THE INCORPORATED OWNERS OF JUMBO COURT WELFARE ROAD v. CHEUNG HON TAK AND ANOTHER

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

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Building Management Application No. LDBM 147 of 1999

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J U D G M E N T

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The parties

1. The applicant is the Incorporated Owners of Jumbo Court, Welfare Road.

2. The respondents are the owners of the shop space on the ground floor of Jumbo Court (the shop).

The building

3. Jumbo Court is situated at No.3 Welfare Road, Shum Wan, Hong Kong (the building).

The application

4. The applicant asks for the respondents' contributions towards renovation and repair costs in the sum of $17,730; in the alternative, if each owner should play in proportion to the number of flat units, the sum of $19,461.53, in addition to the collection charge of $150 and interest.

5. The respondents had not paid management fees from 1st August 1996. The applicant asks for the payment of management fees from 1st August 1996. The applicant also asks for interest at the rate under the DMC, at 1.5% per month or as the Lands Tribunal thinks just, and costs.

The applicant applies for determination relating to:

1) The interpretation of the building's Deed of Mutual Covenant (DMC), in respect of the funds and contribution payable by the respondents under clause 4 of the DMC, and under Sections 14, 20 and 21 of the Building Management Ordinance, Cap. 344 (BMO);

2) The calculation and apportionment of the funds and contribution;

3) The powers of and procedures of the applicant's management committee and owners' committee in determining the funds and contributions, under the DMC and the BMO.

The issues

The Tribunal is asked by the applicant to decide:

1. Whether "Flat units" in the DMC include the shop

2. Whether the respondents are liable to pay management fees under the DMC;

3. Whether the respondents should pay their share of the cost for renovation and repair, as resolved by the applicant at the owners' meeting on 18th September 1993.

The Tribunal is asked by the respondents to decide:

1. Whether, on the constructions of the DMC and the BMO, the respondents are liable as the shop owners, to pay the renovation and management fees;

2. Whether the respondents have waives their rights to protest or contest the calculation of those fees.

The opposition and counterclaim.

The respondents dispute their liability to pay contribution towards the cost of renovation and repair. They contend that there is no provision under the DMC that the shop should pay for any such cost. They contend that the shop owners have no liability to pay for management fees at all.

6. The respondents counterclaim against the applicant the amount of $4,185.24. This is the difference between the contribution, for Flat L on 6th floor, and Flat I on 15th floor of the building, that they had actually paid, and which they claimed to be payable. The second respondent is the owner of Flat L, and the respondents are the joint owners of Flat I. They also counterclaim the amount of $3,925, being the management fees paid for the shop between March 1995 and April 1996.

Facts

The following are not in dispute and are found as facts of the case:

1. The building's Deed of Mutual Covenant, dated 15th February 1980, was registered in the Land Registry under memorial No. 1848374 (DMC).

2. The applicant is registered under the Building Management Ordinance (BMO) and acts as the manager of the building.

3. From 23rd June 1993, the respondents became the registered owners of the shop space on the ground floor of the building (the shop).

4. The respondents are the joint owners of Flat I on 15th floor of the building, since 21st February 1995.

5. The second respondent is the registered owner of Flat L on 6th floor of the building, since 30th April 1980.

6. There are 168 residential units, and one shop, in the building.

7. There are 509 car park spaces in the building.

8. Since 1981, the car parks management fees had been separately calculated and independent from that payable by flat units.

9. Since 1981, the shop had been paying half of the share of monthly management fees payable by a unit of the 168 residential flat units.

10. On 18th September 1993, the applicant held a general meeting of the owners (the EGM). The meeting resolved to carry out renovation and repairs to the building.

11. The extent of the renovation and repairs, and the quantum, are not in dispute.

12. The respondents have not paid the management fees in respect of the shop since 1st August 1996.

The applicant's case

7. It was the applicant's contention that from the time they became owners, the respondents had raised no objection to the management fees payable for the shop.

8. During the EGM, it was resolved that the owners of the building should contribute towards the cost for the repairs and renovation (the cost) in accordance with their respective undivided shares of the building. The first respondent attended that meeting, on his own behalf, and also as the representative of the second respondent.

9. On 29th August 1995, the applicant's management committee resolved that the shop's share of the cost should be calculated on half of the number of its undivided shares in the building. The cost for the car parks was to be determined independently from the flat units.

10. On 30th August 1995, the applicant notified the owners of the contribution each one should pay. The cost of $3,289,000 was to be divided among the 169 flat units, i.e. the 168 residential flats and the shop. The owner of one undivided share in the building should pay $1,970.

11. The respondents' contribution for the shop was $17,730. This was calculated on the basis that out of the 18 undivided shares in respect of the shop, the respondents should only contribute towards the cost under 9 undivided shares.

12. The respondents had paid their shares of contribution in respect of the other units that they own in the building.

13. The respondents refused to pay the contribution demanded for the shop. The respondents also refused to pay the management fees as from 1st August 1996.

The respondents' submission

14. It was submitted that under the construction of the DMC, the owners of the shop are neither liable to pay the contribution to the cost of renovation and repairs, nor the management fees.

15. The respondents referred to the definition of the word "owner" in clause 17 of the DMC.

16. Under clause 17(b),

The word "owner" shall include each person in whom for the time being the legal estate in any undivided share in the said premises and the said building is vested and every joint tenant or tenant in common of any such share...

17. Under clause 4, it was stated that

Each owner shall be bound by and shall observe and perform the following covenants provisions and restrictions:

...

(f) The following costs charges and expenses shall be borne and paid by the owners of the said building in proportion to the number of Flat units in the said building for the time being owned by them, namely:

...

(iv) The cost of repairing, renewing, maintaining, cleansing, painting, or decorating the building or any part or parts thereof and all water pumps, tanks, pipes, sewers, drains, watercourses, cables, wires, or services therein and all the apparatus equipment and convenience thereof.

...

(i) If any owner shall fail to pay any amount payable hereunder within 7 days of the date on which the demand for payment is served on him he will further pay to the Manager interest calculated at the rate of $1.50 per $100.00 or part thereof of the amount unpaid for each period of 30 days or part thereof for which it remains unpaid and a collection charge of $150.00 or such lesser sum as the Manager may agreed to cover the cost (other than the legal costs of proceedings as hereinafter mentioned) of the extra work occasioned by the default.

18. The respondents submitted that as the word "Flat" in Clause 4(f) was in capital letter, it was defined and described in the Second Column of the First Schedule to the DMC.

19. The Second Column of the First Schedule to the DMC referred to

The part or unit of the said building to be exclusively used, occupied and enjoyed by the owner whose names appears in the First Column directly opposite to the reference to such part or unit in this Column.

20. At the date of the signing of the DMC, there were the First Owner, and a Second Owner.

21. The first entry under the Second column reads

All Flats of the said building as described in the Diagram hereto (other than Flat A on the 15th floor of the said building.

22. There are five other entries relating to the car parking spaces. The second last entry refers to SHOP SPACE on the Ground Floor

23. All these part or unit of the building were under the name of the First Owner.

24. The last entry is that of Flat A on the 15th Floor, which was under the name of the Second Owner.

25. The Third Column of the First Schedule to the DMC referred to the

Shares of and in the said premises and the said building allocated to the units referred to in the Second Column.

26. The Flats were allocated 1,652/2,200 shares in total, under the Third Column. The undivided shares for each Flat is stated in the Diagram.

27. The shop was individually allocated 18/2,200 shares under the Third Column.

28. The respondents contended that the "Flat" units are defined in the DMC, by reference to the First Schedule and the diagram, as being the 168 residential flats only. The shop is not a "Flat", and its owners, not being one of "the owners" under Clause 4, are not liable to contribute any payment.

29. The respondents referred to the wording of Clause 5 of the DMC, that the Crown Rent was to be paid by the owners, in proportion to their shares, to say that there was a specific intention to exclude the shop from the payment of management and renovation fees.

30. The respondents disagreed that the definition of "flat" in the BMO should be applied. It is contended that the definition could only apply to the BMO. It is their case that the term has been defined in the DMC. The respondent argued that there was no reason why the definition of "flat" under the BMO should apply, and not of other Ordinances. The Bedspace Apartments Ordinance Cap. 447 was cited as an example of there being a different meaning assigned to the term "flat."

31. The respondents did not dispute the applicant's power to pass resolutions to carry out the repair and renovation, under the BMO.

32. The respondents dispute the resolutions of 18th September 1993 and 29th August 1995, in which contribution was decided to be in accordance with shares in the building. The respondents contended that since the DMC has provided for the fixing of the contribution, there was no power to fix it in accordance with the shares of the owners, under Section 22(2) of the BMO. The decision was considered to be contrary to Clause 4(f) of the DMC. Clause 13(j)(iii) of the DMC provides that "No resolution shall be valid if it is contrary to the provisions of this deed." The respondents contended that these resolutions in relation to the contribution could not be valid.

33. The mandatory terms of paragraph 4 of the 7th Schedule, implied into the DMC under Sections 34C and 34E of the BMO, are said to be of no assistance to the applicant. The respondents contended that these are only applicable to Sections 20 and 21, relating to a special fund, but not to Section 22, relating to the fixing of contributions.

34. The resolutions cannot vary the provisions of the DMC.

35. The respondents have not waived their rights to object to the payment of management fees. The respondents had never knew of their rights not to pay until this dispute. The payments had been made under a mistake. The applicant cannot merely on the respondents' inaction to vary the rights of the respondents under the DMC.

The applicant's submission

The management fees

36. The applicant submitted that "Flat unit" in Clause 4(f) includes the shop. The applicant relied on the definition of "flat" in the BMO, and the reading of the DMC. The BMO is applicable, as this is the Ordinance under which the present application is brought.

37. Under Section 2 of the BMO,

"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;

38. The applicant pointed out that there is no definition of the term "flat" in the DMC. The basis for calculation of the management fee is "the number of Flat unit"(clause 4(f) of the DMC). It is the applicant's case that there are 169 flat units in the building, composed of 168 residential unit, and 1 shop unit. There are also 509 non-flat units, the 509 car park spaces.

39. It is the applicant's contention that the Diagram, in referring to the Flats of the said building, is to set out the shares of the residential units. These are described as flats, not flat units. The applicant considered that "Flat unit" includes all the residential units and the shop. There are 169 such flat units in the building. The basis for the calculation of the contribution, described in Clause 4(f) of the DMC, would be on the basis of 169 flat units under the First Schedule.

40. From June 1993, until August 1996, the respondents had paid the management fees for the shop. The applicant submitted that the respondents had thereby waived their right to object to the payment of management fees, or had acquiesced in the payment. The applicant considered that the respondents were estopped from raising any objection.

41. It was the applicant's case that the respondents had never replied to the reminders sent in respect of the arrears of management fees. The respondents gave no reason for the failure to pay management fees. It was never pleaded that the respondents need not pay for the shop under the terms of the DMC. The respondents had merely denied that they should pay. The applicant referred to the first respondent's statement, in which the first respondent alleged that he refused to pay the management fees for the shop, when he became aware of the provisions in the DMC. This was contrasted with the first respondent's evidence in court. He said he had acted in accordance with legal advice received, when the applicant first took action in another venue.

42. It was not denied that the respondents' shop enjoyed some of the common facilities and services provided to the building as a whole, for example, the supply of electricity, water, cleaning service, collection of rubbish, toilet facility, fire services and insurance. The respondents have a duty to pay the management fees.

The renovation cost

43. At the EGM on 18th September 1993, attended by 80 owners, it was resolved that the building should be renovated. It was also resolved that the owners should contribute to the cost according to their undivided shares in the building. There was no objection from the owners present. The first respondent was at the meeting, on his own behalf, and as the representative of the second respondent.

44. In the minutes of that meeting, there was record of the items of renovation relating to the residential units, including the store. The store is the shop unit. The owners received a notice dated 30th August 1995, informing them of their share of the renovation costs. In keeping with the practice of a half share in the payment of the management fees, the shop was to pay for 9 shares out of its 18 undivided shares in the building. The amount came to $17,730.

45. The applicant was not relying on the Seventh Schedule to the BMO, in the demand for the renovation and repair cost. It was not the applicant's case that the contribution was determined by a resolution, in total disregard of the DMC. The applicant made reference to Sections 21(5) and 22(2) of the BMO to say that it was fair to base the calculation on the undivided shares.

46. In the DMC, there was no reference to "renovation". Where there is no provision under the DMC, the BMO should fill the lacuna.

47. The waiver was an intentional act with knowledge. It was submitted that the respondents were fully aware of the facts, when the first respondent attended the EGM on 18th September 1993. There was the necessary intention to submit to the decision of the EGM, the respondents made no objection at all.

48. It was submitted that there should be no interference with the applicant's collection of the management fees and renovation costs, as it was legitimate and fair.

Judgment

The issues

49. The term "Flat unit" in Clause 4(f) of the DMC is not defined. It is not equated with the term "Flat" in the Diagram. The Diagram in the First Schedule to the DMC is for the purpose of identifying the number of undivided shares in each of the residential flats.

50. The definition of "flat" in the BMO is applicable to the shop in the present situation. There is no evidence to support the respondents' contention that the definitions in other Ordinances should apply. The respondents as owners, are entitled to the exclusive possession of the shop, it is a premise in the building. Regardless of what it is described as in the DMC, and whatever its usage, it is a "flat", so far as building management is concerned.

51. The term "Flat unit" in the DMC includes the shop.

52. The respondents are owners of a flat unit in the building, as such they are liable to pay management fees under the DMC, in proportion to the number of Flat unit they hold. However, since the applicant had asked for a specific sum, the judgment amount will be in the amount as claimed.

53. The respondents had commented that, the power of the corporation in relation to renovation, under s.14 of the BMO, was not put in place until 1998, after the EGM on 18th September 1993. However, there is no dispute on the applicant's power to pass the resolution on the renovation and repair or on the quantum. The dispute is whether the contribution should be in accordance with the undivided shares in the building.

54. A reading of clause 4(f) in the DMC shows that "renovation" is not included as one of the items, for which the owners should contribute "in proportion to the number of Flat unit in the said building for the time being owned by them". In other words, the DMC has not provided for the fixing of the contributions towards the renovation cost. This is an item of expenditure of a kind not expected to be incurred annually. It is a special fund under paragraph 4 of the Seventh Schedule to the BMO. By virtue of Section 34E of the BMO, the Seventh Schedule, which contains the mandatory terms to be implied into all deeds of mutual covenant, is applicable in this case.

55. Section 20(2)(a) of the BMO allows the corporation to establish and maintain a contingency fund to provide for any expenditure of an unexpected nature. Under Section 21, the management committee shall determine the amount to be contributed. Under Section 22(2) if the DMC does not provide for the fixing of contributions, the amount "shall be fixed in accordance with the respective shares of the owners."

56. The Tribunal can see no reason why the contribution to the renovation and repair cost should not be in accordance with the undivided shares of the owners in the building. The management committee is not empowered to allow a special rate to the respondents.

57. The respondents should pay their share of the renovation and repair cost in accordance with their 18 undivided shares in the building.

58. In view of the Tribunal's decision on the matters raised by the applicant, the issues raised by the respondents need no further adjudication.

59. There is judgment for the applicant against the respondents for the renovation and repair cost in the amount of $19,461.53, and collection charge of $150.00.

60. There is judgment for the applicant against the respondents for the management fees in the amount of $9,800.00

61. There is interest on the sum of $19,461.53 from 7th September 1995 to the date of the judgment at the rate of 1.5% per 30 days, and thereafter at judgment rate until payment.

62. There is interest on the sum of $9,800.00, from the date of the application to the date of the judgment, at the rate of 1.5% per 30 days, and thereafter at judgment rate until payment.

There is costs to the applicant, to be taxed if not agreed.

The counterclaim

63. The counterclaim was not on the same facts or arising from the same matter under dispute in this application. There are different issues, and a matter for separate proceedings.

64. The counterclaim is dismissed.

65. There is costs to the applicant on the counterclaim, to be taxed if not agreed.