THE INCORPORATED OWNERS OF ALLIANCE BUILDING v. ELEGANT FUND INVESTMENT LTD

LDBM 191 OF 2004

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT Application No. 191 of 2004

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J U D G M E N T

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1. On 7 December 2000, the Fire Services Department served on the Applicant owners incorporation a Fire Safety Improvement Directions.  As a result the Applicant was under an obligation to provide and to improve the fire service installations and equipment of the building in order to comply with the direction.    Eventually the Applicant followed the usual steps to obtain authorisation from owners to undertake the required improvement work.  Eventually at a corporation meeting convened in April 2002, a resolution was passed in these terms: “大厦須遵照辦理公用部份要進行改善消防安全工程之指令, 而業主則須繳付各自所佔的份數之分攤上述之工程費用。 Pursuant to the resolution the management committee of the Applicant determined the amount of contributions of each owner and the time for payment.  The Respondent’ share was $35,000.  The improvement work was completed.  The Respondent refused to pay its share of contributions on the ground of irregularities relating to the procedure of the meetings and the composition of the management committee.

2. It is not in dispute that the management committee worked out correctly the apportionment formula. Equally there is no dispute about the quality of the improvement work.  At the trial, it was attempted on the Respondent’s behalf to discredit the tender process but to no avail.  A member of the management committee was called by the Applicant to testify. She was cross-examined at length as to how the decision of the management committee was arrived at in selecting the contractor who undertook the improvement work.  A management committee made the decision collectively and each member did not have to give reasons why she voted in the way she did. The validity of the decision of the management committee cannot be impeached by merely attacking the soundness of the subjective reasoning behind each member’s vote.  Furthermore one member can only speak for herself and cannot speak for the other members to the reasons for the vote. An attempt to cross-examine one member as to the subjective reasoning of the whole is doomed to fail.  The Respondent in this case failed miserably in casting doubt on the witness’s own integrity in voting the way she did in selecting the contractor, not to mention the integrity of other members.

3. Neither the soundness of the decision of the management committee can be faulted on any objective grounds. Looking at the tendering process and the minutes of various meeting and related documents as explained by the witness, I cannot see anything which can objectively cast doubt on the integrity of the members of the management committee and their decision. 

4. I am driven to the conclusion that there is nothing, subjective or objective, which would enable me to doubt the wisdom and integrity of the decisions of the management committee in selecting the contractor and in matters relating to the improvement work.

5. One of the grounds of defence pleaded is the invalidity of the corporation meeting in which the management committee was elected. It was alleged that there was insufficient quorum.  This ground cannot now be pursued as it turned out that there was in fact sufficient quorum.

6. One of the other grounds of defence relates to the validity of the resolution passed aforementioned paragraph 1. Mr. Kwan argued that such resolution was not put in the notice of meeting and therefore must be of no effect. He relied on the provisions in the Third Schedule of the Building Management Ordinance Cap 344 which require every resolution proposed to be passed to be put in the notice of meeting.  On the other hand, Ms Law, counsel for the Applicant contended that such provisions as relied on by the Respondent were in fact complied with.

7. The relevant provisions are in paragraphs 2 and 3 of the Third Schedule.  These provisions provide in effect that resolutions passed at the corporation meeting shall have no effect unless the same was set forth in the notice or is ancillary or to a resolution or other matter so set forth.  The notice of the meeting contained on its agenda a proposed resolution in these terms: “決議通過進行改善消防安全工程”  The argument of the Respondent is simply this. As the proposed resolution in the notice did not mention anything about raising funds for the improvement work, the resolution passed in the meeting was invalid.  Mr. Kwan further argued that if the notice contained the resolution to raise funds, absent owners might turn up and vote against the resolution. Because of this possibility this defect of the notice was not technical and might cause prejudice to owners. I accept Ms Law’s submission that the resolution eventually passed at the meeting is ancillary and incidental to the resolutions proposed for the following reasons.  Firstly, it should be clear to all the owners including the Respondent that without the funds the project of improvement could not have been undertaken.  The raising of the funds was ancillary and incidental to the resolution proposed in the notice. No evidence was led that any of the owners including the Respondent in fact believed that once the resolution proposed in notice the meeting was passed he or she would not be required to contribute.  The notice could have been better phrased.  However its terms were not defective and definitely did not cause any prejudice or injustice to any absent owners.

8. The other challenge to the resolution about its terms is that it did not specify the amount of funds to be raised for the improvement work.  Ms Law relied on S21 and S20 of the Building Management Ordinance to contend that these two sections empower the management committee to determine the amount of contribution to the funds.  Mr. Kwan appeared to disagree and without argument. The literal meaning of the sections suggest that these two sections would only enable the management committee to work out the apportionments once the amount of funds was voted for.   In my judgment these sections should be looked at in the context of the whole of the Ordinance.  The management committee has no discretion in the apportionment exercise.  The apportionment must be in accordance with the provisions of the deed of mutual covenant and the Ordinance.  The Ordinance provides clearly how the apportionment should be determined in case the deed of mutual covenant fails so to provide.  The management committee’s apportionment exercise is mechanical and requires no specific power under these two sections.  These two sections would be superfluous if they only permit the management committee to apportion the funds when the total amount of funds has been voted for in a general meeting.  In my judgment Ms Law correctly submitted the Applicant can pray in aid of these sections.  The improvement work was approved in a general meeting and in addition to that the Applicant was under a duty to undertake the improvement work. The Applicant, as an owners incorporation, was therefore under a duty to maintain a fund for such work.  Such duty was performed through the management committee under the powers entrusted to it by these two sections.  These sections would only be meaningful if they empower the management committee to work out the exact amount of funds raised and then do a mechanical calculations of apportionment for each owner.  Therefore this challenge by the Respondent must fail.

9. The other irregularities relied on by Respondent in its remaining grounds of defence related to the ineligibility of one Mr. Chen who purported to act as chairman of the management committee at the material time and for quite some time before that.   It is not in dispute that at the material times Mr. Chen was not eligible to be a member of the management committee. Mr. Kwan therefore contended that the notice given by him should not be valid rendering the resolution in question invalid.  Furthermore, counting Mr. Chen out, the number of management committee would fall short of the statutory minimum requirement by one.   Therefore affairs conducted by the management committee are of no effect in so far as requiring the Respondent to contribute to the improvement work.

10. Mr. Chen at the material times had the beneficial interests in the flat he purported to represent. The interests in this flat and the incumbent duty and rights would affect him to same extent as the registered owner of the flat.  There could not be any conflicts of interests between the registered owner and him in so far as the building managing matters were concerned. In the particular circumstances of this case, these irregularities must be technical and did not cause any prejudice or unfairness to other owners.   In the Court of Appeal case of The Incorporated Owners of Finance Building  V Bright Hill Management Consultants Company Limited  CACV 386/2000 the majority view was that the management committee which failed to convene a meeting for the election of a new committee under the Building Management Ordinance could still conduct the affairs of the owners incorporation before the new committee took over.    The dictum might be obiter.  However I have no reasons to disagree with it or not to follow it. The rationale of the view was that the building management of the building had to carry on or it would have undesirable repercussions.  Particularly in the instant case, there was no management company managing the building, and, not to mention, a professional one.   The particular infringement of the Ordinance in this case does not without more invalidate all acts done by the management committee or by the Chairman for and on behalf of the Applicant.  The individual decision challenged has to be looked at in the light of all the circumstances, in particular, the question of fairness to the owner complaining and other owners, the conduct of parties.   

11. The Respondent as early as in November applied to have the management committee dissolved and to have an order appointing itself administrator.  The ground of application is not clear and what is clear is that the present complaints were not relied on.  Of course the Respondent should not be blamed for this, as the ineligibility of Mr. Chen might not be known to it at the time.  Be that as it may, the improvement work has now been completed and over 90% of the owners have made their contributions.  The Applicant has incurred liabilities to pay the contractor, if it has not already paid in full.

12. In all probability, the improvement work would have been done in the same way with same amount of costs had the ineligibility of the chairman was discovered sooner by him or by the others.  If the clock can be put back and the Applicant goes through the same procedure again only this time free of any imaginable irregularities, the inevitable result would have been just the same, namely, the Respondent is liable to contribute $35,000 to the improvement work. In summary the irregularities complained of are either unsubstantiated or of technical nature.    The substantiated irregularities stemmed from the fact that Mr. Chen was not eligible to be elected.  Such defect could have been cured had it been discovered earlier.  That being the case the management committee and its decisions should not be nullified on the ground of these irregularities.  Furthermore it is not part of the Respondent’s case that it suffered loss and damage, and there is no evidence to that effect. I therefore give judgment for the Applicant in the sum claimed with interests at judgement rate from date of service of the Application until payment.

13. As to costs, my view is that the Applicant is to blame for having a management committee member who is not eligible for election.  I cannot question if there is any ulterior motive on the part of the Respondent to resist these proceedings.  It is within its right to rely on any technicality. In all circumstances, my initial view is that this is a case which calls for the departure from the general rule that costs should follow the event.  I think it would only be fair to order the Respondent to pay one third of the costs of the Applicant on High Court Scale with certificate for counsel to be taxed if not agreed.  This costs order nisi is to be made absolute in four weeks.