Ko Kwok Kuen v. Incorporated Owners of Futorloy Sun Chuen, Phase I

Building Management
Case No. 55 of 1996

H E A D N O T E

Building Management - Management Expenses - Constitution of Incorporated Owners - Management Committee - Validity of Election of Management Committee - Representation on Management Committee - Building Management Ordinance, Cap. 344.

The Applicant is the owner of a unit in the shopping arcade of a mixed commercial and residential building. The Respondent is the incorporated owners of the Building. I understand that the term of office the Management Committee of the Respondent is two years. There is a resolution passed by a majority of the individual owners of the Building at a general meeting many years ago whereby a very small number of seats in the Management Committee is reserved for representatives of the shop owners. The 4th Management Committee was elected at the end of 1994 with seats divided according to this resolution. In mid 1996, the Applicant applied to the Tribunal for an order to, inter alia. declare the 4th Management Committee of the Respondent unlawful, to dissolve the Committee and to direct a new committee to be elected. The Applicant also contended that more seats on the Management Committee should be allocated to representatives of the units in the shopping arcade according to the number of common undivided shares held by all the units in the shopping arcade in proportion to the total number of common undivided shares.

Held: (1) Even if there were some irregularities in the election of the 4th Management Committee, by June 1996 when its tenure of office was almost coming to an end, an application at that late stage for an order to dissolve the Committee not only renders timely relief impractical but also to some extent shows that the alleged grievances may not be genuine. The Tribunal in the circumstances can only instruct the Respondent in general terms that it should as soon as possible arrange the election of a new committee for the coming term in accordance with the relevant regulations. (2) There is no provision in the Deed of Mutual Covenant or the Building Management Ordinance, Cap. 344 to the effect that owners in the building of units for different users may have seats in the Management Committee allocated on any pro rata basis. In principle, all the individual owners of a multi-storey building, by virtue of their property rights, have the right to vote, and may elect any eligible and suitable person to be a member of the Management Committee. It is not necessary to elect a specified number of representatives of the shop owners to be committee members. (3) The earlier resolution by all owners in general meeting is not a departure from the Deed of Mutual Covenant or the Building Management Ordinance, Cap. 344. It in fact already takes special care of the minority shop owners. The law does not allow the Tribunal to intervene in such allocation. It is also unreasonable for the Tribunal to interfere with the result of minority shop owners getting more seats in the Management Committee.

LDBM000055/1996

In The District Court of Hong Kong

Lands Tribunal

(Building Management Case No. 55 of 1996)

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J U D G M E N T

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The Applicant in this case is the owner of Unit 11 on the lst floor of the shopping arcade of Futorloy Sun Chuen, Phase I ("the Building"). The Respondent is the incorporated owners of the Building. The Building has a shopping arcade on the lower floors and residential flats on the upper floors.

2. Hitherto the Applicant raised with the Tribunal that the owners of units in the shopping arcade of the Building should form their own mutual aid committee or management committee split from the Respondent, so that the management and finance of shopping arcade and the residential flats is separate. As I have explained at that time, according to the system of property rights in Hong Kong, individual owners of a multi-storey building have common undivided shares in the title to the lot upon which the building stands. All the commercial or residential owners on each and every level of the building share the use of various communal facilities such as water, electricity, drainage etc. It is impossible to have separate management for each floor. Moreover, under the Deed of Mutual Covenant of the Building and by virtue of the Building Management Ordinance, Cap. 344, Laws of Hong Kong ("the Ordinance"), no divided, independent management organizations are allowed to exist in the same building. Even though some owners such as those of units in the shopping arcade may form an association of any nature, the management powers and responsibilities of the Building still lie with the lawfully registered incorporated owners - the Respondent.

3. Presently, the Applicant sought an order by the Tribunal to declare the 4th Management Committee of the Respondent unlawful, to dissolve the Committee and to direct a new committee to be elected. The Applicant further asked the Tribunal to order: (1) the Management Committee to instruct an accountant to audit the management accounts of the Building for the past six years; (2) the Management Committee to return the money borrowed from the air conditioning fund of the Building; (3) the Management Committee should pay the air conditioning charges for the common areas of the shopping arcade on the ground floor and the first floor of the Building from the general management fees: in other words, the air conditioning fund should not be used for such purpose; and 4) the Respondent should bear the air conditioning charges for the management office which was originally a shop space on the ground floor of the Building, and such charges should be paid out of the general management fees.

4. I understand that the term of office the Management Committee of the Respondent is two years. The 4th Management Committee was elected at the end of 1994. The Applicant averred that the 4th Management Committee was unlawful, but he failed to demonstrate fault in the procedure by which that Committee was elected. Even if there were some irregularities, the Applicant waited until June 1996 when its tenure of office was almost coming to an end before filing an application with this Tribunal for an order to dissolve the Committee. This not only renders timely relief impractical but also to some extent shows that the alleged grievances may not be genuine. In this regard, I could only instruct the Respondent in general terms that it should as soon as possible arrange the election of a new committee for the coming term in accordance with the relevant regulations. I also advised the Applicant to inform all the individual owners of the Building of the misgivings he had with the management of the Building so that he could rally support from a majority of the owners to elect capable persons to form a new committee for the coming term. At the hearing on 28th November, 1996, the representatives of the Respondent reported to the Tribunal that the 5th Management Committee had been elected under the supervision of an officer from the City District Office concerned. In the premises, the Tribunal decided that there was no need to consider the application for dissolution of the 4th Management Committee. Nonetheless, the Applicant indicated at the same hearing that he was not satisfied with the election of the 5th Management Committee. I made it clear to the Applicant that allegations against the 5th Management Committee should be dealt with in a separate case. Moreover, I also emphasised that any person who feels aggrieved can, of course, bring his case to court; but in no way does the law permit vexatious complaints. After all, the work of the management committee of incorporated owners is of a voluntary nature. The Tribunal will not tolerate anyone who persistently undertakes nuisance suits which would result in no one willing to be a committee member, thus availing opportunities to those with ulterior motives. Where the Management Committee of the Building has been following the law in performing its duties, even if its decisions are contrary to the wishes of the Applicant, the Applicant is bound to comply. Of course, the Applicant may choose to move out of the Building.

5. The Applicant also said that he was not satisfied with the ratio of the seats in the Management Committee allotted to the owners of the shops in relation to those for the residential flats. During internal wrangling with the Respondent, the Applicant demanded "a more reasonable allocation". Before the Tribunal, he demanded allocation on pro rata basis according to the number of common undivided shares held. I find no provision in the Deed of Mutual Covenant or the Ordinance to the effect that owners in the building of units for different users may have seats in the Management Committee allocated on any pro rata basis. In principle, all the individual owners of a multi-storey building, by virtue of their property rights, have the right to vote, and may elect any eligible and suitable person to be a member of the Management Committee. It is not necessary to elect a specified number of representatives of the shop owners to be committee members. There is a resolution passed by a majority of the individual owners of the Building at a general meeting many years ago whereby a certain number of seats in the Management Committee is reserved for representatives of the shop owners. Such a resolution is not a departure from the Deed of Mutual Covenant, it in fact already takes special care of the minority shop owners. I think the law does not allow the Tribunal to intervene in such allocation. It is also unreasonable for the Tribunal to interfere with the result of minority shop owners getting more seats in the Management Committee.

6. The Applicant demanded to have the management accounts of the Building for the past six years audited. The Respondent submitted that the relevant accounts books and documents had already been in the hands of accountants for a long time. However, since the 4th Management Committee took office in 1994 when accounts were not properly handed over and some data were in a muddle, it could not be held responsible the accounts of the previous four years. For months I goaded the Respondent to press the accountants to submit the audit reports. Eventually, in November, I received the audit reports for the years 1994-95 and 1995-96 prepared by Messrs Wong C. Fung & Co., Certified Public Accountants. The two reports indicate that the management expenses of the Building for the two years can be authenticated by documents. However, as to the collection of the management fees, since they were mostly paid in cash and there is no supervision on the issue of the receipts, it is not absolutely certain that all the management fees collected have been entered in the books. In view of the auditors' reports, I hold that there is neither irregularity nor negligence in the handling of finance by the 4th Management Committee. Although the accounts for the four years prior to 1994 are suspect, the blame cannot be put on the Committee who took office later. Even though the 4th Management Committee might have found the accounts incomplete at the time of the handing over, one would not expect the Committee to refuse taking-over. The proper approach for the Committee to take is to try its best to collect the books and documents for the past years, sort out and update the entries and then to have the accounts audited by an auditor. If there is anything wrong with the accounts or if there are any outstanding debts, the Committee should take legal action against its predecessors or other persons involved.

7. The audit reports show that the accounts relating to the air conditioning fund cannot be verified, but this has nothing to do with the 4th Management Committee. The Applicant demanded the Committee to reimburse the fund, but there is no justification for such a demand. I can only suggest to the current Management Committee to consider, after seeking advice from accountants, reporting the case to law enforcing agencies such as the police or the ICAC.

8. As to the lack of supervision on the collection of management fees paid in cash, there is no evidence to prove that the 4th Management Committee is guilty of any misfeasance. The owners should know that when they pay management fees they should ask for valid receipts, and so occasions for the fee collector not to record collection should be very rare indeed. Nevertheless, I suggest that, to facilitate control, the Respondent should make arrangement as soon as possible to stop collecting cash and to open an appropriate bank account so that individual owners may pay management fees through the bank.

9. The Applicant said that the air conditioning charges for the common areas of the shopping arcade on the ground floor and the first floor should be paid out of the general management fees of the whole building, i.e. not be borne by the air conditioning fund. In fact, the common areas of the shopping arcade on the ground floor and the first floor are the places where customers or window shoppers come and go. The air conditioning in those areas undoubtedly help to attract customers for the shops on those two floors; and the residential flats on the upper floor derive no benefits from it. As a matter of law and reason, I hold that it is not justified to ask the households on the upper floors to subsidize the operating expenses of the owners of the shops on the lower floors. Therefore, the application on this matter is dismissed.

10. As to the air conditioning charges for the office of the Respondent on the ground floor, if it is not paid out of the general management fees of the whole building, the owners of the shops on the two lower floors will bear the main part of it. I believe the office on ground floor does enhance the security of the shopping arcade and so the location of the office there is more beneficial to the shopping arcade. The air-conditioning electricity charge for the office is estimated to be just about a hundred dollars or so per month. If it is shared by all the owners of the shops in the shopping arcade, each shop owner will only need to pay about ten dollars. Hence, the Applicant is frivolous and too calculating in making such an application. In law we have the so-called de minimis principle, and so I do not even bother to consider this grievance of the Applicant.

11. The representatives of the Respondent finally pointed out that the Applicant and his supporters, on the excuse that the 4th Management Committee was unlawful, have refused to pay management fees for a long time resulting in management fees arrears accumulated to some $300,000. The Respondent sought direction from the Tribunal in this regard. I have said in open court that individual owners are under a statutory duty to pay management fees and they are not allowed to delay payment on any excuse. As this case is not one initiated by the incorporated owners for recovery of arrears, I am not in a position to make any order for payment against any person. The Respondent may, however, go to the Land Registry pursuant to the Ordinance and apply for a charge registered against the properties of the owners who have failed to pay management fees. Such application does not need any court order. If necessary, the applicant may also seek disposal of the relevant properties by auction in order to recover the arrears.

12. Hong Kong is a place crowded with high-rise buildings. Most Hong Kong people either live or work in buildings governed by the Ordinance. The mis-management of the living and working environment, the lack of maintenance of communal facilities such as water, electricity and drainage, blockage of fire exits, nuisance in the common areas, unlawful occupation and illegal structures, and frequent disputes among neighbours, all these directly affect the mental and physical health of the residents and threaten public safety. The matters covered by the Ordinance in fact are the very fundamentals of civil administration. It seems that the administration has failed in its duties to educate the people about civic rights and to solving disputes at district level, resulting in confrontation in a law court amongst neighbours for what are in fact daily life matters. There are already laws dealing with lack of maintenance, blockage, nuisance and illegal structures etc. in buildings. If the departments responsible for enforcing these laws are negligent or remiss, the administration should exercise supervision. It is inappropriate to leave to this Tribunal, a civil court, to handle such matters. Moreover, quite a few of these cases showed that disputes would often lead to confrontation between the neighbourhood parties who bring in political activists to intervene which aggravates social conflicts in our society. I sincerely hope that the authorities would undertake to review the present building management system under the existing Ordinance to identify any room for improvement, and to find out whether the district administration has put in enough resources and efforts to effectively handle the management disputes of multi-storey buildings.

13. This judgment is delivered in both Chinese and English languages. Either language version may be used in aid of interpretation of the other. In the case of irreconcilable difference in meaning, that conveyed in the Chinese version shall prevail.

Dated this 24th day of December, 1996