TIMFOIL INVESTMENT CO LTD v. HONG KONG CSL LTD AND ANOTHER

DCCJ 837/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 837 OF 2005

____________________

___________________________________________

RULING ON 2^ND DEFENDANT’S APPLICATION
TO STRIKE OUT THE STATEMENT OF CLAIM

___________________________________________

Introduction

1.  At all material times, the plaintiff was the owner of various units in a building (“the Building”).  The owners became incorporated in 1985 (“the Incorporated Owners”).  Unless otherwise stated, my reference to “the Incorporated Owners” shall include the plaintiff and all other owners of units in the Building.  The 2^nd defendant was the owner of various units as well as the Building’s manager (pursuant to a Management Agreement signed by the Incorporated Owners and the 2^nd defendant in 1983).  Unless stated otherwise, my reference to “the 2^nd defendant” shall mean the 2^nd defendant qua manager. 

2. In March 2004, the Building Authority ordered for the removal of certain advertising signage boards from the external walls at the common parts of the Building as they were unauthorized structures. 

3. As last updated in the course of submissions before me, the crux of the plaintiff’s case is that the 2^nd defendant had complied with a “yet-to-be-proved-invalid” resolution passed by the Incorporated Owners to take no action against the signage boards.  The plaintiff, as an intergral part of the Incorporated Owners, suffered loss as a result.  The plaintiff’s private units were also encroached upon or damaged by the 1^st defendant, who installed or used the signage board spaces.  The plaintiff has been suing only the 1^st and the 2^nd defendants throughout but proposes, now in the course of its submissions before me, to join the Incorporated Owners as the 3^rd defendant.

4. The plaintiff had filed a Statement of Claim, and a proposed Amended Statement of Claim, against the 2^nd defendant for:

(a)	a declaration that the 2nd defendant shall observe and perform the terms of the Building’s Deed of Mutual Covenant (“DMC”) and Management Agreement (“MA”) and the owners’ resolutions dated 24 September 2003 and the owners’ licensing arrangement and the Building Management Ordinance in full;
(b)	removal of the “NOW” and “One-2-Free” signs and recovery of all incidental costs and expenses in compliance with the terms of the Building’s DMC and MA forthwith;
(c)	an inquiry of the transactions herein and payment of such sums that are found due and payable to the Plaintiff on open market basis by way of damages to be assessed if not agreed;
(d)	full indemnity of all loss and damages suffered by the Plaintiff arising out of and/or consequential upon the 1st Defendant’s trespass and/or nuisance caused or that may be caused to the Plaintiff and its Shop 1 premises and/or as a result of the 2nd Defendant’s breaches and willful negligence to be assessed if not agreed;
(e)	full indemnity to keep the Plaintiff harmless from and to remove any Building Authority Orders registered or to be registered against the Plaintiff’s premises in Ying Kong Mansion as a result of the 2nd Defendant’s breaches of its duties as Manager to be assessed if not agreed;
(f)	further or alternatively, aggregated damages and/or damages;
(g)	costs;
(h)	further and/or other relief as the Court deems fit.

5. The 2^nd defendant took out the present summons to strike it out on the ground that:

(a)	It discloses no cause of action;
(b)	It is scandalous, frivolous vexatious;
(c)	It may prejudice, embarrass or delay the fair trial of the action; or
(d)	It is otherwise an abuse of the process of the Court.

The hearing on 7 November 2005

6. On 19 August 2005, the plaintiff took out a summons to amend its Statement of Claim dated the 24 February 2005 in terms of a draft Amended Statement of Claim, which elaborated certain allegations and the reliefs sought.  The summons was to be heard together with the present summons.         

7. As only 1.5 hours has been allocated, parties’ consensus is that we should first dispose of the first ground, namely whether the pleadings disclose any cause of action.  If the ruling is for the 2^nd defendant, the whole Statement of Claim will be struck out and it will be unnecessary to deal with the other grounds. 

8. For the purpose of the present summons, the 2^nd defendant agrees to deal with the plaintiff’s case as pleaded in the draft Amended Statement of Claim, which the plaintiff says reflects the highest of the plaintiff’s case. 

9. In the course of submissions, the plaintiff accepts that it should have, but had not, pleaded one crucial matter.  It was a challenge of the validity of the Incorporated Owners’ resolution of 15 April 2005 (“the Resolution”, at BE 114) on the basis that it was against the interest of minority owners and also contravened s. 34I (1)(a) and (b) of the Building Management Ordinance, Cap. 344.  The plaintiff now intends to add the Incorporated Owners as the 3^rd defendant so that it can seek a declaration of the validity of the Resolution against the Incorporated Owners.  In the event of this declaration being granted, the plaintiff can proceed to go against the 2^nd defendant for having complied with such an invalidated resolution.      

Whether it  discloses any cause of action

The plaintiff’s locus standi to sue the 2^nd defendant

10. The 2^nd defendant relies on the case of Hang Yick Properties Management v. Incorporated Owners of Tuen Mun Kar Wah Building [2005] 2 HKC 489 to say that under s. 16 of the Building management Ordinance, Cap. 344, an individual owner could not sue in its own name for a right enjoyed by all owners as a whole in relation to common parts of the building.  I agree that the plaintiff in our present case has no locus standi to bring this action insofar as it relates to its interest in the common parts of the Building, namely all of its prayer except para. (d). 

11. Para. (d) relates to the plaintiff’s private units.  I think the plaintiff has the locus standi to sue.  It is, however, a different issue as to whether it is correct to sue the 2^nd defendant.  This will be analyzed hereinafter.   

Alleged failure by the 2^nd defendant to answer to the plaintiff

12. By a letter dated 20 March 2004, the Building Authority issued an order directing all the owners to remove unauthorized structures:

(1)	Erected at the approved canopy of 1st Floor;
(2)	Attached to the external wall at the side from 3rd Floor up to the Roof.

13. The plaintiff pleads that the 2^nd defendant failed to answer to the Incorporated Owners the terms of and income from the licence, and to remove the unauthorized structures.  The plaintiff pleads that Geroge Chong, who was a director and chairman in management and control of the 2^nd defendant company as a whole, was also a director and/or shareholder in management and control of 2 companies, King Doh Restaurant Limited (“King Doh”) and Kwan Fat Trading Company Limited (“Kwan Fat”) respectively.  King Doh was the owner of the relevant unit on the Ground Floor and the Mezzanine Floor used by the 1^st defendant.  Kwan Fat was the owner of 1^st, 2^nd and 3^rd Floors used by the 1^st defendant. 

14. I accept that the 2^nd defendant had the duty to investigate and answer to the Incorporated Owners the terms of and income from the licences for placement of the existing signage boards at the common parts of the Building.  The plaintiff does not plead expressly but puts forward a web of facts which seems to imply that:

(1)	King Doh and Kwan Fat knew who installed and used the signage boards;
(2)	Therefore Geroge Chong should be in a position to learn of that from them;
(3)	Therefore the staff of 2nd defendant’s building management section should be in a position to learn of that from George Chong;
(4)	Therefore the 2nd defendant should be in a position to tell the Incorporated Owners the terms of and income from the licence.

15. The plaintiff’s case hangs upon the speculation that George Chong might have learned of that in the course of and management and control of King Doh and Kwan Fat, that he might have told the 2^nd defendant qua owner, that the 2^nd defendant qua owner might have told the 2^nd defendant qua manager, who in turn should have told the Incorporated Owners.  To me, it is obvious that if the 2^nd defendant was not aware of it, it simply could not take any action.  As the pleadings do not say the 2^nd defendant was aware of it, they disclose no reasonable cause of action.   

Alleged failure by the 2^nd defendant to remove unauthorized structures   

16. By the Resolution, the Incorporated Owners ratified the licences for placement of the existing signage boards at the common parts of the Building.  In the absence of any relevant pleadings, Mr. Poon orally challenges the validity of the Resolution and suggests that by amending the Statement of Claim to include it, the plaintiff should be allowed to argue that the 2^nd defendant ought to have ignored the Resolution and taken action to remove the signage boards.  Mr. Poon seeks to add in the Incorporated Owners as the 3^rd defendant for a declaration that the 3^rd defendant had passed a null and void resolution because it contravened s. 34I of the Building Management Ordinance, Cap. 344.  With such a declaration, Mr. Poon suggests that the 2^nd defendant ought to have ignored the Resolution and removed the unauthorized structures at its own costs.  If, in future, proved to be a rightful refusal, the 2^nd defendant could recover the legal costs.  Mr. Poon does not say anything in regard to a refusal found to be wrongful by the court. 

17. I think it obvious that as the manager, the 2^nd defendant would be in breach of the MA in ignoring the Incorporated Owners’ instructions and liable to damages; as a litigant, the 2^nd defendant would be held to be wrong in ignoring the Incorporated Owners’ instructions and liable to legal costs.  I find Mr. Poon’s insistence that the 2^nd defendant take such a step against the Incorporated Owners only to benefit the plaintiff (without the plaintiff even hinting at an indemnity) plainly unacceptable to the 2^nd defendant.         

18. It is common ground that the 2^nd defendant only derived its authority from the Incorporated Owners.  Even before the filing of the Statement of Claim in February 2005, the Incorporated Owners had been considering the issue of signage boards.  There were never any instructions to the 2^nd defendant to remove the signage boards.  Whether we call it “ratification” or not, the Resolution actually said nothing new on this point as it was simply, and finally, directing the 2^nd defendant to continue to take no action as before. 

19. Mr. Poon submits that it is for the 2^nd defendant to prove the validity of resolutions and not for the plaintiff to prove their invalidity.  I find this untenable as it means that all resolutions ordinarily passed in the management meetings have no effect unless declared valid by the court.  This will surely hold up all business in building management.  In my view, it is for the plaintiff who, alleges invalidity, to plead and prove it.  Actually, I do not understand why Mr. Poon has to go back to argue this point after accepting earlier on the need for, and thence formulating at length, a further amendment to plead invalidity of the Resolution. 

The pleadings being incurably bad 

20. Unless and before the court invalidates the Resolution, the 2^nd defendant should continue to comply with the Resolution.  As the plaintiff has never taken any steps towards invalidating the Resolution and the Resolution has remained valid so far, the 2^nd defendant cannot be expected to do anything but comply with the Resolution.  This state of events is fundamental to the plaintiff’s case.  No form of pleadings can save the plaintiff’s case.  In my view, the plaintiff’s present pleadings as well as his proposed pleadings are incurably bad. 

Conclusion

21. It is a plain and obvious case that I should strike out the plaintiff’s whole Statement of Claim and the Writ of Summons insofar as they relate to the 2^nd defendant, and refuse leave for amendments.  There is no apparent reason why costs shall not follow the event.  The 2^nd defendant shall have costs of both summonses, with certificate for counsel.   

Dated this 11 November 2005