CHOW CHUI CHUI AND OTHERS v. KAFULL INTERNATIONAL LTD AND OTHERS

LDBM 299/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 299 OF 2012

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LDBM 108/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 108 OF 2013

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BETWEEN

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J U D G M E N T

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1.  There are two applications before me.  By issuing the application under LDBM 299/2012 (“the 299 Application”) the former Management Committee members (“the Former MC Members”) sought a declaration that the resolutions purportedly passed by the owners’ meeting held on 4 August 2012 including but not limited to their their removal from office and to appoint the substituting members (“the Substituting MC Members”) were void for lack of quorum.  LDBM 108/2013 (“the 108 Application”) was taken out in the name of the Incorporated Owners of Ka Wing Building (“the IO”) against the Former MC Members asking for, in gist, their handing over of properties of the IO upon their removal from office.

2.  Ka Wing Building (“the Building”) is situated at No.530 Nathan Road, Kowloon.  A deed of mutual covenantwasexecuted on16 January 1974and registered in the Lands Registry on 4 March 1974 (“the Main DMC”).

The Dispute

3.  The facts are essentially undisputed. The Building consists of residential units from the 4^th Floor to 21^st Floor (the “Domestic Portion”) and 4 levels of non-domestic floors from Ground to the 3^rd Floor (the “Non-Domestic Portion”).  The IO was registered on 4 March 1974.  There are two management companies serving the Building, one for the Domestic Portion and the other for the Non-Domestic Portion.  Further, under the Main DMC, the owners of the Non-Domestic Portion are not required to pay management fees for the Building prescribed under the Main DMC.

4.  Disputes arose after it was resolved at an owners’ meeting held on 15 October 2011to demand the owners of the Non-Domestic Portionto make a contribution towards the renovation of the Building (“the Contribution Resolution”) without, allegedly, any consultation nor giving them notice of the said owners’ meeting. 

5.  Upon learning about the Contribution Resolution, 5% of the owners of the Building, mainly from the Non-Domestic Portion, requested for an owners’ meeting pursuant to paragraph 1(2) of Schedule 3 of the Building Management Ordinance (“the BMO”). Convened by Madam Chow Chui Chui (“Madam Chow”) chairlady of the Former MC, an owners’ meeting eventually took place on 4 August 2012 (“the 4 August Meeting”). 

6.  The proposed resolutions as eventually amended at the 4 August Meeting included, inter alia, (i) invalidation of the Contribution Resolutions; (ii) to renew appointment of contractors for the Building’s maintenance;(iii) to remove and replace existing management committee; (iv) to elect new management committee; and (v) future renovation works of the Buildings maintenance should be passed by an owners’ meeting.  Before the proposed resolutions were put forth for voting, Madam Chowleft with some owners.  Those remaining, 14 were owners from the Non-Domestic Portion and 2 from the Domestic Portion.  Before they proceeded to voteon the said proposed resolutions, Mr Ng of Fullwill, manager employed by the Former MC, counted and confirmed that 16 owners representing a total of 84,286 undivided shares were present and indicated that there was sufficient quorum to continue the Meeting.  Those remaining proceeded to vote and the said proposed resolutions were all passed (“the 4 August Resolutions”). 

7.  The Former MC Members now challenge the validity of the 4 August Resolutions on the ground that there had not been a sufficient quorum.  The Tribunal is askedto make a declaration that the4 August Resolutions were null and void and have no binding effect on owners of the Domestic Portion. 

History of Development of the Non-Domestic Portion of the Building

8.  Mr Poon has for and on behalf of the Substituting MC Members briefly accounted for the development history of the Non-Domestic Portion in his closing Submissions which is essentially not disputed.

9.  Pursuant to the Main DMC, the Building is divided into 155 equal undivided shares where 48 shares were allocated to the Ground Floor, 12 shares to each of the 1^st to 3^rd Floor, 70 shares to the 70 domestic units from the 4^th to 21^stFloor (each holding one share) and 1 share to the main roof, external walls and spaces on the Ground Floor.  Each owner of any undivided share in the Building has full right to sell, assign, mortgage or otherwise dispose of his shares.

10.  On the same day when the Main DMC was entered into, the Ground Floor was divided into Portion A, B and C as depicted by the two separate conveyance instruments between Lee Sang Estate Limited and Wing Kiu Enterprises Limited both dated 16 January 1974.  Portion A and C of Ground Floor was sold together under one but Portion B of Ground Floor was sold separately under another although all 3 portions were sold to the same purchaser.  For the purpose of the conveyance of Portion B, 24 shares were assigned whilst another 24 shares were assigned in relation to Portions A and C.

11.  Some twenty years later, on 15 September 1997, a sub-DMC was registered in the Land Registry (“the 1^st Sub-DMC”).  The 1^st Sub-DMCwas entered into by various owners of shops on the Ground Floor.  Portions A, B and C of the Ground Floor were further divided into 5 shops namely, Shop 1A, Unit 1B, Unit 9 and Shop 2 and 3, holding 5%,  5%, 5%, 40% and 45% of the 48 shares in the Ground Floor respectively. 

12.  On 16 December 1998, another sub-DMC was entered into and registered in the Land Registry (“the 2^nd Sub-DMC”).  The 2^nd Sub-DMC was created after the conversion of Unit 1B and Unit 9 of the Ground Floor and 1^st to 3^rd Floors of the Building, together with those floors at the same level of the adjacent Wing Kiu Building on one side and the 2^ndand 3^rd Floors of the adjacent Cheung Hing Building on the other side into a commercial complex called the In's Point Plaza (“the Plaza”).  The 1^st Floor and 2^nd Floor of the Building were sub-divided into equal undivided shares for sub-allocation to various sub-divided units in the manner set out in Second Schedule of the 2^nd Sub-DMC.  Units 139-181 on the 1^st Floor and units 239-281 on the 2^nd Floor are within the area and location of the Land. 

13.  It is not disputed that by the two Sub-DMCs eachparty to the Sub-DMCs shall have the fullest right and interest of and inthe premises which he is entitled to the exclusive use occupation and enjoyment. 

Issue for 229 Application

14.  The main issue under this application is whether the 16 owners who casted their votes at the 4 August Meeting had constituted sufficient quorum of 10% of the owners to pass the 4 August Resolutions.  Mr Poon suggested that for determination ofthe main issue, there are two sub-issues for the Tribunal to decide and they are namely (i) whether the two Sub-DMCs concerning the Non-Domestic Portion of the Building are binding on the owners of the Building and (ii) whether an owner of a sub-divided unit in the Non-Domestic Portion owning undivided shares of the Building pursuant to the said two Sub-DMCs falls within the definition of an “owner” under the BMO for the purpose of being counted towards the necessary quorum at the 4 AugustMeeting.

15.  Mr Poon has suggested that as an incidental and necessary issue to determine the issue on quorum, this Tribunal is asked to determine if the owners of the sub-divided units are not considered as owners under Schedule 11, do they still have any obligation or liability towards the IO under the DMC and/or the BMO.  I find this sub-issue totally irrelevant to the question on quorum and it should be a stand-alone issue to be canvassed if need be.  It has however not been pleaded in the Amended Notice of Opposition. 

Issues for the 108 Application

16.  The main issue under the 108 Application is whether the Former MC Members should hand over the properties of the IO to the Substituting MC.  It is common ground between the parties that it depends on the determination on the validity of the Substituting MC. 

Case of the Former MC on quorum

Number of Flats in the Non-Domestic Portion under Schedule 11

17.  The Former MC says that there was insufficient quorum for the 4 August Meeting.  It relied on the BMO and the Main DMC.  

The Main DMC

18.  The Main DMC provides that the Building is made up of 155 equal and undivided shares.  The breakdown is as follows:

(a)	48 shares were allocated to the  Ground Floor;
(b)	12 shares were allocated to each of the 1st, 2nd and 3rdFloors (36 undivided shares);
(c)	1 share was allocated to the domestic flats from the 4th to 21stFloors (70 undivided shares);
(d)	1 share was allocated to the roof and external walls and certain spaces on Ground Floor (1 undivided share).

19.  It is said that according to paragraphs (2) and (3) of thePreamble in the Main DMC, the Non-Domestic Portion were taken as 4 units, each of the Ground Floor, the 1^st, 2^nd and 3^rdFloors is regarded as one unit or flat for the purpose of Schedule 11:

(2) The [Lee Sang Estate Limited] has constructed a new building (hereinafter called “the said building”) on the said premises known as “Ka Wing Building” comprising shops or non-domestic accommodation on the Ground to 3rd Floors inclusive and 70 domestic flats on the 4th to 21st Floors inclusive. (3) For the purposes of the sale of units in the said building, the said premises and building have been notionally divided into 155 equal undivided 155th parts or shares whereof 48 parts or shares have been allocated to the shop on the Ground Floor, 12 parts or shares have been allocated to each of the non-domestic accommodation the 1st to 3rd Floors inclusive, one part or share has been allocated to the main Roof External Walls and the Spaces on the Ground Floor and the remaining 70 parts or shares have been allocated to the upper floors from the 4th to 21st Floors inclusive (being one such share for each flat or the upper floors and where applicable, the flat roof held and enjoyed therewith).

20.  Further according to the Occupation Permit and the Control Card for assignment of shares of the Building:

(a)	the ground floor is regarded as one shop (1 x 1 = 1)
(b)	each of the 1st to 3rdFloor is to be regarded as one office for non-domestic use (1 x 3 = 3)
(c)	each of 4th to 20th floor has four flats for domestic use (4 x 17 = 68)
(d)	21st floor has two flats for domestic use (1 x 2 = 2)

21.  The total number of flats/units of the Building, according to the Former MC, is therefore 74 (4 in the Non-Domestic Portion, 70 in the Domestic Portion).  When a quorum of not less than 10% of owner is required, 8 shall be sufficient on the score of 74 (or 75 as suggested by the Substituting MC Members).

22.  Mr Wu on behalf of the Former MC submitted that by the operation of Schedule 11, 1 owner is allowed to represent each of the 4 floors in the Non-Domestic Portion.  For this reason, only 4 at the most shall be counted as owners from the Non-Domestic Portion, as a result, out of this minimum of 8, only 4 from the Non-Domestic Portion shall be counted; together with 2 from the Domestic portion, there were only 6 qualified owners present at the 4 August Meeting.  There was therefore insufficient quorum.

23.  It is also the Former MC’s case that their contention is supported by other provisions in the Main DMC.  It is said that the following passages provide that each floor in the Non-Domestic Portion was taken as 1 unit or 1 flat:

(i)	Paragraph (5) of the Preamble of the DMC provides:
	By an Assignment bearing even date herewith and made between the [Lee Sang Estate Limited] of the one part and the Flat Owner of the other part the [Lee Sang Estate Limited] assigned unto the Flat Owner All That the estate right title interest and benefit of the [Lee Sang Estate Limited] of and in All Those Eighty-eight equal undivided 155th part or share of and in the said premises and building Together with the full right and privilege to hold use occupy and enjoy to the exclusion of the [Lee Sang Estate Limited] All Those the ground, First, Second, Third and Fourth floors of the said building.
(ii)	Clause 4(d) of the DMC provides:
	If at any time, the non-domestic units are in different ownership, the owner of each shall be responsible for the obligations hereunder in respect of his own unit and all joint obligations shall be shared in the proportion of 48 shares for the owner of ground floor and 12 shares for the owner of each of first to third floors (inclusive).
(iii)	Clause 4(e) of the DMC provides:
	Each owner of a unit of the non-domestic units shall be entitled to display on the door of his unit a sign or notice but all such signs or notices shall be painted on or flush with the door of his unit and shall not project into or over the corridor in common use and each such owner shall be entitled to display or affix any sign or notice on the outside of the said building.

24.  Mr Wu further submitted that from the above provisions, the proper application of Schedule 11 is that although there are more than 1 “owner” in each floor in the Non-Domestic Portion after subdivision in the Non-Domestic Portion by the two Sub-DMCs, such owners are akin to “co-owners” of the same flat under Schedule 11 and therefore only 1 is eligible to vote for each floor, so in case more than one owner had voted, only one vote was valid to be counted.

Case of the Substituting MC

25.  The Substituting MC’s case is mainly that pursuant to section 5A, paragraph 5 of the Schedule 3 and Schedule 11 of the BMO, as long as the owner owns “an undivided share” and at least “1 flat” in the Building, he is entitled to be counted towards the quorum.

26.  It was submitted by Mr Poon that the 16 owners remaining at the 4 August Meeting were owners of “an undivided share” according to records in Land Registry (namely the DMCs, the Sub-DMCs, and the conveyance instruments).  Relying on authorities including U Wai Investment Co. Ltd. and Another v Au Kok Tai and Others, [1997] 4 HKC 200and Hinex Universal Design Consultants Co Ltd v. Chan Lai Hing [1998] 1 HKC 317.  Mr Poon submitted that the sub-divided units in the Non-Domestic Portion are “flats” within the definition of the BMO.  It was said that such sub-divided units were clearly “premises in a building which are referred to in a deed of mutual covenant” under section 2 of the BMO.  The ownersof the sub-divided units were also owners of a “flat” in the Building as their ownership in the sub-divided units is separate and the owners were entitled to exclusive possession and enjoyment of the sub-divided units under the two Sub-DMCs.  As such, they were entitled to be counted towards the quorum under Schedule 11 of the BMO.

Discussion

27.  The real issue in the 299 Application is how many owners are there in the Non-Domestic Portion who can be counted as owners under Schedule 11 and consequently how many owners thereat are qualified to vote at the 4 August Meeting.  Should it be 4 as contended by the Former MC Members or 14 as suggested by the Substituting MC Members.  There is no dispute that 8 was sufficient for a quorum.

Schedule 11 of BMO

28.  Enumeration of the percentage of owners mentioned in paragraph 5 of Schedule 3 of BMO is set out in Schedule 11 of the BMO:

For the purposes of section 5B-

(a)	sections 3(8), 3A(3F), 4(10) and 40C(9) and paragraphs 1(2) and 5 of Schedule 3, paragraph 1A of Schedule 6 and paragraph 11 of Schedule 8 are specified;
(b)	the enumeration of the percentage of owners mentioned in the provisions specified in paragraph (a) shall be computed as follows-
	Form of ownership	Illustration	To be counted as
	1. Multiple ownership of 1 flat	1 flat with 3 co- owners	1 owner
	2. 1 owner owning more than 1 flat	1 owner owning 35 flats	1 owner
	3. ---

29.  Regarding definition of “owner” and “flat” in the BMO, under section 2 it states that :

(i)	“owner” means:
	(a)	a person who for the time being appears from the records at the Land Registry to be the owner of an undivided share in land on which there is a building
	(b)	a registered mortgagee in possession of such share
(ii)	“flat” means:
	any premises in a building which are referred to in a deed of mutual covenant whether described therein as a flat or by any other name and whether used as a dwelling, shop, factory, office or for any other purpose, of which the owner, as between himself and owners or occupiers of other parts of the same building, is entitled to the exclusive possession.

How many Flats are there in the Non-Domestic Portion in the Main DMC

30.  The Occupation Permit is relied upon by the Former MC Members.  I must say that the Occupation Permit which says that the Ground Floor is regarded as 1 shop is not of much assistance in this case as an aid to understand the Main DMC.

31.  Relying on U Wai at 204D-205G, Mr Wu submitted that the number of owners of a building is governed by the Main DMC.  It is not disputed that the Ground Floor has been divided into 3 portions and were sold by two conveyance instruments at the same time of the Main DMC.  It was clearly set out in the conveyance instrument concerning Portion B that it involved the sale and purchase of “24/155th parts or shares…and Portion B”.  Unlike Portion B, the number of shares have not been set out for Portions A and C separately.  In the conveyance instrument of Portions A and C, it was said that:

…for the purpose of sale the said Lot and Building have been notionally divided into 155 equal undivided share of which 48 shares will be allocated to the ground floor, 12 shares will be allocated to each of the first, second and third floors…70 shares will be allocated to the upper floors from the fourth to twenty first floor inclusive (being one such share for each flat of the upper floors…. [page 1] ….AND WHEREAS the Vendor hath agreed with the Purchaser for the sale of All That the estate right title….….of and in All Those sixty-four equal undivided 155th parts or shares … Together with the exclusive right and privilege to the use occupation and enjoyment of all those Portion A and Portion C of the Ground Floor the whole of the First floor, the Second floor, the Third floor and the Fourth floor (including the Flat Roof on the Fourth Floor level) of the said Building which said Portion A and Portion C of the Ground floor, First floor, Second floor, Third floor and Fourth floor.

32.  From the above passages, one has to work out the total shares of Portions A and C being 24 because it was not expressly stated to be so.  It was expressly stipulated that the total of the undivided shares of other flats assigned by the same assignment equal to 40 (12 shares for each of the 1st, 2nd and 3rd floor and 1 shares for each of the 4 units on the 4th Floor, 12+12+12+4=40).  Since the total number of shares assigned by this conveyance instrument was said to be 64, by deduction, the shares concerning Portions A and C were 24 (64-40=24).  The assignment of 24 shares for Portion B of Ground Floor on the same date by another conveyance instrument made up the total number of shares assigned regarding the Ground Floor to be 48 shares.  This was the total number of shares allotted by the Main DMC to the Ground Floor.  The 3 portions represented the whole of Ground Floor as shown in various plans annexed to the conveyance instruments.  The total number of shares conveyed by the two conveyance instruments was 88 (64+24=88).  This tally with the number of shares allotted to the respective parts of the Building by the Main DMC.

33.  It is worth noting that although the Ground Floor was divided into 3 portions and they were assigned by two separate conveyance instruments, the Main DMC mentioned however that “By an Assignment… assigned… Eighty-eight equal undivided 155th part or share… the ground, First, Second, Third and Fourth floors of the said building”.

34.  Reading the three documents namely the two conveyance instruments and the Main DMC together, the Ground Floor, although divided into 3 portions and conveyed under two conveyance instruments, was considered one unit in the Main DMC.  There was no individual allotment of number of shares to Portion A and Portion C.  They were collectively counted as 24.

35.  Further the floors in the Non-Domestic Portion were referred to in the Main DMC as “the non-domestic units”.  Paragraph (4) of the preamble of the DMC provides:

For the purpose of this Deed, unless the context shall otherwise require:
(a)	the word “unit” where hereinafter used shall include any flat, shop or other area of non-domestic accommodation in the said building and where applicable, the flat roof held and enjoyed therewith, intended for separate use and occupation.
(b)	the ground to third floor inclusive shall hereinafter be collectively referred to the “non-domestic units”.

36.  I am of the view that Preamble (4) is not inconsistent with the BMO in the interpretation of flat.  I am of the view that in such circumstances, one non-domestic floor in the Main DMC should be taken as one flat for the purpose of Schedule 11 of the BMO.  In the circumstances, I am of the view that under the Main DMC, there were 4 “flats’ in the Non-Domestic Portion.

Can the Sub-DMCs increase the number of owners for the purpose of Schedule 11

37.  Mr Poon took the view that when determining whether an owner is eligible to vote, the two Sub-DMCs must also be considered.  Mr Poon further submits that by registration of the assignments of sub-divided units which are “records at the Land Registry”, an owner of each sub-divided unit is therefore “an owner” within the definition of the BMO owning “an undivided share” in the Land Registry. 

38.  In reply, Mr Wu is of the view that the two Sub-DMCs are totally unrelated to the owners of domestic premises of the Building.  It was submitted that Part VIA of the BMO concerns deed of mutual covenant of a building.  The meaning of which has been analysed by Reyes J in Rightop Investment Ltd & Anor v Yu Tsui Sheung & Ors [2005] 1 HKC 550.  It is submitted that the learned judge concluded that under the BMO a sub-deed of mutual covenant, though registered in the Land Registry, falls outside the meaning of deed of mutual covenant as defined under the BMO.  Mr Wu further pointed out that the two Sub-DMCs only regulates the affairs in the Plaza but not the whole of the Building and it therefore falls outside the meaning of deed of mutual covenant as defined under section 2 of the BMO. 

39.  Further, Mr Wu said that as held by the Court of Appeal in Incorporated Owner of Po Lok Building v Leung Koon [2006] 3 HKLRD 876 and [2006] HKCLRT 118, a sub-deed of mutual covenant has nothing to do with the owners who are not parties to the sub-deed of mutual covenant. 

40.  Mr Poon submitted that the finding in Rightop might not be relevant in the present proceedings as none of the issues herein involves application of Part VIA of the BMO.

41.  I however find the analysis of Reyes J in Rightop helpful.  He said:

“31. At first blush, the Sub-DMC, a registered document, falls within the definition of "deed of mutual covenant" in BMO s.2.  This is because, although the Sub-DMC does not concern all the owners in the SKWP Building, it regulates the rights, interests and obligations of owners (here the commercial owners) among themselves. 32. But Part VIA applies only to "a building in respect of which a deed of mutual covenant is in force". 33. The Sub-DMC plainly does not apply to the whole of the SKWP Building.  It merely relates to the commercial area of the SKWP Building, a small portion of the whole. Conversely, since the commercial area does not fall within any limb of the definition of "building" in BMO s.2, the commercial area cannot be a "building" in respect of which a deed of mutual covenant is in force.”

42.  When adopting the above analysis to the present case, whilst the two Sub-DMCs regulate the rights, interest and obligations of owners of the sub-divided units it is unarguable that they do not apply to the whole of the Building.  Owners under the Main DMC could not be bound because they are not party to the two Sub-DMCs. In my views only those unit/flat which have been referred to in the Main DMC can be counted as flats according to section 2 of the BMO.

43.  Relying on U Wai, Mr Poon points out that the size of an undivided share can vary and the total number of undivided share also increases. This means that “an undivided share” is not a reference to shares as divided by the Main DMC but could mean a fraction of an undivided share under the Main DMC or more than one share in some other circumstances. 

44.  I am afraid this argument could not circumvent the problem faced by the Substituting MC Members because the sub-divided units have not been referred to in the Main DMC.

Quorum of the Meeting

45.  I have found that there were 4 flats in the Non-Domestic Portion at the time of the Main DMC on the one hand and on the other hand there are altogether 70 flats in the Domestic Portions; 4 on each floor from the 4th Floor to the 20^th Floor and 2 on the 21^st Floor.  There is one common owner to two flats on two floors, namely the 7^th and the 13^th Floor, so the total number of owners should be 68 (70-2).  There is also 1 common owner of 1 non-domestic flat (the 3^rd Floor) and 1 domestic flat on the 4^th Floor.  The total number of owners in the Building should therefore be 71 (4 in the Non-Domestic Portion and 68 in the Domestic Portion minus 1 common owner of 1 non-domestic flat and 1 domestic flat).  Pursuant to paragraph 5(1)(b) of Schedule 3, the quorum required at the time of voting should be not less than 10% of owners of the Building, the minimum to form sufficient quorum is therefore not less than 8.

46.  As there are 4 flats in the Non-Domestic Portion, 4 owners could have been entitled to vote.  I understand that there were 2 from the Domestic Portion.  Since there was 1 common owner for 1 domestic and 1 non-domestic flat only 5 could be counted towards the quorum (4+2-1).  As the minimum to form sufficient quorum is not less than 8 I find that there was insufficient quorum.  For this reason the 4 August Resolutions purportedly to have passed were invalid. 

47.  In the circumstances, as conceded by the Substituting MC Members the application under LDBM 108/2013 should also be dismissed.

Order

48.  I make the order as follows:-

Regarding LDBM 299/2012:
(1)	It is declared that the 4 August Resolutions purported to have been passed at the 4 August Meeting are null and void and have no binding effect on the Applicants and owners of the Building.
(2)	The Respondents shall within 7 days from date of this order remove the registration of their names as management committee members and/or office bearers; failing which the Secretary of the Former management Committee is hereby authorized to do the same;
Regarding  LDBM 108/2013:
(1)	Applications under LDBM 108/2013 are all refused.

Costs

49.  There be an order nisi that the Substituting MC Members should bear costs of the Former MC Members for both Applications with counsel certificate, to be taxed at District Court scale if not agreed.  The order nisi shall become absolute if there is no application for variation within 14 days herefrom.