The Incorporated Owners of Yue Tin Court v. Liu Hua and Zhou Limin
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DCCJ 6155/2006 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 6155 OF 2006 ------------------------ BETWEEN
------------------------ DCCJ 6156/2006 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 6156 OF 2006 ------------------------ BETWEEN
------------------------ (By Consolidation Order of Master R. Lai dated 24th October 2007) Coram: Deputy District Judge Raymond Tsui in Court Date of Trial: 22 nd - 23rd April & 6th May 2009 Date of Handing Down Judgment: 21st December 2009 ------------------------ JUDGMENT ------------------------
1. I am dealing with an action consolidated from two cases and they are DCCJ 6155/2006 and DCCJ 6156/2006. The Incorporated Owners of Yue Tin Court (the “Incorporated Owners”) is the Plaintiff in both actions that are instituted against the Defendants who are registered owners of two units in Yue Tin Court. By orders of Master Lai dated 24th October 2007, the two actions are consolidated, with the Defendants Liu Hau (“Liu”) and Zhou Limin (“Zhou”) in DCCJ 6155/2006 as the 1st Defendants of the consolidated action and the Defendant Chang Sheng Kai (“Chang”) as the 2nd Defendant of the consolidated action. 2. Major repair and renovation (the “Renovation Work”) were carried out to Yue Tin Court in or about 2006. The Incorporated Owners asked, pursuant to the Deed of Mutual Covenants (the “DMC”), for contributions from the owners of Yue Tin Court. The dispute arose when the Defendants refused to pay contributions towards the costs of the Renovation Work. Memoranda of Charge were registered against the units owned by the Defendants. For various defences put forward, the Defendants counterclaim removal of the registration. The Evidence 3. Mr Ngai Hok Yan (“Ngai”), who is the Chairman of the Management Committee of the Incorporated Owners, gave evidence for the Incorporated Owners. 4. Ngai said in his evidence that because of its age, Yue Tin Court was in need of renovation as there were spalling concrete on the external walls, blockage if drainage pipes, leakage and bursting of pipes. On 21st April 2005, the Incorporated Owners received an advisory notice from the Buildings Department, requesting repairs to be carried out to the spalling concrete and the mosaic tiles on the external walls (the “External Wall Repair”). 5. At a general meeting held on 26th November 2004, a resolution was passed to conduct the tender for the External Wall Repair and the sewage pipe repair together. 6. On 4th May 2005, the Incorporated Owners published notice of tender in the Oriental Daily News. 7. The Management Committee formed two standing groups, a Tender Group and an Engineering Group (the “Two Groups”). At a general meeting of the Incorporated Owners held on 10th June 2005, it was reported that the Tender Group was responsible for analysing the prices and the Engineering Group was responsible for analysing details of the work. Based on recommendations of the Two Groups, contractors were selected and tenders of the selected contractors would be put forward at a general meeting to be voted on. 8. When submitting their tenders, the contractors were requested to divide their tenders into two parts: (1) the tender documents listing the prices in different items; and (2) the work proposal and company information. A total of 35 tender bids and 32 proposals were received. All the names of the tenderers and the names of the members of the Two Groups were posted in the lobby of all the blocks of Yue Tin Court. 9. After several interviews, 3 contractors were selected by the Management Committee and put forward to the general meeting of the Incorporated Owners for decision. The 3 selected contractors were allowed to exhibit their models and explain their works by setting up exhibition stalls in Yue Tin Court. A question and answer session was organized and the full tender documents of the selected contractors were posted for the reference of the owners. The 3 selected contractors submitted their final bids after the question and answer session. 10. At the extra general meeting (the “EGM”) of the Incorporated Owners on 18th November 2005, the final tenders of the selected contractors were exhibited so that the owners could fully understand the tenders put forward. Owners were allowed to choose one of the 3 selected. They could also choose the 4th option of “re-tendering”. By a majority, Sun Cheong Construction Co Ltd (“Sun Cheong”) was selected as the contractor. It was also voted by the general meeting that a sum of HK$ 8 million would be allocated from the surplus of Yue Tin Court to the costs of the Renovation Work. After further negotiation with Sun Cheong attended by the Management Committee and other owners, Sun Cheong agreed to further reduce the contract sum to HK$75,166,095.40. 11. At the EGM, Ngai informed the meeting that the owners could apply to the Buildings Department for Building Safety Loan. If the application of an owner was accepted, the Buildings Department would release the approved loan by no more than 3 instalments to be paid directly into the renovation fund account of the Incorporated Owners in accordance with the progress of the Renovation Work. At the negotiation session with Sun Cheong (the “Consultation Meeting”), Ngai told the owners present that if they had already made application for the Building Safety Loan, the Buildings Department would directly transfer funds to the Incorporated Owners and they did not have to be concerned about instalment payments. But they had to make timely applications. 12. For those owners who did not apply for the Building Safety Loan, they would have to pay the contributions towards the costs of the Renovation Work by 3 instalments. 13. Ngai stressed that since the Building Department would make stage payments based on different criteria, the 3 payment dates of the release for those who had applied for the Building Safety Loan would be different from the 3 instalment dates set by the Incorporated Owners for the owners who did not apply for the Building Safety Loan. 14. The 3 instalment dates for the owners who did not apply for the Building Safety Loan were 15th February 2006 (which was later changed to 1st March 2006), 15th May 2006 and 15th August 2006. 15. Initially, the 2nd Defendant did not apply for the Building Safety Loan and the 1st Defendant did not provide sufficient information so that his application could not be processed. Proceedings against the 2nd Defendant for the recovery of the 1st instalment payment of HK$16,005.00 were commenced on 30th March 2006 in the Small Claims Tribunal. As the 2nd Defendant agreed to pay, the proceedings in the Small Claims Tribunal were adjourned sine die. 16. The Incorporated Owners received notice from the Buildings Department on 20th July 2006 that the 1st and 2nd Defendants were among the owners approved for the Building Safety Loan. 17. In or about late July 2006, the Incorporated Owners received notice from the Buildings Department and from owners that some of the owners (including 1st and 2nd Defendant) requested the Buildings Department to withhold the release of the Building Safety Loan until the whole of the renovation had been certified complete in which event the loan would then be released in one payment. This was not acceptable to the Incorporated Owners as it would not be able to make stage payments to the contractor. 18. Demand letters were then issued to the 1st and 2nd Defendants in July 2006 and on 9th November 2006, requesting the 1st and 2nd Defendants to notify the Buildings Department to release payment to clear all outstanding payments. 19. Up to 8th December 2006, there were still no payments from the 1st and 2nd Defendants. The Incorporated Owners caused to be registered a Notice (Memorandum of Charge) at the Land Registry against the units of the 1st and 2nd Defendants. For the registration of the Notice and the release of the same, the 1st and 2nd Defendants had to each pay HK$5,100.00. The Incorporated Owners also commenced recovery proceedings in the District Court as the amount of the claim has exceeded the jurisdiction of the Small Claims Tribunal. 20. After the present action had been commenced and on 19th December 2006, the Incorporated Owners received from the Buildings Department the 1st and 2nd payments of HK$23,904.00 and HK$23,912.00 for the 1st and 2nd Defendants. On 23rd February 2007, the Incorporated Owners received from the Buildings Department the last instalment payment of HK$24,096.00 and HK$24,103.00. Thus, after the commencement of the proceedings, save for HK$15.00, the 1st Defendant had paid his share of contribution to the renovation costs through the payments made by the Buildings Department. As regards the 2nd Defendant, his contributions to the renovation costs were all settled by the Buildings Department. Interests had, however, accrued because of the initial refusal of the 1st and 2nd Defendants to pay. 21. The Incorporated Owners claims interest pursuant to Clause 6(d) of the DMC which provides as follows:
22. Up to 23rd February 2007, interests on the alleged late payments accrued to a sum of HK$3,755.80 and stopped accruing after the said date as a result of payment by Buildings Department. 23. It should be noted that Yue Tin Court is notionally divided into 29,761 undivided shares, of which 385 shares are held by the Housing Authority. In calculating the contributions payable by the owners of Yue Tin Court, the shares held by the Housing Authority had been excluded. Ngai explained that as the renovation did not cover the facilities of the Housing Authority, it was not known whether the Housing Authority should be liable to contribute. The shares of the Housing Authority were thus first excluded. If the Housing Authority agreed to pay, it would then be unnecessary to ask the owners of Yue Tin Court to contribute again for the costs of the project management which was estimated to be in the region of HK$ 1 million and would be roughly the amount to be contributed by the Housing Authority should it agree to contribute. 24. Subsequently, the Housing Authority agreed to contribute. 25. In cross-examination, Ngai pointed out that at the general meeting of the Incorporated Owners held on 26th November 2004, it was explained to the owners of Yue Tin Court that there would be an Engineering Group and a Tender Group for the Renovation Work and owners might join the Two Groups which had been authorized by the Management Committee at its meeting. The meeting of the Management Committee referred to by Ngai was held on 24th May 2005. This Management Committee meeting could not be the one authorizing the Two Groups as it was held after the said general meeting of the Incorporated Owners. 26. The tenders submitted were assessed by the Two Groups. Based on various criteria, the Two Groups would award points to the tenders. Ngai said that there was report on how the assessments were made. It turns out that by “report”, he meant the assessment results. He agreed that the analysis relating to the assessment had not been given to the owners for their perusal. He explained that the Management Committee was responsible for choosing the contractors for the owners and would submit the same to the general meeting of the Incorporated Owners for voting. 27. It should be noted that Ngai said in paragraph 14 of his witness statement that “after the signing of the renovation contract and at the request of certain owners, the [Incorporated Owners] allowed any owners to inspect all 35 tender bids.” He seemed to resile from this statement in the course of cross-examination by suggesting that only notices relevant to the information of the bids were issued to the owners. He further suggested that owners could look at the contents of the bids after signing confidentiality agreements. Such confidentiality agreements had not been produced. 28. Ngai also confirmed that the payment dates for the contributions had not been put to the general meeting of the Incorporated Owners for confirmation. He explained that the Management Committee had the power to decide. 29. It was pointed out to Ngai that he informed the owners that those who “would apply”, as opposed to those who “had applied”, for the Building Safety Loan did not have to worry about payment schedule as payments would be made by the Buildings Department directly. Reference was made to paragraph 4.3 of the minutes of the Consultation Meeting with Sun Cheong held on 27th November 2005. But Ngai said that what it meant was that if the owners had successfully applied for the Building Safety Loan, they did not have to worry about the payments to the Incorporated Owners. It was also put to Ngai that the Incorporated Owners had not passed any resolution setting down any deadline for the owners to apply for the Building Safety Loan. Ngai, however, explained that different owners would have different situations and some would apply early and some would apply late. There thus could not be any deadline. 30. It is not in dispute that the 1st and 2nd Defendants had in July 2006 requested the Buildings Department to withhold the release of payments from the Building Safety Loan to the Incorporated Owners. Ngai agreed that before the issue of the Writ of this action on 14th December 2006, the Incorporated Owners knew that the 1st and 2nd Defendants had agreed to resume payments to the Incorporated Owners by the Building Department as evidenced by a letter dated 13th November 2006 from the Buildings Department. He said that on the date of the issue of the Writ of this action, the manager did enquire with the Buildings Department whether the payments could be released to the Incorporated Owners. The Buildings Department replied in the negative and said that it had received instructions to release the instalment payments but if the owners further instructed to withhold the payments, the Buildings Department would follow the instructions. He was asked why, since there was no instruction to withhold payments as at the date of the Writ, the Incorporated Owners still issued the Writ. He replied that it was because it did not know whether the 1st and 2nd Defendants would change their minds again. 31. It should be noted that even after 23rd February 2007 when the contributions had been made by the 1st and 2nd Defendants, the Incorporated Owners still proceeded with the claims against the 1st and 2nd Defendants for the contributions as late as 2nd November 2007 when it amended the Statement of Claim. Ngai said that the Incorporated Owners had considered transferring the case to the Small Claims Tribunal. But it was thought that there might be a counterclaim by the Defendants and costs that had already been incurred by the Incorporated Owners. No action was thus taken to transfer the case to the Small Claims Tribunal. Ngai confirmed that by the time when the Incorporated Owners received notice that the 1st and the 2nd Defendants had paid the contributions, the legal costs incurred and the interests accrued had not reached HK$50,000.00. 32. Ngai further suggested that in order to recoup the legal costs already incurred, the only way was to fight the case to the very end. I digress to note that this, of course, must be wrong. The way to do it is to crystallize the cost position by withdrawing the claims for the contributions once notice of payment was obtained. The cost position could, prima facie, be protected, subject to different situations in different cases. Generally speaking, legal costs incurred in prolonging the litigation unnecessarily would not have been reasonably incurred and could not be recovered. 33. Ngai agreed that there had been a request by 5% of owners demanding Sun Cheong to stop the Renovation Work. 34. In the course of the oral evidence of Ngai, I granted leave to the 1st and 2nd Defendants to amend their Defence and to the Plaintiff to file its consequential amendments as I was of the view that there was nothing new appearing from the amendments of the Defendants. At one stage, the Incorporated Owners considered applying for an adjournment. This idea was given up later. At the end, I allowed the Incorporated Owners to recall Ngai to deal with matters arising from the amendments. I also made the order that costs of and occasioned by the amendments be to the Plaintiff in any event with certificate for counsel to be taxed if not agreed. The total time spent on the application was 40 minutes. 35. The consequential amendments to the Re Amended Reply and Defence to Counterclaim are in the following terms:
36. Ngai then further explained that and the renovation did not cover the area owned by the Housing Authority and it was not known whether the Housing Authority would be willing to pay. There were also the project manager charges not known yet. Subsequently, the Housing Authority did pay a total amount of HK$984,724.06 as could be seen from two Remittance Advices in Exhibit P1. 37. Ngai said that the calculation for contribution was based on 29,376 undivided shares. This number of undivided shares excluded the 385 undivided shares owned by the Housing Authority. Owners were required to contribute HK$48,014.98. But the project management fees had not yet been taken into account but were at the end covered by the contribution from the Housing Authority. If the undivided shares of the Housing Authority were included for the purpose of calculation, the project management fees would then be put into the calculation with the renovation costs too. 38. Although, if all the undivided shares were included in the calculation, the contribution to the renovation costs payable to Sun Cheong would be reduced to HK$47,393.84, the owners would have to contribute to the project management fees in the sum of HK$673.42. The total contribution of the owners would be HK$48,067.26 each. Thus even though the calculation adopted by the Incorporated Owners excluded the undivided shares of the Housing Authority, the owners would actually be required to contribute less. He also pointed out that contribution of the Housing Authority was calculated on the basis of the number of all the undivided shares. 39. Ngai also confirmed that the exclusion of the undivided shares of the Housing Authority in the calculation had not been put to the general meeting of the Incorporated Owners. Nor had the owners been informed or explained that the calculations for contributions for the owners and the Housing Authority were based on different number of undivided shares. But then Ngai changed his evidence and said that he had informed the EGM that a smaller number of undivided shares would be used in the calculation and the Incorporated Owners had so far received no complaints from the owners. I have reservation on this change of evidence. No doubt, the use of a different number of undivided shares is a very important matter that I would have thought would have been put to vote. What is more surprising is that there is no mention of such a matter in the minutes of the EGM. I reject this part of Ngai’s evidence. The 1st Defendant 40. Mr Liu Hua (“Liu”), the first-named defendant of the 1st Defendant gave evidence for the 1st Defendant. 41. Liu said that the Incorporated Owners had informed the owners that 35 tenders had been received. But the tenders had never been made available to the owners of Yue Tin Court. At the EGM, only 3 tenders were put to the owners. One of those tenders was that of Sun Cheong. Liu said that Sun Cheong was not connected with the listed company that bore the same name. He also complained that the Management Committee unlawfully delegated its power to the Tender Group to choose 3 contractors to be submitted to the owners. 42. In the course of the Renovation Work, workers from Sun Cheong were owed their wages and formed a picket line, trying to stop other workers from entering the site area. Sun Cheong was even stopped by the Labour Department from proceeding with the Renovation Work because of unsatisfactory safety measures. At the general meeting on 19th May 2006, there were disputes among the owners which subsequently required the attendance of police. These matters formed the background whereby Liu asked the Buildings Department to withhold the release of the loan to the Incorporated Owners. 43. Liu said that he was informed that if he applied for the Building Safety Loan, he did not have to follow the payment schedule of the Incorporated Owners. After he had received demand for payment, he enquired with the management office and was told that if he applied to the Buildings Department for the Building Safety Loan, the Buildings Department would pay the contributions for him. He also explained that it was up to the Buildings Department to determine when the loan agreement between him and the Buildings Department was to be signed. It was explained to him by the Buildings Department that there were about 500 initial applicants from Yue Tin Court for the loan and the Buildings Department needed to meet with each applicant. Much time was thus taken up. He also said that the terms of the loan agreement, including the dates of the release of the loan, were all determined by the Buildings Department. 44. Liu applied to the Buildings Department for the Building Safety Loan in April 2006 and, due to the approval process, his application was only allowed in July 2006. The loan agreement was signed on 20th July 2006. By a letter dated 24th July 200, Liu instructed the Buildings Department to withhold release of the loan to the Incorporated Owners. Liu further said that once he had received the notice from the Incorporated Owners dated 9th November 2006 threatening registration of Memorandum of Charge against his unit at Yue Tin Court, he immediately instructed the Buildings Department to release the loan to the Incorporated Owners. This is confirmed by a letter dated 4th January 2007 from the Buildings Department to Liu in reply to Liu’s enquiry. 45. Liu said that some owners were not allowed to inspect the 35 tenders. He, however, admitted in cross-examination that he only heard this from other owners. He was also found to be incorrect in respect of his allegations that the tender did not stipulate the submission closing time and that the tenders were not opened in the presence of 3 members of the Management Committee. He also confirmed that no one had said the contract price could at least be reduced by 10% as opposed to what he had stated in his witness statement. 46. Liu said that the message he had from the Incorporated Owners was that owners who had applied or who planned to apply for the Building Safety Loans did not have to follow the payment schedules set down by the Incorporated Owners. He could not point to any documents that gave him such an impression. On the contrary, there was a notice issued by the Incorporated Owners dated 20th February 2006 informing the owners that the first payment would be deferred to 1st March 2006 and those owners who had applied for the Building Safety Loan could ignore that notice. Liu explained that after he had received this notice, he enquired with the Management Office and was told that he could still apply for the Building Safety Loan as quite a number of owners were still in the process of applying for such a loan. I note that such an explanation could not be found in his witness statement. Liu further said that he had also enquired with the Management Office one day before the first payment was due whether he had to apply for the loan, he was given the reply that he did not have to make the application. Again, such an enquiry is not mentioned in his witness statement. 47. In Liu’s witness statement, it is stated that the Incorporated Owners registered with the Land Registry against his unit in Yue Tin Court a Memorandum of Charge even though it knew that it had already received payment from him. In cross-examination, he retracted from this position and stated that the registration was done with the knowledge that the Incorporated Owners “would receive” payment not “had received” payment. 48. Liu explained he instructed the Buildings Department to withhold release of the Building Safety Loan to the Incorporated Owners because he had reservations over the Renovation Work and the whole screening process relating to the Renovation Work. There were also a number of incidents that made him feel insecure if he simply handed over the money. He feared that if anything went wrong, he might have to pay again. Simply put, he did not have confidence in Sun Cheong. 49. As to the demand letter from the solicitors for the Incorporated Owners dated 9th November 2006, Liu explained that he had complied with the demand of instructing the Buildings Department to release the Building Safety Loan. But he could not comply with the demand for payment of interest and legal costs as the sums thereof were not stated. The 2nd Defendant (Chang) 50. Chang gave evidence first by adopting his witness statement and then by giving oral evidence. It turns out that the contents of his witness statement were told to him by some other persons. He did not seem to remember the events relating to the Renovation Work. He did not attend the EGM or pay attention to the notice of the prices of the 3 contractors who had been chosen which were posted in the lobby. All he could say with any certainty is the reasons for withholding the payment to the Incorporated Owners. He said that he withheld the payment because Sun Cheong was once forced to stop work and that there were no engineers supervising the work. He had no confidence in Sun Cheong. Credibility of Witnesses 51. None of the witnesses impressed me in their evidence. The evidence of Chang was clearly unreliable. I reject his evidence. Liu had on various occasions been found to have resiled from his previous allegations and to be incorrect in his evidence. I do not accept his evidence either. Although Ngai’s evidence was largely supported by documents, as noted above, he had also at times changed his evidence. I do not think I could rely on his evidence. 52. Thus unless there is any specific finding, I would have to rely on the written documents to determine the facts of the present case. In any event, however, I do not think the determination of the present case turns on the credibility of the witnesses in any substantial way. The Defence Procedural Irregularity in the Tender Process 53. Mr Chang, counsel for the Defendants, contended that the tender process was in breach of the Code of Practice on Procurement of Supplies, Goods and Services (the “Code”) in that the Incorporated Owners failed, inter alia, to put forward all qualified tender bids for voting at the general meeting of the Incorporated Owners. 54. The Code was issued pursuant to section 44 of the Building Management Ordinance, Cap. 344 (the “BMO”). It reads as follows:
55. Section 20A of the BMO, as then in force, is also relied on by the Defendants and it reads as follows:
56. Paragraph 8 of the Code provides as follows:-
57. The evidence of Ngai was that the contents of the tenders were kept confidential. He said in his witness statement that the owners were allowed to inspect the tenders after the renovation contract had been signed with Sun Cheong. In cross-examination, he said that the owners were allowed to inspect the tenders upon signing a confidentiality agreement. This is not mentioned in his witness statement. As mentioned above, no such agreement has been produced. I do not accept such evidence. 58. The Defendants complained that there was no owners’ resolution authorizing the Two Groups to vet the submitted tenders without going through the owners. This argument would only be valid if the Two Groups were not open to the owners to participate. Ngai said that owners could join the Two Groups. This is supported by the various minutes of meetings of the Management Committee since 19th August 2004. If the owners were allowed to join the Two Groups, it means all of them had access to the tenders and would be entitled to vote on the tenders to be put forward to the general meeting of the Incorporated Owners, no matter what the criteria for selection were. If the owners chose not to join the Two Groups, they could not now turn around and complain that they had not been provided with the information of the tenders. I reject this contention of the Defendants. 59. Another complaint of the Defendants is that they did not have the option of voting for any contractors other than those 3 shortlisted by the Management Committee. The first 3 options at the EGM were the 3 shortlisted contractors while the 4th option at the EGM was for re-tender. 60. It was held by the Court of Appeal in景發工業中心業主立案法團 及 何振聲 (CACV No. 47/2006) that, according to paragraph 8 of the Code, all tenders must be submitted to the general meeting of the incorporated owners for consideration and voting. The general meeting may or may not accept the tenders. In our case, the 4th option has the effect of excluding the owners from voting on those tenders other than the 3 shortlisted. The option of “re-tender” means that the owners have to go over the tender exercise again but could not choose from the rest of the tenders. I am of the view that the Incorporated Owners was in breach of paragraph 8 of the Code. 61. The Court of Appeal in景發工業中心業主立案法團, however, declined to rule what the consequences would be in the event of non-compliance with the Code as it was not necessary for determination. 62. Mr Chang argued that the Code had force of law and cited in support the case Wong Tak Keung Stanley v Management Committee of the Incorporated Owners of Grenville House [2004] 2 HKC 194 in which there was an application for striking out on the ground that the applicant had failed to disclose a reasonable cause of action. Yuen JA held that it was highly arguable that paragraph 1 and paragraph 9 of the Code, which were incorporated into section 20A (under sections 20A(2) and (4)) were intended by the legislature to have the force of law. Where the word “shall” was used, the natural and proper meaning was that a “peremptory mandate was enjoined” [203C]. It was arguable that where the intended consequence of the failure to comply was not stated in the legislation, the thing done under statute was invalidated. But whether the thing done was void or voidable would depend on the circumstances. 63. It was argued for the Defendants that since paragraph 8 set out how paragraph 1 was to be decided by the owners, it must be similarly construed as having the force of law. I do not think this necessarily follows. In fact one may argue that the fact that the legislature has chosen not to incorporate paragraph 8 into legislation shows that paragraph 8 is not intended to have the force of law. 64. Section 18(2A) of the BMO requires the Incorporated Owners, in the performance of its duties and exercise of its powers under section 18, “shall have regard to and be guided by Codes of Practice issued from time to time under section 44(1)”. (Underline Added) The underlined words appear to me to be more directive than mandatory. I would have thought that if the Codes of Practice were intended to have legal force, stronger words such as “shall comply with” would be used. 65. The effect of non-compliance with the Code is set out in section 44(2) of the BMO quoted above. 66. This section is vague, to say the least. It only deals with the liability of the person who has failed to comply with the Codes of Practice but is silent on the status of the thing done in non-compliance with the Code of Practice. But if the Codes of Practice were intended to have legal force the breach of which would certainly tend to establish or negative the liability the person who has failed to comply with the Codes of Practice, such a consequence would have been clearly stated. Viewed in that light, the silence seems to show the reluctance of the legislature to confer on the Codes of Practice legal force. 67. Two cases were cited by Mr Tsoi, counsel for the Incorporated Owners. They are Chan Chee Shum v The Incorporated Owners of Gold Mine Building (LDBM o. 226/1998) and Chau Chun Wai v Incorporated Owners of Joyful Villas (LDBM No. 177/1995). Both held that the Codes of Practice were not rules of law. It was commented by HH Judge Li in Chau Chun Wai at paragraph 9 that “the Code of Practice only seeks to prescribe a fair procedure for determining whom should be awarded a contract for the provision of supplies, goods and service. It does not go into the matter of jurisdiction for an expenditure nor the liability of individual owners for contribution towards such expenditure.” I note that these two cases were decided before paragraph 1 of the Code was incorporated into section 20A(2) of the BMO. But I do not think this would affect my view expressed above. 68. Thus, in my view, safe those paragraphs that have been incorporated into statute, I do not think the Code has legal force. 69. Another case cited by Mr Chang was Incorporated Owners of Hip Wo House v Gallant King Development Ltd (CACV No. 429/2006) which was concerned about section 20A(2). There was a failure to invite tender before the services of a firm of solicitors were engaged. It was held by Le Pichon JA that “[g]iven 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.” 70. Thus, even if I were wrong on the conclusion of the lack of legal force of the Code, Incorporated Owners of Hip Wo House v Gallant King Development Ltd suggests that breach of section 20A(2) would more probably than not render the contract voidable. As part of the arrangement subsequent to the invitation of tender dealt with by section 20A(2), I am of the view that any breach of paragraph 8 of the Code would at best render the contract voidable. It is trite law that until a voidable contract is set aside, it remains valid. There has been no attempt on anyone’s part to set aside the contract with Sun Cheong. All owners are therefore liable to contribute to the renovation work in accordance with the terms of the DMC. 71. Whether Sun Cheong’s work is up to standard or requirement does not affect the liability of the owners to contribute to the costs of the Renovation Work. That right of challenging the quality of the work of Sun Cheong could only be exercised by the Incorporated Owners. No authority to set the 3 instalment dates 72. Mr Chang argued that since the Management Committee had at its meeting on 7th October 2005 resolved that the “payment method” for the Renovation Work was to be determined at the EGM, it could not subsequently renege on its binding resolution and decide the instalment dates. He argued that “payment method (繳款方法)” meant whether the contributions to be paid by instalments, the number and the dates thereof. I am not convinced by this argument. As a matter of construction of the words used, “payment method” are so general that it could mean one, or all, of the meanings put forward by Mr Chang. The Incorporated Owners could equally argue that “payment method” only meant whether the payment was to be made by instalment. As a matter of intention, even Mr Chang recognised that the dates for instalment payment could not be determined at that time as the contractor had yet to propose project milestones. The rhetorical question to be asked is: how would the Management Committee intend to ask the owners to determine the dates of payments if members of the Management Committee themselves had no idea what the progress would be? 73. Furthermore, I do not see why the Management Committee could not, to use the work of Mr Chang, “seize back” the power to determine the dates for instalment payment. Section 22(1) of the BMO expressly confers the power to determine the timing of such instalment payment on the Management Committee. Either the Management Committee had the power or it did not have the power. If the BMO has expressly conferred such a power on it, I do not see any reasons why it could not use it after the resolution passed at its meeting on 7th October 2005. There was no suggestion of estoppel. Nor could I find any estoppel arising from the facts of this case. 74. I reject this argument. Error in Calculation of Share of Contribution 75. In calculating the contributions to be made by the owners, the Incorporated Owners excluded the undivided shares owned by the Housing Authority. As a result, the amount of contribution based on the reduced number of undivided shares would be larger than that if all the undivided shares were used as the denominator in the computation. 76. Ngai explained that it was because the stance of the Housing Authority was not known. This is neither here nor there. The stance of the Housing Authority is irrelevant. If it were liable to contribute under the DMC, then it had to contribute. 77. Ngai explained that the total renovation costs payable to Sun Cheong was HK$75,166,095.00. The owners were to contribute HK$67,166,095.00 whilst HK$8,000,000.00 would come from the maintenance fund of Yue Tin Court. I note that the Housing Authority had not contributed to this maintenance fund as a result of certain arrangement between it and the Incorporated Owners. 78. Ngai had compiled a table showing the calculations in exhibit P1. It could be seen that where all the undivided shares were used in the calculation, the owners would have to each contribute HK$47,393.84. Where, as what the Incorporated Owners had done, the undivided shares of the Housing Authority were excluded, the amount of contribution would be increased to HK$48,014.98. 79. Ngai further explained that the project management supervision costs were HK$954,366.67. Subsequently, the Housing Authority agreed to contribute. The total contribution made by the Housing Authority was HK$984,724.23 (which is slightly different from the sum shown by the 2 remittance advices in exhibit P1), part of which went to the maintenance fund while the rest went to the project management. He said that as a result of this arrangement, the owners actually paid less than they otherwise would have. It was because if the undivided shares were used in the calculation, the owners would have to share all the project management costs and each would have to contribute a further sum of HK$673.42, thus making a total contribution of HK$48,067.26. By using the present calculation, each owner would be saved a sum of about HK$50. 80. The fact that the owners actually paid less is only fortuitous. When the amount of contribution was calculated, the project management costs were unknown and they could be much larger which in turn led to a much larger contribution from the owners in this respect. The correct approach must be an examination of the rights and obligations under the DMC and the BMO. 81. There is no dispute that the Memorandum of Charge and the calculation of interest payable were based on the contribution computed by excluding the undivided shares of the Housing Authority. It is also not disputed that there was no resolution of the general meeting of the Incorporated Owners authorizing the exclusion of the undivided shares of the Housing Authority in the computation. 82. Clause 3 of the DMC requires all owners of undivided shares to observe and perform the covenants, provisions and restrictions under the Second Schedule. Clause 1 of the Second Schedule requires owners to pay the “due proportion” of all costs charges and expenses payable in connection with the management of Yue Tin Court. Clause 1(g) of the Second Schedule explains such costs include costs of repairing renewing cleansing all buildings and all sewers and pipes thereof. 83. Section 22 of BMO provides as follows:
84. There is no dispute that section 22 applies to the present case. 85. Section 2 of the BMO defines “share” as “the share of an owner in a building determined in accordance with section 39”. Section 39 provides that:
86. Section 2 of the BMO further defines “owner” as “ a person who for the time being appears from the records at the Land Registry to be the owner of an undivided share in the land on which there is a building”. There is no question that the Housing Authority is an owner for the purpose of the DMC and the BMO. 87. The DMC does not provide for the fixing of the contribution. Section 22(2), therefore, applies. The share of contribution of an owner should thus be calculated by reference to the proportion of an owner’s undivided shares to the total number of undivided shares of Yue Tin Court. The exclusion of the undivided shares of the Housing Authority was a breach of the DMC. 88. There were some disputes as to whether the Incorporated Owners should amend the Statement of Claim instead of putting the alternative claim in the Amended Reply. Mr Chang argued that a claimant could not plead a cause of action in the Reply. Mr Tsoi countered that by submitting that he could rely on the alternative scenario raised by the Defence, citing Poon Hau Kei v Hsin Chong Construction Co Ltd [2004] 2 HKLRD 442 in support. I think the problem in the approach of Mr Tsoi is that the claims of the Incorporated Owners include the contribution and the interest accrued in default of payment. But the alternative scenario pleaded by the Defendants in their Re Amended Defence only relates to the contribution. As far as interest is concerned, the entitlement of the Incorporated Owners is still disputed. There is no averment in the Re Amended Defence that the Incorporated Owners is entitled to interest on the basis of the alternative case of contribution. The entitlement to interest is denied by the Defendants (see paragraph 30 of the Re Amended Defence). But since the Defendants have paid their contributions, the only issue left, as far as liability is concerned, is entitlement and calculation of interest. There is thus no effective alternative claim pleaded on the interest charged under the DMC and there is no alternative case pleaded in the Amended Defence that could be relied on by the Incorporated Owners. 89. Another issue that is relevant is whether the Incorporated Owners was entitled to register the Memoranda of Charge against the properties of the Defendants. Mr Chang submitted that the amount of contributions demanded by the Incorporated Owners was wrong and was ultra vires. Because of the wrong amount demanded, the Defendants were entitled to refuse to pay. The Incorporated Owners was thus not entitled to charge interest, register the Memoranda and commence the present action. Mr Tsoi argued that the Defendants were not entitled to completely refuse to contribute towards the renovation costs solely because the computed amount was wrong. He also submitted that the Incorporated Owners was still entitled to register the Memoranda because under Clause 6(f) of the DMC if the owner failed to pay any sum under the DMC. 90. First of all, I agree with the submission of Mr Chang that the basis of the Memoranda was wrong. In my view, where the amount demanded by the Incorporated Owners was incorrect, it means that the Incorporated Owners was not entitled to make that demand in the first place. Owners were entitled to refuse to pay unless and until a demand for a correct amount was made. The Incorporated Owners was not entitled to register the Memoranda. 91. Mr Tsoi sought to rely on the words “any sum” in Clause 6(f) as justification for the registration of Memoranda as there was no doubt that the Defendants were liable to contribute even though the amount demanded might not be correct. I do not agree. Clause 6(f) actually provides that the charge could only be registered if the owner fails to pay “any sum due and payable”. It is clear that the sum demanded was not the sum due and payable. 92. What is more important is that Clause 6(f) provides the mechanism whereby a memorandum could be registered against the property of an owner. Clause 6(f) provides:
93. Although the word “may” is used in sub-paragraph (i), all the deemed legal effects stated in sub-paragraphs (ii) and (iii) are predicated upon the service of the notice. The Incorporated Owners was in effect given no choice but had to serve the notice. When it served the notice, it must provide the information specified in sub-paragraph (i), including the amount due, the interest and the collection charges. The demand letters issued by the Incorporated Owners in July and November 2006 did not comply with sub-paragraph (i). The Incorporated Owners could not rely Clause 6(f) of the DMC which is the provision that allows it to register the Memoranda. 94. It should also be noted that the demand letters issued by the Incorporated Owners to the Defendants in July 2006 requested the Defendants to instruct the Buildings Department to release the Building Safety Loan, but not for immediate payment of the contributions. The demand letters issued to the Defendants on 9th November 2006 made the same demand and gave 7 days to the Defendants to comply. The demand letters also requested the Defendants to pay interest and legal costs which had not been set out in the demand letters. According to the letter from the Buildings Department dated 4th January 2007, the Defendants, on 11th November 2006, instructed the Buildings Department to release the Building Safety Loan to the Incorporated Owners. In other words, the Defendants had complied with the demand of the Incorporated Owners save the part relating to payment of interest and legal costs with which, in my view, the Defendants were in no position to comply as they had not been informed of the amount. 95. The said letter of the Buildings Department also confirmed that it had informed the Incorporated Owners on 13th November 2006 of the instructions of the Defendants by fax and by post. There is no suggestion from the Incorporated Owners that it had not received the said letter from the Buildings Department. Yet, it registered the Memoranda of Charge on 8th December 2006. The Incorporated Owners further commenced the present proceedings on 13th December 2006. As a result, quite apart from the failure to follow the procedures in Clause 6(f) of the DMC, there was no basis for the Incorporated Owners to register the Memoranda of Charge. The Incorporated Owners could not rely on the fact that the Defendants had once instructed the Buildings Department to withhold payment and claimed that it feared the Defendants would do the same again. Such fear was without any factual basis. Thus, when the Incorporated Owners knew that the Defendants had instructed the Buildings Department to release the Building Safety Loan, the only claim against the Defendants would be for interest and legal costs, the total amount of which was confirmed by Ngai during cross-examination to be not more than HK$50,000.00. As such and assuming that the Incorporated Owners could claim interest against the Defendants, the claim would be within the exclusive jurisdiction of the Small Claims Tribunal. Applicants did not have to follow Payment Schedule 96. Mr Chang relied on the minutes of the consultation meeting held with Sun Cheong and submitted that those who had applied for the Building Safety Loan needed not follow the payment schedule. Mr Chang also pointed out that as at the Consultation Meeting, there could not be any owners who had “already” applied for the Building Safety Loan. Mr Tsoi on the other hand argued that applications for the Building Safety Loan must be made in a timely fashion. 97. Assuming that Mr Tsoi was right and that the Defendants were in breach of the DMC by failing to pay the contributions which was itself a breach of contract, the fact that the Incorporated Owners issued a demand letter on 9th November 2006 and allowed the Defendants to have 7 days to comply means that it did not accept the breach. When the Defendants instructed the release of the Building Safety Loan, the Defendants had in fact seized the opportunity to perform again. There was thus no breach (save that there might be delay in payment which is dealt with below) upon which the Incorporated Owners could rely to start the present action. 98. Going back to the issue of the words were used at the Consultation Meeting, the plain meaning of the instructions given to the owners as recorded in the minutes of the Consultation Meeting is that those who apply for the Building Safety Loan do not have to worry about the payment schedule as the Buildings Department would release the money to the Incorporated Owners. I accept that the said minutes are the accurate record of the matters as presented. The argument of Mr Tsoi would carry more weight had a deadline been set down. 99. Mr Tsoi relied on a notice of the Incorporated Owners dated 20th February 2006 in which it states that those who have applied for the Building Safety Loan may disregard the notice. The existence of the said notice and the words used therein do not preclude the fact that the representations as recorded in the minutes of the consultation meeting had been made. The Incorporated Owners could not change the rules less than 10 days before the first instalment was due. Mr Tsoi suggested that the Incorporated Owners had to pay interim payment to Sun Cheong. This is not disputed. But the average owners would not know these financial arrangements with Sun Cheong. All they cared was their payment dates and the message they received was that if they applied for the Building Safety Loan, they did not have to follow the payment schedule of the Incorporated Owners. 100. Mr Tsoi further pointed out that Chang (i.e. the 2nd Defendant) admitted during cross-examination that he knew that he had to make contributions in accordance with the payment schedule of the Incorporated Owners. As I said, I do not accept his evidence. He simply did not have any idea of these matters in dispute. In any event, his subjective understanding of his obligations could not overrule the objective meaning of the words used in the minutes of the Consultation Meeting. Interest not payable under Clause 6 101. In view of my ruling above that the claim of interest, assuming sustainable, should have been commenced in the Small Claims Tribunal, and the absence of an alternative claim on interest in the Statement of Claim, it is strictly not necessary for me to deal with this argument. But for the sake of completeness, I shall deal with it in the following paragraphs. 102. Mr Chang argued that payment of interest is compensatory in nature and if, as in the present case, the Incorporated Owners had not paid any interest to Sun Cheong, it was not entitled to claim interest against the Defendants. He suggested that the Incorporated Owners was not entitled to the contributions paid by the owners as the contributions were back-to-back payments to Sun Cheong. The Incorporated Owners was only a conduit between the owners and Sun Cheong. I do not agree with this argument. There are two contracts in question, one being the DMC and the other being the one with Sun Cheong. The obligation to pay interest arises from the DMC and has nothing to do with whether the Incorporated Owners was obliged to pay any interest to Sun Cheong. The owners are not asked by the DMC to indemnify the loss of the Incorporated Owners in any interest payments. They are asked to pay interest because they are late in their payments. 103. Having said that, however, bearing in mind my ruling that those owners who had applied for the Building Safety Loan did not have to follow the payment schedule, if at the time when the Buildings Department was due to release the Building Safety Loan to the Incorporated Owners according to the loan agreements between the Defendants and the Buildings Department there were no instructions from the Defendants to withhold the release, the Defendants should not be treated as being late in payment. I believe in our case, both Defendants had instructed the Buildings Department to release payment before it was due to release payment. In other words, no late payment interest has accrued. 104. There were also some arguments as to whether the present claim was unreasonable. But I think these arguments would only be necessary if I find in favour of the Incorporated Owners. Given my ruling above, I do not think I need to deal with these arguments. 105. I, therefore, make the following orders:
Representation: Mr. Benson Tsoi instructed by Messrs S. T. Cheng & Co. for the Plaintiff. Mr. Jonathan Chang instructed by Messrs Chiu, Szeto & Cheng for the 1st & 2nd Defendants. |
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