THE INCORPORATED OWNERS OF GALAXY FACTORY BUILDING v. HUI YERK CHOW AND OTHERS

LDBM 116 of 2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 116 OF 2004

______________

JUDGMENT

______________

Background

1. The Applicant is the Incorporated Owners of Galaxy Factory Building located at Nos. 25-27 Luk Hop Street, Sanpokong, Kowloon ("the Building"). The Applicant filed on 31 December 2003 an application in the Small Claims Tribunal claiming against the 3 Respondents, the registered owners of Unit B (including the cockloft) on the Ground Floor of the Building for non-payment of part of the Respondents' share of renovation charges. The Applicant claimed that in accordance with the apportionment based on the ownership shares, the Respondents who owned 10 shares out of 210 shares should pay $38,096.00. Instead, the Respondent only paid their share according to the 4th Schedule of the Deed of Mutual Covenant ("DMC") of the Building, being $7,837.20, leaving a balance of $30,258.80 unpaid.

2. The case was heard in the Small Claims Tribunal on 20 April 2004 and transferred to the Lands Tribunal on the same date. Pursuant to the order of HH Judge Chow of 19 May 2004, the Applicant filed on 20 May 2004 in the Lands Tribunal the present application, pursuant to the provisions of the Building Management Ordinance (Cap. 344), claiming the same balance of renovation costs of $30,258.80.

3. The Respondents filed a Notice of Opposition on 11 June 2004, opposing the application, on the ground that the renovation charges in question fell within the ambit of 'maintenance expenditure' under Clauses 10 and 11 of the DMC and the apportionment thereof shall be in accordance with the owners' respective shares of the monthly maintenance costs and expenses as set out in the Fourth Schedule of the DMC.

4. The Respondents called for the evidence of the 1st Respondent, who produced Exhibit R-1, a chronology of events and Exhibit R-2, a bundle of 7 documents including the DMC of the building, the resolutions of the Applicant's meeting of owners on 14 May 2002 and 17 December 2003, and the copies of letters from the solicitors of the Respondents to the estate manager of the Building ("the Manager"), representing the Applicant.

Issue of this case

5. Both parties submitted that they had no dispute at all on the facts of the case. The only dispute between the Applicant and the Respondents was the method of apportionment of the agreed renovation charges for the Building. That is, whether the said renovation charges should be apportioned in accordance with the ratios of "the undivided shares" as set out under Clause (3) of the Preamble to the DMC, or according to the monthly management charges as set out in Clause (10) and the Fourth Schedule of the DMC. This is the only issue that has to be decided.

The Applicant's case

6. Mr. Leung, Yu Wah, a director of the Manager, Master Professional Housing Management Co., appeared for the Applicant. He submitted that the renovation charges should be apportioned among the individual units of the Building based on ownership shares. Mr. Leung added that the owners had resolved in the owners' meeting of 14 May 2002 that this method of apportionment would be fairer to all the owners.

The Respondent's case

7. Ms. Mok, solicitor of the Respondents submitted that Clause (7), Clause (10) and Clause (11) were the relevant clauses in the DMC that governed the carrying out of renovation works of the Building and the payment of renovation charges by the owners of individual units to the Manager, acting for the Applicant.

8. She quoted from the DMC that under Clause 7(b)(2), one of the powers and obligations of the Manager was,

"to carry out all such works, renovations or replacements and to enter into such contracts or arrangements with the contractors and others and to engage remunerate and dismiss such employee as it may think necessary or desirable for the proper management, maintenance, operation, cleaning, repairing and servicing of the Building" (page 5 of the DMC).

9. Two clauses in the DMC provided for the payments of the maintenance costs and expenses by the owners of the individual units of the Building to the Manager. Firstly, Clause (10) contained the general provision that the owner of each unit should pay to the Manager the owner's due proportion of such maintenance costs and expenses, which should include the renovation charges that was the subject matter of this application. It provided that the owner of each unit should on demand pay to the Manager in respect of each Unit,

"the due proportion hereinafter mentioned of the expenses (apportioned where necessary) for or in connection with the maintenance, operation, cleaning, repairing, services and apparatus of the said Building and the insurance premium payable....., such expenses shall include but not be limited to: -

(a) Rates for water consumed....

....

(f) The cost of keeping in good and tenantable repair and conditions, the foundation, the side walks, main walls, supports, beams, gutters, fences, chimneys and all external parts of the Building and all the drains, well, water tanks, electric pumps, pipes, conduits and all plumbing, fire fighting and other apparatus (if any) intended for the general service of the said Building.... And the common entrance-hall, loading and unloading area, staircases, landings and the passages and the convenience thereof.

(g)....

(h)...."

10. Secondly, Clause (11) of the DMC contained the provision that the owner of each unit should pay the monthly maintenance costs and expenses, which was generally known as management fee. Clause (11) stipulated the following:

"11. The Owners of the Units of the said Building shall pay to the Manager each month on account of their respective shares of the monthly maintenance costs and expenses for their respective Units the sum as set out in the Fourth Schedule hereto hereinafter referred to as "the said management fee") and if the total contributions payable to the Manager by the owners of the said Building as aforesaid shall be insufficient to cover all or any of the said costs charges and expenses then the owners shall make further contributions towards such expenses in the shares as above provided and if there should by any surplus after payment of all the costs charges expenses then the surplus shall be held by the Manager in or towards payments of such costs charges and expenses thereafter to become due" (see page 9 of the DMC).

11. Ms. Mok submitted that it was apparent from the above said Clauses 7(b)(2), 10 and 11 of the DMC that the subject renovation charges in the present case fell within the ambit of "maintenance" costs and expenses, with the apportionment to be accordance with the owners' respective shares of the monthly management fee as set out in the Fourth Schedule of the DMS, but not in accordance with their respective undivided ownership shares as set out in Clause (3) of the Preamble to the DMC.

12. In support of this interpretation, Ms. Mok cited the decision of the unreported case of the Land's Tribunal in Chui Fat Lim v. The Incorporated Owners of Aegean Terrace [LDBM 78 of 1999, Judgment date 17 August 1999].

13. Ms. Mok admitted that although in Clause (10) of the DMC, there was no reference to the respective shares of monthly maintenance costs and expenses for individual units of the Building as set out in the Fourth Schedule, it was stated that the owner of each unit of the Building shall on demand pay to the Manager in respect of each unit the due proportion hereinafter mentioned of the expenses. If it were the intention of the DMC that the reference in Clause (10) was in respect of the ownership shares, the wordings in Clause (10) should not be "the due proportion hereinafter mentioned" since the ownership shares were set out in the beginning part of the DMC but not after Clause (10).

14. Ms. Mok also said that as a matter of fact, although the total original sum of renovation charges was $1,100,000, the Applicant agreed to pay out of the reserve funds a total sum of $300,000 kept by the Manager under Clause 11 of the DMC. Therefore, the balance of $800,000, the apportionment of which is now in dispute, should also be contributed by the owners in accordance with their respective shares of the monthly maintenance charges under the Fourth Schedule of the DMC.

15. Under the circumstances, Ms. Mok submitted that the Respondents' contribution towards the renovation charges should be in accordance with their shares of the monthly maintenance charges as set out in the Fourth Schedule of the DMC, i.e., $800,000 / 13,270 (total number of shares of monthly maintenance charges) x 130 (the Respondents' shares) = $7,837.20. In this respect, both parties agreed that the Respondents had already paid this sum of $7,837.20 to the Manager for the Applicant before the Applicant took out the application in the Lands Tribunal or even before the similar claim filed by the Applicant in the Small Claims Tribunal on 31 December 2003.

Tribunal's decision

16. The Respondents set out in the submission the provisions of the DMC regarding the payment by the individual owners of all the units of the Building the various types of maintenance charges and expenses. It was apparently clear that Clause (11) deals with the usual monthly management fees for each unit in the Building, whilst Clause (10) caters for the payment, on demand by the Manager of the Building, by the owners of individual units all maintenance and management charges and expenses including renovation charges such as that in dispute in the present case. Although there was explicit reference to the Fourth Schedule in Clause (11) but no reference to how the "due proportion" of the expenses to be calculated in Clause (10), it was clear that the interpretation of the Respondents was correct, instead of the Applicant's assertion that the apportionment should be done in accordance with the ownership shares

17. In addition to the reasons given by the Respondent, it was actually set out in Clause (2) of the Preamble to the DMC the following,

"(2) For the purposes of the sale of the Units of the said Building, the said premises and the said Building have been notionally divided into 210 equal undivided 210th parts or shares which are made up as follows...." (underline added)

18. The Applicant submitted that the use of the ownership shares as a basis of apportionment would be fairer to all the owners concerned. I do not agree. On the contrary, I find that the apportionment of the renovation charges in accordance with the ratios of management fees would be more much reasonable since the renovation charges and the monthly management fees were of similar nature.

19. More importantly, there was no basis for the Applicant to decide, in any meeting of owners to resolve the apportionment of renovation charges according to a method that was considered by those present to be fairer to the owners. The method of apportionment must adhere to what was set out in the DMC. Ms. Mok for the Respondents was right in the submission that notwithstanding that there was a resolution on 14 May 2002 at the meeting of all owners that the renovation charges should be shared by the owners in accordance with their respective undivided shares, that resolution should be void and invalid because it was clearly inconsistent with the provisions of the DMC.

20. For the above reasons, the application by the Applicant failed. In the circumstances, I make the following orders:

Orders