KUNG MING TAK TONG CO LTD v. GOLDWELL PROPERTY MANAGEMENT LTD

HCA1745/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

ACTION NO. 1745 OF 2005

D E C I S I O N

1.  The plaintiff seeks a number of declarations to the effect that the termination of the service of the defendant as the manager of the ground to 3rd floors of Fu Wah Centre.  The plaintiff has applied for summary judgment.

2.  Fu Wah Centre is a building in Tsuen Wan.  The ground to 3rd floors are for commercial purposes (“the commercial portion”) and the other floors above are for residential accommodation.

3.  The whole building is divided into 9,700 equal and undivided shares.  The commercial portion was allocated 5,040 shares.  The plaintiff is the owner of 1,440 shares and the exclusive right to occupy the 2nd and 3rd floors of the commercial portion.  The management of the whole building is governed by a principal Deed of Mutual Covenant and Management Agreement (“principal DMC”).  There is a sub-Deed of Mutual Covenant (“sub DMC”) to govern the management of the commercial portion. 

4.  The defendant was the manager for the commercial portion.  The plaintiff was desirous of removing the manager pursuant to the provisions of the sub DMC.  The following provisions in the sub DMC are relevant for the removal of the defendant as the manager.

“F-1.  Appointment of Manager.

The parties hereto have agreed with the Company and the Company has agreed to undertake the management of the Ground to Third Floors for an initial term of 2 years from the date of this sub-Deed.  The Company shall continue to be the Manager of the Ground to Third Floors after expiration of the said term until terminated, either by the Company giving to the Owners … not less than 3 months’ notice in writing to terminate the same or by the Owners … giving it a notice of termination in writing issued not less than 3 months prior to the date of termination upon a majority resolution of the Owners being passed in accordance with section H hereof.

H-1 - Meetings of Owners

From time to time there shall be meetings of the Owners to discuss and decide matters concerning the Ground to Third Floors and for such meeting the following provisions shall apply: -

(c)     A meeting may be validly convened by either the Manager, the Owners’ Committee or those Owners who in the aggregate have vested in them for the time being not less than 20% of the total undivided shares of the Ground to Third Floors PROVIDED THAT one such meeting shall be held during each financial year the first of which will be called upon and conducted by the Manager not later than 9 months from the date of this Sub-Deed.

(e)     No business shall be transacted at any meeting unless a quorum is present when the meeting proceeds to business and Owners present in person or by proxy who in the aggregate have vested in them not less than 10% of the total undivided shares in the Ground to Third Floors shall be a quorum.

(g)     Every Owner shall have one vote for each undivided share in the Ground to Third Floors vested in him and in the case of two or more Owners who together are entitled to one such share such Owner shall jointly have one vote for each such share and in case of dispute the first named of such Owners shall have the right to vote.

(i)      Votes may be given either personally or by proxy.

(k)     Any resolution on any matter concerning the Ground to Third Floors or the management thereof by the Manager passed at a duly convened meeting by a majority of the Owners present in person or by proxy and voting shall be binding on all the Owners Provided as follows: -

(i)      The notice convening the meeting shall specify the intention to propose a resolution concerning such matter.

(ii)     Any resolution purported to be passed at any such meeting concerning; any other matters shall not be valid.

(iii)    No resolution shall be valid if it is contrary to the provisions of this Sub-Deed.

J-6 In Case of conflict

All Owners hereby declare and confirm that this Sub-Deed is made subject to and with the benefits and rights as mentioned and/or referred to in the Principal Deed of Mutual Covenant and Management Agreement insofar as they are fact or relate to his Shop.  In the event that there is any inconsistency between the Sub-Deed and the Principal Deed of Mutual Covenant and Management Agreement, the provisions of the Principal Deed of Mutual Covenant and Management Agreement shall prevail.  The rights and obligations created herein shall be in addition but without prejudice to those created under the Principal Deed of Mutual Covenant and Management Agreement.”

5.  There is another owner called Joint Way Properties Limited (“Joint Way”) (a company related to the plaintiff) which owned 65 undivided shares together with an exclusive right to occupy the unit called Shop 2B of the 1st floor of the commercial portion.  The plaintiff and Joint Way together, through their solicitors, issued a notice on 3 August 2005 to convene a meeting of the owners of the commercial portion to discuss the termination of the defendant’s engagement.  The Notice of Meeting was sent by a courier service company to all the owners of the commercial portion on either 3 or 4 August 2005.

6.  The meeting was held on 13 August as stated in the notice.  The plaintiff and Joint Way attended the meeting and they voted with their 1,505 undivided shares for the termination of the defendant’s service.  No other owner was present.  The plaintiff then, through its solicitors, served a written notice of termination on the defendant on 15 August 2005, which stated that the defendant’s engagement would end on 15 November 2005.  The defendant did not agree with the plaintiff’s view and refused to hand over the management of the commercial portion to the new manager on 15 November 2005.

7.  The defendant’s solicitors had in fact served a copy of a counsel’s opinion on all the owners of the commercial portion on 28 August 2005 saying that the resolution made by the owners on 13 August was invalid and such resolution required the voting of at least 50% of all the owners of the commercial portion before it can be valid.  Hence, the plaintiff started this action, and by a summons of 5 October 2005, applied for summary judgment.

8.  The plaintiff asks for declarations that the resolution passed by the owners on 13 August 2005 was valid, the Notice of Termination given on 15 August 2005 was valid and the defendant’s office as the manager of the commercial portion of the building had terminated on 16 November 2005.

9.  In addition to the argument of the number of owners required for the validity of the resolution, the defendant also raised several other points at the hearing this morning.  It is useful to note that this is not a decision of an incorporated owners to terminate the service of a manager, this is just a decision of the owners of the commercial portion of Fu Wah Building to terminate the services of the manager of that portion.

10.  I now deal with the first and foremost point, which relates to the interpretation of clause F-1 of the sub-Deed of Mutual Covenant.  The plaintiff contends that clause F-1 only requires a majority resolution of the owners being passed in accordance with section H.  It further contends that section H-1(g) and (h) provide that it is the resolution by the majority of the shares as owned by the owners present.  Since the owners present at the meeting had 1,505 shares, which were more than 10 per cent of the 5,040 shares required for a quorum, and these owners voted all their shares in favour of the resolution, the plaintiff therefore says that the resolution was that of the majority in accordance with section H.

11.  The defendant contends that the words at the end of clause F-1 should be grouped into two phrases, namely “upon a majority resolution of the owners” and “being passed in accordance with section H hereof.”  Mr Pang, counsel for the defendant, argues that it was not unusual for different resolutions to have different requirements for validity.  He cites, as an example, paragraph 7 of the Seventh Schedule of the Building Management Ordinance which requires the members or owners of an incorporated owners who own not less than 50 per cent of the shares to vote for a resolution to terminate the service of a manager.  However, paragraph 5 of the Third Schedule of the Ordinance only requires a 20 per cent quorum for the dissolution of a management committee and a 10 per cent quorum for other matters.  He therefore submits that clause F-1 requires the resolution to be passed by the owners who own not less than 50 per cent of the shares of the commercial portion.

12.  Regarding the second phrase, he says that save the definition of the majority vote, all the provisions in section H should apply to clause F-1.  These provisions deal with the matters concerning the calling of the meeting, the entitlement to the number of votes, the election of chairman, the casting vote, and so on.  Mr Pang further submits that since a resolution under clause F-1 should be made by the owners who own not less than 50 per cent of the shares of the commercial portion, the quorum for such a meeting should therefore not be as small as the owners of 10 per cent of the shares of that portion.  He submits that the quorum should be the owners who own at least 50 per cent of the shares of that portion.  He further argues that if the plaintiff is right, the words as bracketed in his two phrases would be redundant or are surplusage. 

13.  Whilst I agree that the words in the two phrases can be omitted and the plaintiff can still make the same contention, I do not agree that the addition of these words must mean that a different meaning was intended by the draftsman.  I take the view that if the draftsman should have intended that there should be the resolution by the owners who own at least 50 per cent of the shares of the commercial portion, he would have so drafted the clause.  It was an easy task. 

14.  I also do not agree that the words at the end of clause F-1 should be grouped into two phrases so as to define the majority vote in a different way from that as defined in section H.  Such reading of clause F-1 is artificial.  I take the view that the words at the end of clause F-1 do not stipulate a majority resolution of all the owners of the commercial portion.  This clause merely stipulates a majority resolution of the owners to be passed in accordance with all the requirements of section H, which included the requirement of the majority only of the owners present and not of all the owners of the commercial portion.  I reiterate that if the draftsman should have desired otherwise, he would have drafted the clause to say that the resolution should be passed by the majority of all the owners of the commercial portion but otherwise in accordance with section H.

15.  The second point raised by Mr Pang is on the service of the Notice of Meeting.  Seven of the owners of the commercial portion are limited companies.  The courier service company served notices on them at their registered offices but produced acknowledgements of receipt by chops of companies bearing different names.  The plaintiff has produced an affidavit by one Mr Jimmy Lok Tak Wai who said that he had been to the registered offices of these seven owners as having been visited by the courier service company.  He confirmed that the companies whose chops had been produced by the courier company had authority to receive documents for these owners.

16.  Mr Pang refers me to clause J-3 of the sub-DMC which provides a mode of service that would produce a presumption of service.  However, that is not a mandatory provision and the plaintiff was at liberty to use other modes of service.  I take the view that delivery of notice by a courier company at the registered office of the recipient should be sufficient service. 

17.  However, Mr Pang further argues that there is no evidence as to when these notices had been furnished by their recipients to the seven owners.  I do not think it matters.  The recipients received the notices on behalf of the owners as their agents and service was completed at the moment of delivery to the agents.  If these agents should fail to furnish the notices to their principals in a timely manner, it was not something that could affect the plaintiff’s position.  There is no dispute that the Notices of Meeting had been served on all the owners of the commercial portion or their agents, at the latest, on 4 August 2005.  I thus accept that that was the date of service. 

18.  Mr Pang then argues that the 8-day notice was too short.  There is no provision on the length of notice in the sub-Deed of Mutual Covenant.  The provision in the principal DMC, which provides for a 7-day notice, only refers to meetings of all the owners of the whole building and thus does not apply to this meeting.  He submits that the period of notice should at least be 14 days, as in the Third Schedule of the Building Management Ordinance.  He also refers to the notice for an AGM in the Companies Ordinance.  He submits that I should pay no regard to the 7-day notice in the principal DMC, as that deed was made in 1978 and thus too antiquated to be of any guidance.

19.  I do not agree with Mr Pang.  Though there are provisions for 14-day notice for AGM of companies and in the Third Schedule of the Building Management Ordinance, it does not mean that an 8-day notice is not enough.  If a 7-day notice is good enough for the owners of the whole building, I do not think an 8-day notice would be insufficient just for some of the owners of the same building.  I am not aware of any development on the law or practice on the length of notice for meetings since the 1970’s which would make a 7-day notice antiquated.  I accept that an 8-day notice would be sufficient for the present purposes.

20.  Lastly, Mr Pang argues that the other owners of the commercial portion are not parties to this action.  I am referred to paragraph 6.01 to 6.06 of Zamir & Woolf, The Declaratory Judgment, 3rd edition.  My understanding from the discussion in these paragraphs is that all those who may be adversely affected by the declarations sought should be joined as defendants.  In this case there is no evidence that any other owner of the commercial portion would be adversely affected by the declarations sought.  I therefore do not think it important to have all of them joined as plaintiffs, or with the unwilling ones joined as defendants.  I come to this conclusion without any discomfort because there is evidence that the plaintiff has informed all the owners of the commercial portion three times about the existence of this action and none of them has deemed it necessary to come forward and ask to be joined.  All in all, I do not find the defendant has made out any defence that would deserve a trial.  I therefore make the three declarations as sought by the plaintiff, with costs of this action to be paid by the defendant to the plaintiff.