THE INCORPORATED OWNERS OF MEI FOO SUN CHUEN - STAGE VII v. BROADWAY-NASSAU INVESTMENTS LTD

LDBM 163 of 2006

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

Building Management Application No. 163 of 2006

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JUDGMENT

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The Dispute

1.  The Respondent is the registered owner of a shop in the commercial part of the housing estate in question. The Applicant (“the IO”)  is the incorporated owners of the housing estate. Governing the rights and obligations inter se of the shop owners of the commercial there is a supplemental deed of mutual covenant (“ the S-DMC”).

2.  The Respondent while being an owner of the shop is also the manager appointed under the deed of mutual covenant of the housing estate and has been reappointed as manager by a management agreement some years back. It is common ground that the Respondent has the power specified in the deed of mutual covenant and the S-DMC.

3.  By these proceedings, the IO is seeking to recover from the Respondent a sum representing the amount of deficiency over a number of years in management fees in respect of the shop it owned. It appeared to me that there were other possible defences. On the other hand the Applicant did not resort to other available grounds for the claim.  I am concerned that whether these other defences and possible grounds of claim, though not pleaded or argued, should also be determined and considered at this trial in view of the Court of Appeal decision in the case of The Housing Authority V Chan Wai Lin and Anr. CACV925/2001. I drew to the attention of counsels this decision and warned them of the possibility that the case might have to be remitted back to this Tribunal for determination of these issues not argued or raised at this trial. I was assured by the parties that I only needed to determine the issue as framed at the trial. I was given to understand the determination of the issue as raised would dispose of the dispute between the parties for all practicable purposes. 

4.  It is common ground that at all material times the Respondent, as the manager, determined the apportionment of management expenses (“the monthly management fees”), among the shop owners. The IO contends that the formulae for apportion is provided in the S-DMC and should be strictly followed and applied by the Respondent. The Respondent raises only one defence, namely that under the S-DMC it has unfettered power to apportion management expenses among shop owners inter se. The Respondent conceded that in exercising this power it was required to act reasonably and fairly and it argued that it had done just that.

5.  The genuine dispute arose from the interpretation of the S-DMC. Clauses 13, 14 and 15 are the three clauses in dispute. I must commend counsels and the parties for their sensible approach, simplifying the issue and refraining from spending legal costs on issues which do not represent their genuine respective grievances.

Clause 13 of the S-DMC

6.  The Applicant relies on clause 13 of the S-DMC which provides:-
“ In pursuance of the above, each unit owner shall pay to Mei Foo in advance on the 1^st day of each calendar month for expenses incurred by him for proper maintenance of the Building and the sum for the time being payable in respect of each unit or shop space of which the owner is entitled (hereinafter called “the payable sum”). The payable sum for each shop unit shall for the year 1981 be the opposite such units as follows:--

Stage VII

Shop	%	Adjusted Management Fee	Net Area Sq.Ft.
---
---
N97	5.83	2,449
	100%	42,000

7.  According the table in this clause the management fee for subject shop, N97 and for other is fixed at $2,449 for the year 1981. The Respondent had no authority to change it. This is not in dispute. What is in dispute is the apportionment after 1981. The Respondent contends that apportionment should be according to the percentages as set out in the above table provided in Clause 13.

Clauses 14 and 15 of the S-DMC

8.  Clause 14 provides:-

“Mei Foo shall in each year from 1981 onwards (hereinafter called “the current year”) establish a budget for the next following year (“hereinafter called the following year”) taking into account his estimated surpluses or deficit for the current year and in his estimate of expenditure Mei Foo may make provisions for amortisation or for repairs redecoration or reconstruction to be carried out in the future after the close of the following year and Mei Foor shall on the basis of each budget determine and notify each unit owner not later than the 1^st day of December of the current year of the payable sum payable by such units owner during the following year.”

Clause 15 provides:-

“ In the event of there being at any time such a substantial increase in utility or other charge as to procure or threaten to produce a larger deficit for the current year Mei Foo shall have the right forthwith to give each unit owner not less than one month’s notice in writing that the payable sum for the current year is to be increased by a sum sufficient to offset such increase in utility or other charges and upon the expiry of such notice such increased payable sum shall become payable by each unit owner. Such increased payable sum shall be borne by all units owners in the ratio of the percentage set out against each unit in clause 13 above.”

Fair and Reasonable

9.  Mr. Lin, Counsel for the Respondent, argues that Clause 14 enable to depart from rations given in Clause 13 in determining management fees for each shop. Be that as it may, he concedes that the power to depart from the ratio of percentage should be exercised fairly and reasonably. I do not find such exercise of power is fair or reasonable.

10.  The management fees apportioned to the Respondent’s shop for the period in question was less than it would have been had the apportionment be made according to the ratio of the percentage set out. The Respondent sought to justify this “favourable treatment” for its own shop on two main grounds. Firstly, it is alleged its tenant, by nature of its operation and business, did not use the various building services as much as other shop operators. Secondly its tenant was a non-profit making kindergarten of good repute and the residents of the estate would benefit from its presence.

11.  The Respondent did not explain how the amount of concession was worked out, at least in so far as to reflect the contention that the tenant required less services than the other shops. In this regard, the justification is weak. In fact the Respondent relied much more heavily on the contention that the presence of this kindergarten benefit the estate. Be that as it may, the arrangement of giving encouragement to the tenant of its own cannot detract from the fact that it was primary a benefit to the Respondent itself.  The Respondent is the registered owner of the shop and is primarily liable to pay the proper management fees. In any event there is no clear criterion or house rules for granting such concession to the tenant in question or to other tenants or owners in similar situation.

No Power to Depart From the Ratio of Percentages

12.  Clause 14 only empowers the manager to determine the budget for each following year, taking into consideration of matter stated therein. It should not be interpreted in such a way as to extending its power to apportionment of the budgeted expenses among shop owners inter se. The absence of explicit way of apportionment in Clause 14 cannot be regarded as implied giving the manager unfetter power for apportionment.

13.  The intention of these three clauses is clear, namely that the expenses shall be apportioned according to the percentages in clause 13. Clause 14 lends no support to the interpretation urged upon me by Mr. Lin on behalf of the Respondent. His argument is that by Clause 15, the manager is required to apportion the increases in utility or other charges  but only in the case of increases. In other cases the manager does not need to follow the ratio in Clause 13 in apportioning charges.  This interpretation does not make sense.  Clause 15 set out the specific circumstances under which the manager can increase the management fee during the current year after the initial budget for the same year has been determined. Clause 15 enables the manager to increase the management fees when the increases in utility or other charges have not been foreseen or budgeted.

Orders

14.  I give judgment for the Applicant for the amount claimed and there be a order nisi for costs in favour of the Applicant on High Court Scale with Certificate for Counsel, to be taxed if not agreed.  The order nisi for costs to be made absolute in 6 weeks.