Incorporated Owners of Kingsford Industrial Centre v. Austria Property Management

1997,No. BM28

IN THE LANDS TRIBUNAL OF HONG KONG

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J U D G M E N T

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The Applicant herein is the incorporated owners of Kingsford Industrial Centre ("the Building") situated at 13 Wang Hoi Road, Kwun Tong, Kowloon. The Respondent was, until 31^st August, 1996, the manager of the Building. By an Application dated 22^nd January, 1997, the Applicant seeks, in effect, a declaration that the Respondent has unlawfully registered charges against the properties of owners of 103 units in the Building, an order that the Respondent do remove those charges and that the Respondent shall bear the economic losses of the said owners as a result of the charges unlawfully registered.

2. As manager of the Building, the Respondent was responsible for collecting building management fees from individual owners to defray expenses and pay the Respondent. It is not disputed that the owners of the said 103 units at the time the charges were registered had not fully paid up building management fees which the Respondent was authorized to collect. It is common ground that the charges were registered at the Land Registry whilst the Respondent was still the manager of the Building. Some of the owners have since paid to either the Applicant or the Respondent. Nonetheless, a number of owners have not yet cleared all the arrears.

3. Counsel for the Respondent contends that since the Respondent was entitled to register charges under Clause 10(j) of the relevant Deed Of Mutual Covenant ("the DMC"), the charges should remain on the Lands Register until all arrears have been paid to the Respondent. The Respondent refuses to vacate the charges even if individual owners pay up arrears to the Applicant. When it was pointed out that section 19(1) of the Building Management Ordinance, Cap. 344 ("the Ordinance") provides for registration of charges by an owners incorporated "to the exclusion of [other person empowered under the relevant deed of mutual covenant]", counsel says that there cannot be exclusion once the other person, i.e. the manager or the Respondent in this case, empowered under the relevant deed of mutual covenant has already registered a charge. Indeed numerous charges have been registered under similar deeds of mutual covenant and there has been no suggestion that those charges are unlawful. Counsel relies on dicta in a number of academic and judicial authorities suggesting that the Ordinance and its predecessor do not abrogate the rights and powers of the Respondent under the DMC. Counsel adds that exclusion would produce absurd results in cases where the owners' incorporated is less than diligent in the recovery of sums due from individual owners putting the manager at risk of having to meet expenses out of its own funds.

4. Since I do not think the academic and judicial authorities cited by counsel for the Respondent are directly relevant in this case, there is no point in referring to them here. However, I derive assistance from two subsections in the Ordinance which read:-

"19.(1) If a deed if mutual covenant provides that if an owner fails to pay any sum which is payable under the deed of mutual covenant, a person may sell that owner's interest in the land or register a charge against such interest in the Land Registry, then, notwithstanding the provisions of the deed of mutual covenant, the corporation may, to the exclusion of such person, exercise such power of sale or register such charge in the same manner and subject to the same conditions as it were the person referred to in the deed of mutual covenant.

"22(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."

5. A moment's reflection would reveal the rationale of section 22(3). Beingg the statutory creditor, the owners' incorporated can recover building managment fees at all times, despite changes in the manager. In the vast majority of cases where a professional manager is in place, the manager is entitled as a matter of contract with the owners' incorporated to remuneration which is usually met by the building managment fees to be collected. A manager like the Respondent usually has the responsibility to collect building management fees from individual owners because of its contractual duties as agent for the Applicant to manage the Building. Even if empowered by the relevant deed of mutual covenant to collect building management fees, in principle, the manager is not a creditor vis-a-vis the individual owners. It therefore stands to reason that section 19(1) of the Ordinance empowers the owners' incorporated such as the Applicant to register charges to the exclusion of the manager. I cannot agree with counsel when he says that section 19(1) of the Ordinance does not abrogate the right of the Respondent to register charges against the property of defaulting owners. The rider notwithstanding the provisions of the deed of mutual covenant in that subsection has clearly rendered the right or power of the Respondent to register charges to one that is secondary and conditional.

6. It is, of course, possible that the management committee of an owners' incorporated does not recover building management fees due from individual owners with enthusiaism. This is an unavoidable risk. But there are safeguards. Owners in the Building as individuals or collectively may take action against the committee either through application to the Tribunal or by voting for another committee. The manager may sue the owners' incorporated by conventional civil action for debt and thereafter may enforce judgment against individual owners by leave of the court for remuneration due.

7. Section 19(1) of the Ordinance is equivocal in the sense that it may mean that a manager can register charges in its own name which may remain on the Lands Register until the owners' incorporated takes steps to register charges against individual owners for the same arrears. Alternatively, it may also mean that the power or right of a manager to register charges in its own name under the relevant deed of mutual covenant is ousted altogether; even if the owners' incorporated does not register charges the manager cannot do so. In deciding which construction should be preferred, I take into consideration two factors.

8. First, section 19(1) of the Ordinance expressly provides that the owners' incorporated, to the exclusion of [the person empowered by the deed of mutual covenant], may register charges. So even when a serving manager has charges registered in its own name, the owners' incorporated can always act to have the charges replaced. It is meaningless to uphold the power a manager to register charges when the owners' incorporated has power to replace those charges.

9. Secondly, upon ceasing to be the manager, the Respondent no longer has agency authority to collect arrears of building management fees. The Ordinance certainly does not provide for continuing statutory authority to an ex-manager to recover arrears of building management fees. However the DMC is phrased, the owners' incorporated is the sole statutory creditor for building management fees and the only proper party to sue for arrears. So, even if the registered charges are not replaced, the Respondent as ex-manager has no right to sue for arrears. It is impractical any way. The ex-manager is required by the Ordinance to hand over accounts and funds of the building or estate upon termination of service. Also, imagine ex-manager, incumbent manager and the owners' incorporated all suing for the same arrears!

10. In my view, all indicators favour registration of charges in the name of the owners' incorporated by the owners' incorporated or by the manager as agent for the owners' incorporated. The arrangement would avoid the need and the expense of having to replace charges upon change of manager or in the event of dispute arising between the owners' incorporated and the manager and still enable an incumbent manager, as agent for the owners' incorporated, to register and enforce charges under normal circumstances.

11. Even adopting the construction that permits a manager to register charges in its own name, the Respondent is doomed to fail to maintain charges registered by it in its own name because the owners' incorporated may take action to displace those charges. In the present case, although the Applicant has not exactly taken steps to register charges, its application to the Tribunal herein is tentamount to taking such steps.

12. In the premises, the Respondent is ordered to procure the effective removal of charges registered by it against the property of any of the said 103 individual owners still on the Lands Register within 7 days after payment by the respective affected owners to the Respondent the scale costs therefor. Since the Applicant is not legally represented, I make no order as to costs on this application.

Dated 19 SEP 1997