Smart Wealth Asia Pacific Ltd v. The Incorporated Owners of Kelly Court

LDBM 251/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 251 OF 2013

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BETWEEN

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R E A S O N S   F O R

J U D G M E N T

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1.This is the application of the applicant, being the majority owner now holding 92.5% of the undivided shares of the Kelly Court, for dissolution of the management committee of the respondent and for appointment of an administrator under section 31 of the Building Management Ordinance, Cap 344 (“BMO”).

2.No one from the respondent appeared. After hearing evidence of Mr Leung Chi Fai, a director of the applicant and a manager of its holding company and reading the very helpful written skeleton prepared by counsel Miss Connie Lee appeared for the applicant, I made the following orders:

(i) The management committee of the Incorporated Owners of Kelly Court be dissolved;

(ii) City Professional Management Limited (“City Professional”) be appointed as the administrator to carry on and perform the functions and powers of the management committee of the respondent until further order of the tribunal;

(iii) The remuneration of City Professional as administrator be fixed at HK$10,000 per month together with accounting fee of HK$3,000 per month and the expenses so incurred for the purpose of carrying on and/or perform the functions and powers of the management committee be deemed to be part of the expenses of the management of the Building;

(iv) The order made herein be served in the following manners:

(a) Displaying a sealed copy order at the notice board of the Building;

(b) Affixing a sealed copy order on the door of the unit owned by each of the minority owners of the Building;

(c) Sending a sealed copy order made herein to the respondent at its registered office;

(v) Costs of the application be paid by the Incorporated Owners and be paid out of the funds now being held by it with the Bank of China (Hong Kong) assessed summarily at HK$134,700.

3.I indicated that brief reasons for my judgment will be handed down and I now do so.

Brief background

4.On 84 to 86 of King Lam Street, Cheung Sha Wan stands the Kelly Court, which is a nine-storey building for general industrial use (“Building”). The Building, comprising 41 units divided into 40 undivided shares, was erected in 1963. The respondent was incorporated on 11^th December 1970 pursuant to the Multi-storey Buildings (Owners Incorporation) Ordinance 1970.

5.The applicant is a subsidiary of a company listed in Hong Kong doing mainly construction and property development business. Since 2012 the applicant began to acquire the ownership of the Building. By end of 28^th June 2013, the applicant has acquired 37 out of 40 undivided shares (92.5%) of the Building. An application under section 3(1) of the Land (Compulsory Sale For Redevelopment) Ordinance, Cap 545, for compulsory sale of the land upon which the Building was erected was made to this tribunal on 28^th June 2013.

6.The chairman, secretary and treasurer of the management committee of the Owners Incorporation of the Building were elected to office and have remained unchanged since 1998. On 15^th February 2013, the sale of the flats owned by the respective the office bearers were completed. According to paragraph 4(2)(e), Schedule 2 of the BMO, they ceased to be members of the management committee by operation of law[1].

7.Accordingly all offices of the management committee were vacant.

8.In an attempt to hold a meeting for dissolution of the management committee and appoint an administrator under section 30 of the BMO, an owners’ meeting was convened on 2^nd May 2013 between the applicant and the other minority holders under paragraph 8(c) of Schedule 8 of the BMO. Resolutions to those effects were passed by those present at the meeting. However, there is doubt, and I agree totally it being a serious one, as to the legal effect of the resolutions so passed. It is because section 30 of the BMO provides that the meeting for such purposes has to be convened in accordance with paragraph 1 if Schedule 3[2]. However, the said provision in Schedule 3 requires the meeting to be convened by the management committee and/or the chairman thereof. Further, other pre-conditions for a valid meeting need be complied with by the secretary of the management committee. As there is neither chairman, secretary nor management committee in operation, resolutions passed might be invalid or void.

9.In a further attempt to ascertain whether there were at least three owners, which number is the prescribed statutory minimum, willing to be members of the management committee[3], an owners’ meeting was held on 5^th August 2013. Only one proxy representing one of the two minority owners appeared. The other was absent. Apparently no one was interested to be members of the management committee. It was resolved by applicant and the minority owner present at the meeting that an application to appoint administrator should be made to this tribunal. City Professional, a subsidiary of the holding company of the applicant, is proposed.

Questions to be Dealt With

10.Section 31 of the BMO stipulates:

“(1) The tribunal may, upon application made to it by –

(a) An owner;

…

dissolve the management committee and appoint an administrator, or remove and replace an administrator, as the case may be.

(2) The tribunal may direct that the administrator appointed under subsection (1) shall hold office for an indefinite period or for a fixed period on such terms and conditions as to remuneration or otherwise as it thinks fit, and the remuneration and expenses of the administrator shall be deemed to be part of the expenses of management of the building under this Ordinance.”

11.Accordingly, the following questions need be asked and dealt with at the present applications:

(i) Whether the existing management committee should be dissolved;

(ii) Whether an administrator should be appointed;

(iii) Whether City Professional is fit and proper to be appointed as the administrator; and

(iv) Whether the amount of remuneration and expenses incurred should be part of the expenses of the management expenses of the Building.

Whether the Existing Management Committee should be Dissolved

12.I agree with Miss Lee’s submission that in determining whether or not a management committee is to be dissolved, the most important consideration is whether it is able to perform the duties imposed on it by the deed of mutual covenant and comply with the provisions of the BMO[4] .   

13.It is apparent from the facts of this case that all offices of the incorporated owners are vacant. Further no one from the current owners is willing to be appointed to the management committee. The management committee is defunct. No doubt an administrator has to be appointed to manage the Building for the purpose of complying with the deed of mutual covenant and all statutory requirements, at least until conclusion of the compulsory sale suit in the Lands Tribunal.

14.I have asked Miss Lee whether there is technically a need to dissolve the management committee because as from 15^th February 2013 the management committee constituted by the chairman, secretary and treasurer is arguably non-existent. Miss Lee refers me to an unreported decision by learned HH Judge Ko in Yu Wing Sang (transliteration)[5] in which he ordered dissolution of the management committee when the tribunal was facing similar situation, i.e. there was no office bearer for the management committee because no owner was willing to be appointed. Although there is no discussion on the issue I have raised, I agree with the learned judge’s approach. It makes perfect sense with a view to avoid future argument. If no dissolution order is made, argument on whether there is an management committee in co-existence with any administrator to be appointed may arise. I therefore consider it appropriate to make an order dissolving the management committee for the purpose of removing doubts, if any.

Whether an Administrator should be Appointed

15.The applicant has identified that there is a sum of HK$645,980.65 standing to the credit of the incorporated owners. Further, certain expenses have been incurred by the applicant for the benefit of the Building as a majority owner. Without an administrator appointed by the court the fund cannot be used for defraying expenses incurred and to be incurred for the benefit of the Building.

16.When the application was first made, legal proceedings were contemplated against certain trespassers of the Building. Without a functioning management committee or administrator no legal proceedings can be initiated. According to affirmation evidence these proceedings are no longer required now. As I have said above, the Building needs be maintained in order for it to comply with the requirement of the deed of covenants and other statutory requirements, including those stipulated under the BMO. There are still minority owners occupying the Building. Personnel such as security guards need be employed. Lifts need be in operation and basic lighting maintained. Insurance needs be in force. Normally the corporation through its management committee will be taking care of all the above[6]. Now the management committee is defunct and the prospect of a new committee remote. Without an administrator, all duties and powers normally exercised by the corporation through the management committee cannot be exercised[7].    

17.It is thus necessary and expedient to appoint an administrator so that the incorporated owners can function and mange the Building properly during the interim period, at least until the conclusion of the applicant’s compulsory sale application or until further order.

Whether City Professional is Fit and Proper As the Administrator

18.City Professional is a subsidiary of the holding company of the applicant specialising in the business of professional property management.  I am satisfied on the evidence that the charges they are now asking for are reasonable. Secondly, with a view to provide alternatives the applicant has invited tenders from five other property management companies. Only one responded but with a higher quotation. Thirdly, it is the unchallenged evidence of the applicant that City Professional has assisted in the management of the Building since the management committee has become defunct. No objection has been raised by other minority owners of the Building. In fact, at the August meeting attended by the applicant and one of two minority owners, the minority owner present raised no objection to an application to the court for appointing City Professional as the administrator.

19.In the circumstances I am satisfied that City Professional is a fit and proper person to be appointed as the Administrator.

Whether the Proposed Remuneration and expenses incurred should be part of the expenses of the management expenses of the Building

20.According to section 31(2) of the BMO the remuneration and expenses of the administrator shall be deemed to be part of the expenses of the management of the building under this Ordinance.

21.Further, the present appointment is for the benefit of the Building, including the minority owners. I consider it fair and reasonable for such remuneration and expenses forming part of the management expenses of the Building. In any event the applicant, now holding 92.5% of the undivided shares of the Building, will be shouldering the majority of the management expenses. As I have said above, from the evidence, I accept the proposed rates of remuneration reasonable.

Costs

22.The present application to court is necessary because there is no functioning management committee in place for such appointment. The only feasible avenue available is an application under section 31 of the BMO. Such appointment is for the proper and expedient management of the Building during the interim period. I consider it fair that such costs be paid out of the fund of the incorporated owners. I therefore ordered that the incorporated owner do pay the applicant’s costs and be paid out of its funds now sitting in the Bank of China (Hong Kong) account.

23.Counsel for the applicant has submitted a summary of costs and asks for a summary assessment. I have no problem with the time incurred by the fee earners, counsel’s fee and the claimed disbursements. My only objection is the hourly rate of the solicitors. Given the complexity of the matters and the seniority of the fee owner, I reduce his hourly rate to HK$2,200 from HK$3,000. The total costs of the application are summarily assessed at HK$134,700.

Miss Connie LEE instructed by Iu, Lai & Li, for the applicant

The respondent was not represented and did not appear