Yee Tai Cleaning Co Ltd v. The Incorporated Owners of Tai on Building, Shau Kei Wan and Another

DCCJ 2645/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2645 OF 2005

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BETWEEN

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Coram: Her Honour Judge H.C. Wong in Court

Dates of Hearing: 16^th  - 20^th October  2006

Date of Delivery of Judgment: 27^th October 2006

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JUDGMENT

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1.The Plaintiff is an incorporated company carrying on business as a cleaning contractor (“Yee Tai”).  The 1^st Defendant is a corporation (“the IOC”) registered under the Building Management Ordinance (“BMO”) with a registered office at Tai On Building, 57-87 Shaukeiwan Road, Shaukeiwan, Hong Kong (“the Building”).

2.The Plaintiff had originally joined as the 2^nd Defendant Madam Lau Ying Han, whom the Plaintiff claimed was the chairperson of the 1^st Defendant’s 10^th management committee.  On the 3^rd day of the trial, the Plaintiff withdrew its claim against Madam Lau.

3.Yee Tai claims against the IOC the cleaning charges for work done at the Building between 1 October 2001 – 19 December 2001 at $168,177.00 and damages for wrongful termination of the cleaning contract for payment in lieu of notice to the cleaning staff and loss of profits from 20 December 2001 to 15 March 2002 at $36,108.

4.Yee Tai bases its claim on a contract in writing dated 1 September 2001 entered between Yee Tai and the IOC, claiming that the IOC agreed to pay a fee of $83,500 per month and in return Yee Tai agreed to carry out cleaning work at the common area of the Building, collecting and disposing of rubbish for the owners and occupiers of the Building for a period of 6 months from 16 September 2001 (“the 2nd contract”).

5.Yee Tai claims that in breach of the 2^nd contract the IOC served a notice in writing on Yee Tai on 19 December 2001 terminating the 2^nd contract on 20 December 2001.

6.In the alternative, Yee Tai claims that even if the 2^nd contract was not validly executed, Yee Tai had performed all the cleaning duties and services under the schedule annexed to the 2^nd contract for the use and benefit of the IOC and the owners and occupiers of the Building who had been unjustly enriched thereby.  In consequence thereof, Yee Tai claims it is entitled to be compensated on a quantum meruit basis for the outstanding period of 1 October 2001 – 19 December 2001.

7.It is the IOC’s pleaded case that Madam Lau had no authority to engage the cleaning services of Yee Tai during the relevant period and denied the existence of the second contract.  It admitted, however, its 10^th management committee had purported to engage Yee Tai to carry out the cleaning works at the Building on its behalf at a monthly fee of $83,500 for a period of 3 months by a document dated 1 June 2001 (“the 1st contract”).

8.The IOC denied that Madam Lau was the chairperson of the management committee of the IOC.

9.The IOC further relied on the judgment of Judge Chow in the Lands Tribunal in action No. LDBM 32 of 2001 upholding the validity of the meeting and the resolution at a members’ general meeting of the IOC held on 7 January 2001, and the election of the 11^th management committee (“11^th MC”) replacing the 10^th management committee (“10^th MC”).  As a result, the 10^th MC had no authority to enter into contract with Yee Tai and the 2^nd contract is therefore null and void.

10.It is further the IOC’s defence that the engagement by the 10^th management committee under the 1^st and 2^nd contracts contravened sections 14 and 20A of the BMO Cap. 344.

11.Consequently, the 1^st and 2^nd contracts are not enforceable due to illegality and non-compliance with Ss. 14 and 20A of the BMO.

12.The IOC further claimed that Yee Tai should have knowledge of the dispute between the 10^th and the 11^th MC at the time of the 1^st and 2^nd contracts, and that the 11^th MC’s notices issued on the IOC’s behalf at the material time which were posted at the public area of the Building were effective notices to Yee Tai.  Therefore, the principle of unjust enrichment does not apply.

Issues in Dispute

Facts not in dispute

14.The judgment of Judge Chow in LDBM 32/2001 of 5 December 2001 showed that Madam Lau had issued proceedings in January 2001 in the Lands Tribunal against Madam Lui Po Shan (the former chairman of 10^th MC) and the IOC’s 11^th MC for a declaration that the special general meeting of the owners of the building on 7 January 2001 was invalid and the 11^th MC elected at the same special general meeting was also invalid.  The application was dismissed.  Madam Lau was described as the vice-chairperson of the 10^th MC in the judgment.  Madam Lau’s appeal to the Court of Appeal was also dismissed on 22 July 2002.

15.After Madam Lau commenced proceedings in the Lands Tribunal in mid January 2001 and up to the time of Judge Chow’s judgment, the 10^th MC had refused to hand over the management office at the Building on the basis that Judge Chow had suggested that the 10^th and 11^th MC should co-operate and jointly manage the Building.  By agreement of Madam Lau’s and the IOC’s legal representatives, the bank accounts of the IOC were frozen pending Judge Chow’s decision in LDBM 32/2001.

Findings

A.    Whether the 10^th management committee was in control of and managing the affairs of the management office of the IOC?

16.Mr. Chan claimed repeatedly in his evidence that the 10^th MC and Madam Lau had refused to hand over the control and management of the management office.  As the management office and its staff were hired by the 10^th MC, they refused to take instructions from the 11^th MC headed by Mr. Chan.

17.On the other hand, Mr. Chan, in cross examination, admitted the solicitors of the 10^th MC and solicitors for the 11^th MC had agreed to freeze the IOC bank accounts pending adjudication by Judge Chow.  Furthermore, Mr. Chan admitted the 11^th MC did issue a notice informing the members that the 10^th MC agreed not to touch the IOC’s bank accounts; in the mean time, the 10^th MC would collect cash from members/owners to maintain and pay for the management activities.  The 11^th MC further demanded the 10^th MC to submit monthly accounts of management expenses and income to the 11^th MC.  Mr. Chan claimed the 10^th MC had failed to do so.

18.From the documentary evidence and the evidence of Mr. Chan, it is clear that the day-to-day management of the Building was still run by the 10^th MC in 2001 and it was in control of the Accounts office until after the judgment of Judge Chow was handed down and the 11^th MC instructed its solicitors to terminate the Plaintiff’s services in writing on 19 December 2001.

19.The IOC’s counsel, Mr. Lam, agreed that the monthly account of the management office (pp. 26-36 of the bundle) had been prepared by the accountant, Mrs. Yeung, under the instruction of the 10^th MC.  These were submitted to the IOC; otherwise, the IOC would not have been able to disclose these documents and include them in its list of documents for the trial.

20.I reject Mr. Chan’s claim that he had not seen these accounts before the day of the trial because he admitted under cross-examination that based on these accounts on pages 26-36, the IOC’s annual accounts were prepared, audited and passed at the 2003 AGM by members.  This effectively meant the accounts were accepted by members at the 2003 AGM, it follows that these items of payments to Yee Tai in July, August and September 2001 were also accepted by the IOC (pp. 26-36 of the bundle).

B.    Was Madam Lau legally authorized to sign the second contract on behalf of the IOC?

21.Yee Tai was engaged as the Building’s cleaning company under the 1^st contract on 1 June 2001 commencing on 16 June 2001 for a period of 3 months.  The 1^st contract was signed by 11 members of the 10^th MC (pp. 12-14).  Close to the time of the expiry of the 1^st contract, Madam Lau signed the 2nd contract with Yee Tai for the cleaning services to continue for a further 6 months from 16 September 2001 to 15 March 2002 at the same monthly rate of $83,500 (pp.20A –22).

22.The Plaintiff produced the minutes of the 10^th MC’s 62^nd meeting on 7 September 2001, it was resolved that Yee Tai be retained as the building’s cleaning contractor, and Madam Lau be authorized to sign the 2^nd contract on behalf of the IOC (p. 23).

23.This meant Madam Lau was authorized by the 10^th MC to sign the 2^nd contract.  However, with regard to s.20A of the BMO, which provides:-

“20A.  Supplies, goods and services

(1) The procurement of all supplies, goods or services required by a corporation in the exercise of its powers and the performance of its duties under the deed of mutual covenant (if any) or this Ordinance shall comply with such standards and guidelines as may be specified in a Code of Practice relating to such procurement.

(2) Any supplies, goods or services referred to in subsection (1) the value of which exceeds or is likely to exceed –

(a) the sum of $100,000 or such other sum in substitution therefor as the Authority may specify by notice in the Gazette; or

(b) a sum which is equivalent to 20% of the annual budget of the corporation or such other percentage in substitution therefor as may be approved by the corporation by a resolution passed at a general meeting,

whichever is the lesser, shall be procured by invitation to tender.

(3) The procurement by invitation to tender of any supplies, goods or services under subsection (2) and the tender procedure in respect thereof shall comply with such standards and guidelines as may be specified in a Code of Practice relating to such procurement and tender procedures.

(4) All tender documents, copies of contracts, accounts and invoices and any other documents in the possession of a corporation and relating to the procurement of supplies, goods and services shall be kept by the corporation for such period, being not less than 6 years, as the corporation may determine.”

24.There is no evidence the contract was awarded to Yee Tai after a tendering procedure conducted under s.20A and the Code of Practice issued under s.44 BMO.

25.S.14 of the BMO provides that any resolution passed at the meeting of the IOC shall be binding on the management committee and all the owners.  Therefore, should the 10^th MC or the 2nd contract have the sanction of the members at a meeting of the IOC, the 10^th MC’s contract with Yee Tai would have had a legal basis.  Unfortunately, there is no evidence that the 10^th MC had convened a general meeting of the IOC in 2001 or that the IOC had passed such a resolution at a meeting of its members.

26.Mr. Lam argued the 2nd contract is unenforceable because it failed to comply with S.20A and Appendix B of the Code of Practice issued under S.44 of the BMO in respect of contracts for services of over $100,000.  He relied on Yuen JA’s judgment in Wong Tak Keung, Stanley v. The Management Committee of the Incorporated Owners of Grenville House CACV 244/2003 (judgment date 17/12/03) on an interlocutory appeal from a Lands Tribunal decision to strike out the applicant’s application for failing to disclose a reasonable cause of action on the basis that the Code of Practice were merely directory and there was no contravention of the law if the Code was not complied with.

27.Yuen J.A. at paras. 40 – 41 of her judgment held:

“Effect of contravention

40. It was also submitted for the Respondent that there was no specific remedy for contravention of s.20A(2).  However, it is at least arguable that at common law, where the intended consequence of the failure to comply is not stated in the legislation, the thing done under the statute is invalidated.  Whether the thing done is wholly void or merely voidable depends on the circumstances (Bennion, Statutory Interpretation 4^th ed Section 10, pp.32-35).

41. The Application sought an order “voiding” the appointing.  If the Applicant were to succeed at trial, it would be for the tribunal to decide whether the appointment was void or voidable and depending on the facts found, on what terms e.g. on the basis of a quantum meruit.”

And at para. 44 she said:-

“Order

44. Finally, as a matter of completeness, I record that it was not necessary for the purposes of this appeal to consider the question whether s.20A(1) is mandatory or directory.”

28.Mr. Yip, counsel for the Plaintiff, referred to another judgment of the Court of Appeal, the case of 麗苑業主立案法團對韓炳基及柳愛華 CACV 1716/2001.  A Judgment of the full Court on an appeal after trial (delivered on 6/8/02).  Cheung JA held at para. 30 of the judgment of the court that S.44(1) provides that the Code of Practice is to give the IOC guidance and direction.  S.44(2), however, did not specify that failure to comply with the Code of Practice would render the resolutions of the IOC null and void.

“30. 就算申請人沒有根據守則在更換升降機時向最少5間公司徵求標書，本庭亦不認為這會令答辯人無須支付更換升降機費用。《條例》第44（1）條指守則的作用是給予法團指導及指示。第44（2）條並沒有明確說明任何沒有遵守守則的決定會令該決定無效。在決定上述決議是否有效時，本庭亦要考慮該決議是在一次業主會議中獲通過的，而表決通過者佔該幢大廈的總業主人數的70%。本庭認為就算申請人沒有依循守則也不會令該項決議無效。”

29.Cheung J.A. was one of the two Court of Appeal judges in the Wong Tak Keung case referred to earlier.  There is no definitive decision from the Court of Appeal that held non-compliance with S.20A and the Code of Practice would render the contract for services executed null and void.  Whether the contract for services is wholly void or voidable depends on the circumstances and the facts found.  In the words of Yuen J.A.“It would be for the tribunal to decide whether the appointment was void or voidable and depending on the facts found, on what terms e.g. on the basis of quantum meruit.” (para. 41 of Yuen JA’s judgment in Wong Tak Keung’s case)

C. Can Yee Tai recover compensation for services rendered on a quantum meruit basis?

30.Based on Yuen JA’s judgment, whether the appointment of Yee Tai as the cleaning contractor was void or voidable depends on the facts of the case.

31.In the present case, Yee Tai claimed that it had been duly paid for services rendered for the months of June, July, August and September 2001.  The payments have been duly recorded in the management office’s accounts. This can be verified from the records prepared and kept by the accountant and the bookkeeper (pp.26 – 36).  Mr. Chan admitted the accounting records were eventually obtained and were duly audited and passed at the 2003 general meeting of the IOC.

32.As can be seen from the document in p.25 of the Bundle, Mr. Chan had on behalf of the 11^th MC issued a general notice to the owners of the Building on 12 September 2001.  Paragraph 4 of the notice stated that Madam Lau had submitted income and expenditure accounts up to the end of July showing unpaid charges of over $1 million.  The 11^th MC queried the reasons for the 10^th MC’s decision to settle charges for the Building’s gate of $142,200 but failed to pay electricity and lift maintenance charges.  This notice was issued to challenge the 10^th MC’s arbitrary decisions in applying management funds.

33.On the other hand, this notice indicated that the 11^th MC did possess the income and expenditure accounts on the Building up to the end of July at the time of the notice.  Furthermore, the fact that the IOC had in its possession and produced the management expenditure accounts from February to end of September 2001 (pp. 26 – 36) clearly showed that at the time Yee Tai was performing the cleaning work at the Building and had been paid for the services, it follows that the IOC must be aware that Yee Tai was the cleaning contractor for the Building in 2001.  In any event, the fact that 11^th MC of the 10C instructed its solicitors to terminate the Plaintiff’s services on 19/12/01, meant the IOC acknowledged the Plaintiff was the cleaning contractor at the material time.  In fact, the 19/12/01 letter (at p.85) stated at para. 3 “Your appointment as cleaning agent for the Building pursuant to a Service agreement is invalid by reason of the improper appointment by the 10^th MC”.

34.Judging from the work descriptions annexed to the 1^st and 2nd contracts, Yee Tai’s work covered all of the building’s public areas, entrances, corridors, walls, lifts, public toilets, terraces, playground and garden, car park and outer walls etc. Services such as cleaning of the public areas, rubbish collection, clearing of the rubbish room, the disposal and transport of rubbish were also rendered.  Although Mr. Chan denied he had ever noticed cleaning work done during the relevant period in 2001, he admitted that no complaints in respect of rubbish collection and cleaning were ever made an issue at the IOC meetings.  Furthermore, the 11^th MC’s solicitor’s letter confirmed the IOC’s knowledge of the existence of the service agreement, that the Plaintiff’s staff was given keys to the Building for at p.2 of that letter it demanded : “You are requested to vacate all your employee(s), licensee(s), staff and sub-contractor(s), whosever from the Building and deliver all the cleaning equipment and all keys and matters and chattels in relation to that cleaning service for the Building, etc.”

35.I find Mr. Chan to be an unreliable witness.  He was evasive when he was questioned on the state of cleanliness of the building between June and December 2001.  He pleaded ignorance of the 1st and 2nd contracts which may provide, but his claim that he was not aware of any cleaning work done by any contractors at the common area of the Building I find to be inconceivable.  As the chairman of the elected 11^th MC, it was his duty to check if the building was in a proper state of cleanliness.  If he admitted in the notice of 12 September 2001 that he had read the income and expenditure accounts submitted by Madam Lau, he must be aware of the payments to Yee Tai from the accounts submitted after July 2001.  The expenditure accounts produced by the IOC at pp. 26-36 clearly set out such payments for cleaning services rendered by Yee Tai.

36.The 11^th MC and all the owners had apparently accepted the cleaning services rendered by Yee Tai for no one had raised any objections or complaints at general meetings of the IOC on the state of cleanliness and rubbish collection at the building in 2001. The owners had obviously benefited from the services rendered. This is the basis of the Plaintiff’s unjust enrichment claim, and the quantum meruit claim referred to in Yuen J.A.’s judgment in the Wong Tak Keung’s case.  I am satisfied that Yee Tai should be compensated on a quantum meruit basis for services rendered.

37.Based on the aforesaid finding, it is not necessary for the Court to consider the legal basis of whether Madam Lau was authorised to sign the 2nd contract. As the finding is based on quantum meruit the compensation is based on the payment for work done and completed by Yee Tai. 

38.I give judgment to para. 2 of the Plaintiff’s prayer in the sum of $168,177.00 with interests from the date of writ to date of judgment at half judgment rate and thereafter at full judgment rate until full payment.

39.Costs – costs to follow the event.  The Defendant shall bear the costs of these proceedings to be taxed if not agreed, with Certificate for Counsel.

Mr. Arthur Yip instructed by Messrs. Simon Chan & Co. for the Plaintiff.

Mr. Kenneth Lam instructed by Messrs. S.K. Lam, Alfred Chan & Co. for the 1^st Defendant.

Lau Ying Han, 2^nd Defendant, In Person.