THE GRANDE PROPERTIES MANAGEMENT LTD v. BOLEX INVESTMENT CO LTD

LDBM 313 & 314/2002
(Consolidated)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. LDBM 313 of 2002

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(Consolidated pursuant to the order of H.H. Judge Chow on 20 February 2003)

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J U D G M E N T

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Background

1. The Applicant is the Manager of The Grande Building at Nos. 398-402 Kwun Tong Road (formerly known as Lucky (Kwun Tong) Industrial Building at No. 95 How Ming Street), Kowloon, Hong Kong ("the Building"). The Respondent in LDBM 313 of 2002 ("Bolex") is the owner of Factory A on Ground Floor and Car Parking Space No. 4 of the Building and holds 37 out of 622 undivided shares in the Building. The Respondent in LDBM 314 of 2002 ("Siegont") is the owner of Factory B on Ground Floor of the Building and holds 20 out of 622 undivided shares in the Building.

2. The Applicant is a member of a group of companies known as "the Grande Group". The Grande Group holds 367 out of 622 undivided shares in the Building through its members as follows:-

(1) The Grande Properties Limited, holding 296 shares;

(2) Lafe Computer Magnetics Limited, holding 3 shares;

(3) Lafe Holdings Limited, holding 1 share; and

(4) Batts Far East Limited, holding 67 shares.

3. The other owners of the Building are as follows:-

(1) Sun Wah Ornament Manufactory Limited, holding 197 shares; and

(2) Chung Ming Enterprises Company Limited, holding 1 share.

4. The owners have not formed a management committee or a corporation under the Building Management Ordinance, Cap. 344 ("the BMO"). The owners are however bound by the terms of the Deed of Mutual Covenant of the Building ("the DMC") dated 14 May 1982 and registered at the Land Office by Memorial No. 2260393 on 27 May 1982. The owners are empowered to pass resolutions in owners' meeting under the DMC, provided the meetings are properly convened, all owners are not unreasonably excluded and the resolutions are properly authorized by the DMC.

5. In August 2001, Chesterton Petty Limited, a surveyor firm instructed by the Applicant, prepared a condition survey report for the building fabrics of the Building. According to the report, the purpose of the survey was to ascertain the general conditions of the common areas of the Building and to make recommendations on the renovation works for the Building. Chesterton Petty Limited recommended in the report a list of renovation works to be carried out at the Building.

6. The Applicant issued a notice dated 31 August 2001 to all the owners of the Building to convene an Owners' Meeting on 26 September 2001. One of the purposes of the meeting was to approve the renovation works proposed by Chesterton Petty Limited and an added item for CCTV monitoring system as set out in Appendix E of the notice. There were 10 items of renovation works in Appendix E, but at the meeting the owners resolved (by 367 shares in favour, 0 against and 255 abstentions) that only Items 4 to 9 of Appendix E were approved. The proposed total sum for Items 4 to 9 was $1,232,450.

7. In October 2001, Chesterton Petty Limited issued a Tender Document for Renovation Works, setting out Option A (covering Items 1 to 9 of Appendix E) and Option B (covering Items 4 to 9 of Appendix E), to 6 contractors. In mid-November 2001, 5 contractors responded, out of which Unitacs Engineering Company offered the cheapest tender of $1,142,575 for Option B.

8. The Applicant then issued a notice dated 26 November 2001 to all the owners of the Building to convene an Owners' Meeting on 12 December 2001. At the Owners' Meeting on 12 December 2001, the following resolutions, inter alia, were passed:-

(1) Awarding the tender to Unitacs Engineering Company in respect of the Option B renovation works (by 367 shares in favour, 1 against and 254 abstentions).

(2) Calling for the sum of $1,300,000 for the said renovation works (by 367 shares in favour, 0 against and 255 abstentions).

(3) The 1st payment of the said sum to be due on 15 March 2002 and the 2nd payment on 15 April 2002 (by 368 shares in favour, 0 against and 254 abstentions).

9. Works for Option A were commenced between March 2002 and August 2002, but only Option B items (i.e. Items 4 to 9 of Appendix E) were charged to all the owners. Partial payments were made to Unitacs Engineering Company. The Applicant sought to collect contributions from all the owners of the Building towards the agreed sum of $1,300,000.

10. By 2 Debit Notes dated 18 March 2002 and 2 April 2002 respectively to Bolex, the Applicant demanded Bolex to pay 2 equal sums of $38,085.58 each, i.e. a total sum of $76,171.16, being its 37/622 share of the sum of $1,300,000. I note that 37/622 of $1,300,000 should in fact be $77,331.19, but since the Applicant is claiming for a lesser sum of $76,171.16, I shall confine the Applicant's claim to this lesser sum.

11. Similarly, by 2 Debit Notes dated 18 March 2002 and 2 April 2002 respectively to Siegont, the Applicant demanded Siegont to pay 2 equal sums of $20,586.80 each, i.e. a total sum of $41,173.60, being its 20/622 share of the sum of $1,300,000. I note that 20/622 of $1,300,000 should in fact be $41,800.64, but since the Applicant is claiming for a lesser sum of $41,173.60, I shall confine the Applicant's claim to this lesser sum.

12. Both Bolex and Siegont have failed to pay the sums claimed by the Applicant as aforesaid. The Applicant therefore claims against Bolex and Siegont the said sums in this consolidated action together with interest thereon pursuant to Clause 16 of the DMC.

The Issues

13. In the Amended Notice of Opposition, the Respondents raised a number of matters. According to Mr. Chan, Counsel for the Applicant, some of the matters raised are not relevant to the present proceedings at all. Mr. Chan submitted that the only issue in this case is whether the Applicant is entitled to demand from the Respondents their shares of contributions towards the renovation works approved at the Owners' Meeting on 26 September 2001. Mr. Chow, Counsel for the Respondents, however submitted that there are 3 issues in this case. The issues in dispute summarized by Mr. Chow are as follows:-

(1) Whether the Applicant is duly authorized by the DMC to proceed with the renovations;

(2) Whether the amounts of contributions that the Applicant levied on the owners were proper; and

(3) Whether the Applicant was acting in the interests of the owners of the Building as a whole when it arranged to renovate the Building.

The DMC

14. Mr. Chow submitted that the DMC sets out the contractual relationship among the owners and also defines the terms of reference of the Manager, i.e. the Applicant. He referred to Paragraph (4) of the Preamble of the DMC which states that:-

"In order to provide for the proper enjoyment, management, operation, servicing, maintenance, repair and insurance of the said premises and the said building the parties hereto have agreed to enter into this Deed for the purposes of defining and regulating the rights, interests and obligations of themselves and all subsequent owners in respect thereof."

15. He also referred to Clause 9(a) of the DMC which stipulates that:-

"Each owner shall be liable to pay or contribute towards the management expenses to be calculated in proportion to their respective shares of the management fees as set out in the Eighth Schedule..."

16. Mr. Chow submitted that, apart from the aforesaid, there is no other provision in the body of the DMC authorizing the Applicant to collect other contributions from the owners of the Building. He further relied on Clause 20 of the DMC which states that:-

"Should there be any conflict between any of the covenants terms obligations easements rights or provisions set out in the body of this Deed and any of those set out in any Schedule hereto then those contained in the body of this Deed shall prevail."

17. Mr. Chow's contention is that according to Paragraph (4) of the Preamble and Clause 9(a) of the DMC, the Applicant is not allowed to proceed with renovations or up-grading and ask for contributions from the owners without the assent of all the owners of the Building.

18. I do not accept Mr. Chow's interpretation of the DMC in this regard at all. Paragraph (4) of the Preamble only sets out the general purpose of the DMC. It does not invalidate the rights and obligations expressly agreed by the parties in the body of the DMC. Clause 9(a) of the DMC is not the only provision in the DMC authorizing the Applicant to collect contributions from the owners of the Building. Indeed, Clause 8(a) of the DMC stipulates that the Applicant "shall have such right powers and authorities as are set out and described in the Fourth Schedule hereto." Paragraph 3 of the Fourth Schedule states that "the Manager shall arrange... for the... repairing renewing maintaining and cleansing of the common parts services and facilities." Paragraph 6(a) of the Fourth Schedule clearly gives the Manager the power and authority to "demand and receive from each owner the contributions payable by each owner as hereinbefore specified and all such contributions shall without prejudice to any other remedy exercisable hereunder be recoverable by the Manager by Civil Action and the defaulting owner shall not be entitled to dispute the right of the Manager aforesaid to sue and recover the unpaid contributions."

19. From the wordings of Paragraphs 3 and 6(a) of the Fourth Schedule, it is obvious that the Applicant can collect from the owners the contributions for the renovation works in question. If the Respondents are disputing the Applicant's power to improve or up-grade the Building by way of renovations, I think the word "renewing" in Paragraph 3 of the Fourth Schedule give such a power to the Applicant. Furthermore, Clause 8(b)(i) of the DMC also stipulates that the Applicant has the additional right, power and authority to "maintain, improve or otherwise control the common areas of the building." It is therefore misconceived for the Respondents to argue that the Applicant has no power to improve or up-grade the Building by way of renovations.

20. The owners are also bound by Clause 4 of the DMC to observe and perform the covenants provisions and restrictions set out in the Second Schedule of the DMC. Paragraph 1 of the Second Schedule stipulates that the owners are:-

"To pay the due proportion of all costs, charges and expenses which may be or become payable for or in connection with the management of the said premises and the said building, whether the Manager be obliged to incur such expenditure or not including but not limited to:-

...

(h) The cost of repairing, renewing, maintaining, cleansing, painting, or decorating the common parts of the said building...

...

(q) All other charges which the owners or the committee may resolve by a resolution as necessary or requisite for the proper management, operation and maintenance of the said premises and the said building or for the improvement or maintenance of the services, amenities or facilities thereof."

21. From the wordings of Paragraph 1 of the Second Schedule as aforesaid, it is clear to me that the owners are obliged to pay the contributions to the Applicant as long as the charges are approved by a resolution. It is not a pre-requisite that all the owners must assent to the renovation works before the Applicant can collect the contributions. Paragraph 10 of the Fifth Schedule of the DMC in fact provides that "Any resolution on any matter concerning the said premises and the said building passed by a majority of the owners present in person or by proxy and voting at a duly convened meeting shall be binding on all the owners". Thus, it does not matter that not all the owners voted for the resolution. Since the resolution in question was passed by a majority of the owners present, it complied with the requirement in Paragraph 10 of the Fifth Schedule.

22. I also fail to see any conflict between the terms in the body of the DMC and the Schedule thereto or how the Respondents could rely on Clause 20 of the DMC. The Respondents did not elaborate as to which provisions of the DMC and the Schedule are in conflict. I do not therefore accept the Respondents' submission in this regard.

The amount levied

23. Mr. Chow submitted that even if the Applicant was entitled to embark on improvements, the purported renovations must be reasonable in terms of scope and amount, having regard to the needs of all the owners as a whole and the financial affordability of the owners. The Grande Group owners were not entitled to authorize the spending of huge amounts of money which were entirely out of proportion to the available funds or which caused the Building to run into huge deficits given that the Applicant does not have borrowing power under the DMC.

24. Mr. Chow further submitted that the Building was not in receipt of any demand or order from the Building Authority to perform work on safety grounds. There was no urgency at all for the renovation works. In fact, the Applicant had already spent $4,151,339 in 1997 and 1998, $2,868,849 in 1999 and 2000 and $453,521 on purported renovation works from January to July 2001. The total spending on civil works of various kinds in less than 5 years amounted to $7,473,709, a huge sum for an industrial building. On an yearly basis the Applicant had spent the following amounts on routine repair and maintenance of the Building:-

1996	$251,602
1997	$280,310
1998	$301,783
1999	$159,935
2000	$326,093
2001	$235,874

25. The total spending on normal repair and maintenance for the 6 years from 1996 to 2001 amounted to $1,555,597. The Respondents therefore contends that if the Applicant had been maintaining the Building properly and reasonably, the Building could not be in such disrepair.

26. However, the DMC does not stipulate that the renovations must be reasonable in terms of scope and amount and there is no provision for considering the needs of all the owners as a whole or the financial affordability of the owners as suggested by Mr. Chow. I do not accept that such provisions can be implied into the DMC. There is also no reason for the Applicant to wait for Building Orders from the Building Authority or until the Building becomes unsafe before it carries out renovation works. If the Applicant were to do that, it would in fact be derelict in its duty to maintain the Building and in breach of the DMC.

27. The fact that there were large sums of money spent on renovation works and routine repair and maintenance in previous years does not help the Respondents at all. The amount of $1,300,000 in question was passed by a proper resolution in a proper Owners' Meeting. I fail to see how the Respondents could challenge this amount by reference to the previous spending. The previous spending is in fact subject to another set of proceedings in the District Court and should be dealt with in that case.

28. Mr. Chow further submitted that at the meeting on 26 September 2001, the total cost of the 6 items of renovation works voted for by the Grande Group owners was only $1,232,450, but they voted to levy a total sum of $1,300,000 instead, and the Applicant proceeded to collect contributions on the latter basis. It was held in Grace International Ltd. v Incorporated Owners of Fontana Gardens & Ors [1996] 4 HKC 635 by Le Pichon J (as she then was) at 655D-E:

"The plaintiff is not obligated to pay a pro rata share of costs that are not actually incurred or to be incurred. The amount an owner is liable to pay must be based on actual quotations, estimates or tenders obtained and not on speculation, however 'informed' it is, on the part of management, nor an amount voted on at owners' meetings unless there is unanimous consent by all the owners."

29. Since there was no unanimous consent for the resolution, Mr. Chow submitted that the resolution to levy $1,300,000 was invalid by virtue of Le Pichon J's judgment in the aforesaid case. I do not agree with Mr. Chow on this submission either. I do not think that Le Pichon J's judgment could be applied to contradict the express provisions in the DMC. As aforesaid, Paragraph 1(q) of the Second Schedule requires the owners to pay their due proportions of all other charges which the owners or the Committee may resolve by a resolution, and a resolution can be passed by a majority of the owners by virtue of Paragraph 10 of the Fifth Schedule of the DMC. It is clear to me that Le Pichon J's judgment has no application in our present case.

Ulterior motives of the Applicant

30. The Building is an industrial building. Mr. Chow queried why there was a need to spend over $9 Million in 5 years' time on civil works and still it was considered not enough, bearing in mind that the Building was never considered unsafe. He submitted that most of the renovations were cosmetic in nature. He also submitted that the Grande Group had a need to up-grade the appearance of the Building, which is not shared by the other owners not related to the Grande Group.

31. First of all, the Respondents did not adduce any evidence as to which parts of the renovations were cosmetic. In fact, the owners had chosen Items 4 to 9 out of the 10 items in Appendix E. There was no opposition but only abstention to this resolution. It is difficult to see how this objection could be raised. In any event, I do not find that ulterior motives would in any way invalidate a resolution properly passed. Everyone voting for or against a resolution would have his own ulterior motive, and it is usually for his own good rather than for anybody else. If the law says that a voter could only vote for the general interest of everyone rather than his own interest, I think the whole voting system would be unworkable. It is just impossible to ascertain the motive of every voter. In fact, even minority voter has his own interest to serve too. Just like the present case, if the minority owners voted against the renovations, they would also be considered as voting for their own interests as they could not afford to pay the renovation cost. Thus, I do not accept that the ulterior motives of the Applicant could amount to an objection to the resolution passed.

32. Mr. Chow submitted that the owners of undivided shares in the Building are divided into 2 camps: owners being members of the Grande Group and owners not related to the Grande Group. Chesterton Petty Limited was commissioned to prepare the report, but such fact was not notified to the owners not related to the Grande Group beforehand. The report was not authorized at any Owners' Meeting. The fact that Chesterton Petty Limited would be present in the meeting on 26 September 2001 was not disclosed in the agenda issued for the meeting. From the contents of the report, the items identified are defects that should be remedied in normal repair and maintenance. The commissioning of the report was just a cosmetic act by the Applicant to justify the renovations. It was also obvious that the Grande Group owners would push through the renovation works in spite of the different views of the other owners.

33. I do not think that there is any justification for these submissions. The Respondents' own witness, Mr. Leung Kin-shing admitted in cross examination that no one raised any objection at the meeting about not being notified of the report beforehand. There was also no issue raised by any owner at the meeting that the Applicant had to be authorized to get the report. No such rule requires the presence of Chesterton Petty Limited to be notified beforehand. No evidence can support that the obtaining of the report was a cosmetic act. In fact, the other owners did not object to the resolution at all, but just abstained from voting.

Failure to disclose benefits in the successive renovations

34. Mr. Chow raised the matters that the Building Fund was borrowing from one Alpha Capital Group Limited ("the Alpha Capital"), which was first disclosed to the owners in the September 2001 Meeting. However, the fact that the Alpha Capital, the Grande Properties Limited and the Applicant were all members of the Grande Group was never disclosed to the owners. The Respondents and the other owners not related to the Grande Group would never find it out if the Grande Group were not a listed company. On the other hand the fact that another member of the Grande Group, Grande Group (Hong Kong) Limited ("GGHKL"), was taking a commission of 5% of a number of invoices in the successive renovations was only first disclosed in the witness statements of Miss Sham Ching-yi in the District Court action between the Applicant and the Respondents on renovation contributions for the years 1997 to 2000. Again the relationship between GGHKL and the Applicant and The Grande Properties Limited was never disclosed to the non-Grande Group owners in any Owners' Meeting.

35. Mr. Chow submitted that only when the Respondents found out the relationship from the 2001 annual report of the Grande Group and challenged the propriety of the diversion of money from the Building Fund that caused Miss Sham and Miss Lai to hastily change their employer from the Applicant to GGHKL in an attempt to justify the diversion of money from the Building Fund to benefit a fellow member by the Applicant. It is however noteworthy that, in the 2001 Annual Report of the Grande Group, GGHKL was only a company with an issued capital of $20 and its activity was to provide administrative services, not civil works supervision.

36. Thus, it is contended that the Applicant not only failed to make proper disclosure of the interests of its fellow subsidiaries to all the owners of the Building, it also refused to make proper disclosure when specifically asked by the Respondents in the District Court action.

37. I do not find any of the above matters relevant to the present proceedings. Even if there was non-disclosure of the above matters to the other owners as alleged, it does not have any bearing on the result of the voting. The Grande Group owners were the majority owners, and they should be aware of the matters allegedly not disclosed. Their votes would not be affected by the disclosure or non-disclosure of the information. On the other hand, the other owners did not vote for the resolution. So even if they were aware of the information, it would not affect the result of the voting.

Inspection of the books or records of account

38. According to Paragraph 2(5) of the Seventh Schedule of the BMO,

"The manager shall -

(a) permit any owner, at any reasonable time, to inspect the books or records of account and any income and expenditure account or balance sheet; and

(b) on payment of a reasonable copying charge, supply any owner with a copy of any record or document requested by him."

39. Mr. Chow submitted that the Applicant's refusal to supply information was unreasonable, improper and against the requirements of the BMO. It is not acting fairly in the interests of the owners of the Building as a whole although it has been holding the Building Fund for all the owners of the Building.

40. However, there is no evidence of the Applicant's refusal to allow inspection of the documents required under Paragraph 2(5) of the Seventh Schedule. It is also not clear how this could affect the results of the voting. Thus, I do not find any relevancy at all in this allegation.

Purpose of the BMO

41. Mr. Chow referred to So Chun Man Paul v Incorporated Owners of Chee On Building [2000] 1 HKC 732, in which Wong JA said that:-

"The ultimate purpose of the Building Management Ordinance is to protect the interests of the owners of a building...

...

But the law also prevents people from abusing their power to obtain benefits" (Translated)

42. Mr. Chow submitted that the Grande Group owners abused their power of majority and forced the other owners to contribute to extravagant cosmetic renovations not needed by these other owners. In the process the Applicant acted as a vehicle through which the Grande Group tried to achieve its improper purposes.

43. I see no substance in this submission at all. Mr. Chow did not refer to any particular provision of the BMO or any specific protection offered by the BMO. Even if the general purpose of the BMO is to protect the interests of the owners of the Building and the law prevents people from abusing their power to obtain benefits, it does not mean that the court can disregard the provisions of the DMC. The Grande Group owners as majority owners were entitled to vote in their own interests. The law equally protects their interests. They followed all the procedures and the requirements under the DMC to secure the resolution. The other owners just could not complain when the outcome of the voting was against them. As in any kind of voting mechanism, the minority has to follow the wishes of the majority. The Applicant as the Manager must follow the decision of the majority, or else it would be in breach of its duty under the DMC too. So the Applicant cannot be criticized at all when the majority owners were simply exercising their rights under the DMC.

Conclusion

44. For the reasons aforesaid, I do not find any merits in the issues raised by the Respondents. I therefore find that the Applicant succeeds in its claims against the Respondents and order as follows:-

(1) Bolex do pay the total sum of $76,171.16 to the Applicant together with interest thereon pursuant to Clause 16 of the DMC;

(2) Siegont do pay the total sum of $41,173.60 to the Applicant together with interest thereon pursuant to Clause 16 of the DMC; and

(3) Costs Order Nisi: Bolex and Siegont do pay costs of the Applications herein to the Applicant at the District Court Scale with Certificate for Counsel, to be taxed if not agreed. If there is no further application in relation to costs within 14 days, the costs order nisi shall become absolute.