LDBM 316 OF 2004
IN THE LANDS TRIBUNAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
B uilding Management Application No. 316 of 2004
_______________
Between
Imax Investments Limited 1st Applicant
Liang Yang Keng 2nd Applicant
Liang Wong Che Hung 3rd Applicant
and
The Incorporated Owners of Yue Shing Commercial Building Respondent
_______________
Coram: Deputy Judge WONG, Presiding Officer of the Lands Tribunal
Date of Hearing : 4 April, 2005
Date of Handing Down of Judgment: 29 April, 2005
_______________
J U D G M E N T
_______________
Background
1. The Respondent is the Incorporated Owners of Yue Shing Commercial Building, 15-19 Queen Victoria Street, Central, Hong Kong (“the Building”). The 1st Applicant is the present registered owner of Units A, B & C of 20th Floor of the Building (“the Units”). The 2nd and 3rd Applicants were previously the joint registered owners of the Units and they transferred the Units to the 1st Applicant on 25 July 2003.
2. On 17 May 2004, the Respondent filed a claim in the Small Claims Tribunal under Case No. SCTC036102/04, whereby the Respondent claimed against the 1st Applicant for the following items: -
Item 1:
$13,118.00 being the management fee payable by the owner of the Units for the period from November 2003 to May 2004;
Item 2:
$10,500.00 being the contribution payable by the owner of the Units in respect of the Building’s lift works; and
Item 3:
$210.00 being the late charge.
3. The 1st Applicant admitted Item 1 and Item 2 of the claim, but raised a counterclaim for the refund of $126,000.00 being the contribution paid by the previous owners of the Units, i.e. the 2nd and 3rd Applicants, to the Respondent on 9 October 2002 in respect of the Building’s fire safety improvement works. As the counterclaim was beyond the jurisdiction of the Small Claims Tribunal, the Adjudicator in the Small Claims Tribunal transferred the counterclaim to the Lands Tribunal on 21 September 2004. The Adjudicator entered judgment in favour of the Respondent for Item 1 and Item 2 of the claim, but stayed the enforcement of the claim pending the final disposition of the counterclaim. The Adjudicator also dismissed Item 3 of the claim. Thus, the present proceedings in the Lands Tribunal concern only the counterclaim.
4. By an order of H.H. Judge Chan on 28 October 2004, the titles of the parties were reversed, i.e. the Respondent (who was the claimant in the Small Claims Tribunal action) became the respondent in the present proceedings, and the 1st Applicant (who was the defendant in the Small Claims Tribunal action) became the applicant in the present proceedings. On 4 January 2005, H.H. Judge Chan gave leave to join the 2nd and 3rd Applicants as applicants in the present proceedings. In other words, the counterclaim in the Small Claims Tribunal has become the claim of the 1st , 2nd and 3rd Applicants against the Respondent in the present proceedings.
Facts of the case
5. On 25 July 2000, the Fire Services Department and the Buildings Department issued 2 Fire Safety Improvement Directions (collectively “the Fire Safety Directions”) to the Respondent requiring the Respondent to carry out various fire safety improvement works for the Building.
6. At an owners’ meeting held on 28 August 2001, the Respondent resolved that a Task-force Committee (“the Fire Safety Committee”) be formed to co-ordinate and handle the fire safety improvement works, and to engage a consultant company to take steps to ensure compliance of the Fire Safety Directions. The Respondent further resolved that the fire safety improvement works would be re-tendered. In fact, the former manager of the Building, Land Asia Management Limited (“Land Asia”), had previously chosen one “Suen Tat Metal Machine Factory Limited” to be the contractor for the fire safety improvement works.
7. On 19 January 2002, the Fire Safety Committee resolved to engage Archidesign & Associates Limited (“Archidesign”) as the consultant and the authorized person in respect of the fire safety improvement works.
8. On 21 January 2002, the Fire Safety Committee opened 3 tenders for the fire safety improvement works. Together with the 5 tenders obtained by Land Asia earlier, the Fire Safety Committee resolved to pass the 8 tenders for the fire safety improvement works to Archidesign for analysis.
9. In February 2002, Archidesign prepared a Tender Analysis Report in respect of the 8 tenders (“the Report”). In paragraph 2.3 of the Report, under the heading “ARITHMETICAL CHECK”, Archidesign stated that Global Engineering (HK) (“Global”) was the only tenderer that complied with all the requirements and in order. However, in paragraph 4.2 of the Report, under the heading, “CONCLUSION”, Archidesign suggested that an interview be conducted with the two qualified tenderers, i.e. Global and Alliance Building Service Engineering Ltd. (“Alliance”).
10. On 28 February 2002, the Management Committee of the Respondent discussed the Report and accepted the suggestion that the tenderers would be separately interviewed for further details and particulars of the tenders.
11. At an owners’ meeting on 7 March 2002, it was resolved that a contractor who could meet the minimum requirements of the Fire Services Department would be appointed to follow up the fire safety improvement works.
12. On 12 August 2002, Mr. Yeung Wai Man, the Chairman of the Respondent, issued a notice to convene an owners’ meeting on 3 September 2002. It was stated in the notice that the following matters were to be discussed: -
“
(一)
通過接納「消防工程專責小組及則師報告建議」。
(二)
通過接納進行本廈消防工程之承辦商事宜。
(三)
通過工程總額及業戶攤分款項事宜。
(四)
其他事項。”
13. The above agenda can be translated as follows:-
“
(1)
passing [resolution] accepting “Recommendations of the Fire Safety Committee and the Architect’s Report”;
(2)
passing [resolution] accepting matters concerning contractor for the Building’s fire safety works;
(3)
passing [resolution] on the total sum of the works and the amount of contribution shared by the owners;
(4)
any other matters.”
14. The Respondent contends that the word “resolution” should be impliedly added in paragraphs (1) to (3) above to give the proper meaning of the word “passing”. I agree with the Respondent that the word “passing” in Chinese must refer to “passing resolution” in the context of the notice.
15. At a meeting of the Management Committee of the Respondent held on 23 August 2002, Archidesign reported that the “old tenders” would continue to be used, and that there were 2 qualified finalists, i.e. Global and Alliance. The Respondent resolved that the validity of the tenders would be extended and the Fire Safety Committee would interview the 2 finalists on 28 August 2002. The Fire Safety Committee was to report to the Respondent on its recommendation before 3 September 2002.
16. On 27 August 2002 (i.e. 7 days before the owners’ Meeting on 3 September 2002), Global withdrew its tender.
17. By a further report dated 30 August 2002, Archidesign gave further comments on the tender finalists.
18. On 3 September 2002, an owners’ meeting was held with an attendance of 13.8% of the owners. It was resolved at the meeting that the recommendations of the Fire Safety Committee and the architect’s report be accepted, Alliance be engaged as the contractor for the fire safety improvement works and that each unit of the Building should contribute a sum of $42,000.00 for defraying the costs of the fire safety improvement works.
19. On 9 October 2002, the 2nd and 3rd Applicants paid to the Respondent a sum of $126,000.00, being the aforesaid contributions in respect of the Units.
20. Subsequently, various variation works and Additional Builder’s Works were awarded to Alliance totalling $382,429.50.
The Claim
21. The Applicants’ claim is that section 20A of the Building Management Ordinance, Cap. 344 (“the BMO”), has been violated as there was no valid tender to award the contract for the fire safety improvement works to Alliance. Since the Respondent had no power to enter into the contract with Alliance, the Respondent could not ask for contributions from the owners of the Building. The 2nd and 3rd Applicants are therefore entitled to have the refund of $126,000.00 from the Respondent. On 25 July 2003, together with the assignment of the Units, the 2nd and 3rd Applicants transferred the right to claim for the refund to the 1st Applicant. Thus, the 1st Applicant also alleges that it has the right to claim for the refund. The Applicants are asking for the refund of $126,000.00 to either the 1st Applicant or the 2nd and 3rd Applicants as this Tribunal thinks fit.
22. At the trial, the Applicants added another claim for a declaration that the resolutions passed at the owners’ meeting on 3 September 2002 in connection with the acceptance of the recommendations of the Fire Safety Committee and the Architect’s report, and the contributions to be rendered by the owners be void and of no effect. The grounds for applying this relief are that:-
“
(a)
the notice convening the 3 September 2002 meeting is defective as it failed to render sufficient information on
(i)
the resolution to be passed therein;
(ii)
the proposals to be proposed by those managing the Respondent in relation to such resolutions;
(iii)
so as to enable the owners to form an informed view on whether to attend the meeting and vote for on against any resolution to be tabled therein
(b)
those managing the Respondent have failed to provide full and frank disclosure of relevant information from the date of dispatch of such notice to the date of such meeting.”
The Issues
23. Mr. Kuan, for the Applicants, submitted that there are 3 issues in this case as follows:-
“
(1)
Whether the resolution of the Owners’ Meeting regarding the engagement of Alliance as the contractor of the fire safety improvement works and the resultant resolution regarding contribution of HK$42,000.00 per unit was valid and binding?
(2)
Whether the procurement of Additional Builder’s Work as per Appendix B of the late August Report and/or any other subsequent variation works from Alliance can be consider as lawful and valid?
(3)
Was the procurement of the fire safety works (excluding the Additional Builder’s Work and the variation works)(“the Original Works”) in conformity with the Code of Practice and Section 20A of the Building Management Ordinance Cap. 344 and, if not, what will be the consequence?”
The First Issue
24. On the first issue, Mr. Kuan submitted that consideration must be given as to whether sufficient information had been given so as to allow the unit owners of the Building to decide whether they would attend the meeting on 3 September 2002, and in this connection, the acts of those responsible for convening the owners’ meeting on 3 September 2002 and in particular, the content of the notice convening such meeting dated 12 August 2002 must be examined.
25. Paragraph 2(2) of Schedule 3 of the BMO states that: -
“Every notice ……….. shall specify: -
……………
(b)
every resolution to be proposed or other matter to be discussed at the meeting.”
26. Paragraph 3(7) of Schedule 3 of the BMO states that: -
“No resolution passed at any meeting of the corporation shall have effect unless the same was set forth in the notice ………or is ancillary or incidental to a resolution or other matter so set forth.”
27. Relying on the aforesaid provisions, Mr. Kuan submitted that the notice did not contain any resolution that was proposed by those managing the Respondent. The content of the notice was coached in very vague terms to the effect that something about the fire safety improvement works were to be decided, and strictly speaking, there was no mention of any proposal intended by those managing the Respondent on the matters to be dealt with at the 3 September 2002 meeting.
28. I do not agree with Mr. Kuan’s submission. As I have already said, the word “passing” in Chinese must refer to “passing resolution” in the context of the notice. There can be no other meaning. It should be clear to any owner that there would be resolutions to be passed in relation to the matters stated in paragraphs (1) to (3) of the notice. Even though the word “resolution” in Chinese was not expressly used in the agenda, I do not find that paragraph 2(2)(b) of Schedule of the BMO has been breached. In fact, the resolutions passed at the meeting on 3 September 2002 were all related to the matters stated in the notice. Paragraph 3(7) of Schedule 3 of the BMO does not invalidate such resolutions.
29. Mr. Kuan further submitted that there was no particulars included or even being made reference to in the notice and that recommendation and suggestion on this important matter was put forth in the meeting and to be decided immediately therein. Mr. Kuan was referring to the non-disclosure of the Additional Builder’s Work in the sum of nearly half a million dollars. Thus, there was nothing in the notice enabling any owner to decide on whether to attend the meeting to vote for or against any proposal or whether to leave the matter to be determined by the majority attending and voting at the meeting. On this point, Mr. Kuan relied on a number of authorities concerning the company law and the fiduciary duty of directors to suggest that apart from the aforesaid statutory requirement, there are other requirements in disclosure of information in respect of the content of businesses proposed to be transacted pursuant to the notice.
30. Mr. Kuan cited the following authorities:-
(a)
Deveraux Holdings Pty. Ltd. v. Pelsart Resources NL & Anor. (1986) 4 ACLC 12 per Young J at page 13 cited in Company Law – Powers and Accountability by Loh Siew Cheang and William M. F. Wong, 1st Ed., Butterworths (“the Textbook”) at page 802: -
“….a resolution of a company may be attached in relation to a defect in the notice convening a meeting in two completely separate ways…… Firstly, at common law unless all corporators are present or otherwise consent, a meeting is only competent to deal with special business which is properly notified to all members…. Secondly, there is an equitable principle that it is the fiduciary duty of directors not to mislead the corporators who are to consider whether to pass a resolution by providing them with material that is other than substantially full and true and this is especially so where the directors themselves may benefit from the passing of a resolution.”
(b)
Chequepoint Securities Ltd. v. Claremont Petroleum BL & Ors. (1986) 4 ACLC 711 per Mc Lelland J at page 713 cited by the Textbook at page 802: -
“………does not preclude the challenge to the validity of the meeting on equitable grounds based on a breach of the fiduciary obligation of the directors to the company in connection with the consideration by the company in general meeting of business proposed by the directors”
(c)
Fraser and Another v. NRMA Holdings Ltd and Others (1994-95) 15 ACSR 590 at page 601: -
“A duty to make disclosure of relevant information arises as part of the fiduciary duties of the directors of the company and its members in relation. The fiduciary duty is a duty to provide such material information as will fully and fairly inform members of what is to be considered at the meeting and for which their proxy may be sought. The information is to be such as will enable members to judge for themselves whether to attend the meeting and vote for or against the proposal of whether to leave the matter to be determined by the majority attending and voting at the meeting .”
(d)
The Textbook, at: -
Page 805
“The judicial content of the duty is to condescend to particulars, furnish candid information and give an explanation of proposed transactions to shareholders to enable them to make an informed judgment whenever required in the circumstances.”
Page 810
“A notice that fulfils all the common law requirements in giving fair warning of the objects sought to be accomplished is nonetheless an insufficient notice if it fails to comply with the equitable requirement that information necessary to enable the recipients to make an informed judgment must also be on the subject matter. A notice must fulfil both the common law and equitable requirements.”
Page 815
“The duty to give full and frank disclosure does not end at the time of the dispatch of the information document. Should changes occur at any time between the date of the dispatch of the information document and the date of meeting, the changes must be disclosed.”
(e)
The Textbook, at pages 821 and 822: -
“Explanation at meetings is meant to clarify matters. It is not meant to supplement the information lacking form the beginning or to make good insufficient disclosure …….. This is because the rule is designed primarily to protect the absent shareholder.”
(f)
The Textbook, at page 813: -
“Circulars with sufficient information not given within sufficient time to enable shareholders to deliberate on the subject matter proposed for decision at meetings is as bad as circulars containing insufficient information given within time.”
(g)
The Textbook, at page 840: -
“The question of the honesty of directors is irrelevant for the purpose of determining whether there has been a breach of the duty of disclosure or not …… The important point is that if there are certain things which shareholders ought to know, then they should be given the opportunity to consider those matters and decide for themselves what to do.”
31. I do not find any of the above authorities helpful. They all concern the fiduciary duty of company directors. I think the duties of a member of an incorporated owners is not the same as those of a company director. An incorporated owners is a statutory creature. Its powers and duties are all governed by the statute, i.e. the BMO. So is a member of the Incorporated owners. I see no justification to impose the equitable principle of fiduciary duty on an incorporated owners or its members. Thus, I find that there is no extra requirement of disclosure of information apart from those laid down in the BMO.
32. In the circumstances, I find that the resolutions of the owners’ meeting on 3 September 2002 regarding the engagement of Alliance as the contractor of the fire safety improvement works and the contribution of $42,000.00 per unit is valid and binding on the owners including the Applicants.
The Second Issue
33. Mr. Kuan relied on the Code of Practice on Procurement of Supplies, Goods and Services issued by the Home Affairs Department in July 1997 in pursuance of Section 44 of the BMO, which states that: -
“Any supplies, goods or services the value of which exceeds or is likely to exceed: -
(a)
the sum of $100,000.00 ……… shall be procured by invitation to tender.”
“….. the management committee shall prepare a proposal setting out the types of supplies of goods or service required, the respective estimated costs and the period open for tender. A copy of the tender proposal shall be displayed at a prominent place of the building.”
“the minimum number of tenders to be sought shall be as follows:-
……….
(b)
5 in the case of tenders for supplies, goods or service exceeding a value of $100,000.00.”
34. Also, section 20A of the BMO stipulates that: -
“
(1)
the Procurement of all supplies, goods or services required by corporation …. Shall comply with such standards and guidelines as may be specified in a Code of Practice……
(2)
Any supplies …... the value of which exceeds or is likely to exceed …… the sum of $100,000 …… shall be procured by invitation to tender.
(3)
The procurement by invitation to tender …… and the tender procedure in respect thereof shall comply with such standards and guidelines as may be specified in a Code of Practice …..”
35. Mr. Kuan submitted that “tender” in this context means “an offer or bid put forward for acceptance” and that the Code of Practice has clearly statutory force. Despite the resolution of the Management Committee on 23 August 2002, which in effect stated that there was no need for any invitation for tender in respect of the Additional Builders’ Work, it does not alter the fact that there was no provision governing the provision of any additional works or variation works in either the Form of Tender or the Conditions of Tender. The Additional Builder’s Work cannot be said as having any relation with the invitation to tender which had held before. Given the sum involved in the Additional Builder’s Work was over HK$10,000.00, it must be procured by invitation to tender and that at least 5 tenders in that regard must be sought. However, nothing to that effect has been carried out by the Respondent. Thus, Mr. Kuan contended that the procurement of the Additional Builder’s Works is in breach of section 20A of the BMO and the Code of Practice, and therefore the portion of contribution for financing such works must either be wholly void or at least voidable.
36. I do not agree with Mr. Kuan on this issue either. There are many authorities as cited by Mr. Choi, for the Respondent, that the Code of Practice is only directory in nature. The Code provides standards and guidelines for the procurement of supplies, goods or services required by a corporation and procurement by invitation to tender of any supplies, good or services under subsection (2) of section 20A and the tender procedures in respect thereof. The Code of Practice are not rules of law and are not mandatory in nature (see Pokfulam Development Limited and others v. The incorporated Owners of Scenic Villas , LDBM 70/2000, as endorsed by the Court of First Instance in Incorporated Owners of million Fortune Industrial Centre v. Jikan Development Ltd. & Another , [2001] 3 HKLRD 588 and the Court of Appeal in 麗苑業主立案法團對韓炳基及柳愛華 CACA 1716/2001. ).
37. Also, the Court of Final Appeal, in Mexon Holdings Ltd. v. Silver Bay International Limited [2000] 2 HKC, held that the Code of Practice (in this case on provisions of Means of Excape) was for the guidance of authorized persons and other responsible for the design of new buildings. Thus, I do not find that the Code of Practice has any statutory force as suggested by Mr. Kuan.
38. Although in Wong Tak Keung Stanley v. The Managemetn Committee of the Incorporated Owners of Greenville House CACV 244/2003, the Court of Appeal queried whether the previous cases were rightly decided, it did not give a conclusion on whether s.20A (1) is mandatory or directory. In the circumstances, the decision of CACV 1716/2001 is binding on this Tribunal.
39. Moreover, the BMO does not expressly state the legal consequence of non-compliance of a Code of Practice. Section 44(2) only states that a failure on the part of any person to observe any Code of Practice shall not of itself render that person liable to criminal proceedings of any kind but any such failure may, in any proceedings whether civil or criminal including proceedings for an offence under the BMO, be relied upon as tending to establish or to negative any liability which in question in those proceedings. The decision of CACV 1716/2001 makes it clear that section 44(2) does not make a resolution void because of non-compliance of a Code of Practice.
40. By the same token, the procurement of other variation works, not being part of the Additional Builder’s Work, will not affect the validity of the resolutions.
The Third Issue
41. Paragraph 6 of the Code of Practice state that all tenders shall be opened at the same time in the presence of at least 3 members of the Management Committee. Of the 8 tenders, 5 of which were opened first whilst the remaining 3 were opened on 21 January 2002. Mr. Kuan therefore submitted that it was a breach of paragraph 6 of the Code of Practice. Accordingly, it was also a breach of Section 20A(1) of the BMO, which states that such procurement shall comply with such standards and guidelines as may be specified in a Code of Practice. The procurement of the Original Works was therefore void or at least voidable.
42. The same arguments apply here as for the Second Issue. I do not find that a breach of the Code of Practice would render a resolution void or voidable.
Estoppel by Convention
43. Even if the Applicants can successfully claim that the resolutions passed on 3 September 2002 were defective, the Applicants are precluded form having of the refund of the contributions by virtue of the doctrine of estoppel by convention. Estoppel by convention may arise where both parties to a transaction act on assumed state of facts or law (see Chitty on Contract, 29th ed. Para 3-107).
44. The Respondent as well as the 2nd and 3rd Applicants had acted on the assumption that the resolutions of the Respondent on 3 September 2002 were valid. The 2nd and 3rd Applicants had paid the contributions to the Respondent, and the Respondent had used the money to carry out the fire safety improvement works. The parties are now precluded from denying the truth of that assumption, as it would be unjust or unconscionable to go back on it.
45. The 2nd and 3rd Applicants did not raise any objection about the validity of the relevant resolutions nor did they object to the contributions in October 2002. It was only when the Respondent commenced legal proceedings in the Small Claims Tribunal against the 1st Applicant on 17 May 2004 then the 1st Applicant raised such claim against the Respondent. By that time, the fire safety improvement works had been completed and money collected from the owners had been paid to Alliance for services provided. It would be unjust and unconscionable to refund the contributions to the Applicants since the money had been spent and the other owners of the Building had made their respective contributions.
Conclusion
46. In the circumstances, I find that the Applicants are not entitled to the refund of $126,000.00 or the declaration sought. Their claims must be dismissed.
47. I therefore order as follows:-
(1)
The Applicants’ application herein be dismissed.
(2)
Costs Order Nisi: The Applicants do pay the costs of this application to the Respondent, to be taxed on District Court Scale if not agreed. If there is no application for costs within the next 14 days, this costs order nisi shall become absolute.
(Deputy Judge WONG)
Mr. KUAN Man-chun of Messrs. Tsang, Chan & Woo for the Applicants.
Mr. CHOI Wing-pong Benny of Messrs. Chui & Lau for the Respondent.