WING MING GARMENT FACTORY LTD v. THE INCORPORATED OWNERS OF WING MING INDUSTRIAL CENTRE AND ANOTHER

HCA8805/1993
& CACV27/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8805 OF 1993

------------------------

--------------------------

JUDGMENT

--------------------------

1.  Before the Court are two appeals from the orders of Master Hui made on 1 September 2011 dismissing the applications by the Plaintiff and the Third Party (for convenience I shall simply refer to both of them as “Appellants”) to strike out the 2^nd Defendant’s (“D2”) two Notices of Commencement of Taxation of Costs (“Notices”) dated 8 June 2011 filed in HCA8805/1993 and CACV27/2008 respectively, and extending time to commence taxation.

2.  In issue on this appeal is the Court’s approach in an application for extension of time to commence taxation proceedings made after the expiry of the 2-year period prescribed under RHC O.62 r.22(7) introduced by amendments made under the Civil Justice Reform .

Material facts

3.  The relevant facts are not in dispute.  The taxation arose from a High Court action (HCA8805/1993) and the ensuing appeal (CACV27/2008).

4.  On 20 December 2007, Reyes J dismissed the action and the Third Party’s counterclaim.  The Appellants were ordered to pay D2’s costs.  That costs order became absolute on 3 January 2008.

5.  The Appellants appealed against Reyes J’s judgment.  The Court of Appeal dismissed the appeal on 2 June 2008 with costs. The costs order in the Court of Appeal became absolute on 11 July 2008. 

6.  On 24 July 2008, the Appellants applied for leave to appeal to the Court of Final Appeal.  The leave application process took more than a year, involving a number of hearings before the Court of Appeal and the Appeal Committee.  It is unnecessary to go into the details.  In short, there were two unsuccessful applications for stay of execution and two

applications for leave to appeal to the Court of Final Appeal.  The last application ended on 16 September 2009, when the Appeal Committee granted the Plaintiff leave to appeal on one issue only.  In the process, a number of costs orders were made against the Appellants in favour of D2.

7.  However, on 3 November 2009, the Appellants abandoned the intended appeal.

8.  In the meantime, D2 did not take steps to have the costs orders in its favour taxed.  On 18 February 2010, D2’s solicitors (“W&C”) wrote to the Appellants’ (then) solicitors proposing a global settlement of all costs orders in favour of D2 in the total sum of $2.5 million.  No reply was given.

9.  The Appellants changed solicitors in March 2010.  The settlement proposal was repeated in W&C’s letter to the Appellants’ new solicitors on 26 March 2010.  Again, no reply was given. 

10.  In August and September 2010, the Appellants changed their solicitors to the firm now representing them (“OHS”).

11.  In November 2010, W&C on behalf of D2 instructed a law costs draftsman to prepare a formal bill of costs.  The formal bill was ready on 12 April 2011.  This was sent to OHS under cover of a letter dated 14 April 2011 from W&C, who stated that if the Appellants did not accept the bill within 14 days, D2 would proceed to taxation without further notice.  OHS replied stating that they were seeking instructions and requested W&C to withhold further action for 7 days.

12.  On 24 May 2011, W&C gave final notice to OHS to provide substantive reply to W&C’s letter dated 14 April 2011.  On 2 June 2011, OHS replied to W&C, raising the point that D2’s entitlement to commence taxation had been time-barred on 2 April 2011 under O. 62 r. 22(7).

13.  On 6 June 2011, D2 filed the Notices, which led to the Appellants issuing the strike out applications on 28 June 2011. 

14.  On 18 July 2011, D2 issued two summonses under O. 62 r. 16(1) seeking extensions of time to commence taxation.

The taxation provisions

15.  RHC O.62 r. 22(7), which was introduced as part of the CJR, provides that:

“A party is not entitled to commence taxation proceedings under rule 21 —

(a) after the expiry of 2 years from the completion date; or

(b) where the Court has extended the period specified in sub-paragraph (a), after the expiry of the period as extended,

whichever is later.”

16.  Since both the costs orders at first instance and in the Court of Appeal were made before the commencement of O. 62 r. 22(7), by virtue of O. 62 r. 22(8) & (9), the “completion date” under r. 22(7)(a) is taken to be the commencement date of the rule, i.e., 2 April 2009. There is no dispute that the 2-year period expired on 1 April 2011.

17.  O. 62 r. 16 gives the taxing master power to extend time to commence taxation proceedings.  Rule 16, in so far as material, provides as follow:

“(1) A taxing master may—(a) extend the period within which a party is require by or under this Order to begin proceedings for taxation or to do anything in or in connection with proceedings before that master …

(3) A taxing master may extend such period as is referred to in the foregoing provisions of this rule although the application for extension is not made until after the expiration of that period.”

18.  Hence, as Mr Paul Lam (appearing with Miss Kay Seto) correctly submitted on behalf of D2, the Court has jurisdiction to extend time to commence taxation.  The real issue is whether the Court should exercise its discretion to extend time in the circumstances of this case.

19.  Moreover, O. 62 r. 22(5) gives the taxing master very wide powers in cases of undue delay:

“On the taxation of a bill of costs, whether or not an order has been made under paragraph (3), the taxing master, if he is satisfied that there has been undue delay in commencing taxation proceedings or in proceeding with the taxation –

(a) may make such order as he thinks fit as to the costs of any application or as to the costs of the taxation;

(b) may disallow any part of the costs to be taxed pursuant to the costs order;

(c) may, in relation to the taxed costs or any part of those costs, disallow interest or reduce the period for which interest is payable or the rate at which interest is payable.”

Reasons for the delay

20.  It is perhaps fair to say that the only reasons advanced for the delay were two-fold.  First, D2 and its solicitors did not want to incur time and costs to proceed to taxation pending the intended appeal. Secondly, D2’s solicitors attempted to interest the Appellants in agreeing to the amount of costs, but did not realise the “time limit” introduced by O. 62 r. 22 (7).

21.  I note, for the record, that Mr Lam very fairly disavowed any suggestion that the Appellants or their solicitors are to blame for the delay.

Grounds of Appeal and Submissions

22.  Mr Barrie Barlow SC, counsel for the Appellants, drew my attention to the “new culture” under the CJR, as exemplified by the underlying objectives enshrined in O. 1A rr. 1-2.  He relied on the well-known judgment of Fok J (as his Lordship then was) in Top One International (China) Property Group Co. Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at paras 35, 31 and 55 and submitted that the CJR amendments mandated a more disciplined approach to time extensions.

23.  Mr Barlow impressed upon the Court that O. 62 r. 22(7) imposes a 2-year “limitation period” for commencing taxation, which should be strictly enforced unless there are genuine and compelling mitigating circumstances for non-observance.  Mr Barlow submitted that without more rigorous discipline, the new r.22(7) introduced by the CJR amendment would be no different from the pre-CJR regime and would not be effective to further the underlying objectives provided in O. 1A rr. 1 - 4. 

24.  Mr Barlow contends that on the facts, there is no special or compelling reason justifying extension of time.  In particular, he submitted that D2 has its remedies against W&C, which militates against extension of time.

25.  Mr Lam on his part agreed that the Court must construe O. 62 r. 22(7) in a way that would give effect to the underlying objectives under O. 1A r. 1: see O. 1A r. 2(1).  The Court must strive to give effect to the underlying objectives but must also take into account all relevant circumstances of the case.  He emphasised that in giving effect to the underlying objectives, the primary aim in exercising the power of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties: O. 1A r. 2(2).

26.  Mr Lam submitted that the 2-year period is not a “limitation period” which operates in the same way as limitation periods under the Limitation Ordinance. 

27.  On the facts of this case, Mr Lam submitted that the delay was just over 2 months, and not substantial when viewed against the long procedural history of the proceedings. The delay was not due to any default or misconduct on the part of D2.  The forbearance to proceed to taxation in view of the pending appeal, and thereafter applications for leave to appeal, was sensible and understandable. 

28.  Moreover, Mr Lam argued that on the facts, it was not the case that D2 did not intend to give up its rights to costs.  Rather, D2 intended to proceed as demonstrated by its repeated attempts to interest the Appellants in agreeing to an amount without taxation, and then instructing the law costs draftsman to prepare a formal bill.  It is regrettable that the bill was not ready until after 1 April 2011, and W&C did not realise that time limit.  But once D2/W&C realised that time had expired, an application was made quickly for extension of time.

29.  In this connection, Mr Lam referred me to a number of authorities in England and Hong Kong in which the courts have held that lack of an acceptable explanation for delay is not by itself a sufficient reason to refuse to extend time: see Toniello v Top Deck Ski Ltd, The Times 7 December 1998 (CA) per Auld LJ (with whom Judge LJ agreed); London Borough of Southwark v Nejad [1999] 1 Costs LR 62 (CA) at 64 per Waller LJ (with whom Roch LJ agreed); Hong Kong Housing Society v Tang Kar Hung CACV153/1999, 9 November 1999, at p. 6 per Keith JA (extension of time to file affidavit in summary judgment application).

30.  Finally, Mr Lam emphasised that there is no prejudice to the Appellants which could not be properly addressed by an appropriate order under O. 62 r. 22(5).  To disallow the time extension would be to give the Appellants an unjustified windfall, and would be a wholly disproportionate penalty to D2 in the circumstances of this case.

2-Year limitation period?

31.  Mr Barlow’s submission that the 2-year period under O. 62 r. 22(7) is a “limitation period” may have been inspired by the notes in the current edition of Hong Kong Civil Procedure 2012 at para 62/22/6.  However, as Mr Lam quite rightly pointed out, the 2-year period under r.22(7) is not analogous to “limitation periods” as that terms is normally understood in the technical sense.  Here, although the effect of failure to comply with the 2-year period is that the right to tax is “lost”, there are 2 critical differences between r.22(7) and limitations under the Limitation Ordinance:

32.1   First, as a general rule and subject to specific exceptions, limitation periods under the Limitation Ordinance are not capable of being extended.  On the other hand, the period under O. 62 r. 22(7) can be extended under O. 62 r. 16.

32.2   Secondly, under the Limitation Ordinance, once time runs out, the cause of action will be barred.  There is no power to resurrect it.  In contrast, O. 62 r. 16(3) expressly permits retrospective extension of time to commence taxation proceedings.

32.  Thus, although it may be a convenient way to describe the 2-year limit under O. 62 r. 22(7) as a “limitation period”, such usage is potentially misleading.  It is probably better to avoid using the term to describe the time limit under r. 22(7).

No good explanation for default

33.  The gravamen of Mr Barlow’s submission is that absent a good explanation, the Court should not exercise its discretion to extend time under O. 62 r. 22(7).  In my judgment, it is too extreme a position to take.

34.  In my view, the Court must take into account all relevant circumstances of the case, rather than being bound by a strait jacket. The absence of a good reason is a relevant consideration, may be even a compelling reason, why indulgence should be refused.  The Court must also give effect to the underlying objectives.  However, it is wrong in principle for the Court to ignore other relevant circumstances in the exercise of its discretion under O. 62 r. 16.

35.  Mr Barlow submitted that O. 2 r. 5 (application for relief from automatic sanctions) applies in the current situation because the effect of non-compliance with O. 62 r. 22(7) is that a “sanction”—in the form of loss of the right to commence taxation—automatically follows.  Hence, Mr Barlow submitted, O. 2 r. 5 applies in the determination of D2’s application for extension of time.

36.  I have considerable doubt as to whether O. 2 rr. 3-5 have any direct application to this case at all.  But even if those rules apply, O. 2 r. 5(1)(d) makes it clear that whether there is a good explanation for the failure to comply is a factor to be taken into account.  As Fok J pointed out in the Top One case, the Court in considering whether to grant relief from sanction should consider all relevant circumstances including those listed in r. 5(1)(a)-(j).  It is not the case that the absence of a good explanation automatically debars relief.

Exercise of discretion

37.  I therefore proceed to consider whether I should exercise my discretion to extend time in the circumstances of this case.

38.  In my judgment, to refuse the extension of time sought would be a disproportionate penalty to D2’s delay.  I have come to this conclusion taking into account the following factors.

39.  First, in my view, the delay is substantial.  Although the time to commence taxation only expired on 1 April 2011, this was only because of the operation of O. 62 r. 22(8).  On the facts, Reyes J made the costs order in D2’s favour in January 2008.  The appeal to the Court of Appeal was dismissed in June 2008.  The delay in relation to the costs order made by the Judge is over 3 years and that in relation to the Court of Appeal is almost 3 years.

40.  However, I must also take into account the long procedural history of these proceedings.  Although I accept that D2 and W&C did not proceed to tax in order to avoid wasting time and costs should the Appellants succeed in their appeal, D2 could have protected its position on costs by securing their consent to a moratorium.  If no consent were forthcoming, D2 should have proceeded to taxation.  It has not done so and must bear responsibility for the delay. 

41.  On the whole, I would consider the delay to be substantial and this is a factor against D2.

42.  Secondly, I agree with Mr Lam that the delay was not due to any deliberate conduct or fault on the part of D2.  It was caused by W&C’s oversight.  This is a factor to be taken into account. 

43.  That said, W&C’s oversight is not a good reason for the default.  This must be a weighty factor against D2. 

44.  Mr Barlow submits that D2 has a remedy against W&C for negligence, and its claim would probably be amendable to summary judgment.  In my view, although D2 appears to have a good case against W&C for loss of its right to taxation, to force D2 to sue W&C for its loss serves to transfer the burden to pay D2’s costs from the Appellants to W&C.  It would also result in further proceedings and further use of the Court’s and parties’ time and resources.  There is insufficient justification to do so. 

45.  Mr Barlow referred me to the Court of Appeal’s decision in Cheung Yiu Wing v Celestial Asia Securities Holding Ltd CACV254/2005, 22 June 2006, at para. 8 where Le Pichon JA said (with the concurrence of Rogers VP and Stone J):

“… [counsel for the appellant] seemed quite unable to grasp the elementary principle that had there been any fault or blameworthiness on the part of [the appellant’s former solicitors] in failing to call potential witnesses, his client’s remedy lay in proceedings in negligence against [the solicitors] and not in an order for a retrial.”

46.  However, that case concerned an appeal seeking a re-trial on the ground that the solicitors failed to call certain witnesses.  Le Pichon JA continued to say, immediately after the quote cited by Mr Barlow, that:

“The court system would grind to a halt if an unsuccessful litigant could obtain an order for a retrial on the basis that relevant evidence could have been obtained with reasonable diligence but had not been adduced at the trial, not to mention the injustice of depriving the successful party of a judgment in his favour after a full trial.”

47.  The Cheung case is plainly distinguishable and Le Pichon JA’s observations must not be taken out of context.

48.  Thirdly, I take into account the fact that the delay has caused no prejudice to the Appellants.  Indeed, as Mr Lam has pointed out, to deny the extension of time would mean that the Appellants would get a windfall.  This factor was considered to be weighty in the two English Court of Appeal decisions cited above, i.e. Toniello and Southwark LBC, in a relevantly similar context (both cases concerned extension of time to commence taxation under the County Court Rules, which were similar to our scheme under O. 62 r. 22 (7) but the time limit there was 3 months).  In my view, this factor weighs in favour of D2.

49.  Finally, I agree with Mr Lam that there is sufficient flexibility given to the taxing master under O. 62 r. 22(5) to impose whatever “penalty” that the master may consider to be appropriate in the circumstances of this case.  Such power includes depriving the receiving party a portion of the costs so taxed, or to deprive him of all or part of the interest.  Mr Lam submitted, and I accept, that it should be up to the taxing master to deploy this built-in mechanism in light of the circumstances of the case to achieve a just result.

50.  Taking into account the above considerations, in my judgment the Court should exercise its discretion to extend time to commence taxation proceedings.  To refuse the extension would, in my judgment, be a wholly disproportionate penalty.

Result

51.  The appeals are therefore dismissed.  Counsel agreed that costs should follow the event, and I order that D2 shall have its costs of these appeals.

52.  Lastly, I thank counsel for their able assistance.

cacv 27/2008

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 27 of 2008

(on appeal from HCA NO. 8805 of 1993)

________________________

________________________

REASONS FOR JUDGMENT

________________________

Hon Le Pichon JA:

1.  This is an application by the plaintiff and the third party for leave to appeal to the Court of Final Appeal from an order of this court dated 27 June 2008.

2.  The background is summarised in §§1 to 9 of this court’s judgment to which reference should be made.  In brief, the approved layout plan for the ground floor of the building set out and numbered certain car parking spaces.  Only car parking spaces 2, 3 and 4 are relevant to the present proceedings.  Lying between each of those car parking spaces and the driveway within the building on the ground floor are areas marked “VOID” (“the ‘VOID’ areas”).  Special condition (10) prohibited the alteration of the layout except with the prior written consent of the Director of Public Works.  Under clause 5 of the DMC, the right to construct a loft over car parking spaces 2, 3 and 4 was reserved to the plaintiff provided that those spaces had a specified minimum headroom and the construction had the relevant government approval.  In due course, certain alterations and additions were carried out involving the construction of a mezzanine floor to form a loft area, the demolition of an internal wall and the building of a new wall enclosing an area comprising the original car parking spaces 2, 3 and 4.  The plaintiff re-designated the ‘VOID’ areas as new car parking spaces 2, 3 and 4.  The mezzanine encompassed not only the area immediately above the original car parking spaces 2, 3 and 4 but also above the ‘VOID’ areas.  The entire mezzanine as well as the original car parking spaces 2, 3 and 4 enclosed by the new wall were rented out by the plaintiff as workshops.

3.  The notice of motion of 24 July 2008 relied solely on the ‘as of right limb’, stating that “the matters in dispute on the appeal” (in relation to each of the plaintiff and third party) are within section 22(1)(a) of the Hong Kong Court of Final Appeal Ordinance.  There is an amended summons dated 4 June 2009 seeking, inter alia, to amend the notice of motion to invoke section 22(1)(b) in respect of two of the matters in dispute.  At the conclusion of the hearing, save for leave which was granted under section 22(1)(a) in respect of what is defined below as “the issues concerning management fees”, the application was refused with reasons to be handed down which we now do.

4.  The proceedings concerned four quite distinct matters or issues:

(1)  a claim by the plaintiff in trespass against the first and second defendants in respect of the installation of a section of a fire services pipe in the airspace above the ‘VOID’ areas (“the pipe issue”);

(2)  a counterclaim by the first defendant against the plaintiff for arrears of management fees and contributions since 1994 of approximately $5.5 million;

(3)  a counterclaim by the first defendant against the plaintiff for a mandatory injunction requiring the plaintiff to restore the original parking spaces 2, 3 and 4 by demolishing the enclosing wall (“the injunction issue”); and

(4)  the third party’s counterclaim against the first defendant for management fees of approximately $1.39 million.

For convenience, issues (2) and (4) are collectively referred to as “the issues relating to management fees”.

5.  The defendants accept that the plaintiff and the third party are entitled to leave as of right under section 22(1)(a) but only as regards the issues relating to management fees.  Therefore the question remaining was whether the pipe issue and the injunction issue fell within section 22(1)(a) and if not, whether leave to amend the notice of motion should be granted.

Section 22(1)(a)

6.  Mr Ho SC who appeared for the plaintiff submitted that the direct effect of the judgment below and of this court is that the plaintiff would have no right to construct that part of the loft that is situated immediately above the ‘VOID’ areas (“the extended loft”) and no right to rent out the extended loft or the original car parking spaces 2, 3 and 4 as workshops.  The plaintiff relied on a valuation of $2 million for the extended loft and the workshops made up of car parking spaces 2, 3 and 4 in contending that the ‘as of right’ limb applies.

7.  The first matter to note is that the mandatory injunction did not require the demolition of any part of the extended loft.  Accordingly, the capital value of the extended loft of $500,000 is of no relevance.  So far as the value of the original car parking spaces 2, 3 and 4 is concerned, whether valued as workshops or car parks, I fail to see its relevance.  Neither the injunction issue nor the pipe issue has the effect of affecting the ownership of those spaces: the plaintiff remains the owner.

8.  Mr Ho SC further submitted that the effect of this court’s judgment is that the plaintiff would lose the value of two of the three redesignated new car parks 2, 3 and 4 that formerly constituted the ‘VOID’ areas, namely, new car parks 3 and 4, new car park 2 having been sold by the plaintiff sometime ago.  The plaintiff has produced a valuation which values each of those car parks at $620,000, their aggregate value thus exceeding $1 million.  So it was said that the injunction issue fell within section 22(1)(a).

9.  Ownership of the ‘VOID’ areas was not the subject matter of the plaintiff’s action as such.  It simply did not feature in the prayer for relief.  The pipe issue became a claim for damages for trespass.  Such a claim is plainly not within the ‘as of right’ limb.  The injunction issue concerns the demolition of the enclosing wall so as to accord with the approved layout plan.  It is difficult to see how section 22(1)(a) is engaged at all.  China Field Limited v Appeal Tribunal (Buildings) and Another [2009] 2 HKLRD 135 does not assist the plaintiff because on no view could it be said the court’s order made upon disposing of the proposed appeal would take effect by immediately conferring or imposing on the relevant parties a financial benefit or detriment exceeding $1 million.

Questions of great general or public importance

10.  Of the three questions said to be of great general or public importance in the notice of motion, Mr Ho wisely did not pursue the first two questions posed which concern the issues relating to management fees.  In any event, the fact that it is common ground that the plaintiff and the third party are entitled to leave as of right under section 22(1)(a) would render it unnecessary to consider whether or not the first two questions raise issues of great general or public importance.

11.  As regards the third question, it reads:

“ (iii)     whether an approval given by the Building Authority/Director of Buildings and Lands in respect of an application for alterations and additions to a building shall amount to a written consent of the Director of Public Works for such works when the office of the Director of Public Works has ceased and his duties assumed by the Director of Buildings and Lands”

12.  I do not agree that it raises a question of great general or public importance.  It is a concurrent finding of fact that the plaintiff had not in fact made any application for the alteration of the approved layout plan for the car parks.  The question is thus purely hypothetical and does not arise for determination.  In any event, the question cannot be determined divorced from its context: it is fact sensitive and, as such, it cannot be said to be a question of great general or public importance.

“Or otherwise”

13.  The justification proffered was that this court’s finding that the ‘VOID’ areas are common areas was not a pure finding of fact but also involved a question of construction and, accordingly, no concurrent findings of fact arise.  It was also submitted that in reaching that conclusion, this court was obviously wrong.  It has not been suggested that the wrong legal test was applied and while, as a matter of construction, a different view could not be ruled out altogether, it would not follow that in reaching our conclusion, this court was obviously wrong.

14.  In the present case, I do not consider that special circumstances have been shown to exist that would justify the exceptional course of granting leave under the “or otherwise” limb.  Moreover, I maintain the view I expressed in Centre Rise Trading Limited (unrep., CACV 250/2008, 30 April 2009), that it would normally be a matter for decision by the Court of Final Appeal itself and not this court.

Conclusion

15.  Accordingly, other than the issues relating to management fees which fall within section 22(1)(a), leave to appeal to of the Court of Final Appeal is refused and I would also refuse leave to amend the notice of motion.

Costs

16.  Mr Wong SC who appeared for the first defendant applied for indemnity costs.  The background to the application is as follows.  On 21 October 2008, the plaintiff and the third party applied for a stay of execution of the mandatory injunction until the determination of its appeal by the Court of Final Appeal.  I refused the application for a stay and reasons were handed down on 28 October 2008.

17.  At the hearing of the stay application, senior counsel then appearing for the plaintiff invited the court to accept the plaintiff’s expert evidence contained in a report of Frank Wu dated 29 January 2008, which stated that the wall required to be demolished was made of “reinforced concrete”.  In other words, that it was a structural wall.  The first defendant’s counsel disputed this and maintained that it was made of brick.  As the court was not in a position to resolve the conflict, the plaintiff was given leave to renew its stay application to be heard as the same time as the leave application and that any evidence to be filed in support should be filed in good time so that the defendants would have adequate time to respond and to instruct experts, if necessary.

18.  On 3 December 2008, the plaintiff and the third party took out a summons which, inter alia, renewed the application for a stay and relied specifically on the expert report in which Mr Wu claimed to “have inspected” the wall on site and “carried out the necessary examinations, measurements and investigations …and reviewed all relevant approved building plans”.  The second affirmation of Luk Siu Kai dated 15 January 2009 conclusively demonstrated the falsity of the plaintiff’s assertions and ultimately culminated in an order of 4 June 2009, by consent, allowing the withdrawal of the stay application with costs to the defendants on an indemnity basis in any event.  It transpired that all the plaintiff’s expert had done was to inspect the wall at the cockloft and made assumptions regarding the enclosing wall.

19.  Mr Wong submitted that the plaintiff and the third party must have known all along that the enclosing wall was but a brick wall and not built of reinforced concrete: it was built by the plaintiff, the third party being the main contractor engaged to carry out the construction.  Further, apart from the sixth affirmation dated 17 February 2009, Mr Yuen’s earlier affirmations had been filed not only in support of the stay application but also the leave application.  In those circumstances, it was submitted that the court should show its disapproval of the plaintiff and the third party’s conduct by ordering indemnity costs.

20.  While, as the court stated quite clearly at the hearing, the conduct of the plaintiff and the third party is little short of disgraceful and deserves the strongest deprecation, the award of indemnity costs for the leave application could have the effect of penalising the parties at fault twice since the defendants already have indemnity costs in respect of the stay application.  In the circumstances, it was considered appropriate to order that the costs of the hearing be to the defendants on a party and party basis and the costs of the application (other than the hearing) be in the cause.

Hon Suffiad J:

21.  I agree.

Hon Sakhrani J:

22.  I agree.

Mr Ambrose Ho SC and Ms Nancy Ngai, instructed by Messrs Huen Wong & Co., for the Plaintiff and the Third Party/Applicants

Mr Horace Wong SC and Mr Paul Mak, instructed by Messrs Hampton Winter & Glynn, for the 1^st Defendant/1^st Respondent

Mr Godwin Ng, instructed by Messrs Wong & Co., for the 2^nd Defendant/ 2^nd Respondent

CACV 27/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 27 OF 2008

(ON APPEAL FROM HCA NO. 8805 OF 1993)

----------------------

----------------------

CACV 27/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 27 OF 2008

(ON APPEAL FROM HCA NO. 8805 OF 1993)

----------------------

----------------------

------------------------------------

J U D G M E N T

----------------------------------

Hon Le Pichon JA:

1.  This is the plaintiff’s appeal from a judgment dated 20 December 2007 of Reyes J in proceedings between the plaintiff who was the original developer of a building known as Wing Ming Industrial Centre and who still owns several of its units and all the other owners represented by the Incorporated Owners (“the first defendant”).  The plaintiff claimed that the first defendant had breached the Deed of Mutual Covenant (“the DMC”) by permitting the second defendant to install a fire services pipe through airspace the plaintiff owned and sought damages.  The judge dismissed the plaintiff’s claim against the first defendant, ordered the plaintiff to pay the first defendant the sum of $5,515,254.34 for outstanding management fees up to 30 November 2007 with interest and dismissed the third party’s counterclaim of approximately $1.39 million for “management fees”.  The judge also granted a mandatory injunction requiring the plaintiff to demolish the wall currently enclosing the original car parking spaces 2, 3 and 4 and to restore the same to that shown on the car park layout plan.

Background

2.  The disputes between the parties have a long history.  They first arose in August 1993 with the plaintiff’s objection to a fire services pipe being constructed which, it was claimed, encroached onto its property.

3.  The land upon which the building was erected was held under a Crown Lease dated 13 September 1974 and Conditions of Sale governed its development.  Of particular relevance to the trespass issue in the present case are special conditions (9) and (10) relating to “the parking, loading and unloading spaces” required to be provided and the requirement of an approved layout car parking plan (“the approved plan”) to be registered at the Land Office.  Special condition (10) further stated

“The purchaser shall maintain the parking, loading and unloading spaces in accordance with the said approved plan and shall not alter the layout except with the prior written consent of the Director of Public Works.”

The approved plan which was approved in 1978 showed a container parking space and 11 car parking spaces.  The car parks designated on the approved plan are hereafter referred as “the original car parks”.

4.  Until 2 March 1991 the plaintiff was the sole owner of the building consisting of 11 storeys.  Shortly before 2 March 1991 in anticipation of a sale the building was notionally divided into 1323 shares or parts and a draft of the DMC prepared.  By an assignment dated 2 March 1991 (“the first assignment”), the plaintiff assigned 210 equal undivided 1323rd shares or parts together with the sole and exclusive right to the sixth and seventh floors and car parking spaces 6 and 7 on the ground floor “ (shown and coloured Green on the Plans) ” to Super Kind Investment Ltd. (“the second owner”) subject to and with the benefit of the DMC to be executed immediately after the assignment.

5.  So, contemporaneously with the assignment, the plaintiff and the second owner executed the DMC with the third party who was appointed manager of the building.  By clause 5 of the DMC, there was reserved to the plaintiff (who was the owner of the front portion of the ground floor) the right to construct a loft “over Car Parking Space Nos. 2, 3 and 4” provided those car parking spaces were left with a clear minimum headroom of at least 7’6” and the construction had the relevant Government approval.  For practical purposes, the ground floor plan of the building annexed to the first assignment and the DMC are identical.

6.  In the DMC, “Vehicle Parking Space(s)” and/or “Car Parking Space(s)” is defined as meaning “all of the spaces in the Building for parking of vehicles (coloured Green on the Ground Floor Plan)”.  However the area shown coloured green in the DMC ground floor plan in relation to car parks 2 to 10 (inclusive) not only included the original car parks but also an area immediately adjoining the relevant car park which is shown marked “VOID” on the DMC plan and which lies between each of those car parks and the driveway on the ground floor of the building.

7.  In October 1991, the authorised person then acting for the plaintiff submitted general building plans for certain additions and alterations works (the “works”) to the Building Authority.  Those works involved, inter alia, the construction of a mezzanine floor to form a loft area, the demolition of an internal wall and the building of a new wall enclosing an area comprising the original car parks 2, 3 and 4.  Although approval was obtained on 5 December 1991, the plaintiff did not carry out the works until August 1993 at about the time when, on the instructions of the first defendant, the second defendant installed a fire service pipe which entered into and ran through the airspace of the areas marked “VOID” adjoining car park spaces 2 through 10.

8.  In August 1993, the plaintiff wrote to complain of the “the illegal encroachment” of the pipe on the plaintiff’s property.  The plaintiff’s complaint was directed at only one section of the pipe, namely, that which ran through the airspace in the areas marked “VOID” adjoining the original car parks 2, 3 and 4.  That section is shown coloured red on the plan attached to the judgment below which, for ease of reference, is also attached to this judgment.

9.  The plaintiff commenced proceedings for various injunctions and damages for trespass in January 1994 but interim relief was refused both at first instance and on appeal on 13 July 1994.  In 1995, on a ‘without prejudice’ basis, the parties reached an agreement for the demolition of the alleged infringing pipe.  The action then progressed at what can only be described as a snail’s pace and eventually came on for hearing in December 2007, after an unsuccessful attempt by the defendants in 2005 to strike out the action for want of prosecution.

This appeal

10.  The plaintiff and the third party challenge

(1) the judge’s dismissal of its claim for loss of rental (in respect of the ground floor, the loft and the 11^th floor all of which were covered by the works) due to the pipe’s presence in the loft;

(2) the mandatory injunction granted to demolish the enclosing wall and to restore the original car parking spaces 2, 3 and 4;

(3) the order to pay management fees to the first defendant of approximately $5.5 million with interest; and

(4) the dismissal of the third party’s counterclaim against the first defendant of approximately $1.39 million for “management fees”.

Loss of rental -- liability

11.  The question of loss of rental involves two issues, liability and quantum.  The first matter to consider is that of liability.  Unless the areas marked “VOID” adjacent to the original car parks 2, 3 and 4 belonged to the plaintiff so that the pipe that had originally been installed through that space encroached on the plaintiff’s property, no liability for damages could arise.  The judge held that those areas constituted the common parts of the building.

12.  Mr Mok SC who appeared for the plaintiff submitted that the judge had overlooked the clear terms of the first assignment which are pertinent to the construction of “common areas”.  It was said that so far as car parking spaces 6 and 7 were concerned, what was conveyed encompassed the entire area shown coloured green on the plan, namely the original car parks 6 and 7 plus the areas marked “VOID”.  Whilst Mr Mok accepted that the owner could only park its cars within the original car parks 6 and 7 and not in the “VOID” areas because of the mutual covenants of the plaintiff and the second owner in the DMC to comply with the conditions of the land grant, he submitted that each of the areas marked “VOID” shown by the dotted lines on the plan plainly had been carved out and therefore is distinguishable from the common areas such as the driveway that runs through the ground floor of the building and must therefore mean something that is distinguishable from the common area.  To re-inforce this point, the court was referred to the assignment to Hung Tak (Ko’s) Development Limited (“Hung Tak”) in May 1991 involving, inter alia, car park 10 where the adjoining “VOID” area was not coloured green, apparently because it was adjacent to the switch room which had to be accessible and was obviously part of the common area.  I would make two observations: first, the substantive description of what was conveyed was no different from that in the first assignment, i.e. the “car parking space” bearing the relevant number; and second, even if the areas marked “VOID” could have been and were conveyed to the second owner that is not decisive of the question whether the areas marked “VOID” adjacent to original car parks 2, 3 and 4 were capable of being conveyed.  That would depend on whether there are circumstances peculiar to those areas.

13.  Mr Mok relied on clause A1 of the DMC which reserved to the First Owner (i.e. the plaintiff)

“THE WHOLE OF THE BUILDING (including all the units in therein and the flat roofs held therewith, if any) SAVE AND EXCEPT the Common Areas and Common Facilities and AND (sic) SAVE AND EXCEPT the said Sixth and Seventh Floors and Car Parking Space Nos. 6 and 7 of the Building assigned to the Second Owner …”

He argued that the plaintiff who, prior to the first assignment, was the owner of the entire building was thus in a position to convey the “VOID” areas.  The correctness of that submission is premised on those areas not being “Common Areas” or “Common Facilities” for the purposes of the DMC.  In the DMC, “Common Areas” and/or “Common Facilities” are defined to mean

“(i)   the entrances, staircases, lift halls, lift shafts, lift pits, stairways, landings, passages and other spaces of the Building which are intended for common use (other than the Floor Reserved Areas) and not for the exclusive use occupation and enjoyment by the First Owner or Second Owner as hereinafter specified,

(ii)   the loading and unloading spaces, roadways and driveways (if any)

…”

The DMC definition of “Car Parking Space” has already been set out.  See§ 6 above.  Significantly, it is defined as a space for the “parking” of vehicles.

14.  In this connection, the special conditions of the land grant are of relevance in determining whether the “VOID” areas are “Common Areas and/or Common Facilities”.  Special condition (9) contained very specific requirements relating to the provision of space “for the parking, loading and unloading of the vehicles”.  Specific dimensions were prescribed in paragraph (d) for such “spaces” to be provided, including the extent of the turning circle of radius of the different types of vehicles to be accommodated.  Paragraph (e) made it clear that the “space” was to accommodate not only the parking of the vehicle but also “for simultaneous loading and unloading” and their respective proportions were stipulated.  For these reasons, the laying out of the “original car parks” in the approved plan also served to define the uses for which the space of the original car parks was designed and to which it could be put.

15.  If it were necessary to decide whether the areas marked “VOID” adjacent to car parking spaces 6 and 7 had been assigned by the first assignment, having regard to the special conditions, I would be inclined to conclude that what was conveyed consisted of the original car parks 6 and 7 only although as I have said that is not an issue that needs to be decided by this court.

16.  What falls for decision on this appeal is whether the areas marked “VOID” adjacent to car parks 2, 3 and 4 constitute common areas.  Given the location of the original car park 2 in relation to the container space on the approved plan, as the judge remarked in § 43 of his judgment, it is self-evident that those areas are areas that have to be kept clear so that the original car parks can be accessed and used.

17.  In my view, the judge was clearly right in holding that the areas marked “VOID” adjacent to car parking spaces 2, 3 and 4 are common areas.  Accordingly, the claim in trespass must fail and, consequently, the plaintiff’s claim for loss of rental must also fail.

Loss of rental -- quantum

18.  Given my view on the question of liability, the second issue -- quantum -- does not arise.  Nevertheless, a few brief points can be made to dispose of that issue if I were wrong on the liability issue.

19.  Assuming (contrary to my view) that the section of the pipe complained of did encroach on the plaintiff’s property, in order to recover loss of rental, the plaintiff must establish that the presence of the pipe caused the loss.  The loss of rental the plaintiff claims relates to premises comprising the ground floor, the loft area and the 11^th floor all of which were within the scope of the works.  In respect of the 11^th floor, the judge took the view that the 11^th floor could and should (by way of mitigation) have been hived off as a separate project by way of amendment to the original application for the works and the relevant acknowledgement of completion of works obtained separately.  The plaintiff has (belatedly) conceded this but maintains that the loss (if any) would nevertheless relate to the four months from May through August 1994.

20.  But the evidence is that as early as October 1993 the Building Authority had already suggested to the plaintiff that it could hive off the works of the 11^th floor from the rest of the works by amending the relevant building plans.  Had the plaintiff heeded that suggestion by making the amendment application reasonably promptly, say within a month or so, according to expert evidence adduced at the trial, that application would have been dealt with within 30 days thereafter.  On that basis, the plaintiff would have been in a position to let the 11^th floor by early 1994.  The claim for loss of rental for the 11^th floor for the months of May through August 1994 is thus unsustainable.

21.  As regards the loss of rental in respect of the ground floor and the loft, it was contended that the presence of the pipe prevented the plaintiff from applying for the relevant acknowledgement for the period from May 1994 when (it was said) construction of the loft was completed to July 1995 when the pipe was removed.  The ostensible reason given by the plaintiff’s architect in his letter of 10 May 1994 for not applying for the acknowledgement any earlier was the ‘headroom issue’, that is to say that the presence of the pipe had reduced the headroom to below that required by the Buildings (Planning) Regulations, Cap. 123F.

22.  Under rule 24 of those regulations, there is a headroom requirement that only arises where the use is for an office or habitation.  In the present case, unquestionably, the only approved use of the loft was for storage.  Rule 24 is therefore not engaged.  Further, the plaintiff’s own expert accepted in cross-examination that rule 24 is not contravened even when it is engaged where the pipe runs along a wall.  That is because it would not affect the means of escape.  That is precisely the case with the section of pipe complained of, as distinct from, and to be contrasted with, the section of pipe situated within Portion V1 which does not run along a wall and so would have affected the means of escape.  However, here we are not concerned with that section of the pipe since the first defendant is not the owner of Portion V1.

23.  During the hearing, Mr Mok sought to change his tack by disclaiming reliance on rule 24 and, instead, placing reliance on rule 41(1) of the regulations which requires that

“Every building shall be provided with such means of escape in case of emergency as may be required by the intended use of the building.”

I cannot see the relevance of this rule in the context, whether or not it is read in conjunction with paragraph 8(2) of the “Code of Practice on Provisions of Means of Escape in Case of Fire” which requires the means of escape by way of access to the street to be “unobstructed”.

24.  That effectively disposes of this part of the quantum claim and it is unnecessary to deal with additional points made by Mr Wong SC who appeared for the first defendant to show that the evidence at trial clearly established that by the time the pipe was removed in July 1995, the plaintiff would not have been able to obtain the acknowledgement for reasons wholly unconnected with the presence of pipe.

Removal of existing wall and reinstatement of the original car park layout

25.  The works undertaken by the plaintiff in 1993 included the erection of a wall enclosing the original car parking spaces 2, 3 and 4.  The enclosed space is being and has been used by the plaintiff for purposes other than for the parking of cars and what had been the areas marked “VOID” in front of those original car parking spaces have been redesignated by the plaintiff as car parks 2, 3 and 4 (“the new car parking spaces”).  The judge found that not only had the plaintiff not obtained the approval of the other owners to vary the DMC so as to enable the “VOID” areas to be redesignated as the new car parking spaces, the building of the wall and the consequent changes to the layout of the car parks had been done without the permission of the Director of Public Works or his successor.

26.  The judge ordered the demolition of the wall for two reasons: first, the relevant consent had not been obtained: not only was there no consent from the Government, there was no consent from the other co-owners for the changes to the DMC; second, it interfered with the opening on the ground which provided the only means of access to the overflow tank in the basement.

27.  It is apparent from the last sentence of special condition (10) (set out in § 3 above) that changes to the layout on the approved plan required the “prior written consent of the Director of Public Works”.  As the judge noted in § 52 of his judgment, the post of Director of Public Works has not existed for some years and that his functions have been taken over either by the Building Authority or the District Lands Office.

28.  By letter dated 29 October 1991 addressed to the Buildings Ordinance Office, the plaintiff’s architect submitted “7 sets of general building plans …for …approval.”  It should be noted that the architect was representing the plaintiff only and not also the other owners of the building.  On 5 December 1991, P Tam “for Building Authority/for Director of Buildings and Lands” issued a standard form approval letter but also indicated that comments from District Lands Officer, amongst others, would be forwarded in due course.  The only evidence this court was referred to in that regard was the second statement of Mr Yuen, the managing director of the plaintiff, to the effect that “no adverse comments or objections …had at any stage been made by the District Lands Officer or any other Government departments.”  It would therefore appear that the District Lands Officer had not offered written comments to indicate that he had no objection.

29.  Mr Mok submitted that the approval letter amounted to “prior written consent” required by special condition (10), emphasising that the letter had been signed on behalf of both the Building Authority and the Director of Buildings and Lands and criticized the judge for failing to state this fact in the judgment.  However, it would have become apparent from the preceding paragraph that when the approval letter was signed in a dual capacity as it were, it was contemplated that “comments” would be forthcoming from the District Lands Officer and that these would be forwarded in due course.  In that sense, when the approval letter was sent, it was not meant to be ‘final’ and there was no subsequent inquiry by the plaintiff as to the comments said to be forthcoming.

30.  The judge rejected the plaintiff’s plea below that the necessary permission was implicit in the approval of its plans by the Building Authority because of the provisions of section 14(2) of the Buildings Ordinance, the effect of which was summarised in paragraph 5 of the approval letter, namely, that approval should not be deemed to confer any title to land or to act as a waiver of any term in any lease or licence.  What is now being suggested is that because the letter was signed also on behalf of the Director of Buildings and Lands, that was sufficient and amounted to the requisite consent.

31.  There are several difficulties with this line of argument:

(1) Given my conclusion that the areas marked “VOID” in front of the original car parking spaces 2, 3 and 4 were common parts for the purposes of the DMC, the plaintiff does not even get to first base in view of the judge’s unchallenged finding that consent from the other owners of the building to any alteration of the DMC had not been obtained.  Even if Government approval had been obtained by the plaintiff, it would not have had the effect of dispensing with the consent of the other co-owners.

(2) The layout changes involved, inter alia, a significant truncation of the length of the container space which was owned by Hung Tak.  While Mr Mok relied on a preliminary sale and purchase agreement with Hung Tak containing a provision that the container space should give way to facilitate vehicles at new car parking space 2, that agreement was never registered and would have been superseded by the subsequent assignment which does not contain such a provision.  Moreover, Hung Tak’s managing director gave evidence at trial to the effect that Hung Tak did not agree to the change of the car parking layout that resulted in a substantial truncation of its container space.

(3) The plaintiff never made any specific application for consent to alter the layout in the approved plan.  For my part, I agree with the judge that consent cannot be inferred from the building approval.  Nor would it be reasonable or appropriate to treat the absence of comment from the District Lands Officer as the requisite permission to satisfy special condition (10).  In my view, where consent has to be obtained under the provisions of the land grant for alterations to an approved layout plan, in the absence of any specific application where the intended changes are clearly spelt out, it would be well-nigh impossible to infer the relevant consent.  The architect’s letter submitting general building plans “for approval” plainly was not such an application.

32.  In the circumstances, the making of the order for the demolition of the wall and for reinstatement of the original car parks 2, 3 and 4 was amply justified.

33.  The issue relating to access to the overflow tank would not affect that conclusion.  As to that issue, the judge found that a hole did exist at the time the wall was erected and that, currently, it is covered by an aluminium panel.  It would appear that pursuant to the requirements of the Building Authority made in February 1996 following an inspection for the purpose of issuing an acknowledgement of completion of works, the hole was sealed up.  At a subsequent date, the hole was reopened although there is no evidence as to who was responsible for that.  The judge also found (and it is not challenged) that there is no alternative access to the overflow tank which is undoubtedly a common facility.  As I understand it, what is now being suggested is that the order requiring the plaintiff to demolish the wall might lead to difficulties with the Building Authority.  But should difficulties arise in implementing the court’s order, the plaintiff can always apply to the judge for directions.  Indeed, there is a ‘liberty to apply’ provision in the judgment below.

34.  In so far as it is suggested that the demolition order was inappropriate in that, instead, the judge should have ordered that the wall be reconfigured to allow access to the overflow tank, that is misconceived because to do so would simply focus on the issue of the ‘hole’ and ignore the consent issue altogether.

Management fees

35.  The first defendant counterclaimed from the plaintiff outstanding management fees (“recurrent management charges”) and other management expenses and contributions (“non-recurrent contributions”) for the period from 1 October 1991 to 30 November 2007 in the sum of $5,515,254.34.  The total amount appears in a certificate dated 8 December 2007 issued pursuant to section 22(4) of the Building Management Ordinance, Cap. 344 which was signed by Mr Luk Siu Kai as “Chairman of the Management Committee” of the first defendant.

36.  The plaintiff accepts that it owns 314 of the 1323rd undivided shares of them in the building.  Notwithstanding the fact that it has never paid any management fees, whether recurrent management charges or non-recurrent contributions, the plaintiff sought hard to avoid liability by challenging the accuracy and reliability of the certificate on a host of grounds none of which found favour with the judge.

37.  In his opening, Mr Mok (who did not appear below) re-argued some of the points that had been taken below which, it was said, cast doubt on the amount of the counterclaim.  It would suffice to deal with the main points made:

(1) The absence of any budget prepared by the management committee

The judge addressed this issue in § 96 to 106 of his judgment.  Mr Mok has not shown any error in the judge’s reasoning.

(2) The expenses shown in the financial statements especially for the years 1995 to 1997 do not justify the level of recurrent management fees being claimed

The judge held that it was not appropriate to evaluate the reasonableness of the management fees by reference to the financial statements.  He explained why this was so in § 112 to 116 of his judgment.  Again, Mr Mok has failed to demonstrate why it was not open to the judge to reach that conclusion.

(3)   The 2002 Table

The minutes of the fourth meeting of the management committee of the first defendant on 28 February 2002 recorded that

“MANAGEMENT FEE DUE FROM WING MING GARMENT FACTORY LIMITED

   It was tabled on the meeting a statement of balances with Wing Ming Garment Factory Limited.

(a)	Amount due by Wing Ming Garment Factory Limited	$1,867,680.40
(b)	Amount claimed by Wing Ming Garment Factory Limited	$1,391,011.15
		$476,669.25

It was resolved that recovery action for the net amount of HK$476,669.25 shall be taken and that request for payment letter should be sent by registered mail.”

On 6 March 2002 the first defendant wrote to the plaintiff.  In pertinent part the letter read:

“Arrangement for accounts between Essman, owners Committee and Wing Ming Garment Factory Limited

…

At this meeting, there was an ad hoc motion.  That was one related to the arrangement for accounts between Essman, Incorporated Owners and Wing Ming Garment Factory Limited.  In this connection, our chairman, Mr. Ko already sought your opinion last year.  You proposed that there be a set-off between the accounts of the three parties -- i.e. the Incorporated Owners were to undertake the outstanding management fees owed by the former registered owner of the 4th floor to Essman.  This would then be used to set off the management fees and the repair costs owed by Wing Ming Garment Factory Limited to the Incorporated Owners.  When Mr. Ko proposed this at the meeting this was agreed by all the other owners.

We now enclose details of accounts for your reference.  It is appreciated that you have various business engagements.  In order to simplify the procedure, if you do not reply in writing to the Incorporated Owners by 30 March 2002, this means that you have agreed to the set-off arrangement.  After adjustment, you still owe to this Incorporated Owners in total HK$476,669.25.

The accounting problem has remained unresolved for a long time.  All owners hope that this matter can be resolved amicably as soon as possible.  This would facilitate the plan for further developments of the building and would enable all of the owners to acquire the largest benefit.”

Attached to the letter was a Table (“the 2002 Table”) consisting of two parts: the first was headed “Management fee payable by Incorporated Owners to Wing Ming Garment Factory” and the second, “Management fee and maintenance fees be paid by Wing Ming Garment Factory to Incorporated Owners”.  The judge rejected the submission that those documents show that the first defendant and the plaintiff had agreed to set off the third party’s claim for unpaid management fees against the first defendant’s claim for outstanding management fees as at early 2002.

Perhaps to obviate the need to upset the judge’s finding, Mr Mok contended that the figures in the 2002 Table were not settlement figures but “detailed figures” calculated for the purpose of making a “request for payment” by way of the demand letter.  It would appear that he regarded the letter of 6 March 2002 as a “demand letter” but as explained in the next section under the heading “The third party’s counterclaim”, the letter is nothing more than an offer of settlement which was never accepted and therefore not binding in any way on the first defendant.

Mr Mok submitted that as shown in appendix submitted together with his skeleton, the amount claimed by way of management fees from 1994 to March 2002 in the counterclaim do not tally with the figures shown in the 2002 Table.  That fact has no relevance unless the figures in the Table are somehow binding on the first defendant in terms of the amount of management fees owed by the plaintiff.  Given the judge’s rejection of any concluded agreement, the figures are obviously not binding.  Describing those figures as “detailed figures” does not advance matters any further.

For these reasons, I do not consider that any of the re-argued points has any substance and they fall to be rejected.

38.  The components of the first defendant’s counterclaim as at the date of the re-re-amended counterclaim (1 March 2007) are summarised in Appendix C to that pleading:

“  APPENDIX C

Items			Amount
Outstanding Management Fee for the period from Oct 91 to Nov 93			240,000.00
Outstanding Management Fee for the period from Mar 94 to Nov 2006, being:
	Management Fee payable for the period from Mar 94 to Nov 06, as set out in Chart A	4,809,762.44
Less	Amounts of Management Fee received from tenants of the Plaintiff, as set out in Chart	1,865,260.57
Less	Deductions in management fees for the period from Jan 99 to July 00, as set out in Chart	211,015.34	2,733,486.53
Management Expenses and Contributions payable for the period from Mar 94 to Nov 06, as set out in Chart B			1,256,659.20
Total Net Outstanding Amount			4,230,145.73”

Particulars for the period from March 1994 to November 2006 are set out in Charts A to D of that appendix.  The certificate not only shows the net figures of the components of Appendix C, it also updates the recurrent management charges through to November 2007 and the non-recurrent charges through to October 2007.

39.  The written submissions for the first defendant clarified how the amount set out in the counterclaim and reflected in the certificate was calculated: (a) for recurrent management charges, it was on the basis of 310 of 1319th of the total management fees for the period covered less all management fees paid by the plaintiff’s tenants; and (b) for non-recurrent contributions, it was on the basis of 314 of 1323rd shares of the total management contributions for the period covered.  Mr Wong explained that for recurrent management charges, the DMC stipulated that the 4 shares allocated to the upper roof (owned by the plaintiff) should not be included in reckoning the total number of undivided shares unless and until a penthouse had been built (which has not yet occurred).  He illustrated the methodology by reference to the debit note for March 1997 issued to Sanwa Trading (H.K.) Ltd, the owner of 105 of 1319th shares of and in the building.  Based on a monthly budget of $148,000, the amount attributable to each undivided share would be $112.21 and 105 shares would yield $11,781.65 as shown on the debit note.

40.  The only seemingly ‘arguable’ point raised in relation to management expenses did not emerge in Mr Mok’s opening.  In reply he took a point to the effect that the first defendant’s methodology in calculating the recurrent management charges undermined (rather than support) the accuracy and reliability of the budgets relied on by the first defendant.  It was said that although the first defendant claimed that the budget for 1.9.94 to 31.8.95 was $148,000 per month, Sanwa’s debit notes for September and October 1994 (in the sum of $8,861.53 each), demonstrably, were inconsistent with that budget.  If the budget had been $148,000, Sanwa’s share should have been ($148,000 x 105/1319) $11,781.65 rather than $8,861.53 for each of those months.

41.  I regret to say that the point taken is thoroughly bad.  If the counterclaim is read with a modicum of care, it will be seen that (1) the counterclaim is not made on the basis that the budget of $148,000 per month applied prior to November 1994.  See the first page of Chart A to Appendix C to the counterclaim (the third column of which helpfully sets out the amount attributable to each undivided share); (2) as can be seen from the third column of the first page of Chart A, for the period of eight months from March through October 1994, the amount per undivided share was significantly lower, in approximate terms by about as much as a third; (3) for that same period of eight months, the amount claimed from the plaintiff was based on a rate of $84.65 per undivided share which would appear to be $0.25 per undivided share per month more than the rate at which it was being given credit in respect of recurrent management fees paid by the plaintiff’s tenant for the 10^th floor and car parks 3 and 4.  (See Chart C.)  The plaintiff’s tenant paid management fees at the rate of $84.396 per undivided share, which also appears to be the rate used for the Sanwa debit notes on which the plaintiff relied.  The “error” results in a discrepancy of less than than $250 for that period which is de minimis.

42.  Mr Mok did not challenge the accuracy of the amount sought by way of non-recurrent contributions.  Having satisfied myself by random crosschecks on individual items constituting the non-recurrent contributions, I accept Mr Wong’s submission that the amount sought is fully supported by contemporaneous documentary evidence.

43.  Mr Mok also did not challenge the amount of $240,000 due and owing by the plaintiff for the period from October 1991 to November 1993.  Again, Mr Wong has provided the rationale in arriving at that amount which I accept.

44.  I would conclude by observing that to raise the point referred to in § 40 by way of reply is to be deplored because it deprived the court of assistance from Mr Wong and caused this court to spend time on undertaking an analysis that should have been carried out by the plaintiff in the first place and had that been done the point could never have been raised.

The third party’s counterclaim

45.  The third party who was the original manager of the building is related to the plaintiff in that the plaintiff’s managing director Mr Yuen is a director of both companies.

46.  As pleaded, the counterclaim was for damages for loss and damage suffered as a result of the unlawful termination by the first defendant of the third party as manager in June 1994.  The loss particularised included “management fees collected by the first defendant but not paid over to the third party” amounting to $1,391,011.15.  The trial appeared to have been conducted on the basis that that was the amount that the third party had expended on behalf of the owners of the building prior to June 1994 when it ceased to be the manager.  As the counterclaim was only made in January 2006, not surprisingly, limitation was raised as a defence.

47.  At the trial below, the third party contended that the first defendant had acknowledged the debt and relied on the letter of 6 March 2002 (set out in § 37(3) above) as evidence of such acknowledgement.  Notwithstanding the total absence of pleadings on the issue of acknowledgement, the judge entertained the point.  He held that the letter was not an acknowledgement within the terms of section 24 of the Limitation Ordinance and that the claim was time-barred.

48.  Section 24 provides as follows:

“ (1)  Every such acknowledgment ... shall be in writing and signed by the person making the acknowledgment.

(2)  Any such acknowledgment ... may be made by the agent of the person by whom it is required to be made under section 23, and shall be made to the person, or to an agent of the person, whose title or claim is being acknowledged ...”

49.  The letter relied on which bore the first defendant's letterhead was addressed to the plaintiff for the attention of Mr Yuen.  It was headed “Arrangement for accounts between Essman, Owners Committee and Wing Ming Garment Factory Limited”.  Its admissibility was in issue at the appeal hearing but it transpired that this letter appeared in Schedule 1, Part 1 of the first defendant’s list of documents.  In those circumstances, it is admissible in evidence as any objection to production would have been waived.

50.  Mr Mok submitted that given the subject matter of the letter, the judge ought to have held that Mr Yuen received the letter in his capacity as officer or agent of both the plaintiff and the third party.  But the plain fact is that the letter was addressed to the plaintiff only and not also the third party.  While Mr Yuen is a director of both companies who are necessary parties to any settlement, I do not consider it sufficient to justify an inference of agency when the letter is addressed to only one of those companies.

51.  In any event, the plaintiff faces the hurdle of showing that the letter amounts to an acknowledgement for the purposes of section 24.  A proposal to settle a longstanding dispute relating to management fees on a certain basis is very different in nature from an acknowledgement that a stated amount is due and owing to the recipient of the proposal.  If the proposal is not accepted (as in the present case), it comes to nothing.

52.  Then it was said that the judge had overlooked the explanation and breakdown in the 2002 Table.  The first part was described as “Management fee payable by Incorporated Owners to Wing Ming Garment Factory”.  This part tabulated the management fees in respect of the fourth floor that were outstanding (and which, as part of the settlement proposal, the first defendant was prepared to take over) and also monthly amounts described as “Management fee received on its behalf” during the period from May 1993 to May 1994.  Mr Mok suggested that the heading should be read as referring to the third party rather than the plaintiff and the document construed accordingly.  He pointed out that the total amount shown under that part of the 2002 Table corresponded exactly to the amount of management fees claimed by the third party and invited the court to draw the appropriate inference.

53.  I do not agree for one moment that the explanation and breakdown had been overlooked.  I am not persuaded that when read together with the 2002 Table the substance of the letter ceases to be a mere proposal of settlement and becomes an acknowledgement of debt to the third party.

54.  The present case highlights the difficulties that confront the court when there are no pleadings to define precisely each party’s case on a particular issue.  The parameters appear to be at large which is entirely unsatisfactory.  In the court below, the letter was said to constitute the acknowledgement.  In this court, Mr Mok appeared to also place reliance on the resolution recorded in the minutes of the fourth management committee meeting of the first defendant held on 28 February 2002 that “recovery action for the net amount of …shall be taken and that request for payment letter should be sent by registered mail”.  But these minutes were not an enclosure to the letter and there is no evidence that it was ever sent to the third party.  It is unclear how these minutes can assist the third party.

55.  I would affirm the judge’s rejection of the third party’s counterclaim.

The application to admit fresh evidence

56.  Finally, I should add that although the plaintiff filed a summons on 29 May 2008 for leave to adduce further evidence consisting of two box files of documents, no application was made for leave at the outset of the appeal.  Very late into Mr Mok’s opening he sought to refer to the fresh evidence on the question of whether Easyknit Properties Management Ltd. who had succeeded the third party as manager became insolvent in mid-1999 and ceased to be the manager of the building.  When the court queried the relevance of that in the appeal, Mr Mok did not press the matter and professed to be content to proceed without referring to the fresh evidence.  While the court did not consider it necessary to make any formal order since the application was not pursued, it was incumbent on Mr Mok at that stage to make an application for leave in relation to fresh evidence on any other issue he wished to adduce or, at least, to reserve his position.  That he did not do.  During his reply speech the following morning on the subject of the mandatory injunction to demolish the wall, Mr Mok sought to refer to a document in the fresh evidence bundles for which no leave had either been sought or granted.  It was simply too late for him to do so.

Order

57.  Mr Ng for the second defendant did not make any separate submissions but was to content Mr Wong’s submission in resisting the appeal.

58.  I would dismiss this appeal.  I would propose that there be an order nisi of costs (including costs thrown away in relation to the summons to adduce fresh evidence) in favour of the defendants.

Hon Suffiad J:

59.  I agree with the judgment of Le Pichon JA and have nothing to add.

Hon Sakhrani J:

60.  I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

61.  Accordingly, there will be an order in terms of paragraph 58.