NG HING YAU AND ANOTHER v. CITY NOBLE DEVELOPMENTS LTD AND OTHERS

HCA 430/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 430 OF 2017

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D E C I S I O N

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THE APPLICATION

1.  This is the hearing of the 5^th defendant’s application to strike out the Statement of Claim or stay the action on the ground that (a) the plaintiffs are not suitable representatives; and/or (b) the plaintiffs do not fairly represent the other current and former owners referred to in the title of this action.

BACKGROUND

2.  This action was commenced by the 1^st and 2^nd plaintiffs, suing on their own rights and on behalf of the other 468 owners and former owners of the Arcade of Kar Shing Building (“the Building”). The plaintiffs are described in the Amended Writ of Summons and the Statement of Claim as:-

“suing on behalf of [herself/themselves] and the other owners and the former owners of the Arcade of Kar Shing Building … as per the Annex to this Amended Writ of Summons.”

3.  The Building is a 15-storey mixed use residential and non-domestic building.  The Ground, 1^st, 2^nd and 3^rd Floors of Kar Shing Building consist of 333 shops and are together known as Kar Shing Shopping Arcade (“the Arcade”).  The 1^st and 2^nd plaintiffs are the owners of two of the shops in the Arcade.

4.  The 1^st defendant is the owner of certain parts of the Building. It has entered into an agreement with the 3^rd defendant whereby the 3^rd defendant was granted the exclusive right to manage and to advertise within the external wall of the 1^st to 3^rd Floors of Kar Shing Building (“External Wall”) for 20 years.  The 3^rd defendant then appointed the 4^th defendant as the exclusive advertising agent of the External Wall.  By various contracts with the 4^th defendant, the 5^th defendant, a pharmaceutical company, put on advertisement signage on the External Wall.  The 2^nd defendant was the manager of the Arcade between 23 January 2006 and 1 May 2016. 

5.  The plaintiffs contended that the 1^st defendant ceased to have any interest in the External Wall after it sold the shops in the Arcade to various purchasers in 2006, and has no authority to grant any right to advertise within the External Wall.  The chain of agreements mentioned above are therefore invalid, and the defendants have committed various torts including trespass, unlawful interference of the plaintiff’s business and conspiracy to injure.  The plaintiffs sought injunction and damages. 

ORDER 15 RULE 12

6.  Order 15 rule 12(1) of the Rules of High Court provides that :-

“Where numerous persons have the same interest in any proceedings, not being such proceedings as are mentioned in rule 13, the proceedings may be begun, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one of them.”

7.  A person claiming to represent numerous other persons having the same interest may begin an action as the representative plaintiff.  It is not necessary to obtain leave or representation order before or after the commencement of the action, but the court may order otherwise if it is challenged.  The representative plaintiff may be self-elected, and does not have to show that consent of those represented was obtained. (Hong Kong Civil Procedure 2018 §15/12/7)

8.  The objective is to “facilitate disposition of cases where parties were so numerous that the proceedings would be unmanageable if all were named” (RJ Flowers Ltd v Burns [1987] 1 NZLR 260).

9.  The rules as to representative proceedings is a flexible tool of convenience in the administration of justice and should not be applied in strict or rigorous sense. (John v Rees [1970] Ch 345; Hong Kong Kam Lan Koon Ltd v Realray Investments Ltd, unreported HCA 15824/1999, 23 March 2004; Chiu Luen Public Light Bus Co Ltd v Persons Unlawfully Occupying or Remaining on the Public Highway & ors [2014] 6 HKC 298)

10.  To bring a representative action under Order 15 rule 12, all members of the represented group shall have the same interest in the litigation.  The requirement of “same interest” was explained by Lord Macnaghten in Duke of Bedford v Ellis [1901] AC 1 as follows:-

“Given a common interest and a common grievance, a representative suit is in order if the relief sought is in its nature beneficial to all whom the plaintiff proposes to represent.”

11.  The “three-fold test” thus developed is that (1) all members of the represented group should have a common interest; (2) all members should have a common grievance; and (3) the relief in its nature is beneficial to all whom are represented. (Markt & Co Ltd v Knight Steamship Co Ltd [1910] 2 KB 1021; CBS/Sony Hong Kong Ltd v Television Broadcasts Ltd [1987] HKLR 306)

12.  The requirement of “same interest” is not a rigid requirement that interest of all those represented must be the same. It was accepted that the members within the represented group may have different degree of interest.

13.  In Prudential Assurance Co Ltd v Newman Industries Ltd. [1981] Ch 229, Vinelott J held that the requirement of a common interest means that “there must be a common ingredient in the cause of action of each of member of the class”. The other two conditions of a representative action are (1) the relief claimed could not have the effect that it might confer a right of action on a member of the class which the member could not have asserted in a separate action or to bar a defence which might otherwise have been available to the defendant in a separate action; and (2) that it was for the benefit of the class that the plaintiff be permitted to sue in a representative capacity.

14.  In Markt & Co, supra at 1045, Buckley LJ held that “in a representative action the plaintiff must be in a position to claim some relief which is common to all, but it is no objection that he claims also relief personal to himself”.

15.  In Chiu Luen Public Light Bus Co Ltd, supra, Au J held that the rigid view in excluding a representative action where the represented members have a different degree of interest in the matter is no longer applicable.  The condition that there must be an interest shared by all members of the class in a representative action can be satisfied if every member of the class has a separate cause of action in tort.

16.  The court retains a discretion to refuse the continuation of a proceedings be brought as a representation action.  This is expressly provided in Order 15 rule 12 with the insertion of the words “unless the court otherwise orders”. 

17.  In J Bollinger SA v Goldwell Ltd (No.1) [1971] FSR 405 at 411, Megarry J held that:-

“The power to bring representative proceedings is a beneficial power, as tending to finality in disputes, and I would not readily curtail it: but there must be an overriding consideration, namely, whether the proceedings are of a nature which is suitable for such proceedings. That suitability will normally be established where for the purposes of the dispute the three-fold test of common interest, common grievance and a remedy beneficial to all is satisfied: but I do not think that this necessarily suffices in every case. Such a qualification seems to me to be contemplated by the words of RSC Ord 15 r 12(1). … The words ‘unless the court otherwise orders’ seem to me to contemplate that even if the numerous persons have the same interest, the court has a discretion to refuse to permit the proceedings to be continued in the form of a representative action.”

18.  If it were not a proper case for a representative action, the defendant ought to have applied to stay the action or to strike it out at the initial stage. (Moon v Atherton [1972] 2 QB 435, per Lord Denning MR)

19.  Situations where the action may refuse to allow the proceedings to continue as a representative action include cases “where the parties seeking or selected to represent others are not suitable representatives, or do not fairly represent the others having the same interest.” (Hong Kong Civil Procedure 2018, §15/12/38)

THE 5^th DEFENDANT’S OBJECTION

20.  The 5^th defendant’s case is that under the Sub Deed of Mutual Covenant (“Sub-DMC”), the right to bring legal actions to enforce the Sub‑DMC in regard to matters concerning the common interest of the Arcade has been delegated by the owners of the Arcade to the manager appointed under the Sub-DMC (“Manager”), whom, as the 5^th defendant contends, has the “full right” to do so.  The only authorised agent to sue in this regard on behalf of the owners of the Arcade is the Manager, but not the plaintiffs.  The plaintiffs are not suitable representatives and do not fairly represent the other owners and the former owners as the plaintiffs sought to represent in this action. On this basis, the court shall exercise the discretion to strike out or stay the representative action.

THE PLAINTIFF’S CASE

21.  The plaintiff contended that the External Wall do not form part of the Arcade and therefore falls outside the scope of the Sub-DMC.  Even if the Sub-DMC is engaged, the Manager does not have such wide powers as contended by the 5^th defendant.  In any event, the issue of whether or not a representative action should be commenced is not determinative of the same claim brought by the plaintiffs in their personal capacity.

THE DMC AND THE SUB-DMC

22.  The Deed of Mutual Covenant (“DMC”) in respect of the Building was entered into on 28 March 1980.

23.  The Sub-DMC was entered into on 23 January 2006 for the purpose of making provisions for the management, maintenance, insurance and servicing of the Arcade and for the purpose of defining and regulating the rights, interests and obligations of the owners in respect of the Arcade (Recital (5) of the Sub-DMC).

24.  The Sub-DMC is supplemental to the DMC insofar as the same relates to the Arcade (Recital (6) of Sub-DMC).  In case of conflict between the Sub-DMC and the DMC, the provisions of the DMC shall prevail (Clause 3(i) of the Sub-DMC).

25.  By virtue of Clause 7(a) and Clause 13 of the Sub-DMC, the 2^nd defendant was appointed to be the Manager of the Arcade until it resigned or was removed under Clause 15(b)(iv), which provides that after the initial management period of two years, the Manager or the Majority Owners may terminate the appointment of the Manager on giving to the other not less than three months’ written notice to that effect to expire at any time.

26.  “Majority Owners” was defined in Clause 22(b) to mean “any Owner or Owners who in the aggregate hold more than 50% of all the Undivided Shares ascribed to the Arcade, or in the absence of the aforesaid, shall mean the Owners acting in accordance with resolutions passed at meetings of Owners of the Arcade by a majority of those present in person or by proxy and voting by reference to the number of Undivided Shares held at such meetings.”

27.  At an Extraordinary General Meeting held on 13 January 2016, the 2^nd defendant was removed as the Manager from 1 May 2016 by the owners pursuant to a resolution passed by the majority owners, and a new Manager was appointed with effect from 1 May 2016.

28.  The Sub-DMC also provides for the establishment of a committee of the Owners.  Clause 15(c) provides that the Manager shall call the first meeting of the Owners of the Arcade as soon as possible to appoint a chairman and a committee of the Owners.  Thereafter, meetings other than annual general meeting of the Owners can be convened by the Manager, or the committee of the Owners, or the Owners of 20% of the Undivided Shares. Resolutions at the meeting of the Owners passed by a simple majority of those present and voting by reference to the number of Undivided Shares held.

29.  Clause 7(b) of the Sub-DMC expressly provided that the Manager shall have the full right and authority to control and manage the Common Areas and the Common Facilities subject to the provision of the Sub-DMC.  At the hearing, counsel on both sides agreed that the External Wall does not form part of the Common Areas or Common Facilities as defined in the Sub-DMC.

30.  Clause 14(a) of Sub-DMC provides that, without limiting the generality of the provisions of Clauses 7, 13 and 14(b), the Manager shall have the power and duty:

“(xviii) to represent all the Owners in all matters and dealing with … any other person whomsoever in any way touching or concerning the Arcade as a whole, the Common Areas and the Common Facilities.”

“(xix) to enter into contracts and to engage … solicitors … and to commence, conduct carry on and defend legal and other proceedings touching or concerning the Arcade or the management thereof on behalf of all the Owners for the time being.”

31.  Clause 14(b) of the Sub-DMC provides that:-

“All acts and decisions of the Manager in accordance with the provisions of this Sub-Deed in respect of any of the matters aforesaid shall be binding in all respects on all the Owners for the time being.”

32.  Clause 15(b)(iii) of the Sub-DMC provides that:-

“The Manager shall be deemed to be acting for all the Owners for the time being collectively but not for any Owner individually.”

33.  Clause 15(b)(iv) of the Sub-DMC provides that:-

“After the initial management period of two years, the Manager or the Majority Owners may terminate the appointment of the Manager hereunder on giving to other not less than three months’ notice in writing to that effect to expire at any time …”

34.  Paragraph (f) of the Fifth Schedule of the Sub-DMC prohibits the affixation or display of anything on the outer or exterior walls of the Shop Space without the consent in writing of the Manager.

35.  Clause 15 of the DMC deals with the right to put up signboards and advertisements.

36.  Clause 15(a) of the DMC provides that the owner(s) of the Ground Floor shops of the Building have the exclusive right to make use of the part of the ceiling level immediately adjacent to the shop fronts of the respective Ground Floor shops for the purposes of putting up their respective signboards or advertisement.

37.  Clause 15(b) of the DMC provides that the owners of the entire 1^st, 2^nd and 3^rd Floors of the Building have the exclusive right against all the co-owners, tenants, occupiers and their servants and agents to advertise or put up advertisements on the external walls of the First to Third Floors of the Building.

WHETHER THE SUB-DMC IS ENGAGED

38.  In Grande Properties Management Ltd v Sun Wah Ornament Manufactory Ltd (2006) 9 HKCFAR 462 at 466, Chan PJ held that in resolving disputes among co-owners, a purposive construction and common sense application of the relevant provisions of the deed of mutual covenant should be adopted.

“The rights and obligations of the owners and the manager of a multi-storey building are usually defined and governed by a deed of mutual covenant in respect of the building. This deed is a contract which runs so as to bind all owners and their assignees and the manager. Some of these rights and obligations are modified by the Building Management Ordinance (Cap. 344) (the Ordinance). The provisions of the deed and the Ordinance are usually aimed at facilitating the management of the building by reducing conflicts among co-owners on the one hand and preventing abuse by the manager and the majority owner on the other. It is fair to say that most disputes are resolved by a purposive construction and common sense application of the relevant provisions of the deed and the Ordinance.”

39.  In the DMC, there is a distinction between the External Wall and the external walls from the 4^th to 14^th Floors.  The latter was expressly included in the one undivided share together with other facilities such as the transformer room, staircase etc.  There is no specific reference to the External Wall in the allocation of the undivided shares of the Building.

40.  As to the right to advertise on the External Wall, Clause 15 of the DMC expressly provided that they are with the owners of the entire 1^st to 3^rd Floors, which are part of the Arcade. 

41.  The Sub-DMC was entered into for the purpose of regulating the management and maintenance of the Arcade among the owners of the Arcade.  There was no reason for the owners of the Arcade to leave the matters concerning their right in and the management of the External Wall outside the scope of the Sub-DMC.

42.  The proper interpretation is that matters concerning the management of the External Wall are covered by the Sub-DMC.  This interpretation is supported by the express provision in paragraph (f) of the Fifth Schedule regulating the outer or exterior walls of Shop Space, which reads:-

“Not to affix or display anything on the outer or exterior walls of his Shop Space without the consent in writing of the Manager, nor without the like consent to change the colour scheme of the outer or exterior walls of his Shop Space or any part thereof, nor change the colour scheme or affix or display anything on the outer walls of his Shop Space inside the Arcade.”

43.  Mr McCoy, counsel for the plaintiff, referred to the words “inside the Arcade” at the end and submitted that paragraph (f) only relates to the walls inside the Arcade but not the External Wall.  I do not consider this is the correct interpretation.  The reference to “inside the Arcade” at the end of the sentence qualifies the “outer walls”.  The provision clearly distinguishes “outer wall” and “exterior wall”.

44.  I shall add that the term “Arcade” is defined in the Sub-DMC to include the shops 1, 2 and 3 on the Ground Floor and the entire 1^st to 3^rd Floor which has been sub-divided into or designated as Shop Spaces, Common Facilities and Reserved Areas.  There is no express reference to the External Wall.  This should not affect the conclusion reached above on the scope of the Sub-DMC by adopting the purposive construction and common sense application of the Sub-DMC.

WHETHER DISCERTION SHALL BE EXERCISED TO REFUSE THE CONTINUATION OF THE REPRESENTATIVE ACTION BY THE PLAINTIFFS

45.  The 1^st and 2^nd plaintiffs are among the owners who were involved in the establishment of a committee (“Committee”) with membership comprising all current and former owners of the Arcade and engaged in making arrangements on matters of common interest to the members and on the protection of the exclusive advertising rights on the External Wall.  The 1^st plaintiff is the chairperson of the Committee as well as the Owner’s Committee established under the Sub-DMC.

46.  It is admitted that the plaintiffs have not obtained the consent of all the other 468 owners whom they sought to represent in this action.

47.  It is unclear as to whether or not these former and current owners were taken as members of the Committee automatically without the need for an indication of consent to join.

48.  As to the Manager, its power and duty under the Sub-DMC are clear. Under Clause 14(a) (xviii) and (xix), the Manager has the power to represent all the owners in matters and dealings touching or concerning the Arcade as a whole, and to bring proceedings on matters touching or concerning the Arcade as a whole.

49.  If the majority of the owners of the Arcade want to pursue this action, they can pass a resolution to require the Manager to represent them in the action.

50.  Mr McCoy argued that the Manager was only empowered to deal with matter concerning the “Arcade as a whole”.  He argued that when the matter concerns only a part or some portion of the Arcade, the Manager’s scope and authority are limited and the Manager would be unable to act[1].  With respect, this is too narrow a construction and could not be correct. If the above interpretation is adopted, it would mean that the Manager cannot deal with, for example, management issues concerning only some, but not all, of the shops in the Arcade. This could not be right.

51.  Mr McCoy adopted the same argument in the interpretation of Clause 14(a)(xix) which provides that the Manager can “commence … legal and other proceedings touching or concerning the Arcade or the management thereof on behalf of all the Owners for the time being.” (emphasis added)  Mr McCoy argued that under this sub-clause, the representative power of the Manager must only be exercisable when a matter relates to all of the Owners but not a selected and identifiable group of Owners[2]. For the same reason, I reject this argument.

52.  The Sub-DMC is a document binding on all owners of the Arcade.  The Manager was empowered under the Sub-DMC to enforce the common interest of the Arcade.  The Manager is also subject to the owners’ power and shall act in accordance with the resolutions duly passed at the owners’ meeting.  There is a mechanism to remove the Manager by the Majority Owners. 

53.  The plaintiffs, however, are not subject to the same scrutiny by the other owners.

54.  I find that the Manager, instead of the plaintiffs, is the more appropriate person to represent the owners of the Arcade in this action.  I exercise my discretion and strike out such part of the Amended Writ of Summons and the Statement of Claim that relate to the representative action commenced by the plaintiffs.

THE PLAINTIFFS’ OWN RIGHT TO SUE

55.  Although, under the Sub-DMC, the Manager has the right and power to manage the Arcade and bring proceedings to enforce the common interests of the owners of the Arcade, such power does not prevent the individual owners from enforcing any rights they may have on their own.  The plaintiffs’ action brought on their own behalf is not to be struck out.

56.  As the action is still alive, I do not have to consider the suggestion fairly made by Mr Lam SC about the stay of this action for the purposes of allowing time for the Manager to join in, if the owners so wish.

COSTS AND CONSEQUENTIAL DIRECTIONS

57.  I order that 80% of the costs of and occasioned by the 5^th defendant’s Summons dated 12 May 2017 be paid by the 1^st and 2^nd plaintiffs to the 5^th defendant, with certificate for one counsel, to be assessed summarily and payable forthwith after assessment.  The 5^th defendant shall file and serve its statement of costs within 7 days from the date of this decision.  The 1^st and 2^nd plaintiffs shall file and serve their reply, if any, within 7 days thereafter. The summary assessment will be conducted on paper.

58.  The 1^st and 2^nd plaintiffs shall also file and serve a Re-Amended Writ of Summons and an Amended Statement of Claim removing the parts that relate to the representative action within 14 days from the date of this decision.

59.  I thank counsel on both sides for their assistance.