國祥大廈上海街635號業主立案法團 and Another v. 陳子坤 and Another
Read the full judgment text of LDBM 242/2018 on BabelCite. This Lands Tribunal judgment was delivered on 10 September 2021.
1. This application concerns the correct method of apportionment of management fees.
Cited by 1 case
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LDBM 242/2018 [2021] HKLdT 61 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION BUILDING MANAGEMENT APPLICATION NO. 242 OF 2018 _________________ BETWEEN
_________________ Before: Deputy District Judge Michelle Soong, Presiding Officer of the Lands Tribunal, in Court Dates of Trial: 21 April 2021 and 24 August 2021 Date of Judgment: 10 September 2021 _________________ J U D G M E N T __________________ INTRODUCTION 1.This application concerns the correct method of apportionment of management fees. 2.The 1st and 2nd applicants (“the applicants”) are the Incorporated Owners of the buildings known as Kwok Cheung Building, No.365 Shanghai Street (“No.365”) and Kwok Cheung Building No.367 Shanghai Street (“No.367”) which are respectively a 13-storeyed commercial building comprising of ground floor and 13 upper floors for offices. 3.The 1st and 2nd respondents (“the respondents”) are the registered owners of altogether four properties in the two buildings. 4.As the contents of the respective deeds of mutual covenant for No.365[1] and No.367[2] are substantially the same, the deeds will be collectively referred to as the “DMCs” in the discussion below. 5.The applicants claim against the respondents for $186,480 being the outstanding management fees at the rate of $630 per month from June 2012 to July 2014 (i.e. 74 months). 6.The applicants are represented by Mr Lok Tze Bong of Messrs. Lim & Lok Solicitors and the respondents are represented by Mr Victor Cheung. Mr Ma Ying Wai, the chairman of the applicants, testifies as the factual witness for the applicants. The 2nd respondent himself also testifies. APPLICANTS’ CASE 7.The applicants contend that the apportionment of the management fees payable by each owner of the buildings shall be fixed according to Schedule 4 of the DMCs by virtue of Clauses 5[3] and 6[4]. Clause 5 stipulates that:-
8.Section 6 of the DMCs provides that :-
9.The applicants contend that as the management fees fall within the scope of the expenses in Clause 5 and, by reason of the last sentence in Clause 6 (i.e. “The service charges payable at the date hereof have been fixed, per the Fourth Schedule hereto”), Schedule 4 shall be followed in the apportionment of management fees among the owners. 10.It is submitted that the apportionment in Schedule 4 under which ground floor owners are required to pay only half share is already reflecting the contribution requirements in Clause 5(c) which stipulates that ground floor owners are exempted from shouldering the expenses for the lifts, garbage disposal and cleaning of the common parts of the building. 11.The parties to the present proceedings were previously involved in other sets of legal proceedings in the Lands Tribunal and the Small Claims Tribunal respectively over similar issues of maintenance and management fees. It is submitted that the ruling in the prior Lands Tribunal proceedings[5] (“Prior LT Proceedings”) shall not affect the applicants’ current position because the Presiding Officer there did not deal with the issue of whether management fees should be apportioned according to Schedule 3 or Schedule 4 but only ordered the respondents to pay management fees. The prior proceedings in the Small Claims Tribunal[6] (“Prior SCT Proceedings”) also shall not have an impact on the present application because the Deputy Adjudicator just dismissed the claims without ruling on the proper approach of management fees apportionment. RESPONDENTS’ CASE 12.The respondents do not dispute that as a matter of fact since June 2012 they have not paid the monthly management fees in respect of the four properties they own. 13.The respondents contend that the apportionment of the management fees shall follow Schedule 3 because according to the Reasons for Judgment handed down by the Presiding Officer on 21 December 2011 in the Prior LT Proceedings, all expenses set out in Clause 5 of the DMC shall be shared and/or contributed by the owners in accordance with Schedule 3. 14.Schedule 3 of the DMCs governs levy, calculation and/or apportionment of the management fees of the building whereas Schedule 4 is about maintenance costs. It is therefore incorrect to adopt the apportionment method in Schedule 4 because the subject matter of the present claim is management fees rather than maintenance costs. 15.The respondents point out that the Presiding Officer in the Prior LT Proceedings already ruled that all expenses set out in Clause 5 shall be apportioned in accordance with Schedule 3 whilst other maintenance costs not falling within Clause 5 shall be apportioned according to Schedule 4. Therefore, there should be no room for further argument and Schedule 3 should be followed. 16.Lastly, in the 2nd respondent’s oral testimony, he says that his father (1st respondent) and he actually are willing to pay management fees so long as they are correctly calculated. Since the previous set of litigation in 2011, they realised that the management fee calculation had been wrong. They expected the applicants to rectify the calculations in light of the court’s rulings but to their disappointment, the applicants simply clung to the habitual ways of calculations and muddled on without any genuine intention to rectify. In 2016, the applicants sued the respondents in the Prior SCT Proceedings but their claims were dismissed. Thereafter, the applicants introduced minimal superficial changes to the calculations which were still incorrect. The respondents believe that withholding payment is the only way to make the applicants do the right thing. They hope this tribunal could explain the proper way of apportioning management fees under the DMCs so as to put an end to the protracted disputes between the parties on the subject which has lasted for a decade. PREVIOUS PROCEEDINGS 17.It would be beneficial to briefly explain the previous proceedings between the parties before coming to the part of substantive analyses. 18.In the Prior LT Proceedings, the applicant sued the respondents for outstanding management fees and repair/maintenance contributions in respect of the four units owned by the respondents. The respondents counter-claimed some “disbursements” paid by the respondents on behalf of other owners of the buildings as a whole. On 21 December 2011, the Presiding Officer ruled in favour of the applicant in the claim and partly allowed the counter-claim. He found in paragraph 13 of the Reasons for Judgment[7] that:-
19.The gist of the Presiding Officer’s ruling is that for the management fees and other maintenance costs that fall within Clause 5, Schedule 3 should be followed. In relation to the maintenance contribution towards some electricity installation inspection works[8], since it was considered by the tribunal in that case to be falling outside the scope of Clause 5, it was held that such expenses should be treated differently and should follow Schedule 4 instead of Schedule 3. 20.In the Prior SCT Proceedings[9], the applicants sued the respondents for the arrears of management fees from June 2012 to June 2016. The applicants contended that management fees shall be calculated in accordance with Schedule 4 whereas the respondents contended Schedule 3. The Deputy Adjudicator did not rule on whether Schedule 3 or Schedule 4 should be followed. She dismissed the claims on the ground that the applicants could not prove that the claimed amount was actually calculated in accordance with Schedule 4, even if Schedule 4 was assumed to be the correct approach. DISCUSSION Arbitration 21.By not invoking the arbitration clause in Clause 22, the parties apparently have elected to submit to the jurisdiction of this court to resolve the present dispute in lieu of arbitration. Res Judicata 22.The respondents concede that they would not take the argument of res judicata despite the Prior SCT Proceedings were essentially over the same issue. Given that the crux of the parties’ disputes on the proper way of management fees apportionment actually remains unresolved after that set of proceedings, I consider the respondents’ concession to be fair. Clause 6 23.Clause 6 of the DMC provides that:-
24.“The preceding clauses” is Clause 5 which provides that:-
25.I find it difficult to comprehend why the applicants would contend that the calculation of management fees shall follow Schedule 4, contents of which are appended in Appendix II. 26.First of all, there is not any provision in the DMCs requiring that management fees shall be apportioned according to Schedule 4. In the DMCs, the only reference made to Schedule 4, apart from Schedule 4 itself of course, is the last sentence in Clause 6 which states that:-
27.On the plain, ordinary and literal meaning of the words in the last sentence of Clause 6, Schedule 4 only sets out the apportionment ratio of the service charges payable as at the date of execution of the DMCs. 28.Whilst it is true that Clause 6 does not prohibit anyone from following Schedule 4 after execution of the DMCs, neither does it mandate anyone to follow Schedule 4 for any time longer than the initial establishment of the buildings. 29.To the contrary, the first part of Clause 6 expressly stipulates that those management-related expenses in Clause 5 shall be apportioned “in proportion to his [owner’s] share of and in the said Premises”. 30.According to the preamble of the DMCs, “the Premises” are those particularly described and set out in Schedule 2, that is the subject land on which the two buildings at suit are erected. 31.The preamble of the DMCs further stipulates that the notional division of the undivided shares of the buildings/premises and the allotment of the shares thereof to the owners are set out in Schedule 3, contents of which are set out in Appendix I. 32.Therefore, the combined effect of Clause 6 and the preamble of the DMCs is that the management-related expenses in Clause 5 shall be apportioned in accordance with Schedule 3. Other Clauses (Clauses 14, 15 & 16 all point to Schedule 3) 33.I note that apart from Clause 6, there are actually a few other clauses throughout the DMCs that require management-related expenses be apportioned by reference to the owner’s share of and in the Premises. These all constitute the basis for adoption of Schedule 3 in the apportionment of management-related expenses. 34.For example, Clauses 14, 15 and 16 of the DMC concern the manager/agent’s power to maintain the buildings and the owners’ obligation to contribute thereto in accordance with the owners’ respective share of and in the buildings.
35.Clause 14 states that all management-related charges and expenses properly incurred shall be recoverable from the owners of “the said Premises and the said Building in proportion to his share therein”. Clause 16 also stipulates that all management charges and expenses shall be paid by the owners “in proportion to his share of and in the said Premises”. Again, the undivided-share approach (i.e. Schedule 3) is the specified approached here in these clauses. Schedule 4 36.On that note, I shall move on to study Schedule 4 in greater detail. 37.Schedule 4 has nothing to do with the allotment or division of shares of the buildings or premises as it only sets out the service charges apportionment ratio applicable at the time of execution of the DMCs (i.e. in 1978). 38.In my opinion, it does not make sense to suggest that up to 2012[10], or now in 2021, that is some 30 or 40 years after execution of the DMCs, the applicants should still obsess with that historical approach of apportionment in Schedule 4 which was not said to be for permanent or long-term adoption. To so contend is no different from asserting that all other clauses[11] in the DMCs which clearly require that management-related expenses be apportioned according to the owner’s “share of and in the Premises” (i.e. the Schedule 3 approach) are wholly redundant. 39.In relation to the applicants’ argument that Schedule 4 could better enshrine the spirit of Clause 5 (see paragraph 10 above), I shall point out that this argument is mentioned for the first time in the applicants’ closing submissions. 40.I do not see any force in this argument. There is simply no evidence to show that the proportion in Schedule 4 is actually reflecting the intended share of responsibility of management expenses vis-à-vis ground floor shop owners and office owners under Clause 5(c). 41.To put it in another way, without documentary proofs evidencing the actual expenditures on lifts, garbage collection and cleaning of communal area (which shall not be borne by the ground floor owners) as well as the actual expenditures on other monthly management expenses (which shall be borne by all owners), one simply cannot verify whether the proportion in Schedule 4 really enshrines the intended manner of apportionment in Clause 5(c). 42.One further fallacy of this “enshrines Clause 5’s spirit argument” is that the fixed apportionment ratio in Schedule 4 presupposes some never-changing amounts of actual expenditures over the items payable by all owners and the items payable only by office owners. In the absence of any wording in Clause 5(c) to the effect that the exemption in favour of the ground floor owners thereunder is to be simplistically and symbolically implemented just by reference to a fixed ratio without regard to the actual expenses, I consider such hypothesis unjustified and a departure from the reality. 43.Again, if the applicants’ proposition is to be accepted, it would mean that all the provisions in the DMCs that require management-related expenses be apportioned according to the owner’s share of and in the premises (i.e. Schedule 3 approach) are not intended to carry any meaning or effect in the deeds. That obviously cannot be right. 44.As a principle of construction, if a clause in a contract is followed by a later clause which destroys the effect of the first clause, the later clause is to be rejected as repugnant and the earlier clause prevails. If, however, the later clause can be read as qualifying rather than destroying the effect of the earlier clause, or if the contract itself indicates which is to have priority, then the two are to be read together, and effect given to both[12]. This construction principle was approved in Tri-MG Intra Asia Airlines v Norse Air Charter Ltd [2009] 1 Lloyd’s Rep. 258. 45.In terms of the sequence of appearance in the DMCs, Schedule 4 comes after Clauses 6, 14 and 16 and also after Schedule 3. If the applicants’ contention (that Schedule 4 is to prescribe the apportionment ratio for management expenses) is right, it will simply destroy the effect of Clauses 6, 14 and 16 and Schedule 3 altogether and should be rejected as repugnant. In my opinion, the earlier clauses and Schedule 3 are calculated to carry into effect the real intention of the contracting parties to the deeds. They shall prevail over Schedule 4. 46.For the above reasons, I find that the applicants’ approach in apportioning management fees by reference to Schedule 4 is incorrect. I rule that Schedule 3 is the proper approach. Dismissal without Award 47.Whilst I have every intent to try work out the correct amount of management fees payable by the respondents in accordance with Schedule 3 by utilizing the available evidence[13], my hands are completely tied because in order to arrive at a figure that is compliant with Clauses 5 and 6 of the DMCs, I need to know the amounts of the management expenses for the subject years including the composition of those amounts. In particular, whether those amounts of management expenses consist of any maintenance element and, if affirmative, how much of such maintenance expenditure represents expenses on lift, garbage disposal and cleaning of common areas (which only office owners need to bear) must be known. Regrettably, there is no objective data or reliable evidence[14] in this regard. The amount of management fees payable by the respondents cannot be figured out without substantial compromise on the virtue of accuracy. 48.Mr Lok for the applicants and Mr Cheung for the respondents both confirm to this tribunal that they are content with a declaration on the proper way of management fees apportionment (i.e. whether Schedule 3 or Schedule 4 be followed) and do not require ruling on the correct amount to be paid by the respondents. The parties would follow up and calculate by themselves in accordance with the approach to be ruled by the tribunal. 49.Out of such background and as I am not satisfied that the claim amount is a proper one in compliance with the DMCs, I have no alternative but to dismiss the applicants’ application. Obiter Dictum 50.Given the parties’ different understanding of the rulings in the Prior LT Proceedings which concerns, inter alia, maintenance expenses and since the calculation of maintenance expenses may ultimately affect the calculation of management fees in some scenarios, I shall take this opportunity to express a few words on the apportionment of both management and maintenance expenses with a hope to bringing some more clarity to the situation so that further litigations between the parties over the subject could be avoided as far as possible. 51.In my view, all management-related expenses shall be apportioned in accordance with Schedule 3. 52.The Presiding Officer in the Prior LT Proceedings took the view that the maintenance expenses that fell outside the scope of Clause 5 shall not be apportioned according to Schedule 3 but shall follow Schedule 4. This view appears to stem from the fact that the learned judge identified some maintenance fee that did not fall within Clause 5[15], coupled with the following words (in italics) in Schedule 4 as he observed:-
53.Without disrespect to the learned judge, I beg to slightly differ from his view on the role of Schedule 4. I would adopt the reasoning in paragraphs 23 to 38 above without repetition. 54.In my view, the scope of the maintenance works covered by Clauses 5, 14, 15 and 16 is wide and the chance of having some maintenance works that are not covered by those provisions is rather slim. 55.But even if we do have a situation where some special maintenance works slip out of the net of Clauses 5 or 14 to 16, given that maintenance works be they “special” (in the sense of falling outside Clause 5) or “ordinary” (in the sense of falling within Clause 5) are equally for the same maintenance purpose and are of the same nature, I see no logical reason why when some maintenance works cannot be caught by Clause 5, the apportionment of such “special” expenses should then automatically depart from the Schedule 3 methodology and jump to a different approach in Schedule 4. 56.With respect to the draftsman of the DMCs, I have to fairly say that the DMCs were not very well-drafted. They contain internal incoherence[16] and demonstrate a lack of conscientiousness both in their structure and the choice of words. In my view, the reference to “maintenance costs” in the “preamble” of Schedule 4 is likely a mistake rather than a manifestation of the true intent of the contracting parties to the deeds. To adopt a different apportionment approach (i.e. depart from Schedule 3 and shift to Schedule 4) over the same nature of expenses (i.e. maintenance expenses) simply because the “preamble” of Schedule 4 oddly refers to “maintenance costs” when such baffling reference obviously does not align with the overall context of the deeds would, in my view, put the ruling on the artificial side. 57.Even if the “preamble” in Schedule 4 is not there purely by mistake, based on the construction principle as discussed in paragraphs 44 and 45 above, it shall be rejected as repugnant for it would destroy the effect of the earlier provisions and is patently inconsistent with the last sentence of Clause 6 which is the very provision that introduces Schedule 4 to the deeds. 58.In conclusion, I shall set out three observations for the parties’ reference. First, the ratio is Schedule 4 is not intended for apportionment of special maintenance costs. Schedule 4 is the prescribed service charges ratio adopted as at the date of execution of the DMCs which is not meant for long-term adoption. 59.Secondly, the management-related expenses whether for the daily management of the buildings or for the repair and maintenance thereof, insofar as they are recoverable from the owners under the DMCs, shall be apportioned in proportion to the owners’ shares of and in the building/premises (i.e. according to Schedule 3). 60.Thirdly, the applicants shall have due regard to the requirements in Clause 5 especially Clause 5(c) which specifically exempt the ground floor owners from bearing the expenses on lifts, garbage disposal and cleaning of common parts. 61.To carry this into effect, the applicants may consider maintaining different accounts, one for the expenses payable by all owners, the apportionment of which shall follow Schedule 3; and another account for the expenses payable by all owners except ground floor owners (i.e. expenses on lifts, garbage disposal and cleaning of common parts), the apportionment of which shall, again, follow the proportion of shares in Schedule 3 just that when working out the apportionment ratio as between the office owners for this second account, the shares held by the ground floor owners should be excluded. COSTS 62.The applicants agree that costs should follow the event. As the applicants lost in this application, they shall bear the respondents’ costs of this application (including the costs of 7 December 2020 which was supposed to be the first-day trial but was adjourned due to Mr Lok’s sickness), to be taxed on the District Court scale if not agreed. Counsel certificate is granted.
Mr. Lok Tze Bong of Lim & Lok, for the 1st and 2nd Applicants, present Mr. Victor C. F. Cheung instructed by Joseph P. K. Pang & Co., Solicitors & Notaries LLP, for the 1st and 2nd Respondents, present Appendix I The Third Schedule of Kwok Cheung Building, No. 635 Shanghai Street
The Third Schedule of Kwok Cheung Building, No. 637 Shanghai Street
Appendix II The Fourth Schedule of Kwok Cheung Building, No. 635 Shanghai Street In so far as they concern the maintenance cost in the said building shall be borne in the following proportions:-
The Fourth Schedule of Kwok Cheung Building, No. 637 Shanghai Street In so far as they concern the maintenance cost in the said building shall be borne in the following proportions:-
[1] The Deed of Mutual Covenant in respect of No.635 was registered in the Land office by memorial no.1615268 on 23 November 1978. See Bundle pp 45 – 70. [2] The Deed of Mutual Covenant in respect of No.637 was registered in the Land office by memorial no.1592763 on 13 October 1978. See Bundle pp 71 – 97. [3] Bundle pp 48 – 50. [4] Bundle p 50. [5] LDBM 35 – 38/2011 [6] SCTC 33828 – 31/2016 [7] Bundle pp 99 – 106. [8] Referred to as “RW2” in the Reasons for Judgment, see paragraph 11 thereof. [9] For the transcript, see pp 113 – 115. [10] The year when the respondents started refusing payment. [11] Including Clauses 5, 6, 14 and 16. [12] The Interpretation of Contracts, Lewison, 6th Edition, para 9.08 on [519]. [13] Say, by adopting an approximate total management expenses of $8,820 per month. [14] I specifically ask Mr Lok whether the management fees composed of any maintenance expenses and he confirmed that it is not the applicants’ case that the management fees contain such. This position of the respondents is contrary to the oral testimony of their factual witness, Mr Ma, that around 70 to 80 percent of the month management expenses consist of cleaning, electricity and the maintenance of lift. [15] See Footnote 8. [16] The only clause that introduces Schedule 4 is Clause 6 which describes Schedule 4 as one fixing the ratio of service charges payable by the owners at the date of the DMCs. There is apparent inconsistency between Clause 6 (which states that Schedule 4 is the apportionment ratio for service charges at the date of DMCs) and Schedule 4 (which states that it is the ratio for maintenance costs). |
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Further hearings and rulings under LDBM 242/2018