HANG YICK PROPERTIES MANAGEMENT LTD. v. THE INCORPORATED OWNERS OF MARINA COVE

1996, No. A1644

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In view of the urgency of the situation, I shall give oral reasons for my decision instead of reserving them to a later date in order to facilitate the matter going further if anyone so wishes. As a result, my reasons would be brief.

2. This is a claim by the Plaintiff against the Defendants alleging interference with its discharge of duty as manager under the Deed of Mutual Covenant. By its application, the Plaintiff seeks relief to restrain the Defendants, who are the incorporated owners of the estate, from interfering with its continue discharge of duty as manager (mainly in respect of collection of management fees). The application for an immediate urgent inspection of documents relating to the resolution that give rise to the termination of the Plaintiff's service as a manager is no longer pursued upon the Defendants' undertaking to preserve and keep in save custody those documents in question. The Defendants' application is for the removal of the Plaintiff from the estate. The Defendants' case is that the Plaintiff have been lawfully dismissed by a resolution under Cap.344, as well as by three months' notice on grounds of misconduct including, inter alia, an allegation that the Plaintiff have failed to collect any management fee from its associated company one Best Home. The Plaintiff's answer to this is that the resolution in question was invalid because of alleged non-compliance of procedure relating to the proxy forms, i.e. that they had not been filed 24 hours before the meeting. On Best Home's management fees, the Plaintiff claims that it was entitled to a set-off against the costs of effecting certain unspecified repairs and maintenance it had spent on its own premises. The emphasis is of course on "its own premises" - not the common parts. The allegation is not that Best Home had incurred expenses in maintaining the common parts of the estate, unrelated to its own premises. The Defendants further said that the DMC provided proxy to be handed in at the meeting contrary to what the Ordinance provided in Schedule 8, and that Schedule 8 only applies when it is not contrary to the DMC. It is the Defendants' case that the DMC provided specifically for proxy to be handed in at the meeting.

3. I do not propose to go into the substantive dispute. It suffice for me to say that I am satisfied that there is a real and serious issue to be tried as to whether the Plaintiff had been lawfully terminated as manager of the estate. That brings me to the other question of balance of convenience. I shall deal with both applications together.

4. On the Plaintiff's side, it is not disputed that this is essentially a master and servant situation that existed between the Plaintiff and the Defendants, i.e. the Plaintiff was employed to be a manager for reward as provided in the DMC. It is either a master and servant situation, or a principal and agent situation. What damages would the Plaintiff suffer if it be wrongfully excluded from the estate by the Defendants' application, and from a failure on its own application to be allowed to continue to discharge its duty as manager. Firstly, there will be the obvious claim for monetary damages. Pursuant to the DMC, the Plaintiff's term as manager would expire in June 1997 (i.e. for the residue of the Crown Lease). At one stage, Mr Tam wished to rely on an automatic renewal of its term as manager somehow by operation of law when the Crown Lease expires in June 1997. I am unable to see how that argument can be supported at all. There was no authority nor any particular principle of law relied on by Mr Tam that would support such a right of automatic renewal. It was suggested that there could be an implied term in the DMC for such automatic renewal but that is as far as Mr Tam went in suggesting this. He had not referred to any circumstances or principle of law that justified the coming into existence of any implied term, whether arising from the urgency of the situation, efficacy of business, by custom or whatever. I, therefore, cannot really understand the basis for the alleged implied term at all, saved that it was simply raised and dropped. Crown Lease Renewal Ordinance was mentioned. But, it would only bring about the renewal of the DMC, which nobody would doubt. However, the renewal of the DMC is of no assistance to the Plaintiff at all. The DMC would be renewal with the Clause that says the Plaintiff's term would expire in June 1997.

5. There is, of course, 13 months left to run before June 1997. The present remuneration of the Plaintiff, as I understand it, is about $80,000 per month. It may become more if the management fee goes up in future. Nevertheless, it is on the formula of 10% of the total management fees collected. We are then looking at a finite sum of damages. There is no suggestion, nor could there be any suggestion, that the Defendants are not good for such a claim, they being owners of the estate. There is also a casual reliance by the Plaintiff on an alleged right to specific performance of the provisions of the DMC. In other words, it was suggested by the Plaintiff that they have a legal right to force their services upon the Defendants against their wish. I was referred to the case of Rock v. Hammersmith & Fullen London Burrell Council. In that case, it was held that the Court ought to grant relief to the Plaintiff employee, to enable the status quo to be preserved. The Plaintiff in that case was appointed as the Director of Finance for the Defendant local authority. It was admitted in that case by the local authority that the dismissal of the Plaintiff was unlawful, as the appropriate disciplinary procedures had not been gone through. Therefore, that was no question of any issue to be tried in that case, it being admitted that the dismissal was wholly wrongful and unlawful. Another distinguishing feature in that case is that the Court did not really preserve the status quo. The Court was only prepared to grant relief to the Plaintiff in that case on conditions. One of the condition was that the Plaintiff would undertake to agree to be treated as suspended on full paid. Secondly, to carry out no duty or function as Director of Finance unless instructed so to do by the Defendant. Thirdly, not to go to the Defendant's offices unless requested so to do or by prior arrangement following the Plaintiff's reasonable request. In the premises, the status quo was "preserved" upon the Plaintiff's undertakings that he would no longer intermeddle with the Defendant's operation unless especially requested by the Defendant so to do. That is not what the Plaintiff wants in this case. The Plaintiff herein wants precisely the reverse of that, i.e. that he should be allowed to remain on the premises and be allowed to force its services upon the Defendants against their wish. I can find no assistance from this authority for the Plaintiff. There is, of course, another further important distinguishing feature. In that case, it was held by the Court that damages would not be an adequate remedy for the Plaintiff and that the disciplinary procedure would only be workable at the time of the hearing of the injunctive relief and could well become impracticable if delayed until the conclusion of the trial. I can find no assistance to the Plaintiff at all from this case.

6. I was also referred to the case of The Incorporated Owners of South Seas Center, Mody Road v. South Seas Center Management Co. Ltd. and Others. That was also a case of a dispute between the incorporated owners of a building and its manager. In that case, the Court granted relief to the manager to preserve the status quo in order to allow it to continue to remain manager with all its duties, responsibilities and powers; notwithstanding the purported termination of its service by the incorporated owners. In that case, it was held by the Court (even at the interlocutory stage) that even if the Plaintiffs could prove at the trial the breaches of contract alleged, those breaches were not of such a serious nature as to go to the root of the contract. That of course, is quite different from the present case where if established the Defendants would have an absolute right to terminate the employment and services of the Plaintiff. Furthermore, in that particular case, it is to be noted that the manager held a 34% interest in the building in question. In other words, it could, if it so wished, blocked any special resolution of the incorporated owners. That was of course very different from the present case when the associated company and not the Plaintiff held at most a one-fourth share of the estate. More importantly, in that case, the balance of convenience was decisively in favour of the managers as held by the Court. The learned Judge said,

"There is no doubt in my mind that if I were to grant the injunction which was sought, there is a grave risk of massive disruption of the services provided at the building. There is likely to be a considerable upheaval if new managers attempt to perform or undertake the duties of the managers under the Deed of Mutual Covenant. There is no assurance that the Plaintiffs even if they are able to secure the services of the appropriate agents will be able to exercise the necessary functions in an efficient and satisfactorily manner."

The other reason given by the Court was that the granting of an injunction to remove the managers in that case would effectively put an end to the litigation. There is of course, no such grave risks in the present case as I shall elaborate later when I deal with the Defendants' position. Those were the two cases relied on by the Plaintiff.

7. I was also referred to certain textbook extracts which were not particularly helpful in that they dealt with quite different positions in England relating to labour disputes arising from trade unions situations.

8. As a matter of general principle, only damages will be available to an agent or employee for being wrongfully dismissed as servant or agent. And this general principle has not been displaced by any authority Mr Tam referred me to, nor by any argument advanced by him. I have invited Mr Tam to deal with the possible estoppel that may arise by deed, as the appointment of the manager was by deed. Notwithstanding the adjournment granted to Mr Tam just before the lunch break, no authority was referred to the Court or relied upon by Mr Tam on this possible argument of estoppel by deed; nor was the Court referred to any particular legal principle that may assist the Plaintiff in claiming specific performance based on estoppel.

9. It is the Defendants' submission that the fact of appointment by deed would not make any difference as a matter of law to the relief open to the Plaintiff in the event of wrongful breach of contract by the Defendants. I was told by Miss Eu that she had diligently gone through the relevant authorities on this, in particular Chitty, and found no specific mention that a deed would make any difference on an employment situation in so far as the relief available is concerned. That accords with my own understanding of the law. I am satisfied that no arguable issue has been raised by the Plaintiff that the relief of specific performance could be made available to it at the trial. Therefore, it is not a situation as if when the Plaintiff is removed from the estate, that will put an end to the litigation. In removing the Plaintiff from the estate, his claim would not, in any way, be frustrated. It is still able to pursue the only remedy open to him in law, and that is for an monetary claim of damages.

10. Mr Tam also very casually referred to possible prejudice suffered for loss of reputation. There is no evidence before me to justify any such speculation nor can it be justified by common sense. The Defendants in this case, leaving aside the allegations of misconduct which has yet to be substantiated, is only claiming that the Plaintiff was removed by a resolution pursuant to the Ordinance. I fail to see how that could give rise to any damage to reputation on the part of the Plaintiff, or as Mr Tam alleged, its parent companies. Nor is there any special circumstances before me on evidence that would place the Plaintiff in a different and unique position. The Plaintiff is in no different position as any ordinary litigant being dismissed by notice. I am not satisfied that there is any case, even a prima facie case, established for possible damage to reputation. Thus, the only remedy is one of a monetary claim; and that is the only prejudice that could possibly be suffered by the Plaintiff in the event of the Court wrongfully granting relief against it at this stage.

11. On the Defendants' side, there are serious allegations of misconduct against the Plaintiff, and in particular the failure to collect the management fees from its associated company. The Plaintiff's explanation as offered in the letter of 20 April 1996 from its solicitors said:

"As to the management fees of the club house, commercial complex and the reserve portion, please inform that the owners thereof have been spending a lot of money for the repair and maintenance thereof, instead of the repair and maintenance being attended to by our client. In any event, our client is willing to liaise with your client in respect of any query you shall raise in this respect."

12. The Plaintiff had been given ample opportunity to give further explanation but had elected not to. Thus, the above is the only explanation given to Court. On the face of it, the Court is driven to conclude that it can be nothing but a vague and unsatisfactory explanation of a very serious allegation. Also in favour of the Defendants is, of course, the general principle, which is trite law, that when an employer or a principal had lost confident in the employee or agent, no court of law or equity would force such an employer to suffer continued service of that employee or agent after he has been dismissed, even on the basis of a wrongful dismissal. It is most important that there should exist mutual trust and confidence before such a relationship can continue. Forcing such a relationship against unwilling parties would only bring chaos and disruption. There is undoubtedly no right of reinstatement of employment in Hong Kong nor did Mr Tam seek to establish such right.

13. Also in favour of the Defendants, is an undoubted right to collect management fees from the owners. It may be that if the manager should continue in its service, the Defendants would have to hand over such management fees to the Plaintiff. But, it is not suggested by Mr Tam that it can replace the Defendants as the lawful person to be entitled to collect the management fees from the individual owners. I was not referred to any legal principle, alleged authority, or statutory provision that empowered the Plaintiff so to do. Nor did Mr Tam refer to any provision in the DMC that confers such paramount right over the incorporated owners. The statute of course is quite clear on this - the incorporated owner has absolute control over common areas and matters relating to the common parts of the building, including collection of management fees for the service, repair and maintenance of such common parts.

14. The Defendants had undoubted statutory right and duty to control and service the common parts. The Plaintiff is likewise undoubtedly only the agent or servant of the Defendants in the discharge of that duty. The Defendants represent all the owners of the estate by virtue of statute, and they now tell the Court that they would like the Plaintiff to leave the estate.

15. In view of the above circumstances, I am satisfied that irreparable damage would be suffered by the Defendants if the Plaintiff be allowed to continue to remain in the estate thereby preventing an able and willing new manager to move in to properly manage the estate in accordance with the wishes and desires of the Defendants. There is no suggestion that the proposed new manager, Guardian Property Management Limited, would in any way be unfit, unsuitable or unable to live up to such challenge. It says that it can take over the management of the estate with 24 hours' notice. There is nothing to contradict that assurance. The only thing hindering a new manager coming in to manage the property in accordance with the wishes and desires of the incorporated owners representing all the owners, is the presence of the Plaintiff. A new manager, not surprisingly, would not be prepared to force its way into the estate running the risk of physical confrontation with an existing manager. The only way forward to ensure that the estate would be properly managed and properly run in accordance with the wishes of all the owners would be to allow the new manager to move in and replace the Plaintiff in accordance with the wishes of the Defendants. This is of course, irrespective of the validity of the resolution in question. Because irrespective of whether that resolution is valid or not, all the owners are represented by the Defendants today in this Court and what the Defendants say represents the will and wishes of all the owners; and they say, "we want the Plaintiff out".

16. I have come to the conclusion that on the balance of convenience, the matter is decisively in favour of the Defendants in avoiding any further chaos and damage to the proper running of the estate. The law cannot force service of the Plaintiff on the unwilling Defendants by way of "preserving" the status quo. To avoid any further irreparable damage, the Defendants must be allowed to arrange for a new manager, and the Plaintiff be left to pursue its claim for monetary damages at the trial.

17. For the reasons given, the summons of the Plaintiff dated 7 May is dismissed in its entirety.

18. Miss Eu on behalf of the Defendants applied to withdraw the application under para.2a of the summons dated 9 May 1996. It is entirely proper for her so to do in view of the alleged debt due to the Plaintiff for the alleged interest-free loans that they have allegedly advanced to the owners in the management of the estate. So apart from para.2a, there will be an order in terms of their summons upon the usual undertaking as to damages.

(J. Chan)

Judge of the High Court