Nominshare Ltd V.The Incorporated Owners of Kwong Fung Terrace
Read the full judgment text of LDBM 191/2011 on BabelCite. This Lands Tribunal judgment was delivered on 28 January 2014.
1. The Applicant, incorporated in Hong Kong pursuant to the Companies Ordinance, Cap 32, is the registered owner of those properties known as Flat B and Flat C, 33 rd Floor, Tower 2, Kwong Fung Terrace (“the suit properties” and “the Building” respectively as appropriate). The Respondent is the owners of the Building incorporated in June 2004 (“the IO”) under the Building Management Ordinance, Cap344 (“the BMO”).
Cites 5 cases
|
LDBM 191/2011 IN THE LANDS TRIBUNAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION BUILDING MANAGEMENT APPLICATION NO. 191 OF 2011 __________________________ BETWEEN
__________________________
________________ J U D G M E N T ________________ 1.The Applicant, incorporated in Hong Kong pursuant to the Companies Ordinance, Cap 32, is the registered owner of those properties known as Flat B and Flat C, 33rd Floor, Tower 2, Kwong Fung Terrace (“the suit properties” and “the Building” respectively as appropriate). The Respondent is the owners of the Building incorporated in June 2004 (“the IO”) under the Building Management Ordinance, Cap344 (“the BMO”). 2.The Applicant filed a Notice of Application on 12 April 2013 and claimed for a declaration that the IO was not legally entitled to demand for contributions from the owners and in particular the Applicant for cost of renovation and repair works carried out in the common parts of the Building (“the Work”); it also claimed for refund of paid contribution in the amount of $180,964.00. The IO opposed to the claim and in its Counterclaim it asked for a sum of $20,106.00 being unpaid balance of contribution due and owing together with collection charge, interest thereon and legal costs. 3.It is confirmed at trial that the Applicant would no longer pursue the claim against the increase of management fees as pleaded in the Amended Notice of Application. Background 4.There is little dispute on the facts leading to the Application and the Counterclaim. 5.At an extraordinary general meeting of owners’ held on 18 July 2009 (“the Owners’ Meeting”) it was resolved that:
6.At the subsequent Management Committee meeting held on 5 August 2009 (“the Management Committee Meeting”) to follow up the matter, members passed resolutions on the followings:
7.It is not disputed that contributions of individual owners were eventually apportioned according to the Allocation of Management Shares set out in Schedule 2 to the DMC (“the Management Shares”) and that the Applicant, pursuant to a notice of contribution dated 4 September 2009 (“Notice of Contribution”) had already paid 4 installments but refused to pay the 5th, leaving an unpaid balance of $20,106. This is the subject matter of the Counterclaim. The Applicant’s Case 8.It is the case of the Applicant that the cost and expenditure of the Work was not expected to be incurred annually, and therefore the operation should be governed by a special fund pursuant to paragraph 4(2) of schedule 7 of the BMO (“Paragraph 4(2)”). The Applicant complained that in contravention of Paragraph 4(2), the IO had failed to obtain a resolution from the owners on the total amount to be contributed and the time for such contribution to be made. Ms So, counsel for the Applicant, submitted that the Management Committee was not conferred the power to determine how much and the times the contributions were to be made under Paragraph 4(2). Further, as a reply to the IO’s case the Applicant contended that since the Work was not of an unexpected or urgent nature, provision for a contingency fund set out in section 20(2) of the BMO is not applicable as the IO had contended. It was submitted on behalf of the Applicant that contribution already paid by the Applicant should be refunded and it should not be demanded to pay the balance as pleaded in the Counterclaim. The IO’s Case 9.The IO’s stance is that with those resolutions passed at the Owners’ Meeting (see paragraph 5 above) the Management Committee had the power under section 22(1) of the BMO to apportion the contribution and to determine the times when such contributions are payable. 10.The IO further contends that the Paragraph 4(2) relating to “special fund” has no relevance to the cost of Work in the present cases. It is submitted that decisions in the cases of IO of Kenbo Comm. Bldg. v. Lau Wing Cheung & anr. (LDBM 153/1998) and Mok Ping Cheong Adolf & anr. v. IO of Ma’s Mansion (LDBM 331/2004) are relevant. Issue for Trial 11.The agreed issue for trial is whether the Management Committee has the power to apportion the contribution and to determine the time for payment pursuant to the BMO and DMC in the circumstance of the present case. Discussion 12.It was not contended by the Applicant that the calculation for the contribution was incorrect nor was it contended that wrong principle had been adopted in making allocation of contribution. The complaint was merely on procedures. As mentioned, the contribution was calculated in accordance with the Management Shares set out in Schedule 2 of the DMC. In fact, the DMC sets out 2 kinds of shares, one is Undivided Shares under Schedule 1, the other is Management Shares set out in Schedule 2. Sections 22(2) and 39 of the BMO together provide 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 the owner towards the amount determined under sections 21 of BMO shall be fixed by the management committee according to undivided share of the owners. 13.It is my observation that in the present case if the Applicant was to contribute by its Undivided Shares, its contribution would be (200+228)/81533 or 0.525% and if it was to contribute according to Management Shares as it had been required by the IO, it should be paying (70+82)/29860 or 0.509%. So in real terms, the Applicant would pay about $3,000 less in the present scenario. The DMC 14.Having said the above, the relevant provisions in the DMC have to be examined because where there is a provision in the DMC which specifies the method of apportionment, that provision prevails. Notwithstanding the mentioning of the Management Shares above, under the DMC there are 2 different allocations of contribution depending on the nature of expenses or fund, namely the Management Facility Fund and Management Expenses. Management Facility Fund 15.“Management Facility Fund” is defined underClause 1.01 of Section 1 of the DMC, it says:
16.The creation and operation of the Management Facility Fund is provided in Clause 6.41 and sub-clauses (a), (d) and (e) are most relevant:
17.Reading from the above provisions, one might suggest that the money collected or to be collected for the Work may come within thisManagement Facility Fund. It is however obvious upon a closer look that it is not the case. In the first place, there was no evidence that a Management Facility Fund has been set up by the Manager, or in the present case, the IO who has been vested with the duties and power of the Manager by operation of Clause 7.15 of the DMC. Further the purpose of the Owners’ Meeting was not to determine the contribution to be made to the Management Facility Fund, if there was one, for “the ensuing financial year” but to decide on the need of the Work. After all, the Owners’ Meeting was not an annual general meeting as required by Clause 6.41(d) but an extraordinary general meeting convened for proposals relating to the Work to be determined. I am of the view that Clause 6.41 does not apply to the present situation. In fact neither of the parties has sought to rely on Clause 6.41 to say that establishment or operation of Management Facility Fund is relevant. Management Expenses 18.Would it be the case then that the cost of the Work was covered by Management Expenses as the IO has contended. According to a letter from the lawyer of the contractor dated 2 September 2009, the contribution should be allocated to the owners pursuant to Clauses 6.04, 6.14 to 6.20 and Schedule 2 of the DMC. Again, definition of Management Expenses is set out in Clause 1.01 of Section 1 of the DMC. It says:
19.To see what the phrase “costs, charges and expenses for the Management and Maintenance” really means, it would be helpful to read the provisions regarding annual budgets for the Management Expenses. Clauses 6.14 and 6.15 of the DMC require that the Manager shall prepare an annual budget showing the estimated Management Expenses for the ensuing financial year and that the budget shall include the following costs charges and items (only relevant provisions are set out below):
20.Pursuant to Clause 6.15(b), the budget should include costs and expenses of carrying out the duties of the Manager and such duties are set out under Clause 6.04:
21.In the present case, the core items of the Work included大廈外牆石屎結構及泥水批盪維修工程、外牆新造防水批盪、瓷磚飾面及油漆(窗台) 飾面、更換排水管工程，更換平台及停車場公眾渠筒工程和新裝冷氣機集水喉工程、with 2 optional items for 第一、二座入口大堂更新 and地下大堂側噴水池更新工程etc. In my judgment these items are within the scope of the duties of the Manager under Clause 6.04 (a), (b), (h) of the DMC and should therefore fall within the definition of Management Expenses. If for some reasons such cost had not been included in the budget for 2009, owners would have to be asked to make further contributions once the Work had been approved by them. Such further contributions should still be made under the scope of Management Expenses. 22.Payment and apportionment of Management Expenses is provided in Clauses 6.19 and 6.20 of the DMC, it is said that:
23.Similar situation could be seen in The Incorporated Owners of Yee On Court v. Lee Zee Zing Hai (CACV 181/2000) where the IO contended that the renovation project was outside clause 4 of the DMC and the IO could therefore determine the contribution under paragraph 4(2). It was held by Deputy Judge Lee sitting as Presiding Officer of the Tribunal that clause 4 of the DMC was to deal with “general day to day expenses” only and as a result, she found that expenses for the renovation project should be dealt with by a special fund and thus the contribution had to be determined by the owners. 24.Mayo JA when hearing an appeal brought by the applicant owner said he did not agree with such finding. He found that the money collected was a “sinking fund” under the general fund. Keith JA agreed to the view of Mayo JA on this point and found that the project was covered by “the costs, charges and expenses” listed in clause 4 (d) of the DMC:
25.As a conclusion, it was held that contribution should have been made according to the DMC and the case was remitted back to the Tribunal for determination on contribution under clause 4(f) of the DMC. 26.It was held in Yee On Court that the DMC was not inconsistent with the BMO and I found same situation here in our present case. I now deal with the BMO below. The BMO 27.Section 20(1)(a) of the BMO also provides that:
28.The provision requires the IO to establish and maintain a fund to defray the cost of exercise of its power and the performance of its own duties under both the DMC and the BMO. I have dealt with the duties under DMC above. As far as the BMO is concerned, section 18(1) also sets out duties of the corporation and that include:
29.In my judgment I find that the Work did fall within the duties of the IO and was therefore within the purpose of a general fund under section 20(1)(a) of the BMO (see paragraph 27 above). 30.It is not disputed that a management committee is empowered by section 21(1) to determine the amount to be contributed by the owners to the funds if they are established and maintained under section 20. Section 21(1) provides this:
31.Further Section 22(1) provides that:
32.So far as the present case is concerned, as I have already found that the cost of the Work was within the scope of the general fund under section 20(1)(a), the Management Committee was therefore entitled to determine the amount of contribution to be made by the owners by operation of section 21(1)(a). 33.It may be worth mentioning for clarity that section 21(1A) deals with situation where the amount to be determined by a management committee has exceeded the preceding amount by 150%, in such case, it has to be approved by the corporation by a resolution passed at a general meeting. In the circumstances of the present case, the cost of the Work was close to $40,000,000 and assuming that such amount of contribution had exceeded 150% of the preceding amount determined by the Management Committee, which was more than probable in my view, such amount had to be approved by the owners by a resolution passed at a general meeting. 34.At the Owners’ Meeting, it was approved that the Work together with 2 optional items were to be carried out. Minutes of the Owners’ Meeting had this record:
議決: 大會通過大維修承辦商為 “新昌建築” 議案。”
35.By these resolutions, I find that section 21(1A) had been satisfied. 36.The Applicant also complained that the amount determined by the Management Committee was not the same approved by the owners at the Owners’ Meeting, if there was approval at all. Truly, the contract price as stated in the minutes of the Owners’ Meeting seemed to be $37,711,475 where the total amount determined by the Management Committee was $39,500,000 (see p114 and 119 of bundle). One however must not forget that the sum of $37,711,475 was for the core items of the Work under Plan 3 (方案三) only. There were optional items and at the end the owners at the Owners’ Meeting passed a resolution to proceed with 2 out of 3. The total sum for these two items was $1,661,000 and $403,000 respectively. Again, I would say that such cost, which must have been stated in the tender document and had also been set out in part 6 of the feasible report on repair works (p219 of bundle) compiled on 1 July 2009, 17 days prior to the Owners’ Meeting, must have been considered and approved by the owners at the Owners’ Meeting although for some unknown reasons, the total amount of the two optional items were not put down in the minutes of the Owners’ Meeting when recording the resolution of the optional items. 37.In short, I am of the view that in the process of decision the owners must have considered the contract price for both the core items and the optional items of the Work and when a decision was made they must have approved the total amount. 38.Further, I am of the view that even if such omission in the minutes of the Owners’ Meeting amounted to a defect, it was technical and could be rectified by amending the minutes to reflect the contract price of the optional items for avoidance of doubt. 39.The IO says that a contingency fund was set up by the Management Committee to operate on the contributions for the Work. Mr Hui said in his witness statement that members of the Management Committee had passed a resolution at the Management Committee Meeting to set up a fund for the Work. According to paragraph 2.1 of the minutes (p114), members passed a resolution that a separate bank account was to be set up for operation on money matters relating to the Work. Moreover, it appeared as “維修基金”in the Income and Expenditure Account for the month of May 2010 (p349) and it was booked under Contingency Fund in the Balance Sheet as at 31 May 2010(p351). So I accept that although there was no exact wording for setting up a contingency fund in the minutes of the Committee Meeting, the resolution to have a separate bank account amounted to the same effect although it can be criticized for lacking clarity. 40.Ms So submitted that contingency fund should not be the appropriate fund for the Work. I could not agree. Establishment of contingency fund is provided in Section 20(2) of the BMO:
41.Since I have already found that the nature of the Work falls within the general fund under section 20(1)(a), section 20(2)(b) is satisfied. Ms So submitted that the Work was not of unexpected or urgent nature so it could not be dealt with by contingency fund. I am however of the view that the Work was urgent in the sense that it was carried out before the cost could be included in the budget for the coming year. So when the budgeted general fund for 2009 could not meet the expenses, a contingency fund may be set up to raise fund for the purpose of the Work. 42.I further find that the Management Committee was delegated the power to establish funds for and on behalf of the IO as far as section 20 is concerned. There was no specific procedure set out under section 20(2) governing establishment of a contingency fund. It is not said in the provision that “a contingency fund may be set up by the owners at a general meeting by passing a resolution”. I find the setting up of a fund could be handled by the Management Committee as an executive arm of the IO under section (29) of the BMO. Section (29)provides this:
43.Further as could be seen in paragraph 19 above, Clause 6.15 of the DMC has catered for provision of the contingency fund for contingencies. 44.As I accept that a contingency fund under section 20(2) has been set up and therefore I am of the view that the Management Committee, under section 22(1)(a), was entitled to fix the amount of contribution to be made by an owner in accordance with the DMC for the total amount so determined by the IO under section 21(1A). Yet further, by section 22(1)(b), the Management Committee was empowered to determine the times and manner for the contribution to be made. Whether Paragraph 4(2) of the Seventh Schedule Applies 45.Finally, it is the contention of the Applicant that the IO in the present scenario should abide by Paragraph 4(2), I now turn to this contention and start with reading the text of the provision.
46.Deputy Judge Lee, as she then was, and Member Poon had dealt with the construction of Paragraph 4(2) in IO of Kenbo Comm. Bldg. v. Lau Wing Cheung & anr. (LDBM 153/1998). The Tribunal after hearing the application held that the nature of the special fund was not for collecting funds to meet expenses of specified items of works:
47.Mr Malcolm Merry also casts doubt on whether the operation of special fund should come into play when contribution is called for to meet expenses of special items although he does not entirely agree with the view of the Tribunal. He says in his work Building Management in Hong Kong (2nd ed)[1] that:
48.Moreover, HHJ Wong had expressed his view on the true meaning of “the amount to be contributed by owners” in Paragraph 4(2) inYoung Kwok Sui and another v. The Incorporated Owners of Fontana Gardens (LDBM 76/2011 and LDBM 77/2011 (Consolidated)). It was his finding that Paragraph 4(2) did not confer power on the corporation to determine the contribution of individual owners. Paragraphs 26-28 are relevant.
49.In fact, similar view has been expressed by Mr Malcolm Merry [2]. In his commentary to Yee On Court, he says:
50.In my judgment, taking into consideration of the above analysis, the purpose of establishment of a special fund, which is mandatory under the BMO, is to provide for expenditure of a kind not expected to be incurred annually. With a special fund established, the amount to be contributed by the owners collectively in any financial year is to determine by a resolution of owners if there is a corporation. As for the present case, I am of the view that the operation of the money collected or to be collected for the Work was for a specific project to be carried out and thus did not fall within the ambit of a special fund under Paragraph 4(2). 51.From the above analysis, I do not accept Ms So’s argument that the contribution by owners to the Work should be governed by the Paragraph 4(2) under the title of “Special Fund”. Conclusion 52.I have examined the relevant facts before me and come to the conclusion that the cost of the Work is within the ambit of Management Expenses under the DMC. I also find that, as I say, such expenses are well within the ambit of the general fund under sections 20(1)(a) and 20(2) of the BMO and therefore the IO is entitled to rely on section 22(1)(a) and (b) to say that the Management Committee has the power to determine the contribution of an owner in accordance with the DMC and to determine the times to pay such contribution. I have also found that having chosen the contractor, the IO must have also approved the contract price on the core and optional items, section 21(1A) of BMO has been satisfied. Lastly, there was no evidence or assertion before me to say that the Applicant was prejudiced for being asked to pay a contribution under Schedule 2 of the DMC by 5 installments as opposed to having to pay it in accordance with its undivided shares by other number of installments. 53.For the above reasons, the claim for the Applicant is dismissed. I also enter judgment for the IO for the balance of payment in the amount of $20,106.00. 54.The Applicant did not put up any real defence to the Counterclaim for collection charge and interest pursuant to Clauses 6.22 of the DMC. I have read the relevant clauses and I enter judgment for the IO for those heads of Counterclaim. Order 55.My order is as follows:
Costs 56.I see no reason why costs should not follow the event. I order the applicant to pay the costs of the respondent to be taxed at District Court scaleif not agreed. This is an order nisi to become absolute within 14 days if no application is taken out to vary the same.
Ms Yvonne So, instructed by Messrs. S. H. Chan & Co., for the Applicant Mr C. W. Chan, of Messrs. Chung & Kwan, for the Respondent [1] Malcolm Merry and Kent Paul, Building Management in Hong Kong (2nd ed) 114 [2] ditto Please refer to HCMP967/2014 for the relevant appeal(s) to the Court of Appeal. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under LDBM 191/2011