LDBM 49/2014
IN THE LANDS TRIBUNAL OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
BUILDING MANAGEMENT APPLICATION NO. 49 OF 2014
__________________________
BETWEEN
WONG CHUN NAM
1st Applicant
CHENG HON YUEN
2nd Applicant
CHONG YUI
3rd Applicant
CHENG HON WU
4th Applicant
ORIENTAL UNISON LIMITED
5th Applicant
and
THE INCORPORATED OWNERS OF
Respondent
__________________________
Coram: Deputy Judge Tracy Chan, Presiding Officer of the Lands Tribunal
Date of Hearing: 7 May 2015
Date of the Respondent’s Written Final Submissions: 20 May 2015
Date of the Applicants’ Written Final Submissions: 3 June 2015
Date of Judgment: 26 June 2015
________________
JUDGMENT
1. The Applicants being owners of shop and cockloft units at Yee Tiam Building situated at Nos. 5-11 Ka Wo Street, Hong Kong (“the Building”) took out this application on 27 February 2014 (“the Application”) for the Tribunal to determine the amount they should contribute to the renovation cost (“the Renovation Cost”) pursuant to the deed of mutual covenant executed on 22 May 1979 (“the DMC”). The Respondent being the incorporated owners of the Building filed a counterclaim asking for payment of contribution due according to demand notices issued on 10 April 2013. The main issue of the case is to determine how the Renovation Cost of the Building is to be apportioned among owners.
2. It is not disputed that the Renovation Cost amounted to $5,931,485. The Respondent apportioned the contribution by dividing the Renovation Cost in equal shares among the total number of units (shops/flats) of the Building which is 69 and therefore the demand to owners was made on basis of $5,931,485 ÷ 69 units. It is said that owners would then pay according to the number of units held by them. By this apportionment, each Applicant would have to pay $171,928 ($85,964 x 2) as 1 shop and 1 cockloft are counted as 2 units. Such payments were to be paid by 4 consecutive monthly installments starting from May 2013 to August 2013. The Respondent said that such apportionment was provided under Clause (g) of the Third Schedule of the DMC (“Clause (g)”).
3. The Applicants’ contended that the apportionment should be made in accordance with the proportion set out in Clause (c) of the Third Schedule of the DMC (“Clause (c)”). As such, the contribution for each Applicant holding 1 shop on the ground floor and 1 cockloft on the 1st floor will be $90,558 ($5,931,485 / 131 x 2). In other words, the Applicants now have to pay 90% more for each of the shop and the cockloft if the Respondent’s calculation is adopted.
Relevant Provisions in the DMC and their Interpretation
The Applicants’ Case
4. The Third Schedule of the DMC is relevant to contributions of owners (BD93-94):-
Clause (b):
Each of the owners of the shops and flats in the said building in respect of such shop or flat owned by him pay his due proportion or share of the contributions as hereinafter mentioned in advance on or before the First day of each and every month to the Manager towards the costs of the following (“the Management Expenses”):-
…
(vi) Legal or other fees and expenses which may be incurred by the Manager in performance of any of his duties or in the exercise of any of his powers contained in this deed.
Clause (c):
The amount of monthly contribution for the time being payable by each owner in respect of his shop/flat shall be as follows (to be referred to as “the Management Shares” hereinafter):-
Premises Monthly contribution or expenses
Shops A, B, C, D and E on the Ground Floor
$250.00 ($50.00 each)
Cocklofts A, B, C, D and E on the 1st Floor cockloft
$250.00 ($50.00 each)
The whole of the 2nd floor
$250.00
Flats A, B and C on the 3rd Floor to 20th Floor
$5,400.00 ($100.00 each)
Flats A and C on the 21st to 22nd Floors
$400.00 ($100.00 each)
$6,550.00
Should any repair or maintenance or replacement be carried out in respect of the lifts then the expenses for such replacement or repair or maintenance shall be borne by the owners of the flats from the 1st to 22nd floors (both floors inclusive) in equal share.
If any one flat or shop in the said building shall have its own separate Government water meter then the water charges for the supply of water to such flat or shop shall be paid by the owner thereof but if two or more flats in the said building share the same Government water meter then the water charges for the supply of water to such group of flats or shops shall be shared and paid by the owners thereof in proportion to the number of such flats or shops for the time being owned by such owners.
If the contribution towards any of the expenses aforesaid shall be more than sufficient to cover the same and there shall be a surplus then such surplus shall be held by the Manager in trust for those owners who have contributed the same in proportion to the amount of their respective contributions and shall be retained by the Manager pending its use in payment of such expenses.
If the total contributions towards any of the expenses aforesaid shall be insufficient to cover the same then those owners liable to contribute towards such expenses as aforesaid shall make further contributions towards such expenses in proportion to the number of shops/flats owned by them who are liable to such contributions.
The Manager of the said building shall have the following rights and/or duties :-
5. It was submitted on behalf of the Applicants that the renovation items fell within the scope of the aforementioned provisions under Clause (j). In the circumstances, owners are liable to make contribution under Clause (b)(vi) and shall pay such contribution pursuant to apportionment set out under Clause (c). Any insufficiency would still be contributed under Clause (c) but in the proportion of number of shops/flats held according to Clause (j).
6. It is further submitted on behalf of the Applicants that:-
(a) The provisions of the DMC should be understood and construed in context, not in isolation;
(b)
Clause (c) sets out the initial monthly contribution of each of the 5 shops on the ground floor and each of the 5 cockloft on the 1st floor, i.e. $50 each and $250 in total for each of these two floors whereas the whole of second floor is to pay $250 as well;
(c)
Hence, it is clear that the DMC contemplates that the amount of contribution to be made by all non-domestic floors should be the same, i.e. $250 for each floor. Exhibit A1, the floor plan of the Building, shows that these three floors are identical in size;
(d) If the draftsman of the DMC intended that further contributions provided in Clause (g) should be divided equally among owners by number of shops and units held, the word ‘equally’, ‘shared’ should have been used, as in Clause (d) and (e) above;
(e) Clause (f) states that if there is surplus, then “such surplus shall be held by the Manager in trust for those owners who have contributed the same “in proportion to the amount of their respective contributions …” In such event, there is no apparent reasons for further contributions to be made in proportion other than those set out under Clause (c); and
(f) If Clause (g) is interpreted in the way as the Respondent had suggested, i.e. by equal shares among owners according to number of units held, it would result in absurdity. Owners of units in the 3 non-domestic floors paying management fees at same rate under Clause (c) would be paying contribution to the Renovation Cost at different rate. The owner of the second floor which is counted as 1 flat/shop would be paying just as much as owners of 1 shop on the ground floor and owners of a domestic flat when he is paying 5 times and 2.5 times of their shares under Clause (c).
7. Ms Wong for the Applicants has prepared a table to demonstrate the alleged absurdity. According to Clause (c), there are a total of 131 management shares. The following table shows the contribution by percentage to be borne by owners under different interpretation of the respective clauses:-
Non-Domestic Units
Share by Clause (c)
Share by No. of Units
Ground floor
3.82 %
7.25%
Cockloft on the 1st
3.82 %
7.25%
2nd floor
3.82 %
1.45%
All Domestic Units
3rd to 22nd floors
88.54%
84.05%
8. In other words, as submitted by Ms Wong, the Respondent’s calculation has altered the apportionment and is in disadvantage to shop owners on the ground floor and the cockloft.
The Respondent’s Case
9. The Respondent argued that the meaning of Clause (g) is plain and obvious, that the amount of contribution payable by each owner for the Renovation Cost which did not fall under Clause (c) should be calculated according to Clause (g) and that is “in proportion to number of shops/flats owned by them”. Since there are 69 units in the Building, the total number of shares should be 69.
10. Relying on The Incorporated Owners of Hang Shun Building, Tonkin Street v. Lee Chi Ming (CACV 321/2003) Mr Wong on behalf of the Respondent contended that as regards the monthly contributions provided under Clause (c), they are payment paid in advance with reference to expenses set out under Clause (b). Since the said monthly contributions are payments in advance, they are payments for expenses estimated by the Manager and not payment for actual expenses. Contributions referred to in Clause (g) are however “payments for actual expenses” as contributions were called for to meet payments which could not be met by payment made under Clause (c). It was said that the Renovation Cost was actual payment and therefore should be collected according to number of shops/flats held under Clause (g).
11. The Respondent also referred the Tribunal to The Incorporated Owners of Tai Fung House Lion Rock Road v. Choi Ying Wah & Others (LDBM79-92/2008 and 95-108/2008). In paragraphs 17 and 18 of the judgment, HHJ Wong adopted the same interpretation as that of the Respondent in the present case:-
12. In reply to Mr Wong’s submission on the Renovation Cost being actual payment,Ms Wong submitted that the decision in Hang Shun Building should not be relied on asthe DMC had never differentiated between ‘estimated expenses’ and ‘actual expenses’. The Hang Shun Building case is different from the present case. Ms Wong referred the Tribunal to Sam Woo Marine Works Ltd. v The Incorporated Owners of Po Hang Building [2010] 1 HKLRD 92, where the Court of Appeal pointed out that the Hang Shun Building case was to resolve the conflict between two provisions. Ms Wong submitted that for this reasonit is not an authority to the effect that whenever one sees the words ‘on account’ or ‘in advance’ in a provision, it should not be taken as a charging provision. In fact, in the Sam Woo case, the words ‘in advance’ also appears and the Court of Appeal still finds it as one of the relevant charging provisions.
13. In respect of the Tribunal’s decision on Tai Fung House , Ms Wong submitted that this particular point of construction had not been thoroughly canvassed at the trial as parties were unrepresented. On the other hand, in The Incorporated Owners of Yee On Court v Li Zee Zing Hai, CACV 181/2000, unreported, (14 November 2000), the Court of Appeal interpreted the phrase “in proportion to the number of units... for the time being owned by them” to mean someone who owns two flats in the building has to pay twice as much as someone who owns only one flat in the building. Paragraph 23(i) in the judgment is relevant.
14. Ms Wong further submitted that the fact that a budget is prepared for an expense does not make such expense ‘estimated’ and vice versa. Further, the words used in Clause (g) are “any of the expenses aforesaid”, “such expenses”, “such contributions” it is clear that Clause (g) is referring to the expenses and contributions already mentioned in the Third Schedule which could well be actual payments.
15. On this basis, Ms Wong submitted that “in proportion to the number of units” does not bear the meaning that cost and expenses have to be shared equally. One still has to look at the relevant charging provision which is Clause (c). Moreover since the renovation items fell within the duties of the Manager under Clause (j), owners are liable to pay further contributions under Clause (b) at the proportion set out in Clause (c). As there was insufficient fund to meet the Renovation Cost, Clause (g) is invoked and contribution shall be made according to Clause (c) yet in proportion to the number of units held by an owner.
16. Further the Respondent said that the size of the floor should not be considered as there was no evidence that the management shares was made on the basis of size of floors. In reply Ms Wong said that the Applicants are not arguing that the contribution amount and the floor size should be proportional. What the Applicants are arguing is that Clause (c) has clearly intended that contribution thereunder by non-domestic units on the ground floor, the cockloft on the 1st floor and the 2nd floor are the same whereas contribution by domestic unit owners should also be the same.
Discussion
17. As mentioned, there was no argument that the Renovation Cost did not fall within the ambit of Clause (b) and since contribution made under Clause (c) was insufficient to settle the Renovation Cost, Clause (g) is engaged. Having considered the submissions made, I agree with Ms Wong that since Clause (g) refers to payment under Clause (b), Clause (c) is the basis for apportionment of contribution. In the event Clause (g) is applied, any owner holding more than one unit, say two, would have to pay two shares according to their respective portions provided under Clause (c).
18. Such interpretation would avoid the absurdity which could otherwise be created namely that owners would be paying differently for contribution to payment of same nature and purposes depending on whether the contribution called for falls within the estimated expenses or being payment to cover insufficiencies, outside the budget in other words. It is for this reason I reject the argument put forward on behalf of the Respondent.
19. Further I agree with Ms Wong that I do not have to consider the size of the floor in determination of the main issue. But so far as the monthly contribution levied on each non-domestic floors are the same, I am satisfied that the intention of Clause (c) was for owners of non-domestic floors to bear equal shares of monthly contribution among themselves by floors.
20. To conclude, I agree with the construction proposed by the Applicants, i.e. they should pay their respective contributions according to the apportionment set out under Clause (c) and if there are owners holding more than one flat, they should pay according to the proportion of the number of shops/flats being held by them. This would avoid the argument that whether an owner had to pay extra for other shops/flats held by him after paying contribution for one.
Whether the Respondent was Entitled to Demand Payment in the Absence of a Resolution Passed under Section 21 of the BMO
21. The Applicants’ case is that payment had been asked for since April 2013 but a management committee resolution in support of demand for payment was passed on 21 March 2014 (“Resolution on Collection”) which was even after the Application had been taken out on 27 February 2014.
22. I understand that the Applicants are not taking issue on this except for costs. It was submitted that since there was a breach they had a reasonable cause to take out the Application asking for relief against such breach.
23. On this I agree that the Applicants should be entitled to costs and that would be dealt with globally together with the Counterclaim.
24. On the other hand, since the Counterclaim was taken out on 5 May 2014 which was after the date of the Resolution on Collection, I find that the Respondent is entitled to take out the Counterclaim. I order those Applicants who had not yet paid in full or at all to make their contribution according to my finding with part-payments to be accounted for.
Order
25. My order is as follows:-
1.
Owners of the Building shall pay their respective contributions to the Renovation Cost pursuant to proportion set out inClause (c) and those holding more than one unit shall pay their aforementioned contribution according to the number of shops/flats held;
2.
The 1st Applicant do pay $45,279 being share of contribution to the Renovation Cost for Shop A;
3.
The 1st Applicant do pay $45,279 being share of contribution to Renovation Cost for Cockloft A;
4.
The 2nd Applicant do pay $23,788 ($45,279 - $21,491) being share of contribution to the Renovation Cost for Shop B;
5.
The 2nd Applicant do pay $45,279 being share of contribution to Renovation Cost for Cockloft B;
6.
The 3rd Applicant do pay $45,279 being share of contribution to the Renovation Cost for Shop C;
7.
The 3rd Applicant do pay $45,279 being share of contribution to the Renovation Cost for Cockloft C;
8.
The 4th Applicant do pay $23,788 ($45,279 - $21,491) being share of contribution to the Renovation Cost for Shop D;
9.
The 4th Applicant do pay $45,279 being share of contribution to the Renovation Cost for Cockloft D;
10.
The 5th Applicant do pay $26,085 ($45,279 - $19,194) being share of contribution to the Renovation Cost for Cockloft E; and
11.
All Applicants do pay interest for their share of contribution as set out above at judgment rate from date of this judgment until full payment.
Costs
26. I have entered judgment for the Applicants and part of the Counterclaim for the Respondent. I order that the Respondent do pay two-thirds of the Applicants’ costs in respect of the Application with counsel certificate. Such costs are to be taxed according to District Court Scale. This is an order nisi to become absolute if no application is taken out to vary the same within 14 days.
Deputy Judge Tracy Chan
Presiding Officer
Lands Tribunal
Ms Becky Wong, instructed by Messrs. Chung & Kwan, for the 1st to 5th Applicants
Mr Andrew Wong, of Messrs. Pansy Leung Tang & Chua, for the Respondent