LAW YAN v. KONG SUM UNION PROPERTY MANAGEMENT CO LTD

[English Translation – 英譯本]

LDBM 265/2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT Application No. 265 of 2006

Between

_______________

J U D G M E N T

_______________

Background

1. The Applicant is the owner of Flat B6, 2/F, Gold Mine Building (“the Building”), 345 Chai Wan Road, Hong Kong.  The Respondent is the management company of the Building.

2.      By this application the Applicant requests the Respondent to supply, in accordance with the provisions of paragraph 2(5)(b) of the Seventh Schedule to the Building Management Ordinance (“the Ordinance”) and upon his paying reasonable copying charges, copies of the following 4 items relating to legal expenses of $75,871.30 incurred in LDBM 54/2004:

(1)	the records of tender and tender selection,
(2)	the resolution on appointment dated 8 June 2004,
(3)	the appointment (employment) contract, and
(4)	the bank transfer record of the expenses, i.e. the bank statements of July and August 2004.

3. At trial, the Applicant confirmed that he did not need other documents apart from the aforesaid 4 documents.  However, it is not in dispute that, save for the bank statements of July and August 2004, the Applicant had not, prior to making the present application, requested other documents from the Respondent.

4. The Respondent has put forward the following grounds of defence:

(1)	The 4 documents requested by the Applicant do not fall within the scope of the documents stipulated in paragraph 2(5)(a) of the Seventh Schedule to the Ordinance.  Therefore, there is no need to provide the Applicant with copies of the documents.
(2)	Save for the bank statements of July and August 2004, the Applicant had not, prior to making the present application, requested other documents from the Respondent, who is therefore not liable to supply copies of those documents.
(3)	As the legal expenses incurred by the Respondent do not exceed $100,000, there is no need to invite tender in accordance with the “Code of Practice on Procurement of Supplies, Goods and Services”, and hence there is no record of tender.

5. Therefore, I only have to rule on the aforesaid defence.

Interpretation of paragraph 2(5) of the Seventh Schedule

6. Paragraph 2 of the Seventh Schedule to the Ordinance provides as follows:

2. Keeping of accounts 

(1) The manager shall maintain proper books or records of account and other financial records and shall keep all bills, invoices, vouchers, receipts and other documents referred to in those books and records for at least 6 years.

(2) Within 1 month after each consecutive period of 3 months, or such shorter period as the manager may select, the manager shall prepare a summary of income and expenditure in respect of that period and shall display a copy of it in a prominent place in the building.

(3) Within 2 months after the end of each financial year, the manager shall prepare an income and expenditure account and balance sheet for that year.

(4) Each income and expenditure account and balance sheet shall include details of the special fund required by paragraph 4 and an estimate of the time when there will be a need to draw on that fund, and the amount of money that will be then needed.

(5) The manager shall ─

(a)    permit any owner, at any reasonable time, to inspect the books or records of account and any income and expenditure account or balance sheet; and

(b)   on payment of a reasonable copying charge, supply any owner with a copy of any record or document requested by him.

…

[emphasis added]

7.          The Applicant takes the view that, by virtue of the provisions of paragraph 2(5)(b) of the Seventh Schedule, he is entitled to request the Respondent to supply the abovementioned 4 documents.  However, he has failed to note that the records and documents referred to in paragraph 2(5)(b) should be those referred to in paragraph 2(5)(a), i.e. “books or records of account and any income and expenditure account or balance sheet”, and these documents do not include the 4 documents requested by the Applicant.

8.          The above provisions have been explained in the case of Leung Chi Keung v. Hong Yip Service Company Limited LDBM 18 & 19/2002, in which Presiding Officer Chow (as he then was) had the following to say in the judgment:

3.3           The key issue in this case is what the ‘record or document’ referred to in sub-paragraph (5)(b) is.  Do these records or documents only cover the records or documents referred to in paragraph 2(5)(a), or do they also include ‘all bills, invoices, vouchers, receipts and other documents’ referred to in those records or documents?

3.4           First of all, sub-paragraph (5)(b) is connected with sub-paragraph (5)(a) by a conjunction “and”.  Therefore, I have to consider sub-paragraphs (5)(b) and (5)(a) together in order to ascertain what record or document sub-paragraph (5)(b) refers to.  Sub-paragraph (5) envisages the following situation: having exercised the rights under sub-paragraph (5)(a), the owner further requests the manager to provide him with a copy of the record or document referred to in sub-paragraph (5)(b).  Therefore, what he requests the manager to provide him with must be a copy of the record or document inspected by him when he exercised the right under sub-paragraph (5)(a).  That is to say, what he requests the manager to provide him with is the document which he is entitled to inspect, and what he is entitled to inspect is a copy of the record or document referred to in sub-paragraph (5)(a).

3.5           Had sub-paragraph (5)(b) been intended to cover all the documents referred to in paragraph 2(1), i.e. ‘all bills, invoices, vouchers, receipts and other documents referred to in those books and records’, the legislature would have incorporated in sub-paragraph (5)(b) the wordings which describe those documents in the way which paragraph 2(1) has adopted.

9.          I entirely agree with and adopt the aforesaid interpretation.  Paragraph 2(5)(a) is connected with paragraph 2(5)(b) by the word “and”.  The Applicant cannot rely on paragraph 2(5)(b) alone and disregard the documents referred to in paragraph 2(5)(a).  Obviously, when paragraph 2(5)(a) is read together with paragraph 2(5)(b), the record or document referred to in paragraph 2(5)(b) must be the document referred to in paragraph 2(5)(a).

10.        Paragraph 2(5)(a) only refers to “books or records of account” and “income and expenditure account or balance sheet”.  “Books or records of account” are mentioned in paragraph 2(1) while “income and expenditure account or balance sheet” is referred to in paragraph 2(3).  The “books or records of account” and “income and expenditure account or balance sheet” under paragraph 2(5)(a) should respectively be the “books or records of account” referred to in paragraph 2(1) and the “income and expenditure account or balance sheet” referred to in paragraph 2(3).

11.        However, in paragraph 2(1), the “books or records of account” and “all bills, invoices, vouchers, receipts and other documents referred to in those books and records” are separately described.  This means “books or records of account” is not the same as “all bills, invoices, vouchers, receipts and other documents referred to in those books and records”.  It follows that the “books or records of account” under paragraph 2(5)(a) is not the same as “all bills, invoices, vouchers, receipts and other documents referred to in those books and records”.  As Presiding Officer Chow pointed out, had the legislature intended to include those documents in paragraph 2(5), it would have expressly set them out in paragraph 2(5) in the same way as in paragraph 2(1).

12.        Presiding Officer Chow also relied on section 27 of and the Sixth Schedule to the Ordinance in explaining the meaning of paragraph 2(5)(b).  He said:

3.6         The provisions of the Sixth Schedule to the Ordinance are in my view of assistance in determining the nature of the documents referred to in sub-paragraph (5)(b).  The provisions of the Sixth Schedule are set out below:

‘1.  All bills, invoices, vouchers, receipts and other documents referred to in the books or records of account and other records maintained under section 27(1) shall be kept by the management committee for such period, being not less than 6 years, as the corporation may determine.

2.   Within 1 month after each consecutive period of 3 months, or such shorter period as the management committee may select, the treasurer shall prepare a summary of the income and expenditure of the corporation in respect of that period and shall display a copy of it in a prominent place in the building.

3.   If the tenants’ representative, an owner, a registered mortgagee or any person duly authorized in writing in that behalf by an owner or registered mortgagee requests in writing the corporation to supply him with copies of ―

(a) an income and expenditure account and balance sheet prepared under section 27(1); or

(b)  a summary of the income and expenditure of the corporation prepared under paragraph 2,

the treasurer shall, on the payment of such reasonable copying charge as the management committee may determine, supply such copies to that person.

4.   The treasurer shall, if requested by the Authority or an authorized officer and without raising any charge, supply the copies referred to in paragraph 3 to the Authority or that officer.’

[emphasis added]

3.7           Section 27(1) of the Ordinance provides as follows:

‘27.  Accounts of corporation

(1) Subject to subsection (3), a management committee shall maintain proper books or records of account and other financial records and shall prepare, not later than 15 months after the date of the registration of the corporation and thereafter every [12] months, an income and expenditure account and a balance sheet which shall both be signed by the chairman and the secretary or the treasurer of the management committee and laid before the corporation at the annual general meeting of the corporation convened in accordance with paragraph 1(1) of the Third Schedule.’

3.8         The documents referred to in paragraph 3 of the Sixth Schedule do not involve ‘all bills, invoices, vouchers, receipts and other documents’ referred to in paragraph 1 of the Sixth Schedule at all.  The documents referred to in paragraph 1 of the Sixth Schedule are the same in nature as those referred to in paragraph 2(1) of the Seventh Schedule, namely the books, records of account and financial records of the building.  When there is no manager, the management committee will take up the duty to manage the building; when there is no corporation, the manager will assume the same duty.  The corporation may also exercise the power conferred by section 18(2)(c) of the Ordinance to retain a manager to carry out on behalf of the corporation the duties or powers under the Ordinance or the deed of mutual covenant.  As a management committee has to carry out on behalf of the corporation the powers and duties of the corporation, the role of the committee is similar to that of a manager.  Given that the treasurer of a management committee is only required to supply the person concerned with the documents referred to in paragraph 3(a)(b) and not ‘all bills, invoices, vouchers, receipts and other documents referred to in those books and records’ mentioned in paragraph 1 of the Sixth Schedule to the Ordinance, there is no reason why a manager has to supply ‘all bills, invoices, vouchers, receipts and other documents’ referred to in the books, records of account and other financial records under paragraph 2(1) of the Seventh Schedule.  Therefore, the record or document referred to in paragraph 2(5)(b) of the Seventh Schedule plainly does not include ‘all bills, invoices, vouchers, receipts and other documents’ referred to in the books, records of account and other financial records under paragraph 2(1) of the Seventh Schedule.  The copy of the document requested by the Applicant is not covered by paragraph 2(5)(b) of the Seventh Schedule.

13.        I also agree with and adopt the above interpretation.  Section 27(4) of the Ordinance clearly states that “The Sixth Schedule shall have effect with respect to the maintenance of proper books or records of account and other records (including the keeping of such accounts and records), the preparation of summaries of income and expenditure and the supply of copies of any documents in respect of those accounts and summaries”, and paragraph 3 of the Sixth Schedule clearly states that the copies of documents which the corporation has to supply are confined to “an income and expenditure account and balance sheet prepared under section 27(1); or a summary of the income and expenditure of the corporation prepared under paragraph 2” and do not include “all bills, invoices, vouchers, receipts and other documents” referred to in paragraph 1 of the Sixth Schedule.  In my view, as the corporation does not have to supply the owner with copies of these documents, the management company does not have to do so either.

14.        The 4 documents requested by the Applicant are not documents referred to in paragraph 2(5)(a) of the Seventh Schedule to the Ordinance and hence not documents referred to in paragraph 2(5)(b).  Therefore, the Applicant cannot rely on paragraph 2(5)(b) to request the Respondent to provide him with copies of these 4 documents.

Request prior to the application

15.        Prior to the present application, the Applicant only requested from the Respondent copies of the documents in item 4 above, i.e. the bank statements of July and August 2004, without requesting any of the other 3 items.  The Applicant submits that he is entitled to request from the Respondent copies of these documents without having to make any prior request.

16.        I do not agree with the Applicant’s submission.  It is simply impossible for the Applicant to seek the order requested by him when the Respondent is not in breach of the Ordinance.  In the absence of a request, the Respondent could not possibly supply the documents to the Applicant or contravene the Ordinance.  There is simply no basis upon which the Applicant may make an application in respect of those documents which he has not requested.  Nor can he regard the Notice of Application in the present case as a request made to the Respondent.

17.        The above principle was affirmed by the Court of Appeal in the case of Speedy Gainer Limited v. TheIncorporated Owners of Malahon Apartments & another, CACV 336/2004.  In that case, an owner made a request to the incorporated owners and management company for inspection of documents.  The Court of Appeal held that the owner must make a request prior to the application so that there would be a proper basis for the application, and that the Notice of Application could not be regarded as such request.

18.        In my judgment, therefore, as the Applicant did not request the documents in Items 1 to 3 prior to the present application, he does not have any cause of action for the present application in respect of those documents.

Records of Tender

19.        As the legal expenses did not exceed $100,000, the incorporated owners of the Building did not go through a tender process, as a result of which the Respondent does not have any record of tender or tender selection in this regard.  Even if the Applicant is entitled to make an application in respect of these documents, the Respondent is still unable to supply them.  However, the Applicant does not accept the Respondent’s case that there are no records of tender because , in accordance with the requirements under paragraph 4(a) of the Code, the Respondent still needed to seek 3 tenders in respect of expenses between $10,000 and $100,000.

20.        Paragraphs 1 and 4 of the Code provide as follows:

It is hereby notified that under section 44 of the Building Management Ordinance, the Authority has issued the following Code of Practice on the procurement of supplies, goods and services:

1.     Any supplies, goods or services the value of which exceeds or is likely to exceed ―

(a)    the sum of $100,000 or such other sum in substitution therefor as the Authority (Secretary for Home Affairs) may specify by notice in the Gazette; or

(b)    the sum which is equivalent to 20% of the annual budget of the corporation or such other percentage in substitution therefor as may be approved by the corporation by resolution passed at a general meeting,

whichever is the lesser, shall be procured by invitation to tender.

…

4.     The minimum number of tenders to be sought shall be as follows ―

(a)        3 in the case of tenders for supplies, goods or services exceeding a value of $10,000 but not exceeding a value of $100,000; or

(b)       5 in the case of tenders for supplies, goods or services exceeding a value of $100,000.

The Authority may specify by notice in the Gazette such other sums in substitution of the abovementioned tender values.

21. In relying on paragraph 4(a), the Applicant has overlooked paragraph 1, which in fact expressly provides that the relevant services shall be procured by invitation to tender only if its value exceeds $100,000 or 20% of the annual budget of the corporation, whichever is the lesser.  Paragraph 4 only states the number of tenders should an invitation to tender be needed.  Paragraph 4(a) states that a minimum of 3 tenders are required if the value concerned is between $10,000 and $100,000, which will be the case only where 20% of the annual budget of the corporation does not exceed $100,000.

22. On the Respondent’s evidence, the annual budget of the Building is about $2,800,000 to $3,000,000.  20% of this is approximately $600,000, which clearly exceeds $100,000.  This falls within paragraph 1(a), which requires an invitation to tender only where the sum concerned exceeds $100,000.  The legal expenses here were only in the sum of $75,871.30, which did not exceed $100,000.  Therefore, there was no need to invite tenders.

23. I accept the Respondent’s evidence in this connection and find that the corporation of the Building did not have to invite tenders in respect of the legal expenses.  This means the Respondent does not have any record of tender or tender selection.   Therefore, the Applicant is not in a position to request those documents from the Respondent.

Conclusion

24. For the above reasons, I hold that the Applicant’s application is misconceived and must be dismissed.

25. I make the following orders:

(1)         All the applications made by the Applicant in the present case be dismissed.

(2)         Costs order nisi: the Applicant shall pay the Respondent’s costs in the present case to be taxed on the District Court scale if not agreed.  If there is no application as to costs within 14 days, the costs order nisi shall become absolute.