KWAN & PUN CO. LTD. v. CHAN LAI YEE AND OTHERS

LDBM 542/2001

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. LDBM 542 of 2001

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J U D G M E N T

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Background

1. The Applicant is the registered owner of the Basement, the Ground Floor, the First Floor, the Second Floor, the Third Floor, the Main Roof, the External Walls and the Flat Roof on the Fourth Floor of Apollo Building, No. 164-170 Castle Peak Road, Kowloon ("the Building").

2. The 1st to the 11th Respondents are respectively the registered owners of Flat E on the 4th floor, Flat H on the 6th Floor, Flat F on the 7th Floor, Flat F on the 4th Floor, Flat N on the 6th Floor, Flat C on the 4th Floor, Flat B on the 7th Floor, Flat N on the 7th Floor, Flat G on the 7th Floor, Flat L on the 8th Floor and Flat D on the 8th Floor of the Building.

3. By notice dated 4 July 2001, the 4th, 6th, 9th, 10th Respondents together with 14 other owners of the Building convened a meeting of owners to be held at 8:30 p.m. on 27 July 2001 with a view to appointing a management committee of the Building in accordance with section 3 of the Building Management Ordinance, Cap. 344 ("the Ordinance").

4. At the meeting on 27 July 2001, there were owners or their proxies representing a total of 86.3% of the undivided shares of the Building present, including the Applicant's proxy, Mr. Liu Kai Sang ("Mr. Liu"). The Applicant's undivided shares of the Building amounted to 69.74% of the total. The 10th Respondent was elected the chairman of the meeting, but a district councillor, Mr. Leung Yau Fong ("Mr. Leung") presided over the meeting.

5. A number of resolutions were passed at the meeting by which the number of members of the management committee was fixed at 9, the 1st, 4th to 11th Respondents were appointed the members of the management committee, the 1st Respondent was appointed the chairman of the management committee, the 2nd Respondent the secretary, the 3rd Respondent the treasurer and the 4th Respondent the vice-chairman thereof.

6. The Applicant contents that there were irregularities in the passing of the said resolutions and the appointments of the Respondents as aforesaid were invalid. The Applicant also contends that the Respondents wrongfully obtained the certificate of registration for the incorporation of the owners of the Building. The Applicant therefore seeks for the declarations that the aforesaid appointments of the Respondents were invalid and void. The Applicant also seeks for an injunction restraining the Respondents, whether acting by themselves, their agents or servants, from exercising any power rested by the Deed of Mutual Covenant of the Building ("the DMC") or the Ordinance in the management committee of the Building or holding themselves out as the members of the management committee of the Building, as well as an injunction ordering the Respondents, whether acting by themselves, their agents or Servants, to apply to the Land Registrar in writing for the revocation of the certificate of registration. In the Amended Notice of Application, the Applicant sought for damages against the Respondents, but Mr. Lau, Counsel for the Applicant, confirmed at the hearing that the Applicant no longer wished to claim for damages.

Preliminary Issue

7. At the beginning of the hearing, Mr. Koo, Counsel for the Respondents, submitted that the Lands Tribunal was not a proper forum to review the decision of the Land Registrar whereby the certificate of Registration was issued. He argued that the management committee was appointed under Section 3 of the Ordinance, and by virtue of Section 8(1) of the Ordinance, the Land Registrar shall, if satisfied that the provisions of Section 3 and Section 7(2) and (3) have been complied with, issue a certificate of registration. Thus, the Land Registrar was rested with the power to determine the issues as to whether an incorporation of owners was validly formed under the Ordinance and whether the first management committee was validly appointed. Section 13 of the Ordinance also stipulates that a certificate of registration issued under Section 8(1) in respect of a corporation shall be conclusive evidence that such corporation is incorporated under the Ordinance. Therefore, if the Applicant wanted to challenge the validity of incorporation or appointment of the first management committee after the issue of the certificate of registration, the Applicant had no alternative but to review the decision of the Land Registrar. By making the present application, the Applicant was challenging the validity of the incorporation as well as the appointment of the first management committee, which amounted to reviewing the Land Registrar's decision to issue the certificate of registration without joining the Land Registrar as a party. In support of his contentions, Mr. Koo relied on the authorities of Grace International Ltd. v. The Incorporated Owners of Fontana Garden [1996] 4 HKC 635 and Robinson v. Sunderland Corporation [1899] 1 QB 751.

8. I have already ruled at the hearing that I do have jurisdiction to hear the Application herein and I shall give my reasons now.

9. Section 45(1) of the Ordinance stipulates that the Lands Tribunal shall have jurisdiction to hear and determine any proceedings specified in the Tenth Schedule, and paragraph 1 of the Tenth Schedule covers proceedings relating to the interpretation and enforcement of the provisions of the Ordinance. The present proceedings concern with the interpretation of Section 3 of the Ordinance because this Tribunal is asked to determine whether the management committee was validly appointed pursuant to Section 3(2)(b) of the Ordinance, i.e. whether the management committee was appointed by a resolution of the owners of not less than 30% of the shares of the Building. It is clear to me that I do have jurisdiction under Section 45(1) of the Ordinance to hear this application.

10. Although Section 13 states that a certificate of registration issued under Section 8(1) in respect of a corporation shall be conclusive evidence that such corporation is incorporated under the Ordinance, it does not mean that the Lands Tribunal cannot go behind the certificate to determine whether a management committee has been validly appointed. In re National Debenture and Assets Corporation (1891) 2 Ch. 505, it was held that the certificate of incorporation of a limited company could not be treated as conclusive of the fact that seven persons signed the memorandum of association, and that if a less number had signed it the Court had no jurisdiction to make a winding-up order. Although Section 18 of the Companies Act 1862 stipulated that "A certificate of the incorporation of any company given by the Registrar shall be conclusive evidence that all the requisitions of this Act in respect of registration have been complied with", it was held by Kay. LJ. that the words of Section 18 "do not mean that if less than seven persons subscribe their names to a memorandum, and by some oversight on the part of the Registrar obtain registration of a pretended company so formed, the certificate of the Registrar shall be conclusive that that was a corporation. It is obvious that to hold that would be to give the Registrar practically the power of incorporating a company consisting of fewer than seven members, whereas the Act says a company to be incorporated under the Act must consist of serven or more persons. The least examination of the section shews that such a construction would not be consistent even with the words of it".

11. By the same reasoning, I am of the view that Section 13 of the Ordinance cannot be conclusive of the fact that there has been a valid appointment of the management committee under Section 3(2)(b) of the Ordinance. The determination of this issue rests with the Lands Tribunal by virtue of Section 45(1) of the Ordinance, rather than the Land Registrar. In fact, in Siu Siu Hing v. Land Registrar [2001] 1 HKC 63, Cheung J held that the Land Registrar was not expected to follow a procedure akin to a judge conducting a trial. As he had no power to receive evidence on oath or resolving conflicts in the evidence of competing parties, he was expected to do no more than take note of the observations that an interested party chose to make to him. It is therefore clear to me that the proper forum is actually for the Lands Tribunal to resolve the conflicts rather than leaving it to the Land Registrar.

12. I note that in the case of Grace International Ltd., Le Pichon J stated (per curiam) that "Whether or not the Land Registrar had exceeded his powers under Cap. 344 by issuing a certificate of incorporation for the first defendant was not a matter to be determined in these proceedings not least because the Land Registrar was not a party hereto. The validity of a certificate of incorporation ought to be challenged by way of judicial review." However, I do not think that the Applicant's application herein is to challenge the validity of the certificate of incorporation as suggested by the Respondent. The Applicant is actually challenging the validity of the appointment of the management committee. The appointment of the management committee is a fact upon which the Land Registrar made his decision to issue the certificate of registration, but the validity of such decision can be different from the validity of the fact upon which the decision was made. I agreed that if the Applicant were to challenge the decision of the Land Registrar, it should be done by way of judicial review. However, the issue here is not whether the Land Registrar's decision to issue the certificate of registration is correct or not, but whether the fact upon which the Land Registrar made his decision is valid or not. Judicial review would not be appropriate to resolve the conflicts of the parties concerning this factual matter.

13. Thus, I do not find that the case of Grace International Ltd. precludes the Lands Tribunal from hearing this case. I also do not find the case of Robinson v. Sunderland Corporation helpful as it concerns with Section 305 of the Public Health Act 1875 which is rather different from the provisions of the Ordinance I am concerned with here. In sum, I do find that the Lands Tribunal has jurisdiction to hear and determine the present dispute.

The main issue

14. The main issue in this case is whether there has been a valid appointment of the management committee pursuant to Section 3(2)(b) of the Ordinance. Since the parties have agreed at the trial that the transcript of the tape recordings of the meeting on 27 July 2001 (page 69 to 95 of exhibit "AR2") is accurate record of the proceedings at the meeting, I shall rely on the transcript to establish what transpired at the meeting.

15. There are a number of irregularities of the meeting raised by the Applicant. The first one is that there was in fact no resolution passed at the meeting for the formation of the management committee, even though the minutes of the meeting (page 96 of exhibit "AR2") stated that there was such a resolution passed. Mr. Koo concedes that the transcript does not show that there was such a resolution passed at the meeting, but there was a 'consent voting' under the DMC for the formation of the management committee, which was referred to in the meeting (page 76 of exhibit "AR2"). Mr. Koo argued that Clause 12(a)(i) and (ii) of the DMC implies that there was such a 'consent voting' as all owners have agreed to be bound by the terms of the DMC.

16. Clause 12(a)(i) and (ii) of the DMC reads as follows:-

"12.(a)

(i) Within 2 years of the issue of the permanent Occupation Permit of the said Building on the said Premises the Manager shall convene a meeting of the owners to appoint a Management Committee pursuant to Section 3 of the Multi-storey Buildings (Owners Incorporation) Ordinance and its amendments made from time to time (Cap. 344) (hereinafter called "the said Ordinance".)

(ii) Following such appointment as aforesaid the Management Committee shall forthwith apply to the Land Office for registration of the owners as a corporation under the said Ordinance to be known as "the Incorporated Owners of Apollo Building" (hereinafter called "the Corporation") and the said Management Committee and all subsequent Management Committee appointed in the annual general meeting of the Corporation held pursuant to the said Ordinance shall endeavour to maintain the Corporation in being and be (Subject to any professional manager that may be the manager of the said premises and the said Building) in full and effective control of the management of the said premises and the said Building thereon."

17. I fail to see how Clause 12 of the DMC can be interpreted to imply there was a 'consent voting' of the owners to form the management committee. Clause 12 simply states that the Manager shall convene a meeting of the owners to appoint a management committee within 2 years of the issue of the permanent Occupation Permit. It does not mean that the owner must pass a resolution to appoint a management committee. In fact, there was no such meeting convened by the Manager. The meeting on 27 July 2001 was not convened by the Manager, but by the owners pursuant to Section 3(1)(c) of the Ordinance. Clause 12 of the DMC is not relevant to the present proceedings at all. Thus, it is any finding that there was no resolution passed at the meeting, nor was there such a 'consent voting' as argued by Mr. Koo for the formation of the management committee.

18. Mr. Koo's alternative argument, however, is that it is not necessary to have a separate resolution for the formation of the management committee because the appointments of individual members of the management committee are equivalent to the appointment of the management committee, since a management committee is not a legal entity on its own, but comprises of individual members.

19. I agree with Mr. Koo's interpretation in this regard. Section 3(1) of the Ordinance states that "A meeting of the owners to appoint a management committee may be concerned". Section 3(2) of the Ordinance states that "At a meeting convened under subsection (1) a management committee may be appointed". Thus, Section 3 does not stipulate that there has to be a resolution for the formation of the management committee. In the case of Wild v. McGuire [1970] NZLR 489, the word "appointed" was held to be synonymous with "elected". One would only elect individual members of the management committee, not the management committee as a whole or as an entity. Thus, it is my finding that Section 3 of the Ordinance only requires the "appointment" or "election" of individual members of the management committee, not the "formation" of the management committee as suggested by the Applicant. In fact, paragraph 2 of the Second Schedule of the Ordinance also stipulates that the owners shall at a meeting convened under Section 3 of the Ordinance appoint the members of the management committee, a chairman, a vice-chairman, a secretary, and a treasurer of the management committee. The Second Schedule gives the details of what should be done at a meeting convened under Section 3, but it does not require a resolution to be passed for the formation of a management committee.

20. The second irregularity raised by the Applicant is that Mr. Liu did not vote for any resolution passed at the meeting. From the transcript, it is clear that initially Mr. Leung was trying to count the votes, but later on he used a simpler method by declaring that if there were no objections, the resolution would be treated as unanimously passed. Since there was no objection raised by anyone including Mr. Liu, all the resolutions were treated as passed unanimously. Mr. Liu only raised objection after the meeting was declared close.

21. Although there is no specific requirement for the counting of votes, Section 3(2)(b) of the Ordinance specifies that the appointment of a management committee must be by a resolution of the owners of not less than 30% of the shares. The Applicant argues that this provision means that there must be owners of not less than 30% of the shares in support of the resolution. The Respondents, on the other hand, contends that as long as there are owners of not less than 30% of the shares involved in the resolution, some may be for the resolution and some against, but the majority is for the resolution, the outcome is still a resolution of the owners of not less than 30% of the shares.

22. As far as the interpretation of the phrases "a resolution of the owners of not less than 30% of the shares" is concerned, I agree with Mr. Koo's submission that the word "resolution" should be given its ordinary meaning. According to 'The New Oxford Dictionary of English', the word "resolution" means "a formal expression of opinion or intention agreed on by a legislative body, committee, or other formal meeting, typically after taking a vote". There may be people voting against the motion, but as long as the majority agrees with the motion, the resolution is passed and considered as a resolution of all the members taking part. It is also binding upon all the members. Thus, I do not accept the Applicant's submission that "a resolution of the owners of not less than 30% of the shares" should be construed as "a resolution voted in favour by the owners of not less than 30% of the shares".

23. This interpretation does not mean that a management committee may be appointed by a resolution of owners at a meeting with a quorum of owners of not less than 30% shares as suggested by Mr. Lau. Quorum is a separate matter. It refers to the number of owners or their proxies present, rather than their shares. In fact, paragraph 11 of the Eighth Schedule of the Ordinance mentions that the quorum at a meeting of owners shall be 10% of the owners. Section 3(2)(b) is just an additional requirement for a resolution to appoint a management committee to be passed by owners of not less than 30% of the shares.

24. However, I do find that there are irregularities in treating the resolutions passed unanimously when there was no objection raised at the meeting. Section 5(5)(a) of the Ordinance stipulates that at a meeting convened under Section 3 of the Ordinance each owner shall, save where the DMC otherwise provides, have one vote in respect of each share which he owns; and Section 5(5)(b) stipulates that a vote may be cast either personally or by a proxy. These 2 Sections together with Section 3(2)(b) which requires the shares to be not less than 30% implies that there should be casting of votes and the counting of shares represented by the votes.

25. Moreover, at the meeting on 27 July 2001 Mr. Leung only asked whether there was any objection. He did not ask whether there was any abstention. In Labouchere v. Earl of Wharncliffe (1879) 13 Ch. D. 346, Jessel, M.R. said that:-

"When a resolution is put to a meeting, the persons present may take one of three courses. They may vote for or against it, or, not wishing to express a positive opinion on the question, refrain from voting at all. This being so, those who do not vote may, by not doing so, turn the scale in favour of the accused member of the club. It was, therefore, the duty of the secretary, or scrutineer, to ascertain, first, how many persons were present when the question was put, and, secondly, how many of those present had voted for the resolution; but no such course has been adopted in this instance. It appears to me, then, that this also is a fatal objection."

26. In re the Rate-payers of Eynsham Parish [1849] 18 LJQB 210, it was also held that "where a statute requires a majority of a certain proportion of the votes of persons present at a meeting to render valid an act, there must be the specified proportion of those present actually voting for the act, and those who refuse to take any part in the proceedings cannot be considered as absent."

27. The editor of 'Shackleton on the Law and Practice of Meetings (11th ed.) also commented that:-

"where a special majority is required, those who abstain from voting are not, as they might think, remaining neutral but may be assisting in the defeat of the resolution."

28. Thus, abstention can affect the result of the voting by turning the scale against the resolution. It was wrong for Mr. Leung not to ask whether there was any abstention. In deed, the evidence of Mr. Liu shows, and I do accept, that he was abstaining from voting because he thought there would be another resolution for the formation of the management committee and he intended to vote against that resolution when it was proposed. Mr. Leung could not simply treat Mr. Liu's non-action as being in support of the resolution, because he had failed to consider that there could still be a choice of the abstention.

29. In addition, Mr. Leung, not being the chairman of the meeting, was presiding over the meeting. He had in fact no authority to decide how the resolutions were to be passed or declare such resolution being carried. The chairman, i.e. the 10th Respondent, should be doing these acts. Paragraph 12 of the Eighth Schedule of the Ordinance states that "A meeting of the owners shall be presided over by the chairman of the owners' committee or, in his absence, by an owner appointed by the owners as chairman for that meeting." However, it is admitted by the Respondents that Mr. Leung presided over the meeting. From the transcript, it also shows that Mr. Leung, rather than the 10th Respondent was in charge of the whole meeting. The 10th Respondent did not do anything to rectify or adopt what Mr. Leung did. Thus, Mr. Leung did not have proper authority to decide the manner for the counting of votes or to declare any of the resolutions validly passed.

30. By reason of the matters aforesaid, I find that there are irregularities on the passing of the resolution for the appointment of the Respondents, and these irregularities are fatal, because if Mr. Liu's abstention was taken into account, there would not be sufficient majority vote for the resolutions.

31. Since it is my finding that there are fatal irregularities in the passing of the resolutions in question, I shall grant the declarations as well as the injunction sought in prayers (a) to (f) of the Amended Notice of Application. I do not find it necessary to grant the injunction sought in prayer (g) of the Amended Notice of Application, as it should be for the Applicant to take up the matter with the Land Registrar after obtaining this judgment.

Orders

32. I therefore grant the following orders:-

(a) A declaration that the purported appointment of 1st, 4th, 5th, 6th, 7th, 8th, 9th, 10th and 11th Respondents as members of the management committee of the Building on 27 July 2001 are invalid and void;

(b) A declaration that the purported appointment of the 1st Respondent as the chairman of the management committee of the Building is invalid and void;

(c) A declaration that the purported appointment of the 2nd Respondent as the secretary of the management committee of the Building is invalid and void;

(d) A declaration that the purported appointment of the 3rd Respondent as the treasurer of the management committee of the Building is invalid and void;

(e) A declaration that the purported appointment of the 4th Respondent as the vice-chairman of the management committee of the Building is invalid and void;

(f) An injunction restraining the Respondents, whether acting by themselves, their agents or servants, from exercising any power vested by the DMC or the Ordinance in the management committee of the Building or holding themselves out as the members of the management committee of the Building; and

(g) A costs order nisi that the Respondents do pay the Applicant's costs with certificate for counsel to be taxed if not agreed; such order shall become absolute if no application is made within 14 days from the date hereof.