KWAN & PUN CO. LTD. v. CHAN LAI YEE AND OTHERS

CACV 234/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 234 OF 2002

(ON APPEAL FROM LANDS TRIBUNAL

BUILDING MANAGEMENT APPLICATION NO. 542 OF 2001)

_____________________

J U D G M E N T

_____________________

Hon Cheung JA :

Appollo Building

1. Appollo Building ("the Building") is an eleven-storey building in Castle Peak Road, Kowloon, Hong Kong. It is a mixed use building consisting of both commercial and domestic units. The basement to the third floor are commercial units owned by the Applicant. The fourth to eleven floor are domestic units. There are 112 domestic units.

2. Some of the owners of the domestic units of the Building convened a meeting pursuant to section 3 of the Building Management Ordinance ("the Ordinance") for the purpose of appointing a management committee. On 27 July 2001, a meeting was held in which the owners holding 86.3% of the undivided shares in the Building were present. This included the proxy of the Applicant, Mr. Liu Kai Sang ("Mr. Liu"). The Applicant held 69.74% of the undivided shares in the Building. The total number of undivided shares provided in the Deed of Mutual Covenant ("DMC") of the building is 2,102 shares.

3. It is the domestic owners' case that a resolution was validly passed appointing a management committee for the Building. Individual domestic owners of the Building were also appointed as the members of the Management Committee. The Applicant disputed this and commenced proceedings in the Lands Tribunal, seeking, among other things, a declaration that the appointment of these members were invalid. The Respondents are the office bearers and members of the management committee.

The decision

4. Deputy Judge Wong of the Lands Tribunal found that there were "fatal irregularities" in the passing of resolution and found in favour of the Applicant.

The appeal

5. The Respondents now appeal against the decision.

The meeting

6. It is not disputed that at the meeting the owners did not separately passed a resolution specifically for the appointment of a management committee. Instead they passed resolutions firstly for the appointment of the nine members and then the individual office bearers, namely, the chairman, secretary, treasurer and vice chairman of the management committee. It is also not disputed that at the meeting a list of the nine proposed committee members was already prepared.

7. While initially one Mr. Leung who was in charge of the meeting was trying to count the number of owners who put up their hands in favour of appointing the committee members, eventually the method that was adopted was that he asked the owners present if there was anyone objecting to the appointment of the nine members. There was none. In fact there was an acclamation that there was no objection. He declared the resolution to be passed. Then the nine committee members were individually proposed. Mr. Leung then asked those who were in favour of their appointment to raise their hands. This was done, although there was no actual counting of the hands. He then asked if there was any objection. Again there was an acclamation that there was no objection. He then declared the resolution passed.

8. As to the appointment of the office bearers, they were appointed one by one. There was a proposer and seconder for each of the office bearers. Mr. Leung then asked those in favour of the appointment to raise their hands. Again this was done by those present, although there was no indication how many raised their hands. Mr. Leung then announced that the office bearer had been appointed. This continued until all of them were appointed.

9. Mr. Leung then informed the meeting that the management committee would apply for the registration of the owners' corporation. The newly elected chairman of the management committee was then handed over the conduct of the meeting. After she took over the meeting she declared the meeting over.

10. Throughout the meeting Mr. Liu did not raise any objection to the way in which the meeting was conducted. It was only afterwards that he raised objections.

The issues

11. Although many arguments were raised at the Lands Tribunal on the validity of the resolutions, this Court is now only concerned with the following issues :

First, whether a separate resolution for the appointment of the management committee was required.

Second, the interpretation of the words "a resolution of the owners of not less than 30% of the shares" in section 3(2)(b) of the Ordinance.

Third, whether the procedure of the meeting adopted by Mr. Leung was faulted.

Fourth, the effect of Mr. Leung taking over the conduct of the meeting when he was not the appointed chairman of the meeting.

Separate resolution

12. In respect of the first issue, I have no hesitation at all to find that no separate resolution is required for the appointment of the management committee. Counsel informed the Court that the agenda of the meeting consisted of only one item, namely, the appointment of the management committee. The resolutions passed for the appointment of the members and office bearers of the management committee could only indicate that the owners at the meeting were doing precisely what the agenda set out to do, namely the appointment of the management committee. As a matter of fact, even before the list of nine names were put forward, it was explained to the owners that the purpose of the meeting was to appoint the management committee.

Interpretation of section 3(2)(b)

13. Section 3(2)(b) of the Ordinance provides that : At a meeting convened under subsection (1) a management committee may be appointed by a resolution of the owners of not less than 30% of the shares.

14. The Respondents argued that this means a resolution passed by the majority at a meeting with owners holding not less than 30% of the undivided shares of the building present. It does not mean "a resolution voted in favour by the owners of not less than 30% of the shares". This was in fact the interpretation adopted by Deputy Judge Wong.

15. I am unable to accede to this interpretation. Section 3(2)(b) is in simple terms. The resolution of the owners means a resolution that has been passed at the meeting by the owners. The 30% must clearly mean the percentage of shares that carried the resolution in favour of appointing the management committee. It will be odd if the legislation does not need to specify the actual form or nature of the resolution that was passed, be it, for example, a simple majority, or a special or specific majority such as a two-third majority or one carrying a required number of votes or shares. This construction does not do violence to the words of the section.

16. The Respondents' interpretation means that it is sufficient to have a "quorum" of owners holding not less than 30% shares present without specifying the form of the resolution. The appointment of a management committee in multi-storey buildings in Hong Kong is very often a controversial topic among the owners, having regard to the practice of the developer reserving a large number of shares in the building for itself. The 30% threshold for a valid resolution, is in my view, the minimum requirement for the appointment of a management committee.

17. Take this example, at such a meeting there are owners holding 30% of the shares. 16% are for and 14% are against the appointment of a management committee. They cast their votes accordingly. Yet despite the absence of a resolution which contains 30% of the shares, according to the Respondents, the management committee can still be appointed because at the meeting there are owners holding 30% of the shares. This, in my view, is against logic and common sense because the presence of the owners who used their 14% to vote against the resolution is there at the meeting to exercise their rights only. They are not there to ensure the necessary number of shares are present for the purpose of such a meeting. Clearly it is not right to tell these owners holding the 14% that they do not need to be present or that they should not be present if they do not want a management committee. They are after all owners of the building and being present in such a meeting for the purpose of exercising their rights is what they are entitled to do.

18. Reference is made to Paragraph 11 of the Eighth Schedule of the Ordinance which provides that the quorum at a meeting of owners shall be 10% of the owners. This 10% does not, of course, mean 10% of the shares. It should be noted that Schedule 8 was only introduced in 1993 and was not present when the Ordinance was first introduced in 1970 under the former title of Multi-Storey Buildings (Owners Incorporation) Ordinance. However, the lack of provision in 1970 for a quorum of a meeting convened for the purpose of appointing a management committee, does not mean that the 30% requirement (lowered from 50% in 2000) is referrable only to the number of shares that are required for such a meeting and not the number of shares that are required to carry the resolution. In any event, now that Schedule 8 had been introduced, all the more one should interpret the 30% requirement as one concerning with the passing of the resolution in favour of a management committee.

19. One can contrast the position of a management committee appointed by the Lands Tribunal. Section 40C(3)(a) provides that "a management committee under (2)(a) shall be deemed to be effected if at the meeting of owners convened under that subsection a resolution in favour of that appointment is passed by a majority vote of the owners voting either personally or by proxy at a meeting with a quorum of not less than 10% of the owners" (emphasis added). This clearly spells out how the vote can become an effective vote for the purpose of appointing the management committee. This strengthens the interpretation I have adopted.

Method of voting

20. Deputy Judge Wong held that the resolutions were invalid because there should be a casting of votes and counting of shares represented by the votes. This was not done. Further the chairman of the meeting had failed to ask whether there was an abstention of shares.

21. The starting point is that there are many matters relating to the conduct of a meeting which lie entirely in the hands of those persons who are present and constitute the meeting. If necessary, a vote must be taken to ascertain the wishes of the majority. But if no objection is taken by any constituent of the meeting, the meeting must be taken to be assenting to the course adopted : Carruth v. ICI [1937] AC 707 at 761.

22. In the present case, Mr. Leung had instead of counting the number of owners who voted in favour of the appointment of the members asked those who objected to the appointment to raise their hands. This method was approved by those who attended the meeting. No objection was raised by anyone at the meeting.

23. Deputy Judge Wong found that Mr. Liu abstained from voting because he thought there would be another resolution for the formation of the management committee and he intended to vote against that resolution when it was proposed. I do not see how such a finding would carry the matter further. Whatever was the intention of Mr. Liu, he had kept it close to his chest and not revealed it by raising any question or objection to the approach adopted by the meeting. Clearly the appointment of the members and office bearers was only another facet of the appointment of a management committee. It was already disclosed at the beginning of the meeting that there were owners and proxies present holding over 80% of the shares. The subsequent unanimous approval by the meeting of the members and office bearers can only indicate that the appointment of the management committee had been approved with the requisite 30% shares.

24. The method adopted at the meeting may be described as an acclamation i.e. a resolution is adopted by a shout of approval : see Shackleton on The Law and Practice of Meetings (9th Ed) at paragraphs 7-16. While it is said that this method is unlikely to be used when any formal business is to be transacted, this was what the meeting had adopted in the present case. It is clearly within the power of Mr. Liu to demand a poll if he was not satisfied with the method. The right to demand a poll exists by the common law. The purpose of a poll is to ensure that the votes cast are recorded in writing and counted in an accurate way : Shackleton at paragraphs 7-20.

25. Under Section 5(5)(a) of the Ordinance, at a meeting convened for the appointment of the management committee, each owner, shall have one vote for each share he owns unless the DMC provides otherwise. Under Section 5(5)(b) the vote may be cast either personally or by a proxy. I do not see how these two provisions would necessary impose a procedure at the meeting which must be akin to that of a poll.

26. Each of the resolutions were declared by Mr. Leung to have been passed at the meeting. The result of voting being declared by the chair is regarded as having closed the voting process. It is no longer possible for voters to change or retract their votes, and claim with an explanation, that they had made an error, or for a person who had neglected to vote to make a late vote for similar reasons : Horsley's Meeting (4th Ed) paragraph 14.11 and The Queen v. The Vicar of St. Asaph and Others (1883) 52 L.J.Q.B. 671. This principle applies to the situation of Mr. Liu. It was too late for him to raise objections after the declarations had been made.

Abstention

27. Reliance was placed on two cases, Labouchere v. Earl of Wharncliffe (1879) 13 Ch. D. 346 and In re the Rate-payers of Eynsham Parish [1849] 18 LJQB 210 which were said to support the Applicant's argument that the chairman at the meeting should ascertain from those present whether they were abstaining from voting or not.

28. I do not find these cases support such a requirement. In Labouchere, the rules of a club provided that it was competent for the votes of two-thirds of those present to expel a member. At a meeting convened for such a purpose, 117 members were present, of whom 115 voted : 77 in favour of expulsion and 38 against it. The resolution was declared to be carried. Two-third of the 117 members present means 78 members. The 77 votes in favour is short of the requisite number of votes. Jessel MR at page 354 said that "when a resolution is put to a meeting, the persons present may take one of three courses. They may vote for or against it, or, not wishing to express a positive opinion on the question, refrain from voting at all. This being so, those who do not vote may, by not doing so, turn the scale in favour of the accused member of the club".

29. Jessel MR made the observation because the resolution must be adopted by a special or a specified majority in accordance with the requirement of the rules. This is not an indication that the chairman must ascertain whether there is someone who may wish to abstain from voting.

30. Likewise in In re the Rate-payer, the relevant Act required a decision to be made by a majority of two-third of the votes of the rate-payers present at a meeting. At a meeting, 37 voters were present. 20 voted in favour of a decision, the other 17 did not vote. Two-third of the 37 votes was 24. Again the resolution passed was invalid. When Patteson J held that he did not see how it can be said that the other 17 voters who did not vote were not present, he meant precisely that and not the requirement as suggested by the Applicant.

31. What Shackleton said at paragraphs 6-29 that "..... where a special majority is required, those who abstain from voting are not, as they might think, remaining but may be assisting in the defeat of the resolution", must be understood in its context.

Problem with the chairman

32. Finally, in regard to the contention of the role of Mr. Leung, again in my view, this is not a matter of substance. Paragraph 12 of the Eighth Schedule of the Ordinance states that "A meeting of the owners shall be presided over by the chairman of the owners' committee or, in his absence, by an owner appointed by the owners as chairman for that meeting. At the meeting, one Mr. Fung was appointed as the chairman of the meeting. However, Mr. Leung who was a District Councillor took over the conduct of the meeting. He did so without the slightest objection by either the appointed chairman or those present at the meeting. The principle stated in Carruth must be applicable. For all practical purpose, the meeting must have agreed to Mr. Leung acting as the chairman. I cannot see how it can be said that there was a material irregularity which would vitiate the validity of the resolutions.

Conclusion

33. I will allow the appeal and dismiss the Applicant's application against the Respondents. I will make a costs order nisi ordering the Applicant to pay the Respondents costs of the proceedings below and of the appeal.

Hon Leong CJHC :

34. I agree with the judgment of Cheung JA that the appeal should be allowed.

Hon Yuen JA :

No separate specific resolution required

35. I agree that this appeal should be allowed. In relation to the first point raised on appeal that there was no separate, specific resolution for the appointment of a management committee (even though the meeting was asked to vote on the appointment of members for a management committee), on the facts of the present case, that is a mere exercise in semantics. It is significant that the only item on the agenda here was the appointment of a management committee. There was no separate item for the appointment of members for the committee. There was no evidence that anyone at the meeting had moved any additional resolution beyond the single item on the agenda.

36. Although the judge accepted the evidence of Mr Liu that he thought there would be a separate, specific resolution for the appointment of a management committee, the question must be whether Mr Liu's belief was reasonable. In my judgment, such a belief, however genuinely held, was not reasonable. Quite apart from the fact that there was only one item on the agenda, what was the point of voting for members of a body if that body may or may not even come into existence, no resolution having been passed for it? The judge did not suggest that there was any satisfactory evidence from Mr Liu to substantiate the reasonableness of his belief that there would be a separate, specific resolution for the appointment of a management committee coming after the vote for appointing members to it.

Interpretation of s.3(2)(b)

37. As to the interpretation of s.3(2)(b) of the Ordinance however, I take the view, with respect to the other members of this Court, that the judge's construction was correct.

38. Section 3(2)(b) provides :

“ At a meeting convened under subsection (1) a management committee may be appointed -

(a) in accordance with the deed of mutual covenant, if the deed provides for the appointment of a management committee; or

(b) if there is no deed of mutual covenant, or the deed contains no provision for the appointment of a management committee, by a resolution of the owners of not less than 30% of the shares. "

39. As a matter of language, a "resolution of a group of persons" (e.g. shareholders of a company) is the collective decision of the group. That collective decision may have been reached unanimously, or it may have been reached by a majority (whether simple or special) binding a minority. But even in the latter case, the collective decision is still the "resolution of the group" (eg "the resolution of the company in general meeting"). The resolution is not the "resolution of the majority voters", even though their votes have caused the resolution to be passed. The voting result (which is the resolution) is the expression of the collective will of the group, not just those voting in favour. It is for that reason that it is binding on the minority.

40. The language used by the draftsman does not permit an interpretation of "a resolution of the owners of not less than 30% of the shares" to mean that a special majority of at least 30% of the shares is required. To require that special majority would be to read the subsection as "a resolution of the owners passed by a majority of votes of not less than 30% of the shares". That requires the addition of words which are not there. Section 3(2)(b), as drafted, simply means that a management committee may be appointed if, at a meeting of the owners of at least 30% of the shares, a resolution is passed. In the absence of a provision for a special majority, a simple majority suffices.

41. The draftsman has in other parts of the same statute used the expression "resolution passed by a majority of ...", thus showing the distinction between the expressions "resolution of" a group, and "resolution passed by" a special or simple majority of the group. For instance, under s.3A(1), the Secretary for Home Affairs may, upon the application by the owners of not less than 20% of the shares, order that a meeting of owners shall be convened to appoint a management committee. However, under s.3A(5), if the Secretary receives a notice of objection from owners of not less than 20% of the shares, an order to convene a meeting shall have no effect. To clarify the majority required to pass the resolution at the meeting, s.3A(3) provides that subject to s.3A(5), the meeting of owners convened may "by a resolution passed by a majority of the votes of the owners" appoint a management committee". As no special majority was specified, a simple majority was intended. But the point is that the draftsman used the expression "resolution passed by a majority of votes" when he intended to refer to a majority.

42. Thus, on a literal interpretation, "a resolution of the owners of not less than 30% of the shares" in s.3(2)(b) is not a requirement for a special majority of 30%. There is no requirement for "a resolution passed by a majority of the owners of not less than 30% of the shares".

43. I fail to see how this literal interpretation offends logic or common sense. If a meeting is attended by owners holding 30% of the shares, and 16% are for and 14% are against the appointment of a management committee, and if no special majority is required to pass a resolution, the resolution will be passed on the basis of a simple majority. Short of fraud practised on the minority, the majority vote binds the minority in all cases.

44. It matters not that the owners holding 14% of the shares had attended for the purposes of casting a vote against the proposed resolution. Whatever the type of meeting, it may be that some persons attending find that their presence enabled a quorum to be formed, but their opposition to the proposal failed because it turned out that they were in the minority. But they cannot say that they were not there to enable the meeting to take place, but only to exercise their rights of opposition. That would be against the entire spirit of the law of meetings and the ascertainment of a meeting's collective will through the voting process.

45. As to paragraph 11 of the Eighth Schedule which provides that the quorum of a meeting of owners shall be 10% in number of the owners, that does not contradict the interpretation of s.3(2)(b) set out above. Paragraph 11 of the Eighth Schedule is a general provision setting the quorum for a meeting of owners. Owners may meet to deal with all sorts of business concerning the building. However, if the item of business is the appointment of a management committee, then under s.3(2)(b), there must, apart from the 10% in number, be owners of at least 30% of the shares of the building present and voting.

46. That however does not assist the appellant here (even though it held nearly 70% of the shares of the building) because of the manner in which the vote was taken. Mr Leung, a District Councillor who conducted the meeting with the chairman's agreement, took the vote by asking who objected to the appointment. No-one objected. If the appellant's representative Mr Liu had objected there and then, the resolution would not have been passed because of the appellant's large holding. However, Mr Liu (erroneously, as discussed above), failed to do so. There was then an acclamation that there was no objection. The resolution thus passed was therefore a resolution of all the owners at the meeting.

Procedure adopted and Mr Leung's conduct of the meeting

47. Whilst the procedure adopted by Mr Leung at the meeting may not have been conventional, I agree for the reasons given by Cheung JA that it was too late for the appellant to complain about the procedure after the vote had been taken and resolution declared. As Lord Russell held in Carruth v ICI [1937] AC 707 (HL), 761,

"there are many matters relating to the conduct of a meeting which lie entirely in the hands of those persons who are present and constitute the meeting. Thus it rests with the meeting to decide whether notices, resolutions, minutes, accounts, and such like shall be read to the meeting or be taken as read; whether representatives of the Press, or any other person not qualified to be summoned to the meeting, shall be permitted to be present, or if present shall be permitted to remain; whether and when discussion shall be terminated and a vote taken; whether the meeting shall be adjourned. In all these matters, and they are only instances, the meeting decides, and if necessary a vote must be taken to ascertain the wishes of the majority. If no objection is taken by any constituent of the meeting, the meeting must be taken to be assenting to the course adopted" (emphasis added).

48. In the present case, Mr Liu took no steps there and then to object to the procedure of voting proposed by Mr Leung. Presumably the reason he did not do so was because he had erroneously thought that there would be a separate, specific resolution for the appointment of a management committee. But be that as it may, that was his erroneous belief. No fraud had been practised on him. By not raising any objection at the time to the course proposed by Mr Leung, he must be taken to be assenting to it.

49. Finally, there was the point as to Mr Leung's position. No-one at the meeting (including Mr Liu) had objected at the time to Mr Leung, a District Councillor, conducting the meeting in the presence and on behalf of the chairman of the meeting. In those circumstances, the principle in Carruth similarly applies, and it was far too late afterwards for anyone to seek to invalidate the resolution by reason of Mr Leung's participation.

50. Accordingly, for the reasons given above, I would also allow the appeal and I agree with the order nisi as to costs proposed by Cheung JA.

Hon Leong CJHC:

51. The appeal is allowed with costs order nisi ordering the Applicant to pay the Respondents costs of the proceedings below and of the appeal.