RICH FORTRESS LTD AND OTHERS v. THE INCORPORATED OWNERS OF BEVERLY GARDEN AND OTHERS

CACV 3104/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 3104 OF 2001

(ON APPEAL FROM HCA NO. 3963 OF 2001)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1. This is an appeal from a ruling of Suffiad J given on 10 October 2001. In that ruling the judge refused injunctions sought by the plaintiff against all the defendants. At the hearing of this appeal, this court dismissed the appeal and said that it would give its reasons in writing later.

Background

2. The background facts to this matter are set out in the ruling of Suffiad J and there is no need to repeat them all here. Very briefly, the 1st plaintiff had been appointed the first manager of Beverly Garden, an estate in Tseung Kwan O ("the Estate"). That appointment was made by the 2nd defendant, the developer of the Estate, in September 1998. There is no dispute that the 1st plaintiff is a company with substantial links to the 2nd plaintiff. Beverly Garden is an estate comprising some 4,000 residential flats. The 2nd plaintiff has retained a number of car parks. Another company associated with the 1st and 2nd plaintiffs, namely, the 3rd plaintiff, is the owner of some of the shops in Beverly Garden.

3. The 1st defendant was incorporated in December 2000. All the other defendants constitute the present management committee of the 1st defendant.

4. There is a substantial body of affidavit evidence in this case. From that evidence, it is clear that the defendants have made a significant number of complaints in respect of the 1st plaintiff's management of Beverly Garden. Those complaints covered a number of aspects including the misuse of funds, the permitting, if not erection, of illegal structures on the Estate and the lack of information as to the whereabouts of the reserve funds which had been collected from the owners of the properties on the Estate. In addition, it is the defendants' case that the management fees charged by the 1st plaintiff are many times more than would be reasonable. That allegation is said to be supported by a comparison which can be made with the management fees charged by the managers of other estates. This court was informed in the course of argument that indeed the defendants had been able to secure the services of a manager at a fraction of the amount charged by the 1st plaintiff.

5. The disputes between the defendants and the 1st plaintiff culminated in the calling of a general meeting of the members of the 1st defendant with a view to terminating the 1st plaintiff's management contract. That meeting was held on 12 August 2001.

6. It is clear that the draft resolutions in the notices calling the meeting were designed to take advantage of the provisions in paragraph 7 of Schedule 7 of the Building Management Ordinance, Cap. 344. If resolutions are duly passed in accordance with those provisions a manager's appointment may be terminated without compensation.

7. It is the plaintiffs' case that there were material irregularities both in the calling of the meeting and in the passing of the resolutions at the meeting. Moreover, it is the plaintiffs' case that although the resolution was passed to terminate the 1st plaintiff's services as manager of Beverly Garden that resolution was ineffective as regards the provisions of paragraph 7 of Schedule 7 because it was incomplete.

8. In my view, the judge below was correct in his approach to these matters. He came to the conclusion that there were serious questions to be tried between the parties which could not be resolved at this stage. He did so on the basis of the arguments which were apparently presented in respect of termination in accordance with the provisions of Schedule 7. It also has to be borne in mind that the defendants would appear to have a substantially arguable case that they were entitled to terminate the 1st plaintiff's appointment for cause.

This appeal

9. On this appeal the plaintiffs seek two injunctions. The essence of the first injunction is that the defendants should be prevented from terminating the 1st plaintiff's appointment as manager. The second injunction is that the 2nd to 18th defendants should be prevented from using funds of the 1st defendant to pay costs of litigation in which they are personally involved. In respect of that latter injunction the 2nd to 18th defendants offered undertakings not to use any of the funds of Beverly Garden to finance their litigation in what have been termed the defamation proceedings, until a new resolution is passed at a general meeting of the 1st defendant to approve the same. The court accepted that undertaking given on behalf of the 2nd to 18th defendants.

10. The judge below refused relief in respect of the 1st plaintiff's appointment as manager for a number of reasons. First and foremost, he considered that on the facts of this case, the 1st plaintiff's remedy, if it succeeded at trial, would most likely lie in damages. That was on its own. But it could also be considered together with the fact that the relationship between the 1st plaintiff and the incorporated owners and its committee had irretrievably broken down.

11. In my view, again, the judge's approach was correct. Even on the plaintiffs' own evidence, it is clear that there was manifest hostility exhibited by members of the incorporated owners, other than the defendants, to representatives of the 1st plaintiff. At the meeting in August, feelings clearly ran high. Given the background, it seems to me that it would be a recipe for disaster if the court were to make an order which would in effect compel the defendants to continue to employ the services of the 1st plaintiff.

12. During the course of argument, Mr Wong SC, on behalf of the plaintiffs, suggested somewhat different relief, which he said his client should obtain. He considered that there should be a further meeting of the members of the incorporated owners. That meeting should consider, again, the question of the termination of the 1st plaintiff's appointment as manager of the Estate.

13. Whatever powers the court may have to order meetings, it seems to me, that it would be wrong to order the holding of such a meeting prior to a final determination as whether the plaintiffs' complaints, or some of them, were well-founded.

14. One of Mr Wong's complaints on behalf of the 1st plaintiff was that it had not been given an adequate opportunity of rebutting the complaints which had been made by the 2nd to 18th defendants. It was said that the 1st plaintiff had a right to make representations to the members of the 1st defendant before its contract was terminated. There was nothing to prevent the 1st plaintiff from circularising by post or otherwise all members of the incorporated owners. Time might have been short in which to have dealt with some of the points made against the 1st plaintiff, nevertheless, the 1st plaintiff could have dealt with many of the points. Furthermore, however desirable the 1st plaintiff may consider it to be that it should be allowed to make representations, neither by contract nor law do they have a right which can be enforced in law for them to be able to do so.

15. It was also said that the 1st plaintiff's loss of management fees over the remaining period of its management contract could be something in the order of $16,000,000 or more. It was said that the 2nd to 18th defendants would be unlikely to be able to compensate the plaintiffs as to such damages. Whatever be the financial position of the 2nd to 18th defendants, it is clear that there would, on the face of the matter, be a substantial surplus over and above those fees if the reserve fund now held by the 1st plaintiff on behalf of the owners of Beverly Garden were taken into account. But even if that were not the case, in the circumstances of the undoubted hostility described by the plaintiffs' witnesses, let alone the defendants', it would, in my view, be clearly wrong for this court to impose on the owners of Beverly Garden a manager who is the subject of such hostility.

16. The practical aspect does not end there. This court was informed by Mr Tong SC, on behalf of the defendants, that a new manager has been appointed as of 15 November. That is the date of termination given by the 1st defendant to the 1st plaintiff. In those circumstances, matters should take their course.

17. In short, there were no grounds for disturbing the exercise of the judge's discretion and I see no basis for saying that the discretion should have been exercised in any other way.

Hon Le Pichon JA:

18. I agree.