DARLINGFORD LIMITED AND OTHERS v. THE INCORPORATED OWNERS OF EVELYN TOWERS AND OTHERS

1986, MP 1511

IN THE HIGH COURT OF JUSTICE

MISCELLANEOUS PROCEEDINGS

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JUDGMENT

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1. Evelyn Towers is a development located at No. 38 Cloudview Road, North Point, Hong Kong consisting of ten blocks of flats, A, B, C, D, E, F, G, H, J and K in three buildings. The development is managed by the 1st defendant pursuant to statutory powers conferred under the Multi-storey Buildings (Owners Incorporation) Ordinance, Cap. 344 ("the Ordinance"). The 1st defendant was incorporated on the 13th May 1978 whilst the 2nd defendants are members of the Management Committee of the 1st defendant. The plaintiffs sue on their own behalf and on behalf of most of the owners of blocks J and K.

2. The relief which the plaintiffs seek by way of Originating Summons arises out of two resolutions passed at a meeting of the 1st defendant on the 30th January 1986, which resolutions purport to have been made in pursuance of section 14(1) of the Ordinance. There were other resolutions passed at the same meeting, but the two, which are the subject matter of these proceedings relate to the contribution to the Management expenses and also the deposit in respect of these contributions. In particular, the plaintiffs take exception . to the fact that it was resolved that the owners of blocks J and K should each pay a contribution towards the management expenses of $945 per month per flat instead of the $420 which is paid by each of the owners of the other blocks. They are aggrieved also by a resolution requiring them each to pay $1,850 deposit when the Deed of Mutual Covenant only requires that $240 should be paid as deposit.

3. The plaintiffs claim that the defendants are acting in contravention of the Deed of Mutual Covenant of Evelyn Towers and they therefore ask for the following declarations -

4. The defendants maintain that there is nothing wrong or unfair with these resolutions since the sums specified are required to cover the actual expenses involved in managing blocks J arid K which are more expensive to manage than the other blocks.

5. It is helpful to look at the history of this development.

6. Blocks A, B, C and D are in one building whilst blocks E, F, G and H are in another building and blocks J and K are in yet a third building. Blocks J and K are built on the higher side of a slope. Blocks A, B, C, D, E, F, G and H share one entrance whilst Blocks J and K share another separate entrance. However, these two entrances are connected to each other by a podium. Therefore, residents of blocks A to H can use the entrance to blocks J and K for the purposes of entering into their blocks.

7. Evelyn Towers was developed by Hopewell Development Co. Ltd. in 1975 ("Hopewell") and the registered owners were Lin Yick Co. Ltd. and Lock Fu Co. who were nominee companies of the developers.

8. On completion of the construction of Evelyn Towers, these two companies sold off the flats in blocks A, B, C, D, E and F to individual purchasers. They leased blocks G, H, J and K to Her Majesty's Secretary of State for Defence for use of the British Army stationed in Hong Kong ("The British Army"). The flats located in blocks Q and H were so let for a period of seven years from the 7th July 1975 whilst those in blocks J and K Were let for a period of seven years from the 17th March 1975. Management of these four blocks was undertaken by the British Army.

9. The leases in respect of blocks J and K came to end in 1985 whilst those in respect of G and H had ended earlier.

10. Around October 1983, the developers sold blocks J and K to Hopewell who in turn in or about 1985, began selling the flats in these two blocks to individual purchasers. The plaintiffs were such individual purchasers.

11. Evelyn Towers was at first wholly managed by an associated company of Hopewell. However, subsequent to the incorporation of the 1st defendant, it was dismissed as manager on or about the 31st December 1980 and the 1st defendant took over.

12. The Deed of Mutual Covenant of Evelyn Towers dated the 20th November 1975 was initially registered on the 16th December 1975 at the Land Office by Memorial No. 1217515. It was subsequently re-registered on the 20th March 1978 by Memorial No. 1498025 and finally it was registered a third time on the 15th November 1985 by Memorial No. 2919136. The wordings of these three Deeds of Mutual Covenants are identical except that a paragraph in column 2 of the first schedule purporting to set out the parts of the buildings to which the individuals owners have exclusive use occupation and enjoyment has been amended in a minor way.

13. In the first Deed of Mutual Covenant, the paragraph indicated that the exclusive use occupation and enjoyment at "Flats G, H, J and K on the 2nd to the 30th floors (inclusive) and roofs thereof" were granted to the grantees as set out in the first column.

14. This was amended on the 2nd and 3rd Deeds of Mutual Covenants to read "Flats G and H on the 2nd to 30th floors (inclusive) and Roofs and Flats J and K on the 2nd to 25th floors (inclusive) and roofs", but there were no change in the names of the grantees in the first column.

15. The amendment appears to have been necessary because blocks J and K did not in fact extend beyond 25 floors and a roof.

16. No point has been taken as to the validity of the amandments, and it is not suggested that the parties to these proceedings are not bound by the Deed of Mutual Covenant.

17. This Deed makes provision for the contributions to the Management expenses and also for a deposit towards these contributions.

18. Contributions of Owners to Management Expenses

19. The first mention of contributions comes in sub-clause 3(g) of the Deed of Mutual Covenant. It provides -

"All the above rights and privileges are subject to and conditional upon the owner for the time being paying his due share of the management, operation, servicing, maintenance and repairing expenses as hereinafter provided. "

20. Sub-clause 4(f) of the Deed of Mutual Covenant Provides-

"The owner shall pay his share as provided in sub-clause (h) hereof of the costs charges and expenses which may be or become payable for or in connection with the management of the said building in accordance with the provisions of this Deed including but not limited to;"

and there is then set out a number of items in respect of which management charges may be made.

21. Sub-clause 4(h) of the Deed of Mutual Covenant provides -

"Each owner shall pay to the manager on account of his share of the said costs, charges and expenses, the sum of $120 per calendar month for each his flat, payable monthly in advance. If the total contributions payable to the manager by the owners, of the said building as. aforesaid shall be insufficient to coverall or any of the said costs, charges and expenses, then such owner shall make further contributions towards such expenses in the shares as above provided. (Provided that so long as flats G, H, J and K of the said building shall be let to the said Her Britannic Majesty's Secretary of States for Defence by the first owners the said costs, charges and expenses relating to the said flats G, H, J and K shall not be chargeable other than a due proportion of electricity and water charges). " ,

The first owners referred to in that paragraph were of course, the developers.

22. Mr Neoh contends that each owner therefore has to pay $120 per month for each flat, but that if the total of the contributions is not enough to cover the expenses, then each owner has to pay further contributions towards such expenses "in the shares as above provided". He argues that this refers to the undivided shares which the individual owners of the premises have in the premises. He then goes on a lengthy analysis of the Deed of Mutual Covenant and its schedule to ascertain what are the undivided shares allocated to each part of the premises. He comes to the conclusion that though the Deed of Mutual Covenant does not specifically refer to the number of shares allocated to each flat they were allocated as shown in a schedule drawn up by the solicitor for the developer which schedule is exhibited as Exh. LK-11.

(The underlining is mine)

23. Mr Neoh also refers me to section 21 of the Ordinance which provides:

He also refers to section 22 which provides -

24. Thus says Mr Neoh, there are two routes to determine the contributions of the owners, the first is under the provisions of the Deed of Mutual Covenant whilst the second is under section 22(2) of the Ordinance.

25. In this case, he submits that since the Deed of Mutual Covenant does provide for the fixing of the contributions, the management committee (the 2nd defendant) is bound by the Deed of Mutual Covenant and must fix the contributions in accordance with the respective shares of the owners.

26. In giving a meaning to the words "shares of the owners", Mr Neoh goes. to section 39 of the Ordinance which provides -

 

"An owner's share shall be determined-

Mr Neoh therefore submits that the proper way to ascertain the shares of the owners is to look at the assignments of each individual flat registered at the Land Office. If the court is not satisfied with the schedule provided by the solicitors for the developers, the court could order an enquiry which is asked for as an alternative form of relief (paragraph (b) of the prayer).

27. Mr Chang who appears for the defendants stresses the history of the management of this development. The regime has existed for years and he says that the plaintiffs are now seeking an interpretation which completely destroys the regime. The basic approach has always been to go to the units, that is the physical parts of the building held by the individual owners rather than a micro-analysis of the shares.

28. Blocks J and K are physically separated from other blocks and virtually form a self-contained unit. Whilst let to the British Army, they were not part of the club, he says. Management fees were thus worked out by reference to the other blocks.

29. Then came the change when blocks J and K came under the management of the 1st defendant. It was found that the management costs of these blocks were more than those in respect of the other blocks. So there was a hiving off of these two blocks for the purpose of calculating management contributions.

30. The actual management expenses for these two blocks came to HK$45,360 per month and since therefore 48 flats in these two blocks, Mr Chang argues that each owner of blocks J and K should pay HK$945.

31. He argues that this is fair bearing in mind that the Deed of Mutual Covenant is unsatisfactory. Mr Chang submits that the resolution which determines the contribution to be paid by the owners of blocks J and K is not contrary to the Deed of Mutual Covenant which sets out the flat as the basic unit.

32. Alternatively, he argues that if the management fees have to be calculated on the basis of shares, then one will have to go to the shares as set out in the Deed and not by reference to extrinsic documents. He talks about horrendous problems if the calculation has to be made by reference to the undivided shares.

33. I respectfully agree with Mr Chang that the Deed of Mutual Covenant refers to a flat as the basic unit for contributions. The words of the first sentence of subclause 4(h) make this quite clear.

34. When the second sentence of this subclause stipulates that "such owner shall make further contributions .... etc in the shares as above provided" it must be referring to the provision in the first sentence.

35. The only references to shares in the Deed of Mutual Covenant which appears "above" that sentence in that subclause are references to the share of the costs, charges and expenses and not to undivided shares.

36. There is therefore no need in this case for anybody to conduct an extensive examination or calculation as to the number of undivided shares allocated to each owner.

37. The next question is whether the resolution passed in respect of these contributions on the 30th January 1986 was invalid as the plaintiff's claim.

38. Mr Neoh's submission that it is invalid because it contravenes Clause 4(h) on the basis that this Clause refers to undivided shares cannot now stand in view of what I have said.

39. Mr Chang submits that it is a valid resolution because (i) the Deed gives the physical unit as the basic unit of management and there is nothing in the document which will prevent blocks being hived off for the purpose of more effective management and for the purpose of calculating the share of contributions and (ii) clause 15(j) of the Deed of Mutual Covenant gives. power to the owners in general meeting to pass a resolution on any matter concerning the said premises and the said building subject to the three provisos therein.

 

These provisos are of course

"(i)    The notice convening the meeting shall specify the intention to propose a resolution concerning such matter.

(ii)    Any resolution purported to be passed at any such meeting concerning any other matters shall not be valid.

(iii)    No resolution shall be valid if it is contrary to the provisions of this Deed. "

 

40. I respectfully disagree with Mr Chang on this matter. It is my view that the resolution is not valid because it contravenes subclause 4(h) of the Deed of Mutual Covenant which provides in effect that the share of these expenses to be borne by the owners shall be equal, and that if further sums are required, the contribution shall be made in such equal shares. Quite apart from the flat that it would appear to be illogical to have two different yardsticks to measure the initial contributions under the first sentence of the subclause and the supplementary contributions under the second sentence of that subclause, it appears to me that the construction I have put upon these words in the subclause is the only construction which can reasonably be put upon these words in the context of the Deed as a whole.

Management Fee Deposit

Subclause 4(g) of the Deed of Mutual Covenant provides -

 

"Each owner shall deposit with the manager on account of his flat or flats, the sum of $240 for each his fiat as security against his liabilities under this Deed (provided that so long as flats, G, H, J and K of the said building are let by the 1st owners to Her Britannic Majesty's Secretary of State for Defence, the 1st owner shall not be required to deposit any money with the manager for that purpose). "

I respectfully agree with Mr Neoh that this subclause is quite clear and that a resolution requiring the owners to deposit more than this sum is in breach of the Deed of Mutual Covenant. I respectfully disagree with Mr Chang that the intention was to provide for a deposit of two months' contribution. If it had been the intention of the parties to the Deed of Mutual Covenant that the deposit could be increased, then in my view, that could easily have been said.

41. I will not therefore make a declaration in terms of paragraphs (a), (b) and (c), but I do make orders in terms of paragraph (d), (e) and (f).

42. The defendants will therefore bear the' plaintiffs' costs in these proceedings.