PLENTY INVESTMENT LTD v. THE INCORPORATED OWNERS OF HENG NGAI JEWELRY

DCCJ 6285/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6285 OF 2005

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J U D G M E N T

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Background

1.  The background of the case was spelt out succinctly in the Reasons for Decision handed down by H.H. Judge M Ng on the 26^th January 2006.  For the sake of completeness, I will repeat the same here.

2.  Plenty Investment Limited (“PIL”) is the owner of Units 911 and 912 (the “PIL Units”) of Heng Ngai Jewelry Centre (the “Building”), 4 Hok Yuen Street, Kowloon.  The Incorporated Owners of the Building (the “IO”) was incorporated on 5^th October 2004 under the Building Management Ordinance Cap. 344 (the “BMO”).  Citybase Property Management Limited (“CPML”) was appointed as the manager of the Building.

3.  There is dispute between CPML and the IO (DCCJ5859/2005) and between PIL and the IO (DCCJ6285/2005) as to whether CPML’s appointment as manager of the Building under the DMC has been validly terminated pursuant to (a) a resolution (the “Resolution”) passed at an owners’ meeting on 25^th October 2005 (the “2^nd Owners’ Meeting”) and (b) a three-months’ written notice of termination to CPML (the “Termination Notice”).

4.  In both proceedings, CPML and PIL (represented by the same solicitors’ firm) seek (a) injunctive relief to restrain inter alia the IO from terminating CPML’s appointment as manager of the Building and from acting on the Resolution and (b) declaratory relief that the Resolution was unlawful or invalid.  PIL further seeks injunctive relief to restrain the IO from taking steps to appoint any new manager of the Building.

5.  In DCCJ6285/2005, PIL on 15^th December 2005 applied for interlocutory injunctive relief as stated above pending trial or further order (the “Injunction Summons”).  On the return day on 19^th December 2005, HH Judge HC Wong adjourned such summons to 1^st February 2006 for argument (the “Adjourned Hearing”) and gave directions for the filing of affirmation evidence.

6.  On 7^th January 2006, the IO applied in both proceedings (the “Striking Out Summonses”) for inter alia (a) a declaration pursuant to Order 12 rule 8 of the Rules of the District Court that this court has no jurisdiction over CPML’s and PIL’s claims and that their actions be dismissed with costs (the “Jurisdiction Issue”) or (b) alternatively striking out the indorsement/statement of claims under Order 18 rule 19 of the Rules of the District Court.  Such summonses were adjourned to the hearing on 18^th January 2006 before me for directions.

7.  On 9^th January 2006, the IO issued a notice of owners’ meeting to be held on 24^th January 2006 (ie 4 working days before the Adjourned Hearing, the “New Owners’ Meeting”) which indicated an intention to appoint a new manager at the meeting (the “2^nd New Notice”).  But the Injunction Summons returnable on 1^st February 2006 seeks amongst other reliefs an interlocutory injunction to restrain the IO from taking steps to appoint a new manager until trial or further order (the “New Manager Injunction”).  On 13^th January 2006 PIL applied (the “Interim Summons”) inter alia to restrain the IO until the Adjourned Hearing from (a) terminating CPML’s appointment as manager of the Building, (b) acting on the Resolution or (c) taking steps to appoint any new manager (the “Interim New Manager Injunction”), and to cancel the Resolution.  At the hearing before HH Judge M Ng on 18^th January 2006, Ms Ho, counsel for PIL, confirmed that PIL would not apply under the Interim Summons to cancel the Resolution.

8.  At the hearing on 18^th January 2006, Mr Hung, counsel for the IO, confirmed the Termination Notice would only expire at midnight on 1^st February 2006, so the IO would not terminate or expel CPML as manager of the Building prior such deadline.  In the circumstances, Ms Ho confirmed PIL would only pursue the Interim New Manager Injunction under the Interim Summons.

9.  It is common ground that irrespective of the outcome of the Interim Summons, the Adjourned Hearing of the Injunction Summons will proceed as scheduled.  Whether PIL will pursue the New Manager Injunction will depend on (a) whether the Interim New Manager Injunction will be granted, (b) if so, whether the owners at the New Owners’ Meeting will resolve to appoint a new manager and (c) if so, whether a new manager will be appointed before the Adjourned Hearing (the “Factors”).  Mr Hung expresses confidence that the IO will be able to appoint a new manager on/before 1^st February 2006 if the Interim New Manager Injunction is refused, but accepts that it is more of an expectation than a foregone reality.

10.  On 18^th January 2006, the following matters were adjourned to be heard before HH Judge M Ng on 23^rd January 2006, the day before the New Owner’s Meeting:

(a)    the Jurisdiction Issue under the Striking Out Summonses (to be heard before the Interim Summons);

(b)    the application for the Interim New Manager Injunction under the Interim Summons;

(c)    the remaining issues under the Striking Out Summonses (for directions only).

11.  As issue (b) was urgent, HH Judge M Ng gave her ruling after hearing arguments.  She granted leave to the IO to challenge jurisdiction out of time in DCCJ5859/2005, but dismissed the IO’s applications in both DCCJ5859/2005 and DCCJ6285/2005 to strike out the claims for want of jurisdiction with costs.  Consequent to such ruling, at counsel’s invitation, she made no order in respect of the IO’s applications on the alternative grounds in both Striking Out Summonses.  She also granted the Interim New Manager Injunction.  She now give her reasons.

12.  At the Adjourned Hearing, Mr. Leung SC, counsel for PIL confirmed that PIL would only pursue interlocutory injunction under paragraphs 1, 2 and 3 of the Injunction Summons and would not seek for an injunction that the I.O. do cancel the Resolution.

13.  Both parties assured this Court before the Adjourned Hearing as far as possible, the discretion of the Court was unfettered even after the hearing of HH Judge M. Ng.

14.  I now deal with PIL’s application for injunction under the Injunction Summons.

15.  I have been referred to various affirmation of Mr Lee Ying Wai, Gorman PIL’s managing director (“Lee”), Leung Yim Kuen, (PIL’s Property Manager (“Leung”) filed for PIL and to various affirmation of Ong Kim Yim, Mary, I.O.’s chairperson (“Ong”), Chan Kam Ho, Salina (“Chan”) and Leung Kwai Sang (“Leung”) filed for the IO.  All these deponents had attended the meeting where the Resolution took place.

16.  For convenience’s sake, I could adopt the summary of HH Judge M Ng on the background of the case as well as the evidence on affirmation before the Court.

The Building

17.  The Building consists of 169 units and 4,978 undivided shares.  The upper floors had 168 workshops.  Heng Ngai Jewlery Co Ltd (“Heng Ngai”) owned the entire 1^st floor and 1 workshop on the ground floor.  The rest of the ground floor consisted of car parking spaces.

18.  On or about 7^th October 2005, the IO issued a notice (the “Notice”) to convene the 2^nd Owners’ Meeting to be held on 25^th October 2005.  The Notice proposed inter alia to pass a resolution for the termination of the appointment of the DMC manager at the 2^nd Owner’s Meeting.

19.  Although the minutes of the 8^th Management Committee (the “MC”) Meeting recorded a resolution to convene the 2^nd Owners’ Meeting, there was no record/resolution that proposed the termination of CPML’s appointment as the manager.  However, Ong claimed the Notice was issued after the MC had resolved to convene an owners’ meeting for the matters contained in the Notice.  On the other hand, Lee said he did not hear of any proposal for termination of CPML’s appointment since the 1^st Owners’ Meeting.

20.  As recorded in the minutes of the 2^nd Owners’ Meeting (the “Minutes”), Lee at the meeting questioned whether the meeting was properly convened.  The IO’s solicitor explained that the IO was entitled under the BMO to convene an owners’ meeting to deal with appropriate matters.

21.  Ong chaired the 2^nd Owner’s Meeting and a Mr Mak acted as the master of ceremonies.  Lee claimed Mr Mak announced (a) there were 29 attendees holding 2,775 undivided shares (whether in person or by proxy) and (b) a sufficient quorum was present.

22.  Ong claimed an appropriate attended record (showing the attendees’ identities, the units and undivided shares they represented and the proxies (if any) they carried) was made as the attendees came into the meeting room.  The Minutes recorded 168 (not 169) owners since Heng Ngai was treated as 1 owner, but Ong claimed there was in any event sufficient quorum.

23.  When the meeting proceeded to deal with the 2^nd item of the agenda (the “2^nd Item”), ie termination of the appointment of the DMC manager, a journal (the “Journal”) setting out 7 allegedly dissatisfactory incidents in respect of CPML’s work (the “7 Incidents”) was circulated to the attendees.

24.  Ong claimed the 7 Incidents had been individually discussed in earlier MC meetings (eg at the 5^th and 6^th MC meetings held on 16^th and 30^th June 2005 respectively), which minutes had been posted up for the owners’ information.  But Lee said only the alleged 7^th Incident was raised during the MC meetings, so the owners would not know of the allegations in the Journal prior to the 2^nd Owners’ Meeting.  Further, Lee noted there were no minutes recording the temporary appointment of a cleaning service company (Sam Fung Services Co Ltd) mentioned in the minutes of the 6^th MC Meeting that referred to the 7^th Incident.

25.  Lee claimed some attendees queried whether CPML had been told of such criticisms of its performance and what its response was.  There is no dispute Ong explained to the owners in meeting that CPML’s representative was not allowed to participate in the MC meetings or in the 2^nd Owners’ Meeting due to conflict of interest.  The statement of claim in DCCJ5859/2005 pleaded that Ms Leung and a colleague (as proxies for various owners) were denied entry to the meeting room and prohibited from participating in the entire proceedings of the 2^nd Owners’ Meeting.

26.  Lee claimed that he and 4 other attendees said at the meeting they would vote against the proposal if CPML was not given a chance to respond and that after repeated requests, Ms Leung was permitted to respond to the 7 Incidents as summarized in the Minutes.  After hearing such response, Lee personally thought the allegations were unfounded and maliciously put forward.

27.  Lee claimed that before the votes were cast Mr Mak announced that the total number of undivided shares held by the attendees in person or by proxy were 3,573.  Ong denied this, saying that Mr Mak only announced the undivided shares represented by the votes when the votes were cast.  Ong claimed it was “incapable” or unnecessary to announce the number of undivided shares held by the attendees before casting of the votes.

28.  It was announced that the Resolution was passed by a simple majority of 50.6% representing 2,519 undivided shares.  There is no dispute that Lee acted as 1 of 3 scrutineers for counting the votes for the 2^nd Item and the 3^rd item of the agenda (ie request tender applications from management companies to act as manager of the Building within 3 months of the Resolution, the “3^rd Item”).

29.  There is also no dispute that in the course of counting the votes, Lee raised a doubt as to whether a ballot from recording the undivided shares referred to “3” or “5” and it was subsequently clarified.  Lee said the relevant digit should in fact be “1”.  Ong said this happened during the counting of votes for the 3^rd Item.

30.  Lee claimed that CPML’s position was much prejudiced because the owners did not know of the MC’s intention to terminate CPML’s appointment as manager ever since the 1^st Owners’ Meeting and those owners who gave proxies might not have supported the Resolution had they been able to hear CPML’s response to the allegations.  Further, the Resolution was allegedly passed by a slim percentage with only 29 attendees holding proxy votes. (140 did not attend)

31.  Lee and Ms Leung stressed that Lee in fact asked for re-counting of the votes in respect of the Resolution, but Ong deliberately ignored him and continued with the meeting.  After the meeting, Mr Lo of the IO’s solicitors denied Lee’s request on the grounds that the meeting was closed, the envelope containing the ballot forms had been sealed and the other attendees who witnessed the sealing of the envelope had left.  Lee did not argue further as he did not know what else he could have done at that time.

32.  Lee claimed that the 3,699 undivided shares recorded as having participated in the Resolution were 122 shares (or 2.25% of the total undivided shares of the Building) more than the total 3,573 undivided shares announced by Mr Mak before the votes were cast.  If there were inaccurate counting of the votes, the Resolution might not have been passed (50.6% - 2.25% = 48.35%).  But Ong denied Mr Mak ever announced the total number of undivided shares before the votes were cast.  She claimed it was unnecessary to do so.

33.  Chan’s 1^st affirmation described how the proxy and ballot forms for the 2^nd Owners’ Meeting were handled.  The proxy forms collected by the proxies (such as Chan) stated the relevant units and were signed by the owners with company chops in case they were companies.  “People like [Chan] holding proxy forms who attended the meeting have all presented the proxy forms to the worker (who were volunteers) sat at the entrance of the meeting room.”  The workers would fill in ballot forms in accordance with the proxy forms and give the ballot forms to the proxies, so the ballot forms should state the units on the proxy forms.  The holders of the proxy forms (such as Chan) would sign the ballot forms.  Chan said one could crosscheck a ballot form against the corresponding proxy form and she believed Lee and CPML’s representative did so at the second inspection on 9^th January 2006.

34.  At the hearing on 18^th January 2006, I drew Mr Hung’s attention to paragraph 4(3) of the Third Schedule of the BMO which provides inter alia that “the appointment of a proxy shall have no effect unless the instrument appointing the proxy is lodged with the secretary of the management committee not less than 24 hours before the time for the holding of the meeting at which the proxy proposes to vote, or within such lesser time as the chairman shall allow.”  It raises a question whether the proxy forms for the 2^nd Owners’ Meeting “all presented …..at the entrance of the meeting room” were valid and consequently whether there was sufficient quorum for the 2^nd Owners’ Meeting and sufficient votes for the Resolution.

35.  After taking instructions, Mr Hung informed me Chan’s 1^st affirmation was erroneous in this respect and sought leave to file Chan’s 2^nd affirmation.  Chan’s 2^nd affirmation explained that her boss Mr William Wong (the MC’s treasurer) assigned her to assist Mr Lo Wing Wah (the MC’s secretary) in collecting the proxy forms.  The Notice on its face reminded that to ensure sufficient quorum at the 2^nd Owners’ Meeting owners who could not attend the meeting were requested to give proxies to others who would attend and that the proxy forms should be handed in or posted to the office address of Chan’s company (which was designated by the secretary and used by the MC as its office) 24 hours before the meeting.  The last batch of proxy forms was received at such office in the morning of 24^th October 2005.  On the same day, Chan gave them to Mr Lo who after checking passed them back to Chan for use at the 2^nd Owners’ Meeting.  Before the meeting commenced, Mr Lo asked Chan to place all proxy forms on the desk where the attendees would sign the attendance record.  The workers would retrieve the relevant proxy forms for filling up the ballot forms according to their contents.  Chan admitted she did not give a full account to the IO’s solicitors of how the proxy forms were handled before the meeting when her 1^st affirmation was prepared and she failed to spot the error when she affirmed her 1^st affirmation.

36.  On the other hand, Ms Leung said she handed in 7 proxy forms for various units 24 hours before the meeting, but she could not confirm whether the other proxy forms were handed in before such deadline.

37.  Ong claimed the second inspection on 9^th January 2006 confirmed the Resolution should have been passed by 52.39% and the correct total number of undivided shares that voted for the Resolution was at least 2,589 (ie 2,519 plus 70).  On the other hand, Lee denied that the irregularities and errors readily admitted by Chan and Ong (see below), which illustrated the impropriety of the Resolution, were in the IO’s favour.

38.  For vote 18, Chan’s ballot form was for Units 910, 1113, 1206B and 610, but the proxy forms given by her were for Units 910, 1113, 1206B and “601”.  The owner of Unit 610 (28 undivided shares) did not attend the meeting and did not give any proxy.  Unit 601 had 20 undivided shares.  Chan said “610” in the ballot form was in fact referable to Unit 601 for which she held a proxy form, which explanation Ms Leung and Lee challenged as speculative.  Ms Leung and Lee said they did not know why there were errors in the ballot form.

39.  For Vote 15, Mr Lai Moon Chim’s ballot form referred to inter alia Unit P2 (4 undivided shares), but the owner thereof in fact gave his proxy to Ms Leung.  Chan said that since Mr Lai held a proxy form for Unit L2, Lee and Ms Leung should have known from the inspection that the ballot form was referable to Unit L2 instead of Unit P2.  On the other hand, Ms Leung and Lee said they could not verify whether Vote 15 was meant to represent Unit L2 and they did not know why the ballot form showed Mr Lai as representing Unit P2.

40.  For Vote 9, the ballot form purported to cast votes for Unit P14 (4 shares) and stated that the owner was Mr Yeung Yin On.  Mr Leung Kwai Sang claimed he was given proxies to represent Units 603 (by Mr Yeung Yin On) and P14 (by his brother Mr Leung Kwai Ping).  Mr Leung Kwai Sang “believed” his brother had omitted to sign the proxy form which referred to Unit P14 and only Mr Yeung Yin On signed as owner of Unit 603.  Mr Yeung Yin On and Mr Leung Kwai Ping were directors of a company that occupied Unit 603.  Ms Leung said such explanation was speculative.

41.  For Vote 10, the ballot from was for Units 403, 512, 513 and 514, but there was no attendance record for Unit 512 (28 undivided shares).  Chan claimed Units 512, 513 and 514 were owned by the same owner and his representative attended the meeting, so the omission in the attendance record was a mere mistake.  On the other hand, Ms Leung and Lee claimed there was no evidence to support the assertion that the ballot form represented Unit 512, which explanation was said to be speculative.

42.  Lee claimed that the disputed undivided shares for the above irregularities were 63, which would be sufficient to defeat the Resolution if they were discounted (49.33%).

43.  For Vote 5, Mr Au Yeung Wing Wah’s proxy form was for Units 804, 805, 806, 807, P16, L7, L8, L9 and L19 (129 undivided shares).  He signed the attendance record for all these units, but the ballot form omitted reference to Units P16, L7, L8, L9 and L19.  In any event, the total undivided shares for Units 804-807 should be 110 and not 64 as counted.  On the other hand, Ms Leung said Vote 5 recorded that it represented Units 804-807 and 64 undivided shares.  Lee claimed Chan’s suggestion that Vote 5 represented other units or that the total undivided shares should be 110 was pure speculation since there was no evidence to show what the precise error in relation to this vote was.

44.  For Vote 14, although the ballot form stated it represented 841 undivided shares, Chan claimed it should in fact represent 847 undivided shares.  Ms Leung claimed such explanation was speculative.

The applicable principles

American Cyanamid Principles

45.  The principles for interlocutory injunctions set out in the American Cyanamid case are clear.  There, House of Lords laid down that the court in exercising its discretion as to granting or refusing interlocutory injunction ought not weigh up the relative strengths of the parties’ case on the evidence (necessarily incomplete) available at the interlocutory stage.  Lord Diplock said at p.407:

“The Court no doubt must be satisfied that the claim is not frivolous or vexatious; in other words, that there is a serious question to be tried.  It is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts of which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations.  These matters are to be dealt with at the trial.”

46.  In the same case, Lord Diplock laid down a series of principles on which the discretion of the court should be exercised:-

1. “As to that, [i.e. the balance of convenience], the governing principle is that the court should first consider” whether, if the plaintiff succeeds at the trial, he would be adequately compensated by damages for any loss caused by the refusal to grant an interlocutory injunction.  “If damages…. would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage”:p.408.

2. “If, on the other hand” damages would not be an adequate remedy, the court should then consider whether, if the injunction were granted, the defendant would be adequately compensated under the plaintiff’s undertaking as to damages.  “If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction”:p.408.

3. “It is where there is doubt as to the adequacy of the respective remedies in damages…. that the question of balance of convenience arises.  It would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balances lies, let alone to suggest the relative weight to be attached to them.  These will vary from case to case”:p.408.

4. “Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo”:p.408.

5. “The extent to which the disadvantages to each party would be incapable of being compensated in damages in the event of his succeeding at the trial is always a significant fact in assessing where the balance of convenience lies;….”:p.409.

6. “….if the extent of the uncompensatable disadvantage to each party would not differ widely, it may not be improper to take into account in tipping the balance the relative strength of each party’s case as revealed by the affidavit evidence adduced on the hearing of the application.  This, however, should be done only where it is apparent upon the facts disclosed by evidence as to which there is no credible dispute that the strength of one party’s case is disproportionate to that of the other party”:p.409.

7. “….in addition to [the factors] to which I have referred, there may be many other special factors to be taken into consideration in the particular circumstances of individual cases:’.409”

Serious Question to be tried

47.  The Court will need to be satisfied if there are serious question to be tried before it will move to consider the balance of convenience.

48.  It was submitted by Mr. Leong SC that in the present case, there are surely serious question to be tried.

49.  He submitted that:-

a. There are errors in the ballot forms purporting to be in favour of the Resolution. [see 2^nd Affirmation of Lee Ying Wai Gorman, A8, §9]  These errors have been admitted in the Affirmations of Chan Kam Ho and Leung Kwai Sang.

b. The purported explanations given by Chan were inferences drawn from the proxy forms, when such are neither the only nor necessary inferences.  The explanation given by Leung Kwai Sang is hearsay and speculative.  The contents in the said affirmations must be tested by way of cross-examination at trial.

c. The I.O. terminated CPML based on the 7 Incidents listed in the document “Owner’s choice” [PE89].  However, the owners at the meeting of 25 October 2005 had not heard of such allegations prior to the meeting and had not heard of the managers explanation to the allegations until the day of the meeting.  This is admitted by the Chairlady of the I.O. [see 1^st Affirmation of Ong Kim Yim Mary at A40, §10-11].

d. The 7 Incidents, separately or together [PE89], do not justify termination of CPML’s appointment.  They are all minor.  There are no allegations of embezzlements of funds, or a breach of the manager’s duties.  The complaints are mere queries about various events:

i. The 1^st, 2^nd, 4^th, 5^th, and 6^th Incidents are questions relating to the accounts of the building.  There has been no allegation, let alone evidence, that the accounts are false or that CPML misappropriated the money.  The queries raised are matters capable of being and were indeed clarified by the manager. 

ii. The 3^rd and 7^th Incidents are administrative queries.  These complaints, taken at their highest, do not support a case of CPML having breached its duties as manger.

iii. It should be noted that CPML has provided explanations for each of these 7 Incidents at the meeting of 25 October 2005 [PE94-95].

50.  He further stated that it is clear that there are issues relating to and arising out of the Resolution that must be resolved at trial and the deponents should be subject to cross-examination.

51.  Mr. A. Hung, Counsel for the I.O. did not dispute that there is serious question to be tried here.

52.  He conceded that there were mistakes in the ballot forms but he said that some errors would result in more votes in favour of the Resolution while some errors would result in lesser votes for the Resolution.  He criticized PIL for just considering the number of votes which ought to be deducted from the 2,519 votes for the Resolution, yet ignoring the number of votes totally 53, which were additional votes resulting from these errors.

53.  He submitted that Lee claimed the correct total votes in favour of the resolution are 49.33%.  The figure however does not stand up to scrutiny.

(1)   Save the mistakes in respect of Votes 9 and 18 (which involved a negligible 11 votes (3 plus 8 shares), all other mistakes are in favour of I.O.

(2)   It is common ground that Vote 5 represents 804 to 807 (4 units); under the DMC, the shares allotted for these units are 30, 31, 29, and 20 (total 110).  The ballot form however stated 64 votes; therefore 46 votes should be added.  Lee just responded and said “speculation”.

(3)   Similarly, Vote 14 represents a number of units.  According to the DMC, the total shares should be 847 instead of 841; 6 votes should be added.

(4)   For these two votes (5 and 14) alone a total of 52 votes should be added in favour of the Resolution.  Even assuming alleged errors in relation to other votes (in total 63) are in favour of PIL (which was not admitted), the end result would still be over 50% as 50% of 4,978 is 2,489.

                          2,519 + 52 – 63 = 2,508

                          2,508/4,978 = 50.38%

(5)   Further, if the explanation relating to other votes (10, 15 and 18) are taken into account (which Lee could only comment “speculation” but unable to rebut), the total votes in favour of the Resolution is

                          2,519 + 52 – 3 +1 – 8 = 2,561

                          2,561/4,978 = 51.45%

(6)   Further, had it not been the further error (which I.O. conceded) of the owner of units 804-807 not including their car parking space interest (total 19), the margin would be even higher (2,561 + 19 = 2,580); 51.82%.

54.  Further, Mr. Hung submitted that there is nothing in the BMO or the DMC which stipulates that the management company need be given an opportunity to explain the allegations against them before they could be dismissed nor he said was there requirements that the alleged incidents must be serious before they could be dismissed.  He referred this Court to the case of Rich Fortress CACV 3104/2001. 

55.  In any event, he said the I.O. had provided an opportunity for CPML to address on the 7 incidents before voting the Resolution. 

56.  He drew the analogy to the termination of an annual retainer of solicitors firm. 

Adequacy of Damages

57.  Mr. Leong S.C. further submitted that per Lord Diplock’s guidelines as set out in American Cyanamid, the first step is to consider whether the Plaintiff is adequately compensated by damages if he succeeded at trial but was refused an injunction.

58.  As this is PIL’s application for an injunction, he said it is the damages of PIL that need to be considered and not that of CPML. 

59.  He said PIL cannot be compensated by damages because PIL is enforcing a legal right under the DMC and that he is entitled to ensure the non-violation of DMC:

60.  He said the only recourse PIL has against the I.O. is to ensure they comply with the BMO or DMC.  The right of enforcement is not a right that can be quantified in monetary terms and that PIL cannot be adequately compensated in damages. 

61.  He submitted that in the case of Martin v. Price [1894] 1 Ch 276 at 285, Lindley J. held,

“The Plaintiff’s legal right, and its infringement already, and threatened further infringement, to a material extent being thus established, the Plaintiff is entitled to an injunction according to the ordinary principles on which the Court is in the habit of acting in these cases.  There might be of course be circumstances depriving the Plaintiff of this prima facie right but we can discover none in this case.”

62.  Mr. Leong S.C. stated that as the Resolution was passed based on the erroneous ballot forms and therefore the I.O. having admitted these errors should not proceed to on the Resolution. 

63.  Counsel for PIL further said that the I.O. can be compensated in damages if the injunction is granted but the I.O. succeeds at trial.  He said so far, the I.O. has not particularized any loss that could not be compensated by damages. 

64.  He said should an injunction be granted, there will be status quo and therefore there will not be CPML or the new manager seeking compensation against the I.O. in the event the I.O. loses at trial.

65.  He said once the validity of the Resolution are confirmed at trial, there is no need for the I.O. to pass another resolution to terminate CPML despite the latter was the de facto manager.

66.  It is further submitted that the argument that I.O. has to put up with CPML whom they have decided they could not work with is not a valid argument.  He said the I.O. acting on behalf of the owners are there to uphold the interests of all owners.  There is no evidence that the relationship between the I.O. and CPML have affected their work in the day to day management of the building and there is no evidence that owners are hostile towards CPML.  He said apart from the alleged 7 Incidents in the document entitled “Owner’s Choice” there is no further alleged misconduct on part of CPML.  The mere fact that the I.O. finds itself unable to work with CPML is not a relevant factor in considering the loss suffered by the I.O.

67.  Furthermore, it is said that there is no evidence of an irretrievable breakdown of relationship between CPML and the owners. 

68.  Lastly, Mr. Leong S.C. submitted that in fact, I.O. can at any time call another general meeting by giving 14 days’ notice to owners for terminating CPML’s appointment. 

69.  It is submitted that the I.O. would be adequately compensated by damages. 

70.  Mr. Hung, Counsel for I.O. argued that as far as CPML is concerned, the definite answer is that they could be compensated by damages.  

71.  He said PIL claimed that if damages is payable to CPML, they would have to contribute and could not recover from the I.O. but CPML had been given 3 months notice already; and they have a duty to mitigate; and deploy their resources to other commitments in the meantime.  The damages (if any) to CPML is only minimum. 

72.  Further he said, PIL has to contribute only 1% on the damages, if at all. 

73.  Mr. Hung further submitted that the Court would, in reality, unlikely reinstate CPML.

74.  It was said if the Court should, after 1½ year finds the Resolution invalid; it is extremely unlikely the Court would reinstate CPML, instead there would be award of damages. 

75.  Further, there is no question of damages payable to the new manager; as the new manager would be taking up the post on the basis of such an eventuality.

76.  It was submitted the damages suffered by PIL was really illusory, as that would be a mere assertion of their right to have the DMC compiled with by the I.O.

77.  In the premises, it was said PIL cannot even pass the first hurdle.

78.  Mr. Hung further submitted that even assuming damages would not be an adequate remedy to PIL, the Court would have to consider whether if the injunction were granted, I.O. would be adequately compensated under PIL’s undertaking as to damages and/or PIL has the adequate financial means to pay. 

79.  He said loss of the I.O. resulted from the waste of time and energy and costs of all their members being unpaid volunteers and busy businessmen in procuring the owners meeting and the management committee meeting in procuring the passing of the Resolution

80.  Further, the I.O. has to put up with (against their wish) to work with a manager whom they disliked and had tried 2 times in the past to dismiss.

81.  They will have to endure a lot more disputes between CPML and the I.O./Management Committee incurring unnecessary costs and time. 

82.  It was submitted that damages could not compensate their loss.

83.  Furthermore, it was urged by Mr. Hung that as the only known assets of PIL is the two units; which worth is $6M but subject to “ALL MONEYS” mortgage and in view of the fact that PIL has expressly refused to give any undertaking to the Court that PIL would not borrow more money or would not sell the units before the trial, PIL can further draw on the all monies mortgage and/or sell the properties before the trial and I.O. would not be compensated.  At the trial, PIL has just indicated that PIL would not sell the units before the conclusion of these proceedings. 

84.  Further, Mr. Hung for I.O. said the damages and loss suffered by them was difficult to assess. 

American Cyanamid: Balance of Convenience

85.  Assuming there is doubt as to adequacy of the respective remedies in damages, the question of balance of convenience arises. 

86.  Counsel for PIL said although I.O. argues that it is unable to work with CPML and therefore an injunction should not be granted as this would be “a recipe for disaster” as per Rogers V.P. in the case of Rich Fortress, the Rich Fortress case can be distinguished from the present case.  It was said the 3^rd Plaintiff in Rich Fortress was an owner of car parks and shops, and that it was a subsidiary of the manager (1^st Plaintiff) and therefore the Court must have taken the 3^rd Plaintiff to have the same interests as the manager.  In the present case, PIL is a separate legal entity from CPML and has no ties with CPML whatsoever. 

87.  As indicated in H.H. Judge M. Ng’s judgment, the present case is not one in which CPML has fallen out with the majority, unlike the case in Rich Fortress.  H.H. Judge Ng did not find any hostility expressed at the meeting of 25 October 2005 ((117a) judgment p. 34 – 36 judgment of H.H. Judge Ng).

88.  It was said although the I.O. alleges that CPML has been refusing to pay legal costs to the I.O. despite the resolution of the management committee as to indicate hostility between the parties and the untenable working relationship, the same has only been withheld pending the signature and chop of the I.O. and that CPML is at time of trial, in course of making payment to the I.O.  CPML said that it is usual that the bills tendered for payment are paid within 30 days.  There is nothing particular about it.  He said the mere allegation that CPML has withheld funds should not be considered an indication of any hostility. 

89.  Furthermore, he said none of the ‘7 incidents” would discredit CPML to such an extent that will render it totally unacceptable as the manager in the interim pending trial. 

90.  He further stated that in Rich Fortress case, the manager had an opportunity to explain or rebut the complaints made against it, however in this case, as admitted by the I.O., the document called “Owner’s Choice” was not circulated until the owners’ meeting on 25^th October 2005.  It is also further admitted by the I.O. that CPML was only allowed to rebut the allegations made against it at a later stage during the meeting [see 1^st Affirmation of Ong Kim Yim Mary at A40, §11]. 

91.  Mr. Leong S.C. further said should there be any development in the case during the currency of the interim injunction that is adverse to I.O.’s interest, there is nothing to prevent the I.O. from coming back to court and ask for the appropriate relief. 

92.  It was urged therefore that the case of Rich Fortress is distinguishable from the present case. 

93.  Mr. A. Hung however submitted that as CPML now acts as agent for the I.O. in the management of the building, cooperation and trust between the parties are necessary. 

94.  He said according to Affirmation of Ong, CPML had refused to pay legal costs to the I.O. to fund the present proceedings brought along by CPML and PIL herein although the management committee had previously approved the same.  These acts were done by CPML to make life difficult for I.O.  No explanation was given by staff of CPML until trial.  Mr. Hung said this is an example of the sort of working relationship between I.O. and CPML.  

95.  Mr. Leong S.C. only submitted in Court that the reason for the delay in making payment was because the original invoice was not signed and chopped by the I.O. and that it was usual to pay an invoice after 30 days. 

96.  Mr. Hung quoted the words of Rogers V.P. in the Rich Fortress case that allowing the manger to remain by granting an injunction is a recipe for disaster. 

97.  He further submitted that on termination of CPML as manager of this building, the I.O. will perform the management of the building pending the appointment of a new manager in a new meeting after giving 14 days’ notice. 

98.  In reply to the submission by PIL that I.O. could always convene another owner meeting and have a new resolution to terminate the manager should an injunction be granted instead of further engaging in this proceedings, Mr. Hung said the issue is whether under the circumstances, the court should grant or refuse the injunction and not whether by granting the injunction, I.O. has means to nullify the injunction. 

99.  He says if I.O. has means to nullify the injunction, there should be no interlocutory injunction; and the Court should not make academic orders.

100.  In fact, Mr. Hung argued that using the same logic, PIL has the option to sell their units without waiting for the trial to finish, that will avoid PIL suffering the consequence of the acts of violation of DMC by other owners i.e. the appointment of a new manager.

101.  Further or alternatively, he submitted that even if I.O. is able to convene another meeting, there is the risk that CPML may in future argue I.O. has by conduct elected to treat the resolution passed on 25^th October 2005 to be invalid.  He said I.O. just could not run such risk. 

102.  He said it is not just to put I.O. in such an unenviable position. 

103.  Mr. Hung cast serious doubt on reason why PIL seeks the present injunction.  He submitted that PIL only represents 1% of the interest of the building and that out of 4,978 shares, 2,519 voted in favour of the Resolution and 1,041 voted against.  PIL however is the only one asking for the injunction.  He said PIL’s claim of any interest in seeing DMC complied with is artificial. 

104.  He said though CPML has issued the Writ and Statement of Claim, they do not apply for injunction.  PIL however, not having filed any Statement of Claim so far, asks for injunction.

105.  More strangely, Mr. Hung submitted, on admission of PIL, they have been putting up the units for sale.  Why would they bother who the manager of the building is?  What is the inconvenience or damages or loss suffered?  Although they have indicated they will only sell the flats after the legal proceedings are over, there is nothing to prevent PIL from selling the properties earlier or to further encumber the properties as to reduce the net value of the properties to avoid paying damages to the I.O. in event of injunction wrongly granted.

Preserving the Status Quo

106.  Mr. Leong S.C. said the meaning of ‘status quo’ as referred to in American Cyanamid has been considered in the case of Garden Cottage Foods Ltd. v. Milk Marketing Board [1983] 3 WLR 148 and the dictum of Lord Diplock has been applied in the Hong Kong case of RJP Electronics Ltd. v. Far East United Electronics Ltd. [1983] HKLRD 428. 

107.  It was defined as “the state of affairs existing during the period immediately preceding the issue of the writ claiming the permanent injunction or, if there be unreasonable delay between the issue of the writ and the motion for an interlocutory injunction … the period immediately preceding the action.” (see P. 430I quoting Lord Diplock).

108.  Counsel for PIL submitted that the status quo in the present case is that CPML is still the manager of the building.  If a new manager is appointed or allowed to be appointed, that would be a fait accompli changing the present status quo adversely affecting the trial of the main action.  Hence an injunctive relief is necessary to preserve the status quo until the trial of the action.

109.  Mr. Hung however submitted that status quo would only come into the picture where other factors appear to be evenly balanced.  By reason of the above matters, status quo dos not come into the picture at all.

110.  Assuming one has to consider status quo, the status quo in this case is:-

(1)   the resolution has already been passed on 25^th October last year;

(2)   CPML given a chance to inspect the ballot forms yet they are unable to ask for an injunction;

(3)   I.O. has by notice terminated the appointment of CPML; and a new manager would be appointed.  He said to allow CPML to stay would in effect be changing the status quo.

111.  He said therefore even if there should be status quo, the granting of injunction should be refused. 

Fortification of Undertaking as to Damages

112.  It was alleged by I.O. that PIL is not willing to and is unable to fortify the undertaking.

113.  Counsel for PIL said that as I.O. has yet to quantify any damage or loss and that it has yet to apply for fortification of the PIL’s undertaking, it was said that without such quantification, court need not embark upon any determination of whether PIL is good for its undertaking. 

114.  Furthermore, PIL said that PIL’s property is sufficient to meet any order to fortify the damages for the following reasons:-

115.  In PIL’s 3^rd Affirmation [A60, §11] and 4^th Affirmation, [A76, §6], PIL has confirmed it will not sell its properties until the conclusion of the proceedings.

116.  Although PIL’s properties are subject to a mortgage, the outstanding mortgage is only $512,721.24 [PE148] and the market value of the property is $6,000,000 [A60, §11], hence there is still $5.5M to meet any order for fortification.

Exception to American Cynamide Principles

117.  There are cases where the granting or refusal of the interlocutory injunction at the interlocutory stage would, in effect, dispose of the action finally in favour of whichever party was successful in the application, because there would be nothing left on which it was in the unsuccessful party’s interest to proceed to trial.  In such cases, the court should approach the matter in a broad principle to avoid injustice.  The American Cyanamid is not such a case and does not apply.  In such cases, the Court is entitled to consider “the degree of likelihood” of the Plaintiff succeeding at the trial.  The investigation of the Court need not and should not amount to the trial of the action. 

118.  Mr. Leong S.C. said that the cases of Lansing Linde Ltd. v. Kerr [1991] 1 WLR 251 and NWL Ltd. v. Woods [1979] 1 WLR 1294 do not apply in this case.

119.  He said in these 2 cases, “there would be nothing left on which it was in the successful party’s interest to proceed to trial”. 

120.  The Lausing Linde Ltd. case involved a restraint of trade clause for 12 months and there would be no trial fixed within that 12 months. 

121.  As for the NWL Ltd. case, the court in that case was obliged under section 17 (2) of the Trade Union and Labour Relations Act 1974 to consider the likelihood of the defendants establishing a defence under section 13 of the Act. 

122.  Injunction was refused in both cases.

123.  Mr. Leong S.C. stressed that in this case, upon PIL being granted injunctive relief as set out in paragraphs 1 – 3 of the summons, there would still be the question of whether the Resolution is valid and hence whether the termination of CPML is valid.  The validity of the resolution and termination must be determined at trial.  It cannot be said that just because the I.O. may be prohibited from employing a new manager pending trial, there is nothing left in the I.O.’s interest to be litigated.  Moreover, he submitted the I.O. could easily have given 14 days’ notice and called another meeting for removal of CPML without waiting for the court’s ruling on the injunction application, nevertheless it has chosen to continue to act pursuant to the Resolution. 

124.  It was also said that PIL has been adamant in asserting its right to see to the non-violation of the DMC on a matter of principle and refusal of injunction would not end the matter.  PIL has confirmed in its 3^rd and 4^th Affirmation that it would not sell its two properties until the conclusion of the proceedings [A60, §11; A76, §6].

125.  It was further said that in both the cases of Lansing Linde Ltd and NWL Ltd, neither the Plaintiff nor the Defendant had any reason to proceed to trial after the injunction application has been decided in favour of the other party, whereas in the present case, it is clear that whatever the court decides in the present injunction application, there is reason for the case to proceed to trial.  The principles in NWL Ltd and Lansing Linde have no application to the present action.

126.  Mr. Leong S.C. further submitted that even if the principles in NWL Ltd and Lansing Linde Ltd applied, the likelihood of PIL succeeding at trial was not determinative of the injunction application, but only as Lord Diplock said in the NWL Ltd case “”a factor to be brought into the balance of the judge in weighing the risks that injustice may result from his deciding the application one way or another.”  （pg 1306B）

127.  In the NWL Ltd. case, the injunction was refused because the judge found “the defendants have virtual certainty of establishing their defence of statutory immunity.” (pg 1307H). 

128.  It was said that the I.O. here clearly does not have a virtual certainty in their defence so as to tilt the risk of injustice in its favour.

Likelihood of success

129.  On the other hand, it was advanced by Mr. Leong S.C. that the likelihood of PIL succeeding at trial is high as:-

(a) The errors on the ballot forms as pointed out in the 2^nd Affirmation of Lee Ying Wai Gorman at paragraph 9 [A8] are all admitted by the I.O. in the Affirmations of Chan Kam Ho and Leung Kwai Sang and that they related to 63 shares for the Resolution.  If these shares were subtracted, the Resolution could not be passed.

(b) The explanations offered by Chan Kam Ho are mere speculations on her part.  Relevant donors of power to vote have not given evidence (direct or hearsay) as to their intentions.  Proxy forms did not specify how the proxy must vote.  The same proxy holding more than one proxy forms may vote differently on behalf of different donors of power.  Discrepancies between (i) attendance record and ballot forms and (ii) proxy forms and ballot forms will have to be explained and tested under cross-examination.  These discrepancies, at this stage, should not be drawn in favour of the I.O.

130.  It was said even if the court were to assess PIL’s likelihood of success at trial, the same is high.  In any event, the I.O. cannot say it is virtually certain that its defence must win.

131.  On the other hand, Mr. Hung submitted the present case is one where we should apply the principle in Lansing Linde Ltd case and the NWL Ltd case.

132.  He said in this case, if injunction is granted, no reasonable I.O. would proceed to spend another $0.5 million and wait for 1 year odd for trial of the case and not proceed to call another owners’ meeting.  On the other hand, if injunction is not granted and a new manager appointed, PIL will not be interested to use another $0.5 million to see the outcome of the trial i.e. the validity of the Resolution when they will soon dispose of the properties.

133.  Mr. Hung said in the present case, the Court should approach the matter in a broad principle to avoid injustice.

134.  Coming to the strength of the O.I. case, Mr. Hung submitted the previous analysis regarding the errors in ballot would mean that I.O. has a strong defence, that however you interpret the ballots, the total votes in favour of the Resolution would exceed the requisite 50%.

135.  He further submits that though the likelihood of success should be considered by the Court, there is no requirement of virtual certainty.

136.  By granting an injunction in this case, he submitted it will be doing injustice to majority owners of the building whilst favouring PIL, the 1% owner.

137.  Under the circumstances, it was submitted that injunction should not be granted to avoid injustice.

Conclusion

138.  This Court accepts the point made by counsel for I.O., that the granting or refusal of the injunction, at this stage will, in effect, have resolved the action finally in favour of whichever party was successful in the application.  Despite what Mr. Leong S.C. submitted, this Court noted paragraph 16 of the affirmation of Lee dated 12^th January 2006 where he says if injunction was not granted and a new manager appointed in the meeting, then he would be deprived of his relief.  Similarly therefore, if no injunction is granted by this Court, I.O. will in due course appoint a new manager and PIL would have considered themselves as deprived of the relief.  He will not be interested in spending extra huge legal costs for the sake of strictly enforcing the compliance of DMC.  Again if injunction is granted, Mr. Hung has indicated I.O. will convene another owners’ meeting to avoid the need to spend $0.5 million legal cost to see retrial of this action.

139.  In fact, this Court has grave doubts as to the intention of PIL in seeking the injunctive relief.  PIL as a business concern, taking this legal proceedings does not accord with basic commercial principle.

140.  Coming to the likelihood of success of the parties, it would appear that the same requires further investigation by the Court.  Whilst I agree with Mr. Hung that virtual certainty of success is not necessary I also find his explanation of the errors of ballots attractive.  However, bearing in mind the alleged irregularity in lodging of proxy, I take the stance that the evidence of the deponents in that respects should be tested in Court.  Neither party has a distinctly clear chance of success in this case.

141.  Accordingly, this Court considers the case along the lines of American Cyanamid case.  This Court has no doubt, as pointed out by Mr. Leong S.C. that there is in this case, serious question to be tried, i.e. regarding the errors in ballots and the irregularity in lodging of proxy.  This Court however, adopting the stance in Rich Fortress case, is of the view that it is not a prerequisite, in dismissing CPML, for the latter to be given a chance to explain the allegations against him.  As Rogers VP said in the Rich Fortress case, “however desirable the 1^st 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.”

142.  This Court also had reservation that in order for the Resolution to be valid, the owners attending the meeting need to be notified before the owners’ meeting about the 7 incidents or that the incidents alleged need be serious enough to justify termination of the manager.  There is nothing in BMO or the DMC setting out such as a requirement for a valid resolution.

143.  As for the issue of adequacy of damages, this Court could not see how PIL would suffer should a new manager be appointed, assuming the Resolution is invalid.  PIL would suffer, at most, apart from a notional breach of DMC, a possible small contribution to damages payable to CPML should they be terminated wrongfully following the Court’s ruling that the Resolution was not valid.  This Court does not find reinstating CPML probable in the event that the Court finds the Resolution invalid at trial and therefore there is no need for damages to the new manager.  Damages should be adequate to compensate loss of PIL, if any.  One should bear in mind further that PIL will soon dispose of the properties.  There is no evidence before this Court whether they are themselves occupying the properties or have rented the properties for others or the properties have been left vacant.  It really is difficult to see any loss and damages for PIL.

144.  On the other hand, if injunction is granted, the I.O. will suffer the loss as advanced by Mr. Hung on their behalf.  The I.O. will be forced to work with CPML or alternatively incur further time, effort and costs in convening another owners’ meeting.  Clearly, the loss and damages of I.O. could not be quantified and compensable by award of damages.

145.  In addition, I accept the submission by Mr. Hung that as there is no undertaking by PIL, a limited company not to further encumber the properties or not to sell the properties it owns before conclusion of the trial, save for evincing such intention on affidavit.  O.I. may not be adequately compensated by the PIL’s undertaking as to damages.

146.  Assuming there is doubt as to adequacy of damages, this Court needs further to consider the issue of balance of convenience.

147.  Again, I accept that it is easier for PIL to bear with the non-granting of injunction, they being an owner soon selling their interests in the building.  The existence of different managers should not concern them much.  Contrasting with PIL, it is clear that after “two mutinies” as Mr. Hung put it, the relationship between I.O. and CPML is understandably far from co-operative or friendly.  The non-payment or delay in payment of legal costs, in my view, is just one of the many examples of uncooperative incidents to come.  Though I.O. has legal avenues to pursue release of funds for legitimate purposes, these involve extra costs and inconvenience to the I.O.  It will not be right to maintain the status quo for a year odd, given the relationship between CPML and I.O., unlike the short time span under consideration by H.H. Judge M. Ng. 

148.  Although Mr. Leong S.C. said the present case should be distinguished from Rich Fortress in that the Court appear in that case to have treated the 3^rd Plaintiff there as relating to the 1^st Plaintiff, the manager, sharing the same interests, this Court does not share the same view.  There is nothing in the judgment that leads me to reasonably form such a view.

149.  Although it might not tilt the balance when the time span under consideration is short even though the relationship between CPML and the I.O. is unfriendly, the situation is quite different when one has to consider the time period of 1 year odd.

150.  Further considering I.O.’s option to convene another owners’ meeting, I noted the submission of Mr. Hung and further that using the same logic, it is always free for PIL to dispose the units as soon as possible to avoid any loss or damages.

151.  Actually, the manager being the agent for the I.O., should work closely with the latter in the management of the building.  This would not be the case in our present situation as there is no longer any trust between the parties as one could see from 2 mutinies case and the allegation of the 7 incidents.  Whether the incidents alleged is ill or well-founded, trust does not further exist.  It is therefore unreasonable to expect the I.O. to work under such atmosphere with CPML for another year odd, solely because the 1% interests owner of the building like to see if the DMC has been complied with by the I.O. 

152.  In the circumstances, This Court finds it appropriate in exercising its discretion, not to grant an injunction as prayed for by PIL.

153.  I also make an order nisi that there be costs in the cause with certificate for counsel, the same to be made absolute within 14 days.