The Incorporated Owners of Hopewell House v. Ng Hak Lun

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. LDBM 74 of 1999

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J U D G M E N T

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1. The Applicant is the Incorporated Owners of Hopewell House situated at 175 Hip Wo Street, Kwun Tong. (The Applicant)

2. The Respondent is the owner of Shop No. 2, Ground Floor, Hopewell House, No. 140 Shui Wo Street, Kwun Tong. (The Respondent)

3. There is a Deed of Mutual Covenant of Hopewell House (the Building) registered in the Land Registry under Memorial No. 683198 (DMC).

Background

4. On 17th March 1997, the Buildings Authority issued a works order no. INVO30/K/97/P2. The Applicant was required to carry out investigation work and to submit proposals for remedial works.

5. On 27th July 1997, the Applicant held a General Meeting of the Owners of the Building (the EGM). The Applicant resolved to appoint a contractor to carry out remedial works. The total amount of repair costs was $7,173,360.

6. There are 10838 undivided shares in the Building. The Respondent's shop is allocated with 82 shares. There are 426 units in the Building. All of the foregoing are not in dispute, and found to be facts of the case.

The Applicant's apportionment

7. The Applicant relied on Clause 5 (i)(a) and (b) of the DMC, and apportioned the total repair costs in accordance with the undivided shares allocated to Respondent's shop. The Applicant determined the amount payable by the Respondent to be $54,273.44. ($7,173,360 ÷ 10838×82)

The Claim

8. The Applicant claims the amount of $54,273.44, together with interest and costs from the Respondent.

Clause 5 of the DMC

9. Clause 5 of the DMC reads:

"5(i) The following expenses:

(a) The costs and expenses of keeping in good and tenantable repair and condition the foundation, the Roof, the side walks, main walls, support beams, gutters and all external parts of the said building (except as regards damage caused by or resulting from any act or default or negligence of any of the owners their respective servants or agents or tenants or licensees for which damage that one of the owners shall be responsible and so that each of the owner shall be responsible for the acts and defaults of his servants agents tenants and licensees) and other common area of the said building.

(b) The cost of rebuilding or re-instalment(sic) of the said building or any part thereof in case of destruction or damage or condemnation by the building or other completent (sic) Authority.

Shall be paid and contributed on demand of the Service Agent by the owners for the time being of the said building in proportion to the units owned by them respectively."

The Dispute

11. The Respondent disputes the apportionment. Relying on the same clause in the DMC, the Respondent contends that he should only pay an amount of $16,839. ($7,173,360÷426)

The Applicant's case

12. The Applicant's case is that the contribution to the repair costs should be in proportion to the size of each unit, that is, in accordance with the undivided shares. The Applicant considers this method of apportionment to be fairer to the owners.

13. The Applicant's witness Mr. Choi Yi Tau (AW) has been the Chairman of the Applicant's management committee for the past 10 years. His evidence was that the Applicant's management committee had discussed the method of apportionment, and sought legal advice. After the management committee agreed to the method of apportionment, it was put to the EGM. The EGM passed it by resolution. AW explained in details to the owners present at the EGM, that apportionment of the repair costs was to be in accordance with the undivided shares. AW recorded the minutes of the EGM. He did not record that the apportionment method had been explained, nor the fact that the apportionment method had been approved and passed by resolution of the EGM. AW did not sign the minutes. His explanation was that there was no space to do so on that last page. The note made on the next page was not part of the minutes, just his own note on another matter.

14. The Applicant's solicitors wrote to each individual owner on 7th October 1997, explaining that the repair costs was apportioned in accordance with Clause 5(b) of the DMC. On 27th December 1997, the owners of the ground floor shops, who had queried the method of apportionment, were invited to attend a meeting with the Applicant's solicitor on 30th December 1997. AW's evidence was that the Applicant's solicitors could not attend, and the contractor sent his legal representative. At the meeting, a different legal opinion was voiced on the proper method of apportionment.

15. AW agreed that in 1991, when there was the need for contribution from the owners of the Building, the total amount was divided by the number of units, 426. Each owner of a unit paid an equal amount of $3,500. AW contended that the Applicant had not obtained legal advice then, as the total amount was a small sum, and that he was not aware of the existence of the DMC. He considered that apportionment method to be a mistake and contrary to the DMC.

The Applicant's submission

16. The Applicant submits that there is uncertainty in the wording of Clause 5(i)(b) the DMC. The Applicant considers that the emphasis should be on the words "in proportion". There is no clear statement as to whether the proportion is according to size or to the number of units. The clause does not mention "in equal shares". It is the Applicant's contention that, it is a fair and reasonable resolution to allocate the repair costs in proportion to the undivided shares attributed to each unit. The Applicant relies on Sections 14, 18, 21 and 22(2) of the Building Management Ordinance Cap.344 (BMO) to say that, it is within the powers and duties of the Applicant to pass such a resolution, for the contribution to the repair costs. It is the Respondent's obligation to contribute to the repair costs under the BMO and the DMC.

17. It is further submitted that the Applicant should not be bound by its previous apportionment in 1991, when the total repair costs were divided among the owners equally. That resolution was said to be incorrect.

18. It was admitted that there was no record in the minutes of the EGM about the calculation of the apportionment, the explanation given and the resolution on this method of apportionment. It is submitted that such a resolution had been passed and should bind all the owners. There is post-event evidence in support, as almost all the other owners had paid up. The Respondent was not aware of that resolution in the EGM, because he did not attend the meeting. The Respondent mistook the contractor's legal advisor to be that of the Applicant's. The Applicant is not bound by the contrary advice of the contractor's legal advisor.

The Respondent's case

19. The Respondent's case is that, the repair costs should be apportioned according to the number of units. The Respondent relied on the DMC. He also relied on the apportionment method adopted in 1991 by the Applicant, and the advice given at the meeting on 30th December 1997, called by the Applicant, when the Applicant's legal advisor was supposed to speak to the owners of the ground floor shops. The Respondent had sought an explanation from the firm of solicitors responsible for drafting the DMC. He understood Clause 5(i)(b) of the DMC to refer to contribution from each unit equally. The Respondent is willing to pay the amount of $16,839. The Respondent tendered payment of the amount of $16,839 to the Applicant, but it was rejected.

The Respondent's submission

20. The Respondent contends that the Applicant has varied the terms of the DMC. There was not simply an interpretation of the DMC involved, but a variation of the DMC. The Respondent relies on Clause 5(i)(b) to say that the apportionment should be "in proportion" to the number of units owned by an owner. The Respondent relies on the fact that the present management fees have not been charged in accordance with the undivided shares, and so the repair costs could not be argued to be an increase thereunder. The Respondent also refers to Clause 8 of the DMC, which states that Crown Rent should be charged "in proportion to the respective shares", to say that where the DMC refers to the undivided shares, it would be specifically stated to be so. In Clause 5(i)(b) it refers to contribution to be "in proportion to the units owned by" the owners for the time being "respectively." The Respondent had paid an equal amount as all other owners for the contribution in 1991. It is the Respondent's contention that the previous contribution in 1991 had been collected correctly, in proportion to units, in accordance with the DMC. AW could not excuse himself by saying that he had no knowledge of the DMC in 1991, that the apportionment in 1991, in accordance with units, was done incorrectly, and to vary the terms of the DMC in 1997. The Respondent agrees that Sections 14 and 18 of the BMO bind the Applicant and the Respondent. It is submitted that there are specific provisions in separate clauses in the DMC for the division of contribution towards different items of expenses. For the repair costs to be apportioned according to the undivided shares, the Applicant would need to vary the terms of the DMC before it could do so.

21. The Respondent refers to Sections 21 and 22(1) & (2) to say that while the management committee could fix the amount to be contributed, it must do so in accordance with the terms of the DMC. Where there is no provision in the DMC, the apportionment should be according to the owners' respective shares. In the present case, the Applicant cannot apply S.22 (2) of the BMO and use the undivided shares as a basis for apportionment. The DMC has provided for apportionment. The Applicant must fix the contribution according to the DMC.

22. It is further submitted that even if there had been a resolution passed in the EGM for the apportionment, it had been passed outside the purview of the DMC. The resolution, even if passed by a majority of the owners, could not take effect, as the DMC has not been formally varied, and the varied terms registered. Such a resolution should not bind the Respondent. Since the minutes did not reflect the true and complete occurrence in the EGM, it should be discarded.

23. The intention of the draftsman of the DMC could not be ascertained from the draftsman. It is the Respondent's submission that the Applicant must not only make out a possible intention favourable to its view, but also show a reasonable certainty that the intention was as it suggests. The Applicant has not done so. The DMC must be read as a whole to establish its intention. The Applicant cannot take one phrase in isolation to say that it is in support of the Applicant's interpretation, and pass a resolution to bind all owners.

24. It was submitted that since the Respondent attended a meeting on the Applicant's invitation, to speak with the Applicant's legal advisor, he was entitled to take the advice given in the meeting to be from the Applicant's legal advisor. There was no indication that the lawyer present was not the Applicant's legal representative.

Decision

25. There is only one point in issue in this Application, on the interpretation of Clause 5(i)(b) of the DMC relating to the Building, the exact wording being: " in proportion to the units owned by "the owners for the time being of the Building respectively.

26. The facts are not in issue. The total repair costs is not in dispute. The only contention is whether the amount should be apportioned in accordance with the undivided shares allotted to each unit in the Building, or according to the number of units owned by an owner, with an equal portion for each unit.

27. The DMC must be looked at in its entirety to ascertain the true meaning. This is the document defining the parties' powers, duties and obligations. Unless varied by formal procedures and duly registered, its terms encompass the covenant binding all owners. The BMO incorporates certain terms into all DMC. Under S.22 (1)(a) of the BMO, the amount to be contributed by owners shall be fixed by the management committee in accordance with the DMC. Under S.22 (2), if the DMC does not provide for the fixing of contributions, then they should be fixed in accordance with the owner's respective shares. In this DMC, there are various provisions for the apportionment of contributions from owners, using different methods. The Crown Rent is apportioned according to the undivided shares, under Clause 8. The apportionment for lift maintenance is among owners of the 1st floor to 20th floors only. (Clause 5(iii）DMC) Repair costs is to be paid "in proportion to the units owned by" the owners respectively. The units are defined and described in the First Schedule to the DMC.

28. The Applicant's argument is that the repair costs should be apportioned in accordance with the size, or the undivided shares of the units. It must be noted that size of a unit in the Building, and the allotted undivided share, are not proportional. Where the DMC provides for apportionment according to the undivided shares, it is so stated specifically. Clause 8 of the DMC refers to payment of the Crown Rent "in proportion to the respective shares in" the premises. The word "premises" is defined in the Second Schedule to the DMC, to include the Building and the land on which it is situated.

29. From the reading of the DMC, it is clear that repair costs must be apportioned in proportion to the number of units standing in an owner's name. The Tribunal's finding is that repair costs should be divided equally among the total number of units. To reach any other conclusion would be flying in the face of the wording of the DMC.

30. There is judgment to the Applicant against the Respondent in the sum of $16,839.00 and interest thereon from the date of judgment at judgment rate until full payment.

31. Costs to the Respondent to be taxed if not agreed.