SPEEDY GAINER LTD v. THE INCORPORATED OWNERS OF MALAHON APARTMENTS AND ANOTHER

CACV 336/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL APPEAL NO. 336 OF 2004

(ON APPEAL FROM LDBM NO. 248 OF 2004)

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BETWEEN

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Coram : Before Master J. Wong in Chambers

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D E C I S I O N

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Preliminary Issue

1. The paying party in the taxation herein raised the question of indemnity principle as a preliminary issue to be decided by this Court.

Background

2. On 20 July 2004, the Applicant (“Speedy Gainer”) commenced LDBM 248/2004 in the Lands Tribunal against the 1^st Respondent (“the IO”) and the 2^nd Respondent (“the Manager”) for inspection of the books and accounts of Malahon Apartments.  The matter was heard by H.H. Judge Chan on 7 October 2004 and 2 November 2004.  The learned Judge, by a decision on 5 November 2003, dismissed the application with costs because he found that no valid request had been made by Speedy Gainer before action and as such, both the IO and the Manager were not obliged to allow an inspection.  Further, the notice of application under LDBM 248/2004 could not be regarded as a valid request at all.

3. Speedy Gainer took the matter to appeal under the present proceedings CACV 336/2004 (“the Appeal hearing”).  On 8 July 2005, the Court of Appeal unanimously dismissed the appeal with costs to be paid by Speedy Gainer to the IO and the Manager, to be taxed on party and party basis, if not agreed.

4. Pursuant to the costs order of the Court of Appeal, the IO filed its bill on 24 January 2006 (“the Bill”).

5. Taxation of the Bill was heard by me on 23 June 2006 and Mr. Ngo, for Speedy Gainer, raised a preliminary issue on the indemnity principle, namely, the total sums claimed under the Bill exceeded $100,000 and as such, the engagement of legal service in the Appeal hearing was null and void for breach of section 20A(2)(a) Building Management Ordinance (Cap. 344) (“BMO”):

“(2)	Any supplies, goods or services referred to in subsection (1) the value of which exceeds or is likely to exceed—
	(a)	the sum of $100,000 or such other sum in substitution therefor as the Authority may specify by notice in the Gazette; or
	(b)	… …

whichever is the lesser, shall be procured by invitation to tender.”

6. Upon consideration of all the evidence (including the privileged affirmation of Tse Yuen Ming dated 7 July 2006) authorities and submission from the parties, I have come to the conclusion that, on balance of probabilities, section 20A(2)(a) BMO has not been breached in the Appeal proceedings.  My reasons appear below.

(a)   There is before me evidence from the IO that the retainer between the IO and its solicitors firm was kept at the ceiling of $90,000 only.

“		美漢大厦業主立案法團
		管理委員會會議紀錄
日期：	2005年7月4日
時間：	下午七時正
地點：	香港告士打道250伊利莎伯大厦1樓百里祥海鮮酒家
出席：	主席：區懿明、秘書：鄧平、司庫：趙玉儀、委員：林港玲、劉福忠、龔美玲。
列席：	港深聯合物業管理有限公司：柳炳達、容雅儀、李炳寰
	董吳謝律師事務所：謝遠明律師、周鳳祥律師。
	彭耀光律師行：彭耀光律師
	張立群大律師
缺席：	羅國標、莊惠英、吳潔英、慕容國輝
紀錄：	鄧平
會議過程：
(一)	委員會一致通過2005年6月14日之會議紀錄（決議1）。
(二)	商討現時正進行的高院案件：
	(1)	……
	(2)	……
	(3)	……
	(4)	有關已勝訴案件LDBM 248/2004的上訴案件CACV 336/2004，已排期於2005年7月8日上午10時於高等法院上訴法庭聆訊，需時3小時。董吳謝律師事務所提出有3位大律師報價，分別為Maurice Chan、Alan Ng及Charles Wang，董吳謝律師事務所已書面訂出該聆訊，以當事人水平計算不逾90,000元包括大律師費用的收費。
……”

(b)   Mr. Ngo persuaded me to be skeptical about the aforesaid board minutes because “they were made to circumvent section 20A BMO”.  I must say that the burden of challenging the authenticity of a document is heavy especially when the allegation might amount to attempting to pervert the course of justice by making and using false document.  In light of the aforesaid board minutes, I do not think that Speedy Gainer, without adducing any evidence, has able to discharge such burden.

(c)   The job of Mr. Ngo has become even more difficult because of the privileged affirmation put before me.  The solicitor-in-charge has confirmed on oath of his retainer with the IO and produced the relevant office bill issued under the Appeal proceedings.

7. Having ruled that section 20A(2)(a) BMO has not been breached on balance, I do not have to consider the fall-back position of Mr. Ngo, i.e. the present taxation should be stayed pending the determination of the similar issue raised by other registered owner(s) of the Building against the IO and the Manager.

8. Finally, as to the complaint that the Bill asks for more than the sum of $160,000, how could it be resolved with the agreement of fee up to only $90,000?  The answer can be located in paragraph 62/App/3 of HKCP 2006 at page 959:

“… Where the recovering parties’ solicitors had agreed with their client that they would limit their charges to a certain sum, this ceiling is to be applied at the end of the taxation against the paying party and that the bill as drawn is not limited to this figure.

Where the recovering party has agreed with its solicitors on the amount of costs to be charged, that party is not entitled to recover upon taxation a sum larger than that agreed.  This is the indemnity principle.  However, when drawing up the bill for taxation, the solicitors are not limited by this ceiling.  Thus the amount of costs stated in the bill may be greater.  The amount allowed on taxation may not exceed the ceiling.  If it is the former case, the ceiling would apply and limit the amount recovered accordingly.”

Conclusion

9. In the circumstances, I rule against Speedy Gainer on the preliminary issue and direct that, subject to the ceiling of $90,000 (excluding interest and taxing fee), the taxation of the Bill is to be restored to be heard before me for 2 hours.  There will also be an order nisi that costs for the hearing on 23 June 2006 together with the costs of preparing the privileged affirmation are borne by Speedy Gainer to be dealt with at the end of this taxation, if not agreed.

CACV 336/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 336 OF 2004

(ON APPEAL FROM LDBM NO. 248 OF 2004)

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REASONS  FOR  JUDGMENT

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Hon Tang JA (giving the reasons for judgment of the Court):

1.  This appeal is concerned with technicality and not with merit.  It is also principally about the costs of a two-day hearing in the Lands Tribunal.

2.  The applicant is the owner of certain shop premises on the ground floor of the Malahon Apartments in Jaffe Road, Hong Kong. 

3.  The 1^st respondent is the Incorporated Owners of the Building.  The 2^nd respondent is the manager of the Building within the meaning of section 34D of the Building Management Ordinance, Cap. 344 (“the Ordinance”).

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

5.  The provisions in the seventh schedule have been incorporated into the deed of mutual covenant by section 34E(1) of the Ordinance.  Section 34E(2) also makes those provisions binding on the owners and manager of the Building.

6.  In the notice of application, the applicant relied on certain requests for inspection made for and on behalf of Cogi Enterprises Ltd (“Cogi”), on 11 May and 25 May, which were sent to the 2^nd respondent and others dated 15 June, 6 July, 8 July and 9 July 2004 sent to the 2^nd respondent’s solicitors.

7.  It is the applicant’s case that Cogi made those requests as agent for the applicant.  Mr Law who appeared for the applicant submitted that the applicant was Cogi’s undisclosed principal.

8.  In the notices of opposition filed on behalf of the 1^st and 2^nd respondents, one of the points taken was that there had been no request for inspection prior to the commencement of the proceedings on 20 July 2004.

9.  The issues identified by Mr Law are:

(1) had requests been made by Cogi for the applicant as Cogi’s undisclosed principal;

(2) if not, whether a request was required before action;

(3) if so, whether the notice of application could be regarded as a request.

10.  Mr Law argued that the cause of action was complete without demand or request.

11.  We do not agree.  The cause of action against the 2^nd respondent is based on a breach of the Deed of Mutual Covenant (“DMC”), which was made binding on both owners and the manager.  Indeed, the notice of application has made clear that the applicant was seeking the enforcement of the terms and provisions of the DMC which included the provisions incorporated into it under the Ordinance.  In our opinion, there could be no breach of the manager’s obligation to permit inspection without a valid request or demand for inspection followed by a wrongful failure to permit inspection.

12.  Mr Law argued that to take such a view of the provision would be contrary to the presumption against inconvenient results in the interpretation of statues.  And he has referred us to Vol 44(1), Halsbury’s Laws of England, 4^th Edition in paragraph 1479.  We do not agree that our construction of the provision would have any such result.  Indeed, we believe that common sense and fairness require that the manager should not be exposed to any claim by an owner unless and until a valid request or demand has been made and the manager has wrongfully failed or refused to permit inspection.

13.  Nor do we agree with Mr Law that this only goes to the costs of the proceedings as opposed to the right to any relief.  We do not believe that the court should encourage premature or unnecessary proceedings.

14.  If request and refusal are required then the applicant must satisfy us that the request relied on by the applicant had been made on its behalf by Cogi, and that the manager had wrongfully failed to respond.

15.  We do not believe that Mr Law’s analogy with a contract made by an agent for an undisclosed principal is sound.  In such a case, a contract was entered into between A and B, but unbeknown to B, A was acting as agent for an undisclosed principal C.  Normally such a contract is enforceable by A or C.  Here, we are not concerned with a contract.  Nor is it Mr Law’s case that Cogi could have insisted on an inspection in its own right.

16.  More importantly we have also to consider whether the refusal to permit inspection was wrong.  It is accepted that the manager did not refuse inspection on the ground that Cogi was acting for an undisclosed principal.  Indeed, the manager was not aware that Cogi was supposed to be acting for an undisclosed principal.  It is not Cogi’s case that it was entitled to enforce the request or that it was entitled to make the request in its own right.  So, we must proceed on the basis that the request was made by someone who had no right to request inspection.  In other words, the request made was not a valid one.  In such circumstances, although the manager refused inspection for the wrong reason, namely, that the manager were not managers under section 34D, we believe that that did not matter.  There could be no wrongful failure to permit inspection in the absence of a valid request.

17.  Mr Law then argued that even if a request was required and that there was none prior to the proceedings, the notice of application was itself a request for inspection.  We do not agree that that is right.  We agree with the judge’s analysis of the situation in paras. 18-23 of his judgment. 

18.  It is clear from the passages from the transcript of the call-over hearing held on 6 September 2004 quoted by the judge as well as those cited to us by Mr Law that it was not the applicant’s case that the notice of application was the request, probably because of costs consideration. 

19.  We must say that we have the distinct impression that inspection was not the principal object of the proceedings.  Although it is clear that the respondents would permit inspection upon a valid request being made by the applicant, we were told that, up to the hearing of the appeal, no open request had been made for inspection.

20.  The 1^st respondent was the Incorporated Owners.  They were sued pursuant to section 18(1)(c) of the Ordinance which provides:

“(1)	The corporation shall:
…
	(c)	do all things reasonably necessary for the enforcement of the obligation contained in the deed of mutual covenant (if any) for the control, management and administration of the building.”

21.  In other words, they were sued for their failure to enforce compliance by the manager.

22.  Yet, the first request to the 1^st respondent to enforce compliance by the manager was sent by Messrs Deacons, ostensibly acting for Cogi, to the Chairman of the Incorporated Owners dated 9 July 2004 requiring confirmation by “1 p.m., Saturday, 10 July 2004 … that the relevant books and accounts … would be available for inspection …”.  The solicitors threatened that “[their] client would not await further and would commence legal proceedings against both the Building Manager and the Incorporated Owners seeking appropriate relief for inspection of the relevant documents with costs without further notice.”

23.  The Incorporated Owners did not respond until 3 August 2004, and then in Chinese, complaining of the unreasonably short time that it was given to respond, but it also made clear that in the event of the manager refusing to comply with a request, the Incorporated Owners would take appropriate steps to enable owners to exercise their rights.

24.  Proceedings were commenced on 20 July 2004. 

25.  As we have said no open request has been made so far.

26.  In all the circumstances, we believe the judge was right not to treat the notice of application as a request.

27.  Moreover, as we have said, no proceedings should be brought unless there has been a wrongful refusal to comply with a valid request for inspection.  In this case, even if the notice of application could be regarded as a request, there was no refusal prior to commencement of proceedings.

28.  For the above reasons, we have dismissed the appeal with costs.