WONG KIN YIM v. TAIKOO SHING (MANAGEMENT) LTD.

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

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Building Management Application No. LDBM 280 of 1999

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J U D G M E N T

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The application

1. This is an application for a declaration that the respondent, as manager, is acting beyond its authority in the renovation of Stage VIII and Stage X of Taikoo Shing (the development).

The facts

2. Taikoo Shing is a residential/commercial development in the Eastern District of Hong Kong. There are 61 residential towers, developed in 12 stages, built at different times from the middle of 1970. Each stage has its own Deed of Mutual Covenant (DMC). The contents of the DMC are basically the same.

3. The applicant is the owner of Flat F, 27/F Hang Sing Mansion in Stage X of the development. He is said to be the representative of his late sister, Wong Kam Har, who was an owner of Flat E, 22/F Begonia Mansion in Stage VIII of the development.

4. The respondent is the management company, under each of the DMC applicable to the two stages. The DMC of Stage VII and Stage X are materially the same.

5. There is no incorporation of owners in either of the stages.

Lobby renovation Stage X

6. The respondent convened the 1997 Annual General meeting for the towers in Stage X. It was held on 19th September 1997. The owners present at the meeting were unanimously in favour of sending out a questionnaire on the renovation of the lobby. The questionnaire was sent out to each owner on 3rd October 1997. The owners were asked to indicate whether they were in favour of the renovation, and to choose the payment method. The estimated contribution for each owner was set out.

7. Out of the 714 valid responses received, 596 were in favour of the renovation, while 118 were against it. The majority of those in favour of the renovation chose to pay by 12 instalments, together with the monthly management fees for 1998.

8. The respondent published the result on 17th October 1997.

9. The respondent increased the management fees for Stage X by 33% for the year 1998. The draft budget was displayed in the main lobby of each tower at the end of 1997. Part of the increase went into the special fund, designated for the renovation expenses, and other expenses.

10. The respondent invited tenders for the job in July 1998. Ho Ming Engineering Ltd. won the contract. The renovation was completed in April 1999.

11. The applicant was to pay $1,599 per month under the increased management fees for 1998. The applicant paid the amount of $1,199. The balance of $4,800 is outstanding.

Lift car renovation Stage X

12. The respondent convened the 1999 Annual General Meeting for Stage X on 27th September 1999. The meeting decided that a questionnaire should be sent to all owners on the renovation of lift cars in Stage X. The estimated cost is $3,360,000, at $140,000 for each lift car. There are 24 lifts.

13. The respondent sent a questionnaire to each of the owners. The owners were asked to indicate whether they were in favour of the lift cars' renovation, and were informed of the amount each flat should pay.

14. Of the 565 valid responses, 443 were in favour, and 122 against, the renovation. The respondent published the result of the questionnaire on 21st October 1999. The renovation has not commenced, pending the outcome of the present application.

Lobby and lift car renovation in Stage VIII

15. On 20th September 1999, the respondent called the 1999 Annual General Meeting of Stage VIII. The meeting decided that a questionnaire should be used to ascertain the owners' response to the renovation of the lobby and the lift cars. The cost is estimated to be $3,320,000 for the lobby, and $950,000 for the lift cars.

16. On 24th September 1999, the respondent sent a questionnaire to each of the owners of Stage VIII. The owners were asked to indicate whether they were in favour of the renovation, and their preferred payment method. The amount payable was stated in the document. Of the response received, 154 were in favour of, and 49 against, the renovation. The majority of the owners in favour of the renovation preferred payment by 12 monthly instalments, to be included in the management fees for 2000.

17. The respondent published the result of the questionnaire on 26th October 1999. The renovation has not commenced, pending the outcome of the present application.

18. All the foregoing facts are not in dispute. They are found as facts of the case.

The applicant's case

19. The applicant referred to the DMC for both Stage VIII and Stage X to say that the respondent has been acting beyond its authority, and it cannot rely on the result of the questionnaires to carry out the renovation.

20. Clause 13(k) of the DMC stated that:

"A resolution in writing signed by the owners who in the aggregate have vested in them for the time being more than half of the shares in the said land and the said buildings shall be valid and effectual as if it had been passed at a duly convened meeting of the owners."

21. The applicant considered that the respondent could not have complied with this provision, when it acted on the results of the questionnaires. The result of the questionnaires was not a resolution in writing of the majority owners.

22. The applicant considered that the renovation was "decoration", and the consent of all owners were required, in light of the case of The Incorporated Owners of Bayview Mansion and Chan Cheung Kit Mui Margaret Small Claims Tribunal Appeal No. 32/94. It was the applicant's case that dissenting owners need not pay for decoration works.

23. The applicant was aware of the amendment to Section 14 (1) of the Building Management Ordinance Cap. 344, that granted the power to the owners incorporation to pass any resolution with respect to the "renovation, improvement or decoration" of the common parts. He noted that the amendment came into effect on 27th March 1998. He contended that the amendment should have no effect on the renovation completed at Stage X before that date. There was no sufficient quorum at any of the Annual General Meetings to pass any resolution. For this reason, the proposed renovation of the lift cars in Stage X and all the proposed renovation in Stage VIII should not be carried out. The respondent has no right to ask for any contribution from the owners.

The respondent's case

24. The respondent relied on the DMC for both Stage X and Stage VIII to say that it has the authority to carry out the renovation.

25. The respondent placed no reliance on Clause 13(k) of the DMC for its powers to carry out the renovation. The questionnaires were not resolution in writing under that clause. They were the means of ascertaining the owners' views towards the renovation, and their choice of payment method. The applicant should pay $1,599 as the monthly management fees in 1998. The applicant had deducted an amount of $400 from each payment.

26. Under the recital paragraph (5), the respondent was to undertake the "management, operation, servicing, maintenance, repair, renovation, replacement, security, and insurance" of the development. It was submitted that this should apply to the whole of the DMC.

27. The respondent relied on Clause 7(a) of the DMC. It stated that the respondent should be "responsible for and shall have full and unrestricted authority to do all such acts and things as may be necessary or requisite for or in connection with the said land and any of the said buildings thereon and the management thereof..."

28. Clause 7(a) listed the particular matters that that respondent was authorized to do, but it was not an exclusive list. The respondent has the duty to repair and keep in good condition the common areas, engage professionals to help carry out its management functions, and to do all things reasonably incidental to the management of the development. The respondent's powers were not restricted to those matters only.

29. The renovation at Stage X included the demolition of existing finishes and fixtures, and the repairing of any existing building defects of the internal and external lobby of each building. The supply and installation of new electrical installations, and repairs of the security systems, as stated in the contract document, were also included.

30. The respondent submitted that these were works of "maintenance, repair, renovation, replacement".

31. Under Clause 7(b) of the DMC, the respondent's acts under the DMC bound all the owners.

32. It was submitted that the present case is distinguishable from the Bayview Mansion case. In that case, the powers of the manager were limited to cleansing, servicing, maintenance or repair. There was no provision allowing the manager to renovate or replace. The respondent, as the management company of the development, was given the specific power to renovate and replace under the DMC. It was considered necessary to carry out the renovation, as the buildings are over 20 years old.

33. It was submitted that in law, the respondent did not derive its powers from the mandate of the owners' replies to the questionnaires, but from Clause 7 of the DMC. Even if the owners disagreed to it, the respondent still have the powers to carry out the renovation, although it would not be prudent to do so. It would be open to the owners in the majority to choose remove the respondent as the manager, if the respondent had acted against the will of the owners in the majority.

Counterclaim

34. The respondent counterclaims for:

1. A declaration that the respondent was authorized to carry out the renovation works in the ground floor lobby in Stage X of Taikoo Shing in 1998, and was entitled to collect the full amount of the management fee for 1998 from the applicant.

2. Payment of the outstanding balance of the management fee for 1998 in the sum of $4,800; collection charges under Clause 9(a)(2) of the DMC in the sum of $600; interest at 1.5% per period of 30 days or part thereof, under Clause 9(a)(1) of the DMC.

3. A declaration that the respondent was authorized to carry out the proposed lift car interior decoration works in Stage X of Taikoo Shing, and to collect the amounts necessary for the carrying out of the works from the owners of Stage X.

4. A declaration that the respondent was authorized to carry out the proposed ground floor lobby renovation and lift car interior decoration works in Stage VIII of Taikoo Shing, and to collect the amounts necessary for the carrying out of the works from the owners of Stage VIII.

5. Further or other relief

6. Costs.

Judgment

35. Where there is a corporation of owners, under the Building Management Ordinance Cap.344, the powers and duties relating to the common parts would be vested in the corporation. A management company, as the manager, would have to carry out the orders of the corporation, usually acting through a management committee.

36. There is no incorporation of owners under the Building Management Ordinance Cap.344 in the development. Many of the provisions of the Building Management Ordinance cannot be applied to the present situation. The respondent is the management company under the terms of the DMC. It is necessary to refer mainly to the provisions of the DMC in deciding whether the respondent had acted beyond its authority.

37. There is, according to the DMC, a Representative Committee, its members being 2 owners from each residential block, and 2 owners from the commercial sector and car parks. This Committee can send 3 of its member to attend the meetings of the Management Liaison Council. Neither the Representative Committee nor the Management Liaison Council has any real control over management matters.

38. In the recital to the DMC, the parties agreed with the respondent for it to undertake "the management, operation, servicing, maintenance, repair, renovation, replacement, security, and insurance" of the development. The management company's powers and functions are provided for in Clause 7 of the DMC. It was expressed to be "full and unrestricted authority to do such acts and things as may be necessary or requisite for or in connection with" the development. The DMC went on to particularize the management company's powers and functions, but it was stated to be "without in any way limiting the generality of " the authority described in the first part of Clause 7(a). In other words, the management company is not restricted to only the matters detailed in Clause 7(a) (1) to (30) of the DMC.

39. Under Clause 13 of the DMC, a duly convened meeting of the owners could, by a majority of the owners present, pass a resolution on any matter concerning the development. A resolution in writing under Clause 13(k) would have the same effect. However, there is no requirement in the DMC that, before it could exercise its powers and carry out its functions, the management company must call a meeting of owners or obtain a resolution in writing.

40. In each of these renovation projects, the respondent had, in deference to the wishes of the owners present at the Annual General Meetings, issued questionnaires to ascertain the owners' response to the projects. There had been previous discussions between the respondent and the owners on these projects. The projects were not on the agenda for the owners to vote on whether to proceed or not. Having received the replies, the respondent decided to carry out the works.

41. The applicant referred to photographs of the renovation site before and after the work was done, to say that it was merely "decoration". This totally ignored the reality of the project, the details of which were set out in the contract documents. The renovation at Stage X included the demolition of existing finishes and fixtures, and the repairing of any existing building defects of the internal and external lobby of each building. I find as a fact that these were not mere decoration. The respondent has the necessary authority under the DMC to undertake these projects.

42. Under Clause 7(a)(1), the respondent had the authority to demand, collect and receive the amounts payable by the owners under the DMC. Under Clause 7(b), the acts and decisions of the respondent, arrived at under the DMC, are binding on all the owners. Under Clause 9(a) the respondent can collect interest at $1.5 per $100 or part thereof, for every period of 30 days at which the amount remained unpaid.

43. The owners' contribution was included in the management fees for the year 1998. There was evidence that the respondent had posted up the draft budget for the year 1998 in the main lobby of the towers at Stage X. The draft budget included the amounts the owners should pay for the works to be undertaken. This complied with the requirements of the Seventh Schedule of the Building Management Ordinance. The Seventh Schedule contained the mandatory terms in deed of mutual covenants. The management company cannot increase the total amount of the management fees payable unless the requirements of the Seventh Schedule have been complied with.

44. Unless there is evidence that the respondent had failed to prepare a draft budget for the relevant years in respect of the other projects, the respondent is entitled to the declarations and to collect the payments as stated in its counterclaim.

45. The application is dismissed.

46. It is hereby declared that:

The respondent was authorized to carry out the renovation works in the ground floor lobby in Stage X of Taikoo Shing in 1998, and was entitled to collect the full amount of the management fee for 1998 from the applicant.

The respondent was authorized to carry out the proposed lift car interior decoration works in Stage X of Taikoo Shing, and to collect the amounts necessary for the carrying out of the works from the owners of Stage X.

The respondent was authorized to carry out the proposed ground floor lobby renovation and lift car interior decoration works in Stage VIII of Taikoo Shing, and to collect the amounts necessary for the carrying out of the works from the owners of Stage VIII.

Order

47. The applicant is to make payment of the outstanding balance of the management fee for 1998 in the sum of $4,800,

48. Collection charges under Clause 9(a)(2) of the DMC in the sum of $600, Interest at 1.5% per period of 30 days or part thereof.

49. The applicant is to pay the respondent's costs to be taxed if not agreed.

50. There is certificate for counsel.