published in the 2019 Yearbook of Hong Kong Institute of Housing
By K.Y. Kwok of Li, Kwok & Law, Solicitors & Notaries
Introduction
The Home Affairs Department published a paper on the Best Practices on Building Management (“Best Practices”) in February 2019. The objective is to provide incorporated owners (“IO”) property managers and owners with guidelines on specified areas of estate management. Those four areas are (i) formation of an Owners’ Corporations, (ii) procurement process, (iii) general meeting and the use of proxy Instruments and (iv) financial arrangement. This article will discuss some of the important content of the Best Practices.
Legal Status of the Best Practice
It was stated in the Best Practices that they are not to be treated as the Building Management Ordinance (“BMO”) or the Code of Practices (“CoPs”) 1 . Contravention of the Best Practices will not carry any legal consequence. It should, however, be noted that some of the suggested practices are the same as proposed amendments of the BMO. Once the proposal to amend is implemented, the relevant practices would become compulsory legal requirement.
The Best Practices
Formation of an Owners’ Corporations
The Best Practices proposes that the Management Committee (“MC”) members should consist of at least 11 members (instead of 9 as required by the BMO at present) for buildings with more than 100 flats. This may enable more owners to participate into the management of the building so that the MC may become more representative.
Under the Best Practices, a candidate seeking to be elected as an MC member should declare his association with any other candidates or existing MC members in the form of “Declaration of Associates” attached as its Annex A (“Annex A”). “Associate” includes a relative, a co-owner of the flat, the body corporate which the candidate controls or of which the candidate is a director, the body corporate of which the candidate is an employee or agent, and the candidate’s partner. “Relative” is given a wide meaning, and includes a person related to the individual by blood (e.g. aunt, uncle, cousin, niece, nephew) or marriage (e.g. in-laws). It also includes relationship created by adoption and step-parents and step-children.
As to the associate of a corporate candidate, they include the candidate’s employees or agents and its associate companies (e.g. subsidiaries, holding companies), the corporate candidate’s co-owner of the Flat as well as its director and partner.
With such disclosure fully made, owners may be in a better position to decide on whom they should cast their votes. The possibility that the MC would be controlled by a group of persons associated with one another may be reduced, as is the chance that MC membership may be passed on from generation to generation unless the owners so desire.
Well-intentioned this may be, a candidate is not required by the BMO to make any such Declaration of Associates. A candidate failing or refusing to make the declaration is still eligible for running the election and being appointed as MC members, although his refusal to make the declaration may be disclosed to the owners. Such disclosure may have some negative impact on the candidate’s chance of success in the election.
Procurement Process
“Large-scale” procurements is defined in the Best Practice, namely it will be a “large-scale procurement” if the value of the supplies, goods or services to be procured exceeds or is likely exceed the corresponding “absolute amount” or “percentage of the average audited expenditure of the building for the past three years”, whichever is the lesser, as set out below :-
If there is no audited expenditure of the building for the past three years, the “absolute amount” may be adopted as the criterion.
For “large-scale” procurements, the Best Practices proposes that the quorum of the general meeting should be 20% of the owners with at least 10% or 400 owners (whichever is lesser) attending the meeting in person. As everyone knows, at present, the prescribed quorum is 10% under the BMO which draws no distinction between meetings for resolving matters relating to “large-scale” procurements and meetings for other purposes. Perhaps, it is hoped that when more owners have participated in the discussion and decision-making of large-scale procurement, the possibility of future disputes may be reduced. Nonetheless, this has yet been a legal or mandatory requirement before proposal to amend the BMO to the similar effect is carried out. A meeting may have to commence and continue so far as the 10% quorum is attained. It is therefore perhaps difficult to see what the precise purpose of setting a specific higher threshold of 20% and 10% (attending in person) may serve, other than suggesting that more owners should be encouraged to attend a meeting for discussing “large-scale” procurements.
The Best Practices further proposes that owners appointing proxies to attend a general meeting to resolve on matters relating to “large-scale” procurements and their proxies should provide the declarations and voting instructions in Part B and C of Annex B of the Best Practices (on motions with options “for” and “against” only).
Annex B of the Best Practices contains 3 parts, including (i) proxy holder’s declaration that the proxy form was acquired honestly (“Part A”); owner’s voting instruction (“Part B”); and, proxy holder’s declaration that they will follow the voting instruction (“Part C”).
It should be remembered that an owner may always amend his voting instruction, before the vote is actually cast. He may orally or otherwise, ask a proxy holder to vote in a different way from that indicated on Part B of Annex B. The proxy holder should vote according to the owner’s latest instruction. It may be difficult for the Manager to confirm whether there is indeed any such change even if the proxy holder purports to vote contrary to the stated voting instruction. Hence, although the Best Practice said that the voting instruction in Part B of Annex B should be used as the ballot, if the proxy holder refuses to do so, and insists on casting the vote in a different way, his vote may still have to be counted even if it cannot be verified from the owner what his latest instruction is.
According to schedule 3 para 4(4) of BMO, a proxy form is only valid if it is the same as Form 1 or 2 under Schedule 1A to the BMO. In 盧鴻駒 訴 翠林花園業主立案法團 (LDBM 252, 265, 275/2012), the Lands Tribunal held that in view of Section 37 of the Interpretation and General Clauses Ordinance3, some minor additions which do not effect the substantive content of the proxy form would not invalidate it. Obviously, if Annex B is incorporated into the proxy form and forms part of it, the amendment will be quite substantial.
The Home Affairs Department has clarified that that Annex B itself does not form part of the proxy which should still follow the prescribed form in Schedule 1A to the BMO. Annex B merely contains a separate document to be provided by the owners in addition to the proxy. It should further be noted that the proxy will still be valid and must be accepted even if Annex B is not filled in or returned by the owners.
General Meeting and Use of Proxy
There are also some miscellaneous practices proposed, for example, in large-scale procurements, the MC Secretary should ensure that (i) the estimated cost for each project; (ii) costs to be borne by each owner; and (iii) the resulting contribution of funds are stated clearly in the notice convening the meeting by way of a conspicuous alert. The minutes of MC or owners’ meetings concerning large-scale procurements shall be delivered to owners within 28 days of meeting. There should be little difficulty in adopting such practices in most cases.
The Best Practices suggests that the date of meeting and a unique serial number should be printed on the proxy form, with the name of proxy left blank. The serial number presumably helps to identify whether a proxy form comes genuinely from the owner. However, although the MC may make inquiries with the relevant owner who does not return the same proxy form he is supplied, they cannot lawfully prevent a proxy-holder from voting on that ground alone.
Further, a statement of purpose for collection of personal data should be attached to the proxy instrument, so as to comply with the relevant Data Protection Principle prescribed in Schedule 1 to the Personal Data (Privacy) Ordinance. A sample statement can be found in Annex C of the Best Practices. The sample statement covers (i) purpose of collection of personal data; (ii) obtaining consent of the data holder in using the personal data; (iii) class of the transferees to whom the personal data may be passed; and (iv) access to the personal data and how to request for such access. As the Personal Data (Privacy) Ordinance has been in force for some years, many proxies should have already contained similar statements.
The Best Practices also recommends that owners should sign the proxy form similar to their signatures on the assignment by which the flat is acquired. For corporate owners, they should sign the proxy form by authorized persons in accordance with the company’s constitution. The Best Practices does not state whether the owners’ corporation or managers should check whether these proposals are observed. This will be a rather onerous task for the MC and Manager, and in any event a proxy not so signed may not be invalid on such ground alone.
The Best Practices suggests that for a building with not more than 20 flats, a proxy holder can only hold at most one proxy. For a building with more than 20 flats, a proxy holder should only hold proxies from not more than 5% of the owners or 50 proxies (whichever is lesser). These suggestions are the same as the amendments of the BMO being proposed, presumably to minimize manipulation by individual proxy holders. However, this is not a mandatory requirement at this stage, nor is such requirement hard to evade. One may arrange a few individuals acting in concert as proxy holders if necessary.
As to the timing of lodging and collecting proxy instruments, the Best Practices proposes that MC Secretary should arrange such time and location for collecting, opening and counting of proxy instruments which are convenient to all owners. The owners should lodge proxy instruments with the completed forms at least 144 hours before meeting to allow more. Again, the present deadline of 48 hours of the BMO remains to be the law, and any proxy lodged before then must be accepted. The proposed “144-hour deadline” can only mean that owners should be urged to lodge their proxy earlier.
As to the display of information concerning proxy instruments, the Best Practices suggests that the MC Secretary should display in a prominent place at least 72 hours before the meeting information of those flats with proxy instruments lodged and remain to be displayed until seven days after the meeting. The present requirement under the BMO is only to display information of the owner’s flat in a prominent place in the meeting venue before the time for holding the meeting, and cause the information to remain so displayed until the conclusion of the meeting. However, in 徐偉業訴林武照及東廬大樓業主立案法團 (2012), the Lands Tribunal held that even if the MC acted in breach of these requirements, the proxies would still be valid. Therefore, it is not easy to envisage what legal consequence may attach for of breach of such statutory provision, not to mention how any further provision, to be introduced into the BMO in future now appearing in the Best Practice.
Proxy information to be displayed should include (i) total number of proxy received; (ii) a mark against the flat of the owner concerned who has submitted proxy but invalidated; and (iii) total number of invalidated proxy. The MC Secretary should remind owners to check proxy information to see if there are any unauthorized appointments. The reason for invalidation should be stated and announced.
As to the conduct of meetings, the Best Practices suggests that the MC Chairman should (i) conduct meeting orderly; (ii) explain clearly the background and issues to be discussed; (iii) allow owners to have equal opportunity to speak; and (iv) encourage owners to express their views. The MC Secretary should keep track of owners entering and leaving the venue to ensure that quorum is attained and maintained, should advise the Chairman to adjourn the meeting if there is no sufficient quorum. This may not be practicable if the venue is an open space and the admission or departure of owners cannot be easily tracked.
Upon the completion of a meeting, the Best Practices proposes that (i) proxy instruments, (ii) copies of the Annex B with chop affixed; (iii) voting instructions used as ballot papers; and (iv) proxy information displayed should be kept for at least 3 years. Proxy Instruments, Annex B and Proxy information displayed should be made available for inspection by various parties concerned.
Financial Arrangement
The Best Practices encourages an OC with not more than 50 flats (excluding car parking space) but with annual income or expenditure exceeding $100,000 should have their financial statements audited, as compared with the proposed amendments of the BMO that OC with an annual income or expenditure of over $100,000 should have its financial statements audited. At present, the auditing requirement under section 27 of the BMO does not apply to a building which contains no more than 50 flats.
Checklist on Procedural Propriety on Building Management
In addition to the Best Practices, the Home Affairs Department has issued a Checklist on Procedural Propriety on Building Management (“Checklist”). The Checklist contains a summary of the requirements under (i) the BMO, (ii) the CoPs on Procurement, and (iii) the Best Practices related to convening of general meeting. The apparent purpose is to enable OC or the managers to conduct a check conveniently on whether each parties have complied with the respective requirements.
While compliance with the Best Practices is not mandatory, the Home Affairs Department encourages practitioners to (i) complete the Checklist and state the reasons for non-compliance with any recommendations in the Best Practices to increase transparency and accountability; (ii) display the completed Checklist in a prominent place in the building; and (iii) provide a copy of the completed Checklist to the District Building Management Liaison Teams of the District Offices to share their experience and views in adopting the Best Practices . The MC or Managers may then be asked to account to the owners or occupiers why they have chosen not to follow some practices which may be thought to be “best”, although they are not obligated to follow them in law.
1 Cops are issued by the Home Affairs Department under section 44 of the BMO. Section 44(2) of the BMO provides that failure to observe CoPs would not result in criminal prosecution, but any such failure may be relied upon to establish or negate liability in question in any civil or criminal proceedings.
2 not including any garage, carpark or carport.
3 which provides that “where any form is prescribed by or under any ordinance, deviations from it which do not affect the substance of the form shall not invalidate it.
Li, Kwok & Law Solicitors & Notaries
“This article is for general reference only and should not be acted upon in any actual case. Further, the information contained in the article may not be updated. The readers should consult their solicitors for legal opinion.”