THE INCORPORATED OWNERS OF KA WING BUILDING v. CHOW CHUI CHUI AND OTHERS

LDBM 299/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 299 OF 2012

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D E C I S I O N

[Leave to Appeal & Stay of Execution]

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1. After hearing evidence and submissions on the two actions, judgment was handed down on 4 September 2014.  In short I found that there was insufficient quorum at the 4 August Meeting and as a result the Former MC Members should resume office.

2. Now two of the Substituting MC Members intend to appeal against my decision.  The law applicable to leave application is governed by section 11AA of the Lands Tribunal Ordinance.

The Intended Grounds of Appeal

3. In a nut-shell, the Substituting MC Members’ case is that I have erroneously failed to give sufficient regard to the following:

1.	The first purchaser and the subsequent purchasers would have the same unfettered right to sub-divide the undivided shares assigned to them;
2.	The subdivided units in the Non-Domestic Portion fall squarely within the definition of “flats” under section 2 of the Building Management Ordinance; and
3.	Each subdivided unit owner should therefore be entitled to cast one vote under schedule 11.

4. Such contention although appears to be logical, fails to, in my view, circumvent the difficulty that owners in the Main DMC not being bound by the Sub-DMCs.  It is true that the subdivided units were created by individual assignments specifying the undivided shares to be in the exclusive possession of owner and such assignments were duly registered in the Land Registry.  The rights and obligations among the sub-divided unit owners are no doubt governed by the Sub-DMCs.  This evidenced that subsequent purchasers had an unfettered right to subdivide their undivided shares.  It did not however go so far as to bind the owners in the Main DMC to accept the change of number of flats or units since the execution of the Main DMC.

5. Further, one must not ignore or overlook the actual wording in the definition of “flat”.

“flat” means:

any premises in a building which are referred to in a deed of mutual covenant whether described therein as a flat or by any other name and whether used as a dwelling, shop, factory, office or for any other purpose, of which the owner, as between himself and owners or occupiers of other parts of the same building, is entitled to the exclusive possession.

6. At the time of the Main DMC, there were no subdivided units.  Paragraph (4)  in the Preamble says the following:

“For the purpose of this Deed, unless the context shall otherwise require
(a)	the word “unit” where hereinafter used shall include any flat, shop or other area of non-domestic accommodation in the said building and where applicable, the flat roof held and enjoyed therewith, intended for separate use and occupation.
(b)	the ground to third floors inclusive shall hereinafter be collectively referred to as “the non-domestic units.”

7. By Paragraph (3) in the Preamble, the Building had been divided into 155 equal parts with 48 parts or shares allocated to the shop on the Ground floor; 12 parts or shares allocated to each of the non-domestic accommodations on the 1^st to 3^rd Floors inclusive.

8. Clause 4(d) is a further indication that one floor is taken as one unit/flat in the non-domestic accommodation.  It says:

“If at any time, the non-domestic units are in different ownership, the owner of each shall be responsible for the obligation hereunder in respect of his own unit and all joint obligations shall be shared in the proportion of 48 shares for the owner of ground floor and 12 shares for the owner of each of first to third floors (inclusive).”

9. The definition of “share” in section 2 of the Ordinance is:

“the share of an owner in a building determined in accordance with section 39.”

10. Section 39 provides that:

“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)	--”

11. In the present case, the share of the owners in the subdivided units had not been provided in the Main DMC.  The ground floor was allotted 48 undivided share and 12 were allotted for each of 1^st to 3^rd floors.  Each lot of undivided share, meaning 48 or 12 shares in their respective cases, denote one floor.  If there were more than one owner in each of them, they are co-owners to be counted as 1 under Schedule 11.  Likewise, subdivisions within that undivided share of 48, for instance, would be in the situation of co-ownership co-owning the 48 shares in the circumstances of ground floor.  This applies to the upper floors.  The owner of a residential flat holds 1 undivided share.  If for some reasons the 1 undivided share was subdivided and sold separately to another owner by a separate assignment, that 1 flat could not, in my view, become 2 and allow 2 owners to be counted as 2 under Schedule 11.  It was because under the Main DMC, 1 share was allotted to 1 unit/flat.

12. For the above reasons, I am not satisfied that the intended appeal has a reasonable prospect of success; or there is any reason in the interests of justice why the intended appeal should be heard, I dismiss the application of the Respondents.

13. As to the application for stay of execution, I have granted interim stay pending determination on the application for leave to appeal, the parties had come to certain terms as to what duties the Former MC Member could carry out to keep the management and maintenance of the Building in good order.  I understand from legal representatives of the parties that this Tribunal does not have to give consideration to those terms of agreement reached before.

14. I have heard Mr Poon saying that if there is no stay of execution, the appeal will be rendered nugatory because the renovation project will go ahead.  I am of the view that since the tender procedures had yet to be started, the owners of the Non-Domestic Portion could still take part in safeguarding a fair tender procedure.  I see no reason to grant any stay of execution in the circumstances.

Conclusion

15. The application for leave to appeal is dismissed.  The application for stay of execution is also refused.

Costs

16. The 1^st and 3^rd respondents in the action LDBM 299/2012, i.e., Kafull International Limited and Firm Home Properties Limited, should jointly and severally pay the Former MC Members’ costs of these interlocutory applications with counsel certificate, to be taxed at District Court Scale if not agreed.  This is an order nisi to become absolute if no application is made to vary the same within 14 days from the date of this decision.

LDBM 299/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 299 OF 2012

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LDBM 108/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 108 OF 2013

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D E C I S I O N
[Variation of Costs Order Nisi]

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1.  The Substituting MC Members asked for variation of the costs order nisi made on 4 September 2014 on the 2 actions herein.  The issue taken is whether counsel certificate should be granted.

2.  The Substituting MC Members asked that there be no certificate for counsel as it was not justified by the complexity or otherwise simplicity of the issues.  I could not agree.  The main issue raised at the trial had not been determined by any other courts before.  There were indeed not much factual disputes.  Arguments were mainly on the interpretation of the DMC and Sub-DMCs and the interpretation and application of the BMO. These are legal arguments. I am of the view that it was not unreasonable to brief counsel to assist the court in dealing with these legal arguments.

3.  Further, the fact that the solicitors acting for the Substituting MC Members had put in 21 pages for an opening and 38 pages for their closing submissions is good indication that the issues involved are not simple and straight forward.

4.  The Substituting Members’ application for variation of the costs order nisi is therefore refused.

5.  Costs of this application be to the Former MC Members, to be taxed at District Court Scale with no counsel certificate.  This is order nisi to become absolute if no application is made to vary the same within 14 days from date of this decision.

6.  Whether costs shall be awarded to the 7^th Applicant under LDBM 299/2012 shall be dealt with upon determination of the application made by it which is to be heard on 29 October 2014.

LDBM 299/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 299 OF 2012

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BETWEEN

LDBM 108/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 108 OF 2013

__________________________

BETWEEN

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RULING ON COSTS

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1.  Disputes arose between the former and substituting management committee members (to be referred to as “the Former MC Members” and “the Substituting MC Members” respectively) of the Incorporated Owners of Ka Wing Building (“the IO”).  Two applications have been taken out in the Tribunal, they are namely LDBM 108/2013 (“the 108 Application”) and LDBM 299/2012 (“the 299 Application”).

2.  Originally both applications were commenced in the name of the IO, but the “IO” in the two proceedings are represented by differently constituted management committees, both claimed that they have the right to remain in the office.

3.  Three summonses had been taken out by the parties under these two proceedings.  The summons in LDBM 108/2013 (“the 108 Summons”) was heard by me whilst agreement had been reached concerning the two summonses in LDBM 299/2012 leaving only costs to be argued.  The 108 Summons was eventually dismissed with costs to be adjourned for argument upon conclusion of the two Applications.

4.  The Substituting MC submits that they should be entitled to costs on all 3 summonses to be taxed on indemnity basis.  Mr Wu, on behalf of the Former MC suggests that there should be no order as to costs.

Summonses under LDBM 299/2012

5.  One of the summonses under LDBM 299/2012 was taken out by the Substituting MC Members on 12 August 2013 asking to strike out the 299 Application (“the Summons to Strike Out”); the other was about joinder of parties (“the Joinder Summons”) taken out by the Former MC Members on 27 September 2013 asking individual members of the Former MC be joined as applicants.

6.  By the Summons to Strike Out the Substituting MC Members asked that the 299 Application be struck out as the proceedings should not have been taken out in the name of the IO.  By the Joinder Summons, leave was sought for the Former MC Members to be joined as the 1^st to 6^th Applicants as individual applicants and the IO to remain as a nominal applicant numbered 7. 

7.  At the hearing of the Summonses the Substituting MC Members did not oppose to the Joinder Summons but said that costs should be assessed on indemnity basis.  It also asked for leave to withdraw the Summons to Strike Out subject to costs to be argued as the Joinder Summons was an answer to their contention.  Leave was granted for the Substituting MC Members to withdraw the Summons to Strike Out; and 6 members of the Former MC were ordered to be joined as applicants in the 299 Application.  The 2 Summonses under the 299 Application were therefore disposed of except for the issue on costs.

8.  In support of his contention that not only costs should be awarded, they should be taxed on indemnity basis, Mr Poon submitted that:

(i)	It is trite that where a dispute is essentially among members of the IO, the members should sue and be sued in their own names, and be personally liable for the costs of the proceedings. Having been put on notice of this principle, the applicants in the 299 Applicationrefused to rectify the situation until the Summons to Strike out was issued.
(ii)	The Former MC should be ordered to pay indemnity costs because of their abusive conduct. The following conduct of the Former MC was an abuse of process:
	(a)	Applicaiton was brought by the Former MC Members using the name of the IO.  This was unreasonable and improper;it was vexatious and oppressive conduct to hide behind the IO and sue in the name of IO.  It is neither fair nor reasonable to expect the members of the Substituting MC Members to be required to pay the costs of arguing for the correct position out of their own pockets.
	(b)	The domestic owners are always in the minorityholding in total 70 shares out of 155as compared to the non-domestic owners.It is improper and irresponsible conduct for the Former MC to leave in the middle of the meeting when knowing that they could not win by proper voting.
	(c)	Yet, the Former MC Members deemed it fit to challenge the validity of the resolutions, not in their own names, but in the name of the IO.
	(d)	Chow lied about whether she had declared the Meeting ended when she was giving the witness statement.
	(e)	Withholding properties and documents of the IO causing difficulties for the Substituting MC to function and yet abstained from dealing with the affairs of the IO thus jeopardizing the interest of the IO and the owners.
	(f)	It is extremely unreasonable for C&K to suggest that costs be in the cause which necessitated the rejection by B&M of this suggestion and issued a summons to compel the substitution/addition of parties and the strike out application.

Discussion

9.  In Town Planning Board v. Society for Protection of the Harbour Ltd. (2004) 7 HKCFAR 114 the Court of Final Appeal upheld the decision of Chu J, as she then was, in awarding costs on an indemnity basis.  The principle that “the successful party should show, in order to obtain an order for costs on indemnity basis, that the case has some ‘special or unusual feature’” was confirmed.  The following passages are relevant:

“The nature of the discretion to award costs
12.	Order 62 r.28(3) is to be seen in the context of s.52A of the High Court Ordinance, Cap. 4, which provides that:
	“the Court shall have full power to determine by whom and to what extent the costs are to be paid.”
	The court therefore has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered.
Difference between party and party basis and indemnity basis
13.	In the exercise of the court’s discretion, the usual order for costs made in favour of a successful party in litigation is that the party be awarded costs on a party and party basis.  On a taxation of costs on such a basis, O.62 r.28(2) provides that there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed and the burden is on the receiving party to justify his costs.  In contrast, on a taxation on an indemnity basis, O.62 r.28(4A) provides that all costs are to be allowed except insofar as they are of unreasonable amount or have been unreasonably incurred and any doubts are to be resolved in favour of the receiving party.
14.	Having regard to the different statutory tests, an award of indemnity costs, which is a more generous basis, will usually enable the successful party to recover more of his costs than under a party and party award.  In that sense, an award of indemnity costs may be perceived as achieving a fairer result for the successful party in circumstances such as the present and Chu J was not in error in recognising this point.  Nor was she in error in referring to Petrotrade and McPhilemy, since this point was also recognised in those decisions although they were concerned with r.36.21 of the English Civil Procedure Rules.  See McPhilemy at 943F (per Chadwick LJ).
15.	Chu J rightly recognised that the existence of such difference between an indemnity award and a party and party award is not on its own a sufficient basis for awarding indemnity costs.  Indeed, the courts in this jurisdiction have repeatedly emphasised, correctly in our view, that the successful party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature” (Overseas Trust Bank Ltd v. Coopers and Lybrand [1991] 1 HKLR 177 at 182J, per Godfrey J; Sung Koo Kee Ltd v. Pak Lik Co. (A Firm) at 575C-D).
Grounds for making an order for indemnity costs
16.	The courts have rejected the proposition that an award of indemnity costs will only be made where a case has been brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party.  (Macmillan v. Bishopsgate Investment Trust Ltd, unreported, judgment delivered 10 December 1993 (Millett J); Disney v. Plummer, unreported, judgment delivered 16 November 1987 (English Court of Appeal)). These decisions and the reasoning on which they were based have been endorsed by the Hong Kong Court of Appeal (Sung Foo Kee Ltd v. Pak Lik Co. (A Firm) at 575E-576F, per Godfrey JA; see also Choy Yee Chun v. Bond Star Development [1997] HKLRD 1327 at 1334G-1335I, per Stock J.)
17.	In these and other cases, courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made.  It has been said that
	“the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be ‘appropriate’.” (Macmillan v. Bishopsgate Investment Trust Ltd, per Millett J; Sung Foo Kee Ltd v. Pak Lik Co. (A Firm) at 575E-576F, per Godfrey JA; see also Choy Yee Chun v. Bond Star Development Ltd at 1334G-1335I, per Stock J).
18.	Neither statements of principle nor authority provide any support for the Board’s proposition that the attributes of the parties and the character of the proceedings are irrelevant to the exercise of the discretion to award indemnity costs.  In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while
	“the grounds [upon which costs are awarded] must be connected with the case.  This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further.” (emphasis supplied) (Scherer v. Counting Instruments Ltd [1986] 1 WLR 615 at 621F, per Buckley LJ). There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs.”

10.  Such view was reiterated in a recent case Libertarian Investments Limited v Thomas Alexej Hall, unreported, FACV 14/2012, 11 March 2014 at §6:-

“As this Court made clear in Town Planning Board v Society for Protection of the Harbour Ltd (No 2), the usual order for costs in favour of a successful party is an award on a party and party basis.  An order for costs on an indemnity basis is only considered where the case has some “special or unusual feature”.  The Court’s discretion may be exercised in relation to (but is not limited to) cases “brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party”.  However, such improper conduct generally relates to the conduct of the litigation rather than conduct which constituted the cause or matter giving rise to the litigation.  Thus, even in contempt cases, there is no general rule that indemnity costs should be awarded against the contemnor, the appropriateness of such an order depending on all the circumstances of the case.  It may be important to consider whether the contemnor’s conduct has resulted in a separate penalty which sufficiently expresses the court’s disapproval; in which case, indemnity costs as an additional penalty may not be justified.”

11.  Having considered the reasons set out by Mr Poon in the light of the above passages, I do not find that there is sufficient reason to support the allegation that the conduct of the Former MC Members are so unreasonable that they should bear costs on an indemnity basis.  I am not satisfied that the interlocutory proceedings in the present applications were scandalous or vexatious, or had been initiated or prosecuted maliciously or for an ulterior motive or in an oppressive manner.  The Former MC Members changed their stance and agreed to amend the Pleadings to the effect that the proceedings would be brought in the names of individual Former MC Members.  I do not see any inordinate delay in such course of action taken by the Former MC Members.  I see no special and unusual features in the 229 Application and the Joinder Summons.  No doubt the Former MC Members have to pay costs of and occasioned by the two summonses as the interlocutory proceedings were made necessary by their using the wrong party to sue at the outset, I do not agree that they have to bear costs on indemnity basis.

The 108 Summons

12.  This summons was taken out by the Former MC Members asking that the individual names of the Substituting MC Members or that the IO is the proper party to bring the 108 Application.  After hearing submissions I dismissed the 108 Summons.  I see no reason to depart from the usual order that costs should follow the event.  For same reasons mentioned above, I order that such costs be taxed on party and party basis if not agreed.

Order

13.  I make the order as follows:-

LDBM 299/2012

Mr Paul Wu, instructed by Messrs. Chung & Kwan, for the 1^st to 7^th Applicants

Mr Anthony Poon, of Messrs. Baker & McKenzie, for the 1^st to 3^rd, and 5^th to 6^th Respondents

LDBM 108/2013

Mr Anthony Poon, of Messrs. Baker & McKenzie, for the Applicant

Mr Paul Wu, instructed by Messrs. Chung & Kwan, for the 1^st to 4^th, and 6^th to 7^th Respondents

The 5^th Respondent, acting in person, absent

LDBM 299/2012

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 299 OF 2012

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LDBM 108/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 108 OF 2013

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BETWEEN

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J U D G M E N T

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1.  There are two applications before me.  By issuing the application under LDBM 299/2012 (“the 299 Application”) the former Management Committee members (“the Former MC Members”) sought a declaration that the resolutions purportedly passed by the owners’ meeting held on 4 August 2012 including but not limited to their their removal from office and to appoint the substituting members (“the Substituting MC Members”) were void for lack of quorum.  LDBM 108/2013 (“the 108 Application”) was taken out in the name of the Incorporated Owners of Ka Wing Building (“the IO”) against the Former MC Members asking for, in gist, their handing over of properties of the IO upon their removal from office.

2.  Ka Wing Building (“the Building”) is situated at No.530 Nathan Road, Kowloon.  A deed of mutual covenantwasexecuted on16 January 1974and registered in the Lands Registry on 4 March 1974 (“the Main DMC”).

The Dispute

3.  The facts are essentially undisputed. The Building consists of residential units from the 4^th Floor to 21^st Floor (the “Domestic Portion”) and 4 levels of non-domestic floors from Ground to the 3^rd Floor (the “Non-Domestic Portion”).  The IO was registered on 4 March 1974.  There are two management companies serving the Building, one for the Domestic Portion and the other for the Non-Domestic Portion.  Further, under the Main DMC, the owners of the Non-Domestic Portion are not required to pay management fees for the Building prescribed under the Main DMC.

4.  Disputes arose after it was resolved at an owners’ meeting held on 15 October 2011to demand the owners of the Non-Domestic Portionto make a contribution towards the renovation of the Building (“the Contribution Resolution”) without, allegedly, any consultation nor giving them notice of the said owners’ meeting. 

5.  Upon learning about the Contribution Resolution, 5% of the owners of the Building, mainly from the Non-Domestic Portion, requested for an owners’ meeting pursuant to paragraph 1(2) of Schedule 3 of the Building Management Ordinance (“the BMO”). Convened by Madam Chow Chui Chui (“Madam Chow”) chairlady of the Former MC, an owners’ meeting eventually took place on 4 August 2012 (“the 4 August Meeting”). 

6.  The proposed resolutions as eventually amended at the 4 August Meeting included, inter alia, (i) invalidation of the Contribution Resolutions; (ii) to renew appointment of contractors for the Building’s maintenance;(iii) to remove and replace existing management committee; (iv) to elect new management committee; and (v) future renovation works of the Buildings maintenance should be passed by an owners’ meeting.  Before the proposed resolutions were put forth for voting, Madam Chowleft with some owners.  Those remaining, 14 were owners from the Non-Domestic Portion and 2 from the Domestic Portion.  Before they proceeded to voteon the said proposed resolutions, Mr Ng of Fullwill, manager employed by the Former MC, counted and confirmed that 16 owners representing a total of 84,286 undivided shares were present and indicated that there was sufficient quorum to continue the Meeting.  Those remaining proceeded to vote and the said proposed resolutions were all passed (“the 4 August Resolutions”). 

7.  The Former MC Members now challenge the validity of the 4 August Resolutions on the ground that there had not been a sufficient quorum.  The Tribunal is askedto make a declaration that the4 August Resolutions were null and void and have no binding effect on owners of the Domestic Portion. 

History of Development of the Non-Domestic Portion of the Building

8.  Mr Poon has for and on behalf of the Substituting MC Members briefly accounted for the development history of the Non-Domestic Portion in his closing Submissions which is essentially not disputed.

9.  Pursuant to the Main DMC, the Building is divided into 155 equal undivided shares where 48 shares were allocated to the Ground Floor, 12 shares to each of the 1^st to 3^rd Floor, 70 shares to the 70 domestic units from the 4^th to 21^stFloor (each holding one share) and 1 share to the main roof, external walls and spaces on the Ground Floor.  Each owner of any undivided share in the Building has full right to sell, assign, mortgage or otherwise dispose of his shares.

10.  On the same day when the Main DMC was entered into, the Ground Floor was divided into Portion A, B and C as depicted by the two separate conveyance instruments between Lee Sang Estate Limited and Wing Kiu Enterprises Limited both dated 16 January 1974.  Portion A and C of Ground Floor was sold together under one but Portion B of Ground Floor was sold separately under another although all 3 portions were sold to the same purchaser.  For the purpose of the conveyance of Portion B, 24 shares were assigned whilst another 24 shares were assigned in relation to Portions A and C.

11.  Some twenty years later, on 15 September 1997, a sub-DMC was registered in the Land Registry (“the 1^st Sub-DMC”).  The 1^st Sub-DMCwas entered into by various owners of shops on the Ground Floor.  Portions A, B and C of the Ground Floor were further divided into 5 shops namely, Shop 1A, Unit 1B, Unit 9 and Shop 2 and 3, holding 5%,  5%, 5%, 40% and 45% of the 48 shares in the Ground Floor respectively. 

12.  On 16 December 1998, another sub-DMC was entered into and registered in the Land Registry (“the 2^nd Sub-DMC”).  The 2^nd Sub-DMC was created after the conversion of Unit 1B and Unit 9 of the Ground Floor and 1^st to 3^rd Floors of the Building, together with those floors at the same level of the adjacent Wing Kiu Building on one side and the 2^ndand 3^rd Floors of the adjacent Cheung Hing Building on the other side into a commercial complex called the In's Point Plaza (“the Plaza”).  The 1^st Floor and 2^nd Floor of the Building were sub-divided into equal undivided shares for sub-allocation to various sub-divided units in the manner set out in Second Schedule of the 2^nd Sub-DMC.  Units 139-181 on the 1^st Floor and units 239-281 on the 2^nd Floor are within the area and location of the Land. 

13.  It is not disputed that by the two Sub-DMCs eachparty to the Sub-DMCs shall have the fullest right and interest of and inthe premises which he is entitled to the exclusive use occupation and enjoyment. 

Issue for 229 Application

14.  The main issue under this application is whether the 16 owners who casted their votes at the 4 August Meeting had constituted sufficient quorum of 10% of the owners to pass the 4 August Resolutions.  Mr Poon suggested that for determination ofthe main issue, there are two sub-issues for the Tribunal to decide and they are namely (i) whether the two Sub-DMCs concerning the Non-Domestic Portion of the Building are binding on the owners of the Building and (ii) whether an owner of a sub-divided unit in the Non-Domestic Portion owning undivided shares of the Building pursuant to the said two Sub-DMCs falls within the definition of an “owner” under the BMO for the purpose of being counted towards the necessary quorum at the 4 AugustMeeting.

15.  Mr Poon has suggested that as an incidental and necessary issue to determine the issue on quorum, this Tribunal is asked to determine if the owners of the sub-divided units are not considered as owners under Schedule 11, do they still have any obligation or liability towards the IO under the DMC and/or the BMO.  I find this sub-issue totally irrelevant to the question on quorum and it should be a stand-alone issue to be canvassed if need be.  It has however not been pleaded in the Amended Notice of Opposition. 

Issues for the 108 Application

16.  The main issue under the 108 Application is whether the Former MC Members should hand over the properties of the IO to the Substituting MC.  It is common ground between the parties that it depends on the determination on the validity of the Substituting MC. 

Case of the Former MC on quorum

Number of Flats in the Non-Domestic Portion under Schedule 11

17.  The Former MC says that there was insufficient quorum for the 4 August Meeting.  It relied on the BMO and the Main DMC.  

The Main DMC

18.  The Main DMC provides that the Building is made up of 155 equal and undivided shares.  The breakdown is as follows:

(a)	48 shares were allocated to the  Ground Floor;
(b)	12 shares were allocated to each of the 1st, 2nd and 3rdFloors (36 undivided shares);
(c)	1 share was allocated to the domestic flats from the 4th to 21stFloors (70 undivided shares);
(d)	1 share was allocated to the roof and external walls and certain spaces on Ground Floor (1 undivided share).

19.  It is said that according to paragraphs (2) and (3) of thePreamble in the Main DMC, the Non-Domestic Portion were taken as 4 units, each of the Ground Floor, the 1^st, 2^nd and 3^rdFloors is regarded as one unit or flat for the purpose of Schedule 11:

(2) The [Lee Sang Estate Limited] has constructed a new building (hereinafter called “the said building”) on the said premises known as “Ka Wing Building” comprising shops or non-domestic accommodation on the Ground to 3rd Floors inclusive and 70 domestic flats on the 4th to 21st Floors inclusive. (3) For the purposes of the sale of units in the said building, the said premises and building have been notionally divided into 155 equal undivided 155th parts or shares whereof 48 parts or shares have been allocated to the shop on the Ground Floor, 12 parts or shares have been allocated to each of the non-domestic accommodation the 1st to 3rd Floors inclusive, one part or share has been allocated to the main Roof External Walls and the Spaces on the Ground Floor and the remaining 70 parts or shares have been allocated to the upper floors from the 4th to 21st Floors inclusive (being one such share for each flat or the upper floors and where applicable, the flat roof held and enjoyed therewith).

20.  Further according to the Occupation Permit and the Control Card for assignment of shares of the Building:

(a)	the ground floor is regarded as one shop (1 x 1 = 1)
(b)	each of the 1st to 3rdFloor is to be regarded as one office for non-domestic use (1 x 3 = 3)
(c)	each of 4th to 20th floor has four flats for domestic use (4 x 17 = 68)
(d)	21st floor has two flats for domestic use (1 x 2 = 2)

21.  The total number of flats/units of the Building, according to the Former MC, is therefore 74 (4 in the Non-Domestic Portion, 70 in the Domestic Portion).  When a quorum of not less than 10% of owner is required, 8 shall be sufficient on the score of 74 (or 75 as suggested by the Substituting MC Members).

22.  Mr Wu on behalf of the Former MC submitted that by the operation of Schedule 11, 1 owner is allowed to represent each of the 4 floors in the Non-Domestic Portion.  For this reason, only 4 at the most shall be counted as owners from the Non-Domestic Portion, as a result, out of this minimum of 8, only 4 from the Non-Domestic Portion shall be counted; together with 2 from the Domestic portion, there were only 6 qualified owners present at the 4 August Meeting.  There was therefore insufficient quorum.

23.  It is also the Former MC’s case that their contention is supported by other provisions in the Main DMC.  It is said that the following passages provide that each floor in the Non-Domestic Portion was taken as 1 unit or 1 flat:

(i)	Paragraph (5) of the Preamble of the DMC provides:
	By an Assignment bearing even date herewith and made between the [Lee Sang Estate Limited] of the one part and the Flat Owner of the other part the [Lee Sang Estate Limited] assigned unto the Flat Owner All That the estate right title interest and benefit of the [Lee Sang Estate Limited] of and in All Those Eighty-eight equal undivided 155th part or share of and in the said premises and building Together with the full right and privilege to hold use occupy and enjoy to the exclusion of the [Lee Sang Estate Limited] All Those the ground, First, Second, Third and Fourth floors of the said building.
(ii)	Clause 4(d) of the DMC provides:
	If at any time, the non-domestic units are in different ownership, the owner of each shall be responsible for the obligations hereunder in respect of his own unit and all joint obligations shall be shared in the proportion of 48 shares for the owner of ground floor and 12 shares for the owner of each of first to third floors (inclusive).
(iii)	Clause 4(e) of the DMC provides:
	Each owner of a unit of the non-domestic units shall be entitled to display on the door of his unit a sign or notice but all such signs or notices shall be painted on or flush with the door of his unit and shall not project into or over the corridor in common use and each such owner shall be entitled to display or affix any sign or notice on the outside of the said building.

24.  Mr Wu further submitted that from the above provisions, the proper application of Schedule 11 is that although there are more than 1 “owner” in each floor in the Non-Domestic Portion after subdivision in the Non-Domestic Portion by the two Sub-DMCs, such owners are akin to “co-owners” of the same flat under Schedule 11 and therefore only 1 is eligible to vote for each floor, so in case more than one owner had voted, only one vote was valid to be counted.

Case of the Substituting MC

25.  The Substituting MC’s case is mainly that pursuant to section 5A, paragraph 5 of the Schedule 3 and Schedule 11 of the BMO, as long as the owner owns “an undivided share” and at least “1 flat” in the Building, he is entitled to be counted towards the quorum.

26.  It was submitted by Mr Poon that the 16 owners remaining at the 4 August Meeting were owners of “an undivided share” according to records in Land Registry (namely the DMCs, the Sub-DMCs, and the conveyance instruments).  Relying on authorities including U Wai Investment Co. Ltd. and Another v Au Kok Tai and Others, [1997] 4 HKC 200and Hinex Universal Design Consultants Co Ltd v. Chan Lai Hing [1998] 1 HKC 317.  Mr Poon submitted that the sub-divided units in the Non-Domestic Portion are “flats” within the definition of the BMO.  It was said that such sub-divided units were clearly “premises in a building which are referred to in a deed of mutual covenant” under section 2 of the BMO.  The ownersof the sub-divided units were also owners of a “flat” in the Building as their ownership in the sub-divided units is separate and the owners were entitled to exclusive possession and enjoyment of the sub-divided units under the two Sub-DMCs.  As such, they were entitled to be counted towards the quorum under Schedule 11 of the BMO.

Discussion

27.  The real issue in the 299 Application is how many owners are there in the Non-Domestic Portion who can be counted as owners under Schedule 11 and consequently how many owners thereat are qualified to vote at the 4 August Meeting.  Should it be 4 as contended by the Former MC Members or 14 as suggested by the Substituting MC Members.  There is no dispute that 8 was sufficient for a quorum.

Schedule 11 of BMO

28.  Enumeration of the percentage of owners mentioned in paragraph 5 of Schedule 3 of BMO is set out in Schedule 11 of the BMO:

For the purposes of section 5B-

(a)	sections 3(8), 3A(3F), 4(10) and 40C(9) and paragraphs 1(2) and 5 of Schedule 3, paragraph 1A of Schedule 6 and paragraph 11 of Schedule 8 are specified;
(b)	the enumeration of the percentage of owners mentioned in the provisions specified in paragraph (a) shall be computed as follows-
	Form of ownership	Illustration	To be counted as
	1. Multiple ownership of 1 flat	1 flat with 3 co- owners	1 owner
	2. 1 owner owning more than 1 flat	1 owner owning 35 flats	1 owner
	3. ---

29.  Regarding definition of “owner” and “flat” in the BMO, under section 2 it states that :

(i)	“owner” 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
	(b)	a registered mortgagee in possession of such share
(ii)	“flat” means:
	any premises in a building which are referred to in a deed of mutual covenant whether described therein as a flat or by any other name and whether used as a dwelling, shop, factory, office or for any other purpose, of which the owner, as between himself and owners or occupiers of other parts of the same building, is entitled to the exclusive possession.

How many Flats are there in the Non-Domestic Portion in the Main DMC

30.  The Occupation Permit is relied upon by the Former MC Members.  I must say that the Occupation Permit which says that the Ground Floor is regarded as 1 shop is not of much assistance in this case as an aid to understand the Main DMC.

31.  Relying on U Wai at 204D-205G, Mr Wu submitted that the number of owners of a building is governed by the Main DMC.  It is not disputed that the Ground Floor has been divided into 3 portions and were sold by two conveyance instruments at the same time of the Main DMC.  It was clearly set out in the conveyance instrument concerning Portion B that it involved the sale and purchase of “24/155th parts or shares…and Portion B”.  Unlike Portion B, the number of shares have not been set out for Portions A and C separately.  In the conveyance instrument of Portions A and C, it was said that:

…for the purpose of sale the said Lot and Building have been notionally divided into 155 equal undivided share of which 48 shares will be allocated to the ground floor, 12 shares will be allocated to each of the first, second and third floors…70 shares will be allocated to the upper floors from the fourth to twenty first floor inclusive (being one such share for each flat of the upper floors…. [page 1] ….AND WHEREAS the Vendor hath agreed with the Purchaser for the sale of All That the estate right title….….of and in All Those sixty-four equal undivided 155th parts or shares … Together with the exclusive right and privilege to the use occupation and enjoyment of all those Portion A and Portion C of the Ground Floor the whole of the First floor, the Second floor, the Third floor and the Fourth floor (including the Flat Roof on the Fourth Floor level) of the said Building which said Portion A and Portion C of the Ground floor, First floor, Second floor, Third floor and Fourth floor.

32.  From the above passages, one has to work out the total shares of Portions A and C being 24 because it was not expressly stated to be so.  It was expressly stipulated that the total of the undivided shares of other flats assigned by the same assignment equal to 40 (12 shares for each of the 1st, 2nd and 3rd floor and 1 shares for each of the 4 units on the 4th Floor, 12+12+12+4=40).  Since the total number of shares assigned by this conveyance instrument was said to be 64, by deduction, the shares concerning Portions A and C were 24 (64-40=24).  The assignment of 24 shares for Portion B of Ground Floor on the same date by another conveyance instrument made up the total number of shares assigned regarding the Ground Floor to be 48 shares.  This was the total number of shares allotted by the Main DMC to the Ground Floor.  The 3 portions represented the whole of Ground Floor as shown in various plans annexed to the conveyance instruments.  The total number of shares conveyed by the two conveyance instruments was 88 (64+24=88).  This tally with the number of shares allotted to the respective parts of the Building by the Main DMC.

33.  It is worth noting that although the Ground Floor was divided into 3 portions and they were assigned by two separate conveyance instruments, the Main DMC mentioned however that “By an Assignment… assigned… Eighty-eight equal undivided 155th part or share… the ground, First, Second, Third and Fourth floors of the said building”.

34.  Reading the three documents namely the two conveyance instruments and the Main DMC together, the Ground Floor, although divided into 3 portions and conveyed under two conveyance instruments, was considered one unit in the Main DMC.  There was no individual allotment of number of shares to Portion A and Portion C.  They were collectively counted as 24.

35.  Further the floors in the Non-Domestic Portion were referred to in the Main DMC as “the non-domestic units”.  Paragraph (4) of the preamble of the DMC provides:

For the purpose of this Deed, unless the context shall otherwise require:
(a)	the word “unit” where hereinafter used shall include any flat, shop or other area of non-domestic accommodation in the said building and where applicable, the flat roof held and enjoyed therewith, intended for separate use and occupation.
(b)	the ground to third floor inclusive shall hereinafter be collectively referred to the “non-domestic units”.

36.  I am of the view that Preamble (4) is not inconsistent with the BMO in the interpretation of flat.  I am of the view that in such circumstances, one non-domestic floor in the Main DMC should be taken as one flat for the purpose of Schedule 11 of the BMO.  In the circumstances, I am of the view that under the Main DMC, there were 4 “flats’ in the Non-Domestic Portion.

Can theSub-DMCsincrease the number of owners for the purpose of Schedule 11

37.  Mr Poon took the view that when determining whether an owner is eligible to vote, the two Sub-DMCs must also be considered.  Mr Poon further submits that by registration of the assignments of sub-divided units which are “records at the Land Registry”, an owner of each sub-divided unit is therefore “an owner” within the definition of the BMO owning “an undivided share” in the Land Registry. 

38.  In reply, Mr Wu is of the view that the two Sub-DMCs are totally unrelated to the owners of domestic premises of the Building.  It was submitted that Part VIA of the BMO concerns deed of mutual covenant of a building.  The meaning of which has been analysed by Reyes J in Rightop Investment Ltd & Anor v Yu Tsui Sheung & Ors [2005] 1 HKC 550.  It is submitted that the learned judge concluded that under the BMO a sub-deed of mutual covenant, though registered in the Land Registry, falls outside the meaning of deed of mutual covenant as defined under the BMO.  Mr Wu further pointed out that the two Sub-DMCs only regulates the affairs in the Plaza but not the whole of the Building and it therefore falls outside the meaning of deed of mutual covenant as defined under section 2 of the BMO. 

39.  Further, Mr Wu said that as held by the Court of Appeal in Incorporated Owner of Po Lok Building v Leung Koon [2006] 3 HKLRD 876 and [2006] HKCLRT 118, a sub-deed of mutual covenant has nothing to do with the owners who are not parties to the sub-deed of mutual covenant. 

40.  Mr Poon submitted that the finding in Rightop might not be relevant in the present proceedings as none of the issues herein involves application of Part VIA of the BMO.

41.  I however find the analysis of Reyes J in Rightop helpful.  He said:

“31. At first blush, the Sub-DMC, a registered document, falls within the definition of "deed of mutual covenant" in BMO s.2.  This is because, although the Sub-DMC does not concern all the owners in the SKWP Building, it regulates the rights, interests and obligations of owners (here the commercial owners) among themselves. 32. But Part VIA applies only to "a building in respect of which a deed of mutual covenant is in force". 33. The Sub-DMC plainly does not apply to the whole of the SKWP Building.  It merely relates to the commercial area of the SKWP Building, a small portion of the whole. Conversely, since the commercial area does not fall within any limb of the definition of "building" in BMO s.2, the commercial area cannot be a "building" in respect of which a deed of mutual covenant is in force.”

42.  When adopting the above analysis to the present case, whilst the two Sub-DMCs regulate the rights, interest and obligations of owners of the sub-divided units it is unarguable that they do not apply to the whole of the Building.  Owners under the Main DMC could not be bound because they are not party to the two Sub-DMCs. In my views only those unit/flat which have been referred to in the Main DMC can be counted as flats according to section 2 of the BMO.

43.  Relying on U Wai, Mr Poon points out that the size of an undivided share can vary and the total number of undivided share also increases. This means that “an undivided share” is not a reference to shares as divided by the Main DMC but could mean a fraction of an undivided share under the Main DMC or more than one share in some other circumstances. 

44.  I am afraid this argument could not circumvent the problem faced by the Substituting MC Members because the sub-divided units have not been referred to in the Main DMC.

Quorum of theMeeting

45.  I have found that there were 4 flats in the Non-Domestic Portion at the time of the Main DMC on the one hand and on the other hand there are altogether 70 flats in the Domestic Portions; 4 on each floor from the 4th Floor to the 20^th Floor and 2 on the 21^st Floor.  There is one common owner to two flats on two floors, namely the 7^th and the 13^th Floor, so the total number of owners should be 68 (70-2).  There is also 1 common owner of 1 non-domestic flat (the 3^rd Floor) and 1 domestic flat on the 4^th Floor.  The total number of owners in the Building should therefore be 71 (4 in the Non-Domestic Portion and 68 in the Domestic Portion minus 1 common owner of 1 non-domestic flat and 1 domestic flat).  Pursuant to paragraph 5(1)(b) of Schedule 3, the quorum required at the time of voting should be not less than 10% of owners of the Building, the minimum to form sufficient quorum is therefore not less than 8.

46.  As there are 4 flats in the Non-Domestic Portion, 4 owners could have been entitled to vote.  I understand that there were 2 from the Domestic Portion.  Since there was 1 common owner for 1 domestic and 1 non-domestic flat only 5 could be counted towards the quorum (4+2-1).  As the minimum to form sufficient quorum is not less than 8 I find that there was insufficient quorum.  For this reason the 4 August Resolutions purportedly to have passed were invalid. 

47.  In the circumstances, as conceded by the Substituting MC Members the application under LDBM 108/2013 should also be dismissed.

Order

48.  I make the order as follows:-

Regarding LDBM 299/2012:
(1)	It is declared that the 4 August Resolutions purported to have been passed at the 4 August Meeting are null and void and have no binding effect on the Applicants and owners of the Building.
(2)	The Respondents shall within 7 days from date of this order remove the registration of their names as management committee members and/or office bearers; failing which the Secretary of the Former management Committee is hereby authorized to do the same;
Regarding  LDBM 108/2013:
(1)	Applications under LDBM 108/2013 are all refused.

Costs

49.  There be an order nisi that the Substituting MC Members should bear costs of the Former MC Members for both Applications with counsel certificate, to be taxed at District Court scale if not agreed.  The order nisi shall become absolute if there is no application for variation within 14 days herefrom.

LDBM 108/2013

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 108 OF 2013

__________________________

________________

________________

D E C I S I O N

________________

1.  The summons before me was taken out on 12 August 2013 by Messrs. Chung & Kwan (“the 108 Summons”) representing the respondents herein except the 5^th one (“to be called collectively as the Respondents”).

2.  By the present summons, the Respondents asked that :

	(i)	the title of the Applicant herein (“the I.O.”) be amended by substituting with: -
		(a)	The individual names of those said to be elected to be substituting members of the Management Committee (“the Substituting Members”) or any of them as the applicants in the title; and
		(b)	The I.O. shall remain as a nominal party in this Action.
	(ii)	Or alternatively, the question whether the I.O. is the proper party to bring the application herein be determined as the preliminary issue.

Background

3.  There are altogether 2 Applications taken out in the Tribunal, namely LDBM 108/2013 and LDBM 299/2012.  Originally both Applications were commenced in the name of the I.O. as the applicant, but the I.O. in the two Applications is represented by different law firms.

LDBM 299/2012

4.  The Application was taken out on 9 November 2012 in the name of the I.O. who was and still is represented by Messrs. Chung & Kwan (“the 299 Application”).  At an owners’ meeting held on 5 August 2012 (“the Meeting”) the 6 Respondents therein through election were said to have become “the Substituting Members”.  The relief claimed in the 299 Application is for a declaration that the resolutions purportedly passed at the Meeting are null and void and have no binding effect on the owners.

LDBM 108/2013

5.  The Application dated 17 April 2013 was also taken out in the name of the I.O. who was and still is represented by Messrs. Baker & McKenzie (“the 108 Application”).  The Respondents are original members of the Management Committee (“the Original Members”).  The relief claimed under the 108 Application is for an order that the Respondents do surrender and produce:

	(i)	documents and properties of the I.O. pursuant to paragraph 5 of Schedule 2 to the Building Management Ordinance (“the BMO”); and
	(ii)	moveable property in respect of the control, management and administration of the Building that is under their control pursuant to paragraph 8 of Schedule 7 of the BMO.

The 299 Summonses

6.  There are two Summonses under the 299 Application.  One was taken out by Messrs. Baker and McKenzie on 12 August 2013 asking to  strike out the 299 Application (“the Summons to Strike Out ”); the other is on joinder of parties (“the Joinder Summons”) taken out by Messrs. Chung & Kwan on 27 September 2013.

7.  By the Summons to Strike Out the Respondents, the Substituting Members, asked for a declaration that the I.O. is not the proper Applicant in these proceedings; and that the 299 Application be struck out for this reason.

8.  By the Joinder Summons which was said to be taken out for and on behalf of the I.O., court’s leave was sought for 6 individuals to be joined as the 1^st to 6^th Applicants and the I.O. to remain as a nominal Applicant numbered 7.  The 6 individuals are the Original Members, i.e. the Respondents in the 108 Application.

9.  At the hearing the Respondents, the Substituting Members, asked for leave to withdraw their Application to Strike Out subject to costs to be argued.  Further the Joinder Summons was not opposed but also subject to argument on costs to be heard at the conclusion of the substantive trial on the 2 Applications.  Application for leave to withdraw was granted and leave was also granted for the 6 individuals, the Originating Members, to join as Applicants; the 2 Summonses under the 299 Application were therefore disposed of.

The 108 Summons

10.  This is the summons which has to be decided by this Tribunal.  As mentioned above, the Respondents therein asked that

	(i)	the title of the Applicant herein (“the I.O.”) be amended by substituting with: -
		(a)	The individual names of the Substituting Members or any of them as the applicants in the title; and
		(b)	The I.O. shall remain as a nominal party in this Action.
	(ii)	Or alternatively, the question whether the I.O. is the proper party to bring the application herein be determined as the preliminary issue.

11.  Much had been submitted by Mr Chan of Messrs. Chung & Kwan on when a suit should be taken out by an I.O. and when it should be taken out in the name of the Substituting Members.  He relied on Fidelity Realty Limited v. Management Committee of The Incorporated Owners of Hong Chiang building & Ors. [2005] 1 HKLRD 309.  It was submitted that since the dispute was mainly between Original Members and the Substituting Members, the 108 Application should be taken out in the name of individuals as, at the end, it should not be the I.O. to be sanctioned with costs.

12.  In my judgment, the relief asked for by Mr Chan has some inherent flaws.  It is a fundamental principle that no one could be forced to sue.  It is provided under Order 15 rule 6 (4) of the District Court Rules that:

“No person shall be added as a plaintiff without his consent signified in writing or in such other manner as may be authorized.”

13.  It is also said at paragraph 15/4/12 of Hong Kong Civil Procedure 2013 that:

“Where two or more persons are entitled to any relief jointly, as where a contract is made with several persons jointly, all such persons must join in the action as plaintiffs, or if any of them will not join as plaintiff, he must be made a defendant. The defendant may apply to compel the plaintiff to join his co-contractor either as a co-plaintiff, if he consents, or as co-defendant, if he does not;….”

14.  I am of the view that for this reason alone, paragraph (i) of the Respondents’ summons must be dismissed.

15.  The Respondents also ask that the question whether the I.O. is the proper party to bring the 108 Application be determined as a preliminary issue.

16.  After hearing submissions I am of the view that on the face of it, only the I.O. has the locus to bring the proceedings against the Respondents because the ownership of the subject Documents, Properties and Moveable Properties is with the I.O. and they do not belong to any individuals and thus the I.O. is the proper party to bring the proceedings against the Respondents.  Further although a Management Committee can sue under s. 45 of the BMO, as the office of the Substituting Members is now in dispute, it would be an issue as to whether the Management Committee has the locus to commence the proceedings.  Further, the complaint raised by Mr Chan is not whether it should be commenced by the Management Committee or the I.O., his contention is that the proceedings should be commenced by individual Substituting Members.  To conclude, I cannot, with respect, agree with his contention that the I.O. is not a proper party to sue.

17.  For these reasons, the relief asked for by way of the 108 Summons is refused.  Argument on costs shall be adjourned to be heard together with the costs of the two summonses taken out under the 229 Application at the conclusion of the substantive hearing of the two Applications.