THE INCORPORATED OWNERS OF PO HANG BUILDING v. SAM WOO MARINE WORKS LTD

LDBM 252/2014 & LDBM 255/2018 (Heard together)
[2021] HKLdT 35

LDBM 252/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 252 OF 2014

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BETWEEN

	SAM WOO MARINE WORKS LTD	Applicant
	and
	THE INCORPORATED OWNERS OF PO HANG BUILDING	Respondent

_________________

LDBM 255/2018

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 255 OF 2018

_________________

BETWEEN

	THE INCORPORATED OWNERS OF PO HANG BUILDING	Applicant
	and
	SAM WOO MARINE WORKS LTD	Respondent

_________________

(Heard together)

 

Before: Deputy District Judge Michelle Soong, Presiding Officer of the Lands Tribunal, in Court

Dates of Hearing: 30 April 2021

Date of Decision: 27 May 2021

_________________

D E C I S I O N

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INTRODUCTION

1.  This case concerns two sets of proceedings between the same parties which were ordered to be tried together. Sam Woo Marine Works Ltd (“Sam Woo”) is the registered owner of shop 1 on the ground floor of Po Hang Building (“the Building”) and is represented by Ms Queenie Ng. The Incorporated Owners of Po Hang Building (“IO”) is represented by Ms Becky Wong.

2.  In LDBM 252/2014, Sam Woo seeks certain reliefs against IO based on the contentions that the respective accounts of each class of owners should be considered separately and only if there is insufficiency of funds in the account of a particular class of owners, then IO may seek contributions from that class of owners. For the purpose of and in the course of ascertaining whether there is insufficiency, IO shall apportion the surplus attributable to different classes of owners. Interpretation of Clauses 3(h), 3(i) and 3(j) of the DMC was involved.

3.  In LDBM 255/2018, IO sues Sam Woo for outstanding management fees which remains owing from year 2012. Sam Woo refuses to pay and basically repeats their arguments concerning the interpretations of the relevant clauses in LDBM 255/2014.

4.  The background of the two sets of proceedings and parties’ respective cases are set out in the Judgment in greater detail which shall not be repeated here.

5.  After the trial in October and November 2020, on 24 December 2020 I gave a judgment in favour of IO in both applications (“the Judgment”). Sam Woo applied for leave to appeal against the Judgment on 20 January 2021.

6.  This decision deals with Sam Woo’s leave application. I shall refer to both the intended grounds of appeal stated in the draft Notice of Appeal (“DNOA”) attached to the affirmation of Lau Chun Kwok dated 20 January 2021 and also the arguments set out in Ms Ng’s skeleton submissions dated 27 April 2021 (“Sam Woo’s Skeleton”).

7.  Sam Woo has 7 grounds of appeal.

GROUND 1

8.  It is submitted that I erred in law in finding in paragraphs 25 and 35 of the Judgment that Deputy District Judge Kent Yee’s (as he then was) interpretation of Clauses 3(i) and (j) in DCCJ 1271/2011 is applicable in LDBM 252/2014 and that Sam Woo shall be estopped from reopening and/or challenging the said interpretation in the present case.

9.  To deal with this point, some elaboration on what were argued and ruled in DCCJ 1271/2011 is required.

10.  DCCJ 1271/2011 was an action brought by IO to recover from Sam Woo their share of contribution in the sum of $211,407[1] towards the repair/renovation costs of the building together with a collection charge of HK$300 plus interest thereon. IO applied for summary judgment against Sam Woo which application was refused by Master Tracy Chan. Sam Woo appealed which was heard before Deputy District Judge Kent Yee. At the conclusion of the hearing, the learned judge dismissed the appeal with costs.

11.  Sam Woo’s defence in DCCJ 1271/2011 was that on a proper construction of Clauses 3(h), 3(i) and 3(j) of the DMC, each of the individual owners’ account should be considered separately and if there is sufficient unused fund in his account, no further contribution should be demanded from him. Accordingly, due to the alleged overpayment/surplus in the account of Sam Woo over the years, IO was not entitled to demand any further contribution from Sam Woo towards the charges under the DMC.

12.  Their fall-back position was that in the event the alleged overpayment/surplus of Sam Woo was not sufficient to cover its share, there was at least a defence of set-off available to Sam Woo and Sam Woo would only need to pay the balance.

13.  In DCCJ 1271/2011, the learned judge had some concern about the term “overpayment” used by Sam Woo as it normally means that one has paid more than what he is obliged to pay and if the extra amount is paid under a mistake, he may have a common law claim to recover the amount overpaid. But on the evidence of Sam Woo, it was not really a case of overpayment by mistake. Ms Ng clarified to the learned judge that by “over-payment”, she actually meant “the monthly management charges previously paid by Sam Woo which has not yet been used by the IO”.

14.  The learned Judge did not accept Ms Ng’s argument. He found that the obligation to make further contributions under Clause 3(i) falls upon all owners but not any individual owners. The learned judge accepted Mr Johnathan Chang[2]’s submission that Ms Ng’s construction of Clause 3(i) would lead to an absurd result. If her construction were right, then IO must first exhaust the management fund contributed by an individual owner before he is required to contribute additional funds or even to continue to pay the monthly payment under Clause 3(h). If that is the case, there would be not much point in requiring the owners to make payments on a monthly basis and instead management fees should be collected on a need basis only. The Judge then went on to explain why Ms Ng’s contention is unworkable in the real world.

15.  The following paragraphs in the learned Judge’s reasons for judgment dated 19 December 2011 (“the Reasons”) are particularly relevant:-

“23. Clause 3(i) first sets out the condition under which further funds will have to be contributed by owners. It refers to the total monthly payments payable to the Manager by the owners of the Building under Clause 3(h). Clause 3(h) sets out the amount of monthly payment of each owner has to pay and it is applicable to all the owners. The total monthly payments payable to the Manager in Clause 3(i) clearly refers to the total amount of monthly payments payable by all the owners of the Building.

24. Worthy of note in Clause 3(i) are the words “total”, “payable” and “under Clause 3(h)”. They clearly refer to the total monthly payments which are to be paid by all the owners under Clause 3(h). The construction advocated by Ms. Ng actually entails a substantial rewriting of Clause 3(i): “those unused portion of the total monthly payment payablewhichhave already been paid by an owner to the Manager by the owners.” The word “total” is then rendered otiose too. This cannot be right.

25. The purpose of Clause 3(i) is very clear. If the manager finds that the total monthly payments payable by all the owners under Clause 3(h) is not sufficient to cover any costs, charges or expenses, he can make a collective fund-raising exercise by either (a) requiring all the owners to make further contributions in the shares as provided in Clause 3(h) or (b) revising the monthly payment payable to the manager by all the owners provided that such increase shall be in the proportion to the shares as provided in Clause 3(h). The obligation to provide further contribution by either way falls upon all the owners and not any individual owners.

26. In fact, as submitted by Mr. Chang, counsel for the IO, Ms. Ng’s construction of Clause 3(i) would lead to an absurd result. If her construction were right, the IO must first exhaust the management fund contributed by an individual owner before he is required to contribute additional funds or even to continue to pay the monthly payment under Clause 3(h). If that is the case, there would be not much point in requiring the owners to make payments on a monthly basis and instead management fees should be collected on need basis only.

27. This is for obvious reason unworkable in the real world. Of course the manger requires some surplus in the management fund to allow flexibility and cover all the possible contingencies. Moreover, Clause 3(j) plainly envisages surplus in the management fund and dictates how it should be applied. Similarly, Clause 3(k) prescribes how the unused portion of the management fund contributed by a former owner should be applied after he ceases to be an owner.

28. Ms. Ng accepted that there was no provision in the DMC for the refund/release of any unused portion of management fees previously paid by an individual owner. Yet she contended that Clauses 3(j) and 3(k) dictate that any such surplus or unused fund must be held and applied for payment of all those necessary costs, charges and expenses by the manager. I accept for the present purpose there was indeed surplus in the management fund. Nevertheless, there is no suggestion, let alone evidence, that any surplus of the management fund would be applied for other purposes.

29. As regards the resolutions passed at the Meeting, admittedly, as pointed out by Ms. Ng, the exact amount of shares by each owner was not specified therein. The purpose and effect of the resolutions were however clear. The owners by a majority agreed to incur the Charges and they were to contribute towards the Charges by 3 instalments. The Charges did fall within the ambit of Clause 3(f) and in accordance with Clause 3(i), the IO asked Sam Woo to make further contributions in addition to its monthly payments made under Clause 3(h) whilst any unused portion of the monthly payments previously made in the global management account will be used in accordance with Clause 3(j). I cannot see any merit in the contention that the resolutions were inconsistent with Clause 3(i) and hence rendered invalid by virtue of Clause 13(k) of the DMC.”

16.  Turning to the present case, Ms Ng contended that IO is not entitled to demand further contribution from Sam Woo (being one of the ground floor owners) if there is sufficient unused fund in the account of ground floor owners. In the current proceedings, instead of placing their focus on Sam Woo’s identity as an individual owner, Ms Ng now places their focus on Sam Woo’s identity as a member of ground floor owners.

17.  But despite the shift of focus, Sam Woo is invoking the same DMC provisions and is essentially running the same argument which promotes the concept of no further contribution be made unless in situation of insufficiency of funds.

18.  In my view, no matter the applicant is putting arguments from the perspective of an individual owner or as a member of a class of owners, and regardless they are seeking refund and set-off in DCCJ 1271/2011 or seeking other reliefs in the current proceedings, all these do not detract from the fact that Sam Woo is involved in the DCCJ proceedings and the current proceedings in their own capacity, invoking the same DMC provisions (Clauses 3(h), 3(i), 3(j) etc) and making the same contentions based on the same concept of pegging IO’s power to levy contributions with insufficiency of funds.

19.  As stated in paragraph 34 of the Judgment, I was not persuaded by Ms Ng’s attempts to differentiate the present case from DCCJ 1271/2011 at all, the reasons are set out in paragraphs 27 to 33 of the Judgment which shall not be repeated here.

20.  I see no reason why the learned judge’s interpretation of the same provisions in DCCJ 1271/2011 could not be applied here. It certainly was within my liberty to agree to the learned judge’s interpretation of the relevant DMC clauses which was upheld by the Court of Appeal[3]. I do not consider myself erred in law in adopting the learned judge’s reasoning nor do I consider myself wrong in agreeing to Ms Becky Wong’s res judicata argument in relation to the DMC provisions that had already been construed and ruled by the learned Judge Yee in DCCJ 1271/2011[4].

21.  About res judicata, it should be noted that I did not rule that Sam Woo shall be estopped from commencing the current proceedings. The concern was about parties’ re-litigating over the same DMC provisions based on essentially the same reasoning that has already been rejected and ruled by the court before in another set of proceedings between the same parties.

22.  Anyhow, despite the concern in paragraph 21 above, as stated in paragraph 35 of the Judgment, I actually proceeded my analyses on the assumption that res judicata did not apply and the Lands Tribunal was to rule on the interpretation of the DMC provisions afresh but even so, I still was not persuaded by Sam Woo’s interpretation, and the full analyses were set out in paragraphs 36 to 67 of the Judgment.

23.  Ms Ng’s reliance on the res judicata point to constitute a ground of appeal is inapt and totally unnecessary.

24.  Concerning Ground 1(b) of the DNOA, I am afraid Ms Ng has distorted the meaning of paragraph 28 of the Judgment. I did not suggest that the applicant needs to commence class action in order to raise the issue concerning “classes of owners”. The applicant’s application was dismissed not because they had not commenced class action. My ruling was that there is no distinction between individual owner or a class of owners when it comes to the interpretation of Clauses 3(i) and (j) of the DMC.

GROUND 2

25.  Sam Woo opines that it was incorrect for me to state in paragraph 36 of the Judgment that the combined effect of their Contention 2 and Contention 3 is that only when there is a shortfall in the fund of a particular class of owners, then management fees could be collected from that class of owners. Ms Ng says the combined effect I described was wrong because they did not use the term “management fees” but used the term “further contribution and/or revised monthly payment” in paragraph 5(g) of their Application.

26.  I do not think I have misunderstood Sam Woo’s case which have been summarized and discussed in various paragraphs of the Judgment[5]. Ms Ng has not challenged that those summaries are incorrect or that my analyses throughout the Judgment was based on a misunderstanding of their case.

27.  As I see it, what Ms Ng is doing is nitpicking one particular paragraph of the Judgment, identifying one difference in the term used in that paragraph as compared with the term used in one paragraph in Sam Woo’s Application, taking it as evidence of my misunderstanding of their case or my error in law and mounting it as a ground of appeal.

28.  To answer this, I shall point out three things.

29.  First, paragraph 36 of the Judgment does not purport to describe Sam Woo’s case. It merely states a combined effect of Contention 2 and Contention 3 as I observe, that is – the surplus of (or up to) a particular financial year resulting from a particular class of owners must be used towards paying the expenses of that particular class of owners in the next financial year and, only when there is a shortfall, then management fees could be collected from that class of owners.

30.  Secondly, I do not think Ms Ng could sensibly deny that the above is indeed one of the combined effects of the two contentions. As a matter of fact, Ms Ng did tell this court repeatedly that Sam Woo’s position was that as long as there was no separate account and no proper allocation of surplus/funds among different classes of owners, IO had no right to claim management fees. That was precisely the position taken by Sam Woo in defending against IO’s claim for management fees in LDBM 255/2018.

31.  Thirdly, Ms Ng herself also appears to have used the term “management fee” and “further contribution and/or revised monthly payments” interchangeably in her oral submissions. I have no intention to waste resources in commissioning the transcript of the entire trial just to illustrate this point but according to the audio record of proceedings on 14 October 2020 (1^st-day trial) between 1054 hours to 1122 hours, Ms Ng orally used the term “management fee(s)”, instead of the term “further contribution and/or revised monthly payments” for no less than 7 times in her oral submissions.

32.  Ms Ng’s attempt to nitpick one term in one paragraph of the Judgment and to elevate it as a ground of appeal is disingenuous.

33.  Incidentally, I have another observation when studying the last sentence of Sam Woo’s Ground 2, which states that:-

“… Therefore, when the IO prepared the annual budget account for the current financial year, which did not show valid separate accounts thereby indicating no accurate figure of shortfall/insufficiency and decided to levy further contribution and/or revise monthly payment, it was not made by reference to any insufficiency (hence, contrary to Clause 3(i)).”

34.  Sam Woo relies on Clause 3(i) to form the basis of the contention that there should be insufficiency before IO could levy contributions from the owners. However, I now have serious doubts whether it is appropriate at all for Sam Woo to invoke Clause 3(i) in the present circumstance of the Building.

35.  Clause 3(i) provides that :-

“If the total monthly payments payable to the Manager by the owners of the said premises under sub-clause (h) hereof shall be insufficient to cover all or any of the said costs charges and expenses then :-

(a)	Such owners shall make further contributions towards such expenses in the shares as provided in sub-clause (h) hereof; or
(b)	Pay to the Manager such revised monthly payment as the Manager shall think fit provided that such increase shall be in the proportion to the shares as provided in sub-clause (h) hereof.”

36.  Clause 3(h) stipulates the exact amount of monthly management fees payable by each and every units:-

“3.	Each owner shall be bound by and shall observe and perform the following covenants provisions and restrictions:-
	(h)	Each owner shall pay to the Manager on account of his share of the said costs charges and expenses the following sum:-
		(1)	$1,000.00 for Shop 1 on the ground floor per calendar month payable in advance;
		(2)	$150.00 for Shop 2 on the ground floor per calendar month payable in advance;
		(3)	$120.00 for Shop 3 on the ground floor per calendar month payable in advance;
		(4)	$150.00 for Shop 4 on the ground floor per calendar month payable in advance;
		(5)	$150.00 for Shop 5 on the ground floor per calendar month payable in advance;
		(6)	$150.00 for Shop 6 on the ground floor per calendar month payable in advance;
		(7)	$150.00 for Shop 7 on the ground floor per calendar month payable in advance;
		(8)	$150.00 for Shop 8 on the ground floor per calendar month payable in advance;
		(9)	$150.00 for Shop 9 on the ground floor per calendar month payable in advance;
		(10)	$150.00 for Shop 10 on the ground floor per calendar month payable in advance;
		(11)	$120.00 for Shop 11 on the ground floor per calendar month payable in advance;
		(12)	$150.00 for Shop 12 on the ground floor per calendar month payable in advance;
		(13)	$1,000.00 for Shop 1 on the first floor per calendar month payable in advance;
		(14)	$150.00 for Shop 2 on the first floor per calendar month payable in advance;
		(15)	$200.00 for Shop 3 on the first floor per calendar month payable in advance;
		(16)	$200.00 for Shop 4 on the first floor per calendar month payable in advance;
		(17)	$150.00 for Shop 5 on the first floor per calendar month payable in advance;
		(18)	$150.00 for Shop 6 on the first floor per calendar month payable in advance;
		(19)	$150.00 for Shop 7 on the first floor per calendar month payable in advance;
		(20)	$200.00 for Shop 8 on the first floor per calendar month payable in advance;
		(21)	$200.00 for Shop 9 on the first floor per calendar month payable in advance;
		(22)	$200.00 for Shop 10 on the first floor per calendar month payable in advance;
		(23)	$200.00 for Shop 11 on the first floor per calendar month payable in advance;
		(24)	$200.00 for Shop 12 on the first floor per calendar month payable in advance;
		(25)	$200.00 for Shop 13 on the first floor per calendar month payable in advance;
		(26)	$200.00 for Shop 14 on the first floor per calendar month payable in advance;
		(27)	$80.00 for Shop 15 on the first floor per calendar month payable in advance;
		(28)	$80.00 for Shop 16 on the first floor per calendar month payable in advance;
		(29)	$180.00 for each unit on the second to twenty fifth floors (both inclusive) per calendar month payable in advance;
		PROVIDED ALWAYS that such owner shall be personally liable to make such monthly payments whether or not his part of the said building is vacant or occupied and whether it has been let or leased to a tenant or is occupied by the owner himself or any other person.”

37.  Self-explanatorily from the wording of Clause 3(h), this clause was to set the monthly management fees payable by each unit at the time of execution of the DMC in 18 January 1983. By mathematical calculation, the total amount of monthly payments receivable by the Manager from all owners under Clause 3(h) was about $57,990.

38.  In my view, Clause 3(i) is to cater for the situation where the costs and expenses of managing the Building inflate as time goes by, and when the original level of monthly management income collectible under Clause 3(h) in the total sum of $57,990 become insufficient to defray all management expenses of the Building, then IO shall not be bound by the rates fixed under Clause 3(h) in year 1983 but shall be entitled to require further contribution or to adjust the rates of monthly management fees.

39.  It should be noted that the monthly management fee payable by Sam Woo (re Shop 1) under Clause 3(h) was $1,000 back in 1983. Evidence shows that the monthly management fee payable by Sam Woo was about $2,434 in September 2012; $3,161 in September 2013; $2,808 in September 2014; and $3,208 in September 2018.

40.  From the various accounting and financial records adduced, it appears that between the execution of the DMC in 1983[6] and up to the time when LDBM 252/2014 was commenced by Sam Woo in 2014[7], the monthly management fees payable by owners should have been adjusted for a number of times already. The first adjustment was probably a result of the Manager or IO’s exercising their power under Clause 3(i) to break through the fixed rates under Clause 3(h) upon realizing that the total monthly management income receivable thereunder in the sum of $57,990 became insufficient to cover all the management expenses of the Building.

41.  Therefore, by year 2014[8] or year 2020[9], we should no longer be concerning the question of whether the total amount payable under Clause 3(h) in the sum of $57,990 was sufficient or not because in year 2014 or year 2020, the monthly management income should far exceed the sum of $57,990 already. In my view, it is not appropriate for Sam Woo to still invoke Clause 3(i) in these proceedings when the particular circumstance contemplated by Clause 3(i) has become bygone and historical. It is even more absurd for Sam Woo to make use of Clause 3(i) to put forward the contention that “insufficiency” is the everlasting pre-requisite for IO to levy financial contributions from the owners.

42.  In my opinion, unless for the specific situation provided in Clause 3(i) which has already become historical by now, IO’s levying contributions or management fees from owners, whether at the prevailing rate or a revised rate, actually has nothing to do with Clause 3(i). IO could levy contributions based on various provisions in the DMC which obliges the owners to pay management-related expenses and empowers the manager to enforce the same. Clauses 2(f)[10], 3(f)[11] and 3(l)[12] are the examples just to name a few. Nowhere in those provisions or even the entire DMC requires that IO could demand financial contribution or management fees from the owners only when there is insufficiency.

43.  So to conclude, Sam Woo’s reliance on Clause 3(i) is obviously misplaced. Their utilizing this clause to form the foundation of their contention that insufficiency is the eternal prerequisite for IO to levy further contribution or management fees is fundamentally wrong.

44.  The discussion in paragraphs 33 to 43 above are not covered by the Judgment or the learned judge’s reasons in DCCJ 1271/2011. The parties have not attempted arguments on this point in these proceedings, probably not in DCCJ 1271/2011 either. These additional observations, nonetheless, are consistent with my finding/observation in paragraph 30 of the Judgment that whether there was surplus or insufficiency is wholly irrelevant to the owners’ obligation to contribute additional funds or make monthly payment.

45.  These additional observations on Clauses 3(h) and (i) are prompted by the way in which Ms Ng formulated her second ground of appeal and are prompted in the course of my dealing with such ground.  They are set out here for the sake of completeness in dealing with Sam Woo’s second ground of appeal.

46.  The reasoning in the Judgment was premised on the assumption that Clause 3(i) was applicable to the present case but even so, I found that a proper construction of Clause 3(i) still do not support the contentions advocated by Sam Woo. I have no intention to add such additional observation to the reasoning in the Judgment which by themselves are sufficient to dispose of Sam Woo’s application and arguments.

GROUND 3

47.  In Ground 3, Sam Woo states that:-

“… while it is accepted that the IO is entitled to maintain a certain level of surplus to cater for contingencies which the IO can properly do so by making all the necessary provisions and allowance as they deemed necessary in the annual budget, it is wrong for the IO to demand further contributions from and/or revise monthly payment of the relevant class(es) of owners when there is surplus in the budget account in the current financial year (as opposed to the actual surplus in the account of the previous financial year as worked out by deducting the total actual expenditures incurred from the actual payment of monthly payments received for that financial year) for the said class(es) which is the only reasonable combined effect and/or interpretation of Clauses 3(i) and (j) …

(a)	It is common ground that under the DMC, there are three types of owners, each of them is responsible for broadly three respectively types of Exercises;
(b)	As a matter of fact, each type of owners have accumulated different level of surplus;
	…” (emphasis added)

48.  This ground is convoluted. Sam Woo’s concession that IO is entitled to maintain a certain level of surplus to cater for contingencies is conceptually contrary to their contention that “only when there is a shortfall/insufficiency, then further contribution and/or revised monthly payment from that class of owner could be collected.”.

49.  It appears that Sam Woo tries to circumvent the contradiction by suggesting that IO could set aside a sum of money for contingency and have an item of “contingency” specifically included in the annual budget. She appears to suggest that the concept of insufficiency under Clause 3(i) shall mean insufficient after setting aside some surplus or money for contingency. To put it simply, Ms Ng is incorporating an element of “surplus” into the definition of “deficit” when the two literally cannot be amalgamated without compromising their true and natural meanings.

50.  To reply this, I would adopt paragraph 31 of the Judgment which states, inter alia, that I heard of no submission from Ms Ng as to the basis for contending that there must be an item described as “contingency” in the annual budgets or financial statements before IO could as a matter of fact and practice allow surplus to remain in their general fund account. Ms Ng’s attempted circumvention of the conceptual fallacy is unintelligent and artificial. She falls back to tendency of rewriting the DMC provision by adding even more words (being her innovative but incoherent definition of the term “deficit/insufficiency”) into Clauses 3(i) again.

51.  Paragraph 16 of Sam Woo’s Skeleton states that “where the wording is not crystal clear … a certain extent of ‘re-write’ is inevitable and hence should not be used as the yardstick in the interpretation exercise.”. It is unclear what “re-writing” Sam Wo is contemplating and such argument has never been put forward before.

52.  In any event, there is no ambiguity in Clauses 3(i) and 3(j). The interpretation contended for by Sam Woo amounts to adding some requirements to the DMC which are not there actually. Paragraphs 24 to 67 of the Judgment are my analyses on this question which I shall not repeat.

53.  As regards the quote in paragraph 47 above especially the underlined part and paragraphs 17 to 20 of Sam Woo’s Skeleton, with respect they are hard to follow both linguistically and conceptually. They are incompatible with reality and common sense.

54.  In relation to the alleged undesirable result or the so-called “awkward result” mentioned in paragraphs 21 and 22 of Sam Woo’s Skeleton[13], those suggestions are simply without evidential basis and are actually contrary to the evidence at trial. IO has already confirmed long time ago that they have prepared budgets/revised budgets in accordance with the requirements under Clause 3(f) such that owners would not be required to bear the management expenses which they are not obliged to bear under Clause 3(f). IO has also adduced budgets and/or accounts prepared or audited by auditors as proof which Sam Woo was not in a position to challenge. In my view, the “awkward result” in applying Clause 3(i) to nowadays situations all the more demonstrates that Clause 3(i) is not meant for application at all times but was designed for the specific circumstance mentioned in paragraph 38 above.

55.  In relation to the indiscriminate use of surplus argument caused by my interpretation of Clause 3(j)[14] as contended in paragraph 23 of Sam Woo’s Skeleton, I would deal with it by four steps.

56.  First, on fact I found no evidence of owners having had a pattern of regularly using ground floor owners’ surplus which caused unfairness to ground floors. Even assuming that there is, the problem could be resolved by the available means under the DMC and/or the BMO instead of rewriting the DMC. I shall not repeat the analyses which are set out in paragraphs 57 to 67 of the Judgment.

57.  Secondly, on law, I discussed the issue of surplus and the interpretation of Clause 3(j) in paragraphs 32-56 of the Judgment. In short, I opine that whether there is surplus or insufficiency is wholly irrelevant to Sam Woo’s liability to pay contribution and management fee (paragraph 30 of the Judgment).

58.  The third point is about implied terms. Clause 3(f) concerns the owners’ obligation to pay and it provides that all owners should contribute to the management expenses subject to certain qualifications[15]. Clause 3(j) concerns how the surplus is to be used. There is no requirement whether in Clause 3(j) or in the entire DMC that the surplus should be apportioned between owners by reference to their payment obligation in Clause 3(f).

59.  In the absence of such a restriction on the use of surplus, the applicant could only contend for the same by persuading the court to imply such a term in to the DMC. For the various reasons explained in paragraphs 50 to 56 of the Judgment which I shall not repeat, I opined that Sam Woo failed to satisfy the legal requirements for the court to imply into the DMC terms requiring the surplus be used in the specific way as they desired.

60.  Last but not least, I shall emphasize that this case has never been about actual unreasonable utilization of surplus by the manager or IO which was already pointed out in paragraph 44 of the Judgment. No evidence was adduced and no argument was made as to how the surplus has actually been used or is intended to be used. Sam Woo’s complaints as to how the surplus is to be used by IO is both irrelevant and highly speculative.

GROUND 4

61.  Sam Woo contends that it is wrong for me to proceed to analyze the figures extracted from the audited accounts, which are incomplete and unreliable, without inviting the parties to make submissions thereof, and that I erred in forming the view that Sam Woo was the one that caused or contributed to the perceived unfairness which view was without evidential basis.

62.  I shall point out that the account documents which have been used in the analysis are already in evidence.  In these proceedings, Sam Woo is the party which alleges that ground floor owners’ accounts always (or usually) have surplus whereas upper floor owners’ accounts always (or usually) have deficit hence there would be indiscriminate use of ground floor’s surplus to subsidize other owners.

63.  Should Sam Woo consider the figures in the existing evidence incomplete and unreliable, it is always up to them to make submissions accordingly and to adduce whichever evidence they consider complete and reliable for the court’s consideration.

64.  In my view, it is within my judicial function to analyze the evidence adduced by the parties in order to assess whether certain allegation is substantiated by evidence or not. Ms Ng’s suggestion that a judge is obliged to have in readiness at trial all intended analyses of evidence and judicial reasoning and to have them rehearsed or revealed to the parties in advance at trial for their comments or else such analyses or reasoning could not be included in his judgment is unorthodox and unheard of.

65.  More importantly, I actually did not conclude or “form a view” that Sam Woo was the one that caused or contributed to the perceived unfairness as alleged by Ms Ng in Ground 4. To the contrary, in paragraph 63, I made clear that the analysis of the data shown in the audited accounts are subject to two qualifications.

66.  The first qualification was that I actually have no definite answer as to whether the protracted litigation between Sam Woo and IO was the actual cause of upper floors’ deficit balance in certain years although that could be a probable cause. I do not think Ms Ng could sensibly exclude this possibility.

67.  The second qualification was that my analyzing the audited accounts shall not be taken as my approval of the microscopic way in dealing with the surplus as contended by Sam Woo. The purpose of my analyses is to illustrate that even if I conceptually buy into Sam Woo’s microscopic approach, as a matter of evidence I still do not observe a consistent pattern of unfair utilization of ground floor’s surplus to subsidize other owners as alleged by Sam Woo at trial.

68.  So to describe the situation more accurately, it is Sam Woo’s allegation as summarized in the second sentence of paragraph 62 above, rather than my observations on the evidence, that is without evidential basis.

69.  In any event, I already made clear in paragraph 67 of the Judgment that my analyses of the factual evidence including the accounting documents is only secondary as Sam Woo’s case shall be defeated as a matter of law because I disagreed with their interpretation of the relevant DMC provisions.

GROUND 5

70.  Sam Woo contends that the ruling that there is no requirement in the DMC for surplus from a particular class of owners be strictly applied only towards the expenditure of that class of owners will result in the use of the monthly contribution from a particular class of owners to defray expenditures of other class of owners is in breach of Clause 3(f) and in contradiction with the ruling about keeping of separate accounts.

71.  This argument in essence is the same or similar to Sam Woo’s argument under Ground 3 as summarized in paragraph 55 above. I shall adopt paragraphs 56 and 60 above to deal with this ground.

72.  In response to paragraph 30 of Sam Woo’s Skeleton in particular, I see no contradiction between my endorsing the need to maintain three separate accounts in order to carry out the payment obligations of the owners under Clause 3(f) and my rejecting the microscopic management of surplus under Clause 3(j) as contended by Sam Woo.

GROUND 6

73.  Ground 6 is that by reasons of Grounds 1 – 5, I was wrong in ruling that Sam Woo is liable to pay to IO the outstanding management fee from September 2012 to December 2018 in the total sum of $237,884.

74.  As I do not accept that Grounds 1 – 5 are convincing or arguable, this ground should also fail.

GROUND 7

75.  Reiterating their arguments in Ground 4, Sam Woo alleges that IO has no basis to claim management fees from Sam Woo and IO’s “attempt to bypass the requirements set out in the DMC by way of resolutions is doomed to fail as this is expressly prohibited by Clause 13(k)(iii).”. It was said that I did not deal with this point in the Judgment.

76.  First of all, this ground is premised on Ground 4. As Ground 4 cannot stand for the reasons set out above, this ground should also fail.

77.  Secondly, as I fundamentally did not agree with Sam Woo’s interpretation of the DMC provisions, I certainly would not and did not agree that the DMC has the particular kinds of requirements which Sam Woo accuses IO as trying to bypass.

78.  I consider that Sam Woo’s contentions in LDBM 255/2018 have been adequately dealt with in paragraphs 90 to 98 of the Judgment.

CONCLUSION

79.  Section 11(2) of the Lands Tribunal Ordinance provides that any party to the proceedings before the Tribunal may appeal to the Court of Appeal against a judgment, order or decision of the Tribunal on the ground that such judgment, order or decision is erroneous in point of law, subject to section 11AA.

80.  Section 11AA(1) requires that leave shall be obtained from the Tribunal or the Court of Appeal before an appeal under section 11(2) can be made.

81.  Section 11AA(6) provides that leave to appeal shall not be granted unless the Tribunal is satisfied that:- (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard.

82.  As Sam Woo’s intended appeal does not have a reasonable prospect of success, leave is refused.

COSTS

83.  Parties agreed that costs of the leave application should follow the event. I therefore order Sam Woo to pay IO’s costs of the leave application, to be taxed on the District Court scale if not agreed with certificate for Counsel granted.

	(Michelle Soong)
	Deputy District Judge
	Presiding Officer
	Lands Tribunal

Ms Queenie Ng, instructed by K H Lam & Co, for the applicant of LDBM 252/2014 and for the respondent of LDBM 255/2018, present

Ms Becky Wong, instructed by Lam & Partners, for the respondent of LDBM 252/2014 and for the applicant of LDBM 255/2018, present

LDBM 252/2014 & LDBM 255/2018 (Heard together)

[2020] HKLdT 56

LDBM 252/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 252 OF 2014

_________________

BETWEEN
	SAM WOO MARINE WORKS LTD	Applicant
	and
	THE INCORPORATED OWNERS OF PO HANG BUILDING	Respondent

_________________

LDBM 255/2018

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 255 OF 2018

_________________

BETWEEN
	THE INCORPORATED OWNERS OF PO HANG BUILDING	Applicant
	and
	SAM WOO MARINE WORKS LTD	Respondent

_________________

(Heard together)

 

Before: Deputy District Judge Michelle Soong,Presiding Officer of the Lands Tribunal, in Court

Dates of Trial: 14 – 15 October 2020 and 20 November 2020

Date of Judgment: 24 December 2020

_________________

J U D G M E N T

_________________

INTRODUCTION

1.  This is the judgment for two sets of proceedings between the same parties which were ordered to be tried together.

2.  Sam Woo Marine Works Ltd (“Sam Woo”) is the registered owner of shop 1 on the ground floor of Po Hang Building (“the Building”) and is represented by Ms Queenie Ng of Counsel. The Incorporated Owners of Po Hang Building (“IO”) is represented by Ms Becky Wong.  

3.  Sam Woo and the IO have had a long history of litigation at various levels of courts including the Small Claims Tribunal, the Lands Tribunal, the District Court, the Court of Appeal and the Court of Final Appeal. The District Court action (DCCJ 1271/2011) before the Hon Judge Kent Yee is of particular relevance to the present proceedings. A chronology of major events and previous litigation is set out at Appendix I.

LDBM 252/2014

Sam Woo’s Case

4.  Sam Woo commenced this set of proceedings against the IO on 15^th September 2014 for the IO’s failure to keep separate accounts for the charges, contribution and surplus of three types of costs, charges and expenses (collectively referred to as “Expenses”).

5.  Sam Woo contended that there are three types of Expenses under Clause 3(f) of the Deed of Mutual Covenant (“DMC”) namely:

(a)	Expenses relating to the lifts under Clause 3(f)(ix) (“Lift Expenses”);
(b)	Expenses relating to the sprinkler system, water tanks and pumps under Clause 3(f)(ix) (“Sprinkler Expenses”); and
(c)	Expenses under Clause 3(f) other than the Lift Expenses and Sprinkler Expenses (“Other Expenses”).

6.  Under the DMC, the ground floor owners shall be responsible for the Sprinkler Expenses and Other Expenses; the first floor owners shall be responsible for all the above expenses; and the upper floor owners[1] shall be responsible for the Lift Expenses and Other Expenses (“Contention 1”).

7.  Sam Woo further contended that under Clause 3(i)(a) of the DMC, further contributions as stipulated in Clause 3(h) is to be made only if the total monthly contribution of the three respective classes of owners is insufficient to cover their respective types of expenses (“Contention 2”).

8.  Sam Woo’s third contention was that the surplus, if any, of each classes of owners should only be used to defray the Expenses payable by that particular class (“Contention 3”).

9.  Sam Woo alleged that the IO should, but had failed to, keep separate accounts for the followings, resulting in indiscriminate use by the IO of the monthly contribution, the further contribution and/or the surplus:-

G/F	-  G/F owners’ expenses -  G/F owners’ monthly contribution -  G/F owners’ further contribution -  G/F owners’ surplus
1/F	-  1/F owners’ expenses -  1/F owners’ monthly contribution -  1/F owners’ further contribution -  1/F owners’ surplus
U/F	-  U/F owners’ expenses -  U/F owners’ monthly contribution -  U/F owners’ further contribution -  U/F owners’ surplus

10.  Sam Woo sought the following reliefs :-

(a)	a declaration that on the true construction of the DMC there exists an implied term imposing upon the IO a duty and obligation to keep separate accounts of all expenditures incurred in respect of all the Expenses under Clause 3(f) of the DMC and of all payment paid to the IO (or the Manager) under Clause 3(h) and (i) of the DMC by the owners for the time being of the G/F, the First Floor; and the upper floors respectively (“Relief 1”);
(b)	a declaration that the IO has been in breach of the DMC for failing to keep such separate accounts (“Relief 2”);
(c)	an account be taken of all the expenditures incurred and of all the payment paid to the IO (or the Manager) by the owners for the time being of the ground floor, the first floor, and the upper floors respectively (“Relief 3”); and
(d)	an order of the return by the IO to Sam Woo of the amount found to be attributable to Sam Woo due to the said breach by the IO on taking of such account (“Relief 4”).

The IO’s Case

11.  The IO did not dispute Contention 1 and admittedly there had been deficiencies in the preparation of accounts before.

12.  Ms Wong submitted that ever since the IO had realized the deficiencies, they had never refused to maintain separate accounts, apportion the Expenses and increase the management fees in accordance with Clause 3(f), (h), (i) and (j) and the DMC.

13.  To implement the keeping of separate accounts and apportioning of management fees in accordance with provisions of the DMC, the IO had engaged accountant to prepare revised budgets to re-calculate the correct amount of management fees of the Building from 1.9.2012 to 31.8.2019. The revised budgets and re-calculated management fees were approved in the Management Committee’s meeting held on 13.11.2018.

14.  To further implement the keeping of separate accounts and to reflect separate surplus/deficit in the Balance Sheets for the ground floor, first floor and upper floors owners, the Management Committee of the IO resolved on 29.11.2018 to adopt the amended audited Income and Expenditure Accounts and Balance Sheets from 1.9.2012 to 31.8.2019. The Management Committee further resolved that based on the amended audited Income and Expenditure Accounts and Balance Sheets including the surplus/deficit position, the management fees of the Building re-calculated during the meeting on 13.11.2018 shall remain unchanged.

15.  It was submitted that by December 2018, all the deficiencies in the accounts of the IO as complained by Sam Woo and forming the subject matter of LDBM 252/2014 had been remedied and rectified.

16.  As steps had already been taken by the IO to comply with DMC clauses to keep separate accounts, the declarations sought by Sam Woo (i.e. Relief 1 and Relief 2 in paragraph 10 above) were not only unnecessary and academic曾婉玲 訴 兆隆苑業主立案法團 LDBM 199/2001 (unreported, 18.9.2001), but also erroneous.

17.  IO disagreed to Contention 2 and Contention 3 which were by and large a matter of construction of the DMC.

18.  Ms Wong submitted that Deputy Judge Kent Yee (as he then was) had already ruled on the interpretation of the relevant clauses (i.e. Clauses 3(i) and (j)) in DCCJ 1271/2011. Specifically, Sam Woo shall be estopped from asserting that by reason of Clause 3(i), the ground floor owners were not obliged to make further contributions as long as the total of the ground floor owners’ monthly contribution was sufficient to cover the ground floor owners’ expenses because such interpretation of Clauses 3(h) and (i) was rejected by Deputy District Judge Kent Yee (as he then was) in DCCJ 1271/2011. By the principle of res judicata, Sam Woo shall be estopped from reopening and/or challenging the interpretations made by Judge Yee especially when their application for leave to appeal against the Judge’s ruling had already been refused by the Court of Appeal. On a true construction of the DMC, the IO should not be required to take account of all expenditures to the extent as sought in Relief 3.

19.  Concerning Relief 4 (i.e. refund), the IO alleged that due to their acquiescence in the previous payment and apportionment, Sam Woo shall be estopped from claiming for an account of the Expenses and for an order for return of the overpaid expenses before September 2012.

SAM WOO’S CHANGE / CLARIFICATIONS OF POSITION AT TRIAL

20.  Before proceeding to the discussion part, it would be helpful for me to interpose a brief account of Sam Woo’s change or clarifications of their position at trial. In her opening submissions, Ms Ng emphasized that Sam Woo was not challenging the figures or the ratio of sharing expenses. They would not ask for return of overpayment anymore because she was aware of His Honour Judge Kent Yee’s judgment and realised that there was no provision in the DMC for a return, nor would they ask for set off. Sam Woo only asked that the surplus attributable to the ground floor owners be taken into account in the budgets.

21.  Based on the budgets prepared by the IO, she noted that there was $1.9 odd millions of surplus accumulated as in 31 August 2012. However, this sum could not be differentiated between the three classes of owners.  In Ms Ng’s opinion, even though the IO had already prepared separate accounts, those accounts were still not compliant with the DMC because they did not show the surplus attributable to different classes of owners.  In Ms Ng’s words, Sam Woo’s claim was more like allocation of funds rather than actual return of money and it was Sam Woo’s position that as long as there was no separate account and no proper allocation of surplus/funds, the IO had no right to claim outstanding management fees.

22.  For LDBM 252/2014, Ms Ng would abandon Relief 4 but would like to seek an additional relief that “an order be made by this Tribunal for allocation of surplus, if any, to the respective three classes of owners on taking such account” (hereinafter referred to as “Relief 5”).

23.  For Relief 3, Ms Ng clarified that the phrase “for the time being” in this relief should mean “since the first day when the occupation permit of the Building was issued (i.e. 1983)” . In other words, Sam Woo asked that accounts be taken by the IO of all the expenditures incurred and payments made to the IO by all the owners since 1983.  Ms Ng prayed the alternative relief that if the Tribunal was not with her on the year of 1983, then account shall be taken from year 1992 when Sam Woo became one of the registered owners of the Building.

Discussion

24.  As parties have no disagreement on Contention 1, it requires no determination of this court.

25.  As for Contention 2 and Contention 3, I would begin by setting out the reasoning of Deputy Judge Kent Yee (as he then was) in DCCJ 1271/2011 concerning the interpretation of the relevant DMC clauses (as follows)[2]:

“23.   Clause 3(i) first sets out the condition under which further funds will have to be contributed by owners. It refers to the total monthly payments payable to the Manager by the owners of the Building under Clause 3(h). Clause 3(h) sets out the amount of monthly payment of each owner has to pay and it is applicable to all the owners. The total monthly payments payable to the Manager in Clause 3(i) clearly refers to the total amount of monthly payments payable by all the owners of the Building.

24.  Worthy of note in Clause 3(i) are the words “total”, “payable” and “under Clause 3(h)”. They clearly refer to the total monthly payments which are to be paid by all the owners under Clause 3(h). The construction advocated by Ms. Ng actually entails a substantial rewriting of Clause 3(i): “those unused portion of the total monthly payment payablewhichhave already been paid by an owner to the Manager by the owners.” The word “total” is then rendered otiose too. This cannot be right.

25.  The purpose of Clause 3(i) is very clear. If the manager finds that the total monthly payments payable by all the owners under Clause 3(h) is not sufficient to cover any costs, charges or expenses, he can make a collective fund-raising exercise by either (a) requiring all the owners to make further contributions in the shares as provided in Clause 3(h) or (b) revising the monthly payment payable to the manager by all the owners provided that such increase shall be in the proportion to the shares as provided in Clause 3(h). The obligation to provide further contribution by either way falls upon all the owners and not any individual owners.

26.  In fact, as submitted by Mr. Chang, counsel for the IO, Ms. Ng’s construction of Clause 3(i) would lead to an absurd result. If her construction were right, the IO must first exhaust the management fund contributed by an individual owner before he is required to contribute additional funds or even to continue to pay the monthly payment under Clause 3(h). If that is the case, there would be not much point in requiring the owners to make payments on a monthly basis and instead management fees should be collected on need basis only.

27.  This is for obvious reason unworkable in the real world. Of course the manger requires some surplus in the management fund to allow flexibility and cover all the possible contingencies. Moreover, Clause 3(j) plainly envisages surplus in the management fund and dictates how it should be applied. Similarly, Clause 3(k) prescribes how the unused portion of the management fund contributed by a former owner should be applied after he ceases to be an owner.”

(emphasis added)

26.  Sam Woo’s leave to appeal against the said judgment of His Honour Judge Kent Yee was refused by the Court of Appeal which upheld the Judge’s interpretation of the DMC and his reasoning. I entirely agree to His Honour Judge’s interpretation.

27.  Ms Ng in her oral submissions submitted that there is no res judicata because DCCJ 1271/2011 concerned things different from the present case. She specifically referred to certain paragraphs of His Honour Judge’s judgment and expressed the following comments:-

(a)	Paragraph 25: focused on “individual” but the present case concerned “classes of owners”;
(b)	Paragraph 26: did not concern Sam Woo’s focus here which was about “separate accounts, surplus and insufficiency”;
(c)	Paragraph 27: Sam Woo agreed that IO could have contingency but the accounts prepared by the IO did not appear to contain such an item;
(d)	Paragraph 28: before His Honour Judge there was no evidence but up to now there was evidence (in the form of some statements) showing that the surplus over the years of over 1.9 million had not been applied towards charges and expenses.

28.  Regarding Ms Ng’s comments in paragraph 27(a), I cannot comprehend what is meant by these proceedings concern “classes of owners” rather than “individual”. This is not a class action and, no matter in DCCJ 1271/2011 or these proceedings, Sam Woo are litigating on their own behalf but not for a class of owners. Both the District Court proceedings and the present proceedings essentially concern the same DMC provisions which shall carry the same meaning no matter the litigant participates in the proceedings as an individual or as a class.

29.  I also do not understand why it is said that His Honour Judge’s judgment focus on “individual”. In the last sentence of paragraph 25 of the Reasons for Judgment, His Honour Judge highlighted that “the obligation to provide further contribution by either way falls upon all the owners and not any individual owners.”. Clearly, Clause 3(h) was construed by His Honour Judge to create an obligation on all owners, rather than any individual owners, to make further contribution in the prescribed situations.

30.  Concerning Ms Ng’s comments in paragraph 27(b), His Honour Judge did not agree with Ms Ng that Clause 3(h) shall be construed to mean that “the IO must first exhaust the management fund contributed by an individual owner before he is required to contribute additional funds or even to continue to pay the monthly payment under Clause 3(h)”. In other words, His Honour Judge considered that whether there was surplus or insufficiency was wholly irrelevant. If “surplus and insufficiency” is Sam Woo’s focus in the present proceedings, this has already been dealt with by His Honour Judge’s interpretation of Clause 3(h).

31.  As regards paragraph 27(c), I heard of no submission from Ms Ng as to the basis for the contention that there must be an item described as “contingency” in the annual budgets or financial statements of the Building before IO could as a matter of fact and practice allow surplus to remain in their general fund account, bearing in mind that the establishment of a “contingency fund” is not compulsory but is optional under section 20(2) of the Building Management Ordinance (“BMO”). In any event, I do not see how this argument could render Judge Yee’s interpretation of the relevant DMC provisions not applicable to this case which involves the same parties, the same DMC and, in essence, the same subject matters as in DCCJ 1271/2011.

32.  Concerning paragraph 27(d), I do not think Sam Woo’s complaint is justified. Clause 3(j) of the DMC stipulates that:

“If there should be any surplus after payment of all the costs charges and expenses then the surplus shall be held by the Manager in a bank account and shall only be applied by him in or towards payment of such costs charges and expenses thereafter to become due.”

33.  Clause 3(j) requires that any surplus could only be applied towards payment of the costs, charges and expenses of the Building that become due in the future, but not to be applied for any other purpose. There is, however, no requirement as to when the surplus shall be used.

34.  In my opinion, Ms Ng’s attempts to differentiate the present case from DCCJ 1271/2011 is unconvincing. The reasoning of and the interpretations of the relevant DMC provisions by Judge Yee in DCCJ 1271/2011 are relevant and applicable to the issues in the present case.

35.  I agree with Ms Wong on her res judicata argument in relation to the DMC provisions that had already been construed and ruled by Judge Yee in DCCJ 1271/2011. That notwithstanding, even if I proceed on the assumption that res judicata does not apply and this tribunal is to rule on the interpretation of the relevant DMC provisions afresh, I am still not persuaded by Sam Woo’s interpretation for the reasons set out below.

36.  The combined effect of Sam Woo’s Contention 2 and Contention 3 is that the surplus of (or up to) a particular financial year resulting from a particular class of owners must be used towards paying the expenses for the next financial year of that particular class of owners and, only when there is a shortfall, then management fees could be collected from that class of owners.

37.  As I see it, Contention 2 is equivalent to a time requirement on the IO as to when the surplus, if any, shall be used and when management fees could be collected from owners.

38.  In my opinion, Sam Woo’s contention is flawed on two levels. First, it contradicts the construction of Clause 3(i) as already ruled by His Honour Judge (which I entirely agree and adopt) and requires a material rewriting of Clause 3(i) as observed by Judge Yee as follows:

“If those unused portion of the total monthly payments payablewhich have already been paid by an owner to the Manager by the owners under sub-clause (h) hereof shall be insufficient to cover all or any of the said costs charges and expenses then:-
(a)	such owners shall make further contributions towards such expenses in the shares as provided in sub-clause (h) hereof …”

39.  I further observe that such contention would necessarily involve a material re-writing of Clause 3(j) as well:

“If there should be any surplus after payment of all the costs charges and expenses then the surplus shall be held by the Manager in a bank account and shall only be applied by him in or towards payment of such costs charges and expenses thereafter to become dueas fall due in the financial year(s) that immediately follows.”

40.  In my view, such an interpretation of Clause 3(j) is plainly incorrect.

41.  It is noted that Clause 3(f) of the DMC spells out a variety of expenses that may be or become payable for or in connection with the management, maintenance repair and improvement of the Building, such expenses include but not limited to electricity or similar charges, statutory outgoings, remuneration for the Manager and other hired persons, refuse disposal costs, “uniform stores tools equipment and medical attention for staff”, lift expenses, utility and deposits payable for common parts, government rent, costs of repairing renewing maintaining cleansing painting or decorating the common parts, insurance, costs of purchasing/hiring plants and equipment, legal costs and all other charges which the Manager or the IO shall consider necessary or requisite for the proper management operation and maintenance of the building and for the improvement and maintenance of the services amenities.

42.  Some of the aforementioned expenses are non-recurring in nature and may not always appear in an annual budget. The very purpose of allowing a surplus in the accounts maintained by the IO is to have readiness a fund to deal with possible contingencies and to meet unexpected or urgent management expenses that has not been catered for whether sufficiently or at all in the budget for a particular year.

43.  Absent any requirement in the DMC requiring the exhaustion of any surplus (whether the surplus is attributable to all owners or particular classes of owners) before management fees can be collected (whether from all owners or particular classes of owners), I believe it is within the power of the IO to decide that a surplus shall be maintained for the due management of the Building. It also comes within the power of the IO to decide at what suitable time what amount of surplus shall be utilized for which management-related expenses as long as the requirement in Clause 3(j) is satisfied that is, the expenses must fall within the nature or scope as defined in Clause 3(f).

44.  Such decision of the IO is not completely without confinement but could be subject to the scrutiny of owners in certain scenarios which shall not be elaborated here. This is because these proceedings are not about the reasonableness or unreasonableness of the IO’s exercising the discretion or power to use or retain whatever amount of surplus standing in their account which was not pleaded, not argued and with no evidence adduced. Sam Woo’s contention was essentially that the IO had no discretion in that regard but must exhaust the surplus before management fees or financial contributions could be collected from owners. As discussed above, I cannot agree to this proposition.

45.  Certain provisions in the Building Management Ordinance, Cap.344 were also drafted in such a way to embrace a need for the IO to retain some surplus and reserve to meet contingencies.

46.  In The Incorporated Owners of Four Winds Apartment v Koa Hsung Land Investment Company Limited & Ors, LDBM 218/2005 (Date of Judgment: 6.11.2006), Judge Yung when discussing general fund and contingency fund said that there is no magic in the word “general” and it simply covers every types of expenditure of building management which an owners’ incorporation has to meet. The Judge further explained that: -

“9. …

It should be noted general fund does mean general. It covers every types of expenditure of building management which an owners incorporation has to meet. Contingency fund is established to provide for the expenditures of the same nature as those covered by the general fund. Its purpose is to set aside a reasonable amount of money for contingency purpose or to supplement the general fund. An owners incorporation may or may not establish a contingency fund. The word “may” is used in subsection (2) as opposed to “shall” in subsection (1). Further there is no requirement for the funds to be kept in separate bank accounts as long as the funds should be put in an interest bearing bank account. The right to establish two funds has the practical effect of entitling owners incorporations to maintain or to accumulate the surpluses from collection of monthly management fees as contingency fund, and, to raise fund to eliminate deficits without raising the monthly management fees. Very often owners would challenge the need to raise the fund for repair or renovation work when there is surplus to defray the costs. Some owners, like the present Respondents, may query the need to increase management fees when there is a surplus.

10.  When owners incorporations want to raise fund for the management of the building by way of increase in monthly management fees, or by calling for lump sum contributions, they simply explain the need for such exercise. Very often they would not clearly set out which provisions in the Ordinance they rely on. The fact they have failed to mention names of the funds is not fatal. It is not even necessary. It is the procedure and the reasons behind for raising the management fees or funds that should be looked at.

11.  In the instant case, a general fund must have been established although no one can point to any document referring to the date of establishment. Monthly management fees have been collected for a long time. Income and expenditures accounts were compiled and audited year and after year. This practice clearly points to the inescapable conclusion that the Applicant has maintained a general fund.”

47.  Judge Yung’s decision was affirmed on appeal: CACV 438/2006 (Date of Judgment: 6.6.2007)[3]. Clearly, the need for the IO to have surplus and reserve to meet management contingencies is anticipated and respected both in the Building Management Ordinance, Cap.344 as well as the DMC at suit.

48.  In my opinion, Sam Woo’s contention that the surplus of (or up to) a certain financial year shall be utilized in the next financial year (or shall be exhausted in the ensuing years) before further management fees could be collected is, conceptual-wise, a complete ignorance of and in disagreement with the need to maintain a surplus to cater for contingencies. I am not persuaded by this construction of Clause 3(j) which is an unwarranted curtailing of IO’s power and function and is unconducive to the proper management of the Building.

49.  As I do not see the slightest evidence of the IO’s not going to apply the surplus towards the future management expenses of the Building or the IO’s having applied the surplus towards any purpose other than the management expenses set out in Clause 3(f), I do not find any breach of Clause 3(j) on the part of the IO.

50.  In addition to the aforesaid “time requirement” on the utilization of surplus as imposed through Contention 2, Sam Woo further asserted Contention 3 to impose a “class requirement” that surplus attributable to a particular class of owners shall be applied only towards the management expenses of that specific class of owners.

51.  I heed of no provision in the DMC, not in Clause 3(j) (which deals with surplus) or anywhere, that supports Sam Woo’s assertion. I would say that seeking to construe Clause 3(i) and/or (j) this way, Ms Ng read even more words into the DMC provisions out of her invention. Her contention required further material rewriting of Clauses 3(i) and 3(j) as follows:

Clause 3(i)

“If those unusedportion of the total monthly payments payable to the Manager by the owners of the said premiseswhich have already been paid by a class of owners under sub-clause (h) hereof shall be insufficient to cover all or any of the said costs charges and expenses then:-

(a)  such class of owners shall make further contributions towards such expenses in the shares as provided in sub-clause (h) hereof …”

Clause 3(j)

“If there should be any surplus attributable to any class of owners after payment of all the costs charges and expenses which that class of owners shall bear then the surplus shall be held by the Manager in a bank account and shall only be applied by him in or towards payment of such costs charges and expenses of that class of ownersthereafter to become dueas fall due in the financial year(s) that immediately follows.”

52.  One may wonder if the draftsman of the DMC did intend that the surplus attributable to different classes of owners be separately maintained and be distinctively applied towards the respective expenses of different classes of owners, why the draftsman did not simply state so in the DMC.

53.  Chances are the draftsman in truth had never intended that surplus shall be administered by such a microscopic approach since the administrative costs thereof might outweigh any benefit therefrom. The absence of such a requirement in the DMC could well be the exact result of a conscious decision of the draftsman not to waste time and costs on minutia and triviality in the management of surplus.

54.  It is trite that the Court will be slow to imply terms into a DMC. The main reason for this derives from the fundamental principles of freedom of contract and sanctity of contract which underlie the classical theory of contract. This theory assumes that the parties to a contract are in the best position to determine their rights and obligations. If they had wanted to qualify their rights or the manager’s or the IO’s powers, they could easily have done so[4].

55.  At common law, terms are implied on the basis of the presumed common intention of the parties. There is no power to imply a term into the DMC simply because it is reasonable to do so. The general rule as clearly set out in Lewison on Interpretation of Contracts, para 5.03 is that the courts will only imply a term if it is:

(a)  reasonable and equitable;

(b)  necessary to give business efficacy to the contract, so no term will be implied if the contract is effective without it[5];

(c)  so obvious that “it goes without saying”, the so-called “officious bystander” test[6];

(d)  capable of clear expression; and

(e)  does not contradict any express term of the contract[7].

56.  In the circumstance of the present case, I do not think the above test is satisfied for the court to imply into the DMC terms requiring the surplus be used in the specific way as desired and contended by Sam Woo.

57.  The legal position aside, I would deal with the question of whether there is any or sufficient evidential basis for Sam Woo to complain that, as a matter of fact, management fee surplus attributable to ground floor owners has been indiscriminately used to subsidize the expenses of other owners.

58.  Ms Ng relied on the summaries of income and expenditure prepared by the IO’s auditors (“the audited summaries”) as evidence to show that ground floor owners “always” or “usually”[8] have management fees surplus annually whereas owners of other floors sometimes have a surplus balance and sometimes a deficit.

59.  I see some fundamental problems in this argument and append below a table of the relevant information[9] as extracted from the audited summaries for ease of illustration. In the table, all figures are round off to whole number without decimals for simplicity.

Year	Upper floors surplus (deficit)	Legal or professional expenses for Upper floors (Remarks)	Ground floor surplus (deficit)	Legal or professional expenses for Ground floor (Remarks)
2012/2013[10]	Surplus: $11,344	$45,589	Surplus: $21,205	$2,280
2013/2014[11]	Deficit: ($273,231)	$293,199	Deficit: ($534)	$14,662
2014/2015[12]	Surplus: $159,214	$53,634	Surplus: $10,240	$2,682
2015/2016[13]	Deficit: ($131,574)	$450,079	Surplus: $3,549	$22,506
2016/2017[14]	Deficit: ($84,143)	$369,628	Surplus: $5,689	$18,483
2017/2018[15]	Surplus: $777,637	$32,180	Surplus: $52,018	$1,609

60.  As shown in the table, the ground floor owners actually had a deficit of $533 in year 2013/2014.

61.  It is noted that upper floor owners had a surplus of $11,344 in 2012/2013; a surplus of $159,214 in 2014/2015; and a surplus of $777,637 in 2017/2018. During these years, there should not be any use of ground floor owners’ surplus to subsidize upper floor owners’ expenses. It is also observed that the legal/professional expenses incurred during these years were relatively low, in the region of $32,180 and $53,634 only.

62.  The status changed in some other years. Upper floor owners started to have a deficit of $273,231 in 2013/2014; a deficit of $131,574 in 2015/2016; and a deficit of $84,143 in 2016/2017. It is observed that during these years, the legal and professional expenses became quite substantial, ranging from $293,199 in 2013/2014, $369,628 in 2016/2017 to $450,079 in 2015/2016. Coincidentally, it is noted that Sam Woo and the IO were engaging in litigation during these years which could be the cause of the substantial increase in legal expenses and hence the deficit.

63.  I pause here to make two qualifications to the above analysis. First, I have no definite answer as to whether the protracted litigation between Sam Woo and IO was the actual cause of upper floors’ deficit balance in certain years, suffice it to say that based on the evidence before me, this appears to be a probable cause.

64.  Secondly, my doing the above exercise shall not be taken as my approval of the microscopic way in calculating, apportioning or otherwise dealing with the surplus attributable to different classes of owners as advocated by Sam Woo. The purpose of the above analysis is to illustrate that even if conceptually I buy into Sam Woo’s approach of microscopic calculation, as a matter of evidence I still do not observe a consistent pattern of unfair utilization of ground floor’s surplus to subsidize other owners because the hard data reflects that when legal expenses were insubstantial, upper floors actually had surplus and required no subsidy from other classes of owners.

65.  Put it in another way, from the evidence I do not see a situation where other owners have had a pattern of regularly using ground floor owners’ surplus which caused unfairness to ground floors and hence triggered off the litigation. To the contrary, the incidents of litigation appeared to have caused deficit balance to upper floor owners in several years which required subsidy, if there was in fact any subsidy at all. If that represents the truth, in a way Sam Woo was the one that caused or at least contributed to the perceived unfairness which they now complain about.

66.  In any event, even if there really exists a pattern of ground floor owners’ surplus being unduly utilized to subsidize upper floor owners’ deficit (I do not observe such a pattern), since the problem stemmed from an inaccurate estimate in the annual budgets leading to recurring surplus attributable to a particular class of owners, any aggrieved owner could express comments on the annual budget (or the draft thereof) or even vote against it in meetings. Any aggrieved owner, be his grievance subjective or justified, could make use of all available means or procedures under the DMC and/or the BMO to try to change any situation which in his opinion was not right. But the bottom line is, it is not up to any individual owner to invent and introduce into the DMC a scheme in order to meet his personal yardstick of fairness when the scheme was not a thing agreed to by the contracting parties to the deed nor was it so clear, obvious, reasonable and necessary for the effective management of a building that it should be taken as impliedly agreed.

67.  The above analysis of factual evidence is only secondary as Sam Woo’s case shall be defeated as a matter of legal principles in any case.

Disposition

68.  I agree with Ms Wong that since the IO has already taken steps to and, on their own volition is willing to, keep separate accounts, Reliefs 1 and 2 in the form of declaration is unnecessary and academic.

69.  Ms Ng counter argued that the question was not academic because in her opinion, IO was still not complying with the DMC because the separate accounts were still not reflecting the surplus/deficit carried forward from the previous years and attributable to respective classes of owners.

70.  I already ruled that there is no requirement in the DMC whether by express clause or implied term for surplus from a particular class of owners be strictly applied only towards the expenditure of that class of owners. As Sam Woo’s rationale behind these prayers cannot stand, these prayers must also fail.

71.  For the same reason, I do not see any basis or any need to direct that account be taken of each and every payment made to the IO by all owners of the Building since the issue of occupation permit in 1983 (Sam Woo’s primary position) or since Sam Woo became an owner of the Building in 1992 (Sam Woo’s fallback position). Relief 3 is not granted.

72.  In any event, this relief is simply too vague in substance and too wide in scope. Ms Wong for the IO submitted that a substantial period thereof may be time-barred or disallowed by reason of acquiescence. I would not elaborate on these topics as such discussion is unnecessary.

73.  Relief 4 (i.e. refund) was abandoned by Sam Woo at trial.

74.  For the same reason and since Relief 3 is refused, Relief 5 (i.e. allocation of surplus to respective three classes of owners on taking of accounts in Relief 3) must also fail.

LDBM 255/2018

The IO’s Case

75.  On 10 December 2018, the IO commenced LDBM 255/2018 against Sam Woo claiming: -

(a)	Outstanding management fee of Shop 1 in the sum of HK$237,884;
(b)	Further outstanding management fee of Shop 1 from 1.1.2019 at the rate of HK$3,208 per month; and
(c)	Interest thereon.

76.  The background leading to this set of proceedings is basically the same as that of LDBM 252/2014, the major events are set out in Appendix I to this judgment.

77.  The IO contended that by a resolution of the Management Committee of the IO passed on 13.11.2018, revised Budgets were approved and the correct amount of management fees of the Building from 1.9.2012 to 31.8.2019 were re-calculated[16].

78.  By a resolution of the Management Committee of the IO passes on 29.11.2018, the revised audited Income and Expenditure Accounts and Balance Sheets were approved and adopted[17].

79.  Notwithstanding the revision, Sam Woo refused to pay the revised management fee, details of which are as follows: -

Period	Revised management fee (per month)	Amount outstanding
Sept 2012 – Aug 2013	$2,434	$29,208
Sept 2013 – Aug 2014	$3,161	$37,932
Sept 2014 – Aug 2015	$2,808	$33,696
Sept 2015 – Aug 2016	$3,673	$44,076
Sept 2016 – Aug 2017	$3,609	$43,308
Sept 2017 – Aug 2018	$3,104	$37,248
Sept 2018 – Dec 2019	$3,208	$12,416
	Total	$237,884

80.  As at today, Sam Woo still has not paid any part of $237,884 and the management fee after January 2019 up to today.

81.  The IO’s legal basis for fixing the amount of management fees is founded on Clause 3(i) and Section 20, 21 and 22 of the BMO.

82.  Ms Wong on behalf of the IO submitted that the interpretation of Clause 3(i) had already been ruled in DCCJ 1271 Judgment. Deputy Judge Kent Yee (as he then was) had already explained in paragraphs 26 and 27 of the DCCJ 1271 Judgment that the effect of Clause 3(i) was not that the IO could only resolve to demand or increase management fee when there was a deficit. Whether there was any surplus was irrelevant to Sam Woo’s liability to pay management fee. A fortiori, Sam Woo could not and had no legal basis to request the IO to defray the surplus first before demanding it to pay management fee.

83.  It was further submitted that irrespective and independent of Clause 3(j) of the DMC and irrespective of whether there was any surplus or deficit and how much it was, the IO was entitled to demand, collect and increase the management fee from Sam Woo pursuant to Sections 20, 21, 22 and Schedule 5 of the BMO, as the management fee formed part of the general fund mandatorily established by the IO under Section 20 of BMO.

Sam Woo’s Case

84.  Sam Woo repeated its interpretations on the relevant clauses as set out in LDBM 255/2014[18].

85.  Sam Woo contended that its refusal to pay the revised management fee is due to the IO’s failure to prepare proper accounts in accordance with the DMC[19].

86.  In respect of the revised budgets passed pursuant to the resolution passed on 13.11.2018, Sam Woo’s arguments were three-fold. First, by virtue of Clause 3(i) and (j), account should be taken of the surplus and/or insufficiency which existed in respect of the ground floor owners at the conclusion of a financial year when determining the amount of management fees payable by the ground floor owners. Since the ground floor owners’ surplus and/or insufficiency had not been included in the ground floor owners’ account in the revised Income and Expenditure accounts and Balance Sheets from September 2012 to August 2018, the revised calculation were still in breach of the DMC (“First Argument”).

87.  The resolution of “各出席委員議決通過不會退回或追收寶亨大廈業主2018年12月或以前已繳付的多收或少收的管理費。” (translated as: “There shall be no refund for the overpayment of Management Fee or no action shall be taken with regard to the arrear of Management Fee prior to December 2018”) was in breach of Clause 3(i) and/or 3(j) (“Second Argument”).

88.  It was further contended that the further contribution (in the form of the increase of the management fee) was not increased in accordance with the management share in breach of Clause 3(i)(b) (“Third Argument”).

89.  Therefore, the relevant resolutions passed were all invalid by virtue of Clause 13(k)(iii) of the DMC[20], which provides that: -

“Any resolution on any matter concerning the said premises passed at a duly convened meeting by a majority of the owners present in person or by proxy and voting shall be binding on all the owners PROVIDED that:-

…

(iii)  No resolution shall be valid to the extent that it purports to alter or amend the provisions of these presents or is inconsistent herewith save as herein specifically provided.”

Discussion

90.  The discussions in LDBM 252/2014 can sufficiently deal with the First Argument.

91.  Concerning the Second Argument, since the resolution of “各出席委員議決通過不會退回或追收寶亨大廈業主2018年12月或以前已繳付的多收或少收的管理費” is irrelevant to and has no impact on the present proceedings, whether it is valid or invalid shall not be our present concern.

92.  As regards the Third Argument, with respect, this argument of Sam Woo was convoluted. At trial, I invited Mr Chiu, Sam Woo’s factual witness, to elaborate why Sam Woo considered that IO’s revised calculations were not in accordance with the management share in Clause 3(i)(b) which requires that payment “shall be in the proportion to the shares as provide in sub-clause (h) hereof”. Clause 3(h) could be found at Appendix II to this judgment.

93.  Mr Chiu said that if the revised management expenses were calculated in accordance with the following approach, in his view they were in accordance with Clause 3(i)(b) and Clause 3(h) of the DMC.

(a)	For the expenses that were payable by all owners, the apportionment of such expenses among all owners shall follow the proportion in Clause 3(h).
(b)	For the expenses that were payable by ground floor and first floor owners (i.e. Sprinkler Expenses), the IO should work out a proportion vis-à-vis ground floor owners and first floor owners. This could be done by first adding up all the amounts from subparagraphs (1) to (28)[21] to get a total. Then, the amount payable by Sam Woo (i.e. $1,000) to that total amount will become Sam Woo’s percentage of share of the expenses payable by ground floor and first floor owners. The share percentage or proportion of other ground floor and first floor owners could be worked out by the same method so on and so forth.
(c)	For the expenses payable by first floor and upper floor owners, a proportion vis-a-via first floor and upper floor owners could be worked out in the like manner.

94.  From the explanatory sheets[22] setting out the method of calculations by the IO’s auditor, it appears that the auditor was in fact following the proportion which was considered to be correct by Mr. Chiu. Such being the case, I do not understand why Sam Woo would challenge that IO’s revised calculations were not in accordance with the proportion under Clause 3(h).

95.  During oral closing submission, I invited Ms Ng to explain the exact challenge in their Third Argument. She clarified that they considered the proportion in Clause 3(h) not adhered to only because the auditor did not take into account the surplus/deficit attributable to ground floor owners in deciding to revise/collect management fees, which was in contravention of Clause 3(i) on its proper interpretation. Leaving the question of surplus/deficit aside, the revised calculations per se did not depart from the proportion in Clause 3(h).  In other words, Sam Woo would allege that the revised calculation did not adhere to the Clause 3(h) proportion if and only if their argument under Clause 3(i) was successful.

96.  As Sam Woo’s argument about Clause 3(i) did not succeed, there is no issue of the revised calculations having violated the Clause 3(h) proportion.

97.  Sections 20, 21, 22 and Schedule 5 of the BMO empower the IO to demand, collect and increase the management fee from the owners of the Building which is in addition to the charging provision in the DMC. The IO produced evidence to show that the revised Budgets (together with the re-calculated amount of management fees for the relevant period), the revised Income and Expenditure Accounts and Balance Sheets as prepared/audited by auditors were approved and adopted by the owners through resolutions.

98.  I am satisfied on a balance of probabilities that the IO has proved their case in their claim for outstanding management fees against Sam Woo, subject to paragraph 116 below.

Unpleaded Issues

99.  Before moving on to the disposition part, it may be helpful for me to briefly account Sam Woo’s attempt to raise unpleaded issues at the stages of oral opening submissions and written closing submissions.

100.  Approaching the end of her opening submissions, Ms Ng raised an additional issue in LDBM 255/2018 in relation to the IO’s revised calculations of outstanding management fees. She contended that the IO used a wholly wrong mechanism to do the re-calculation by using actual expenditure instead of estimate and that would result in Sam Woo’s having to pay management fees different from those payable by other owners as the management fees payable by the latter was calculated by estimated expenditure.

101.  I expressed my concern about Sam Woo’s raising unpleaded issue at the end of her oral opening submissions which was prejudicial to the IO. Whilst Ms Ng admitted that they had not raised this issue in the Notice of Opposition or other court documents filed in these proceedings or even in her written opening submissions. But she opined that this issue needed not be raised in advance but could be dealt with by Counsel by oral submission without evidential basis. As expected, this met with strong objection from Ms Wong.

102.  I had grave reservation whether this issue really required no evidential basis as claimed by Ms Ng because apparently the subject matter was one about preparation and auditing of accounts. I would think that if this issue had been pleaded in Sam Woo’s Notice of Opposition or at least raised in their witness statements, the IO would have had a chance to consider how to prepare evidence to deal with the same.  The IO could, if necessary and with the leave of the court, obtain evidence from their accountant to explain the reason why the revised calculations had been prepared in that particular method from the accounting point of view.

103.  I stood down for about 20 minutes for the parties to reflect on their respective positions or to take instructions if necessary in light of this unexpected development. When the trial resumed, Ms Ng retracted from her admission mentioned in paragraph 101 above and claimed that paragraphs 12 and 13 of the 2^nd supplemental witness statement of Madam Cheung[23] and paragraph 14 of the witness statement of Mr Chiu[24] had already covered the new issue.

104.  In my view, Ms Ng’s assertion was a distortion and over-stretching of the meaning of the said witness statements[25]. The said paragraphs which Ms Ng relied on did not raise the new issue whether sufficiently clearly or at all as a matter of fact.

105.  I note that the revised calculations relevant to the new issue had been exhibited to the statement of the IO’s factual witness (Mr Chan) dated 17 December 2019 which means Sam Woo should be well aware of these calculations at least 9 months before the trial or could be even earlier. Ms Ng provided no explanation why Sam Woo did not see fit to apply for leave to amend their Notice of Opposition or file further evidence in order to properly bring in this new issue (if they considered this issue relevant at all) in advance of the trial. As I found it grossly unfair for Sam Woo to raise unpleaded issue in the course of trial by slipping it through the end of Ms Ng’s oral opening submission, I decided that the new issue would not be considered and gave my reasons therefor on the spot.

106.  The second occasion was, in her written closing submissions dated 28 October 2020, Ms Ng introduced some new term/assertion which do not appear to have been pleaded or mentioned in Sam Woo’s Notice of Opposition or her written Opening Submission. One example is paragraph 25 of her written closing submissions which stated that:

“In the light of Clauses 3(h), (i) and (j), the account of the Building must be a running account (流水帳) in which the balance is carried forward every year. Unless the allocation of surplus/insufficiency of each class of owners is ascertained, the account can never be in compliance with the DMC.”

107.  The term “running account” can carry different meanings. According to Collins English Dictionary, it is another name of “current account”. From the financial perspective, it could mean a facility under a credit agreement whereby the consumer is enabled to receive from time to time, from the creditor or a third party, cash, goods or services to an amount or value such that the credit limit (if any) is not at any time exceeded.

108.  What Sam Woo actually means by contending that the account of the Building must be a “running account” is far from clear.

109.  If, by using the term “running accounts”, Sam Woo is discontent about the surplus/deficit balance not having been carried forward to the next financial year, I am afraid this is not the case because the balance sheets[26] do set out the cumulative surplus/deficit from previous years.

110.  If by using that term, Sam Woo is in essence complaining that the surplus of the previous financial year(s) attributable to ground floor owners has not been reflected in the revised calculations and, therefore, has not been exhausted before ground floor owners were required to pay management fees, this argument is no different from their arguments in LDBM 252/2014 and could be dealt with in the previous discussions.

111.  If, by using the term “running account”, Sam Woo is taking a new issue about the correctness of the accounting practice or approach adopted in preparing the revised calculations, then I would consider it utterly unfair for Ms Ng to only raise this at such a late stage, depriving the IO of the chance to collect evidence from their accountants about the accounting practice they adopted and any rationale behind.

112.  In Grand Power International Limited v Chan Sing Hoi Enterprises Limited [2020] 2 HKLRD 142 which is also a building management case tried in the Lands Tribunal in the first instance, the Court of Appeal found that justice would best be served in the circumstances of that case by refusing to allow a party to run an unpleaded case. Similar to the Grand Power case, the parties here have had legal representation throughout the proceedings. I see no reason why Sam Woo should be allowed to ambush their opponent by belatedly raising unpleaded issues.

113.  Fairness and prejudice aside, Ms Ng did not cite any authority which mandatorily required the budgets or financial statements be prepared as or in the method of “running account” to form the legal basis for such an argument.

114.  Suffice it to say that any challenge to the accounting practice or approach was only raised by Ms Ng from the bench without the opinion from an accountant in support whereas the revised calculations of the IO were prepared or audited by accountants, even if Sam Woo is permitted to run this unpleaded case (I do not permit actually), I do not feel the strength of such argument any way.

Disposition

115.  By reason of the above analysis, I order Sam Woo to pay to the IO the outstanding management fee from September 2012 to December 2018 in the total sum of $237,884 (for the breakdown see paragraph 79 above)[27] together with the interest thereon at judgment rate from the date of judgment until payment.

116.  Although IO is also claiming further outstanding management fee “from January 2019 onwards at the rate of HK$3,208 per month”, this part of the claim is not allowed for the reason that the cause of action about Sam Woo’s arrears of management fees since January 2019 had yet to be accrued to the IO at the time when they commenced the present proceedings on 10 December 2018.

COSTS

117.  Ms Ng and Ms Wong agreed that costs should follow the event. As Sam Woo lost in both LDBM 252/2014 and LDBM 255/2018, they should bear the IO’s costs in these two applications to be taxed on the District Court scale if not agreed.

	(Michelle Soong)
	Deputy District Judge
	Presiding Officer
	Lands Tribunal

Ms Queenie Ng, instructed by K H Lam & Co, for the applicant of LDBM 252/2014 and for the respondent of LDBM 255/2018, present

Ms Becky Wong, instructed by Lam & Partners, for the respondent of LDBM 252/2014 and for the applicant of LDBM 255/2018, present

Appendix I

Before 1.9.2012	Sam Woo had been paying management fee to the IO at HK$2,240.00 per month despite having knowledge of the IO’s not keeping separate accounts and that the IO had not excluded Lift Expenses from the ground floor owners and had not excluded the Sprinkler Expenses from the upper floor owners
19.7.2012	The IO resolved to increase the management fee for all units in the Building by a uniform rate of 15% with effect from 1.9.2012, thereby increasing Sam Woo’s management fee to HK$2,576
After 1.9.2012	Sam Woo refused to pay any management fees for his shop (i.e. Shop 1)
10.5.2013	The IO commenced legal proceedings in the Small Claims Tribunal under SCTC 16847 of 2013 claiming against Sam Woo for outstanding management fee of Shop 1 from September 2012 to April 2013 in the total sum of HK$20,608.00 at HK$2,576.00 per month
9.7.2013	Sam Woo filed a defence on, inter alia, the ground that increase of management fee of Shop 1 effective from 1.9.2012 did not comply with Clause 3(f)(vi) of the DMC by excluding expenses payable by ground floor owners.  No issue was raised by Sam Woo in respect of the Sprinkler Expenses or Clause 3(f)(ix) (which related to the Sprinkler Expenses) or that the IO failed to exclude Sprinkler Expenses from the expenses payable by the upper floor owners.
18.9.2013	SCTC 16847/2013 was transferred to the Lands Tribunal under LDBM 222/2013 and Messrs Lam & Partners (”LP”) acted for the IO.
16.10.2013	Upon LP’s advice that the increase of management fee as not based on a budget in accordance with the provisions of the DMC, IO discontinued LDBM 222/2013 for the IO to prepare the correct budget.   Thereafter, the IO did not demand Sam Woo to pay outstanding management fee and engaged accounting expert to prepare budget and advise on preparing proper accounts.
2013	In parallel, the IO commenced DCCJ 2259/2013 against Sam Woo alleging breach of the Deed of Mutual Covenant as well as breach of section 34I(1) and (2) of the Building Management Ordinance, Cap.344 on Sam Woo’s part by erecting a metal fence and door enclosing a service lane running adjacent to the Building and forming a portion of its common parts. His Honour Judge Kent Yee entered judgment in favour of the IO and subsequently refused Sam Woo’s application for leave to appeal.
12.9.2014	Sam Woo took out LDBM 252/2014 without pre-action letter and first raised the issue about the Sprinkler Expenses
6.12.2014	IO’s accounting expert completed the draft budgets for the years 1.9.2012 – 31.8.2013; 1.9.2013 – 31.8.2014 and 1.9.2014 – 1.8.2015
6.8.2015 & 18.9.2015	Sam Woo’s application to the Court of Appeal for leave to appeal against his Honour Kent Yee’s judgement in DCCJ 2259/2013 was refused by the Court of Appeal on paper (HCMP 415/2014).
19.8.2016	Appeal Committee of the Court of Final Appeal granted leave to Sam Woo to appeal on two questions[28] (FAMV 21/2016).
15.5.2017	Sam Woo’s appeal to the Court of Final Appeal was dismissed (FACV 10/2016).

Appendix II

Clause 3(h) of the DMC

3.	Each owner shall be bound by and shall observe and perform the following covenants provisions and restrictions:-
	(h)	Each owner shall pay to the Manager on account of his share of the said costs charges and expenses the following sum:-
		(1)	$1,000.00 for Shop 1 on the ground floor per calendar month payable in advance;
		(2)	$150.00 for Shop 2 on the ground floor per calendar month payable in advance;
		(3)	$120.00 for Shop 3 on the ground floor per calendar month payable in advance;
		(4)	$150.00 for Shop 4 on the ground floor per calendar month payable in advance;
		(5)	$150.00 for Shop 5 on the ground floor per calendar month payable in advance;
		(6)	$150.00 for Shop 6 on the ground floor per calendar month payable in advance;
		(7)	$150.00 for Shop 7 on the ground floor per calendar month payable in advance;
		(8)	$150.00 for Shop 8 on the ground floor per calendar month payable in advance;
		(9)	$150.00 for Shop 9 on the ground floor per calendar month payable in advance;
		(10)	$150.00 for Shop 10 on the ground floor per calendar month payable in advance;
		(11)	$120.00 for Shop 11 on the ground floor per calendar month payable in advance;
		(12)	$150.00 for Shop 12 on the ground floor per calendar month payable in advance;
		(13)	$1,000.00 for Shop 1 on the first floor per calendar month payable in advance;
		(14)	$150.00 for Shop 2 on the first floor per calendar month payable in advance;
		(15)	$200.00 for Shop 3 on the first floor per calendar month payable in advance;
		(16)	$200.00 for Shop 4 on the first floor per calendar month payable in advance;
		(17)	$150.00 for Shop 5 on the first floor per calendar month payable in advance;
		(18)	$150.00 for Shop 6 on the first floor per calendar month payable in advance;
		(19)	$150.00 for Shop 7 on the first floor per calendar month payable in advance;
		(20)	$200.00 for Shop 8 on the first floor per calendar month payable in advance;
		(21)	$200.00 for Shop 9 on the first floor per calendar month payable in advance;
		(22)	$200.00 for Shop 10 on the first floor per calendar month payable in advance;
		(23)	$200.00 for Shop 11 on the first floor per calendar month payable in advance;
		(24)	$200.00 for Shop 12 on the first floor per calendar month payable in advance;
		(25)	$200.00 for Shop 13 on the first floor per calendar month payable in advance;
		(26)	$200.00 for Shop 14 on the first floor per calendar month payable in advance;
		(27)	$80.00 for Shop 15 on the first floor per calendar month payable in advance;
		(28)	$80.00 for Shop 16 on the first floor per calendar month payable in advance;
		(29)	$180.00 for each unit on the second to twenty fifth floors (both inclusive) per calendar month payable in advance;
		PROVIDED ALWAYS that such owner shall be personally liable to make such monthly payments whether or not his part of the said building is vacant or occupied and whether it has been let or leased to a tenant or is occupied by the owner himself or any other person.