KWAN PUI SIN v. THE INCORPORATED OWNERS OF MANDARIN COURT (SHANGHAI STREET)

LDBM 253/2014

IN THE LANDS TRIBUNAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

BUILDING MANAGEMENT APPLICATION NO. 253 OF 2014

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D E C I S I O N

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1.  At the hearing scheduled for trial of the Application on 7 March 2016 the applicant discontinued wholly the proceedings as against the respondent (“IO”). There was no settlement on costs. The parties argued the costs of the entire proceedings on discontinuance at this hearing.

Brief Background

2.  The applicant is the registered owner of unit 4B of the Mandarin Court at 647 – 651 of Shanghai Street when she took out the present application. The respondent is the owners’ incorporation of all the owners of the said Mandarin Court.

3.  By an Application dated 15 September 2014, the applicant applied for an order for dissolution of the management committee of the IO elected at its general meeting held on 12 September 2014 (“the said AGM”), i.e. 3 days after the said AGM, on grounds of non-compliance with various provisions of Schedule 3 of the Building Management Ordinance, Cap 344 (“BMO”). The alleged irregularities include,

i) the chairman had failed to determine the validity of proxies;

ii) the said meeting was not properly presided over by the chairman;

iii) the instruments appointing the proxies were not lodged with the secretary or management committee at least 48 hours before the said meeting;

iv) the secretary had failed to issue acknowledgement for the proxies received;

v) the information of the instruments appointing the proxies was not displayed at a prominent place in the place of meeting throughout the said AGM; and

vi) no notice of meeting was received by the applicant at least 14 days before the said AGM.

4.  It is not in dispute that prior to the said AGM the applicant was the secretary of the IO. She stood for re-election as a member of the management committee as well as secretary of the IO at the said AGM. She was not elected to both offices at the said AGM.

5.  The IO opposes the Application. In gist, all allegations are denied. It is the IO’s case that if there were any breach of the BMO as alleged, it is due to a breach of duty on the part of the applicant as secretary of the IO. It is pleaded that it would be inequitable to allow the applicant to rely on its own faults to found a claim against the IO.

6.  Some time in August 2015 the applicant entered into agreement to sell her unit. Completion was to take place by end of October 2015. In fact, at least as at 2 October 2015, the issue of whether the applicant would lose her locus to maintain her action was raised[1]. On 19 October 2015 when the applicant’s leave to appeal summons[2] was heard the question of locus was raised again. It is not in dispute that on 9 November 2015 when the matter came before the tribunal for a further call-over, the applicant confirmed that completion had already taken place. She was no longer a registered owner of the Mandarin Court. The question of locus or her right to maintain the action after ceasing to be an owner was put to the parties again. The matter was adjourned further to 1 December 2015 particularly for the applicant to seek legal advice. When the hearing resumed at the adjourned hearing the applicant indicated to the tribunal that she had sought legal advice confirming she had the right to maintain the proceedings. She decided to proceed further to trial.

7.  Directions were then given for future conduct of the proceedings, including setting the Application down for trial on 7 March 2016 and for filing and service of witness statements in response on or before 26 January 2016. Only the IO chose to file an additional witness statement pursuant to the direction.

8.  The applicant had put in a total of 3 statements by respectively 3 witnesses, namely she herself, her friend Mr. Tsang and a Mr. Wong, the ex-chairman but chairman of the IO prior to the said AGM.

9.  The IO put in 3 statements by 2 witnesses. They were made by Mr Yeung, the current secretary of the IO who had won the election at the said AGM at which both he and the applicant competed for the post of secretary, and one Mr Lam (2 statements), a manager of the management company engaged by the IO to assist in managing Mandarin Court.      

10.  At the commencement of trial, the applicant informed the tribunal that she had now sought legal advice. She was advised she did not have the locus to maintain the proceedings. She said the issue between the parties would have become academic. Mr Wong appearing on the IO’s behalf submitted that section 45(2) of the BMO provided that only owners are competent to commence proceedings referred to in Schedule 10 of the BMO. It was submitted by Mr Wong that by reason of the said provision, the applicant had no locus to maintain the action after ceasing to be an owner.

11.  After some exchange, the applicant agreed to discontinue the proceedings, and leave was granted to the applicant to discontinue the proceedings wholly as against the IO. The parties were expressly told that the tribunal has not adjudicated on the question of locus to maintain, but it would only be natural for the applicant to discontinue or withdraw her Application if she adopted the stance she had been advised. A Notice of discontinuance was filed by the applicant in the afternoon.

12.  The only issue between the parties is costs. So far as can be discerned from the applicant’s submission she considered she had merits to issue the Application in the start. However due to sale, the remedy sought would become academic to her. She should be entitled to costs, or at least not be liable to pay any of the IO costs’.

13.  Mr Wong’s submission was that the applicant’s Application was without merits, and she should pay the IO’s costs of the entire proceedings. In any event, it was inarguable, submitted by Mr Wong, that at least as from 1 December 2015 the applicant should be liable to the IO for costs. It is because the applicant was particularly given an opportunity to consider her position, but she insisted on pursuing the proceedings until the commencement of trial.

Discussion   

14.  As I have stated in Wong Chee Shui Rossana v The Incorporated Onwers of Wah Hung House and others[3], the principles adopted in Anmol Kumar Sawlani v Yeshma Gobindram Sawlani[4] should be applicable to proceedings discontinued in this tribunal. In Anmol Kumar Sawlani, Recorder Shieh SC, was dealing with a dispute on costs on “discontinuance with leave” situation. After reviewing a number of pre and post-CJR cases, the learned Recorder came to a conclusion that if the parties were not to go to trial to resolve a costs dispute in an application for leave to discontinue, the normal rule should apply, namely, a discontinuing plaintiff should pay costs unless it can be demonstrated, without the need to go to trial, that his case is so strong that he is bound to win had it gone on to trial and therefore he was justified in commencing the action in the first place.

15.  In the Lands Tribunal, Rule 27(1) of the Lands Tribunal Rules (“LTR”) provides:

“A party may, without leave of the Tribunal, discontinue the proceedings or withdraw any part thereof by serving a notice to that effect on the other party.”

16.  There is no provision in LTR limiting the time for giving the discontinuance notice. In the tribunal’s view, such notice can be given at any time even on or after commencement of a trial, and leave of the tribunal is not required.

17.  O.62 r.10, Rules of High Court (“RHC”) provides that the defendant can tax or sign judgment on costs against the plaintiff in “discontinuance without leave” situation. Although there is no similar counterpart in the LTR, the tribunal cannot see any material difference between proceedings in the Lands Tribunal and the High Court in terms of their nature and why the same principles cannot apply here. The fact that R27(2) & (3) of LTR provide that the respondent has to apply for costs will not, in the tribunal’s judgment, alter the applicable principles. The rules only set out a procedure for the parties to follow in pursuing a claim of costs.

18.  Further the Tribunal considers that there should not be any difference in principles on costs in “discontinuance with leave” and “discontinuance without leave” situations. In the Tribunal’s view, the rules discussed in Anmol Kumar Sawlani and briefly set out above should be applicable to proceedings discontinued in the tribunal, i.e. a without leave situation, and therefore to the present case.

19.  The gist of the applicant’s submission can broadly be summarized as follows:

i)  It was stated in both Mr Wong and her statements, who were respectively the ex-chairman and ex-secretary of the IO prior to the election to be held at the said AGM, that the proxies were not determined by Mr Wong; meeting not presided over by Mr Wong; proxies not lodged with or otherwise counted by her 48 hours before the said meeting; notice of meeting not received by her 14 days before the said meeting, etc. Since they were the persons directly related to all these and were present at the said meeting, they were in the best position to tell the tribunal whether such irregularities and/or omission had actually been committed. Their evidence should be accepted in preference to that of the incoming secretary and Mr Lam, a staff of the management company;

ii)  In fact in the supplemental evidence of Mr Lam, he admitted that Mr Wong had not determined the validity of the proxies though the latter had been requested to do so. It was said by Mr Lam that Mr Wong was too busy with his phone when he was asked to do the determination[5]. Mr Lam did not ask Mr Wong to do the do the determination again later;

iii)  The omission and/or failure by Mr Lam to ask Mr Wong to determine the proxies could not be said as inadvertent because there should be ample time for Mr Lam to ask Mr Wong to do it again. The said meeting started at about 8:15 pm and closed at about 9:45 pm with 15 min left before the IO was required to handing the venue back to the venue owner;

iv)  She was in Hong Kong 2 days before the said meeting but was not asked by the management company to check the proxies. As a result she did not issue any receipts or acknowledgement for the proxies received, if any; and

v)  There was dispute of facts as to whether she did receive the notice of hearing. She said no but the IO said she should have received it 14 days before the hearing.

20.  It was submitted by Mr Wong on the IO’s behalf that the applicant and the ex-chairman Mr Wong were acting as a group. They could not rely on their own faults to found a case against the IO. Further it was a practice that members of the IO, who were laymen, to rely on the management company to meet some of the BMO requirements. Accordingly, the fact that the applicant and Mr Wong did not actively do anything to comply with the statutory requirements did not mean those requirements had not been met. He referred the tribunal to the information sheet allegedly containing summary of all proxies lodged with the management office[6]. He demonstrated to the tribunal that the number of proxies received tallied with that set out in the attendance sheet prepared by the management company for signatures of attendees[7]. According to Mr Wong, there was no challenge by anyone, including the applicant and the ex-chairman, received by the IO since the said AGM alleging any of the proxies being invalid or forged.

21.  Mr Wong also submitted that many of the office bearers of owners’ incorporations are volunteers. They did not know much about statutory requirements and meeting. They were assisted, for instance, in presiding over meetings, just as Mr Wong was assisted in the present case. The fact that Mr Wong was assisted, and said not much at the said AGM did not mean that he was not presiding over the meeting.

22.  It is not in dispute that the applicant did not live at her unit in the Mandarin Court. The premises was rented out. However, she said she possessed the key to the letterbox and would from time to time collect mails from that letterbox. In response to the tribunal’s queries as to why the applicant expected the management company to notify her to collect the proxies before she was in a position to issue receipts, the applicant replied to the effect that it was a usual practice for proxies to be put in a box in the management office and collected by the management company for the secretary. Thus they should have notified her when they have got all the proxies. They did not, and therefore she did not issue any acknowledge receipts. Further the applicant also confirmed that in the notice required of to be sent to the Land Registrar, only her address at Mandarin Court was stated.

23.  It is apparent that there are serious dispute of many material facts, such as whether the information concerning appointment of proxies has been displaced, or whether it was displayed at a prominent place at the meeting venue, or whether it was there throughout the said AGM. Further, although the applicant denied having received any notice of hearing, it was not her case that such notice was invalid or that it has never been issued at all to any of the owners. At least owners holding about 60% of the undivided shares had attended the hearing[8]. It was the IO’s case such notice was inserted into the letterbox of the address the applicant provided[9]. Unless and until after cross-examination, it will be difficult for the time being for this tribunal to come to a view, one way or the other, that such notice was duly sent to her last known address[10], or that it has never been served on her at all.

24.  Further, the fact that the ex-chairman Mr Wong and the applicant are the appropriate persons to testify in the sense their evidence not being hearsay does not mean Mr Yeung and Mr Lam’s evidence untrue. Mr Lam was involved in the arrangement of the meeting. According to their statements Mr Lam and Mr Yeung were present throughout the said AGM.  They are equally competent witnesses to tell from their perspective what they had actually seen (e.g. whether notice was displayed through the meeting) and actually happened (e.g. whether Mr Lam had collected the proxies). Without cross-examination of witnesses it would be difficult for the tribunal to resolve these material facts

25.  However, from the parties’ submission and the witness statements, at least the following is not in dispute:

i)  The chairman Mr Wong had not personally determined the validity of the proxies;

ii)  The applicant has not personally collected the proxies 48 hours before the said meeting, nor had she issued the acknowledgement of the proxies allegedly collected by the management company;

iii)  The last address of the applicant known to the IO was that of her unit in Mandarin Court, and she did not open the letterbox every day; and

iv)  The applicant relied on the management company for performance of at least some of her duties as a secretary, e.g. collection of proxies and issue of notice of the said meeting[11].

26.  From the above undisputed facts, this tribunal has the following observations.

27.  Firstly, the duties under Schedule 3 of the BMO are apparently imposed on the office bearers, e.g. the chairman, the secretary, etc, and not the management company which the IO employed. If the management committee has the habit of relying on assistance of the management company in meeting statutory obligations, it remains a breach on the part of the office bearers if the management company fails to satisfy these statutory obligations. Any wrong cannot be deemed right because it is committed not directly by the office bearer but by delegates. On the other hand, if such relation between the management company and the management committee does exist, it will be a serious question as to whether any of these office bearers can be allowed to deny what has been done are done on their behalves, even though it may not be to their express knowledge. In the present case this estoppel argument is not without factual basis. At least it is the applicant’s own case that she relied on the management company to collect the proxy which should be her responsibility under the BMO (see: §4(3) of Schedule 3) otherwise she would not have awaited its notification. She also did not challenge the notice of the said AGM which ought to have been issued by her (see: §2(1) of Schedule 3) otherwise she would not have attended the said AGM and stood for election. It will therefore be a powerful inference, as contended by Mr Wong, that the management company has all along been relied on by the IO’s management committee, including the chairman and the applicant as secretary to take care of the matters now alleged having been omitted. It is at least arguable, if not a powerful one, to say that the alleged omissions by the ex-chairman and the applicant were not omission and have already been performed by someone for the applicant and Mr Wong.

28.  Secondly, as rightly pointed out by Mr Wong acting for the IO, up until trial there has never been any challenge, either by the applicant or any owner of the Mandarin Court, to any of the proxies used at the said AGM. It will be a relevant consideration for holding whether a meeting or any resolution passed therein valid even if there were breaches of rules regarding proxy. There is nothing in Schedule 3 stating that if any of the proxy rules has been offended the meeting or resolution so passed will be rendered invalid or void automatically.

29.  Thirdly, it is the IO’s case that the applicant, being the secretary of the IO at the material times, cannot rely on its own breach to found a claim against the IO. Apparently receipts of acknowledgement of proxies were not issued by the applicant as secretary. Neither the management company had issued such receipts on the applicant’s behalf. The applicant as secretary also had not personally displayed the proxy information at the meeting venue. She was even late for the said AGM. In this connection, the tribunal notes the equitable maxims of “he who seeks equity must do equity” and “he who comes into equity must come with clean hands”. For the latter maxim, the question is whether relief should be denied because there is a sufficiently close connection between one’s alleged misconduct (e.g. the applicant’s failure to collect the proxies and thus not issuing any acknowledgement receipts) and the relief sought (in the present case, to declare the said AGM invalid because of the lack of, inter alia, the acknowledgment receipts): see §5-010 Snell’s Equity (33^rd ed). These are well recognized equitable principles. There is a similar counterpart in contract, namely, it will be presumed that it is not the intention of the parties that either should be entitled to rely on his own breach of duty to avoid the contract or to obtain a benefit under it unless the contract clearly provides to the contrary: see §13-085 of Chitty on Contracts (33^rd ed). Although the present situation does not arise in the context of contract, it shows that IO has at least a reasonable, and not a fanciful, defence to the applicant’s Application.

30.  From the above, it cannot be demonstrated to the tribunal that the applicant’s case is so strong that she is bound to win had it gone on to trial and therefore she was justified in commencing the action in the first place. Following the principles in Anmol Kumar Sawlani, the tribunal considers that the applicant has failed to discharge its burden to satisfy the test, and should bear the costs of the entire proceedings upon discontinuance.

31.  It is noted that the tribunal has since October 2015 repeatedly reminded the applicant to consider the issue of locus. Hearing had been adjourned particularly to enable her to seek legal advice. She came back and said she intended to pursue. It is not until commencement of trial that she chose to discontinue. In the tribunal’s view, she can hardly resist any order for costs incurred after 1 December 2015 in any event.

Disposal and Order

32.  By reason of the above, the applicant should bear the costs of the IO for the entire proceedings upon discontinuance, including all costs reserved, save and except those costs issues which this tribunal has already adjudicated on, to be taxed on District Court scale if not agreed.