THE INCORPORATED OWNERS OF THE REGALIA v. CHOK KIN MING AND ANOTHER

HCSA 14/2018

[2022] HKCFI 1020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 14 OF 2018

(On Appeal From Small Claims Tribunal Claim No SCTC 034423/2016)

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HCSA 15/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 15 OF 2018

(On Appeal From Small Claims Tribunal Claim No SCTC 034424/2016)

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HCSA 16/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 16 OF 2018

(On Appeal From Small Claims Tribunal Claim No SCTC 034430/2016)

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J U D G M E N T

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Introduction

1.  By their respective notices of originating motion dated 20 June 2020, the appellants in these appeals appealed against the review decision made on 2 May 2018 by Deputy Adjudicator Mr Ngai Lung-kit of the Small Claims Tribunal (the “Adjudicator”).  Leave to appeal was granted earlier by this Court on 23 May 2019.  By his review decision, the Adjudicator maintained his previous decision made on 12 September 2017 holding the appellants liable to the respondent, for outstanding contribution to a special fund and outstanding management fees, together with related contractual charges and interests.

Background

2.  The respondent is the incorporated owners of the Regalia, a residential development at 33 King’s Park Rise, Kowloon.  It was incorporated on 11 July 2016 under the Building Management Ordinance Cap 344 (the “BMO”).

3.  The claimants are owners of premises in the Regalia, namely, residential units and car parking spaces[1].

4.  Prior to the respondent’s incorporation, under the deed of mutual covenant and management agreement between owners of the Regalia (the “DMC”), a resolution was passed in the annual general owners’ meeting on 17 December 2015 (the “2015 AGM”)  to establish a special fund to defray costs of maintenance and repair in the Regalia with contribution to be made by the owners (the “2015 Special Fund”).  The contribution of each owner was to be an amount equal to twice the monthly management fee.

5.  The minutes of the 2015 AGM also showed that there was discussion on increasing the management fee for 2016 by 9%.  The increase was originally to be 15%, but in view of the establishment of the 2015 Special Fund to defray maintenance and repair costs, it was adjusted to 9%. 

6.  Management fees are payable by the owners and are determined on the basis of a budget prepared by the manager appointed under the DMC, in consultation with the owners’ committee (DMC clauses 13 and 14).  The respondent’s case was that the increase of management fee for 2016, having been proposed in the budget for 2016 and having been properly determined after the requisite consultation, was payable by the owners.

7.  Despite the manager’s demands, outstanding items remained owed in respect of the owners’ contribution to the 2015 Special Fund and of the increased management fees from 2016, together with related charges and interests.  The respondent subsequently commenced proceedings in the Small Claims Tribunal for such outstanding items against a number of owners, amongst them the appellants in these appeals[2].

8.  As far as these appeals are concerned, the relevant arguments advanced by the appellants in defence of the respondent’s claims were:-

(a)  The resolution establishing the 2015 Special Fund was invalid because the notice of the 2015 AGM (the “2015 AGM Notice”)  did not contain details on the matter and was insufficient;

(b)  The management fee increase from 2016 was in breach of the DMC, as the budget for 2016 did not undergo proper consultation.

9.  The appellants also advanced other arguments in their defence, such as that the respondent had no right to bring proceedings as it was not incorporated until 17 December 2015; and that there were issues concerning the quorum of the 2015 AGM and whether it had been properly convened.  These were rejected by the Adjudicator, and no issue arose from these arguments on appeal.

The Adjudicator’s decision and review

10.  On the issue of sufficiency of notice, the 2015 AGM Notice set out the agenda of the meeting.  Agenda item 3 related to the 2015 Special Fund, and was in the following terms:-

「3. 商討及決議設立特別基金 [Discussion and resolution on the establishment of special fund]」

11.  The minutes of the 2015 AGM recorded that it was resolved that the 2015 Special Fund was to be established, and that the contribution of each owner was to be an amount equal to twice the monthly management fee.

12.  DMC clause 63(i)  sub-clause (i)  and (ii)  provided that:-

“(i)  … any resolution on any matter concerning the [Regalia] passed by a simple majority of votes at a duly convened meeting by the Owners … shall be binding on all the Owners of the [Regalia] … :-

(i)  The notice convening the meeting shall have been duly given and shall have specified the intention to propose a resolution or resolutions concerning such matters.

(ii)  No resolution purporting to be passed at any such meeting concerning any matter not mentioned in such notice shall be valid.”

13.  The Adjudicator rejected the appellants’ contention that item 3 of the 2015 AGM Notice did not contain sufficient details of the resolution establishing the 2015 Special Fund.  He held that there was no need to set out the contents of a resolution as long as it was mentioned in the notice that the owners’ meeting would vote on the matter.

14.  As for the management fee increase for 2016, DMC clauses 13 and 14 provided that the manager was to prepare a budget in consultation with the owners’ committee. 

15.  According to the minutes of the 7^th meeting of the owners’ committee held on 12 November 2015, the manager had provided to the owners’ committee a draft of the budget for 2016 for discussion.  Subsequently, the matter was delegated to a task force comprising 4 members of the owners’ committee, and subsequently the manager only liaised with the task force.  On 20 November 2015, the manager posted a notice together with the budget for 2016 consulting all owners.  Later on in the 2015 AGM on 17 December 2015, there was discussion on increasing the management fee for 2016 by 9%, adjusted from 15% in view of the establishment of the 2015 Special Fund.

16.  Having considered these events, the Adjudicator held that there was no breach of the DMC consultation provisions, noting that the manager had provided a draft budget to the owners’ committee, and that the task force then represented the owners’ committee.  He also took the view that the manager had in fact consulted all the owners, and that such direct consultation with the owners was even more effective for achieving the purpose of the DMC provisions on consultation. 

17.  The Adjudicator further rejected the argument that the adjustment of the management fee increase from originally 15% to 9% amounted to a revised budget under the DMC clause 16, so that the owners’ committee should have been consulted.  He held that clause 16 only applied when the budget was not sufficient to defray expenses.  However, this did not apply to the adjustment down to 9%, as it was not due to insufficiency of the original budget, but to the establishment of the 2015 Special Fund.

18.  Having held that there was sufficient notice in relation to the 2015 Special Fund, that there was no breach of the DMC relating to consultation on the 2016 budget, and having rejecting other defence arguments, the Adjudicator found the appellants liable for their respective outstanding items.

19.  On 13 November 2017, the appellants applied for a review of the Adjudicator’s decision, on the basis of arguments relating to whether the 2015 AGM was properly convened and conducted, and whether there was proper consultation on the 2016 budget.  On 2 May 2018, the Adjudicator maintained his decision that the appellants were liable to the respondent.

Grounds of appeal

20.  With leave from this Court granted on 23 May 2019, the appellants advanced the following grounds of appeal:-

(1)  It was not legally permissible to establish the 2015 Special Fund as there was already another special fund in existence (the “existing fund ground”);

(2)  Even if it is permissible to establish the 2015 Special Fund, sufficient notice for its establishment had not been given (the “notice ground”);

(3)  The format of the budget for 2016 did not comply with the relevant requirements under the DMC (the “budget format ground”);

(4)  There had not been proper consultation on the budget for 2016 under the DMC (the “consultation ground”).

21.  The existing fund ground depended on evidence being available to show there was in existence a fund preventing the establishment of the 2015 Special Fund.  The appellants therefore further applied for leave to adduce new evidence, namely, the Regalia’s balance sheet as at 31 December 2015 (“Balance Sheet 2015”), which included an entry indicating that there was in existence another special fund designated as the Capital Equipment Fund. 

22.  In the appeal hearing, however, Mr Chok for the appellants accepted that there was in fact no basis for the Court to admit any further evidence (section 29(2)(ii)  of Small Claims Tribunal Ordinance Cap 338), and he properly withdrew the applications.

23.  Without the new evidence, there was no basis on which the existing fund ground could be advanced.  Mr Chok then applied for leave to rely on a ground complaining that the Adjudicator had failed to investigate whether there was already in existence another special fund (the “failure to investigate ground”)[3]. As far as the appellants in HCSA 14/2018 are concerned, it was the first time they raised this ground, whereas this ground had been raised but abandoned by the appellants in HCSA 15 &16/2018 in the earlier leave hearing.

Application for leave on the failure to investigate ground

24.  Mr Chok submitted that the existing fund ground and the applications to adduce new evidence were advanced after discussion with the Court in the leave hearing.  The failure to investigate ground was abandoned on the assumption that new evidence was to be allowed.  It was submitted that it would be unfair and prejudicial not to allow the appellants to rely on this ground now.

25.  In the substance, both the existing fund ground and the failure to investigate ground were based on whether the establishment of the 2015 Special Fund was permissible, if there were already in existence the Capital Equipment Fund.

26.  The Capital Equipment Fund is defined in the DMC preamble as a special fund to be set up by the manager:

“ ‘Capital Equipment Fund’ means a special fund to be set up by the [manager] pursuant to the provisions in Clause 20 … for expenditure in relation to the management of the [Regalia] of a capital and non-recurring nature”

27.  DMC clause 20 further provided that the Capital Equipment Fund was to be set up towards payment of expenses of a capital nature for the replacement of installation, plant and equipment in common areas and facilities.

28.  Mr Chok submitted that the 2015 Special Fund was established for the replacement of water pumps, pressure tanks and air-conditioners in the common areas, as shown in the minutes of the 2015 AGM.  Therefore, the purposes of the 2015 Special Fund were within the ambit of DMC clause 20. 

29.  Mr Chok contended that clause 20 only allowed one special fund to be established within its ambit.  He submitted that, if the Capital Equipment Fund were already in existence and the 2015 Special Fund was set up as another separate fund, the provisions of clause 20 would be bypassed and undermined.  In particular, it was pointed out that, having fixed the amount of the initial contribution for the Capital Equipment Fund at a sum equal to one month’s management fee, clause 20 provided that subsequent contribution was to be fixed specifically by resolution in the owners’ meeting.  Mr Chok contended that setting up another special fund within the ambit of clause 20 would then deprive the owners of the right to fix the amount of contribution for expenses within the ambit of clause 20.

30.  Further, the proviso in DMC clause 13 provided that:-

“… expenditure of a capital nature for the replacement of installations, systems, equipment and apparatus within or forming part of the Common Areas and Facilities … shall be payable out of the Capital Equipment Fund mentioned in Clause 20 of this Deed when the same is established.”

31.  It was contended that expenditure referred to in clause 13 were only payable out of the Capital Equipment Fund, and that setting up the 2015 Special Fund to pay for such expenditure would contradict clause 13.

32.  Consequently, it was submitted that, if there were already in existence the Capital Equipment Fund, it would not be legally permissible and there would be no authority to establish 2015 Special Fund.

33.  Mr Chok further contended that the issue of whether there was in existence the Capital Equipment Fund was a core matter that the Adjudicator should have investigated and determined, but it was not dealt with, and the case was not fairly and properly disposed of.

The notice ground

34.  Although the 2015 AGM Notice referred to the establishment of the 2015 Special Fund, Mr Chok pointed out that it did not specify an intention to propose any resolution on the determination of the amount of contribution to be made by each owner.  He submitted that this was in breach of the notice provisions in DMC clause 63(i).

35.  Mr Chok submitted that, for a notice to be valid or sufficient, it must clearly state the business to be transacted at the meeting, providing all material information for it to be fully understood.  The test was whether it contains enough information to enable the recipient to decide for himself whether he should attend, or appoint a proxy on his behalf, or whether he is content to let matters take their course at the meeting (Shackleton on the Law and Practice of Meetings, 14^th edn, 2017, at §5-04).

36.  It was submitted that a reasonable owner, upon reading the 2015 AGM Notice, would only expect voting on the establishment of the 2015 Special Fund, but not on the amount of contribution to the fund.  This was unfair to the owners who had read the 2015 AGM Notice and decided not to attend the meeting, or who had decided to attend but left before it started, as was the case with some of the appellants.

37.  Further, one could not assume, Mr Chok argued, that agenda item 3 of the 2015 AGM Notice would entail the determination of the amount of the contribution.  In support, he again referred to DMC clause 20, where it was provided that contribution subsequent to the initial contribution was to be fixed specifically by resolution at the owners’ meetings, which Mr Chok submitted would require specific notice.

38.  It was therefore submitted that the resolution establishing the 2015 Special Fund was invalid. 

39.  Mr Chok also submitted that, even on the assumption that it was permissible to establish the 2015 Special Fund under clause 20 as a separate fund, the mechanism prescribed for determining the initial contribution would apply so that the respondent could only seek a contribution amounting to one month’s management fee.  

The budget format ground

40.  The increase in management fee for 2016 was part of the budget for 2016.  Under DMC clauses 13 and 14, the manager had to consult the owner’s committee on the annual budget. BMO Schedule 7 also contains similar provisions for preparation of budget and consultation with owners’ committee and the owners, which were implied into the DMC.  Unlike DMC clause 13, the BMO provisions did not set out any required format for the budget.  Mr Chok submitted that the relevant provisions of the BMO and the DMC, insofar as they are not inconsistent, are to be interpreted complementary to each other. 

41.  As provided in DMC clause 13, the budget had to be prepared in two parts, one part covering expenditure for the common areas and facilities, and another part to contain two sections, covering expenditure respectively for residential accommodation and car parking spaces.  The proviso to clause 13 then provided that expenditure of a capital nature, for replacement of installations, systems, equipment and apparatus, was to be compiled in a separate heading within the appropriate sections of the budget.

42.  Mr Chok submitted that the budget for 2016 was not prepared in the format required by clause 13.  As shown by the evidence, it was not set out in the requisite parts and sections, and there was no separate heading on expenditure of a capital nature within such parts and sections.

43.  DMC clause 15 further provided that each owner’s contribution to the annual budget was to be calculated by reference to the expenditure for each part and section of the budget.  Mr Chok submitted that, in the absence of a budget drafted in compliance with the required format, it was not possible to calculate each owner’s contribution accurately, or for the owners or the owners’ committee to be consulted meaningfully under the DMC and the BMO.

44.  BMO Schedule 7 paragraph 1(3)  provided that, if the requirement to present and consult on a draft budget was not complied with, management expenses payable by each owners would be deemed to be the same as the amount for the previous year.  Mr Chok contended that, since the budget for 2016 did not comply with the relevant DMC provisions, the management fee payable in 2016 should be the same as the year before, and the 9% increase was not payable.

45.  Mr Chok submitted that, although the Adjudicator had been referred to DMC clause 13 in the proceedings, he did not consider whether the format of the budget for 2016 was in compliance with it nor the consequences of non-compliance.

46.  Mr Chok further submitted that DMC clause 13 and BMO Schedule 7 paragraph 1(3)  required management expenses payable by the owners to substantially match the amount of the proposed expenditure.  He argued that the adjustment of the management fee increase from 15% to 9% was therefore in breach of the DMC and BMO, as the resulting amount payable by the owners did not substantially match the proposed expenditure.

The consultation ground

47.  Although a draft budget was provided to the owners’ committee meeting held on 12 November 2015, as Mr Chok pointed out from the minutes, the committee required further information in order to understand the expected expenditure.  It then delegated the matter to the task force, and the manager only provided information sought to the task force.  There was no further meeting and discussion by the committee on the budget for 2016.

48.  Mr Chok submitted that, in these circumstances, it could not be said that the owners’ committee had been properly consulted in compliance with DMC clauses 13 and 14, as it had not been put in a position where it could properly consider the budget for 2016, with 5 out of 9 members of the committee who were not part of the task force not having been provided any further information. 

49.  It was further submitted that consultation with the task force was not sufficient and could not meet the need to consult the committee.  Mr Chok pointed out that DMC clause 50(c)  specifically stated that one of the functions of the owner’s committee was to be consulted in connection with the budget.  He submitted that this function could not be delegated. 

50.  Further, although the owners’ committee represented the owners, Mr Chok submitted that consultation with the owners’ committee was a distinct process from consultation with the owners, referring to BMO Schedule 7 paragraph 1(2)(b)  and (c), and that consultation with the owners in the 2015 AGM could not cure the lack of consultation with the owners’ committee. 

51.  It was submitted overall that the budget for 2016 did not undergo the requisite consultation and was invalid.

The respondent’s submissions

The failure to investigate ground

52.  Mr Richard Leung and Tommy Leung, for the respondent, opposed leave to rely on the failure to investigate ground. 

53.  It was submitted that, as far as the appellants in HCSA 15 & 16/2018 were concerned, it was their own election as to what grounds to pursue on appeal, and they should be bound by their election to abandon this ground.  The argument that this ground was abandoned on assumption that new evidence was to be allowed could not stand, as it could not be assumed that the Court would allow the application to adduce new evidence.

54.  In any event, Mr Leung contended that the provisions of BMO Schedule 7, having been incorporated into the DMC by virtue of BMO s.34E, were to prevail over any inconsistent provision in the DMC. 

55.  Properly construing the provisions in BMO Schedule 7 in context, it was submitted that they do not restrict the number of special fund to one, but instead require the manager to set up at least one such fund.  There are many reasons why different special funds should be set up, for instance, as a matter of good practice in fund management or for accounting purposes.  To construe the DMC and the BMO as limiting the manager’s ability to only set up one special fund was unduly restrictive and without authority.

56.  Even if the BMO and the DMC only allowed one special fund to be set up in the form of the Capital Equipment Fund, it was submitted that there was nothing to prevent a sub-fund to be established, and that the 2015 Special Fund could be one such sub-fund.

57.  Mr Leung further submitted that the power of the owners to set up funds was more extensive and not limited to that of the manager, as it was their agent.

58.  It was therefore submitted that it was legally permissible to establish the 2015 Special Fund, even if there were in existence the Capital Equipment Fund.

The notice ground

59.  On the 2015 AGM Notice, referring to Merry’s Building Management in Hong Kong, 3^rd edn, at [10.20] and The Incorporated Owners of Alliance Building v Elegant Fund Investment Limited LDBM 191/2004 (unreported, 31 January 2005), Mr Leung submitted that the determination of the amount of contribution to the 2015 Special Fund was ancillary and incidental to the its establishment, and there was no need to specifically mention such matters in the 2015 AGM Notice.

The budget format ground

60.  As the format of the budget for 2016, Mr Leung submitted that any discrepancy with DMC clause 13 would not result in it being invalid, or only the same management fee as the year before being payable.  He pointed out that there is no format requirement for the budget in BMO Schedule 7, which he contended prevail over relevant DMC provisions.  He submitted that such DMC provisions, being additional to the provisions of the BMO, were not to be given effect.

The consultation ground

61.  Regarding the consultation on the budget for 2016, Mr Leung submitted that, as a matter of factual findings by the Adjudicator, the budget had been brought to the attention of all owners in the 2015 AGM, including all members of the owners’ committee.  On this basis, it was contended that the BMO provisions on consultation had been complied with, and as these prevailed over the DMC, any additional requirements on consultation in the DMC were not to be given effect.  It was further submitted that the DMC in any event did not prohibit delegation by the owners’ committee to the task force. 

62.  As for the argument that, after the adjustment of management fee increase from 15% to 9%, the proposed expenditure did not match the amount payable by the owners, and it was therefore in contravention of DMC clause 20, Mr Leung submitted that the appellants should not be allowed to rely on this point, as it was a new point without leave.

63.  Lastly, it was submitted that, even if the Adjudicator did make an error on a point of law, it could not have a material bearing on the outcome of the case, and no re-trial should not considered.

Discussion

The Abandoned Ground

64.  At the hearing of the leave application, the 1^st and 2^nd Appellants in HCSA 15 & 16/2018 withdrew one of their then grounds of appeal concerning the failure of the Adjudicator to investigate whether a Special Fund already existed prior to the 2015 AGM (“Abandoned Ground”).

65.  The Appellants argued that the Abandoned Ground was withdrawn on the assumption that the Balance Sheet 2015 is to be admitted as new evidence for consideration in the appeal.  Ground 1 of the Amended Grounds of Appeal as they now stand was reformulated at the hearing of the leave application on the assumption that the Balance Sheet 2015 would be admitted.  It would then be unfair to the Appellants should the Balance Sheet 2015 be not allowed to be admitted.

66.  Having said that however, Mr Chok agreed that this court has no jurisdiction to admit new evidence in an appeal from the Tribunal pursuant to section 29(2)(ii)  of the Small Claims Tribunal Ordinance (Cap.  338).  As a result, Mr Chok withdrew his application to adduce new evidence and asked that the Appellants be allowed to reinstate the Abandoned Ground for argument.

67.  After hearing the submissions of Mr Chok, I refused to allow reopening of the Abandoned Ground.

68.  The Balance Sheet 2015 was first disclosed by Mr Chok Kin Ming[4] at the hearing of the leave application.  Upon seeing this document, Mr Chok indicated to the court that in his view the Abandoned Ground is no longer necessary and applied to withdraw the same.  I expressed that the Balance Sheet 2015 was considered only for the purpose of the leave application and made it clear that there is a possibility that the new evidence will not be allowed to be admitted as evidence.

69.  The withdrawal of the Abandoned Ground was a considered decision by counsel.  It would not be right to allow the Appellants to go back to it at this late stage.

70.  In any event, the pre-existence of a special fund was never relied on as a defence by the Appellants at trial and whether a special fund existed before the 2015 AGM has never been put as an issue.    I do not think the duty of the Adjudicator to investigate can extend so far as to require him to speculate that a special fund might have existed and there might be a defence arising as such.

71.  In my judgment, leave would not have been granted even if the Abandoned Ground has not been withdrawn.

The Regalia Special Fund

72.  Regarding Ground (1), as I have ruled that the Balance Sheet 2015 should not be allowed to be admitted as evidence, as rightly admitted by Mr Chok, there is no factual basis to support the Appellants’ argument under this ground.

73.  I should add that but for the lack of evidence to prove the existence of the Capital Equipment Fund, the Appellants might well be successful in the appeal under this ground.

Management Fee

74.  For Ground (2), Clause 63(b)  of the DMC requires the notice convening an AGM to be posted on the public notice boards of the Regalia specifying the time and place of the meetings and the subjects to be discussed.  It is the submission of Mr Chok that the Regalia Special Fund Resolution as recorded in the 2015 AGM Minutes are not duly included in the 2015 AGM Notice in compliance with Clause 63(i)  of the DMC.

75.  Mr Chok argued that the subject matter to be discussed was stated to be the establishment of the Regalia Special Fund whereas it was resolved also that the contribution of each owner of the Regalia to the Regalia Special Fund is equivalent to 2 months of each owner’s monthly management fee.  As it was not stated in the notice that the amount of contribution is to be determined, it rendered the notice defective under Clause 63(i).

76.  As submitted by Mr Leung, although the resolutions related to the quantum of contribution to the Regalia Special Fund and the manner in which the contribution should be collected passed at the 2015 AGM are not included in the 2015 AGM Notice, they are clearly resolutions which are merely ancillary or incidental to a resolution namely, the establishment of the Regalia Special Fund.

77.  The learned author in Merry’s Building Management in Hong Kong (3^rd ed), summarised the relevant legal principles as follows[5]:

“The consequence of omitting to state a proposed resolution accurately or completely in the notice is that, if passed at the meeting, the resolution nevertheless does not have effect. This does not apply to a resolution which is merely ancillary or incidental to a resolution or other matter which has been set forth in the notice. Amendments to a proposal and procedural motions arising in discussion of the proposal therefore do not have to be in the notice. It has been held that a resolution to raise funds to carry out work is ancillary to a resolution to do that work and that a resolution as to which option to select for repairing an external wall is ancillary to a resolution to appoint a contractor to repair the wall. In Chinese, ancillary or incidental means that the resolution cannot stand by itself and needs to be linked to or derived from the main resolution.” (emphasis added)

78.  The above principles have been applied in The Incorporated Owners of Alliance Building v Elegant Fund Investment Limited [6] and The Incorporated Owners of Winner Building v Mai Mau Sze & Others[7].

79.  In my judgment, it cannot be said that the 2015 AGM Notice is insufficient.  Ground (2)  is not a valid ground.

80.  Regarding Ground (3), under Paragraph 1 of Schedule 7 of the BMO, the total amount of the management expenses payable by the owners during any period of 12 months shall be the total proposed expenditure as specified in the budgets prepared in accordance with paragraph 1(2)  of Schedule 7 to the BMO.  There is no particular format of the budgets specified under the BMO.

81.  However, Clause 13 of the DMC requires that the budget be divided into two parts:

(a)  The first part shall cover all expenditure for the benefit of all Owners as essential or required for the prior management, cleansing, security and maintenance of the Lot and the Common Areas and Facilities; and

(b)  The second part shall cover expenditure which is specifically referable to different parts of Regalia.

82.  Mr Chok submitted that as the Proposed 2016 Budget had not been separated into two parts it did not fulfill the requirement under the DMC.  Under Paragraph 1(3)  of Schedule 7 to the BMO, if the requirements under Paragraph 1(2)  of Schedule 7 are not met before a particular financial year, the management expenses payable by each owner must be deemed to be the same as the amount for the previous financial year.

83.  On the other hand, Mr Leung submitted that Clause 13 shall not be given effect as it is inconsistent with Paragraph 1(2)  of Schedule 7 as the latter does not require any specific format for the budget.  Besides, it is the submission of Mr Leung that the Adjudicator had found as a fact that all requirements under Schedule had been duly complied and this finding of fact cannot be overturned on appeal.

84.  With respect to Mr Leung, whether the Proposed 2016 Budget fulfilled the requirements under the BMO and DMC is not a mere finding of facts.  It involved also statutory and contractual interpretation which is a matter of law.  In addition, the complaint of the Proposed 2016 Budget not fulfilling Clause 13 of the DMC had not been raised before the Adjudicator and he had not made any finding on this issue.

85.  As regards Mr Leung’s argument that Clause 13 shall have no effect, I agree with Mr Chok that there is no inconsistency between Clause 13 and Paragraph 1(2)  of Schedule 7.  Clause 13 is just an additional requirement under the DMC.  The fact that Paragraph 1(2)  of Schedule 7 did not require a particular format does not preclude the DMC from requiring one.

86.  In my judgment, Clause 13 is effective and the Proposed 2016 Budget did not fulfill the requirements under it.

87.  Having said that, however, it does not necessarily mean that the Proposed 2016 Budget also contravened the BMO.  The BMO does not require a budget to be drafted in a particular format.  It requires only that it sets out the proposed expenditure during the financial year and be displayed at an appropriate place for an appropriate period of time to enable the relevant persons to consider the same, and failing which, the management fees payable will be remained the same as charged in the previous year under Paragraph 1(3)  of Schedule 7.

88.  There is no provision in the DMC stipulating the consequence in case of nonfulfillment of a requirement under Clause 13.

89.  I can understand the rationale behind Paragraph 1(3)  of Schedule 7 of the BMO to deem the amount of management fees to be the same as the previous year should there be any breach of the requirements under Paragraph 1(2)  as those requirements are more fundamental to the rights of the stakeholders to be properly consulted and informed of the proposed budget and hence management fees.

90.  However, regarding the nonfulfillment of Clause 13, I am not satisfied that the same term as Paragraph 1(3)  of Schedule 7 must be implied in order to give effect to Clause 13 or the DMC as a whole.  The requirements set out under Clause 13 are numerous and they are in such specificity that deviation of which might not be easily avoidable when preparing a budget.  Although failing to divide the expenditures into more specific parts might to a certain extent affect the readers’ understanding of the budget, it is in my view not an error that cannot be remedied by other means.  In the present case, the budget and management fees were tabled and discussed at the AGM and the increment of management fees were lowered from 15% to 9% in view of the setting up of the Regalia Special Fund.

91.  In my judgment, although the format of the proposed budget did not satisfy the requirements under Clause 13, Paragraph 1(3)  of Schedule 7 of the BMO is not invoked and the new amount of management fees fixed at the AGM remain valid.

92.  For Ground (4), Mr Chok submitted that the Adjudicator erred in ruling that the consultation with the finance taskforce[8] under the Committee (“Taskforce”)  and the circulation of the Proposed 2016 Budget would be sufficient to satisfy the requirement under Clause 14 of the DMC which states the Manager had to prepare the said budget “in consultation  with” the Committee.

93.  The Adjudicator accepted the Manager had placed before the Committee a draft budget at a meeting on 12 November 2015.  According to the minutes of that meeting, the Committee requested the Manager to provide further information regarding the budget for consideration.  The Committee delegated the task of handling the matter to the Taskforce and the Manager provided information to it by an email dated 19 November 2015.

94.  It is the submission of Mr Chok that consultation with the Taskforce does not discharge the Committee’s duty to be consulted under Clause 14 as there is no provision for delegation of collective duties of the Committee to a sub-committee or taskforce concerning matters other than recreation and welfare of the residents of the Regalia under the DMC.

95.  I disagree.  The proposed budget had been placed before the Committee for consultation.  There is nothing to restrict the Committee in what way it is to consider the budget and to give opinion, if any, to the Manager.  In my judgment, I agree with the Adjudicator’s findings that the Committee has been properly consulted in satisfaction of the requirement under Clause 14.

Disposition

96.  For the above reasons, the appeal is dismissed.

97.  Costs of the appeal be to the Respondent to be taxed if not agreed.