YOUNG KWOK SUI AND ANOTHER v. THE INCORPORATED OWNERS OF FONTANA GARDENS

LDBM 76/2011
and LDBM 77/2011

(Consolidated)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATIONS NO. 76 OF 2011 AND NO. 77 OF 2011

(CONSOLIDATED BY ORDER OF H. H. JUDGE M. WONG DATED 15 APRIL 2011)

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JUDGMENT

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Background

1.  The 1^st applicant is the owner of ground floor and one car parking space, 5 Ka Ning Path, Block B of Fontana Gardens (“the Estate”), Tai Hang Road, Causeway Bay, Hong Kong; the 2^nd applicant is the owner of ground floor and one car parking space, 3 Ka Ning Path, Block B of the Estate; and the respondent is the incorporated owners of the Estate.

2.  The two parties do not have much disputes over the factual background of this case.  The Estate comprises 7 blocks of flats, namely Block A to Block G.  Block B is situated at no. 3-6 Ka Ning Path and Block G is situated at no. 7-10 Ka Ning Path.  Both Block B and Block G are governed by the same Deed of Mutual Covenant (“DMC”) and Supplemental Deed of Mutual Covenant (“SDMC”), while the other 5 blocks are governed by other DMCs which are different.

3.  At an extraordinary general meeting of the owners held on 5 June 2006, the respondent resolved that repair and maintenance works should be carried out to Block B. The repair and maintenance items included the external wall, the air-conditioner support frames and protective boards, the outlet pipe ducts and window heads.  Votes were cast by the owners of Block B who were present. After vote counting, it was resolved by the respondent that each unit of Block B should contribute $213,000 for paying the expenses of the repair and maintenance works and that the time limit for paying the contribution was the end of July 2006.

4.  The 1^st applicant and the 2^nd applicant duly complied with the above-mentioned resolution and each paid $213,000 respectively in respect of the units owned by each of them.  At that time, neither of them was aware of the provisions in the DMC or the SDMC relevant to this payment.  In 2010, the respondent proposed to replace the lifts.  Being owners of units situated on the ground floor, the applicants would not use the lifts.  They therefore went through the DMC and the SDMC to ascertain whether they were required to share the expenses of the lift replacement project like the owners of the flats situated on the floors above.

5.  Having consulted the DMC and the SDMC, the 1^st and the 2^nd applicants came to the conclusion that according to paragraph 20 of Schedule 1 to the SDMC, the owners of Block B and Block G were not required to contribute equally to the expenses, and that the amount payable by each of the applicants should be calculated on the basis of the ratio 2/175.

6.  That being so, the applicants are of the view that the contributions they paid in July 2006 towards the expenses of the repairs and maintenance should not have been calculated on a pari passu basis, and that the expenses should have been apportioned in accordance with the ratio as provided in paragraph 20 of Schedule 1 to the SDMC.  According to their calculation, they asserted that each of them needed to pay $154,376.15 only; that is to say, they had paid $58,623.85 more.  They therefore make these applications, claiming for a refund from the respondent of the excess amounts they paid.

Respondent’s grounds of opposition

7.  The respondent does not agree to refund to the applicants the allegedly excess amounts paid by them.  It puts forward 3 grounds of opposition.  First, the respondent considers that paragraph 20 of Schedule 1 to the SDMC cannot assist the applicants.  Second, even if the SDMC supports the applicants’ claim, the contributions paid in 2006 were paid into a special fund established by the respondent pursuant to paragraph 4 of Schedule 7 to the Building Management Ordinance (“the Ordinance”), and the respondent was empowered to resolve that each owner should contribute equally to this special fund.  Third, the applicants are, by their conduct, estopped from claiming for the excess amounts they paid.

8.  In its closing submission, the respondent further submitted that the works carried out in 2006 were not repair and maintenance works, but were refurbishment works, because the purposes of carrying out the works was to improve the appearance of the Estate and enhance the value of the building.

Repairs and maintenance or refurbishment

9.  First of all, I do not agree with the respondent’s argument that the 2006 works were only refurbishment works but not repair and maintenance works.  According to the evidence of Mr. Lam Hoi Ham, a witness of the respondent, beside[sic] trying to improve the appearance of the Estate and enhance the value of the building, the reason for carrying out the 2006 works was that in the past 40 odd years no large scale repair and maintenance works had been carried out in the Estate.  On the external wall, some mosaic tiles had come off, and there were water seepage and damaged water pipes.  The minutes of the 5 June 2006 meeting also show that the works in question were repair and maintenance works, including the eradication of the water seepage problem on the external wall.

10.  Of course, the improvement in the appearance of the Estate and the enhancement in value of the building subsequent to the repairs and maintenance might also be the purposes which the owners hoped to achieve, but I consider that the main purpose of the works was to make good the external wall, which was in a bad condition, and the outlet pipes, which were not working properly, while the improvement in appearance and the enhancement in value were only the positive results of the repairs and maintenance.

11.  I therefore find that the 2006 works were repair and maintenance works.

Is paragraph 20 of Schedule 1 to the SDMC applicable

12.  Paragraph 20 of Schedule 1 to the SDMC provides that:-

“20. Provisional payments of sundry out-of-pocket expenses and disbursements in regard to the said Buildings and their cartilage[sic] shall be made by such persons and in such proportions as set out hereunder no matter their apartments are vacant or occupied.

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THE OWNER OR OWNERS OF ANY ONE APARTMETN OF AND IN FONTANA GARDENS

PROVISIONAL PAYMENT

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Nos. 3,4,5,6 (except the Ground Floor Owners)

$80.00

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Nos. 3,4 and 5 Ground Floor

$60.00

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Nos. 7,8,9 and 10

$35.00

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Provided That Adjustment shall be made from time to time after the auditing of the accounts of the above sundry expenses by Messrs. Lowe, Bingham and Matthews Chartered Accountants who are annually retained as Accountants for Fontana Estates Limited so long as Fontana Estates Limited shall remain as Agent for the parties hereto and That if it is found that the actual expenses exceed the provisional payments the difference or the deficient amount shall be paid and borne by the above persons in similar proportion as stated above And That if there is any surplus remained after payment of the actual expenditure the same shall be credited in favour of the above persons in the like proportion And it is further Provided That each of the above-mentioned persons shall on demand in writing of the Agent pay to the Agent his remuneration as set out in Rule 19 hereof and moneys expended by him as mentioned herein And That in the event of non-payment of the said remuneration and/or the said expenditure for SEVEN DAYS after the date of demand it shall be lawful for the agent to recover the same as a debt by action or any other proceedings against any parties hereto in default.”

13.  Judging from the above provision alone, paragraph 20 only concerns “Provisional payments of sundry out-of-pocket expenses and disbursements”, and appears to have nothing to do with repairs and maintenance carried out to the external wall and related works.  However, clause 3(c) of the SDMC provides that:-

“Repairs:- The owner of every Apartment of the said Buildings except Fontana Estates Limited shall pay such part of the costs as included and indicated in Rule 20 of the House Rules contained in the First Schedule hereinafter mentioned of keeping in good and tenantable repair the foundation side walks main walls supports beams gutters fences chimneys and all external parts of the said buildings their cartilage[sic] and all the drains walls electric pumps pipes conduits and all plumbing apparatus (if any) intended for the general service of the said Buildings (except as regards damage caused or resulting from any act or default or negligence of any of the parties hereto their respective servants or agents or tenants or Licensee) and the entrance-halls staircases private roads the public garage and the pool and the white-washing distempering and painting the exterior of the same and such parts of the interior as are used in common by the parties hereto and in operating repairing replacing maintaining and servicing the elevators.”

14.  It can be seen from clause 3(c) cited above that the expenses mentioned in paragraph 20 of Schedule 1 to the SDMC include expenses relating to “keeping in good and tenantable repair the foundation side walks main walls supports beams gutters fences chimneys and all external parts of the said buildings their cartilage[sic] and all the drains walls electric pumps pipes conduits and all plumbing apparatus (if any) intended for the general service of the said Buildings”.

15.  The 2006 external wall repair and maintenance works are obviously within the scope of the items enumerated in clause 3(c).  In other words, they are covered by the items “main walls”, “gutters”, “all external parts of the said buildings their cartilage[sic] and all the drains walls … pipes conduits”.

16.  The respondent argued that clause 3(c) only related to repairs and maintenance “intended for the general service of the said Buildings”; but later, the respondent agrees with my view, i.e. the phrase “intended for the general service of the said Buildings” qualifies “all plumbing apparatus” only.

17.  I therefore find that the ratio set out in paragraph 20 of Schedule 1 is also applicable to the contributions payable for the 2006 repair and maintenance works.

Special find

18.  The respondent submitted that the fund established in 2006 for the repair and maintenance works was within the meaning of paragraph 4 of Schedule 7 to the Ordinance, because the money contributed to this fund was treated separately from other monies by the respondent and it was a special fund established exclusively for managing the contributions.

19.  Paragraphs 4(1) and 4(2) of Schedule 7 to the Ordinance provide that:-

In Chinese

“(1) 經理人須設立並維持一項特別基金，以備應付某種開支，而該種開支並非他預期每年須承付者。

(2)    如有法團，則法團須藉業主的決議，釐定各業主在任何財務年度需對該特別基金繳付的款額，以及須支付所繳付的該等款額的時間。”

In English

“(1) The manager shall establish and maintain a special fund to provide for expenditure of a kind not expected by him to be incurred annually.

(2)    If there is a corporation, the corporation shall determine, by a resolution of the owners, the amount to be contributed to the special fund by the owners in any financial year, and the time when those contributions shall be payable.”

20.  The respondent argued that according to paragraph 4(1) cited above, if there is expenditure of a kind not expected to be incurred annually, it is entitled to establish a special fund to deal with such expenditure; and that the expenditure for the repair and maintenance works in 2006 was exactly this kind of expenditure, because it was expenditure for a one-off large scale project, not expected to be incurred annually.  Expenditure of this kind is an occurrence only once in many years.

21.  The respondent further submitted that pursuant to paragraph 4(2), it can determine, by a resolution of the owners, the amount to be contributed to the special fund by the owners; and that therefore it could, by virtue of paragraph 4(2), passed the resolution, thereby sharing the expenses of the repairs and maintenance equally among the owners.  Moreover, the 2006 repairs and maintenance concerned Block B only and did not concern Block G.  There was no reason to require the owners of Block G to share the expenses of the repairs and maintenance together with others in accordance with paragraph 20 of Schedule 1 to the SDMC.

22.  The respondent also relied on section 34E(2)(b) of the Ordinance and maintained that the provisions in Schedule 7 prevail over any provisions in a DMC which are inconsistent with them.

23.  However, I do not agree with the respondent’s argument.  Although the respondent could establish a special fund for managing the money contributed for the purpose of the 2006 repair and maintenance works, it does not follow that the respondent could then ignore clause 3(c) of and paragraph 20 of Schedule 1 to the SDMC.  The items specified in clause 3(c) include items expenditures for which are not expected to be incurred annually; for example, keeping in good repair the external walls and replacing the elevators.  It is clear that money to be spent on the items specified in clause 3(c) can be collected and managed by establishing a special fund as provided for in paragraph 4(1) of Schedule 7.

24.  In The Incorporated Owners of Yee On Court v. Li Zee Zing Hai, CACV 181/2000, the Court of Appeal adjudicated on a similar provision in a DMC.  In that case, the trial judge was of the opinion that the expenses of the repairs in question were expenditure of a kind not expected to be incurred annually, and that there was no provision in the DMC which provided for such expenses, so that paragraph 4 of Schedule 7 to the Ordinance was applicable.  However, the Department[sic] of Appeal found that there was no warrant for the conclusion that the provisions in the DMC were not applicable, because some expenditures not expected to be incurred annually, for example, the expense of painting the external walls, came within the ambit of some provisions in the DMC, and that therefore the expenses should be apportioned among the owners according to the ratio stipulated in the DMC.

25.  The arguments put forward in that case were very similar to those put forward in this case.  I adopt the rationale expounded by the Court of Appeal.  I find that although the expenses incurred as a result of the 2006 repair and maintenance works were not expenditure expected to be incurred annually, they were within the ambit of clause 3(c) of and paragraph 20 of Schedule 1 to the SDMC.  Therefore, such expenses should be apportioned among the owners according to the ratio stipulated in paragraph 20 of Schedule 1.  Even though the owners of Block G did not gain any benefit directly from the 2006 repair and maintenance works, they still had to comply with the provisions of the SDMC and pay their share of the expenses.

26.  Furthermore, paragraph 4(2) of Schedule 7 to the Ordinance does not expressly state that a corporation can, by passing a resolution, require each owner to pay any amount of money.  The English version of paragraph 4(2) says that a corporation shall determine, by a resolution, “the amount to be contributed to the special fund by the owners”.  In this provision, “amount” is singular and “owners” is plural.  My view is that this provision only provides that a corporation can determine, by a resolution, the total amount to be contributed by all the owners, but not the separate amounts payable by each owner.

27.  The phrase 釐定各業主 (determine … the owners) in the Chinese version of section 4(2) may refer to individual owners, but as far as 款額(amount) is concerned, it is not stated to be 個別款額 (separate amounts).  I think that the Chinese version of section 4(2) should be construed in the same way as the English version.  各業主 (the owners) should be construed as 所有業主 (all the owners); that is to say, a corporation can determine, by a resolution, the total amount to be contributed to the special fund by all the owners, but not the separate amounts payable by each owner.

28.  I therefore find that paragraph 4(2) of Schedule 7 to the Ordinance does not empower a corporation to determine, by a resolution, the ratio according to which each owner is to pay his share of the contribution, and that the respondent could not rely on paragraph 4(2) to resolve that the expenses of the 2006 repair and maintenance works should be shared equally among the owners of Block B, while the owners of Block G did not need to pay anything.  The respondent should have required each individual owner, including the owners of Block G, to share the expenses of the 2006 repair and maintenance works according to the ratio set out in paragraph 20 of Schedule 1 to the SDMC.

29.  Given that the respondent did not act in accordance with the SDMC and I accept the calculation method proposed by the 1^st and the 2^nd applicants, I therefore hold that the applicants did pay more than their due share of the expenses of the 2006 repair and maintenance works.

Had the applicants waived their rights

30.  However, I agree with the respondent’s argument that the applicants had waived their rights.  The applicants claimed that when they paid their contributions towards the expenses of the 2006 repair and maintenance works, they were not aware of the provisions of the DMC or the SDMC.  I also accept that that is true, but that does not mean that the applicants can use their ignorance of the DMC provisions as the reason for claiming a refund of the excess amounts they paid.

31.  In Wong Pun-Man v. Incorporated Owners of Tung Fat Industrial Building [1996] 1 HKDCLR 32, Judge Cruden gave judgment on a similar argument.  In that case, the incorporated owners fixed management fees in a manner inconsistent with the proportions specified in the DMC, but the applicant in that case had all along paid his management fees as determined by the incorporated owners by resolution, which was more than the amount calculated in the manner stipulated in the DMC.  Judge Cruden found that the applicant, in his capacity as owner, had access to and the right to hold a copy of the DMC, so that he had constructive notice of the DMC.  By his failure to raise any objection over the years, the applicant had acquiesced in paying the management fees which were not calculated in accordance with the DMC proportions.  The respondent would suffer detriment if it had to refund the amount by which the fees were overpaid and it was unconscionable to require it to do so.  Therefore, the application for a refund of the overpaid part of the fees was refused.

32.  I find that the legal principles elucidated by Judge Cruden are applicable to this case.  The 1^st applicant and the 2^nd applicant, in their capacities as owners, were fixed with constructive notice of the DMC and the SDMC, and they had acquiesced in paying the excess contributions towards the expenses of the repair and maintenance works.  In my judgment, the respondent will suffer detriment if it has to refund the excess amounts of the already paid contributions, and it is unconscionable to require it to do so.  Many years have passed since 2006.  The works in question were completed long ago and all the money relating to the expenses of the works had been paid to the contractors.  It is impossible for the respondent to refund to the applicants the excess contributions.  If the other owners were asked to contribute money again towards the 2006 works, they could have similarly relied on the reason that the respondent had waived its rights and refuse to contribute.  Even though the respondent has enough money to refund to the applicants, the money is intended for other purposes.  It is unfair to other owners if it is used to refund the applicants, because the other owners would then have to contribute money again for these other purposes.

33.  Therefore, I hold that the 1^st applicant and 2^nd applicant are not entitled to a refund of the excess contributions they paid towards the expenses of the repair and maintenance works.

Conclusion

34.  For the above reasons, I hold that the applications made by the applicants are not substantiated and must be dismissed.

35.  Turning now to costs, as the respondent has success[sic] only with regard to the argument about waiver and has loss[sic] in relation to all other arguments, I think that the fairest approach is that each party should bear his own costs; in other words, there shall be no order as to costs.

36.  In conclusion, I make the following orders:-

(1)     All the applications made by the 1^st and the 2^nd applicants in these consolidated cases shall be dismissed.

(2)     There shall be an order nisi: no order as to costs of these consolidated cases.  If neither party makes any application for costs within 14 days after the handing down of this judgment, the order nisi shall become absolute.

Translated by the Judgment Translation Unit of the Judiciary and approved by Mr. P. Y. Lo, Barrister-at-law.