THE INCORPORATED OWNERS OF WINNER BUILDING v. WAI MAU SZE AND OTHERS

HCA20180/1998 & 7564/1999
(consolidated)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 20180 OF 1998

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ACTION NO. 7564 OF 1999

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(Consolidated pursuant to the Order of
Master Poon dated 11 September 2000)

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J U D G M E N T

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1.  The plaintiff is the Incorporated Owners of Winner Building (“the Building”).  The defendants involved in this trial are the owners of various units in the Building. 

2.  In these actions, the plaintiff claims against the defendants for contributions towards the maintenance works of the Building.  The defendants dispute the claim, contending that the works were not properly authorized.  Specifically, the defendants say that the notice convening the owners’ meeting on 9 August 1997 was not validly served and the resolution(s) passed at the meeting was/ were not validly passed and that, alternatively, some of the works done were unnecessary luxurious improvement works.  The defendants also dispute the interest claimed by the plaintiff as excessive.

Facts leading to the two actions

3.  Winner Building is a multi-storey building situated at Nos. 867-885 Canton Road, Kowloon.  It was completed in 1977.  It is 24-storey high, consisting of shops on the ground floor and 23 floors of residential units.

4.  Previously, the Building was managed by a management company appointed by the developer.  In November 1994, the plaintiff was incorporated.  In 1995, the plaintiff took over the management of the Building as a result of disputes with the management company.  It appears that they had been litigating over the deficits in managing the Building.

5.  Sometime in the end of 1996, the plaintiff received a letter from the Electrical & Mechanical Services Department (“EMSD”) requiring the Building to undergo an inspection of its electricity supply system.  Consequently, the management committee (“MC”) sent for quotations.  Then in early 1997, the plaintiff conducted an owners survey to ascertain whether the owners desired to carry out overall maintenance works to the Building.  There were 56 responses to the questionnaires, of which 55 were in favour of undergoing maintenance works.

6.  At the annual owners’ meeting held on 15 March 1997, the matter was discussed and the meeting unanimously resolved to proceed with the preparation and organization of the maintenance works. 

7.  It appears from the documents before the court, including the minutes of their meetings, that the MC had done a number of things to implement the decision made at the general meeting.  It is also the plaintiff’s case that the MC had posted up these minutes at the lift lobby to keep the owners informed of the progress of the preparatory work.

8.  In summary, the MC resolved at its meeting on 19 April 1997 to engage a consultant for the maintenance project by open tenders.  Five tenders were received.  On 21 May 1997 and after conducting an interview, the MC resolved to appoint Mr Yung Chi Kin, who is an Authorized Person, as the project consultant. 

9.  At about the same time, the plaintiff received a letter dated 20 May 1997 from the Buildings Department advising the owners to retain an Authorized Person to conduct inspection and to report on the structural safety of the Building.  

10.  After his appointment, Mr Yung, in consultation with the MC, drew up a timetable for the proposed work and also prepared the documentation for inviting tenders for the maintenance works.  In the course of his preparation, Mr Yung had inspected the Building and distributed questionnaires to owners to ascertain the scope of the maintenance and repair works that would be required. 

11.  Among the documents that that been drawn up is a document called 招標章程 (Guidelines for tender) (“the Guidelines”).  It sets out detailed descriptions of the project and the terms and conditions governing the tender.  More importantly, it contains a schedule listing out the work descriptions (工程細則).  The schedule is part of the tender documents.  Bidders were invited to give their quotations as to the quantity, unit price and total amount by filling out the schedule.  Of particular relevance to these proceedings is section K of the schedule relating to works to be done to the external wall of the Building.  Under it, bidders were required to give quotations on the cost of (i) painting and (ii) paving mosaic tiles (“the painting option” and “the tiles option” respectively).  The footnote to the section indicated that a decision on the two options would be made before the contract was signed.    

12.  Then on 24 June 1997, the MC issued a notice to the owners bearing the heading “重要通告” (important notice) (“the 24-6-1997 Notice”).  It informed the owners that the Guidelines would be posted up in the lift lobby for the information of the owners and invited their views on the project.  The notice further indicated that matters relating to the works to be done, the tender price and the contractors would be confirmed and resolved at owners’ meeting. 

13.  It is the plaintiff’s case that this notice together with a copy of the Guidelines were posted up in the lift lobby of the Building on 24 June 1997.  The defendants did not dispute that notice of the project and the proposed work had been displayed in the lift lobby, although some of them said that it was early July 1997 that they saw the documents.

14.  On 7 July 1997, an advertisement inviting tenders for the maintenance works was inserted in a Chinese newspaper.  There were 19 indications of interest.  With the advice of Mr Yung, the MC selected 15 contractors and invited them to submit bids for the project. 

15.  The MC received a total of 14 bids.  It is the plaintiff’s case, but disputed by the defendants, that a list of the bidders had been posted up in the lift lobby for the owners’ information.  The MC met on 4 August 1997, and with the assistance and advice of Mr Yung and after several rounds of elimination, selected four contractors for interviews.  The interviews took place on 8 August 1997.  In the end, three contractors were short-listed and invited to attend the owners’ meeting to present their bids and to answer questions from the owners.

16.  In the meantime on 24 July 1997, the plaintiff gave notice convening an owners’ meeting on 9 August 1997.  It is the plaintiff’s case that three enlarged copies of the notice had been posted up at the lift lobby and that separate copies had been served at the shops on the ground floor   and inserted into the letterboxes of the residential units of the Building.  While some of the defendants accepted they had received the notice or had been informed of the meeting, some defendants denied having received the notice of meeting.

17.  On 9 August 1997, the owners’ meeting was held at Kwun Shing Restaurant, Canton Road.  Apart from the owners and Mr Yung, a representative from the district office and a District Board member, Mr Chun Fei Pang, also attended the meeting.  The conduct of the meeting, including the documents available to the participants, the things said and done as well as the resolution(s) passed, is a matter of dispute between the parties, to which I shall return later.  

18.  It is however common ground that the three short-listed contractors had made presentations on their bids at the meeting and had also answered questions from the owners.  It is also not disputed that a vote was taken at the meeting.  Of the 70 valid ballot papers received, 65 voted in favour of Samake Construction Co Ltd (“Samake”) and the other two contractors each got 2 votes. There was 1 abstention.  As to the two options for the work to be done to the external wall, there were 14 votes for the painting option and 56 votes for the tiles option.  It is worth noting that the defendants do not dispute that before the votes were cast, the owners had been made aware that the tiles option was more expensive than the painting option by some $2 million. 

19.  Shortly afterwards, the minutes of the meeting was posted up and distributed to the owners.

20.  On 13 August 1997, Mr Yung, authorized by the MC, accepted the bid of Samake and a Letter of Intent was signed.  The agreed price was HK$5,789,990.  As resolved by the MC, $300,000 would come out of the accumulated funds of the plaintiff.  

21.  On 16 August 1997, Mr Yung on behalf of the MC issued a notice to all owners informing them of their respective shares of contribution towards the cost of the works.  It ranged from $4,700 to $47,000.  The calculation was in accordance with the proportion specified in the Deed of Mutual Covenants (“DMC”).  Demand notes for the contributions were issued to the owners on 17 August 1997.  The owners could opt to pay by three instalments.

22.  Since about 29 August 1997, some owners, including Mr Mok Yeuk Kei and Mr Yan Kok Ping, who are the 1^st named 2^nd defendant and the 3^rd defendant in HCA7564/1999, started to go round to lobby the owners with a view to reducing the cost to be incurred through cutting down the item of works to be done.    

23.  Eventually on 14 September 1997, they wrote to the plaintiff to requisition an extraordinary owners’ meeting.  Among other matters, they proposed to discuss and resolve to change from the tiles option to the painting option in connection with the work on the external wall and to cut down on the items of work. 

24.  Acting on the request, the plaintiff convened an owners’ meeting on 15 October 1997.  It appears that two matters were agreed at this meeting.  The first is the setting up of an owners group to monitor the progress of the work.  The second is that the MC would discuss with Samake to explore the possibility of switching from the tiles option to the painting option. 

25.  The decisions had been carried out.  The monitoring group was formed.  Both Mr Yan and Mr Mok were members of it.  They had attended a few of the meetings of the MC at which aspects of the implementation of the project were discussed.  On the other hand, the MC through Mr Yung had also discussed with Samake the issue of switching the options for the external wall.  Samake initially demanded compensation in excess of $1.1 million, which was eventually reduced to $880,000.  

26.  At the meeting on 27 November 1997, the MC resolved to abide by the decision made at the meeting on 9 August 1997 and not to change from the tiles option to the painting option.  The meeting also resolved to engage lawyers to deal with matters and litigation arising out of the maintenance project, including to bring claims to recover the outstanding contributions.   

27.  On about 23 January 1998, the plaintiff and Samake signed the formal contract for the maintenance works to the Building.  The work was duly carried out by Samake and completed in about March 1999.  The Buildings Authority had conducted inspection and acknowledged the completion of works. 

28.  Meanwhile, the differences between the MC and some of the owners remained unsolved.  Towards the end of November 1997, the dissatisfied owners demanded to see the minutes and financial statements of the MC as well as the documents relating to the maintenance project.  They had also sought unsuccessfully to remove the chairman and other members of the MC.    After the commencement of these proceedings, Mr Yan applied successfully to the Lands Tribunal for disclosure and inspection of documents against the MC. 

29.  The majority of the owners had since made their respective contributions.

30.  On 26 November1998 and 8 May 1999, the plaintiff commenced HCA 20180/1988 (“the 1^st Action”) and HCA 7564/1999 (“the 2^nd Action”) respectively to recover the outstanding contributions from those owners who had not paid up.  By the Order of Master Poon dated 11 September 2000, the two actions were consolidated.  

The claim

31.  The plaintiff’s case as appeared by the Amended Statement of Claim and the Reply is that following the owners’ meeting on 15 March 1997, the owners had at the meeting on 9 August 1997 resolved to appoint Samake as the contractor and to carry out repair and maintenance works to the Building, with the costs to be borne by the owners.  It is also the plaintiff’s case that under clause 4(f)(iv) of the DMC, the owners had covenanted to bear and pay the costs of, inter alia, repairing and maintaining the Building.  Further under clause 4(m) of the DMC, an owner who defaults in payment is liable to pay interest at the rate of $5 per $100 of the amount unpaid for each period of 30 days.

The defence

32.  In essence, the defendants defend the claim on six main grounds.  They are:

(1) The meeting on 9 August 1997 was improperly convened in that (i) there was less than 14 days notice as required by paragraph 2 (1) of the Third Schedule of the Buildings Management Ordinance (“BMO”), and (ii) the notice of the meeting was not served or not served in accordance with paragraph 2(1A) of the Third Schedule of BMO. 

(2) The resolutions passed at the meeting were not binding on the owners in that they had not been set forth in the notice convening the meeting as required by paragraph 3(7) of the Third Schedule of BMO or alternatively, by clause 14(j) of the DMC. 

(3) The meeting did not pass any resolution authorizing the plaintiff to carry out the maintenance works or to enter into contract with Samake for the works to be undertaken.

(4) The resolutions were ambiguous and void for uncertainty. 

(5) Some of the works undertaken were unnecessary luxurious improvement and decorations works that went beyond maintenance and repair works referred to in the DMC and the resolutions passed by the owners.

(6) The interest claimed by the plaintiff is excessive and unreasonable.

The trial

33.  The plaintiff had entered default judgment against the 12^th defendant in the 1^st Action.  The trial is therefore only against the 2^nd, 9^th -11^th, 13^th, 14^th, 18^th and 19^th defendants in the 1^st Action and the 1^st to 3^rd defendants in the 2^nd Action.  The 2^nd defendant of the 1^st Action is unrepresented and he did not appear at the trial. 

34.  The plaintiff had called four witnesses.  They are Mr Choi Mei Shun, the chairman of the MC, Mr Chan Wah, the supervising caretaker responsible for distributing and posting up notices of the plaintiff, Mr Yung, the project consultant and also Mr Chun, the District Board member who was present at the 9 August 1997 meeting. 

35.  As for the defendants, a total of six witnesses were called.  They are Madam Mok Mei Kwai, the 9^th defendant in the 1^st Action, Madam Yuk Kam Lan, the wife of the 10^th defendant in the 1^st Action, Madam Chan Fuk Choi, the 2^nd named 13^th defendant and 3^rd named 14^th defendant in the 1^st Action, Mr Mok, Mr Yan and also Mr Lau Sze Man, another owner.  Apart from Madam Mok and Mr Mok, all the defence witnesses were present at the meeting on 9 August 1997. 

The Deed of Mutual Covenants (“DMC”)

36.  Before dealing with the issues to be tried, there is one matter about the DMC, which I will briefly mention.  

37.  It is common ground that the owners are bound by the terms of the DMC.  As noted above, the owners agreed under clause 4(f)(iv) to bear and pay the cost of repairing, renewing, maintaining, cleansing, painting or decorating the Building in the proportion as specified in the DMC.  By clause 4(m), the owners also covenanted to pay interest on outstanding payment at the rate of $5 per $100 of the amount unpaid for each period of 30 days. 

38.  At the same time, under clause 4(o)(v), the plaintiff, as successor to the manager of the Building, is authorized to repair, renew, maintain, service, clean and paint the Building and for such purpose to engage and enter into contracts with any person firm or corporation.    Additionally, the plaintiff is empowered by clause 4 (o)(i) to demand and collect from the owners contributions as specified in the DMC.

39.  Hence, apart from the general duty to maintain the common parts conferred by section 18(1) of the BMO, the plaintiff has power under the DMC to carry out repair and maintenance works to the Building and for that purpose, engage contractors and collect contributions from the owners.   The MC may resolve to exercise the power.  Alternatively, the MC may defer to all the owners, in which case the power is exercised by the owners in general meetings.  In the present case, the MC having gauged the views of the owners by the questionnaires in early 1997, had decided to leave the decision to the owners at the owners’ meetings.   Accordingly, the matter was first put to the owners at the meeting on 15 March 1997 at which it was decided that the MC should proceed with the preparation and organization of the works.  The MC had implemented the decision.  As to the important decision of which contractor to engaged and whether the external wall should be painted or paved with tiles, the MC once again deferred to the views of the owners, hence the meeting on 9 August 1997 was convened.   

40.  Accordingly, on the question of the plaintiff’s power and the owners’ obligations under the DMC and the relevance of the resolutions passed at the owners’ meetings, a matter that I had invited further submissions from counsel, I have come to view that notwithstanding the power given to the plaintiff under the DMC, the validity of the resolution(s) passed at the meeting on 9 August 1997 remains a relevant issue.

Notice convening the meeting of 9 August 1997

41.  The gist of the plaintiff’s evidence is that Mr Chan Wah (陳華) and another caretaker, Mr Mok Tai Ngok (莫泰岳), were responsible for serving the notice of the 9 August 1997 meeting.  Mr Chan started working for the plaintiff on 16 July 1997.  He recalled that about one week after he started working for the plaintiff, Mr Choi gave him a number of copies of a set of 4-5 pages document and instructed him and Mr Mok to make sufficient copies and to distribute them to the owners.  Although he had looked at the contents of the documents in details, he was aware that it included a notice of the meeting on 9 August 1997.  In accordance with Mr Choi’s instruction, he made three enlarged photocopies of the notice and posted them up in the lift lobby.  He also made photocopies of the notice and the other documents.  He and Mr Ngok then served them on the shops on the ground floor and also inserted them into the letterboxes of the residential units of the Building.  Mr Chan was adamant that they had inserted the notice into all the letterboxes, except the one for the management office and those unused letterboxes, being letterboxes that were not allocated to any unit.    

42.  Mr Choi was present when Mr Chan and Mr Ngok were distributing the notice and documents.  He confirmed what Mr Chan said.  Mr Yung and Mr Chun also confirmed that during their visits to the Building before the meeting, they had seen copies of the notice being displayed in the lift lobby.

43.  I am satisfied that Mr Chan is a truthful witness.  His answers are direct, spontaneous and have a ring of truth.  I accept his evidence relating to the posting up and service of the copies of the notice and other documents for the meeting on 9 August 1997.   Indeed, it is clear that the 10^th defendant in the 1^st Action, Mr Lau Siu Fai, had received the notice.  Mr Lau had returned the proxy form appointing his wife, Madam Yuk Kam Lan, to attend the meeting as his proxy.   Mr Lau Sze Man, who gave evidence for the defendants, also testified that he had on about 26 July 1997 got the notice from his letterbox.

44.  Further, although Madam Mok and Madam Chan said they had not seen or received any notice of the meeting, it is neither here nor there.  This is because admittedly they are both illiterate such that even if they had got the notice, they would not be able to know.

45.  In the case of Mr Yan, he testified he had not received the notice.  He only knew of the meeting because he was told.  In his witness statement made in February 2001, he said another owner Mr Fong asked him the night before the meeting whether he would attend.  However, in another witness statement made in October 2003, he said it was Mr Mok, the caretaker, who informed him of the meeting, and he had questioned Mr Mok why no notice was given.  He was cross-examined on this and he explained that he heard about the meeting from both Mr Fong and the caretaker. 

46.  I do not find Mr Yan and his testimony reliable.  His evidence is full of self- contradictions and illogicalities.  For instance, he accepted that he had since March 1997 known that the Building was making preparation for maintenance works and he had in July seen notice announcing maintenance work and documents describing the works being displayed in the lift lobby.  He was also present at the meeting on 9 August 1997 and had voted in favour of Samake and the tiles option.  Yet he said he did not know what works he was casting his vote for.  He sought to explain his vote on the basis that it was merely an exercise to collect the preliminary views of the owners (初步意見收集).   When he was further pressed on the point, he gave the extraordinary answer that he wrote out the choice arbitrarily (“我求其寫”).

47.  Although he maintained that no price was mentioned at the meeting, he accepted under cross-examination that the price difference between the tiles option and painting option had been disclosed at the meeting.  When it was put to him that he voted for the tiles option with full knowledge of the price difference and cost implication, there were long pauses before he eventually came up with the answer that he did not vote on the motions and that the document was not a ballot paper. 

48.  Another instance illustrative of the unreliability of his evidence relates to his statement in the witness statement that the lift lobby had been renovated three years ago.  He was asked by his own counsel how was the three years reckoned, whether it was three years before the date of his witness statement.  His initial answer was it was three years before the incorporation of the plaintiff. Then he said it was 1964.  When counsel reminded him that the owners’ meeting was held in 1997, he changed to say there was no renovation work before the meeting.  Although it was a simple point and the questions were clearly put in Cantonese, his answers were confusing and convoluted. 

49.  In the case of Mr Mok Yuek Kei, he and his wife moved into the Building in July 1997.  It is his evidence that he had not received the notice of the meeting.  Neither he nor his wife went to the meeting.  It is, however, noteworthy that in the many letters he together with Mr Mok and other owners wrote to the MC before the action, there was no complaint of non-receipt of notice.  Given the hostility at the material time between the MC and Mr Mok and him and considering the variety of allegations that had been levelled against the MC, it is singularly odd that there was no mention of them not having been served with notice of the meeting.  There is also no reason why the caretakers would have inserted the notice into some of the letterboxes but not the others.  It is Mr Chan Wah’s evidence that the owners were relating harmoniously with each other before the meeting.

50.  On the evidence of Mr Chan Wah, as confirmed by the other plaintiff witnesses, I find as a fact that the notice of the meeting had been posted up in the lift lobby and inserted into the letterboxes of the residential units of the Building on about 24 July 1997.  

51.  Paragraphs 2(1) and (1A) of the Third Schedule of the 1997 version of the BMO provide as follows:

“(1)  Notice of a meeting convened under paragraph 1 shall be served by the secretary of the management committee upon each owner and upon the tenants' representative (if any) at least 14 days before the date of the meeting.

(1A)  Service of a notice required to be served under subparagraph (1) may be effected-

(a)    personally upon the owner or tenants' representative (if any); or

(b)   by post addressed to the owner or tenants' representative (if any) at his last known address; or

(c)    by leaving the notice at his flat.”

52.  On the evidence as found, there is no issue of insufficient notice.

53.  However, insertion into the letterboxes or posting up are not among the modes of service permitted by the Third Schedule.  Clause 19 of the DMC permits notices required to be served under the DMC to be served by posting up.  Section 8 of the Third Schedule provides that in case of inconsistency between the provisions of the Third Schedule and the terms of the DMC, the former shall prevail.  Accordingly, there was no proper service of the notice convening the meeting on the owners of the residential units.    

54.   Notwithstanding this, the evidence shows that the owners, including some of the defendants, did have actual notice of the meeting and no less than 71 of them had attended the meeting and voted thereat.  Miss Lee submits and I agree that the owners had by conduct waived the irregularity and are precluded from disputing the validity of the service of the notice on them.

55.   At the same time, section 37 of the BMO provides:

“A resolution passed at any meeting convened under this Ordinance shall not be invalid by reason only of the omission to give notice of the meeting to any person entitled to such notice.”

56.  As for those owners and defendants who did not attend the meeting, by reason of section 37, the defect in the service of the notice of the meeting will not by itself invalidate the proceedings of the meeting and the resolutions passed thereat.

The meeting on 9 August 1997

57.  Before dealing with the other grounds of defence relating to the validity of the resolutions passed at the meeting on 9 August 1997, it is necessary to look at the evidence on the conduct of the meeting.

58.  The evidence given by Messrs Choi, Yung and Chun shows that the owners began to come in at shortly before 8 p.m.  As they came in at more or less the same time, the small reception area was rather congested.  The owners had to register first and they were then given copies of documents for the meeting.   These documents include the Guidelines and a document containing an analyzed comparison of the bids received by the MC (分析表).  Unlike the list of bids that the MC had posted up in the lift lobby after 4 August 1997, this analyzed comparison contains also the tender prices of the bidders, including the costs for the two options for the works on the external wall.  Mr Yung explained that the tender prices were not posted up partly because the information should hitherto be treated in confidence and partly to prevent the contractors offering to reduce their costs upon learning the competitors’ tendered prices, thereby causing unfair competition.  

59.  The meeting started at about 8:30p.m.  It began with a report from Mr Choi on the progress of the preparation for the project and the purpose of the meeting.  Among other matters, he drew the owners’ attention to the two options for the works on the external wall and the associated cost implications.  He further told the owners that they were to decide on the contractor to be appointed to do the works as well as which of the options to be adopted for the works on the external wall.  He had also informed the owners that the works would commence shortly after these decisions were made.  Mr Choi said he spoke for about 10 minutes from a three pages draft that he had prepared.

60.  This was followed by a report from the treasurer of the MC.  He informed the owners that the MC had resolved to apply $300,000 of the accumulated funds to the cost of the works.  He also told the owners that they could pay their contributions by three instalments.  But the exact amount of their share of contribution could only be made known after the owners had decided on the choice of contractor and the two options for the external work.  The calculation would be in accordance with the proportions specified in the DMC.

61.  Afterwards, Mr Yung gave an explanation of the project, including the works to be done and the tendering progress.  He also gave an introduction on the three contractors short-listed to attend the meeting.  In the course of his speech, he had made reference to the Guidelines and also the list of analyzed comparison mentioned above.  When introducing the contractors, he had mentioned their tender prices and wrote them out on a board.  He had also alerted the owners to the cost implication of the two options for the external wall.

62.  After this, the three short-listed contractors took turn to give a presentation of their bids in the absence of the other competing contractors. Each was allotted 25 minutes, during which they also received a number of questions from the owners.  These contractors had also brought alone with them the materials, such as tiles and piping that they proposed to use for the works.

63.  When the presentations were completed, the owners were asked to cast their vote on the contractor to be appointed and the option to be adopted for the works on the external wall by means of ballot paper provided to them.  During this time, both Mr Choi and Mr Yung had explained the purpose of the voting and the ballot paper to the owners.  After the votes were cast, they were counted.  As previously noted, the majority of the votes were in favour of appointing Samake and also the tiles option.

64.  Having seen and heard Messrs Choi, Yung and Chun, I am satisfied that they are witnesses of truth.  Mr Choi is not an articulated or sophisticated person, but he gives a consistent account of the meeting and the events leading to the litigation.  The bulk of his evidence on the work carried out by him and the MC is supported by the documents before the court.  Although Mr Yung is an Authorized Person and the project consultant, he was called as a witness of fact.  Like Mr Choi, he gives an straightforward account of his involvement in the project, including his role at the meeting on 9 August 1997 and what he had seen and heard there.  Mr Chun is an independent witness and he gave an objective account of the meeting.  His description of the events is supportive of the evidence given by Mr Choi.  The meeting in question happened some 8 years ago.  It is only natural that witnesses will not be able to recall the exact details.  Notwithstanding this, the evidence of the plaintiff witnesses on the whole is consistent and supportive of each other.       

65.  Not only that, the defence witnesses in various ways also confirm the account given by the plaintiff’s witnesses.  For instance, they agreed that the tender prices and the costs of the two options for the external wall had been mentioned.  Some of them also accepted that the ballot paper had been explained to them.  What they disagreed is that the Guidelines and the list of analyzed comparison were available to them at the meeting.  They also suggested that they did not know that the maintenance works would commence or be carried out after the meeting.  I find this difficult to accept.  It must be readily appreciated by the owners who attended the meeting that they were there to choose a contractor for the works.  Not only that, they had also decided which of the two options for the works on the external wall.  It is a matter of common sense that the maintenance works would be carried out by the contractor chosen by the majority.  There can be no room for doubts that the works would be undertaken.  There was nothing said at the meeting to suggest that the works could not or should not commence until some time later. 

66.  I find as a fact that the meeting took place as related by the plaintiff witnesses. In particular, I find that at the meeting, the owners had been informed of the tender prices of the three contractors, including Samake, and also the respective cost for the tiles option and painting option.  I also find that they had been explained the use of the ballot paper and the purpose of the voting.

67.  I pause here to note two matters.  Firstly, some considerable time had been taken up with the attendance record sheet for the meeting on 9 August 1997.  Admittedly, there were some errors with the names of some of the owners on it.  It is also not clear whether the names on it were written out by the owners themselves or by someone else on their behalf.  All of this is, however, a red herring.  On the one hand, there is no issue on the pleadings as to the quorum of the meeting or the counting of the votes.  The accuracy of the attendance record, whether it was Mr Lau Sze Man who wrote the names of the owners or whether the caretakers wrote them has no bearing on the dispute to be tried.  On the other hand, while Mr Lau denied helping out with the registration of the owners, he agreed that there were a lot of owners coming in at the same time.  He also confirmed that the owners had been asked to produce their identity cards for verification and registration purposes.  His evidence further shows that checks were done to ascertain the number of shares the attending owners held under the DMC.  All of these tally with the account given by the plaintiff witnesses.  There is nothing to be made out of this attendance record sheet.   

68.  Secondly, the defendants suggest that the MC had deliberately concealed information about the tendering process and the project from them.  Looking at the circumstances of the case and the evidence in a round, this suggestion is untenable.  As Mr Chun remarked in his evidence, it is more likely the case that the owners had taken no interest and did not follow the progress, despite notices and information were given to them and/or posted up by the MC.  They only became concerned when they were called upon to make the contributions that they were obliged to do under the DMC.   

Sufficiency of the notice and the validity of the resolutions

69.  I turn next to deal with the defence that the resolutions had not been set forth in the notice of the meeting.

70.  Among other matters, items 3 to 5 of the agenda contained in the notice of the meeting state as follows:

(3)     The Authorized Person to report on the tendering process for the maintenance work

(4)     To receive and interview the short-listed contractors

(5)     The owners to vote on the contractor for the maintenance work

71.  There can be no doubt that as far as the resolution to appoint a contractor to undertake the maintenance works is concerned, it had been set forth in the notice of the meeting.

72.  As to the second resolution on the works to be done to the external wall, Miss Lee for the plaintiff accepts that it had not been expressly stated in the notice convening the meeting. 

73.  Paragraph 3(7) of the Third Schedule of the BMO provides that:

“No resolution passed at any meeting of the corporation shall have effect unless the same was set forth in the notice served in accordance with paragraph 2 or is ancillary or incidental to a resolution or other matter so set forth.”

74.  In bidding for the works, all the contractors had given separate quotations for the two options.  The decision on the options had a direct bearing on the cost of the works.  Not only that, even after a decision was taken on which contractor to be awarded the works, it would still be necessary to decide on which of the two options to be taken before the plaintiff could accept the contractor’s bid.  Thus viewed, the decision on the options for the external wall was closely related to and an inseparable part of the decision to appoint the contractor for the maintenance works.  I am of the view that the resolution on the two options is ancillary to the appointment of contractor for the works which had been set forth in the notice of the meeting.

75.  Mr Ng for the defendants had referred to a number of authorities in support of his submission that the resolutions passed at the meeting are invalid and not binding on the owners by reason of their not being set forth in the notice of the meeting: Incorporated Owners of Beverly Heights v. Kwok Yui Sun [1996] 1 HKC 499. The Grande Properties Management Limited v. Sun Wah Ornament Manufactory Limited HCA4741 & 5207/2001 (unreported) 23 June 2004.

76.  As held above, this ground of defence is only relevant to the resolution on the options for the external wall.  The present case is factually different from the authorities relied upon by Mr Ng.  In those cases, the notice convening the meeting did not state any intention to pass a resolution.  In some cases, the notice was silent as to the intention to discuss, let alone resolve, the matter voted upon.  That being the case, the owners were surely not able to form a view as to the importance of the meeting and to make an informed decision whether to attend it.   In the present case, given the development since the meeting on 15 March 1997 and the notices on the maintenance works and the Guidelines that had been made available to the owners, a reasonable owner on reading the notice should be able to make an informed decision as to whether to attend the meeting.  This is particularly so when the Guidelines had clearly set out the need to choose between the two options.

Are the resolutions ambiguous and void for uncertainty?

77.  It is common ground that resolutions should be properly worded, unambiguous and clearly dealt with the matter to be determined.

78.  In considering whether there was any ambiguity or uncertainty in the ballot paper and in turn the resolutions, it is important to bear in mind the overall picture of the case.  The starting point is that at the meeting on 15 March 1997, the owners had unanimously agreed to proceed with the preparation and organization of the works.  In taking that decision, which was preceded by an expression of views by questionnaires in early 1997, the owners must by necessary implication agreed that the Building should undergo maintenance works.  The March meeting was followed by the notice in June 1997 and the Guidelines announcing the work descriptions as well as the list of tenders received by the MC.  Then at the meeting on 9 August 1997, the short-listed contractors attended and promoted themselves and also answered questions from the owners.  It was only after all these that the owners cast their votes by ballot.

79.  In my view, any reasonable owner would have no difficulty understanding and should have appreciated that they were voting on the maintenance works for the Building.  They should also have no difficulty appreciating that the decision on the two options for the external wall would impact upon the overall cost of the project, hence his share of contribution.

80.  In terms of looking at the wordings of the ballot paper, it is abundantly clear from the sentence preceding the two resolutions that the owners were casting votes on matters relating to the maintenance works of the Building.  It is also plain from the first resolution set out there that it was a decision on which contractor to be awarded the works.  Similarly, the second resolution makes it clear that it was a decision on whether to paint the external wall or to pave tiles on the external wall.  There is no ambiguity.

81.  It is also to be noted that none of the defence witnesses who had voted said they had difficulty understanding the ballot paper.  On the other hand, Mr Chun as a reasonable man, said he had no difficulty understanding the ballot paper and the matters that the owners were called upon to cast their votes.  

82.  The defendants also take the point that there was no separate resolution resolving to carry out the work immediately or right away.  The defendants argued that they had never agreed for the work to be undertaken and that they did not agree for the works to commence right after the meeting, notwithstanding they had voted at the meeting.  As said above, I find this difficult to accept as a matter of logic or common sense.  There would be no point in selecting a contractor and deciding on the options for the external wall if it was not intended to carry out the works. 

83.  In the same vein, the argument that there was no specific resolution authorizing the plaintiff to proceed with the work and to enter into formal contract with Samake is bad.  Under the DMC, the plaintiff had power to engage contractor to carry out maintenance and repair works and in turn to enter into contract for the purpose.  In any event, the plaintiff in implementing the resolutions of the owners must impliedly have power to sign contract with the contractor chosen by the owners and for the purpose of carrying out the works.

Maintenance vs. luxurious improvement works

84.  Another major ground of defence advanced by the defendants is that not all the works that were done were maintenance and repair works.  It is said that some of the works were unnecessary luxurious improvements or renovations.

85.  In Sevenoaks, Maidstone & Tunbridge Railway Co v. London Chatham & Dover Railway Co [1879]11Ch D 625, 634, it was said that:

“It is very difficult to define what works of maintenance are.  It is a very large term, and useful and reasonable amelioration are not excluded by it.”

86.  In the case of The Incorporated Owners of Beauty Court v. Hon Ping Kay, Lau Oi Wah (unreported) LTBM Application no. 2/1998, the Lands Tribunal held that in considering whether a piece of work is a maintenance work, it is inappropriate to break the project down into small items of work and subject them to microscopic scrutiny.  It was said that the ultimate test is the reasonableness of the decision to undertake the project having regard to a number of factors, including the urgency of the work, the cost involved and the beneficial result of the works.  The Tribunal further observed that it was not necessary that facilities should only be replaced when they had become unserviceable and could not be used anymore.  I respectfully agree with these views.

87.  At the trial, Mr Yung had in his evidence gone through the works carried out in broad terms and had explained the reasons and necessity for undertaking the works.  In essence, there were a number of unauthorized building works on the external wall that had to be removed.  There were rusty and leaking piping that required to be replaced.  The window frames and fencing on the roof had also rusted and needed to be replaced.  The anti-smoke doors had damaged hinges and were not closing properly.  The paint and tiles on the external walls and the staircases and some other common parts had peeled off and required remedial works.  The many antennae erected by the individual owners at the roof were hazardous and a communal antenna system would solve the problem.  The intercom system was not functioning satisfactorily and because it was an old model, it was difficult to find the spare parts for maintenance.  The lifts had the same problem with maintenance apart from the scratches and damages to the lift doors. As for the lobby, there were cracks on the walls and slabs.  The false ceilings were in part moldy.  The locks of the some of the letterboxes were not working properly.      

88.  Mr Yung had additionally referred to some of the pictures he had taken before the works were done and the report he submitted to the Buildings Authority on behalf of the plaintiff in 1999 for the purpose of enabling the Building to take part in the Voluntary Building Inspection Scheme launched by the government.  Under the Scheme, owners, who were in need, could apply for financial assistance in meeting their share of contribution to the works.  It can be seen from Mr Yung’s report that the project had substantially improved the condition and overall safety of the Building.  

89.  Looking at the evidence of Mr Yung and the photographs and the matters alluded to in his report, I consider that the whole project reasonably viewed is a maintenance and repair task.  Even Mr Mok in cross-examination accepted that a number of the works done were necessary and properly required to maintain the Building.  The defendants’ case that the works were unnecessary luxurious improvements to the Building is not borne out by the evidence.

90.  This case is therefore different from the case of Grace International Limited v. The Incorporated Owners of Fontana Gardens [1996] 4 HKC 635 in which le Pichon J (as she then was) held that the power under the deed of mutual covenants to maintain and repair did not give an owners corporation the power to improve the amenities or upgrade the condition of a building, and that such improvement and additional works would require the consent of all the owners.   Unlike that case, the works that had been done to the Building by Samake here were works that fall within the power given to the plaintiff under the DMC.

Interest on the outstanding contributions

91.  It follows from the above discussions that the defendants are liable to the plaintiff for the contributions made.  The only outstanding matter is the question of interest.  Plainly, by clause 4(m) of the DMC, the owners had agreed that the plaintiff might charge interest on payments due and owing from the owners and at the rate set out therein.

92.  Mr Ng argued that the interest rate was excessive and unreasonable.  There is no doubt that the rate set out in clause 4(m), being some 5% per month is a high one.  However, the Moneylenders Ordinance, on which Mr Ng based his argument, has no application.  This is because sections 24 and 25 of the Ordinance only apply to agreements for repayment of loan or payment of interest on loans.  The DMC is not a loan agreement.  Neither is clause 4(m) a provision dealing with interest on loans.   The court cannot re-open the provision on interest or refuse to enforce it on the basis of the Moneylenders Ordinance.

93.  Mr Ng also argued that clause 4(m) should be struck down as being a penalty provision.  While it may be possible in some instances to strike down an interest provision in a deed of mutual covenants as being a penalty clause, the defendants have not identified any basis for the court’s intervention in this case.  The mere fact that the rate is high is insufficient.  It is true that in the 1999 guidelines issued by the government, there was a reference to interest rate of 2% p.a. above prime rate.  Without more, that however does not provide this court with a proper basis to re-write the agreement between the owners.   I am therefore driven to upholding the plaintiff’s claim for interest at the rate specified in the DMC from the date of demand up to the date of Writ.  Thereafter, the interest should be calculated on the judgment rate.

Conclusion

94.  For all the reasons set out above, I enter judgment for the plaintiff against the respective defendants for the respective amounts as claimed together with interest thereon at the rate specified in clause 4(m) of the DMC from 15 December 1997, being the date of the first solicitor’s letter of demand, to the date of the relevant Writ and thereafter at judgment rate until full payment.

95.  Applying the normal rule of costs follow event, there is an order nisi that the defendants pay the plaintiff the costs of these proceedings to be taxed on District Court scale if not agreed.  I have adopted the District Court scale in view of the amount of the claim.