CITYBASE PROPERTY MANAGEMENT LTD v. THE INCORPORATED OWNERS OF HENG NGAI JEWELRY CENTRE

DCCJ5859/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5859 OF 2005

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REASONS FOR DECISION

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Background

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

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

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

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

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

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

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

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

9.  On 18^th January 2006, the following matters were adjourned to be heard before me on 23^rd January 2006, the day before the New Owners’ Meeting :

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

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

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

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

Jurisdiction

11.  Mr Hung does not dispute that section 45 and the Tenth Schedule of the BMO cannot be interpreted as giving exclusive jurisdiction to the Lands Tribunal in respect of matters falling within the Tenth Schedule (Wong Hing Cheong & anor v Wah E Investment Ltd & anor [2002] 2 HKLRD 175, Incorporated Owners of Summit Court v Full Surplus Investment Ltd & anor [2002] 3 HKC 193 and Provident Commercial Investment Limited v The Incorporated Owners of Provident Centre & anor CACV79&80/2005 (unreported, 1^st November 2005)).

12.  But Mr Hung argues that since PIL and CPML seek reliefs in relation to the Resolution passed pursuant to paragraph 7 of the Seventh Schedule of the BMO (the “Seventh Schedule”), which is a mandatory term incorporated by virtue of section 34E of the BMO into the deed of mutual covenant (the “DMC”), only the Lands Tribunal has jurisdiction over such claims. 

13.  Mr Hung submits that the declaratory relief sought in DCCJ5859/ 2005 and DCCJ6285/2005 in respect of the legality of the Resolution pursuant to paragraph 7 of the Seventh Schedule is the substantive relief that protects PIL’s alleged legal right and the claims for injunctions/damages are only ancillary thereto. Mr Hung further adds that CPML’s complaint in DCCJ5859/2005 in respect of the irregularities at the 2^nd Owners’ Meeting involves the interpretation and enforcement of the Third Schedule of the BMO, which governs the meetings and procedures of incorporated owners. Mr Hung submits that the above rights and remedies all arise out of the BMO.

14.  Mr Hung relies on Rogers V-P’s judgment at p.184 in the Wong Hing Cheong case as follows :

“The only thing that can be said, as has been said by Findlay J [in Ngan Chor Ying v Year Trend Development Ltd [1995] 1 HKC 605], is that if there is a right or remedywhich arises out of the Ordinance alone, the only tribunal which would have jurisdiction in respect of that right or remedy, would be the Lands Tribunal. Save in that very restricted sense, I can see no basis for holding that the Lands Tribunal has exclusive jurisdiction in respect of matters falling within the Tenth Schedule of the Ordinance.” (my emphasis)

15.  Earlier in his judgment, Rogers V-P at p.182 referred to what Findlay J said on the matter of jurisdiction as follows :

“My understanding of the law in this area is that where an Ordinance creates a right or remedy; that is, the right or remedy has no existence independently of the Ordinance, and, at the same time the Ordinance lays down a particular method of pursuing it in a particular court or tribunal, the courts will, without more, tend to confine a person in pursuit of that right or remedy to that particular court or tribunal. But an Ordinance should not be interpreted so as to take away the jurisdiction of the superior courts unless it does so by express words or necessary implication.” (my emphasis)

16.  Findlay J in the Ngan Chor Ying case then considered the relevant authorities and the language of other legislation that conferred exclusive jurisdiction on the Small Claims and Labour Tribunals. He concluded at p.609 that the width of the Tenth Schedule suggested that the Lands Tribunal was not meant to have exclusive jurisdiction over the proceedings in the schedule:

“…… I can find nothing in the Ordinance that leads me to the conclusion that the legislature must have intended that the Lands Tribunal should have exclusive jurisdiction over all matters mentioned in the Tenth Schedule. Indeed, there are, in my view, strong indications to the contrary.

            As I have said, the Tenth Schedule is very widely drafted. It includes matters that concern rights and obligations that arise quite independently of the Ordinance, matters that frequently come before the High Court for determination. If the legislature intended that this commonly exercised jurisdiction of the High Court should be taken away, it would, in my judgment, have said so in clear words.” (my emphasis)

17.  This view is also endorsed by Kwan J in the Incorporated Owners of Summit Court case at p.205 as follows :

“This is not a case in which a right or remedy does not exist at common law and is created for the first time in a statute which also lays down a method of pursuing such right in a particular tribunal. If all of the proceedings specified in the 10^th Schedule could rightly be regarded as proceedings in respect of rights and remedies created by Cap 344, one would have no quarrel with the view that exclusive jurisdiction in such proceedings would be vested in the Lands Tribunal, as there would not have been an ouster of the jurisdiction of the High Court (see Ngan Chor Ying, supra at 608F-H). This, however, is not the case.” (my emphasis)

18.  The tenor of these authorities is that as a matter of statutory interpretation the width and language of the Tenth Schedule of the BMO speak against any exclusive jurisdiction being conferred in respect of claims falling within its scope. But even if I am wrong, the specific claims in DCCJ5859/2005 and DCCJ6285/2005 do not arise solely from the provisions of the BMO for capture by any exclusive jurisdiction of the Lands Tribunal.

19.  The formulation of PIL’s and CPML’s respective claims in DCCJ6285/2005 and DCCJ5859/2005 that CPML is entitled to remain as manager of the Building is necessarily premised on both the express provisions of the DMC, such as Section V clause A(2) which gives CPML the right to act as manager, and the provisions in the Seventh Schedule which are impliedly incorporated in the DMC and which affect the validity/legality of the termination of CPML’s appointment  as manager of the Building.

20.  More importantly, section 34E and the Seventh Schedule of the BMO provide for inter alia the incorporation of mandatory terms into the DMC. Once such statutory terms are incorporated into the DMC, PIL’s right as owner and CPML’s right as manager to enforce and/or to restrain breach of the DMC, including the statutorily incorporated terms, arise from the DMC. Both PIL and CPML also claim for damages, which remedy is clearly not created by the BMO. PIL’s and CPML’s rights or remedies do not fall solely within the narrow ambit of the BMO. In the circumstances, even if some of the claims fall within paragraphs 1 and 2 of the Tenth Schedule of the BMO (ie the interpretation and enforcement of the provisions of the DMC and BMO), by virtue of the above authorities that are binding on this court, the District Court plainly has concurrent jurisdiction. 

21.  Interestingly, similar claims/reliefs were dealt with in the case cited by Mr Hung, namely, Rich Fortress Limited and ors v The Incorporated Owners of Beverly Garden and ors HCA3963/201, Suffiad J (unreported, 10^th October 2001) and CACV3104/2001 (unreported, 13^th November 2001). In that case, the manager, developer and certain owners of the building applied for an injunction to restrain the incorporated owners from entering into an agreement with a new manager in place of the manager and to act upon or give effect to a resolution purportedly passed at an owners’ meeting to terminate the manager’s appointment. Query was raised as to whether the resolution was unlawful for non-compliance with the termination provisions contained in the Seventh Schedule.

22.  Neither the Court of First Instance nor the Court of Appeal doubted their jurisdiction over the matters seized before them. I note that Rogers V-P and Le Pichon JA who heard the appeal in the Rich Fortress Limited case were also on the Full Bench in the Wong Hing Cheong case. Mr Hung was unable to offer any explanation save to suggest that perhaps the jurisdiction issue was not raised in the Rich Fortress Limited case. But the matter of jurisdiction is fundamental because a court without jurisdiction cannot seize and determine any proceedings before it. I find my conclusion above is consistent with (even if not directly buttressed by) the approach of both courts in the Rich Fortress Limited case.

23.  In light of the above, I need not consider the interesting argument by Mr Leong SC, senior counsel for PIL and CPML, that the IO’s failure to give fair opportunity to CPML to explain or refute the IO’s allegations against its performance represents a breach of implied terms of the DMC that renders the Resolution void or voidable.

24.  However, I am not with Mr Leong SC in his submissions concerning Section V clause A(2) of the DMC, which provides that the owners “shall determine [the manager’s] appointment by six months’ notice in writing to the Manager”. Mr Leong SC argues that since such provision is not inconsistent with paragraph 7 of the Seventh Schedule, which requires a notice period of “not less than 3 months” to terminate the manager’s appointment, section 34E of the BMO will not cause paragraph 7 of the Seventh Schedule to prevail over Section V clause A(2) of the DMC. Mr Leong SC contends that in the circumstances the IO ought to have given 6 months’ notice to terminate CPML’s appointment as manager, so the Resolution giving 3 months’ notice is in breach of the express provisions of the DMC.

25.  According to Kent, Merry and Walters, Building Management in Hong Kong (2002) at p.80, the purpose of Part VIA of the BMO is said to be as follows :

“The practical effect of Part VIA is that it limits the developer’s powers to insert unfair terms in the DMC in the future and prevents the developer or manager relying on terms in DMCs executed before 1993, if they are inconsistent with Part VIA.”

If Mr Leong SC were right, a provision in the DMC that requires, say, 2 years’ notice for terminating the manager’s appointment will still be valid and binding as being not inconsistent with the Seventh Schedule that requires not less than three-months’ notice. Such interpretation defeats the purpose of section 34E of the BMO and is, in my view, incorrect. Rather, I am of the view that in a contest between paragraph 7 of the Seventh Schedule and the notice requirement in Section V clause A(2) of the DMC, the former shall prevail. However, this view does not affect my conclusion over the Jurisdiction Issue.

The dramatis personae

26.  I now proceed to deal with PIL’s application for the Interim New Manager Injunction. I have been referred to various affirmations of Mr Lee Ying Wai Gorman (“Lee”, PIL’s managing director) and Ms Leung Yim Kuen (“Ms Leung”, CPML’s property manager) filed for PIL and also to various affirmations of Ms Ong Kim Yim Mary (“Ong”, the IO’s chairperson), Ms Chan Kam Ho Selina (“Chan”) and Mr Leung Kai Sang (“Mr Leung”) filed for the IO. All these deponents were attendees of the 2^nd Owners’ Meeting.

27.  I will first say a word about the approach adopted at the hearing. Given the Injunction Summons is to be heard on 1^st February 2006, both counsel are concerned that the discretion of the learned judge at the Adjourned Hearing should be as unfettered as possible under the circumstances. Therefore in these Reasons for Decision I propose to set out the substance of the matters that have assisted me in reaching my ruling but refrain from giving any definitive view on matters that are not directly relevant. However, I hasten to say I have considered the affirmation evidence placed before me. Further, whilst counsel’s submissions concentrate on the issue of the balance of convenience or balance of the risk of doing an injustice, they also touch on a number of factual matters raised in the affirmations. It is therefore useful to first summarise the background facts.

The Building

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

1^st Owners’ Meeting

29.  A resolution proposing to terminate CPML as manager of the Building was not passed at an owners’ meeting held on 20^th December 2004 (the “1^st Owners’ Meeting”) due to insufficient votes.

Notice for the 2^nd Owners’ Meeting

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

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

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

2^nd Owners’ Meeting: commencement

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

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

2^nd Owners’ Meeting : 2^nd item of the agenda

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

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

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

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

39.  On the other hand, Ong claimed that only Lee (not other attendees) requested that CPML’s representative be given the opportunity to respond. Ms Leung was allowed to do so, and she and her colleague as proxies were allowed to vote. Ong further claimed that a liaison officer from the Home Affairs Department was present throughout the 2^nd Owners’ Meeting.

2^nd Owners’ Meeting : casting of votes

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

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

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

43.  Lee expressed doubt about 2 ballot forms respectively representing 600 odd and 800 odd undivided shares, which were equivalent to more than 22 or 28 units in the Building. But Ong said they were not unusual since her own vote represented over 400 undivided shares (including proxies). Heng Ngai alone held 626 undivided shares, so its ballot form (with the proxies it carried) could have represented over 600 or 800 undivided shares.

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

45.  Lee further claimed he stated at the 2^nd Owners’ Meeting there could be inaccuracies as to the number of undivided shares recorded in the ballot forms for inter alia the Resolution. On the other hand, Ong denied this, saying that Lee and the other scrutineers had in fact signed on the sealed envelope containing the votes. Ong further claimed Mr Lam of the solicitors for PIL and CPML was present at the meeting.

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

47.  On the other hand, Ong claimed no one requested for re-counting of the votes or for re-voting during the meeting. After the meeting was closed, when a few MC members remained in the meeting room to chat, Mr Lo of the IO’s solicitors told Ong he heard an unknown person mention that due to a query over one of the 3^rd Item ballot forms, the 2^nd Item ballot forms should be re-counted. But by that time many attendees had left and the ballot forms had been sealed. Since the scrutineers (other than Lee) were not around, there was nothing the MC could do.

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

Minutes

49.  The Minutes did not record the attendance record and the undivided shares held by the attendees, which was different from the practice adopted for the minutes of the 1^st Owners’ Meeting. Ong explained that Mr Wu in preparing the Minutes adopted a style different from that of his predecessor who prepared the minutes of the 1^st Owners’ Meeting. But Mr Wu did record the undivided shares represented by the votes for each resolution in the Minutes. Ong said the attendance record was packed/stored in one of the sealed envelopes.

Post-2^nd Owners’ Meeting

50.  Since 28^th October 2005, CPML through its solicitors requested to inspect the records of the 2^nd Owners’ Meeting, including the attendance records, proxy forms and ballot forms (the “Documents”), for clarification purpose. On 28^th October 2005, the IO’s solicitors issued the Termination Notice to CPML.

51.  CPML’s solicitors issued a pre-action letter dated 31^st October 2005 complaining about the Resolution and requesting for inspection of the Documents. There was no response from the IO’s solicitors. Ms Leung said this was why CPML commenced DCCJ5859/2005 on 24^th November 2005.

52.  Ong claimed that the MC intended to convene another owners’ meeting to select a new manager since CPML’s appointment would terminate on 1^st February 2006 and time was running out. On 1^st December 2005, the IO issued a notice of owners’ meeting to be held on 20^th December 2005 for appointing a new manager for the Building (the “1^st New Notice”).

53.  On 9^th December 2005, CPML’s solicitors made a further request for inspection of the Documents and asked the IO to adjourn the owners’ meeting to be held on 20^th December 2005.

54.  On 13^th December 2005, the IO’s solicitors by letter denied CPML’s claim and assertions in DCCJ5859/2005.

55.  Ong claimed the IO was concerned litigation might delay and complicate the selection/appointment of the new manager, so on 13^th December 2005 the IO made a without prejudice offer for inspection of the Documents on 16^th December 2005 and it also withheld taking steps in DCCJ5859/2005 that would occasion legal costs in the hope that the inspection might resolve the matter. By this time, it was more than 6 weeks after CPML’s initial request for inspection and after it had commenced legal proceedings.

56.  There were differences between the IO’s solicitors and CPML’s solicitors over the terms and conditions for the joint inspection of the Documents, so without prejudice communications passed between them to iron out such differences.

57.  On 15^th December 2005, PIL issued the writ of summons in DCCJ6285/2005 as well as the Injunction Summons returnable on 19^th December 2005.

58.  The inspection on 16^th December 2005 did not take place. Lee claimed it was because the IO imposed unreasonable and stringent conditions. Ong on the other hand claimed the inspection was aborted because CPML’s representatives were over 2 hours late.

59.  On 17^th December 2005, CPML’s solicitors wrote to the IO’s solicitors to re-arrange inspection. On the same day, the IO issued an emergency notice to the owners to call off the owners’ meeting to be held on 20^th December 2005. After further negotiations, the parties on 19^th December 2005 agreed to have the inspection on 21^st December 2005. Consequently, at the hearing before H H Judge H C Wong on 19^th December 2005, the Injunction Summons was adjourned to the Adjourned Hearing. Ong claimed the IO took a pragmatic approach since an inspection might resolve the dispute between the parties.

60.  Inspection was partially done on 21^st December 2005. Ms Leung claimed that Mr Lai from the Home Affairs Department was present for about half an hour but he left before the actual inspection.

61.  There is no dispute that at the inspection Lee claimed that the envelope containing the ballot forms for the 2^nd Item had been tampered with. A second inspection was to be arranged for all 3 scrutineers who had signed on the envelope to be present.

62.  On 29^th December 2005, the IO’s solicitors by letter urged CPML and PIL to withhold further action pending the second inspection to be held on 9^th January 2006. The solicitors for CPML and PIL in their reply dated 30^th December 2005 indicated it was unnecessary to do so. The IO’s solicitors advised on 4^th January 2006 that the IO would proceed to prepare for the two legal proceedings. On 7^th January 2006, the IO filed its affirmation in opposition to the Injunction Summons and issued the Striking Out Summonses. Ong claimed CPML and PIL had in the meantime by various excuses successfully prevented the IO from appointing a new manager.

63.  The second inspection took place on 9^th January 2006. Ms Leung claimed that no representative from the Home Affairs Department was present. On the same day, the IO issued the 2^nd New Notice for convening the New Owners’ Meeting to be held on 24^th January 2006 for appointing a new manager. On 10^th January 2006, PIL’s solicitors wrote to the IO’s solicitors requesting cancellation of the New Owners’ Meeting. The IO’s solicitors refused the request on the following day, so PIL issued the Interim Summons on 13^th January 2006.

Proxy forms

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

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

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

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

Votes

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

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

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

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

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

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

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

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

Parties’ concerns

76.  Ong said the new manager has to start work on 1^st February 2006, so there is little time for selecting and appointing a new manager. Any owners’ meeting for such purpose requires 14 days’ notice. If the resolution to select and appoint a new manager is passed at the New Owners’ Meeting on 24^th January 2006, only 4 working days are left for appointing a new manager and to prepare for the handover. The IO will not let the Building fall into anarchy.

77.  On the other hand, Lee claimed it is be better to resolve the legality of the questionable Resolution before further action is taken and further potential liabilities are incurred on the premise of the same. If a new manager is appointed and the IO enters into a new management agreement whilst the legality of the Resolution was in dispute, and if the Resolution is eventually held to be invalid, CPML will have to be reinstated, the contract with the new manager will have to be cancelled and compensation will be payable to both the newly appointed manager and CPML out of the owners’ funds (to which the Plaintiff has to make contributon).

78.  Further, Ms Leung confirmed that if so required, CPML will continue to act as de facto manager after 1^st February 2006 and perform its services to all the owners of the Building to its best endeavours until the resolution of both sets of legal proceedings.

The applicable principles

79.  The American Cynamid principles are well-known. Under these principles, the court first has to be satisfied there are serious questions to be tried and then move on to consider the balance of convenience.

80.  Mr Hung by his written submissions for the hearing on 18^th January 2006 submits that since the injunctive reliefs sought in the Interim Summons will finally dispose of the action in favour of whichever party is successful in the application so that there will be nothing left on which it is in the unsuccessful party’s interest to proceed to trial, the court is therefore entitled to consider the degree of likelihood of PIL succeeding at the trial (Hong Kong Civil Procedure 2006 Vol.1 para.29/1/18 at p.516 and Lansing Linde Ltd v Kerr [1991] 1 WLR 251, 258). Mr Hung says that as a result of the second inspection on 9^th January 2006, the court is in a position to consider PIL’s degree of likelihood in succeeding at the trial.

81.  However, PIL has since confirmed it will only apply for the Interim New Manager Injunction under the Interim Summons and it proposes to leave its application for other interlocutory injunctive relief to the Adjourned Hearing. So even if PIL is successful in seeking the Interim New Manager Injunction, the matter becomes at large again at the Adjourned Hearing and PIL will continue to apply for the New Manager Injunction as well as other interlocutory injunctive relief. If, on the other hand, PIL is unsuccessful in seeking the Interim New Manager Injunction, whether there will be an application for the New Manager Injunction will depend on the Factors referred to above.

82.  In light of such developments, Mr Hung accepts at the hearing on 23^rd January 2006 that the proper approach for considering whether to grant the Interim New Manager Injunction is on the usual American Cynamid principles, ie whether there are serious questions to be tried.

83.  In my view, that must be correct since it cannot be said that the outcome of the application for the Interim New Manager Injunction will in practice determine the action. The Adjourned Hearing will proceed as scheduled irrespective of such outcome. Further, the Interim New Manager Injunction (if granted) expires after the Adjourned Hearing and it does not resolve the fundamental validity/legality or otherwise of the Resolution. Indeed, Mr Hung in his supplemental written submissions says that “until the trial of the two actions …… the dispute between the parties could not be resolved.”

Serious questions to be tried

84.  Mr Hung in his supplemental written submissions says that the IO will urge the learned judge at the Adjourned Hearing to adopt the approach of the Court of First Instance and the Court of Appeal in the Rich Fortress Limited case. In that case, it was held (a) there was a serious question to be tried which could not be resolved at the interlocutory stage based on arguments apparently presented in respect of the termination in accordance with the provisions of the Seventh Schedule and (b) the defendants appeared to have a substantially arguable case that they were entitled to terminate the manager’s appointment for cause.

85.  In respect of the application before me, the scope is even more limited than the usual consideration at the interlocutory stage of whether there are serious questions to be tried at the trial. Given that the Adjourned Hearing has been fixed to be heard 4 working days after the hearing before me and further given that PIL intends to apply for the New Manager Injunction at the Adjourned Hearing, the question before me is more of whether there are serious questions to be argued at the Adjourned Hearing, but of course I should bear in mind the possibility that the learned judge at the Adjourned Hearing may or may not grant any interlocutory injunction until trial or further order.

86.  It is evident from the above summary of the affirmation evidence and as fairly admitted by Mr Hung there are substantial disputes of fact as to what happened before, at and after the 2^nd Owners’ Meeting. I have no hesitation in concluding there are at the very least serious questions that justify consideration and argument at the Adjourned Hearing. Indeed, Mr Hung informs me that for the purpose of the Interim Summons only but without prejudice to the IO’s stance at the Adjourned Hearing the IO does not propose to take issue that there are serious questions to be tried.

Ulterior motives

87.  I am assured by both counsel that I need not deal with the question of the ulterior motives of the parties, which issue is best left to the learned judge at the Adjourned Hearing. However, I find it is still necessary to make some reference to the parties’ assertions because, despite counsel’s assurance, they have a way of creeping back into Mr Hung’s submissions.

88.  Mr Hung submits that CPML and not PIL is the real litigant. He points out that legal proceedings were first commenced by CPML whilst PIL did not take any action or make any complaint since the 2^nd Owners’ Meeting. But CPML has not applied for any interlocutory injunction in DCCJ5859/2005 and instead it is PIL that commenced DCCJ6285/2005 and issued the Injunction Summons on 15^th December 2005 through the same solicitors acting for CPML. Ong in her affirmations said she believed DCCJ6285/2005 was intended to sabotage the efforts of all involved parties (including the volunteer owners acting for the IO, the owners and their representatives, and the representatives of the Home Affairs Department) to act on the Resolution to appoint a new manager.

89.  Mr Hung further submits it is doubtful whether PIL has any genuine interest in DCCJ6285/2005 as it is putting up the PIL Units for sale and it has no apparent reason to withhold any sale pending conclusion of the proceedings. Mr Hung and Ong also question CPML’s integrity in refusing to allow the MC to draw funds to pay for legal expenses.

90.  On the other hand, Ms Leung and Lee both denied any ulterior motive and claimed that PIL was separately advised. Lee also said PIL would not sell the PIL Units until the conclusion of DCCJ6285/2005.

91.  Lee in his affirmations refuted the assertion that PIL is not a true plaintiff. He pointed out that he did raise complaints and queries at the 2^nd Owners’ Meeting and PIL had all along been following up on the progress with CPML. He thought the matter would be resolved when he realised CPML was working on inspection of the Documents. CPML then actually commenced legal proceedings against the IO. PIL only commenced its own legal proceedings when it received the 1^st New Notice in order to restrain the IO from inter alia taking steps to appoint a new manager. Lee said it was the IO’s refusal to respond to the request to adjourn the proposed owners’ meeting on 20^th December 2005 that triggered DCCJ6285/2005, and the Injunction and Interim Summonses were merely PIL’s reactions to the IO’s continued attempts to appoint a new manager prior to the determination of the legality of the Resolution by the court.

92.  Lee also claimed that the IO had an ulterior motive in all along refusing/delaying inspection of the Documents. He also suggested that the IO’s motives in issuing the 2^nd New Notice is questionable as it was plainly an attempt to present a fait accompli to bypass the Plaintiff’s application for the New Manager Injunction at the Adjourned Hearing (the “Fait Accompli Argument”). Mr Leong SC submits that it is telling that the IO pushed ahead with the New Owners’ Meeting despite (a) the cancellation of the new owners’ meeting for the same purpose originally intended to be held on 20^th December 2005, (b) the understanding by the parties at the hearing on 19^th December 2005 (as embodied in the court order) that PIL’s application for the New Manager Injunction and other interlocutory injunctive relief would be argued at the Adjourned Hearing and (c) the filing of further affirmation evidence by both parties for such purpose thereafter.

93.  Given counsel’s common stance that the question of whether any party’s conduct is tainted by ulterior motives is better left to be canvassed at the Adjourned Hearing, I propose to consider only counsel’s submissions and the factual matters raised in the affirmation evidence on the subject only insofar as they are relevant to the issues before me. But, generally speaking, I cannot say the above assertions of ulterior purpose are of substantial assistance at this stage. In my view, given the interim nature of the Interim New Manager Injunction and the fact that its life will not exceed the conclusion of the Adjourned Hearing, the true area of contest between the parties is on the question of the balance of convenience or the balance of the risk of doing an injustice.

Balance of convenience

94.  The first issue for consideration is the adequacy of damages awarded at the trial. Mr Hung helpfully informs me that for the purpose of the Interim Summons, the IO will not take issue on this matter. However, the IO reserves its right to address on such issue at the Adjourned Hearing.

95.  It is useful to start by dealing with 2 short points raised by Mr Hung. He submits that the reality is that (a) it will be a long time (he postulates it may be 1.5 years later) before the dispute between the parties can be resolved at the trial and (b) any injunctions that may be granted at the Adjourned Hearing are only interlocutory injunctions restraining the IO from removing CPML as manager.

96.  In respect of point (a) above, whilst I cannot ignore the fact that the dispute between the parties may ultimately have to be resolved at the trial, the issue before me is more confined. The question now is whether the Interim New Manager Injunction should be granted so that the parties can proceed to argue at the Adjourned Hearing whether the New Manager Injunction should be granted. It is more appropriate for the learned judge at the Adjourned Hearing to deal with point (a) when deciding whether to grant the New Manager Injunction.

97.  In fact, point (b) is not entirely correct because by the Injunction Summons PIL also applies for the New Manager Injunction and the essential purpose of the Interim New Manager Injunction is to enable the application for such interlocutory injunctive relief to be argued at the Adjourned Hearing. The Injunction Summons is not restricted to the reliefs referred to in point (b) above. However, Mr Hung informs me that the purport of point (b) is to emphasise the interlocutory nature of the injunctions sought under the Injunction Summons, which in turn underlines his theme that any order I make should not fetter the discretion of the learned judge at the Adjourned Hearing. I will come back to this submission below.

(a) Fait Accompli Argument vs Fettered Discretion Argument

98.  On the question of balance of convenience, Mr Leong SC forcefully puts forward the Fait Accompli Argument and submits that if the Interim New Manager Injunction is refused, the IO (as Ong has vigorously asserted) will proceed with the New Owners’ Meeting despite the previous common ground between the parties that they would argue at the Adjourned Hearing as to whether the New Manager Injunction should be granted. If after the New Owners’ Meeting the Factors are satisfied in the IO’s favour (which scenario Mr Hung submits is likely given the IO’s stated intention to appoint a new manager as soon as possible before 1^st February 2006), PIL’s application for the New Manager Injunction under the Injunction Summons at the Adjourned Hearing will become moot.

99.  I find this to be a weighty consideration, particularly when viewed in the context of the development of these proceedings. The IO knew all along that the Termination Notice expires on 1^st February 2006. This is not the first attempt by the IO to convene an owners’ meeting to deal with the issue of appointing a new manager. The proposed owners’ meeting to be held on 20^th December 2005 was cancelled as a result of the scheduled first inspection of the Documents. It was against such background that on 19^th December 2005 the IO through Mr Hung asks HH Judge H C Wong to adjourn the Injunction Summons for argument and for directions for the filing of affirmation evidence. Ever since 19^th December 2005, the IO knew that the Injunction Summons was adjourned to the Adjourned Hearing on 1^st February 2006 for argument.

100.  Although it has been said that the IO has chosen to adopt a pragmatic approach to wait and see the results of the inspection, the IO’s stance at the hearing on 19^th December 2005 plainly shows that it is alive to the possibility that the inspection may not be fruitful and the matter may have to be resolved by legal contest over the Injunction Summons at the Adjourned Hearing. Yet the IO issued the 2^nd New Notice on the very day of the second inspection of the Documents. There is no suggestion that the IO or its legal advisors have considered or explored the possibility of bringing forward the Injunction Summons or even just the application for the New Manager Injunction to have the matter resolved before 1^st February 2006. Instead the IO has gone ahead with steps to appoint a new manager by issuing the 2^nd New Notice.

101.  Mr Hung further submits that the discretion of the learned judge at the Adjourned Hearing will be hampered if the Interim New Manager Injunction is granted. He argues that even if the learned judge at the Adjourned Hearing considers in all the circumstances that damages are an adequate remedy for PIL and CPML and/or the IO should not be forced with work with CPML when their relationship has irretrievably broken down, he/she may be constrained to exercise his/her discretion to grant the New Manager Injunction or not to remove CPML by reason of the lack of an immediately available new manager of the Building. On the other hand, Mr Hung submits that if a new manager is appointed before 1^st February 2006, the learned judge at the Adjourned Hearing has free reign to exercise his/her discretion whether to grant the New Manager Injunction. This argument will be referred to below as the “Fettered Discretion Argument”.

102.  In my view, the fallacy of the Fettered Discretion Argument becomes evident when tested against the Fait Accompli Argument, which vividly illustrates why the current status quo should be preserved pending the Adjourned Hearing.

103.  To get around the Fait Accompli Argument, Mr Hung argues that since any new manager necessarily comes to his position with open eyes as to the Interim and Injunction Summonses and as to the primary claims by PIL and CPML in both sets of legal proceedings, the learned judge at the Adjourned Hearing will not be affected by the existence of a new manager. Mr Hung submits there is still room for the learned judge to grant the New Manager Injunction if he/she considers it appropriate to do so because (a) the IO’s contract with the new manager may provide that the granting of the New Manager Injunction is a frustrating event or that the contract only becomes effective if the New Manager Injunction is refused at the Adjourned Hearing. Mr Hung submits that given the developments in these proceedings, it is unimaginable for the IO not to impose terms or provide for such contingencies in its contract with the new manager. In the circumstances, Mr Hung argues there may not be any breach of contract or potential claim for damages arising therefrom even if the New Manager Injunction is granted after the appointment of a new manager of the Building following a refusal of the Interim New Manager Injunction. He says that the discretion of the learned judge at the Adjourned Hearing will thereby be preserved.

104.  But there is no evidence before me that the IO or MC intends to or will impose the terms/caveats mentioned above in any contract with the new manager. It follows from the resolution for the 3^rd Item that the IO must have invited management companies to tender for the position of the new manager of the Building. There is, however, no evidence before me that the aforesaid terms/caveats are part of the tender conditions or that the management companies that have submitted tenders are willing to abide by such terms/caveats.

105.  Mr Hung goes on to suggest that even if the IO fails to impose such terms/caveats so that the IO will be in breach of the management agreement with the new manager following the granting of the New Manager Injunction, the learned judge at the Adjourned Hearing may still regard such fait accompli as self-induced and unworthy of the court’s sympathy and be free to exercise his/her discretion as to whether to grant the New Manager Injunction.

106.  But such desperate submission only serves to underline the advantage in preserving the status quo instead. The learned judge at the Adjourned Hearing has to consider all relevant matters in the exercise of his/her discretion and if a new manager has already been appointed, he/she cannot ignore such reality and the further reality that imposing the New Manager Injunction may result in a potential claim against the IO for loss and damages for breach of contract.

107.  Indeed, Rogers V-P in the Rich Fortress Limited case took into account such factor in refusing the interlocutory injunction to restrain the appointment of a new manager until trial or further order :

“The practical aspect does not end there. The court was informed by Mr Tong SC, on behalf of the [incorporated owners and members of the management committee], that a new manager has been appointed as of 15 November. That is the date of termination given by the [incorporated owners] to the [manager]. In those circumstances, matters should take their course.”

108.  In my view, creating a fait accompli goes against the stated aim of ensuring that the discretion of the learned judge should remain as unfettered as possible at the Adjourned Hearing. The balance of convenience necessarily lies with the granting of the Interim New Manager Injunction.

(b) Granting of the Interim New Manager Injunction : IO’s submissions

109.  Mr Hung submits that a new manager must be appointed prior to 1^st February 2006 (ie the expiry date of the Termination Notice). With the cancellation of the owners’ meeting to be held on 20^th December 2005, the New Owners’ Meeting is the only owners’ meeting that can be convened for such purpose prior to 1^st February 2006. So if the Interim New Manager Injunction is granted, the IO will be unable to appoint a new manager to take charge of the Building on 2^nd February 2006. Mr Hung says this will place the IO in an invidious position, particularly if the learned judge at the Adjourned Hearing declines to grant the New Manager Injunction. Indeed, he goes further to say that the learned judge at the Adjourned Hearing may even decide not to grant the New Manager Injunction or decide not to compel the removal of CPML by reason of the absence of an immediately available new manager (ie the Fettered Discretion Argument).

110.  If (a) the Interim New Manager Injunction is granted, (b) the New Manager Injunction is refused at the Adjourned Hearing, and (c) CPML continues as de facto manager of the Building (which is the likely situation given Ms Leung’s confirmation to such effect in her affirmation) for the period that is required to appoint a new manager (ie a minimum of 14 days’ notice to convene a new owners’ meeting) (the “First Scenario”), Mr Hung submits that the IO will be compelled to retain CPML despite their relationship has broken down irretrievably. In this respect, Mr Hung relies on the 7 Incidents and on the Rich Fortress Limited case where Rogers V-P said inter alia that “it would be a recipe for disaster if the court were to make an order which would in effect compel the defendants to continue to employ the services of the [manager]”. This argument will be referred to below as the “Irretrievable Breakdown Argument”.

111.  Mr Hung goes on to say that in such circumstances CPML will be regarded as the manager within the meaning of the BMO since the BMO does not distinguish between de facto and de jure managers. Mr Hung fears that CPML’s continued presence as manager will nullify the Resolution and the Termination Notice so that the IO will have to restart the whole process of convening an owners’ meeting to terminate CPML’s appointment as the manager of the Building and to issue fresh notice of termination consequent to a new resolution to such effect passed at such owners’ meeting. Mr Hung is concerned  this may invite renewed challenge from CPML and PIL as to the validity of any new resolution and/or new termination notice whereupon history will repeat itself. This argument will be referred to below as the “Restart Argument”.

112.  Mr Hung submits that if, on the other hand, (a) the Interim New Manager Injunction is granted, (b) the New Manager Injunction is refused at the Adjourned Hearing, and (c) CPML chooses to abandon their role as manager despite assertions otherwise (the “Second Scenario”), there will be no manager after 1^st February 2006 and the Building will fall into anarchy.

(c) Refusing the Interim New Manager Injunction : IO’s submissions

113.  If the Interim New Manager Injunction is refused (the “Third Scenario”), Mr Hung submits that the learned judge at the Adjourned Hearing will then be free to take into account all matters and to exercise his/her discretion accordingly. He rejects any suggestion that the Adjourned Hearing, especially in relation to the application for the New Manager Injunction, will become redundant although he submits there is every confidence that a new manager can be put in place before 1^st February 2006 if I should refuse the Interim New Manager Injunction.

114.  Mr Hung says that although PIL may lose its preferred manager (CPML) without the Interim New Manager Injunction, PIL is bound by the Resolution (ie the decision of the majority of the owners). He further submits that even if the IO is found to be wrong at the end of the day, such error can be rectified at a future owners’ meeting. Further, if the IO has to pay damages to CPML for such error, the quantum is limited and CPML has a duty to mitigate upon being served with the three-months’ Termination Notice. Mr Hung says that if PIL has to contribute to the payment of such damages, PIL is still bound by the Resolution anyway.

(d) PIL’s submissions

115.  Mr Leong SC submits there is no urgency for the appointment of a new manager of the Building. There is no restriction or hurdle that prevents the IO from issuing a 14 days’ notice to convene an owners’ meeting after 1^st February 2006 if the New Manager Injunction is refused. Since the IO can act swiftly (Mr Hung says there is every confidence that a new manager can be appointed within 4 working days before 1^st February 2006), there will be a lapse of about half a month only before a new manager of the Building can be put in place after the Adjourned Hearing if the New Manager Injunction is refused. Mr Leong SC submits that there is no risk of the Building being left without a manager given CPML’s willingness (as confirmed in Ms Leung’s affirmation) to remain as the de facto manager. Obviously, if the learned judge at the Adjourned Hearing grants the New Manager Injunction, no new manager can be appointed pending the trial or further order.

(e) Analysis

116.  I find the arguments of Mr Leong SC persuasive and further find that the balance of convenience lies with maintaining the status quo by prohibiting the IO from taking steps to appoint a new manager before the conclusion of the Adjourned Hearing.

117.  I set out my analysis of the First Scenario as follows :

(a)  Mr Hung cites the 7 Incidents in support of the Irretrievable Breakdown Argument. He says that the 7 Incidents and CPML’s failure to allow the MC to withdraw funds for legal expenses show that CPML’s integrity is doubtful. Mr Hung argues that there is no telling what CPML may do during the interim period between the Adjourned Hearing and the appointment of the new manager. He refers to various examples from the 7 Incidents. For example, the 7^th Incident alleges that CPML unilaterally extended the contract with the outgoing cleaning contractor for 1 month and prevented proper handover to the new cleaning contractor; the 5^th Incident alleges that CPML has failed (and till fails) to give particulars of employees’ salaries and benefits to the IO for verification; and the 6^th Incident alleges that CPML charged high management fees coupled with a deficit budget prior to incorporation of the IO but had to lower the management fees after the IO’s incorporation.

Mr Hung points out that the history of the litigation between PIL/ CPML and the IO (eg PIL and CPML being deliberately difficult over the inspection of the Documents) also illustrates the hostility between the parties so that it is impossible for the IO to work together with CPML.

In my view, a careful study reveals that the present situation is different from that in the Rich Fortress Limited case. It was said in that case that feelings ran high at the owners’ meeting that passed the resolution to terminate the manager and “there was manifest hostility exhibited by members of the incorporated owners, other than [the members of the management committee], to representatives of the [manager]”.

I agree with Mr Leong SC there is no sufficient evidence that CPML has fallen out with the majority of the owners. There is no dispute that Ong circulated the Journal at the 2^nd Owners’ Meeting, but there does not appear to be clear evidence that the owners/attendees exhibited hostility against CPML at the meeting. The Minutes noted that after Ms Leung was granted an opportunity to explain the 7 Incidents at the meeting, the attendees took the view that, in order not to delay the progress of the meeting, the meeting was not the appropriate occasion to discuss the 7 Incidents and they requested the IO to follow up. The Minutes did not reflect that the owners/attendees came to any firm view on the 7 Incidents at the 2^nd Owners’ Meeting, let alone expressions of hostility against CPML. There is also no evidence before me of what follow up has been undertaken by the IO since the 2^nd Owners’ Meeting in respect of the 7 Incidents and what the owners’ reaction was to any such follow up by the IO.

Whilst Ong claimed all 7 Incidents being complaints against CPML’s performance have been discussed at earlier MC meetings, the minutes of the 8 MC meetings do not reflect all of the 7 Incidents. Indeed, Lee claimed they at best only reflect the 7^th Incident. It is also PIL’s/CPML’s case that the 7 Incidents can be readily explained and there is no dispute that Ms Leung did give explanations at the 2^nd Owners’ Meeting. Given that the parties have agreed that the question of whether there are serious questions to be tried should not to be canvassed at the hearing before me, it is an open question at this stage as to whether the 7 Incidents support an arguable case for terminating CPML’s appointment as manager for cause.

But 2 matters are evident. First, most of the 7 Incidents, whether rightly or wrongly, have already been resolved. For example, the insurance company has already been changed (1^st Incident), the accounts have been rectified (2^nd and 4^th Incidents), the 2006 budget has been passed with management fees chargeable at HK$0.07/ft (6^th Incident) and the one-month extension of the cleaning services contract has expired (7^th Incident). As regards Mr Hung’s complaint that the 5^th Incident is still outstanding, that relates to information on employees’ salaries and benefits and not the day-to-day management of the Building. Secondly, the time window in question under the First Scenario is a very narrow one, ie about a fortnight or so for convening a new owners’ meeting to appoint a new manager.

As regards Mr Hung’s complaint that the litigation between PIL/ CPML and the IO has been conducted in a hostile manner, whilst it is true the parties are vigorously insistent on their perceived rights, there is little to suggest that such attitude has carried over to CPML’s handling of the day-to-day management of the Building. There is no evidence before me of any complaint against the IO’s performance in the day-to-day management of the Building since the Resolution was passed and/or the Termination Notice was issued.

As regards Mr Hung’s suggestion of mala fide motives on CPML’s part in refusing to release funds for legal expenses, I bear in mind counsel’s common understanding at the hearing before me not to delve into the issue of ulterior motives. In any event, this issue does not touch on the day-to-day management of the Building and if there is a genuine basis to the IO’s complaint, there are of course legal avenues that can be pursued for release of funds for legitimate purposes.

In the circumstances, I am not satisfied that the relationship between CPML and the IO has broken down so irretrievably that preservation of the status quo over the brief time window referred to above is, as Mr Leong SC puts it, doomed from the start.

(b)  In respect of the Restart Argument, I see no basis for suggesting that under the First Scenario whereby the IO (despite protest as evidenced by Mr Hung’s submissions before me) is required by the Interim New Manager Injunction to put up with CPML as manager of the Building for the fortnight or so that is required to convene an owners’ meeting to appoint a new manager, the IO is thereby estopped from relying on the Resolution or the Termination Notice even if they are found to be valid and legally effective at the end of the day. Mr Leong SC fairly concedes (and I find) that as a matter of law accrued legal rights under the Resolution or the Termination Notice (if they are found to be valid and legally effective at the end of the day) cannot be extinguished because the IO has to suffer the presence of CPML as manager under protest in the course of court proceedings or because, as Mr Leong SC puts it, there is no immediately available court to resolve the parties’ primary dispute. I do not see any estoppel or waiver or acquiescence arising to support the Restart Argument.

118.  In respect of the Second Scenario, Mr Leong SC submits that such scenario is unlikely given (a) CPML’s stance in the Statement of Claim in DCCJ5859/2005 that the Resolution was invalid/illegal and that it is entitled to continue as manager of the Building and (b) Ms Leung’s confirmation in her affirmation that CPML is willing to remain as de facto manager. I agree, but even so I still proceed to consider this scenario.

119.  There is no dispute over the lawfulness of CPML’s capacity as manager of the Building until midnight on 1^st February 2006. Indeed, CPML is obligated to act as manager until at the very least up to such deadline. Mr Leong SC submits and I agree that practically speaking CPML cannot leave the Building at the snap of a finger starting from the early hours of 2^nd February 2006. There is also no evidence before me that it can do so. I further bear in mind that the period to tie over for convening a new owners’ meeting under the Second Scenario is only about a fortnight or so.

120.  In any event, I see no difficulty in the IO looking after the Building over such short period should CPML decide to pull the plug and leave. I do not envisage any anarchy. Section 18(1)(c) of the BMO provides that (irrespective of whether there is or is not any manager) the incorporated owners shall do all things reasonably necessary for the enforcement of the obligations contained in the DMC (if any) for the control, management and administration of the building and it may exercise the powers in section 18(2) in respect of the management of the building. After all, the manager carries out the duties and powers of the incorporated owners on their behalf and the manager’s departure cannot and will not diminish the incorporated owners’ statutory duties and powers. Further, the MC can on the IO’s behalf exercise the powers and duties of the IO under section 29 of the BMO. I note the IO claims it relies on the assistance of volunteers, but it is a far cry from having anarchy over the intervening period until a new owners’ meeting can be held.

121.  Under the Third Scenario, I am afraid the ills of the Fait Accompli Argument discussed are likely to come to pass. I do not propose to repeat them again. I am not persuaded by Mr Hung’s argument that PIL should not complain about having a new manager in the place and stead of CPML because it is bound by the Resolution. After all, the validity or legality of the Resolution is the very subject of dispute in these proceedings. If at the end of the day the validity or legality of the Resolution cannot be supported, then the so-called majority decision by the owners allegedly reflected in the Resolution is void or voidable. I cannot see how a future owners’ meeting can help rectify any voidable or void resolution. I further do not see how mitigation of CPML’s loss comes into play if at the end of the day the Resolution is avoided for being invalid or illegal.

122.  Looking at the matter in the round and bearing in mind all the circumstances and counsel’s submissions, I find that the weight of these considerations point towards the granting of the Interim New Manager Injunction. Mr Leong SC makes an attractive argument that PIL’s right and remedy as a single owner of certain undivided shares of the Building lie not in damages but in its ability to compel the IO as incorporated owners to comply with the requirements of the DMC and BMO. However, since both counsel have agreed that I should leave the issue of adequacy of damages to the Adjourned Hearing, I form no definitive view on such submission.

Cross-undertaking as to damages

123.  Although Ong in her affirmations and Mr Hung in his written submissions argue that PIL’s cross-undertaking as to damages is illusory, Mr Hung confirms that for the purpose of the Interim Summons the IO will not seek fortification of the cross-undertaking. This is of course without prejudice to any submissions that the IO may wish to make on this question at the Adjourned Hearing. I therefore also do not form any definitive view on the proposed sale of the PIL Units although this has been alluded to in Mr Hung’s submissions.

Costs of the Interim Summons

124.  In respect of the costs of the Interim Summons, both counsel have made some preliminary submissions without having sight of my reasons for decision. I have informed counsel I will make a costs order nisi when I give my reasons.

125.  Mr Hung argues that the usual order for costs for interim or interlocutory injunctive relief is costs in the cause since the final merits can only be resolved at the trial. He submits that the IO’s conduct is reasonable and there is no reason to depart from the usual rule. Mr Hung suggests that the Plaintiff is CPML’s “puppet”. Mr Leong SC says that such remark is not only uncalled for but is also unsupported by evidence. He urges me to ignore the same. Mr Leong SC submits that even if at the end of the day PIL is found to have been erroneous in pursuing its claim in the present proceedings, it does not follow that the IO is entitled to take steps to appoint a new manager pending the resolution of the Injunction Summons at the Adjourned Hearing. He argues that such unjustified conduct necessarily leads to the conclusion that the IO should bear the costs of the Interim Summons.

126.  As is apparent from the above analysis, I have found that the balance of convenience lies in maintaining the status quo. With the Adjourned Hearing to deal with inter alia the New Manager Injunction already fixed and known to the IO, the IO should have let matters follow their course instead of attempting to put in place a new manager before the Adjourned Hearing, which step may tilt the balance of convenience in the exercise of the court’s discretion at the Adjourned Hearing. However, I cannot ignore the possibility that at the end of the day, PIL’s primary claims in these proceedings may be unsuccessful. In such circumstances, I consider the appropriate costs order for the Interim Summons is PIL’s costs in the cause and I make an order nisi to such effect.

127.  Although I have been ably assisted by Mr Leong SC, I do not consider it appropriate to grant certificate for two counsel. Mr Leong SC’s learned junior, Ms Ho, has been able to lodge detailed submissions before the hearing on 18^th January 2006 and the matters raised are not of a complexity that justifies two counsel.

128.  Last but not least, it remains for me to thank both counsel for their assistance.