THE INCORPORATED OWNERS OF SEA VIEW ESTATE v. ADSIN DEVELOPMENT LTD

LDBM 355 - 357 of 2003

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 355 - 357 OF 2003

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JUDGMENT

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Background

1. The Applicant is the Incorporated Owners of Sea View Estate located at Nos. 2, 4, 6 and 8 of Watson Road, Hong Kong ("the Building"). By 3 separate applications, the Applicant applied to the Lands Tribunal claiming against the 3 Respondents, which were the registered owners of various units and car parking spaces in the Building. Since the issues in the 3 applications were similar, the 3 applications were consolidated for hearing by the order of HH Judge Chow on 6 February 2004. In this hearing, the Applicant is represented by Messrs. Deacons, Solicitors while the 3 Respondents were represented by a Madam Cheng Fong Wah.

2. The Applicant claimed against the 3 Respondents for the arrears of management fees, interests and collection charges to be assessed in accordance with the provisions of the Deed of Mutual Covenant of the Building ("DMC") and costs.

3. The grounds of opposition raised by the 3 Respondents were the same, as follows:

" The Respondent says that the Applicant is in breach of the terms and conditions to the DMC that: -

a. It had not prepared or cause the management company to prepare an annual budget since the years from 1999 onwards.

b. It had not reviewed the annual budget, if any, and had not duly notified nor let the owners to know the time and manner of contributions payable by the owners since the years from 1999 onwards.

c. It had not given any copy of accounts to the owners once every year or at all since the years 1999 onwards.

Despite the fact that the Respondent had, via its solicitors, made due enquiry and demand to the Applicant's solicitors on 8th September 2003, the Applicant had failed to supply copy of annual budgets and management fund accounts to the Respondent.

The Respondent does not dispute its duty to pay management fee under the DMC but dispute that the management fee must be duly approved to be collected in pursuance of an approved annual budget and that a copy of the management account must be provided to the Respondent so that the latter could ensure that the management fund were/are properly used by the management company under the DMC

The Respondent says that not until the Applicant had properly purged the breach of the DMC as mentioned in paragraph 8 (of the Notice of Opposition) above, he Applicant is not entitled to claim against the Respondent for the management fee as claimed or at all."

4. During the hearing, Madam Cheng obtained leave to amend the Notice of Opposition for LDBM 356 of 2003. It was alleged that for 5 car parking spaces, Space Nos. 16, 17, 18, 29 and 30 on 1st Floor of Block B of the Building, management fees for 6 spaces were demanded for the period from January 2000 to November 2003 in the Applicant's Notice of Application. However, from land search, these spaces were permitted for the parking of 5 cars only.

The Applicant's case

5. The Applicant called for the evidence of two witnesses, Mr. Chong Shin Sheng Henry, a member of the Appliant's Management Committee and Mr. Kwok Chi Yan, the property manager of EastPoint Property Management Limited, the present management company of the Building. The two witnesses produced their witness statements and other Exhibits in support of the Applicant's case.

6. It was the Applicant's case that for the period from 1 October 1997 to present, there have been a total of 6 management companies appointed by the Applicant. Back in 1997 to 1999, the annual budgets for the 2 yearly periods, 1/10/1997-30/9/1998 and 1/10/1998-30/9/1999 (hereinafter referred to as "Years 1998 and 1999"), were considered and approved by the Management Committee of the Applicant. The relevant copies of the approved budgets and the minutes were respectively found in pages 1632 and 1625 of the bundle marked Exhibit A5. The Applicant did not deny that for the subsequent years, Year 2000, 2001, 2002 and 2003, the Applicant did not prepare annual budgets for the years concerned. However, recently, the Management Budget of the Building for the period from 1 January 2004 to 31 December 2004 was approved on 26 November 2003 by the Management Committee of the Applicant.

7. It was the evidence of Mr. Chong that throughout the Years 2000, 2001, 2002 and 2003, it was the consensus of the Management Committee of the Applicant that there was no need to consider and approve the annual budget because it was agreed by the said Committee that there was no change in the Applicant's budget for these years when compared with the previous year, Year 1999. During these years, a representative from Previgor (2nd Respondent) was a member of the said Committee and there was no objection at all from the representative to these decisions of the said Committee.

8. As evidenced by the copies of Demand Notes and various letters from the solicitors acting for the Applicant, which were produced in several bundles (marked as Exhibits 3, 4, 5 and 6), the Applicant submitted that the Applicant had discharged the burden of proof, that the 3 Respondents owed the Applicant's arrears of management fees. An up to date summary of the arrears were shown in a revised schedule produced and marked as Exhibit A8.

9. The above said schedule produced during the hearing show that for the period from January 2000 to March 2004, the 3 Respondents owed the Applicant the following total management fees in arrears: 1st Respondent: $547,290; 2nd Respondent: $2,267,232 and 3rd Respondent: $173,298.

10. In response to the query from Madam Cheng and the subsequent amendment to the Notice of Opposition of LDBM 356 of 2003 (for 2nd Respondent), the Applicant admitted that it was due to the decision of the previous estate manager who decided it proper to charge according to the actual usage on site. However, the Applicant conceded during the hearing to revise its claim so that only the management fees for 5 Spaces for the parking of cars would be demanded. Therefore, for the schedule of outstanding management fees produced by the Applicant as Exhibit 6, in page 6, the figure for these 5 Spaces will be amended from $77,823 to $65,535 (i.e. the management fees for one space, $257 x 5 number of space x 51 months, from January 2002 to March 2004). As a result, the final total amount of outstanding management fees due from 2nd Respondent as shown in page 8 of Exhibit 6 was revised from $2,267,232 to $2,254,944.

11. The Applicant originally claimed for the interests on the arrears of management fees and the collection charges as provided by the DMC. During the final submission, the solicitor for the Applicant after taking instruction made the concession of not claiming for the collection charges. However, the Applicant continued to ask for an order for the payment of interests to be calculated in accordance with the provisions of the DMC and the costs of the proceedings.

The Respondent's case

12. As said above, Madam Cheng made an application to amend the Notice of Opposition for the case LDBM356 of 2003 (2nd Respondent, Previgor Development Limited). Other than the above amendment and evidence relating to the amendment, Madam Cheng adduced no other evidence and no authority in support of the Grounds of Opposition that had been raised by the 3 Respondents in these 3 cases.

13. There was no objection from Madam Cheng to the production of Exhibit A8. Furthermore, after the Applicant had agreed to amend the figures for the management fees for the Parking Spaces as shown in Page 6 of Exhibit A8, there was no objection from Madam Cheng on the individual figures shown in the schedule at Exhibit A8.

The Tribunal's findings

14. The Tribunal agrees with the Applicant's submission that both the DMC of the Building and the Building Management Ordinance, Cap. 344 ("the Ordinance") do not have provisions that any owners of individual Units or Parking Spaces do not have to pay management fees for any period of a particular year if the Management Committee of the Applicant has not prepared and approved the annual budget for the said particular year.

15. The Tribunal further agrees with the Applicant's submission that according to the provisions of Schedule 7 of the Ordinance, if the Management Committee of the Owners Incorporation such as the Applicant has not prepared any budget for any particular year, the Owners Incorporation cannot revise the amount of management fees for the individual units in the building concerned. In the Building, it was the evidence from the Applicant's witnesses that during those years (i.e. Years 2000, 2001, 2002 and 2003) when the Management Committee of the Applicant did not revise and approve the revised annual budget, there was no change at all in the level of management fees for every individual unit and parking space in the Building. Since the previous level of management fees (for the Years 1998 and 1999) were properly approved by the Management Committee pursuant to the approved annual budgets of those years, the management fees for the Years 2000 to 2003, which remained unchanged as the previous Year of 1999, would obviously remain valid and due when demanded by the Applicant. The provisions of Schedule 7 do not have the effect of nullifying the demand notes from the Applicants to the 3 Respondents in respect of the management fees for the period, from January 2000 to March 2004, due from the various Units and Parking Spaces owned by the 3 Respondents.

16. The Respondents said in their Notice of Opposition that "not until the Applicant had properly purged the breach of the DMC..., the Applicant is not entitled to claim against the Respondent for the management fee as claimed or at all." As stated above, the Tribunal finds that this was not provided for in the DMC or the BMO, and that the Respondent also fails to provide any authority in support of this contention. On the other hand, the Applicant's solicitors, in its letter dated 25 November 2003 (for instance, page 1715 of Applicant's bundles) to Messrs Yam & Company, the Respondents' solicitors at that time, refuted this argument, as follows:

"Any purported argument that your client is not obliged to pay any management fees if the management company or the Incorporated Owners have failed to discharge its duty pursuant to the DMC is bad in law. Your attention is drawn to the case of Grace International Limited v Incorporated Owners of Fortuna Guardian [1996] 4 HKC 635 in which Madam Justice Le Pichon (as she then was) made it clear that: -

Assuming that the defendants have all discharged their duty to effect necessary repairs to the common parts of the building, would this fact debar them from recovering management fees? Bearing in mind that effecting repairs was not the only duty and the Defendants and in respect of which management fees are paid, I am not prepared to hold that because of this breach, they are not entitled to management fees.'"

17. For the above reasons, all the ground of opposition put up by the 3 Respondents in these 3 cases failed. In the circumstances, I make the following order:

Orders

1. The 1st Respondent shall pay the Applicant arrears of management fees for the period from January 2000 to March 2004, in respect of all the Units owned by the 1st Respondent which are the subject matters of case LDBM355 of 2003, in the sum of $547,290;

2. The 1st Respondent shall pay the Applicant the interests on the arrears of management fees owed to the Applicant, at the rate of 2% over the best lending rate of the Hong Kong and Shanghai Banking Corporation of the amount of management fees unpaid for each period of 30 days or part thereof for which it remains unpaid

3. The 2nd Respondent shall pay the Applicant arrears of management fees for the period from January 2000 to March 2004, in respect of all the Units and Spaces owned by the 2nd Respondent which are the subject matters of case LDBM356 of 2003, in the sum of $2,254,944;

4. The 2nd Respondent shall pay the Applicant the interests on the arrears of management fees owed to the Applicant, at the rate of 2% over the best lending rate of the Hong Kong and Shanghai Banking Corporation of the amount of management fees unpaid for each period of 30 days or part thereof for which it remains unpaid;

5. The 3rd Respondent shall pay the Applicant arrears of management fees for the period from January 2000 to March 2004, in respect of all the Units owned by the 3rd Respondent which is the subject matter of case LDBM357 of 2003, in the sum of $173,298;

6. The 3rd Respondent shall pay the Applicant the interests on the arrears of management fees at the rate of 2% over the best lending rate of the Hong Kong and Shanghai Banking Corporation of the amount of management fees unpaid for each period of 30 days or part thereof for which it remains unpaid;

7. Costs Order Nisi that the 1st Respondent shall pay the Applicant the costs of the proceedings in relation to case LDBM355 of 2003, to be taxed at District Court scale, if not agreed; with liberty to apply within 21 days from today after which the costs order shall become absolute;

8. Costs Order Nisi that the 2nd Respondent shall pay the Applicant the costs of the proceedings in relation to case LDBM356 of 2003, to be taxed at District Court scale, if not agreed; with liberty to apply within 21 days from today after which the costs order shall become absolute;

9. Costs Order Nisi that the 3rd Respondent shall pay the Applicant the costs of the proceedings in relation to case LDBM357 of 2003, to be taxed at District Court scale, if not agreed; with liberty to apply within 21 days from today after which the costs order shall become absolute;