
Hoi Tao Building Owners Win Case; Management Committee and Major Repair Resolutions Overturned
In 2022, Hoi Tao Building in Sai Wan became embroiled in a controversy over bid-rigging related to a major repair project. Some owners filed a petition with the Lands Tribunal, seeking to overturn the legitimacy of the elected management committee and the repair contracts. In her judgment (LDBM 202/2022), Judge Lam Mei See ruled that the owners' meeting in question involved fraudulent authorizations. The election of the committee members and the approval of the repair project were deemed invalid. The chairperson, Yung Pui Ling, and other committee members at the time were found to have acted without good faith, held personally liable, and ordered to pay legal costs. At the request of the applicants, the court appointed an owner as the manager, who is required to hold an owners' meeting within 56 days.
Key Issues
Validity of the October 13, 2022 Owners' Meeting (10/13 Owners' Meeting):
The applicants challenged the decisions made at the 10/13 Owners' Meeting, alleging that the meeting was filled with fraudulent proxy forms and improper procedures, which rendered the decisions invalid.
The decisions included electing committee members and approving a large-scale repair project.
Actions by the Management Committee:
Allegations were made that the defendants, acting as members of the management committee, failed to act in good faith and reasonably, especially in approving and signing two large-scale repair contracts worth over HKD 31 million without proper authorization.
Application of Section 29A of the Building Management Ordinance (Cap. 344):
Whether the defendants, as committee members, acted in good faith and reasonably to be protected under Section 29A, which shields committee members from personal liability if they meet these criteria.
Request to Appoint a Manager for the Building:
The applicants requested the appointment of an external manager to oversee the building’s affairs and organize a valid election of a new management committee.
Legal Principles
Validity of Meeting Resolutions:
The court must assess whether procedural irregularities are substantive enough to invalidate resolutions. Resolutions passed through significant procedural or substantive defects cannot be saved by the "irregularity principle" if the defects undermine the fairness or credibility of the process.
Section 29A of the Building Management Ordinance:
Committee members are shielded from personal liability only if they act in good faith and in a reasonable manner. Failure to meet these standards exposes committee members to personal liability for their actions.
Role of the Lands Tribunal:
The tribunal has the authority to declare resolutions invalid, dissolve management committees, and appoint managers under Section 31 of the Building Management Ordinance in cases of serious mismanagement or procedural failures.
Key Findings
1. Fraudulent Proxy Forms at the 10/13 Meeting
The tribunal found substantial evidence of fraudulent proxy forms:
Evidence of Fraudulent Behavior:
Multiple owners testified that they did not authorize proxies, yet their units were listed as having issued proxy votes. Notably, one deceased owner was listed as having issued a proxy, which was used by the sixth defendant (former chairman) to vote at the meeting.
Procedural Failures:
The sixth defendant, as chairman of the prior committee, failed to verify the authenticity of proxy forms or issue acknowledgment receipts to owners as required by law.
Defendants refused to allow other owners to inspect the proxy forms during the meeting, citing privacy concerns.
Two conflicting lists of proxy forms were produced, both containing errors, further undermining the credibility of the process.
Tribunal's Conclusion:
The fraudulent proxy forms and procedural irregularities undermined the fairness of the meeting. The resolutions passed, including the election of committee members and approval of the repair project, were declared invalid.
2. Actions of the Management Committee
The tribunal scrutinized the defendants' actions after the 10/13 Owners' Meeting, particularly the signing of two major repair contracts.
The First Contract (10/27 Committee Meeting):
Improper Authorization:
The committee signed the first contract worth HKD 31,643,805 at the 10/27 committee meeting, claiming they had been authorized by the chairman, Mr. Chan, over the phone. However, the tribunal found no credible evidence of such authorization.
The defendants failed to respect the owners' resolution at the 10/13 meeting, which only authorized the chairman to sign the contract, not the other committee members.
Unreasonable Conduct:
The defendants threatened to create a new building seal if the chairman refused to cooperate, demonstrating an urgent and improper desire to execute the contract.
The Second Contract (11/24 Contract):
Opposition from Owners:
Despite receiving multiple written requests from more than 5% of owners to convene another meeting to discuss the repair project, the defendants ignored these requests.
Instead, the newly-appointed chairperson (second defendant) hastily signed a second contract mirroring the first contract, further disregarding owners' objections.
Tribunal's Conclusion:
The defendants acted unreasonably and not in good faith. Their actions showed a disregard for the owners' interests and the law, particularly their obligations under the Building Management Ordinance to convene meetings when requested by owners.
3. Application of Section 29A
The tribunal ruled that the second, fifth, sixth, and seventh defendants were not entitled to protection under Section 29A:
Lack of Good Faith and Reasonable Conduct:
The defendants ignored owners' requests for meetings, facilitated the use of fraudulent proxy forms, and hastily signed contracts without proper authorization.
The sixth defendant, in particular, was found to have directly benefited from fraudulent proxy forms and failed to act responsibly in verifying their authenticity.
4. Appointment of a Manager
The tribunal granted the applicants' request to appoint a manager:
Mismanagement by the Committee:
The tribunal found that the current management committee was invalid and had failed to act in the best interests of the owners.
The appointed manager, Mr. Si Yeung Lung, was tasked with organizing a new meeting to elect a valid management committee.
Tribunal Orders
Invalidation of Decisions:
All decisions made at the 10/13 Owners' Meeting, the 10/27 Committee Meeting, and the 11/22 Committee Meeting were declared invalid.
The management committee was dissolved.
The first and second repair contracts were declared unauthorized and invalid.
Appointment of a Manager:
The tribunal appointed Mr. Si Yeung Lung as the manager for six months to oversee the building's affairs and organize a new election.
Costs:
The second, fifth, sixth, and seventh defendants were ordered to bear the applicants' legal costs on an indemnity basis due to their unreasonable conduct during the litigation.
Analysis of Tribunal's Reasoning
The tribunal's reasoning was thorough and well-supported by evidence. Key aspects include:
Reliance on Evidence:
The tribunal carefully considered witness testimony, written evidence, and procedural irregularities to arrive at its findings. For example, the discrepancies in proxy forms and voting irregularities were substantiated by both oral testimony and documentary evidence.
Application of Legal Principles:
The tribunal applied established legal principles regarding meeting resolutions and Section 29A protection. Its decision to invalidate the resolutions was grounded in clear procedural and substantive defects.
Fairness to All Parties:
While the tribunal criticized the unreasonable conduct of some defendants, it recognized the passive roles of others (e.g., eighth, ninth, and tenth defendants) and refrained from ordering costs against them.
Focus on Owners' Interests:
The tribunal emphasized the importance of protecting the rights of the building's owners and ensuring fair and transparent management. The appointment of a manager reflects its commitment to restoring proper governance.
Conclusion
This judgment highlights the importance of transparency, good faith, and adherence to the law in the management of homeowners' associations. The tribunal's decision to invalidate the resolutions, dissolve the committee, and appoint a manager underscores its role in safeguarding owners' rights and ensuring fair governance. The case serves as a precedent for addressing mismanagement and procedural irregularities in building management disputes.
January 2025
Dr. Anthony Lai and Mr. Herbert Kwoon
Opmerkingen