Yau Cheuk Hung and Others v. The Incorporated Owners of Gold Mine Building and Another
Read the full judgment text of LDBM 6/2008 on BabelCite. This Lands Tribunal judgment was delivered on 18 March 2009 before Leung DJ.
Building management – incorporated owners – management fees – apportionment – deed of mutual covenant (DMC) – sub-deed of mutual covenant (Sub-DMC) – Building Management Ordinance (Cap 344) – ss 2, 21, 22, 34D(1), 34E and Schedules 1 and 7th Schedule – Gold Mine Building at Chai Wan – Ground Floor shops, 1st Floor shopping arcade and 3 blocks of residential units – 36 applicants are owners of Ground Floor shops – DMC executed 1978 – clause 7(c) Ground Floor owners not liable for lift maintenance – 1st Floor sub-divided into 50 units in 1980 – Sub-DMC – clause 2 common parts of 1st Floor – clause 3(i) 1st Floor owners share Building management expenses – clause 5 1st Floor owners responsible for maintenance and management of 1st Floor – 2007 budget first time management expenses apportioned among four categories – 21 January 2007 resolution – management fees apportioned in accordance with DMC – manager undertook to provide four separate accounts for owners' reference – management committee approved budget January and February 2007 – revised fees effective 1 March 2007 – whether 2007 budget contravenes DMC, Sub-DMC and resolution – purposive approach – whether budgeted expenses solely for 1st Floor common parts – fire safety direction by Buildings Department dated 7 February 2005 addressed to co-owners of 1/F – works include replacing fire doors, reinstating ceiling slabs, enclosing electrical meters, removing concrete curbs and store rooms – held items (2), (3), (4) and (7) of works should be apportioned to 1st Floor owners solely – Tai Fung House and Wing Hong Court distinguished because present case involves Sub-DMC clause 5 – water charges for 1st Floor lavatories – 2 lavatories on 1st Floor – manager failed to show water consumption below Water Services Department threshold – water charges should be borne solely by 1st Floor owners – energy saving system – replacement of fluorescent tubes – 2004 agreement with contractor – remaining costs should be apportioned under clause 5 of Sub-DMC – caretakers' wages – 1st Floor owners bear share based on patrol time – challenges failed – cleaning charges – 5% allocated to 1st Floor owners – challenges failed – metal tools and ware – included in building maintenance and repair – challenge failed – door phone system (CCTV) – not for 1st Floor only – challenge failed – whether manager required to keep four separate books and accounts – no agenda item on 21 January 2007 – resolution only required manager to present four separate accounts – challenge failed – whether manager can be sued personally – section 34D(1) and 34E of Ordinance – manager can be sued personally whether or not IO is sued – Pun Kwok Kei distinguished – counterclaim for outstanding fees dismissed – budget declared invalid – applicants not obliged to pay management fees fixed by budget – applicants to pay fees in amounts approved prior to budget until budget is revised – applicants awarded 40% of costs against respondents – costs taxed on District Court scale if not agreed with certificate for counsel.
Legal issues: Validity of the 2007 management budget · Apportionment of fire service system maintenance and repair costs · Apportionment of water charges · Apportionment of energy saving system costs · Obligation to keep four separate books and accounts · Personal liability of the manager
Outcome: Application partly succeeded; the 2007 budget declared invalid; the applicants declared not obliged to pay the management fees fixed by the budget; counterclaim by the IO dismissed.
Cited by 2 cases · Cites 3 cases
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LDBM 6/2008 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION BUILDING MANAGEMENT APPLICATION NO.6 OF 2008 ____________ BETWEEN
____________ Coram: His Hon Judge Leung, Presiding Officer Date of hearing: 4-5; 19 December 2008 Date of decision: 18 March 2009 JUDGMENT 1.Gold Mine Building at Chai Wan, Hong Kong consists of shops on the Ground Floor and the 1st Floor as well as 3 blocks of residential units from the 2nd Floor and above. The 36 Applicants are the owners of the various shops on the Ground Floor. Disputing the budgeted management expenses for 2007, the Applicants filed the present application against the incorporated owners (IO) and the manager of the Building – the 1st and the 2nd Respondents respectively – pursuant to the Building Management Ordinance, Cap.344. 2.The Applicants, the IO and the manager all refer to the terms of the the deed of mutual covenants (DMC), the sub-deed of mutual covenants (Sub-DMC) and a resolution passed at the general meeting of the owners on 21 January 2007 (the Resolution) in relation to the calculation and apportionment of the management fees. 3.The Applicants further contend that by virtue of the Resolution, the IO or the manager is under the obligation to keep 4 separate sets of books and accounts in respect of the management of the various parts of the Building which will be explained below. 4.The Applicants claims for a declaration that:
5.The Applicants further claims for an order that:
6.The IO and the manager deny the claim. In particular, on the basis that it was at all material times an agent carrying out the duties of the IO, the manager also denies any personal liability towards the Applicants. 7.By way of counterclaim, the IO claims against the Applicants for the outstanding balance of the management fees owed by each of them plus interest. THE ORDINANCE 8.Primarily, all the owners have to share the expenses for the management of the common parts of the Building. Common parts for the purpose of the Ordinance are defined in section 2 and Schedule 1. There is no dispute that this has to be read together with the DMC and the Sub-DMC in the present case. THE DMC 9.Parties referred to the following provisions of the DMC:
10.Pursuant to the Ordinance and the DMC, all the owners shall be responsible for the expenses for managing the common parts of the Building. The exception is that the owners on the Ground Floor shall not be responsible for the maintenance and repair as well as the electricity charges for the lifts. The Sub-DMC 11.When the DMC came to exist in 1978, the 1st Floor was assigned as a whole floor. In 1980, the 1st Floor was sub-divided into 50 units. The Sub-DMC came into existence. Recital (2) of the Sub-DMC stipulates that the sub-deed is subject to and with the benefit of the DMC. 12.The specific rights and obligations of the owners of the 50 units on the 1st Floor are stipulated in the Sub-DMC. Parties referred to the following provisions: Recital (4)
Clause 3
13.The various common parts of the 1st Floor referred to in clause 2 of the Sub-DMC could actually be identified from the floor plans of the various floors of the Building (page 101 of the hearing bundle). 14.The changes that the Sub-DMC in 1980 brought about were as follows:
15.In Mr Wong’s submissions, much was said about whether clause 5 of the Sub-DMC has excluded the application of clause 1 of the Second Schedule of the DMC as far as the maintenance and management of the 1st Floor is concerned. In my view, the issue is really one of application of these clauses. 16.The question to ask is whether the item of budgeted expenses, or any part of it, can be identified to be for the maintenance and management of (the common parts of) the 1st Floor only. In my view, a purposive approach should be adopted in answering the above question. Each item has to be considered on its own. 17.The application of the above provisions entails the allocation of the burden of sharing the expenses for the maintenance and management of the various common parts amongst the owners in 4 categories:
The Resolution 18.A general meeting of the owners was held on 21 January 2007. The minutes of the meeting recorded, among other things, the following resolutions:
6.Essentially, the owners resolved that the management fees should be apportioned in accordance with the provisions, principles and undivided shares set out in the DMC. The manager also undertook to provide the accounts for these 4 parts separately for the owners’ reference in the future. THE BUDGET 7.The Treasurer of the management committee of the IO, Ms Tang, and the Senior Administration and Accounting Manager of the manager, Mr Cheng, gave evidence. The Applicants called no witness. 8.According to Tang and Cheng, the IO gave instruction to the manager in about June 2006 to prepare proposed budgets for 2007. In court, Tang explained that this was in fact the first time the management committee sought to apportion the budgeted management expenses among the 4 parts of the Building mentioned above. 9.The management committee in its subsequent meetings in January and eventually on 12 February 2007 approved the budget. Revised management fees were made effective from 1 March 2007. The notice of payment, apportionment table and budget were displayed and copied sent to the owners. 10.The approved budget shows the various items of actual expenses in 2005 for reference and the apportionment of each item of the estimated expenses for 2007 among the 4 categories mentioned above. For each item of expenses, there was corresponding explanatory note. According to the notice of application, 11 of them were in dispute. THE APPLICANTS’ STANCE 11.In the notice of application, it was contended that the DMC and the Sub-DMC lay down a so-called user-pay principle in respect of the calculation and/or apportionment of the management expenses. This position was abandoned at the commencement of the trial. The notice of application was amended. 12.The items in dispute also changed during the course of the trial. According to the notice of application, the following were in dispute:
13.In his written submission, Mr Wong for the Applicants confirmed no more dispute regarding items (1), (4) and (11) above. In his oral submission, Mr Wong further abandoned the challenge in respect of item (6). That leaves the remaining 7 items in dispute that I need to consider. 14.What the Applicants are complaining about is essentially that the owners of the 1st Floor shopping arcade ought to be paying more than the budgeted shares. THE ITEMS IN DISPUTE Caretakers’ wages 15.The budgeted caretakers’ wages was HK$95,000. HK$3,382 was allocated to be borne by the 1st Floor owners and HK$91,618 was to be borne by all the owners. The Applicants contends that the 1st Floor owners ought to bear more of this item. 16.Reference was made to the management contract in force at the time of the budget. The manager contracted to provide 13 security staff members including 2 security supervisors (day and night shifts) and 10 day and night shift caretakers (including replacements). The total charges for the security staff members were HK$91,000 per month. 17.It was explained in the budget that this item of expenses was apportioned between the 1st Floor and the rest with reference to the work to be carried out. Cheng and Tang explained that the share to be borne solely by the 1st Floor owners was based on the estimated patrol time spent in the 1st Floor common parts. A day shift caretaker (7am to 7pm) would patrol 4 times a day, taking about 40% of the shift time, in the 1st Floor common parts. The estimated daily wage of a daytime caretaker in 2007 was HK$8,454. 40% of this amounted to HK$3,382. The calculation was also contained in a worksheet prepared for the IO’s reference. 18.The main point Mr Wong made was that account should be taken of the night-shift caretaker who would be stationed at the entrance of the 1st Floor. Therefore his wages should also be counted as the sole responsibility of the 1st Floor owners. 19.Cheng did not seem to be sure but he believed there should be a night shift caretaker stationed at each of the entrances to the 3 blocks of residential units and one stationed on the Ground or the 1st Floor. He explained that the management office of the Building was in fact on the Ground Floor entrance before the escalators leading to the 1st Floor shopping arcade. But he added that a night shift caretaker would not be there merely for the purpose of the security of the 1st Floor. 20.Ms Mak referred to Ho Wing v The IO of Tuen Mun Rosedale Gardens, LDBM 289/2004 which was a case relating to, among other things, the owners’ share of the security guard expenses. The decision was decided on its own facts. Perhaps the principle that one may borrow from the case is that this is always matter of fairness and reasonableness in the absence of a manifest error in the apportionment. 21.I accept the evidence and submission that the caretakers undertake multiple tasks on duty. There is no evidence from the Applicants suggesting that the night shift caretaker, if any, stationed between the Ground and the 1st Floors had duties, or part of them, specifically attributable to the security of the 1st Floor only but not the other parts of the Building. 22.The challenge in respect of the apportionment of the caretakers’ wages fails. Cleaning charges 23.The budgeted cleaning charges was HK$38,000. HK$36,000 was allocated as the responsibility of all the owners and HK$2,000 was allocated as the sole responsibility of the 1st Floor owners. Again the Applicants complain that the 1st Floor owners ought to be paying more of this item on their own. 24.The budget provided that this item of expenses, like the caretakers’ wages, was apportioned with reference to the amount of work. According to Cheng, the cleaning service covered the common parts of the 22 residential floors, the Ground Floor and the 1st Floor including the lavatories serving the 1st Floor. The workload on the 1st Floor was considered to be slight. It was decided that the 1st Floor owners alone should bear approximately 5% of the cleaning cost. 25.Tang in court further explained their understanding that cleaning of the 1st Floor would take about 2 hours every day. The allocation to the 1st Floor owners was arrived at by dividing the budgeted expenses of HK$38,000 by 24 floors plus some adjustment. 26.Again, the Applicants resorted to the common sense approach and questioned whether the cleaning of the common parts of one residential floor would take 15 minutes a day. They also asserted that the general cleaning of the common parts of a shopping arcade should be more frequent than that of the residential floors. But the Applicants have adduced no evidence to substantiate what should allegedly be the case was in fact the case. 27.Further it is at least not apparent from the floor plans of the various floors that the common parts on the 1st Floor are so spacious, compared with those of the other floors together, as to render the estimated cleaning time unrealistic or the allocation of share of this item of expenses unreasonably favourable to the 1st Floor owners. 28.I do not find the challenge in respect of this item of expenses substantiated. Fire service system maintenance and repair 29.The budgeted expenses on the fire service system maintenance and repair in the sum of HK$20,840 was to be shared by all the owners. The Applicants complain that this item, or at least part of it, had only to do with the 1st Floor and should be the sole responsibility of the owners on the 1st Floor. It was explained in the budget that the budgeted amount was based on estimation. 30.Reference was made to a fire safety direction issued by the Buildings Department (BD) on 7 February 2005 to the “co-owners of 1/F”. The BD required them as “the owner of common areas of 1/F” to provide the specified fire safety construction requirements including:
31.Though the quotations obtained by the IO for some of the above items of work in late 2006 projected the cost in the range of HK$150,000 to HK$190,000 while this item of budgeted expenses was just above HK$20,000, parties seemed to have no dispute that this budgeted item was necessitated by the works listed in this BD direction. 32.Tang and Cheng gave evidence, and Ms Mak also submitted, that though these items of work were to be carried out on the 1st Floor, they would be for fire safety and therefore for the benefit of the Building as a whole. Ms Mak further submitted that these work should fall within paragraph (m) of clause 1 of the 2nd Schedule of the DMC above. In support, Ms Mak relied on The Incorporated Owners of Tai Fung House Lion Rock Road v Choi Ying Wah, LDBM 79-92/2008 & 95-108/2008 and The Incorporated Owners of Wing Hong Court v Wong Hon Wing & So King, LDBM 220/2002. 33.Mr Wong submitted that Tai Fung House is distinguishable from the present case. First, the Tribunal in that case found that the common parts of the shopping arcade were the common parts of the building. Secondly, the Tribunal in that case also found that the contents of the direction (not set out in the judgment) were clearly directed at the incorporated owners instead of merely the owners of the shopping arcade. I also notice that the direction in the present case was actually attached with a list of the owners, though this attachment was not produced. The letter of reply from the BD regarding the extension of time for compliance was also addressed to the co-owners of the 1st Floor, notwithstanding the fact that the application for time extension was taken out by the IO on behalf of them and a copy of this reply was merely copied to the IO. 34.In Wing Hong Court, the departmental directions were issued to the incorporated owners for the electricity and fire safety facilities which were not located in the roof which the respondents own. The Tribunal considered that notwithstanding that, they would equally be benefited by these works in case of fire. But like Tai Fung House, this case did not involve provisions like those in the Sub-DMC in the present case particular clause 5 governing the responsibility for the cost of such facilities. 35.I agree with Mr Wong. To begin with, these items of work were necessitated by the BD’s direction that concerned various parts properly within the maintenance and management of the 1st Floor pursuant to clause 5 of the Sub-DMC. Even if one takes into account the potential benefit of these works to the other owners of the Building, such potential benefit of items (2), (3), (4) and (7) of these work listed above (with reference to the floor plans) for the Building as whole is really far from being apparent. 36.As such, there should at least be apportionment of part of this item of expenses so that the 1st Floor owners should bear part of it solely. Metal tools and ware 37.The budgeted expenses on metal tools and ware were allocated for all the owners to share. The amount was HK$1,310. 38.In court, various invoices for past expenses on metal tools and ware were referred to but Cheng could not say much about them. On the face of these invoices, some of the items appeared to concern the lavatories on the Ground and the 1st Floors. As such, at least part of them might fairly be attributable to the lavatories on the 1st Floor solely. 39.Mr Wong criticised the IO and the manager for failing to actually separate a part of this budgeted expenses, however minimal, to be borne solely by the 1st Floor owners. 40.Cheng gave evidence that there was in fact no record showing that the 1st Floor had spent any for metal tools and ware. Further the amount involved could only be small. The IO decided that any such part of this item of estimated expenses which might be solely for the maintenance of the 1st Floor was to be effectively taken into account in the part of the estimated expenses on building maintenance and repair that the 1st Floor owners were to solely bear. 41.The Applicants decided to abandon their dispute in respect of the budgeted building maintenance and repair expenses and their apportionment at the end of the trial. They did so knowing Cheng’s evidence in his statement as mentioned above, which I accept. 42.In that case, there is no question as to whether the IO and the manager had factored into the sole responsibility of the 1st Floor owners their share of this item of cost of metal tools and ware. The manager simply chose to do so by including it as part of the expenses for building maintenance and repair. 43.I do not consider that the challenge in respect of this item substantiated. Water charges 44.There is no dispute that there are 2 lavatories on the Ground Floor and 2 lavatories on the 1st Floor; and that the 1st Floor owners should be solely responsible for the cost of water consumption in these lavatories on their floor. But the budgeted expenses on water charges in the sum of HK$2,000 was to be shared by all the owners. 45.Cheng explained that the water meters of the 1st Floor owners used to be connected to the public water meter. But by the time of the budget, there had been the project for the owners to install separate water meters. It was estimated that the water consumption level in the lavatories on the 1st Floor would be minimal. Hence no part of this item of expenses was apportioned to be borne by the 1st Floor owners solely. 46.On the one hand, Cheng referred to the common knowledge that the Water Services Department does not charge for water consumption lower than a certain quantity. On the other hand, he did not say how much such amount is or what enquiry the manager has made to come to the conclusion that the water consumption in the 2 lavatories for the shops and visitors of the 1st Floor was expected to fall below this threshold. 47.I do not accept that this item of expenses was budgeted in accordance with clause 5 of the Sub-DMC. Door phone system maintenance and repair 48.This actually concerns the security door phone and CCTV system. The budgeted expenses of HK$1,110 were to be shared by all the owners. The Applicants complain that they should not be responsible for the cost of the part of the CCTV system installed inside the lifts at all. They also complain that the cost of the part of the system for the purpose of surveillance on the 1st Floor should be the sole responsibility of the 1st Floor owners. 49.Pursuant to clause 7(c) of the DMC, the Ground Floor owners shall not be responsible for the cost and expenses on the maintenance and repair of the lifts. Mr Wong suggested that the CCTV system was inside the lifts and therefore the Ground Floor owners should be exempted from the cost of maintaining and repairing such system as part of the lifts. 50.I disagree. I do not see how the CCTV system inside the lifts could properly be treated as part of the lifts. I would be surprised if the maintenance and repair of the lifts and the CCTV system would be carried out by the same contractor. 51.Mr Cheng also explained that the CCTV system is a security system for all the owners and could not be segregated with reference to the fact they were installed inside the lifts. There is no CCTV system independently installed for the 1st Floor only. I accept such evidence. 52.Unlike the patrol by the caretakers merely on the 1st Floor every day discussed above, I do not consider that the CCTV system installed on a particular floor, such as the 1st Floor staircase, would serve the purpose of surveillance for the security of that particular floor or part but not the rest of the Building. 53.The challenge in respect of this item of the budget fails. Energy saving system 54.This so called energy saving system was mainly about replacement of fluorescent tubes for the lighting of the Building. The budgeted expenses of HK$5,880 were to be borne by all the owners. 55.The relevant agreement between the IO and the contractor was dated February 2004. According to Cheng and Tang, the project should have been completed and paid for in 2006 and this should not have affected the budget for 2007. This item remained in the budget because the IO has withheld part of the payments for unsatisfactory performance of the system. 56.Ms Mak submitted that since this item used to be shared by all the owners prior to the apportionment, what remained to be paid should be shared in the same manner as before. 57.Mr Wong pointed out that as far as the owners have already contributed towards this item of expenses in the previous years but only the IO has withheld payments, it would be difficult to understand why this should be budgeted and collected again from the owners. 58.But assuming that this item was yet to be fully funded (e.g., by way of instalments) and needed to be budgeted for in 2007, Mr Wong submitted that the amount should be apportioned in accordance with clause 5 of the Sub-DMC with reference to the part of this system installed solely for the 1st Floor common parts. One criterion would be the number of fluorescent tubes actually installed there. 59.I agree with Mr Wong and disagree with Ms Mak. Conclusion 60.Ms Mak submitted that even if this Tribunal does not agree with the apportionment in the budget, the budget nevertheless remains a valid one. She referred to the evidence of Tang and Cheng that any excess amount collected from any of the 4 categories would remain with that particular category and adjustment could be made the following year. 61.I do not agree. In view of the successful challenge in respect of some of the items of the budget, the budget would need revision before the management committee of the IO is in a position to demand the owners to pay the correct amount of the management fees: see sections 21 and 22 of the Ordinance. 62.Ms Mak also submitted that the Applicants have acted unreasonably. She pointed out that the budget was prepared and approved by the management committee. It has been displayed and sent to the owners. But the Applicants have remained silent until they chose to file the present application some 9 months after the new management fees became effective. 63.In my view, the conduct of the Applicants mentioned above do not concern the validity of the budget for the purpose of demanding the owners to pay management fees. The equitable consideration suggested does not really affect whether the orders sought should be made when the contravention is proved. 4 SEPARATE BOOKS AND ACCOUNTS 64.I would briefly deal with the Applicants’ claim that the IO/manager shall keep 4 separate books and accounts for each of the 4 categories of responsibilities for management fees. 65.The basis for the alleged obligation on the part of the IO/manager is the Resolution. However, to begin with, there was no agenda item for that owners’ meeting on 21 January 2007 to discuss or to resolve on the preparation of books and accounts. There was in fact no such resolution. 66.According to the minutes, properly construed, the manager indeed simply undertook, at the request of the owners, to provide and to present the accounts for the 4 categories separately for the owners’ reference in the future. So long as the manager manages to do so and indeed does so, the owners did not resolve to require it to actually keep 4 separate books and accounts. 67.Mr Wong referred to numerous provisions under the DMC and the Ordinance. While they relate to the manager’s duty to keep proper accounts, there is no real issue in the present application that the manager has failed to do so apart from the alleged obligation to keep 4 separate books and accounts. 68.Mr Wong also submitted that the IO and the manager did not permit the owners or the Applicants’ solicitors to review the books and accounts. However this complaint is really extraneous to the present application. 69.This part of the application fails. WHETHER THE MANAGER COULD BE SUED PERSONALLY 70.The manager disputes liability on the basis that it was and is merely an agent of the IO taking instruction from the IO in preparing the budget. Ms Mak submitted that the manager was merely a managing agent of the IO rather than a manager appointed under the DMC. She also relied on Pun Kwok Kei v The Incorporated Owners of the Merit Industrial Centre, LDBM 25/2003. 71.Mr Wong referred to Part IV of the Ordinance and in particular section 34E, which imports the mandatory terms contained in the 7th Schedule into every deed of mutual covenant. For the purpose of this part, manager in relation to a building means the DMC manager (i.e., the manager specified in the deed) or any other person who for the time being is, for the purposes of the deed, managing the building: see section 34D(1). In my view, this applies to both the management committee and the manager in the present case. 72.The management contract between the IO and the manager dated February 2006 did not change the above position. Pursuant to clause 1.2 of the manager’s duties contained in the contract, the manager shall enforce the terms of the DMC (and likewise the Sub-DMC). Clause 2 of the contract provides that the manager shall manage the income and expenditure of the Building in accordance with the Ordinance. I also agree with Mr Wong that Pun Kwok Kei cited by Ms Mak is distinguishable from the present case on the facts. 73.I agree that the manager in the present case may be sued personally whether the IO is sued. ORDER 74.Following from the above discussion, I make the following orders:
75.Regarding costs, I mentioned above the IO’s complaint about the conduct of the Applicants prior to commencing the present application. Notwithstanding that, the dispute was not resolved during the mediation stage and the respective stances of the parties have been maintained until now. The counterclaim is part and parcel of the application. Costs should therefore follow the event. 76.I bear in mind that the Applicants chose to abandon the challenge in respect of 4 out of the 11 items of the budget pleaded during the trial. Of the remaining 7 items, the challenge in respect of 3 also fails eventually. They also fail in their application in respect of the keeping of books and accounts. 77.I also bear in mind that when the trial began, much time was wasted for the Applicants to explain and to sort out the notice of application occasioned by their last-minute change of stance. 78.In the premises, I make a nisi order that the Applicants shall have 40% of their costs of the application against the Respondents. Costs shall be taxed on the District Court scale, if not agreed, with certificate for counsel. Unless parties make an appointment within 14 days to argue costs, this costs order shall become absolute.
Mr Tim WONG instructed by Messrs Henry Chiu & Partners for the Applicants Ms MAK Chui Wah instructed by Messrs Chung & Kwan for the 1st and the 2nd Respondents |
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