The Incorporated Owners of Four Winds Apartment v. Koa Hsung Land Investment Co Ltd and Others

cacv 438/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 438 of 2006

(on appeal from LDBM NO. 218 of 2005)

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BETWEEN

Before: Hon Rogers VP, Le Pichon JA and Stone J in Court

Date of Hearing: 6 June 2007

Date of Judgment: 6 June 2007

Date of Handing Down Reasons for Judgment: 13 June 2007

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.This was an appeal from a judgment of HH Judge Yung, the Presiding Officer of the Lands Tribunal, given on 6 November 2006.  By that judgment the first respondent was ordered to pay the applicant the sum of $52,600 as outstanding management fees with interest on that sum from 17 March 2006 until the date of payment at judgment rate and interest on the sum of $80,000 from 17 March 2006 to 27 April 2006.  The second respondent was ordered to pay the sum of $19,800 as outstanding management fees with interest on that sum from the 17 March 2006 until the date of payment and interest on the sum of $30,000 from 17 March 2006 to 27 April 2006.  The third respondent was ordered to pay the sum of $13,200 as outstanding management fees again from the 17 March 2006 until the date of payment and interest on the sum of $20,000 from 17 March 2006 to 27 April 2006.  All three respondents were ordered to pay the costs of the application from the date of setting down until the date of trial on the High Court scale.  At the conclusion of the hearing of this appeal, this appeal was dismissed with reasons to be given in writing.

2.The issues outstanding on this appeal were twofold.  It was said that the Incorporated Owners’ claim in respect of management fees was invalid because there had been no budget prepared to substantiate the increase in management fees which was required to comply with the fifth schedule of the Building Management Ordinance, Cap. 344 (“the Ordinance”).

3.The other matter was that it was said that there had been no resolution of the Management Committee, and in this respect reliance was placed upon paragraph 10 of the second schedule of the Ordinance.

4.The judge considered the respondents’ arguments in relation to the budget in paragraphs 15 and 16 of his judgment.  He said:

“Budget for the increase of management fees

15. The Treasurer gave evidence of tabling a draft budget at the meeting.  In the minutes, discussion about the financial position of the Applicant took place, ad the estimate of the deficit was mentioned.  I accept the evidence of the witnesses.  There was tabled before the committee at the meeting a budget on which the Management Committee based its determination to increase the monthly management fees.

16. This draft budget was titled for the year ending 30 September 2003.  The Respondents therefore argue that this is not the annual budget required by the Fifth Schedule of the Ordinance.  What the Management Committee tried to do was to forecast the expenditures for the next year.  They are not fortune-tellers, it is only reasonable for them to make the forecast by looking at the figures projected for current year and in the past years.  The budget so complied though termed as budget for the year ending 30 September 2003, it also lists out side by side corresponding items in audited accounts for 2001 and 2002.  Looking at the content of it, I accept this document was used by the Management Committee to forecast expenditures for the year as from 1 October 2003.  This budget gave all the information reasonably necessary for the Management Committee to determine the increase in management fees and for the owner to comment or to challenge the increase on its merit.”

5.This court’s attention was drawn to that document to which the judge made reference.  It does indeed set out all the necessary information in relation to the past and current expenditure.  It was, in my view, an entirely reasonable document for the Management Committee to consider as a ‘budget’ for the coming year.  It demonstrated a consistent trend of expenditure, which seems to have been carefully controlled by those responsible for running the building.  When reference is made to the minutes of the Management Committee it can be seen that the committee took careful note of the finances.  In the minutes of the meeting of 3 June 2003 the following was recorded:

“6.0      Deficit-by the end of the current financial year on 30^th September, we anticipate a deficit of $80,000.  On the basis of current revenue generated from management fee and reduced running cost (excluding running repairs, general maintenance, etc.), we are in the red by about $90,000 p.a.  We need to increase the management fee but we would want to do some research on the fees charged and other properties with similar features.”

6.The next meeting appears to have taken place on 20 August 2003 and in paragraph 3.7 it is stated:

“3.7      Management fees-as discussed at our last meeting, we are still on track to post a deficit of $80,000 by the end of next month in spite of having undertaken all cost-cutting measures possible.  For the past few years, the Government has become more stringent with safety and older buildings like ours need to spend more to keep up new regulations.  A case in point is the WR-2 electrical installations compliance.  We have been falling back and spending our savings and currently, we have is insufficient funds to do any maintenance work.  With effect from 1^st October, 2003, monthly management fee is set at $1300 per month.  At this rate, we may be able to balance our budget, barring all unforeseen circumstances and extraordinary expenditures.  RC will be preparing a notice to all owners on this matter.”

7.In summary I see no ground for disturbing the judge’s finding in regard to this matter.  The fifth schedule does not specify any particular form that a budget must take and what was done appears to have been entirely reasonable, proper and careful.

8.The judge dealt with the argument as to the lack of any resolution primarily in paragraph 14 of his judgment.  That read as follows:

“14.      The Respondents have not called any evidence.  Through their counsel the case doubt on the veracity of the witnesses for the Applicant.  I accept the evidence of the witnesses. It is unfortunate that no formal record of the resolution was recorded in the minutes.  It is trite law that minutes are not conclusive of matters transacted.  Looking at content of the matters recorded in the minutes, the question of raising management fees is discussed.  More importantly, it is clearly recorded that “---with effect from 1st October 2003, monthly management fees is set at $1,300 per month.  At this rate we may be able to balance the budget---”  These words expresses a definite decision by the committee and support the evidence of the witnesses that there was a resolution of the committee to raise the monthly management fees.”

9.In my view the judge’s approach is impeccable.  There can been no magic in words such as “it is resolved”.  It is clear that there was a quorum at the meeting of the Management Committee and the decision was taken that monthly management fees were to be increased to $1300.

10.In giving judgment this court made clear that, in its view, the bringing of this appeal was a futile exercise which should never have been undertaken.  It wasted not only the costs incurred by the parties but public resources in the form of court time and resources to the detriment of other litigants.  Whilst I did not take part in the decision as to costs, because at that time I was concerned that there might have been some conflict of interest, (which it has transpired did not exist), I wholly concur with the decision of the other members of the court that the Incorporated Owners should have their costs on an indemnity basis.

Hon Le Pichon JA:

11.I agree.

Hon Stone J:

12.I entirely agree.  This appeal demonstrably had no merit.  It is difficult to appreciate why the Court of Appeal should have been troubled by what, in essence, was no more than a futile exercise in adversarial politics within the block in question.

Mr Malcolm Merry, instructed by Messrs Ho, Tse, Wai & Partners, for the Applicant/Respondent

Mr James Tze, instructed by Messrs John Ku, Tam & Ho, for the 1^st to 3^rd  Respondents/Appellants