OWNERS HOLDING 10.43 OF UNDIVIDED SHARES OF MAYFAIR GARDENS AS PER ANNEXED v. KAI SHING MANAGEMENT SERVICES LTD AND ANOTHER

LDBM 269/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 269 OF 2014

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Reasons for Judgment

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1. By the present application, 690 applicants comprising about 850 persons, holding an aggregate of about 10.43% of the total undivided shares of the Mayfair Gardens, seek the tribunal’s order to hold an owners’ meeting of the Mayfair Gardens for the purpose of forming an owners’ incorporation (“IO”) pursuant to s.4 of the Building Management Ordinance, Cap 344 (“BMO”).

2. After hearing Mr Jeffery Tam, counsel for all the applicants, and there being no opposition to the application, this tribunal granted the following orders:

i)   A meeting of owners of the Mayfair Gardens for the purpose of appointing a management committee with a view to incorporate an IO pursuant to the BMO be convened by Mr Lai Chi Wai, the 669^th applicant and authorized representative of all the applicants herein, within 6 months days from today;

ii)   Costs of and occasioned by the application together with counsel’s certificate (including costs and expenses in connection with holding the aforesaid meeting of owners) be paid by the applicants; and

iii)  In the event an IO of the Mayfair Gardens is established subsequent to the management committee appointed by the aforesaid owners’ meeting to be held, the costs referred to in the preceding sub-paragraph be refunded to the applicants by the IO, to be taxed on district court scale if not agreed.

3. At the conclusion of the hearing brief reasons for the tribunal’s decision have been given orally. The tribunal indicates the same will be handed down in due course, and they are as follows.

Brief Background and Discussion

   Brief Background

4. Mayfair Gardens (美景花園) is a composite real estate development situated in the Tsing Yi Island comprising residential blocks, commercial areas, car parks, kindergarten, etc. The development started in the early 1980s and it was the developer’s original intention to build in 3 phases with, inter alia, 12 residential blocks. A deed of mutual covenants of the entire development was executed on 30 June 1982 and registered in the Land Registry by Memorial No. TW254445 (“the said DMC”) when units in the first phase were ready for occupation.

5. By the said DMC, Mayfair Gardens have been notionally divided into 65,000 equal undivided shares. The applicants now totally possess 6,782 shares.

6. However, due to protest by owners of the Mayfair Gardens, it was decided that phase III of the development would not go ahead. As a result, Blocks 1 to 4 of residential units, some commercial/shops facilities and common parts would not be built. An aggregate of 21,417 undivided shares of and in the Mayfair Gardens, representing phase III of the development together with the part of land on which phase III was originally intended to be built upon were assigned to Government and held by the Financial Secretary Incorporated (“FSI”). Most of the Commercial areas are held by the developer May’s Investment Company Limited (“May’s Investment”).

7. The undivided shares of Mayfair Gardens, according to the evidence of the said Mr Lai[1], are distributed as follows:

i)	Individual Owners:	18,712 shares (28.79%)
ii)	FSI:	21,417 shares (32.95%)
iii)	May’s Investment:	24,871 shares (38.26%)

The 10% Threshold under s.3 of the BMO

8. However, it has not been provided in the assignment from May’s Investment to FSI the respective undivided shares appropriated to the relevant part of common areas, residential and commercial parts of phase III. As a result, there is a confusion of the total numbers of undivided shares of the entire development. According to the various Registers maintained by the Lands Registry, the total number of undivided shares has become 75,535.

9. No investigation on this discrepancy has ever been done by the applicants prior to trial. The trial on 8 June 2015 was necessarily adjourned, pending further investigation by the applicants’ solicitors.

10. Upon enquiries, it was confirmed by May’s Investment through its solicitors Woo, Kwan, Lee and Lo, and the FSI through the Lands Department that the total undivided shares remains unchanged, i.e. 65,000. The discrepancy arises because in the assignment between May’s Investment and FSI, it has not been spelt out the respective undivided shares appropriated to the relevant part of common areas, residential and commercial parts. As a result, the Lands Registry has double-counted the total numbers of undivided shares of some parts of the development. Both parties confirm a supplemental deed has been prepared to rectify and clarify the discrepancy. In fact, May’s Investment has already executed the same, pending execution by the FSI.

11. It is therefore beyond doubt that the total undivided shares for Mayfair Gardens remain 65,000.

12. This is an important issue. S.4(1) together with other relevant provisions of the BMO provides:

“4(1) The tribunal may, upon application by-

(a) The owners of not less than 10% of the shares in aggregate; or

(b) The Authority or an authorized officer,

Order that a meeting of owners shall be convened, by such owner as the tribunal may direct, to appoint a management committee.

…

(9) The convenor shall preside at a meeting of owners convened under this section.

(10) The quorum at a meeting of owners convened under this section shall be 10% of the owners.

…

7(1) A management committee appointed under section 3, 3A, 4 or 40C shall within 28 days of such appointment apply to the Land Registrar for the registration of the owners as a corporation under this Ordinance.”

13. Accordingly, if the total undivided shares of Mayfair Gardens are 75,535 instead of 65,000, the applicants represent only 8.99% instead of 10.43%[2] of all owners, falling short of the statutory threshold of 10% under s.4 of the BMO. The application must fail in the circumstances.

14. Mr Tam confirms that in the list of applicants, those whose names are in brackets in fact have not subscribed their signatures in support of the present application. He agrees, and this tribunal considers correctly, that these names should be deleted because no consent has ever been obtained from them. The amended list will be filed with the tribunal in 7 days.

15. Mr Tam submits, and this tribunal accepts, that after deletion of those names in brackets, the total undivided shares comprised in the application will not be affected. It is because under the BMO regime, the undivided shares of a unit will be counted when any one of the co-owners votes. Even if the tribunal were wrong, the percentage is still 10.1%[3] as only 213 undivided shares are involved. The statutory minimum prescribed under s.4 of the BMO can be met anyway.

The Meeting and Appointment of Convenor

16. The next question is whether in the circumstances of this case, the tribunal should direct a meeting for the purpose of appointing a management committee with a view to incorporation; and whether the proposed candidate Mr Lai is a fit and proper person.   

17. There is a manager appointed under the said DMC responsible for its enforcement and management of Mayfair Gardens. According to its terms, each domestic and commercial tower shall elect among owners of a tower an owners’ committee of that tower[4]. Owners’ participation in the management of the entire development is through a “Development’s Owners’ Committee”[5] consisting of the chairmen of individual towers, a representative of the manager and a representative of May’s Investment. However, it is provided in the said DMC that all resolutions passed at meeting of the Development’s Owners’ Committee shall be binding on all the owners of Mayfair Gardens but not on the manager[6]. The function of this committee seems to the tribunal to be consultative. It is only limited to representing the owners in all dealings with the managers, making proposals and undertakings duties as the manager may delegate to the said committee[7].

18. According to the unchallenged evidence of Mr Lai, owners of the Mayfair Gardens have long desired to form an IO to take care of their own business. This is particularly so when recently, Mayfair Gardens have undergone substantial renovation which has generated a lot of controversies. Some owners are dissatisfied with the works undertaken by the contractors.

19. The BMO provides for a number of ways for owners to incorporate an IO. They are set out under sections 3, 3A, 4 and 40C of the BMO each with a different triggering-off threshold.

20. It is Mr Lai’s evidence that attempts have been made for the owners to convene an owners’ meeting under s.3 of the BMO with a view to appoint a management committee. However, the said resolution should be supported by owners of at least 30% undivided share in aggregate. Mr Lai said in his affirmation that they were unable to obtain the requisite support.

21. It is also Mr Lai’s evidence that owners have tried to go about the incorporation under s.3A of the BMO by requesting the Secretary for Home Affairs as the Authority ordering an owners’ meeting to be convened. However, there should at least be 20% of owners making the request. Mr Lai said one Madam Ng attempted to collect the necessary support in 2013 by setting up a booth within the development. Despite a lapse of 6 months, Madam Ng has failed to obtain support from owners representing 20% shares of undivided shares in Mayfair Gardens.

22. Since 2014, no chairman was elected in many of the towers in Mayfair Gardens. The “Development’s Owners’ Committee” (referred to as “Estate Owners’ Committee” by Mr Lai) has since been inoperative. It is Mr Lai’s evidence that the manager has made all its decision without supervision of the said committee[8].

23. Mr Lai has become the registered owner of a unit in the Mayfair Gardens as from March 2013. At the hearing he showed to the tribunal several bundles purporting to be the originals of the authorizations, and produced a photocopy of such letter signed by the 1^st applicant herein as exhibit A-1. By the written authorizations, the respective owners appointed Mr Lai to make application to the tribunal for the purpose of convening an owners’ meeting for appointing a management Committee pursuant to the BMO. He is able to obtain authorization from owners of 10.43% of the total undivided shares in Mayfair Gardens.

24. Mr Lai is a university graduate and is now working as a computer programmer. He is not a member of any political party though he is assisted by a district board member who belongs to the Democratic Party. He has been an active promoter for the formation of the IO. He has on 3 previous occasions convened meetings attended by 100 to 200 owners for the purpose of the briefing them on the progress of the application to the tribunal. He uses his own fund to retain the present firm of solicitors. Although he has no previous experience in IO formation, he believes, with the assistance of his lawyers and other owners, he can manage to hold an owners’ meeting if the tribunal is minded to appoint him as the convenor.  

25. Section 4 of the BMO gives the tribunal discretion on whether to order a meeting. In the tribunal’s judgment, this is an appropriate case for the tribunal to exercise discretion in favour of a meeting to appoint a management committee for the purpose of incorporating an IO:

i)   The present mechanism for owners’ participation in the management of their own affairs set out in the said DMC appears not working. According to the unchallenged evidence of Mr Lai, the Estate Owners’ Committee has not been functioning, if not defunct, for over 2 years. Despite repeated attempts by the manager, no chairman has been elected in respect of some of the towers of Mayfair Gardens. It is most undesirable particularly when Mayfair Gardens are now undergoing major renovation. Owners who have contributed substantial renovation expenses should be able to supervise, and to express their views on the work done or proposed to be done to the manager and/or the contractors. There is apparently a genuine and urgent need for an owners’ incorporation to be established to take up the role of the defunct Estate Owners’ Committee;

ii)   This is a rather unique case. The minorities’ owners are holding a very low percentage in terms of undivided shares – marginally less than 29%. The other 2 majorities, holding over 71% in aggregate, adopt a neutral stance. Such stance adds difficulty to the formation of the IO. Without support of any of 2 majorities, technically it will be impossible for the minorities to go about the matter under s.3 of the BMO which has a threshold of 30%[9]. The Authority will only direct an owners’ meeting under s.3A of the BMO when support from 20% of the total undivided shares holders, or 69% of all minorities, can be obtained. In the reality of Hong Kong, it will be extremely difficult, if not impossible to obtain support from a vast number of owners, particular when Mayfair Gardens is a big real estate development with over 2,000 residential units. Now about one-third of all minorities have expressed their wishes to form an IO. It is a large enough population whose voice cannot be lightly ignored. It will therefore be a proper exercise of judicial discretion for the tribunal to give effect to their wishes by directing a meeting to be convened. In the tribunal’s judgment it is a modest request. It is not a request to establish an IO. It is only a request for holding an owners’ meeting for the purpose of considering whether to establish an IO, and if so, appoint a management committee for that purpose.   

iii)  The long title of BMO, which sets out the overall purpose of the ordinance, states as follows:

“To facilitate the incorporation of owners of flats in buildings or groups of buildings, to provide for the management of buildings or groups of buildings and for matters incidental thereto or connected therewith.”

In the tribunal’s judgment, the BMO helps promote the policy objectives of the Government in encouraging building or groups of buildings to establish their owners’ incorporation voluntarily to self-manage their own buildings. It provides for a democratic ways for owners to participate in the decision-making process of the corporation for the better management and control of their own properties. It also helps owners discharge their responsibilities and overcoming unfair provisions in the DMC. Accordingly, unless there are compelling reasons to the contrary, the tribunal should exercise discretion for such meeting to be convened, leaving the owners in general meeting to decide whether to appoint a management committee for the purpose of incorporation. Co-owners of the same real estate development share common interests. It is therefore only fair and natural that they should be given an opportunity to self-manage their own affairs and properties.   

26. Turning to the convenor for the meeting, this tribunal is satisfied that Mr Lai is a fit and proper person to be appointed. He is a university graduate with a master degree and is expected to understand the statutory requirements for holding the meeting. He confirms he will continue to engage a firm of solicitors to advise him, and is able to afford the legal fees for the time being. Although he has no experience in either the Estate Owners’ Committee or any other IO, he seems to have the abilities, or at least the abilities to command assistance from others, to convene 3 previous meetings on this subject. These meetings were attended by 100 to 200 participants each time. In any event he has the overwhelming supports of some 10% of owners of Mayfair Gardens – some 850 persons each of whom signing a written authorization in his favour. This is obviously an important consideration that the tribunal must not overlook.

Reimbursement of Costs and Expenses

27. S.4(2) of the BMO states that upon the making of an order under s.4(1), the tribunal may order that the costs of the application shall be paid by the applicant or by any person opposing the application.

28. In the present case, there is no opposing party. The 1^st respondent being the manager of the said DMC has indicated they have all along maintained a neutral stance. Even the applicants also acknowledged this being the case. Leave was granted to the applicants to withdraw their application against the 1^st respondent on 5 January 2015.

29. On the same date, this tribunal also directed service of the amended application on the 2^nd respondent be effected by:

i)   Posting up of notices of the application settled by the registrar in conspicuous places in Mayfair Gardens for 7 consecutive days; and

ii)   Placing a copy of the said notice once in an English newspaper and once in Chinese newspaper both publishing and circulating in Hong Kong for 1 day.

30. Notice of trial was also directed to be effected in manners similar to above, save and except that the display of notices in Mayfair Gardens was for 3 consecutive days.

31. All these directions have been complied with, but no notice of opposition has been received as at the date of trial.

32. Under s.4(3) of the BMO, if a corporation is established under the BMO, the corporation shall refund to the applicant any costs paid by him in accordance with an order made under s.4(2). Accordingly, this tribunal directs a refund to the applicants of costs and expenses by the IO in the event it is subsequently incorporated by the management committee so appointed by the s.4(1) meeting.

LDBM 269/2014
(Annxure)

[1] See Bundle 1/34 at §21

[2] 6,782 ÷ 75,535 = 8.99%; 6,782 ÷ 65,000 = 10.43%

[3] 6,782 – 213 = 6,569, 6,569 ÷ 65,000 = 10.1%

[4] See Sections VIIA and VIIB (§§A1 to B2) of the said DMC @ Bundle 2/162-165

[5] See Section VIIC (§§C1 to 18) of the said DMC @ Bundle 2/165-169

[6] See §9 of Section VIIC of the said DMC @ Bundle 2/166

[7] See §13 of Section VIIC of the said DMC @ Bundle 2/167

[8] See §30 of Mr. Lai’s affirmation affirmed on 18 September 2014 (Bundle 1/36)

[9] See s.3(2)(b) of the BMO