Chow Chui Chui and ors v Kafull International Ltd and ors - [2016] HKCU 2070

Introduction

In Chow Chui Chui and ors v Kafull International Ltd and ors - [2016] HKCU 2070, the Court of Appeal ("CA") confirmed that owners of sub-divided units in multi-story buildings are owners and should count in terms of calculating the quorum of a meeting, and be entitled to vote at general meetings of incorporated owners ("IO").

Facts

The dispute concerned a multi-storey building ("Building") consisting of four levels of commercial units ("Non-Domestic Portion") and 17 floors of domestic units ("Domestic Portion").

The Deed of Mutual Covenant ("Main DMC") divided the building into 155 equal undivided shares. During 1997 and 1998, two sub-DMCs were executed, sub-dividing the Non-Domestic Portion into smaller shop units.

Under the Main DMC, management of the Non-Domestic Portion and the Domestic Portion was separate. At a general meeting convened by the residential owners on 15 October 2011, resolutions were passed requiring the commercial owners to contribute to building renovations. On 4 August 2012, opposing resolutions were passed at a general meeting of the IO ("Second Meeting") relating to the invalidation of the contribution resolutions, the removal and replacement of the existing management committee and the election of a new management committee. The Second Meeting was attended by 14 owners from the Non-Domestic Portion and two from the Domestic Portion.

The members of the management committee that were removed by the resolutions passed at the Second Meeting ("Former Management") brought proceedings in the Lands Tribunal ("Tribunal") seeking a declaration that these resolutions were null and void on the grounds that the meeting was inquorate. It was argued that the management of the Building was governed only by the terms of the Main DMC, under which the number of units in the Non-Domestic Portion was four (one for each of ground floor, 1st - 3rd floors). As the required quorum for the meeting was eight, and notwithstanding that 16 owners had cast their votes, the Former Management argued that only six votes (four from the owners of the Non-Domestic Portion, and two from the owners of the Domestic Portion) should be counted when calculating the quorum.

The Tribunal agreed with the reasoning of the Former Management, and declared that the resolutions passed at the Second Meeting were invalid.

Law

Upon appeal, the point of law was whether each of the owners of sub-divided units in the Non-Domestic Portion of a building pursuant to the two sub-DMCs would fall within the definition of "owner" of a "flat" under the Building Management Ordinance, Cap 344 ("BMO") for the purpose of counting towards the necessary quorum (requiring 10% of owners) at a general meeting of the corporation of owners.

Decision

The BMO defines an "owner" as someone who appears from the Land Registry to own undivided shares in land or a building, has exclusive possession of his / her unit, and is registered as an owner at the Land Registry. Having satisfied these requirements, it was held that an owner of a sub-divided shop unit in the Non-Domestic Portion of the Building fell within the statutory meaning of "owner" of a "flat" and that the Tribunal Judge had made a mistake in holding that only those units or flats referred to in the Main DMC could count when calculating the quorum.

The fact that the Main DMC made no reference to sub-division was irrelevant - so long as the main DMC did not prohibit sub-division, the sub-DMCs should have been taken into account.

The CA rejected the contention that there were only four owners from the Non-Domestic Portion, ruled that the Second Meeting was quorate, and that the resolutions passed were valid and binding.

Commentary

The CA's decision clarifies that a sub-DMC can fall within the definition of DMC under the BMO. It is also now clear that an owner of a sub-divided unit in a multi-purpose building should be treated as an owner with unrestricted rights to participate in building management decisions.