CHAN KAM TONG AND OTHERS v. THE INCORPORATED OWNERS OF GARDEN VISTA

LDBM 344/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 344 OF 2014

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J U D G M E N T

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1. There was dispute between some owners and the Incorporated Owners of Garden Vista, Nos 11-17 On King Street, Shatin (“the Respondent”) over the amount to be contributed to a renovation project which was at the cost of 29 million (“the Renovation”). Those owners, 18 of them (the Applicants), took out this application on 18 November 2014 (“the Application”) in which 8 questions were posed for the Tribunal to determine. These questions in fact boiled down to whether the Renovation was governed by the DMC or solely by BMO. That would, according to the Applicants, affect the amount of contribution to be paid by individual owners; whether they are liable to pay interest and whether their properties could be charged on late payment or default.

2. Mr Hui, counsel for the Respondent, has succinctly summarized those facts which are not disputed for purpose of the present hearing.

(a)	By a resolution passed by the management committee during a meeting on 22 May 2013, the management committee authorised the chairman and the vice-chairman of the management committee to enter into any renovation contract in accordance to resolution passed at a subsequent extraordinary general meeting of the Respondent (“Management Committee Resolution”).  The Management Committee Resolution was evidenced by the minutes of the management committee’s meeting dated 28 May 2013 (the “Management Committee Minutes”) [B/116];
(b)	By a resolution (the “Special Resolution”) passed at an extraordinary general meeting of the Respondent held on 28 July 2013 (the “EGM”), Hong Dau Construction Co. Ltd. (“Hong Dau”) was to be appointed to carry out the renovation works over the common parts of Garden Vista (the “Renovation Works”) at the cost of HK$262,953,235  (the “Renovation Cost”) [B/97]);
(c)	On 17 September 2013, Lai Kwok Leung, the Chairman of the Respondent on behalf of the Respondent, entered into the “屋苑整體維修工程合約” (the “Renovation Contract”) with Hong Dau [B/106-115]; and
(d)	The Respondent registered charges against the Applicants for arrear of their respective outstanding share of contribution to the Renovation Cost together with accrued interest and legal costs.

3. The Applicants’ case is this.  They would not dispute their liability to contribute to the Renovation Cost and they would not challenge the validity of the EGM where the Special Resolution was passed.  They say that the calculation of the contribution should not be made according to Schedule 2 of the deed of mutual covenant executed on 22 December 1989 (the “DMC”).  It is said that since the Special Resolution was passed under The Building Management Ordinance Cap 344 (the “BMO”), the contribution should be made in accordance with BMO and that should be by undivided shares.  Further they say that the Chairman and vice-chairman signed the Renovation Contract without authorization of the owners.  For this reason the Applicants say that the Respondent should not be bound by it.

4. The Respondent opposes to such propositions.  It is said that the Respondent as Manager of the DMC is empowered thereby to undertake duties of management of the Building.  Such power and duties come from the DMC although the BMO also confers similar power to a corporation in general.  Further the Renovation Cost being part of Management Expenses under the DMC, should be shared according to Schedule 2 therein, i.e. by management shares and not by undivided shares as stipulated in Clause 1 of Subsection E of Section V [B/31].

5. As mentioned the Applicants have posed 8 questions for the Tribunal to determine.  Although not all of them are relevant to computation of share of contribution, I shall deal with each and every of them below.

Question 1

Whether the Renovation was governed by the DMC or solely by the BMO

6. The Applicants argue that the Renovation was not governed by the DMC but solely by the BMO.  Reasons in support are as follows:-

(a)	Section 18(1) of BMO provides that the corporation shall maintain the common parts in a state of good and serviceable repair and clean condition and that the Renovation Works resolved by the Resolution was an act of the Respondent exercising its own statutory powers rather than powers under the DMC; and
(b)	There was no mention of any provisions of DMC at the Owners Meeting or that the Renovation was carried out pursuant to the DMC.

7. The Respondent’s reply is as follows:-

(a)	The Respondent after its incorporation is the Manager of the DMC.  At page 6 of the DMC “the Manager” is defined as:
	“Hang Yick Properties Management Limited or any other manager for the time being appointed as manager of the Estate pursuant to this Deed or the Owners’ Committee[1] when the Owners’ Committee is undertaking the management of the said land and the Estate.”
(b)	As Manager the Respondent has the power to undertake such duties as the manager of the said land and Estate under Clause 11(iv) of Subsection J of Section V of the DMC.

8. Further the DMC provides that the Manager shall be bound by and shall observe and perform all of the conditions, duties and obligations, and shall have full and unrestricted authority to all such acts and things as may be necessary or requisite for the proper and efficient management, including:-

(a)	“To keep all the Common Facilities in good repair and in working condition and to keep the Common Areas in a clean and sanitary state and condition and to keep in good order and repair the lighting and ventilation of the Common Areas.”  (Clause 3 of Subsection B of Section V of the DMC [B/22]);
(b)	“To do all things which the manager shall in its absolute discretion deem necessary or desirable for the purposes of maintaining and improving all facilities and services in or on [Garden Vista] and the land for the better enjoyment or use of [Garden Vista] and the land by its Owner occupiers and their licensees.”  (Clause 20 of Subsection B of Section V of the DMC [B/25]); and
(c)	“To carry out all other duties and perform such other matters referred to in this Deed and otherwise to do all such other things as are reasonably incidental to the management of [Garden Vista] and the said land.”  (Clause 40 of Subsection B of Section V of the DMC [B/30]).

9. Mr Hui therefore submitted that the retention of Hong Dau to carry out the Renovation falls under the duties and power of the DMC Manager as set out at paragraphs 7-8 above and was in compliance with BMO.

10. I think I should first point out the difficulty for Mr Kwong to argue that the share of contribution should not be made under the DMC because DMC was not mentioned at the meeting.  This is incorrect.  As could be seen from the minutes of the EGM, it was stated under Agenda 6 that the share would be made according to the DMC. I do not see how the Applicants could now say otherwise.

“議程六：議決通過「議程四之工程費用」集資期數（選票4）

…….但未足夠支付有關的工程費用開支。因此，各業主需按大廈公契計算來攤分有關工程費用開支。所以有必要商討籌集工程費用安排。”

11. For sake of completeness, I shall deal with other arguments under Question 1.  The Renovation Works were set out in B/111.  Mr Hui had identified them, upon request of the Tribunal, being items within the scope under “the Estate’s Common Area”, “the Estate’s Common Facilities” and “the Block’s Common Area” expressly set out in the DMC.  The table below shows the corresponding provisions:-

	Items of works	Corresponding DMC Provisions
1.	採用方案三 – 內外牆修補及外牆重新鋪砌磚工程	Para (c), (d) of the Estate’s Common Area
2.	更換A至F座喉管工程	Para (a) of the Estate’s Common Facilities
3.	A至F座公共內牆油漆翻新工程	The Block’s Common Area
4.	A至F座天台防水工程	Para (d) of the Estate’s Common Area, the Block’s Common Area
5.	公共鐵器工程	Para (b) of the Estate’s Common Facilities
6.	二期平台防水工程	Para (d) of the Estate’s Common Area
7.	停車場翻新工程	Para (d) of the Estate’s Common Area
8.	更換二期平台有蓋行人通道工程	The Block’s Common Area
9.	各座平台入口大堂翻新工程	Para (a), (d) of the Estate’s Common Area
10.	各座停車場大堂翻新工程	Para (d) of the Estate’s Common Area
11.	裙樓外牆翻新工程	Para (c), (d) of the Estate’s Common Area

12. I accept the Respondent’s submission that the Renovation Works were within the ambit of common area and common facilities.  I accept that as Manager under the DMC, the Respondent shall be responsible for and shall have full and unrestricted authority to do all such acts and things as may be necessary or requisite for the proper and efficient management of the Estate under Subsection B of Section V of the DMC.  Those power and duties for purpose of the present Application include but not limited to “to keep all Common Facilities in good repair and working condition”.  For this reason, I see no merit in the suggestion of the Applicants that the Renovation was not governed by the DMC.

13. Another point taken by the Applicants was that the EGM was held pursuant to the BMO and not the DMC.  This argument is difficult to understand.  Although the Respondent was empowered by the DMC to undertake all duties in relation management as far as the Building is concerned, it is bound by procedures set out in section 20A of the BMO concerning procurement of goods and services exceeding a certain amount and Schedule 3 in respect of convention of meetings.  I think it wrong to say that since the Respondent was observing the procurement and meeting procedures set out in the BMO, the Renovation was therefore not within the scope of the DMC.

14. For these reasons, I could not agree with the Applicants that the Renovation was not governed by the DMC.

Question 2

Whether Renovation was within meaning of “management”

15. The Applicants argue that Renovation was not within the meaning of “management” under the DMC on the basis that the term is defined as limited to “all duties and obligations to be performed and observed by the Manager as provided in the DMC” but the appointment of Hong Dau was done by the Respondent and not the Manager under the DMC.

16. During his submissions, Mr Kwong conceded that the Respondent is and was the Manager of the DMC since its incorporation.  I do not think this point still stands.  Further, I am satisfied that the Renovation Works fell under the meaning of “management” as submitted by Mr Hui.  Paragraph 8 above is relevant.

Question 3

Whether Synergis had power to collect contribution

17. The Applicants contents that Synergis, the management company, has no authority to collect contribution from the owners and asked that payment be paid to it.  The Applicants’ main arguments are as follows:-

(a)	Under section 29 of BMO, only the Management Committee, and not the manager appointed under the DMC, has the lawful authority to act for the Respondent in relation to all aspects of the Renovation Contract;
(b)	Neither the Respondent nor its management committee had appointed Synergis to collect the contribution from the individual owners;
(c)	Unless specifically authorised, Synergis has no role to play in the Renovation Works;
(d)	The Respondent has not engaged or remunerated Synergis for the purpose of the Renovation Works pursuant to section 18(2)(a) of BMO; and
(e)	By a circular dated 13 June 2014 (“the Circular”), Synergis had stated that the Renovation Works was not within the scope of its management.

18. I am of the view that the management company, Synergis, being agent of the Respondent does have the authority to collect payments of contribution.  It does have the power to act on behalf of the management committee which is the executive arm of the Respondent.  The complaint of payments being paid to a bank account held in the name of Synergy is neither here nor there as there is no substance in the complaint.  There is no evidence put forth by the Applicants to say that the operation of such account has put the funds of the owners at risk of misappropriation.  This complaint was not raised prior to the hearing and was only added when Mr Kwong was making his submissions.

19. As to the content of the Circular, it is denied by the Respondent that Synergis had ever denied that the Renovation Works was within the scope of its management.  On the contrary, it was expressly stated that throughout the preparation process of the Renovation Works, Synergis assisted in the capacity of manager of Garden Vista, “新昌管理一直以管理人身份，協助法團”.  What Synergis denied in the Circular was the unsubstantiated accusation against Synergis such as “參與圍標，欺壓反圍標業主，甚至跟蹤滋擾及恐嚇他們”.

20. More importantly it is said that, contrary to the Applicants’ contention, paragraph 1 of the Circular stated that “新昌管理自1997年起為翠湖花園提供物業管理服務。翠湖花園的大型維修工程並非管理合約中的服務範圍…”.  So Synergis was merely stating that the Renovation Works are not within the scope of the management contract.  It did not say (i) the Renovation Works were not within part of its duties and powers pursuant to the DMC or (ii) it did not have the power pursuant to the DMC to act as the manager in collecting contribution from the owners.

21. After considering the content of the Circular, I accept the submission of Mr Hui and I am satisfied that Synergis has the authority to collect contributions of Renovation Cost from individual owners as agent of the Respondent.

Question 4

Whether the Renovation Contract is binding on the Respondent

22. The Applicants say that the Renovation Contract is not binding on the Respondent because:-

(a)	Neither the Respondent nor the management committee had authorised Lai Kwok Leung, the current chairman of the Management Committee, to approve and to sign any contract in connection with the Renovation Works; and
(b)	The chairman has to have the majority vote of the management committee members before the chairman can lawfully engage the Respondent.

23. The Respondent’s position on this is that under section 29 of BMO, “the powers and duties conferred or imposed by the BMO on a corporation shall be exercised and performed on behalf of the corporation by the management committee”.  Therefore, the issue is whether Lai Kwok Leung was authorised by the Management Committee sign the contract.

24. Mr Hui submitted that by the Management Committee Resolution passed on 22 May 2013, Lai Kwok Leung, as chairman of the Management Committee, was so authorised.  In particular, Paragraph 2.7 of the Management Committee Minutes dated 28 May 2013 stated that:-

“如在特別業主大會上通過的所有議決通過之議程，法團會根據業主議決之投票結果聘用承建商，會議上由委員一致通過由法團主席及副主席簽署維修工程合約。” (emphasis added)

25. The reply made by Mr Kwong to this was that there was no evidence to show that the Management Committee Resolutionwas passed by members of Management Committee only because there were staff of Synergy present at the meeting, they might also have voted.  He said in that case the Management Committee Resolution would not be valid.  I am of the view if Mr Kwong seriously takes issue on who had voted on this agenda item, he should not have informed the Tribunal at the outset that there would not be factual witnesses called and that there would not be factual dispute in the present hearing.  In the circumstances that no evidence was put forward to contradict the minutes of meeting, I accept that they reflected correctly as to what had transpired at the Management Committee Meeting: that only the members of the Management Committee did vote.  The complaint of Mr Kwong was sheer speculation.

26. I agree with Mr Hui that the Applicants’ argument under this head is unsustainable.

Question 5

Whether the contribution should be shared by undivided shares and not by shares under the Second Schedule of the DMC

27. The main argument of the Applicants appeared to be that since the Renovation is not within the scope of the DMC, it should follow the apportionment set out by the BMO, that is by undivided shares.

28. Since I have already found that the Renovation was within the scope of the DMC, this proposition could not stand.  Further, section 22(1)(a) of the BMO provided that “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 deed of mutual covenant (if any).  In the present case, there is a DMC.  Owners’ duty to pay is set out under Clause 1 of Subsection E of Section V.  It provides that each owner shall pay a due proportion of the Management Fees which by definition include Management Expenses in accordance with the Second Schedule of the DMC.  By the same provision, Management Expenses have been clearly set out.  It is my view and according to Clause 1(b) of Subsection E of Section V, I have already found that Management Expenses cover the Renovation Cost.

29. Since the DMC has expressly provided the manner in which each owner should contribute to the Management Fees, I agree with Mr Hui that the statutory default position on the determination of contribution by reference to the undivided share of individual owners is not engaged.

30. Mr Kwong has made an attempt to argue that the contribution called for was for setting up of a special fund under paragraph 4 of Schedule 7 of the BMO.  He said that if the contribution was called under a special fund, the contribution should be determined by the Respondent at an owners’ meeting and not according to the DMC.  Mr Kwong argued this on basis of the size of money involved.  According to him, it was a huge amount. 

31. I agree $29m is a huge amount.  But I see no merit in his argument.  As could be seen from Agenda 6 the Minutes of the EGM, there was already a special fund set up for the Renovation (“the Estate Renovation Fund”) and a resolution was passed for a sum of $10,079,412 to be paid out of the Estate Renovation Fund to meet part of the Renovation Cost (B/98).  It is obvious that the contribution called for from individual owners under Agenda item 6 was to make up the balance of the Renovation Cost and not to contribute to the Estate Renovation Fund.  As mentioned, it has expressly stated in Agenda 6 that such contribution should be made in accordance with the provisions under the DMC.

32. Moreover Clause 1 of Subsection E of Section V has also provided for how increase of Management Fees should be dealt with.  It is provided that in those circumstances “the amount of the Management Fees payable by the Owners shall be in direct proportion to the amount shown in the Second Schedule.”

33. Further, Deputy Judge Lee, as she then was, and Member Poon had dealt with the construction of paragraph 4 of Schedule 7 in IO of Kenbo Comm. Bldg. v. Lau Wing Cheung & anr. LDBM 153/1998.  The Tribunal after hearing the application held that the nature of the special fund was not for collecting funds to meet expenses of specified items of works.

34. Moreover, HHJ Wong had expressed his view on the true meaning of “the amount to be contributed by owners” in Paragraph 4(2) inYoung Kwok Sui and another v. The Incorporated Owners of Fontana Gardens (LDBM 76/2011 and LDBM 77/2011 (Consolidated)).  It was his finding that Paragraph 4(2) did not confer power on the corporation to determine the contribution of individual owners.  Paragraphs 26-28 of the judgment are relevant.

35. For these reasons I am of the view that the contributions of individual owners should be shared according to Second Schedule of the DMC.

Question 6

Whether the Applicants, the defaulting owners, are liable to pay interest for their respective shares of contributions to the costs of Renovation pursuant to the DMC

36. The Applicants suggest that if the Renovation was not governed by the DMC but the BMO, they should not be liable to pay interest for late payment under the DMC because the DMC does not come into play.

37. Since it is my finding that the Renovation was governed by the DMC, defaulting owners are therefore liable to pay interest under the DMC.  Section V Clause F2(1) is relevant.

Question 7

Whether the Respondent is entitled to register a memorandum of charge against the properties held by the defaulting owners pursuant to the DMC

38. The Applicants argue that the Respondent could not charge their properties on the same basis as set out in Question 6.  The answer is the same.  Section V Clause F 4 of the DMC is relevant.

Question 8

Whether the memoranda of charge against the properties held by the defaulting owners pursuant to the DMC should be discharged

39. My answer to this question is: the memoranda should be discharged and the registration be vacated upon payment of all amount due.

Costs

40. All the questions were answered in favour of the Respondent.  The Applicants should therefore bear costs of the Respondent with certificate for counsel.  Such costs are to be taxed at District Court Scale if not agreed.  This is an order nisi and shall become absolute within 14 days if no application is made by parties to vary the same.

[1] Note that the Owners’ Committee is replaced by the management committee of the Respondent pursuant to section 34K of the BMO.