HOLIDAY RESORTS (MANAGEMENT) CO LTD v. CHAN YUK YAN AND ANOTHER

[English Translation – 英譯本]
CACV 25/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 25 OF 2001

(ON APPEAL FROM HCA NO. 7665 OF 1998)

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JUDGMENT

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Hon Yuen J (delivering the judgment of the Court):

1. This appeal involves an unusual question: where judgment is entered in favour of an agent, and the agency is thereafter terminated by the principal, what will be the effect on the losing party?  Can the losing party appeal and seek to set aside the judgment?  Or can that party only resist execution of the judgment?

Factual background

2. It is desirable to set out the factual background to the present case, which is rather complicated.

3. The plaintiff is a property management company.  It was set up by a property developer for the purpose of managing a private housing estate on Lantau Island known as The Sea Ranch (“the Estate”).

4. The defendants are the owners of one of the units of the Estate.

5. Units of the Estate were sold to various owners in 1979.  The owners incorporation was formed in 1980, but pursuant to the deed of mutual covenant (“DMC”), the plaintiff remained responsible for managing the Estate.

6. In 1984 or so, the developer transferred the entire shareholding of the plaintiff company to Holiday Resorts (Holdings) Ltd (“Holdings”), the shareholders of which were all the owners in the Estate.  In other words, the plaintiff company was ultimately owned by all the owners in the Estate.  Regrettably, some of the owners subsequently sold their units without transferring their shareholdings, as a result of which the membership of the owners incorporation differed from that of the management company (i.e. the plaintiff).

7. Prior to 1996, the board of directors of the plaintiff company and the management committee of the owners incorporation consisted of the same people, and therefore there had been no conflict between the two bodies.

8. However, after 1996, with a change of membership, the owners incorporation began to be dissatisfied with the plaintiff’s performance.  Nevertheless, the plaintiff remained manager of the Estate from mid 1998 to late 1999.

9. There were a few owners in the Estate who, being dissatisfied with the management of the Estate, had not been paying management fees and ferry fees for several years.  The ferry company which served the Estate was known as Holiday Resorts (Transport) Ltd (“Transport”) and it was a subsidiary of Holdings.  The plaintiff as manager was responsible for paying the fees to Transport so that Transport could provide ferry services to the owners in the Estate.

The action

10. The defendants were among the owners in the Estate who failed to pay management fees and ferry fees.  The defendants defaulted in payment from July 1994 to December 1997, and the outstanding payments amounted to $65,543 (there was another sum of $4,210 being the fee for registering a charge against the defendants’ unit).

11. The plaintiff commenced legal proceedings against the defendants in July 1998.  Relying on the DMC, the Statement of Claim pleaded that the defendants were under an obligation to comply with the provisions of the DMC, in particular clauses 7(a) and 8(e).  Clause 7(a) authorized the plaintiff to do any act for the purpose of managing the Estate, whereas clause 8(e) empowered the plaintiff to take legal action to recover all fees that the owners were liable to pay under the DMC.

12. In fact, clause 8(e) also expressly provided that the manager (i.e. the plaintiff) was the agent of all owners of the Estate in any recovery action, although this part had not been specifically relied on.  However, the Statement of Claim also did not expressly state that the plaintiff was not instituting the proceedings against the defendants in its capacity as an agent and, rather, was seeking recovery of the management fees and ferry fees in its personal capacity and for its own benefit.

13. The plaintiff applied for summary judgment on 3 August 1998.  The defendants resisted the application.  On 8 January 1999, Master Ho gave judgment for the plaintiff but also granted stay of execution of the judgment.

14. The Rules of the High Court provides that a party who intends to appeal against the decision of a Master must file a notice of appeal within 5 working days from the date of the decision.  This means that the defendants should have filed a notice of appeal by mid January 1999.  This they did not do.

15. In September 1999, the owners incorporation of the Estate notified the plaintiff that its management service would be terminated on 10 December 1999.

16. Following the notification, the defendants took out a summons for directions on 20 December 1999, on the ground that the plaintiff had been discharged from its management duties by the owners in the Estate and therefore no longer had the power to continue to perform and carry out its functions and proceed with all claims in the legal proceedings against the defendants.

17. On 7 January 2000, Master Lok (as he then was) ruled that the defendants’ summons for directions was procedurally inappropriate; and on 17 February 2000, the defendants filed a notice of appeal against the summary judgment given by Master Ho on 8 January 1999.

The hearing before Chung J

18. The appeal was heard before Chung J on 12 April 2000.  The learned Judge rightly pointed out that, under general legal principles, even though the principal subsequently discharged the agent from its duties, this would not affect the power that the agent had at the time of the judgment.  If an agent had locus standi to take out legal proceedings until it obtained judgment in its favour, its power would not retrospectively cease to have effect by reason of a subsequent termination of its authority.  However, where the agent was discharged from its duties, its power to execute the judgment might be affected because execution of the judgment was also to be done in the agent’s capacity as agent.

19. Chung J then adjourned the hearing to enable the principal (i.e. the owners incorporation or the new manager appointed by it) to apply to be joined as a (second) plaintiff so that the owners incorporation or the new manager could execute the relevant judgment.

20. In fact, in the absence of an application by the defendants, it was unnecessary for Chung J to adjourn the hearing, because the stay of execution of the judgment granted by Master Ho was still effective.

21. This notwithstanding, it would appear from Chung J’s judgment that the plaintiff at that time had not indicated that the proceedings against the defendants were brought in the plaintiff’s personal capacity and for its own benefit.  At page 9 paragraphs F-G of the judgment, the learned Judge referred to the plaintiff’s argument and said:

In the present action, as Mr Wong said, the plaintiff did have locus standi to initiate the action at the time of judgment being granted in its favour.  Hence, no question arises in the present case as to the validity of the judgment.

It can be seen that the plaintiff did not state that it was taking action for recovery of the management fees and ferry fees in its personal capacity (as opposed to the capacity as agent) and for its own benefit.

22. However, on 3 July, the plaintiff filed an affirmation of one Diana Leung Lo Ming, which, for the first time, expressly stated that the plaintiff was bringing the action for its own benefit because it had disbursed certain sums.

23. The hearing before Chung J resumed on 2 November 2000.  The owners incorporation was absent.  The plaintiff claimed that, when it obtained judgment from Master Ho, it did so in its personal capacity and for its own benefit.  The learned Judge refused to accept this claim in light of the contents of the Statement of Claim.  He considered that whether the plaintiff was bringing the proceedings for its own benefit was an arguable issue in the present case and it was therefore inappropriate to dispose of the case by way of summary procedure.  He granted the defendants an extension of time to appeal, set aside the judgment of 8 January 1999 and gave leave to the defendants to defend.

HCA 4978, 17643, 20857/1998, HCA 9502, 9516/2000

24. It is appropriate to set out here some facts pertaining to the new position taken by the plaintiff.  In April to May 2001, which was after Chung J delivered the aforesaid judgment but before the hearing of the present appeal, the High Court heard five other actions by the plaintiff for the recovery of management fees.  In those five cases, certain owners in the Estate (not including the defendants in the present case) had refused to pay management fees and ferry fees to the plaintiff on the ground that the plaintiff’s authority had been terminated.

25. In those five cases, the plaintiff applied to amend the Application in the Lands Tribunal by adding a statement that the applicant (i.e. the plaintiff in the present case) was seeking recovery of sums that it had disbursed for the purpose of managing the Estate.  The application was allowed by Deputy Judge Muttrie on 26 April 2001.

26. Subsequent to the amendment of the Application, Deputy Judge Muttrie delivered judgment on 18 May 2001.  At page 18 paragraphs E-N of the judgment, the learned Judge held that the plaintiff did make payment (and the money was from Holdings or Holiday Resorts (HK) Ltd) in order to make up for the deficiencies in the amount received from the owners.  Therefore, in those cases, the plaintiff was seeking recovery not of the sums owing by those respondents to the owners, but of the sums that the plaintiff had disbursed, including its own remuneration.

27. The judgment of Deputy Judge Muttrie is of course not legally binding on the defendants in the present case.  But the above facts clearly show the plaintiff’s position on the recovery actions: it was making those claims not in the capacity as agent, but in its personal capacity, pursuant to its own rights and for its own benefit.

The present appeal

28. Counsel for the plaintiff submits that this Court should not allow the defendants to set aside the judgment of Master Ho, because it is apparent from the judgment of Deputy Judge Muttrie that the defendants will lose the case just like the respondents in the aforesaid five cases have, and the Statement of Claim in the present case does not expressly state that the plaintiff’s capacity was an agent.

29. In our view, a reasonable person will get the following impression from reading the Statement of Claim in the present case:  the plaintiff is seeking recovery of the outstanding fees in its capacity as agent and in exercise of his rights as such.  First, in paragraph 4(ii), the plaintiff pleads that it has been authorized to do anything for the purpose of managing the Estate.  Then, in paragraph 5(v), the plaintiff pleads that it has the right and duty to take action, including litigation, in respect of any breach of the DMC.  If the plaintiff is not litigating in the capacity as agent, then the action is not part of its duty.  As a creditor, the plaintiff is free to decide whether or not to take action, and this has nothing to do with its duties.

30. Furthermore, paragraph 5(iv) of the Statement of Claim refers to clause 8(e) of the DMC.  Apart from the provision set out in paragraph 11 of the judgment, clause 8(e) also provides that, in a recovery action, the manager (i.e. the plaintiff) is deemed to be the agent of all the owners.

31. Therefore, if the plaintiff now alleges that it can claim against the defendants in its personal capacity, we consider it necessary for the plaintiff to amend its Statement of Claim by stating clearly its actual capacity in the present action and the cause of action.

32. Pursuant to the power conferred upon this Court by O. 59 r. 10(1) of the Rules of the High Court, we grant leave to the plaintiff to amend its Statement of Claim and to file and serve the amended Statement of Claim within 14 days from the date of this order.  It is now long after 1994, but since the new capacity and cause of action are effectively derived from the facts stated in the original Statement of Claim, the plaintiff is not time-barred from amending its capacity and cause of action (O. 20 r. 5(2), (4), (5) of the Rules of the High Court).

33. As it is now necessary for the plaintiff to plead a new case, the judgment of 8 January 1999 has to be set aside and the appeal has to be dismissed.  Accordingly, we order that the appeal be dismissed and also make an order nisi that the plaintiff is to bear costs of the appeal.