Wong Tak Keung, Stanley v. The Management Committee of the Incorporated Owners of Grenville House

LDBM 104 and 107 OF 2002
(Consolidated)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION
NOS. 104 AND 107 OF 2002

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J U D G M E N T

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1. On 11th July 2002, I ordered that LDBM 104/2002 was to be consolidated with LDBM 107/2002, and LDBM 105/2002 was to be consolidated with LDBM 106/2002, for the purpose of trial. On 3rd September 2002, these 4 cases were heard together.

2. The Applicant in these 4 cases is the registered owner of Apartment C-12, Grenville House, 1 Magazine Gap Road, Mid-levels, Hong Kong. The Respondent under LDBM 104/2002 and LDBM 107/2002 is the management committee of the Incorporated Owners of Grenville House, whereas the Respondent under LDBM 105/2002 and LDBM 106/2002 is the manager of Grenville House.

3. LDBM 104/2002

In this case the Applicant complained of the "failure of the management committee to comply with the Fifth Schedule, Seventh Schedule and Section 44 of the Building Management Ordinance in respect of continued and recurring of non-budgeted expenses, particularly relating to legal expenses, without any reference to the budgeted amounts and without seeking the consent of the owners."

3.1 The Applicant complained that in February 2002, the management committee agreed to pay over HK$83,000 in legal expenses and in the first three months of 2002, it paid over HK$128,025 legal expenses versus a budget sum of only HK$60,000. For the period from 1st January 2002 to 31st July 2002, the legal & professional fee incurred was HK$317,025.54 which is HK$177,025.54 in excess of the budgeted sum of HK$140,000.00 for the period. Furthermore the sum of HK$317,025.54 was already $77,025.54 in excess of the budgeted amount for the full year of 2002 (HK$317,025.54 versus HK$240,000).

3.2 The Fifth Schedule

The first 3 paragraphs of the Fifth Schedule are relevant in this case. They read as follows: -

"1. The amount to be determined by the management committee under section 21(1) shall be based upon a budget prepared by the management committee for the period specified by the management committee under that subsection.

2. The budget referred to in paragraph 1 shall set out the sums which in the opinion of the management committee will be reasonably necessary to meet payments of the kind specified in section 20(1) and shall, if a contingency fund is established under section 20(2), set out the sums which in the opinion of the management committee will be reasonably necessary to meet payments of the kind specified in that subsection.

3. A revised budget may be prepared if the management committee is of the opinion that any sum set out in a budget in respect of which the revised budget is to be prepared is insufficient to meet the proposed expenditure which that sum was intended to meet."

(Underline provided)

3.3 Under paragraph 3 of the Fifth Schedule, the management committee has a discretion to prepare a revised budget, but it is not under a statutory obligation to do so.

3.4 The Seventh Schedule does not apply to this case, because it only applies to the manager of a building.

3.5 Section 44 of the Building Management Ordinance ("the Ordinance") confers a discretionary power upon the Secretary for Home Affairs to prepare, revise and issue Codes of Practice; it also sets out the consequences of a failure on the part of any person to observe any Code of Practice. This section does not impose any statutory obligation upon the management committee to comply with. Therefore there cannot be any issue on the failure of the management committee to comply with this section.

3.6 There is no specific provision in the Ordinance which imposes a statutory duty on the management committee to seek the consent of the owners when the money spent on a particular item of expenditure exceeds the budgeted sum for that particular item of expenditure.

4. LDBM 107/2002

In this case the Applicant complained that the Respondent appointed FPD Savills Property Management Ltd. as manager of Grenville House for a consideration in excess of HK$542,000 per annum without the approval of the owners in an AGM/EGM and without compliance with Section 20A and Section 44 of the Ordinance.

4.1 Section 18(2)(C) of the Ordinance empowers a corporation to retain and remunerate a manager to carry out on its behalf its duties or powers under the Ordinance or the deed of mutual covenant (if any). By virtue of Section 29 of the Ordinance, the management committee shall exercise and perform the powers and duties of a corporation on its behalf. Therefore it has the power and duty to appoint a manager. Are the owners' consent required when it makes such an appointment? What are the matters which require the consent of the owners? In this context it will be helpful to consider section 14 of the Ordinance, which reads: -

"(1) Subject to this Ordinance, at a meeting of a corporation any resolution may be passed with respect to the control, management and administration of the common parts or the renovation, improvement or decoration of those parts and any such resolution shall be binding on the management committee and all the owners.

(2) Without prejudice to the generality of subsection (1), a corporation may by resolution at a meeting remove from office and replace any member (other than a member who is the tenants' representative) of the management committee."

Under section 14, a corporation may pass resolutions at a meeting in respect of the matters set out under this section, but the appointment of a manager is not one of these matters. It is therefore not required by the Ordinance to seek the approval of the owners' consent before the management committee can appoint a manager. It can simply make such an appointment by exercising the power conferred upon it by Section 29 of the Ordinance.

4.2 In the cases of Pok Fu Lam Development Co. Ltd. & Ors. v The Incorporated Owners of Scenic Villas (LDBM 70/2000) and Jikan Development Ltd. v The Incorporated Owners of Million Forture Industrial Centre and Ors. (LDBM 244/2000) I held that the Codes of Practice are not rules of law. In the latter case, I held that sections 20A(1), (2) and (3) of the Ordinance are only guiding provisions. The Court of First Instance in the case of Incorporated Owners of Million Fortune Industrial Centre v Jikan Development Limited and another (HCA 14915/1998) affirmed my rulings. Section 20A and section 44 of the Ordinance do not impose any statutory obligations for the Respondent to comply with. Therefore, the issue that the Respondent was in breach of these sections in the appointment of FPD Savills as the manager of Grenville House simply does not arise.

5. LDBM 105/2002

The Applicant complained that the Respondent failed to comply with paragraph 10(4B) of the Second Schedule. Paragraph 10(4B) reads as follows: -

"The minutes certified in accordance with subparagraph (4A) shall, within 28 days of the date of the meeting of the management committee to which they relate, be displayed by the secretary in a prominent place in the building."

5.1 The minutes referred to in this paragraph are the minutes of the meetings of the management committee. Under paragraph 10(4B), the secretary is the secretary of the management committee. In this case Mr. Ngan Lai Tong, Donald (a staff of the Respondent) is the secretary of the management committee. He has been in this position for 5 years. The proper person to be sued is the secretary of the management committee, and not the manager. Therefore the Applicant wrongfully made the Respondent a party to this case.

6. LDBM 106/2002

The Applicant complained that in the financial year ending December 31, 2001, there was HK$96,000 increase in legal and professional fees, and that in February 2002 there was an increase of HK$63,664 in legal and professional fees, over the budgeted amount of $20,000. From 1st January 2002 to 31st July 2002, the legal and professional fee incurred was HK$317,025.54, which is HK$177,025.54 in excess of the budgeted sum of HK$140,000 for the period. Furthermore, the sum of HK$317,025.54 is already HK$77,025.54 in excess of the budgeted amount for the full year of 2002 (HK$317,025.54 versus HK$240,000).

6.1 He complained that the Respondent as Manager failed to comply with the requirements of the Seventh Schedule to prepare a revised budget and display it.

6.2 He asked the Tribunal to determine whether the Respondent is required to seek the approval of the Owners in respect of the substantial increase in legal and professional expenses as compared with the approved Annual budget.

6.3 Paragraph 1(4) of the Seventh Schedule provides as follows: -

"Where a budget has been sent or displayed in accordance with subparagraph (2)(e) and the manager wishes to revise it, he shall follow the same procedures in respect of the revised budget as apply to the draft budget and budget by virtue of subparagraph (2)."

(Underline added)

Paragraph 1(4) does not impose an obligation on the manager to revise a budget. According there cannot be any issue that the Respondent failed to comply with the requirements of the Seventh Schedule.

6.4 The Ordinance does not impose any obligation on the Manger to seek the approval of the Owners in respect of substantial increases in legal and professional expenses as compared with the approved Annual Budget.

6.5 In his written submissions, the Applicant stated, "I reiterate that my applications are merely to seek the Tribunal's guidance on matters which, depending on the outcome of these proceedings, will enable owners of Grenville House to have the proper opportunities to provide our input in the affairs of Grenville House as afforded by the Building Management Ordinance. I have not sought any contracts or agreements to be considered void, I have not asked for the dismissal of the Management Committee or the removal of FPD Savills as Manager, I have not asked for any damages from any of the respondents." The Tribunal only has jusidiction to hear and determine the proceedings specified under the Tenth Schedule of the Ordinance. According to that Schedule, it is simply outside the jurisdiction of the Tribunal to provide any guidance as sought by the Applicant.

6.6 By virtue of the reasons given above, I dismiss all the Applicant's applications.

7. Costs

I make an order nisi that the Applicant do pay costs to the Respondents (with certificate for Counsel), to be taxed on the High Court Scale, in default of agreement. This order will become absolute in 21 days' time if no application regarding costs is made to this Tribunal.