兆軒苑業主立案法團 v. 馮志昌 and Another

LDBM 262/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 262 OF 2013

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(By Original Action)

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D E C I S I O N

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1.This is a hearing to determine costs of the counterclaim when the 2 applicants (by counterclaim) discontinued their counterclaim against the 2^nd respondent (by counterclaim). For easy reference, they will be referred to as applicants and 2^nd respondent respectively in this decision without repeating that they are parties in the counterclaim.

Brief background

2.Owners of the Incorporated Owners of Siu Hin Court (“the Incorporated Owners”) do not appear to enjoy a harmonious relationship. In recent years, there have been repeated requests by different fractions comprising not less than 5% of owners asking for owners meetings to be held for the purpose of, inter alia, replacing members of its management committee. The claim and counterclaim herein arose out of these requests.

3.Both applicants are owners of The Incorporated Owners. It is not in dispute that an owners meeting was convened on 4^th August 2013 (“2013 August meeting”) upon requests of 2 different groups of owners each allegedly comprising not less than 5% owners. At the said owners meeting, a new management committee was elected. Both the 1^st applicant and the 2^nd respondent run for election as a committee member. The former failed but the latter was successful. The latter was subsequently elected chairman of the Incorporated Owners.  

4.Some owners later complained to the Police that certain forged proxies were used for the 2013 August meeting. The Police are still investigating into the matters.

5.On 10^th September 2013, the applicants issued a letter to the 2^nd respondent with purported support of not less than 5% owners asking to hold another owners meeting (“the 1^st request”). According to the 1^st request, the applicants considered the 2013 August meeting “illegal” because it failed to properly deal with some 20 odd problematic proxies, resulting in owners of the affected units not being able to attend and vote at the said meeting. The following is considered a fair summary of the agenda requested by the applicants in the 1^st request:

i) To over-rule the resolutions passed at the 2013 August meeting;

ii) To replace all newly-elected management committee members; and

iii) To replace the cleaning contractor of the housing estate.

6.On 21^st September 2013, a management committee meeting of the Incorporated Owners was convened to discuss the 1^st request. It was resolved, inter alia, that:

i) no owners meeting would be convened despite the 1^st request; and

ii) The 2^nd respondent was authorized to lodge an application with this tribunal[1].

7.From the meeting minutes disclosed, it is fair to say that the Incorporated Owners considered it troublesome to convene another owners meeting shortly after the 2013 August meetings, particularly in light the Police was still investigating into the complaints. It would therefore be too early, considered by the Incorporated Owners, to say the 2013 August meeting invalid. The 2^nd respondent was authorized to make application to the tribunal on behalf of the Incorporated Owners, presumably to confirm the validity of the 2013 August meeting.

8.It was noted from the said meeting minutes that neither the 2^nd respondent nor other members of the said management committee had ever queried the1^st request not meeting the 5% statutory threshold.

9.Three days later on 24^th September 2013, the Incorporated Owners made the present original application to this tribunal against the two applicants for, inter alia, that the 2013 August meeting was validly convened; and that they are entitled not to convene owners meeting even on receipt of the 1^st request. The Incorporated Owners were then unrepresented.

10.The application was adjourned by the tribunal for mediation until end of January 2014. In the meantime, the applicants, together with not less than 5% owners, issued another letter of 29^th January 2014 to the 2^nd respondent asking for dissolution of the management committee; and appointment of an administrator to take over the management of the Incorporated Owners (“the 2^nd request’).

11.Sometime later on 8^th March 2014, 2 other owners, equipped with not less than 5% owners of the corporation, requested the holding of an owners meeting for the purpose of “overruling” the 2^nd request (“the 3^rd party’s request’).

12.A management committee meeting of the Incorporated Owners was convened on 25^th March 2014. It was resolved that the 2^nd request and the 3^rd party’s request be dealt with together in an owners meeting. The meeting minutes of this management meeting were dated 4^th April 2014. The Extraordinary General meeting (“EGM”) was proposed to be convened on 4^th May 2014.

13.Meanwhile, the proceedings herein continued. On 21^st March 2014, the Incorporated Owners through their solicitors filed their detailed statement of claims in the original application.  The orders sought by the Incorporated Owners became apparent, and were as follows[2]:

i) The management committee elected on the 2013 August meeting was valid; and

ii) The 1^st request of the applicants was invalid.

14.The applicants filed and served their defence and counterclaim on 11^th April 2014. In addition, they added the 2^nd respondent as a defendant in their counterclaim. The applicants said when they filed their counterclaim they had no knowledge of the EGM. There was no evidence on when the said management committee’s minutes were displayed or notified to the owners.

15.By the defence, the applicants stated the bases upon which the applicants challenged the validity of the 2013 August meeting. By the counterclaim, the applicants asked for an order against the Incorporated Owners and the 2^nd respondent compelling the 2^nd respondent to hold an owners meeting pursuant to the applicants’ 1^st request, and further or alternatively, the 2^nd request.

16.The EGM was duly convened on 4^th May 2014. The 3^rd Party’s request received the majority votes. Necessarily, the 2^nd request was rejected.

17.The applicants encountered certain procedural issues in their counterclaims against the 2^nd respondent. Suffice for the present purpose to say that the procedural issues popping up at the hearing on 28^th May 2014 was finally disposed of on 18^th June 2014, resulting in the applicants paying costs of $2,600 to the Incorporated Owners and the 2^nd respondent.

18.The 2^nd respondent’s defence to the counterclaim dated 8^th May 2014 in a nutshell, is as follows:

i) The management committee had resolved not to entertain the 1^st request on grounds, inter alia, that the 2013 August meeting a valid one. Such request therefore amounted to an abuse;

ii) The total amount of committee members proposed to be re-elected exceeded the statutory maximum, rendering the request as a whole invalid;

iii) Certain amendment made was only initialled by one instead of both applicants; and

iv) The cleaning contractor had already been replaced.

19.It is not in dispute that a settlement was finally reached between the Incorporated Owners and the applicants whereby the parties discontinued their claims against each other with no order as to costs. The consent summons dated 28 July 2014 was approved and made an order of the tribunal the next day.

20.According to Mr Siu of counsel for the applicants, in light of the EGM on 4^th May 2014, the applicants did not intend to insist on holding a further EGM respecting the 1^st request. That was why the applicants and the Incorporated Owners agreed to settle. It would only be reasonable for the applicants to withdraw their requests against the 2^nd respondent as well because they are basically one and the same request.

21.Accordingly, a Notice of Discontinuance against the 2^nd respondent was filed on behalf of the applicants on 28^th July 2014

22.The 2^nd respondent took out a summons shortly thereafter on 4^th August 2014 asking the applicants to shoulder his costs. On the other hand, the applicants took out a summons dated 8^th August 2014 asking for costs between them to be determined. At the call-over hearing on 8^th August 2014, the applicants asked for costs from the 2^nd respondent. It was not until 7^th July 2014 that the applicants offered to settle with a “no order as to costs” order. This was rejected by the 2^nd respondent. This hearing was therefore to decide on these two summonses.

23.At the hearing, Mr. Siu submitted the applicants would not be asking for costs of the counterclaim but asking for costs of the hearing. Mr. Li asked on behalf of the 2^nd respondent costs of the counterclaim including this hearing.

Discussion

24.Section 8(5) of the Building Management Ordinance, Cap 344 (“BMO”) provides that Schedule 3 thereof shall have effect with respect to the meetings and procedure of a corporation. Paragraph 1(2) of Schedule 3 of BMO stipulates that:

“The chairman of the management committee shall convene a general meeting of the corporation at the request of not less than 5% of the owners for the purposes specified by such owners within 14 days of receiving such request, and hold the general meeting within 45 days of receiving such request.”

25.The aforesaid provision imposes a statutory duty on the chairman of the management committee to convene an owners meeting upon receipt of a request from 5% owners for the purposes specified therein. In the tribunal’s judgment, the word “shall”, which normally denotes a mandatory requirement, is used. It is a strict statutory requirement. Once the evidence of not less than 5% owners of the corporation supporting such request is shown[3], the chairman has little alternative but to convene the meeting as required of him statutorily. He simply has no discretion in the circumstances. It is not for him or the corporation to say that there have been too many EGMs recently or that the request causes too much trouble to the corporation. The chairman also cannot hide behind any resolution of a management committee or even the corporation for the simple reason it is the statutory provision that is to prevail. Neither is the validity of a prior general meeting relevant as the requirement to hold meeting is not hinged on any pre-condition. Regardless of whether the 2013 August meeting valid or not, once a 5% request was received, a general meeting must be convened in accordance with Schedule 3.

26.In the tribunal’s view, the procedure and requirements of Schedule 3 are for the protection of owners so that owners of the same corporation can manage their own affairs in a transparent, fair and democratic manner. Although much can be said on whether the 5% threshold is too low or just acceptable, unless and until the same is altered, it remains the consensus when the said statutory requirement went through the legislature. If the majority of owners disapprove any of the proposals in the request, they can simply vote it down. Obviously there will be substantial internal dissipation if the corporation is divided. However, it is a necessary evil that comes with this democratic protection.

27.Mr. Li did not seek to argue otherwise. He accepted that on the face of the provisions, it was a mandatory requirement for the chairman to hold a general meeting once the 5% threshold was reached. However, he submitted that in the first place the applicants should only sue the Incorporated Owners and should not have sued the 2^nd respondent because he was protected under section 29A of the BMO.

28.With respect, his argument is misconceived. The BMO imposes various duties/powers on the corporation as well as different office bearers of the management committee. It is understood that acts to be done by the corporation can only be done through individuals, either by members of the management committee individually or the said committee as a whole. Section 29A holds a member harmless against act done or default made by the corporation when a member is performing or is in purport performance of a power or duty of the corporation in good faith and in a reasonable manner. However, as discussed above, §1(2) of Schedule 3 of BMO requires a designated office bearer, namely, the chairman to kick start the general meeting procedure upon receipt of the requisite request. Neither other members nor the owners’ incorporation as a corporation are given such duty/power. If for whatever reasons the chairman refuses to convene the meeting, a mandatory order has to be made against him to compel him as chairman to perform his duty. Section 29A does not engage in the circumstances of this case.

29.In the present case, the management committee resolved on 21^st September 2013 to decline the 1^st request. The refusal to entertain the 1^st request then had corporate support. It is therefore not surprising that the Incorporated Owners were also made a party in the counterclaim, otherwise the 2^nd respondent may still feel obliged not to hold any meeting because of the prior resolution against such meeting even if a mandatory order is made against him.

30.As a matter of facts the 1st request has never been entertained up until now. As discussed above, the 2^nd respondent therefore does not appear to have a good defence in law. In the tribunal’s judgment, the absence of an initial next to a correction is not a defect or at most a minor one because the Incorporated Owners can always seek clarification. Further whether the non-compliance of certain statutory requirement in one of the many items in the request will render invalid the entire request is in serious doubts. Apparently the applicants have a good reasonable cause of action against the 2^nd respondent, at least in respect of the 1^st request.

31.As regards the 2^nd request, although it was dealt with on 4^th May 2014, it was not dealt with within 45 days of receiving such request. Given the 2^nd request was received on 29^th January 2014, the prescribed 45-day limit for holding the meeting expired after 15^th March 2014. The EGM on 4 May 2014 was therefore 49 days late.

32.There was no evidence when the applicants were made aware of the Incorporated Owners’ decision to hold the EGM though the minutes were dated 4^th April 2014. There was no affirmation evidence on when the minutes were displayed or sent to the applicants. Although the 2^nd respondent said in his affirmation the minutes were “published” on 4^th April 2014, it was not the case. It has been clarified at the hearing that “published” only means “dated”. There is also no evidence on when the EGM notice was issued. According to §2(1) of Schedule 3, the secretary of the management committee shall give at least 14 days notice of the EGM to the owners. As there is no allegation that the May 4^th EGM was convened in contravention of the BMO, Mr. Li invited this tribunal to take it that by 20^th April 2014 the latest, the applicants should have knowledge of the decision to hold the EGM. He submitted that by then it would no longer be necessary for the applicants to pursue further the counterclaim. In any event the applicants ought to have discontinued the counterclaim immediately after the EGM on 4^th May 2014 the latest.

33.The thrust of the Mr. Li’s argument relating to the 2^nd request is apparent. However, no matter it is 20^th April or 4^th May 2014, the applicants still had a good case when they filed the counterclaim on 11^th April, 2014. Further, in light of what has been discussed above regarding the 1^st request, it will be difficult for the 2^nd respondent to say that the applicants should not therefore pursue the 1^st request, though given the outcome of the May 4^th EGM, the possibility of another defeat might well be anticipated. It would therefore be unnecessary to deal with the 1^st request further in light of the defeat of 2^nd request. In any event, as it is the 2^nd respondent’s position that the 1^st request would not be entertained, in the tribunal’s view, the applicants have a fairly strong case to proceed against the 2^nd respondent for his apparent breach of §1(2) of Schedule 3 of BMO.

34.It was the 2^nd respondent’s initial breach which brought about the litigation. In the overall assessment, the applicants have a good chance of success in establishing their case against the 2^nd respondent. It is only after the EGM meeting in May which makes the pursuit of the 1^st request not worthwhile.

35.Costs are entirely a discretion of the court taking into consideration of all circumstances of the case. Although the usual rule is for the party who discontinues an action to pay the costs, it is not an absolute rule. All the circumstances of the case need be taken into account. As discussed above, the applicants’ counterclaim against the 2^nd respondent, though initially with a good prospect of success, has been rendered partly unnecessary[4] and partly unworthy of pursuing because of the EGM on 4^th May 2014[5]. This tribunal does not consider that the discontinuance against the incorporated owners and the 2^nd respondent is an acknowledgement of there being no causes of action or a weak case to pursue when the counterclaim was first raised.

36.Now that the applicants have settled with the Incorporated Owners with no order as to costs. The applicants’ case against the Incorporated Owners and the 2^nd respondent is basically one and the same matter. If between the Incorporated Owners and the applicants the former are willing to accept a “no order” settlement term, which this tribunal considers a concession on the part of the applicants, it would be difficult to see why the 2^nd respondent should not accept the same generous term, bearing in mind he was primarily in breach, and the breach remains uncured, and is only rendered unnecessary to be rectified by subsequent events.

37.In the circumstances, this tribunal considers it appropriate to order that there be no order as costs between the applicants and the 2^nd respondent in the counterclaim.

38.On 7^th July 2014, the applicants were willing to accept there being no order as to costs. However, the 2^nd respondent refused and insisted on pursuing against the applicants for the entire costs of the counterclaim. It is an unreasonable stance in light of the tribunal analysis and decision in the preceding paragraphs. It will be fair and reasonable that he is to shoulder the applicants’ costs from 8^th July 2014 onwards, including costs of the hearing, and I do so order now.

Conclusion and Order

39.By reasons of the above, this tribunal make the following orders:

i) Save and except those costs orders which have been made in the counterclaim between the applicants and the 2^nd respondent, there be no order as to costs between them in the counterclaim up to and inclusive of 7^th July 2014, including all costs reserved;

ii) The 2^nd respondent do pay the applicants’ costs from 8^th July 2014 onward, including costs of this hearing, with certificate for counsel, such costs to be taxed if not agreed; and

iii) The parties’ respectively summonses are disposed accordingly to the aforesaid decisions.

(WONG King-wah) Presiding Officer Lands Tribunal

Mr Victor Chiu instructed by Lee & Associates, for the applicants (in the counterclaim)

Mr Jeffrey YT Li instructed by Tsang, Chan & Woo, for the 2^nd respondent (in the counterclaim)