The Incorporated Owners of Yee on Court v. Li Zee Zing Hai
Read the full judgment text of CACV 181/2000 on BabelCite. This Court of Appeal judgment was delivered on 14 November 2000 before Mayo VP, Keith JA, Stock JA.
Civil law – property management – Deed of Mutual Covenant – building renovation and repair works – non-recurring nature – contribution to costs – Building Management Ordinance, Cap. 344 – mixed commercial and residential development in Kowloon – Yee On Court built in 1976 with 4,152 undivided shares – Incorporated Owners of Yee On Court sought to recover from Madam Li (owner of Shop 7 on ground floor with 19 undivided shares) her share of costs of various non-recurring works undertaken in 1988, 1994, and 1997 including repairs to external walls, sanitary pipes, fresh water pipes, repainting, renovation to arcade, entrance lobby, lift lobby, common toilet, carpark, electrical works, air-conditioning works, electricity installation works, and fire-fighting equipment – whether costs fall within scope of clause 4 of DMC – Court of Appeal held that the non-recurring works fall within clause 4(d)(iv) of the DMC which covers cost of repairing, renewing, maintaining, cleansing, painting, or decorating the building – words 'in the shares as above provided' in clause 4(g) refer to the breakdown of shares in clause 4(f) – contributions to be apportioned based on monthly management charge breakdown in clause 4(f) (Madam Li paying 40/39,100 or 0.1023%), not based on undivided shares (which would be 19/4,152 or 0.4576%, approximately four times more) – Lands Tribunal's distinction between recurring and non-recurring expenses was unwarranted – Court rejected argument that expenses are for 'general day-to-day expenses' – manager has power to provide sinking fund to meet anticipated future expenditure – separate maintenance fund under clause 4(e) cannot satisfy clause 4(g) as amounts may exceed $400 per unit – on the lift issue – whether Madam Li must contribute to lift-related costs – Court held that owner of ground floor shop not served by lifts is not required to contribute to lift-related costs – pursuant to clause 4(d)(vi) which expressly exempts shops not served by lifts and clause 4(l) which exempts ground floor shops from lift maintenance and upkeep contributions – practical implementation involves removing units not served by lifts from clause 4(f) calculation – appeal allowed – case remitted to Lands Tribunal – costs of appeal to Madam Li – costs of hearing below to Madam Li – costs of the action reserved to Lands Tribunal.
Legal issues: Whether non-recurring renovation and repair works fall within clause 4 of the DMC · Liability of ground floor shop owner for lift-related costs
Outcome: Appeal allowed; case remitted to Lands Tribunal for determination of sums owed by which party to the other in light of the Court of Appeal's judgments
Cited by 14 cases
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CACV000181/2000 CACV 181/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 181 OF 2000 (ON APPEAL FROM LDBM NO. 33/1999) __________________________________
_______________________________ Coram: Hon Mayo VP, Keith JA and Stock JA in Court Date of Hearing: 14 November 2000 Date of Judgment: 14 November 2000 ______________ J U D G M E N T ______________ Hon Mayo VP: 1. This is an appeal from a decision of Deputy Judge Lee in the Lands Tribunal. 2. In her judgment she has set in some detail all the agreed facts and the conclusion she reached on those facts. In this appeal it is sufficient to refer to the main outstanding issue between the parties. For the avoidance of confusion reference will be made to "the Incorporated Owners" who are the respondent in the appeal and "Madam Li" who is the owner of Shop 7 on the ground floor of the building in question. She is the appellant but was the respondent in the proceedings below. 3. The building Yee On Court is a mixed commercial and residential development fronting Argyle Street and Waterloo Road in Kowloon. It was developed in 1976 and is subject to a Deed of Mutual Covenant ("DMC"). Madam Li's shop was allocated 19 undivided shares of the 4,152 equal undivided parts of the building. 4. In 1988 various renovation and repair work was undertaken. This included "repairing the external walls and other structural parts; repairing sanitary pipes and fresh water pipes; and repainting [the] common area of the Building". In 1994 it was agreed that further renovation and repair work needed to be undertaken. This included:
5. Also in the agreed facts, it was accepted that further work in 1997 included:
6. The problem which had to be considered by the Deputy Judge was how the cost of all this work should be divided amongst the various owners. 7. The problem which arises is whether the work comes within the scope of clause 4 of the DMC. 8. The clause runs to 12 pages in the DMC. The following clauses are of relevance to this appeal:
9. The main point to note is that if the work which has been undertaken comes within clause 4 each unit owner only pays one share according to clause 4(f). 10. Another point to be noted is that as Shop 7 is on the ground floor Madam Li does not have to contribute towards the expenses for any lift. 11. It is Madam Li's contention that even though the work earlier referred to may not have been of a recurring nature nonetheless it fell within the scope of clause 4. 12. The alternative contention which appears to have been accepted by the Deputy Judge is that the work was for "specific and ascertained purposes" which fall outside the scope of DMC. She said at p. 89 of bundle A which was before us:
13. It makes a significant difference to Madam Li whether the cost of the work in question comes within the scope of the DMC. If it does not the amount payable by Madam Li is approximately four times as much. 14. This is on account of the fact that if the expenses are met by virtue of the provisions contained in the Building Management Ordinance, Cap. 344 the expenses would be shared on the basis of the notional division of the building into the undivided shares earlier referred to which is provided for in clause 3 of the recitals to the DMC. That is that Madam Li would have to pay 19/4152 of the costs. 15. From reading the judgment as a whole it would appear that the main rationale for the Deputy Judge coming to the conclusion that the work in question did not come within the ambit of clause 4 is that the fund was intended "for general day to day expenses". 16. With the greatest respect to the Judge I do not consider that there is any warrant for this conclusion. 17. If one takes as an example an expense such as painting the external parts it is obvious that you do not just do a small amount of painting every month. What you do is to provide for a sinking fund to meet expenditure as and when it arises. There is sufficient power vested in the manager to do just that. 18. What is clear is that managing a building requires anticipating future expenditure and the way this is done is to provide for a sinking fund. Any other approach would be a prescription for chaos. 19. In my view this appeal should be allowed and the case should be referred back to the Lands Tribunal. 20. There will be a number of matters to attend to such as for example the fact that the basis for sharing the costs of the work done under the first project was reversed and the fact that a fresh account will need to be prepared so as to exclude from the costs which will have to be borne by the owners of the ground floor shops the expenses relating to the lifts. What is clear however is that the expenses do come within the ambit of clause 4 of the DMC and that they will have to be apportioned amongst the owners in the manner contemplated by the clause. Hon Keith JA: 21. I agree that this appeal should be allowed, but I add a few words of my own in deference to the Lands Tribunal from whom I take a different view of the case. 22. The proportion of Madam Li's contribution. The principal issue which the cases raises relates to the contribution which Li Zee Zing Hai, who owns a unit in a mixed commercial and residential building, must make towards the cost of two sets of works of a non-recurring nature. The incorporated owners of the building, who are also the managers of the building, contend that the contributions of each of the owners of the units in the building to the cost of the works should be calculated by reference to the proportion which the undivided shares allocated to each of the units bear to the number of shares in the building as a whole. By that calculation, Madam Li must pay 19/4,152, i.e. 0.4576%, of the cost of the works. Madam Li contends that the contributions of each of the owners of the units in the building to the cost of the works should be calculated by reference to the proportion of the monthly management charges which each of the owners have to pay. By that calculation, Madam Li would only have to pay 40/39,100, i.e. 0.1023%, of the cost of the works. The Lands Tribunal found in favour of the incorporated owners, and it is from that finding that Madam Li appeals. 23. The answer to the problem lies, in my opinion, in clause 4 of the Deed of Mutual Covenant for the building:
24. In my judgment, the words "in the shares as above provided" in clause 4(g) can only be a reference to the breakdown of shares in clause 4(f). That is because the breakdown of shares in clause 4(f) was specifically for the purpose of identifying the contributions to be made (albeit on account and on a monthly basis) in respect of the "costs, charges and expenses" referred to in clause 4(d). The words "in the shares as above provided" in clause 4(g) could not have related to the amount payable under clause 4(e) because the difference between the amount in any maintenance fund and the cost of the works may be greater than the $400.00 payable by each owner of a unit in the building under clause 4(e). Nor could the words "in the shares as above provided" in clause 4(g) have related to the number of undivided shares in the building attributable to each unit, because that breakdown (which appears in para. 3 of the Recitals and which is described as "notional") is a breakdown only "[f]or the purpose of sale of units in the .... building". Moreover, when the Deed of Mutual Covenant wished to provide for contributions to be paid by reference to the number of undivided shares in the building attributable to each unit, it provides for that in express terms: see clause 4(w). 25. Thus, the only remaining question is whether the cost of the particular works to which the owners of each of the units in the building were required to contribute was included in the costs included in the "costs, charges and expenses" listed in clause 4(d). The Lands Tribunal held that it was not included, and that the apportionment fell to be determined in accordance with the provisions of the Building Management Ordinance (Cap. 344) ("the Ordinance"). Its reasoning was that the "costs, charges and expenses" listed in clause 4(d) relates to costs, charges and expenses of the kind which could reasonably be expected to be covered by the owners' monthly contributions. The "costs, charges and expenses" listed in clause 4(d) does not, so the Lands Tribunal thought, relate to costs, charges and expenses of an extraordinary or non-recurring nature. 26. I cannot agree. I see no warrant for drawing the distinction which the Lands Tribunal drew. There are a number of non-recurring costs, charges and expenses listed in clause 4(d) which could well be substantial, and could easily exhaust the funds collected from the owners by the monthly contributions payable under clause 4(f). Indeed, the particular non-recurring works to which this appeal relates all come within the costs, charges and expenses listed in clause 4(d). Those works consisted of renovations to the arcade, entrance lobby, lift lobby, common toilet and car-park, electrical works, air-conditioning works, electricity installation works and fire-fighting equipment. All those works come within clause 4(d)(iv) which includes among "the costs, charges and expenses"
Many of those costs, charges and expenses are plainly non-recurring. 27. In my view, therefore, the cost of the particular works to which this appeal relates were costs included in clause 4(d)(iv) of the Deed of Mutual Covenant, and having regard to my construction of the words "in the shares as above provided" in clause 4(g), the contribution which Madam Li had to make to the incorporated owners as the managers of the building was to be based on the breakdown of shares in clause 4(f). 28. That approach is not inconsistent with the provisions of the Ordinance. Section 20(1) of the Ordinance required the incorporated owners to maintain a general fund to defray the cost of works. Moreover, section 34E(1) of, and para. 4(1) of the 7th Schedule to, the Ordinance in effect required them to maintain a special fund to provide for expenditure of a non-recurring kind, even though section 20(2) of the Ordinance merely empowered rather than required them to maintain a contingency fund to provide for any expenditure of "an unexpected or urgent nature". However, the incorporated owners did not assert that two separate funds were maintained, and the fund represented by the contributions to which clauses 4(e) and 4(f) relate consisted of both the general fund required by section 20(1) and the special fund required by para. 4(1) of the 7th Schedule. 29. The lifts. The other issue in the case relates to the extent to which Madam Li had to contribute towards the cost of all the works, or only towards the cost of those works which did not involve the renewal, maintenance or upkeep of the lifts. Madam Li's unit was a shop on the ground floor, and therefore not served by the lifts. In my view, Madam Li only had to contribute to the cost of works which did not involve the renewal, maintenance or upkeep of the lifts. Two provisions in the Deed of Mutual Covenant bear that out. First, the list of costs, charges and expenses in clause 4(d) included 4(d)(vi) which reads:
Secondly, clause 4(l) provides:
30. The Lands Tribunal held that clause 4(f) would make no sense if effect was given to that argument. I have not understood why the Lands Tribunal reached that view. If the Lands Tribunal was saying that practical effect could not be given to that argument, I disagree. No problem arises even in connection with the apportionment of the costs attributable to the lift. That was pointed out by Mayo V-P in the course of argument. From the list of persons set out in clause 4(f), remove the persons not served by the lifts. Then add up the monthly contributions of the units which are left. The contribution to the costs attributable to the lifts will be the proportion which each of the remaining owners' shares bear to the remaining total. 31. Conclusion. I therefore agree that the appeal should be allowed. I would set aside the orders of the Lands Tribunal, and I would remit the case back to the Lands Tribunal for the Lands Tribunal to decide what sums are owed by which party to the other in the light of the court's judgments. 32. I wish to make one final comment. A transcript was obtained, at not inconsiderable expense, I assume, of the hearing before the Lands Tribunal. No reference was made to the transcript either in the skeleton arguments or in the oral submissions before us. That is not surprising since no evidence was called before the Lands Tribunal. The issue between the parties was decided on the basis of agreed facts. Those agreed facts had been set out in a document placed before the Lands Tribunal, and there could have been no disagreement on any appeal as to what the agreed facts had been. In those circumstances, I ask rhetorically: why was a transcript obtained? If there is a practice to obtain a transcript of a hearing in the lower court whenever an appeal is lodged, I venture to suggest that that practice should be discontinued. The time and expense of obtaining a transcript would only be justified if the transcript really is necessary for the disposal of the appeal. Hon. Stock J: 33. I agree with both judgments and have nothing to add. I too would allow the appeal. Hon Mayo VP: 34. The appeal is accordingly allowed and the case is remitted back to the Lands Tribunal for the purposes above indicated. Costs of appeal to Madam Li and costs of the hearing below also to her and costs of the action are reserved to the Lands Tribunal.
Representation: Mr Chan Chi-hung, instructed by Messrs W K To & Co, for the applicant Mr Lee Tung-ming, instructed by Messrs Charles Yeung Clement Lam & Liu & Yip, for the respondent |
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