Building Management Ordinance only vests a cause of action in the Incorporated Owners where it is one common to all owners

Incorporated owners can bring proceedings under section 16 of the Building Management Ordinance provided the cause of action relates to common parts and is one enjoyed by all owners (and not only some of them).

Incorporated Owners of One Beacon Hill v Match Power Investment Ltd ([2012] HKEC 1338, CA) concerned proceedings brought by incorporated owners against the developer of the building. The proceedings alleged that sub-standard materials had been used and poor workmanship allowed in the construction process. The developer, Match Power, sought to strike out the action on the basis that the incorporated owners had no locus standi. The relevant duty concerned the common parts but it was a contractual duty owed to only some of the original purchasers: different forms of sale contract were used at different stages of development and only some incorporated the relevant duty. Match Power argued that incorporated owners could only bring proceedings where the relevant duty was owed to all of the owners. They sought to strike out the proceedings.

The Court of Appeal held that the cause of action did not vest in the Incorporated Owners: section 16 of the Building Management Ordinance only made the Incorporated Owners the proper party where the cause of action was one that had accrued to all of the owners ([21]). Section 18(2)(g) is a management power that assumes that the cause of action has already vested in the Incorporated Owners. It is not an independent right to sue. Further, it only gives a power to bring proceedings in respect of matters in which all the owners have the same legal interest ([69]).

The Building Management Ordinance aims to facilitate management of multi-storey buildings owned by several people and to avoid multiplicity of suit. It is not permissible, however, to resort to a ‘purposive’ interpretation of section 16 that would do violence to the plain meaning of the text ([17] – [19]).  Further, there were several reasons why a distinction should be drawn between claims where all owners have the same legal interest and those where only some owners have the interest. If the Incorporated Owners could bring proceedings to enforce the rights of only some of the owners concerning common parts, the decision to enforce (or not) contractual rights owed to individuals would be under the control of the majority of the owners meeting ([30]). The costs and risks of litigation to enforce these rights owed only to some would become the common liability of all ([31]). In cases where the owners were the defendants, the contractual liability of some would become the shared liability of all ([32]).

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6 Responses to “Building Management Ordinance only vests a cause of action in the Incorporated Owners where it is one common to all owners”

  1. Sam Says:

    Dear Professor Lower

    I wonder if I may pose a query here which has practical implications for the running of many owners corporations.

    Suppose an owner puts forward a proposal to “modify” the common parts of the estate at an IO general meeting without any details (technical, costs, etc), but only an outline. No formal resolution is passed. It is decided at such meeting that an engineer or other suitable professional will prepare a report and brief, and quotations will be obtained from contractors.

    (1) What happens if the management committee proceeds to carry out the “modification” works affecting the common parts without referring back to the IO in general meeting? Is the committee acting within its authority?

    (2) Same as (1) above, except that there is a material change from the proposal previously outlined at the IO general meeting. Again, can the committee carry out the works of its own accord, claiming that owners has already “agreed” to them in the general meeting?

    (3) What actions need to have been taken at the IO general meeting to enable the management committee to carry out the works to the common parts?

    The BMO has many grey areas, eg, how a proposed course of action – in the above example, one that affects common parts – is to be “agreed to” by members in an IO general meeting.

    These possible procedural abuses seem to be quite common, and yet an individual owner may have no cost-effective means to safeguard his rights.

    Your feedback and input would be much appreciated and welcome.

    • Michael Lower Says:

      Thanks for the question. My initial reaction is that you capture the central question (the one that supplies the answer to 1 – 3) when you ask whether the management committee is acting within its authority. This is a factual matter.

      Is it acting within the powers conferred by section 18(2)? What does the DMC say?

      There is also section 20A of the Building Management Ordinance to be complied with.

  2. Sam Says:

    Dear Professor Lower

    Many thanks for taking the time and trouble to consider my queries.

    BMO s18(2)(fa) expressly allows an owners corporation to “carry out any renovation, improvement or decoration work, as the case may be, to the common parts”. Does this imply that such power must be exercised by a corporation in general meeting, and not delegated to a management committee under s29?

    If this view is correct, must there be a formal resolution put to the owners at such meeting (with the resolution having been included in the notice to the general meeting)? This step is not taken in the scenarios described in my queries.

    In quantum terms, BMO s20A is complied with in the current case.

    The building in question is very old and the DMC is woefully out of date. The document refers to an owners committee only, and it is not clear how to incorporate the “management committee” concept. Further, is it true that BMO s18(2) will take precedence over the terms of the DMC?

    Thanks again.

    • Michael Lower Says:

      Section 18 gives powers to ‘the corporation’ but this does not imply that the owners’ meeting need approve every decision (you refer to section 29 and this states that unless the Ordinance stipulates otherwise, the powers that the Ordinance confers on the corporation are to be exercised by the management committee).

      Section 34K provides that on incorporation the management committee takes over the role of the owners’ committee.

  3. Sam Says:

    Dear Professor Lower

    Thanks again for your reply. I did overlook s34K.

    Have a relaxing 1 July weekend.

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