Archive for the ‘owners’ corporation’ Category

Each owner potentially liable for owners’ corporation’s entire indebtedness

November 13, 2017

In Wong Tak Man Stephen v Chang Ching Wai ([2017] HKEC 2266) Ps were the liquidators of the Incorporated Owners (‘the IO’) of a building (‘the Building’). The IO was wound up following a petition by a construction company that carried out refurbishment works at the Building. The IO had net liabilities of just over HK$3.64 million.

The first and second defendants (‘the defendants’) were two of the owners of the Building. The defendants were among a substantial number of owners who had failed to make the contributions due from them towards the cost of the refurbishment work.

The liquidators successfully sought a declaration that the defendants were jointly and severally liable for the IO’s debts and obligations. The defendants were ordered to pay the plaintiffs the sum necessary to meet the IO’s liabilities.

The basis of the plaintiffs’ claim was section 34 of the Building Management Ordinance:

‘In the winding up of a corporation under section 33, the owners shall be liable, both jointly and severally, to contribute, according to their respective shares, to the assets of the corporation to an amount sufficient to discharge its debts and liabilities.’

The court was presented with two rival interpretations of section 34:

  1. The owners were individually liable but only for a proportionate share of the IO’s liabilities calculated by reference to their shares in the Building; or
  2. Each owner was jointly and severally liable for all of the IO’s debts and liabilities but with a right of recovery from co-owners.

The court (Deputy Judge Anson Wong SC giving the judgment) accepted the second interpretation:

  1. The phrase ‘jointly and severally’ was introduced in 1993 when the Building Management Ordinance replaced earlier legislation. The phrase evinces an intention that each owner is liable for all of the IO’s debts and obligations.
  2. The phrase ‘according to their respective shares’ in section 34 refers to the right of recovery from co-owners.
  3. This interpretation of section 34 is consistent with section 17(1) of the Building Management Ordinance which allows the entire indebtedness of an IO to be enforced against an individual owner with a right of recovery from co-owners. There are dicta in the Court of Final Appeal decision in Chi Kit Co Ltd v Lucky Health International Enterprise Ltd ([2000] 2 HKLRD 503) to this effect. It would be strange if this position were not to be mirrored on a winding up.
  4. The first, rival, interpretation would make liquidation expensive and time-consuming. It would pass the risk of non-payment to creditors.

Michael Lower

 

Do owners of sub-divided units count as owners for general meeting purposes?

September 21, 2016

In Chow Chui Chui v Kafull Investment Ltd ([2016] HKEC 1889, CA) the DMC for a building divided the building by allocating 48 shares to a ground floor shop, 12 shares to each of the first to third floors (the ground to third floors being described as the ‘non-domestic accommodation’), one share to each domestic flat on the floors above the non-domestic accommodation and one share to the main roof and external walls. There was a first sub-DMC that sub-divided the ground floor into five units and allocated the 48 ground floor shares amongst these units. There was a second sub-DMC that sub-divided the units on the first and second floors of the building and divided the shares in the main DMC among the sub-divided units. Resolutions were passed at an owners’ meeting. Present at the meeting were fourteen owners from the non-domestic portion and two from the domestic portion. The question was whether the meeting failed to meet the quorum requirements in schedule 3, para. 5(1)(b) of the Building Management Ordinance (requiring that 10% of the owners should be present).

The contention was that only those who were ‘owners’ in accordance with the main DMC could be considered ‘owners’ for this purpose. Thus, there could only be 4 owners from the non-domestic portion (one for each floor). The Court of Appeal  (Kwan JA giving the Court’s judgment) rejected this contention. Section 2 of the Building Management Ordinance defines an ‘owner’ as one who appears from the Land Registry to be the owner of an undivided share of land on which there is a building. Section 39 of the Building Management Ordinance provides that an owner’s share is to be determined in accordance with a DMC registered at the Land Registry. Here, the shares had been attached to the sub-divided units by the terms of a sub-DMC, the owners of the sub-divided units had the right to exclusive possession and the Land Registry records confirmed their ownership ([35]). They were owners and, as a result, the meeting was quorate.

There was nothing to limit the Ordinance’s references to a ‘deed of mutual covenant’ to the main DMC ([39]) especially where, as here, the main DMC contemplated the possibility of sub-division. In fact, it is enough that the main DMC does not prohibit sub-division ([40]).

Michael Lower

 

The duty to convene and participate in management committee meetings

August 15, 2013

In Tzeng Li Wen Judy v Tam Lup Wai Franky ([2013] 2 HKLRD 790, LT) one member of a management committee brought proceedings against the chairman complaining that meetings had not been held every three months as required by schedule 2 of the Building Management Ordinance. The chairman sought to have the proceedings struck out on the grounds that the proceedings should have been brought against the management committee as a whole, that there was no business to discuss and there had been an agreement that no meeting was necessary. This striking out application failed. The management committee was not a separate legal entity capable of being sued ([19]). The chairman had a duty to convene a meeting every three months (though of course he could not compel anyone to attend) ([24]) and on the face of it he was in breach of this duty.

The action against the secretary was struck out. The secretary only had a duty to convene a meeting if requested to do so by two committee members and the secretary had received no such request ([27]).

The action against the corporation was struck out since it had no power to convene a meeting of the committee ([28]).

The members of a management committee are under a duty to participate so far as reasonable in the operation of the corporation and part of this duty is to attend management committee meetings ([24]).

Duty of managers and incorporated owners to take proper steps

November 22, 2012

In Lee Ming Yueh v Broadway-Nassau Investments Ltd ([2012] 5 HKLRD 208, CA) water leaked through the walls and roof of a top floor flat. The managers asked contractors to look at the problem. Initial remedial efforts were not effective but eventually the problem was identified and resolved. The water seepage damaged the walls and floor of the flat. The owner of the flat claimed damages against the managers and the incorporated owners alleging breach of the Deed of Mutual Covenant and section 18 of the Building Management Ordinance (imposing duties on the Manager and the incorporated owners to keep common parts in repair). The claim failed both in the Lands Tribunal and in the Court of Appeal. The duty was one of ‘proper management’. The managers had promptly engaged contractors to investigate and remedy the problems when they received complaints. They could not delegate their duty to contractors but there was nothing to suggest that they had been negligent in their choice of contractor.

Incorporated owners can be compelled to take action to enforce the DMC

November 19, 2012

In See Wah Fan v Ki Tat Garden (Phase I) (IO) ([2003] 3 HKLRD 1, CA) W owned the ground floor and cock loft in a building covered by a DMC. T owned the first floor and roof and the stairs and landings above (but not at) the cock loft level. In breach of the DMC, T had enclosed the landing at cockloft level and prevented W from obtaining access to the roof for repair purposes or as a means of escape in emergency. The owners corporation had not taken any action. W brought proceedings. Could he do so given that section 16 of the Building Management Ordinance makes the corporation the proper plaintiff? The Court of Appeal held that the Lands Tribunal can compel the corporation to enforce the terms of the DMC.

‘To take an extreme case, if the majority of the owners had decided to act in bad faith in a matter concerning the management of the common parts, is the minority owner precluded from seeking redress in the court? The answer must be no. This cannot be the intention of the legislation. This being the case, if a minority owner can show he has a legitimate complaint regarding the common parts of the building and yet the management committee had chosen to ignore him, we see no reason why he cannot seek relief from the court. This must be one of the means to ensure that the corporation will observe the intention and requirement of the Ordinance in the proper management of a multi-owner building.’ ([25] per Cheung JA).

Owners corporation liable under BMO s.16 even in respect of pre-incorporation debts

November 13, 2012

Hang Yick Properties Management Ltd v Tuen Mun Kar Wah Building ([2005] 2 HKLRD 499, CA) concerned a claim by the managers of a building against an owners corporation for reimbursement of management expenses alleged to have been incurred by them. Such expenses could be recovered by the managers against individual owners under the terms of the Deed of Mutual Covenant. The liability to pay ran with the owners’ undivided shares by virtue of section 41 of the Conveyancing and Property Ordinance. The owners corporation argued that it could not be liable since this was a pre-incorporation debt. The Court of Appeal held that if the alleged liability was a liability of all of the owners  in relation to the common parts of the building then it was enforceable against the owners corporation even though the liability was incurred before incorporation (Building Management Ordinance, s.16 and [40] of the judgment).

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

October 9, 2012

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]).

Incorporated owners caught in the middle of a dispute between neighbours

January 11, 2012

In Kai Hing Metal Products Factory Co Ltd v Incorporated Owners of Sunderland Estate ([2011] HKEC 1580, LT) K parked three cars in a space intended for one car. H, a neighbour, objected since it meant that even pedestrian access to its apartment building was sometimes obstructed. H brought proceedings against the Incorporated Owners seeking an injunction  requiring the Incorporated Owners to take action in respect of the triple parking. This was settled and as part of a settlement railings were erected that ensured pedestrian access but reduced the possibility of using K’s space for parking more than one car. K then brought proceedings against the Incorporated Owners seeking an injunction requiring the railings to be removed and various declarations. The Lands Tribunal ordered the removal of the railings (since K had not had the opportunity to argue her case for triple parking) but refused to grant all of the other orders sought. This was because K did not come with clean hands (it seems that this conclusion was reached because of her triple parking and disregard for the interests of her neighbours).

Incorporated owners can be liable in public nuisance

September 21, 2011

Incorporated owners can be liable in public nuisance where they know (or can be presumed to know) that the common parts (or an element of the common parts) are in such a state as to endanger the lives, safety, health, property or comfort of the public or as to obstruct the exercise or enjoyment of rights common to members of the public. They are liable for any foreseeable loss or damage arising from a failure to take such steps to neutralise any such hazard as are within their power. Individual owners and tenants (but not the owners as a collective body) can also be liable in respect of the same hazard if they had sufficient knowledge, control and resources.

In Leung Tsang Hung v Incorporated Owners of Kwok Wing House ([2007] 4 HKLRD 654, CFA) an unauthorised canopy above a balcony protruted from the external wall of a building. The canopy had been poorly constructed and had deteriorated over time. A corner of it fell off and killed a hawker in the street below. The owner accepted liability and the tenant was found to be liable. The question was whether the incorporated owners were also liable. The Court of Final Appeal held that they were. It reviewed the law of public nuisance in general and as it applied to incorporated owners. It held that Incorporated owners can be liable in public nuisance where they know (or can be presumed to know) that the common parts (or an element of the common parts) are in such a state as to endanger the lives, safety, health, property or comfort of the public or as to obstruct the exercise or enjoyment of rights common to members of the public. They are liable for any foreseeable loss arising from a failure to take such steps to neutralise any such hazard as are within their power. Individual owners and tenants (but not the owners as a collective body) can also be liable in respect of the same hazard if they had sufficient knowledge, control and resources.

The external walls were common parts. The owners had duties under the DMC not to convert common parts to private use, not to place things on common parts and to keep the structure and exterior in repair. The incorporated owners had the control needed for public nuisance since they had the power to monitor and enforce these duties. They could be presumed to know of the hazard and the danger it posed to the public. They had access to the resources needed to neutralise the hazard. They were therefore liable.

Section 16 of the Building Management ordinance does not preclude incorporated owners from being liable alongside individual owners and tenants. It only prevents a simultaneous action against the incorporated owners and the owners as a collective body.

Management Committee’s failure to step down does not leave a power vacuum

September 7, 2011

Even though a Management Committee has not stood down as required by the Building Management Ordinance, it does not cease to be the Management Committee of the Incorporated Owners with the rights and duties that that entails.

In Incorporated Owners of Finance Building v Bright Hill Management Consultants Ltd ([2001] HKEC 1431, CA) the plaintiffs were the incorporated owners of Finance Building in Des Voeux Road Central. Bright Hill was one of the owners. In 1997, a dispute arose concerning the management charge and Bright Hill refused to pay. The DMC allowed unpaid management charges to be secured by a charge over the property of the defaulting owner. Two charges were registered at the Land Registry. The Incorporated Owners applied to the court seeking the sale of the property. Bright Hill counterclaimed seeking among other things, a declaration that the registered charges were invalid and their removal from the register. The Lands Tribunal stopped the proceedings and dismissed both the application and the counterclaim. It did so because the original Management Committee had not stepped down to be re-elected or replaced as required by the terms of the Second Schedule to the Building Management Ordinance. As a result, the Land Tribunal decided, it was not empowered to bring or defend proceedings on behalf of the company.

By a majority, the Court of Appeal overturned this decision and returned both the application and the counterclaim to the Land Tribunal. A management committee’s failure to step down did not mean that it ceased to be the lawful management committee of the corporation.