Incorporated Owners of Hip Wo House v. Gallant King Development Ltd

cacv 429/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 429 of 2006

(on appeal from HCCW NO. 248 of 2006)

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BETWEEN

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Before: Hon Rogers VP, Le Pichon JA and Stone J in Court

Date of Hearing: 18 May 2007

Date of Handing Down Judgment: 30 May 2007

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J U D G M E N T

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Hon Rogers VP:

1.I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.This is an appeal from the order of Barma J made on 15 November 2006 dismissing the petition of the Incorporated Owners of Hip Wo House (“the incorporated owners”) to wind up Gallant King Development Ltd (“the company”).  At the conclusion of the appeal hearing, judgment was reserved which we now give.

Background

3.The petition was a creditor’s petition, based on an unpaid judgment debt and costs awarded to the incorporated owners by a judgment entered and dated 27 March 2004 in an action in the Lands Tribunal between the incorporated owners and, inter alia, the company which was the 17^th defendant.

4.The background to those proceedings is as follows.  The company owned one of the shops on the ground floor of Hip Wo House.  Renovation work was carried out to the building and a dispute arose between the incorporated owners and the owners of the shops as to how the costs incurred were to be borne, with the incorporated owners contending that contribution by the owners, whether of shop premises or residential units, should be in accordance with the number of undivided shares held.  The dispute culminated in proceedings in the Lands Tribunal by the incorporated owners against all the owners of the shop premises of which there were 20.  The incorporated owners retained Messrs W K To & Co (“WKTC”) to act for them.

5.The Lands Tribunal found in favour of the incorporated owners and the company was ordered to pay $46,559 together with interest.  The defendants (of which the company was one) were adjudged jointly and severally liable to the incorporated owners as to costs.  In due course, the costs were taxed and an allocatur issued in the sum of $499,402.80.

6.As at 8 March 2006, the outstanding balance of the judgment debt owed by the company was approximately $36,000 and the unpaid costs were in the region of $440,000.  The statutory demand was issued on 10 March 2006.  By the time of the hearing of the petition, the balance of the judgment debt had been paid but not the outstanding costs which remained unpaid.

7.The company successfully resisted the petition on the basis that the debt was disputed on substantial grounds.

This appeal

8.The only issue on this appeal was whether the judge was correct in holding that the debt was disputed on substantial grounds.

9.As noted above, the debt in question arose from the judgment dated 27 March 2004 of the Lands Tribunal, inter alia, awarding costs to the incorporated owners.  The reasons for judgment were handed down on 31 March 2004.  On 20 April 2004, the defendants (including the company) filed a notice of appeal.  Notably, the costs order made against the defendants jointly and severally did not feature in the grounds of appeal.  That appeal is dormant: nothing further has happened in the three years that have elapsed since the filing of the notice of appeal.  Meanwhile, upon the costs being taxed and the allocatur being issued on 14 June 2005, the costs awarded became a liquidated debt.

10.The argument which succeeded below ran as follows.  Section 20A(2) of the Buildings Management Ordinance, Cap. 344 applied to the appointment of WKTC as solicitors for the incorporated owners.  That provision reads:

“	Any supplies, goods or services required by a corporation … 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,
	(b)	…
	… shall be procured by invitation to tender.”

As there was never any invitation to tender and as section 20A(2) was framed in mandatory terms, non-compliance would invalidate the contract between the incorporated owners and WKTC.  It resulted in the incorporated owners not being liable to their solicitors for any fees notwithstanding the fact that the solicitors did provide legal services to the incorporated owners in respect of the Lands Tribunal proceedings.  As the order for costs was by way of an indemnity to the party in whose favour they had been awarded, it was said that there was nothing against which the incorporated owners needed to be indemnified.  Accordingly, the company maintained that it was not liable to pay any costs to the incorporated owners or, at any rate, that it was highly arguable that it was not so liable.

11.It is to be noted that section 20A(2) is silent as to the effect of any non-compliance.  Given the nature of the provision and its purpose, it is more probable than not that non-compliance would render the contract voidable rather than void ab initio.  In other words, it would be open to the owners to elect to affirm the contract should they consider the price fair and reasonable notwithstanding the absence of an invitation to tender.  A contract that is voidable remains valid until it is set aside.  At the appeal hearing, Mr Leung who appeared for the company chose to described the contract of retainer as an ‘illegal contract’.  Suffice it to say that even contracts that are void are not ipso facto ‘illegal’, although they may be unenforceable.  To characterize the contract as ‘illegal’ because of non-compliance with section 20A(2) simply confuses the issue.

12.Be that as it may, the incontrovertible fact is that by the time this matter came before the judge in November 2006, not only was there no appeal against the costs order made, the taxing master’s assessment went unchallenged.  In the absence of any challenge by the company to the costs order and the subsequent allocatur, for my part, I cannot see any basis upon which the debt which in turn founded the petition could be said to be disputed.  Unless and until it is set aside, the costs order remains an order of the court and must be given effect.  To hold that the debt owing as a result of that court order is substantially disputed is tantamount to denying effect to a valid existing court order and that, in my view, cannot be correct.

13.When it was suggested to Mr Leung that it was now too late for the company to dispute that debt, he submitted that when the Lands Tribunal delivered its judgment, the company was not aware of the circumstances of WKTC’s appointment and so it was not in a position to object to the costs order.  He then sought to derive comfort from the fact that on 3 July 2004, another defendant in the Lands Tribunal proceedings, namely, Sparkle Chest Ltd who was the 7^th defendant, had issued proceedings (HCA 1559/2004) against the management committee of the incorporated owners.  By an amendment made in October 2005, the defendant to those proceedings is now the incorporated owners.  The relief sought was a declaration that “the appointment of WKTC for the purpose of recovering of contribution under [the Lands Tribunal proceedings] by the [incorporated owners] was void”.  Mr Leung referred the court to a letter dated 15 June 2006 from the company to the incorporated owners to the effect that should Sparkle Chest (the plaintiff in HCA 1559/2004) not succeed, the company as well as the other defendants in the Lands Tribunal proceedings would pay the outstanding costs.

14.HCA 1559/2004 is not a representative action.  Sparkle Chest did not purport to represent the other defendants in the Lands Tribunal proceedings.  The suggestion that the outcome of that action would bind the other defendants including the company is misconceived.  The jurisdiction of the court to make a declaration of right is confined to declaring contested legal rights of the parties represented in the litigation before it.  See Hong Kong Civil Procedure 2007 at 15/16/1.  In fact, the Sparkle Chest action which came on for hearing before Yam J shortly after the hearing of the winding up petition had to be adjourned for precisely that reason.  Yam J took the view that any order he might make would not be binding on WKTC since it had not been joined as a party.  The trial was accordingly adjourned to enable that firm to be joined.

15.The Sparkle Chest action cannot assist the company.  It may have been different had the Sparkle Chest action been a representative action or if the company had been a party to that action.  But that was not the case.

16.Finally, it should be mentioned that the debt underlying the petition was exclusively referable to the amount stated in the allocatur.  The incorporated owners were not seeking contribution from the company in respect of the shortfall between WKTC’s bill and the taxed costs.

17.For all these reasons, I do not consider that there is any arguable basis for contending that the debt, arising as it does from a court order and an allocatur, is substantially disputed on bona fide grounds.  I would therefore allow the appeal.  I would also propose that there be an order that the costs here and below be to the incorporated owners.

Hon Stone J:

18.I agree.

Hon Rogers VP:

19.The appeal will therefore be allowed and there will be an order nisi that the costs here and below be to the incorporated owners.

Mr Lee Yee Hung, instructed by Messrs W.K. To & Co., for the Petitioner/Appellant

Mr Kelvin Leung, instructed by Messrs Li, Kwok & Law, for the Respondent/Respondent