THE INCORPORATED OWNERS OF WAI YIP HOUSE v. LIGHT WALTER WAI TAK

LDBM 136/2016

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 136 OF 2016

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J U D G M E N T

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1.  The applicant is the Incorporated Owners (“IO”) of Wai Yip House (“the Building”). The Building consisted of two adjoining 13-storey composite buildings named as No. 174 (“No. 174”) and No. 176 (“No. 176”) of Prince Edward Road West respectively.   The respondent is the owner of a residential unit at No. 176.

2.  It is not in dispute that the respondent had not paid the management fees since June 2015. The IO lodged a claim with the Small Claims Tribunal on 17 December 2015 and the claim was transferred to this Tribunal on 21 June 2016.

3.  In the Deed of Mutual Grant of Right of Way (“DMG”) dated 15 May 1968 (B/63-71), the owner of No. 174 (“First Owner”) and the owner of No. 176 (“Second Owner”) agreed:

a) “to enter into these presents setting out their respective rights in connection with the said entrance hall, staircases, landings, passages, lift shafts, lift and machine room and the said Well” (B/65); and

b) Will at all times hereafter maintain and keep the said entrance hall, staircases, landings, passages, lift shaft, lifts machine room and the said Well and the electric pump and other appurtenance thereto in good repair and condition and all cost and expenses of and incidental to the maintenance and repair of the said entrance hall, staircases, landings, passages, lift shaft, lifts machine room and the said Well and the electric pump and other appurtenance thereto will be borne and paid by the First Owner and the Second Owner in equal shares” (B/67-68).

4.  There is a Deed of Mutual Covenant for No. 174 dated 30 May 1968 (“No.174 DMC”) (B/72-87) and a Deed of Mutual Covenant for No. 176 dated 20 June 1968 (“No. 176 DMC”) (B/88-107).  As can be seen from the No. 174 DMC, there are a total of 17 undivided shares for No. 174 (B/83-84), 1 share each for the Mezzanine Floor (“M/F”), 1/F to 12/F and the Penthouse and 3 shares for the Ground Floor (“G/F”).  As for No. 176, there are a total of 15 undivided shares, 1 share each for G/F, M/F, 1/F to 12/F and the Penthouse (B/99).

5.  The relevant provisions in the DMCs are copied herein for easy reference. 

6.  Clause 3 and 4 of No. 174 DMC reads:

“3. Each of the parties hereto shall pay its due proportion of :-

(a) water consumed in the said Premises and insurance premium payable…

(b) the cost of rebuilding or re-instatement of the said Building or any parts thereof …

(c) Watchmen’s fees, electricity charges … expenses of operating … and replacing the lifts and the water pipes for the general service of the said Building with the exception that the owners for the time being of the ground floor and mezzanine floor shall not be asked upon to bear any expenses in respect of or in connection wih the lifts.

(d) The cost of keeping in good and … repair and condition the foundations, the sidewalk, main walls support beams gutters chimneys and all external and internal parts of the said Building used in common by the co-owners thereof and maintaining all the drains pipes and … appurtenances intended for the general service of the said Building …

4. The amount which each of the parties hereto shall be liable to pay or contribute under the last preceding clause hereof shall be in proportion to its share of and in the said Premises” (B/75-76).

7.  Clause 4 of the No. 176 DMC reads:

“4. Each owner shall be bound by and shall observe and preform the covenants provisions and restrictions set out in the Third Schedule hereto.” (B/92)

8.  Third Schedule of the No. 176 DMC reads:

“THE THIRD SCHEDULE ABOVE REFERRED TO

Covenants provisions and restrictions referred to in Clause (4) of this Deed …

(d) After taking into account the contribution made by the owners of the adjoining building No. 174 Prince Edward Road, the following costs charges and expenses namely:-

(i) Electricity, water and other similar charges or in connection with the said premises and building as a whole and not being in respect of the use of or consumption in any particular floor or other area enjoyed exclusively by one owner.

(ii) Remuneration for caretakers, watchmen, cleaners, attendants and the like.

(iii) The cost of refuse disposal.

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

(v) The cost of operating and servicing the water pumps.

shall be borne and paid by the owners in proportion to the respective shares in the said premises for the time being vested in them.

(e) After taking into account the contribution made by the owners of the adjoining building the said No. 174 Price Edward Road, the cost of operating maintaining repairing servicing and renewing the lifts shall be borne and paid by the owners of floors on the first and uppers floors of the said building in proportion to the number of such floor for the time being owned by them.” (B/101-102)

9.  The DMG and the 2 DMCs are collectively referred to as the Deeds in this judgment.

10.  Before 2011, all the management expenses of the Building were shared by 32 undivided shares.  As a result of a complaint by the owner of G/F No. 174 over the apportionment of the contribution towards the renovation project of the Building (B/110-111), the IO then caused the issue of management fees to be discussed at the Annual General Meeting held on 3 July 2012 (“AGM”) in which a resolution was passed for the 2-Tier System (a term used by the respondent in this case) (“2-Tier System”) to be adopted in the levying of management fees from August 2012 (“the Resolution”) (B/112-114).

11.  It is the contention of the IO that the management fees to be levied from the owners of No. 174 and No. 176 should be calculated as follows:

a) For the repair and maintenance of the entrance halls, staircases, landings, passages and machine room (“A”), such costs should be shared by No. 174 and No. 176 in half and owners of No. 174 and No. 176 should then share the half share in proportion to their undivided shares; and

b) For the repair and maintenance of the lifts (“B”), such costs should be shared by No. 174 and No. 176 in half and owners of No. 174 and No. 176 (except owners of G/F and M/F) should then share the half share in proportion to their undivided shares.

12.  Hence, calculation of the management fees for the owners of No. 174 should be as follows:

A ÷ 2 ÷ 17 undivided shares = C

B ÷ 2 ÷ 13 undivided shares = D

C = management fees to be paid by all owners of No. 174

D = management fees to be paid by owners of No. 174 except owners of G/F and M/F

13.  And the calculation of the management fees for the owners of No. 176 should be as follows:

A ÷ 2 ÷ 15 undivided shares = E

B ÷ 2 ÷ 13 undivided shares = F

E = management fees to be paid by all owners of No. 176

F = management fees to be paid by owners of No. 176 except owners of G/F and M/F

14.  This means owners of G/F and M/F of No. 174 and No. 176 are only required to pay the expenses under C or E whilst all other owners are required to pay C plus D or E plus F.  This is what the respondent called the 2-Tier System. 

15.  The respondent disagreed with the IO’s calculation of management fees by the 2-Tier System.  The respondent contended that the 2-Tier System is illegal and unfair in the sense that:

a) it is not in line with the DMCs which stipulated that the management expenses should be shared by the owners according to their undivided shares in the Building;

b) it is in violation of Article 25 of the Basic Law (“Art. 25”); and

c) it is unfair to owners of No. 176 (citing the case of Yiu Shui Kwong v Legend World Asia Group Limited DCEO 8/2015 (unreported, 27 October 2016) in support).

16.  Apart from the legality of the 2-Tier System, the respondent also raised the issue that the incorporation of the IO was invalid since there are 3 DMCs in one corporate structure which is in violation of the Building Management Ordinance (“BMO”) and the introduction of the 2-Tier System amounts to a change of the DMCs which required 100% consent of all owners which was not forthcoming.

17.  And the respondent also counterclaimed for the management fees overpaid by him from August 2012 to May 2015 in the sum of $2,389.  At the hearing on 12 May 2017, the respondent had already withdrawn other heads of counterclaim leaving the over-payment of management fees to be determined at trial.

Incorporation of the IO

18.  The respondent contends that for each incorporated owners to be established, there should only be one DMC.  Since there are 3 DMCs (the Deeds) in the Building, there should be 3 incorporated owners instead of 1, so the IO was not validly incorporated.

19.  Section 8(1A) of the BMO stipulated that “(T)he Land Registrar shall not issue a certificate of registration to more than one corporation for a building in respect of which a deed of mutual covenant is in force”. 

20.  The respondent’s contention had been considered by me in the case of 崔潔及另一人訴界限街188-190號及品蘭街5-7號業主立案法團 (unreported) LDBM 15/2015 9 September 2015. This is a case where the applicant challenged the validity of the incorporation of the Incorporated Owners on the ground that there are 4 house number for the building involving 3 sets of DMCs, yet only 1 Incorporated Owners was established.  The applicant relied on s.8(1A) of BMO and the brochure issued by the Home Affairs Department to substantiate such a contention (which is a document relied upon by the respondent in the present case).  It is my findings that:

“19. 第二指控，有關《建築物管理條例》之下第8(1A)條條文的規定，該條例規定﹕『凡一份公契就某建築物而有效，土地註冊處處長不得就該建築物向多於一個法團發出註冊證書』。

20. 第一申請人作供指稱，因為5-7號以及188-190號合共有3份公契，故此根據第8(1A)條條文，每一個公契應該自行成立一個法團，而不應合共成立一個法團，故此現有法團的成立是無效的。

21. 本席認為第一申請人對於《建築物管理條例》第8(1A)條條文的理解有謬誤。第8(1A)條只是規限一份公契不能成立多於一個法團，而並非規定一份公契必須獨自成立一個法團，而不能如本案中的4棟大廈、三份公契成立一個法團的情況。

22. 第8(1A)條條文並非針對本案的情況，而是針對一個屋苑可能涉及多棟建築物，但只有一份公契條文，在這情況下，無論有多少棟建築物，亦只能成立一個法團。所以鑑於第8(1A)條條文所述的情況與本案不同，本席並不認同8(1A)條條文適用於本案中。”

21.  My findings quoted above had been upheld by the court of appeal on the application of the applicant for leave to appeal (unreported ) HCMP 3109/2015 29 January 2016 and the Court of Appeal also find that section 13 of BMO gives an answer to the argument on validity of the Incorporated Owners:

“13. 本庭認為《建築物管理條例》第13條就本案的爭議提供了答案，該條例訂明：

「 就任何法團而根據第8(1) 條發出的註冊證書或根據第10(4) 條發出的修訂註冊證書(視屬何情況而定)，即為該法團已根據本條例註冊成立為法團的確證。」

14. 本案的答辯人法團於1998年成立，土地註册處於1998年3月11日發出註册証書。除非申請人成功撤銷該註册証書，按第13條的規定，他們不能提出關於法團成立的爭議。在這方面，本庭同意原訟庭在Grace International Ltd v Incorporated Owners of Fontana Gardens [1996] 4 HKC 635的分析。本庭認為土地審裁處法官在Kwan & Pun Co Ltd v Chan Lai Yee [2002] HKLT 64持不同意見的判決是錯誤的, 不應跟隨。審裁處法官在該案引用的英國案例In re National Debenture and Assets Corporation (1891) 2 Ch 505 所涉及的法例的字眼與第13條的字眼存在關鍵性的分別，前者是 “conclusive evidence that all the requisitions of this Act in respect of registration have been complied with”, 而第13條的英文版本是“conclusive evidence that such corporation is incorporated under this ordinance”。第13條所制定的確證比對前者廣闊，與香港法例第622章《公司條例》第72條(b)款類同。

15. 英國的公司法例自1900年起己採用與香港法例第622章《公司條例》第72條(b) 款類似的字眼。英國的案例亦確認註册証書確證的不可爭議性：Hammond v Prentice Bros Ltd [1920] 1 Ch 201；R v Registrar of Companies, ex p Central Bank of India [1986] QB 1114；Buckley on the Companies Act paragraph 13.52; Gower & Davies, Principles of Modern Company Law, 9^th Edn, paragraphs 4-34 to 4-37。

16. 正如一間在《公司條例》下註册的公司，在《建築物管理條例》下註册的法團在法律上具有法人的身份。法團有法定權責決定及執行與建築物管理的有關運作，亦具有涉及影響法團成員或其他人士的權益及責任。所以法團是否有効成立必須讓所有人可以透過簡單和直接方式得以確立。《建築物管理條例》第13條正是針對這個目的，指明註冊證書為該法團已根據本條例註冊成立為法團的確證。

17. 按Grace International Ltd v Incorporated Owners of Fontana Gardens [1996] 4 HKC 635的分析，有關註册証書發出的挑戰必須以針對土地註册處處長的決定提出的司法覆核方式進行。因答辯人法團註册証書是於1998年3月11日發出，申請人經巳嚴重超越3個月的司法覆核期限，答辯人法團在這多年間必定經已就本案建築物管理作出很多不能逆轉的決定及行為。所以申請人在現時才挑戰法團的成立經已太遲，法庭不可能准許。”

22.  I shall adopt the same findings by me and by the Court of Appeal quoted above in disposing of the argument of the respondent in the present case and find that s.8(1A) BMO is not applicable and s.13 BMO disallowed any challenge to the validity of the IO which had been established for so many years.

Interpretation of the Deeds

23.  On top of the 2 DMCs, there is the DMG which is a document defining the rights and obligations of the owners of No. 174 and No. 176.  Terms of the DMG must be binding on all subsequent owners of No. 174 and No. 176. 

24.  It is specifically provided in the DMG and agreed by the First Owner and Second Owner that the expenses for common facilities and common parts (“Common Expenses”) shared by the 2 adjoining buildings were to be shared between the 2 buildings in half.  As can be seen from the floor plan of the Building attached to the No. 176 DMC (B/106-107), the 2 adjoining buildings shared the same entrance hall, staircases, landings, passages, lift shafts, lifts, machine room and the well, it is necessary for the DMG to be created.  To accept the method of apportionment suggested by the respondent, ie to share everything in accordance with the respective shares of the owners, is turning a blind eye to the existence of the DMG. 

25.  Whilst the No. 174 DMC had been silent on such a sharing of Common Expenses, Third Schedule of No. 176 DMC did mention about “after taking into account the contribution made by the owners of the adjoining building No. 174” in the clauses concerning liability of the owners of No. 176 over Common Expenses (Clause (d) and (e) Third Schedule).  This is apparently a term echoing the provision in the DMG.  So, the sharing of Common Expenses between No. 174 and No. 176 is already a term included in the No. 176 DMC.  To adopt the interpretation suggested by the respondent is again ignoring such a requirement in the Third Schedule.

26.  Since the DMG and the 2 DMCs are instruments created to govern the rights and obligations of all owners in the Building, they must be binding on the owners including the respondent.  Terms of the DMG required the Common Expenses to be equally shared between No. 174 and No. 176.   Such half share of the Common Expenses becomes the liability of the owners in No. 174 and No. 176 respectively which should be shared by the owners of No. 174 according to Clause 3 of the No. 174 DMC and by the owners of No. 176 according to Clause (d) Third Schedule of the No. 176 DMC, ie in proportion to their respective shares allotted to the unit they have exclusive possession and enjoyment.

27.  The calculation suggested by the IO at §§12-13 above is in line with the Deeds.

Variation of the DMC

28.  The respondent argued that the Resolution passed in the AGM was in effect caused the calculation of apportionment stipulated in the two DMCs to be varied from sharing amongst all undivided shares (which is the practice before the AGM) to the 2-Tier System.  Yet, such a variation required the consent of all the owners which is not forthcoming.

29.  I agree with Ms Chong that there was no question of amending or varying of the terms of the 2 DMCs in this case.  The effect of the AGM was to put things right since the levying of management fees before the Resolution was not in line with the Deeds.  The respondent cannot rely on a wrong and insisted the IO to adopt the incorrect apportionment if it was not in line with the Deeds.  Upon discovering that the levying of management fees was inconsistent with the Deeds, the IO is duty bound to rectify the same since it bears the duty to enforce the terms of the Deeds and to enforce it correctly.

30.  In support of his contention on apportionment, the respondent had also mentioned in his evidence an advice proffered from a solicitor firm concerning the apportionment of repair costs for the IO dated 8 March 2011 in which it is advised that the repair costs should be shared by 32 undivided shares without reference to the DMG (B/41).  But such an advice is not binding on this Tribunal and cannot be taken as the correct interpretation of the Deeds, least to say terms of the DMG had in fact not been considered in such advice.

31.  The argument raised by the respondent that the Resolution passed in the AGM is a variation of the DMCs is misconceived.

Art. 25 Basic Law

32.  Article 25 of the Basic Laws of Hong Kong provided that “all Hong Kong residents shall be equal before the law”.  It is the contention of the respondent that to adopt the 2-Tier System, owners of No. 174 and No. 176 are not being treated equally since owners of No. 176 have to pay $115 per month more to subsidise the owners of No. 174 even though their footage area and the usage are identical.

33.  Ms. Chong for the IO submitted that Art. 25 is not applicable in this case which involved a private contract and not legislation or legal principle.

34.  In the case of HKSAR v PUN GANGA CHANDRA AND OTHERS [2001] 2 HKLRD 151, Keith JA said that:

“14. In our opinion, Art. 25 of the Basic Law focuses on something different. It is directed towards discriminatory treatment under the law. Its counterpart in the Bill of Rights is not Art. 10, but Art. 22 which provides:

"All persons are equal before the law and are entitled without any discrimination to the equal protection of the law. In this respect, the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status."”.

35.  So Art. 25 is only applicable to a “discriminatory treatment under the law” and the provisions is for “the protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status”.  There is no question of discrimination as such in our present case. 

36.  The Deeds is a contract entered into by the owners of the Building to regulate their rights and obligations in the enjoyment of the Building.  The spirit of a contract is that parties to the contract are free to engage into whatever terms that are acceptable to them and once a contract is being entered into, the parties will be bound by the terms therein.  Parties having better bargaining powers can of course enter into contracts with more favourable terms to them.  As long as the other contracting party is prepared to accept the same, the notion of equality between the parties have nothing to do in a contractual relationship.

37.  Upon acquisition of their unit in the Building, each owner had impliedly accepted the terms of the Deeds and agreed to be bound by it.  Owners cannot complain about the fairness of the terms of the Deeds after they had accepted the same on acquisition of their unit.  So Art. 25 had nothing to do in this scenario.

38.  Even if I am wrong in the findings above, I do not find there is any infringement of Art. 25 in this case.  

39.  In the case of Fok Chun Wa & Another v The Hospital Authority and Another (unreported) CACV 30/2009 10 May 2010, Stock VP found that:

“74. It follows that differentiation in treatment does not necessarily constitute discrimination.[33] If the differential treatment is attached to circumstances or situations which are not comparable, the issue does not arise, for discrimination entails a failure to treat like cases alike[34]. The approach is “not to look for identity of position between different cases, but to ask whether the applicant and the people who are treated differently are in ‘analogous situations’”[35]. Even if the circumstances are comparable, the differential treatment will not constitute discrimination, as contemplated by the ICCPR and therefore by the Basic Law, if the difference in treatment is justified, the burden of showing which is on the Government. The weight of that burden will depend on the ground of differentiation: where the ground offends one’s notion of the respect due to the individual such as a ground based on race, gender, religion, or adherence to a political view, scrutiny by the court will be particularly keen, for such grounds are seldom if ever acceptable[36]; where, on the other hand, the ground is not based upon considerations that offend fundamental notions of dignity of the individual but rather on considerations of the general public interest, the margin of appreciation accorded to the legislature or other decision-maker is greater.”

40.  The differentiation between owners of No. 174 and No. 176 is in accordance with the terms of the DMCs which are binding on all owners of the Building so the different treatment is well justified.

41.  The defence based on Art. 25 must fail.

Ladies Night Special

42.  The case of Yiu Shui Kwong is being referred to as the case of “Ladies Night Special” by the respondent.  This is a case where the claimant complains that he was charged more in terms of entrance fee on the ground of his sex in accessing the respondent’s club (“the Club”).  The claimant paid $300 to gain access to the Club but the Club only charged its female customers $120 in terms of entrance fee for the same facilities and services and the Club habitually charges its male customers a higher entrance fee.  The claimant then commenced the action to claim for a declaration that the Club was in breach of the Sex Discrimination Ordinance, Cap 480 and an order that the Club amends its pricing policy and for damages.  Upon the Club’s default in filing a response, interlocutory judgment was entered in the action and the judgment is on the assessment of damages only.

43.  This Tribunal fails to see how is this case relevant to the issues required to be determined in our present case which is not a case of sex discrimination nor a discrimination at all.  I’ll adopt my findings at §§34-40 above on the issue of discrimination.

44.  The case of Yiu Shui Kwong is not relevant and cannot assist the respondent in establishing the unfairness contended.

Conclusion

45.  Having considered all the evidence and arguments put forward by both parties, it is my findings that the apportionment method adopted by the IO is in line with the provisions of the Deeds whereas the method insisted by the respondent is not, even though this was all along the method adopted before the AGM.  Yet, the IO is duty bound to rectify any practice not in line with the Deeds irrespective of the fact that such practice had been in place for a long time.

46.  In the circumstances, the IO is entitled to go after the respondent for the unpaid management fees from June 2015 to present and the respondent’s counterclaim must be dismissed.

The Order

47.  It is ordered that:

a. The respondent do pay the applicant management fees from June 2015 to June 2017 in the total sum of $26,200;

b. The counterclaim of the respondent be dismissed; and

c. The respondent do pay the applicant costs of this application and the counterclaim (including costs for the withdrawal of part of the respondent’s counterclaim), to be taxed if not agreed at District Court scale, with certificate for counsel.  Unless any of the parties apply by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.