THE INCORPORATED OWNERS OF PHASE ONE OF WHAMPOA ESTATE v. THE BANK OF COMMUNICATIONS

LDBM 251 OF 2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT Application No. 251 of 2004

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LDBM 347 OF 2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT Application No. 347 of 2004

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Between

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REASONS   FOR   JUDGMENT

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1.  This judgment deals with two Applications which have been ordered to be heard together.  In the first Application, the Incorporated Owners of Phase 1 of Whampoa Estate (hereinafter called “the IO”) sued the Bank of Communications (hereinafter called “the Bank”) for payment of the balance of contribution at $258,253.96 for effecting repair and renovation works to Phase 1 of Whampoa Estate (hereinafter called “the Building”).  In the second Application, the Bank sued the IO for refund of $23,157.60 being alleged overpayment of such contribution.

2.  By a Deed of Mutual Covenant (hereinafter called “DMC”) dated 9 November 1976 and registered in the Land Registry by Memorial No. 1319063, the Building was divided into 646 undivided shares.  Of these shares, 152 shares were allocated to the non-domestic floors with 76 shares for the ground floor and 76 shares for the first floor.  The remaining 494 undivided shares were allocated to the domestic units with one share per domestic unit.  By a Supplemental DMC dated 31 December 1979 registered in the Land Registry by Memorial No. 1831895, the Bank was allocated 8 shares in respect of shop A6 on the ground floor.  Recitals 3 and 4 of the DMC made it clear that one undivided share was equivalent to one domestic or non-domestic unit of accommodation.  There is agreement between the parties on these matters.

3.  The background to this dispute was a building order which was issued by the Building Authority on 13^th October, 1999.  It required the IO to engage an authorized person to investigate and report to the Authority no later than 13^th April, 2000 on the extent and locations of dilapidations/defects in the Building, including all loose and defective external rendering and architectural projections, which may adversely affect the Building or its component or may pose danger to its occupants/the general public and to submit proposals for remedial works.  In addition, there were two advisory letters from the Water Supplies Department and the Electrical and Mechanical Services Department (hereinafter called “EMSD”) dated 26 June, 2002 and 19 February, 2003 respectively advising the need to carry out repair works to the common parts and facilities of the Building.

4.  By resolutions made in two general meetings of the owners of the IO held on 30 March 2003 and 8 June 2003, the IO resolved to incur $34,061,220 for effecting repair and renovation works to the Building so as to comply with the said building order and to heed the two advisory letters.

5.  Two debit notes dated 13 May, 2003 and 13 June, 2003 were then issued to the Bank asking for payment of the first and second instalments of the Bank’s contribution each at $94,960 or at a total of $189,920.  Both instalments were duly paid by the Bank.  A third debit note dated 23 July, 2003 asking for the third instalment at $119,267.50 was not paid.  The last debit note dated 18^th September, 2003 asking for $138,986.45 was likewise not satisfied. 

6.  By a notice dated 17 September, 2003, the management committee of the IO advised all the owners that because issue had been raised by an owner(s) on the mode of calculation and distribution of the repair and renovation costs, the same had to be verified by the solicitors of the IO.  The notice had also annexed to it a table of calculation of contributions by the owners prepared by the IO’s solicitors dated 4 September, 2003.  It showed that the Bank’s share was at a total sum of $448,173.95.  The formula was to divide 75% of the total costs amongst the owners of the domestic owners and the remaining 255 amongst the non-domestic owners. 

7.  The Bank took a different position.  It relied on the mode of sharing of management fees and expenses by the owners as specified in clause 11 of the DMC.  The relevant parts are in clause 11(c) and (e) which state:

“	11.	(c)   ……  the amount of the monthly service charge for each non-domestic unit shall be one-third of the amount payable in respect of each domestic unit.
		(e) in addition to the monthly service charge, each owner shall pay to the Managers on demand in respect of each unit of which he is the owner a share proportionate to the monthly contributions as set out in sub-clause (c) above of the cost of all major repairs, replacements, renovations and all other costs and expenses incurred in respect of the management of the said the land and buildings their equipment, apparatus and services (……) or which may otherwise become payable by the owners collectively under the terms of this Deed to the extent that the same are not covered by the monthly service charge.” (emphasis supplied)

8.  The Bank at the trial also relies on parts of sections 20, 21 and 22 of the Building Management Ordinance (hereinafter called “the BMO”).  The relevant parts of these sections provide:

“	20.	(1)	A corporation shall establish and maintain a general fund-
			(a)	to defray the cost of the exercise of its powers and the performance of its duties under the deed of mutual covenant (if any) and this Ordinance; and
			(b)	to pay Government rent, premiums, taxes or other outgoings (including any outgoings in relation to any maintenance or repair work) which are payable in respect of the building as a whole. (Amended 27 of 1993 s. 19; 29 of 1998 s. 105)
		(2)		A corporation may establish and maintain a contingency fund-
			(a)	to provide for any expenditure of an unexpected or urgent nature; and
			(b)	to meet any payments of the kind specified in sub-section (1) if the fund established thereby is insufficient to meet them.
	21.	(1)	Subject to subsection (4), a management committee shall determine the amount to be contributed by the owners to the funds established and maintained under section 20 during such period-
			(a)	in the case of the first such period after the date of registration of the corporation, not exceeding 15 months; and
			(b)	in any other case, not exceeding 12 months,
			as the management committee may determine. (Replaced 27 of 1993 s. 21)
		(2)	Subject to section 14(1) and to subsection (3), a management committee shall not increase the amount determined in accordance with subsection (1). (Amended 27 of 1993 s. 42)
		(3)	A management committee may increase the amount required to be contributed by the owners to the extent to which the funds established and maintained under section 20 are insufficient to meet any payment due by the corporation in respect of the cost of complying with-
			(a)	an order of the tribunal; or (Amended 27 of 1993   s. 42)
			(b)	any notice, order or other document served upon the corporation in relation to the common parts by a public officer or public body under any Ordinance.
	22.	(1)	The amount to be contributed by an owner towards the amount determined under section 21 shall be-
			(a)	fixed by the management committee in accordance with the deed of mutual covenant (if any);
			(b)	payable at such times and in such manner as the management committee may determine. (Amended 27 of 1993 s. 22)”

9.  By a letter dated 5 November, 2003, the Bank advised the IO that the mode of calculation of the IO’s solicitors was wrong and the correct mode was to require each undivided share or unit of non-domestic accommodation to bear only one-third of the amount that an undivided share or unit of domestic accommodation had to bear.  The Bank also set out the calculation according to its mode and came to the conclusion that its share of the repair and renovation costs was at $166,762.40.  This meant that the Bank had overpaid the IO by $23,157.60.  The letter sought a response by the IO but that never came. 

10.  When the IO’s solicitors demanded the Bank to pay the third and fourth instalments totalling $258,253.95, the Bank’s solicitors responded with the same arguments.  Nevertheless, the IO sued for the said $258,253.95 and the Bank responded by counter-suing for refund of the said $23,157.60.

11.  The argument of the IO at the trial is that the contribution was determined by resolutions of the owners in general meetings and the resolutions were binding on all the owners including the Bank.  The IO relies on sections 14(1), 34E(1) and (2) and sub-paragraphs 4(1) and (2) of the Seventh Schedule of the BMO.  They provide:

“	14.	(1)	Subject to this Ordinance, at a meeting of a corporation any resolution may be passed with respect to the control, management and administration of the common parts or the renovation, improvement or decoration of those parts and any such resolution shall be binding on the management committee and all the owners. (Amended 12 of 1998 s. 4)
	34E.	(1)	Subject to subsection (4), the provisions in the Seventh Schedule shall be impliedly incorporated-
			(a)	into every deed of mutual covenant made on or after the material date; and
			(b)	as from the material date, into every deed of mutual covenant made before that date.
		(2)	The provisions incorporated into a deed of mutual covenant by virtue of this section shall-
			(a)	bind the owners and manager of the building; and
			(b)	prevail over any other provision in the deed that is inconsistent with them.
	4.	Special fund
		(1)	The manager shall establish and maintain a special fund to provide for expenditure of a kind not expected by him to be incurred annually.
		(2)	If there is a corporation, the corporation shall determine, by a resolution of the owners, the amount to be contributed to the special fund by the owners in any financial year, and the time when those contributions shall be payable.

12.  The IO argues that the contribution it sought from the Bank was in accordance with resolutions by the owners in general meeting.  Since the resolutions were for the renovation, improvement or decoration of the common parts, they were within the scope of section 14 of the BMO and all owners had to pay as per the demand notes issued.  Furthermore, the contribution was for the creation of a special fund to provide for expenditure of a kind not expected to be incurred annually, it was thus a fund within the meaning of paragraph 4(1) of the Seventh Schedule.   Though the mode of distribution as resolved was not in line with clause 11 of the DMC, it was however in accordance with paragraph 4(2) of the Seventh Schedule and, by section 34E, paragraph 4(2) prevailed over the provisions in the DMC.  

13.  However, the IO later confirms that there were in fact only resolutions by the owners in general meetings in favour of the execution of the repair works but no resolution by the owners on how the repair costs should be shared by the owners of the Building.  It thus cannot rely on section 14 or paragraph 4(2) of the Seventh Schedule of the BMO. 

14.  In any case, since the contribution in question was raised for the purpose of effecting repairs to the Building as a whole so as to comply with a building order issued by the Building Authority under the Buildings Ordinance, I am of the view that it is a contribution within the meaning of section 21(3) of the BMO and it was collected by the IO to pay for outgoings that were within the scope of section 20(1)(b).  In the premises, it should be fixed by the management committee in accordance with the DMC as per section 22 of the BMO.  I therefore take the view that even if there were a resolution by the owners in general meeting on the amount of contribution, such resolution still could not prevail over clause 11 of the DMC to the extent of the part of the funds required for complying with the building order.  

15.  However, there is also no evidence of any resolution by the management committee requiring the owners to contribute the amount as sought by the IO or otherwise.  The notice of 17 September, 2003 was issued on the authority of the management committee of the IO and it had annexed to it the table of calculation of contributions prepared by the IO’s solicitors dated 4 September, 2003.  This table of calculation had thus been approved and adopted by the management committee.  But it cannot be a decision of the committee under section 22 as the contribution stated therein is not in line with clause 11 of the DMC.  In the premises, the IO has no authority to collect any contribution for the repair even under sections 20 to 22. 

16.  The IO has also argued that the part of the contribution for effecting the works to heed the two advisory letters were not within the scope of section 21(3)(b) and thus were within section 14 as those works were on the common parts.  Though this part of the contribution may lie outside section 21(3)(b), it can certainly come within the description of the general fund in section 20(1)(b) and can be included in the budget.  However, I think it arguable that this part of the contribution can come within the scope of section 14 and paragraph 4 of the Seventh Schedule.  Nevertheless, there is no resolution by the owners in general meeting under section 14 and paragraph 4 for such payment. 

17.  I should also mention that the Bank as at one time tried to rely on section 20(2)(a) of the BMO and argued that the contribution was for establishing a contingency fund to provide for any expenditure of an unexpected or urgent nature.  I do not agree with this argument as the contribution was not raised to cater for any unexpected contingency or a contingency of an urgent nature. 

18.  Since I do not agree with the position taken by the IO on the contribution from the owners for complying with the building order and there is also no resolution by the owners for contribution, I can only dismiss the IO’s claim.  However, I would not order the IO to repay all that has been paid by the Bank as the Bank has not made any such claim.  The Bank’s claim is on the basis that it should contribute to the repair costs in accordance with the provision of clause 11 of the DMC.  I would therefore order the IO to repay the Bank the sum of $23,157.60 as claimed by the Bank.  The IO has also agreed in the course of the hearing that if I should find for the Bank on the mode of calculation, I could order the IO to repay this sum. 

19.  The building order above-mentioned has been satisfied by the IO and the Building Authority has confirmed this by a letter of 19 November, 2004.  I thus assume that the management committee of the IO will meet again to resolve under section 22 of the BMO and in accordance with the DMC for contribution by the owners to defray the repair costs.  If the management committee should fail to do so, the Bank will be at liberty to take the appropriate course to recover the balance of the contribution that has been paid and not ordered to be refunded.  This judgment is therefore without prejudice to the Bank’s right to claim full refund if the management committee should fail to resolve for contribution from the owners to defray the repair costs. 

20.  I therefore dismiss the IO’s application and order the IO to refund to the Bank $23,157.60 under the Bank’s application.  I also order the IO to pay the Bank the costs of these two applications.