Incorporated Owners of Han Palace Building v. Ho Yuk-lan and Others

DCCJ000113/1983

Consolidated applications under S.93 of the Landlord & Tenant (Consolidation) Ordinance for discharge of warrants of distress of rent refused - allegations of mal-management and failure to disclose accounts on the part of the Management Committee of a Multi-storey Building Owners Incorporated held not a ground for refusal to pay contributions (management fees) as remedies could be had by asking the court to dissolve the Committee and for the appointment of an administrator let alone declaration and mandatory injunction.

2.    Such contributions are debts to the Corporation under Multi-storey Buildings (Owners Incorporation) Ordinance, Cap. 344 enforceable by distraint of rent under Part III of the Landlord and Tenant (Consolidation) Ordinance, Cap. 7.

3.    Omissions to serve valid notice on some of the minority tenants for convening Annual General Meetings at which the Management Committee are retired and appointed afresh and re-appointed did not invalidate the fresh appointments and re-appointments hence did not invalidate subsequent resolutions to demand contributions and authorizations of Committee Members to enforce them by distraint of rents. S.37 of and Paragraph 3(7) of the Third Schedule to Cap. 344 repugnant to each other on this matter - S.157 of the Companies Ordinance held in pari materia to S.37 - omission to give notice for meeting to pass resolutions does not invalidate the resolutions passed if such omissions were accidental. On the facts, the omission in these instant cases held to be accidental.

Royal Mutual Benefit Building Society v. Sharman & Others (1963) 2 All E.R. 242 distinguished.

Re West Canadian Collieries, Ltd. (1962) 1 All E.R. applied.

4.    Defect in the appointment of Committee Members found afterwards contra no appointment at all did not invalidate resolutions passed at meetings voted by such members.

5.    Company law principles applied to Cap. 344.

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

DISTRAINT NOS. 113, 114, 522 & 523 OF 1983

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BETWEEN

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Date: 10th October, 1983.

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REASONS FOR DECISION, EX TEMPORE

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1. These are 4 consolidated applications for discharge of warrants to distress rent under section 93 of the Landlord & Tenant (Consolidation) Ordinance. The grounds for these applications are: Firstly, the Respondent the Owners Incorporated failed to produce financial accounts as required by section 27 of the Owners Incorporated Ordinance, Cap. 344 and, secondly, failure to carry out proper maintenance. Taken as a whole, these two grounds alleged mal-management. The third ground is that the Management Committee and the persons authorised by it for distraint of rent have not been properly constituted and the appointed for lack of notice or valid notice duly served for convening the Annual General Meetings, one of the principal objects of such meeting was to retire the whole Committee and appoint a new Committee annually.

2. The 4 Respondents are minority flat owners in the building as it is common ground that the persons acting for Respondent together form the majority with RW1 Madam Wong in possession of some 48 votes, one for each flat or unit.

3. I have no difficulty in ruling that the Applicants cannot succeed on the first two grounds. In fact, I think these two grounds were ill-conceived. Under section 24 of the Multi-storey Buildings (Owners Incorporation) Ordinance, Cap. 344, distraint of rent under Part III of Cap. 7 applies to contributions payable under sections 22 and 23 of Cap. 344 which sections render individual owners and occupiers liable to pay contributions for the management of the building and other specified purposes to the fund held by the management committee for the body corporate. In particular, section 22(3) provides that the amount payable by an owner shall be a debt due from him to the corporation at the time when it is payable. Subsection (4) further lays down that a certificate in writing signed by the chairman of the management committee stating the amounts to be contributed by an owner and when it is payable shall be prima facie evidence of the facts stated therein without further proof. Such certificates are in evidence and the quantum is not in dispute. Thus it can be seen that contributions by individual owners is not only a contractual but also a statutory obligation and it is plain common sense that without such contributions no proper management of a building can be had. If some owners consider that there has been faults or mal-management on the part of the management committee, there are legal and lawful remedies under Cap. 344. Under Paragraph 1(2) to the Third Schedule, owners who together make up 5% of all owners in the buildings can demand the chairman of the committee to convene a general meeting. If that is impracticable or in an extreme case of mal-management an owner, i.e. any owner, can petition to the District Court for the dissolution of the management committee and for the appointment of an administrator under section 31 of Cap. 344. As long as a properly constituted management committee or body authorised by it is in function, individual owners are under a legal obligation to pay constributions when due. It is no defence to a suit for such contributions on the ground of mal-management the remedies for which, apart from those as just stated, can further be had by instituting various legal proceedings such as declaration and mandatory injunction. For otherwise, the servicing, cleaning, lift operation and other maintenance of the building would certainly come to a standstill with two groups of owners disputing whether there has been mal-management. Liability to contribute is not only sound law but also good common sense as in fact illustrated in this case, admittedly in the evidence of AW2 at page 13 of my written notes of proceedings that services such as watchmen, caretaking, cleaning, lighting and lift services have always been provided albeit with the allegation of poorly done. Without regular and due contributions, such services will be quite impossible. As a matter of fact, it can be seen from the evidence of RW1 Madam WONG Ching that the Respondent is in debt to the amount of some $40,000 to some owners by the name of San Wo Brothers Limited who put up such a loan to tide the Respondent over as some other owners including the Applicants had failed to make contributions.

4. Now I come to the third ground that neither the Management Committee nor persons allegedly authorised by it to institute the distraint proceedings were properly constituted and appointed. It is an arguable ground for if the contribution and appointment were in question, then the right to demand contributions from individual owners and to enforce them through its Committee Members by distraint would be doubtful. No evidence was adduced by the Respondent that service was actually and physically effected by it or its agents, that is service to convene Annual General Meetings subsequent to the inaugurating General Meetings in 1978 by it or its agents on individual owners, save and except the evidence of RW1 Madam WONG Ching who in this regard said in evidence that the caretaker was instructed to deliver such notices individually to the premises of each flat and a copy of such notices was posted up in a conspicuous place on the wall in the lift hall on the ground floor of the building and that such notice was served 14 days prior to the meeting as a matter of practice since 1982. I accept her evidence in this aspect and find as facts as just stated. To put it on its highest, such evidence amounted to not actual service of notice but only evidence that RW1 had through the management company instructed the caretaker to so effect service - caused to be served at best. There is no evidence whether the caretaker actually distributed the notices to each household as instructed.

5. The matter would not have arisen had proper evidence been adduced before this trial either by way of an affirmation by the caretaker or by parol evidence that such modes of service were in fact carried out by him but it had not. At one stage of the proceedings Counsel for the Respondent belatedly, after the matter was brought out in cross-examination and enquired about by the Court, showed me purported copies of Minutes of the Annual General Meetings for 1982 and 1983 that was served on all owners but decided not to produce them in view of lack of certified translations thereof and in view of section 37 of Cap. 344 which was brought to the attention of Counsel and Solicitor by me. Even if produced, such copy notices would fall far short of proof that they were in fact so served to which I shall allude. The matter is further complicated by the fact that RW1 Madam Wong was known by more than one name. Admittedly she was known as Madam WONG Ching, Madam Nelly Wong and Madam Nelly WONG Ching. In this regard I accept her evidence and find as a fact that whenever the three names mentioned were used for the purposes of these proceedings including in the Minutes of the Annual General Meetings R6 and R7, they all referred to the same person - one and only one person herself. I have not overlooked the evidence that in previous proceedings for possession of some premises for own use and use of specified relatives, a certain Mr. Evans and a certain Mr. Liu Li Wan who gave evidence for the tenants then testified that Lilly Wong and Madam WONG Ching RW1 in fact were the same person to which RW1 categorically denied. She then testified that Lilly Wong who resembled her was her sister. Both Mr. Evans and Mr. Liu did not give evidence before me. Their evidence is not tested before this Court. I have no doubt in my mind that RW1 did not give false evidence before me that they were sisters when in fact either. Lilly Wong was fictitious or not her sister. Having considered the evidence as a whole, I am satisfied on the balance of probabilities that RW1 does have a sister by the name of Lilly Wong.

6. There is also one important aspect to the name or identity of RW1 in that in R6 both RW1 WONG Ching and Lilly Wong were noted present at the Annual General Meetings for 1982 to make up 5 Committee Members as a quoram and that the quoram would fall short of the minimum 5 required under Cap. 344 if Lilly and Madam WONG Ching or Nelly Wong were in fact one person thus reducing the number of presence to 4.

7. Now I come to the vital question of law as to whether the Respondent was duly authorised by a Management Committee properly constituted for distraint of rent and if not, what would be the legal effect of defects in such constitution and such appointment. It is crystal clear that there is no evidence of service of notices of Annual General Meetings for 1982 and 1983 on the Applicants or delivered to thein individual flats. Both AW1 and AW2 testified that in fact they had not received such notices apart from the notice for convening the inaugurating Annual General Meeting in 1978. Albeit there is accepted evidence that the Respondent did through the management company instruct the caretaker at the building to deliver the notices to the respective premises of the owners or occupants in the building.

8. Section 37 of Cap. 344, a saving section saves a resolution passed as any meeting of an owns incorporation from being invalid by reason only of the emission to give notice of the meeting to any person entitled to such notice whereas Paragraph 3(7) of the Third Schedule to Cap. 344 provides that no resolution passed at any meeting of the corporation shall have effect unless the same was set forth in the notice sent to the owners in the manner as stipulated therefor. It is submitted by Miss Livasiri, Solicitor for the Applicants, that, as a saving section, it is not in conflict with Paragraph 3(7). With great respect I am afraid this is not so. Both are statutory provisions on substantive law. What is clear is these two provisions are repugnant and at least on the face of it are irreconcilable with each other. The difficulty here is to construct and interpret them in the light of the evidence and for the interest of justice. It is not an easy task.

9. With great respect to her, I am of the firm opinion that the principle of in pari materia is applicable in that Cap. 344 which regulates the conduct of the management committee and guides the relationship of owners and occupants and the management committee is so closely and identically related to the Companies Ordinance which inter alia govern the conduct and relationship amongst the members, the executives normally known as directors and others concerned of and with a limited company that these two statutes really in substance form a system or code of legislation. I refer to Craies on Statute Law 17th Edition, page 134 and the case of Palmer and the persuasive American authority of United Society v. Eagle Bank referred thereunder.

10. I also refer to Maxwell on The Interpretation of Statutes 12th Edition page 187 in which the principle of avoiding repugnancy is succinctly stated as follows :-

"If two sections of the same statute `are repugnant, the known rule is that the last must prevail. But, on the general principle that an author must be supposed not to have intended to contradict himself, the court will endeavour to construe the language of the legislature in such a way as to avoid having to apply the rule, leges posteriores priores contrarias abrogant."

11. It is of relevance to refer to these two textbooks and cases thereunder in order to look at section 157 of the Companies Ordinance which saves the validity of the act of a company directors from any defect that may afterwards be discovered in their appointments. Owners incorporated such as the Respondents' representatives in this case is a body incorporated under Cap. 344 which sought to provide the procedure as well as the substantive law as fully as the law draftsman could then envisage for the management of multi-storey buildings. He could not cover and cannot be expected to cover all possible situations which keep on arising from the practical operation of the law. Being a limited company in this sense, one has really to look to the Companies Ordinance and the Company Law for guidance when Cap. 344 is deficient or repugnant in its scope and extent. I am further fortified in my view that the Company Law is directly relevant to the present context by the case of Royal Mutual Benefit Building Society v. Sharman (1963) 2 All E.R. 242 in which company law principle was applied to a dispute between the building society and some of its members concerning the effect on lack of notice for convening a meeting for passing certain specific resolutions. I shall return to this case at a later stage.

12. I fully agree with the submission of Solicitor for the Applicants, submission and case conducted with marked ability, that section 157 applies only to appointment of the directors or executives which were subsequently discovered to be defective and has no application to a situation in which no appointment was made at all. In this case, certainly appointments of the Management Committee for both 1982 and 1983 had been made, judging from the exhibits R6 and R7, the respective Minutes which I have accepted as true Minutes. It was the validity of such appointments for lack of notice served on the owners to convene the two Annual General Meetings and previous meetings prior to 1978 giving rise to such appointments that was really in issue as a legal issue. Therefore in its final analysis, these applications hinge on the effect of absence of evidence that notices to convene the Annual General Meetings at which the Management Committees had been appointed at the material times.

13. I also refer to Paragraph 406 of Halsbury's Laws of England, 4th Edition on defect in appointment of company directors.

14. The law as ably put by Miss Livasiri is that section 157 in effect only saves the validity of the appointments or the Management Committee if the omission to serve a notice on the owners was accidental and not otherwise. This principle is well illustrated in Sharman contra Re West Canadian Collieries, Ltd. (1962) 1 All E.R. In the latter case, it was held that notice of the meeting had been validly given for the purpose of the Companies Act as the omission was accidental on the part of the serving company due to incorrect record of the addresses of those missed out. In Sharman it was held that subsection (1) of section 35 of Building Societies Act 1960 which made it mandatory to serve on each and every member of the Building Society notice to convene meeting overrides subsection (2) which renders it unnecessary to offect service on members not holding shares to a value of £25 on the ground that subsection (1) is an enlarging and not a restricting enactment. It was held in Sharman that for these reasons the omission to give notice was not accidental.

15. Returning to the present case, it is common ground that RW1 together with those who went along with her formed the majority of owners in the building in question hence in the owners' incorporation. In fact AW2 admittedly said in evidence to the effect that the majority siding with RW1 would be at least 64 flats or owners out of 126 flat-owners. From R6 and R7, the only irresistible inference that one could possibly draw is that notices had in fact been sent out to owners, at least to those owners who attended the Annual General Meetings and that those who attended either received them or had notice thereof. I am quite satisfied on balance that this is not a case where no notice was sent out at all but a case where there is no evidence that notice as required was in fact served on the four Respondents or at least on AW1 and AW2 in the manner as legally required.

16. It follows from the legal point of view that no valid notice was served on AW1 and AW2 and possibly the other two Applicants. Incidentally, notice posted up on the wall on the ground floor of the building was not a recognised mode of service. The decisive question is really was the omission accidental; or other than being accidental so that the saving enactments of both section 37 of Cap. 344 and section 157 of the Companies Ordinance will have no application. It is my considered view that the omissions in the legal sense was accidental within the meaning of West Canadian Collieries, Ltd. We don't know if in fact the caretaker had attempted or had in fact delivered the notices to the premises of AW1 and AW2 who testified that they had never received the notices in question. On their evidence I do not have to make an express finding as to whether or not AW1 and AW2 in fact received such notices, as there is no evidence of valid service to begin with. But certainly I am not persuaded on balance that no effort was ever made to deliver the notices to their premises nor that they were unaware of any Annual General Meetings to be held since 1979 as they would have me believe. These disputes have been going on for years, not weeks and not months. The minority owners including AW1 and AW2 have complained to various Government departments and have sought advice of and gained the assistance from firms of solicitors. Surely, they could have and would have reasonably expected to have either covened an Annual General Meeting or General Meeting themselves, or if impracticable to do so asked the Court to dissolve the existing Management Committee and appoint an administrator under section 31. They did not do so. I am also far from being persuaded that AW1 and AW2 and the other two Applicants had no idea how they could contact the Chairman or its Committee Members or otherwise challenge the contributions. Surely, RW1 was well-known in the building and the bridge of the caretaker in the building could be used.

17. Sharman's is distinguished from the present applications in that in Sharman's the omission to give notice was deliberate in the sense that the society there chose not to give notice in the belief that legally they did not have to as those missed out individually owned shares not up to ￡25; whereas in these applications the omissions (legally in the sense of absence of evidence of service) were not deliberate but were due to some faults on the part of the caretaker if in fact as it is presumed by me that he had not served the notices in question. In this sense, the omissions to give notice to AW1, AW2 and possibly the other two Respondents were accidental and not otherwise.

18. Mr. Ho cites the case of International Property Management Ltd. v. Lee Yung-sang 1978 D.C.L.R. 104. This case has no application to the present situation because it was decided on the strength that the Mutual Covenants there empowered the employed management company not only to manage the building and also to enforce contributions payments on the owners whereas in these applications the Indenture gives the power of enforcing such payments to the Management Committee and its Members only.

19. For the above reasons, I am satisfied on the balance of probabilities that omission to effect valid notices on AW1, AW2 and the other two Applicants did not render invalid all the material resolutions passed including at all the Annual General Meetings and those appointing the Respondents' Committee Members to take out distraint proceedings. All four applications are dismissed.

Costs

20. Counsel for the Respondent applies for a Counsel's Certificate. As said in my Decision, the hearings of these consolidated matters could have been considerably shortened had the Respondent diligently considered adducing evidence of service of notices of Annual General Meetings on all owners and adducing them if available. I say this without any disrespect to Counsel as such matters might sometimes be out of the control of Counsel. In all the circumstances, costs are awarded to the Respondent on the Standard Scale. Counsel's application is refused.

21. I should add that part of the tape especially towards the end of it did not come out due to weakening battery and I have re-dictated those parts from memory as best as I could.