THE INCORPORATED OWNERS OF TSUEN WAN GARDEN v. PRIME LIGHT LTD

LDBM 56/2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 56 of 2006

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JUDGMENT

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Background

1. The Applicant is the owners’ corporation of Tsuen Wan Garden, Nos. 15-23 Castle Peak Road, Tsuen Wan, New Territories, Hong Kong (“the Estate”).  The Estate consists of two different plots known as Plot A and Plot B respectively.  A commercial/residential complex comprising 4 residential towers each having 15 storeys is built on top of a podium in Plot A, known as Podium A.  Another residential tower is built on top of a podium in Plot B, known as Podium B.  The Respondent is the owner of Shops 1, 6, 8, 9 10, 11 and 19 and the Entrance and Exit on the Upper Ground Floor, and also of the Whole of 1^st Floor, on Podium A of the Estate.

2. At an owners’ meeting on 25 November 2002, the owners of the Estate passed a resolution (“the 2002 Resolution”) to carry out certain repair and improvement works (“the Works”) to the Estate.  The total cost of the Works was $16,680,000.00.  The Respondent refused to pay the first two instalments of its contribution to the cost of the Works in the sum of $927,273.70.  The Applicant hence claimed against the Respondent for the sum in the Lands Tribunal in 2003 (Case Nos. LDBM 83-85 of 2003).  However, the claim was dismissed on the ground that the 2002 Resolution was invalid.  On appeal, the Court of Appeal upheld the decision of the Lands Tribunal (in CACV 1 of 2004).

3. On 25 April 2005, the owners of the Estate had an owners’ meeting and passed the following resolutions (“the 2005 Resolutions”):-

(1)	That a contingency fund be established in the sum of $16,680,000.00.
(2)	That the method of fixing the contributions to the contingency fund be confirmed by the management committee in accordance with the Deed of Mutual Covenant of the Estate (“the DMC”).
(3)	That those owners who had paid their contributions to the cost of the Works could set off their paid contributions against their liabilities to pay contributions to the contingency fund.

4. The purposes of setting up the contingency fund were to refund the owners who had paid their contributions pursuant to the 2002 Resolution, which was ruled as invalid, and to pay the balance outstanding sum of $2,110,000.00 to the contractor of the Works, Cedar Construction Company Limited.

5. The management committee of the Applicant had a meeting on 27 May 2005, and pursuant to the 2005 Resolutions, the management committee passed a resolution (“the 1^st Resolution”) to fix the owners’ contributions to the contingency fund.  There is no dispute that the method used complies with the Third Schedule of the DMC.  By this method, the Respondent’s contribution amounts to a sum of $1,675,043.50.

6. On 14 June 2005, the management committee further resolved that the owners were to pay their respective contributions by 30 July 2005.

7. Nevertheless, at another management committee’s meeting on 24 November 2005, Mr. Chung Pui Lam of Messrs. Chung & Kwan gave advice to the management committee that the DMC did not provide for the method of fixing contributions to the contingency fund, and by virtue of sections 21 and 22 of the Building Management Ordinance (“the BMO”), the contributions had to be fixed in accordance with the respective shares of the owners.  Mr. Chung also gave advice that if there were any legal proceedings against the owners for recovering the contributions, the claim could be made on an alternative basis, i.e. one based on the 1^st Resolution and the other based on the respective shares of the owners.  As a result of the advice given, the management committee resolved that the owners had to pay their contributions in proportion to their respective shares in the Estate (“the 2^nd Resolution”).

8. According to the 2^nd Resolution, the Respondent had to contribute a sum of $1,911,325.60.  The Respondent refused to pay this sum or any sum at all.  Thus, the Applicant claims in the present application for the sum of $1,675,043.50 pursuant to the 1^st Resolution or alternatively the sum of $1,911,325.60 pursuant to the 2^nd Resolution.  At the trial, however, the Applicant states that its primary position is to claim for the sum of $1,911,325.60, and the claim for $1,675,043.50 is the alternative claim.

9. At the trial, the parties agreed that there are only 2 issues in this case, i.e. whether the 2^nd Resolution is invalid and whether the 2^nd Resolution has superseded the 1^st Resolution.

Whether the 2^nd Resolution is invalid

10. The Applicant contends that the contingency fund is set up pursuant to section 20 of the BMO, as the Applicant is required to pay any outstanding claim of the contractor and possible claims of refund by various owners as a result of the invalidity of the 2002 Resolution.  As the DMC does not provide for the fixing of such contributions, the amounts to be contributed by the owners shall be fixed by the management committee in accordance with the respective shares of the owners (section 22(2) of the BMO).

11. The Respondent, on the other hand, contends that the Applicant has been given the wrong advice.  The objects of the entire contingency fund were to refund the contributing owners for the cost of the Work and to pay for the balance of such cost.  The objects are consistent with the management, repairs and maintenance of the Estate and clearly fall within the scope of these purposes.  Thus, the apportionment stipulated in the Third Schedule of the DMC should be adopted.

12. I have no doubt that the Respondent’s interpretation of the contingency fund is the correct approach, whereas the Applicant’s contention is a fallacy.  The amount to be collected under the contingency fund, i.e. $16,680,000.00, is exactly the amount of the total cost of the Works.  Although part of the money to be collected in the name of the contingency fund is said to be for refunding the owners, the real purpose behind is to enable the Applicant to meet the cost of the Works.  The other part of the money to be collected, i.e. about $2,110,000.00, is expressly stated in the minutes of the meeting on 24 November 2005 to be used to pay the contractor the balance cost of the Works.  It is clear to me that the money raised is to be used in connection with the Works.  It is artificial to say that the money raised is to settle any “possible claims” to be made by the owners or the contractor so as to render it to be unrelated to the Works.  It would be extremely unjust and illogical if the Applicant were able to collect a higher amount just because they changed the term of the money to be collected to “contingency fund”, when the true nature of the fund is still to pay for the cost of the Works.

13. Section 22(1)(a) of the BMO stipulates that the “amount to be contributed by an owner towards the amount determined under section 21 shall be fixed by the management committee in accordance with the deed of mutual covenant (if any)”.  The DMC clearly has provisions, i.e. Clause 5 and the Third Schedule, for the fixing of the amount of contributions for “the costs charges and expenses to well and sufficiently manage repair and maintain” the Estate.  As the true nature of the contingency fund is to pay for such costs charges and expenses to manage repair and maintain the Estate, the said provisions of the DMC apply.  When there are such provisions in the DMC, section 22(2) of the BMO would not be applicable.  Thus, there is no reason to fix the contributions in accordance with the shares of the owners.

14. Moreover, the 2005 Resolution clearly requires the management committee to fix the contributions in accordance with the provisions of the DMC.  It seems clear that the management committee was not trying to comply with the 2005 Resolution when it applied section 22(2) of the BMO to fix the contributions instead of the DMC.

15. The Applicant was trying to set up a contingency fund independent from the 2005 Resolution, but it has also failed to establish that the 2^nd Resolution complies with the statutory requirements in the BMO.  Section 21(4) of the BMO provides that:-

“	The Fifth Schedule shall have effect with respect to the amount to be determined under subsection (1), the preparation of budgets by the management committee for such determinations and the supply of copies of any documents in respect of those budgets.”

16. Paragraphs 1 to 3 of the Fifth Schedule stipulate that:-

“	1.	The amount to be determined by the management committee under section 21(1) shall be based upon a budget prepared by the management committee for the period specified by the management committee under that subsection.
	2.	The budget referred to in paragraph 1 shall set out the sums which in the opinion of the management committee will be reasonably necessary to meet payments of the kind specified in section 20(1) and shall, if a contingency fund is established under section 20(2), set out the sums which in the opinion of the management committee will be reasonably necessary to meet payments of the kind specified in that subsection.
	3.	A revised budget may be prepared if the management committee is of the opinion that any sum set out in a budget in respect of which the revised budget is to be prepared is insufficient to meet the proposed expenditure which that sum was intended to meet.”

17. The Applicant did not prepare such budget pursuant to section 22(4) and the Fifth Schedule.  Thus, the management committee did not fix the amount of $1,911,325.60 in accordance with these statutory provisions.

18. By reasons aforesaid, I find that the 2^nd Resolution is void and of no effect.  The Respondent is not liable to pay the Applicant the sum of $1,911,325.60.

Whether the 2^nd Resolution has superseded the 1^st Resolution

19. The Respondent contends that the 1^st Resolution is clearly inoperative after the passing and implementation of the 2^nd Resolution, and that before action the Applicant only demanded payment of the sum of $1,911,325.60, not $1,675,043.50.

20. The Applicant, however, contends that the minutes of the meeting on 24 November 2005 make it clear that the Applicant would treat the 2 claims as alternative claims, and that there were demands before action for the sum of $1,675,043.50.

21. First of all, on the question of demand, there was a notice issued by the Applicant to the Respondent on 29 June 2005 to demand payment of the sum of $1,675,043.50 (p. 332 of Exhibit “AR2”).  There was also a letter of demand dated 10 August 2005 for the sum of $1,675,043.50 issued by the Applicant’s solicitors, Messrs. Tsang & Wong, to the Respondent (p. 333 of Exhibit “AR2”).  These two documents clearly confirm that the Applicant had demanded payment of the sum of $1,675,043.50 before action.  Of course, there were subsequent demands for payment of the sum of $1,911,325.60.  The Respondent may want to argue that the subsequent demands had superseded the previous demands, but it cannot be said that the Applicant had never made any demand for the payment of $1,675,043.50.

22. From the evidence before me, I do not find that the 2^nd Resolution has superseded the 1^st Resolution.  The minutes of the meeting on 24 November 2005 show that the management committee was advised to set up a contingency fund under section 20(2) of the BMO, and it did pass a resolution to that effect.  So the management committee was not varying the amounts of contributions they fixed under the 1^st Resolution and was not relying on the 2005 Resolution to fix the amounts.  The management committee was trying to set up another contingency fund under section 20(2) of the BMO.

23. It is clear that the management committee did not pass the 2^nd Resolution to replace the 1^st Resolution, as it was advised that the two methods could be used as alternative claims.  In fact, none of the documents relied on by the Respondent, i.e. the minutes of the meeting on 24 November 2005 including the wordings of the resolutions therein, the notice of payment dated 8 December 2005 and the letter before action, has mentioned anything about replacement or substitution.

24. The Respondent argues that by necessary implication the 2^nd Resolution must have superseded the 1^st Resolution, as it is not possible to have both resolutions to be effective and operative at the same time.  However, the management committee has no power to pass a resolution to supersede the 2005 Resolution, which was a resolution of the owners at an owners’ meeting.  The 1^st Resolution was not a resolution to set up a contingency fund but rather to follow the owners’ instruction to fix the amounts of contributions as required by the 2005 Resolution.  The 2^nd Resolution, on the other hand, was independent from the 2005 Resolution, as it was made purportedly under section 20(2) of the BMO.  Thus, I do not think that the two resolutions must necessarily be mutually exclusive as suggested by the Respondent.

25. What we have here is that there was a resolution made by the owners at the owners’ meeting on 25 April 2005 (the 2005 Resolution) setting up a contingency fund, and the management committee fixed the amounts of contributions for this contingency fund on 27 May 2005 (the 1^st Resolution).  The management committee then set up another contingency fund under section 20(2) of the BMO and fixed the amounts of contributions on 24 November 2005 (the 2^nd Resolution).  I think these are two separate matters and there is no supersession as suggested by the Respondent.  The Applicant is entitled to put them forward as alternative claims.

Conclusion

26. Since I have found that the 2^nd Resolution has not superseded the 1^st Resolution, the invalidity of the 2^nd Resolution will not nullify the claim based on the 2005 Resolution and the 1^st Resolution.  As the Respondent does not challenge the validity of the 2005 Resolution and the 1^st Resolution, or the correctness of the amount of $1,675,043.50, I find that the Respondent is liable to pay the Applicant the sum of $1,675,043.50.

27. I therefore order as follows:-

(1)	The Respondent do pay the Applicant the sum of $1,675,043.50 together with interest thereon at judgment rate from the date of judgment until payment.
(2)	Costs order nisi: Save where there is previous costs order, the Respondent do pay the Applicant costs of the proceedings with certificate for counsel to be taxed on High Court Scale if not agreed.  If there is no costs application within the next 14 days, the costs order nisi shall become absolute.