THE INCORPORATED OWNERS OF FLORA GARDEN v. LI DO WAI AND OTHERS

LDBM 283/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 283 OF 2014

_________________

_________________

  LDBM 285/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 285 OF 2014

_________________

_________________

LDBM 286/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 286 OF 2014

_________________

_________________

LDBM 287/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 287 OF 2014

_________________

_________________

LDBM 288/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 288 OF 2014

_________________

_________________

LDBM 289/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 289 OF 2014

_________________

_________________

_________________

J U D G M E N T

_________________

Undisputed or Indisputable Background

1. This is a claim by the applicant (“IO”) against the respective respondents, being owners of Flora Garden (“the Building”) for their respective share for some repair and renovation works done at the Building.

2. The Building was built in or about 1980 consisting of 3 blocks of residential building namely Block A, B and C and 5 car park floors namely Level A, B, C, D and G.  Car park Level G is also the building lobby floor. 

3. For Block A, access from car park Levels B, C, D and G are served by lifts whilst car park Level A is only served by common staircase.  Owners of Block A are required to take the staircase from car park Level A to Level B and then take lift on car park Level B to enter the Building.  For Block B and C, access from car park Levels C, D and G are served by lifts whilst car park Levels A and B are served by common staircase only.  Owners of Block B and C are required to take the staircase from car park Levels A and B to Level C and then take the lift to enter the Building.

4. At the extraordinary owners’ meeting on 14 August 2010 (“814 EGM”), it was resolved that planning for the installation of the new lift system for the car park levels from Cloud View Road to podium floor of the car park be commenced (「通過籌劃於車場樓層位置安裝由雲景道至平台之升降機系統之安排」) (B/395-398).

5. At the owners’ meeting on 6 October 2012 (“1006 AGM”), it was resolved that planning for the renovation of the external wall of the car park and the 2 entrances on Cloud View Road be commenced (「籌劃翻新停車場外牆及雲景道兩個入口」) (B/465-468).

6. At the management committee meeting on 11 November 2013 (“1111 MC”) and 9 December 2013 (“1209 MC”), the consultant engaged by the IO reported on the progress and timetable of the works which included renovation work of the external wall, renovation of the lobbies and lift door and corridor and the installation of the new car park lift (「外牆翻新工程」，「新造升降機及大堂翻新工程」「各樓層電梯走廊工程」) (B/509-518).

7. Approval for the installation of the car park Lift was obtained from the Buildings Department (“BD”) on 13 December 2013 (B/536-541) and from the Lands Department (“LD”) on 16 December 2013 (B/542) respectively.

8. By a resolution duly passed at an owners’ meeting on 15 February 2014 (“215 EGM”), it was resolved that (B/522-525) :

a. Installation of a new car park lift and the renovation of the G/F lobbies (“Work 1”), the retiling of the external wall of the car park (“Work 2”) and retiling of the lift lobbies for all floors of the 3 blocks (“Work 3”) (total 3 projects) (「加建停車場升降機及改善各座平台大堂、重鋪雲景道停車場外牆，及重鋪三座各層電梯走廊 (共三項工程)」)(collectively called “the Works”);

b. Wecon Limited be appointed as the contractor of the Works (「選聘工程承辦商為偉工有限公司」);

c. for the surplus from 2012-2013 External Wall Renovation projects (ie $3,773,388.80) (「有關2012－2013外牆大維修集資餘款」):

i) to transfer $800,000 to the sinking fund (「將餘款之 $800,000保留於維修基金備用」); and

ii) to transfer the balance of $2,973,388.80 for use in the Works (「餘款$2,973,388.80撥往即將進行之屋苑維修工程」);

d.   contributions from the owners for the Works be collected within a month from 15 March 2014 by 1 installment (「有關...工程集資日期為三月十五日，以一期為準，以一個月為限」).

9. The IO issued a notice dated 18 March 2014 to inform all owners of the particulars and costs of the Works as well as the share of each unit (B/543-547).  The IO also issued a letter dated 17 April 2014 to the respondents to inform them the share of contributions to be made by them for the Works (B/549-554).  Since the respondents failed to make any payment, the IO instructed its solicitors to issue demand letter dated 13 May 2014 to the respondents and demanded for the payment again (B/555-560).

10. On or about early July 2014, without prior notice or permission of the IO, the respondents deposited a sum of $10,000 into the bank account of the IO.  By a letter issued by its solicitors dated 7 July 2014, the IO informed the respondents that since the sum paid was not sufficient to fully settle their contributions to the Works, the payment was rejected and refunded to the respondents by way of cheque.  However, the respondents had not cash the said cheques.

11. A final notice dated 25 August 2014 was sent to the respondents asking for the payment of the contributions to the Works.  Since the respondents still failed to pay for the contributions, the IO issued these proceedings on 13 October 2014, claiming against the respective respondents for their respective share towards the Works, a surcharge of 5% on the unpaid amount as well as the collection charge of $150 pursuant to the terms of the Deed of Mutual Covenant (“DMC”).

12. The respective amount claimed against the respondents in this case are as follows:

Case	Contribution to the works	5% Surcharge	Collection fee
LDBM 283/2014	$54,960	$2,748	$150
LDBM 285/2014	$50,380	$2,519	$150
LDBM 286/2014	$52,670	$2,633.50	$150
LDBM 287/2014	$38,930	$1,946.50	$150
LDBM 288/2014	$48,090	$2,404.50	$150
LDBM 289/2014	$38,930	$1,946.50	$150

13. The respondents, in their respective Notice of Opposition, had raised a number of defences.  I shall deal with each of the points raised in seriatim.  The IO had called Mr Ip (“Ip”), the property officer of IO and Ms Choy (“Choy”), the property manager of the management company to testify and Mr Ronald (2^nd respondent in LDBM 283/2014) testified for all the respondents.

Renovation vs Improvement Work

14. It is the contention of the respondents that the Works are not renovation works in nature but rather improvement works instead involving additional lift works, building entrance beautifying works and the excelling works to entrance on Level G of all 3 blocks.  Since only renovation work is allowed in the DMC but not for improvement works, the respondents are not liable to pay for the contributions towards the Works.  It is also the contention of the respondents that s.14 of the Building Management Ordinance (“BMO”) does not empower any resolution inconsistent with or in breach of the DMC and s.18 of BMO is not applicable in this case since there is no provision for improvement works in the DMC to be enforced under s.18(1)(c).

15. Ms Gwilt for the applicant submitted that whether the Works amounted to improvement works or repair works is neither here nor there since both s.14(1) and s.18(2)(fa) empowered the IO to carry out renovation, improvement or decoration work, so the respondents are liable to make contributions towards the Works.  Relying on the case of Grande Properties Management Ltd v Sun Wah Ornament Manufactory Ltd [2006] 3 HKLRD 473, Ms Gwilt submitted that since the resolutions for the Works are not contrary to any provisions of the DMC, it shall be binding on all owners.

16. Section 14(1) of BMO provided that :

“Subject to this Ordinance, at a meeting of a corporation any resolution may be passed with respect to the control, management and administration of the common parts or the renovation, improvement or decoration of those parts and any such resolution shall be binding on the management committee and all the owners.”

17. Section 18(2)(fa) reads :

“(2) A corporation may, in its discretion -

...

(fa)  carry out any renovation, improvement or decoration work, as the case may be, to the common parts.”

18. I do not agree with the respondents that the DMC had provided for no improvement work to be performed by the IO.  Clause 4(f) do require all owners to bear the costs and expenses incurred, apart from repairing or maintaining the Building, also for “decorating the said building and the common parts” as well as costs for “renewing the lifts”.  Decoration work on the Building and renewal of the lifts must be improvement works.  I found the Works resolved to be carried out in the 215 EGM are works anticipated under Clause 4(f) of the DMC.

19. In any event, I agree with Ms Gwilt that the argument on the differentiation between renovation work and improvement work as found in the case of Incorporated Owners of Bayview Mansion v Chan Cheung Kit Mui Margaret (Small Claims Appeal No. 32/94, unreported, 23 June 1995) is otiose given the amendment of the BMO in 1998 by adding a new subsection (fa) to section 18(2) of it.  With such amendment of the BMO in 1998, the case of Bayview Mansion which is a judgment on the old law before the amendment is no longer relevant or of any assistance.

20. The wordings of s.18(2)(fa) of BMO clearly allows the IO to carry out “any renovation, improvement or decoration work … to the common parts”.  The argument by the respondents in this case to distinguish improvement work from renovation work must fail.

The IO failed to give a proper account of the respective costs of the items of the Works

21. It is the respondents’ case that they had sent letters dated 20 May 2014 and 28 January 2015 to the IO asking for the breakdown of the Works to particularise which are renovation works and which are improvement works and their costs (B/561-566 and 596).  But the IO failed to respond.  The IO also failed, despite repeated requests from owners, to explain to all owners the significance and legal impact of the improvement works, but went so far to mislead the owners by deliberately or gross-negligently holding out or representing that the law requires the owners to contribute towards the improvement works.

22. There is no evidence from the respondents as to how the IO misled the owners in paying the contributions.  Given my findings on the unnecessary differentiation between renovation work and improvement works above, the failure by the IO to specify what are renovation works and what are improvement works is neither here nor there.  This contention of the respondents must fail.

23. As for the allegations of the IO’s failure to give a proper account of the particulars of the Works, it is the evidence of the IO that details of the Works had been explained at all the owners’ meetings and since the respondents were present at the meetings, they should be fully aware of the works and costs involved.  In any event, the details of the Works had been displayed for months at the Building for the owners’ to read.  As for the written requests, the IO said that the respondents had been invited to go to the management office for perusal of documents and for discussions, but the respondents never show up.  The respondents had never denied such evidence of the IO, I accept the evidence.

24. In any event, even if the IO failed to respond to the owners’ request for further information, I cannot see how this can be a ground for the respondents not to pay for the contributions towards the Works when such was approved and duly resolved at an owners’ meeting and shall be binding on all owners including the respondents (s.14 BMO refers).  Should the respondents wish to have details as to the costs of each item of work, they should have raised the same at the owners’ meeting before the resolution for the Works was being approved.

25. This ground of defence must fail.

Tiling of 3 external walls, renovation of main lobby on Cloud View Road and renovation of the car park entrance on Cloud View Road were not on the agenda of the 215 EGM

26. In the Amended Notice of Opposition, it is stated that “the alleged ‘renovation’ works now being claimed in fact including also, inter alia, (new or additional) tiling of three other external walls which had originally been painted (ie facing the West, Hop Yat Church, the estate of Beverly Heights on the East and Shue Yan University at the back) and the ‘renovation’ of Car Park Entrance on Cloud View Road and ‘renovation’ of main lobby (entrance) on Cloud View Road which were never put to any agenda of owners’ meeting and never approved by any owners’ meeting” (B/146.8). 

27. Choy, the property manager of the Building testified that the resolution at the 215 EGM did include the 3 items named by the respondents whilst Ip’s evidence is that the 3 items were resolved at 814 EGM (B/398) and 1006 AGM (B/468).

28. I found the allegation by the respondents that the 3 items of work named had never been approved at any owners’ meeting is misplaced. 

29. According to the notice of meeting for the 215 EGM (B/533), agenda 1 concerned the improvement works to be conducted and item (A) therein is the item of works eventually passed by way of a resolution, ie “install the car park lift and the renovation of the G/F lobbies and Canopies, the retiling of the external wall of car park, and the retiling of typical lift lobbies floor (total 3 projects)”.  It is apparent from the record quoted above that the tiling of the 3 external walls and the renovation of the canopy at the main lobby/entrance was approved at the 215 EGM.

30. There is also a document attached to the minutes of the 215 EGM which is a list showing the works involved and the costs of the works (「工程項目價錢總覽表」)(B/535) (“the List”) in which details of the Works and the tender price of each contractor are listed at Part 1A therein.  Item (ii) of Part 1A on the List concerned the retiling of the external walls of the car park whilst item (i) of Part 1A on the List touched upon the canopy work at the main lobby on Cloud View Road (「大堂入口新造簷篷」).  I cannot see how the respondents can argue that these items of work were not included in the 215 EGM.

31. As for the work at the car park entrance on Cloud View Road, the respondents had not provided details as to what sort of work are involved.  According to the Interim Certificate of Payment prepared by the project director (B/576-581), no work touches upon the car park entrance except for the lobbies for different levels of the car park and the retiling of the external walls of the car park.  If this is the entrance mentioned by the respondents, this is also included in Part 1A of the List (B/535).

32. I found this defence must also fail.

10% Additional Costs Charged never on agenda and no tender

33. It is not in dispute that the IO had charged a sum of 10% of the total costs of the Works for the expenses of consultancy fee, contract administrative fee, clerk of works, extra insurance coverage and security staff and other relating expenses (“10% Additional Costs”).  It is also not in dispute that this 10% Additional Costs was never on the agenda or approved at the 215 EGM. 

34. It is the contention of the IO that it is the practice of the IO to set a contingency sum prior to the commencement of the renovation works ever since September 2010 and the respondents had settled all previous renovation works including such contingency sum.  Ms Gwilt submitted that the respondents had by conduct acceded to such practice.

35. I found the levying of this 10% Additional Costs by the IO based on the common practice before cannot stand.  There is no evidence that the practice of levying this 10% Additional Costs had been approved at any owners’ meeting, I cannot see how the IO can rely on the practice before as a basis to charge the same when such had not been included in the resolution passed at the 215 EGM.

36. I found the IO is not entitled to go after the respondents for this 10% Additional Costs.

Failure of the IO to provide the respondents with the letters of the BD/LD till 30 April 2015

37. It is not in dispute that Mr Ronald had requested for a copy of the letters issued by the BD/LD in connection with the approval of the car park lift and such was only provided in April 2015.

38. Be that as it may, I cannot see how this failure by the IO can be a ground to justify the respondents’ contention that they are not liable to pay the contributions towards the Works which is based on a resolution passed at the 215 EGM and should be binding on all of them (s.14 BMO refers).

39. This ground of defence must fail.

Clause 9(b) of DMC on insurance premium

40. Clause 9(b) of the DMC provides that :

“9. Each owner shall observe and perform the following covenants:

...

(b) Not to do anything whereby any insurance of the said building ...against fire may be rendered void ...or whereby the premium for any such insurance may be liable to be increased”.

41. Mr Ronald, who had been a registered insurance agent since about 1993, said in his witness statement that “by reason of the increase of the incurable interest and the fire risks thereof because of the added improvement works particularly the additional lift, the premium of the insurance of the Building is bound to increase” (B/287.2).  But under cross-examination, Mr Ronald agreed that he had no evidence to show that this is in fact the case.

42. I agree with Ms Gwilt that there is no evidence to show that the insurance premium of the Building had been increased or the insurance policy had been rendered void upon completion of the Works.  Furthermore, Clause 9(b) is a covenant to restrict the conduct of the individual owners and not the IO.  I cannot see how the respondents can rely on such a clause to restrict the acts of the IO.

43. This ground of defence must fail.

5 % Surcharge and Collection fee

44. It is the contention of the respondents that the 5% surcharge and the collection fee levied under the DMC are only for repair works and not for improvement works, so the IO is not entitled to charge the same.  And in any event, such clauses in the DMC are penalty clauses, thus not enforceable.

45. Clause 4(m)(3) of the DMC provides that :

“4(m) The Manager shall have power and authority to do all or any of the following acts and things namely :-

(1) To demand and receive from each owner the contributions payable by each owner as hereinbefore specified ...;

...

(3) If any of the owners shall fail to make such contribution or further contribution as above provided within seven days after written notification from the Manager calling upon him so to do, he shall further pay to the Manager :

(i) A surcharge of 5% of the amount unpaid without prejudice to any other remedy exercisable hereunder; and

(ii) A collection charge of $150.00 or such lesser sum as the Manager may agree to cover the costs (other than legal costs of proceedings as hereafter mentioned) of the extra work occasioned by the default;” (B/295).

46. Since it is the findings above that the respondents are liable to pay the contributions to the Works and they had failed to pay on demand, the IO is entitled to levy a surcharge of 5% of the amount unpaid and the collection charge in accordance with Clause 4(m)(3) of the DMC.

47. The question whether a sum stipulated for in a contract is penalty or liquidated damages is a question of law.  A clause will not be a penalty merely because it is not a precise pre-estimate of the loss (Chitty on Contracts, 32ed, Paras. 26-182 to 26-184) and the onus of showing that a contractual provision is a penalty clause lies on the respondents.

48. I found the sum stipulated in the levying of the surcharge and the collection fee in this case is neither extravagant nor unconscionable in amount.  The sum levied is to ensure that owners would pay the sum they are required to pay to make sure that the IO have the fund for the management of the Building.  Such a clause is necessary to protect the legitimate interests of the IO.  The clause may be said to be a deterrent provision but cannot be considered a penalty.

49. This ground of defence must fail.

Conclusion

50. The respondents are liable to pay their respective share to the contribution of the Works except for the 10% Additional Costs which is not approved at the owners’ meeting.  And since the respondents failed to pay the contribution on demand, the IO is entitled to charge them the 5% surcharge and the collection fee.

51. Without the 10% Additional Costs, the repair costs to be apportioned for each undivided share of the building should be $2024.30 [($10,756,130 - $1,248,000) ÷ 4697 shares].  The respective contributions to be borne by the respondents should be as follows :

Case	Contribution to the Works	5% Surcharge	Collection fee
LDBM 283/2014	$48,583.20	$2,429.20	$150
LDBM 285/2014	$44,534.60	$2,226.70	$150
LDBM 286/2014	$46,558.90	$2,327.90	$150
LDBM 287/2014	$34,413.10	$1,720.70	$150
LDBM 288/2014	$42,510.30	$2,125.50	$150
LDBM 289/2014	$34,413.10	$1,720.70	$150

Order

52. It is ordered that :

a.   The respondents in LDBM 283/2014 do pay the IO their share of contributions to the Works in the sum of $48,583.20, a 5% surcharge at $2,429.20 and collection fee at $150;

b.   The respondents in LDBM 285/2014 do pay the IO their share of contributions to the Works in the sum of $44,534.60, a 5% surcharge at $2,226.70 and collection fee at $150;

c.    The respondents in LDBM 286/2014 do pay the IO their share of contributions to the Works in the sum of $46,558.90, a 5% surcharge at $2,327.90 and collection fee at $150;

d.   The respondents in LDBM 287/2014 do pay the IO their share of contributions to the Works in the sum of $34,413.10, a 5% surcharge at $1,720.70 and collection fee at $150;

e.    The respondents in LDBM 288/2014 do pay the IO their share of contributions to the Works in the sum of $42,510.30, a 5% surcharge at $2,125.50 and collection fee at $150;

f.   The respondents in LDBM 289/2014 do pay the IO their share of contributions to the Works in the sum of $34,413.10, a 5% surcharge at $1,720.70 and collection fee at $150;

g.   Costs order nisi that the respondents do pay costs of this application to the applicant without counsel’s certificate, to be taxed if not agreed on District Court scale.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute upon expiry of 14 days.