EVER TRUE LTD. & OTHERS v. CHASERFAIR PROPERTY MANAGEMENT LTD. & ANOTHER

HCA 4633/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4633 OF 2001

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J U D G M E N T

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1. The plaintiffs are the registered owners of various units in a commercial building known as 83 Wanchai Road, Hong Kong ("the building"). The 2nd defendant was the developer of the building and is still the registered owner of a number of units in the building.

2. Under the Deed of Mutual Covenant and Management Agreement of the building dated 29 December 1995 ("the DMC") Chasefair Development Limited ("Chasefair Development") was appointed as the manager of the building. This is a separate legal entity from the 1st defendant which is an associated company. Chasefair Development was a party to the DMC.

3. Despite the fact that Chasefair Development was appointed the manager of the building under the DMC it never acted as the manager. By a letter addressed to 1st defendant dated 30 May 1996 Chasefair Development purported to appoint the 1st defendant as the manager. However, by cl. 50 of the DMC Chasefair Development could not subcontract or assign any of their rights under the DMC without the prior written consent of the Owners Committee. This was never obtained. There was no Owners Committee in 1996.

4. Chasefair Development failed to file annual returns and was consequently struck off the register under the Companies Ordinance. The management of the building was in fact carried out by the 1st defendant. Mr. Lam Wing Hong is a common shareholder and director of the 1st and 2nd defendants.

5. The plaintiffs complain that the 1st defendant has not been properly managing and maintaining the building. Although it was envisaged by the DMC that meetings of the owners would be convened, the manager failed to convene any. Annual general meetings as required by the DMC were never convened by the manager. It was the plaintiffs who convened the annual general meeting held on 10 October 2001 which was the first annual general meeting. This was the annual general meeting of all individual owners of the building. A representative of the Home Affairs Department was also in attendance at this meeting. At this meeting the Owners Committee was set up. Mr. Lam Wing Hong was also appointed one of the members of this committee.

6. The Owners Committee held a meeting on 18 October 2001. This was also attended by, inter alia, a representative of the Home Affairs Department and the legal representative of the 1st and 2nd defendants. In that meeting the various complaints of the plaintiffs against the 1st defendant's performance as the manager of the building were raised and discussed. It was resolved to dismiss the 1st defendant as the manager of the building with immediate effect. Mr. Lam Wing Hong was the only committee member voting against that resolution and the resolution was passed. At the same meeting another resolution was passed by the Owners Committee appointing Jones Lang Lasalle Management Services Ltd. ("JLL") as the new manager of the building with immediate effect from 18 October 2001. Again, Mr. Lam Wing Hong was the only committee member voting against that resolution and the resolution was passed.

7. Notwithstanding those resolutions the 1st defendant has since 18 October 2001 obstructed and prevented the new manager JLL from carrying out their duties as the new manager of the building. The defendants do not accept the validity of the resolutions and the 1st defendant has not handed over the management of the building to JLL. The 1st affirmation of Mr. Wong Yan Wah shows that since 18 October 2001 Mr. Lam Wing Hong has prevented JLL from carrying out their duties. The evidence shows clearly that JLL have been prevented from performing their duties as the manager of the building. By way of example, on 21 and 23 October 2001 staff of JLL were prevented by a watchman hired by the 1st defendant to stay inside the building and they were forced to stay outside the main entrance to the building. Because of the actions of the 1st defendant JLL are unable to carry out their duties as manager. The 1st defendant's staff have been occupying the reception counter on the ground floor. The staff of JLL have not been able to check the common areas, patrol the building or render any meaningful service to the occupants.

8. The evidence filed on behalf of the plaintiffs shows that the plaintiffs lost their trust in the ability of the 1st defendant to properly manage the building. In July 2000 Hitachi Electrical Engineering Company (HK) Ltd. ("Hitachi") who had been providing lift maintenance service to the building wrote to all the owners and occupiers reminding them that the monthly service fees were in arrears for nine months. I understand from submissions on behalf of the defendants that they dispute the 1st defendant's liability to Hitachi in the amounts demanded by Hitachi. However, even recently urgent reminders have been sent by Hitachi to the owners. The present amount said by Hitachi to be owing to them is $115,000. Hitachi has threatened that unless the sum is paid by 7 November 2001 they would only carry out emergency repair work upon payment of all relevant repairing charges. As the plaintiffs had lost their trust in the ability of the 1st defendant to properly manage the building they paid the management fees due by them to their solicitors, Messrs. Chan and Tsu, who have by the letter dated 31 October 2001 confirmed that they have received various sums from the plaintiffs for management fees in respect of which they are now holding as stakeholders. They also confirmed that they have paid a sum of $38,605 to Hitachi on 5 October 2000 for a previously outstanding maintenance fee. In view of the serious nature of the threat by Hitachi the plaintiffs intend to ask their solicitors to use the sums held by them as stakeholders to pay the same to JLL so that they may properly discharge their duties as manager.

9. The defendants dispute the validity of the resolutions passed by the Owners Committee. However, by cl. 37 of the DMC, it would seem that the Owners Committee has power to bind the owners of the building and to enter into agreements with any person or firm to manage the building. The members of the Owners Committee hold office for one year at a time. By cl. 42 of the DMC the members of the Owners Committee shall hold office until the next annual general meeting. By cl. 42(d) of the DMC any one of them may be removed by resolution of the owners at an extraordinary general meeting. The 2nd defendant has convened an extraordinary general meeting to be held on 5 November 2001 for, inter alia, removal of the other members of the Owners Committee. There is, however, no proposal in the notice for any resolution to remove JLL as manager. The evidence adduced on behalf of the defendants also shows that some of the owners of units in the building object to the removal of the 1st defendant as manager and for an injunction to be granted to the plaintiffs. However, Mr. Hung, counsel for the plaintiffs, has drawn my attention to the fact that the 2nd defendant is the registered owner of most of these other units.

10. By cl. 46(b) of the DMC the Owners Committee may terminate the appointment of the manager by giving not less than three months' notice in writing. By cl. 46(c) in the event of default or negligence on the part of the manager in performing their duties and where remediable, after failure to comply forthwith with a notice from the Committee requiring the manager to remedy any such default or negligence, the Committee is entitled at any time to terminate the appointment of the manager by giving not less than one month's notice in writing.

11. The first point to note is that the 1st defendant is not the manager appointed under the DMC and whether those provisions apply to it is questionable. Even if those provisions do apply to the 1st defendant they do not in law prevent an employer from summarily dismissing an agent. Para. 32-128 of Chitty on Contracts 28th Edn. Vol. 2 states as follows:

"Where the relationship is a continuing one, a breach by the agent of his duties may entitle the principal to dismiss him; though in many cases the principal will any way be entitled to determine the agency with or even without notice."

And in para. 32-160 of Chitty on Contracts it is stated that an agent's authority may be terminated by, inter alia, the express revocation of it by the principal. Here the Owners Committee has dismissed the 1st defendant and has given it payment in lieu of notice. In Delaney v. Staples (trading as DE MONTFORT RECRUITMENT) [1992] 1 A.C. 687 @ 692, Lord Browne-Wilkinson said in his speech that :

"The phrase "payment in lieu of notice" is not a term of art. It is commonly used to describe many types of payment the legal analysis of which differs. Without attempting to give an exhaustive list, the following are the principal categories.
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(4) Without the agreement of the employee, the employer summarily dismisses the employee and tenders a payment in lieu of proper notice. This is by far the most common type of payment in lieu and the present case falls into this category. The employer is in breach of contract by dismissing the employee without proper notice. However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment."

12. In the 2nd affirmation of Mr. Wong Yan Wah he states that he is an accountant by profession. He has studied the balance sheet of the building for the year ended 31 March 2000. There are accounts receivable in the sum of $1,819,739. Upon studying the financial documents Mr. Wong has found out that out of the total sum of $1,819,739, $1,443,652 is owed by the 2nd defendant and two associated companies of the 1st defendant. Mr. Wong also states that all along the 1st defendant has not kept the management fees collected from the owners of the building in a separate account and has even mixed the management fees as the income of the 1st defendant.

13. The defendants dispute the plaintiffs' claims. However, on the evidence before me, I am satisfied that there are serious questions to be tried and the plaintiffs are able to overcome the first hurdle in seeking an interlocutory injunction.

14. I turn to the balance of the convenience. JLL as the new manager is unable to carry on its duties. There is also the complaint by the plaintiffs about a roller shutter gate installed at the rear entrance of the building. The plaintiffs have recently been advised by an architect that the installation of the roller shutter gate is in contravention of the Code of Practice on Means of Escape (1996). This gate prevents the occupants from escape in the event of a fire. This situation must be rectified as soon as possible. JLL are prevented from carrying on with the proper management of the building. Also, it would appear that the 1st defendant has been acting in contravention of the provisions of the Security and Guarding Services Ordinance, Cap. 460. Without a licence, the 1st defendant cannot supply any individual to do security work for another person for reward (s. 11). No individual shall do security work for another person unless he does so under and in accordance with a permit or otherwise than for reward (s. 10). The 1st defendant employs a caretaker who does not have a permit. The present situation cannot be allowed to continue.

15. The 1st defendant's remedy in any event lies in damages. If the 1st defendant has been summarily dismissed without justification, as the 1st defendant complains, its remedy is in damages. In my judgment the balance of convenience is overwhelmingly in favour of the plaintiffs. Damages would not be an adequate remedy for the plaintiffs. On the plaintiffs' cross undertaking in damages given by counsel for the plaintiffs I grant the plaintiffs the interlocutory injunction sought. I order and direct that the 1st defendant whether by itself, its directors, servants or agents or otherwise howsoever shall not obstruct and/or prevent Jones Lang Lasalle Management Services Ltd. or its agents or servants from their carrying out and/or discharge of the duties, including but not limited to entering into the building, stationing at the reception counter of the building, patrolling the common area of the building, opening and locking up of any gate or door of the entrances of the building, collecting management fees from the owners and/or occupiers, as the manager of the building known as 83 Wanchai Road, Hong Kong until after the trial of this action or until further order. Costs in the cause.