THOROGOOD ESTATES LTD v. THE INCORPORATED OWNERS OF ROBINSON HEIGHTS

LDBM 297/2010

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 297 of 2010

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BETWEEN

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DECISION

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Background

1.  The applicant was the developer of the building known as Robinson Heights, 8 Robinson Road, Mid-Levels, Hong Kong (“the Building”), and is still the registered owner of the Lower Ground Floor Garage and the Upper Ground Floor Garage of the Building.  The respondent is the incorporated owners of the Building.

2.    The respondent resolved at an owners’ meeting on 22 October 2009 to carry out repair and renovation works to the Building at the provisional cost of $100,333,240.00 and to have additional security and cleaning services at the cost of $1,892,850.00 (i.e. a total cost of $102,226,090.00).  The respondent also resolved that the owners of the Building should contribute to the total cost in proportion to their respective management units set out in the Second Schedule to the deed of mutual covenant of the Building (“the DMC”).  This was the only resolution ever passed by the respondent in relation to the carrying out of repair and renovation works to the Building since the respondent’s incorporation.

3.    The Second Schedule to the DMC stipulates that there are 331,916 management units in total, 3,040 of which is allocated to the Lower Ground Floor Garage and 4,720 to the Upper Ground Floor Garage.  Thus, according to the respondent’s calculation, the applicant’s total contribution should be in the sum of $2,389,986.00 ($102,226,090.00 x (3,040 + 4,720)/331,916).

4.    The applicant contends that the basis of computing the contribution payable by the owners of the Building as resolved by the respondent is wrongful and invalid because it is in breach of Clauses A3 of Section I, D2, D5 and D6 of Section V of the DMC and Section 22(1) of the Building Management Ordinance (“the BMO”).  The applicant accepts that it is only liable to pay for the repair and renovation works and the additional security and cleaning services attributable to “the Building Common Areas”, “the Building Common Facilities”, the “Garage” and the “Garage Common Areas” as defined in Clause (1)(a) of the “Definitions” section of the DMC.

5.    According to the applicant’s own calculation, the amounts of contribution payable by the applicant in respect of the Lower Ground Floor Garage and the Upper Ground Floor Garage are $247,496.00 and $384,269.00 respectively (i.e. $631,765.00 in total).

6.    The applicant has already paid the sum of $631,765.00 to the respondent, but the respondent still demands the applicant to pay the balance sum of $1,758,221.00.  On 30 July 2010, the respondent registered in the Land Registry a memorandum of charge against the Lower Ground Floor Garage (“the 1^st Charge”) and another one against the Upper Ground Floor Garage (“the 2^nd Charge”) for the balance of contribution together with interest and collection charge.

7.    In the present proceedings, the applicant applies to vacate the registration of the 1^st Charge and the 2^nd Charge in the Land Registry.  The applicant also claims for damages, interest and costs.  However, on 14 November 2011, the parties agreed and I ordered that the following question be tried as preliminary issue:-

“whether the whole costs of the repair and renovation works referred to in paragraph 5 of the Applicant’s Notice of Application dated 10^thNovember 2010 shall be shared and contributed by all the owners of the Building in proportion to their respective management units as set out in the 2^ndSchedule of the Deed of Mutual Covenant dated 23^rd March 1990 without the need of identifying which part or parts of the said repair and renovation works related to the Garage’sCommon Areas and Facilities, the Towers’ Common Areas and Facilities and the Building Common Areas and Facilities.”

8.    The parties gave their submissions on the preliminary issue on 4 January 2012.  Basically, the issue is concerned with the proper construction of the DMC and the operation of the provisions of the BMO.  No witnesses were called at the hearing.  The parties simply produced two bundles of documents as evidence for the determination of the preliminary issue.  This is my decision on the preliminary issue.

Legal principles on construction of documents

9.    The well-known principles for construing a document, as described by Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279, are as follows:-

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.”

10.  Ribeiro PJ, in Leung Ka Lau v Hospital Authority (2009) 12 HKCFAR 924, adopted these principles and said the following:-

“The parties also accept (in my view correctly) that construction of those documents should be approached applying the well-known principles stated in Jumbo King Ltd v Faithful Properties Ltd, where Lord Hoffmann NPJ described the process as “an attempt to discover what a reasonable person would have understood the parties to mean” which involves “having regard, not merely to the individual words [the parties] have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve”. Furthermore, as his Lordship stated in Investors Compensation Scheme Ltd and West Bromwich Building Society, the interpretation of a document involves “ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”.

11.  These principles were similarly adopted in River Trade Terminal Co Ltd v Secretary for Justice (2005) 8 HKCFAR 95 and Ming Shiu Chung& Others v Ming Shiu Sum & Others (2006) 9 HKCFAR 334.

12.  Thus, one has to look at the document as a whole, including the factual and legal background, to see what a reasonable person would have understood what the document to mean.  In doing that, the words used should be given their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties.  As said by Lord Bingham in Bank of Credit and Commerce International SA v Ali and others [2002] 1 AC 251,

“the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties’ relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties’ intentions the court does not of course inquire into the parties’ subjective states of mind but makes an objective judgment based on the materials already identified”.

13.  However, a proper balance must be retained between the factual background and the words used.  As said by Buxton LJ in Martin v David Wilson Homes Ltd [2004] EWCA Civ 1027,

“One has to remember, when looking at issues about the factual matrix, that although reference to that matrix is not limited to cases where the words are clearly ambiguous, the first place where one expects to find the meaning of the words and the intention of the draftsmen is in the words themselves. If they yield a fairly clear solution, and in my judgment these words do, then one has to pause long before concluding that at that point the draftsman has used words with a meaning that do not fit in with the objective that he was seeking to attain.”

14.  The relevant question is: ‘What is the meaning of what the parties have said?’ not ‘What did the parties mean to say?’ (per Lord Simon of Glaisdale in Wickman Machine Tools Sales Ltd v LG Schuler AG [1974] AC 235), which was adopted in Japsignal Property Management Co Ltd v The Incorporated Owners of Prat Mansion, DCCJ 3245 of 2003.

15.  These principles were applied by the Court of Appeal to the construction of a deed of mutual covenant in Growth Bright Limited v The Incorporated Owners of Grandview BuildingCACV 843 of 2000.  In that case, applying the principles in Jumbo King, supra, the Court of Appeal held that there was a distinction between the obligations of owners of the residential units and owners of the commercial units under the deed of mutual covenant in question.

16.  The parties do not dispute the legal principles as stipulated above.  It is just a matter of how these principles should be applied in the present case.

Relevant provisions in the DMC

17.  Clause 3 of Subsection A of Section I of the DMC has the following provisions:-

“3. (i) The Building Common Areas shall be deemed to be common areas for the benefit of the Owners which areas may, subject to the provisions hereof, be used by each Owner.

(ii) The Tower’s Common Areas shall be deemed to be common areas for the benefit of the Owner of each Unit which is situate in that Tower Block which areas may, subject to the provisions hereof be used by each such Owner in common with all other Owners of that Tower Block.

(iii) The Garage Common Areas shall be deemed to be common areas for the benefit of the Car Park Owners which areas may subject to the provisions hereof be used by each Car Park Owner in common with the all other Car Park Owners.”

18.  Section V of the DMC contains the following subsections:-

“D. Management Expenses

1. The Manager shall prepare an annual budget showing the estimated management expenses for the ensuing financial year for the purpose of determining the contributions payable by the Owners. Such budgets except the first are to be prepared in consultation with the Owners’ Committee.

2. The budget shall be an estimate by the Manager of the sum which will be necessary to meet all the costs of the management of the Building and without limiting the generality of the foregoing shall include the following costs charges and items:-

(a) The Crown Rent and all sums payable under the Crown Grant.

(b) The cost and expenses of carrying out the duties of the Manager under this Deed.

(c) The cost and expenses of purchasing or hiring all necessary plant, equipment and machinery including sewage treatment plant.

(d) The cost and expenses of employing contractor and staff solely concerned with the administration, management, maintenance and servicing of the Building.

(e) All reasonable professional fees and costs incurred by the Manager.

(f) All utility charges except where the same are separately metered to individual units.

(g) All expenses in connection with the operation of plant, equipment including sewage treatment plant, machinery and vehicles (if any) provided by the Manager for the benefit of the Building.

(h) The cost and expenses of providing and operating emergency generators (if any).

(i) The cost of effecting insurance in respect of the Common Areas and Common Facilities.

(j) The provision of a reserve fund for the depreciation of capital equipment and painting of the exterior of all the buildings and structures in the Building and anticipated repairs of a major nature to all such buildings and structures.

(k) The charges and expenses payable by the Owners under the Deed of Mutual Grant.

(l) The provision of the contingency fund for contingencies.

(m) Any tax payable by the Manager on the Management Funds.

(n) The Manager’s own remuneration.

3. Such budget shall be made available for inspection in the office of the Manager and any Owner or his duly authorized representative shall be entitled to a copy thereof upon payment of a reasonable charge to cover the cost of copying the same.

4. The Manager shall have the right to revise the budget from time to time in consultation with the Owners’ Committee.

5. The Management Budget shall be divided into two parts:-

(a) the first part shall contain the estimated Management Expenses which are attributable solely to or solely for the benefit of the Garage and shall be apportioned between the Car Park Owners pro rata according to the number of management shares allocated to the Car Parks for the time being owned by them respectively, and

(b) the second part shall contain the estimated Management Expenses which are attributable solely to or solely for the benefit of the Units and shall be contributed by the Owner thereof according to the management units specified in Clause 1 of Subsection E of Section V hereof.

6. Where any expenditure relates solely to or is solely for the benefit of any Unit then the full amount of such expenditure shall be borne by the Owner of such Unit and the Manager shall be the sole judge as to whether any expenditure relates solely to or is solely for the benefit of any Unit.

7. The Manager shall in consultation with the Owners’ Committee apportion the Management Expenses on an alternative basis to that set out in the preceding Sub-Clause (a) and (b) of Clause 5 above.

8. The Manager may impose any reasonable additional charges to be payable by an Owner having regard to any special use of his Unit.

9. In the event of a surplus of receipts over expenditure for a financial year, the surplus may be treated as a receipt for the following financial year.

E. Payment and apportionment of Management Expenses

1. For the purpose of determining the contributions to be made by each Owner of a Unit to the Management Expenses and to the Manager’s Remuneration, there are allocated to each unit the number of Management Units are [sic] set out in the Second Schedule hereto.

2. Each owner shall be liable and pay a due proportion of the Management Expenses and Manager’s Remuneration according to the numbers of the Management Units allocated to his unit.”

The respondent’s case

19.  The respondent’s case is that the charging provisions are in Subsection E of Section V of the DMC, not Subsection D.  The heading of Subsection E makes it clear that Clauses E1 and E2 relate to payment and apportionment of Management Expenses.  The word “Unit” in Clause E1 and the words “his unit” in Clause E2 include the Garage, as the Second Schedule to the DMC has allocated a total of 7,760 Management Units to the Garage.  The term “Management Units” is also defined in Clause 1(a) of the “Definition” section of the DMC to mean “the number of units allocated to the Flats and the Garage and/or the Car Parking Spaces therein respectively for the purpose of the proportion of Management Expenses and Manager’s Remuneration to be contributed by the owners thereof”.  As all the costs for the work and services in question falls within the meaning of “Management Expenses” under the DMC, the applicant is liable to contribute towards the costs according to the numbers of the Management Units allocated to the Garage pursuant to Clause E1 of Section V of the DMC.

20.  Thus, according to the respondent’s case, there is no need to identify which part or parts of the repair and renovation works are related to theGarage’sCommon Areas and Facilities, the Towers’ Common Areas and Facilities and the Building Common Areas and Facilities.

The applicant’s case

21.  The applicant submits that under Section 22(1) of the BMO, the amount to be contributed by an owner towards the amount determined under Section 21 of the BMO shall be fixed by the management committee in accordance with the DMC (see The Incorporated Owners of Chungking Mansions v Shamdasani Murli Pessumal & Others, CACV 416 of 2002).  Clause A3 of Section I of the DMC draws distinctions among the “Garage Common Areas”, the “Building Common Areas” and the “Tower’s Common Areas” by assigning separate meanings to them and the rights and obligations of the owners of these areas are different.  Under Clause D5 of Section V of the DMC, the Manager has a duty to prepare the Management Budget by dividing it into two parts.  The first part is the estimated Management Expenses attributable solely to or solely for the benefit of the “Garage” (Clause D5(a)), and the second part is the estimated Management Expenses attributable solely to or solely for the benefit of the “Units” (Clause D5(b).

22.  Clause D5(a) stipulates that the apportionment between the Car Park Owners is pro rata according to the number of “management shares” allocated to the Car Parks, not the “management units” specified in Clause E1 of Section V of the DMC, as in the case of Clause D5(b).  The effect of Clauses D5(a) and D5(b) is that the apportionment of the Management Expenses between the Car Park Owners are different from that of the owners of the Units.

23.  Alternatively, under Clause D7 of Section V of the DMC, the Manager may, in consultation with the Owners’ Committee, apportion the Management Expenses on a different basis from those set out in Clause D5.

24.  The applicant contends that the provisions under Subsection D of Section V of the DMC are also charging provisions, and that the respondent has contravened Clause D5 by not having a Management Budget dividing the Management Expenses for the Garage and for the Units into two parts.  The Management budget must be made available for inspection by the owners (see Promising Realty Limited v Lam Wai Shan, CACV 120 of 1988).  The object of Clause D5 is that the Management Expenses should be apportioned among different categories (Garage and Units) with reference to the benefits exclusively conferred by the expenses on each category.  This appears to be a fair and reasonable way of sharing management expenses (see The Incorporated Owners of Tsui Chuk Garden v Edentown Ltd, LDBM 303 of 2004).  The failure to divide the Management Expenses would defeat this object and would not be fair and reasonable.

25.  Thus, the applicant’s case is that on a true and proper construction of the DMC as a whole, the part or parts of the repair and renovation works relating to the Garage’s Common Areas and Facilities, the Tower’s Common Areas and Facilities and the Building Common Areas and Facilities must first be identified in the Management Budget before there is any liability to pay contributions towards such works.

Discussions

26.  It is not disputed that the Building has 3 residential Towers and a Garage in the Lower Ground Floor and the Upper Ground Floor.  The Garage is wholly owned by the applicant as it has not sold any of the car parks in the Garage to anyone.  Each of the 3 towers is served by 3 lifts.  The lifts serving Blocks 2 and 3 of the Towers also serve the Ground Floor, the Upper Ground Floor and the Lower Ground Floor.  One of the lifts serving Block 1 of the Towers serves the Ground Floor, the Upper Ground Floor and the Lower Ground Floor, whereas the other 2 lifts serve the Ground Floor and the Upper Ground Floor, but not the Lower Ground Floor.  There is also another shuttle lift serving the Upper Ground Floor and the Lower Ground Floor at the rear entrance.

27.  From these agreed facts, it is clear to me that there should be some common areas and facilities between the Garage and the Towers or for the whole building.  The car parks in the Garage should be used by the residents in the Towers, otherwise there would not be lifts serving both the Garage and the Towers.  Thus, the situation here is very different from the case of Growth Bright Limited, supra, where the building was designed to separate the users of the commercial units from the users of the residential units.  

28.  The parties have no dispute that the costs in question are Management Expenses.  In fact “Management Expenses” is defined in Clause 1(a) of the “Definitions” section of the DMC to mean “The costs, charges and expenses for the management and maintenance of the Lot including the Building as provided in this Deed”.  However, the parties seem to have disagreement on whether the whole of the costs in question is for the benefit of all the owners of the Building or whether part of it is not for the benefit of the Garage.  I do not think that I need to determine at this stage as to whether the whole of the costs is for the benefit of all the owners or just some of them, as the preliminary issue is not framed in this manner.  The question for me to answer at this stage is just whether it is “necessary” to identify which part or parts of works in question are related to the Garage’sCommon Areas and Facilities, the Towers’ Common Areas and Facilities and the Building Common Areas and Facilities.

29.  To answer that question, I need to see if the DMC anticipates that there are different contributions concerning these different common areas and facilities.  Clause A3 of Section I of the DMC no doubt distinguishes 3 categories of common areas, but it does not stipulate that the contributions of Management Expenses for these 3 categories are different from each other.  Thus, I do not find it helpful to refer to this clause.

30.  Then the applicant relies on the provisions in Subsection D of Section V of the DMC to say that there must be a Management Budget before the applicant is liable to pay contributions for the Management Expenses.  The applicant places strong reliance on Clause D5 in that the Management Budget must be divided into two parts.    However, I do not see any point in placing such great reliance on this clause.  Clause D5(a) actually refers to the apportionment “between the Car Park Owners”.  It is not concerned with the apportionment between the Car Park Owners and the other owners of the Building.  The applicant owns the whole of the Garage.  There is no other Car Park Owners except the applicant.  There is no need to apportion anything among different Car Park Owners concerning the Management Expenses which are attributable solely to or solely for the benefit of the Garage.  Such Management Expenses would be borne by the applicant alone.

31.  Clause D5(b) does not help the applicant either.  It refers to the Management Expenses for the benefit of the “Units”.  “Unit” or “Units” is defined in Clause 1(a) of the “Definitions” section of the DMC to mean “flat(s), roof(s) (which is/are specifically attached to such flat(s)) or Car Parking Space(s) and/or any other part or parts of the Building which the full and exclusive right and privilege to hold use occupy and enjoy has been or intended to be assigned to an Owner and “his unit” in relation to an Owner means the unit which the Owner has the full and exclusive right and privilege to hold use occupy and enjoy”.  It covers all the owners of the Building including the Garage owners because “Car Parking Space(s)” are included.  The apportionment is based on the management units specified in Clause E1.  So there is no different basis of apportionment in any event.

32.  Clause D6 is not relevant as it concerns with expenditure related solely to a particular unit.  Neither is Clause D7 relevant, as the present case is not concerned with the alternative basis suggested in that clause at all.

33.  Thus, I do not find any provision in the DMC which suggests that the identification of the 3 different categories of common areas and facilities would cause different basis of apportionment to be applied. The only basis of apportionment that is relevant to the present case is the one based on Management Units as mentioned in Clause E2 or Clause D5(b).  It seems to me that it is pointless to identify the 3 different categories of common areas and facilities, when the applicant would be liable to contribute according to its Management Units in any event.

34.  The applicant also challenges its liability to pay when the respondent has failed to prepare the Management Budget.  The applicant relies on the case of Promising Realty Limited, supra, to support its contention.  However, that case did not say that a budget must be prepared before an owner is liable to pay contribution.  Clause E2 is also not subject to such a condition that a budget must be prepared first.  The Management Budget should in fact be the annual budget under Clause D1, but the costs involved are not concerned with the annual budget.  It is difficult to see how the payment of the costs involved is subject to an annual budget being prepared first.

Conclusion

35.  By reasons aforesaid, I totally reject the applicant’s contentions on the preliminary issue, and find that the preliminary issue should be answered in the affirmative.

36.  I also grant an order nisi that the applicant do pay the respondent costs of the preliminary issue with certificate for counsel to be taxed on District Court Scale if not agreed.  If there is no further application for costs within the next 14 days, the costs order nisi shall become absolute.