THE INCORPORATED OWNERS OF JADE PLAZA v. LAM CHAU SHING AND OTHERS

HCA 2331/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2331 OF 2004

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J U D G M E N T

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Introduction:

1.  By an Amended Inter Partes Summons dated 16 November 2004, Jade Plaza sought injunctions against the Defendants.  The 1^st, 2^nd, and 3^rd Defendants, the three Mr Lams, are the registered owners of Shop 25 on Level 1 of Jade Plaza.  The 4^th Defendant, Mr Yan, operates a meat shop as a tenant in Shop 25.  The essence of the Jade Plaza’s complaint is that Mr Yan sets goods out for sale on the footpath which is a common area, at the front of his shop, thereby occupying that common area.  Jade Plaza says that that occupancy is contrary to the provisions of the Deed of Mutual Covenant, (DMC), for Jade Plaza.

2.  The matter came before me for trial, on 28 June 2005, by way of application for summary judgement under Order 14, and the grant of a permanent injunction under Order 29.

3.  If an injunction is to be granted it must be precise: see Morris v Redland Bricks Ltd [1970] AC 652, per Lord Upjohn:

“The Court must be careful to see that the defendant knows exactly what he has to do, and this means not as a matter of law but as a matter of fact.”

Thus, a court should not grant an injunction in specific terms if told that those specific terms are not intended to be enforced.

4.  In the course of opening the matter to me, counsel for Jade Plaza, (not the counsel appearing on this application), indicated that while an injunction was sought requiring Mr Yan to completely clear the common area in front of his shop of his goods, a margin would be allowed by Jade Plaza.  The margin suggested was one third of the common area at the front of the shop.

5.  Such a suggestion was quite contrary to the injunction sought, and I indicated to counsel that I would not be willing to grant an injunction in the terms sought, unless I was told that it would be enforced, in the terms granted.  I pointed out to counsel that if the court was to grant an injunction, the party so enjoined must be sure of the extent to which he was enjoined, and that the court would not grant an injunction if it would not be enforced in its terms.

6.  The issue as to the precise extent of the injunction was relevant in two ways.  First, counsel had indicated that a margin would be allowed, notwithstanding the fact that the injunction sought gave no indication as to any margin that might be permitted.  That left the court unsure as to whether the injunction, if granted, would be enforced.  It left Mr Yan unsure as to the extent to which the injunction, if granted, might be enforced against him.

7.  Second, the papers demonstrated that at an earlier meeting of tenants, a proposal had been made that the matter be compromised in the way in which counsel had opened the case, namely that occupiers of the shops would be allowed to occupy one third of the common area of the footpath.  It appeared that the intention was that the proposal was to be put to a formal meeting of the owners of Jade Plaza.  I was concerned that despite that proposal, no subsequent meeting of owners had been called in order to ratify the arrangement.  That no further meeting of owners had been called was, on the papers, not a formal decision of the owners committee, but an informal, undocumented, decision of the chairperson of the owners committee made after an informal telephone conversations with some, but not all, of the committee members.

8.  I was further concerned about the position of committee members of Jade Plaza, who were apparently taking the leading position in enforcing the requirements of the DMC against Mr Yan.  On the papers it appeared that some of the committee members were themselves in breach of the DMC on precisely the same basis as Mr Yan, but no proceedings were being brought against them.  Plainly such a situation gave rise to a potential inequity.  If Mr Yan was to be restrained, why should the committee members themselves who sought the restraint, but offended in the same way, not themselves be restrained.

9.  In any event, it was indicated to me, at the time I first raised the matter, that, although he had opened the basis that a margin would be allowed, counsel did not have instructions to resolve the matter on that basis, and that he would proceed on the basis that an injunction would be sought in terms of the summons.

10.  The hearing proceeded to the morning break.  Sometime after the morning break counsel for the plaintiff made the following statement to me:

“I have taken instructions in the interim, although I am referring your Lordship to those authorities, and, my Lord, I do have an application to amend the summons to the effect that the articles -- of the 4^th defendant may be replace their articles not extending beyond one-third of the width of the common passageway.” (sic)

A discussion then took place between myself and counsel for the plaintiff in which appropriate words of amendment were discussed.

11.  Counsel for Mr Yan had not, at that time, been able to take instructions on the proposal as it was the first time since the issue of proceedings that it had been suggested that the scope of the injunction sought might be reduced.  Shortly thereafter he took instructions.  Discussions took place between the parties and the proceedings were resolved by the entry of a consent judgement, on the basis of the proposal made by counsel for the plaintiff.  Subsequently there was an argument on costs and I made a ruling on that issue.

The dispute arises:

12.  The usual rule is that the successful party will draw up and seal the order.  On 31 August 2005, two months after the consent order was made, the solicitors for Mr Yan wrote to the solicitors for Jade Plaza pointing out that two months had elapsed and the sealed order had not been received.  They indicated that if it was not received within the next seven days they would apply themselves for a sealed order, and would apply for costs.  A reply was received from a different firm of solicitors that indicated that a substantive reply would follow “in due course”.  By 26 September 2005, nearly 3 months after the consent order had been made, no substantive reply had been received and Mr Yan’s solicitors demanded a response.

13.  I have not been shown any other correspondence between the parties, but on 14 November 2005, now nearly 5 months after the consent order had been made, the solicitors for Jade Plaza filed a summons to set aside the consent order made on 28 June 2005 on three grounds,

(a) that Jade Plaza had not given instructions to its then legal representatives to agree or to consent to the terms of the consent order;

(b) that the owners committee of Jade Plaza did not have the capacity, nor was it entitled, to agree to the terms of the consent judgement, as there had been no resolution by the owners committee, (management committee), approving or allowing any person to display goods on the common areas;

(c) it was just and equitable (that the judgement be set aside).

That summons is now before me for decision.

The course of the proceedings:

14.  When the matter first came before me on 6 December 2005, it was abundantly plain that the affidavits failed completely to address the issues raised by the summons.  Although a contention was made that the compromise was made without instructions, the affidavits filed by Jade Plaza failed to direct any evidence to that issue.  No proper opportunity had been given to Jade Plaza’s former solicitors to respond, and consequently there were no affidavits from the solicitor formally acting for Jade Plaza directed to the essential issues.  In fact, no release from privilege had at that stage been given to Jade Plaza’s former solicitor, and consequently Mr Yan’s advisors had been quite unable to take proper instructions on a central issue.

15.  It was accordingly necessary for me to adjourn the proceedings in order that proper affidavits might be filed.  During the adjournment, Jade Plaza released its former solicitor from privilege of thereby enabling him to file appropriate affidavits.  It is unfortunate that this matter was accordingly delayed in its resolution.

Were instructions given to settle?

16.  The first issue that I must decide is whether or not instructions were given to the plaintiff’s solicitors by the chairman of the owners committee.

17.  Affidavits were filed by the solicitor for the plaintiffs at the time of the hearing, and by the then chairperson of the owners committee, one Ms Chow.  Ms Chow was not at the hearing before me in June 2005, but admittedly in communication with her solicitor by telephone during the hearing.  In her affidavit she asserted that she gave no instructions to settle the matter, but insisted that the court should resolve the issue.  The solicitor for his part asserted that he had been given specific instructions by Ms Chow to settle the matter on the basis of  “2/3 and 1/3”, which he understandably took to be an instruction that Mr Yan was to be permitted to occupy up to 1/3 of the common area.

18.  Both Ms Chow and the solicitor were cross-examined on the various affidavits that they had filed.  Having considered the affidavits and the cross-examination, and the submissions of counsel upon that evidence, I have come to the conclusion, upon the balance of probabilities, that instructions were given to settle on the basis of the “2/3 and 1/3” principle ultimately enshrined in the consent order.  I reached that conclusion for the following reasons.

19.  First, the settlement apparently reached was precisely in the terms that had been proposed at the meeting of owners and shopkeepers prior to the issue of proceedings.  It was consistent with the “margin” on which counsel had opened the case to Jade Plaza.  It was clear form the minutes of the earlier meeting that it was a basis on which Mr Yan would have been quite happy to resolve the matter.

20.  Second, throughout the hearing of the proceedings before me the solicitor kept a running note of what was taking place.  That note was produced in evidence.  I am satisfied from the terms of that note that it was made contemporaneously throughout the hearing and was not, as was implied by counsel for Jade Plaza, manufactured subsequent to the hearing.  In the course of that note the solicitor made the following entry:

“J(udge): Adjournment for parties to consider whether sensible agreement could be reached.

(Instructions sought. Ms Chow agreed to 1/3 width.)”

21.  When he returned to his office the solicitor made a further comprehensive note as to the terms of the discussion that he had had with Ms Chow.  Ms Chow had not been present at the hearing and had, throughout the course of the solicitor’s dealings with her in relation to a number of matters involving the owners committee, made a practice of giving him oral instructions by telephone.  To make a more detailed note of the instructions in those circumstances was an entirely understandable step.  I reject the proposition that the more comprehensive note of the instructions was subsequently manufactured.  The terms of the solicitor’s contemporaneous note as to the conversations that took place with Ms Chow accorded completely with records from the solicitor’s mobile telephone records which substantiated the number and duration of telephone conversations

22.  Third, at a meeting convened by the management committee on 2 July 2005, to enable the solicitors and counsel to explain to the committee the reasons why, although an injunction had been granted, no costs were ordered, the question of the terms of the settlement arose.  The minutes of the meeting, which were not in dispute, record as follows: 

“(The solicitor) asked the committee members: was his decision to allow the defendant to use 1/3 of the area given to the court correct?  The committee members refused to answer this question because they thought that it was not in order.”

23.  The response that the question is “not in order” is entirely inconsistent with the contention that no instructions to settle on that basis were given.  If, as is now asserted, no instructions had been given to settle on that basis, the immediate response to the solicitor’s question would have been to say that of course the decision was not correct, because no such instructions had been given.  The question was entirely in order; it was properly asked, and apparently deliberately avoided by the committee.

24.  I have listened carefully to Ms Chow’s assertion that she could not have given the instructions because she did not have the authority to do so.  It is plain however from the manner in which she conducted both herself as chairperson of the owners committee, and the affairs of the owners committee, that she regularly took decisions on her own part, not calling formal meetings nor recording formal minutes, regularly merely telephoning committee members, apparently to “take a view of the situation”, before giving instructions to the solicitor.  I have no doubt that she felt it was well within her capacity to give such instructions.

25.  I accordingly concluded that in informing counsel of the basis upon which the matter could be resolved by agreement the solicitor was acting pursuant to specific instructions received by him from the chairperson of the owners committee.

Did the owners committee have capacity to reach the compromise?

26.  The issue as to whether the owners committee had the capacity to reach the compromise, the terms of which were conveyed to the solicitor by the chairperson of the committee turns upon the provisions of s 341I of the Building Management Ordinance Cap 344, (BMO).

27.  There is no doubt at all, and it is not in dispute, that a proper owners committee had been formed in respect of the building. By s 341I(1)(a) BMO, no person may convert any part of the common parts of a building to his own use unless such conversion is approved by a resolution of the owners committee (if any).  There is consequently an express statutory prohibition against the conversion of common areas subject to a conversion approved by a resolution of the owners committee.  It is plain from the decision in the Court of Appeal in Gallum Development Ltd & Anor v Wong & Ors, unreported, CACV 186/2003, 400/2003, that, in the absence of a resolution by the owners committee, there can be no conversion of a common area for personal use.

28.  It is common ground that there is no such resolution.  In the absence of a statutory prohibition against the conversion of a common area to private use, there would be nothing to prevent a compromise of the nature proposed being effected.  I have not the slightest doubt at all that the chairperson of the owners committee has, in the capacity of chairperson, power to bind the committee in matters of litigation, should the chairperson and give instructions to solicitors in relation to that litigation.  Thus, were there no statutory prohibition against the conversion of common areas in the absence of a resolution of the owners committee, an agreement in the course of proceedings by the chairperson of the committee to compromise proceedings in the way that has been done here, would be binding upon the committee.

29.  But the fact that the chairperson may have the capacity to bind the owners committee in the ordinary course of events does not repair the gap that exists by the absence of the resolution required by s 341I(1)(a) BMO.  In the absence of such a resolution any instruction given to compromise the matter by converting common area to private use must be a nullity.

30.  Consequently I am obliged to conclude that although instructions were given by Ms Chow to compromise the matter, she had no lawful authority to do so, there being no resolution of the owners committee in terms of the provisions of the BMO.

31.  It follows that the agreement to settle is without lawful foundation, and the consent order, made in reliance upon that agreement, must be set aside.

The “just and equitable” argument:

32.  Having reached that conclusion it is not strictly necessary for me to consider the argument based upon “just and equitable”, other than to say that there is nothing in the conduct of Jade Plaza upon which I could say that it was either just or equitable that the compromise reached should not be given full force and effect.  Indeed the conduct of Jade Plaza has throughout this matter has been quite to the contrary.  Mr Yan on the other hand, has acted entirely properly, and now innocently finds himself in the midst of expensive litigation.

33.  Having held a meeting of shopowners, at which a clear consensus was reached, Ms Chow failed to put the consensus to a formal owners meeting, simply because she herself did not agree with the consensus that had been reached.  The clear role of a chairperson of an owners committee is to accept the democratically expressed views of those affected by decisions in relation to the building, and to allow the democratic process, legislated for under the BMO, to take its course and abide by any decisions so reached.  If that a properly convened meeting of owners the proposal upon which consensus had been reached was rejected, the committee would have been entirely justified in bringing these proceedings.  But instead they circumvented the process, ignoring the wishes of the meeting that had been held.  At the same time they appear to have ignored the fact that committee members themselves were offending in the same way as Mr Yan.  No explanation was offered as to why he should be singled out, perhaps to be used as a test case.

34.  Having reached the conclusion that clear instructions were given to the solicitor to compromise the matter, it could never be just and equitable, if the power existed to compromise the matter on that basis, can later set aside the compromise, upon the basis that the committee no longer accepted those terms.  So do would be to deny justice and equity to Mr Yan.

Costs:

35.  That the proceedings have reached this stage is no responsibility of Mr Yan.  He and his solicitors and counsel were perfectly entitled to reach the agreement that was reached at the trial and subsequently enshrined in the order made by me, albeit an order that has not been effected by sealing.  They had no reason to suspect that the necessary resolution authorising the conversion of the common area had not been passed.

36.  They were equally perfectly entitled to resist the application to set aside the judgement, particularly having regard to the position adopted by Ms Chow that instructions to compromise had not in fact been given.  That was a serious allegation to make against a solicitor, one that I have found to be quite unfounded.

37.  Mr Yan has been brought to these proceedings through no fault of his own, but has failed in his opposition to the application.  Having regard to the conduct of the owners committee and its chairperson there is no basis upon which Jade Plaza could contend for costs on its success in this application. Weighing all of these factors I am satisfied that the appropriate order for costs will be an order nisi, to be made absolute in 14 days, that there be no order for costs.