THE INCORPORATED OWNERS OF ONE BEACON HILL v. MATCH POWER INVESTMENT LTD

CACV 226/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 226 OF 2011

(ON APPEAL FROM HCCT NO 40/2011)

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J U D G M E N T

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Hon Cheung CJHC:

The facts

1.  This appeal concerns the extent to which an owners’ corporation (“IO”) can sue in relation to the common parts of the building.

2.  Stripped of all non-essentials, the facts involved in this appeal may be briefly stated.  The defendant was the developer of the development known as One Beacon Hill situated at No 1 Beacon Hill Road, Kowloon (“the development”).  The development comprises 604 residential units, an equal number of car parking spaces and 35 motorcycle parking spaces.  Before construction of the development was completed, the defendant entered into standard-term sale and purchase agreements with various purchasers in respect of 480 residential units under the Consent Scheme administered by the Lands Department (“the consent scheme contracts”).  Construction of the development was subsequently completed and the certificate of compliance was issued on 29 July 2004.  The consent scheme contracts were therefore completed in about August 2004. 

3.  Thereafter, the defendant successfully sold the remaining 124 residential units, all the car parking spaces as well as 10 out of the 35 motorcycle parking spaces.  They were sold to different purchasers under standard-term agreements for sale and purchase (“the post-completion contracts”), the terms of which were, however, different from those in the earlier consent scheme contracts.  These subsequent contracts were completed according to their terms.  The plaintiff, the incorporated owners of the development, was incorporated on 3 January 2006 pursuant to the provisions in the Building Management Ordinance (Cap 344) (“the Ordinance”).

4.  Amongst other things, disputes have since arisen as to whether the defendant, as developer, has acted in breach of the consent scheme contracts regarding the construction of the common parts of the development.  The contractual provisions involved were only found in the consent scheme contracts, but not the post-completion contracts.  These disputes eventually led to this litigation.

5.  However, instead of the affected co-owners suing the defendant under the consent scheme contracts for breach of contract, in the action commenced below, the plaintiff, as the IO of the development, sued or purported to sue the defendant under those contracts for breach of contract. 

6.  The defendant applied to strike out the action primarily on the ground that the IO lacked the necessary locus to sue.  Other miscellaneous grounds were also relied on.  Alternatively, the defendant asked for the determination of certain preliminary issues revolving around the question of locus.  In either case, the defendant further asked for the dismissal of the action.

The decision below

7.  These applications came before Reyes J.  In his ex tempore judgment given on 25 August 2011, the judge held that the IO could sue pursuant to section 16 of the Ordinance.  This was so even though:

(1) only some but not all of the co-owners of the development entered into the consent scheme contracts containing the contractual provisions now relied on and thus had a cause of action against the defendant; and

(2) the contractual causes of action arose prior to the incorporation of the IO.

8.  In short, the judge adopted a purposive approach to the interpretation of section 16 of the Ordinance.  He identified the relevant object of the Ordinance as the facilitation of convenience in litigation, so as to avoid a multiplicity of parties and suits involving numerous owners, especially in relation to the common parts of an estate. Adopting such an approach, he construed section 16 of the Ordinance as vesting in the IO the exclusive right to enforce contractual rights of co-owners in relation to the common parts of the building, even though those rights only accrued to some but not all of the co-owners and even though they arose prior to the incorporation of the IO.  The judge referred to and discussed a number of authorities on the relevant provisions but found nothing in them against the construction that he favoured.

9.  Having reached that conclusion, the judge did not need to examine separately whether the action could be maintained under section 18(2)(g) of the Ordinance. 

10.  The judge therefore refused to strike out the statement of claim.  In his judgment, he further answered the preliminary issues against the defendant.  In the order drawn up subsequently, the judge simply dismissed the striking out application and gave directions for the filing of pleadings.

11.  Aggrieved by the judge’s decision, the defendant appealed.  

The Ordinance

12.  The preamble to the Ordinance reads:

“To facilitate the incorporation of owners of flats in buildings or groups of buildings, to provide for the management of buildings or groups of buildings and for matters incidental thereto or connected therewith.”

13.  Sections 7 and 8 of the Ordinance provide for the incorporation of the co-owners of a multi-storey building and state the effect of incorporation:

“ 7(1) A management committee appointed under section 3, 3A, 4 or 40C shall within 28 days of such appointment apply to the Land Registrar for the registration of the owners as a corporation under this Ordinance.

…

8(1) The Land Registrar shall, if satisfied that the provisions of section 3, 3A, 4 or 40C and section 7(2) and (3) have been complied with, issue a certificate of registration in such form as may be specified by the Authority from time to time.

…

(2) With effect from the date of issue of the certificate of registration under subsection (1) –

(a)   the owners for the time being shall be a body corporate with perpetual succession and shall in the name of the corporation specified in the certificate of registration be capable of suing and being sued and, subject to this Ordinance, of doing and suffering all such other acts and things as bodies corporate may lawfully do and suffer;

…”

14.  Section 16 reads:

“ When the owners of a building have been incorporated under section 8, the rights, powers, privileges and duties of the owners in relation to the common parts of the building shall be exercised and performed by, and the liabilities of the owners in relation to the common parts of the building shall, subject to the provisions of this Ordinance, be enforceable against, the corporation to the exclusion of the owners, and accordingly –

(a) any notice, order or other document which relates to any of the common parts of the building may be served upon the corporation at its registered office; and

(b) any proceedings in the tribunal in respect of any of the common parts of the building may be brought and pursued by or against the corporation.”

15.  Finally, section 18(2) provides:

“A corporation may, in its discretion –

(a) engage and remunerate staff for any purpose relating to the powers or duties of the corporation under this Ordinance or the deed of mutual covenant (if any);

(aa) subject to such terms and conditions as to attendance at meetings of a management committee and its sub-committees as the management committee may determine, pay the chairman, vice-chairman (if any), secretary and treasurer of the management committee appointed under section 14(2) or paragraph 2(1), 5(2), 6 or 6A of Schedule 2 such allowances as may be approved by the corporation by resolution passed at a general meeting, in accordance with, but in aggregate not exceeding, the maximum allowances specified in Schedule 4;

(b) retain and remunerate accountants for the purposes of auditing the corporation's books of accounts and preparing the annual income and expenditure accounts and balance sheets;

(c) retain and remunerate a manager or other professional trade or business firm or person to carry out on behalf of the corporation any of the duties or powers of the corporation under this Ordinance or the deed of mutual covenant (if any);

(d) [repealed]

(e) purchase, hire or otherwise acquire movable property for use by the owners in connexion with their enjoyment of the common parts or to satisfy any requirement of a public officer or public body for the purpose of any Ordinance;

(f) establish and maintain lawns, gardens and playgrounds on the common parts;

(fa) carry out any renovation, improvement or decoration work, as the case may be, to the common parts;

(g) act on behalf of the owners in respect of any other matter in which the owners have a common interest.”

Purposive interpretation

16.  There can be no doubt that in construing the relevant provisions in the Ordinance, the Ordinance must be considered as a whole, and one must adopt a purposive interpretation.  Town Planning Board v Society for the Protection of the Harbour Ltd (2004) 7 HKCFAR 1, paras 28 to 29; Hang Yick Properties Management Ltd v Incorporated Owners of Tuen Mun Kar Wah Building [2005] 2 HKLRD 499, para 14.

17.  In doing so, one must, however, bear in mind what is not permissible even under purposive interpretation: China Field Ltd v Appeal Tribunal (Buildings) (No 2) (2009) 12 HKCFAR 342, para 36. Purposive interpretation means only that statutory provisions are to be interpreted to give effect to the intention of the legislature, and that intention must be ascertained by a proper application of the interpretative process.  The court is not allowed to distort or even ignore the plain meaning of the text and construe the statute in whatever manner that achieves a result which it considers desirable. 

18.  In this appeal, the arguments have focused on two provisions in the Ordinance, namely, section 16 and section 18(2)(g), as possible bases to give the plaintiff the necessary locus to sue.  

19.  In this regard, there can be no quarrel that the main purpose or object of the Ordinance is to facilitate the management of a multi-storey building co-owned by different people.  That is made clear by the preamble to the Ordinance.   I would also accept that in connection with this main purpose, it is also an objective of the Ordinance to avoid a multiplicity of suit.  However, it does not follow that in the interpretation of sections 16 and 18(2)(g) of the Ordinance, one must seek to achieve the object of avoidance of a multiplicity of suit at all costs.  There is a limit to what one can do by way of interpretation.  Moreover, as the many hypothetical examples postulated by the Bench and by counsel during argument illustrated, very often, what may at first sight have appeared to be an interpretation that promotes the avoidance of a multiplicity of suit may turn out to be something that creates more problems than it apparently solves. 

A plain reading of section 16

20.  With these preliminary remarks in mind, I will first turn to section 16.

21.  In my view, on a plain reading of section 16, it only applies to vest the right of suit, in relation to the common parts of the building, in the IO, in respect of causes of action that accrued to all of the co-owners.  It does not apply where those causes of action accrued only to some, but not all, of the co-owners.

22.  It should be noted that “the owners”[1] appears four times in section 16.  When it first appears, it must be a reference to all the owners of the building, because the opening phrase of the section where it first appears refers to the owners of the building getting incorporated.  It must therefore be a reference to all the owners.  That being the case, in the absence of any contrary indication or qualification, it is simply natural to read the three remaining references in the following part of section 16 to mean all of the owners as well.

23.  Indeed, the Ordinance contains many examples where “the owners” is used to mean all of the owners: see, for instance, sections 7(1) and 8(2)(a) extracted above. 

24.  It is fair to note that section 14(1) provides that at a meeting of an IO any resolution passed (by a majority) “shall be binding on the management committee and all the owners”.  However, the use of the word “all” is wholly understandable in the context as the emphasis there is clearly on the majority rule.

Context and purpose

25.  This reading of section 16 makes sense when considered in the light of the relevant context and purpose.  An IO is the “persistent persona of all the owners of the premises at any moment of time” but only in relation to the common parts of the building:  Grenville House Ltd v The Incorporated Owners of Grenville House [1978] HKLR 235, 241.  In the Hong Kong context, by definition, the owners are tenants in common of each other of the land and building in question.  In relation to the individual units to which they have the respective rights to exclusive possession, each co-owner’s right is peculiar to himself.  It is his personal property right.  However, in relation to the common parts, an individual co-owner does not have the right to exclusive possession.  He possesses and enjoys the common parts in common with his fellow tenants in common.  It is just natural that the co-enjoyment of the common parts by all the co-owners and the need for maintenance and upkeep of the common parts will give rise to or result in rights or liabilities common to them all. 

26.  As the number of co-owners of a building may be very substantial, enforcement of these rights or liabilities by or against all the co-owners can be extremely complicated and difficult, and may lead to a multiplicity of proceedings. 

27.  It is therefore not difficult to understand why one needs section 16 of the Ordinance to make life easier not only for the co-owners, but also for those who for one reason or another have to deal with the co-owners in terms of legal rights or liabilities.  The beauty of the incorporation of all the co-owners in the form of an IO and of the vesting provision in section 16 is that they enable all such rights of all the co-owners to be enforced by the IO, and the pursuit of all such liabilities against all the co-owners by outsiders also via the IO.  And, importantly, it is not simply convenient but also fair that this can be done.  For, after all, the IO is simply the corporate embodiment of all the co-owners; and what is vested in the IO is either a right or a liability of all the co-owners.  It is therefore fair to vest them (together with the attendant costs and risks of litigation that they entail) in the IO this way.

28.  The position is quite different when a right or liability is only that of one or some of the co-owners in relation to the common parts.  In that scenario, the right or liability is not common to all the co-owners.  They are only peculiar to the individual owner or some of the owners.  The remaining owners do not have the same right or liability.  Notwithstanding that they are in relation to the common parts, there is no commonality of right or liability amongst all the co-owners.  In that situation, there is simply no justification for vesting the right to enforce the cause of action of one or some of the co-owners (but not all of them) in the IO after incorporation. Likewise, there is no justification to saddle the IO, which is the persistent persona of all the co-owners, with a liability that was, prior to incorporation, the responsibility of an individual owner or some of the co-owners only. 

29.  In this regard, it must be remembered that if section 16 applies to a particular situation, it applies automatically without any discretion on anybody’s part.  It is not as if the IO could pick and choose.  Furthermore, once the right to enforce a cause of action is vested in the IO pursuant to section 16, the co-owners who originally had the cause of action will no longer be able to enforce it by themselves.  Henceforth, whether the cause of action will be enforced becomes a matter for the IO to decide in meeting.  If the cause of action was enjoyed by all the co-owners prior to the vesting under section 16, this would not create any unfairness.  For after incorporation, enforcement of the cause of action will be under the control of the IO as may be decided in its meeting which all co-owners may attend.

30.  But not so where the cause of action was that of only some but not all of the co-owners, if the contrary construction favoured by the judge is correct.  Enforcement of the cause of action will be in the hands of the IO, as dictated by the majority in a meeting of the IO.  The majority’s wishes may well be different from that of the co-owners to whom the cause of action originally accrued.  These co-owners may want to sue when the majority may want to take no action or to settle.  Or it could be the other way round.  And if a monetary judgment is obtained by the IO, distribution or utilisation of the judgment debt recovered may also give rise to difficulties and even disputes.  All this may, depending on the facts, work injustice to the co-owners to whom the cause of action originally accrued. 

31.  Again depending on the facts, the situation could be unfair to the other owners to whom the cause of action did not accrue. Prior to vesting, the cause of action and the inherent risks of litigation (including in particular the costs of litigation) were of no concern to these other owners.  After the vesting (according to the contrary interpretation), all other co-owners are potentially affected as the IO is now vested with the right to enforce the cause of action.  If these other co-owners are in the minority in the IO, they will be, in effect, forced to fund the litigation and run the risk of losing it via the IO.  It should further be noted that subject to the requirement of leave of the court, a judgment entered against the IO (including an order for costs) may be enforced against any individual owner under section 17 of the Ordinance.

32.  By the same token, the contrary construction would lead to injustice in the case of a liability.  A liability of some would become, after the vesting (pursuant to this argument), the liability of all via the vehicle of the IO.

33.  Furthermore, the contrary construction favoured below may or may not avoid a multiplicity of suit.  Everything will depend on the facts, which are bound to vary from case to case.  But even assuming that it does, in my view, this still does not justify the unfair results pointed out in the discussion immediately above.  As I said earlier on, whilst the avoidance of a multiplicity of proceedings is a laudable object, it is not an object that should be achieved at all costs. 

34.  And depending on the facts, the contrary construction may or may not lead to the avoidance of multiple proceedings. Take the present case as an example.  The express or implied provisions in the consent scheme contracts relied on relate not only to the common parts of the development but also to the individual units of the purchasers concerned.  The plaintiff is only concerned with the causes of action to the extent that they relate to the construction of the common parts.  In other words, in relation to the individual units, the individual owners retain their rights to enforce the relevant contracts against the defendant.  If the plaintiff’s construction is right, there will be two parallel sets of proceedings, one by the plaintiff against the defendant in relation to the common parts, and another by an individual owner in relation to his own unit.  That is not a saving of litigation.

35.  Though the avoidance of multiplicity of proceedings is a legitimate aim (and no doubt the judge very much had this objective in mind), it is not necessarily correct to achieve this through an action by the IO.  One must still ask what is the proper scope of the relevant provisions in the Ordinance.  If the nature of the proceedings does not fall within the scope of these statutory provisions, one must look to other means to achieve the desired objective, eg Order 15, rule 12 of the Rules of the High Court (Cap 4A).

36.  Mr Ian Pennicott (Mr Calvin Cheuk with him) submitted, on behalf of the IO, that there are practical difficulties in terms of procuring the consent of a large number of purchasers under the consent scheme contracts to an arrangement to pursue a representative action.  But if one considers these practical difficulties carefully, it will not be difficult to see the real objection to the use of the IO as the plaintiff in this action.  No doubt some of these difficulties are logistical, but one can easily think of others that are due to substantive reasons.  For instance, there may be purchasers under the consent scheme contracts who do not wish to pursue the claim for reasons of their own.  There may also be purchasers who do not agree with the engagement of the present team of lawyers for whatever reasons (including, as a hypothetical example only, the level of fees being charged).  And there may be purchasers who wish to negotiate for a settlement instead of litigating.  Yet if the IO were allowed to be the plaintiff, these purchasers would have no choice but to be involved so long as they remain as an owner. One can see the rationale for allowing the IO to sue if the claim is based on a cause of action that accrued to all the owners in relation to the common parts (and as such the right of suit is vested in the IO under section 16).  But this is not the case here. 

37.  Mr Pennicott argued that the claim is a claim owned by all the owners because they have all contributed to the costs for making good the (alleged) defects at the common parts. With respect, this argument, attractive as it seems, must be rejected on an accurate understanding of the true legal position.  Whilst we may assume that all the owners did, at some points in time, contribute to such costs, yet as Lam JA pointed out during argument, for the owners who did not purchase under the consent scheme contracts, their contributions should be regarded as contributions for the improvement of the common parts because they have no right to claim against the developer in respect of the state of the common parts.  Mr Pennicott did not suggest that these owners could, by making contributions to the costs of the so-called rectification works, create causes of action against the developer which they did not previously have.  Nor did he suggest that the IO could create such claims by seeking contributions from these owners who only purchased after the completion of the development and purport to have the right to enforce such (non-existent) claims pursuant to section 16.  Nor was there any suggestion that the “rectification” works were done by the IO under compulsion or subrogation.  If the shares of contribution from these owners who only purchased after the completion of the development are disregarded, it can be readily seen that the claims that are being pursued in this action are personal claims of those purchasers under the consent scheme contracts instead of a claim owned by all the owners.

Grenville House

38.  The construction I favour is supported by the authorities.

39.  In Grenville House, supra, a series of landslides caused damage to the common parts of a multi-storey building shortly after the formation of the IO.  The IO sued the developer and others for damages for negligence and breach of statutory duty.  At issue was whether section 16 of the Multi-storey Buildings (Owners Incorporation) Ordinance[2] gave the IO the necessary locus to do so.  McMullin J (as he then was) gave the judgment of the Court of Appeal.  He explained that section 16, although it does not expressly say so, has the effect of vesting permanently in the IO a right of suit (as opposed to the cause of action itself) which may accrue to an individual owner as a result of tortious acts relating to the common parts of the property (page 239).  Significantly, the judge drew a distinction between two types of damage (page 240):

“… Let us suppose that one of the owners had suffered personal injury as a result of the landslide. It certainly seems unlikely that the Legislature intended by section 16 to relegate him, in his right of suit for such a particular personal injury, to the same area of relief which he enjoys in common with the other owners who are put to expense through the reinstatement of the slope. It is the damage suffered in common by the tenants in common of the premises which is placed specially in the care of the corporation to pursue on their behalf. A liability to contribute to the cost of reinstating is clearly such a damage. …”

40.  The judge then dealt with the difficult question of a change of ownership after the occurrence of the tort and concluded that any subsequent changes in ownership would not affect the IO’s right to sue, which he described as an “exceptional statutory right” (page 241).  Importantly, the judge set out the parameters of this extraordinary right to sue (pages 241 & 243):

“… The corporation is the persistent persona of all the owners of the premises at any moment of time but in respect only of one part of all possible actionable damage which might derive from a tort affecting the common parts. In regard to that type of damage the right of suit is vested permanently in the corporation. That type of damage would include any pecuniary loss suffered by all the individual owners in common deriving from damage to the common parts. …

… Under section 16 the rights and duties of the corporation in matters of suit touching the common parts of the property are limited to circumstances which concern all the owners as a result of their joint interest in the due maintenance management and control of those parts.

For those limited purposes the body of the owners may be said to consist of every individual who ever has been a constituent of the corporation.  It matters not that at the time of issuing the writ the body of the constituents is not the same as it was at the time of accrual of the action any more than it would matter that that body is not the same at the time of judgment even though it had been the same at the time of issue of the writ.  In pursuing those purposes it is serving the interests of all including those who are no longer constituents but have been damnified and those who are now constituents and have never been damnified.  For a major purpose of the incorporation of the owners is to facilitate convenience in suit. …”

41.  It is plain from the judgment of McMullin J that in relation to the right of suit conferred by section 16 on the IO, the emphasis is on the “loss suffered by all the individual owners in common deriving from the damage to the common parts” (remembering that the cause of action involved in that case was a tortious one).  In contrast, a personal cause of action, such as a claim for damages for personal injury suffered by a co-owner, whether in his own unit or on any of the common parts of the building, is not one enforceable by the IO under section 16.

42.  The distinction between “all” and “individual/some” was clearly drawn. 

Hang Yick

43.  In Hang Yick, supra, the Court of Appeal had to grapple with the pre-incorporation liabilities of the co-owners of a building.  In that case, the former manager of a building, whose management contract was terminated by the IO shortly after its incorporation, sued the IO for payment of an accumulated deficit of management expenses incurred during its tenure.  A substantial part of the deficit was incurred pre-incorporation. At issue was whether the IO was liable to be sued, under section 16 of the Ordinance, for pre-incorporation liabilities of the co-owners.  The lead judgment was given by Woo VP, with whose judgment Yeung JA (as he then was) agreed.  Stone J gave a short concurring judgment. 

44.  Woo VP pointed out that a major purpose of the Ordinance is to provide convenience in suit and to avoid a multiplicity of parties and proceedings. Section 16 is specifically designed for such purpose (paras 18 and 19).  The judge then dealt with the question of pre-incorporation liabilities:

“20. But are the liabilities of the owners in relation to the common parts limited to those incurred by them after incorporation or do they include those incurred before incorporation? The contentions of the parties before us are diametrically opposed. I consider that the answer depends on the facts of each particular case. Sometimes, the liability of an individual owner in relation to the common parts is personal, and thus such liability should not be covered by s.16, or else the other owners would be unfairly prejudiced by the corporation being sued and if the suit is successful, for the judgment being enforced against them or each of them pursuant to s.17. This kind of personal liability, depending on the facts of each case, can be tortious or contractual in nature, it matters not. But where the liability is that owed by the owners as a whole, then the liability of suit passes onto the incorporated owners. This is clear from the words ‘owners’ in the plural used in s.16, as opposed to the singular.

21. There is no question that s.16 covers the liabilities of the owners as a whole in relation to the common parts after incorporation: see Grenville House Ltd & Others v Incorporated Owners of Grenville House [1978] HKLR 235 and the observation of Litton NPJ in Chi Kit Co Ltd & Another v Lucky Health International Enterprise Ltd (2000) 3 HKCFAR 268 at p.227B-C.  The parties do not argue against this proposition.”

45.  The judge went on to examine a number of authorities, including a first instance decision by Cheung J (as he then was) in Koo Sun Yiu v Victorison Delivery Ltd [1996] 4 HKC 152.  In that earlier case, the judge held that a pre-incorporation tortious liability arising out of personal injury suffered by a workman on the common parts of a building could not be enforced against the IO after its incorporation.  Woo VP examined the facts in Koo Sun Yiu closely and observed that there, the tortious liability was not shown to be that of the owners collectively, as distinct from one or more of the individual owners (paras 22 and 33).  On that basis, he distinguished the decision from the subsequent case of Jikan Development Ltd v Incorporated Owners of Million Fortune Industrial Centre (2003) 6 HKCFAR 446, where the Court of Final Appeal held that an IO could sue for an account of car parking fees derived from the use of the common parts of a building which (fees) had been wrongfully pocketed by one co-owner prior to the incorporation of the IO.  Woo VP described the distinction between the two cases in these words:

“33. It seems to me that a distinction can be drawn between Jikan Development Ltd & Another v Incorporated Owners of Million Future Industrial Centre (2003) 6 HKCFAR 446, which involved liability towards the owners as a whole, and the liability that Cheung J dealt with in Koo Sun Yiu v Victorison Delivery Ltd & Others [1996] 4 HKC 152 that was not shown to be that owed by the owners collectively, as distinct from one or more of the individual owners.”

46.  It is unimportant for our present purposes whether the facts in Koo Sun Yiu did not really show that the tortious liability was that of the owners collectively (as distinct from one or more of the individual owners).  The important point, for our present purposes, is that Woo VP clearly thought that in Koo Sun Yiu, the liability had not been shown to be so and, according to the judge, that explained why in Koo Sun Yiu, the IO could not be sued for that liability.  This also distinguished the case, according to the judge, from Jikan where the liability to account was one “towards the owners as a whole” (emphasis supplied).

47.  Thus analysed, it is plain that according to Woo VP, the IO’s exposure under section 16 is only limited to pre-incorporation liabilities of the owners collectively, as distinct from one or more of the individual owners.  What is true with the IO’s exposure to liabilities under section 16 must equally be true in relation to the IO’s assumption of right of suit under the same section.  Hang Yick is, therefore, again directly in point. 

48.  But not only that.  As Mr Edward Chan SC (Mr Andrew Mak with him) for the defendant pointed out, Woo VP drew the same distinction when he dealt with the facts in Hang Yik.  On the facts, it was not clear to the Court of Appeal whether the accumulated deficit of management expenses comprised (amongst other things) some outstanding contributions for management expenses of some of the co-owners.  Any such outstanding contributions, it should be appreciated, would not be a liability of the owners as a whole to the former manager, but would rather be personal liabilities of those owners who had defaulted in making contributions during the tenure of the former manager. This ambiguity prevented the Court of Appeal from giving summary judgment in favour of the former manager, even though the figures involved were otherwise not in serious dispute:

“42. However, the facts in the present case are not so clear as to entitle the plaintiff to summary judgment of the entirety of its claim against the defendant.

43. One of the defences raised by the defendant is that the deficit was incurred because some of the owners at the material time failed to pay the plaintiff their share of contribution.  If so, the liability to pay would be personal to those owners and not all the owners as a whole.  Although the affirmation evidence adduced by the defendant has not been specific in identifying which owners were in default, yet the defendant’s case is that the plaintiff had the duty to collect all contributions for management expenses and it is for the plaintiff to provide a full account whereby such defaulters could be ascertained.”

49.  Again, the distinction between “all/as a whole/collectively” and “some” drawn by the court could not be clearer.

50.  Needless to say, Hang Yik is binding on this court unless it is found to be “plainly wrong”.  In my respectful view, Hang Yik is plainly right. 

“Common interest”

51.  For these reasons, I am unable to accept the argument put forward by Mr Pennicott in support of the contrary construction favoured by the judge. 

52.  The essence of Mr Pennicott’s argument is that section 16 is satisfied so long as the right or liability involved is something in which the owners have a “common interest”.  By “common interest”, Mr Pennicott meant any general interest that is common to the co-owners in relation to the common parts; it is not restricted to a legal interest.  Thus, rectification of the (alleged) construction defects of the common parts is a matter of “common interest” to all the co-owners of the development, although only those who bought their units under the consent scheme contracts were made the relevant contractual promises regarding the standard of construction of the common parts. 

53.  This contention, to my mind, is an attempt to marry together section 16 and section 18(2)(g), which I will presently turn to.  It should be remembered that section 18(2)(g) relates to the IO acting, in its discretion, on behalf of the owners in respect of any matter “in which the owners have a common interest”.  I can only accept Mr Pennicott’s argument if “common interest” is limited to a common legal interest, that is, a legal right or liability common to all the co-owners, in relation to the common parts.  Insofar as counsel’s argument goes beyond that, I disagree.  For reasons given above, it is not supported by the wording of the provisions; it is not required by the purpose and context of the Ordinance; nor is it consistent with the authorities discussed.

54.  As for Mr Pennicott’s reliance on the co-owners’ contributions to the costs of the “rectification” works as giving rise to a “common interest”, as explained, because of the difference in legal position between those who purchased under the consent scheme contracts and those who purchased their units only after construction of the development had been completed, those contributions simply did not result in a “common interest” in the sense explained above.

Conclusion on section 16

55.  I therefore hold that section 16 does not apply to the present case where the rights to sue did not accrue to all the co-owners, as opposed to some only of them.

Section 18(2)(g)

56.  I move on to consider section 18(2)(g).  It should be remembered that this provision entitles the IO, in its discretion, to “act on behalf of the owners in respect of any other matter in which the owners have a common interest”.  Mr Pennicott suggested that this gave rise to what might be described as a “statutory agency” whereby the IO would be authorised to act on behalf of the owners.

57.  In Grenville House, McMullin J had this to say regarding section 18(1)(g) of the Multi-storey Buildings (Owners Incorporation) Ordinance, the predecessor of the present section 18(2)(g) (page 242):

“… Paragraph (g) is in the following terms: –

‘18(1) The corporation shall –

(g)   act on behalf of the owners in respect of any other matter in which the owners as tenants in common have a joint interest or liability.’

The emphasis I find there on the joint interest of the tenants in common, in the matter which is placed in the care of the corporation to pursue on their behalf, is to my mind some indication that the intention of the Legislature is to restrict the agency of the corporation on behalf of the owners to such matters only as show a joint interest in them all.  In this regard I believe Mr. Swaine is right to maintain that ‘joint interest’ is not there employed as a term of art importing considerations relevant to the idea of joint tenancy but is intended simply to convey the idea of a common interest the term ‘joint’ being employed perhaps to avoid what the draftsman may have felt to be an inelegant repetition of the word ‘common’.”

58.  It is plain that under the former section 18(1)(g), the subject matter in respect of which the IO may in its discretion act on behalf of the owners must be something in which the owners “as tenants in common” have a “joint interest or liability”.  The reference to “the owners as tenants in common” excludes any matters that are personal to only one or some of the co-owners.  What is required is something in which all the co-owners, as tenants in common, have a common interest or liability.  And the reference to “liability” is a clear suggestion that the “interest or liability” that the legislature has in mind is a legal one.

59.  But all this is in relation to the former section 18(1)(g).  The present section 18(2)(g) in the Ordinance does not refer to “tenants in common”.  Moreover, “joint interest or liability” has now become “common interest”.  Do these changes represent an enlargement of the scope of application of section 18(2)(g) as compared with its predecessor?

Pearl Island

60.  In my view, the answer is “no”.  In Incorporated Owners of Block F1-F7 Pearl Island Holiday Flats v Incorporated Owners of Pearl Island Garden [1997] 4 HKC 424, the Court of Appeal held that an IO could take action to enforce a right of way over a road which was not part of the common parts, because the owners had a common interest in respect of the right of way which benefited the development of the co-owners.  This case is notable for the application of section 18(2)(g) to a situation where the common parts of the building are not involved.  To this extent, section 18(2)(g), as applied by the Court of Appeal, goes beyond the scope of application of section 16, which is only concerned with the common parts.  However, for our present purposes, what is important to note is that the common interest involved in Pearl Island was in fact a right of way granted in favour of all the co-owners of the plaintiff IO. 

Mirador Mansion

61.  In the subsequent case of Incorporated Owners of Mirador Mansion v Tecowin Development Ltd [1999] 4 HKC 113, Mr Recorder Robert Tang SC (as Tang V-P then was) had to consider a user covenant in relation to the roof of a building to which the right to exclusive possession was granted to one co-owner.  After referring to Pearl Island and pointing out that it was a case which applied section 18(2)(g) to premises not forming part of the common parts, the court dealt with the scenario where the restrictive user covenant was only enforceable by some but not all of the co-owners of Mirador Mansion (pages 121E-F, 121I to 122B):

“ If the restrictive covenant is enforceable by all the owners of the Mirador Mansion, then I have no doubt about the plaintiff’s locus to sue. I think this action would fall squarely within s 18(2)(g) of BMO.

…

However, if Mr Chan is right that the restrictive covenant was only enforceable by CTT and his successors, then since at the time of the 1962 Assignment CTT no longer owned the entirety of the Mirador Mansion, then I am bound to hold that the plaintiff has no locus.  That is not because all the owners do not have a common interest over the user of the roof.  Rather, it is because the cause of action would not be vested in all the owners.  The cause of action would be vested in some of the owners (it is not known how many).  I do not believe the plaintiff can by virtue of BMO institute proceedings against the defendant.”

62.  In other words, even though all the co-owners had a common interest (used in a loose, general sense) in the enforcement of the user covenant in relation to the roof (particularly as a means of fire escape – see page 121G), yet the IO did not have the locus to sue because “the cause of action would not be vested in all the owners … [but only] in some of the owners”.  Put another way, a common interest (used in the loose, general sense employed by Mr Pennicott) is not sufficient.  It has to be a legal interest common to all the co-owners.

63.  Mr Pennicott sought to distinguish the case by saying that in that case many of the co-owners could not be located, their wishes could not be ascertained and therefore the IO could not sue on behalf of them.  That factual distinction does not detract from the legal objection to the IO’s suing on behalf of the co-owners as explained by the recorder in the passage cited above.

64.  If the case law had stopped there, this would have been quite sufficient to dispose of Mr Pennicott’s reliance on section 18(2)(g) as supplying the necessary locus to his client to sue in the present case.

Jikan

65.  But the case law did not stop at Mirador Mansion.  The Court of Final Appeal’s subsequent decision in Jikan, supra, presents an even more fundamental obstacle to the plaintiff’s claim.  In Jikan, it should be remembered, an IO sued for pre-incorporation car parking fees arising from the use of certain common parts which had been pocketed by the defendant co-owner.  At issue was whether the IO had the necessary locus to sue.  The Court of First Instance held that the IO had no locus to sue under section 16 but nonetheless decided in its favour by relying on section 18(2)(g).  The Court of Final Appeal disagreed.  It held that the IO had the necessary standing to sue under section 16.  But in relation to section 18(2)(g), Litton NPJ, with whose judgment Li CJ, Bokhary and Chan PJJ as well as Lord Millett NPJJ all agreed, had this to say:

“62. The trial judge had plainly erred in this regard. Section 18(2) deals with management matters such as the employment and remuneration of staff, the insurance of the building, acquisition of property for use in connection with the common areas, etc. It does not confer power where none existed. If a right of action against an owner, in relation to the common parts, was in law exercisable by the corporation in terms of s.16, then s.18(2)(g) empowers the corporation to engage solicitors to institute proceedings. But it begs the very question.”

66.  In other words, section 18(2)(g) does not by itself confer on the IO a right to sue.  It is not, by and of itself, a source of locus. It is unhelpful to dwell on whether what was said in Jikan about section 18(2)(g) was obiter, and therefore not binding on the lower courts.  Nor is it fruitful to even suggest (as counsel did) that what was said in the Court of Final Appeal was said in ignorance of Pearl Island and Mirador Mansion.  Equally irrelevant is any discussion, in the context of the present case, on whether the two earlier Court of Appeal cases can survive Jikan on the (narrow) basis that Litton NPJ’s views were expressed in the context of a claim for an account of car parking fees arising out of the use of the common parts, whereas the two earlier Court of Appeal cases were concerned with premises other than the common parts of the building. 

67.  In the present case, we are indeed concerned with the common parts of the development.  Even assuming (for the sake of argument only) that what was said in Jikan about section 18(2)(g) was obiter, it was nonetheless of the highest persuasive authority.  For my part, I see no reason not to follow it.

68.  As Lam JA pointed out during argument, any other construction of section 18(2)(g) would pose problems in the actual operation of the so-called statutory agency.  If the statutory agency can be invoked in a case where the cause of action or the right to enforce it does not vest in the IO (whether under section 16 or otherwise), the owners of the cause of action must have the ultimate right to decide on how the action is to be pursued.  What if some owners wish to adopt one way to proceed whilst the other owners wish to adopt another way?  What if some find a proposal for settlement attractive but some not?  What is there to prevent an owner from pulling out of the statutory agency if he holds views different from the majority?  What if one owner sells his unit without assigning the cause of action to his purchaser?  Does the statutory agency give the IO the authority to deal with the fruits of the litigation?  There are no ready answers to these questions.

Conclusion on section 18(2)(g)

69.  To conclude this part of my judgment, I hold that section 18(2)(g) does not supply the necessary locus to the plaintiff to sue for two reasons.  First, section 18(2)(g) does not confer any power to sue where none existed.  Secondly and in any event, even if section 18(2)(g) were capable of supplying such power, it does not do so in the present case because no common interest, in the sense of a legal right common to all of the co-owners, is involved.

Other grounds of appeal

70.  The plaintiff accordingly has no locus to sue in the present case.  It becomes unnecessary, therefore, to deal with the other arguments mounted by Mr Chan and I do not propose to lengthen this judgment by discussing them.  Suffice it to say, I do not accept Mr Chan’s argument on the jurisdiction of the court.  As regards Mr Chan’s argument based on pre-incorporation rights/liabilities, I reject it to the extent indicated above when I discussed pre-incorporation rights and liabilities.  As regards Mr Chan’s point that some of the breaches sued on relate not to the common parts of the development but to the individual units of the co-owners involved, I do not believe this by itself is sufficient to justify the striking out of the entire statement of claim. Taken at its highest, it would only mean that some of the allegations and claims made in the statement of claim require amendment.

Outcome

71.  For these reasons, the plaintiff’s statement of claim should be struck out for want of locus to sue.  That deals with paragraph 2 of the amended summons dated 18 February 2011 to strike out.  No order need be made in relation to paragraph 3 of the amended summons which asks for, in the alternative, the determination of preliminary issues under Order 14A.  Paragraph 4 of the summons asks that in the event of the striking out of the statement of claim or the answering of the preliminary questions in favour of the defendant, the action be dismissed.  Given the way he dealt with the striking out application and his determination of the preliminary issues, the judge naturally did not find it necessary to deal with paragraph 4.

72.  Mr Pennicott submitted towards the end of the hearing that if the court were minded to allow the appeal and strike out the statement of claim or answer the preliminary issues against him, the plaintiff should be given an opportunity to be heard as to whether the action should be struck out or whether it could be reconstituted to meet the objections of the defendant.  Mr Chan did not agree and asked for the dismissal of the action as a matter of course. 

73.  In my view, one must look at substance rather than form.  Justice and fairness require that the plaintiff be given an opportunity to be heard as to whether there are still ways to salvage the present action. This matter, though formally before the judge, was never gone into by the parties or the judge.  The court would not be doing justice to the parties in the present appeal if it were to deny the plaintiff the opportunity to be heard in relation to it.

74.  In my view, the fairest course to take is to adjourn the hearing of paragraph 4 of the amended summons to a date to be fixed.  Moreover, since the court below has never dealt with paragraph 4 substantively, it would not be right for this court to deal with it as if it were the first instance court.  The matter should be remitted to the Court of First Instance for determination. 

75.  I would therefore allow the appeal and set aside the order made by the judge; order that the statement of claim be struck out; make no order as regards paragraph 3 of the amended summons dated 18 February 2011; and adjourn the hearing of paragraph 4 of the amended summons to a date to be fixed before the Court of First Instance. 

76.  As for costs, I would make an order nisi that the costs here and below be to the defendant, to be taxed if not agreed, with a certificate for two counsel. 

Hon Lam JA:

77.  I agree.

Hon Barma J:

78.  I agree entirely with the judgment of Cheung CJHC, and have nothing to add.

Hon Cheung CJHC:

79.  Accordingly, the court makes the orders disposing of the appeal as set out in paragraphs 75 and 76 above.