THE INCORPORATED OWNERS OF FOOK ON BUILDING, TAI PO v. CHAN SUNG MING AND ANOTHER

LDBM 67/2008

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

 BUILDING MANAGEMENT CASE NO. 67 OF 2008

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JUDGMENT

1.  Fok On Building is at Tai Po, New Territories. The Incorporated Owners of the building (IO), the Plaintiff, claims against Chan, the 1^st Respondent, and Lo, the 2^nd Respondent, who used to be members of the management committee of the IO.

BACKGROUND

2.  The building consists of 3 blocks, A (第一座), B (第二座) and C (第三座).  Before the IO came into existence, each of the 3 blocks was managed by the respective mutual aid committee (MAC).  Chan used to be the treasurer and Lo used to be the Chairman of the MAC of Block A.  They were also 2 of the 3 authorised signatories to the bank accounts of the MAC of Block A.

3.  The IO was incorporated in mid-2004.  But the approval to the MAC of Block A expired only on 2 May 2006.  There should be no dispute that effectively, the MAC had been dissolved since 2 May 2006.

4.  When Block A was still under the management of its MAC, it had undergone major renovation works pursuant to a contract between the MAC and one Kwai Hing Construction Company in 2002.

5.  Since about mid-June 2006, Kwai Hing and the IO, through their respective solicitors, engaged in correspondence regarding Kwai Hing’s claim for the outstanding cost of work done.  Messrs Tso Au Yim & Yeung (TAYY) then acted for Kwai Hing and Messrs Y T Szeto & Co (YTS) acted for the IO.

6.  In 2007, Kwai Hing commenced legal proceedings in the District Court for the outstanding cost of work done (DCCJ 666/2007).  The IO was named as the defendant.  Acknowledgement of service of the writ of summons was filed.  On 1 March 2007, TAYY gave notice of intention to apply for judgment in default of defence.  On 8 March 2007, YTS apparently on behalf of the IO made a payment into court in a sum of HK$84,000 in satisfaction of Kwai Hing’s claim.

7.  Meanwhile, the IO and Kwai Hing had direct discussion of possible settlement of Kwai Hing’s claim.  This led to the meeting of the management committee of the IO on 13 March 2007.

8.  The minutes of the meeting of the management committee on 13 March 2007 recorded the following:

“1.  經上次雙方商討確認後，承辦商“貴興”協議HK$170,000作為和解方案，而第一座委員陳崇明於9.3.2007透過律師將HK$84,000存入區域法院帳戶，此筆款項作為履約金，而其餘的款項，由第一座委員提議將工程傋用金款項以支付其餘所欠承辦商餘款共$86,000，提議獲委員議決通過。

2.  委員會通經“忠翹”知會承辦商法律代表草議和解協議書，並同意於確認後，7日內將餘款存入法庭戶口以支付所欠HK$170,000總欠費，以解除承辦商是次法律申索。

3.        會議通過委托授權司徒毓廷律師行與曹歐嚴楊律師行簽和解協議書。”

9.  Essentially, it was reported that Kwai Hing and the IO had agreed on a proposed settlement at the sum of HK$170,000.  The following were resolved in the meeting:

(1)    In addition to the sum of HK$84,000 already paid into court, the committee members from Block A proposed and it was resolved that the balance of the settlement sum, i.e., HK$86,000, should come from the renovation reserve of Block A.

(2)    It was resolved that the management company would inform Kwai Hing’s solicitors to draft the settlement agreement.  Upon confirmation, the balance of the settlement sum, i.e., HK$86,000, would be paid into court within 7 days.

(3)    It was resolved to authorise YTS to sign the settlement agreement (on behalf of the IO) with TAYY (on behalf of Kwai Hing).

10.  Eventually Kwai Hing proceeded with the application for default judgment.  Judgment was granted on 3 May 2007 whereby the IO was ordered to pay to Kwai Hing HK$225,580 together with interest and fixed costs.  The IO ended up having to pay HK$128,000 on top of the proposed settlement sum of HK$170,000.

11.  The IO began to complain about the conduct of Chan and Lo.  Amongst others, the IO complained that the settlement failed because Chan and Lo acted contrary to the IO’s wish and the verbal agreement between the IO and Kwai Hing.

12.  In the general meeting on 29 April 2007, the owners resolved to revoke the mandate of Chan and Lo as signatories to the bank accounts of the MAC of Block A with immediate effect.

13.  The IO somehow started to request Chan and Lo to attend the bank to close the accounts of the MAC of Block A and to transfer the funds in these accounts to the accounts of the IO.  Chan and Lo did not accede to such request.

14.  Failing to procure the use of the money in the accounts of the MAC of Block A, the management committee resolved in August 2007 that Blocks B and C would contribute by way of advance towards settling the judgment debt that the IO owed to Kwai Hing.

15.  In September 2007, the owners resolved to remove Chan and Lo from the management committee.

16.  On 10 November 2007, the management committee resolved to close the bank accounts of the MACs of the 3 Blocks and to transfer the funds in these accounts to 3 separate accounts to be opened in the name of the IO.

17.  For this purpose, the IO, by itself and through solicitors, again requested Chan and Lo to attend the bank to effect the closure and transfer of accounts.  Up to the day of this trial, the accounts of the MAC of Block A remained with the bank and the intended transfer was never carried out.

18.  The above are largely evidenced by the documents.  I find them to be the facts.

CLAIM

19.  The IO had various complaints against Chan and Lo.  So did its witnesses in their statements.  But as stated in the Notice of Application, the IO essentially claims against Chan and Lo for:

(1)    damages being the extra HK$128,000 that the IO had to pay to Kwai Hing as a result of the failure of the settlement; and

(2)    an order to compel Chan and Lo to comply with the resolution of the management committee dated 10 November 2007 to close the bank accounts of the MAC of Block A and to transfer the funds in these accounts to the new accounts opened in the name of the IO.

THE SETTLEMENT

20.  The case of the IO, according to the Notice of Application, is that:

“6.  Pursuant to a resolution duly passed by the Applicant on 13^th March 2007 (“the 1^st Resolution”), the Block A Mutual Aid Committee should pay HK$170,000 (“the Settlement Sum”) to Kwai Hing in amicable settlement of the Action.

7.    In breach of their contractual, fiduciary and statutory duties under Schedule 7 of the BMO to the Applicant, the 1^st and the 2^nd Respondents failed to arrange for the Settlement Sum to be paid to Kwai Hing from the Bank Acounts.”

21.  On behalf of the IO, 2 witnesses gave evidence.  Lee was a member of the management committee at the material time and has been the Chairman of the IO since September 2007.  Tsang was a member of the MAC of Block A and is a member of the management committee of the IO.

22.  In court, the evidence of Lee was that during a meeting on 5 March 2007, Kwai Hing and the IO verbally agreed to settle Kwai Hing’s claim at HK$170,000; and the IO would pay Kwai Hing the settlement sum within 5 days.  Allegedly contrary to that, what Chan did was to arrange the payment into court the sum of HK$84,000 on 8 March 2007.  Eventually the cheque for payment of the balance of HK$86,000 was not drawn until 31 March 2007.

23.  Such evidence of Lee materially differed from the IO’s pleaded case.  What the contemporaneous documents reveal are also not in line with what Lee said.

24.  The fact that there was negotiation and consensus between Kwai Hing and the IO regarding settlement in early March 2007 was not in dispute.  However, the minutes of the management committee meeting on 13 March 2007 suggests that by then, the consensus was that the dispute would be settled at the HK$170,000.  As stated in the minutes, this was a settlement proposal (or 和解方案).

25.  Irrespective of the apparent dispute as to Chan’s authority to instruct YTS to make the HK$84,000 payment into court, the management committee in that meeting did acknowledge, if not ratify, such payment into court and even resolved to make up the balance of the settlement sum by another payment into court in the sum of HK$86,000.  The minutes did not suggest any consensus that any part of the settlement sum had to be paid directly to Kwai Hing or in any other way.

26.  The minutes also reflect that some kind of settlement agreement was contemplated.  Kwai Hing was yet to draft the agreement.  It was only upon confirmation of the agreement would the IO have 7 days to make the HK$86,000 payment into court.  The management committee resolved to authorise YTS to sign the agreement.

27.  Exactly what that settlement agreement was remains unknown because no such document has been produced at the trial.  But various letters from YTS subsequent to the 13 March 2007 meeting cast some light on the documentation contemplated under the settlement proposal.

28.  In their letter to TAYY (acting for Kwai Hing) dated 19 March 2007, YTS stated that they were instructed that Kwai Hing and the IO had reached a settlement agreement.  YTS also expressed the understanding that TAYY were in the course of preparing a draft consent summons in respect of the settlement terms.

29.  Therefore, whatever the settlement agreement at the time was, Kwai Hing and the IO contemplated the terms of settlement to be incorporated in a consent summons.  This is perfectly understandable.  In other words, Kwai Hing’s claim should be settled really upon the parties’ signing the consent summons.  The suggestion that pursuant to the verbal agreement between Kwai Hing and the IO on 5 March 2007, the IO should pay the HK$86,000, whether into court or directly to Kwai Hing, within 5 days, or else the settlement would fail, is difficult to accept as a matter of fact.

30.  In their letter to the IO dated 31 March 2007, YTS recorded that they received TAYY’s letter enclosing the draft consent summons on 21 March 2007.  That was well after the deadline for payment of the settlement sum that Lee now suggested in his evidence.  TAYY in their letter apparently asked for the return of the consent summons duly signed together with the minutes of the IO’s meeting in support, presumably of the IO’s authority, in 2 days, i.e., 23 March 2007.

31.  YTS apparently sent the letter and draft consent summons to the IO by fax on the following day, 22 March 2007, and reminded Chan of the need for the IO to resolve to sign the document urgently.  However, Chan apparently represented to YTS that Kwai Hing promised during the meeting with the IO that IO would have time to prepare the necessary funds and to pass the necessary resolution.

32.  YTS went on in their letter by recording that they received the IO’s minutes of meeting on 28 March 2007.  In the context of this letter and in view of the available evidence, they could only be referring to the minutes of the management committee meeting on 13 March 2007.  Chan telephoned YTS on the following day asking them to sign the consent summons.  When YTS were about to do so, TAYY informed YTS that Kwai Hing had gone ahead with its application for default judgment.  TAYY did not mention what Chan told YTS about the time that Kwai Hing had allegedly extended to the IO.

33.  The letter from TAYY and the draft consent summons were also not disclosed in this case.  But it is abundantly clear from the above that Kwai Hing did not expect direct payment of the settlement sum at any time before the signing of the consent summons.  Otherwise, it would not have still instructed TAYY to tender the draft consent summons for the IO’s signature on 21 March 2007 in the absence of any such payment by the IO.

34.  It is clear that the settlement proposal failed because the consent summons was not signed within 2 days from 21 March 2007 as requested by TAYY on behalf of Kwai Hing.  Was Chan or Lo then to blame for the failure to sign the consent summons?

35.  There was produced in evidence a written declaration (or “嚴正聲明” as the title of the document) issued in the name of the management committee (p.83 of the hearing bundle) criticising Chan and Lo for delaying in signing the settlement agreement.

36.  In this declaration, the management committee also criticised Chan and Lo for utilising the money of the MAC of Block A and making payment into court in the sum of HK$80,000.  This was said to have been unauthorised and contrary to the verbal agreement between the IO and Kwai Hing on 5 March 2007.  It was said that pursuant to the verbal agreement, money should have been used to settle the cost of work done owed to Kwai Hing.  It was said that Chan and Lo had wrongfully complicated the matter.

37.  But the amount of payment in court referred to in the declaration is obviously incorrect.  Chan never said that his instruction to YTS was pursuant to a resolution of the IO; but he did have the instruction of the then Chairman to proceed.

38.  In their letter dated 31 March 2007, YTS recorded that Chan gave them instruction to handle the case for the IO.  YTS had advised that the IO needed to pass a resolution to properly appoint them.  Chan explained the urgency of the matter and therefore YTS nevertheless filed the acknowledgement of service of the writ in order to prevent an application for default judgment.

39.  In the same letter, YTS also recorded Chan’s instruction that the IO had had negotiation with Kwai Hing with a view to settlement.  YTS therefore made the payment of HK$84,000 into court in satisfaction of Kwai Hing’s claim (on 8 March 2007).  It transpired that eventually the settlement sum was agreed at HK$170,000.  Such settlement sum first appeared in the minutes of the management committee on 13 March 2007.

40.  It should be noted that the members of the management committee, including the then Chairman and Lee, who issued the declaration criticising Chan and Lo were also those who were present at that management committee meeting on 13 March 2007.  As mentioned above, the minutes of that meeting suggests that the management committee did acknowledge, if not ratify, the payment of HK$84,000 into court so arranged by Chan through YTS.  The balance of the settlement sum, HK$86,000, should also be paid into court for the purpose of the settlement.  It was also resolved to retain YTS to sign the settlement agreement on behalf of the IO.

41.  Therefore I have reservation about the fairness and reliability of the criticisms contained in this declaration.

42.  In their letter to the IO dated 31 March 2007, YTS recorded that Chan represented that Kwai Hing had agreed to certain time extension which TAYY eventually did not confirm to be true.  Did this cause the IO’s failure to sign the consent summons within time and therefore the entry of the default judgment by Kwai Hing against the IO?  Was Chan to blame for what he represented to YTS at the time?

43.  The fact was that the minutes of meeting on 13 March 2007 authorising the conclusion of the settlement was not signed by the then Chairman until 24 March 2007 and the minutes were not sent to YTS until 28 March 2007.

44.  The management committee must know the consensus between the IO and Kwai Hing as much as what Chan knew.  Whether Chan’s representation to YTS was correct or not, the IO as a whole obviously did not act in accordance with Kwai Hing’s demand and YTS’ advice.  I do not believe Chan or Lo should be singled out for criticism by the rest of the management committee.

45.  Mr Lok for the IO referred to section 29A(1) of the Ordinance, and I believe rightly, which provides that no member of a management committee, acting in good faith and in a reasonable manner, shall be personally liable for any act done or default made by or on behalf of the corporation in the exercise of its powers or in the performance or purported performance of the duties.

46.  In my view, it is not proved that Chan or Lo failed to act in good faith concerning the settlement with Kwai Hing.  I am also not satisfied that either of them could be singled out of and by the management committee as having acted in an unreasonable manner in failing to conclude the settlement with Kwai Hing.  The claim for the HK$128,000 therefore fails.

THE BANK ACCOUNTS OF THE MAC

47.  According to the Notice of Application, the IO’s case regarding the bank accounts of the MAC of Block A is that:

“10.        …… pursuant to a resolution of the management committee of the Applicant dated 10^th November 2007 (“the 2^nd Resolution”), it was resolved, inter alia, that the 1^st and 2^nd Respondents be dismissed as members of the management committee and the credit balance in the Bank Accounts be transferred (“Transfer”) to the account of the Applicant.

11.   In breach of their contractual, fiduciary and statutory duties under Schedule 7 of the BMO to the Applicant, the 1^st and 2^nd Respondents as authorised signatories of the Bank Accounts unreasonably and in wilful disregard of the Applicant’s decision and the 2^nd Resolution failed and still fails to arrange for the Transfer.”

The 10 November 2007 resolution

48.  As mentioned above, notwithstanding the incorporation of the IO in mid-2004, the MACs continued to exist until the expiry of their relevant approval on 2 May 2006.  The bank accounts of the MACs also continued to operate even after 2 May 2006.

49.  On 29 April 2007, the owners, including those of Block A, resolved to revoke the mandate of Chan and Lo as authorised signatories to the accounts of the MAC of Block A.  The owners did not resolve to close the accounts or to transfer the funds in the accounts to the accounts of the IO.

50.  In fact, there was no record of decision to close the accounts of the MAC of Block A or to transfer the funds in these accounts to the IO’s accounts until the management committee’s resolution dated 10 November 2007.  Was the management committee’s resolution effective for such purpose?

51.  In its letter dated 12 December 2007, the District Office pointed out that the MAC of Block A had effectively been dissolved since 2 May 2006.  Apparently, on 14 May 2007, the District Office had advised Lo, being the last Chairman of the MAC of Block A, to wind up the affairs of the MAC including the bank accounts of the MAC.

52.  Mr Lo for Chan and Lo submitted that according to the model rules for mutual aid committee in private building, the credit balance in the bank accounts of the MACs, upon its dissolution, should either be refunded to the residents of the respective blocks or be donated for charitable purposes.

53.  In their letter to TAYY dated 3 April 2008, the bank’s solicitors also noted that in a normal case, the funds in the account of a mutual aid committee should, upon the committee’s dissolution, be dealt with in the manner as Mr Lo submitted.  To me, this also sounds like a situation of a trust coming to an end.

54.  Mr Lok for the IO argued that the management committee was in a position to decide how to deal with the accounts of the MACs and the funds in the accounts on behalf of the owners.  Parties referred to sections 14, 16 and 18 of the Building Management Ordinance, Cap.344.

55.  Section 14 provides that a resolution passed with respect to control, management and administration of the common parts shall be binding on all owners.  Section 16 provides that upon the incorporation of the owners of the building, the rights, powers, privilege and duties of the owners in relation to the common parts of the building shall be exercised and performed by the corporation.

56.  Common to these provisions is the reference to the common parts of the building.  I do not find that winding up the accounts of the MACs and dealing with the funds therein falls within these sections.

57.  Mr Lok mainly relied on section 18(2)(g).  It provides that a corporation may, in its discretion, act on behalf of the owners in respect of any other matter in which the owners have a common interest.  Mr Lok further relied on section 29 which provides that the powers and duties conferred or imposed by the Ordinance on a corporation shall be exercised and performed on behalf of the corporation by the management committee.

58.  In view of how the affairs and bank accounts of the mutual aid committee should be wound up, I do not accept that bank accounts of the MAC of Block A and, more importantly, the money in these accounts are what the owners other than those of Block A could claim a common interest in; and that the IO can deal with them in its discretion as if this were matters in the daily management and administration of the building.

59.  In my view, only the owners of Block A can resolve on how to wind up the accounts and to deal with the money therein upon the dissolution of their MAC.  In the absence of such a resolution, the accounts of the MAC could not be closed and the funds in these accounts could not be dealt with as the IO intends.

60.  This probably led to what the IO referred to as the freezing of the accounts by the bank.  The IO had apparently requested Chan and Lo to attend the bank.  But the request was to close the accounts of the MAC and to transfer the money in the accounts to the IO’s accounts.  The IO’s notice to Chan and Lo evidences that.  Such notice was dated even as early as July 2007.  That was even before the management committee’s resolution regarding the closure of accounts and transfer of funds.  The IO was not entitled to make such demand and Chan and Lo were not obliged to comply then.

61.  I am not surprised that the bank had not paid heed to the IO’s requests regarding the closure of the accounts and the transfer of the funds in the accounts of the MAC of Block A either.  In their letter dated 3 April 2008, the solicitors for the bank explained that the instruction (and signatures) of the authorised signatories to the accounts or the consent of the owners of Block A would be required before the IO’s request could be entertained.

62.  Were Chan and Lo nevertheless under the duty to provide such instruction to the bank to close the accounts of the MAC and to transfer the funds upon their removal from the management committee?

Duties of Chan and Lo

63.  Chan and Lo are said to have been in breach of their contractual, fiduciary and statutory duties owed to the IO under Schedule 7 of the Ordinance.  Mr Lok for the IO relied on paragraph 8 of Schedule 7.

64.  The paragraph provides for the various duties of the manager upon the end of his appointment.  The outgoing manager shall as soon as practicable or in any event within 14 days of the end of his appointment deliver to the owners’ committee or the manager appointed in his place any movable property in respect of the control, management and administration of the building that is under his control or in his custody or possession and that belongs to the IO or the owners.

65.  There is no dispute that being members of the management committee, Chan and Lo were properly managers of the building for the purpose of this paragraph until their removal.

66.  Contrary to the pleaded case that Chan and Lo were removed from the management committee pursuant to the 10 November 2007 resolution by the management committee itself, the fact was that they were so removed by the owners in September 2007.  The agenda for the general meeting on 9 September 2007 evidences that.

67.  I do not agree that the funds in the accounts of the MAC of Block A were movable properties of the owners for the purpose of paragraph 8 of Schedule 7.  In any event, by the time when Chan and Lo were removed, the owners had already revoked these two persons’ mandate as the authorised signatories to the accounts of the MAC of Block A.  As a result of the 29 April 2007 resolution, neither Chan nor Lo was in a position to claim any more control, custody or possession of the funds in these accounts.

68.  The evidence was that Chan and Lo had indeed been contacted by the bank regarding the IO’s request.  Being informed of the revocation of the authorisation to Chan and Lo, the bank ceased to approach Chan and Lo further.

69.  Did any duty arise in Chan and Lo upon the earlier revocation of their mandate as the authorised signatories to the accounts of the MAC?  One may suggest that Chan and Lo might have at least co-operated in effecting the change of mandate from them to their succeeding authorised signatories.  Even assuming that such co-operation would be required of them for change, this was never what the IO requested Chan and Lo to do.  This was also not a duty stipulated under paragraph 8 of Schedule 7 of the Ordinance.

70.  In the circumstances, I do not agree that the refusal of Chan and Lo to accede to the IO’s requests to close the accounts of the MAC of Block A and to transfer the funds in these accounts to the IO amounted to breach of the duties under paragraph 8 of Schedule 7.

Conclusion

71.  I understand the IO’s intention to close the accounts of the MACs, which have become defunct, and to transfer the funds in those accounts to 3 separate accounts, though all under the name of the IO.  I also understand the IO’s concern about what the owners of the other Block had done to make up the judgment debt arising out of a dispute essentially concerning Block A only.  Perhaps Chan and Lo could have been more helpful in sorting out their differences with the IO in the past.

72.  However I cannot ignore the fact that it was indeed the owners’ decision to revoke the mandate of Chan and Lo as authorised signatories and to remove them from the management committee without first properly resolving to instruct Chan and Lo to close the accounts of the MAC and to transfer the funds in the accounts to the IO’s accounts that has contributed to the difficulty now the IO and the owners are faced with.

73.  On the basis put forward in the present application, the IO’s claim for the order to compel Chan and Lo to deal with the accounts of the MAC of Block A could not succeed.

JURISDICTION

74.  Mr Lo in his further written submissions referred to this Tribunal’s jurisdiction over the present application.  But he accepted that this has not been properly put in issue.  In view of my conclusion against the IO in any event, I do not propose to embark on discussing this point.

ORDER

75.  The IO’s application is dismissed.

76.  I make a nisi order that without prejudice to the costs orders made against them, Chan and Lo shall have the costs of this application including any costs reserved.  Costs shall be taxed on the District Court scale, if not agreed.  I certify the engagement of counsel appearing when the trial resumed this year.  In the absence of an appointment within 14 days to argue costs, this nisi order shall become absolute.