THE INCORPORATED OWNERS OF KELLY HOUSE v. LAW HAN YING

     LDBM 224/2008

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 224 OF 2008

____________

____________

JUDGMENT

1.  Kelly House is a 24-storeyed building at Gresson Street, Wanchai, Hong Kong.  The building underwent some major renovation works in 2005 costing HK$2.2 million.  The Incorporated Owners of the building (the IO), the Applicant, resolved to collect contributions from the owners towards the renovation cost in accordance with their respective undivided shares in the building.

2.  The estate of Tsang Man Woo, deceased, the Respondent, is the owner of Shop B on the Ground Floor of the building.  Law is the administratrix of the estate.  All the owners had met the demand for contributions towards the renovation cost except for Law.

3.  According to the IO’s resolution, Law was to contribute a sum of HK$102,340.  After paying the first instalment of HK$45,000, Law refused to pay the balance of HK$57,340.  She argues that the apportionment of the renovation cost did not accord with the terms of the deed of mutual covenants (DMC) and that she had effectively overpaid.

4.  The IO registered a charge against Law’s shop for the outstanding balance of the contribution payable together with a sum of HK$8,000 being the costs of the charge.  The IO filed the present application, claiming the abovementioned amounts with costs of the application.  Law opposes and counterclaims for the allegedly overpaid amount (HK$37,762).

5.  Parties confirmed during trial that there is no material factual dispute.  They also agreed on the quantum of the claim and the counterclaim.  The dispute is that as to liability.  This depends on which of the methods of apportioning the renovation cost contended by the parties is correct.  This is a matter of construction of the relevant terms of the DMC.

The DMC

6.  Under the DMC (recital and the 1^st Schedule), the building was notionally divided into 430 undivided parts or shares.  Among them, 20/430^th shares were allocated to Shop B on the Ground Floor.

7.  Clause 4 of the DMC provides that:

“4. Each owner shall be bound by and shall observe and perform the following covenants provisions and restrictions:-

……

(f) (I)     The following costs charges and expenses shall be borne and paid by the owners of the said building for the time being owned by them respectively:-

(i) Electricity water and other similar charges……

(ii) Remuneration for caretakers……

(iii) ……refusal disposal……

(iv) The cost of repairing renewing maintaining cleaning painting or decorating the building or any part or parts thereof and all water pumps tanks pipes sewers drains watercourses cables wires transformer room meter room and machine room or services therein and all the apparatus equipment and conveniences thereof.

(v) ……the water pumps.

(vi) ……supply of flush water.

(vii) ……the insurance of the building……

(viii) Such legal or other fees and costs which may be incurred by the manager……

(ix) The monthly remuneration of the manager……

(II)   The costs and expenses of operating maintaining repairing servicing replacing and renewing the lifts in the said building shall be borne and paid by the owners for the time being of the flats on the First to the Top Floors of the said building in proportion to the number of share or shares of and in the said premises for the time being vested in them respectively.

……

(h) Each owner shall pay to the Manager monthly in advance on account of his share of the costs charges and expenses as mentioned in clause 4(f) above from the date of the Occupation Permit of the said building……the appropriate sum mentioned hereunder in respect of the units in the said building for the time being owned by such owner Provided that such sum shall be subject to adjustment from time to time by the Manager as the Manager may reasonably estimate to be sufficient:-

The share or amount payable by each owner of

Shop A, B, C and E on the Ground Floor .……... $40.00 per month

The share or amount payable by the owner of

Shop D on the Ground Floor …………………... $30.00 per month

The share or amount payable by each owner of

Flats Nos. 1 and 4 on the 1^st Floor to the 23^rd Floor

(inclusive) …………..………………………….. $135.00 per month

The share or amount payable by each owner of

Flats Nos. 2 and 3 on the 1^st Floor to the 23^rd Floor

(inclusive) ………………..…………………….. $125.00 per month

(i)           If the total contributions payable to the Manager by the owners of the said building as aforesaid shall be insufficient to cover all or any of the said costs charges then such owners shall make further contributions towards such expenses as above provided.

(j)                   If there should be any surplus after payment of all the costs charges and expenses then the surplus shall be held by the manager and shall only be applied by it in or towards payment of such costs charges and expenses thereafter to become due.

……”

(emphasis added)

8.  There is no dispute that the renovation cost in question fell within clause 4(f)(I).

The basic contentions

9.  Law argues that the renovation cost should be shared in the proportion for the amounts payable under clause 4(h), which has always been the proportion for the owners’ payments of the monthly management fees.

10.  The IO argues that clause 4(h) merely prescribes the amounts payable by the owners on account of their respective shares of the cost, charges and expenses under clause 4(f).  The amounts do not represent the ultimate amounts payable by the owners or represent the proportion for the amount payable by each owner.  It is clause 4(f), not 4(h), that provides for the actual payment responsibility of each owner.  Since clause 4(f)(I) does not actually fix the contributions or the method of apportionment, section 22(2) of the Building Management Ordinance applies.

11.  Section 22 provides that:

“(1) The amount to be contributed by an owner towards the amount determined under section 21 shall be-

(a) fixed by the management committee in accordance with the deed of mutual covenant (if any);

(b) payable at such times and in such manner as the management committee may determine.

(2) If there is no deed of mutual covenant, or if the deed of mutual covenant does not provide for the fixing of contribution, the amount to be contributed by an owner towards the amount determined under section 21 shall be fixed by the management committee in accordance with the respective shares of the owners.

……” (emphasis added)

12.  The IO contends that in accordance with section 22, Shop B on the Ground Floor’s share of the renovation cost under clause 4(f)(I)(iv) should be 20/430.

13.  Mr Chan for Law referred me to various authorities including Jumbo King Ltd v Faithful Properties Ltd & Ors [1999] 3 HKLRD 757, The Incorporated Owners of Odeon Building & Ors v Sky Field Development, HCA 217/2005, 28 August 2007 and Chitty on Contracts (29^th ed) Vol.1 at 12-044 on the principles of construction of documents.  It suffices for me to say it goes without saying that one should construe sense out of a document, whether one calls it common or commercial sense.

14.  In their submissions, counsel referred to the judgments in The Incorporated Owners of Hang Shun Building, Tonkin Street v Lee Chi Ming, CACV 321/2003 (3 September 2004) and 金冠發展有限公司及另五人 訴 建邦大廈業主立案法團, LDBM 119/2006 (22 December 2006).  A careful reading of these 2 authorities is necessary.

Hang Shun Building

15.  Mr Leung for the IO relied on Hang Shun Building.  The relevant terms of the deed in Hang Shun Building read as follows:

“THE THIRD SCHEDULE ABOVE REFERRED TO

Covenants provisions and restrictions referred to in clause (4) of this Deed.

……

(e)    The following costs charges and expenses namely:

……

……

(v)    The cost of repairing, renewing maintaining cleansing, painting, or decorating the said building not being enjoyed exclusively by any one owner or any part or parts thereof and ……

……

shall be borne and paid by the owners of the said building in proportion to the respective shares in the premises for the time being vested in them.

(f) The cost of operating maintaining repairing servicing and renewing the lifts shall be borne and paid by the owners of units or flats on the 1^st and upper floors of the said building in proportion to the respective share in the premises for the time being vested in them.

(g) Each owner shall pay to the Agent on account of such owner’s share of the costs charges and expenses aforesaid a sum per calendar month the amount of which shall be calculated as follows:-

(i) $500.00 for the whole Basement.

(ii) $200.00 for Shop 1 on Ground floor.

(iii) …..

……

(vii) $150.00 for each flat on the Fourth to Twelfth floors.

Provided that the said monthly contribution may be varied in every six months’ time if necessary by the said Agent having regard to the costs and other conditions prevailing at that time.

(h) If the total contributions payable under the last preceding paragraph shall be insufficient to cover all or any of the costs charges and expenses aforesaid then those owners liable hereinbefore provided shall make further contributions towards such expenses in proportion to the monthly sums payable by them as provided in paragraph (g).

(i) ……

(j) If there should be any surplus after payment of all such costs charges and expenses then the surplus shall be held by the Agent and shall only be applied by him in or towards payment of such costs charges and expenses thereafter to become due.” (emphasis added)

16.  The court of appeal in Hang Shun Building observed that there was an apparent conflict between clause (e) and clauses (g)-(h).  The question was whether the renovation cost in question should be shared in accordance with clause (e) or clauses (g)-(h).

17.  The court (at paras.51-62 of the judgment) held that the amounts referred to in clause (g) were payable by the owners on account of their respective shares of the costs charges and expenses referred to in clause (e).  The same applied to clause (h) which should be read in conjunction with (g).  The amount payable under clauses (g)-(h) did not represent the ultimate amount payable by each owner nor did they represent the proportion for the amount payable by each owner.  The amounts were arbitrarily set for the purpose of the monthly advance payment on account.  The court concluded that the respective shares of the owners of the renovation expenses should be calculated in accordance with clause (e), namely, in proportion to their respective shares in the building.

18.    Mr Chan for Law submitted that case is distinguishable from the present case in terms of the wordings of the deed.  He is right.  The stipulation that the cost charges and expenses should be paid in accordance with each owner’s undivided shares in the building, which existed in clause 4(e) of the deed in Hang Shun Building, does not exist in clause 4(f)(I) of the DMC here.  In fact, there is no stipulation as to how the cost charges and expenses should be shared in clause 4(f)(I) in the DMC here.  What is the effect of that?

19.  Mr Chan for Law submitted that the only reference to the sharing of the cost charges and expenses is contained in clause 4(h).  Clause 4(h) also refers to “the share or amount payable by each owner” rather than mere reference to a sum.  This indicates that the figures may be used to determine the respective shares of the cost charges and expenses.

20.  Mr Chan submitted that the Tribunal should not engage in a game of words and adopt what he categorised as a strain construction by limiting clauses (h)-(i) to be merely referring to the determination of the monthly payments on account in respect of the DMC here.  He sought support from the case of 金冠發展.

金冠發展

21.  Mr Chan submitted that the present case is far more similar to the case of 金冠發展 than Hang Shun Building.  The relevant terms of the deed in 金冠發展 were clause 4(f), (h) and (i):

“(f)  The following costs charges and expenses shall be borne and paid by the owners of the said Building in such proportion as hereinafter mentioned namely:-

……

(iv)     The costs of repairing, renewing, maintaining, cleansing, painting or decorating the said Building or any part or parts thereof and ……

(h)(i)        Each owner shall pay to the Manager monthly in advance on account of his share of the said costs charges and expenses the appropriate sum mentioned hereunder in respect of the Flats or shops in the said building for the time being owned by such owner:-

G/F                   Shop 1                 $185.00

……

 Provided that the owners of the shops on the Ground Floor shall have no right to use the Lifts (except on emergency) and they shall not be liable for the payment of the costs of operating maintaining repairing servicing replacing and renewing all the lifts in the Building.

(i)     If the total contributions payable to the Manager by the owners of the said Building as aforesaid shall be insufficient to cover all or any of the said costs charges and expenses then such owners shall make further contribution towards such expenses in the proportion as above provided.” (emphasis added)

22.  The Tribunal held (at paras.15-17 of the judgment) that the cost charges and expenses under clause 4(f), including the renovation cost in question, should be apportioned in the proportion as the amounts of the monthly contributions payable by the owners under clause (h)(i).  Mr Chan for Law asks this Tribunal to adopt an effectively similar apportionment in the present case.

Discussion

23.  In my view, the case of 金冠發展does not help Law the way Mr Chan submitted.

24.  In my view, the Tribunal did not really differ from the court of appeal in Hang Shun Building when he construed clauses 4(h)(i) and 4(i) of the deed in 金冠發展.  What the Tribunal held in 金冠發展was effectively that the responsibilities of the owners to contribute towards the cost charges and expenses under clause 4(f) of the deed should also be shared in the proportion as the amounts of the monthly contributions payable by the owners on account of such under clauses 4(h)(i) and 4(i).

25.  More importantly, the major reason for the Tribunal’s construction of the deed in 金冠發展 was this: Clause 4(f) of that deed expressly stipulated that the cost charges and expenses should be apportioned “in such proportion as hereinafter provided” and that this could only be referring to what was provided in clauses 4(h)(i) and 4(i).  In other words, it was clause 4(f) that expressly applied the apportionment method in clauses 4(h)(i) and 4(i), rather than the effect of clauses 4(h)(i) and 4(i) per se as Mr Chan seemed to suggest.

26.  In the way discussed above, Hang Shun Building and 金冠發展 are indeed distinguishable from each other.  But the crucial feature common to both cases was clearly that there was actual stipulation in the respective deed as to how the ultimate responsibility for the cost charges and expenses should be shared and borne by the owners, namely, clause 4(f) in 金冠發展 and clause 4(e) in Hang Shun Building.

27.  In the present case, clause 4(f)(I) is silent in this respect.  In this sense, the present case is distinguishable from both authorities above.  Mr Leung submitted that section 22(2) comes into play and therefore the ultimate responsibility of the owners to contribute towards the cost charges and expenses, including the renovation cost in question, should be shared in accordance with the respective undivided shares in the building.

28.  I agree with Mr Leung.  In fact, the Tribunal in 金冠發展 held (at para.18 of the judgment) that section 22(2) did not apply in that case precisely because of the express stipulation contained in clause 4(f) of the deed there.  I do not see the fact that apportionment in proportion to the undivided shares of the owners in the building is expressly stipulated under clause 2(f)(II) in relation to the lifts, but not clause 2(f)(I), necessarily implies that the same apportionment method was not intended for clause 2(f)(I).

29.  Mr Chan submitted that clause 4(f)(I) refers to “costs, charges and expenses” whereas clause 4(f)(II) refers to “costs and expenses” in relation to the lifts.  Since clause 4(h) relating to monthly payment on account refers to “costs charges and expenses”, he submitted that this must be referring to clause 4(f)(I) and not 4(f)(II).

30.  I do not agree.  Sub-paragraphs (I) and (II) under clause 4(f) cover 2 types of cost charges and expenses.  Those under (I) are to be shared by all the owners and those under (II) (in relation to the lifts) are to be shared by all the owners of the 1^st Floor and above (i.e., not the Ground Floor).  The cost charges and expenses referred to in clauses 4(h)-(i) are those under clause 4(f), which include both (I) and (II): see Hang Shun Building at paras.46-50.

31.  Mr Chan’s construction is problematic.  In view of the express stipulation in clause 4(f)(II), the cost and expenses in relation to the lifts must be shared in accordance with the respective undivided shares of the owners of the 1^st Floor and above.  But in respect of the cost charges and expenses under clause 4(f)(I), according to Mr Chan, the owners would have to share in proportion to the amounts as stated under clause 4(h) because of clause 4(i).

32.  But clauses 4(h) and 4(i) should be read in conjunction.  If the total payments on account of the owners’ shares of the cost and expenses under clause 4(f)(II) in relation to the lifts are insufficient, does that mean the IO may not rely on clause 4(i) to demand further contributions?  For the purpose of justifying that clause 4(i), as opposed to clause 4(h), also covers the situation under clause 4(f)(II), Mr Chan construed “costs charges and expenses” in clauses 4(f)(I) and 4(h) somehow differently from “costs charges” in clause 4(i).  I cannot accept his construction.

33.  Mr Chan emphasized that the Tribunal should not engage in a game with words.  But instances show that somehow the way he proposed to construe the provisions of the DMC in the present case, perhaps unconsciously, happens to be like such a game.  These instances include his construction of “share or amount payable” in clause 4(h) as opposed to “amount” or a mere sum; “on account of” as opposed to “on account” in the same clause; and “cost charges and expenses” in clauses 4(f)(I) and 4(h) as opposed to “cost charges” in clause 4(i) discussed above.

34.  Properly construed, the relevant provisions of the DMC in the present case differ from those in Hang Shun Building and 金冠發展 essentially in one respect, namely, that clause 4(f)(I) of the DMC here does not stipulate how the cost charges and expenses should be shared.  The IO therefore followed section 22(2) and fixed the contributions in accordance with the respective undivided shares of the owners in the building.  In my view, this is both right and reasonable.

Order

35.  I give judgment in favour of the IO against Law, the administratrix of the estate of Tsang Man Woo, deceased, in the sum of HK$65,340 as claimed.

36.  Interest is mentioned in the prayer but no explanation of the basis of this item of claim was given either in the notice of application or in court.  I am only prepared to award interest to run on the above judgment sum from today until full payment at the judgment rate.  I so order.

37.  The counterclaim is dismissed.

38.  The IO shall have costs of this application, including any costs reserved.  Costs shall be taxed on the District Court scale, if not agreed, with certificate for counsel.  This costs order is nisi and shall become absolute in the absence of appointment within 14 days to argue costs.