YEUNG CHUNG LAU v. INCORPORATED OWNERS OF CENTURY INDUSTRIAL CENTRE AND OTHERS

DCCJ 381/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 381 OF 2006

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DECISION

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1.  This is an Inter-Partes Summons, pursuant to O.29 r.1 of the Rules of District Court, of the Ex-parte injunction issued by His Honour Judge Chow on 23/1/2006.

Background:

2.  D1 is the Incorporated Owners of Century Industrial Centre (the "Building"), D2 its chairlady and both the plaintiff and D3 are members of the Building's management committee.

3. On or about 6/9/2005, Mr. Wong Wing-ho ("Mr. Wong"), a co-owner of the Building, commenced an action for defamation (HCA 1948/2005) against D2 and D3. The main subject of Mr. Wong's action was two letters purportedly sent by D1.

4. On or about 9/11/2005, an action was filed in the Lands Tribunal (LDBM 340/2005) by Ka Hang Decoration Company Limited ("Ka Hang"), also a co-owner of the building against D2 for an order compelling D2, as chairlady of D1, to convene an owners' meeting to discuss the removal of the present members of the management committee.

5. Without first obtaining the approval of the owners of the Building, the management committee resolved to utilize management funds of the Building for the defence of D2 and D3 in HCA 1948/2005. On or about 27/10/2005, a sum of HK$25,000.00 was paid by D1 to D2 and D3's solicitors.

6. On or about 24/12/2005, D2 and D3's solicitors demanded a further sum of HK$30,000.00 as their legal fees in HCA 1948/2005.

7. On or about 20/10/2005, the plaintiff together with other owners, representing 5% of all shares of the Building, issued a notice requesting D2 to convene an Owners' Meeting for the re-election of the management committee.

8. D2 refused and on or about 9/11/2005, Ka Hang filed LDBM 340/2005 to compel D2 to convene an owners meeting. On or about 23/1/2006, the plaintiff applied by way of Ex-Parte Summons, to restrain D1 until further order or trial either by itself or its agents including the management company of the Building, to make further payments from the management funds of the Building to D2 and D3's solicitors, in respect to HCA 1948/2005 or LDBM 340/2005.

9. Upon reading the plaintiff's affirmation in support, His Honour Judge Chow granted the interim injunction order. The Inter-Partes Summons was set down for 21/2/2006. By consent the Inter-Partes Summons was later adjourned to 24/4/2006.

10. On or about 23/3/2006, D1's solicitors filed a summons to set aside His Honour Judge Chow's order. This summons was of course redundant, since by necessary implication this is already included in the Inter-Partes Summons.

11. On 21/4/2006, by consent, both Inter-Partes Summonses were vacated. Although there are two summonses in front of me, there is in fact only one issue I have to decide today: Whether the interlocutory injunction ordered by His Honour Judge Chow should be set aside?

12.  Before the hearing, Mr. Lo of Messrs. Lo, Chan & Leung, solicitors for D2 and D3, applied to make submissions on behalf of D2 and D3. The sole purpose of this hearing is to determine if the interim injunction against D1 should be continued and neither D2 nor D3 are directly affected.  D2 and D3 are of course entitled to submit evidence by way of affirmations but I see no reason why their legal representative should be allowed to make submissions. Accordingly, Mr. Lo's application was not allowed.

The Law:

13. The law relating to interlocutory injunctions is well settled. In American Cyanamid Co. v. Ethicon Ltd. [1975] AC 396, the House of Lords held there are two requirements: first, there is a serious question to be tried and second, the balance of convenience lies in favour of granting an injunction.

14. Hong Kong Civil Procedure 2006, at para. 29/1/9 derived 11 principles from Lord Diplock's judgment in American Cyanamid Co.:

(1) The granting of an interlocutory injunction is a remedy that is both temporary and discretionary.

(2) The evidence available to the court at the hearing of the application for an interlocutory injunction is incomplete. It is given on affidavit and has not been tested by oral cross-examination.

(3) It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial.

(4) When an application for an interlocutory injunction to restrain a defendant from doing acts alleged to be in violation of the plaintiff's right is made upon contested facts, the decision whether or not to grant an interlocutory injunction has to be taken at a time when ex hypothesi the existence of the right or the violation of it, or both, is uncertain and will remain uncertain until final judgment is given in the action.

(5) It was to mitigate the risk of injustice to the plaintiff during the period before that uncertainty could be resolved that the practice arose of granting him relief by way of interlocutory injunction.

(6) But (at least the middle of the nineteenth century) this has been made subject to the plaintiff's undertaking to pay damages to the defendant for any loss sustained by reason of the injunction if it should be held at the trial that the plaintiff had not been entitled to restrain the defendant from doing what he was threatening to do.

(7) The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if the uncertainty were resolved in his favour at the trial; but the plaintiff's need for such protection must be weighted against the corresponding need of the defendant to be protected against injury resulting from his having prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainty were resolved in the defendant's favour at the trial.

(8) The court must weight one need against another and determine where, " the balance of convenience" lies.

(9) There is no rule of law or practice to the effect that the court is not entitled to take any account of the balance of convenience unless it has first been satisfied that upon the evidence adduced by both the parties on the hearing of the application the applicant had satisfied the court that on the balance of probabilities the acts of the other party sought to be enjoined would, if committed, violated the applicant's legal rights. The purpose sought to be achieved by giving to the court discretion to grant interlocutory injunctions would be stultified if the discretion were clogged by such a technical rule.

(10) However, the court must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.

(11) So, unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.

(12)   It would be most exceptional for the House of Lords to give leave to appeal in a case which turned upon where the balance of convenience lay.

15. Mr. Ng, for D1, argued that if the claim is frivolous or vexatious or that there is no real prospect of succeeding in the plaintiff's claim for a permanent injunction at the trial, interlocutory injunction should not be given, but in Hong Kong Civil Procedure 2006, at para. 29/1/10, the learned author further stated:

" The authority show a preference for stating the American Cyanamid threshold test in terms giving natural meaning to the expressions "a serious question to be tried" and "a real prospect of success" and for ignoring the expression "not frivolous or vexatious".

Whether there was "a serious question to be tried" or "a real prospect of success"?

16. Before I embark on answering this question, it is helpful to review the dispute between the plaintiff and D1. The plaintiff's case is succinctly stated in paragraph 10 of the Statement of Claim, which states:

"10. The DMC contains no provision allowing the use of management funds for litigations involving individual owners in their personal capacity, whether they are at the time holding a position in the management committee of the 1^st Defendant."

17.  Although no Statement of Defence has been filed, one can adduce the D1's defence from paragraph 10 of Mr. Yu Cheuk Sing's, D1's vice chairman, second affirmation. Mr. Yu stated:

" 10. On 6^th May 2006, it was resolved in the Owners' Meeting, inter alia, that the 1^st Defendant could appropriate the public funds for 2^nd and 3^rd Defendants in their defence in Court, i.e. LDBM No. 340 of 2005 and HCA No. 1984 of 2005. …"

18.  In essence, the plaintiff's case is that D1 cannot use management funds to defend D2 and D3, when they are being sued in their personal capacity, because there is no provision in the Deed of Mutual Covenant of the Building (the "DMC") to allow them to do so. The D1's case is that so long as the payment is authorized by a majority of the owners in an owners' meeting, D1 has the power to do so.

19. The parties' argument depended solely on interpretation of the DMC, as modified by the Building Management Ordinance cap. 344 (the "BMO"), if applicable. This is a question of law and does not involve any "conflicts of evidence".

20.  Mr. Ng, argued that the Court of Final Appeal's decision in The Grande Properties Management Limited v. Sun Wah Ornament Manufactory Limited, FACV No 2 of 2006, a case that dealt with the validity of a resolution sanctioning unauthorized renovation works that was previously done without authority, stands for the proposition that the 6/5/2006 resolution gave the D1 retrospective authority to pay for the D2 and D3's legal fees.

21. My review of The Grande Properties reveals that ultimately, Mr. Justice Chan P.J. held the resolution at issue in The Grande, did not have retrospective effect and therefore legal and enforceable. In paragraph 32 of his judgment, Mr. Justice Chan stated:

" In my view, there is no question of the owners including Sun Wah being liable before the resolutions in question were passed. The 2001 resolutions cannot be said to operate with retrospective effect. The trial judge's conclusion that they were contrary to the DMC because they had retrospective effect was therefore wrong."

22.  Mr. Justice Chan also stated:

" In the management of multi-storey buildings, it is important that the Manager and the owners are entitled to make appropriate decisions unless such decisions are prohibited by the DMC. Numerous matters, whether trivial or important, may surface from time to time and on very short notice. They need to be attended to. Things need to be done very quickly. However, there are procedural requirements for convening an owners meeting where approval can be obtained before action can be taken. That is why the Manager is given wide powers by the DMC. But however detailed and comprehensive the DMC may be, it cannot cover all exigencies. There must be occasions when it is necessary to sanction what has been done before the owners can meet, discuss and approve it. Subsequent sanction or approval is also necessary to correct mistakes, cure defects or remedy oversight. Resolutions for such purposes are very often retrospective in effect. If resolutions which take retrospective effects are to be regarded as invalid simply because they deal with matters which are not expressly empowered by the DMC, it would hinder the efficient management of the building." (Emphasis added.)

23. This part of Mr. Justice Chan P.J.'s decision was obiter dictum and of course referred only to resolutions that have the effect of retrospectively approving prior actions.

24.  The issue remains: Was the resolution approving the payment of D2 and D3's legal fees valid? The oblivious place to look for that answer is in the text of the DMC and the BMO.

25.  Mr. Ng's arguments in respect of the merits, or lack thereof, on Mr. Wong's claim and whether the two letters that triggered the defamation action were properly authorized by members of the management committee and Mr. Chu's arguments on champerty, maintenance and section 20A of the BMO, were all reaching for the far fetched and ignoring the oblivious.

The DMC:

26.  Clause 15 of the DMC provides:

" (a) From time to time there shall be meetings of the co-owners of the said Building to discuss and decide matter concerning the said Building as are hereinafter mentioned and in regard to such meetings the following provisions shall apply: -

…

(b) A meeting validly convened under paragraph (a) of this Clause shall have power to consider and determine any question, matter or thing relating to or connected with the operation, servicing, maintenance, repairing, rebuilding, insurance or management of the said premises and Building including the appointment of a Manager for the said management at the said Building PROVIDED THAT:-

(1) No resolution shall be valid in the extent that it is inconsistent with or purports to vary any of the provisions of this Deed.

(2) …" (Emphasis added.)

27. Unlike the deed of mutual covenant in The Grande, the DMC of the Building expressly provided that the owners' meeting only have power to consider and determine questions relating to or connected with "the operation, servicing, maintenance, repairing, rebuilding, insurance or management of the said premises and Building" and all resolutions are invalid if "it is inconsistent with or purports to vary any of the provisions of this Deed".

The BMO:

28.  Section 14 of the BMO provides:

(1)   Subject to this Ordinance, at a meeting of a corporation any resolution may be passed with respect to the control, management and administration of the common parts or the renovation, improvement or decoration of those parts and any such resolution shall be binding on the management committee and all the owners. (Emphasis added.)

29.  Sections 34E and 34F of the BMO incorporated the provisions of the Seventh and Eighth Schedules (if consistent) into all deeds of mutual covenants. Neither of these schedules modified or changed clause 15 of the DMC.

30.  The issue therefore becomes: Whether the 6/5/2006 resolution related to or connected with "the operation, servicing, maintenance, repairing, rebuilding, insurance or management of the Building" or "the control, management and administration of the common parts or the renovation, improvement or decoration of those parts"?

31.  A review of the minutes of the 6/5/2006 owners meeting reveals that the resolution the owners voted on was:

"是否動用公帑爲張麗華及梁家輝其個人在進行抗辯?"

32.  The resolution passed was:

"表決結果, 大會以427業權分數通過贊成可動用公帑爲張麗華及梁家輝兩人進行抗辯。"

33. Clearly, the 6/5/2006 resolution had nothing to do with: "the operation, servicing, maintenance, repairing, rebuilding, insurance or management of the said premises and Building" nor "the control, management and administration of the common parts or the renovation, improvement or decoration of those parts" and the resolution was accordingly invalid.

34.  For the purpose of this application, there is no triable defence.

Whether the balance of convenience lies in favour of granting an injunction?

35.  In Yeko Trading Ltd. v Chow Sai Cheong Tony & Ors. [2000] 2 HKC 612, Mr. Justice Chung held if there is no arguable defence, the court should not even consider the question of balance of convenience. It was stated:

"The significance of this part of Mr. Yan's submissions is as follows. American Cyanamid Co v Ethicon Ltd. [1975] AC 396 decided that the court must be satisfied of two matters before granting an interim injunction order: (a) there is a serious question to be tried on the plaintiff's claim, and (b) the ‘balance of convenience' justifies the granting of the order. Although Mr. Yan accepted this to be settled principle, he argued that where the defendant is not even able to show an arguable defence, the court does not need to (and should not) consider the question of ‘balance of convenience'. He referred to two cases in support.

…(Mr. Justice Chung considered the cases of Manchester Corp v. Connolly [1970] 1 Ch 420 and Official Custodian for Charities v. Mackey [1985] 1 Ch 168.)

Based on the principles stated in the above cases, I agreed with Mr. Yan's argument that there is no need to consider the issue of ‘balance of convenience', provided the plaintiff's claim for an injunction order is justified if it should succeed in proving its claim. I considered that this is such a case and there is therefore no need to consider the matter further."

36.  So far as costs is concerned, I see no reason to depart from the usual costs order.

Order:

37.  Order in terms of the Plaintiff's Summons dated 3/2/2006, namely,

(1) The 1^st Defendant be restrained until further order or trial either by itself or its agents including its Management Company, to make further payment(s) from its management funds to Messrs. Lo Chan & Leung, and/or other solicitors' firms, for legal costs and disbursements incurred or to be incurred relating to HCA 1948 of 2005 and LDBM 340 of 2005; and

(2) Costs of this Summons be in the cause of the action herein.

38.  Accordingly, D1's application by way of Summons dated 23/3/2006 for setting aside the injunction order granted by His Honour Judge Chow is dismissed.