宏德居業主立案法團 v. 人人汽車有限公司 and Another
Read the full judgment text of LDBM 167/2019 on BabelCite. This Lands Tribunal judgment was delivered on 31 March 2023.
1. The applicant is the owners’ corporation of Walton Estate, Nos 341 & 343 Chai Wan Road and Nos 1 & 3 Yee Shun Street, Hong Kong (“the Estate”).
Cites 13 cases
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LDBM 167/2019 [2023] HKLdT 27 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION BUILDING MANAGEMENT APPLICATION NO 167 OF 2019 ___________________ BETWEEN
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___________________ J U D G M E N T ___________________ Background 1.The applicant is the owners’ corporation of Walton Estate, Nos 341 & 343 Chai Wan Road and Nos 1 & 3 Yee Shun Street, Hong Kong (“the Estate”). 2.The 1st respondent is the owner of Shop No 90, Ground Floor and Shop Nos 1 to 127, First Floor at Block B of the Estate (“the 1st respondent’s shops”). 3.The 2nd respondent is the owner of Carpark Nos 1-19, 21-24, 26-28, 30-37, 39-49, 51-74, 76-87, 89-99, 103-106, 109-113, 115-119, 121, 123-124, 127, 130-131, 133-134, 136 & 138-151 of the Estate (“the 2nd respondent’s carparks”). 4.The applicant’s claim against the 1st respondent is for outstanding management fees in respect of the 1st respondent’s shops for the period from April 2018 until the date of the order to be made herein, together with interest thereon and collection charge pursuant to clause 2 in section E of Part VI of the Estate’s deed of mutual covenant (“the DMC”). 5.However, the applicant only provided the amount of the outstanding management fees from April 2018 up to February 2022 totalling $3,087,038 in its closing submissions. It is not clear how much management fees are outstanding from March 2022 onwards. Thus, even if the applicant succeeds in its claim against the 1st respondent, I will only award the outstanding management fees from April 2018 to February 2022 in the sum of $3,087,038, and the applicant has to claim the outstanding management fees from March 2022 onwards by way of a separate action. 6.The applicant’s claim against the 2nd respondent is for outstanding management fees in respect of the 2nd respondent’s carparks for the period from January 2019 until the date of the order to be made herein, together with interest thereon and collection charge pursuant to clause 2 in section E of Part VI of the DMC. 7.Likewise, the applicant only provided the amount of the outstanding management fees from January 2019 up to January 2022 totalling $1,217,760 in its closing submissions. It is not clear how much management fees are outstanding from February 2022 onwards. Thus, even if the applicant succeeds in its claim against the 2nd respondent, I will only award the outstanding management fees from January 2019 to January 2022 in the sum of $1,217,760, and the applicant has to claim the outstanding management fees from February 2022 onwards by way of a separate action. 8.Both the 1st and 2nd respondents do not dispute the amount of the outstanding management fees as submitted by the applicant. They only dispute their liability to pay. The gist of their defence is that the 2018 and 2019 budgets had not been properly prepared in accordance with the DMC and the sums attributed to the owners of Commercial Development and the Car Port were unreasonable. On top of that, both respondents make counterclaims against the applicant. 9.The 1st respondent counterclaims for: (1) an order that the applicant do revise the budgets for the financial years from 2018/2019 onwards to make proper adjustment of the management fees of the 1st respondent’s shops payable by the 1st respondent in accordance with the Definitions clause in Part I and clauses 6(a) to (d) in section D of Part VI of the DMC; (2) an order that the applicant do within 3 months from the date of the order to be made herein carry out all necessary repair and maintenance works to repair the central air-conditioning system serving the Commercial Development at Block B of the Estate in good condition and working order; (3) loss and damages suffered or to be suffered by the respondent to be assessed; (4) interest; and (5) costs. 10.The 2nd respondent counterclaims for: (1) a declaration that the budgets for the yearly period of 2018/2019 and 2019/2020 approved and adopted by the applicant are invalid void and voidable, and the 2nd respondent is not required to pay management fees which are calculated based on these two budgets; (2) an order that the applicant is to revise the budgets for 2018/2019 and for 2019/2020 in accordance with the DMC to make proper adjustment of the management fees of the 2nd respondent’s carparks payable by the 2nd respondent; (3) an order that the applicant is to reimburse the 2nd respondent any overpaid amount, if any, after the correct management fee for the Car Port are calculated based on the budgets as revised according to (2) above; (4) interest; and (5) costs. The Estate 11.The Estate is a mixed commercial and residential development. There are four blocks of residential towers standing over two podiums. Podium A comprises the Ground, Mezzanine, 1st, 2nd and 3rd Floors of Block A, whereas Podium B comprises the Ground, 1st and Deck Floors of Block B. The Ground and Mezzanine Floors of Podium A, together with the Ground and 1st Floors of Podium B are used for commercial purpose (ie shops), whereas carpark spaces are located on the Mezzanine, 1st, 2nd and 3rd Floors of Podium A. Of the four blocks of residential towers, two were built above Podium A comprising the 4th to 26th Floors, and the other two were built above Podium B comprising the 2nd to 26th Floors. 12.According to the Definitions in Part I of the DMC, various parts of the Estate are defined as follows:-
Obligation to pay management fees to the Manager 13.At the material times, the Managers of the Estate (within the meaning of “Manager” in the DMC) were respectively:
14.By virtue of clause 4 in section A of Part V of the DMC, each owner shall pay to the Manager on the due date the Manager’s remuneration and Management Expenses as provided in the DMC. 15.As to the determination and apportionment of the estimated management expenses, section D of Part VI of the DMC provides as follows:-
16.The respondents agree that they have the obligation to pay the Manager management expenses as stipulated in the DMC as well as pursuant to sections 20, 21 and 22 of the Building Management Ordinance, Cap 344. Their contention is that the 2018/2019 and 2019/2020 budgets were not prepared in accordance with clauses 6(a) to (d) as mentioned above, and the Manager’s “absolute power and discretion to attribute the management expenses to either the Estate, the Commercial Development, the Residential Development and/or Car Port” under clause 6(e) have to be subject to compliance with clauses 6(a) to (d). 17.The applicant, on the other hand, contends that on a proper interpretation of the DMC, the Manager’s “absolute power and discretion” under clause 6(e) is not constrained by clauses 6(a) to (d), which only concern with “apportionment” process. The applicant further contends that there were logical and reasonable bases for the Manager’s attribution of various heads of expenses to the four parts of the Estate in the 2018/2019 and 2019/2020 budgets. Thus, there is no basis to suggest that the Manager and/or the applicant had exercised the discretion in an arbitrary, capricious and/or unreasonable manner. 18.The main issue in this case is therefore how clause 6(e) should be interpreted together with clauses 6(a) to (d). The law 19.The applicable principles regarding interpretation of the DMC are not in dispute. In fact, they have been more recently summarised in 黎偉雄 v 信和物業管理有限公司 [2020] HKCA 448 at §§26-28:
20.In Sino Channel Holdings Ltd v Vast Faith Investment Ltd [2020] HKCA 311, which was cited in 黎偉雄 at §26, the Court of Appeal (differently constituted) set out uncontroversial principles of contractual construction at §§19-21. The Court of Appeal further made two observations which are highly relevant to the interpretation of the DMC in the present case.
21.The following two canons of construction are also pertinent:-
Interpretation of clauses 6(a) to (e) 22.Applying the principles of law as stated above, the applicant contends that clause 6(e) is concerning “attribution” whereas clauses 6(a) to (d) are concerning “apportionment”. Clause 6(e) gives the absolute discretion to attribute management expenses without any constrains from clauses 6(a) to (d), and the first half of each of clauses 6(a) to (d) are only “description” of the nature of the estimated expenses in each part of the annual budget. 23.The applicant further relies on Promising Realty Ltd v Lam Wai Shan, CACV 120/1988, which concerned the same DMC and the same Estate, to support its contention that clause 6(e) gives the absolute discretion to attribute, and once clause 6 is complied with by making the basic division of the annual budget into four parts, the apportionment thereafter required is a matter of arithmetical calculation. 24.I do not agree with this interpretation. To me, it is plain and obvious that clause 6(e) is subject to clauses 6(a) to (d). First of all, clause 6(e) comes immediately after clauses 6(a) to (d), and it would be absurd to suggest that the attribution into the four parts are not constrained or guided by the first half of each of clauses 6(a) to (d). To interpret it that way, it is taking clause 6(e) out of the context, and would make the first half of each of clauses 6(a) to (d) surplus. 25.Just take an obvious example, if there is a water tap in the Car Port which is designated only for the car park owners to wash their cars. The expenses incurred in relation to this water tap must be attributed solely to or solely for the benefit of the owners of the Car Port. If the applicant’s interpretation is correct, it can attribute these expenses to say the owners of the Commercial Development instead of the owners of the Car Port because it has absolute discretion to do so and does not need to follow the categorisation in clause 6(d). This is plainly absurd. 26.The applicant may say that there is an implied duty for the Manager to act rationally or reasonably, and hence it cannot attribute the expenses arbitrarily as suggested above. However, what is rational or reasonable must be construed according to the circumstances of the case (see Lee Yin Hong v Serenade Cove (IO) [2011] 5 HKLRD 660). In the present case, there are clauses 6(a) to (d) defining four categories of expenses. It is just inconceivable that the Manager can ignore these clauses and treat them as just “description” instead of “constrains”. 27.In this connection, clause 3 in section B of Part VI of the DMC expressly provides that “All acts and decisions of the Manager arrived at in accordance with the provisions of this Deed shall be binding in all respects on all the Owners”, and clause 3 in section A of Part VI also provides that the Manager shall be bound by the Conditions, duties and obligations set out under the DMC. 28.The case authority on this point is Silver Triumph Holdings Ltd v Guardian Property Management Ltd, HCMP 566/2012, where the Court of Appeal dismissed the building manager’s application for leave to appeal and held that his right of control over the common areas and facilities was subject to the owners’ right to have access to the machine room via the refuse store chamber. In rejecting the building manager’s argument that it had “full and unrestricted authority” under the DMC, the Court held that the construction adopted by the trial judge “struck the right balance between the Owner’s right and the Manager’s right and is plain good sense” (at §16, per Kwan JA). 29.The Court of Appeal then declared that “it is trite, in a building management context, the rights of parties under a deed of mutual covenant are “not absolute and must as a matter of construction be subject to an element of reasonableness and also must coexist with other provisions in the DMC unless specifically excluded” (Music Advance Ltd v Incorporated Owners of Argyle Centre Phase I [2010] 2 HKLRD 1041 at 1048 para 14(a))”. 30.In the light of the above distilled principle which applies equally to the present case, it is clear that the applicant’s purported interpretation of the DMC could not possibly be proper or correct because it would only result in an unlimited power vested in the Manager in preparing the budget disregarding other express provisions in the DMC, and there would be no recourse available to the aggrieved owners. 31.This is against the practical objective intended to be achieved by a DMC in “facilitating the management of the building by reducing conflicts among co-owners on the one hand and preventing abuse by the manager and the majority owner on the other” (see Grande Properties Management Ltd v Sun Wah Ornament Manufactory Ltd (2006) 9 HKCFAR 462), and it also flouts business common sense in having one single party to an agreement vested with an unlimited discretion without any check and balance and which is not subject to any challenge as apparently suggested by the applicant. 32.Accordingly, on a proper construction of the provisions in the DMC, I am of the view that the 2018/2019 and 2019/2020 budgets were not prepared in accordance with the DMC as they were arbitrarily determined by the applicant in that many categories of expenses were arbitrarily apportioned before they were attributed, instead of being attributed to one of the four categories first, before they were apportioned. The 2018/2019 budget 33.Between July 2016 and June 2017, the applicant had suffered a deficit amounting to around $900,000. Under these circumstances, the then Manager, Creative Property prepared the annual budget for the year 2018-2019 allegedly in accordance with the provisions in the DMC. 34.The 2018/2019 budget contains four parts, being “住宅公用” (RCA), “停車場公用” (CPCA), “商業公用” (CCA) and “屋苑公用” (ECA). 35.The estimated management expenses of the following items were provided for under the 2018/2019 budget:-
36.Furthermore, for the purpose of apportionment in accordance with clause 6(b) in section D of Part VI of the DMC, the then Management Committee also engaged chartered surveyor to calculate the gross floor area of the Commercial Development and the Commercial Units of the Estate. Eventually, a Mr Au Kin-wah (who is a member of the Royal Institute of Surveyors and a member of the Hong Kong Institute of Surveyors) prepared the gross floor area calculations of the Commercial Development of the Estate dated 27 November 2017. 37.On 16 January 2018 and 30 January 2018, meetings were held during which the draft annual budget of 2018-2019 were explained to the owners of the Estate. The said draft annual budget was then revised and posted in the lobbies of the Residential Towers (including the lobbies of the Ground, Mezzanine, 1st, 2nd and 3rd Floor of Podium B) for no less than 14 days. 38.On 25 February 2018, the Extraordinary General Meeting of the Incorporated Owners (特別業主大會) was held during which resolutions were passed for inter alia the increase in management fees payable by each owner of the Estate effective from 1 April 2018. For owners of Car Port shares, there would be an increase of monthly management fees from $185 per share to $390 per share. For owners of Commercial Unit(s), the monthly management fees would be adjusted pursuant to the apportionment in clause 6(b) in section D of Part VI of the DMC. The 2019/2020 budget 39.Notwithstanding the increase in management fees payable for the year 2018-2019, the applicant still suffered a deficit of around $2.47 million from 1 April to 31 December 2018. In the circumstances and taking into account the actual expenditure in the year 2018/2019, the then Manager, Easy Living prepared the annual budget for the year 2019-2020 allegedly in accordance with the provisions in the DMC. 40.Similar to the 2018 Annual Budget, the 2019/2020 budget contains four parts, entitled “住宅”, “車場”, “商場” and “公共”. There is also an additional spreadsheet showing the total estimated management expenses of the Estate. 41.The estimated management expenses of the following items were provided for under the 2019/2020 budget:-
42.Easy Living submitted the 2019/2020 budget in the meeting of the Management Committee of the applicant on 18 April 2019. After discussion, the then Management Committee resolved to increase the monthly management fees payable by each owner of the Estate effective from 1 June 2019. Is it rational or reasonable for the applicant to apportion the expenses before attribution? 43.As can be seen from the two budgets mentioned above, the applicant had actually “apportioned” some of the expenses first and then attributed the “apportioned” expenses to the four categories. The applicant contends that there are logical and rational basis for the attribution so made in the two budgets as aforesaid, and the Tribunal should be slow in intervening the Manager’s exercise of its discretion. 44.However, I agree with the respondents that it is irrational and unreasonable to “apportion” the expenses first before attribution. 45.First of all, the non-compliance of the two budgets with the DMC can be illustrated in the treatment of the expenses for cleaning services under the 2018/2019 budget. In 2017, the applicant entered into a lump sum contract with a new cleaning contractor, namely Fai Kee Cleaning Company Limited. The monthly cleaning expenses for the whole Estate was set at the level of $158,000. However, the applicant apportioned this lump sum into various parts and then treated that the sum of $16,000 (ie 10.1%) as attributable to the Owners of the Car Port only. 46.The basis for such apportionment was unclear. According to the information filled in by Fai Kee in its tender form for the cleaning contract, a manpower of 0.6 person would be required for cleaning the Car Port area per day. However, the basis on which this new contractor arrived at the fictional figure of 0.6 person was highly questionable. Furthermore, the sum of $16,000, which was equivalent to the monthly salary of 1 rather than 0.6 cleaning worker, was eventually used in calculating the monthly cleaning expenses for Car Port owners. Such arbitrary apportionment by the cleaning contractor was adopted by the applicant and/or the Manager at all material times without any scrutiny. 47.The problem with such kind of apportionment was highlighted by the Tribunal in Century Globe Ltd and Others v Incorporated Owners of Fu Loy Garden, LDBM 24/2015 (“Century Globe”), where the car park owners prevailed in their claim against the incorporated owners on the ground that the latter’s fixing of management fees was inconsistent with the DMC. 48.At paragraph 59, the Tribunal remarked that “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.” 49.The Tribunal also indicated that “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.” 50.As such, the Tribunal concluded that “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”. 51.I agree with the Tribunal’s reasoning in Century Globe and apply with full force to the present case. The apportionment made by the applicant before attribution is in breach of the DMC. 52.The applicant, however, contends that practically, it is not preferrable to divide the services such as cleaning works of the Estate into four parts to be conducted by four contractors just for the sake of easy attribution of management expenses. As such, it is necessary to apportion the expenses under one single contract (eg cleaning, security guard, maintenance of passenger lifts) for the whole Estate into different components before they are attributed to the four categories. 53.However, as can be seen from the 2018/2019 and 2019/2020 budgets, such process of apportionment before attribution was so arbitrary, inconsistent, irregular, and irrational that they result in serious unfairness. These could not have been the intention of the drafters of the DMC. Instead, the DMC specifies that they must be attributed to Category 6(a), because they are not solely attributable or solely for the benefit of the Owners in Categories 6(b) to (d). 54.It should also be noted that in practice, grouping a particular type of service for the Estate to be conducted by one single contractor will have the benefit of avoiding duplication of overhead fixed costs and saving of time in managing interfaces amongst different contractors, thus leading to cheaper prices for carrying out the services, which is beneficial to the Estate as a whole. This practical aspect further justifies the DMC’s requirement for attributing the whole expenses under that one single service contract to Category 6(a), ie the Estate, without prior apportionment. 55.Further, even if the applicant is entitled to make apportionment prior to attribution of expenses, the two budgets were invalid for the reason that the expenses attributed to a particular group of owners under Category 6(b) to (d) were not “attributable solely to or solely for the benefit of” that group of owners, thus violating the requirements stipulated in the DMC. 56.This point was directly addressed by the Tribunal in Century Globe, where it was held that the services such as security booths were for the benefit of the whole estate rather than the car park only, namely those booths serve the function of stopping trespassers from gaining access to the estate via the car park by taking vehicles or gaining access to the residential flats, and “the car park security is part and parcel of the security system of the entire Estate”. 57.The Tribunal also held in Century Globe that the facilities such as the fluorescent tubes and other lighting installed at the car park, the CCTV, which was defined as the Estate's Common Facilities, the cleaning of the car park common area as well as other miscellaneous expenses are for the benefit of the whole estate. 58.I agree and adopt the above reasoning in the present case. Thus, the following heads of expenses under the two budgets should be attributed to Category 6(a), ie all owners of the Estate, having regard to the particular nature and utility of them:
59.Furthermore, the above reasoning is fortified by the provisions concerning the common areas in the DMC in that:-
60.The Carport Common Areas, also being defined as the Estate Common Areas, are deemed for the benefit of the whole Estate rather than just for the Car Port Owners. Thus, the management expenses incurred at the Car Port Common Areas, including cleaning, security guard, drainage and electricity should all be attributed to Category 6(a), ie the owners of the Estate. 61.As held by the Tribunal in Century Globe, “cleaning or patrolling of car park common areas is no different from cleaning and patrolling of the common areas of the Estate”, and “[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 other owners.” 62.I totally agree with the decision in Century Globe and the reasoning stipulated therein is equally applicable in the present case. 63.Furthermore, the Manager set the management fees for lift maintenance based on the serving floors of the lifts, and it deems that the Car Port owners would use a particular number of floors. 64.However, even on the applicant’s own case, it was inconsistent in calculating the number of serving floors for the Car Port under the 2018/2019 Budget. It first alleged that the number of lift serving floors for the Car Port owners and Residential owners was 21 floors and 194 floors respectively. The calculation was thus $432,000 (ie annual lift maintenance fees) x 21/(21 + 194) = $42,195.35, which was near the sum of $42,120 eventually allocated to the Car Port owners. 65.However, the applicant later corrected that the number of serving floors for the Car Port Owners and Residential Owners should be 18 floors and 208 floors respectively. The calculation of management fees to be allocated to the Car Port Owners was thus $432,000 x 18 / (18 + 208) = $34,407.08. It is his further explanation that the Manager took into account that the Car Port Owners would use the lifts in Block A and Block B, and it allocated a further sum of $7,710 to the Car Port owners as lift maintenance expenses based on the user-to-pay principle. 66.Even assuming that what the applicant alleged in December 2021 really represented the Manager’s actual calculation method, it is entirely unclear how the Manager could reach the figure of $7,710. No breakdown of calculation has been provided by the applicant from 2018 until now, nor was there any explanation on how the Manager quantified the Car Port owners’ usage of the lifts in both Block A and Block B of the Estate. 67.It is clear that the said figure of $7,710 is arbitrarily fixed by the Manager without any solid basis. Secondly, it reflects the Manager’s misconception in fixing the management expenses, namely it had to follow the so-called user-to-pay principle to split the expenses rather than attributing the management expenses according to the express requirements set out in the DMC. 68.In this regard, the Tribunal has reiterated in Century Globe the following: “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”. 69.Thus, it is wrong for the applicant to adopt the “user-to-pay” principle and ignore the DMC. 70.There are also manifest anomalies in the allocation of the cleaning, electricity and water charges over the years from 2016 to 2020, including:-
71.There is simply insufficient information disclosed by the applicant both to the owners and even in the present proceedings to explain and justify the way that the expenses were attributed and apportioned in the two budgets. 72.For instance, when the applicant’s witness Mr Choi was asked why there were expenses attributed to the Estate Common Areas in the 2019/2020 budget but none in the 2018/2019 budget despite that it was the same cleaning contractor - 輝記環保清潔有限公司that was providing the service, he responded that the expenses that should have been attributed to the Estate Common Areas in the 2018/2019 budget had already been spread to the other three categories and therefore by just looking at the budget 2018/2019, apparently there were none of the cleaning expenses so attributed to the ECA. 73.As a matter of fact, there is no way at all to verify the correctness and truthfulness of what Mr Choi has said by just looking at the documents disclosed by the applicant so far, and it seems that such kind of answers to the apparent anomalies in the budgets only exist in the mind of Mr Choi, but not recorded on any papers, nor known to other members of the applicant, such as another witness of the applicant, Ms Fong. 74.It is wholly unreasonable and unconceivable that the common parts of the Estate would incur no electricity, water, and cleaning expenses at all. Such unexplained and irregular allocations of water and electricity charges and cleaning expenses strongly suggest that they were arbitrarily fixed. 75.If such expenses were attributed in accordance with the correct and proper interpretation of the DMC as discussed above, the water charges, electricity, and cleaning expenses were incurred for the benefit of the whole Estate, and therefore they should be solely attributed to the Estate category to be borne by all the owners proportionally according to the undivided shares respectively owned by them rather than being apportioned arbitrarily before attribution. 76.Apart from the above, there is another salient issue regarding the management expenses for security guard, namely the Manager in the 2019/2020 budget arbitrarily allocated 6.25% of the total monthly expenses for the whole Estate to the Car Port category. No breakdown or explanation has been given by the applicant as to the basis for such allocation, even though the Car Port owners’ undivided shares in the Estate only account for 2.2% of the total shares. This is another example of the Manager’s allocation of the expenses to the Car Port owners being done unreasonably and arbitrarily without justification, and contrary to the express provisions in the DMC. 77.In view of the above analysis, in addition to the patent contravention of the express terms of the DMC, it is clear to me that the two budgets were prepared in an arbitrary and unreasonable manner. They should therefore be quashed. 78.Based on the respondents’ calculations, there should be significant difference between the amounts that the respondents were charged and the actual amounts that they were liable to pay. Thus, the de minimis principle does not apply in this case. The applicant’s claims 79.As the applicant or the Manager has not prepared the two budgets according to the DMC, and the attribution of some of the expenses to the 1st respondent’s shops and the 2nd respondent’s carparks were not reasonable or rational, the 1st and 2nd respondents are not liable to pay the applicant the management fees so claimed in this application. 80.Thus, the applicant’s claims for management fees, interest and collection charge must fail accordingly. The 2nd respondent’s counterclaim 81.It follows that the 2nd respondent is entitled to a declaration that the two budgets for the years 2018/2019 and 2019/2020 are invalid and void, and the 2nd respondent is not required to pay the management fees based on these two budgets. 82.The 2nd respondent is also entitled to an order that the applicant is to revise the budgets for the years 2018/2019 and 2019/2020 in accordance with the DMC to make proper adjustment of the management fees payable by the 2nd respondent. 83.However, assuming there are any overpayments, I am of the view that the 2nd respondent is not entitled to be reimbursed by the applicant for the overpaid amounts as they were paid voluntarily by the 2nd respondent and have been used for the management expenses. It is not equitable to ask the applicant to repay the 2nd respondent the amounts that have been used for the management of the Estate. In any event, the amount paid by the 2nd respondent is only at the level prior to the 2018/2019 budget, it is unlikely that there will be any overpayment. Likewise, the counterclaim for interest is not allowed. The 1st respondent’s counterclaim 84.The 1st respondent is also entitled to an order that the applicant do revise the budgets and make proper adjustment of the management fees payable by the 1st respondent. 85.However, the main counterclaim made by the 1st respondent is for an order that the applicant do carry out all necessary repair and maintenance works to repair the central air-conditioning system serving the Commercial Development at Block B of the Estate in good condition and working order, as well as loss and damages suffered or to be suffered by the 1st respondent to be assessed. 86.In this regard, it is clear that the relevant principles regarding the nature of obligation under section 18(1) of the Building Management Ordinance and the relevant provision under the DMC have been summarised in Lee Ming Yueh v Broadway-Nassau Investments Ltd and Anor [2012] 5 HKLRD 208 at §§23-25:
87.In gist, neither the relevant provisions in the DMC and/or section 18 of the Building Management Ordinance gives rise to any strict liability on the part of the applicant. It is wrong for the 1st respondent to suggest that the DMC gives rise to a strict liability or responsibility. What this Tribunal needs to examine is whether the applicant has failed to take appropriate steps having regard to the circumstances. 88.From the evidence before me, it is clear that the applicant has at all material times discharged its duty and taken appropriate steps for the maintenance of the air-conditioning of the Commercial Development. It is not disputed that various resolutions have been passed for the maintenance of the air-conditioning system between 2018 and 2021. Receipts of the maintenance services had also been produced which were not challenged. Apart from arranging for maintenance and repairs, the applicant had also taken other measures such as purchasing portable air cooling units in 2019. 89.It is the applicant’s evidence that (i) the applicant would handle the complaints from owner; (ii) the applicant had arranged for maintenance and repairs after receiving the complaints; (iii) the condition of the air-conditioning system was improved after each repair, and the applicant would ensure such improvement before paying the contractors; (iv) over the years, the condition of the air-conditioning system had been improving. 90.On the other hand, the 1st respondent did not produce any documentary evidence of complaints between late 2019 and 2021. The last complaint from “Kelvin百佳” was made in August 2019, and the last letter sent from the 1st respondent’s representatives to the applicant on this issue was in March 2019. Should the problem persist to the same extent, no doubt “Kelvin百佳” would complain to the 1st respondent repeatedly, and the 1st respondent would have written to the applicant in turn. There was no such correspondence. It is consistent with the applicant’s evidence that the air-conditioning systems had been improved gradually. 91.On the issue regarding the doors of air-conditioning room, it is salient to note that (i) the 1st respondent’s witness, Mr Leung, admitted he had no expertise in engineering and/or air-conditioning repairs, and thus the assertion that the air-conditioning issues were caused by the doors being left open was no more than a mere speculation; and (ii) the applicant’s witness, Mr Choi, explained the necessity of leaving the doors open before other repair works to the air-conditioning were carried out to reduce noises generated by the air-conditioner. 92.In the 1st respondent’s closing submissions, it was suggested that an appropriate step was to completely replace the air-conditioning system in the Commercial Development of Block B. However, I agree that it is not an appropriate step to be taken in the circumstances:-
93.In any event, replacing the central air-conditioning system is completely different from repairing and maintaining it. There is no duty under the DMC or the Building Management Ordinance for the applicant to replace the system. It is also not the term of the order sought by the 1st respondent. Thus, it is not something that the 1st respondent is entitled to seek for in this application. 94.In the circumstances, I find that the applicant has duly discharged its duty under the DMC and section 18(1) of the Building Management Ordinance. 95.Moreover, I agree with the applicant that the 1st respondent had failed to prove sufficiently the causation of the alleged breach, if any, and the loss. 96.First of all, there is no evidence showing the rents paid by PARKnSHOP for the period between 2018 and 2021 when that was the period when PARKnSHOP was supposedly most seriously affected by the air-conditioning issue (if at all). If, during this period, PARKnSHOP did not pay the 1st respondent lower rents, it would suggest that that the alleged air-conditioning issue had no causation whatsoever to the amount of rent payable. 97.There was also no evidence showing the course of negotiation between the 1st respondent and PARKnSHOP. The unequivocal fact is that PARKnSHOP had never terminated its tenancy with the 1st respondent. There was no other complaint from PARKnSHOP after 2019 and it is uncertain whether the air-condition was still a live issue in the course of negotiation for the 2021 tenancy. Mr Leung did not give evidence on the details of the negotiation, save his assertion that PARKnSHOP had threatened to move to Block A. While Mr Leung admitted that the commercial units owned by the 1st respondent had been rented to various lessees including JHC, it is intriguing that no other tenants of the 1st respondent similarly demanded for a cut of the rent during the course of 2018 and 2021. It shows that the alleged threat of PARKnSHOP to move to another place may not necessarily or solely be due to the air-conditioning issue. 98.Thus, I am not satisfied that the 1st respondent has established its counterclaim in respect of the air-conditioning issue against the applicant. Conclusion 99.In the circumstances, I make the following orders:-
Ms Allison WONG, instructed by CW Chan & Co, for the applicant Mr Ronald PANG Tsz fung, instructed by Ford, Kwan & Co, for the 1st Respondent Mr Vincent LI, instructed by Liau, Ho & Chan, for the 2nd Respondent |
Cases cited in this judgment
Further hearings and rulings under LDBM 167/2019