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

CACV 381/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 381 OF 2006

(ON APPEAL FROM DCCJ NO. 381 OF 2006)

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REASONS   FOR   JUDGMENT

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Hon Tang VP (giving the reasons for judgment of the Court):

Introduction

1.  The 1 st defendant is the Incorporated Owners (“the Incorporated Owners”) of Century Industrial Centre (“CIC”).

2.  Chong Lai-wah (the 2 nd defendant) (“Chong”) was the chairman of the 8 th management committee and now vice chairman of its 9 th management committee.

3.  Leung Kar-fai (the 3 rd defendant) (“Leung”) was and is a member of the management committee.

4.  Chong and Leung are respectively the 1 st and 2 nd defendants in HCA 1948 of 2005.

5.  The plaintiff in HCA 1948 of 2005 is one Wong Wing-ho (“Wong”) who is the “owner” of the 15 th floor of the CIC.  According to him, he is also the “owner” of Ka Hang Decoration Company Limited (“Ka Hang”) and Wing Hang Trading Company.  Ka Hang is the owner of Shop 1, Ground floor in CIC.

6.  Wong sued Chong and Leung in HCA 1948 of 2005 for defamation.

7.  The defamation relied on are contained in two Chinese letters dated 11 July 2005 and 15 July 2005 respectively.

8.  Those two letters were issued in the name of 8th   Management Committee of CIC.

9.  The letters were addressed to Wong as well as the owner of Shop No. 1 on the ground floor, which was Ka Hang.  It is alleged that they had been inserted in the mailbox of every unit in the CIC as well as posted in the lobby of the CIC.  The allegations in the letters are that Wong and Ka Hang owed the Incorporated Owners water charges for nearly three years totalling $16,115 and that they had unlawfully occupied a car parking space.  There is proceedings in the Small Claims Tribunal being claim No. SCTO 64512/05 for the recovery of these water charges.

10.  The English translation of the offending parts of those two letters pleaded in the statement of claim are as follows:

1st letter

“English Translation: You (Wong) owe the owners of Century Industrial Centre water charges of almost 3 years totaling $16,115.  In addition, you (the Plaintiff) are also related to an incident involving illegal trespass and occupation of car park space.

2nd letter

“English Translation: Including your (Wong’s) letter dated 5 th July 2005, we have received a total of 9 letters from you.  Since they are all related to the incident of ‘3 years of water charges owed’ and contain unreasonable demands, the IO has no time to respond to them.

The IO is considering resolving the matter via legal channel.

Note: IO has expended more than 100 hours in dealing with this matter. Other IO matters were as a result crippled.  Please learn about your authorized representative.”

11.  It is alleged that by the time the present action was commenced, $25,000 had been paid by the Incorporated Owners out of the management funds to Lo, Chan & Leung for Chong and Leung’s defence in HCA 1948 of 2005.

12.  As a result of Ka Hang’s application in LDBM 340 of 2005 against Chong on 11 April 2004, Judge Yung ordered Chong to convene an owners’ meeting to be held on 6 May 2006 to discuss amongst other things, whether the Incorporated Owners’ funds should be used in the defence of HCA 1948 of 2005.

13.  On 6 May 2006, at the owners’ meeting it was resolved that the Incorporated Owners’ funds should be used for the defence of Chong and Leung.

14.  In the meantime, Yeung, the plaintiff in the present action,  who is the owner of workshop K on the 7 th floor of CIC, applied for and obtained an ex parte injunction on 23 January 2006 restraining the Incorporated Owners:

“(1)   … until further order or trial either by itself or its agents including its Management Company, to make further payment(s) from this management funds to Messrs. Lo Chan & Leung, and/or other solicitors’ firms, for legal services performed or to be performed relating to HCA 1948 of 2005 and LDBM 340 of 2005.”

15.  We are no longer concerned with LDBM 340 of 2005.

16.  That injunction was continued by Deputy District Judge Anthony Chow, after the hearing of the inter-party summons, which was taken out by Yeung to continue the ex parte order.

17.  This is the Incorporated Owners’ appeal against the order of learned judge.

Arguable Defence

18.  The judge continued the ex parte injunction because he took the view that it was not even arguable that the Incorporated Owners could use funds of the Incorporated Owners for the defence of HCA 1948 of 2005.

19.  The judgment turned on the construction of clause 15 of the DMC and section 14 of the Building Management Ordinance, Cap. 344.

20.  The relevant part of clause 15 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)     …”

21.  Section 14 of the Building Management Ordinance 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.”

22.  There is no material difference between clause 15 and section 14 for the purpose of this appeal: The question in this appeal is whether funding the defence of HCA 1948 of 2005 could arguably fall within “any question, matter or thing relating to or connected with the operation, matter or thing relating to or connected with the operation, servicing, maintenance, repairing, rebuilding, insurance or management of the said premises and building …” (clause 15) or “… the control, management and administration of the common parts …” (section 14).

23.  The judge applied the principles stated in the Hong Kong Civil Procedure at para. 21/1/9 and came to the conclusion that there was no serious question to be tried and following Yeko Trading Ltd. v Chow Sai Cheong Tony & Ors [2000] 2 HKC 612, he did not find it necessary to consider the question of balance of convenience.

24.  The proper approach to the construction of the Deed of Mutual Covenant and the Building Management Ordinance can be found in the judgment of Chan PJ in The Grande Properties Management Ltd v. Sun Wah Ornament Manufactory Ltd [2006] 3 HKLRD 473 at 476C to D:

“2.     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.”

25.  I believe words such as “control, management and administration of the common parts” should be given a purposive interpretation which accords with common sense.  Thus construed, the clause should include reasonable acts necessary to protect the interests of the owners in the common parts.  In construing clause 15 we note clause 7 of the DMC which requires or permits the employment of a manager for the purpose of more effectively maintaining the building.  Clause 7(10) goes on to provide that “the owners shall fully and effectively indemnify any such professional manager(s) from and against all actions, proceedings, claims and demands by any person whomsoever arising directly or indirectly out of or in connection with the management, repair and insurance of the said premises and building or the carrying out or failure to carry out their duties and obligations hereunder not being an action involving criminal liability or dishonesty or wilful negligence.”

26.  It is clear that such an indemnity in favour of the professional manager would be regarded as falling within the control and management of the building.

27.  Here, we are concerned with members of the management committee and there is no similar express provision covering them.  But as Chan PJ explained in The Grande Properties Management Ltd:

“But however detailed and comprehensive the DMC may be, it cannot cover all exigencies.” Para. 34.

28.  In the present context, we see little difference between a professional manger and members of the management committee.

29.  The matter can be tested thus.

30.  Suppose a building, where unfortunately one or more of its owners are known to be litigious and who have sued members of its management committee in their personal capacity, so much so that no owner was willing to serve on the management committee.  In such circumstances, could the owners resolve that any owner who was prepared to serve on the management committee, should be indemnified for costs if he should be sued in connection with the performance or purported performance of his duties as a member of the management committee, “not being an action involving criminal liability or dishonesty or wilful negligence”?

31.  We are of the opinion that it is at least arguable that such a resolution would come within both clause 15 and section 14 of the BMO.

32.  Moreover section 18(1)(c) BMO provides that an Incorporated Owners shall do all things reasonably necessary for the enforcement of the obligation contained in the DMC for the control, management and administration of the building.  Section 18(2)(g) provides that the Incorporated Owners may, in its discretion, act on behalf of the owners in respect of any other matter in which the owners have a common interest.  The general fund of the Incorporated Owners may be used to defray the costs of the exercise of its powers and the performance of its duties under the DMC and the BMO.  We believe it is arguable that these provisions support the view that section 14 covers the giving of an indemnity to members of the management committee.

33.  The two letters in question were arguably written for the enforcement of obligations in the DMC. If they had been written by the manager he would have an indemnity from the owners for liabilities stemming therefrom under Clause 7 (10) of the DMC.  We believe it is arguably the same in the case of a member of the management committee.

34.  Moreover, if the writing of the letters (or procurement of the same) were at the request of the Incorporated Owners, the Incorporated Owners is arguably under an obligation to indemnify those who actually execute the decision of the Incorporated Owners.  See Halsbury Vol 20(1) paras. 346 and 348; Vol 7(2) Para. 1127

35.  There is a dispute over whether the letters were written with proper authority of the Incorporated Owners. But the Incorporated Owners had ratified such acts by the pleadings in the Defence of the 1st Defendant and the resolution passed on 6 May 2006.

36.  In para. 7(h) of the defence of the Incorporated Owners, it was pleaded that:

“(h)    Further and/or alternatively, the Defamation Action was taken out by Mr. Wong with the ulterior motive to deter and/or cause difficulty to the 1 st , 2 nd and 3 rd Defendant hereof, to manage the Building efficiently.” See the appeal bundle page 124.

37.  The joint defence of 2 nd and 3 rd defendants, are to the similar effect.  See para. 7(f) to (i).

38.  Thus, it is alleged on behalf of the Incorporated Owners and Chong and Leung, that the defamation action was brought by Wong in order to deter or cause difficulty in the management of the building.  Whether that is so cannot be resolved except at trial.  But, we can see no reason why it is not at least arguable that Chong and Leung would be entitled to an indemnity from the Incorporated Owners.

39.  Mr George Chu, who appeared for Yeung, argued that even if Chong and Leung are entitled to an indemnity they could be reimbursed in due course.  That may be so.  But we do not believe they should have to wait.  Mr Chu argued that in any event Chong and Leung have not claimed an indemnity in the defamation action.  But that may be because the Incorporated Owners were funding their defence and have not denied their liability to indemnify.  In any event, the issue before us, is whether it is arguable that funding the defence can fall within the power and duty to control or manage the building.  We are firmly of the opinion that this is highly arguable.

40.  The respondent also submitted that the agreement is void because of the law against maintenance and champerty.  However, Mr Chu accepted that if we are against him on the first point, this will not arise.  So I will not deal with this, save to say that an authoritative statement of the law on the subject of maintenance and champerty is now available in the judgment of the Court of Final Appeal in the case ofSiegfried Adalbert Unruh v. Hans-Joerg Seeberger & Another, FACV 9 and 10 of 2006, 9 February 2007 (unreported).

41.  Mr Chu also submitted that as HCA 1948 of 2005 concerns a dispute between individual owners, the Incorporated Owners should not fund the defence of either side.  He relied on the decision of Presiding officer Chan in Fidelity Realty Ltd v. Management Committee of The Incorporated Owners of Hong Chiang Building [2005] 1 HKLRD 309, which in turn, adopted by analogy the reasoning in decisions such as Re CG & L Investment Ltd [1993] 1 HKLR 107.

42.  But Fidelity Realty was concerned with the validity of the election of the respondents to the management committee of the Incorporated Owners.  To that extent it may be analogous to claims by shareholders under section 168A or section 177(1)(f) of the Companies Ordinance.  Here we are concerned with what may properly be done by the Incorporated Owners regarding “control, management and administration of the common parts” in particular, whether they may fund the defence of the management committee or a member who was sued in connection with their duties as such.  So Fidelity Realty Ltd is irrelevant.

43.  For the above reasons, we are of the opinion that the judge erred when he held that there was no serious question to be tried.

Balance of Convenience

44.  We believe the balance of convenience is in favour of refusing the injunction.

45.  Mr Chu submitted that there is no evidence that Chong and Leung cannot fund their defence out of their own resources.  He also submitted that if the defence was to be conducted at the expense of the Incorporated Owners.  Chong and Leung would have no incentive to cap the costs.  That is a cynical view.  Indeed, the commonsense of the situation may be that if the injunction is refused, the defamation claim might not proceed.  Nor are we convinced that Yeung will suffer irreparable damage if the injunction is refused.

46.  Mr Chu referred us to Hadmor Production Ltd. and Others v. Hamilton and Anor. [1982] 2 W.L.R. 322 for the basis upon which this court can interfere with the exercise of discretion by the judge.  Here, no question of discretion arises.  The judge decided against the Incorporated Owners on the construction for clause 15 and section 14. He had not exercised his discretion on the balance of convenience.  So we are free to exercise that discretion ourselves.

47.  We would mention in passing that we are surprised that Yeung saw fit to apply ex parte for an injunction.  We can see no justification for an ex parte application.  Mr Chu was not then acting for Yeung.

Disposition

48.  For the above reasons, we allowed the appeal and set aside the injunction with costs here and below.  Such costs to be taxed if not agreed.