WONG TAK KEUNG, STANLEY v. THE MANAGEMENT COMMITTEE OF THE INCORPORATED OWNERS OF GRENVILLE HOUSE

CACV 244/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 244 OF 2003

(ON APPEAL FROM LDBM NO. 76 OF 2003)

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JUDGMENT

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Hon Cheung JA:

1. I agree with the judgment of Yuen JA.

Hon Yuen JA:

2. This is the Applicant's appeal from the decision of Judge Chow (sitting as Presiding Officer of the Lands Tribunal) given on 28 July 2003 striking out his Application to the Lands Tribunal on the ground that it did not disclose a reasonable cause of action.

3. The Application and the Notice of Opposition were both filed in English. However, at the direction of the judge, the strike-out hearing was conducted in Chinese and the judge's written decision was also in Chinese. Before the hearing of this appeal, counsel for the Applicant lodged his written submissions in English whilst counsel for the Respondent lodged his written submissions in Chinese but quoting authorities in English. In view of this, with the consent of both parties, the appeal was conducted and this judgment has been written in English, even though the decision appealed from was in Chinese.

Background

4. The Applicant is the owner of an apartment in the development known as Grenville House. The Respondent is the Management Committee of the Incorporated Owners of that development.

5. The Application was concerned with the appointment by the Respondent of a firm of solicitors on retainer. According to the application, the retainer was said to be originally $11,500 a month or $138,000 p.a., which was subsequently reduced to $8,300 a month or $99,60 p.a. No tendering process had been undertaken prior to the appointment.

Section 20A Building Management Ordinance

6. The Applicant considered that the failure to conduct an invitation to tender for these services contravened s.20A(2) of the Building Management Ordinance cap. 344 ("BMO"). Section 20A provides:

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

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

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

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

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

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

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

The Application

7. It was pleaded in the Application that, despite the reduction which took the annual amount to just $400 short of the sum of $100,000 referred to in s.20A(2)(a),

"the payment for services rendered by Richards Butler on an annual basis has substantially exceeded HK$100,000 per annum in the previous year and is likely to exceed HK$100,000 per annum in 2003. The Management Committee was bound to procure such services by invitation to tender since the services provided by Richards Butler have historically been in excess of HK$100,000 per annum and the original quotation provided by Richards Butler was for HK$138,000 which should have triggered the need to comply with Section 20A of the Building Management Ordinance".

8. The Applicant (who was then acting in person) sought an order "voiding" the appointment.

Summons to strike-out

9. The Respondent sought to strike out the Application on the sole ground that it did not disclose a reasonable cause of action. As such, there was no evidence before the judge on (a) whether the retainer was on an annual or monthly basis, or (b) whether the retainer was on a lump sum, or any other, basis.

10. It is well-established that in a strike-out application, at least one made on the "no reasonable cause of action" ground, disputed facts have to be assumed in favour of the party whose pleading is the subject-matter of the application (Hong Kong Civil Procedure 2002 Vol. 1 para. 18/19/4).

11. Accordingly, it had to be assumed that the services provided by Richards Butler have been, as alleged in the Application, "historically" and for the year prior to 2003 in excess of $100,000. In view of the above, Counsel for the Respondent did not proceed with his application before us for leave to file a Respondent's Notice out of time.

Principles on strike-out applications

12. It is only in plain and obvious cases that the court will exercise its discretion to strike out an action. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed (Hong Kong Civil Procedure 2002 Vol. 1 para. 18/19/4).

13. Although there may be different judicial views as to whether difficult points of law may be decided on a strike-out application, there is no doubt that an order to strike out should not be made where the legal viability of a cause of action is "fact-sensitive" , in other words, may depend on facts which have to be decided at trial (Hong Kong Civil Procedure 2002 Vol. 1 para. 18/19/4).

Judge's decision

14. At a hearing at which the Applicant appeared without legal representation, the judge struck out the Application. In his written decision, the judge referred to his decisions (original and on review) in Pokfulam Development Company Limited v The Incorporated Owners of Scenic Villas LDBM 70/2000 ("the Scenic Villas case"), in which he held that s.20A(1) was merely directory and was not mandatory.

15. The judge held that in s.20A, subsection (1) referred to the principles to be followed in the procurement of supplies, goods and services, whilst subsection (2) indicated the circumstances in which subsection (1) applied, with the result that subsection (2) was also merely directory and not mandatory. On the basis of this construction, he held that there was no question of the appointment of the solicitors contravening s.20A(2), and he struck out the Application and awarded costs to the Respondent. The Applicant appealed.

Appeal

16. On this appeal, which was advanced by virtue of s.11(2) Lands Tribunal Ordinance cap. 17, the Applicant submitted that the judge had erred in point of law in his construction of s.20A(2). The Applicant submitted that the judge should have construed subsection (2) as a mandatory provision which imposed statutory obligations upon the Respondent, and that the Application demonstrated a prima facie reasonable cause of action.

17. In a Supplementary Notice of Appeal, the Applicant submitted that the judge had erred in law in construing subsection (1) as being for guidance only, as it was a mandatory provision. However, even if that subsection was for guidance only, the judge erred in holding that subsection (2) was also for guidance only, and was not mandatory.

18. With respect to the judge, I do not think that the Application should have been struck out when (a) it had been alleged as a fact (supported by references to previous years) that the services provided were likely to exceed $100,000 and (b) it is highly arguable that, irrespective of the proper construction of s.20A(1), s.20A(2) should be construed as a discrete or "stand-alone" provision with the force of law which required mandatory compliance.

Code of Practice

19. As the judge had held in the Scenic Villas case that s.20A(1) was merely directory because of the reference in the subsection to the Code of Practice, it may be convenient to refer to the Code of Practice at this juncture.

20. The Code of Practice has been defined in s.2 of the BMO as any Code of Practice prepared, revised or issued from time to time by the Secretary for Home Affairs ("the Authority") under s.44 of the BMO.

21. Section 44 provides:

"(1) The Authority may from time to time prepare, revise and issue Codes of Practice giving guidance and direction as to -

(a)	the procurement of supplies, good and services required by a corporation including such procurement by invitation to tender and the tender procedure in respect thereof;
(b)	the standards and practices of management and safety that are to be observed and followed by a corporation including standards and practices relating to -
	(i)	building management;
	(ii)	building safety; ... [etc]

(2) A failure on the part of any person to observe any Code of Practice issued under subsection (1) shall not of itself render that person liable to criminal proceedings of any kind but any such failure may, in any proceedings whether civil or criminal including proceedings for an offence under this Ordinance, be relied upon as tending to establish or to negative any liability which is in question in those proceedings" (emphasis added)

22. There has been published in the Gazette a Code of Practice entitled "Code of Practice on Building Management and Maintenance". Paragraph 3.7.1 provides that the procurement of all supplies, goods and services shall comply with the Code of Practice on Procurement of Supplies, Goods and Services issued by the Authority under section 44 at Appendix B.

Appendix B

23. Appendix B contains 11 paragraphs. They set out the following.

Paragraph 1		Virtually identical to s.20A(2).
Paragraphs 2 and 3		Procedures for inviting tenders.
Paragraph 4		Number of tenders to be sought.
Paragraph 5		Closing dates of tenders.
Paragraph 6		Procedures at the opening of tenders.
Paragraph 7		Tenders below the value in paragraph 8 shall be submitted to the management committee for acceptance or rejection.
Paragraph 8		Tenders of a value exceeding $200,000 or 45% of the corporation's annual budget (whichever is lesser) shall be submitted to the owners corporation for acceptance or rejection in general meeting.
Paragraph 9	-	Period during which the tender documents, contracts, accounts and invoices are to be kept by the management committee. This is virtually identical to s.20A(4).
	-	Owners and other interested parties have a right to inspect the documents kept.
Paragraph 10		Contents of the documents referred to in paragraph 9.
Paragraph 11		Disclosure of interests.

24. As noted above, of the 11 paragraphs in Appendix B of the Code of Practice, two have been incorporated into s.20A :

- paragraph 1: as s.20A(2), and

- part of paragraph 9: as s.20A(4).

Scenic Villas

25. In the Scenic Villas case, the issue was whether paragraph 8 of the Code of Practice imposed a statutory limit on the Management Committee's power to commit the owners to contracts valued at more than $200,000. The applicants (some of the owners of Scenic Villas) submitted, relying on paragraph 8 of the Code of Practice, that the Management Committee had no such power.

26. The judge held (and affirmed on review) that the Code of Practice had no legislative force because the definition of "subsidiary legislation" in s.3 of the Interpretation and General Clauses Ordinance cap. 1 did not include a code of practice. Further, there was no provision in the BMO that required the Code of Practice to be published in the Gazette, whereas s.28(2) of the IGCO provided that publication in the Gazette was a requirement for subsidiary legislation. (The Code was in fact published in the Gazette).

27. It was also part of the judge's rationale that paragraph 1 of the Code was identical to s.20A(2). He considered it inexplicable that that should be the case if the Code was already subsidiary legislation.

28. Apparently the judge was not addressed by counsel on this point and there was no elaboration. However, I would think it highly arguable that the logical conclusion from this is that those parts of the Code of Practice that were incorporated specifically into s.20A - i.e. as s.20A(2) and s.20A(4)- were intended by the legislature to have the force of law.

Million Fortune Industrial Centre

29. In Jikan Development Ltd v The Incorporated Owners of Million Fortune Industrial Centre LDBM 244/2000, the applicant's complaint included breach of s.20A(2) as well as s.20A(1) and the Code of Practice.

30. In paragraph 11.2 of his written decision, the judge referred to his decision in the Scenic Villas case and considered that the analysis he had undertaken (in deciding that s.20A(1) was only directory) also applied to s.20A(2) and s.20A(3). He held that as the Code of Practice was not law, there was no contravention of the statute if the provisions of the Code of Practice were not complied with.

31. With respect to the judge, it is in my view highly arguable that this reasoning appears to be syllogistic. Although the Code of Practice may be merely directory, it does not follow that certain specific paragraphs - extracted from the Code and made into specific primary legislation - were also directory. It is at least arguable that when paragraph 1 of the Code of Practice (and not say, paragraphs 2 - 6) was incorporated as s.20A(2), the effect of that incorporation was that that particular paragraph acquired the force of law as primary legislation. The same goes for that part of paragraph 9 of the Code of Practice which was incorporated as s.20A(4). It is at least arguable that otherwise s.20A(2) and s.20A(4) would be superfluous.

32. In another action involving Million Fortune Industrial Centre, The Incorporated Owners of Million Fortune Industrial Centre v Jikan Development Ltd and Another [2001] 3 HKLRD 588, Deputy Judge To endorsed Judge Chow's view in Scenic Villas and apparently there was no argument by counsel on the point. The judge considered only "the status of the Code", without distinguishing those paragraphs of the Code that were incorporated into primary legislation from the other paragraphs that were not. In any event, the judge held that even if "the Code" were mandatory, it did not affect the issue before him, which was the costs of litigation between parties in an action.

33. Accordingly, I take the view that the Application should not have been struck out on the grounds set out in the judge's written decision.

34. I turn to the other submissions which were made on appeal before us.

Natural and proper meaning of "shall"

35. Section s.20A(2) (which has been set out in paragraph 6 above) provides that services which are likely to exceed $100,000 "shall be procured by invitation to tender".

36. When a statute declares that a thing "shall" be done, the natural and proper meaning is that a peremptory mandate is enjoined. Exceptions to the natural and proper meaning are where the thing to be done refers to (a) the time or formality of completing any public act, not being a step in a litigation, or accusation; or (b) the time or formality of creating an executed contract whereof the benefit has been, or but for their own act might be, received by individuals or private companies or corporations, in which case the enactment will generally be regarded as merely directory (Stroud's Judicial Dictionary of Words and Phrases 5th ed. Vol. 5 p.2404).

37. Counsel for the Respondent sought to argue that the second exception applied in the present case. With respect, I find that argument difficult to understand. On the face of it, that exception deals with only the time or formality of executing a contract in situations where the other party has already performed the contract, or where one party would have received the benefit of contractual performance by the other party but for its own acts.

38. The thing to be done under s.20A(2) is the issue of an invitation to tender, where the identity of the other contracting party has not even been considered. At that stage, no contract would have come into existence yet, so there could not have been any performance or attempted performance of contractual acts.

39. Mr Chun's submission based on the decision of the Court of Appeal in yet another Million Fortune case, The Incorporated Owners of Million Fortune Industrial Centre v Jikan Development Ltd and Plotio Property and Management Ltd CACV 122/2000 did not assist his case. The Court of Appeal held that the requirements under the BMO that minutes should be signed by the chairman and displayed were indeed mandatory, but held that other evidence to prove the resolutions made at the meeting was admissible.

Effect of contravention

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

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

42. It was also submitted for the Respondent that the remedy for contravention of s.20A(2) lay in s.40B. Section 40B provides:

"(1) Where it appears to the Authority in the case of any building having a management committee that -

(a)	no person is, for the time being, managing that building;
(b)	the management committee has, in any material particular, failed substantially to perform the duties of a corporation under section 18 including, without limitation, the duty of a corporation under subsection (2A) of that section to have regard to and be guided by the Codes of Practice and
(c)	by reason of the circumstances mentioned in paragraphs (a) and (b), there is a danger or risk of danger to the occupiers or owners of the building,

the Authority may order that, within such reasonable period as shall be specified in the order, the management committee must appoint a building management agent for the purposes of managing that building".

43. In my view, the remedy available to the Authority under s.40B applies only in the situation where the facts set out in paragraphs (a), (b) and (c) have occurred. This is a specific, additional power given to the Authority in the rare situation of a risk of danger to occupiers being posed by lack of management. I do not read it as excluding all other remedies.

Order

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

45. In the circumstances, by reason of the matters set out above, I would allow the appeal, set aside the judge's order, dismiss the summons to strike out, and order that the costs of the summons and of the appeal be to the Applicant in any event.