HCA 151/2008
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 151 OF 2008
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BETWEEN
CHINA TENDER LIMITED
1st Plaintiff
FUTURE DRAGON LIMITED
2nd Plaintiff
and
LAM CHUN MUI （林振枚）
1st Defendant
CHIU YUNG CHUEN (趙勇全)
2nd Defendant
YIU CHI HO, WILSON (姚志豪)
3rd Defendant
RUSLI FATI (李麗珍)
4th Defendant
CHAN YIU FAI (陳耀輝)
5th Defendant
LEE CHI WAI (李志偉)
6th Defendant
LAM CHUN FUNG (林俊夆)
7th Defendant
NG CHI KWAN, SUNNY (吳志鈞)
8th Defendant
YIP CHI SUM (葉志深)
9th Defendant
IP KIM LAN (葉劍蘭)
10th Defendant
LI WAI HUNG, CESARIO（李偉雄）
11th Defendant
CESA MANAGEMENT LIMITED
12th Defendant
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Before: Hon Reyes J in Chambers
Date of Hearing: 17 March 2008
Date of Decision: 17 March 2008
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D E C I S I O N
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I. INTRODUCTION
1. China Tender is the developer of the Metro Sham Shui Arcade. The Arcade is located on the 1st to 3rd floors of the Building known as Kam Wah Mansion. China Tender bought the 1st to 3rd floors from Billion Star. It converted the premises into the units comprising the Arcade. It re-sold those units to various persons including the 1st to 10th Defendants.
2. China Tender continues to own units in the Arcade. It also owns Flats 4A and 4B (including roof areas) (the Flats) of the Building. The Flats are immediately above the Arcade.
3. The present hearing concerns interim arrangements pending trial in relation to the occupation and use of the Flats by the Defendants or some of them.
4. There is also a dispute over who should manage the Arcade pending trial. The 1st to 10th Defendants, reflecting the majority of Arcade owners (72.74% of undivided shares), want Cesa Management to act as Manager. China Tender (holding 21.84% of undivided shares) insists that Future Dragon alone can act as Manager.
II. DISCUSSION
5. The Building (including the Arcade) is subject to a Deed of Mutual Covenant (DMC). The Arcade is additionally subject to a Sub-Deed of Mutual Covenant (Sub-DMC). The Sub-DMC appoints Future Dragon, an associate company of China Tender, as First Manager of the Arcade.
6. The 1st to 10th Defendants have formed themselves into an Owners' Committee (OC). They organised a meeting of the owners of the Arcade. At the meeting, by a majority, the owners voted to replace Future Dragon as Manager of the Arcade with Cesa Management. The 11th Defendant is a director of Cesa Management. The appointment of Cesa Management was symptomatic of the profound dissatisfaction of the majority of Arcade owners with Future Dragon's management.
7. Future Dragon (as it was empowered to do under the Sub-DMC) in fact had delegated most of its responsibilities of management to Jones Lang La Salle Management Services Ltd. (JLL). JLL has since stated that it is no longer prepared to manage the Arcade as Future Dragon's agent. JLL has thus resigned from its position.
8. The Flats were used by JLL as management offices for the Arcade. The Flats house air-conditioning, lift shaft, fire prevention and security-monitoring equipment for the Arcade.
9. Since late December 2007 the Flats have been occupied by some owners (including members of the OC) and by Cesa Management. They say that they are entitled to do so as a result of the owners' meeting appointing Cesa Management as Manager.
10. The Plaintiffs object. They point in support to Sub-DMC Section IV, cl.2 which states:-
“Each Owner agrees with the First Manager of the Premises for its undertaking of management at the costs and expenses of the Owners from the date of execution of this Sub-DMC and until:-
(a) the expiry of two months after CTL's [China Tender's] cessation as an Owner; or
(b) termination by the First Manager of the Premises by serving on each of the Owners by leaving at the Shops at least two months' notice of such termination.”
11. The Plaintiffs say that, since China Tender continues to own units in the Arcade and Future Dragon has not terminated its term by serving notice, Future Dragon remains entitled to manage. This is despite the wishes of the majority of owners. But the Plaintiffs say that under the Sub-DMC the majority of owners may only appoint a replacement Manager if and when Future Dragon resigns.
12. By the present hearing, the Plaintiffs seek interim orders, pending trial, restraining the Defendants from occupying or remaining in the Flats and restraining Cesa Management from acting as Manager.
III. DISCUSSION
13. I do not believe that this is an appropriate case in which to grant the interim orders sought.
14. It seems to me that the parties each have an arguable case.
15. Consider the occupation of the Flats.
16. As owner of the Flats, China Tender has a prima facie right to use and occupy such area to the exclusion of others (including the Defendants).
17. But that argument in favour of China Tender is potentially counter-balanced by 2 matters.
18. One matter is that by Sub-DMC Section IX, cl.3 China Tender granted to the Arcade owners the licence to use, occupy and enjoy certain portions of the Flats for purposes connected with the management of the Arcade, in particular the maintenance of the lift shaft and air-conditioning system. The licence is terminable at a year's notice (but subject to China Tender finding reasonable alternative premises in the Building for the lift-shaft and air-conditioning equipment). No such notice has been given.
19. The other matter is that, arguably, China Tender by its conduct designated the whole of the Flats as Common Area. That conduct consisted in allowing JLL to use the Flats as management offices and in permitting the installation in the Flats of fire prevention and security-monitoring equipment (presumably paid for by the owners of the Arcade) connected with the management of the Arcade. China Tender would have had such ability to designate Common Area on one construction (not necessarily the only possible reading) of Sub-DMC, Section II, cl.8(h).
20. It may or may not be that any such licence arising by conduct is revocable. But even if revocable, it seems to me arguable that reasonable notice of such revocation would be necessary. Such notice would at least allow a reasonable time to the owners to move all relevant equipment (in particular, the security-monitoring and fire-prevention equipment) in a safe and orderly manner.
21. Given the possibility of an express and implied licence to the owners to use and occupy the Flats, the Defendants as representatives of the owners may well have a right to occupy the Flats at this time.
22. Consider next the management of the Arcade.
23. It may be that, as the Plaintiffs contend, the Sub-DMC means that the owners cannot remove Future Dragon as Manager, no matter how unhappy a majority of owners may be with Future Dragon's performance.
24. But it would be odd if the owners should be compelled to continue with the services of a Manager in whose ability they had lost all confidence. I have doubts that the Sub-DMC says, for instance, that however incompetent Future Dragon may be, it cannot be removed by the owners.
25. Instead, it seems to me strongly arguable that Sub-DMC Section IV, cl.2 is not exhaustive of the situations in which Future Dragon's tenure may be terminated. It may conceivably be an implied term of the Sub-DMC (say, for commercial efficacy or under the officious bystander test) that Future Dragon can be removed if a majority of owners do not believe that it is performing its job satisfactorily.
26. Consequently, I am not persuaded by the contention of Mr. Anderson Chow SC (appearing for the Plaintiffs) that the case is all one way in favour of the Plaintiffs.
27. In light of my conclusion of an arguable case, I must move on to consider where the balance of convenience lies.
28. Here I think that it is clear that the balance lies in favour of refusing injunctive relief.
29. As far as Future Dragon is concerned, it has no proprietary interest in the Flats.
30. Assume that there was (say) a breach arising from a premature termination of Future Dragon's management contract. In such situation, the Court will not normally insist that the owners use Future Dragon's services however unhappy the majority of owners may be with the same. As a matter of principle, in the absence of exceptional circumstances, Future Dragon's remedy should simply sound in damages for breach of contract.
31. Accordingly, for Future Dragon, damages must be an adequate remedy in any event.
32. As for China Tender, given that the licence which it granted to the owners may well subsist and has not been terminated, damages pending trial should be an adequate remedy.
33. The Defendants have indicated a willingness to pay a licence fee of $10,000 monthly pending trial as security for China Tender. This is greater than the nominal monthly $1 licence fee which China Tender agreed with JLL.
34. It is also notable that China Tender does not intend at present to occupy the Flats itself. China Tender's intention pending trial is to licence the Flats to such agent as Future Dragon may employ to sub-manage the Arcade in place of Cesa Management, presumably for the benefit of owners generally.
35. In contrast, if injunctions are granted and subsequently the Defendants’ case prevails, the majority of owners will have been deprived of the management of the Arcade by a Manager of their choice. They will instead have been saddled with a Manager, Future Dragon, in whom they have no confidence. I do not think that such loss can be compensated by monetary damages.
36. There is a further consideration which I bear in mind.
37. It is important to all (not just the majority of the owners) for the Arcade to be properly managed at all times, most especially in terms of fire-prevention and security. The owners (not just the majority) would need premises such as the Flats in which to locate their security-monitoring and fire prevention systems.
38. The security-monitoring and fire prevention equipment (which the owners have apparently paid for) cannot readily be dismantled and moved from the Flats to somewhere else. Indeed, it seems far from clear on the evidence whether any suitable alternative premises are available now at short notice to house such equipment.
39. It seems to me wrong then in all the circumstances to require the body of owners in effect to move out all such equipment from the Flats in the short interim pending trial simply because China Tender would prefer another Manager than Cesa Management.
40. In the short interim pending trial, moving the equipment from the Flats and out-fitting some other (presently unknown) premises may be wholly impractical, not just wasteful in time and costs.
IV. CONCLUSION
41. Injunctive relief is refused. It would seem more useful that there be a speedy trial to resolve the parties' disputes urgently. I shall accordingly now hear counsel on costs and consequential directions.
(A. T. Reyes)
Mr Anderson Chow, SC and Ms Winnie Tsui, instructed by Messrs Baker & McKenzie, for the Plaintiffs
Mr Li Chau Yuen, instructed by Messrs Edmund W H Chow & Co., for the Defendants