MESSRS BAKER & MCKENZIE v. HENNEX INDUSTRIES LIMITED AND OTHERS

DCMP 809/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 809 OF 2014

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JUDGMENT

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The Application

1. The applicant seeks interpleader relief pursuant to Order 17 rule (1) of the Rules of the District Court.  The subject involved is the stakeholder money of $233,300, in relation to a sale and purchase of the Properties.

The Background

2. The 1^st and 2^nd claimants are vendors.  The 4^th claimant is the purchaser and the 3^rd claimant is the nominee.  The applicant is the solicitors for the 3^rd claimant. On 22 October 2010, the 1^st and 2^nd claimants and the 4^th claimants entered into a provisional sale and purchase agreement for purchase of the Properties in sum of $435,000,000 (“the PS&P Agreement”).

3. The Properties were subject to two superseding orders issued by the Buildings Authority (“the Superseding Orders”). The 1^st order and the 2^nd order concerned the units on the 1^st floor and offices on the 2^nd floor respectively.

4. It was stated the 1^st order, memorial number 0704110190315  (undated in exhibit “RL-1”)  ,

“It has been brought to my attention that the following building works have been carried out in or at the above premises: (i) Structure attached to the external wall at the front’ (ii) Metal rack attached to the external wall at the rear.

2. For the said building works, (a) the building works at item (i) and (ii) above has been carried out without having first obtained from the approval of building plans and consent for the commencement of such building works required by section 14 of the Buildings Ordnance.

3. In exercising the powers vested in me under section 24(1) of the Buildings Ordinance, I hereby order you to: - (a) demolish the said building works described under item (i) and (ii) above; and (b) to reinstate the parts of the building so affected by building works under item (i) and (ii) above in accordance with the plans approved by the Building Authority.

5. It was stated in the 2^nd order, memorial number 0704110190322 dated 16^th March 2007,

“It has been brought to my attention that the following building works have been carried out in or at the above premises: (i) Structure attached to the external wall at the front’ (ii) Air-conditioner duct and cooling tower supported frame attached to the external wall at the rear.

2. For the said building works, (a) the building works at item (i) and (ii) above has been carried out without having first obtained from the approval of building plans and consent for the commencement of such building works required by section 14 of the Buildings Ordnance.

3. In exercising the powers vested in me under section 24(1) of the Buildings Ordinance, I hereby order you to: - (a) demolish the said building works described under item (i) and (ii) above; and (b) to reinstate the parts of the building so affected by building works under item (i) and (ii) above in accordance with the plans approved by the Building Authority.”

6. In the PS&P Agreement, the 1^st and 2^nd claimants warranted to make good the Superseding Orders by carrying out necessary works, or to reimburse the 3^rd and 4^th claimants at a reasonable costs to comply with the same. It was particularly stated in Clause 1 of the Rider,

“The Vendor hereby warrants that they have completed the necessary works to comply with the Superseding Orders Memorial Nos. 07041101190315 and 07041101190322. Two respective Letters of Compliance discharging the said Orders have to be issued and duly registered in the Land Registry before completion of the sale and purchase of the Property. If the two Letters of Compliance shall not have been issued and registered in the Land Registry before the completion date, then the Vendor shall reimburse the Purchaser a reasonable cost of completing the necessary works to comply with the said two Superseding Orders and registering the two Letters of Compliance and a sum of $300,000.00 shall be deducted from the balance of the purchase price on completion and be held by the Purchaser’s Solicitors towards payment of such cost. Any excess shall be returned to the Vendor of if there is any deficiency, the Vendor shall reimburse the balance of the said sum. This clause survive completion. (emphasis added)”

7. The 1^st and 2^nd claimants did not make good the Superseding Orders at time of completion. On 26^th January 2011, a sum of $300,500 was deducted from the balance of the purchase price and was deposited with the applicant, out of which $300,000 was stakeholder money and the additional $500 was meant to settle the fees for obtaining certified copies from the Land Registry.  Parties agreed this $500 does not form part of the stakeholder money.

8. On 3^rd March 2011, prior to the commencement of such works, Mr. Lo Tsui Shan Rico of the 3^rd claimant, arranged a site inspection with Mr. Yue Kin Wing of the Buildings Department. It was the 3^rd claimant’s understanding apart from those particularly stated in the Superseding Orders, the asbestos structure and the signage attached on the external wall also formed part of the unauthorized structures, which have to be demolished.

9. The 3^rd claimant requested for a number of quotations from various building contractors: (i) 順銘建築有限公司; (ii) Kenji Engineering Co. Ltd (“Kenji”) and (iii) 展輝建築公司. The 3^rd claimant appointed Kenji because it has quoted the lowest price in its quotation dated 13 April 2011 (“the Quotation”). The costs of works were agreed at $260,000.

10. After completion of the works, the Buildings Department issued two Letters of Compliance both dated 22^nd June 2011 with Memorial Nos. 11071501290013 and 11071501290029.

The Dispute

11. The 3^rd claimant claimed $262,000 and an extra $4,089.09 as administrative costs as costs for completing the necessary works.  

12. The 1^st and 2^nd claimants disputed the sum of the works on the ground that the removal of the asbestos structure and the signage attached on the external wall did not form part of the unauthorized structures in the Superseding Orders (“the Disputed Works”).  The 1^st and 2^nd claimant refused to settle the costs of such works. To have a better understanding of the 1^st and 2^nd claimants’ stance, the particulars of the  Quotation are as follows:

(i)	Item 1 – scaffolding :	$ 35,000
(ii)	Items 2 – 4: works in compliance
	of the Superseding Orders :	$ 55,000
(iii)	Items 5 – 6: Disputed Works:	$160,000
(iv)	Item 7 – insurance:	$ 10,000
(v)	TOTAL :	$260,000
		======

13. The 1^st and 2^nd claimant submitted, as they are only liable for $55,000 (items 2 – 4 only) as opposed to the aggregate sum of $215,000 (items 2 – 6); they should bear the same proportion of the works in items 1 and 7[1]. The aggregate sum payable should be $66,700. Notwithstanding ongoing dispute, the sum of $66,700 was released to the 4^th claimant on or about 9 September 2013.

14. Negotiation between parties to dispose of the remaining stakeholder money was unfruitful.  The applicant seeks interpleader relief in an originating summons filed on 28 March 2014.

15. The originating summons was returnable on 5^th May 2014 for directions. I am given to understand the 3^rd claimant agreed to waive the administrative costs $4,089.09. Parties further agreed (i) the 1^st and 2^nd claimants agreed to pay a further sum of $40,000 to the 3^rd and 4^th claimants; and (ii) the disputed sum was only $193,800[2]. 

16. The applicant was directed to pay the agreed disputed sum into court. The applicant’s attendance was excused in further hearings.

The Issues

17. As agreed between the parties, the issues of this application are (i) whether items 1, 5, 6 and 7 of the Quotation were reasonably necessary to comply with the Superseding Orders; and (ii) whether apportionment of items 1 and 7 is justified.

The 1^st and 2^nd claimants’ submissions

18. Mr Lam, counsel for the 1^st and 2^nd claimants submitted, they are liable for costs of works referred to demolish and reinstate the parts of building so affected of (i) structure attached to the external wall at the front on the 1^st and 2^nd floor of the Properties; (ii) metal rack attached to the external wall of the rear and (iii) air-conditioner duct and cooling tower supported frame attached to the external wall at the rear part of the building in accordance with the plan attached to the Superseding Orders[3] (items 2 – 4).  The asbestos ceilings and signage facing Stewart Road and Tonnochy Road are not within the ambit of the Superseding Orders (items 5 – 6). An apportioned amount of items 1 and 7 is appropriate.

The 3^rd and 4^th claimants’ submissions

19. Mr Ko, counsel for the 3^rd and 4^th claimants submitted, there is nothing in the evidence that items 5 and 6 fall outside the ambit of the Superseding Orders. He further suggested the court shall not rely on the alleged representations of Mr Yue on 3March 2011. Mr Ko further cited authorities on interpretation on contracts[4].

Analysis

20. The true construction of the works required for compliance of the Superseding Orders rests with the works expressly defined in the Superseding Orders themselves. I agree with Mr Lam that items 2 – 4 are within the ambit of the Superseding Orders. Clear reference of the location of the area concerned has been made in the plans attached. To the contrary, the Disputed Works (items 5 and 6), structures facing Stewart Road and Tonnochy Road,  were not mentioned.

21. The arguments raised by Mr Ko are misconceived. Firstly, The New China Hong Kong Group Ltd (in liquidation) case is distinguishable, it is unnecessary for me to analyze in detail because  that case concerns interpretation of contracts between contracting parties, which is not our case here. The 1^st and 2^nd claimants are not the contracting parties of the Quotation.

22. Secondly, the conduct of the 3^rd and 4^th claimants are relevant. The 3^rd and 4^th claimants said Mr Yue Kin Wing of the Buildings Department orally represented to them that the Disputed Works were required to be demolished at time of the site inspection on 3^rd March 2011. The 1^st and 2^nd claimants were not present at time of the site inspection and the Disputed Works were unknown to them. The 1^st and 2^nd claimants then clarified with the Buildings Department of the alleged oral representation. In a letter dated 26^th September 2013 issued by the Buildings Department, it expressly stated, amongst other things,

“In this respect, please note that his department has no record showing that our staff had so informed / told Sheen [the 3^rd claimant] or their representative as alleged by Sheen [the 3^rd claimant]. Nevertheless, please note that it is the responsibility of the owners to maintain their premises in a safe and sound condition and free from UBW and it is always this department’s advice to owners to remove any UBW at their premises voluntarily. (emphasis added)”

23. This provides a clear indication that the Disputed Works are  not a prerequisite for compliance of the Superseding Orders. The Buildings Department did not specifically ask the 3^rd and 4^th claimants to carry them out. I must say, the 3^rd and 4^th claimants are out of caution to arrange a site inspection with Mr Yue, unfortunately, the oral representation has not been reduced in writing, and no consent was obtained from the 1^st and 2^nd claimant. In this regard, the 3^rd and 4^th claimants are not entitled to rely on Mr Yue’s oral representation to justify the Disputed Works form part of the necessary works in compliance of the Superseding Orders.

24. Having said that, I do not agree the 1^st and 2^nd claimants are only responsible for an apportioned amount of items 1 and 7, namely costs of scaffolding and insurance premium. I fail to see there are evidence by either party that such costs would be different had items 5 and 6 not formed part of the works. It is expected costs of erecting the scaffoldings and insurance premium have to be paid in any event, and needless to say, they are necessary.  The 1^st and 2^nd claimants should be responsible for the entire amount of items 1 and 7.

25. To conclude, the reasonable costs of completing the necessary works in discharging the Superseding Orders as follows:

(i)	Item 1, costs of erecting scaffoldings	$ 35,000
(ii)	Item 2 – 4, costs with reference to the	$ 55,000
	two Superseding Orders
(iii)	Item 7, costs of insurance premium	$ 10,000
		$100,000
		======

Costs

26. On 5 May 2014, I made an order that the applicant’s costs shall be in the cause of the interpleader proceedings and I have assessed costs of the applicant in sum of $33,884[5]. The same amount has been released to the applicant pursuant to an order of payment out on 15July 2014.

27. Costs should follow the event, the 3^rd and 4^th claimants shall pay the costs of the 1^st and 2^nd claimants.

28. Counsels for both parties agreed to assess costs of this interpleader proceedings summarily. The 1^st and 2^nd claimants submitted their statement on costs. I further heard submissions accordingly.

29. The 1^st and 2^nd claimants’ costs be allowed as per their statement on costs save and except the following:

(i)	2 hours be taxed off from Item C1;
(ii)	1 hour be taxed off from Item C3;
(iii)	1 hour be taxed off from Item D1;
(iv)	4.5 hours be taxed off from Item D2;
(v)	Item D3 be taxed off;
(vi)	1 hour be taxed off from Item D4.

30. The costs of the 1^st and 2^nd claimants be assessed at $69,670.

Orders

31. Pursuant to Clause 1 of the Rider in the PS&P Agreement,  the 1^st and 2^nd claimants are obliged to pay items 1 – 4; and 7 of the Quotation, i.e. ($35,000 + $15,000 + $35,000 + $5,000 + $10,000) $100,000.

32. Taking into account the 1^st and 2^nd claimants have already released $106,700 (ie $66,700 + $40,000) from the original stakeholder money to the 3^rd and 4^th claimant, I make the following the orders:

(i) The remaining of the disputed sum of $159,916[6] be released to the 1^st and 2^nd claimants forthwith.

(ii) The 3^rd and 4^th claimants do jointly and severally reimburse $6,700 to the 1^st and 2^nd claimants forthwith.

(iii) Costs of the interpleader proceedings be paid by 3^rd and 4^th claimants jointly and severally to the 1^st and 2^nd claimants, be summarily assessed at $69,670.

(iv) Costs of the applicant be paid by the 3^rd and 4^th claimants jointly and severally, to the 1^st and 2^nd claimants in sum of $33,884.

 

 

[1] $55,000 / $215,000 = 0.26

($35,000 + $10,000) x 0.26 = $11,700

Total sum suggested by the 1^st and 2^nd claimant: $55,000 + $17,000 = $66,700

[2] $300,500 - $66,700 - $40,000 = $193,800

[3] The structures attached to the front referred to those facing Jaffe Road; the metal rack was meant to be those facing Stewart Road.

[4] The New China Hong Kong Group Ltd (in liquidation) v. AIG Asian Infrastructure Fund  LP, CACV 24/2008, 12 Feb 2009.

[5] See written decision dated 17 June 2014.

[6] ($193,800 - $33,884)