Interpretation of the management charge provisions of a DMC

Sam Woo Marine Works Ltd v Po Hang Building (IO) ([2022] HKCA 733) concerned a dispute as to the interpretation of the management charge provisions of a Deed of Mutual Covenant (DMC).

There were three categories of owners in the building: (a) the ground floor owners); (b) the first-floor owners; and (c) the upper floor owners. Clause 3(f) of the DMC stipulated that the items in respect of which a management charge could be levied varied as between each category; the ground floor owners were not liable to contribute to expenses relating to the lift, for example.

Sam Woo owned a unit on the ground floor of the building. In the Court of Appeal, the incorporated owners accepted that there was implied into clause 3(f) a term that they would keep separate accounts for each category of owner ([29]).

The Court of Appeal decided, on its interpretation of the DMC, that any surplus collected from one category of owner could only be used to cover expenditure which that category of owner was responsible for under clause 3(f). So any surplus collected from ground floor owners could not be used to cover later expenditure relating to the lift. This was eventually accepted by the incorporated owners ([41]).

Sam Woo contended that there was a surplus standing to the account of the ground floor owners and that there was a further implied term that this would be used up before a further management charge would be demanded from them.

This contention was rejected both at first instance and in the Court of Appeal. At first instance, it was pointed out that this was an impractical suggestion; each category of owner would be responsible for some items in respect of which there would be a need to provide for contingencies. This made it unlikely that Sam Woo’s proposed term could be implied ([44] and [45]). Section 20(2) of the Building Management Ordinance requires the incorporated owners to establish a contingency fund.

Michael Lower

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