THE INCORPORATED OWNERS OF GARDEN VISTA v. CHEN JIN RU CATHERINE

DCMP 3241 /2014

[2018] HKDC 827

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3241 OF 2014

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DECISION

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1.  This is the hearing of the defendant’s Summons dated 10 July 2015 for an Order that the plaintiff’s Amended Originating Summons be continued as if the matter had been begun by writ.

Background

2.  This is an enforcement of memorandum of charge registered by the plaintiff, the incorporated owners of a development called Garden Vista (the “IO”), and the defendant, the owner of 4 properties in the development.

3.  The following factual background is not in dispute.

4.  At the meeting on 28 July 2013, the owners passed a resolution which, amongst others resolved to engage Hong Dau Construction Company Limited (“Hong Dau”) as the contractor to carry out renovation works for HK$262,953,235 at the development (the “July 2013 Resolution”)

5.  Mr. Lai Kwok Leung (“Mr. Lai”) was the chairman of the IO at the time. According to the minutes of this meeting, Mr. Lai had reported that the IO had engaged a consultant firm, Messrs. Wong Pun & Partners (“Wong Pun”) after an open bidding process. Wong Pun had then undergone another open bidding process and after numerous consultation process, had selected a short list of contractors. Out of the 19 contractors on the shortlist, Hong Dau received the highest votes from the owners and was therefore selected.

6.  In October 2013, not less than 5% of the owners requested to, amongst others, set aside the July 2013 Resolution and to dismiss all the members in the IO committee. A number of owners claimed that there was bid-rigging and a conspiracy to defraud.

7.  An “Independent Review Report” by WT Partnership (HK) Ltd (“WT”) was obtained by 2 owners which suggested that the renovation fees were unreasonably high. But it was stated in the report that the opinion expressed was subject to various qualifications (having not reviewed certain parts of documents, having no site visit etc.)

8.  In a separate letter dated 12 November 2013, WT further stated that “the Budget Amount was for reference only and shall not be directly compared with the actual amount for the renovation works”.

9.  The WT report was nevertheless distributed to all the owners.

10.  A meeting was to be convened on 12 November 2013 and was attended by 749 attendees (over 80% of the owners). The owners voted to maintain the July 2013 Resolution and not to dismiss the IO committee members (the “November 2013 Resolution”).

11.  According to the minutes of this meeting, the chairman Mr. Lai again submitted that there had been “an open and fair bidding process”.

12.  Renovation work was commenced by Wong Pun at around November 2013.

13.  On 20 November 2013, not less than 5% of the owners proposed to revise the fundraising arrangement previously adopted in the July 2013 Resolution. A meeting was convened on 12 December 2013 and the owners has resolved to revise the fundraising arrangement for the renovation (the “December 2013 Resolution”).

14.  In the meantime, a Mr. Xu, the husband of the defendant, has reported “bid-rigging and conspiracy to defraud” to the ICAC.

15.  The defendant had continued to refuse to pay her share of the renovation fees despite repeated reminders. On 6 June 2014, the plaintiff registered a memorandum of charge against each of the defendant’s properties.

16.  On 27 October 2015, a Mr. Yau Siu Tin (“Mr. Yau”) pleaded guilty to the charges of “conspiracy to offer an advantage to an agent” at District Court (DCCC 552/2015).

17.  It was stated in the Reasons for Sentence dated 29 September 2016 that Mr. Yau had confessed that he was acting as a middle man and had arranged a meeting. A conspiracy was agreed during this meeting to rig the bidding so that Wong Pun and Hong Dau would win the contract for the renovation work at Garden Vista.

18.  Under this agreement, a total of 17.5% of the renovation fee would be distributed to a Mr. Fan (6%) and a Mr. Hui (1%) of the building management company, Mr. Lai (10%) and Mr. Yau himself (0.5%).

19.  The Reasons for Sentence also recorded Mr. Yau’s lawyer’s submission that there was no information whether the conspiracy had actually proceeded, and that the ICAC had not laid charges against any other parties alleged to be connected to this conspiracy.

20.  After this conviction, Mr. Lai resigned as the chairman from the IO.

21.  Mr. Leung Yiu Wah is the new chairman of the IO and according to his affirmation, the IO, on the assumption of this conspiracy, took the position to withhold 17.5% of the renovation fee (or HK$45,850,000) pending clarifications of criminal liability of Hong Dau and instruct Hong Dau to complete the renovation.

22.  On 27 July 2016, Wong Pun certified completion of the renovation work.

23.  On 5 September 2016, Hong Dau commenced HCA 2290/2016 against the IO for unpaid fee. An application for summary judgment was dismissed on 8 September 2017.

24.  According to Mr. Leung, the problem of defending this claim was trying to establish the conspiracy agreement: no one else besides Mr. Yau was charged and Mr. Yau was, understandably, unwilling to testify.

25.  Thus the IO put the issue of how to handle HCA 2290/2016 to the owners in a meeting on 13 December 2017. The options were (A) to pay Hong Dau the claimed sum plus interest; (B) to contest the claim and take the matter to trial; and (C) to authorise the IO to negotiate for settlement

26.  3 owners, including Mr. Xu, advocated contesting the claim. They have obtained Counsel’s opinion and a Chinese summary of which was distributed to all owners before the meeting.

27.  On 13 December 2017, 53% of owners voted for option A, 12% for option B and 35% for option C (the “December 2017 Resolution”).

28.  With the resolution and mandate, the IO paid and settled the claim with Hong Dau.

Relevant legal principles

29.  The relevant provisions for this application are set out in Order 28, Rules 4 and 8 of the Rules of District Court (Cap. 336H) and needed not be repeated here.

30.  In short, the court has to consider “whether there is or may be a dispute as to fact” and what “the just, expeditious and economical disposal of the proceedings” would be in deciding any further case management orders required including those concerning adducing evidence.

31.  Rule 8 does not limit the possible reasons for the court to consider so but the usual ground relied upon by applicants is that there are substantial disputes in facts. The onus is on the applicant to show that it will be just and convenient to make the order. (Szeto Yuk Lin v Kanton Limited & Others HCMP 251/2016).

The defendant’s case

32.  The defendant’s case centred around the conspiracy. Her initial case appeared to be seeking to set aside the July 2013 Resolution because it was procured by a conspiracy to defraud.

33.  Ms. Astina Au, Counsel for the defendant, submitted during the hearing that the defendant would extend her case to seeking to set aside ALL the resolutions.

34.  Ms. Au argued that the July 2013 Resolution, the November 2013 Resolution should both be set aside due to Mr. Lai’s misrepresentation that “there had been an open and fair bidding” etc. during the meetings.

35.  As Ms. Au argued, it should then follow that the contract entered into by the IO under the July 2013 Resolution should be set aside, and thus the December 2017 Resolution which dealt with the consequence of this contract should also be set aside.

36.  Ms. Au submits that the conviction of Mr. Yau is admissible as evidence that there was a conspiracy and this would be supported by Mr. Xu’s evidence and WT’s report. Further, the fact that Mr. Lai has not been prosecuted does not mean that there could not be a civil case of conspiracy.

The plaintiff’s case

37.  Mr. Lau Ka Kin, Counsel for the plaintiff, argued that by the time when the November 2013 Resolution and December 2013 Resolution were passed, the owners had already been made aware of the allegations of bid-rigging and conspiracy, and has also received WT’s report. Despite this, the owners in those resolutions, confirmed to maintain the contract for renovation.

38.  There was also no dispute as to the conviction of Mr. Yau on the charge of “conspiracy to offer an advantage to an agent”.

39.  More importantly, the December 2017 Resolution was made when the conviction was known and with the benefit of the Chinese summary of legal opinion procured by Mr. Xu and others, and yet the owners had voted not to contest the claim regarding the contract but to settle it.

40.  Section 14(1) of the Building Management Ordinance provides that:

“...at a meeting of a corporation any resolution may be passed....and any such resolution shall be binding on the management committee and all the owners.”

41.  Mr. Lau also argued that the defendant’s real complaint has always been against Mr. Lai, a former chairman of the IO, and other alleged conspirators. The IO, as “the corporate embodiment of the co-owners collectively” (Leung Tsang Hung v Incorporated Owners of Kwok Wing House (2007) 10 HKCFAR 480), was not the wrongdoer.

42.  If the defendant so wished, she should either take action directly against the alleged conspirators or seek a resolution to engage the IO to take action against the conspirators.

Discussion

43.  In my view, there is no real dispute in facts in this case: there is no dispute about the voting process of all the resolutions, no dispute about the allegations raised regarding the conspiracy, no dispute about the WT report (and the qualifications raised by WT regarding the report), no dispute about Mr. Yau’s conviction (and the content of the Reasons for Sentence), and no dispute that, up to now, there has been no further prosecution or conviction regarding the said conspiracy.

44.  Substantive amounts of these facts have already been placed before the owners before the November 2013 Resolution and the December 2013 Resolution were passed. And by the time for the December 2017 Resolution, the defendant has ample opportunity and indeed has presented all the relevant facts to the owners.

45.  Whilst the defendant may argue that the July 2013 Resolution (and, to some extent, the November 2013 Resolution) was somehow tinted by misrepresentations made by Mr. Lai (if that could be proved, since there was no conviction that the conspiracy was carried out) and that Section 14(1) of the Building Management Ordinance should not bind the parties when the resolution was obtained by fraud, no such arguments can be raised regarding the December 2017 Resolution when the owners were fully aware of Mr. Yau’s conviction as well as legal opinion obtained by Mr. Xu, amongst other facts.

46.  By that time, of course, Mr. Lai has resigned and the defendant has never raised any evidence of any misrepresentation made by anyone at the meeting.

47.  The December 2017 meeting was called so that the owners could decide how to handle of Hong Dau’s claim regarding the renovation contract. The defendant and some other owners advocated contesting the claim and their argument (as the defendant continued to advance during this hearing) was that the contract was entered into by fraudulent means and should be set aside. Despite this, the owners voted to settle whereby affirming their obligations to pay under the contract.

48.  As such, the matter must be considered “all done and dusted”. The defendant has had her say and the owners have spoken. There was no dispute as to the legality of this voting process and thus the owners were all bound by it whether they like the result or not.

49.  There is no real dispute in facts. The real dispute is in the opinion as to how best to handle the matter (including the renovation contract and the Hong Dau’s claim) based on such facts. The defendant should not confuse a dispute in opinion with a dispute in facts. The court’s role is not to interfere with a properly conducted voting process during which the owners have decided on which opinion to follow.

50.  I am also in agreement with Mr. Lau that the defendant’s fight should not be with the IO.

51.  The proper action for her, if so advised (and if she thinks that she can prove that the conspiracy has actually been carried out), is to seek recovery of her contribution against the alleged conspirators, or to try to seek a resolution from the IO to take action against the conspirators (and, if successful, to distribute the award back to the owners).

52.  Even taking the defendant’s case to the highest, she is bounded by the December 2017 Resolution and has to pay her contribution. As she has continued to refuse to pay, this would be a simple enforcement action of the charges against her properties.

Order

53.  I would therefore order that the defendant’s summons be dismissed with costs to the plaintiff to be taxed if not agreed, with certificate for Counsel awarded.

54.  I would also direct that the Amended Originating Summons be set down for substantive hearing with 3 hours reserved.