TIMFRO DEVELOPMENT LTD AND OTHERS v. THE INCORPORATED OWNERS OF JADE FIELD GARDEN

LDBM 64/2010

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 64 of 2010

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JUDGMENT

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Background

1.  The 1^st to 11^th Applicants are the owners of some of the shops and the 12^th Applicant is the owner of the management office on the Ground Floor of Jade Field Garden, 15–19 Ngau Tau Kok Road, Kowloon, Hong Kong (“the Building”).  The Respondent is the owners’ corporation of the Building.  The Building is a development with shops on the Ground Floor and car parking spaces on the First Floor.  The Second Floor is a podium.  Above the podium, there are 3 blocks of residential units from the Third Floor to the Thirty-First Floor, known as Ka Yan Mansion, Ka Lai Mansion and Ka Yin Mansion respectively.

2.  In this application, the Applicants apply for a declaration that the apportionment in management expenses that each owner is liable to pay in respect of the management costs referred to in Clause 13(A) of the Deed of Mutual Covenant of the Building (“the DMC”) should be in accordance with the proportions set out in the Fourth Schedule of the DMC.  The Respondent, on the other hand, contends that the management fees should be apportioned in proportion to the undivided shares in accordance with sections 21 and 22 of the Building Management Ordinance, Cap. 344 (“the BMO”).

3.  There is no factual dispute in this case.  By a notice dated 6 November 2009, the Respondent sought to revise the management fees payable by owners of the Building for the year 2010 in accordance with a table attached to the notice.  In the table, the monthly management fee payable by an owner was calculated in accordance with the no. of undivided shares of the unit owned by the owner, but the owners of shops and car parking spaces were not required to pay the maintenance fees and electricity charges of the lifts in the Building.  The Applicants disagree with this calculation and hence make the present application.

4.  Thus, the only issue in this case is how the management fees should be apportioned among the owners of the Building.

The Applicants’ case

5.  Section 22 of the BMO provides that the amount to be contributed by an owner is to be fixed by the management committee in accordance with the DMC, and if the DMC does not provide for the fixing of contributions, then the amount to be contributed by an owner is to be fixed by the management committee in accordance with the respective shares of the owners.  “Share” is defined in section 2 of the BMO to mean the share of an owner in a building in accordance with section 39 of the BMO.  Section 39 in turn provides that an owner’s share shall be determined in the manner provided in an instrument including a deed of mutual covenant (if any) which is registered in the Land Registry; or if there is no such instrument, or the instrument contains no such provision, then in the proportion which his undivided share in the building bears to the total number of shares into which the building is divided.

6.  Thus, the Applicant contends that one should only refer to the owners’ undivided shares in the Building (“the Ownership Share”) in apportioning the management fees when there is no fixing of contribution provided in the DMC, but the DMC, by virtue of its Clause 13(A) and the Fourth Schedule, does provide the fixing of contribution for the management fees.

7.  Clause 13(A) of the DMC expressly provides that:-

“Each of the owners of Car Parks, Flats and Shops in the said buildings shall in respect of each Car park, Flat or Shop owned by him pay the sum per calendar month payable monthly in advance as set out in the Fourth Schedule hereto to the Manager as contribution on account towards the costs of the following:-

(i)  Maintaining an office and employing adequate staff for the management of the said buildings and the remuneration of the Manager (at $1.00 per share in respect of the shares he holds in the said buildings).

(ii)    The provision of the services by the Manager set out in Clause 12 above.

Provided always that the monthly contribution on account payable under this Clause may from time to time be revised at the discretion of the Manager for the time being of the said buildings as circumstances may require.”

8.  Clause 12 of the DMC stipulates that the Manager shall provide the following services in respect of the Building:-

“(a) To engage and pay for one or more watchmen.

(b) To keep the lifts in good repair and in working condition.

(c) To pay all charges in respect of electricity consumed by the lifts well pumps and lighting in the stairways, hall, landings corridors and other common portions of the said buildings.

(d) To keep the entrance hall staircases and corridors in a clean and sanitary condition.

(e) To arrange and pay for the removal of garbage from each floor of the said buildings at regular intervals.

(f) To maintain and keep in repair fire-fighting and fire prevention apparatuses for the general services of the said buildings.

(g) To maintain the well-pumps for supplying flush water to the said buildings provided always that the Manager shall in no case be responsible for failure of the lifts, well pumps and lighting due to whatsoever reason including negligent or wrongful acts or omissions by independent contractors or other causes beyond the Manager’s or its agents’ control.

(h) To make such by-laws and regulations regulating the use and enjoyment of the buildings and the common parts as the Manager may deem fit such by-laws and regulations shall be binding on the owners for the time being and its servants agents tenants and occupiers as a covenant under this deed.”

9.  The Fourth Schedule sets out the amount of monthly payment to the Manager against each shop, car park, management office and residential unit in the form of a table (“the Management Shares”).  Although the Fourth Schedule also sets out the Ownership Shares of all the units in the second column, it is clear that the monthly payment to the Manager is in accordance with the Management Shares mentioned in the third column of the Fourth Schedule.

10.  From the Fourth Schedule, it is clear that the monthly payment required to be paid by a shop owner is considerably less than what a residential unit owner holding the same number of Ownership Shares has to pay.  For example, Shop No. 10 on the Ground Floor has 4 equal undivided shares allotted to it and its owner had to pay $20 each month to the manager at or around the time of the signing of the DMC in 1977.  However, for Flat A on the Third Floor of Ka Yan Mansion (also having 4 Ownership Shares allotted to it), its owner had to pay $55 each month.

11.  On the other hand, even though some flat units have different numbers of Ownership Shares, their owners were obliged to pay the manager the same amount of management fees each month.  For example, for Flats B and G on the 31^st Floor of Ka Yan Mansion, 7 and 8 Ownership Shares had been allotted to them respectively, but the owners of these residential units were obliged to pay the same amount to the manager each month, namely, $65 for each of these units.

12.  Furthermore, residential units carrying 4 Ownership Shares attracted a monthly management fee of $55, whereas those carrying 8 Ownership Shares (i.e. 100% more) attracted just $65 (i.e. 18.18% more).

13.  In other words, the Fourth Schedule has made it clear that the monthly payments to the Manager are intended to be different from unit to unit and are not related to the number of Ownership Shares allotted to each of the units.

14.  Clause 17 of the DMC further provides that if the contributions on account towards any of the costs and expenses shall be insufficient to cover the same, then the owners liable to contribute towards such costs and expenses shall make further contributions towards such costs and expenses “proportionately” as required by the Manager.  On the other hand, Clause 16 of the DMC provides that if the contributions towards any of the costs and expenses shall be more than sufficient and there shall be a surplus, then such surplus shall be held by the Manager in trust for those owners who have contributed the same “in proportion to” the amount of their respective contributions and shall be retained by the Manager pending its use in payment of future costs and expenses.

15.  The Applicants submit that the words “proportionately” and “in proportion to” referred to in Clauses 17 and 16 respectively refer clearly to the amount of the owners’ respective monthly contributions towards management expenses relative to each other’s contribution, i.e. the Management Shares proportion, rather than the Ownership Shares proportion.

16.  At the end of Clause 13(A) of the DMC, there is a proviso, namely, that the Manager may at his discretion revise the monthly contributions on account payable under that clause as circumstances may require.  The Applicants submit that although how such discretion is intended to be exercised is not spelt out, it would be reasonable to infer that, with the exception of special circumstances, any increase in monthly contributions on account should be proportionate, vis-à-vis each owner, in accordance with the Management Shares proportion set out in the Fourth Schedule.  Any notion of a person employed in the capacity as the Manager should be given an unfettered discretion to alter the apportionment ratio so carefully spelt out in the Fourth Schedule would “not only be out of place, but also contrary to common sense” (see Kwok Mo Kai Doris v. The Incorporated Owners of Karin Court, CACV 267/2005).

The Respondent’s case

17.  The Respondent, on the other hand, contends that Section 22 of the BMO shall apply, as Clause 13(A) of the DMC merely states the amounts payable by the owners “on account” towards the costs and these do not represent the ultimate amounts payable by the owners or the proportion for the amount payable by each owner.  The Respondent makes this submission by relying on the case of The Incorporated Owners of Hang Shun Building, Tonkin Street v. Lee Chi Ming, CACV 321/2003, where the DMC contained the following clause:-

“(g)  Each owner shall pay to the Agent on account of such owner’s share of the costs charges and expenses aforesaid a sum per calendar month the amount of which shall be calculated as follows:-

…

Provided that the said monthly contribution may be varied in every six months’ time if necessary by the said Agent having regard to the costs and other conditions prevailing at that time.”

18.  The Court of Appeal in that case held that:-

“本庭需指出公契第三附表第(g)段列出的付費，只是以記帳形式(on account)由各業主支付，並不代表業主最終應繳付的款額，亦不代表業主應繳付款額的付款比例”.

19.  The Respondent submits that the word “proportionately” in Clause 17 of the DMC could mean “proportionately to the undivided shares” appearing in the Third Schedule and the second column of the Fourth Schedule or “proportionately to the monthly payment” appearing in the third column of the Fourth Schedule or “proportionately to any of the preceding clauses”.  Had it been intended that the further contribution should be calculated in accordance with the Management Shares as set out in the Fourth Schedule, it could and should have stated so.  This is, however, not the case and the clause is completely silent in this respect.

20.  The Respondent also submits that some items in the table attached to the notice dated 6 November 2009 do not fall within either Clause 12 or Clause 13(A) as follows:-

Items	Relevant DMC clauses
Lift maintenance 升降機保養	12(b)
Electricity (lifts) 電費（升降機）	12(c)
Employees’ salary 員工薪津	12(a), 13(A)(i)
Cleaning charges 清潔費用	12(d), (e)
Maintenance of various kinds 各項保養	12(f), (g)
Repair costs 維修費用	12(f), (g)
Water charges 水費	Not stated
Electricity 電費	12(c)
Insurance of the building 大廈保險	Not stated
Gardening and festive decorations 園藝及節日裝飾	Not stated
Miscellaneous expenses 雜項支出	Not stated
Manager’s remuneration經理酬金	13(A)(ii)
Reserve fund 備用基金	Not stated

21.  The Respondent submits that charges and expenses of those items which do not fall within the scope of Clause 12 or Clause 13(A) of the DMC should obviously be calculated in accordance with the owners’ undivided shares as there are no provisions in the DMC on how the same should be apportioned.  It is, however, the Respondent’s case that even for those items which fall within Clause 12 or Clause 13(A) of the DMC, section 22 of the BMO shall apply for the reasons analyzed above.  As many basic and necessary items such as water charges are not covered in Clause 12 or Clause 13(A) of the DMC, the Respondent submits that the amounts stipulated in the Fourth Schedule are really intended to be on account only.

22.  In response to the Applicants’ argument that had it been the intention of the drafter of the DMC that the management expenses and the further contribution be calculated in accordance with undivided shares, the DMC should have stated this clearly, the Respondent submits that the fact that there are clauses elsewhere in the DMC stating that the calculation should be done in accordance with the undivided shares does not necessarily imply that it precludes another clause which does not state so expressly from using the said method.

23.  The Respondent further relies on Clause 15 of the DMC which stipulates that owners of car parks and shops on the Ground Floor shall not be liable to contribute towards the lifts expenses.  The Respondent submits that this clause is clear and there is no reason why the Respondent should not exclude the said costs in computing the contribution of car park and shop owners.

24.  However, the Respondent agrees that the ultimate question is whether the method of apportioning the costs and expenses has been stated in the DMC clearly or at all when the DMC is viewed as a whole.  If the answer is negative, section 22 of the BMO shall apply.

The Tribunal’s determination

25.  Having considered all the submissions of the Applicants and the Respondent, I do accept the Applicants’ interpretation of the DMC and the BMO as the correct approach.  First of all, it is clear that the use of Ownership Shares under section 22 of the BMO will only take place when the DMC does not provide for the fixing of contributions (section 22(2) of the BMO).  However, Clause 13(A) of the DMC does provide clearly that the contributions are to be fixed in accordance with the Fourth Schedule of the DMC.  As submitted by the Applicants, it is clear to me that the amounts of the contributions must be those in the third column of the Fourth Schedule, not the second column.  In fact, Clause 13(A) states clearly that the owners shall “pay the sum … as set out in the Fourth Schedule”.  It must refer to the sums in the third column, and not the no. of shares in the second column.

26.  What the Respondent seeks to do is to impose an obligation on all the owners to pay their contributions in accordance with the no. of Ownership Shares they have, with an adjustment to reflect the inapplicability of lift-related expenses for the non-residential units.  This would mean that the Respondent is trying to change the proportion of each owner’s contribution not in accordance with the proportion laid down in the third column of the Fourth Schedule, and as a result, the shop owners would have to pay considerably more than they would have to if the Management Shares are used instead.

27.  I simply cannot accept how the Respondent’s interpretation could be regarded as reasonable or in accordance with common sense, when it changes the fundamental obligation of the owners in how they should share the management expenses.  Even though the Respondent may have discretion under the proviso of Clause 13(A) of the DMC to revise the monthly contribution, it does not occur to me that it is reasonable for the Respondent to change the proportion of contributions among the owners.  As said by Le Pichon, JA, in Kwok Mo Kai Doris, supra.:-

 “I would add that it would be surprising if provisions as fundamental as the incidence of liability for management expenses among the co-owners inter se could be altered at the discretion of the Manager of the building, albeit subject to the reasonability requirement. I say this because when one considers the provisions relating to the “Manager” in the DMC, it was envisaged that he would be an employee whose remuneration is capped at $460 per month. (See clause 14) The notion that a person employed in that capacity should be given an unfettered discretion (subject only to the reasonability requirement), to alter the apportionment ratio so carefully spelt out in clause 3 and the third schedule in respect of the different categories of expenses is not only out of place, it is also contrary to common sense. The fact that the Manager now happens to be the Incorporated Owners cannot affect the true construction of the DMC or make the argument any more respectable when the quorum for a meeting of the Incorporated Owners is but 10% of the owners. For my part, a construction of the DMC that has that effect is one that should not be adopted if an alternative construction that would not lead to such an absurd result were available.”

28.  I think the rationale expressed by Le Pichon, JA, as stated above can be applied equally in the present case.

29.  It is true that the contributions received are “on account” only, as stipulated in the case of The Incorporated Owners of Hang Shun Building, Tonkin Street, supra.  However, it still does not mean that the Respondent can change the proportion of the contributions as submitted.  The Respondent, in making its submission, relies heavily on the case of The Incorporated Owners of Kelly House v. Law Han Ying, LDBM 224/2008, but each case must be determined in accordance with its own facts.  In our present case, there is no suggestion that the expenses envisaged to be incurred in the coming year are related to any major renovation works or costs as those in the case of The Incorporated Owners of Kelly House, supra.  In fact, the Applicants are only seeking declaration in respect of the management expenses referred to in Clause 13(A) of the DMC.  The Applicants have no quarrels that the proportion of those expenses outside the scope of Clause 13(A) or Clause 12 can be calculated in accordance with the Ownership Shares by virtue of section 22 of the BMO.

30.  However, for expenses that are covered by Clause 13(A) or Clause 12, the owners are obliged to make further contributions “proportionately” as required by the Manager by virtue of Clause 17.  I do not agree that the DMC is silent on how the proportion is to be worked out.  If one looks at Clause 16, one can see that when there is surplus of the contributions received, the surplus shall be held by the Manager in trust for those owners who have contributed the same “in proportion to the amount of their respective contributions” and shall be retained by the Manager pending its use in payment of future costs and expenses.  Clause 17 is the clause immediately following Clause 16 and concerns the reverse situation when there are insufficient contributions received to cover the costs and expenses.  It is clear to me that the proportions referred to in both clauses must refer to the same proportion.  If not, it would just create an absurd result.  As the proportion mentioned in Clause 16 is clearly the “proportion to the amount of their respective contributions”, which is the proportion in the third column of the Fourth Schedule, the proportion referred to in Clause 17 must also be this proportion.

31.  Although Clause 15 stipulates that the owners of the Car Parks and Shops on the Ground Floor shall not in respect thereof be liable to contribute towards the lift expenses, I do not think that it would alter the position.  The Respondent can simply separate the lift expenses from the rest of the expenses covered by Clause 13(A) and Clause 12, and apply the contributions received separately towards these two categories of expenses, i.e. only the contributions received from the owners other than the owners of Car Parks and Shops shall be applied towards the lift expenses, and the contributions received from all the owners including the owners of Car Parks and Shops shall be applied towards the rest of the expenses (excluding the lift expenses) covered by Clause 13(A) and Clause 12.  The amounts received from all the owners are still in the same proportion as in the third column of the Fourth Schedule.

32.  In the circumstances, I agree with the Applicants that the declaration sought by them ought to be granted.

Orders

33.  I therefore grant the following reliefs in favour of the Applicants:-

(1)  A Declaration that the apportionment in management expenses that each owner is liable to pay in respect of the management costs referred to in Clause 13(A) of the DMC should be in accordance with the proportions set out in the Fourth Schedule thereto.

(2)  Costs order nisi: The Respondent do pay the Applicant costs of the application with certificate for counsel to be taxed on District Court Scale if not agreed.  If there is no application for costs from either party within the next 14 days, the costs order nisi shall become absolute.