Best Homes Ltd. v. The Incorporated Owners of Marina Cove and Another
Read the full judgment text of LDBM 90/1997 on BabelCite. This Lands Tribunal judgment was delivered on 28 July 1999.
1. The Applicant is an owner in the development known as Marina Cove at Lot No. 526 in D.D. 210 Sai Keung, New Territories (the Estate).
Cites 2 cases
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LDBM000090/1997 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION Building Management Application No. BM 90 of 1997 _________________
________________ Coram : Deputy Judge LEE
Date of Judgment : 28 July 1999 ----------------------------- J U D G M E N T ----------------------------- The Parties 1. The Applicant is an owner in the development known as Marina Cove at Lot No. 526 in D.D. 210 Sai Keung, New Territories (the Estate). 2. The first Respondent is the incorporated owners of the Estate. 3. The second Respondent is a management company, the present manager of the Estate, appointed by the first Respondent on 13th May 1996. Deed of Mutual Covenant and definitions 4. A Deed of Mutual Covenant, under Memorial number 110898 (the DMC), was registered at the Lands Registry in relation to the Estate. 5. The Estate consists of the "whole of the development known as Marina Cove constructed on the said Land including but not limited to all the Residential Development, the Commercial Development, the Commercial Car Parks, the Marina Club, the Lagoon, the Marine Structures, the Service Areas, the non-marine structures, Internal roads and paths, open space areas, common areas drainage and sewage facilities, caretakers' and security guards' offices and quarters and other facilities or services installed in under on or over the said Land for the use and benefit of the Estate or any part or parts thereof or any portion or portions thereof." This is so defined in the DMC. 6. The "said Land" is "all the piece or parcel of land (including the lagoon therein) registered in the District Land Office Sai Kung as Lot No. 526 in D.D. 210 and the Extension thereto and any further Extension thereto or any portion or portions of the said piece or parcel of ground." Conditions of Grant 7. The Director of Lands approved Master Layout Plans for the development of the said Land including the landscaping plan on 7th July 1981, in accordance with the Conditions of Grant. The Conditions of Grant included " All the general and special Conditions contained in the Conditions of Exchange dated the 30th day of July 1979 and registered in the District Land Office Sai Kung as New Grant No. 6296 as varied by an Extension Letter dated the 21st day of March 1983 and registered in the said District Land Office, Sai Kung by Memorial No. 105191 and as modified by two Modification Letters respectively dated the 2nd day of November 1982 and the 17th day of January 1984 and registered in the said District Lands Office, Sai Kung by Memorials Nos. 104238 and 106607 and as may be further varied or modified from time to time." The Applicant's ownership in the Estate 8. The Applicant is the owner of the commercial development, which is defined as " All those buildings erected or to be erected on the said Land intended for commercial use in accordance with the Master Layout Plans."; the Reserved Portions, defined as " All those parts of the said Land reserved or intended to be used for communal or public purposes and the facilities erected or intended to be erected thereon including the Marina Club (and facilities associated therewith), caretakers' offices and quarters sewage treatment plant, sewage pumping stations, refuse collection facility, water storage facilities, Internal roads and paths, open space areas, stream courses, and Marine structures." The Marina Club is defined as " All those buildings erected or to be erected on the said Land intended for use as a Marina Club in accordance with the Master Layout Plans together with the serviced flats (if any) shown on the Master Layout Plans and recreational facilities such as swimming pools and tennis courts." The Marine structures are defined as " Breakwaters, piers, moorings, jetties, pontoons, buoys and sea wall in around the Lagoon including hoists, cranes and other utility services installed on or in such structures including the boat repair workshop, the slipway (if any), the boat storage area (including the dry boat stacking area and facilities) and the fueling area." The Applicant is also the owner of the Commercial car parks, which are "All those open car parking spaces and all those covered car parking spaces on the said Land intended for use by members of the Marina Club and members of the public in accordance with the Master Layout Plans." The management fees allocated to the Applicant 9. By a resolution on 6th March, 1997, the management committee of the first Respondent decided that the management fees should be levied against the Applicant in the sum of $21,565 for the Marina Club House, $21,565 for the Commercial Development, and $258,777 for the Reserved Portions, that is a total of $301,907 per month. The second Respondent, the management company, recommended the budget, which was passed by the first Respondent's management committee. Under this budget, the Applicant's share in the management expenses was based on the Applicant's undivided shares in the development. The amount so charged is equivalent to 28% of the total management budget. Shares in the Estate 10. There is a total of one million undivided shares in the Estate, in accordance with the fourth schedule to the DMC. The schedule also sets out the shares of and in the Estate allocated to the various part or units in the Estate. Under the fourth schedule, the residential development was allocated with 720,000 shares in total. 11. Under the DMC, 20,000 undivided shares are allocated to the Marina Club, 20,000 undivided share to the Commercial Development including the Commercial Car Parks, and 240,000 undivided shares to the Reserved Portions. The DMC did not define the undivided shares as being equivalent to management shares. The Applicant's position 12. It was submitted on the Applicant's behalf that S.39 of the Building Management Ordinance Cap.344, which provides for the determination of owner's shares, is irrelevant, as the DMC had provided for the determination of an owner's shares. 13. The Applicant disputed the method of calculation adopted by the second Respondent, the management company, which acted in accordance with the first Respondent's instructions and resolution. 14. The Applicant contended that the management fees should be allocated in proportion to the gross floor area (GFA) of the Applicant's property. The Marina Club has a GFA of 1,897.763 square metres, the Commercial Development, a GFA of 2,221.569 square metres, and the Boat workshop, forming part of the Marine structures and therefore part of the Reserved Portions, 46.463 square metres. The total GFA of the Applicant's property is 4,165.795 square metres, or 5.9% of the total GFA of the Estate, which is 70,606 square metres. The GFA of the houses and apartments in the Residential Development is 66,440.795 square metres. 15. The Applicant initially considered $63,616.112 to be the correct amount of management fees payable. This is 5.9% of the total management fees. During the hearing, the Applicant produced a final figure that it considered to be payable, as its contribution towards the expenses of the common areas and facilities in the Estate, at $18,998.64. 16. The Applicant sought the determination of the Lands Tribunal on the calculation or apportionment of the management fees to be borne by the Applicant in respect of its properties in the Estate in accordance with the Deed of Mutual Covenant. The Respondents' position 17. The Respondents opposed the application. 18. The Respondents contended that the management expenses contribution from the owners should be calculated in accordance with Clause 8 of the DMC. Their interpretation was that the Applicant's undivided shares in the Estate should be taken as the basis for the calculation of the Applicant's share in the management expenses. It is not in dispute that the DMC does not define the undivided shares as being equivalent to management shares. Deed of Mutual Covenant Clause 8 19. Under the DMC, Clause 8 provided that:
Sub-clause (iv) dealt with the remuneration of the management company, while (v) dealt with insurance . Sub-clause (vi) provided for a contingency and deficit fund, (vii) for legal accounting fees, and (viii) for a Bond under the Conditions of Grant. This is referred to as the Part A expenses.. 20. The next relevant part of the DMC is part C under the same clause, which reads :-
21. Under Clause 8 (b) :-
The Representative Committee 22. The Representative Committee is a committee of 7 persons set up under Clause 6B of the DMC. The functions of the committee includes liaison with the Management Company in respect of all matters dealing with the management of the said Land and Estate; and reviewing of the annual budget. It is now the management committee. Deed of Mutual Covenant Clause 8 (c) 23. The Respondents relied on the following sub-clause in the DMC to say that their allocation of contribution was correct. Clause 8 (c) provided :-
Building Management Ordinance Cap. 334 24. Under the Building Management Ordinance Cap. 334, at section 20, an incorporation of owners shall establish and maintain funds. Section 20 reads
25. Section 21 of the same Ordinance reads:
26. Subsection (4) reads :-
Subsection (5) reads :
27. The Fifth Schedule states :-
28. According to section 22
Basis for Apportionment 29. The DMC and the Building Management Ordinance Cap.334 (BMO) are the legal basis for the apportionment of management fee. 30. It is not in dispute that the Management Committee of the first Respondent has taken the place of the Representative Committee referred to in the DMC, with the powers and duties vested in it under the DMC and the BMO. Issues 31. According to the Applicant, there are two issues involved. 32. The first issue is how the manager apportioned the total expenditure between Part A and Part C. 33. The second issue is, after the apportionment of the total expenditure between Part A and Part C, how the expenses are to be shared by the owners. 34. The Applicant is not concerned with Part C expenses, but with the allocation of the contribution required of its shares under Part A. 35. The commercial car parks, the commercial development, the Marina Club, the lagoon, the Marine Structures and the Reserved portions are all managed by the Applicant. The second Respondent has no separate budget for these parts. 36. The Reserved Portion (apart from the club), and the lagoon, cannot be assigned. All the common areas and common facilities of the Estate form part of the Reserved Portion. The club is subject to license for use as a club only. The Application 37. The Applicant seeks the determination of the Tribunal on the calculation or apportionment of the management expenses that the Applicant should bear in respect of its properties in the Estate in accordance with the DMC. 38. The Applicant submitted that the only criteria relied upon by the manager, the second Respondent, for the allocation for Part A expenses was according to the undivided shares, as if these were the same as management shares. This was considered to be contrary to Clause 8 (c) of the DMC. While the Management Company has an absolute discretion, the decision had to be "reasonable after taking into consideration inter alia the proportion which the gross floor area of any building owned by the owner bears to the total gross floor areas of the completed buildings in the Estate, the Commercial Development, the Residential Development, or the Commercial Car Parks (as the case may be), to be paid in the following manner :-
39. The Applicant contented that the Management Company should not just take the undivided shares as management shares, but should also take into consideration other factors, such as the gross floor area. The second Respondent has taken all the common area and included them in its calculation. The Applicant considered this to be in breach of the DMC. The first Respondent acting, through its management committee, on the second Respondent's recommendation in adopting the proposed budget, is also considered to be in breach. 40. The Applicant's contention is that, taking all the preliminary interchange of correspondence and documents between the developer and the relevant Government departments into account, the intention that management fees were to be attached to gross floor area must be clear. When the relative value of the residential development and the other parts owned by the Applicant are taken into consideration, what is obtained from the gross floor area concept is submitted to be similar to this value, and therefore, the gross floor area concept should be a fair one. It is further submitted that if the gross floor area concept was used, it would be in compliance with clause 8 (c) of the DMC, and the Respondents would be acting fairly. Such a decision, in accordance with the DMC, must be binding on all parties. The DMC provides at clause 13 (j) (iii) that no resolution shall be valid if it is contrary to the provisions of the DMC. 41. On 4th April 1997, the Applicant wrote to the second Respondent, objecting to the proposed budget, and requesting for the particulars of the budget, regarding the division of the various expenditure between the common area and the residential portion. It was the Applicant's case that it was not until 14th November, 1997 that such information was provided. 42. On 4th April 1997, the Applicant also wrote to the first Respondent, putting on record their view that the management committee had no power to impose management fees which had not been fixed in accordance with the DMC. The Applicant requested for particulars of the budget regarding the division of various expenditure between the common area and the residential portion. Reminders were sent to the Respondents on 24th April, 1997. 43. The Applicant's second witness agreed that there had been no request to the Respondents to supply supporting documents on the budget, but considered that there could be no agreement, even on the amount of the actual expenses themselves, when no supporting documents were supplied. 44. A request for supporting documents was actually made on 26th October, 1998. Schedules A and B 45. On 1st May, 1997, the second Respondent replied with two schedules, A and B, showing the building's expenditures and their cost allocation. It was explained that in preparing the budget, the second Respondent had "actually divided the costs according to their nature and job specification. Should the work" concern " the whole estate," the second Respondent would " put it into common account, or otherwise" the second Respondent would " place it to respective cost centre." Schedule A In schedule A, the division was into individual items, their respective total costs, the allocation for the common part (Part A expenses), and for the residential part (Part C expenses). Schedule B In schedule B, brief explanation was given for the allocation. Staff cost 46. Except for 12 caretakers of two shifts for the two high rise buildings and the residential part, and 4 staff for the management of Gate 3, all staff costs were allocated to Part A. Cleaning contract 47. Except for an amount of $22,000 allocated to the Part C for refuse collection, all costs at $54,480 were allocated to Part A, as being for the whole Estate. Contract maintenance 48. The costs for the sewage treatment plants and pumping were all allocated to Part A as being for the whole Estate. The lift maintenance, at $4,000, were all allocated to Part C as lifts were provided in the two high rises only. Repair work 49. The costs for repairs to the pimping, pressure tanks, lighting, sewage plant, the communal antenna broadcasting system (CABD), drainage and piping etc., were allocated at $165,000 to Part A, and $4,400 to Part C. The allocation was justified in that, except for part of the repair cost of pumping, lighting, fire system and the lifts, all of these are provided for the benefit of the whole Estate. Electricity 50. Except for $4,000 allocated to the high-rises, the total amount was allocated to Part A. Insurance 51. A sum of $8,828 is allocated to Part A and $800 to Part C, in the same proportion as for Staff costs. Sundry expenses 52. This item included the Crown rent, ( the Government rent ), sewage treatment license fee, stationery, telephone and related charges. Except for an amount of $1,000 for telephone charge and postage for the high-rises, the remaining sum of $12,419 was allocated to Part A. 53. The Applicant considered this to be unfair, unreasonable and in contravention of the DMC. The Applicant contended that the GFA method should be used. The Applicant's first witness 54. The Applicant's first witness, Wan Man Yee, the project manager of the development of Marina Cove, gave evidence of the concept perceived to be the intention behind the allocation of undivided shares to various parts of the Estate. However, there was no admissible evidence in support of the pre-contract negotiations. This witness's interpretation cannot be taken to be the basis for interpretation of the DMC. 55. The Applicant's first witness referred to Clause 8 of the DMC, to say the management fees should be determined with reference to the GFA. His evidence was that the GFA of the Commercial Development, the Boat Yard and the Marina Club, which have GFA calculated under the terms of the Conditions of Exchange, accounts for 5.9% of the total GFA in the Estate. To show that this was a fair concept, he tested this against the values of the properties in the Estate. 56. The Applicant's first witness approached the apportionment from the valuation point of view, borrowing the concept of using the rateable value as a basis for valuation. Rateable value is based on the annual rental value, which in turn depends on the type, nature and user of the property. He calculated the total rateable value of the buildings held by the Applicant to account for about 5.5% of the total rateable value of all buildings in the Estate. 57. He also considered the matter from a capital valuation point of view. For residential units, the Applicant's first witness took the view that they would have an 8% yield per year, giving a multiplier of 12.5 times of their annual rental value. For the Commercial Development, he expected a 10% yield per year, giving a multiplier of 10 times the annual rental value. He calculated the total capital value of buildings held by the Applicant to account for 4.4% of the total capital value of all buildings in the Estate. 58. The Applicant's first witness then concluded that the GFA method, at 5.9% of the total management expenses, was a fair one. 59. In support of its contention that the GFA method should be used, the Applicant also referred to a note from Mr. Edward Kong, a staff of the second Respondent, to a Mr. Winson Lam of the management committee, dated 7th October, 1996. That was a record on the "Calculation of Management Fee of Commercial Development and Club House by means of Gross Floor Area". In the document, it was stated that based on the calculation of the management fee at $14.0685 per square metre, the "Commercial Sector and the Club House shall bear the monthly management fee as follows accordingly :
This document was not discussed or circulated at the management committee. (The Respondents' evidence was that this was produced at the special request of Mr. Winson Lam, and was not part of the Respondents' basis for apportionment of the management expenses.) The Applicant's second witness 60. The Applicant's second witness was the manager of Club Marina Cove, Mr. Tso Tat Shing. Mr. Tso was a member of the management committee from the time of the incorporation of the owners until sometime in April, 1997. He was present at the management committee meeting on 6th March, 1997, when the budget was presented for members to vote on. His evidence was that there was no discussion on the budget, which was passed by all other members of the committee. His was the only dissenting vote. He disagreed with the allocation in the schedules, A and B. He produced charts to show the Applicant's position. Staff cost 61. Under the item of staff cost, his evidence was that it was unfair and contrary to Clause 8 (a) (A) and (C) of the DMC to allocate all of the costs for the office staff, account and administration to Part A expenses, as these were not solely incurred for the Estate common areas and facilities. He contended that the ratio of all items of expenditures between Part A and Part C budget must be first ascertained. The ratio would then be used to apply to apportion the staff cost under these three items. Office staff - Of the total budget amount of $73,810.00, the Applicant's second witness considered that only 19%, at $14023.90, should be allocated to Part A. The remaining 81%, at $59,786.10, should be allocated to Part C. Technicians - the total budget for this item was 41,480.00. The Applicant's second witness considered that 19% of this amount, at $7,881.20, should be allocated to Part A, and the remaining 81%, at $33,598.80, to Part C. 62. For the caretaker staff and security cost, he considered that only 4 to 5 of the security staff patrolled the whole of the common areas of the Estate, and the rest were confined to the Residential Development. He suggested that the major internal roads should be measured. By identifying the length of the internal roads beyond the two gates, Gates 1 and 2, leading to the residential development, and the Part A common area, one could use the relative length in ratio as a percentage to effect the apportionment. The Applicant's second witness arrived at a figure of 14% for Part A. His contention was that 14% of the cost of 2.5 out of 11 caretaker staff should be allocated to Part A, and 14% of 2.5 guards out of 24 should be allocated to Part A. The rest should be allocated to Part C. His evidence was that he was appointed to be in charge of an ad hoc group for security and maintenance, and that he designed the patrol system and zones for the Estate. Caretakers - The budget amount was 217,432.00. The Applicant's second witness contended that 1.5% of the amount, at $3,308.74, should be allocated to Part A and 98.5%, at $214,123.26, be allocated to Part C. Accounting and Administration - The budget amount was $5.450.00. The Applicant's second witness considered that 19%, at $1,035.50, was payable under Part A, and the remaining 81%, at $ 4,414.50, should be allocated to Part C. Security cost - The budget was $216,000.00. The Applicant's second witness considered that 1.75%, at $3,780.00, should go to Part A. The remaining 98.2%, at $212,220.00, was to be allocated to Part C. 63. He adopted the concept of allocating 14% of the cleaning costs to Part A and the rest to Part C. General cleaning - Out of the budget amount of $54,500.00, the Applicant's second witness considered that 14%, at $7,627.20, was applicable to Part A, and 86%, at 46,856.80 should go to Part C. Pest control - Out of the total budget of $1,980.00, the Applicant's second witness would allocate 14%, at $264.60, to Part A, and 86%, at $1,625.40 to Part C. Refuse disposal - The budget amount was $7,000.00. The Applicant's second witness would allocate 14%, at $980.00 to Part A, and 86%, at 6,020.00, to Part C. Refuse bags - The budget was $1,000.00. The Applicant's second witness contended that 14%, at $140.00, should be allocated Part A, and 86%, at $860.00, allocated to Part C. Jet wash - The total budget was 12,000.00. The Applicant's second witness would allocate 14%, at $1,680.00, to Part A, and 86%, at $10,320.00, to Part C. Contract maintenance 64. Under contract maintenance, he considered that the sewage treatment plant expenses should be shared, based on GFA. Of the two plants on the Estate, the one in the north-east of the Estate was for the treatment for some parts of the Residential Development, while the one in the south-west served the Commercial Development, the Club, other parts of the Residential Development and the village of Ho Chung. The Applicant's second witness contended that the Applicant should only bear responsibility for the expenses relating to the south-western plant, based on Applicant's GFA. He agreed that pumping maintenance costs, at $3,300, should be all allocated to Part A, and lift maintenance, at $4,000, to Part C. Sewage treatment plant - The total budget amount was $42,120.00. The Applicant would contribute an amount of $2,927.34, and the remaining $39,192.66, or 93.05%, to be allocated to Part C. There was no allocation to Part A. 65. On the repair cost, the Applicant's second witness agreed that repair cost for pumping, at $22,500.00, should all be allocated to Part A, as well as the fire system, at $5,000.00. The pressure tank and sewage plant repair costs should be shared by the owners in the same manner as for the sewage treatment plant contract maintenance, that is, shared by owners, based on the GFA, depending on whether they were served by the pump in the north-west or south-east. The Applicant's second witness assumed that half of the expenses for the sewage treatment plant and pump houses should be assigned to each of the plant. Pressure Tank - The budget amount was $1,000.00. The Applicant's second witness would allocate $930.00 to Part C, while the Applicant would pay $70.00. 66. Since the CABD and alarm system was for service to the residential houses only, the Applicant's second witness was of the opinion that this should be allocated to Part C only. CABD/alarm system - CCTV key pad at barrier - the budget amount was $6,000.00. The Applicant's second witness would allocate that to Part C. 67. The Applicant's second witness took the trouble of counting the major street lights installed in the public area and the floodlights around the Lagoon. He considered that 131 out of the 265 lights that he counted should be allocated to Part C. Lighting - The budget amount was $5,000.00. The Applicant's second witness would allocate 50%, at $2,500.00 to Part A, and 50% to Part C. 68. There was no dispute over the allocation of the lift repair expenses at $4,000.00 to Part C. 69. The Applicant's second witness considered that the repairs expenses for drainage, water pipes and valves should be allocated to Part A and Part C based on the actual expenditure. He recommended that repairs costs to the main drains and pipes be allocated to Part A, while the costs in respect of branch drains and pipes serving the residential units be allocated to Part C. Based on the figures in Chart 3, he allocated the repair costs to the drains at 39% to Part A, and 61% to Part C. The allocation of water pipes and valves was at 5% to Part A and 95% to Part C. He also noted the fact that the Lagoon and Marine Structures were not served by drains. Drainage - The budget amount was $7,500.00. An allocation of 39%, at $2,925.00 was made to Part A. The Applicant's second witness would allocate 61%, at $4,575.00 to Part C. Water pipes and valves - The budget was $15,000.00. The Applicant's second witness would allocate 5%, at $750.00 to Part A, and 95%, at $14,250.00 to Part C. 70. The Applicant's second witness proposed that the allowance made for other minor repairs and maintenance be proportional to other expenditure under repair cost. R&M allowance - An amount of $45,000.00 was budgeted. The Applicant's second witness would allocate 325, at $14,400.00, to Part A, and 68%, at $30,600.00 to Part C. 71. He considered that the contribution to Building Fund/Contingency and Improvement should be proportional to the other monthly expenditure. Building Fund/Contingency - An amount of $150,000.00 was budgeted. The Applicant's second witness would allocate 19%, at $28,500.00, to Part A, and 81%, at 121,500.00 to Part C. Improvement fund - the amount of $65,000.00 was budgeted. The applicant's second witness considered that 19%, at $12,350.00, should be allocated to Part A, and 81%, at $52,650.00 should be allocated to Part C. 72. For electricity, the Applicant's second witness allocated 50% of the estimated expensed to Part A and 50% to Part C. He based this ratio on the number of lights counted. The Applicant's second witness assumed that 0.4 k Watt was used for each light point, multiply that by 265 light points, at 12 hours per day, $0.85 per k Watt per hour, and the number of days per month to estimate the expenses for all light. Out of the allocation to Part A, he would further allocate to Part C the actual expenses of the high-rises. Out of the 50% allocation to Part A, he considered that 5.9% should be borne by the Applicant. Electricity - The amount under the budget was $64,400.00. 73. For expenses in relation to water, gardening and decoration, he would, with reference to the linear measurement of the internal roads discussed earlier on in his evidence, allocate 14% to Part A. He considered that most of these items were expended for the benefit of the Residential common area, and so under Part C. Insurance was agreed to be under Part A. Water - The amount under the budget was $2,720.00. The Applicant's second witness would allocate 14%, at $380.80 to Part A and 86%, at $2,339.20 to Part C. Garden and decoration - The amount under the budget was $49,000.00. The applicant's second witness would allocate 14%, at $6,860.00 to Part A, and 86%, at $42,140.00 to Part C. Insurance - The budget amount was $9,628.00. It was agreed that this should all be allocated to Part A. 74. For sundry expenses, he expected it to be proportional to other monthly expenditure. The manager's remuneration was agreed. Sundry - The total budget amount was $14,614.00. The Applicant's second witness would allocate 19%, at 2,6525.80 to Part A, and 81%, at $11,194.20 to Part C. Manager's remuneration - The budgeted amount of $40,000.00 was agreed to be allocated to Part A. 75. For ease of reference, the Applicant's second witness produced 7 charts. Chart 1 set out the various items of actual expenses, the allocation as perceived by the Applicant to be correct, and the calculation method, based on the ratio from all other items of expenses. 76. Chart 2 set out the items of expenses, from June 1996 to March 1997 on a month by month and item by item basis. There was also division into Part A and Part C columns. 77. Chart 3 set out the average expenses and the allocation into Part A and Part C for the period June 1996 to March 1997. 78. Chart 4 employed the same figures as in Chart 3, except for the items under Building Fund/Contingency at $150,000, being a figure obtained from the statement of Respondent's second witness, Mr. Kong Man Keung, which was not provided in Chart 3; and under the item for Improvement, where a figure of $65,000 was provided instead of the previous figure of $18,981.70. 79. In Chart 5, after the Applicant had obtained the detailed information, the actual figures used by Mr. Kong Man Keung in the budget was employed and analyzed, using the applicant's own concept as explained above. 80. The Applicant's second witness also gave evidence on the dredging fees incurred in respect of the lagoon and the sea channel leading into Marina Cove from the sea. He considered that the owners of houses with house pontoons should pay for the dredging charges in the areas immediately adjacent to the house pontoons, while the charges for the areas of the lagoon with pontoons for the Marina Club and houses, and the sea channel, should be shares between the house pontoons and the Club. It was agreed that this formed the subject of another litigation, and need not be investigated in details. 81. The Applicant's second witness considered that, the Applicant's share in the common expenses should depend on the extent of the benefit derived from the services provided for the Applicant. He agreed that the Applicant should share in the expenses even when the benefit derived was small. He agreed that members of the Marina Club were granted access to the tennis courts beyond gate 1, the 20 car parking spaces at Stage K of the Estate, and the open areas around these areas. 82. The Applicant's second witness produced two final charts, Charts 6A and 6B, stating the Applicant's final position on the management fees of $18,998.64 that was deemed payable, and the calculation method. 83. Under Chart 6A, the Applicant conceded that the items under Insurance and Manager's remuneration should be all allocated to Part A. After the items which the Applicant contended should be apportioned according to monthly expenditure were taken out, the Applicant calculated the proportion of expenditure to be 19% for Part A and 81% for Part C. In coming to this ratio, the Applicant disregarded the items of staff costs for office staff, technicians, and caretakers; building fund and contingency, improvement and sundry expenses. Having come to the conclusion that the amount of $235,868.74 should be allocated to Part A, the Applicant again employed the GFA method and used 5.9% of that amount as its share. The sum of $13,916.30 was arrived at by adding the cost allocated to the Applicant for maintenance and repair of the sewage treatment plant, and repair cost of the pressure tank, at $5,082.34. The Applicant came to the total of $18,998.64. 84. The Applicant's method of calculation of the proportional ratio of monthly expenditure was set out in Chart 6B. The Applicant's previous estimate of the management expenditure for the period of 1st May 1997 to 30th April 1998 was also produced and discussed. Under that estimate, the Applicant considered that it should pay an amount of $20,787.94. 85. The Applicant's second witness insisted that his approach, of allocating the total costs in accordance with the ratio, in proportion to the services provided for Part A and Part C, and the number of staff involved, to be the best way. He agreed, in cross examination, that it would be difficult, in practice, to quantify how much of the staff costs was spent on Part A and how much on Part C. 86. The Applicant's second witness agreed that the security of the Estate should be looked at as a whole, and that the cleanliness of every part the Estate would affect the image of the Estate and its owners. 87. The Applicant's second witness considered that, the Applicant should contribute towards the costs involved in relation to the sewage treatment plant at the south west of the Estate and one pressure tank for the flushing system only, while all the other owners should contribute towards the costs of the two plants and both pressure tanks. He agreed that for the calculation of contribution towards the pressure tank, under Chart 6A, he had not taken the two steps procedure under DMC, but just a one step approach. He was aware that there were grease traps or interceptors located outside the Commercial Development, dealing with discharge from the restaurants. He did not dispute that the second Respondent retained a contractor for the maintenance of the sewage treatment system, of which the clearing of the interceptor formed part of the job. His evidence was that the Applicant also retained the same contractor for removal of sludge from the interceptors, installed by the restaurants in the Commercial Development and the Club. 88. The Applicant's second witness gave evidence that, in 1990, the main use of the floodlights was to provide lighting condition for the CCTV. It was agreed that by 1997, when the second Respondent prepared the budget, the CCTV system was no longer working. He also agreed that the provision of flood lights enhanced the environment of the Estate while the provision of lighting assisted in the security. However, he disagreed that all expenses in relation to lighting should be allocated to Part A. He saw no difficulty in allocating the expenses for fire hydrants to Part A, as being for the benefit of the whole Estate. 89. Since neither the Applicant nor its tenants had ever used the CABD system in the Commercial Development, the Applicant's second witness considered that it was not reasonable for the Applicant to share in the costs of the CABD system in the Commercial Development. The Applicant maintained and paid for its own system. 90. The Applicant's second witness considered that the budget for painting was exceptionally high, and that the documents provided could not support the estimation. He had a similar complaint in respect of other items in the budget. 91. The Applicant's second witness knew of the arrangement between the first and second Respondents, wherein the second Respondent would obtain the money from the first Respondent for monthly expenses. He was aware, while a member of the management committee, that the first Respondent had made frequent requests to the second Respondent to undertake new projects for improvement to the Estate. It was accepted by the management committee that the second Respondent had to plan and budget for future expenses, which might not have been incurred in the past. 92. Under Chart 6A, the Applicant's second witness came to the ratio of 95% to Part C, and 5% to Part A for water piping; 61% to Part C and 39% to Part A for drainage. 93. The Applicant's second witness accepted that a responsible manager had to take into consideration the interest of all parties, and that the manager had discretion under the DMC in the preparation of the budget. He agreed that no particular method of preparing the budget could be perfect, but some factors must be considered. 94. It was accepted that Improvement expenses included the purchase of office equipment, patrol vehicles, and electronic security equipment, although the Applicant's second witness considered the estimate to be too high. 95. The previous manager had made no provision for Contingency that the Applicant's second witness was aware of. He could not say whether there had been such provision. 96. It was the Applicant's case that, even though it had paid no formal management fees to the Estate, it had expended considerable sums for the security, cleaning and pest control of the Lagoon, the Club, the Commercial Development and the related car parks. The Opposition 97. The Respondents contended that, the calculation of the Applicant's share in the management expenses should be in accordance with the Applicant's undivided shares in the Estate. They maintained that it should be at 28% of the total management budget. The Respondents' first witness 98. The Respondents' first witness, Mr. Chow Chee Chung Daniel, gave evidence as an owner since 1985, and as a member of the management committee. He was of the opinion that the Applicant had never paid, nor had it ever been properly charged, for management fees when the Hang Yick Properties Management Ltd., the then manager, was in control of the budget. He disagreed that the Applicant's second witness was ever the person in charge of the functional group responsible for security or for setting up the patrol system or zones. His evidence was that the Applicant's second witness was a member in an informal working group or sub-group, and that the second Respondent proposed the patrol system. He had seen, but did not read, the memo from Mr. Edward Kong to Mr. Winson Lam. He could not remember when he did so, and had no recollection if there had been any discussion or any conclusion. The Respondents' second witness 99. The Respondents' second witness, Mr. Kong Man Keung (Edward), is the second Respondent's senior property manager. Since 16th May, 1996, when the second Respondent was appointed by the first Respondent to be the manager of the Estate, the Respondents' second witness had been stationed at the Estate. He is in charge of the overall supervision and management of the Estate under the DMC. 100. The second Respondent, pursuant to the first Respondent's request, submitted a budget for the period from 1st May 1997 to 30th April 1998. Under the budget, the Respondents' second witness apportioned 28% of the expenditure to the Applicant. The Applicant considered that it should only pay 5.95 and brought the present application. 101. The Respondents' second witness gave evidence that, in determining the management expenditure allocation and the Applicant's share in the expenditure, he took into account the terms of the DMC, the Building Management Ordinance Cap.334, the actual layout and all relevant circumstances of the Estate. He referred to Clause 8 (a) of the DMC. The Respondents' second witness also relied on Clause 8 (c) of the DMC. 102. While the Applicant is responsible for the Commercial Development, the Commercial Car parks, the Marina Club, the Lagoon and Marine Structures, the second Respondent is only responsible for Parts A and C under Clause 8 (a). Breakdown 103. The Respondents' second witness gave detailed breakdown on the management expenditure. Staff Costs 104. Staff costs included the costs for office staff, technicians, accounts and administration clerks, caretakers and security guards. Their salary, allowance, bonus and provident fund contribution were listed. Their duties and scope of service were stated. Office staff 105. The service of the office staff, responsible for the overall management, supervision and operation for the Estate, was concluded to be for the benefit of all owners, and the costs of $73,810.00 all allocated to Part A. 106. In making this allocation, the Respondents' second witness relied on Clause 8 (a) A (iii) (f) of the DMC. Technicians 107. They were responsible for daily checks and simple repairs of the fresh water system, the flush water system, the surface or rain water drainage system and the sewage drainage system, lamp posts along the internal roads, the spot lights along the retaining walls around the Lagoon, the flush water pump houses. They frequently cleared blockage of the sewage system. The service of the technicians was also decided to be for the benefit of all owners, and the costs of $41,480.00 allocated to Part A. 108. In making this allocation, the Respondents' second witness also relied on Clause 8 (a) A (iii) (f) of the DMC. Caretakers 109. The caretakers were responsible for patrolling, security, cleaning, painting walls, road signs, lamp posts, railings along the retaining wall and routine affairs of the Estate. They worked together with the security guards in ensuring the safety of the whole Estate. They also assisted the technicians in clearing blockage of the drains and changing the spot lights along the retaining wall around the Lagoon. Except for the caretakers assigned to the two high rise buildings, all other caretakers provided service for the whole of the Estate. Out of the total estimate of $217,432.00, the amount of $134,430.00 was allocated to Part A and the amount of $83,002.00 allocated to Part C. 110. Clause 8 (a) A of the DMC, was relied on for this allocation. The cleaning duties allocation was under Clause 8 (a) A , up to and including ( i ). For the assistance in clearing blockage of drains, allocation was under Clause 8 (a) A (iii) (a) to (e), and for painting jobs, the allocation was under Clause 8 (a)A ( i ), (iii) (e). For the patrol duties, the allocation was under Clause 8 (a) A (iii) (c). Accounts and administration 111. The second Respondent provided the service of an accounts clerk and administration clerk, who also dealt with other estates managed by the second Respondent. It was agreed with the first Respondent that a sum of $5,450.00 should be charged. This amount was allocated to Part A, as being work undertaken for the benefit of all owners. 112. The allocation was made relying on Clause 8 (a) A (iii) (f) of the DMC. Security costs 113. Out of the total costs of $216,000.00 for 20 security guards, the costs for 16 guards at $172,800.00 was allocated to Part A. These 16 guards were responsible for patrol and the security of the whole Estate. The remaining 4 were stationed at Gate 3, with access to residential area only. The costs of these 4 guards at $43,200.00 were allocated to Part C. 114. The allocation to Part A was made under Clause 8 (a) A (iii) (c). Cleaning costs 115. The second Respondent engaged a contractor for cleaning of the Estate. The item was further broken down into general cleaning, pest control, refuse disposal, refuse bags and jet wash. General cleaning 116. The original estimate was $54,500.00. An amount of $22,000.00 was allocated to Part C, for refuse collection service exclusively used by residential units. An amount of $32,500.00 for general cleaning, other than refuse collection for residential units, was allocated to Part A. The services included the removal of leaves, rubbish and domestic waste from the internal roads, cleaning of road signs, guard booths, railings at retaining walls, caretaker office and lighting, and considered to be for the benefit of the whole Estate. 117. The contract sum came to $54,480.00. 118. The allocation to Part A was under Clause 8 (a) A up to and including ( i ). Pest control 119. Pest control was assigned to a contractor. It covered the whole of the Estate, and the total estimate of $1,980.00 was allocated to Part A. The actual costs was $1,890.00 120. Clause 8 (a) A up to and including ( i ) was relied on for this allocation. Refuse disposal 121. For bulky refuse not disposed of by the Urban Services Department, the second Respondent's contractor would collect and dispose of them. The service applied to the Residential and Commercial Development, as well as the Club. An estimated costs of $7,00.00 was allocated to Part A. 122. Clause 8 (a) A up to and including ( i ) was relied on for the allocation to Part A. Refuse bags 123. Refuse bags were placed inside all dustbins in the Estate, for the benefit of all owners. An estimated costs of $1,000.00 was allocated to Part A. 124. The allocation was made under Clause 8 (a) A up to and including ( i ). Jet wash 125. This was for the removal of dirt on the surface of internal roads, and considered to be for the benefit of all owners. An estimated costs of $12,000.00 was allocated to Part A. Maintenance services contract 126. This included detailed checking and minor parts replacement for the sewage treatment plants, pumping system and lifts. Sewage treatment plants 127. As the Respondents considered this to be for the benefit of all owners, the estimated costs of $42,120.00, which was the same as the contract sum, was allocated to Part A. Pumping 128. This included the pumping system for fresh water, flush water and sewage water, and the two pump stations for flush water. There is only one flush water system and one sewage drainage system for the whole Estate. These were all considered to be for the benefit of all owners, and the estimated costs of $3,300.00, which was the same as the actual costs, was allocated to Part A. Lift maintenance 129. The amount of $4,000.00 was allocated to Part C, as the lift maintenance was only applicable to the two high rises. The Applicant did not dispute this item. Repair cost 130. This referred to major and more expensive repairs and replacement of parts, not covered by maintenance contracts. An estimated costs of $106,000.00 was allocated to Part A. Pumping 131. The replacement costs for the 41 pumps in the Estate was estimated to be $18,800.00. The repair costs was estimated to be $3,700.00. The total was $22,500.00. $800.00 out of the total was allocated to the 2 pumps in the high rises, under Part C. The balance of $21,700.00 was allocated to Part A, being for the benefit of all owners. The Applicant did not dispute this item. Pressure tank 132. The 2 flush water pump houses in the Estate each contained one pressure tank. They formed one flushing system which supplied flush water to the whole of the Estate, and benefited all owners. The estimated replacement cost of $900.00 and repair cost of $1,000.00 were all allocated to Part A. Lighting 133. This item included mainly the replacement of light bulbs and accessory for all street lights along the internal roads, spot lights along retaining walls and perimeter walls around the Lagoon, fluorescent lights in the high rises, lights in the plant rooms, management office, caretaker office, guard booths and so on. All owners shared in the costs of more than $20,000.00 for the replacement of the spot lights along the retaining wall around the Lagoon. The provision of lighting was important for the security of the whole Estate. A total costs of $5,000.00 was estimated, out of which $300.00 was allocated to Part C, under the 2 high rises, and the balance of $4,700.00 allocated to Part A, as being for the benefit of all owners. Sewage plant 134. This item included the costs of repair and replacement of the pumps and accessories. It was estimated to be $30,000.00 and allocated to Part A. CABD/alarm system 135. This was the combined communal antenna broadcast distribution and burglary alarm system, which was available for the use and the benefit of all owners in the Estate. The Respondents' second witness agreed that the CABD/alarm should be under Part C. However, the system also included the CCTV system installed at the three gates leading into the Estate. An estimated cost of $6,000.00 was allocated to Part A. Fire system 136. As part of a single fire fighting system, hose reels, fire hydrants, fire extinguishers and sand buckets etc. were placed along internal roads and in meter rooms for the use and benefit of all owners. An amount of $300.00 were allocated to Part C for the hose reels in the high rises, and the amount of $4,700.00 allocated to Part A. The total estimated costs for repairs and replacement was $5,000.00. 137. There was no dispute on this item. Painting 138. The cost included that for the purchase of paint for painting the pump houses, their accessories, road markings, walls, railing along the retaining walls, lighting posts, meter rooms. Paint for road markings and for the railings and metal objects along the retaining wall were expensive and had to be applied in layers. It was for the benefit of all owners and the estimated costs of $25,000.00 was allocated to Part A. 139. The Respondents relied on Clause 8 (a) A and (i), (iii) (e) for this allocation. Lift 140. The lift services are only available to the residents in the two high rises, and so the estimated costs of repair at $3,00.00 was allocated to Part C. 141. There was no dispute on this item. Drainage 142. The repair of all pipes in the fresh water, flush water and drainage system, the clearing of blocked sewage pipes all fell within this item. There were two drainage systems serving the whole Estate, the surface or rain water drainage system, and the sewage drainage system. The expenses for clearing blockage of an individual house or unit did not form part of the management expenses of the Estate. Expenses incurred in relation to the service to more than one residential unit would go into the Part A account. The costs estimated at $7,500.00 were for the benefit of all owners and allocated to Part A. Water pipes and valves 143. This item referred to the repair and replacement of the water pipes and valves for the fresh and flush water systems. There was one single fresh water supply system and one single flush water supply system within the Estate. A breakdown in any part of the systems would affect the whole Estate. Fresh water pipes lead from the water main to all sections of the Estate and through it to reach the boats in the Lagoon. As the systems were for the benefit of all owners, the estimated costs of $15,000.00 was allocated to Part A. Repair and maintenance 144. This item was for non-recurrent and unexpected repair and maintenance. Examples given were road repairs, electricity wire replacement, and emergency pipes repairs. As the item was considered to be for the benefit of all owners, the estimate of $45,000.00 was allocated to Part A. Building Fund 145. This was established for necessary major renovation and replacement within the Common areas, which was not of an annual nature. All owners in the Estate would benefit from this, and so the amount of $150,000.00 attributable to the fund was allocated to Part A. Improvement Fund 146. This fund provided for improvement in the management of the Estate. Purchases of items like office machines, and devices like patrol managers and golf carts for patrol were to be paid for out of this fund. The expenditure from the fund was for the benefit of all owners, and the estimated amount of $65,000.00 allocated to Part A. 147. The allocation was based on Clause 8 (a) A. Electricity 148. The supply of electricity for all the public area, facilities, and office were for the benefit of all the owners in the Estate. The estimated costs of $64,400.00 was allocated to Part A. Water 149. The supply of water was for the cleaning and watering of plants in the Estate. This was for the benefit of all owners and the costs of $2,720.00 allocated to Part A. 150. The allocation was under Clause 8 (a) A up to and including ( i ). Insurance 151. This covered insurance for accident, public liability, employee compensation, medical and golf carts. Under clause 8 (a) A (v) of the DMC, the budget under Part A should include the insurance of the management company against third party, public liability, employee compensation and other policies considered necessary. The total costs was $9,628.00, out of which an amount of $800.00 was allocated to Part C in respect of employee compensation for workers stationed in the two high rises, and the balance of $8,828.00 allocated to Part A. 152. The Applicant was no longer contending the item under Insurance. Gardening and Decoration 153. This included gardening, seasonal flowers, festival decoration, trees and grass to enhance the environment, and was considered to be for the benefit of all owners. The Respondents contended that had the Applicant allowed them to, the Respondents would have taken care of the plants in flower beds along the road leading to the pump house. The total costs of $49,000.00 was allocated to Part A. 154. The allocation was under Clause 8 (a) A up to and including ( i ). Sundry Expenses 155. This item included Government (Crown) rent, sewage treatment license fee, expenses for emergency and patrol team, computer processing, telephone, postage, teleprotection, printing, stationery, travelling, staff recruitment and other miscellaneous expenses. The emergency team was a provision for after working hours, when the residents could not contact the supervisor. The residents could call a support team, which, after classification of the request, would send a team to carry out emergency support or repairs. The patrol team was an extra team, provided by the second Respondent, patrolling the Estate at irregular intervals, to check on the site personnel. The arrangement for teleprotection was, on reporting for duty, the security staff at the Estate must report to the second Respondent's security centre at its headquarters. At every hour and half hour interval, the security centre would call the Estate security staff. The supervisor would be contacted should there be no response to the call. The second Respondent charged for the emergency and teleprotection services. An amount of $794.00 was allocated to the two high rises for telephone and postage, and so under Part C. The balance of the estimated costs at $13,820.00 was allocated to Part A, as the expenses were for the benefit of all owners. Manager's remuneration 156. This was at the fixed sum of $40,000.00. As it was for the benefit of all owners, the amount was allocated to Part A. 157. The Applicant agreed with this item being allocated to Part A. 158. It is the Respondents' case that, since the Applicant, its licensees and club members have the right to use the common areas, the Applicant has the obligation to share in the expenses of the common parts. 159. The Respondents' second witness disagreed with the Applicant's calculation of its share of the management expenses. Unless the expense was specifically referable to the Residential Development, the Respondents considered that expenses should be shared by all owners, since they were for the benefit of everyone. 160. The second Respondent relied on clause 8 (c) of the DMC to fix the shares to be contributed by the Applicant towards the budget under Part A to be 28%. The Respondents' second witness gave evidence that although the gross floor area was one of the factors the second Respondent had taken into account, this was not the sole factor to be considered. The Reserved Portion, of which the Applicant is the owner, included open areas, the Lagoon and marine structures which had no gross floor area. The Respondents contention was that, the Applicant derived benefit from the Reserved Portion, in keeping with its status as an owner. It would be unfair and unreasonable for the Applicant to demand that it should contribute to the management expenses based upon the gross floor area alone, when the areas without gross floor area also benefited from the management services provided as a whole. 161. The Respondents second witness decided that, a budget with the contribution based on the undivided shares which an owner had in the Estate, was reasonable. The Applicant was the owner of 28% of the total undivided shares in the Estate, and so its share was 28% of the total expenses under Part A. The developer of the Estate had allocated one undivided share to each foot of the development. 162. The Respondents' second witness took the view that, the total site area of the Estate is 248,000 square metres and the site area of the extended portion is 2,030 square metres, with the Lagoon occupying 100,000 square metres. The site area of the Lagoon is about 40% of the total site area of the Estate. 163. The Lagoon, forming part of the Estate, is surrounded by reclaimed land with town houses, and facilities like the internal roads, the water supplies systems, drainage systems, plants and meters rooms, refuse collection points and pump house. The Applicant owns the Commercial Development, the Club house, the Lagoon, a swimming pool at the end of Stage1 of the Estate, which is now filled in, and 20 car parking spaces in Area K of the Estate near the East basin of the Lagoon for use by the Club members. The Club members need not be residents of the Estate, but could, like the Applicant's staff and licensees, proceed along the internal roads to reach facilities like the tennis courts, the berths in the east basin of the Lagoon, and the car parks at Area K. The surface area of the berths, including the marine structures, which can be used for berthing yachts and boats, is about 240,000 square feet. The Reserved Portion was allocated with 240,000 undivided shares. There is no open area exclusively reserved for the use of the residents only, under the DMC. 164. The Applicant had granted licences to the owners of houses with house pontoons to use those pontoons, through the Marina Cove Harbour Management Limited, the management company of the Marina Club. 165. It was the Respondents' contention that the previous manager, Hang Yick Properties Management Limited, had charged the residents of the Estate management fees according to the number of undivided shares allocated to the town houses, which was the same as the gross floor area in square feet. As the town houses, flats in the high rises, the Club, the Commercial Development and car parks are all required to pay management fees in accordance with their undivided shares, the Respondents considered that the Lagoon, which derived benefit from the management services, should contribute in the same way. 166. The Respondents referred to S.39 of the Building Management Ordinance Cap. 344 to say that, if clause 8 (c) of the DMC could be regarded as not having made sufficient provisions for fixing the owners' shares in the contribution to the total expenditure under Part A, then the Applicant's shares should be its undivided shares. Section 39 of Cap. 344 stated that :
167. The Respondents' second witness denied that the draft budget prepared using the GFA method, addressed to Mr. Winson Lam, was meant to be discussed in any committee meeting at all. It was prepared on the request of Mr. Lam, after the Applicant's second witness proposed the calculation of the management fees according to the GFA. The purpose was to let the members of the management committee know the amount that the Applicant was willing to pay. 168. It was the evidence of the Respondents' second witness that the previous manager, Hang Yick, had debited a sum of $500,000.00 as dredging fee against the residential owners, in 1996. The residential owners had to pay an amount of $22,000.00 for the removal of refuse. All individual owners pay for the maintenance and repair work within their own town houses. 169. Out of the Reserved Portion, the Applicant had the exclusive use and possession of the Lagoon and the marine structures, which are income generating. The other common areas and facilities within the Reserved Portion that can be used by all owners had little commercial value. The Respondents' second witness considered that the 240,000 undivided shares of the Reserved Portion should all be referable to the Lagoon and marine structures. 170. It was denied that the Applicant's second witness designed the patrol zones in use in the Estate. There were two patrol zones within the Estate. Two electronic devices, known as patrol managers, were used to record details of patrol. 97 electronic check points were installed at various places within the Estate. They fed information into the patrol managers, which could be printed out by a computer. Log books were also used to manually record the details of patrol. The security guards and caretakers patrol along all common areas of the Estate. 171. During the day time, two guards were stationed at each of the three gates leading into the Estate. In 1998, eight Gurkhas were employed to man the gates and patrol the Estate, working between 7 p.m. to 7 a.m. As a result of this arrangement, the number of security guards were reduced 172. The witness expected more repairs and maintenance for the year 1997 to 1998, and so allow a higher sum than the previous year's budget. The second Respondent also intended to purchase a quantity of equipment, to replace the outdated models in use, and to supplement inadequate items. Provisions were made accordingly in the budget. 173. While the owners for the residential units provided and paid for their own security measures installed inside their individual property, they were also required to contribute towards the costs of security system for the whole of the Estate. The security system, including the patrol system, benefited the Estate, including the Lagoon. The fact that the Applicant employed security personnel of its own should not be a ground for refusing to contribute towards the general expenditure. Quotations, tenders and contracts were obtained for the Commercial and Residential Developments security services. Allocation and apportionment to the Commercial and Residential Development were made in the quotations. The Respondents' second witness made sure no one security guard was providing service to both Developments. There was, therefore, no need for further apportionment. 174. In the same way, owners of residential units provided their own cleaning and pest control within their own property. This did not mean that they were exempted from contributing towards these items in the Estate's expenses. The Applicant could not say that since it provided cleaning and pest control within its property, there was no need to contribute towards the Estate common expenses for these items. The Respondents' second witness had not received complaints that decoration garbage had been left in the Lagoon. 175. Any single owner would not be using both pressure tanks and sewage systems at the same time. However, all residential owners shared in the total expenses in relation to these systems. The Applicant was not being asked to pay more than its fair share. 176. From the middle of 1997, the first Respondent collected the house pontoon management charges from the owners liable to pay, and deliver the amount to the second Respond. The second Respondent maintained a separate account for those charges, and made payment out of that account to the Applicant for the maintenance of the house pontoons, which the Applicant had licensed for the use of the owners. The account was not related to the expenses of the first Respondent's, and was kept separately. 177. In preparing the budget for the period from 1st May 1997 to 30th April 1998, which was finalized on 6th March, 1997, the Respondents' second witness took into account the expenditure incurred prior to the budget, but not the expenditure for April 1997. He adopted a flexible approach in the preparation of the budget. He referred to the DMC, the code of conduct of the Hong Kong Institute of Housing (of which he was a member), the second Respondent's internal direction, and the existing management fees, together with the previous manager's budget of $932,313.00. He also looked at the Building Management Ordinance, and the actual layout of the Estate. The witness adopted an average means calculation, based on the general average of the management fees paid by the owners, ignoring the charges payable for the house pontoons at $48,000.00, and adjusted that by a 6% increase, to arrive at a sum of $938,732.00 deemed sufficient to maintain the existing management standards. The unit rate for each undivided share was calculated to be 1.2298. This was based on the calculation for House No. 1. The budget included not only the amount payable by the residential owners, but also that considered payable by the Applicant. 178. The Respondent's second witness took the amount of $932,313.00 as the basis of his calculation. First, he corrected the errors of the previous management company in the calculation of the management fees payable by the individual owners. For example, houses with the same undivided shares, which were previously charges at different rates, were accounted with the same amount of management fees. He then excluded the management fees of $48,000.00 for the house pontoons. He included management fees which should be charged for the 72 car parks at the high rises, and the amount considered payable by the Applicant. There had been no management fees paid from these sources before. Allocation under the Budget 179. The Respondent's second witness made up the table of expenditure for the period from 1st May 1997 to 30th April 1998, in accordance with the DMC. Before setting up the table of expenditure, he listed each item of expenditure. He then allocated the items to Part A and/or Part C. As the Applicant was the owner and responsible for the management of properties under the other Parts, there was no call for the Respondents to budget for those other Parts. 180. The total expenditure of $1,078,730.00 under Part A was then divided by the total undivided shares in the Estate, i.e., one million. The Residential Development made up 72% of the total undivided shares in the Estate, and so 72% of the total expenditure under Part A, at $776,685.66, was allocated to those owners. The total expenditure under Part C was also allocated to the residential owners. From the undivided shares of each individual house, the Respondent's second witness calculated the amount of management fees for each house. Having made the necessary rectification in the unequal charges for houses with the same undivided shares, and ignoring the house pontoon management fees, he then compared the new management fees with the old management fees, and came up with an increase of 6% for the Residential Development. The house pontoon management fees is not part of the present Application, but the subject matter of High Court Action 1644. 181. In making the demand for back payment from the Applicant, the Respondent's second witness had regard to the rate of increase for the management fees, and the actual income, to decide the amount payable for the previous year. The Respondents' second witness decided against using the GFA as the major approach for the calculation, as it applied to built up areas only. 182. The Respondents' second witness decided that each of the 240,000 undivided share in the Reserved Portion should bear the full management fee. With the aid of the scaled grid plans published by the Survey and Mapping Office of the Government, he calculated the surface area of the berths in the Lagoon to be 240,000 square feet. He considered that each square foot of the berth surface area should take one undivided share. The rest of the Reserved Portion, which was common areas open to all owners' use, was looked upon as non- profit making, and so bore no undivided shares for the purpose of calculating the management fees. In coming to this conclusion, the Respondents' second witness was not then aware that the Reserved Portion was not assignable. 183. It was the evidence of the Respondents' second witness that the GFA method of calculation was discussed during a committee meeting, which was held after the second Respondent was appointed as the manager. The witness aimed to collect various opinions and data before deciding which approach to adopt. The memo addressed to Mr. Winson Lam, for information on the GFA approach, was written after that meeting. It was seen by the Applicant's second witness in the Respondent's office. He did not give the Applicant's second witness a copy when it was asked for in his office. He did not give the matter much thought, as it was a note for information only. 184. The Respondents contended that it was only on 26th October 1998, shortly before the hearing begun, that the Applicant's solicitors formally asked for receipts and supporting documents in relation to the management expenditure. 185. In March, 1997, after he had provided a summarized version of the budget, consisting of 3 pages to the Applicant's solicitors, the Respondents' second witness expected queries. As he did not receive any, he did not provided any further details. The Applicant's submission 186. The Respondents' budget was based on the allocation of the management expenses among the owners of the Estate according to management shares. (undivided shares) 187. Except for the expenses exclusively for the two high rises and $22,000.00 for refuse collection, all expenses were allocated to Part A. 188. The Manager had acted unreasonably, unfairly and was biased against the Applicant. 189. The Manager was under the influence of the management committee of the First Respondent, the Incorporated Owners, which was dominated by residential owners. 190. The budget was in breach of the Deed of Mutual Covenant. 191. The Respondents' second witness was unreliable. 192. The Tribunal should set aside the Manager's decision to share Part A expenses by management shares, and to direct a sharing of management expenses with reference to the Gross Floor Area. 193. The Tribunal should set aside the apportionment between Part A and Part C expenses, and give guidelines as to how the various items of expenses should be apportioned. 194. The Tribunal should do the actual apportionment or to direct the Manager to suggest an apportionment in accordance with the Deed of Mutual Covenant. Directions to be given by the Tribunal on the steps to be taken when parties could not agree. 195. The Respondents' second witness should not be regarded as an expert. Particulars of unfairness and bias Schedule B It was alleged that despite demands for particulars of the budget, the Applicant was not given the 7-page version of Schedule B. It was not provided to the Applicant's second witness in the budget meeting on 6th March 1997, and the Manager knew this. Only a 3-page version of schedule B was provided to the Applicant's solicitors. The Manager acted in this biased and prejudicial manner against the Applicant, possibly because of the fact that the control of management committee was in the hands of residential owners. Increase of 6% and back claim It was submitted that the Second Respondent adjusted the existing management fees by 6%, in order to support an unfair and inflated back claim for management fees against the Applicant. The unit rate of $1.2298 was a result of working back from the budget amount of $938,732 divided by 720,000 undivided shares and discounting that by 6 %. The Respondents' second witness gave evidence that the unit rate of 1.2298 was obtained on the calculation done solely on House No.1. Calculation on those of other houses gave a range of 1.1074 to 1.2383. A subsequent calculation given in court of deducting the house pontoon fee from the management fee and dividing that by the number of undivided shares : ($932,313 - $48,000) ÷ 720,000, yielded a figure of 1.2282. The Respondents' second witness only admitted that the amount of $48,000 was agreed to be the house pontoon fees after cross-examination. Most of the amount, minus an average of $6,803 actually spent on house pontoons, had been expended as the Estate management expenses. Resident owners without house pontoons had a unfair share in the use of the balance of that $48,000, which should be refunded into the house pontoon account. The increase of 6% could not be correct. The back claim could not be justified : -
The Respondents' second witness accepted this to be the correct arithmetic and logic from the actual expenditure point of view. The Applicant considered the only correct approach to the back claim must be on the actual expenditure. The approach adopted by the Respondents' second witness, based on the income was not a sensible one. The Respondents' second witness had no intention of building up a house pontoon fund. No demand were made from the residential owners. The "rough budget" given to the first Respondent when the second Respondent was bidding for the management was not to be relied on, as it was inaccurate. If the Respondents' second witness was to rebuild the contingency/building fund for the year ending May 1997, the contribution should be demanded from all owners. This was not done. There was no revised budget to cater for this. Had it been done, the 6% increase in management fees would not be required, as the adjusted management fees would more than the budget amount. The possible legal liability of the first Respondent to its former manager was irrelevant to the back claim. There was no provision for the liability in this budget. 196. The Applicant considered that the foregoing showed that : -
Gross Floor Area memo The evidence of the Applicant's second witness and that of the Respondent's second witness were in direct conflict with each other. The Applicant's second witness stated :- The Management Committee, at a meeting before October, 1996, instructed the second Respondent to prepare a budget, without instructions on the shares to be paid by the different owners. The Respondents' second witness told the Applicant's second witness that the second Respondent had several methods of calculation. One of them was under the GFA method. He showed the Applicant's second witness the calculation, but refused to hand over a copy. The Applicant's contribution was to be some $50,000 per month. Later, the Respondents' second witness told the Applicant's witness that the apportionment between Part A and Part C for fixing the Applicant's share was done on the instructions of some members of the Management Committee. 197. There was evidence that the Management Committee meeting was held in October 1996. There was a memo on the calculation of management fees based on GFA. The amount payable by the Applicant under the GFA method was $57,088.593. The Applicant's second witness did not receive a copy of the GFA memo. 198. It was suggested that the Respondents' second witness was not telling the truth when giving evidence on the GFA memo. He admittedly did not provide the Applicant's second witness with a copy of the GFA memo. He would have done so, had, as he said, the Applicant's second witness suggested the use of GFA in the Management Committee meeting, and Mr. Winson Lam asked for a rough calculation on the Applicant's intended payment. He did not provide a copy to the Applicant when sending a copy of the memo to Mr. Lam. He did not ascertain if Mr. Lam had sent a copy, he did not suggest to Mr. Lam, nor could he remember if he did ask Mr. Lam, to do so. The difference in the amount involved would have ensured his attention and memory on the point. 199. It was also incredible that the Respondents' second witness would have failed to discuss the GFA memo with Mr. Lam, ascertain his opinion of the figures and method, nor inform Mr. Lam of his decision to ignore the GFA method when preparing the budget. His evidence on the GFA memo changed from time to time. The evidence of the Respondents' second witness This witness hedged his answers. He showed himself to be biased against the Applicant in the matter of the house pontoon fees and repairs, on the evidence relating to the plants along the roads in the commercial car park, the grease trap, and the provision of an independent security officer for the commercial complex. The evidence of the Respondents' first witness This witness's evidence was unreliable, selective and misleading. His evidence on the position of the Applicant's first witness on the ad hoc security function group flied in the face of the documentary evidence in the minutes of the Management Committee meeting on 22nd August 1997, and that the Applicant's first witness signed for the Morse Watchman, a security equipment. He could not remember any details on the GFA memo discussion, except there was such a discussion. Nor could he assist on the audited accounts for the year ending May 1997, claiming it was not his field. This witness with his strong personality, must have influence through the Management Committee over the second Respondent and the Manager. His evidence on the estimated berthing charges was unreliable. He had no knowledge of which boat was a fee paying one. However, his evidence showed that the applicant's second witness was not identified with the former management company, Hang Yick, and was re-elected to the Management Committee, a position of trust, even after Hang Yick was ousted. The evidence of the Applicant's second witness This witness was honest and credible. His evidence should be preferred. On the GFA memo, he conceded that the Respondents' second witness had mentioned that the second Respondent had some other methods. His opinion on the apportionment was logical. He was re-elected to the Management Committee, and given responsibilities, even when the former management company and the first Respondent was hostile towards each other. The Manager was not an expert, but a contracting party with duties and powers to make decisions. The Lands Tribunal has powers to oversee building management budgets. The decision in the case of Jones v. Sherwood Computer Services plc [1992] 1 WLR 277 relied upon by the Respondents, that the mistaken determination of an expert should not be interfered by the court except on limited grounds, was rejected in Mercury Ltd. v. Director General of Telecommunications [1996] 1 WLR 48. The Manager's discretion as an expert were qualified by binding guidelines, in breach of which, the decision should be set aside. The Manager was not acting as an independent expert. The Manager was a successor to the original Manager, Hang Yick, and therefore a contracting party to the DMC. The exercise of a contractual discretion must be honest and in good faith, with a proper consideration of the matter after making all necessary inquiries. ( Abu Dhabi National Tanker Co. v. Product Star shipping Ltd. [1993] Lloyd's Law reports 397.) The Manager must act in accordance with the provisions of the DMC, for its decisions to be binding. The Building Management Ordinance Cap. 344 applies to the present application. S.21 and the Fifth Schedule empowered the Management Committee to determine the budget. The terms therein prevail over any inconsistent terms in a DMC. Under the Seventh Schedule, the Manager was to prepare a draft budget. Under the Tenth Schedule, the Lands Tribunal was given the jurisdiction to determine proceedings relating to the interpretation and enforcement of a DMC, the calculation and apportionment of any sums payable under a DMC, including those towards funds and contributions and management expenses. Even if the Manager were an expert, it must follow the DMC in preparing the budget, making its decision in a fair and impartial manner. Management shares The Manager had treated the undivided shares as management shares and disregarded the GFA. This was wrong and contrary to the DMC. This decision was unfair, biased, and unreasonable. The Respondents' second witness agreed that there was no provision in the DMC for management shares. The undivided shares were for the purpose of sale. There was no provision in the DMC to treat the undivided shares as if they were management shares, or for sharing of the management expenses according to the undivided shares. The undivided shares were not linked to GFA. To impose full rate management fee on each of the undivided share in the Reserved Portion was incorrect. Common Area and Facilities within the Reserved Portion, for the benefit and use of all owners in common, should not be so charged. This was unfair and wrong in principle. The Manager, with a discretion under the DMC, should avoid such a result. The Respondents' second witness was wrong in fact if he decided that the Common Area did not occupy any of the undivided shares assigned to the Reserved Portion. His decision on the allocation of the full rate of management fees on each of the 240,000 undivided share, which he considered to be assigned to the Lagoon and marine structures only, was illogical, irrational, bias and unfair. Discretion The Manager's "absolute discretion" was qualified by the need to be "reasonable after taking into consideration" the proportion of the GFA owned by an owner. The Manager must include the GFA as the primary method, and had no discretion to reject it, in deciding on the management fees payable. Clause 8 (c) of the DMC mentioned only the GFA method. Negotiation correspondence between the Government and the Developer before approval of the DMC under the Consent Scheme appeared to support this. Rejection of GFA The Manager was unfair, unreasonable, biased and in breach of the DMC in rejecting the GFA method. The Manager had rejected the GFA method. He had no power to do so under Clause 8 (c) of the DMC. When fixing the management fees for the town houses, the Manager had in effect used the GFA method. The reasons for rejecting the GFA method were all wrong.
The Applicant's ownership in the Estate is extensive, and it benefits from the management of almost every part of the Common Area and Facilities. This should not justify the payment of full management fees, since these are for the common use of all owners. There was no dispute on the Club house and Commercial Development. The only dispute was on the Reserved Portion. The Lagoon, at 24% of the total of Part A, was being asked to pay 12 times more management fees than either the Club (2%), or the Commercial Development (2%), or one third of the total amount payable by the Residential Owners (72%), while receiving less service. The calculation relied upon by the Respondents' second witness for the total surface and service area of the berths at 240,000 sq.ft. was not borne out by concrete evidence, was a mere coincidence, and should not be relied upon. The Respondents' second witness was aware of the terms of the Condition of Grant and the DMC and could not assert that he did not know that the Lagoon and marine structures could not be assigned. To attribute the undivided shares of the Reserved Portion only to the Lagoon was incorrect. The Reserved Portion included also the Common Area and Facilities. The Manager should fix the management fees for the Reserved Portion by the GFA method, as was done in the case of the town houses under Clause 8 (c). The Manager had properly ignored the difference in size of the gardens, car parks, view, roof and whether there were pontoons, in that exercise. Since these income-producing elements were ignored for the town houses, the same should be done in respect of the income-producing element of the Lagoon and marine structure. The Lagoon and marine structure had a lower rateable value than the houses The income-producing element of the Club and the Commercial Development was not taken into account in calculation of their management fees. Section 39 of the Building Management Ordinance was irrelevant, as Clause 8 (c) provided for the sharing of the management fee among the different parts of the Estate, and among owners of the same part. It would be unfair for the unassignable 240,000 undivided shares in the Reserved Portion to subsidize the other owners. Given the special features of the Estate, with houses enhanced by a Lagoon (which required expensive upkeep) and marine structure, plus a minor commercial complex, the GFA method was fair and logical. The GFA method did not affect the management fees payable by the town houses. Town houses did not have to pay for non-GFA components. This method was applied under other parts of the DMC. The Manager should not take into account the income generating potential of the Lagoon and marine structures when fixing the management fees payable. The alleged income was not based on reliable data. When the relative rateable value of the Applicant's properties in the Commercial Development and the Club including the moorings and boat yard, at $14,599,000, was compared with that of the Residential Development, at $252,076,000, it showed the difference between the relative value of the Applicant's properties (5.47%) and that of the residential owners (94.53%). This was consistent with the relative GFA at 5.9% to 94.1%. As there was no valid grounds for the rejection of the GFA method, the manager's decision to reject it was invalid and should be set aside. The GFA method should be adopted. Part A and Part C Part A should be read with Parts B and C. In Part C, "specifically referable" did not require an expense item to be exclusively for the Residential Development only. The Manager should identify the "Common Area within the Residential Development" under Part A and C, in the apportionment of expenses under these two Parts. The "conclusive" opinion of the Manager was subject to binding directions to include in the expenditure those of the common areas in the Residential Development, and the proportionate part of the specified general expenditure which the Manager considered fair and reasonable. The Manager's "conclusive opinion" should only apply to items of expenditure "specifically referable to the Residential Development". The Manager's budget apportionment was therefore in breach of the DMC, and should be set aside. Clause 8 (a) A, B and C These parts should be read together. Even when Part A applied, the Manager should consider whether the item was caught by Parts B or C. If so, there should be further apportionment. The Common Areas in Part A covered only those parts of the common areas within the Estate not included in the "Common areas within the Commercial Development" and the "Common areas within the Residential Development." Only expenses not caught by the Part B and C common areas could be allotted to Part A. The DMC provided for "such share of the costs" and not all the costs to be allocated to Part A. the balance should all go to Part C. There were overlapping definitions among the various Parts. While "general expenditure" for costs of staff etc. were within Part A, the Manager under Part B and C was to include in those parts "such proportionate part of the general expenditure" for the same items. The Manager's job planning for the staff should be according to Part A and C, and apportioned in like manner. "Specifically referable" in Part C This did not mean an item must be expended exclusively and only on the Residential Development before it could be allocated to Part C. Apportionment between Part A and C should be made where there were expenditure attributable to both parts. Common areas within the Residential Development There is no definition of "common areas within the Residential Development". Part C was to include items of expenditure incurred for the common areas of the Residential Development. The Manager had a duty to identify such areas for the apportionment of management expenses.. Common areas within the two high rises were agreed to be common areas within the Residential Development, but that was not exclusive. There must be other such common areas which the Manager must identify. There were only town house, but no high rises, in existence, when the DMC came into being. The DMC must envisage the town houses to have common areas, under the wording of Part C. The Registrar General approved the DMC with such wording. Since all owners had the right to use the Common areas of the Commercial Development without detracting from that being Part B Common areas, the use of common areas by owners other than residential ones, between Gates 1 and 2, should not render those areas being less of Part C common areas. Management services in those areas primarily benefited residential owners. Conclusive opinion The wording of Part C did not support a full discretion to the Manager. The Manager's conclusive opinion only qualified and governed expenditures "specifically referable to the Residential Development." The Manager's duty He must identify the Common areas within the Residential Development, including high rises and town houses. He must identify expenses connected to such Residential Development Common areas, and include them in Part C. He must identify the general expenditure and include a proportionate part into Part C, "as the Management Company shall consider fair and reasonable." He must identify the relevant Part A (iii) expenses and apportion some to Part C Where expenses are caught by both Part A and Part C wording, the foregoing exercise must be done. There would be something left in the Part A expenses account. The Budget apportionment It put nearly all items of expenditure into Part A. The Manager did not interpret Clause 8 (a) A and C correctly, when this was done. The apportionment was fundamentally flawed, breached the DMC, and was unreasonable, biased and unfair towards the Applicant. In answer to the Respondents' submission that unreasonableness, unfairness and bias had not been pleaded, the Applicant submitted that the issue of the Respondents' unreasonableness, unfairness and bias had been raised. It was raised in the Notice of Application. The construction of the DMC required the issue of reasonableness and fairness to be considered. The Applicant's case was opened on the basis that the budget was contrary to the DMC, unfair and unreasonable. The mental attitude of the Respondents' second witness was the main concern under this head. The evidence relating to this aspect must be considered. The Manager was not in the same position as the experts in the cases cited. He did not have a completely free hand. The Lands Tribunal was not excluded from intervention. Since the developer reached a consensus with the Registrar General ( admittedly not a party to the DMC ) on the terms of the DMC, for the protection of purchasers, the consensus must bind all subsequent purchasers. The GFA method was to be the primary method for management fee contribution. The Respondents' submission For the determination of the Applicant's share of the management expenses, there must a two stages approach :-
The budget was approved in accordance with the Building Management Ordinance Cap.344. All the procedures under Sections 18, 20, 21, 22, 34C, 34E, Fifth and Seventh Schedules had been followed. Draft budget was prepared for the Incorporated Owners by the manager, and it was considered by the Management Committee on 6th March, 1997. On 24t h March 1997, a copy of the budget was displayed for the owners' comments within 14 days. On 11th May 1997, the Management Committee approved the budget. The view of the second Respondent, as the expert, could not be challenged. Furthermore, the Manager had an "absolute discretion" and can arrive at a "conclusive opinion". The Respondents relied on the cases of :
For the court to interfere, the Manager must be shown to have misinterpreted the DMC. To say that the Manager had misapplied the DMC, his apportionment was mistaken or unreasonable, or that the Applicant's method was fairer would not be sufficient. The parties had agreed to abide by the Manager's idea of a reasonable budget. There was no expert evidence from the Applicant to disprove the evidence of the Respondents' second witness. The DMC envisaged a 2 stage process :
The interpretation of the DMC The DMC provided for the "management, operation, servicing ...maintenance ...of the Estate." Under the DMC, the Management Company had the responsibility and full and unrestricted authority to do all necessary acts and things for the management of the Estate and Land. This must be borne in mind when reading the DMC. Clause 8 (a) of the DMC The DMC envisaged only one manager being responsible for all six parts of the budget, and management of the whole Estate. In Part A, the expenditure was for the benefit of all owners. In the other Parts, the expenditure was "specifically referable" to those Parts. There was reference to "the opinion of the management company (whose opinion shall be conclusive for all purposes)" and "such proportionate part as the management company shall consider fair and reasonable" in Parts B to E. These words were not in Part A. Expenses not allocated to the other Parts under the Manager's discretion would fall under Part A. Part A The key words were " for the benefit of all owners". The extent of the benefit or enjoyment was not relevant, provided that an owner had the right to do so. The total costs under Part A (iii) should be apportioned, and the Respondents' second witness had done so, in the planning on the separate and distinct duties of staff. The apportionment of the total costs was done in the budget. The Applicant's approach, in using a ratio for dividing the individual items of expenses, was rejected as being not referable to the duties or percentage of time a staff would have spent on duties common to all owners, and on those only specifically referable to the Residential Development. This approach was perceived to be fundamentally flawed. Part A was for the benefit of all owners. All owners must include residential owners. It would not be correct to apportion a part of the common expenses into Part C, and the balance into Part A, to be shared again by all owners. Once an expenditure was common to all owners, it should go into Part A. Apportionment within an item of expenditure, into the different Parts A and C, was only necessary where there were distinctive parts of the expenses, one for the common areas and the other for the Residential Development. What would be specifically referable to Part C would be taken out and put into Part C. There would be no further discount on the balance, based on the residential owners' assumed share of the common benefit. Common expenses under Part A were in effect expenses not specifically referable to any Part. Part C The key words were "specifically referable". "Specific" means "relating to one particular thing, not general" "Specifically referable" to the Residential Development did not mean primarily for the benefit of residential owners. The inherent nature of the expenditure should be looked at when deciding whether it was specifically referable to Part C or not. It was not to be done by artificially carving out a portion of the common expenses and allocating it to Part C. Common areas within the Residential Development The term only appeared once in Part C. There was no definition under the DMC. While all owners were entitled to use all common areas, the use to which these areas were put was relevant in deciding whether these were common areas within the Residential Development, the Commercial Development or common to all. The definition of common area within the DMC made not reference to the town houses in the Residential Development. The omission must be intentional to show there was to be no common areas within the town houses in the Residential Development. Common areas within the Residential Development could only mean common areas within the two high rises. The Applicant cannot say that the area beyond Gate 1 and 2 was "Common areas within the Residential Development". The Applicant, its staff, and members of the club were all entitled to, and did use the area, for access to various parts of the Estate. It was admitted by the Applicant that the liability to pay management fees did not depend on the extent of use. The roads were further require for access to the common facilities underground, for example, pipes and drains. There was no "Estate Common Areas and Facilities" and "Residential Common Areas and Facilities" stated in the DMC. The Applicant can place no reliance on such terms, nor try to base its case of 14% share on some of the Part A expenses on these. Clause 8 (c) GFA was only one of the approaches that Manager should consider. It was not the main factor or the conclusive factor. The DMC did not so restrict the manager. The undivided share approach was not designated under Clause 8 (c). However, the DMC gave the Manager the absolute discretion to decide on the apportionment. The manager having considered the GFA approach, and discarding it, could choose to apportion on the undivided shares. His decision could not be challenged. The preparation of the budget The Respondents' second witness considered the internal guidelines of the second Respondent's , the code of the Hong Kong Institute of Housing, and the DMC. He did not regard the members of the Management Committee as representatives of any particular individual owners, nor was he influenced by the fact that they were residential owners. He planned for the allocation to Part A and Part C. The provisions in the budget This was not in issue. An owner could not challenge any provision accepted and passed by the Management Committee. The Respondents' second witness proceeded on the 2 stage exercise in the preparation of the budget. He had considered the DMC, and exercised his discretion under Clause 8 ( c ). He considered and rejected the GFA approach. He adopted the undivided share approach. The GFA approach At 5.9%, the combined GFA of the Applicant's properties in the Estate did not match its shares in the Estate. The Reserved Portion benefited from the management services provided to the common areas and facilities. There was no exemption for the owner of the Reserved Portion from payment of its share of management costs on the common areas. The undivided share approach The Respondents' second witness gave reasons for his decision. The same unit rate per share was adopted for all owners, and was easily ascertainable. Undivided shares represented an owner's interest in the land, voting rights depend on these. The Building Management Ordinance Sections 22 and 39 showed the importance of undivided shares for liability of management fees. The shares gave the owner of the Reserved Portion a 24% interest in the Estate. The fact that the income-producing surface of the berths was 240,000 sq. ft. was a mere co-incidence. The exact area was irrelevant. The Applicant did not provide its own figures. The estimated figures given by the Respondents' second witness was challenged. The Applicant did not provide any. In any event, the witness had not based his apportionment on the amount of income generated. While the Applicant contended that it should not be asked to pay the full rate of management fees on the common areas, it could not specified how much of the shares should be allocated to the common areas. The common areas were valuable to the Estate as a whole. That the Applicant considered the amount payable under the undivided shares approach to be high could not be a ground for setting aside the Respondents' budget. The Respondents' second witness was patient and careful in his evidence. On the Applicant's case It was difficult to follow and changed from time to time. The budget was available from March 1997, there was no request for supporting documents until October 1998. There was no reason why the Respondents' second witness should not supply the 7- page budget to the Applicant. Supporting documents were supplied as soon as they were asked for. The Applicant in preparing its Chart 6A did follow the 2 stage approach specified under the DMC. The Applicant's approach was wrong and inconsistent with the DMC. The Applicant's concept of "Estate Common Areas and Facilities" and "Residential Common Areas and Facilities" were wrong. The obligation to pay management fees depend on the right to use, not its extent or frequency. Rateable value was not relevant to the apportionment of management fees. The applicant's in-house expenses were irrelevant. The house pontoons were not in issue. The Applicant's second witness was not an expert witness, capable of challenging the Respondents' second witness. The Applicant's second witness did not have a sensible approach, in accordance with the DMC, for his apportionment. Unfairness or bias Unfairness or bias of the Respondents' second witness, with material allegation of facts, had not been pleaded and was not in issue. There had not been any application to amend the pleadings accordingly. The issue was the construction of the DMC, and that the Manager had acted unreasonably in failing to comply with the DMC. Since unfairness and bias had not been pleaded, the Respondents did not seek further and better particulars, and had not called evidence or other witness in rebuttal. The Respondents had not conducted its opposition on this basis. The Applicant's cited case of Abu Dhabi National Tanker Co. v. Product Star Shipping Ltd. [1993] Lloyd's Law Report 397, on discretion given to a contracting party, was not about experts. It was a matter of contract whether a Manager's decision was to be treated as that of an expert. Jones v. Sherwood Services Plc. [1992] 1 WLR 277, citing Campbell v. Edwards [1976] 1 WLR 403. Dean v. Price [1954] Ch 409 was cited to show that an appeal court would refuse to set aside an expert's valuation, there being no appeal on the point that an auditor's certificate was conclusive and binding, the court not being entitled to go behind it. Partenreederi MS KarenOltman v. Scardale Shipping Co. Ltd. [1976] 2 Lloyd's Law Reports 708 and Shell Tankers (U. K.) Ltd. v. Astro Comino Armadora S.A. [1981] 2 Lloyd's Law Reports 40 were cited to support the position that pre-contractual negotiations was not admissible to interpret a contract unless in very limited circumstances. The correspondence between the Developer's solicitors and the Registrar General could not be relied upon in the interpretation of the DMC. There was no basis for the contention that the GFA method should be the primary method for apportionment of the management expenses, or that the Manager could not reject the GFA method after considering it. 200. The determination of the Lands Tribunal was sought on the calculation of the management expenses to be borne by the Applicant in respect of its properties in Marina Cove in accordance with the Deed of Mutual Covenant. 201. It was pleaded that the second Respondent had "unjustifiably and unreasonably apportioned 86%of the total budget expenditure to the common parts to be shared by all owners whereas a substantial portion of such expenses is in fact to be incurred solely and exclusively for management and maintenance of the Residential Portion of Marina Cove." The apportionment was unreasonable and unfair. 202. It was not pleaded that the Respondents' second witness was unfair and biased towards the Applicant. This was not the basis of the Application. 203. The main contention was that the Respondents had, contrary to the terms of the DMC, rejected the use of the GFA method in deciding the share of the management expenses by each owner. The Respondents adopted the undivided shares as the basis of the apportionment of the management expenses. The Applicant considered that the Respondents had no power to do so under the DMC. 204. It was contended that the powers of the Manager, as set out in the DMC, was in fact without much discretion. He was bound to apply the GFA method, and could not apply another or any other method. 205. Evidence had been adduced at great length to show that the Respondents' second witness, in deciding on the use of the undivided shares as the basis of his apportionment, had acted unfairly, unreasonably, and with an obvious bias against the Applicant. The whole exercise was alleged, in fact, to be done as an act in retaliation against the Applicant, which had not previously paid any management fees. 206. The Respondents' second witness was said to have failed to supply all relevant data to the Applicant expeditiously, thereby causing the Applicant much inconvenience, resulting in the changing aspects of its case. The final version of the Applicant's formulae, for the calculation of its share of the management expenses was to be preferred to that of the Respondents', and should be adopted. 207. The Respondents submitted that the Applicant should not make any submission of the unfairness and bias shown towards the Applicant by the Respondents' second witness. What was not pleaded specifically should not be allowed to become an issue. Furthermore, this would have severely prejudiced the Respondents, and even if the Applicant had applied for an amendment to include this, it should not be allowed. The opposition had not been prepared to deal with allegations of personal bias on the witness's part. 208. Having perused all the relevant documents and considered the evidence, at the end of the day, the Tribunal came to the conclusion that it should only be concerned with the interpretation of the DMC, and the effect of the Building Management Ordinance Cap.344 on the calculation and apportionment of the management expenses that the Applicant should pay. 209. Under the Tenth Schedule of the Building Management Ordinance Cap. 344, the Lands Tribunal has the jurisdiction to deal with the present application. (Clause 4 ( c ) ). 210. Under Sections 34D & 34E of the Building Management Ordinance, the Seventh Schedule of the Ordinance is applicable. The Schedule contains mandatory terms in deeds of mutual covenants. The first clause provides for the determination of total amount of management expenses. 211. Other relevant sections are Section 21 and Section 22 of the same Ordinance. Under Section 21, a management committee "shall determine" the amount to be contributed by the owners to the funds established and maintained under Section 20 of Cap.344 for the general and contingency expenditure. 212. Under Section 22(1), the amount to be contributed by an owner towards the amount determined under section 21 shall be fixed by the management committee in accordance with the deed of mutual covenant. Section 22 (2) provides that, if there is no deed of mutual covenant, or "if the deed of mutual covenant does not provide for the fixing of contributions, the amount to be contributed by an owner towards the amount determined under section 21 shall be fixed by the management committee in accordance with the respective shares of the owners." 213. "Shares" means the share of an owner in a building determined in accordance with section 39. Section 39 states that an owners share shall be determined in the manner provided in a instrument including a deed of mutual covenant ( if any ) which is registered in the Land Registry; or
214. Section 39 is in effect the undivided shares approach adopted by the second Respondent. 215. The second Respondent had kept in view the DMC, the code of practice of the Hong Kong Institute of Housing, and the internal guidelines of the second Respondent when the budget was prepared. 216. Under the DMC, Clause 8 governs management and other expenses. 217. Clause 8 (a) directs the Management Company to prepare the budget for review by the Representative Committee (now the Management Committee). Parts A was the part with which the Applicant was concerned. Part C became relevant as it affected the total payable under Part A. Part A covered "all expenditure to be expended for the benefit of all owners as essential or required for the proper management cleansing security and maintenance of the said Land and the common areas and for the provisions of facilities common to the Estate including but without prejudice to the generality of the foregoing : -
Under Part C, which covered "all expenditure which in the opinion of the Management Company (whose opinion shall be conclusive for all purposes) is specifically referable to the Residential Development including in such expenditure the charges for the supply of flushing water, the maintenance, repair, cleansing, lighting, ventilation and security of the Common areas within the Residential Development and such proportionate part of the general expenditure for cost of staff and security forces and removal and disposal of rubbish as the Management Company shall consider fair and reasonable." 218. Under clause 8 (c) " The Management Company shall in addition fix the due share to be contributed to the annual budget by each owner as it shall in its absolute discretion decide to be reasonable after taking into consideration inter alia the proportion which the gross floor area of any building owned by the owner bears to the total gross floor areas of the completed buildings in the Estate, the Commercial Development, the Residential Development, or the Commercial Car Parks (as the case may be ), to be paid in the following manner : -
219. There was in fact no provision for the exemption or discount from the payment of any owner's share of the Part A expenses under the annual adopted budget. All owners, regardless of their ownership in any other parts of the Estate, must pay their shares of the Part A expenses. 220. In respect of the Part A expenses, the Management Company had no discretion to exempt or discount, except under the costs of its supervision under Clause 8 (a) A (iii) (f). Only in this particular item was the payment of such share of the costs to be "as the Management Company in its absolute discretion considers fair and reasonable." 221. All the other Parts, except Part A, covered expenses "which in the opinion of the Management Company (whose opinion shall be conclusive for all purposes) is specifically referable to" that particular Part, and including in such expenditure the charges for various items "as the Management Company shall consider fair and reasonable." There was no definition of what was "specifically referable" so an ordinary meaning had to be applied. The expense must be definitely and distinctly relating to a particular Part and considered as belonging to the Part. Where that could not be done, it would not be specifically referable to the particular Part. 222. The budget itself and the facts and figures had been canvassed in details. It remained to be ascertained from the evidence whether the Manager had complied with the requirements under the clauses of the DMC. 223. It cannot be disputed that the second Respondent had considered the apportionment of the management expenses under the GFA method expounded by the Applicant. There was a memo on this apportionment addressed to a member of the management committee. Having considered the GFA method, the second Respondent decided to reject it, and carried out the apportionment based on the undivided shares held by each owner. The Applicant argued that S.39 (b) of the BMO did not apply in the present situation, as the DMC had provided for the determination of an owner's share. S.39 (a) should apply, as the determination of shares was provided in the DMC. 224. On a closer examination of the DMC, the DMC had not in effect determined the provision of an owner's share in the management expenses. It did not provide with any certainty for the fixing of management contributions. The Management Company was given the power to "fix the due share to be contributed to the annual budget by each owner as it shall in its absolute discretion decide to be reasonable after taking into consideration inter alia the proportion which the gross floor area of any building owned by the owner bears to the total gross floor areas of the completed buildings in the Estate..." The second Respondent was entitled to take into consideration the gross floor areas, decide in its absolution discretion to reject that as the basis for the apportionment, and to apportion the expenses according to the undivided shares, under the Building Management Ordinance. 225. In the case of Wong Pun man v. The Incorporated Owners of Tung Fat Building Lands Tribunal Application No. BM 113 of 1995, His Honour Judge Cruden decided that "where there is no DMC, or a DMC exists but does not provide for fixing contributions, they may not be determined by the management committee or even by the corporation in general meeting. In either of the latter events, they may not be fixed by resolution but are determined according to the respective share of the owner, as a tenant in common of an undivided share of the Building, under the Crown lease or other grant." This is the situation applicable in the present application. 226. The management committee of the first Respondent had fixed the management fees payable, according to the draft budget proposed by the second Respondent. The second Respondent had send the draft budget to the management committee for discussion. A copy of the draft budget was sent to the owners for comments within 14 days. The manager had then prepared a budget specifying the total proposed expenditure during the financial year. A copy of the budget was sent to the management committee. All the requirements under the Seventh Schedule of the BMO had been complied with. It cannot be said that the Respondents' apportionment and budget were in breach of the DMC or the BMO. 227. The application is dismissed. 228. Costs to the Respondents to be taxed if not agreed.
Representation: Mr. C. Y. Mok, Senior Counsel and Mr. T. M. Lee, Counsel instructed by Messrs. Lo & Lo for the Applicant. Miss Audrey Eu, Senior Counsel and Mr. Stephen Lee, Counsel instructed by Messrs. Wong, Hui & Co. for the Respondents. |