Posts Tagged ‘Building Management Ordinance’

Owner’s liability for management charges – need for adequate legal basis and proper procedure

November 22, 2017

In San Po Kong Mansion (IO) v On Rich (HK) Investment Ltd ([2017] HKEC 2321) the plaintiffs were the incorporated owners of San Po Kong Mansion comprising four 20-storey blocks for mixed commercial and residential use.

The defendants owned 10% of the shares in San Po Kong Mansion allocated to part of a building originally a cinema but now converted into a shopping mall (‘the Theatre Parts’).

Shine Empire Ltd (‘Shine Empire’) retained the right to exclusive possession of the roofs of the other parts of San Po Kong Mansion (‘the non-Theatre parts’).

The incorporated owners had licensed various telecommunications companies to install equipment and cables on the roofs of the non-Theatre parts and collected licence fees. Shine Empire succeeded in possession proceedings (‘the Trespass Proceedings’) against the incorporated owners and the telecommunications companies. The incorporated owners and the telecommunications companies were ordered, amongst other things, to pay damages and costs to Shine Empire.

The incorporated owners entered into an agreement with the telecommunications companies indemnifying them against all damages, interest and costs arising from the Trespass Proceedings (‘the indemnity agreement’).

In the 2011 annual general meeting, the incorporated owners resolved to levy a charge on each owner as its contribution to the money payable to the telecommunications companies under the indemnity agreement.

Pursuant to this, the incorporated owners demanded HK$1.38 million from the defendants as their share of the sum payable under the indemnity agreements.

The defendants refused to pay arguing that:

  1. the 2011 AGM had not been validly convened;
  2. the DMC did not impose any obligation to meet this payment;
  3. nor did sections 20 – 22 of the Building Management Ordinance entitle the incorporated owners to recover the sum from the defendants.

On the first issue, it was decided that the AGM had not been validly convened. The incorporated owners were not able to show that they had properly served notice of the AGM (or any other notice) on the defendants.

Second, the sum payable under the indemnity agreement did not fall within any of the charging provisions of the DMC.

Third (concerning sections 20 – 22 of the Building Management Ordinance) there was no valid management committee (the incorporated owners were unable to show that any notice of a meeting that might have appointed them had been validly served). Only a validly appointed management committee can fix contributions under sections 20 – 22 of the Building Management Ordinance.

More fundamentally, even a validly appointed management committee could not have required the defendants to contribute to the money payable under the indemnity agreement.

Section 20 of the Building Management Ordinance allows incorporated owners to maintain funds:

(a) to meet the costs of exercising powers and performing duties imposed on them by the DMC and the Ordinance itself;

(b) to pay ground rent, taxes or other outgoings in respect of the building as a whole;

(c) to maintain a contingency fund to meet expenses of an unexpected or urgent nature.

The sums payable under the indemnity agreement did not fall under any of these headings. Sums are only recoverable under (c) if they were expenses that the incorporated owners were empowered to incur. It is not enough for them to be unexpected or urgent ([66]). The incorporated owners had not that they were authorised to enter into the indemnity agreement.

Michael Lower

 

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

 

House rules in the DMC

January 12, 2014

In Yuen Long Tin Shing Court (IO) v Wong Mau ([2013] HKEC 2021, LT) a flat owner was alleged to be keeping a dog in the flat in breach of the DMC. This problem was not resolved despite repeated requests to do so. The owners’ corporation sought, and was granted, an injunction to restrain the keeping of the dog. The Tribunal noted that the DMC’s prohibition on keeping dogs was in a schedule of the DMC that constituted the House Rules. This did not deprive it of its normal legal effect.

Michael Lower