the building the way it chooses as long as the minority is not oppressed. The Respondents has not been oppressed by the majority of the Applicant when they refuse to take legal action against House E. To protect their own private rights there are other remedies open to him both within the DMC and the Building Management Ordinance. To allow them to recoup their legal cost is to impede the Applicant's residuary owners' right in managing its property and is therefore not within the intent of the Building Management Ordinance.

27. Therefore I dismiss the counter-claim of the Respondents and give judgment for the Applicant in the main claim. As a result the argument for costs becomes academic. I award costs of the main claim and counter-claim to the Applicant on High Court Scale with certificate for counsel. The order nisi for costs is to be made absolute in 6 weeks.

Representation:

The Applicant: Mr. Dennis Law instructed by M/S Wong, Hui & Co.

The Respondents: Mr. Alex Lok instructed by M/S F. Zimmern & Co.

LDBM 321/2000

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. LDBM 321 of 2000

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D E C I S I O N

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1. This is an application by the Respondents to strike out the entirety of the pleadings in the Applicant's Notice of Application (Grounds and Particulars) and the Applicant's Amended Reply on the ground that they disclose no reasonable cause of action.

2. The Applicant's claim is for the balance of unpaid Management Expenses from 1 April 1989 to March 1990, in the month of January 1998 and from 1 February 1998 to 17 July 2000 totalling $114,537.57. The Applicant was however incorporated on 18 July 2000. The Respondents submitted that the alleged outstanding sums and the accrued cause of action took place before the incorporation of the Applicant. As the obligation to pay the Management Expenses was one of contract and arose out of the Deed of Mutual Covenant of the Estate, the Respondents submitted that the Applicant had no locus standi to bring this claim.

3. The Respondents submitted that an owners' corporation could not assume those benefits and burdens attached under a deed of mutual covenant prior to its incorporation unless by a specific act of the corporation or by specific legislation. In making this submission, the Respondents relied on the cases of Hang Yick Properties Management Ltd. v. Incorporated Owners of Winner Building [1999] 3 HKC 574 and Koo Sun Yiu v. Victorison Delivery Ltd. & Ors. [1996] 4 HKC 152. In the case of Hang Yick, the plaintiff was appointed manager of a building in 1978 when a deed of mutual covenant was in place. The plaintiff was not a party to the deed of mutual covenant but the deed of mutual covenant confirmed that the plaintiff, as agent of the owners, was able to recover amounts unpaid. In 1994 the defendant was incorporated and the plaintiff was given notice of termination. The plaintiff claimed that the costs and expenses incurred prior to termination exceeded the management fees received and sued the defendant for the deficit. The court was asked to decide the issue of whether the defendant was liable for the expenses incurred prior to its incorporation.

4. Beeson J. in the Hang Yick case held that there was no contractual relationship between the plaintiff and the defendant, nor was there an agency relationship before or after the defendant's incorporation. In her judgment, Beeson J. said this:-

"The liabilities for management fees incurred prior to the termination of the plaintiff's appointment as manager could not be enforceable against the defendant in the absence of specific legislative provision requiring an owners' corporation to assume responsibility for pre-existing debts of that nature, or by some specific act of the corporation, once it came into existence, assuming responsibility, for debts previously incurred."

5. In fact, Beeson J. applied the decision of Cheung J. (as he then was) in the earlier case of Koo Sun Yiu, where it was also held that the corporation did not assume liabilities incurred prior to its incorporation. The ratio and deciding factor in the Hang Yick case was based upon fundamental principles of company law. At common law a company was not bound by a contract purporting to be entered into on its behalf by its promoters or other person before its incorporation. After incorporation it could not ratify or adopt any such contract because in such cases there was no agency and the contract was that of the parties making it. The Respondents submitted that one could also use the fundamental principle of privity of contract to make a similar argument.

6. In the present case, as submitted by the Respondents, there was no agency pleaded as between the former Owners' Association and the Applicant, nor was there any pleading of any act of the Applicant to ratify the contract or of any assignment as between the Owners' Association and the Applicant. The Respondent further submitted that there was nothing in the Building Management Ordinance, or anything pleaded, which provided for the automatic assignment of debts from one management entity to the next. The proper plaintiff in this case would have to be the former managers. However, the former managers did not have a locusstandi to sue based on the Building Management Ordinance and the Hang Yick Case. The former Owners' Association might have abandoned its right to sue for the alleged outstanding management fees.

7. By reason of the aforesaid, the Respondents submitted that the Applicant did not have a right to sue the Respondents, and the Applicant's pleadings ought to be struck out as disclosing no reasonable cause of action.

8. The Applicant, on the other hand, submitted that the applicable principles in striking out were well founded and set out in the Hong Kong Civil Procedure 2002, Volume 1, Order 18 rule 19. The Applicant summarized the relevant principles as follows:-

"a. The application should always be made promptly and as a rule before the pleadings are closed.

b. It is only in plain and obvious cases that the Court should exercise its power summarily to strike out the claim.

c. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the Court will strike it out.

d. If there is a point of law which requires serious discussion an objection should be taken on the pleadings and an application made for determination of the point of law under Order 33 rule 3.

e. It is for the party seeking to strike out a pleading to demonstrate that the case is a plain and obvious one in which the other party's claim is bound to fail.

f. A reasonable cause of action means a cause of action with some chance of success when only the allegations in the pleading are considered. The mere fact that the case is weak and not likely to succeed is no ground for striking it out."

9. The Applicant submitted that the Respondents had failed to satisfy the Tribunal of the matters referred to in the above principles and the burden was on them to do so. In particular, the Respondents were late in making this application. The Notice of Application was issued on 12 October 2000. The present Application was made more than 2 years later and no explanation was given for the lateness. The Applicant submitted that on this point alone, the Tribunal should exercise its discretion not to entertain such an application.

10. The Applicant also submitted that it had at least a good arguable case. The Applicant referred to section 16 of Building Management Ordinance, Cap. 344 ("the BMO"), which reads as follows:-

"When the owners of a building have been incorporated under section 8, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by, and the liabilities of the owners in relation to the common parts of the building shall, subject to the provisions of this Ordinance, be enforceable against, the corporation to the exclusion of the owners, and accordingly-

(a) any notice, order or other document which relates to any of the common parts of the building may be served upon the corporation at its registered office; and

(b) any proceedings in the tribunal in respect of any of the common parts of the building may be brought and pursued by or against the corporation."

11. In Grenville House Ltd & Ors v. Incorporated Owners of Grenville House [1978] HKLR 235, McMullin J. found that under section 16 of the Multi-storey Buildings (Owners Incorporation) Ordinance (now the BMO), the rights and duties of the corporation in matters of suit touching the common parts of the property were limited to circumstances which concerned all the owners as a result of their joint interest in the due maintenance management and control of those parts. At page 243, McMullin J. concluded that :-

"For those limited purposes the body of the owners may be said to consist of every individual who ever has been a constituent of the corporation. It matters not that at the time of issuing the writ the body of the constituents is not the same as it was at the time of accrual of the action any more than it would matter that that body is not the same at the time of judgment even though it had been the same at the time of issue of the writ. In pursuing those purposes it is serving the interests of all including those who are no longer constituents but have been damnified and those who are now constituents and have never been damnified. For a major purpose of the incorporation of the owners is to facilitate convenience in suit."

12. In the Koo Sun Yiu case, Cheung J. considered the Grenville House case and said that:-

"It is clear from the facts of Grenville House that the corporation there came into existence before the tort was committed. Although McMullin J said that it matters not that at the time of issuing the writ the body of the constituents is not the same as it was at the time of accrual of action, the learned judge was not dealing with a situation such as the present where the corporation only came into existence after the tort was committed."

13. Whilst Cheung J. acknowledged the Greenville House case as binding authority in respect of liabilities arising after incorporation, he pointed out that in the Koo Sun Yiu case the tortious liability had arisen before the incorporation and therefore distinguishable. Accordingly Cheung J. held that the corporation was not responsible for the tort committed prior to its incorporation.

14. The Applicant submitted that the Estate in the present case, i.e. Greenland Villas, was previously managed by Chiap Hua Property Management Limited as the Manager appointed under the Deed of Mutual Covenant. Chiap Hua was the Manager from 1986 to 1989 and thereafter resigned from the job. The Owners' Association was then managing the Estate until the incorporation of the Applicant on 18th July 2000. But the fees collected by the Manager did not belong to the Manager. The Manager was only acting as agent collecting the fees on behalf of all the owners in the Estate. With or without the appointment of the Manager, the Respondents were required to pay the fees to the owners.

15. Just before the date of incorporation of the Applicant, all the owners in the Estate would have a cause of action against the Respondents for the arrears of fees and therefore could have joined in to sue the Respondents. With the incorporation, the owners had a further choice under the BMO to sue the Respondents in the name of the Corporation (i.e. the Applicant) as the owners have a common interest in the management fees as provided under section 18(2)(g) of the BMO.

16. In the case of Incorporated Owners of Block F1-F7 Pearl Island Holiday Flats v. Incorporated Owners of Pearl Island Garden & Anor. [1997] 4 HKC 424, the Court of Appeal had to consider the meaning of section 18(2)(g) of the BMO. At page 428, Liu J.A. said:

"I agree with my Lord Godfrey JA's conclusion on locus standi on a purposive construction of s18(2)(g). It would seem to be an interpretation endorsed by common sense for avoiding the joinder of a great many flats owners in litigation and other matters.

Section 18(2)(g) of the Building Management Ordinance (Cap 344) reads:

A Corporation may, in its discretion - act on behalf of the owners in respect of any other matter in which the owners have a common interest.

In the other paragraphs of sub-s (2), the corporation may act on its own to 'pay', 'retain and remunerate', 'retain and remunerate', 'insure and keep insured', 'purchase, hire or otherwise acquire' and 'establish and maintain'. There is little to be said for the proposition that the corporation must not sue in its own name in the last paragraph. Section 18(2)(g) has not sought to introduce the relationship of agency which would necessitate the observance of the robust common law rule for suing in the names of the principals. After all, the phrase 'on behalf of' has no strict legal meaning and may be used in conjunction with a wide range of relationships.....

In the long title of the Building Management Ordinance (Cap 344), its purpose is given as facilitating 'the incorporation of owners of flats in buildings or groups of buildings, to provide ... for matters incidental thereto or connected therewith'. In this way, a multitude of flat owners may simply be represented by the body corporate. When introducing this legislation in the Legislative Council, Sir Denys Roberts, the then Attorney General stated its object as enabling 'the owners of multi-storey buildings to form themselves into a corporation which would have the power to deal on their behalf with matters of common interest to them as co-owners'."

17. The Applicant further submitted that in the Hang Yick case, the Court was concerned with liabilities of the corporation. The manager there sued the corporation for arrears of fees before its incorporation and failed. But the manager could have sued all the owners for the respective period of default. Section 16 of the BMO did not deal specifically with liabilities prior to the incorporation nor did it specifically restrict the extent of the liabilities. Similarly, the Koo Sun Yiu case was concerned with liabilities of the corporation. The injured plaintiff there could have sued all the owners of the property at the time of the tortious act.

18. The Applicant also referred to the recent case of Incorporated Owners of Million Fortune Industrial Centre v. Jikan Development Ltd & Anor [2002] 4 HKC 33, where the major point taken on behalf of the first defendant was that the plaintiff could not sue in respect of any wrongs which had been committed prior to its incorporation. The Court of Appeal in that case did not find favour with the restriction on the right to sue for wrongs committed prior to incorporation and held that the plaintiff incorporated owners had the right to take action on behalf of the owners collectively by virtue of section 16 of the BMO to enforce reimbursement of the parking fees which had been passed to the first defendant. At page 40, Rogers VP said this:-

"However, the major point taken on behalf of the first defendant was that the plaintiff could not sue in respect of any wrongs which had been committed prior to its incorporation. It was said that any right of action was a personal right which did not run with the land but was a right which belonged to each individual owner at the time that the wrong was committed. The upshot of the argument, from which Mr. Ho did not shrink, was that if parking fees which should have been paid into the management sink fund were otherwise diverted, the right of action lay in each individual owner. If the manager were not prepared to take action, then every person or company who was an owner at the relevant time would have to take action to enforce the provisions of cl 8(b) of the DMC in order to ensure that the monies were paid over. This, it was said, was despite the fact that the owners individually were not entitled to any sums and that claimed monies recovered were required to be credited to the management sink fund.

This wholly unattractive argument would lead to litigation which could only be described as inconvenient and cumbersome. But in my view there is a short answer to this point. The monies which the manager received as parking fees in respect of car and lorry parking in the common parts was money which was impressed with a trust."

19. The Applicant therefore submitted that the Respondents owed the Management Expenses under the Deed of Mutual Covenant to all the other owners of the Estate and the owners were pursuing their claim in the name of the Applicant by virtue of the BMO. This case was not concerned with liabilities of the Applicant. The Applicant had taken over the duties and rights of the owners and was suing for outstanding Management Expenses.

20. In the circumstances, the Applicant submitted that it had at least a good arguable case in respect of the defence of "incorporation".

21. I accept the submissions of the Applicant. I agree with the general principles in striking out applications as summarized by the Applicant above. I should therefore strike out the Applicant's claim only if it is plain and obvious that the Applicant cannot make a claim for debts owed to the owners of the Estate prior to the incorporation of the Applicant. However, from the above authorities, I cannot come to that conclusion. In particular, the case of Incorporated Owners of Million Fortune does give a strong support to the Applicant's contention that it can make a claim for the Management Expenses owed before its incorporation. The cases of Hang Yick and Koo Sun Yiu relied on by the Respondents are only in relation to pre-existing liabilities of owners' corporation. They are not direct authorities on whether an owners' corporation can bring an action for pre-incorporation debts. So I agree with the Applicant that there is at least an arguable case for the Applicant to bring the present action.

22. As the Respondents are not making an application to seek for a determination in this preliminary issue, it is not necessary for me to decide whether the Applicant can indeed make a claim for pre-incorporation debts. I shall therefore leave that decision to the appropriate stage. I do however find that the Applicant has a reasonable cause of action by virtue of section 16 of the BMO. Section 16 stipulates that when the owners of a building have been incorporated, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by the corporation to the exclusion of the owners. The Management Expenses were incurred in relation to the common parts of the Estate. Although section 16 does not expressly state that it applies to pre-existing rights, the case of Incorporated Owners of Million Fortune makes it at least arguable that the incorporated owners has the right to enforce reimbursement of pre-existing debts by virtue of section 16. By the same token, it is also arguable that the Applicant can claim the pre-incorporation Management Expenses in the present case. In fact, it is the Respondents' own submission that an owners' corporation cannot assume those benefits and burdens attached under a deed of mutual covenant prior to its incorporation, unless by specific legislation. Section 16 may well be such a specific legislation conferring the benefit and burden to the owners' corporation.

23. I do not agree with the Respondents that the Applicant has to plead in its pleadings the matters concerning agency, or any act of the Applicant to ratify the contract or of any assignment as between the Owners' Association and the Applicant. The Applicant's case is not based on agency or any act of ratification or assignment, but by the operation of section 16 of the BMO. The operation of section 16 is purely a matter of law. It is trite law that it is unnecessary to plead points of law in the pleadings. I therefore do not find any objection in the Applicant's pleadings when they do not contain the matters referred to by the Respondents.

24. Thus, I am of the view that the Applicant's pleadings are not bad in their present forms, and the issue concerning section 16 of the BMO does require serious discussion. I cannot say that it is impossible for the Applicant's claim to succeed at the trial, and as such there must be a reasonable cause of action for the claim to proceed.

25. Moreover, in their Notice of Opposition dated 4 November 2000, the Respondents have already raised the contention that the Applicant is not empowered by the BMO to recover the Management Expenses prior to its date of incorporation. Nevertheless, the Respondents have only taken out the application for striking out the Applicant's pleadings more than 2 years later on 6 November 2002. Although the Respondents have tried to explain at the hearing of the application that there were some negotiations going on between the parties, I do not accept that it is right for the Respondents to take out such an application at such a late stage when the case is in fact ready for trial. Negotiations should be conducted in parallel to the court proceedings, and there is no reason at all to wait for about 2 years for the outcome of the negotiations. I therefore agree with the Applicant that on this ground alone I should not entertain the application for striking out.

26. In the circumstances, I do not find any merit in the Respondents' application and I order as follows:-

(1) The Respondents' application by way of Inter Partes Summons dated 6 November 2002 be dismissed; and

(2) Costs order nisi: The Respondents do pay the costs of the said application to the Applicant in any event with certificate for counsel, to be taxed if not agreed. If there is no further application on costs by any party within 14 days from the date hereof, the costs order nisi shall become absolute.

Representation:

Mr. Dennis LAW, instructed by M/S Wong, Hui & Co., for the Applicant.

Mr. Alex LOK, instructed by M/S F. Zimmern & Co., for the Respondents.