THE INCORPORATED OWNERS OF KWAI WAN INDUSTRIAL BUILDING v. KWAI FUNG INDUSTRIAL LTD

LDBM208, 209, 210,
212, 222, 226 & 20/2002
(consolidated)

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 208 OF 2002

-----------------------

-----------------------

(Consolidated by the Order of His Honour Judge Yung dated
10 October 2002 and the Orders of Deputy District
Judge Wong dated 5 November 2002 and 13 February 2003)

--------------------

JUDGMENT

--------------------

1.  This is the appeal of the respondent in LDBM 20 of 2002 against the decision of the Master made on 15 July 2004 staying the taxation proceedings in respect of its Bill of Costs.

Background

2.  According to the records of the Land Registry, the Incorporated Owners of Kwai Wan Industrial Building (“IO”) has the following management committees since 1999:

3.  The management committee appointed in 1999 with Chan Koon Keung as the treasurer is named as the respondent in LDBM 20/2002.  It is also the appellant in the present appeal.  The management committee appointed on 16 October 2003 and that appointed on 2 December 2003 are the same management committee except that the secretary and the treasurer had swapped their positions (“collectively referred to as “Chan Pui Ying’s MC”).

4.  On 5 January 2002, Chan Pui Ying, one of the owners of the building, instituted Application No. LDBM 20/2002 in the Lands Tribunal, claiming for declarations that the management committee of the IO had since 31 December 2001 become incapacitated and was defunct and, alternatively, ceased to be a valid management committee, and their acts, decisions and resolutions were void, and for a dissolution of the management committee as well as the appointment of an administrator. 

5.  Initially, the respondent named in the Application was the IO, but it was subsequently amended to become: “The Management Committee (lastly with the treasurer Mr Chan Koon Keung) of the Incorporated Owners of Kwai Wan Industrial Building”.  It appears that the amendment was made in the light of the Lands Tribunal decision in Chan Yip Keung & Leung Shiu Kuen v. The Incorporated Owners of Belvedere Garden Phase II and Chiang Shu To (unreported) LDBM 54/2002, a decision of the lands Tribunal delivered on 9.9.2002.  I shall return to this aspect in the latter part of this Judgment.

6.  Subsequently in 2002, the IO acting by the management committee appointed on 1 March 2002 with Chan Koon Keung as the chairman (“the 2002 MC”) instituted LDBM 208, 209, 210, 212, 222 and 226 against Chan Pui Ying and the owners of six other units in the building, for arrears in management fees and interest.  The owners defended the claims on a number of grounds and counterclaimed for relief similar to those claimed in LDBM 20/2002.

7.  By three orders made on 10 October, 5 November 2002 and 13 February 2003, all the seven Applications were consolidated.  Despite that the Applications involve different plaintiffs and that Chan Pui Ying is the plaintiff in LDBM 20/2002 but a defendant in LDBM 222/2002, there were no consequential directions on the conduct of proceedings and parties that usually accompany a consolidation: see Hong Kong Civil Procedure 2004 vol.1 para.4/9/2. 

8.  In the consolidated proceedings, the IO and the respondent in LDBM 20/2002 were represented by the same firm of solicitors, Messrs. M K Lam & Co (“MKL”) until 23 October 2003 when their retainer was terminated by the IO acting by Chan Pui Ying’s MC.  On the other hand, Chan Pui Ying and the respondents in the other Applications were represented by the same firm of solicitors.  Subsequently on 27 January 2003, both the claim and counterclaim in Application No. LDBM 226/2002 were withdrawn, but there was no de-consolidation of the application.

The costs orders of the Lands Tribunal

9.  The consolidated proceedings underwent a 9-days trial in July and August 2003.  In a reserved judgment handed down on 6 November 2003, Deputy District Judge Wong gave judgment for the IO’s claims and dismissed the owners’ counterclaims in Applications No. LDBM 208 to 210, 212 and 222/2002 as well as Chan Pui Ying’s claim in Application No. LDBM 20/2002.  The judge further made the following cost orders nisi (“the 6-11-2003 costs order”):

(1)	In Applications No. LDBM 208 to 210, 212 and 222/2002, the respondent owners shall pay the party-and-party costs of the IO, to be taxed on District Court scale if not agreed, together with a certificate for counsel.
(2)	In Application No. LDBM 20/2002, the applicant shall pay the party-and-party costs of the respondent, to be taxed on District Court scale if not agreed, together with a certificate for counsel.

10.  By its own terms, the costs order nisi became absolute 14 days after the handing down of the judgment.  On 14 January 2004, upon the application of the respondent in LDBM 20/2002 by summons filed on 3 December 2003 for a review, Deputy District Judge Wong ordered inter alia, the costs of the consolidated Application Nos. 208 to 210, 212, 222 and 226 of 2002 be paid by the respondents in LDBM 208 to 210, 212 and 222/2002 and the applicant in LDBM 20/2002, to the applicant in LDBM 208 to 210, 212 and 222/2002 and the respondent in LDBM 20/2002, to be taxed on District Court scale,if not agreed, with certificate for counsel (“the 14-1-2004 costs order”).  

11.  Although this had not been set out in clear terms, it would appear that the 14-1-2004 costs order is intended to be additional to the 6-11-2003 costs order.  According to Mr Lau who appears for the respondent in LDBM 20/2002 in this appeal, it was considered that the terms of the 6-11-2003 costs order did not cover the costs of the consolidated proceedings, and the 14-1-2004 costs order was to address this.  I am however unable to understand why the 14-1-2002 costs order did not exclude the costs of the consolidated proceedings relating to LDBM 226/2002 given that the claim and counterclaim in LDBM 226/2002 had been withdrawn in January 2003.  As this is not a point in issue in this appeal, I shall not labour on the point and shall leave it to the parties to sort it out.

Other proceedings on the validity of the management committees

9.    Returning to the factual background of the matter, on 24 October 2003, the 2002 MC commenced Application LDBM 310/2003 in the name of the IO against the members of Chan Pui Ying’s MC and other owners, claiming for inter alia, declarations that Chan Pui Ying’s MC was not a valid management committee of the IO and could not perform the duties and exercise the powers of the IO.

10.    On 4 November 2003, the members of Chan Pui Ying’s MC instituted High Court Action No. 4083 of 2003 against the members of the 2002 MC claiming, inter alia, a declaration that they were duly appointed on 16 October 2003 as the members of the management committee of the IO.  The proceedings in the Lands Tribunal and in the High Court are in progress.

Taxation of the costs orders of the Lands Tribunal

11.    On 3 March 2004, the respondent in LDBM 20/2002 took out taxation proceedings to tax the costs of LDBM 20/2002 and of the consolidated Applications.  The Appointment to Tax and the Bill of Costs are taken out in the sole name of the respondent in LDBM 20/2002 and are directed against the applicant in LDBM 20/2002 and all the respondents in LDBM 208 to 210, 212 and 222/2002.  Part I of the Bill of Costs relates to the costs of LDBM 20/2002 and is taxed pursuant to the 6-11-2003 costs order.  Part II of the Bill of Costs covers the costs of the consolidated Applications and is taxed pursuant to the 14-1-2004 costs order.

12. On 8 April 2004, Messrs Johnnie Yam, Jacky Lee & Co (“JYJL”) issued a summons on behalf of the IO seeking to stay the taxation proceedings pending the determination of LDBM 310/2003 and HCA 4083/2003.  On 12 July 2004, JYJL issued another summons on behalf of the IO applying for leave for “the Incorporated Owners of Kwai Wan Industrial Building (of which the Management Committee was erected on 16 October 2003 with Madam Chan Pui Ying as chairman)” to intervene in the taxation proceedings and to be joined as a party thereto on the ground that it has interest which is directly related or connected to the subject matter of the taxation proceedings.

13. On 15 July 2004, the Master heard both summonses.  He granted the summons for stay, dismissed the intervener summons and reserved the costs of the summonses.  On 19 July 2004, the respondent in LDBM 20/2002 issued the present Notice of Appeal.

The appeal

14. The respondent in LDBM 20/2002 argues that the stay is not justified for the following reasons:

(1)	It was sued in LDBM 20/2002 as a legal entity separate from the IO and not as an agent of the IO.
(2)	The IO has no interest in the taxation proceedings.  Its summons to intervene had been dismissed, from which there is no appeal.
(3)	It does not require the authority of the IO to proceed with the taxation proceedings because it is a legal entity separate and independent from the IO, and also because in LDBM 20/2002, MKL only acted for it and not for the IO.
(4)	The disputes in LDBM 310/2003 and HCA 4083/2003 do not prevent the respondent in LDBM 20/2002 from proceeding to taxation of costs ordered in its favour (as opposed to costs of the IO) against the respondent owners in the consolidated Applications.

15. The IO acting by Chan Pui Ying’s MC on the other hand argues that the stay is necessary.  The argument is mainly twofold.  Firstly, it is said that the respondent in LDBM 20/2002 has since ceased to be in office and has become defunct such that it has no capacity to proceed with any proceedings.  Secondly, it is argued that the respondent in LDBM 20/2002 does not have the authority of the IO to enforce the costs orders or to proceed with the taxation proceedings.  Additionally, the IO questions the holdings that a management committee is a legal entity and that each term of management committee is by itself a separate legal entity.  Mr Chan who appears for the IO acknowledges that he is embarrassed in raising the point despite that both legal representatives appearing at the trial had agreed that a management committee is a legal entity.  

The appearance of the IO at the appeal and the authority of JYJL

16.  At the hearing of the appeal, Mr Lau makes preliminary challenges to the locus standi of the IO to be present at this appeal and also the authority of JYJL to act for the IO at the appeal.  It is contended that with the validity of the Chan Pui Ying’s MC remains unresolved, JYJL cannot rely on its instructions and purports to act for the IO.

17.  In my view, the IO acting by the Chan Pui Ying’s MC is entitled to appear at this appeal.  Firstly, the present appeal stems from an order of the Master made upon the IO’s application for stay.  Secondly, it is not correct to say that the IO has no interest in the taxation proceedings.  Contrary to the assertions of the respondent in LDBM 20/2002, the Bill of Costs in question is not confined to its costs, but has included the costs of the IO.  Part II of the Bill covers the costs of MKL and the fees of counsel retained by the firm in the consolidated proceedings.  Given that MKL acted for both the IO and the respondent in LDBM 20/2002 and that the Bill of Costs was taken out in the sole name of the respondent in LDBM 20/2002, there should have been an apportionment of the costs of the consolidated proceedings to reflect the rule that the respondent in LDBM 20/2002 is only entitled to its proportion of the general costs of proceedings taken jointly on its and the IO’s behalf plus any costs specifically incurred on its behalf: Hong Kong Civil Procedure 2004 vol. 1 para.62/7/1.  However, there was no apportionment of the costs and fees in Part II of the Bill of Costs.  Further, even if there were proper apportionment of the costs incurred for the consolidated proceedings, the taxation of the Bill of Costs will still have a bearing on the IO’s costs entitlements vis-à-vis the owners who had lost in the consolidated Applications.  As such, the IO must have an interest in the taxation proceedings. 

18.  The IO, being a party in the consolidated proceedings and affected by the costs orders giving rise to the taxation proceedings and whose interest stands to be affected by the taxation proceedings, must be entitled to appear in the taxation proceedings and this appeal. The dismissal of the IO’s summons to intervene is irrelevant because the IO is already a party and it does not need to intervene.

19.  As to the authority of JYJL to act for the IO, there is before the court evidence of their appointment in the form of minutes of a meeting of Chan Pui Ying’s MC held on 6 April 2004.  The Land Registry records also show Chan Pui Ying’s MC as the current management committee of the IO.  Although the validity of the meeting and the appointment of Chan Pui Ying’s MC is being challenged in the pending Lands Tribunal and High Court proceedings, there is as yet no determination in favour of the challenge and there is also no order restraining Chan Pui Ying’s MC from acting in the name of the IO.  There is thus insufficient basis to dispute the authority of JYJL to act for the IO.  It is also to be noted that JYJL has explicitly indicated in the Notice to Act filed on 8 April 2004 and the summonses that it was solicitors for the IO acting by the management committee with Chan Pui Ying as the chairman.

Justifications for staying the taxation proceedings

20.  The central point in the arguments advanced by the respondent in LDBM 20/2002 against staying the taxation proceedings is that it is a legal entity and can act separately and independently of the IO with regard to the costs orders in question.  In relation to the legal status of the respondent in LDBM 20/2002, Deputy District Judge Wong had held that each term of the management committee of the IO constituted a separate legal entity, and there has been no appeal from his judgment.  However, as noted above, at the trial before the Judge, counsel for the IO and the respondent in LDBM 20/2002 and solicitor who appeared for the other parties were in agreement that, as a matter of law, a management committee is a legal entity distinct from the incorporated owners.  The point was therefore not argued.  Although he regarded it to be a complicated question of law, the Judge felt constrained in view of the parties’ stance, to accept that a management committee is on its own a legal entity capable of bringing and defending legal proceedings.  Proceeding on this conceded or assumed basis, the Judge went on to hold, for reasons given, that each term of management committee is a legal entity on its own: see paragraphs 8 and 12-16 of the judgment.   

21.  For my part, I am unable to agree that in law, a management committee of an incorporated owners is a legal entity distinct from the incorporated owners.  The legal position of a management committee has been succinctly summarized by His Honour Judge L Chan in the recent decision of 恆麗園業主立案法團第四屆管理委員會 訴 恆麗園業主立案法團第二屆管理委員會及恆麗園業主立案法團第三屆管理委員會 (unreported) LDBM 73 of 2004 at para.6 as follows:

“A management committee of an incorporated owners of a multi-storey building or a housing estate is just like the board of directors of a limited company. The company is a legal person but the board of directors is not. The fact that section 45 of the Building Management Ordinance, Cap. 344 has included a management committee as one of the persons who is competent to commence proceedings in the Tribunal under that section is, without more, insufficient to make the management committee a legal person. When the interest of the company is in issue, it is the company that can sue or be sued in its own name, not the board of directors. The board of directors is not a legal person independent of the company. The same applies to an incorporated owners and its management committee.”

22.  I will additionally point out that a management committee is in essence a body of natural persons who are the officer bearers of the incorporated owners.  Their appointments are regulated by the Building Management Ordinance.  They are appointed for the purpose of carrying out the powers and duties of, and to make collective decisions for the incorporated owners, through and under the name of the management committee.  Insofar as they are intra vires, decisions and acts taken by the members of a management committee are not only the decisions and acts of the management committee, but also those of the incorporated owners.  It follows that the mere inclusion of a management committee as one of the persons competent to commence proceedings in the Lands Tribunal under section 45 of the Building Management Ordinance does not make a management committee a legal entity.  It is therefore difficult to see the legal basis for a management committee being regarded as a legal entity independent from the incorporated owners.

23.  Apart from this, it is clear from section 29 of the Building Management Ordinance, which delegates the powers and duties of the incorporated owners to the management committee, that a management committee is the agent of the owners incorporated.  It follows that, irrespective of whether it is a legal entity, a management committee must act under the authority and mandate of the incorporated owners.  It is thus untenable that a management committee does not require the authority of the incorporated owners to proceed with the enforcement of the rights and entitlements of the incorporated owners it enjoys directly or indirectly through the management committee. 

24.  Accordingly, it is not open to the respondent in LDBM 20/2002 to argue that it is a legal entity separate and independent from the IO and is not an agent of the IO.  It also cannot say that it does not require the authority of the IO to enforce the 6-11-2003 and the 14-1-2004 costs orders and to proceed to taxation thereunder.

25.  Taking the matter one step further, it is not in issue that the appointment of the respondent in LDBM 20/2002 came to an end with the appointment of the 2002 MC.  The respondent in LDBM 20/2002 has become defunct and can no longer carry out the delegated powers and duties of the IO.  Irrespective of whether it is a legal entity, it simply does not have authority to act for the IO.  Hence, if, as held, a management committee is a legal entity and that each term of the management committee is a legal entity in itself, the inescapable conclusion is that the respondent in LDBM 20/2002 has become incapacitated and non-existent.  It is in no position to enforce whatever rights and interests it might have acquired, whether in its own right or on behalf of the IO, during the time when it was in office.  It follows that it cannot enforce the costs orders in question and to proceed to taxation thereunder.  In my view, this state of affairs illustrates the difficulties intrinsic in the contention that a management committee is in itself a legal entity and that different management committees are separate legal entities.  Given that there is bound to be a new management committee every two years: paragraph 5(1) of Second Schedule of the Building Management Ordinance, there will be great difficulties in enforcing orders and judgments made in favour of or against a particular management committee. 

26.  In the circumstances, there are grave doubts as to the capacity and authority of the respondent in LDBM 20/2002 to commence and to carry on the present taxation proceedings.  Unless and until these doubts have been resolved and removed, it is right that the taxation proceedings should be stayed.  The Master is therefore correct in ordering a stay of the taxation proceedings.

27.  The respondent in LDBM 20/2002 has submitted that it is not in the interest of the IO to withhold the taxation proceedings and that Chan Pui Ying’s MC in causing the IO to stay the taxation proceedings is acting mala fide and for the interest of Chan Pui Ying and the other owners who had lost in the consolidated Applications.  There is no doubt that the respondent in LDBM 20/2002 and the 2002 MC, on the one hand, and Chan Pui Ying’s MC, on the other hand, hold different views over the costs orders and their enforcement.  However, the propriety and fides of the acts of Chan Pui Ying’s MC are not in issue in these taxation proceedings.  If need be, they have to be litigated in other forum.  The fact is the IO acting by Chan Pui Ying’s MC has, as it is entitled to and rightly so, called into question the capacity and authority of the respondent in LDBM 20/2002 to proceed with the taxation proceedings, and however much the proceedings may be for the benefit of the IO, it is the court’s duties to see to it that legal proceedings are properly brought and constituted.

Conclusion

28.  For the above reasons, the appeal is dismissed.  Applying the normal rule of costs follow event, I also make an order nisi that the appellant pays the IO the costs of the appeal, to be taxed if not agreed.