和富大廈(荃灣)業主立案法團 v. 浩鴻發展有限公司及另一人

LDBM 15/2011

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 15 OF 2011

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BETWEEN

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J U D G M E N T

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Background

1.  The applicant has discontinued the application against the 1^st respondent on 28 July 2011, and hence the present trial only concerns the applicant’s claim against the 2^nd respondent.  The applicant is the owners’ corporation of Wofoo Building (“the Building”), Nos. 204 – 210 Texaco Road, Tsuen Wan, New Territories, Hong Kong.  The 2^nd respondent is the registered owner of the Ground Floor of the Building.

2.  The applicant’s claim is for a declaration that, in relation to the cost of the repair works resolved at the owners’ meetings on 16 December 2009, 17 March 2010 and 18 August 2010 respectively, the applicant has correctly used undivided shares of the owners to calculate and collect contributions from all the owners of the Building, including the respondents. As the trial only involves the 2^nd respondent, not the 1^st respondent or any of the other owners who may disagree with the applicant’s contention, the declaration sought, if granted, should be confined to the 2^nd respondent’s contribution alone.

3.  The works that were approved at the said owners’ meetings (“the Works”) are as follows:-

(1) General measures and scaffolding;

(2) Reinforced concrete structural and rendering works;

(3) Replacing common drainage pipes;

(4) Replacing common toilet flushing pipes;

(5) Common water supply facilities;

(6) Iron works;

(7) New water collection pipes for air-conditioners;

(8) Re-rendering and painting of external walls;

(9) Water proofing;

(10) Rebuilding ground floor lobby;

(11) Painting pipes at external walls; and

(12) Renewal of lifts.

4.  Items (1) to (10) of the Works were approved at the owners’ meeting on 16 December 2009 and the estimated cost of these works was $14,978,060.00.  Item (11) of the Works was approved at the owners’ meeting on 17 March 2010 and the cost was $50,000.00.  Item (12) of the Works was approved at the owners’ meeting on 18 August 2010 and the cost was $2,600,000.00.  It was resolved at the owners’ meetings on 17 March 2010 and 11 November 2010 that the cost of the Works were to be apportioned among the owners in accordance with their undivided shares of ownership as stipulated in the deed of mutual covenant of the Building (“the DMC”).

5.  Part D of Section V of the DMC contains the following provisions:-

“D. Management Expenses

1. Each Owner shall pay all costs expenses and outgoings incurred in the proportions specified in sub-clause 3 in relation to the management of the Building whether the Manager be obliged hereunder to incur such expenditure or not including without limiting the generality of the foregoing the following:-

(a) The due proportion of the Crown rent payable in respect of his undivided parts or shares of the Land and the Building.

(b) The cost of carrying out all or any of the duties of the Manager set out herein.

(c) The cost of employing staff to administer the management of the Building.

(d) All reasonable professional fees and costs incurred by the Manager including:-

(i) fees and costs of surveyors, rating surveyors, valuers, architects, engineers and other employed in connection with the management, maintenance and improvement of the Building.

(ii) solicitors and other legal fees and costs.

(iii) fees and costs of any accountants and/or auditors employed in connection with the preparation or audit of the Accounts or the Manager’s Statement as hereinafter referred to.

(e) All water, gass [sic], electricity, telephone and other service charge supplied to Common Areas and Common Facilities.

(f) The cost of effecting insurance in respect of or in connection with the management of the Building.

(g) All charges, assessments, impositions, expenses for maintenance and other outgoings in respect of all Common Areas and Common Facilities.

(h) The costs of postage, stationery and other sundry items incurred by the Manager in connection with the management of the Building.

2. The Management Company shall constitute a Building Improvement Fund for the overall periodical improvement of the Building. Each Owner shall in respect of his Unit contribute to such Building Improvement Fund on demand from time to time by the Manager. The first contribution shall be made upon each owner taking possession of his Unit and shall be in the sums specified in Sub-clause 3 below. Subsequent contribution shall be in the amounts to be specified by the Manager but shall in any event be in the same proportions as the first contribution.

3. Each owner shall pay to the Manager on account of Management expenses and Manager’s Remuneration for his Unit and his Vehicle Parking Space each month on demand the sums specified in the 3^rd column below and shall make a first contribution to Building Improvement Fund specified in the 4^th Column below:-

Floor	Monthly Management Fee	First Contribution to Building Improvement Fund
Ground	HK$3,221:60	HK$2,000:00
First	HK$4,250:00	HK$2,000:00
Second	HK$2,800:00	HK$2,000:00
Third	HK$1,840:00	HK$2,000:00
Fourth	HK$2,500:00	HK$2,000:00
Fifth	HK$2,500:00	HK$2,000:00
Sixth	HK$1,245:90	HK$2,000:00
Seventh	HK$2,500:00	HK$2,000:00
Eighth	HK$1,245:90	HK$2,000:00
Ninth	HK$1,245:90	HK$2,000:00
Tenth	HK$1,245:90	HK$2,000:00
Eleventh	HK$1,245:90	HK$2,000:00
Twelfth	HK$2,500:00	HK$2,000:00
Thirteenth	HK$3,000:00	HK$2,000:00
Fourteenth	HK$1,845:00	HK$2,000:00
Fifteenth	HK$1,845:75	HK$2,000:00
Roof	HK$ 50:00	HK$ 100:00

Provided that the said monthly management fees shall be revised and adjusted from time to time by the Manager in the proportion of the undivided shares which each floor is allotted in relation to the total number of undivided shares of the building.”

6.  It seems that there are mistakes in sub-clause 3 of Part D of Section V of the DMC when it refers to the “3^rd column” and the “4^th Column” of the table therein, as there is actually no 4^th Column in the table.  From the reading of the context of sub-clause 3, it seems that the “3^rd column” should refer to the 2^nd column and “the 4^th Column” should refer to the 3^rd column.

7.  In the Re-Amended Notice of Application, the applicant contended that the Works were major repair works, not the normal repair works under management operation, and the cost of the Works could not be covered by sub-clause 1 and the table in sub-clause 3 of Part D of Section V of the DMC.  Nevertheless, the applicant abandoned this ground at the trial.  Now, the applicant contends that the Works were for the repair of the Building and the apportionment of the cost should be governed by sub-clause 1 and the proviso to sub-clause 3 of Part D of Section V of the DMC. Alternatively, if the proviso to sub-clause 3 does not apply, section 22(2) of the Building Management Ordinance, Cap 344 (“the BMO”) applies.  In either case, the apportionment should be based on the undivided shares of the owners.

8.  On the other hand, the 2^nd respondent contends that the Works were for the improvement of the Building and the apportionment of the cost should be governed by sub-clause 2 and the 3^rd column of the table in sub-clause 3 of Part D of Section V of the DMC.  The 2^nd respondent further contends that the Building Improvement Fund referred to in sub-clause 2 of Part D of Section V of the DMC is a special fund to be set up pursuant to paragraph 4 of Schedule 7 of the BMO.

9.  Thus, the main issue in this case is how the cost of the Works should be apportioned among the owners.  However, in view of the 2^nd respondent’s contentions, it is necessary to determine whether the Works were repair works or improvement works, and the nature of the fund collected or to be collected for the Works.

Nature of the Works

10.  According to the evidence of the applicant’s witness, Ms Kwan Siu Kuen, the Building was built in 1972, almost 40 years old.  The owners of the Building had concerns about the deteriorated conditions of the Building and hence the applicant engaged W & K Architect Limited (“the Architect”) as its repair and inspection consultant.  The Architect produced a detailed inspection report dated 14 September 2009 to give its findings.  As found by the Architect, there were possibly 187 defects at the external walls of the Building.  There were also defects at the interior walls of the Building and the Building’s car park due to deterioration.  The drainage pipes were rusty, silted up and had leakage problems.  There were cracks in the waterproofing layer of the Building’s roof causing water leakage problems.  The Architect formulated the repair items taking into account the level of defects and danger caused to the public. Items (1) to (11) of the Works were resolved to be carried out in the light of the Architect’s findings.  Item (12) of the Works was resolved to be carried out because there were serious defects with the lifts, and one of which was so defective that it was beyond repair.  In the minutes of the meetings where the Works were discussed, it also shows that the Works were referred to as repair works rather than improvement works.

11.  The 2^nd respondent did not challenge the applicant’s evidence or adduce its own evidence concerning the reasons for the Works, but rather makes submission that some of the Works have improved the Building.  The 2^nd respondent sought to refer to the annexure to its 2^nd supplemental submissions to address the Tribunal that some of the Works were improvement works.  Relying on the authorities in Woodfall, Landlord and Tenant, volume 1, paragraphs 13.033 and 13.035, the 2^nd respondent submits that in the context of the renovation in question, the following will assist in deciding whether the remedial works in question are repairs or are beyond the concept of repair:-

(a)  Whether the works go to the whole or substantially the whole of the building structure or only to a subsidiary part;

(b)Whether the works have the purpose of remedying an inherent defects; and

(c)  Whether the works enhance the building from its original state and/or confer benefits on the owners.

12.  The 2^nd respondent submits that in the context of the present case, a number of remedial works can be identified as being beyond repairs, and properly construed, in an overall sense, the remedial works are for the improvement of the Building, upon the application of the tests laid down above.  The 2^nd respondent also submits that extensive and expensive works of maintenance can amount to more than repairs.  The nature and extent of the renovation in question, as well as other factors such as the cost of the renovation and the impact on the use and enjoyment of the Building by the owners, should give rise to the conclusion that the remedial works go beyond repair.

13.  I have no doubt that the authorities cited by the 2^nd respondent are good law, but ultimately, whether or not work amounts to repairs, improvement or maintenance is a matter of fact and degree (see Re Oasis Hong Kong Airlines Ltd [2011] 2 HKLRD 471).  The test for “improvement” is an objective one.  If the work provides something new for the benefit of the occupier, it is properly speaking an improvement.  On the other hand, if it only replaces something already there, which has dilapidated or worn out, albeit that it is a replacement by its modern equivalent, it constitutes “repairs” and not “improvement” (see Morcom v Campbell-Johnson and others [1956] 1 QB 106 and The Incorporated Owners of Hip Wo House v Daily Trend Limited and others LDBM 95 of 2003). In The Incorporated Owners of Bayview Mansion v Chan Cheung Kit Mui Margaret HCSA 32 of 1994, it was held that the following matters are relevant matters in determining whether a piece of work constitutes “improvement” or “repairs”:-

(a)  Whether prior to the work, the relevant parts were well-maintained and serviced and in good condition, or there were defects there;

(b)Whether the relevant parts were in need of replacement; and

(c)  The wordings in the relevant written records.

14.  From the applicant’s evidence, it is clear to me that many parts of the Building were deteriorated, and the Works, including the replacement of all the pipes, water supply facilities, lifts and ground floor lobby, were all carried out because of the defective conditions of the Building.  There were real needs for the replacement of the various parts of the Building and they were not to provide something new to the owners.  The minutes of the relevant meetings also confirm that the owners were merely doing the Works to maintain or repair the Building rather than to improve it.  The facts that the Works involved a substantial part of the Building and the cost was substantial do not support the 2^nd respondent’s contention that they were improvement works, as there were really many defects involved in the Building.  Thus, I do not find that the Works were “improvement” works as alleged by the 2^nd respondent, but they were repair works for the Building.

Nature of the fund

15.  With my finding that the Works were not improvement works, the 2^nd respondent will not be able to rely on sub-clause 2 of Part D of Section V of the DMC, as it is only for the overall periodical “improvement” of the Building.  Moreover, even if the Works were improvement works, they would not be “periodical”.  The word “periodical” is not a legal term and it is not defined in the DMC.  The ordinary meaning of “periodical” denotes something that happens “fairly often and regularly” (see Oxford Advanced Learner’s Dictionary of Current English, 7^th ed). Obviously, the Works would not be carried out fairly often or regularly, but were of large-scale and one-off.  Thus, the fund collected for the Works cannot be regarded as a “Building Improvement Fund” as stipulated in sub-clause 2 of Part D of Section V of the DMC.

16.  The 2^nd respondent’s reliance on the “special fund” provisions in paragraph 4 of Schedule 7 of the BMO is also wrong.  Although paragraph 4(1) of Schedule 7 stipulates that the manager shall establish and maintain “a special fund to provide for expenditure of a kind not expected by him to be incurred annually”, paragraph 4(5) of Schedule 7 makes it clear that “Except in a situation considered by the manager to be an emergency, no money shall be paid out of the special fund unless it is for a purpose approved by a resolution of the owners’ committee”.  Thus, the special fund anticipated by paragraph 4 of Schedule 7 is normally for expenditures involving emergencies, unless they are approved by the owners.  The owners of the Building did not set up such a special fund for emergencies, and the Works cannot be regarded as an emergency.  There is no reason to treat the collection of contributions from the owners for the cost of the Works as establishment of a special fund for emergencies.  The minutes of the relevant owners’ meetings show clearly that the owners were simply collecting contributions for repairing the Building and there is no indication at all that they were to set up a special fund for emergencies as stipulated in paragraph 4 of Schedule 7 of the BMO.

17.  In any event, the Building Improvement Fund referred to in sub-clause 2 of Part D of Section V of the DMC cannot be regarded as a special fund under paragraph 4 of Schedule 7 of the BMO, as there is a clear definition in clause 1 of the DMC stating that “Building Improvement Fund” shall mean “the fund constituted by the Management Company pursuant to this Deed”, not the BMO.  Thus, even if the Works were improvement works and could be covered by the Building Improvement Fund, paragraph 4 of Schedule 7 is still not applicable.

18.  Then, what is the nature of the contributions collected or to be collected from the owners for the Works?  In this regard, I accept the applicant’s contention that the cost of the Works is part of the management expenses stipulated in sub-clause 1 of Part D of Section V of the DMC.  Sub-clause 1(g) of Part D of Section V states that each owner shall pay all costs expenses and outgoings incurred in relation to the management of the Building including “All charges, assessments, impositions, expenses for maintenance and other outgoings in respect of all Common Areas and Common Facilities”.  The cost of the Works can clearly be covered by this clause, as the repair works are part of the “maintenance” for the “Common Areas” and “Common facilities” of the Building.

19.  The definition in clause 1 of the DMC concerning the word “maintain” states that “maintenance” shall be construed in accordance with the word “maintain”, and the word “maintain” includes “repair” and “improve”.  Thus, expenses for repair works and even improvement works are expenses for maintenance.  The definitions of “Common Areas” and “Common Facilities” in clause 1 of the DMC also cover all the parts of the Building in respect of which the Works were carried out.

20.  In the circumstances, I find that the cost of the Works is payable under sub-clause 1 of Part D of Section V of the DMC.  The contributions collected or to be collected from the owners for the Works are therefore part of the management expenses collected or to be collected under this provision.

Apportionment

21.  Sub-clause 1 of Part D of Section V stipulates that each owner shall pay all costs expenses and outgoings incurred “in the proportions specified in sub-clause 3”.  Sub-clause 3 stipulates that “Each owner shall pay to the Manager on account of Management expenses and Manager’s Remuneration for his Unit and his Vehicle Parking Space each month on demand the sums specified in the 3^rd column below” (should be the 2^nd column as mentioned above).  The 2^nd column of the table in sub-clause 3 gives the proportions of the monthly management fees payable by the owners in respect of their own floors.  It seems that the proportions mentioned therein are different from the proportions of the undivided shares of the owners mentioned in paragraph (4) of the recitals to the DMC.  The 3^rd column of the table in sub-clause 3 is not applicable as I have held that the cost of the Works cannot be regarded as the Building Improvement Fund.  However, the proviso to sub-clause 3 provides that “the said monthly management fees shall be revised and adjusted from time to time by the Manager in the proportion of the undivided shares which each floor is allotted in relation to the total number of undivided shares of the building”.  In other words, the applicant is entitled to change the proportions for payment of monthly management fees to the proportions of the undivided shares of the owners.

22.  Although the payment stipulated in sub-clause 3 is said to be “on account”, it does not really matter as the manager is entitled to revise the management fees from time to time and demand payment of the revised fees accordingly when there is any deficit or surplus.   What matters here is that the applicant is entitled to use the proportions of the undivided shares of the owners to apportion the contributions from the owners in respect of the cost of the Works, as it is part and partial of the management expenses covered by sub-clause 1 of Part D of Section V of the DMC.

23.  I therefore find in favour of the applicant’s first contention.  If, however, I were wrong on this, I also find in favour of the applicant’s second contention.  Section 22(2) of the BMO stipulates that “if the deed of mutual covenant does not provide for the fixing of contributions, the amount to be contributed by an owner towards the amount determined under section 21 shall be fixed by the management committee in accordance with the respective shares of the owners”.  Thus, if for any reason the provisions in the DMC are not applicable, the provisions of the BMO will come into play.  It is clear that section 22(2) of the BMO adopts the proportions of the undivided shares of the owners.  It would not be wrong for the applicant to use the undivided shares of the owners to apportion the cost of the Works.

24.  Moreover, the lease of a multi-storey building is held by the owners of the individual units as tenants in common.  In general, this co-ownership does not differ from the traditional, common law principles of co-ownership (see Sihombing and Wilkinson, A Student’s Guide to Hong Kong Conveyancing, 5^th ed, p 269).  Under the common law, if a deed of mutual covenant does not specify the apportionment of common expenses, co-owners of the building should make contributions in the proportion of the undivided shares of their respective units (see 南生大廈業主立案法團訴葉小燕及鄭成光, LDBM 152 of 2001).  Thus, even assuming that the provisions in the DMC or the BMO are not applicable at all, the owners of the Building are still required to contribute towards the cost of the Works in accordance with their respective undivided shares in the Building.

Conclusion

25.  In the circumstances, I find that the 2^nd respondent should contribute towards the cost of the Works in accordance with the proportion represented by its undivided shares in the Building.

26.  The orders I make are as follows:-

(1) It is declared that, in relation to the cost of the repair works resolved at the owners’ meetings on 16 December 2009, 17 March 2010 and 18 August 2010 respectively, the applicant has correctly used the proportion of the undivided shares of the 2^nd respondent in the Building to calculate its contribution.

(2)Costs order nisi: the 2^nd respondent do pay the applicant costs of the application with certificate for counsel to be taxed on District Court Scale if not agreed.  If there is no further application in relation to costs within the next 14 days, this costs order nisi shall become absolute.