LEE LAM HOI v. 京寶大廈業主立案法團

LDBM 83/2022

[2025] HKLdT 1

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO 83 OF 2022

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BETWEEN

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D E C I S I O N

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APPLICATION

1.  This is the Respondent’s application dated 27 June 2024 for leave to appeal against the Judgment handed down by this Tribunal on 3 June 2024[1] (“Judgment”).

THE ISSUE

2.  The only material issue at trial concerned the interpretation of the Deed of Mutual Covenant dated 1 December 1976 (“DMC”) on the calculation of the Applicant’s contribution to the expenses of the maintenance works of King Po Mansion (“Building”) in the sum of HK$7,763,544 (“Expenses”). The question is whether the Expenses should be divided by 76 units in equal shares (as alleged by the Applicant) or by 110 units in equal shares (as alleged by the Respondent) for the purpose of forming the basis for calculation of the Applicant’s share of contribution.

3.  There has been no dispute that the apportionment of contribution obligations for the Expenses is governed by clause 4(f) of the DMC (“Clause 4(f)”), which reads: -

“(f) the following expenses: -

…..

shall be paid and contributed on demand of the Manager by the owners for the time being of the said Building in proportion to the units owned by them respectively.”

The crux of the argument between the parties focuses on what exactly “the units” of Clause 4(f) refer to, which provides the basis for apportionment of the contribution to the expenses falling within the ambit of Clause 4(f) (“Clause 4(f) Expenses”)

4.  The Applicant says that “the units” refer to the “units” set out in the First Schedule of the DMC (“First Schedule”) (“A’s Interpretation”). As the First Schedule has listed out 76 units for the whole Building with the whole first floor (“First Floor”) being regarded as 1 unit, the whole First Floor should be responsible for a 1/76 share of the Expenses, in the sum of HK$102,152 (HK$7,763,544/ 76). Since the First Floor has been partitioned into 7 premises after the registration of the DMC at the Land Registry, the Applicant, being the legal owner of Flat D on the First Floor (“A’s Premises”), holding 2 out of the 18 undivided shares allocated to the First Floor as registered in the Land Registry, should only be responsible for HK$11,350 (HK$102,152 x 2/18) (“A’s Calculation”).

5.  At trial and in the draft Notice of Appeal of the present application, the Respondent disagreed and propounded three interpretations of Clause 4(f), arguing that “the units” refer to 110 units, 108 units or 94 units. At the hearing of this leave application, the Respondent expressly abandoned its arguments relating to 108 units and 94 units[2], leaving its interpretation of the “units” to 110 units.

6.  The Respondent now confirms that this leave application is based on a sole ground of appeal that this tribunal erred in wrongly interpreting Clause 4(f) to the effect that the Expenses should be divided by 76 units in equal shares by reference to the First Schedule. It contends that the Expenses should be divided by 110 units in equal shares by reference to the number of units in the Building then existing as at the date of the general meeting on 20 August 2021 (“General Meeting”), in that the resolution for fixing the amount of the Expenses was passed (“R’s Interpretation”).

7.  The Respondent accordingly argues that the resolution passed by its management committee on 8 September 2022, which apportioned the Expenses to be shared among all the owners of the then existing 110 units (the Applicant being one of them) in equal shares to HK$70,578 (HK$7,763,544/ 110) is correct (“R’s Calculation”).

8.  The Respondent therefore asserts that the Judgment in allowing the Applicant’s claim and dismissing the Respondent’s counterclaim was wrongly decided. It complains that this Tribunal was wrong to have accepted A’s Interpretation and A’s Calculation ending up with an unjustified order compelling the Respondent to repay a purportedly overcharged contribution to the Applicant.

9.  In this application, the Respondent did not challenge the factual finding of the Judgment that “the units” existing upon the formation of the DMC was 76 units. Besides, it was a common ground at trial and in this application that the undivided shares of A’s Premises was 2/18 of the First Floor.

LEGAL PRINCIPLES

10.  Any appeal to the Court of Appeal against a judgment of the Lands Tribunal is confined to the ground that such judgment is erroneous in point of law. Leave to appeal shall only be granted if the appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal should be heard: sections 11(2) and 11AA(6) of the Lands Tribunal Ordinance (Cap 17).

11.  Reasonable prospects of success involve the notion that the prospects of succeeding must be reasonable and therefore more than fanciful, without having to be probable: SMSE v KL [2009] 4 HKLRD 125 at §17.

12.  With these principles in mind, I now turn to consider the Respondent’s arguments.

INTENDED GROUND OF APPEAL

13.  The Respondent’s intended ground of appeal is general without particulars. It is premised heavily on an argument in §§12-23 of the Respondent’s submission that the Judgment “creates an illogical, if not disastrous, effect on the owners under other terms of the DMC.”.

14.  In gist, the Respondent contends that the adoption of the A’s Interpretation in the Judgment has an effect of confining all the apportionments of Clause 4(f) Expenses to the number of units set out in the First Schedule. Given the whole First Floor is only regarded as 1 unit in the First Schedule[3], regardless of the fact that the First Floor has been partitioned into 7 premises subsequent to the registration of the DMC, the Respondent is therefore contractually bound by the DMC to demand all the owners of the 7 sub-divided premises of the First Floor (collectively, “First Floor Sub-owners”) to collectively pay 1/76 share of all the Clause 4(f) Expenses in a global sum. That is, the Respondent has no right to further apportion the 1/76 share of the Clause 4(f) Expenses among the individual owners of the 7 sub-divided premises of the First Floor nor split the payment obligations individually for them.

15.  Premised on such proposition, the Respondent argues that A’s Interpretation creates an illogical effect on the owners under Clause 4(k)(ii), and Clause 13(a)-(c) of the DMC (collectively, “Enforcement Clauses”). It is because in the event of default in payment by any of the First Floor Sub-owners, all the First Floor Sub-owners would be regarded as jointly default and liable to that payment, forcing upon the Respondent to take enforcement actions against all of the First Floor Sub-owners collectively under the Enforcement Clauses.

16.  As a result, the Respondent will be duty bound by the DMC to take enforcement action against all of the First Floor Sub-owners to disconnect water supply to their respective premises (under Clause 4(k)(ii)), to take actions for recovery of the amount due against all of them or for orders for sale of their respective premises (under Clause 13(a)), to impose charges on their respective shares in the Building (under Clause 13(b)), to seek orders for sale of their respective premises (under Clause 13(c)).

17.  On such basis, the Respondent argues that it cannot be within the expectation or contemplation of the First Floor Sub-owners that the Respondent can hold them liable for the outstanding payments of their neighbouring owners.

18.  Such argument has not been taken at trial and is, in any event, bound to fail. It is in ignorance of the common law position that if there was no mention of any method of apportionment of contribution, then such costs should be divided in accordance with the undivided shares: 南生大廈業主立案法團訴葉小燕及另一人 LDBM152/2001, unreported case, HH Judge Johnson Lam (as Lam PJ then was), 27 July 2001 §18.

19.  The common law position is mirrored in section 22(2) of the Building Management Ordinance, Cap. 344 (“Ordinance”). The relevant part of section 22(2) is set out as follows:-

“22. Recovery of contributions from owners

(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 contributions, 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.

(3) The amount payable by an owner under this section shall be a debt due from him to the corporation at the time when it is payable.”

20.  The “owner” and “share” in section 22(2) are defined in section 2 of the Ordinance, making reference to section 39 as follows :

section 2 provides : -

“owner (業主) means—

(a) a person who for the time being appears from the records at the Land Registry to be the owner of an undivided share in land on which there is a building; and

(b) a registered mortgagee in possession of such share;

…

share (份數) means the share of an owner in a building determined in accordance with section 39;”

section 39 provides : -

“39. Determination of owner’s shares

An owner’s share shall be determined—

(a) in the manner provided in an instrument including a deed of mutual covenant (if any) which is registered in the Land Registry; or

(b) if there is no such instrument, or the instrument contains no such provision, then in the proportion which his undivided share in the building bears to the total number of shares into which the building is divided.”

21.  Plainly, section 22(2), which mirrors the common law, gives a complete answer to the Respondent’s challenge. The section apparently aims at providing a solution, to fill in the blank of an incomplete deed of mutual covenant. It provides for what the deed of mutual covenant has not provided for in relation to the fixing of contributions to any owner. It provides for where a deed of mutual covenant does not provide, the amount to be contributed by such an owner towards the amount determined under section 21 (applicable to the Expenses) shall be fixed in accordance with the undivided shares of such an owner.

22.  Thus considered, the findings in favour of the A’s Interpretation and the A’s Calculation in the Judgment cannot be flawed. The findings are that: -

(a) firstly, the combined effect of the recital and Clause 4(f) of the DMC has introduced and incorporated the First Schedule to provide the basis for calculation of contribution to the Clause 4(f) Expenses (Judgment §§24, 32-33, 43).

(b) Secondly, the First Schedule has clearly set out the distribution of the 76 “units” in the Building (in printed words in “Section A” with a diagram in “Section B” setting out the distribution of the unit(s) for each floor from the ground floor to the twenty-third floor) (Judgment §§25-31).

(c) Thirdly, the First Floor is regarded as one unit out of the 76 units for the whole Building as illustrated in the printed words and the diagram of the First Schedule.

(d) Fourthly, the First Floor being regarded as one “unit” in the First Schedule should accordingly bear HK$102,152 (HK$7,763,544 x 1/76 units).

(e) Fifthly, given the DMC does not provide for the fixing of contributions for the legal owners who acquired only part of the shares of the “unit” subsequent to the formation of the DMC, section 22(2) of the Ordinance, which mirrors the common law, comes into play. The contribution by such owners shall be fixed in accordance with their respective undivided shares. Hence, A’s share of the contribution to the Expenses arisen from his ownership of the A’s Premises (holding 2/ 18 of the undivided shares of the First Floor) should be calculated according to section 22(2) of the Ordinance, ending up with a sum of HK$11,350 (HK$102,152 x 2/ 18).

(f) In fact, the Respondent has, at trial, confirmed that A’s Premises holds 2/18 undivided shares of the First Floor, and in the event that the First Floor is found to bear only HK$102,152 on the basis of 1 out of 76 units in the First Schedule, the A’s share of contribution shall be fixed to HK$11,350 (§54 of the Judgment). The Respondent is not entitled to retreat from such position.

23.  Thus analyzed, A’s Calculation is in strict compliance with the DMC and section 22(2) of the Ordinance, and accordingly, cannot be flawed. Once it has been determined the contribution to the Clause 4(f) Expenses due from each legal owner, enforcement action under the Enforcement Clauses can simply be taken against each of them individually. It is noteworthy that the word “the units” are not used in the Enforcement Clauses. For reasons aforesaid, the Respondent’s arguments in §§12-23 of the Respondent’s submission are unmeritorious.

24.  In §§24-33 of the Respondent’s submission, the Respondent seeks to argue that if the basis of apportionment under Clause 4(f) is meant to be the fixed number of units set out in the First Schedule, it would be the easiest thing to state:

“…shall be paid and contributed on demand of the Manager by the owners for the time being of the said Building in proportion to the units as set out in the First Schedule owned by them respectively.”

25.  I do not agree. The Respondent’s submissions at §§25-33 are misplaced. As Mr Lo, Counsel for the Applicant, submits, such submissions actually put the cart before the horse.

26.  The applicable principles of construction are well-settled. The construction of a document involves the ascertainment of the meaning that the document would convey to a reasonable person having the background knowledge available to the parties at the time of the document. The court reads the document as a whole, giving the words used their natural and ordinary meaning in the context of the document, the parties’ relationship and all the relevant circumstances known to them: see Jumbo King Ltd v Faithful Properties Ltd & others (1999) 2 HKCFAR 279, 296.

27.  In my view, the intention of the parties as evidenced in the wordings of Clause 4(f) is clear. The analysis has been detailed in §§24-47 of the Judgment, which should not be repeated here. In essence, this Tribunal has considered the intention and purpose of the parties entering into the DMC as declared in the recital, in that the First Schedule was referred to (§24), as well as the structure, contents and wordings of the First Schedule (§§25-29) and of other provisions of the DMC (§§30-33).

28.  In particular, the matters such as the use of the word “unit(s)” to distinguish from the words of “premises”, “shops”, “floors”, ”flats”, ”flat roofs” in the First Schedule and other provisions of the DMC (§§25-32), the reference of such word in the recital, Clause 4(f), the First Schedule and some other provisions in the DMC (§§31-33, 42-43, 44-45), the use of the printed words and the diagram in fixing the “unit(s)” in the First Schedule as well as the interpretation of Clause 4(f) (§§34-40) were analyzed.

29.  Properly construed, the “unit(s)” within Clause 4(f) clearly refers to the 76 units individually and collectively set out in the First Schedule, which are also the 76 units existing upon entering into the DMC (Judgment §§43, 46). Apparently, the First Schedule was compiled with an intention to fixing the number of “units” of the whole Building for the purpose of, inter alia, apportioning the contribution to the Clause 4(f) Expenses (Judgment §§28-32).

30.  Plainly, the fixing of the “units” for the whole Building has an effect of fixing the extent of payment obligations for all the legal owners of the Building. It provides certainty about payment obligations for all existing and new owners of the Building as well as simplifies payment collection arrangement for the Respondent in the long run. It is clearly consistent with the aim of the DMC to define the respective rights and responsibilities on the Building of the owners.

31.  Further, given Clause 4(f) Expenses involve substantial maintenance, rebuild and reinstatement expenses, there were strong reasons for the contractual parties to fix the share of contribution to such substantial expenses in a precise manner, rather than leaving it to fluctuate from time to time according to the subsequent divisions or mergers of the units in future, which the other owners have no control at all. Certainty of payment obligation for Clause 4(f) Expenses is no doubt important for all owners under the DMC.

32.  Hence, the intention of the parties are clear as demonstrated by the wordings, the structure and the contents of the DMC, which is consistent with the purpose and background of the DMC. The Tribunal has no reason not to give effect to the parties' clear intentions as evidenced by their agreement. There is strictly no room to read into the DMC some additional words as the Respondent now suggests.

33.  On the contrary, R’s Interpretation is filled with uncertainty and ambiguity. For this instance, it seeks to interpret Clause 4(f) to mean that the basis of apportionment is 110 units then existing on the date of the General Meeting. That said, it cannot actually refer to any phrases or clauses which govern the timing of ascertaining the number of “units” (other than the First Schedule) in the DMC. Nor can it explain how the calculation of contribution operate under Clause 4(f) absent such crucial element.

34.  The absence of such crucial element in the DMC renders the R’s Interpretation illogical and infeasible. Without fixing the timing for ascertaining the number of the “units”, the Respondent will not be able to do the calculation for the contribution to the Clause 4(f) Expenses. The principle of construction dictates that under normal circumstances, the contractual parties should not be lightly considered to have omitted or chosen to be silent on crucial element.

35.  Viewed in this light, the contractual parties of the DMC should not have omitted the crucial element as to the timing of fixing the number of the “units”. There was no reason for them to have intentionally left the owners and the Respondent in a wild guess or arbitrary exercise in arguing whether the number of the units should be determined upon the passing of resolutions resolving the carry out of renovation project, the quantum of the project sums, the revised quantum of the project sums, the carry out and quantum for additional project works, the actual amounts of the contribution of each owner or the issuance of the demand notes, etc.. It is common that such resolutions will not be resolved on the same day.

36.  Further, if the contributions to the Clause 4(f) Expenses fluctuate from time to time according to the variations of the numbers of the units (by sub-divisions or mergers of units), it will create everlasting uncertainties to all the owners of the Building as well as unnecessary workload to the Respondent. It is highly unlikely that the contractual parties, upon entering into the DMC, would have intended to embody such extraordinary implications and consequences in the DMC without expressly stating it clearly in the DMC (Judgment §§28-32, 40-42).

37.  Suffice it to say that the First Schedule is the only provision in the DMC which expressly gives a meaning to the “units” as well as illustrates the numbers and distribution of the ‘unit’, that can provide a basis for apportioning contribution to the Clause 4(f) Expenses (Judgment §43). The Respondent cannot logically particularize as to how this Tribunal’s analysis in this respect is wrong, still less of plainly wrong. Nor can it sensibly refer to any provisions (other than the First Schedule) which expressly defines, explains or delineates the meaning of “units”.

38.  Much has been said about the unfair effect caused by the First Schedule, which only regards each of the whole floor from the First Floor to the fourth floor as one unit whereas each residential premises is considered as one unit notwithstanding that there are several residential premises on each residential floor, resulting in the owners of the First Floor to the fourth floor bearing less contribution to the Clause 4(f) Expenses than the residential owners.

39.  Such contention is misconceived. The principle of construction is to give effect to the intention of the contractual parties when entering into the agreement. It does not empower the tribunal to re-write the agreement so as to moderate the harsh terms for a party. There is strictly no room for this Tribunal now to read into the DMC additional words or an implication that was not intended by the contractual parties when entering into the DMC.

40.  Aside from the terms of the DMC, it was, in reality, the clear intention of the contractual parties, the developer and the first buyer, to have the Clause 4(f) Expenses been borne disproportionately by the non-residential owners (from the ground floor to the fourth floor) and the residential owners (the residential floors above) upon entering into the DMC. It is not disputed that by that time, the units were exactly the units set out in the First Schedule. Viewed in this light, the imbalance payment obligations between the two groups of owners were factually intended by the contractual parties, which were well reflected in the peculiar drafting of the DMC. Hence, there is no justification for the intervention of the Tribunal to re-write the DMC for the Respondent [Judgment §44].

41.  For the analysis set out in the Judgment, which is briefly summarized above, the phrase ‘for the time being’ clearly refers to ‘the owners’ and not the ‘units’. The Respondent fails to give any valid reasons for the Tribunal to neglect the context of Clause 4(f) and the First Schedule and to insert additional words to modify the ‘units’. I should add that actually the R’s Interpretation will not bring about the fairness as the Respondent contends. Instead, it will give rise to an undesirable implication that an owner of a small sub-divided unit will have to bear the same amount of contribution to Clause 4(f) Expenses as the owner of the whole floor or even the owner of a large merged unit, bearing in mind that there has been no restriction on sub-divisions or merger of units under the DMC.

42.  For the purpose of this decision, it is indeed unnecessary to discuss each and every argument raised, because the aforesaid points, which the Respondent has shown no prospects of overcoming, amply justify the Judgment. I should be brief in dealing with the Respondent’s submission in §§33-42, in that the Respondent seeks to argue that this Tribunal’s reliance on the 毓華樓業主立案法團 訴 蔡六乘及其他人and The Incorporated Owners of Sunwise Building 訴 Ho Wai Yuk Chun[4] was misplaced (Judgment §§33-39).

43.  The Respondent complains this Tribunal was wrong in following the said two decisions to make a choice of selecting whether the phrase “for the time being” in Clause 4(f) describe the “owners” or “units”, neglecting the syntactic difference between clause 4(f) in those two cases, and Clause 4(f), and wrongly took the phrase as describing the “owners”.

44.  It contends that as the phrase “owned by them” immediately follows the word “units” in Clause 4(f), the word “owned” could only mean “[subject to] full right and privilege to the exclusive use occupation and enjoyment and the rents and profits” as defined under clause 1 of the DMC and the word “them” refers to “the owners for the time being”, resulting in the phrase “units owned by them” means the “units under the exclusive use occupation and enjoyment of the owners for the time being”. This effectively imports the adjective “for the time being” into describing also “units”.

45.  The Respondent’s contention is unjustified. Not only that it ignores the detailed analysis in the Judgement but also seeks to stretch the meaning of those words by artificially reading in additional words, which is inconsistent with the meaning of “units”, the wordings and context of Clause 4(f), the recital and the First Schedule as elaborated above.

46.  I also accept Mr Lo’s submission that the side-by-side comparison at §35 of the Respondent’s submission does not advance the Respondent’s position any further as it does not detract from the fact that the words ‘for the timing being’ was a modifier for ‘ownership’ as opposed to ‘unit’. HHJ M Wong in the case of 毓華樓, Supra, at §21 pointed out that the proper modifier for ‘unit’ should be ‘for the time being in existence’.

47.  Further, the Respondent’s interpretation in §§36-37 of the Respondent’s submission does not solve the dilemma identified by HHJ M Wong, but instead, illustrates the problem identified by the learned Judge – where units are merged and partition wall demolished, the number of units would merge into one. Hence, the logic dictates that the contractual parties intended to list the First Schedule as reference point for a fixed and pre-existing number of units for the purpose of calculation. This is precisely why the A’s interpretation should be adopted.

48.  The fall-back argument in §42 of the Respondent’s Submission is misconceived. This Tribunal has not treated the two cases of 毓華樓 and Sunwise Building supra. as binding authorities. The two cases were only referenced for analysis of the logics in ascertaining the construction of similar phrases under similar circumstances (Judgment : §40).

49.  Insofar as the ‘some other reason’ limb is concerned, the Respondent fails to justify its allegation that there are many other deed of mutual covenants sharing the many similarities of the DMC in this case. At any rate, the fact that interpretation of deed of mutual covenant is highly fact-sensitive in nature renders the Respondent’s contention that the present case will have a significant impact on many other deeds of mutual covenants unconvincing.

DISPOSITION

50.  Having considered all the submissions of both parties, this Tribunal is not convinced that the Respondent’s intended grounds of appeal have a reasonable prospect of success. Its arguments are wholly without merits. There is no other reason in the interests of justice why the appeal should be heard. I refuse to grant the Respondent leave to appeal and dismiss the present application accordingly.

51.  There is no reason why costs should not follow the event in this application. I order the Respondent to pay the Applicant’s costs of the present application, including all costs reserved, to be taxed on District Court scale, with certificate for counsel, to be taxed if not agreed.