KWOK MO KAI DORIS v. THE INCORPORATED OWNERS OF KARIN COURT

LDBM 46 OF 2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT Application No. 46 of 2004

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J U D G M E N T

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1.  The Applicant owner and the Respondent incorporated owners began to dispute the apportionment of management expenses among owners   in January 2004. Parties have failed to resolve the dispute and by these proceedings the Applicant seeks various declarations to vindicate her rights.

2.  The dispute revolves round the interpretation of two clauses in the deed of mutual covenant (“the DMC”), clauses 3 and 8 and section 22 of the Building Management Ordinance Cap 344. 

3.  The Respondent relies on Clause 8 to justify the apportionment which the Applicant seeks to challenge by these proceedings.  On the other hand the Applicant contends that Clause 3 and the Third Schedule govern the apportionment.

4.  Clause 8 provides:

Each of the parties hereto covenants with the other or others of them:-
	(b)	Each of the owners of the flats and the car parking spaces in the said building shall in respect of each flat and each car parking space owned by him pay a reasonable sum each calendar month in advance on or before the 1st day of each month to the Manager as contribution towards his share of costs for the maintenance and management of the said Building.   The amount to be paid in advance each month shall be decided upon by the Manager and shall, until and unless otherwise decided upon by the Manager, be in accordance with the provisions set out in the Third Schedule.
	(d)	If the contributions towards any of the expenses aforesaid shall be more than sufficient to cover the same and there shall be a surplus then such surplus shall be held by the Manager in trust for the owners contributing the same in proportion to the amount of their respective contributions and shall be retained by the Manager in payment of such expenses.

5.  Clause 3 provides that:-

“	(a)	All costs charges and expenses relating to said Premises and the said Building as a whole including but not limited to the Crown Rent, the maintenance repair and cleaning of the lifts, entrance halls, staircases, landings, corridors, passages, open spaces, the provision of caretakers, watchman and similar staff, the repair and the maintenance of the main sewage and drainage pipes and conduits and other main services and garbage disposal shall be paid by the owners for the time being of all the undivided shares in the said Premises and the said Building in the proportions or shares of such costs and charges and expenses as are set out in the Third Schedule hereto.
	(b)	The cost of rebuilding repairing or reinstating the said building in the case of destruction or damage or condemnation by the Building Authority or any other competent authority, the cost of repairing maintaining painting and decorating the said Building as a whole or other portions of the said Building intended for common use and the cost of replacing or renewing all water pumps, walls water tanks, drainage, pipes, conduits and all apparatuses intended for the general services of the said Building shall be paid by the owners for the time being of all the undivided shares in the said premises and the said Building in accordance with the number of shares of the said Premises and the said Building owned by  each of them respectively.”

6.  Section 22 of the Building Management Ordinance provides that:-

(1)	The amount to be contributed by an owner towards the ---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;
(2)	If there in no deed of mutual covenant, or if the deed of mutual covenant does not provide for the fixing of contributions, the amount to be contributed by an owner towards the amount---shall be fixed by the management committee in accordance with the respective shares of the owners.

7.  The crux of the argument of the Respondent is that clause 8 (b) in effect overrides clause 3 and the Third Schedule.  Therefore the Respondent has unfettered discretion to apportion expenses and in any event the discretion it has exercised cannot be faulted.    The Respondent also seeks to derive support from the section 22 of the Building Management Ordinance.

8.  Without disrespect to the counsel for the Respondent, I do not think I need to deal with his argument on the interpretation of the DMC and section 22 point by point.  Suffice for me to say he relies too much on the wording giving the Manager or the management committee power to determine or to decide on contributions.  He put forward an interpretation which is plainly out of context.

9.  Clause 8(b) deals with the monthly payment in advance.  The decision by the Manager referred thereto has nothing to do with apportionments. It only empowers the Manager to determine the proper estimate of the total expenses.  By clause 8(d) the surpluses have to be held in trust for the owners in proportion to the contributions of owners. The apportionment of these expenses has yet to be determined according to clause 3 and the Third Schedule.   Clause 8(d) makes it clear that  the power of the Manager is to estimate for the total expenses.

10.  The references to the management committee’s power in section 22 do not assist the Respondent’s case.  The meaning of section 22 cannot be equivocal.  Apportionment has to be in accordance with the DMC.  Only if there is no DMC or there is no provision for apportionments in the DMC, the apportionment would then be according to the shares.     Even in the latter cases, a management committee has no discretion of its own as to apportionment.

11.  The Respondent seeks to justify the apportionment on the user-pay principle.  First of all there is no such general principle that it can over-ride the provisions in the DMC or the Building Management Ordinance.  Furthermore, as counsel for the Applicant succeeds to bring out and point out that no such principle, or any principle, for the apportionment can be discerned to have been adopted by the present or any of the past management committees.   Putting the case of the Respondent at the highest, the Respondent purported to redress the grievance of  flat owners who have to pay under the DMC a higher proportion of management fees than  the others. Witnesses for the Respondent repeated this theme that each flat received the same service and therefore should pay the same management fees.  It has become known towards the end of the trial that flats which are required to pay a higher contribution are in fact larger. It is not uncommon in Hong Kong that larger flats in the same building are paying higher management fees than smaller flats. There is no inherent unfairness in such provisions in the DMC.

12.  The Applicant quite fairly has abandoned her claim to re-open the account for the periods before her challenging the management fees.  On the other hand the Respondent, through its counsel and witnesses, maintains that even if this Tribunal rules that clause 3 should apply to the  apportionment, the Respondent insists on contending that clause 3 has become extinct because of the acquiescence of the Applicant.

13.  As the Applicant no longer seeks to re-open the account before her challenge, it is not necessary for me to determine whether her rights to refund has been extinguished or not.  The question remaining is not as narrow as what the Respondent has postulated.  The Applicant has a legitimate interest to see that the management committee performs its duty according to the DMC, quite apart from her own immediate financial interest.  It is not the duty of an owner to point out the mistakes to the management committee. Of course, if he omits so to do, he might suffer prejudice.  Like the present Applicant, she might have difficulty in re-opening the account for past years when she raised no complaint or challenge.   There is no ground to say because an owner has condoned a mistake of the management committee, he and all other owners have to condone the same in the future.

14.  The Respondent’s position is that it has made no mistake and is following the provisions of the DMC. It has never decided or made it clear to owners that clause 3 should apply but would not be adopted by the management committee.  Even if there was such a resolution of the management committee, and there was none, it does not have the effect of making it extinct.  A management committee has no power to rewrite a DMC. 

15.  It is not difficult at all for the Respondent to rectify its mistake applying the provisions of clause 3 and the Third Schedule in calculating the correct monthly management fees.  I can see no justification for the Respondent not to adopt the correct apportionment method when challenged.

16.  I have one observation to make.  It is not the management committee’s duty to exercise its own moral judgment on the provisions of the DMC.  The letters of the DMC should be observed and followed.  It is difficult to interpret a DMC. This anyone can understand.  To describe the relation of a prospective purchaser and the DMC, it is apt to use the witty remarks I have heard somewhere in a radio programme in another context about some document of a different nature.  A DMC is something “ you wouldn’t read; when you read it, you wouldn’t understand it; and when you understand it, you wouldn’t like it.”   However when the management committee’s attention has been drawn to the provisions of the DMC, the management committee should exercise caution and care, taking proper legal advice if necessary, and most importantly do not let personal conflicts and feelings interfere with the good judgement on the proper course that should be taken.

17.  The Respondent has to revise the management fees as from January 2004, making all necessary adjustments for all categories of owners. The Applicant is entitled to the following reliefs: