LAW YAN AND ANOTHER v. THE INCORPORATED OWNERS OF GOLD MINE BUILDING

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

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Building Management Application No. LDBM 224 of 1998

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J U D G M E N T

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1. The applicants of LDBM 224/1998, Chan Chee Shum and Chiu Lai Wah, are the owners of Flat B1 on the 23rd Floor of Gold Mine Building.

2. The applicants of LDBM 226/1998, Law Yan and Poon Kwok Yam, are the owners respectively of Flat B6 on 2nd Floor and Flat B6 on the 14th Floor of the same building.

3. The respondent is the Incorporated Owners of Gold Mine Building.

4. These two applications were consolidated and heard together. Mr. Law Yan was the representative for all the applicants (the applicants' representative). He acted for the applicants until the last two days of the hearing, on 29th and 30th November 1999, when Counsel was instructed to appear on their behalves.

5. It was not in dispute that on 24th August 1995, the Building Authority issued an Order No. INVO4/HK/95/P2 in relation to the external walls, pipes, drains and canopy of Gold Mine Building (the building). There was another order (D104/HK/96/P2) dated 14th June 1996, for the demolition of the canopy. A third Order DBC/42/HK/96/P2 was also issued on the same date, for the advertisement signs, supporting frames and

air conditioning units on the canopy to be removed. The Building Authority required the owners to appoint an Authorized Person to carry out these orders. The respondent appointed Mr Leong Kwong Meng, the Managing Director of Kamyin Consultant Ltd. (KCL) to be its Authorized Person. The respondent also appointed Leader Engineering Company (Leader) to be its contractor. The works were duly carried out. The owners also resolved to carry out additional works.

6. By a demand notice dated 28th May 1996 (the demand notice), the owners of the building were required to contribute to the repairs and renovation charges. The total charges were:

Mandatory works		$6,150,000
Additional works
(1)	Renovation of the hall, shopping mall, stairs and corridors	$1.530,000
(2)	Renewal of main electrical installation	$1,800,000
Reserved fund for the project		$1,150,000
Legal fees for the solicitors		$60,000
Consultation fees to Kamyin Consultants Limited		$284,400
Total		$10,974,400

The applicants' case

7. The applicants challenged the validity and the quantum of the respondent's demand for renovation and repair charges, including the reserved fund and the consultation fees. It is their case that the amount of $10,974,400 had not been passed by resolution in the respondent's owners' meeting. They considered this to be in contravention of Section 44 of the Building Management Ordinance Cap. 344.

8. The applicants considered the appointment of the consultant (the Authorized Person), Kamyin Consultant Ltd. (KCL) to be illegal. The applicants were not satisfied with the procedure for selection of the contractor. They were dissatisfied with the works done. The applicants asked that the Lands Tribunal should decide on the contribution payable, after deduction was made for items the applicants considered to be illegally incurred and sub-standard. They questioned the decision to remove the item for canopy works, and to make it the subject of a separate tender, at a much higher cost. The applicants demanded a refund of contribution that they considered overpaid.

9. The applicants demanded that the charges registered on their property in the Land Registry be lifted unconditionally. They asked for compensation for damage done to their property, caused by the renovation and repair works.

The applicants' evidence

The applicants' first witness

10. The applicants' first witness, Mr. To Ying Chee, has been the respondent's secretary since November 1997. He was not involved in the matters leading to the demand for renovation and repairs charges. He was not in charge of the conduct of the opposition to the present applications. This witness could add nothing useful to the evidence.

The applicants' second witness

11. The applicants' second witness, Ms. Leung Sau Yin, was the respondent's acting Chairman. She was not in the respondent's management committee when the renovation and repairs were discussed and incurred. She could give no evidence to the matters arising before she joined the management committee. This witness could testify to the fact that there was no total failure of the fire services installation, after the renovation. Her evidence was that there was leakage discovered in March and April in 1999. The contractor was of the opinion that, because the relevant pipes were rotted, they would not be able to withstand the water pressure, once the tanks were drained and later refilled. The pipes would have to be replaced first.

The applicants' third witness

12. The applicants' third witness, Ms. Lam Ying (AW3), was the respondent's Chairman until August 1999, when she resigned. After she became the Chairman, AW3 went through the minutes, but she was unable to find any resolution in relation to how the original amount of $7,690,000, proposed on 14th March 1996, was increased to $10,970,000 at the respondent's Extraordinary General Meeting (EGM) on 31st March 1996. She queried the use of the respondent's new chop on the minutes of the EGM on 31st March 1996, when the chop was only valid for use on 4th October 1996. AW3 was unhappy with the documentary records, which seemed to indicate that the resolutions relating to the renovation and repairs works had not been properly passed.

13. She was not satisfied with the way the tender for the repairs and renovation works was awarded, and the way the canopy works was dealt with. AW3 was of the opinion that while the works under the works order must be done, and needed no resolution for its execution, the amount to be expended should be voted on. She queried the rationale behind the exclusion of the canopy project from the original tender, because the canopy was later the subject of a separate contract at a much higher price.

14. AW3 agreed that she obtained a version of the tender contract, which was not the same version as that obtained by the applicants' representative. AW3 was not satisfied with many aspects of the auditor's report on the respondent's accounts, but signed it to facilitate its production in court. She resigned to avoid responsibility for any possible irregular payments. She remains as a committee member.

The applicants' fourth witness

15. The applicant's fourth witness (AW4) was the applicants' representative, Mr. Law Yan. In answer to the respondent's questions, AW4 said that he considered the EGM of 31st March 1996 and 5th May 1996 to be illegal. His reason was that neither of the minutes was issued within 28 days of the meetings, and was contrary to the Building Management Ordinance Cap.334 Third Schedule paragraph 6 (3). The respondent's chop used on these minutes should only be valid for use after 4th October 1996, so the minutes must have been prepared after that date. Since the final amount to be collected was not the same as that passed by resolution in the meeting on 5th May 1996, he considered the amount to be incorrect. AW4 queried that there was no voting on the amount to be expended, and the source of the contract sum. He insisted that there must have been two versions of the contract document signed by the respondent with the contractor Leader.

16. AW4 gave further evidence after the respondent's witnesses had concluded their evidence. AW4 reiterated his objection, which had been recorded in the respondent's minutes of the EGM on 31st March 1996. AW4 gave evidence that the respondent did not allow him to have a copy of the contract document. He was only able to obtain a copy of the contract documents because of another court case. AW4 alleged that he had made a written request to the respondent for a copy of the contract documents, but he did not keep a copy of his request. AW4 considered that there were two versions of the contract documents, one with the word "Forty" and the other with the word "Fourty" in the reference to the contract sum. He checked the figures and discovered discrepancies. The applicants queried the canopy works item, the reason for it being made a separate item, the costs, the tender procedure, the selection of the contractor, and the overall contract sum. The applicants considered that they had overpaid the contributions, and decided to make the present applications.

The respondent's case

17. The contributions the applicants were asked to pay were lawfully demanded.

18. The respondent had received works orders from the Building Authority. The renovation and repairs stated therein must be carried out. The respondent had to appoint an Authorized Person to carry out the works. The owners in the two EGMs on 31st March 1996 and 5th May 1996 passed resolutions in relation to the additional works, the budget for the works, and the appointment of the contractors.

19. Under the Deed of Mutual Covenant (DMC) of the building, the owners have the duty to contribute towards the building's expenses. The applicants have not paid their contribution towards the repairs and renovation costs in full. If the owners failed to pay, there could be charges on their interests in the building.

20. The respondent provided Land Registry records to show that, there had been no charge registered against the premises of the applicants in LDBM224/98.

21. The respondent conceded that there was a mistake in the amount stated in the demand notice. The respondent accepted that the correct total amount of contribution passed by resolution in the owners' EGM was $10,940,400.

22. Based on the correct amount of $10,940,400, the applicants of LDBM 224/98, with ownership of 5 out of a total of 3015 undivided shares in the building, should pay a total of $18,143.28. These applicants had paid $14,526. There is a balance of $3,583.28 outstanding.

23. The 1st applicant of LDBM 226/98, with ownership of 5 out of a total of 3015 undivided shares in the building, should pay a total of $18,143.28. This applicant had paid $10,920. There is a balance of $7,223.28 outstanding.

24. The 2nd applicant of LDBM 226/98, with ownership of 4 out of a total of 3015 undivided shares in the building, should pay a total of $14,514.62. He had paid $8,736. There is a balance of $5,778.62 outstanding.

25. The applicants are still in arrears of payment of the contribution. Under clause 10 of the DMC, the respondent has the power to register a charge on the applicants' property.

The respondent's evidence

The respondent's first witness

26. The respondent's first witness (RW1) Ms. Lo Kit Mui, was the respondent's treasurer from 1995 to 1997. She had attended most of the meetings in relation to the renovation and repairs.

27. Her evidence was that in August 1995, the respondent received works order from the Building Authority. With the assistance of the respondent's management company, there was a call for tender on the appointment of consultant, on 3rd October 1995. The tenders were opened in the presence of the management committee and owners who were interested enough to be present. On 17th October 1995, the management committee held a meeting to interview the companies that had been short-listed. Kamyin Consultant Limited (KCL) was selected. KCL explained about the works orders and the requirements to the owners at an EGM on 29th October 1995.

28. The respondent held an EGM on 31st March 1996. In addition to the works required by the Building Authority, certain other repairs and renovation items were also put to the vote. Based on the estimate prepared by KCL, the budget for the works was calculated. The amount came to about $10,940,400.

29. KCL arranged for the call for tender in relation to the contractor for the job. In April 1996, there was an advertisement placed in the newspaper calling for tenders. On 17th April 1996 the tender box placed in the management office was opened. Out of the tenders received, the management committee decided to disregard the 2 most expensive ones, as they were above the intended price ceiling, and the 2 least expensive ones, as the committee had no confidence in them. After further discarding those with incomplete data, the committee selected 5 tenders for analysis by KCL.

30. On 5th May 1996, an EGM was held to select the contractor. Only 4 of the tendering companies sent representatives. Each of the representatives were given time to explain their bid to the owners present, and to answer questions. Leader Engineering & Construction Ltd. (Leader) obtained votes from the owners of 422 shares in the building, and was selected as the contractor.

31. After the commencement of works, some owners were unhappy with the progress. They wanted to form a new management committee. They would like to change the consultant and the contractor.

32. On 1st September 1996, there was another EGM, when the agenda proposed by these owners' was formalized and put to the meeting. The EGM resolved against all of the proposal.

33. RW1's evidence was that the original works order relating to the canopy was for a report to be prepared. Leader quoted a price of $630,000 for repairs. In May 1996, the respondent was ordered to remove the canopy. As this would involve different requirements, the respondent decided that the original canopy works item was to be deleted from the contract. The amount quoted by Leader was for repairs alone, and did not provide for demolition and reinstatement. After negotiation, the respondent and the contractor compromised at a new price, with the canopy works deducted from the main contract.

34. On the advice of the consultant, the respondent decided, on 18th October 1996, to call for tender on the canopy works alone. On 15th November 1996, the tenders, received in the tender box placed in the management office, were opened. Five contractors were selected for interview. As the respondent considered the prices quoted to be too high, the contractors were asked to submit new tenders. On 29th November 1996, a second lot of tenders were examined. The management committee was impressed by the presentation of Leader. The members were influenced by the consideration that there might be difficulty in monitoring if there were 2 contractors on the site. There was also a cost factor involved, as the main contractor would charge the second contractor for the use of its facilities, which would increase the price. The management committee decided on engaging Leader for the canopy job. There was no EGM on this item, as there were more than one EGM held on the renovation project, of which the canopy formed part.

35. The respondent's solicitors issued the notices for the collection of the contribution to the renovation charges. The total was to be $10,974,400. There was a difference of $34,000, in the sum demanded in the notices, from the amount resolved at the EGM on 31st March 1996. The solicitors explained to RW1, that a smudge in the fax document could have caused the confusion. RW1 considered that there could have been a typing error in the item for consultation fees, from $248,800 to $284,400.

36. RW1's evidence was that the EGM on 31st March 1996 was held. The ballot papers were prepared before the meeting, and the old chop used. The minutes were prepared after the meeting, and the new chop was used. She confirmed that the contents of the minutes to be correct.

The respondent's second witness

37. The respondent's second witness (RW2) Mr. Tam Shu Ki, is a director of Kamyin Consultant Ltd. (KCL). KCL was invited to be the Respondent's consultant after submitting its tender, in answer to a newspaper advertisement, and being interviewed.

38. On 29th October 1995, a senior partner of KCL was appointed to be the Authorized Person of the project. After that date, KCL prepared various estimates, and held meetings with the respondent.

39. The original estimate was $6,600,000 for the mandatory works, $1,730,000 for the improvement works and $1,800,000 for the electrical works. On 22nd March 1996, KCL sent an estimate to the respondent. On 31st March 1996, the respondent held its EGM.

40. The consultant sent a report to the Building Authority on the structural integrity of the canopy. As it was not known then whether the canopy should be repaired or removed, the consultant made a preliminary provision in the budget for the canopy.

41. On 31st March 1996, RW2 attended the respondent's EGM and answered questions put to KCL. The meeting resolved to select a contractor by open tender. RW2 decided the tendering procedure, and prepared the tender documents in both English and Chinese. The tender document invited the contractors to put in other items they considered to be required, and to state the financial implications.

42. On 29th April 1996, the tenders were opened. Out of the 11 tenders returned, 7 were short-listed. Out of these, 5 were chosen for further analysis.

43. RW2 carried out the analysis with reference to the usual practice, by checking that the contractor had the relevant licence, that there was no pending litigation against the contractor, and that the contractor was in sound financial position. He also considered the previous track record. The contractors pricing could be subject to arithmetical errors. The consultant would check for such errors, and inform the contractors.

44. The 5 contractors were invited to attend the respondent's EGM on 5th May 1996. RW2 briefed the meeting on the background, the Building Authority's requirements, the works to be undertaken, and the budget. The owners present were able to question the contractors. The owners then made their choice by ballot.

45. At that EGM, Leader Engineering & Construction Ltd. (Leader) was chosen by the owners to be the contractor.

46. RW2 considered the amount reserved by Leader for the canopy to be too low. When the provisional item for the canopy was deleted, an amount of $630,000 was reduced from the tender sum. RW2 prepared the contract documents, which incorporated Leader's tender documents in full. They were sent to the respondent's solicitors. Two sets of the contract documents were prepared. KCL kept a master copy. He believed that there was a typing mistake in one of the sets, when the figures were put in separately. This resulted in one set showing the word "Fourty" and the other "Forty" in the contract sum. There was no other discrepancy of significance.

47. RW2's evidence was that there would be variation of works items, leading to a difference in the final amount to be paid on the contract. RW2 referred to the Building Authority Order D104/HK/96/P2 dated 14th June 1996, to discuss the works program and the estimate with the Respondent's management committee. It was the respondent's decision to add 8% to the budget as a reserved fund to cater for contingency.

48. On the completion of the works, the Building Authority issued a certificate of satisfaction.

The respondent's third witness

49. The respondent's third witness (RW3), Mr. Leong Kwong Meng, is the managing director of KCL. He was the Authorized Person, the architect in charge of the project.

50. His evidence was that the costs of repairs to the canopy were originally included in the tender documents. Having complied with the order for inspection, latent defects were found in the canopy. The Building Authority issued a second order for the demolition of the canopy, on 14th June 1996. RW3 informed the respondent that the demolition must be done, although this was only a small part of the whole project. In order to be fair to all parties, RW3 suggested that the canopy item should be taken out from the tender. The respondent held a meeting to discuss the various suggestions to deal with the problem. There were various suggestions: to just demolish the canopy, to effect repairs to it, to demolish it and reinstate a concrete canopy, or to reinstate a canopy with lighter material. The respondent decided, at the meeting on 14th September 1996, to remove the canopy item from the tender. The tenderers had no objection to this.

51. RW3 gave evidence relating to the tender procedures and the selection of the contractor, Leader. He corroborated the respondent's other witnesses. RW3's secretary typed in the necessary data in the contract documents. It was done twice. The tender documents and contract were in the approved standard forms. The contract documents included the condition of contract and Architect's instructions. They also contained the Letter of Intent, which explained how the sums were arrived at. The price of the canopy works had been taken out from the final breakdown. The contractor's letter, agreeing to the removal of the canopy item, was annexed to the contract documents. The contract was signed between the respondent and the contractor. The contract was bound and sent to the respondent's solicitors. The consultant was not a party to that contract. KCL kept a copy of the contract documents for administration of the project. RW3's evidence was that the original bound copy of the contract should be the one to be referred to.

52. On 18th October 1996, RW3 explained to the management committee that, since the canopy was under a separate demolition order, Leader was not necessarily the only choice.

53. The respondent and the owners accepted RW3's suggestion, that since the respondent considered it to be safer for pedestrians to reinstate the canopy, a lighter material should be used to prevent the owners from using the canopy as storage space. The price for demolition and reinstatement of the canopy involved more procedure and work then just demolition, so the original provision was insufficient. A separate tender was arranged for the canopy.

The respondent's fourth witness

54. The respondent's fourth witness (RW4), Mr. Ho Ying Choi, is the Managing Director of Kwong Sum Property Management Company Ltd. He used to work for the International Union Property Management Company Ltd. of the same group of companies. The Kwong Sum Property Management Company Ltd. later signed a management agreement with the respondent. He was in charge of matters in 1995, when works order was issued. RW4's evidence was that on 24th August 1995, the Building Authority issued works orders to the respondent for major repairs.

55. On 13th October 1995, he assisted the respondent's management committee to conduct a meeting, to prepare for the appointment of the consultant. RW4 informed the management committee that only items of expenditure over the amount of $200,000 would require the sanction of an EGM. As it was not then known how much the consultant's fees would be, he suggested that the management committee could invite tenders. Of the tenders received, 5 were short-listed for interview. Members of the management committee were notified to attend a meeting on 17th October 1995, and all owners were given notice that they could also attend. RW4 confirmed that the minutes of the management committee meeting were authentic. The minutes recorded what had occurred during the meeting. KCL was appointed. KCL prepared a report and provided an estimate. Based on that, the respondent called its EGM on 29th October 1995.

56. At the EGM on 29th October 1995, the owners were briefed on the works required and the selection of KCL as the consultant. There was no objection to KCL being appointed.

57. After KCL had conducted its survey, it prepared the budget for the repairs. It was sent to the respondent. Apart from the compulsory works, the respondent wanted to carry out renovation of the public electrical installation and areas of the common parts. RW4 told the respondent that there should be a reserve of 5% and provision for payment of the consultation fees. The ceiling would be the basic amount plus 8%. Apart from the compulsory works item, the three other items were sent to the EGM on 31st March 1996 for discussion and the owners' resolution.

58. RW4 advised on the notice and the agenda of the EGM for 31st March 1996. The notice and agenda were sent to all the owners of the building. On 29th March 1996, an urgent reminder was sent to every owner to attend the EGM.

59. During the EGM on 31st March 1996, the consultant explained the situation, and answered the owners' questions. The owners voted by ballot on the items of works not included in the mandatory works orders. Information on the total amount budgeted, and the cost for each undivided share was set out. The owners knew the contribution that should be paid. The meeting resolved to carry out the various items of works, and the contribution payable. The meeting resolved that the contribution to the total amount of $10,940,400 should be made by two installments. This amount was the only basis for the calculation of the contribution payable by the owners.

60. RW4's evidence was that the minutes of the EGM on 31st March 1996 were the truthful record of all the matters that occurred in that meeting.

61. On 13th April 1996, the management company issued the notice to the owners informing them of the results of the EGM. The management company was not involved in the calculation of the contribution amounts. The respondent's solicitors calculated the amounts payable, and issued the notice for payment of contribution to the owners. The owners should pay into a bank account, and produce the payment slip at the management office for record of payment.

62. RW4 was of the opinion that there was a mistake in the consultation fees of KCL, which was stated to be $284,400 in the solicitors' notice. In fact, in KCL's letter to the respondent, at 3% of the contract price, the consultation fees should be $244,800. There was a difference of $39,600 between the actual amount, and the amount set out in the payment notice. The discrepancy between the total actual amount and the amount stated in the notice of demand for contribution could be the result of this mistake.

63. On 5th May 1996, at another EGM, the owners resolved to select Leader to be the contractor. There were 5 contractors short-listed from all those who had sent in tenders. Of these, only 4 attended the meeting. There was no discussion on the contribution during this meeting. The members of the management committee and RW4 ensured that the minutes of the EGM were correct before the minutes were published. The management company was not involved in the selection of the contractor.

64. On 1st September 1996, on the request of some owners, there was another EGM. The original proposed agenda of the owners, who asked for an EGM, was re-worded by the management committee to reflect the demands in a clearer and better way. Various alternatives were put to the owners. The owners resolved to retain the services of KCL and Leader. The respondent was to continue with the supervision of the project. The respondent then signed the contract with Leader.

65. He corroborated the evidence of the other witnesses on the matter of the canopy works, which later became the subject of another order. The canopy works had since been completed, and accepted by the Building Authority.

66. RW4 gave evidence that when owners demanded inspection of records, they should do it in writing. A record would be kept of such demands. The owners must pay photocopying charges. The applicants' representative did not make such payments. RW4 would not allow any copies of the documents to be taken without the respondent's approval. RW4's evidence was that all the accounts and relevant documents would be displayed before the respondent's general meeting.

67. RW4 confirmed that at all of the relevant EGM there was no complaint from any of the owners as to the counting of votes. The number of votes was accepted as correct in every meeting.

The applicants' submission

68. It was submitted that the respondent must comply with section 14(1) of the Building Management Ordinance Cap.344, the Fifth Schedule to the building's Deed of Mutual Covenant and the Eighth Schedule to the BMO to call meetings.

69. When procuring supplies, goods and services, the respondent must, under Sections 20A and 44 of the BMO, comply with the Code of Practice.

70. The respondent must pass a resolution at the owners' meeting to appoint the contractor, in accordance to sections 14(1) and 20A of the BMO.

71. The respondent's management committee had to pass a resolution to decide the contribution by each owner, under section 21 and the Fifth Schedule to the BMO.

72. Only when the respondent had done all of the foregoing could it carry out the renovation and repairs, and to make demands from the owners for contribution.

73. It was contended that the powers and duties of the Incorporated Owners and that of the management committee were mutually exclusive.

74. It was submitted that, since the consultation fees to the consultant KCL, the repair works under the Building Orders, the reserved fund, and the additional works in relation to the canopy had not been passed by resolution in the owners' meeting, these had not been properly authorised. The respondent was therefore only authorised to ask the applicants for contribution towards the two items of works, for the renovation of the common areas and the electrical installation, at a total of $3,330,000, passed at the EGM on 31st March 1996. The respondent could not claim any contribution in excess of $3,330,000.

75. It was submitted that the applicants of LDBM 224/98 should pay only $5522.35. They had paid $14,560. There should be a refund of $9,038. The 1st applicant of LDBM 226/98 should only pay $5522.35. He had paid $10,920 and there should be a refund of $5,398. The 2nd applicant of LDBM 226/98 should only pay $4417.91. He had paid $8,336. There should be a refund of $4,318.

76. The applicants contended that charges on the property of the 1st applicant of LDBM 226/98 under memorial no. 7128017 and of the 2nd applicant of LDBM 226/98 under memorial no. 7128018 should be lifted, as these applicants had already paid in excess of the correct contribution amount.

77. The applicants made no submission as to whether the legal costs involved in the works project should need the sanction of a resolution passed in an EGM.

The respondent's submission

78. The respondent's decision to collect contribution of $10,974,400 towards the renovation and repairs costs, and the demand for contribution, were not in contravention of the Building Management Ordinance (BMO), Cap. 344, or the DMC of the building.

79. In reply to the applicants' case that the amount of $10,974,400 had not been passed by resolution in the owners' meeting, and so contravened Section 44 of the BMO, the respondent pointed out that the section was concerned with the Codes of Practice. The Codes give guidance and directions as to the procurement of supplies, goods and services required by a corporation, including such procurement by invitation to tender and the tender procedure. The decision to ask the owners for contribution towards the renovation and repair costs was not a tender procedure. There would have been no contravention of S.44 of the BMO, even if there were no owners' meeting.

80. Where the decision to renovate and to ask the owners for contribution had been validly passed at the owners' meeting, the applicants owners must abide by that decision. Complaining about the standard of the work done, or the minutes of meeting not being genuine would not enable the applicants to escape the liability to contribute.

81. Under the DMC, the owners had the duty to observe the covenant and to make payment for the building's common expenses.

82. Clause 4 of the DMC provides:

" The owner or owners for the time being of any undivided share in the said premises shall at all times hereinafter be bound by and shall observe and perform the covenants provisions and restrictions set out in the SECOND SCHEDULE hereto."

83. The relevant paragraphs of the Second Schedule provides:

"THE SECOND SCHEDULE above referred to

COVENANTS, PROVISIONS AND RESTRICTIONS hereinbefore referred to:-

1. TO PAY the due proportion of all costs, charges and expenses which may be or become payable for or in connection with the a management of the said premises in accordance with the provisions of this Deed including but not limited to :-

(h) The cost of repairing, renewing, maintaining, cleansing, painting, or decorating the building or any part or parts thereof and the approach road pavements and paths thereto and all communal lavatories, sewers, drains, watercourses, pumps, water tanks, wells, cables, pipes, wires or services therein and all the apparatus equipment and conveniences thereof.

(m) All other charges which the owners pursuant to a duly passed resolution or the owners, committee or Manager (if any) shall consider necessary or requisite for the proper management, operation and maintenance of the said premises and for the improvement or maintenance of the services, amenities or facilities thereof.

(n) Management, accountancy, legal, advisory and consultation fees and all expenses properly incurred by the owners, committee or Manager in carrying out its duties and obligations hereunder."

84. Clause 10 of the DMC provides:

"10. If any owner shall fail to contribute his due proportion of any costs and expenses properly incurred by the Committee or the manager or to be incurred in accordance with a resolution validly passed under Clause 9 hereof within two weeks from the date of a notice from the Committee, the Manager or the other owners or owner then and until such payment the said due proportion of the costs and expenses or such part thereof as shall remain unpaid shall be a charge upon the share and interest of and in the said premises of the defaulting owner."

85. It was also submitted that a demand for compensation should not be part of the present applications. The applicants' representative accepted the position, and agreed to amend the applications. The only issue was to be the renovation and repair charges. The applicants did not amend their applications as agreed. However, the applicants' demand for damages was not maintained.

86. Under Section 18 (1)(a) of the BMO, the respondent has the duty to "maintain the common parts and property of the corporation in a state of good and serviceable repair and clean condition". Under Section 18 (1)(b) of the BMO, there is the duty to "carry out such work as may be ordered or required in respect of the common parts by any public officer or public body in the exercise of powers conferred by any Ordinance". The works orders issued by the Building Authority were such orders. Under those works orders, the respondent must appoint an Authorized Person (the consultant). The respondent's management committee called for tenders, and duly appointed KCL as the Authorized Person.

87. The consultant KCL provided the estimated budget, and the matter was put to the owners' EGM on 31st March 1996. There was evidence that the EGM was called and the owners notified in accordance with all relevant legal requirements. There was no dispute as to the agenda or the quorum. In accordance with the agenda, the meeting decided to carry out other works, in addition to the mandatory items. The meeting passed the estimated budget of $10,940,400. This budget included the costs of the mandatory works, the additional works, the reserved fund and the legal and consultant's fees. The owners also decided the contribution was to be paid in two installments. The amount to be contributed was to be calculated in accordance with each owner's undivided shares. The applicants' allegation, that the demand for contribution was illegal, was not borne out by any evidence.

88. The respondent conceded that the total amount quoted in the demand notice issued by the respondent's solicitors, at $10,974,400 contained an error. It should be $10,940,400. The mistake could have arisen over the consultant's fee, which was stated to be $284,400, when it should be $248,800. The respondent did not detect this error. It was submitted that the mistake represent 0.3% of the total estimated budget. Being an estimated budget, it would be subject to amendment. Any surplus would be dealt with according to the owners' decision. That mistake should not invalidate the decision of the owners in the EGM on 31st March 1996. The respondent is not demanding contribution on the total amount of $10,974,400, but on $10,940,400, which was the amount resolved at the EGM.

89. It was submitted that paragraph 4 (1) & (2) of the Seventh Schedule to the BMO is not relevant to the item of reserved fund, as it arose out of the Building Authority's works orders. It is not a special fund envisaged under that Schedule.

90. Furthermore, under paragraph 1(n) of the Second Schedule to the DMC, "Management, accountancy, legal, advisory and consultation fees and all expenses properly incurred by the owners, committee or Manager in carrying out its duties and obligations" must be paid by the owners.

91. The consultant's fee was part of the expenses incurred under the Building Authority's orders. It was properly incurred, and must be incurred, to comply with the orders. It was part of the estimated budget passed by resolution at the EGM on 31st March 1996. There would be no requirement for that item to be separately passed by resolution.

92. As part of the Building Authority's order, the appointment of the Authorized Person was mandatory. Under Section 18 (2)(c) the corporation may in its discretion retain and remunerate a professional firm to carry out any of the corporation's duties. The management committee had engaged the Authorized Person by advertising for tenders. Even if the Codes of Practice had not been adhered to in full, it would not invalidate the appointment of the Authorized Person, so long as the procedure was an open and fair one. The respondent referred to the case of Chau Chun Wai v. The Incorporated Owners of Joyful Villas LDBM 177/95 to support this proposition.

93. The EGM on 5th May 1996 was for the selection of the contractor. The respondent advertised in the newspaper for tenders. With the advice of the consultant, the management committee decided on a short-list of 5. All owners were invited to attend that particular committee meeting. Those contractors that provided a contract price which was either too much above or below the estimated budget were discarded. This was done to eliminate unsuitable tenders. The short list was presented to the owners to make a choice at the EGM on 5th May 1996, after the contractors were asked to address the meeting. Leader was duly selected at the EGM. It was an open and fair process. It was submitted that it would not be in the interest of the respondent to waste the owners' time in the EGM, by presenting them with all the tenders received.

94. As to the allegation that there were two versions of the contract documents, the "forty" and "fourty" versions, the applicants had not been able to point out what were the major discrepancies or which of them was forged. There is nothing to support the applicants' allegation that someone was uttering a forged document.

95. The applicants queried the respondent's decision to separate the canopy works from the original tender, and the increase in the amount allocated to the canopy. The evidence showed that the original works order, INVO4/HK/95/P2, was that the respondent should appoint an Authorized Person to

"(i) Investigate and report on the structural integrity of the 1/f canopy slab along the building. The investigation so carried out should provide inter alia the following information:-

(a) The layout of the existing reinforcement, diameter of main reinforcement and the thickness of protective cover.

(b) The thickness of structural slab, screeding and waterproofing layer.

(c) Degree of corrosion of reinforcement and carbonation of concrete.

(d) Calculation to justify the factor of safety against failure.

(ii) Submit proposals for remedial works if the 1/F canopy is found to be structurally inadequate, or does not posses adequate factor of safety against failure."

96. After the Authorized Person of the consultant KCL had submitted the report, the Building Authority issued a second works order, D104/HK/96/P2. The respondent was required to

"(1) Demolish the canopy.

(1) Submit a report on the method statement and precautionary measures for the demolition works and particulars of the experienced person providing continuous supervision during demolition by an Authorized Person for my (i.e. the Building Authority's) approval before 1st August 1996.

(2) All precautionary measures should be installed, provided and erected according to the approved report on the method statement and precautionary measures prior to the commencement of demolition works.

(3) Reinstate that part of the building so affected by the demolition of the canopy."

97. The second works order involved demolition and reinstatement of the canopy. The costs could no longer be covered by the original estimated budget. The respondent must remove it from the original tender, and treat it as a separate item, since there was additional works involved. To call for a separate tender on the canopy works was to safeguard the interest of the owners. The owners in the meeting on 31st March 1996 had already resolved to repair and renovate the building. The canopy was one of the items resolved then. The final choice of the contractor for the canopy item had not been put to the owners' meeting. It was submitted that this had by then become a mandatory item of works. The respondent must carry it out. It did not need the further sanction of the owners' meeting to do so.

98. The applicants queried the reason for the final tender amount, relying on a letter from one of the companies putting in a tender. That company was also a supplier of the material under consideration, for the reinstatement of the canopy. The amount quoted was for the supply of material. It was not a full tender price for the complete item of works. It was submitted that the applicants had misunderstood the situation.

99. The respondent's Authorized Person, KCL, gave evidence on the final choice of the contractor for the canopy works. There was no evidence that the works undertaken or the final costs were unreasonable.

100. The applicants' representative, who was also the applicants' fourth witness, alleged during the hearing, that the minutes of the owners' meetings, on 31st March 1996 and 5th May 1996, were forged. He based his reasons for refusing to pay the contribution on this allegation. According to AW4, the meetings would be invalidated by the forged minutes, so the applicants would be under no obligation to pay. This was not in accord with the applicants' original ground that the contribution had not been validly passed in the owners' meeting.

101. The applicants had always expressed their intention to contribute towards the repairs and renovation costs. The only contention was that, the applicants considered that they should only contribute towards the contract sum alone. It was submitted that the applicants had failed to understand the legal implications of the owners' meetings on 31st March 1996 and 5th May 1996. Once the decision on the project and the related expenses had been made and passed by resolution in the owners' meeting, the owners must abide by the decision. The applicants had failed to understand the data and facts relating to the renovation and repairs project

Finding of facts

102. The Tribunal, having considered all the evidence, accepts and finds as facts of the case that:

1. The respondent received works orders INVO4/HK/95/P2 dated 24th August 1995, and D104/HK/96/P2 dated 14th June 1996. Those works must be carried out. The respondent must appoint an Authorized Person to do so.

2. The management committee appointed KCL as the respondent's consultant, after openly inviting tenders. Mr Leong Kwong Meng, the Managing Director of KCL was appointed as the Authorized Person of the project.

3. KCL prepared the estimated budget, based on the first order INVO4/HK/95/P2, and additional works to be carried out at the same time. There were provisions made for related expenses, i.e. reserved fund, legal fees and consultant's fees.

4. The respondent held an extraordinary general meeting on 31st March 1996. That meeting passed the resolution to carry out the mandatory works and additional works. It adopted the estimated budget of $10,940,400. It resolved that contribution should be made according to the owners' undivided shares.

5. On 5th May 1996, at another extraordinary general meeting, the owners selected Leader as the contractor for the whole project. The contractors were short-listed from those who had put in tenders at the open invitation of the respondent. The management committee decided on the short list.

6. On 14th June 1996, the respondent received further works order (Ref. D104/HK/96/P2) from the Building Authority. It required the demolition and reinstatement of the canopy. This was the result of the report prepared by the consultant under the original works order.

7. The canopy works was made a separate item from the original tender, and another tender was called for. The management committee decided on finally awarding the tender to the original contractor, Leader. This was done to eliminate possible conflict with two contractors on site. Since the original project included the canopy, and it had become a mandatory item of works, there was no other EGM on this item.

8. While there was another EGM on 1st September 1996, it added nothing further to the case. The owners had already made all the relevant decisions.

9. The applicants conceded that the additional items were not in dispute, and that they are liable to pay for those sums. They only disputed the costs of the mandatory item, the reserved fund and the consultant's fees. There were no instructions on whether they dispute the legal fees.

Judgment

103. The applications are misconceived. The applicants are wrong in fact to say that the total costs of the renovation and repairs had not been passed by resolution at the respondent's owners meeting. There is substantial evidence to the contrary. The Tribunal accepts and finds as a fact that the EGM on 31st March 1996 had resolved that. They are not entitled to deny their liability on the grounds that the works were not up to standard. There was also no evidence put forward to substantiate this.

104. Under Section 18 of the BMO, the respondent has the duty to maintain the common parts of the building, and to carry out works as may be ordered by a public officer in the exercise of powers conferred by any Ordinance. The mandatory works, relating to the repairs, do not require the resolution of the owners' meeting. The total amount of $10,940,400 was passed by resolution in the EGM of 31st March 1996. The costs included all the items that the applicants disputed. There can be no ground to entertain such a dispute.

105. The applicants considered that the corporation acting through the owners' meeting, and the corporation, acting through the management committee, had mutually exclusive powers. What one could do, the other could not. This is a creative interpretation of the law, but it ignored Section 29 of the BMO, which stated that, subject to the BMO, the powers and duties conferred or imposed by the BMO on a corporation shall be exercised and performed on behalf of the corporation by the management committee.

106. There is no evidence that the management committee had exceeded its powers in carrying out its functions, when complying with the Building Authority's works orders. The Codes of Practice are not rules of law. The fact that the codes had not been strictly adhered to would not invalidate the appointment of the consultant KCL. The appointment of an Authorized Person was mandatory, in compliance with the Building Authority's works orders.

107. The discrepancy between the amount resolved at the EGM, and the amount stated in the demand notice, is not sufficient to invalidate the resolution in the EGM. The mistake could have been rectified easily, if the respondent's notice had been directed to it. The Tribunal does not accept that there is any sinister meaning in this.

108. The applications are dismissed.

109. The Applicants are to pay the Respondent's costs to be taxed if not agreed.