Century Globe Ltd and Others v. Incorporated Owners of Fu Loy Garden

LDBM 24/2015

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 24 OF 2015

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J U D G M E N T

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1.By the present Application, the applicants claim they have been overcharged management fee for years. They request the Tribunal to determine the correct way of fixing the management fee payable under a Deed of Mutual Covenants. The respondent, being the owners’ incorporation of the building, denies. It counterclaims against each of them for the shortfall as from the date from they pay a lesser amount.

Brief Background

2.Fu Loy Garden (“Estate”) is a composite building erected on 7 Ma Wang Road, Yuen Long comprising 47 shops (each a “shop”) on the ground floor forming a shopping arcade, 58 car parking spaces (each a “CPS”) on the first floor open podium[1] forming a car park, and a total of 288 flats from second to nineteenth floors of two residential blocks standing on the said podium each with 8 flats per floor[2].

3.Each applicant owed one to two CPSs when the Application was commenced. The respondent is the owners’ incorporation of the Estate (“IO”). It is not in dispute that:

i)    the IO was duly incorporated under the Building Management Ordinance, Cap 344 (“BMO”) in or about 1997; and

ii)   all the owners of the Estate including the applicants are subject to and with the benefit of a Deed of Mutual Covenant and Management Agreement dated 24 February 1988 (“DMC”).

4.For years, or at least as from 1997, the monthly management fee payable in respect of each CPS has been fixed at $228. So far as can be discerned from the available evidence, it was based on a monthly budget for the period September 1997 to August 1998 (“97/98 Budget”)[3]. According to this budget, various general items of expenses, e.g. insurance, maintenance of fire services equipment, auditor’s fees, etc, were apportioned into 4 equal parts (“the said one quarter share”) each attributable to the car park (車場)[4], shopping arcade (商場), residential units (住宅) and the communal common areas (公衆). The budgeted expenditure of the car park was the aggregate of:

i)    the said one quarter share of certain items of expenditure;

ii)   other expenses of the car park which the IO considered to be solely related to the car park, e.g. lighting of the podium and driveway[5], estimated salaries attributable to cleaning worker and security guards cleaning or patrolling the car park; and

iii)  a proportion, i.e. 4.26% (or 3,480/81,743)[6] of the expenses attributable to the communal common areas. These expenses comprised the said one quarter share allocated to the communal common areas plus other apportioned expenses, e.g. the man-days required for cleaning and patrolling, electricity charges for these areas, etc.  It is the submission of Mr Poon, counsel for the IO, that the percentage is based on Clause D2(a) of Part V of the DMC (“Clause D2(a)”)[7] (hereafter referred to as the “Clause D2(a) percentage”). The percentage of 4.26% allocated to all CPSs’ owners derived from Clause D2(a) is not in dispute. It is only how this ratio is to be applied that is in dispute.

5.The total estimated expenditure based on the 97/98 Budget for the car park was $13,197[8]. Since there are 58 CPSs, each CPS owner is required to pay $228/month[9].

6.The IO received complaint(s) from owner(s) at an owners meeting in July 2013 that the management fee chargeable for each CPS was not fixed in accordance with the DMC[10]. Legal advice was sought. The IO was subsequently advised that $118 should be the correct amount. At a meeting of the 8^th management committee of the IO held on 29 September 2013, it was resolved that the management fee payable for each CPS should accordingly be adjusted downward as from October 2013. Any overpaid amount would be refunded, tentatively as from date of complaint (“2013 resolution”)[11].

7.It is not in dispute that CPS owners paid $118/month as management fee from 1 October 2013 to 30 September 2014[12].

8.In June 2014, a newly constituted 9^th management committee of the IO was elected. The same issue was re-visited. Further legal advice from the same firm of solicitors was sought. The IO was advised this time that the correct management fee should be the originally charged amount of $228/month. In a management committee meeting held on 29 August 2014, it was resolved that the monthly management fee for each CPS should be reverted back to $228 (“2014 resolution”)[13]. The amount was said to be based on a 2014 Budget[14]. This budget in fact is very similar to the 97/98 Budget. The level of payment was kept at the 97/98 level of $228 otherwise it would be $511.3 per month[15].

9.The aforesaid resolutions triggered off a series of heated quarrels among various groups of owners and the management committee/chairman of the IO. For the present purpose it will be unnecessary for this Tribunal to go into details of these disputes. Suffice it to say that the applicants contend that the contribution of each owner of the Estate should be fixed according to Clause D2(a), and the 8^th management committee got it right. It is not up to the IO or any management committee to determine the management fee in a manner other than that provided under the DMC, even though the grounds based on which may be equally reasonable.

10.The IO considers that the long established way of fixing the management fee according to the so-called “user-to-pay” principle must be right. Even well-established developer Henderson was willing to abide by such principle when it was the sole owner of all CPSs. Further, according to the IO, Clause D5(a) under Section V of the DMC (“Clause D5(a)”) supports the “user-to-pay” principle. The IO contends that by the said “user-to-pay” provision, expenditure solely relating to or for the benefit of a particular category of owners and no other categories of owners receiving any material benefits therefrom should be shouldered solely by the benefiting category of owners. Accordingly, said the IO, CPS owners should be responsible for expenditure consisting of 2 parts, (i) one solely relating to the management of all the CPSs based on Clause D5(a), and (ii) a proportion of the communal common areas expenses fixed in accordance with Clause D2(a). The IO contends the correct amount should at least be $228/month if not more, and the applicant should have no cause to complain.

11.On 1 December 2014, the IO issued a notice to all CPS owners stating that the management fee for the period October 2013 to September 2014 at $118/month was incorrect and should be $228/month. The IO stated that it would claim the difference of $110/month back from them. There is no dispute that the applicants continue to pay $118/month despite the IO’s said notice.

12.The applicants disagree with the construction of Clause D5(a), and thus commence the present Application on 5 February 2015. By its counterclaim, the IO seeks to claim against each of the applicants the management fee shortfall.

The 6^th and 7^th Applicants

13.The 6^th and 7^th applicants have ceased to the registered owners of any CPS since the issue of the proceedings. By a consent order dated 18 August 2015, leave was granted to both the 6^th applicant and the IO to discontinue their respective claims and counterclaim against each other on terms. By an order made by consent on 26 July 2016, i.e. the first day of trial, leave was granted to the 7^th applicant and the IO to discontinue their respective claims and counterclaim against each other with no order as to costs.

14.Accordingly the present proceedings are fought between the IO and the 1^st to 5^th applicants, who are referred to as the applicants collectively below.

The Applicants’ Pleaded Case

15.By the applicants’ Notice of Application, the applicants basically raised the same arguments as set out above. Further, there are disputes as to whether an electronic drop bar (“electronic bar”), the CCTV system (“CCTV’), the booths for the security guard (“the said booths”) and the intercom (“car park intercom”) all built at the entrance of the driveway on ground floor as well as the fluorescent lights of the car park are common facilities. The applicants contend that they are. They therefore are only liable for the installation/repair costs according to the Clause D2(a) percentage instead of solely. The applicants say the IO argues otherwise and intends to charge the CPS owners rent for their use of these facilities. The IO also threatens to remove or not to repair these facilities. The applicants therefore ask for a number of declarative reliefs against the IO.

16.It has been pleaded that the IO had prepared a budget for 2014 based on the same principles adopted in the aforesaid 97/98 Budget. Since the figures adopted for the 2014 Budget were different, the aggregate of the respective heads was $29,656 per month. Strictly speaking each CPS owner is responsible for $511.3 per month[16].

17.At the conclusion of the trial and closing submission, Mr Jonathan Wong, counsel for the 1^st to 5^th applicants has helpfully submitted that only the following three declarations are required for resolving the present disputes between the parties:

i) A declaration that the IO’s calculation of management fees for the CPSs is inconsistent with and in breach of the DMC;

ii) A declaration that it is unlawful for the IO to charge $228 to each of the applicants’ CPSs and/or claim and/or claw back retrospectively from the applicants the difference of $110 per month per CPS for the period between October 2013 and September 2014; and

iii) A declaration that each owner of the Estate should pay the costs of installation, maintenance and repair of the electronic bar and CCTV by reference to the proportions in accordance with Clause D2(a). 

18.It is Mr Wong’s submission that the above declaration, if granted by the Tribunal, would nullify the 2014 resolution charging $228/month, leaving the 2013 resolution charging $118/month intact.

The IO’s Pleaded Case

19.After reading the Notice of Opposition and Counterclaim dated 3 June 2015, it is fair to say that the IO’s position is basically set out in paragraphs 6, 8 and 12 of their pleadings, and can fairly be summarized as follows:

i) The management fees of each CPS shall be fixed by reference to basically 2 parts:

a) Monthly management expenses; PLUS

b) Direct costs involved only for the Car Port (or CPS)[17] as provided in Clause D5(c) of Section V of the DMC (“Clause D5(c)”);

ii) $118/month was only for the management expenses, and is exclusive of the direct costs under Clause D5(c) for the period between 1 October 2013 and 30 September 2014;

iii) The IO has charged each CPS owner $228/month since or about 1 July 1998 and each should have paid this amount;

iv) The electronic bar, the CCTV, the said booths, the car park intercom and the fluorescent lights for the CPSs were installed for the sole use and benefit of all these CPSs, and are not the Estate’s Common Facilities, presumably as defined under the DMC. Expenditure of installing and maintaining these facilities are therefore direct costs as provided under Clause D5(c) and should be borne solely by CPS owners;

v) The IO claims against each applicant:

a) for the shortfall of $110/month for each CPS between period October 2013 to September 2014, totally $1,320[18] for each CPS; and

b) monthly management fee from October 2014 to May 2015 (a total of 8 months) at $228/month for each CPS, i.e. $1,824[19].

20.Accordingly, the IO counterclaims:

i) onetary judgment by way of damages against

a) each of 1^st, 3^rd, 5^th applicant (each owning 2 CPSs) at $6,288, i.e. ($1,320 + $1,824) x 2;

b) each of 2^nd and 4^th applicant (each owning 1 CPS) at $3,144, i.e. $1,320 + $1,824;

ii) an order that all applicants shall pay to the IO the monthly management fees of HK$228 (or such sum as required by the IO) for each CPS from the 1^st June 2015 to date of judgment together with interest at 8% from 1^st June 2015 until the date of payment;

iii) a declaration that management fees of each CPS on 1^st floor of the Estate shall be fixed by reference to monthly management expenses under Clause D2(a) plus direct costs involved only for the Car Port as provided in Clause D5(a);

iv) a declaration that the electronic bar, the CCTV, the said Booths, the car park intercom and fluorescent lights of the car park were solely for the use and benefit of the car park not the Estate’s Common Facilities;      

v) a declaration that monthly management fees of each car parking space in the car park for the period from 1^st July 1998 to 31^st May 2015 should be HK$228 per month; and

vi) costs be awarded to the IO with certificate for counsel, to be taxed if not agreed.

Evidence

21.The 4^th Applicant Miss Vanessa Cheung testified on behalf of the applicants. She confirmed and adopted her witness statement dated 5 August 2015 as her evidence. Mr Tang Ming Kit, the current chairman of the IO testified for the IO. He adopted and confirmed his witness statement made on 4 August 2015 as evidence.

22.It is fair to say that, according to the evidence of the witnesses, there is basically no dispute on material facts. They only differ on their views on whether certain facilitates are for the exclusive benefit of CPS owners or all owners as a whole. The disputes turn on construction of certain provisions of the DMC.

Discussion    

23.In Hong Kong, multi-storeyed buildings are often under co-ownership with each co-owner holding undivided shares in the building and the land. Co-owners hold the undivided shares jointly as tenant-in-common with each other. The Estate in question is no exception. It is sub-divided into 9,000 undivided shares and each CPS owner holds 4 shares. There are apparently 2 types of residential units with respectively 20 and 26 shares allocated. The shops on the ground floor are allocated with various undivided shares ranging from 13 to 80, presumably depending on its size[20]. For ease of discussion below, the 9,000 undivided shares of the Estate are allocated in the following manner:

i)	Reserved common parts:	156 shares
ii)	47 ground floor shops:	1,988 shares
iii)	58 CPSs @4 shares:	232 shares
iv)	288 residential units:	6,624 shares
		9,000 shares

24.As a matter of law, although each co-owner holds distinct undivided shares or interest and thus only a percentage of the total interest in the land, each co-owner is as much entitled to possession of any part of the land and building thereon as the others. A co-owner cannot point to any part of the building as his own to the exclusion of others. This is the concept of unity of possession[21]. Obviously joint ownership in multi-storeyed building may give rise to difficulty if two or more co-owners want to occupy a particular unit/part of the building at the same time.

25.This difficulty is overcome in Hong Kong by a deed of covenant executed by all co-owners, or in reality, by the developer and the first owner. This deed defines which parts of the building are to be exclusively used enjoyed and possessed by which co-owners. All subsequent assignments by the developer and the first owner of the exclusively owned parts are subject to and with the benefit of the deed of covenant. The combined legal effect of the deed of covenant and the assignment is that each co-owner is entitled to the exclusive use, occupation and enjoyment of his own unit to the exclusion of all other co-owners. All other parts of the building and land not designated for the exclusive use enjoyment and occupation by co-owners under the said deed of covenant remain accessible to all co-owners. They are common areas of the building. Accordingly, as in the present case, apart from CPSs, the residential flats and shops, all other parts of the Estate e.g. the driveway, the open space of the car park, the corridor and staircase of residential blocks and the shopping arcade, the external walls, all entrances of the building, refuse room, power room etc, are common parts of the Estate. Each co-owner is as much entitled to possession use and enjoyment (but not exclusively) of any common part of the building as the other co-owners. Of course the co-owners are free to restrict rights to enjoyment of certain parts of the building to certain groups of owners by the deed of covenant.

26.Correspondingly, there is a duty to maintain these common areas. The deed can also impose or remove duty of certain co-owners or category of co-owners to maintain certain parts or facilities. A well drafted deed normally provides extensively on how obligations to maintain the common parts and common facilities are to be shared by co-owners. Very often a deed may also empower the manager the right to enter or deal with exclusively owned units for the benefit of co-owners as a whole, and makes provisions on how the expenses so incurred are to be recovered. Subject to the provisions of the BMO, it is perfectly legitimate for co-owners to agree through the deed of covenant whether certain expenses are to be shouldered by a particular category of owners. Unless and until there are provisions providing otherwise, all expenses relating to common parts or common facilities should be shared by all co-owners because, by the very nature of co-ownership, these common areas/facilities are theirs. Each and every co-owner can enjoy them as of right. Accordingly, the fact that the common areas are inside a residential block does not mean that these common areas are to be exclusively maintained by the flat owners, unless the deed of covenant has expressly provided so. Applying the same principle to the present case, the fact that there are common areas and common facilities in the car park will not make CPS owners more liable for their maintenance than others, unless expressly said so in the DMC. Some deed of covenant also provides a formula or sharing ratio on how expenses for maintaining and managing these common parts and facilities, commonly known as management fee, are to be contributed.

27.In Hong Kong, the BMO regulates the rights and obligations of co-owners of a building. Section 22 of the BMO provides that the amount of contribution by an owner towards management fee is fixed by the management committee of the owners’ incorporation in accordance with the deed of covenant. If there is no deed of covenant, or if the said deed does not provide for the fixing of contributions, the amount to be contributed by the owners shall be fixed by the management committee in accordance with the respective undivided shares of the owners.  

28.In the present case, it is the parties’ common ground that the DMC has provided for how the management fee is to be fixed, and there is no need to resort to undivided share ratio. The issue is whether, on a proper construction of the relevant provisions, one comes to the conclusion now contended by the applicants or by the IO.

29.In the Tribunal’s judgment, the disputes turn on the construction of Clauses D2(a), D5(a) and D5(c).

Clause D1

30.Section V, Subsection D of the DMC concerns management expenses. Clause D1 is in the following terms:

“D. Management Expenses

(“Clause D1”)

1. The Owners of the Estate shall pay a due proportion of the Management Expenses which shall be made up of the following:-

(a) Crown Rent and all sums payable under the Crown Grant.

(b) The cost of carrying out all or any of the duties of the Manager set out in Clause 1 of Sub-Section B of SECTION V hereof Provided that the Owner of the Commercial Shares in the Estate shall not be liable to pay or contribute any costs and charges for the operation and maintenance of the lifts within each Block of the Estate.

(c) The cost of purchasing or hiring all necessary plant equipment and machinery.

...

(e) All water, gas, electricity, telephone and other service charges except where the same is separately metered to individual Residential and Commercial Units.

...

(h) The cost of affecting insurance in respect of or in connection with the management of the Estate.

(i) All charges, assessments, impositions and other outgoings payable by the Owners in respect of all parts of the Estate’s Common Areas.

...

(l) Workmen’s compensation and medical insurance of the security force, watchmen, porters, and caretakers.

...

(s) Auditor’s fee.

...

(w) Any other items of expenditure which the Manager considers to be necessary for the administration of the Estate.”

31.Clause D1 requires the “Owners of the Estate” shall pay a “due proportion” of the “Management Expenses” consisting of a list set out from subparagraph (a) to (w). Under the definition section of the DMC, “Estate” is defined basically to mean Fu Loy Garden and has the same meaning adopted in this decision. Fu Loy Garden comprises different portion such as a car park, 2 residential blocks and a shopping arcade. It is noted that meaning of Estate includes all facilities such as stairways, drainage, sewages, facilities or services installed in, under, on or over the land on which Fu Loy Garden is erected and for the benefit of Fu Loy Garden or any part thereof[22]. Basically the definition of “Estate” details each and every part of the real development known as Fu Loy Garden and does not add much to it.

32.“Owners of the Estate”, according to the definition clause[23], means owners for the time being holding undivided shares of the Estate entitling them to the exclusive use and occupation and enjoyment of certain parts of the Estate. So basically it means a co-owner of the Estate.

33.“Management Expenses” is defined to mean the costs charges and expenses for the management and maintenance as provided in the DMC[24]. Clause D1 stipulates that the Management Expenses “... shall be made up of” those items from (a) to (w). Clause D6 said each owner has to pay “... the monthly Management Expenses payable by that Owner as provided in Clause D2(a)”, and then call the same as the “Management Expenses”. In the Tribunal’s judgment, the combined effect of these provisions is no more than saying that co-owners of the Estate have to pay a right and proper amount of management expenses more particularly set out in subparagraph (a) to (w) of Clause D1 according to the rate set out in Clause D2(a).

34.Only certain subparagraphs of Clause D1 are listed above for illustration purposes, e.g. Government rent under Government grant: subparagraph (a); costs of the manager carrying out its duties set out in Clause 1 of Sub-section B of Section V: subparagraph (b); all charges payable by owners in respect of all parts of the Estate’s common areas: subparagraph (i); auditor’s fee: subparagraph (s), etc.

35.In relation to Clause D1, this Tribunal has the following 2 observations.

36.Firstly, in relation to Clause D1(b), it has been expressly stipulated that commercial shares owners shall not be liable for the costs and charges relating to the operation and maintenance of the lifts within each block of the Estate. The term “Commercial Shares”[25] is defined to mean all undivided shares of the Estate allocated to “Commercial Unit” which, according to the definition[26], basically means, for the present purpose, a shop on the Ground Floor. The term “Blocks” is defined to mean the 2 residential blocks of the Estate[27]. So it has been expressly spelt out in Clause D1(b) that shop owners are not responsible for the operation and maintenance of the lifts of the residential blocks when the Manager (whose duties is now taken over by the IO) carries out its duties according to Clause 1 of Sub-Section B of Section V (or “Clause B1”). Save and except this there is nothing in Clause D1 having the effect of excluding certain category of owners from payment of certain expenses, or imposing liability on a particular category of owners to pay exclusively certain expenses.

37.Secondly, Clause D1(b) refers to Clause B1 which bears a heading “Powers and Duties of Manager”. The subsection gives the Manager (now overtaken by the IO) the requisite powers to carry out its duties and requires him to maintain the Estate and the land on which the Estate stands in a proper manner in accordance with the DMC. In the subparagraphs of Clause B1 some specific duties are spelt out, including:

i) To ensure the interior of the residential units and shops are owned or occupied in a satisfactory manner, and in the event of default, to put in hand any necessary maintenance and to take all possible steps to recover the cost therefor from the defaulting owner or occupier: subparagraph (3);

ii) To keep all the Estate’s Common Areas well lighted: subparagraph (6);

iii) To keep in good order and repair the ventilation of the enclosed Estate’s Common Areas: subparagraph (7);

iv) To keep the Estate’s Common Areas in a clean sanitary and tidy condition: subparagraph (8);

v) To keep all the Estate’s and Block’s Common Facilities in good condition and working order: subparagraph (9). According to the DMC definition[28], the Estate’s Common Areas include main entrance to and exit from the Estate, main gate, access road, driveway, etc. Further according to the DMC definition[29], the Block’s Common Areas include common areas within a residential block including lift machine rooms, entrance staircases corridor with the blocks, etc;

vi) To keep all the Estate’s and Block’s Common Facilities in good condition and working order: subparagraph (12). According to the DMC definition[30], the Estate’s and Block’s Common Facilities basically mean facilities for the Blocks, e.g. lifts, and for the entire Estate other than for the Blocks’ benefit respectively within a residential block, e.g. transformer room. It is noted that CCTV in the car parks (if any) connecting directly to the Estate Office belong to Estate’s Common Facilities[31];

vii) To remove structures, etc in contravention of the DMC and to recover from the person by whom the structures was erected such costs of removal and making good: subparagraph (15);

viii) To maintain an effective fire fighting system and other fire services installations of the Estate: subparagraph (16);

ix) To provide a security force, watchmen, caretakers, and to maintain security in the Estate at all time: subparagraph (17);

x) To manage, control and maintain within the Estate the parking of cars and other vehicles, the loading and unloading of goods, the flow of vehicular traffic, the car parking spaces and the loading and unloading areas: subparagraph (18).  

38.It can be seen that although the Manager is authorized to manage the common areas/facilities of the Estate, he is also authorized to deal with flats exclusively owned apparently for the benefit of all co-owners as a whole: see paragraph 37(i) of this judgment. It can also be inferred that common areas in respect of a particular section, e.g. the 2 residential blocks, are expected to be larger in size than of other section. However, nothing has been said in Clause D1 on how expenses so arising are to be borne, or not be borne, by a particular category of owners, save and except the Clause D1(b) concerning lift expenses of residential blocks[32]. What has been stated in Clause D1 is that the owners, which mean all co-owners, shall pay a due proportion of these expenses.

Clause D2(a) & (b)

39.Clause D2 governs the fixing of the management expenses as follows:

“(“Clause D2 (a)”)

2.    (a)    Each Owner shall pay to the Manager monthly in advance a due proportion of the total budgeted Management Expenses for the year in an appropriate sum as mentioned hereunder:-

Unit of the Estate	Monthly Management Expenses
Shops Nos.1 to 47 (inclusive) on Ground Floor (Commercial Unit)	$0.40 per sq. ft. of the gross floor area of the Shop
Car Parking Spaces Nos.1 to 58 (inclusive) on 1st Floor	$60.00 (each)
BLOCK A
Flats A1, A4, A5 and A8 on 2nd Floor to 19th Floor (inclusive)	$220.00 (each)
Flats A2, A3, A6 and A7 on 2nd Floor to 19th Floor (inclusive)	$270.00 (each)
BLOCK B
Flats B1, B4, B5 and B8 on 2nd Floor to 19th Floor (inclusive)	$220.00 (each)
Flats B2, B3, B6 and B7 on 2nd Floor to 19th Floor (inclusive)	$270.00 (each)

“Clause D2 (b)”

(b)  The Owner of the Commercial Development shall also in respect of each Commercial Unit pay a due proportion of the expenses as budgeted by the Manager in respect of :-

(i) Electricity consumed by the air-conditioning system (if any).

(ii) Repair and maintenance expenses to the central air-conditioning system (if any).”

Clause D2(a)

40.On a proper reading of Clause D2(a), each co-owner of the Estate is required to pay the Management Expenses discussed in Clause D1 according to the rates set out in Clause D2(a). A CPS or residential flat owner is required to pay a fixed rate while a shop owner, according to the gross floor area of his shop at the rate of $0.4/sq ft, presumably because of their great difference in size (and thus the great difference in undivided shares allocated). The table at paragraph 10 of the Notice of Application has incorporated the gross floor area of the shops. The dollars arrived at are then converted to management fee share equivalence. The table is not in dispute. It is therefore reproduced below, with slight adjustment to figures and modification, for easy reference:

Categories of units	Monthly management Expenses	% of total Management Expenses
Shops	7,723 ($0.4 x 19,308 sq ft)	9.45% (7,723/81,763)
Car Parking Spaces	3,480 ($60 x 58 CPSs)	4.26% (3,480/81,763)
Small Residential flats	31,680 ($220 x 144 units)	38.75% (31,680/81,763)
Large Residential flats	38,880 ($270 x 144 units)	47.55% (38,880/81,763)
Total Management Fee Shares	81,763 shares	100%

41.It has been described in Clause D2(a) that a due proportion of the “budgeted Management Expenses for the year” which each co-owner is required to pay is “ ... the appropriate sum” mentioned in the table. In the Tribunal’s judgment, the author of the DMC has already fixed there the appropriate rate which each category of owners is required to pay in order to discharge a due proportion of their obligation towards Management Expenses.

42.Without further evidence on the drafting of the DMC, it will be difficult, if not impossible, to deduce a rational basis on how the author came up with his rates in the table. However, it is not unreasonable, and in fact it makes perfect sense for the author to adopt a broad brush approach by setting out a simple rate for each type of owners. Some of the management duties carried out by the Manager may apparently benefit certain groups of owners more than others. However, it will be difficult, if not impossible, to come up with a scientific or accurate apportionment of the Management Expenses referred to the DMC between owners when the DMC was at the drafting stage, normally before the building was completed. This may be the author’s best estimate in the circumstances. In any event this is what the co-owners have agreed. It does not appear to the Tribunal that Clause D2(a) has the effect of imposing certain expenses to be paid exclusively by a particular category of owners or, alternatively, excluding certain category from payment.

Clause D2(b)

43.Clause D2(b) specifies that the owners of “Commercial Development” shall pay a due proportion of the budgeted expenses by the IO (Manager under the BMO) in respect of (i) electricity consumed by the air-conditioning system (if any); and (ii) repair and maintenance expenses to the central air-conditioning system (if any).  

44.“Commercial Development” is defined to mean all the buildings and structures erected or in the course of erection at the ground floor level of the Estate intended for commercial use in accordance with the building plan[33]. In the Tribunal’s view, it means that on the top of the amount paid under Clause D2(a) or any other sum rateably according to the Clause D2(a) percentage, shop owners need to pay electricity, maintenance and operation of the air-conditioning system for the shopping arcade on the ground floor pursuant to Clause D2(b). Apparently, on a proper construction, all other owners are exempted from such payment. It is also noted shop owners are also not required to pay the lifts expenses relating to the 2 residential blocks: Clause D1(b).

45.The Tribunal does not consider construction of Clause D2 controversial. There is also not much turning on Clause D3 and D4.

Clause D5

46.The most controversial provision is Clause D5(a) and D5(c), and the entire Clause D5 is reproduced as follows:

“(“Clause D5(a) (b) and (c)”)

5.  The Management Expenses shall subject to the provisions of sub-section F of this section be apportioned between the Owners in the following manner:-

(a)  Where any expenditure relates solely to or is solely for the benefit of any Residential Unit or any Commercial Unit and no Owner of any other units would receive any material benefit therefrom the full amount of such expenditure shall be paid by the Owner of that Residential or Commercial Unit PROVIDED HOWEVER that in the case of any single item of expenditure not exceeding $5,000.00 the Manager may in its absolute discretion exclude the application of this sub-clause (a) with regard to such expenditure and apportion such expenditure in accordance with sub-clause (c) of this Clause.

(b)  Where any expenditure relates solely to the Estate’s Common Facilities providing service to the Estate or any part or parts thereof the amount will be treated as part of direct costs and contributed by the Owners accordingly.

(c)  Where any expenditure does not fall within any of the preceding sub-paragraphs (a) or (b) the amount shall be treated as direct costs and contributed by the Owners accordingly.

PROVIDED ALWAYS that where the Manager acquires shares in the Land and the Estate pursuant to SECTION VI hereof reference to “Owners” in this Clause shall be deemed to exclude the Manager. “

47.According to Mr Poon’s submission, the “user-to-pay” principle is derived from Clause D5(a) of the DMC. Since reference to singular shall include the plural and vice versa according to the definition section[34], the phrase “solely for the benefit of any Residential Unit[35]” can therefore be expanded to mean “solely for the benefit of any residential unit(s) or car parking space(s)”[36]. So the provision, his argument goes on, is applicable to owners by category. He said the second limb “...no Owner of any other units would receive any material benefit (emphasis added by Mr Poon)” needs be satisfied before the “user-to-pay” principle is applicable. So his submission is, so far as this Tribunal can discern from his argument, Clause D5(a) can mean, as far as the “user-to-pay” principle is concerned, that each category of the CPS, residential or shop owners are required to pay the full amount of an expenditure item if (i) the expenditure relates solely to or is solely for the benefit of the respective category of units; and (ii) no owner of any other units would receive any material benefit therefrom, subject to the Manager’s discretion to exclude the application of the said principle if the amount so incurred is less than $5,000.

48.Mr Wong disagreed. He considered in the application of singular includes plural definition, the phrase “where the context permits” must be implied. He said in the context of Clause D5, the plural is not applicable. His submission, in a nutshell, is this:

(i) all costs and expenditures, other than the charges and expenses relating to the maintenance and the operation of the lift of residential blocks and air-conditioning of the shopping arcade, should be apportioned according to the Clause D2(a) percentage; and

(ii) in any event, the present apportionment made by the IO according to the 2014 Budget is wrong even according to the IO’s own case as the items listed thereunder cannot be said to be for the sole benefit of the CPSs and/or no other category of owners can derive material benefits from these items.

49.As seen above, “Residential Unit” is defined to mean a Flat of Flats or Car Port or Car Ports. It basically means a residential flat or flats in the 2 residential blocks or a CPS or CPSs in a car park for the exclusive occupation of the respective owners. Accordingly, the car park common areas, staircase, driveways etc, are all excluded. The definition of “Commercial Unit” may cause complication[37]. However for the present purpose it will be sufficient to refer “Commercial unit” to mean a shop in the shopping arcade on the ground floor.

50.In the Tribunal’s judgment, Clause D5(a), construing in its singular context, plainly mean that if the expenses incurred are for the sole benefit of a privately owned CPS, a residential flat, or a shop (in contra-distinction to the common areas outside a CPS, flat or shop), the owner of that particular CPS, residential flat or shop (as the case may be) should bear such expenses solely. To this extent, the Tribunal accepts Clause D5(a) is saying “user-to-pay”. This echoes with the earlier part of Clause D5 referable to Clauses F1 to F3 covering the reverse situation concerning receipts of payment. However, this “user-to-pay” defined by Clause D5(a) is totally different from what has been asserting now by the IO. It does not entitle the IO fixing the management fee in the manner it is now doing.

51.In its plurality, if the expenses benefit solely all the CPSs or residential flats or commercial units each as a group, it will be difficult to say “user-to-pay” inapplicable to owners by category. In fact, it is no more than applying the “user-to-pay” in the singular context to a situation where each and every CPS, or residential flat, or commercial unit in the same category (as the case may be) happens to be benefited and no other co-owners have material benefit. If one of them within the same category does not benefit from that expense, he is still not liable pursuant to Clause D5(a). Accordingly, whether there exist certain expenses which are solely for or relating to a particular category of owners is entirely a question of fact which needs be determined on an item by item basis.

52.However, this Tribunal would like to point out the following.

53.Firstly, Clause D5(a) talks about a CPS, residential unit or commercial unit. Each refers to a part of the Estate exclusively used, occupied and enjoyed by its owner. It would therefore be difficult to envisage any expenditure being incurred by the manager (its role now played by the IO) for the sole benefit of, or solely relating to a part or parts exclusively owned by an owner or category of owners. At trial, some examples have been suggested. After exchanges between the bench and counsel, perhaps the situation where the IO is required to break in a flat, repair or replace a leaking tap with a view to prevent damages caused to other owners is the only appropriate example caught by Clause D5(a). Another example may be the situation when the IO is required to enter a flat or a CPS to remove an illegal structure which may pose dangers to others, though this may be rare. This is made possible because according to Clause B1(3) of the DMC which has been stated above, the Manager is duty bound to ensure that the interior of residential flats and shops are owned or occupied in a satisfactory manner, and if in default, to put in hand any necessary maintenance and to take all possible steps to recover the cost therefor from the defaulting owner or occupier[38].

54.As said above, the car park of the Estate comprises CPSs as well as common parts. In fact according to the car park plan of the Estate[39], the non-exclusively owned areas are of similar size to those exclusively owned CPSs, if not more. An owner of the residential flat or shop is as much entitled to have access to and use the car park’s common areas as the CPS’s owners. The DMC makes no distinction for different category of co-owners in using any part of the common areas of the Estate. Accordingly, common facilities installed in the car park cannot be said being relating solely or for the sole benefit of the CPSs. Taking the example of fluorescent tubes and other lighting installed in the car park and along the driveway. Apart from providing basic lighting for CPS users, other co-owners will be benefited from such lightings. It is not in dispute that all co-owners can access the car park podium via the drive way. Flat owners or occupiers can enter the residential blocks via the podium entries. Every other co-owner of the Estate is entitled to remain and stay at the car park podium as the CPS owners. This Tribunal accepts Miss Cheung’s evidence that owners have on many occasions gathered outside the IO’s office at the podium during some of its meetings. It is also not in dispute that during renovation/repair of the Estate, vehicles carrying building materials, equipment and machines very often park at the podium. They enter through the entrance on the ground floor and go up the podium via the driveway.

55.Further, as a matter of common sense, for security reason it will be desirable to keep the Estate reasonably and sufficiently lighted, particularly at night time so as to keep off buglers or trespassers. In the Tribunal’s judgment, it will be difficult to argue that the fluorescent tubes and lighting for the car park, including those installed along the driveway are relating solely to, or for the sole benefit of the CPSs.

56.Likewise, the electronic bar, the security booths (now used to house the machines of the bar), the CCTV and the car park intercom are all for the security of the entire Estate rather than solely or mainly for the CPSs. They help stop trespassers gaining access to the Estate via the car park by vehicles. Although the CPS owners are no doubt the more frequent users of these facilities than other co-owners, it cannot, in the Tribunal’s judgment, be said that they are to benefit or relate solely to the CPSs. The fact that other co-owners use less such facilities does not mean that the facilities are for the sole benefit of the more frequent users.

57.In addition, it has already been defined that the CCTV in the car parks (if any) connecting directly to the Estate Office is part of the “Estate’s Common Facilities”[40]. It can be inferred that the author has envisaged CCTV at the car park entrance is for the benefit of the entire Estate. According to Clause D5(b) these expenses are to be contributed by all co-owners. It makes perfect sense as the car park security is part and parcel of the security system of the entire Estate. Access to the residential flats can be through the car park which forms an integral part of the Estate. It will provide an alternative access point for trespassers if all these security/communication facilities are removed. In addition, being an open podium, it will become one of the safe gathering places of the Estate in case of fire. In the Tribunal’s judgment, the first limb of Clause D5(a) cannot be satisfied. The 2 limbs of the provision are inter-related. When the first limb is not satisfied, the second limb cannot normally be satisfied at the same time.

58.Secondly, it has to be emphasized the so-called “user-to-pay” principle is a generalized term capable of very wide meaning. Clause D5(a) happens to fit in such label when certain criteria are satisfied. However, its meaning must be qualified and defined by Clause D5(a), but not the other way round. The IO is not entitled to substitute Clause D5(a) with the label “user-to-pay”, and thereafter let the label dictate its meaning without reference to Clause D5(a) again. This is totally wrong. The adoption of a generalized label does not entitle the IO to import common sense meaning into it. Neither is the IO entitled to include in its meaning what it considers to be morally or politically correct. Splitting of an expenditure item to come up with what is the fair share of a co-owner is not what Clause D5(a) requires or suggests. It carries no such meaning or implication. The provision only says that when there is an expenditure item falling within its ambit, that expenditure is to be shouldered by the benefiting owner. It does not follow that every expenditure must then be split and be apportioned to each category of owners to satisfy the so-called “owner-to-pay” principle, even though it is incurred generally or charged indiscretely as a lump sum for the entire Estate. To do so requires a quantum leap. In the Tribunal’s judgment, the IO is doing violence to the language of Clause D5(a), or re-writing it.

59.In the Tribunal’s judgment, the fact that an expenditure item needs be apportioned before a so-called “user-to-pay” amount can be arrived at shows, prima facie, that that item is not for the sole benefit of an owner, or category of owners otherwise that item needs not be apportioned. That is why this Tribunal considers the adoption of the “user-to-pay” label dangerous, and can be totally misleading. Needless to say, the IO is not, under the pretext of “user-to-pay”, entitled to apportion every expenditure item at a proportion it deems appropriate for payment by a certain category of owners.

60.In the present case, the IO is obviously misguided by the “user-to-pay” label and applies a common sense approach in fixing the management fee. From the analysis above, the concluded amount of management fee for the CPS owners, no matter based on the 98/99 Budget or the 2014 Budget, is obviously premised on a wrong conception that every expense must be split in order to fit in their understanding of “user-to-pay”. The amount arrived at must be wrong.

61.The above could have disposed of the matter in favour of the Applicants. However, this Tribunal would like also to comment on the 2014 Budget (the 97/98 Budget is similar) to put the matters beyond doubts.

Cleaning expenses/Management Staffs Salaries

62.According to the evidence, the IO engaged 2 “self-employed” cleaning workers to do the cleaning work. The wages were averaged out. It is the IO’s estimate that one-quarter of an average worker is required to clean the car park and so, together with administrative fee ($50) and cleaning material for the car park ($100), the total expenditure under this head  to be shouldered by the CPS owners is $1,838.

63.As for other staffs managing and patrolling the car park, it is the IO’s estimate that the car park should share $8,367 based on one-third of a staff head count.

64.As the Tribunal has pointed out above, apart from the fact that Clause D5(a) does not require any apportionment of expenses, the DMC does not differentiate common areas of the car park from other common areas. Accordingly, cleaning or patrolling of car park common areas is no different from cleaning and patrolling of the common areas of the Estate. Even the staffs are cleaning and patrolling the common parts situated in the car park, such works are not for the sole benefit of those CPS owners. Alternatively, material benefits will be gained by the other co-owners. Clause D5(a) simply has no application.

Public Lightings

65.This has been discussed above. It cannot be said such expenses are for the sole benefit of the CPS owners. Clause D5(a) is inapplicable.

Fire Services System Maintenance and Other Repair Expenses

66.The expenditure for the fire services system of the entire Estate is $1,750 per month. The IO attributes one quarter of this amount to the car park, i.e. $437.5. In addition, the IO attributes one quarter of the “other repair expenses” for the entire Estate amounting to $5,510[41] to the CPS owners.

67.As discussed above, there is no requirement under Clause D5(a) to split any expenditure, particularly when the expenditure is charged as a lump sum for the entire Estate, and one will be unable to tell with any degree of accuracy which is what. Further, the fire services system serves to protect, inter alia, all CPSs as well as common areas within the car park. It is not solely for the benefit of the CPSs. By affording protection to common areas no matter where they are situated, all co-owners will be benefited in a material way. Clause D5(a) is simply inapplicable.

68.In any event the attribution of one-quarter expenses for sharing of the CPS owners is artificial and without basis. There is no evidence from the IO as to the basis for an expenditure item to be split equally between the 4 sections of the Estate. This seems to be an “across-the-board” ratio applicable almost all items. In the Tribunal’s judgment, the IO may be under a misconception that the owners of a particular section of the Estate should be responsible for common area within that particular section, and the areas outside the scope of the aforesaid 3 sections are regarded as communal. They may perhaps be further misguided by the “use-to-pay” label which is unfortunately, a misnomer. However, the DMC of the Estate does not make distinction of common areas in the manner the IO is now doing. Even assuming (without accepting) that a splitting is necessary, it will be difficult to understand why the amount attributable to the car park will be the same as the shopping arcade and the residential flats. Is the apportionment based on floor areas, or undivided shares, or other criteria, or is it simply arbitrary? From the available evidence, there is simply no justification for an equal splitting.

Insurance and Auditor’s Fee

69.The insurance premium and the auditor’s fee are apportioned equally between the four sections just like the case of Fire Services System. The premium for the entire Estate is $1,150 per month and a sum of $288 was allocated to all CPS owners. For auditor’s fee a sum of $143 is apportioned. The splitting of these expenditures suffer the same drawback as discussed under the head of “Fire Services System Maintenance and Other Repair Expenses” above.

Water and Electrical Repair and Maintenance/Sundry Expenses

70.It was stated the total expenses for the entire Estate are respectively $3,060 and $13,720 for the 2 heads. A one-quarter thereof is $765 and $3,430. Again Clause D5(a) does not require splitting and sharing among the four sections of the Estate. The same analysis concluding the inapplicability of Clause D5(a) set out under various heads above applies.

Sundry Expenses ad Manager’s Expenses

71.It is stated that the total sundry expenses for the Estate is $13,720 per month, and the Manager also charges $8,000 per month as its remuneration. A quarter of these expenditures are $3,430 and $2,000 respectively. As said above, Clause D5(a) is not satisfied for expenses incurred for benefit of a common parts situated in a particular section of the Estate does not mean owners of other sections not benefited. Anyway these are common areas belonging to each and every co-owner of the Estate and the DMC does not provide otherwise. In any event, Clause D5(a) does not require a split, and the one-quarter sharing ratio is total without basis.

Generally

72.Pursuant to the 97/98 Budget or 2014 Budget, in addition to the above expenses, the CPS owners have to contribute to the expenditure allocated to the so-called communal common parts according to the Clause D2(a) ratio.

73.There is simply no basis for the apportionment by the IO in the manner it does now. The only basis, so far as can be discerned from Mr Poon’s submission and the witness Mr Tang, is, as stated in [58] to [60] above, perhaps they are misguided by the “user-to-pay” label derived from Clause D5(a). What is most unfortunate is that at the same time, the IO is under a misconception that common areas within a particular section are the exclusive responsibility of co-owners of that part, and accordingly they come up with an idea of dividing the Estate into 4 equal sections with a category called “communal common areas”.

74.In the Tribunal’s judgment, Clause D5 sets out certain guiding principles on how Management Expenses are to be apportioned and spent. After perusal of Clause D5 and Clause F, it is fair to say that Clause D5(a) governs expenses incurred solely or predominantly for a unit are to be paid by that unit while Clause F governs incomes received in respect of a particular cause/unit are to be spent on the same cause/unit[42]. It has further been provided that an expense item relates solely to common facilities of the Estate is to be treated as “direct costs” and paid by all owners: Clause D5(b). But if neither Clause D5(a) nor Clause D5(b) are applicable, that item shall be treated as “direct costs and contributed by the Owners accordingly”: Clause D5(c).

75.There is no definition of what “direct costs” are. Taking into consideration of Clause D5(b), it is fair to say that “direct costs” simply means general management expenses to be shared by all the owners direct. Accordingly, Clause D5(c) is no more than saying if neither D5(a) nor 5(b) are applicable, the expenses are regarded as general expenses (or direct costs) to be shared by all owners.

76.Accordingly, the IO’s pleadings relying on Clause D5(c) concerning “direct costs” is not understood, totally misconceived and is without basis. The IO has misunderstood the meaning of “direct costs” which is just the opposite of the DMC meaning. In the context of the DMC, “direct costs” are those expenses to be shouldered generally by all parties in the proportion made under the DMC.

77.Clause 6 of Sub-section D of Section V of the DMC (“Clause D6”) stipulates:

“Each Owner shall in respect of each Residential or Commercial Unit owned by him pay to the Manager the monthly Management Expenses payable by that Owner as provided in Clause 2(a) of Subsection D of Section V hereof [i.e. Clause D2(a)] on the first day of each calendar month (hereinafter called “the Management Expenses”) PROVIDED ALWAYS:- (emphasis added)

(a)   ...

...”

78.It is therefore clear that by virtue of Clause D6, all co-owners have to pay the management expenses of the Estate according to the Clause D2(a) percentage, unless a category of owners is expressly made responsible for or excluded from payment of an certain expenses, such as the lift expenses of residential blocks[43] and the air-conditioning expenses of the shopping arcade[44].

Disposition  

79.For the foregoing reasons, the way in which the IO fixes the management fee is not in accordance with the DMC. This Tribunal considers right and proper to make the following declarations against the IO, namely,

i) A declaration that the IO’s calculation of management fees for the CPSs is inconsistent with and in breach of the DMC;

ii) A declaration that it is unlawful for the IO to charge $228 to each of the applicants’ CPSs and/or claim and/or claw back retrospectively from the applicants the difference of $110 per month per CPS for the period between October 2013 and September 2014; and

iii) A declaration that each owner of the Estate should pay the costs of installation, maintenance and repair of the electronic bar, the CCTV, the said booths, the car park intercom and the fluorescent tubes by reference to the proportions in accordance with Clause D2(a).

80.The IO’s counterclaim is hereby dismissed.

81.This Tribunal cannot see why the usual rule of costs following the event not applicable. Accordingly, this Tribunal makes an order nisi that the IO do pay the applicants’ costs of the claim and counterclaim, on District Court scale with certificate for counsel, such order nisi be made absolute if within 14 days there is no application to vary the same.

Mr Jonathan WONG instructed by Andrew W Y Ng & Co, for the 1^st to 5^th and 7^th applicants

Mr Jackson POON instructed by Huen & Partners, for the respondent