RICH FORTRESS LTD. AND OTHERS v. THE INCORPORATED OWNERS OF BEVERLY GARDEN AND OTHERS

HCA3963/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3963 OF 2001

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R U L I N G

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1. The 1st plaintiff is the manager of Beverly Garden, an estate situated at Tseung Kwan O ("the Estate"). The 2nd plaintiff was the developer of the Estate and together with the 3rd plaintiff are subsidiary companies of the same parent company as the 1st plaintiff and are the owners of certain car parks and shops respectively in the Estate.

2. The 1st defendant are the Incorporated Owners of Beverly Garden, a body incorporated under the Building Management Ordinance, Cap.344. The 2nd to 18th defendants are the committee members of the 1st defendant.

3. By an Inter Partes Summons, the plaintiffs seek an interlocutory injunction to restrain the 1st defendant from :

(i) entering into any agreement with a new manager in place of the 1st plaintiff;

(ii) acting upon or giving effect to the resolutions purportedly passed at an owners' meeting held on 12 August 2001.

(iii) representing, publishing, posting or circulating notices to owners, residents or tenants of the Estate or other persons that the resolutions have been duly passed or that the appointment of the 1st plaintiff as manager has been terminated.

The plaintiffs also seek a further injunction to restrain the 2nd to 18th defendants from :

(i) causing or procuring the 1st defendant to do any of the acts above;

(ii) using the funds of the Estate to finance the cost of any litigation or legal disputes in which they or any of them are involved in their personal capacity, as well as an order that they furnish to the 1st plaintiff within seven days a breakdown of all payments which have been made out of the funds of the Estate with copies of supporting documentation.

4. The dispute between the parties arise in this way. There is a Deed of Mutual Covenant dated 22 September 1998 ("the DMC") in relation to the Estate. Pursuant to the DMC, the 1st plaintiff was appointed by the developer to be the first manager of the Estate under a Management Agreement of the same date as the DMC. It is provided in the Management Agreement that the tenure of the 1st plaintiff as the first manager is for a period of 10 years. Provision is made in clause 1(3) of the Management Agreement that the manager may be terminated by a simple majority resolution of the owners holding not less than 50% of the total number of Undivided Shares and not less than three months prior notice in writing shall be given to the manager of such resolution whereupon the manager shall cease to be the manager at the expiration of the notice. The Management Agreement also gives the manager the duty and power to manage and maintain a management fund for the Estate.

5. At an owners' meeting of the Estate held on 12 August 2001, a resolution was passed to terminate the 1st plaintiff as the manager of the Estate. This resolution purports to have been passed by owners holding 58% of the total number of Undivided Shares in the Estate. By letter dated 14 August 2001, the solicitors for the 1st defendant gave written notice to the 1st plaintiff of the resolution terminating the 1st plaintiff as manager of the Estate and informing the 1st plaintiff that such termination would take from 15 November 2001. The 1st defendant has since called for tenders for the appointment of a new manager to take over from the 1st plaintiff.

6. The plaintiffs' claim is based on the allegation by it that the termination of the 1st plaintiff is wrongful and the resolution passed at the owners meeting on 12 August 2001 was unlawful in that (inter alia) it failed to comply with the procedural provisions laid down by law. A number of points are taken by the plaintiffs in this respect as follows :

(1) The resolution that was passed was unlawful because it did not provide for a period of at least three months as provided for by paragraph 7 of Schedule 7 of the Building Management Ordinance;

(2) Some 90% of the owners appointed committee members of the 1st defendant to be proxies to vote at the 12 August owners' meeting and in over 99% of those proxy forms, it was the 2nd defendant, being the chairman of the 1st defendant, who was named as the proxy. However, the plaintiffs say that the 2nd defendant did not sign the attendance record at that meeting nor did he fill out any of the vote forms. Therefore the plaintiffs say that those proxy votes were not cast by the 2nd defendant personally. The plaintiffs allege that at that meeting there were other highly irregular practices such as the 2nd defendant purporting to cast votes for owners in some cases where he had no proxy forms authorising him to do so;

(3) There was also invalid procedure adopted by the committee of the 1st defendant in collecting proxy forms prior to the 12 August meeting in that the committee only accepted proxy forms which gave the proxy to a committee member, but not otherwise;

(4) It is also alleged by the plaintiffs that many of the proxies given by owners to the committee members to vote at the 12 August meeting were procured by unfair misrepresentation made by the 2nd to 18th defendants and these defendants have also systematically obstructed the 1st plaintiff from lobbying the owners with a view to correcting those misrepresentation.

7. The defendants have denied and or attempted to answer these allegations on affidavit. Without going into any great detail, it suffice for present purpose to say that essentially there are numerous disputes of facts between the parties. This is certainly true in respect of items 2, 3 and 4 above of the plaintiffs' allegations. That being the case, the dispute of facts can only be determined at the trial. It is certainly not for me at this stage to determine such dispute of facts, nor is it necessary for me to do so. I only need to recognise that there is here a serious question to be tried between the parties and then to go on to consider the question of balance of convenience to see whether or not an interlocutory injunction should or should not be granted at this stage.

8. Before going on to consider the balance of convenience I need to deal with one matter relating to item 1 above of the allegation made by the plaintiff, namely, the unlawful resolution.

9. Paragraphs 7(1) and (2) of Schedule 7 of the Building Management Ordinance provides as follows :

"7. Termination of manager's appointment by owners' corporation

(1) Subject to subparagraph (5) and (5A), at a general meeting convened for the purpose a corporation may, by a resolution of the owners of not less than 50% of the shares, terminate by notice the manager's appointment without compensation.

(2) A resolution under subparagraph (1) shall have effect only if-

(a) the notice of termination of appointment is in writing;

(b) provision is made in the resolution for a period of not less than 3 months notice or, in lieu of notice, provision is made for an agreement to be made with the manager for the payment to him of a sum equal to the amount of remuneration which would have accrued to him during that period;

..."

10. The minutes of the 12 August meeting of the owners of the Estate, after recording the resolution to terminate the services of the 1st plaintiff as manager of the Estate, continues as follows :

"3. To determine the period of notice of terminating the appointment of Rich Fortress Limited (according to the Seventh Schedule of the 'Building Management Ordinance Cap.344', notice to be not less than 3 months).

Because the statutory provisions are probably not clear as to the notice for a period of less than 3 months, for the purpose of avoiding such uncertainty, the owners present were inclined to follow the Seventh Schedule of the 'Building Management Ordinance Cap.344', i.e., the notice would be for a period of not less than 3 months. Nevertheless, the actual time of notification shall be discussed in the 2nd provisional meeting of the Incorporated Owners on 13th August 2001. Owners are welcome to attend and participate in the discussion."

11. On such wording as contained in the minutes relating to the length of the notice of termination, the point has been taken by the plaintiffs that there was no resolution taken at the owners meeting on 12th August as to the length of the notice and thus the resolution failed to comply with what is laid down in sub-paragraph (2)(b) of paragraph 7 of Schedule 7. Therefore under sub-paragraph (2) the entire resolution to terminate the 1st plaintiff can have no effect.

12. I find myself unable to accede to that argument put up by the plaintiffs. It is at least arguable that from the wording of the minutes referred to above, even if there had not been a firm decision taken at the 12 August meeting as to the length of notice of termination, what is clear from the minutes is the fact that "provision has been made in the resolution" for the length of notice of termination. If at the general meeting of the owners, it was decided to delegate the task of determining the length of notice to some other body, and that decision is so recorded in the minutes, then it must at least be arguable that "provision" has been made to that effect. That "provision is made in the resolution" for the length of notice is all that is required to be done.

13. For the reasons given above, I hold that there is a serious question to be tried between the parties. I now go on to consider the question of balance of convenience.

Balance of Convenience

14. It is submitted by the plaintiffs that the balance of convenience favours the granting of the interlocutory reliefs asked for because if an injunction is not granted to prevent the defendants from engaging a new manager, there would be chaos when the new manager attempts to take over since the 1st plaintiff has not been validly terminated as manager of the Estate. The 1st plaintiff is entitled to stay on as manager even after 15 November since the committee members of the 1st defendant have no power to hand over power of management to a new manager until the 1st plaintiff's appointment has been validly terminated. If there are two managers in the Estate after 15 November, that will disrupt the proper management of the Estate and cause serious harm and prejudice to the owners of the Estate as a whole. The damage would be irreparable and which cannot be compensated for by damages.

15. I do not, however, share that view expressed by counsel for the plaintiffs. Firstly, I agree with counsel for the defendants that on the facts of this case, it appears to me that the 1st plaintiff's remedy, if at the end of the day it is decided by the court that it has been wrongfully terminated as manager of the Estate, lies in damages.

16. Secondly, from all the evidence adduced in respect of this application it is quite clear that the relationship between the 1st plaintiff and the entire committee of the 1st defendant, namely the 2nd to 18th defendants, have irretrievably broken down so that no good purpose could be served by granting an injunction which would have the effect of creating a situation whereby the 1st plaintiff must continue as the manager until trial.

17. Thirdly, the combined effect of the two matters referred to above is such that I do not believe that I should exercise my discretion to grant the interlocutory injunctive reliefs asked for by the plaintiffs. If at the end of the day, the 1st plaintiff is found to have been wrongfully or unlawfully terminated as manager of the Estate, damages will be an adequate compensation for its loss.

18. Once that conclusion is reached, the 1st plaintiff's concern over the Estate fund, which I am told now stand in the region of some $22 million, no longer holds since its duty as regards that fund is only when and in so far as the 1st plaintiff continues to be the manager. Once the 1st plaintiff has been terminated, even wrongfully, and once it relinquishes its duties and powers as a manager (even if forced to do so pursuant to such wrongful termination), that duty simply ceases. Moreover, how the Estate fund can or cannot be used is to be decided by the owner, not by the 1st plaintiff even though it may be entrusted with the duty of managing that fund when it is the manager.

19. Lastly, the chaotic situation which the plaintiffs submitted may arise with two different managers upon the Estate after 15 November will not arise if one of two things happened. Either the 1st plaintiff make way for the new manager to take over its duties after that date, or alternatively it will be for the 1st defendant to take whatever steps it sees fit to ensure that no such chaotic situation arise. In either case it does not prevent the 1st plaintiff from pursuing its claim for damages.

20. For the reasons given, the plaintiffs' applications are dismissed with costs. The costs order will be an order nisi.