SMART ESSENCE DEVELOPMENT LTD v. HONG KONG HOUSING AUTHORITY

HCA 450/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 450 of 2016

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D E C I S I O N

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A.  INTRODUCTION

1.  The plaintiff, Smart Essence Development Limited (“Smart Essence”) and the defendant, Hong Kong Housing Authority (“HKHA”), are the only two co‑owners of the relevant section in Wah Kwai Estate.  Smart Essence owns about 67% of the undivided shares in the land in question whereas HKHA owns the remaining 33%.  HKHA is the manager appointed pursuant to the relevant deed of mutual covenant.  In an owners’ meeting held on 27 November 2015 convened and attended by Smart Essence only, a resolution was passed to terminate HKHA’s appointment as manager.  Accordingly, by a letter dated 30 November 2015, Smart Essence, through its solicitors, served a three months’ notice of termination on HKHA. In another meeting held on 27 January 2016 convened and attended also by Smart Essence only, a resolution was passed to confirm the previous resolution to terminate HKHA’s appointment as manager.  The question is whether, in these circumstance, HKHA’s appointment as manager has been validly terminated.

B.  THE INDISPUTABLE FACTS

2.  HKHA used to be the sole owner of a piece of land known as Aberdeen Inland Lot No 443.  This piece of land was divided into two parts: Section A and The Remaining Portion.  HKHA has developed the land into what is now commonly known as the Wah Kwai Estate.  On the Remaining Portion, HKHA has constructed, inter alia, six residential blocks as part of the Tenants Purchase Scheme.  This case is concerned with Section A (“the Estate”).

3.  A DMC of the Estate was executed on 11 February 2006 (“the DMC”).  Under the DMC, Section A was divided into four parts: the HA Accommodation, the Commercial/Car Park Accommodation, the Government Accommodation, and the Common Areas and Facilities as follows:

(a)  The HA Accommodation includes an extended part of Wah Fu (I) Shopping Centre.

(b)  The Government Accommodation includes the Public Transport Terminus, the Community Centre and the Sheltered Workshop.

(c)  The Commercial/Car Park Accommodation includes the Commercial/Car Park Block, the Associated Areas and the Integrated Commercial/Car Park Accommodation.

(d)  The Common Areas and Facilities include the Estate Common Areas and Facilities and all other areas and facilities designated as common areas and facilities.  The Estate Common Areas include, for example, lift tower, elevators, escalators connecting the Estate and Wah Fu Estate, footbridge connecting the Estate and Wah Fu Estate, playground, sea water pump house, slopes and plantations.

These components in various parts of the Estate are all defined in the DMC.

4.  The First Schedule to the DMC allocates the undivided shares in the Estate as follows:

	Nature of Accommodation	Number of Undivided Shares Allocated	Total Number of Undivided Shares Allocated
1	HA ACCOMMODATION
a	Multi‑purpose HA Accommodation	930	930
2	COMMERCIAL/CAR PARK ACCOMMODATION
a	Integrated Commercial / Car Park Accommodation and Commercial / Car Park Block	15,508
b	Associated Areas	10
		Sub‑total	15,518
3	GOVERNMENT ACCOMMODATION
a	Community Centre	4,061
b	Sheltered Workshop	985
c	Public Transport Terminus	1,644
		Sub‑total	6,690
4	COMMON AREAS AND FACILITIES	10	10
		Total	23,148

5.  On the same day when the DMC was executed ie 11 February 2006:

(a)  HKHA assigned 15,518 equal undivided 23,148^th shares in the Estate together with the sole and exclusive right to use and occupy the Commercial/Car Park Accommodation to The Link Properties Limited (“Link Properties”).

(b)  As a result, HKHA retained 7,630 equal undivided 23,148^th shares in the Estate in relation to the HA Accommodation and the Government Accommodation (“the HA/Government Accommodation” collectively), and the Common Areas and Facilities.

6.  HKHA is the manager of the Estate appointed under the DMC.

7.  As a result of an assignment dated 31 July 2014 (“the Assignment”) executed by Link Properties and Smart Essence, Smart Essence has become the registered owner of the 15,518 equal undivided 23,148^th shares in the Estate together with the sole and exclusive right to use and occupy the Commercial/Car Park Accommodation.

8.  On 11 November 2015, pursuant to clause 71(b) of the DMC and paragraph 9 of Schedule 8 to the Building Management Ordinance (Cap 344) (“the BMO”), Smart Essence gave a notice to HKHA that a meeting of Owners of the Estate would be held on 27 November 2015 for the purpose of, inter alia, discussing and passing the following resolution:

“… to resolve on the removal of The Hong Kong Housing Authority as the existing manager of the Estate without compensation by giving to the manager not less than 3 months’ notice of termination in writing”.

9.  By letter dated 26 November 2015, HKHA stated that it would not attend the meeting as it needed more time to have legal clarification and to explore the implications of the issue.  HKHA requested to extend the date of the meeting for two months to 27 January 2016.  HKHA also reminded Smart Essence that, according to legal opinion obtained by it, the meeting convened by Smart Essence on 27 November 2015 could only be validly held with the attendance of more than one owner; and that attendance of the Owners’ Meeting by just one of the two owners of the Estate would not comply with the common law principle of “meeting”.

10.  Notwithstanding the stance taken by HKHA, on 27 November 2015, the Owners’ meeting was held (“the 27/11/2015 Meeting”).  Only Smart Essence was present.  The minutes reads:

“1 owner (Smart Essence) present — constituting 50% of the total number of owners of the Estate and not less than 67% of the total Undivided Shares of the Estate”

In the meeting, it was resolved, inter alia:

“That the appointment of The Hong Kong Housing Authority as the existing manager of the Estate be terminated without compensation by giving to The Hong Kong Housing Authority as the existing manager not less than 3 months’ notice of termination in writing and Gallant Y. T. Ho & Co. be retained and instructed to serve a termination notice to The Hong Kong Housing Authority accordingly (by supporting votes representing not less than 67% of the total Undivided Shares of the Estate).”  (“the 27/11/2015 Resolution”)

11.  By letter dated 30 November 2015, Smart Essence, through its solicitors, Gallant Y T Ho & Co, gave notice to HKHA that, pursuant to clause 33(b) of the DMC, its appointment as manager of the Estate shall be terminated without compensation immediately after three months from the date of the letter (ie on 1 March 2016) (“the 30/11/2015 Notice”).

12.  By letter dated 18 December 2015, HKHA, through its solicitors, Chung & Kwan Solicitors, denied the validity of the 27/11/2015 Meeting, the 27/11/2015 Resolution and the 30/11/2015 Notice on the following grounds:

(a)  According to clause 71(a) of the DMC, the meeting of the Estate owners prior to sub‑sale of the Estate shall be held between HKHA and Smart Essence.  Therefore, both parties must be present at such a meeting.  Further, it is trite law that “meeting” means a coming together of more than one person unless it is defined otherwise in the rules and regulations of the relevant meetings.  There is no such term in the DMC expressly providing that one single owner can be a quorum.

(b)  Since only one owner attended the 27/11/2015 Meeting, a quorum was not present.  Hence, all resolutions passed in that meeting are invalid and not binding on HKHA.

(c)  Further, clause 33(b) provides that written notice to terminate the appointment of HKHA should be given by the Owners’ Committee and not by an owner of the Estate.  Hence, the 30/11/2015 Notice was invalid because it was not given by the Owners’ Committee.

13.  Pausing here, I should point out that there was and is, in fact, no Owners’ Committee in the Estate.

14.  By letter dated 4 January 2016, in reply to HKHA’s letter dated 26 November 2015 (which, according to Smart Essence, was received on 1 December 2015 only), Smart Essence gave a notice to HKHA that, pursuant to clause 71 of the DMC and Schedule 8 to the BMO, a meeting of Owners of the Estate would be held on 27 January 2016 for the purpose of, inter alia, establishing an Owners’ Committee; confirming the 27/11/2015 Resolution; and directing the Owners’ Committee to give the notice of termination to HKHA as soon as possible after the meeting.  Smart Essence did not specify whether the meeting was convened pursuant to clause 71(a) or clause 71(b) of the DMC.

15.  By letter dated 22 January 2016, HKHA notified Smart Essence that it would not attend the meeting on 27 January 2016 as it needed more time to have legal clarification and to explore the implication of the issue.  HKHA requested to postpone the meeting until completion of the legal clarification, and Smart Essence would be informed there and then.

16.  By letter dated 26 January 2016, Smart Essence stated that HKHA had sufficient time and opportunities to consider the issue already, and the Owners’ Meeting would be held on 27 January 2016 as scheduled.

17.  On 27 January 2016, the Owners’ meeting was held (“the 27/1/2016 Meeting”).  Again, only Smart Essence was present.  The minutes reads:

“1 owner (Smart Essence) present – constituting 50% of the total number of owners of the Estate and not less than 67% of the total Undivided Shares of the Estate”

In the meeting, it was resolved, inter alia:

“That the resolutions passed in the previous Owners’ Meeting of the Estate held on 27^th November 2015 (the “Previous Owners’ Meeting”) on removal of the HKHA as the manager of the Estate be confirmed (by supporting votes representing not less than 67% of the total Undivided Shares of the Estate)”. (“the 27/1/2016 Resolution”)

On the other hand, it was resolved that the proposed resolution concerning the establishment and composition of the Owners’ Committee, etc, be adjourned.

18.  By letter dated 4 March 2016, Smart Essence gave a notice to HKHA that a meeting of Owners of the Estate would be held on 18 March 2016 for the purpose of, inter alia, establishing an Owners’ Committee and directing the Owners’ Committee to give another notice of termination to HKHA (without prejudice to the 30/11/2015 Notice).

19.  By letter dated 17 March 2016, HKHA, through its solicitors, replied that Smart Essence had no power to convene the purported meeting and HKHA would not attend it.  HKHA’s position is that an Owners’ Committee cannot be formed at this stage.

20.  By letter dated 18 March 2016, Smart Essence, through its solicitors, refused to call off the proposed meeting.

21.  There is no evidence on what happened at the meeting held on 18 March 2016.  Mr Chan for Smart Essence informed me that the proposed resolutions were in fact duly passed in that meeting.  However, the validity of any resolution passed in that meeting is not an issue before me.

22.  In short, HKHA does not accept the validity of the 27/11/2015 Meeting/Resolution, the 30/11/2015 Notice and the 27/1/2016 Meeting/Resolution; and maintains that its appointment as manager of the Estate has not been validly terminated.

C.  SMART ESSENCE’S CLAIM AND ORDER 14A APPLICATION

23.  Smart Essence issued the writ herein on 22 February 2016.  On the next day ie 23 February 2016, it took out an Order 14A summons.

24.  The Order 14A summons was taken out before HKHA filed any notice of intention to defend.  Mr Chan submitted that the suggestion in §14A/2/2, p 296, of the Hong Kong Civil Procedure 2016,vol 1, that the giving of a notice of intention to defend is a requirement for employing the procedure of Order 14A is wrong.  Although Order 14A does not contain any such requirement expressly and provides that the procedure may be invoked “at any stage of the proceedings”, the authors of the Hong Kong Civil Procedure 2016,vol 1, have explained in §14A/2/3, p 296, why they take the view that it is essential that the defendant must have given notice of intention to defend.  In essence, they rely on the wording of Order 14A, rule 1(3) which provides that the court shall not determine any question under Order 14A unless the parties have either had an opportunity of being heard on the question, or consented to an order or judgment on such determination. They also take the view that, if the defendant fails to give notice of intention to defend, the plaintiff will be entitled to proceed to judgment in default under Order 13.  It is unnecessary for me to decide on this procedural issue.  This is because, as a matter of fact, HKHA acknowledged service of the writ and filed a notice of intention to defend on 27 February 2016.

25.  In the Order 14A summons, Smart Essence asked the court to consider seven questions.  Mr Chan submitted that the first two questions will be determinative.  They read as follows:

(a)  Whether under the law and by the terms of the DMC the meetings of 27 November 2015 and/or 27 January 2016 could not be valid by reason of the fact that said meetings were only attended by one owner.  (“Smart Essence’s 1^st Question”)

(b)  Whether under the law and by the terms of the DMC, the service of the Defendant as manager could be validly terminated without the service of the notice of termination by the Owners Committee where there is in fact no Owners’ Committee formed in respect of the Estate.  (“Smart Essence’s 2^nd Question”)

D.  SUITABLE CASE FOR ORDER 14A DETERMINATION

26.  Mr Wong for HKHA reminded me of the principles concerning Order 14A applications as set out in Rockwin Enterprises Ltd v Shui Yee Ltd & Ors [2003] 3 HKC 174, §20; Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd & Anor (2003) 6 HKCFAR 222, §24; and B + B Construction Ltd v Sun Alliance and London Insurance Plc (2000) 3 HKCFAR 503, 507J – 508A.  In short, I need to be satisfied that:

(a)  The question of law or construction of document is one that is suitable for determination without a trial in that I have all the necessary facts and matters before me in order to determine that question.

(b)  If that question is determined by me, it will finally determine (subject to a possible appeal) the entire cause or matter or any issue or claim herein.

(c)  As a matter of discretion, that question is one that ought to be determined under Order 14A.

27.  Smart Essence’s case is that there are no factual disputes between the parties; the two said questions depend on proper construction of the relevant provisions in the DMC and the BMO; and they will determine the validity of the 27/11/2015 Resolution, the 27/1/2016 Resolution and the 30/11/2015 Notice.  Hence, this is a suitable case for Order 14A determination.

28.  HKHA’s case is that the two said questions posed by Smart Essence will not be determinative because there is a prior question which must first be determined, namely, whether the two Owners’ Meetings were validly held purportedly in accordance with clause 71(b) of the DMC.  Its case is that the meetings were invalid because the pre‑condition in clause 71(b) had not been fulfilled; the pre‑condition is that there must be a sub‑sale of individual unit(s) in either the HA/Government Accommodation by HKHA, or the Commercial/Car Park Accommodation by Smart Essence.

29.  If HKHA’s argument is correct, this will be the end of Smart Essence’s claim.  In other words, it will be determinative.  The determination of the question raised by HKHA also depends upon the proper construction of the relevant provisions in the DMC and the BMO.  In my view, it is one that is suitable for Order 14A determination.  Although HKHA has not taken out a cross‑summons under Order 14A to ask the court to determine this question, the court has the power to determine a question of law or construction of any document “on its own motion” under Order 14A, rule 1(1).

30.  Mr Chan submitted that the question raised by HKHA was mentioned for the first time in the skeleton argument submitted by counsel for HKHA; but in any event, it is covered by the third question in the Order 14A summons, namely, “Whether, on a true and proper construction of the DMC and/or the BMO, the Resolution was valid”.  Mr Wong disagreed and stressed that HKHA was under no legal duty to assist Smart Essence to frame the questions.  It seems not entirely correct to say that HKHA only referred to the above‑mentioned question for the first time in its skeleton argument.  As stated above, in the letter dated 18 December 2015, HKHA had referred specifically to clause 71(a) of the DMC.  Although it did not say so expressly, it appears that HKHA’s position was that clause 71(a), not clause 71(b), shall govern how Owners’ Meetings could be held between HKHA and Smart Essence in the meantime.  Nevertheless, in view of Mr Chan’s submission that Smart Essence only became aware of the question raised by HKHA after receiving HKHA’s skeleton argument, it was impossible that the third question in the Order 14A summons was drafted with the HKHA’s said question in mind.  In any event, it is too general, and does not address the question specifically.  However, it does not matter.  On my own motion, I shall frame HKHA’s Question as follows for the purpose of Order 14A determination:

“Whether the 27/11/2015 Meeting and/or the 27/1/2016 Meeting were and could be validly held pursuant to clause 71(b) of the DMC when there is only an assignment by Link Properties to Smart Essence of the whole Commercial /Car Park Accommodation?” (“HKHA’s Question”)

31.  I am satisfied that:

(a)  Smart Essence’s 1^st and 2^nd Questions as well as HKHA’s Question are suitable for determination pursuant to Order 14A. They do not involve any material factual issue.  I have all relevant facts to those questions before me.

(b)  If these questions are determined, they will finally determine the entire action.  As Mr Chan correctly accepted, if Smart Essence fails on any of these three questions, it will lose its case.

(c)  As a matter of discretion, these questions ought to be determined under Order 14A.  HKHA has impressed upon me that the identity of the manager of the Estate (“the Manager”) has a significant impact on the well‑being of the residents, tenants, occupiers and users of the Estate. If Smart Essence is right, HKHA would have already ceased to be the Manager on 1 March 2016.  I also appreciate that this litigation has given rise to wide publicity.  In the circumstances, it is most desirable, and in the best interests of all parties concerned, to resolve the legal disputes and to remove any uncertainty about HKHA’s status as Manager as soon as possible.

32.  Among the three questions, logically, I shall consider the HKHA’s Question first.  But before doing so, I need to refer to the relevant provisions in the DMC and the BMO, as well as the applicable legal principles.

E.  THE RELEVANT PROVISIONS IN THE DMC AND THE BMO

E1.  Provisions in the DMC concerning the termination of appointment of the Manager

33.  In section VI “Appointment of the Manager and Termination of Appointment” of the DMC, clause 33 “Management by the Authority”, provides that:

“Subject to the covenants, conditions and provisos of the said lease, the Authority shall undertake the management of the said land and the Estate for an initial term expiring 24 calendar months after the execution of this Deed or until the Owners’ Corporation is formed, whichever is the earlier PROVIDED THAT if the Owners’ Corporation is not formed within 24 months after the execution of this Deed, the Authority may, if it so elects, continue to be the Manager for such further period until formation of the Owners’ Corporation. Notwithstanding the aforesaid, the Manager’s rights and obligations to manage may be terminated at any time upon:–

(a) the Manager giving not less than 3 months’ notice in writing to the Owners’ Committee or where the Owners’ Committee has not yet been established pursuant to the provisions of this Deed, to the Owners and displaying such notice in a prominent place in the Estate, that the Manager no longer wishes to undertake management of the Estate; or

(b) prior to the formation of an Owners’ Corporation, the passing of a resolution of the Owners of not less than 50% of the Undivided Shares (excluding the Undivided Shares allocated to the Common Areas and Facilities) at a general meeting convened for the purpose to remove the Manager without compensation and by the Owners’ Committee giving to the Manager not less than 3 months’ notice of termination in writing;

PROVIDED ALWAYS THAT any relinquishment by the Authority of its capacity as Manager shall not affect the rights and obligations of the Authority herein as Owner of Units and other parts of the Estate.  Notwithstanding the formation of the Owners’ Corporation, the Manager for the time being of the Estate shall continue to be the Manager until its appointment is duly terminated in accordance with the provisions of this Deed.”

34.  Clause 34 “Termination of Manager’s appointment” contains provisions concerning termination of the Manager’s appointment when an Owners’ Corporation has been formed.  It is common ground that no Owners’ Corporation has yet been formed in the Estate.

35.  Clause 33(b) provides that the notice of termination shall be served by the Owners’ Committee.  Under Section I, clause 1 of the DMC, “Owners’ Committee” is defined as “a committee of the Owners formed in accordance with Clause 69 hereof and, where an Owners’ Corporation has been formed, the management committee of the Owners’ Corporation”.  I believe “Clause 69” should read “Clause 68”.   Nevertheless, as mentioned, there was and is no Owners’ Committee in the Estate.

36.  Clause 33(b) provides that the Owners holding not less than the requisite percentage of interest in the Estate may pass a resolution at a general meeting to dismiss the Manager.  It is therefore necessary to turn to the provisions concerning Owners’ Meetings.

E2.  Provisions in the DMC concerning Owners’ Meetings

37.  In section X “Meetings of Owners” of the DMC, clause 71 “Owners’ Meeting”, provides that:

“(a) Prior to the first sale or first assignment of Units comprised in the HA Accommodation or the Government Accommodation or any part thereof by the Authority or the first sale or first assignment of Units comprised in the Commercial/Car Park Accommodation or any part thereof by the Company (whichever is the earlier), there shall be meetings between the Authority and the Company annually or as often as may be required to discuss and decide on matters concerning the Estate. A meeting may be convened by the Authority or the Company and notice of such meeting shall be served by the party convening the meeting upon the other at least 3 days before the date of the meeting specifying the date, time and place of the meeting and the matters to be discussed. Any resolution passed by 50% or more of the total number of Undivided Shares in the said land and the Estate shall be binding on the Owners of the Estate.

(b) Upon the first sale or first assignment of Units comprised in the HA Accommodation or the Government Accommodation or any part thereof by the Authority or the first sale or first assignment of Units comprised in the Commercial/Car Park Accommodation or any part thereof by the Company (whichever is the earlier), such provisions governing meeting of Owners as set out in the Eighth Schedule to the Building Management Ordinance (Cap. 344) shall apply. The first of such meeting of the Owners shall be convened by the Manager as soon as possible but not later than 9 months of the date of the aforesaid Sub‑Deed.”

38.  As to the meaning of the words “Units” and “Sub‑Deed” referred to in clause 71, under Section I “Definitions”, clause 1 provides that “wherever the context permits”:

(a)  The word “Units” shall mean:

“… the HA Accommodation or any part thereof, the Government Accommodation or any part thereof or the Commercial/Car Park Accommodation, or any part thereof, or any part of the said land or the Estate the exclusive right to the use possession occupation and enjoyment of which is held together with any one or more Undivided Shares in the said land and the Estate and is capable of being assigned to an Owner.”

(b)  The word “Sub‑Deed” shall mean:

“… any Sub‑Deed of Mutual Covenant to be entered into between the Authority or the Company and another co‑Owner or Owners of the Estate setting forth their rights and obligations in respect of any part of the Estate.”

39.  Clause 71(b) refers to Schedule 8 to the BMO.  In section XII “Miscellaneous Provisions”, clause 86 “Incorporation of 7^th and 8^th Schedules to Building Management Ordinance” provides that:

“There are incorporated into this Deed as if they were herein written the provisions set out in the Seventh and Eighth Schedules to the Building Management Ordinance (Cap. 344). In the event of conflict between any of such provisions and the provisions in this Deed, the former provisions shall prevail.”

E3.  The relevant provisions in the BMO

40.  The material provisions in Schedule 8 to the BMO concerning meetings of owners are as follows:

“8. A meeting of owners may be convened by–

(a) the owners’ committee;

(b) the manager; or

(c) an owner appointed to convene such a meeting by the owners of not less than 5% of the shares in aggregate.

9. The person convening the meeting of owners shall, at least 14 days before the date of the meeting, give notice of the meeting to each owner.

9A. …

10. …

11. The quorum at a meeting of owners shall be 10% of the owners.

11A. For the purposes of paragraph 11, the reference in that paragraph to ‘10% of the owners’ shall–

(a) be construed as a reference to 10% of the number of persons who are owners without regard to their ownership of any particular percentage of the total number of shares into which the building is divided; and

(b) not be construed as the owners of 10% of the shares in aggregate.”

41.  Schedule 11, which is applicable to paragraph 11 of Schedule 8 pursuant to section 5B of the BMO, provides that the enumeration of the percentage of owners mentioned in the provisions specified in paragraph 11 of Schedule 8 shall be computed as, inter alia:

(a)  for multiple ownership of one flat, say one flat with three co‑owners, they shall be counted as one owner; and

(b)  for one owner owning more than one flat, say one owner owning 35 flats, it shall be counted as one owner.

42.  Smart Essence also relies on section 34J of the BMO which provides, inter alia, that:

“(2) No provision in a deed of mutual covenant (whether such provision is of a procedural nature or otherwise) shall operate to prevent any business relating to the management of a building being conducted at any meeting by any owner or any person managing the building and any such provision shall be void and of no effect.

(3) Any provision in a deed of mutual covenant relating to a quorum at any meeting the attainment of which is in practice impossible or virtually impossible to achieve and which has the effect of preventing or frustrating the consideration at that meeting of any business relating to the management of a building by any owner or any person managing the building shall be void and of no effect.

(4) The reference to ‘any business relating to the management of a building’ in this section shall be construed to include any such business relating to–

(a) …

(b) the termination of a manager's appointment in accordance with Schedule 7.”

F.  THE PRINCIPLES ON INTERPRETATION OF CONTRACTS AND STATUTES

F1.  Principles on interpretation of contracts

43.  Since the determination of the issues will depend on proper construction of the DMC, Mr Chan had helpfully reminded me of the relevant legal principles on interpretation of contracts.

44.  The relevant principles are indeed well‑established. The most often cited binding authority in Hong Kong is Lord Hoffmann’s judgment in Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 296D–I:

“... The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement — evidence of such negotiations is inadmissible — and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.”

45.  In relation to a deed of mutual covenant, Chan PJ held in Grande Properties Management Ltd v Sun Wah Ornament Manufactory Ltd (2006) 9 HKCFAR 462 at 466G–I, §2:

“The rights and obligations of the owners and the manager of a multi‑storey building are usually defined and governed by a deed of mutual covenant in respect of the building.  This deed is a contract which runs so as to bind all owners and their assignees and the manager.  Some of these rights and obligations are modified by the Building Management Ordinance, Cap 344 (“the Ordinance”).  The provisions of the deed and the Ordinance are usually aimed at facilitating the management of the building by reducing conflicts among co-owners on the one hand and preventing abuse by the manager and the majority owner on the other.  It is fair to say that most disputes are resolved by a purposive construction and common sense application of the relevant provisions of the deed and the Ordinance.”

46.  I had drawn the parties’ attention to the judgment of the United Kingdom Supreme Court in Arnold v Britton [2015] AC 1619. Lord Neuberger emphasized seven factors at pp 1628B – 1629F, §§16 – 23.  For the present purpose, it is useful to recite the first six factors:

“17. First, the reliance placed in some cases on commercial common sense and surrounding circumstances (eg in Chartbrook [2009] AC 1101, paras 16–26) should not be invoked to undervalue the importance of the language of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision.

18. Secondly, when it comes to considering the centrally relevant words to be interpreted, I accept that the less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. That is simply the obverse of the sensible proposition that the clearer the natural meaning the more difficult it is to justify departing from it. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning. If there is a specific error in the drafting, it may often have no relevance to the issue of interpretation which the court has to resolve.

19. The third point I should mention is that commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, if interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made. Judicial observations such as those of Lord Reid in Wickman Machine Tools Sales Ltd v L Schuler AG [1974] AC 235, 251 and Lord Diplock in Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191, 201, quoted by Lord Carnwath JSC at para 110, have to be read and applied bearing that important point in mind.

20. Fourthly, while commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court thinks that they should have agreed. Experience shows that it is by no means unknown for people to enter into arrangements which are ill‑advised, even ignoring the benefit of wisdom of hindsight, and it is not the function of a court when interpreting an agreement to relieve a party from the consequences of his imprudence or poor advice. Accordingly, when interpreting a contract a judge should avoid re‑writing it in an attempt to assist an unwise party or to penalise an astute party.

21. The fifth point concerns the facts known to the parties. When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time that the contract was made, and which were known or reasonably available to both parties. Given that a contract is a bilateral, or synallagmatic, arrangement involving both parties, it cannot be right, when interpreting a contractual provision, to take into account a fact or circumstance known only to one of the parties.

22. Sixthly, in some cases, an event subsequently occurs which was plainly not intended or contemplated by the parties, judging from the language of their contract.  In such a case, if it is clear what the parties would have intended, the court will give effect to that intention.  An example of such a case is Aberdeen City Council v Stewart Milne Group Ltd 2012 SC (UKSC) 240, where the court concluded that ‘any … approach’ other than that which was adopted ‘would defeat the parties’ clear objectives’, but the conclusion was based on what the parties ‘had in mind when they entered into’ the contract (see paras 17 and 22).”

47.  I believe it is also useful to bear in mind what Lord Hope said in Multi‑Link Leisure Developments Limited v North Lanarkshire Council [2010] UKSC 47 at [11]:

“The court’s task is to ascertain the intention of the parties by examining the words they used and giving them their ordinary meaning in their contractual context. It must start with what it is given by the parties themselves when it is conducting this exercise. Effect is to be given to every word, so far as possible, in the order in which they appear in the clause in question. Words should not be added which are not there, and words which are there should not be changed, taken out or moved from the place in the clause where they have been put by the parties. It may be necessary to do some of these things at a later stage to make sense of the language. But this should not be done until it has become clear that the language the parties actually used creates an ambiguity which cannot be solved otherwise.”

F2.  Principles on interpretation of statutes

48.  Although neither party has referred me to any authority concerning the principles on interpretation of statutes, they are also well‑established and should not be in dispute.  Since the meaning of various provisions in the BMO is in issue, I shall restate the relevant principles.

49.  As Fok PJ reaffirmed in Pacific Sun Advisors Ltd v Securities and Futures Commission (2015) 18 HKCFAR 138 at 150, §34:

“There was no dispute that the modern approach to statutory construction is to adopt a purposive interpretation and that the language of a statutory provision is to be construed having regard to its context and purpose.”

50.  However, it is crucial to bear in mind what Fok PJ said in HKSAR v Fugro Geotechnical Services Ltd (2014) 17 HKCFAR 755 at 765 – 766, §22:

“When it is said that context is the starting point, together with purpose, in statutory interpretation, that is not to say that one puts the words being construed to one side. On the contrary, since contextual and purposive construction is a tool or aid to assist a court in arriving at an interpretation that gives effect to the legislative intention, one must always have regard to the particular words used by the legislature in expressing its will. A court cannot attribute to a statutory provision a meaning which the language of the statute, understood in the light of its context and the statutory purpose, is incapable of bearing. For that reason, one must necessarily look to the statutory language to see what meaning or meanings it is capable of bearing.”

51.  Fok PJ referred to Lord Millett NPJ’s judgment in China Field Ltd v Appeal Tribunal (Buildings) (No 2) (2009) 12 HKCFAR 342 at 358F–I, §36:

“… There can be no quarrel with the principle that statutory provisions should be given a purposive interpretation, but there has been a distressing development by the courts which allows them to distort or even ignore the plain meaning of the text and construe the statute in whatever manner achieves a result which they consider desirable. It cannot be said too often that this is not permissible. Purposive construction means only that statutory provisions are to be interpreted to give effect to the intention of the legislature, and that intention must be ascertained by a proper application of the interpretative process. This does not permit the Court to attribute to a statutory provision a meaning which the language of the statute, understood in the light of it context and the statutory purpose, is incapable of bearing ...”

52.  I shall bear in mind and apply the above principles to construe the relevant provisions in the DMC and the BMO in this case.

G.  HKHA’S QUESTION: WHETHER ANY MEETING UNDER CLAUSE 71(B) COULD BE HELD WHEN THERE IS ONLY AN ASSIGNMENT OF THE WHOLE COMMERCIAL/CAR PARK ACCOMMODATION

G1.  The real issue

53.  Smart Essence’s case is that both the 27/11/2015 Meeting and the 27/1/2016 Meeting were held pursuant to clause 71(b) of the DMC and/or Schedule 8 to the BMO.  It has not relied on clause 71(a) of the DMC.

54.  HKHA’s argument is as follows:

(a)  It is a pre‑condition to the holding of any Owners’ Meeting under clause 71(b) that there has already been a sale or an assignment of some of individual unit(s) comprised in the HA/Government Accommodation, or the Commercial/Car Park Accommodation.

(b)  The pre‑condition is not fulfilled if there is merely a sale or an assignment of the whole HA/Government Accommodation, or the whole Commercial/Car Park Accommodation (or, put it another way, all the units in either of these two parts in the Estate).

(c)  As a matter of fact, there has not been any sale or assignment of some of the individual units in the HA/Government Accommodation, or the Commercial/Car Park Accommodation.  There is only an assignment of the whole Commercial/Car Park Accommodation, or all the units therein, by Link Properties to Smart Essence.

(d)  Hence, there could not be any Owners’ Meeting validly held pursuant to clause 71(b).

(e)  In the circumstances, clause 71(a) governs how Owners’ Meeting between HKHA and Smart Essence can and should be held.  Schedule 8 to the DMO does not provide an independent source of power for the holding of Owners’ Meeting.

55.  To begin with, it should be noted that clause 71 deals with the holding of Owners’ Meeting in two different situations:

(a)  Clause 71(a) deals with the situation “prior to” or before:

“… the first sale or first assignment of Units comprised in the HA Accommodation or the Government Accommodation or any part thereof by the Authority or the first sale or first assignment of Units comprised in the Commercial/Car Park Accommodation or any part thereof by the Company (whichever is the earlier).”

(b)  Clause 71(b) deals with the situation “upon” or after the occurrence of either of the two events (whichever is the earlier).

56.  The proviso “whichever is the earlier” indicates that it refers to the earlier in time of the two following events:

(a)  the first sale or first assignment of Units comprised in the HA Accommodation or the Government Accommodation or any part thereof by the Authority; and

(b)  the first sale or first assignment of Units comprised in the Commercial/Car Park Accommodation or any part thereof by the Company.

The difference between the two events is that the first one is concerned with the first sale or assignment of the relevant units by HKHA, whereas the second one is concerned with the first sale or assignment of the relevant units by “the Company”.  The term “the Company” is a reference to Link Properties (including its successors or assignees where the context so permits).

57.  In this case, it is clear that the first event has not occurred because HKHA has not sold or assigned any unit in the HA/Government Accommodation, or any part thereof, at all.  The critical question is whether the Assignment by Link Properties to Smart Essence constituted the second event.  If the answer is no, clause 71(a) shall govern the holding of Owners’ Meeting.  In contrast, if the answer is yes, clause 71(b) shall govern the holding of Owners’ Meeting.

58.  The Assignment is concerned with the assignment of the whole Commercial/Car Park Accommodation.  The crucial question is whether it constituted:

“… the first sale or first assignment of Units comprised in the Commercial/Car Park Accommodation or any part thereof by the Company.”  (“the Event”)

G2.  The language

59.  I shall start with the language used to describe the Event.

60.  Mr Wong relied on the phrase “comprised in”.  I do not think this phrase is helpful for the present purpose.  The phrase “comprised in” merely means that the word “Units” in this sentence refers to units in the Commercial/Car Park Accommodation, but not any other part of the Estate.

61.  Mr Chan submitted that the phrase “any part thereof” at the end of the sentence describing the Event renders HKHA’s interpretation absurd.  This phrase clearly means any part of the Commercial/Car Park Accommodation.  HKHA’s interpretation will in effect mean that the sentence shall read as “the first sale or first assignment of any part of any part of the Commercial/Car Park Accommodation”.  It will make no sense to use, in effect, the phrase “any part thereof” twice.  In other words, HKHA’s interpretation will render the express phrase “any part thereof” otiose.

62.  I disagree with Mr Chan for the following reasons:

(a)  I accept that one cannot ignore, and must give effect, to the phrase “any part thereof”.  I also accept that the phrase “any part thereof” in the sentence describing the Event means any part of the Commercial/Car Park Accommodation.

(b)  To read the relevant sentence as a whole, it should mean the first sale or first assignment by Link Properties of either:

(i)   Units comprised in the Commercial/Car Park Accommodation; or

(ii)  any part of the Units comprised in the Commercial/Car Park Accommodation.

(c)  I have referred to the definition of “Unit(s)” above.  In this context, “Units comprised in the Commercial/Car Park Accommodation” shall mean:

“… the Commercial/Car Park Accommodation or any part thereof the exclusive right to the use possession occupation and enjoyment of which is held together with any one of more Undivided Shares in the Estate.”

(d)  It is also necessary to note that, under clause 1 of the DMC, “Undivided Shares” shall mean:

“… that or those undivided part(s) or share(s) of and in the said land and the Estate allocated in accordance with the provisions of this Deed or in accordance with any Sub‑Deed.”

(e)  It should also be noted that, under the First Schedule to the DMC, the Commercial/Car Park Accommodation is divided into two parts only:

(i)   the Integrated Commercial/Car Park Accommodation and Commercial/Car Park Block to which 15,508 undivided shares have been allocated; and

(ii)   the Associated Areas to which 10 undivided shares have been allocated.

And under clause 5 of the DMC, the sole and exclusive right to use, etc, of the Commercial/Car Park Accommodation has been granted to Link Properties.  In short, under the DMC, only two Units within the Commercial/Car Park Accommodation have been created.

(f)  However, in view of the definition of “Undivided Shares” which refers expressly to allocation of undivided shares in accordance with not only the DMC but also any Sub‑Deed, the DMC contemplates that each of the two Units in the Commercial/Car Park Accommodation may be further sub-divided into smaller units each of which will be allocated a certain number of undivided shares in accordance with a sub‑DMC/sub-DMCs.  Under the Fifth Schedule, Part B, clause (a), Link Properties (and its successors or assignees) are given the right to enter into a sub‑DMC/sub-DMCs.

(g)  Looking at the matter from this perspective, it will make sense to construe:

(i)   “Units comprised in the Commercial/Car Park Accommodation” as referring to the two Units created by the DMC namely, the Integrated Commercial/Car Park Accommodation and Commercial/Car Park Block, and the Associated Areas; and

(ii)  “any part of the Units comprised in the Commercial/Car Park Accommodation” as referring to smaller individual units to be created within either the Integrated Commercial/Car Park Accommodation and Commercial/Car Park Block, or the Associated Areas pursuant to a sub‑DMC/sub-DMCs.

(h)  Hence, I do not think the phrase “any part thereof” renders HKHA’s interpretation absurd.

63.  Having said that, this only means that it is not absurd to construe the relevant sentence describing the Event in the manner contended by Mr Wong.  However, as rightly accepted by Mr Wong, the relevant sentence is still capable of referring to the first sale or assignment of the whole Commercial/Car Park Accommodation.  This is because:

(a)  As I said earlier, “Units comprised in the Commercial/Car Park Accommodation” should refer to the two Units created by the DMC namely, the Integrated Commercial/Car Park Accommodation and Commercial/Car Park Block, and the Associated Areas.

(b)  Although the word “Units” is in plural, section I, clause 2 of the DMC provides, inter alia, that, if the context so permits or requires:

“… words importing the singular number only shall include the plural number and vice versa”.

(c)  Hence, the first sale or first assignment of “Units comprised in the Commercial/Car Park Accommodation” is capable of including the sale or assignment of:

(i)   the Integrated Commercial/Car Park Accommodation and Commercial/Car Park Block; or

(ii)  the Associated Areas; or

(iii) both.

(d)  The third scenario is the sale or assignment of the whole Commercial/Car Park Accommodation.  This is what the Assignment is about.

64.  HKHA’s argument is that the third scenario is not covered by the sentence describing the Event.  If one considers the language used in the relevant sentence only, it does not support HKHA’s argument.  However, since construction of contract is not a pure linguistic exercise, I need to consider the context and purpose of clause 71 to find out which construction is the correct one.

G3.  The context and purpose

65.  It is significant to note that clause 71(a) and clause 71(b) provide for two different modes of holding meetings between the owners of the Estate:

(a)  Clause 71(a) provides that, before the occurrence of the relevant event as discussed above, there shall be “meetings between the Authority and the Company” annually or as often as may be required to discuss and decide on matters concerning the Estate; that such a meeting may be convened by “the Authority or the Company”; and that notice of such meeting shall be served “by the party convening the meeting upon the other” at least three days in advance.

(b)  There are clear indications by the language used that the meetings referred to in this clause are to be held between two persons only.  More importantly, the mechanism devised in this clause is inapt and insufficient to deal with meetings to be held between more than two persons: in particular, there is no provision on quorum in such event.

(c)  In my view, clause 71(a) was tailor‑made to cover the scenario when there are or remain to be two co‑owners in the Estate only.

(d)  In contrast, clause 71(b) provides that, after the occurrence of the relevant event as discussed above, such provisions governing meeting of Owners as set out in Schedule 8 to the BMO shall apply.  The relevant provisions are clauses 8 to 15 of Schedule 8 under “Meetings of owners”.  As compared to the mechanism provided in clause 71(a), those provisions in Schedule 8 are much more detailed.  For example, it contains a provision on quorum: clause 11 provides that “The quorum at a meeting of the owners shall be 10% of the owners”.  The mechanism adopted in clause 71(b) is apposite when there are more than two, or a large number of, co‑owners.

(e)  However, when there are two co‑owners only, it would seem unnecessary and inapposite to adopt the detailed provisions in Schedule 8.

66.  If the relevant sentence describing the Event in clauses 71(a) and (b) covers the scenario like the Assignment where there is either a sale or assignment of the whole HA/Government Accommodation, or the whole Commercial/Car Park Accommodation, it will lead to the result that, notwithstanding that there are still only two co‑owners in the Estate (as in this case), the mechanism for holding owners’ meetings under clause 71(a) will cease to be applicable, and the relevant provisions in Schedule 8 to the BMO will become applicable pursuant to clause 71(b). I have serious doubts, and do not believe that, this could be the intention of drawing a distinction between owners’ meetings to be held under clause 71(a) and those to be held under clause 71(b).  I believe that the purpose of drawing the distinction is that the mechanism of holding owners’ meetings under clause 71(a) shall be applicable so long as there are still only two co‑owners in the Estate: one owns the whole HA/Government Accommodation, and the other one owns the whole Commercial/Car Park Accommodation.  This is supportive of HKHA’s interpretation of the relevant sentence describing the Event.

67.  More importantly, I agree with Mr Wong that the most critical and compelling feature in clause 71(b) which supports HKHA’s interpretation is the last sentence in that clause:

“The first of such meeting of the Owners shall be convened by the Manager as soon as possible but not later than 9 months of the date of the aforesaid Sub‑Deed.”

This is because:

(a)  This sentence provides that the first of such owners’ meeting to be held after the occurrence of the relevant event and in accordance with the Schedule 8 of the BMO shall be held by a deadline.

(b)  The deadline was set at “not later than 9 months of the date of the Sub‑Deed”.

(c)  The deadline will be meaningless unless there is a Sub‑Deed.  Put it another way, there will be no deadline if there is no Sub‑Deed.

(d)  As mentioned, the Sub‑Deed has been defined as:

“any Sub‑Deed of Mutual Covenant to be entered into between the Authority or the Company and another co‑Owner or Owners of the Estate setting forth their rights and obligations in respect of any part of the Estate.”

(e)  Hence, it covers either:

(i)  a sub‑DMC between HKHA and another co‑Owner or Owners; or

(ii)  a sub‑DMC between the Company and another co‑Owner or Owners.

(f)  It is impossible to execute a sub‑DMC between HKHA and another co‑Owner or Owners unless HKHA ceases to be the owner of the whole HA/Government Accommodation by selling or assigning a part thereof to a third party.  A sub‑DMC is a contract; and there must be at least two parties to a contract.

(g)  Equally, it is impossible to execute a sub‑DMC between Link Properties (or its assignee, Smart Essence) and another co‑Owner or Owners unless the former ceases to be the owner of the whole Commercial/Car Park Accommodation by selling or assigning a part thereof to a third party.

(h)  In other words, it will be impossible to have any sub‑DMC unless there is a third co‑owner of any part in either the HA/Government Accommodation, or the Commercial/Car Park Accommodation.

(i)  The present case is a good example.  There is no, and cannot be any, sub‑DMC when HKHA and Smart Essence are and remain to be the only two co‑owners holding the whole HA/Government Accommodation, and the whole Commercial/Car Park Accommodation, respectively.

(j)  It could not be the intention that clause 71(b) shall become applicable when there is no Sub‑Deed.  Clause 71(b) clearly contemplates that it would only come into play if there is in fact a sub‑Deed.  And this will only be the case when there has been a sale or an assignment of a part of the HA/Government Accommodation, or a part of the Commercial / Car Park Accommodation.

(k)  The above analysis of the last sentence of clause 71(b) shows that the sentence describing the Event shall not be construed to include the sale or assignment of the whole HA/Government Accommodation, or the whole Commercial/Car Park Accommodation.

68.  Mr Chan submitted that the last sentence in clause 71(b) is permissive only, and the owners will be at liberty to hold the first Owners’ Meeting in any event pursuant to the relevant provisions in Schedule 8 to the BMO.  This is not entirely correct; and more importantly, has missed the point:

(a)  The owners are, of course, free to hold the first Owners’ Meeting as they see fit by following the provisions in Schedule 8 to the BMO upon the occurrence of the relevant event. However, those provisions do not impose any obligation on anyone to hold the first of such meetings by a certain deadline.

(b)  The purpose of the last sentence in clause 71(b) is to impose an obligation on the Manager to convene the first Owners’ meeting by a certain deadline.

(c)  The point is, as I explained in detail above, such an obligation sought to be imposed on the Manager will become meaningless and illusory if the deadline does not exist due to the absence of a Sub‑Deed.  It could not be the intention of the parties to the DMC to create a meaningless obligation.

69.  Mr Chan also submitted that, even if there has been such a sale or an assignment of a part of either the HA/Government Accommodation, or the Commercial/Car Park Accommodation, there may be still be two co‑owners only in the Estate: he gave the example of Smart Essence selling or assigning a part of the Commercial/Car Park Accommodation back to the HKHA. Such argument does not assist Smart Essence:

(a)  In reality, it is most improbable that the example given by Mr Chan will happen.  HKHA’s evidence (which has not been challenged) is that the DMC was drafted for divestment of the Commercial/Car Park Accommodation to Link Properties. There is no evidence supporting any real likelihood that that HKHA will consolidate its ownership in the Estate by buying back parts of Commercial/Car Park Accommodation.

(b)  More importantly, in the example given by Mr Chan, HKHA and Smart Essence will need to enter into a sub‑DMC to regulate their rights and obligations in respect of the use and occupation of the Commercial/Car Park Accommodation.  The pre‑condition for invoking clause 71(b) (ie the coming into existence of a Sub‑Deed) will then be fulfilled.

G4.  Alleged conflict with Schedule 8 to the BMO

70.  Mr Chan referred to clause 86 of the BMO which provides that:

“There are incorporated into this Deed as if they were herein written the provisions set out in the Seventh and Eighth Schedules to the Building Management Ordinance (Cap. 344). In the event of conflict between any of such provisions and the provisions in this Deed, the former provisions shall prevail.”

71.  He contended that HKHA’s interpretation of clause 71 will be in conflict with Schedule 8 to the BMO.  Hence, the relevant provisions in Schedule 8 should prevail in any event.  He submitted further that Schedule 8 to the BMO provides an independent legal basis for the holding of Owners’ Meetings on 27 November 2015 and 27 January 2016.

72.  I shall set out my general observations on the application of clause 86 of the DMC first:

(a)  To begin with, section 34F(1) of BMO provides that the provisions in Schedule 8 shall, to the extent that they are consistent with the deed of mutual covenant in question, be impliedly incorporated into it.

(b)  Under clause 2 of the “Revised Guidelines for Deed of Mutual Covenant” dated 29 June 1999 issued by the Legal Advisory and Conveyancing Office of the Lands Department (“the Guidelines”), it is mandatory to incorporate Schedules 7 and 8 to the BMO. Clause 86 was included in the DMC accordingly.

(c)  However, clause 71 and Schedule 8 to the DMO (as incorporated) must be read and considered together in a reconcilable manner insofar as possible.  As Lord Davey said in North Eastern Railway v Hastings [1900] AC 260 at 267:

“… the deed must be read as a whole in order to ascertain the true meaning of its several clauses, and that the words of each clause should be so interpreted as to bring them into harmony with the other provisions of the deed if that interpretation does no violence to the meaning of which they are naturally susceptible …”

(d)  Hence, only in case where there is any real and irreconcilable conflict should the relevant provision(s) in Schedule 8 to the BMO prevail.

73.  In relation to the last sentence in clause 71(b) considered above, Mr Chan argued that it could not be read to mean that the first owners’ meeting could only be convened by the Manager and no one else, and only when there was a sub‑sale or an assignment of some parts of the HA/Government Accommodation, or the Commercial/Car Park Accommodation because this will be in conflict with clause 8 of Schedule 8 which provides that a meeting of owners may be convened by the owners’ committee, the manager, or an owner appointed to convene such a meeting by the owners of not less than 5% of the shares in aggregate.  I do not think there is any real conflict between HKHA’s interpretation and clause 8 of Schedule 8 to the BMO at all:

(a)  As I explained earlier, the last sentence in clause 71(b) only means that the Manager shall, or is obliged to, hold the first owners’ meeting by a certain deadline.

(b)  It does not purport to take away the right of the owners’ committee, or the owner(s), to convene such a meeting.

74.  Mr Chan also argued that, if a meeting can only be held in accordance with clause 71(a) in the meantime under HKHA’s interpretation, the mechanism of holding such a meeting as provided in clause 71(a) is more restrictive than the mechanism provided in Schedule 8 to the BMO. Hence, in any event, the relevant provisions in Schedule 8 shall prevail; and they provide an independent source to hold such a meeting.  I am unable to accept Mr Chan’s argument:

(a)  The relevant provisions concerning meetings of owners in clauses 8 to 15 of Schedule 8 to the BMO are concerned with how such meetings may be convened and conducted.  It is concerned with the mechanism of holding such meetings.  However, there is no express provision in Schedule 8 to prescribe when, or at what point of time, such mechanism shall become applicable.

(b)  Once Schedule 8 to the BMO has been incorporated into a DMC, and in the absence of any specific provision concerning when, or at what point of time, such mechanism shall become applicable, it would appear that the mechanism will become applicable to any meetings of the owners held after the execution of that DMC.

(c)  However, in this case, the main purpose of clauses 71(a) and (b) is to define when, or at what point of time, the mechanism of holding meetings of owners as prescribed by Schedule 8 to the BMO shall become applicable.

(d)  As explained above, the distinction drawn between clauses 71(a) and (b) is that in a situation covered by clause 71(a), the mechanism of holding meetings of owners as prescribed by Schedule 8 to the BMO is not engaged or applicable at all.  The mechanism will only become applicable if the situation falls within clause 71(b).

(e)  Put it shortly, clauses 71(a) and (b) define when meetings of owners shall be held in accordance with the mechanism prescribed by Schedule 8 to the BMO, whereas Schedule 8 to the BMO prescribes how such meetings shall be held.  They are dealing with different issues.

(f)  Hence, clause 71 and Schedule 8 to the BMO can, and should, be construed in this reconcilable manner.  I am not convinced that there is a real conflict between them.

75.  It follows that I cannot accept the argument that Schedule 8 to the BMO provides an independent basis for holding the 27/11/2015 Meeting and the 27/1/2016 Meeting.  Such an argument ignores the distinction drawn between clauses 71(a) and (b).  In this respect, I observe that in the notices of meeting issued by Smart Essence regarding the two meetings, it was merely stated that they were given pursuant to section 71 of the DMC “and” Schedule 8 to the BMO; Smart Essence did not use the word “or”, or the phrase “and/or”. I have a distinct impression that the said argument is an afterthought by counsel.

G5.  Alleged violation of section 34J of the BMO

76.  Mr Chan submitted that HKHA’s interpretation would violate sections 34J(2) and (3) of the BMO; and hence, clauses 71(a) and (b) so construed would be void.

77.  First, in relation to section 34J(2), he argued that HKHA’s interpretation would have the effect of preventing any general meeting to be held until HKHA as Manager is prepared to call a meeting and until the disposal of some parts of the HA/Government Accommodation, or the Commercial/Car Park Accommodation.  As mentioned, section 34J(2) provides that:

“No provision in a deed of mutual covenant (whether such provision is of a procedural nature or otherwise) shall operate to prevent any business relating to the management of a building being conducted at any meeting by any owner or any person managing the building and any such provision shall be void and of no effect.”

Mr Chan emphasized that section 34J(2) will cover any provision in the DMC even if it is procedural in nature.

78.  I am unable to accept Mr Chan’s argument:

(a)  As mentioned, clause 71(b) merely imposes an obligation on HKHA as Manager to convene the first meeting by a certain deadline, it does not affect the right of the Owners’ Committee, the Manager or the Owner(s) to convene a meeting at any time.

(b)  I cannot see how clause 71(b) as construed by HKHA can operate to “prevent any business relating to the management of a building being conducted at any meeting by any owner or any person managing the building”.

79.  In respect of section 34J(3), Mr Chan argued that, according to HKHA’s interpretation, a meeting of owners may only be held under clause 71(a) in the meantime, and that would require the presence of both the HKHA and Smart Essence.  He submitted that clauses 71(a) and (b) so construed would be designed to frustrate general meetings to be held to decide on business relating to the management of the Estate.  As mentioned above, section 34J(3) provides that:

“Any provision in a deed of mutual covenant relating to a quorum at any meeting the attainment of which is in practice impossible or virtually impossible to achieve and which has the effect of preventing or frustrating the consideration at that meeting of any business relating to the management of a building by any owner or any person managing the building shall be void and of no effect.”

80.  Again, I am unable to accept Mr Chan’s argument:

(a)  It is significant to note that, in section 34J(3), the reference to the effect of “preventing or frustrating the consideration at that meeting of any business relating to the management of a building” is a specific reference to the effect caused by “any provision in a deed of mutual covenant relating to a quorum at any meeting the attainment of which is in practice impossible or virtually impossible to achieve.”

(b)  Hence, section 34J(3) is only concerned with a provision in the DMC governing quorum in an Owners’ Meeting.

(c)  I agree with Mr Wong that clause 71(a) may, and should, be construed as imposing a requirement that the quorum of a meeting held under that clause shall include HKHA and the Company ie the two co‑owners.  In short, both of them shall be present.  However, this is plainly not a quorum which is “in practice impossible or virtually impossible to achieve”.

(d)  It is of course correct that either HKHA or the Company may fail or refuse to attend a meeting convened by the other party.  However, in such event, the effect of preventing or frustrating the consideration at the proposed meeting of any business relating to the management of a building will not be caused by any provision in the DMC concerning quorum; such effect will be caused by the relevant party’s failure or refusal to attend the meeting. This will not be a matter governed by section 34J(3).

(e)  I must make it clear that I am not saying that, if either HKHA or the Company fails or refuses to attend a meeting convened by the other party pursuant to clause 71(a) without any good reason, it may not have any legal consequence, or the other party will be powerless to procure matters concerning the management of the Estate to be validly resolved.  However, as no meeting has been purportedly convened pursuant to clause 71(a), this is not an issue before me.

G6.  Answer to HKHA’s Question

81.  For the above reasons, I have come to the conclusion that the answer to HKHA’s question is “No”.  It follows that the 27/11/2015 Meeting and the 27/1/2016 Meeting are invalid; and hence, the 27/11/2015 Resolution and 27/1/2016 Resolution are also invalid.

82.  On this ground alone, Smart Essence’s claim must be dismissed.  It is therefore, strictly speaking, unnecessary for me to consider the two questions posed by Smart Essence.  Nevertheless, for the sake of completeness and in case I am wrong in my conclusion on HKHA’s Question, I shall proceed to consider those two questions.

H.  SMART ESSENCE’S 1^ST QUESTION: WHETHER THE 27/11/2015 MEETING AND THE 27/1/2016 MEETING WERE INVALID BECAUSE THEY WERE ATTENDED BY ONE OWNER ONLY

83.  Assuming that the two owners’ meetings could be validly held pursuant to clause 71(b), Smart Essence’s 1^st question may be restated as follows: were the 27/11/2015 Meeting and 27/1/2016 Meeting invalid because only one owner (ie Smart Essence) was present?

84.  In the correspondence, HKHA relied on the common law principle that, generally speaking, “meeting” means a coming together of more than one person.  However, as Cheung JA held in Re China Star Enterprise Hong Kong Ltd [2013] 5 HKLRD 271 at 282, §38:

“The general principle that a meeting necessarily involves two persons can be abrogated by legislation.”

85.  At the hearing, Mr Wong did not make any submissions on Smart Essence’s 1^st Question, although he disavowed making any concession on this issue.  Hence, it is still necessary for me to decide on the issue.

86.  As mentioned, clause 71(b) has expressly incorporated Schedule 8 to the BMO.  In my view, the issue is whether the general principle that a meeting necessarily involves two persons has been abrogated by clause 11 in Schedule 8 to the BMO, which provides that:

“The quorum at a meeting of owners shall be 10% of the owners.”

87.  To begin with, although the word “owners” in this clause is in plural, it is inconclusive.  Section 7(2) of the Interpretation and General Clauses Ordinance (Cap 1) provides that :

“Words and expressions in the singular include the plural and words and expressions in the plural include the singular.”

Since clause 11 of Schedule 8 has become a term in the DMC, it is also relevant to bear in mind section I, clause 2 of the DMC which provides that, if the context so permits or requires:

“… words importing the singular number only shall include the plural number and vice versa …”

88.  What is most critical is that, in that clause, the quorum is defined by the number of owners ie 10% thereof.  In order to ascertain whether there is a sufficient quorum:

(a)  First, one must ascertain the total number of owners in the Estate.

(b)  Second, one then divides the total number of owners by 10.  The result would represent the minimum number of owners required to be present in a meeting in order to constitute a quorum.

89.  There is a possibility that, after dividing the total number of owners by 10, one would not get a whole number.  In such event, I am inclined to the view that the figure shall be rounded off to the nearest whole number.  I note that clause 4 in Schedule 8 to the BMO provides that:

“The quorum at a meeting of the owners' committee shall be 50% of the members of the owners’ committee (rounded up to the nearest whole number) or 3 such members, whichever is the greater.”

In contrast, clause 11 does not contain the proviso “rounded up to the nearest whole number”.  Notwithstanding that, as it is impossible to have a number of owners which is not a whole number, such a proviso has to be implied as a matter of necessity.

90.  The meaning of “rounded up to the nearest whole number” is as follows: any number up to and less than 50% of a whole number (ie less than [x].5), shall be rounded down so that the number of owners shall be x whereas any number equal to and more than 50% of a whole number (ie not less than [x].5) shall be rounded up to the next whole number so that the number of owners shall be “x+1”.  The only exception is that the minimum number must be one; it cannot be less than one.  Hence, if 10% of the total number of owners is a number smaller than one, and even if it is less than 0.5, it should be treated as one.  It would make no sense to round down the number to zero because it is absurd to say that the quorum shall be zero owner, implying that no owner needs to be present at all.  In theory, applying the above approach, 10% of the owners will be one only so long as the total number of owners does not exceed fourteen.  I appreciate that, in reality, in a multi‑storey building, it is most unlikely that the number of owners will be so small.  However, this is beside the point, and does not impact on the correct interpretation of clause 11 as a matter of principle.

91.  In clause 11 of Schedule 8 to the BMO, there is no express provision to the effect that, in any event, the quorum shall not be less than any specific number of owners.  This is to be contrasted with clause 4 in Schedule 8 cited above where it is specifically provided that the number of members present in a meeting of an owners’ committee must not be less than three. This reinforces that, under clause 11, it was not intended to exclude the possibility that a quorum may consist of one owner only.

92.  In this case, as an owner holding more than one unit will be treated as one owner, it cannot be disputed that there are only two owners in the Estate for the purpose of clause 11 of Schedule 8 to the BMO.  10% of the number of owners (ie two) would be 0.2.  As explained above, 0.2 should be rounded up to one.  It follows that the quorum is one owner in this case.  Hence, I am satisfied that there was a quorum for the 27/11/2015 Meeting and 27/1/2016 Meeting if they were validly held pursuant to clause 71(b) of the DMC.

93.  For these reasons, my answer to Smart Essence’s 1^st Question is “No”.

I.  SMART ESSENCE’S 2^ND QUESTION:WHETHER THE 30/11/2015 NOTICE OF TERMINATION WAS VALIDLY SERVED WHEN IT WAS NOT DONE BY THE OWNERS’ COMMITTEE BECAUSE THERE IS NONE

94.  Smart Essence’s 2^nd Question may be restated simply as follows: was the 30/11/2015 Notice valid when it was not served by the owners’ committee (because there is none)?

95.  Smart Essence’s argument is that:

(a)              It is not a mandatory requirement that a notice of termination must be served (irrespective of by whom) at all.

(b)             Even if it is a mandatory requirement to serve a notice of termination, it did/does not need to be served by the Owners’ Committee.

I shall deal with the first argument first.

I1.              Whether a notice of termination is essential

96.  First, Mr Chan submitted that the word “may” in the sentence immediately before clause 33(a) suggests that clause 33 is not exhaustive.  That sentence reads:

“Notwithstanding the aforesaid, the Manager’s rights and obligations to manage may be terminated at any time upon …” (emphasis added)

Mr Chan argued that the word “may” indicates that the two methods to terminate the Manager’s appointment stipulated in clauses 33(a) and (b) respectively are not exhaustive. He asked rhetorically what if the Manager is guilty of serious misconduct, or if the Manager is dead; and, whether, in such circumstances, the owners will still be obliged to give three months’ notice to dismiss the Manager.

97.  As to the scenario that the Manager commits serious misconduct, I agree with Mr Wong that, if the Manager’s misconduct constitutes a repudiation of the management contract, the owners will be entitled under the common law to terminate the contract by accepting the repudiation.  The DMC does not contain any provision for summary dismissal, or termination in case of breach of the management contract committed by the Manager.  I take the view that the Owners’ right under the common law in this respect has remained intact.  As Lord Diplock held in Gilbert‑Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717H:

“It is, of course, open to parties to a contract for sale of goods or for work and labour or for both to exclude by express agreement a remedy for its breach which would otherwise arise by operation of law or such remedy may be excluded by usage binding upon the parties (cf. Sale of Goods Act 1893, section 55 ). But in construing such a contract one starts with the presumption that neither party intends to abandon any remedies for its breach arising by operation of law, and clear express words must be used in order to rebut this presumption.”

In Dalkia Utilities v Celtech [2006] 1 Lloyd’s Rep 599 at 607, §21, Christopher Clarke J applied Lord Diplock’s judgment and held that the contractual provisions must be clear in order to exclude the parties’ common law right to accept a repudiatory breach of contract as discharging the innocent party from further liability and to claim damages for the loss of the contract; and the presumption is that it does not unless there are clear express words to that effect.  There is no contractual provision, let alone clearly and sufficiently worded provision, in the DMC which excludes the Owners’ common law right to accept a repudiatory breach of contract committed by the Manager. In this scenario, its appointment may be terminated by the Owners’ acceptance of the Manager’s repudiatory breach.  This will not be a case of termination by notice on the part of the Owners, which is what clause 33(b) is about.  Clause 33(b) may be invoked irrespective of whether the Manager has committed any breach of the management contract at all.

98.  As to the possibility that the Manager may die or be dissolved, clause 33 deals with the situation where HKHA remains to be the Manager. HKHA will not die (as it is not a natural person); and the possibility that it will be dissolved is, for all practical purposes, non‑existent. In any event, if the Manager dies or is dissolved; and hence, ceases to exist as a legal person, it must follow as a matter of law that its appointment as Manager will be terminated automatically with immediate effect.  In such event, clause 33 concerning termination by notice will not be engaged at all.

99.  Hence, irrespective of the use of the word “may” in clause 33, I agree that clause 33 was not intended to set out the methods to terminate the Manager’s appointment exhaustively. However, this does not assist Smart Essence. I take the view that it is necessary to focus on clause 33 itself:

(a)  Clause 33 provides that the HKHA shall be the Manager for an initial period of 24 months after the execution of the DMC, or until the formation of the Owners’ Corporation (whichever is the earlier).

(b)  If an Owners’ Corporation is formed, the last sentence in clause 33 provides that:

“Notwithstanding the formation of the Owners’ Corporation, the Manager for the time being of the Estate shall continue to be the Manager until its appointment is duly terminated in accordance with the provisions of this Deed.”

Clause 34 deals with termination of the Manager’s appointment after the formation of the Owners’ Corporation.

(c)  What if no Owners’ Corporation is formed within 24 months after the execution of the DMC? Clause 33 provides that, in such event:

“the Authority may, if it so elects, continue to be the Manager for such further period until formation of the Owners’ Corporation.”

(d)  This is what has happened.  No Owners’ Corporation was formed within 24 months after the execution of the DMC on 11 February 2006 (ie by 11 February 2008).  But HKHA has elected to remain to be the Manager up to date.

(e)  While HKHA is, prima facie, entitled to remain to be the Manager until the formation of the Owners’ Corporation, its appointment may be terminated in two ways.

(f)  These two ways are set out in clauses 33(a) and (b) respectively.  As mentioned, the word “may” appears in the beginning of the sentence “Notwithstanding the aforesaid, the Manager’s rights and obligations to manage may be terminated at any time upon …”

(g)  The word “may” is permissive in the sense that it provides for two different methods to terminate the appointment of the Manager as set out in sub‑clauses (a) and (b) respectively when HKHA remains to be the Manager before the formation of the Owners’ Corporation.  As explained above, these two methods are not exhaustive.

(h)  The first method as provided by clause 33(a) is that the Manager may resign by giving not less than three months’ notice to either the Owners’ Committee, or the Owners.

(i)  The second method as provided by clause 33(b) is a method whereby the Owners may dismiss the Manager.  This is the method that Smart Essence sought to use to terminate HKHA’s appointment as Manager.

(j)  Under clause 33(b), the method is as follows:

“… the passing of a resolution of the Owners of not less than 50% of the Undivided Shares (excluding the Undivided Shares allocated to the Common Areas and Facilities) at a general meeting convened for the purpose to remove the Manager without compensation and by the Owners’ Committee giving to the Manager not less than 3 months’ notice of termination in writing.”

(k)  The word “may” has nothing to do with the proper construction of the requirements under sub‑clause (b), which is what we are really concerned about.

100.  Returning to the requirements under clause 33(b) ie:

“… the passing of a resolution of the Owners of not less than 50% of the Undivided Shares (excluding the Undivided Shares allocated to the Common Areas and Facilities) at a general meeting convened for the purpose to remove the Manager without compensation and by the Owners’ Committee giving to the Manager not less than 3 months’ notice of termination in writing.” (emphasis added)

Mr Chan submitted that the word “and” in clause 33(b) shall be read as “or”.  He argued that to construe the word “and” in its ordinary sense may result in a conflict between the Owners’ resolution and the notice of termination given by the Owners’ Committee: for example, if the Owners resolve to dismiss the Manager immediately, it will be absurd and conflicting to require the Owners’ committee to serve a three months’ notice of termination. Hence, he argued that clause 33(b) should be construed as consisting of two different means to dismiss HKHA as Manager.

101.  I have no hesitation in rejecting Mr Chan’s submission in this respect:

(a)  The natural and ordinary meaning of the word “and” is clear.  As stated in Stroud’s Judicial Dictionary of Words and Phrases (7^th edn, 2006), vol 1: A – E, p 128:

“ ‘And’ has generally a cumulative sense, requiring the fulfilment of all the conditions that it joins together, and herein it is the antithesis of OR.”

I note that it continues to read:

“Sometimes, however, even in such a connection, it is, by force of a context, read as ‘or’.”

However, in order to read the word “and” as “or”, the force of the context must be compelling and irresistible.

(b)  In clause 33, the word “or” is used between sub‑clauses (a) and (b). There cannot be any doubt that the drafter(s) of the DMC knew that the word “or” should be used if it is meant to refer to two matters disjunctively.

(c)  It is plain and obvious that clause 33(b) imposes two requirements for termination, both of which have to be satisfied.  Firstly, there shall be a resolution of the Owners holding not less than 50% of the Undivided Shares (excluding those allocated to the Common Areas and Facilities) to terminate the Manager’s appointment without compensation.  Secondly, there shall be a 3 months’ notice of termination in writing given by the Owners’ Committee.

(d)  If it was intended that these two requirements would be two separate and distinctive methods by which the Manager’s appointment may be terminated, these two conditions would and could have been drafted as separate sub‑clauses as follows:

“Prior to the formation of an Owners’ Corporation:

(i) the passing of a resolution of the Owners of not less than 50% of the Undivided Shares (excluding the Undivided Shares allocated to the Common Areas and Facilities) at a general meeting convened for the purpose to remove the Manager without compensation; or

(ii) by the Owners’ Committee giving to the Manager not less than 3 months’ notice of termination in writing”

(e)  I am mindful that, as submitted by Mr Chan, with the benefit of hindsight, it is always very easy to argue that the contractual provision in issue could have been drafted in a better and clearer way.  However, I believe the following observations made by Hobhouse J (as he then was) in Caledonia Ltd v Orbit Valve Co [1994] 1 WLR 221 at 228H – 229A in a different context shall apply equally to this case:

“… The parties are always able, by the choice of appropriate language, to draft their contract so as to produce a different legal effect. The choice is theirs. In the present case there would have been no problem in drafting the contract so as to produce the result for which the plaintiffs have contended; however, the contract was not so drafted …”

(f)  In this case, the DMC was a detailed document drafted with the assistance of lawyers and approved by the Lands Department.  I simply cannot believe that if it was intended that the word “and” should mean “or”, the drafters did not simply use the word “or”.

(g)   In my view, clause 33(b) is a provision concerning termination by notice.  The giving of notice is an essential requirement.

102.  Mr Chan submitted that there will be a possible conflict between the two requirements if they are to be construed conjunctively. He submitted that there is no provision that the Owners can only resolve to dismiss the Manager in three months’ time, and if the Owners resolve to dismiss the Manager immediately, it will make no sense if the Owners’ Committee is, nonetheless, required to give three months’ notice to the manager.  I do not think such a conflict will arise:

(a)  The first requirement only requires the Owners to resolve on one issue, namely, to dismiss the Manager without compensation.

(b)  It might be true that, in a general sense, the Owners may pass whatever resolution as they see fit.  However, if they elect to terminate the Manager’s appointment pursuant to clause 33(b), in order to be a valid and effective exercise of the contractual power in this respect, the Owners are obliged to comply with the requirements in that clause.

(c)  Hence, even if the Owners are minded to dismiss the Manager without compensation immediately, it cannot override or remove the requirement that the Owners’ Committee shall nevertheless give a three months’ notice of termination to the Manager.  This is the contractual protection given to the Manager under the DMC.  Put it another way, it will not be an effective exercise of the contractual power for the Owners to resolve to terminate the Manager’s appointment by giving less than three months’ notice of termination.

(d)  It is important to appreciate that, in effect, clause 33(b) is a provision concerning termination by notice; it was not intended and cannot be construed as allowing the Owners to dismiss the Manager summarily.

(e)  Hence, the conflict as suggested by Mr Chan should not and cannot arise lawfully.

I2.  Whether the notice of termination must be served by the Owners’ Committee

103.  I turn to Smart Essence’s second argument, namely, even if it is mandatory to serve a three months’ notice of termination, it did/does not need to be served by the Owners’ Committee.

104.  Mr Chan submitted that it must be wrong to construe the requirement as being mandatory because this would allow the Manager to remain as such for as long as there is no Owners’ Committee.

105.  Initially, I had some doubts whether it is a mandatory requirement that the notice of termination must be served by the Owners’ Committee.  Under clause 70(a) of the DMC, the Owners’ Committee is merely acting as an agent representing the Owners in all dealings with the Manager.  It appears that, generally speaking, there is no good reason why the principal (ie the Owners in this case) cannot authorize another person to be their agent for the purpose of serving the notice of termination on the Manager.  In this case, the 27/11/2015 Resolution included an instruction to Gallant Y T Ho & Co to serve the notice of termination on HKHA.

106.  However, on reflection, to allow the Owners to do so will be tantamount to re‑writing clause 33(b) by replacing the phrase “the Owners’ Committee” by “the Owners’ Committee or any such other person as authorized by the Owners”.  Mr Chan submitted that to cover the scenario when there is no Owners’ Committee, the phrase “the Owners’ Committee” should simply be ignored.  His argument suffers the same problem of amounting to an attempt to re‑write clause 33(b) by, in effect, replacing the phrase “the Owners’ Committee” by “the Owners’ Committee; or, if there is no Owners’ Committee, any such person as authorized by the Owners”.  I do not think this is permissible.

107.  I am of the opinion that it is essential to give effect, and not to ignore, the clear wording of clause 33(b).  It does not contain any express provision to authorize anyone else other than the Owners’ Committee to serve the notice of termination on whatever grounds (including the absence of an Owners’ Committee).  It should mean what it says: the notice can only be validly served by the Owners’ Committee, and nobody else.

108.  Such conclusion is reinforced by the relevant context.  It is most telling to compare clause 33(b) with clause 33(a). In clause 33(a), there is an express provision covering the situation “where the Owners’ Committee has not yet been established”.  The absence of any reference to such situation in clause 33(b) was, most improbably, an inadvertent omission.  It supports that clause 33(b) was not intended to be invoked when there is no Owners’ Committee.

109.  Such construction is also consistent with the relevant background in relation to the drafting of the DMC.  As stated in recital (I) of the DMC, the Director of Lands had given its approval to the terms of the DMC pursuant to clause 3(22)(i) of the relevant Government Lease.  The DMC was drafted with reference and in accordance with the then model deed of mutual covenant (dated 20 September 2004 and later amended on 28 January 2005) approved by the Legal Advisory and Conveyancing Office of the Lands Department (“LACO”) for divestment (“the Model DMC”).  Mr Chan accepted that the Court is entitled to look at this document. The Model DMC was prepared at a time when the Guidelines were in force.  Paragraph 8 of Guidelines provided that:

“(a) The initial period of management by the first manager shall not exceed two years.

(b) The DMC shall provide that, prior to the Owners’ Corporation being formed that the Owners’ Committee may terminate the manager’s appointment by a resolution of the owners of not less than 50% of all undivided shares (excluding the undivided shares allocated to the common area) and by giving the manager 3 months’ notice in writing.

(c) No provision of a DMC shall limit the application of the Seventh Schedule to the BMO by restricting or prohibiting termination of the first manager’s appointment or his resignation during the initial period.”

110.  There is no dispute that clause 33(b) was drafted in accordance with paragraph 8 of the Guidelines.  It supports that the notice of termination must be served by the Owners’ Committee.

111.  Moreover, in my view, requiring the notice to be served by the Owners’ Committee serves a real purpose.  Mr Chan submitted that it is immaterial and irrelevant who serves the notice.  He relied on clause 7 in Schedule 7 to the BMO concerning termination of the manager’s appointment by the owners’ incorporation; and pointed out that there is no reference as to who shall serve a notice of termination.  Apart from the fact that this is not a case concerning that provision, it appears to me that, properly construed, under clause 7 in Schedule 7, the notice of termination must be served by the owners’ incorporation, which is of course a separate legal entity.  That provision, in any event, does not support any proposition that it is immaterial and irrelevant who serves the notice.

112.  The validity of a notice of termination would depend on, among other things, whether the person who serves it has the requisite authority to do so under the DMC.  Hence, the identity of the person who serves the notice is of legal significance.  Under clauses 70(a) and (b) of the DMC, the functions of the Owners’ Committee include “to represent the Owners in all dealings with the Manager”, and “to liaise with the Manager in respect of all matters concerning the management of the said land and the Estate”.  When the Owners resolve to terminate the appointment of the Manager, it makes sense that the notice of termination shall be served by the agent who has been given the authority to represent all the owners and to liaise with the Manager under the DMC.  To make it clear who shall have the authority to serve the notice of termination will also remove any potential dispute concerning the validity of the notice due to the identity of the person(s) serving such notice.

113.  Further, even though clause 33(b) cannot be invoked if there is no Owners’ Committee, it cannot be said that it will lead to absurd results:

(a)  An Owners’ Committee may be established pursuant to clause 68 of the DMC.  That was, apparently, what Smart Essence had attempted to do.  I note that clause 68 provides that an Owners’ Committee may be established by meeting(s) of the Owners:

“… after the sale or assignment of Units comprised in the HA Accommodation or any part thereof by the Authority or the sale or assignment of Units comprised in the Commercial/Car Park Accommodation or any part thereof by the Company, whichever is the earlier.”

The wording of this part of clause 68 is substantially similar to the wording of clauses 71(a) and (b) considered above.

(b)  Although it is not an issue before me, I am prepared to assume that, upon a proper construction of clause 68, an Owners’ Committee cannot be formed at this stage when there are only two co-owners in the Estate: one owns the whole of the HA Accommodation, and the other owns the whole of the Commercial/Car Park Accommodation.  This seems to be the stance taken by HKHA.

(c)  If that is indeed the correct interpretation of clause 68, I agree that clause 33(b) cannot be invoked to terminate the Manager’s appointment in the said circumstances (as in the present case).

(d)  However, in such event, it will and should be open to the Owners to form an Owners’ Corporation so that clause 34(a) of the DMC may be invoked.  Clause 34 allows the Owners’ Corporation to terminate the Manager’s appointment by three months’ notice or payment in lieu of notice.  “Owners’ Corporation” is defined in the DMC as:

“… a corporation of Owners of the Estate incorporated under Section 8 of the Building Management Ordinance (Cap. 344).”

(e)  Alternatively, it would be open to the two co-owners to sell or assign some of the individual units owned by them in order to make it possible to form an Owner’s Committee under clause 68.

(f)  It is correct that it will take time and efforts to establish either an Owners’ Committee, or an Owners’ Corporation, before the appointment of the Manager may be terminated by notice pursuant to clause 33(b) or clause 34(a).  However, it is not impossible to do so.

114.  In addition, even if the Owners’ Committee is uncooperative and fails or refuses to serve a notice of termination in spite of an Owners’ resolution to dismiss the Manager without compensation passed pursuant to clause 33(b) (which is rather unthinkable in practice), it will be open to the Owners to reconstitute the owners’ committee.  Again, this will take time, but is not impossible.

115.  For these reasons, I do not agree with Mr Chan that to construe clause 33(b) as imposing a mandatory requirement that the notice must be served by the Owners’ Committee is unduly restrictive and contrary to common sense. More importantly, even if such construction may appear to be inconvenient and harsh to the owners who intend to terminate the Manager’s appointment when there is no Owners’ Committee, this is not a sufficient legal reason to construe clause 33(b) differently.

I3.  Alleged violation of section 34J of the BMO

116.  Mr Chan also argued that clause 33(b), if construed in the manner as contended by HKHA, will be void pursuant to section 34J(2) of the BMO.  That section, as mentioned, provides that:

“No provision in a deed of mutual covenant (whether such provision is of a procedural nature or otherwise) shall operate to prevent any business relating to the management of a building being conducted at any meeting by any owner or any person managing the building and any such provision shall be void and of no effect.”

Mr Chan argued that:

(a)  Firstly, the phrase “any business relating to the management of a building” includes the termination of the Manager’s appointment under clause 33(b) of the DMC.

(b)  Secondly, section 34J(2) extends to any provision in the DMC, which is procedural in nature, relating to the implementation of any resolution so passed in any meeting referred to in that clause.

(c)  If clause 33(b) imposes a mandatory requirement that a three months’ notice of termination must be served by the Owners’ Committee, it will have the potential effect of preventing the implementation of the owners’ resolution to dismiss the manager immediately or with a notice period of less than three months; and/or when there is no Owners’ Committee.

117.  I cannot accept Mr Chan’s argument.  As submitted by Mr Wong, I do think section 34J is engaged at all:

(a)  Mr Chan stressed that the word “include” in section 34J(4) indicates that the phrase “any business relating to the management of a building” is very wide and shall cover termination of the Manager’s appointment by any means, including termination pursuant to clause 33(b).  Section 34J(4) provides that:

“The reference to ‘any business relating to the management of a building’ in this section shall be construed to include any such business relating to–

(a) …

(b) the termination of a manager's appointment in accordance with Schedule 7.” (emphasis added)

(b) I agree that, generally speaking, the word “include” indicates that what follows is not meant to be exhaustive. In AG v Ng Kwan [1987] 1 HKC 183 at 187F–I, Penlington J (as he then was) cited the following judgment in Dilworth v Commissioner of Stamps [1899] AC 99 at 105:

“… The word ‘include’ is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used these words or phrases must be construed as comprehending not only such things as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include.”

(c) Section 34J(4) enlarges the meaning of the phrase “any business relating to the management of a building” to include “the termination of a manager’s appointment in accordance with Schedule 7” (emphasis added).

(d) However, it does not simply say “the termination of a manager’s appointment”. The express reference to termination “in accordance with Schedule 7” at the end of this phrase supports that it was not intended to cover termination by any other means. Such interpretation is an application of the principle of expression unius, which in modern language means “to express one thing is to exclude another” (Sze Hei Fa v Chinese Medicine Practitioners Board of the Chinese Medicine Council of Hong Kong [2005] 1 HKLRD 58 at 82H, §94, per Cheung JA). The author of Craies on Legislation (10^th edn, 2012) explain the rule of expressio unius est exclusio alterius in §20.1.28 at p 787:

“This rule which is no more than a particular application of common sense to legislative interpretation, means that where legislation goes out of its way expressly to include one thing, it can be assumed that it did not intend to include other things of the same kind.”

(e) Clause 7 in Schedule 7 to the BMO is concerned with termination of a manager’s appointment by an owners’ incorporation. Clause 33(b) is not concerned with the termination of a manager’s appointment “in accordance with Schedule 7”.

(f) In my view, “any business relating to the management of a building” does not extend to the termination of the Manager’s appointment in accordance with clause 33(b) of the DMC.

118.  Further, even if I am wrong and that the phrase “any business relating to the management of a building” extends to the termination of the Manager’s appointment in accordance with clause 33(b) of the DMC, section 34J(2) is still not engaged for the following reasons:

(a)  Section 34J(2) is concerned with any provision in the DMC which purports to prevent any business relating to the management of a building “being conducted at any meeting” by any owner, or any person managing the building.

(b)  It has nothing to do with the implementation of any resolution passed in an owners’ meeting.  It will amount to re‑writing section 34J(2) to extend its meaning as suggested by Mr Chan.

119.  In any event, for reasons explained above, I fail to see how it can be said that the requirement to serve a three months’ notice by the Owners’ Committee will have the potential effect of preventing the implementation of a resolution of the Owners’ to dismiss the manager.  A more correct and accurate way to describe the relationship between the two requirements imposed by clause 33(b) is that, under the DMC, to give a three months’ notice by the Owners’ Committee is the agreed means to implement the owners’ decision to terminate the Manager’s appointment without compensation.

I4.   Answer to Smart Essence’s 2^nd Question

120.  HKHA’s appointment as Manager could not and cannot be validly terminated without a notice of termination being served by the Owners’ Committee even though there is none.  Since the 30/11/2015 Notice was not served by the Owners’ Committee, it did not constitute a valid notice of termination under clause 33(b) of the DMC.

121.  Accordingly, my answer to Smart Essence’s 2^nd Question is “No”.

J.  CONCLUSION AND ORDER

122.  For the above reasons, I conclude that:

(a)  In respect of HKHA’s Question “Whether the 27/11/2015 Meeting and/or the 27/1/2016 Meeting were and could be validly held pursuant to clause 71(b) of the DMC when there is only an assignment by Link Properties to Smart Essence of the whole Commercial/Car Park Accommodation?”, the answer is “No”.

(b)  In respect of Smart Essence’s 1^st Question “Whether under the law and by the terms of the DMC the meeting of 27 November 2015 and/or 27 January 2016 could not be valid by reason of the fact that said meetings were only attended by one owner”, the answer is “No”.

(c)  In respect of Smart Essence’s 2^nd Question, “Whether under the law and by the terms of the DMC, the service of the Defendant as manager could be validly terminated without the service of the notice of termination by the Owners’ Committee where there is in fact no Owners’ Committee formed in respect of the Estate.”, the answer is “No”.

123.  As mentioned, since my answer to HKHA’s Question is “No”, Smart Essence’s action shall be dismissed.  But even if I am wrong, since my answer to Smart Essence’s 2^nd Question is also “No”, Smart Essence’s action shall be dismissed in any event.  Accordingly, I shall dismiss the action.

124.  Mr Chan submitted repeatedly that HKHA is only interested in entrenching its position as the Manager of the Estate, and wants to remain as such forever.  I am not concerned with why Smart Essence wanted to dismiss HKHA as the Manager, or why HKHA wanted to remain as the Manager.  I am, of course, also not concerned with whether HKHA should remain as the Manager.  I am only concerned with whether, in law, HKHA’s appointment as Manager has been validly terminated in accordance with the DMC. My answer is “No”.

125.  I also make a costs order nisi that Smart Essence shall pay HKHA’s costs of this action (including all costs reserved), to be taxed if not agreed, with a certificate for two counsel.  The order shall become absolute unless any party makes written submissions within 14 days after this judgment is handed down (in such event, I shall dispose of the issue on costs on paper).