Posts Tagged ‘owners’ meeting’

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

 

Building management: Management fee for handling renovation works needs owners’ approval

September 9, 2016

In Flora Garden (IO) v Li Do Wai ([2016] HKEC 1830, LT) the owners’ meeting approved the carrying out of renovation and improvement works at the estate. The incorporated owners added a 10% fee on top of the cost of the works to cover consultancy, contract and administrative fees and other ancillary costs (‘ancillary costs’). The owners’ meeting had approved the cost of the works but not the ancillary costs. When the works were complete, each owner was asked to pay the due share of the cost of the works including the ancillary costs. Deputy Judge Kot held that the ancillary costs could not be charged to the owners. They had not been approved by the owners nor had this aspect of the works been put out to tender. The incorporated owners’ submission that owners had paid such costs before without express approval and that this practice provided the necessary authorisation failed ([33] – [36]).

The DMC authorised the owners’ corporation to levy a 5% surcharge on late payers as well as a collection charge of HK$150. A demand for these sums was made of the owners who had paid late. They argued that these sums were a penalty and so irrecoverable. This argument failed. It did not matter that the sums were not a genuine pre-estimate of loss. The surcharge clause protected a legitimate commercial purpose of the incorporated owners and was not extravagant or unconscionable in amount ([47] – [48]).

Michael Lower

Owners’ meeting: validity of decision to dissolve the meeting and of the proceedings of a ‘break-away’ meeting

July 11, 2013

Discovery Bay Services Management Ltd v Hannon Ltd ([2013] HKEC 958, LT) concerned the validity of a decision to dissolve a meeting of the Headland Village Owners’ Committee and of the proceedings of a break-away group of owners who purported to continue the meeting after the chairman had attempted to dissolve it.

There is a DMC for Discovery Bay as a whole and sub-DMCs for the villages within it. There is no owners’ corporation. CM is the manager under the DMC.

CM convened a meeting of the owners of Headland Village to elect the officers of the village owners’ committee for the coming year. The meeting began but was dissolved by the chairman. He dissolved the meeting because he disputed the validity of the appointment of the representative of CM (which was entitled to be present at the meeting and count as part of the quorum  but not to vote). He also contended that the sub-DMC only allowed owners or their spouses or family members to attend and vote. There was no scope to appoint anyone else as a proxy. He contended that the meeting was inquorate if one left ineffective proxies out of account.

A group of owners then went to another room and continued the meeting. They elected new officers. The chairman protested that the meeting was inquorate and its proceedings invalid.

DB sought, and obtained, declarations that the chairman had been wrong to dissolve the first meeting and that the second part of the meeting, and the resolutions passed there, were valid.

The chairman disputed the effectiveness of the letter by which CM appointed an individual to act as its representative at the meeting. The letter had been signed by a director of CM but did not bear CM’s chop or seal. This failed: as a matter of construction, the sub-DMC did not require the company’s chop to be effective. The normal rules for the appointment of an agent were all that mattered and they had been adhered to. In any event, CM had later formally ratified the appointment. This came after the village owners’ meeting but the ratification cured any potential defect in the original appointment.

The chairman contended that the sub-DMC only allowed owners or their spouses or family members to attend and vote. Thus, proxies given to other parties (such as CM) should be ignored. The result was that the meeting was inquorate. The Tribunal confirmed the chairman’s reading of the relevant provisions of the sub-DMC. Even allowing this, however, the meeting was still quorate. (There is an interesting comment at [56] on the idea of a ‘family member’).

Finally, there was the question as to whether the second meeting (or the second stage of the meeting) was quorate. It was. The chairman counted as part of the quorum since he was present even while he vociferously denied the validity of the proceedings. The same was true of the other owners who were of the same view as the chairman.

It was clearly a very lively meeting and there was a police presence nearby for part of it ([72]).

Michael Lower